Metlife, Inc. · NYSE:MET
Metlife — J.P. Morgan Risk Management and Trends in the Variable Annuity Market Conference 2009
27 slides from Metlife's conference presentation, Jun 3, 2009
Slide 1: MetLife Variable Annuity Risk Management
MetLife Variable Annuity Risk Management J.P. Morgan Risk Management and Trends in the Variable Annuity Market Conference June 3, 2009 Stan Talbi Executive Vice President
Slide 2: Safe Harbor Statement
Safe Harbor Statement These materials may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events.
Slide 3: Key Features
Key Features Benefit Guarantee Fees GMDB Death Benefit Return of Premium Annual Step-up Enhanced DB:5-6% Roll-up Base 20 bps 65-85 bps GMWB Withdrawal Benefit 105% of Deposit 7% Maximum Withdrawal Rate 55-125 bps GMIB Minimum Income Benefit Maximum of Annual Step-up, or 5% - 6% Roll-up @ Contractual
Slide 4: Living Benefit Rider Election - Domestic
Living Benefit Rider Election - Domestic % of Eligible Franchise VA Premium Full Year 2008 Sales1 First Quarter 2009 Sales1 Guaranteed Minimum Income Benefit 7.7% 2.8% Guaranteed Minimum Income Benefit Plus 50.4% 69.8% Guaranteed Withdrawal Benefit 6.0% 3.0% Lifetime Withdrawal Guarantee 19.4% 14.8%
Slide 5: Japan VA Products
Japan VA Products % of Eligible Franchise VA Premium Full Year 2008 Sales1 First Quarter 2009 Sales1 Guaranteed Withdrawal Benefit 12.2% 4.1% Lifetime Withdrawal Guarantee 66.4% 52.0% Guaranteed Minimum Accumulation Benefit 5.1% 13.0% Guaranteed Minimum Death Benefit 16.3% 30.9% Total Sales 100.0% 1
Slide 6: VA Account Value by Guarantee Type - Domestic
VA Account Value by Guarantee Type - Domestic Death Benefits Living Benefits Total Living Benefit Account Balance = $34.2 billion as of 12/31/08 Total Death Benefit Account Balance = $77.2 billion as of 12/31/08 Total VA Account Balance = $79.2 billion as of 12/31/08 6
Slide 7: VA Account Value - International
VA Account Value - International Living Benefits by Guarantee Type Living Benefits by Country Total Living Benefit Account Balance = $15.7 billion as of 12/31/08 GMAB 29% GMWB 71% UK 1% Korea 4% Japan 95% 7
Slide 8: Risk Management - Prudent Product Design
Risk Management - Prudent Product Design Investment allocation restrictions Waiting periods, conservative GMIB annuity purchase rates Limits on step-ups Appropriate fee Fee is applied to income base Ability to increase fee upon step-up 8
Slide 9: Conservative GMIB Payout Rates
Conservative GMIB Payout Rates GMIB Guarantee = Greater of: GMIB Income Base @ Guaranteed Payout Rates Account Value @ Current Payout Rates Compare ratio of current to guaranteed rates to determine true "in-the- moneyness" Example: Male Age 65 (Life with 5 Year Certain) Guaranteed Payout Rate $3.63
Slide 10: GMIB In-the-Money - 12/31/08
GMIB In-the-Money - 12/31/08 60% 40% In-the-Money Out of the Money 10
Slide 11: Changes to VA Riders
Changes to VA Riders Adjust rider fees for current market conditions Decrease benefits where necessary Reduce maximum allocation to equity funds 11
Slide 12: Changes to Domestic VA Riders
Effective February 2009 GMIB Plus 20 bps fee increase Reduction in GMIB Payout Rates GLWG 60 to 65 bps fee increase GMAB No longer available for sale Effective May 2009 GMIB Plus Decrease Roll-up from 6% to 5% Changes to Domestic VA Riders 12
Slide 13: Changes to Japan VA Riders
Changes to Japan VA Riders Effective April 2009 GMDB Sales suspended Anticipated July 1 and October 1, 2009 GMWB & GMAB Targeting pricing and product changes Working through our joint venture Product changes subject to regulatory approval 13
Slide 14: VA Hedging
VA Hedging What is Hedgeable? Market Sensitivity Equity level Interest rate level Equity volatility Currency level What is Not Hedgeable? Policyholder Behavior Mortality Improvement Operational Failure Basis Risk Currency Volatility 14
Slide 15: VA Riders - Value Drivers
Equity Price Level Interest Rate Level Equity Price Volatility FX Price Level (Japan) Value of GMxB Rider (Put Option) VA Riders - Value Drivers 15
Slide 16: VA Riders - Why Hedge?
Economic: Prudent risk management Statutory: Reserves and capital GAAP: Income statement volatility management Goal = Rider Fee > Cost of Hedge VA Riders - Why Hedge? 16
Slide 17: Accounting vs Risk Management
Accounting ? Risk Management GMDB GMIB GMWB GMAB Accounting Guidance SOP 03-1 SOP 03-1 FAS 133 FAS 133 Accounting Treatment Additional Liability Additional Liability Embedded Derivative Embedded Derivative Change in Statement Value - Rider & Hedge Operating Earnings Operating Earnings Realized Capit
Slide 18: VA Hedging Program - Derivatives Engaged
VA Hedging Program - Derivatives Engaged Total Notionals (as of 12/31/08) Interest Rate Swaps 15% Equity Futures 17% Treasury Futures 26% Equity Options 11% F/X Options 2% F/X Forwards 4% Variance Swaps 25% 18
Slide 19: VA Hedging Program - Distribution by Dealer
Distribution of Vega by Dealer Counterparty (as of 12/31/08) VA Hedging Program - Distribution by Dealer DEALER L 2% DEALER K 2% DEALER J 16% DEALER I 5% DEALER H 13% DEALER G 11% DEALER F 13% DEALER E 24% DEALER D 2% DEALER C 0% DEALER B 2% DEALER A 10% 19
Slide 20: VA Hedging Program - Derivatives Growth
2004 2005 2006 2007 2008 $0.2 $2.2 $8.6 $18.6 $36.6 VA outstanding 217586000 2216000000 8572000000 18640000000 36582000000 2004 2005 2006 2007 2008 73 481 825 1,633 2,214 VA Transactions 73 481 825 1633 2214 VA Hedging Program - Derivatives Growth First living benefit rider sold 2001 VA Hedging prog
Slide 21: Hedging Overview of Internal VA Reinsurance
Hedging Overview of Internal VA Reinsurance Reinsurance covers most guaranteed death and living benefits Statutory reserve credit is secured by assets in trust and/or letters of credit External Reinsurance Captive Reinsurer (Exeter) MLIC MLI-USA MICC Japan Others 21
Slide 22: Statutory Variable Annuity Rider Reserves
Japan 0.233 0.497 0.264 0.527 1.235 GMDB 0.15 0.1 0.11 0.22 0.67 Living Riders 0.55 0.55 0.57 0.95 3.37 Statutory Variable Annuity Rider Reserves = Hedge Asset and Reinsurance Value $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 $5.5 $6.0 $6.5 12/31/07 3/31/08 6/30/08 9/30/08 12/31/08 $0.93
Slide 23: Statutory Variable Annuity Rider Reserves Sensitivity
S&P 500 @ 903 S&P 500 @ 800 S&P 500 @ 700 Japan 1.24 1.77 2.26 GMDB 0.67 0.88 1.32 Living Rider 3.37 2.36 3.26 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 $5.5 $6.0 $6.5 $7.0 $7.5 Statutory Variable Annuity Rider Reserves $5.27 $5.92 $6.56 $7.28 12/31/08 = Hedge Asset and Reinsurance Valu
Slide 24: VA Roles & Responsibilities
VA Roles & Responsibilities A/LM Unit: Project Management Scope, Strategy, Implementation, Monitoring Investments Hedging / VA Fixed Account Portfolio Mgmt Product Management Product / Business Specifications / Contracts New Funds, Monitor Policyholder Experience Reinsurance State Filings, Captive M
Slide 25: VA Human and Technology Resources
VA Human and Technology Resources > 50 Full Time Equivalent employees > 400 servers Dedicated grid 25
Slide 26: Summary
Summary We understand the risks we are taking We have a robust hedging and reinsurance program in place which balances multiple objectives We have invested heavily in infrastructure We have demonstrated ability to meet statutory reserve requirements We have the skill set needed to succeed in the VA
Slide 27: MetLife
Metlife