Q3 2023 MetLife Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by welcome to the Metlife third quarter 2023 earnings release Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session instructions will be given at that.
Time as a reminder, this conference is being recorded.
Before we get started I refer you to the cautionary note about forward looking statements in yesterday's earnings release and to risk factors discussed in met life S. E. SEC filings with that I will now turn the call over to John Hall Global head of Investor Relations.
Thank you operator.
Morning, everyone. We appreciate you joining us for Metlife third quarter 2023 earnings call before we begin I'd point you to the information on non-GAAP measures on the Investor Relations portion of Metlife Dot com in our earnings release and in our quarterly financial supplements, which you should review.
On the call. This morning are Michel <unk>, President and Chief Executive Officer, and John Mccallion, Chief Financial Officer.
Also participating in the discussion are other members of senior management.
Also last night, we released a set of supplemental slides, which address the quarter. The slides are available on our website.
John Mccallion will speak to them in his prepared remarks, if you wish to follow along.
In the appendix to the slides features GAAP reconciliations and other information, which you should similarly review.
As usual after prepared remarks, we will host a Q&A session.
We will end Q&A just prior to 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 you can see from the report we posted last night Metlife delivered another quarter of strong underlying results with sustained business momentum.
My class capacity to perform across a wide range of economic scenarios Bears Testament to the resilience of our all weather strategy and is characterized by our unyielding focus on execution.
And concentrating on those elements within our control.
Such as balance sheet security investment performance reserve adequacy responsible growth expense efficiency and capital deployment to name just a few we have positioned metlife to generate significant value for our shareholders and other stakeholders for many years to come.
Turning to the quarter, we reported adjusted earnings of $1.5 billion or $1 97 per share notable items in the quarter included our annual actuarial assumption review and other insurance adjustments, which had a positive impact of only $14 million or two cents per share.
Adjusted earnings.
Excluding notable items adjusted earnings per share were $1.95 up 43% from a year ago.
As we previously indicated variable investment income of $179 million fell below our quarterly outlook expectation private equity returns totaled 1.4%.
Real estate equity returns trailed at minus 3%.
India aggregate net income for the third quarter was $422 million compared to $1.1 billion in the prior year period.
The third quarter result reflects the negative impact I'll start then required accounting adjustments associated with our previously announced reinsurance transaction.
They're a bit of losses related to interest rate and foreign exchange hedges helped to protect our balance sheet further reduced net income.
Our investment portfolio has stayed up in quality and continues to perform well.
Underscoring the quality the credit metrics associated with our real estate portfolio remain largely unchanged sequentially and we did not incur material credit losses during the third quarter moving to my gosh the business performance in the quarter I will start with our U S group benefits results.
Adjusted earnings excluding notable items totaled $483 million, an all time high and up 16% from a year ago.
Underwriting results in the quarter for both group life and non medical health were outstanding.
Year to date sales are up 11%, while adjusted P. F o's are up more than 4% in the quarter, reflecting the impact of our contracts and within our 4% to 6% outlook range, which we expect to achieve for the full year.
In group benefits, we have invested significantly to integrate with the employer benefits ecosystem and enhance our enrollment capabilities and perhaps more importantly, our re enrollment capabilities.
With a significant portion of our overall sales and group benefits coming from employee paid products, our efforts to enhance enrollment and take up rates are critical.
Speaking of enrollment we are about to enter open enrollment season.
As unimportant opportunity to review, our employee benefit needs and refresh selections for the upcoming year something I encourage all of you to do.
Several of the investments that I referenced.
To make this process easier for participants.
Further we are activating emerging technologies that will help accelerate some of our group benefits initiatives, particularly around underwriting claims and the customer experience. We believe the impact of these investments will enable us over time to further leverage our size to drive greater scale advantage looking to retirement and income.
Solutions or RIS adjusted earnings excluding notable items totaled $409 million up 60% from the prior year driven by higher recurring interest margins better variable investment income and higher asset balances sales in the quarter were very strong across a range of products, including.
Pension risk transfer with roughly $1.5 billion booked as well as structured settlements and U K longevity reinsurance.
We are poised to generate close to 3 billion or more of sales in each of these two high return product categories for the full year.
Just after the close of the third quarter, we released our 2023 pension risk transfer pole and example of our thought leadership in the space, which we have been publishing for the past eight years.
The poll, which surveyed plan sponsors with Derisking goals revealed several important observations relevant to the growth prospect for the PRT market let.
Let me offer some examples.
Following record PRT sales in 2022 market activity is expected to remain strong for the foreseeable future.
Among companies, who plan to Derisk nine of 10 companies plan to completely divest older defined benefit pension plan liabilities.
And finally, 85% of planned sponsors expressed concern over missing an attractive window to secure an annuity buyout at competitive rates.
These findings confirm what I have said before we should continue to see a strong pipeline for our pension risk transfer business.
Now shifting over to Asia adjusted earnings excluding notable items of $369 million or 23% above a year ago on better variable investment income.
Sales in the region on a constant currency basis were up 5% led by life insurance in Japan and Korea for.
For Latin America adjusted earnings excluding notable items totaled $199 million further Latin America posted healthy 16% gains in both sales and adjusted P. F OS on a constant currency basis.
Our digital initiatives don't stop at the U S border they extend around the World for instance, in Latin America, We launched a digital platform that seamlessly integrates insurance solutions and to their customer journeys of our Latam business partners, such as banks financial institutions retailers and others, which.
We expect will lead to even more responsible growth in the region over time expanding.
Expanding on the subject of responsible growth in the third quarter, we released our value of new business or V. N B statistics for the full year 2022.
And the results are powerful to summarize my cloud deployed roughly $3 $7 billion of capital to support the origination of new business. In 2022. This capital was put to work at an average internal rate of return of 17% with an expected payback period of approximately six years the value of new Biz.
And it generated in 2022 is it wrong to $3 billion, which represents the net present value of distributable cash flows in excess of the hurdle rate.
When we reference terms of Metlife like responsible growth and disciplined capital deployment their application of our business is grounded in the systematic use of bnb.
It is hard to overestimate the positive impact. This analytical tool has had in managing our business starting with a deeply embedded practice of using <unk> in product pricing and ending with the establishment of a business unit level and be goals and targets.
Simply put the N b guides, our effort to target and prioritize capital efficient and shorter payback business and measure our progress and success in doing so over time, we've sought to maintain the right balance of capital deployment across organic growth acquisitions and share repurchase to drive value for shareholders.
<unk> well.
While we bought back $11.1 billion of our shares.
Executed $2 billion of acquisitions from 2019 to 2022 we similarly deployed $13 $5 billion to support responsible growth over the same period.
Moving to quarterly capital and cash Metlife remains active with capital management during the third quarter.
We paid about $400 million of common stock dividends to shareholders.
And we repurchased nearly $800 million of our common stock.
In addition to our activity in the third quarter, we repurchased roughly another $250 million of our common stock during the month of October year to date through October we have repurchased about $2 $5 billion of our common shares and there is approximately $2 $7 billion remaining on our repurchase authorization.
At the end of the quarter, we had $4 $9 billion of cash at our holding companies, which is above the top end of the $3 billion to $4 billion liquidity buffer we maintain before.
Before I close let me provide a quick update on our pending reinsurance transaction with global Atlantic.
At this juncture, we have received all necessary regulatory approvals and we expect to close in short order.
We do not anticipate any material changes to the terms announced in may.
In closing, we hosted a strategy session with our board of directors during the first week of October.
This recurring annual meeting presents us with an opportunity to pressure test our strategy and to assess progress made toward our next horizon investor commitments.
On that front, we are on track to exceed each commitment made at our December 2019, Investor day, and I am confident we will continue to deliver for our shareholders and other stakeholders.
Now I'll turn it over to John to cover our performance in greater detail.
Thank you Michelle and good morning, I'll start with the <unk> twenty-three supplemental slides, which provide highlights of our financial performance, including details of our annual global actuarial assumption review.
In addition, I'll provide updates on our value of new business metrics, our liquidity and capital positions as well as our commercial mortgage loan portfolio.
Starting on page three we provide a comparison of net income to adjusted earnings in the third quarter.
Net investment losses include the Mark to market impact on securities that are expected to be transferred with the pending reinsurance transaction with Globo lentic that we announced at the end of May.
For GAAP purposes, any increase in gross unrealized losses on these securities are required to be realized through net income until we close the transaction.
Also we had net investment losses from our normal trading activity in the portfolio given the rising interest rate environment.
In addition, we had net derivative losses due to higher interest rates and strengthening of the U S. Dollar.
First as multiple currencies, primarily the Chilean peso and yen.
That said net derivative losses were partially offset this quarter by market risk benefit or MRV remeasurement gains due to higher interest rates.
Overall, the portfolio remains well positioned.
Credit losses continued to be modest and the hedging program performed as expected.
The table on page four provides highlights of our annual actuarial assumption review and other insurance adjustments with the breakdown of the adjusted earnings and net income impact by business.
Overall, the impact to adjusted earnings and net income was negligible.
In group benefits, we had a favorable impact from assumption changes in individual disability.
Primarily due to lower incident rates and favorable recoveries.
In retirement and income solutions or R. I S.
We lowered our near term assumption for mortality improvement, which resulted in an economic benefit given the longevity products in this business.
In Asia, the net unfavorable impact was due to lapse rate changes across life and accident and health products in Japan, as well as lowering lapse rates and expected fund returns for variable life products in Korea.
On page five you can see the third quarter year over year comparison of adjusted earnings by segment.
Excluding notable items associated with the annual assumption review and other insurance adjustments in both periods.
Adjusted earnings were $1 $5 billion up 35% and 33% on a constant currency basis.
The primary drivers were higher variable investment income or VII straw.
Strong recurring interest margins.
And favorable underwriting margins.
Adjusted earnings per share or $1.95 up, 43% and 40% on a constant currency basis.
Moving to the businesses starting with the U S group benefits adjusted earnings were $483 million up 16% versus the prior year period.
The key drivers were favorable underwriting margins and solid volume growth.
The group life mortality ratio was 83, 6% favorable to the prior year quarter of 85, 7% and below the bottom end of our annual target range of 85% to 90%.
As a reminder, mortality results tend to be more favorable in the third quarter. So we would expect our group life ratio to be back within the 85% to 90% range in the fourth quarter and full year of 2023.
Regarding non medical health interest adjusted benefit ratio was 69% in the quarter or 74%, excluding the favorable impact related to the annual assumption review that I mentioned earlier.
And at the low end of its annual target range of 70% to 75%.
Turning to the topline group benefits adjusted P. F O S were up 3% year over year taking.
Taking participating contracts into account, which dampened growth by roughly 1%.
Underlying P. F hours were up approximately 4% year over year, primarily due to solid growth across most products.
Including continued strong momentum in voluntary and was within our 2023 target growth range of 4% to 6%.
In addition group benefits sales were up 11% year to date, driven by strong growth across most products and markets.
RIS adjusted earnings were $409 million up 60% year over year.
The primary driver was favorable investment margins due to higher recurring interest and variable investment income.
Solid volume growth year over year also contributed to the strong performance.
RIS investment spreads were 130 basis points spreads excluding VII were 138 basis points of 26 points versus Q3 of 'twenty, two primarily due to higher interest rates as well as income from in the money interest rate caps.
Our as adjusted P. F o's, excluding pension risk transfers were up 75%, primarily driven by strong sales of structured settlement products growth in U K longevity reinsurance and postretirement benefits with.
With regards to P. R. T. We added transactions worth approximately $1 $5 billion in Q3 of 'twenty three.
Bringing our year to date total to roughly $3 $5 billion.
Moving to Asia, adjusted earnings were $369 million up, 23% and 25% on a constant currency basis.
Primarily due to higher investment margins.
Asia's key growth metrics were solid as general account assets under management on an amortized cost basis as well as sales both grew 5% year over year on a constant currency basis.
Driven by growth across most of the region and Japan sales on a constant currency basis were up 3% year over year.
Driven by strong life sales due to the ongoing momentum of a single premium FX life product that was relaunched April 1st of this year.
In other Asia sales on a constant currency basis were up 8% year over year, primarily driven by strong life sales in Korea in advance of a prospective regulatory change.
That took place on September 1st that impacts low cash value of whole life products.
Looking ahead, while we anticipate Asia year over year sales will decline in the fourth quarter. We expect full year 2023 sales growth to be at the top end or exceed our annual guidance range of mid to high single digits.
Latin America adjusted earnings were $199 million up, 26% and 8% on a constant currency basis.
Primarily due to solid volume growth and favorable underwriting margins.
Latin America's top line continues to perform well as adjusted <unk> were up 32% and 16% on a constant currency basis.
And sales were also up 16% on a constant currency basis, driven by strong growth in Mexico, and Chile, and solid persistency across the region.
Adjusted earnings were $70 million up, 43% and 40% on a constant currency basis, primarily due to higher volume growth recurring interest margins as well as underwriting margins running favorable to expectations.
This was partially offset by less favorable expense margins year over year.
EMEA adjusted <unk> were up 9% on both a reported and constant currency basis and sales were up 20% on a constant currency basis.
Strong growth across the region.
Metlife Holdings adjusted earnings were $206 million up 23%, primarily driven by higher variable investment income.
Corporate and other adjusted loss was $262 million compared to an N. Just a loss of $258 million in the prior year quarter.
Higher expenses, including interest on incremental debt or partially offset by higher net investment income.
The company's effective tax rate on adjusted earnings in the quarter was approximately 23% and within our 2023 guidance of 22% to 24%.
On page six this chart reflects our pretax variable investment income for the prior five quarters, including $179 million in Q3 of 'twenty three.
The private equity portfolio of $14 $9 billion had a plus one 4% return in the quarter.
Real estate equity funds of $2 $2 billion had a minus 3% return.
As of now we anticipate P. He returns to remain consistent with the second and third quarter with a modest improvement in real estate funds in the fourth quarter.
Therefore V I I would more closely resemble second quarter results on page seven we provide V. I a post tax by segment for the prior five quarters. As we have noted previously each of the businesses holds its own discreet investment portfolios, which have been built to match its liabilities.
As reflected in the chart Asia RIS in Metlife Holdings continue to hold the largest proportion of V. I a assets given their long dated liability profile, while corporate and other continues to hold higher VII assets than historical levels.
Now turning to page eight the chart on the left of the page shows the split of our net investment income between recurring N V. I E for the past three years and Q3 of 22 versus Q3 of twenty-three well V. I I has had lower than trend returns over the last few quarters recurring income, which accounts for approximately 96% of net investment income.
<unk> was up approximately $700 million year over year, reflecting higher interest rates and growth in asset balances.
Shifting your attention to the right of the page, which shows our new money yield versus roll off yield over the past three years, new money yields continue to outpace rollout yields in the recent quarters in this quarter, our global new money yield continued its upward trajectory coming in at 6.26% 156.
<unk> points higher than the roll off yield we expect this favorable trend to continue assuming interest rates remain near current levels.
Turning to page nine I'll provide a few updates on our commercial mortgage loans.
First let me say that we're pleased with the commercial mortgage loan or CML portfolio, which continues to perform as expected.
As we have noted last quarter, our real estate team updated all U S office valuations through June 30th assuming a 25% peak to trough valuation decline.
In this quarter the team shifted its effort to revaluing other CMO asset classes, which have not been under the pressure seen in the office sector.
Not surprisingly the average LTV increase only slightly as a result, with our CML portfolio now at an average LTV of 63%.
Up from 62% in the second quarter of 23.
And an average debt service coverage ratio of two three times.
Which represents no change versus two 223.
The modest increase in Ltvs and stable debt service coverage ratio are further indicators of the disciplined approach we take to investing in this asset class.
The quality of our CML portfolio remained strong with only one 6% of loans, having ltvs more than 80% and D. S E ours less than one times with regards to CML loan maturities. We now have successfully resolved the almost 90% of the portfolio scheduled to mature in 2023 and our.
Spectation remains for minimal losses on the portfolio.
Our CML portfolio scheduled maturities over the next three years are very manageable.
10% in 2024, 13% in 2025 and 16% in 2026.
Now, let's switch gears to discuss expenses on page 10.
This chart shows a comparison of our direct expense ratio for the full year of 'twenty, two as well as the first three quarters of 'twenty three.
In Q3 of twenty-three the ratio was 12, 3% 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 Q3 direct expense ratio benefited from solid topline growth and ongoing expense discipline.
While we would expect our direct expense ratio to be higher in Q4, consistent with the seasonality of our business. We are confident we will beat our full year direct expense ratio target of 12, 6% and 20 twenty-three despite the challenging inflationary environment.
We believe this demonstrates our consistent execution and focus on an efficiency mindset.
Now, let's turn to page 11. This chart reflects new business value metrics for Metlife major segments for the past five years, including an update for 2022 as.
As mentioned by Michelle Metlife invested $3 $7 billion of capital in 'twenty two.
To support New business. This was deployed at an average unlevered IRR of approximately 17% with a payback period of six years generating roughly $2 $3 billion in value.
I will now discuss our cash and capital position on page 12, cash and liquid assets at the holding companies were approximately $4 $9 billion at September 30th.
Which is above our target cash buffer of $3 billion to $4 billion and higher than our $4.2 billion at June 30th.
The cash at the holding companies reflects the net effects of subsidiary dividends, a $1 billion senior debt issuance in July.
Payment of our common stock dividend.
Share repurchase of roughly $800 million in the third quarter as well as holding company expenses and other cash flows.
In addition, we have repurchased shares totaling approximately $250 million in October.
For our U S companies preliminary third quarter year to date 2023 statutory operating earnings were approximately $3 1 billion. While net income was approximately $2 1 billion.
Statutory operating earnings increased by approximately $1 $6 billion year over year, primarily driven by favorable underwriting partially offset by higher expenses, we estimate that our total U S. Statutory adjusted capital was approximately $17 $7 billion as of September 30th 2023 up 2% from June 32.
2023.
This increase was primarily due to operating earnings partially offset by dividends paid and net investment losses total.
Total U S statutory adjusted capital has absorbed the negative impact of roughly $300 million associated with the investments expected to be transferred to global Antic, which will be recovered upon closing.
Finally, we expect the Japan solvency margin ratio to be approximately 600% as of September 30th.
Which we based on statutory statements that will be filed in the next few weeks.
Let me conclude with a few points first well V. I remains below historical returns core spreads remain robust and continue to benefit from higher yield environment.
Second the underlying strength of our business fundamentals continues to be displayed with strong topline growth coupled with disciplined underwriting and expense management.
Finally, our strong value of new business metrics provide further evidence of our disciplined approach to deploying capital to its highest and best use consistent with our all weather strategy to close Metlife remains in a position of strength, given our balance sheet free cash flow generation and diversification of our market leading businesses.
And we are committed to deploying capital to achieve responsible growth and building sustainable value for our customers and our shareholders.
And with that I'll 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 you may remove yourself from the SKU by repeating the same one zero command one moment. Please for the first question.
Okay.
And we have a question from Ryan Krueger with K B W. Please go ahead.
Hey, Thanks. Good morning can you provide some color on how January one renewals there shaping up so far in group benefits and also.
Both in terms of persistency.
The pricing dynamic in the market.
Good morning, Ryan its its rami here I would say, we're still in the middle of the season recall the middle part of the market is still kind of active right now but from everything we can see so far we are doing extremely well here persist.
You can see in national accounts.
<unk> continues to be exceptionally high.
We are seeing it pick up in the jumbo activity into next year as well building on what we're doing this year.
And with respect to our rate actions are we are getting the rates that the book needs in the market and continue to see that both in terms of new business as well as persistency.
Yeah.
Thanks, and then.
In terms of capabilities within <unk> and group benefits and M&A, you've done a couple of things to round out the portfolio is there anything else you'd be interested in at this point or do you feel like the port you have what you need to grow organically.
Yeah.
Yeah, Hi, Ryan its it's Michelle Yeah, I mean, I think our we're very pleased with the capabilities that we've built would be transactions that we've done in our in the last few years on in group benefits I think they've been highly complementary and we're very pleased.
How they performed think about Oh, but first.
Acquisition, our versant acquisition.
And we will continue to invest in this in this business. We've you know we've said all along that this is a business where scale matters and you know to continue to meet our customer expectations. You have to continue to make meaningful investments something that we've done and I think that's translating in terms of Ah you know.
The momentum, we're seeing whether it's in variable benefits or in other areas.
Whereas you know we don't see any gaps are when it comes to our you know our product set or our capabilities.
You know, we're always open to opportunities if we think those make strategic sense. If we think you know they can you know help us accelerate revenue growth you know, whereas we see a path to continue to grow at a you know within the range that we've provided organically.
If there was something that would help us accelerate that are that would make sense strategically and that would make sense from a valuation perspective as well you know we we look for.
The type of transactions that are accretive over time to a clear a minimum risk adjusted hurdle rate and we're always going to also compare any transaction to other potential uses of capital are you know it.
At the end of the day, our focus pillar is about deploying capital to its highest and best use.
So you know hopefully this this helps.
Great. Thanks, a lot.
Next we go to the line of Tom Gallagher with Evercore ISI. Please go ahead.
Yeah.
Good morning, a couple of questions on capital D. D. S Tomorrow in Japan seems kind of low at 600 per cent now.
Is that something to watch.
Or should we really be more focused on ESR since we're gonna be.
Pivoting to that new regime pretty pretty soon.
So that's first question and the second is just the billion dollar increase in debt is that part of the permanent capital structure or are you pre funding of maturity there.
Good morning, Tom It's John Thanks.
So first question on SMA are yeah, I think I think it's a balance when you start to look at these metrics. Obviously, we're looking forward at ESR a higher rates are positive to ESR. So I think there's a transition happening in the market. We don't have any concerns with being out at roughly 600 per cent right. Now also we have other tool.
<unk> if needed them to the extent that you know rates would rise further we have other internal reinsurance transactions. We can do as of now so no no concerns from a capital perspective or dividend capacity perspective.
What was your second question.
The $1 billion.
Yeah.
On debt, yes, we issued the debt in July.
That is not considered permanent capital that is to pre fund a maturity in the first quarter of next year.
Okay. Thanks, and then just one other quick one theres slightly improved real estate returns expected for alternatives and for Q is that because you have some property sales resuming and related games or that is that just marks being stable.
Yeah, I think it's more of the ladder I think it's just a you know we've in a way you know there it's trailing a little bit of what's happened in P. E, where we had kind of the mark down and then we built you know you've kind of gotten to a trough and as we've said before we feel like will bump along the bottom here for a little bit on on some of these are you know fun.
And related returns for some time, so before we see kind of that U shape recovery. So it's more of that.
Yeah.
Okay. Thanks.
Next we move on to Jimmy Buhler with J P. Morgan. Please go ahead.
Hi, Good morning, So first I had a question on just your documents spread should be assume that core spread in the RIS business or maybe compressed a little bit as you go through 'twenty 'twenty four given.
Exploration of gaps or are there other puts and takes.
Yeah.
Good morning, Jimmy It's John as you said so good good strong core spreads this quarter similar to last quarter just to help you guide to fourth we think something in the same vicinity may be in a $1 35 to 40 is a good range to think about for fourth quarter and then as you mentioned over the course of 'twenty four we will have.
Some exploration of some of the caps as we've said before this whole thing was constructed in a ways for the caps to provide us time for the long rates to find their way into into spreads and you know those things you've seen that come through.
In a healthy way, so, but we'll give some more guidance on that on the outlook call in and provide some more detail as to how to think about 'twenty 'twenty four.
Okay, and then on the CRE portfolio the metrics almost seem deceptively feel good and stable, but you mentioned.
88%, a year or 2023 majority or you're resolving them similar to how you would have been in the past that lag in terms of either extending them yourself or third party financing or stuff or are there differences in how.
The loans are being.
How's the majorities are being resolved now versus maybe a few years ago when things were much more stable than CRE.
Yeah, It's John again, Thanks take issue with your deceptively comment, but besides that I'm only kidding, but I'm on the maturities I would it's.
You know roughly speaking you know we've talked about these contractual extension options, that's been about 60% of the maturities and how they've.
They've all had contractual right if you're in good standing you meet all the financial tests are they tend to be in the mid fifties and you know L. T V. So you know strong our financial metrics.
Almost 30% of it as well in terms of paid off or refinanced.
And then the remainder is probably 10% of that is loan modifications and then the remaining you know small single digits is the foreclosure or net pay off which is honestly that that that level is somewhat similar to what we've seen in the past so nothing out of the ordinary.
Given the environment so.
I think overall you know roughly in line with our historical maybe the you know people on the contractual options those are floating rate, they're tending to wait to see when they lock in their long term rates. So maybe theres been a little extra in.
In terms of contractual extension options, but nothing out of the ordinary I think is the way to think about it.
And the remaining 12% debt like a matter of time and you're going through stuff or is there something unique about those.
Property.
By property location or otherwise.
Yeah, and the race the levels I gave you just know they incorporate what we expect for the remaining 12% so nothing unique or I'm out of the ordinary so I think that I think the punchline. We would share is everything is effectively in line with what we said in the first quarter. When we gave an outline of what our.
<unk> was for the year.
Thank you.
And our next question is from the line of <unk> Kamath with Jefferies. Please go ahead.
Just first question on the value of new business slide.
The amount of capital that you've been deploying has sort of been a $3 7 billion, it's pretty similar to what you did in 18 and 19, but given where interest rates are are you seeing incremental opportunities to deploy more capital in the business and then Relatedly should we expect that IRR of 17%, which acknowledges.
It's pretty healthy does that have upside in this rate environment.
Good morning City, that's Jon a good question. So just in terms of Cat you know deployment of capital remember last year. I mean, just one reason for that is we had a large IBM case that came through in the in the third quarter of last year.
But nonetheless like you point out you know very strong Unlevered IRR is strong payback periods very pleased with the results. We saw some great results actually in Japan as well.
That's actually helping boost the bnb as well over the course of 'twenty two.
In terms of IRR as you know what some of the things. We've talked about is we do see I think broadly speaking, yes, I mean, we're starting to see demand for these annuity type products to pick up right. So I think a volume aspect is emerging.
I would say, it's still emerging in the institutional and retail space broadly speaking.
In terms of IRR and pricing and typically the rate environment will price in these the counterparties, who are buying or selling however, you want to look at it they're pricing in the current rate environment. So I wouldn't expect a big uptick in Irr's I think 17% IRR is a pretty healthy level.
A level two to be up but yeah, we will see how things evolve.
Okay got it and then just on capital should we expect a pick up in the sort of the pace of buyback once you close the global Atlantic deal.
Yeah, Hi, Sumit, it's Michele so you know really pleased with the you know the fact that we've secured all regulatory approvals for the global Atlantic transaction.
You know as we had mentioned we expect that to at about 60 points to our RBC and we consider that to be excess capital.
We are when we announced the transaction we increased the authorization by 1 billion and that was you know to signal the sustainability of our buyback activity.
We also have a track record post a major divestitures of you know returning capital in a deliberate and expeditious matter manner. So you know I would suggest that we would you know we would conduct ourselves in the same manner here.
Yeah.
Okay. Thank you.
And our next question is from Wes Carmichael with Wells Fargo. Please go ahead.
Hey, good morning.
So up on the group business. It seems like we're seeing pretty favorable results across the industry, maybe not deceptively good but definitely good but just wondering what your outlook is for the industry to retain better margins in that business or if it's kind of giving back over pricing in the next couple of years.
Good morning, Ross, It's a it's it's rami here I mean look I think I'm a couple of points to note here. So one we're of course extremely pleased with our record quarter here, which is by the way a record even if you exclude the notable in the quarter.
In general what we tend to see in our results is there seasonality and while the dynamics are different by product line in aggregate the third quarter tends to be the most favorable over the course of the year.
If I think for US specifically on a go forward basis, you should think about the mortality ratio, which is below the guidance for this quarter.
Think about that coming back.
In the fourth quarter to be within line for all of our guidance range.
The other one I would perhaps to talk about here is disability disability continues to perform really well, both with respect to incidents and recovery levels.
Some of this favorability is stemming from a favorable macro environment and we believe.
Favorability will over time, it's not going to happen in any given quarter, but will over time come back into into pricing.
But having said that and I'll refer back to kind of michel's comments on having we'll focus on strategic intent here in terms of how we're investing in this business.
The favorability we're seeing in disability is coming from solid underwriting are returned to health capabilities deployment of tiered data technology.
Predictive analytics in how we're running this business in particular investments, we're also making them to leave and absolute space.
Those are resonating really well in the market and we believe over time will allow us to you know fuel further growth and maintained pretty robust margins here and those are not going away. Those are differentiating capabilities that we have in distinct competitive advantages that we will maintain and continue to invest in.
Okay.
Thanks, Rami and maybe sticking with the U S on the pension risk transfer market. It seems like maybe the market for full plan terminations has been heating up a little bit I'm, just wondering if you're willing to participate in those deals and also what the pipeline looks like as the fourth quarter has been pretty busy historically.
Thanks, So we're very pleased with our performance this quarter. So year to date, we've had three and a half billion dollars worth of sales. We've also added another $600 million of premiums so far in the fourth quarter.
And we see a very healthy pipeline of head and really with a lot of visibility into 'twenty 'twenty four and particular in the jumbo end of the the market, which is where we focus and where we have distinct competitive advantages.
Our focus so far has been on the immediate with Tau, we only part of the market and we see significant pipeline there and we're able to win business at healthy are ours are but you know we always continue continuously evaluate opportunities here and as we've always stated our its value over.
I'm here and so if we see opportunities with the right.
<unk> IRR is in the right returns and the right risk profile will always going to be looking to evaluate those as we go forward.
Thank you.
Okay.
Next we go to the line of Alex Scott with Goldman Sachs. Please go ahead.
Hi.
First one I had fees on Latam, we continue to see good growth. There I think in the comments you mentioned some of the digital initiatives and things like that but wanted to see if you could extrapolate further just on the sustainability of the year.
Really robust growth that you've seen in P. F O's and how we should think about that business going into 'twenty four.
Yes, Hi, Alex Thanks for the question this is Eric.
So you know where were overall very pleased with our with our results for the quarter. This is the fourth consecutive quarter of adjusted earnings in the $200 million range.
The quarter's results are primarily driven by volume growth and favorable underwriting.
As well as foreign currency tailwind, which were partially offset by lower recurring interest margins and on the topline side. You know the positive trajectory continues as you mentioned with solid double digit growth consistent with our expectations are we're seeing growth across the region and both are.
Retail and group business.
We've been very deliberate in a in an expanding beyond our core avenues of growth developing.
Developing a third party distribution channels, such as banks financial institutions retailers and others and you know we've made significant technology related investments in that space and a good example is what you referred to that that Michelle mentioned in his opening around the launch of our new.
Integrated platform, which provides embedded insurance capabilities for our distribution partners and thus, creating a differentiating competitive advantage for us.
Across the region. So all of these factors combined with our disciplined underwriting our pricing as well as our efficiency focus are.
Contributing to the solid earnings performance and sustained momentum.
Very helpful. And then second question was on net investment income wanted to see if you could help us just with the benefits of higher interest rates and what it means it really for for net investment income trajectory or more broadly across the organization and then also interested if theres no.
Any tactical things you can do any any thing youre doing allocation wise.
Should consider related to net investment income.
Good morning, Alex It's John.
So a couple of things to point to for your question, we've given some sensitivities to interest rate movements in the past and I think those are still fair fair approach to thinking about the impact.
Generally driven by the benefits of roll off and reinvest and you're seeing that on on the slides. We shared so that has an incremental benefit. Obviously, we've also done a lot to reduce our interest rates sensitivity over the years. So it's not a you know it's not a hockey.
Hockey stick per se, but there is a there's inertia there are as you look at some of those sensitivities. So I don't know if I have a number to give because gross numbers maybe get lost but you know those those sensitivities are more from an earnings perspective, and those are probably pretty good things to follow in and think through as you as you kind of model out.
You know earnings growth.
In terms of tactical.
Theres always tactical asset allocation that occur you know, we have a view of relative values that we take into account.
But certainly as rates grow you know fixed oriented products, you know kind of grow in relative value.
And we're seeing you know some some unique opportunities out there. It's very very helpful to have a wide breadth of product and expertise to the to work them through the the opportunities that are in the space and you know that's scale that scale is a big benefit so.
We're excited for the opportunities that are out there and having said that we've been maintaining it up in quality mentality. When it comes to investments and with these rates. It's it's worked pretty well.
Yeah.
Thank you.
Our next question is from John Barnidge from Piper Sandler. Please go ahead.
Good morning, Thank you.
Question about the value of new business.
That's updated not around the IRR is but can.
Can you talk about how higher rates and your outlook for that volume to possibly increase along with the value of new business. Thank you.
Yeah, Hey, John This is John Thanks for the question I think you.
You know, there's a couple of ways to think through that as I mentioned in the earlier comment I mean, we we are seeing an increase in demand.
You know and and that is we've been able to solve that fairly efficiently with just annual capital generation.
And that but we do think that you know there is going to grow and we are constantly considering different ways to take advantage of that I think you'll eventually as in maybe a little bit to an earlier question is as volume and demand grows.
That could improve pricing to some degree right now I think it's fairly consistent and adjust with interest rates.
But there is there is dynamics between volume and how that can also improve value, but that will take some time.
Yeah.
Thank you very much and my follow up question I know, we're in the thick of renewal figures for group benefits, but some retailers that started to comment about the impact from G O P or obesity treatments.
How do you is that something that's come up within the renewal conversation at all just wanted to ask that thank you.
Yeah, we're we're not really it's rami here, John we're not really seeing any of those having any kind of material effect on our book of business and remember we're not in the major medical we're not providing Rx we our group life players none of that is really having any material impact at this point.
Thank you.
And our next question is from Mike Ward with Citi. Please go ahead.
Thanks, guys. Good morning, I was just wondering if you could comment on the trends in Asia.
It seems like the economy in Japan at least is re engaging our reopening.
So any any thoughts on maybe the near term outlooks there.
Okay.
Yes.
Hey, Mike It's Linden here.
So.
Just as we look at broadly Asia I'll just comment on sales and then maybe we can get into Japan, specifically.
Overall, we've had a very strong quarter.
Year over year sales continue to be very strong we've seen a 5% growth overall and in Japan, 3%.
In Asia in total we've been up 8% and that's driven broadly between Korea and China.
If we look at the economy in Japan. It is really strong but are with sales up right now.
<unk> really driven by interest rates and so the stronger interest rates have really helped us.
As long as that continues we think we've got a really solid platform on which to leverage the higher sales.
Thanks, and then maybe just could.
Could you guys, maybe speak to your appetite specifically for and our inorganic growth in the U S around voluntary benefits.
That'd be helpful. Thanks.
Yeah, Hi, Mike It's Michele So you know as I as I mentioned earlier.
You know, whereas you know we don't see any gaps when it comes to our group benefits business here, we've been growing voluntary Oh, you know in the high teens for a number of years.
The employee paid component of our Sam's is a you know it.
It's also growing you know we're always open to do.
Do something Inorganically, if we feel that it fits strategically if it adds a capability if it helps us accelerate revenue growth provided it is accretive over time and provided it also compares favorably to other potential uses of capital.
So you know, whereas there are no jobs.
You know we have our M&A is a strategic capability ear and we'll deploy it if we believe it may.
It makes sense to do so and.
If it's a better use of capital compared to other potential uses.
Thanks, Michelle maybe just one follow up on that is it is case size something that makes you.
Consider or not consider M&A in group overall.
You know, meaning Mike are you, referring to sort of deal size.
No sorry, I liked the target market employer size.
Oh I mean.
Not really I mean, I would say you know we.
We have scale across our businesses and across markets.
It's more around you know it does one plus one equals more than two if you like in terms of what we have on what we are potentially acquiring.
Okay. Thank you.
And we will turn the conference back to John Hall.
Great. Thank you everybody for joining us on this very busy morning for insurance earnings and have a nice day. Thank you.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
We're sorry your.
As ending now please hang up.