METLIFE INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 001-15787

METLIFE, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 13-4075851
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

ONE MADISON AVENUE
NEW YORK, NEW YORK 10010-3690
(212) 578-2211

(Address of principal executive offices, including zip code, and registrant's
telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

At August 6, 2003, 760,143,836 shares of the Registrant's Common Stock,
$.01 par value per share, were outstanding.

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TABLE OF CONTENTS

1

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the Management's Discussion
and Analysis of Financial Condition and Results of Operations, contains
statements which constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements relating
to trends in the operations and financial results and the business and the
products of the Registrant and its subsidiaries, as well as other statements
including words such as "anticipate," "believe," "plan," "estimate," "expect,"
"intend" and other similar expressions. "MetLife" or the "Company" refers to
MetLife, Inc., a Delaware corporation (the "Holding Company"), and its
subsidiaries, including Metropolitan Life Insurance Company ("Metropolitan
Life"). Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects on the Company. Such forward-looking statements are not guarantees of
future performance.

Actual results may differ materially from those included in the
forward-looking statements as a result of risks and uncertainties including, but
not limited to, the following: (i) changes in general economic conditions,
including the performance of financial markets and interest rates; (ii)
heightened competition, including with respect to pricing, entry of new
competitors and the development of new products by new and existing competitors;
(iii) unanticipated changes in industry trends; (iv) MetLife, Inc.'s primary
reliance, as a holding company, on dividends from its subsidiaries to meet debt
payment obligations and the applicable regulatory restrictions on the ability of
the subsidiaries to pay such dividends; (v) deterioration in the experience of
the "closed block" established in connection with the reorganization of
Metropolitan Life; (vi) catastrophe losses; (vii) adverse litigation or
arbitration results; (viii) regulatory, accounting or tax changes that may
affect the cost of, or demand for, the Company's products or services; (ix)
downgrades in the Company's and its affiliates' claims paying ability, financial
strength or debt ratings; (x) changes in rating agency policies or practices;
(xi) discrepancies between actual claims experience and assumptions used in
setting prices for the Company's products and establishing the liabilities for
the Company's obligations for future policy benefits and claims; (xii)
discrepancies between actual experience and assumptions used in establishing
liabilities related to other contingencies or obligations; (xiii) the effects of
business disruption or economic contraction due to terrorism or other
hostilities; and (xiv) other risks and uncertainties described from time to time
in MetLife, Inc.'s filings with the U.S. Securities and Exchange Commission,
including its S-1 and S-3 registration statements. The Company specifically
disclaims any obligation to update or revise any forward-looking statement,
whether as a result of new information, future developments or otherwise.

2

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

METLIFE, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 (UNAUDITED) AND DECEMBER 31, 2002

(DOLLARS IN MILLIONS, EXCEPT
SHARE AND PER SHARE DATA)

SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
3

METLIFE, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002

(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
4

METLIFE, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003

(DOLLARS IN MILLIONS)

SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
5

METLIFE, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002

(DOLLARS IN MILLIONS)

SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
6

METLIFE, INC.

NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ACCOUNTING POLICIES

BUSINESS

MetLife, Inc. (the "Holding Company") and its subsidiaries (together with
the Holding Company, "MetLife" or the "Company") is a leading provider of
insurance and other financial services to a broad spectrum of individual and
institutional customers. The Company offers life insurance, annuities,
automobile and property insurance and mutual funds to individuals, as well as
group insurance, reinsurance and retirement and savings products and services to
corporations and other institutions.

BASIS OF PRESENTATION

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to adopt accounting policies and make estimates and assumptions that
affect amounts reported in the unaudited interim condensed consolidated
financial statements. The most significant estimates include those used in
determining: (i) investment impairments; (ii) the fair value of investments in
the absence of quoted market values; (iii) the fair value of derivatives; (iv)
the amortization of deferred policy acquisition costs; (v) the liability for
future policyholder benefits; (vi) the liability for litigation matters; and
(vii) accounting for reinsurance transactions, derivatives and employee benefit
plans. In applying these policies, management makes subjective and complex
judgments that frequently require estimates about matters that are inherently
uncertain. Many of these policies, estimates and related judgments are common in
the insurance and financial services industries; others are specific to the
Company's businesses and operations. Actual results could differ from those
estimates.

The accompanying unaudited interim condensed consolidated financial
statements include the accounts of (i) the Holding Company and its subsidiaries;
(ii) partnerships and joint ventures in which the Company has a majority voting
interest; and (iii) variable interest entities ("VIEs") entered into or modified
after January 31, 2003 of which the Company is deemed to be the primary
beneficiary. Closed block assets, liabilities, revenues and expenses are
combined on a line by line basis with the assets, liabilities, revenues and
expenses outside the closed block based on the nature of the particular item.
See Note 7. Intercompany accounts and transactions have been eliminated.

The Company uses the equity method of accounting for investments in real
estate joint ventures and other limited partnership interests in which it has
more than a minor interest, has influence over the partnership's operating and
financial policies and does not have a controlling interest. The Company uses
the cost method for minor interest investments and when it has virtually no
influence over the partnership's operating and financial policies.

Minority interest related to consolidated entities included in other
liabilities was $597 million and $491 million at June 30, 2003 and December 31,
2002, respectively.

Certain amounts in the prior period's unaudited interim condensed
consolidated financial statements have been reclassified to conform with the
2003 presentation.

The accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments (including normal recurring adjustments)
necessary to present fairly the consolidated financial position of the Company
at June 30, 2003, its consolidated results of operations for the three months
and six months ended June 30, 2003 and 2002 and its consolidated cash flows for
the six months ended June 30, 2003 and 2002 in accordance with GAAP. Interim
results are not necessarily indicative of full year performance. These unaudited
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company for the
year ended December 31, 2002 included in MetLife, Inc.'s 2002 Annual Report on
Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC").

7

FEDERAL INCOME TAXES

Federal income taxes for interim periods have been computed using an
estimated annual effective income tax rate. This rate is revised, if necessary,
at the end of each successive interim period to reflect the current estimate of
the annual effective income tax rate.

APPLICATION OF ACCOUNTING PRONOUNCEMENTS

In July 2003, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 03-1, Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP
03-1"). SOP 03-1 provides guidance on separate account presentation and
valuation, the accounting for sales inducements and the classification and
valuation of long-duration contract liabilities. SOP 03-1 is effective for
fiscal years beginning after December 15, 2003. The Company is in the process of
quantifying the impact of SOP 03-1 on its unaudited interim condensed
consolidated financial statements.

In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity ("SFAS 150"). SFAS 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity and requires
that those instruments be classified as a liability or, in certain
circumstances, an asset. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003 and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The adoption of SFAS
150, as of July 1, 2003, requires the Company to reclassify $277 million of
company-obligated mandatorily redeemable securities of subsidiary trusts from
mezzanine equity to liabilities beginning with its unaudited interim condensed
consolidated financial statements at and for the periods ending September 30,
2003.

In April 2003, the FASB cleared Statement 133 Implementation Issue No. B36,
Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments
That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially
Related to the Creditworthiness of the Obligor under Those Instruments ("Issue
B36"). Issue B36 concluded that (i) a company's funds withheld payable and/or
receivable under certain reinsurance arrangements, and (ii) a debt instrument
that incorporates credit risk exposures that are unrelated or only partially
related to the creditworthiness of the obligor include an embedded derivative
feature that is not clearly and closely related to the host contract. Therefore,
the embedded derivative feature must be measured at fair value on the balance
sheet and changes in fair value reported in income. Issue B36 is effective
October 1, 2003. The Company is in the process of quantifying the impact of the
adoption of Issue B36 on its consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Except for
certain implementation guidance that is incorporated in SFAS 149 and already
effective, SFAS 149 is effective for contracts entered into or modified after
June 30, 2003. The Company's adoption of SFAS 149 on July 1, 2003 did not have a
significant impact on its unaudited interim condensed consolidated financial
statements.

Effective February 1, 2003, the Company adopted FASB Interpretation ("FIN")
No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51 ("FIN 46") for VIEs created or acquired on or after February 1, 2003. For
VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning July 1, 2003.
FIN 46 defines a VIE as (i) any entity in which the equity investors at risk in
such entity do not have the characteristics of a controlling financial

8

METLIFE, INC.

NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest, or (ii) any entity that does not have sufficient equity at risk to
finance its activities without additional subordinated financial support from
other parties. FIN 46 also requires consolidation of the VIE by the primary
beneficiary. See Note 6 for the disclosures relating to VIEs and the impact of
such adoption on the Company's unaudited interim condensed consolidated
financial statements as of July 1, 2003.

Effective January 1, 2003, the Company adopted FIN No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires entities to
establish liabilities for certain types of guarantees and expands financial
statement disclosures for others. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of FIN 45
did not have a significant impact on the Company's unaudited interim condensed
consolidated financial statements. See Note 8.

Effective January 1, 2003, the Company adopted SFAS No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure ("SFAS 148"), which
provides guidance on how to apply the fair value method of accounting for stock
options granted by the Company subsequent to December 31, 2002. As permitted
under SFAS 148, options granted prior to January 1, 2003 will continue to be
accounted for under Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and the pro forma impact of
accounting for these options at fair value will continue to be disclosed in the
unaudited interim condensed consolidated financial statements until the last of
those options vest in 2005. See Note 10.

Effective January 1, 2003, the Company adopted SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recorded and measured initially at fair value only when the
liability is incurred rather than at the date of an entity's commitment to an
exit plan as required by Emerging Issues Task Force ("EITF") Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)("EITF
94-3"). The Company's activities subject to this guidance in 2003 were not
significant.

Effective January 1, 2003, the Company adopted SFAS No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections ("SFAS 145"). In addition to amending or rescinding other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions, SFAS
145 generally precludes companies from recording gains and losses from the
extinguishment of debt as an extraordinary item. SFAS 145 also requires
sale-leaseback treatment for certain modifications of a capital lease that
result in the lease being classified as an operating lease. SFAS 145 did not
have a significant impact on the Company's unaudited interim condensed
consolidated financial statements.

In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS
141"). SFAS 141 requires the purchase method of accounting for all business
combinations and separate recognition of intangible assets apart from goodwill
if such intangible assets meet certain criteria. In accordance with SFAS 141,
the elimination of $5 million of negative goodwill was reported in income in the
first quarter of 2002 as a cumulative effect of a change in accounting.

2. SEPTEMBER 11, 2001 TRAGEDIES

On September 11, 2001 terrorist attacks occurred in New York, Washington,
D.C. and Pennsylvania (the "tragedies") triggering a significant loss of life
and property, which had an adverse impact on certain of the Company's
businesses. The Company's original estimate of the total insurance losses
related to the tragedies, which was recorded in the third quarter of 2001, was
$208 million, net of income taxes of $117 million. As of

9

June 30, 2003, the Company's remaining liability for unpaid and future claims
associated with the tragedies was $24 million, principally related to disability
coverages. This estimate has been and will continue to be subject to revision in
subsequent periods, as claims are received from insureds and processed. Any
revision to the estimate of losses in subsequent periods will affect net income
in such periods.

The Company's general account investment portfolios include investments,
primarily comprised of fixed maturities, in industries that were originally
affected by the tragedies, including airline, other travel, lodging and
insurance. Exposures to these industries also exist through mortgage loans and
investments in real estate. The carrying value of the Company's investment
portfolio exposed to these industries was approximately $3.4 billion at June 30,
2003.

3. NET INVESTMENT LOSSES

Net investment gains (losses), including changes in valuation allowances,
and related policyholder amounts were as follows:

- ---------------

(1) The amounts presented exclude amounts related to sales of real estate
held-for-sale presented as discontinued operations in accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
("SFAS 144").

Investment gains and losses are net of related policyholder amounts. The
amounts netted against investment gains and losses are (i) amortization of
deferred policy acquisition costs to the extent that such amortization results
from investment gains and losses; and (ii) adjustments to the policyholder
dividend obligation resulting from investment gains and losses. This
presentation may not be comparable to presentations made by other insurers.

4. DERIVATIVE INSTRUMENTS

The Company uses derivative instruments to manage risk through one of four
principal risk management strategies: (i) the hedging of liabilities; (ii)
invested assets; (iii) portfolios of assets or liabilities; and (iv) firm
commitments and forecasted transactions. Additionally, the Company enters into
income generation and

10

replication derivative transactions as permitted by its insurance subsidiaries'
derivatives use plans approved by the applicable state insurance departments.
The Company's derivative hedging strategy employs a variety of instruments,
including financial futures, financial forwards, interest rate, credit default
and foreign currency swaps, foreign currency forwards and options, including
caps and floors.

On the date the Company enters into a derivative contract, management
designates the derivative as a hedge of the identified exposure (fair value,
cash flow or foreign currency). If a derivative does not qualify as a hedge,
according to SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), as amended, the changes in its fair value are generally
reported in net investment gains or losses.

The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objective and
strategy for undertaking various hedge transactions. In this documentation, the
Company specifically identifies the asset, liability, firm commitment or
forecasted transaction that has been designated as a hedged item and states how
the hedging instrument is expected to hedge the risks related to the hedged
item. The Company formally measures effectiveness of its hedging relationships
both at the inception of the hedge and on an ongoing basis in accordance with
its risk management policy. The Company generally determines hedge effectiveness
based on total changes in fair value of a derivative instrument. The Company
discontinues hedge accounting prospectively when: (i) it is determined that the
derivative is no longer effective in offsetting changes in the fair value or
cash flows of a hedged item; (ii) the derivative expires or is sold, terminated,
or exercised; (iii) the derivative is de-designated as a hedge instrument; (iv)
it is probable that the forecasted transaction will not occur; (v) a hedged firm
commitment no longer meets the definition of a firm commitment; or (vi)
management determines that designation of the derivative as a hedge instrument
is no longer appropriate.

The table below provides a summary of the notional amount and fair value of
derivatives by type of hedge designation at:

During the three months and six months ended June 30, 2003, the Company
recognized net investment income from the periodic settlement of interest rate,
foreign currency and credit default swaps of $3 million and $6 million,
respectively. During the three months and six months ended June 30, 2002, the
Company recognized net investment income from the periodic settlement of
interest rate, foreign currency and credit default swaps of $12 million and $17
million, respectively.

During the three months and six months ended June 30, 2003, the Company
recognized $83 million and $92 million, respectively, in net investment losses
related to qualifying fair value hedges. In addition, $74 million and $86
million of unrealized gains on fair value hedged investments were recognized in
net investment gains and losses during the three months and six months ended
June 30, 2003, respectively. There were no derivatives designated as fair value
hedges during the three months and six months ended June 30,

11

2002. There were no discontinued fair value hedges during the three months and
six months ended June 30, 2003 or 2002.

At June 30, 2003 and December 31, 2002, the net amounts accumulated in
other comprehensive income relating to cash flow hedges were net losses of $131
million and $24 million, respectively. For the three months and six months ended
June 30, 2003, the market value of cash flow hedges decreased by $109 million
and $122 million, respectively. During the three months and six months ended
June 30, 2003, the Company recognized other comprehensive net losses of $103
million and $116 million, respectively, relating to the effective portion of
cash flow hedges. During both the three months and six months ended June 30,
2003, $1 million of other comprehensive losses was reclassified into net
investment income, and during the three months and six months ended June 30,
2003, $8 million of other comprehensive gains and $12 million of other
comprehensive losses were reclassified into net investment losses, respectively,
relating to the discontinuation of cash flow hedges. For the three months and
six months ended June 30, 2003, $2 million and $4 million of other comprehensive
income were reclassified to net investment income, respectively, related to the
SFAS 133 transition adjustment.

During the three months and six months ended June 30, 2002, the Company
recognized other comprehensive net losses of $39 million and $51 million,
respectively, relating to the effective portion of cash flow hedges. For the
three months and six months ended June 30, 2002, amounts related to
ineffectiveness of qualifying cash flow hedges were insignificant. During the
three months and six months ended June 30, 2002, there were no amounts
reclassified to net investment income or gains and losses relating to the
discontinuation of cash flow hedges. For the three months and six months ended
June 30, 2002, $3 million and $6 million of other comprehensive income were
reclassified to net investment income, respectively, related to the SFAS 133
transition adjustment.

Approximately $3 million and $2 million of net losses reported in
accumulated other comprehensive income at June 30, 2003 are expected to be
reclassified during the year ending December 31, 2003 into net investment income
and net investment gains and losses, respectively, as the underlying investments
mature or expire according to their original terms.

For the three months ended June 30, 2003 and 2002, the Company recognized
net investment income of $13 million and $1 million, respectively, and net
investment losses of $3 million and $121 million, respectively, from derivatives
not qualifying as accounting hedges. For the six months ended June 30, 2003 and
2002, the Company recognized net investment income of $22 million and $3
million, respectively, and net investment losses of $37 million and $150
million, respectively, from derivatives not qualifying as accounting hedges. The
use of these non-speculative derivatives is permitted by the applicable
insurance departments.

5. STRUCTURED INVESTMENT TRANSACTIONS

The Company participates in structured investment transactions, primarily
asset securitizations and structured notes. These transactions enhance the
Company's total return on its investment portfolio principally by generating
management fee income on asset securitizations and by providing equity-based
returns on debt securities through structured notes consisting of equity-linked
notes and similar instruments.

The Company sponsors financial asset securitizations of high yield debt
securities, investment grade bonds and structured finance securities and also is
the collateral manager and a beneficial interest holder in such transactions
(commonly referred to as collateralized debt obligations). As the collateral
manager, the Company earns management fees on the outstanding securitized asset
balance, which are recorded in income as earned. When the Company transfers
assets to a bankruptcy-remote special purpose entity ("SPE") and surrenders
control over the transferred assets, the transaction is accounted for as a sale.
Gains or losses on securitizations are determined with reference to the carrying
amount of the financial assets transferred. Such

12

gains or losses are allocated to the assets sold and the beneficial interests
retained based on relative fair values at the date of transfer. Beneficial
interests in securitizations are carried at fair value in fixed maturities.
Income on the beneficial interests is recognized using the prospective method in
accordance with EITF Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets. Prior to the effective date of FIN 46, the SPEs used to
securitize assets were not consolidated by the Company because unrelated third
parties hold controlling interests through ownership of equity in the SPEs,
representing at least three percent of the value of the total assets of the SPE
throughout the life of the SPE, and such equity class has the substantive risks
and rewards of the residual interest of the SPE.

The Company purchases or receives beneficial interests in SPEs, which
generally acquire financial assets, including corporate equities, debt
securities and purchased options. The Company has not guaranteed the
performance, liquidity or obligations of the SPEs and the Company's exposure to
loss is limited to its carrying value of the beneficial interests in the SPEs.
The Company uses the beneficial interests as part of its risk management
strategy, including asset-liability management. Prior to the effective date of
FIN 46, these SPEs were not consolidated by the Company because unrelated third
parties hold controlling interests through ownership of equity in the SPEs,
representing at least three percent of the value of the total assets of the SPE
throughout the life of the SPE, and such equity class has the substantive risks
and rewards of the residual interest of the SPE. The beneficial interests in
SPEs where the Company exercises significant influence over the operating and
financial policies of the SPE are accounted for in accordance with the equity
method of accounting. Impairments of these beneficial interests are included in
net investment gains and losses. The beneficial interests in SPEs where the
Company does not exercise significant influence are accounted for based on the
substance of the beneficial interest's rights and obligations. Beneficial
interests are included in fixed maturities. These beneficial interests are
generally structured notes, as defined by EITF Issue No. 96-12, Recognition of
Interest Income and Balance Sheet Classification of Structured Notes, and their
income is recognized using the retrospective interest method or the level yield
method, as appropriate.

6. VARIABLE INTEREST ENTITIES

Effective February 1, 2003, FIN 46 established new accounting guidance
relating to the consolidation of VIEs. Certain of the Company's asset-backed
securitizations, collateralized debt obligations, structured investment
transactions, and investments in real estate joint ventures and other limited
partnership interests meet the definition of a VIE under FIN 46. The Company
consolidates VIEs created or acquired on or after February 1, 2003 for which it
is the primary beneficiary and, effective July 1, 2003, consolidates VIEs
created or acquired prior to February 1, 2003 for which it is the primary
beneficiary.

The following table presents the total assets and liabilities of VIEs for
which the Company has concluded that it is the primary beneficiary and will be
consolidated in the Company's financial statements for periods ending after June
30, 2003:

(1) The assets and liabilities of the real estate joint ventures and
other limited partnerships are reflected at the carrying amounts at
which such assets and liabilities would have been reflected on the

13

Company's balance sheet had the Company consolidated the VIE from
the date of its initial involvement with the entity. The assets
and liabilities of the structured investment transactions are
reflected at fair value as of June 30, 2003.

(2) Real estate joint ventures include partnerships and other
ventures, which engage in the acquisition, development, management
and disposal of real estate investments.

(3) Structured investment transactions represent trusts, which hold
municipal bond obligations and issue beneficial interests in such
assets.

(4) Other limited partnerships include partnerships established for
the purpose of investing in public and private debt and equity
securities, as well as limited partnerships established for the
purpose of investing in low-income housing that qualifies for
Federal tax credits.

The Company's financial statements for the quarter ended September 30, 2003
will include a transition adjustment of $17 million, net of an income tax
benefit of $4 million, associated with the consolidation of these entities as a
cumulative effect of a change in accounting. Of the $913 million in total assets
to be consolidated, $535 million is held as collateral for the various VIEs'
obligations. General creditors and beneficial interest holders of the
consolidated VIEs have no recourse to the Company.

The following table presents the total assets of and the maximum exposure
to loss relating to VIEs in which the Company holds a significant variable
interest but is not the primary beneficiary:

- ---------------
(1) The assets and liabilities of the asset-backed securitizations and
collateralized debt obligations are reflected at fair value as of June 30,
2003.

(2) The maximum exposure to loss of the asset-backed securitizations and
collateralized debt obligations is equal to the carrying amounts of retained
interests. The maximum exposure to loss relating to the other limited
partnerships and real estate joint ventures is equal to the carrying amounts
plus any unfunded commitments reduced by amounts guaranteed by other
partners.

Due to the complexity of the judgments and interpretations required in the
application of FIN 46 to the Company's collateralized debt obligations, the
Company is continuing to evaluate certain entities for consolidation and/or
disclosure under FIN 46. At June 30, 2003, the fair value of both the assets and
liabilities of the entities still under evaluation approximate $1.5 billion. The
Company's maximum exposure to loss related to these entities at June 30, 2003 is
approximately $5 million.

7. CLOSED BLOCK

On April 7, 2000, (the "date of demutualization"), Metropolitan Life
Insurance Company ("Metropolitan Life") converted from a mutual life insurance
company to a stock life insurance company and became a wholly-owned subsidiary
of MetLife, Inc. The conversion was pursuant to an order by the New York
Superintendent of Insurance (the "Superintendent") approving Metropolitan Life's
plan of reorganization, as

14

amended (the "plan"). On the date of demutualization, Metropolitan Life
established a closed block for the benefit of holders of certain individual life
insurance policies of Metropolitan Life.

Closed block liabilities and assets designated to the closed block are as
follows:

15

Information regarding the policyholder dividend obligation is as follows:

Closed block revenues and expenses were as follows:

16

The change in maximum future earnings of the closed block was as follows:

Metropolitan Life charges the closed block with federal income taxes, state
and local premium taxes, other additive state or local taxes, investment
management expenses and maintenance expenses relating to the closed block as
provided in the plan of demutualization.

Many of the derivative instrument strategies used by the Company are also
used for the closed block. The table below provides a summary of the notional
amount and fair value of derivatives by type of hedge designation at:

During each of the three months and six months ended June 30, 2003 and
2002, the closed block recognized net investment income from the periodic
settlement of interest rate, foreign currency and credit default swaps of $1
million.

During both the three months and six months ended June 30, 2003, the closed
block recognized $1 million in net investment losses related to qualifying fair
value hedges. In addition, $1 million of unrealized gains on fair value hedged
investments were recognized in net investment gains and losses during both the
three months and six months ended June 30, 2003. There were no derivatives
designated as fair value hedges during the three months and six months ended
June 30, 2002. There were no discontinued fair value hedges during the three
months and six months ended June 30, 2003 or 2002.

At June 30, 2003 and December 31, 2002, the net amounts accumulated in
other comprehensive loss relating to cash flow hedges were net losses of $29
million and net gains of $20 million, respectively. During the three months
ended June 30, 2003 and 2002, the closed block recognized other comprehensive
net losses of $30 million and $2 million, respectively, relating to the
effective portion of cash flow hedges. During the six months ended June 30, 2003
and 2002, the closed block recognized other comprehensive net losses of $48
million and other comprehensive net gains of $2 million, respectively, relating
to the effective portion of cash flow hedges. For the three months and six
months ended June 30, 2003, market value changes recognized as ineffectiveness
of qualifying cash flow hedges were insignificant. During both the three months
ended June 30, 2003 and 2002, $1 million of other comprehensive income was
reclassified into net investment income. During both the six months ended June
30, 2003 and 2002, $2 million of other comprehensive income

17

was reclassified into net investment income. Approximately $2 million of gains
reported in accumulated other comprehensive income at June 30, 2003 are expected
to be reclassified during the year ending December 31, 2003 into net investment
income, as the underlying investments mature or expire according to their
original terms.

For the three months ended June 30, 2003 and 2002, the closed block did not
recognize any net investment income and recognized net investment losses of $16
million and $9 million, respectively, from derivatives not qualifying as
accounting hedges. For the six months ended June 30, 2003 and 2002, the closed
block did not recognize any net investment income and recognized net investment
losses of $17 million and $7 million, respectively, from derivatives not
qualifying as accounting hedges. The use of these non-speculative derivatives is
permitted by the New York Insurance Department.

8. COMMITMENTS, CONTINGENCIES AND GUARANTEES

SALES PRACTICES CLAIMS

Over the past several years, Metropolitan Life, New England Mutual Life
Insurance Company ("New England Mutual") and General American Life Insurance
Company ("General American") have faced numerous claims, including class action
lawsuits, alleging improper marketing and sales of individual life insurance
policies or annuities. These lawsuits are generally referred to as "sales
practices claims."

In December 1999, a federal court approved a settlement resolving sales
practices claims on behalf of a class of owners of permanent life insurance
policies and annuity contracts or certificates issued pursuant to individual
sales in the United States by Metropolitan Life, Metropolitan Insurance and
Annuity Company or Metropolitan Tower Life Insurance Company between January 1,
1982 and December 31, 1997. The class includes owners of approximately six
million in-force or terminated insurance policies and approximately one million
in-force or terminated annuity contracts or certificates.

Similar sales practices class actions against New England Mutual, with
which Metropolitan Life merged in 1996, and General American, which was acquired
in 2000, have been settled. In October 2000, a federal court approved a
settlement resolving sales practices claims on behalf of a class of owners of
permanent life insurance policies issued by New England Mutual between January
1, 1983 through August 31, 1996. The class includes owners of approximately
600,000 in-force or terminated policies. A federal court has approved a
settlement resolving sales practices claims on behalf of a class of owners of
permanent life insurance policies issued by General American between January 1,
1982 through December 31, 1996. An appellate court has affirmed the order
approving the settlement. The class includes owners of approximately 250,000
in-force or terminated policies. Implementation of the General American class
action settlement is proceeding.

Certain class members have opted out of the class action settlements noted
above and have brought or continued non-class action sales practices lawsuits.
In addition, other sales practices lawsuits have been brought. As of June 30,
2003, there are approximately 375 sales practices lawsuits pending against
Metropolitan Life, approximately 60 sales practices lawsuits pending against New
England Mutual and approximately 35 sales practices lawsuits pending against
General American. Metropolitan Life, New England Mutual and General American
continue to defend themselves vigorously against these lawsuits. Some individual
sales practices claims have been resolved through settlement, won by dispositive
motions, or, in a few instances, have gone to trial. Most of the current cases
seek substantial damages, including in some cases punitive and treble damages
and attorneys' fees. Additional litigation relating to the Company's marketing
and sales of individual life insurance may be commenced in the future.

The Metropolitan Life class action settlement did not resolve two putative
class actions involving sales practices claims filed against Metropolitan Life
in Canada, and these actions remain pending. In 2002, a purported class action
complaint was filed in a federal court in Kansas by S-G Metals Industries, Inc.
against
18

New England Mutual. The complaint seeks certification of a class on behalf of
corporations and banks that purchased participating life insurance policies, as
well as persons who purchased participating policies for use in pension plans or
through work site marketing. These policyholders were not part of the New
England Mutual class action settlement noted above. The action was transferred
to a federal court in Massachusetts. New England Mutual moved to dismiss the
case and in November 2002, the federal district court dismissed the case. S-G
Metals has filed a notice of appeal. New England Mutual intends to continue to
defend itself vigorously against the case.

The Company believes adequate provision has been made in its unaudited
interim condensed consolidated financial statements for all probable and
reasonably estimable losses for sales practices claims against Metropolitan
Life, New England Mutual and General American.

Regulatory authorities in a small number of states have had investigations
or inquiries relating to Metropolitan Life's, New England Mutual's or General
American's sales of individual life insurance policies or annuities. Over the
past several years, these and a number of investigations by other regulatory
authorities were resolved for monetary payments and certain other relief. The
Company may continue to resolve investigations in a similar manner.

ASBESTOS-RELATED CLAIMS

Metropolitan Life is also a defendant in thousands of lawsuits seeking
compensatory and punitive damages for personal injuries allegedly caused by
exposure to asbestos or asbestos-containing products. Metropolitan Life has
never engaged in the business of manufacturing, producing, distributing or
selling asbestos or asbestos-containing products nor has Metropolitan Life
issued liability or workers' compensation insurance to companies in the business
of manufacturing, producing, distributing or selling asbestos or
asbestos-containing products. Rather, these lawsuits have principally been based
upon allegations relating to certain research, publication and other activities
of one or more of Metropolitan Life's employees during the period from the
1920's through approximately the 1950's and have alleged that Metropolitan Life
learned or should have learned of certain health risks posed by asbestos and,
among other things, improperly publicized or failed to disclose those health
risks. Metropolitan Life believes that it should not have legal liability in
such cases.

Legal theories asserted against Metropolitan Life have included negligence,
intentional tort claims and conspiracy claims concerning the health risks
associated with asbestos. Although Metropolitan Life believes it has meritorious
defenses to these claims, and has not suffered any adverse monetary judgments in
respect of these claims, due to the risks and expenses of litigation, almost all
past cases have been resolved by settlements. Metropolitan Life's defenses
(beyond denial of certain factual allegations) to plaintiffs' claims include
that: (i) Metropolitan Life owed no duty to the plaintiffs -- it had no special
relationship with the plaintiffs and did not manufacture, produce, distribute or
sell the asbestos products that allegedly injured plaintiffs; (ii) plaintiffs
cannot demonstrate justifiable detrimental reliance; and (iii) plaintiffs cannot
demonstrate proximate causation. In defending asbestos cases, Metropolitan Life
selects various strategies depending upon the jurisdictions in which such cases
are brought and other factors which, in Metropolitan Life's judgment, best
protect Metropolitan Life's interests. Strategies include seeking to settle or
compromise claims, motions challenging the legal or factual basis for such
claims or defending on the merits at trial. In 2002 and 2003, trial courts in
California, Utah and Georgia granted motions dismissing claims against
Metropolitan Life on some or all of the above grounds. Other courts have denied
motions brought by Metropolitan Life to dismiss cases without the necessity of
trial. There can be no assurance that Metropolitan Life will receive favorable
decisions on motions in the future. Metropolitan Life intends to continue to
exercise its best judgment regarding settlement or defense of such cases,
including when trials of these cases are appropriate.

19

See Note 11 of Notes to Consolidated Financial Statements for the year
ended December 31, 2002 included in the MetLife, Inc. Annual Report on Form 10-K
filed with the SEC for information regarding historical asbestos claims
information and the increase of its recorded liability at December 31, 2002.

During 1998, Metropolitan Life paid $878 million in premiums for excess
insurance policies for asbestos-related claims. The excess insurance policies
for asbestos-related claims provide for recovery of losses up to $1,500 million,
which is in excess of a $400 million self-insured retention. The
asbestos-related policies are also subject to annual and per-claim sublimits.
Amounts are recoverable under the policies annually with respect to claims paid
during the prior calendar year. Although amounts paid by Metropolitan Life in
any given year that may be recoverable in the next calendar year under the
policies will be reflected as a reduction in the Company's operating cash flows
for the year in which they are paid, management believes that the payments will
not have a material adverse effect on the Company's liquidity.

Each asbestos-related policy contains an experience fund and a reference
fund that provides for payments to Metropolitan Life at the commutation date if
the reference fund is greater than zero at commutation or pro rata reductions
from time to time in the loss reimbursements to Metropolitan Life if the
cumulative return on the reference fund is less than the return specified in the
experience fund. The return in the reference fund is tied to performance of the
Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. A
claim has been made under the excess insurance policies in 2003 for the amounts
paid in 2002 with respect to asbestos litigation in excess of the retention. As
the performance of the indices impact the return in the reference fund, it is
possible that loss reimbursements to the Company and the recoverable with
respect to later periods may be less than the amount of the recorded losses.
Such forgone loss reimbursements may be recovered upon commutation depending
upon future performance of the reference fund. If at some point in the future,
the Company believes the liability for probable and reasonably estimable losses
for asbestos-related claims should be increased, an expense would be recorded
and the insurance recoverable would be adjusted subject to the terms, conditions
and limits of the excess insurance policies. A portion of the change in the
insurance recoverable would be recorded as a deferred gain and amortized into
income over the estimated remaining settlement period of the insurance policies.

The Company believes adequate provision has been made in its unaudited
interim condensed consolidated financial statements for all probable and
reasonably estimable losses for asbestos-related claims. The ability of
Metropolitan Life to estimate its ultimate asbestos exposure is subject to
considerable uncertainty due to numerous factors. The availability of data is
limited and it is difficult to predict with any certainty numerous variables
that can affect liability estimates, including the number of future claims, the
cost to resolve claims, the disease mix and severity of disease, the
jurisdiction of claims filed, tort reform efforts and the impact of any possible
future adverse verdicts and their amounts.

Recent bankruptcies of other companies involved in asbestos litigation, as
well as advertising by plaintiffs' asbestos lawyers, may be resulting in an
increase in the number of claims and the cost of resolving claims, as well as
the number of trials and possible adverse verdicts Metropolitan Life may
experience. Plaintiffs are seeking additional funds from defendants, including
Metropolitan Life, in light of such recent bankruptcies by certain other
defendants. In addition, publicity regarding legislative reform efforts may be
resulting in an increase in the number of claims. As reported in MetLife, Inc.'s
Annual Report on Form 10-K, Metropolitan Life received approximately 66,000
asbestos-related claims in 2002. During the first six months of 2003 and 2002,
Metropolitan Life received approximately 48,000 and 28,000 asbestos-related
claims, respectively. Of the approximately 48,000 claims received in the first
six months of 2003, approximately 23,000 were received in April 2003. Except as
to April, the number of asbestos-related claims received in 2003 are in line
with the claims received in 2002 for the same period. However, we can provide no
assurance with respect to the timing of receipt of new claims.

20

It is likely that a bill reforming asbestos litigation will be voted on by
the Senate in 2003. While the Company strongly supports reform efforts, there
can be no assurance that legislative reform will be enacted. Metropolitan Life
will continue to study its claims experience, review external literature
regarding asbestos claims experience in the United States and consider numerous
variables that can affect its asbestos liability exposure, including
bankruptcies of other companies involved in asbestos litigation and legislative
and judicial developments, to identify trends and to assess their impact on the
recorded asbestos liability.

The number of asbestos cases that may be brought or the aggregate amount of
any liability that Metropolitan Life may ultimately incur is uncertain.
Accordingly, it is reasonably possible that the Company's total exposure to
asbestos claims may be greater than the liability recorded by the Company in its
unaudited interim condensed consolidated financial statements and that future
charges to income may be necessary. While the potential future charges could be
material in particular quarterly or annual periods in which they are recorded,
based on information currently known by management, it does not believe any such
charges are likely to have a material adverse effect on the Company's
consolidated financial position.

In 2003, Metropolitan Life also has been named as a defendant in a small
number of silicosis, welding and mixed dust cases. The cases are pending in
Mississippi, Texas, Ohio, Pennsylvania, West Virginia, Louisiana, Kentucky and
Arkansas. The Company intends to vigorously defend itself against these cases.

PROPERTY AND CASUALTY ACTIONS

Purported class action suits involving claims by policyholders for the
alleged diminished value of automobiles after accident-related repairs have been
filed in Rhode Island, Texas, Georgia and Tennessee against Metropolitan
Property and Casualty Insurance Company. Rhode Island and Texas trial courts
denied plaintiffs' motions for class certification. In a lawsuit involving
another insurer, the Tennessee Supreme Court held that diminished value is not
covered under a Tennessee automobile policy. Based on that decision, plaintiffs
in Tennessee have dismissed their alleged diminished value lawsuit against
Metropolitan Property and Casualty Insurance Company. A settlement has been
reached in the Georgia class action; the Company determined to settle the case
in light of a Georgia Supreme Court decision involving another insurer. The
settlement is being implemented. A purported class action has been filed against
Metropolitan Property and Casualty Insurance Company's subsidiary, Metropolitan
Casualty Insurance Company, in Florida. The complaint alleges breach of contract
and unfair trade practices with respect to allowing the use of parts not made by
the original manufacturer to repair damaged automobiles. Discovery is ongoing
and a motion for class certification is pending. Total loss valuation methods
are the subject of national class actions involving other insurance companies. A
Pennsylvania state court purported class action lawsuit filed in 2001 alleges
that Metropolitan Property and Casualty Insurance Company improperly took
depreciation on partial homeowner losses where the insured replaced the covered
item. The court has dismissed the action. An appeal has been filed. Metropolitan
Property and Casualty Insurance Company and Metropolitan Casualty Insurance
Company are vigorously defending themselves against these lawsuits.

DEMUTUALIZATION ACTIONS

Several lawsuits were brought in 2000 challenging the fairness of
Metropolitan Life's plan of reorganization and the adequacy and accuracy of
Metropolitan Life's disclosure to policyholders regarding the plan. These
actions name as defendants some or all of Metropolitan Life, the Holding
Company, the individual directors, the Superintendent and the underwriters for
MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit
Suisse First Boston. Five purported class actions pending in the New York state
court in New York County were consolidated within the commercial part. In
addition, there remained a separate purported class action in New York state
court in New York County. On February 21, 2003, the defendants' motions to
dismiss both the consolidated action and separate action were granted; leave to
replead as a

21

proceeding under Article 78 of New York's Civil Practice Law and Rules has been
granted in the separate action. Plaintiffs in the consolidated action and
separate action have filed notices of appeal. Another purported class action in
New York state court in Kings County has been voluntarily held in abeyance by
plaintiffs. The plaintiffs in the state court class actions seek injunctive,
declaratory and compensatory relief, as well as an accounting and, in some
instances, punitive damages. Some of the plaintiffs in the above described
actions also have brought a proceeding under Article 78 of New York's Civil
Practice Law and Rules challenging the Opinion and Decision of the
Superintendent who approved the plan. In this proceeding, petitioners seek to
vacate the Superintendent's Opinion and Decision and enjoin him from granting
final approval of the plan. This case also is being held in abeyance by
plaintiffs. Three purported class actions were filed in the United States
District Court for the Eastern District of New York claiming violation of the
Securities Act of 1933. The plaintiffs in these actions, which have been
consolidated, claim that the Policyholder Information Booklets relating to the
plan failed to disclose certain material facts and seek rescission and
compensatory damages. Metropolitan Life's motion to dismiss these three cases
was denied in 2001. On February 4, 2003, plaintiffs filed a consolidated amended
complaint adding a fraud claim under the Securities Exchange Act of 1934.
Metropolitan Life has filed a motion to dismiss the consolidated amended
complaint and a motion for summary judgment in this action. A purported class
action also was filed in the United States District Court for the Southern
District of New York seeking damages from Metropolitan Life and the Holding
Company for alleged violations of various provisions of the Constitution of the
United States in connection with the plan of reorganization. In 2001, pursuant
to a motion to dismiss filed by Metropolitan Life, this case was dismissed by
the District Court. In January 2003, the United States Court of Appeals for the
Second Circuit affirmed the dismissal. In June 2003, the United States Supreme
Court denied plaintiffs' petition for certiorari in this action. Metropolitan
Life, the Holding Company and the individual defendants believe they have
meritorious defenses to the plaintiffs' claims and are contesting vigorously all
of the plaintiffs' claims in these actions.

In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario,
Canada on behalf of a proposed class of certain former Canadian policyholders
against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance
Company of Canada. Plaintiffs' allegations concern the way that their policies
were treated in connection with the demutualization of Metropolitan Life; they
seek damages, declarations, and other non-pecuniary relief. The defendants
believe they have meritorious defenses to the plaintiffs' claims and will
contest vigorously all of plaintiffs' claims in this matter.

In July 2002, a lawsuit was filed in the United States District Court for
the Eastern District of Texas on behalf of a proposed class comprised of the
settlement class in the Metropolitan Life sales practices class action
settlement approved in December 1999 by the United States District Court for the
Western District of Pennsylvania. The Holding Company, Metropolitan Life, the
trustee of the policyholder trust, and certain present and former individual
directors and officers of Metropolitan Life are named as defendants. After the
defendants' motion to transfer the lawsuit to the Western District of
Pennsylvania was granted, plaintiffs filed an amended complaint that dropped all
claims against the trustee of the policyholder trust and the individual
directors and officers. In the amended complaint, plaintiffs allege that the
treatment of the cost of the sales practices settlement in connection with the
demutualization of Metropolitan Life breached the terms of the settlement.
Plaintiffs seek compensatory and punitive damages, as well as attorneys' fees
and costs. The defendants have moved to dismiss the action. Plaintiffs' motion
for class certification has been adjourned. The defendants believe they have
meritorious defenses to the plaintiffs' claims and are contesting them
vigorously.

RACE-CONSCIOUS UNDERWRITING CLAIMS

Insurance departments in a number of states initiated inquiries in 2000
about possible race-conscious underwriting of life insurance. These inquiries
generally have been directed to all life insurers licensed in their respective
states, including Metropolitan Life and certain of its affiliates. The New York
Insurance Department has concluded its examination of Metropolitan Life
concerning possible past race-conscious
22

underwriting practices. Metropolitan Life has cooperated fully with that
inquiry. Four purported class action lawsuits filed against Metropolitan Life in
2000 and 2001 alleging racial discrimination in the marketing, sale, and
administration of life insurance policies have been consolidated in the United
States District Court for the Southern District of New York. The plaintiffs seek
unspecified monetary damages, punitive damages, reformation, imposition of a
constructive trust, a declaration that the alleged practices are discriminatory
and illegal, injunctive relief requiring Metropolitan Life to discontinue the
alleged discriminatory practices and adjust policy values, and other relief. On
April 28, 2003, the United States District Court approved a class-action
settlement of the consolidated actions. Several persons who had objected to the
settlement have filed notices of appeal from the order approving the settlement.
Metropolitan Life also has entered into settlement agreements to resolve the
regulatory examination. Metropolitan Life recorded a charge in the fourth
quarter of 2001 in connection with the anticipated resolution of these matters.
During the second quarter of 2003, the Company reduced this charge by $64
million, after-tax. The Company believes the remaining portion of the previously
recorded charge is adequate to cover the costs associated with the resolution of
these matters.

Eighteen lawsuits involving approximately 130 plaintiffs have been filed in
federal and state court in Alabama, Mississippi and Tennessee alleging federal
and/or state law claims of racial discrimination in connection with the sale,
formation, administration or servicing of life insurance policies. Metropolitan
Life is contesting vigorously plaintiffs' claims in these actions.

OTHER

In 2001, a putative class action was filed against Metropolitan Life in the
United States District Court for the Southern District of New York alleging
gender discrimination and retaliation in the MetLife Financial Services unit of
the Individual segment. The plaintiffs seek unspecified compensatory damages,
punitive damages, a declaration that the alleged practices are discriminatory
and illegal, injunctive relief requiring Metropolitan Life to discontinue the
alleged discriminatory practices, an order restoring class members to their
rightful positions (or appropriate compensation in lieu thereof), and other
relief. Plaintiffs have filed a motion for class certification. Opposition
papers were filed by Metropolitan Life. The parties have reached a settlement in
principle and are seeking the Court's preliminary approval.

A lawsuit has been filed against Metropolitan Life in Ontario, Canada by
Clarica Life Insurance Company regarding the sale of the majority of
Metropolitan Life's Canadian operation to Clarica in 1998. Clarica alleges that
Metropolitan Life breached certain representations and warranties contained in
the sale agreement, that Metropolitan Life made misrepresentations upon which
Clarica relied during the negotiations and that Metropolitan Life was negligent
in the performance of certain of its obligations and duties under the sale
agreement. The parties are engaged in settlement discussions.

A putative class action lawsuit is pending in the United States District
Court for the District of Columbia, in which plaintiffs allege that they were
denied certain ad hoc pension increases awarded to retirees under the
Metropolitan Life retirement plan. The ad hoc pension increases were awarded
only to retirees (i.e., individuals who were entitled to an immediate retirement
benefit upon their termination of employment) and not available to individuals
like these plaintiffs whose employment, or whose spouses' employment, had
terminated before they became eligible for an immediate retirement benefit. The
plaintiffs seek to represent a class consisting of former Metropolitan Life
employees, or their surviving spouses, who are receiving deferred vested annuity
payments under the retirement plan and who were allegedly eligible to receive
the ad hoc pension increases awarded in 1977, 1980, 1989, 1992, 1996 and 2001,
as well as increases awarded in earlier years. Metropolitan Life is vigorously
defending itself against these allegations.

A reinsurer of universal life policy liabilities of Metropolitan Life and
certain affiliates is seeking rescission and has commenced an arbitration
proceeding claiming that, during underwriting, material misrepresentations or
omissions were made. The reinsurer also has sent a notice purporting to increase
23

reinsurance premium rates. Metropolitan Life and these affiliates intend to
vigorously defend themselves against the claims of the reinsurer, including the
purported rate increase.

The SEC has commenced a formal investigation of New England Securities
Corporation, an indirect subsidiary of New England Life Insurance Company
("NES"), in response to NES informing the SEC that certain systems and controls
relating to one NES advisory program were not operating effectively. NES is
cooperating fully with the SEC and is continuing to research the effect, if any,
of this issue upon approximately 6,000 active and closed accounts.

The American Dental Association and two individual providers have sued
MetLife, Mutual of Omaha and Cigna in a purported class action lawsuit brought
in a Florida federal district court. The plaintiffs purport to represent a
nationwide class of in-network providers who allege that their claims are being
wrongfully reduced by downcoding, bundling, and the improper use and programming
of software. The complaint alleges federal racketeering and various state law
theories of liability. MetLife is vigorously defending the case.

Various litigation, claims and assessments against the Company, in addition
to those discussed above and those otherwise provided for in the Company's
unaudited interim condensed consolidated financial statements, have arisen in
the course of the Company's business, including, but not limited to, in
connection with its activities as an insurer, employer, investor, investment
advisor and taxpayer. Further, state insurance regulatory authorities and other
federal and state authorities regularly make inquiries and conduct
investigations concerning the Company's compliance with applicable insurance and
other laws and regulations.

SUMMARY

It is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or provide reasonable ranges of
potential losses, except as noted above in connection with specific matters. In
some of the matters referred to above, very large and/or indeterminate amounts,
including punitive and treble damages, are sought. Although in light of these
considerations it is possible that an adverse outcome in certain cases could
have a material adverse effect upon the Company's consolidated financial
position, based on information currently known by the Company's management, in
its opinion, the outcomes of such pending investigations and legal proceedings
are not likely to have such an effect. However, given the large and/or
indeterminate amounts sought in certain of these matters and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the
Company's consolidated net income or cash flows in particular quarterly or
annual periods.

COMMITMENTS TO FUND PARTNERSHIP INVESTMENTS

The Company makes commitments to fund partnership investments in the normal
course of business. The amounts of these unfunded commitments were $1,488
million and $1,667 million at June 30, 2003 and December 31, 2002, respectively.
The Company anticipates that these amounts will be invested in the partnerships
over the next three to five years.

GUARANTEES

In the course of its business, the Company has provided certain
indemnities, guarantees and commitments to third parties pursuant to which it
may be required to make payments now or in the future.

In the context of acquisition, disposition and investment transactions, the
Company has provided indemnities and guarantees, including those related to tax,
environmental and other specific liabilities, and other indemnities and
guarantees that are triggered by, among other things, breaches of
representations, warranties or covenants provided by the Company. In addition,
in the normal course of business, the Company
24

provides indemnifications to counterparties in contracts with triggers similar
to the foregoing, as well as for certain other liabilities, such as third party
lawsuits. These obligations are often subject to time limitations that vary in
duration, including contractual limitations and those that arise by operation of
law, such as applicable statutes of limitation. In some cases, the maximum
potential obligation under the indemnities and guarantees is subject to a
contractual limitation ranging from $1 million to $800 million, while in other
cases such limitations are not specified or applicable. Since certain of these
obligations are not subject to limitations, the Company does not believe that it
is possible to determine the maximum potential amount due under these guarantees
in the future.

In addition, the Company indemnifies its directors and officers as provided
in its charters and by-laws. Also, the Company indemnifies other of its agents
for liabilities incurred as a result of their representation of the Company's
interests. Since these indemnities are generally not subject to limitation with
respect to duration or amount, the Company does not believe that it is possible
to determine the maximum potential amount due under these indemnities in the
future.

The fair value of such indemnities, guarantees and commitments entered into
subsequent to December 31, 2002 was insignificant. The Company's recorded
liability at June 30, 2003 and December 31, 2002 for indemnities, guarantees and
commitments provided to third parties prior to January 1, 2003 was
insignificant.

9. BUSINESS REALIGNMENT INITIATIVES

During the fourth quarter of 2001, the Company implemented several business
realignment initiatives, which resulted from a strategic review of operations
and an ongoing commitment to reduce expenses. The following tables represent the
original expenses recorded in the fourth quarter of 2001 and the remaining
liability as of June 30, 2003:

- ---------------

(1) See Note 12 for a discussion of this charge included in the calculation of
net income available to common shareholders.

(2) The pro forma earnings disclosures are not necessarily representative of the
effects on net income and earnings per share in future years.

26

(3) Includes the Company's ownership share of stock compensation costs related
to the Reinsurance Group of America, Incorporated incentive stock plan and
the stock compensation costs related to the incentive stock plans at SSRM
Holdings, Inc. determined in accordance with SFAS 123.

Stock-based compensation expense related to the Company's Stock Incentive
Plan and Directors Stock Plan for the three months and six months ended June 30,
2003 was $4 million and $10 million, respectively, including stock-based
compensation for non-employees of $300 thousand and $825 thousand, respectively.
Stock-based compensation expense for non-employees for the three months and six
months ended June 30, 2002 was $462 thousand and $923 thousand, respectively.

11. COMPREHENSIVE INCOME

The components of comprehensive income are as follows:

12. METLIFE CAPITAL TRUST I

In connection with MetLife, Inc.'s initial public offering in April 2000,
the Holding Company and MetLife Capital Trust I (the "Trust") issued equity
security units (the "units"). Each unit originally consisted of (i) a contract
to purchase, for $50, shares of the Holding Company's common stock (the
"purchase contracts") on May 15, 2003; and (ii) a capital security of the Trust,
with a stated liquidation amount of $50.

In accordance with the terms of the units, the Trust was dissolved on
February 5, 2003, and $1,006 million aggregate principal amount of 8.00%
debentures of the Holding Company (the "MetLife debentures"), the sole assets of
the Trust, were distributed to the owners of the Trust's capital securities in
exchange for their capital securities. The MetLife debentures were remarketed on
behalf of the debenture owners on February 12, 2003 and the interest rate on the
MetLife debentures was reset as of February 15, 2003 to 3.911% per annum for a
yield to maturity of 2.876%. As a result of the remarketing, the debenture
owners received $21 million ($0.03 per diluted common share) in excess of the
carrying value of the capital securities. This excess was recorded by the
Company as a charge to additional paid-in capital and, for the purpose of
calculating earnings per share, is subtracted from net income to arrive at net
income available to common shareholders.

27

On May 15, 2003, the purchase contracts associated with the units were
settled. In exchange for $1,006 million, the Company issued 2.97 shares of
MetLife, Inc. common stock per purchase contract, or approximately 59.8 million
shares of treasury stock. Approximately $656 million, which represents the
excess of the Company's cost of the treasury stock ($1,662 million) over the
contract price of the stock issued to the purchase contract holders ($1,006
million), was recorded as a direct reduction to retained earnings.

13. EARNINGS PER SHARE

The following table presents a reconciliation of the weighted average
shares used in calculating basic earnings per share to those used in calculating
diluted earnings per share:

- ---------------

(1) See Note 12.

28

On February 19, 2002, the Holding Company's Board of Directors authorized a
$1 billion common stock repurchase program. This program began after the
completion of the March 28, 2001 and June 27, 2000 repurchase programs, each of
which authorized the repurchase of $1 billion of common stock. Under these
authorizations, the Holding Company may purchase common stock from the MetLife
Policyholder Trust, in the open market and in privately negotiated transactions.
The Holding Company did not acquire any shares of common stock during the six
months ended June 30, 2003. The Holding Company acquired 13,644,492 shares of
common stock for $431 million during the six months ended June 30, 2002. During
the six months ended June 30, 2003, 59,865,424 shares of common stock were
issued from treasury stock, 59,771,221 of which were issued in connection with
the settlement of common stock purchase contracts (see Note 12) for
approximately $1,006 million. During the six months ended June 30, 2002, 16,379
shares of common stock were issued from treasury stock.

14. BUSINESS SEGMENT INFORMATION

The Company provides insurance and financial services to customers in the
United States, Canada, Central America, South America, Europe, South Africa,
Asia and Australia. The Company's business is divided into six major segments:
Institutional, Individual, Auto & Home, International, Reinsurance and Asset
Management. These segments are managed separately because they either provide
different products and services, require different strategies or have different
technology requirements.

Institutional offers a broad range of group insurance and retirement and
savings products and services, including group life insurance, non-medical
health insurance, such as short and long-term disability, long-term care, and
dental insurance, and other insurance products and services. Individual offers a
wide variety of individual insurance and investment products, including life
insurance, annuities and mutual funds. Auto & Home provides insurance coverages,
including private passenger automobile, homeowners and personal excess liability
insurance. International provides life insurance, accident and health insurance,
annuities and retirement and savings products to both individuals and groups,
and auto and homeowners coverage to individuals. Reinsurance provides primarily
reinsurance of life and annuity policies in North America and various
international markets. Additionally, reinsurance of critical illness policies is
provided in select international markets. Asset Management provides a broad
variety of asset management products and services to individuals and
institutions.

Set forth in the tables below is certain financial information with respect
to the Company's operating segments for the three months and six months ended
June 30, 2003 and 2002 and at June 30, 2003 and December 31, 2002. The
accounting policies of the segments are the same as those of the Company, except
for the method of capital allocation and the accounting for gains and losses
from intercompany sales, which are

29

eliminated in consolidation. The Company allocates capital to each segment based
upon an internal capital allocation system that allows the Company to more
effectively manage its capital. The Company evaluates the performance of each
operating segment based upon net income excluding net investment gains and
losses, net of income taxes, and the impact from the cumulative effect of
changes in accounting, net of income taxes. The Company allocates certain
non-recurring items (e.g., expenses associated with the resolution of
proceedings alleging race-conscious underwriting practices, sales practices
claims and claims for personal injuries caused by exposure to asbestos or
asbestos-containing products and demutualization costs) to Corporate & Other.

The following amounts are reported as discontinued operations in accordance
with SFAS 144:

31

The following table presents assets with respect to the Company's operating
segments at:

- ---------------

(1) These balances reflect the allocation of capital using the Risk-Based
Capital methodology, which differs from the original presentation of GAAP
equity included in MetLife, Inc.'s 2002 Annual Report on Form 10-K.

Economic Capital. Beginning in 2003, the Company changed its methodology
of allocating capital from Risk-Based Capital to Economic Capital. Prior to
2003, the Company's business segments' allocated equity was primarily based on
Risk-Based Capital, an internally developed formula based on applying a multiple
to the National Association of Insurance Commissioners Statutory Risk-Based
Capital and included certain GAAP accounting adjustments. Economic Capital is an
internally developed risk capital model, the purpose of which is to measure the
risk in the business and to provide a basis upon which capital is deployed. The
Economic Capital model accounts for the unique and specific nature of the risks
inherent in MetLife's businesses. This is in contrast to the standardized
regulatory Risk-Based Capital formula, which is not as refined in its risk
calculations with respect to the nuances of the Company's businesses.

The change in methodology is being applied prospectively. This change has
and will continue to impact the level of net investment income and net income of
each of the Company's business segments. A portion of net investment income is
credited to the segments based on the level of allocated equity. This change in
methodology of allocating equity does not impact the Company's consolidated net
investment income or net income.

The following table presents actual and pro forma net investment income
with respect to the Company's operating segments for the three months and six
months ended June 30, 2002. The amounts shown as pro

32

forma reflect net investment income that would have been reported in the prior
year had the Company allocated capital based on Economic Capital rather than on
the basis of Risk-Based Capital.

The following table presents actual and pro forma assets with respect to
the Company's operating segments at December 31, 2002. The amounts shown as pro
forma reflect assets that would have been reported in the prior year had the
Company allocated capital based on Economic Capital rather than on the basis of
Risk-Based Capital.

- ---------------

(1) These balances reflect the allocation of capital using the Risk-Based
Capital methodology, which differs from the original presentation of GAAP
equity included in MetLife, Inc.'s 2002 Annual Report on Form 10-K.

The Individual segment's results of operations for the three months and six
months ended June 30, 2003 include a charge resulting from the recognition of
previously deferred expenses.

The International segment's results of operations for the three months and
six months ended June 30, 2003 include the results of operations of Aseguradora
Hidalgo S.A., a Mexican life insurer that was acquired on June 20, 2002. During
the second quarter of 2003, as part of its acquisition and integration strategy,
International completed the legal merger of Aseguradora Hidalgo, S.A. into its
original Mexican subsidiary, Seguros Genesis, S.A., forming MetLife Mexico, S.A.
As a result of the merger of these companies, the Company recorded a tax benefit
of $40 million for the reduction of deferred tax valuation allowances.

33

Additionally, a change in reserve methodology resulted in a $22 million
after-tax reduction in policyholder liabilities.

Corporate & Other includes various start-up and run-off entities, as well
as the elimination of all intersegment amounts. The principal component of the
intersegment amounts relates to intersegment loans, which bear interest rates
commensurate with related borrowings.

Net investment income and net investment gains and losses are based upon
the actual results of each segment's specifically identifiable asset portfolio
adjusted for allocated capital. Other costs and operating costs are allocated to
each of the segments based upon: (i) a review of the nature of such costs; (ii)
time studies analyzing the amount of employee compensation costs incurred by
each segment; and (iii) cost estimates included in the Company's product
pricing.

Revenues derived from any customer did not exceed 10% of consolidated
revenues for the three months and six months ended June 30, 2003 and 2002.
Revenues from U.S. operations were $8,034 million and $7,655 million for the
three months ended June 30, 2003 and 2002, respectively, which represented 90%
and 93%, respectively, of consolidated revenues. Revenues from U.S. operations
were $15,636 million and $15,047 million for the six months ended June 30, 2003
and 2002, respectively, which represented 91% and 93%, respectively, of
consolidated revenues.

15. DISCONTINUED OPERATIONS

The Company actively manages its real estate portfolio with the objective
to maximize earnings through selective acquisitions and dispositions. In
accordance with SFAS 144, income related to real estate classified as
held-for-sale on or after January 1, 2002 is presented as discontinued
operations.

The following table presents the components of income from discontinued
operations:

The carrying value of real estate related to discontinued operations was
$26 million and $166 million at June 30, 2003 and December 31, 2002,
respectively.

34

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

For purposes of this discussion, the terms "Company" or "MetLife" refer to
MetLife, Inc., a Delaware corporation formed in 1999 (the "Holding Company"),
and its subsidiaries, including Metropolitan Life Insurance Company
("Metropolitan Life"). Following this summary is a discussion addressing the
consolidated results of operations and financial condition of the Company for
the periods indicated. This discussion should be read in conjunction with the
Company's unaudited interim condensed consolidated financial statements included
elsewhere herein.

BUSINESS REALIGNMENT INITIATIVES

During the fourth quarter of 2001, the Company implemented several business
realignment initiatives, which resulted from a strategic review of operations
and an ongoing commitment to reduce expenses. The following tables represent the
original expenses recorded in the fourth quarter of 2001 and the remaining
liability as of June 30, 2003:

Institutional. The charges to this segment in the fourth quarter of 2001
include costs associated with exiting a business, including the write-off of
goodwill, severance and severance-related costs, and facilities consolidation
costs. These expenses are the result of the discontinuance of certain 401(k)
recordkeeping services and externally-managed guaranteed index separate
accounts. These actions resulted in charges to policyholder benefits and claims
and other expenses of $215 million and $184 million, respectively. The business
realignment initiatives will ultimately result in the elimination of
approximately 930 positions. As of June 30, 2003, there were approximately 235
terminations to be completed in connection with the Company's business exit
activities. Management expects these terminations to be completed by December
31, 2003. The Company continues to carry a liability as of June 30, 2003 since
the exit plan could not be completed within one year due to circumstances
outside the Company's control and since certain contractual obligations extended
beyond one year.

Individual. The charges to this segment in the fourth quarter of 2001
include facilities consolidation costs, severance and severance-related costs,
which predominantly stem from the elimination of approximately 560 non-sales
positions and 190 operations and technology positions supporting this segment.
All terminations were completed as of June 30, 2003. These costs were recorded
in other expenses. The remaining liability as of June 30, 2003 is due to certain
contractual obligations that extended beyond one year.

Auto & Home. The charges to this segment in the fourth quarter of 2001
include severance and severance-related costs associated with the elimination of
approximately 200 positions. All terminations were completed as of December 31,
2002. The costs were recorded in other expenses.

35

SEPTEMBER 11, 2001 TRAGEDIES

On September 11, 2001 terrorist attacks occurred in New York, Washington,
D.C. and Pennsylvania (the "tragedies") triggering a significant loss of life
and property, which had an adverse impact on certain of the Company's
businesses. The Company's original estimate of the total insurance losses
related to the tragedies, which was recorded in the third quarter of 2001, was
$208 million, net of income taxes of $117 million. As of June 30, 2003, the
Company's remaining liability for unpaid and future claims associated with the
tragedies was $24 million, principally related to disability coverages. This
estimate has been and will continue to be subject to revision in subsequent
periods, as claims are received from insureds and processed. Any revision to the
estimate of losses in subsequent periods will affect net income in such periods.

The Company's general account investment portfolios include investments,
primarily comprised of fixed maturities, in industries that were originally
affected by the tragedies, including airline, other travel, lodging and
insurance. Exposures to these industries also exist through mortgage loans and
investments in real estate. The carrying value of the Company's investment
portfolio exposed to these industries was approximately $3.4 billion at June 30,
2003.

METLIFE CAPITAL TRUST I

In connection with MetLife, Inc.'s, initial public offering in April 2000,
the Holding Company and MetLife Capital Trust I (the "Trust") issued equity
security units (the "units"). Each unit originally consisted of (i) a contract
to purchase, for $50, shares of the Holding Company's common stock (the
"purchase contracts") on May 15, 2003; and (ii) a capital security of the Trust,
with a stated liquidation amount of $50.

In accordance with the terms of the units, the Trust was dissolved on
February 5, 2003, and $1,006 million aggregate principal amount of 8.00%
debentures of the Holding Company (the "MetLife debentures"), the sole assets of
the Trust, were distributed to the owners of the Trust's capital securities in
exchange for their capital securities. The MetLife debentures were remarketed on
behalf of the debenture owners on February 12, 2003 and the interest rate on the
MetLife debentures was reset as of February 15, 2003 to 3.911% per annum for a
yield to maturity of 2.876%. As a result of the remarketing, the debenture
owners received $21 million ($0.03 per diluted common share) in excess of the
carrying value of the capital securities. This excess was recorded by the
Company as a charge to additional paid-in capital and, for the purpose of
calculating earnings per share, is subtracted from net income to arrive at net
income available to common shareholders.

On May 15, 2003, the purchase contracts associated with the units were
settled. In exchange for $1,006 million, the Company issued 2.97 shares of
MetLife, Inc. common stock per purchase contract, or approximately 59.8 million
shares of treasury stock. Approximately $656 million, which represents the
excess of the Company's cost of the treasury stock ($1,662 million) over the
contract price of the stock issued to the purchase contract holders ($1,006
million), was recorded as a direct reduction to retained earnings.

ECONOMIC CAPITAL

Beginning in 2003, the Company changed its methodology of allocating
capital from Risk-Based Capital to Economic Capital. Prior to 2003, the
Company's business segments' allocated equity was primarily based on Risk-Based
Capital, an internally developed formula based on applying a multiple to the
National Association of Insurance Commissioners Statutory Risk-Based Capital and
included certain adjustments in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). Economic Capital is an
internally developed risk capital model, the purpose of which is to measure the
risk in the business and to provide a basis upon which capital is deployed. The
Economic Capital model accounts for the unique and specific nature of the risks
inherent in MetLife's businesses. This is in contrast to the standardized
regulatory Risk-Based Capital formula, which is not as refined in its risk
calculations with respect to the nuances of the Company's businesses.

36

The change in methodology is being applied prospectively. This change has
and will continue to impact the level of net investment income and net income of
each of the Company's business segments. A portion of net investment income is
credited to the segments based on the level of allocated equity. This change in
methodology of allocating equity does not impact the Company's consolidated net
investment income or net income.

The following table presents actual and pro forma net investment income
with respect to the Company's operating segments for the three months and six
months ended June 30, 2002. The amounts shown as pro forma reflect net
investment income that would have been reported in the prior year had the
Company allocated capital based on Economic Capital rather than on the basis of
Risk-Based Capital.

ACQUISITIONS AND DISPOSITIONS

In June 2002, the Company acquired Aseguradora Hidalgo S.A. ("Hidalgo"), an
insurance company based in Mexico with approximately $2.5 billion in assets as
of the date of acquisition. The purchase price of this acquisition was subject
to adjustment under certain provisions of the purchase agreement.
Post-acquisition analysis did not result in any significant adjustments of the
purchase price, although certain changes were made that affected goodwill, the
value of business acquired and reserve balances. The Company has completed the
merger of Hidalgo into Seguros Genesis, S.A., MetLife's wholly-owned Mexican
subsidiary headquartered in Mexico City. The combined entity operates under the
name MetLife Mexico.

In June 2003, the Company agreed to purchase John Hancock Life Insurance
Company's group life insurance business. The transaction is expected to close
later this year, subject to regulatory approval. While this transaction provides
strategic benefits and extends the Company's customer reach, it will have no
material impact on MetLife's 2003 consolidated net income.

On June 30, 2003, the Company announced the sale of 20 percent of Santander
Central Hispano Seguros y Reaseguros S.A. to Banco Santander Central Hispano
S.A. ("Santander") and the purchase of a 20 percent stake in MetLife Iberia S.A.
from Santander.

In July 2003, the Company announced the sale of its Spanish operation,
MetLife, Iberia, S.A. and its subsidiaries, Seguros Genesis, S.A. and Genesis
Seguros Generales, S.A., to Liberty Insurance, a Spanish subsidiary of Liberty
Mutual Group. The transaction is subject to certain regulatory approvals.

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 in the consolidated financial statements. The critical
accounting policies, estimates and related judgments underlying the Company's
consolidated financial statements are summarized below. In applying these
accounting policies, management makes subjective and complex judgments that
frequently require estimates about matters that

37

are inherently uncertain. Many of these policies, estimates and related
judgments are common in the insurance and financial services industries; others
are specific to the Company's businesses and operations.

INVESTMENTS

The Company's principal investments are in fixed maturities, mortgage loans
and real estate, all of which are exposed to three primary sources of investment
risk: credit, interest rate and market valuation. The financial statement risks
are those associated with the recognition of impairments and income, as well as
the determination of fair values. The assessment of whether impairments have
occurred is based on management's case-by-case evaluation of the underlying
reasons for the decline in fair value. Management considers a wide range of
factors about the security issuer and uses its best judgment in evaluating the
cause of the decline in the estimated fair value of the security and in
assessing the prospects for near-term recovery. Inherent in management's
evaluation of the security are assumptions and estimates about the operations of
the issuer and its future earnings potential. Considerations used by the Company
in the impairment evaluation process include, but are not limited to: (i) the
length of time and the extent to which the market value has been below amortized
cost; (ii) the potential for impairments of securities when the issuer is
experiencing significant financial difficulties; (iii) the potential for
impairments in an entire industry sector or sub-sector; (iv) the potential for
impairments in certain economically depressed geographic locations; (v) the
potential for impairments of securities where the issuer, series of issuers or
industry has suffered a catastrophic type of loss or has exhausted natural
resources; and (vi) other subjective factors, including concentrations and
information obtained from regulators and rating agencies. In addition, the
earnings on certain investments are dependent upon market conditions, which
could result in prepayments and changes in amounts to be earned due to changing
interest rates or equity markets. The determination of fair values in the
absence of quoted market values is based on valuation methodologies, securities
the Company deems to be comparable and assumptions deemed appropriate given the
circumstances. The use of different methodologies and assumptions may have a
material effect on the estimated fair value amounts.

DERIVATIVES

The Company enters into freestanding derivative transactions primarily to
manage the risk associated with variability in cash flows related to the
Company's financial assets and liabilities or to changing fair values. The
Company also purchases investment securities, issues certain insurance policies
and engages in certain reinsurance contracts with embedded derivatives. The
associated financial statement risk is the volatility in net income which can
result from (i) changes in fair value of derivatives not qualifying as
accounting hedges; and (ii) ineffectiveness of designated hedges in an
environment of changing interest rates or fair values. In addition, accounting
for derivatives is complex, as evidenced by significant authoritative
interpretations of the primary accounting standards which continue to evolve, as
well as the significant judgments and estimates involved in determining fair
value in the absence of quoted market values. These estimates are based on
valuation methodologies and assumptions deemed appropriate in the circumstances.
Such assumptions include estimated market volatility and interest rates used in
the determination of fair value where quoted market values are not available.
The use of different assumptions may have a material effect on the estimated
fair value amounts.

DEFERRED POLICY ACQUISITION COSTS

The Company incurs significant costs in connection with acquiring new
insurance business. These costs, which vary with and are primarily related to
the production of new business, are deferred. The recovery of such costs is
dependent upon the future profitability of the related business. The amount of
future profit is dependent principally on investment returns, mortality,
morbidity, persistency, expenses to administer the business, creditworthiness of
reinsurance counterparties and certain economic variables, such as inflation. Of
these factors, the Company anticipates that investment returns are most likely
to impact the rate of amortization of such costs. The aforementioned factors
enter into management's estimates of gross margins and profits, which generally
are used to amortize such costs. Revisions to estimates result in changes to the
amounts expensed in the reporting period in which the revisions are made and
could result in the impairment

38

of the asset and a charge to income if estimated future gross margins and
profits are less than amounts deferred. In addition, the Company utilizes the
reversion to the mean assumption, a standard industry practice, in its
determination of the amortization of deferred policy acquisition costs. This
practice assumes that the expectation for long-term appreciation in equity
markets is not changed by minor short-term market fluctuations, but that it does
change when large interim deviations have occurred.

FUTURE POLICY BENEFITS

The Company establishes liabilities for amounts payable under insurance
policies, including traditional life insurance, annuities and disability
insurance. Generally, amounts are payable over an extended period of time and
the profitability of the products is dependent on the pricing of the products.
Principal assumptions used in pricing policies and in the establishment of
liabilities for future policy benefits are mortality, morbidity, expenses,
persistency, investment returns and inflation.

The Company also establishes liabilities for unpaid claims and claims
expenses for property and casualty insurance. Pricing of this insurance takes
into account the expected frequency and severity of losses, the costs of
providing coverage, competitive factors, characteristics of the insured and the
property covered, as well as profit considerations. Liabilities for property and
casualty insurance are dependent on estimates of amounts payable for claims
reported but not settled and claims incurred but not reported. These estimates
are influenced by historical experience and actuarial assumptions of current
developments, anticipated trends and risk management strategies.

Differences between the actual experience and assumptions used in pricing
these policies and in the establishment of liabilities result in variances in
profit and could result in losses.

REINSURANCE

The Company enters into reinsurance transactions as both a provider and a
purchaser of 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. The
Company periodically reviews actual and anticipated experience compared to the
aforementioned assumptions used to establish assets and liabilities relating to
ceded and assumed reinsurance and evaluates the financial strength of
counterparties to its reinsurance agreements using criteria similar to that
evaluated in the security impairment process discussed above. Additionally, for
each of its reinsurance contracts, the Company must determine if the contract
provides indemnification against loss or liability relating to insurance risk,
in accordance with applicable accounting standards. The Company must review all
contractual features, particularly 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 the Company determines that a reinsurance contract
does not expose the reinsurer to a reasonable possibility of a significant loss
from insurance risk, the Company records the contract using the deposit method
of accounting. See "-- Derivatives" above.

LITIGATION

The Company is a party to a number of legal actions. Given the inherent
unpredictability of litigation, it is difficult to estimate the impact of
litigation on the Company's consolidated financial position. 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 the Company's asbestos-related liability, are especially difficult to
estimate due to the limitation of available data and uncertainty regarding
numerous variables used to determine amounts recorded. The data and variables
that impact the assumption used to estimate the Company's asbestos-related
liability include the number of future claims, the cost to resolve claims, the
disease mix and severity of disease, the jurisdiction of claims filed, tort
reform efforts and the impact of any possible future adverse verdicts and their
amounts. It is possible that an adverse outcome in certain of the Company's
litigation, including asbestos-related cases, or the use of different
assumptions in the determination of amounts recorded could have a material
effect upon the Company's consolidated net income or cash flows in particular
quarterly or annual periods.

39

EMPLOYEE BENEFIT PLANS

The Company sponsors pension and other retirement plans in various forms
covering employees who meet specified eligibility requirements. The reported
expense and liability associated with these plans requires an extensive use of
assumptions which include the discount rate, expected return on plan assets and
rate of future compensation increases as determined by the Company. Management
determines these assumptions based upon currently available market and industry
data, historical performance of the plan and its assets, and consultation with
an independent consulting actuarial firm to aid it in selecting appropriate
assumptions and valuing its related liabilities. The actuarial assumptions used
by the Company may differ materially from actual results due to changing market
and economic conditions, higher or lower withdrawal rates or longer or shorter
life spans of the participants. These differences may have a significant effect
on the Company's consolidated financial statements and liquidity.

The actuarial assumptions used in the calculation of the Company's
aggregate projected benefit obligation may vary and include an expectation of
long-term market appreciation in equity markets which is not changed by minor
short-term market fluctuations, but does change when large interim deviations
occur. For the largest of the plans sponsored by the Company (the Metropolitan
Life Retirement Plan for United States Employees, with a projected benefit
obligation of $4.3 billion or 98.6% of all qualified plans at December 31,
2002), the discount rate, expected rate of return on plan assets, and the range
of rates of future compensation increases used in that plan's valuation at
December 31, 2002 were 6.75%, 9% and 4% to 8%, respectively. The expected rate
of return on plan assets for use in that plan's valuation in 2003 is currently
anticipated to be 8.5%.

40

RESULTS OF OPERATIONS

The following table presents consolidated financial information for the
Company for the periods indicated:

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 2002 -- THE COMPANY

Premiums increased by $391 million, or 8%, to $5,092 million for the three
months ended June 30, 2003 from $4,701 million for the comparable 2002 period.
This variance is primarily attributable to increases in the Institutional,
Reinsurance, International and Auto & Home segments, partially offset by a
decrease in the Individual segment. A $181 million increase in Institutional is
primarily the result of growth in this segment's long-term care, disability,
dental and group life businesses. The increase in these businesses is partially
offset by a decrease in retirement and savings. This decrease is the result of
the sale of a significant single premium contract in the second quarter of 2002,
which is partially offset by higher sales in structured settlement products in
2003. New premiums from facultative and automatic treaties and renewal premiums
on existing blocks of business contributed to a $116 million increase in the
Reinsurance segment. An increase of $116 million in International is primarily
due to the acquisition of Hidalgo in June 2002, which accounted for $113 million
of the variance. A

41

$19 million increase in Auto & Home is primarily due to rate increases in both
the auto and property lines. A $39 million decrease in the Individual segment is
primarily the result of an amendment to a reinsurance agreement in the third
quarter of 2002 and a decrease in dividends used to purchase additional
insurance as a direct result of the dividend scale reduction adopted in the
fourth quarter of 2002.

Universal life and investment-type product policy fees increased by $80
million, or 16%, to $594 million for the three months ended June 30, 2003 from
$514 million for the comparable 2002 period. This variance is largely
attributable to increases in the International and Individual segments,
partially offset by a decrease in the Institutional segment. A $64 million
increase in the International segment is primarily due to the acquisition of
Hidalgo in June 2002, which accounted for $60 million of the variance. A $39
million increase in Individual is primarily due to higher revenue from insurance
fees, surrender charges and the recognition of previously deferred fees. The
recognition of previously deferred fees is the result of lapse, mortality and
investment experience. In addition, an increase in average separate account
balances and favorable investment experience resulted in an increase in
universal life and investment-type product policy fees from annuity and
investment-type products. A $23 million decrease in the Institutional segment
results from fees received in the second quarter of 2002 on two bank-owned life
insurance contracts.

Net investment income increased by $64 million, or 2%, to $2,892 million
for the three months ended June 30, 2003 from $2,828 million for the comparable
2002 period. This variance is attributable to increases of (i) $75 million, or
4%, in income from fixed maturities; (ii) $13 million, or 23%, in income from
other invested assets; (iii) $4 million, or 11%, in income from cash, cash
equivalents and short-term investments; and (iv) $2 million, or 1%, in interest
income from policy loans. These variances are partially offset by decreases of
(i) $15 million, or 32%, in income from equity securities and other limited
partnership interests; (ii) $13 million, or 9%, in income from real estate and
real estate joint ventures held-for-investment, net of investment expenses and
depreciation; and (iii) higher investment expenses of $2 million, or 3%.

The increase in income from fixed maturities to $2,073 million in 2003 from
$1,998 million in 2002 is mostly due to a higher asset base resulting from the
reinvestment of cash flows, higher income from equity-linked notes due to
increases in underlying indices, and the acquisition of Hidalgo in June 2002.
These favorable variances are somewhat offset by a decline in reinvestment
rates. The increase in income on other invested assets to $69 million in 2003
from $56 million in 2002 is primarily due to an increase in reinsurance
contracts' funds withheld at interest. Income from cash, cash equivalents and
short-term investments increased to $42 million in 2003 from $38 million in 2002
largely as a result of a higher asset base attributable to an increase in
short-term financing-related liabilities, partially offset by a decline in
short-term rates. The increase in interest income from policy loans to $139
million in 2003 from $137 million in 2002 is mostly due to increased loans
outstanding. The decrease in income from equity securities and other limited
partnership interests to $32 million in 2003 from $47 million in 2002 is
primarily due to a decrease in sales of underlying assets held within corporate
partnerships. The decrease in income from real estate and real estate joint
ventures held-for-investment to $128 million in 2003 from $141 million in 2002
is primarily due to a decrease in sales of underlying assets held within the
joint ventures.

The increase in net investment income is primarily attributable to
increases in the International segment, Corporate & Other and the Reinsurance
and Institutional segments, somewhat offset by decreases in the Individual and
Auto & Home segments. A $36 million increase in International is largely due to
a higher asset base resulting from the acquisition of Hidalgo in June 2002,
partially offset by reduced income from allocated capital. The increase in
Corporate & Other of $31 million is mainly due to higher income from allocated
capital and equity-linked notes, as well as an increase in income resulting from
a higher asset base, partially offset by lower reinvestment rates. The
Reinsurance segment increased $19 million largely resulting from an increase in
reinsurance contracts' funds withheld at interest, partially offset by reduced
income from allocated capital. The Institutional segment increased $15 million
primarily due to a higher asset base, an increase in income from equity-linked
notes and higher income from allocated capital, partially offset by a decline in
reinvestment rates. These increases are partially offset by a decrease in the
Individual segment of $33 million primarily resulting from lower reinvestment
rates, fewer sales of underlying assets held in corporate partnerships and lower
income from allocated capital, partially offset by a higher asset base. The
decrease in Auto & Home of $5 million is due to lower reinvestment rates and
reduced income from allocated capital.
42

Other revenues increased by $12 million, or 3%, to $355 million for the
three months ended June 30, 2003 from $343 million for the comparable 2002
period. This variance is primarily attributable to an increase in the
International segment, partially offset by a decrease in the Asset Management
segment. A $23 million increase in International is primarily due to the
acquisition of Hidalgo in June 2002. This increase is partially offset by a $13
million decrease in Asset Management due to lower average assets under
management on which management and advisory fees are earned.

Net investment losses decreased by $130 million, or 70%, to $55 million for
the three months ended June 30, 2003 from $185 million for the comparable 2002
period. This decrease reflects total investment losses, before offsets, of $55
million (including gross gains of $130 million, gross losses of $79 million,
writedowns of $103 million, and a net loss from derivatives of $3 million), a
decrease of $203 million, or 79%, from $258 million (including gross gains of
$438 million, gross losses of $314 million, writedowns of $261 million, and a
net loss from derivatives of $121 million) for the comparable 2002 period.
Offsets include the amortization of deferred policy acquisition costs of $5
million and $9 million for the three months ended June 30, 2003 and 2002,
respectively, and changes in the policyholder dividend obligation of ($5)
million and $64 million for the three months ended June 30, 2003 and 2002,
respectively.

The Company's investment gains and losses are net of related policyholder
amounts. The amounts netted against investment gains and losses are (i)
amortization of deferred policy acquisition costs, to the extent that such
amortization results from investment gains and losses; and (ii) adjustments to
the policyholder dividend obligation resulting from investment gains and losses.

The Company believes its policy of netting related policyholder amounts
against investment gains and losses provides important information in evaluating
its performance. Investment gains and losses are often excluded by investors
when evaluating the overall financial performance of insurers. The Company
believes its presentation enables readers to easily exclude investment gains and
losses and the related effects on the consolidated statements of income when
evaluating its performance. The Company's presentation of investment gains and
losses, net of policyholder amounts, may be different from the presentation used
by other insurance companies and, therefore, amounts in its unaudited interim
condensed consolidated statements of income may not be comparable to amounts
reported by other insurers.

Policyholder benefits and claims increased by $83 million, or 2%, to $4,965
million for the three months ended June 30, 2003 from $4,882 million for the
comparable 2002 period. This variance is primarily attributable to increases in
the Reinsurance, Institutional, International, and Auto & Home segments,
partially offset by a decrease in the Individual segment. An $81 million
increase in Reinsurance is consistent with the growth in premiums as previously
discussed above. A $46 million increase in Institutional is primarily a result
of growth in premiums as previously discussed, partially offset by a decrease in
retirement and savings as the second quarter of 2002 included a sale of a
significant single premium contract. A $24 million net increase in International
is largely due to the acquisition of Hidalgo in June 2002, partially offset by a
reduction in policyholder liabilities related to a change in reserve
methodology. A $10 million increase in Auto & Home is primarily due to more
catastrophes and higher claims severities in the auto line and increased
severities and a higher catastrophe level, partially offset by lower
non-catastrophe claims frequency in the property line. These increases were
partially offset by a $77 million decline in the Individual segment
predominantly due to favorable mortality experience, partially offset by the
impact of the aforementioned amendment to a reinsurance agreement and an
increase in the claims associated with guaranteed minimum death benefits.

Interest credited to policyholder account balances increased by $34
million, or 5%, to $761 million for the three months ended June 30, 2003 from
$727 million for the comparable 2002 period. This variance is primarily due to
increases in the International and Reinsurance segments, partially offset by a
decrease in the Institutional segment. A $25 million increase in International
is largely due to the acquisition of Hidalgo in June 2002. The majority of the
$13 million increase in Reinsurance is the result of increasing deposits from
several annuity treaties. A $4 million decrease in the Institutional segment is
primarily attributable to declines in average crediting rates in 2003 as a
result of the lower interest rate environment and is partially offset by an
increase in policyholder account balances.

43

Policyholder dividends increased by $19 million, or 4%, to $507 million for
the three months ended June 30, 2003 from $488 million for the comparable 2002
period. This variance is primarily attributable to the Institutional and
Individual segments. A $39 million increase in Institutional is largely due to
favorable mortality experience among several large group clients. Institutional
policyholder dividends vary from period to period based on participating
contract experience, which is generally recorded in policyholder benefits and
claims. The increase in Institutional is partially offset by a $22 million
decrease in Individual resulting primarily from the reduction of the dividend
scale in the fourth quarter of 2002.

Other expenses increased by $274 million, or 17%, to $1,846 million for the
three months ended June 30, 2003 from $1,572 million for the comparable 2002
period. Excluding the capitalization and amortization of deferred policy
acquisition costs, which are discussed below, other expenses increased by $295
million, or 17%, to $2,012 million for the three months ended June 30, 2003 from
$1,717 million for the comparable 2002 period. This variance is primarily
attributable to increases in the Individual, Reinsurance, Institutional, and
International segments, partially offset by decreases in Corporate & Other and
the Asset Management segment. A $119 million increase in Individual is primarily
due to higher commissions resulting from sales growth in new annuity and
investment-type products, increased pension and post-retirement benefit expenses
and a $22 million charge principally related to office consolidations, partially
offset by savings from ongoing expense management initiatives. A $107 million
increase in Reinsurance is largely attributable to higher reinsurance allowances
paid. A $65 million increase in Institutional is predominantly due to a rise in
non-deferrable variable expenses associated with the aforementioned premium
growth, additional post-retirement and other employee benefit-related costs and
a $15 million charge principally related to office consolidations. These
increases in Institutional are partially offset by expense savings resulting
from the Company's exit from the large market 401(k) business in late 2001, as
business was transferred to other carriers throughout 2002. A $63 million
increase in International is primarily due to the acquisition of Hidalgo in June
2002. These increases were partially offset by a $41 million decrease in
Corporate & Other, which is mostly attributable to a $46 million reduction in
litigation-related expenses. This decrease is largely attributable to a
reduction of a previously established liability related to the Company's
race-conscious underwriting settlement. A $13 million decrease in Asset
Management is primarily due to staff reductions in the third and fourth quarters
of 2002 and reduced expenses as a result of lower average assets under
management.

Deferred policy acquisition costs are principally amortized in proportion
to gross margins and profits, including investment gains and losses. The
amortization is allocated to investment gains and losses to provide consolidated
statement of income information regarding the impact of investment gains and
losses on the amount of the amortization and other expenses to provide amounts
related to gross margins and profits originating from transactions other than
investment gains and losses.

Capitalization of deferred policy acquisition costs increased by $125
million, or 25%, to $627 million for the three months ended June 30, 2003 from
$502 million for the comparable 2002 period. This variance is primarily due to
the Reinsurance, Individual, International, Institutional and Auto & Home
segments. A $57 million increase in Reinsurance is largely attributable to
higher reinsurance allowances paid. A $22 million increase in Individual is
primarily the result of higher sales commissions and other deferrable expenses
related to annuity and investment-type products, partially offset by the impact
of the recognition of non-deferrable expenses that were previously deferred. A
$19 million increase in International is primarily due to the acquisition of
Hidalgo in June 2002. A $15 million increase in Institutional is related to
sales growth as previously discussed. A $12 million increase in Auto & Home is
primarily due to higher premiums from rate increases. Total amortization of
deferred policy acquisition costs increased by $108 million, or 31%, to $456
million for the three months ended June 30, 2003 from $348 million for the
comparable 2002 period. Amortization of $461 million and $357 million are
allocated to other expenses in 2003 and 2002, respectively, while the remainder
of the amortization in each year is allocated to investment gains and losses.
The increase in amortization allocated to other expenses is largely attributable
to the International, Individual, Institutional and Auto & Home segments. A $55
million increase in International is primarily due to an increase in the
amortization of the value of business acquired related to the change in reserve
methodology discussed above and the acquisition of Hidalgo in June 2002. A $30
million increase in Individual is primarily due to a charge resulting from the
recognition of previously deferred expenses, with the remaining variance
attributable to the impact of lapse,

44

mortality and investment experience. A $12 million increase in Institutional is
due to sales growth as previously discussed. A $10 million increase in Auto &
Home is primarily related to higher premiums from rate increases.

Income tax expense for the three months ended June 30, 2003 was $218
million, or 27% of income before provision for income taxes and cumulative
effect of change in accounting, compared with $161 million, or 30%, for the
comparable 2002 period. The 2003 effective tax rate differs from the corporate
tax rate of 35% primarily due to the impact of non-taxable investment income,
tax credits for investments in low income housing, and a reduction of the
deferred tax valuation allowance to recognize the effect of certain foreign net
operating loss carryforwards. The 2002 effective tax rate differs from the
corporate tax rate of 35% primarily due to the impact of non-taxable investment
income, partially offset by the inability to record tax benefits on certain
foreign capital losses.

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
144"), income related to the Company's real estate which was identified as
held-for-sale on or after January 1, 2002 is presented as discontinued
operations for the three months ended June 30, 2003 and 2002. The income from
discontinued operations is comprised of net investment income and net investment
gains related to 51 properties that the Company began marketing for sale on or
after January 1, 2002. For the three months ended June 30, 2003, the Company
recognized $1 million of net investment gains from discontinued operations
related to two properties sold or held-for-sale.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
2002 -- THE COMPANY

Premiums increased by $748 million, or 8%, to $9,930 million for the six
months ended June 30, 2003 from $9,182 million for the comparable 2002 period.
This variance is primarily attributable to increases in the Institutional,
Reinsurance, International and Auto & Home segments, partially offset by a
decrease in the Individual segment. A $463 million increase in Institutional is
predominantly the result of growth in this segment's long-term care, disability,
dental and group life businesses. In addition, an increase in retirement and
savings resulted from higher sales of structured settlement products, partially
offset by a decrease due to the sale of a significant single premium contract in
the second quarter of 2002. New premiums from facultative and automatic
treaties and renewal premiums on existing blocks of business contributed to a
$193 million increase in the Reinsurance segment. An increase of $136 million in
International is primarily due to the acquisition of Hidalgo in June 2002, which
accounted for $255 million of the variance, largely offset by a decrease of $108
million attributable to a non-recurring sale of an annuity contract in the first
quarter of 2002 in Canada. A $39 million increase in Auto & Home is largely due
to rate increases in both the auto and property lines. An $82 million decrease
in the Individual segment is primarily the result of an amendment to a
reinsurance agreement in the third quarter of 2002 and a decrease in dividends
used to purchase additional insurance as a direct result of the dividend scale
reduction adopted in the fourth quarter of 2002.

Universal life and investment-type product policy fees increased by $189
million, or 19%, to $1,160 million for the six months ended June 30, 2003 from
$971 million for the comparable 2002 period. This variance is primarily
attributable to increases in the International and Individual segments,
partially offset by a decrease in the Institutional segment. A $108 million
increase in the International segment is predominantly due to the acquisition of
Hidalgo in June 2002, which accounted for $102 million of the variance. A $101
million increase in Individual is largely attributable to higher revenue from
insurance fees, surrender charges and the recognition of previously deferred
fees. The recognition of previously deferred fees is the result of lapse,
mortality and investment experience. In addition, favorable investment
experience and an increase in average separate account balances resulted in an
increase in universal life and investment-type product policy fees from annuity
and investment-type products. These increases are partially offset by a $20
million decline in the Institutional segment resulting from fees received in the
second quarter of 2002 on two bank-owned life insurance contracts.

Net investment income increased by $199 million, or 4%, to $5,789 million
for the six months ended June 30, 2003 from $5,590 million for the comparable
2002 period. This variance is primarily attributable to increases of (i) $165
million, or 4%, in income from fixed maturities; (ii) $30 million, or 29%, in
income from

45

other invested assets; (iii) $27 million, or 46%, in income from equity
securities and other limited partnership interests; (iv) $10 million, or 4%, in
interest income from policy loans; and (v) $8 million, or 1%, in income from
mortgage loans on real estate. These variances are partially offset by decreases
of (i) $15 million, or 12%, in income from cash, cash equivalents and short-term
investments; (ii) $11 million, or 4%, in income from real estate and real estate
joint ventures held-for-investment, net of investment expenses and depreciation;
and (iii) higher investment expenses of $15 million, or 14%.

The increase in income from fixed maturities to $4,117 million in 2003 from
$3,952 million in 2002 is due to a higher asset base resulting from the
reinvestment of cash flows, higher income from equity-linked notes resulting
from appreciation in underlying indices, the acquisition of Hidalgo in June
2002, and an increase in bond prepayment fees. These increases are partially
offset by a decline in reinvestment rates. The increase in income on other
invested assets to $132 million in 2003 from $102 million in 2002 is largely due
to an increase in reinsurance contracts' funds withheld at interest. The
increase in income from equity securities and other limited partnership
interests to $86 million in 2003 from $59 million in 2002 is predominantly due
to an increase in sales of underlying assets held in corporate partnerships. The
increase in interest income from policy loans to $278 million in 2003 from $268
million in 2002 is largely due to increased loans outstanding. The increase in
income from mortgage loans on real estate to $942 million in 2003 from $934
million in 2002 is largely attributable to a higher asset base coupled with an
increase in prepayment fees, somewhat offset by lower reinvestment rates. The
decrease in income from cash, cash equivalents and short-term investments to
$106 million in 2003 from $121 million in 2002 is mainly due to a decline in
short-term interest rates, partially offset by a higher asset base resulting
from an increase in short-term financing-related liabilities. The decrease in
income from real estate and real estate joint ventures held-for-investment to
$253 million in 2003 from $264 million in 2002 is largely due to lower income
from hotel properties as a result of lower occupancy rates, combined with a
decrease in sales of underlying assets held within the joint ventures. These
decreases were somewhat offset by increased income from space rented at the
Company's One Madison Avenue, New York City location. The increase in investment
expenses to $125 million in 2003 from $110 million in 2002 is primarily the
result of higher corporate and overhead charges applicable to investment
activity.

The increase in net investment income is primarily attributable to
increases in the International segment, Corporate & Other and the Reinsurance,
Institutional and Individual segments, partially offset by a decrease in the
Auto & Home segment. An $84 million increase in International is primarily due
to a higher asset base resulting from the acquisition of Hidalgo in June 2002,
partially offset by reduced income related to allocated capital. The increase in
Corporate & Other of $68 million is mainly due to higher income from allocated
capital, equity-linked notes and sales of underlying assets held in corporate
partnerships, as well as an increase in income resulting from a higher asset
base. These favorable variances are partially offset by a decline in
reinvestment rates. The Reinsurance segment increased $30 million primarily as a
result of an increase in reinsurance contracts' funds withheld at interest,
somewhat offset by reduced income from allocated capital. The Institutional
segment increased $16 million predominantly as a result of a higher asset base,
increased sales of underlying assets held in corporate partnerships and higher
income from allocated capital, partially offset by a decline in reinvestment
rates. A $9 million increase in the Individual segment is largely attributable
to a higher asset base, partially offset by lower reinvestment rates, fewer
sales of underlying assets held in corporate partnerships and lower income from
allocated capital. A decrease in the Auto & Home segment of $11 million is
mainly due to lower reinvestment rates and reduced income from allocated
capital.

Other revenues decreased by $57 million, or 8%, to $653 million for the six
months ended June 30, 2003 from $710 million for the comparable 2002 period.
This variance is primarily attributable to decreases in the Individual,
Institutional and Asset Management segments and an increase in the International
segment. A $35 million decrease in Individual is primarily due to lower
commission and fee income associated with the volume decline in the
broker/dealer and other subsidiaries, principally due to the depressed equity
markets. A decrease of $34 million in Institutional is primarily attributable to
reduced administrative fees stemming from the Company's exit from the large
market 401(k) business in late 2001. This action resulted in reduced revenue as
business was transferred to other carriers throughout 2002. A $24 million
decrease in Asset Management is due to lower average assets under management on
which management and advisory fees are earned. A $28 million increase in
International is primarily due to the acquisition of Hidalgo in June 2002.

46

Net investment losses remained unchanged at $277 million for both the six
months ended June 30, 2003 and 2002. This amount reflects total investment
losses, before offsets, of $315 million (including gross gains of $262 million,
gross losses of $173 million, writedowns of $367 million, and a net loss from
derivatives of $37 million), a decrease of $48 million, or 13%, from $363
million (including gross gains of $983 million, gross losses of $597 million,
writedowns of $599 million, and a net loss from derivatives of $150 million)
from the comparable 2002 period. Offsets include the amortization of deferred
policy acquisition costs of $15 million for both the six months ended June 30,
2003 and 2002, and changes in the policyholder dividend obligation of $23
million and $71 million for the six months ended June 30, 2003 and 2002,
respectively.

The Company's investment gains and losses are net of related policyholder
amounts. The amounts netted against investment gains and losses are (i)
amortization of deferred policy acquisition costs, to the extent that such
amortization results from investment gains and losses; and (ii) adjustments to
the policyholder dividend obligation resulting from investment gains and losses.

The Company believes its policy of netting related policyholder amounts
against investment gains and losses provides important information in evaluating
its performance. Investment gains and losses are often excluded by investors
when evaluating the overall financial performance of insurers. The Company
believes its presentation enables readers to easily exclude investment gains and
losses and the related effects on the consolidated statements of income when
evaluating its performance. The Company's presentation of investment gains and
losses, net of policyholder amounts, may be different from the presentation used
by other insurance companies and, therefore, amounts in its unaudited interim
condensed consolidated statements of income may not be comparable to amounts
reported by other insurers.

Policyholder benefits and claims increased by $418 million, or 4%, to
$9,918 million for the six months ended June 30, 2003 from $9,500 million for
the comparable 2002 period. This variance is primarily attributable to increases
in the Institutional, Reinsurance, International, and Auto & Home segments,
partially offset by a decrease in the Individual segment. A $256 million
increase in Institutional is largely the result of growth in premiums as
discussed above. A $114 million increase in Reinsurance is consistent with the
growth in premiums as discussed above. A net increase of $55 million in
International is largely attributable to the acquisition of Hidalgo in June
2002, partially offset by a reduction in policyholder liabilities related to a
change in reserve methodology. A $49 million increase in Auto & Home is
predominantly due to an increase in auto claims frequencies resulting largely
from adverse road conditions in the first quarter of 2003 and higher auto losses
due to adverse claims development related to prior accident years, resulting
mostly from bodily injury and uninsured motorist claims also in the first
quarter of 2003. The increase in the auto line is partially offset by a decrease
in the property line resulting from improved claims frequencies, a reduction in
the number of homeowners policies in-force and underwriting and agency
management actions. A $57 million decline in the Individual segment is primarily
due to favorable mortality experience, partially offset by the impact of the
aforementioned amendment to a reinsurance agreement and an increase in the
claims associated with guaranteed minimum death benefits.

Interest credited to policyholder account balances increased by $67
million, or 5%, to $1,508 million for the six months ended June 30, 2003 from
$1,441 million for the comparable 2002 period. This variance is primarily due to
increases in the International and Reinsurance segments, partially offset by a
decrease in the Institutional segment. A $53 million increase in International
is largely due to the acquisition of Hidalgo in June 2002. The majority of the
$22 million increase in Reinsurance is the result of increasing deposits from
several annuity treaties. An $8 million decrease in the Institutional segment is
primarily attributable to declines in average crediting rates in 2003 as a
result of the low interest rate environment.

Policyholder dividends increased by $25 million, or 3%, to $1,010 million
for the six months ended June 30, 2003 from $985 million for the comparable 2002
period. This variance is attributable to the Institutional, International and
Individual segments. A $56 million increase in Institutional is largely due to
favorable mortality experience among several large group clients. Institutional
policyholder dividends vary from period to period based on participating
contract experience, which is generally recorded in policyholder benefits and
claims. A $10 million increase in International is primarily attributable to the
acquisition of

47

Hidalgo in June 2002. A $41 million decrease in the Individual segment is the
result of the reduction of the dividend scale in the fourth quarter of 2002.

Other expenses increased by $370 million, or 11%, to $3,595 million for the
six months ended June 30, 2003 from $3,225 million for the comparable 2002
period. Excluding the capitalization and amortization of deferred policy
acquisition costs, which are discussed below, other expenses increased by $389
million, or 11%, to $3,960 million for the six months ended June 30, 2003 from
$3,571 million for the comparable 2002 period. This variance is primarily
attributable to increases in the Reinsurance, Individual, Institutional, and
International segments, partially offset by decreases in Corporate & Other and
the Asset Management and Auto & Home segments. A $157 million increase in
Reinsurance is largely attributable to higher reinsurance allowances paid. A
$131 million increase in Individual is primarily due to higher commissions
resulting from sales growth in new annuity and investment-type products,
increased pension and post-retirement benefit expenses and a $22 million charge
principally related to office consolidations, partially offset by savings from
ongoing expense management initiatives. A $115 million increase in Institutional
is predominantly due to a rise in non-deferrable variable expenses associated
with the aforementioned premium growth, additional post-retirement costs and a
$15 million charge principally related to office consolidations. The increases
in Institutional are partially offset by expense savings resulting from the
Company's exit from the large market 401(k) business in late 2001, as business
was transferred to other carriers throughout 2002. A $110 million increase in
International is primarily due to the acquisition of Hidalgo in June 2002. These
increases were partially offset by a $91 million decrease in Corporate & Other,
which is mostly attributable to a $98 million reduction in litigation-related
expenses. This decrease is largely attributable to a reduction of a previously
established liability related to the Company's race-conscious underwriting
settlement. A $22 million decrease in Asset Management is primarily due to staff
reductions in the third and fourth quarters of 2002 and reduced expenses as a
result of lower average assets under management. An $11 million decrease in Auto
& Home is primarily due to a reduction in the cost of the New York assigned risk
plan and a reduction in expenses resulting from the completion of the St. Paul
integration.

Deferred policy acquisition costs are principally amortized in proportion
to gross margins and profits, including investment gains and losses. The
amortization is allocated to investment gains and losses to provide consolidated
statement of income information regarding the impact of investment gains and
losses on the amount of the amortization and other expenses to provide amounts
related to gross margins and profits originating from transactions other than
investment gains and losses.

Capitalization of deferred policy acquisition costs increased by $187
million, or 18%, to $1,213 million for the six months ended June 30, 2003 from
$1,026 million for the comparable 2002 period. This variance is primarily due to
the Reinsurance, Individual, International, Auto & Home and Institutional
segments. A $60 million increase in Reinsurance is largely attributable to
higher reinsurance allowances paid. A $38 million increase in Individual is
primarily the result of higher sales commissions and other deferrable expenses
related to annuity and investment-type products, partially offset by the impact
of the recognition of non-deferrable expenses that were previously deferred. A
$45 million increase in International is primarily due to the acquisition of
Hidalgo in June 2002. A $26 million increase in Auto & Home is primarily due to
higher premiums from rate increases. An $18 million increase in Institutional is
primarily related to sales growth as previously discussed. Total amortization of
deferred policy acquisition costs increased by $168 million, or 25%, to $833
million for the six months ended June 30, 2003 from $665 million for the
comparable 2002 period. Amortization of $848 million and $680 million are
allocated to other expenses in 2003 and 2002, respectively, while the remainder
of the amortization in each year is allocated to investment gains and losses.
The increase in amortization allocated to other expenses is largely attributable
to the International, Individual, Auto & Home and Institutional segments. A $62
million increase in International is primarily due to an increase in the
amortization of the value of business acquired related to the change in reserve
methodology discussed above and the acquisition of Hidalgo in June 2002. A $68
million increase in Individual is primarily due to a charge resulting from the
recognition of previously deferred expenses, with the remaining variance
attributable to the impact of lapse, mortality and investment experience. A $21
million increase in Auto & Home is primarily due to higher premiums from rate
increases. A $16 million increase in Institutional is primarily related to sales
growth as previously discussed.

48

Income tax expense for the six months ended June 30, 2003 was $339 million,
or 28% of income before provision for income taxes and cumulative effect of
change in accounting, compared with $347 million, or 34%, for the comparable
2002 period. The 2003 effective tax rate differs from the corporate tax rate of
35% primarily due to the impact of non-taxable investment income, tax credits
for investments in low income housing, a tax recovery of prior year tax
overpayments on tax-exempt bonds and a reduction of the deferred tax valuation
allowance to recognize the effect of certain foreign net operating loss
carryforwards. The 2002 effective tax rate differs from the corporate tax rate
of 35% primarily due to the impact of non-taxable investment income, partially
offset by the inability to record tax benefits on certain foreign capital
losses.

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
144"), income related to the Company's real estate which was identified as
held-for-sale on or after January 1, 2002 is presented as discontinued
operations for the six months ended June 30, 2003 and 2002. The income from
discontinued operations is comprised of net investment income and net investment
gains related to 51 properties that the Company began marketing for sale on or
after January 1, 2002. For the six months ended June 30, 2003, the Company
recognized $91 million of net investment gains from discontinued operations
related to 15 properties sold or held-for-sale.

INSTITUTIONAL

The following table presents consolidated financial information for the
Institutional segment for the periods indicated:

49

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 2002 -- INSTITUTIONAL

Premiums increased by $181 million, or 8%, to $2,343 million for the three
months ended June 30, 2003 from $2,162 million for the comparable 2002 period.
Group insurance premiums increased by $218 million, primarily in the long-term
care, disability, dental and group life products. The increase in long term-care
is largely attributable to a significant contract for which the Company began
receiving premiums in the second half of 2002. Favorable renewal actions and
persistency generated the increase in disability. The dental increase is
predominantly due to improved persistency and sales growth. The group life
increase resulted from improved persistency, strong sales in 2002 and growth on
the existing block of business. In addition, a significant premium was earned on
an existing term life contract. Retirement and savings premiums decreased by $37
million due to a sale of a significant single premium contract in the second
quarter of 2002, partially offset by higher sales in structured settlement
products in 2003. Retirement and savings premium levels are significantly
influenced by large transactions and, as a result, can fluctuate from period to
period.

Universal life and investment-type product policy fees decreased by $23
million, or 14%, to $145 million for the three months ended June 30, 2003 from
$168 million for the comparable 2002 period. This decrease reflects fees
received in the second quarter of 2002 on two bank-owned life insurance
contracts.

Other revenues decreased by $4 million, or 3%, to $152 million for the
three months ended June 30, 2003 from $156 million for the comparable 2002
period. Retirement and savings other revenues decreased $10 million, primarily
due to lower fees in the 401(k) business, as a result of exiting the large
market 401(k) business in late 2001, which resulted in reduced revenue as
business was transferred to other carriers throughout 2002. This is partially
offset by an increase in group insurance other revenues of $6 million due to
additional revenue received for separate account fees and fees relating to a
settlement pertaining to the Company's former vision business.

Policyholder benefits and claims increased by $46 million, or 2%, to $2,506
million for the three months ended June 30, 2003 from $2,460 million for the
comparable 2002 period. Group insurance increased by $88 million, primarily as a
result of the premium growth in this segment's long-term care, disability,
dental and group life products. Retirement and savings decreased by $42 million,
comparable with the aforementioned decrease in premiums, which is primarily due
to the sale of a significant contract in the second quarter of 2002, partially
offset by higher sales in structured settlement products in 2003. Both periods
benefited from favorable underwriting-related experience.

Interest credited to policyholders decreased by $4 million, or 2%, to $228
million for the three months ended June 30, 2003 from $232 million for the
comparable 2002 period. This decrease is primarily attributable to declines in
average crediting rates in 2003 as a result of the lower interest rate
environment, partially offset by an increase in policyholder account balances.

Policyholder dividends increased by $39 million, or 260%, to $54 million
for the three months ended June 30, 2003 from $15 million for the comparable
2002 period. This increase is largely attributable to favorable mortality
experience among several large group clients. Policyholder dividends vary from
period to period based on participating contract experience, which is generally
recorded in policyholder benefits and claims.

Other expenses increased by $62 million, or 16%, to $456 million for the
three months ended June 30, 2003 from $394 million in the comparable 2002
period. Group insurance and retirement and savings expenses increased by $43
million and $19 million, respectively, primarily due to a rise in non-deferrable
variable expenses associated with the aforementioned premium growth, additional
post-retirement and other employee benefit-related costs and a $15 million
charge principally related to office consolidations. Non-deferrable variable
expenses include a certain portion of premium taxes, commissions, claim approval
and case administration expenses. The increase in retirement and savings is
partially offset by the Company's exit from the large market 401(k) business in
late 2001, which resulted in expense reductions as business was transferred to
other carriers throughout 2002.

50

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
2002 -- INSTITUTIONAL

Premiums increased by $463 million, or 12%, to $4,485 million for the six
months ended June 30, 2003 from $4,022 million for the comparable 2002 period.
Group insurance premiums increased by $424 million primarily in the long-term
care, disability, dental and group life products. The increase in long term-care
is largely attributable to a significant contract entered into for which the
Company began receiving premiums in the second half of 2002. Favorable renewal
actions and persistency generated the increase in disability. The dental
increase is predominantly due to improved persistency and sales growth. The
group life increase resulted from improved persistency, strong sales in 2002 and
growth on the existing block of business. In addition, a significant premium was
earned on an existing term life contract. Retirement and savings premiums
increased by $39 million, primarily resulting from higher sales in structured
settlement products, offset by a sale of a significant single premium contract
in the second quarter of 2002. Retirement and savings premium levels are
significantly influenced by large transactions and, as a result, can fluctuate
from period to period.

Universal life and investment-type product policy fees decreased by $20
million, or 6%, to $300 million for the six months ended June 30, 2003 from $320
million for the comparable 2002 period. This decrease reflects fees received in
the second quarter of 2002 on two bank-owned life insurance contracts.

Other revenues decreased by $34 million, or 10%, to $294 million for the
six months ended June 30, 2003 from $328 million for the comparable 2002 period.
Retirement and savings other revenues decreased $35 million primarily due to a
decline in administrative fees as a result of the Company's exit from the large
market 401(k) business in late 2001, which resulted in reduced revenue as
business was transferred to other carriers throughout 2002.

Policyholder benefits and claims increased by $256 million, or 6%, to
$4,885 million for the six months ended June 30, 2003 from $4,629 million for
the comparable 2002 period. Group insurance increased by $210 million, primarily
as a result of the aforementioned premium growth in this segment's long-term
care, disability, dental and group life products. The remaining increase in
retirement and savings of $46 million is comparable with the premium growth.

Interest credited to policyholders decreased by $8 million, or 2%, to $452
million for the six months ended June 30, 2003 from $460 million for the
comparable 2002 period. This decrease is primarily attributable to a decline in
average crediting rates in 2003 as a result of the lower interest rate
environment.

Policyholder dividends increased by $56 million, or 151%, to $93 million
for the six months ended June 30, 2003 from $37 million for the comparable 2002
period. This increase is largely attributable to favorable mortality experience
among several large group clients. Policyholder dividends vary from period to
period based on participating contract experience, which is generally recorded
in policyholder benefits and claims.

Other expenses increased by $113 million, or 15%, to $892 million for the
six months ended June 30, 2003 from $779 million in the comparable 2002 period.
Group insurance and retirement and savings expenses increased by $89 million and
$24 million, respectively, primarily due to a rise in non-deferrable variable
expenses associated with the aforementioned premium growth, additional
post-retirement and other employee benefit-related costs and a $15 million
charge principally related to office consolidations. Non-deferrable variable
expenses include a certain portion of premium taxes, commissions, claim approval
and case administration expenses. The increase in retirement and savings is
partially offset by the Company's exit from the large market 401(k) business in
late 2001, which resulted in expense reductions as business was transferred to
other carriers throughout 2002.

51

INDIVIDUAL

The following table presents consolidated financial information for the
Individual segment for the periods indicated:

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2002 -- INDIVIDUAL

Premiums decreased by $39 million, or 4%, to $1,055 million for the three
months ended June 30, 2003 from $1,094 million for the comparable 2002 period.
Premiums from insurance products decreased by $34 million, as a result of a
third quarter 2002 amendment to a reinsurance agreement which increased the
amount of insurance ceded, as well as a decrease in dividends used to purchase
additional insurance as a direct result of the dividend scale reduction adopted
in the fourth quarter of 2002. Premiums from annuity and investment-type
products decreased by $5 million in the single premium immediate annuities and
supplemental contracts with life contingencies product lines. Fees from these
products will fluctuate based on customer demand.

Universal life and investment-type product policy fees increased by $39
million, or 12%, to $378 million for the three months ended June 30, 2003 from
$339 million for the comparable 2002 period. Policy fees from insurance products
increased by $23 million due to higher revenue from insurance fees, surrender
charges, and the recognition of previously deferred fees. The insurance fees
increased due to growth in the net amount of

52

insurance at risk. The recognition of previously deferred fees was the result of
lapse, mortality and investment experience. Policy fees from annuity and
investment-type products increased by $16 million resulting from favorable
investment experience and an increase in average separate account balances.

Other revenues increased by $7 million, or 7%, to $109 million for the
three months ended June 30, 2003 from $102 million for the comparable 2002
period. Other revenues, which primarily consist of commission and fee income
related to the broker/dealer and other subsidiaries, fluctuate from period to
period in response to equity market changes. In addition, experience rated
refunds from reinsurance arrangements are also included in other revenues.

The Company's investment gains and losses are net of related policyholder
amounts. The amounts netted against investment gains and losses are (i)
amortization of deferred policy acquisition costs, to the extent that such
amortization results from investment gains and losses; and (ii) adjustments to
the policyholder dividend obligation resulting from investment gains and losses.

The Company believes its policy of netting related policyholder amounts
against investment gains and losses provides important information in evaluating
its performance. Investment gains and losses are often excluded by investors
when evaluating the overall financial performance of insurers. The Company
believes its presentation enables readers to easily exclude investment gains and
losses and the related effects on the consolidated statements of income when
evaluating its performance. The Company's presentation of investment gains and
losses, net of policyholder amounts, may be different from the presentation used
by other insurance companies and, therefore, amounts in its unaudited interim
condensed consolidated statements of income may not be comparable to amounts
reported by other insurers.

Policyholder benefits and claims decreased by $77 million, or 6%, to $1,186
million for the three months ended June 30, 2003 from $1,263 million for the
comparable 2002 period. Policyholder benefits and claims for insurance products
decreased by $63 million primarily due to favorable mortality experience offset
by the impact of the aforementioned amendment to a reinsurance agreement.
Policyholder benefits and claims for annuity and investment-type products
decreased by $14 million largely due to favorable mortality experience, slightly
offset by an increase in the claims associated with guaranteed minimum death
benefits, which fluctuate in response to equity market changes.

Interest credited to policyholder account balances remained unchanged at
$452 million for the comparable periods. Declines in the interest crediting
rates were offset by growth in future policyholder benefits and policyholder
account balances.

Policyholder dividends decreased by $22 million, or 5%, to $439 million for
the three months ended June 30, 2003 from $461 million for the comparable 2002
period due to the reduction of the dividend scale in the fourth quarter of 2002,
reflecting the impact of the low interest rate environment on the asset
portfolios supporting these policies.

Other expenses increased by $127 million, or 20%, to $760 million for the
three months ended June 30, 2003 from $633 million for the comparable 2002
period. Excluding the capitalization and amortization of deferred policy
acquisition costs that are discussed below, other expenses increased by $119
million, or 17%, to $833 million in 2003 from $714 million in 2002. Other
expenses related to insurance products increased by $33 million. Although there
are savings from ongoing expense management initiatives, these savings are
offset by increased pension and post-retirement benefit expenses and a $14
million charge principally related to office consolidations. Other expenses
related to annuity and investment-type products increased by $86 million. An
increase in commissions is due to the continued rise in sales of new annuity and
investment-type products offered by the MetLife Investors Group distribution
channel, as well as increased pension and post-retirement benefit expenses and
an $8 million charge principally related to office consolidations.

Deferred policy acquisition costs are principally amortized in proportion
to gross margins or gross profits, including investment gains or losses. The
amortization is allocated to investment gains and losses to provide consolidated
statement of income information regarding the impact of investment gains and
losses on the amount of the amortization and other expenses to provide amounts
related to gross margins or profits originating from transactions other than
investment gains and losses.
53

Capitalization of deferred policy acquisition costs increased by $22
million, or 9%, to $280 million for the three months ended June 30, 2003 from
$258 million for the comparable 2002 period due to higher sales of annuity and
investment-type products, resulting in higher commissions and other deferrable
expenses, partially offset by the impact of the recognition of non-deferrable
expenses that were previously deferred. Total amortization of deferred policy
acquisition costs increased by $34 million, or 20%, to $202 million in 2003 from
$168 million in 2002. Amortization of deferred policy acquisition costs of $207
million and $177 million is allocated to other expenses in 2003 and 2002,
respectively, while the remainder of the amortization in each period is
allocated to investment gains and losses. The $47 million increase in
amortization of deferred policy acquisition costs allocated to other expenses
for insurance products is primarily due to a charge resulting from the
recognition of previously deferred expenses, with the remaining variance
attributable to the impact of lapse, mortality and investment experience. The
decrease in amortization of deferred policy acquisition costs allocated to other
expenses for annuity and investment-type products of $17 million is due to the
impact of favorable investment experience.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
2002 -- INDIVIDUAL

Premiums decreased by $82 million, or 4%, to $2,096 million for the six
months ended June 30, 2003 from $2,178 million for the comparable 2002 period.
Premiums from insurance products decreased by $81 million, primarily as a result
of a third quarter 2002 amendment to a reinsurance agreement which increased the
amount of insurance ceded, as well as a decrease in dividends used to purchase
additional insurance as a direct result of the dividend scale reduction adopted
in the fourth quarter of 2002. Premiums from annuity and investment-type
products decreased by $1 million in the single premium immediate annuities and
supplemental contracts with life contingencies product lines. Fees from these
products will fluctuate based on customer demand.

Universal life and investment-type product policy fees increased by $101
million, or 16%, to $738 million for the six months ended June 30, 2003 from
$637 million for the comparable 2002 period. Policy fees from insurance products
increased by $84 million due to higher revenue from insurance fees, surrender
charges, and the recognition of previously deferred fees. The insurance fees
increased due to growth in the net amount of insurance at risk. The recognition
of previously deferred fees was the result of lapse, mortality and investment
experience. Policy fees from annuity and investment-type products increased by
$17 million resulting from favorable investment experience and an increase in
average separate account balances.

Other revenues decreased by $35 million, or 15%, to $195 million for the
three months ended June 30, 2003 from $230 million for the comparable 2002
period, largely due to lower commission and fee income associated with the sales
volume decline in the broker/dealer and other subsidiaries which is principally
due to the depressed equity markets. Other revenues, which primarily consist of
commission and fee income related to the broker/dealer and other subsidiaries,
fluctuate from period to period in response to equity market changes. In
addition, experience rated refunds from reinsurance arrangements are also
included in other revenues.

The Company's investment gains and losses are net of related policyholder
amounts. The amounts netted against investment gains and losses are (i)
amortization of deferred policy acquisition costs, to the extent that such
amortization results from investment gains and losses; and (ii) adjustments to
the policyholder dividend obligation resulting from investment gains and losses.

The Company believes its policy of netting related policyholder amounts
against investment gains and losses provides important information in evaluating
its performance. Investment gains and losses are often excluded by investors
when evaluating the overall financial performance of insurers. The Company
believes its presentation enables readers to easily exclude investment gains and
losses and the related effects on the consolidated statements of income when
evaluating its performance. The Company's presentation of investment gains and
losses, net of policyholder amounts, may be different from the presentation used
by other insurance companies and, therefore, amounts in its unaudited interim
condensed consolidated statements of income may not be comparable to amounts
reported by other insurers.

54

Policyholder benefits and claims decreased by $57 million, or 2%, to $2,438
million for the six months ended June 30, 2003 from $2,495 million for the
comparable 2002 period. Policyholder benefits and claims for insurance products
decreased by $59 million primarily due to favorable mortality experience offset
by the impact of the aforementioned amendment to a reinsurance agreement.
Policyholder benefits and claims for annuity and investment-type products
increased by $2 million, largely due to benefits related to single premium
immediate annuities and an increase in the claims associated with guaranteed
minimum death benefits, which fluctuate in response to equity market changes,
partially offset by favorable mortality experience.

Interest credited to policyholder account balances remained unchanged at
$895 million. Declines in the interest crediting rates were offset by growth in
future policyholder benefit and policyholder account balances.

Policyholder dividends decreased by $41 million, or 4%, to $879 million for
the six months ended June 30, 2003 from $920 million for the comparable 2002
period due to the reduction of the dividend scale in the fourth quarter of 2002,
reflecting the impact of the low interest rate environment on the asset
portfolios supporting these policies.

Other expenses increased by $161 million, or 13%, to $1,428 million for the
six months ended June 30, 2003 from $1,267 million for the comparable 2002
period. Excluding the capitalization and amortization of deferred policy
acquisition costs that are discussed below, other expenses increased by $131
million, or 9%, to $1,586 million in 2003 from $1,455 million in 2002. Other
expenses related to insurance products increased by $15 million. Although there
are savings from ongoing expense management initiatives, these savings are
offset by increased pension and post-retirement benefit expenses and a $14
million charge principally related to office consolidations. Other expenses
related to annuity and investment-type products increased by $116 million. An
increase in commissions is attributable to the continued rise in sales of new
annuity and investment-type products offered by the MetLife Investors Group
distribution channel, as well as increased pension and post-retirement benefit
expenses and an $8 million charge principally related to office consolidations.

Deferred policy acquisition costs are principally amortized in proportion
to gross margins or gross profits, including investment gains or losses. The
amortization is allocated to investment gains and losses to provide consolidated
statement of income information regarding the impact of investment gains and
losses on the amount of the amortization and other expenses to provide amounts
related to gross margins or profits originating from transactions other than
investment gains and losses.

Capitalization of deferred policy acquisition costs increased by $38
million, or 8%, to $540 million for the six months ended June 30, 2003 from $502
million for the comparable 2002 period due to higher sales of annuity and
investment-type products, resulting in higher commissions and other deferrable
expenses, partially offset by the impact of the recognition of non-deferrable
expenses that were previously deferred. Total amortization of deferred policy
acquisition costs increased by $68 million, or 23%, to $367 million in 2003 from
$299 million in 2002. Amortization of deferred policy acquisition costs of $382
million and $314 million is allocated to other expenses in 2003 and 2002,
respectively, while the remainder of the amortization in each period is
allocated to investment gains and losses. The $77 million increase in
amortization of deferred policy acquisition costs allocated to other expenses
for insurance products is primarily due to a charge resulting from the
recognition of previously deferred expenses, with the remaining variance
attributable to the impact of lapse, mortality and investment experience. The
decrease in amortization of deferred policy acquisition costs allocated to other
expenses for annuity and investment-type products of $9 million is due to the
impact of favorable investment experience.

55

AUTO & HOME

The following table presents consolidated financial information for the
Auto & Home segment for the periods indicated:

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 2002 -- AUTO & HOME

Premiums increased by $19 million, or 3%, to $721 million for the three
months ended June 30, 2003 from $702 million for the comparable 2002 period.
Auto and property premiums increased by $10 million and $9 million,
respectively, due to increases in average premium resulting from rate increases.
Premiums from other personal lines remained unchanged at $13 million.

Other revenues decreased by $5 million, or 56%, to $4 million for the three
months ended June 30, 2003 from $9 million for the comparable 2002 period. The
decrease is the result of a revision to an estimate of a reinsurance recoverable
and related reinsurance balances on former reinsurance business.

Policyholder benefits and claims increased by $10 million, or 2%, to $527
million for the three months ended June 30, 2003 from $517 million for the
comparable 2002 period. Auto policyholder benefits and claims increased by $8
million due to more catastrophes and higher claims severities. Automobile
non-catastrophe claims frequency was relatively flat versus the comparable 2002
period. Despite an increase in policyholder benefits and claims, the auto loss
ratio was unchanged at 77.5% due to higher average earned premium. Property
policyholder benefits and claims increased by $6 million due to increased
severities and a higher catastrophe level, offset by lower non-catastrophe
claims frequency. The property loss ratio, however, was level with the prior
year period due to an increase of 18% in the average earned premium due to rate
increases. Despite heavy adverse weather, especially in the Midwest,
catastrophes represented 3.2% of this segment's loss ratio in 2003 compared to
2.8% in 2002. The impact of the adverse weather was mitigated by ongoing
volatility management programs, including underwriting activity, agency
management, product changes and reinsurance. These actions offset catastrophe
losses in the second quarter of 2003 by $7 million. Catastrophe losses were also
mitigated by a $7 million recovery from the Federal Emergency Management Agency
related to the Cerro Grande (Los Alamos) fires in 2000. Other policyholder
benefits and claims decreased by $4 million due to fewer personal umbrella
claims.

56

Other expenses decreased $7 million, or 4%, to $186 million for the three
months ended June 30, 2003 from $193 million for the comparable 2002 period.
This decrease is primarily due to a $7 million reduction in the cost of the New
York assigned risk plan and a $2 million reduction of expenses resulting from
the completion of the St. Paul integration. The expense ratio decreased to 25.6%
in 2003 from 27.4% in 2002.

The effective income tax rates for the three months ended June 30, 2003 and
2002 differ from the corporate tax rate of 35% due to the impact of non-taxable
investment income.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
2002 -- AUTO & HOME

Premiums increased by $39 million, or 3%, to $1,433 million for the six
months ended June 30, 2003 from $1,394 million for the comparable 2002 period.
Auto and property premiums increased by $21 million and $16 million,
respectively, due to increases in average earned premium due to rate increases.
These increases were 9% for auto and 17% for property. Premiums from other
personal lines increased by $2 million to $28 million.

Other revenues decreased by $3 million, or 19%, to $13 million for the six
months ended June 30, 2003 from $16 million for the comparable 2002 period. This
decrease is the result of a revision to an estimate of a reinsurance recoverable
and related reinsurance balances on former reinsurance business.

Policyholder benefits and claims increased by $49 million, or 5%, to $1,061
million for the six months ended June 30, 2003 from $1,012 million for the
comparable 2002 period. Auto policyholder benefits and claims increased by $60
million primarily due to an increase in claims frequencies resulting largely
from adverse road conditions in the first quarter of 2003 and higher losses due
to adverse claims development related to prior accident years, resulting mostly
from bodily injury and uninsured motorists claims also in the first quarter of
2003. The auto loss ratio increased to 80.4% for the first six months of 2003
from 76.2% for the comparable 2002 period. Property policyholder benefits and
claims decreased by $12 million due to improved claims frequencies, a reduction
in the number of homeowners policies in-force, and underwriting and agency
management actions. The property loss ratio decreased to 56.9% from 63.4%. Other
policyholder benefits and claims increased by $1 million to $12 million.

Other expenses decreased by $16 million, or 4%, to $385 million for the six
months ended June 30, 2002 from $401 million for the comparable 2002 period.
This decrease is primarily due to a $7 million reduction in the cost of the New
York assigned risk plan and a $6 million reduction in expenses resulting from
the completion of the St. Paul integration. The expense ratio decreased to 26.8%
in 2003 from 28.8% in 2002.

The effective income tax rates for the six months ended June 30, 2003 and
2002 differ from the corporate tax rate of 35% due to the impact of non-taxable
investment income and a $7 million tax recovery recorded in the first quarter of
2003 for prior year tax overpayments on non-taxable investment income.

57

INTERNATIONAL

The following table presents consolidated financial information for the
International segment for the periods indicated:

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 2002 -- INTERNATIONAL

Premiums increased by $116 million, or 42%, to $390 million for the three
months ended June 30, 2003 from $274 million for the comparable 2002 period. The
acquisition of Hidalgo in June 2002 contributed $113 million to this increase.
Excluding Hidalgo, premiums increased by $3 million, or 1%, over the comparable
2002 period. South Korea's premiums increased by $23 million primarily due to a
larger professional sales force and new business growth. Taiwan's premiums
increased by $12 million due to renewal premium growth in its individual life
business. Chile's premiums increased by $10 million primarily due to higher
sales results in the individual annuities business. Offsetting these increases,
Mexico's premiums (excluding Hidalgo) decreased by $41 million, which is
attributable to decreases in both its group and individual life businesses.
Actions taken by the Mexican government, which were anticipated, impacting the
insurance and annuities market, caused certain products to be less advantageous
to customers, which resulted in reduced sales. In addition, the cancellation of
a large broker-sponsored case at the end of 2002 and the weakening of the peso
against the dollar contributed to the decline. The remainder of the variance is
attributable to minor fluctuations in several countries.

Universal life and investment type-product policy fees increased by $64
million, or 914%, to $71 million for the three months ended June 30, 2003 from
$7 million for the comparable 2002 period primarily due to the acquisition of
Hidalgo in June 2002, which accounted for $60 million of this increase.
Excluding Hidalgo, universal life and investment type-product policy fees
increased $4 million, or 57%, over the comparable 2002

58

period. South Korea's and Spain's universal life and investment type product
policy fees increased by $2 million and $1 million, respectively, due to growth
in sales. The remainder of the variance is attributable to minor fluctuations in
several countries.

Other revenues increased by $23 million, or 767%, to $26 million for the
three months ended June 30, 2003 from $3 million for the comparable 2002 period.
This increase is largely attributable to the acquisition of Hidalgo in June
2002.

Policyholder benefits and claims increased by $24 million, or 9%, to $286
million for the three months ended June 30, 2003 from $262 million for the
comparable 2002 period. The acquisition of Hidalgo in June 2002 increased
policyholder benefits by $119 million. Excluding the impact of the Hidalgo
acquisition, policyholder benefits and claims decreased by $95 million, or 36%,
from the comparable 2002 period. Mexico's policyholder benefits (excluding the
impact of the Hidalgo acquisition) decreased by $123 million primarily as a
result of a reduction in policyholder liabilities of $79 million related to a
change in reserve methodology and the impact of the overall premium decreases
discussed above. Offsetting this decrease, South Korea's, Chile's and Taiwan's
policyholder benefits and claims increased by $12 million, $12 million and $2
million, respectively, primarily as a result of the premium increases discussed
above. The remainder of the variance is attributable to minor fluctuations in
several countries.

Interest credited to policyholder account balances increased by $25
million, or 227%, to $36 million for the three months ended June 30, 2003 from
$11 million for the comparable 2002 period. This increase is largely
attributable to the acquisition of Hidalgo in June 2002.

Policyholder dividends increased by $2 million, or 33%, to $8 million for
the three months ended June 30, 2003 from $6 million for the comparable 2002
period. This increase is largely attributable to the acquisition of Hidalgo in
June 2002.

Other expenses increased by $99 million, or 103%, to $195 million for the
three months ended June 30, 2003 from $96 million for the comparable 2002
period. The acquisition of Hidalgo in June 2002 contributed $46 million to this
increase. Excluding the impact of the Hidalgo acquisition, other expenses
increased primarily as a result of an increase in amortization of the value of
business acquired of $45 million related to the change in reserve methodology
discussed above. In addition, South Korea's other expenses increased by $6
million as a result of new business growth and general expansion of operations.
The remainder of the variance is attributable to minor fluctuations in several
countries.

Income taxes for the three months ended June 30, 2003 was a benefit of $6
million as compared to a provision of $5 million for the comparable 2002 period.
As a result of the merger of the Company's Mexican operations, the Company
recorded a tax benefit of $40 million for the reduction of deferred tax
valuation allowances.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
2002 -- INTERNATIONAL

Premiums increased by $136 million, or 21%, to $785 million for the six
months ended June 30, 2003 from $649 million for the comparable 2002 period. The
acquisition of Hidalgo in June 2002 contributed $255 million to this increase.
Partially offsetting this increase is a decrease of $108 million attributable to
a non-recurring sale of an annuity contract in the first quarter of 2002 in
Canada. Excluding these items, premiums decreased by $11 million, or 2%, from
the comparable 2002 period. Mexico's premiums (excluding Hidalgo) decreased by
$89 million, which is attributable to decreases in both its group and individual
life businesses. Actions taken by the Mexican government, which were
anticipated, impacting the insurance and annuities market, caused certain
products to be less advantageous to customers and resulted in reduced sales. In
addition, the cancellation of a large broker-sponsored case at the end of 2002
and the weakening of the peso against the dollar contributed to the decline.
Offsetting these declines, South Korea's premiums increased by $49 million
primarily due to a larger professional sales force and new business growth.
Taiwan's premiums increased by $15 million due primarily to renewal premium
growth in its individual life business and Spain's premiums increased by $10
million primarily due to the strengthening of the Euro. Chile's premiums

59

increased by $2 million mainly due to higher sales results in the individual
annuities business. The remainder of the variance is attributable to minor
fluctuations in several countries.

Universal life and investment type-product policy fees increased by $108
million, or 771%, to $122 million for the six months ended June 30, 2003 from
$14 million for the comparable 2002 period primarily due to the acquisition of
Hidalgo in June 2002 which accounted for $102 million of this increase.
Excluding Hidalgo, universal life and investment type-product policy fees
increased $6 million, or 43%, over the comparable 2002 period. South Korea's and
Spain's universal life and investment type product policy fees increased by $3
million and $1 million, respectively, due to growth in sales. The remainder of
the variance is attributable to minor fluctuations in several countries.

Other revenues increased by $28 million, or 467%, to $34 million for the
six months ended June 30, 2003 from $6 million for the comparable 2002 period.
This increase is largely attributable to the acquisition of Hidalgo in June
2002.

Policyholder benefits and claims increased by $55 million, or 9%, to $644
million for the six months ended June 30, 2003 from $589 million for the
comparable 2002 period. The acquisition of Hidalgo in June 2002 increased
policyholder benefits and claims by $256 million, partially offset by a decrease
of $108 million related to the aforementioned non-recurring sale of an annuity
contract during the first quarter of 2002. Excluding these items, policyholder
benefits and claims decreased by $93 million, or 16%, from the comparable 2002
period. Mexico's policyholder benefits (excluding the impact of the Hidalgo
acquisition) decreased by $171 million primarily as a result of a reduction in
policyholder liabilities of $79 million related to a change in reserve
methodology and the impact of the overall premium decreases discussed above.
Partially offsetting this decrease, South Korea's, Spain's, Chile's and Taiwan's
policyholder benefits and claims increased by $36 million, $17 million, $13
million and $5 million, respectively, primarily as a result of the overall
premium increase previously discussed and, in the case of Spain, the
strengthening of the Euro. In addition, Brazil's policyholder benefits increased
by $5 million due primarily to higher claims in 2003. The remainder of the
variance is attributable to minor fluctuations in several countries.

Interest credited to policyholder account balances increased by $53
million, or 265%, to $73 million for the six months ended June 30, 2003 from $20
million for the comparable 2002 period. The acquisition of Hidalgo in June 2002
contributed $50 million to this variance. Excluding Hidalgo, interest credited
increased by $3 million, or 15%, over the comparable 2002 period, which is
attributable to an increase of $3 million in Spain primarily due to the
strengthening of the Euro.

Policyholder dividends increased by $10 million, or 59%, to $27 million for
the six months ended June 30, 2003 from $17 million for the comparable 2002
period. This increase is largely attributable to the acquisition of Hidalgo in
June 2002.

Other expenses increased by $127 million, or 67%, to $316 million for the
six months ended June 30, 2003 from $189 million for the comparable 2002 period.
The acquisition of Hidalgo in June 2002 contributed $77 million to this
increase. Excluding the impact of the Hidalgo acquisition, other expenses
increased $50 million, or 26%, over the comparable 2002 period. Mexico's other
expenses (excluding the impact of the Hidalgo acquisition) increased by $41
million primarily as a result of an increase in amortization of the value of
business acquired of $45 million related to the change in reserve methodology
discussed above. This increase is partially offset by a $4 million decrease
mostly from the reduction in administrative staff following the acquisition of
Hidalgo. South Korea's other expenses increased by $11 million as a result of
new business growth and general expansion of operations. The remaining variance
is attributable to minor fluctuations in several countries.

Provision for income taxes decreased by $4 million, or 33%, to $8 million
for the six months ended June 30, 2003 from $12 million for the comparable 2002
period. As a result of the merger of the Company's Mexican operations, the
Company recorded a tax benefit of $40 million for the reduction of deferred tax
valuation allowances.

60

REINSURANCE

The following table presents consolidated financial information for the
Reinsurance segment for the periods indicated:

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 2002 -- REINSURANCE

Premiums increased by $116 million, or 25%, to $588 million for the three
months ended June 30, 2003 from $472 million for the comparable 2002 period. New
premiums from facultative and automatic treaties and renewal premiums on
existing blocks of business, particularly in the U.S. and U.K. reinsurance
operations, all contributed to the premium growth. Premium levels are
significantly influenced by large transactions and reporting practices of ceding
companies and, as a result, can fluctuate from period to period.

Other revenues increased by $1 million, or 9%, to $12 million for the three
months ended June 30, 2003 from $11 million for the comparable 2002 period. The
increase is due to an increase in fees earned on financial reinsurance and
asset-intensive business in the U.S.

Policyholder benefits and claims increased by $81 million, or 21%, to $460
million for the three months ended June 30, 2003 from $379 million for the
comparable 2002 period. As a percentage of premiums, policyholder benefits and
claims decreased to 78% for the three months ended June 30, 2003 from 80% for
the comparable 2002 period. Favorable mortality in the U.S. traditional business
was the primary reason for the decrease in this ratio. Mortality and morbidity
are expected to vary from period to period, but generally remain fairly constant
over the long-term.

Interest credited to policyholder account balances increased by $13
million, or 41%, to $45 million for the three months ended June 30, 2003 from
$32 million for the comparable 2002 period. Interest credited to policyholder
account balances relates to amounts credited on deposit-type contracts, such as
annuities, and certain cash-value contracts. This increase was a direct result
of increasing deposits from several annuity treaties. The crediting rate on
certain blocks of annuities is based on the performance of the underlying
assets. Therefore, any fluctuations in interest credited related to these blocks
are generally offset by a corresponding change in net investment income.
61

Policyholder dividends were unchanged at $6 million for both the three
months ended June 30, 2003 and 2002.

Other expenses increased by $47 million, or 35%, to $182 million for the
three months ended June 30, 2003 from $135 million for the comparable 2002
period. Other expenses, which include underwriting, acquisition and insurance
expenses, and minority interest expense were 25% of segment revenues for the
three months ended June 30, 2003 compared with 23% in the comparable 2002
period. This percentage fluctuates on a quarterly basis depending on the mix of
the underlying insurance products being reinsured as allowances paid, and the
related capitalization and amortization can vary significantly based on the type
of business and the reinsurance treaty.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
2002 -- REINSURANCE

Premiums increased by $193 million, or 20%, to $1,140 million for the six
months ended June 30, 2003 from $947 million for the comparable 2002 period. New
premiums from facultative and automatic treaties and renewal premiums on
existing blocks of business, particularly in the U.S. and U.K. reinsurance
operations, all contributed to the premium growth. Premium levels are
significantly influenced by large transactions and reporting practices of ceding
companies and, as a result, can fluctuate from period to period.

Other revenues increased by $5 million, or 26%, to $24 million for the six
months ended June 30, 2003 from $19 million for the comparable 2002 period. The
increase is due to an increase in fees earned on financial reinsurance and
asset-intensive business in the U.S.

Policyholder benefits and claims increased by $114 million, or 15%, to $888
million for the six months ended June 30, 2003 from $774 million for the
comparable 2002 period. As a percentage of premiums, policyholder benefits and
claims decreased to 78% for the first six months of 2003 from 82% for the
comparable 2002 period. Favorable mortality in the U.S. traditional business was
the primary reason for the decrease in this ratio. Mortality and morbidity are
expected to vary from period to period, but generally remain fairly constant
over the long-term.

Interest credited to policyholder account balances increased by $22
million, or 33%, to $88 million for the six months ended June 30, 2003 from $66
million for the comparable 2002 period. Interest credited to policyholder
account balances relates to amounts credited on deposit-type contracts, such as
annuities, and certain cash-value contracts. This increase was a direct result
of increasing deposits from several annuity treaties. The crediting rate on
certain blocks of annuities is based on the performance of the underlying
assets. Therefore, any fluctuations in interest credited related to these blocks
are generally offset by a corresponding change in net investment income.

Policyholder dividends were unchanged at $11 million for both the three
months ended June 30, 2003 and 2002.

Other expenses increased by $98 million, or 40%, to $346 million for the
six months ended June 30, 2003 from $248 million for the comparable 2002 period.
Other expenses, which include underwriting, acquisition and insurance expenses,
and minority interest expense were 25% of segment revenues for the first six
months of 2003 compared with 21% in the comparable 2002 period. This percentage
fluctuates on a quarterly basis depending on the mix of the underlying insurance
products being reinsured as allowances paid, and the related capitalization and
amortization can vary significantly based on the type of business and the
reinsurance treaty.

62

ASSET MANAGEMENT

The following table presents consolidated financial information for the
Asset Management segment for the periods indicated:

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 2002 -- ASSET MANAGEMENT

Other revenues, which primarily consist of management and advisory fees
from third parties, decreased $13 million, or 26%, to $37 million for the three
months ended June 30, 2003 from $50 million for the comparable 2002 period. This
decrease is primarily the result of lower average assets under management on
which these fees are earned. In addition, performance fees earned in the second
quarter of 2003 on certain hedge fund products were lower than in the prior
period.

Other expenses decreased by $13 million, or 23%, to $44 million for the
three months ended June 30, 2003 from $57 million for the comparable 2002
period. A decrease of $7 million is attributable to staff reductions in the
third and fourth quarters of 2002. In addition, a $4 million reduction resulted
from lower average assets under management. The remainder of the variance is
attributable to a $2 million decrease in general and administrative expenses.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED
JUNE 30, 2002 -- ASSET MANAGEMENT

Other revenues, which primarily consist of management and advisory fees
from third parties, decreased $24 million, or 27%, to $66 million for the six
months ended June 30, 2003 from $90 million for the comparable 2002 period. This
decrease is predominantly due to lower average assets under management on which
these fees are earned. In addition, performance fees earned in the second
quarter of 2003 on certain hedge fund products were lower than in the prior
period.

Other expenses decreased by $22 million, or 20%, to $87 million for the six
months ended June 30, 2003 from $109 million for the comparable 2002 period. A
$10 million decrease is largely due to staff reductions in the third and fourth
quarters of 2002. In addition, an $8 million decrease is largely due to reduced
expenses as a result of lower average assets under management. The remainder of
the variance is attributable to a $4 million decrease in general and
administrative expenses.

63

CORPORATE & OTHER

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 2002 -- CORPORATE & OTHER

Other revenues increased by $3 million, or 25%, to $15 million for the
three months ended June 30, 2003 from $12 million for the comparable 2002
period. This variance is primarily due to the amortization of a deferred gain
related to a property sale and leaseback transaction. The Company anticipates
that the deferred gain will be amortized into income through 2005.

Other expenses decreased by $41 million, or 64%, to $23 million for the
three months ended June 30, 2003 from $64 million for the comparable 2002
period. This variance is primarily due to a $46 million reduction in legal
expenses. The 2003 quarter includes a $100 million reduction of a previously
established liability related to the Company's race-conscious underwriting
settlement, which was partially offset by an increase in costs associated with
various other legal matters. The 2002 quarter includes a $46 million reduction
of a previously established liability for settlement death benefits related to
the sales practices class action settlement recorded in 1999. In addition, $15
million of the decrease in other expenses is attributable to the remeasurement
of the asbestos insurance recoverable and the amortization of the deferred gain
on asbestos insurance, both of which are impacted by equity market performance.
These decreases are partially offset by a $14 million increase in interest
expense related to the Company's long-term debt activities in the fourth quarter
of 2002 and the first quarter of 2003.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED
JUNE 30, 2002 -- CORPORATE & OTHER

Other revenues increased by $6 million, or 29%, to $27 million for the six
months ended June 30, 2003 from $21 million for the comparable 2002 period. This
variance is primarily due to the amortization of a deferred gain related to a
property sale and leaseback transaction. The Company anticipates that the
deferred gain will be amortized into income through 2005.

Other expenses decreased by $91 million, or 39%, to $141 million for the
six months ended June 30, 2003 from $232 million for the comparable 2002 period.
This variance is primarily due to a $98 million reduction in legal expenses. The
2003 period includes a $100 million reduction of a previously established
liability related to the Company's race-conscious underwriting settlement, which
was partially offset by an increase in costs associated with various other legal
matters. The 2002 period includes a $55 million charge to cover costs associated
with the resolution of a federal government investigation of General American's
former Medicare business and a $46 million reduction of a previously established
liability for settlement death benefits related to the sales practices class
action settlement recorded in 1999. In addition, $18 million of the decrease in
other expenses is attributable to the remeasurement of the asbestos insurance
recoverable and the amortization of the deferred gain on asbestos insurance,
both of which are impacted by equity market performance. These decreases were
partially offset by a $30 million increase in interest expense related to the
Company's long-term debt activities in the fourth quarter of 2002 and the first
quarter of 2003.

LIQUIDITY AND CAPITAL RESOURCES

THE HOLDING COMPANY

CAPITAL

Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Capital. MetLife, Inc. and its insured depository
institution subsidiary are subject to risk-based and leverage capital guidelines
issued by the federal banking regulatory agencies for banks and financial
holding companies. The federal banking regulatory agencies are required by law
to take specific prompt corrective actions with respect to institutions that do
not meet minimum capital standards. At June 30, 2003, MetLife and its insured
depository institution subsidiary were in compliance with the aforementioned
guidelines.

64

LIQUIDITY

Liquidity refers to a company's ability to generate adequate amounts of
cash to meet its needs. It is managed to preserve stable, reliable and
cost-effective sources of cash to meet all current and future financial
obligations and is provided by a variety of sources, including a portfolio of
liquid assets, a diversified mix of short- and long-term funding sources from
the wholesale financial markets and the ability to borrow through committed
credit facilities. The Holding Company is an active participant in the global
financial markets through which it obtains a significant amount of funding.
These markets, which serve as cost-effective sources of funds, are critical
components of the Holding Company's liquidity management. Decisions to access
these markets are based upon relative costs, prospective views of balance sheet
growth, and a targeted liquidity profile. A disruption in the financial markets
could limit the Holding Company's access to liquidity.

The Holding Company's ability to maintain regular access to competitively
priced wholesale funds is fostered by its current debt ratings from the major
credit rating agencies. Management views its capital ratios, credit quality,
stable and diverse earnings streams, diversity of liquidity sources and its
liquidity monitoring procedures as critical to retaining high credit ratings.

Liquidity is monitored through the use of internal liquidity risk metrics,
including the composition and level of the liquid asset portfolio, timing
differences in short-term cash flow obligations, access to the financial markets
for capital and term-debt transactions, and exposure to contingent draws on the
Holding Company's liquidity.

LIQUIDITY SOURCES

Dividends. The primary source of the Holding Company's liquidity is
dividends it receives from Metropolitan Life. Under the New York Insurance Law,
Metropolitan Life is permitted, without prior insurance regulatory clearance, to
pay a stockholder dividend to the Holding Company as long as the aggregate
amount of all such dividends in any calendar year does not exceed the lesser of
(i) 10% of its statutory surplus as of the immediately preceding calendar year;
and (ii) its statutory net gain from operations for the immediately preceding
calendar year (excluding realized capital gains). Metropolitan Life will be
permitted to pay a stockholder dividend to the Holding Company in excess of the
lesser of such two amounts only if it files notice of its intention to declare
such a dividend and the amount thereof with the Superintendent and the
Superintendent does not disapprove the distribution. Under the New York
Insurance Law, the Superintendent has broad discretion in determining whether
the financial condition of a stock life insurance company would support the
payment of such dividends to its stockholders. The New York Insurance Department
(the "Department") has established informal guidelines for such determinations.
The guidelines, among other things, focus on the insurer's overall financial
condition and profitability under statutory accounting practices. Management of
the Holding Company cannot provide assurance that Metropolitan Life will have
statutory earnings to support payment of dividends to the Holding Company in an
amount sufficient to fund its cash requirements and pay cash dividends or that
the Superintendent will not disapprove any dividends that Metropolitan Life must
submit for the Superintendent's consideration. In addition, the Holding Company
also receives dividends from its other subsidiaries. The Holding Company's other
insurance subsidiaries are also subject to restrictions on the payment of
dividends to their respective parent companies.

The dividend limitation is based on statutory financial results. Statutory
accounting practices, as prescribed by insurance regulators of various states in
which the Company conducts business, differ in certain respects from accounting
principles used in financial statements prepared in conformity with GAAP. The
significant differences relate to the treatment of deferred policy acquisition
costs, certain deferred income taxes, required investment reserves, reserve
calculation assumptions, goodwill and surplus notes.

Liquid Assets. An integral part of the Holding Company's liquidity
management is the amount of liquid assets that it holds. Liquid assets include
cash, cash equivalents, short-term investments and marketable equity and fixed
maturity securities. Liquid assets exclude assets relating to securities lending
and dollar roll activity. At June 30, 2003 and December 31, 2002, the Holding
Company had $1,615 million and $597 million in liquid assets, respectively.

65

Global Funding Sources. Liquidity is also provided by a variety of both
short- and long-term instruments, including repurchase agreements, commercial
paper, medium- and long-term debt, capital securities and stockholders' equity.
The diversification of the Holding Company's funding sources enhances funding
flexibility and limits dependence on any one source of funds, and generally
lowers the cost of funds.

At June 30, 2003, the Holding Company did not have short-term debt
outstanding. At December 31, 2002, the Holding Company had $249 million in
short-term debt outstanding. At both June 30, 2003 and December 31, 2002, the
Holding Company had $3.3 billion in long-term debt outstanding.

The Holding Company filed a $4.0 billion shelf registration statement,
effective June 1, 2001, with the U.S. Securities and Exchange Commission, which
permits the registration and issuance of debt and equity securities as described
more fully therein. The Holding Company has issued senior debt in the amount of
$2.25 billion under this registration statement. In December 2002, the Holding
Company issued $400 million 5.375% senior notes due 2012 and $600 million 6.50%
senior notes due 2032 and, in November 2001, the Holding Company issued $500
million 5.25% senior notes due 2006 and $750 million 6.125% senior notes due
2011. In addition, in February 2003, the Holding Company remarketed under the
shelf registration statement $1,006 million aggregate principal amount of
debentures previously issued in connection with the issuance of equity security
units described below.

In connection with MetLife, Inc.'s initial public offering in April 2000,
the Holding Company and MetLife Capital Trust I (the "Trust") issued equity
security units (the "units"). Each unit originally consisted of (i) a contract
to purchase, for $50, shares of the Holding Company's common stock (the
"purchase contracts") on May 15, 2003; and (ii) a capital security of the Trust,
with a stated liquidation amount of $50. On May 15, 2003, the purchase contracts
associated with the units were settled. In exchange for $1,006 million, the
Company issued 2.97 shares of MetLife, Inc. common stock per purchase contract,
or approximately 59.8 million shares of treasury stock. Approximately $656
million, which represents the excess of the Company's cost of the treasury stock
($1,662 million) over the contract price of the stock issued to the purchase
contract holders ($1,006 million), was recorded as a direct reduction to
retained earnings.

Other sources of the Holding Company's liquidity include programs for
short- and long-term borrowing, as needed, arranged through Metropolitan Life.

Credit Facilities. The Holding Company maintains a committed and unsecured
credit facility, which expires in 2005, for approximately $1.25 billion that it
shares with Metropolitan Life and MetLife Funding, Inc. ("MetLife Funding"). In
April 2003, Metropolitan Life and MetLife Funding replaced an expiring $1
billion five-year credit facility with a $1 billion 364-day credit facility and
the Holding Company was added as a borrower. Drawdowns under these facilities
bear interest at varying rates stated in the agreements. These facilities are
primarily used for general corporate purposes and as back-up lines of credit for
the borrowers' commercial paper programs. At June 30, 2003, none of the Holding
Company, Metropolitan Life or MetLife Funding had drawn against these credit
facilities.

LIQUIDITY USES

The primary uses of liquidity of the Holding Company include cash dividends
on common stock, service on debt, contributions to subsidiaries, payment of
general operating expenses and the repurchase of the Holding Company's common
stock.

Dividends. In the fourth quarter of 2002, the Holding Company declared an
annual dividend for 2002 of $0.21 per share. The 2002 dividend represented an
increase of $0.01 per share from the 2001 annual dividend of $0.20 per share.
Dividends, if any, in any year will be determined by the Holding Company's Board
of Directors after taking into consideration factors such as the Holding
Company's current earnings, expected medium- and long-term earnings, financial
condition, regulatory capital position, and applicable governmental regulations
and policies.

Capital Contributions to Subsidiaries. During the six months ended June
30, 2003, the Holding Company contributed $10 million to MetLife Group, Inc.,
$25 million to MetLife Bank and $7 million to

66

MetLife International Holdings, Inc. There were no contributions from the
Holding Company to its subsidiaries during the six months ended June 30, 2002.

Share Repurchase. On February 19, 2002, the Holding Company's Board of
Directors authorized a $1 billion common stock repurchase program. This program
began after the completion of the March 28, 2001 and June 27, 2000 repurchase
programs, each of which authorized the repurchase of $1 billion of common stock.
Under these authorizations, the Holding Company may purchase common stock from
the MetLife Policyholder Trust, in the open market and in privately negotiated
transactions. The Holding Company did not acquire any shares of common stock
during the six months ended June 30, 2003. The Holding Company acquired
13,644,492 shares of common stock for $431 million during the six months ended
June 30, 2002. At June 30, 2003 the Holding Company had approximately $806
million remaining on its existing share repurchase authorization. Any
repurchases during the remainder of 2003 will be dependent upon several factors,
including the Company's capital position, its financial strength and credit
ratings, general market conditions and the price of the Company's common stock.

Support Agreements. In 2002, the Holding Company entered into a net worth
maintenance agreement with three of its insurance subsidiaries, MetLife
Investors Insurance Company, First MetLife Investors Insurance Company and
MetLife Investors Insurance Company of California. Under the agreements, the
Holding Company agreed, without limitation as to the amount, to cause each of
these subsidiaries to have a minimum capital and surplus of $10 million (or,
with respect to MetLife Investors Insurance Company of California, $5 million),
total adjusted capital at a level not less than 150% of the company action level
Risk-Based Capital ("RBC"), as defined by state insurance statutes, and
liquidity necessary to enable it to meet its current obligations on a timely
basis. At June 30, 2003, the capital and surplus of each of these subsidiaries
was in excess of the minimum capital and surplus amounts referenced above, and
their total adjusted capital was in excess of the most recent referenced
RBC-based amount calculated at December 31, 2002.

The Holding Company has agreed to make capital contributions, in any event
not to exceed $120 million, to Metropolitan Insurance and Annuity Company
("MIAC") in the aggregate amount of the excess of: (i) the debt service payments
required to be made, and the capital expenditure payments required to be made or
reserved for, in connection with the affiliated borrowings arranged in December
2001 to fund the purchase by MIAC of certain real estate properties from
Metropolitan Life during the two year period following the date of the
borrowings, over (ii) the cash flows generated by these properties.

Based on management's analysis of its expected cash inflows from the
dividends it receives from subsidiaries, including Metropolitan Life, that are
permitted to be paid without prior insurance regulatory approval and its
portfolio of liquid assets and other anticipated cash flows, management believes
there will be sufficient liquidity to enable the Holding Company to make
payments on debt, make dividend payments on its common stock, pay all operating
expenses and meet other obligations.

THE COMPANY

CAPITAL

RBC. Section 1322 of the New York Insurance Law requires that New York
domestic life insurers report their RBC based on a formula calculated by
applying factors to various asset, premium and statutory reserve items; similar
rules apply to each of the Company's domestic insurance subsidiaries. The
formula takes into account the risk characteristics of the insurer, including
asset risk, insurance risk, interest rate risk and business risk. Section 1322
gives the Superintendent explicit regulatory authority to require various
actions by, or to take various actions against, insurers whose total adjusted
capital does not exceed certain RBC levels. At December 31, 2002, Metropolitan
Life's and each of the Holding Company's domestic insurance subsidiaries' total
adjusted capital was in excess of each of the RBC levels required by each state
of domicile.

The National Association of Insurance Commissioners ("NAIC") adopted
Codification of Statutory Accounting Principles ("Codification"), which is
intended to standardize regulatory accounting and reporting to state insurance
departments and became effective January 1, 2001. However, statutory accounting
principles continue to be established by individual state laws and permitted
practices. The Department

67

required adoption of Codification with certain modifications for the preparation
of statutory financial statements of insurance companies domiciled in New York
effective January 1, 2001. Effective December 31, 2002, the Department adopted a
modification to its regulations to be consistent with Codification with respect
to the admissibility of deferred income taxes by New York insurers, subject to
certain limitations. The adoption of Codification, as modified by the
Department, did not adversely affect Metropolitan Life's statutory capital and
surplus. Further modifications by state insurance departments may impact the
effect of Codification on the statutory capital and surplus of Metropolitan Life
and the Holding Company's other insurance subsidiaries.

LIQUIDITY SOURCES

Cash Flow from Operations. The Company's principal cash inflows from its
insurance activities come from insurance premiums, annuity considerations and
deposit funds. A primary liquidity concern with respect to these cash inflows is
the risk of early contractholder and policyholder withdrawal. The Company seeks
to include provisions limiting withdrawal rights on many of its products,
including general account institutional pension products (generally group
annuities, including guaranteed interest contracts and certain deposit fund
liabilities) sold to employee benefit plan sponsors.

The Company's principal cash inflows from its investment activities result
from repayments of principal, proceeds from maturities and sales of invested
assets and investment income. The primary liquidity concerns with respect to
these cash inflows are the risk of default by debtors and market volatilities.
The Company closely monitors and manages these risks through its credit risk
management process.

Liquid Assets. An integral part of the Company's liquidity management is
the amount of liquid assets it holds. Liquid assets include cash, cash
equivalents, short-term investments and marketable equity and fixed maturity
securities. Liquid assets exclude assets relating to securities lending and
dollar roll activity. At June 30, 2003 and December 31, 2002, the Company had
$122 billion and $108 billion in liquid assets, respectively.

Global Funding Sources. Liquidity is also provided by a variety of both
short- and long-term instruments, including repurchase agreements, commercial
paper, medium- and long-term debt, capital securities and stockholders' equity.
The diversification of the Company's funding sources enhances funding
flexibility and limits dependence on any one source of funds, and generally
lowers the cost of funds.

At June 30, 2003 and December 31, 2002, the Company had $3,443 million and
$1,161 million in short-term debt outstanding, respectively, and $5,562 million
and $4,425 million in long-term debt outstanding, respectively. See "-- The
Holding Company -- Global Funding Sources."

MetLife Funding serves as a centralized finance unit for Metropolitan Life.
Pursuant to a support agreement, Metropolitan Life has agreed to cause MetLife
Funding to have a tangible net worth of at least one dollar. At June 30, 2003
and December 31, 2002, MetLife Funding had a tangible net worth of $10.8 million
and $10.7 million, respectively. MetLife Funding raises funds from various
funding sources and uses the proceeds to extend loans, through MetLife Credit
Corp., a subsidiary of Metropolitan Life, to the Holding Company, Metropolitan
Life and other affiliates. MetLife Funding manages its funding sources to
enhance the financial flexibility and liquidity of Metropolitan Life and other
affiliated companies. At June 30, 2003 and December 31, 2002, MetLife Funding
had total outstanding liabilities, including accrued interest payable, of $388
million and $400 million, respectively, consisting primarily of commercial
paper.

Credit Facilities. The Company maintains committed and unsecured credit
facilities aggregating $2.5 billion ($1 billion expiring in 2004, $1.3 billion
expiring in 2005 and $175 million expiring in 2006). In April 2003, the Company
replaced an expiring $1 billion five-year credit facility with a $1 billion
364-day credit facility. In May 2003, the Company replaced an expiring $140
million three-year credit facility with a $175 million three-year credit
facility, which expires in 2006. If these facilities were drawn upon, they would
bear interest at varying rates in accordance with the agreements. The facilities
can be used for general corporate purposes and also as back-up lines of credit
for the Company's commercial paper programs. At June 30, 2003, the Company had
drawn approximately $37.6 million under two of the three facilities expiring

68

in 2005 at interest rates ranging from 4.12% to 5.39% and another approximately
$40 million under a facility expiring in 2006 at an interest rate of 1.72%.

LIQUIDITY USES

Insurance Liabilities. The Company's principal cash outflows primarily
relate to the liabilities associated with its various life insurance, property
and casualty, annuity and group pension products, operating expenses and income
taxes, as well as principal and interest on its outstanding debt obligations.
Liabilities arising from its insurance activities primarily relate to benefit
payments under the aforementioned products, as well as payments for policy
surrenders, withdrawals and loans.

Investment and Other. Additional cash outflows include those related to
obligations of securities lending activities, investments in real estate,
limited partnership and joint ventures, as well as legal liabilities.

The following table summarizes the Company's major contractual obligations
(other than those arising from its ordinary product and investment purchase
activities) as of June 30, 2003:

- ---------------

(1) Amounts differ from the balances presented on the consolidated balance
sheets. The amounts above do not include related premiums and discounts.

On April 11, 2003, an affiliate of the Company elected not to make future
payments required by the terms of a non-recourse loan obligation. The book value
of this loan was $15 million at June 30, 2003. The Company's exposure under the
terms of the applicable loan agreement is limited solely to its investment in
certain securities held by an affiliate.

Letters of Credit. At June 30, 2003 and December 31, 2002, the Company had
outstanding approximately $695 million and $625 million, respectively, in
letters of credit from various banks, all of which expire within one year. Since
commitments associated with letters of credit and financing arrangements may
expire unused, these amounts do not necessarily reflect the actual future cash
funding requirements.

Support Agreements. In addition to the support agreements described above,
Metropolitan Life entered into a net worth maintenance agreement with New
England Life Insurance Company ("New England Life") at the time Metropolitan
Life acquired New England Life. Under the agreement, Metropolitan Life agreed
without limitation as to the amount to cause New England Life to have a minimum
capital and surplus of $10 million, total adjusted capital at a level not less
than the company action level RBC, as defined by state insurance statutes, and
liquidity necessary to enable it to meet its current obligations on a timely
basis. At June 30, 2003, the capital and surplus of New England Life was in
excess of the minimum capital and surplus amount referenced above, and its total
adjusted capital was in excess of the most recent referenced RBC-based amount
calculated at December 31, 2002.

In connection with the Company's acquisition of GenAmerica, Metropolitan
Life entered into a net worth maintenance agreement with General American Life
Insurance Company ("General American"). Under the agreement, Metropolitan Life
agreed without limitation as to amount to cause General American to have a
minimum capital and surplus of $10 million, total adjusted capital at a level
not less than 180% of the company action level RBC, as defined by state
insurance statutes, and liquidity necessary to enable it to meet its current
obligations on a timely basis. The agreement was subsequently amended to provide
that, for the five year period from 2003 through 2007, total adjusted capital
must be maintained at a level not less than 200% of

69

the company action level RBC, as defined by state insurance statutes. At June
30, 2003, the capital and surplus of General American was in excess of the
minimum capital and surplus amount referenced above, and its total adjusted
capital was in excess of the most recent referenced RBC-based amount calculated
at December 31, 2002.

Metropolitan Life has entered into a net worth maintenance agreement with
Security Equity Life Insurance Company ("Security Equity"), an insurance
subsidiary acquired in the GenAmerica transaction. Under the agreement,
Metropolitan Life agreed without limitation as to amount to cause Security
Equity to have a minimum capital and surplus of $10 million, total adjusted
capital at a level not less than 150% of the company action level RBC, as
defined by state insurance statutes, and sufficient liquidity to meet its
current obligations. At June 30, 2003, the capital and surplus of Security
Equity was in excess of the minimum capital and surplus amount referenced above,
and its total adjusted capital was in excess of the most recent referenced
RBC-based amount calculated at December 31, 2002.

Metropolitan Life has also entered into arrangements for the benefit of
some of its other subsidiaries and affiliates to assist such subsidiaries and
affiliates in meeting various jurisdictions' regulatory requirements regarding
capital and surplus and security deposits. In addition, Metropolitan Life has
entered into a support arrangement with respect to a subsidiary under which
Metropolitan Life may become responsible, in the event that the subsidiary
becomes the subject of insolvency proceedings, for the payment of certain
reinsurance recoverables due from the subsidiary to one or more of its cedents
in accordance with the terms and conditions of the applicable reinsurance
agreements.

General American has agreed to guarantee the obligations of its subsidiary,
Paragon Life Insurance Company, and certain obligations of its former
subsidiaries, Security Equity, MetLife Investors Insurance Company ("MetLife
Investors"), First MetLife Investors Insurance Company and MetLife Investors
Insurance Company of California. In addition, General American has entered into
a contingent reinsurance agreement with MetLife Investors. Under this agreement,
in the event that MetLife Investors statutory capital and surplus is less than
$10 million or total adjusted capital falls below 150% of the company action
level RBC, as defined by state insurance statutes, General American would assume
as assumption reinsurance, subject to regulatory approvals and required
consents, all of MetLife Investors life insurance policies and annuity contract
liabilities. At June 30, 2003, the capital and surplus of MetLife Investors was
in excess of the minimum capital and surplus amount referenced above, and its
total adjusted capital was in excess of the most recent referenced RBC-based
amount calculated at December 31, 2002.

Management does not anticipate that these arrangements will place any
significant demands upon the Company's liquidity resources.

Litigation. Various litigation claims and assessments against the Company
have arisen in the course of the Company's business, including, but not limited
to, in connection with its activities as an insurer, employer, investor,
investment advisor and taxpayer. Further, state insurance regulatory authorities
and other federal and state authorities regularly make inquiries and conduct
investigations concerning the Company's compliance with applicable insurance and
other laws and regulations.

It is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or provide reasonable ranges of
potential losses except with respect to certain matters. In some of the matters,
very large and/or indeterminate amounts, including punitive and treble damages,
are sought. Although in light of these considerations, it is possible that an
adverse outcome in certain cases could have a material adverse effect upon the
Company's unaudited interim condensed consolidated financial position, based on
information currently known by the Company's management, in its opinion, the
outcomes of such pending investigations and legal proceedings are not likely to
have such an effect. However, given the large and/or indeterminate amounts
sought in certain of these matters and the inherent unpredictability of
litigation, it is possible that an adverse outcome in certain matters could,
from time to time, have a material adverse effect on the Company's consolidated
net income or cash flows in particular quarterly or annual periods.

70

Based on management's analysis of its expected cash inflows from operating
activities, the dividends it receives from subsidiaries, including Metropolitan
Life, that are permitted to be paid without prior insurance regulatory approval
and its portfolio of liquid assets and other anticipated cash flows, management
believes there will be sufficient liquidity to enable the Company to make
payments on debt, make dividend payments on its common stock, pay all operating
expenses and meet its other obligations. The nature of the Company's diverse
product portfolio and customer base lessen the likelihood that normal operations
will result in any significant strain on liquidity in 2003.

Consolidated cash flows. Net cash provided by operating activities was
$3,460 million and $1,895 million for the six months ended June 30, 2003 and
2002, respectively. The $1,565 million increase in operating cash flows in 2003
over the comparable 2002 period is primarily attributable to the growth in
MetLife Bank's customer deposits, income generated from the securities lending
program and an increase in reinsurance activity. In addition, operating cash
flows from insurance products increased due to sales growth in the group life,
dental, disability and long-term care businesses, as well as higher sales in
retirement and savings' structured settlement products. These increases were
partially offset by the payment for an additional COLI policy purchased late in
the first quarter of 2003.

Net cash used in investing activities was $8,284 million and $7,336 million
for the six months ended June 30, 2003 and 2002, respectively. The $948 million
increase in net cash used in investing activities in 2003 over the comparable
2002 period is primarily attributable to increases in investments held as
collateral received in connection with the securities lending program and
proceeds from sales of fixed maturities being reinvested in cash equivalents, as
well as additional purchases of fixed maturities. These items were partially
offset by the June 2002 acquisition of Hidalgo and the 2002 sales of equity
securities which were purchased as part of the Company's investment in the
equity markets following the September 11, 2001 tragedies.

Net cash provided by financing activities was $8,215 million and $1,531
million for the six months ended June 30, 2003 and 2002, respectively. The
$6,684 million increase in financing activities in 2003 over the comparable 2002
period is due to a $2,360 million net increase in policyholder account balances
primarily from sales of annuity products and the issuance of $2,585 million in
short-term debt related to dollar roll activity. In 2003, the Company received
$1,006 million on the settlement of common stock purchase contracts, while the
Company acquired treasury stock for $431 million in the comparable 2002 period.
The Company had a $185 million reduction in cash outflows related to the
repayment of long-term debt in 2003 versus the comparable 2002 period.

EFFECTS OF INFLATION

The Company does not believe that inflation has had a material effect on
its consolidated results of operations, except insofar as inflation may affect
interest rates.

ACCOUNTING STANDARDS

In July 2003, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 03-1, Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP
03-1"). SOP 03-1 provides guidance on separate account presentation and
valuation, the accounting for sales inducements and the classification and
valuation of long-duration contract liabilities. SOP 03-1 is effective for
fiscal years beginning after December 15, 2003. The Company is in the process of
quantifying the impact of SOP 03-1 on its unaudited interim condensed
consolidated financial statements.

In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity ("SFAS 150"). SFAS 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity and requires
that those instruments be classified as a liability or, in certain
circumstances, an asset. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003 and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The adoption of SFAS
150, as of July 1, 2003, requires the Company to reclassify

71

$277 million of company-obligated mandatorily redeemable securities of
subsidiary trusts from mezzanine equity to liabilities beginning with its
unaudited interim condensed consolidated financial statements at and for the
periods ending September 30, 2003.

In April 2003, the FASB cleared Statement 133 Implementation Issue No. B36,
Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments
That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially
Related to the Creditworthiness of the Obligor under Those Instruments ("Issue
B36"). Issue B36 concluded that (i) a company's funds withheld payable and/or
receivable under certain reinsurance arrangements, and (ii) a debt instrument
that incorporates credit risk exposures that are unrelated or only partially
related to the creditworthiness of the obligor include an embedded derivative
feature that is not clearly and closely related to the host contract. Therefore,
the embedded derivative feature must be measured at fair value on the balance
sheet and changes in fair value reported in income. Issue B36 is effective
October 1, 2003. The Company is in the process of quantifying the impact of the
adoption of Issue B36 on its consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Except for
certain implementation guidance that is incorporated in SFAS 149 and already
effective, SFAS 149 is effective for contracts entered into or modified after
June 30, 2003. The Company's adoption of SFAS 149 on July 1, 2003 did not have a
significant impact on its unaudited interim condensed consolidated financial
statements.

During 2003, the Company adopted or applied the following accounting
standards and/or interpretations: (i) FASB Interpretation ("FIN") No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees Including
Indirect Guarantees of Indebtedness of Others; (ii) SFAS No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure; (iii) SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities; and (iv) SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. None of the accounting standards
and/or interpretations described in this paragraph had a significant impact on
the Company's unaudited interim condensed consolidated financial statements.

Effective February 1, 2003, FIN No. 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51 ("FIN 46") established new accounting
guidance relating to the consolidation of variable interest entities ("VIEs").
Certain of the Company's asset-backed securitizations, collateralized debt
obligations, structured investment transactions, and investments in real estate
joint ventures and other limited partnership interests meet the definition of a
VIE under FIN 46. The Company consolidates VIEs created or acquired on or after
February 1, 2003 for which it is the primary beneficiary and, effective July 1,
2003, consolidates VIEs created or acquired prior to February 1, 2003 for which
it is the primary beneficiary. For consolidated VIEs, the Company discloses the
nature, purpose, size, activities, maximum loss exposure, carrying amount and
classification of consolidated assets that are collateral of the VIEs'
obligations. The Company does not consolidate VIEs for which it is not the
primary beneficiary; however, it will disclose the nature, purpose, size,
activity and maximum loss exposure for each non-consolidated VIE. See
"Investments -- Variable Interest Entities."

INVESTMENTS

The Company had total cash and invested assets at June 30, 2003 and
December 31, 2002 of $214.0 billion and $190.7 billion, respectively. In
addition, the Company had $67.5 billion and $59.7 billion held in its separate
accounts, for which the Company generally does not bear investment risk, as of
June 30, 2003 and December 31, 2002, respectively.

72

The Company's primary investment objective is to maximize net investment
income consistent with acceptable risk parameters. The Company is exposed to
three primary sources of investment risk:

- credit risk, relating to the uncertainty associated with the continued
ability of a given obligor to make timely payments of principal and
interest;

- interest rate risk, relating to the market price and cash flow
variability associated with changes in market interest rates; and

- market valuation risk.

The Company manages risk through in-house fundamental analysis of the
underlying obligors, issuers, transaction structures and real estate properties.
The Company also manages credit risk and market valuation risk through industry
and issuer diversification and asset allocation. For real estate and
agricultural assets, the Company manages credit risk and valuation risk through
geographic, property type, and product type diversification and asset
allocation. The Company manages interest rate risk as part of its asset and
liability management strategies, product design, such as the use of market value
adjustment features and surrender charges, and proactive monitoring and
management of certain non-guaranteed elements of its products, such as the
resetting of credited interest and dividend rates for policies that permit such
adjustments.

The following table summarizes the Company's cash and invested assets at:

VARIABLE INTEREST ENTITIES

Effective February 1, 2003, FIN 46 established new accounting guidance
relating to the consolidation of VIEs. Certain of the Company's asset-backed
securitizations, collateralized debt obligations, structured investment
transactions, and investments in real estate joint ventures and other limited
partnership interests meet the definition of a VIE under FIN 46. The Company
consolidates VIEs created or acquired on or after February 1, 2003 for which it
is the primary beneficiary and, effective July 1, 2003, consolidates VIEs
created or acquired prior to February 1, 2003 for which it is the primary
beneficiary.

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The following table presents the total assets and liabilities of VIEs for
which the Company has concluded that it is the primary beneficiary and will be
consolidated in the Company's financial statements for periods ending after June
30, 2003:

- ---------------

(1) The assets and liabilities of the real estate joint ventures and other
limited partnerships are reflected at the carrying amounts at which such
assets and liabilities would have been reflected on the Company's balance
sheet had the Company consolidated the VIE from the date of its initial
involvement with the entity. The assets and liabilities of the structured
investment transactions are reflected at fair value as of June 30, 2003.

(2) Real estate joint ventures include partnerships and other ventures, which
engage in the acquisition, development, management and disposal of real
estate investments.

(3) Structured investment transactions represent trusts, which hold municipal
bond obligations and issue beneficial interests in such assets.

(4) Other limited partnerships include partnerships established for the purpose
of investing in public and private debt and equity securities, as well as
limited partnerships established for the purpose of investing in low-income
housing that qualifies for Federal tax credits.

The Company's financial statements for the quarter ended September 30, 2003
will include a transition adjustment of $17 million, net of an income tax
benefit of $4 million, associated with the consolidation of these entities as a
cumulative effect of a change in accounting. Of the $913 million in total assets
to be consolidated, $535 million is held as collateral for the various VIEs'
obligations. General creditors and beneficial interest holders of the
consolidated VIEs have no recourse to the Company.

The following table presents the total assets of and the maximum exposure
to loss relating to VIEs in which the Company holds a significant variable
interest but is not the primary beneficiary:

- ---------------

(1) The assets and liabilities of the asset-backed securitizations and
collateralized debt obligations are reflected at fair value as of June 30,
2003.

(2) The maximum exposure to loss of the asset-backed securitizations and
collateralized debt obligations is equal to the carrying amounts of retained
interests. The maximum exposure to loss relating to the other limited
partnerships and real estate joint ventures is equal to the carrying amounts
plus any unfunded commitments reduced by amounts guaranteed by other
partners.

Due to the complexity of the judgments and interpretations required in the
application of FIN 46 to the Company's collateralized debt obligations, the
Company is continuing to evaluate certain entities for

74

consolidation and/or disclosure under FIN 46. At June 30, 2003, the fair value
of both the assets and liabilities of the entities still under evaluation
approximate $1.5 billion. The Company's maximum exposure to loss related to
these entities at June 30, 2003 is approximately $5 million.

INVESTMENT RESULTS

Net investment income, including net investment income from discontinued
operations, on general account cash and invested assets totaled $2,889 million
and $2,861 million for the three months ended June 30, 2003 and 2002,
respectively, and $5,788 million and $5,650 million for the six months ended
June 30, 2003 and 2002, respectively. The annualized yields on general account
cash and invested assets, including net investment income from discontinued
operations and excluding all net investment gains and losses, were 6.62% and
7.30% for the three months ended June 30, 2003 and 2002, respectively, and 6.74%
and 7.24% for the six months ended June 30, 2003 and 2002, respectively.

The following table illustrates the net investment income and annualized
yields on average assets for each of the components of the Company's investment
portfolio for the three months and six months ended June 30, 2003 and 2002:

- ---------------

(1) Yields are based on quarterly average asset carrying values, excluding
recognized and unrealized gains and losses, and for yield calculation
purposes, average assets exclude collateral associated with the Company's
securities lending program.

(2) Included in fixed maturities are equity-linked notes of $887 million and
$958 million at June 30, 2003 and 2002, respectively, which include an
equity-like component as part of the notes' return. Investment income for
fixed maturities includes prepayment fees and income from the securities
lending program. Fixed maturity investment income has been reduced by
rebates paid under the securities lending program.

(3) Investment income from mortgage loans on real estate includes prepayment
fees.

(4) Real estate and real estate joint venture income is shown net of
depreciation of $43 million and $56 million for the three months ended June
30, 2003 and 2002, respectively, and $88 million and $114 million for the
six months ended June 30, 2003 and 2002, respectively. Real estate and real
estate joint venture income includes amounts classified as discontinued
operations of $(3) million and $33 million for the three months ended June
30, 2003 and 2002, respectively, and $(1) million and $60 million for the
six months ended June 30, 2003 and 2002, respectively. These amounts are net
of depreciation of zero and $14 million for the three months ended June 30,
2003 and 2002, respectively, and $323 thousand and $32 million for the six
months ended June 30, 2003 and 2002, respectively. Net investment gains
(losses) include $1 million and $91 million of gains classified as
discontinued operations for the three months and six months ended June 30,
2003, respectively. Net investment gains (losses) include $8 million of
losses classified as discontinued operations for both the three months and
six months ended June 30, 2002.

(5) Adjustments to investment gains and losses include amortization of deferred
policy acquisition costs and adjustments to the policyholder dividend
obligation resulting from investment gains and losses.

76

FIXED MATURITIES

Fixed maturities consist principally of publicly traded and privately
placed debt securities, and represented 74.2% and 73.6% of total cash and
invested assets at June 30, 2003 and December 31, 2002, respectively. Based on
estimated fair value, public fixed maturities represented $138,515 million, or
87.2%, and $121,191 million, or 86.4%, of total fixed maturities at June 30,
2003 and December 31, 2002, respectively. Based on estimated fair value, private
fixed maturities represented $20,307 million, or 12.8%, and $19,097 million, or
13.6%, of total fixed maturities at June 30, 2003 and December 31, 2002,
respectively. The Company invests in privately placed fixed maturities to (i)
obtain higher yields than can ordinarily be obtained with comparable public
market securities; (ii) provide the Company with protective covenants, call
protection features and, where applicable, a higher level of collateral; and
(iii) increase diversification. However, the Company may not freely trade its
privately placed fixed maturities because of restrictions imposed by federal and
state securities laws and illiquid markets.

In cases where quoted market prices are not available, fair values are
estimated using present value or valuation techniques. The fair value estimates
are made at a specific point in time, based on available market information and
judgments about the financial instruments, including estimates of the timing and
amounts of expected future cash flows and the credit standing of the issuer or
counter-party. Factors considered in estimating fair value include: coupon rate,
maturity, estimated duration, call provisions, sinking fund requirements, credit
rating, industry sector of the issuer and quoted market prices of comparable
securities.

The Securities Valuation Office of the NAIC evaluates the fixed maturity
investments of insurers for regulatory reporting purposes and assigns securities
to one of six investment categories called "NAIC designations." The NAIC ratings
are similar to the rating agency designations of the Nationally Recognized
Statistical Rating Organizations for marketable bonds. NAIC ratings 1 and 2
include bonds generally considered investment grade (rated "Baa3" or higher by
Moody's Investors Services ("Moody's"), or rated "BBB-" or higher by Standard &
Poor's ("S&P")) by such rating organizations. NAIC ratings 3 through 6 include
bonds generally considered below investment grade (rated "Ba1" or lower by
Moody's, or rated "BB+" or lower by S&P).

The following table presents the Company's total fixed maturities by
Nationally Recognized Statistical Rating Organizations designation and the
equivalent ratings of the NAIC, as well as the percentage, based on estimated
fair value, that each designation comprises at:

- ---------------

(1) Amounts presented are based on rating agency designations. Comparisons
between NAIC ratings and rating agency designations are published by the
NAIC. The rating agency designations are based upon the availability of the
applicable ratings beginning with Moody's, followed by S&P.

77

Based on estimated fair values, investment grade fixed maturities comprised
91.8% and 91.6% of total fixed maturities in the general account at June 30,
2003 and December 31, 2002, respectively.

The following table shows the amortized cost and estimated fair value of
fixed maturities, by contractual maturity dates (excluding scheduled sinking
funds) at:

Actual maturities may differ as a result of prepayments by the issuer.

The Company diversifies its fixed maturities by security sector. The
following tables set forth the amortized cost, gross unrealized gain and loss,
and estimated fair value of the Company's fixed maturities by sector, as well as
the percentage of the total fixed maturities holdings that each security sector
is comprised at:

Problem, Potential Problem and Restructured Fixed Maturities. The Company
monitors fixed maturities to identify investments that management considers to
be problems or potential problems. The Company also monitors investments that
have been restructured.

The Company defines problem securities in the fixed maturities category as
securities with principal or interest payments in default, securities to be
restructured pursuant to commenced negotiations, or securities issued by a
debtor that has entered into bankruptcy.

The Company defines potential problem securities in the fixed maturity
category as securities of an issuer deemed to be experiencing significant
operating problems or difficult industry conditions. The Company uses various
criteria, including the following, to identify potential problem securities:

- debt service coverage or cash flow falling below certain thresholds which
vary according to the issuer's industry and other relevant factors;

- significant declines in revenues or margins;

- violation of financial covenants;

- public securities trading at a substantial discount as a result of
specific credit concerns; and

- other subjective factors.

The Company defines restructured securities in the fixed maturities
category as securities to which the Company has granted a concession that it
would not have otherwise considered but for the financial difficulties of the
obligor. The Company enters into a restructuring when it believes it will
realize a greater economic value under the new terms rather than through
liquidation or disposition. The terms of the restructuring may involve some or
all of the following characteristics: a reduction in the interest rate, an
extension of the maturity date, an exchange of debt for equity or a partial
forgiveness of principal or interest.

79

The following table presents the estimated fair value of the Company's
total fixed maturities classified as performing, potential problem, problem and
restructured at:

Fixed Maturity Impairment. The Company classifies all of its fixed
maturities as available-for-sale and marks them to market through other
comprehensive income. All securities with gross unrealized losses at the
consolidated balance sheet date are subjected to the Company's process for
identifying other-than-temporary impairments. The Company writes down to fair
value securities that it deems to be other-than-temporarily impaired in the
period the securities are deemed to be so impaired. The assessment of whether
such impairment has occurred is based on management's case-by-case evaluation of
the underlying reasons for the decline in fair value. Management considers a
wide range of factors, as described below, about the security issuer and uses
its best judgment in evaluating the cause of the decline in the estimated fair
value of the security and in assessing the prospects for near-term recovery.
Inherent in management's evaluation of the security are assumptions and
estimates about the operations of the issuer and its future earnings potential.

Considerations used by the Company in the impairment evaluation process
include, but are not limited to, the following:

- length of time and the extent to which the market value has been below
amortized cost;

- potential for impairments of securities when the issuer is experiencing
significant financial difficulties, including a review of all securities
of the issuer, including its known subsidiaries and affiliates,
regardless of the form of the Company's ownership;

- potential for impairments in an entire industry sector or sub-sector;

- potential for impairments in certain economically depressed geographic
locations;

- potential for impairments of securities where the issuer, series of
issuers or industry has suffered a catastrophic type of loss or has
exhausted natural resources; and

- other subjective factors, including concentrations and information
obtained from regulators and rating agencies.

The Company records writedowns as investment losses and adjusts the cost
basis of the fixed maturities accordingly. The Company does not change the
revised cost basis for subsequent recoveries in value. Writedowns of fixed
maturities were $63 million and $250 million for the three months ended June 30,
2003 and 2002, respectively, and $239 million and $525 million for the six
months ended June 30, 2003 and 2002, respectively. The Company's three largest
writedowns totaled $25 million and $188 million for the three months ended June
30, 2003 and 2002, respectively, and $101 million and $236 million for the six
months ended June 30, 2003 and 2002, respectively. The circumstances that gave
rise to these impairments were either financial restructurings or bankruptcy
filings. During the three months ended June 30, 2003 and 2002, the Company sold
fixed maturities with a fair value of $6,406 million and $3,233 million at a
loss of $67 million and $280 million, respectively. During the six months ended
June 30, 2003 and 2002, the Company sold fixed maturities with a fair value of
$11,990 million and $7,245 million at a loss of $140 million and $482 million,
respectively.

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The gross unrealized loss related to the Company's fixed maturities at June
30, 2003 was $797 million. These fixed maturities mature as follows: 2% due in
one year or less; 20% due in greater than one year to five years; 15% due in
greater than five years to ten years; and 63% due in greater than ten years
(calculated as a percentage of amortized cost). Additionally, such securities
are concentrated by security type in U.S. corporates (60%), foreign corporates
(14%) and asset-backed (11%); and are concentrated by industry in utilities
(11%), asset-backed (11%), and finance (10%) (calculated as a percentage of
gross unrealized loss). Non-investment grade securities represent 16% of the
$18,454 million fair value and 34% of the $797 million gross unrealized loss on
fixed maturities.

The following table presents the amortized cost, gross unrealized losses
and number of securities for fixed maturities where the estimated fair value had
declined and remained below amortized cost by less than 20%, or 20% or more for:

The Company's review of its fixed maturities for impairments includes an
analysis of the total gross unrealized losses by three categories of securities:
(i) securities where the estimated fair value had declined and remained below
amortized cost by less than 20%; (ii) securities where the estimated fair value
had declined and remained below amortized cost by 20% or more for less than six
months; and (iii) securities where the estimated value had declined and remained
below amortized cost by 20% or more for six months or greater. The first two
categories have generally been adversely impacted by the downturn in the
financial markets and overall economic conditions. While all of these securities
are monitored for potential impairment, the Company's experience indicates that
the first two categories do not present as great a risk of impairment, and
often, fair values recover over time as the factors that caused the declines
improve.

The following table presents the total gross unrealized losses for fixed
maturities where the estimated fair value had declined and remained below
amortized cost by:

The category of fixed maturity securities where the estimated fair value
has declined and remained below amortized cost by less than 20% is comprised of
1,220 securities with an amortized cost of $18,610 million and a gross
unrealized loss of $612 million at June 30, 2003. These fixed maturities mature
as follows: 2% due in one year or less; 20% due in greater than one year to five
years; 14% due in greater than five years to ten years; and 64% due in greater
than ten years (calculated as a percentage of amortized cost). Additionally,
such securities are concentrated by security type in U.S. corporates (61%) and
foreign corporates (17%); and are concentrated by industry in utilities (12%),
services (10%) and finance (7%) (calculated as a percentage of

81

gross unrealized loss). Non-investment grade securities represent 15% of the
$17,998 million fair value and 27% of the $612 million gross unrealized loss.

The category of fixed maturity securities where the estimated fair value
has declined and remained below amortized cost by 20% or more for less than six
months is comprised of 48 securities with an amortized cost of $288 million and
a gross unrealized loss of $74 million at June 30, 2003. These fixed maturities
mature as follows: 22% due in greater than one year to five years; 19% due in
greater than five years to ten years; and 59% due in greater than ten years
(calculated as a percentage of amortized cost). Additionally, such securities
are concentrated by security type in U.S. corporates (51%) and asset-backed
(36%); and are concentrated by industry in asset-backed (36%), finance (18%),
and transportation (14%) (calculated as a percentage of gross unrealized loss).
Non-investment grade securities represent 55% of the $214 million fair value and
57% of the $74 million gross unrealized loss.

The category of fixed maturity securities where the estimated fair value
has declined and remained below amortized cost by 20% or more for six months or
greater is comprised of 48 securities with an amortized cost of $353 million and
a gross unrealized loss of $111 million at June 30, 2003. These fixed maturities
mature as follows: 15% due in greater than one year to five years; 31% due in
greater than five years to ten years; and 54% due in greater than ten years
(calculated as a percentage of amortized cost). Additionally, such securities
are concentrated by security type in U.S. corporates (56%) and asset-backed
(22%); and are concentrated by industry in transportation (34%), finance (23%)
and asset-backed (22%) (calculated as a percentage of gross unrealized loss).
Non-investment grade securities represent 55% of the $242 million fair value and
54% of the $111 million gross unrealized loss.

The Company held five fixed maturity securities each with a gross
unrealized loss at June 30, 2003 greater than $10 million. Two of these
securities represent 19% of the gross unrealized loss on fixed maturities where
the estimated fair value had declined and remained below amortized cost by 20%
or more for six months or greater. The estimated fair value and gross unrealized
loss at June 30, 2003 for these securities were $29 million and $21 million,
respectively. These securities were concentrated in the U.S. corporate and
asset-backed sectors. The Company analyzed, on a case-by-case basis, both fixed
maturity securities as of June 30, 2003 to determine if the securities were
other-than-temporarily impaired. The Company believes that the estimated fair
value of these securities, primarily transportation and asset-backed securities,
were depressed as a result of generally poor economic and market conditions. The
Company believes that the analysis of each such security indicated that the
financial strength, liquidity, leverage, future outlook and/or recent management
actions support the view that the security was not other-than-temporarily
impaired as of June 30, 2003.

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Corporate Fixed Maturities. The table below shows the major industry types
that comprise the corporate bond holdings at:

- ---------------

(1) Includes publicly traded, U.S. dollar-denominated debt obligations of
foreign obligors, known as Yankee bonds, and other foreign investments.

The Company diversifies its corporate bond holdings by industry and issuer.
The portfolio has no exposure to any single issuer in excess of 1% of its total
invested assets. At June 30, 2003, the Company's combined holdings in the ten
issuers to which it had the greatest exposure totaled $4,996 million, which was
less than 3% of the Company's total invested assets at such date. The exposure
to the largest single issuer of corporate bonds the Company held at June 30,
2003 was $551 million.

At June 30, 2003 and December 31, 2002, investments of $16,080 million and
$14,778 million, respectively, or 73.0% and 76.9%, respectively, of the
Yankee/Foreign sector, represented exposure to traditional Yankee bonds. The
balance of this exposure was primarily U.S. dollar-denominated and concentrated
by security type in industrial and financial institutions. The Company
diversifies the Yankee/Foreign portfolio by country and issuer.

The Company does not have material exposure to foreign currency risk in its
invested assets. In the Company's international insurance operations, both its
assets and liabilities are generally denominated in local currencies. Foreign
currency denominated securities supporting U.S. dollar liabilities are generally
swapped back into U.S. dollars.

Mortgage-Backed Securities. The following table shows the types of
mortgage-backed securities the Company held at:

At June 30, 2003 and December 31, 2002, pass-through and collateralized
mortgage obligations totaled $33,166 million and $28,026 million, respectively,
or 79.3% and 80.4%, respectively, of total mortgage-backed securities, and a
majority of this amount represented agency-issued pass-through and
collateralized mortgage obligations guaranteed or otherwise supported by the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation or the Government National Mortgage Association. At June 30, 2003
and December 31, 2002, approximately $4,647 million and $3,598 million,
respectively, or 53.7% and 52.5%, respectively, of the commercial
mortgage-backed securities, and $33,098 million and $27,590 million,
respectively, or 99.8% and 98.4%, respectively, of the pass-through securities
and collateralized mortgage obligations, were rated Aaa/AAA by Moody's or S&P.

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The principal risks inherent in holding mortgage-backed securities are
prepayment, extension and collateral risks, which will affect the timing of when
cash will be received. The Company's active monitoring of its mortgage-backed
securities mitigates exposure to losses from cash flow risk associated with
interest rate fluctuations.

Asset-Backed Securities. Asset-backed securities, which include home
equity loans, credit card receivables, collateralized debt obligations and
automobile receivables, are purchased both to diversify the overall risks of the
Company's fixed maturity assets and to provide attractive returns. The Company's
asset-backed securities are diversified both by type of asset and by issuer.
Home equity loans constitute the largest exposure in the Company's asset-backed
securities investments. Except for asset-backed securities backed by home equity
loans, the asset-backed security investments generally have little sensitivity
to changes in interest rates. Approximately $6,749 million and $4,912 million,
or 60.1% and 51.7%, of total asset-backed securities were rated Aaa/AAA by
Moody's or S&P at June 30, 2003 and December 31, 2002, respectively.

The principal risks in holding asset-backed securities are structural,
credit and capital market risks. Structural risks include the security's
priority in the issuer's capital structure, the adequacy of and ability to
realize proceeds from the collateral and the potential for prepayments. Credit
risks include consumer or corporate credits such as credit card holders,
equipment lessees, and corporate obligors. Capital market risks include the
general level of interest rates and the liquidity for these securities in the
marketplace.

Structured Investment Transactions. The Company participates in structured
investment transactions, primarily asset securitizations and structured notes.
These transactions enhance the Company's total return on its investment
portfolio principally by generating management fee income on asset
securitizations and by providing equity-based returns on debt securities through
structured notes consisting of equity-linked notes and similar instruments.

The Company sponsors financial asset securitizations of high yield debt
securities, investment grade bonds and structured finance securities and also is
the collateral manager and a beneficial interest holder in such transactions
(commonly referred to as collateralized debt obligations). As the collateral
manager, the Company earns management fees on the outstanding securitized asset
balance, which are recorded in income as earned. When the Company transfers
assets to a bankruptcy-remote special purpose entity ("SPE") and surrenders
control over the transferred assets, the transaction is accounted for as a sale.
Gains or losses on securitizations are determined with reference to the carrying
amount of the financial assets transferred. Such gains or losses are allocated
to the assets sold and the beneficial interests retained based on relative fair
values at the date of transfer. Beneficial interests in securitizations are
carried at fair value in fixed maturities. Income on the beneficial interests is
recognized using the prospective method in accordance with EITF Issue No. 99-20,
Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets. Prior to the effective
date of FIN 46, the SPEs used to securitize assets were not consolidated by the
Company because unrelated third parties hold controlling interests through
ownership of equity in the SPEs, representing at least three percent of the
value of the total assets of the SPE throughout the life of the SPE, and such
equity class has the substantive risks and rewards of the residual interest of
the SPE. See "-- Variable Interest Entities."

The Company purchases or receives beneficial interests in SPEs, which
generally acquire financial assets, including corporate equities, debt
securities and purchased options. The Company has not guaranteed the
performance, liquidity or obligations of the SPEs and the Company's exposure to
loss is limited to its carrying value of the beneficial interests in the SPEs.
The Company uses the beneficial interests as part of its risk management
strategy, including asset-liability management. Prior to the effective date of
FIN 46, these SPEs were not consolidated by the Company because unrelated third
parties hold controlling interests through ownership of equity in the SPEs,
representing at least three percent of the value of the total assets of the SPE
throughout the life of the SPE, and such equity class has the substantive risks
and rewards of the residual interest of the SPE. See "-- Variable Interest
Entities." The beneficial interests in SPEs where the Company exercises
significant influence over the operating and financial policies of the SPE are
accounted for in accordance with the equity method of accounting. Impairments of
these beneficial interests are included in net investment gains and losses. The
beneficial interests in SPEs where the Company does not exercise significant
influence are accounted for based on the substance of the beneficial interest's
rights and obligations. Beneficial

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interests are included in fixed maturities. These beneficial interests are
generally structured notes, as defined by EITF Issue No. 96-12, Recognition of
Interest Income and Balance Sheet Classification of Structured Notes, and their
income is recognized using the retrospective interest method or the level yield
method, as appropriate.

MORTGAGE LOANS ON REAL ESTATE

The Company's mortgage loans on real estate are collateralized by
commercial, agricultural and residential properties. Mortgage loans on real
estate comprised 11.8% and 13.2% of the Company's total cash and invested assets
at June 30, 2003 and December 31, 2002, respectively. The carrying value of
mortgage loans on real estate is stated at original cost net of repayments,
amortization of premiums, accretion of discounts and valuation allowances. The
following table shows the carrying value of the Company's mortgage loans on real
estate by type at:

Commercial Mortgage Loans. The Company diversifies its commercial mortgage
loans by both geographic region and property type, and manages these investments
through a network of regional offices overseen by its investment department. The
following table presents the distribution across geographic regions and property
types for commercial mortgage loans at:

The following table presents the scheduled maturities for the Company's
commercial mortgage loans at:

Problem, Potential Problem and Restructured Mortgage Loans. The Company
monitors its mortgage loan investments on an ongoing basis. Through this
monitoring process, the Company reviews loans that are restructured, delinquent
or under foreclosure and identifies those that management considers to be
potentially delinquent. These loan classifications are generally consistent with
those used in industry practice.

The Company defines restructured mortgage loans, consistent with industry
practice, as loans in which the Company, for economic or legal reasons related
to the debtor's financial difficulties, grants a concession to the debtor that
it would not otherwise consider. This definition provides for loans to exit the
restructured category under certain conditions. The Company defines delinquent
mortgage loans, consistent with industry practice, as loans in which two or more
interest or principal payments are past due. The Company defines mortgage loans
under foreclosure, consistent with industry practice, as loans in which
foreclosure proceedings have formally commenced. The Company defines potentially
delinquent loans as loans that, in management's opinion, have a high probability
of becoming delinquent.

The Company reviews all mortgage loans on an ongoing basis. These reviews
may include an analysis of the property financial statements and rent roll,
lease rollover analysis, property inspections, market analysis and tenant
creditworthiness. The Company also reviews loan-to-value ratios and debt
coverage ratios for restructured loans, delinquent loans, loans under
foreclosure, potentially delinquent loans, loans with an existing valuation
allowance, loans maturing within two years and loans with a loan-to-value ratio
greater than 90% as determined in the prior year.

The principal risks in holding commercial mortgage loans are property
specific, supply and demand, financial and capital market risks. Property
specific risks include the geographic location of the property, the physical
condition of the property, the diversification of tenants and the rollover of
their leases and the ability of the property manager to attract tenants and
manage expenses. Supply and demand risks include changes in the supply and/or
demand for rental space, which cause changes in vacancy rates and/or rental
rates.

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Financial risks include the overall level of debt on the property and the amount
of principal repaid during the loan term. Capital market risks include the
general level of interest rates, the liquidity for these securities in the
marketplace and the capital available for loan refinancing.

The Company establishes valuation allowances for loans that it deems
impaired, as determined through its mortgage review process. The Company's
valuation allowance is established both on a loan specific basis for those loans
where a property or market specific risk has been identified that could likely
result in a future default, as well as for pools of loans with similar high risk
characteristics where a property specific or market risk has not been
identified. Loans that are individually reviewed are evaluated based on the
definition of impaired loans consistent with SFAS No. 114, Accounting by
Creditors for Impairments of a Loan ("SFAS 114"), as loans on which it probably
will not collect all amounts due according to applicable contractual terms of
the agreement. The Company bases valuation allowances upon the present value of
expected future cash flows discounted at the loan's original effective interest
rate or the value of the loan's collateral. The Company records valuation
allowances as investment losses. The Company records subsequent adjustments to
allowances as investment gains or losses. The allowance for loan loss for pools
of other loans with similar characteristics is established in accordance with
SFAS No. 5, Accounting for Contingencies ("SFAS 5"), when a loss contingency
exists. A loss contingency exists when the likelihood that a future event will
occur is probable based on past events. SFAS 5 works in conjunction with, but
does not overlap with, SFAS 114. The Company applies SFAS 5 to groups of loans
with similar characteristics based on property types and loan to value risk
factors. The Company records loan loss reserves as investment losses.

The Company has a $525 million non-recourse mortgage loan on a high profile
office complex that has been affected by the September 11, 2001 tragedies,
causing the obligor to impair its investment in the property. The Company
continues to be in discussions with the borrower to acquire its interest in the
office complex. The most recent appraisal obtained by the Company shows that the
office complex had a market value in excess of the Company's recorded investment
amount. A change in circumstances could result in a borrower default, MetLife
classifying the loan as impaired or the transfer of ownership of the property to
the Company. The Company did not classify this loan as a problem or potential
problem as of June 30, 2003, since the obligor is performing as agreed and the
estimated collateral value provides sufficient coverage for the loan. Based on
the Company's estimate of the property's market value at June 30, 2003, the
Company would not record a loss in accordance with SFAS 114 in the event the
loan was classified as impaired.

The following table presents the amortized cost and valuation allowance for
commercial mortgage loans distributed by loan classification at:

- ---------------

(1) Amortized cost is equal to carrying value before valuation allowances.

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The following table presents the changes in valuation allowances for
commercial mortgage loans for the:

Agricultural Mortgage Loans. The Company diversifies its agricultural
mortgage loans by both geographic region and product type. The Company manages
these investments through a network of regional offices and field professionals
overseen by its investment department.

Approximately 65.2% of the $5,090 million of agricultural mortgage loans
outstanding at June 30, 2003 were subject to rate resets prior to maturity. A
substantial portion of these loans generally is successfully renegotiated and
remains outstanding to maturity. The process and policies for monitoring the
agricultural mortgage loans and classifying them by performance status are
generally the same as those for the commercial loans.

The following table presents the amortized cost and valuation allowances
for agricultural mortgage loans distributed by loan classification at:

- ---------------

(1) Amortized cost is equal to carrying value before valuation allowances.

The following table presents the changes in valuation allowances for
agricultural mortgage loans for the:

The principal risks in holding agricultural mortgage loans are property
specific, supply and demand, financial and capital market risks. Property
specific risks include the geographic location of the property, soil types,
weather conditions and the other factors that may impact the borrower's
guaranty. Supply and demand risks include the supply and demand for the
commodities produced on the specific property and the related price for those
commodities. Financial risks include the overall level of debt on the property
and the amount of principal repaid during the loan term. Capital market risks
include the general level of interest rates, the liquidity for these securities
in the marketplace and the capital available for loan refinancing.

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REAL ESTATE AND REAL ESTATE JOINT VENTURES

The Company's real estate and real estate joint venture investments consist
of commercial and agricultural properties located primarily throughout the U.S.
The Company manages these investments through a network of regional offices
overseen by its investment department. At June 30, 2003 and December 31, 2002,
the carrying value of the Company's real estate, real estate joint ventures and
real estate held-for-sale was $4,585 million and $4,725 million, respectively,
or 2.1% and 2.5% of total cash and invested assets, respectively. The carrying
value of real estate is stated at depreciated cost net of impairments and
valuation allowances. The carrying value of real estate joint ventures is stated
at the Company's equity in the real estate joint ventures net of impairments and
valuation allowances. The following table presents the carrying value of the
Company's real estate, real estate joint ventures, real estate held-for-sale and
real estate acquired upon foreclosure at:

Office properties represent 57% and 58% of the Company's equity real estate
portfolio at June 30, 2003 and December 31, 2002, respectively. The average
occupancy level of office properties was 90% and 92% at June 30, 2003 and
December 31, 2002, respectively.

Ongoing management of these investments includes quarterly valuations, as
well as an annual market update and review of each property's budget, financial
returns, lease rollover status and the Company's exit strategy.

The Company adjusts the carrying value of real estate and real estate joint
ventures held-for-investment for impairments whenever events or changes in
circumstances indicate that the carrying value of the property may not be
recoverable. The Company writes down impaired real estate to estimated fair
value, when the carrying value of the real estate exceeds the sum of the
undiscounted cash flow expected to result from the use and eventual disposition
of the real estate. The Company records writedowns as investment losses and
reduces the cost basis of the properties accordingly. The Company does not
change the revised cost basis for subsequent recoveries in value.

The current real estate equity portfolio is mainly comprised of a core
portfolio of multi-tenanted office buildings with high tenant credit quality,
net leased properties and apartments. The objective is to maximize earnings by
building upon and strengthening the core portfolio through selective
acquisitions and dispositions. In light of this objective, the Company took
advantage of a significant demand for Class A, institutional grade properties
and, as a result, sold certain real estate holdings in its portfolio mostly
during the fourth quarter of 2002, although several sales occurred in the first
quarter of 2003. This sales program does not represent any fundamental change in
the Company's investment strategy.

Once the Company identifies a property that is expected to be sold within
one year and commences a firm plan for marketing the property, in accordance
with SFAS 144, the Company classifies the property as held-for-sale and reports
the related net investment income and any resulting investment gains and losses
as

89

discontinued operations. Further, the Company establishes and periodically
revises, if necessary, a valuation allowance to adjust the carrying value of the
property to its expected sales value, less associated selling costs, if it is
lower than the property's carrying value. The Company records valuation
allowances as investment losses and subsequent adjustments as investment gains
or losses. If circumstances arise that were previously considered unlikely and,
as a result, the property is expected to be on the market longer than
anticipated, a held-for-sale property is reclassified to held-for-investment and
measured as such.

The Company's carrying value of real estate held-for-sale, including real
estate acquired upon foreclosure of commercial and agricultural mortgage loans,
in the amounts of $26 million and $166 million at June 30, 2003 and December 31,
2002, respectively, are net of impairments of zero and $5 million, respectively,
and net of valuation allowances of $9 million and $11 million, respectively.

The Company records real estate acquired upon foreclosure of commercial and
agricultural mortgage loans at the lower of estimated fair value or the carrying
value of the mortgage loan at the date of foreclosure.

Certain of the Company's investments in real estate joint ventures meet the
definition of a VIE under FIN 46. See "-- Variable Interest Entities."

EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS

The Company's carrying value of equity securities, which primarily consist
of investments in common stocks, was $1,617 million and $1,613 million at June
30, 2003 and December 31, 2002, respectively. Substantially all of the common
stock is publicly traded on major securities exchanges. The carrying value of
the other limited partnership interests (which primarily represent ownership
interests in pooled investment funds that make private equity investments in
companies in the U.S. and overseas) was $2,406 million and $2,395 million at
June 30, 2003 and December 31, 2002, respectively. The Company classifies its
investments in common stocks as available-for-sale and marks them to market,
except for non-marketable private equities, which are generally carried at cost.
The Company uses the equity method of accounting for investments in limited
partnership interests in which it has more than a minor interest, has influence
over the partnership's operating and financial policies and does not have a
controlling interest. The Company uses the cost method for minor interest
investments and when it has virtually no influence over the partnership's
operating and financial policies. The Company's investments in equity securities
excluding partnerships represented 0.8% of cash and invested assets at both June
30, 2003 and December 31, 2002.

Equity securities include private equity securities with an estimated fair
value of $435 million and $443 million at June 30, 2003 and December 31, 2002,
respectively. The Company may not freely trade its private equity securities
because of restrictions imposed by federal and state securities laws and
illiquid markets.

The Company makes commitments to fund partnership investments in the normal
course of business. The amounts of these unfunded commitments were $1,488
million and $1,667 million at June 30, 2003 and December 31, 2002, respectively.
The Company anticipates that these amounts will be invested in the partnerships
over the next three to five years.

Some of the Company's investments in other limited partnership interests
meet the definition of a VIE under FIN 46. See "-- Variable Interest Entities."

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The following tables set forth the cost, gross unrealized gain or loss and
estimated fair value of the Company's equity securities, as well as the
percentage of the total equity securities at:

Problem and Potential Problem Equity Securities and Other Limited
Partnership Interests. The Company monitors its equity securities and other
limited partnership interests on a continual basis. Through this monitoring
process, the Company identifies investments that management considers to be
problems or potential problems.

Problem equity securities and other limited partnership interests are
defined as securities (i) in which significant declines in revenues and/or
margins threaten the ability of the issuer to continue operating; or (ii) where
the issuer has entered into bankruptcy.

Potential problem equity securities and other limited partnership interests
are defined as securities issued by a company that is experiencing significant
operating problems or difficult industry conditions. Criteria generally
indicative of these problems or conditions are (i) cash flows falling below
varying thresholds established for the industry and other relevant factors; (ii)
significant declines in revenues and/or margins; (iii) public securities trading
at a substantial discount compared to original cost as a result of specific
credit concerns; and (iv) other information that becomes available.

Equity Security Impairment. The Company classifies all of its equity
securities as available-for-sale and marks them to market through other
comprehensive income. All securities with gross unrealized losses at the
consolidated balance sheet date are subjected to the Company's process for
identifying other-than-temporary impairments. The Company writes down to fair
value securities that it deems to be other-than-temporarily impaired in the
period the securities are deemed to be so impaired. The assessment of whether
such impairment has occurred is based on management's case-by-case evaluation of
the underlying reasons for the decline in fair value. Management considers a
wide range of factors, as described below, about the security issuer and uses
its best judgment in evaluating the cause of the decline in the estimated fair
value of the security and in assessing the prospects for near-term recovery.
Inherent in management's evaluation of the security are assumptions and
estimates about the operations of the issuer and its future earnings potential.

91

Considerations used by the Company in the impairment evaluation process
include, but are not limited to, the following:

- length of time and the extent to which the market value has been below
cost;

- potential for impairments of securities when the issuer is experiencing
significant financial difficulties, including a review of all securities
of the issuer, including its known subsidiaries and affiliates,
regardless of the form of the Company's ownership;

- potential for impairments in an entire industry sector or sub-sector;

- potential for impairments in certain economically depressed geographic
locations;

- potential for impairments of securities where the issuer, series of
issuers or industry has suffered a catastrophic type of loss or has
exhausted natural resources; and

- other subjective factors, including concentrations and information
obtained from regulators and rating agencies.

Equity securities or other limited partnership interests which are deemed
to be other-than-temporarily impaired are written down to fair value. The
Company records writedowns as investment losses and adjusts the cost basis of
the equity securities accordingly. The Company does not change the revised cost
basis for subsequent recoveries in value. Writedowns of equity securities and
other limited partnership interests were $13 million and $24 million for the
three months ended June 30, 2003 and 2002, respectively and $90 million and $60
million for the six months ended June 30, 2003 and 2002, respectively. During
the three months ended June 30, 2003 and 2002, the Company sold equity
securities with an estimated fair value of $22 million and $47 million,
respectively, at a loss of $1 million and $10 million, respectively. During the
six months ended June 30, 2003 and 2002, the Company sold equity securities with
an estimated fair value of $42 million and $75 million, respectively, at a loss
of $6 million and $41 million, respectively.

The gross unrealized loss related to the Company's equity securities at
June 30, 2003 was $9 million. Such securities are concentrated by security type
in common stock (71%) and mutual funds (22%); and are concentrated by industry
in financial (59%) and domestic broad market mutual funds (20%) (calculated as a
percentage of gross unrealized loss).

The following table presents the cost, gross unrealized losses and number
of securities for equity securities where the estimated fair value had declined
and remained below cost by less than 20%, or 20% or more for:

The Company's review of its equity security exposure includes the analysis
of the total gross unrealized losses by three categories of securities: (i)
securities where the estimated fair value had declined and remained below cost
by less than 20%; (ii) securities where the estimated fair value had declined
and remained below cost by 20% or more for less than six months; and (iii)
securities where the estimated fair value had declined and remained below cost
by 20% or more for six months or greater. The first two categories have
generally been adversely impacted by the downturn in the financial markets and
overall economic conditions. While all

92

of these securities are monitored for potential impairment, the Company's
experience indicates that the first two categories do not present as great a
risk of impairment, and often, fair values recover over time as the factors that
caused the declines improve.

The following table presents the total gross unrealized losses for equity
securities at June 30, 2003 where the estimated fair value had declined and
remained below cost by:

The category of equity securities where the estimated fair value has
declined and remained below cost by less than 20% is comprised of 66 equity
securities with a cost of $338 million and a gross unrealized loss of $8
million. These securities are concentrated by security type in common stock
(77%) and mutual funds (15%); and concentrated by industry in financial (65%)
and domestic broad market mutual funds (13%) (calculated as a percentage of
gross unrealized loss). The significant factors considered at June 30, 2003 in
the review of equity securities for other-than-temporary impairment were
generally poor economic and market conditions.

The category of equity securities where the estimated fair value has
declined and remained below cost by 20% or more for less than six months is
comprised of 31 equity securities with a cost of $4 million and a gross
unrealized loss of $1 million. These securities are concentrated by security
type in mutual funds (57%) and common stock (40%); and concentrated by industry
in domestic broad market mutual funds (50%) and financial (32%) (calculated as a
percentage of gross unrealized loss). The significant factors considered at June
30, 2003 in the review of equity securities for other-than-temporary impairment
were generally poor economic and market conditions.

The Company did not hold any equity securities with a gross unrealized loss
at June 30, 2003 greater than $5 million.

OTHER INVESTED ASSETS

The Company's other invested assets consist principally of leveraged leases
and funds withheld at interest of $3.4 billion and $3.1 billion at June 30, 2003
and December 31, 2002, respectively. The leveraged leases are recorded net of
non-recourse debt. The Company participates in lease transactions, which are
diversified by geographic area. The Company regularly reviews residual values
and writes down residuals to expected values as needed. Funds withheld represent
amounts contractually withheld by ceding companies in accordance with
reinsurance agreements. For agreements written on a modified coinsurance basis
and certain agreements written on a coinsurance basis, assets supporting the
reinsured policies equal to the net statutory reserves are withheld and continue
to be legally owned by the ceding company. Interest accrues to these funds
withheld at rates defined by the treaty terms and may be contractually specified
or directly related to the investment portfolio. The Company's other invested
assets represented 2.0% and 1.9% of cash and invested assets at June 30, 2003
and December 31, 2002, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative instruments to manage risk through one of four
principal risk management strategies: (i) the hedging of liabilities; (ii)
invested assets; (iii) portfolios of assets or liabilities; and (iv) firm
commitments and forecasted transactions. Additionally, the Company enters into
income generation and replication derivative transactions as permitted by its
insurance subsidiaries' derivatives use plans approved by

93

the applicable state insurance departments. The Company's derivative hedging
strategy employs a variety of instruments, including financial futures,
financial forwards, interest rate, credit default and foreign currency swaps,
foreign currency forwards and options, including caps and floors.

The table below provides a summary of the notional amount and fair value of
derivative financial instruments held at:

SECURITIES LENDING

The Company participates in a securities lending program whereby blocks of
securities, which are included in investments, are loaned to third parties,
primarily major brokerage firms. The Company requires a minimum of 102% of the
fair value of the loaned securities to be separately maintained as collateral
for the loans. Securities with a cost or amortized cost of $20,725 million and
$16,196 million and an estimated fair value of $22,685 million and $17,625
million were on loan under the program at June 30, 2003 and December 31, 2002,
respectively. The Company was liable for cash collateral under its control of
$23,028 million and $17,862 million at June 30, 2003 and December 31, 2002,
respectively. Security collateral on deposit from customers may not be sold or
repledged and is not reflected in the unaudited interim condensed consolidated
financial statements.

SEPARATE ACCOUNT ASSETS

The Company manages each separate account's assets in accordance with the
prescribed investment policy that applies to that specific separate account. The
Company establishes separate accounts on a single client and multi-client
commingled basis in conformity with insurance laws. Generally, separate accounts
are not chargeable with liabilities that arise from any other business of the
Company. Separate account assets are subject to the Company's general account
claims only to the extent that the value of such assets exceeds the separate
account liabilities, as defined by the account's contract. If the Company uses a
separate account to support a contract providing guaranteed benefits, the
Company must comply with the asset maintenance requirements stipulated under
Regulation 128 of the Department. The Company monitors these requirements at
least monthly and, in addition, performs cash flow analyses, similar to that
conducted for the general account, on an annual basis. The Company reports
separately as assets and liabilities investments held in separate accounts and
liabilities of the separate accounts. The Company reports substantially all
separate account assets at their fair market value. Investment income and gains
or losses on the investments of separate accounts accrue directly to
contractholders, and, accordingly, the Company does not reflect them in its
consolidated statements of income and cash flows. The Company reflects in its
revenues fees charged to the separate accounts by the Company, including
mortality charges, risk charges, policy administration fees, investment
management fees and surrender charges.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has material exposure to interest rate, equity market and
foreign currency exchange risk. The Company analyzes interest rate risk using
various models including multi-scenario cash flow projection models that
forecast cash flows of the liabilities and their supporting investments,
including derivative instruments. The Company's market risk exposure at June 30,
2003 is relatively unchanged in amount from that reported on December 31, 2002,
a description of which may be found in the 2002 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of June 30, 2003, the Company's principal
executive officer and principal financial officer have concluded that the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective.

There were no changes in the Company's internal control over financial
reporting that occurred during the quarter ended June 30, 2003 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

PART II -- OTHER INFORMATION

ITEM I. LEGAL PROCEEDINGS

The following should be read in conjunction with Note 8 to unaudited
interim condensed consolidated financial statements in Part I of this Report.

SALES PRACTICES CLAIMS

As previously disclosed, over the past several years, Metropolitan Life,
New England Mutual Life Insurance Company ("New England Mutual") and General
American Life Insurance Company ("General American") have faced numerous claims,
including class action lawsuits, alleging improper marketing and sales of
individual life insurance policies or annuities. These lawsuits are generally
referred to as "sales practices claims." Settlements have been reached in the
sales practices class actions against Metropolitan Life, New England Mutual and
General American.

Certain class members have opted out of these class action settlements and
have brought or continued non-class action sales practices lawsuits. In
addition, other sales practices lawsuits have been brought. As of June 30, 2003,
there are approximately 375 sales practices lawsuits pending against
Metropolitan Life, approximately 60 sales practices lawsuits pending against New
England Mutual and approximately 35 sales practices lawsuits pending against
General American.

The Company believes adequate provision has been made in its unaudited
interim condensed consolidated financial statements for all probable and
reasonably estimable losses for sales practices claims against Metropolitan
Life, New England Mutual and General American.

ASBESTOS-RELATED CLAIMS

As previously reported, Metropolitan Life received approximately 66,000
asbestos-related claims in 2002. Publicity regarding legislative reform efforts
may be resulting in an increase in the number of claims. During the first six
months of 2003 and 2002, Metropolitan Life received approximately 48,000 and
28,000 asbestos-related claims, respectively. Of the approximately 48,000 claims
received in the first six months of 2003, approximately 23,000 were received in
April 2003. Except as to April, the number of asbestos-related claims received
in 2003 are in line with the claims received in 2002 for the same period.
However, we can provide no assurance with respect to the timing of receipt of
new claims.

The Company believes adequate provision has been made in its unaudited
interim condensed consolidated financial statements for all probable and
reasonably estimable losses for asbestos-related claims. The
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ability of Metropolitan Life to estimate its ultimate asbestos exposure is
subject to considerable uncertainty due to numerous factors. The availability of
data is limited and it is difficult to predict with any certainty numerous
variables that can affect liability estimates, including the number of future
claims, the cost to resolve claims, the disease mix and severity of disease, the
jurisdiction of claims filed, tort reform efforts and the impact of any possible
future adverse verdicts and their amounts.

It is likely that a bill reforming asbestos litigation will be voted on by
the Senate in 2003. While the Company strongly supports reform efforts, there
can be no assurance that legislative reform will be enacted. Metropolitan Life
will continue to study its claims experience, review external literature
regarding asbestos claims experience in the United States and consider numerous
variables that can affect its asbestos liability exposure, including
bankruptcies of other companies involved in asbestos litigation and legislative
and judicial developments, to identify trends and to assess their impact on the
recorded asbestos liability.

The number of asbestos cases that may be brought or the aggregate amount of
any liability that Metropolitan Life may ultimately incur is uncertain.
Accordingly, it is reasonably possible that the Company's total exposure to
asbestos claims may be greater than the liability recorded by the Company in its
unaudited interim condensed consolidated financial statements and that future
charges to income may be necessary. While the potential future charges could be
material in particular quarterly or annual periods in which they are recorded,
based on information currently known by management, it does not believe any such
charges are likely to have a material adverse effect on the Company's
consolidated financial position.

In 2003, Metropolitan Life also has been named as a defendant in a small
number of silicosis, welding and mixed dust cases. The cases are pending in
Mississippi, Texas, Ohio, Pennsylvania, West Virginia, Louisiana, Kentucky and
Arkansas. The Company intends to vigorously defend itself against these cases.

PROPERTY AND CASUALTY ACTIONS

As previously reported, purported class action suits involving claims by
policyholders for the alleged diminished value of automobiles after
accident-related repairs have been filed in Rhode Island, Texas, Georgia and
Tennessee against Metropolitan Property and Casualty Insurance Company. Rhode
Island and Texas trial courts denied plaintiffs' motions for class
certification. In a lawsuit involving another insurer, the Tennessee Supreme
Court held that diminished value is not covered under a Tennessee automobile
policy. Based on that decision, plaintiffs in Tennessee have dismissed their
alleged diminished value lawsuit against Metropolitan Property and Casualty
Insurance Company.

DEMUTUALIZATION ACTIONS

The Company has previously reported that several lawsuits were brought in
2000 challenging the fairness of Metropolitan Life's plan of reorganization and
the adequacy and accuracy of Metropolitan Life's disclosure to policyholders
regarding the plan. Five purported class actions pending in the New York state
court in New York County were consolidated within the commercial part. In
addition, there remained a separate purported class action in New York state
court in New York County. On February 21, 2003, the defendants' motions to
dismiss both the consolidated action and separate action were granted; leave to
replead as a proceeding under Article 78 of New York's Civil Practice Law and
Rules has been granted in the separate action. Plaintiffs in the consolidated
action and separate action have filed notices of appeal.

Three purported class actions were previously filed in the United States
District Court for the Eastern District of New York claiming violation of the
Securities Act of 1933. The plaintiffs in these actions, which have been
consolidated, claim that the Policyholder Information Booklets relating to the
plan failed to disclose certain material facts and seek rescission and
compensatory damages. Metropolitan Life's motion to dismiss these three cases
was denied in 2001. On February 4, 2003, plaintiffs filed a consolidated amended
complaint adding a fraud claim under the Securities Exchange Act of 1934.
Metropolitan Life has filed a motion to dismiss the consolidated amended
complaint and a motion for summary judgment in this action.

Metropolitan Life, the Holding Company and the individual defendants
believe they have meritorious defenses to the plaintiffs' claims and are
contesting vigorously all of the plaintiffs' claims in these actions.

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A purported class action was previously filed in the United States District
Court for the Southern District of New York seeking damages from Metropolitan
Life and the Holding Company for alleged violations of various provisions of the
Constitution of the United States in connection with the plan of reorganization.
In 2001, pursuant to a motion to dismiss filed by Metropolitan Life, this case
was dismissed by the District Court. In January 2003, the United States Court of
Appeals for the Second Circuit affirmed the dismissal. In June 2003, the United
States Supreme Court denied plaintiffs' petition for certiorari in this action.

In July 2002, a lawsuit was filed in the United States District Court for
the Eastern District of Texas on behalf of a proposed class comprised of the
settlement class in the Metropolitan Life sales practices class action
settlement approved in December 1999 by the United States District Court for the
Western District of Pennsylvania. The Holding Company, Metropolitan Life, the
trustee of the policyholder trust, and certain present and former individual
directors and officers of Metropolitan Life are named as defendants. After the
defendants' motion to transfer the lawsuit to the Western District of
Pennsylvania was granted, plaintiffs filed an amended complaint that dropped all
claims against the trustee of the policyholder trust and the individual
directors and officers. In the amended complaint, plaintiffs allege that the
treatment of the cost of the sales practices settlement in connection with the
demutualization of Metropolitan Life breached the terms of the settlement.
Plaintiffs seek compensatory and punitive damages, as well as attorneys' fees
and costs. The defendants have moved to dismiss the action. Plaintiffs' motion
for class certification has been adjourned. The defendants believe they have
meritorious defenses to the plaintiffs' claims and are contesting them
vigorously.

RACE-CONSCIOUS UNDERWRITING CLAIMS

As previously reported, insurance departments in a number of states
initiated inquiries in 2000 about possible race-conscious underwriting of life
insurance. These inquiries generally have been directed to all life insurers
licensed in their respective states, including Metropolitan Life and certain of
its affiliates. The New York Insurance Department has concluded its examination
of Metropolitan Life concerning possible past race-conscious underwriting
practices. The four purported class action lawsuits filed against Metropolitan
Life in 2000 and 2001 alleging racial discrimination in the marketing, sale, and
administration of life insurance policies were consolidated in the United States
District Court for the Southern District of New York. Metropolitan Life has
entered into settlement agreements to resolve the regulatory examination and the
actions pending in the United States District Court for the Southern District of
New York. On April 28, 2003, the United States District Court approved a class
action settlement of the consolidated actions. Several persons who had objected
to the settlement have filed notices of appeal from the order approving the
settlement. Metropolitan Life recorded a charge in the fourth quarter of 2001 in
connection with the anticipated resolution of these matters. During the second
quarter of 2003, the Company reduced this charge by $64 million, after-tax. The
Company believes the remaining portion of the previously recorded charge is
adequate to cover the costs associated with the resolution of these matters.

Eighteen lawsuits involving approximately 130 plaintiffs have been filed in
federal and state court in Alabama, Mississippi and Tennessee alleging federal
and/or state law claims of racial discrimination in connection with the sale,
formation, administration or servicing of life insurance policies. Metropolitan
Life is contesting vigorously plaintiffs' claims in these actions.

OTHER

In 2001, a putative class action was filed against Metropolitan Life in the
United States District Court for the Southern District of New York alleging
gender discrimination and retaliation in the MetLife Financial Services unit of
the Individual segment. The plaintiffs seek unspecified compensatory damages,
punitive damages, a declaration that the alleged practices are discriminatory
and illegal, injunctive relief requiring Metropolitan Life to discontinue the
alleged discriminatory practices, an order restoring class members to their
rightful positions (or appropriate compensation in lieu thereof), and other
relief. Plaintiffs have filed a motion for class certification. Opposition
papers were filed by Metropolitan Life. The parties have reached a settlement in
principle and are seeking the Court's preliminary approval.

97

A lawsuit has been filed against Metropolitan Life in Ontario, Canada by
Clarica Life Insurance Company regarding the sale of the majority of
Metropolitan Life's Canadian operation to Clarica in 1998. Clarica alleges that
Metropolitan Life breached certain representations and warranties contained in
the sale agreement, that Metropolitan Life made misrepresentations upon which
Clarica relied during the negotiations and that Metropolitan Life was negligent
in the performance of certain of its obligations and duties under the sale
agreement. The parties are engaged in settlement discussions.

The United States Securities and Exchange Commission (the "SEC") has
commenced a formal investigation of New England Securities Corporation, an
indirect subsidiary of New England Life Insurance Company ("NES"), in response
to NES informing the SEC that certain systems and controls relating to one NES
advisory program were not operating effectively. NES is cooperating fully with
the SEC and is continuing to research the effect, if any, of this issue upon
approximately 6,000 active and closed accounts.

The American Dental Association and two individual providers have sued
MetLife, Mutual of Omaha and Cigna in a purported class action lawsuit brought
in a Florida federal district court. The plaintiffs purport to represent a
nationwide class of in-network providers who allege that their claims are being
wrongfully reduced by downcoding, bundling, and the improper use and programming
of software. The complaint alleges federal racketeering and various state law
theories of liability. MetLife is vigorously defending the case.

Various litigation, claims and assessments against the Company, in addition
to those discussed above and those otherwise provided for in the Company's
unaudited interim condensed consolidated financial statements, have arisen in
the course of the Company's business, including, but not limited to, in
connection with its activities as an insurer, employer, investor, investment
advisor and taxpayer. Further, state insurance regulatory authorities and other
federal and state authorities regularly make inquiries and conduct
investigations concerning the Company's compliance with applicable insurance and
other laws and regulations.

SUMMARY

It is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or provide reasonable ranges of
potential losses, except as noted above in connection with specific matters. In
some of the matters referred to above, very large and/or indeterminate amounts,
including punitive and treble damages, are sought. Although in light of these
considerations it is possible that an adverse outcome in certain cases could
have a material adverse effect upon the Company's consolidated financial
position, based on information currently known by the Company's management, in
its opinion, the outcomes of such pending investigations and legal proceedings
are not likely to have such an effect. However, given the large and/or
indeterminate amounts sought in certain of these matters and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the
Company's consolidated net income or cash flows in particular quarterly or
annual periods.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Company's annual meeting of stockholders on April 22, 2003, the
stockholders elected four Class I directors, each for a term expiring at the
Company's 2006 annual meeting. The voting results are as follows:

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The directors whose terms continued and the years their terms expire are as
follows:

Class II Directors -- Term Expires in 2004

Curtis H. Barnette
John C. Danforth
Burton A. Dole, Jr.
Harry P. Kamen
Charles M. Leighton

Class III Directors -- Term Expires in 2005

James R. Houghton
Helene L. Kaplan
Catherine R. Kinney
Stewart G. Nagler
William C. Steere, Jr.

The stockholders also ratified the appointment of Deloitte & Touche LLP as
the Company's independent auditors for 2003. The voting results are as follows:

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Credit Agreement, dated as of April 25, 2003, among MetLife, Inc.,
Metropolitan Life Insurance Company, MetLife Funding, Inc. and the
other parties signatory thereto.

31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

During the three months ended June 30, 2003, the following current reports
were filed on Form 8-K:

1. Form 8-K filed May 5, 2003 (dated May 5, 2003) attaching press release
and Quarterly Financial Supplement regarding first quarter 2003
results.

2. Form 8-K filed May 19, 2003 (dated May 19, 2003) attaching press
release regarding completion of the MetLife Capital Trust I
transaction.

3. Form 8-K filed June 17, 2003 (dated June 17, 2003) attaching press
release regarding organizational changes.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

METLIFE, INC.

By:
/s/ VIRGINIA M. WILSON
------------------------------------
Virginia M. Wilson
Senior Vice-President and Controller
(Authorized signatory
and principal accounting officer)

Date: August 13, 2003

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EXHIBIT INDEX