William J. Mullaney - President of the U.S. Business organization William J. Toppeta - President of International and President of International - Metropolitan Life Insurance Company Steven J. Goulart - Chief Investment Officer and Executive Vice President Steven A. Kandarian - Chief Executive Officer, President and Director William J. Wheeler - Chief Financial Officer, Executive Vice President, Chief Financial Officer of Metropolitan Life and Executive Vice President of Metropolitan Life John McCallion - Head of Investor Relations and Vice President

Andrew Kligerman - UBS Investment Bank, Research Division Colin W. Devine - Citigroup Inc, Research Division Jay Gelb - Barclays Capital, Research Division Thomas G. Gallagher - Crédit Suisse AG, Research Division Suneet Kamath - Sanford C. Bernstein & Co., LLC., Research Division Randy Binner - FBR Capital Markets & Co., Research Division A. Mark Finkelstein - Evercore Partners Inc., Research Division Joanne A. Smith - Scotia Capital Inc., Research Division Christopher Giovanni - Goldman Sachs Group Inc., Research Division Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division Nigel P. Dally - Morgan Stanley, Research Division John M. Nadel - Sterne Agee & Leach Inc., Research Division Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Third Quarter Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we get started, I would like to read the following statement on behalf of MetLife. Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends in the company's operations and financial results, and the business and the products of the company and its subsidiaries. MetLife's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risks and uncertainties, including those described from time to time in MetLife's filings with the U.S. Securities and Exchange Commission. MetLife specifically disclaims any obligation to update or revise any forward-looking statement whether as a result of new information, future developments or otherwise. With that, I would like to turn the call over to John McCallion, Head of Investor Relations.

Thank you, Greg, and good morning, everyone. Welcome to MetLife's third quarter 2011 earnings call. Before I start, let me briefly outline the logistics of today's call. We have a 2-hour call today divided into 2 sessions. The first session will focus on our third quarter 2011 results, which will end promptly at 8:55 a.m. We will take a 10-minute break, at which time the phones will be placed on musical hold. Then at 9:05 a.m., we will host a discussion to address market concerns about the potential long-term, low-interest rate environment in the U.S. Presentation materials for this interest rate discussion are currently available at MetLife.com through a link on the Investor Relations page. Now let's get started. We will be discussing certain financial measures not based on generally accepted accounting principles, so-called non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures may be found on the Investor Relations portion of MetLife.com and our earnings press release, our quarterly financial supplements and in the other financial section. A reconciliation of forward-looking financial information to the most directly comparable GAAP measure is not accessible because MetLife believes it's not possible to provide a reliable forecast of net investment and net derivative in gains and losses, which can fluctuate from period-to-period and may have a significant impact on GAAP net income. Joining me this morning on the call are Steve Kandarian, President and Chief Executive Officer; and Bill Wheeler, Chief Financial Officer. After their prepared remarks, we will take your questions. Also, here with us today to participate in the discussion are other members of management, including Bill Toppeta, President of International business; Bill Mullaney, President of U.S. Business; Steve Goulart; Chief Investment Officer; and Donna DeMaio, President of MetLife Bank. With that, I'd like to turn the call over to Steve.

Thank you, John, and good morning, everyone. Before I discuss this quarter's results, I'd like to comment on our recent annual dividend declaration. Earlier this week, we declared an annual common stock dividend of $0.74 per share for 2011. As we announced, we recently submitted a capital distribution plan to the Federal Reserve for approval that included both an increase in MetLife's annual dividend, as well as the resumption of stock repurchases. The Federal Reserve has concluded that the company's planned capital actions should be tested under a revised adverse macroeconomic scenario, which is being developed for those firms that will participate in the 2012 Comprehensive Capital Analysis and Review. As a result, the Federal Reserve did not approve the company's planned dividend increase and other proposed capital actions at this time. We are disappointed that we cannot commence increased capital actions now. Our analysis shows that the company's current capital level and financial strength support capital action increases. Moreover, we believe increasing our capital actions in this time of high unemployment would prove beneficial to the economy as our shareholders redeploy these funds in a productive manner. We look forward to seeking and gaining the approval of our capital plan from the Federal Reserve early next year. We are firmly committed to creating shareholder value and returning capital to our shareholders. In addition, we continue to move forward on our plans to explore the sale of the depository business and the forward mortgage origination business conducted at MetLife Bank and to take the necessary steps to no longer be a bank holding company. As I have previously noted, this will ensure that MetLife is able to operate on a level regulatory playing field with other insurance companies. Now let's discuss this quarter's results. Despite some significant economic headwinds during…

Thanks, Steve, and good morning, everybody. MetLife reported net income of $3.6 billion or $3.33 per share and operating earnings of $1.2 billion or $1.11 per share for the third quarter. There were several unusual items in this quarter. First, we have taken an after-tax charge of $117 million or $0.11 per share to increase reserves in connection with our use of the U.S. Social Security Administration's Death Master File and similar databases to identify potential life insurance claims for pending and incurred but not reported claim liabilities referred to as IBNR. Over 70% of the charges in our Group Life business, nearly 25% in Individual Life with the balance in Corporate Benefit Funding. Next, our Auto & Home business incurred catastrophe losses of $88 million after-tax in the quarter, including the impact of Hurricane Irene. This result was $50 million after-tax or $0.05 per share above our third quarter plan provision of $38 million. Partially offsetting the impact of the cats, Auto & Home had a favorable prior-year development reserve release in its Auto business of $19 million or $0.02 per share. Also, we have recorded a $40 million after-tax charge or $0.04 per share related to MetLife's obligations under the New York State liquidation plan for Executive Life Insurance Company of New York, which we call ELNY. This charge has been recorded in our corporate and other segment. Pretax variable investment income was $400 million after-taxes and the impact of deferred acquisition costs. Variable investment income was $37 million or $0.03 per share, above the top of our Investor Day guidance, driven by strong securities lending and private equity returns, which more than offset weakness in our hedge fund performance. I should remind you that we report our private equities on a one-quarter lag, while hedge funds are…

[Operator Instructions] Your first question comes from the line of Jay Gelb from Barclays Capital.

The variable annuities clearly benefited from trying to get the current roll-up rate. What do you think that contributed in the quarter?

Jay, it's Bill Mullaney. Is your question about specifically, do I think the higher roll-up rate contributed to higher sales? Is that your question?

I'm pretty sure that is the case. I mean with $9 billion of sales in the quarter, what do you think is a reasonable run rate going forward?

Well, as you know, we're taking some steps to bring the roll-up rate down and we set the roll-up rate on Max. It was very early in the year when interest rates were higher and there were some competitor products out there at 6%. We wanted Max to get good traction in the market and so we set a 6% roll-up rate. And then obviously, the macroeconomic environment changed by the time that product got in the market which, obviously, made it quite attractive, and that was a big contributor to the overall sales level in the third quarter. In addition, we did announce that we were bringing the roll-up rate down to 5.5%, so there is some fire sale impact in the third quarter as a result of that. So I think for the fourth quarter, you can expect to see sales be lower than they were in the third quarter probably in the $7 billion to $7.5 billion range. Again, you're going to see some fire sale impact because the changes didn't take place until the second week in October. And so we saw a pretty heavy volume on the 6% product in the first couple of weeks of October. But then the run rate will obviously come down as a result of being in 5.5%.

Right. And so would you think maybe $5 billion run rate going into early 2012 on a quarterly basis is good for a placeholder?

Yes. I would say it's probably in that range. That's a good way to look at it.

Your next question comes from the line of Jimmy Bhullar from JPMorgan. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: I had a question also on variable annuities. Bill, maybe if you could talk about given the equity market volatility is in cost of option, does the price of your charging for guarantees, is that enough to cover the cost of hedging? And it doesn't seem like it would be but -- and if it isn't, are you planning on taking any actions at some point? How are you looking at that?

Yes. Jimmy, we're looking very closely at that. For the third quarter, because of the volatility in the markets, the cost to hedge for the overall book was slightly above the fees that we were charging for the hedges. So we are monitoring that pretty closely. And over time, if edging cost don't come back in line, we would take some steps to adjust our fees. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: And then just cheating a little bit, I guess. On variable annuities also, Bill Wheeler mentioned that there was about an $0.08 hit because of a higher DAC. I think as Steve's comments mentioned, $1.28 as a normal run rate. In the past, you've added any market-related items to your estimate of run rate because that shouldn't repeat going forward, but just wondering why you view $1.28 as a run rate as opposed to $1.36?

So Jimmy, I mean, I think the answer to that is pretty simple. We actually generally don't add back market impact one way or another. And I think the only time I can remember that we did adjust for it is when we had a huge change in the performance of the stock market. So we actually did debate whether or not we should kind of add this to normalizing run rate. But I guess my feeling is, is that markets move up and down, that's a part of the business we're in. And unless it truly distorted the number, it shouldn't be adjusted. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: Because I'm looking at the list of that number, list of numbers you gave us in the third quarter of last year, and this is one of the items that you'd mentioned.

Well, I can't remember the third quarter of the last year right at the top of my head. But I'm not -- there isn't some special message there. We decided... Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: So it's like $0.05 that third quarter of $43 million?

Okay. What we'll do is, I mean -- we thought we'll give people the information. Obviously, we'll quantify the market impact and let them decide what they should normalize. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: But as we think about that business, that $0.08 is specifically related to DAC and not lower fees or something else that might be ongoing, right?

I'm sorry, can you just say it one more time. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: The $0.08 in the annuity business was specifically related to DAC and it's not lower fees or anything else that might be ongoing?

That's correct. That's exactly right.

Your next question comes from the line of Chris Giovanni from Goldman Sachs.

Just one question regarding sort of the decision by the Fed. Any way you can provide any insight into terms of kind of what you went to the Fed with? And then around that same tone, any reason not to go to the board and get the approval from the board for what internally you guys are comfortable deploying and sharing that with investors?

This is Steve. The Fed process is one in which a disclosure around their supervisor information is not permitted. Some of the language you heard from us actually was approved specifically by the Fed for us to give to you because we felt that given their action, we really needed to say more than simply we can't raise our dividend. So the language we gave you is pretty much all we can tell you about the inter-workings of this process. We're simply not allowed to give you more than what we've given so far. So I'm sorry to limit it, but it's not our decision in terms of what can be disclosed.

Can you just talk some about the conversations you and the board are having in terms of internally, what you guys might be thinking is comfortable in terms of deployment?

I think it's not a wise thing for us in the middle of this process with the Fed to start putting out those numbers. We're working with the Fed closely, you can be assured our board and we, management, are in sync on this issue. We want to return capital to our shareholders as soon as possible. We're working hard with the Fed to enable that to happen.

Your next question comes from the line of Colin Devine from Citigroup.

I have sort of 3 small ones. Bill, first, you mentioned stat earnings. Can you just, I guess, quantify what the strain was from the very large VA sales? Because it seemed to me that was the bigger driver of why you actually reported a stat loss. Second, can you confirm that the -- I didn't catch it in the opening remarks, that the guarantee step-up on the VA is now since been lowered to 5%, so I would assume maybe for Bill Mullaney, we're going to continue to have a fire sale at least through this quarter until you to get that product off. And then lastly, Bill, what if you can't sell the bank, what are you going to do?

Okay. You have 3 questions. So I'll answer 1 and 3 and then I'll let Mr. Mullaney answer 2. So with regard to stat earnings, yes. So we did report basically a breakeven stat operating earnings quarter. And you're right, it was driven. The breakeven number was driven by the fact that we did have to increase some of our stat reserves because of the VA not just the sales necessarily, the strain from the sales, but because of the market performance in the third quarter. And that order of magnitude after tax was $400 million, $500 million. Now keep in mind that the hedging offset to that, and that's what I tried to say in my prepared remarks is, doesn't actually flow through the income statement. But it does -- it shows up later in our statutory financials. Stat is strange. And if you picked all of our hedging, including the hedging related to the VAs, obviously, we had a very, very big stat gain with regard to total adjusted capital. So yes, we did have some strain caused by market performance in the variable annuity block, but it was, obviously, substantially offset by hedging activity.

I'm getting at the commissions, Bill. I mean, I'm thinking 6% on almost $9 billion of sales, seems that's the biggest swing factor.

Well, yes, you do have ongoing strain. But remember, just keep in mind that we have a very large variable annuity block, which we have ongoing fees. So yes, so we have decent stat strain from commissions every quarter, right? But obviously, our inforce sort of overwhelms that number in terms of the profits we get. So with regard to the bank, look, I would just say we talked about a sale process. That sale process is on track, and so we're confident we will be able to sell the bank. But if we do have a -- if for some reason that doesn't happen or we would probably Plan B, though I think this would be in the extreme scenario, is we would wind it down, but I think a sale is much more likely.

It's Bill Mullaney. So let me just add a little color to what Steve Kandarian said with his opening remarks about VAs. So we made a decision to drop the roll-up rate to 5.5%. That was effective in the middle of October. And then we since filed to bring our roll-up rate down to 5% and that change will take place in the first quarter. It's actually due first week of January of 2012. And so yes, I think the fourth quarter will be somewhat noisy. The run rate of VA sales just on the 5.5% product, a fire sale impact from going from 6% to 5.5% and there will be some, though I think a less of a fire sale impact going from 5.5% to 5%. A couple of points I'd make. The sales at 5.5%, the return on those sales are good. The ROIs are around 15%. And so even in the fourth quarter or in the third quarter, at the 9/30 capital markets, the returns on the products were about 14% on the Max product. The Max was over 2/3 of our VA sales in the third quarter. And by moving down to 5%, it also reduces our hedging costs and hedging costs are already reduced in the Max product because some of the hedging is being done inside the funds. So we think that the steps we're taking to bring the roll-up rate down will get us to an appropriate level of sales going into 2012.

Your next question comes from the line of Joanne Smith from Scotia Capital.

I just wanted to talk about -- I have so many things I want talk about, and I know I'm only allowed one question. So I'm going to talk about non-bank SIFI. So let's say that you get the bank sold and you're designated a non-bank SIFI, it seems to me that the regulatory trends in this country are getting more and more tight, to say the least. And so what do you think the implications are for any insurance company that's designated a non-bank SIFI if you're having so much trouble as a bank holding company getting your capital plan approved. Does that imply that there might be some constraints under the non-bank SIFI categorization?

Obviously,, at this point, no one knows exactly who will be designated a non-bank SIFI or if you are designated, what the rules will be. And I suspect we won't know who's designated till some time in 2012. And as to what it means, it might even be 2013. So that's just a guess on my part, but that seems to be the direction things are going in. The hope is, over time, people in Washington will understand the difference between the banking business model and the insurance industry business model. And they are quite different. Very different liquidity, factors in terms of what kinds of liabilities they have. It's just a very different business model. One of the challenges is, Washington has not regulated insurance. The states have. And the level of understanding of our industry is relatively limited. It's growing, but it's relatively limited at this point in time. And we and others in the industry are working hard to help those in Washington making these policies better understand the differences in these models. And if we are designated a non-bank SIFI, what might be the appropriate way to regulate that group of companies. At the end of the day, we are discussing this issue at length with people in Washington and we're trying to make sure they understand the importance of a level regulatory field for our industry, so that they don't simply pluck out a few companies and say you are non-bank SIFI and everyone else is not. So that's also very important to us, and the story is unfolding over, really, years here, and our hope is we get to the right answer at the end of the day. But no one knows at this point how this will sort out.

What worries me, Steve, is that the federal government seems to think they know the banking system very well, and they really kind of messed that up. So, I certainly hope that there's a good education process that happens of the next year or so for the insurance industry because that could just be a mess.

Your next question comes from the line of Mark Finkelstein from Evercore Partners.

So I'm actually going to use my follow-up to follow-up on Colin's question and then a real question. Can you just explain one thing which is, if the hedging costs exceed the rider fee, it's a little counterintuitive that the projected margins on Q3 sales, and I assume into Q4, that the returns would be in the mid-teens. I guess, one, can you explain that? And two, are you fully hedging the product and is that incorporated in that mid-teen projected return on Q3 sales?

Mark, it's Bill Mullaney. The bank's contract is performing well in the annuity business. So even though the rider fees are slightly below the cost of hedging, we're still able to generate the returns that I talked about earlier.

Okay. Bill Wheeler, you gave a comment on private equity into the fourth quarter, I don't think that's a huge surprise. But you also mentioned that sec lending was fairly strong. Can you just talk a little bit about securities lending and what is the outlook on that revenue stream and how sustainable is it?

Maybe I'll pass it over to Steve Goulart.

Let me comment on private equity and sec lending. For private equity, as Bill said, we had very good returns this quarter. But given the lag in that and given what happened in the third quarter equity markets, we do expect that to fall off in the fourth quarter. And we wanted everyone to realize that again just reminding you that there's a lag in our performance, and so we'll probably see that in the fourth quarter. Sec lending continues to be very stable and very strong for us, and over the near term, we don't see that really changing. Our balances remain pretty flat and margins still remain very positive. The curve has seen some compression, but given our investment strategies and low cost of funds, we're able to maintain the spreads that we have in our business. And like I said, we foresee that continuing in the near future.

Your next question comes from the line of Andrew Kligerman from UBS.

I'm going to go with the Colin Devine 3, including 2 easy ones. One, the tax rate, it was 26.4%. I think at the beginning of the year, you guided for 32%. So should I consider the difference an unusual? Second, on the SIFI item. The regulator, let's say your designated a SIFI, would your regulator be the Fed or would it still be your insurance regulator? And then, more extensive, on the International. Your PFO, you mentioned, was 3%. Would that -- I think with some of the asset dispositions that would have been closer to, say, 6%, 7%, 8%, if you kind of normalize it, is that right? And what kind of revenue outlook are you expecting?

This is Bill Wheeler. I'll do the tax thing really quickly. I think our projected tax rate that we said at the beginning of the year would be about -- effective tax rate would be about 30% because earnings are coming in just a little bit lower, mainly because of a lot of the one timers we've talked about of this call. We've moved the effective tax rate down to 29% for the year and the catch-up occurred this quarter. So that's why you see the dip to 26%. So it's a true up basically based on what's happened the last 2 quarters but still just getting the overall tax rate down to 29%.

Andrew, it's Steve. On the SIFI question, we'd be regulated both by the Fed and we continue to be regulated by the state regulators. So it would be both.

It's Bill Toppeta, Andrew. So let me start for context and go back to last year's Investor Day on the question of premiums and fees, and if you recall what we said at that point was overall for the International segment. We called out that sales growth would be 22% premium and fee growth would be 8%, and the combination of those 2 would lead to earnings growth of 16% for this year. So where do we stand now? I would say, simply put, we're right on track for the earnings growth, which I think is the most important. We're also on track for the sales growth. The premium and fee growth, as you said, correct, is on a constant rate basis, 3%. So we're short. So here's why. In the Legacy MetLife business, we have intentionally not renewed some large group cases. I can think of a few in particular, one in Mexico, a large one; one in Australia. On the basis that they did not meet our profitability targets. So those cases, I would say, would account for about 3%. Also, as you pointed out, we've been making dispositions during the course of the year, and I think it's important for me to tell you what is our planning process with respect to acquisitions and dispositions. And that is simply that we don't include anything in the plan unless it's actually done, okay. So even though we're very certain that we're going to dispose of something, as long as we still own it at a time of the plan, we put it in the plan and we put it into the full year. Same thing is true for acquisitions. So we have been making dispositions during the course of this year, things like Taiwan, things like the closed…

Your next question comes from the line of Randy Binner from FBR Capital Markets. Randy Binner - FBR Capital Markets & Co., Research Division: Just hoping to get an update on the DAC, 09G changes, if you have any estimates or color you can provide on the book value or earnings impact?

We are going to give those estimates on Investor Day in early December. We're not quite ready to give people, I think, a refined estimate. Just a little color, of course, the thing that will impact us, more than others is maybe the fact that we have a substantial amount of VOBA which has been created through our acquisitions over the past number of years. So we do expect that earnings drag, though we'd be able to quantify that more clearly in early December. Randy Binner - FBR Capital Markets & Co., Research Division: Is the VOBA issue more related to the recent Alico acquisition or is it kind of balanced across all the acquisitions over the years?

Well, it's more about Alico, but that's only because Alico is the biggest and the most recent. Obviously, VOBA has been created on other acquisitions like travelers and such. Randy Binner - FBR Capital Markets & Co., Research Division: And so that VOBA was kind of branch distribution heavy or like a controlled distribution heavy? Is that a fair way to describe the Alico business?

No, no. VOBA -- remember DAC gets wiped out in purchase accounting and it's replaced by VOBA. VOBA is value of business acquired, so it's really sort of determining the value of the in-force block based on various discount rates and hurdle returns. That's how VOBA gets built.

Your final question comes from the line of Jeffrey Schuman from KBW. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: I just want to come back for clarification on the non-bank SIFIs. I think Steve said that non-bank SIFIs would answer to the Fed. But I was wondering about the role of the FSOC. The FSOC clearly determines who is a non-bank SIFI. But do they have any role in determining how they're regulated by the Fed or what the capital standards are or anything like that?

FSOC is going to been involved in determining whether you're a non-bank SIFI but the regulation will be by the Fed going forward, if you're designated as such. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. Because I was wondering, obviously, you have insurance representation on the FSOC. But I guess if they were to hand you over to the Fed, then I guess that influence doesn't continue.

Okay. Thank you. Greg, and everyone on the phone, we'll take a 10-minute break, and we will come back to you at 9:05. Thanks.

Ladies and gentlemen, you'll now hear music. Please stay on the line.

Your host, John McCallion, is back on the line.

Thank you, Greg. We apologize, everyone. We had some technical difficulties with AT&T. But welcome back and we're going to get through this session of the call. For this session of the call, we'll be referring to the interest rate presentation materials that can be found on the Investor Relations portion of MetLife.com. Before I start, before we start, let me refer you to the safe harbor statement on Slide 2, and this governs the statements made on today's call. As the statement notes, any and all forward-looking statements may turn out to be wrong. For a discussion of the factors that could cause actual results to differ, please see the risk factors in our 10-K and 10-Q reports filed with the SEC. Starting on Slide 3, let me remind you that we will be using non-GAAP financial measures on today's call. Slide 3 and 4 explain how we calculate these measures and the reasons we believe they are useful reconciliations to the most directly comparable GAAP measures are included in the appendix. Now I'd like to turn the call over to Steve Kandarian.

Thank you, John. Slide 5 contains our agenda for today. After some opening remarks, I will turn the call over to Bill Wheeler, who will go through the low interest rate scenario in detail, highlighting where we have exposure and why our earnings will still be expected to grow but at a slower pace. Steve Goulart will then describe the proactive steps we have taken to protect our portfolio from the impact of low interest rates including our purchase of derivatives that provide significant low rate protection that extends well into the next decade. Finally, Bill Mullaney will briefly cover some additional business actions that could be taken to address low interest rates, should they persist. As to recent actions, we have mentioned on our previous call that we're reducing the roll-up rate on our GMIB Max product to 5% in January. My hope is that by the end of this hour, you will have a deeper appreciation of MetLife's ability to continue to grow earnings and capital, even if interest rates remain at current levels for a number of years. Now let's turn to Slide 6. Like most major life insurers, MetLife has been trading in tight correlation to the yield on a 10-year treasury note. However, I believe the market has overreacted to the impact low rates have on our business. So I thought I would take a few moments to discuss the key reasons why MetLife can still prosper in a low-rate environment. First, MetLife is well diversified across products, distribution channels and geography. It is truly one of our real strengths. Second, risk management is fundamental to how we run the business. It starts with prudent product design and continues through asset liability management, which is a key reason why low interest rates have a relatively…

Thanks, Steve, and good morning again, everybody. Steve just walked you through the assumptions for this analysis and the financial impact for us if we were to remain in a sustained flat rate interest environment. My job is now to provide you with a detailed view of that analysis. So let's turn to Slide 13. To analyze the impact of this scenario, we looked at both what would happen to operating earnings as well as to certain areas of our balance sheet. First, the blue line shows the base interest case -- rate assumptions where the 10-year starts at roughly 3% and then if you follow that blue line, increases to 4.5% by 2013. Then we illustrate the flat rate scenario with the a yellow line, where the 10-year yield drops to 2% and then it stays there over the time period. The operating earnings difference in 2012 as a result of this scenario is $0.21. In 2013, the total impact will be $0.42. It's a coincidence that it happens to be an additional $0.21. Now it's important to understand that this is the incremental impact. MetLife's earnings would be growing in the base case. Another way to show this on the next slide. So let me explain this chart on Slide 14 to you. In 2011, we assumed MetLife will earn approximately $5 billion in operating earnings. That includes both the domestic and international businesses. We've assumed for purposes of this illustration that MetLife's earnings would grow at 8% per year. That's 6% growth domestically and about 10% growth in international for a blended rate of 8%. So in 2016, earnings would have grown to about $7.5 billion. However, in the flat rate scenario, we project that we would have about $500 million of spread compression in our U.S.…

Thanks, Bill, and good morning, everyone. I'll start on Slide 19. I'm going to talk a lot about our asset liability management in this section. It's the critical underpinning to this analysis. And most importantly, it's the asset liability management you've practiced in the past that matters most, because what you can do today is not that meaningful. There really aren't any magic levers to pull at this point. If you practiced sound asset liability management, you're going to be in reasonably protected shape. And at Met, we've always practiced sound consistent and disciplined asset liability management. Our investment management structure and practices include not only investment professionals but also associates from finance and the business lines as well. Portfolios are managed according to underlying guidelines as well as ongoing input from ALM committees and regular relative value and asset allocation reviews. And importantly, while we pay attention to total returns, we're essentially liability-driven investors. That is, we invest according to the needs our liabilities create while seeking optimal returns in liquidity. As a result, our portfolios are highly matched from a cash flow perspective and I'll show you some examples shortly. Additionally, Steve showed you the steadiness and dependability of our net margins over the last 10 years. This is a reflection of our disciplined ALM practices. That is also what led us to add low interest rate protection starting in 2004, long before anyone started talking about it. And I'll discuss that further in a few minutes, too. We've continued to expand our capabilities as we have grown. Our commercial and agricultural mortgage lending and real estate platform is the best in the industry, and we have the track record to prove it. Over the last 10 years, we've originated over $74 billion of commercial mortgages. And in…

Thanks, Steve, and good morning, everybody. In addition to the actions that we're taking on the investment portfolio, there are also actions being taken in the business to address the interest rate risk environment. As you would expect, the most impactful action we can take is to increase prices where we can on existing business. The most common way this is done is for products with shorter liabilities that renew periodically. An example of this is our group insurance businesses. This business renews annually, subject to rate guarantees. So we have the opportunity to adjust prices to reflect the current environment. Auto & Home is another business that renews annually where we have the ability to change prices. So as you saw in the earlier slide, these businesses are not particularly interest rate sensitive. We also have some longer liability businesses in which the contract permits us to increase prices. As we have discussed in the past, we've been raising prices on our in-force long-term care business to improve returns. On Slide 26, here are some additional actions that we're taking and some of the actions that we can take in the future in dealing with low interest rates. For longer liability businesses where we can change prices, here is some actions we can take: In our variable annuity business, for example, one of the actions we are pursuing is adding some of the new funds that we have in our new VA product to our in-force business. These funds are managed to reduce volatility but also reduce interest rate exposure by virtue of the interest rate swaps that are in the protected growth strategies funds. As a result, these products require less capital. Getting these funds adopted in existing business in a meaningful way could increase returns by reducing…

Thank you, Bill. Let me wrap up by summarizing the key takeaways from today's call, starting on Slide 28. Overall, even if interest rates remained at historically low levels for another 5 years, MetLife's earnings will continue to grow, the impact in our balance sheet would be modest, no stat reserve strengthening will be required and most importantly , we will continue to generate excess capital. We also possess a number of tools that management can and would use to respond to protracted low rates. To conclude on Slide 29, I believe MetLife is less of a play on a 10-year treasury and more of a play on the growing middle class around the world, which is eagerly seeking financial protection and retirement security. It is our diversification that will provide us with strong and growing earnings. Even under a scenario of prolonged low interest rates, the U.S. business would hold steady while the International business would provide continued earnings growth. This is yet another testament to our commitment to managing MetLife for the long term. We saw the financial downturn coming long before others and took a number of steps that might have seemed overly cautious at the time. Now with our recent acquisition of Alico and the actions we have taken in our U.S. business, we are well positioned to weather a prolonged period of low interest rates. If rates returned to more normal levels, the amount of value we create for our shareholders will only accelerate. With that, I will turn the call back to John McCallion.

Thanks, Steve, and again, we'd like to apologize for the technical difficulties we had. This will be available for replay. Again, the dial-in number is the same as was in the press release at (320) 365-3844. And obviously, we in Investor Relations will be available for your questions as well. We're going to extend the call for 10 minutes for Q&A. I understand we're backing up against some other calls here, but for those that can stay on, we'll make ourselves available for another 10 minutes. So let me turn it back over to Greg for questions.

[Operator Instructions] Your first question comes from the line of John Nadel from Sterne Agee. John M. Nadel - Sterne Agee & Leach Inc., Research Division: I have one going back to the third quarter and then one for this one, if I could. When you guys characterized excess capital, in the prior call, you mentioned $3 billion at the holding company at year end after you paid the common dividend and the $750 million debt maturity. And I believe that was above your $1 billion consistent cushion. My question for you is this, hypothetically speaking, if you weren't a bank holding company and subject to the stress testing, is it your view that the entire $3 billion is fully deployable?

Yes. John M. Nadel - Sterne Agee & Leach Inc., Research Division: And then the last question I have for you is just -- is there a certain type of insurance business that if you were looking at it, let's say, from an M&A perspective, in this type of 5-year 2%, 10-year treasury yield type of environment that you would be extremely concerned about its ability to pass the statutory cash flow testing, or New York 7 test? And if so, which types of business would sort of be on the top of your list of concerns?

No. I'm not going to go there. No. You got your job, John. John M. Nadel - Sterne Agee & Leach Inc., Research Division: All right. If I could just follow up then with a different one. The pension cost, the incremental $50 million over the next several years, that surprised me as low. I guess the question for you is why?

You're right. It is low. But remember that's the 2016 number. It actually -- it's interesting, the impact is later in the 2016 time frame as assumptions get modified and smoothed. It's a bigger impact in the early years and that's factored into that $0.21. John M. Nadel - Sterne Agee & Leach Inc., Research Division: Okay. Understood. So that's just the incremental $50 million from 2015 to 2016?

No. Actually it's from now until then. But it starts -- if it's a $50 million impact then, it's a bigger number now and then as the impact gets smoothed over time. But in the $0.21 number for 2012, we include the full '12 impact of the pension.

Your next question comes from the line of Thomas Gallagher from Credit Suisse. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Yes, I just had a quick one from the earlier call as well, then an interest rate one. I just want to confirm, I know for 2012 you're going to need Fed approval for your capital management. Assuming the bank sale goes through, I just want to confirm that your understanding is you will no longer need Fed approval post the sale of that bank in terms of capital management?

Tom, that's correct. If the bank gets sold and we're no longer a bank holding company. The Fed would not be approving our capital management. Obviously, it's a little time before we get that bank sold, we're doing everything we can to move that along as fast as possible, but there are number of regulatory approvals that are necessary to go through. So I can't tell you exactly the timing is going to be. We're hoping by the end of the second quarter of 2012, that we'd no longer be a bank holding company. Tom, I should probably add that we're going to resubmit here in January and are looking forward to hearing back from the Fed sometime before the end of March. So you can figure out that timing in terms of bank holding company. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Got it. So your timing back from the SCAP [ph] would be potentially March. The potential close of the sale of the bank end of 2Q. So for the 2012 plan, it sounds like it would be Fed approval, but then beyond that, the hope would be no longer, assuming the sale of the bank goes through. Is that the right way to think about it?

Yes. So most likely, we'll be receiving a response from the Fed before we're no longer a bank holding company. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Got it. That's what I thought. And then on the interest rate side, on Slide 15, when you get into the $540 million of spread compression by product, are you allocating any hedge offsets? And can you just give us an idea on how you're allocating the hedge gains as a partial offset? Is it done pro rata or -- that's my first question on interest rates.

Yes. The hedging offsets, and that was in my remarks, are in these numbers. And it's not pro rata or anything like that. The derivative, the specific derivatives contracts, which are both swaps and floors as well as swaptions are allocated to different portfolio and of course, it's the match the risk and the liability shape and things like that. So that's how it's allocated. Thomas G. Gallagher - Crédit Suisse AG, Research Division: And Bill, what's the aggregate hedge gain in 2016 again that are -- these are net numbers obviously, but what is the absolute hedge gain that's being assumed here for 2016?

I think the way to look at that is look at the chart. Let's just go to that page quickly. Whatever it is, got to dig down there. I think it's on Page 23. And you can kind of see that. If you assume the orange line, which is the middle, in 2016 you can see that the numbers crudely $600 million pretax derivative income from all these contracts. Thomas G. Gallagher - Crédit Suisse AG, Research Division: That's pretax and these are after-tax numbers, that $540 million?

That's right. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Okay. Got it. And then the last question I had is, when you do this interest rate assumption, are you assuming any level of sort of stressed prepayment activity from your portfolio, meaning some convexity prepays on mortgage backs or bond calls or are you not making much of an assumption there?

It's Steve Goulart. Yes we are. I mean, again, we're reflecting how we think the investment portfolio would performed given this [Audio Gap] [Technical Difficulty] Thomas G. Gallagher - Crédit Suisse AG, Research Division: Mortgage-backed prepays?

Tom, it's John. We'll address the that off-line. We're going to have to just keep moving here.

Next question comes from the line of Suneet Kamath from Sanford Bernstein. Suneet Kamath - Sanford C. Bernstein & Co., LLC., Research Division: I'm going to stick with the pattern of one earnings call and then one interest rate question. On the capital issue, and I hear what you're saying about applying for approval and all that, but let's just assume that for whatever reason regulatory-wise or political-wise, you don't get to redeploy the capital that you'd like to. My question is what is Plan B? Because you're going to be building a ton of capital. You mentioned the dividends coming out of the international subs in January, so you're going to be sitting on a lot of this capital. So what is Plan B? What are the alternatives in terms of what you can do with that? And then I'll have an interest rate question?

Let me start by saying our expectation is our plan will be approved next year. So that's our starting point. So you're saying what if it's not approved? We will continue generating excess capital. We will look for ways to deploy it. We hope to no longer be a bank holding company by midyear. So we will -- things will unfold on that basis. Suneet Kamath - Sanford C. Bernstein & Co., LLC., Research Division: So just as a follow-up, I mean if you wanted to do something with that capital in terms of M&A or what have you, would you need approval for that as well or is it just the capital return to shareholders?

We'll look at M&A in the normal course. Obviously, we look at it in the context of how accretive is it compared to a share buyback. Right now, as you know, we can't do the share buyback, but our assumption is, we will be able to do share buybacks in the first part of next year. So we will continue looking at M&A opportunities. We inform the Fed about our activities, but we don't seek approval from them. Suneet Kamath - Sanford C. Bernstein & Co., LLC., Research Division: Okay. Terrific. And then just on the interest rate presentation. Thanks, by the way, that's very helpful. But you mentioned those stat reserve impact or the GAAP impact is pretty small in terms of reserves 5 years out, but -- not this is likely, but what happens if we extend the time frame beyond 2016. I guess at what point does it become a bigger problem in terms of stat reserves or GAAP reserves? Is there a cliff some time beyond 2016 or how should we think about that?

No. There's no cliff. Remember, the way stat works, we're actually projecting the cash flows to the life of the liability and then present valuing it back. So we're not thinking that somehow magically in, like 2017 that answer will change. And the GAAP analysis works the same way. So there wouldn't be a cliff kind of impact there. Suneet Kamath - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then quick question for Steve Goulart. In your plan what is the new money rate assumption that you're using in this 5-year outlook?

Based on -- essentially what we're seeing currently which is just under 4%.

And your final question today comes from the line of Nigel Dally from Morgan Stanley.

So in the investment portfolio, can you provide some details as to how you're changing your asset mix given the current environment? I'm guessing traditional corporate looks somewhat less attractive there. What are the key areas that you're looking at increasing your allocation of your investments? And perhaps you can also provide some details internationally as to how you're broadening your asset mix there as well?

Nigel, it's Steve. Some of this is -- also what I commented on in the low rate scenario, too. What we're seeing today is really still great opportunities in private asset originations and commercial mortgages and agricultural mortgages. So we have been over the course of the year, increasing our allocations of those sectors. And as we look forward to next year, we're likely to see that relationship continue. At the same time we continue to check from a relative value basis how it compares versus other opportunities and traditional corporate bonds and the like. But we really like what we see in private assets.

Well, thank you, everyone. Again, we will post the replay information on our Investor Relations portion of the website. And that's going to end the call. Thanks for joining.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive TeleConference Service. You may now disconnect.