Q3 2022 MetLife Inc Earnings Call
We have built a diversified portfolio of businesses with natural offsets through organic growth supplemented by strategic acquisitions and tactical divestments.
We have a commitment to responsible growth aided by the use of powerful analytical tools, such as V N b or value of new business to produce high teen IRR and mid single digit payback periods.
We have embedded an efficiency mindset in our DNA, which drives our productivity and provides us with the capacity to invest in the future.
And we generate strong recurring free cash flow that supports clear and consistent capital and liquidity management, turning to quarterly performance as a whole.
Recurring investment rates rose <unk> on our concentrate basis were strong.
COVID-19 losses in the aggregate moderate it.
And expense discipline held firm.
The greatest headwind, what's variable investment income.
Starting with some numbers.
Last night, we reported third quarter 2022, adjusted earnings of $966 million or $1 21 per share.
Notable items in the quarter included our annual actuarial assumption review and other insurance adjustments, which had a positive impact of $34 million or <unk> <unk> per share on adjusted earnings.
Excluding notable items adjusted earnings in the quarter were $1 16 per share net income in the third quarter was $331 million compared to $1 $5 billion, a year ago, primarily driven by lower adjusted earnings and derivative losses from hedges, we hold to protect our balance sheet as.
Well as investment losses from standard investment activity.
In the third quarter variable investment income was a loss of $53 million private equity is the largest contributor to VII and generated a negative one 3% return in the quarter.
As you know our P portfolio is reported on a one quarter lag third quarter private equity results reflect the difficult second quarter equity market, which fell 16, 4% as measured by the S&P 500, our investment in private equity is driven by its properties as a long dated asset class that provides a good match.
For our long dated liabilities.
Not only has this proven to be a good strategy, but we have generated substantial gains over time for the benefit of our policyholders and our shareholders as a partial offset to private equity in the quarter. We saw recurring investment income growth sequentially on higher new money rates.
For roughly the past decade, we effectively managed through an interest rate environment, where our new money rate was below our roll off rate.
In the second quarter that finally reversed as our new money rate exceeded our roll off rate.
This repeated in the third quarter to even greater effect with.
The duration of our investment portfolio at roughly eight years, we expect the impact of this change to build over time.
Broadly speaking rising interest rates are a good thing for Mac life shifting to our business segments. We saw strong growth in U S group benefits with adjusted earnings of $399 million up 259% year over year.
This represents a favorable underwriting including a substantial decline in COVID-19 life insurance claims and aided by strong volume growth groups.
Group life mortality, including COVID-19 losses.
The benefit ratio of 86%, which continues to be at the low end of our annual target range of 85% to 90% and our non medical health ratio was 78% also at the low end of our annual target range of 70% to 75%.
Execution across our enrollment in voluntary strategy is going well and responsible for driving double digit <unk> growth across our voluntary suite of products.
The investments we've made to expand our product breadth to deepen our understanding of employee needs and to connect and communicate with employees are all paying off.
In retirement and income solutions or RIS adjusted earnings were $345 million, which were down from a year ago, largely due to lower variable investment income.
Benefiting from higher rates recurring investment income spreads remained strong.
The highlight in the quarter for RIS was winning our largest ever pension risk transfer deal of roughly $8 billion.
Year to date, we have booked $12 3 billion of new PRT business already an all time annual high format life, and we continue to see a robust pipeline with a market opportunity extending out four years for Asia adjusted earnings of $197 million were below a year ago, mostly.
On lower variable investment income and unfavorable underwriting.
Covid claims reduced adjusted earnings in the quarter by $129 million driven largely by hospitalization claims in Japan chain.
Changes to hospitalization claims eligibility rules, which took effect at the end of September will greatly reduce such claims looking ahead.
Asia sales were up 27% on a constant currency basis from a year ago led by Japan, foreign currency annuities and accident and health products.
Two weeks ago on a visit to Asia I had the opportunity to engage with our team and our distribution partners and bear witness to our strong execution.
And this fast changing environment, our efforts to meet our customers, where they are and the nimbleness of that pursuit are strengthening our competitive advantage.
In Latin America, the region had another strong quarter with adjusted earnings totaling $171 million up.
<unk> from our Covid impacted $29 million a year ago.
And America sales continued to be strong rising 22% for the quarter across the region on a constant currency basis, reflecting sustained business momentum.
<unk> focus on responsible growth as an integral element of our strategy.
On an annual basis in the third quarter, we disclose our value of new business metrics for the prior year.
As I mentioned earlier <unk> is a tool that underpins our efforts to generate responsible growth.
The metrics show that Metlife has been able to put capital to work to support organic growth more effectively and efficiently over time.
For example in 2019, we deployed $3 $8 billion of capital at a 15% IRR to generate $1 $8 billion of Dnb.
Two years later, we put less capital to work to $8 billion at a higher IRR to generate even more of a M. B one $9 billion, we think our principal use of dnb and the results that we've achieved are clear differentiators format life.
The discipline, we use to evaluate and drive new business is no different than the discipline, we employ to score merger and acquisition opportunities.
During the third quarter, Metlife investment management announced a definitive agreement to acquire affirmative investment management aim is an award winning global environmental social and corporate governance investment manager with roughly $1 billion of assets under management.
Combining aims ESG capabilities with minutes fundamental investment expertise will create differentiated client solutions and offer a new and attractive opportunity for growth.
Further this transaction underscores our strategic objective to grow our investment management business, while highlighting M&A is a strategic capability for Metlife.
Moving to cash and capital Metlife continued to be active with capital management during the third quarter, we paid $400 million of common stock dividends to shareholders. We also repurchased $674 million of our common shares bringing total capital returned in the quarter to roughly $1 1 billion.
In October we repurchased an additional $176 million of Metlife shares.
There remains $1 6 billion outstanding on our current $3 billion authorization.
Metlife is well capitalized and highly liquid at the end of the quarter, we had $5 2 billion of cash and liquid assets at our holding companies, we remain comfortably above our target cash buffer of $3 billion to $4 billion in.
In closing our all weather our next horizon strategy continues to be the right strategy to guide us through the changing times ahead.
Together, the diversification of our great set of market, leading businesses, our responsible growth our efficiency mindset and our strong free cash flow generation will serve metlife well across a range of economic cycles.
We believe these are the right ingredients to create value for our shareholders and our stakeholders now and into the future.
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 details of our annual global actuarial assumption review.
Updates on our value of new business metrics, and our cash and capital positions.
Starting on page three we provide a comparison of net income to adjusted earnings in the third quarter.
Net derivative losses were primarily the result of higher interest rates.
As a reminder, metlife uses derivatives as part of our broader asset liability management strategy to hedge certain risks.
This hedging activity can generate derivative gains or losses and create fluctuations in net income because the risk being hedged may not have the same GAAP accounting treatment.
Overall, the hedging program continues to perform as expected in.
In addition, we had net investment losses from our normal trading activity in the portfolio given the rising interest rate environment.
In total the actuarial assumption review and other insurance adjustments in <unk> of 'twenty two.
Was favorable to net income by $54 million with a positive impact to adjusted earnings of $34 million and a $20 million impact to non adjusted earnings.
The table on page four provides highlights of the actuarial assumption review and other insurance adjustments with a breakdown of the adjusted earnings and net income impact by business overall, the impacts were fairly modest in Metlife holdings annuity earnings were negatively impacted by lower than expected lapses and annuity <unk>.
As well as model refinements.
This was partially offset by favorable impacts in life as a result of higher earned rates and favorable mortality.
In addition, we had a reinsurance recapture gain which was favorable to RIS adjusted earnings by $91 million in the quarter.
Our U S mean reversion interest rate remained unchanged at 275% and we have maintained our long term mortality assumptions.
On page five you can see the third quarter of year over year comparison of adjusted earnings by segment, which excludes notable items in both periods.
Adjusted earnings excluding total notable items was $932 million in <unk> of 'twenty, two down, 58% and down 57% 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 notable items was $1 16 down 55% year over year on a reported basis and down 54% on a constant currency basis.
Moving to the businesses starting with the U S business group benefits adjusted earnings more than tripled year over year, primarily due to significant improvement in underwriting margins aided by lower COVID-19 life claims as well as higher volume growth.
This was partially offset by less favorable expense and investment margins year over year.
The group life mortality ratio was 86% in the third quarter of 2002 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 desk under age 65, which was roughly 15% in Q3 of 'twenty two.
More detail on the group life mortality results over the past five quarters can be found on page 12 in the appendix.
Regarding nonmedical health interest adjusted benefit ratio was 78% in Q3 of 22 at the low end of its annual target range of 70% to 75%.
And essentially in line with the prior year quarter.
Turning to the topline group benefits adjusted <unk> were up three 4% year over year as we discussed in prior quarters excess mortality can result in higher premiums from participating life contracts in the period.
The higher excess mortality in Q3 of 'twenty, one versus Q3 of 'twenty two resulted in a year over year decline in premiums from participating contracts, which dampened growth by roughly one percentage point.
The underlying <unk> increase of approximately four 4% was primarily due to solid growth across most products, including continued strong momentum in voluntary.
Retirement, and income solutions or RIS adjusted earnings excluding notable items this quarter were down 68% year over year.
The primary driver was lower private equity returns versus a very strong Q3 of 'twenty one.
As well as less favorable underwriting.
Favorable volume growth was a partial offset.
RIS investment spreads were 71 basis points, well below our full year 2022 guidance of 95 to 120 basis points and prior year quarter, a 256 basis points due to the significant decline in variable investment income.
Spreads, excluding VII, where 101 basis points up eight basis points versus Q3 of 'twenty, one and down two basis points sequentially.
While our asset liability exposures were down 1% year over year due to certain accounting adjustments that do not impact fees or spread income RIS had strong volume growth driven by sales up 59% year to date.
This was primarily driven by pension risk transfers and stable value products.
With regards to PRT. This has been a record year for Metlife as we have completed six transactions worth $12 $3 billion year to date, and we continue to see an active market.
Moving to Asia adjusted earnings ex notable items were down 73% on both a reported and 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 4% on a constant currency basis.
In addition, Asia sales were up 27% year over year on a constant currency basis.
Primarily driven by a strong performance in Japan.
Overall, Japan sales were up 33% driven by FX annuities and accident and health products.
Each benefited from product launches and new capabilities over the past year as well as the strength of our diversified channels.
Latin America adjusted earnings ex notables were $164 million versus $31 million in the prior year quarter.
This strong performance was primarily driven by favorable underwriting and solid volume growth.
Overall, COVID-19 related deaths in Mexico were down significantly year over year.
Latam is recurring interest margins in <unk> 'twenty to continue to benefit from higher inflation rates in Chile. However, this favorable impact was more than offset by lower variable investment income.
And the Chilean and <unk>, which had a negative one 9% return in <unk> 22 versus a negative 0.3% in the prior year quarter.
<unk> top line continues to perform well as adjusted <unk> were up 21% year over year on a constant currency basis and sales were up 22% 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.
<unk> adjusted earnings excluding notable items were down, 44% and 31% on a constant currency basis compared to a strong Q3 of 'twenty one.
Which benefited from very favorable underwriting.
EMEA adjusted <unk> were down 7% on a constant currency basis, primarily due to refinements of certain unearned revenue reserves and both periods How's.
However, sales were up 10% on a constant currency basis, reflecting growth across the region.
<unk> Holdings adjusted earnings were down 77%, excluding notable items in both periods. This decline was primarily driven by lower variable investment income.
Adverse equity market impact was also a contributor as Metlife holdings separate account return was negative five 5% in the quarter versus a negative 1% in <unk> of 'twenty one.
Favorable underwriting margins in life and long term care were a partial offset.
Corporate and other adjusted loss was $265 million versus an adjusted loss of $131 million.
The year over year variance was primarily due to less favorable taxes.
Lower variable investment income and higher expenses due to market sensitive employee related costs.
The company's effective tax rate on adjusted earnings in the quarter was 23%.
Which was at the top end of our 2022 guidance range of 21% to 23%.
On page six this chart reflects our pretax variable investment income for the past five quarters, including a $53 million loss in the third quarter of 2002.
The majority of VII was attributable to the private equity portfolio of roughly $14 billion, which had an overall negative return of one 3% in the quarter.
As we have discussed previously private equity is generally accounted for on a one quarter lag. In addition, real estate equity funds had a positive four 3% return in the quarter on a portfolio of roughly $2 $3 billion.
While VII underperformed in <unk> 'twenty, two our new money rate increased to $4, 71%.
Which was 79 basis points above our rollout yield of 392%.
We expect this favorable trend to continue in a rising interest rate environment.
On page seven we provide VII post tax by segment for the prior five quarters, including a $42 million loss in Q3 of 'twenty two Rs Metlife Holdings and Asia continue to earn the vast majority of variable investment income consistent with the higher VII assets in their respective <unk>.
<unk> portfolios.
VII assets are primarily owned to match longer dated liabilities, which are mostly in these three businesses.
Turning to page eight this chart shows a comparison of our direct expense ratio over the prior five quarters, including 12, 3% in Q3 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 third quarter expense ratio was in line with our full year target, but above recent trend given higher employee related costs that are sensitive to market fluctuations.
Those costs contributed roughly 40 basis points to the ratio.
While we would expect our direct expense ratio to be higher in <unk> consistent with the seasonality of our business. We remain committed to achieving our full year direct expense ratio target of 12, 3% in 2022, despite the challenging inflationary environment. We believe this demonstrates our consistent execution and focus on an efficient.
<unk> mindset now, let's turn to page nine this chart reflects new business value metrics for Metlife major segments for the past five years, including an update for 2021 consistent with our next horizon strategy. We continue to have a relentless focus on deploying capital and resources to the highest value opportunities.
As evidence of that commitment Metlife invested $2 $8 billion of capital in 2021 to support new business, which was deployed at an average unlevered IRR of approximately 17% with a payback period of six years journey.
Generating roughly $1 9 billion in value.
New business written in 2021 reflects our disciplined approach to building responsible growth, while creating value generating cash and mitigating risk.
I will now discuss our cash and capital position on page 10.
Cash and liquid assets at the holding companies were approximately $5 2 billion at September 30th which was up from $4 5 billion at June 30th and remains well 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 approximately $700 million in the third quarter as well as holding company expenses and other cash flows.
In addition.
Holdco cash includes the proceeds from the $1 billion senior debt issuance in July .
In regard to our statutory capital for our U S companies, our preliminary third quarter year to date 2022 statutory operating earnings were approximately $1 6 billion.
While net income was approximately $2 1 billion.
Statutory operating earnings decreased by approximately $2 $4 billion year over year, driven by unfavorable VA rider reserves lower variable investment income and higher expenses.
We estimate that our total U S. Statutory adjusted capital was approximately $18 $7 billion as of September 32022, down 2% sequentially and year to date.
Finally, the Japan solvency margin ratio was 617% as of June 30th which is the latest public data.
The decline from March 2022 was primarily due to higher U S interest rates.
That being said rising interest rates improve the overall economic solvency of our Japan business.
Let me conclude by saying the fundamentals of the business remained strong solid top line growth favorable underwriting and ongoing expense discipline.
While private equity returns were down this quarter core spreads remain robust.
In addition results in our market, leading franchises group benefits and Latin America continue their strong growth and recovery.
Finally, our commitment to deploying capital to achieve responsible growth positions metlife to build 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. Please press one then zero on your telephone keypad.
We'll hear acknowledgment that your line has been placed in Q.
You may remove yourself by using the same prompt of one zero. Once again, if you have a question. Please press one zero on your telephone keypad one moment. Please.
And our first question is from Jimmy Buhler with J P. Morgan. Please go ahead.
Hi, Good morning, So first I had a question just on your new money yield if you could talk about where it stands.
With the recent rise in rates and how it compares to the yield on the maturing investments.
Hey, good morning, Jimmy It's Steve Goulart.
Thanks for the question.
I think John gave some details in Colorado, but our new money yield.
<unk> Rose again, this past quarter.
<unk> hundred 71 was the actual number.
That shows continued improvement I think a reflection of what we're seeing in the market, obviously with interest rates rising.
So we're very pleased with what it means for our general account investing.
We're obviously going to continue to see the portfolio yield rise as a result of that given that our roll off has been now for the last couple of quarters also lower than our new money rates.
I would also just remind everybody though that.
Things can be a little bit volatile quarter to quarter, just looking at the existing book of assets that we have what the roll off of maturity characteristics of those are.
This was.
We're looking to see some big blocks that rolled off this past quarter and there'll be things like that in the future as well, but I think what's important is to think about what the trend is the trend is positive we continue to see and expect our new money yield to increase.
Continue to expect to see a widening spread over the existing portfolio and Thats, obviously, a positive for net investment income.
Okay, and then as the new money yields going up how much are you having to raise.
Crediting rates are improved terms and conditions on the.
Interest sensitive products that I noticed in the retirement business.
The yield was up a decent amount but.
Crediting rates were up even I think sequentially, even a little bit more so this spread ended up declining sequentially.
Hi.
Hey, Jimmy it's Rami charge offs here, if you look at our in force for RIS the vast majority.
Our in force from accrediting, Great perspective is fixed.
You may see quarter to quarter fluctuations in terms of the credits and grid and clearly the new business we're writing.
While we're running it at attractive spreads it has a higher crediting rate given the market environment, but there is no really increases our pressure on our in force because thats mostly fixed.
And then just lastly on group benefits your margins were pretty good I think across all products.
And other companies have reported similar results as well are you seeing any signs of.
Competition in the market picking up.
Given the strong results that companies have had in the group benefits market.
Over the past few quarters.
Thanks, Jimmy It's Rob me again, so I'll give a specific answer to your question may be also helpful to give you some some broader context.
Both our mortality ratio as well as our nonmedical health ratio were clearly favorable in the quarter.
But if you look at our results historically, there is some seasonality to both of those ratios and we'd expect them to somewhat pick up in the fourth quarter just from a seasonality perspective.
In terms of the overall market.
We remain.
Extremely bullish about this market and if you were to kind of step back more broadly.
You've all heard about the workplace dynamics and how those are changing where we're seeing employees expecting more from their employers and we're seeing employers looking for a variety of levers to attract retain and engage their talent and so thats a secular trend that's here to <unk>.
Stay and that's providing kind of tailwind for the entire market.
From a competitive perspective, I would say overall pricing is competitive but is also rational.
We've talked about this in the past the short nature of these products, Jimmy really act as a natural check on any sustained irrational pricing.
And the other piece of this market that we kind of like is that you can also differentiate on many factors beyond price such a service and digital experiences.
To name a few so some of these things we believe are going to provide.
Kind of a tailwind to the overall market and keep the competitive landscape.
Rational now all of these are germane to the entire benefits industry.
They are particularly pertinent for us.
Because we are the market leader in this industry across both our core and voluntary products and that leadership and the strategic focus we've had is really giving us the scale to invest in the broad range of capabilities that we have.
It allows us to differentiate our offerings. So overall really pleased with the performance really pleased with the persistency and continue to see.
A competitive but rational market here.
Thank you.
Okay.
Next we move on to Ryan Krueger with K B W. Please go ahead.
Hey, good morning.
First question was the $1 billion.
Debt that you issued in the quarter is there anything that that earmarked or is that fully available to us.
Okay.
Good morning, Ryan It's John .
As you said, we issued $1 billion of debt back in July we got some great terms.
On that and great execution.
It's.
It is generally used its generally raised for general purposes, as well as we do have a maturity coming up in 2023 I think at the present time, we are maintaining flexibility and we'll see how things.
Progress over the next few months, but.
All in all we're pretty pleased with our Holdco cash in cash flows generally.
Got it thanks and then.
I just had a question on Japan, just given the big move in FX and rates there.
Is that do you do you view, the SM are becoming less relevant in this environment and more emerging focus on that.
Sorry in Japan, or could there be a situation, where the SLR become a negating factor spending cash out of Japan.
Yeah. Thanks, It's John again, I'll take that so as you said the <unk> was down.
In the second quarter at 617 in and certainly in the current regime.
Rising interest rates do impact that but overall as you mentioned.
And I said in my opening remarks, rising interest rates improve the overall economic value of that business.
We'll have to monitor the <unk>, we can't ignore it.
But we want to also do things that make sense and we have a number of internal tools that we can utilize to help manage that temporary impact you would see in the in the <unk> because of the asymmetrical accounting so.
So overall there.
The economics is improving as you mentioned.
In a few years' time, Theyre moving to a more economic solvency framework known as ESR that will better reflect the economics of the business.
And.
Right now we have no concerns over the capital generation or dividend capacity of the business or our overall free cash flow for the firm.
Okay, great. Thank you.
Next we go to the line of Tom Gallagher with Evercore ISI. Please go ahead.
Good morning, just a couple of questions on one on derivatives second an investment losses, just on as I think about your your hedges and I just look at derivative losses from rising interest rates I just wanted to understand if there is any real impact.
Two statutory capital generation from that I look at the last three quarters, they've been about $2 billion.
Or more than $2 billion of losses.
I didn't.
That impacted stat earnings I thought that was an adjustment attack. Just first question is just any.
Any impact that that should have on stat capital generation.
And just to clarify the $2 billion of referencing is a GAAP number right.
Yes.
Q at FES, not and I don't see that showing up in the <unk>.
<unk> and.
And Pac right, that's right, Yeah, and I think Thats a correct observation.
Obviously, there's different accounting that occurs in GAAP versus stat, I think the punch line that I would just leave you with is overall, we actively manage the statutory capital of the operating entities and as you've seen there's been a rising rate environment and I would say tech has been <unk>.
Very resilient despite the market fluctuations.
I would leave it.
Okay. So John no no real impact that you see right now on dividend capacity or capital generation that would be notable to point out.
No.
Okay and then my follow up is <unk>.
Just on the investment losses and gains in your supplement I just want to understand.
How to think about whether those will also.
Could have an impact on stat capital generation as well I think most of those should be flowing through <unk>. So to the extent that you have net losses I think that will reduce.
IMI amortization gains every year, but it'll have a very modest annual impact am I thinking about that correctly or can you shed some light on that.
Hey, Tom It's Steve Goulart.
John and I will tag team on this a little bit, but just thinking about what's happening in the market and trading and losses in the first thing I'd say is.
Losses are not unexpected in this environment, just given rising rates.
Though I would note that they are down significantly from where they were last quarter, which I think shows sort of a more moderating environment in that respect and again like I said last quarter.
It's usually.
Pretty easy to decipher understand why we're taking losses, it's a combination of rotating temporary assets into the permanent assets and things like <unk> and other.
Longer term liabilities and also just funding outflows and cash flow needs of the different businesses, whether it be surrenders of capital markets and the like so that sort of sets the stage again.
Down from last quarter, as we would expect and obviously if there is something though that we do manage and John can talk a little bit about the capital impacts.
And Youre correct.
If you have an RMR balance that would typically get absorbed we're in that position today, but it's one you'd have to actively monitor and manage and.
And we plan to do so.
Okay. Thanks.
Our next question is from Erik bass with Autonomous Research. Please go ahead.
Hi, Thank you you highlighted the strong PRT sales year to date in a robust pipeline I was just hoping you could talk about how the rise in interest rates is affecting both the plan sponsor demand for risk transfer as well as the pricing for transactions and also in the past I think you've given a rule of thumb for the earnings contribution from each $1 billion of sales.
Wondering if this is still the right level to think about.
Hey, Eric it's Rami here.
The answer the second question first yes, that's still the rule of thumb still holds and that's how you should think about the earnings run rate of these deals.
With respect to the overall PRT market.
Clearly I think the headline number to look at is the.
Overall funding level.
Which is going to be helped by rising interest rates and therefore.
Improve if you fill the affordability and the funding levels of defined benefit plans to to engage in any kind of pension risk transfer.
Clearly we've seen we're on track to have a record year. This year with respect to PRT, we're extremely pleased with winning our largest deal ever with IBM.
And we still see a very robust.
Our pipeline in front of US I mean, we are the market leader here, we have deep experience working with plan sponsors and their advisers on all aspects of pension risk transfer.
And we have a very clear strategy in this market, we're focused on the jumbo end of the market.
That plays to our competitive strengths in terms of our rating the size of our balance sheet, our investment capabilities and you see large sponsors like IBM are looking for solution providers with a very long track record of <unk>.
Being in this business.
Are the also note that the.
The jumbo end of the market is the part of the market, where the competitive set of providers tends to be somewhat smaller given all the other attributes I've talked about.
And the last thing I would point on this market. While we are a market leader in actively engaged we always have our eye on value and value of new business.
Going back to the chart that Michel and John referenced and we want to write business that we are writing business, which with our oes that are well within our enterprise already targets.
Thank you and then I was hoping you could talk about the growth outlook for the Latin American business Theres been strong sales momentum and you're back to the earnings run rate that you had talked about so looking forward as double digit growth in <unk> and earnings from here kind of the right target to think about.
Yeah, Hi, thanks, Thanks, Erik this is Erik.
So yes overall.
Overall, we had another solid quarter for the region.
Supported by buy.
What you know is the strength of our franchise our strong underlying business fundamentals are.
All of it combined with favorable market factors.
And table wins last quarter and this quarter, we continued to deliver on our growth commitments.
As evidenced and as you mentioned by a double digit growth.
<unk> that will reflect.
Reflective both of our strong sales and solid persistency.
Good momentum that we're continuing to see across all countries.
Now the sales momentum.
Again really last year has continued throughout this year.
It is reflective of the resilience of our distribution channel.
<unk> and the diversified product mix and overall solidity and growth potential of the franchise in the region.
The sales the.
Sales quarter.
The strong sales quarter was really across across the regions and across.
It across all channels, with Chile, and Brazil, having the record record quarter.
Brazil actually.
I want to point out. This is a growth story, we have grown twice as fast as the markets. We are growing very well across all channels and all products and just to give you an idea this quarter, Brazil contributed to over 20% of the region's sales so that overall flight to quality that I referenced last quarter.
As also evidenced by the strong persistency that we're continuing to see.
And the robust sales.
Although year over year and quarter over quarter.
So overall.
We don't update our outlook and we will do so in February but we're very pleased with the momentum and the growth that we're seeing across the region.
Great. Thank you.
And our next question is from Alex Scott with Goldman Sachs. Please go ahead.
Hi, first question I had views on expenses I know you guys have guided to this direct expense ratio but.
But I also recognize you've been getting pretty good growth across a number of your businesses. So I just wanted to better understand the kind of operating leverage do you expect to get over time.
Yes, good morning, Onyx, it's Michelle.
So let me just maybe remind us.
Why we anchored on the 23.
And we talked about building an efficiency mindset.
As part of our DNA and we're seeing excellent traction on this front.
And the idea here is that we wanted to free we want to continue to free up capacity to.
Make important investments in our business and we've been able to do so over the last few years and I think this is playing out.
Very nicely if you think about I referenced.
Voluntary benefits and some of the capabilities that we've introduced there Japan in terms of.
Digitizing, our business and speed to market in terms of introducing new products. So we believe it's important to continue to make those types of investments to drive our competitive advantage going forward now when we did sort of established a 12 three target.
Obviously it was also in a different environment if you consider.
The inflationary pressures that everyone is feeling at the moment yet.
And again I think this is.
Credit to the sort of efficiency mindset that we've built here.
We continue to be committed to achieving <unk> three for the year.
Last thing I would point to.
At.
Whereas we're having a record year when it comes to PRT.
Over $12 billion.
And Youll PRT deals.
PRT premiums does not factor into our direct expense ratio does not sort of help.
Help us from that from that standpoint, yet there are obviously expenses associated with winning this business. So for all those reasons. We continue to believe that <unk> is the right target for us.
Got it that's really helpful. And then maybe just a follow up on the capital deployment and the value of new business disclosure you all gave.
You need to show in that disclosure that the the.
The margins that you.
We're making a new business or seemingly getting.
Materially better does it makes sense to deploy more capital I mean, I noticed you deployed a little bit less a better better margins does it make sense to ramp that up as we think about 2023 and how much you'll deploy barring new business.
Okay.
Alex.
Morning, It's John Yeah, It's a great great point I mean, we are focused on achieving.
Solid returns and deploying capital to its highest and best use.
And ultimately creating value.
Alright value is the important number there and while while the IRR and the payback is also not we don't want to just get focused on one metric. The reality is that when we can deploy a greater amount of capital.
To improve value that we're comfortable with we're going to do it and I think thats a great call out I think that you've made is not we're not just focused on reducing the amount we deploy we want to deploy more at very attractive returns.
And I think that will fluctuate and we you can see it.
A transition that has happened over time and Thats the trend Youre seeing we're at a great point right now where I think to the extent, we can deploy even more capital at attractive returns, we're going to do it.
Got it thank you.
And our next question is from.
Sunita Kumar with Jefferies. Please go ahead.
Yes. Thanks, good morning, just coming back to PRT for a second.
Just wanted to think through the capital needs as you think about growth in that business. It didn't look like you needed to infuse any capital to support IBM. So just wanted to confirm that but also as you think about the pipeline.
Is the opportunity set that you see in front of you going to require more capital or is that business sort of self funding at this point.
Good morning, Sidney This is John .
Let me, maybe just take it at a high level and maybe touch on I referenced in my opening remarks, a slight decline in stat capital.
If you think about that it was about 2%.
Part of that most of that I'd say it was attributable to the large.
The deal we did in the third quarter and the related capital strain offset by some capital generation as well as.
As well as we also updated some of our latest estimates on.
The net positive impact from the C to updates around mortality and morbidity. So net net I think overall.
We've been able to self fund our record year to date now your question on the outlook I think everything's dependent I mean volume and volume is a dependent factor in answering that question, but right now we feel very comfortable with being able to fund within the operating entities whats needed to successfully grow this business.
<unk>.
Okay got it and then I guess for Steve V.
Hi.
Any thoughts on kind of fourth quarter, and then also as we think about longer term.
Given kind of higher rates in volatile markets any change to kind of a longer term thought around what the returns of this portfolio could be.
Hi, good morning.
I would say probably several points just thinking about VII and specifically the alternatives portfolio versus just remember our guidance.
We've been very consistent for several years in that 12% is our expectation and every year. When we go into planning, 3% a quarter and I would say that even now looking forward to the last part of your question.
I Wouldnt anticipate that changing that's just how we think about this portfolio.
The second thing is <unk>.
Really our experience and we've talked a lot about this too where in general one of the things that we've always found attractive about the alternatives portfolio is that it does give us equity like returns, but it gives it to us with less volatility and less extremes.
As compared to some other public market.
Alternatives would so so thats why its been very attractive to US now we did we talked a little bit several quarters over the last couple of years, where we saw that relationship will be.
Challenge, but when we look at the last couple of quarters. We do think that we're returning to sort of the historical norm and our expectations, which is again.
More muted in terms of volatility and extremes, but still giving us very attractive returns. So so I don't think our outlook would change for it now.
But we continue to like it for the reasons that we mentioned.
Okay. Thanks.
Yes.
Next we have a question from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks. Good morning, My first question I know you guys are typically app.
About <unk> potential.
Potential transaction.
And your Black Silicon Holdings.
Anything new there any changes that you're seeing within the bid ask spread within the market in the quarter.
Hey, good morning Elyse.
Nothing new to update here.
<unk>.
It's still an active market out there there is still an active set of participants.
We continue to focus on optimizing holdings, both from an internal perspective, as well as speaking with external participants on opportunities and.
As we have been for quite some time and it's.
It's a.
<unk> opportunity, but it's not one where we feel like we have to do anything and we're being.
Thoughtful about seen it there is a.
Opportunity, one way or the other so but nothing nothing new at this point.
Yes.
And then on the RIS.
Core spread ex VII.
Hi.
Anything anything within that number and how should we kind of think about that trending from here.
Hey, good morning, Elyse, It's John again.
Said.
Total spreads were at 71.
Ex VII came in at 101.
So year over year up eight basis points on an ex VII basis, and then down sequentially year over year. It's obviously the higher interest rates have been beneficial we have more of these interest rate caps that are in the money.
That are starting to kind of add to the spread.
Sequentially It was down to two basis points in the second quarter I called out that there were there were some <unk>.
Excess returns in real estate that we expected to moderate they did so I'd say third quarter came in pretty much as expected.
And then I think the thing going forward here is certainly based on the forward curve, which I just pulled up this morning of three month, LIBOR, which is expected to rise to above 5% in the end of the year and beyond into next year.
These caps will still be in place and.
Will will be additive to the spread I would say for fourth quarter.
We would expect spreads all else equal to grow by five plus bips.
Thank you.
Hi.
Next we go to the line of well not burdened with Raymond James. Please go ahead.
Good morning, Matt previously guiding to 650 $750 million of corporate costs for 2022.
It sounds like you are sticking to the 12, 3% expense guidance, but should we expect a higher run rate in corporate heading into 2023.
Kevin PLO growth and inflation.
Hey, good morning, Wilma This is John .
Good question I think couple of things to point out in terms of just third quarter first in the first and third quarter, we typically have higher preferred stock dividends by about $30 million.
Second we are running a little heavier on interest costs on debt just because of the $1 billion of debt. We raised in July I think third item is PE returns have been down.
The last couple of quarters, and then lastly, I called out in my opening remarks.
We do get we have seen over the last couple of quarters, some higher market sensitive employee related costs or corporate costs that we referred to and actually that probably hit us by about 40 basis points on the expense ratio. This quarter. So we are running a little heavy as Michel commented before we still expect to meet.
The 12, 3% target.
Despite this.
And then I think we'll we'll talk about.
Outlook as we get into our February call. So hopefully that helps.
Okay. Thank you.
Second question you previously.
Previously guided to roughly $65 million quarterly earnings run rate.
EMEA, but it seems like 56, this quarter $56 million a quarter with <unk>.
<unk> normal.
I'm wondering if that's a good run rate reflecting currency pressures.
Yes, I think I think that's a pretty simple way of thinking about it when you're on their currency is basically brought down that run rate.
Over the last couple of quarters, So I think youre right Theyre, probably the new number is probably closer to that.
Yes.
Thank you.
And Thats all the time, we have available for questions and we will now pass the call back to Metlife CEO Michel <unk> for closing remarks. Please go ahead.
Thank you all for joining us this morning.
When we rolled out our future work model in March we did still grounded in the belief that the office plays an important role in how we live our purpose.
I've now had the opportunity to visit our major offices in the U S and internationally.
The vibrancy energy and focus I encountered was palpable and speaks to the cultural evolution underpinning our next horizon strategy.
More evidence of this emerged in our annual global employee survey, where our participation rates and engagement scores reached their highest levels ever.
Life is a team sport these levels of energy and engagement give us further confidence in our ability to relentlessly execute on our strategy and deliver long term value for our stakeholders.
Again and have a great day.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Yeah.
Okay.