Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the MetLife first quarter 2020 earnings release conference call at this time. All participants are in a listen-only mode later. We will conduct a question-and-answer session. If you'd like to ask a question at any time, please press one and zero, once again for questions over the phone lines, please press one and zero as a reminder. This conference is being recorded before we get started. Refer you to the cautionary note about forward-looking statements in yesterday's earnings release and two risk factors discussed in metlife's 8-k filed last night and it's other SEC filings off with that. I will turn the call over to John Hall head of investor relations.
Thank you operator. Good morning everyone now more than ever. We appreciate you joining us for metlife's first quarter 2020 earnings call.
Before we 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 on the call this morning are Michelle with president and chief executive officer and John mccallion Chief Financial Officer. Also participating in the discussions are other members of Senior Management.
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We released a set of supplemental slides that are available on our website. John mccallion will speak to those supplemental slides in his prepared remarks. If you wish to follow along appendix, do these slides features disclosures and GAP Rex reconciliations, which you should also review.
After prepared remarks, we will have a Q&A session that will extend to the top of the hour in fairness to all participants. Please limit yourself to one question and one follow-up off before I turn the call over to Michelle. I have a quick scheduling update as you might have concluded given the environment. We will not be hosting an investor day in Tokyo this this phone number now over to Michelle.
Thank you, John and good morning everyone. I'd like to begin by acknowledging the difficulties and challenges that so many people have injured as a result of the pandemic.
What the world has been living through it's tragic yet. It is also demonstrating the best of humanity. We see that every day as thousands of First Responders health care workers and other front-line employees risk their lives to care for others and provide essential services.
And we see it at night life as our employees go above and beyond to deliver on our promises to customers while we feel the effects of the crisis deeply both the personal loss and Dead comic disruption. These are the moments that make life is built for
December with the importance we place on being a purpose-driven company or purpose statement always with you building a more competent future has taken on greater meaning and the current environment.
people are counting on us like never before to provide the value support and Financial Security they need
Our next strategy is a roadmap for how the company would create value for all of its stakeholders. Our people our customers or shareholders and our communities.
As I have said before it is are people who will deliver for our customers and that in turn is how we would create value for our shareholders and communities.
It starts with our people which means making their health and well-being are top priority. We've done that in a variety of ways.
We moved Employee Store work from home environment expanded benefits to help cover covid-19 testing and treatment enhanced mental health support to help employees could put stress and avoid tolls and resources to keep people connected. I am proud of the level of Engagement and motivation. Our people are showing they know they are making a difference.
Since we do business in many markets MetLife got an early look at how the pandemic could affect society's and our own operations.
Our experience in Asia gave us running start on the activation of our business continuity plan globally across our Enterprise 92% of our 38,000 employees are not working from home including ninety-eight percent in the United States.
Of course the true test of our business continuity plan was not merely whether employees could log on from home, but whether they had full functionality to be able to deliver for our customers.
On this front. We are very pleased that we've been able to maintain service levels levels with 95% of all customer calls claims and other transaction a successfully handled by employees working remotely this includes our group Insurance business where even in this highly disrupted environment MetLife still expects to meet or exceed Edge performance guarantees.
For our customers. This moment is crucial the way we show up now will resonate with them for years to come across the Enterprise. We are acting to provide them with concrete and compassionate care. We are extending premium grace period fast-tracking claims crediting or adjusting auto and dental premiums and providing our huge financial Oneness portal to small businesses and their employees at no cost.
The shutdown has also spurred us to innovate and accelerate the digital transformation of our business in China for example sales of our medical reimbursement for dr. Lee after we created a week shot store for agents.
In times of Crisis, we must do more for the communities where we work and live but life Foundation has committed twenty-five million dollars and MetLife is donated millions of dollars and thousands of maths disinfectant white and hand sanitizers to the covid-19 fight. We also had a unique opportunity to help wage.
As the large commercial real estate investor. We were pleased to work with the state of New York to offer the InterContinental Times Square S3 housing for medical workers.
Most impactful is the social and economic benefit MetLife create as a life insurance company. The heart of our business is a promise to pay when people need us most money for the power of putting the premiums of the many become payment to those who need them. But life paid more than twenty four billion dollars in policyholder claims been wage and dividend and last year an average of more than 65 million dollars a day at a time when people's jobs and income life insurance form a vital part of the social safety net that sustains people financially.
As you know, we've made substantial changes to our strategy and our portfolio. The biggest change is to the profile of our liabilities. We are now a less Mark instead of and capital-intensive Company.
Our investor day, we showed that approximately two-thirds of our adjusted earnings came from protection and fee-based products and only one-third from spread related businesses.
Within we took early actions in anticipation of a recession beginning and 2018. We became concerned about certain lower-rated areas off the credit markets.
We reduced our whole things in sectors and names that we thought was Carrie heightened risk in a downturn.
Overall our Investment Portfolio is marked by broad diversification high quality and ample liquidity. Notably that are operating insurance company that we have nearly one hundred billion dollars of government and agency Securities, Japan government bonds and other cash and short-term Investments.
Ocean we access the the bond market when few others could to raise 1 billion dollars for the quarter this out bring the company's total cash and liquid assets that are holding companies to 5.3 billion hours are combined risk-based Capital ratio, as of year-end 2019 was 395% and we enjoy high ratings from all major credit rating agencies.
Another active stuck we've taken is to increase our focus on expenses MetLife remains committed to meeting the expense Target. We set as part of our unit cost initiatives Brown and the current environment. Perhaps know area gives us greater opportunity to demonstrate our commitment to consistent execution than expense discipline.
As we announced last week or financial strength enabled us to increase our quarterly common stock dividend which provides a steady and growing source of income to millions of people during the Vietnam janji time.
We raised our second quarter of 2020, stock dividend by 4.5% which illustrates our confidence in MetLife future.
Given our position we expect the impact of the pandemic to be an earnings event. Not the balance sheet of Anne Mc. Life has a great set of global Diversified businesses off. Some of which may be pressured by today's unprecedented events While others act act of offsets.
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One we are seeing a Slowdown and you in New Directions transfer deals. We are also seeing a surge in demand for our stable value offerings as 401K sponsor and seek the safety of these books out your product back by nightlife.
And although rollover investment rates continue to be pressured for our long tail businesses in our the current configuration of the curve, very low at the shorthand and a false is favorable for our Capital markets investment investment products and securities lending activities.
Similar problems exist across our Global protection businesses where mortality morbidity longevity and Property and Casualty risks serve as natural offset wage.
The core our scale strong balance sheet and Broad diversification our key strengths of our franchise. These Trends enabled us to generate Frisco adjusted earnings of one point four billion dollars or $1.58 per share up 7% from a year a year ago.
The direct impacts on our adjusted earnings from the pandemic and economic slowdown were limited.
Adjusted earnings reflected strong underwriting margins and group benefits and favorable underwriting margins in Property and Casualty variable investment income was very strong mostly due to private equity, which is on a 1/4 lag. These positives were offset in part by unfavorable Market factors across interest rates and foreign currency.
Not income was four point four billion dollars or $4.75 per share up from $1.40 a year prior.
Falling interest rates drove substantial gains in the derivatives. We hold to protect our balance sheet book value per share excluding. The other than was $52.36 up 7% sequentially from your end while adjusted return on equity on the same basis total 12.6%
Looking ahead to the second quarter. We anticipate the greatest earnings impact will be felt within variable investment income where we expect less favorable private Equity returns for a Time the strong historical returns associated with our private Equity portfolio and its role as a good match for our long-dated liabilities justify this asset class as an important ongoing component of the general account. In fact, the current economic turmoil is precisely the environment where the seeds of the Morris private Equity returns are being planted.
Believe our next Verizon strategy was the right approach before the pandemic drop and we are even more confident that the pillars of focused simplify and the front she a bath and approached today by focusing even more intently on where we deploy capital and by further simplifying the company, we will enable MetLife to emerge from the current moment in the best shape possible. If anything we must accelerate our next wise and work. This is how we will truly differentiate MetLife and capture the opportunities Thursday. Of disruptions always bring
Midlife seen many such periods during this history the 1918 flu pandemic the Great Depression World War II nine-eleven the financial crisis through all of them. We never faltered we maintained our financial strength cut out promises and provided people with the security and confidence they need that's what we mean when we say always with you and it would be true throughout this pandemic and Beyond I will now turn the call over to John mccallion.
Thank you, Michelle and good morning everyone. I'll start with the first quarter of 2020 supplemental slides that we released last evening which highlight information on our earnings release and quarterback supplement in addition to slide provide more detail on our investments outlook for the second quarter as well as an update of our cash and capital positions.
Starting on page three the schedule provides a comparison of net income and adjusted earnings in the first quarter. Net income in the first quarter was four point four billion dollars or approximately $3 higher than adjusted earnings of 1.5 million dollars. This variance is primarily due to net derivative gains resulting from the significant decline in interest rates during the quarter the results in the Investment Portfolio and hedging program continued to perform as expected.
Turn the page for you can see the year-over-year comparison of adjusted earnings by segment excluding notable items. This quarter's results did not include any notable items while the prior-year quarter had $55,000 associated with our unit costs initiative, which was accounted for in corporate another.
Excluding the you to cost and your first quarter of 2019 adjusted earnings were down 2% and essentially flat on a constant currency basis on a per-share basis adjusted earnings were up 3% and up 5% on a constant currency basis the better results on the EPS basis reflect the cumulative impact from share repurchases overall positive year-over-year drivers include strong variable investment income solid volume growth favorable expense margins and lower taxes. This was offset by Equity Market weakness lower interest margins, unless favorable underwriting compared to first quarter of nineteen.
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