MetLife, Inc. Q3 FY2024 earnings call

Michel Khalaf noted MetLife reported third quarter results with year-to-date adjusted earnings per share excluding notable items up 12%. Conditions in the U.S. are favorable for Group Benefits and RIS. Outside the U.S., there are promising backdrops in various markets. Adjusted earnings were $1.4 billion or $1.95 per share. Adjusted return on equity was 14.6% and on track to exceed the 13%-15% target range for the full year. The direct expense ratio was 11.7%, an improvement year-over-year and below the annual target. John McCallion discussed the 3Q '24 supplemental slides, net income vs adjusted earnings, the impact of the annual actuarial assumption review by segment, adjusted earnings by segment, expenses, new business value metrics, and the cash and capital position. Group Benefits adjusted earnings were down 11% year-over-year, RIS adjusted earnings were down 10% versus the prior year, Asia adjusted earnings were down 6% on a constant currency basis, Latin America adjusted earnings were up 9% on a constant currency basis, EMEA adjusted earnings were up, MetLife Holdings adjusted earnings were down, and Corporate & Other adjusted loss was down. Mentioned the Upwise tool for Group Benefits, a strong PRT market, a positive outlook in Japan, the deployment of MetLife Accelerator in Latin America, capital management with approximately $1.2 billion returned to shareholders, $4.5 billion in cash and liquid assets at holding companies, and approaching the December 12 Investor Day to roll out the New Frontier strategy.

Group Benefits reported adjusted earnings of $431 million excluding notable items, down from the prior year. Year-to-date adjusted earnings excluding notable items are up 7%. Adjusted PFOs, excluding the [Technical Difficulty] policies, rose 5.3% in the quarter and 5.5% year-to-date. Retirement and Income Solutions (RIS) had adjusted earnings of $368 million excluding notable items in the quarter, reflecting the impact of interest rate caps maturing. Sales of stable value and U.K. longevity reinsurance remains strong. Asia's adjusted earnings excluding notable items were $347 million, down 6% from the year ago quarter on market-related items, partially offset by favorable underwriting margins. General account assets under management in Asia grew 6% year-over-year on a constant currency basis. Latin America's adjusted earnings excluding notable items were $217 million, rising 9% from a year ago. Adjusted PFOs in Latin America were up 1% and 11% on a constant currency basis. EMEA's adjusted earnings were $75 million, up 7% on a reported basis and 9% on a constant currency basis, driven by strong volume growth. Adjusted PFOs in EMEA were up 11% and 14% on a constant currency basis. MetLife Holdings had adjusted earnings of $170 million, down 17% versus the prior year quarter. Corporate & Other had an adjusted loss of $249 million versus an adjusted loss of $262 million in the prior year.

Adjusted return on equity is on track to exceed the 13%-15% target range for the full year. The direct expense ratio is expected to be higher in the fourth quarter but year-to-date positions MetLife to beat the full year 2024 direct expense ratio target of 12.3%. RIS spreads are expected to stabilize in the fourth quarter and beyond. The PRT market is active with a strong start to the fourth quarter. Asia sales are expected to be close to flat year-over-year for the full year. The Japan solvency margin ratio is expected to be approximately 745% as of September 30. MetLife looks forward to providing the near-term outlook in early February as part of the fourth quarter 2024 earnings call.

Geopolitical conditions in many regions remain challenging. There is uncertainty around the U.S. election next week. Private equity returns were below expectations, leading variable investment income to dip. There is potential impact of FX volatility on Japan sales. Some one-time unfavorable items in the nonmedical health ratio and Asia affected earnings in specific quarters.

Q: Talked about Group Benefits adjusted loss ratios within guide but a bit higher, how thinking about pricing in dental and competitive environment?

A: The competitive environment in group is not irrational. Pricing in dental is part of managing through cycles, with about 80% of the business able to be repriced annually. Life ratio is still below the lower end of the guidance range but benefiting from favorable incidents. Nonmedical health ratio is within range with smaller unfavorable items that are one-timers.

Q: On VNB slide, what's driving improvement in IRR and reduction in payback period?

A: Focus on allocating capital to its highest and best use, mix of business with higher-return businesses growing faster, favorable environment including benign credit, favorable underwriting, and favorable interest rates. The tool acts as a management tool causing refinement, there were favorable regulatory changes in Korea, and there has been unit cost improvement.

Q: Japan sales, should we assume dollar-denominated products stay weak near term, any other products to mitigate?

A: Japan is an attractive market with positive macro trends. Japan sales were lower year-over-year due to FX volatility on foreign currency products, but there is a diversified portfolio with yen and U.S. dollar products. New products like refreshed yen-denominated variable life, cancer product, A&H medical product, and a planned new U.S. dollar life product early next year have been introduced.

Q: Commercial real estate portfolio, what's seen in market, office and non-office close to bottoming? Exposure to single borrower-type loans?

A: The economic growth is healthy, there is a modest trend towards in-office, and outside office is seen as having hit the trough. There is increasing transaction activity, and the exposure to single borrower-type loans in CMBS is relatively small.

Q: Follow-up on Group Benefits nonmedical health products, what risks, will they recover quickly? Dental, how playing out?

A: The small items in nonmedical health are one-timers. Dental rate increases have been put in place since the beginning of the year, and it is expected to be back to the target margin for full year 2025.

Q: Risk transfer, view on long-term care risk transfer market?

A: There is increased activity in the long-term care risk transfer market, and bid-ask spreads are somewhat narrowing. Our book is well capitalized and managed, and we continue to assess risk transfer options with an eye on creating long-term shareholder value.

Q: RIS spreads, does stabilizing in fourth quarter translate to stable spreads in 2025? Early insight on fourth quarter variable investment income?

A: RIS spreads are expected to stabilize in the fourth quarter and beyond, with more color to be given in the February outlook call. Variable investment income portfolio in PE sector is adjusting, had positive returns this quarter, real estate and related funds rebounded, and there are midpoint estimates for the fourth quarter.

Q: More normalized run rate level of earnings for group and RIS?

A: RIS has been impacted by the roll-off of interest rate caps and is expected to stabilize. Group has seasonality matters, and there were a few one-time unfavorable items this quarter that are not expected to recur. The underlying run rate for the firm is considered.

Q: Opportunity from regulatory reform in Asia, especially Korea, more growth from those markets?

A: We tend to work better in an economic framework, and there were favorable regulatory changes in Korea that are more favorable for us, though it's not clear it opens up the environment or business outlook per se.