Q3 2023 Earnings Summary
- MetLife is seeing strong growth in Asia, with overall sales up 5%, driven by an 8% increase in Asia led by Korea and China, and 3% growth in Japan, supported by favorable interest rates.
- Robust performance in Retirement and Income Solutions, with $3.5 billion in year-to-date pension risk transfer sales, plus another $600 million added in the fourth quarter so far; MetLife sees a very healthy pipeline ahead with visibility into 2024, focusing on the jumbo market with distinct competitive advantages and healthy IRRs.
- Strong results in Latin America, achieving the fourth consecutive quarter of adjusted earnings in the $200 million range, driven by volume growth, favorable underwriting, and significant technology investments like the new integrated platform providing embedded insurance capabilities, creating a competitive advantage and supporting sustained momentum.
- Potential Pressure on Group Benefits Margins: MetLife acknowledges that the current favorable underwriting margins in the Group Benefits business, particularly in disability, may diminish over time as favorable macroeconomic conditions are factored back into pricing.
- Reliance on Interest Rates for Sales in Asia: Sales growth in Asia, specifically Japan, is heavily dependent on strong interest rates. Any decrease in interest rates could negatively impact sales in this region.
- Openness to M&A May Lead to Capital Allocation Risks: While MetLife doesn't see any gaps in their product set or capabilities, they remain open to inorganic growth opportunities. This could pose risks if they engage in acquisitions that do not yield the expected strategic benefits or fail to compare favorably to other uses of capital. ,
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Capital Management and Debt Issuance
Q: Is the $1 billion debt increase permanent or prefunding a maturity?
A: The $1 billion debt issued in July is to prefund a maturity in the first quarter of next year, not considered permanent capital. -
Japan's SMR and Transition to ESR
Q: Should we be concerned about Japan's SMR being low at 600%?
A: We have no concerns with SMR at around 600%. We're transitioning to ESR, and higher rates are positive to ESR. We also have other tools like internal reinsurance transactions if needed. No concerns from a capital or dividend capacity perspective. -
Group Benefits Renewal Outlook
Q: How are January 1 renewals shaping up in Group Benefits?
A: We're doing extremely well; persistency in national accounts is exceptionally high. We're seeing a tick up in jumbo activity into next year. We're getting the rates the book needs in both new business and persistency. -
M&A Opportunities in Group Benefits
Q: Are you considering additional acquisitions in Group Benefits, or do you have what you need to grow organically?
A: We're pleased with our capabilities built through recent acquisitions like Pet First and Versant. While we see no gaps in our product set or capabilities, we're always open to opportunities that make strategic sense, help accelerate revenue growth, and make sense from a valuation perspective. Our focus is on deploying capital to its highest and best use. -
CRE Portfolio Maturities Resolution
Q: Are CRE maturities being resolved similarly to the past?
A: Yes, resolutions are roughly in line with historical patterns. About 60% are contractual extension options, almost 30% are paid off or refinanced, around 10% are loan modifications, and a small single-digit percentage is foreclosure or net payoff. Nothing out of the ordinary given the environment. -
Remaining 12% of CRE Maturities
Q: Is there anything unique about the remaining 12% of 2023 CRE maturities?
A: No, nothing unique or out of the ordinary. Our expectations incorporate the remaining 12%, aligning with what we outlined earlier in the year. -
Value of New Business and IRR Outlook
Q: Given higher interest rates, are there opportunities to deploy more capital, and could the 17% IRR increase?
A: We're seeing strong unlevered IRRs at 17%, which is a healthy level. Demand for annuity-type products is picking up, but we don't expect a big uptick in IRRs as the current rate environment is priced in. We'll see how things evolve. -
Capital Return Post Global Atlantic Deal
Q: Will buyback pace increase after closing the Global Atlantic deal?
A: Yes, the Global Atlantic transaction is expected to add about 60 points to our RBC, considered excess capital. We increased the authorization by $1 billion to signal the sustainability of our buyback activity. We have a track record of returning capital expeditiously post major divestitures and will conduct ourselves similarly here. -
Pension Risk Transfer Market Outlook
Q: Are you participating in full plan terminations, and how is the pipeline?
A: We're pleased with our performance, with $3.5 billion in sales year-to-date and an additional $600 million in premium so far in the fourth quarter. We see a healthy pipeline, especially in the jumbo end of the market where we focus. We continuously evaluate opportunities, focusing on value over volume, and will pursue deals with the right IRRs and risk profiles. -
LatAm Growth Sustainability
Q: How sustainable is the robust growth seen in LatAm?
A: We're very pleased with the fourth consecutive quarter of adjusted earnings in the $200 million range. Results are driven by volume growth, favorable underwriting, and foreign currency tailwinds. Solid double-digit growth continues across both retail and group businesses. Investments in technology and expanding distribution channels contribute to sustained momentum. -
Net Investment Income Amidst Higher Rates
Q: What are the benefits of higher interest rates for net investment income?
A: Higher rates benefit roll-off and reinvestment yields. We've reduced interest rate sensitivity over the years, so it's not a dramatic increase, but there's a positive impact. We're seeing unique opportunities as fixed-oriented products grow in relative value. Our scale and expertise allow us to capitalize on these opportunities while maintaining an up-in-quality investment approach. -
Asia Trends and Outlook
Q: What's the near-term outlook in Asia, particularly Japan?
A: We've had a very strong quarter with 5% year-over-year sales growth overall and 3% in Japan. In Asia, total sales are up 8%, driven by Korea and China. Stronger interest rates have helped us in Japan. With the strong economy, we have a solid platform to leverage higher sales as long as interest rates remain favorable. -
Appetite for Inorganic Growth in Voluntary Benefits
Q: What's your appetite for inorganic growth in U.S. voluntary benefits?
A: While we don't see any gaps in our Group Benefits business, we're open to inorganic growth if it fits strategically, adds capabilities, helps accelerate revenue growth, and is accretive over time. We have M&A as a strategic capability and will deploy it when it makes sense compared to other uses of capital. -
Real Estate Returns in Alternatives
Q: Are improved real estate returns in Q4 due to property sales or stable marks?
A: It's more due to stable marks, trailing what's happened in private equity where we had markdowns and reached a trough before a U-shaped recovery. -
Group Benefits Margins Outlook
Q: Will the industry retain better margins in Group Benefits or give back over pricing?
A: While some favorability may over time come back into pricing, our strong margins are supported by solid underwriting, return-to-health capabilities, data deployment, technology, and predictive analytics. These differentiating capabilities will allow us to fuel further growth and maintain robust margins.
Research analysts covering METLIFE.