Q1 2025 MetLife Inc Earnings Call
Yes.
[music].
Speaker Change: Welcome to the Metlife first quarter 2025 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.
Speaker Change: 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 Metlife S. E. SEC filings with that I will turn the call over to John Hall Global head of.
Speaker Change: Mr Relations. Please go ahead.
Speaker Change: Thank you operator, good morning, everyone. We appreciate you joining us permit lifes first quarter 2025 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 supplement.
Speaker Change: <unk>, which you should review.
Speaker Change: On the call. This morning are Michel <unk>, President and Chief Executive Officer, and John Mccallion, Chief Financial Officer, and head of Metlife investment management.
Speaker Change: Also participating in the discussion.
Speaker Change: Our other members of senior management.
Speaker Change: Last night, we released a set of supplemental slides, which address the quarter as well as the risk transfer transaction, we also announced yesterday.
Speaker Change: They are available on our website.
Speaker Change: John Mccallion will speak to those supplemental slides in his prepared remarks.
Speaker Change: In the appendix to the slides features additional disclosures GAAP reconciliations and other information, which you should also review.
Speaker Change: After prepared remarks, we will have a Q&A session, which will end promptly at the top of the hour as a reminder, please limit yourself to one question and one follow up.
Michele: With that over to Michele.
Michele: Thank you John and good morning, everyone.
Michele: A few months ago, we rolled out our new frontier strategy to guide Metlife over the course of the next five years.
Michele: As you will recall the Keystone of our new frontier strategy as the old whether nature of our market leading set of businesses.
Michele: And once again after powering through the supply on mortality challenges of Covid, and then bank liquidity concerns we find our strategic diversification put to the test as we move through 2025 with the odds of a recession on the rise we are seeing unprecedented volatility in the dirty trading of the U S equity Mark.
Michele: Kids. We are also seeing interest rates rise on the long under the curve fall in the middle but such funds still remain high at the short end.
Michele: Meanwhile, after a historic runoff strengthening U S. Dollar has started to weaken against many currencies around the world.
Speaker Change: Although metlife is not immune to the impacts presented by this uncertain backdrop. We are confident we have the right businesses and the right strategy to meet the moment.
Speaker Change: That's all core my wife is a recurring revenue business model in any given year. The vast majority of the revenues and earnings we generate are a function of renewal premium or investment income from assets and liabilities that are already on our books.
The slowing economy can dump and growth for our group benefits business, we've not yet seen cracks in the job market.
Speaker Change: Further the primary profit driver mortality for our largest group product line group life is largely uncorrelated to the economy.
Speaker Change: For our retirement and income solutions business, and our investment management business.
Speaker Change: Our long term interest rates are helpful on the demand side.
Speaker Change: The underlying growth of our international businesses.
Speaker Change: Which has been partially masked by the strong dollar could start to emerge as a tailwind.
Speaker Change: And standing behind it all our investment portfolio has been risk off for several years and is well situated to absorb recessionary stress.
Speaker Change: Our positive track record on this front as well established over.
Speaker Change: Over the course of our 157 year history, we have seen challenging times before and have succeeded in driving long term value for our shareholders and other stakeholders and we are well positioned to do so again, let me now turn to our first quarter results, which we reported last night.
Speaker Change: I believe they reflect the resilience of our business model and underscores many of the points I just made.
Speaker Change: We reported adjusted earnings of $1 $3 billion or $1.96 per share up 7% from the same period a year ago.
Speaker Change: We saw favorable underwriting good volume growth and better variable investment income in the quarter, which were partially offset by unfavorable foreign currency exchange and recurring interest margins.
Speaker Change: Variable investment income was aided by the performance of our real estate funds, which continued their steady recovery.
Speaker Change: Equity funds gained one 6% in the quarter, which is below our implied quarterly outlook return.
Speaker Change: Our adjusted return on equity in the first quarter was 14, 4% and our 12% direct expense ratio is evidence of our efficiency mindset at work.
Speaker Change: Shifting to our business segment results.
Speaker Change: Our group benefits business reported adjusted earnings of $367 million up 29% from the prior year period unfavorable life underwriting margins due to lower mortality.
Speaker Change: We continue to see favorable mortality for the working age population, which is consistent with CDC data.
Speaker Change: Moving to retirement and income solutions or RIS.
Speaker Change: Adjusted earnings totaled $401 million in the quarter.
Speaker Change: Sales of synthetic gigs and U K longevity reinsurance were strong in the quarter.
Speaker Change: Inflows associated with pension risk transfers totaled $1 8 billion, an outstanding start for the year.
Speaker Change: Our liability exposures are up 8% from a year ago.
Speaker Change: Looking to Asia.
Speaker Change: Adjusted earnings were $374 million down 12% over the same period, a year ago on lower underwriting margins and higher taxes.
Speaker Change: Sales for the region were up 10% on strong volume growth in Korea and China.
Speaker Change: And Japan has started to turn the corner and we are seeing very good energy around in U S. Dollar denominated product that we introduced into Banca channel at the end of the first quarter.
Speaker Change: Turning to Latin America, adjusted earnings were $218 million down 6% from the year ago period.
Speaker Change: Foreign exchange rates played a role on.
Speaker Change: On a constant currency basis, our adjusted earnings were up 7% compared to the prior year period.
Speaker Change: Adjusted P F OS in the region.
Speaker Change: A similar story up 1% on reported basis, but up 14% on a constant currency basis. Overall, we continue to see strong momentum across our leading markets in Latin America.
Speaker Change: Since launching our new frontier strategy in December we have been laser focused executing on its key pillars, and we are already making meaningful progress I'd like to expand by providing two related proof points.
Speaker Change: We were pleased to announce last night, another significant risk transfer deal, particularly given the current economic landscape.
Speaker Change: We have entered into an agreement with Tokoloshe resolution life insurance company to reinsure, approximately $10 billion of U S retail variable annuity and rider reserves.
Speaker Change: Consistent with our long term objectives. The planned transaction would accelerate the run off of my life's legacy business.
Speaker Change: Positively a reduced the company's enterprise risk and substantially lower the company's retail variable annuity tail risk.
Speaker Change: For its part but life investment management is on an aspirational path. The one trillion dollars in total assets under management.
Speaker Change: We have integrated the teams from Mercer ROE that we acquired in the quarter and we are working at pace to close or roughly 100 billion acquisition of Pine bridge, a substantial down payment towards achieving our aspiration for men.
Speaker Change: Turning to capital on cash in the first quarter, we accelerated our capital management activity, returning around $1.8 billion to shareholders through common stock dividends and share repurchases.
Speaker Change: We paid common stock dividends of roughly 400 million daughters, and repurchased approximately one $4 billion of our common shares.
Speaker Change: The above average buyback pace was a function of your repurchases in the fourth quarter as we were locked out of the market due to pending announcements.
Speaker Change: We expect subsequent quarters this year to be at a more measured pace.
Speaker Change: Following our new $3 billion repurchase authorization that was announced last night. Our total board authorization is now about $3 $4 billion.
Speaker Change: In recognition of our financial strength and flexibility our board of directors increased our common dividend per share by four 1% last week.
Speaker Change: And further adding to our financial flexibility we were active in the debt capital markets in the first quarter issuing $1 $25 billion of pre capitalized trust securities as well as $1 billion of subordinated debt.
Speaker Change: We ended the quarter with $4 $5 billion of cash and liquid assets at our holding companies, which is above our target cash buffer of $3 billion to $4 billion.
Speaker Change: To governance, we announced in February that Christian woman thought or would it be joining our board of directors effective may one.
Speaker Change: Prior to joining our board Christian had a distinguished career at Swiss re culminating in an eight year term as group Chief Executive Officer, we are glad to have someone with his skill set and experience on our board as we drive our new frontier strategy forward.
Speaker Change: In closing the underlying fundamentals of our portfolio of businesses remained strong as evidenced by our solid first quarter performance.
Speaker Change: While the operating environment may present challenges, we have emerged stronger from prior periods of turmoil. We've done this by following a playbook that focuses on the levers we control like discretionary expenses without sacrificing investments in strategic growth initiatives.
Speaker Change: When we set our new frontier goals, we were under no delusion that it would be easy.
Speaker Change: One of the things that gives me confidence in our ability to succeed as the team here at Metlife for.
Speaker Change: For the third year in a row, we are proud to have been named among the 100 best companies to work for by Fortune.
Speaker Change: Our team is energized and engaged.
Speaker Change: That leaves me convinced that our people are up to the task at hand, driven and motivated to deliver unmatched life superior value proposition of responsible growth attractive returns and lower risk.
John: Now I'll turn it over to John to cover our quarterly performance in more detail.
John: Thank you Michelle and good morning, everyone I'll refer to the <unk> twenty-five supplemental slides, which covers highlights of our financial performance and an update on our liquidity and capital position.
John: We've also included a few slides summarizing our variable annuity reinsurance transaction announced yesterday.
John: Starting on page three we provide a comparison of net income to adjusted earnings in the first quarter.
John: We had net derivative gains primarily due to the strengthening of the Japanese yen and the Chilean peso versus the U S dollar as well as unfavorable equity markets.
John: That said derivative gains were mostly offset by market risk benefit or MRV remeasurement losses, due to lower interest rates and weaker equity markets and <unk> of 25.
John: In addition, net investment losses were largely the result of normal trading activity on the portfolio and credit remained stable.
John: On page four you can see the first quarter year over year comparison of adjusted earnings by segment and corporate and other.
John: Adjusted earnings were $1 $3 billion up 1% and up 5% on a constant currency basis, while foreign currencies strengthened against the U S dollar in the current quarter.
John: Most major currencies weakened year over year.
John: The positive year over year drivers were favorable life underwriting higher variable investment income and solid volume growth across most business segments.
John: These were partially offset by lower recurring interest margins.
John: Adjusted earnings per share were $1.96 up 7% and up 11% on a constant currency basis.
John: By strong free cash flow and robust capital management over the prior four quarters.
John: Moving to the businesses group benefits adjusted earnings were $367 million up 29% from the prior year quarter the.
John: The key driver was favorable life underwriting margins due to working age mortality improvement compared to the prior year period.
John: The group life mortality ratio was 84, 8% for the quarter, which is at the bottom end of our 2025 target range of 84% to 89% and better than the winter flu season expectations.
John: We continue to see post COVID-19 favorable mortality trends in the working age population consistent with CDC data.
John: The non medical health interest adjusted benefit ratio was 74, 1% slightly above our targeted range of 69% to 74%.
John: Dental utilization is seasonally highest in the first quarter and we expect the ratio to be towards the middle of the target range in Q2.
John: Turning to the topline group benefits adjusted <unk> were up 2% year over year, while mortality improvement was favorable to group benefits bottomline. It masks topline growth due to the impact on premiums for participating life contracts, which can fluctuate with claims experience.
John: It has a limited impact to earnings for those contracts.
John: Our as adjusted earnings were $401 million up 1% year over year. The primary drivers were higher variable investment income and favorable underwriting performance, partially offset by unfavorable recurring interest margins.
John: Our S. Total investment spreads were 114 basis points up two basis points sequentially due to higher VII.
John: Our U S continues to achieve strong business momentum adjusted P. F O us where $2.4 billion, primarily driven by strong U S. PRT sales in the quarter, which resulted in new inflows of $1 $8 billion in Q1 of 'twenty five.
John: Excluding prt's RIS adjusted <unk> were up 14%, primarily driven by continued growth in U K longevity reinsurance.
John: As demonstrated by one jumbo case sold in the quarter with a contract value of $1 $7 billion. In addition, total liability exposure grew 8% versus the prior year period, most notably up 7% in general account liabilities.
John: Moving to Asia, adjusted earnings were $374 million down, 12% and down 9% on a constant currency basis.
John: Primarily due to less favorable underwriting margins and an adjustment of a deferred tax asset to reflect an increase in Japan's effective tax rate.
John: This reduced Asia adjusted earnings by approximately $15 million in the quarter. This was partially offset by higher VII year over year.
John: Asia's key growth metrics remain healthy general account assets under management at amortized costs was up 5% year over year on a constant currency basis and sales were up 10% on a constant currency basis.
John: While Japan sales were down 8%.
As foreign currency products remain under pressure given ongoing yen.
John: Until these other Asia sales were up 41% on a constant currency basis, most notably with the strong growth in Korea and China.
John: Latin America adjusted earnings were $218 million down 6%.
John: Up 7% on a constant currency basis, primarily due to higher volume growth across the region and favorable tax items in the quarter.
John: This was partially offset by less favorable underwriting margins as well as lower Chilean and Kai returns compared to a strong Q1 24.
John: Latin America's top line continues to perform well, although reported growth rates are being masked by currency headwinds, most notably due to the weakness in the Mexican peso year over year.
John: Adjusted <unk> were up 1%, but up 14% on a constant currency basis, driven by strong growth and solid persistency across the region.
John: EMEA adjusted earnings were <unk> $83 million up, 8% and up 14% on a constant currency basis.
John: Primarily driven by solid volume growth, partially offset by less favorable expense margins year over year.
John: EMEA adjusted <unk> were up 8% and up 12% on a constant currency basis.
John: Selecting strong sales across the region.
John: Metlife Holdings adjusted earnings were $154 million down, 3% due to the runoff of the business and.
John: And we continue to look for opportunities to optimize this legacy block of business through risk transfers as announced yesterday, we have entered into an agreement with Talcott resolution life insurance company to reinsure, approximately $10 billion of U S retail variable annuity and rider statutory reserves.
I will provide more details on that transaction shortly.
John: Corporate and other adjusted loss was $248 million versus an adjusted loss of $241 million in the prior year.
John: Lower net investment income was partially offset by lower expenses year over year.
John: The company's effective tax rate on adjusted earnings in the quarter was 23, 2%.
John: Modestly below our 2025 guidance range of 24% to 26%.
John: On page five this chart reflects our pretax variable investment income for the four quarters of 2024, and first quarter of 'twenty, five which was $327 million.
John: This result was up sequentially, but below our implied quarterly run rate of $425 million.
John: Private equity returns were one 6% in the quarter and our real estate and other funds yielded an average return of roughly 2% in the quarter.
John: As a reminder, P E and real estate and other funds are reported on a one quarter lag and accounted for on a mark to market basis.
John: Looking ahead to the second quarter, we plan to disclose preliminary information regarding our expectations for the variable investment income and the early part of July.
John: We are doing this for the second quarter given the current environment.
John: On page six we provide VII post tax by segment and corporate and other for the four quarters of 2024 and first quarter of 'twenty five.
As reflected in the chart our S Asia in Metlife Holdings continue to hold the largest proportion of VII assets given their long dated liability profiles. However, as a reminder, each business has its own discrete portfolio aligned and matched to its liabilities.
John: Moving to expenses on page seven this chart shows a comparison of direct expense ratio for the full year 2024 of 12, 1% Q1 of 'twenty four of 11, 9% in Q1 of 25 of 12%.
John: As we've highlighted previously we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results.
John: That said, we believe our results in Q1 position us well to achieve our full year direct expense ratio target of 12, 1%, demonstrating our ongoing expense discipline and a sustained efficiency mindset.
John: I will now discuss our cash and capital position on page eight overall Metlife is well capitalized with more than ample liquidity, we opportunistically repurchased about $1 $4 billion of our shares in the first quarter and have repurchased approximately $150 million of our shares in April.
John: And as we announced yesterday, our board has authorized a new $3 billion share repurchase program, reflecting the collective confidence in our new frontier strategy and the strength of our balance sheet as well as management's commitment to return excess capital to our shareholders.
John: Cash and liquid assets at the holding companies were $4 $5 billion at March 31, which is above our targeted cash buffer of $3 billion to $4 billion.
John: Beyond repurchases cash at the holding companies reflects the net effects of subsidiary dividends payment of our common stock dividend.
John: And holding company expenses and other cash flows. In addition, we had a $1 billion subordinated debt issuance and redeemed $500 million of maturities in the quarter.
John: Regarding our statutory capital for our U S companies, our 2024 combined NTIC RBC ratio was 388%, which is above our target ratio of 360%.
John: For our U S companies preliminary first quarter 2025 statutory operating earnings were approximately $600 million, while net income was approximately $500 million.
John: We estimate that our total U S. Statutory adjusted capital was approximately $16 4 billion as of March 31, 2025 down 6% from year end 2024, primarily due to dividends paid partially offset by operating earnings.
John: Finally, we expect the Japan solvency margin ratio to be approximately 725% as of March 31, which will be based on statutory statements that will be filed in the next few weeks.
John: Before I wrap up let me comment on the risk transfer transaction that we announced yesterday.
John: Light shown on page nine.
John: As we have discussed in the past Metlife holdings is a well seasoned and well diversified legacy block. We continue to focus on our primary objectives to meet customer obligations look for efficiencies in how we operate and seek opportunities to further optimize the business.
John: As we have noted we have continued to take a third party perspective, which helps us better manage the business internally, while also providing us optionality to appropriately accelerate the release of reserves and capital at the right value with the right strategic partner.
John: This transaction with Talcott resolution life insurance company covers approximately $10 billion of current U S retail variable annuity and ride our statutory reserves the funds withheld from the general account reserves and modified coinsurance for the separate account liabilities.
John: This risk transfer significantly lowers our exposure to retail variable annuity tail risk by reducing account values by approximately 40%, which in turn would positively reduce our enterprise risk associated associated with capital markets and its related volatility.
John: It is expected to deliver approximately $250 million in statutory value consisting of a ceding commission and release of capital over time.
John: So we expect the transaction will result in forgone adjusted earnings in Metlife Holdings of approximately $100 million annually. However, this.
John: This will be offset by an annual hedge cost savings to the enterprise of roughly $45 million associated with this block of business.
John: In addition, we have secured investment management mandates for Metlife investment management to manage roughly $6 billion of assets with top cut which supports our strategy to expand third party fee income.
John: Turning to page 10.
John: You can see how our VA balances have declined over time consistent with our strategy.
John: At our 2024 Investor day in December we highlighted the left side of the chart showing the 26% drop in VA balances over the five year period from 2019 through 2024.
John: And as shown on the right side of the chart. We expect total VA balances will further declined to $24 $5 billion as of March 31, 2025, reflecting the reinsurance transaction with telkom.
John: Overall this represents a more than 50% decline in VA balances since 2019, a positive development for Metlife risk profile.
John: In addition to lower balances. It is also important to note the remaining product mix, which will include a significant portion of traditional group retirement variable annuities.
John: $9 billion. These include four three B and $4 57, B annuities for retirement plans, which have limited guarantees.
John: Let me conclude by saying that Metlife delivered a solid quarter, reflecting the strong underlying fundamentals across our portfolio of businesses.
John: While the environment remains uncertain, we remain confident in delivering all weather performance achieved through a position of strength with a strong balance sheet recurring free cash flow generation and a diversified set of market leading businesses.
John: As we embark on the new frontier, our strategic priorities allow us to accelerate responsible growth and generate attractive returns with lower risk.
John: Our variable annuity reinsurance transaction with Takata is another proof point, how metlife has both the tools and commitment to generate long term value for our stakeholders.
John: And with that I'll turn the call back to the operator for your questions.
Speaker Change: Thank you we will now begin the question and answer session to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw that question Press Star. One again. Thank you. Your first question comes from the line of Jimmy Buhler with J P. Morgan. Please go ahead.
Jimmy Buhler: Hey, Good morning, I had a question first on your spreads in the RIS business.
Jimmy Buhler: If you look at the base yield that was down I think around 11% 11 basis points sequentially around 13 bps year over year and spreads were down ex VII.
Jimmy Buhler: Most of them about a similar amount so not sort of that mix or I know you had interest rate gap.
Speaker Change: That you might not be benefiting from but what's driving that and should we assume a further decline or stabilization in spreads from these levels.
John: Hey, Jimmy it's John.
John: You know this answer probably requires a little bit of a holistic view of Rs.
John: I'll give you the punch line upfront as you know we did have a.
Speaker Change: It declined sequentially and spreads are a function of rates and curves offsetting that as growth. So let me, let me give rami a chance to just talk about some like I say growth exceeding expectations, and then I'll come back and talk about spreads.
Speaker Change: Hey, Jimmy Yeah. Thank you John just to give you a sense of the the growth momentum. This quarter you can see it on where balances are year over year and sequentially, but we've got a number of notable wins in the quarter are we've got a very strong Q1 for P. R teased with $1 8 billion.
Speaker Change: Dollars of inflows.
Speaker Change: I would know Jimmy that all of these transactions were with sponsors who are fortune 500 companies, which was which is really encouraging for us we talked back in December about the very first UK funded re deal that we did with a well established U K insurer.
Speaker Change: We continue to see really good momentum for us in that market.
Speaker Change: Also in the U K market, we have a very robust pipeline in the U K longevity space and that's coming off the back of the jumbo transaction that we executed in the quarter.
Speaker Change: And then last but not least the stable value are we are a leader in that market and this has been a very strong quarter for us and recapitalized on some of the market disruption.
Speaker Change: So you put all of these together, we're seeing really strong momentum from an earnings perspective, it's coming from investment spreads, but it's also coming from underwriting and fees over time and you see that in the 8% growth in the liability balances in for.
Speaker Change: For the full year, we expect to be at the upper end of that three to five per cent a balanced growth that we guided you back in February. So this is a bit of a growth.
Speaker Change: From a liability balances perspective, and maybe Jonathan back to you talked about the spreads yeah, Yeah, and I just thought that maybe just setting that up to start because.
Speaker Change: As you said, we are we are down a bit sequentially. We did have as you mentioned a seven basis point decline in the core spread.
Speaker Change:
Speaker Change: When we were going through this back in February we did expect a decline we had the remaining roll off of the interest rate caps.
Speaker Change: We expected that to be a five or six point drag, but had expected to partially offset with that with certain management actions in the quarter. However.
Speaker Change: We had some you know rates were different the path of rates or whatever we had lower rates than expected, we had a flatter curve than expected.
Speaker Change: And so it became a bit difficult to reposition the portfolio and leverage some of our tools, we had to offset that cap roll off.
Speaker Change: The second thing we had in the quarter as we had more than expected pay downs in certain structured higher yielding structured securities and loans.
Speaker Change: And when we are redeploying that you're ultimately you were redeploying that at some lower spreads and that was in the early part of the quarter. So.
Speaker Change: Those two things.
Speaker Change: Impacted our ability to offset some of the some of the cap roll off in the quarter.
Speaker Change: And but you know as Rami said, if you take growth is probably exceeding expectations.
Speaker Change: <unk> are coming in a little lower there are likely going to stabilize from here into the second quarter and net net you are you know your effective effectively flat or relative to <unk>.
Speaker Change: Earnings expectations, So hopefully that gives a little color as to how to think about the two the two.
Speaker Change: Okay.
Speaker Change: Then on your CRE portfolio. The main metrics are pretty similar with how they've been recently, the with the loan to values and coverage ratios and stuff, but and it seems like things are starting to stabilize but are you seeing any indications that that all of this uncertainty.
Speaker Change: The recovery has been installed or what are you seeing in the commercial mortgage loan book.
Speaker Change: Yeah. Good question as you said.
Speaker Change: Real estate activity and in office leasing it really was continuing to show signs late in the year and even into Q1.
Speaker Change: Our statistics show that office leasing activity in Q1 was this drug strongest we've seen since like mid 2019.
Speaker Change: Investment activity has been up year over year as well I think roughly 10%. So generally theres been some good momentum, but I would say that you know we'll have to just monitor the you know kind of where we are.
Speaker Change: In terms of some of the uncertainty that's out there so it might slow a little momentum I don't I think our feeling is the sector has found a trough in values generally all else equal.
Speaker Change: And we saw that in some of our our Ltvs and our debt service coverage ratio, but yeah.
Speaker Change: I mentioned this maybe last quarter this year and probably next year, you will resolve a lot of the things that we put up reserves for over the last several years and so this will be kind of a resolution point, but that tends to happen at the trough.
Speaker Change: And I think so we still think we're there again its a bit all else equal.
Speaker Change: But we are we are feeling and we saw it look you can go back to VII, we had a 2%.
Speaker Change: Roughly return on the real estate related funds in the quarter. So.
Speaker Change: There are signs of improvement.
Speaker Change: Improvement, but obviously, we'll have to just see how how long the uncertainty persists.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line have Tom Gallagher with Evercore ISI. Please go ahead.
Speaker Change: Good morning first question is on the risk transfer deal.
Speaker Change: I guess on its face the pricing maybe it doesn't look so great in terms of.
Speaker Change: We'll call it the.
Speaker Change: The earnings multiple of what Youre, giving up but as we all know this is kind of a pretty volatile higher tail risk. So I think that should be considered but.
Speaker Change: Can you talk a bit about.
Speaker Change: The the way you approached evaluation wise, I guess, youre, giving up $50 million roughly of net income how much cash flow do you end up losing and then talk a little bit about how you view the tail risk and overall why this deal made economic sense for you. Thanks.
Speaker Change: Sure.
Speaker Change: I mean, it's Rami here, let me just maybe give you a sense of of how we got to the deal and then we'll tackle some of the specific questions you had.
Speaker Change: Should definitely look at this in the context of the new frontier strategy that we talked about and particular in the lower.
Speaker Change: Lower risk a pillar of that strategy.
Speaker Change: We have taken a very disciplined approach here is we looked at potential transactions are especially in the context that we have a well seasoned and well managed book.
Speaker Change: Book.
Speaker Change: But for US the goal here is to create value for our shareholders and all our other stakeholders. So the reinsurance partner matters the structure really matters, but so does the price and we do look at that price from a number of lenses.
Speaker Change: Including an economic lens, when we think about the valuation of the book and we definitely have a view of that which the price was very much in line with Ah.
Speaker Change: And we also look at it in terms of the impact if you will from a.
Speaker Change: Loss of GAAP earnings perspective versus the ceding Commission.
Speaker Change: But you should look at that also in the context of the cost of hedging that we're also now are no longer incurring so net net when you put that together the value that we received was very much in line with our expectations.
Speaker Change: And it also removes a lot of the tail risk, which as you know the capital requirements for this business.
Could be significantly higher should we see a downturn in the equity and on the interest rate environment. So all of these things where where part of our consideration maybe I'll turn it to John to talk about the cash flow pieces of this.
Speaker Change: Yeah, I think I think you your question on kind of summarized it Tom.
Speaker Change: Think of the cash flow is kind of a net of the two.
That's generally that Youre kind of you could think of that as almost of your change in Tac.
Speaker Change: So it's probably a good proxy for.
Speaker Change: Or what where but you know I think to round. This point, it's what you're giving up in like a stable environment right and so if things were the environment changes that's the.
Speaker Change: Your economics can change so.
Speaker Change: QWERTY markets over several years now have been on an upward trajectory, we have higher interest rates.
Speaker Change: And it was really an opportunistic way for us to you know kind of lock in the exit value here and also finding really good partner that we've been able to work with and get to know and and and feel good about the transaction.
Speaker Change: Got you Thanks, and then just.
Speaker Change: Just my follow up can you comment on what your underwriting experience was like in Metlife Holdings this quarter between.
Speaker Change: Let's say on the mortality side for life insurance and then also on long term care.
Speaker Change: It was very much in line.
Speaker Change: This quarter across both the LTC book as well as the retail.
Speaker Change: Life books, so nothing to note here in terms of underwriting across our mileage.
Speaker Change: Thanks Rami.
Speaker Change: Your next question comes from the line of Ryan Krueger with K B W. Please go ahead.
Ryan Krueger: Hey, Thanks. Good morning, first question was more high level, just hoping to get some thoughts on that.
Ryan Krueger: The current environment to what extent is it influencing changes and how you are managing the company. For example are you would you anticipate any changes to cap the capital management strategy or the expense strategy given the uncertainty in this environment or do you view things largely has been.
Ryan Krueger: As usual for now.
Michelle: Yeah, Hey, good morning, Ryan Thanks for the question it's Michelle.
Michelle: So you know clearly you know, we're not oblivious to the to the environment in which we operate Oh.
Michelle: Sort of I think it's fair to say that the Oh.
Michelle: Possibility of a recession has has risen.
Michelle: Having said that.
You know I think our our strategy, we'd like to call it or whether because you know again it doesn't assume.
Michelle: A rosy picture it does not assume a deep recession either.
Michelle: So.
Michelle: I would say, we're very much focused on executing on the pillars of the strategy. So no change whatsoever. When it comes to adopt you know I think you can see from sort of our capital management actions.
Michelle: Again, there are no change in terms of our approach are the 3 billion authorization are the a four 1% increase in and common dividends per share Oh, you know again sort of evidence in terms of the confidence that our.
Michelle: Board and we have in our financial standing.
Michelle: You know given the environment, we tend to focus on those.
Michelle: Or is that we do control.
Michelle: <unk> is one of them, we want to continue to invest in our strategic growth initiative is about at the same time.
Michelle: You know there are discretionary aspects to expand says that we are that I've asked the team to make sure that we are a we're managing really really well given the environment, so but beyond that I would say Oh no.
Michelle: I don't like to use the term b of you, but I would say you know were very much sticking true to our strategy and really pleased also with the underlying.
Michelle: The momentum that we're seeing across our businesses.
Michelle: Yeah.
Michelle: Thank you and then in group benefits.
Michelle: <unk> growth I think ex participating policies, but towards the lower end of your target can you give a little bit more color on what you're seeing and also how you think that that may progressed as New York goes along.
Michelle: Okay.
Michelle: Yeah.
Speaker Change: Thank you Ryan and good morning, So if you think about our 2% our reported number here there are two drivers.
Speaker Change: Driving that kind of a headline number the first and the larger impact I would say.
Speaker Change: Is the favorable mortality, we sold from those participating contracts, which John talked about.
Speaker Change: If you compare our life underwriting ratios year over year, we did see more than a five point drop in mortality this quarter from Q1 of 'twenty four.
Speaker Change: Really great outcome from an underwriting perspective, especially in what is a seasonally high mortality quarter. As you know Q1 does tend to be heavier.
Speaker Change: Now the impact that has on our participating contracts you get lower death claims, which result in lower premiums.
Speaker Change: So if you exclude that impact are the underlying <unk> growth was about 4%. So you're talking about a 200 basis points growth that is masked in our headline number.
Speaker Change: The other driver for the quarter are those related to our one one rate actions that we took on our dental block as.
Speaker Change: As we discussed a few times over the last six months, we did see a faster than expected acceleration.
Speaker Change: In dental utilization as part of our underwriting discipline. We are very quick to take actions when we see the market and utilization numbers move in one one is a is the most significant renewal dates for our dental business. So these actions did have a impact.
Speaker Change: <unk> on our persistency in the dental block, but we remain disciplined in the market and we did get the rate increases that we required and we walked away from some business that didn't meet our targets our margins.
Speaker Change: I would say as you look forward the dental rate actions are largely behind us at this point and in fact, we're seeing the earnings benefits starting to come through or dental earnings and.
Speaker Change: And as you think about the full year both of these effects the par impact as well as the dental impact will moderate.
Speaker Change: Expect us for our full year reported basis to be back in line with our guidance of 4% to 7% and you had another 100 basis points or so if you want to look at the underlying numbers, which exclude the par the park contracts.
Speaker Change: And then the last thing I would say is based on a really strong results. This quarter were also expecting no change to our full year outlook on earnings for the group business.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Sydney to math with Jefferies. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: Just wanted to ask on the buyback. It was obviously very strong in the first quarter and in April It was it was pretty modest.
And I get your comment about you know.
Speaker Change: Kind of catching up to.
Speaker Change: Lack of activity in the fourth quarter.
Speaker Change: But was there anything in the month of April that was sort of precluding you from maybe leaning a little bit I don't know if this VA deal was big enough.
Where you were blacked out, but anything going on with the timing there.
Uh Huh Hyphenate Michelle here, no I think we sort of.
Speaker Change: <unk> was sort of in line with you know we did what we set out to do I would say so there wasn't any impact from any Oh, you know pending announcements or anything like that.
Speaker Change: As I mentioned, you know in the first quarter, we leaned in a given the fact that in the fourth quarter.
Speaker Change: You know given some pending announcements there. We were you know we were precluded from you know potentially doing more than we did but you know clearly as I said.
Speaker Change: You can expect a more measured pace from here.
Speaker Change: So you don't don't use the $1 4 billion in the quarter as a quarterly run rate.
Speaker Change: And you know, we'll continue to be a opportunistic but deliberate oswald when it comes to our our activity here.
Speaker Change: No what I would also reiterate is that nothing changes and how we think about capital. Our first priority is funding attractive organic growth.
Speaker Change: Next we would like we would look for strategic and organic or inorganic opportunities are that are risk adjusted hurdle.
Speaker Change: Hurdle rate clearing guns, I think find Richard is a good example of top.
Speaker Change: And then if we have excess capital we will return that are deliberately overtime.
Speaker Change: We've consistently done.
Rami: Okay, that's fine and that makes sense and then I guess for Rami.
Rami: I see the PRT sales in the first quarter were pretty strong but in markets like this where interest rates are moving around in equity markets are swinging around maybe the funding status of pension plans are swinging around as well does.
Rami: Does that do anything to kind of activity in the market one way or the other.
Rami: I just wanted to get a sense of of how we should think about if this environment persists, what PRT could look like as we move through the year.
Speaker Change: Thank you Sydney, I mean excessive market volatility.
Speaker Change: It does have an impact I would say, it's more of a timing impact in terms of from a plan sponsor perspective, it's can be a distraction in terms of ensuring how they're kind of thinking about their L M and.
Speaker Change: In the context of highly volatile markets, but having said that if you think about the space that we play in in the PRT space. The Jumbo space. These are planned sponsors who've been on a derisking journey for a number of years and therefore.
Speaker Change: As part of that Derisking journey. They are a far more hedged if you will from a liability driven perspective, both in terms of their interest rate exposure of the assets versus the liabilities and would be largely out of the kind of risky bucket of assets equities alternatives Ah well.
Speaker Change: Before the point that they're ready to transact so.
Speaker Change: Which you know that tells you the stability of this segment of PRT planned sponsor of DB plan sponsors, who would transact well hedged and Ah you wouldn't expect to see much change in dor in their funding ratios and therefore.
Speaker Change: We think there may be a temporary impact in terms of a distraction. If you will but we don't see that having a real change in terms of the pipeline of the transactions that will come through.
Speaker Change: That makes sense. Thanks.
Speaker Change: Your next question comes from the line of Wes Carmichael with Autonomous Research. Please go ahead.
Speaker Change: Okay.
Wes Carmichael: Hey, good morning.
Speaker Change: First question on variable investment income I think you have guided for a bit more normal returned in 2025 and a pretty decent result in the quarter, but given the market volatility in April and some shelves ipos in the wake of tariff announcements are you expecting you can still come in at a more normal level for the year and if you have any insight into acute Q2 that'd be helpful.
John: Hey, Wes good morning, it's John.
John: Yeah, So VII in the in this quarter I mean private equity as we mentioned in our opening remarks had a one 6% return in the quarter just as a side note. We also saw over $600 million of distributions come through so well in excess of actually the earnings we saw in the in the quarter again.
John: They are a function of our well diversified seasoned portfolio in the in the private equity funds.
John: We also had real estate funds on average come in there and real estate related funds come in around 2%. So.
John: Lower than kind of the implied run rate from the guidance, we gave but.
John: Above the fourth quarter, which was in line with the range, we gave a quarter ago.
John: And to your point around the outlook look while you know these these investments it tended to lag public equity markets public equity markets did very well last year, we saw obviously theres a number of factors why P.
John: Returns were lag there.
John: But you know the current environment creates some.
John: Some challenge.
John: Already difficult to project P/e, probably a more challenging to predict and are in the current environment. So one of the things I mentioned.
John: In my opening remarks is that in light of this uncertainty we plan to actually provide some preliminary information in early July.
John: On under VII.
John: We should have decent insight.
John: So just again in light of the kind of the I'd say the unusual situation that we have we will look to do that as opposed to trying to.
John: Forecast anything for now so hopefully that helps.
Speaker Change: Yeah. It does thanks John.
Speaker Change: I guess my my second question I know I've asked a couple of times before but it's we're nearing implementation of DSR in Japan, I think there were a couple of conversations with the industry and the regulator on some treatment of long duration and FX denominated products are you still feeling pretty good about implementation and any thoughts on how that folds into your expected reinsurance strategy.
Speaker Change: Yeah, I think you asked a few times, we'll probably give you the same answer we've given a few other times, which.
Speaker Change: It is still feeling pretty good.
Speaker Change: It's a it's an effective April one.
Speaker Change: Probably three things to think about one is operational readiness.
Speaker Change: We feel like we're in we're in a good position.
Speaker Change: Wasn't there are things that aren't perfect, but all in all you know taking the collective weight of items.
Speaker Change: Certainly one we can manage through and we feel like we've made really good progress.
Speaker Change: With the new with the new framework.
Speaker Change: Other things to just remind you we've always kind of priced under an economic framework in the past so moving to this doesn't.
Speaker Change: It really doesn't change how we how we would operate we always had a view of economic and and kind of the statutory framework. So that was always under our mentality and making sure you know good L M always matched.
Speaker Change: Matched in terms of rates and currency in terms of our our products. So and then you know I think we will.
Speaker Change: As we look as we look at it now there's certainly nothing that would indicate that it would change our dividend.
Speaker Change: Policy a factor as it relates to Japan.
Okay. Thank you.
Speaker Change: Your next question comes from the line of well not burdened with Raymond James. Please go ahead.
Speaker Change: Hey, Good morning, we just worked on an analysis of portfolio yield and what we found is that men provides a very attractive risk adjusted return.
Speaker Change: Could you just talk about your market how are you marketing them and what the organic growth playbook pipeline looks like there.
Speaker Change: I will now thanks. Thanks for that will ship you can feel free to share that announcement or analysis, we'd like to see it too, but yeah look I think from a philosophy perspective, we certainly feel the same and certainly.
Certainly as it relates to the clients that we look to serve.
Speaker Change: And.
Speaker Change: Look at I think pipeline continues to be good you know coming out. It's obviously, there's a variety of different factors over the last different few years, but there's been a steady.
Speaker Change: Growth in the client segments that we serve.
Speaker Change: And that's we see that continuing.
Speaker Change: I think to your point I think the quality of our.
Speaker Change: Products and solutions that we offer we believe is differentiated.
Speaker Change: Certainly you know provide.
Speaker Change: Provide what we believe is a great long term value for our clients and our partners. So as of now I'd say things continue there's a lot of activity out there. There's a lot of opportunities from a business development perspective, and we were very you.
Speaker Change: Opportunity.
Speaker Change: Optimistic of out of our five year strategy here so.
Speaker Change: Okay that helps.
Speaker Change: Great and could you just talk about the type of assets that you're managing for telecom. Thank you.
Speaker Change: Yes, we don't get into too much details, but I'll give you generally there's $6 billion of assets that we.
Speaker Change: We're able to kind of obtained through an investment management mandate half of it is a function of some of the assets that are part of this transaction. Another half was actually separate but as we obviously got to know and built a relationship with Tel cut you know over over time and also being able to share some of our.
Speaker Change: Capabilities.
Speaker Change: You know were able we're able to kind of.
Speaker Change: Work with them and provide additional mandate on top of that mostly I'll just say in some of the public fixed income area, but also some of those were overseas. So maybe that helps.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Joe Al Horowitz with Dowling. Please go ahead.
Speaker Change: Hey, good morning can you unpack the non medical health loss experienced in the quarter I get the seasonality, but was surprised to see it up a bit year over year and I guess, how is dental experience this quarter versus last year period.
Speaker Change: Oh sure. It's it's Rami here, so maybe maybe let me start with the the dental piece. So the performance of the dental business in this quarter was right in line.
Speaker Change: With our expectations recall that Q1, just tends to be a higher utilization quarter as the.
Speaker Change: The benefit resets and then I'll also just point you to what I just mentioned earlier with respect to the disciplined underwriting here in terms of the actions that we've been taking on one one and we're certainly pleased with the outcome of those actions in.
Speaker Change: That will set us up nicely in combination with the heavy Q1 utilization quarter behind us to see a gradual decline for the non medical health ratio and think of that for the full year are.
Speaker Change: Being towards the midpoint of our range.
Speaker Change: The other parts of the ratio disability disability continues to perform.
Speaker Change: Very much in line with our expectations STD and LTV incidents came in right on on on the Mark We continued to see very strong recoveries are in terms of the closures I would say those are coming in slightly ahead of our expectations are.
Speaker Change: In the disability block.
Speaker Change: And the small headwinds we did see in disability relates to delays in the social security administration approvals.
Speaker Change: Which did have a somewhat of an impact this quarter, albeit small so net net I would say performing in line with our expectations and think of a full year number to be close to the midpoint of our range.
Speaker Change: Yeah.
Speaker Change: Got it very very helpful. And then switching gears other Asia sales were very strong in the quarter can you just unpack what you saw there and then I guess with the increased geopolitical tensions what are you what are you seeing in April thus far.
Linda: Hey, Joel it's Linda here.
Linda: Yes, So let me give you a color on kind of the overall sales in Asia, and we will cover what happens in Japan as well as what's going on in the rest of Asia.
Linda: We had a strong start to the year, our first quarter sales were up 10% across the region and we're on track to grow full year sales in line with our outlook.
Linda: Mid to high single digits.
Linda: So let's start with Japan.
Linda: We had a good.
Linda: Strong start we've got strong market share across all our distribution channels, including the bank channel.
Linda: And while we've seen some decline in the FX products in recent quarters, we are seeing momentum pick up.
Linda: If you look at the sequential growth in the first quarter it was strong.
Speaker Change: Now looking at April Michel mentioned, we've launched a new single premium life product in the bank channel. This has been very well received and we've got other actions planned during the rest of the year. So we expect this momentum to continue.
Speaker Change: Now going to the rest of Asia outstanding quarter sales were up 41% from the prior year and this is driven primarily by China, where we saw.
Speaker Change: The addition of some new bank partners come on board and that really helped with the sales there and also in Korea.
Speaker Change: <unk> strong performance in our face to face channels.
Speaker Change: Bolt in career agency as well as the independent channels. So I hope that helps.
Speaker Change: Thank you.
Speaker Change: We have time for one more question and that question comes from Nick <unk> with Wells Fargo. Please go ahead.
Speaker Change: Hey, good morning, Thanks, just wanted to touch on group life and the expectation for the balance of the year given it's been coming in pretty strong is it something you've confidence in for like a sustained period or is it more touch and go for the outer quarters.
Speaker Change: Okay.
Speaker Change: Thanks. Thanks for the question just maybe to comment on this quarter first so we did see favorable incidents and and really.
Speaker Change: Really you can draw almost a straight line between our results and the CDC population data results for the working age population and that favor ability has been manifesting itself for the last couple of quarters and working its way into our ratios.
Speaker Change: I would say at this point.
Speaker Change: Can't speculate and I don't want to speculate the favorability will continue for the rest of the year, it's too early to tell.
Speaker Change: But what may be useful is just to come back to our outlook guidance our ratios. So remember we guided to be at the midpoint of the lower half of our range. So think of that as kind of an 80 85, and a half number and guidance Oh.
Speaker Change: Assumes a heavier Q1 mortality so with with Q1 behind us in Q1 being a favorable just the simple arithmetic here, even if we continue not to see any further favorability the simple arithmetic would have us.
Speaker Change: Towards the lower end of our range for the full year. So think about an 84 number for the full year compared to the guidance that we've given you before.
Speaker Change: Got it thanks, that's really helpful.
Speaker Change: And then I guess, just not Cherry at Reed can you guys give any update there I think you'd previously said the expectation would be to do it.
Speaker Change: Back book deal out of met but any update there would be helpful. Thanks.
Michele: Yeah, Hi, Nick it's Michele so really pleased with the.
Michele: Our progress and we're excited about the growth opportunities that are true.
Speaker Change: <unk> treated with <unk> will allow us to capture.
Michele: We're moving at pace with our cost corresponds search on over the Atlantic.
Speaker Change: Put it capitalized and operationalize the company.
Speaker Change: You know what the intention here on just reiterate is to create a long term partnership between my life on Cherry tree.
Speaker Change: And as we discussed at the Investor Day, Certo treated would enhance our capital flexibility and efficiency.
Speaker Change: And allow us to generate liability growth beyond our balance sheet capacity if need be.
Speaker Change: And again, our plans are on sort of on track I would say in terms of.
Speaker Change: I think to launch around midyear.
Speaker Change: And that concludes our question and answer session and I will now turn the conference back over to John Hall for closing remarks.
John Hall: Great. Thank you operator, and thank you everybody for joining us have a great day.
John Hall: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.
John Hall: Yeah.
Yeah.
John Hall:
John Hall: Yeah.
John Hall: Yeah.
John Hall: Yeah.
John Hall: Yeah.