Q3 2019 Earnings Call
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David The AG I'd.
I mean your company.
Ita.
Hi, E.R.A.
Thank you conference is being recorded.
Yes.
From one off costs initiatives to a continuous efficiency mindset.
Well, we will drive savings and greater efficiency to support continued investment and growth.
Capital deployment as one of the most critical and carefully considered decisions, we make up Metlife.
We are committed to deploying capital, which will generate the highest risk adjusted returns. This means exercising the same discipline across all potential uses of capital whether to underwrite organic growth support enforce business finance M&A or fund common dividends and share repurchases.
The volatiles third core equity market.
We opportunistically pulled forward some of our planned annual share buyback activity for the year.
During the first three quarters of 29 team combined we returned more than $3.2 billion to shareholders through common dividends and share repurchases.
We have a collection of great businesses and clear advantages that we believe we'll continue to set us apart.
Thank you Michelle and good morning I.
Starting on page four the schedule provides a comparison of net income and adjusted earnings in third quarter of 2019.
Then adjusted earnings of $1.2 billion.
Overall the results in the investment portfolio and hedging program continued to perform as expected.
I will now discuss the impact of our annual actuarial assumption review starting on page five.
During the quarter, the actuarial assumption review and other insurance adjustments reduced net income by $179 million.
The most significant driver was the reduction of our long term US 10 year Treasury interest rate assumption.
With the rate mean reverting over the next eight years.
This impact was in line with our prior guidance a $50 million after tax for every 25 basis point reduction disclosed on our second quarter 2019 earnings call.
With regard to long term care, our statutory reserves have grown to $15.6 billion as of September Thirtyth 2019.
Which is 2.7 billion higher than GAAP reserves.
We also continue to have substantial LTC loss recognition testing margin of 1.8 billion as of September Thirtyth 2019.
Which compares to 2.1 billion at Threeq you 18.
Roughly half of the decrease was due to an approximate 10 basis point reduction in our average lapse rate assumption, while the remainder was due to the change in our US 10 year Treasury mean reversion rate.
The impact from these changes was broadly in line with the sensitivity. If we provided a year ago on our Threeq you 18 earnings call.
On page six we provide a breakdown of the actuarial assumption review by business segment.
In Metlife holdings, approximately $100 million of the net income impact was due to the lowering of the mean reversion interest rate to 3.75%.
With the remaining impact driven primarily by refinements in assumptions related to our regulatory closed block.
We had two notable items in the quarter as shown on page seven and highlighted in our earnings release and quarterly financial supplement.
In addition to the 160 million after tax or 17 cents per share related to our annual actuarial assumption review and other insurance adjustments.
Expenses related to our unit cost initiative decrease adjusted earnings by $88 million after tax.
Adjusted earnings excluding both notable items were $1.4 billion or one dollar and 54 cents per share.
On page eight you can see the year over year adjusted earnings excluding notable items by segment.
On a per share basis adjusted earnings excluding notable items were up 1% on both our reported and constant currency basis.
The better results on an EPS basis reflect the cumulative impact from share repurchases.
Investment margins were mixed as continued strength in variable investment income was offset by lower recurring interest margins.
In addition, underwriting was generally less favorable relative to a very strong threeq you 18.
With regards to business performance group benefits adjusted earnings excluding notable items were up 10% year over year, driven by volume growth and better expense margins.
The business continues to benefit from strong volume growth with adjusted portfolios in the quarter up 6% and year to date sales up 10% led by growth in voluntary products across all market segments.
In addition, we saw solid underwriting in the quarter.
Group life mortality ratio was 87%, which is modestly below the midpoint of our annual target range of 85% to 90%.
Although this was less favorable compared to a very strong result of 85% in Three Q1 8.
And favorable to the prior year quarter of 71.6% after excluding a notable insurance adjustment.
The primary driver was strong disability results, which benefited from renewal rate actions.
And higher claim recoveries.
Retirement income solutions or our is adjusted earnings were down 16% year over year.
The key drivers were lower investment margins as weaker recurring interest margins exceeded the positive contribution from variable investment income.
Our is investment spreads were 102 basis points in Threeq, you 19 down 23 basis points year over year and down 17 basis points sequentially strong private equity returns were more than offset by the ongoing pressure from low rates and the inverted yield curve.
As well as the recent dislocation in the repo market during the quarter.
We continue to expect spreads to remain in the bottom half of our 2019 guidance range of 102 125 basis points.
Our as adjusted CFO as were up 13% year over year, driven by $1.3 billion of pension risk transfer deals in Threeq you 19.
Excluding prts RSP Ufos were down 9% due to lower sales of institutional income annuities.
Property and casualty or PNC adjusted earnings were down 34%, primarily due to unfavorable underwriting in the quarter.
The auto combined ratio was 98.7% unfavorable to the prior year quarter of 95.5%.
Primarily due to higher bodily injury severity.
In addition, pre tax cat losses of $70 million were 21 million higher than the prior year quarter by inline with our expected three Q1 9 cat load.
While underwriting results were unfavorable this quarter, we expect our full year 2019, combined ratios for auto and home to be within their targeted range.
With regards to the topline PNC adjusted Cfos were up 2%.
While sales were down 4% versus Threeq you 18.
Asia adjusted earnings excluding notable items were up 5% and up 6% on a constant currency basis.
The positive year over year drivers were favorable volume growth as assets under management, excluding fair value adjustments grew 13% year over year.
In addition results also reflected better investment margins and lower taxes.
These were partially offset by less favorable underwriting margins.
Asia sales were down 7% on a constant currency basis, excluding the impact of the divested business in Hong Kong and a large group case in Australia in the prior year quarter Asia sales were up 1% year over year.
FX annuity products, which are primarily sold through bank channels had another soft quarter given the further drop in us interest rates.
In addition, our and age sales in Japan were down 15% year over year.
Which is a function of changes in the tax laws associated with certain products.
Other Asia sales were up 7% due to strong growth in Korea, China and India.
Latin America adjusted earnings excluding notable items were up 2% and 7% on a constant currency basis.
The primary drivers, where the favorable impact from capital markets on our children in Chi.
And volume growth across the region.
These were partially offset by lower investment margins, primarily due to lower inflation in Mexico and Chile.
Latin America, adjusted Pfos were up 4% and 8% on a constant currency basis, driven by growth across the region.
Latin America sales were up 12%.
On a constant currency basis, driven by higher sales in Chile, Mexico and Brazil.
Metlife Holdings adjusted earnings excluding notable items were down 18% driven by lower recurring interest margins and the impact of $30 million a favorable items in Three Q1 8.
These were partially offset by favorable expense margins.
With regard to underwriting the life interest adjusted benefit ratio was 67.5%.
But 51.9% excluding the impact from the annual actuarial assumption review.
While this ratio is higher than the prior year quarter of 50.9% on the same basis was firmly within our annual target range of 50% to 55%.
Corporate and other adjusted loss, excluding notable items was $135 million.
This was partially offset by less favorable expense margins.
We would view the run rate to be 18.8% and within our 2019 guidance of 18% to 20%.
Our private equity portfolio, which is accounted for in a one quarter lag had another strong quarter.
For the year to date VII was $834 million pretax and we now expect to be above our 2019 guidance range of 800 million to $1 billion.
Now I will discuss recurring investment income.
Our new money rate was 3.65% versus a roll off rate of 4.19% in Threeq you 19.
This compares to a new money rate of 4.04% and a roll off rate of 4.37% in Threeq you 18.
Lower interest rates have pressured the spread.
As we've noted previously.
We would not expect parity to occur until we have a sustained us 10 year treasury yield of roughly 3% to 3.25%.
Turning to page 10. This chart shows our direct expense ratio from 2015 through 2018 as well as the first three quarters of 2019.
We are committed to and have a clear line of sight towards achieving our goal of $800 million of pretax profit margin improvement by 2020.
This would represent an approximate 200 basis point decline in our annual direct expense ratio from 2015 baseline year.
We believe the annual direct expense ratio best reflects the impact on profit margins as it captures the relationship of revenues and the expenses over which we have the most control.
We have made consistent progress towards achieving our target by 2020.
As a chart illustrates we have already achieved 140 basis point improvement in the annual direct expense ratio from 2015 to 2018.
For Threeq you 19, we posted another strong result, as the direct expense ratio, excluding notable items and Prts came in at 12.2%.
This was aided by roughly 30 basis points, a favorable items, including lower employee benefit costs related to market movements in the third quarter.
Looking ahead to the fourth quarter, we would expect our direct expense ratio to be higher than our 2019 year to date trend.
This is a function of the strong growth we've enjoyed in our group benefits business, where we will incur seasonal enrollment and other costs prior to receiving associated premiums.
In addition, we estimate costs associated with our unit cost initiatives to be a few cents per share higher in the fourth quarter as we execute on the final elements of this program.
I will now discuss our cash and capital position on page 11.
Cash and liquid assets at the holding companies were approximately $3.5 billion at September Thirtyth.
Which is down from $4.2 billion at June Thirtyth.
Holdco cash decreased this quarter, given the timing of subsidiary dividends and our capital management actions.
We returned $1.2 billion to shareholders in the form of share repurchases and common dividends in the quarter.
Clear evidence of our ongoing commitment to capital management.
Next I would like to provide you an update on our capital position.
For our us companies preliminary third quarter year to date 2019 statutory operating earnings were approximately $3.4 billion and net earnings were approximately $3 billion.
Statutory operating earnings decreased by $195 million from the prior year period, primarily due to the impact of a prior year dividend from an investment subsidiary, partially offset by lower V.A. rider reserves and improved underwriting results.
We estimate that our total us statutory adjusted capital was approximately 20 billion as of September Thirtyth 2019 up 9% compared to December 31, 2018, the increase in operating earnings and derivative gains were partially offset by dividends paid to the holding company.
Finally, the Japan solvency margin ratio was 896% as of June Thirtyth, which is the latest public data.
Overall, Metlife continued to deliver strong results leveraging our diverse market, leading businesses to drive capital efficient growth, while maintaining expense discipline across the firm.
We have been able to grow book value per share, 13% year over year, while generating an adjusted our we have 12.9% excluding notable items in the quarter.
Despite the challenging macroeconomic environment.
In addition, our cash and capital position as well as our balance sheet remains strong and resilient.
Finally, we are confident that the actions we are taken we'll 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.
Thank you, ladies and gentlemen, if you'd like to ask your question. Please press Star then one on your Touchtone phone you will hear atone, indicating you have been placed in Q2 fewer yourself from Q. Please press the pound key if you're using a speakerphone. Please pick up the handset before pressing the numbers. Once again if you ever question. Please press Star then one than one moment. Please for your.
Next question.
Your first question comes from the line of Jimmy Mueller from JP Morgan. Please go ahead.
Hi, Good morning, So I had a question on group answer on margins and if you could just.
Sort of discuss what drove your strong results. This quarter and then also related to the everyone's had pretty good margins the last.
A couple of years now so have you seen accompanying start to reflect that in their pricing and what have you seen as you are going through a renewal season right now.
Good morning, Jimmy It's an army toggles here.
In terms of the margins this quarter and if you look of the year on year comparisons.
Yeah.
With respect to life.
We're actually slightly up between this year last year, we came in at 87% and slightly higher and lower than our midpoint.
And what drove the difference quarter to quarter quarter on quarter is the higher incidence.
With respect to them on medical health loss ratio clearly about was below the low end of our guidance.
Thats largely driven.
By the lower.
Claim sensitivities over its severity, rather with respect to disability and higher.
Recoveries.
Look if you look at these ratios they do fluctuate quarter to quarter.
And we would expect.
Generally to come in towards the middle range, the middle part of our range.
Having said that I would emphasize.
If you look at it year to date.
Our year to date numbers in mortality for liquid last year. For example, our year to date numbers for mortality came in we were below the below the bottom of our range and looked at Q4, and we came in smack in the middle of the range.
So if think about the competitive environment, we still operate in a highly competitive environment, but when we look towards 2020 were pleased with our our rate actions and we're pleased with our renewal actions as well.
Maybe 100 community shown maybe I'll just with the one.
One comment with regards to an on medical health, which is so.
Coming in favorable on the.
Below sort of into lower.
Half of the range.
Which we think will will continue for the year.
No. That's that's a combination of the favorable.
Disability.
Experience as well as the shift in product mix to voluntary which has a lower.
Benefits ratio and that two we continue to see strong momentum and voluntary and we think thats when Doug will persist on continue.
Your next question comes from the line of Tom Gallagher from Evercore ISI. Please go ahead.
Okay.
Good morning.
A couple couple of quick ones for you is there John is there any go forward earnings impact from the actuarial review is my first one second one is just can you discuss how well hedged or to what degree you have hedges for your long term care cash flows.
Yeah.
Good morning, Tom pad that.
Yes, you broke up there I think I got it the first one I think the quick answers now.
First I think 100 100 of the 160 was right in line with what we shared back into queue with regards to the the drop in the long term interest rate.
So that came in as as expected in than we had a variety of other items and it was mainly the regulatory closed block that drove the remainder there.
In terms of long term care, we do have some.
Quite a bit of hedges on and actually I'd say, we've we've locked in.
You know kind of the investment returns for the next five years or so.
We have a number of forward starting instruments that weve entered into over time. So we're fairly we're kind of protected for the next five years and obviously, we have hedges beyond that but.
Rollover reinvestment risk would would persist beyond that.
Okay. Thanks.
Your next question comes from the line of Andrew Klingerman from Credit Suisse. Please go ahead.
Hey, Good morning first question Rami could you elaborate on what you were saying about pleased about renewal actions could you give us a sense of maybe pricing is it up in group is it flat what made you pleased.
Good morning, Andrew.
Okay.
I mean look if you think about.
By way of context, as we just look into 2020, when we think about our business. We look overall growth in the business across both renewals as well as sales. So sales are an important component of that growth. While we also focus very heavily on renewals and getting our rate actions combined with strong.
Persistency.
We're still in the midst over 2020 sales and renewal season.
It's more mature for national account lists earlier in the season for regional and smaller accounts, but with respect to national account activity strong quote activity. Our we're still winning our fair share. Our we're seeing less of the jumbles come to market and we're defining jumbos, it's as sales over our 20 million.
And our we have expectations in terms of targets in terms of renewal rates in sales and so far so good we're we're actually in line with our expectations.
And we also continued to see stronger month from involuntary as Michelle mentioned and we continue to deploy new capabilities in the market, especially around enrollment and re enrollment are in the voluntary space.
Okay.
So.
Alright, Okay as I go through the next question, maybe Rami, you could just say up or down on pricing or neutral, but but.
The next question would be.
With regard to capital, so you've guided to 65% to 75% payout ratio.
And last quarter, the payout ratio was 88% this year this quarter it was 100%.
You are kind of at the midpoint of your your liquidity at the parent company. So the question is.
Can you keep five can you keep this payout ratio well above your guidance and.
Maybe you could give some color on redeploy capital capital at the subs.
In addition to what you have at the parent.
Good morning, Andrew It's John .
Let's just to kind of level said I'd say our guidance has been.
A 60, 575% free cash flow ratio on average over two year period, and obviously in any quarter.
That can can fluctuate.
One way the other in terms of wheat, and what we've said in the passes without borrowing other strategic investments that wouldn't meet.
Risk adjusted returns that that would that we believe would be appropriate this capital in our minds belong to the shareholders and Michelle has talked about that quite a bit and.
And so.
All else equal that that would be used for dividends and share repurchases.
But to your point I think Michel commented that in his opening remarks, we have accelerated a bit of that this year.
I wouldn't consider this a run rate and I think as Michelle mentioned, we probably pulled we're opportunistic this quarter and given timing of cash flows and things like that.
So there's there's capital in this helps as well that might might be re deployable curious if there any numbers you could give us.
Well, we have we've talked about our normal operating level and a minimum of 360.
For under in any IC RBC ratio for the combined us entities.
Last year, we are above that.
But I'd say I think about our 65 to 75 on average for two year period as the right number and it can be that can fluctuate from quarter to quarter, and then I reference Michelle's comments earlier that we were opportunistic this quarter and we accelerated some of the share repurchases in the quarter given.
Market dynamics, and just timing of cash flows.
Got it and just a quick up down from Rami on the pricing in group I would say in line.
In line. Thank you very much.
Your next question comes from the line of Suneet Kamath from Citi. Please go ahead.
First on statutory results John any thoughts on a t. reserves as you as you go into the year end filing.
Not at the moment, we're working through the process now is that time of year and.
And there is nothing.
Concerning at this point, we're just going through the process.
Got it and then on the Orion spread.
Thank you said you still feel comfortable with the lower half of the 101 25 guide was that.
For the fourth quarter or was that sort of a full year expectation.
Yes so.
In my commentary as regarding full year and we've talked about this this guidance as a full year guidance. So we said we'd be within the 100 to 125, albeit at the bottom half of the range.
And maybe just a little additional color because it's a good. Good question I think look sequentially, we're down about 17 basis points 12 of that was in our assets.
I was just the allocation of VII, they had actually a pretty high VII allocation in the second quarter.
And then the remaining drop was the function of just lower rates in the inversion of the curve as well as I mentioned, just a little bit of the dislocation we saw on the repo repo market, but.
As we look forward and the projected forward curve does support our view that were.
We believe we're at the bottom of the spread compression or near it let's say in.
At least for the near term maybe say next several quarters.
And so maybe in other words look at those you'd said they say that this spread is a decent run rate in our mind in and we think of that as VII, which has been a a heavy contributor probably normalizes saumen, we see an improvement at least based on the forward curve in the in the spread ex VI over the next several quarters.
Hi, Thanks.
Your next question comes from the line of Ryan Krueger from KBW. Please go ahead.
Hi, Thanks, good morning outside of the few sense of higher expense initiative costs in the fourth quarter can you help us think about the potential.
You know.
Typical seasonality.
Direct expense ratio for Fourq you.
Hard to estimate exactly from a sizing perspective, but we we do typically see happen in the third and fourth I'd say, we did not see it come through yet in the third.
So we do expect there to be an uptick in the fourth quarter on that direct expense ratio as you said ex the the yusufzai onetime time costs.
It's not so predictable it depends on some of the marketing costs that we deploy in our enrollment capabilities there.
As we move through enrollment season, and so it can vary but I'd say there is an upward trend and probably as I said heading at it is ahead of what we've seen certainly year to date without without question.
Okay got it and then.
PMC can you give a little bit more color on what you saw in the underlying loss ratio and to what extent you think it may remain somewhat elevated near term.
Yes, I mean, if you look at the.
A year on year results with respect to PNCR, we'd see the drop is 50 50, our weve how to the 50% of a drop was due to the elevated cat losses. This quarter. Our drew mind, you should compare the observe compared to a fairly benign Q3 of our 2018.
But the losses this quarter were very much in line with our expectations for for third quarter.
The other 50% of it is is the higher severity in the auto liability coverages and particularly bodily injury claims.
This has been consistent with what many others have seen in the industry.
And we continue to monitor these trends and we have a track record of adjusting our rate activity accordingly.
And looking to take rate actions to make sure. We continue to remain within our target combined ratios.
Thank you.
Your next question comes from the line of Erik Bass from Autonomous Research. Please go ahead.
Hi, Thank you.
Here's how still low interest rate environment affecting product demand and new business margins in the IRS business.
Hi, Eric.
So the place where we fell to the bid this quarter is in the immediate annuity sales. We are the largest seller of institutional income annuities and.
We've seen some softness in terms of sales this quarter as the rates come down the value proposition for the individual buying those annuities a decrease is clearly so we've seen some softness there in terms of sales.
In terms of P.R.T., we haven't seen it we still are looking at a very robust pipeline into the rest of the year and into next year.
And in particular.
In the Jumbo space, where we are most most active.
Clearly of course, if you look at our liability balances Omari us on lower interest rates actually grow. These balances. If you think about the mark to market effect on the fixed income balances there.
Got it. Thank you and then one question on investment in your alternatives portfolio you talked about continued.
Good performance from private equity so one of your competitors had an issue with a marked down on a specific positions. So just wondering how much exposure you have to large single company positions either in public or private.
Securities.
Well like our.
Steve Goulart, Mike our overall investment portfolio is brought and diversified Turner recall, our room private equity portfolios over $6 billion across dozens of different managers and more of them out in funds. So it's fairly diversified August through some some managers may invest in similar.
The investments but.
We're scratching our head a little bit too old can't figure out what might happen on one of our competitors. We're certainly aware of nothing in our portfolio that would cause an action like that today.
Got it thank you.
Your next question comes from the line of Humphrey Lee from Donlin Partners. Please go ahead.
Good morning, I think about taking my questions.
Looking at sales in Japan, I think.
In your prepared remarks, you talked about some of the moving pieces, but given the ongoing low interest rates and I guess the uncertainty with some of the to tax regulation, how should we think about the sales in Japan and kind of going into the fourth quarter.
And I guess going into 2020.
Yes, Hi company this is that Keshav Hannibal.
You know.
There are two parts to this right one is the annuities that John referenced.
We the bank channel of all the channels, we have that yes, probably the most volatile.
Ups and downs. So we've had a couple of high watermarks.
Yeah.
And ill it in the past four quarters, so the year over year comparisons it are going to be somewhat challenging.
For the next two to three quarters as far as the annuities. The concern is Theyll do you think about that John referenced the interest rates as one driver there a couple other drivers as well seasonality is another driver and what's going on with the mutual fund sales is another driver, but the reality is the overall market is down and we're here.
Building our share.
And we'll go up and down with the market and what we want to is chase after market share.
By giving up.
By giving up value.
Vis-a-vis the in etch side.
As you go very well aware of the tax law cloud applications and changes and that has the impact that.
Some of our products, we went through a product.
In the second quarter.
So essentially if you take that effect out our and edge sales are actually up year over year up it's going to take some time to the makeup or a loss product and the loss sales associated with the product.
But the fact is as Michelle reference, we're very proud to be very customer centric.
And to take actions that are appropriate that are the right things for the customer.
And there are a lot of actions that we have in place due to come back up but.
Two to three quarters year on year on year on year competitors and again.
I want to be lifted challenging, but we'll we'll make up.
That a lot of other.
Tools in our Arsenal. Thank you appreciate the color.
Just to revisit that the on the group benefits margin like looking at the earnings growth I think youre guided as Youre guiding for mid single digit growth 2019, and year to date at 25% like while we understand that theres definitely favorable underwriting the industry, but the magnitude definitely outpaces.
The rest of the industry like I guess, what do you think is the driver for your block strong performance compared to your peers and how sustainable is that.
Yeah, I mean, if you just look at the overall earnings number it's driven by three things the solid underwriting results is one of them in and you saw us coming.
So we have strong underwriting results, but there are two other components to it we've had also strong volume growth.
Especially in voluntary and we've also had favorable expense margins.
Including.
Most of market impact on on some of them to use employee cost in the group benefits our business. So it's a combination of discrete.
I would still continue to guard you back to those ranges onto the midpoint of those ranges, we do operate in a competitive market and overtime, we expect to be back in the middle of those are underwriting ratios.
That we look out.
Got it thank you.
Your next question comes from the line of Alex Scott from Goldman Sachs. Please go ahead.
Hi, Thanks for taking the question I.
Yes, when you guys had your outlook last year and there is a stress sensitivity for interest rates. This suggested about 200 million for 2020. So I'd just be interested if there's any action you've taken this year. There would have no change that at all because I mean that just looking at the stress scenario. It does look like we're about there.
Maybe even a little worse than the stress case, the outlined so any color and I guess, Additionally, a or how much of that 200 million would maybe already be in the result that at sort of the 144.
Yes that was rewarded.
Good morning, Alex It's John .
Yeah, we did give a sensitivity back in the outlook call Osvs, we showed 100 basis point parallel shift in the curve from.
Rates are projected to based on the forward curve at that time and as you said we are.
Lets say well well below that the 10 years, probably down more like 150, and also wasn't parallel we had a LIBOR or drop of may be 100, or so so the dynamics a little different than that sensitivity I think in general I'd said. This we feel the sensitivity was broadly in line.
But.
We've had some additional pressures come through that are in the numbers.
For example, as we've mentioned before you know SEC lending has not performed as well as it has in the past it still are we accretive and a good tool for us, but maybe not as profitable as a tool.
As it has been in the past which is a good.
Good reason to have a diversified book of market, leading businesses right and to kind of have that a different times when we need it.
So I'd say the impact of interest rates has probably been a little heavier than what that 100 basis point drop is shown.
I'm not so sure that necessarily carries forward.
Based on what we see two to next year, but I'd, probably would all else equal go back and say that.
Again, they was it was meant to be a drop relative to what you would have otherwise expected not necessarily year over year drop.
If you think of it that way so.
You'd have to work off your own models, there and think of it that way, but I think it's probably relatively in line and you'd have to apply some proportional approach to it.
Hope that helps.
Yeah, that's very helpful.
Maybe a follow up on just thinking through topline growth you have some business is growing nicely holdings, obviously running running off.
Sales, maybe slowing a bit in Asia.
I think about all the puts and takes.
Do you expect topline.
To be growing over the next couple of years and.
I guess related do you think you can give any operating leverage.
Yes, so coming through in the form of that direct expense ratios. So maybe continuing to drop a little bit as you achieve that.
Yes, so in a month or maybe less or a little over a month, we'll be giving you an outlook I think we can go business by business, It's a little hard to do things at an aggregate level. When you think APEA FFO, sometimes read just because the the accounting for instruments can vary. So you have to think about that volume grew.
Growth or opportunity.
Based on different metrics, sometimes we put those are really good other times assets under management or better.
And I think I think you're going to have to think of it and business by business.
But I think we believe we have a diverse set of businesses that gives us the ability to compete and win in a variety of economic cycles.
That's one to due to your point them operating leverage.
I think I think we've been showing that we can we can deliver a despite in a variety of markets.
We're well on track to meet our commitment by 2020 and I think if you did your own math today off of the annualized.
You know Pia photos from a direct expense ratio. We're we're very close to the 800 I think mathematically already so.
Thank you.
Your next question comes from the line of Josh Shanker from Deutsche Bank. Please go ahead.
Thank you for taking my question.
My first question I was wondering assumed the I guess the product introduction cycle and maybe the sales cycle in Asia, Obviously, we're seeing sales down and up and other Asian countries that are there new products coming in are the older products.
Getting jobs sort of.
Yes.
So were stable in the marketplace, what's happening in the various sales cycles.
So this is that kishore.
A couple points.
Now overall Asia, if you take Japan and Asia. The other Asia together were down up let's take other Asia.
Well it up.
8% on a core constant currency basis.
And John referenced Hong Kong, So if you exclude Hong Kong.
Which is now more into discontinued ops were up 15%.
And ill that CEE countries that drove that are Korea.
China and India now, we have a portfolio country and that's the good thing about the resiliency right. So if you exclude Hong Kong.
In our overall John referenced that Asia is actually up 1% right. So that that's how it works now with regards to each country. It's hard to go and talk about product cycles, because it's complicated.
Per se.
In Japan, generally speaking our product cycles over a longer.
Because it's a more mature market and we take.
A little longer to react to changes in the marketplace, our customer demands, but at the same time. Yes. These are all the things. We're working on is to show that Hcl response time and and to be able to react to these to change is that the hope that helps.
It helps them.
Give more detail on the products, but I'll I'll keep digging and then then property and casualty I'm trying to find out of Three Q1 8 was a light cash light catastrophe quarter or Threeq grew 19 with a heavy we haven't seen these kind of U.S. catwalk that some others. So trying to figure out how to think about that going forward.
I would see Q3 18 was a lightweight and Q3 19 was right in line with expectations.
Okay. That's great. Thank you.
Your next question comes from the line of John Burn Ridge from Sandler O'neil. Please go ahead.
Thanks.
I understand you know the PNC business has more of a northeast Ben but can you kind of talk about exposure to the California wildfires. Please.
Sure. If you look at our exposure in Q3 of last year. It was pretty benign in terms of the fire exposure.
And you're right in terms of our geographic concentration if you look at our.
Market share in California.
In home and compare that to the average market share that we have nationally our market share in California is less than 75%, 75% smaller than our national market share so relatively less exposed there.
Okay, and sticking with PNC I get you talk about the increase in cats, but backing out both cats and reserve development. The underlying combined ratio looks like an increased 250 basis point from a year ago.
And 91 for versus 88.9 can you talk about maybe social inflation you may be seen.
I mean, it's really the two factors have talked about as if you back out the cats. If you look at the earnings number that just thought explains about half the difference on the other half is specifically inflation in bodily injury claims and there you talked about medical inflation costs more litigation more attorney represented claims and thus the trend.
We're watching carefully and taking appropriate rate actions against it.
Is there anything you can say around loss cost trends.
Negative certain percent. Thank you.
Not really at the moment.
And at this time there are no further questions I'd now like to turn the conference back over to John Hall.
Thank you everyone for joining us today have a happy Halloween.
Talk to you soon.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using a TNT executive teleconference. You may now disconnect.
Yeah.