When MetLife Inc. failed the Federal Reserve Board’s stress test in March, there was some initial concern, but analysts said the decision was based on criteria used to evaluate banks, not insurance companies. However, there might be another cause for concern. MetLife has about $351 billion of its portfolio invested in long-term bonds, $61.3 billion in mortgage loans and $8.6 billion in real estate assets. That comes out to 71%, 12.4% and 1.7% of its portfolio, respectively, at the end of 2011. Assuming the average bond duration is 10 years, a 3% increase in interest rates would cause the bond portfolio to lose over 25% of its value. No one knows when the Fed will increase rates, but at the first hint of an increase, investors will most likely abandon bonds.

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