MetLife, Inc. (NYSE:MET) Q3 2023 Earnings Call Transcript

MetLife, Inc. (NYSE:MET) Q3 2023 Earnings Call Transcript November 2, 2023

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Third Quarter 2023 Earnings Release Conference Call. [Operator Instructions] 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 SEC filings. With that, I will now turn the call over to John Hall, Global Head of Investor Relations.

John Hall: Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife’s third quarter 2023 earnings call. Before we begin, I’d point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Also last night, we released a set of supplemental slides which addressed the quarter. The slides are available on our website. John McCallion will speak to them in his prepared remarks if you wish to follow along.

An appendix to these slides features GAAP reconciliations and other information which you should similarly review. As usual, after prepared remarks, we will host a Q&A session. We will end Q&A just prior to the top of the hour. In fairness to everyone, please limit yourself to one question and one follow-up. With that, over to Michel.

Michel Khalaf: Thank you, John and good morning, everyone. As you can see from the report we posted last night, MetLife delivered another quarter of strong underlying results with sustained business momentum. MetLife’s capacity to perform across a wide range of economic scenarios, there’s a testament to the resilience of our all-weather strategy and is characterized by our unyielding focus on execution. And concentrating on those elements within our control, such as balance sheet security, investment performance, reserve adequacy, responsible growth, expense efficiency and capital deployment to name just a few, we have positioned MetLife to generate significant value for our shareholders and other stakeholders for many years to come.

Turning to the quarter. We reported adjusted earnings of $1.5 billion or $1.97 per share. Notable items in the quarter included our annual actuarial assumption review and other insurance adjustments, which had a positive impact of only $14 million or $0.02 per share on adjusted earnings. Excluding notable items, adjusted earnings per share were $1.95, up 43% from a year ago. As we previously indicated Variable investment income of $179 million fell below our quarterly outlook expectation. Private equity returns totaled 1.4%, while real estate equity risk trailed at minus 3%. In the aggregate, net income for the third quarter was $422 million compared to $1.1 billion in the prior year period. The third quarter result reflects the negative impact of certain required accounting adjustments associated with our previously announced reinsurance transaction.

See also 20 Least Diverse Countries in the World and 25 Most Dangerous Gangs in the US.

Q&A Session

Net derivative losses related to interest rate and foreign exchange hedges helped to protect our balance sheet further reduce net income. Our investment portfolio has stayed up in quality and continues to perform well. Underscoring that quality, the credit metrics associated with our real estate portfolio remain largely unchanged sequentially and we did not incur material credit losses during the third quarter. Moving to MetLife’s business performance in the quarter. I will start with our US Group Benefits results. Adjusted earnings excluding notable items totaled $483 million an all-time high and up 16% from a year ago. Underwriting results in the quarter for both Group Life and Non-Medical Health were outstanding. Year-to-date sales are up 11% while adjusted PFOs are up more than 4% in the quarter reflecting the impact of our contracts and within our 4% to 6% outlook range which we expect to achieve for the full year.

In Group Benefits, we have invested significantly to integrate with the employer benefits ecosystem and enhance our enrollment capabilities and perhaps more important our reenrollment capabilities. With a significant portion of our overall sales and group benefits coming from employee paid products, our efforts to enhance enrollment and take-up rates are critical. Speaking of enrollment we are about to enter open enrollment season. This is an important opportunity to review our employee benefit needs and refresh selections for the upcoming year something I encourage all of you to do. Several of the investments that I referenced aim to make this process easier for participants. Further, we are activating emerging technologies that will help accelerate some of our group benefits initiatives particularly around underwriting claims and the customer experience.

We believe the impact of these investments will enable us over time to further leverage our size to drive greater scale advantage. Looking to Retirement and Income Solutions or RIS adjusted earnings excluding notable items totaled $409 million up 60% from the prior year driven by higher recurring interest margins, better variable investment income and higher asset bases. Sales in the quarter were very strong across a range of products including pension risk transfer with roughly $1.5 billion booked as well as structured settlements and UK longevity reinsurance. We are poised to generate close to $3 billion or more of sales in each of these two high-return product categories for the full year. Just after the close of the third quarter we released our 2023 pension risk transfer poll an example of our thought leadership in the space which we have been publishing for the past eight years.

The poll which serve plan sponsors with derisking goals revealed several important observations relevant to the growth prospect for the PRT market. Let me offer some examples. Following record PRT sales in 2022, market activity is expected to remain strong for the foreseeable future. Among companies who plan to derisk nine of 10 companies plan to completely divest all their defined benefit pension plan liabilities. And finally, 85% of plan sponsors expressed concern over missing an attractive window to secure an annuity buyout at competitive rates. These findings confirm what I have said before we should continue to see a strong pipeline for our pension risk transfer business. Now shifting over to Asia. Adjusted earnings excluding notable items of $369 million were 23% above a year ago on better variable investment income.

Sales in the region on a constant currency basis were up 5% led by life insurance in Japan and Korea. For Latin America, adjusted earnings excluding notable items totaled $199 million. Further Latin America posted healthy 16% gains in both sales and adjusted PFOs on a constant currency basis. Our digital initiatives don’t stop at the U.S. border they extend around the world for instance in Latin America we launched a digital platform that seamlessly integrates insurance solutions into the customer journeys of our LatAm business partners, such as banks, financial institutions, retailers and others, which we expect will lead to even more responsible growth in the region over time. Expanding on the subject of responsible growth. In the third quarter, we released our Value of New Business, or VNB statistics for the full year 2022.

And the results are powerful. To summarize, MetLife’s deployed roughly $3.7 billion of capital to support the origination of new business in 2022. This capital was put to work at an average internal rate of return of 17% with an expected payback period of approximately six years. The value of new business generated in 2022 is around $2.3 billion which represents the net present value of distributable cash flows in excess of the hurdle rate. When we reference terms of MetLife like responsible growth and disciplined capital deployment their application in our business is grounded in the systematic use of VNB. It is hard to overestimate the positive impact this analytical tool has had in managing our business starting with the deeply embedded practice of using IRRs and product pricing and ending with the establishment of business unit level VNB goals and targets.

Simply put VNB guides our effort to target and prioritize capital efficient and shorter payback business and measure our progress and success in doing so. Over time, we’ve sought to maintain the right balance of capital deployment across organic growth acquisitions and share repurchase to drive value for shareholders. While we bought back $11.1 billion of our shares and executed $2 billion of acquisitions from 2019 to 2022. We similarly deployed $13.5 billion to support responsible growth over the same period. Moving to quarterly capital and cash MetLife remained active with capital management during the third quarter. We paid about $400 million of common stock dividends to shareholders and we repurchased nearly $800 million of our common stock.

In addition to our activity in the third quarter, we repurchased roughly another $250 million of our common stock during the month of October. Year-to-date through October we have repurchased about $2.5 billion of our common shares and there is approximately $2.7 billion remaining on our repurchase authorization. At the end of the quarter, we had $4.9 billion of cash at our holding companies, which is above the top end of the $3 billion to $4 billion liquidity buffer we maintain. Before I close, let me provide a quick update on our pending reinsurance transaction with Global Atlantic. At this juncture, we have received all necessary regulatory approvals and we expect to close in short order. We do not anticipate any material changes to the terms announced in May.

In closing, we hosted a strategy session with our Board of Directors during the first week of October. This recurring annual meeting presents us with an opportunity to pressure test our strategy and to assess progress made toward our next Horizon investor commitments. On that front, we are on track to exceed each commitment made at our December 2019 Investor Day and I am confident. we will continue to deliver for our shareholders and other stakeholders. Now I’ll turn it over to John to cover our performance in greater detail.

John McCallion : Thank you, Michel, and good morning. I will start with the 3Q ’23 supplemental slides which provide highlights of our financial performance including details of our Annual Global Actuarial assumption review. In addition, I’ll provide updates on our value of new business metrics, our liquidity and capital positions, as well as our commercial mortgage loan portfolio. Starting on page three, we provide a comparison of net income to adjusted earnings in the third quarter. Net investment losses include the mark-to-market impact on securities that are expected to be transferred with the pending reinsurance transaction with Global Atlantic that we announced at the end of May. For GAAP purposes any increase in gross unrealized losses on these securities are required to be realized through net income until we close the transaction.