Analyzing and Interpreting Available-for-Sale Securities Disclosures Following i
ID: 2478491 • Letter: A
Question
Analyzing and Interpreting Available-for-Sale Securities Disclosures
Following is a portion of the investments footnote from MetLife’s 2010 10-K report. Investment earnings are a crucial component of the financial performance of insurance companies such as MetLife, and investments comprise a large part of MetLife’s assets. MetLife accounts for its fixed maturity (debt security or bond) investments as available-for-sale securities.
*OTTI refers to “Other-Than-Temporary Impairment” that MetLife does not expect to reverse.
*OTTI refers to “Other-Than-Temporary Impairment” that MetLife does not expect to reverse.
(a) At what amount does MetLife report its fixed maturity investments on its balance sheets for 2010 and 2009?
2010 fixed maturity investments =
2009 fixed maturity investments =
(b) What is the difference between realized and unrealized gains and losses?
A. Realized gains and losses occur as a result of sales of securities and are not reported in the income statement. Unrealized gains and losses reflect the difference between the current market price of the security and its acquisition cost; unrealized gains and losses from all securities are reported in income.
B. Realized gains and losses occur as a result of sales of securities and are reported in the income statement. Unrealized gains and losses reflect the difference between the current market price of the security and its acquisition cost; only unrealized gains and losses from trading securities are reported in income.
C. Realized gains and losses occur as a result of sales of securities and are not reported in the income statement. Unrealized gains and losses reflect the difference between the current market price of the security and its acquisition cost; only unrealized gains and losses from trading securities are reported in income.
D. Realized gains and losses occur as a result of sales of securities and are reported in the income statement. Unrealized gains and losses reflect the difference between the current market price of the security and its acquisition cost; unrealized gains and losses from all securities are reported in income.
(c) What are the net unrealized gains (losses) for the fixed maturity securities for 2010 and 2009?
2010 net unrealized gains (losses) =
2009 net unrealized gains (losses) =
How did the unrealized gains and losses affect the company's reported income in 2010 and 2009?
A. Net unrealized gains affect both the income statement and the balance sheet in 2010 and 2009.
B. Net unrealized gains did not affect reported income for 2010 and 2009.
C. Net unrealized gains are reflected in reported income for 2010 and 2009.
D. Net unrealized gains are not reflected on the balance sheet or the income statement.
December 31, 2010(In millions) Cost or Amortized
Cost Gross Unrealized Estimated
Fair Value Gain Temprorary Loss OTTI* Loss Fixed Maturity Securities: U.S. corporate securities $ 89,713 $ 4,486 $ 1,631 $ -- $ 92,568 Foreign corporate securities 65,784 3,333 939 -- 68,178 RMBS 44,468 1,652 917 470 44,733 Foreign government securities 42,154 1,856 610 -- 43,400 U.S. Treasury, agency, and government guarenteed securities 32,469 1,394 559 -- 33,304 CMBS 20,213 740 266 12 20,675 ABS 14,725 274 590 119 14,290 State and political subdivision securities 10,476 171 518 -- 10,129 Other fixed maturity securities 6 1 -- -- 7 Total fixed maturity securities $ 320,008 $ 13,907 $ 6,030 $ 601 $ 327,284 Equity Securities: Common stock $ 2,060 $ 146 $ 12 $ -- $ 2,194 Non-redeemable preferred stock 1,565 76 229 -- 1,412 Total equity securities $ 3,625 $ 222 $ 241 $ -- $ 3,606
Explanation / Answer
Answer:(a) Available-for-sale investments are reported at fair value on the balance sheet. Thus, MetLife's fixed maturity investments are reported at:
$327,284 million as of 2010
$227,642 million as of 2009
Answer:(b) C. Realized gains and losses occur as a result of sales of securities and are not reported in the income statement. Unrealized gains and losses reflect the difference between the current market price of the security and its acquisition cost; only unrealized gains and losses from trading securities are reported in income.
Answer:(c) 2010 net unrealized gains = $7,276 million ($13,907 million - $6,030 million - $601 million).
2009 net unrealized losses = $2,067 million ($8,419 million - $9,627 million - $859 million).
A. Net unrealized gains affect both the income statement and the balance sheet in 2010 and 2009.
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