Q2 2025 MetLife Inc Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to the MetLife second quarter 2025 earnings constant call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this 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. SEC, filings with that. I will turn the call over to John Hall. Global head of industrial relations sir. You may begin
Thank you, operator. Good morning, everyone. We appreciate your participation today on met life's second quarter, 2025 earnings call.
before we begin, I direct you to the information on non-gaap measures on the investor relations portion of metlife.com in our earnings release and in our quarterly Financial supplement, which you should review
On the call this morning, our Michel Khalaf, President and Chief Executive Officer, and John McCallion, Chief Financial Officer and Head of MetLife Investment Management.
Also available to participate in the discussion, our other members of Senior Management.
Last night, we released a set of supplemental slides, which addressed the quarter.
They are available on our website, John mccallion will speak to those supplemental slides and his prepared remarks.
An appendix to the slides features additional disclosures, GAAP reconciliations, and other information, which you should also review.
After prepared remarks, we will have a Q&A session which will end at the top of the hour.
As a reminder, please limit yourself to 1 question and 1 follow-up.
With that over to Michelle.
Thank you, John, and welcome everyone to this morning's call.
During the second quarter, we continue to navigate an evolving and dynamic economic environment while executing against our new frontier growth strategy.
We demonstrated all-weather performance and clear momentum across business segments, posting strong sales in many markets, executing strategic transactions, maintaining a laser focus on managing expenses, and returning capital to shareholders.
Although the second quarter does not demonstrate the full earnings power of Mac life. We're confident in our ability to deliver on the commitments of our new frontier strategy.
Looking ahead, we are encouraged by the underlying momentum across our businesses as we head into the back half of the year.
Turning to the results.
We reported adjusted earnings of $1.4 billion.
Or 2 dollars per share for the second quarter.
This reflects less favorable underwriting or be it within normal fluctuations and less favorable investment margins versus a year ago.
variable investment income which we report on a 1 quarter lag was in line with our June disclosure
Our private Equity portfolio generated a positive 0.9%, return in contrast to a negative 4.6%, return for the comparable time frame for the S&P 500.
We anticipate a better result in the third quarter and will continue with our Advanced disclosure protocol.
Among key performance metrics aligned to our new frontier commitments.
Target range while also absorbing below par variable investment income.
We continue to focus on what we can control actively managing our expenses while still investing for growth and achieving a quarterly direct expense ratio of 11.7%, beating our annual Target of 12.1% and we generated strong free cash flow. Enabling us to return roughly 900 million to shareholders and the form of common dividends and share repurchases in the quarter.
Moving to business segments, highlights?
Group benefits, adjusted earnings of 400 million were down from a record quarter and a prior year, largely due to less, favorable life, and non-medical health underwriting in the quarter.
Although group life underwriting was less favorable than a year ago, we outperformed relative to our 2025 Outlook range which we expect to continue for this year.
For non-medical health.
While still within a normal range, we saw some elevated experience in several products which we do not expect to continue in the balance of the year.
We also saw a small number of large disability claims during the quarter that can occur from time to time. Which we do not believe to be a trend here. Today, group benefits sales are up 9% driven by growth and Regional business.
Adjusted premiums fees and other revenues grew 4% from a year ago. We continue to find new ways to grow and capitalize on market trends, including investing in tools that simplify and enable the benefits experienced while creating a distribution advantage,
We signed an additional strategic partnership with workday in June to reach more employers and better serve their employees with our benefits experience platform. Upwise
In fact, two-thirds of employees surveyed have shared that upwards makes the process of choosing benefits easier, leading to greater participation and voluntary products.
In our retirement and income Solutions or ra segment.
We reported adjusted earnings of 368 million. Mainly due to lower recurring interest margins. Total liability exposures were up 6% from a year ago and above our 2025 Outlook range of 3 to 5%.
This was driven by outstanding growth in the UK, longevity, reinsurance, and a strong contribution from general account products.
Another product line within ra is our funding agreement back node for sabn business. As a Pioneer in this type of spread lending our ability to originate this business as well established
We originated at a favorable cost of funding due, to the quality of our balance sheet and the breath and liquidity of our Market presence.
We match our low-cost origination with our Top Flite asset and liability management. We do all this while minimizing funding and maturity risks. Satisfying 2, principal tenets of our new frontier strategy attractive, returns with lower risk.
Shifting to Asia adjusted. Earnings were 350 million on less, favorable investment and underwriting margins. This is this momentum was particularly strong as sales Rose 9% on a constant currency basis, propelled by our 2, largest markets in the region,
On a constant currency basis says jump, 29% and 36% in Japan and Korea. Respectively following successful new product launches.
Strong sales growth also translated into growth, in general account assets under management, which rose 6% year-over-year on a constant currency basis.
Tied to this momentum, I recently visited Japan and Korea, where I had the opportunity to witness firsthand the team's energy and focus on achieving our new frontier commitments.
For Latin America, adjusted earnings total 233 million matching, the segments, all-time quarterly High result.
Adjusted earnings were up 3% and 15% on a constant currency basis from the same period a year ago.
contributors included, volume growth across the region, a consistent theme for a Latin America, along with favorable Chilean and kahi returns in the quarter rounding out our International markets,
Mia posted near record adjusted earnings of 100 million up, 30% on both a reported and constant currency basis, primarily due to volume and sales growth across the region.
In addition to driving organic growth across our portfolio of businesses.
We are adding value through strategic transactions, including 3, we've announced since December, the acquisition of pinebridge Investments, the formation of Chariot tree and a risk transfer deal with Toca Financial Group.
For our expanded Investment Management platform with pinebridge.
The acquisition has been well received by both firms clients and we're on track to close in the second half of this year on July 1. We successfully launched Chariot tree, alongside our co-sponsor general, Atlantic with an initial 10 billion, reinsurance deal and more to come
Our strategic partnership with Charity will support growth in our Diversified retirement platform and generate institutional client assets under management for MetLife investment management.
And our variable annuity risk transfer deal with talat is moving forward and we're on schedule for our second half close this transaction will positively reduce my life's enterprise Enterprise risk associated with the capital markets,
these 3 initiatives showcase New Frontier in action. They are closely linked and illustrate how we are already. Delivering on our new frontier priorities.
Significantly. They Place us at the conversions of insurance and asset management and position us to leverage the full power of MetLife.
Turning to Capital and cash MetLife was active with Capital Management in the second quarter.
We paid roughly 400 million of common stock, dividends to shareholders and repurchased approximately 500 million of our common stock in July where we purchased around 140 million of our common stock, which brings our total year to date to over 2 billion dollars.
Since 2021, we've repurchased, nearly 16 billion dollars of our shares. We've done so consistently and evenly over that time frame. Reducing our share count by more than 240 million shares.
At the same time, we continue to invest for growth funding, Acquisitions, like pinebridge, which is an addition to the capital will return to shareholders in 2025. At the end of the quarter. We had 5.2 billion dollars of cash and liquid assets at our holding companies which is above the high end of our 3 to 4 billion Target, buffer range,
We have pre-funded second half preferred stock redemptions and debt maturities totaling 1.5 billion dollars which are included in our second quarter, cash balance.
In closing this quarter showed how MetLife Diversified portfolio of Market leading businesses can deliver across economic Cycles, while providing a strong foundation for future Financial outperformance.
Our focus is on changed.
Generating responsible growth and attractive returns with lower risk for our shareholders as well as value for our customers. As we execute on the Strategic, priorities, outlined by our new frontier strategy.
Now, I'll turn it over to John to cover our performance in greater detail.
Thank you, Michelle, and good morning, everyone. I'll refer to the 2q 25, supplemental slides, which covers highlights of our financial performance and an update on our liquidity and capital position.
Starting on page 3. We provide a comparison of net income to adjusted earnings in the second quarter.
Net derivative losses, driven by stronger, Equity markets, and an increase in long-term, interest rates where the primary drivers of the variance between net income and adjusted earnings in the quarter.
In addition, net investment losses reflect normal trading activity on the portfolio and a stable credit environment.
On page 4, you can see the second quarter year-over-year. Comparison of adjusted earnings by segments and corporate and other
Adjusted earnings were 1.4 billion dollars down 16% and down. 15% on a constant currency basis.
The primary drivers were less favorable underwriting and lower investment margins. These were partially offset by volume growth and favorable expense margins year-over-year.
Earnings per share, were 2 dollars and 22 cents down, 11% and down. 10% on a constant currency basis.
Moving to the businesses group benefits. Adjusted earnings were $100 million down 25%, from the record quarter in the prior year.
The key driver was less favorable underwriting margins across Life, and non-medical Health Products compared to Q2 of 24.
The group life mortality ratio was 83% for the quarter, which is below the bottom end of our 2025 target range of 84% to 89%.
But it was less favorable than the record low mortality ratio of 79.1% in the prior year.
The non-medical health interests' adjusted benefit ratio was 74.8%.
Modestly above our annual target range, is 69 to 74% and less favorable to the prior year quarter of 70.8%.
Which also benefited from a positive disability Reserve adjustment of approximately 30 million after tax.
They generally fell within a normal quarterly, fluctuation. However, collectively they had a larger impact this quarter.
Looking ahead to Q3, we expect a group life, mortality ratio to continue its positive trend and be at or slightly below the bottom end of a Daniel target range.
For the non-medical health interests, adjusted benefit ratio, we expect a Q3 ratio show, an approximate 200 basis. Point improvement from Q2 levels,
Turning to the Top Line group benefits, adjusted pfos were up 4%.
Driven by growth in core and voluntary products.
While sales were up 9% year to date, led by growth in the Regional business and strong re-enrollment across products.
Ra suggested earnings were 368 million down 10% year-over-year.
With less favorable recurring interest margins compared to Q2 of 24.
which benefited from income, from interest rate caps that have since matured
Ras investment spreads for 102 basis, points down 12 basis points, sequentially due to lower variable investment income.
Ra spreads, excluding V were flat sequentially at 101 basis points.
RF continues to achieve strong business momentum, while just the pfos decline year-over-year, due to strong us, pension risk, transfer sales and Q2 of 24, adjusted pose. Excluding prts were up 24% primarily driven by continued robust growth in UK, longevity, reinsurance.
In addition, total liability, exposures grew 6% versus the prior year period.
including 5% in our spread earning general account, liabilities
Moving to Asia. Adjusted earnings were 350 million down 22% on a both, a reported and constant currency basis.
The primary drivers were less, favorable investment and underwriting margins.
Higher volume growth was a partial offset.
Asia's key growth metrics, remain healthy, general account assets under management at advertised costs, were up 6% year-over-year on a constant currency, basis and sales were up 9% on a constant currency basis.
Japan sales were up 29% on a constant currency basis with growth across all product categories. But mainly in life, and annuities following product launches and enhancements in the first quarter,
Other Asia sales were also strong, but year-over-year growth was dampened by a large group case sale in Australia in Q2 of 24.
In Korea.
Sales were up 36% year-over-year on a constant currency basis.
Driven by the launch of a new single premium foreign currency annuity product in the first quarter and from continued momentum in face-to-face channels.
Latin America adjusted earnings were 233 million up 3% and up, 15% on the constant currency basis.
Primarily due to volume growth of the region.
In addition a favorable chin laying and cah return of approximately 5% contributed to latam strong performance.
Latin America's Top Line continues to perform well. Just a pfos are up 8% and up 18% on a constant currency basis.
Driven by strong growth and solid persistency across the region.
Amia adjusted. Earnings were $100 million up 30% on both their reported and constant currency basis.
Primarily driven by strong volume growth across the region.
Given to me as growth in the first half of the Year, coupled with improved, foreign currency and interest rates. We expected Mia's quarterly run rate to continue to run above as 2025, quarterly guidance of 70 to 75 million, for the remainder of the year.
Amia, just a pfos were up 16% and up 14% on a constant currency basis.
And sales were up, 13% on a constant currency basis, reflecting strength across the region.
MetLife Holdings, adjusted earnings were 144 million down 6%, reflecting lower variable investment income as well as the continued runoff of the business.
Favorable underwriting was a partial offset.
Corporate and other adjusted loss was 233 million versus an adjusted loss of 220 million in the prior year period.
Lower variable investment income was partially offset by favorable expense margins year-over-year.
Is effective tax rate on adjusted earnings in the quarter was approximately 24%, which is at the bottom end of our 2025 guidance range of 24 to 26%.
on page 5 this chart reflects our pre-tax variable investment income for the past 5 quarters including the second quarter of 2025
which was 195 million.
Wielded an average return of roughly 1% in the quarter.
As a reminder PE in real estate and other funds are reported on a 1, quarter, lag, and accounted for on a mark-to-market basis.
While V and 2q 25 was below, its quarterly guidance of 425 million. It was within the range of 175 to 225 million that we disclosed in a 4 AK at the end of June
Given the continued difficulty in forecasting. VII, we plan to once again, disclose preliminary information regarding our Q3 expectations for a v, toward the end of September
On page 6, we provide V, post-tax by segments and corporate, another for the past five quarters.
As a reminder, each business has its own discrete portfolio lined and matched with its liabilities Asia Ras and MetLife Holdings. Continue to hold the largest proportion of V assets
Given their long dated liability profiles.
Of the total V asset balance is of nearly $19 billion as of June 30th 2025.
Asia, accounted for more than 40% of the total.
Well, Ras and MetLife Holdings. Accounted for roughly 30 and 20% respectively.
Moving to expenses on page 7. This chart shows a comparison of our direct expense ratio for the full year, 24 of 12.1%,
Q2 of 24 of 11.9% and Q2 of 25 of 11.7%.
As we have highlighted previously, we believe our full-year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results.
That said, our direct expense ratio in the second quarter was well below our full year Target of 12.1%.
this strong performance provides another proof point of our ongoing expense discipline and the sustained efficiency mindset that is supported by our Topline growing responsibly
I will now discuss our cash and capital positions on page 8.
Overall MetLife is well capitalized with more than ample liquidity cash and liquid assets at the holding companies or 5.2 billion dollars,
as of June 30th, which is above our Target, cash, buffer of 3 to 4 billion dollars
And we continue to consistently return, excess Capital to our shareholders. In Q2 our total cash return was approximately 900 million.
roughly 500 million dollars in share repurchases, and about another 400 million in common stock, dividends
Beyond share repurchases and construct dividends cash at holding companies. Reflects the net effects of subsidiary, dividends
Net debt, issuances, and holding company expenses and other cash flows.
Regarding our statutory capital for our us companies.
Preliminary second quarter year-to-date 2025 statutory operating earnings were approximately $1.3 billion.
While net income was approximately 1 billion.
We estimate that our total us statutory adjusted capital on an NAIC basis, was approximately 17.1 billion dollars as of June 30th 2025.
Down, 3% from March 31st.
Primarily due to derivative losses and dividends paid partially offset by operating earnings.
Finally, we expect that Japan's solvency margin ratio would be approximately 710% as of June 30th.
Which will be based on statutory statements that will be filed in the next few weeks.
Let me conclude by saying that MetLife delivered a solid quarter highlighted by strong momentum and underlying fundamentals across our portfolio. Businesses
While our earnings power was not fully evident this quarter, given the lower-than-expected variable investment income, we remain confident in delivering all-weather performance achieved through a position of strength.
With a strong balance sheet and recurring free cash flow generation.
and as we embark on the new frontier,
our strategic priorities allow us to achieve responsible growth and generate attractive returns with lower risk.
And with that, I will turn the call back to the operator for your questions.
Thank you.
Ladies and gentlemen, at this time, we will be conducting a question and answer session.
To ask a question. You may press star 1 on your touchtone phone and to withdraw your question please press star 1 again.
Our first question comes from the line of sunnis comma from Jeffrey, your line is open.
Benefits um as we think about second quarter results across the sector, it seems like a performance has been pretty mixed this quarter. Um, so just curious, if you're seeing anything that's surprising to you in terms of the elevated claims or is this just sort of random volatility,
Hey, Senate, uh, good morning. It's it's Ramey here. Um, I mean, I I would say we're not seeing anything that is, um, surprising per se. So let me just give you some context on the non-medical, health ratio, specifically, for us and, and what we're actually seeing. So, as we stated the ratio was pressured, uh, this quarter. And as we also stated, we expect, uh, improvements in our earnings in the third and further improvements in the fourth uh uh quarter. Um, just to give you a sense of the magnitude of the improvements. Um, we expect to see about a 2-point Improvement in this ratio in the third quarter, as John stated and we expect to see a further 2 points Improvement in the fourth quarter. Um, and and just to get to your question, the clearest way to really think about the Dynamics and what we're seeing in our own book, um, for our Dental business. Um, the results are very much
Running running in line with our expectations. Um, we are seeing um the continued uh benefits from our rate actions here. Um the other thing I would note is that Dental business is returning to its well-established seasonal patterns.
And uh with favorability coming through in the second half of the year and in particular in the fourth uh quarter and you know, we're starting to see that come through even in July and therefore, expect to see sequential improvements in in earnings.
Um, in in disability, uh, incidents and recoveries continue to be very much in line with our expectations. Um, we continue to monitor this very carefully, uh, and continue to see both of these metrics, uh, being in line with, with our pricing and expectations and uh, similar to dental that also continues to be the case in July. Um, so we don't see any any macro, uh, impacts here. Um, where you've seen? If you will, um, the pressure and it is a bit of, um, um, I would say, um, part of the normal fluctuation, uh, in, in some of the other products in the non-medical health ratio. So think, accident Hospital critical illness. Um, when you look at the claims pattern here, uh, we did experience a number of fairly small increases across each of these products.
Each of which was in line with our normal range that we typically see,
Okay. That that's very helpful. Thank you for that and then I guess on Chariot 3 and 5 cars in general. Um, you know, we've seen a number of companies announce these things but we haven't really seen any major deals with sort of third-party liabilities. Um, so just wondering, I think Michelle and you're prepared remarks, you said more to come. Can you just give us a sense of what your outlook is there? Um, you know, maybe over the next couple quarters and if anything kind of needs to happen in order to accelerate this uh this growth opportunity, thanks
Yeah, hi, hi, hi. Thanks for the question. Yeah. I mean as as we had, um, you know, mentioned, uh, you know, really sort of cherry tree as a, you know, we see it as a vehicle to, uh, uh, you know, enable our growth basically, uh, you know, especially sort of, uh, you know, as we see growth opportunities Beyond, um, you know, our Capital generation, uh, capabilities, if, if that were to happen. Uh, you know, that's, uh, you know, that's where we see the partnership with cherry tree. Um, you know, being
Helpful to us. Um, you know, we, you know, as we said, uh, especially in the sort of, uh, early years. The intention is not, uh, to sort of, uh, uh, you know, look for third-party, uh, liabilities for Chariot, it'll be liabilities that are originated by, by MetLife. Um, and we continue to see really good sort of, uh, opportunities ahead. So, uh, you know, as we had, um, uh, said before, uh, we completed the, uh, you know, the, uh, the, you know, the the 10 billion dollar transaction with with Chariot, uh um, you know, within the time frame that we had discussed and uh you know we think there will be more to come but those would be uh you know MetLife liabilities basically.
Okay, thanks.
Thank you. Our next question comes from the line of Ryan. Krueger from KBW, please go ahead.
Hey, thanks. Good morning.
A little bit more color on the strong sales in both, Japan and Korea and your thoughts, uh, on on that if that can continue going forward.
Hi Ryan. It's uh, Lyndon here. Um so uh look we're really pleased with the strong sales performance. We've had in Asia both, when you look at the second quarter, as well as you when you look at the whole first half of the year, um, Asia's year-to-date sales through the first half of increased 10%. When you look year-over-year,
we look at Japan.
Uh, in the first half, we were up 10% compared to the prior year. And that's been driven primarily by the foreign currency products. Um,
so as I mentioned in the first quarter earnings call, we launched a new single premium FX product in April, and this has been really well received by the market. Um, we continue to enhance our single premium annuity product and we're starting. Um, we're starting to see some benefit from the Yen strengthening, and this has really been a Tailwind for sales. Um,
So when you look at all these product actions combined with our distribution strength, this is really driving strong growth against all our channels when you look at Japan. Um, when you get to the rest of Asia, uh, sales there, when you look at the first half of increased 9% year-over-year, and this is driven primarily by Korea as well as China. Um, in Korea now here, we're really being able to leverage what we've done in Japan. We've taken our US dollar denominated products, and taken that expertise, and actually launched products in Korea. And we're actually seeing a lot of strength in our US dollar, products in Japan, in Korea, and the Korea sales have grown 41%. When you look at the first half, year-over-year sales,
uh, when you look at China, um, here with the
in the bank Assurance Channel, and we've achieved this through getting deeper penetration within our existing Bank Partners as well as with the addition of some new bank Partners. Um,
Now, when you look at the prior quarter for the rest of Asia, we actually had a large group case in Australia in the prior quarter. So if you actually take out that large group case, uh quarterly sales for the rest of Asia, we're up 25%. When you look here over here
Now looking ahead um through the rest of the year, we kind of expect our um our to be at the top end of our guidance range when it comes to overall sales for Asia.
so, we hope that helps
Thank you, I appreciate it. And then, quick one, um, probably for John, just on retirement. Would you expect the spread to continue to be stable from the first half of the year to the second half of the year?
Yeah, good morning Ryan. It's John uh,
Yeah, I think this is alluding to, you know, spreads. They largely played out as we expected and as we discussed in the first quarter earnings call. As we head into Q3, um,
You know, based on the forward, curve, you know, we do, we do expect core spreads to remain stable, although we, you know, we do see a few Pips of seasonality, uh, in Q3, uh, it's interesting. You know, our our as holds, um, you know, small portion of wholly owned, um, and joint venture real estate Investments.
and um,
you know, just kind of the nature of the asset class which includes some hotels, they tend to have some third quarter seasonality although in the past I'm not so sure we saw it as much because there are other things like the caps and things like that that were masking at
Uh so we do see a few points of headwind but we would revert back to the kind of low 100s. Uh, come come for Q.
You know, while we're on Ras, um margins I would just call out and just kind of referencing The Chariot Point. Um,
you know, we 71, we launched Chariot, we reinsured, just just under 10 billion dollars
And so, uh, this, as a 71, technically lowers our liability exposures. Although, you know, we think given the current pipeline, we expect to be within the 3% to 5% growth rate by the end of the year. But, you know, it should point out a couple of things: 1.
Of to earnings.
And then within RS itself, um, because it's a mix of RS. Um,
You know, the MIM fees.
Also, our investment in Chariot nets to a few pennies but within RS itself. You know, we could think of like another $15 to $20 million short-term headwind there. Um,
You know, considering the you know the loss of earnings from the reinsurance. So just just wanted to kind of wrap that in there from a outlook for
Great, thanks. That was helpful.
Thank you.
Our next question comes from the line of Tom Gallagher from Evercore. Sure, your line is open.
Thanks, first. Um, Rammy, just a follow-up on non-medical health. The, um, so I think the disability pressure you saw this quarter came from high net worth. Unum seemed to see something similar.
Um, have you done any more analysis on what's going on there?
whether something could be structural like, mental nervous, claims employment related,
Uh, or that is mainly permanent disability. Just want to get a better sense for like is that something you've even really looked into. And then just remind us, how big disability is as a percent of total earned Premium versus Dental, just to size the 2 of them, thanks.
Um, sure uh, Tom. So we we definitely did look into it and and we're we are really talking here about 2 clients which are specialty clients.
Um, these are clients that have been with us for a very long time and um, the economics of these have been a creative to us.
Um, they're really related to uh, injuries.
Uh, which have very high, uh, uh, claim amounts, um, and has nothing to do with any of the other macro factors or any of the other, uh, potential causes, um, uh, that you, uh, uh, you've mentioned there. So, um, uh, that's kind of as far as the, um, uh,
Uh, the specific kind of elevation for the quarter.
um, in terms of the, uh, the PFO ratios, um, uh, think about, um, give or take, you've got about, uh, 10 low digit, uh, in terms of the disability premiums as a percentage of the, uh, of the total and, um, you know, dentals give or take about a 5 billion dollar premium line for us,
And sorry. Sorry, Rammy. The disability. You said, what is that? 10% or below?
It's about, it's about just above 10%.
Of the total pfos.
Gotcha. Okay thanks, thanks for that. And then my follow-up is just on.
Credit which uh I guess hasn't really been a focus for a while but I noticed you did take Cecil reserves for I think it was commercial mortgage loans of around 235 million this quarter.
Um, were those office foreclosures, is there an impact? Is there going was there? Or will there be an impact on statutory risk based Capital as a result of that?
Yeah. Hey Hey, Thomas John, good morning. Uh, yeah, we did. We did see, uh, uptick in reserves a little over 200, um, million in commercial mortgages and you know, we've anticipated some charge offs and and some losses would emerge in 2025. We, I think I've referenced this before that.
You know, as you start to get into the ongoing, um, orderly resolution of loans, you know, this typically...
occurs and and we believe is actually a good sign. Uh it's usually kind of indicative that
You know, there's some stabilization in getting to the price clearing levels, and that's usually a sign where you've kind of hit the trough.
um,
And you know, just to your point, you know. So we we would expect the resolution of loans to pick up uh this year probably Peak a little bit this year. Um but the reality is um you know a lot of this is already in our Capital, maybe it's a couple to you know 5 Points of extra uh impact but all within the normal levels of you know our excess capital and we're not impact any Capital management or or dividend um activity.
Gotcha, thanks for that.
Thank you. Our next question comes from the line of Jimmy Weller from JP Morgan. Your line is open,
First, I just had a question for Ramey. Um, along the same lines, um, on non-medical, your optimism on results getting better in the third quarter is it based on just the fact that many of these things move around quarter to quarter, and this quarter was just bad, especially on the voluntary side, or have you seen?
Uh, an improvement already in 3Q, I guess or almost halfway through it. Um,
Um, I mean it's it is, it is both. It's it's based on 1 the seasonal patterns in Dental which I've talked about. So you expect seasonality to to kick in in both of the subsequent uh quarters for dental. So Q3 will get better, Q4 gets gets better. So that's a big driver.
Um the other 1 is lack of any macro impacts on disability. It's running right in line with our expectations.
Incidents and recoveries. As I've talked about before uh inclusive uh of July. Um, the specialty claims that we had this quarter, we're really talking about a, a single digit number of claims that are high value. That had a disproportionate impact this happened from time to time. We started don't expect them to have an, uh, each quarter.
Um so I I None of these things I would say are in the optimistic bucket, they are in well established Trends. And based on what we're uh, what we're seeing and and into July.
Um, I I think this notion that, um, those puts and takes across the rest of the portfolio are going to normalize. That's is kind of would be our expectation. Uh, and that's based on the fact, um, Jimmy, that there is no single driver, I mean, these are all different products with different Dynamics in them, and we looked at them 1 by 1, and they all happened just to move in the wrong direction for us. And and we would just expect that uh, uh, to normalize. Um, so you bake it all in. And and as of now, we feel pretty good about the 200 basis points Improvement in each of the subsequent, uh, quarters.
Okay.
Thanks. And then I had a question for Lyndon on, um, Asia earnings. So obviously it's your sales and Asia were pretty strong. The earnings seemed a little weaker, um, it's I think the second lowest quarter you've had in the past 6 and some of that might have been lower variable investment income but earnings are lower than other quarters even adjusted for that. So, um, is this more of a normal quarter and representative of the the division's earnings power or was were, um, were earnings depressed, for whatever reason just trying to get a sense of is this normal or were you over earning in the past?
Hey Timmy, uh, Lyndon here. So, thanks for the question. So, yeah, you're right. Asia earnings were lower year-over-year, and there are a couple of drivers here. First, as you pointed out, uh, lower variable investment income due to the fact that we have lower PE returns. John pointed out right at the beginning that Asia accounts now for over 40% of the VII assets in the company.
Next, uh, when you look at the underwriting margin, it was less favorable compared to the price here. And this is because we've got a strengthening Yen, which is driving lower surrenders right now. So, it's creating a short-term headwind for earnings, uh, due to the overall lower surrender income. But, um, it does Drive higher sales, it does Drive higher AUM, and this will kind of support us as we get higher future earnings here. So relative to expectations earnings were lowered due primarily to the variable investment income. But when you look at the Outlook, we expect full year underlying earnings to remain strong. And in line with guidance V performance will continue to be a factor that will impact our overall.
Reported earnings.
Okay, thank you.
Yep.
Our next question comes from the line of West Carmichael from autonomous research. Your line is open,
Hey, thank you. Good morning. I actually wanted to follow up on on the last question on Japan and just hoping maybe London. Can you unpack the surrender activity? How pronounced is that as we've seen a bit again strengthening and I guess relatedly. How do we think about higher long, jgb yields impacting your savings product offering their
Yeah, all right. So um,
Coming in, which is driving these lower surrenders. Um, so this is creating a short-term headwind. Uh, when we look at our overall surrender income, uh, but as I pointed out is it is a good benefit when it comes to sales and AUM growth, uh, to get our future earnings. But we are seeing surrenders kind of come back down to our expectations. Now,
Now, when it comes to a higher yen, interest rates for the Japan business, um, look, when you look at the overall environment in Japan, things are improving. It's a favorable macroeconomic environment, and we are seeing higher, uh, interest rates in the yen. So overall, it's a positive for our business, and we've been anticipating these higher rates and been planning for it. Um, we've got good yen-denominated products. We've got ANH. We've got variable life segments, and these address needs when you're looking at protection as well as accumulation.
And we're working on adding other product offerings and the product economics. Now, for Yen products have really improved with these higher rates. So uh, it gives us a lot of options when it comes to adding to the end products.
Um, when you look at the US denominated products there, um, they continue to be a differential between US dollar and Japanese Yen rates. Despite the fact that the end rates are rising, uh, so the FX products will continue to be attractive for our customers. So, when you look at the overall product portfolio, you look at the strength of our distribution. You look at our ability to product launches
Is, uh, we're really in a good position to meet customer demand, whether it comes to Yin or dollar FX products there.
I would just add, West, to Lyndon's comments. You know, it's probably roughly $15 to $20 million relative to expectation in terms of underwriting and kind of the impact of the lower surrender fees.
That's helpful. Thank you John. Um, and maybe you just switching to a topic I guess we haven't talked about much on these earnings calls, but f a n. Uh, and Michelle, I think you mentioned the program and you're prepared remarks and I think you're the largest player in the market in terms of at least outstanding programs, but maybe you could touch on the outlook for that business, it looks like. The industry is probably going to have its largest issuance year ever for uh, for 2025.
Um, hey Wes. It's it's uh, it's Ramey here. Um, you know, I would say, uh, as far as um, our program uh, we've been, we've had a very well established uh program. Uh, it's about 10% of our overall, general account liabilities and um, we consistently issue somewhere between 6, to 8 billion dollars a year, uh, uh, in in the market. And, um, as Michelle mentioned, uh, we do benefit from favorable funding costs here. Uh, in terms of the financial strength of our balance sheet and therefore, um, earn relatively higher spreads compared to, um, the rest of RA. Um, I think with respect to
To the overall growth in issuance. I would say, this is a really good thing for us. We welcome you entrance into the market. We think it's a net positive, uh, as the issue and grows it. Also attracts more investors and establish. Um uh funding agreement back notes, as a as an asset class, that has wider appeal. So um, uh and so we're actually pleased by the growth overall growth in the market here.
Thank you.
Thank you. Our next question comes from the line of Cave Month at Deutsche Bank. Please go ahead.
Morning. Uh my first question is on the, the state of the PRT Market. Uh, so Tuesday was a new best quarter for PRT, but I appreciate that's a lumpy business, especially at the jumbo and
um,
just love to get some. You know what, what are your thoughts expectations into the the second half and also how do you think about the attractiveness of the US versus the UK PRT Market?
Um, thank you. It's it's Ramey here. Um, you know, I would say look second quarter was a bit lighter but year to date uh we wrote 2.2 billion dollars of of PRT so we had a really good first quarter. Uh and I would say those were deals with uh well established firms that you would recognize in terms of their their prominence.
And then the last thing I would say on the US market over the medium-term, um, all the fundamental drivers that we've spoken about in terms of funding levels, the desire of plan sponsors to de-risk, um, Frozen plans, uh, all continue to, uh, uh, give us, um, uh, high sense of expectation that this is a market that's going to continue to be, uh, growing for the foreseeable future. And as you mentioned, it's always going to be, uh, lumpy, um, in the UK. Uh, we do participate in that market as a reinsurer, not as a primary insurer, um, and we do it in 2 ways, we do it, uh, by being, uh, issuing longevity swaps. So think of that as a really, a fee business. Um, and as we've been very successful at that from a starting start. We've got 30 billion dollars of balances. Uh, and as we've talked about, uh, late last year. We're now also participating in that business on a
funded basis.
Uh, as in, we're providing um think of a reinsurance on a fully funded basis, so think of it as uspr, but on a reinsurance basis. Um, and the same Dynamics, in the UK Market are playing in the US market, rather are playing in the UK market. So well-funded plans. Uh, they look to exit, um, I would say more limited capacity in terms of insurance Capital there. And hence the need for re
Reinsurers like us with strong balance sheet, strong counterparty credit risk protections and and we expect to see nice growth there as well.
Thank you, my follow-up is on Jai. Um, could you give us an update on your implementation of jai in your processes which parts of your business? Do you think can benefit most from Jai not just to improve efficiencies but also to drive growth?
Yes, hi KV, it's Michelle. Thank you for the question. Um yeah I think we're sort of, you know, really excited about the uh the potential of uh emerging Technologies. Broadly speaking AI in particular
Um, and um, you know, as we discussed at Investor Day, we view technology as a key enabler of our New Frontier strategy. Uh, I would say, um, you know, scale is important and matters here. And, uh, our scale, uh, has enabled us over a number of years to make important investments, uh, in this space. Um, you know, those investments, uh, have been, uh, you know, helpful to us from our efficiency perspective, as well as, uh, in terms of enabling our growth.
Um, you know, if you think that I think positions are positioned us really well. Uh, in terms of taking advantage of of AI of and, and of emerging Technologies as 1 that we've been on a multi-year journey to modernize our Legacy systems here. Um, also uh, in uh, improving and enhancing, uh, the quality and the governance of our data.
Um, also, we've been on a multi-year journey to re-engineer and, uh, in some cases reimagine, a lot of our key, uh, key, uh, processes here. Uh, you know, those are important because, um, uh, you know, for, uh, Ai and emerging Technologies to really be forced multipliers, you have to inject them into, um, you know, contemporary, uh, processes and a sort of a, a modern, uh, uh, infrastructure and, and systems. Um, and, you know, I would say also the continued evolution of our culture here as important because we've been promoting a culture of experimentation of challenging the status quo at all levels of the organization. So, you know, all these things, uh, taken together, you know, along with the mindset that, um, you know, that views, uh, AI as uh, you know, a disruptor to many Industries, including our own, um, in a positive sense.
Uh, you know, we have a lot of us who are early adopters and, uh, with implemented, uh, you know, a number of, uh, uh, you know, not only experiments. I would say a lot of these are now in full production mode, both from a productivity and efficiency, uh, perspective, as well as, uh, you know, in terms of, um, uh, the customer experience and enabling growth as well. Uh, and we're seeing really good, uh, results and traction here. I think we're still in the early, uh, you know, days of what this technology is really going to deliver for us. Uh, but we certainly feel really good about how we're positioned, um, including sort of the partnerships that we've established.
But also a lot of, uh, you know, Partnerships with more specialized players that, uh, you know, to that provide us with uh, you know, with plug on Plug and Play Type Solutions as well.
Um, you know, the areas where we are, you know, seeing big impacts, I would say, uh, already are, uh, in the, uh, you know, programming space, application development. If you like, uh, call centers, um, you know, claims as well. Uh, but you know, many others, and it's a good balance between uh, productivity and efficiency as well as uh, growth-oriented initiatives.
I hope this helps. That's good. Yeah, thank you.
Our next question comes from the line of Elise Greenspan from Wells Fargo. Your line is open.
Hi, thanks. Um, good morning. Uh, my first question, um, just, you know, on on Holdings, we've seen some recent deals, um, transacted within the long-term care space. Just wanted to get some updated thoughts on whether we've met, would, you know, potentially trans consider a transacting with its block and then other other blocks that, you know, you're kind of looking to dispose, um, within Holdings.
Um, thanks Elise. It's it's Ramey here. Um, I would say with respect to LTC, we we are clearly um, seeing the same activity that you're seeing and and uh the fact that you're seeing more activity tells you there's more of a convergence if you will between students and and reinsurers, which is, uh, encouraging, um,
I would say, as you know, these are complex transactions to execute and we continue to be uh looking at them and an active dialogue in terms of price Discovery as well as structured Discovery. But these are complex, they take time. Um, and our objective is always going to be the same. We want to maximize shareholder value, uh, and continue to serve our customers. And and so for us price as well as structure matters.
Um, you know, in the interim, uh, when we look to our book, uh, it's well capitalized. Uh, well reserved, uh, it continues to perform in line with our expectations. Um, we have a, a really successful, uh, rate action program that's allowing us to obtain the necessary premium increases, uh, as well in the marketplace. So, um, uh, kind of, that's kind of where we stand today. And, uh, with respect to other Holdings transactions, we are expecting, um, to close, um, the tal code transaction, uh, in the second half of of the year, and we're going to be continuing
To explore other risk transfer uh, opportunities. They're going forward.
Thanks and then my second question. Um just in regards to you know, recent Health insurer, adverse performance, some companies have said that if it's an incident, versus severity issues that start to see impacts to supplemental health businesses. Is this something we're beginning? Um you know to see here with your business
Um these are really distinct patterns here, so we're not in the major medical business.
Um, there is no real trend impact on us. All the claims that we have in our voluntary speed of products are fixed dollar claims. Um, and then with respect to kind of the incidents, I would say what we've seen is very much in line with normal deviations that we would see, fluctuations that we would see in any given quarter. Um, and if I were to give you just a bit more color on that, the one that you may have heard in the medical space is cancer, and our critical illness product is actually running in line with expectations. So we're not even seeing any adverse incidents there. Therefore, I wouldn't try to extrapolate from what's going on in the medical world into the voluntary world from what we can see in our book at the moment.
Thank you.
Thank you.
Our question comes from the line of Joel Harits from Galing. Please go ahead.
Hey, good morning, Ramey want more for you on group. You had really strong sales on the quarter and you guys had highlighted uh Regional business growth. Can you just provide some more caller on the growth you're seeing in in that regional market and and maybe provide some color on the competitive landscape there?
Sure, um, so look from a competitive perspective.
They operate in a competitive, but I would still say rational market. Um,
Terms of our capabilities, employer-employee experience, uh, connectivity into the overall ecosystem, um, relationships with the brokers that are very well established. Um, we really like the basis of competition in this business, and that's through up market, and it's also true in regional markets. Um, I would say from an overall growth perspective,
Uh, you saw a 9% increase year to date from a sales perspective. Um, a regional is a very important contributor of that, uh, in particular because we had a, a slower jumbo year, um, this year versus last year. So Regional continues to be a, a significant contributor when you think about our year to date sales growth,
Okay, thank you. And, and then just, uh, going to to ladam the, the top line is, is running. Well, ahead of your guidance. Uh, I guess just what, what's fueling, the better than expected growth again in in 25.
Is hydral. This is a, this is Eric. Um, yeah so you know, uh as as we outline that investors day is latam is is a growth engine for the Enterprise. And we've been delivering, a high single digits growth in both top and bottom line in the past few years, uh, double digit. If you look at it from a constant, uh, uh, constant uh, rate uh perspective and that solid performance. Uh, so
For this year with uh, with, you know, premiums growing at a healthy double digits, uh, as well on a constant currency base and, um, you know, as we discussed that the business fundamentals of our franchises across the region, uh, are very strong and we're well positioned to extend, uh, our growth trajectory into into this year and Beyond, just to give you a little context about, uh, about latan. We're the largest life insurance company in the region. Uh, we have a strong franchise. We serve close to 30 million customers. Uh, we operate in 6 markets, which are the most relevant ones. Uh, Mexico, chile, uh, where we are, uh, number 1 leaders, uh, in Brazil where we are, the fastest, uh, growing, uh, company there. Uh, and and we, uh, we are very well Diversified in terms of products as well as distribution channels. Uh, we have a network of, uh, uh, above, uh, 10,000 agents across the region in our face-to-face business. We're also the leading uh, employee benefits provider uh, to large employers.
As well as smes uh, offering a wide variety of uh of Life and Health Products. Um but our fastest growing channel uh in the past few years has been our third-party distribution Channel where we distribute products through a variety of over 100 Partners, such as Banks, retailers clinics, uh, utility companies among others. And uh, in the past few years with uh, witnessed significant growth through the rapid emergence of these
A digital ecosystem, whether that be digital Banks, digital retailers, and a wide. Variety of e-commerce. Ecosystems and, uh, to our Nest this opportunity, we launched accelerator a couple of years ago and, um, you know, this is really, really our regional embedded Insurance, uh, fully end-to-end digital. And uh, we've already integrated 21 Partners. We've issued, uh, about 300 million in PFO since the launch we're serving 5 million customers on that platform. So, uh, this is growing really fast. And we're partnering with important players across markets and and continue to scale that business to to capitalize, uh, our competitive Advantage. So in that's a really a little, a long summary about latam, but I think it was important to put things in context that this doesn't come from a specific country. Uh growth doesn't come from a specific line of business, but all lines are contributing to uh to the growth and and uh um today and moving forward.
Hope this helps.
Very helpful. Thanks Eric.
Thank you, unfortunately, we don't have time for questions. I will now turn the call over to Mr. John Hall for closing remarks.
Great. Thank you, everybody for joining us this morning and we look forward to engaging throughout the quarter. Have a great day.
Thank you for joining the call today. You may now disconnect.