MET US Equity☆

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

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

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

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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

Consolidated Results - Highlights

• Adjusted earnings available to common shareholders up $2.3 billion

Consolidated Results - Adjusted Earnings Highlights

• Our results for 2021 also included the following:

• the favorable impact of a legal reserve release of $66 million

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:

Years Ended December 31,

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:

Years Ended December 31,

(In millions - post-tax)

Net Derivative Gains (Losses):

Non-VA Program Derivatives $ 555 $ (55) $ (25)

Adjusted Earnings:

Group Benefits (5) (15) (20)

Asia (Japan only) — (15) (35)

MetLife Holdings 5 (10) (30)

Corporate & Other 5 (5) (15)

Total Adjusted Earnings Impact $ 20 $ (45) $ (105)

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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:

Years Ended December 31,

(In millions - post-tax)

Net Derivative Gains (Losses):

Non-VA Program Derivatives $ (445) $ 20 $ 15

Adjusted Earnings:

Group Benefits 5 5 10

Asia (Japan only) — 10 30

MetLife Holdings (5) 15 30

Corporate & Other (5) 5 15

Total Adjusted Earnings Impact $ (15) $ 50 $ 95

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:

(i) liabilities for future policy benefits and the accounting for reinsurance;

(iv) investment allowance for credit loss (“ACL”) and impairments;

(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.

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 compriseapproximately 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.

Years Ended December 31,

(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)

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 ACLon 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.

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)

50% decrease in our credit spread $ 487 $ 55

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:

(In millions)

Increase in expected rate of return by 100 bps $ (105) $ (14)

Decrease in expected rate of return by 100 bps $ 105 $ 14

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:

(In millions)

Increase in discount rate by 100 bps $ (88) $ (2)

Decrease in discount rate by 100 bps $ 79 $ 6

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:

(In millions)

Increase in discount rate by 100 bps $ (1,299) $ (121)

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 21of 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

Years Ended December 31,

(In millions)

Revenues

Universal life and investment-type product policy fees 5,756 5,603

Net investment gains (losses) 1,529 (110)

Net derivative gains (losses) (2,228) 1,349

Expenses

Policyholder benefits and claims and policyholder dividends 44,830 42,551

Interest credited to policyholder account balances 5,538 5,214

Amortization of negative VOBA (34) (45)

Interest expense on debt 920 913

Income (loss) before provision for income tax 8,126 6,927

Provision for income tax expense (benefit) 1,551 1,509

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

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:

Years Ended December 31,

(In millions)

Non-VA program derivatives

Foreign currency exchange rate (429) (148)

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

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

U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total

(In millions)

Add: Preferred stock dividends — — — — — 195 195

Add: Net income (loss) attributable to noncontrolling interests — 2 6 3 — 10 21

Add: Preferred stock redemption premium — — — — — 6 6

Revenues:

Universal life and investment-type product policy fees — 73 — 42 80 — 195

Expenses:

Interest credited to policyholder account balances 2 (211) (42) (695) — — (946)

Capitalization of DAC 89 — — 30 — — 119

Amortization of DAC and VOBA (98) (35) — (26) (60) — (219)

Amortization of negative VOBA — — — — — — —

Interest expense on debt — — — — — (1) (1)

Goodwill impairment — — — — — — —

Less: Preferred stock dividends 195 195

Adjusted earnings available to common shareholders $ (399) $ 7,954

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Year Ended December 31, 2020

U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total

(In millions)

Add: Preferred stock dividends — — — — — 202 202

Add: Net income (loss) attributable to noncontrolling interests — 1 4 5 — 1 11

Add: Preferred stock redemption premium — — — — — 14 14

Revenues:

Premiums — 52 — — — — 52

Universal life and investment-type product policy fees — 39 (2) 17 84 — 138

Other revenues — — — — — 159 159

Expenses:

Interest credited to policyholder account balances 9 (107) (43) (400) — — (541)

Capitalization of DAC — 5 — — — — 5

Amortization of DAC and VOBA — (53) — 2 (115) — (166)

Amortization of negative VOBA — — — — — — —

Interest expense on debt — — — — — — —

Goodwill impairment — — — — — — —

Less: Preferred stock dividends 202 202

Adjusted earnings available to common shareholders $ (749) $ 5,623

Less: adjustments to premiums, fees and other revenues — 91 (2) 17 84 159 349

__________________

(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.

Years Ended December 31,

(In millions)

Adjusted revenues

Universal life and investment-type product policy fees 1,140 1,070

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

Provision for income tax expense (benefit) 850 853

Adjusted premiums, fees and other revenues $ 29,036 $ 29,292

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.

Years Ended December 31,

(In millions)

Adjusted revenues

Universal life and investment-type product policy fees 1,814 1,892

Adjusted expenses

Policyholder benefits and claims and policyholder dividends 5,008 5,213

Interest credited to policyholder account balances 1,995 1,834

Amortization of negative VOBA (27) (37)

Provision for income tax expense (benefit) 936 643

Adjusted earnings on a constant currency basis $ 2,298 $ 1,591

Adjusted premiums, fees and other revenues $ 8,308 $ 8,524

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.

Years Ended December 31,

(In millions)

Adjusted revenues

Universal life and investment-type product policy fees 1,109 994

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

Provision for income tax expense (benefit) 70 127

Adjusted earnings on a constant currency basis $ 291 $ 302

Adjusted premiums, fees and other revenues $ 3,759 $ 3,297

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.

Years Ended December 31,

(In millions)

Adjusted revenues

Universal life and investment-type product policy fees 395 433

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 — 1

Provision for income tax expense (benefit) 96 81

Adjusted earnings on a constant currency basis $ 301 $ 330

Adjusted premiums, fees and other revenues $ 2,713 $ 2,744

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.

Years Ended December 31,

(In millions)

Adjusted revenues

Universal life and investment-type product policy fees 1,101 1,073

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

Provision for income tax expense (benefit) 570 234

Adjusted premiums, fees and other revenues $ 4,691 $ 4,911

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

Years Ended December 31,

(In millions)

Adjusted revenues

Universal life and investment-type product policy fees 2 3

Net investment income 244 42

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

Provision for income tax expense (benefit) (591) (556)

Less: Preferred stock dividends 195 202

Adjusted earnings available to common shareholders $ (399) $ (749)

Adjusted premiums, fees and other revenues $ 457 $ 369

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

Years Ended December 31,

(In millions)

Business activities $ 143 $ 96

Net investment income 248 54

Interest expense on debt (944) (943)

Corporate initiatives and projects (128) (159)

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)

89

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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.