The operator introduces the MetLife Fourth Quarter 2023 Earnings Release Conference Call and reminds participants of the cautionary note about forward-looking statements. John Hall, Global Head of Investor Relations, thanks everyone for joining and introduces Michel Khalaf, President and CEO, and John McCallion, CFO. Supplemental slides and an appendix are available on the website. Michel Khalaf expresses confidence in MetLife's strength despite uncertain times.

In 2023, MetLife faced many challenges, including a pandemic, potential recession, liquidity crisis, and inverted yield curve. However, the company's all-weather strategy and focus on execution, risk management, and disciplined investments allowed them to achieve strong results with a 13.8% adjusted return on equity and a 12.2% direct expense ratio. They also remained committed to responsible growth, directing capital to high return opportunities. The strength and stability of their commercial real estate portfolio was also highlighted.

In 2023, MetLife returned $4.7 billion to shareholders and generated strong free cash flow, demonstrating the resilience of their strategy and purpose. Their diversified portfolio of businesses is well positioned for future success. In the fourth quarter, they reported adjusted earnings of $1.4 billion, with strong underlying momentum and excellent underwriting results. For the full year, they generated adjusted earnings of $5.6 billion, with growth in net investment income and adjusted PFOs. Group Benefits saw a 22% increase in adjusted earnings, driven by the scale and breadth of their franchise business.

MetLife has seen strong sales and adjusted earnings growth, with a sustainable PFO growth of over $1 billion per year. Higher interest rates have been beneficial for their Retirement and Income Solutions business, and they have a strong pipeline for future pension risk transfers. Sales in Asia and Latin America have also been strong. MetLife is ahead of schedule in meeting their Next Horizon commitments and has even raised the bar for some of their targets. They are constantly striving for even greater success.

In 2023, MetLife's financial strength allowed them to repurchase $3.1 billion of common stock and increase dividends. They enter 2024 with strong cash levels and have already repurchased $0.5 billion in shares. They have capacity for further action and their disciplined approach to evaluating their businesses has freed up $3 billion in capital. They ended the year with $5.2 billion in cash and liquid assets and will continue to deploy capital responsibly or return it to shareholders. Their Next Horizon strategy has been successful in uncertain times and they anticipate more uncertainty in 2024. They have published near-term targets and guidance that show momentum building across their businesses.

The company's Group Benefits business has shown strong growth in premiums and other revenues. However, the company has adjusted its expectations for private equity returns and remains focused on executing their Next Horizon strategy. Despite facing challenges, the company has seen good underlying business performance and a strong capital base. They will continue to focus on responsible growth and capital deployment. The CEO is optimistic about the future and believes the company is well-positioned for further growth in the coming years. The rest of the paragraph is a transition to the next speaker, John McCallion, who will provide more details on the company's performance and outlook.

The 4Q 2023 supplemental slides provide an overview of the company's financial performance, liquidity and capital positions, and commercial mortgage loan portfolio. The net income for the fourth quarter was impacted by MRB remeasurement losses due to a decline in long-term interest rates, partially offset by net derivative gains. The full year variance between net income and adjusted earnings was mostly due to net derivative losses, normal trading activity in a rising interest rate environment, and the impact of the reinsurance transaction with Global Atlantic. The portfolio remains well positioned with low credit losses and the hedging program is performing as expected. The fourth quarter year-over-year comparison of adjusted earnings by segment shows a $76 million after-tax unfavorable notable item related to asbestos litigation reserves. The total reserve for asbestos is $364 million at the end of 2023.

Adjusted earnings for the company were $1.4 billion, a 14% increase from the previous year. This was primarily due to strong recurring interest margins, higher variable investment income, and favorable underwriting margins. Group Benefits adjusted earnings were $466 million, up 19% from the previous year, with key drivers being favorable life underwriting margins and solid volume growth. RIS adjusted earnings were $421 million, up 10% from the previous year, with the main drivers being higher recurring interest and variable investment income, as well as favorable underwriting margins.

In the fourth quarter of 2023, MetLife's spreads, excluding VII, increased by 10 basis points due to higher interest rates and income from interest rate caps. Adjusted PFOs, excluding pension risk transfers, were up 75% year-over-year due to strong sales of structured settlement products and post-retirement benefits. In Asia, adjusted earnings were up 12% and sales were essentially flat, but for the full year, sales were up 13%. In Latin America, adjusted earnings were up 13% and adjusted PFOs were up 29% for the quarter and the full year, exceeding guidance.

In the EMEA region, adjusted earnings decreased by 27% due to an unfavorable tax charge and lower underwriting margins, but this was partially offset by higher recurring interest margins. However, full year adjusted earnings exceeded expectations. MetLife Holdings also saw a decrease in earnings due to a reinsurance transaction. Corporate and other adjusted loss improved from the previous year. The effective tax rate on adjusted earnings was approximately 19%, with favorable tax benefits. Pre-tax variable investment income for the fourth quarter was $63 million, driven by positive returns in corporate and mortgage loan funds. The private equity portfolio and real estate equity funds had minimal returns. For the full year, variable investment income was $419 million, below the target of $2 billion, but the PE portfolio generated $2 billion in cash distributions.

On Page 6, the VII post tax by segment for the prior four quarters and full year 2023 is provided, showing that RIS, Asia, and MetLife Holdings hold the largest proportion of VII assets. On Page 7, the split of net investment income between recurring and VII for the past three years and Q4 of 2022 versus Q4 of 2023 is shown. Recurring income has increased by $2.6 billion year-over-year, offsetting the lower VII. On Page 8, updates on the commercial mortgage loan portfolio are provided, showing that it continues to perform as expected with a steady average LTV and debt service coverage ratio. Only 2.6% of loans have high LTVs and low DSCRs, indicating a disciplined approach to investing in this asset class.

The company has resolved all of its scheduled loan maturities for 2023 and expects only modest credit losses going forward. Their direct expense ratio for 4Q of 2023 was slightly higher due to seasonal enrollment costs and employee related costs, but their full year direct expense ratio was below their target. The company's cash and liquid assets were above their target buffer, and they have repurchased shares and maintained a strong statutory capital ratio for their U.S. companies.

In 2023, MetLife's statutory operating earnings were $4.5 billion and net income was $3.9 billion, with a significant increase in earnings due to underwriting and a reinsurance transaction. The company's total U.S. statutory adjusted capital increased by 10% and the Japan solvency margin ratio is expected to be 720%. The company's near-term outlook includes continued uncertainty around inflation and unemployment, stable interest rates, and a 5% annual return for the S&P 500. MetLife's targets for the near-term include an adjusted ROE range of 13% to 15% and maintaining a two-year average free cash flow ratio of 65% to 75% of adjusted earnings.

The company is focused on expense discipline and reinvesting in growth initiatives, resulting in a lowered direct expense ratio guidance for 2024. The expected adjusted loss for corporate and other is also increased due to higher interest and pension costs, as well as lower expected benefits from VII. The effective tax rate is also expected to increase. Private equity investments will continue to be the main asset in VII, with expected returns of 7-10% for private equity and 5-7% for real estate and other funds. Prepayment fees are included in VII. The near-term outlook for the U.S. business segment is discussed on Page 14.

MetLife expects strong growth in group benefits, with adjusted PFOs expected to grow at 4% to 6% annually over the near-term and in the top half of that range in 2024. Underwriting margins are expected to be consistent with 2023, and there is a reduction in the expected mortality and benefit ratios. For RAS, there is expected annual growth in total liability exposures, but investment spread is expected to be relatively flat for 2024. MetLife also provided updated sensitivities for interest rate movements. For MetLife Holdings, adjusted PFOs are expected to decline in 2024 and continue to decline annually thereafter.

MetLife has adjusted its earnings guidance range for 2024 to reflect lower expected earnings due to a reinsurance transaction, lower PE returns, and natural runoff of the business. In the near-term, the company expects mid-single digit growth in Asia and Latin America, and mid- to high-single digit growth in EMEA. The company remains confident in its business fundamentals and is optimistic about growth prospects in the future.

MetLife is in a strong position with a solid balance sheet and diverse businesses. They are committed to responsible growth and creating value for their customers and shareholders. The ROE target was recently raised to 13% to 15%, but it could potentially be higher given current trends. The RBC ratio is expected to be around 400%, which may be lower than expected due to potential offsets from the reinsurance transaction.

Michel Khalaf, CEO of MetLife, discusses the impact of their recent deal and how it will contribute to their projected growth of 50-60 points. He also mentions other factors such as fungibility and growth in RAS that have affected their capital deployment. When asked about consolidated recurring NII, John McCallion, CFO, explains that while it is a useful metric, they are hesitant to give a specific target for 2023 due to the complexity of translating NII to earnings. The main takeaway is that MetLife is well diversified and can perform well in various economic environments.

The speaker is unable to answer a specific question about the benefit of caps in 2023 and 2024, but suggests that they will likely offset each other. They mention that the interest rate caps will roll off throughout the year and VII will emerge, resulting in relatively flat spreads for the year. The next speaker asks about the assumed alternative returns and suggests pivoting some of the portfolio into lower-risk assets with comparable yields.

The speaker is discussing the company's underperformance over the past two years and the outlook for a third year, which is below previous levels. They mention that rates are higher and ask if the company is considering shifting their strategy to improve their cost of capital and return on equity. The response acknowledges that the company is in a different rate environment and may make some tweaks to their allocations, particularly in an asset class with prior commitments. They also mention that distributions may outpace new contributions and there may be a moderate shift in allocation in that asset class. The speaker also addresses the 100 basis point improvement in the margin target for Group Benefits, mentioning factors such as stable pricing and potentially higher disability loss ratios.

The company's near-term outlook is driven by changes in their business mix, specifically targeting higher growth in regional markets and implementing an employee paid and voluntary strategy. This has resulted in a lower loss ratio and is expected to continue in the future. However, the favorable Life ratio in the current quarter is not indicative of a trend, and the profitability of the disability line may moderate over time. Additionally, there is seasonality in the ratios in the first quarter due to the dental business.

The speaker discusses the factors driving a decline in spreads for retirement plans, including lower interest rates and in-the-money caps. They also mention resolving all maturities for 2023 and the breakdown of these resolutions, with 30% being payoffs or refinancing and 60% being contractual extensions.

The speaker discusses the requirements for having the right to participate in certain loans, which mostly have floating rates and some potential for extensions or foreclosures. In 2024, about 10% of the balance will come due and the speaker expects a similar mix of resolutions and charge-offs as seen in the past year. They also mention a positive outlook for the PRT market, with a healthy pipeline and high activity expected in 2024.

The company's view of the robustness of their pipeline has not changed, with liability exposures up 3% year-over-year. This growth is mainly coming from their spread and general account business, which is growing at 4%. The company also plans to use the excess capital from the reinsurance transaction to redeploy and potentially return to shareholders through buybacks.

The speaker, John McCallion, discusses the financial flexibility and fungibility of the company's excess capital at OpCo and Holdco. He mentions that they may think differently at Holdco and have a range of 3 to 4. He also talks about the lower VII guide and how it may not provide great insights due to the lag, but they believe it will remain a conservative contributor in the outer quarters. They do not have much insight into actual financial statements yet.

In response to a question about pricing and competition in the group benefits market, Ramy Tadros, an executive at the company, stated that they had a strong start to the year with a 9% increase in sales and strong persistency. He also noted that while there is competition, the company's non-price differentiators are playing in their favor and they have been able to hold margins and expand their margin outlook. Tadros also mentioned that initial indications for 2024 show solid growth in both volume and margin. In response to a question about employee counts among corporate partners, Michel Khalaf, another executive at the company, stated that he did not have that number on hand.

The speaker discusses indicators for the company's performance and mentions employment levels as a reflection of the broader economy. They also mention the penetration rate in the workspace as a growth opportunity for their products. The speaker then talks about asbestos claims and how they have not declined as expected, leading to adjustments in reserves. The call ends with closing remarks.

The paragraph is thanking the reader for their participation and letting them know they can now disconnect.

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