Q4 2022 MetLife Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the Metlife fourth quarter and full year 2022 earnings and outlook conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time as a reminder, this.
The conference is being recorded before we get started I refer you to the cautionary note about the forward looking statements in yesterday's earnings release and to risk factors discussed in Metlife S. E. C filings with that I will turn the call over to John Hall Global head of Investor Relations.
Thank you operator, good morning, everyone. We appreciate you joining us for Metlife fourth quarter 2022 earnings and near term outlook call before we begin I'd point you to the information on non-GAAP measures on the Investor relations portion of <unk>.
<unk> dot com in our earnings release and in our quarterly financial supplements, which you should review.
On the call. This morning are Michel Who'll walk 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 as well as our near term outlook there.
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 the slides features outlook sensitivities disclosures GAAP reconciliations and other information, which you should also review.
After prepared remarks, we will have a Q&A session in light of the busy morning, Q&A will promptly and at the top of the hour in fairness to everyone. Please limit yourself to one question and one follow up.
With that over to Michele.
Thank you John and good morning, everyone.
As I look back on 2022, I am pleased with the relevance of our next horizon strategy and how it positions us to absorb the challenges presented in the year and to succeed going forward.
2022 it was a year still affected by Covid, and we incurred an impact of more than $650 million pre tax.
For the year, we saw pretax variable investment income come in 19% lower than our outlook expectation on lower returns in our private equity portfolio.
And from a macroeconomic perspective, we felt the pressure from rising inflation, a falling equity market and the stronger dollar yet despite these hurdles metlife performed.
Our strategy proved its resilience and our consistent execution driven by disciplined under termination pay it off in 2020 two.
We delivered an adjusted return on equity of 12, 3% for the year meeting our targets for this important metric.
We pushed ourselves driven by our efficiency mindset and succeeded in posting a full year of direct expense ratio of 12, 2%.
Our strong 2022 free cash flow generation enabled us to hit our two year free cash flow ratio target of 65% to 75%.
This fueled the return of $4 $9 billion of cash to our shareholders.
And finally, we ended the year with $5 $4 billion of cash and liquid assets at our holding companies Army us with ample financial flexibility.
With a great set of market, leading businesses good growth prospects around the world and the strength of our balance sheet and our free cash flow generation I believe Mike life is very well positioned for the future.
When we established our next horizon strategy at the end of 2019, we made several five year commitments against which we measure ourselves and more importantly hold ourselves accountable I.
I am pleased with our success to date in meeting those commitments, even more I am confident that we will beat each one we.
We committed to an adjusted return on equity of 12% to 14%.
Today, we are boosting our target adjusted Oro E range to 13% to 15%.
This reflects in part our growth combined with our sustained discipline in pricing our product and in managing our capital.
We said, we would generate $20 billion over five years of free cash flow, we expect to exceed this target.
We committed to freeing up an additional $1 billion over a five year period to invest in growth and innovation.
We are on track to overachieve against this target and we are reaping the benefit of these investments.
When we made these commitments we did not expect U S interest rates to approach their lowest level in history. Neither did we contemplate a global pandemic.
While the environment may change or accountability does not we are also not content to maintain the status quo, we seek to challenge ourselves and push for more to raise the bar.
Now, let's turn to our fourth quarter 2022 results.
Last night, we reported quarterly adjusted earnings of $1.2 billion or $1 55 per share, which compares to $1 $8 billion or $2 17 per share a year ago.
We generated strong underwriting results as Covid losses retreated further while our recurring investment income continues to grow on higher new money rates.
This was offset by variable investment income falling below our quarterly outlook expectation and a stronger dollar.
Shifting to the full year 2022.
Diversification of Metlife portfolio of market, leading businesses once again proved its value.
Most of our businesses and segments have returned to underlying levels of earnings equal to or greater than prior to the pandemic.
Our U S group benefits business as a clear leader in this attractive segment of the life insurance industry.
During the year, we grew our group benefits P. F O was roughly 5% on top of double digit growth the year prior.
Our growth in group benefits represents more than $1 billion of new P. F O's, bringing full year group benefits P F o's to approximately $23 billion.
These numbers matter.
First we bring the broadest set of products to our customers life dental disability vision, A&H legal and insurance among many others more than any other carrier.
Second group benefits is a business, where you have to make significant investments to keep up with evolving customer unemployed where expectations are.
Our scale enables us to make those investments to add products and capabilities and to further digitize and enhance the customer experience.
All of this adds up to drive the growth and persistency, we've achieved in our group benefits business over the last several years as well as the growth we expect to achieve in the future.
Moving to highlights from other segments and businesses.
Retirement and income solutions business produced its strongest year of pension risk transfer volume in our history more than $12 billion, including our largest ever single deal.
Our Asia segment continued to generate strong sales growth.
11% on a constant currency basis, and a market that remained in COVID-19 script before much of the year.
And our Latin America segment enjoyed both strong top and Bottomline results, particularly in Mexico.
Heightened awareness of the importance of the products, we offer coupled with a flight to quality drove sales up 26% on a constant currency basis.
Bush persistency higher and added to adjusted earnings.
Moving to capital and cash.
Life is well capitalized and has plenty of liquidity well above our target cash buffer of $3 billion to $4 billion.
Our U S and international insurance businesses are self funding.
Our strong capital and liquidity position allows us to meet our commitments and obligations, but also equips us with the financial flexibility to seize attractive opportunities that may present, an unsettled environments.
We have built a clear track record in terms of how we deploy capital to its highest juice.
If we have opportunities to put capital to work organically or via mergers and acquisitions at appropriate risk adjusted hurdle rates, we will do so okay.
Case in point, we deployed approximately $3 $8 billion of capital to support organic new business in 2022.
Absent such opportunities, we will return capital to shareholders.
And 2022 we paid to make love shareholders $1 $6 billion of common stock dividends, and we repurchased $3 $3 billion of common stock.
In January we purchased roughly an additional $250 million of common stock and we have around $900 million remaining on our current authorization.
Before I close I would like to take a moment to recognize a true visionary in the history of Metlife.
He came in much less chairman of the board and Chief Executive Officer from 1993 to 1998 passed away on December 20 at the age of 89.
How do we spent nearly his entire career at Metlife, starting as a junior attorney.
As chairman and CEO , Harry infused met life with a new corporate vision and an emphasis on profitable growth something very much in line with our current focus on responsible growth.
Harris, passing reminds us of the debt, we owe at Metlife to those that went before us and building this great company since its founding and 18 68.
In closing our next horizon strategy continues to prove its resilience in a changing and shifting environment.
Our total shareholder return of more than 19% in 2022 underscores the significant value we created for our shareholders against this backdrop.
As we look ahead. Our work is not done we are raising the bar and setting our standards higher.
As much as we have accomplished in recent years.
I believe there is still much ahead for us to achieve that.
The World has opened up I was able to spend more time on the road in the last half of 2022 since the start of the pandemic.
A more invigorated than ever to get out and meet face to face with our customers our distribution partners, our employees and our shareholders I look forward to updating some and introducing others to what we're building up in that life.
Company capable of being equality compound or across a range of economic cycles.
Now I'll turn it over to John to cover our performance and outlook in detail.
Thank you Michelle and good morning, I'll start with the <unk> 22, supplemental slides, which provide highlights of our financial performance and update on our cash and capital positions and more detail on our near term outlook.
On page three we provide a comparison of net income to adjusted earnings in the fourth quarter and full year.
Net income in four key <unk>, 22 was $1 $3 billion or $88 million higher than adjusted earnings.
Net investment gains in the fourth quarter were primarily driven by real estate sales.
Which were partially offset by losses on the fixed maturity portfolio due to normal trading activity in a rising rate environment.
Credit losses in the portfolio remain modest. In addition, we had net derivative gains primarily due to the weakening of the U S dollar in the quarter.
For the full year net derivative losses accounted for most of the variance between net income and adjusted earnings primarily due to higher interest rates in 2022.
Overall, our hedging program continues to perform as expected.
On page four you can see the fourth quarter year over year comparison of adjusted earnings by segment.
Excluding $140 million of notable tax items that were favorable in the fourth quarter of 'twenty, one and accounted for in corporate and other.
Adjusted earnings for Q, 22 were $1 $2 billion down, 28% and down 26% on a constant currency basis.
Lower variable investment income drove the year over year decline.
While higher recurring interest margins and favorable underwriting were partial offsets.
Adjusted earnings per share were $1.55 down 23% year over year.
And down 21% on a constant currency basis.
Moving to the businesses starting with the U S grew.
Group benefits adjusted earnings were $400 million versus $20 million in <unk> of 'twenty, one primarily due to significant improvement in underwriting margins aided by lower COVID-19 life claims as.
As well as higher volume growth.
This was partially offset by less favorable expense margins year over year.
Group life mortality ratio was 87, 6% in the fourth quarter of 'twenty two.
In the middle of our annual target range of 85% to 90%.
Regarding nonmedical health interest adjusted benefit ratio was 69, 4% in Q4 of 'twenty two.
Slightly below its annual target range of 70% to 75%.
And below the prior year quarter of 74, 2%.
The non medical health ratio benefited from favorable disability severity, while dental was in line with expectations.
Turning to the topline group benefits adjusted P. F. Those were essentially flat 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 Q4, 'twenty, one versus Q4 of 'twenty two resulted in year over year decline in premiums from participating contracts, which dampened growth by roughly six percentage points.
The underlying P. F O increase of approximately 6% was primarily due to solid growth across most products, including continued strong momentum in voluntary.
For the full year group benefits adjusted P. F O growth was 3% while underlying growth excluding excess premiums from participating contracts in 2021 versus 2022.
Was up 5% and within the 2022 target range of 4% to 6%.
Retirement, and income solutions or R. I S. Adjusted earnings were down 40% year over year.
Primary driver was lower variable investment income.
Mostly due to weaker private equity returns.
This was partially offset by favorable recurring interest margins year over year.
RIS investment spreads were 96 basis points and 112 basis points excluding VII.
Up 21 basis points versus Q4 of 'twenty, one and up 11 basis points sequentially.
Primarily due to income from in the money interest rate caps.
Our S liability exposures were down 1% year over year due to certain accounting adjustments that do not impact fees are spread income.
That said our S had strong volume growth driven by sales up 23% in 2022.
This was primarily driven by pension risk transfers and stable value products. In addition, we had a record sales quarter for structured sediments demonstrating the strength of product diversification within our I S.
With regards to PRT, we completed six transactions worth $12 $2 billion in 2022, a record year for Metlife and we continue to see an active market.
Moving to Asia, adjusted earnings were down, 63% and down 62% on a constant currency basis, primarily.
Primarily due to lower variable investment income.
In addition, we had a write down of a deferred tax asset in China as it was determined that the accumulated tax losses were unlikely to be utilized within the required five year statutory period.
The write down of the D. T. A reduced ages adjusted earnings in Q4 of 2022 by $34 million after tax and was accounted for in net investment income due to the equity method of accounting treatment for our China joint venture.
While Asia's underwriting was modestly unfavorable versus Q4 of 'twenty. One we saw a significant sequential improvement due to lower Covid claims in Japan.
Asia is key growth metrics remain solid as general account assets under management on an amortized cost basis grew 4% on a constant currency basis.
And sales were up 12% year over year on a constant currency basis, primarily driven by FX annuities sold through face to face channels in Japan.
For the full year Asia sales were up 11% exceeding its 2022 guidance of mid to high single digits.
Latin America adjusted earnings were $181 million up, 45% and up 51% on a constant currency basis.
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. In addition, the Chilean and Cai, Hey, which had a positive 6% return in for Q 'twenty two.
Versus 4% in the prior year.
And higher recurring interest margins were positive contributors.
These two favorable items were partially offset by lower variable investment income year over year.
Latam top line continues to perform well as adjusted P. F. Those are up 20% year over year on a constant currency basis and sales were up 22% on a constant currency basis.
Driven by growth across the region.
EMEA adjusted earnings were $70 million up, 67% and up 112% on a constant currency basis.
Primarily driven by favorable underwriting versus Q4 of 'twenty one.
Which had elevated COVID-19 related claims, particularly in the U K.
This was partially offset by less favorable expenses.
Year over year.
EMEA adjusted <unk> were up 2% on a constant currency basis, and sales were up 13% on a constant currency basis, reflecting solid growth across the region.
Metlife Holdings adjusted earnings were $208 million down 57%.
This decline was primarily driven by lower variable investment income.
In addition, less favorable expense margins and adverse equity market performance also reduced adjusted earnings year over year.
Corporate and other adjusted loss was $219 million versus an adjusted loss of $177 million in the prior year, which excludes favorable notable tax items of $140 million.
Higher taxes, and lower net investment income were partially offset by lower expenses year over year.
The company's effective tax rate on adjusted earnings in the quarter was approximately 19%, which includes favorable tax benefits primarily related to the settlement of an IRS audit.
Excluding these favorable items the company's effective tax rate was approximately 22% within our 2022 guidance range of 21% to 23%.
On page five this chart reflects our pretax variable investment income for the four quarters and full year of 2022.
V I was $24 million in the fourth quarter.
Private equity portfolio, which makes up the bulk of the V. I a asset balances had a negative 0.3% return in the quarter.
As we have previously discussed private equities generally accounted for on a one quarter lag.
For the full year VII was $1 $5 billion below our 2022 target range of one $8 billion to $2 billion, our private equity portfolio had a positive 7% return in 2022 a solid performance in comparison to the public equity markets with the S&P 500 down 19%.
While V I I underperformed in for Q 'twenty, two our new money rate increased to $5 six 6%.
Which was 150 basis points above our roll off yield of 4.16%.
On page six we provide V I a post tax by segment for the four quarters and full year 2022.
On a full year basis, you'll note already asked Metlife holdings in Asia 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 dated 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 eight quarters and full year 2021 and 2022.
Our direct expense ratio in <unk> of 'twenty, two was elevated at 13, 1%, reflecting the impact from seasonal enrollment costs in group benefits as well as higher employee related costs and timing of certain projects that said as we've highlighted previously we believe our full year direct expense ratio is the best way to measure performance.
Due to fluctuations in quarterly results.
For the full year of 2022 our direct expense ratio was 12, 2%.
Below our annual target of 12, 3%.
We believe this result, once again demonstrates our consistent execution and focus on an efficiency mindset in a challenging inflationary environment.
While continuing to make investments in our businesses.
I will now discuss our cash and capital position on page eight.
Cash and liquid assets at the holding companies were approximately $5 $4 billion at December 31st which was up from $5 $2 billion at September 30th and remained 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 paint.
Payment of our common stock dividend.
Share repurchases of approximately $600 million in the fourth quarter as well as holding company expenses and other cash flows.
For the two year period, 2021 2022 our average free cash flow ratio. Excluding notable items totaled 68% and was within our 65% to 75% target range.
In terms of statutory capital for our U S companies, we expect our combined 2020 to NTIC RBC ratio will be above our 360% target.
Preliminary 2022 statutory operating earnings for our U S companies were approximately $2 $6 billion. While net income was approximately $3 billion, we estimate that our total U S. Statutory adjusted capital was $18 $3 billion as of December 31, 2022, a decrease of 3% sequentially.
Primarily due to derivative losses, and dividends paid partially offset by operating earnings and investment gains.
Finally, while our Japan solvency margin ratio dipped below 500% as of September 30th.
We expect the Japan S EMR to be approximately 700% as of December 31st.
Which will be based on statutory statements that will be filed in the next few weeks.
As we have discussed on prior calls, our Japan business as well as Metlife overall does better economically in a higher interest rate environment. However, given the asymmetrical nature of how the S. M ours calculated the ratio declines in a rising rate environment as assets are mark to market, but not the corresponding.
<unk> as a result, we executed an internal reinsurance transaction in December with our Bermuda entity, which has an economic base solvency regime.
This transaction improves the Japan S EMR ratio by approximately 250 percentage points.
Before I shift to our near term outlook starting on page nine a few points on what we included in the appendix.
The chart on page 15 reflects new business value metrics for met lives major segments from 2017 through 2021. This is the same chart that we showed as part of our three Q 'twenty two supplemental slides, but we felt it was worth including again for the sake of completeness.
Also pages 16 through 19 provide interest rate assumptions and key outlook sensitivities by line of business.
Turn it back to page nine our 2023 to 2025 outlook reflects the impacts of the new accounting requirements of long duration targeted improvements or L. D. G I.
Well 2022 actually is used for growth rate calculations remain as previously reported on a pre L. D G I basis.
In mid April or roughly two to three weeks prior to the reporting of our <unk> 23 earnings we plan to provide you with a recasting Q F. S based on the L. D T I for each of the quarters in 2022, while.
Although it would be certain positive and negative effects, depending on product and segment.
We do not expect the underlying run rate of adjusted earnings for the firm overall to change materially.
Now, let's turn to page 10 for further details on our near term outlook.
We assumed COVID-19 to be endemic consistent with the recent trends that we had been experiencing.
We expect continued uncertainty to persist around inflation and a potential recession in 2023.
Based on the 12 31 22 forward curve, we expect interest rates to rise in 2023.
Finally.
For purposes in the near term outlook, we assume a 5% annual return for the S&P 500, and a 12% annual return for private equity. This is consistent with our long term historical returns for P.
Moving to near term at targets, we are increasing our adjusted <unk> range to 13% to 15%.
This increase of 100 basis points from our prior 12% to 14% ROE range is a function of the growing impact of our mix of business and higher new business returns over the last several years as well as the impact of L. D. G I.
We expect to maintain our two year average free cash flow ratio of 65% to 75% of adjusted earnings excluding total notable items.
Our direct expense ratio guidance for 2023 has been recalibrated to reflect L. D. T. I by approximately 30 basis points to 12, 6%.
This captures an approximate $1 billion reduction in adjusted P. F. O's, excluding PRT is due to the change in accounting this.
This is primarily related to certain annuity contracts within our S. As well as shifting certain variable annuity fees to market risk benefits, which are reported outside of adjusted earnings.
Since this change in accounting to L. D Ti will be retroactively applied back to the beginning of 221 or.
Our previously reported direct expense ratios will likewise be recalibrated to put 2021 and 2022 on the same basis as 2023 and beyond.
Our VII for 2023 is expected to be approximately $2 billion. After applying our historical average returns on asset balances.
I'll provide more detail on VII in a moment.
Our corporate and other adjusted loss target is expected to remain at $6 $50 million to $750 million after tax in 2023.
We are increasing our expected effective tax rate range by one point to 222% to 24% to reflect our expectation for higher earnings in foreign markets and lower tax credits in the U S.
At the bottom of the page, you'll see certain interest rate sensitivities relative to our base case.
Reflecting a relatively modest impact on adjusted earnings over the near term.
On page 11, the chart reflects our V. I, a average asset balances from $14 7 billion in 2021% to $19 billion expected in 2023.
Private equities will continue to hold the vast majority of our VII asset balances.
We are applying our historical annual returns for each asset class with N V. I E. In addition to the P. E annual return of 12%, we expect an annual 7% return for real estate and other funds.
Finally, as a reminder, we include prepayment fees on fixed maturities and mortgage loans N V I a.
So now I'll discuss our near term outlook for our business segments, let's start with the U S on page 12.
For group benefits, excluding the excess premium from participating group life contracts of approximately $750 million in 2022 adjusted P. F. O's are expected to grow at 4% to 6% annually.
Regarding underwriting we expect the group life mortality ratio to be between 85% to 90%.
We are also maintaining the expected group non medical health interest adjusted benefit ratio at 70% to 75%.
Keep in mind. These are annual ratios and are typically higher in the first quarter for both group life and non medical health given the seasonality of the business.
For our I S. We are maintaining our 2% to 4% expected annual growth for total liability exposures across our general account spread and fee based businesses.
We are increasing the range of our expected annual RIS investment spreads by 40 basis points.
Two $1 35 to 160 basis points in 2023.
The majority of this increase is driven by continued expectations of rising interest rates on the short end of the curve and the resulting benefit of interest rate cap income.
Which we expect to peak in the first half of 2023.
In addition.
D G I will contribute approximately 10 basis points to the investment spread calculation, while not increasing adjusted earnings.
<unk> transitioned to L. D T I, the unlocking of future cash flow assumptions to current best estimate increased our deferred profit liability, which.
Which is amortized into earnings.
We will now be included in the spread calculation, reducing other sources of earnings overall, the conversion to L. D. T I will not significantly change our run rate adjusted earnings.
For Metlife Holdings, we are expecting adjusted P. F O to decline, 12% to 14% in 2023, driven by the normal run off of the business market declines and the transition to L. D T I.
Beyond 2023, we expect annual P F o's to decline 6% to 8%.
We are lowering the life interest adjusted benefit ratio target to 40% to 45% in 2023 from the prior 45% to 50% target.
To reflect the impact of lowering policyholder dividend levels. Finally, we are maintaining the adjusted earnings guidance of 1 billion to $1 $2 billion in 2023.
Now, let's look at the near term guidance of our businesses outside the U S on page 13.
For Asia, we expect the recent sales momentum to continue and generate mid to high single digit growth on a constant currency basis over the near term in.
In addition, we expect general account AUM to maintain mid single digit growth on a constant currency basis.
We expect Asia adjusted earnings excluding $270 million of COVID-19 claims in 2022.
To grow at a mid single digits over the near term.
For Latin America, we expect adjusted <unk> to grow by low double digits over the near term, we expect our adjusted earnings to grow high single digits over the near term, excluding roughly $80 million due to favorable market related factors in 2022.
Finally for EMEA, we are expecting sales and adjusted <unk> to grow mid to high single digits on a constant currency basis over the near term we.
We expect EMEA run rate adjusted earnings to be roughly $55 million per quarter in 2023.
Reflecting the impact of currency headwinds and then grow by high single digits in 2024 and 2025.
Let me conclude by saying that Metlife delivered a good quarter to close out another strong year, reflecting the strength of our business fundamentals.
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, you will hear acknowledgment that your line has been placed in Q. If you wish to remove yourself from the queue. You May press. One then zero a second time one moment. Please for the first question.
And we go to the line of Erik bass with Autonomous Research. Please go ahead.
Hi, Thank you Risa.
<unk> recently seen an increase in the number of layoff announcements, particularly from larger employers I was I was just hoping you could talk about what you're seeing from your clients, particularly in the group business and then what you're assuming for employment and wage inflation in Europe , 4% to 6% P. F O growth outlook.
Thanks, Eric it's its rami here.
So the short answer is we're not seeing any impacts across our group business today in fact quite the opposite so maybe let me give you just a couple of overall points before I get into the specifics of our business. So if you think about a recession and a potential recession.
As you know no two recessions are the same.
So sitting here, it's really difficult to speculate how it potential recession scenario could play out in terms of the employment levels and particularly.
To which segment of the economy that would impact.
And then the second point before I get into the specifics of the business.
You've all seen the headlines, but overall, we're still sitting in a pretty tight labor market with pretty with low unemployment levels.
And you also have to remember when you look at group benefits.
The underlying long term trends with respect to the dynamics in the workplace, which really favor benefits and we see those trends continue being fought out in the future.
So if you think about specifically our our franchise.
While we're certainly not immune I'm, sorry tore downturn.
There are a number of important Michigan's in our business, which make us fairly resilient from a topline and bottom line perspective.
And I would say give us a real confident sitting here today with respect to our guidance ratios in terms of P. A full growth. So let me just give you a kind of a bit of a sense of what gives us the confidence from a topline perspective.
Our book is highly diversified by industry and by size of employer a.
Which limits our diversification our exposure to any single segment. So really diversification is our friend here on in is crucial to our ability to perform.
As we stand here in January were off to a great start in 'twenty three are we're seeing excellent sales.
Sales momentum across the business and we had an enforced book books that has performed exceptionally well both with respect to the one one persistency on renewal as well as the rate actions.
And we still see significant growth opportunities in our market and those are the buckets are results of the investments, which Michel referenced so we've spoken about those them to possibly the the voluntary opportunity with respect to enrollment strategies in the in the workplace.
Be it the market, leading national accounts business that we have or be it growth in the regional markets, where we see a fragmented marketplace. That's that's consolidating so so all in all you put all of this thing all of this picture together in terms of our starting point and the profile of our business and that gives us a pretty high degree of.
Confidence with respect to the the guidance range the underlying assumptions specific to your second question really I'll guide you back to the assumptions that John mentioned in.
And the outlook assumptions with respect to an uncertain environment with a potential for a recession, but despite that we're we feel pretty good about our guidance ranges.
Great. Thanks, Rami and then my second question was just on what's enabling the earnings for Metlife holdings to be so resilient. Despite the decline in P. F. O's and then the lower equity markets that we saw last year and I guess related or at what point should the earnings start to follow the P. F O is lower.
Yeah.
Good morning, Eric It's John Great question, we have had some resiliency in a runoff business here.
So we did do we did provide a guidance range of one to 1.2.
Let me start with just P F O a decline versus earnings.
So as I referenced in my opening remarks, one one aspect of L. D. G. I is.
For our V. As we do we do move some of the fees down below the line.
That's a that's a revenue decline, but it's not an earnings decline you know the way we have.
Our policy has been that we've attributed fees to the guarantees and to the extent that they are below the line we would.
You know, we would put 100% of those fees below the line. So as you move them. You know we have a number of S. O P. L. Three one.
Which is kind of the accrual based accounting as you move them down below the line. So it is the claims.
So you see this like you know this kind of breakage between revenue decline, but earnings saying flat.
And then you know we did have you know this is probably one of the business really with what marginal positive from from L. D. G I.
And so you know that's probably another item and then.
Thirdly, I think you know it's the optimization efforts now the team's done a great job.
Continue to look for ways to find you know improvements around expenses around contracts.
And you know I think all in all we think with with the guidance.
You know in terms of our equity outlook you know one to 1.2 is a good good range.
Thank you.
And our next question is from Tom Gallagher with Evercore. Please go ahead.
Good morning, I'm eight sticking with holdings there've been a few of your peers like Aegon in Ameriprise, saying.
They're going to pass on doing B, a risk transfer deals because the pricing didn't work I'm wondering whether your view has changed at all or maybe just give an update on what are you thinking about a potential risk transfer deal for holdings has the environment changed their pricing changed at all.
Hey, Good morning, Tom It's John Yeah, I don't think any any update or change for US you know I think we've been pretty transparent about this this is not an easy solution, particularly when you're talking about a reinsurance arrangement.
It is complex.
You know you do have to look for ways for common ground and sometimes that works out and sometimes it doesn't it hasn't changed our perspective on optimization.
And so I think things are the same for US which is we continue to look for ways to optimize internally and we are in I just referenced on the previous comment and that's helped us be resilient in terms of our earnings and then at the same time, we're still gonna look and speak in and and converse with third parties in and look for ways to see if we can accelerate.
The release and run off of that block in an appropriate way and if we can we would do a deal. If we can't then we'll continue to optimize internally.
Okay. Thanks, and just a follow up on if I look at your group life in individual life mortality experience.
Experience within Holding's are you seeing worse experience versus pre pandemic levels right now or are you more or less back to those types of levels. The reason I ask is if you look at the broader C. D. C data for all cause mortality it still looks to me like it's running around 5%, 10% worse.
Yeah, I look at your guidance I look at the results you've had for the last three quarters are kind of back to your targets. So I'm just curious what what youre seeing maybe maybe it's the insured population experiences better than general population, but any any any way you can kind of reconcile that banks.
Yeah, I mean, it's it's.
<unk> got a really factor in a lot of different color lenses. As you go from an aggregate data to an insured population our specific book of business.
I you know I would say in terms of what we're seeing this quarter, it's very much shifts in endemic.
With respect to Covid.
We see continued a reduction in the number of deaths below 65, which also reduces the severity of any potential impacts from COVID-19, but overall you really should think about this moving to an endemic environment.
One that we've priced for and therefore, we feel pretty good about our guidance range and going back to the midpoint of the range on an annual basis.
You'll still see some of the seasonality. We've historically seen so think about Q1 is typically being mortality heavy which has the same dynamics that played out pre COVID-19 from a mortality perspective.
Okay.
Okay. Thanks.
Next we go on to Ryan Krueger with K B W. Please go ahead.
Hi, Thanks, Good morning, I had.
A question on the RIS spread outlook.
Yes, more so to the extent you can comment beyond 'twenty two 'twenty three.
And how to think about the interest rate cap you know how much they're contributing in 'twenty three.
And how we should think about them rolling off beyond 'twenty three.
Good morning, Ryan It's John .
So as we mentioned we're raising the guidance.
And I think you know just to kind of frame. It in terms of if you use fourth quarter.
You know we were at about 112 ex VII.
If you add 10, four L D G I, which we referenced is more of a.
Mechanic and than it is necessarily your earnings change your run rate change.
And then on top of that you add you know kind of a normal V. I a balance that gets you to the to the range. We gave and we are benefiting from the caps I mean this is really how we constructed the portfolio as to you know.
Put these in place to address or a short term headwind of rising rates and really rising short term rates to allow for Europe .
The longer end of the curve for the rollover and reinvest to start to manifest itself and in portfolio yields. So it's all part of the plan.
There'll be pretty healthy and twenty-three they'll start to roll off over the next two plus years and that should give us some time to allow for the longer end of the curve to you know kind of improve in terms of contribution.
We we typically stick to 23, the one year and there's a reason for that I mean, if you. If we tried to predict more than one year I think we would have been wrong every time, so I think we'll stick with that.
Okay got it thanks and then.
On capital deployment and are you.
I guess, there's lots of talk about the risk of recession I mean at this point.
Have you.
<unk>.
Is there anything about the economic outlook that would lead you to pull back some of the capital deployment at this point are you.
It is a somewhat status quo situation for now.
Okay.
Yeah, Hi, Ryan its Michele.
I mean, I would say the short answer is no no change in philosophy in our approach and Juno I might sound like a broken record here, but that's probably a good thing. So you know from our standpoint, the approaches the beyond supporting organic growth and in the absence of strategic accretive.
Hum M&A.
Excess capital belongs to shareholders and you know we used to find that Oh gosh on equivalence at our holding companies above our liquidity buffer of three to four but in.
And you know, we do expect to migrate back to those levels overtime, but you know just given the environment I think you know having the financial flexibility to be above that range. All for us is not a bad thing.
You know, we bought back $3 3 billion in 2022.
An additional 215 million in January and we have 900 million left on our current authorization and you know as we've done in the past we're going to continue to manage the authorization.
Deliberately and you know in a consistent manner I would say so.
So you know from that perspective, no change in terms of approach or philosophy.
Thank you.
And our next question is from Jimmy Buhler with J P. Morgan. Please go ahead.
Okay.
Mr be alert do you have your phone muted by chance.
We will move on to the next person one moment here, we'll move on to Alex Scott. Please go ahead.
Hey, Good morning, first one I had is just.
L D T. I could you provide an update on how book value has impacted as we sort of.
Move over to that accounting as of year end and the reason I asked is just I want to better understand the ROA guidance that you've provided as part of your outlook and then maybe if you can comment at all on how sensitive that it'll be to interest rates as we think through declining rates in the first quarter.
Good morning, Alex It's John So we gave a range before and and we'll be providing a point estimate as we file. Our 10-K you know the middle of that range was you know call. It I'm all in.
About a 22 and a half change in total equity.
And about a $5 billion. So 22 5 billion and $5 billion change in book value actually OCI, excluding Cta that was at 121.
Since that time, obviously, a lot has changed in terms of economic and interest rate environments.
And so I think if you were to compare to year end this year of 22.
The delta should be much different or smaller at least certainly on a book value ex Aoc I. It would be about a two little you know a little less than a $2 billion call. It impact on book value actually OCI and then if you include a OCI it actually flips a little bit to 2 billion positive.
For them, the overall 22, and a half billion negative to GAAP equity so hopefully that.
That helps.
Yeah. That's very helpful. Thank you and then the second one I had is on our Latam and the outlook.
Yeah, you guys have had really strong growth there.
How how it influences at all been by you know the macro environment and the employment in Mexico, which candidly I'm a little less you no doubt and on myself and yeah I just wanted to understand to what.
Degree that's been fueling things in and.
Well what that could look like you know if it if it more levels off or are.
I mean, it was not as robust as it's been and then maybe also if if the Chilean pension reform does you know go into effect in 2024 would that change your view on the growth rates on sort of the outer years of the guidance you gave.
Okay, Hi, Alex This is Eric let me take the first question regarding the lifetime outlook.
So Joe as you mentioned and you've seen a 2022 results and our near term guidance are where.
We're excited about our prospects in Latin America for a number of reasons and let me let me put things in perspective. So we as you know we have a strong franchise across the region. We have a significant footprint in three of the largest insurance markets across light.
We are market leaders with a very strong brand in Mexico, and Chile, and we are a fast growing business in Brazil.
So in addition.
The markets are.
The region has significant potential for four for three reasons. In addition to the ones that you are that you mentioned, but the three core reasons are that that are really pushing things forward or one insurance penetrations are ray.
<unk> remained very low.
We are also seeing heightened protection awareness, resulting in increased demand for our products.
We're also observing an increased expectations from customers for more of a digital and seamless experience and this is leading to a flight to quality that I mentioned.
During during last year.
And and you know these evolving customer needs.
I have been met by our by our franchise because we have invested significantly in our digital transformation over the past few years.
Digital transformation in both sales and service our service levels is now paying off are clearly and in parallel we've been expanding and diversifying our distribution.
Product reach by growing bank assurance direct marketing channels, while continuing to strengthen.
Our retail and group business across the region.
A good example of that diversification strategy in Mexico, where our where we had a record top and bottom line here in 2022.
So you know we've been also expanding successfully in the private business in both retail and group a while continuing that strong franchises that you know very well.
Worksite government. So all in all I think you know that there are market factors that are that are helping but the strength of our franchise and our strategy.
It's certainly positioning us well.
Well for the future and moving forward. So I hope this helps on the on the Latam question and I'll pass it to to Michele regarding the the Chile view, Yeah. I mean, the thing I would say about Chile is that.
I think all in all we feel better about the environment of the pension reform is going to play out over a number.
A number of months and we'll have to see how are you know things turn out but all in all I think compared to maybe six months ago. Oh, you know I would say that the environment is is better or more favorable.
Got it thank you.
And we will go back to the line of Jimmy Buhler with J P. Morgan. Please go ahead.
Mr. Butler, we are still unable to hear you.
Okay.
We will move on to still need to come off.
You May go ahead hi.
Hi can you hear me.
Yes, Yes. Please go ahead, okay, great perfect. So my first question just on V. I I think I know the answer but I figured I'd ask anyway. It looks like you've kept your return assumption consistent despite the economic uncertainty that you've talked about on this call is that just to for the simplicity of being consistent with the past.
Or is that at all informed by what you're hearing from your private equity partners.
Yes.
Hey, Anthony it's Steve Thanks for the question.
And.
This really reflects the fact that you know we don't want to try and predict our near term market quarterly or annual returns. This really reflects our long term experience for the asset class and then therefore, our expectation going forward. So that's why I think if you go back.
It's been 12% and 3% a quarter as long as I can recall.
You know again it reflects the fact that you know we know that.
A couple of things one is that there is volatility in the returns, but basically our P portfolio has generally moved directionally in line with the with the broad markets.
Look at the fourth quarter, what happened we had.
Basically you know strong kind of broad market returns NASDAQ was down a little bit.
I'm sure that will reflect its way through the through the portfolio as well the key though is despite you know any volatility we see in the returns on the portfolio. We're also getting very solid cash distributions.
And last year, we had over or about two and a half a billion dollars of cash distributions you look at the last five years, they've totaled $9 billion.
So it really is a very reliable portfolio in that respect as well and I think a lot of it just reflects the diversification in the portfolio. I mean, we've said a number of times, we're very diversified by strategy by manager by vintage.
Yes, that'll be OS in D C or the biggest part of the portfolios, but we also have significant investments and specialized strategies like no special situations energy power and alike. So so all in all you know our expectations really reflect the long term experience we've seen in the portfolio that represents the.
Strong diversification we have.
Got it that's helpful and then I guess for John It looks like.
You were able to use this Japanese reinsurance transaction to help solve for some of the uneconomic pieces of the S M or should.
Should we be thinking about this as another tool that you have going forward in terms of capital optimization or was this really just to solve that that issue.
Good morning, she yes, I think you've done a nice job summarizing it's a tool in the toolbox, we it's not our only we did use it to solve that situation.
You know it was a in the fourth quarter, we executed an internal reinsurance transaction.
Which improved the ratio by approximately 250 points and channels and in all of them. So remember. It's this there is two other things one you know.
Rising rates are good for this business. So that's important to remember from an economic perspective second is you know the solvency regime is meant to be replace in a few years' time and moved to a more economic solvency a framework that will better reflect the economics. So this is really a to deal with a I'll say a temporary situation and ultimately you know I think these tools in.
And allow us to have no concerns over capital generation or or dividend capacity.
Okay. Thanks.
And ladies and gentlemen, we have time for one last question that's from Elyse Greenspan with Wells Fargo. Please go ahead.
Thank you good morning.
My first question with your guidance and comments on holding that you guys have a pretty good handle on how L. D. T. I will impact the income statement can you give us a sense of the total impact in that.
L D G on adjusted earnings as well as on net income.
Good morning, Elyse, It's John as you know as I mentioned I think the our summary around earnings run rate is there as you know there's a few puts and takes but net net for the firm overall run rate is intact for adjusted earnings.
Net income will probably become I'd say.
Directionally smoother than it has been.
The best way to describe it and you'll probably and you'll see that when we provide our.
Our restated Q, a fast and you know kind of early April and you'll see that there's a there's a bit more symmetry between net income and adjusted earnings, but its theres still some volatility or and fluctuations that you'll see but.
Net net it should be Directionally directionally better.
Okay. Thanks, and then in terms of on PRT can you just give us a sense on your outlook for you now.
Deal volume during 'twenty, three and would you expect on DC seasonality during the quarter as I think typically sometimes 18 heavier activity to end the year.
Please.
As you know we had a record year last year with respect to P. R. T and sitting here today, we're still seeing a pretty healthy pipeline given funded status of pension plans and we're.
We're seeing that pipeline also geared towards the jumbo end of the market, which is the place where we compete.
The most and where we focus on.
The seasonality.
<unk> has largely dissipated if you looked at the timing of the deals over the last few years, we've seen less seasonality we've seen more deals earlier on in some cases and more of these later on so I wouldn't speculate on the seasonality, but the pipeline is certainly a healthy.
Yeah.
Thank you.
And ladies and gentlemen, we do have no more time for questions I'll turn you back to John Hall head of Investor Relations for closing comments.
Thanks, everybody for joining us today and have a good day.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Yeah.
We're sorry your conferences ending now please hang up.