# METLIFE INC (MET) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from METLIFE INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1099219/000109921922000014/met-20211231.htm
Accession: 0001099219-22-000014
Filing date: 2022-02-18
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MET/
All MD&A years: /company/MET/mda/
Next year: /company/MET/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

[[GREPCENT_TABLE]]
[["","Page"],["Forward-Looking Statements and Other Financial Information","52"],["Executive Summary","52"],["Industry Trends","55"],["Summary of Critical Accounting Estimates","62"],["Acquisitions and Dispositions","70"],["Results of Operations","72"],["Investments","91"],["Derivatives","108"],["Policyholder Liabilities","110"],["Liquidity and Capital Resources","118"],["Adopted Accounting Pronouncements","134"],["Future Adoption of Accounting Pronouncements","134"],["Non-GAAP and Other Financial Disclosures","135"],["Risk Management","138"],["Subsequent Events","140"]]
[[/GREPCENT_TABLE]]

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Forward-Looking Statements and Other Financial Information

For purposes of this discussion, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. This discussion should be read in conjunction with “Note Regarding Forward-Looking Statements,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk” and the Company’s consolidated financial statements included elsewhere herein.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Note Regarding Forward-Looking Statements” for cautionary language regarding forward-looking statements.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes references to our performance measures, adjusted earnings and adjusted earnings available to common shareholders, that are not based on GAAP. See “— Non-GAAP and Other Financial Disclosures” for definitions and a discussion of these and other financial measures, and “— Results of Operations” and “— Investments” for reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures.

For information relating to the Company’s financial condition and results of operations as of and for the year ended December 31, 2019, as well as for the year ended December 31, 2020 compared with the year ended December 31, 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in MetLife, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.

Executive Summary

Overview

MetLife is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management. MetLife is organized into five segments: U.S.; Asia; Latin America; EMEA; and MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other. See “Business — Segments and Corporate & Other” and Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other.

COVID-19 Pandemic

We continue to closely monitor developments relating to the COVID-19 pandemic and assess its impact on our business. The COVID-19 pandemic continues to impact the global economy and financial markets and has caused volatility in the global equity, credit and real estate markets. See “— Industry Trends — Financial and Economic Environment.” We have implemented risk management and business continuity plans and taken preventive measures and other precautions, such as employee business travel restrictions and remote work arrangements which, to date, have enabled us to maintain our critical business processes, customer service levels, relationships with key vendors, financial reporting systems, internal controls over financial reporting and disclosure controls and procedures.

In 2021 and 2020, we granted certain accommodations to our customers, borrowers and lessees, including (i) waiving exclusions, such as deferred rate increases, extending premium grace periods, waiving late payment fees, and relaxing claim documentation requirements, (ii) credits on insured dental premiums, (iii) payment deferrals and other loan modifications on certain commercial, agricultural and residential mortgage loans, and (iv) certain operating and direct financing lease concessions. See “— Results of Operations — Segment Results and Corporate & Other” for further information regarding the effect of the COVID-19 pandemic on our businesses. See also Note 8 of the Notes to the Consolidated Financial Statements for further information regarding COVID-19 pandemic-related mortgage loan concessions.

Current Year Highlights

During 2021, adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased compared to 2020 driven by the disposition of MetLife P&C. Growth in our Group Benefits business in our U.S. segment and the acquisition of Versant Health, Inc. (“Versant Health”) resulted in higher adjusted premiums, fees and other revenues. Strong returns in our private equity and real estate portfolios resulted in improved investment yields. Results for 2021 also included the gain on the sale of MetLife P&C, favorable tax adjustments and the release of a legal reserve. Changes in long-term interest rates drove an unfavorable change in net derivative gains (losses). In addition, results in both years included a charge due to the impact of our annual actuarial assumption review. Underwriting experience was unfavorable and reflected impacts from the COVID-19 pandemic.

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The following represents segment level results and percentage contributions to total segment level adjusted earnings available to common shareholders for the year ended December 31, 2021:

_______________

(1) Excludes Corporate & Other adjusted loss available to common shareholders of $399 million.

(2) Consistent with GAAP guidance for segment reporting, adjusted earnings is our GAAP measure of segment performance. For additional information, see Note 2 of the Notes to the Consolidated Financial Statements.

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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

[[GREPCENT_TABLE]]
[["","Consolidated Results - Highlights"],["Net income (loss) available to MetLife, Inc.\u2019s common shareholders up $1.2 billion:"],["\u2022","Favorable change in net investment gains (losses) of $1.6 billion ($1.3 billion, net of income tax)"],["\u2022","Favorable change from annual actuarial assumption reviews of $97 million ($85 million, net of income tax)(2)"],["\u2022","Unfavorable change in net derivative gains (losses) of $3.6 billion ($2.8 billion, net of income tax)(3)"],["\u2022","Adjusted earnings available to common shareholders up $2.3 billion"],["(1) See \u201c\u2014 Results of Operations \u2014 Consolidated Results\u201d and \u201c\u2014 Non-GAAP and Other Financial Disclosures\u201d for reconciliations and definitions of non-GAAP financial measures."],["(2) Includes amounts recognized in net derivative gains (losses) and adjusted earnings available to common shareholders. See \u201c\u2014 Results of Operations \u2014 Consolidated Results \u2014 Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020 \u2014 Actuarial Assumption Review\u201d for additional information."],["(3) Includes amounts relating to investment hedge adjustments, which are also included in adjusted earnings available to common shareholders. See \u201c\u2014 Investments\u2014 Current Environment\u2014 Investment Portfolio Results\u201d for additional information."],["Consolidated Results - Adjusted Earnings Highlights"],["Adjusted earnings available to common shareholders up $2.3 billion primarily due to (i) higher investment yields due to strong returns in our private equity and real estate portfolios, (ii) an increase in net investment income due to a larger average invested asset base, and (iii) lower interest credited expenses, partially offset by (i) unfavorable underwriting, which reflected impacts from the COVID-19 pandemic, and (ii) the disposition of MetLife P&C, which decreased adjusted earnings by $322 million."],["\u2022","Our results for 2021 also included the following:"],["","\u2022","the favorable impact of tax adjustments totaling $140 million related to an IRS audit settlement and the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent"],["","\u2022","the unfavorable impact from our annual actuarial assumption review of $140 million, net of income tax."],["","\u2022","the favorable impact of a legal reserve release of $66 million"],["\u2022","Our results for 2020 included the unfavorable impact from our annual actuarial assumption review of $203 million, net of income tax."]]
[[/GREPCENT_TABLE]]

For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results,” “— Results of Operations — Consolidated Results — Adjusted Earnings” and “— Results of Operations — Segment Results and Corporate & Other.”

Consolidated Company Outlook

We continue to closely monitor developments relating to the COVID-19 pandemic and assess its impact on our business operations, investment portfolio and derivatives. See “— COVID-19 Pandemic.” Due to the continued uncertainty around the COVID-19 pandemic in 2022, we have excluded assumptions related to COVID-19 from our near-term targets.

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While the economic projections of the Federal Reserve Board suggest that the interest rates will increase in 2022, a prolonged low interest rate environment still remains possible. We believe that our investment portfolio is highly diversified and positioned to perform well in a variety of economic scenarios, including disruptions caused by the COVID-19 pandemic. See “— Industry Trends — Impact of Market Interest Rates” for discussion of the mitigating actions the Company has taken to reduce interest rate sensitivity, as market interest rates are a key driver of our results.

As of December 31, 2021, we had $5.4 billion of cash and liquid assets at the holding companies which is above the high end of our $3.0 billion to $4.0 billion holding company cash target. In 2022, we expect to maintain this holding company cash target and expect to be at or above the high end of this range.

Our capital stress testing and longstanding commitment to liquidity position us to withstand a variety of economic conditions. We do not expect any material liquidity deficiencies, and we expect to remain able to comply with the financial covenants of our credit agreements. See “— Liquidity and Capital Resources.” We will continue reviewing accounting estimates, asset valuations and various financial scenarios for capital and liquidity implications. See “— Investments — Current Environment” and “Risk Factors” for additional information.

Assuming (i) interest rates following the observable forward yield curves as of December 31, 2021, including a 10-year U.S. Treasury rate of 1.51% at December 31, 2021, and 1.73% at December 31, 2022, (ii) a mid-single digit S&P 500 equity index annual return over the near-term, and (iii) positive low double digit private equity annual returns over the near-term consistent with historical long-term averages; we expect to maintain the two-year average annual ratio of free cash flow to adjusted earnings, excluding total notable items, at 65% to 75%. Due to higher 2021 adjusted earnings, we expect the 2021-2022 ratio to be at the lower end of the range before moving higher in 2022-2024. Based on the aforementioned assumptions, we continue to target an adjusted return on equity, excluding accumulated other comprehensive income (“AOCI”) other than foreign currency translation adjustments (“FCTA”), of 12% to 14% over the near-term. Lastly, we remain on track to generate approximately $20.0 billion of free cash flow over the time period of 2020 through 2024.

We are fully committed to achieving a full year direct expense ratio, excluding total notable items related to direct expenses and pension risk transfers, of less than 12.3% over the near-term.

Furthermore, we continue to execute on our Next Horizon Strategy, which was introduced at our December 2019 Investor Day.

Our outlook relies on the accuracy of our assumptions about future economic and business conditions, which can be affected by known and unknown risks and other uncertainties, such as those posed by the COVID-19 pandemic. Due to the evolving and highly uncertain nature of the COVID-19 pandemic and other factors, we will continually review our assumptions, implement mitigation plans, and take precautions. We may revise our outlook as we obtain more information regarding the effects of the COVID-19 pandemic, the effect and efficacy of efforts taken to respond to it, economic conditions, regulatory changes, and other events, and the impact of these events on our business operations, investment portfolio, derivatives, financial results and financial condition.

Industry Trends

We continue to be impacted by the changing global financial and economic environment that has been affecting the industry.

Financial and Economic Environment

Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally due to our market presence in numerous countries, large investment portfolio and the sensitivity of our insurance liabilities and derivatives to changing market factors.

We are closely monitoring political and economic conditions that might contribute to global market volatility and impact our business operations, investment portfolio and derivatives, such as the COVID-19 pandemic and global inflation. See “— Investments — Current Environment.” We are also monitoring the imposition of tariffs or other barriers to international trade, changes to international trade agreements, and their potential impacts on our business, results of operations and financial condition.

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Governments and central banks around the world responded to the COVID-19 pandemic with unprecedented fiscal and monetary policies, but many of these stimulus programs are now winding down due to global economic recovery and rising inflation. In the United States, the Federal Reserve Board has begun to reduce its asset purchases and will end all such purchases by March 2022. Additionally, the board members’ forecasts suggest the policy rate is likely to increase in 2022. The European Central Bank (“ECB”) also announced that it will end its pandemic asset purchase program by March 31, 2022; however, it plans to continue its net asset purchases at a slower pace through 2022 in order to ease the transition. The ECB has stated its willingness to maintain its policies despite inflation being currently above target levels, as economic activity and price levels continue to rebound from COVID-19 pandemic-depressed levels. The Bank of England raised interest rates in December 2021 to combat rising inflation and, as planned, ended its quantitative easing program in 2021. The Bank of England is expected to further raise policy interest rates in 2022. The EU also approved a regional stimulus package comprised of grants and low interest financing to member states, which became operational in mid-2021.

In Japan, the Bank of Japan has begun to taper its monetary easing program but does not plan to adjust interest rates despite the uncertainty regarding global inflation. In order to further enhance its effectiveness and sustainability, the Bank of Japan (i) introduced a program to promote lending which will enable the Bank of Japan to mitigate potential negative side effects of further reductions in short and long-term interest rates; (ii) has clarified the target range of yield curve fluctuations for the 10-year Japanese government bond, including an upper limit when necessary, and (iii) announced greater purchasing flexibility for exchange-traded funds and Japan real estate investment trusts.

Impact of Market Interest Rates

Market interest rates are a key driver of our results. Increases and decreases in such rates, as well as extended periods of stagnation, may impact our business and investments in various ways.

Effects of Inflation

Management believes that while inflation has not had a material effect on the Company’s consolidated results of operations, except insofar as inflation may affect interest rates, both rising interest rates and inflation will have a neutral to modest impact on our business. See “— Impact of a Rising Interest Rate Environment” and “— Interest Rate Scenarios.”

An increase in inflation could affect our business in several ways. In our group life and disability businesses, premiums increase as compensation levels of our customers’ employees increase. However, during inflationary periods, the value of fixed income investments falls which could increase realized and unrealized losses. Inflation also increases expenses for labor and other costs, potentially putting pressure on profitability if such costs cannot be passed through in our product prices. Prolonged and elevated inflation could adversely affect the financial markets and the economy generally, and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic activity, inhibit revenue growth and reduce the number of attractive investment opportunities.

Impact of a Sustained Low Interest Rate Environment

Sustained periods of low U.S. interest rates may cause us to:

•Reduce the difference between interest credited to policyholders and interest earned on supporting assets (“gross margin”);

•Reinvest investment proceeds in lower yielding assets and experience higher frequency prepayment or redemption of assets in our portfolio;

•Increase our reserves related to policy liabilities, accelerate amortization of DAC and VOBA, and potentially impair intangible assets;

•Reduce interest expense, change pension and other post-retirement benefit calculations, and change derivative cash flows and market values;

•Change our product offerings, design features, crediting rates and sales mix; and

•Experience changing policyholder behavior, including surrender or withdrawal activity.

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For additional discussion on gross margin and interest rate assumptions, as well as the potential impact of low interest rates, see “— Results of Operations — Consolidated Results — Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020 — Actuarial Assumption Review;” “Risk Factors — Economic Environment and Capital Markets Risks — We May Face Difficult Economic Conditions — Interest Rate Risks;” “Risk Factors — Business Risks — We May Be Required to Accelerate the Amortization of or Impair DAC, DSI, VOBA, VODA or VOCRA;” “Risk Factors — Business Risks — We May Be Required to Recognize an Impairment of Our Goodwill or Other Long-Lived Assets or to Establish a Valuation Allowance Against Our Deferred Income Tax Assets;” and “Risk Factors — Business Risks — We May Face Volatility, Higher Risk Management Costs, and Increased Counterparty Risk Due to Guarantees Within Certain of Our Products.”

Impact of a Rising Interest Rate Environment

Periods of rising U.S. interest rates may cause us to:

•Reinvest investment proceeds in higher yielding assets and experience lower frequency prepayment or redemption of assets in our portfolio;

•Decrease our reserves related to policy liabilities;

•Increase interest expense, change pension and other post-retirement benefit calculations, and change derivative cash flows and market values; and

•Change our product offerings, design features, crediting rates and sales mix.

For additional discussion on the potential impact of rising interest rates, see “Risk Factors — Investment Risks — We May Change Our Securities and Investments Valuation, or Take Allowances and Impairments on Our Investments, or Change Our Methodologies, Estimations, and Assumptions.”

Management Actions

To manage the impact of a changing U.S. interest rate environment, we maintain diversification across products, distribution channels, and geographies while proactively evaluating interest rate and product strategies. In addition, we apply disciplined asset/liability management (“ALM”) strategies, including the use of derivatives. Our ability to take such actions may be limited by competition, regulatory approval requirements, or minimum crediting rate guarantees and may not match the timing or magnitude of interest rate changes.

In addition to proactive management strategies, businesses within our Latin America, EMEA, and Asia (exclusive of our Japan business) segments help manage impacts to our consolidated results given their limited U.S. interest rate sensitivity.

For additional discussion on interest rate risk management and our ability to change interest crediting rates or dividend scales, see “Risk Factors — Economic Environment and Capital Markets Risks — We May Face Difficult Economic Conditions — Interest Rate Risks;” “— Policyholder Liabilities;” “— Risk Management;” and “Quantitative and Qualitative Disclosures About Market Risk — Management of Market Risk Exposures.”

Interest Rate Scenarios

To illustrate our sensitivity to U.S. interest rates, we compared the outcome of two hypothetical interest rate environments (the “Declining Interest Rate Scenario” and “Rising Interest Rate Scenario”) relative to our baseline economic assumptions (the “Base Scenario”) through 2024.

The Declining Interest Rate Scenario assumes U.S. interest rates for all maturities decline immediately on January 1, 2022 by 50 basis points compared to the Base Scenario through 2024. The Rising Interest Rate Scenario assumes U.S. interest rates rise immediately on January 1, 2022 by 50 basis points through 2024. Other than changing U.S. interest rates through 2024, all other economic assumptions are equivalent in the Base Scenario, Declining Interest Rate Scenario and Rising Interest Rate Scenario.

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The following table compares the most relevant interest rate assumptions for the dates indicated:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2022","","2023","","2024"],["","Base Scenario","Declining Interest Rate Scenario","Rising Interest Rate Scenario","","Base Scenario","Declining Interest Rate Scenario","Rising Interest Rate Scenario","","Base Scenario","Declining Interest Rate Scenario","Rising Interest Rate Scenario"],["Three-month LIBOR","1.07%","0.57%","1.57%","","1.60%","1.10%","2.10%","","1.66%","1.16%","2.16%"],["10-year U.S. Treasury","1.73%","1.23%","2.23%","","1.86%","1.36%","2.36%","","1.96%","1.46%","2.46%"],["30-year U.S. Treasury","1.97%","1.47%","2.47%","","2.00%","1.50%","2.50%","","2.02%","1.52%","2.52%"]]
[[/GREPCENT_TABLE]]

Hypothetical Impact to Net Derivative Gains (Losses) and Adjusted Earnings

We estimate a net favorable impact to net derivative gains (losses) from non-VA program derivatives through 2024 for the hypothetical Declining Interest Rate Scenario. We hold significant positions in long-duration receive-fixed U.S. interest rate swaps, which are most sensitive to the 10-year and 30-year swap rates, to hedge reinvestment risk. We estimate a net unfavorable impact to net derivative gains (losses) from the non-VA program derivatives through 2024 for the hypothetical Rising Interest Rate Scenario. For purposes of the two hypothetical interest rate scenarios, we have excluded all VA program derivatives. For information regarding our VA and non-VA program derivatives, see “— Results of Operations — Consolidated Results.”

We estimate a net unfavorable impact to consolidated adjusted earnings through 2024 for the hypothetical Declining Interest Rate Scenario. The negative impact of reinvesting cash flows in lower yielding assets is partially offset by lowering interest crediting rates and dividend scales on products, and additional derivative income. We estimate a net favorable impact to consolidated adjusted earnings through 2024 for the hypothetical Rising Interest Rate Scenario. The positive impact of reinvesting cash flows in higher yielding assets is partially offset by increased interest crediting rates and dividend scales on products and lower derivative income.

The following table summarizes the hypothetical impact on net derivative gains (losses) and adjusted earnings for certain of our segments, as well as Corporate & Other, for the Declining Interest Rate Scenario:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2022","2023","2024"],["","(In millions - post-tax)"],["Net Derivative Gains (Losses):"],["Non-VA Program Derivatives","$","555","","","$","(55)","","","$","(25)"],["Adjusted Earnings:"],["U.S.","$","10","","","$","(15)","","","$","(25)"],["Group Benefits","(5)","","","(15)","","","(20)"],["RIS","15","","","\u2014","","","(5)"],["Asia (Japan only)","\u2014","","","(15)","","","(35)"],["MetLife Holdings","5","","","(10)","","","(30)"],["Corporate & Other","5","","","(5)","","","(15)"],["Total Adjusted Earnings Impact","$","20","","","$","(45)","","","$","(105)"]]
[[/GREPCENT_TABLE]]

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The following table summarizes the hypothetical impact on net derivative gains (losses) and adjusted earnings for certain of our segments, as well as Corporate & Other, for the Rising Interest Rate Scenario:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2022","2023","2024"],["","(In millions - post-tax)"],["Net Derivative Gains (Losses):"],["Non-VA Program Derivatives","$","(445)","","","$","20","","","$","15"],["Adjusted Earnings:"],["U.S.","$","(5)","","","$","20","","","$","20"],["Group Benefits","5","","","5","","","10"],["RIS","(10)","","","15","","","10"],["Asia (Japan only)","\u2014","","","10","","","30"],["MetLife Holdings","(5)","","","15","","","30"],["Corporate & Other","(5)","","","5","","","15"],["Total Adjusted Earnings Impact","$","(15)","","","$","50","","","$","95"]]
[[/GREPCENT_TABLE]]

Segments and Corporate & Other

The primary drivers impacting certain of our segments, as well as Corporate & Other, in the hypothetical interest rate scenarios are summarized below. Our Latin America, EMEA, and Asia (exclusive of our Japan business) segments are excluded given their limited U.S. interest rate sensitivity. For additional information regarding account values subject to minimum crediting rate guarantees, the maturity profile of fixed maturity securities available-for-sale (“AFS”), and the yield on invested assets, see “— Investments;” “— Policyholder Liabilities — Policyholder Account Balances;” and Note 8 of the Notes to the Consolidated Financial Statements.

U.S.

Group Benefits

Declining Interest Rate Scenario. Our group life insurance products are primarily renewable term policies. This provides repricing flexibility to mitigate the negative impact of reinvesting in lower yielding assets.

Our retained asset accounts experience gross margin compression due to minimum crediting rate guarantees. All of these accounts are at their minimum crediting rates. Additionally, we experience gross margin compression from our disability policy claim reserves for which crediting rates cannot be reduced. We use interest rate derivatives to mitigate gross margin compression for both products.

Gross margin compression is limited for our group disability products, which are generally renewable term policies allowing for crediting rate adjustments at renewal based on the retrospective experience rating and the prevailing interest rate assumptions.

Rising Interest Rate Scenario. We reinvest our cash flows from our group insurance products in higher yielding assets, mitigating the impact of (i) higher interest crediting rates on, primarily, our retained asset accounts, and (ii) lower income from our derivative positions used to mitigate low interest rate margin compression.

Retirement and Income Solutions

This business contains both short- and long-duration products consisting of capital market products, pension risk transfers, structured settlements, and other benefit funding products.

The two hypothetical interest rate scenarios do not assume any additional ALM actions we may take to preserve margins.

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Declining Interest Rate Scenario. A significant portion of short-duration products are managed on a floating rate basis, which mitigates gross margin compression. Our long-duration products have very predictable cash flows and we use both interest rate derivatives and asset/liability duration matching to mitigate gross margin compression. These mitigating strategies partially offset the negative impact of reinvesting in lower yielding assets. Based on our investment portfolios and expected cash flows, only a small portion of invested assets are subject to reinvestment risk through 2024.

Rising Interest Rate Scenario. Our long-duration products which have very predictable cash flows benefit from reinvesting in higher yielding assets, which is partially offset by the negative impact of lower income from derivative positions designed to protect against a low interest rate environment. A significant portion of our short-duration products are managed on a floating rate basis. The negative impact of higher crediting rates on these short-duration products is partially offset by higher income from derivative positions designed to protect against a rising interest rate environment.

Asia

Declining Interest Rate Scenario. Our Japan business offers traditional life insurance and accident & health products, many of which are U.S. dollar denominated. We experience gross margin compression to the extent our investment portfolios are U.S. interest rate sensitive and we are unable to offset the impact by lowering interest crediting rates. Additionally, we manage interest rate risk on our life products through a combination of product design features and ALM strategies.

Our Japan business also offers U.S. dollar denominated annuities which are predominantly single premium products with crediting rates set upon issuance. This allows for tightly managing product ALM, cash flows and net spreads, which mitigates interest rate risk.

Rising Interest Rate Scenario. For U.S. dollar denominated products, higher reinvestment rates on cash flows from these products more than offset the negative impacts of (i) higher interest crediting rates on such products, and (ii) lower income from derivative positions designed to protect against a low interest rate environment.

MetLife Holdings

Declining Interest Rate Scenario. Our interest rate sensitive life products include traditional and universal life products. Since most of our traditional life insurance is participating, we can mitigate gross margin compression by adjusting the applicable dividend scale. For our universal life products, we manage interest rate risk through a combination of product design features and ALM strategies, including the use of interest rate derivatives. Although we are able to mitigate gross margin compression by lowering interest crediting rates on certain in-force universal life policies, these actions may be partially offset by increased liabilities for policies with secondary guarantees.

Our annuity products experience gross margin compression primarily from deferred annuities with minimum crediting rate guarantees. Most of these contracts are at their minimum crediting rate, and therefore we use interest rate derivatives to partially mitigate gross margin compression.

Our long-term care business experiences gross margin compression as we cannot reduce interest crediting rates for established claim reserves. Long-term care policies are guaranteed renewable, and rates may be adjusted on a class basis with regulatory approval to reflect emerging experience. We review the discount rate assumptions and other assumptions associated with our long-term care claim reserves no less frequently than annually and, with respect to interest rates, set the discount rate based on the prevailing interest rate environment.

Our retained asset accounts experience gross margin compression due to minimum crediting rate guarantees. Most of these accounts are at their minimum crediting rates and therefore we use interest rate derivatives to mitigate gross margin compression.

Based on our investment portfolios and cash flow estimates, approximately 5% of our invested assets each year are subject to reinvestment risk through 2024.

Rising Interest Rate Scenario. Higher reinvestment rates on cash flows, over time, more than offset the negative impacts of (i) higher interest crediting rates, and (ii) lower income from derivative positions designed to protect against a low interest rate environment.

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Corporate & Other

Corporate & Other contains the surplus investment portfolios used to fund capital and liquidity needs, certain reinsurance agreements, collateral financing arrangements, and our outstanding debt and preferred securities. For purposes of the two hypothetical interest rate scenarios, the preferred stock dividend impact is excluded and the impact on pension and postretirement plan expenses is included within Corporate & Other and not allocated across segments.

Declining Interest Rate Scenario. The negative impact of reinvesting in lower yielding assets, over time, more than offset the positive impact of lower interest expense on debt and lower pension expense. Although low interest rates result in pension and other postretirement benefit liabilities increasing, the impact is more than offset by the corresponding returns on fixed income investments and results in lower expenses.

Rising Interest Rate Scenario. The positive impact of reinvesting in higher yielding assets, over time, more than offsets the negative impact of higher interest expense on debt and higher pension expense. Although higher interest rates result in pension and other postretirement benefit liabilities decreasing, the impact is, over time, more than offset by the corresponding returns on fixed income investments and results in higher expenses.

Competitive Pressures

The life insurance industry remains highly competitive. See “Business — Competition.” Product development is focused on differentiation leading to more intense competition with respect to product features and services. Certain of the industry’s products can be quite homogeneous and subject to intense price competition. Cost reduction efforts are a priority for industry players, with benefits resulting in price adjustments to favor customers and reinvestment capacity. Larger companies have the ability to invest in brand equity, product development, technology optimization, risk management, and innovation, which are among the fundamentals for sustained profitable growth in the life insurance industry. Insurers are focused on their core businesses, specifically in markets where they can achieve scale. Insurers are increasingly seeking alternative sources of revenue; there is a focus on monetization of assets, fee-based services, and opportunities to offer comprehensive solutions, which include providing value-added services along with traditional products. Financial strength and flexibility and technology modernization are prerequisites for sustainable growth in the life insurance industry. Larger market participants tend to have the capacity to invest in analytics, distribution, and information technology and have the ability to leverage the capabilities of new digital entrants. There is a shift in distribution from proprietary to third party models in mature markets, due to the lower cost structure. Evolving customer expectations are having a significant impact on the competitive environment as insurers strive to offer the superior customer service demanded by an increasingly sophisticated industry client base. Rising demands from stakeholders to address ESG issues have resulted in insurers expanding their sustainability efforts. Legislative and other changes affecting the regulatory environment can also affect the competitive environment within the life insurance industry and within the broader financial services industry. See “Business — Regulation.” We believe that the current low interest rate environment and increased volatility of the financial markets, as a result of the COVID-19 pandemic, will continue to strain the life insurance industry, as well as the broader financial services industry. In addition to financial strength, technological efficiency and organizational agility, we believe that the ability to adapt to changes in the competitive environment as a result of the COVID-19 pandemic is a significant differentiator to success in the life insurance industry and the broader financial services industry, and we are well positioned to compete in this environment.

Regulatory Developments

In the United States, our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal regulation. As life insurers introduce new and often more complex products, regulators refine capital requirements and introduce new reserving standards for the life insurance industry. Laws and regulations recently adopted or currently under review can potentially impact the statutory reserve and capital requirements of the industry. See “Risk Factors — Regulatory and Legal Risks — Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.” Regulators have also undertaken market and sales practices reviews of several markets or products, including equity-indexed annuities, variable annuities and group products and, in some states, instituted a moratorium on new reserve financing transactions. See “Business — Regulation,” “Risk Factors — Economic Environment and Capital Markets Risks — Our Statutory Life Insurance Reserve Financings Costs May Increase, and We May Find Limited Market Capacity for New Financings,” “Risk Factors — Regulatory and Legal Risks — Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us” and “— Liquidity and Capital Resources — The Company — Capital — Affiliated Captive Reinsurance Transactions.”

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Summary of Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Consolidated Financial Statements. For a discussion of our significant accounting policies, see Note 1 of the Notes to the Consolidated Financial Statements. The most critical estimates include those used in determining:

[[GREPCENT_TABLE]]
[["(i)","liabilities for future policy benefits and the accounting for reinsurance;"],["(ii)","capitalization and amortization of DAC and the establishment and amortization of VOBA;"],["(iii)","estimated fair values of investments in the absence of quoted market values;"],["(iv)","investment allowance for credit loss (\u201cACL\u201d) and impairments;"],["(v)","estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation;"],["(vi)","measurement of goodwill and related impairment;"],["(vii)","measurement of employee benefit plan liabilities;"],["(viii)","measurement of income taxes and the valuation of deferred tax assets; and"],["(ix)","liabilities for litigation and regulatory matters."]]
[[/GREPCENT_TABLE]]

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

Liability for Future Policy Benefits

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

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

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

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

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

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Traditional long-duration and limited-payment contracts comprise approximately 70% of MetLife’s liabilities for future policyholder benefits. For such contracts, original assumptions developed at the time of issue are locked-in and used in all future liability calculations provided the resulting liabilities are adequate to provide for future benefits and expenses (i.e., there is no premium deficiency). Therefore, liabilities for these products would not be impacted by changes in assumptions unless such change would result in an adverse impact that would trigger an establishment of a premium deficiency reserve. Favorable experience for traditional long-duration and limited-payment contracts would have no impact on liabilities given that the current assumption is required to remain locked-in, however the positive experience would be reflected in net income over the life of the policies in force.

We have performed sensitivity tests on our traditional long-duration and limited-payment contracts to demonstrate the impact of the Declining Interest Rate Scenario and the Rising Interest Rate Scenario. These tests show the resulting change in net derivative gains (losses) and adjusted earnings versus the Base Scenario. These results are included in “— Industry Trends — Impact of Market Interest Rates — Interest Rate Scenarios.”

Our traditional life and other participating blocks comprise approximately 25% of our future policyholder benefit liabilities. For these contracts, MetLife’s risk of adverse experience may be mitigated through adjustments to the dividend scales.

For all insurance assets and liabilities, MetLife holds capital and surplus to mitigate potential adverse experience development. The Company’s approaches for managing liquidity and capital are described in “— Liquidity and Capital Resources.”

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

Reinsurance

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

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

Deferred Policy Acquisition Costs and Value of Business Acquired

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

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

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Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period, which can result in significant fluctuations in amortization of DAC and VOBA. Our practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations but is only changed when sustained interim deviations are expected. We monitor these events and only change the assumption when our long-term expectation changes. The effect of an increase (decrease) by 100 basis points in the assumed future rate of return is reasonably likely to result in a decrease (increase) in the DAC and VOBA amortization with an offset to our unearned revenue liability which nets to approximately $30 million. We use a mean reversion approach to separate account returns where the mean reversion period is five years with a long-term separate account return after the five-year reversion period is over. The current long-term rate of return assumption for the variable universal life contracts and variable deferred annuity contracts is 5.75%.

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

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

At December 31, 2021 and 2020, DAC and VOBA for the Company was $16.1 billion and $16.4 billion, respectively. The following illustrates the effect on DAC and VOBA of changing each of the respective assumptions, as well as updating estimated gross margins or profits with actual gross margins or profits during the years ended December 31, 2021 and 2020. Increases (decreases) in DAC and VOBA balances, as presented below, resulted in a corresponding decrease (increase) in amortization.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["General account investment return","$","(197)","","","$","(285)"],["Separate account investment return","32","","","40"],["Net investment/Net derivative gains (losses) and GMIB","(93)","","","(28)"],["In-force/Persistency","77","","","(32)"],["Policyholder dividends, expense and other","(22)","","","(29)"],["Total","$","(203)","","","$","(334)"]]
[[/GREPCENT_TABLE]]

Items contributing to the changes to DAC and VOBA amortization in 2021 consisted of the following:

•Net increase in amortization of $197 million mostly due to the annual actuarial assumption review relating to the general account long-term investment rates of return.

•Net increase in amortization of $93 million associated with net investment/net derivative gains (losses) and GMIB, primarily driven by the following:

◦A decrease in amortization of approximately $10 million associated with gains from GMIB hedges and the decreases in GMIB obligations.

◦Net increase in amortization of approximately $100 million from other investment activities.

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Items contributing to the changes to DAC and VOBA amortization in 2020 consisted of the following:

•Net increase in amortization of $285 million mostly due to the annual actuarial assumption review relating to the general account long-term investment rates of return

Our DAC and VOBA balance is also impacted by unrealized investment gains (losses) and the amount of amortization which would have been recognized if such gains and losses had been realized. The decrease in unrealized investment gains (losses) increased the DAC and VOBA balance by $822 million in 2021.The increase in unrealized investment gains (losses) decreased the DAC and VOBA balance by $1.3 billion in 2020. See Notes 5 and 8 of the Notes to the Consolidated Financial Statements for information regarding the DAC and VOBA offset to unrealized investment gains (losses).

Estimated Fair Value of Investments

In determining the estimated fair value of our investments, fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such 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 investments, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring significant management judgment, including assumptions or estimates, are used to determine the estimated fair value of investments. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing such investments. The methodologies, assumptions and inputs utilized are described in Note 10 of the Notes to the Consolidated Financial Statements.

For the vast majority of our investments, sensitivity analysis regarding unobservable inputs is not necessary or appropriate, as they are valued using quoted prices, as described above. Quantitative information about the significant unobservable inputs used in 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 estimated fair value on a recurring basis is presented in Note 10 of the Notes to the Consolidated Financial Statements.

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

Investment Allowance for Credit Loss and Impairments

The significant estimates and inherent uncertainties related to our evaluation of credit loss and impairments on our investment portfolio are summarized below. See “Quantitative and Qualitative Disclosures About Market Risk” for information regarding the sensitivity of our fixed maturity securities and mortgage loan portfolios to changes in interest rates and foreign currency exchange rates.

Fixed Maturity Securities

The assessment of whether a credit loss has occurred is based on our case-by-case evaluation of whether the net amount expected to be collected is less than the amortized cost basis. We consider a wide range of factors about the security issuer and use our best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. In accordance with credit loss guidance adopted January 1, 2020, we evaluate credit loss by considering information that changes from time to time about past events, current and forecasted economic conditions, and we measure credit loss by estimating recovery value using a discounted cash flow analysis. We estimate recovery value based on our best estimate of future cash flows, which is inherently subjective, and methodologies can vary depending on the facts and circumstances specific to each security. In accordance with this credit loss guidance, we record an ACL for the amount of the credit loss instead of recording a reduction of the amortized cost as an impairment. The evaluation processes, measurement methodologies, significant inputs and significant judgments and assumptions used to determine the amount of credit loss are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. The determination of the amount of ACL is subjective as it includes our estimates and assumptions and assessment of known and inherent risks. We revise these evaluations as conditions change and new information becomes available. The valuation of our fixed maturity securities portfolio is sensitive to changes in interest rates and the estimated fair value of the portion of our fixed maturities securities portfolio that is foreign denominated, is sensitive to changes in foreign currency exchange rates.

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Prior to adopting the credit loss guidance, we applied the other than temporary impairment model, where credit loss was recognized when it was anticipated that amortized cost of the security would not be recovered. The credit loss evaluation process and the measurement of credit loss are generally similar under the credit loss guidance and the other than temporary impairment model.

Mortgage Loans

The ACL is established both for pools of loans with similar risk characteristics and for loans with dissimilar risk characteristics, collateral dependent loans and reasonably expected troubled debt restructurings, individually on a loan specific basis. We record an allowance for expected lifetime credit loss in an amount that represents the portion of the amortized cost basis of mortgage loans that we do not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected. In accordance with credit loss guidance adopted January 1, 2020, to determine the mortgage loan ACL, we apply significant judgement to estimate expected lifetime credit loss over the contractual term of our mortgage loans adjusted for expected prepayments and any extensions; and we consider past events and current and forecasted economic conditions which are subject to inherent uncertainty and which necessarily change from time to time. The ACL methodologies, significant inputs and significant judgements and assumptions used to determine the amount of credit loss are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. The determination of the amount of ACL is subjective as it includes our estimates and assumptions and assessment of known and inherent risks. We revise these estimates as conditions change and new information becomes available. The estimated fair value of our mortgage loan portfolio is sensitive to changes in interest rates and the estimated fair value of the portion of our mortgage loan portfolio that is foreign denominated, is sensitive to changes in foreign currency exchange rates.

Prior to adopting the credit loss guidance, we used the incurred loss model, where credit loss was recognized when incurred (when it was probable, based on current information and events, that all amounts due under the loan agreement would not be collected). The credit loss evaluation process and the measurement of credit loss are generally similar under the credit loss guidance and the incurred loss model, except that the credit loss guidance requires recording an ACL for expected lifetime credit loss.

Real Estate, Leases and Other Asset Classes

The determination of the amount of ACL on leases and impairments on real estate and the remaining asset classes is highly subjective and is based upon our quarterly evaluation and assessment of known and inherent risks associated with the respective asset class. The evaluation processes, measurement methodologies, significant inputs and significant judgments and assumptions used to determine the amount of ACL and impairments are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. Such evaluations and assessments are revised as conditions change and new information becomes available.

Derivatives

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

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

The table below illustrates the impact that a range of reasonably likely variances in credit spreads would have on our consolidated balance sheet, excluding the effect of income tax, related to the embedded derivative valuation on certain variable annuity products measured at estimated fair value. In determining the ranges, we have considered current market conditions, as well as the market level of spreads that can reasonably be anticipated over the near term. The ranges do not reflect extreme market conditions, as we do not consider those to be reasonably likely events in the near future.

The impact of the range of reasonably likely variances in credit spreads decreased as compared to prior periods. However, these estimated effects do not take into account potential changes in other variables, such as equity price levels and market volatility, which can also contribute significantly to changes in carrying values. Therefore, the table does not necessarily reflect the ultimate impact on the consolidated financial statements under the credit spread variance scenarios presented below.

[[GREPCENT_TABLE]]
[["","Changes in Balance Sheet Carrying Value At December 31, 2021"],["","Policyholder Account Balances","","DAC and VOBA"],["","(In millions)"],["100% increase in our credit spread","$","320","","","$","(6)"],["As reported","$","422","","","$","34"],["50% decrease in our credit spread","$","487","","","$","55"]]
[[/GREPCENT_TABLE]]

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

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

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

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

Goodwill

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

For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, an impairment charge would be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company will consider income tax effects from any tax-deductible goodwill on the carrying value of the reporting unit when measuring the goodwill impairment loss, if applicable. The key inputs, judgments and assumptions necessary in determining estimated fair value of the reporting units include projected adjusted earnings, current book value, the level of economic capital required to support the mix of business, long-term growth rates, comparative market multiples, the account value of in-force business, projections of new and renewed business, as well as margins on such business, interest rate levels, credit spreads, equity market levels, and the discount rate that we believe is appropriate for the respective reporting unit.

We apply significant judgment when determining the estimated fair value of our reporting units and when assessing the relationship of market capitalization to the aggregate estimated fair value of our reporting units. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based may differ in some respects from actual future results. Depending upon the reporting segment, a change in market conditions, including equity market returns, interest rate levels, market volatility including foreign currency, as well as policyholder behavior and mortality could result in a decline in the estimated fair value of any of our reporting units. Declines in the estimated fair value of our reporting units could result in goodwill impairments in future periods which could materially adversely affect our results of operations or financial position.

In the third quarter of 2021, the Company performed its annual goodwill impairment tests on all of its reporting units, using both qualitative and quantitative assessments. The quantitative assessment utilized the market multiple, embedded value and discounted cash flow valuation approaches based on best available data as of June 30, 2021. The Company concluded that the estimated fair values of all its reporting units were substantially in excess of their carrying values and, therefore, goodwill was not impaired.

See Note 12 of the Notes to the Consolidated Financial Statements for additional information on our goodwill.

Employee Benefit Plans

Certain subsidiaries of MetLife, Inc. sponsor defined benefit pension plans and other postretirement benefit plans covering eligible employees. See Note 18 of the Notes to the Consolidated Financial Statements for information on amendments to our U.S. benefit plans. The calculation of the obligations and expenses associated with these plans requires an extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases and healthcare cost trend rates, as well as assumptions regarding participant demographics such as rate and age of retirement, withdrawal rates and mortality. In consultation with external actuarial firms, we determine these assumptions based upon a variety of factors such as historical experience of the plan and its assets, currently available market and industry data, and expected benefit payout streams.

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We determine the expected rate of return on plan assets based upon an approach that considers inflation, real return, term premium, credit spreads, equity risk premium and capital appreciation, as well as expenses, expected asset manager performance, asset weights and the effect of rebalancing. Given the amount of plan assets as of December 31, 2020, the beginning of the measurement year, if we had assumed an expected rate of return for both our pension and other postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic benefit costs in 2021 would have been as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2021"],["","Increase/(Decrease) in Net Periodic Pension Cost","","Increase/(Decrease) in Net Other Postretirement Benefit Cost"],["","(In millions)"],["Increase in expected rate of return by 100 bps","$","(105)","","","$","(14)"],["Decrease in expected rate of return by 100 bps","$","105","","","$","14"]]
[[/GREPCENT_TABLE]]

This table considers only changes in our assumed long-term rate of return given the level and mix of invested assets at the beginning of the year, without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed long-term rate of return.

We determine the discount rates used to value the Company’s pension and postretirement obligations, based upon rates commensurate with current yields on high quality corporate bonds. Given our pension and postretirement obligations as of December 31, 2020, the beginning of the measurement year, if we had assumed a discount rate for both our pension and postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic benefit costs would have been as follows:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021"],["","","Increase/(Decrease) in Net Periodic Pension Cost","","Increase/(Decrease) in Net Other Postretirement Benefit Cost"],["","","(In millions)"],["Increase in discount rate by 100 bps","","$","(88)","","","$","(2)"],["Decrease in discount rate by 100 bps","","$","79","","","$","6"]]
[[/GREPCENT_TABLE]]

Given our pension and postretirement obligations as of December 31, 2021, the end of the measurement year, if we had assumed a discount rate for both our pension and postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our benefit obligations would have been as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2021"],["","Increase/(Decrease) in Pension Benefit Obligation","","Increase/(Decrease) in Other Postretirement Benefit Obligation"],["","(In millions)"],["Increase in discount rate by 100 bps","$","(1,299)","","","$","(121)"],["Decrease in discount rate by 100 bps","$","1,574","","","$","149"]]
[[/GREPCENT_TABLE]]

These tables consider only changes in our assumed discount rates without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed discount rate. The assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics. These differences may have a significant impact on the Company’s consolidated financial statements and liquidity.

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

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Income Taxes

Our accounting for income taxes represents our best estimate of various events and transactions. Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions in which we conduct business.

If there were a 1% increase in the global effective income tax rate, the change would have resulted in an approximate $411 million increase in the deferred income tax liabilities balance at December 31, 2021.

See Notes 1 and 19 of the Notes to the Consolidated Financial Statements for additional information on our income taxes.

Litigation Contingencies

We are a defendant in a large number of litigation matters and are involved in a number of regulatory investigations. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including our asbestos-related liability, are especially difficult to estimate due to the limitation of reliable data and uncertainty regarding numerous variables that can affect liability estimates. On a quarterly and annual basis, we review relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in our consolidated financial statements. It is possible that an adverse outcome in certain of our litigation and regulatory investigations, including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material effect upon our consolidated net income or cash flows in particular quarterly or annual periods.

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

Acquisitions and Dispositions

Acquisitions

Pending Ownership Increase of PNB MetLife

In October 2021, the Company entered into a share purchase agreement to acquire approximately 15.0% ownership in PNB MetLife India Insurance Company Limited (“PNB MetLife”). Upon completion of the transaction, the Company’s ownership in PNB MetLife, an operating joint venture accounted for under the equity method, will increase to approximately 47.0%. The transaction will close upon receipt of all necessary regulatory approvals and satisfaction of other closing conditions. This transaction supports the Company’s continued growth in India and will enable us to deliver more value for our customers, partners and shareholders.

Acquisition of Versant Health

For information regarding the Company’s December 2020 acquisition of Versant Health, see Note 3 of the Notes to the Consolidated Financial Statements.

Acquisition of PetFirst

In January 2020, the Company completed the acquisition of PetFirst Healthcare, LLC (“PetFirst”), a fast-growing pet health insurance administrator.

Dispositions

Pending Disposition of MetLife Poland and Disposition of MetLife Greece

For information regarding the Company's pending disposition of MetLife Poland and disposition of MetLife Greece, reported as held-for-sale, see Notes 1 and 3 of the Notes to the Consolidated Financial Statements.

Disposition of MetLife Seguros

For information regarding the Company's September 2021 disposition of MetLife Seguros, see Note 3 of the Notes to the Consolidated Financial Statements.

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Disposition of MetLife P&C

For information regarding the Company's April 2021 disposition of MetLife P&C, which was reported as held-for-sale, see Notes 1 and 3 of the Notes to the Consolidated Financial Statements.

Disposition of MetLife Russia

For information regarding the Company's January 2021 disposition of MetLife Russia, see Note 3 of the Notes to the Consolidated Financial Statements.

Disposition of MetLife Seguros de Retiro

For information regarding the Company's October 2020 disposition of one of its wholly-owned Argentinian subsidiaries, MetLife Seguros de Retiro S.A. (“MetLife Seguros de Retiro”), see Note 3 of the Notes to the Consolidated Financial Statements.

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Results of Operations

Consolidated Results

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Revenues"],["Premiums","$","42,009","","","$","42,034"],["Universal life and investment-type product policy fees","5,756","","","5,603"],["Net investment income","21,395","","","17,117"],["Other revenues","2,619","","","1,849"],["Net investment gains (losses)","1,529","","","(110)"],["Net derivative gains (losses)","(2,228)","","","1,349"],["Total revenues","71,080","","","67,842"],["Expenses"],["Policyholder benefits and claims and policyholder dividends","44,830","","","42,551"],["Interest credited to policyholder account balances","5,538","","","5,214"],["Capitalization of DAC","(2,718)","","","(3,013)"],["Amortization of DAC and VOBA","2,555","","","3,160"],["Amortization of negative VOBA","(34)","","","(45)"],["Interest expense on debt","920","","","913"],["Other expenses","11,863","","","12,135"],["Total expenses","62,954","","","60,915"],["Income (loss) before provision for income tax","8,126","","","6,927"],["Provision for income tax expense (benefit)","1,551","","","1,509"],["Net income (loss)","6,575","","","5,418"],["Less: Net income (loss) attributable to noncontrolling interests","21","","","11"],["Net income (loss) attributable to MetLife, Inc.","6,554","","","5,407"],["Less: Preferred stock dividends","195","","","202"],["Preferred stock redemption premium","6","","","14"],["Net income (loss) available to MetLife, Inc.\u2019s common shareholders","$","6,353","","","$","5,191"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

During 2021, net income (loss) increased $1.2 billion from 2020, primarily driven by favorable changes in adjusted earnings and net investment gains (losses), as well as a favorable change from our annual actuarial assumption reviews, partially offset by an unfavorable change in net derivative gains (losses), net of investment hedge adjustments.

Management of Investment Portfolio and Hedging Market Risks with Derivatives. See “— Investments — Overview” for a discussion of the management of our investment portfolio.

We purchase investments to support our insurance liabilities and not to generate net investment gains and losses. However, net investment gains and losses are incurred and can change significantly from period to period due to changes in external influences, including changes in market factors such as interest rates, foreign currency exchange rates, credit spreads and equity markets; counterparty specific factors such as financial performance, credit rating and collateral valuation; and internal factors such as portfolio rebalancing. Changes in these factors from period to period can significantly impact the levels of provision for credit loss and impairments on our investment portfolio, as well as realized gains and losses on investments sold.

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We also use derivatives as an integral part of our management of the investment portfolio and insurance liabilities to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market levels. We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. A portion of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged, which creates volatility in earnings. We actively evaluate market risk hedging needs and strategies to ensure our free cash flow and capital objectives are met under a range of market conditions.

Certain variable annuity products with guaranteed minimum benefits contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). We use freestanding derivatives to hedge the market risks inherent in these variable annuity guarantees. The valuation of these embedded derivatives includes a nonperformance risk adjustment, which is unhedged, and can be a significant driver of net derivative gains (losses) and volatility in earnings, but does not have an economic impact on us.

We continuously review and refine our hedging strategy in light of changing economic and market conditions, evolving NAIC and NYDFS statutory requirements, and accounting rule changes. As a part of our current hedging strategy, we maintain portfolio level derivatives in our macro hedge program. These macro hedge program derivatives, which are included in the non-VA program derivatives section of the table below, mitigate the potential deterioration in our capital positions from significant adverse economic conditions.

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

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Non-VA program derivatives"],["Interest rate","$","(1,075)","","","$","2,880"],["Foreign currency exchange rate","(429)","","","(148)"],["Credit","85","","","(76)"],["Equity","(771)","","","(1,005)"],["Non-VA embedded derivatives","37","","","(80)"],["Total non-VA program derivatives","(2,153)","","","1,571"],["VA program derivatives"],["Market risks in embedded derivatives","1,006","","","139"],["Nonperformance risk adjustment on embedded derivatives","(17)","","","(10)"],["Other risks in embedded derivatives","(279)","","","(159)"],["Total embedded derivatives","710","","","(30)"],["Freestanding derivatives hedging embedded derivatives","(785)","","","(192)"],["Total VA program derivatives","(75)","","","(222)"],["Net derivative gains (losses)","$","(2,228)","","","$","1,349"]]
[[/GREPCENT_TABLE]]

The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $3.7 billion ($2.9 billion, net of income tax). This was primarily due to long-term rates increasing in 2021 versus decreasing significantly in 2020. This unfavorably impacted the estimated fair value of receive fixed interest rate swaps and options. Because certain of these hedging strategies are not designated or do not qualify as accounting hedges, the changes in the estimated fair value of these freestanding derivatives are recognized in net derivative gains (losses) without an offsetting gain or loss recognized in earnings for the items being hedged.

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The favorable change in net derivative gains (losses) on VA program derivatives was $147 million ($116 million, net of income tax). This was due to a favorable change of $274 million ($216 million, net of income tax) in market risks in embedded derivatives, net of freestanding derivatives that hedge market risks in embedded derivatives, partially offset by (i) an unfavorable change of $120 million ($95 million, net of income tax) in other risks in embedded derivatives, (primarily policyholder behavior and other non-market risks that generally cannot be hedged), and (ii) an unfavorable change of $7 million ($5 million, net of income tax) in the nonperformance risk adjustment included in the valuation of embedded derivatives.

The aforementioned $274 million ($216 million, net of income tax) favorable change reflects an $867 million ($684 million, net of income tax) favorable change in market risks in embedded derivatives, partially offset by a $593 million ($468 million, net of income tax) unfavorable change in freestanding derivatives that hedge market risks in embedded derivatives.

The primary changes in market factors affecting the valuation of VA program derivatives are summarized as follows:

•Key equity index levels increased more in 2021 compared with 2020, contributing to a favorable change in our embedded derivatives and an unfavorable change in our freestanding derivatives. For example, the S&P 500 Index increased 27% in 2021 and increased 16% in 2020.

•Long-term interest rates increased in 2021 versus decreased significantly in 2020, contributing to a favorable change in our embedded derivatives and an unfavorable change in our freestanding derivatives. For example, the 30-year U.S. swap rate increased 33 basis points in 2021 and decreased 69 basis points in 2020.

The aforementioned $120 million ($95 million, net of income tax) unfavorable change in other risks in embedded derivatives reflects actuarial assumption updates and a combination of factors, such as fees deducted from accounts, changes in the benefit base, premiums, lapses, withdrawals and deaths, in addition to changes to cross-effect, basis mismatch, risk margin and fund allocation.

The aforementioned $7 million ($5 million, net of income tax) unfavorable change in the nonperformance risk adjustment on embedded derivatives resulted from an unfavorable change of $45 million, before income tax, related to model changes and changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable annuity guarantees, partially offset by a favorable change of $38 million, before income tax, related to changes in our own credit spread.

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

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

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

Net Investment Gains (Losses). The favorable change in net investment gains (losses) of $1.6 billion ($1.3 billion, net of income tax) primarily reflects (i) the 2021 gain on the disposition of MetLife P&C, (ii) increased gains on sales of real estate investments in 2021, (iii) lower provision for mortgage loan credit loss in 2021 compared to 2020, and (iv) mark-to-market gains in 2021 compared to mark-to-market losses in 2020 on equity securities, which are measured at estimated fair value through net income (loss). These favorable changes were partially offset by 2021 losses on the dispositions of MetLife Seguros and MetLife Greece and on the pending disposition of MetLife Poland, as well as lower gains on sales of fixed maturity securities compared to 2020.

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Divested Businesses. Income (loss) before provision for income tax related to divested businesses, excluding net investment gains (losses) and net derivative gains (losses), increased $92 million ($76 million, net of income tax) to $62 million ($53 million, net of income tax) in 2021 from a loss of $30 million ($23 million, net of income tax) in 2020. Included in this increase was an increase in total revenues of $996 million, before income tax, and an increase in total expenses of $904 million, before income tax. Divested businesses primarily included activity related to the disposition of MetLife P&C in 2021.

Taxes. Our 2021 effective tax rate on income (loss) before provision for income tax was 19%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, an IRS audit settlement, the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent and the corporate tax deduction for stock compensation, partially offset by tax charges from foreign earnings taxed at different rates than the U.S. statutory rate, the dispositions of MetLife P&C, MetLife Seguros and MetLife Greece and the pending disposition of MetLife Poland. Our 2020 effective tax rate on income (loss) before provision for income tax was 22%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax charges from foreign earnings taxed at different rates than the U.S. statutory rate and the dispositions of MetLife Seguros de Retiro and MetLife Russia, partially offset by tax benefits from tax credits, non-taxable investment income, the finalization of bankruptcy proceedings for a leveraged lease investment and the impact from an IRS audit matter.

Actuarial Assumption Review. Results for 2021 include a $281 million ($216 million, net of income tax) charge associated with our annual review of actuarial assumptions related to reserves and DAC, of which a $2 million ($1 million, net of income tax) loss was recognized in net derivative gains (losses).

Of the $281 million charge, $129 million ($96 million, net of income tax) was related to DAC and $152 million ($120 million, net of income tax) was associated with reserves. The portion of the $281 million charge that is included in adjusted earnings is $187 million ($140 million, net of income tax).

The $2 million ($1 million, net of income tax) loss recognized in net derivative gains (losses) associated with our annual review of actuarial assumptions is included within the other risks in embedded derivatives line in the table above.

As a result of our annual review of actuarial assumptions, changes were made to economic, biometric, policyholder behavior, and operational assumptions. The most significant impacts were in the MetLife Holdings segment, driven by updates to behavioral assumptions for variable annuities and in Asia, driven by economic assumption updates for interest sensitive whole life. The breakdown of total current period results is summarized as follows:

•Economic assumption updates resulted in unfavorable impacts to reserves and DAC, for a net charge of $136 million ($101 million, net of income tax).

•Changes in biometric assumptions resulted in favorable impacts to reserves and slightly unfavorable impacts to DAC, for a net gain of $39 million ($29 million, net of income tax).

•Changes in policyholder behavior assumptions resulted in unfavorable impacts to reserves and favorable impacts to DAC, for a net charge of $195 million ($152 million, net of income tax).

•Changes in operational assumptions resulted in favorable impacts to reserves and unfavorable impacts to DAC, for a net gain of $11 million ($8 million, net of income tax).

Results for 2020 include a $378 million ($301 million, net of income tax) charge associated with our annual review of actuarial assumptions related to reserves and DAC, of which a $44 million ($34 million, net of income tax) gain was recognized in net derivative gains (losses). Of the $378 million charge, $120 million ($94 million, net of income tax) was related to DAC and $258 million ($207 million, net of income tax) was associated with reserves. The portion of the $378 million charge that is included in adjusted earnings is $255 million ($203 million, net of income tax).

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Adjusted Earnings. As more fully described in “— Non-GAAP and Other Financial Disclosures,” we use adjusted earnings, which does not equate to net income (loss), as determined in accordance with GAAP, to analyze our performance, evaluate segment performance, and allocate resources. We believe that the presentation of adjusted earnings and other financial measures based on adjusted earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results. Adjusted earnings should not be viewed as a substitute for net income (loss). Adjusted earnings available to common shareholders and adjusted earnings available to common shareholders on a constant currency basis should not be viewed as substitutes for net income (loss) available to MetLife, Inc.’s common shareholders. Adjusted earnings available to common shareholders increased $2.3 billion, net of income tax, to $8.0 billion, net of income tax, for 2021 from $5.6 billion, net of income tax, for 2020.

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Reconciliation of net income (loss) to adjusted earnings available to common shareholders and premiums, fees and other revenues to adjusted premiums, fees and other revenues

Year Ended December 31, 2021

[[GREPCENT_TABLE]]
[["","","U.S.","","Asia","","Latin America","","EMEA","","MetLife Holdings","","Corporate & Other","","Total"],["","","(In millions)"],["Net income (loss) available to MetLife, Inc.'s common shareholders","$","3,509","","","$","1,597","","","$","(258)","","","$","58","","","$","905","","","$","542","","","$","6,353"],["Add: Preferred stock dividends","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","195","","","195"],["Add: Net income (loss) attributable to noncontrolling interests","\u2014","","","2","","","6","","","3","","","\u2014","","","10","","","21"],["Add: Preferred stock redemption premium","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","6","","","6"],["Net income (loss)","3,509","","","1,599","","","(252)","","","61","","","905","","","753","","","6,575"],["Less: adjustments from net income (loss) to adjusted earnings available to common shareholders:"],["Revenues:"],["","Net investment gains (losses)","410","","","(6)","","","(134)","","","(190)","","","86","","","1,363","","","1,529"],["","Net derivative gains (losses)","226","","","(818)","","","(416)","","","(20)","","","(1,167)","","","(33)","","","(2,228)"],["","Premiums","865","","","\u2014","","","\u2014","","","117","","","\u2014","","","\u2014","","","982"],["","Universal life and investment-type product policy fees","\u2014","","","73","","","\u2014","","","42","","","80","","","\u2014","","","195"],["","Net investment income","(310)","","","58","","","(64)","","","717","","","(293)","","","7","","","115"],["","Other revenues","11","","","\u2014","","","1","","","11","","","\u2014","","","220","","","243"],["Expenses:"],["","Policyholder benefits and claims and policyholder dividends","(610)","","","(81)","","","(8)","","","(141)","","","(338)","","","(1)","","","(1,179)"],["","Interest credited to policyholder account balances","2","","","(211)","","","(42)","","","(695)","","","\u2014","","","\u2014","","","(946)"],["","Capitalization of DAC","89","","","\u2014","","","\u2014","","","30","","","\u2014","","","\u2014","","","119"],["","Amortization of DAC and VOBA","(98)","","","(35)","","","\u2014","","","(26)","","","(60)","","","\u2014","","","(219)"],["","Amortization of negative VOBA","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["","Interest expense on debt","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(1)","","","(1)"],["","Other expenses","(222)","","","3","","","3","","","(81)","","","\u2014","","","(267)","","","(564)"],["","Goodwill impairment","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Provision for income tax (expense) benefit","(75)","","","318","","","117","","","(4)","","","355","","","(331)","","","380"],["Adjusted earnings","$","3,221","","","$","2,298","","","$","291","","","$","301","","","$","2,242","","","(204)","","","8,149"],["Less: Preferred stock dividends","","","","","","","","","","","195","","","195"],["Adjusted earnings available to common shareholders","","","","","","","","","","","$","(399)","","","$","7,954"],["Premiums, fees and other revenues","$","29,912","","","$","8,381","","","$","3,760","","","$","2,883","","","$","4,771","","","$","677","","","$","50,384"],["Less: adjustments to premiums, fees and other revenues","876","","","73","","","1","","","170","","","80","","","220","","","1,420"],["Adjusted premiums, fees and other revenues","$","29,036","","","$","8,308","","","$","3,759","","","$","2,713","","","$","4,691","","","$","457","","","$","48,964"]]
[[/GREPCENT_TABLE]]

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Year Ended December 31, 2020

[[GREPCENT_TABLE]]
[["","","U.S.","","Asia","","Latin America","","EMEA","","MetLife Holdings","","Corporate & Other","","Total"],["","","(In millions)"],["Net income (loss) available to MetLife, Inc.'s common shareholders","$","3,136","","","$","1,684","","","$","27","","","$","280","","","$","1,277","","","$","(1,213)","","","$","5,191"],["Add: Preferred stock dividends","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","202","","","202"],["Add: Net income (loss) attributable to noncontrolling interests","\u2014","","","1","","","4","","","5","","","\u2014","","","1","","","11"],["Add: Preferred stock redemption premium","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","14","","","14"],["Net income (loss)","3,136","","","1,685","","","31","","","285","","","1,277","","","(996)","","","5,418"],["Less: adjustments from net income (loss) to adjusted earnings available to common shareholders:"],["Revenues:"],["","Net investment gains (losses)","61","","","261","","","(103)","","","(159)","","","(9)","","","(161)","","","(110)"],["","Net derivative gains (losses)","202","","","226","","","75","","","30","","","1,149","","","(333)","","","1,349"],["","Premiums","\u2014","","","52","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","52"],["","Universal life and investment-type product policy fees","\u2014","","","39","","","(2)","","","17","","","84","","","\u2014","","","138"],["","Net investment income","(340)","","","(7)","","","(1)","","","428","","","(284)","","","(7)","","","(211)"],["","Other revenues","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","159","","","159"],["Expenses:"],["","Policyholder benefits and claims and policyholder dividends","(44)","","","(109)","","","(170)","","","75","","","(444)","","","\u2014","","","(692)"],["","Interest credited to policyholder account balances","9","","","(107)","","","(43)","","","(400)","","","\u2014","","","\u2014","","","(541)"],["","Capitalization of DAC","\u2014","","","5","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","5"],["","Amortization of DAC and VOBA","\u2014","","","(53)","","","\u2014","","","2","","","(115)","","","\u2014","","","(166)"],["","Amortization of negative VOBA","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["","Interest expense on debt","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["","Other expenses","\u2014","","","(24)","","","(9)","","","(7)","","","\u2014","","","(223)","","","(263)"],["","Goodwill impairment","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Provision for income tax (expense) benefit","24","","","(163)","","","4","","","(28)","","","(80)","","","116","","","(127)"],["Adjusted earnings","$","3,224","","","$","1,565","","","$","280","","","$","327","","","$","976","","","(547)","","","5,825"],["Less: Preferred stock dividends","","","","","","","","","","","202","","","202"],["Adjusted earnings available to common shareholders","","","","","","","","","","","$","(749)","","","$","5,623"],["Adjusted earnings available to common shareholders on a constant currency basis (1)","$","3,224","","","$","1,591","","","$","302","","","$","330","","","$","976","","","$","(749)","","","$","5,674"],["Premiums, fees and other revenues","$","29,292","","","$","8,615","","","$","3,295","","","$","2,761","","","$","4,995","","","$","528","","","$","49,486"],["Less: adjustments to premiums, fees and other revenues","\u2014","","","91","","","(2)","","","17","","","84","","","159","","","349"],["Adjusted premiums, fees and other revenues","$","29,292","","","$","8,524","","","$","3,297","","","$","2,744","","","$","4,911","","","$","369","","","$","49,137"],["Adjusted premiums, fees and other revenues on a constant currency basis (1)","$","29,292","","","$","8,451","","","$","3,420","","","$","2,775","","","$","4,911","","","$","369","","","$","49,218"]]
[[/GREPCENT_TABLE]]

__________________

(1)Amounts for U.S., MetLife Holdings and Corporate & Other are shown on a reported basis, as constant currency impact is not significant.

Consolidated Results — Adjusted Earnings

Business Overview. Adjusted premiums, fees and other revenues for 2021 decreased $173 million, or less than 1%, compared to 2020. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased $254 million, or 1%, compared to 2020, primarily due to a decrease of $3.6 billion attributable to the disposition of MetLife P&C. Higher adjusted premiums, fees and other revenues from growth in our Group Benefits business and the acquisition of Versant Health was partially offset by lower premiums in our RIS business. In our Asia segment, adjusted premiums, fees and other revenues declined compared to 2020 mainly due to the impact of our annual actuarial assumption review in both years. A decrease in adjusted premiums, fees and other revenues in our EMEA segment was primarily due to the dispositions of MetLife Russia and MetLife Greece and the pending disposition of MetLife Poland. Strong sales and persistency across the region resulted in an increase in adjusted premiums, fees and other revenues in our Latin America segment. In our MetLife Holdings segment, we anticipate an average decline in adjusted premiums, fees and other revenues of approximately 6% to 8% per year from expected business run-off.

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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

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

Overview. The primary drivers of the increase in adjusted earnings were (i) higher investment yields due to strong returns in our private equity and real estate portfolios, (ii) an increase in net investment income due to a larger average invested asset base, (iii) favorable tax adjustments, (iv) lower interest credited expenses, (v) the release of a legal reserve in 2021 and (vi) a favorable change from our annual actuarial assumption reviews, partially offset by (i) unfavorable underwriting, which reflected impacts from the COVID-19 pandemic, and (ii) the disposition of MetLife P&C. The disposition of MetLife P&C decreased adjusted earnings by $322 million. All amounts discussed below are net of the results of this business.

Foreign Currency. Changes in foreign currency exchange rates had a $51 million positive impact on adjusted earnings for 2021 compared to 2020. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.

Business Growth. We benefited from positive net flows from many of our businesses, which increased our average invested asset base. Growth in the investment portfolios of all of our segments resulted in higher net investment income. However, consistent with the growth in average invested assets, interest credited expenses on certain insurance-related liabilities increased. In addition, higher premiums, net of corresponding changes in policyholder benefits improved adjusted earnings, primarily from growth in our EMEA and Asia segments, partially offset by a decline in our MetLife Holdings segment. Lower fee income in our MetLife Holdings and EMEA segments was offset by increases in our Asia and Latin America segments. Also, an increase in expenses due to business growth was more than offset by the related increase in DAC capitalization and the 2021 abatement of the annual health insurer fee under the Patient Protection and Affordable Care Act (“PPACA”). The combined impact of the items affecting our business growth resulted in a $238 million increase in adjusted earnings.

Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Excluding the impact of changes in foreign currency exchange rates on net investment income in our non-U.S. segments and changes in inflation rates on our inflation-indexed investments, investment yields increased. The increase in investment yields was primarily driven by the favorable impact of strong equity market returns on our private equity funds and the favorable impact of real estate market returns on our real estate investments, primarily real estate funds. These increases were partially offset by lower yields on fixed income securities and mortgage loans, as well as decreased returns on fair value option securities (“FVO Securities”). The net impact of interest rate fluctuations resulted in a decline in our average interest credited rates on deposit-type and long-duration liabilities, which drove a decrease in interest credited expenses. The changes in market factors discussed above resulted in a $3.1 billion increase in adjusted earnings.

Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting resulted in a $1.2 billion decrease in adjusted earnings and reflected impacts from the COVID-19 pandemic. This was primarily driven by unfavorable mortality in our U.S. and Latin America segments, coupled with unfavorable claims experience in our U.S., EMEA and MetLife Holdings segments. The favorable change from our annual actuarial assumption reviews resulted in a net increase of $63 million in adjusted earnings. Changes in operational, biometric and economic assumptions were less unfavorable in 2021 when compared to 2020. Refinements to certain insurance and other liabilities in both years resulted in a $67 million increase in adjusted earnings. Dividend scale reductions, as well as run-off in MLIC’s closed block, contributed to lower dividend expenses of $149 million and lower associated DAC amortization of $68 million, which increased adjusted earnings.

Expenses. Adjusted earnings decreased $7 million compared to the prior period, primarily due to higher corporate-related expenses, largely offset by the release of a legal reserve in 2021 and lower legal expenses.

Taxes. Our 2021 effective tax rate on adjusted earnings was 19%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, an IRS audit settlement, the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent and the corporate tax deduction for stock compensation, partially offset by tax charges from foreign earnings taxed at different rates than the U.S. statutory rate. Our 2020 effective tax rate on adjusted earnings was 19%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, and the finalization of bankruptcy proceedings for a leveraged lease investment, partially offset by tax charges from foreign earnings taxed at different rates than the U.S. statutory rate.

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Segment Results and Corporate & Other

U.S.

Business Overview. Adjusted premiums, fees and other revenues for 2021 decreased $256 million, or 1%, compared to 2020. This was primarily due to a decrease of $3.6 billion attributable to the disposition of MetLife P&C, as well as lower premiums in our RIS business, mostly offset by growth in our Group Benefits business. The increase in our Group Benefits business was primarily due to growth from our group life business which includes increased premiums from our participating contracts, which can fluctuate with claims experience, and the 2021 impact of the Versant Health acquisition. In addition, growth in other core products was driven by increases in our group disability businesses, as well as the impact of premium credits in 2020, and growth in the dental business. Growth in voluntary products was due to the impact of new sales and growth in membership in our accident & health and legal plans businesses. The decrease in premiums in RIS was mainly driven by the impact of 2020 sales in the pension risk transfer business, partially offset by increases in our U.K. longevity reinsurance and post-retirement businesses. Changes in RIS premiums are mostly offset by a corresponding change in policyholder benefits.

Growth in RIS’s stable value and capital market investments businesses drove increases in policyholder account balances, resulting in higher interest margins.

For further information regarding the MetLife P&C disposition and the acquisition of Versant Health, see Note 3 of the Notes to the Consolidated Financial Statements.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Adjusted revenues"],["Premiums","$","26,358","","","$","27,265"],["Universal life and investment-type product policy fees","1,140","","","1,070"],["Net investment income","8,048","","","6,903"],["Other revenues","1,538","","","957"],["Total adjusted revenues","37,084","","","36,195"],["Adjusted expenses"],["Policyholder benefits and claims and policyholder dividends","27,957","","","26,309"],["Interest credited to policyholder account balances","1,422","","","1,622"],["Capitalization of DAC","(65)","","","(453)"],["Amortization of DAC and VOBA","60","","","471"],["Interest expense on debt","7","","","7"],["Other expenses","3,632","","","4,162"],["Total adjusted expenses","33,013","","","32,118"],["Provision for income tax expense (benefit)","850","","","853"],["Adjusted earnings","$","3,221","","","$","3,224"],["Adjusted premiums, fees and other revenues","$","29,036","","","$","29,292"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

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

The disposition of MetLife P&C decreased adjusted earnings by $322 million. All amounts discussed below are net of the results of this business.

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Business Growth. The impact of positive flows from pension risk transfer transactions and funding agreement issuances resulted in higher average invested assets, improving net investment income. However, consistent with the growth in average invested assets, interest credited expenses on long-duration and deposit-type liabilities increased. Higher volume-related, premium tax and direct expenses, driven by business growth, were partially offset by the 2021 abatement of the annual health insurer fee under the PPACA. The net increase in expenses was more than offset by a corresponding increase in adjusted premiums, fees and other revenues. The combined impact of the items affecting our business growth increased adjusted earnings by $130 million.

Market Factors. Market factors, including interest rate levels, variability in equity market returns and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased primarily driven by the favorable impact of equity market returns on our private equity funds and the favorable impact of real estate market returns on our real estate investments, primarily real estate funds, partially offset by lower yields on fixed income securities and mortgage loans. The impact of interest rate fluctuations resulted in a decline in our average interest credited rates on deposit-type and long-duration liabilities, which drove a decrease in interest credited expenses. The changes in market factors discussed above resulted in a $1.1 billion increase in adjusted earnings.

Underwriting. Unfavorable mortality in our Group Benefits business resulted in a decrease in adjusted earnings of $767 million. This was primarily driven by: (i) increases in both incidence and severity in both COVID-19 and core claims across our life businesses; and (ii) unfavorable results in our accidental death & dismemberment business due to lower incidence in 2020 as a result of the COVID-19 pandemic. Favorable mortality in our RIS business, including the impact of the COVID-19 pandemic, resulted in an increase in adjusted earnings of $81 million, driven by our pension risk transfer, structured settlement, specialized benefit resource and post-retirement benefit businesses, partially offset by unfavorable results in our institutional income annuity business. Unfavorable claims experience, partially offset by the impact of growth in our Group Benefits business, resulted in a $248 million decrease in adjusted earnings, primarily due to: (i) unfavorable dental results, primarily the result of the COVID-19 pandemic, which limited availability of services and reduced utilization in 2020; and (ii) unfavorable claims experience in our group disability business, partially offset by: (i) the impact of the acquisition of Versant Health on our vision business; (ii) favorable claims experience in the individual disability business; and (iii) the impact of business growth in our accident & health business.

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Asia

Business Overview. Adjusted premiums, fees and other revenues for 2021 decreased $216 million, or 3%, compared to 2020. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased $143 million, or 2% compared to 2020, mainly due to the impact of our annual actuarial assumption review in both periods. In addition, a decrease in premiums from yen-denominated life products in Japan was largely offset by higher fees from foreign currency-denominated life products and business growth in other markets.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Adjusted revenues"],["Premiums","$","6,421","","","$","6,571"],["Universal life and investment-type product policy fees","1,814","","","1,892"],["Net investment income","5,052","","","3,938"],["Other revenues","73","","","61"],["Total adjusted revenues","13,360","","","12,462"],["Adjusted expenses"],["Policyholder benefits and claims and policyholder dividends","5,008","","","5,213"],["Interest credited to policyholder account balances","1,995","","","1,834"],["Capitalization of DAC","(1,607)","","","(1,652)"],["Amortization of DAC and VOBA","1,369","","","1,415"],["Amortization of negative VOBA","(27)","","","(37)"],["Other expenses","3,388","","","3,481"],["Total adjusted expenses","10,126","","","10,254"],["Provision for income tax expense (benefit)","936","","","643"],["Adjusted earnings","$","2,298","","","$","1,565"],["Adjusted earnings on a constant currency basis","$","2,298","","","$","1,591"],["Adjusted premiums, fees and other revenues","$","8,308","","","$","8,524"],["Adjusted premiums, fees and other revenues on a constant currency basis","$","8,308","","","$","8,451"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

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

Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $26 million for 2021 compared to 2020, primarily due to the strengthening of the Australian dollar and Korean won against the U.S. dollar. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.

Business Growth. Asia’s adjusted premiums, fees and other revenues decreased as compared to 2020 as discussed above; however, this was more than offset by a decline in policyholder benefits and lower variable expenses, net of DAC capitalization, which resulted in an increase to adjusted earnings. Positive net flows in Japan and Korea resulted in higher average invested assets, which improved net investment income. The increase in net investment income was more than offset by a corresponding increase in interest credited expenses on certain insurance liabilities. The combined impact of the items affecting our business growth improved adjusted earnings by $73 million.

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Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased driven by the favorable impact of equity market returns on our private equity funds and the favorable impact of real estate market returns on our real estate investments, primarily real estate funds. The increase in net investment income was partially offset by lower yields on fixed income securities supporting products sold in Japan denominated in U.S. and Australian dollars. In addition, a decrease in interest credited expense improved adjusted earnings. The changes in market factors discussed above increased adjusted earnings by $672 million.

Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Higher lapses in Japan and claims in Korea decreased adjusted earnings by $13 million. The unfavorable change from our annual actuarial assumption reviews resulted in a net decrease of $51 million in adjusted earnings. Refinements to certain insurance liabilities and other liabilities in both years resulted in a $6 million increase in adjusted earnings.

Expenses. Adjusted earnings increased by $24 million, primarily driven by lower operating expenses in Japan and lower corporate overhead.

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Latin America

Business Overview. Adjusted premiums, fees and other revenues for 2021 increased $462 million, or 14%, compared to 2020. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, increased $339 million, or 10%, compared to 2020, mainly driven by strong sales and persistency across the region.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Adjusted revenues"],["Premiums","$","2,609","","","$","2,265"],["Universal life and investment-type product policy fees","1,109","","","994"],["Net investment income","1,271","","","992"],["Other revenues","41","","","38"],["Total adjusted revenues","5,030","","","4,289"],["Adjusted expenses"],["Policyholder benefits and claims and policyholder dividends","3,143","","","2,406"],["Interest credited to policyholder account balances","249","","","240"],["Capitalization of DAC","(414)","","","(362)"],["Amortization of DAC and VOBA","285","","","276"],["Interest expense on debt","5","","","4"],["Other expenses","1,401","","","1,318"],["Total adjusted expenses","4,669","","","3,882"],["Provision for income tax expense (benefit)","70","","","127"],["Adjusted earnings","$","291","","","$","280"],["Adjusted earnings on a constant currency basis","$","291","","","$","302"],["Adjusted premiums, fees and other revenues","$","3,759","","","$","3,297"],["Adjusted premiums, fees and other revenues on a constant currency basis","$","3,759","","","$","3,420"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

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

Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $22 million for 2021 compared to 2020, mainly due to the strengthening of foreign currencies against the U.S. dollar, primarily the Mexican and Chilean pesos. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.

Business Growth. Latin America experienced premium and fee growth across several lines of business, primarily in Mexico and Chile. The net increase in premiums and fees was largely offset by related changes in policyholder benefits. An increase in average invested assets, primarily in Chile, generated higher net investment income. In addition, interest credited expenses on certain insurance liabilities decreased. Although business growth in the region drove an increase in commissions and other variable expenses, this was mostly offset by higher DAC capitalization. The combined impact of the items affecting business growth increased adjusted earnings by $60 million.

Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased driven by higher returns on private equity funds and higher prepayment income, both in Chile, partially offset by lower yields on fixed income securities in Mexico and the unfavorable impact of rising interest rates on our Chilean encaje within FVO Securities. In addition, interest credited expense decreased. The changes in market factors discussed above, as well as the impact of inflation, increased adjusted earnings by $64 million.

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Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting drove a $178 million decrease in adjusted earnings which includes impacts from COVID-19-related life claims, primarily in Mexico and Brazil. The favorable change from our annual actuarial assumption reviews resulted in a net increase of $7 million in adjusted earnings. Refinements to certain insurance liabilities and other liabilities in both years resulted in a $9 million increase in adjusted earnings.

Expenses and Taxes. Adjusted earnings decreased slightly due to expenses related to the region’s continued investment in technology, partially offset by the impact of expense reduction actions, continued expense discipline and a 2020 information technology charge. Tax-related adjustments in both years resulted in a $29 million net increase in adjusted earnings, primarily driven by a recurring tax item related to inflation in both Mexico and Chile, as well as a 2021 adjustment related to the filing of the U.S. income tax return.

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EMEA

Business Overview. Adjusted premiums, fees and other revenues for 2021 decreased $31 million, or 1%, compared to 2020. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased $62 million, or 2%, compared to 2020 due to the dispositions of MetLife Russia and MetLife Greece and the pending disposition of MetLife Poland. These declines were partially offset by growth, mainly in our (i) corporate solutions business in the U.K. and Egypt, (ii) accident & health and ordinary life businesses in Europe, and (iii) credit life business in Turkey, as well as (iv) a favorable refinement to an unearned premium reserve in Italy.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Adjusted revenues"],["Premiums","$","2,271","","","$","2,259"],["Universal life and investment-type product policy fees","395","","","433"],["Net investment income","215","","","269"],["Other revenues","47","","","52"],["Total adjusted revenues","2,928","","","3,013"],["Adjusted expenses"],["Policyholder benefits and claims and policyholder dividends","1,241","","","1,196"],["Interest credited to policyholder account balances","86","","","109"],["Capitalization of DAC","(469)","","","(491)"],["Amortization of DAC and VOBA","356","","","454"],["Amortization of negative VOBA","(7)","","","(8)"],["Interest expense on debt","\u2014","","","1"],["Other expenses","1,324","","","1,344"],["Total adjusted expenses","2,531","","","2,605"],["Provision for income tax expense (benefit)","96","","","81"],["Adjusted earnings","$","301","","","$","327"],["Adjusted earnings on a constant currency basis","$","301","","","$","330"],["Adjusted premiums, fees and other revenues","$","2,713","","","$","2,744"],["Adjusted premiums, fees and other revenues on a constant currency basis","$","2,713","","","$","2,775"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

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

Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $3 million for 2021 as compared to 2020, primarily driven by the weakening of the U.S. dollar against the British pound, euro, Czech koruna and Polish zloty, partially offset by the strengthening of the U.S. dollar against the Turkish lira. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.

Business Growth. Growth in our (i) corporate solutions business in the U.K., (ii) pension business in Romania, (iii) credit life business in Turkey, and (iv) ordinary life and accident & health businesses in Europe resulted in a $39 million increase in adjusted earnings.

Market Factors. Market factors, including interest rate levels and variability in equity market returns, decreased adjusted earnings by $2 million.

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Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Adjusted earnings decreased $62 million as a result of unfavorable underwriting experience, primarily due to the impact of the COVID-19 pandemic, which resulted in lower utilization in 2020 and higher claims in 2021. Unfavorable underwriting experience in our (i) corporate solutions business across the region, (ii) variable life business in the Gulf, Lebanon and Czech Republic, and (iii) accident & health business in Europe and the Gulf was partially offset by favorable underwriting experience in our credit life business in Turkey. The favorable change from our annual actuarial assumption reviews resulted in a net increase of $25 million in adjusted earnings. Refinements to certain insurance-related assets and liabilities in both years resulted in a $29 million increase in adjusted earnings.

Expenses and Taxes. Higher expenses, mainly in Turkey and Lebanon, resulted in a $15 million decrease in adjusted earnings. Taxes decreased adjusted earnings by $21 million, primarily due to changes in business mix among tax jurisdictions and tax-related adjustments in both years, as well as a revision to a tax asset in Greece.

Other. In addition to the items discussed above, adjusted earnings decreased by $22 million due to the dispositions of MetLife Russia and MetLife Greece and the pending disposition of MetLife Poland.

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MetLife Holdings

Business Overview. Our MetLife Holdings segment consists of operations relating to products and businesses, previously included in our former retail business, that we no longer actively market in the United States. We anticipate an average decline in adjusted premiums, fees and other revenues of approximately 6% to 8% per year from expected business run-off. A significant portion of our adjusted earnings is driven by separate account balances. Most directly, these balances determine asset-based fee income but they also impact DAC amortization and asset-based commissions. Separate account balances are driven by movements in the market, surrenders, deposits, withdrawals, benefit payments, transfers and policy charges. Although we have discontinued selling our long-term care product, we continue to collect premiums and administer the existing block of business, which contributed to asset growth in the segment, and we expect the related reserves to grow as this block matures. Our future policyholder benefit liability for our long-term care business was $14.4 billion and $14.3 billion as of December 31, 2021 and 2020, respectively.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Adjusted revenues"],["Premiums","$","3,333","","","$","3,600"],["Universal life and investment-type product policy fees","1,101","","","1,073"],["Net investment income","6,450","","","5,184"],["Other revenues","257","","","238"],["Total adjusted revenues","11,141","","","10,095"],["Adjusted expenses"],["Policyholder benefits and claims and policyholder dividends","6,268","","","6,738"],["Interest credited to policyholder account balances","840","","","868"],["Capitalization of DAC","(33)","","","(39)"],["Amortization of DAC and VOBA","257","","","370"],["Interest expense on debt","5","","","6"],["Other expenses","992","","","942"],["Total adjusted expenses","8,329","","","8,885"],["Provision for income tax expense (benefit)","570","","","234"],["Adjusted earnings","$","2,242","","","$","976"],["Adjusted premiums, fees and other revenues","$","4,691","","","$","4,911"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

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

Business Growth. Negative net flows from our deferred annuity business resulted in lower asset-based fee income. Premiums also declined due to business run-off and the impact of dividend scale reductions in both periods. These declines were partially offset by higher net investment income resulting from an increase in average invested assets. The combined impact of the items affecting our business growth resulted in a $66 million decrease in adjusted earnings.

Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased driven by the favorable impact of equity market returns on our private equity funds, the favorable impact of real estate market returns on our real estate investments, primarily real estate funds, and higher prepayment income, partially offset by lower yields on fixed income securities. In our deferred annuity business, higher equity market returns drove higher asset-based fee income, which increased adjusted earnings. The changes in market factors discussed above, partially offset by higher DAC amortization, resulted in a $1.1 billion increase in adjusted earnings.

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Underwriting, Actuarial Assumption Review, and Other Insurance Adjustments. Unfavorable underwriting, mainly in our long-term care business, resulted in a $14 million decrease in adjusted earnings, which reflects the diminishing impact of the COVID-19 pandemic on this business in 2021. The favorable change from our annual actuarial assumption reviews resulted in a net increase of $82 million in adjusted earnings. Unfavorable refinements to DAC and certain insurance-related liabilities in 2020 resulted in a $24 million increase in adjusted earnings. Dividend scale reductions, as well as run-off in MLIC’s closed block, contributed to lower dividend expenses of $149 million and lower associated DAC amortization of $68 million, which increased adjusted earnings.

Expenses. Adjusted earnings decreased by $54 million mainly due to higher corporate-related expenses.

Corporate & Other

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Adjusted revenues"],["Premiums","$","35","","","$","22"],["Universal life and investment-type product policy fees","2","","","3"],["Net investment income","244","","","42"],["Other revenues","420","","","344"],["Total adjusted revenues","701","","","411"],["Adjusted expenses"],["Policyholder benefits and claims and policyholder dividends","34","","","(3)"],["Capitalization of DAC","(11)","","","(11)"],["Amortization of DAC and VOBA","9","","","8"],["Interest expense on debt","902","","","895"],["Other expenses","562","","","625"],["Total adjusted expenses","1,496","","","1,514"],["Provision for income tax expense (benefit)","(591)","","","(556)"],["Adjusted earnings","(204)","","","(547)"],["Less: Preferred stock dividends","195","","","202"],["Adjusted earnings available to common shareholders","$","(399)","","","$","(749)"],["Adjusted premiums, fees and other revenues","$","457","","","$","369"]]
[[/GREPCENT_TABLE]]

The table below presents adjusted earnings available to common shareholders by source:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Business activities","$","143","","","$","96"],["Net investment income","248","","","54"],["Interest expense on debt","(944)","","","(943)"],["Corporate initiatives and projects","(128)","","","(159)"],["Other","(114)","","","(151)"],["Provision for income tax (expense) benefit and other tax-related items","591","","","556"],["Preferred stock dividends","(195)","","","(202)"],["Adjusted earnings available to common shareholders","$","(399)","","","$","(749)"]]
[[/GREPCENT_TABLE]]

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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

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

Business Activities. Adjusted earnings from business activities increased $37 million. This was primarily related to improved results from certain of our businesses.

Net Investment Income. Net investment income increased $153 million, primarily due to increased returns on our equity market sensitive investments, including private equity funds, as well as increased income on real estate investments. These increases were partially offset by lower yields on our fixed income securities and decreased returns on FVO Securities.

Corporate Initiatives and Projects. Adjusted earnings increased $24 million due to lower expenses associated with employee-related project costs.

Provision for Income Tax (Expense) Benefit and Other Tax-Related Items. A favorable change in Corporate & Other’s taxes was primarily due an IRS audit settlement in 2021, the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent in 2021 and lower taxes on stock compensation. These were partially offset by the finalization of bankruptcy proceedings for a leveraged lease investment in 2020 and lower utilization of tax preferenced items, which include foreign earnings taxed at different rates than the U.S. statutory rate, tax credits and non-taxable investment income.

Other. Adjusted earnings increased $29 million, primarily as a result of the release of a legal reserve in 2021, lower legal expenses, as well as a decrease in certain corporate-related expenses, partially offset by an increase in employee-related costs.

Preferred Stock Dividends. Adjusted earnings available to common shareholders increased $7 million as a result of the redemption and cancellation of the 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the “Series C preferred stock”) on June 15, 2021, partially offset by dividends paid on the 3.85% Fixed Rate Reset Non-Cumulative Preferred Stock, Series G, we issued in September 2020.

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Investments

Overview

We manage our investment portfolio using disciplined ALM principles, focusing on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted investment income and risk-adjusted total return. Our investment portfolio is heavily weighted toward fixed income investments, with the vast majority of our portfolio invested in fixed maturity securities AFS and mortgage loans. These securities and loans have varying maturities and other characteristics which cause them to be generally well suited for matching the cash flow and duration of insurance liabilities.

Current Environment     

As a global insurance company, we continue to be impacted by the changing global financial and economic environment, the fiscal and monetary policy of governments and central banks around the world and other governmental measures. The COVID-19 pandemic continues to impact the global economy and financial markets and has caused volatility in the global equity, credit and real estate markets. See “— Industry Trends — Financial and Economic Environment.” Uncertainty created by the COVID-19 pandemic may persist for some time and may continue to impact pricing levels of risk-bearing investments, as well as our business operations, investment portfolio and derivatives. See “— Selected Country and Sector Investments,” “— U.S. and Foreign Corporate Fixed Maturity Securities AFS,” “— Mortgage Loans,” and “— Real Estate and Real Estate Joint Ventures” for discussion of impacts of the COVID-19 pandemic on the investment portfolio.

Selected Country and Sector Investments

Selected Country: We have a market presence in numerous countries and, therefore, our investment portfolio, which supports our insurance operations and related policyholder liabilities, as well as our global portfolio diversification objectives, is exposed to risks posed by local political and economic conditions, as well as those resulting from the COVID-19 pandemic. The countries included in the following table have been the most affected by these risks. The table below presents a summary of selected country fixed maturity securities AFS, at estimated fair value, on a “country of risk basis” (e.g. where the issuer primarily conducts business).

[[GREPCENT_TABLE]]
[["","Selected Country Fixed Maturity Securities AFS at December 31, 2021"],["Country","Sovereign (1)","","Financial Services","","Non-Financial Services","","Structured Products","","Total (2)"],["","(Dollars in millions)"],["Mexico","$","2,406","","","$","795","","","$","2,021","","","$","34","","","$","5,256"],["Chile","1,424","","","816","","","2,895","","","1","","","5,136"],["Colombia","369","","","70","","","187","","","\u2014","","","626"],["Peru","120","","","41","","","247","","","\u2014","","","408"],["Russia","278","","","26","","","101","","","\u2014","","","405"],["Ukraine","129","","","\u2014","","","2","","","\u2014","","","131"],["Turkey","78","","","1","","","12","","","\u2014","","","91"],["Total","$","4,804","","","$","1,749","","","$","5,465","","","$","35","","","$","12,053"],["Investment grade %","87.3","%","","89.7","%","","90.2","%","","91.4","%","","89.0","%"]]
[[/GREPCENT_TABLE]]

__________________

(1)Sovereign includes government and agency.

(2)The par value, amortized cost net of ACL and estimated fair value, net of purchased and written credit default swaps, of these securities were $11.7 billion, $11.1 billion and $11.3 billion, respectively, at December 31, 2021. The notional value and estimated fair value of the net purchased and written credit default swaps were $740 million and ($1) million, respectively, at December 31, 2021.

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Selected Sector: As a result of current economic conditions, including the effects on the global economy and financial markets from the COVID-19 pandemic, certain sectors of our investment portfolio have continued to experience stress. Our fixed maturity securities AFS exposure to stressed sectors is summarized below:

[[GREPCENT_TABLE]]
[["","Selected Sectors at December 31, 2021"],["Sectors","Book Value (1)","","Investment Grade %","","% of Total Investments"],["","(Dollars in millions)"],["Airports","$","3,233","","","82","%","","0.6","%"],["Cruise Lines / Leisure","994","","","92","%","","0.2","%"],["Airlines","477","","","73","%","","0.1","%"],["Restaurants","445","","","96","%","","0.1","%"],["Lodging","175","","","62","%","","\u2014","%"],["Fixed maturity securities AFS exposure to stressed sectors (2)","$","5,324","","","","","1.0","%"]]
[[/GREPCENT_TABLE]]

__________________

(1)Fixed maturity securities AFS at amortized cost, net of ACL.

(2)The par value, estimated fair value and estimated fair value, net of written credit default swaps, of these securities were $5.3 billion, $5.7 billion and $5.8 billion, respectively, at December 31, 2021. The notional value and estimated fair value of the written credit default swaps were $167 million and $3 million, respectively, at December 31, 2021.

We maintain a high quality portfolio of Airports sector fixed maturity securities AFS that is diversified across issuers and geographies, with 46%, 23% and 23% of the exposure in Europe, Asia and the U.S., respectively. This portfolio is primarily invested in higher quality, highly rated investment grade securities. At December 31, 2021, this securities portfolio was in an unrealized gain position of $215 million.

We manage direct and indirect investment exposure in the selected countries and sectors through fundamental analysis and we continually monitor and adjust our level of investment exposure.

Investment Portfolio Results

The reconciliation of net investment income under GAAP to adjusted net investment income is presented below.

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["","2021","","2020"],["","(In millions)"],["Net investment income \u2014 GAAP","$","21,395","","","$","17,117"],["Investment hedge adjustments","895","","","815"],["Unit-linked investment income","(952)","","","(568)"],["Other","(58)","","","(36)"],["Adjusted net investment income (1)","$","21,280","","","$","17,328"]]
[[/GREPCENT_TABLE]]

__________________

(1)See “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements for a discussion of the adjustments made to net investment income under GAAP in calculating adjusted net investment income.

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The following yield table presentation is consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results.

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["","2021","","2020"],["Asset Class","Yield% (1)","","Amount","","Yield% (1)","","Amount"],["","(Dollars in millions)"],["Fixed maturity securities AFS (2), (3)","3.74","","%","$","11,146","","","3.88","","%","$","11,356"],["Mortgage loans (3)","4.19","","","3,430","","","4.27","","","3,518"],["Real estate and real estate joint ventures (4)","4.81","","","579","","","1.56","","","178"],["Policy loans","5.11","","","474","","","5.18","","","498"],["Equity securities","4.45","","","36","","","4.83","","","50"],["Other limited partnership interests (4)","40.71","","","4,935","","","12.17","","","1,010"],["Cash and short-term investments","0.80","","","87","","","1.35","","","140"],["Other invested assets","\u2014","","","1,197","","","\u2014","","","1,162"],["Investment income","5.05","","%","$","21,884","","","4.22","","%","$","17,912"],["Investment fees and expenses","(0.12)","","","(537)","","","(0.13)","","","(538)"],["Net investment income including divested businesses (5)","4.93","","%","$","21,347","","","4.09","","%","$","17,374"],["Less: net investment income from divested businesses (5)","","","67","","","","","46"],["Adjusted net investment income","","","$","21,280","","","","","$","17,328"]]
[[/GREPCENT_TABLE]]

__________________

(1)We calculate yields using adjusted net investment income as a percent of average quarterly asset carrying values. Adjusted net investment income excludes realized gains (losses) from sales and disposals, includes the impact of changes in foreign currency exchange rates. Average quarterly asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, annuities funding structured settlement claims, freestanding derivative assets, collateral received from derivative counterparties, the effects of consolidating under GAAP certain variable interest entities that are treated as consolidated securitization entities (“CSEs”) and contractholder-directed equity securities. In addition, average quarterly asset carrying values include invested assets reclassified to held-for-sale. A yield is not presented for other invested assets, as it is not considered a meaningful measure of performance for this asset class.

(2)Investment income from fixed maturity securities includes amounts from FVO Securities of $167 million and $140 million for the years ended December 31, 2021 and 2020, respectively.

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

(4)See “— Results of Operations — Consolidated Results — Adjusted Earnings” for discussion of results for the year ended December 31, 2021.

(5)See “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements for discussion of divested businesses.

See “— Results of Operations — Consolidated Results — Adjusted Earnings” for an analysis of the period over period changes in investment portfolio results.

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Fixed Maturity Securities AFS and Equity Securities

The following table presents fixed maturity securities AFS and equity securities by type (public or private) and information about perpetual and redeemable securities held at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["Securities by Type","Estimated Fair Value","","% of Total","","Estimated Fair Value","","% of Total"],["","(Dollars in millions)"],["Fixed maturity securities AFS"],["Publicly-traded","$","267,040","","","78.5","%","","$","284,083","","","80.1","%"],["Privately-placed","73,234","","","21.5","","","70,726","","","19.9"],["Total fixed maturity securities AFS","$","340,274","","","100.0","%","","$","354,809","","","100.0","%"],["Percentage of cash and invested assets","66.1","%","","","","67.2","%"],["Equity securities"],["Publicly-traded","$","1,118","","","88.1","%","","$","851","","","78.9","%"],["Privately-held","151","","","11.9","","","228","","","21.1"],["Total equity securities","$","1,269","","","100.0","%","","$","1,079","","","100.0","%"],["Percentage of cash and invested assets","0.2","%","","","","0.2","%"],["Perpetual and redeemable securities"],["Perpetual securities included within fixed maturity securities AFS and equity securities","$","321","","","","","$","344"],["Redeemable preferred stock with a stated maturity included within fixed maturity securities AFS","$","864","","","","","$","912"]]
[[/GREPCENT_TABLE]]

See Note 8 of the Notes to the Consolidated Financial Statements for information about fixed maturity securities AFS by sector, contractual maturities, continuous gross unrealized losses and equity securities by security type.

Included within fixed maturity securities AFS are structured securities, including residential mortgage-backed securities (“RMBS”), ABS and commercial mortgage-backed securities (“CMBS”) (collectively, “Structured Products”).

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

Redeemable preferred stock with a stated maturity is included within fixed maturity securities AFS. These securities, which are commonly referred to as “capital securities,” primarily have cumulative interest deferral features and are primarily issued by U.S. financial institutions.

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Valuation of Securities. We are responsible for the determination of the estimated fair value of our investments. We determine the estimated fair value of publicly-traded securities after considering one of three primary sources of information: quoted market prices in active markets, independent pricing services, or independent broker quotations. We determine the estimated fair value of privately-placed securities after considering one of three primary sources of information: market standard internal matrix pricing, market standard internal discounted cash flow techniques, or independent pricing services (after we determine the independent pricing services’ use of available observable market data). For publicly-traded securities, the number of quotations obtained varies by instrument and depends on the liquidity of the particular instrument. Generally, we obtain prices from multiple pricing services to cover all asset classes and obtain multiple prices for certain securities, but ultimately utilize the price with the highest placement in the fair value hierarchy. Independent pricing services that value these instruments use market standard valuation methodologies based on data about market transactions and inputs from multiple pricing sources that are market observable or can be derived principally from or corroborated by observable market data. See Note 10 of the Notes to the Consolidated Financial Statements for a discussion of the types of market standard valuation methodologies utilized and key assumptions and observable inputs used in applying these standard valuation methodologies. When a price is not available in the active market or through an independent pricing service, management values the security primarily using market standard internal matrix pricing or discounted cash flow techniques, and non-binding quotations from independent brokers who are knowledgeable about these securities. Independent non-binding broker quotations utilize inputs that may be difficult to corroborate with observable market data. As shown in the following section, less than 1% of our fixed maturity securities AFS were valued using non-binding quotations from independent brokers at December 31, 2021.

Senior management, independent of the trading and investing functions, is responsible for the oversight of control systems and valuation policies for securities, mortgage loans, real estate and derivatives. On a quarterly basis, new transaction types and markets are reviewed and approved to ensure that observable market prices and market-based parameters are used for valuation, wherever possible, and for determining that valuation adjustments, when applied, are based upon established policies and are applied consistently over time. Senior management oversees the selection of independent third-party pricing providers and the controls and procedures to evaluate third-party pricing.

We review our valuation methodologies on an ongoing basis and revise those methodologies when necessary based on changing market conditions. Assurance is gained on the overall reasonableness and consistent application of input assumptions, valuation methodologies and compliance with fair value accounting guidance through controls designed to ensure valuations represent an exit price. Several controls are utilized, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, comparing fair value estimates to management’s knowledge of the current market, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing whether these inputs can be corroborated by observable market data. We ensure that prices received from independent brokers, also referred to herein as “consensus pricing,” are representative of estimated fair value by considering such pricing relative to our knowledge of the current market dynamics and current pricing for similar investments. While independent non-binding broker quotations are utilized, they are not used for a significant portion of the portfolio.

We also apply a formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations are obtained, or an internally developed valuation is prepared. Internally developed valuations of current estimated fair value, compared with pricing received from the independent pricing services, did not produce material differences in the estimated fair values for the majority of the portfolio; accordingly, overrides were not material. This is, in part, because internal estimates are generally based on available market evidence and estimates used by other market participants. In the absence of such market-based evidence, management’s best estimate is used.

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

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Fair Value of Fixed Maturity Securities AFS and Equity Securities

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

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["Level","","Fixed Maturity Securities AFS","","Equity Securities"],["","","(Dollars in millions)"],["Level 1"],["Quoted prices in active markets for identical assets","","$","25,489","","","7.5","%","","$","931","","","73.4","%"],["Level 2"],["Independent pricing sources","","282,408","","","83.0","","","184","","","14.5"],["Internal matrix pricing or discounted cash flow techniques","","980","","","0.3","","","3","","","0.2"],["Significant other observable inputs","","283,388","","","83.3","","","187","","","14.7"],["Level 3"],["Independent pricing sources","","25,051","","","7.4","","","5","","","0.4"],["Internal matrix pricing or discounted cash flow techniques","","5,864","","","1.7","","","146","","","11.5"],["Independent broker quotations","","482","","","0.1","","","\u2014","","","\u2014"],["Significant unobservable inputs","","31,397","","","9.2","","","151","","","11.9"],["Total at estimated fair value","","$","340,274","","","100.0","%","","$","1,269","","","100.0","%"]]
[[/GREPCENT_TABLE]]

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

The majority of the Level 3 fixed maturity securities AFS and equity securities were concentrated in three sectors at December 31, 2021: foreign corporate securities, U.S. corporate securities and RMBS. During the year ended December 31, 2021, Level 3 fixed maturity securities AFS increased by $1.9 billion, or 6%. The increase was driven by purchases in excess of sales, partially offset by a decrease in estimated fair value recognized in other comprehensive income (loss) and by transfers out of Level 3 in excess of transfers into Level 3.

Fixed Maturity Securities AFS

See Note 8 of the Notes to the Consolidated Financial Statements for information about fixed maturity securities AFS by sector, contractual maturities and continuous gross unrealized losses.

Fixed Maturity Securities AFS Credit Quality — Ratings 

The Securities Valuation Office of the NAIC evaluates the fixed maturity securities of insurers for regulatory reporting and capital assessment purposes. The NAIC assigns securities to one of six credit quality categories defined as “NAIC designations.” In general, securities with NAIC designations of 1 and 2 are considered investment grade and securities with NAIC designations of 3 through 6 are considered below investment grade. If no NAIC designation is available, then, as permitted by the NAIC, an internally developed designation is used. NAIC designations are generally similar to the credit quality ratings of the NRSRO, except for non-agency RMBS and CMBS as described below, accordingly, NAIC designations may not correspond to NRSRO ratings.

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NAIC designations for non-agency RMBS and CMBS are based on a modeling methodology that estimates security level expected losses under a variety of economic scenarios. Prior to December 31, 2021, the modeling methodology incorporated the amortized cost of the security (including any purchase discounts and prior impairments) without regard to the issuance date. As of December 31, 2021, the modeling methodology for non-agency RMBS and CMBS issued prior to January 1, 2013 incorporates the amortized cost of the security (including any purchase discounts and prior impairments) and the likelihood of recovery of the amortized cost; while for non-agency RMBS and CMBS issued after January 1, 2013, the modeling methodology does not incorporate the amortized cost of the security. The NAIC’s objective with the modeling methodology is to increase accuracy in estimating expected losses, and to use the improved assessment to determine an appropriate RBC charge for non-agency RMBS and CMBS. We utilize these NAIC designations for non-agency RMBS and CMBS held by MetLife, Inc.’s insurance subsidiaries that maintain the NAIC statutory basis of accounting. The NAIC evaluates non-agency RMBS and CMBS held by insurers on an annual basis. When MetLife, Inc.’s insurance subsidiaries acquire non-agency RMBS and CMBS that have not been previously evaluated by the NAIC, an internally developed designation is used until a NAIC designation becomes available.

Effective December 31, 2020, the NAIC implemented 20 “NAIC designation categories” which is an additional, more granular credit quality categorization. These NAIC designation categories correspond more closely to the NRSRO’s alpha-numeric credit quality ratings. Effective December 31, 2021, the NAIC implemented new unique RBC factors for each of the 20 NAIC designation categories. The NAIC’s goal is to better align RBC charges on securities with the instruments’ actual credit risk.

Rating agency ratings are based on availability of applicable ratings from rating agencies on the NAIC credit rating provider list, including Moody’s Investors Service (“Moody’s”), S&P, Fitch Ratings (“Fitch”), DBRS Morningstar, A.M. Best Company (“A.M. Best”), Kroll Bond Rating Agency and Egan Jones Ratings Company. If no rating is available from a rating agency, then an internally developed rating is used.

The following table presents total fixed maturity securities AFS by NRSRO rating and the applicable NAIC designation from the NAIC published comparison of NRSRO ratings to NAIC designations, except for non-agency RMBS and CMBS, held by MetLife, Inc.'s insurance subsidiaries that maintain the NAIC statutory basis of accounting, which are presented using NAIC designations for modeled securities. NRSRO ratings and NAIC designations are as of the dates shown below. Over time, credit ratings can migrate, up or down, through the NRSRO's and NAIC’s continuous monitoring process.

[[GREPCENT_TABLE]]
[["","","","","December 31,"],["","","","","2021","","","2020"],["NAIC Designation","","NRSRO Rating","","Amortized Cost net of ACL","","Unrealized Gains (Losses) (1)","","Estimated Fair Value","","% of Total","","","Amortized Cost net of ACL","","Unrealized Gains (Losses) (1)","","Estimated Fair Value","","% of Total"],["","","","","(Dollars in millions)"],["1","","Aaa/Aa/A","","$","217,886","","","$","21,508","","","$","239,394","","","70.4","","%","","$","218,252","","","$","31,761","","","$","250,013","","","70.5","","%"],["2","","Baa","","77,739","","","7,470","","","85,209","","","25.0","","","","76,342","","","11,360","","","87,702","","","24.7"],["","","Subtotal investment grade","","295,625","","","28,978","","","324,603","","","95.4","","","","294,594","","","43,121","","","337,715","","","95.2"],["3","","Ba","","11,439","","","534","","","11,973","","","3.5","","","","11,840","","","972","","","12,812","","","3.6"],["4","","B","","3,152","","","(2)","","","3,150","","","0.9","","","","3,688","","","14","","","3,702","","","1.1"],["5","","Caa and lower","","563","","","(37)","","","526","","","0.2","","","","536","","","(33)","","","503","","","0.1"],["6","","In or near default","","14","","","8","","","22","","","\u2014","","","","72","","","5","","","77","","","\u2014"],["","","Subtotal below investment grade","","15,168","","","503","","","15,671","","","4.6","","","","16,136","","","958","","","17,094","","","4.8"],["","","Total fixed maturity securities AFS","","$","310,793","","","$","29,481","","","$","340,274","","","100.0","","%","","$","310,730","","","$","44,079","","","$","354,809","","","100.0","","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes gross unrealized gains (losses) related to assets held-for-sale. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.

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The following tables present total fixed maturity securities AFS, at estimated fair value, by sector and by NRSRO rating and the applicable NAIC designations from the NAIC published comparison of NRSRO ratings to NAIC designations, except for non-agency RMBS and CMBS, which are presented using NAIC designations for modeled securities:

[[GREPCENT_TABLE]]
[["","Fixed Maturity Securities AFS \u2014 by Sector & Credit Quality Rating"],["NAIC Designation","1","","2","","3","","4","","5","","6","","Total Estimated Fair Value"],["NRSRO Rating","Aaa/Aa/A","","Baa","","Ba","","B","","Caa and Lower","","In or Near Default"],["","(Dollars in millions)"],["December 31, 2021"],["U.S. corporate","$","47,377","","","$","39,094","","","$","4,523","","","$","1,796","","","$","244","","","$","\u2014","","","$","93,034"],["Foreign corporate","23,228","","","35,893","","","3,731","","","577","","","210","","","1","","","63,640"],["Foreign government","52,316","","","5,739","","","3,032","","","506","","","14","","","2","","","61,609"],["U.S. government and agency","46,065","","","534","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","46,599"],["RMBS","29,529","","","634","","","150","","","67","","","5","","","19","","","30,404"],["ABS","15,920","","","2,221","","","316","","","85","","","27","","","\u2014","","","18,569"],["Municipals","13,737","","","457","","","18","","","\u2014","","","\u2014","","","\u2014","","","14,212"],["CMBS","11,222","","","637","","","203","","","119","","","26","","","\u2014","","","12,207"],["Total fixed maturity securities AFS","$","239,394","","","$","85,209","","","$","11,973","","","$","3,150","","","$","526","","","$","22","","","$","340,274"],["Percentage of total","70.4","%","","25.0","%","","3.5","%","","0.9","%","","0.2","%","","\u2014","%","","100.0","%"],["December 31, 2020"],["U.S. corporate","$","46,847","","","$","39,552","","$","4,649","","","$","2,018","","","$","326","","","$","24","","","$","93,416"],["Foreign corporate","26,812","","","37,884","","3,984","","","648","","","74","","","6","","","69,408"],["Foreign government","61,322","","","6,678","","3,161","","","456","","","77","","","5","","","71,699"],["U.S. government and agency","46,543","","","557","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","47,100"],["RMBS","29,347","","","706","","197","","","153","","","14","","","18","","","30,435"],["ABS","15,328","","","1,496","","197","","","96","","","1","","","1","","","17,119"],["Municipals","13,240","","","460","","22","","","\u2014","","","\u2014","","","\u2014","","","13,722"],["CMBS","10,574","","","369","","602","","","331","","","11","","","23","","","11,910"],["Total fixed maturity securities AFS","$","250,013","","","$","87,702","","$","12,812","","","$","3,702","","","$","503","","","$","77","","","$","354,809"],["Percentage of total","70.5","%","","24.7","%","","3.6","%","","1.1","%","","0.1","%","","\u2014","%","","100.0","%"]]
[[/GREPCENT_TABLE]]

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U.S. and Foreign Corporate Fixed Maturity Securities AFS

We maintain a diversified portfolio of corporate fixed maturity securities AFS across industries and issuers. This portfolio did not have any exposure to any single issuer in excess of 1% of total investments at December 31, 2021. The top 10 holdings comprised 2% of total investments at both December 31, 2021 and 2020. The table below presents our U.S. and foreign corporate securities holdings by industry at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["Industry","Estimated Fair Value","","% of Total","","Estimated Fair Value","","% of Total"],["","(Dollars in millions)"],["Industrial","$","45,732","","","29.2","%","","$","47,472","","","29.2","%"],["Finance","35,676","","","22.7","","","37,645","","","23.1"],["Consumer","31,142","","","19.9","","","33,384","","","20.5"],["Utility","28,961","","","18.5","","","29,984","","","18.4"],["Communications","12,346","","","7.9","","","12,107","","","7.4"],["Other","2,817","","","1.8","","","2,232","","","1.4"],["Total","$","156,674","","","100.0","%","","$","162,824","","","100.0","%"]]
[[/GREPCENT_TABLE]]

As a result of current economic conditions, including the effects of the COVID-19 pandemic, we have experienced stress within certain sub-sectors of our industrial and consumer corporate securities portfolios, principally in Airports, Cruise Lines / Leisure, Airlines, Restaurants and Lodging. See “— Current Environment — Selected Country and Sector Investments.”

Structured Products

We held $61.2 billion and $59.5 billion of Structured Products, at estimated fair value, at December 31, 2021 and 2020, respectively, as presented in the RMBS, ABS and CMBS sections below.

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RMBS

Our RMBS portfolio is diversified by security type and risk profile. The following table presents our RMBS portfolio by security type, risk profile and ratings profile at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["","Estimated Fair Value","","% of Total","","Net Unrealized Gains (Losses) (1)","","Estimated Fair Value","","% of Total","","Net Unrealized Gains (Losses) (1)"],["","(Dollars in millions)"],["Security type"],["Collateralized mortgage obligations","$","17,646","","","58.0","%","","$","1,092","","","$","17,342","","","57.0","%","","$","1,468"],["Pass-through mortgage-backed securities","12,758","","","42.0","","","160","","","13,093","","","43.0","","","552"],["Total RMBS","$","30,404","","","100.0","%","","$","1,252","","","$","30,435","","","100.0","%","","$","2,020"],["Risk profile"],["Agency","$","19,487","","","64.1","%","","$","671","","","$","20,408","","","67.1","%","","$","1,314"],["Prime","3,018","","","9.9","","","13","","","1,637","","","5.4","","","38"],["Alt-A","3,887","","","12.8","","","267","","","3,809","","","12.5","","","306"],["Sub-prime","4,012","","","13.2","","","301","","","4,581","","","15.0","","","362"],["Total RMBS","$","30,404","","","100.0","%","","$","1,252","","","$","30,435","","","100.0","%","","$","2,020"],["Ratings profile"],["Rated Aaa/AAA","$","21,786","","","71.7","%","","","","$","22,555","","","74.1","%"],["Designated NAIC 1","$","29,529","","","97.1","%","","","","$","29,347","","","96.4","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes gross unrealized gains (losses) related to assets held-for-sale. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.

Collateralized mortgage obligations are structured by dividing the cash flows of mortgage loans into separate pools or tranches of risk that create multiple classes of bonds with varying maturities and priority of payments. Pass-through mortgage-backed securities are secured by a mortgage loan or collection of mortgage loans. The monthly mortgage loan payments from homeowners pass from the originating bank through an intermediary, such as a government agency or investment bank, which collects the payments and, for a fee, remits or passes these payments through to the holders of the pass-through securities.

The majority of our RMBS holdings were rated Aaa/AAA and were designated NAIC 1 at December 31, 2021 and 2020. Agency RMBS were guaranteed or otherwise supported by Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or Government National Mortgage Association. Non-agency RMBS include prime, alternative residential mortgage loans (“Alt-A”) and sub-prime RMBS. Prime residential mortgage lending includes the origination of residential mortgage loans to the most creditworthy borrowers with high quality credit profiles. Alt-A is a classification of mortgage loans where the risk profile of the borrower is between prime and sub-prime. Sub-prime mortgage lending is the origination of residential mortgage loans to borrowers with weak credit profiles.    

Historically, we have managed our exposure to sub-prime RMBS holdings by focusing primarily on senior tranche securities, stress testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio. Our sub-prime RMBS portfolio consists predominantly of securities that were purchased at significant discounts to par value and discounts to the expected principal recovery value of these securities. The vast majority of these securities are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2).

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ABS 

Our ABS portfolio is diversified by collateral type and issuer. The following table presents our ABS portfolio by collateral type and ratings profile at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["","Estimated Fair Value","","% of Total","","Net Unrealized Gains (Losses) (1)","","Estimated Fair Value","","% of Total","","Net Unrealized Gains (Losses) (1)"],["","(Dollars in millions)"],["Collateral type"],["Collateralized obligations (2)","$","8,441","","","45.5","%","","$","(3)","","","$","8,946","","","52.2","%","","$","(16)"],["Consumer loans","1,653","","","8.9","","","48","","","1,535","","","9.0","","","46"],["Automobile loans","1,287","","","6.9","","","10","","","976","","","5.7","","","20"],["Student loans","1,143","","","6.2","","","15","","","1,174","","","6.9","","","7"],["Foreign residential loans","922","","","5.0","","","2","","","956","","","5.5","","","15"],["Credit card loans","900","","","4.8","","","9","","","1,006","","","5.9","","","13"],["Other loans (3)","4,223","","","22.7","","","45","","","2,526","","","14.8","","","71"],["Total","$","18,569","","","100.0","%","","$","126","","","$","17,119","","","100.0","%","","$","156"],["Ratings profile"],["Rated Aaa/AAA","$","8,071","","","43.5","%","","","","$","9,164","","","53.5","%"],["Designated NAIC 1","$","15,920","","","85.7","%","","","","$","15,328","","","89.5","%"]]
[[/GREPCENT_TABLE]]

_________________

(1)Excludes gross unrealized gains (losses) related to assets held-for-sale. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.

(2)Includes primarily collateralized loan obligations.

(3)Other loans are broadly diversified across several subsectors and issuers, including securities with the following collateral types: digital infrastructure, franchise, equipment, containers and renewable energy.

CMBS

Our CMBS portfolio is comprised primarily of securities collateralized by multiple commercial mortgage loans and is diversified by property type, borrower, geography and vintage year. The following tables present our CMBS portfolio by NRSRO rating and vintage year.

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["","Aaa","","Aa","","A","","Baa","","Below Investment Grade","","Total"],["Vintage Year","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value"],["","(Dollars in millions)"],["2003 - 2014","$","1,170","","","$","1,228","","","$","1,048","","","$","1,085","","","$","570","","","$","576","","","$","94","","","$","91","","","$","230","","","$","219","","","$","3,112","","","$","3,199"],["2015","456","","","479","","","56","","","58","","","53","","","55","","","7","","","7","","","\u2014","","","\u2014","","","572","","","599"],["2016","268","","","286","","","66","","","68","","","53","","","54","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","387","","","408"],["2017","770","","","804","","","345","","","361","","","193","","","197","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,308","","","1,362"],["2018","1,756","","","1,917","","","301","","","314","","","179","","","188","","","10","","","10","","","\u2014","","","\u2014","","","2,246","","","2,429"],["2019","934","","","967","","","131","","","133","","","660","","","666","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,725","","","1,766"],["2020","501","","","506","","","247","","","248","","","214","","","218","","","26","","","26","","","\u2014","","","\u2014","","","988","","","998"],["2021","650","","","650","","","510","","","510","","","245","","","249","","","37","","","37","","","\u2014","","","\u2014","","","1,442","","","1,446"],["Total","$","6,505","","","$","6,837","","","$","2,704","","","$","2,777","","","$","2,167","","","$","2,203","","","$","174","","","$","171","","","$","230","","","$","219","","","$","11,780","","","$","12,207"],["Ratings Distribution","","","56.0","%","","","","22.8","%","","","","18.0","%","","","","1.4","%","","","","1.8","%","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","December 31, 2020"],["","Aaa","","Aa","","A","","Baa","","Below Investment Grade","","Total"],["Vintage Year","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value","","Amortized Cost net of ACL","","Estimated Fair Value"],["","(Dollars in millions)"],["2003 - 2014","$","1,409","","","$","1,491","","","$","1,327","","","$","1,366","","","$","542","","","$","526","","","$","115","","","$","105","","","$","114","","","$","98","","","$","3,507","","","$","3,586"],["2015","462","","","492","","","65","","","69","","","38","","","40","","","7","","","6","","","\u2014","","","\u2014","","","572","","","607"],["2016","282","","","310","","","56","","","60","","","54","","","53","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","392","","","423"],["2017","757","","","807","","","432","","","463","","","150","","","150","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,339","","","1,420"],["2018","1,704","","","1,891","","","592","","","647","","","205","","","214","","","9","","","9","","","\u2014","","","\u2014","","","2,510","","","2,761"],["2019","1,048","","","1,100","","","138","","","141","","","596","","","610","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,782","","","1,851"],["2020","734","","","748","","","280","","","293","","","186","","","191","","","29","","","30","","","\u2014","","","\u2014","","","1,229","","","1,262"],["Total","$","6,396","","","$","6,839","","","$","2,890","","","$","3,039","","","$","1,771","","","$","1,784","","","$","160","","","$","150","","","$","114","","","$","98","","","$","11,331","","","$","11,910"],["Ratings Distribution","","","57.4","%","","","","25.5","%","","","","15.0","%","","","","1.3","%","","","","0.8","%","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

The tables above reflect NRSRO ratings including Moody’s, S&P, Fitch and DBRS Morningstar. CMBS designated NAIC 1 were 91.9% and 88.8% of total CMBS at December 31, 2021 and 2020, respectively.

Evaluation of Fixed Maturity Securities AFS for Credit Loss, Rollforward of Allowance for Credit Loss and Credit Loss on Fixed Maturity Securities AFS Recognized in Earnings

See Note 8 of the Notes to the Consolidated Financial Statements for information about the evaluation of fixed maturity securities AFS for credit loss, rollforward of the ACL, net credit loss provision (release), impairment loss, as well as realized gross gains and gross losses on fixed maturity securities AFS sold or disposed at and for the years ended December 31, 2021 and 2020.

Contractholder-Directed Equity Securities and Fair Value Option Securities

The estimated fair value of these investments, which are primarily comprised of contractholder-directed equity securities supporting unit-linked variable annuity type liabilities (“Unit-linked investments”), was $12.1 billion and $13.3 billion, or 2.4% and 2.5% of cash and invested assets, at December 31, 2021 and 2020, respectively. See Notes 1, 8 and 10 of the Notes to the Consolidated Financial Statements for a description of this portfolio, investments by asset type, the fair value hierarchy and a rollforward of the fair value measurements for these investments measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.

Securities Lending Transactions, Repurchase Agreements and Third-Party Custodian Administered Programs

We participate in securities lending transactions, repurchase agreements and third-party custodian administered programs with unaffiliated financial institutions in the normal course of business for the purpose of enhancing the total return on our investment portfolio.

Securities lending transactions and repurchase agreements: We account for these arrangements as secured borrowings and record a liability in the amount of the cash received. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the securities are returned to us. Through these arrangements, we were liable for cash collateral under our control of $24.4 billion and $21.8 billion at December 31, 2021 and 2020, respectively, including a portion that may require the immediate return of cash collateral we hold. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for further information about the secured borrowings accounting and the classification of revenues and expenses.

Third-party custodian administered programs: The estimated fair value of securities we own which are loaned in connection with these programs was $273 million and $19 million at December 31, 2021 and 2020, respectively. The estimated fair value of the related non-cash collateral on deposit with third-party custodians on our behalf, which is not reflected in our consolidated financial statements and cannot be sold or re-pledged, was $282 million and $20 million at December 31, 2021 and 2020, respectively. The year-over-year increase in securities owned and loaned and related non-cash collateral was due to increased demand for longer duration securities in our portfolios available for lending.

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Mortgage Loans

Our mortgage loans are principally collateralized by commercial, agricultural and residential properties. Mortgage loans carried at amortized cost and the related ACL are summarized as follows at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["Portfolio Segment","Amortized Cost","","% of Total","","ACL","","ACL as % of Amortized Cost","","Amortized Cost","","% of Total","","ACL","","ACL as % of Amortized Cost"],["","(Dollars in millions)"],["Commercial","$","50,553","","","63.3","%","","$","340","","","0.7","%","","$","52,434","","","62.2","%","","$","252","","","0.5","%"],["Agricultural","18,111","","","22.7","","","88","","","0.5","%","","18,128","","","21.5","","","106","","","0.6","%"],["Residential","11,196","","","14.0","","","206","","","1.8","%","","13,782","","","16.3","","","232","","","1.7","%"],["Total","$","79,860","","","100.0","%","","$","634","","","0.8","%","","$","84,344","","","100.0","%","","$","590","","","0.7","%"]]
[[/GREPCENT_TABLE]]

The carrying value of all mortgage loans, net of ACL, was 15.4% and 15.9% of cash and invested assets at December 31, 2021 and 2020, respectively.

Our commercial, agricultural and residential mortgage loan portfolios are subject to uncertain market conditions, including the effects of the COVID-19 pandemic. As a result of the COVID-19 pandemic in 2021 and 2020, we granted concessions (e.g., payment deferrals and other loan modifications) to certain of our commercial mortgage loan borrowers (principally in the hotel and retail sectors) and residential mortgage loan borrowers and, to a much lesser extent, some of our agricultural mortgage loan borrowers. While we granted concessions in 2021, both the frequency and number of concessions significantly decreased from 2020. See Note 8 of the Notes to the Consolidated Financial Statements for further information regarding COVID-19 pandemic-related mortgage loan concessions. See also “— Commercial Mortgage Loans by Geographic Region and Property Type.”

We diversify our mortgage loan portfolio by both geographic region and property type to reduce the risk of concentration. Of our commercial and agricultural mortgage loan portfolios, 83% are collateralized by properties located in the United States, with the remaining 17% collateralized by properties located outside the United States, which includes 5% and 1% of properties located in Mexico and Chile, respectively, at December 31, 2021. The carrying values of our commercial and agricultural mortgage loans located in California, New York and Texas were 16%, 9% and 7%, respectively, of total commercial and agricultural mortgage loans at December 31, 2021. Additionally, we manage risk when originating commercial and agricultural mortgage loans by generally lending up to 75% of the estimated fair value of the underlying real estate collateral.

We manage our residential mortgage loan portfolio in a similar manner to reduce risk of concentration, with 91% collateralized by properties located in the United States, and the remaining 9% collateralized by properties located outside the United States, principally in Chile, at December 31, 2021. The carrying values of our residential mortgage loans located in California, Florida, and New York were 30%, 9%, and 9%, respectively, of total residential mortgage loans at December 31, 2021.

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Commercial Mortgage Loans by Geographic Region and Property Type. Commercial mortgage loans are the largest mortgage loan portfolio segment. The tables below present the diversification across geographic regions and property types of commercial mortgage loans at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["","Amount","","% of Total","","Amount","","% of Total"],["","(Dollars in millions)"],["Region"],["Non-U.S.","$","9,969","","","19.7","%","","$","10,581","","","20.2","%"],["Pacific","9,676","","","19.1","","","10,235","","","19.5"],["Middle Atlantic","7,537","","","14.9","","","8,233","","","15.7"],["South Atlantic","6,800","","","13.5","","","7,217","","","13.8"],["West South Central","3,492","","","6.9","","","3,887","","","7.4"],["New England","2,748","","","5.4","","","2,126","","","4.0"],["East North Central","2,129","","","4.2","","","2,494","","","4.8"],["Mountain","1,993","","","4.0","","","1,777","","","3.4"],["East South Central","759","","","1.5","","","700","","","1.3"],["West North Central","663","","","1.3","","","609","","","1.2"],["Multi-Region and Other","4,787","","","9.5","","","4,575","","","8.7"],["Total amortized cost","50,553","","","100.0","%","","52,434","","","100.0","%"],["Less: ACL","340","","","","","252"],["Carrying value, net of ACL","$","50,213","","","","","$","52,182"],["Property Type"],["Office","$","22,388","","","44.3","%","","$","23,928","","","45.6","%"],["Apartment","9,121","","","18.0","","","8,764","","","16.7"],["Retail","8,548","","","16.9","","","8,911","","","17.0"],["Industrial","5,096","","","10.1","","","5,365","","","10.2"],["Hotel","3,201","","","6.3","","","3,377","","","6.5"],["Other","2,199","","","4.4","","","2,089","","","4.0"],["Total amortized cost","50,553","","","100.0","%","","52,434","","","100.0","%"],["Less: ACL","340","","","","","252"],["Carrying value, net of ACL","$","50,213","","","","","$","52,182"]]
[[/GREPCENT_TABLE]]

__________________

Our commercial mortgage loan portfolio is well positioned with exposures concentrated in high quality underlying properties located in primary markets typically with institutional investors who are better positioned to manage their assets during periods of market volatility. Our portfolio is comprised primarily of lower risk loans with higher debt-service coverage ratios (“DSCR”) and lower loan-to-value (“LTV”) ratios. See “— Mortgage Loan Credit Quality — Monitoring Process” for further information and Note 8 of the Notes to the Consolidated Financial Statements for a distribution of our commercial mortgage loans by DSCR and LTV ratios. Excluding loans with a COVID-19 pandemic-related payment deferral, over 99% of our commercial mortgage loan portfolio, including our hotel and retail commercial mortgage loans, were current at December 31, 2021. See Note 8 of the Notes to the Consolidated Financial Statements for further information regarding COVID-19 pandemic-related mortgage loan concessions.

Mortgage Loan Credit Quality — Monitoring Process. We monitor our mortgage loan investments on an ongoing basis, including a review of loans by credit quality indicator and loans that are current, past due, restructured and under foreclosure. See Note 8 of the Notes to the Consolidated Financial Statements for further information regarding mortgage loans by credit quality indicator, past due and nonaccrual mortgage loans.

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We review our commercial mortgage loans on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, 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 and loans with a COVID-19 pandemic-related payment deferral. The monitoring process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher LTV ratios. Agricultural mortgage loans are reviewed on an ongoing basis which include, but are not limited to, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios and borrower creditworthiness, including reviews on a geographic and property-type basis. We review our residential mortgage loans on an ongoing basis, with a focus on higher risk loans, such as nonperforming loans. See Note 8 of the Notes to the Consolidated Financial Statements for information on our evaluation of residential mortgage loans and related ACL methodology.

LTV ratios and DSCR are common measures in the assessment of the quality of commercial mortgage loans. LTV ratios are a common measure in the assessment of the quality of agricultural mortgage loans. LTV ratios compare the amount of the loan to the estimated fair value of the underlying collateral. An LTV ratio greater than 100% indicates that the loan amount is greater than the collateral value. An LTV ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the LTV ratio, the higher the risk of experiencing a credit loss. The DSCR 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. For our commercial mortgage loans, our average LTV ratio was 56% and 58% at December 31, 2021 and 2020 respectively, and our average DSCR was 2.5x at both December 31, 2021 and 2020. 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 our ongoing review of our commercial mortgage loan portfolio. For our agricultural mortgage loans, our average LTV ratio was 49% and 48% at December 31, 2021 and 2020, respectively. The values utilized in calculating our agricultural mortgage loan LTV ratio are developed in connection with the ongoing review of our agricultural loan portfolio and are routinely updated.

Mortgage Loan Allowance for Credit Loss. Our ACL is established for both pools of loans with similar risk characteristics and for mortgage loans with dissimilar risk characteristics, collateral dependent loans and reasonably expected troubled debt restructurings, individually on a loan specific basis. We record 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 our ACL, management (i) pools mortgage loans that share similar risk characteristics, (ii) considers expected lifetime credit loss over the contractual term of our mortgage loans, as adjusted for expected prepayments and any extensions, and (iii) considers past events and current and forecasted economic conditions. Actual credit loss realized could be different from the amount of the ACL recorded. These evaluations and assessments are revised as conditions change and new information becomes available, which can cause the ACL to increase or decrease over time as such evaluations are revised. Negative credit migration, including an actual or expected increase in the level of problem loans, will result in an increase in the ACL. Positive credit migration, including an actual or expected decrease in the level of problem loans, will result in a decrease in the ACL. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for information on how the ACL is established and monitored, and activity in and balances of the ACL.

Real Estate and Real Estate Joint Ventures

Real estate and real estate joint ventures is comprised of wholly-owned real estate and joint ventures with interests in single property income-producing real estate and, to a lesser extent, joint ventures with interests in multi-property projects with varying strategies ranging from the development of properties to the operation of income-producing properties, as well as real estate funds. The carrying value of real estate and real estate joint ventures was $12.2 billion and $11.9 billion, or 2.4% and 2.3% of cash and invested assets, at December 31, 2021 and 2020, respectively.

Our real estate investments are typically stabilized properties that we intend to hold for the longer-term for portfolio diversification and long-term appreciation. Our real estate investment portfolio has significantly appreciated to a $6.8 billion and $6.3 billion unrealized gain position at December 31, 2021 and 2020, respectively. We continuously monitor expected future cash flows of each of our real estate investments and incorporate them into our periodic impairment analyses. As a result of the COVID-19 pandemic, we performed impairment analyses during the years ended December 31, 2021 and 2020, which included updated estimates of expected future cash flows. As a result of our impairment analyses, we recognized in earnings one impairment during the year ended December 31, 2020 for $13 million. This impairment was recorded in net investment income as the investment is in a real estate fund. There were no impairments recognized in earnings within net investment gains (losses) on real estate and real estate joint ventures for either the year ended December 31, 2021 or 2020.

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We diversify our real estate investments by both geographic region and property type to reduce risk of concentration. See Note 8 of the Notes to the Consolidated Financial Statements for a summary of real estate investments, by income type, as well as income earned.

Geographical diversification: Our wholly-owned real estate and real estate joint ventures represented 72% of our total real estate investments, while real estate funds represented 28% of our total real estate investments at December 31, 2021, at carrying value. Within our wholly-owned real estate and real estate joint ventures portfolios, 63% of our properties were located in the United States and 37% of our properties were located outside the United States, at December 31, 2021, at carrying value. Within our wholly-owned real estate and real estate joint ventures portfolios, the portion of the properties located in Japan, California and Washington, D.C. were 33%, 9% and 9%, respectively, at December 31, 2021, at carrying value.

Property type diversification: Real estate and real estate joint venture investments are categorized by property type as follows at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["Property Type","Carrying Value","","% of Total","","Carrying Value","","% of Total"],["","(Dollars in millions)"],["Office","$","4,209","","","34.5","%","","$","4,082","","","34.2","%"],["Real estate funds","3,425","","","28.0","","","2,966","","","24.9"],["Apartment","1,343","","","11.0","","","1,260","","","10.6"],["Retail","1,105","","","9.0","","","1,273","","","10.7"],["Land","1,008","","","8.3","","","910","","","7.6"],["Hotel","677","","","5.5","","","610","","","5.0"],["Industrial","421","","","3.4","","","448","","","3.8"],["Agriculture","18","","","0.2","","","20","","","0.2"],["Other","10","","","0.1","","","364","","","3.0"],["Total real estate and real estate joint ventures","$","12,216","","","100.0","%","","$","11,933","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Other Limited Partnership Interests

Other limited partnership interests are comprised of investments in private funds, including private equity funds and hedge funds. At December 31, 2021 and 2020, the carrying value of other limited partnership interests was $14.6 billion and $9.5 billion, which included $663 million and $643 million of hedge funds, respectively. Other limited partnership interests were 2.8% and 1.8% of cash and invested assets at December 31, 2021 and 2020, respectively. Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds.

We use the equity method of accounting for most of our private equity funds. We generally recognize our share of a private equity fund’s earnings in net investment income on a three-month lag when the information is reported to us. Accordingly, changes in equity market levels, which can impact the underlying results of these private equity funds, are recognized in earnings within our net investment income on a three-month lag. For a discussion of our expected private equity market returns in 2022, see “— Executive Summary — Consolidated Company Outlook.”

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Other Invested Assets

The following table presents the carrying value of our other invested assets by type at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["Asset Type","Carrying Value","","% of Total","","Carrying Value","","% of Total"],["","","","(Dollars in millions)"],["Freestanding derivatives with positive estimated fair values","$","10,466","","","56.1","%","","$","11,866","","","57.6","%"],["Tax credit and renewable energy partnerships","1,564","","","8.4","","","1,751","","","8.5"],["Annuities funding structured settlement claims","1,251","","","6.7","","","1,263","","","6.1"],["Direct financing leases","1,143","","","6.1","","","1,340","","","6.5"],["Operating joint ventures","901","","","4.8","","","733","","","3.6"],["Leveraged leases","787","","","4.2","","","816","","","4.0"],["FHLB common stock","769","","","4.1","","","814","","","4.1"],["Funds withheld","525","","","2.8","","","508","","","2.5"],["Other","1,249","","","6.8","","","1,502","","","7.2"],["Total","$","18,655","","","100","%","","$","20,593","","","100","%"],["Percentage of cash and invested assets","3.6","%","","","","3.9","%"]]
[[/GREPCENT_TABLE]]

See Notes 1, 8 and 9 of the Notes to the Consolidated Financial Statements for information regarding freestanding derivatives with positive estimated fair values, tax credit and renewable energy partnerships, direct financing and leveraged leases, annuities funding structured settlement claims, operating joint ventures, FHLB common stock, and funds withheld, as well as gains (losses) on disposals of, and impairments losses on, tax credit and renewable energy partnerships, and leveraged leases.

Investment Commitments

We enter into the following commitments in the normal course of business for the purpose of enhancing the total return on our investment portfolio: mortgage loan commitments and commitments to fund partnerships, bank credit facilities, bridge loans and private corporate bond investments. See Note 21 of the Notes to the Consolidated Financial Statements for the amount of our unfunded investment commitments at December 31, 2021 and 2020. See “Net Investment Income” and “Net Investment Gains (Losses)” in Note 8 of the Notes to the Consolidated Financial Statements for information on the investment income, investment expense, gains and losses from such investments and the liability for credit loss for unfunded mortgage loan commitments. See also “— Fixed Maturity Securities AFS and Equity Securities,” “— Mortgage Loans,” “— Real Estate and Real Estate Joint Ventures” and “— Other Limited Partnership Interests.”

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Derivatives

Overview

We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. We use a variety of strategies to manage these risks, including the use of derivatives, such as market standard purchased and written credit default swap contracts. See Note 9 of the Notes to the Consolidated Financial Statements for: 

•A comprehensive description of the nature of our derivatives, including the strategies for which derivatives are used in managing various risks.

•Information about the primary underlying risk exposure, gross notional amount, and estimated fair value of our derivatives by type of hedge designation, excluding embedded derivatives held at December 31, 2021 and 2020.

•The statement of operations effects of derivatives in net investments in foreign operations, cash flow, fair value, or nonqualifying hedge relationships for the years ended December 31, 2021, 2020 and 2019.

We enter into market standard purchased and written credit default swap contracts. Payout under such contracts is triggered by certain credit events experienced by the referenced entities. For credit default swaps covering North American corporate issuers, credit events typically include bankruptcy and failure to pay on borrowed money. For European corporate issuers, credit events typically also include involuntary restructuring. With respect to credit default contracts on sovereign debt, credit events typically include failure to pay debt obligations, repudiation, moratorium, or involuntary restructuring. In each case, payout on a credit default swap is triggered only after the relevant third party, Credit Derivatives Determinations Committee, determines that a credit event has occurred.

We use purchased credit default swaps to mitigate credit risk in our investment portfolio. Generally, we purchase credit protection by entering into credit default swaps referencing the issuers of specific assets we own. In certain cases, basis risk exists between these credit default swaps and the specific assets we own. For example, we may purchase credit protection on a macro basis to reduce exposure to specific industries or other portfolio concentrations. In such instances, the referenced entities and obligations under the credit default swaps may not be identical to the individual obligors or securities in our investment portfolio. In addition, our purchased credit default swaps may have shorter tenors than the underlying investments they are hedging, which gives us more flexibility in managing our credit exposures. We believe that our purchased credit default swaps serve as effective economic hedges of our credit exposure.

See “Quantitative and Qualitative Disclosures About Market Risk — Management of Market Risk Exposures — Hedging Activities” for more information about our use of derivatives by major hedge program.

Fair Value Hierarchy

See Note 10 of the Notes to the Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy.

The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives. Although Level 3 inputs are unobservable, management believes they are consistent with what other market participants would use when pricing such instruments and are considered appropriate given the circumstances. The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect net income.

Derivatives categorized as Level 3 at December 31, 2021 include: interest rate forwards with maturities which extend beyond the observable portion of the yield curve; foreign currency swaps and forwards with certain unobservable inputs, including the unobservable portion of the yield curve; and credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations. At December 31, 2021, less than 1% of the estimated fair value of our derivatives was priced through independent broker quotations.

See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.

The gain (loss) on Level 3 derivatives primarily relates to foreign currency derivatives that are valued using an unobservable portion of the swap yield curves and interest rate total return swaps with observable interest rates. Other significant inputs include the unobservable interest rate which extends beyond the observable portion of the yield curve. We validate the reasonableness of these inputs by valuing the positions using internal models and comparing the results to broker quotations.

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The gain (loss) on Level 3 derivatives, percentage of gain (loss) attributable to observable and unobservable inputs, and the primary drivers of observable gain (loss) are summarized as follows:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021"],["Gain (loss) recognized in net income (loss)","","($460)"],["Approximate percentage of gain (loss) attributable to observable inputs","","25%"],["Primary drivers of observable gain (loss)","","Increases in interest rates on interest rate total return swaps."],["Approximate percentage of gain (loss) attributable to unobservable inputs","","75%"]]
[[/GREPCENT_TABLE]]

See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect derivatives.

Credit Risk

See Note 9 of the Notes to the Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.

Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. This policy applies to the recognition of derivatives on the consolidated balance sheets and does not affect our legal right of offset.

Credit Derivatives

The following table presents the gross notional amount and estimated fair value of credit default swaps at:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2021","","2020"],["Credit Default Swaps","","GrossNotionalAmount","","Estimated Fair Value","","GrossNotionalAmount","","Estimated Fair Value"],["","","(In millions)"],["Purchased","","$","3,042","","","$","(100)","","","$","2,978","","","$","(112)"],["Written","","8,626","","","165","","","9,609","","","196"],["Total","","$","11,668","","","$","65","","","$","12,587","","","$","84"]]
[[/GREPCENT_TABLE]]

The following table presents the gross gains, gross losses and net gains (losses) recognized in net derivative gains (losses) for credit default swaps as follows: 

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2021","","2020"],["Credit Default Swaps","","Gross Gains","","Gross Losses","","Net Gains (Losses)","","Gross Gains","","Gross Losses","","Net Gains (Losses)"],["","","(In millions)"],["Purchased (1)","","$","18","","","$","(9)","","","$","9","","","$","36","","","$","(64)","","","$","(28)"],["Written (1)","","52","","","(11)","","","41","","","65","","","(171)","","","(106)"],["Total","","$","70","","","$","(20)","","","$","50","","","$","101","","","$","(235)","","","$","(134)"]]
[[/GREPCENT_TABLE]]

__________________

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

The favorable change in net gains (losses) on written credit default swaps was $147 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 due to certain credit spreads on certain credit default swaps used as replications narrowing in the current period and widening in the prior period.

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The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies. Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by purchasing Treasury bonds (or other high quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate the desired bond exposures and meet our ALM needs. In addition, given the shorter tenor of the credit default swaps (generally five-year tenors) versus a long-dated corporate bond, we have more flexibility in managing our credit exposures.

Collateral for Derivatives

We enter into derivatives to manage various risks relating to our ongoing business operations. We receive non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which is not reflected on our consolidated balance sheets. The amounts of this non-cash collateral were $1.1 billion and $1.7 billion at estimated fair value, at December 31, 2021 and 2020, respectively. See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Pledged Collateral” and Note 9 of the Notes to the Consolidated Financial Statements for information regarding the earned income on and the gross notional amount, estimated fair value of assets and liabilities and primary underlying risk exposure of our derivatives.

Embedded Derivatives

See Note 10 of the Notes to the Consolidated Financial Statements for information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy and a rollforward of the fair value measurements for embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.

See Note 9 of the Notes to the Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits accounted for as embedded derivatives.

See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect embedded derivatives.

Policyholder Liabilities

We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments. Amounts for actuarial liabilities are computed and reported on the consolidated financial statements in conformity with GAAP. For more details on Policyholder Liabilities, see “— Summary of Critical Accounting Estimates.”

We periodically review our estimates of actuarial liabilities for future benefits and compare them with our actual experience. We revise estimates, to the extent permitted or required under GAAP, if we determine that future expected experience differs from assumptions used in the development of actuarial liabilities. We charge or credit changes in our liabilities to expenses in the period the liabilities are established or re-estimated. If the liabilities originally established for future benefit payments prove inadequate, we must increase them. Such an increase could adversely affect our earnings and have a material adverse effect on our business, results of operations and financial condition.

See “Business — Regulation — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis” and “Risk Factors — Business Risks” for further information regarding required analyses of the adequacy of statutory reserves of our insurance operations.

The following discussions on future policy benefits and policyholder account balances should be read in conjunction with “— Industry Trends — Impact of Market Interest Rates,” “— Variable Annuity Guarantees” and “— Liquidity and Capital Resources — The Company — Liquidity and Capital Sources — Policyholder Account Balances.” See also Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information.

Future Policy Benefits

We establish liabilities for amounts payable under insurance policies. A discussion of future policy benefits by segment (as well as Corporate & Other) follows.

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U.S.

Amounts payable under insurance policies for this segment are comprised of group insurance and annuities. For group insurance, future policyholder benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy provisions, liabilities for survivor income benefit insurance, active life policies and premium stabilization and other contingency liabilities held under life insurance contracts. For group annuity contracts, future policyholder benefits are primarily related to payout annuities, including pension risk transfers, structured settlement annuities and institutional income annuities. There is no interest rate crediting flexibility on these liabilities.

Asia

Future policy benefits for this segment are held primarily for traditional life, endowment, annuity and accident & health contracts. They are also held for total return pass-through provisions included in certain universal life and savings products. They include certain liabilities for variable annuity and variable life guarantees of minimum death benefits, and longevity guarantees. Factors impacting these liabilities include sustained periods of lower than expected yields, lower than expected asset reinvestment rates, market volatility, actual lapses resulting in lower than expected income, and actual mortality or morbidity resulting in higher than expected benefit payments.

Latin America

Future policy benefit liabilities for this segment are held primarily for immediate annuities, traditional life contracts and total return pass-through provisions included in certain universal life and savings products. There is no interest rate crediting flexibility on the immediate annuity and traditional life liabilities. Other factors impacting these liabilities are actual mortality resulting in higher than expected benefit payments and actual lapses resulting in lower than expected income.

EMEA

Future policy benefits for this segment include unearned premium reserves for group life and medical and credit insurance contracts. Future policy benefits are also held for traditional life, endowment and annuity contracts with significant mortality risk and accident & health contracts. Factors impacting these liabilities include lower than expected asset reinvestment rates, market volatility, actual lapses resulting in lower than expected income, and actual mortality or morbidity resulting in higher than expected benefit payments.

MetLife Holdings

Future policy benefits for the life insurance business are comprised mainly of liabilities for traditional life insurance contracts. For the annuities business, future policy benefits are comprised mainly of liabilities for life-contingent income annuities and liabilities for the variable annuity guaranteed minimum benefits that are accounted for as insurance. For the long-term care business, future policyholder benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy provisions, and active life policies. In addition, for our other products, future policyholder benefits related to the reinsurance of our former Japan joint venture are comprised of liabilities for the variable annuity guaranteed minimum benefits that are accounted for as insurance.

Corporate & Other

Future policy benefits primarily include liabilities for other reinsurance business.

Policyholder Account Balances

Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender. A discussion of policyholder account balances by segment follows.

U.S.

Policyholder account balances in this segment are comprised of funding agreements, retained asset accounts, universal life policies, the fixed account of variable life insurance policies and specialized life insurance products for benefit programs.

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Group Benefits

Policyholder account balances in this business are held for retained asset accounts, universal life policies, the fixed account of variable life insurance policies and specialized life insurance products for benefit programs. Policyholder account balances are credited interest at a rate we determine, which is influenced by current market rates. Most of these policyholder account balances have minimum credited rate guarantees.

The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Group Benefits:

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["Guaranteed Minimum Crediting Rate","Account Value","","Account Value at Guarantee"],["","(In millions)"],["Greater than 0% but less than 2%","$","5,378","","","$","5,248"],["Equal to or greater than 2% but less than 4%","$","1,564","","","$","1,525"],["Equal to or greater than 4%","$","808","","","$","779"]]
[[/GREPCENT_TABLE]]

Retirement and Income Solutions

Policyholder account balances in this business are held largely for investment-type products, mainly funding agreements, as well as postretirement benefits and corporate-owned life insurance to fund non-qualified benefit programs for executives. Interest crediting rates vary by type of contract and can be fixed or variable. Variable interest crediting rates are generally tied to an external index, most commonly (1-month or 3-month) LIBOR or Secured Overnight Financing Rate. We guarantee payment of interest and return of principal at the contractual maturity date.

The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for RIS:

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["Guaranteed Minimum Crediting Rate","Account Value","","Account Value at Guarantee"],["","(In millions)"],["Greater than 0% but less than 2%","$","605","","","$","450"],["Equal to or greater than 2% but less than 4%","$","814","","","$","186"],["Equal to or greater than 4%","$","4,612","","","$","4,358"]]
[[/GREPCENT_TABLE]]

Asia

Policyholder account balances in this segment are held largely for fixed income retirement and savings plans, fixed deferred annuities, interest sensitive whole life products, universal life and, to a lesser degree, liability amounts for Unit-linked investments that do not meet the GAAP definition of separate accounts. Also included are certain liabilities for retirement and savings products sold in certain countries in Asia that generally are sold with minimum credited rate guarantees. Liabilities for guarantees on certain variable annuities in Asia are accounted for as embedded derivatives and recorded at estimated fair value and are also included within policyholder account balances. Most of these policyholder account balances have minimum credited rate guarantees. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated underlying investments, as the return on assets is generally passed directly to the policyholder.

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The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Asia:

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["Guaranteed Minimum Crediting Rate","Account Value","","Account Value at Guarantee"],["","(In millions)"],["Annuities"],["Greater than 0% but less than 2%","$","31,180","","","$","1,700"],["Equal to or greater than 2% but less than 4%","$","991","","","$","430"],["Equal to or greater than 4%","$","1","","","$","1"],["Life & Other"],["Greater than 0% but less than 2%","$","12,811","","","$","12,266"],["Equal to or greater than 2% but less than 4%","$","34,251","","","$","21,673"],["Equal to or greater than 4%","$","282","","","$","282"]]
[[/GREPCENT_TABLE]]

Latin America

Policyholder account balances in this segment are held largely for investment-type products, universal life products, deferred annuities and Unit-linked investments that do not meet the GAAP definition of separate accounts. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder. Many of the other liabilities have minimum credited rate guarantees.

EMEA

Policyholder account balances in this segment are held mostly for universal life, deferred annuities, pension products, and Unit-linked investments that do not meet the GAAP definition of separate accounts. They are also held for endowment products without significant mortality risk. Most of these policyholder account balances have minimum credited rate guarantees. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder.

MetLife Holdings

Life policyholder account balances in this segment are held for retained asset accounts, universal life policies, the fixed account of variable life insurance policies, and funding agreements. For annuities, policyholder account balances are held for fixed deferred annuities, the fixed account portion of variable annuities, non-life contingent income annuities, and embedded derivatives related to variable annuity guarantees. Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums. Most of these policyholder account balances have minimum credited rate guarantees. Additionally, for our other products, policyholder account balances are held for variable annuity guarantees assumed from a former operating joint venture in Japan that are accounted for as embedded derivatives.

The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for the MetLife Holdings segment:

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["Guaranteed Minimum Crediting Rate","Account Value","","Account Value at Guarantee"],["","(In millions)"],["Greater than 0% but less than 2%","$","1,123","","","$","1,092"],["Equal to or greater than 2% but less than 4%","$","17,331","","","$","15,805"],["Equal to or greater than 4%","$","7,364","","","$","6,754"]]
[[/GREPCENT_TABLE]]

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Variable Annuity Guarantees

We issue, directly and through assumed business, certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (i.e., the benefit base) less withdrawals. In some cases, the benefit base may be increased by additional deposits, bonus amounts, accruals or optional market value resets. See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information.

Certain guarantees, including portions thereof, have insurance liabilities established that are included in future policy benefits. Guarantees accounted for in this manner include GMDBs, the life-contingent portion of GMWBs, elective GMIB annuitizations, and the life contingent portion of GMIBs that require annuitization when the account balance goes to zero. These liabilities are accrued over the life of the contract in proportion to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate account returns. The scenarios are based on best estimate assumptions consistent with those used to amortize DAC. When current estimates of future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities will increase, resulting in a current period charge to net income. The opposite result occurs when the current estimates of future benefits are lower than those previously projected or when current estimates of future assessments exceed those previously projected. At the end of each reporting period, we update the actual amount of business remaining in-force, which impacts expected future assessments and the projection of estimated future benefits resulting in a current period charge or increase to earnings.

Certain guarantees, including portions thereof, accounted for as embedded derivatives, are recorded at estimated fair value and included in policyholder account balances. Guarantees accounted for as embedded derivatives include GMABs, the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs. The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. The projections of future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder behavior. A risk-neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital market scenarios to determine an economic liability. The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin. For more information on the determination of estimated fair value, see Note 10 of the Notes to the Consolidated Financial Statements.

The table below presents the carrying value for guarantees at:

[[GREPCENT_TABLE]]
[["","Future Policy Benefits","","Policyholder Account Balances"],["","December 31,","","December 31,"],["","2021","","2020","","2021","","2020"],["","(In millions)"],["Asia"],["GMDB","$","4","","","$","6","","","$","\u2014","","","$","\u2014"],["GMAB","\u2014","","","\u2014","","","14","","","26"],["GMWB","32","","","35","","","107","","","134"],["EMEA"],["GMDB","3","","","6","","","\u2014","","","\u2014"],["GMAB","\u2014","","","\u2014","","","6","","","31"],["GMWB","19","","","31","","","(58)","","","(23)"],["MetLife Holdings"],["GMDB","561","","","450","","","\u2014","","","\u2014"],["GMIB","1,029","","","954","","","180","","","323"],["GMAB","\u2014","","","\u2014","","","\u2014","","","\u2014"],["GMWB","174","","","179","","","173","","","443"],["Total","$","1,822","","","$","1,661","","","$","422","","","$","934"]]
[[/GREPCENT_TABLE]]

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The carrying amounts for guarantees included in policyholder account balances above include nonperformance risk adjustments of $120 million and $137 million at December 31, 2021 and 2020, respectively. These nonperformance risk adjustments represent the impact of including a credit spread when discounting the underlying risk-neutral cash flows to determine the estimated fair values. The nonperformance risk adjustment does not have an economic impact on us as it cannot be monetized given the nature of these policyholder liabilities. The change in valuation arising from the nonperformance risk adjustment is not hedged.

The carrying values of these guarantees can change significantly during periods of sizable and sustained shifts in equity market performance, equity volatility, interest rates or foreign currency exchange rates. Carrying values are also impacted by our assumptions around mortality, separate account returns and policyholder behavior, including lapse rates.

As discussed below, we use a combination of product design, hedging strategies, reinsurance, and other risk management actions to mitigate the risks related to these benefits. Within each type of guarantee, there is a range of product offerings reflecting the changing nature of these products over time. Changes in product features and terms are in part driven by customer demand but, more importantly, reflect our risk management practices of continuously evaluating the guaranteed benefits and their associated asset-liability matching. We continue to diversify the concentration of income benefits in our portfolio by focusing on withdrawal benefits, variable annuities without living benefits and index-linked annuities.

The sections below provide further detail by total account value for certain of our most popular guarantees. Total account values include amounts not reported on the consolidated balance sheets from assumed business, Unit-linked investments that do not qualify for presentation as separate account assets, and amounts included in our general account. The total account values and the net amounts at risk include direct and assumed business, but exclude offsets from hedging or ceded reinsurance, if any.

GMDBs

We offer a range of GMDBs to our contractholders. The table below presents GMDBs, by benefit type, at December 31, 2021:

[[GREPCENT_TABLE]]
[["","Total Account Value (1)"],["","Asia & EMEA","","MetLife Holdings"],["","(In millions)"],["Return of premium or five to seven year step-up","$","7,549","","","$","46,213"],["Annual step-up","\u2014","","","3,117"],["Roll-up and step-up combination","\u2014","","","5,329"],["Total","$","7,549","","","$","54,659"]]
[[/GREPCENT_TABLE]]

__________________

(1)Total account value excludes $598 million for contracts with no GMDBs. The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed for GMDBs and for living benefit guarantees are not mutually exclusive.

Based on total account value, less than 18% of our GMDBs included enhanced death benefits such as the annual step-up or roll-up and step-up combination products at December 31, 2021.

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Living Benefit Guarantees

The table below presents our living benefit guarantees based on total account values at December 31, 2021:

[[GREPCENT_TABLE]]
[["","Total Account Value (1)"],["","Asia & EMEA","","MetLife Holdings"],["","(In millions)"],["GMIB","$","\u2014","","","$","20,140"],["GMWB - non-life contingent (2)","956","","","2,051"],["GMWB - life-contingent","3,165","","","8,337"],["GMAB","1,594","","","151"],["Total","$","5,715","","","$","30,679"]]
[[/GREPCENT_TABLE]]

__________________

(1)Total account value excludes $26.4 billion for contracts with no living benefit guarantees. The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed for GMDBs and for living benefit guarantee amounts are not mutually exclusive.

(2)The Asia and EMEA segments include the non-life contingent portion of the GMWB total account value of $956 million with a guarantee at annuitization.

In terms of total account value, GMIBs are our most significant living benefit guarantee. Our primary risk management strategy for our GMIB products is our derivatives hedging program as discussed below. Additionally, we have engaged in certain reinsurance agreements covering some of our GMIB business. As part of our overall risk management approach for living benefit guarantees, we continually monitor the reinsurance markets for the right opportunity to purchase additional coverage for our GMIB business. We stopped selling GMIBs in February 2016.

The table below presents our GMIB associated total account values, by their guaranteed payout basis, at December 31, 2021:

[[GREPCENT_TABLE]]
[["","Total Account Value"],["","(In millions)"],["7-year setback, 2.5% interest rate","$","5,591"],["7-year setback, 1.5% interest rate","1,214"],["10-year setback, 1.5% interest rate","3,994"],["10-year mortality projection, 10-year setback, 1.0% interest rate","7,993"],["10-year mortality projection, 10-year setback, 0.5% interest rate","1,348"],["","$","20,140"]]
[[/GREPCENT_TABLE]]

The annuitization interest rates on GMIBs have been decreased from 2.5% to 0.5% over time, partially in response to the low interest rate environment, accompanied by an increase in the setback period from seven years to 10 years and the introduction of a 10-year mortality projection.

Additionally, 39% of the $20.1 billion of GMIB total account value has been invested in managed volatility funds as of December 31, 2021. These funds seek to manage volatility by adjusting the fund holdings within certain guidelines based on capital market movements. Such activity reduces the overall risk of the underlying funds while maintaining their growth opportunities. These risk mitigation techniques reduce or eliminate the need for us to manage the funds’ volatility through hedging or reinsurance.

Our GMIB products typically have a waiting period of 10 years to be eligible for annuitization. As of December 31, 2021, only 37% of our contracts with GMIBs were eligible for annuitization. The remaining contracts are not eligible for annuitization for an average of three years.

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Once eligible for annuitization, contractholders would be expected to annuitize only if their contracts were in-the-money. We calculate in-the-moneyness with respect to GMIBs consistent with net amount at risk as discussed in Note 4 of the Notes to the Consolidated Financial Statements, by comparing the contractholders’ income benefits based on total account values and current annuity rates versus the guaranteed income benefits. The net amount at risk was $500 million at December 31, 2021, of which $461 million was related to GMIBs. For those contracts with GMIB, the table below presents details of contracts that are in-the-money and out-of-the-money at December 31, 2021:

[[GREPCENT_TABLE]]
[["","In-the-Moneyness","","Total Account Value","","% of Total"],["","","","(In millions)"],["In-the-money","30% or greater","","$","465","","","2","%"],["","20% to less than 30%","","236","","","1","%"],["","10% to less than 20%","","412","","","2","%"],["","0% to less than 10%","","747","","","4","%"],["","","","1,860"],["Out-of-the-money","-10% to 0%","","2,248","","","11","%"],["","-20% to less than -10%","","4,601","","","23","%"],["","Greater than -20%","","11,431","","","57","%"],["","","","18,280"],["Total GMIBs","","","$","20,140"]]
[[/GREPCENT_TABLE]]

Derivatives Hedging Variable Annuity Guarantees

Our risk mitigating hedging strategy uses various OTC and exchange traded derivatives. The table below presents the gross notional amount, estimated fair value and primary underlying risk exposure of the derivatives hedging our variable annuity guarantees:

[[GREPCENT_TABLE]]
[["","","","","December 31,"],["","","","","2021","","2020"],["Primary Underlying Risk Exposure","","","","Gross Notional","","Estimated Fair Value","","Gross Notional","","Estimated Fair Value"],["","Instrument Type","","Amount","","Assets","","Liabilities","","Amount","","Assets","","Liabilities"],["","","","","(In millions)"],["Interest rate","","Interest rate swaps","","$","8,663","","","$","52","","","$","75","","","$","14,188","","","$","85","","","$","21"],["","","Interest rate futures","","1,087","","","3","","","\u2014","","","1,442","","","\u2014","","","2"],["","","Interest rate options","","100","","","1","","","\u2014","","","637","","","134","","","\u2014"],["Foreign currency exchange rate","","Foreign currency forwards","","1,149","","","4","","","13","","","1,834","","","27","","","13"],["Equity market","","Equity futures","","3,641","","","11","","","5","","","4,891","","","12","","","38"],["","","Equity index options","","4,161","","","513","","","362","","","5,360","","","558","","","408"],["","","Equity variance swaps","","699","","","17","","","13","","","716","","","15","","","12"],["","","Equity total return swaps","","2,763","","","11","","","44","","","1,533","","","3","","","124"],["","","Total","","$","22,263","","","$","612","","","$","512","","","$","30,601","","","$","834","","","$","618"]]
[[/GREPCENT_TABLE]]

The change in estimated fair values of our derivatives is recorded in policyholder benefits and claims if such derivatives are hedging guarantees included in future policy benefits, and in net derivative gains (losses) if such derivatives are hedging guarantees included in policyholder account balances.

Our hedging strategy involves the significant use of static longer-term derivative instruments to avoid the need to execute transactions during periods of market disruption or higher volatility. We continually monitor the capital markets for opportunities to adjust our liability coverage, as appropriate. Futures are also used to dynamically adjust the daily coverage levels as markets and liability exposures fluctuate.

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We remain liable for the guaranteed benefits in the event that reinsurers or derivative counterparties are unable or unwilling to pay. Certain of our reinsurance agreements and all derivative positions are collateralized and derivatives positions are subject to master netting agreements, both of which significantly reduce the exposure to counterparty risk. In addition, we are subject to the risk that hedging and other risk management actions prove ineffective or that unanticipated policyholder behavior or mortality, combined with adverse market events, produces economic losses beyond the scope of the risk management techniques employed.

Liquidity and Capital Resources

Overview

Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally due to our market presence in numerous countries, large investment portfolio and the sensitivity of our insurance liabilities and derivatives to changing market factors. Changing conditions in the global capital markets and the economy may affect our financing costs and market interest for our debt or equity securities. For further information regarding market factors that could affect our ability to meet liquidity and capital needs, see “— Industry Trends” and “— Investments — Current Environment.”

Liquidity Management

Based upon the strength of our franchise, diversification of our businesses, strong financial fundamentals and the substantial funding sources available to us as described herein, we continue to believe we have access to ample liquidity to meet business requirements under current market conditions and reasonably possible stress scenarios. We continuously monitor and adjust our liquidity and capital plans for MetLife, Inc. and its subsidiaries in light of market conditions, as well as changing needs and opportunities.

Short-term Liquidity

We maintain a substantial short-term liquidity position, which was $12.4 billion and $9.4 billion at December 31, 2021 and 2020, respectively. Short-term liquidity includes cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise committed, including amounts received in connection with securities lending, repurchase agreements, derivatives, and secured borrowings, as well as amounts held in the closed block.

Liquid Assets

An integral part of our liquidity management includes managing our level of liquid assets, which was $223.0 billion and $235.1 billion at December 31, 2021 and 2020, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, repurchase agreements, derivatives, regulatory deposits, the collateral financing arrangement, funding agreements and secured borrowings, as well as amounts held in the closed block.

Capital Management

We have established several senior management committees as part of our capital management process. These committees, including the Capital Management Committee and the Enterprise Risk Committee (“ERC”), regularly review actual and projected capital levels (under a variety of scenarios including stress scenarios) and our annual capital plan in accordance with our capital policy. The Capital Management Committee is comprised of members of senior management, including MetLife, Inc.’s Chief Financial Officer (“CFO”), Treasurer, and Chief Risk Officer (“CRO”). The ERC is also comprised of members of senior management, including MetLife, Inc.’s CFO, CRO and Chief Investment Officer.

Our Board of Directors and senior management are directly involved in the development and maintenance of our capital policy. The capital policy sets forth, among other things, minimum and target capital levels and the governance of the capital management process. All capital actions, including proposed changes to the annual capital plan, capital targets or capital policy, are reviewed by the Finance and Risk Committee of the Board of Directors prior to obtaining full Board of Directors approval. The Board of Directors approves the capital policy and the annual capital plan and authorizes capital actions, as required.

See “Risk Factors — Capital Risks — We May Not be Able to Pay Dividends or Repurchase Our Stock Due to Legal and Regulatory Restrictions or Cash Buffer Needs” for information regarding restrictions on payment of dividends and stock repurchases. See also Note 16 of the Notes to the Consolidated Financial Statements for information regarding MetLife, Inc.’s common stock repurchase authorizations.

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The Company

Liquidity

Liquidity refers to the ability to generate adequate amounts of cash to meet our needs. We determine our liquidity needs based on a rolling 12-month forecast by portfolio of invested assets which we monitor daily. We adjust the asset mix and asset maturities based on this rolling 12-month forecast. To support this forecast, we conduct cash flow and stress testing, which include various scenarios of the potential risk of early contractholder and policyholder withdrawal. We include provisions limiting withdrawal rights on many of our products, including general account pension products sold to employee benefit plan sponsors. Certain of these provisions prevent the customer from making withdrawals prior to the maturity date of the product. In the event of significant cash requirements beyond anticipated liquidity needs, we have various alternatives available depending on market conditions and the amount and timing of the liquidity need. These available alternatives include cash flows from operations, sales of liquid assets, global funding sources including commercial paper and various credit and committed facilities.

Under certain stressful market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase. A downgrade in our credit or financial strength ratings could also negatively affect our liquidity. See “— Rating Agencies.” If we require significant amounts of cash on short notice in excess of anticipated cash requirements or if we are required to post or return cash collateral in connection with derivatives or our securities lending program, we may have difficulty selling investments in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both. In addition, in the event of such forced sale, for securities in an unrealized loss position, realized losses would be incurred on securities sold and impairments would be incurred, if there is a need to sell securities prior to recovery, which may negatively impact our financial condition. See “Risk Factors — Investment Risks — We May Have Difficulty Selling Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner to Realize Their Full Value.”

All general account assets within a particular legal entity — other than those which may have been pledged to a specific purpose — are generally available to fund obligations of the general account of that legal entity.

Capital

We manage our capital position to maintain our financial strength and credit ratings. See “— Rating Agencies” for information regarding such ratings. Our capital position is supported by our ability to generate strong cash flows within our operating companies and borrow funds at competitive rates, as well as by our demonstrated ability to raise additional capital to meet operating and growth needs despite adverse market and economic conditions.

Statutory Capital and Dividends

Our U.S. insurance subsidiaries have statutory surplus well above levels to meet current regulatory requirements.

RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action. RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. These rules apply to most of our U.S. insurance subsidiaries. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not meet or exceed certain RBC levels. As of the date of the most recent annual statutory financial statements filed with insurance regulators, the total adjusted capital of each of these subsidiaries subject to these requirements was in excess of each of those RBC levels.

As a Delaware corporation, American Life is subject to Delaware law; however, because it does not conduct insurance business in Delaware or any other U.S. state, it is exempt from RBC requirements under Delaware law. American Life’s operations are also regulated by applicable authorities of the jurisdictions in which it operates and is subject to capital and solvency requirements in those jurisdictions.

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The amount of dividends that our insurance subsidiaries can pay to MetLife, Inc. or to other parent entities is constrained by the amount of surplus we hold to maintain our ratings, which provides an additional margin for risk protection and investment in our businesses. We proactively take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial resources from internal or external sources of capital. Certain of these activities may require regulatory approval. Furthermore, the payment of dividends and other distributions to MetLife, Inc. and other parent entities by their respective insurance subsidiaries is governed by insurance laws and regulations. See “Business — Regulation — Insurance Regulation,” “— MetLife, Inc. — Liquidity and Capital Sources — Dividends from Subsidiaries” and Note 16 of the Notes to the Consolidated Financial Statements.

Affiliated Captive Reinsurance Transactions

MLIC cedes specific policy classes, including term and universal life insurance, participating whole life insurance, LTD insurance, group life insurance and other business to various wholly-owned captive reinsurers. The reinsurance activities among these affiliated companies are eliminated within our consolidated results of operations. The statutory reserves of such affiliated captive reinsurers are supported by a combination of funds withheld assets, investment assets and letters of credit issued by unaffiliated financial institutions. MetLife, Inc. has entered into various support agreements in connection with the activities of these captive reinsurers. See Note 5 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules for further details on certain of these support arrangements. MLIC has entered into reinsurance agreements with affiliated captive reinsurers for risk and capital management purposes, as well as to manage statutory reserve requirements related to universal life and term life insurance policies and other business.

The NYDFS continues to have a moratorium on new reserve financing transactions involving captive insurers. We are not aware of any states other than New York and California implementing such a moratorium. While such a moratorium would not impact our existing reinsurance agreements with captive reinsurers, a moratorium placed on the use of captives for new reserve financing transactions could impact our ability to write certain products and/or impact our RBC ratios and ability to deploy excess capital in the future. This could result in our need to increase prices, modify product features or limit the availability of those products to our customers. While this affects insurers across the industry, it could adversely impact our competitive position and our results of operations in the future. We continue to evaluate product modifications, pricing structure and alternative means of managing risks, capital and statutory reserves and we expect the discontinued use of captive reinsurance on new reserve financing transactions would not have a material impact on our future consolidated financial results. See Note 6 of the Notes to the Consolidated Financial Statements for further information on our reinsurance activities.

Rating Agencies

Rating agencies assign insurer financial strength ratings to MetLife, Inc.’s U.S. life insurance subsidiaries and credit ratings to MetLife, Inc. and certain of its subsidiaries. Financial strength ratings represent the opinion of rating agencies regarding the ability of an insurance company to pay obligations under insurance policies and contracts in accordance with their terms and are not evaluations directed toward the protection of investors in MetLife, Inc.’s securities. Insurer financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell any security, contract or policy. Each rating should be evaluated independently of any other rating.

Rating agencies use an “outlook statement” of “positive,” “stable,” ‘‘negative’’ or “developing” to indicate a medium- or long-term trend in credit fundamentals which, if continued, may lead to a rating change. A rating may have a “stable” outlook to indicate that the rating is not expected to change; however, a “stable” rating does not preclude a rating agency from changing a rating at any time, without notice. Certain rating agencies assign rating modifiers such as “CreditWatch” or “under review” to indicate their opinion regarding the potential direction of a rating. These ratings modifiers are generally assigned in connection with certain events such as potential mergers, acquisitions, dispositions or material changes in a company’s results, in order for the rating agency to perform its analysis to fully determine the rating implications of the event.

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Our insurer financial strength ratings at the date of this filing are indicated in the following table. Outlook is stable unless otherwise indicated. Additional information about financial strength ratings can be found on the websites of the respective rating agencies.

[[GREPCENT_TABLE]]
[["","A.M. Best","","Fitch","","Moody\u2019s","","S&P"],["Ratings Structure","\u201cA++ (Superior)\u201d to \u201cS (Suspended)\u201d","","\u201cAAA (Exceptionally Strong)\u201d to \u201cC (Distressed)\u201d","","\u201cAaa (Highest Quality)\u201d to \u201cC (Lowest Rated)\u201d","","\u201cAAA (Extremely Strong)\u201d to \u201cSD (Selective Default)\u201d or \u201cD (Default)\u201d"],["American Life Insurance Company","NR","","NR","","A1","","AA-"],["","","5th of 21","","4th of 21"],["Metropolitan Life Insurance Company","A+","","AA-","","Aa3","","AA-"],["2nd of 16","","4th of 19","","4th of 21","","4th of 21"],["MetLife Insurance K.K. (MetLife Japan)","NR","","NR","","NR","","AA-"],["","","","4th of 21"],["Metropolitan Tower Life Insurance Company","A+","","AA-","","Aa3","","AA-"],["2nd of 16","","4th of 19","","4th of 21","","4th of 21"]]
[[/GREPCENT_TABLE]]

__________________

NR = Not rated

Credit ratings indicate the rating agency’s opinion regarding a debt issuer’s ability to meet the terms of debt obligations in a timely manner. They are important factors in our overall funding profile and ability to access certain types of liquidity. The level and composition of regulatory capital at the subsidiary level and our equity capital are among the many factors considered in determining our insurer financial strength ratings and credit ratings. Each agency has its own capital adequacy evaluation methodology, and assessments are generally based on a combination of factors. In addition to heightening the level of scrutiny that they apply to insurance companies, rating agencies have increased and may continue to increase the frequency and scope of their credit reviews, may request additional information from the companies that they rate and may change the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels.

A downgrade in the credit ratings or insurer financial strength ratings of MetLife, Inc. or its subsidiaries would likely impact us in the following ways, including:

•impact our ability to generate cash flows from the sale of funding agreements and other capital market products offered by our RIS business;

•impact the cost and availability of financing for MetLife, Inc. and its subsidiaries; and

•result in additional collateral requirements or other required payments under certain agreements, which are eligible to be satisfied in cash or by posting investments held by the subsidiaries subject to the agreements. See “— Liquidity and Capital Uses — Pledged Collateral.”

See also “Risk Factors — Economic Environment and Capital Markets Risks — We May Lose Business Due to a Downgrade or a Potential Downgrade in Our Financial Strength or Credit Ratings.”

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Summary of the Company’s Primary Sources and Uses of Liquidity and Capital

Our primary sources and uses of liquidity and capital are summarized as follows:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Cash Flows from Operations

The principal cash inflows from our insurance activities come from insurance premiums, net investment income, annuity considerations and deposit funds. The principal cash outflows are the result of various life insurance, annuity and pension products, operating expenses and income tax, as well as interest expense.

Cash Flows from Investments

The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments and settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments, issuances of policy loans and settlements of freestanding derivatives. Additional cash outflows relate to purchases of businesses. We typically have a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our ALM discipline to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process.

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Cash Flows from Financing

The principal cash inflows from our financing activities come from issuances of debt and other securities, deposits of funds associated with policyholder account balances and lending of securities. The principal cash outflows come from repayments of debt and the collateral financing arrangement, payments of dividends on and repurchases or redemptions of MetLife, Inc.’s securities, withdrawals associated with policyholder account balances and the return of securities on loan.

Liquidity and Capital Sources

In addition to the general description of liquidity and capital sources in “— Summary of the Company’s Primary Sources and Uses of Liquidity and Capital,” the Company’s primary sources of liquidity and capital are set forth below.

Global Funding Sources

Liquidity is provided by a variety of global funding sources, including funding agreements, credit and committed facilities and commercial paper. Capital is provided by a variety of global funding sources, including short-term and long-term debt, the collateral financing arrangement, junior subordinated debt securities, preferred securities, equity securities and equity-linked securities. MetLife, Inc. maintains a shelf registration statement with the SEC that permits the issuance of public debt, equity and hybrid securities. As a “Well-Known Seasoned Issuer” under SEC rules, MetLife, Inc.’s shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity. The diversity of our global funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary global funding sources include:

Preferred Stock

See Note 16 of the Notes to the Consolidated Financial Statements for information on preferred stock issuances.

Common Stock

See Note 16 of the Notes to the Consolidated Financial Statements.

Commercial Paper, Reported in Short-term Debt

MetLife, Inc. and MetLife Funding each have a commercial paper program that is supported by our unsecured revolving credit facility (see “— Credit and Committed Facilities”). MetLife Funding raises cash from its commercial paper program and uses the proceeds to extend loans through MetLife Credit Corp., another subsidiary of MLIC, to affiliates in order to enhance the financial flexibility and liquidity of these companies.

FHLB Advance Agreements, Reported in Liabilities Held-for-Sale

For the years ended December 31, 2021 and 2020, we borrowed $0 and $2.8 billion, respectively, and repaid $700 million and $2.9 billion, respectively, under advance agreements with the FHLB of Boston. At December 31, 2021 and 2020, total obligations outstanding under these advance agreements were $0 and $700 million, respectively.

Policyholder Account Balances

See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for a description of the components of policyholder account balances. See “— Insurance Liabilities” regarding the source and uncertainties associated with the estimation of the contractual obligations related to future policy benefits and policyholder account balances.

The sum of the estimated cash flows of $248.6 billion ($29.5 billion of which are estimated to occur in one year or less) exceeds the liability amount of $203.5 billion included on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference; (ii) differences in assumptions, between the date the liabilities were initially established and the current date; and (iii) liabilities related to accounting conventions, or which are not contractually due, which are excluded.

The estimated cash flows represent cash payments undiscounted as to interest and including assumptions related to the receipt of future premiums and deposits; withdrawals, including unscheduled or partial withdrawals; policy lapses; surrender charges; annuitization; mortality; future interest credited; policy loans and other contingent events as appropriate for the respective product type. Such estimated cash payments are also presented net of estimated future premiums on policies currently in-force and gross of any reinsurance recoverable. For obligations denominated in foreign currencies, cash payments have been estimated using current spot foreign currency rates.

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FHLB Funding Agreements, Reported in Policyholder Account Balances

Certain of our U.S. insurance subsidiaries are members of a regional FHLB. For the years ended December 31, 2021 and 2020, we issued $34.0 billion and $35.4 billion, respectively, and repaid $34.5 billion and $34.5 billion, respectively, of funding agreements with certain regional FHLBs. At December 31, 2021 and 2020, total obligations outstanding under these funding agreements were $15.8 billion and $16.3 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements.

Special Purpose Entity Funding Agreements, Reported in Policyholder Account Balances

We issue fixed and floating rate funding agreements which are denominated in either U.S. dollars or foreign currencies, to certain unconsolidated special purpose entities that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. For the years ended December 31, 2021 and 2020, we issued $40.8 billion and $40.4 billion, respectively, and repaid $41.2 billion and $36.7 billion, respectively, under such funding agreements. At December 31, 2021 and 2020, total obligations outstanding under these funding agreements were $39.5 billion and $39.9 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements.

Federal Agricultural Mortgage Corporation Funding Agreements, Reported in Policyholder Account Balances

We have issued funding agreements to a subsidiary of Farmer Mac which are secured by a pledge of certain eligible agricultural mortgage loans. For the years ended December 31, 2021 and 2020, we issued $425 million and $250 million, respectively, and repaid $750 million and $425 million, respectively, under such funding agreements. At December 31, 2021 and 2020, total obligations outstanding under these funding agreements were $2.1 billion and $2.4 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements.

Debt Issuances

See “— Liquidity and Capital Uses — Debt Repurchases, Redemptions and Exchanges” and Note 13 of the Notes to the Consolidated Financial Statements for information on senior note issuances.

Credit and Committed Facilities

See Note 13 of the Notes to the Consolidated Financial Statements for information on credit and committed facilities.

We have no reason to believe that our lending counterparties will be unable to fulfill their respective contractual obligations under these facilities. As commitments under our credit and committed facilities may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements.

Outstanding Debt Under Global Funding Sources

The following table summarizes our outstanding debt excluding long-term debt relating to CSEs at:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

__________________

(1)Includes $241 million and $293 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2021 and 2020, respectively. Certain subsidiaries have pledged assets to secure this debt.

(2)Includes $482 million and $474 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2021 and 2020, respectively. Certain investment subsidiaries have pledged assets to secure this debt.

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Debt and Facility Covenants

Certain of our debt instruments and committed facilities, as well as our unsecured revolving credit facility, contain various administrative, reporting, legal and financial covenants. We believe we were in compliance with all applicable financial covenants at December 31, 2021.

Dispositions

See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.

Liquidity and Capital Uses

In addition to the general description of liquidity and capital uses in “— Summary of the Company’s Primary Sources and Uses of Liquidity and Capital” the Company’s primary uses of liquidity and capital are set forth below.

Preferred Stock Redemption

See Note 16 of the Notes to the Consolidated Financial Statements for information about the redemption of Series C preferred stock.

Common Stock Repurchases

See Note 16 of the Notes to the Consolidated Financial Statements for information relating to authorizations by the Board of Directors to repurchase MetLife, Inc. common stock, amounts of common stock repurchased pursuant to such authorizations for the years ended December 31, 2021 and 2020, and the amount remaining under such authorizations at December 31, 2021.

Common stock repurchases are subject to the discretion of our Board of Directors and will depend upon our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying value, applicable regulatory approvals, and other legal and accounting factors. Restrictions on the payment of dividends that may arise under so-called “Dividend Stopper” provisions would also restrict MetLife, Inc.’s ability to repurchase common stock. See “— Dividends” for information about these restrictions. See also “Risk Factors — Capital Risks — We May Not be Able to Pay Dividends or Repurchase Our Stock Due to Legal and Regulatory Restrictions or Cash Buffer Needs.”

Dividends

For the years ended December 31, 2021 and 2020, MetLife, Inc. paid dividends on its preferred stock of $195 million and $202 million, respectively. For the years ended December 31, 2021 and 2020, MetLife, Inc. paid dividends on its common stock of $1.6 billion and $1.7 billion, respectively. See Note 16 of the Notes to the Consolidated Financial Statements for information regarding the calculation and timing of these dividend payments.

The declaration and payment of common stock dividends are subject to the discretion of our Board of Directors, and will depend on MetLife, Inc.’s financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by MetLife, Inc.’s insurance subsidiaries and other factors deemed relevant by the Board.

“Dividend Stopper” Provisions in MetLife’s Preferred Stock and Junior Subordinated Debentures

MetLife, Inc.’s preferred stock and junior subordinated debentures contain “dividend stopper” provisions under which MetLife, Inc. may not pay dividends on instruments junior to those instruments if payments have not been made on those instruments. Moreover, MetLife, Inc.’s Series A preferred stock and its junior subordinated debentures contain provisions that would limit the payment of dividends or interest on those instruments if MetLife, Inc. fails to meet certain tests (“Trigger Events”), to an amount not greater than the net proceeds from sales of common stock and other specified instruments during a period preceding the dividend declaration date or the interest payment date, as applicable. If such proceeds were under the circumstances insufficient to make such payments on those instruments, the dividend stopper provisions affecting common stock (and preferred stock, as applicable) would come into effect.

A “Trigger Event” would occur if:

•the RBC ratio of MetLife’s largest U.S. insurance subsidiaries in the aggregate (as defined in the applicable instrument) were to be less than 175% of the company action level based on the subsidiaries’ prior year annual financial statements filed (generally around March 1) with state insurance commissioners; or

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•at the end of a quarter (“Final Quarter End Test Date”), consolidated GAAP net income for the four-quarter period ending two quarters before such quarter-end (the “Preliminary Quarter End Test Date”) is zero or a negative amount and the consolidated GAAP stockholders’ equity, minus AOCI (the “adjusted stockholders’ equity amount”), as of the Final Quarter End Test Date and the Preliminary Quarter End Test Date, declined by 10% or more from its level 10 quarters before the Final Quarter End Test Date (the “Benchmark Quarter End Test Date”).

Once a Trigger Event occurs for a Final Quarter End Test Date, the suspension of payments of dividends and interest (in the absence of sufficient net proceeds from the issuance of certain securities during specified periods) would continue until there is no Trigger Event at a subsequent Final Quarter End Test Date, and, if the test in the second paragraph above caused the Trigger Event, the adjusted stockholders’ equity amount is no longer 10% or more below its level at the Benchmark Quarter End Test Date that is associated with the Trigger Event. In the case of successive Trigger Events, the suspension would continue until MetLife satisfies these conditions for each of the Trigger Events.

The junior subordinated debentures further provide that MetLife, Inc. may, at its option and provided that certain conditions are met, elect to defer payment of interest. See Note 15 of the Notes to the Consolidated Financial Statements. Any such elective deferral would trigger the dividend stopper provisions.

Further, MetLife, Inc. is a party to certain replacement capital covenants which limit its ability to eliminate these restrictions through the repayment, redemption or purchase of the junior subordinated debentures by requiring MetLife, Inc., with some limitations, to receive cash proceeds during a specified period from the sale of specified replacement securities prior to any repayment, redemption or purchase. See Note 15 of the Notes to the Consolidated Financial Statements for a description of such covenants.

Debt Repayments

For the years ended December 31, 2021 and 2020, following regulatory approval, MetLife Reinsurance Company of Charleston, a wholly-owned subsidiary of MetLife, Inc., repurchased and canceled $79 million and $148 million, respectively, in aggregate principal amount of its surplus notes, which were reported in collateral financing arrangement on the consolidated balance sheets. See Notes 13 and 14 of the Notes to the Consolidated Financial Statements for further information on long-term and short-term debt and the collateral financing arrangement, respectively.

Debt Repurchases, Redemptions and Exchanges

We may from time to time seek to retire or purchase our outstanding debt through cash purchases, redemptions and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Any such repurchases, redemptions, or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, and applicable regulatory, legal and accounting factors. Whether or not to repurchase or redeem any debt and the size and timing of any such repurchases or redemptions will be determined at our discretion.

See Note 13 of the Notes to the Consolidated Financial Statements for information about the redemption and cancellation of senior notes.

Support Agreements

MetLife, Inc. and several of its subsidiaries (each, an “Obligor”) are parties to various capital support commitments and guarantees with subsidiaries. Under these arrangements, each Obligor has agreed to cause the applicable entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations. We anticipate that in the event these arrangements place demands upon us, there will be sufficient liquidity and capital to enable us to meet such demands. See Note 5 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules. See also “Guarantees” in Note 21 of the Notes to the Consolidated Financial Statements.

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Insurance Liabilities

Insurance liabilities include future policy benefits, other policy-related balances, policyholder dividends payable and the policyholder dividend obligation, which are all reported on the consolidated balance sheet and are more fully described in Notes 1 and 4 of the Notes to the Consolidated Financial Statements. The sum of the estimated cash flows of $351.7 billion ($21.3 billion of which are estimated to occur in one year or less) exceeds the liability amounts of $219.6 billion included on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference; (ii) differences in assumptions, most significantly mortality, between the date the liabilities were initially established and the current date; and (iii) liabilities related to accounting conventions, or which are not contractually due, which are excluded.

The estimated cash flows reflect future estimated cash payments and (i) are based on mortality, morbidity, lapse and other assumptions comparable with our experience and expectations of future payment patterns; and (ii) consider future premium receipts on current policies in-force. Estimated cash payments are undiscounted as to interest, net of estimated future premiums on in-force policies and gross of any reinsurance recoverable. Payment of amounts related to policyholder dividends left on deposit are projected based on assumptions of policyholder withdrawal activity.

Actual cash payments may differ significantly from the liabilities as presented on the consolidated balance sheet and the estimated cash payments due to differences between actual experience and the assumptions used in the establishment of these liabilities and the estimation of these cash payments.

For the majority of our insurance operations, estimated contractual obligations for future policy benefits and policyholder account balances are derived from the annual asset adequacy analysis used to develop actuarial opinions of statutory reserve adequacy for state regulatory purposes. These cash flows are materially representative of the cash flows under GAAP. See “— Policyholder Account Balances.”

Liabilities arising from our insurance activities primarily relate to benefit payments under various life insurance, annuity and group pension products, as well as payments for policy surrenders, withdrawals and loans. For annuity or deposit type products, surrender or lapse behavior differs somewhat by segment. In the MetLife Holdings segment, which includes individual annuities, lapses and surrenders tend to occur in the normal course of business. For the years ended December 31, 2021 and 2020, general account surrenders and withdrawals from annuity products were $1.4 billion and $1.3 billion, respectively. In the RIS business within the U.S. segment, which includes pension risk transfers, bank-owned life insurance and other fixed annuity contracts, as well as funding agreements and other capital market products, most of the products offered have fixed maturities or fairly predictable surrenders or withdrawals. With regard to the RIS business products that provide customers with limited rights to accelerate payments, at December 31, 2021, there were funding agreements totaling $113 million that could be put back to the Company.

Pledged Collateral

We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At December 31, 2021 and 2020, we had received pledged cash collateral from counterparties of $7.5 billion and $7.6 billion, respectively. At December 31, 2021 and 2020, we had pledged cash collateral to counterparties of $142 million and $266 million, respectively. See Note 9 of the Notes to the Consolidated Financial Statements for additional information about collateral pledged to us, collateral we pledge and derivatives subject to credit contingent provisions.

We pledge collateral and have had collateral pledged to us, and may be required from time to time to pledge additional collateral or be entitled to have additional collateral pledged to us, in connection with the collateral financing arrangement related to the reinsurance of closed block liabilities. See Note 14 of the Notes to the Consolidated Financial Statements.

We pledge collateral from time to time in connection with funding agreements and advance agreements. See Note 4 of the Notes to the Consolidated Financial Statements.

Securities Lending Transactions and Repurchase Agreements

See “— Investments — Securities Lending Transactions, Repurchase Agreements and Third-Party Custodian Administered Programs.”

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Litigation

We establish liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For material matters where a loss is believed to be reasonably possible but not probable, no accrual is made but we disclose the nature of the contingency and an aggregate estimate of the reasonably possible range of loss in excess of amounts accrued, when such an estimate can be made. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to herein, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated net income or cash flows in particular quarterly or annual periods. See Note 21 of the Notes to the Consolidated Financial Statements.

Acquisitions

See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the acquisition of Versant Health.

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MetLife, Inc.

Liquidity and Capital Management

Liquidity and capital are managed to preserve stable, reliable and cost-effective sources of cash to meet all current and future financial obligations and are provided by a variety of sources, including a portfolio of liquid assets, a diversified mix of short- and long-term funding sources from the wholesale financial markets and the ability to borrow through credit and committed facilities. Liquidity is monitored through the use of internal liquidity risk metrics, including the composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, access to the financial markets for capital and debt transactions and exposure to contingent draws on MetLife, Inc.’s liquidity. MetLife, Inc. is an active participant in the global financial markets through which it obtains a significant amount of funding. These markets, which serve as cost-effective sources of funds, are critical components of MetLife, Inc.’s liquidity and capital management. Decisions to access these markets are based upon relative costs, prospective views of balance sheet growth and a targeted liquidity profile and capital structure. A disruption in the financial markets could limit MetLife, Inc.’s access to liquidity.

MetLife, Inc.’s ability to maintain regular access to competitively priced wholesale funds is fostered by its current credit ratings from the major credit rating agencies. We view our capital ratios, credit quality, stable and diverse earnings streams, diversity of liquidity sources and our liquidity monitoring procedures as critical to retaining such credit ratings. See “— The Company — Rating Agencies.”

Liquidity

For a summary of MetLife, Inc.’s liquidity, see “— The Company — Liquidity.”

Capital

For a summary of MetLife, Inc.’s capital, see “— The Company — Capital.” See also “— The Company — Liquidity and Capital Uses — Common Stock Repurchases” for information regarding MetLife, Inc.’s common stock repurchases.

Liquid Assets

At December 31, 2021 and 2020, MetLife, Inc., collectively with other MetLife holding companies, had $5.4 billion and $4.5 billion, respectively, in liquid assets. Of these amounts, $4.2 billion and $3.6 billion were held by MetLife, Inc. and $1.2 billion and $873 million were held by other MetLife holding companies at December 31, 2021 and 2020, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with derivatives and a collateral financing arrangement.

Liquid assets held in non-U.S. holding companies are generated in part through dividends from non-U.S. insurance operations. Such dividends are subject to local insurance regulatory requirements, as discussed in “— Liquidity and Capital Sources — Dividends from Subsidiaries.” As a result of Tax Cuts and Jobs Act of 2017, we expect to repatriate future foreign earnings back to the U.S. with minimal or no additional U.S. tax. See Note 19 of the Notes to the Consolidated Financial Statements and “— Risk Factors — Regulatory and Legal Risks — Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.”

See “— Executive Summary — Consolidated Company Outlook,” for the targeted level of liquid assets at the holding companies.

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MetLife, Inc. and Other MetLife Holding Companies Sources and Uses of Liquid Assets and Sources and Uses of Liquid Assets included in Free Cash Flow

MetLife, Inc.’s sources and uses of liquid assets, as well as sources and uses of liquid assets included in free cash flow are summarized as follows.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021","","Year Ended December 31, 2020"],["","","Sources and Uses of Liquid Assets","","Sources and Uses of Liquid Assets Included in Free Cash Flow","","Sources and Uses of Liquid Assets","","Sources and Uses of Liquid Assets Included in Free Cash Flow"],["","","(In millions)"],["MetLife, Inc. (Parent Company Only)"],["Sources:"],["Dividends and returns of capital from subsidiaries (1)","","$","4,837","","","$","4,837","","","$","4,327","","","$","4,327"],["Long-term debt issued (2)","","\u2014","","","\u2014","","","990","","","990"],["Repayments on and (issuances of) loans to subsidiaries and related interest, net (3)","","\u2014","","","\u2014","","","50","","","50"],["Preferred stock issuance, net of redemption of preferred stock and preferred stock redemption premium (2)","","\u2014","","","\u2014","","","958","","","458"],["Other, net (4), (5)","","3,865","","","(156)","","","\u2014","","","\u2014"],["Total sources","","8,702","","","4,681","","","6,325","","","5,825"],["Uses:"],["Capital contributions to subsidiaries","","88","","","88","","","422","","","422"],["Long-term debt repaid \u2014 unaffiliated","","500","","","\u2014","","","\u2014","","","\u2014"],["Interest paid on debt and financing arrangements \u2014 unaffiliated","","795","","","795","","","763","","","763"],["Dividends on common stock","","1,647","","","\u2014","","","1,657","","","\u2014"],["Treasury stock acquired in connection with share repurchases","","4,303","","","\u2014","","","1,151","","","\u2014"],["Dividends on preferred stock","","195","","","195","","","202","","","202"],["Issuances of and (repayments on) loans to subsidiaries and related interest, net (3)","","92","","","92","","","\u2014","","","\u2014"],["Redemption of preferred stock and preferred stock redemption premium","","500","","","\u2014","","","\u2014","","","\u2014"],["Other, net (4), (5)","","\u2014","","","\u2014","","","1,539","","","(249)"],["Total uses","","8,120","","","1,170","","","5,734","","","1,138"],["Net increase (decrease) in liquid assets, MetLife, Inc. (Parent Company Only)","","582","","","","","591"],["Liquid assets, beginning of year","","3,595","","","","","3,004"],["Liquid assets, end of year","","$","4,177","","","","","$","3,595"],["Free Cash Flow, MetLife, Inc. (Parent Company Only)","","","","3,511","","","","","4,687"],["Net cash provided by operating activities, MetLife, Inc. (Parent Company Only)","","$","3,757","","","","","$","3,479"],["Other MetLife Holding Companies"],["Sources:"],["Dividends and returns of capital from subsidiaries","","$","2,077","","","$","2,077","","","$","1,301","","","$","1,301"],["Total sources","","2,077","","","2,077","","","1,301","","","1,301"],["Uses:"],["Capital contributions to subsidiaries","","24","","","24","","","55","","","55"],["Repayments on and (issuance of) loans to subsidiaries and affiliates and related interest, net","","9","","","9","","","111","","","111"],["Dividends and returns of capital to MetLife, Inc.","","1,300","","","1,300","","","1,200","","","1,200"],["Other, net (5)","","379","","","420","","","247","","","612"],["Total uses","","1,712","","","1,753","","","1,613","","","1,978"],["Net increase (decrease) in liquid assets, Other MetLife Holding Companies","","365","","","","","(312)"],["Liquid assets, beginning of year","","873","","","","","1,185"],["Liquid assets, end of year","","$","1,238","","","","","$","873"],["Free Cash Flow, Other MetLife Holding Companies","","","","324","","","","","(677)"],["Net increase (decrease) in liquid assets, All Holding Companies","","$","947","","","","","$","279"],["Free Cash Flow, All Holding Companies (6)","","","","$","3,835","","","","","$","4,010"]]
[[/GREPCENT_TABLE]]

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__________________

(1)Dividends and returns of capital to MetLife, Inc. included $3.5 billion and $3.1 billion from operating subsidiaries and $1.3 billion and $1.2 billion from other MetLife holding companies for the years ended December 31, 2021 and 2020, respectively.

(2)Included in free cash flow is the portion of long-term debt issued and preferred stock issuance, net of redemption of preferred stock and preferred stock redemption premium that represents incremental debt to be at or below target leverage ratios.

(3)See MetLife, Inc. (Parent Company Only) Condensed Statements of Cash Flows included in Schedule II of the Financial Statement Schedules for information regarding the source of liquid assets from receipts on loans to subsidiaries (excluding interest) and the use of liquid assets related to the issuances of loans to subsidiaries (excluding interest).

(4)Other, net includes ($18) million and $296 million of net receipts (payments) by MetLife, Inc. to and from subsidiaries under a tax sharing agreement and tax payments to tax agencies for the years ended December 31, 2021 and 2020, respectively.

(5)Included in other, net is $3.9 billion from sales of businesses and $1.9 billion to fund business acquisitions for the years ended December 31, 2021 and 2020, respectively.

(6)See “— Non-GAAP and Other Financial Disclosures” for the reconciliation of net cash provided by operating activities of MetLife, Inc. to free cash flow of all holding companies.

Sources and Uses of Liquid Assets of MetLife, Inc.

The primary sources of MetLife, Inc.’s liquid assets are dividends and returns of capital from subsidiaries, issuances of long-term debt, issuances of common and preferred stock, and net receipts from subsidiaries under a tax sharing agreement. MetLife, Inc.’s insurance subsidiaries are subject to regulatory restrictions on the payment of dividends imposed by the regulators of their respective domiciles. See “— Liquidity and Capital Sources — Dividends from Subsidiaries.”

The primary uses of MetLife, Inc.’s liquid assets are principal and interest payments on long-term debt, dividends on and repurchases of common and preferred stock, capital contributions to subsidiaries, funding of business acquisitions, income taxes and operating expenses. MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. See “— Liquidity and Capital Uses — Support Agreements.”

In addition, MetLife, Inc. issues loans to subsidiaries or subsidiaries issue loans to MetLife, Inc. Accordingly, changes in MetLife, Inc. liquid assets include issuances of loans to subsidiaries, proceeds of loans from subsidiaries and the related repayment of principal and payment of interest on such loans. See “— Liquidity and Capital Sources — Affiliated Long-term Debt” and “— Liquidity and Capital Uses — Affiliated Capital and Debt Transactions.”

Sources and Uses of Liquid Assets of Other MetLife Holding Companies

The primary sources of liquid assets of other MetLife holding companies are dividends, returns of capital and remittances from their subsidiaries and branches, principally non-U.S. insurance companies; capital contributions received; receipts of principal and interest on loans to subsidiaries and affiliates and borrowings from subsidiaries and affiliates. MetLife, Inc.’s non-U.S. operations are subject to regulatory restrictions on the payment of dividends imposed by local regulators. See “— Liquidity and Capital Sources — Dividends from Subsidiaries.”

The primary uses of liquid assets of other MetLife holding companies are capital contributions paid to their subsidiaries and branches, principally non-U.S. insurance companies; loans to subsidiaries and affiliates; principal and interest paid on loans from subsidiaries and affiliates; dividends and returns of capital to MetLife, Inc. and the following items, which are reported within other, net: business acquisitions; and operating expenses.

Liquidity and Capital Sources

In addition to the description of liquidity and capital sources in “— The Company — Summary of the Company’s Primary Sources and Uses of Liquidity and Capital” and “— The Company — Liquidity and Capital Sources,” MetLife, Inc.’s primary sources of liquidity and capital are set forth below.

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Dividends from Subsidiaries

MetLife, Inc. relies, in part, on dividends from its subsidiaries to meet its cash requirements. MetLife, Inc.’s insurance subsidiaries are subject to regulatory restrictions on the payment of dividends imposed by the regulators of their respective domiciles. See Note 16 of the Notes to the Consolidated Financial Statements. The dividend limitation for U.S. insurance subsidiaries is generally based on the surplus to policyholders at the end of the immediately preceding calendar year and statutory net gain from operations for the immediately preceding calendar year. Statutory accounting practices, as prescribed by insurance regulators of various states in which we conduct business, differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP. The significant differences relate to the treatment of DAC, certain deferred income tax, required investment liabilities, statutory reserve calculation assumptions, goodwill and surplus notes.

The table below sets forth the dividends permitted to be paid by MetLife, Inc.’s primary U.S. insurance subsidiaries without insurance regulatory approval and the actual dividends paid:

[[GREPCENT_TABLE]]
[["","","2022","","2021","","","2020"],["Company","","Permitted Without Approval (1)","","Paid (2)","","Permitted Without Approval (1)","","","Paid (2)","","Permitted Without Approval (1)"],["","","(In millions)"],["Metropolitan Life Insurance Company","","$","3,539","","","$","3,393","","","$","3,393","","","","$","2,832","","","$","3,272"],["American Life Insurance Company","","$","554","","","$","1,135","","","$","800","","","","$","1,200","","(3)","$","\u2014"],["Metropolitan Property and Casualty Insurance Company","","N/A","","$","35","","(4)","$","222","","","","$","250","","","$","114"],["Metropolitan Tower Life Insurance Company","","$","163","","","$","\u2014","","","$","82","","","","$","\u2014","","","$","149"]]
[[/GREPCENT_TABLE]]

__________________

(1)Reflects dividend amounts that may be paid during the relevant year without prior regulatory approval. However, because dividend tests may be based on dividends previously paid over rolling 12-month periods, if paid before a specified date during such year, some or all of such dividends may require regulatory approval.

(2)Reflects all amounts paid, including those where regulatory approval was obtained as required.

(3)Includes a $341 million non-cash dividend.

(4)Consists of the stock of a subsidiary paid to MetLife, Inc. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.

In addition to the amounts presented in the table above, for the years ended December 31, 2021 and 2020, MetLife, Inc. also received from certain other subsidiaries cash dividends of $302 million and $29 million, respectively, as well as cash returns of capital of $13 million and $16 million, respectively.

The dividend capacity of our non-U.S. operations is subject to similar restrictions established by the local regulators. The non-U.S. regulatory regimes also commonly limit dividend payments to the parent company to a portion of the subsidiary’s prior year statutory income, as determined by the local accounting principles. The regulators of our non-U.S. operations, including the FSA, may also limit or not permit profit repatriations or other transfers of funds to the U.S. if such transfers are deemed to be detrimental to the solvency or financial strength of the non-U.S. operations, or for other reasons. Most of our non-U.S. subsidiaries are second tier subsidiaries which are owned by various non-U.S. holding companies. The capital and rating considerations applicable to our first tier subsidiaries may also impact the dividend flow into MetLife, Inc.

We proactively manage target and excess capital levels and dividend flows and forecast local capital positions as part of the financial planning cycle. The dividend capacity of certain U.S. and non-U.S. subsidiaries is also subject to business targets in excess of the minimum capital necessary to maintain the desired rating or level of financial strength in the relevant market. See “Risk Factors — Capital Risks — Our Subsidiaries May be Unable to Pay Dividends, a Major Component of Holding Company Free Cash Flow” and Note 16 of the Notes to the Consolidated Financial Statements.

Affiliated Long-term Debt

See “Senior Notes — Affiliated” in Note 4 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules for information on affiliated long-term debt.

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Collateral Financing Arrangement and Junior Subordinated Debt Securities

For information on MetLife, Inc.’s collateral financing arrangement and junior subordinated debt securities, see Notes 14 and 15 of the Notes to the Consolidated Financial Statements, respectively.

Credit and Committed Facilities

See Note 13 of the Notes to the Consolidated Financial Statements for further information regarding the Company’s unsecured revolving credit facility and certain committed facilities.

Long-term Debt Outstanding

The following table summarizes the outstanding long-term debt of MetLife, Inc. at:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["","(In millions)"],["Long-term debt \u2014 unaffiliated","$","12,814","","","$","13,463"],["Long-term debt \u2014 affiliated (1), (2)","$","1,884","","","$","2,073"],["Junior subordinated debt securities","$","2,463","","","$","2,461"]]
[[/GREPCENT_TABLE]]

__________________

(1)In December 2021, ¥54.6 billion 3.1350% senior unsecured notes issued to various subsidiaries matured and were refinanced with the following senior unsecured notes issued to various subsidiaries: (i) ¥12.2 billion 1.588% due December 2026, (ii) ¥19.1 billion 1.7185% due December 2028 and (iii) ¥23.3 billion 1.850% due December 2031.

(2)In July 2021, ¥53.7 billion 2.9725% senior unsecured notes issued to various subsidiaries matured and were refinanced with the following senior unsecured notes issued to various subsidiaries: (i) ¥13.7 billion 1.610% due July 2026, (ii) ¥14.3 billion 1.755% due July 2028 and (iii) ¥25.7 billion 1.852% due July 2031.

Debt and Facility Covenants

Certain of MetLife, Inc.’s debt instruments and committed facilities, as well as its unsecured revolving credit facility, contain various administrative, reporting, legal and financial covenants. MetLife, Inc. believes it was in compliance with all applicable financial covenants at December 31, 2021.

Dispositions

See Note 3 of the Notes to the Consolidated Financial Statements for information on MetLife, Inc.’s business dispositions.

Liquidity and Capital Uses

The primary uses of liquidity of MetLife, Inc. include debt service, cash dividends on common and preferred stock, capital contributions to subsidiaries, common stock, preferred stock and debt repurchases and/or redemptions, payment of general operating expenses and acquisitions. Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enable MetLife, Inc. to make payments on debt, pay cash dividends on its common and preferred stock, contribute capital to its subsidiaries, repurchase its common stock and certain of its other securities, pay all general operating expenses and meet its cash needs under current market conditions and reasonably possible stress scenarios.

In addition to the description of liquidity and capital uses in “— The Company — Liquidity and Capital Uses,” MetLife, Inc.’s primary uses of liquidity and capital are set forth below.

Affiliated Capital and Debt Transactions

For the years ended December 31, 2021 and 2020, excluding acquisitions, MetLife, Inc. invested a net amount of $111 million and $425 million, respectively, in various subsidiaries.

MetLife, Inc. lends funds, as necessary, through credit agreements or otherwise to its subsidiaries and affiliates, some of which are regulated, to meet their capital requirements or to provide liquidity. MetLife, Inc. had loans to subsidiaries outstanding of $35 million and $0 at December 31, 2021 and 2020, respectively. In June 2020, a $100 million loan was repaid at maturity.

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Debt Repayments

For information on MetLife, Inc.’s debt repayments, see “— The Company — Liquidity and Capital Uses — Debt Repayments.” MetLife, Inc. intends to repay or refinance, in whole or in part, all the debt that is due in 2022.

Maturities of Senior Notes

The following table summarizes MetLife, Inc.’s outstanding senior notes by year of maturity, excluding any premium or discount and unamortized issuance costs, at December 31, 2021:

[[GREPCENT_TABLE]]
[["Year of Maturity","","Principal","","Interest Rate"],["","","(In millions)"],["Unaffiliated:"],["2023","","$","1,000","","","4.37%"],["2024","","$","1,000","","","3.60%"],["2024","","$","474","","","5.38%"],["2025","","$","500","","","3.00%"],["2025","","$","500","","","3.60%"],["2026","","$","219","","","0.50%"],["2029 - 2046","","$","9,198","","","Ranging from 0.77% to 6.50%"],["Affiliated:"],["2023","","$","324","","","1.60%"],["2025","","$","250","","","2.02%"],["2026","","$","139","","","1.64%"],["2026","","$","119","","","1.61%"],["2026","","$","106","","","1.59%"],["2028 - 2031","","$","946","","","Ranging from 1.72% to 1.85%"]]
[[/GREPCENT_TABLE]]

Support Agreements

MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. See Note 5 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules.

Acquisitions

See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the acquisition of Versant Health.

Adopted Accounting Pronouncements

See Note 1 of the Notes to the Consolidated Financial Statements.

Future Adoption of Accounting Pronouncements

See Note 1 of the Notes to the Consolidated Financial Statements.

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Non-GAAP and Other Financial Disclosures

In this report, the Company presents certain measures of its performance on a consolidated and segment basis that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures enhance the understanding for the Company and our investors of our performance by highlighting the results of operations and the underlying profitability drivers of our business. Segment-specific financial measures are calculated using only the portion of consolidated results attributable to that specific segment.

The following non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:

[[GREPCENT_TABLE]]
[["Non-GAAP financial measures:","Comparable GAAP financial measures:"],["(i)","adjusted premiums, fees and other revenues","(i)","premiums, fees and other revenues"],["(ii)","adjusted earnings","(ii)","net income (loss)"],["(iii)","adjusted earnings available to common shareholders","(iii)","net income (loss) available to MetLife, Inc.\u2019s common shareholders"],["(iv)","free cash flow of all holding companies","(iv)","MetLife, Inc. (parent company only) net cash provided by (used in) operating activities"],["(v)","adjusted net investment income","(v)","net investment income"]]
[[/GREPCENT_TABLE]]

Any of these financial measures shown on a constant currency basis reflect the impact of changes in foreign currency exchange rates and are calculated using the average foreign currency exchange rates for the most recent period and applied to the comparable prior period (“constant currency basis”).

Reconciliations of these non-GAAP financial measures to the most directly comparable historical GAAP financial measures are included in “— Results of Operations” and “— Investments.” Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are not accessible on a forward-looking basis because we believe it is not possible without unreasonable effort to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income.

Our definitions of non-GAAP and other financial measures discussed in this report may differ from those used by other companies.

Adjusted earnings and related measures:

•adjusted earnings;

•adjusted earnings available to common shareholders; and

•adjusted earnings available to common shareholders on a constant currency basis.

These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings and components of, or other financial measures based on, adjusted earnings are also our GAAP measures of segment performance. Adjusted earnings and other financial measures based on adjusted earnings are also the measures by which senior management’s and many other employees’ performance is evaluated for the purposes of determining their compensation under applicable compensation plans. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results.

Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax. Adjusted loss is defined as negative adjusted earnings. Adjusted earnings available to common shareholders is defined as adjusted earnings less preferred stock dividends. For information relating to adjusted revenues and adjusted expenses, see “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements.

In addition, adjusted earnings available to common shareholders excludes the impact of preferred stock redemption premium, which is reported as a reduction to net income (loss) available to MetLife, Inc.’s common shareholders.

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Return on equity, allocated equity and related measures:

•Total MetLife, Inc.’s common stockholders’ equity, excluding AOCI other than FCTA, is defined as total MetLife, Inc.’s common stockholders’ equity, excluding the net unrealized investment gains (losses) and defined benefit plans adjustment components of AOCI, net of income tax.

•Adjusted return on MetLife, Inc.’s common stockholders’ equity is defined as adjusted earnings available to common shareholders divided by MetLife, Inc.’s average common stockholders’ equity.

•Adjusted return on MetLife, Inc.’s common stockholders’ equity, excluding AOCI other than FCTA, is defined as adjusted earnings available to common shareholders divided by MetLife, Inc.’s average common stockholders’ equity, excluding AOCI other than FCTA.

•Allocated equity is the portion of MetLife, Inc.’s common stockholders’ equity that management allocates to each of its segments and sub-segments based on local capital requirements and economic capital. See “— Risk Management— Economic Capital.” Allocated equity excludes the impact of AOCI other than FCTA.

The above measures represent a level of equity consistent with the view that, in the ordinary course of business, we do not plan to sell most investments for the sole purpose of realizing gains or losses.

Expense ratio and direct expense ratio:

•Expense ratio: other expenses, net of capitalization of DAC, divided by premiums, fees and other revenues.

•Direct expense ratio: adjusted direct expenses divided by adjusted premiums, fees and other revenues. Direct expenses are comprised of employee-related costs, third party staffing costs, and general and administrative expenses.

•Direct expense ratio, excluding total notable items related to direct expenses and pension risk transfers: adjusted direct expenses excluding total notable items related to direct expenses, divided by adjusted premiums, fees and other revenues, excluding pension risk transfers.

The following additional information is relevant to an understanding of our performance results and outlook:

•We sometimes refer to sales activity for various products. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity. Further, sales statistics for our Latin America, Asia and EMEA segments are on a constant currency basis.

•Near-term represents one to three years.

•We refer to observable forward yield curves as of a particular date in connection with making our estimates for future results. The observable forward yield curves at a given time are based on implied future interest rates along a range of interest rate durations. This includes the 10-year U.S. Treasury rate which we use as a benchmark rate to describe longer-term interest rates used in our estimates for future results.

•Asymmetrical and non-economic accounting refers to: (i) the portion of net derivative gains (losses) on embedded derivatives attributable to the inclusion of our credit spreads in the liability valuations, (ii) hedging activity that generates net derivative gains (losses) and creates fluctuations in net income because hedge accounting cannot be achieved and the item being hedged does not a have an offsetting gain or loss recognized in earnings, (iii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass through adjustments, and (iv) impact of changes in foreign currency exchange rates on the re-measurement of foreign denominated unhedged funding agreements and financing transactions to the U.S. dollar and the re-measurement of certain liabilities from non-functional currencies to functional currencies. We believe that excluding the impact of asymmetrical and non-economic accounting from total GAAP results enhances investor understanding of our performance by disclosing how these accounting practices affect reported GAAP results.

• Notable items reflect the unexpected impact of events that affect the Company’s results, but that were unknown and that the Company could not anticipate when it devised its business plan. Notable items also include certain items regardless of the extent anticipated in the business plan, to help investors have a better understanding of MetLife’s results and to evaluate and forecast those results. Notable items represent a positive (negative) impact to adjusted earnings available to common shareholders.

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•The Company uses a measure of free cash flow to facilitate an understanding of its ability to generate cash for reinvestment into its businesses or use in non-mandatory capital actions. The Company defines free cash flow as the sum of cash available at MetLife’s holding companies from dividends from operating subsidiaries, expenses and other net flows of the holding companies (including capital contributions to subsidiaries), and net contributions from debt to be at or below target leverage ratios. This measure of free cash flow is prior to capital actions, such as common stock dividends and repurchases, debt reduction and mergers and acquisitions. Free cash flow should not be viewed as a substitute for net cash provided by (used in) operating activities calculated in accordance with GAAP. The free cash flow ratio is typically expressed as a percentage of annual adjusted earnings available to common shareholders. A reconciliation of net cash provided by operating activities of MetLife, Inc. (parent company only) to free cash flow of all holding companies for the years ended December 31, 2021 and 2020 is provided below.

[[GREPCENT_TABLE]]
[["Reconciliation of Net Cash Provided by Operating Activities of MetLife, Inc. to Free Cash Flow of All Holding Companies","Years Ended December 31,"],["","2021","","2020"],["","(In millions, except ratios)"],["MetLife, Inc. (parent company only) net cash provided by operating activities","$","3,757","","","$","3,479"],["Adjustments from net cash provided by operating activities to free cash flow:"],["Add: Incremental debt to be at or below target leverage ratios","\u2014","","","1,448"],["Add: Capital contributions to subsidiaries","(88)","","","(422)"],["Add: Returns of capital from subsidiaries","7","","","16"],["Add: Repayments on and (issuances of) loans to subsidiaries, net","(35)","","","100"],["Add: Investment portfolio and derivatives changes and other, net","(130)","","","66"],["MetLife, Inc. (parent company only) free cash flow","3,511","","","4,687"],["Other MetLife, Inc. holding companies:"],["Add: Dividends and returns of capital from subsidiaries","2,077","","","1,301"],["Add: Capital contributions to subsidiaries","(24)","","","(55)"],["Add: Repayments on and (issuances of) loans to subsidiaries, net","(9)","","","(111)"],["Add: Other expenses","(613)","","","(644)"],["Add: Dividends and returns of capital to MetLife, Inc.","(1,300)","","","(1,200)"],["Add: Investment portfolio and derivative changes and other, net","193","","","32"],["Total other MetLife, Inc. holding companies free cash flow","324","","","(677)"],["Free cash flow of all holding companies","$","3,835","","","$","4,010"],["Ratio of net cash provided by operating activities to consolidated net income (loss) available to MetLife, Inc.\u2019s common shareholders:"],["MetLife, Inc. (parent company only) net cash provided by operating activities","$","3,757","","","$","3,479"],["Consolidated net income (loss) available to MetLife, Inc.\u2019s common shareholders","$","6,353","","","$","5,191"],["Ratio of net cash provided by operating activities (parent company only) to consolidated net income (loss) available to MetLife, Inc.'s common shareholders (1)","59","%","","67","%"],["Ratio of free cash flow to adjusted earnings available to common shareholders:"],["Free cash flow of all holding companies (2)","$","3,835","","","$","4,010"],["Consolidated adjusted earnings available to common shareholders (2)","$","7,954","","","$","5,623"],["Ratio of free cash flow of all holding companies to consolidated adjusted earnings available to common shareholders (2)","48","%","","71","%"]]
[[/GREPCENT_TABLE]]

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(1)Including the free cash flow of other MetLife, Inc. holding companies of $324 million and ($677) million for the years ended December 31, 2021 and 2020, respectively, in the numerator of the ratio, this ratio, as adjusted, would be 64% and 54%, respectively.

(2)i) Consolidated adjusted earnings available to common shareholders for the year ended December 31, 2021, was positively impacted by notable items, related to tax adjustments of $140 million, net of income tax, and litigation reserves and settlement costs of $66 million, net of income tax, offset by actuarial assumption review and other insurance adjustments of $140 million, net of income tax. Excluding these notable items from the denominator of the ratio, the adjusted free cash flow ratio for 2021, would be 49%.

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ii) Consolidated adjusted earnings available to common shareholders for the year ended December 31, 2020 was negatively impacted by a notable item related to actuarial assumption review and other insurance adjustments of $203 million, net of income tax. Excluding this notable item from the denominator of the ratio, the adjusted free cash flow ratio for 2020 would be 69%.

Risk Management

We have an integrated process for managing risk, that is supported by a Risk Appetite Statement approved by the Board of Directors. Risk management is overseen and conducted through multiple Board and senior management risk committees (financial and non-financial). The risk committees are established at the enterprise, regional and local levels, as needed, to oversee capital and risk positions, approve ALM strategies and limits, and establish certain corporate risk standards and policies. The risk committees are comprised of senior leaders from the lines of business and corporate functions which ensures comprehensive coverage and sharing of risk reporting. The ERC is responsible for reviewing all material risks to the enterprise and deciding on actions, if necessary, in the event risks exceed desired tolerances, taking into consideration industry best practices and the current environment to resolve or mitigate those risks.

Three Lines of Defense

MetLife operates under the “Three Lines of Defense” model. Under this model, the lines of business and corporate functions are the first and primary line of defense in identifying, measuring, monitoring, managing, and reporting risks. Global Risk Management forms the second line of defense providing strategic advisory services and effective challenge and oversight to the business in the first line of defense. Internal Audit serves as the third line of defense, providing independent assurance and testing over the risk and control environment and related processes and controls.

Global Risk Management

Independent from the lines of business, the centralized Global Risk Management department, led by the CRO, coordinates across all risk committees to ensure that all material risks are properly identified, measured, monitored, managed and reported across the Company. The CRO reports to the CEO and is primarily responsible for maintaining and communicating the Company’s enterprise risk policies and for monitoring and analyzing all material risks.

Global Risk Management considers and monitors a full range of risks relating to the Company’s solvency, liquidity, earnings, business operations and reputation. Global Risk Management’s primary responsibilities consist of:

•implementing an enterprise risk framework, which outlines our enterprise approach for managing financial and non-financial risk;

•developing policies and procedures for identifying, measuring, monitoring, managing and reporting those risks identified in the enterprise risk framework;

•coordinating Own Risk Solvency Assessment for Board, senior management and regulator use;

•establishing appropriate corporate risk tolerance levels;

•measuring capital on an economic basis;

•mitigating compliance risk and establishing controls;

•integrating climate risk into MetLife’s risk management framework and developing impact assessment capabilities; and

•reporting to (i) the Finance and Risk Committee of MetLife, Inc.’s Board of Directors; (ii) the Compensation Committee of MetLife, Inc.’s Board of Directors; and (iii) the financial and non-financial senior management committees on various aspects of risk.

Key Risk Types

MetLife has defined each material risk to which it is exposed and has established individual frameworks to monitor, manage and report on the respective risk.

•Market Risk: is the risk of loss due to potential changes in the value of assets and liabilities arising from fluctuations in financial market, real estate, and other economic factors. Market risk is comprised of interest rate risk, equity risk, foreign currency exchange rate risk, and spread risk.

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•Credit Risk: is the risk of loss or credit rating downgrade arising from an obligor or counterparty with a direct or contingent financial obligation to MetLife that is either unable or unwilling to meet its obligation in full and on a timely basis. These risks arise from public fixed income assets, private loans including real estate, derivative transactions, bank deposits, reinsurance treaties and other similar contracts.

•Insurance Risk: is the risk of loss or adverse change in insurance liabilities from changes in the level, trend, and volatility of insurance and policyholder behavior experience varying from best estimate assumptions. These variances can be driven by catastrophic events such as pandemics or can be the result of misestimating base assumptions. Insurance risks to MetLife generally arise from mortality, morbidity, longevity, and policyholder behavior.

•Non-Financial Risk: is the risk of failed or inadequate internal processes, human errors, system errors or external events that may result in financial loss, non-financial damage, and/or non-compliance with applicable laws and regulations. Non-Financial risk captures operational and compliance risks, including risks such as business interruption, customer protection, financial crime, privacy, fraud and theft, and information security risk.

•Liquidity Risk: refers to the risk that MetLife is unable to raise cash necessary to meet current obligations.

Economic Capital

Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in our business. Our economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. MetLife’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards. For further information, see “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements.

Asset/Liability Management

We actively manage our assets using an approach that is liability driven and balances quality, diversification, asset/liability matching, liquidity, concentration and investment return. The goals of the investment process are to optimize, net of income tax, risk-adjusted investment income and risk-adjusted total return while ensuring that the assets and liabilities are reasonably aligned on a cash flow and duration basis. The ALM process is the shared responsibility of the ALM, Global Risk Management, and Investments departments, with the engagement of senior members of the business segments and Finance, and is governed by the ALM Committees. The ALM Committees’ duties include reviewing and approving investment guidelines and limits, approving significant portfolio and ALM strategies and providing oversight of the ALM process. The directives of the ALM Committees are carried out and monitored through ALM Working Groups which are set up to manage risk by geography, product or portfolio type. The ALM Steering Committee oversees the activities of the underlying ALM Committees and Working Groups. The ALM Steering Committee reports to the ERC.

We establish portfolio guidelines that define ranges and limits related to asset allocation, interest rate risk, liquidity, concentration and other risks for each major business segment, legal entity or insurance product group. These guidelines support implementation of investment strategies used to adequately fund our liabilities within acceptable levels of risk. We also establish hedging programs and associated investment portfolios for different blocks of business. The ALM Working Groups monitor these strategies and programs through regular review of portfolio metrics, such as effective duration, yield curve sensitivity, convexity, value at risk, market sensitivities (to interest rates, equity market levels, equity volatility, and foreign currency exchange rates), stress scenario payoffs, liquidity, asset sector concentration and credit quality.

We manage credit risk through in-house fundamental credit analysis of the underlying obligors, issuers, transaction structures and real estate properties. We also manage credit, market valuation and liquidity risk through industry and issuer diversification and asset allocation limits. These risk limits, approved annually by the Investment Risk Committee, promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit and equity risk exposure, as measured by our economic capital framework. For real estate assets, we manage credit and market risk through asset allocation limits and by diversifying by geography, property and product type.

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Information Security Risk Management

We manage information security risk through MetLife’s Information Security Program (the “Program”), which is overseen by our enterprise Chief Information Security Officer (“CISO”), with collaboration across lines of businesses and corporate functions. The CISO is a senior-level executive responsible for establishing and executing the company’s information security strategy; the CISO regularly reports about information security risk to the ERC, the Audit Committee and the Board. The primary goal of the Program is to protect information and technology assets through physical, technical, and administrative safeguards. This includes monitoring, reporting, managing and remediating cyber threats. The Program aims to prevent data exfiltration, manipulation, and destruction, as well as system and transactional disruption. The Program’s threat-centric and risk-based approach for securing the MetLife environment is based on the cybersecurity framework developed by the U.S. Government’s National Institute of Standards and Technology.

Subsequent Events

See Note 22 of the Notes to the Consolidated Financial Statements.

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