The speaker introduces the MetLife Second Quarter 2023 Earnings Conference Call and introduces the participants. He then directs listeners to the cautionary note and SEC filings before turning the call over to John Hall, Global Head of Investor Relations. Hall directs listeners to the information regarding non-GAAP measures before introducing Michel Khalaf, President and Chief Executive Officer, and John McCallion, Chief Financial Officer. Khalaf then addresses the fluctuating market conditions and the performance of MetLife's diversified set of market-leading businesses.

MetLife reported adjusted earnings of $1.5 billion in the second quarter, and their sales were strong across the board. Their direct expense ratio totaled 12.2%, and their adjusted return on equity was 14.6%. Variable investment income was $221 million, with private equity returns of 1.5% and real estate equity funds returning -1.9%. MetLife is confident in their risk management capabilities and is pleased with the underlying momentum of their core businesses.

MetLife reported a net income of $370 million for the second quarter, with US group benefits adjusted earnings totaling $372 million and RIS adjusted earnings totaling $417 million. Year-to-date sales are up 13% and year-to-date adjusted PFOs are up 5%. MetLife's success in the benefits universe is attributed to strong relationships with national accounts, an expansive product portfolio, and market share gains in regional business. Additionally, RIS earnings have increased 11% from the prior year due to higher recurring investment margins and higher asset balances.

In the quarter, sales were strong across various products, including pension risk transfer, structured settlements, longevity reinsurance, and post-retirement benefits. In Asia, sales were up 34% on a constant currency basis, with Japan leading the way due to the introduction of a foreign currency life insurance product. Latin America also had a strong quarter, posting gains in both sales and adjusted PFOs of 13% and 14% respectively on a constant currency basis. In 2019, the group benefits business generated $19 billion in premiums, fees, and other revenues, with the expectation of $24 billion in 2023. Retirement income solutions and Latin America have also seen growth in adjusted earnings since 2019.

MetLife was active with capital management during the second quarter, repurchasing $672 million of their common stock and paying roughly $400 million of common stock dividends to shareholders. They have repurchased about $1.8 billion of their common shares and have $3.5 billion remaining on their expanded repurchase authorization. At the end of the quarter, they held $4.2 billion of cash and issued $1 billion of senior debt in July. Additionally, Steve Goulart is retiring at the end of August after 17 years of service to MetLife.

In the second quarter of 2023, Steve's retirement provided the opportunity to broaden the roles and responsibilities of some top leaders in MetLife Investment Management. These moves draw upon MetLife's deep bench and illustrate their ability to deploy top talent to the areas of greatest impact for their customers and shareholders. John McCallion, MetLife's chief financial officer, will take on additional responsibility as the head of MetLife Investment Management, and other leaders will have their roles and responsibilities expanded. The net investment losses were primarily the result of securities associated with a pending reinsurance transaction with Global Atlantic.

This paragraph discusses the financial performance of the company in the second quarter of 2022. Gross unrealized losses had to be realized through net income this quarter, while net derivative losses were mostly offset by market risk benefit remeasurement gains. Adjusted earnings were $1.5 billion, down 10% year-over-year, and adjusted earnings per share were $1.94, down 5% year-over-year. The primary driver of the decrease was lower variable investment income, but higher recurring interest margins and solid volume growth partially offset this. In the U.S., group benefits adjusted earnings were $372 million, down 8% due to certain unfavorable expense, reinsurance, and reserve related items. The group-life mortality ratio was 85.3%, at the bottom end of the annual target range.

In the quarter, the interest adjusted benefit ratio was above the midpoint of its annual target range of 70-75%. Group benefits adjusted PFOs were up 4% year-over-year, and RIS adjusted earnings were up 11% year-over-year, driven by higher recurring interest margins and solid volume growth. RIS investment spreads were 132 basis points, and RIS liability exposures were up 5% year-over-year. In Asia, adjusted earnings were down 11%, primarily due to lower variable investment income.

Adjusted earnings for Asia, Latin America, and EMEA were up or flat year-over-year, due to strong sales and investment margins. MetLife holdings adjusted earnings were down due to lower variable investment income, while Corporate and other adjusted loss was essentially flat. The overall adjusted earnings ran approximately $25 million above expectation due to certain reserve refinements and tax related true ups.

In the second quarter of 2023, the company's effective tax rate was at the low end of their 2023 guidance of 22-24%. Their pre-tax variable investment income for the prior five quarters was $221 million and their private equity portfolio had a 1.5% return and their real estate equity funds had a 1.9% return. The Asia, RAS, and MetLife Holdings portfolios had the highest returns. Recurring income was up $700 million year-over-year, and new money yields were higher than roll off yields, reaching a decade-high of 6.06%.

In the quarter ending June 30, the commercial mortgage loan portfolio was well diversified by geography and property type, with high quality properties and larger primary markets. The portfolio had an average LTV of 62% and a debt service coverage ratio of 2.3 times. 69% of the loans scheduled to mature in 2023 have been successfully resolved, with minimal losses expected. The direct expense ratio for the full year of 2022 and Q1 and Q2 of '23 was 12.2%.

The company's full year direct expense ratio is the best way to measure performance, with a goal of 12.6% or below in 2023. Cash and liquid assets at the holding companies were approximately $4.2 billion at June 30, above the target cash buffer of $3 to $4 billion. Preliminary second quarter, year-to-date 2023 statutory operating earnings were approximately $2 billion, while net income was approximately $1.3 billion. U.S. statutory adjusted capital was approximately $17.4 billion as of June 30, 2023, down 2% from March 31, 2023. The company has repurchased shares totaling approximately $300 million in July, and the pending reinsurance transaction with Global Atlantic is expected to add approximately 60 combined RBC points.

John McCallion stated that MetLife is looking for ways to optimize their business, both internally and externally. They are open to risk transfer opportunities, but the transaction must be value-creative, risk-reducing, and fit the right profile for them. MetLife is comfortable managing the blocks of businesses themselves and have the expertise to do so, and they are committed to deploying capital to achieve responsible growth and building sustainable value for their customers and shareholders.

Steven Goulart provided additional details on the office loans that have been resolved year-to-date, including the mix of paydowns versus extensions and the terms of the extensions. Of the loans scheduled to mature this year, 31% have been paid off and 57% have been resolved through borrower extensions of contractual loan extensions. The average LTV on these loans is 51% and borrowers are required to meet financial performance tests related to debt yield and LTV. Fees are paid on the extensions and John mentioned there were around 40 million of one-off items within groups.

Elyse Greenspan asked if they should normalize for the unfavorable items they had recently experienced, and Ramy Tadros explained what those items were. Michel Khalaf then said that the buyback activity in July was due to a blackout in the second quarter and they would assess the environment after the transaction closes in the second half of the year. He said they have a good track record of returning capital after major divestitures and expect the same here.

Ramy Tadros reported that disability results were favorable year-over-year with a one-point impact on the ratio due to reserve refinements. The macroenvironment, underwriting, data and technology, and leave and absence capabilities are providing tailwinds. Dental claims costs have increased, so 80% of the book will be repriced annually to meet target margins. For the full year, the non-medical health benefit ratio is expected to be at the midpoint of the guidance range. Japan sales have been strong.

Lyndon Oliver discusses the sales performance in Asia, with Japan up 42% and the rest of Asia up 17%. He attributes the success in Japan to the higher rate environment, product differentiation, speed to market, and strength of distribution. He also mentions that initiatives on the customer, distribution, and product side have helped in other markets in Asia. He concludes that management actions have driven sales momentum, but they will be challenged in the second half of the year due to the strong performance last year.

Jamminder Bhullar asked John McCallion a question about yield and spreads in the retirement business, to which John responded that the yield was strong and that spreads would be expected to stay around the same level. Michel Khalaf then commented that there was a limit to how much improvement could be reasonably expected.

In response to a question about changes to products due to changes in economic solvency margin, Lyndon Oliver of MetLife explains that they are still early in the process of adapting to the new regulations and are currently pricing their products on the MetLife economic solvency and local statutory basis. He states that they are in the middle of field testing and will make adjustments to the products, such as reinsurance or product modifications, when the implementation plan progresses.

John McCallion and Steven Goulart both respond to Tom Gallagher's questions about long-term care claims and credit migration into Q2 of the CNBS portfolio. McCallion reports that there was some unfavorability of long-term care claims towards the end of Q1 and into Q2, but the trends have since reverted back. Goulart states that there has been no change in the portfolio and that the results of the stress testing are comfortable.

Steven Goulart and Michel Khalaf reported that there were no material losses in the portfolio and very small charge-offs. They also reported that the 69% of CML maturities that were resolved were in line with the overall portfolio, and of the office loans, roughly the same percentage were resolved.

Ramy Tadros discusses the factors that drive disability margins, such as disciplined underwriting, strong claim management, customer service, and macro factors like employment levels and competitive environment. He states that the first three drivers of this underwriting claims and capabilities are a core competitive advantage for their business, and that they are continuing to be disciplined in their pricing due to the uncertain environment. Suneet Kamath then asks if the pricing environment is rational, to which Ramy confirms that it is competitive and rational.

John McCallion explains that the company has seen headwinds in real estate and a negative 1.9 in funds, but has seen positive offsets in the PE portfolio. He believes that the dynamic will continue into the next quarter, but notes that it is early and they do not have a lot of objective insight. He also notes that equity markets have been positive, although it may be driven by a small number of stocks, which typically translates into a positive in line return with lower betas. He views the trough as more of a U-shaped recovery than a sharp V.

Michel Khalaf reports that overall, the company is seeing significant strength in their portfolio in terms of PFO growth, new customers, good persistency, and tailwinds in terms of wage growth. The company is also seeing double digit growth in their voluntary portfolio and high single digit growth in their regional market below 5,000. The macro environment and their positioning in the business are driving PFO growth that is well within the 4% to 6% range.

Alexander Scott is asking John McCallion about the corporate expense load for VII, which appears to be elevated. McCallion explains that the direct expense ratio was well below the 12.6 target, but there were higher one-time costs due to corporate initiatives. He also mentions that interest on debt was a significant contributor to the elevated expenses. Scott is satisfied with the explanation.

John McCallion and Alexander Scott discuss how the recent news of two out of three ratings falling below AAA may affect the business, but John believes it won't have a broad-based impact and won't affect the investment portfolio or outlooks. John Hall concludes the call by thanking everyone for joining and reminding them to contact MetLife with any follow-up questions.

This summary was generated with AI and may contain some inaccuracies.