John Hall:

Thank you, operator. Good morning, all. We appreciate you joining MetLife's Second Quarter 2024 Earnings Call. Before we begin, I'd point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer and John McCallion, Chief Financial Officer. Other members of senior management are also are also available to participate. We released our supplemental slides last night, and they are available on our website. John McCallion will speak to them in his prepared remarks. An appendix to the slides features disclosures, GAAP reconciliations and other information for your review. Q&A will follow prepared remarks, and we'll end just before the top of the hour. As a reminder, please limit yourself to yourself to 1 question and 1 follow-up. Now to Michel.

John McCallion:

Thank you, Michel, and good morning. I'll start with the 2Q 2024 supplemental slides, which provide highlights of our financial performance and an update on our liquidity and capital position. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the second quarter. We had net derivative losses, primarily due to the strengthening of the US dollar versus the yen, as well as higher interest rates. That said, derivative losses were partially offset by market risk benefit, or MRB, remeasurement gains due to the higher interest rates and stronger equity markets. Net investment losses were mainly the result of normal trading activity for fixed maturity securities in a higher rate environment. Overall, the investment portfolio remains well positioned, credit losses continue to be modest, and our hedging program performed as expected. On page 4, you can see the second quarter year-over-year comparison of adjusted earnings by segment, which should not have any notable items in either period. Adjusted earnings were $1.6 billion, up 9% and 11% on a constant currency basis. Favorable underwriting, volume growth and higher variable investment income drove the year-over-year increase. This was partially offset by lower recurring interest margins. Adjusted earnings per share were $2.28, up 18% and up 20% on a constant currency basis. Moving to the businesses, group benefits adjusted earnings were $533 million, up 43% year-over-year, primarily due to favorable underwriting margins. The group life mortality ratio was a record low of 79.1%, well below our annual target range of 84% to 89%, driven by favorable experience across all coverages. The strong group life results mirrored the notably low number of US deaths between the ages of 25 and 64 in April and May, according to CDC data. Regarding non-medical health, the interest-adjusted benefit ratio was 70.8% in the quarter, toward the bottom end of our annual target range of 69% to 74%, and below the prior year quarter of 73.7%. Favorable disability results benefited from a reserve adjustment of approximately $30 million after tax. Turning to the top line, group benefits adjusted PFOs were up 3% year-over-year. Taking participating contracts into account, which dampened growth by roughly 200 basis points, the underlying PFOs were up approximately 5% year-over-year, and at the midpoint of our 2024 target growth range of 4% to 6%. Group benefits 2Q 2024 year-to-date sales were up 11%, driven by strong growth across most products, including our suite of voluntary products. RIS adjusted earnings were $410 million, down 2% versus the prior year. Lower recurring interest margins were partially offset by higher variable investment income and strong volume growth. RIS investment spreads were 121 basis points, down 6 basis points sequentially, mainly due to the expiration of interest rate caps in the second quarter of 2024. We anticipate that spreads will remain between our annual target range of 115 and 140 basis points in the third quarter. Although we foresee an increase in variable investment income, it will likely be balanced out by reduced earnings from the expiration of the interest rate caps. RIS adjusted PFOs, excluding pension risk transfers, were up 4% year-over-year, primarily driven by strong sales of institutional income annuities as well as growth in UK longevity reinsurance. With regards to PRT, we had approximately $3.5 billion in deals in the second quarter and continue to see an active market. Moving to Asia. Adjusted earnings were $449 million, up 4% and 8% on a constant currency basis, primarily due to favorable underwriting margins and higher variable investment income. For Asia's key growth metrics, general account assets under management on an amortized cost basis were up 5% year-over-year on a constant currency basis. Sales were up 4% on a constant currency basis compared to a strong prior year quarter. While Japan sales were down 19% year-over-year on a constant currency basis, primarily due to the impact of yen volatility on foreign currency products. This was more than offset by strong sales growth of 60% in the rest of the region, including a large group case in Australia Latin America adjusted earnings were $226 million, up 3% on reported basis and 8% on a reported basis, primarily driven by solid volume growth across the region and favorable underwriting. This was partially offset by lower Chilean encaje returns of a negative 2.4% in Q2 of 2024 compared to a positive 1.4% in Q2 of the prior year. Latin America's top line continues to perform well as adjusted PFOs were up 9% or 12% on a constant currency basis, driven by growth across the region. EMEA adjusted earnings were $77million, up 10% and 20% on a constant currency basis, driven by volume growth and higher recurring interest margins. This was partially offset by less favorable expense margins year-over-year. EMEA adjusted PFOs were up 7% and 12% on a constant currency basis, and sales were up 31% on a constant currency basis, reflecting strong growth in Turkey, the Gulf and the U.K. MetLife Holdings adjusted earnings were $153 million, down 27% versus the prior year quarter. The primary driver was the foregone earnings due to the reinsurance transaction that closed in November. Corporate and Other adjusted loss was $220 million versus an adjusted loss of $228 million in the prior year. The company's effective tax rate on adjusted earnings in the quarter was approximately 24% and within our 2024 guidance range of 24% to 26%. On Page 5, this chart reflects our pre-tax variable investment income for the prior five quarters, including $298 million in Q2 of 2024. Private equity portfolio, which makes up the vast majority of the VII asset balance, had a positive 2.3% return in the quarter, while our real estate equity funds had a negative 1.4% return in the quarter. As a reminder, both private equity and real estate equity funds are reported on a one-quarter lag. Looking ahead, we expect VII returns to continue to improve over the course of second half of the year. On Page 6, we provide VII post-tax by segment for the last four quarters and the second quarter of 2024. As you can see in the chart, Asia, RIS and MetLife Holdings continue to hold the largest proportion of VII assets given their long-dated liability profile. Now turning to Page 7. The chart on the left of page illustrates the left of page illustrates the split of our net investment income between recurring and VII for the last three years, including second quarters of 2023 and 2024. Adjusted net investment income in Q2 of 2024 was up $120 million year-over-year. Recurring investment income has benefited from higher interest rates, partially offset by the roll-off from higher interest rates caps. In addition, we have seen VII improvement driven by higher private equity returns. Turning your attention to the right side of the page. This shows our new money yield versus roll-off shows our new money yield versus roll-off yields since second quarter of 2021. Over the last nine quarters, new money yields have outpaced roll-off yields, consistent with higher interest rates. In the second quarter of 2024, our global new money rate achieved the yield of 6.27%, 63 basis points higher than the roll-off rate. We anticipate that the new money yields will remain above roll-off yields given the prevailing interest rate environment. However, the spread can fluctuate depending on the mix of sales across our businesses. Now moving to expenses discussed on Page 8, this chart shows a comparison of our direct expense ratio for full year 2023 of 12.2% and the first two quarters of 2024, both at 11.9%. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our Q2 direct expense ratio benefited from solid top line growth and ongoing expense discipline. Looking ahead, we would expect our direct expense ratio to be higher in the second half of the year, consistent with the seasonal nature of our business. That said, our performance year-to-date positions us well to achieve a full year 2024 direct expense ratio of 12.3% or below demonstrating our consistent execution and a sustained efficiency mindset. I will now discuss our cash and capital positions on Page 9. Cash and liquid assets at the holding companies were $4.4 billion at June 30th, which is above our target cash buffer of $3 billion to $4 billion, but down from $5.2 billion at March 31st. The sequential decline in holding companies' cash is primarily a result of approximately $1.5 billion used in April for a debt maturity and a debt redemption, partially offset by a $500 million senior debt issuance in June. Beyond this, cash of the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, and share repurchases of roughly $900 million in the second quarter, as well as holding company expenses and other cash flows. In addition, we have repurchased shares totaling approximately $270 million in July. For our US companies, preliminary second quarter year-to-date 2024 statutory operating earnings were approximately $1.9 billion, essentially flat year-over-year, while net income was approximately $1.3 billion. We estimate that our total US statutory adjusted capital was approximately $18 billion as of June 30, down 2% from March 31, 2024, primarily due to dividends paid and derivative losses partially offset by operating earnings. Finally, we expect that Japan's solvency margin ratio to be approximately 670% as of June 30, which will be based on statutory statements that will be filed in the next few weeks. Before I wrap up, I would just like to highlight that we have an updated commercial mortgage loan slide as of June 30 in the appendix. Overall, the CML portfolio continues to perform as expected with attractive loan-to-value and debt service coverage ratios as well as the expectation of modest losses. In summary, the underlying strength of our business fundamentals was evident with strong top line growth, disciplined underwriting and prudent expense management. Our Group Benefits segment achieved record earnings. Higher interest rates continue to support flows and spreads. And we continue to see improvement in variable investment income. MetLife continues to move forward from a position of strength with a strong balance sheet and a diversified set of market-leading businesses, generating solid recurring free cash flow. And we are committed to deploying this free cash flow to achieve responsible growth and build long-term sustainable value for our customers and our shareholders. And with that, I'll turn the call back to the operator for your questions.

Tom Gallagher:

Good morning. Wanted to ask a couple on the Group Benefits business. First is, can you just unpack the non-medical health results? How were -- how was the underlying disability versus dental? And where -- also, can you just comment on pricing, maybe on both of those products and how you think about renewals? Thanks.

Tom Gallagher:

Great. Thanks for that, Ramy. And just my quick follow-up. How are you feeling about the level of competition in the market? We've heard about new entrants putting some pressure on sales and pricing. Are you guys seeing that? Or are you -- is not affecting you in terms of margin and pricing?

Tom Gallagher:

Great. Thanks.

Suneet Kamath:

Thanks. Good morning. Maybe just to follow-up on Group Benefits. The earnings power of this business has improved pretty substantially. I mean, normally think about this as maybe a $400 million business and excluding the reserve release, you're over $500 million. Is that sort of a sustainable level of earnings power for this business? Or is there anything that we should be thinking about that maybe broke the right way in the quarter?

Suneet Kamath:

Got it. That makes sense. And then I guess on RIS, in terms of the spreads, I mean, think last quarter, you guided to maybe 8 bps to 10 bps of sequential compression. I think you came in much better than that. So just curious what you'd attribute that to? And then how should we be thinking about the progress of that spread as we kind of transition to 3Q and then ultimately 4Q?

Suneet Kamath:

Okay. Thanks, John.

Ryan Krueger:

Hey, thanks. Good morning. I guess on Japan, could you give some perspective on the sales environment there? I think you had -- it was a tougher year ago comparison, but you had some declines in sales. So just hoping to get a little more color on the different product areas there.

John McCallion:

Yes. And I would just -- it's a large group case in Australia. I think you mentioned Japan, but...

Ryan Krueger:

Thanks. One quick follow-up. I think I think you -- I think there's been some elevated surrender activity in Japan. Just -- any more info on that? And to what extent has that impacted earnings in recent quarters?

Ryan Krueger:

Thank you.

Wes Carmichael:

Hey good morning. Thanks for taking my question. Maybe just focusing on Japan for a second, but with the SMR ratio around 670% in the quarter, could you maybe just give us an update regarding the transition to ESR in Japan, if there's been any material changes in how you're feeling about implementation at this point?

Wes Carmichael:

Thanks, John. And just maybe switching to the commercial mortgage loan portfolio. I think the loan-to-value ratio has deteriorated a little bit, at least in office quarter-over-quarter. But could you give us an update on your watch list? Any loans that are in the foreclosure process and if there's any properties where you might be expecting to take them on balance sheet?

Wes Carmichael:

Thanks, John.

Jimmy Bhullar:

Hey. Good morning. My questions are mostly answered, but I just wanted to follow-up on a couple of points. First, on Japan, the decline in sales that you saw, how much of that is just a function of comps and maybe the volatility in the yen depressing sales of ForEx products versus an uptick in competition or price reductions by competitors or other market dynamics that are causing you to actively pull back?

Jimmy Bhullar:

Okay. And then on RIS spreads, I think you've been clear that there's interest rate caps that are expiring later this year or in the third quarter. But should we assume that they'll stabilize in 4Q on a core basis ex-VII? And then are there other puts and takes as you're thinking about spreads going into next year, whether it's caps or sort of maturity of blocks or anything else or business coming out of end of period that would drive a shift in spread margins one way or the other?

Jimmy Bhullar:

Okay. And then on competition in Japan, is it still rational? Or are you seeing any evidence of price reductions with the higher interest rates in that market?

Jimmy Bhullar:

Thank you.

Elyse Greenspan:

Hi. Thanks and good morning. My first question, maybe starting on the PRT side, can you just give some color just on what you see in the pipeline for back half of this year and just any change in the competitive market for that business?

Elyse Greenspan:

Thank you. And maybe the second question on Asia, the earnings were pretty strong in the quarter. I think you guys called out favorable underwriting maybe in the prepared remarks. Anything just more to think about just kind of the run rate earnings within that segment and anything that stood out in the quarter?

Elyse Greenspan:

Thank you.

John Barnidge:

Good morning. Thank you for the opportunity. With the capital regime change in Japan, is there an opportunity to broaden out the Bermuda platform, create more capital-light model? Thank you.

John Barnidge:

Thanks for the answer, John. And my follow-up question is on the opportunity to leverage the large data that you have. Can you talk about the opportunity set? Is it about driving greater profitability or revenues or close rates of persistency? Thanks.

John Barnidge:

Thank you for that.

Mike Ward:

Thanks, guys. Good morning. I was hoping to ask about holdings to your scheme. I'm curious how active those discussions are? Any kind of pressure or change in activity to execute before Fed cuts? Or is it agnostic to that, but any update?

Mike Ward:

Helpful. Thanks, John. And then maybe on private credit. It seems to be an area of attention, maybe a bit frothy. Just curious how you guys see that landscape? Are you leaning in or being more cautious? And I guess like -- what's your strategy? How do you balance having the ability to originate directly versus investing in some of the boutique shops that you've done?

Mike Ward:

Thanks, John.

John Hall:

Great. Thank you, operator, and thanks, everybody for joining for joining us this morning. Have a great summer.

John Hall:

Thank you, operator. Good morning, everyone. We appreciate your participation on MetLife's First Quarter 2024 Earnings Call. In addition to our earnings release, we issued a press release last night announcing a $3 billion increase to our share repurchase authorization.

Operator:

[Operator Instructions] And we have a question from Suneet Kamath with Jefferies.

John McCallion:

Sure, Suneet. Primarily appraisals and valuation. So we actually saw, if you recall, in the fourth quarter, it was fairly flat. Appraisals, they tend to lag a bit in terms of just market declines. And so we saw kind of a catch-up of that in the fourth quarter, which obviously gets reported here in the first quarter.

Suneet Kamath:

Michel, on your comments for future share buybacks. I think you used the word measured pace. Is that measured pace relative to what you did in the first quarter? Or is that relative to what you did in April? And is the plan to exhaust the $3.6 billion authorization in 2024?

Operator:

Next, we go to the line of Ryan Krueger with KBW.

John McCallion:

Yes. Ryan, it's John. I think Suneet's question was focused on real estate. And so I think what we're just trying to -- and regarding outlook in terms of the real estate funds and so we saw a negative return this quarter of 5.8%. I mentioned I thought it would be less negative next quarter, but we still think there'll be a little pressure in just kind of the appraisals coming through and then it will start -- it will kind of moderate from there and start to have an upward trajectory is kind of the way we put it.

Ramy Tadros:

Sure, Ryan. It's Ramy here. I would say, in terms of our view of the competitive dynamics of the group business, it really hasn't changed. I mean, we've always talked about this as a competitive marketplace. And one, because of the short-tail nature of this business is on the whole rationale. And we also think and see that this is a market where there are many avenues for differentiation beyond price.

Wesley Carmichael:

I had a question on pension risk transfer. I know you guys didn't have any deals in the quarter. But there were some deals that were done that were reasonable size and your peers has plenty of capital to support this marketplace right now. And there's actually another ongoing call right now that one of your peers are saying that PRT is not that good of a business this year, there's not as much spread. So I'm just wondering if pricing is getting more competitive there, if there's any dynamics changing in the marketplace.

Michel Khalaf:

Yes. Sure, Wes. Thanks for the question. So our philosophy and approach is that we want to support organic growth. We've been doing so consistently. And you can see from our VNB disclosures the returns that we've been able to generate high teens and paybacks in the sort of mid-single digits.

Jamminder Bhullar:

So first on the question for John on your spreads in RIS. Healthy overall, but we saw a sequential decline in spreads, excluding variable investment income. And I think you attributed that to the expiration of some of the interest rate cap. So I'm wondering if you could give us some idea on the trajectory of that? And should we assume sort of a similar level of an impact from caps that are expiring in the next few quarters? And when should we assume that dynamic is going to be over?

Ramy Tadros:

Jimmy, it's basically seasonality story. As you know, with dental claims, the benefits reset at the end of the calendar year. So come January, you just get to see more utilization as the claims reset. And therefore, that's just a seasonally higher ratio. If you look at our overall non-medical health ratio, this first quarter seasonality is baked into our guidance ranges. I remind you, these are annual ranges, and our expectations are at this point, that will be well within our range, 69% to 74% for the full year.

Operator:

And next, we move to Tom Gallagher with Evercore ISI.

John McCallion:

Yes, 8 to 10, you took the top end of that range, but sure, it's close -- 16 to 20.

John McCallion:

Yes.

Thomas Gallagher:

That does. And if I could just sneak in one other follow-up. So dental utilization, you would fully expect that to be far lower in 2Q than 1Q? Or is there going to be some tail on that where you might see some level of higher utilization and lower earnings into 2Q as well, would you say?

John McCallion:

And Tom, maybe I'll just add a follow-up again on your first question. I mean, I think also just you only focused on XVII. But as I said, I think what's really important is that we think of the all-in spread here, and that's -- all of that is very much in line with what we gave in the outlook for the midpoint of the range.

Justin Tucker:

This is Justin Tucker on for Brian. My first question is about RIS. When looking at the structured settlement results, could you kind of help us understand how much of the demand is driven by the favorable interest rate environment? And then how much of it is driven by the courts opening and social inflation?

Ramy Tadros:

It's Ramy here. I mean I would say interest rates is the primary driver of this. You have seen coming out of the pandemic, call it, pent-up demand with the courts being closed and some of that clearly kind of did cause an increase in volumes earlier on. That's now stabilized, and it's very much an interest rate-driven volume increases.

Justin Tucker:

Great. And then my follow-up question is just on Latin America. Sales were flat year-over-year. I'm just kind of curious about what you're seeing in the overall market for demand and what you expect with sales going forward?

Operator:

And we have no other questions. I'll be turning the conference back to John Hall for closing comments.

Operator:

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

John Hall:

Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife's fourth quarter 2023 earnings and near-term outlook call. Before we begin, I'd point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Last night, we released a set of supplemental slides, which addressed the quarter as well as our near-term outlook. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks. An appendix to the slides features outlook sensitivities, disclosures, GAAP reconciliations and other information, which you should similarly review. After prepared remarks, we will have a Q&A session, which will end promptly at the top of the hour. As a reminder, please limit yourself to one question and one follow-up. With that, over to Michel.

John McCallion:

Thank you, Michel, and good morning. I will start with the 4Q 2023 supplemental slides, which provide highlights of our financial performance, an update of our liquidity and capital positions as well as our commercial mortgage loan portfolio. In addition, I will discuss our near-term outlook in more detail. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the fourth quarter and full year 2023. Market risk benefit or MRB remeasurement losses in the fourth quarter was due to the decline in long-term interest rates. Net derivative gains were only a partial offset as the favorable impact from lower long-term interest rates were mitigated by changes in short-term interest rates and higher equity markets in the quarter. For the full year, the variance between net income and adjusted earnings was mostly attributable to net derivative losses, primarily due to stronger equity markets, changes in foreign currencies and higher interest rates in 2023. In addition, net investment losses were largely the result of normal trading activity on the portfolio in a rising interest rate environment as well as the mark-to-market impact on securities that were transferred as part of the reinsurance transaction with Global Atlantic. Overall, the portfolio remains well positioned with modest levels of credit losses and the hedging program continues to perform as expected. On Page 4, you can see the fourth quarter year-over-year comparison of adjusted earnings by segment, excluding $76 million after tax, of an unfavorable notable item relating to asbestos litigation reserves in 4Q of 2023 that was accounted for in corporate and other. There were no notable items in the prior year quarter. Regarding the asbestos reserve increase of $76 million, based on our latest review, while we continue to observe a declining claim count, the frequency of severe claims related to asbestos has not declined as expected. The total reserve is $364 million at the end of 2023. Adjusted earnings, excluding total notable items were $1.4 billion, up 14% and 12% on a constant currency basis. The primary drivers were strong recurring interest margins, higher variable investment income, or VII, volume growth and favorable underwriting margins. Adjusted earnings per share, excluding total notable items were $1.93, up 21% and 19% on a constant currency basis. Moving to the businesses. Group Benefits adjusted earnings were $466 million, up 19% versus the prior year period. The key drivers were favorable life underwriting margins and solid volume growth. The Group Life mortality ratio was 83.5%, favorable to the prior year quarter of 87.3% and below the bottom end of our 2023 target range of 85% to 90%. Consistent with CDC U.S. mortality data, we saw a much lower number of life claims than typical in the fourth quarter. Regarding non-medical health, the interest-adjusted benefit ratio was 70.7% in the quarter, and at the low end of its annual target range of 70% to 75%. We expect both the life mortality ratio and the non-medical health ratio to be higher in Q1 given the seasonality of the business. Turning to the top line, Group Benefits adjusted PFOs on a full year basis were up 3% year-over-year. Taking participating contracts into account, which dampened growth by roughly 200 basis points. The underlying PFOs were up approximately 5% year-over-year within our 2023 target growth range of 4% to 6%. In addition, Group Benefits 2023 sales were up 9% year-over-year. The continued strong growth is primarily due to solid growth across most products, including continued strong momentum in voluntary. RIS adjusted earnings were $421 million, up 10% year-over-year. The primary drivers were favorable investment margins due to higher recurring interest and variable investment income as well as favorable underwriting margins. RIS investment spreads were 121 basis points. Spreads, excluding VII were 134 basis points, up 10 points versus Q4 of 2022, primarily due to higher interest rates as well as income from in-the-money interest rate caps. RIS adjusted PFOs, excluding pension risk transfers were up 75% year-over-year, primarily driven by strong sales of structured settlement products and post-retirement benefits as well as growth in UK longevity reinsurance. With regards to PRT, we added transactions worth approximately $1.9 billion in the fourth quarter, bringing our full year total to roughly $5.3 billion. This marks the third highest PRT sales year for MetLife, and we continue to see an active market. Moving to Asia. Adjusted earnings were $296 million, up 12% and 11% on a constant currency basis, primarily due to higher investment margins and lower taxes. For Asia's key growth metrics, general account assets under management on an amortized cost basis were up 6% year-over-year on a constant currency basis, and sales were essentially flat versus the prior year quarter. For the full year, Asia’s sales were up 13%, driven by strong growth across the region, exceeding its 2023 guidance range of mid to high-single digits. Latin America adjusted earnings were $207 million, up 13% and 4% on a constant currency basis, primarily due to solid volume growth partially offset by less favorable underwriting margins versus a strong Q4 2022. In addition, LatAm had favorable Chilean encaje returns of 7.9% in 4Q of 2023 versus 6.1% in the prior year quarter. Latin America’s top line continues to perform well as adjusted PFOs were up 29% and 19% on a constant currency basis, driven by strong sales and solid persistency across the region. For the full year, adjusted PFOs were also up 29% on a reported basis and 19% on a constant currency basis, exceeding LatAm’s 2023 guidance of low-double digit growth. EMEA adjusted earnings were $47 million, down 27% on both a reported and constant currency basis, primarily driven by an unfavorable tax charge following a favorable tax benefit in the prior year period, as well as less favorable expense and underwriting margins. This was partially offset by higher recurring interest margins year-over-year. EMEA full year 2023 adjusted earnings of $265 million exceeded our outlook expectations of roughly $55 million per quarter. EMEA adjusted PFOs were up 5% on both a reported and constant currency basis and sales were up 18% on a constant currency basis, reflecting strong growth across the region. MetLife Holdings adjusted earnings were $156 million, down 15%, largely driven by foregone earnings as a result of the reinsurance transaction that closed in November. Corporate and other adjusted loss was $156 million, excluding the unfavorable notable item of $76 million after-tax that I referenced earlier. This compares to an adjusted loss of $210 million in the prior year. Higher net investment income and favorable taxes were the primary drivers. The company’s effective tax rate on adjusted earnings in the quarter was approximately 19%, which includes favorable tax benefits primarily related to the true up of the federal tax return to provision. On Page 5, this chart reflects our pre-tax variable investment income for the four quarters and full year of 2023. VII was $63 million in the fourth quarter, primarily driven by positive returns in our corporate and mortgage loan funds. The private equity portfolio and real estate equity funds had a combined return of essentially zero in the quarter. For the full year, VII was $419 million, well below our 2023 target of approximately $2 billion. That said, while mark-to-market returns were below expectation in 2023, the PE portfolio generated approximately $2 billion in cash distributions during the year. On Page 6, we provide VII post tax by segment for the prior four quarters and full year 2023. As reflected in the chart, RIS, Asia and MetLife Holdings continue to hold the largest proportion of VII assets, given their long dated liability profile. Now, turning to Page 7, the chart on the left of the page shows the split of our net investment income between recurring and VII for the past three years, as well as Q4 of 2022 versus Q4 of 2023. While VII has had lower than trend returns over the last couple of years, recurring income, which accounted for most of the net investment income in 2023 was up approximately $2.6 billion year-over-year, reflecting higher interest rates and growth in asset balances. The expansion of recurring income in 2023 more than offset the lower VII year-over-year. Shifting your attention to the right of the page, which shows our new money yield versus roll-off yield since 4Q of 2020, new money yields continue to outpace roll-off yields over the past couple of years, consistent with rising rates. In this quarter, our global new money yield continued its upward trajectory coming in at 6.67%, 142 basis points higher than the roll-off yield. Turning to Page 8. I’ll provide a few updates on our commercial mortgage loans. Overall, the CML portfolio continues to perform consistent with expectations, where we expect higher quality assets to outperform the asset sector broadly. The average LTV on our CML portfolio now stands at 64% as of December 31, up slightly from 63% in the third quarter of 2023, and the average debt service coverage ratio remains steady at 2.3 times. The modest increase in LTVs and stable debt service coverage ratio are further indicators of the disciplined approach we take to investing in this asset class. The quality of our CML portfolio remains strong with only 2.6% of loans having LTVs more than 80% and DSCRs less than one times. With regards to CML loan maturities, we resolved 100% of the loans that were scheduled to mature in 2023. Our expectation going forward remains for modest credit losses on the portfolio. Turning to Page 9. This chart shows a comparison of our direct expense ratio over the prior eight quarters and full year 2022 and 2023. Our direct expense ratio in 4Q of 2023 was up modestly at 12.4%, reflecting the impact from seasonal enrollment costs in group benefits as well as higher employee related costs. That said, as we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. For the full year of 2023, our direct expense ratio was 12.2% below our 2023 target of 12.6%. We believe this result once again demonstrates our consistent execution and focus on an efficiency mindset in a challenging inflationary environment, while continuing to make investments in our businesses. I will now discuss our cash and capital positions on Page 10. Cash and liquid assets at the holding companies were approximately $5.2 billion at December 31, which is above our target cash buffer of $3 billion to $4 billion. The cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of roughly $900 million in the fourth quarter, as well as holding company expenses and other cash flows. In addition, we repurchased shares totaling approximately $500 million in January. For the two-year period 2022 and 2023, our average free cash flow ratio, excluding notable items totaled 74% and was within our 65% to 75% target range. In terms of statutory capital, for our U.S. companies, our combined 2023 NAIC, RBC ratio is still preliminary but expected to be approximately 400% and above our 360% target. For our U.S. companies, preliminary 2023 statutory operating earnings were approximately $4.5 billion, while net income was approximately $3.9 billion. Statutory operating earnings increased by approximately $1.9 billion year-over-year, primarily driven by favorable underwriting and impacts from the reinsurance transaction. This was partially offset by higher expenses. We estimate that our total U.S. statutory adjusted capital was approximately $19.5 billion as of December 31, 2023, up 10% for September 30, 2023, primarily due to operating earnings and the impacts of the reinsurance transaction. This was partially offset by dividends paid. Finally, we expect that Japan solvency margin ratio to be approximately 720% as of December 31, which will be based on statutory statements that will be filed in the next few weeks. Before I shift to our near-term outlook starting on Page 12, a few points on what we included in the appendix. The chart on Page 17 reflects new business value metrics for MetLife's major segments from 2018 through 2022. This is the same chart that we showed as part of our 3Q 2023 supplemental slides, but we feel it's worth including again for the sake of completeness. Also, pages 18 through 21 provide interest rate assumptions and key outlook sensitivities by line of business. Now let's turn to Page 12 for further details on our near-term outlook. Starting with the overview. We expect continued uncertainty to persist around inflation and unemployment in 2024. We expect the U.S. dollar to stabilize around current levels. Based on the 12/31/2023 forward curve, we assume long-term interest rates to be largely unchanged in 2024, and the yield curve will move from inverted to modestly upward sloping as short-term interest rates decline and we assume a 5% annual return for the S&P 500. For our near-term targets, we are maintaining our adjusted ROE range of 13% to 15%. We expect to maintain our two-year average free cash flow ratio of 65% to 75% of adjusted earnings. Also, given continued focus on expense discipline, building capacity to reinvest in growth initiatives, and our overall efficiency mindset, we are lowering our direct expense ratio guidance for 2024 from 12.6% to 12.3%. Specifically, for 2024, VII expected to be approximately $1.5 billion. Our corporate and other adjusted loss target is expected to be $750 million to $850 million after tax in 2024. This represents an approximately $100 million increase from our prior adjusted loss guidance of $650 million to $750 million in 2023. The higher range reflects C&O's current run rate given the impact of a higher rate environment on interest expense and pension costs, as well as the impact of lower expected benefits from VII. We are increasing our expected effective tax rate range by two points to 24% to 26% to reflect our expectation for higher earnings in foreign markets with higher tax rates and lower tax credits in the U.S. At the bottom of the page, you will see certain interest rate sensitivities relative to our base case, reflecting a relatively modest impact on adjusted earnings over the near-term. On Page 13, the chart reflects our VII average asset balances from $18 billion in 2022 to $19.7 billion expected in 2024. Private equity investments will continue to represent the vast majority of our VII asset balances. We are reducing our near-term expected annual returns for private equity to be between 7% to 10% and we are also lowering our expected returns for real estate and other funds to be in the range of 5% to 7% over the near-term. We expect PE and real estate returns will remain pressured in the first quarter of 2024 before trending higher. Finally, as a reminder, we include prepayment fees on fixed maturities and mortgage loans in VII. So now, I will discuss our near-term outlook for our business segments. Let's start with the U.S. on Page 14. For group benefits, excluding the excess premium from participating group life contracts of approximately $300 million in 2023, adjusted PFOs are expected to grow at 4% to 6% annually over the near-term. And for 2024 we expect growth to be in the top half of that range. This reflects the strong momentum in the business, particularly in voluntary products, as well as exceptionally strong persistency in our national accounts. Regarding underwriting, we expect 2024 underwriting margins to be generally consistent with 2023. As such, we are reducing our near-term group life mortality ratio and non-medical health interest adjusted benefit ratio ranges by 1 percentage point to 84% to 89% and 69% to 74%, respectively. Finally, keep in mind these are annual ratios and both typically skew to the higher end of the ranges in the first quarter given the seasonality of the business. For RAS, we are maintaining our 2% to 4% expected annual growth for total liability exposures across our general account spread and fee-based businesses. Regarding investment spread, full year 2023 was 125 basis points and is expected to be relatively flat for the full year of 2024. This incorporates both the impact of the roll off of our interest rate caps with maturities throughout 2024 and the offsetting benefit of VII re-emerging over the year as a more meaningful contributor. As such, we expect the investment spread range for 2024 is 115 to 140 basis points. We have also provided updated RAS sensitivities for interest rate movements in the appendix. Sensitivities reflect the anticipated impact from interest rate cap maturities throughout 2024. As such, our sensitivity to SOFR declines throughout the year. For MetLife Holdings, we are expecting adjusted PFOs to decline by approximately 13% to 15% in 2024 and then declining 4% to 6% annually thereafter. And we are lowering the adjusted earnings guidance range to $700 million to $900 million in 2024 to reflect the foregone earnings from the reinsurance transaction as well as lower expected PE returns and natural runoff of the business. Now, let’s look at the near-term guidance of our businesses outside the U.S. on Page 15. For Asia, we expect the recent sales momentum to continue and generate mid-single digit growth over the near-term. In addition, we expect general account AUM to maintain mid-single digit growth. We are expecting adjusted earnings to grow roughly 20% in 2024 as we assume VII to have a greater impact throughout the year. We are maintaining mid-single digit adjusted earnings growth expectation over the remainder of the near-term. For Latin America, we expect both adjusted PFOs and adjusted earnings to grow by high single digits over the near-term. Finally, for EMEA, we’re expecting sales to grow mid- to high-single digits and adjusted PFOs to grow mid-single digits over the near-term. The forward curve assumes a strengthening of the U.S. dollar relative to most currencies in EMEA. As such, we project EMEA’s adjusted earnings run rate to be roughly $60 million to $65 million per quarter in 2024 and then grow by mid-single digits in 2025 and 2026 based on the forward curve for these currencies. Let me conclude by saying that MetLife delivered a solid quarter to close out another strong year. The underlying strength of our business fundamentals remains on display with strong top line growth coupled with disciplined underwriting and expense management. While VII remains below historical returns, core spreads remain robust and continue to benefit from the higher yield environment. While the current environment remains uncertain, we are excited about the outlook and growth prospects for our businesses over the near-term and beyond. MetLife continues to move forward from a position of strength with a strong balance sheet, recurring free cash flow generation and a diversified set of our market leading businesses. And we are committed to deploying capital to achieve responsible growth and build sustainable value for our customers and our shareholders. And with that, I will turn the call back to the operator for your questions.

Ryan Krueger:

Hey, thanks. Good morning. My first question is on the ROE target. And I recognize that you just raised the target by 100 basis points a year ago to 13% to 15%. But it seems like your segment outlook would suggest something at least a bit above 15%, maybe something closer to 15.5%. So I guess I just wanted to hear your perspective on, am I thinking about that incorrectly or is there some potential upside to this ROE based on the current trends you’re seeing?

Ryan Krueger:

Understood. Makes sense. And then I think you said you expected the RBC ratio to be around 400%. Would have thought it would have been maybe a little higher than that following the reinsurance transaction. Do you have any more color on if there were any offsets?

Ryan Krueger:

Okay, great. Thank you.

Suneet Kamath:

Yes, thanks, and appreciate all the color on the guidance. But maybe if we could just circle back to consolidated recurring NII, I think you talked about a pretty big lift in 2023 relative to 2022, that $19.3 billion. Any help in terms of what you think that could look like given all of the moving pieces as we think about 2024?

Suneet Kamath:

Okay. Got it. And then as we think about the benefit of the caps in 2023 and what that looks like in 2024 as they roll off? Should we think about the improvement in VII as essentially like those two kind of net as a wash? Or is one kind of greater than the other? I just want to get some additional color on that if we could.

Suneet Kamath:

Okay, that’s helpful. Thanks.

Tom Gallagher:

Hi. So your assumed alternative returns are now around 7.5% for 2024. And I think the RBC risk charge, if I was to do a weighted average, would be 15% to 20% on most of that portfolio. Have you considered pivoting some of the portfolio into assets with comparable, let’s say, 7% yields, like private credit or just other fixed income, but much lower risk charges? I’m just thinking about it from the perspective of we’ve had two years of underperformance, your outlook for a third year is below those levels, and rates are higher. And if I think about both your cost of capital and ROE, I think it would be a fairly meaningful positive. Not recognizing you can’t do this overnight, but is that something you consider pivoting or shifting to? Thanks.

Tom Gallagher:

Okay, thanks. And then just a question on Group Benefits, the 100 basis point improvement in the margin target, or at least the loss ratio targets. Can you comment on what's driving that? Is that stable pricing, sustainably higher disability or lower disability loss ratios, and maybe a little bit on the Group Life side, what you're thinking? Thanks.

Tom Gallagher:

That's helpful. Thanks.

Jimmy Bhullar:

So the first question on retirement spreads. Can you discuss the driver of the sequential decline in spreads each of the last two quarters? And how much of this is being driven by mix of business versus maybe competition, because what we're seeing is your yields have gone up, but crediting rates seem to be rising even faster than that?

Jimmy Bhullar:

Okay. And then on the CRE portfolio, you mentioned resolving all of the maturities for 2023. Can you give us a sense of how much of your book is coming due over the next one to two years, especially in office properties? And as you're resolving these loans, are you having to extend more of them than you've done in the past, or are you resolving them similar to how you would have done it over the last several years?

Jimmy Bhullar:

Thank you.

Elyse Greenspan:

Hi. Thanks. Good morning. My first question is on the PRT side. I think we've stopped seeing why the seasonality where deals know much more weighted to the fourth quarter. So just trying to get a sense of your outlook for 2024 and how we should think about the cadence of potential transactions there?

Elyse Greenspan:

Thanks. And then my second question

John McCallion:

And I would just add Elyse, I mean, just too kind of put a finer point on just the financial flexibility and the fungibility of that, I mean, we might, because we have excess capital at the OpCo, we might think differently at the Holdco, it'll depend, right? I mean, I don't think we have to necessarily have it all at the Holdco. We have a range of 3 to 4. It might give us some ability to manage more differently within that range because we have access at the OpCos, I think we just want to, I think the flexibility is the key point.

Operator:

Next we go to the line of Alex Scott with Goldman Sachs. Please go ahead.

John McCallion:

Hey, good morning, Alex, it's John. I'd love to say that we have great insights into the, as a result of having the lag, but I'm not so sure that has proven out the way we thought it would each quarter. I think all we know is that we think, we kind of believe that it'll bump along the, kind of the bottom again before becoming a more meaningful contributor in the outer quarters. We think managers, even though the S&P jumped up in the quarter; it was kind of late in the quarter. We believe managers will be a bit cautious in their yearend remarks and maybe remain conservative before writing investments up based on some of the public market multiples. So that's kind of our base case assumption. We don't have a lot of insight yet in actual financial statements that have come through. So obviously those will come through as we move through the quarter.

Ramy Tadros:

Thanks, Alex. It's Ramy here. I would say we're really off to a strong start in 2024. If you look at 2023, overall sales were up 9% year-over-year, as John mentioned. And we saw a very strong persistency in line with our expectations. And we also saw the rate actions that we were able to take also in line with our expectations across market segments. So while there is competition and it is a competitive market, when we think about pricing as well as persistency, I think all the non price factors of differentiations that we've talked about in the past are playing into our favor here. And we've been able to hold margins and as you've seen, we've expanded the margin outlook. One, [ph] I can give you a bit of a flavor on that. We're still in the midst of it, but initial indications in terms of our sales growth are in the 5% to 10% again year-over-year with really solid growth across the product portfolio, across both core and voluntary. So these are really good indicators for us both in terms of volume and margin as we look into 2024.

Operator:

And ladies and gentlemen, we have time for one last question from John Barnidge with Piper Sandler. Please go ahead.

Michel Khalaf:

Yes. Hey, John, I don't have that number handy. Specifically in terms of employee count. The best thing you could look at for an indicator for that is just overall employment levels because we have a very diversified book up and down market. It's highly diversified by industry. So you could think of us as reflecting the broader economy in terms of our employee count. But the one that I would look at more closely is, and this is where we see a lot of white space with respect to employee counts, is the penetration rate in the workspace. We still see plenty of opportunity to drive penetration of our own products, be they voluntary or employee paid. And that's through the deployment of the right technology, the right tools, the right engagement capabilities. And that's really what's been fueling our voluntary growth over the past few years. And that's where we see continued future growth opportunities.

John McCallion:

Yes. Hey, good morning, John. It's John. So, as we said, this is something that we look at each third or fourth quarter where we conduct our experience study. This is an exposure where there is a declining claim count, but what hasn't declined as expected or as fast as expected is some of the severe claims. So the larger claims, and that's really what we trued up this quarter. Again, it's kind of a runoff claim count exposure. We've been seeing that for some time. But in the last 12 months, we just saw a slightly different trend that we needed to adjust for. I mean the overall reserves just above 350 million.

Operator:

And I'll now turn the conference back to John hall for closing remarks.

Operator:

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

John Hall:

Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife's third quarter 2023 earnings call. Before we begin, I’d point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Also last night, we released a set of supplemental slides which addressed the quarter. The slides are available on our website. John McCallion will speak to them in his prepared remarks if you wish to follow along. An appendix to these slides features GAAP reconciliations and other information which you should similarly review. As usual, after prepared remarks, we will host a Q&A session. We will end Q&A just prior to the top of the hour. In fairness to everyone, please limit yourself to one question and one follow-up. With that, over to Michel.

John McCallion :

Thank you, Michel, and good morning. I will start with the 3Q '23 supplemental slides which provide highlights of our financial performance including details of our Annual Global Actuarial assumption review. In addition, I'll provide updates on our value of new business metrics, our liquidity and capital positions, as well as our commercial mortgage loan portfolio. Starting on page three, we provide a comparison of net income to adjusted earnings in the third quarter. Net investment losses include the mark-to-market impact on securities that are expected to be transferred with the pending reinsurance transaction with Global Atlantic that we announced at the end of May. For GAAP purposes any increase in gross unrealized losses on these securities are required to be realized through net income until we close the transaction. Also, we had net investment losses from our normal trading activity in the portfolio, given the rising interest rate environment. In addition, we had net derivative losses due to higher interest rates and strengthening of the US dollar versus multiple currencies, primarily the Chilean peso and yen. That said, net derivative losses were partially offset this quarter by market risk benefit or MRB remeasurement gains due to higher interest rates. Overall, the portfolio remains well positioned. Credit losses continued to be modest and the hedging program performed as expected. The table on page four provides highlights of our Annual Actuarial Assumption Review and other insurance adjustments with a breakdown of the adjusted earnings and net income impact by business. Overall, the impact to adjusted earnings and net income was negligible. In Group Benefits, we had a favorable impact from assumption changes in individual disability, primarily due to lower incident rates and favorable recoveries. In Retirement and Income Solutions or RIS, we lowered our near-term assumption for mortality improvement which resulted in an economic benefit, given the longevity products in this business. In Asia, the net unfavorable impact was due to lapse rate changes across life and accident & health products in Japan, as well as lowering lapse rates and expected fund returns for variable life products in Korea. On page five, you can see the third quarter year-over-year comparison of adjusted earnings by segment, excluding notable items associated with the Annual Assumption Review and other insurance adjustments in both periods. Adjusted earnings were $1.5 billion up 35% and 33% on a constant currency basis. The primary drivers were higher variable investment income or VII, strong recurring interest margins and favorable underwriting margins. Adjusted earnings per share were $1.95, up 43% and 40% on a constant currency basis. Moving to the businesses, starting with the US. Group Benefits adjusted earnings were $483 million, up 16% versus the prior year period. The key drivers were favorable underwriting margins and solid volume growth. The Group Life mortality ratio was 83.6% favorable to the prior year quarter of 85.7% and below the bottom end of our annual target range of 85% to 90%. As a reminder, mortality results tend to be more favorable in the third quarter, so we would expect our Group Life ratio to be back within the 85% to 90% range in the fourth quarter and full year of 2023. Regarding non-medical health, the interest adjusted benefit ratio was 69% in the quarter or 70.4% excluding the favorable impact related to the annual assumption review that I mentioned earlier and at the low end of its annual target range of 70% to 75%. Turning to the top line, Group Benefits adjusted PFOs were up 3% year-over-year. Taking participating contracts into account which dampened growth by roughly 1%, the underlying PFO were up approximately 4% year-over-year, primarily due to solid growth across most products. Including continued strong momentum in voluntary and was within our 2023 target growth range of 4% to 6%. In addition Group Benefit sales were up 11% year-to-date driven by strong growth across most products and markets. RIS adjusted earnings were $409 million, up 60% year-over-year. The primary driver was favorable investment margins due to higher recurring interest and variable investment income. Solid volume growth year-over-year also contributed to the strong performance. RIS investment spreads were 130 basis points. Spreads excluding VII were 138 basis points, up 26 points versus Q3 of 2022 primarily due to higher interest rates as well as income from in-the-money interest rate caps. RIS adjusted PFOs excluding pension risk transfers were up 75% primarily driven by strong sales of structured settlement products, growth in UK longevity reinsurance, and postretirement benefits. With regards to PRT we added transactions worth approximately $1.5 billion in Q3 of 2023, bringing our year-to-date total to roughly $3.5 billion. Moving to Asia. Adjusted earnings were $369 million, up 23% and 25% on a constant currency basis, primarily due to higher investment margins. Asia's key growth metrics were solid as journal on assets under management on an amortized cost basis as well as sales both grew 5% year-over-year on a constant currency basis, driven by growth across most of the region. In Japan, sales on a constant currency basis were up 3% year-over-year, driven by strong life sales due to the ongoing momentum of a single premium FX Life product that was relaunched April 1st of this year. In other Asia sales on a constant currency basis were up 8% year-over-year, primarily driven by strong life sales in Korea in advance of a prospective regulatory change that took place on September 1st, that impacts low cash value whole life products. Looking ahead, while we anticipate Asia year-over-year sales will decline in the fourth quarter, we expect full year 2023 sales growth to be at the top end or exceed our annual guidance range of mid- to high single-digits. Latin America adjusted earnings were $199 million up 26% and 8% on a constant currency basis primarily due to solid volume growth and favorable underwriting margins. Latin America's topline continues to perform well as adjusted PFOs were up 32% and 16% on a constant currency basis. And sales were also up 16% on a constant currency basis driven by strong growth in Mexico and Chile and solid persistency across the region. EMEA adjusted earnings were $70 million, up 43% and 40% on a constant currency basis primarily due to higher volume growth recurring interest margins as well as underwriting margins running favorable to expectations. This was partially offset by less favorable expense margins year-over-year. EMEA adjusted PFOs were up 9% on both a reported and constant currency basis and sales were up 20% on a constant currency basis, reflecting strong growth across the region. MetLife Holdings adjusted earnings were $206 million, up 23%, primarily driven by higher variable investment income. Corporate and other adjusted loss was $262 million compared to an adjusted loss of $258 million in the prior year quarter. Higher expenses, including interest on incremental debt, were partially offset by higher net investment income. The company's effective tax rate on adjusted earnings in the quarter was approximately 23% and within our 2023 guidance of 22% to 24%. On page 6, this chart reflects our pre-tax variable investment income for the prior five quarters including $179 million in Q3 of 2023. The private equity portfolio of $14.9 billion had a plus 1.4% return in the quarter. Real estate equity funds of $2.2 billion had a minus 3% return. As of now, we anticipate PE returns to remain consistent with the second and third quarter with a modest improvement in real estate funds in the fourth quarter. Therefore, VII would more closely resemble second quarter results. On page 7 we provide VII post-tax by segment for the prior five quarters. As we have noted previously each of the businesses hold its own discrete investment portfolios, which have been built to match its liabilities. As reflected in the chart, Asia, RIS and MetLife Holdings continue to hold the largest proportion of VII assets given their long-dated liability profile while Corporate and Other continues to hold higher VII assets than historical levels. Now turning to page 8. The chart on the left of the page shows the split of our net investment income between recurring and VII for the past three years and Q3 of 2022 versus Q3 of 2023. While VII has had lower than trend returns over the last few quarters, recurring income, which accounts for approximately 96% of net investment income, was up approximately $700 million year-over-year, reflecting higher interest rates and growth in asset balances. Shifting your attention to the right of the page, which shows our new money yield versus roll-off yield over the past three years, new money yields continue to outpace roll-off yields in the recent quarters. In this quarter, our global new money yield continued its upward trajectory coming in at 6.26%, 156 basis points higher than the roll-off yield. We expect this favorable trend to continue assuming interest rates remain near current levels. Turning to page 9. I'll provide a few updates on our commercial mortgage loans. First, let me say that we are pleased with the commercial mortgage loan or CML portfolio, which continues to perform as expected. As we have noted last quarter our real estate team updated all US office valuations through June 30, assuming a 25% peak to trough valuation decline. In this quarter, the team shifted its effort to revaluing other CML asset classes, which have not been under the pressure seen in the office sector. Not surprisingly, the average LTV increased only slightly as a result with our CML portfolio now at an average LTV of 63%, up from 62% in the second quarter of 2023 and an average debt service coverage ratio of 2.3 times, which represents no change versus 2Q 2023. The modest increase in LTVs and stable debt service coverage ratio are further indicators of the disciplined approach we take to investing in this asset class. The quality of our CML portfolio remains strong with only 1.6% of loans having LTVs more than 80% and DSCRs less than one times. With regards to CML loan maturities, we now have successfully resolved almost 90% of the portfolio scheduled to mature in 2023 and our expectation remains for minimal losses on the portfolio. Our CML portfolio scheduled maturities over the next three years are very manageable, 10% in 2024 13% in 2025 and 16% in 2026. Now, let's switch gears to discuss expenses on page 10. This chart shows a comparison of our direct expense ratio for the full year of 2022 as well as the first three quarters of 2023. In Q3 of 2023, the ratio was 12.3%. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our Q3 direct expense ratio benefited from solid top line growth and ongoing expense discipline. While we would expect our direct expense ratio to be higher in Q4 consistent with the seasonality of our business, we are confident we will beat our full year direct expense ratio target of 12.6% in 2023 despite the challenging inflationary environment. We believe this demonstrates our consistent execution and focus on an efficiency mindset. Now let's turn to page 11. This chart reflects new business value metrics for MetLife's major segments for the past five years including an update for 2022. As mentioned by Michel, MetLife invested $3.7 billion of capital in 2022 to support new business. This was deployed at an average unlevered IRR of approximately 17% with a payback period of six years, generating roughly $2.3 billion in value. I will now discuss our cash and capital position on page 12. Cash and liquid assets at the holding companies were approximately $4.9 billion at September 30th, which is above our target cash buffer of $3 billion to $4 billion and higher than our $4.2 billion at June 30th. The cash of the holding companies reflects the net effects of subsidiary dividends, a $1 billion senior debt issuance in July, payment of our common stock dividend, share repurchase of roughly $800 million in the third quarter, as well as holding company expenses and other cash flows. In addition, we have repurchased shares holding approximately $250 million in October. For our US companies preliminary third quarter year-to-date 2023 statutory operating earnings were approximately $3.1 billion, while net income was approximately $2.1 billion. Statutory operating earnings increased by approximately $1.6 billion year-over-year, primarily driven by favorable underwriting partially offset by higher expenses. We estimate that our total US statutory adjusted capital was approximately $17.7 billion as of September 30, 2023, up 2% from June 30, 2023. This increase was primarily due to operating earnings partially offset by dividends paid and net investment losses. Total US statutory adjusted capital has absorbed a negative impact of roughly $300 million associated with the investments expected to be transferred to Global Atlantic, which will be recovered upon closing. Finally we expect the Japan solvency margin ratio to be approximately 600% as of September 30th, which we based on statutory statements that will be filed over the next few weeks. Let me conclude with a few points. First, while VII remains below historical returns, core spreads remain robust and continue to benefit from higher yield environment. Second, the underlying strength of our business fundamentals continues to be displayed with strong top line growth coupled with disciplined underwriting and expense management. Finally, our strong value of new business metrics provide further evidence of our disciplined approach to deploying capital to its highest and best use consistent with our all-weather strategy. To close, MetLife remains in a position of strength given our balance sheet, free cash flow generation and diversification of our market-leading businesses and we are committed to deploying capital to achieve responsible growth and building sustainable value for our customers and our shareholders. And with that, I will turn the call back to the operator for your questions.

Ryan Krueger:

Hey. Thanks. Good morning. Can you provide some color on how January 1 renewals are shaping up so far in Group Benefits and also both in terms of persistency in the pricing dynamic in the market?

Ryan Krueger:

Thanks. And then in terms of capabilities within in Group Benefits and M&A, you've done a couple of things to round out the portfolio. Is there anything else you'd be interested in at this point? Or do you feel like you have what you need to grow organically?

Ryan Krueger:

Great. Thanks a lot.

Tom Gallagher:

Good morning. A couple of questions on capital. The SMR in Japan seems kind of low at 600% now. Is that something to watch? Or should we really be more focused on ESR since we're going to be pivoting to that new regime pretty soon. So that's the first question. The second is just the $1 billion increase in debt. Is that part of the permanent capital structure? Or are you pre-funding a maturity there?

Tom Gallagher:

The $1 billion debt increase.

Tom Gallagher:

Okay. Thanks. And then just one other quick one. The slightly improved real estate returns expected for alternatives in 4Q. Is that because you have some property sales resuming and related gains? Or is that just marks being stable?

Tom Gallagher:

Okay, thanks.

Jimmy Bhullar:

Hi, good morning. So first I had a question on just retirement spreads. Should we assume that core spreads in the RIS business will maybe compress a little bit as you go through 2024, given expiration of caps? Or are there other puts and takes?

Jimmy Bhullar:

Okay. And then on the CRE portfolio, the metrics almost seem deceptively too good and stable. But you mentioned you've resolved 88% of your 2023 maturities. Are you resolving them similar to how you would have done in the past like in terms of either extending them yourself or third-party financing or stuff? Or are there differences in how the loans are being – how the maturities are being resolved now versus maybe a few years ago when things were much more stable than CRE?

Jimmy Bhullar:

And the remaining 12% that's just like a matter of time and you're going through stuff? Or is there something unique about those properties, either by property location or otherwise?

Jimmy Bhullar:

Thank you.

Suneet Kamath:

Thanks. Just first question on the value of new business side. So the amount of capital, you've been deploying has sort of been the $3.7 billion. It's pretty similar to what you did in 2018 and 2019. But given where interest rates are, are you seeing incremental opportunities to deploy more capital in the business? And then relatedly, should we expect that IRR of 17% which I acknowledge is pretty healthy, does that have upside in this rate environment?

Suneet Kamath:

Okay. Got it. And then just on capital should we expect a pickup in the sort of the pace of buyback once you close the Global Atlantic deal?

Suneet Kamath:

Okay. Thank you.

Wes Carmichael:

Hey, Good morning. A follow-up on the Group business. It seems like we're seeing pretty favorable results across the industry maybe not deceptively good but definitely good. But just wondering what your outlook is for the industry to retain better margins in that business or if it's kind of given back over pricing in the next couple of years?

Wes Carmichael:

Thanks, Ramy. And maybe sticking with the US on the pension risk transfer market, it seems like maybe the market for full plan terminations has been heating up a little bit. I'm just wondering, if you're willing to participate in those deals and also what the pipeline looks like as the fourth quarter has been pretty busy historically.

Wes Carmichael:

Thank you.

Alex Scott:

First one I had for you on is LatAm. We continue to see good growth there. I think in the comments you mentioned some of the digital initiatives and things like that. But I wanted to see if you could extrapolate further just on the sustainability of the really robust growth that you've seen in PFOs and how we should think about that business going into?

Alex Scott:

Very helpful. And then second question was on net investment income. Wanted to see if you could help us just with the benefits of higher interest rates and what it means really for net investment income trajectory more broadly across the organization. And then also interested if there's any tactical things you can do anything you're doing allocation-wise that we should consider related to net investment income?

Alex Scott:

Thank you.

John Barnidge :

Good morning. Thank you. Question about the value of new business slide that's updated not around IRRs, but can you talk about how higher rates in your outlook for that volume to possibly increase along with the value of new business? Thank you.

John Barnidge :

Thank you very much. And my follow-up question. I know we're in the thick of renewal season for group benefits, but some retailers have started to comment about the impact from GLP or obesity treatment. How do you -- is that something that's come up within the renewal conversation at all? Just wanted to ask that. Thank you.

John Barnidge :

Thank you.

Mike Ward :

Thanks guys. Good morning. I was just wondering if you could comment on the trends in Asia. It seems like the economy in Japan at least is reengaging or reopening. So any thoughts on maybe the near-term outlook there?

Mike Ward:

Thanks. And then, maybe just could you guys maybe speak to your appetite, specifically for inorganic growth in the US around voluntary benefits that would be helpful. Thanks.

Mike Ward:

Thanks Michel. Maybe just one follow-up on that. Is capesize something that makes you consider or not consider M&A in group overall?

Mike Ward:

No, sorry, like the target market employer size?

Mike Ward:

Okay. Thank you.

John Hall:

Great. Thank you everybody for joining us on this very busy morning for insurance earnings and have a nice day. Thank you.

John Hall:

Thank you operator. Good morning everyone. We appreciate you joining us for MetLife's second quarter 2022 earnings call. Before we begin, I'd point you to the information on non-GAAP measures on the Investor Relations portion of MetLife.com, in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Last night, we released a set of supplemental slides, which address the quarter. The slides are available on our website. John McCallion will speak to them in his prepared remarks if you wish to follow along. An appendix to the slides features disclosures, GAAP reconciliations, and other information, which you should similarly review. As usual, after prepared remarks, we will host the Q&A session, which will end promptly just prior to the top of the hour. In fairness to everyone, please limit yourself to one question and one follow-up. With that, over to Michelle.

John McCallion:

Thank you, Michelle, and good morning. I will start with the 2Q '23 supplemental slides which provide highlights of our financial performance and an update on our liquidity and capital positions. In addition, I'll provide an update on our commercial mortgage loan portfolio. Starting on Page three, we provide a comparison of net income to adjusted earnings in the second quarter. Net investment losses were primarily the result of securities that were associated with the pending reinsurance transaction with Global Atlantic that we announced at the end of May. For GAAP purposes, gross unrealized losses as of June 30 on securities expected to be transferred to Global Atlantic at closing are required to be realized through net income this quarter. In addition, we had net derivative losses due to the favorable equity markets, strengthening of the U.S. dollar versus the Yen, and higher interest rates. That said, derivative losses were mostly offset this quarter by market risk benefit, or MRB remeasurement gains, due to higher equity markets and interest rates. Overall, the portfolio remains well positioned, credit losses continue to be modest, and the hedging program performed as expected. On Page four, you can see the second quarter year-over-year comparison of adjusted earnings by segment, excluding a favorable notable item of $77 million in 2Q of '22, primarily related to a reinsurance settlement, which was accounted for in MetLife Holdings. There were no notable items in the current quarter. Adjusted earnings were $1.5 billion down 10%, and down 11% on a constant currency basis. The primary driver was lower variable investment income. Underwriting margins were also less favorable than the prior year, but within our targeted ranges. Higher recurring interest margins and solid volume growth were partial offsets. Adjusted earnings per share were $1.94 down 5% year-over-year on a reported and constant currency basis. Moving to the businesses starting with the U.S., group benefits adjusted earnings were $372 million, down 8% versus the prior year period. Results were below run rate expectations for the quarter due to certain unfavorable expense, reinsurance, and reserve related items, which reduced group benefits adjusted earnings by approximately $40 million, and were specific to this quarter. The group-life mortality ratio was 85.3%, essentially in line with the prior year quarter, and at the bottom end of our annual target range of 85% to 90%. Regarding non-medical health, the interest adjusted benefit ratio was 73.7% in the quarter, above the midpoint of its annual target range of 70% to 75%. We had a disability reserve refinement of approximately $15 million after tax, which increased the ratio by 0.8 percentage points, and was included in the items totaling $40 million that I just referenced. Turning to the top line, group benefits adjusted PFOs were up 4% year-over-year. Taking participating contracts into account, which dampened growth by roughly 1%, the underlying PFOs were up approximately 5% year-over-year, primarily due to solid growth across most products, including continued strong momentum and voluntary, and was within our 2023 target growth range of 4% to 6%. In addition, group benefit sales were up 13% year-to-date, driven by strong growth across most products end markets. Retirement and income solutions, or RIS, adjusted earnings were $417 million, up 11% year-over-year. The primary drivers were higher recurring interest margins and solid volume growth. This was partially offset by lower variable investment income year-over-year. RIS investment spreads were 132 basis points. Spreads excluding VII were 142 basis points, up 29 basis points versus Q2 of '22, primarily due to higher interest rates, as well as income from in the money interest rate caps. RIS liability exposures were up 5% year-over-year, driven by general account liabilities, which grew 7% due to strong net flows. RIS adjusted PFOs excluding pension risk transfers were up 73%, primarily driven by strong sales of structured settlement products and growth in UK longevity reinsurance. With regards to PRT, we completed two transactions worth approximately $2 billion in the quarter, and continue to see an active market. Moving to Asia, adjusted earnings were $431 million, down 11% and 9% on a constant currency basis, primarily due to lower variable investment income. Adjusted earnings ran approximately $25 million above expectation due to certain reserve refinements and tax related true ups. Asia's key growth metrics were strong as general account assets under management on an amortized cost basis grew 5% on a constant currency basis, and sales were up 34% year-over-year on a constant currency basis, driven by strong growth across the region. In Japan, sales were up 42% year-over-year, driven by continued strong momentum in FX annuities through our face-to-face channels, as well as life sales due to a relaunch of a single premium FX life product on April 1. We continue to see Japanese consumer interest for FX products given the attractive higher U.S. interest rates. Latin America adjusted earnings were $219 million, down 13% and 21% on a constant currency basis, due to less favorable underwriting margin versus 2Q of '22. The prior year quarter had a roughly $40 million benefit to adjusted earnings from a release of a COVID related IB&R reserve. In addition, investment margins were down year-over-year, partially offset by solid volume growth. Latin America's top line continues to perform well, as adjusted PFOs were up 23% and 14% on a constant currency basis, and sales were up 13% on a constant currency basis, driven by growth across the region. EMEA adjusted earnings were $70 million, up 6% and up 15% on a constant currency basis, primarily driven by higher recurring interest margins. EMEA adjusted PFOs were up 4% on a constant currency basis, and sales were up 13% on a constant currency basis, reflecting strong growth across the region. MetLife holdings adjusted earnings were $211 million, down 31%. This decline was primarily driven by lower variable investment income. Corporate and other adjusted loss was $228 million, essentially flat versus an adjusted loss of $227 million in the prior year. The company's effective tax rate on adjusted earnings in the quarter was approximately 22%, and at the low end of our 2023 guidance of 22% to 24%. On Page five, this chart reflects our pre-tax variable investment income for the prior five quarters, including $221 million in Q2 of ‘23. Private equity portfolio, $14.6 billion, had a plus 1.5% return in the quarter. Real estate equity funds of $2.2 billion had a minus 1.9% return, while both PE and real estate equity funds are reported on a one quarter lag. As of now, we anticipate that VII in the third quarter will generally be in line with the second quarter result. On Page six, we provide VII post tax by segment for the prior five quarters. As you've noted previously, each of the businesses holds its own discrete investment portfolios, which have been built to match its liabilities. As reflected in the chart, Asia, RAS, and MetLife Holdings continue to hold the largest portion of VII assets given their long dated liability profile. For 2Q of ‘23, Asia's VII portfolio generated the highest returns at 2.2%, outperforming MetLife Holdings at 1.5% and RAS at 0.9%. Now turning to Page seven, the chart on the left of the Page shows the split of our net investment income between recurring and VII for the past three years in Q2 of ‘22 versus Q2 of ‘23. While VII has had the lower than trend returns over the last few quarters, recurring income, which accounts for approximately 96% of net investment income, was up $700 million year-over-year, reflecting higher interest rates and growth in asset balances. Shifting your attention to the chart on the right of the Page, which shows our new money yield versus roll off yield over the past three years, new money yields continue to outpace roll off yields in the recent quarters. In this quarter, our global new money yield reached its highest level in more than a decade of 6.06%, 157 basis points higher than the roll off yield. We expect this favorable trend to continue assuming interest rates remain near current levels. Turning to Page eight, I'll provide a few updates on our commercial mortgage loans, which you can find further details in our quarterly financial supplement. As of June 30, our commercial mortgage loan, or CML portfolio, carrying value of approximately $53 billion is well diversified by geography and property type. The CML portfolio is concentrated in high quality properties and in larger primary markets. These loans are typically to the larger and stronger institutional sponsors who are better positioned to effectively manage assets through periods of stress. Given the focus on the office sector, our real estate team updated all U.S. office valuation through June 30, assuming a 25% peak to trough valuation decline. We believe it was prudent to focus our efforts here in the quarter given the heightened attention this has received. As expected, LTVs increased slightly as a result with our CML portfolio now in an average LTV of 62%, up from 58% in the first quarter of ‘23, and an average debt service coverage ratio of 2.3 times down slightly from 2.4 times in 1Q ‘23. The modest increase in LTVs coupled with the resiliency and robustness of the debt service coverage ratio is another indicator of the disciplined approach we take to investing in this asset class. The quality of our CML portfolio remains strong with only 2% of the loans having LTVs more than 80% and DSCRs less than one times. With regards to CML loan maturities, we now have successfully resolved 69% of the portfolio's schedule to mature in 2023, and our expectation is for minimal losses on the portfolio. Now let's switch gears to discuss expenses on Page 9. This chart shows a comparison of our direct expense ratio for full year 2022, as well as Q1 of '23 and Q2 of '23, which had a ratio of 12.2%. As you have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our Q2 direct expense ratio benefited from solid top-line growth and ongoing expense discipline. We remain committed to achieving a full year direct expense ratio of 12.6% or below in 2023, demonstrating our consistent execution and focus on an efficiency mindset. I will now discuss our cash and capital positions on Page 10. Cash and liquid assets at the holding companies were approximately $4.2 billion at June 30, which is above our target cash buffer of $3 to $4 billion and consistent with March 31. The cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, and share repurchases of roughly $700 million in the second quarter, as well as holding company expenses and other cash flows. The buybacks in Q2 of '23 were lower than our recent trend as we were in a blackout period for most of May in advance of our pending reinsurance transaction with Global Atlantic. That said, we have repurchased shares totaling approximately $300 million in July. For our U.S. companies, preliminary second quarter, year-to-date 2023 statutory operating earnings were approximately $2 billion, while net income was approximately $1.3 billion, statutory operating earnings increased by approximately $1.3 billion year-over-year, primarily driven by favorable underwriting, partially offset by higher expenses. We estimate that our total U.S. statutory adjusted capital was approximately $17.4 billion as of June 30, 2023, down 2% from March 31, 2023, primarily due to the temporary impact of roughly $300 million associated with the investments expected to be transferred to Global Atlantic. We expect these impacts to reverse at close, which remains on target by year-end. In addition, as previously disclosed, we expect the transaction to add approximately 60 combined RBC points. Finally, we expect the Japan-Solvency Margin Ratio to be approximately 700% as of June 30, which will be based on statutory statements that will be filed in the next few weeks. Let me conclude with a few points. First, while VII remains below historical returns, we believe we reached a trough. In addition, core spreads remain robust and continue to benefit from a higher yielding environment. Second, the underlying strength of our business fundamentals continues to be displayed with strong top-line growth coupled with disciplined underwriting and expense management. Lastly, MetLife remains in a position of strength, given our balance sheet, investment portfolio, free cash flow generation, and the diversification of our market-leading businesses. And we are committed to deploying capital to achieve responsible growth and building sustainable value for our customers and our shareholders. And with that, I will turn the call back to the operator for your questions.

Ryan Krueger:

Hi, thanks. Good morning. My first question was, following the recent risk transfer deal, do you see further opportunities for additional risk transfer in MetLife holdings over time?

Ryan Krueger:

Thanks. And then I had to ask one for Steve on his last call. Could you provide some additional details on the office loans that have been resolved year-to-date, the mix of paydowns versus extensions and any more color on what the terms of the extensions are?

Ryan Krueger:

Okay, great. Thank you Steve.

Elyse Greenspan:

Hi, thanks. Good morning. My first question, John, I think you pointed out that there was around 40 million of one-off items within groups. So just thinking about going forward, should we just normalize for that and think about that as the run-rate earnings power of the segment? Or is there any other seasonality that we should take in mind in the back half of the year?

Elyse Greenspan:

Thanks. And then my second question, you guys saw buyback pick up in July. So is that July level kind of a good run rate from here? As we think about the holding transaction closing and then I also believe, your subsidiary dividends are typically, greater in the back half of the year?

Elyse Greenspan:

Thanks, Michelle.

Erik Bass:

Hi, thank you. Can you provide some more color on your non-medical health underwriting results this quarter, in particular, the experience in dental and disability and how you're thinking about those going forward?

Erik Bass:

Thank you. And then if it could pivot to Asia, Japan sales continue to be very strong. So we could talk a little bit more about what's driving this, the current competitive dynamics in the market and what impact a change in BOJ policy could have on the business.

Erik Bass:

Thank you.

Jamminder Bhullar:

Good morning. So first, just a question on threads in the retirement business. Assuming that interest rates sort of followed the forward yield curve, it would be reasonable that your yield would pick up, but should we assume that spreads would improve as well? Or are you at a point where now any incremental increases in yield in the retirement business would need to be passed through to customers through higher productivity?

Michel Khalaf:

And my comment was around this competition as well because there's a limit, obviously, to how much they can reasonably improve.

John McCallion:

Yes, that's fair. I think the key for us is, I'd say to your point, new business pricing is, that's where I think your point lies. I think, we still are on an overall basis have some -- we're short. So I think as there's roll-off reinvest, that's where my point was.

Lyndon Oliver:

Yes, look, hey, it's Lyndon here. Let me make a couple of comments around this. So the ESR implementation is a couple of years away. And we continue to make very good progress looking at all these products under the new regime. But we're still early in the work and the regulations are still evolving. The second point here is we currently price our products on the MetLife's economic solvency and on a local statutory basis. So to some extent, we're already using an economic lens as we analyze product profitability. But as I said, it's a little early regulations continue to go to evolve. We're in the middle of field testing. So I think as our implementation plan progresses, we will start to make adjustments as needed. This would include reinsurance or product modifications or anything like that. But it would still be too early given it's a couple of years away.

Operator:

And our next question is from Thomas Gallagher with Evercore ISI. Please go ahead.

John McCallion:

Thanks. Good morning, Tom. It's John. We did see some unfavorability kind of towards the end of Q1 and into Q2 and maybe the first couple months of Q2 higher claims as well as some lower terminations on just on a relative trend perspective. Towards the end of Q1 or Q2, I should say, and then into July, we've seen those trends revert back. So right now, we probably would account for that as an aberration, a short-term aberration, but we'll obviously still monitor I think just an overall point around results for holding. While that's the case, we had favorable mortality in the segment. So that was a positive, but specifically the long-term care. That's the case. I think on the flip side, the team has been doing a really, really good job continuing to get rate increases. We've already met our typical run rate of rate increases this year at 4.5% of premium year-to-date. That's what we typically assume each year. So we're off to a great start there.

Steven Goulart:

Hey, Tom. It's Steven Goulart. Thanks for the question. And I think you were headed in the right direction basically. Obviously, we continue to do stress testing, but really nothing to note on that. We're very comfortable with the portfolio, very comfortable with the results of the stress testing. Certainly nothing's different. Anything may be marginally better than last time. You talked about foreclosures also. We did use a number. Frankly, it's going to come in materially less than that. We think we're going to have very small charge-offs in the portfolio as well. The portfolio is very well positioned. So I think we're very comfortable with it. And it will continue to perform through this. I'm sorry. The last part of the question was related to CNBS migration. Can you repeat the last question?

Steven Goulart:

No. We haven't had any material losses in that portfolio.

Thomas Gallagher:

Thanks, guys.

Suneet Kamath:

Thanks. Good morning. Just start out the best of luck to Steve. Just on the 69% of CML maturities that were, I guess, resolved here. I don't know if you mentioned this, but what percentage of those were office, if you can disclose that?

Suneet Kamath:

Okay. I can give it to my second question and then maybe circle back. I guess, for Ramy, we've seen good disability results sort of across the board, I guess, for a couple quarters now. Just curious, based on your experience, when do you think that some of these results might start to feather into pricing and we could start to see greater competition? I would imagine at some point, it would need to work its way through. Just wondering any thoughts on the timing of that. Thanks.

Suneet Kamath:

So pretty rational environment in terms of pricing, not just you guys, but just in terms of what you're seeing from a competitive perspective?

Steven Goulart:

Hey, Suneet, this is Steve too. And I just wanted to follow up. We did, sorry, I didn't have that answer at the tip of my fingers. But basically, it's just over five billion of total resolutions. And of that, nearly half were office.

Operator:

And our next question is from Michael Ward with Citi. Please go ahead.

John McCallion:

Hey, good morning, Mike. It's John. Yes, I think, as both Michelle and I mentioned in our opening remarks, our view is, yes, we've come to a trough. I think, different assets are in kind of different positions. But all in all, in the trough, we've seen some headwinds in real estate, the funds that I mentioned, minus 1.9, but we saw some positive offsets in the PE portfolio. We think that dynamic continues into the next quarter, which is why I mentioned we would generally be in line with now. Obviously it's early. We don't have a ton of, I'll say, objective insight. We have some qualitative commentary and views. We've seen a positive, equity markets, although might be driven by a small number of stocks, depending on how you look at the second quarter. So, but, and that typically directionally translates into some level of, I'll say, the positive in line return, but the betas are typically lower. So that's kind of where we are. We kind of view this trough as more of a U-shaped recovery in this asset class versus kind of a sharp V. But, and we just don't want to get ahead of ourselves. So right now we're, we kind of view that the best view would be kind of in line with Q2.

Michel Khalaf:

Thanks. I would say from a top line perspective, we're still seeing significant strength across the portfolio. So we're very pleased with our PFO growth. And that's a combination of new customers. It's a combination of good persistency, rate actions for a portion of our portfolio. We've got some tailwinds in terms of wage growth. So we're still seeing very strong momentum there. As Michelle alluded to, we're still seeing double digit growth in our voluntary portfolio. And with a lot of white space, both in terms of customers who don't offer voluntary as well as increasing opportunities to increase penetration within the work site as well. And then I would also just point to the below 5,000 space, which we define as our regional market. National is above 5,000. That is emerging as a particularly bright spot for us. Our PFO growth there is high single digits. We do a fair bit of internal research where we cut the data by market segment. And when you look at that data below 5,000, we're a top three player in that segment, and we're continuing to take share in the fragmented market. So all in all, we're still seeing really positive tailwinds both from the macro environment as well as how we're positioned in this business that's driving PFO growth. That's kind of well within the 4% to 6% range that we have.

Operator:

And next we go to a question from Alexander Scott with Goldman Sachs. Please go ahead.

John McCallion:

Good morning, Alex. It's John. As you point out a couple things. One, obviously, VII being below the kind of historical returns puts pressure on C&O as well. So that's probably one driver to maybe the elevated loss that you're referencing. We did have higher expenses in C&O. Obviously, our direct expense ratio came in well. Overall expenses would were very good along with strong top line growth. So our ratio at 12.2 was well below the 12.6. We're still obviously targeting below the 12.6 for full year and it can fluctuate from quarter to quarter, but a good quarter nonetheless. In terms of the expenses, if you kind of compare to last year, I'd say probably two main things to highlight. One, interest on debt. It was one item year-over-year. That's a relatively big piece of that. And then the second one is we did have some higher one-time costs in C&O this quarter due to some corporate initiatives. I'll call it that, it was part of just kind of our general efficiency mindset. We don't ever exclude those things. Those are all part of our direct expense ratio, but their investments that we've made to kind of improve our run rate go forward. So hopefully that helps with C&O.

John McCallion:

Hey Alex, it's John. Obviously, very recent news. I'm not so sure I saw a ton of reaction yesterday on it and nor do we really think that it has a broad-based impact on, how we run our business or we wouldn't expect capital impacts, but I guess you never know, but right now, we wouldn't expect any impact one way or the other in terms of our, how we run our investment portfolio and our outlooks there. It doesn't change anything.

Operator:

And ladies and gentlemen, for final remarks, I'd like to turn the call back to MetLife's Global Head of Investor Relations, John Hall.

Operator:

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

John Hall:

[Technical Difficulty] slides that features, disclosures, GAAP reconciliations and other information, which you should also similarly review. I would like to point out, this is the initial quarter we are reporting our financial results based on the new long duration targeted improvements accounting standard. Please note that prior comparative periods have been recast to conform with LDTI. As usual, after prepared remarks, We will have a Q&A session. In light of the very busy morning, Q&A will end promptly just before the top of the hour. And fairness to everyone, please limit yourself to one question and one follow-up. With that, over to Michel.

John McCallion:

Thank you, Michel, and good morning. I will start with the 1Q ‘23 supplemental slides, which provide highlights of our financial performance and an update on our liquidity and capital positions. In addition, we provided some supplemental detail of our investment portfolio given the heightened focus recently. The appendix also includes slides, which provide our full year 2021 and 2022 adjusted earnings re-casted for the new LDTI accounting basis. Starting on Page 3. We provide a comparison of net income to adjusted earnings in the first quarter. Net investment losses were above trend, primarily driven by sales of fixed maturity securities in Japan. Management took the opportunity to reposition some of the U.S. dollar portfolio to help mitigate some cash tax relating to our recent A&H reinsurance transaction, enhance net investment income, and improve asset liability management within the Japan business. These sales were neutral to a net positive to Japan's solvency margin ratio which is expected to be approximately 725% at the end of March. In addition, net investment losses in the quarter included an increase in the current expected credit loss or CECL allowance, primarily in our commercial mortgage loan portfolio given the current environment. That said, the portfolio remains well positioned and I'll provide more details shortly. We have itemized a new reconciling item between net income and adjusted earnings as a result of LTDI called market risk benefit, over MRB gains and loss. For certain products such as variable annuities with market related guarantees, the change in fair value excluding changes attributable to non-performance risk is recognized in net income each quarter. Similar to certain variable annuity guarantees previously classified outside of adjusted earnings, we'll also now identify MRB gains and losses as a reconciling item between net income and adjusted earnings. This loss was partially offset by derivative gains relating to lower interest rates. Lower interest rates in the quarter drove an MRB loss. This loss was partially offset by derivative gains relating to lower interest rates. However, we had net derivative losses in the quarter as these gains from lower interest rates were more than offset by derivative losses relating to the strong equity markets in Q1 of '23. On Page 4, you can see the first quarter year-over-year comparison of adjusted earnings by segment, which did not have any notable items in either period. Adjusted earnings were $1.2 billion, down 30% and down 29% on a constant currency basis. Lower variable investment income drove the year-over-year decline while favorable underwriting and higher recurring interest margins were partial offsets. Adjusted earnings per share were $1.52, down 25% year-over-year on a reported and constant currency basis. Moving to the businesses. Starting with the U.S. Group Benefits adjusted earnings were $307 million versus $117 million in the prior year period, primarily due to lower COVID-19 claims. The Group Life mortality ratio was 90.5% slightly above the top end of our annual target range of 85% to 90%. As we have noted before, Group Life's mortality ratio tends to be seasonally highest in the first quarter. The drivers were excess mortality due to claims resulting from the year end, flu spike and higher severity. Regarding non-medical health, the interest adjusted benefit ratio was 72.9% in the quarter, slightly above the midpoint of its annual target range of 70% to 75%, but generally in line with higher seasonal dental utilization in the first quarter. Turning to the top line. Group Benefits adjusted PFOs were up 1% year-over-year. As we discussed in prior quarters, excess mortality can result in higher premiums from participating life contracts in the period. The higher excess mortality in Q1 of '22 versus Q1 of '23 resulted in a year-over-year decline in premium from participating contracts, which dampened growth by roughly 4 percentage points. Taking participating contracts into account, the underlying PFO increase of approximately 5% was primarily due to solid growth across most products, including continued strong momentum in voluntary and was within our 2023 target growth range of 4% to 6%. In addition, Group Benefit sales were up 15% driven by strong growth across all markets. Retirement Income Solutions or RIS adjusted earnings were down 27% year-over-year, the primary driver was lower variable investment income. This was partially offset by favorable recurring interest margins year-over-year. RIS investment spreads were 117 basis points and 137 basis points, excluding VII, up 37 basis points versus Q1 of '22 and up 13 basis points sequentially, primarily due to higher interest rates and income from in the money interest rate caps. RIS liability exposures were up 1% year-over-year, but solid volume growth was masked due to certain accounting adjustments that do not impact fees or spread income. That said, general account liabilities, which comprise future policy benefits and policyholder account balances collectively grew 5% year-over-year and RIS adjusted PFOs, excluding pension risk transfers were up 43%, primarily driven by strong sales of structured settlement products and growth in UK longevity reinsurance. Once again reflecting the power of our diversified set of market leading products in RIS. Moving to Asia. Adjusted earnings were down 53% and 52% on a constant currency basis, primarily due to lower variable investment income. Asia's key growth metrics remained solid as general account assets under management on an amortized cost basis grew 3% on a constant currency basis and sales were up 18% year-over-year on a constant currency basis, primarily driven by strong growth across the region. In Japan, FX annuity sales continued its strong momentum with growth in our face-to-face and bank channels. Latin America adjusted earnings were $215 million, up 59%and up 51% on a constant currency basis. This strong performance was primarily driven by favorable underwriting and solid volume growth. Overall, COVID-19 related deaths in Mexico were down significantly year-over-year. The favorable Q1 underwriting benefited from seasonality as well as additional claims favorability in the quarter. In addition, higher recurring interest margins were mostly offset by lower variable investment income year-over-year. Latin America's top line continues to perform well as adjusted PFOs were up 26% year-over-year on a constant currency basis and sales were up 36% on a constant currency basis, driven by growth across the region. EMEA adjusted earnings were $60 million, up 9% and up 30% on a constant currency basis, primarily driven by higher recurring interest margins and solid volume growth. EMEA adjusted PFOs were up 5% on a constant currency basis and sales were up 27% on a constant currency basis, reflecting strong growth across the region. MetLife Holdings adjusted earnings were $158 million, down 55%. This decline was primarily driven by lower variable investment income. Corporate & Other adjusted loss was $236 million versus an adjusted loss of $105 million in the prior year. Lower variable investment income was the primary driver. The company's effective tax rate on adjusted earnings in the quarter was approximately 22% at the low end of our 2023 guidance range of 22% to 24%. On Page 5, this chart reflects our pre-tax variable investment income for the prior five quarters, including a $44 million loss in Q1 of '23. Private equity portfolio, which makes up the majority of the VII asset balance and is reported on a one quarter lag, had a positive 0.1% return in the quarter. Venture capital, which now comprises roughly 20% of the $14.2 billion PE portfolio had a negative 6.6% return. The remainder of the PE portfolio had a positive 1.9% return. In addition, real estate equity funds, which comprise roughly $2.3 billion of VII assets, and are also reported on a one quarter lag, had a negative 5.9% return in Q1 of ‘23. While VII underperformed this quarter and is approximately 4% of the portfolio. The three, five and 10 year cumulative private equity annual returns through Q1 of '23 were 19.8%, 17.2% and 16%, respectively. Demonstrating the long-term value of incorporating this asset class into our asset and liability management. On Page 6, we provide VII post-tax by segment for the four quarters of 2022 and Q1 of ‘23. As we have noted previously, each of the businesses holds its own discrete investment portfolios, which have been built to match each liabilities. Although not readily apparent in the chart, RIS, MetLife Holdings and Asia continue to hold the largest proportion of VII assets given the long dated liability profile. Also, Corporate & Other currently holds an outsized amount of VII assets. We expect to reduce this balance over time as part of our normal ALM process. Now turning to Page 7. The chart on the left of the page shows the split of our net investment and income between recurring and VII for the past three years and Q1 of '22 versus Q1 of '23. While VII has shown lower than trend returns over the last few quarters, recurring investment income was up roughly $850 million year-over-year, reflecting higher interest rates and growth in asset balances. Shifting your attention to the chart on the right of the page, which shows our new money yield versus roll-off yield over the past three years with new money yields continuing to outpace roll-off yields in recent quarters. In this quarter, our global new money yield reached its highest level in more than a decade at 5.82%, 123 basis points higher than the roll off yield. We expect this favorable trend to continue assuming interest rates remain near current levels. Now let's look at our global investment portfolio on Page 8. As you can see in the chart, MetLife general account AUM shown at fair value as of March 31, 2023 is $424 billion. The portfolio is high quality and well diversified by asset class and geography. In constructing the portfolio, we use a disciplined approach to asset and liability management, in-depth underwriting and risk management. MetLife's global footprint combined with the local market expertise of MetLife Investment Management or MIM allows us to source high quality attractive assets that fit the needs of our businesses. Overall, the portfolio is well positioned and built for resilience through uncertain markets. And we have a strong track record of mitigating losses across all asset classes in the portfolio. From 2008 through Q1 of ‘23, our average annual impairment rate was 13 basis points for fixed maturity securities and only 5 basis points for commercial mortgage loans. Now let's discuss our commercial mortgage loan portfolio in more detail on Page 9. As of March 31, the CML portfolio carrying value of approximately $54 billion is well diversified by geography and property type. The CML portfolio is concentrated in high quality properties and in larger primary markets. These loans are typically to the larger and stronger institutional sponsors who are better positioned to effectively manage assets through periods of stress. In addition, almost all of our CML loans earn first-lien positions with less than 0.5% in subordinated loans. The portfolio has a low average loan to value of 58% with a high average debt service coverage ratio of 2.4 times. As shown on the table, only 0.4% of the CML portfolio has a higher than 80% average loan to value ratio and a below 1 times average debt service coverage ratio. The commercial mortgage loan allowance for credit loss stands at $319 million including the roughly $100 million increase in Q1 of '23 and considers the current environment as well as the risk around the economic outlook. We estimate that our allowance for credit loss is sufficient to cover current expected credit losses in the CML portfolio. The delinquency rate on the portfolio is only 5 basis points and is related to one loan as of March 31, 2023. With regards to loan maturities, only 14% of the CML portfolio are scheduled to mature in 2023 with 36% of these loans already favorably resolved through extensions or payoffs. Of our remaining 2023 maturities, we expect most will be similarly resolved with only 0% to 3% of our 2023 maturities potentially resulting in defaults. If the full 3% or approximately $200 million of loans were to default, this could result in an impairment of up to approximately $15 million. Continuing on Page 10, let's drill down further on our office commercial mortgage portfolio. As of March 31, the office loan portfolio was approximately $21 billion or 4.9% of our total general account AUM. The portfolio is high quality with 89% collateralized by Class A properties, which have seen less market pressure. The portfolio also has an attractive average loan to value ratio of 57% and an average debt service coverage ratio of 2.4 times. As shown on the table, less than 1% of the office CML portfolio has a higher than 80% average loan to value and below 1 time average debt service coverage ratio. The office CML portfolio is geographically diverse across Class A markets in the U.S. and internationally. While we remain confident in the office portfolio given this high quality, we have been very selective on new office loan production in the current environment. In 2022, office loans represented only 8% of our total U.S. commercial mortgage loan production. And since 2016, we have reduced our overall office exposure from approximately 50% of the CML portfolio down to 39% today. Now let's switch gears to discuss expenses on Page 11. This chart shows a comparison of our direct expense ratio over the prior five quarters, including 12% in Q1 of '23. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our Q1 direct expense ratio benefited from solid top line growth and ongoing expense discipline. We remain committed to achieving a full year direct expense ratio of 12.6% or below in 2023, demonstrating our consistent execution and focus on an efficiency mindset. I will now discuss our cash and capital positions on Page 12. Cash and liquid assets at the holding companies were approximately $4.2 billion at March 31, which is above our target cash buffer of $3 billion to $4 billion and down from $5.4 billion at December 31. The sequential decline in cash of the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend and share repurchases of roughly $800 million in the first quarter, as well as holding company expenses and other cash flows. Our first quarter tends to be lower in subsidiary dividends and higher in holding company expenses. As illustrated in the chart, you can see that the same seasonal pattern occurred from 4Q of '21 into Q1 of '22. Regarding our statutory capital. For our U.S. companies, our 2022 combined NAIC RBC ratio was 367% which is above our target ratio of 360%. For our U.S. companies, preliminary first quarter year-to-date, 2023 statutory operating earnings were approximately $1 billion, while net income was approximately $700 million. Statutory operating earnings increased roughly $500 million year-over-year, primarily driven by favorable underwriting, partially offset by lower variable investment income and higher expenses. We estimate that our total U.S. statutory adjusted capital was approximately $17.7 billion as of March 31, 2023, down 3% compared to December 31, 2022 due to derivative losses from certain equity options and dividends paid, partially offset by higher operating earnings. Finally, as I referenced earlier, we expect that Japan’s solvency margin ratio to be approximately 725% as of March 31, which will be based on a statutory statements that will be filed in the next few weeks. Let me conclude by saying that MetLife's results reflect the strength of our business fundamentals, solid top line growth, favorable underwriting and ongoing expense discipline. While private equity and real estate funds underperformed this quarter, core spreads remained robust. In addition, results in our market leading franchises, Group Benefits and Latin America continued their strong top and bottom line growth. While market fluctuations are expected to continue, MetLife remains in a position of strength given our balance sheet, investment portfolio, free cash flow generation and the diversification of our market leading businesses. Finally, our commitment to deploying capital to achieve responsible growth, positions MetLife to build sustainable value for our customers and our shareholders. And with that, I will turn the call back to the operator for your questions.

Tom Gallagher:

Good morning. Couple of investment questions. So John, the 19% of office CMLs that mature in ‘23, you guys said 36% of them have been resolved so far through the end of April. Can you just elaborate a bit on what's actually happening there? What does resolved mean? I know, I think you mentioned either pay down or extended. As you're going through that process, are you – are most of them actually paying off a maturity? I assume there's not a lot of liquidity out there, so you're probably extending more than you're seeing payment in principle at the end here? And then also what kind of yields are you getting, assuming you are extending a lot of these or restructuring? Are you getting yields commensurate with the higher risk in the market for that asset class right now or are you having to subsidize amid all? Sorry for the rapid fire questions, but wanted to just get a better sense for what's happening.

Tom Gallagher:

Okay. Thanks.

Tom Gallagher:

That's really helpful. And just a quick follow-up. Last year, at the end of '22, I think you had a big increase in CM 3-rated (ph) loans that had an adverse impact on RBC. Can you talk about what you expect for migration positive or negative for '23?

Tom Gallagher:

Okay. Thanks.

Erik Bass:

Hi. Thank you. Maybe, Steve sticking with you for one and maybe just stepping back, I was hoping you could provide sort of an estimate as you think of kind of a more severe stress scenario for commercial real estate and office in particular. How do you think about what the potential capital impacts are in total if you add up impairments and ratings migration?

Erik Bass:

Thank you. Very helpful perspective. I guess, maybe turning to the business. For Latin America, you continue to see strong growth and it looks like you're running well ahead of what your guidance would imply for 2023 earnings even with some of the headwinds from VII and encaje (ph) this quarter. So I guess, is there anything unusually strong in the underwriting results in 1Q or is $200 million plus of run rate earnings kind of a reasonable expectation?

Erik Bass:

Yes. Thank you.

Tracy Benguigui:

Good morning. Just want to touch upon VII. In today's environment, do you still feel like $500 million of quarterly alternative asset returns is still an appropriate run rate? And if you can also touch upon what you're seeing intra quarter?

John McCallion:

Yeah. And I would just maybe add, Tracy. I mean I think obviously Q1 is a -- year-end marks. We're moving into now Q1 -- Q2 being off of Q1 results, so I think directionally we would be kind of optimistic that it would improve from Q1. Maybe we don't revert back to plan, but I think we're on kind of an upward trend.

Steven Goulart:

I'd say both. It was elevated activity-wise just because of maturities that we wanted to refinance, but we manage the program very actively. And it still meets all of our target thresholds for returns and income on the portfolio, so we're very happy with the returns.

Steven Goulart:

Yeah. And again you have to go and look at the maturity because again it's still overall match portfolio, but what we're looking at are really mostly fixed maturities, structured finance, some private assets, not much in the way of real estate these days.

Operator:

Our next question is from Jimmy Bhullar with JPMorgan. Please go ahead. Mr. Bhullar, do you have your phone muted, we don't hear you. We will attempt to come back to him. One moment, please. Next, we'll move on to the line of Ryan Krueger with KBW. Please go ahead.

Steven Goulart:

I mean, Ryan, I'd really relate it more to just our overall valuation process. When loans get refinanced or extended, there's a valuation that's right in line with our normal valuation process, so -- and like I said, most of the extensions we're doing are extensions that are at borrower's options who've met all the financial criteria required for the loan, so we wouldn't expect to see migration as a result of that.

John McCallion:

Good morning, Ryan. It's John. So like you said RIS spreads, I think overall 117, but ex-VII, were very strong in the first quarter at 137. And just recall, our overall all-in range was 135 to 160. So again, if you kind of add back a normal contribution to VII that would have been certainly high end of the range. And look, I think we highlighted this on the outlook call. We did think that the first half of '23, certainly based on the forward curve would have, I'll say, the higher end of spreads just given our in the money caps. We probably think Q2 has some kind of similarity to Q1 at this point for ex-VII spreads. And then we'll need to see how the forward curve and how rates progress through the rest of the year.

Operator:

And next, we move to a question from John Barnidge with Piper Sandler. Please go ahead.

Ramy Tadros:

Thank you, John. It's Ramy here. Maybe let me just give you the punchline in terms of the results we're seeing. Our persistency in terms of the Q1 renewals was extremely strong and it was higher than prior year across all of our major markets. So we're seeing very strong persistency alongside renewal actions that were very much in line with our expectations, so we're very pleased about the outcome as we go into the year. Maybe just to give you a bit of flavor on that

Michel Khalaf:

Yeah. Hi, John. It's Michel. The first thing I would point to is really the consistency in terms of our capital deployment. And you can see that over, I would say, a number of years and it was again evident in the first quarter. So if you just look at the first quarter, one, we saw sales growth across most of our key markets and businesses, so we're deploying capital to support responsible growth. We are active from an -- we were active from an M&A perspective. We announced the acquisition of Raven Capital Management, which adds an attractive adjacency to our main business which we think we can scale over time. We deployed $389 million in dividends and we announced a 4% increase in our dividend. Again if you look at the increase since 2011, 9% annual compound rate increase. And then we bought $780 million in our shares in Q1, another $223 million in April. And we have a new $3 billion authorization from our Board. Our liquidity at the -- we're above our liquidity buffer of $3 billion to $4 billion at the Holdco, so if you take all of these together, I think they signal sort of confidence in terms of our financial strength and the free cash flow generation capabilities of our businesses. So again, we're confident in terms of how we're positioned. And we'll continue to sort of explore M&A opportunities, provided those fit strategically or accretive over time, meet our minimum risk adjusted hurdle rates and the like. And we'll remain also disciplined on that front as we always have been. So hopefully, that gives you some color.

Operator:

Next, we go to Suneet Kamath with Jefferies. Please go ahead.

Ramy Tadros:

Good morning and thank you for the questions. So inside our non-medical health ratio, disability business is a contributor to that. And we have certainly seen favorability in our disability results this quarter, and that favorability came in through both lower incident rates as well as stronger recoveries. And when we think about that favorability, there are some external factors in the environment and there are some internal drivers as well. So externally, you could look at the low unemployment levels as well as the fact that we're now clearly out of the pandemic environment, which kind of decreased the pressure on the STD line. So a favorable environment in Q1. Internally, when you look at disability, this is a product where our customers have complex needs. And here again, I would point to scale and investment you need to make here to really differentiate yourself in the marketplace and particularly differentiate yourself in terms of outcomes. So in our case, that's come from investments in our human capital. We've built a world-class team of clinicians who diligently work on returning people to health. We deploy data and analytics on our pricing, underwriting and our claims process. We have a world-class capabilities in terms of leave and absence, which again when packaged with LTD drive greater customer value and persistency in our books, so certainly a favorable disability ratio. As we think about the rest of the year, we continue to -- from a pricing perspective, we continue to bake in a load for softness in the environment. I mean it's so, that from a pricing and renewal perspective we continue to look at that and continue to bake in a pricing loan to make sure that our margins are resilient should we see softness from the claims side.

Steven Goulart:

Hey, Suneet. We didn't -- we haven't broken out the maturities. Again I think, if you look at the overall resolution and the path we're down, it's very strong for the overall portfolio, extension options were they are provided at market with fees and a good number of payoffs to -- so I'm sorry. I don't have the specific breakdown, but I'm very pleased with the overall structure of our resolution right now.

Operator:

Next, we go to a question from Elyse Greenspan with Wells Fargo. Please go ahead.

John McCallion:

Hey, Elyse. It's John. Yeah. I made the comment. I mean we -- more because, as you've seen, we probably have a little bit of outsized sensitivity in C&O for VII. It was a function of a number of things. Remember, last year, a year ago, we were able to monetize about $1 billion of our private equity portfolio. We also, just with some asset and liability management, moved a bit more into Corporate & Other. I would call that a holding pattern for now. And that's really the comment I'm making. And so it does, I think, on the margin cause us to probably -- we're not stopping our investment, but it's -- relatively speaking, it's the new commitments are a bit slower. But they're -- we're still doing that. We want to always invest through the cycle, but that was the gist of the comment.

John McCallion:

Yeah. It's John again, Elyse. As you said, it was a good result for the quarter. Look, how much -- a lot of active management, a lot. And inflation is -- has been challenging. And I think we've seen that throughout the insurance industry in -- on both sides, and it's a challenging environment. And as a result, it takes active management. And I think our -- the culture here has been really strong around efficiency mindset. We continue to use that mentality to build capacity so that we can continue to invest in -- through these cycles and not let things like inflation slow us down. And it gives us optionality should we see more stressful environment. So I think the team has done a really, really great job, but it's -- every day, it's active management.

Operator:

And our next question will come from Alex Scott with Goldman Sachs. Please go ahead.

Lyndon Oliver:

Hi, Alex. It's Lyndon. Yes, look, we really are benefiting from the U.S. rate movement. It's really giving us an advantage as we compare to the Japanese rates. We've seen demand for the foreign currency products go up consistently over the year. If we look at fourth quarter sales, annuities were very strong and that continues as we go into the first quarter. So as far as rates go, it really puts us in an advantage as we're selling this product, but if you look at the fluctuation in the foreign currency, that is -- really kind of makes the market tentative going into the product. So overall I think rates have really benefited us in this environment.

Eric Clurfain:

Yeah. Hi. This is Eric. So yeah, as I mentioned earlier, really it’s a combination of diversifying our distribution, combined with the introduction of new digital tools and active distribution growth through different channels. And our – again, our breadth and depth of our franchises in the key largest markets across the region.

Operator:

And ladies and gentlemen, we have no more time for questions. I will turn the call back to John Hall, Global Head of Investor Relations.

Operator:

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

John Hall:

Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife's fourth quarter 2022 earnings and near-term outlook call. Before we begin, I'd point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Last night, we released a set of supplemental slides which address the quarter as well as our near term outlook. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to the slides features outlook sensitivities, disclosures, GAAP reconciliations and other information, which you should also review. After prepared remarks, we will have a Q&A session. In light of the busy morning, Q&A will promptly end at the top of the hour. [Operator Instructions] With that, over to Michel.

John McCallion:

Thank you, Michel, and good morning. I will start with the 4Q '22 supplemental slides, which provide highlights of our financial performance and update on our cash and capital positions and more detail on our near-term outlook. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the fourth quarter and full year. Net income in 4Q of '22 was $1.3 billion or $88 million higher than adjusted earnings. Net investment gains in the fourth quarter were primarily driven by real estate sales, which were partially offset by losses on the fixed maturity portfolio due to normal trading activity in a rising rate environment. Credit losses in the portfolio remain modest. In addition, we had net derivative gains primarily due to the weakening of the U.S. dollar in the quarter. For the full year, net derivative losses accounted for most of the variance between net income and adjusted earnings, primarily due to higher interest rates in 2022. Overall, our hedging program continues to perform as expected. On Page 4, you can see the fourth quarter year-over-year comparison of adjusted earnings by segment, excluding $140 million of notable tax items that were favorable in the fourth quarter of '21 and accounted for in Corporate and Other. Adjusted earnings in 4Q of '22 were $1.2 billion, down 28% and down 26% on a constant currency basis. Lower variable investment income drove the year-over-year decline, while higher recurring interest margins and favorable underwriting were partial offsets. Adjusted earnings per share were $1.55, down 23% year-over-year and down 21% on a constant currency basis. Moving to the businesses, starting with the U.S. Group Benefits adjusted earnings were $400 million versus $20 million in 4Q of '21, primarily due to significant improvement in underwriting margins aided by lower COVID-19 life claims, as well as higher volume growth. This was partially offset by less favorable expense margins year-over-year. Group Life mortality ratio was 87.6% in the fourth quarter of '22, in the middle of our annual target range of 85% to 90%. Regarding non-medical health, the interest adjusted benefit ratio was 69.4% in Q4 of '22, slightly below its annual target range of 70% to 75% and below the prior year quarter of 74.2%. The non-medical health ratio benefited from favorable disability severity, while dental was in line with expectations. Turning to the top line, Group Benefits adjusted PFOs were essentially flat year-over-year. As we discussed in prior quarters, excess mortality can result in higher premiums from participating life contracts in the period. The higher excess mortality in Q4 '21 versus Q4 of '22 resulted in year-over-year decline in premiums from participating contracts, which dampened growth by roughly 6 percentage points. The underlying PFO increase of approximately 6% was primarily due to solid growth across most products, including continued strong momentum in voluntary. For the full year, Group Benefits adjusted PFO growth was 3%, while underlying growth, excluding excess premiums from participating contracts in 2021 versus 2022 was up 5% and within the 2022 target range of 4% to 6%. Retirement and Income Solutions, or RIS, adjusted earnings were down 40% year-over-year. The primary driver was lower variable investment income, mostly due to weaker private equity returns. This was partially offset by favorable recurring interest margins year-over-year. RIS investment spreads were 96 basis points and 112 basis points excluding VII, up 21 basis points versus Q4 of '21 and up 11 basis points sequentially, primarily due to income from in-the-money interest rate caps. RIS liability exposures were down 1% year-over-year due to certain accounting adjustments that do not impact fees or spread income. That said, RIS had strong volume growth driven by sales up 23% in 2022. This was primarily driven by pension risk transfers and stable value products. In addition, we had a record sales quarter for structured settlements, demonstrating the strength of product diversification within RIS. With regards to PRT, we completed 6 transactions worth $12.2 billion in 2022, a record year for MetLife, and we continue to see an active market. Moving to Asia. Adjusted earnings were down 63% and down 62% on a constant currency basis, primarily due to lower variable investment income. In addition, we had a write-down of a deferred tax asset in China as it was determined that the accumulated tax losses were unlikely to be utilized within the required 5 year statutory period. The write-down of the DTA reduced Asia's adjusted earnings in Q4 of 2022 by $34 million after tax and was accounted for in net investment income due to the equity method of accounting treatment for our China joint venture. While Asia's underwriting was modestly unfavorable versus Q4 of '21, we saw a significant sequential improvement due to lower COVID claims in Japan. Asia's key growth metrics remained solid as general account assets under management on an amortized cost basis grew 4% on a constant currency basis. And sales were up 12% year-over-year on a constant currency basis, primarily driven by FX annuities sold through face-to-face channels in Japan. For the full year, Asia sales were up 11%, exceeding its 2022 guidance of mid to high-single digits. Latin America adjusted earnings were $181 million, up 45% and up 51% on a constant currency basis. This strong performance was primarily driven by favorable underwriting and solid volume growth. Overall, COVID-19related deaths in Mexico were down significantly year-over-year. In addition, the Chilean encaje, which had a positive 6% return in 4Q '22 versus 4% in the prior year and higher recurring interest margins, were positive contributors. These two favorable items were partially offset by lower variable investment income year-over-year. LatAm's top line continues to perform well as adjusted PFOs are up 20% year-over-year on a constant currency basis, and sales were up 22% on a constant currency basis, driven by growth across the region. EMEA adjusted earnings were $70 million, up 67% and up 112% on a constant currency basis, primarily driven by favorable underwriting versus Q4 of '21, which had elevated COVID-19-related claims, particularly in the U.K. This was partially offset by less favorable expenses year-over-year. EMEA adjusted PFOs were up 2% on a constant currency basis, and sales were up 13% on a constant currency basis, reflecting solid growth across the region. MetLife Holdings adjusted earnings were $208 million, down 57%. This decline was primarily driven by lower variable investment income. In addition, less favorable expense margins and adverse equity market performance also reduced adjusted earnings year-over-year. Corporate and Other adjusted loss was $219 million versus an adjusted loss of $177 million in the prior year, which excludes favorable notable tax items of $140 million. Higher taxes and lower net investment income were partially offset by lower expenses year-over-year. The company's effective tax rate on adjusted earnings in the quarter was approximately 19%, which includes favorable tax benefits primarily related to the settlement of an IRS audit. Excluding these favorable items, the company's effective tax rate was approximately 22%, within our 2022 guidance range of 21% to 23%. On Page 5, this chart reflects our pretax variable investment income for the four quarters and full year of 2022. VII was $24 million in the fourth quarter. The private equity portfolio, which makes up the bulk of the VII asset balances, had a negative 0.3% return in the quarter. As we have previously discussed, private equities generally accounted for on a one quarter lag. For the full year, VII was $1.5 billion, below our 2022 target range of $1.8 billion to $2 billion. Our private equity portfolio had a positive 7% return in 2022, a solid performance in comparison to the public equity markets with the S&P 500 down 19%. While VII underperformed in 4Q '22, our new money rate increased to 5.66%, which was 150 basis points above our roll-off yield of 4.16%. On Page 6, we provide VII post-tax by segment for the four quarters and full year 2022. On a full year basis, you will note RIS MetLife Holdings in Asia continue to earn the vast majority of variable investment income, consistent with the higher VII assets in their respective investment portfolios. VII assets are primarily owned to match longer-dated liabilities, which are mostly in these three businesses. Turning to Page 7. This chart shows the comparison of our direct expense ratio over the prior eight quarters and full year 2021 and 2022. Our direct expense ratio in 4Q of '22 was elevated at 13.1%, reflecting the impact from seasonal enrollment costs in Group Benefits, as well as higher employee-related costs and timing of certain projects. That said, as we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. For the full year of 2022, our direct expense ratio was 12.2%, below our annual target of 12.3%. We believe this result once again demonstrates our consistent execution and focus on an efficiency mindset in a challenging inflationary environment while continuing to make investments in our businesses. I will now discuss our cash and capital positions on Page 8. Cash and liquid assets at the holding companies were approximately $5.4 billion at December 31, which was up from $5.2 billion at September 30 and remained above our target cash buffer of $3 billion to $4 billion. The sequential increase in cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of approximately $600 million in the fourth quarter as well as holding company expenses and other cash flows. For the 2 year period, 2021 to 2022, our average free cash flow ratio, excluding notable items, totaled 68% and was within our 65% to 75% target range. In terms of statutory capital for our U.S. companies, we expect our combined 2022 NAIC RBC ratio will be above our 360% target. Preliminary 2022 statutory operating earnings for our U.S. companies were approximately $2.6 billion, while net income was approximately $3 billion. We estimate that our total U.S. statutory adjusted capital was $18.3 billion as of December 31, 2022, a decrease of 3% sequentially, primarily due to derivative losses and dividends paid, partially offset by operating earnings and investment gains. Finally, while our Japan solvency margin ratio dipped below 500% as of September 30, we expect the Japan SMR to be approximately 700% as of December 31, which will be based on statutory statements that will be filed in the next few weeks. As we have discussed on prior calls, our Japan business as well as MetLife overall does better economically in a higher interest rate environment. However, given the asymmetrical nature of how the SMR is calculated, the ratio declines in a rising rate environment as assets are mark-to-market, but not the corresponding liabilities. As a result, we executed an internal reinsurance transaction in December with our Bermuda entity, which has an economic-based solvency regime. This transaction improved the Japan SMR ratio by approximately 250 percentage points. Before I shift to our near-term outlook, starting on Page 9, a few points on what we included in the appendix. The chart on Page 15 reflects new business value metrics for MetLife's major segments from 2017 through 2021. This is the same chart that we showed as part of our 3Q '22 supplemental slides, but we felt it was worth including again for the sake of completeness. Also, Pages 16 through 19 provide interest rate assumptions and key outlook sensitivities by line of business. Turning back to Page 9, our 2023 to 2025 outlook reflects the impacts of the new accounting requirements of long-duration targeted improvement or LDTI. While 2022 actually used for growth rate calculations remain as previously reported on a pre-LDTI basis. In mid-April or roughly two to three weeks prior to the reporting of our 1Q '23 earnings, we plan to provide you with a recasted QFS based on LDTI for each of the quarters in 2022. While there would be certain positive and negative effects depending on product and segment, we do not expect the underlying run rate of adjusted earnings for the firm overall to change materially. Now let's turn to Page 10 for further details on our near-term outlook. We assume COVID-19 to be endemic, consistent with the recent trends that we have been experiencing. We expect continued uncertainty to persist around inflation and a potential recession in 2023. Based on the 12/31/22 forward curve, we expect interest rates to rise in 2023. Finally, for purposes of the near-term outlook, we assume a 5% annual return for the S&P 500 and a 12% annual return for private equity. This is consistent with our long-term historical returns for PE. Moving to near-term targets. We are increasing our adjusted ROE range to 13% to 15%. This increase of 100 basis points from our prior 12% to 14% ROE range is a function of the growing impact of our mix of business and higher new business returns over the last several years as well as the impact of LDTI. We expect to maintain our 2 year average free cash flow ratio of 65% to 75% of adjusted earnings, excluding total notable items. Our direct expense ratio guidance for 2023 is being recalibrated to reflect LDTI by approximately 30 basis points to 12.6%. This captures an approximate $1 billion reduction in adjusted PFOs, excluding PRTs, due to the change in accounting. This is primarily related to certain annuity contracts within RIS as well as shifting certain variable annuity fees to market risk benefits, which are reported outside adjusted earnings. Since this change in accounting to LDTI will be retroactively applied back to the beginning of 2021, our previously reported direct expense ratios will likewise be recalibrated to put 2021 and 2022 on the same basis as 2023 and beyond. Our VII for 2023 is expected to be approximately $2 billion after applying our historical average returns on asset balances. I'll provide more detail on VII in a moment. Our Corporate and Other adjusted loss target is expected to remain at $650 million to $750 million after tax in 2023. We are increasing our expected effective tax rate range by 1 point to 22% to 24% to reflect our expectation for higher earnings in foreign markets and lower tax credits in the U.S. At the bottom of the page, you'll see certain interest rate sensitivities relative to our base case, reflecting a relatively modest impact on adjusted earnings over the near term. On Page 11, the chart reflects our VII average asset balances from $14.7 billion in 2021 to $19 billion expected in 2023. Private equities will continue to hold the vast majority of our VII asset balances. We are applying our historical annual returns for each asset class within VII. In addition to the PE annual return of 12%, we expect an annual 7% return for real estate and other funds. Finally, as a reminder, we include prepayment fees on fixed maturities and mortgage loans in VII. So now I will discuss our near term outlook for our business segments. Let's start with the U.S. on Page 12. For Group Benefits, excluding the excess premium from participating group life contracts of approximately $750 million in 2022, adjusted PFOs are expected to grow at 4% to 6% annually. Regarding underwriting, we expect the Group Life mortality ratio to be between 85% to 90%. We are also maintaining the expected group non-medical health interest adjusted benefit ratio at 70% to 75%. Keep in mind, these are annual ratios and are typically higher in the first quarter for both Group Life and Non-Medical Health given the seasonality of the business. For RIS, we are maintaining our 2% to 4% expected annual growth for total liability exposures across our general account spread and fee-based businesses. We are increasing the range of our expected annual RIS investment spread by 40 basis points to 135 to 160 basis points in 2023. The majority of this increase is driven by continued expectations of rising interest rates on the short end of the curve and the resulting benefit of interest rate cap income, which we expect to peak in the first half of 2023. In addition, LDTI will contribute approximately 10 basis points to the investment spread calculation while not increasing adjusted earnings. Upon transition to LDTI, the unlocking of future cash flow assumptions to current best estimate increased our deferred profit liability, which is amortized into earnings and will now be included in the spread calculation, reducing other sources of earnings. Overall, the conversion to LDTI will not significantly change RIS run rate adjusted earnings. For MetLife Holdings, we are expecting adjusted PFOs to decline 12% to 14% in 2023, driven by the normal runoff of the business, market declines and the transition to LDTI. Beyond 2023, we expect annual PFOs to decline 6% to 8%. We are lowering the life interest adjusted benefit ratio target to 40% to 45% in 2023 from the prior 45% to 50% target to reflect the impact of lowering policyholder dividend levels. Finally, we are maintaining the adjusted earnings guidance of $1 billion to $1.2 billion in 2023. Now let's look at the near-term guidance of our businesses outside the U.S. on Page 13. For Asia, we expect the recent sales momentum to continue and generate mid to high-single-digit growth on a constant currency basis over the near term. In addition, we expect general account AUM to maintain mid-single-digit growth on a constant currency basis. We expect Asia's adjusted earnings, excluding $270 million of COVID-19 claims in 2022, to grow at mid-single digits over the near term. For Latin America, we expect adjusted PFOs to grow by low double digits over the near term. We expect our adjusted earnings to grow high single digits over the near term, excluding roughly $80 million due to favorable market-related factors in 2022. Finally, for EMEA, we are expecting sales and adjusted PFOs to grow mid to high single digits on a constant currency basis over the near term. We expect EMEA run rate adjusted earnings to be roughly $55 million per quarter in 2023, reflecting the impact of currency headwinds and then grow by high single digits in 2024 and 2025. Let me conclude by saying that MetLife delivered a good quarter to close out another strong year, reflecting the strength of our business fundamentals, solid top line growth, favorable underwriting and ongoing expense discipline. While private equity returns were down this quarter, core spreads remained robust. In addition, results in our market-leading franchises, Group Benefits and Latin America continued their strong growth and recovery. Finally, our commitment to deploying capital to achieve responsible growth positions MetLife to build sustainable value for our customers and our shareholders. And with that, I will turn the call back to the operator for your questions.

Ramy Tadros:

Thanks, Erik. It's Ramy here. So the short answer is we're not seeing any impacts across our group business today; in fact, quite the opposite. So maybe let me give you just a couple of overall points before I get into the specifics of our business. So if you think about a recession and a potential recession, as you know, no two recessions are the same, so sitting here, it's really difficult to speculate how a potential recession scenario could play out in terms of the employment levels and particularly as to which segment of the economy that would impact. And the second point, before I get into the specifics of the business, we've all seen the headlines. But overall, we're still sitting in a pretty tight labor market with pretty - with low unemployment levels. And you also have to remember when you look at group benefits, their underlying long-term trends with respect to the dynamics in the workplace, which really favor benefits, and we see those trends continuing thought out [ph] in the future. So if you think about specifically our franchise, while we're certainly not immune to a downturn, there are a number of important mitigants in our business which make us fairly resilient from a top line and a bottom line perspective and, I would say, give us real confidence sitting here today with respect to our guidance ratios in terms of PFO growth. So let me just give you kind of a bit of a sense of what gives us that confidence. From a top line perspective, our book is highly diversified by industry and by size of employer, which limits our diversification, our exposure to any single segment. So really diversification is our friend here and is crucial to our ability to perform. As we stand here in January, we're off to a great start in '23. We're seeing excellent sales momentum across the business. And we had an in-force book that has performed exceptionally well, both with respect to the 1/1 persistency and renewal as well as the rate actions. And we still see significant growth opportunities in our market, and those are direct results of the investments which Michel referenced. So we've spoken about those in the past, be they be the voluntary opportunity with respect to enrollment strategies in the workplace, be it the market-leading national accounts business that we have or be it growth in regional markets where we see a fragmented marketplace that's consolidating. So all in all, you put all of this thing - all of this picture together in terms of our starting point and the profile of our business, and that gives us a pretty high degree of confidence with respect to the guidance range. The underlying assumptions, specific to your second question, really I'll guide you back to the assumptions that John mentioned in the outlook assumptions with respect to an uncertain environment with the potential for a recession. But despite that, we feel pretty good about our guidance ranges.

John McCallion:

Good morning, Erik. It's John. Great question. We have had some resiliency in our runoff business here. So we did provide a guidance raise of 1 to 1.2. Let me start with just PFO decline versus earnings. So as I referenced in my opening remarks, one aspect of LDTI is for our VAs, we do move some of the fees down below the line. That's a revenue decline, but it's not an earnings decline. The way we have - our policy has been that we've attributed fees to the guarantees. And to the extent that they're below the line, we would put 100% of those fees below the line. So as you move, we have a number of SOP 03-1, which is kind of the accrual-based accounting, as you move them down below the line, so does the claims. So you see this like this kind of breakage between revenue decline but earnings staying flat. And then we did have - this is probably one of the businesses with a marginal positive from LDTI. And so that's probably another item. And then thirdly, I think it's the optimization efforts. Now the team has done a great job and continue to look for ways to find improvements around expenses, around contracts. And I think, all in all, we think with the guidance in terms of equity outlook, 1 to 1.2 is a good range.

Operator:

And our next question is from Tom Gallagher with Evercore. Please go ahead.

John McCallion:

Good morning, Tom. It's John. Yes, I don't think any update or change for us. I think we've been pretty transparent about this. This is not an easy solution, particularly when you're talking about a reinsurance arrangement. It is complex. I think particularly when it's a reinsurance, you're looking for a good partner and you're looking for to ensure that not only is it beneficial for us, but beneficial for them. And so there is a - you do have to look for ways for common ground. And sometimes that works out, and sometimes it doesn't. It hasn't changed our perspective on optimization. And so I think things are the same for us, so which is we continue to look for ways to optimize internally and we are, and I just referenced that on the previous comment, and that's helped us be resilient in terms of our earnings. And at the same time, we're still going to look and speak and converse with third parties and look for ways to see if we can accelerate the release and runoff of that block in an appropriate way. And if we can, we would do a deal, if we can't, then we'll continue to optimize internally.

Ramy Tadros:

Yes, I mean it's - you've got to really factor in a lot of different, call it, lenses as you go from an aggregate data to an insured population or a specific book of business. I would say in terms of what we're seeing this quarter, it's very much a shift to an endemic. With respect to COVID, we see continued reduction in the number of deaths below 65, which also reduces the severity of any potential impacts from COVID. But overall, you really should think about this moving to an endemic environment, one that we've priced for and, therefore, we feel pretty good about our guidance range and going back to the midpoint of the range on an annual basis. You'll still see some of the seasonality we've historically seen. So think about Q1 as typically being mortality heavy, which is - was the same dynamic that played out pre-COVID from a mortality perspective.

Operator:

Next, we go on to Ryan Krueger with KBW. Please go ahead.

John McCallion:

Good morning, Ryan. It's John. So as we mentioned, we're raising the guidance. And I think just to kind of frame it in terms of if you use fourth quarter, we're at about 112 ex-VII. If you add 10 for LDTI, which we referenced, it's more of a mechanic than it is necessarily an earnings change or run rate change. And then on top of that, you add kind of a normal VII balance, that gets you to the range we gave. And we are benefiting from the caps. I mean this is really how we constructed the portfolio is to put these in place to address a short-term headwind of rising rates and really rising short-term rates to allow for the longer end of the curve for the rollover and reinvest to start to manifest itself in portfolio yield. So it's all part of the plan. They'll be pretty healthy in '23. They'll start to roll off over the next 2 plus years, and that should give us some time to allow for the longer end of the curve to kind of improve in terms of contribution. We typically stick to '23 - to 1 year, and there's a reason for that. I mean, if you - if we try to predict more than 1 year, I think we would have been wrong every time. So I think we'll stick with that.

Michel Khalaf:

Yes. Hi, Ryan. It's Michel. I mean I would say the short answer is no, no change in philosophy in our approach. And I might sound like a broken record here, but that's probably a good thing. So from our standpoint, the approach is that beyond supporting organic growth and in the absence of strategic accretive M&A, excess capital belongs to shareholders. And we've defined that as cash and equivalents at our holding companies above our liquidity buffer of $3 billion to $4 billion. And we do expect to migrate back to those levels over time. But just given the environment, I think having the financial flexibility that being above that range offer is not a bad thing. We've bought back $3.3 billion in 2022, an additional $250 million in January. And we have $900 million left on our current authorization. And as we've done in the past, we're going to continue to manage the authorization deliberately and in a consistent manner, I would say. So from that perspective, no change in terms of approach or philosophy.

Operator:

And our next question is from Jimmy Bhullar with JPMorgan. Please go ahead. Mr. Bhullar, do you have your phone muted by chance. We will move on to the next person, one moment here. We'll move on to Alex Scott [Goldman Sachs]. Please go ahead.

John McCallion:

Good morning, Alex. It's John. So we gave a range before, and we'll be providing a point estimate as we file our 10-K in the middle of that range was, call it, all in about a 22.5 change in total equity and about a $5 billion, so $22.5 billion and a $5 billion change in book value ex-AOCI, excluding FCTA. That was at 1/1/21. Since that time, obviously, a lot has changed in terms of economic and interest rate environments. And so I think if you were to compare to year-end this year of '22, the delta should be much different or smaller, at least, certainly, on book value ex-AOCI would be about 2 - a little less than a $2 billion, call it, impact on book value ex-AOCI. And then if you include AOCI, it actually flips a little bit to $2 billion positive from the overall $22.5 billion negative to GAAP equity. So hopefully, that helps.

Eric Clurfain:

Okay. Hi, Alex. This is Eric. Let me take the first question regarding the LatAm outlook. So as you mentioned, and you've seen 2022 results and our near-term guidance, we're excited about our prospects in Latin America for a number of reasons. And let me put things in perspective. So we, as you know, we have a strong franchise across the region. We have a significant footprint in three of the largest insurance markets across LatAm. We are market leaders with a very strong brand in Mexico and Chile, and we have a fast-growing business in Brazil. So in addition, the market in the region has significant potential for three reasons in addition to the one that you mentioned. But the three core reasons that are really pushing things forward are, one, the insurance penetration rates remain very low. We are also seeing heightened protection awareness resulting in increased demand for our products. We're also observing an increased expectations from customers for more of a digital and seamless experience, and this is leading to a flight to quality that I mentioned during last year. And these evolving customer needs have been met by our franchise because we have invested significantly in our digital transformation over the past few years, and that digital transformation in both sales and service levels is now paying off clearly. And in parallel, we've been expanding and diversifying our distribution and product reach by growing bancassurance, direct marketing channels, while continuing to strengthen and grow our retail and group business across the region. The good example of that diversification strategy in Mexico where we had a record top and bottom line here in 2022. So we've been also expanding successfully in the private business in both retail and group while continuing that strong franchise that you know very well in worksite government. So all in all, I think there are market factors that are helping, but the strength of our franchise and our strategy is certainly positioning us well for the future and moving forward. So I hope this helps on the LatAm question. And I'll pass it to Michel regarding the Chile view.

Alex Scott:

Got it. Thank you.

Suneet Kamath:

Hi. Can you hear me? A - Michel Khalaf Yes. Suneet, go ahead.

Steven Goulart:

Hi, Suneet. It's Steve. Thanks for the question. And this really reflects the fact that we don't want to try and predict near-term market quarterly or annual returns. This really reflects our long-term experience for the asset class and then therefore our expectation going forward. So that's why I think if you go back, it's been 12%, 3% a quarter as long as I can recall. And again, it reflects the fact that we know that - a couple of things. One is that there is volatility in the returns. But basically, our PE portfolio has generally moved directionally in line with the broad markets. If you can look at the fourth quarter, what happened, we had basically strong kind of broad market returns. NASDAQ was down a little bit. I'm sure that will reflect its way through the portfolio as well. The key, though, is despite any volatility we see in the returns on the portfolio, we're also getting very solid cash distributions. And last year, we had over - about $2.5 billion of cash distribution. As you look at the last 5 years, they've totaled $9 billion. So it really is a very reliable portfolio in that respect as well. And I think a lot of it just reflects the diversification in the portfolio. I mean we've said a number of times, we're very diversified by strategy, by manager, by vintage. Yes, LBOs and BC are the biggest part of the portfolios, but we also have significant investments in specialized strategies like special situations, energy, power and the like. So all in all, our expectations really reflect the long-term experience we've seen in the portfolio that represents the strong diversification we have.

John McCallion:

Good morning, Suneet. Yes, I think you've done a nice job summarizing it. It's a tool in the toolbox. We - it's not our only. We did use it to solve that situation. It was - in the fourth quarter, we executed an internal reinsurance transaction, which improved the ratio by approximately 250 points. And so - and also remember, there is two other things. One, rising rates are good for this business. So that's important to remember from an economic perspective. Second is the solvency regime is meant to be replaced in a few years time and move to a more economic solvency framework that will better reflect the economics. So this is really to deal with, I'll say, a temporary situation. And ultimately, I think these tools allow us to have no concerns over capital generation or dividend capacity.

Operator:

And ladies and gentlemen, we have time for one last question, that's from Elyse Greenspan with Wells Fargo. Please go ahead.

John McCallion:

Good morning, Elyse. It's John. As I mentioned, I think our summary around earnings run rate is there's a few puts and takes, but net-net for the firm overall, run rate is intact for adjusted earnings. Net income will probably become, I'd say, directionally smoother than it has been. It's probably the best way to describe it and you'll probably - and you'll see that when we provide our restated QFS in kind of early April. And you'll see that there's a bit more symmetry between net income and adjusted earnings. But it's - there's still some volatility and fluctuations that you'll see. But net-net, it should be directionally better.

Ramy Tadros:

Elyse. So as you know, we had a record year last year with respect to PRT. And sitting here today, we're still seeing a pretty healthy pipeline given funded status of pension plans. And we're seeing that pipeline also geared towards the jumbo end of the market, which is the place where we compete the most and where we focus on. The seasonality has largely dissipated. If you looked at the timing of the deals over the last few years, we've seen less seasonality. We've seen more deals earlier on in some cases and more these later on. So I wouldn't speculate on the seasonality, but the pipeline is certainly healthy.

Operator:

And ladies and gentlemen, we do have no more time for questions. I'll turn you back to John Hall, Head of Investor Relations, for closing comments.

Operator:

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

John Hall:

Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife's third quarter 2022 earnings call. To begin, I refer you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements which you should review. Presenting on the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also available to participate in the discussion are other members of senior management. Last night, we released a set of supplemental slides which addressed the quarter. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to these slides features incremental disclosures, GAAP reconciliations and other information which you should also review. After prepared remarks, we will have a Q&A session, and it will end no later than the top of the hour. In fairness to all, please limit yourself to one question and one follow-up. Now on to Michel.

John McCallion:

Thank you, Michel and good morning. I will start with the 3Q '22 supplemental slides which provide highlights of our financial performance, details of our annual global actuarial assumption review, updates on our value of new business metrics and our cash and capital positions. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the third quarter. Net derivative losses were primarily the result of higher interest rates. As a reminder, MetLife uses derivatives as part of our broader asset liability management strategy to hedge certain risks. This hedging activity can generate durative gains or losses and create fluctuations in net income because the risk being hedged may not have the same GAAP accounting treatment. Overall, the hedging program continues to perform as expected. In addition, we had net investment losses from our normal trading activity in the portfolio given the rising interest rate environment. In total, the actuarial assumption review and other insurance adjustments in 3Q of '22, was favorable to net income by $54 million, with a positive impact to adjusted earnings of $34 million and a $20 million impact to non-adjusted earnings. The table on Page 4 provides highlights of the actuarial assumption review and other insurance adjustments with a breakdown of the adjusted earnings and net income impact by business. Overall, the impacts were fairly modest. In MetLife Holdings, annuity earnings were negatively impacted by lower-than-expected lapses and annuitizations as well as model refinements. This was partially offset by favorable impact in life as a result of higher earned rates and favorable mortality. In addition, we had a reinsurance recapture gain which was favorable to RIS adjusted earnings by $91 million in the quarter. Our U.S. mean reversion interest rate remained unchanged at 2.75%. And we have maintained our long-term mortality assumptions. On Page 5, you can see the third quarter year-over-year comparison of adjusted earnings by segment which excludes notable items in both periods. Adjusted earnings, excluding total notable items was $932 million in 3Q of '22, down 58% and down 57% on a constant currency basis. Lower variable investment income drove the year-over-year decline while favorable underwriting and solid volume growth were partial offsets. Adjusted earnings per share, excluding notable items, was $1.16, down 55% year-over-year on a reported basis and down 54% on a constant currency basis. Moving to the businesses, starting with the U.S. business. Group Benefits adjusted earnings more than tripled year-over-year, primarily due to significant improvement in underwriting margins aided by lower COVID-19 life claims as well as higher volume growth. This was partially offset by less favorable expense and investment margins year-over-year. The Group Life mortality ratio was 86% in the third quarter of '22 towards the bottom end of our annual target range of 85% to 90%. The business benefited from lower U.S. COVID deaths in the quarter and a continued favorable shift in the percentage of death under age 65 which was roughly 15% in Q3 of '22. More detail on the Group Life mortality results over the past 5 quarters can be found on Page 12 in the appendix. Regarding non-medical health, the interest adjusted benefit ratio was 70.8% in Q3 of '22 at the low end of its annual target range of 70% to 75% and essentially in line with the prior year quarter. Turning to the top line, Group Benefits adjusted PFOs were up 3.4% year-over-year. As we discussed in prior quarters, excess mortality can result in higher premiums from participating life contracts in the period. The higher excess mortality in Q3 of '21 versus Q3 of '22 resulted in a year-over-year decline in premiums from participating contracts which dampened growth by roughly 1 percentage point. The underlying PFO increase of approximately 4.4% was primarily due to solid growth across most products, including continued strong momentum in voluntary. Retirement and Income Solutions, or RIS, adjusted earnings, excluding the notable in this quarter, were down 68% year-over-year. The primary driver was lower private equity return versus a very strong Q3 of '21 as well as less favorable underwriting. Favorable volume growth was a partial offset. RIS investment spreads were 71 basis points, well below our full year 2022 guidance of 95 to 120 basis points and prior year quarter of 256 basis points due to the significant decline in variable investment income. Spreads, excluding VII, were 101 basis points, up 8 basis points versus Q3 of '21 and down 2 basis points sequentially. While RIS liability exposures were down 1% year-over-year due to certain accounting adjustments that do not impact fees or spread income, RIS had strong volume growth driven by sales up 59% year-to-date. This was primarily driven by pension risk transfers and stable value products. With regards to PRT, this has been a record year for MetLife as we have completed 6 transactions worth $12.3 billion year-to-date and we continue to see an active market. Moving to Asia. Adjusted earnings ex notables were down 73% on both a reported and constant currency basis, primarily due to lower variable investment income and unfavorable underwriting. This was partially offset by solid volume growth as assets under management on an amortized cost basis grew 4% on a constant currency basis. In addition, Asia sales were up 27% year-over-year on a constant currency basis, primarily driven by a strong performance in Japan. Overall, Japan sales were up 33% driven by FX annuities and accident and health products which benefited from product launches and new capabilities over the past year as well as the strength of our diversified channels. Latin America adjusted earnings ex notables were $164 million versus $31 million in the prior year quarter. This strong performance was primarily driven by favorable underwriting and solid volume growth. Overall, COVID-19-related deaths in Mexico were down significantly year-over-year. LATAM's recurring interest margins in 3Q '22 continued to benefit from higher inflation rates in Chile. However, this favorable impact was more than offset by lower variable investment income and the Chilean and encaje [ph] which had a negative 1.9% return in 3Q '22 versus a negative 0.3% in the prior year quarter. LATAM's top line continues to perform well as adjusted PFOs were up 21% year-over-year on a constant currency basis and sales were up 22% on a constant currency basis, driven by growth across the region, primarily from higher single premium immediate annuity sales in Chile and group cases in Mexico. EMEA adjusted earnings, excluding notable items, were down 44% and 31% on a constant currency basis compared to a strong Q3 of '21 which benefited from very favorable underwriting. EMEA adjusted PFOs were down 7% on a constant currency basis, primarily due to refinements to certain unearned revenue reserves in both periods. However, sales were up 10% on a constant currency basis, reflecting growth across the region. MetLife Holdings adjusted earnings were down 77%, excluding notable items in both periods. This decline was primarily driven by lower variable investment income. Adverse equity market impact was also a contributor as MetLife Holdings separate account return was negative 5.5% in the quarter versus a negative 1% in 3Q of '21. Favorable underwriting margins in Life and long-term care were a partial offset. Corporate and other adjusted loss was $265 million versus an adjusted loss of $131 million. The year-over-year variance was primarily due to less favorable taxes, lower variable investment income and higher expenses due to market-sensitive employee-related costs. The company's effective tax rate on adjusted earnings in the quarter was 23% which was at the top end of our 2022 guidance range of 21% to 23%. On Page 6, this chart reflects our pretax variable investment income for the past 5 quarters, including a $53 million loss in the third quarter of '22. The majority of VII was attributable to the private equity portfolio of roughly $14 billion which had an overall negative return of 1.3% in the quarter. As we have discussed previously, private equity is generally accounted for on a 1-quarter lag. In addition, real estate equity funds had a positive 4.3% return in the quarter on a portfolio of roughly $2.3 billion. While VII underperformed in 3Q '22, our new money rate increased to 4.71% which was 79 basis points above our roll-off yield of 3.92%. We expect this favorable trend to continue in a rising interest rate environment. On Page 7, we provide VII post-tax by segment for the prior 5 quarters, including a $42 million loss in Q3 of '22. RIS, MetLife Holdings and Asia continue to earn the vast majority of variable investment income consistent with the higher VII assets in their respective investment portfolios. VII assets are primarily owned to match longer-dated liabilities which are mostly in these 3 businesses. Turning to Page 8. This chart shows the comparison of our direct expense ratio over the prior 5 quarters, including 12.3% in Q3 of '22. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our third quarter expense ratio was in line with our full year target but above recent trend given higher employee-related costs that are sensitive to market fluctuations. Those costs contributed roughly 40 basis points to the ratio. While we'd expect our direct expense ratio to be higher in 4Q, consistent with the seasonality of our business, we remain committed to achieving our full year direct expense ratio target of 12.3% in 2022 despite the challenging inflationary environment. We believe this demonstrates our consistent execution and focus on an efficiency mindset. Now, let's turn to Page 9. This chart reflects new business value metrics for MetLife's major segments for the past 5 years, including an update for 2021. Consistent with our Next Horizon strategy, we continue to have a relentless focus on deploying capital and resources to the highest value opportunities. As evidence of that commitment, MetLife invested $2.8 billion of capital in 2021 to support new business which was deployed at an average unlevered IRR of approximately 17% with a payback period of 6 years, generating roughly $1.9 billion in value. New business written in 2021 reflects our disciplined approach to building responsible growth while creating value, generating cash and mitigating risk. I will now discuss our cash and capital position on Page 10. Cash and liquid assets at the Holdings companies were approximately $5.2 billion at September 30 which was up from $4.5 billion at June 30 and remains well above our target cash buffer of $3 billion to $4 billion. The sequential increase in cash at the Holdings companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of approximately $700 million in the third quarter as well as Holdings company expenses and other cash flows. In addition, Holdco cash includes the proceeds from the $1 billion senior debt issuance in July. In regard to our statutory capital, for our U.S. companies, our preliminary third quarter year-to-date 2022 statutory operating earnings were approximately $1.6 billion, while net income was approximately $2.1 billion. Statutory operating earnings decreased by approximately $2.4 billion year-over-year, driven by unfavorable VA rider reserves, lower variable investment income and higher expenses. We estimate that our total U.S. statutory adjusted capital was approximately $18.7 billion as of September 30, 2022, down 2% sequentially and year-to-date. Finally, the Japan solvency margin ratio was 617% as of June 30 which is the latest public data. The decline from March 2022 was primarily due to higher U.S. interest rates. That being said, rising interest rates improve the overall economic solvency of our Japan business. Let me conclude by saying the fundamentals of the business remain strong, solid top line growth, favorable underwriting and ongoing expense discipline. While private equity returns were down this quarter, core spreads remain robust. In addition, results in our market-leading franchises, Group Benefits and Latin America continue their strong growth and recovery. Finally, our commitment to deploying capital to achieve responsible growth positions MetLife to build sustainable value for our customers and our shareholders. And with that, I will turn the call back to the operator for your questions.

Jimmy Bhullar:

So first, I had a question just on your new money yield. If you could talk about where it stands with the recent rise in rates? And how it compares to the yield on your maturing investments?

Jimmy Bhullar:

Okay. And as the new money yield is going up, how much are you having to raise crediting rates or improved terms and conditions on the interest-sensitive products that I noticed in the retirement business, the yield was up a decent amount but crediting rates were up even, I think, sequentially even a little bit more. So this spread ended up declining sequentially ex-VII.

Jimmy Bhullar:

Yes. And then just lastly, on Group Benefits, your margins were pretty good, I think, across all products and other companies have reported similar results as well. Are you seeing any signs of competition in the market picking up given the strong results that companies have had in the Group Benefits market over the past few quarters?

Operator:

Next, we move on to Ryan Krueger with KBW.

John McCallion:

Ryan, it's John. So as you said, we issued $1 billion of debt back in July. We got some great terms on that and great execution. It's generally used -- it's generally raised for general purposes as well as we do have a maturity coming up in 2023. I think at the present time, we're maintaining flexibility and we'll see how things progress over the next few months. But all in all, we're pretty pleased with our holdco cash and cash flows generally.

John McCallion:

Yes, thanks. It's John, again. I'll take that. So as you said, the SMR was down in the second quarter at 6 17 and certainly in the current regime, rising interest rates do impact that. But overall, as you mentioned and I said in my opening remarks, rising interest rates improve the overall economic value of that business. We'll have to monitor the SMR. We can't ignore it but we want to also do things that make sense. And we have a number of internal tools that we can utilize to help manage that temporary impact you would see in the SMR because of the asymmetrical accounting. So overall, the economics is improving, as you mentioned, in a few years' time. They're moving to a more economic solvency framework known as ESR that will better reflect the economics of the business. And right now, we have no concerns over the capital generation or dividend capacity of the business or overall free cash flow for the firm.

Tom Gallagher:

Just a couple of questions on one on derivatives, second on investment losses. Just on -- as I think about your hedges and I just look at derivative losses from rising interest rates, I just want to understand if there's any real impact to statutory capital generation from that. I look at the last 3 quarters, they've been about $2 billion or more than $2 billion of losses. I didn't think that impacted stat earnings, I thought that was an adjustment to TAC. But just first question is just any impact that should have on stack capital generation?

Tom Gallagher:

Yes. It's in your QFS, not -- and I don't see that showing up in the -- the intact, right?

Tom Gallagher:

Okay. So John, no real impact that you see right now on dividend capacity or capital generation that would be notable to point out?

Tom Gallagher:

Okay. And then my follow-up is, just on the investment losses and gains in your supplement, I just want to understand how to think about whether those loss could have an impact on stack capital generation as well? I think most of those should be flowing through IMR. So to the extent that you have net losses, I think that will reduce amortization gains every year but it will have a very like modest annual impact. Am I thinking about that correctly? Or can you shed some light on that?

John McCallion:

Yes. And you're correct, Tom, if you have an IMR balance, would typically get absorbed, we're in that position today. But it's one you have to actively monitor and manage and we plan to do so.

Erik Bass:

You highlighted the strong PRT sales year-to-date in a robust pipeline. I was just hoping you could talk about how the rise in interest rates is affecting both plan sponsor demand for risk transfer as well as pricing for transactions? And also in the past, I think you've given a rule of thumb for the earnings contribution from each $1 billion of sales. I'm just wondering if this is still the right level to think about?

Erik Bass:

And then, I was hoping you could talk about the growth outlook for the Latin American business. There's been strong sales momentum and you're back to the earnings run rate that you had talked about. So looking forward, is double-digit growth in PFOs and earnings from here, kind of the right target to think about?

Operator:

And our next question is from Alex Scott with Goldman Sachs.

Michel Khalaf:

Alex, it's Michel. So let me just maybe remind why we anchored on the 12 3 and we talked about building an efficiency mindset as part of our DNA and we're seeing excellent traction on this front. And the idea here is that we wanted to -- we want to continue to free up capacity to make important investments in our business. And we've been able to do so over the last few years and I think this is playing out very nicely. If you think about, I referenced voluntary benefits and some of the capabilities that we've introduced there, Japan in terms of digitizing our business and speed to market in terms of introducing new products. So we believe it's important to continue to make those types of investments to drive our competitive advantage going forward. Now when we did sort of establish the 12 3 target, obviously, it was also in a different environment if you consider the inflationary pressures that everyone is feeling at the moment. Yet, I mean -- and again, I think this is credit to the sort of efficiency mindset that we've built here. We continue to be committed to achieving 12 3 for the year. And the last thing I would point to is that whereas we're having a record year when it comes to PRT, over $12 billion in new PRT deals, PRT premiums does not factor into our direct expense ratio, does not sort of help us from that standpoint yet. There are obviously expenses associated with winning this business. So for all those reasons, we continue to believe that 12 3 is the right target for us.

John McCallion:

Alex, it's John. Yes, it's a great point. I mean we are focused on achieving solid returns and deploying capital to its highest and best use and ultimately creating value, right? Value is the important number there. And while the IRR and the payback is also -- we don't want to just get focused on 1 metric, the reality is that when we can deploy a great amount of capital to improve value that we're comfortable with, we're going to do it. And I think that it's a great call out I think that you've made. It's not -- we're not just focused on reducing the amount we deploy. We want to deploy more at very attractive returns. And I think that will fluctuate. I mean you can see, I would say, a transition that has happened over time and that's the trend you're seeing. We're at a great point right now where I think to the extent we can deploy even more capital at attractive returns, we're going to do it.

Suneet Kamath:

Just going back to PRT for a second. I just wanted to think through the capital needs as you think about growth in that business. It didn't look like you needed to infuse any capital to support IBM. So I just want to confirm that. But also, as you think about the pipeline, is the opportunity set that you see in front of you going to require more capital? Or is that business sort of self-funding at this point?

Suneet Kamath:

Okay, got it. And then I guess for Steve, on VII, any thoughts on kind of fourth quarter? And then also as we think about longer term, given kind of higher rates in volatile markets, any change to kind of the longer-term thought around what the returns of this portfolio could be?

Operator:

Next, we have a question from Elyse Greenspan with Wells Fargo.

John McCallion:

Elyse, nothing new to update here. It's still an active market out there. There is still an active set of participants. We continue to focus on optimizing holdings, both from an internal perspective as well as speaking with external participants on opportunities. And as we have been for quite some time. And it's a potential opportunity but it's not one where we feel like we have to do anything and we're being thoughtful about seeing if there is a opportunity one way or the other. So -- but nothing new at this point.

John McCallion:

Elyse, it's John again. As you said, total spreads were at 71, ex-VII came in at 101. So year-over-year, up 8 basis points on an ex-VII basis and then down sequentially. Year-over-year, it's -- obviously, the higher interest rates have been beneficial. We have more of these interest rate caps that are in the money that are starting to kind of add to the spread. Sequentially, it was down 2 basis points. In the second quarter, I called out that there were some excess returns in real estate that we expected to moderate they did. So, I'd say third quarter came in pretty much as expected. And then I think the thing going forward here is certainly based on the forward curve which I just pulled up this morning of 3-month LIBOR which is expected to rise to above 5% in the end of the year and beyond into next year. These caps will still be in place and will be additive to the spread. I'd say for fourth quarter, we'd expect spreads all else equal to grow by 5-plus bps.

Wilma Burdis:

[Indiscernible] previously guided to $650 million, $750 million of corporate costs for 2022. It sounds like you're sticking to the 12.3% expense guidance but should we expect a higher run rate in corporate heading into 2023, given PFO growth and inflation?

Wilma Burdis:

Okay. Second question, you've previously guided to a roughly $65 million quarterly earnings run rate in EMEA. But it seems like $56 million this quarter was fairly normal. So I'm wondering if that's a good run rate reflecting currency pressures.?

Operator:

And that's all the time we have available for questions. And we will now pass the call back to MetLife's CEO, Michel Khalaf for closing remarks. Please go ahead.

Operator:

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

John Hall:

Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife's Second Quarter 2022 Earnings Call. Before we begin, I'd point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Last night, we released a set of supplemental slides, which address the quarter. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to these slides feature incremental disclosures, GAAP reconciliations and other information which you should also review. After prepared remarks, we will have a Q&A session, which will end no later than the top of the hour. In fairness to all, please limit yourself to one question and one follow-up. Now over to Michel.

John McCallion:

Thank you, Michel, and good morning. I will start with the 2Q '22 supplemental slides, which provide highlights of our financial performance, an update on our cash and capital positions as well as commentary on the new U.S. GAAP accounting known as Long Duration Targeted Improvements or LDTI, effective 1/1/23. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the second quarter. Higher interest rates and the strengthening of the U.S. dollar in the quarter drove net derivative losses. As a reminder, MetLife uses derivatives as part of our broader asset liability management strategy to hedge certain risks. This hedging activity often generates derivative gains or losses and creates fluctuations in net income because the risk being hedged may not have the same GAAP accounting treatment. In addition, we had net investment losses from our normal trading activity in the portfolio given the rising interest rate environment. We had one favorable notable item this quarter of $77 million or $0.09 per share related to a reinsurance settlement, which was accounted for in MetLife Holdings. On Page 4, you can see the second quarter year-over-year comparison of adjusted earnings by segment, which excludes notable items in both periods. Adjusted earnings in the second quarter of 2022, excluding the notable item were $1.5 billion, down 23% and down 21% on a constant currency basis. Lower variable investment income drove the year-over-year decline, while favorable underwriting and solid volume growth were partial offsets. Adjusted earnings per share, excluding the notable item, was $1.90, down 17% year-over-year on a reported basis and down 15% on a constant currency basis. Moving to the businesses, starting with the U.S. business. Group Benefits adjusted earnings were up 61% year-over-year, primarily due to significant improvement in underwriting margins aided by lower COVID-19 Life claims as well as higher volume growth. The Group Life mortality ratio was 85.8% in the second quarter of '22 towards the bottom end of our annual target range of 85% to 90%. The business benefited from lower U.S. COVID deaths in the quarter and a continued favorable shift in the percentage of death under age 65, declining from approximately 23% in the first quarter to roughly 17% in the second quarter. The adjusted earnings impact of Group Life COVID-19 reported claims was approximately $35 million offset in part by an IBNR release related to 1Q '22 COVID-19 claims of approximately $25 million. Therefore, the net COVID impact was roughly $10 million or one percentage point on the Group Life mortality ratio. More detail on the Group Life mortality results over the past 5 quarters can be found on Page 11 in the appendix. Regarding non-medical health, the interest-adjusted benefit ratio was 73.1% in Q2 of '22 within its annual target range of 70% to 75% and favorable to the prior year quarter of 73.8%. Turning to the top line, Group Benefits adjusted PFOs were up 3% year-over-year. As we discussed in the prior quarters, excess mortality can result in higher premiums from participating contracts in the period. The higher excess mortality in Q2 of '21 versus Q2 of '22 resulted in a year-over-year decline in premiums from participating contracts, which dampened growth by roughly 1.5 percentage points. The underlying PFO increase of approximately 4.5% was due to solid growth across most products, including continued strong momentum in voluntary. Retirement and Income Solutions, or RIS, adjusted earnings were down 41% year-over-year. The primary driver was less favorable private equity returns versus a very strong Q2 of '21. Favorable volume growth was a partial offset. RIS investment spreads were 116 basis points within our full year 2022 guidance of 95 to 120 basis points, but well below the prior year quarter of 224 basis points due to the significant decline in variable investment income. Spreads, excluding VII, were 103 basis points, up 5 basis points versus Q2 of '21 and up 14 basis points sequentially due to higher interest rates, wider credit spreads and favorable real estate performance. RIS liability exposures were down 3% year-over-year despite strong top line growth. The key drivers of this decrease came from reductions in accounting adjustments that impact our liabilities, but do not impact fees or spread income and thus have no impact on adjusted earnings. RIS sales were up 30% year-to-date, primarily driven by pension risk transfers and stable value products. With regards to PRT, we completed 3 transactions worth $2.6 billion in the quarter, a strong first half of 2022, and we continue to see an active market. Moving to Asia. adjusted earnings were down 26% and 22% on a constant currency basis, primarily due to lower variable investment income and unfavorable underwriting. This was partially offset by solid volume growth as assets under management on an amortized cost basis grew 5% on a constant currency basis. In addition, Asia sales were up 2% year-over-year on a constant currency basis, primarily driven by another solid performance in Japan. Overall, Japan sales were up 5% driven by FX annuities and accident and health products sold through face-to-face channels. Latin America adjusted earnings were $267 million versus $97 million in the prior year quarter. This strong performance were driven by several positive factors, primarily favorable underwriting and investment margins as well as solid volume growth. Overall, COVID-19 related deaths in Mexico were down significantly in Q2. This positive trend, coupled with the emergence of even more favorable mortality experience in our own block, resulted in a reduction to the IBNR reserve that was established in prior periods. This benefited LatAm's adjusted earnings by roughly $40 million after tax in 2Q '22. The LatAm's adjusted earnings in the quarter also benefited from strong investment margins, primarily due to the net impact from inflation-linked assets and liabilities in Chile that increased with higher inflation rates as well as the Chilean encaje, which had a 4.8% return in 2Q '22 versus a negative 1.5% in the prior year quarter. LATAM's top line continues to perform well as adjusted PFOs were up 26% year-over-year on a constant currency basis, and sales were up 19% on a constant currency basis, driven by growth across the region, primarily from higher single premium immediate annuity sales in Chile and group cases in Mexico. EMEA adjusted earnings were down 32% and 16% on a constant currency basis compared to a strong Q2 of '21, which benefited from a favorable refinement of an unearned premium reserve in the prior year period, totaling approximately $15 million after tax. In addition, adverse equity market impacts in the current year period were partially offset by favorable underwriting margins. MetLife Holdings adjusted earnings were down 46%, excluding the favorable notable item of $77 million after tax as discussed earlier. This decline was primarily driven by lower variable investment income, adverse equity market impacts and less favorable underwriting also were contributors to the year-over-year decline. MetLife Holdings separate account return was negative 14% in the quarter versus a positive 6% in Q2 of '21. Corporate and other adjusted loss was $243 million versus an adjusted loss of $126 million, excluding notables in the prior year quarter. The year-over-year variance was primarily due to higher expenses from corporate-related costs associated with less favorable equity markets and higher interest rates. Higher taxes and lower variable investment income were also contributors. The company's effective tax rate on adjusted earnings in the quarter was 22.3% and within our 2022 guidance range of 21% to 23%. On Page 5, this chart reflects our pretax variable investment income for the past 5 quarters, including $389 million in the second quarter of '22. The majority of VII was attributable to the private equity portfolio of roughly $14 billion, which had an overall return of 1.5% in the quarter. As we have previously discussed, private equity is generally accounted for on a 1-quarter lag. In addition, real estate equity funds were also a strong contributor to VII with nearly an 8% return in the quarter while hedge funds, which are reported on a 1-month lag, had a loss. While VII in 2Q '22 was below expectation and recent trends, our new money rate was 3.92% and above our roll-off yield of 3.71%. This marks the first time in over a decade in which we did not experience quarterly spread compression in the investment portfolio. On Page 6, we provide VII post-tax by segment for the prior 5 quarters, including $307 million in Q2 of '22. Asia, MetLife Holdings and RIS continue to earn the vast majority of variable investment income consistent with the higher VII assets in their respective investment portfolios. VII assets are primarily owned to match longer-date liabilities, which are mostly in these 3 businesses. Turning to Page 7. This chart shows a comparison of our direct expense ratio over the prior 5 quarters, including 11.9% in Q2 of '22. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our second quarter direct expense ratio benefited from solid top line growth and ongoing expense discipline. While we would expect our direct expense ratio to be higher in the second half of the year, consistent with the seasonality of our business, we remain committed to achieving a full year direct expense ratio below 12.3% in 2022 despite the challenging inflationary environment. We believe this demonstrates our consistent execution and focus on an efficiency mindset. I will now discuss our cash and capital position on Page 8. Cash and liquid assets at the holding companies were approximately $4.5 billion at June 30, which is up from $4.2 billion at March 31 and remains above our target cash buffer of $3 billion to $4 billion. The sequential increase in cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of $1.1 billion in the second quarter as well as holding company expenses and other cash flows. In addition, holdco cash includes the proceeds from the sale of our Poland business, which closed in April. In regard to our statutory capital for our U.S. companies, our preliminary second quarter year-to-date 2022 statutory operating earnings were approximately $700 million, while net income was approximately $1.3 billion. Statutory operating earnings decreased by approximately $2 billion year-over-year, driven by unfavorable VA rider reserves, underwriting results and lower variable investment income. We estimate that our total U.S. statutory adjusted capital was approximately $19.1 billion as of June 30, 2022, up 2% sequentially. Finally, the Japan solvency margin ratio was 764% as of March 31, which is the latest public data. The decline from December 2021 was primarily due to higher U.S. interest rates. Now shifting to LDTI on Page 9. While there is quite a bit of work still to be done prior to implementation on January 1, let me take a moment to recognize the great work of our MetLife associates and our partners in getting us to this point. This slide provides an update on our expected transition balances as of January 1, 2021, under LDTI. The column on the left was our actual balances at 12/31/'20, and the middle column contains the estimated range of our restated balances under LDTI. The changes under LDTI that account for the bulk of the book value adjustment at transition include the market risk benefit adjustment associated with variable annuities, not presently accounted for at market, the impact of disaggregation and the revaluation of in-scope long-duration insurance contracts using a [indiscernible] equivalent discount rate and the elimination of relevant shadow account balances. As you can see from MetLife at the end of 2020, there is a greater convergence between book value and book value excluding AOCI under LDTI. However, this may not always be the case as certain assets are not mark-to-market and not all liabilities are in scope under LDTI. While LDTI will provide additional information and transparency and improve consistency around accounting for certain aspects of the life insurance industry, it does not impact cumulative product profitability, cash flow generation, our strategy or how we manage the business. Let me conclude by saying MetLife delivered another strong quarter, highlighted by solid top line growth, ongoing expense discipline and the benefits of our diverse set of market-leading businesses and capabilities that allow us to navigate successfully through uncertain environments. While private equity returns were lower this quarter, it was offset by favorable underwriting, most notably in our market-leading franchises in Group Benefits and Mexico, which saw a return to more normal mortality as COVID-19 deaths significantly declined. Finally, our capital, liquidity and investment portfolio remains strong and position us for further success. And we are confident that the actions we are taking to be a simpler and more focused company will continue to create long-term sustainable value for our customers and our shareholders. And with that, I will turn the call back to the operator for your questions.

Ryan Krueger:

First question was, thanks for the LDTI disclosure on the balance sheet. I guess, at this point, are you able to give any sense, I guess, directionally on the potential impact to ongoing earnings?

Ryan Krueger:

Yes. No, that's very helpful. And then on VII, obviously, acknowledging how strong it's been over the last couple of years. But can you give any sense of what it could look like in the third quarter?

Operator:

And our next question is from Jimmy Bhullar with JPMorgan.

John McCallion:

Jimmy, it's John. As you point out, we had a pretty resilient level of spreads this quarter, up 14 basis points sequentially. And as you point out, we did not quite expect that back in the Q1 call. But that was -- we were basing our commentary based on forward rate curve, right? And if you think about what has happened since the 10-year treasury ends up about 65 basis points above that. And the other thing that happened is spreads widened. So our reinvestments were strong. And then the third thing is 3-month LIBOR jumped to a much greater level than we had expected and actually the forward curve expected ended the quarter at roughly 2.3%. If I think about just during the course of the quarter, it was kind of hovering around 150 and then all of a sudden, there was a huge spike kind of at the end of May into June. And bypassing that [indiscernible], I referenced this 2% marker. As LIBOR started to grow, get towards that 2% and then beyond, it could create a little bit of a tailwind. We have a number of caps that start to become in the money. That we have in place today. And so that was really the main driver moving us from a headwind of LIBOR rising to a, if you call it, I guess, a benefit of having the caps be in the money. So that was the real driver. The other thing I'd point out is real estate equity outperformed. So within our core investment income, real estate equity was stronger than expected. We'd expect that to moderate. But if we look forward, and I guess, assuming today's current forward rates, which we know can be different, we'd expect ex-VII spreads to remain pretty close to where we are today, I mean, give or take, plus or minus, and even assuming some moderation of the real estate returns.

John McCallion:

Sorry, Jimmy just let me just add. I would just tell you that, that's probably for the next couple of quarters, right? I mean we'll give guidance for next year when we get towards the latter part of the year.

John McCallion:

Yes, you're right. Yes.

Unidentified Company Representative:

Jimmy, it's Lindon here. So let me give you the color on total Asia sales, and then I'll get into the other markets as well. we have good diversification across all the markets, products and channels, and that really drives very consistent execution through this market conditions. So overall, we've had positive growth in the second quarter, led by strong performance in Japan. If we look a little bit at Japan sales, we're up 5%. And that's actually driven by 3 factors. First, the execution on the ground of the team has been very strong. We have a very diversified distribution channels, and the products and capabilities we've launched in the past year has really helped us drive the growth over there. But as you pointed out in Other Asia, we've faced a couple of headwinds. We've got COVID restrictions going on in China right now, and the stronger U.S. dollar has really impacted sales for the FX products in Korea. But despite these channels, we actually have other markets that are compensating for these and help offset some of these headwinds. Looking forward, we expect strong momentum going into the third quarter. We're introducing new products in Korea. And also, we expect some relief in the lockdown conditions in China. So full year basis, we are comfortable with the guidance of mid-single year digit growth that we gave at the outlook call.

Thomas Gallagher:

I had two capital questions. The first is the new C2 factor change that's coming year-end for mortality, morbidity. My understanding is it positively impacts Group Life, negatively affects Individual Life. If so, is that a positive for Met? And if so, could you quantify it?

Thomas Gallagher:

Okay. And the SMR change in Japan dropped a lot in March, I assume that's going to go down a lot more in June just based on where rates went. How are you thinking about managing through that? Or are you contemplating hedging this at all? And also, is there a risk that, that can impact the dividend remittances out of Japan.

Operator:

And next, we move to Elyse Greenspan with Wells Fargo.

Eric Clurfain:

Elyse, this is Eric. So yes, as you pointed out. So overall, this was a strong quarter for the region, supported by solid business fundamentals and several positive items that we really put into 2 buckets, right, the market factors and underwriting. So starting with market factors, we had very strong net investment margins this quarter, which include the net positive impact of inflation in Chile as well as the above-average encaje results. And the quarter also benefited from strong variable investment income. So these items combined contributed to roughly $60 million in adjusted earnings. Then the second bucket, underwriting, and John mentioned that earlier, this quarter was really recorded a 40 million after-tax benefit from a favorable prior year developments related mainly to COVID mortality experience. So these are the 2 main items. Now putting these items aside, we're also very pleased to see our business continues to deliver. As you may recall, last quarter, I mentioned that our earnings growth continued to be supported by strong and resilient business fundamentals, which are driving solid top line growth. And that sales momentum that began last year has continued this quarter as well. And this reflects really the strengths, the resiliency and the diversity of our distribution franchise across the region, combined with a noticeable flight to quality. And then this emphasis on quality is also evidenced by a very solid persistency across the region, which, combined with the strong sales momentum that I mentioned has resulted in a 26% growth year-over-year in PFOs on a constant rate basis. Now about half of that growth came from the SPIA business in Chile, where our market share has increased, but the market as well has grown over the past over the past quarter. So that's in a nutshell, the story for LatAm this quarter. I hope this helps.

Michel Khalaf:

This is Michel. So yes, as I noted in my opening comments, we had our foot on the gas pedal a little bit in the second quarter, in particular. So expect a modestly slower pace, I would say, in the second half. Our overall view has not changed. Our philosophy, our approach have not changed. We're still comfortable with the $3 billion to $4 billion cash buffer over time. We'll get back to that. So no change in approach here. It's just that we had an acceleration in the first half. So it will be modestly slower in the second.

Erik Bass:

Can you provide some more color on the expected adjustment to retained earnings from adopting LDTI. And is this all being driven by the impact of bringing market risk benefits to fair value? Or are there any meaningful reserve adjustments? And I guess given the rise in interest rates since year-end '20, should we expect the adjustment to be smaller today than what you're showing on the slide?

Erik Bass:

Perfect. And then maybe if you could touch on your U.S. mortality experience this quarter across both Group and Holdings. And it looks like even ex COVID margins were favorable versus your targets. So have you seen some of the elevated non-COVID mortality that have been a factor in recent quarters? Has that started to come down as well?

John McCallion:

Yes. And just on -- just touching on Holdings. I mean we certainly saw kind of a reduction in claims in the quarter. We didn't really see a big impact at all for COVID. And then on the -- if you just look at the life interest adjusted benefit ratio, you have to adjust for the reinsurance settlement. But excluding that, it comes in at 43.8. And that's -- we just saw a favorable non-COVID claim experience in the quarter.

Suneet Kamath:

Maybe just for Steve to start out with. Can you just maybe talk a little bit about your outlook for credit and the potential for credit losses if we move into a recession? Is there any asset classes or sectors that you're paying particular attention to these days?

Suneet Kamath:

Okay. And then I guess for Ramy, on the Group Benefit side, I know Q2 is a low quarter for sales. But just curious on any color from the conversations you're having with your clients around pricing just given -- I'm assuming most of them are facing pressures across the board on cost from inflation. So just any color on how those conversations are going as we think about 1/1 next year?

Operator:

And our next question is from Alex Scott with Goldman Sachs.

John McCallion:

Alex, it's John. I think overall, on risk transfer, I'd say nothing new really to update. I mean we've probably given a consistent message every quarter for quite some time now. And I think it's the same, and I think we're being very transparent. Our goal here is continuously optimize. And we're trying to do that both in the form of internal actions but also looking at opportunities to leverage the growing risk transfer market. And as a result, we continue to converse with third parties. Our philosophy is there's no burning platform. We're happy to maintain our approach and continue to optimize internally, but we want the optionality to see if we can accelerate the appropriate release of capital and reserves. I think the one thing that we continue to just look at here, this is a reinsurance transaction for us if we were to do something. So as we think about our philosophy, when we look at this is, we view this as a long-term relationship. So it's -- this is one of those things that would take time. It takes time to make sure that we feel grounded with a strong counterparty and structure and kind of the approach. But I think we're continuing to evaluate that and that's been the case now for some time. In terms of the impact to LDTI, I don't know how to exactly answer that. I think one thing we have to be careful about is under LDTI, one of the things that probably did not come out as perfect was just the -- there is some asymmetrical counting when you do enter into reinsurance. So you have to be mindful of that under GAAP. So it doesn't perfectly line up. So I don't know how to perfectly answer your question that way because it would -- I guess the answer is it depends. So I'm sure that...

Ramy Tadros:

Alex, I would say, the numbers we're continuing to track clearly is just overall eligibility in our book, and we have a highly diversified book of business. And with the low unemployment levels, clearly, those numbers continue to kind of increase and remain very solid. And we're seeing some kind of form of wage inflation come through as well, and both of these have been kind of tailwinds to the business. So we're kind of seeing in the book, what you're seeing probably in the broader economy. And maybe that's kind of as much color as I can give you in terms of what we're seeing.

John Barnidge:

So you had an IBNR reserve release in both group and Latin America. Is there any tail that we should be thinking about for subsequent quarters from that?

John Barnidge:

Yes, correct.

John Barnidge:

Okay. And then my follow-up to that, if we're talking about emergence versus expected, the LDTI disclosure, can you maybe talk about is there any unrealized insurance margin that's something we've seen from other companies that have large operations in Japan?

Operator:

Next, we go to Andrew Kligerman with Credit Suisse.

Michel Khalaf:

Andrew. So I don't think -- if we look at our portfolio, I think we don't see any major gaps when it comes to that portfolio. We're really well pleased. As you know, we've gone through a major transformation that got us to this point. We believe we have the right strategy. Having said that, M&A is a strategic capability and if we see opportunities to accelerate revenue growth in certain businesses that we -- where we believe, potentially doing something organically might make sense or bring in a capability that can help drive our competitive advantage, we'd certainly be open to doing so. And look at a lot of deals and the -- maybe the sort of lack of deal should not suggest to you that there's a lack of activity here. We increased our shareholding in our India JV in the first quarter to 47%. So we continue to be active, but we're also very disciplined and whatever we do has to make strategic sense for us as well.

Ramy Tadros:

Andrew, it's Ramy here. I mean, as you know, the activity in the first half of the year was pretty substantial in the PRT space. Year-to-date, we've written $3.8 billion worth of deals, and that comes after a successful fourth quarter where we roll $3.6 billion worth of deals. So that's cumulatively about $7.5 billion year-over-year. The pipeline continues to be pretty active and pretty robust, as Michel mentioned. And we are focused on a specific part of that pipeline where we enjoy our own kind of set of competitive advantages, namely the jumbo end of the plans, and there are fewer competitors there. When you go down size, clearly, there are more competition and more providers, but where we play, it's another set of competitors because of the size of the transactions that we bid for.

Michel Khalaf:

Thank you all for joining us this morning. I know it's a busy morning. Our second quarter results add to MetLife's track record of consistent, strong performance and provide further evidence of the strength and momentum of our well-diversified, market-leading businesses. With our clarity of purpose, a compelling all-weather strategy and a relentless focus on execution, we are well positioned to deliver superior value to all our stakeholders. Thank you, and have a great day.

John Hall:

Thank you, Operator. Good morning, everyone. We appreciate you joining us for MetLife’s first quarter 2022 earnings call. Before we begin, I would point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Last night, we released a set of supplemental slides, which addressed the quarter. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to these slides features disclosures, GAAP reconciliations and other information, which you should also review. After prepared remarks, we will have a Q&A session. In light of the busy morning, Q&A will last no later than the top of the hour. In fairness to all, please limit yourself to one question and one follow-up. With that, over to Michel.

John McCallion:

Thank you, Michel, and good morning. I will start with the 1Q 2022 supplemental slides, which provide highlights of our financial performance and an update on our cash and capital positions. Starting on page three, we provide a comparison of net income to adjusted earnings in the first quarter. Net income was $606 million or $1.1 billion lower than adjusted earnings. The majority of this variance was due to net derivative losses as a result of the significant rise in long-term interest rates in the quarter. In addition, we had net investment losses, primarily due to impairments on our Russian premium bonds, as well as normal trading activity in the portfolio that resulted in losses given the rising interest rate environment. Following the impairments and a sale of Russian bonds in April, our current combined exposure in Russia and Ukraine is roughly $125 million. On page four, you can see the first quarter year-over-year comparison of adjusted earnings by segment, which did not have any notable items on either period. Adjusted earnings were $1.7 billion, down 12% and down 10% on a constant currency basis. Lower variable investment income accounted for the majority of the year-over-year decline. While private equity returns were again strong, they compared to an even stronger Q1 of 2021, adjusted earnings per share was $2.08, down 5% year-over-year on a reported basis and down 4% on a constant currency basis. Moving to the businesses, starting with the U.S., Group Benefits adjusted earnings were up 20% year-over-year due to higher volume growth and an improvement in underwriting margins. I will discuss Group Life underwriting in more detail shortly. Regarding non-medical health, the interest adjusted benefit ratio was 72.5% in Q1 of 2022 at the midpoint of its annual target range of 70% to 75%. That said, the ratio higher than the prior year quarter of 71.1%, due to higher incidences in disability relative to favorable incidence levels in the prior year quarter. Turning to topline, Group Benefits adjusted PFOs were up 7% year-over-year. This growth included 2 percentage points related to higher premiums from participating contracts, which can fluctuate with claim experience. The balance of the PFO growth of 5% was due to solid growth across most products, including continued strong momentum in voluntary. Group Benefits sales were down 31% compared to record sales in Q1 of 2021, which were driven by exceptionally strong jumbo cases. While jumbo case activity was significantly lower in 1Q 2022, we continue to see good growth in the business and our persistency remained strong. Retirement Income Solutions or RIS adjusted earnings were down 16% year-over-year. The primary driver was less favorable private equity returns versus a very strong Q1 of 2021. Favorable volume growth was a partial offset. RIS investment spreads were 181 basis points, driven by another strong quarter of variable investment income, spreads excluding VII were 89 basis points, up 1 basis point versus 1Q 2021, but down 2 basis points sequentially due to higher LIBOR rates. RIS liability exposures were essentially flat year-over-year, as growth across most products primarily U.K. longevity reinsurance and pension risk transfers were offset by lower separate account balances. With regards to pension risk transfers, we completed one transaction worth $1.3 billion in the first quarter and continue to see an active market. Moving to Asia, the adjusted earnings were down 7% and 4% on a constant currency basis, primarily due to lower recurring interest margins and a decline in first quarter equity markets in Japan and Korea. This is partially offset by solid volume growth as assets under management on an amortized cost basis grew 7% on a constant currency basis. In addition, sales were up 2% year-over-year on a constant currency basis driven by strong sales in Japan. Latin America adjusted earnings were $142 million versus $40 million in the prior year quarter, while COVID-19 related claims remained elevated in 1Q 2002 at roughly $30 million after-tax. They were down significantly versus the prior year quarter. In addition, volume growth was a positive contributor, while lower equity markets were a partial offset. The Chilean Encaje had negative 4% return in 1Q 2022 versus the prior year quarter, which was a modest positive. While LatAm’s bottomline has been trending towards pre-pandemic levels, its topline continues to demonstrate strength as adjusted PFOs were up 22% year-over-year on a constant currency basis and sales were up 40% on a constant currency basis, driven by solid growth across the region. EMEA adjusted earnings were down 27% and 15% on a constant currency basis, primarily driven by the exclusion of divested businesses, Poland and Greece, which were included in the first quarter of 2021 adjusted earnings. In addition, higher expenses were partially offset by favorable underwriting margins and volume growth. While the region reported excess COVID claims in Q1, they were lower than the prior year quarter. MetLife Holdings adjusted earnings were down 39%. This decline was primarily driven by lower variable investment income and less favorable underwriting. Corporate and other adjusted loss was $117 million versus an adjusted loss of $171 million in the prior year quarter. Higher variable investment income was the result of a $1.1 billion transfer of PE assets to corporate and other from IRS and MetLife Holdings in Q1 of 2022. To better align asset liability management for these two segments, higher expenses were partial offset. The company’s effective tax rate on adjusted earnings in the quarter was 21.3% and within our 2022 guidance range of 21% to 23%. Now, I will provide more detail on Group Benefits mortality results on page five. This chart reflects our Group Life mortality ratio for the last five quarters, including the COVID-19 impact on the ratio and on Group Benefits adjusted earnings. The Group Life mortality ratio was one hundred and 103.8 in the first quarter of 2022, which is well above our annual target range of 85% to 90%. COVID reported claims were roughly 14% points, which reduced Group Benefits adjusted earnings by approximately $230 million. While U.S. COVID deaths were higher sequentially, there was a favorable shift in the percentage of deaths under age 65, declining from approximately 33% in the fourth quarter to roughly 23% in the first quarter. As a result of these two competing factors, we saw a modest improvement in mortality results this quarter. In addition we experienced 1 percentage point to 2 percentage points from non-COVID excess mortality. This included a large number of high dollar claims, which can fluctuate from period-to-period. On page six, this chart reflects our pre-tax variable investment income for the past five quarters, including $1.2 billion in the first of 2022. This strong result was mostly attributable to the private equity portfolio of roughly $14 billion, which had an overall return of 7% in the quarter. Unlike previous quarters where we have seen a dispersion in returns by fund type, this quarter our major PE returns were tightly coupled around 7% overall. As we have previously discussed, private equities generally accounted for on a quarter lag. In addition, real estate equity funds were also a strong contributor to VII with a 10% return in the quarter, while hedge funds, which are reported on a one-month lag had a loss. On page seven, we provide VII post-tax by segment for the prior five quarters, including $936 million in Q1 of 2022. You will note that our general rule of thumb that RIS, MetLife Holdings in Asia account for 90% or more of the total VII did not hold in 1Q 2022, coming in at 83%. This lower percentage was primarily due to the transfer of PES to corporate and other from RIS and MetLife Holdings that I discussed earlier. In addition, Asia’s higher VII year-over-year was primarily due to strong real estate equity fund performance, as well as higher PE asset balances. Turning to page eight, this chart shows a comparison of our direct expense ratio over the prior five quarters, including 11.7% in Q1 of 2022. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our first quarter direct expense ratio benefited from solid topline growth and ongoing expense discipline. This included approximately 40 basis points from premiums that relate to participating cases in Group Benefits due to excess mortality. We remain committed to achieving a full year direct expense ratio below 12.3% in 2022, demonstrating our consistent execution and focus on an efficiency mindset. I will now discuss our cash and capital position on page nine. Cash and liquid assets at the holding companies were approximately $4.2 billion at March 31st, which was down from $5.4 billion at December 31st, but remains above our target cash buffer of $3 billion to $4 billion. The sequential decline in cash at the holding companies reflect the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of $915 million in the first quarter, as well as holding company expenses and other cash flows. Our first quarter tends to be lower in subsidiary dividends and higher in holding company expenses. Therefore, we would expect HoldCo cash balances to increase in the second quarter due to higher subsidiary dividends, as well as proceeds from the sale of our Poland business, which closed in April, as Michel noted. In regard to our statutory capital, for our U.S. companies are 2021 combined NAIC RBC ratio was 386%, which was above our target ratio of 360%. For our U.S. companies, preliminary first-quarter year-to-date 2022 statutory operating earnings were approximately $400 million, while net income was approximately $800 million. Statutory operating earnings decreased by approximately $1.1 billion year-over-year primarily due to less favorable VA rider reserves, underwriting results and higher expenses. We estimate that our total U.S. statutory adjusted capital was approximately $18.7 billion as of March 31, 2022, down 2% compared to December 31, 2021. Finally, the Japan solvency margin ratio was 947% as of December 31st, which is the latest public data. Looking ahead, we expect the Japan SMR to decline in 2022, as a result of higher U.S. interest rates, but remained well above its capital target level. Let me conclude by saying MetLife delivered another strong quarter, highlighted by outstanding private equity returns, solid topline growth, ongoing expense discipline and the benefits of our diverse set of market-leading businesses and capabilities that allow us to navigate successfully through uncertain environments. In addition, our capital, liquidity and investment portfolio remain strong and position us for further success. Finally, we are confident that the actions we are taking to be a simpler and more focused company will continue to create long-term sustainable value for our customers and our shareholders. And with that, I will turn the call back to the Operator for your questions.

Ryan Krueger:

Hi. Thanks. Good morning. Could you discuss your outlook for the retirement spread over the next few quarters in light of the higher interest rate environment but also the flatter yield curve?

Ryan Krueger:

Thanks. Very helpful. And then, I guess, the follow-up is just I think we all know rising interest rates are generally good for life insurance. I just want to make sure that there are any unusual impact from things like interest rate derivative mark on a stat basis that would have any kind of negative impact on dividend capacity going forward?

Ryan Krueger:

Great. Thanks a lot.

Jimmy Bhullar:

Hi. Good morning. First, I just had a question on what you are seeing in terms of activity in the pension closeout market. I think you mentioned that the pipeline is healthy, but how do you see, I guess, interest rates are obviously benefiting, but the weak equity market and its impact on funding levels, are you seeing a little bit of a slowdown or just the uncertainty causing plan sponsors to put off any transactions.

Jimmy Bhullar:

Okay. Thanks. And then on your Latin American sales, they were pretty strong across every single major market. To what extent is that a function of the pandemic receding versus just anything that you have done on the product or distribution side.

Jimmy Bhullar:

Thank you.

Elyse Greenspan:

Hi. Thanks. Good morning. My first question, we have seen move up in interest rates this year. I was just wondering if that has an impact on the potential fee by secure transaction with one of your blocks within holdings.

Elyse Greenspan:

Okay. And then within Group, you guys called out the non-COVID mortality this quarter. I just was hoping to get a little bit more color there and if you guys expect this to continue as we move through this year and even potentially get on the other side of the pandemic.

Elyse Greenspan:

Okay. Thanks for the color.

Erik Bass:

Hi. Thank you. In the Group business, can you talk about enrollment and persistency trends in the level of benefit you are seeing from rising employment and rates growth?

Erik Bass:

Sorry, I was just asking in the Group business, if you could talk about enrollment and persistency trends and then the level of benefit that you are seeing from rising employment and wage growth?

Erik Bass:

Great. Thank you. And then can you discuss your earnings and capital exposures to a weaker yen and what hedges you have in place?

Erik Bass:

Great. Thank you

Tom Gallagher:

Good morning. First question is just can you provide a little bit of color behind the around $400 billion of investment losses. I presume most of that was Russia-Ukraine, but can you just give some specificity for the accounting for the $400 million?

Tom Gallagher:

Got it. That makes sense, Steve. So I would assume some of that, there could be a little bit of a tail to the trading aspect of that as you roll into 2Q and rates have continued to go up. Is that fair.

Tom Gallagher:

Okay. Got you. And then, just, I guess for Kishore, just a follow-up on Japan, the sales there seemed pretty good and your competitors that are in Japan were quite weak with the state of emergency orders in Japan. Just curious how you were able to drive sales growth, is there something unique about product launches or your distribution that that allowed you to still grow sales across -- it looks like across all products in Japan.

Tom Gallagher:

That was. Thank you.

Operator:

And -- oh, go ahead. My apologies. Mr. Gallagher, did you have anything further.

Operator:

Very good. We will move on to Suneet Kamath with Jefferies. Please go ahead.

Ramy Tadros:

Hey. It’s Ramy here. Generally speaking, we are pretty quick in terms of recognizing the getting the death claims and recognizing those and we clearly hold the reserved essentially account for the IBNR. So I would say, on average, we have been getting up pretty well over the last kind of year and a half. So I would just continue to anchor any of your kind of estimates based on the headline mortality numbers for the entire population. So I would say, you looked at those and those have trended favorably in April. And the other statistic, I would also look at, is the percentage of deaths, which are under 65, which looking at April, that has continued to be at the same level as we saw in the first quarter, which, as John mentioned, would be favorable for us from a severity perspective.

John McCallion:

Sure. Good morning. Good morning, Suneet. Yeah. That’s right. I mean I think it’s just the kind of some of the geography between our -- where our VA reserves go versus some of the kind of the hedges and you think about just what equity markets did that probably explains some of that difference and some of the realization of that. So that’s kind of number one. You commented and then your second point is just on stat capital generation. Yeah, I think, it was down 2%, so maybe a little over $300 million. I’d kind of put that in the normal volatility in any one quarter we paid our normal kind of a fourth of 25% of our kind of target dividend for the year, give or take in the quarter and which had a little additional volatility. So I wouldn’t read into that any -- in anyway, I’d kind of sort of consider that to be normal volatility and I wouldn’t consider a trend.

Operator:

And next we go to the line of Alex Scott with Goldman Sachs. Please go ahead.

John McCallion:

Good morning, Alex. Yes. We are certainly pleased with the execution and that’s not without headwinds and what we are all dealing with today in terms of inflation, wage increases and things like that, but I think it’s a testament to the team and really the embedded culture that we have built here around efficiency mindset. It’s a critical point of our strategy as you mentioned. And just on the ratio itself, it was 11.7. I mentioned in the opening remarks that, you have to be careful, the headline number is probably benefiting about 40 basis points from elevated COVID claims, which impact our participating cases and that creates increase in revenue is a bit of a gross-up on the P&L. So, net-net, we are still -- we are a little above 12, but maybe -- but still below the 12.3. And that’s -- within there is also includes our intention to continue to invest in the firm for growth to improve our use of technologies and then, obviously, if circumstances dictate that gives us optionality to leverage that capacity in different ways and to protect margins. So, all in all, I’d say, we are executing on our target, our initiative, when it comes to managing expenses.

Steve Goulart:

Hey, Alex. It’s Steve Goulart. So the updated continues to be very positive. We continue to grow MetLife Investment Management. I think we have been really achieving an aggressive organic growth plan that is in line with what we laid out at our 2019 Investor Day on our objectives and targets for where we are going to see the business grow. At the same time, you are right, it’s a very active market right now and we continue to be active in it as well and looking at opportunities for acquisitions and it does cut both ways and there is a lot of activity, but there are a lot of people looking in the markets, too. We know what we are looking for strategically. We are very disciplined financially and we want to make sure that anything we do fits culturally and strategically. So we will continue to be active and hopefully when we find something that meets those criteria we will be successful in acquiring it.

Operator:

And we have a question from Tracy Benguigui with Barclays. Please go ahead.

Michel Khalaf:

Hey. Good morning, Tracy. Good question. Obviously, we have that long-term assumption and things have changed quite a bit. I think it’s early for us to make any predictions at this point. Obviously, as we get into that kind of the end of the second quarter into the third quarter, really more of the third quarter, we will start to think about it. I think as we have all realized that things can change quickly. So -- and so I think it’s -- and it is a long-term assumption. But having said that, I think, you highlighted some kind of the circumstances we are in that the current rates are higher than our long-term assumption that we are -- we projected to hit in 12 years. So that is -- but I wouldn’t anticipate kind of any abrupt change one way or the other, we just made that change recent, few years ago and so you need to kind of see a trend before you would necessarily make a change, but again we will have to kind of evaluate all the data that’s out there when we get closer. In terms of inflation, it’s probably, it’s not a -- it’s really, I’d say, probably, more related to your first part of the question, what does that, how does that really impact rates. That’s probably the biggest area for us when it comes to reserving. I think outside of that, it’s -- there is generally, if you have any inflation impact, it’s generally offset by other factors, net-net, so that’s probably how I’d answer the inflation point.

John McCallion:

Yeah. I think, as you point out, we have a lot of sources of cash to the holding company. I think what we have committed to, we don’t commit to kind of a dividend in any one legal entity. And I think the benefit of having a diverse set of cash generation that can be sent to the holding company is that, it gives us the benefit of being able to commit to the 65% to 75% free cash flow ratio on average over two-year period. And so it’s not something we target at any one entity. We look at all aspects of how we are trying to manage our cash and capital at the operating entities, where we are looking to grow, where we need extra capital, things like that. And I think the benefit is, like I said, it’s a diverse set of sources is very helpful. So we don’t set a target at any legal entity externally, I should say, and then we kind of, just like you manage your own wallet, we manage our collective wallets the same way.

Operator:

And we have no more questions at this time. I will turn the call back to Michel Khalaf.

Operator:

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference service. You may now disconnect.

John Hall:

Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife’s fourth quarter 2021 earnings and near-term outlook call. Before we begin, I’d point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Last evening, we released a set of supplemental slides, which address the quarter as well as our near-term outlook. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to these slides features outlook sensitivities, disclosures, GAAP reconciliations and other information, which you should also review. After prepared remarks, we will have a Q&A session. In light of the busy morning, Q&A will last no later than the top of the hour. In fairness to all, please limit yourself to one question and one follow-up. With that, over to Michel.

John McCallion:

Thank you, Michel and good morning. I will start with the 4Q ‘21 supplemental slides, which provide highlights of our financial performance and update on our cash and capital positions and more detail on our near-term outlook. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the fourth quarter and full year. Net income in the quarter was $1.2 billion or $662 million lower than adjusted earnings. Net derivative losses were primarily due to the stronger equity markets and the strengthening of the U.S. dollar in the quarter. For the full year, net derivative losses of $1.8 billion primarily due to higher interest rates in 2021 accounted for most of the variance between net income and adjusted earnings. On Page 4, you can see the fourth quarter year-over-year comparison of adjusted earnings by segment, excluding $140 million of notable tax items that were favorable in the fourth quarter of ‘21 and accounted for in Corporate & Other. Adjusted earnings, excluding notable items, were $1.7 billion, down 8% and down 7% on a constant currency basis. Adjusted earnings per share excluding notable items, was $2.01, down 1% year-over-year on a reported basis and essentially flat on a constant currency basis, aided by capital management. Moving to the businesses, starting with the U.S. Group Benefits adjusted earnings were down 95% year-over-year due to unfavorable underwriting margins. I will discuss group life underwriting in more detail shortly. Regarding non-medical health, the interest adjusted benefit ratio was 74.2% in 4Q of ‘21 at the upper end of its annual target range of 70% to 75%, but generally in line given fourth quarter seasonality for dental utilization. That said the ratio was higher than the prior year quarter ratio of 61.7%, which benefited from low dental utilization and favorable disability incidences. Turning to the top line, Group Benefits adjusted PFOs were up 15% versus 4Q of ‘20 and up 18% for the full year. The strong full year PFO growth of 18% included 6 percentage points, mostly related to higher premiums from participating contracts, which can fluctuate with claim experience. The balance of PFO growth of 12% was at the top end of our low double-digit annual guidance in 2021. This was equally attributable to the addition of Versant Health and solid growth across most products, including continued strong momentum in voluntary. Retirement and Income Solutions, or RIS, adjusted earnings were up 18% year-over-year. The primary driver was higher variable investment income largely due to strong private equity returns. Favorable volume growth also contributed to year-over-year performance. RIS investment spreads were 202 basis points, driven by another strong quarter of variable investment income. Spreads, excluding VII, were 91 basis points, down 13 basis points versus 4Q ‘20, primarily due to lower pay-downs in our portfolios of residential mortgage-backed securities and residential mortgage loans. RIS liability exposures increased 3% year-over-year, driven by strong growth in UK longevity reinsurance. With regards to pension risk transfers, we completed 5 transactions worth $3.6 billion in the fourth quarter and continue to see an active market. Moving to Asia, adjusted earnings were up 19% and 21% on a constant currency basis, primarily due to higher variable investment income as well as favorable expense margins and volume growth. This was partially offset by lower recurring interest margins and unfavorable underwriting margin due to higher COVID-19-related claims. Asia’s solid volume growth was driven by higher general account assets under management, on an amortized cost basis, which were up 7% on a constant currency basis. In addition, sales were up 13% year-over-year on a constant currency basis, primarily driven by growth across most markets. Latin America adjusted earnings were $125 million versus $14 million in the prior year quarter. While COVID-19-related claims remain elevated in 4Q ‘21 at roughly $37 million after tax, they were down significantly versus the prior year quarter and sequentially. In addition, higher recurring interest margins, favorable tax items and volume growth also contributed. Lower Chilean and Kahe returns were a partial offset. Top line continues to demonstrate strength as adjusted PFOs were up 13% year-over-year on a constant currency basis and sales were up 35% on a constant currency basis driven by solid growth across the region. EMEA adjusted earnings were down 48% and 45% on a constant currency basis, primarily driven by unfavorable underwriting from COVID-19 related claims as well as higher expenses and the exclusion of divested businesses in the current year period. MetLife Holdings adjusted earnings were up 13%. This increase was primarily driven by higher variable investment income as well as a reduction in policyholder dividend levels. This was partially offset by lower recurring interest margins and less favorable underwriting. Corporate & Other adjusted loss was $177 million, excluding favorable notable items in the quarter versus an adjusted loss of $198 million in the prior year quarter. Higher net investment income and lower taxes were partially offset by higher expenses in the quarter. The company’s effective tax rate on adjusted earnings in the quarter was 12% due to several favorable tax items. These include an IRS audit settlement, a release of a deferred tax liability and a true-up associated with the filing of our 2020 corporate tax return. Adjusting for these items, the effective tax rate was within our 2021 guidance range of 20% to 22%. Now, I will provide more detail on Group Benefits mortality results on Page 5. This chart reflects our Group Life mortality ratio for the four quarters of 2021, including the COVID-19 impact on the ratio and on Group Benefits adjusted earnings. The Group Life mortality ratio was 106.3% in the fourth quarter of 2021, which is well above our annual target range of 85% to 90%. COVID reported claims in 4Q of ‘21 were roughly 18 percentage points, which reduced Group Benefits adjusted earnings by approximately $300 million. While U.S. COVID deaths were higher in 4Q versus 3Q, we did see a favorable shift in the percentage of deaths under age 65, declining from approximately 40% in 3Q to roughly 33% in 4Q. As a result, these two competing factors essentially offset. In regard to non-COVID deaths, they were within our normal expected quarterly fluctuations. On Page 6, this chart reflects our pre-tax variable investment income for the four quarters and full year of 2021. VII was $1.3 billion in the fourth quarter. This strong result was mostly attributable to the private equity portfolio, which had a 7.9% return in the quarter. As we have previously discussed, private equity is generally accounted for on a one-quarter lag, while all private equity classes performed well in the quarter. Our venture capital funds, which accounted for roughly 25% of our PE account balance of $14 billion were the strongest performer across sub-sectors, with a roughly 13% quarterly return. For the full year, VII was $5.7 billion, more than 4x above the top end of our 2021 target range of $1.2 billion to $1.4 billion. On Page 7, we provide VII post-tax by segment for the four quarters and full year 2021. As we had previously noted, RIS, MetLife Holdings and Asia generally account for 90% or more of the total VII and are split roughly one-third each. For the full year, these three businesses accounted for 92% of the total VII with RIS and MetLife Holdings benefiting from the outperformance from venture capital funds relative to Asia. Turning to Page 8, this chart shows a comparison of our direct expense ratio over the prior eight quarters and full year 2020 and 2021. As expected, our direct expense ratio in 4Q of ‘21 was elevated at 12.9%, reflecting the impact from seasonal enrollment costs and Group Benefits, timing of certain technology investments and employee costs. That said, as we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. For the full year of 2021, our direct expense ratio was 11.6%, well below our annual target of less than 12.3%, clearly demonstrating our consistent execution and focus on an efficiency mindset. I will now discuss our cash and capital position on Page 9. Cash and liquid assets at the holding companies were approximately $5.4 billion at December 31, which was up from $5.1 billion at September 30 and remains above our target cash buffer of $3 billion to $4 billion. The sequential increase in cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of $1.2 billion in the fourth quarter as well as holding company expenses and other cash flows. In 2021, we returned approximately $6 billion to shareholders, the most in any year through share repurchases and common stock dividends. For the 2-year period 2020 and 2021, our average free cash flow ratio excluding notable items, totaled 59%, while the ratio was below our 65% to 75% target range, due to the strength of our adjusted earnings in 2021. Our statutory free cash flow in absolute dollar terms remains strong. In terms of statutory capital for our U.S. companies, we expect our combined 2021 NAIC RBC ratio will be above our 360% target. Preliminary 2021 statutory operating earnings for our U.S. companies were approximately $5 billion, while net income was approximately $3.8 billion. We estimate that our total U.S. statutory adjusted capital was $19.1 billion as of December 31, 2021, an increase of 12% year-over-year. Favorable operating earnings and net investment gains were partially offset by derivative losses and dividends paid to the holding company. Finally, the Japan solvency margin ratio was 911% as of September 30, which is the latest public data. Before I shift to our near-term outlook on Page 11, a few points on what we included in the appendix. The chart on Page 16 reflects new business value metrics for MetLife’s major segments from 2016 through 2020. This is the same chart that we showed as part of our 3Q ‘21 supplemental slides, but we felt it was worth including again for the sake of completeness. Consistent with our Next Horizon strategy, this chart demonstrates that we continue to have a relentless focus on deploying capital and resources to the highest value opportunities. Also Pages 17 through 20 provide interest rate assumptions and key outlook sensitivities by line of business. Turning back to Page 11, we expect COVID-19 to remain with us in 2022. But given the uncertainty of the environment, we are not going to speculate on the magnitude or timing. Therefore, our near-term targets do not reflect COVID impacts. Based on 12/31 forward curve, interest rates are expected to rise. However, we would expect favorable impacts to be offset in part by higher LIBOR rates, resulting in a flatter yield curve. FX rates based on the forward curve indicate the U.S. dollar is expected to remain strong, which will be a headwind for our businesses outside the U.S. As a result, we would expect adjusted earnings in 2022 versus 2021, will be reduced by roughly $50 million in Asia, roughly $25 million for both Latin America and EMEA. Finally, we assume a 5% annual return for the S&P 500 and a 12% annual return for private equity. This is consistent with our historical returns for PE. Moving to near-term targets, we are maintaining our adjusted ROE range of 12% to 14%. We also expect to maintain our 2-year average free cash flow ratio of 65% to 75% of adjusted earnings. Given the strong adjusted earnings in 2021, we would expect to be closer to the bottom end of the range in 2021 and 2022 before moving higher in 2022 through 2024. This is just a function of math, given the outsized earnings in 2021 as well as the lagging nature of statutory dividend payments to the holding company. In addition, we remain committed to maintaining a full year direct expense ratio below 12.3%. We are raising our VII guidance in 2022 to $1.8 billion to $2 billion. After applying our historical average returns on higher asset balances, I’ll provide more detail on VII in a moment. Our Corporate & Other adjusted loss is expected to remain at $650 million to $750 million after tax but we are increasing our expected effective tax rate by 1 point to 21% to 23% to reflect our expectation for higher earnings in foreign markets and lower tax credits in the U.S. At the bottom of the page, you’ll see expected key interest rate sensitivities relative to our base case, which incorporates the forward curve as of December 31. The takeaway is that changes in interest rates are expected to have a relatively modest impact on adjusted earnings over the near-term. Now I’d like to provide you with more detail on what informed our 2022 VII guidance range of $1.8 billion to $2 billion, as highlighted on Page 12. The chart reflects the growth in our VII average asset balances from $8.4 billion in 2020 to nearly double at $16.5 billion expected in 2022. This growth is due to both the strong private equity returns in 2021 as well as the inclusion of over $2.6 billion of real estate and other funds in 2021. These were previously part of the recurring investment income portfolio and were reclassed to VII beginning in 2021 as we’ve begun to partially shift the form of our investment in certain asset classes, such as real estate equity investments through participation in funds. In addition, our 2022 average VII asset balance also factors in, our expected sale of $1 billion of private equity in the secondary market in 2022. Finally, in addition to the asset balances, we are applying our historical annual returns for each asset class within VII. In addition to the PE return of 12%, which I previously discussed, we expect 6.5% return for hedge funds and a 7% return for real estate and other funds. So now I will discuss our near-term outlook for our business segments. Our comments will be anchored our full year 2021 reported results in our QFS, unless otherwise noted. Let’s start with the U.S. on Page 13. For Group Benefits, excluding the excess premium from participating Group Life contracts of $1.1 billion in 2021, adjusted PFOs are expected to resume their historical target range of 4% to 6% annually, albeit from a higher base. Regarding underwriting, we expect the annual Group Life mortality ratio to be between 85% to 90% excluding COVID impacts. We are also maintaining the expected group non-medical health interest adjusted benefit ratio at 70% to 75%. For RIS, we are maintaining our 2% to 4% expected annual growth for total liability exposures across our general account spread and fee-based businesses. However, we are increasing our expected annual RIS investment spread by 5 basis points to 95 to 120 basis points in 2022, consistent with our higher VII range. Overall, we would expect a significant decline in RIS adjusted earnings in 2022, given the exceptional private equity returns in 2021 as well as 2021 benefiting from higher mortgage pay-downs and excess mortality gains, we believe were likely due to COVID. For MetLife Holdings, we are expecting adjusted PFOs to decline between 6% to 8% annually higher than our prior guidance of 5% to 7%. We are lowering the life interest adjusted benefit ratio to 45% to 50% in 2022 from the prior 50% to 55% in 2021 to reflect the impact of lowering the policyholder dividend levels. Finally, we are maintaining the adjusted earnings guidance of $1 billion to $1.2 billion in 2022. Now let’s look at the near-term guidance for our businesses outside the U.S. on Page 14. For Asia, we expect the recent sales momentum to continue and generate mid to high single-digit growth over the near-term. In addition, we expect journal account AUM to maintain mid-single-digit growth. We are expecting mid-single-digit adjusted earnings growth when excluding the excess VII over plan of approximately $800 million post tax in 2021. In Latin America, we expect adjusted PFOs to grow by high single digits over the near-term. Relative to its 2021 reported adjusted earnings, we expect Latin America adjusted earnings to double in 2022, excluding COVID impacts, and then grow by high single to low double digits in 2023 and 2024. Finally, for EMEA, we expect sales to grow mid to high single-digits over the near-term. We expect adjusted earnings and PFOs to decline in 2022 due to the impact from the stronger U.S. dollar and divestitures in the region. For 2023 and 2024, we expect to me adjusted earnings and PFOs to grow to mid to high single-digits on a constant currency basis. Let me conclude by saying MetLife delivered another strong quarter to close out a very strong year, highlighted by outstanding private equity returns, solid top line growth, ongoing expense discipline and the benefits of our diverse set of market-leading businesses and capabilities. In addition, our capital, liquidity and investment portfolio remains strong and position us for further success. Finally, we are confident that the actions we are taking to be a simpler and more focused company will continue to create long-term sustainable value for our customers and our shareholders. And with that, I’ll turn the call back to the operator for your questions.

Suneet Kamath:

Thanks. Good morning. Just wanted to start off on the VII, can you give us a sense of how much of the VII or excess VII came from marks as opposed to realized gains in 2021 and maybe how that would compare to prior years?

Suneet Kamath:

Got it. Sorry, I missed that. I got on late. And then I guess, for John, on the direct expense ratio, I mean, less than $12.3 million guide. Can we look at 2021, the 11.6% is sort of a reasonable place for this year? And can you talk a little bit about inflationary pressures on your cost base?

Suneet Kamath:

Okay. Thanks, John.

Tom Gallagher:

Thanks. A couple of questions on Group for me. On – first, just on the elevated non-medical health benefit ratio. John, you mentioned, it was mainly dental utilization being higher. How is disability trending also? And taking these together, would you expect 2022 to more likely stay towards the high end of the 70 to 75 guidance range or do you think midpoint is still a good base case?

Tom Gallagher:

Got it. Thanks, Ramy. And just a follow-up, so a number of peers are showing weak group sales this quarter, Met seems to be holding up better. Can you talk a little bit about pricing and what you’re seeing competitive-wise right now, whether are you getting rate in low of recent results or are you holding the line on pricing and opting for growth?

Tom Gallagher:

Okay. Thanks for all that color.

Jimmy Bhullar:

Yes. Good morning. So, just a question on interest rates, and you touched on this a little bit in your comments as well. But how do you think about the benefit of rising interest rates based on what the forward yield curve is predicting right now being sort of negated by and just a likely flatter yield curve. And if you could just discuss what are the businesses that would be most affected by that dynamic. But how much of the benefit of rates would actually be taken away by a flatter yield curve?

Jimmy Bhullar:

Okay. And if I just ask one more on just dental usage, when COVID had initially hit obviously dental usage had dropped a lot. It doesn’t seem like this anecdotally, that that’s happening with the Omicron surge that we have seen recently, which if it was happening, obviously, I think it would show up in 1Q. But have you seen a similar decline in usage in dental with the surge in claims that we have seen or surge in cases that we have seen over the past 1.5 months?

Jimmy Bhullar:

Okay. Thank you.

Elyse Greenspan:

Hi. Thanks. Good morning. My first question is on holdings. You guys provided pretty stable earnings outlook this year with what you had expected at the start of last year. And I know in the past, you guys have mentioned the cash flow being generated by the business is a reason that you kind of counterbalance against potentially entering into a risk transfer transaction. Can you just provide an update on your thoughts relative to transactions within the blocks within holdings? And if perhaps the rising rate environment increases your prospects of entering into a deal?

Elyse Greenspan:

Thanks. And then my second question, you guys called out – you guys said you didn’t see any excess mortality within getaway from COVID. I was just hoping to just get some more color there. I know we have seen some companies that flagged elevated mortality. I just wanted to get additional color on what you are seeing in your book? Thank you.

Elyse Greenspan:

Thank you.

Erik Bass:

Hi. Thank you. Can you talk a little bit more about the free cash flow outlook? And given the lagged impact of statutory ordinary dividends that you mentioned, should we expect a higher level of cash flow coming through in 2022 on a dollar basis?

Erik Bass:

Great. Thank you. And then just a question on VII and I guess as you are thinking about the sizing of your alternatives portfolio over time. And certainly, it’s been an important contributor to results and the portfolio continues to grow, but is there just kind of a limit on kind of where you would want that to get to as a percentage of investments and how are you thinking about managing that and the ability to grow it further?

Erik Bass:

Got it. Thank you.

Ryan Krueger:

Hi. Good morning. Could you give a little bit more color on how you expect the RIS spread, excluding VII to trend in 2022?

Ryan Krueger:

Great. Thank you.

Alex Scott:

Hi. One of the things that caught my eye in the outlook was just a pretty strong anticipated recovery in LatAm and pretty strong growth in the out years. So, I was just interested if you could talk about what some of the drivers are there and some of the things you are doing as part of that horizon strategy to give you the confidence in that growth?

Alex Scott:

Thank you.

Humphrey Lee:

Good morning and thank you for taking my question. I have a follow-up question on VII. Just looking at the outperformance to-date and just this year alone, you had over $4 billion above your plan. How should we think about the impact of the strong appreciation on your capital going forward? You talked about doing a secondary sales this year for $1 billion, which would be one way to monetize it. But if I were to think about the increasing carrying value of these assets on a statutory basis, it should help your capital base even with the high risk charge. So, maybe just can you talk about the capital implication of the strong VII to-date?

Humphrey Lee:

Got it. And then just to follow-up your earlier comment about the free cash flow conversion should trend higher kind of in ‘22 through ‘24. As I think about these kind of VII cash flow come through on a LACT basis. Like should we actually think about the free cash flow conversion could be towards the upper end or even maybe above your guided range kind of over the next several years as some of these cash flows come through?