Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MetLife Inc (MET, Financial) reported adjusted earnings of $1.6 billion or $2.28 per share, up 18% from the prior-year period.
- The company posted a 17.3% adjusted return on equity in the quarter, well above the target range of 13% to 15%.
- Group benefits business reported adjusted earnings of $533 million, representing an all-time quarterly record.
- MetLife Inc (MET) executed two jumbo pension risk transfer deals totaling $3.5 billion and a $2.2 billion stable value addition.
- The company has a strong balance sheet with $4.4 billion of cash and liquid assets at holding companies, above the target cash buffer of $3 billion to $4 billion.
Negative Points
- Net derivative losses were primarily due to the strengthening of the US dollar versus the yen and higher interest rates.
- Real estate funds saw significantly narrower losses in the second quarter, impacting variable investment income.
- Sales in Japan were impacted by currency fluctuations, with a 19% year-over-year decline in Japan sales on a constant currency basis.
- The company experienced higher-than-expected surrender activity in Japan due to the weaker yen.
- MetLife Holdings adjusted earnings were down 27% versus the prior-year quarter, primarily due to foregone earnings from a reinsurance transaction.
Q & A Highlights
Q: Can you unpack the nonmedical health results, particularly disability versus dental, and comment on pricing and renewals?
A: Ramy Tadros, President - U.S. Business: The overall ratio was 70.8%, normalizing for a one-off reserve adjustment, it’s around 72.2%. Dental utilization rates came down from the first quarter due to normal seasonality. Dental is an inflationary product, and we manage margins through network claims and renewal pricing, with 80% of the book repriced annually. Disability is running in line with expectations, with slight increases in incidents but strong recoveries. Renewal pricing is hitting targets with strong persistency.
Q: How are you feeling about the level of competition in the market?
A: Ramy Tadros, President - U.S. Business: The market is competitive but largely rational. Aggressive pricing is an outlier. We compete on multiple factors beyond price, including scale, capabilities, experience, product breadth, and investment ability. New entrants are small and operate at the very small end of the market, with no meaningful impact on our book.
Q: Is the improved earnings power of the group benefits business sustainable?
A: Ramy Tadros, President - U.S. Business: The group life ratio was historically low due to lower volume, driven by a significant drop in US deaths. Mortality is expected to moderate back to historical levels. Year-to-date, the group life benefit ratio is 84.7%, aligning with our guidance range.
Q: Can you explain the better-than-expected RIS spreads and the outlook for the rest of the year?
A: John McCallion, CFO: RIS spreads were 121 basis points, better than expected due to higher interest rates. We anticipate another 8 to 10 basis points compression in Q3 as interest rate caps mature, with stabilization expected in Q4. Overall, 2024 spreads should be similar to 2023.
Q: Can you provide perspective on the sales environment in Japan and the impact of currency fluctuations?
A: Lyndon Oliver, Regional President, Asia: Japan sales were lower due to weaker yen and tough comparatives. The overall bank market for foreign currency products has shrunk, but we maintain our market share. We are rebalancing product mix and have introduced new products. Strong growth in the rest of Asia offsets Japan's decline.
Q: Has elevated surrender activity in Japan impacted earnings?
A: Lyndon Oliver, Regional President, Asia: Higher-than-expected surrenders due to the weaker yen benefited earnings. Asia's allocation of real estate equity funds also performed better. Expense management contributed to strong earnings, and we expect full-year earnings to remain strong.
Q: Can you update us on the transition to ESR in Japan and its impact?
A: John McCallion, CFO: The transition to ESR is on track for April 2025, with reporting in March 2026. Implementation is going well, with no major issues. We are comfortable and supportive of moving from SMR to ESR.
Q: Can you provide an update on the commercial mortgage loan portfolio and any loans in foreclosure?
A: John McCallion, CFO: LTV ticked up 1 point overall, with a couple of points more in office. We expect modest deterioration in the second half. Write-offs are expected to be around $100 million for the year, within modest levels. Despite pressure, economic growth supports real estate fundamentals.
Q: How is the competitive environment in Japan, and are you seeing any price reductions?
A: Lyndon Oliver, Regional President, Asia: The environment is competitive but rational. We maintain pricing discipline and focus on profitability. Our diversified distribution and product set, along with strong investment and reinsurance capabilities, help us maintain our competitive position.
Q: Can you discuss the pipeline for PRT in the back half of the year and any changes in the competitive market?
A: Ramy Tadros, President - U.S. Business: The pipeline remains healthy, especially for larger deals. Secular trends support long-term growth, with significant corporate DB assets and good funding status. We expect continued strong performance in PRT.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
