The operator introduces the MetLife Second Quarter 2024 Earnings Conference Call and reminds participants of the cautionary note about forward-looking statements. John Hall, Global Head of Investor Relations, welcomes everyone and introduces the speakers, Michel Khalaf and John McCallion. The company released supplemental slides and financial information, which will be discussed during the call. Michel Khalaf expresses satisfaction with the second quarter results and highlights the company's strength and consistent execution. He also mentions that the performance met expectations and even exceeded them in some cases.

In the second quarter, MetLife's flagship Group Benefits franchise performed well, with variable investment income meeting expectations and offsetting losses in real estate funds. The company's diverse businesses and ability to generate strong cash flow have allowed for growth despite changing business and economic conditions. Adjusted earnings were up 18% from the previous year, driven by favorable underwriting and volume growth. Net income was substantially higher than the previous year. MetLife's strong execution resulted in a 17.3% adjusted return on equity and a direct expense ratio below their target.

MetLife's positive leverage in their expense ratio is a result of their ability to control costs and grow revenue. This is due to their focus, simplify, and differentiate pillars of their Next Horizon strategy. They have successfully freed up $1 billion in expenses to invest in technology and growth initiatives, making it easier for customers to purchase and receive benefits. MetLife's scale and large pool of data give them an advantage with the potential for AI to further widen the gap between them and their competitors. This is not just a future possibility, but something they are actively implementing.

MetLife has been using AI for a while now to improve customer experiences and decision-making. They are aware of the responsibility that comes with using AI and will be issuing a policy on its responsible use. In terms of business results, their Group Benefits segment reported record earnings due to improved mortality experience. They have a two-pronged growth strategy in this segment, targeting both national and regional accounts. In their Retirement and Income Solutions segment, they have had notable successes, including large pension risk transfer deals and longevity reinsurance.

In the second quarter, we saw strong growth in structured settlements, particularly in Asia and Latin America despite currency fluctuations. Our business in EMEA is an example of our efficiency mindset, with simplified structure and a focus on protection products. We have strong capital and cash flow, allowing us to meet commitments and return capital to shareholders. In the second quarter, we paid dividends and bought back common shares, with additional repurchases in July.

In the second quarter, MetLife repurchased $2.3 billion in common stock and paid off $1.5 billion in debt while issuing $500 million in senior debt. They have also met their target cash buffer and published their Sustainability Report, highlighting their efforts to benefit customers, employees, communities, and shareholders. The MetLife Foundation has surpassed $1 billion in total giving. As part of their Next Horizon strategy, they aim to become a stronger and more predictable company and are on track to meet or exceed their targets for distributable cash, operating leverage, and return on equity. They are constantly looking for new challenges and opportunities for growth.

The company is currently working on a new five-year strategy called New Frontier, which will focus on accelerating growth and boosting returns. The strategy will be discussed at the annual board strategy review in September and further details will be shared at the Investor Day in December. The financial performance for the second quarter of 2024 showed net derivative losses, but these were partially offset by market risk benefit gains. Overall, adjusted earnings were up 9% year-over-year, driven by favorable underwriting, volume growth, and higher variable investment income. Adjusted earnings per share also saw an increase of 18%.

In the businesses segment, group benefits adjusted earnings increased by 43% due to favorable underwriting margins and a record low mortality ratio. Non-medical health also had a strong quarter with a low interest-adjusted benefit ratio and favorable disability results. Group benefits adjusted PFOs increased by 3%, and year-to-date sales were up 11%. RIS adjusted earnings were down 2%, mainly due to lower recurring interest margins. RIS investment spreads decreased by 6 basis points, but are expected to remain within the annual target range in the third quarter.

In the second quarter, RIS adjusted PFOs (excluding pension risk transfers) increased by 4%, driven by strong sales of institutional income annuities and growth in UK longevity reinsurance. In Asia, adjusted earnings were up 4% on a constant currency basis, with general account assets and sales also showing growth. Latin America saw a 3% increase in adjusted earnings, but a decrease in encaje returns. EMEA had a 10% increase in adjusted earnings, driven by volume growth and higher recurring interest margins, but offset by less favorable expense margins. Overall, adjusted PFOs and sales showed growth across all regions.

In the second quarter of 2024, MetLife Holdings' adjusted earnings were down 27% due to a reinsurance transaction. The company's effective tax rate was within their expected range. The pre-tax variable investment income for the past five quarters shows a positive return in private equity and a negative return in real estate equity. Asia, RIS, and MetLife Holdings hold the majority of VII assets. The net investment income has increased due to higher interest rates and improved private equity returns. The new money yield has been higher than roll-off yields since the second quarter of 2021.

In the second quarter of 2024, new money yields have surpassed roll-off yields due to higher interest rates. The direct expense ratio for the first two quarters of 2024 was 11.9%, lower than the full year 2023 ratio of 12.2%. The company expects the direct expense ratio to be higher in the second half of the year but still aims to achieve a full year ratio of 12.3% or lower. Cash and liquid assets at the holding companies were $4.4 billion at June 30th, above the target buffer but lower than the previous quarter due to debt payments, stock dividends, and share repurchases.

The company has repurchased shares and has seen flat year-over-year earnings for its US companies. Their US statutory adjusted capital has decreased by 2% due to dividends and derivative losses, and their Japan solvency margin ratio is expected to be 670%. The company's commercial mortgage loan portfolio is performing well, and the company is committed to responsible growth and building value for customers and shareholders. The call is now open for questions.

Ramy Tadros, a representative from Group Benefits, discusses the non-medical health results for the second quarter. He mentions that the overall ratio of 70.8 can be normalized to 72.2 by accounting for a one-off nonrecurring reserve adjustment. Tadros explains that dental utilization rates were lower in the second quarter due to normal seasonality. He also discusses how the company manages dental pricing through various levers such as network control and renewal pricing. Tadros notes that the company has been taking pricing actions to address margin pressures and is now seeing the effects of those actions.

The speaker discusses the company's plans for managing inflation in the dental sector and mentions slight increases in incidents in the disability sector. They also mention maintaining strong renewals and feeling confident in their competitive position in the market. The company focuses on multiple factors beyond price to compete, such as scale, capabilities, experience, and product breadth.

The speaker discusses the importance of scale and investment in the insurance industry, and mentions that new competitors have not had a significant impact on their business. They also mention the improved earnings of their Group Benefits business, attributing it to lower mortality rates in the second quarter. However, they expect mortality rates to return to normal levels and their guidance range reflects this.

The speaker, John McCallion, responds to a question about the spreads on RIS. He explains that the spreads for the quarter were within the expected range and were better than the previous quarter. This was due to higher interest rates, which the company took advantage of. He predicts that the spreads will continue to improve in the third quarter and stabilize by the end of the year. He also mentions that the company expects the sales environment in Japan to be similar to previous years.

The speaker, Lyndon Oliver, provides insight on sales in Asia, including Japan. Sales grew 5% overall, but the weaker yen affected single premium US dollar products. However, the company maintains its market share and is introducing new products. Growth is also seen in other countries in Asia. The outlook for yen products is positive due to higher interest rates and a positive macro environment. The company also benefited from a large group case in Japan. Actual sales in the first half were in line with the previous year and a similar trend is expected for the second half.

The speaker discusses the expected flat year-over-year sales for Asia and mentions that there was a 4% increase in adjusted earnings due to favorable underwriting and variable investment income. They also mention that surrender activities in Japan were higher than expected, leading to better performance in real estate. The speaker expects earnings to remain strong for the year, with VII performance continuing to impact earnings. They also mention the SMR ratio in Japan and provide an update on the transition to ESR, stating that their estimate for the quarter is 670%.

The company has no concerns about capital generation or dividends and the economic value of the business has improved. They have seen a heavier cash out quarter due to higher dividends and taxes. The new ESR framework will be implemented in April 2025 and is expected to bring improvements. The company is comfortable with the transition and is working with regulators to address any issues. The commercial mortgage loan portfolio has deteriorated slightly with a higher loan-to-value ratio, but the company is managing it and expects a 10% decline in distressed areas. There are no loans in foreclosure and the company does not anticipate taking any properties onto their balance sheet.

The company's annual appraisal process typically takes place in the second quarter due to the need for financial information. The overall loan-to-value ratio increased by one point, with a larger increase in the office sector. The company expects to see a modest deterioration in the second half of the year, with potential write-offs of around $100 million. Despite economic pressure, the company remains well positioned and believes that real estate fundamentals are healthy. The office sector may still have some challenges, but the moderating construction pipeline is benefiting all properties. The company is confident in its position and believes that demand and supply factors will eventually balance out.

The decline in sales in Japan is due to a tough comparative from last year and a weaker yen impacting the market for foreign currency products. The RIS spreads are expected to stabilize in the fourth quarter, with a forecast of 8-10 basis points. Interest rates were higher than expected in the first quarter, but the company took advantage of this and expects the remaining interest rate cash to roll off this quarter.

The speaker discusses projections for the next two quarters and mentions that there will be some stabilization in the fourth quarter. They also mention that the competition in Japan is rational and that they maintain their pricing discipline and profitability focus. The next speaker asks about the pipeline for the PRT business and any changes in the competitive market, to which the speaker responds that they are seeing a healthy pipeline, particularly in the larger end of the market, and that there are positive secular trends in their favor.

The paragraph discusses the trend of corporate DB plan sponsors looking to derisk and transfer risk, as well as the strong performance of the Asia segment in the quarter. It also mentions the potential for expanding the Bermuda platform with the change in Japan's capital regime.

John McCallion and John Barnidge discuss the use of Bermuda entities as an optimization tool for their company, which has been in place for close to a decade. Michel Khalaf mentions the advantage of having a large amount of data, which has led to progress in three areas: customer experience, meeting customer expectations, and driving competitive advantage.

John McCallion provides an update on the potential impact of technology and data on revenue growth and efficiency for the company. He also discusses ongoing discussions and evaluations with third parties for potential transactions, but emphasizes that there is no immediate need to make a deal. The company has already completed a nontraditional life transaction and still has traditional life blocks, long-term care, and variable annuities in its portfolio.

John McCallion discusses the attractiveness of traditional life and its potential for returns. He mentions that there is limited supply of partners willing to consider this type of investment, making it a narrow market. The company is happy to manage it themselves, but will also look for unique opportunities. In regards to private credit, John explains that the definition of this term can vary, but the company has been involved in it for a long time through various origination platforms. They are being cautious in this area due to the increased interest in private credit, but believe they have a unique capability in this market.

The speaker explains that they have a long-term approach to their work and that each person has their own unique approach. They also mention that certain sectors are more competitive and need to be considered. The speaker thanks everyone for joining and concludes the call.

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