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MetLife, Inc. is a leading global financial services company that provides a wide range of insurance, annuities, employee benefits, and asset management services . The company operates through several segments, offering products such as life insurance, annuities, and investment products to both individuals and corporations . MetLife is also one of the largest institutional investors in the U.S., with a significant portfolio in fixed income securities and mortgage loans .
- Group Benefits - Offers term, variable, and universal life insurance, as well as dental, disability, vision, and accident & health insurance, primarily to corporations and their employees .
- Retirement and Income Solutions (RIS) - Provides life and annuity-based insurance and investment products, including stable value and pension risk transfer products, institutional income annuities, and structured settlements .
- Asia - Offers a range of life insurance, accident & health insurance, retirement and savings products, and credit insurance to individuals and corporations .
- Latin America - Provides life insurance, accident & health insurance, retirement and savings products, and credit insurance to individuals and corporations .
- Europe, the Middle East and Africa (EMEA) - Delivers life insurance, accident & health insurance, retirement and savings products, and credit insurance to individuals and corporations .
- MetLife Holdings - Consists of operations related to products no longer actively marketed in the U.S., such as variable, universal, term, and whole life insurance, as well as annuities and long-term care insurance .
- Corporate & Other - Includes start-up, developing, and run-off businesses, as well as investment management services .
What went well
- Strong Pipeline in Pension Risk Transfers (PRT): MetLife continues to see a "very healthy pipeline" in the PRT market, particularly at the larger end where they are most competitive, indicating expectations of "continued kind of high level of activity in this market into '24" .
- Growth in Retirement and Income Solutions (RIS): The company's liability exposures in RIS are "up 3% year-over-year", with most growth coming from their spread earning general account business, which is "actually growing at 4%" .
- Diversification and Strength in Spread-Based Products: Beyond PRT, MetLife is "seeing continued strength across a range of spread-based products", including structured settlements and products in their Risk Solutions business .
What went wrong
- Pension Risk Transfer (PRT) volumes decreased from $8 billion in 2022 to $5.3 billion in 2023, indicating a potential slowdown in this segment.
- Liability exposures grew only 3% year-over-year, and the spread earning general account business grew at 4%, which may be considered modest growth rates.
- Despite a positive outlook, the company acknowledges reliance on larger deals in the PRT market, which could pose risks if market conditions change or competition increases.
Q&A Summary
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Potential Upside in ROE Target
Q: Is there upside to your ROE target above 15%?
A: Management acknowledges they are trending to the high end of the 13% to 15% ROE target range, possibly exceeding 15.5%, but prefer to take time before raising the target again. They note higher rates have shifted volumes and returns, and they may reassess in the future. -
Asset Allocation Strategy Shift
Q: Are you shifting assets to lower risk charge investments with similar yields?
A: While changes can't happen overnight, management is considering a moderate shift in asset allocation toward investments like private credit with similar yields around 7% but lower RBC risk charges. They believe tweaks are appropriate in the current rate environment. -
Capital Return Flexibility
Q: How will you deploy capital from the reinsurance transaction in 2024?
A: The reinsurance deal provides significant financial flexibility, with an RBC ratio around 400%. Excess capital is currently in statutory entities and will migrate to HoldCo. They view excess capital as fungible and will redeploy it over time, leaning into share buybacks if attractive opportunities are absent. -
CRE Portfolio Maturities
Q: How much CRE debt matures soon, and are you extending more loans?
A: About 10% of the CRE portfolio matures in 2024, with expected resolutions similar to 2023: 30% payoffs/refinance, 60% contractual extensions, and less than 10% maturity extensions. They anticipate a similar level of at-risk loans and charge-offs as in 2023. -
Group Benefits Margin Improvement
Q: What's driving the 100 bps improvement in loss ratio targets?
A: The improved outlook is due to a shift in business mix toward regional markets and voluntary products, which have grown 2-3% and at double-digit rates respectively, and carry lower loss ratios. Favorable population mortality also contributed but isn't expected to persist. -
Decline in Retirement Spreads
Q: What's causing the sequential decline in retirement spreads?
A: The decline is due to lower rates late in the quarter causing spread compression, differing from prior forward curve expectations. Pricing remains healthy, and the decline isn't due to competitive factors. -
Consolidated NII Outlook
Q: What's the outlook for consolidated net investment income in 2024?
A: Management is hesitant to forecast NII for 2024 due to variances in product performance and spread considerations. They emphasize diversification and the ability to perform in various economic environments. -
PRT Market Outlook
Q: What is your outlook for pension risk transfer deals in 2024?
A: The outlook remains positive with a healthy pipeline, especially for large deals where they are competitive. Macro indicators suggest continued high activity levels, with liability exposures up 3% year-over-year and spread-earning general account business growing at 4%. -
Asbestos Claims Reserves
Q: Why hasn't asbestos claim frequency declined as expected?
A: Overall claim counts are declining, but severe claims haven't reduced as quickly. They adjusted reserves accordingly, with overall reserves now just above $350 million. -
VII Guidance Expectations
Q: How does lower VII guidance relate to first-quarter expectations?
A: VII is expected to remain low in the near term before contributing more meaningfully later in the year. Managers may be cautious in valuations despite late-quarter S&P gains, and they lack detailed financial statements at this time. -
Group Benefits Pricing and Competition
Q: Is competition affecting pricing in Group Benefits?
A: Despite a competitive market, they started 2024 strongly. 2023 sales were up 9% year-over-year, with expected 5-10% growth at 1/1 renewals. Non-price differentiators are helping maintain margins and expand outlook. -
Employee Count Growth
Q: How are employee counts growing among corporate partners?
A: Specific employee count data isn't available, but they align with overall employment trends due to a diversified portfolio. Significant opportunity remains to increase product penetration in the workplace, driving voluntary growth. -
RBC Ratio Post-Reinsurance
Q: Why is the RBC ratio around 400%, not higher post-reinsurance?
A: The reinsurance deal added 50-60 points to the RBC ratio as expected, but factors like growth in RIS and extra capital deployment impacted the overall ratio, aligning with initial deal economics. -
Interest Rate Caps and VII Offset
Q: Will VII improvements offset the roll-off of interest rate caps in 2024?
A: Management expects the decline in income from rolling off interest rate caps to be essentially offset by emerging VII throughout the year, leading to relatively flat spreads compared to 2023.
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"Given the expected roll-off of your interest rate caps throughout 2024 and lower VII assumptions, how do you plan to offset the anticipated pressure on investment spreads, and can you elaborate on strategies to mitigate the impact on adjusted earnings? "
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"You mentioned that the frequency of severe asbestos claims has not declined as expected, leading to an increase in reserves; can you provide more details on the trends you're seeing and what actions you're taking to manage this exposure going forward? "
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"With lower expected private equity returns affecting Variable Investment Income, how do you anticipate this will impact your earnings in 2024, and what steps are you taking to improve returns in the current market environment? "
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"As you have increased your expected effective tax rate range due to higher earnings in foreign markets with higher tax rates and lower tax credits in the U.S., how will this affect your overall profitability, and are there strategies in place to optimize your tax position? "
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"Considering the uncertainty around inflation and unemployment in 2024, and your assumption of a more modest private equity return, how confident are you in maintaining your adjusted ROE target range of 13% to 15%, and what are the key risks that could prevent you from achieving this goal? "