Q1 2021 MetLife Inc Earnings Call
[music].
Ladies and gentlemen, and thank you for standing by welcome to the Metlife first quarter 2021 earnings release Conference call. At this time, all participants are and a listen only mode. Later, we will conduct a question and answer session instructions will be given at that time as a reminder, this conference is b and.
And recorded before we get started I refer you to the cautionary note about forward looking statements and yesterday's Marines release and tourists fast factors discussed and Metlife S. E. C filings with that I will turn the call over to John Hall Global head of Investor Relations.
Thank you operator, good morning, everyone.
We appreciate you joining us from Metlife first quarter 2021 earnings call.
Before we begin I refer you to the information and non-GAAP measures on the Investor Relations portion of Metlife Dot Com and our earnings release and in our quarterly financial supplements, which you should review.
Michel hold off President and Chief Executive Officer is on the call. This morning, along with other members of senior management, who will be available to participate and the discussion.
Last night, we released a set of supplemental slides, which address the quarter.
They are available on our website.
John Mccallion is under the weather today, we're going to let him rest his voice and I will speak to the supplemental slides following michelle's remarks.
And appendix to the supplemental slides features outlook sensitivities disclosures GAAP reconciliations and and other information all of which you should also review.
After our prepared remarks, we will have a Q&A session that will extend to the top of the hour and fairness to all participants please limit yourself to one question and one follow up.
With that over to Michelle.
Thank you John and good morning, everyone That'd be reported last evening Metlife delivered very strong financial results for the first quarter of 2021.
Oh, a diverse business mix sound investment strategy and strong expense discipline combined to generate earnings well above consensus expectations.
By the numbers, we reported first quarter of 2021 adjusted earnings of $2 billion or $2.20 per share up 39% from one dollar and 58 cents a year ago. The primary driver was exceptionally strong variable investment income or V. I R.
Partially offset by elevated COVID-19, and every day that the claims.
And that's income for the quarter was $290 million down from $4.4 billion, a year ago, primarily due to losses on derivatives that protect our bone and sheets from declines and equity markets and interest rates.
Such gains and losses are the result of GAAP accounting rules that require us to walk shirts, and Navarre derivative had just two market. So not income without similar treatment for the assets and liabilities being hedged.
We believed economics and the free cash flow of our business what captured and adjusted earnings regarding variable investment income the key driver of games and the first quarter was our private equity portfolio, which delivered returns of 13.3%.
Recalled the private equity returns are reported on a one quarter like the.
The strong performers and the fourth quarter was driven primarily by three private equity sectors. The.
Domestic leveraged buyout funds European L B o's and venture capital.
And the second half of 2020 Ipos from your <expletive> based I'd be oz and venture capital firms more than doubled over the prior year and the market rewarded money entrance with strong valuations.
Venture capital was our best performer across the three subsectors largely due to the market's appetite for tech companies.
V C D and volumes hit a record and 2020 and the increase and digital activity spurred by the pandemic drove attractive valuations for early stage tech firms positioned to capitalize on that try and while our private equity portfolio returned and Dakota was robust and.
It was in line with industry benchmarks, most notably Cambridge Associates private equity index.
We are confident this asset class would continue to be a significant source of alpha for my life and the future.
Turning to the performance of our business segments. All beginning with are you ask real benefits the results.
[noise] adjusted earnings were down 70% year over a year, an elevated COVID-19 life claims.
And D U S. Overall, COVID-19, and related deaths or 40% higher and the first quarter of 2021, and then they were and the fourth quarter of 2020.
It was very solid on.
And the fundamentals, we continue to demonstrate consistent execution with strong earnings power across a range of different economic scenarios.
Turning to cash and capital management Metlife.
And ended the first quarter with cash at the holding company of $3 $8 billion near the top end of our $3 billion to $4 billion target buffer.
Our two year average free cash flow ratio remains within our guidance range of 65% to 75% currently our cash balances are much higher following the receipt of $3 $94 billion of proceeds on the sale of our U S P&C business.
During the quarter, we were pleased to return and one $4 billion of capital to shareholders 1 billion and share repurchases and approximately 400 million and common stock dividends.
So far and Q2, we have bought back an additional $210 million of common shares and and we have roughly $1 $6 billion remaining under our current repurchase authorization.
And last week.
Our board of directors approved a second quarter 2021, common stock dividend of 48 cents per share up four 3% from the first quarter.
Over the last decade, we have increased our common dividend at a 10% compound annual growth rate.
Our consistent execution continues to generate strong free cash flow that allows us to invest and growth and return capital to our shareholders all with the goal of driving long term value creation.
As we look ahead, we see a path to a brighter future from both and economic and health perspective.
And the United States conditions look promising for a period of employment growth, which is always good for our group business on.
And the pandemic front, we believe the worst of the underwriting effects on our company are behind us as the vaccine rollout continues to advance.
The progress is not yet uniform across the world and certain areas are still struggling but the trend line is clear.
A slow but steady return to something we can call normalcy.
Why do we want to come and improving external environment. We also remain laser focused on executing our strategy to ensure we are prepared for the post pandemic world.
For our customers, we continue to accelerate our digital transformation to meet their evolving needs.
And Japan for example, 95% of our policy submissions are now done digitally.
For our employees, we would be implementing a more flexible workplace model and Q3, which for most would be a hybrid approach.
While our people have performed exceptionally well and working from home during the pandemic. We believe the office will continue to play a critical role and fostering collaboration innovation and career development and we are equally confident that by incorporating more virtual work into our model, we will enhance productivity gain access.
A broader talent pool and strength and employee engagement to.
To close this morning, I want to emphasize the urgency we are fueling up metlife to keep raising our game.
As I said in my annual letter to shareholders.
<unk> execution is our new baseline.
Continuous improvement is our new aspiration and expectation.
Thank you and with that I'll turn it over to John.
Thank you Michelle and I will start with the <unk> 21, 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 in the quarter was $290 million or approximately one $7 billion lower than adjusted earnings.
This variance was primarily due to net derivative losses as a result of the significant rise and long term interest rates as well as stronger equity markets and <unk> 21.
Our investment portfolio and our hedging program continued to perform as expected.
On page four you can see the year over year comparison of adjusted earnings by segment.
There were no notable items for either period.
Adjusted earnings per share benefited from exceptionally strong returns and our private equity portfolio and were up 39% and 38% on a constant currency basis.
Moving to the businesses starting with the U S group benefits adjusted earnings were down 70% year over year.
Largely driven by unfavorable group life mortality due to elevated COVID-19 related life claims.
In addition, elevated COVID-19 mortality and volume growth were positive contributors.
R. I S investment spreads were 234 basis points up 120 basis points year over year.
Primarily due to higher variable investment income.
Spreads, excluding VII, where 88 basis points up five basis points year over year, primarily due to the decline and LIBOR rates.
R I S liability exposures, including UK longevity reinsurance grew 12% year over year.
Due to strong volume growth across the product portfolio as well as separate account investment performance.
With regard to UK longevity reinsurance, we have continued to see strong growth since completing our initial transaction and two Q20.
The notional balanced stands at $8.8 billion at March 31st up nearly $5 billion from your and 2020.
And it's previously announced first quarter results for property and casualty are reflected as a divested business and our quarterly financial statements.
The sale of the auto and home business to farmers insurance closed on April 7th and we expect to record and after tax gain of approximately $1 billion and two Q21.
Moving to Asia Ah.
Just did earnings were up 78% and 70% on a constant currency basis, primarily due to higher variable investment income as well as volume growth and favorable underwriting margins.
Asia's solid volume growth was driven by higher general account assets under management on and amortized cost basis, which were up 6% and 4% on a constant currency basis.
Asia sales were up 12%, you're over a year and a constant currency basis with growth across most markets.
Latin America adjusted earnings were down, 58% and 57% on a constant currency basis.
Primarily driven by unfavorable underwriting, partially offset by the improvement and equity markets.
Elevated COVID-19 related claims, primarily and Mexico impacted Latin Americas adjusted earnings by approximately $150 million after tax.
Looking ahead, we expect COVID-19 claims to decrease throughout the year more significantly and the second half and adjusted earnings to return to 2019 levels and 2022.
Which is consistent with our outlook Latin America adjusted P. F O's were down 6% year over year on a constant currency basis due to lower single premium immediate annuity sales and Chile.
And me adjusted earnings were down, 9% and 11% on a constant currency basis, primarily driven by higher COVID-19 related claims as well as higher expenses compared to the favorable prior year quarter.
And me and adjusted P. F O's were down 5% on a constant currency basis, but sales were up 4% on a constant currency basis due to strong growth and UK employee benefits.
[noise] Metlife holdings adjusted earnings were up 123%.
This increase was primarily driven by higher variable investment income largely due to private equity returns and.
Also favorable equity markets and longterm care underwriting were positive drivers.
[noise] longterm care benefited from higher policy and cleaned terminations as well as lower claim incidences.
The life interest adjusted benefit ratio was 54.8%.
Higher than the prior year quarter of 51% and at the top and of our annual target range of 50% to 55% due to elevated COVID-19 mortality corporate and other adjusted loss was $171 million.
This result is consistent with our 2021 adjusted lost guidance range of $650 million to $750 million.
The companies effective tax rate on adjusted earnings and the quarter was 20.8%.
And within our 2021 guidance range of 20% to 22%.
Now I will provide more detail on group benefits, one Q21 underwriting performance on page five.
There were approximately 200000, COVID-19 related deaths and the U S and the first quarter.
The highest single quarter since the pandemic began and up nearly 40% versus the fourth quarter of 2020.
In addition to the higher number of claims there were more deaths at younger ages below 65, which resulted and increased claims severity.
Apart from COVID-19, and the number of life insurance claims of greater than $2 million nearly doubled versus a typical quarter.
The group life mortality ratio was 106.3% and the first quarter, which.
Which included roughly 17 percentage points related to COVID-19 life claims.
This reduced group benefits adjusted earnings by approximately $280 million after tax.
For group Nonmedical health the interest adjusted benefit ratio was 71.1% and the first quarter with favorable experience across most products.
The one Q21 ratio was below the prior year quarter of 71.7% and at the low end of our annual target range of 70% to 75%.
Now, let's turn to VII and the quarter on page six.
This chart reflects our pretax variable investment income over the last five quarters, including approximately $1.4 billion and the first quarter of 2021.
There's very strong result was mostly attributable to the private equity portfolio, which had a 13.3% return and the quarter as.
As we have previously discussed private equity's are generally accounted for on a one quarter lagged.
Our first quarter results were essentially in line with private equity industry benchmarks, well, all private equity classes performed well and the quarter or.
Venture capital funds, which account for roughly 20% of our P. E account balance of $10.3 billion. We're the strongest performer across subsectors with a roughly 25% quarterly return due to a broad increase and tech company valuations.
On page seven first quarter VII of $1.1 billion post tax as shown by segment.
The attribution of VII by business is based on the quarterly returns for each segments individual portfolio.
As noted previously R. I S Metlife holdings, and Asia generally accounts for approximately 90% or more of the total VII and are split roughly one third each although it can vary from quarter to quarter.
V I I results and one Q21, or more heavily weighted towards R. I S and Metlife holdings as Asia's portfolio has a smaller proportion of the venture capital funds that I referenced earlier.
Turning to page eight this chart shows are direct expense ratio over the prior five quarters and full year 2020, including 11% and the first quarter of 2021.
As we have highlighted previously we believe our full year direct expense ratio is the best way to measure performance due to fluctuations and quarterly results.
And one Q21 are favorable direct expense ratio benefited from solid top line growth and ongoing expense discipline as well as delayed investment spending and the quarter.
We expect the direct expense ratio for the remainder of 2021 to be consistent with our full year outlook.
Now I will discuss our cash and capital position on page nine.
[noise] cash and liquid assets at the holding companies, where approximately $3.8 billion at March 31st which is down from $4.5 billion at December 31st, but well within our target cash buffer of $3 billion to $4 billion.
Sequential decrease and cash at the holding companies was primarily due to the net effects of subsidiary dividends pay.
Payment of our common stock dividend share.
Share repurchases of approximately $1 billion and the first quarter as well as holding company expenses and other cash flows.
Looking ahead, we expect holdco cash will be significantly higher and the second quarter as a result of the sale of our auto and home business to farmers insurance net.
Next I would like to provide you with an update on our capital position.
For our U S companies are combined any I C. R. B C ratio was 392% at year and 2020 and comfortably above are 360% target.
For our U S companies, excluding our property and casualty business preliminary first quarter 2021 statutory operating earnings where approximately $1.5 billion, while statutory net income was approximately $570 million.
Statutory operating earnings increased by roughly $2.3 billion year over year, driven by lower V. A writer reserves and increase and interest margin higher net investment income and lower operating expenses.
Statutory net income excluding are PNC business increased by roughly $430 million year over year, driven by higher operating earnings, partially offset by and increase and after tax derivative losses.
We estimate that are total U S statutory adjusted capital excluding P&C was approximately $16.7 billion as of March 31st down 2% compared to December 31st.
Favorable operating earnings were more than offset by after tax derivative losses and dividends paid to the holding company.
Finally, the Japan solvency margin ratio was 967% as of December 31st which is the latest public data and summary, Metlife delivered another strong quarter, which benefited from exceptional private equity returns solid business fundamentals and.
Ongoing expense discipline.
Well higher mortality and the U S and Mexico Dampened adjusted earnings and group benefits and Latin America are.
Our financial performance demonstrates the benefits of our diverse set of market leading businesses and capabilities.
And edition R capital liquidity and investment portfolio are strong resilient and position us for success.
And we are confident that the actions we are taking to be a simpler more focused company will continue to create longterm 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, and if you'd like to ask a question. Please press one and then zero and your telephone keypad you may withdraw your question at any time by repeating the one zero comments, if you're using a speaker phone. Please pick up the handset before pressing the numbers once again and if you have a question. Please press one and zero at this time and one moment. Please from your first question.
Your first question comes from the line of Eric Best from Autonomous Research. Please go ahead.
Hi. Thank you is to start can you go into a bit more detail and the group like claims trends this quarter and the implications of population deaths, you and younger which it sounds like you need to hire severity and and is this something we should expect to have continued impact and the second quarter.
Hi, Eric it's it's it's from here as we've discussed and John his remarks. The group results. This quarter were primarily of frequency Ah affect so we saw the significant increase and the total number of population deaths.
And that was accompanied by a secondary effect, which is a severity effect whereby we did see an increase in the percentage of claims under 65, and those claims which tend to be for working employees do have a higher face.
All so if you think about it and if you think about the outlook going forward, we're watching dark composition very carefully.
But I would say that the primary driver and the second quarter is still gonna be the frequency right. So as you know with the rollout of the vaccine the COVID-19 related deaths in the population have been declining and if you do any comparison between say January average desk number two and April has been a significant decline so.
Why are we still have substantial number of deaths coming through and therefore expect to see and elevated mortality ratio and the second quarter and we do expect the underwriting ratio to come down from its Q1 heart.
Thank you and then maybe if we could turn to Asia I was hoping you can provide some more color on the underlying growth dynamics, there where it seems like your sales and account value growth, both trending and bit stronger than many peers and I'm, just wondering where you're seeing the best opportunities.
Eric This is kishore and.
So we did have a pretty strong quarter and posted sales growth, 7% sequentially and 12% compared to prior year.
This is certainly a good performance.
Especially given the COVID-19 environment, even and Japan at several prefab chairs onto the state of emergency they're doing much of Q1.
And and then the other Asia markets have very.
At least a social distancing measures in place.
Clearly you know COVID-19 and and the resurgence here and Asia is a significant headway it given that the vast majority of our sales are face to face. However.
And as I mentioned earlier, the diversity F O channels and products the strength of our back and partnerships and the strong execution focus of our businesses.
And that's what powers, you know and Metlife sales resiliency, even and and this stuff environment. In addition.
We've been making significant investments and digitizing ourselves processes, all the way from video conferencing co browsing the more closed Inc.
And they are certainly aided outperformance as well.
Michel mentioned and his openings and barks 95 per cent of hired a new sales application submissions and Japan or digital.
And the other markets started a similar range as well.
For example, and China, almost all our agent Onboarding and new business submissions are done digitally.
And.
Specifically with regards to to Japan.
You know again and 8% up sequentially.
And even after you know taking seasonality into account and.
Face to face channel, if that's their life and and and that's.
<unk> are quite resilient.
While we recorded strong annuity sales growth through the bank channel.
It's clearly we have thanks, and the effects denominated products and.
And our bank relationships and that strength shows.
Frazier, 8% up the cash.
Lee up 30% year over here.
Again, it speaks to I think the strength of our bucket presidents across is markets.
And a strong execution across the board and.
And and they just don't solutions are also helping us in a and a big bike.
With regards to day outlook for the rest of the air and you know where they comfortable.
And on track to meet the full guidance.
They just sounds good.
Thank you.
And your next question comes from the line of least Greenspan from Wells Fargo. Please go ahead.
I think they'd morning. My first question is on on Capitol. So you guys thought that 1 billion and and.
Quarter, and did you Wanna get and any colors and stuff.
And how we should think about a quarter or the one right getting it to buy clothes, and the property and casualty transaction and the second quarter and given that insightful and now that's a good amount.
And that alright, and level that we should think about and by looking to have as a whole pile of Bob.
You know and kind of put the killer.
Yeah.
Hi, good morning, and he used it's Michelle.
So let me start at a high level by just reiterating our philosophy and our approach and.
Which is you know beyond supporting organic growth and.
And and the absence of strategic and creative risk adjusted her alright, clearing M&A access capital and belongs to our shareholders and the fines ex those capitalized cash or cash equivalents at all and holding companies you know above articulately buffer which is still.
Three to 4 billion that we've discussed.
And you know as you know we bought back on but in and the first quarter and we under Dakota, with 3.8 billion and cash and are holding companies.
Ah so that's within our three to 4 billion buffer.
And we did so with the full knowledge that we would close shortly on the Orange and she company.
Nationally boost our cash on excess couple of possession.
We have 1.6 billion remaining on a repurchase authorization, which we were and extinguish and and 2021.
And historically.
And we've managed our authorizations deliberately and expeditiously, particularly and the way it called major divest months. So you don't expect us to you know to do the same here.
Okay, that's helpful and and maybe my follow up for you know build upon that and I thought you know and.
This transaction Pnt's and late last year, and you know you kind of put it by day, you'll kind of fell and catalog and his wallet and.
And it emanates essentially out there and so did you guys have kind of thought will kind of and any plan and it's kind of you know.
You know fiber.
So much and you announce the transaction get to have it and you know what type of business day as you would want to stick with two deals and and you're supposed to try and that and you know multiple is there anything you know, making more or less likely and put down the road and M&A.
Oh.
Yeah, and you know again here I would just maybe start would sort of you know our approach and and philosophy, which again is has been very consistent and no change. There. So you know we would always look for them and I hope will try not to use the fifth our strategy that are accretive overtime.
And for our shareholders and.
You know we have a you know a constant basis globally through which evaluate opportunities based on value uncut generation.
You know all of them and the opportunities would need to earn more than their cost of capital.
And we determine what's we're willing to pay for a business bye and evaluating coupla markets, the cost of raising capital and synergies.
And acquisition opportunities would need to be more attractive than share repurchases.
So you know what we do is we try to achieve a healthy balance between returning cash to our shareholders and investing and attractive future growth through them and a.
And you know I think some of the sort of recent transactions that we've done such as worse and tell last year, you know the but first acquisition prior to that and Logan Circle. A couple of years back I think those can view and sons sort of you know what you know that's sort.
[noise] approach and strategy that all that I I'll fly and so no change here.
Okay and kind of color.
Your next question comes from the line of Andrew Clearman from Credit Suisse. Please go ahead.
Hey, good morning, everyone.
Just a question on the private athlete quite slowly and which I think John sighted.
[noise] and venture capital is 20%.
$10.3 billion and generated a 25% return the first quarter met is always seemed and the last year's like a prominent name and venture capital could could you flesh out that story, a little bit more how much does met and best.
Each year and venture capital.
And are there particular areas of a V C that or.
That our strength just very interested in that area and.
And the prospects at Metlife.
Andrew and Steve Goulart, good morning, and.
And let me talk a little bit about the overall strategy because you know we've been investing and private equity for a number of years and I've always felt it to be a.
Very strong component of our overall strategy venture capital of course is a significant portion of the portfolio, but basically we take a look at this portfolio and when we look at our credit portfolio, a real estate portfolio, it's about diversification and and that's what we really tried to build and this you know and I'm just sort of recapping some of the numbers.
R. P E portfolio produced income of almost $1.3 billion or 13.3% return again venture capital was.
Led the way as far as there's total return, but think about what was happening and the market to with a lot of I P O activity and like things that Michel sided and his comments. So the important thing is that our returns were attractive across the portfolio and I'd look at you know things like our L. B O portrait.
Oh, both domestically and and Europe, and and again this reflects the diversity, that's that's and the entire portfolio and when we look to invest we continue to invest and a diverse way across all the different sects.
Sectors, as well and me and just to give you a little bit more flavor on it and we have over 600 funds that.
And that we've invested and you know we have almost 200 managers, so again very broad very deep and.
Exposure across all of the sectors.
But equity and and again I think you have to take into consideration and you know what was happening and the environment and when we think about it.
You know despite the pandemic equity valuations continued to climb and the fourth quarter.
The combination of fiscal and monetary stimulus continue to be major contributors that led to strong equity performance really across all sectors and.
And and so I I would think about it and in that respect that we really think of this as a diversified.
Robert equity portfolio and now that all said, we do think that you know the past quarter was probably something of an anomaly because when we look at our historical experience at least until this quarter and it has been that are P returns have always been moderated versus the S and P 500, particularly.
And high market return quarters. So this was an unusual quarter in that respect and when we think about you know future returns or or relationships. You know, we still think that you know what we've been saying for the last couple of years as far as our our plans go you know the kind of low single low double.
Digits, you know, 12% is still the right way for us to think about these returns again, and it's going to be very quarter by quarter, but that's how we think about this on a long term basis and again. It just reflects our continued efforts to to have a very diversified portfolio across all sectors.
Got it sounds like it's a real area of excellence and D C, though but.
I'll move on from that and Uhm and then Eric was asking a question and a little earlier about Asia and sales and the Asian region and I I'm still.
Trying to reconcile those numbers with what we've been seeing at other companies, which is sales pressures flattish premium growth and you know met being you know, having a very large proportion of its business and and Japan, which is a more and make sure market.
It it's just kind of striking to see 12% a.
Year over year sales growth and and then a target and double digit. So if you could flesh that out a little bit more specifically is at the banks that are driving the sales growth and Japan and and what particular other countries are kind of driving growth and other parts of Asia.
Sure sure Andrew.
So if you if we parse out.
The oral Asia sales into Japan, and other age yet.
And for a minute.
While sequentially and and.
And even and the previous calls right, we've been making steady progress and Japan sales and since you too right.
Q3 was better than queue to last year Q4 was better than the and.
And Q1, just and build off of two four from last year.
And and if you then and say okay. Where's this coming from.
A couple of things, we have three broad product lines and she's like N H L.
And annuities.
And then we have a couple of channels right we've got.
Especially what I would broadly classifieds face to face channels. They could go for the breakdown and that but that's not needed for this call and banker.
The good news for US is even and this stuff and violent or face to face channels were pretty resilient from my ear over a year perspective.
There's a little bit of a pressure, you know and and itch, but our lifestyle met you know pretty much held flat and.
And then much of the growth came in from the annuities, which are primarily sold through two bags and and the previous call and say talked a lot about you know our advantages and the new with the space on the effects cause. These are all foreign currency are dollar denominated and we have many advantages that we bring to the table on that.
And also the strength of the bank partnerships that we bring to the table as well so because of that because of this diversification products and diversification of channel.
And are leaning on our strength, that's basically contributor to the resiliency of ourselves from Japan.
Now with regards to and by the way. This has not been easy I have to tell you that but our teams on the ground and have done and I think a fantastic job.
With regards to that now.
And again this is playing out right I can't you know I can't sit here and say this is definitive because COVID-19 is a factor that's an ongoing concern across Asia.
It's the garage to other Asia again, very strong sales growth, but remember last year. Yeah. The pressure started early outside of Japan, and China, right because of COVID-19 and so they year over year comparisons.
Look very favorable on the other Asia segment, but again I think I'd lean more on the strength of our businesses and our market presence in terms of how we execute it this quarter.
And Ah Korea was very strong in terms of performance to India was also strong and performance from a sales perspective recovered nicely and China, which which is a major factor again, you know COVID-19 still a factor and all of these Marcus and we continue to to stay focused on execute.
<expletive>.
At the and that that's what it boils down to hope that helps.
Very helpful.
Yeah.
Your next question comes from the line of Tom Gallagher from Evercore. Please go ahead.
Good morning, just a question on Raf's spreads Ah declining excluding VII I think John John Mccallion, and I know you mentioned last quarter that the over 100 basis points spread level was probably not sustainable but I guess.
The the big drop back into the high eighties seemed a bit surprising to me question is is that now a good level to run right or would you expect to trend up or down and any any color as to why such a large sequential drop.
Good morning, Tom.
Sorry for the voice.
Overcoming little COVID-19 recovery here so.
Alright, let me try to take that.
Well I'm, probably not going to go too far back because that was the whole reason, we gave you and and guidance alright, but.
Look we talk about some pretty large one time items and the third and fourth quarter last year from prepayments and other things like that and and and we knew those thing and we're going to recur.
And so those that's probably one items.
Second as we did reference that you re class and real estate funds and if AI.
And that probably cost and other four points of shift so we really kind of migrate back to the range I mean.
I wouldn't go backwards so much as I would think about how we look relative to the guidance. We gave in February and I think.
Right and line I mean, maybe even slightly above this quarter, but honestly the age probably a little above.
And I think the outlook, putting aside the excess VII and is intact.
And appreciate it John and Hope Hope you you recover soon sharp sharp [laughter], sorry to draw you into the call too, but the I guess my my my my only follow up is maybe for Steve Gallard. The just just.
And a reminder, VII does that does that no longer include prepayment income or or just prepayment income still show included and that number.
Repayment income is still and that number it's just dwarfed by our alternatives income.
Fairly modest on the prepayments.
Yeah, let me clarify and where you're going so.
That I'm not talking about prepayment income what I said that there are prepayment activities impacting the non VII spread and the third and fourth quarter.
And what happened was we saw just a real jump and refinancing and that was and pack and need to Rmb's securities and how they were.
Running off and that was <unk>.
Having a jump and and.
Non VII.
Spread.
So hopefully that helps that that that does and and and Steve just to clarify could you could you quantify of the billing and for a VII how much is prepayment income.
Yeah tell him that this is John Hall, we typically haven't broken out that number but if you got your ruler out and you took a real careful measurement of that table and the supplemental slides you could probably reasonably get close.
Understood, Okay, and my rule her out thanks.
Your next question comes from the line of Sunni come up from City. Please go ahead.
Mm. Thanks, I wanted to start with the direct expense ratio guide and just so I understand it obviously came in much better and the first quarter in terms of your comments about the next couple of quarters as the expectation that you'll be instead of above your 12, three separate so I get the full year to land around 12 three or.
Or is.
Is that the expectation over the next few quarters that you'll be somewhere around 12, three so you could end up with a a lower full your number I just didn't quite get the guy there.
Yeah, I'm I'm not sure I sneak Michelle and I I don't I'm not sure we provided a guide, but let me just remind of what you know we sat on the I'll talk which is that.
The the shears expense ratio and it wouldn't be pressured becomes up to say and off of PNC, which has a door and a direct expense ratio and that we would expect took.
To get back to at or below the 12, three by 20 twenty-two now you know obviously, we we come in at 11% and and Q1.
And a few factors that contributed to this one is you know the P. F O growth, obviously and you know I think there were.
And and and and John comments, we mentioned some of you know the impact off.
And participate and group life contracts for example on that'd be a full grown and.
Verse since was an important factor there and.
And then we had really good expunge disciplined and across our businesses and we did have also some I would say timing related expenses that may be benefited us by about 25 basis points. So.
Our expectation for the second to force quarter is that you know the expense ratio will be consistent with our food fully or ultra guidance and.
And you know as I said, we believed at 12 three is the right level for us because that because that allows us to continue to make an important investments and and our business.
So so no change in terms of you know how you should look at the bottom of the year.
Okay got it and then.
<unk>.
Add that like just to the point of the guide we give an annual guide.
Exporter came in much better than we thought.
But if you adjust for this quarter and think about the rest.
And we were expecting to be slightly above this year, but.
Trending well.
Got it Okay and then just on the group benefits business I was just wondering if you could unpack some of that growth rates that we're seeing P. F. O's I think we're up 16% you know how much of that was was person versus the the other parts of the business and then on the sales growth up 45% can you just give a little color in terms of what's behind that how.
[noise] of it is set and new clients head count increases or new product. Just so we can get a sense of where the growth is coming from.
Alright, and I need it's it's for me here, so I'll I'll start off with with the sales.
We're really pleased with our performance this quarter and as John mentioned 2021 is shaping up to be the record you for us in terms of Ah group benefits.
I would say the three drivers of sales. The first one is a significant uptick in the jumbo activity and national accounts.
Oh, that's coming up coming off of a low and 2020.
But this is our sweet spot this is where we excel and and we've done exceptionally well this quarter. There I would also remind you just put jumbo accounts. These sales can be lumpy from year to year.
Beyond that if you look at products and markets. We've just seen I would say strength across the board from a product perspective as well as increased sales.
Sales and both regional and small so it was pretty even and then the last driver of sales or porn choose we continue to success successfully execute.
On our enrollment and re enrollment strategy at the work site that we've talked about and and part of occasions. So we're seeing pretty strong underlying sales growth there.
And when it comes to pier full growth, which we think is the actual measure the best captures the the the top line of this business.
You really need to Peel back from that 16% five points due to these participating contracts.
So think about 11 and a as the underlying growth there and that is in line with our expectations and in line with our outlook. So we're very pleased with that result as well.
And the P F O drivers and at this in addition to sales would be strong persistency, we continue to see very high persistency with our customers and our value proposition is resonating with those customers and they're doing more business with us.
We're getting all of our right actions renewals also in line with our expectations.
And then also what's driving to pier phone number coming back to that we enrollment strategy is very disciplined execution or voluntary strategy and the work site and so we continue to see those double digit growth and voluntary and up here for and number.
Right and how much of that 11 was person are you able to it's like that out.
We don't we don't break them out.
Oh neat, we and at the transaction, we did indicate that we expected to add about $1.3 billion and P. F O from first and in the year. So you can use that as an as a as a framework.
Okay. Thanks.
And.
Your next question and comes from the line of Mike Ward from you B S. Please go ahead.
Thank you guys. Good morning, and just had a higher level question on holdings, you know interest rates have come up a bit this year and they're still pretty well October it's kind of subsiding would you say, there's an uptick and conversations on potential derisking, there and if and when the time comes just curious if you could comment at all maybe on which lines. There that you are.
Thinking you might want to work on first.
And Mike good to hear you.
[noise] yeah. So.
I'd say things are trending positively and the space, it's still slow right.
Great and there's still low.
[noise] bedash spreads and wide and.
But you know things are emerging and I think.
Our philosophy has been to just continue to be ready and.
But it's.
There's a lot of activity and we're just gonna and make sure we're ready to act if something is.
<unk> creative so.
And I'll take that any material changed from from the last call.
Thanks, John and I appreciate that and then just on on the P. I N. C. Proceeds I know you said, you're gonna be salt on balanced and you've got a solid track record, but you know this is a solid amount of capital. There. So I was just wondering if there was any more detail you could give around you know if there's nothing and organic out there what day bye.
Back run run right and might look like as we move forward. Thanks.
Yeah, Hi, Mike I mean, I would just refer you back to Ah, We're we're all sort of.
Broach and and philosophy and track record also post divestments.
And I think that should give you a good sense of how we would sort of move forward here.
Thank you.
Your next question comes from the line of Ryan Kruger from K B W. Please go ahead.
Hi, Good morning, Rob Me can you provide some more underlying details on the non medical help underwriting and try and you saw in the corner or both and dental and vision utilization and and disability experience.
Sure. So I'll I'll keep this free Fry and and in in the court or the two O point out two one is dental we did see some benefit from lower utilization early in the quarter.
But as we expected the utilization normalised back in line with historical novels as the probe of the.
Quarter progressed.
And and and disability, we still seem very favorable results, we saw a slight uptick and incidence rate's from years ago, but we continue to see a positive trends on recoverability there.
Got it thank you.
And it seems we have no time for any further questions I would like to now turn the call back to him Michel club for any closing remarks.
Great. Thank you. So let me close by saying that we're very pleased with our first quarter financial results.
While they were puts and takes with variable investment income and mortality.
Our underlying results showed both strength and positive momentum across our business suck and months.
We consider the quarters results and other installment on our commitment to consistent execution and and we look forward to continuing to generate longterm value for all of our stakeholders.
Thank you for joining us this morning and have a great day.
Yeah.
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