Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Second Quarter 2017 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 in 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, including in the risk factors section of those filings. 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 Hall, Head of Investor Relations.

Thank you, Greg. Good morning, everyone and welcome to MetLife’s second quarter 2017 earnings call. On this call, 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 and related definitions to the most directly comparable GAAP measures may be found on the Investor Relations portion of metlife.com, in our earnings release and on our quarterly financial supplement. A reconciliation of forward-looking financial information to the most directly comparable GAAP measure is not accessible because MetLife believes it is not possible to provide a reliable forecast of net investment and net derivative gains and losses, which can fluctuate from period to period and may have a significant impact on GAAP net income. Now, joining me this morning on the call are Steve Kandarian, Chairman, President and Chief Executive Officer; and John Hele, Chief Financial Officer. Also here with us today to participate in the discussion are other members of senior management. After prepared remarks, we will have a Q&A session. In fairness to all, please limit yourself to one question and one follow-up. With that, I’d like to turn the call over to Steve.

Thank you, John, and good morning, everyone. Last night, we reported second quarter operating earnings per share of $1.30, up from $0.83 per share a year ago. Overall, it was a good quarter across most business segments, aided by favorable expense management and underwriting. Equity markets which rose 2.6% in the quarter, as measured by the S&P 500, provided modest boost to earnings, while low interest rates remain a headwind. Operating return on equity in the quarter was 10.3%. Adjusting for notable items, operating earnings were $1.34 per share, which compares to $1.27 per share on the same basis in the prior year period. Net notable items of $0.04 per share in the quarter included costs incurred to consolidate our New York offices at 200 Park Avenue, investments to achieve our target of $800 million and after tax run rate savings by 2020, and branding efforts to support the launch of Brighthouse Financial as a standalone company. These costs were offset in part by a favorable settlement of a tax audit and a reinsurance reserve release. Net income for the quarter was $838 million, substantially higher than a year ago. Current period net income was negatively affected by net derivative losses and cost associated with the Brighthouse separation. Before I provide key business highlights for the quarter, I’d like to provide an update on the Brighthouse Financial separation, which is almost complete. All necessary approvals have been secured and Brighthouse Financial shares have been trading on a when-issued basis for the past three weeks. Last night, MetLife filed an 8-K, disclosing that Brighthouse Financial will need to increase its reserves by approximately $400 million due to refinements in legacy actuarial models. As a result, the size of the dividend MetLife expects to receive from Brighthouse Financial will be reduced from…

Thank you, Steve, and good morning. Today, I’ll cover our second quarter results including a discussion of our insurance underwriting margins, investment spreads, expenses and business highlights. I will then conclude with some comments on potential impacts on separation as well as cash and capital. In addition to our earnings release and quarterly financial supplement, last night, we released disclosure labeled 2Q17 Supplemental Slides that provide a walk from net income to operating earnings for the quarter. I will speak to these slides later in my presentation. We will continue to release supplemental slides when we have complex elements in a quarter. Operating earnings in the second quarter were $1.4 billion or a $1.30 per share. This quarter includes four notable items totaling the negative $41 million that we highlighted in our news release and quarterly financial supplement. Adjusted for all notable items in both periods, operating earnings were up 3% year-over-year. On a per share basis, operating earnings adjusted for all notable items were $1.34, up 6% year-over-year. Turning to our bottom-line results. We had second quarter net income of $838 million or $0.77 per share. Net income was $569 million lower than operating earnings, primarily because of net derivative losses of $284 million after tax and costs related to the Brighthouse Financial separation of $216 million after tax. For more details about the difference between net income and operating earnings, please refer to page three in our supplemental slide disclosure this quarter. Page four in the supplemental slides shows the attribution of the after tax net derivative loss. I would highlight three main drivers. Number one, foreign currency derivative loss of $188 million after tax, primarily due to the weakening of the U.S. dollar against several currencies including the euro, the British pound and the Canadian dollar. MetLife…

Thank you. [Operator Instructions] Your first question comes from the line of Sean Dargan from Wells Fargo. Please go ahead.

Yes. Thank you and good morning. I have a question about the corporate segment. Results have been more favorable than I think were in most models, in the first and second quarters. How should we think about the timing of the expense initiatives? And just wondering if you can give any guidance for how corporate is going to play out the rest of the year?

Hi, this is John. So, corporate does have volatility in tax from quarter to quarter. We assume it’s [ph] onetime tax settlements that would be reflected in there that’s why it’s a bit lower this quarter, as well as timing. And as I said in my comments, issues of tax rate for the full year between 21% and 22%, I think that will be a model on track.

And then, a question about the competitive environment in group. We’ve seen at least four to five carriers, all have very favorable risk results. Is this as good as it’s going to get and is this the point where competitive pressures lead to some carriers starting cutting pressing?

Hi, Sean. This is Michel. So, we’re seeing -- the environment is competitive and life and disability, it’s aggressive on the dental font. We remain disciplined in terms of our approach. And as you can see from our sales in the first half of the year, we have good growth across all segments.

Your next question comes from the line of Tom Gallagher from Evercore ISI. Please go ahead.

John, the final adjustments that you highlight that are coming for the Brighthouse spend, can you just go through those again? Will all those hit GAAP net income, be [ph] OCI adjustments instead, and how many of those will actually have an impact on capital at RemainCo or will they largely be non-cash?

So, these generally all flow through net income. And most adjustments I’ve spoken about are non-cash items.

And could you total those up again, I had trouble keeping track of those?

Yes. Let me just flip to my page. So, as we announced in the 8-K, we expect $1.8 billion, which will come in today in cash from Brighthouse to MetLife holding companies. It brings the total to $3 billion, 3.0; of the remaining 1.2, 295 we got in fourth quarter 2016...

No. John, sorry to interrupt you. I meant the charges that are coming in 3Q, not the cash payments.

Okay. So, we first -- the first charge will be in the third quarter, will be reflecting the mark-to-market on our remaining shareholding in Brighthouse Financial. So, to give you a reference point of that that will get marked at the end of the quarter; it flow through net income. If Brighthouse closed at $70 a share, that’d be $120 million post-tax, and delta $5 difference in that number would be about $75 million delta.

Okay.

If -- there will be another $800 million of losses post-tax, these are intercompany transaction and tax related items. The vast majority of those would be non-current cash impact, some are accounting adjustments. And the tax charges were not in the current taxpaying position. So, they would not be for the foreseeable future for at least the next five years impacting our cash position. I also mentioned that we anticipate an operating tax charge, approximately $200 million related to the repatriation of cash, as a result of separation, partially offset by tax benefit associated with dividends from our foreign operations. As part of the separation, we are bringing back -- we anticipate to bring back approximately $3 billion of foreign cash, so that generates the tax charge, but we’ll get $3 billion cash back from the foreign holding companies to the U.S. and that’s -- and we can do that in this quarter, related to the separation. We’re still evaluating and considering this point, but we wanted to give you a heads up on that. This will not change our [indiscernible] 23 election going forward.

And then, Steve, just for a point of clarification, did you start up by saying you’re targeting $800 million of after tax expense saves by 2020? I thought previously you said pretax.

Pretax.

Sorry, I thought you said after tax in your prepared remarks. So, it’s still pretax?

It is.

Your next question comes from the line of Erik Bass from Autonomous Research. Please go ahead.

Hi, thank you. I was just hoping you could provide a little bit more detail on what’s driving the needs of the increased statutory reserves at Brighthouse, which block of business it relates to and why it’s coming up now?

Absolutely. So, first of all, this reserve charge that’s mentioned in the Brighthouse 8-K, it’s only statutory, there is no impact on GAAP on this and there is no impact to the rest of MetLife and all this, this is only a Brighthouse view. As you have seen by reading to the Form 10, it’s been very extensive modeling on the variable annuity business. This charge does -- this reserve increase does reflect -- it is in the variable annuity business. We have had underway, in addition to all this modeling, a very extensive internal and external model review going on. And this is the end result to close out the final items of that. And we expect this reserve adjustment for the refinements will be a prior period adjustment and will be part of the second quarter statutory filing.

Got it. And I’d assume that this changes some of the sensitivities in other tables that are outlined in the Form 10. Do you have a plan or does Brighthouse have a plan to update those?

No, this will not. Brighthouse will be in the exact same position because the smaller dividend coming up to us offsets that whole need. So, their current Form 10 is fully effective and all the numbers are fully applicable. And I want to reiterate that going forward, this dividend up from Brighthouse, none of this is in our free cash flow guidance that we’ve given between 65% to 75% between 2017 and 2018; this is all in addition to that cash flow that we have. And we expect to still be in a very strong cash position and the fact that this is lower than what we had anticipated when we first started this project over a year ago is -- doesn’t affect our current share buyback plans at all.

Got it. And maybe last question sort of related to that. You mentioned bringing back the additional cash as well from the foreign subsidiaries. I guess, how do you bring up kind of total excess capital resources at the holding company and way sort of uses between -- obviously you are committed to maintaining the dividend and some delevering, but thinking about buybacks versus M&A or other uses with that excess capital.

Well, our guidance for MetLife RemainCo is between $3 billion to $4 billion; we want to run with cash the holding companies. We’re in a very strong cash position post all of these elements and all of these elements and continue to expect to pay a very strong dividend going forward. As Steve has always said, we believe any excess over our target that we need belongs to the shareholders or will be used for valuable, accretive and good acquisitions.

Your next question comes from the line of John Nadel from Credit Suisse. Please go ahead.

I have a couple of questions. So, I have, I guess a bit of theoretical question for you, Steve or John. Why not -- as part of separation of Brighthouse, why not take them all the way to the $3 billion cushion above the CTE95 level, let them return less capital to you guys and see that stock come out of the box with the capital management story that I assume would greatly, positively affect the valuation relative to where it stands right now?

John, we work closely with our bankers in terms of trying to find the sweet spot, in terms of how much capital would be in Brighthouse, post-separation. And some of the factors included making sure that there was adequate capital for Brighthouse to operate over the long run. But, just the same as MetLife, not excess capital, that’s not needed to run the business appropriately, given the hedging strategy going forward, given the business model that they have put together with respect to new business being written and so on. So, there was a lot of discussion, a lot of analysis around where that right number would follow, and that’s what we came up with.

And then, John, I guess a question, inclusive of a few of these charges related to separation that we’ll see in the third quarter. For RemainCo, can you give us a sense for making all of these adjustments? What is your estimate of what the book value per share ex-AOCI and ex-FCTAs will be? And I’m coming up with something around $40 to $42 a share, is that reasonable?

We’ll have more details releasing that next week once the distribution is finalized and the pieces exactly are figured out. So, we’ll have some better information early next week coming out to you on that John.

And I’ve got one more if I could sneak it in. Just the $0.09 that you mentioned of year-over-year pressure from lower core investment spreads, how much of that was RemainCo versus Brighthouse and how should we think about that sensitivity for RemainCo after the separation?

It’s actually in both. I don’t have the exact split on my fingertips here. But, I’d assume it’s pretty proportional. All of our portfolios are seeing some spread compression year-after-year as the portfolio runs off. And I think it’s about half, yes, it’s about half, half and half between Brighthouse and the RemainCo in terms of the split. So, going forward, if rates don’t come up more, we will continue to see some pressure here. It’s why we’re taking cost out of the company, so that we can react to it and manage the company well going forward.

Okay. But all else equal, we can think about $0.04, maybe $0.05 a share on a year-over-year basis assuming rates don’t move?

Yes.

Your next question comes from the line of Seth Weiss from Bank of America. Please go ahead.

Yes, hi. Thank you. I just want to follow up on Corporate and may be just ask the question explicitly as it relates to guidance. Should we still assume that that $450 to $650 million loss in Corporate excluding the expense initiatives is a good guidance number for the full year? And then relatively, should we assume that $300 million of expense initiatives is also a good run rate for the full year, as you guided to in your outlook call?

So, the range, 450 to 650 was excluding the expense initiatives, Seth. And right now, we’d be toward the lower end of that range. And yes, we’re still within our UCI guidance, generally.

Okay. And on Brighthouse, could you give any detail on how much the higher expense build was in the quarter there?

Seth, let me just check on that and I can get back to you in a second.

Your next question comes from the line of Randy Binner from FBR. Please go ahead.

Good morning. Couple of quick follow-ups, first just to John Nadel’s question. What exactly will be the timing and format of the restated numbers, post-spin?

Let me answer the question that Seth had. It was a $15 million pretax, was a higher cost in the quarter from BHF. And we will have more guidance for you early next week. Once the spin is complete, we will have more information coming out for you on that.

Okay. And then, I guess just jumping to pension closeouts, this is a little bit longer term question, but the activity there was good in the second quarter. Does your attitude or positioning either strategically or from a financial perspective change, now that Brighthouse is going to be spun out? Does that give you more risk tolerance to do more in the pension closeout area?

As we’ve mentioned when we talk about pension closeouts, we think this is a good growing business, but we actually have annual capital budget. We think on how to allocate to that business, and the spin-off of Brighthouse doesn’t really affect how we think about that. So, we like the business, but we only put a certain percentage of our capital to that each and every year.

Is that something that would be subject to review or is that kind of the final capital budget there?

I think it’s pretty much where we’re. And of course, we look at it every year and we think about the opportunities and the margins available in that business versus other margins and other activities. We think we have a good balance today in how we do that business.

Your next question comes from the line of Humphrey Lee from Dowling & Partners. Please go ahead.

Good morning and thank you for taking my questions. On the third-party asset management side, you mentioned you want to grow it organically and maybe through M&A. Is there any area from a product perspective or geographic perspective that you’re interested in taking a step at potential M&A?

Hi Humphrey, it’s Steve Goulart. I think as we’ve defined the strategy that we’re pursuing in third-party asset management, it’s pretty clear, we’re drawing on our core capabilities and strength. And that really means emphasizing institutional fixed income and real estate asset classes. And so, that’s what we’ve been doing so far. We’ve grown the business very well on an organic basis, and we’ve been looking opportunistically on ways to grow through acquisitions, and that’s of course how we resulted in the acquisition of Logan Circle Partners. But again, it really is focused on fixed income assets for institutional clients and real estate. We think that’s what core strengths off for now.

So, given you’re managing sizeable [indiscernible] for yourself to beginning with. So, looking at potential acquisitions, would you be taking more of bolt-on type, because you don’t necessarily need to scale or do you guys just have a stronger appetite?

As we look at acquisitions, they really are three criteria that we look out. One is it has to meet our financial criteria, and Steve talked about that too. We’re very discipline financially. So, anything we look at, has to make sense from that perspective. Second, it goes to the strategy and I’ve outline the strategy. So, it really is in institutional fixed income and real estate. And so, when we look at those, they tend to be things that go along well with what we’re already doing, because we do want to try and achieve synergies on the revenue side, they’re usually going to be some expense synergies. But we want to be able to grow the business synergistically as well. And then third is it has to fit culturally too. And we want to integrate this business, we don’t believe that it should be run separately or businesses should be left outside of what we’re trying to do in MetLife Investment Management. So, someone that meets those criteria which I think are high bars, that’s what we’re looking for.

And your final question today comes from the line of Suneet Kamath from Citi. Please go ahead.

Just on the Brighthouse mark that you talked about for the third quarter, is that going to be a quarterly event then, as long as you own these shares?

Yes. It would be mark-to-market through net income each and every quarter as long as we own the shares. But, as Steve said, we are not trying to be long-term holders of these shares.

And then that $3 billion of cash that’s coming back to the U.S. that you talked about earlier. Was that contemplated in your free cash flow guidance for 2017 or is that incremental?

It is already for cash flow, it’s cash at the holding companies, you have a U.S. holding company and a foreign holding company. But, due to separation, we anticipate and we believe that this part could be brought back to the U.S.

And just relatively, why would the separation in U.S. business impact some cash that’s sitting outside U.S.?

It’s a total capital across the board, and the tax court does allow for such a repatriation with significant separation activities.

So, just to be clear, was that number in your holding company cash and so holding company cash I think includes U.S. HoldCo and international HoldCo? I’m just trying to figure out this is…

Yes. That is correct.

And I’d now like to turn the call back to John Hall for closing comments.

Great. Thanks everyone for joining us. And we’ll speak again next quarter. Thank you.