Q3 2024 MetLife Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the MetLife, third quarter of 2024, earning his confidence call. This time, all participants are in a listen-only mode. Later, you will conduct a question and answer session. As instructions will be given at that time.
As a reminder, this conference was being recorded. Before we get started, I refer you to the cautionary notes about forward-looking statements in yesterday's earnings release and to this practice discussed in the last SEF violence.
Speaker Change: with that, I will turn the call over to John Hall, global head of the investigations.
John Hall: Thank you operator. Good morning all. We appreciate you joining MetLife's third quarter, 2024 earnings call.
John Hall: Before we begin, I point you to the information on non-gap measures on the Investor Relations portion of mentlife.com in our earnings release.
John Hall: and in our quarterly financial supplements, which you should review.
John Hall: On the call of this morning, our Michel Khalaf, President and Chief Executive Officer, and John McCallion, Chief Financial Officer.
John Hall: Other members of Senior Management are also available to participate.
John Hall: We released our supplemental slides last night and they are available on our website. John McCallion will speak to them in his prepared remarks.
John Hall: and Appendix to the slides, features, disclosures, gap reconciliation and other information for your review.
John Hall: Q&A will follow prepare remarks and we'll end just before the top of the hour. As a reminder, please limit yourself to one question and one follow-up on to Michel.
Michel Khalaf: Thank you John and good morning everyone.
John Hall: Last night, my life reported turret coral results.
John Hall: which wild absorbing pressure on variable investment income, affirm the financial attractiveness of our businesses.
John Hall: Ficking you, why do you?
John Hall: Here today to adjusted earnings per share, excluding notable items, are up 12% pointing to our broader base momentum and a favorable underlying environment for our global set of market leading businesses. In the US, unemployment remains at historically low levels.
John Hall: in Flazian appears to be under control and the yield curve has started to see a positive slope beyond two years.
John Hall: These are conditions that favor both our group benefits and our retirement and in solutions, bestnaces.
John Hall: Outside the US, we are seeing a promising backdrop for many of our key markets.
John Hall: For instance, in Japan, the combination of modest inflation, the 10-year JDB near 1% and government incentives to save has the potential to put money in motion, moving from the sidelines and into the investment and insurance products met life offers.
Speaker Change: and I'm going to be a great player.
Speaker Change: While in Brazil, the rapid adoption of digital distribution channels for financial products is democratizing financial services and bringing them to a wider audience of customers.
Speaker Change: Still, the geopolitical conditions that persist in many regions remain challenging, and we have an election here in the US next week.
Speaker Change: Yet, throughout its 156 year history, that life has successfully managed risk and found opportunity in uncertain times.
Speaker Change: Our purpose always would you visiting a more confident future resonates at times like these and I have every confidence that McCalli will continue to create value for our customers, shareholders, and other stakeholders going forward.
Speaker Change: Turning to the quarter, we reported that just to the earnings of $1.4 billion or $1.95 per share.
Speaker Change: After reflecting that positive notable items from our annual Electoral Estumption Review and other insurance adjustments
Speaker Change: adjusted earnings per share totaled $1.93 per share.
Speaker Change: Becuring interest margins, underwriting and foreign currency exchange rates were all less favorable than a year ago, partially offset by volume growth and higher equity markets.
Speaker Change: As we had previously indicated, private equity returns can then be low expectations, leading variable investment income or VII to dip under the prior year period results.
Speaker Change: But the same time we just stayed in other fund returns improved sequentially, extending the trend we've seen developed through the year. In the quarter, our key performance metrics reflect the power of our business.
Speaker Change: McLean posted a 14.6% adjusted return on equity and we are on track to exceed our 13-15% target range for the full year.
Speaker Change: This further demonstrates our focus on the employee capital to generate responsible growth and high returns.
Speaker Change: and our efficiency mindset was evident in my life's third quarter direct expense ratio of 11.7% and improvement here over a year and below our 12.3% annual target.
Speaker Change: Shifting to Business segment results, our group benefits business reported adjusted earnings of $431 million is doing notable items.
Speaker Change: John from a strong on the writing quarter a year ago. On a year-to-date basis, also excluding notable items adjusted earnings are up 7%. Our scale and broad product range have long been points of competitive differentiation for our group benefit business, contributing to our adjusted premiums fees and other revenue growth.
Speaker Change: and the corner adjusted BFOs, excluding the M.
Speaker Change: Policy is rose 5.3%.
Speaker Change: For the year-to-date period, adjusted PFOs on the same basis, similarly grew 5.5%.
Speaker Change: With employee benefits and role-mints, he's an again upon us. This year, more than 1 million US employees would be able to make their enrollment experience as easier by using my clients' applies and newly developed tool to help them choose and use their benefits.
Speaker Change: Upload Simplifies Benefit Selection by making custom recommendations based on an employees individual needs and preferences.
Speaker Change: and applies as important because our research shows that more informed benefits selection decisions lead to a more engaging and productive workforce, a win for employees and employers.
Speaker Change: Moving to retirement and income solutions or RIS, adjusted earnings excluding notable items total $368 million in the quarter, reflecting the impact of interest rate caps maturering.
Speaker Change: Sales of stable value and you can on every insurance remain strong. And we maintain our leadership position in the competitive jump-up-ention risk transfer space. With the strong start to the fourth quarter, we've now closed $5.6 billion of PRT sales so far in 2024.
Speaker Change: We published our annual pension restransfer poll last month, which continues to point to a robust pension restransfer pipeline.
Speaker Change: The 2024 poll found that among companies with defined benefit pension derisking goals.
Speaker Change: A full 93% intent to completely devaster plans.
Speaker Change: from 89% in the 2023 poll. Moreover, about half of these companies plan to the vast and the next two to five years.
Speaker Change: Turning to Asia, adjusted earnings excluding notable items, or $347 million, down 6% from the year ago quarter, on market-related items, partially offset by favorable underwriting margins.
Speaker Change: On a year-to-date basis, adjusted earnings grew 16%. A just general account assets under management, the key measure for this region grew 6% year over year on a constant currency basis.
Speaker Change: Looking to Latin America, we saw strong bottom line results with adjusted earnings including notable items of $217 million, rising 9% from a year ago. On a constant currency basis, sales and adjusted PFOs both grew double digits.
Speaker Change: Our Momentum in Latin America has been building for some time. This can be seen in Brazil where we have seized upon the growing adoption of the digital distribution of financial services to partner with some of the leading players in that market.
Speaker Change: To capture this opportunity, we have deployed an integrated technology solution called Accelerator, which allows us to meet customers where they are.
Speaker Change: McLeod Accelerator helps leading banks, retailers and other companies offering sure and consider customers with a simple frictionless and fully digital insurance experience.
Speaker Change: Starting in Brazil, we branched out to bring this innovative technology to other core markets and Latin America, including Mexico and Chile, with more than 4 million enforced customers in the region since launching a year ago.
Speaker Change: For some time now, we have spoken about the importance of value of new business as a critical management tool.
Speaker Change: Our focus and intensity of our execution across this metric is truly impressive.
Speaker Change: For 2023, we generated a 19% internal rate of return on $3.6 billion of capital deployed, creating VNB of $2.6 billion with a payback period of roughly five years.
Speaker Change: It is even more impressive when you consider the substantial progress we've made over the course of the next horizon timeframe. A 400 basis point increase in IRR and a 2 year decrease in payback period, all of which adds up to more cash sooner.
Speaker Change: As you can see from RVNB numbers, met life prioritizes organic growth with attractive payback periods and internal rates of return.
Speaker Change: We also favor strategic, inorganic growth with similar financial characteristics.
Speaker Change: When appropriate organic and inorganic opportunities are not available, we will return capital to shareholders via share repurchase while also generating attractive IRRs. Our track record proves this out.
Speaker Change: In the third quarter, we were again active in capital management and returned close to $1.2 billion to shareholders, the Yakoman stock dividends and share repurchase.
Speaker Change: We distributed common stock dividends of roughly $400 million and bought back approximately $100 million of our common shares. This brings total common stock we purchased through the third quarter to about $2.8 billion.
Speaker Change: We still have more than $2 billion remaining on our board authorization.
Speaker Change: Finally, at the end of the third quarter, we had 4.5 billion dollars of cash and liquid assets at our holding companies, which is above our target cash buffer of 3 to 4 billion dollars.
Speaker Change: To wrap up, we are moving closer to our December 12th in faster day, where we are excited to roll out our next five years strategy, new frontier.
Speaker Change: As I have mentioned,
Speaker Change: New Frontier is not a radical change in direction for metlise.
Speaker Change: Brother, it takes us to places where we have the right to win.
Speaker Change: It is a growth platform that builds on the success of nexhorizon and provides a pathway to lead my life to even stronger performance in the future.
Speaker Change: We are in a much different position than we were five years ago, more front footed and oriented towards all fans versus defense I look forward to expanding on the precepts of new frontier which are anchored on accelerating growth, boosting returns and fostering greater consistency
Speaker Change: Now I've turned it over to John to cover our quarterly performance and more detail.
John: Thank you Michel and good morning. I'll start with the 3Q-24 supplemental slides we provide highlights of our financial performance including details of our annual global actual assumption review.
John Hall: In addition, I'll provide updates on our value of new business metrics and our liquidity and capital position.
John: Starring on page 3, we provide a comparison of net income to adjusted earnings in the third quarter. Net income was $1.3 billion, $100 million lower than adjusted earnings.
John: We had net derivative gains primarily due to the strengthening of the yen versus the US dollar and the decline in interest rates in the third quarter.
John: That said, during the games we're partially offset by market risk benefit or MRB, Remasement losses due to lower interest rates.
John: Net Investment Laws is remodished, reflecting normal trading activity and a continuation of a stable credit environment. Overall, the investment portfolio remains high quality and resilient in our hedging program performed as expected.
John: The table on page 4 provides highlights of our annual acts world, assumption review, and other insurance adjustments with a breakdown of the adjusted earnings and net income impact by segment.
John: Over all the impact we just had earned the end-it-income was modest. In group benefits, we had an unfavorable impact due to a liability refinement related to an annuity payout feature. On a small subset of our group, life portfolio.
John: and I'm going to say that there is no long going impact due to the treatment.
John: In retirement and in consolutions or RIS, while we have maintained our long-term mortality trend assumption, consistent with pre-COVID. This reflects the impact of higher mortality over the last few years, which resulted in a positive impact to adjusted earnings.
John: and in Asia, the net unfavorable impact was primarily due to three factors.
John: on favorable changes to laps of assumptions across life and accident in the health product in Japan. Lower expected fun returns for a variable life product in Korea, and these were partially offset by a positive impact from improved morbidity for accident in the health product in Japan and Korea.
Speaker Change: On page 5 you can see the third quarter year of the year comparison of adjusted earnings by segment, excluding notable items.
Speaker Change: and John McCallion, a just at arranged $1.4 billion down 8% and 6% on a constant currency basis.
Speaker Change: Premierally due to lower recurring interest margins, Parsioff said by solid volume growth year over year.
Speaker Change: and John McCallion, Mr. President, and Mr. President, we're one dollar ninety three cents, down one percent on a reported basis, but up one percent on a constant currency basis.
Speaker Change: Moving to the businesses, group benefits adjusted earnings were $431 million, down 11% year over year. Primarily due to less favorable non-medical health underwriting margins versus a strong comparison in Q3 of 23.
Speaker Change: The group life mortality ratio is 85.6% and 82.4% when excluding the notable items discussed earlier.
Speaker Change: This was below our annual target of 84 to 89%.
Speaker Change: are more Tally results remain seasonally strong, albeit following record-low, life claims in 2Q of 24. Here today our group life mortality ratio remains at the low end of our annual target range.
Speaker Change: Although we would expect a race should be toward the middle of the range in the fourth quarter.
Speaker Change: Regarding non-medical health, the interest adjusted benefit ratio is 72.4% in the quarter.
Speaker Change: with in our annual target range of 69 to 74 percent, but higher than the prior year quarter of 69 percent, or 70.4 percent, excluding a favorable notable item related to disability in 3Q of 23.
Speaker Change: Turning to the top line, group benefits as just a PFLs were up 5% year over year, and at the midpoint of our 2024 target growth range of 4 to 6%.
Speaker Change: Group benefit to you today's sales were up 9% driven by strong growth in national accounts.
Speaker Change: RAS adjusted earnings with $368 million down 10% versus the prior year. Lower recurring interest margins were partially offset by strong volume growth and favorable under any margins.
Speaker Change: RAS Total Investment Sprays, where 106 basis points, down 15 basis points sequentially, mainly due to the continued exploration of interest rate caps and lower variable investment income.
Speaker Change: As we highlighted in the Q2 earnings call, the continued roll-off of the Instrake App Store of the majority of the sequential decline.
Speaker Change: and the vast majority of interest caps have expired and based on the current forward interest rate curve. We expect fourth quarter spreads, excluding variable investment income, to now stabilize and be flat to up one to two basis points.
Speaker Change: RAS Adjusted BFOs, including pension risk transfers.
Speaker Change: We're up 3% year or year. Primarily driven by strong sales in UK longevity re-insurance.
with regards to PRT, we continue to see an active market. We had premiums of approximately $5 million in the third quarter, and we have already seen a strong start to queue for with over $1.5 billion in PRT wins in the past month alone.
Speaker Change: Oven Asia, adjusted earnings were $347 million, down 6% and 5% on a constant currency basis. Primarily due to market related items in the quarter, harshly offset by favorable underwriting margins.
Speaker Change: For Asia's growth metrics, journal account assets under management on an advertised cost basis were up 6% year over year on a constant currency basis.
Asia sales were down 1% on a constant currency basis.
Speaker Change: Lower Japan sales are mostly offset by other Asia markets which are up 10% Most notably due to strong growth in India and China.
Speaker Change: In Japan, sales were down 7% year-veer, primarily due to the impact of young volatility on foreign currency products. However, we continue to see a favorable outlook, given higher interest rates and positive macro changes in Japan.
For example, our refreshed, gen, denominated, variable life and cancer products introduced earlier this year, have performed well.
Speaker Change: glad America adjusted earnings were $217 million, up 9% and 21% on a constant currency basis. primarily driven by strong, Chilean and Cahai returns in the quarter and volume growth in our key markets.
Latin America's top line also continues to form well as adjusted PFOs or up 1% and 11% on a constant currency basis driven by strong sales and solid persistency across the region.
Speaker Change: Turning to a Mia, adjusted earnings for $75 million, up 7% on a reported basis, and 9% on a constant currency basis. Primarily driven by strong law in growth of your year.
Speaker Change: A Mia Justin PFOs were up 11% and 14% on a constant currency basis, driven by growth across the region, and sales were up 32% on a constant currency basis primarily from Turkey and Egypt.
MetLife Holdings adjusted earnings were $170 million down 17% versus the prior year quarter.
The primary driver was the four-gone earnings due to the reinsurance transaction that closed in November of 2023.
Corporate another just a loss was $249 million versus an adjusted loss of $262 million in the prior year.
The company's effective tax rate on adjusted earnings in the quarter was approximately 24% and within our 2024 guidance range of 24 to 26%.
On Page Six, this chart reflects our pre-text variable investment income for the prior five quarters, including $162 million in Q3 of 24.
This was down $17 million vs. Q3 of $23.
The private equity portfolio, which had over $14 billion in VII assets as a September 30th.
had a positive 0.6% return in the quarter.
This compared to a 1.4% return in Q3 of 23.
While PE returns were below recent trend, our real estate related and other funds of roughly $4.5 billion continued to improve with a 1.1% return in the quarter.
As a reminder, PE, real estate related and other funds are reported on a 1-quarter lag and accounted for on a mark to market basis.
Speaker Change: On page 7 we provide VII post-acts by segment for the last four quarters and the third quarter of 24. As you can see in the chart, RIS, Asia and MetLife hold is continued to hold the largest proportion of VII assets.
and the long-dated liability profile. Now, turning to page 8, the Charter and Left of the Page illustrate the split of our adjusted net investment income between recurring and VII for the last three years, including the recorder of 2023 and 24.
The Justinette Investment Incum, in Q3 of 24, was the especially flat versus the prior year. While recurring investment income has benefited from asset growth in higher interest rates, it has been offset by the roll-off of interest rate caps.
Speaker Change: Turning your attention to the right side of the page, this shows our new money rate versus roll off yield since the third quarter of 21. Over the last ten quarters, new money yields outpage roll off yields.
and System with Higher Interest Rage.
Speaker Change: Thank you 3 of 24, our global new money rate achieved a yield of 6% 22 basis points higher than the rolloff rate.
The nowering of the spread between new money rates in rolloff yields in 3Q was primarily due to a roughly 70 basis point decline in US interest rates and elevated pay downs in the quarter of recently purchased higher yielding securities.
and the president of the United States, that said proceeds from these pay downs in three queue have been reinvested in high relative value public and private assets with similar yields.
I would also note that the new money rate relates to purchases in 3Q of roughly $14 billion more than twice that of the invested assets rolling off.
So while the difference between our new money rates and rolloff field shown here,
is used as an indicative metric for future investment margin impact. It's only directional in nature and not a perfect depiction of spread impacts. At these levels, we continue to see positive impact of higher yields on our enforced and new business growth.
Now moving to expenses on page 9, this chart shows a comparison of our direct expense ratio for the full year of 2023, a 12.2% and the first 3.4% to 24 all below 12%.
Speaker Change: including 11.7%.
and Q3 of 24. As we have highlighted previously, we believe our fully-ear direct-to-exventory issue is the best way to measure performance due to fluctuations in quarterly results.
Our Q3 Direct Expensory Show benefited from solid top line growth and ongoing expense discipline.
Speaker Change: Looking ahead we would expect our direct expensuation to be higher in the fourth quarter consistent with the seasonal nature of our business.
Speaker Change: That said our performance here today positions us to beat our full year 2024 direct expense ratio target of 12.3% demonstrating our consistent execution and a sustained efficiency mindset.
Speaker Change: Now let's turn to page 10. This chart reflects new business value metrics from MetLife's major segments for the past five years.
and including an update for 2023.
MetLife invested $3.6 billion capital in 2023 to support new business.
and I was deployed at an average on-levered IRR of approximately 19 percent with a payback period of five years, generating roughly $2.6 billion in value.
Now discuss our cash and capital positions on page 11. Cash and liquid assets at the holding companies were $4.5 billion at September 30th, which is above our target cash buffer of $3 to $4 billion.
Cash at the holding company's reflex, the net effects of subsidiary dividends, payment of our common stock dividend, and share repurchases of roughly $800 million in the third quarter.
as well as holding company expenses and other cash flows.
Speaker Change: In addition, we have repurchased shares totaling approximately $130 million in October. For our US companies, $1.348,224, statutory operating earnings, we're approximately $2.8 billion. Essentially flat, you're overyear. Well, in that income, it's approximately $2 billion.
We estimate that our total U.S. statutory adjusted capital was approximately 17.6 billion as a September 30, 2024. Down 2% from June 30, 2024. Primarily due to dividends, paid, and derivative losses, partially offset by operating earnings.
Finally, we expect that Japan's solvents in margin ratio will be approximately 745% as of September 30th, which will be based on statutory statements that will be filed in the next few weeks.
Speaker Change: Before I wrap up, I would just like to highlight that we have an updated commercial work at Sloan Slide as a September 30th in the appendix. Overall, the CML portfolio continues to perform as expected with attractive loan value and debt service coverage ratios, as well as the expectation of modest losses.
Speaker Change: in summary.
Speaker Change: While just at Irons were below our expectations, primarily due to lower VII, the underlying strength of our business fundamentals was evident with strong top line growth.
Speaker Change: Disciplined Underwriting and Prudent Experience Management. In addition, our strong value of new business metrics demonstrate our discipline approach to deploying capital to its highest and best use.
and Assistant with our all weather strategy.
Speaker Change: MetLife remains in a position of strength given our balance sheet, free cash flow generation, and diversification of our marketing businesses.
Speaker Change: and we are committed to deploying capital to achieve responsible growth and building sustainable value for our customers and our shareholders.
Finally, let me close by saying that we look forward to seeing many of you on December 12th at our Ambassador Day, which will focus on the introduction of our new Frontier Strategy.
As we have in the past several years we will be offering our near-term outlook in early February as part of our fourth quarter, 2024 earnings call.
Speaker Change: and with that, I'll turn the call back to the operator for your questions.
Speaker Change: and the
Thank you.
Speaker Change: As a reminder, if you'd like to ask a question, please press star and the number one on your telephone tab.
Speaker Change: We've all paused for just a moment to come call the roster.
Speaker Change: [inaudible]
We will begin the question in my session.
Our first question comes from the line of Sunni, come out from Jeffers.
The Laugh is right now.
Speaker Change: Good morning. I wanted to start with group benefits if I could, I know you're adjusted loss ratios are within your guide but maybe a little bit higher than they've been tracking recently. Can you just talk a little bit about how you're thinking about
[inaudible] I'm a president of the United States.
Good morning, Cindy. Maybe I'll start with the competitive environment. I would reiterate that we're not really seeing any change in the competitive environment in group.
The market has been competitive remains competitive but having said that we always did note that the pricing perspective is not an irrational market and the short term nature of the products that we sell in particular also dental.
means that any aggressive pricing will shop fairly quickly in earnings, which acts as a kind of a natural check on any irrational pricing.
Speaker Change: The headline for you here, yes, it's competitive, not irrational and we do see a competitive environment that also extends beyond prices. We've also talked about before in terms of capabilities, digital experiences.
Brett of product and have you.
from a ratios perspective I thought would life, particularly pleased with the life ratio of this quarter. It is still our lower end of our guidance range once you kind of take that notable a piece out.
and we're benefiting from favorable incidents in the population and you continue to see that in the CDC population data for the working age population.
Speaker Change: So if you look at that live ratio year-to-date, we're at 83.9 and even if you were to factor in a seasonally higher Q4 on the life side, we would still be close to the bottom end of the range for life.
and then finally moving on to the non-medical health ratio. We're also within the ranges you pointed. We did have a number of smaller items in the non-medical health ratio which were unfavorable.
Speaker Change: To the ratio those were worth about a point. If you take it out, it would bring a bright back in the middle of that range.
and then with respect to dental and particular, I did talk about the competitive environment and we also did talk in the past about a market that's trending back to pre-pandemic and utilization levels.
and we've seen these dynamics play out and we've been taking actions in terms of pricing. So think of that as a really part and parcel of how we manage our dental block through cycles.
McCallion, the critical point I would make here is going forward. It's really about ability to reprise and maintain consistency.
McCallion, we can be priced about 80% of that business in any given year. So while the scorters were higher than our seasonal expectations, our pricing for one one reflects these dynamics.
and we feel really good about returning back to our target margins for the block in 2025.
Okay, that's helpful. Thanks for all the color and then I guess for either Michel or John.
on the VNB slide, you know.
Speaker Change: Can you just talk a little bit about what's driving?
the Improvement in the IRR and the Reduction in the payback period. And have you sort of backtested these IRRs? Because I'm assuming they're sort of pricing our IRRs.
and so when you look at how these blocks have actually developed, are they're pretty close to your pricing assumptions or can these give us some color on that? Thanks.
Thanks, thanks, Anita. I'll start and I'll let John add some color as well. So you know, really pleased with the journey we've been on here in terms of, you know, one of our...
You know, main pillars for next rise and was the focus better which is allocating capital to its highest and best choose. And I think that's reflected in how we allocate capital in support of organic growth of new business growth.
and if you think about the trajectory we've been on here, think about Group Benefits, Latam, Tool of Hour, Higher Return Businesses.
you know continuing to show really strong growth there.
So that's certainly contributing factor. You know, we're not getting 19% I would say, you know, across all of our businesses, but the fact that we have businesses with higher returns, you know, growing faster that's somewhat the other businesses, you know, that's certainly contributing to the, to the, you know, you know, the NB picture you see on the on our slide.
Yeah, and Sue, I think you're, it's a good question. The point around just back testing, because as you said, you know, this is, these are IRRs on new business that we've priced based on our best estimate assumptions. And I think, um...
Speaker Change: I've been thinking about that as well and I think there's a couple things. You know, certainly the environment has been favorable here, right? I mean, in a case of if you just think about, you know, we've been at, you know, benign credit environment.
You know, underwriting has generally been in line across our businesses and you know, and interest rates have been favorable.
So all of those, so I think the answer is yes it's hard to be really precise, give or take on all of those things but we think about we've asked the same question ourselves
because obviously we're seeing the positive momentum here and I think.
Just thinking a little more about the positive moment and like Michel said.
Speaker Change: I mix of businesses certainly a driver there in terms of our new business too. I think the tool itself as a management tool has causes everyone to continue to refine.
and James. James, you know, we have a lot of things in terms of pricing, capital optimization, how you might use reinsurance. We did get some favorable...
Regulatory changes like in Korea, for example, they move to an economic framework recently and that's typically favors up because we tend to follow an economic framework.
Speaker Change: So that has ultimately given us a lot more access capital there that will over time be redistributed up into into the holding company. And then I think the third thing is...
You know, there's been a trend of unacostaverment.
So I think all of those factors give rise to why you see this kind of migration occurring and I think probably the biggest one is for what Michel said which is
makes a business you have you have high growth in certainly in some of our businesses F.I.B.I.R. are from very low capital intensive businesses like group and Latin America.
McCallion, I hope. If I could just throw in one quick follow up to these IRRs, I mean, I'm assuming they should give us a directional indication of where your ROI is headed given that they're on levered returns.
I think that should give a good indication in terms of the direction of traffic here, especially if you consider that
you know besides what we just mentioned the fact that you know met like whole things which is a law or a business is running off so you know all of these factors combined I think with point to a you know or a trending upwards.
Speaker Change: Got it, makes sense thanks.
Speaker Change: i
Speaker Change: Thank you.
I will next question comes from the line of Jamie Buick from JP Morgan
Speaker Change: The Lion's Open.
Good morning, I had a couple of questions. One was just on Japan sales.
should be assumed that with the yen dollar exchange rate moving around that Japan sales, especially the dollar denominated products.
Speaker Change: Will stay a week in the near term or are there other sort of products that you're thinking about that should help mitigate the impact and then
Secondary and the portfolio, most of the metrics on your commercial real estate portfolio seem fairly stable.
with where they've been but what are you seeing overall in the market and do you think?
Office and non-office are the close to bottoming and then there's been renewed and concerns I think we've delivered just single-athlete single-borrowed type loans and back in CMBF. And if you just give some numbers on your exposure to those, thanks.
Hey, great to me, it's Lyndon here. Let me take the YouTube pan question. So let's start with your pan sales and I'll give you some colored on overall a show. Well, Japan isn't attractive market. Look, we're seeing increasing interest rates as well as positive macro trends there.
and we are seeing as an overall environment for effects products that has become more competitive. If you look at Japan sales, they were lower year of year in single premium effects products.
Now, few reasons we face a tough compared to the game last year.
Sales in 23 for the full year were up 14% year over year. And then as you said, while the young has strengthened in the quarter, we do see continued volatility of FX markets and that has impacted the sales before and currency products.
So essentially what we're seeing are more customer staying on the site line during these periods of affects volatility.
Japan sales for the third quarter sequentially were in line with where they were for the second quarter.
Now we do have a diversified portfolio. We have both US dollars as well as young products in Japan.
and we continue to evolve this product portfolio to maintain the competitiveness. We've introduced several new products. We launched a WeFresh Yend nominated variable life product. We launched a cancer product earlier this year. Both products have performed very well.
We've also launched a refreshed A&H medical product this month and we're planning to launch a new USDAL life product early next year.
Speaker Change: If we look at the rest of Asia, what we're seeing are sales of down up 9% year over year and that's driven primarily from China and India.
Solid Prof performance in China, especially as we look across both our channels, thank us for our concerns as well as agency. And if you look at India, we've seen sales increase sharply there with strong growth across all our channels.
As far as the outlook goes, look, your today's sales have been in line with the prior and we expect full-year sales where you should be close to flat year or year.
Speaker Change: Thanks.
Thanks. Thanks. Jimmy, I'll take your commercial mortgage comment or a question. As you pointed out, I think...
Speaker Change: You know, despite the recent pressure, you know, we've kind of commented on a few factors, right? There's been continued.
Eccodama Growth has been healthy.
Speaker Change: He that has been good news for you know fundamentals of real estate
Speaker Change: You know there's some modest trend towards the office so even the office has some kind of backdrop momentum here.
and overall I think as you point out we feel outside of office we probably feel like we've kind of hit the trough and we've probably seen it a positive outlook.
and I think that's a great idea.
and some of that expectation of some declining interest rates even steepening of the curve. I think would be a positive here. You're starting to see increasing transaction activity. You know, even us in this quarter, we probably, I think we had five sales of real estate properties for a gain.
Speaker Change: but a hundred and twenty hundred and fifty million of of gain in the quarter.
So again, we're just starting to see more liquidity come back into the market so that we think, you know, overall there's a, there is a
a positive backdrop that's starting to emerge.
Speaker Change: I don't think we're out of it, you know we're not going to see kind of a v-shaped recovery per se but it's certainly setting up for a more positive 2025 environment.
You know, I think you asked about single bar or I don't have the exact number on CNBS but it's relatively small. I think I just give you a few statistics. We've about 10 billion of CNBS.
and of that over 80% or about 80% of that is rated AAA or AA, but the single bar or exposures relatively small, just don't have that at my fingertips.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Tom Gallagher from Evercore.
Tom Gallagher: Good line, Robin.
Thanks, first just a follow-up on the group benefit. The Romney I think you mentioned the...
They were certain non-medical health.
product that were elevated in the quarter.
What were those, you know, outside of dental, can you come, what risk arose, or those disability, or something else?
Speaker Change: and there's a reason you would expect those to recover quickly or is there going to be some calto those where you think those might remain elevated and then also just on dental. How do you see that playing out is there?
Does it take a year in terms of the way that we're fighting works versus the margin or is it quicker than that?
Speaker Change: i
Hey Tom, thank you for the questions.
So the one timers were about a point in aggregate, so think of them as the small items were about a point in aggregate, so think of that about 20 million dollars.
Speaker Change: Paul Stax, and I would largely characterize them as one-timers. So we've got some of small item on the reinsurance through up another item on.
Timing of Raid approvals, so think of them as a collection of items that just all went against us in the quarter.
with Inda disability continues to perform very well for us and we continue to see.
Speaker Change: Incidents in line with expectations we continue to see strong recoveries in that line of business. So that's a bit of a kind of some more colour on those smaller items, but in aggregate I would say largely think of them as one time in nature.
Speaker Change: Um...
with dental, you know, we have been putting great increases in the book since the beginning of the year.
and I was in when...
Business comes up for renewal. These rating creases kind of will go into place.
Speaker Change: Um...
While we don't have complete visibility into one one, the visibility is pretty good at this point and from what we're seeing so far we are going to be back to our margin for the full year 25. So this is not a multi-year issue, we're kind of...
towards the end of that cycle and one one would have us back to our target margin.
Richard, thanks and then just a question on wrist transfer, a peer of yours recently said
and the Lopedin for Long-term Care Risk Transfer decided.
Speaker Change: The pricing was two adverse in the moving on. They're not going to pursue anything beyond that. Curious if you've looked into that market, and if you have your view of it, do you share that view that the pricing is two owner issuers? That's something you might want to pursue.
Speaker Change: [inaudible]
Hey, Tom, it's from me again here. You know, while I can't comment on the specific of any peer, we continue to see activity in that market, I would say increased activity in particular over the last 12 months.
Speaker Change: and I would say the bidfx spreads are somewhat narrowing, which is I think encouraging as we think about our book and some of the bidfx spreads that are out there.
But as we've always said, our book is well-capitalized, it's well-managed, it continues to perform in line with expectations.
So we continue to assess risk transfer options, clearly any deal needs to create long-term shareholder values or price matters.
Structure matters here, but in general I would say active discussions and somewhat narrowing of Bedock's spreads there in terms of what we see.
Speaker Change: God, you're thanks for that.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ryan Krueger from KVW.
You're lying's open.
and I'd like to thank for my question on RIS, John. Does your comment on the spread stabilizing in the fourth quarter also translate into the stable spreads in 25 as well based on the fourth curve?
Speaker Change: i
Speaker Change: Hey Ryan good morning.
Speaker Change: Yeah, and just as it just to kind of rehash, what I said, we had a little bit more of decline this quarter relative to what we had called out in the second quarter of eight to ten basis points on the course breads and it came in around 11.
I think a good reminder which I didn't say in my opening remarks is that in the second quarter we said eight to ten would occur as well and we came in under that so a little bit of each of those quarters are a function of just what rates did in the quarter in this quarter we had
We had some lower rates during the quarter although as you as everyone has seen rates have picked up which gives us.
Speaker Change: and I'm a little bit of the...
you know kind of optimism to be in flat up a few basis points come forth quarter. You know we'll give more.
Speaker Change: you know more color and the outlook call in February.
I think that maybe the...
McCallion, but I will say that we do feel like we've gotten to more stable spread, maybe his way I'd put it, but curve matters.
So that will be an aspect of what we do in our outlook. So it hasn't to kind of...
and I think we'll wait and see where the curve is and also the sensitivity can change and things like that. We're very dependent upon the outlook of the curve but all in all we are seeing is the more stability now. So I think that's a fair assumption for now.
Thanks and then you have any early insight into fourth quarter bareble investment income at this point.
I wish I could say yes, but probably I don't know if we have really good insights. I mean look at the end of the day, you know, we probably have a view.
and I think the reality is that this...
Portfolio in the sector of PE, you know, they continue to adjust to higher rates.
and more of all to markets in a constrained set of exit options.
That said, you know, we were still positive returns this quarter. We also saw some positive rebound in the real estate and related funds there in the quarter, again maybe.
Speaker Change: referencing back to some of the comments I made earlier around what we're seeing in real estate.
and I think the other thing that I did call out, I think it was that your conference possibly is that we had.
Another six hundred million of distributions occur. So, you know, this is still giving a strong cash flow.
I think performance has been good on a relative scale, I think, you know, kind of top half quartile or top half performance, maybe second quartile performance in the quarter.
Speaker Change: When we went in and dig dug deep, we saw that there were probably a few one-off situations in certain funds in the quarter.
We're some of the fun head to Marc, a particular asset as opposed to broad marks across.
Speaker Change: We think that those are more one-off factors. So if we were to normalize for them and use that as our proxy for the fourth quarter, you should think maybe total VI would be north of where we are today.
Speaker Change: Maybe doesn't get us back to two cue levels, so maybe take the midpoint of those two as a good estimate for fourth quarter at this juncture.
Speaker Change: Great, thank you.
Speaker Change: and the
Speaker Change: i
Speaker Change: Thank you.
Our next question comes from the line of Alex Scott from Barclays.
Speaker Change: Waldock.
Good morning. I just wanted to come back to some of the comments on RIS and maybe even more broadly across the firm. Could you talk about your sensitivity to interest rates? Maybe help us think through what kind of flow did rate allocation you have.
you know maybe net of floating great liabilities and so forth and we've interested in RA specifically you know the shape of the yield curve changing away it has.
You know, is that a positive negative? I just want to get a better feel for rate exposure.
Speaker Change: and welcome back.
Yeah, just as a framing generally for our portfolio is a steeper curve is better. So...
You know, we hire rates.
are better, steeper curve is better as well. So I think that helps with maybe the direction of travel. In terms of like our floating-grade access to live village, we're pretty well matched. Sometimes we have a little bit of floating-grade assets in corporate and others, so that can be one place where you might...
Speaker Change: See, but ultimately a lower short end of the curve is better for us.
and that's just how we typically manage our collective portfolio. So I think that I'll look...
Slides we provided back in February of this year in terms of just a pair of low shifts in the curve are probably still pretty good proxies.
for the impact to our firm, but in terms of shape of the curve, I can probably just give you directional commentary at this juncture.
Scott, it's helpful. Thank you. And as a follow-up, you know, as we think through the strategy, you know, on the come here in December, and thinking through the comments that it should provide further enhancements to return.
Speaker Change: Peter.
Will that come worth through revenue growth and growing some of the businesses with higher returns? Or, you know, or their further as levers that you can pull to take down that expense ratio and drive efficiency across the organization?
Yeah, hi Alex. Yeah, I would say, you know, it's a combination of continuing to grow, you know, high return businesses.
you know continue with the same discipline that we've
It's now sort of really sort of a muscle that's very strong in the organization I would say in terms of how we price how we bring product to market.
Speaker Change: and then you know to the point that John made earlier are unit costs also has been coming down so that's another contributing factor there. So it's both of those things.
Speaker Change: Thank you.
Speaker Change: [inaudible]
Speaker Change: Thank you. Our next question comes from the line of Wilma Burdis from Lyndon James.
Speaker Change: The lines open.
Wilma Burdis: Hey, good morning. Could you walk us through what you see as a more normalized, more and right level of earnings with both group and RAS? Thanks.
Speaker Change: [inaudible]
Speaker Change: i
Okay, I think we, yeah, well, I just want to make sure we, we're able to hear that. You just said, could you walk through more normalized earnings for a group in RIS?
Speaker Change: Yes, you're sorry.
[inaudible] And I'd say, you know, we, we, we, we,
We provided some guidance on that actually in February.
roughly 8 to 10 basis points a quarter. I would say it basically hit that on the mark. We were a little lower in that roll-off and impact in the second quarter, a little higher in the third. Net-net, we probably ended.
Speaker Change: in those levels for the fourth quarter and on.
Speaker Change: And I think for RIS you have to take into account VII, right? And if you think about our earnings this quarter, that's obviously a fairly large delta for us relative to what we think our underlying run rate is for the firm.
Speaker Change: I think for group you have to be, you know, seasonality matters a lot, so it depends on what quarter we're talking about, but I think as Romney pointed out in some of his remarks that we did have a few things that just...
went against us this quarter, and I think that's the case also in Japan.
and others and it's just one of those things where we had a few things that we don't expect to recur.
Speaker Change: They just tend to all happen in one quarter, and they all were relatively small, but add to some numbers that all went in one direction. So that's kind of how we probably see the quarter at this juncture, and I know you only said RIS and group, but I thought I'd give you a more holistic view of that.
Speaker Change: and John McCallion. Thank you. Thank you.
Okay, thank you. And then this may be related to an earlier question, but could you just talk about the economic environment that would be supportive of BII returning to more normal levels? Thanks.
Speaker Change: Sure, I think...
You know as we were referencing earlier Certainly higher interest rates have caused the sector to have to adjust, right? I mean, it's been a sector that has benefited significantly from the lower forever
Speaker Change: environment that no longer is forever.
things have, you know, firms have had to shift back to kind of the growth model and as opposed to just, you know, the leverage model. And I think that was a strategy. I don't think it was wrong. It was just, it was. And so it's taking some time, coupled with the fact that the environment
you know needs exit options and M&A or IPO activity and that also had has slowed a bit as a result of the broader macro environment, so
Speaker Change: We think with one time, it's probably one factor that improves the sector. And the second is...
Speaker Change: You know, I think that, you know, as rates start to stabilize, and probably the curve starts to stabilize more importantly, that will be a, you know, kind of a positive aspect to support the sector.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of John Barnage from Piper Sandler.
The line is open.
Good morning, thanks for the opportunity. My question is on real estate. Given the improved positivity and directionality, and given it's more of a cycle asset class than anything else, do you think the recovery could be more extended in
What goes into a DII on a normalized basis post real estate recovery actually could end up being larger on the real estate side. Thank you.
And John, just to make sure I have that, you're asking whether there could be a larger allocation as a result of maybe the outlook? Is that what you mean?
No, not allocation, just as the contribution to real estate in the third quarter of overall VI was larger than it was in the prior quarters. As that cycle turns, should we actually think of that actually being larger possibly on the other side?
I wouldn't. Got it. Okay. I wouldn't. I mean, we've given some outlook. In our outlook, we gave some views of returns for the asset classes, and obviously they were predicated on a certain set of assumptions.
Not all those assumptions have come true, and they aren't, you know, and that's expected. I still think using that relative scaling...
even if the returns kind of migrate up is still a good concept and you know if you think about our real estate exposure in VII today it's more in the
Speaker Change: We call it core, core plus, and maybe some bit of opportunistic. So in terms of the expected return on those types of investments, you would think they're lower than what you would be expecting for, say, a PE or a venture capital fund.
Speaker Change: That's very helpful. And then my other question, can you talk about the opportunity being opened up due to regulatory reform, not just in Korea but broadly in Asia? Could we be seeing more growth from those markets? Thank you.
and John McCallion. Thank you. Thank you. Thank you. Thank you. Thank you.
Yeah, I think just my I'll just say quickly my comment on on Korea and I think you probably uh
Speaker Change: You know of our of our business and so we you know, that's one thing we saw in Korea
And I'm not so sure it opens up the frame, the...
environment or the business outlook per se, but we we certainly think it's more favorable for us and it avoids having to manage too many different constraints.
Speaker Change: Thank you. Due to time constraints, we're going to have to cut the question and answer session short. I will now turn the call back over to John Hall for closing remarks.
Great. Thank you everybody for joining us today. Have a happy Halloween and we look forward to seeing you where we can on December 12th. Bye.
and John McCallion. Thank you. Thank you.