Ladies and gentlemen, thank you for standing by. Welcome to the MetLife’s Fourth Quarter 2018 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. Before we get started, I refer you to the cautionary note on the forward-looking statement in yesterday's earnings release. With that, I will turn the call over to John Hall, Head of Investor Relations.

Thank you, Operator. Good morning, everyone, and welcome to MetLife’s fourth quarter 2018 earnings call. Before starting, I refer you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements, which you should review. Now joining me this morning on the call are Steve Kandarian, Chairman, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also here with us today to participate in discussions are other members of senior management. Last night, we released an expanded set of supplemental slides. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks, if you wish to follow along. The contents of the slides begins following the romanette pages that feature a number of GAAP reconciliations. After prepared remarks, we will have a Q&A session. But given the busy earnings call schedule this morning, we'll extend no longer than the top of the hour. So in fairness to all participants, please limit yourself to one question and one follow-up. With that, I will turn the call over to Steve.

Thank you, John, and good morning, everyone. Last night, we reported fourth quarter earnings to close on a very strong 2018. Quarterly adjusted earnings totaled $1.3 billion or $1.35 per share, up from $0.64 per share a year ago. Adjusted earnings benefited from a tax settlement that more than offset weaker capital markets, weaker underwriting and refinement to the estimated impact of U.S. tax reform. Net income was $2 billion or $2.04 per share, down from $2.14 per share a year ago. Falling interest rates, falling equity markets and the strengthening dollar drove substantial gains in the derivatives we hold to protect our balance sheet. These gains reversed much of the non-economic derivative losses incurred earlier in the year. For the full year 2018, MetLife generated adjusted earnings of $5.5 billion or $5.39 per share, an increase of 37%. Net income for the year was $5 billion or $4.91 per share. Overall, 2018 was an excellent year, driven by solid underwriting, good volume growth, disciplined expense management and tax reform. These positive fundamentals were enhanced by the impact of significant and consistent capital management. Reflecting the strong full year results, adjusted return on equity in 2018 was 12. 6%. Turning to total company investments. Our investment portfolio continues to benefit from higher investment rates. Our new money rate rose from 3.23% a year ago to 4.24% in the fourth quarter. Our average roll-off rate in the quarter was 4.4%. In absolute terms, recurring investment income was up 6.5% compared to a year ago as higher asset balances and rates combined to offset the roll-off of higher-yielding securities. Variable investment income of $237 million came in above the midpoint of our quarterly guidance range and was aided by another strong quarter of private equity returns. For the full year, VII totaled…

Thank you Steve and good morning. I will begin by discussing the 4Q 2018 supplemental slides that we released last evening along with our earnings release and quarterly financial supplement. These slides cover our fourth quarter and full year 2018 financial results. Starting on page four. The schedule provides a comparison of net income and adjusted earnings in the fourth quarter and full year 2018. In the quarter, net income was $2 billion, or roughly $700 million higher than the adjusted earnings of $1.3 billion. The primary driver for the variance was net derivative gains due to significant market movements during the fourth quarter. Lower interest rates, equity market weakness and the strength of the U.S. dollar combined to drive the net derivative gains. For the full year 2018, net income was $5 billion, which was roughly $500 million less than adjusted earnings of $5.5 billion. Overall, the results in the investment portfolio and hedging program continue to perform as expected. We had three notable items in the quarter as shown on page five and highlighted in our earnings release and quarterly financial supplement. First, favorable tax items increased adjusted earnings by $247 million after tax or $0.25 per share. The largest component of this benefit was the result of an IRS audit settlement related to the tax treatment of a wholly-owned U.K. investment subsidiary of Metropolitan Life Insurance Company. As some of you may recall, MetLife established a reserve in the third quarter of 2015 related to this matter. Second, expenses related to our unit cost initiative decreased adjusted earnings by $100 million after tax or $0.10 per share, which is the highest UCI expenses of the year. Third, litigation reserves and settlement costs were $60 million after tax or $0.06 per share. This includes separate fines, totaling approximately…

Thank you. [Operator Instructions] Your first question comes from the line of Andrew Kligerman from Credit Suisse. Please go ahead. Q – Andrew Kligerman: Hey, good morning. Question around mortality. It looks like it was -- and you called that out in the press release as well. It looks like Group, Asia, EMEA, MetLife Holdings all had somewhat elevated mortality. So, I just wanted to get a sense. Is this kind of a blip? Could it reverse the next quarter? How do you see the outlook?

Good morning, Andrew. It's John. Let me take it from the top. I might ask Michel to jump in a little bit too on the group side. But I think in general what you said is true. I would consider this just normal volatility. I think the important thing to point out if you go back to our full year benefit ratios we're generally in line with our targets. So I would tend to agree with your -- I guess, your statement that this is just a normal volatility. It's generally severity in a lot of places. We did have a reserve refinement in Asia. I think the one place; we did see some higher utilization in dental. And maybe I'll just have Michel comment on that. So we'll monitor that. But I think otherwise the other mortality or unfavorable mortality is generally just considered a blip.

Yes, hi Andrew. It's Michel. So, on the dental front, we did see higher utilization in Q4. As a reminder, we had a very strong first quarter. Typically, the fourth quarter, we see lower utilization. A lot of insureds reached their limit so that drives the overall utilization. As I said, we had low utilization in the first quarter. We've analyzed this; we see no particular trends in any block area or service. And some of the Q4 results are also due to prior quarter development as well. So, trailing from Q3. So, we're keeping a close eye, but nothing to suggest that this is the beginning of a trend.

Got it. And then just on the pension risk trends. You mentioned earlier John that the pipeline still looks very good. But it was quiet in the fourth quarter. Is it getting too competitive? Is pricing under any pressure here? Or do you feel good about the returns going forward?

Yes, Andrew, Michel again. So, it is a competitive marketplace, but we see a good pipeline based on discussions that we're having with intermediaries and plan sponsors. We feel confident in our ability to continue to win our fair share of deals while sticking to our discipline in terms of how we evaluate and assess those opportunities going forward. So, we're still bullish and confident in terms of the PRT opportunity going forward.

Double-digit returns are still viable?

Well, certainly we're sticking to our discipline in terms of the returns that we look for on those deals. And again, as a reminder, we had a record year in 2017 and we more than doubled 2017 and 2018. So, another record year there as well. So, yes, we're still sort of optimistic about the market opportunity there.

Excellent. Thanks.

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

Good morning. Steve just a follow-up on your point on de-risking. As you think about how you leave Met position here, I think the perception is the only real remaining tail risk might be long-term care. And when you think about this risk going forward, while Met's block has performed pretty much better than everyone else in the industry so far, is there a risk that every block is underwater and eventually Met will -- it will catch-up to Met? Or do you have reason to believe that Met's long-term care block is going to be fine over the next several years?

Hi Tom. We feel good about our long-term care block. And we talked about this; I think it was the last earnings call, gave you a fair amount of detail on it. We are getting rate relief in many states. We continued those efforts. As you know as most of this business is written on MOIC, that's under New York regulations which we had very strong capital rules and reserving requirements. So, we feel our book is in a good position. And we stopped writing this business back in 2010, as I mentioned. But obviously we still have a block of business on our books. And we still get premiums in for those policies that have been out there for quite some time. But we have looked at it very, very carefully. We've done a lot of work on it and we feel that it's in a good place.

Got you. And then my follow-up is just on the Holdco liquidity and capital management. So looks like you're toward the low end of your Holdco liquidity target of $3 billion to $4 billion now. My question is, how much above the 360% RBC target are you in terms of stat surplus? And when you think about what your excess capital position is now, or maybe you don't have much of that excess capital, is there a thought for 2019 that you might want to build a bigger buffer? Or do you think you'll be able to use all of your free cash flow for 2019 for shareholder return purposes?

Good morning, Tom. This is John. Let me take it from the Holdco and I'll touch on the RBC at the end. So first, let me just start to just help reconcile and maybe roll through – roll forward our cash from over the course of the quarter. I think it's important to recognize that we had 1.2 billion of share repurchase in the quarter. And I think you may realize that we had an additional 500 million post the outlook call. And I take that as a decision to accelerate some of what otherwise would've been repurchased in 2019. And we did so at an average price of $39.46. So, yes, we view that as good use of excess cash at that time given the work market weakness. And so we'll be mindful of that as we see how markets trend. I think the second thing to keep in mind in the quarter; we did complete our net liability management actions in the quarter. And just remind you, we said during 2018 that we would compete $1 billion to $2 billion of net liability management during 2018. We ended up at about $1.5 billion, which we completed in the fourth quarter. Roughly $400 million or $500 million of debt repurchases. And then I attribute the remaining portion to just lumpiness and any one quarter of intercompany cash flows and tax sharing payments. So then turning to the buffer. So we're at the low end of the range today. This process of setting the buffer, we use some severe and very severe liquidity stress tests. We look at the related calls on holding company cash and capital and then we set the buffer accordingly. And so we did so a number of years -- I guess, it was two years ago or so. We set the $3 billion to $4 billion range. And it's a range for a reason. So we take into account our outlook. And one of the things these liability management actions did is it helped reduce some of the complexity or the calls on cash at the holding company. We've historically run at about $1 billion of maturities every year in debt, debt maturities. And a lot of that liability management actions has helped push out some of those maturities. So just to give you a sense of that, we have no debt maturities in 2019. We have like $400 million to $500 million each year from 2020 to 2022. So our debt maturity towers are much different today. And as a result the holding company, under a stress, can be – can think about that.

Right.

So it's just, we've kind of continued to reduce their risk, I'd say, at the Holdco. And therefore, I would expect us to manage to the lower end of that range in the near term. Moving to RBC. We did lower our RBC target as a result of the tax reform by 40 points. Remember it did not have any impact on our adjusted -- total adjusted capital. This was just merely impact to the formula for required capital. It doesn't change anything in terms of our available resources or anything like that. So we adjusted it down by the 40 points from 400 to 360. Today our best estimate that would be that we're above 380 at the end of the year.

Got you. That’s helpful. Thanks. John.

Your next question comes from the line of Ryan Krueger from KBW. Please go ahead.

Hi, thanks. Good morning. In Asia, the earnings this quarter were about $50 million lower than the full year quarterly average ex-notable items. I think John you mentioned reserve item. But I'm just curious if there's anything in the quarter you view as ongoing? Or if it was just a weaker quarter in terms of underwriting? And some of the other things you mentioned on capital markets and reserve true ups?

Ryan this is Kishore. For the full year 2018, if you exclude notables, the Asia segments reported adjusted earnings is up 8%. That certainly exceeds the outlook we provided for the year. In terms of this quarter there were four factors that put pressure on our earnings. One was unfavorable underwriting. And John spoke to the reserve refinement. That's about $20 million. There were two one-timers; one in the Japan segment, the other one was in the Other Asia segment. So that's first one. Then the second one is VII. Although VII was up for MetLife as a whole it was lower for the Asia segment by about $13 million. The third factor is the U.S. dollar strengthened in the fourth quarter against the Korean Won and the Aussie Dollar that -- about one point there. Finally, we had significant pressure on the equity markets in both Japan and Korea. Topics was down 18%, cost fee was down 13%. So this led to some reserve increases in some of various products. Just to give you a little bit of context around this, right? These reserves represent 2% of our total reserves. So that's point number one. And then point number two is in Korea, which represents a bulk of this impact, we are hedged on a statutory basis. So given all this and looking at 2019, I'm quite comfortable reaffirming our earnings outlook guidance. Thank you.

Great. Thanks a lot. That was helpful. And then on the weaker VII in 1Q 2019 from lack of private equity returns, can you give us any quantification of that?

Ryan its Steve Goulart. Well, as Steve Kandarian said in his prepared remarks, we do expect the weaker first quarter; remember that's a lag in private equity. We've gone back and relooked at it. We looked at our outlook. What we've done, we have lowered our expected yield but it's still low-double digits as we said at the outlook call. And most important I think is we're still confident that our VII will come within the range that we gave at the outlook call off $800 million to $1 billion. Undoubtedly we'll be weaker. Private equity will be weaker in the first quarter reflecting the fourth quarter markets, but we're confident overall still.

Okay. Thank you.

Your next question comes from the line of Jimmy Bhullar from JPMorgan. Please go ahead. Jimmy Bhullar, your line is open. Check your mute button.

Yes, hi. So I had a couple of questions. First on just as you mentioned new money yields going up throughout last year. And if you can talk about where your new money yield sit right now versus the rates that rates on the bonds that are holding off just to get an idea on if you're close to a point where you think spread compression will begin to abate in the business?

Well, if you look at the trend, the trend continues to be positive. And I think we've had four quarters in a row of rising new money yield. But remember what happened in -- sort of, late in the fourth quarter to rates have fallen again. Where we would stand though is we're still confident that as rates continue to rise, we're going to be approaching that breakeven threshold. But for now, we're still looking at kind of 25 to 100 basis point for each quarter just given the volatility in some of the runoff assets. But we're getting closer, we're not there yet.

Okay. And then on the international business, you've had sort of few dispositions recently with the Mexico Afore and the U.K. Wealth Management business. As you're looking at your international franchise overall, are there other pieces that you're looking to sort off deemphasize or are you comfortable with -- or is most of the restructuring effort already done?

Jimmy, we can't say we can look at our overall portfolio businesses in terms of where were going to put more capital and where we're going to put less capital. And even in some cases as you've mentioned selloff or disinvest in those areas. So, that's an ongoing process. But if there's anything there that we come to conclude on, we'll certainly let you know.

Okay. And then just lastly if I could ask on the MetLife Holding segment, the fact that a lot of the business is in New York, I think makes it difficult to sort of transact either insurer or sell it. Has anything changed the way you think that there's an opportunity for you to offload that exposure?

We are careful with that business, and its cash flow characteristics, but we always look at opportunities to create value for the shareholders. So, it's an area that we have spent a great deal of time looking at in the past and we continue to do so and we'll continue to do so going forward. If we find a way to transact in that area that's beneficial to our shareholders, we certainly will get give that full consideration.

Thanks.

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

Hi, thank you. I know you've touched on this part of the couple of the outlook pieces already. But I guess broader question. Is there anything on the 4Q results that changes your view on the 2019 outlook for any of the businesses? Or do you view all of the fluctuations this quarter as things that we would fall within your range of normal expectations?

Erik its John. Yes, that's correct. We would view this as this quarter -- this quarter does not impact our outlook for 2019. I think the only place I would just refer back to what Steve Goulart said is maybe there are some pressure on returns, but we think return for the year is still within our outlook range.

Got it. Thank you. And then can you comment on the competitive dynamics in the group business and how they're affecting sales in persistency trends? Maybe how was your experience around the year on renewals?

Sure. Erik, its Michel. So, it's a competitive marketplace I would say, in particular, in the dental space. But we are -- I would say, we are winning our fair share of business. I think 1/1/19 sales and renewals are in line with expectations. And we continue to see excellent momentum in our voluntary business as well. And that's really making up for some of the weakness that we see on the dental front, where we are really continuing to hold our ground in terms of discipline on pricing. But overall, I would say, sales and persistency are in line with expectations.

Thank you.

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

Good morning. Thanks for taking my questions. Maybe just a broader question, John. Capital markets impacts sort of broadly speaking in the fourth quarter. Do you have any estimate on what markets -- I mean, I know it was mentioned that Japan, Korea, obviously the U.S., etcetera. Can you just give us a sense for what kind of impact that had on your earnings in the fourth quarter? And how should we think about the 1Q balances that sort of go into your point of recovery?

Good morning, John. Yeah. As you said, there's been quite a bit of recovery already in the first quarter. I think we’re close to 9% year-to-date, something like that. And only 1 point off of where the S&P was at outlook call, I believe is correct. In terms of the – in the fourth quarter I would estimate the impact to be around $0.06. About half in the U.S. and half outside. So I don't know if that helps frame the fourth quarter. And then as you said, I think – but I don't see that impact continuing as our view right now, particularly given the recovery that we've seen so far. The only place that we would -- as Steve Goulart highlighted, there'll be some pressure in the first quarter that we think will – that we will recover and get to a return that keeps us within the range for the full year for PAI.

Okay. And then, maybe a little bit premature, but I guess a question for, Michel. As you're taking over the reigns, what are your priorities? And how should investors be thinking about those priorities? I know, Steve has characterized and thanked investors for some patience, given the transformation and some de-risking. How are you going to reward that patience as you think about priorities over the next one to two years?

Yeah. Thanks, John. So, first of all, let me say that I'm excited for the opportunity to lead MetLife. And continue degrade value for our customers and shareholders alike. Let me tell you what will not change under my watch and that's my commitment to MetLife's core goals of capital efficiency, strong risk adjusted returns and profitable growth. Like Steve, I believe that excess capital above and beyond what is required to fund organic growth belongs to our shareholders and should be used for share repurchase, common dividends, or if and when it makes sense, strategic acquisitions that clear our risk-adjusted hurdle rate. I believe that, as Steve said, MetLife is at an inflection point. And while much has been accomplished in de-risking our business, we still have work to do to accelerate revenue growth further optimize our business and product portfolios and strengthen expense discipline. Obviously, I'm now in a transition phase, so I look forward to share more post May 1st.

Appreciate that. Thanks so much.

Your next question comes from the line of Elyse Greenspan from Wells Fargo. Please go ahead. Elyse Greenspan, your line is open. Check your mute button. Okay, we'll move on. Your next question comes from the line of Alex Scott from Goldman Sachs. Please go ahead.

Hi, good morning. First question I had was just on, when I think about the sales growth in Asia and the FX annuities you saw, could you talk a little bit about like what makes that product different from your decision to exit the retail annuities business in the U.S? I mean, clearly it's a different type of product, different regulatory regime, different geography. But I guess any color you can provide that would kind of give us more comfort that that product will ultimately have much better economics than the outcome when you are ramping up on sales of annuities in the U.S.?

Alex I know you were at the Asia Investor Day, and we went into this in fair amount of depth. And certainly these products from a risk-adjusted return perspective are very attractive. And then we talked about the compelling value proposition, not just from a customer perspective from a MetLife perspective as well, because much of these products go through the bank channel and a lot of them are single premium, a vast majority of our sales are actually single premium. And we take advantage of our strength, which is our investment in the U.S. dollar portfolio. We leverage that combined with our distribution power. That's driven been pretty much our success. And if you look at the category as a whole that's been growing and our share has been growing because we have a very strong value proposition. I talked about the market value adjustment feature, also talked about the constant repricing that we look at it pretty much on a biweekly basis. So this is a very actively managed portfolio. And we're very happy with that.

Okay. That's helpful. And then my follow-up just on the U.S. group business. Can you give us an update on year-end renewals? Any insight on competition pricing et cetera?

As I mentioned earlier, very much in line with expectations. We're getting the renewal action that we are seeking in the market and persistency is in line with expectations. So it is a competitive market. And our pricing reflects that. But again nothing to point out in terms of deviation from what we expected or what we discussed on the outlook call.

Thanks.

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

Good morning and thank you for taking my question. Just a follow-up on Asia sales on different directions. In Other Asia you talked about the regulatory changes in Korea hurting your sales in that segment. But I assume you have -- your sales in China is probably better. So I was wondering if you can provide some color in terms of how much the challenges in Korea hurt your Other Asia sales and then also the other components of the other countries in the region in terms of your sales prospects?

Sure. Again if you take Asia segment as a whole, we've really done well, 11% year-on-year growth for Asia segment. Now, if you take the fourth quarter, Japan obviously, delivered a stellar performance, 19% year-on-year for the fourth quarter, 13% down on the Other Asia segment leading to a 5% overall growth that John mentioned where pretty much from all of it comes from the Korea shortfall. Certainly, we've got some smaller markets, but they are certainly growing healthy. No issues on China, China has, I think, posted strong growth as well. And the challenge with Korea is that one of our products which is our lead product has been impacted by the regulatory change on commissions where we're working very hard on repricing it and reintroducing it to the marketplace with additional marketing efforts. So, for looking forward to next year -- for this year, I think we'll be fine. I just wanted to reaffirm the outlook guidance of mid-single-digit growth for 2019.

Thank you. And then shifting gear to Group Benefits, in the prepared remarks I think you talked about dental was a little bit unfavorable in the quarter. I guess that's a little bit surprising given the seasonality pan of that particular product line. I was just wondering if you can elaborate a little more in terms of what you saw in the fourth quarter.

Yes. Sure Humphrey. So, as you said typically the fourth quarter, we see favorable utilization in dental because a lot of the insurers reached their maximum limits, which lowers utilization. However, this year, we had a very low first quarter, which typically tends to be high -- I mean 2018. So, that might have impacted the fourth quarter results. As I said, we've analyzed this; we see no issues with any particular block, service, or area here. So, this would indicate that this is not a beginning of trend, but we're obviously keeping a close eye on the situation.

Thank you.

And your final question today comes from the line of John Barnidge from Sandler O'Neill. Please go ahead.

Your Property & Casualty business has meaningfully improved the underwriting. How much rate are you currently pushing on auto and also on home?

Yes, hi John. We think that the industry as a whole has taken about 2% to 3% on auto over the last 12 months. We've taken slightly higher rate action than that. Going forward, we think that we're going to be more in line with industry. And I would say the same on homeowners. We think we're going to be in line with industry going forward.

If you've been pushing more rate than industry previously and now you're going back to industry levels. Does that apply possibly greater share you're going to take or planning you're going to take?

Well, we've -- in our outlook call, we provided -- we increased our outlook for PFO growth in 2019 to 2% to 4% and we think that's going to grow further to -- between 5% and -- over 5% in 2020 and beyond. We're also making important investments in our P&C business. We are re-platforming that business which -- and we are rolling that out in 2019 and 2020. So we think that that's going to give us also some competitive advantages in the market which will help our top line growth going forward.

Great. Thank you for the answers.

Thank you very much. That's our last question. We look forward to speaking with everyone throughout the quarter. Bye-bye.

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