Q1 2022 MetLife Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Metlife first quarter earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a.
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 the 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.
Yes.
Thank you.
<unk> good morning, everyone.
We appreciate you joining us for Metlife first quarter 2022 earnings call.
Before we begin I'd point, you to the information on non-GAAP measures on the Investor Relations portion of Metlife 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 discussion are other members of senior management.
Last night, we released a set of supplemental slides, which address the quarter.
They are available on our website.
John Mccallion will speak to those supplemental slides in his prepared remarks, if you wish to follow along.
An appendix to these slides features disclosures GAAP reconciliations and other information, which you should also review.
After prepared remarks, we will have a Q&A session and.
In light of the busy morning, Q&A will last no later than the top of the hour in fairness to all please limit yourself to one question and one follow up.
With that over to Michele.
Thank you John and good morning, everyone.
My life delivered strong financial results in the first quarter of 2022.
With the rise in geopolitical uncertainty in a pandemic that hasn't fully loosened that script. These results demonstrate the strength and resiliency of our underlying businesses.
Like life's purpose of always would you building a more confident future is ringing true with our customers now more than ever.
Starting with our financial results.
We reported first quarter 2022, adjusted earnings of $1 $7 billion or $2.08 per share, which was well above consensus expectations.
The primary driver was strong variable investment income, partly offset by continued elevated COVID-19 claims mostly in the U S.
Trends in our business point to continued momentum despite the many global dislocations.
Net income for the quarter was $606 million up from $290 million, a year ago and below adjusted earnings in the quarter.
Losses on derivatives helped to protect our balance sheet from interest rate movements and impairments on bonds account for most of the difference between net income and adjusted earnings.
Interest rates rose rapidly during the quarter with the yield on the 10 year treasury advancing 83 basis points triggering market value adjustments to our derivative hedges.
The tragic events in Ukraine led to an impairment of Russian and Ukrainian bonds in the quarter.
Let's shift to our continued strong performance in variable investment income, which totaled $1 $2 billion pre tax in the quarter.
Private equity was again the engine producing an approximately 7% quarterly return with higher P. T. Barnum says ultra factor or.
Our private equity returns are reported on a one quarter lag and the weaker first quarter equity market may impact our VII results in the second quarter.
For Metlife private equity has long been unimportant source of value creation generating strong returns and supporting our long dated liabilities it.
It is an asset class we manage prudently.
Last quarter, we indicated that we would divest roughly $1 billion of general account assets.
Just after the first quarter close we launched a P fund of funds to be managed by Metlife investment management, and a transaction that creatively and thoughtfully addressed investment allocation, while establishing a new fee generating business venture.
Turning to some first quarter business segment highlights.
I'll start with argue us group benefits results.
Adjusted earnings of $112 million were up 20% year over year.
We saw strong growth within our current customer base, reflecting a combination of higher enrollment higher employment levels and higher salaries.
The COVID-19 life claims remained elevated the group life mortality ratio fell sequentially to 150 basis points to one or three 8%.
Our flagship U S group benefits franchise has generated a profit for shareholders in every quarter since the pandemic began a testament to the breadth strength and resilience of this business.
With our scale and leadership the biggest threat in this business, it's becoming complacent something we will simply not allowed to happen we've taken concrete actions to grow and established products like group life dental and disability.
Voluntary products like legal and newer products like vision and pet.
The results are showing up and solid recurring P. F o's, which have grown by more than $3 billion over the last three years looking past Barclays.
In retirement and income solutions or RIS adjusted earnings were down 16%, primarily due to a tough comparison as the strong contribution from VII in the current quarter fell below the extraordinary contribution of a year ago.
Beyond V I, a number of key metrics in this business were strong including volume growth and spreads continuing the momentum from the fourth quarter, we booked a $1 3 billion pension risk transfer deal in the first quarter with.
With funding levels strong and interest rates on the rise we see a robust P. R T pipeline going forward.
For Asia.
Adjusted earnings Similarly benefited from strong VII, partly offset by a negative impact from foreign exchange.
At the same time, there's this momentum with solid general account are you was up 7% on a constant currency basis from a year ago.
Sales in Asia grew 2% on a constant currency basis year over year, driven by a good fiscal year and in Japan.
In Latin America, adjusted earnings were up by more than $100 million from the prior period as COVID-19 claims moderated in Mexico.
The exceptional sales success supposed to then 2021 has carried into 2022 with sales on a constant currency basis jumping, 40% in the first quarter.
The pandemic has ushered in a renewed focus on the importance of insurance across Latin America. This has fueled a flight to quality, which in turn has helped drive our sales and boost our persistency.
Shifting to capital on cash, we returned more than $1 $3 billion to shareholders through common dividends and share repurchase in the first quarter.
Based on the strength of our balance sheet and free cash flow generation, we announced a four 2% increase in our common dividend per share.
Which has grown at a compound annual rate of 9.5% since 2011.
With $475 million left on our current repurchase authorization. Our board of directors has authorized an incremental $3 billion authorization, which brings our total buyback capacity to roughly $3 $5 billion.
At the end of the quarter, we had $4 $2 billion of cash and liquid assets at our holding companies.
Slide the seasonally low quarter for subsidiary dividends, we remain comfortably above our target cash buffer of $3 billion to $4 billion.
The proceeds from the sale of our Poland business, which closed in April will contribute to our cash balances in the second quarter.
Turning to governance Metlife has a highly experienced and diverse board of directors and we were pleased to announce the addition of Cala Harris at the end of April .
Carla is a well recognized leader across the financial services industry. She brings deep expertise and fresh perspectives and her experience and knowledge will serve Metlife wild.
Talent is also a competitive advantage that sets us apart from our peers as a global company like life can draw down on from around the world and match it to our greatest opportunities. Our recent leadership changes demonstrate this deep strength.
I want to start by thanking Kishore upon a hulu for his distinguished service to make life over the past 11 years.
During his time with Metlife.
<unk> served as Chief Enterprise strategy Officer, as head of Metlife Auto and home and finally as regional President Asia, where his leadership delivered outstanding results.
When Kishore steps away from his position at the end of June we will rotate several executives into new roles.
And then Oliver would move from Treasurer and head of strategy, two regional President Asia, John whole with our treasurer to his current responsibilities and Dimitri to Robinson will move from head of strategy product and marketing for Metlife, Japan to head off strategy for my life.
These moves demonstrate our commitment to talent development and highlights our deep bench of leaders, who are ready to step up and deliver value to our customers and shareholders.
We are broadening and deepening our leadership commitment to and accountability for diversity equity and inclusion.
At the end of the quarter Metlife announced a broad set of D. I commitments designed to address the needs of the underserved and under represented by 2030.
These commitments encompass it makes off investments partnerships and solutions and other efforts and are firmly aligned with my life's purpose.
And studying these commitments, we are establishing clear roadmaps and strengthening accountability for progress.
Before I close I would like to say a few words about Metlife returned to office in the U S, which started on March 28th.
Our new model future work combines the best of office and virtual environments and is an essential element in attracting and retaining top talent.
Our future work model has been well received in the U S and we are seeing tremendous collaboration and partnership across the organization.
We are also well underway to adopting our future work model outside the U S. As conditions allow from my own perspective. It is great to walk the floors again host in person meetings and feed off the energy and the building over the past few weeks I have visited several of our offices across the U S and the team's enthusiasm and enter.
Angie levels has been outstanding I look forward towards such visits as the world increasingly opens and I also welcome the opportunity to sit down face to face with many of you in the months ahead.
Past two years has been an unprecedented period, but with all the challenges that life has remained laser focused on consistent execution and we look forward to building on our momentum.
With that I will turn things over to John .
Thank you Michelle and good morning, I'll start with the <unk> 22, supplemental slides, which provide highlights of our financial performance and an update on our cash and capital positions.
Starting on page three we provide a comparison of net income to adjusted earnings in the first quarter.
Net income was $606 million or $1 $1 billion lower than adjusted earnings.
Majority of this variance was due to net derivative losses as a result of the significant rise in long term interest rates in the quarter.
In addition, we had net investment losses, primarily due to impairments on our Russian and Ukrainian bonds as.
As well as normal trading activity in the portfolio that resulted in losses, given the rising interest rate environment.
Following the impairment and sale of Russian bonds in April our current combined exposure in Russia, and Ukraine is roughly $125 million.
On page four you can see the first quarter year over year comparison of adjusted earnings by segment.
It should not have any notable items in either period.
Adjusted earnings were $1 $7 billion down, 12% and down 10% on a constant currency basis.
Lower variable investment income accounted for the majority of the year over year decline.
While private equity returns were again strong they compared to an even stronger in Q1 of 'twenty one.
Adjusted earnings per share was $2.08 down 5% year over year on a reported basis and down 4% on a constant currency basis.
Moving to the businesses starting with the U S group benefits adjusted earnings were up 20% year over year due to a higher volume growth and an improvement in underwriting margins.
I'll discuss group life underwriting in more detail shortly.
Regarding non medical health the interest adjusted benefit ratio was 72, 5% in Q1 of 'twenty two.
At the midpoint of a Daniel target range of 70% to 75%.
That said the ratio was higher than the prior year quarter of 71, 1% due to higher incidences and disability relative to favorable incidence levels in the prior year quarter.
Turning to top line group benefits adjusted <unk> were up 7% year over year.
This growth included two percentage points related to higher premiums from participating contracts, which can fluctuate with claim experience.
The balance of the P. F O growth of 5% was due to solid growth across most products, including continued strong momentum in voluntary.
Group benefits sales were down 31% compared to record sales in Q1 of 'twenty one.
Which were driven by exceptionally strong jumbo cases, while jumbo case activity was significantly lower in <unk> 'twenty. Two we continue to see good growth in the business and.
And our persistency remains strong.
Retirement income solutions or RIS adjusted earnings were down 16% year over year.
The primary driver was less favorable private equity returns versus a very strong Q1 of 'twenty one.
Favorable volume growth was a partial offset.
RIS investment spreads were 181 basis points driven by another strong quarter of variable investment income spreads. Excluding VII were 89 basis points up one basis point versus <unk>, 'twenty, one, but down two basis points sequentially due to higher LIBOR rates.
Our S liability exposures were essentially flat year over year.
As growth across most products, primarily U K longevity reinsurance and pension risk transfers were offset by lower separate account balances.
With regards to pension risk transfers, we completed one transaction worth $1.3 billion in the first quarter and continue to see an active market.
Moving to Asia, the adjusted earnings were down, 7% and 4% on a constant currency basis, primarily due to lower recurring interest margins and a decline in first quarter equity markets in Japan and Korea.
This was partially offset by solid volume growth as assets under management on an amortized cost basis grew 7% on a constant currency basis.
In addition sales were up 2% year over year on a constant currency basis, driven by strong sales in Japan.
Latin America, adjusted earnings were $142 million versus $40 million in the prior year quarter, while COVID-19 related claims remained elevated in <unk> 'twenty two.
At roughly $30 million after tax.
They were down significantly versus the prior year quarter.
In addition volume growth was a positive contributor while lower equity markets were a partial offset.
The Chilean and Kai a negative 4% return in <unk> 22 versus the prior year quarter.
Which was a modest positive.
While Latam Bottomline has been trending towards pre pandemic levels. Its topline continues to demonstrate strength has adjusted P. F. O is were up 22% year over year on a constant currency basis and sales were up 40% on a constant currency basis, driven by solid growth across the region.
EMEA adjusted earnings were down, 27% and 15% on a constant currency basis, primarily driven by the exclusion of divested businesses Poland in Greece.
Which were included in first quarter of 'twenty, one adjusted earnings and.
In addition, higher expenses were partially offset by favorable underwriting margins.
And volume growth.
While the region reported excess Covid claims in Q1, they were lower than the prior year quarter.
Metlife Holdings adjusted earnings were down 39% this.
This decline was primarily driven by lower variable investment income and less favorable underwriting.
Corporate and other adjusted loss was $117 million.
Versus an adjusted loss of $171 million in the prior year quarter.
Higher variable investment income was the result of a $1 1 billion dollar transfer a P E assets to corporate and other from our I S and Metlife holdings in Q1 of 'twenty two to better align asset liability management for these two segments.
Expenses were a partial offset.
The company's effective tax rate on adjusted earnings in the quarter was 21, 3% and within our 2022 guidance range of 21% to 23%.
Now I will provide more detail on group benefits mortality results on page five.
This chart reflects our group life mortality ratio for the last five quarters.
Including the COVID-19 impact on the ratio and on group benefits adjusted earnings.
The group life mortality ratio was 103, 8% in the first quarter of 'twenty two.
Well above our annual target range of 85% to 90%.
Covid reported claims were roughly 14 percentage points, which reduced group benefits adjusted earnings by approximately $230 million.
While U S. Covid deaths were higher sequentially. There was a favorable shift in the percentage of deaths under age 65 declining from approximately 33% in the fourth quarter.
To roughly 23% in the first quarter.
As a result of these two competing factors we saw a modest improvement in mortality results this quarter.
In addition, we experienced 1% to two percentage points from non COVID-19 excess mortality.
This included a larger number of high dollar claims, which can fluctuate from period to period.
On page six this chart reflects our pretax variable investment income for the past five quarters, including $1 $2 billion in the first quarter of 'twenty two.
This strong result was mostly attributable to the private equity portfolio of roughly $14 billion, which had an overall return of 7% in the quarter.
Unlike previous quarters, where we have seen a dispersion in returns by fun type.
This quarter, our major P E returns.
We're tightly coupled around 7% overall.
As we have previously discussed private equities generally accounted for on a one quarter lag. In addition, real estate equity funds were also a strong contributor to VII with a 10% return in the quarter.
Well hedge funds, which are reported on a one month lag had a loss.
On page seven we provide V I a post tax by segment for the prior five quarters, including $936 million in Q1 of 'twenty two.
You'll note that our general rule of thumb that are S. Metlife holdings in Asia.
Count for 90% or more of the total V. A I did not hold in <unk> 'twenty two.
Coming in at 83%.
This lower percentage was primarily due to the transfer of P. S as to corporate and other from our S and Metlife holdings that I discussed earlier in.
In addition, Asia is higher V. I a year over year was primarily due to strong real estate equity fund performance as well as higher P/e asset balances.
Turning to page eight this chart shows a comparison of our direct expense ratio over the prior five quarters.
Including 11, 7% in Q1 of 'twenty two.
As we have highlighted previously we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results.
Our first quarter direct expense ratio benefited from solid topline growth and ongoing expense discipline.
This included approximately 40 basis points from premiums that relate to participate in cases in group benefits due to excess mortality.
We remain committed to achieving a full year direct expense ratio below 12, 3% in 2022.
Demonstrating our consistent execution and focus on an efficiency mindset.
I will now discuss our cash and capital position on page nine cash and liquid assets at the holding companies were approximately $4 $2 billion at March 31st which was down from $5 $4 billion at December 31st but remains above our target cash buffer of $3 billion to $4 billion.
The sequential decline in cash at the holding companies reflects the net effects of subsidiary dividends payment of our common stock dividend share repurchases of $915 million in the first quarter as well as holding company expenses and other cash flows.
Our first quarter tends to be lower in subsidiary dividends and higher and holding company expenses. Therefore, we would expect holdco cash balances to increase in the second quarter due to higher subsidiary dividends as well as proceeds from the sale of our Poland business, which closed in April as Michelle noted.
In regard to our statutory capital for our U S companies, our 2021 combined NTIC RBC ratio was 386%.
Which was above our target ratio of 360%.
For our U S companies preliminary first quarter year to date 2022 statutory operating earnings were approximately $400 million, while net income was approximately 800 million.
Statutory operating earnings decreased by approximately $1 $1 billion year over year, primarily due to less favorable VA rider reserves underwriting results and higher expenses.
We estimate that our total U S. Statutory adjusted capital was approximately $18 $7 billion as of March 31, 2022 down 2% compared to December 31, 2021.
Finally, the Japan solvency margin ratio was 947% as of December 31st which is the latest public data looking ahead, we expect the Japan S. EMR to decline in 2022, as a result of higher U S interest rates, but remain well above its capital target level.
Let me conclude by saying Metlife delivered another strong quarter highlighted by outstanding private equity returns solid topline growth ongoing expense discipline and the benefits of our diverse set of market, leading businesses and capabilities that allow us to navigate successfully through uncertain environments.
In addition, our capital liquidity and investment portfolio remains strong and position us for further success. Finally, we are confident that the actions we are taking to be a simpler and more focused company will continue to create long term sustainable value for our customers and our shareholders and with that I will turn.
The call back to the operator for your questions.
Thank you, ladies and gentlemen, if you would like to ask a question you May press. One then zero on your telephone keypad, you will hear acknowledgment that your line has been placed in Q and you may remove yourself from the queue by pressing the one then zero key again one moment. Please for the first question.
And we go to the line of Ryan Krueger with K B W. Please go ahead.
Hi, Thanks, Good morning could you discuss your outlook for the retirement it spread over the next few quarters in light of a higher.
The higher interest rate environment, but off of a flatter yield curve.
Good morning, Ryan, Yes, So let me just start with the Q1, obviously it was 181 main driver there'd be N V. I, a and then a result ex VII was 89 basis points.
Of spread and just to maybe start with just the sequential decline in the in the spread was a few basis points and that was generally the rising LIBOR, which is something we highlighted as.
In our sensitivities that would put pressure on the spread I think one of the things that you know was performed better than expected as we did see a recovery in some of our real estate property income.
Investments in the quarter in Q1, so that helped offset some of that downward pressure that we expected.
Yeah, I'd say given the upward trend in LIBOR, we've already seen into Q, we'd probably expect you know kind of that mid <unk>.
A single digit decline to occur that we would have thought to have seen in the first quarter.
But to start to see in the second but if.
You know if the forward curves.
<unk> come to fruition.
We'd actually start to see a maybe a shift in the spread moving back up a little bit and I'd say, there's probably two reasons for that so one is.
So you know we give the sensitivities at the outlook and then typically the day after they're not as good as they were the day before and so you know.
In terms of LIBOR, we talked about a rising LIBOR, having a headwind at some point that kind of flips to be a positive and that's probably you.
You know kind of around the 200 basis point level and so we're you know maybe a little above 130 today.
So we'd expect kind of a rising LIBOR to continue to pressure us in the second quarter, but if it continues to rise it would actually begin to.
Provide income and then the second thing as you pointed out just kind of the overall increase in rates that typically comes in the tens to the benefit of the 10 year comes in.
At a slower you know not as quickly and so but that will start to.
Emerge over overtime, so hopefully that helps.
Thanks, very helpful and then the fall.
All up is it I think we all know rising interest rates are generally good for life insurance I just want to make sure that there are any unusual.
Impacts from things like interest rate derivative mark on that basis that would have any kind of negative impact on our dividend capacity going forward.
Yeah, we don't we would not.
Expect any unusual impacts to occur I think I think the broad interest rate sensitivities, we gave as part of our outlook Directionally.
Still hold even though the shape of the curves a little different so numbers may not be exact but I would say the directional nature of that from an earnings perspective, which means that it's you know a little negative.
<unk> in the first year, maybe I might call. It neutral ish now just the way things have kind of panned out and then you start to see kind of the positive momentum emerge in the you know the 23 and 24 again, assuming rates kind of pan out as they are projected to and then in terms of stack capital now.
We are we would not expect any unusual volatility.
Volatility or a result of us as a result of a rising rate environment.
Great. Thanks, a lot.
And our next question is from Jimmy Buhler with J P. Morgan. Please go ahead.
Hi, Good morning, first just had a question on what you're seeing in terms of activity in the pension closeout market. I think you mentioned that the pipeline is healthy, but how do you see I guess interest rates are obviously benefiting but the weak equity market and its impact on funding levels are you seeing a little bit of a slow down or.
The uncertainty, causing plan sponsors to put off any transactions.
Good morning, Jimmy it's it's it's Rami here. So maybe it's just Oh, maybe be helpful. Just to reiterate our philosophy towards the PRT market or coming to your question in terms of the pipeline.
The two aspects of our philosophy, which you know what I'll just reiterate here and highlight one is the this is a business where we continue to exercise pricing discipline and I would say in the aggregate our capital deployment and the business is in line with our enterprise our targets so and it's also.
Also accretive to the in force annuity spreads the second one which you've heard US talk about before is that we are focused on the large and jumbo end of the market, they're pure players there and and the deals tend to play to our competitive strengths in terms of size and rating.
Alan sheet in the the investment capabilities.
In terms of the outlook as you know we have a very strong quarter in 'twenty one the fourth quarter of 'twenty. One we ended with five transaction that were totaled over $3 6 billion.
We did one transaction this quarter I'm for 1.3 billion and we still see a very robust pipeline in front of us as we look towards the rest of the year a in terms of the segments. We play in are the Jumbo segment. Many of these plans have been on a.
Our multi year Derisking a journey so they don't kind of turn on a dime. If you will in terms of making that decision. So a lot of those kind of asset allocations have been pre positioned and therefore that jumbo and it doesn't tend to be as sensitive to equity market volatility, but having said.
Clearly the overall market as it stands today stands at a very high funding levels and that bodes well for the for the overall pipeline as well.
Okay. Thanks, and then on your Latin American sales they were pretty strong across every single major market.
To what extent is that a function of the pandemic receding horses, just anything that you've done on the product or distribution side.
Hi, Jamie this is Erica here.
So yeah, you you notice the sales momentum are really demonstrates really the strength in our all of our distribution channels and the diversity of our product mix, we're seeing the benefits of Oh that our diversification strategy that.
Combined with the increased awareness that Michelle mentioned.
And and that the amount of insurance combined with our with the Swift implementation of digital capabilities.
Before during and now are as we are as we get out of the pandemic allows us to sell and serve our customers better and the marketplace who's really responding to this with a true flight to quality and our emphasis on quality is also evidenced by our by the strong persistency, which.
Our combined with the robust sales has resulted with an over 20% growth year over years on P. F. OS on a constant currency basis now about half of that's out of the sales are coming from the <unk> business.
In Chile, as a as we've seen the Dia and where the market.
Expanding during the first quarter. So you know overall I would say, it's a combination of factors are and the strength of our of our franchising lifetime Ah is Ah is showing up as the pandemic recedes.
Okay.
And our next question is from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks, Good morning, My first question.
You know move up in interest rates here I was just wondering if that has an impact on the potential for you guys anyway.
Action with one of your blocks within holdings.
Oh, Hey, Hey, Elyse, it's Jon good morning.
I think as we've said before rising interest rates are a I think beneficial to the you know the block the risk transfer block transfer market.
Think there's.
So that gives them, but I don't think that's the only thing that people are focused on and I don't think it changes materially I think is a modest positive as we've talked about you know.
The improving interest rates.
Solid equity market. So I think they all kind of support you know the a healthy risk transfer market. So.
But again I don't think that's the the only driver and I think as we've seen over the years. The last few years, there's been plenty of transactions, even at lower rates, So, but again I think its a modest positive.
Okay and then within.
You guys called out the non Covid mortality this quarter.
I was hoping to get a little bit more color there.
I expect this to continue.
Lee.
This year and even potentially get on the other side of the pandemic.
Oh, Hey at least Hum.
I would say what we saw this quarter is very much in line with kind of normal quarterly fluctuations we see.
Just to give you sort of some color in terms of one of the drivers here. If you look at our kind of large claims here defined lets say you take a 2 million dollar mark.
We've got a higher number of those claims, but when I say higher think high single digits [laughter] and we've got quarters when that came in below our expectation. So this is kind of normal quarterly fluctuation.
We clearly look at the numbers, we are the largest writer of group life benefits in the industry and and as of this point, we're not seeing any real evidence outside of Covid of any long term adverse trends here.
Okay. Thanks for the color.
Next we go to the line of Erik bass with Autonomous. Please go ahead.
Hi, Thank you I'm in the group business can you talk about enrollment in persistency trends in the level of benefit you're seeing from rising employment and wage growth.
Hey, Eric could you just repeat the question you were just cutting off a bit.
Sorry, I was just asking in the group business. If you could talk about enrollment and persistency trends and then the level of benefit that you're seeing from rising employment and wage growth.
Sure and in terms of persistency, we continue to see a very very strong persistency on our book, that's up and down market and in and very much kind of in line with our expectations and as I've highlighted before.
We're seeing that persistency, even in a in a environment, where we have been taking price increases are on on in particular on the life book.
Given the uncertainty around Covid. So the persistency has been a really excellent. We're also seeing continued momentum on our voluntary portfolio and and that's kind of continued to drive double digit P. A full growths in our business.
And just to give you a flavor of that we ended the year well above $1 billion of P. F O's and involuntary and we continue to see.
Good growth from that.
In terms of employment, that's a tailwind we're starting to see that in the business clearly a.
Higher employment levels, they'll provide just more eligible and therefore more premiums wage inflation is another tailwind although that does play out gradually over time. So we don't expect that to see kind of having a an immediate uptick and it does depend on the population that's getting those wage increases et cetera.
But but both of these I would just think of us as a general tailwind to the business and we're seeing evidence of that in our book today.
Great. Thank you and then can you discuss your earnings and capital exposures to a weaker yen and what hedges you have in place.
Yeah.
Hi, Eric This is kishore. So if you if you think about the the yen impact you can think about this in two aspects.
One is the translation impact on earnings and the second one is the impact on sales and earnings we have a multi cohort to see balance sheet in Japan, because if our FX products.
And if you think about it holistically for Metlife Asia roughly.
Roughly 15% of our earnings are yen denominated.
And so therefore any depreciation on the yen has a moderate impact if I can say that on Asia adjusted earnings.
On the sales. However, you know the FX volatility well then the rate itself. There's the volatility that is very important the way.
It's a consideration as well.
It impacts the volume so far FX you know.
<unk> products and in the near term and all in periods of high FX volatility.
Our customers tend to wait and see before they commit there yeah and to be converted to U S. Dollar stake you know if it's a U S dollar product at the same time the yen the existing U S dollar rates at all which.
Which is certainly true now enhances the customer value, making them more attractive so there's about a balanced both ways.
And and currently we're seeing the impact of both the yen weakening and the higher U S. Dollar interest rates are on both sides. So if you think about that the way I would look at it Oh, yeah I'll leave it at that.
Great. Thank you.
Yeah.
And our next question is from Tom Gallagher with Evercore. Please go ahead.
Good morning. First question is just can you provide a little bit of color behind the around $400 million of investment losses I presume most of that was Russia, Ukraine, but can you can you just give some specificity for.
The accounting for the $400 million.
Sure Hey, Tom, It's Steve Goulart, and Ah, you're you're right on that but I think John mentioned this too in his script two there really were two issues that led to virtually all of the.
Uh huh.
Realized losses in the first quarter, one as you pointed out was Russia and that was roughly half.
Of the credit losses and provisions.
And and again I'd I'd start by reminding everyone that you know our total exposure to Russia as you know less than 110th of 1% of the general account so.
And so I'm not really a material number and then the second piece on the losses are John also mentioned was normal trading activity, but that really just reflected what was happening with interest rates in the quarter and if you think about again, our asset liability management.
We are heavily investing in private assets right now and it takes time to originate those private asset. So we're putting in our assets that are more liquid and and as we replace those into permanent structure with private assets given the interest rate movements through the quarter, we saw losses in that.
But again, we pick it up on the back end of course because of private assets are higher yielding.
Got it that makes sense, Steve So I would assume some of that there could be a little bit of a tail to the trading aspect to that as you roll into two Q and rates have continued to go up is that is that fair.
I think as long as rates are moving we will probably see similar action and similar results yet.
Okay Gotcha, and then just a I guess for Kishore just a follow up on Japan the.
The sales there seem pretty good and your competitors that are in Japan, where we're quite weak with the state of emergency orders in Japan just curious.
How you were able to drive sales growth or is there something unique about product launches who are your distribution that that allowed you to still grow sales across it looks like across all products in Japan.
I love the premise of your question, Eric and I will certainly pass on that complement to our associates didn't get Pat.
I think it's a it's a great question I love the way you worded it.
Uh huh.
Certainly that said.
Yeah, our sales increased 18% in.
In Japan.
That's a it's a very strong performance there.
There are three reasons why I would attribute that Oh.
Our execution on the ground has been you know.
Quite strong.
Uh huh.
Secondly, we do have a a very diversified channel mix as you know.
And and that is continuing to show well.
Where you know certainly there's a little bit of softness.
On the bank side on a relative basis, but that got picked up on one on the CAA. So that that balances you know the back and forth certain days coming through really well.
And then thirdly.
We have been investing quite a bit on our product set and capabilities over the past two years.
But most notably over the past 12 months, we've had a.
A couple of successful product launches and our most recently we entered the quality market again, and so that was well received in the marketplace, we launched a new banker platform.
You know last year, which has got very.
Very strong reception and then we also entered the variable you know private market. So that's also getting good traction traction as well so we're very happy about that.
However.
Hmm.
And since you asked the question I wanted to give you a little bit of context for our overall Asia in terms of our performance this quarter, which is really very good.
But also caution that.
We're continuing to deal with Covid.
That's a big factor across all our markets are clearly Korea, and Japan, we have a search and and cases.
One and we're dealing with that even in China as well.
And so and then on top of that in Q2, we're dealing with a bunch of market specific regulatory and exchange related challenges, which are ongoing and then theres a seasonality factor in Q1 with occupancy in the fiscal year at so that's a that's been a tail wind which doesn't.
Harry do you do.
Given all of that.
Volume of sales in the next quarter will be under pressure.
Year on year basis, I expect Asia ex Japan coming on stronger in Q2, well have to offset that as well.
So that's done.
Done well in Q1, a little bit of pressure in Q2.
And and and then I wanted to switch to.
The overall frame, which is despite all of this our execution has been very strong our diversity of markets are coming through.
And so and enough.
From a guidance perspective, I think the middle to high single sales, although the guidance. We gave in February and up in terms of timing I expect a much stronger year on year performance in the second half for Asia as a whole.
So I hope that was helpful from a commentary perspective.
At what that was thank you.
Great.
Go ahead.
Yeah.
My apologies Mr. Gallagher did you have anything further.
No that's all thank you.
Very good we will move onto Sunita come off with Jefferies. Please go ahead.
Thanks. Good morning, just wanted to go back to group life for a second so we're seeing COVID-19 deaths.
Mortality declined pretty substantially here in <unk>, but I'm just wondering as we think about our earnings in that business. In <unk> is there any kind of lag that we should be reflecting in terms of when you may get a death notices and group.
Okay.
Hey, its rami here.
You know generally speaking we were pretty quick in terms of recognizing the the getting the death claims in them and recognizing goes and we clearly holder at reserve essentially account for the IV and hours. So I would say on average we've been getting that pretty well over there.
It's kind of a year and a half so I I I would just continues to anchor.
Are any of your kind of estimates based on the headline mortality numbers for the entire population.
So I would say you know you looked at those and those have trended favorably.
In April and the other statistic I would also look at is the percentage of deaths, which are under 65.
Which looking at April the.
That has continued to be at the same level as we saw in the first quarter, which as John mentioned would be favorable for us from a severity perspective.
Okay got it and then I guess for John on capital I. I think you had said that statutory operating earnings was lower than stat. Net income. So I just want to make sure I got that right and maybe some color on what happened there and then also I think you said Tac declined relative to the end of the year. So can you just talk a little bit about what happened there.
Sure Good morning, good morning, Nate.
Yeah, that's right I mean, I think it's just the kind of some of the geography between are you know we're a VA reserves go versus some of the you know kind of the hedges and you think about you know just what equity markets did.
That probably explains some of that difference.
Then in some of the realization of that so that's kind of number one your comment and then your second point is just on Stat capital generation. Yeah. I think it was down 2%. So you know maybe a little over 300 mm I'd kind of put that in the normal volatility in any one quarter, we paid our normal.
Kind of a <unk>.
Fourth of 25% of our kind of.
Target dividend for the year give or take in the quarter and you know, we just had a little.
Additional volatility so I wouldn't read into that any in any way kind of consider that to be normal volatility and I wouldn't consider it a trend.
Okay. Thank you.
And next we go to the line of Alex Scott with Goldman Sachs. Please go ahead.
Hi, Thanks for taking the question first one I had is on just the expenses you know I think they've they've kind of consistently come in below sort of the target you guys outlined at the Investor day with the with the horizon strategy, and so forth and achieving pretty good organic growth across a number of your businesses and.
So I was just interested in any commentary on you know where that could go from here.
If you know I think sometimes in the past you've called out one timers and things like that on expenses that they would get you back up to sort of that targeted level, but this feels like maybe you're you're benefiting more from operating leverage and you know could it be driven down further from here.
Hey, good morning, Alex Yes.
You know, we're certainly pleased with the execution and and you know that's.
That's not without headwinds and you know what we're all dealing with today in terms of inflation and wage increases and things like that but I think it's a it's a testament to the team and really the embedded culture that we've built here around efficiency mindset. It's a critical opponent of our strategy. As you mentioned just on the ratio itself. It was $11 seven and I mentioned in.
In the opening remarks that.
You have to be careful that the headline numbers, probably are benefiting about 40 basis points from elevated COVID-19 claims, which impact our participating cases and that creates you know increase in revenue is a bit of a gross up on the on the P&L. So net net we're still you know we're a little above 12, but may but still below the 12 three.
And you know that's you know within there or is it also includes you know our intention to continue to invest in the firm.
For growth are to improve.
Our use of technologies and then obviously, if if if circumstances dictate that gives us optionality to the leverage that that capacity in different ways and to protect margin. So all in all I'd say, we're executing on our our target our initiative when it comes to.
Managing expenses.
Thanks, and then my follow up is just if you could provide a brief update on the asset management business and just what you're thinking in terms of.
Inorganic opportunities that are out there in the current environment, you know makes that more challenging or maybe it presents more opportunities just interested in if anything is changing there.
Hey, Alex it's Steve Goulart.
So the update it continues to be very positive we continue to grow Metlife investment management I think we've been really achieving our aggressive organic growth plan.
But it was in line with what we laid out at our 2019 Investor day on our objectives and targets for where we're going to see the business grow at the same time, you're right. It's a it's a very active market right now and we continue to be active in it as well and looking at opportunities.
For acquisitions.
And it does cut both ways I mean, theres a lot of activity, but are there there are a lot of people looking in the markets too.
We know what we're looking for strategically you know, we're very disciplined financially.
And we want to make sure that anything we do fits culturally and strategically. So we will continue to be active and hopefully when we find something that meets those criteria, we'll be successful in acquiring it.
Thank you.
And we have a question from Tracy <unk> with Barclays. Please go ahead.
Good morning, I realized later in the year.
Regarding assumption, but still where the 10 year treasury.
As you read it today at nearly 3% or it may be heading.
How should we be thinking about your 2.75%.
And how does inflation come into play with respect he yeah right there.
Our possession.
Hey, good morning, Tracy good good question, obviously, we.
We have that long term assumption and it and things have changed quite a bit.
I think it's early for us to make any predictions at this point, obviously you know as we get into the you know.
At the end of the second into the third really more than the third quarter, we will start to think about it.
Think as we've all realized that.
Things can change quickly so and so I think it's and it is a long term assumption but.
But having said that I think you've highlighted some kind of you know kind of the circumstances. We're in at the current rates are higher than our long term assumption that we projected to hit in 12 years. So that is but I wouldn't I wouldn't anticipate.
You know kind of any abrupt change one way or the other we just made that change recent you know a few years ago and and so you know we you need to kind of see a trend before you would necessarily make a change but again, we'll have to kind of evaluate all the data that's out there when we get closer.
In terms of inflation.
It's probably it's not a it's it's really I'd say probably more related to your first part of the question what does that how does that really impact rates, that's probably the biggest area for us when it comes to reserving.
You know I think outside of that its a theres generally if you have any inflation impact.
It is generally offset by other factors I'm you know net net so that's probably how I'd answer the inflation point.
Great. Thank you.
I noticed in prior years, you didn't fully utilize our U S statutory dividend capacity in 2021.
Kyle and I realize you have very Oh gosh, it's just looking at Metropolitan Life Insurance Company you have three point.
Ordinary capacity in China.
Are you expecting Oh you do.
Yeah.
Yeah, I think as you pointed out we have a lot of sources of cash to the holding company I think what we've committed to we don't commit to kind of a dividend in any one legal entity and I think the benefit of having a diverse set of of cash generation that can be sent to the holding company is that it gives us the benefit of being able to commit to the six.
5% to 75% free cash flow ratio.
On a on average over two year period, and so yeah, it's not something we target at any one entity. We look at all of that all aspects of how we're trying to manage our cash and capital at the operating entities, where we're looking to grow them, you know, where we need extra capital things like that and I think the benefit is like I said.
It's a diverse set.
Set of sources is very helpful. So we don't set a target of any illegal entity externally I should say and then we kind of you know just like you would manage your own wallet, we manage are a collective.
Collective wallets the same way.
Okay.
Thank you.
And we have no more questions at this time I will turn the call back to Michelle off.
Well. Thank you again for joining us on this busy morning.
Strong performance in the first quarter of 2022 building on last year's outstanding results should provide further evidence of the significant progress we were making and delivering on our old whether next horizon strategy.
This management team is laser focused on continuing to execute with urgency.
And we are confident in our ability to create long term sustainable value for all stakeholders. Thanks, again and talk soon.
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