Q2 2022 MetLife Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Metlife second quarter 2022 earnings 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 the risk factors discussed in my life.
E C filings with that I will now turn the call over to John Hall Global head of Investor Relations.
Thank you operator, good morning, everyone. We appreciate you joining us for Metlife second 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 Hoff, 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 feature incremental disclosures GAAP reconciliations and other information, which you should also review.
After prepared remarks, we will have a Q&A session, which will end no later than the top of the hour.
Fairness to all please limit yourself to one question and one follow up.
Now over to Michel.
Thank you John and good morning, everyone overtime I have referred to our next horizon strategy as being all weather designed to guide Metlife through a variety of economic environments.
And the environment has shifted with equity markets falling from historic highs.
Crist rates trending up from historic lows further strengthening of the dollar and the odds of a U S recession on the rise.
The resilience of next horizon combined with our clarity of purpose positioned make life to meet these challenges in the second quarter of 2022.
While certain things may be outside our control, we continue to execute with urgency across those things, we do control, let's turn to some numbers.
Metlife reported strong financial results for the second quarter.
Adjusted earnings were $1 $6 billion or $2 per share.
<unk> to $2 37 per share a year ago.
Excluding one notable item adjust.
Adjusted earnings were $1 90 per share.
The combination of strong underwriting margins and good volume growth drove solid adjusted earnings results, while variable investment income fell below our quarterly outlook expectations net income in the second quarter was $103 million compared to $3 $4 billion a year ago.
Current period net income was driven by adjusted earnings offset by interest rate and foreign currency derivative losses from securities helped to protect our balance sheet.
Also standard investment activity resulted in realized losses as interest rates rose during the quarter.
A year ago net income includes the gain we booked on the successful sale of our auto and home business.
Now moving to variable investment income, which returned to a more typical level following seven consecutive quarters of truly outstanding results.
During the seven quarter period.
<unk> generated more than $8 billion of cumulative pre tax variable investment income.
This type of investment performance first to validate my life's long term prudent exposure to this value added asset class.
And the second quarter variable investment income of $389 million was aided by private equity investments and real estate funds, which generated returns of 1.5% and seven 9% respectively.
Our private equity returns are reported on a one quarter lag and the weak second quarter equity market should negatively impact our variable investment income in the third quarter.
Well it depends dunnock, the broad diversity of Metlife businesses across product lines and geographies has clearly been a great strength.
Initially underwriting gains and one business offset underwriting losses elsewhere, when COVID-19 claims seem to reach their peak all private equity gains then filled the gap in the current quarter continues to illustrate this point as.
It was variable investment income has returned to more normal levels in the second quarter, So too have our underwriting margins.
Turning to make lives business performance.
I'll start with our U S group benefits results.
Adjusted earnings of $400 million were up 61% year over year.
This represents the highest quarterly result ever posted by this flagship business, primarily driven by favorable underwriting historically, the second quarter tends to be a low mortality quarter something that was also evident this year.
Nope life mortality, including COVID-19 losses registered a benefit ratio of 85, 8%, which is at the low end of our target range of 85% to 90%.
A significant contraction in U S COVID-19 related deaths and a further shift upwards in the age of deaths contributed to the improvement in the second quarter benefit ratio.
Having witnessed the prior false dawns during this two and a half year long pandemic, we are cautiously optimistic and know the absence of much if any excess mortality in our current periods group benefits results.
At the current pace Metlife is on track to generate close to $25 billion of adjusted group benefits revenue in 2022 a true testament to our product breadth scale and momentum in this attractive market leading business.
For retirement and income solutions or RIS adjusted earnings totaled $388 million, which were down from a year ago due to less variable investment income, but helped by favorable volume growth.
Looking past the decline in variable investment income recurring investment income spreads were strong at 103 basis points as we continue to manage against the shifting yield curve.
During the quarter, we booked $2 $6 billion of new pension risk transfer business, which brings our year to date total to roughly 4 billion.
We continue to see a strong pipeline for the balance of the year based on good funding levels and higher long term interest rates.
In Asia adjusted earnings of $386 million or below a year ago on lower variable investment income and less favorable underwriting.
Covid claims in Japan impacted adjusted earnings in the quarter, driven largely by deemed hospitalization, which allows for payment of cool with claims incurred for care outside of a hospital.
Other Asia business metrics remained favorable with sales growing 2% year over year on a constant currency basis, while general account of your EMS in the region were up 5% on the same basis.
Japan sales grew 5% on a constant currency basis.
Life has a history of product innovation in Japan. Most recently, we've built on that legacy with product launches in September February and April illustrating both our speed to market for new products and our leading digital distribution capabilities. We continue to have good sales momentum in Japan supported by a resilient business.
Model and we remain on track to achieve our Asia region sales outlook for the year looking to Latin America, adjusted earnings totaled $267 million, well above $97 million a year ago.
Lower Covid claims and favorable impact from inflation, a strong and coffee and continued volume growth all combined to generate substantial outperformance in the second quarter.
The mental drivers in Latin America also remained strong with sales N. P. F o's up from a year ago on a constant currency basis by 19% and 26% respectively.
Moving to capital and cash my life was active with capital management during the second quarter, and we returned more than $1.5 billion to shareholders through $408 million of common dividends and $1 $1 billion of share repurchase in the first half of 2022 metlife repurchased approximately.
$2 billion of common stock.
Given the accelerated pace of buyback activity in the first half of the year, we anticipate a modestly slower pace in the back half.
There remains $2 $5 billion outstanding on our current $3 billion authorization.
Like life continues to be well capitalized and highly liquid at the end of the quarter, we had $4 $5 billion of cash and liquid assets at our holding companies, which included the proceeds from the sale of our Poland business and.
And we remain comfortably above our target cash buffer of $3 billion to $4 billion financial flexibility was further enhanced after the second quarters and when we thought the DUC market raising $1 billion of 30 year paper and a well oversubscribed offering. Another example of the value of the market attributes to make life's financial.
Trends there.
Turning to sustainability at the end of last quarter.
Life announced a broad set of the eye commitments designed to address the needs of the underserved and under represented by 2030.
The Metlife Foundation recently announced an updated strategy aimed at driving inclusive economic mobility by addressing the needs of underserved and under represented communities around the globe.
The foundation grants, making an impact investments will be aligned across three core portfolios economic.
Economic inclusion financial health and resilient communities and will advance the broad set of diversity equity and inclusion commitments Metlife announced at the end of last quarter and closing when we introduced our next horizon strategy Little did we know that it would be put to the test so quickly and so severely ill.
Our results this quarter clearly demonstrate its resilience, we still solid underlying business performance supported by a strong capital base, which reinforces our confidence that the next horizon is the right strategy for Metlife.
With our purpose as our north star and with our strategic pillars to guide US along the way like life is well positioned to rise to the challenges ahead and deliver significant long term value to our shareholders and other stakeholders with that I will turn things over to John .
Thank you Michelle and good morning, I'll start with a <unk> 22, supplemental slides, which provide highlights of our financial performance and update on our cash and capital positions as well as commentary on the new U S. GAAP accounting known as long duration targeted improvements or L. D. T I effective one 123.
Starting on page three we provide a comparison of net income to adjusted earnings in the second quarter higher.
Higher interest rates and the strengthening of the U S dollar in the quarter drove net derivative losses.
As a reminder, metlife uses derivatives as part of our broader asset liability management strategy to hedge certain risks.
This hedging activity, often generates derivative gains or losses and create fluctuations in net income because the risk being hedge may not have the same GAAP accounting treatment. In addition, we had net investment losses from our normal trading activity in the portfolio given the rising interest rate environment.
We had one favorable notable item this quarter of $77 million or nine cents per share.
Related to our reinsurance settlement, which was accounted for in Metlife Holdings.
On page four you can see the second quarter of year over year comparison of adjusted earnings by segment, which excludes notable items in both periods.
Adjusted earnings in the second quarter of 2022, excluding the notable items were $1 $5 billion down, 23% and down 21% on a constant currency basis.
Lower variable investment income drove the year over year decline, while favorable underwriting and solid volume growth were partial offsets.
Adjusted earnings per share excluding the notable item was $1.90 down 17% year over year on a reported basis and down 15% on a constant currency basis.
Moving to the businesses, starting with the U S business group.
Group benefits adjusted earnings were up 61% year over year Pri.
Primarily due to significant improvement in underwriting margins.
Aided by lower COVID-19 life claims as well as higher volume growth.
The group life mortality ratio was 85, 8% in the second quarter of 'twenty two.
Towards the bottom end of our annual target range of 85% to 90%.
The business benefited from lower U S COVID-19 deaths in the quarter and a continued favorable shift in the percentage of deaths under age 65 declining from approximately 23% in the first quarter to roughly 17% in the second quarter.
The adjusted earnings impact of group Life, COVID-19 reported claims was approximately $35 million offset in part by an IV in our release related to <unk> 22, COVID-19 claims of approximately $25 million.
Therefore, the net Covid impact was roughly $10 million or one percentage point on the group life mortality ratio.
More detail on the group life mortality results over the past five quarters can be found on page 11 in the appendix.
Regarding non medical health interest adjusted benefit ratio was 73, 1% in Q2 of 'twenty two.
Within its annual target range of 70% to 75% and favorable to the prior year quarter of 73, 8%.
Turning to the topline group benefits adjusted P. F. Those were up 3% year over year.
As we discussed in prior quarters excess mortality can result in higher premiums from participating contracts in the period.
The higher excess mortality in Q2 of 'twenty, one versus Q2 of 'twenty two resulted in a year over year decline in premiums from participating contracts, which dampened growth by roughly one five percentage points.
The underlying P F O increase of approximately four 5%.
Due to solid growth across most products, including continued strong momentum in voluntary.
Retirement, and income solutions or RIS adjusted earnings were down 41% year over year. The primary driver was less favorable private equity returns versus a very strong Q2 of 'twenty one.
Favorable volume growth was a partial offset.
RIS investment spreads were 116 basis points within our full year 2022 guidance of 95 to 120 basis points, but well below the prior year quarter, a 224 basis points due to the significant decline in variable investment income.
Spreads, excluding VII were 103 basis points.
Up five basis points versus Q2 of 'twenty, one and up 14 basis points sequentially due to higher interest rates wider.
Wider credit spreads and favorable real estate performance.
Our S liability exposures were down 3% year over year, despite strong topline growth.
The key drivers of this decrease came from reductions in accounting adjustments that impact our liabilities, but do not impact fees or spread income and thus have no impact on adjusted earnings.
Our U S sales were up 30% year to date, primarily driven by pension risk transfers and stable value products.
With regards to P. R. T. We completed three transactions worth $2 $6 billion in the quarter.
A strong first half of 2022 and we continue to see an active market.
Moving to Asia, adjusted earnings were down, 26% and 22% on a constant currency basis, primarily due to lower variable investment income and unfavorable underwriting.
This was partially offset by solid volume growth as assets under management on an amortized cost basis grew 5% on a constant currency basis.
In addition, <unk>.
Asia sales were up 2% year over year on a constant currency basis, primarily.
Primarily driven by another solid performance in Japan.
Overall, Japan sales were up 5% driven by FX annuities and accident and health products sold through face to face channels.
Latin America, adjusted earnings were $267 million versus $97 million in the prior year quarter.
This strong performance were driven by several positive factors, primarily favorable underwriting and investment margins.
As well as solid volume growth.
Overall, COVID-19 related deaths in Mexico were down significantly in Q2. This positive trend coupled with the emergence of even more favorable mortality experience in our own block resulted in a reduction to the IV in our reserve that was established in prior periods.
This benefited the Latam adjusted earnings by roughly $40 million after tax and <unk> 22.
Latam adjusted earnings in the quarter also benefited from strong investment margins, primarily due to the net impact from inflation linked assets and liabilities in Chile that increase with higher inflation rates as.
As well as the Chilean and Kai, which had a 4.8% return and <unk> 22 versus a negative one 5% in the prior year quarter.
Latam topline continues to perform well as adjusted P. F. O is were up 26% year over year on a constant currency basis.
And sales were up 19% on a constant currency basis, driven by growth across the region, primarily from higher single premium immediate annuity sales in Chile and group cases in Mexico.
EMEA adjusted earnings were down, 32% and 16% on a constant currency basis compared to a strong Q2 of 'twenty one.
Which benefited from a favorable refinement of an unearned premium reserve in the prior year period totaling approximately $15 million after tax.
In addition, adverse equity market impacts in the current year period were partially offset by favorable underwriting margins.
Metlife Holdings adjusted earnings were down 46%, excluding the favorable notable item of $77 million after tax as discussed earlier.
This decline was primarily driven by lower variable investment income.
Adverse equity market impacts and less favorable underwriting also were contributors to the year over year decline.
Metlife Holdings separate account return was negative 14% in the quarter versus a positive 6% in Q2 of 'twenty one.
Corporate and other adjusted loss was $243 million versus an adjusted loss of $126 million, excluding notables in the prior year quarter.
The year over year variance was primarily due to higher expenses from corporate related costs associated with less favorable equity markets and higher interest rates.
Higher taxes and lower variable investment income were also contributors.
The company's effective tax rate on adjusted earnings in the quarter was 22, 3% and within our 'twenty to 'twenty two guidance range of 21% to 23%.
On page five this chart reflects our pretax variable investment income for the past five quarters, including $389 million in the second quarter of 'twenty two.
The majority of VII was attributable to the private equity portfolio of roughly $14 billion, which had an overall return of one 5% in the quarter.
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 nearly an 8% return in the quarter, while hedge funds, which are reported on a one month lag had a loss well.
While VII and <unk> 22 was below expectation and recent trends, our new money rate was 392% and above our roll off yield of 371%. This.
This marks the first time in over a decade in which we did not experience quarterly spread compression in the investment portfolio.
On page six we provide V I a post tax by segment for the prior five quarters.
Including $307 million in Q2 of 'twenty two.
Asia, Metlife holdings, and our I S continue to earn the vast majority of variable investment income consistent with the higher V. I a assets in their respective investment portfolios V. I a assets are primarily one to match longer date liabilities, which are mostly in these three businesses.
Turning to page seven.
This chart shows a comparison of our direct expense ratio over the prior five quarters, including 11, 9% in Q2 of 'twenty two.
As we've highlighted previously we believe our full year direct expense ratio was the best way to measure performance due to fluctuations in quarterly results.
Our second quarter direct expense ratio benefited from solid topline growth and ongoing expense discipline.
While we would expect our direct expense ratio to be higher in the second half of the year consistent with the seasonality of our business. We remain committed to achieving a full year direct expense ratio below 12, 3% in 2022, despite the challenging inflationary environment. We believe this demonstrates our consistent execution and focus on an efficient.
Cincy mindset.
I will now discuss our cash and capital position on page eight cash and liquid assets at the holding companies were approximately $4 $5 billion at June 30th.
Which is up from $4 $2 billion at March 31st and remains above our target cash buffer of $3 billion to $4 billion.
The sequential increase in cash at the holding companies reflects the net effects of subsidiary dividends payment of our common stock dividend share repurchases of $1 $1 billion in the second quarter.
As well as holding company expenses and other cash flows in.
In addition, Holdco cash includes the proceeds from the sale of our Poland business, which closed in April .
In regard to our statutory capital for our U S companies, our preliminary second quarter year to date 2022 statutory operating earnings were approximately $700 million, while net income was approximately $1 3 billion.
Statutory operating earnings decreased by approximately $2 billion year over year, driven by unfavorable VA rider reserves.
Underwriting results and lower variable investment income.
I guess I'd start with just reminding everybody.
Sort of the slide the John use which is what's our guidance or you know our guidance is really just a generic assumption of 12% a year or 3% a quarter.
We all know of course, there's a one quarter lag in it too and when we look at you know broad market returns in the second quarter, we know that they were basically negative in the in the teens, but I think what we've proven over over time through the diversification in our portfolio across strategies and geographies as you know we we we would expect that day.
We're actually but likely not to the same degree as a market overall, so I think that's probably all we can really say at this point.
Got it thank you.
And our next question is from Jimmy Buhler with J P. Morgan. Please go ahead.
Hi, Good morning, So first I had a question on the retirement business in terms of spread I think they expanded about 14 basis points sequentially and I think you had been cautioning that they might actually decline or certainly not weren't expecting much of an improvement. So wondering how much of the improvement has to do with the.
Interest rate caps or other types of so the hedging activities and do you expect that to be a good base for spreads going forward or should we think about the the one SKU level and adjust off of that looking forward.
Yeah.
Yeah, Hi, Jimmy and good morning, it's John .
Yeah as you point out we had a pretty resilient level of spreads this quarter up 14 basis points sequentially and and as you pointed out we did not quite expect that back in the Q1 call. But that was you know we were basing our commentary based on forward forward rate curve right and if you think about what has happened since.
You know the 10 year Treasury ended up about 65 basis points above that.
Other thing that happened as spreads widened them. So you know our reinvestments were strong.
And then the third thing is three month LIBOR jumped a to a much greater level than we had expected and actually the forward curve expected you know ended the quarter at roughly two 3%.
I think about just during the course of the quarter. You know it was kind of hovering around 150, and then all of a sudden there was a huge spike kind of at the end of May into June .
Bypassing that remember I referenced this 2% marker as as LIBOR started to grow get towards that 2% and then beyond.
You know it could create a little bit of a tailwind we have a number of caps that start to become in the money.
That we have in place today and so.
That was really the main driver moving us from a headwind of LIBOR rising to a.
If you call. It I guess, a you know a benefit of having the caps b in the money. So that was the real driver there. The other thing I'd point out is real estate equity outperformed so within our core on them.
Investment income real estate equity was very strong in unexpected we'd expect that to moderate but if we look forward and I guess, assuming today's current forward rates, which we know can be different we'd expect ex VII spreads to remain you know pretty close to where we are today, I mean give or take plus or minus and even assuming some moderation.
Of that real estate returns.
Okay.
And then sale sorry, Jimmy I would just let me just add I would just tell you that that's probably for the next couple of quarters right. I mean, we'll give guidance for next year, when we get towards the latter part of the year.
And then obviously the changes and new money yields and those affect that as well obviously.
To stay but they do have an it yeah, you're right yeah.
And on the sales in the Asia business outside of Japan were down and I think you had mentioned previously that are in Korea. It was because of a lot of your salespeople getting COVID-19 and Covid cases still being high and then I think in China, but the mobility restriction that's hurting sales is it.
More are the sales down more because of those types of factors in Tokyo as well or is there anything else going on in the underlying market the debt the good sustained even beyond COVID-19.
Hey, Jimmy it's Linden here so.
So let me give you the color on total Asia sales and then I'll get into the the other markets as well.
We have good diversification across all the markets products and channels and that really drives very consistent execution through this market conditions. So overall, we've had positive growth in the second quarter led by strong performance in Japan.
If we look a little bit of Japan sales were up 5% and that's actually driven by three factors first the execution on the ground and the team has been very strong we have a very diversified distribution channels and the products and capabilities. We've launched in the past year has really helped us drive the growth.
Are there but.
But as you pointed out in the other Asia, we've faced a couple of headwinds.
We've got Covid restrictions going on in China, right now and the stronger U S. Dollar has really impacted sales for the FX products in Korea, but despite these channels. We actually have other markets that are compensating for these and help drive offset some of these headwinds.
Looking forward, we expect strong momentum going into the third quarter.
We introducing new products in Korea, and also we expect some relief in the lockdown conditions in China.
Full year basis, we are comfortable with the guidance of mid single digit growth that we gave at the outlook call.
Thank you.
And next we go to Tom Gallagher with Evercore ISI. Please go ahead.
Thanks to aid to capital questions. The first is the new C. Two factor change that's coming year end.
For mortality morbidity my understanding is it positively impacts group life negatively affects individual life. If so is that a positive for met and if so could you quantify it.
Oh, Hey, Tom It's it's Rami here good morning, I would say, it's overall neutral I mean, we have been.
Looking to our business and pricing it in anticipation.
Changes to the C. Two factors and there's a fair bit of diversification calculation in that number so I would say for small and neutral in terms of its impact.
Okay, Thanks and <unk>.
The Epsom our change in Japan that dropped a lot in March I assume that's going to go down a lot more in June just based on where rates went.
How how are you thinking about managing through that.
Or are you contemplating hedging this at all and also is there a risk that that can impact the dividend remittances out of Japan.
Tom Good morning, It's John you know as you point out you know the higher U S rates really for US is what's driving that decline and as you point out and as you know.
They've continued to rise throughout two Q you know I just.
A couple of reminders, one rising rates is a improvement proving economic value situation for that business, but the reality is right now we have a solvency regime that has some Asia metrical accounting so create some.
Unintuitive results. If you will so so that's kind of one two I'd say remember in a few years there. It's likely this moves to this new economic solvency regime, which would kind of better align the solvency accounting with the economic reality.
So you know, we really we don't have concerns over dividends or dividend capacity at this time.
You know the reality is that this is a good economic situation and we have plenty of tools to be able to manage the overall situations. So at this time we're fine.
Okay. Thanks.
And next we move to Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks, Good morning, guys.
Strong results in Latam in the quarter and I know you called out about 40 million from favorable mortality can you just expand on the other underlying drivers of the results this quarter and just the sustainability of results there.
Yes, Hi, Hi at least this is a this is Eric so yeah as you pointed out. So overall this was a strong quarter for the region.
Ports it by by solid business fundamentals and several positive items that we really put into two buckets right the market factors and underwriting so starting with with market factors.
We had very strong net investment margins this quarter, which include the net positive impact of inflation in Chile, as well as the above average and coffee results in the quarter also benefited from strong variable investment income. So these items combined contributed to.
Function of the fact that you know are under our for our V. As in primarily the G. M. I bees I'm also by the way G. M D B's get now mark to market, which is.
Different debate, but.
But Jim I be they're all kind of accrual accounting, if you will and now they're moving to to mark to market. So that's the biggest biggest driver.
As we think about rare.
Relative to initial impact that we disclose.
It's it's a little better as you get into you know kind of year end 'twenty. One in terms of less of a of a change I think interest rates moved maybe 60 basis points on the 10 year and then it'll continue to decline. If you will as you move into 2022 just given the the function of the rising rising rate.
Environment. So that's the those are the main drivers.
Perfect. Thanks, and then maybe if you could touch on your U S mortality experience this quarter across both group and holdings and it looks like even ex Covid margins were favorable versus your targets. So have you seen some of the elevated non COVID-19 mortality that had been a factor in recent quarters has that started to come down as well.
Good morning, Eric It's it's Rami here I'll I'll start off with group and Michele and John will comment on our holdings.
So for the courts are if you look at our ratios sequentially I would say the decline can be broken down into four pieces. So the first one is just the lower frequency in terms of overall population deaths.
The second piece is the material decrease in the percentage of deaths under 65, which clearly reduce the impact on the working age population.
The third piece is the Q1 reserves, which completed favorably, which John spoke about and those are less than a point or so.
And then the final piece is we did see a little by way of non COVID-19 excess mortality in the quarter and as Michelle pointed out the second quarter tends to be a bit lighter in general in terms of mortality.
As we look at the rest of the year on the group business side, we're cautiously optimistic given the results here.
And but clearly you know the trajectory of the pandemic is uncertain.
At this point I would say if you exclude COVID-19, we interest anticipate our mortality ratio to be comfortably inside our range for the second half of the year off with a group business.
Yeah, and just on just touch touching on holdings I mean, we certainly saw you know.
Kind of a reduction in claims in the quarter, we didn't really see a big impact at all for Covid AR and then on the if you just look at the life interest adjusted benefit ratio you.
Do you have to adjust for the reinsurance settlement, but excluding that it comes in at 43.8 and that should we just saw favorable non COVID-19 claim experience in the quarter.
Got it thank you.
And our next question is from so need to come off with Jefferies. Please go ahead.
Maybe just for Steve to start out with them can you just maybe talk a little bit about your outlook for credit and the potential for credit losses, if we move into a recession is there any any asset classes or sectors that you are paying particular attention to these days.
Sure. Thanks Nate.
I think obviously, there's still a lot of uncertainty and clearly volatility in the markets about where we're headed from a macro perspective.
What I would I do it was really sort of rewind the clock, a little bit and remember in a way we sound like a broken record but.
We go back to really even pre Covid, where we were actually starting to get concerned about a recession occurring sometime in 'twenty 'twenty.
It started preparing the portfolio then our de risking efforts started.
It's a pretty big way and I think then of course it was accelerated during COVID-19 and we went through over $8 billion of Derisking in that time period, and that really sort of set the portfolio in.
Our position that we were very comfortable with obviously, we continue to watch as we go through this period now expectations of recessions again of course.
One defines a recession I guess these days.
Our clearly picking up.
But we're very comfortable with that.
Risking we've done over the last couple of years and I think the portfolio is in very good shape. Obviously, we continue to have a cautious attitude, but opportunistic at the same time.
We do see some attractive investments and do we have the opportunity to do that you know one one metric that might be of interest to us just in looking at the portfolio.
During the course of this year, we've actually had twice as many upgrades downgrades and I think that says a lot about how we've been positioning the portfolio.
And our overall overall outlook. So so we're very comfortable with where we are today.
Okay. Thanks, and then I guess for for Rami on the group benefits side, I know to choose a low quarter for sales, but just curious on any color from the conversations youre, having with your clients around pricing just given I'm, assuming most of them are facing pressures across the board on costs from <unk>.
Inflation, so just any color on how those conversations are going as we think about one one next year.
Sure.
Just just with respect to your comment on on sales is as we've kind of discussed earlier.
The year to date drop in sales is very much a function of the record year, we had last year, where we had a record number of jumbos.
And as you know these jumbos can be pretty lumpy. So this is something we expected in terms of the sales coming down.
And I would just also point you to the fact that the really the better measure to think about the overall growth of this business is is the P. A phone number and we're certainly very pleased with their P. A full growth number that we're seeing this quarter.
In terms of the pricing environment I would say the market is competitive but remains rational in aggregate we have put in place.
Rice increases both on the life and the disability side to reflect our expectation of the coming environment.
To reflect also in load with respect to the Covid deaths.
And in aggregate, we are getting our target price increases and we're also continuing to see very strong persistency in the book.
Okay. Thanks.
And our next question is from Alex Scott with Goldman Sachs. Please go ahead.
Hi, first one I had for you is just to get your latest thoughts on Metlife holdings and the potential for risk transfer and.
Also any commentary you'd have around.
If you know doing something taken action on something and holdings could influence you know the way that these impacts a walk from L. D T I.
Yeah.
Okay.
Hey, good morning, Alex It's John I think overall on a risk transfer I I'd say, nothing new really to update and a man, we've probably given our consistent message every quarter.
For quite some time now and I think it's the same and I think we're being very transparent. We you know our goal here is to continuously optimize and.
We're trying to do that both in the form of internal actions and but also looking at opportunities to leverage the growing risk transfer market in.
As a result, we continue to converse with them you know with their third parties you know our philosophy is there's no burning platform, we're happy to maintain.
You know our approach and continue to optimize internally, but we want the optionality to see if we can you know you know.
Right the appropriate release of capital and reserves I'm, you know I think the one.
The one thing that we continue to just look out here is this isn't there's a reinsurance transaction for us if we were to do something so you know as we think about our philosophy. When we look at this as you know we view this as a long term relationship. So it's this is one of those things that would take time it take time to make sure that we feel grounded with a strong.
And party and structure in and kind of the approach, but you know I think where we're continuing to evaluate that and that's been the case now for for some time you know in terms of the impact of L. D T I.
I don't know how to exactly answer that I think you have the one thing we have to be careful about as.
You know under L. D T I one of the things that probably did not come out as perfect was just the the there is some asymmetrical accounting when you do enter into reinsurance. So you have to be mindful that under GAAP.
So it doesn't perfectly line up so I don't know how to perfectly answered your question that way because we would have it would I guess the answer is it depends so.
I'm sure that was great.
That's helpful color. Thank you and then the follow up I had was maybe just a question on sort of the broader economy. I mean, you guys get such an interesting look at if the labor market given your presence in the group benefits I mean anything you can do.
Give us color on even maybe thinking through like beyond the end of the quarter are that you're seeing in labor markets and you know potential implications just more broadly are you know for your business.
Hi.
Hey, Alex Oh, no I would say the numbers, where we're continuing to track clearly is just overall eligibility in our book and we have Ah Ah ha.
Highly diversified book of business and and we we with the low unemployment levels clearly those numbers continue to kind of increase and remained very solid.
And we're seeing.
Some kind of a form of wage inflation come through as well in both of these have been kind of a tailwind to the business.
So we're kind of seeing in the book, what Youre seeing probably in the in the broader economy and maybe that's kind of as much color as it can give you in terms of what we're seeing.
Got it okay. Thanks, guys.
And our next question is from John Barnidge with Piper Sandler. Please go ahead.
Thank you very much and good morning. So you had a IV in our reserve releases in both group and Latin America is there any tail that we should be thinking about for subsequent quarters from that.
John its John just when you say tell you referencing just more releases is that what you mean.
Yes, correct yeah.
Look I think our our you know this is a reserve which the reserve was put up at the point in time based on best estimates I think in both cases, you know the facts are that actuals have emerged different than expected and so that's just the.
You know kind of the simple answer to why there was a release I wouldn't assume there is a tail because if we had if we assume there was more we would've taken it so right now our best estimates are or what we have up on our balance sheet, but I think just like we do every quarter, we will continue to evaluate and review.
The emergence of actuals and and if there are refinements needed will make them.
Okay. Thank you and then my follow up to that if we're talking about emergence versus expected.
The L. D T. I disclosure can you maybe talk about is there any unrealized insurance margin that's something we've seen from other companies that have large operations in Japan. Thank you for the answer.
Yeah sure John This is John again.
Look I think the reality on that one is it's really a function of mix of business and I think that's you know if you listened to my earlier response to earnings and how you know some some things are in scope and others are not that's a major driver to kind of that outcome.
You know many of our segments are not materially impacted by L. D T I and many of the products we sell.
You know are not as well in and that includes like Asia, where.
Some of those products are out there that that show that unrealized in Asia, you have to think about in Japan. Our flagship products are not subject to this if you think about some of the you know.
I wouldn't say all products, but you know some of the FX products that we sell they're all under Fas 97. So.
So it's a little bit of a different probably situation for us and so I get like I said, it really depends on mix of business to answer that question.
Thank you very much.
Next we go to Andrew Klingerman with Credit Suisse. Please go ahead.
Good morning.
Most of the questions have been asked but I'm wondering.
As we look at another excellent quarter at Metlife.
If theres anything transformative that you need to do from an M&A perspective, and anything that you think are in.
In your business lines that that that that could change kind of or improve metlife.
Yeah.
Yeah, Hi, good morning, Andrew.
So I don't think you know if I if we look at our portfolio I think you know we don't see any major of golf's when it comes to that portfolio. We're really well pleased I'm you know as you know we've gone through a major transformation that got us to this point.
We believe we have the right strategy.
Having said that you know M&A is a strategic capability and you know if we see opportunities to.
Accelerate revenue growth and a certain businesses are that are you know we are where we you know we believe are potentially doing something organically might make sense.
Or are you know bring in a capability that can help drive our competitive advantage you know, we'd certainly be a you know be able to.
Open to doing so and you know look we look at a lot of you know deals are and you know the maybe the sort of lack of a deal should not suggest to you that there's a lack of activity here you know we increased our shareholding in our India JV.
In the first quarter to 47%. So you know we would continue to be active but we're also very disciplined and whatever we do has to make strategic sense for us as well.
Thanks, Michele and then with regard to pension risk transfer I think you said you did three deals at two plus billion.
Maybe a little color around the pipeline. It seems like there are a lot of new players in our pension risk transfer that we didn't see three years ago. So do you think that pipeline will continue.
<unk> to be robust and that will.
We will have quarters like this one.
Good morning, Andrew It's it's Rami here I mean as you know the.
Activity in the first half of the year was was pretty substantial and in the PRT space year to date, we've written 3.8 billion dollars' worth of deals and that comes after a successful fourth quarter, where we wrote $3 $6 billion worth of deals. So that's you know cumulatively.
About seven and a half a billion dollars year over year.
The pipeline continues to be a pretty active and pretty robust as Michel mentioned.
And are we are we are focused on a specific part of that pipeline, where we enjoy our own kind of set of competitive advantages, namely the jumbo and off of the Oh, the plans and there are fewer competitors. There. When you go down size clearly there are more competition and more providers, but where we play it's.
Not a worst set of competitors because of the size of that.
That transactions that we bid for.
Thanks Rami.
Okay.
And ladies and gentlemen, we will now turn the conference back to the CEO Michel <unk>.
Thank you all for joining us this morning, I know, it's a busy morning.
Our second quarter results add to my class track record of consistent strong performance and provides further evidence of the strength and momentum of our well diversified market leading businesses.
With our clarity of purpose a compelling all weather strategy I never lent let's focus on execution, we are well positioned to deliver superior value to all our stakeholders. Thank you and have a great day.
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