Q2 2021 MetLife Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by welcome to the Metlife second quarter 2021earnings release conference call. At this time all participants are in 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 being recorded.
Before we get started I refer you to the cautionary note about forward looking statements in yesterday's earnings release and to risk factors discussed in 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.
Welcome to Metlife second quarter 2021 earnings call.
Before we begin I refer you to the information on non-GAAP measures on the Investor Relations portion of Metlife Dot com in our earnings release and in our quarterly financial supplements, which you should review.
On the call. This morning are Michel <unk>, President and Chief Executive Officer, and John Mccallion, Chief Financial Officer.
Also participating in the discussions are other members of senior management.
Last night, we released a set of supplemental slides, which address second quarter results.
They are available on our website John.
John Mccallion will speak to those supplemental slides in his prepared remarks, if you wish to follow along.
An appendix to these slides features additional disclosures GAAP reconciliations and other information, 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 1 question and 1 follow up.
With that over to Michel.
Thank you John and good morning, everyone.
Life's outstanding financial results from the second quarter provides further evidence of the tremendous progress we're making on the pillars of our next horizon strategy.
We're continuing to focus with the right capital allocation and investment decisions.
We're continuing to simplify with exceptional expense discipline.
And we're continuing to differentiate with enhancements to our market leading group benefits platform that are helping to drive record sales.
When it comes to our strategy, we've transitioned from a period of execution risk.
1 of additional opportunity.
Net income in the second quarter was $3.4 billion up from $68 million a year ago.
In our Q3 earnings.
When we unveiled our next horizon strategy at Investor Day in December 2019, we pointed to the scale and expertise that we have in investments as a competitive advantage for metlife.
The strategic approach, we have taken on private equity as a case in point.
Our decision to sell most of our $2.5 billion dollar hedge fund portfolio and increase the allocation to private equity has provided a better match for our long dated liabilities, while creating significant value for our shareholders.
This was no accident, but the latest in a series of successful investment decisions from Derisking. Our portfolio ahead of the financial crisis to Southern computer Cooper village Stuyvesant town near a market top.
Turning to our reporting segments, John Mccallion will provide a complete overview shortly.
I would like to focus on how our results show that COVID-19 has both still with us, but lessening in its impact for.
From an underwriting perspective, we've seen a sizable improvement, but we are still experiencing excess mortality.
In the quarter the group life mortality ratio was $94, 3% below the 106.3 per cent from last quarter, but still above the top end of our guidance range.
In Latin America, we had $66 million of Covid losses, again below the $150 million of Covid losses from Q1, but still above normal.
Net at the same time, COVID-19, economic grip is easing somewhat.
Life, we see this emerging and sales trends and.
In the U S group business.
Through the first half of 'twenty, 'twenty, 1 or 39% higher than they were in the first half of 2020.
And if current trends hold 2021 would be a record sales year.
In Latin America sales are up 55 per cent year over year.
On a year over year basis Asia sales are up 42 per cent.
While EMEA sales are up 20 per cent.
By their nature claims are a backward looking indicator and sales are a forward looking indicator.
So while we are not out of the woods, we are starting to see a clearing in the trees ahead.
The path of the pandemic is something outside of our control, but as we have demonstrated over the past year and a half we are not standing still we are moving ahead with urgency to accelerate our strategy.
To further differentiate our group benefits business, we acquired versus Intel and immediately became the third largest sufficient care provider in the United States.
Versant has now been part of our results for 2 quarters and in Q2, it's contributed 6 points of year over year growth in U S group premiums fees and other revenues consistent with our expectations.
Year over year requests for vision care proposals are up more than 20% among our national account customers.
We're pleased with how our new vision care offering is performing in the marketplace unexpected to contribute meaningfully to growth going forward.
Similarly, we have enhanced our pet insurance offering to make it even more attractive to customers.
We now offer a telehealth can share services rollover benefits from the prior year and family plans covering multiple pets and.
And what we believe is the first for the industry. We also cover preexisting conditions, when an employee switches to Metlife pet insurance from another carrier as long as the condition was covered by the prior plan.
More than 500 employers now off from Metlife pet insurance as a voluntary benefit for their employees and we believe our best in class product with continued to make gains in this highly attractive and underpenetrated market.
To strengthen our focus we made a decision to sell our businesses in Poland in Greece to Enel group.
This was another promise we made at Investor day to continue to look at our portfolio through the lens of strategic fit and our ability to achieve scale and clear our hurdle rate.
Since that time, we have sold or reached agreements to sell our businesses and for markets and we would continue to apply this disciplined approach.
In early April we also closed on the sale of our auto and home business to farmers insurance for $3.94 billion in cash.
The 10 year strategic partnership we forged allows each company to focus on its core strength for.
Farmers 90 years of P&C underwriting on service excellence.
And Metlife unrivaled distribution reach in the U S group benefits space.
The simplify pillar of our strategy was evident in our exceptional expense management.
In the quarter, we delivered a direct expense ratio of 11, 4% and we now expect to beat our 12, 3% target ratio not only for all of 2021, but for 2020.2 as well.
We are making this commitment despite selling our auto and home business, which operated at a lower expense ratio than the overall enterprise.
As we have said many times, we are embedding an efficiency mindset across everything we do at a central to our ability to deliver continuous improvement.
Metlife, we no longer have expense reduction programs, we do not need them.
What we have instead as a publicly disclosed direct expense ratio target that we have brought down by 200 basis points over the past 5 years and promised to keep their this is how we hold ourselves accountable and this is how investors can hold us accountable as well.
Our strategic decision to sell auto and home contributed to a $6.5 billion cash buffer as of June 30th well above our target range.
We repurchased $1.1 billion of common shares in the second quarter and another $248 million of common shares so far in the third.
And yesterday, our board approved a new $3 billion share repurchase authorization.
This is on top of the $475 million, we have remaining on our December 2020 authorization.
We believe that investing in responsible growth.
Steadily increasing our common dividend and buying back common stock are all vital parts of a balanced approach to creating long term shareholder value.
COVID-19 continues to present Metlife would the opportunity and the obligation to step up for our employees, our customers and our communities.
That work is ongoing.
Sites.
In closing to perform as well as we have through a pandemic highlights some fundamental truths about metlife.
We have an all weather strategy that holds up wealth distress, we have an investment portfolio that captures meaningful upside we have competitive advantages that enabled us to grow in the most attractive markets.
And we have a relentless focus on execution at our 2019 Investor Day, We said our next horizon strategy would generate tangible benefits for shareholders.
At 12 to 14 per cent adjusted Ottawa E.
$20 billion of distributable cash over 5 years, and an additional $1 billion of operating leverage to self fund growth.
We are on track to meet every 1 of those commitments. Thank.
Thank you and with that I'll turn it over to John.
They can Michel and good morning, I'll start with the 2.221 supplemental slides, which provide highlights of our financial performance and an update on our cash in capital positions.
Please note in the appendix. We have also provided an updated twenty-five basis points sensitivity for our U S longterm interest rate assumption.
Starting on page 3 we provide a comparison of net income to adjusted earnings in the second quarter.
Net income in the quarter was $3.4 billion for approximately $1.3 billion higher than adjusted earnings.
This very interest primarily do do net investment gains of $1.3 billion of which $1.1 billion relates to the sale of our property and casualty business to farmers insurance.
Our investment portfolio in our hedging program continue to perform as expected.
Additionally, adjusted earnings include 1 notable item of $66 million related to illegal reserve release.
On page for you can see the year over year comparison of adjusted earnings by segment.
Excluding notable items.
As I previously noted there was 1 notable items $66 million in 2.2 of 21 and no notable items for the prior year period.
Adjusted earnings per share excluding the notable items was $2.30 benefiting from strong returns and our private equity portfolio.
Which drove most of the year over year variance.
Moving to the businesses starting with the U S group benefits adjusted earnings were flat year over year.
As volume growth and the version health acquisition, largely offset unfavorable underwriting margins.
Group like mortality improve sequentially, but remain elevated in the quarter.
I will discuss in more detail shortly.
Regarding non medical health interest adjusted benefit ratio of 73.8 per cent and <unk> of 21.
Within its annual target range of 70 to 75 per cent, but higher than the prior year quarter 58.5 per cent, which benefited from extremely low dental utilization.
And favorable disability incidents.
We've seen a return to more normal utilization rates for non medical health and expect this trend to continue.
Therefore, we expect the interest adjusted benefit ratio to remain within its annual target range for the remainder of the year.
Overall business fundamentals for group benefits remain healthy highlighted by strong top line growth and persistency.
A group benefits sales were up 39% year to date.
Primarily due to higher jumbo case activity and remain on track to deliver a record sales year in 2021.
Adjusted P F O's, where $5.6 billion up 29 per cent year over year.
Several factors contributed to the strong year over year growth, including a 500 million dollar impact relating to dental premium credits and the establishment of a dental unarmed premium reserve, both reducing premiums in the second quarter of 2020.
Which collectively contributed 13 percentage points to the year over year growth rate.
In addition, 4 percentage points were related to higher premiums in the current quarter from participating contracts, which can fluctuate with claim experience.
After considering these factors are in the line P. F O growth for group benefits was roughly 12 per cent driven by solid volume growth across most products, including continued strong momentum and voluntary and the addition aversion health.
Looking ahead to the second half of the year, while group benefits reported P. F O growth rates will be impacted by the dental unarmed premium reserve release in Q3 and Q for we expect the underlying P. F O growth to maintain its strength and resilience for the remainder of 2021.
Retirement income solutions R. R I S.
[noise] adjusted earnings were $654 million up for $162 million year over year.
Primary driver was higher variable investment income largely due to strong private equity returns. This.
This was partially offset by less favorable underwriting margins compared to 2.2 of 20.
R. S investment spreads were 220 for basis points up 199 basis points year over year, primarily due to higher variable investment income.
Spreads, excluding VII, where 98 basis points.
Up 13 basis points year over year due in part to sustained paydowns in our portfolios of residential mortgage loans and residential mortgage backed securities.
A partial recovery in real estate equities.
And lower LIBOR rates.
R S liability exposures, including UK longevity reinsurance grew 8 per cent year over year due to strong volume growth across the product portfolio.
As well as separate account investment performance with regards to pension risk transfers, we continue to see a robust PRT pipeline move.
Moving to Asia adjusted earnings were up 103 per cent and 91% on a constant currency basis.
Primarily due to higher variable investment income.
Asia solid volume growth also contributed to the strong performance driven.
Driven by higher general account assets under management on an amortized cost basis.
Which were up 7 per cent and 6 per cent on a constant currency basis.
Additionally, while against a week 2.2 of 20 Asia sales were up 42 per cent in year over year on a constant currency basis Demi.
Demonstrating the resiliency and the bill.
Latin America adjusted earnings were down 27 per cent and 38 per cent on a constant currency basis.
Primarily driven by unfavorable underwriting and unfavorable equity markets related to the Chilean and K.
Which had a negative 1.5 per cent return the quarter.
Versus a positive 14 per cent and <unk> of 20.
This was partially offset by a favourable investment margins.
COVID-19 related claims improve sequentially.
The impact on Latin America's second quarter adjusted earnings was approximately $66 million after tax.
Well I'll, let Americans bottom line has been dampened by the elevated COVID-19 related claims.
The underlying fundamentals of the business remain robust as evidenced by strong sales and persistency throughout the region.
Latin America adjusted P. F. O's were up 12 per cent year over year on a constant currency basis and sales were up 55 per cent driven by solid growth in all markets.
AH me adjusted earnings were down 19 per cent and 23 per cent on a constant currency basis.
Primarily driven by higher COVID-19 related claims in the current period compared to low utilization in the prior year period.
Solid volume growth was a partial offset.
The current quarter has also benefited from a favorable refinement to an unearned premium reserve positively impacting adjusted pupils and adjusted earnings by approximately $15 million after tax.
In addition, Poland and grease contribute roughly 10% to run right earnings that will be reported in divested businesses beginning in the third quarter.
Ah me adjusted P. F O's were up 8 per cent on a constant currency basis.
And sales were up 20 per cent on a constant currency basis.
Primarily due to higher credit life sales in Turkey, and solid growth in UK employee benefits.
[noise] Metlife holdings adjusted areas were up $516 million year over year.
The increase was primarily driven by strong private equity returns and.
In addition.
Life underwriting margins were favorable.
The life interest adjusted benefit ratio was 47.1 per cent.
Lower than the prior year quarter of 59.1 per cent and below our annual target range of 50 to 55 per cent.
Corporate and other adjusted loss, excluding the favorable notable items of $66 million related to a legal reserve release.
Was $126 million.
This result, compared favorably to the adjusted loss of $289 million and <unk> of 20.
Due to higher net investment income lower expenses and lower preferred stock dividends.
Companies effective tax rate on adjusted earnings in the quarter was 21.6 per cent.
And within our 2021 guidance range of 20 to 22 per cent.
Now I will provide more detail on group benefits mortality results on page 5.
The group Black mortality ratio was 94.3 per cent in the second quarter of 2021.
Which is above our annual target range of 85 to 90 per cent.
Covid reported claims and 2 cube, 21, where roughly 4.5 percentage points.
Which reduced group benefits adjusted earnings by approximately $75 million after tax.
Additionally, the quarter included a higher level of life claims above $2.5 million and an additional level of excess mortality that appears to be COVID-19 related.
These collectively impacted the ratio by an additional 2.7 percentage points or $40 million after tax.
There were approximately 50000, COVID-19 related deaths in the U S. In the second quarter of 21.
While still elevated total deaths have moderated versus the prior year and sequential quarters.
Looking ahead, we expect COVID-19 related deaths and group benefits to continue to trend lower.
Now, let's turn to page 6.
This chart reflects our pretax variable investment income over the last 5 quarters, including approximately $1.2 billion in the second quarter of 2021.
This very strong result was mostly attributable to the private equity portfolio, which had a 9.7 per cent return in the quarter.
As we have previously discussed prior.
Private equity's are generally accounted for on a 1 quarterback.
Our second quarter results are essentially in line with P E industry benchmarks.
While all private equity asset classes performed well in the quarter.
Our venture capital funds, which account for roughly 22% of our P. E account balance of $11.3 billion with the strongest performer across subsectors with a roughly 19 per cent quarterly return.
On page 7 second quarter VII of $950 million post tax as shown by segment.
The attribution of VII by business is based on the quarterly returned for each segments individual portfolio.
As we have previously noted R. S. Metlife holdings in Asia generally account for approximately 90 per cent or more of the total VII and are split roughly 1 third each.
Although it can vary from quarter to quarter.
<unk> results in Tokyo of 21 were more heavily weighted towards R. A S at Metlife holdings.
As Asia's private equity portfolios less mature and has a smaller proportion of the venture capital funds that I referenced earlier.
Turning to page 8 this chart shows are direct expense ratio over the prior 5 quarters.
And full year 2020.
Including 11.4% in the second quarter of 21.
As we have highlighted previously.
We believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results.
And 2 Q21 are favorable direct expense ratio benefited from solid top line growth and ongoing expense discipline as well as lower employee related benefits in the quarter.
We expect the direct expense ratio for the remainder of 2021 to be elevated compared to the first half of 2021.
Due to timing of investments and seasonality, but.
But as Michel noted, we expect full year of 21, and 22 direct expense ratio to beat or 12.3 per cent guidance.
Now I will discuss our cash in capital position on page 9.
Cash in liquid assets at the holding companies, where approximately $6.5 billion at June 30th.
Which is up from $3.8 billion at March 31st and well above or target cash bar for a $3 billion to $4 billion.
The sequential increase in cash at the holding companies was primarily due to the proceeds received from our P&C sale to farmers insurance a $3.9 billion in.
In addition, Holdco cash includes the net effects of subsidiary dividends payment of our common stock dividend, a 5 and a million dollar redemption of preferred stock share repurchases of $1.1 billion.
As well as holding company expenses and other cash flows next.
Next I would like to provide you with an update on our capital position.
For our U S companies preliminary second quarter year to date 2021 statutory operating earnings where approximately $2.8 billion. While net income was approximately $1.6 billion.
Statutory operating earnings increased by approximately $1.2 billion year over year.
Driven by lower variable annuity rider reserves and an increase in investment margin.
Year to date 2021, net income decreased by $286 million as compared to the first half of 2020.
The primary drivers were a derivative losses.
Mostly offset by increases in operating earnings and net investment gains and the current 6 month period.
Compared to large derivative gains in the prior year 6 month period.
We estimate that our total U S statutory adjusted capital was approximately $18.5 billion as of June 30.2021.
Up 9% compared to December 31, 2020, when excluding are PNC business. So the farmers.
Favorable operating earnings and net investment gains or partially offset by derivative losses and dividends paid to the holding company.
Finally, the Japan solvency margin ratio was 873 per cent as of March 31st.
Just the latest public data.
The sequential decline in the Japan FMR from 967 per cent at December 31st reflects seasonal dividends and the rise in U S interest rates in the quarter ending March 31.
In summary, Metlife delivered another strong quarter, driven by exceptional private equity returns.
Good business fundamentals ongoing expense discipline, and the benefits of our diverse set of market leading businesses and capabilities.
While higher mortality due to COVID-19 has masked the earnings power of group benefits in Latin America.
The strength of these franchises remain healthy and intact.
In addition, our capital liquidity and investment portfolio are strong resilient and position us for success.
And with that I will turn the call back to the operator for your questions.
Ladies and gentlemen, if you would like to ask a question. Please press..1 then zero on your telephone keypad, you will hear acknowledgement that your line has been placed in queue. Once again to queue up for a question. Please press 1 then zero.
And our first question comes from Eric Bash with Autonomous Research. Please go ahead.
Hi, Thank you I was hoping you could provide some more details on your expense ratio I'll walk in the drivers of the improved guidance there and how are you thinking about expenses in the second half of 2021 and the longer term target level for the expense ratio.
Good morning, Eric So just start out by saying we are you know we're very pleased with the result in the execution by everyone in the firm and.
That gives Michel said in his opening remarks, you know this is really become part of our culture and it's a cultural shift that we've made.
Our our efficiency mindset.
It is built into our strategy is built into our everyday activities and I think the the results are kind of speak for themselves.
As I mentioned.
And the you know in this quarter, there's there's a few timing related items. So we do see an uptick in expenses in the second half of the year relative to the to the first half.
We did have some some benefit from some employee related costs, particularly as they relate to the impact of how markets move and so that came there was a benefit this quarter.
And then there's there's seasonality with regards to preferred stock dividends. So the second and the fourth quarter typically are low.
Are low quarters for those for those dividends [noise].
As we look to the second half of this year Directionally speaking, we would see just typically do see seasonally higher expenses in the second half some of its related you know obviously to our group business in the enrollment activities. We go through and oftentimes too. There's there's been some delays just as a result of.
A number of activities going on in some of the investment. So we do see kind of an uptick having said that 1 of the things that we both pointed out is our expectation which is different than where we were on our outlook call. In February is to is to now be under our $12.3 per cent guidance. Despite the removal of of our property and casualty business, which had a lower lower.
Hence ratio so all in all.
I think our efficiency mindset.
Just built into the culture. It's all it's all working and you know expect that to continue you know as we look forward I think I would probably stop there on your last question and probably leave that for for another day.
Got it I appreciate that and then secondly can you expand a bit on the group life mortality result.
Given vaccination friends are you seeing more of the cold that impact shifting to group because I didn't get you mentioned the benefits ratio, even taking out the 75 million was still at the high end of the target range. So you think these other access claims relate directly to the pandemic, which is <unk> work recorded as Covid deaths are you seeing any increase in non COVID-19 mortality.
<unk>.
Hey, good morning, Eric It's it's rummy here. So let me just start by giving you.
For a bit more color on on the results are no Oh, essentially just give you a bit of a walk from the headline number of 994.3 in terms of the major drivers of that [noise].
So the first is COVID-19 related COVID-19 deaths in the quarter. That's the 50000 dollar population 50000 population desk number.
Impacting our portfolio and that's worth about for an off points as John pointed out.
There's another piece in the quarter, which is that from time to time, we do experience higher volume of claims with larger fee for months, which does impact our mortality ratio. This is non COVID-19 related and that was about worth about a point I'll tell her loss ratio on this quarter.
And then the third piece of this is when we look at our claims data. We did see an increase in certain death codes are which are highly correlated to COVID-19. So while the cause of death for those claims is not explicitly stated as COVID-19.
That excess mortality does appear to be COVID-19 related and that was worth another 1.7% on a ratio.
So if I think about the courts or I'm looking forward to the appropriate to headlines I'd leave you with 1 is that if you strip all those 3 factors or loss ratio is very close to the midpoint of a range.
And the second headline is that we have seen significant declines in death, Inc. In Q2 versus Q1.
We've also seen a sequential declines in that's a month on month Ah continuing.
Into July.
So despite the current uncertainty with the Delta variant. We're also encouraged for the increase from the piece of vaccination.
We're encouraged by the actions undertaken by many large employers which are impacting the vaccination rates for that insured population.
So sitting here in in August on a go forward basis, we do think of the impact of the pandemic.
Will gradually subside and you should expect from a run rate prospective or loss ratio to return back to prepandemic levels.
Great. Thank you I appreciate the color.
And our next question is from Tom Gallagher with Evercore I S. I. Please go ahead.
[noise]. Thanks, 8 John just a question on the comment you made on base spreads and RIS.
Which came back nicely this quarter you highlighted the mortgage prepays.
How should we think about that from a timing standpoint, because tell me if I'm thinking about this right.
It definitely creates.
Near term gains and I presume with rates remaining low that's going to remain strong so probably the base spread in that business will remain strong assuming mortgage prepaid for main high but then there are sorted the backend question, which is as as we kind of go as as levels often diminishes.
Then there's the reinvestment pressure that kind of emerges.
So would you ultimately expect us to be a negative for based spreads NFL when when would we likely see that.
Hi, Good morning, Tom [noise] so.
You know as you said you know we have had a uptick you there and the spreads ex ex VII and as I mentioned in my remarks, a plus 13 year over year, and then you see a plus 10 sequentially.
So it's a it's a number of factors right, we got lower LIBOR year over year, you have a partial recovery in real estate equity returns you know.
We saw we've had very good strong new business spreads.
Particularly or I should say in RIS, there and then as you said the last thing is we've seen elevated levels of the residential mortgage pay down activity I would I would use the word pay down just to not confuse that with prepayment fees that we and categorize in VII and so what that really is is that that acceleration.
Of the recognition of income on those securities that were purchased at a discount previously.
So we do think this will.
Stay elevated if you you know I think it's a combination of low rates Cup.
Coupled with the home price appreciation that we've seen in.
And a lot of markets. So that has spurred others and I think also if you think of it in combination with.
More remote work opportunities, there's been probably some movement in terms of the residential housing market. So so we do see that continuing particularly although they've probably peaked.
The the time between when action occurs and when it hits, our securities or mortgage loans.
Is usually 2 to 5 month lag. So we think the second half of the year will still see.
An elevated level, maybe not to this level that we saw it in the second quarter <unk>.
Expected to probably be somewhat less than that.
But.
So that's kind of our expectation as you as you look forward look you know this is all just part of our broader portfolio and I wouldn't say this in and of itself is going to change the trajectory I think what it's done is it's changed the trajectory upwards.
We don't consider that to be a long term trend probably remains a trend for the remainder of this year, but it probably goes back to more.
More baseline.
Run right in the 22.
That that makes sense. Thanks, and then just a follow up non Japan Asia sales declined to watch sequentially any any color on on what region strove to that and and what happened there.
Yeah, Tom so.
Lee we have to think about sequential in the context of overall.
Sales environment in which we're in Ah.
So if I take a step back if you don't mind me.
I think about that in the overall Asia context.
Overall Asia, we did well this quarter.
42 per cent up here, we get our 71 in Japan 11 in Asia ex Japan still positive in Asia ex Japan as well.
And this is despite you know.
Covid sports many of our market.
And if you take the first half all in total we have a 25 per cent.
Collectively for the first half.
And so there are a number of reasons, which would certainly drove that strong performance.
On a sequential basis.
You know and if you look at Japan, and I'll come to other Asia quickly and if you look at the.
Sequential sequentially both on on the lifestyle and is what does the end. It sales we were up right and that speaks to the resilience so far face to face channels.
In a bucket and Japan in particular and the pressure on a sequential basis came in from the annuities because the banker channel.
Certainly day of of March and and so therefore, they're much stronger on the bank aside and that's what the annuity shows the drop sequentially.
On other Asia.
If you think about it this is al Covid, playing out mythical Lee in South Asia, South East Asia.
There's a fair amount of pressure all of these markets and we're very much a face to face Ah Ah sales business and and that certainly is waiting yet despite by the way all our efforts in terms of Ah strong execution or success, if our new product.
And certainly are digitization efforts, they are paying off as well.
Now.
As I said, it's COVID-19 uncertainty continuing on and a vast majority if our market.
Like the U S say for example in terms of vaccination rate.
And and right now because of the resurgence of Covid and some of our market.
Social distancing measures are being reintroduced right. So while we did well year over year in other Asia.
Sequentially, we've been impacted and both in Japan and other Asia.
We expect to see a Q3 sales to be sequentially flat stick you too as well but.
You know considering everything at this point.
If you think if you think about our guidance for the full year, we expect to be on track to meet the double digit guidance that we provided in February.
I hope that helps.
That does thank you.
And next we go to the line of Jimmy Bueller with J P. Morgan. Please go ahead.
Hi, Good morning at first I just had a question on Metlife Holdings. If you look at earning from the business they've been pretty high the last couple of quarters.
And I think this quarter you had alternative investment income that helped and also door life mortality, but I'm wondering to what extent.
Longterm care was appeal than than just what you're seeing in terms of.
James submission.
The L. T C business has that gotten back to normal as the as the.
Worse is what it was last year.
Good morning, Jimmy It's John Yes, So I'll just break it up in the in the life side as you saw in our interest adjusted benefit ratio, we had a strong result.
Really for for this block of business minimal actually de Minimis Covid impact this quarter.
So I would actually I would say decline faster the impact declined faster than we had probably expected.
But I think a number of factors that you can probably come to probably makes makes that makes sense you know whether it's the average age and.
And the percent of vaccinations at the older age things like that.
On the LTC side metrics.
Metrics. There there was it was really there was no material positive from LTC. It was in line with expectations.
What we're seeing is that in order to in line with I'll say prepandemic expectations and so what we're seeing is metrics and results.
Really trending back towards those pre COVID-19 COVID-19 levels.
New claims are you know I'd say marginally below trend, but all indications are showing that we'd be back to trend.
Very soon the only the only metric that's lagging, but again I will say trending back to pre pandemic is the is the relationship of homecare verse nursing.
Nursing home.
Claims so it's still probably a little elevated in the homecare side, but that's it's trending down it's training back to the Prepandemic ratio stuff.
Okay.
And then on group life, how are Ya think it doesn't seem like anybody sort of assumed that COVID-19 and their pricing does yoga and obviously not all of the business prices re prices each year, but how are you thinking about.
Sort of renewals in the group life side, if we still if dependent makes still ongoing do you think you'll.
Try to get higher prices and part of the book or would you just have to what the market not beer that given that most companies are not really making many adjustments and should be so margins old remained week until the coke dependent makes done.
Hey, Jimmy.
Looking for when we when we price for business, new business and or renew old renewals we.
We pick a whole number of factors into account many of them are case specific factors, but clearly the outlook, both near term and medium term for mortality as a as a component of that so as the pandemic them folded we certainly did take into account.
Have you with respect to near term, 1 mortality and our pricing and again. It does vary by case I mean depends on the length of the guaranteed period than the size of the case and a number of other factors, but certainly that has been taken into account as we look to renew business or price for new business.
The other point I would just point you to here is you think about our business in particular and an hour Q2 words, the larger end of the market.
Is we have a very consistent track record over many many years of taking appropriate renewal actions.
While maintaining very hard for assistance you on that book too from the mid to high nineties. So that's another factor.
I would point you too as well.
Okay. Thanks.
[laughter].
And our next question is from Ryan Kruger with K B W. Please go ahead.
Hi, Good morning cause you Brian provide some additional detail on non medical health trend you saw in the quarter, I guess, particularly dental utilization in severity and how you would expect that the trend towards throughout the rest of the year.
Hey, Ryan it's it's from you here again, I I think the the overhead line when I would leave you with for both dental and disability is that we are seeing Ah results normalized back to prepandemic levels and so specific.
Lee to your question on dental if you look at the entirety of the first half. The overall result, certainly reflects that returned to prepandemic utilization levels, albeit there was some if you will or Q1 versus Q2 dynamics with respect to the utilization of sorts and surf.
<unk> the others spoke about and we've seen that to be pretty consistent with with our book, but in aggregate. The first half is trending towards a prepandemic utilization level and we're certainly seeing that normalization continue into July as as we look at it so.
<unk> in aggregate if you wanted to kind of take a really big step back and look at our non medical health ratio, we expect out for the full year to be closer to the mid point of our guidance from that's inclusive clearly of of the Vegas products that we have in there.
Thanks, and then for Latam Covid impact can you give us a sense of how those trended throughout.
Throughout the quarter and did they continue to decline did they decline kind of throughout the quarter and enter into July.
If I Ryan this is Eric for with regards to Covid. We we we noticed a significant sequential improvement this border with.
With month, 2 months positive trend, but as you know the the delta variant and the slope a piece of vaccination, obviously creates some uncertainty moving forward. Nevertheless, overall, we expect the second half of the year to be better than the first half.
That was John reference to this quarter is also I liked it again, the strength of our business fundamentals and a franchise across the region.
You expect overall revenues to continue to grow supported by a strong persistency and and recovery in sales.
You know we've had a good momentum in in sales we created since the beginning of this year, we reported 222 million for the quarter.
Back in line with the levels of Prepandemic can this really demonstrates.
The strength diversity and resiliency of our distribution channel and product mix, our persistency as I mentioned earlier has been also very resilient and above expectations and that's true across the region. So in summary from an outlook perspective, but for the for the year you know remains unchanged and we expect.
2022 earnings to return to to the normal run right levels once the the pandemic receipts.
Thank you.
And our next question is from Mike Ward with UBS. Please go ahead.
[noise]. Thanks, good morning [noise].
So I think the the bio accident, a quarter and the new authorization are pretty well received I'm. Just curious should we go forward with the assumption.
Absent any other opportunities for deployment should we expect you to continue at this billion or a billion plus buyback rate quarterly.
Yeah, Hi, Mike. Thank you for the question. So let me start by saying that we continue to be comfortable with the 3 to 4 billion buffer and over time, we expect to return to these levels.
We're very deliberate and discipline and how we deploy capital 1 of our highest priorities are and how we use capital is to fund responsible growth.
And we continue to deploy capital in support of organic growth growth unattractive Irr's payback periods.
We're also a portion opportunistic when it comes to ER I'm in a.
I'm in any transaction must be supported strategically we look forward to add up to the top line clear a number of important financial metrics, including accretion.
So, but we for not able to deploy excess capital to fund business growth. Then we have a commitment to return it to shareholders and I think that's all recent buyback activities would give you a sense of our pacing and the fact that our our board has just issue.
A new authorization should also provide you a sense of its sustainability.
So I hope this helps.
It does thanks, and then I was I was just wondering if you might be able to comment on the bid ask spread in terms of any further derisking, perhaps in areas like holdings R. R. I S and I don't want to downplay the efforts and success you've had so far but it just seems like M&A in this industry continues to pick up specifically and some capital intensive.
Areas and it feels like that's gonna continue just trying to gauge her willingness or ability to further derisked anywhere and giving your excess capital position as it sort of within the realm of possibility that could utilize any of that within or anything.
For further day Rusty.
Yes, good morning, Mike It's John so.
Look I think the trend that you're referencing we you know our our belief is the trend is going to continue its not going anywhere I don't think that changes what.
Addressing and focusing on Metlife holding it's.
As you said is performed very well our focuses on optimization weather and it's [noise].
It's a diversified block with the number of natural offsets in.
The team has done a great job.
Managing it but at the same time as I said you know the teams mandate is to kind of take a third part of view, an external view and make sure that we're continuing to look at different ways to.
To be prepared for the opportunity in what I'd say is a new.
A new market within the industry, which is you know.
Block acquisition or transfer of risk transfer so.
[noise] nothing's changed on our end in terms of bid ask.
I don't know if I've seen any.
You know I'll say clear signs that it's changed at this point, but you know this this is a dynamic you know I'd say area right now in our focus is be ready if it does change so.
Thank you.
And our next question is from Tracy banquet Lee with Barclays. Please go ahead.
Thank you and good morning, some of my questions already asked for all I only have 1 line.
Looking at your group benefit you operate in a larger segment I'm wondering if you could contextualize the lifecycle of sale.
Would it take longer.
As we anticipate a rebound when the economy reopened.
Yeah, I think the the few things I would point you to be obscene from Ah Ah lifecycle prospective we've seen less of an impact on the large employers.
During the pandemic you know you see we're on track for a record year in terms of sales in 2021, and a lot of that activity happened in 2020. If you think about this in terms of 1 of these cases came to market in our dialogue with the employers so from that perspective.
We have not seen a real disruption and and we're very very pleased with our sales results for the year is John Michel reference we're on track for a record year in group sales and and or National accounts segment is a is an important driver of that and so is our.
Gentlemen in voluntary we're we're less reliant on face to face distribution given the digital capabilities that we haven't that has continue to drive our our sales are momentum there.
The last thing I would just say is if you just really take a big step back think about the impact the COVID-19 had on the environment. We've seen a significant increase in awareness on the part of employees for the need of put for the needs of protection.
For obvious reasons, but we've also seen employers be really really focused on benefits is a key lever in terms of engaging with their talent. So we're seeing very high receptivity and more strategic dialogue I would say with some of the large employers on how to utilize.
Those benefits to attract routine and motivate talent.
Yeah, I fully recognize I was just thinking about further upside and I've heard you speak at another event, where you were saying basically that for.
Looks working from home care, a little bit more about some of these voluntary offerings that they're thinking about their family so fully recognized.
Where are you where in the Pan got neck, and just thinking about that that's a possibility of future sales in line that would flow through.
You know I mean, those were the the fundamental trends as the employers kind of perspective on the benefit of you've just described them, they're more keen to engage with their employees. The employees awareness of the need for protection. So those 2 trends I think have clearly kind of emerged independent.
And and and and they're Gonna drive a momentum going forward with respect to the sales numbers I would also just remind you that the sales in the jumbo market can be lumpy from year to year. So you saw a dip in 2020, so spike in 21. So some of those can be lumpy over a year from a from a jumbo.
Perspective, but the secular trends unemployed an employee I think we're seeing we're seeing providing overall tailwinds for our our business here.
Excellent Inc. Yeah.
And our next question is from SUNY each come off with city. Please go ahead.
Thanks. Good morning, just in terms of Ah me can you give us a sense are there other countries that may not be kind of at scale kind of like I think for recent Colin and can you give us some color in terms of like the M&A environment.
In EMEA as it relates to interest from third parties and interest consolidating the European insurance market.
Yeah, Hi, Hi, Sunny that's Michelle [noise] so.
First of all I would say, we're we're happy with our.
Business.
I sort of referenced before it's predominantly a protection business with high free cash flow generation.
So you know it.
Plays a role in terms of Ah and how it contributes to to the enterprise.
Since the article acquisition, we've reduced our footprint.
Think about Poland in Greece.
You know those were 2 business says that sat outside of our European Super carrier you know as you know we have an efficient Ah.
Operating model, an enemy, especially in Europe, where we you know all of our businesses our branches of our Irish entity, Poland in Greece, where both subsidiaries that sat outside of that so in a way you know this transaction helps us simplify you know all the region in the business operation day.
But you know.
I think you know in terms of the the market environment.
I mean, you know we continue to see sort of you know, we we were not the the first.
[noise] company to you know to to divest from from Poland. There was you know if if I was it was you know had a transaction prior to that so there's continues to be interest by you know mainly European players in terms of Ah Ah you know opportunities in in those markets.
That that's that's what I would sort of 0.2 there.
Okay got it and then just the last 1 for John on on free cash flow. It seems based on the commentary and the buyback press released it may be free cash flow and 2020th was below you're 65 for 75 per cent target.
They just wanted to see if that there was a fair characterization and then yeah why.
Why are we still.
Thinking about 65 for 75 per cent is kind of the the range that you guys are like it being kind of going forward.
Yeah, I mean, the quick answer is no. It was I don't think that wasn't our intention if that was the take away, but yeah. It was definitely within the 65 to 75, if not higher and yeah. I think they go for it is the range is intact.
Okay. Thanks.
And ladies and gentlemen, thank you very much we will now turn the conference back over to Chairman Michel her loft for final comments. Please go ahead.
Thank you operator.
As many of you prepared to spend time with family and loved ones. This summer I want to wish everyone well I also want to express my thanks to all employees will have done so much to help Metlife live our purpose to.
For our customers would trust us to safeguard their financial futures and to our shareholders will provide us with the capital to keep this great company forging ahead. Thank you again and have a great day.
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