Ladies and gentlemen, thank you for standing by. Welcome to the MetLife First Quarter 2021 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 about forward-looking statements in yesterday's earnings release and to risk factors discussed in MetLife's SEC filings. With that, I will turn the call over to John Hall, Global Head of Investor Relations.

Thank you, Operator. Good morning, everyone. We appreciate you joining us for MetLife’s first quarter 2021 earnings call. Before we begin, 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. Michel Khalaf, President and Chief Executive Officer is on the call this morning, along with other members of senior management, who will be available to participate in the discussion. Last night, we released a set of supplemental slides, which address the quarter. They are available on our website. John McCallion is under the weather today. We are going to let him rest his voice, and I will speak to the supplemental slides following Michel's remarks. An appendix to the supplemental slides features outlook sensitivities, disclosures, GAAP reconciliations and other information, all of which you should also review. After our prepared remarks, we will have a Q&A session that will extend to the top of the hour. In fairness to all participants, please limit yourself to one question and one follow-up. With that, over to Michel.

Thank you, John, and good morning, everyone. As we reported last evening, MetLife delivered very strong financial results for the first quarter of 2021. Our diverse business mix, sound investment strategy and strong expense discipline combined to generate earnings well above consensus expectations. By the numbers, we reported first quarter 2021 adjusted earnings of $2 billion or $2.20 per share, up 39% from $1.58 a year ago. The primary driver was exceptionally strong variable investment income, or VII, partially offset by elevated COVID-19 related claims. Net income for the quarter was $290 million, down from $4.4 billion a year ago, primarily due to losses on derivatives that protect our balance sheet from declines in equity markets and interest rates. Such gains and losses are the result of GAAP accounting rules that require us to mark certain of our derivative hedges to market through net income without similar treatment for the assets and liabilities being hedged. We believe the economics and the free cash flow of our business are captured in adjusted earnings. Regarding variable investment income, the key driver of gains in the first quarter was our private equity portfolio, which delivered returns of 13.3%. Recall that private equity returns are reported on a one quarter lag. The strong performance in the fourth quarter was driven primarily by three private equity sectors: domestic leveraged buyout funds, European LBOs and venture capital. In the second half of 2020, IPOs from U.S.-based LBOs and venture capital firms more than doubled over the prior year, and the market rewarded many entrants with strong valuation. Venture capital our best performer across the three sub sectors, largely due to the markets appetite for tech companies received will volumes had a record in 2020 and the increase in digital activity, spurred by the pandemic drove attractive…

Thank you, Michel. I will start with the 1Q 2021 supplemental slides, which provide highlights of our financial performance and an update on our cash and capital positions. Starting on Page 3. We provide a comparison of net income to adjusted earnings in the first quarter. Net income in the quarter was $290 million or approximately $1.7 billion lower than adjusted earnings. This variance was primarily due to net derivative losses as a result of the significant rise in long-term interest rates as well as stronger equity markets in 1Q 2021. Our investment portfolio and our hedging program continue to perform as expected. On Page 4, you can see the year-over-year comparison of adjusted earnings by segment. There were no notable items for either period. Adjusted earnings per share benefited from exceptionally strong returns in our private equity portfolio and were up 39% and 38% on a constant currency basis. Moving to the businesses, starting with the U.S. Group Benefits, adjusted earnings were down 70% year-over-year, largely driven by unfavorable group life mortality due to elevated COVID-19 related life claims. Favorable non-medical health underwriting and volume growth were partial offsets. Overall, results for Group Benefits were mixed. Adjusted earnings were down, but underlying fundamentals, including top line growth and persistency were strong. Group Benefits sales were up 45% year-over-year, primarily due to higher jumbo case activity. We believe that we are on track to deliver a record sales year in 2021. Adjusted PFOs were $5.6 billion, up 16% year-over-year due to solid volume growth across most products, the addition of Versant Health and roughly 5 percentage points related to higher premiums from participating contracts, which can fluctuate with claims experience. I will discuss Group Benefits underwriting in more detail shortly. Retirement and Income Solutions, or RIS, adjusted earnings were up…

[Operator Instructions] Your first question comes from the line of Erik Bass from Autonomous Research. Please go ahead.

Just to start, can you go into a bit more detail on the group life claims trends this quarter and the implications of population that's skewing younger, which it sounds like could mean higher severity? Is this something we should expect to have continued impact in the second quarter?

Erik, it's Ramy here. As we've discussed in John's remarks, the group results this quarter were primarily a frequency effect. So we saw the significant increase in the total number of population deaths. And that was accompanied by a secondary effect, which is a severity effect, whereby we did see an increase in the percentage of claims under 65. And those claims, which tend to be for working employees, do have a higher face amount. So if you think about it and if you think about the outlook going forward, we're watching that composition very carefully. But I would say that the primary driver in the second quarter is still going to be the frequency, right? So as you know, with the rollout of the vaccine, the COVID related deaths in the population have been declining. If you do any comparison between, say, January average death number to April has been a significant decline. So while we still have a substantial number of deaths coming through, therefore, expect to see an elevated mortality ratio in the second quarter. We do expect the underwriting ratio to come down from its Q1 highs.

And then maybe if we could turn to Asia? I was hoping you can provide some more color on the underlying growth dynamics there, where it seems like your sales and account value growth are both trending a bit stronger than many peers. Just wondering where you're seeing the best opportunities?

Erik, this is Kishore. So we did have a pretty strong quarter in terms of sales growth, 7% sequentially and 12% compared to prior year. This is certainly a good performance, especially given the COVID environment. Even in Japan, we had several prefectures under the state of emergency there during much of Q1. And then the other Asia markets had varying degrees of social distancing measures in place. Clearly, COVID and the resurgence here in Asia is a significant headwind given that the vast majority of our sales are face-to-face. However, as I mentioned earlier, the diversity of our channels and products, the strength of our bank partnerships and the strong execution focus of our businesses, that's what powers MetLife sales resiliency even in this tough environment. In addition, we've been making significant investments in digitizing our sales processes, all the way from video conferencing, co-browsing, remote closing and they've certainly aided our performance as well. As Michel mentioned in his opening remarks, 95% of our new sales application submissions in Japan are digital. And the other markets are in a similar range as well. For example, in China, almost all our agent onboarding and new business submissions are done digitally. Specifically with regards to Japan, it's, again, 8% up sequentially. And even after taking seasonality into account, our face-to-face channels that sell life and A&H products were quite resilient, while we recorded strong annuity sales growth to the bank channel. Clearly, we have strengthened the FX-denominated products and our bank relationships, and that strength shows. Other Asia, 8% up, sequentially up 30% year-over-year. Again, this speaks to, I think, the strength of our market presence across these markets and strong execution across the board. And our digital solutions are also helping us in a big way. With regards to the outlook for the rest of the year, we're very comfortable and on track to meet the full guidance of double-digit sales growth.

Your next question comes from the line of Elyse Greenspan from Wells Fargo. Please go ahead.

My first question is on capital. So you guys bought that $1 billion in the quarter. Just want to get a sense, any color that you can give in terms of how we should think about the quarterly run rate, given that you guys closed the Property & Casualty transaction in the second quarter. And given that you guys will have a good amount of capital coming from that deal, is there a certain level that we should think about you guys looking to have at the holdco above the normal buffer as you put those proceeds to work?

Yes, hi, good morning Elyse, it's Michel. So let me start at a high level by just reiterating our philosophy and our approach, which is that beyond supporting organic growth and in the absence of strategic accretive risk-adjusted hurdle rate clearing M&A, excess capital belongs to our shareholders. And we define excess capital as cash or cash equivalents at our holding companies above our liquidity buffer, which is still the $3 billion to $4 billion that we've discussed. As you know, we bought back $1 billion in the first quarter. We ended the quarter with $3.8 billion in cash at our holding companies. So that's within our $3 billion to $4 billion buffer. And we did so with the full knowledge that we would close shortly on the sale of our P&C company and substantially boost our cash and excess capital position. We have $1.6 billion remaining on our repurchase authorization, which we will extinguish in 2021. And historically, we've managed our authorization deliberately and expeditiously, particularly in the wake of major divestments. So expect us to do the same here.

And then maybe my follow-up will build upon that. You guys announced this transaction, the P&C sale, late last year. And you've put it right that you'll balance capital return as well as, I think, looking at what M&A is potentially out there. So as you guys have kind of thought through kind of M&A plan, it's kind of five or so months since you announced the transaction, you guys have a sense of what type of businesses you would look to pursue deals? And as you look at transactions, multiples or anything may be more or less likely to go down the route of M&A?

Yes. Again, here, I would just maybe start with sort of our approach and philosophy, which again, is - has been very consistent and no change there. So we will always look for M&A opportunities that fit our strategy that are accretive over time for our shareholders. We have a constant basis globally through which we evaluate opportunities based on value and cash generation. All M&A opportunities will need to earn more than their cost of capital. And we determine what we're willing to pay for a business by evaluating capital markets, the cost of raising capital and synergies. And acquisition opportunities will need to be more attractive than share repurchases. So what we do is we try to achieve a healthy balance between returning cash to our shareholders and investing in attractive future growth through M&A. And I think some of the sort of recent transactions that we've done, such as Versant Health last year, but first acquisition prior to that, Logan Circle a couple of years back, I think those give you a sense of sort of what that - sort of approach or strategy that I outlined. So no change here.

Your next question comes from the line of Andrew Kligerman from Crédit Suisse. Please go ahead.

Just a question on the private equity portfolio, which I think John cited venture capital is 20% of $10.3 billion and generated a 25% return in the first quarter. Met has always seemed in the last years like a prominent name in venture capital. Could you flesh out that story a little bit more? How much does Met invest each year in venture capital? Are there particular areas of VC that are strengths? Just very interested in that area and the prospects at MetLife?

Andrew, it's Steve Goulart. Good morning. Let me talk a little bit about the overall strategy because we've been investing in private equity for a number of years and have always felt it to be a very strong component of our overall strategy. Venture capital, of course, is a significant portion of the portfolio. But basically, we take a look at this portfolio the same way we look at our credit portfolio, our real estate portfolio. It's about diversification, and that's what we've really tried to build in this. Again, just sort of recapping some of the numbers. Our PE portfolio produced income of almost $1.3 billion or 13.3% return. Again, Venture capital was - led the way as far as its total return. But think about what was happening in the market, too, with a lot of IPO activity and the like of things that Michel cited in his comments. So the important thing is that our returns were attractive across the portfolio, and I'd look at things like our LBO portfolio both domestically and in Europe. And again, this reflects the diversity that's in the entire portfolio and when we look to invest, we continue to invest in a diverse way across all the different sectors as well. I mean, just to give you a little bit more flavor on it. We have over 600 funds that we've invested in. We have almost 200 managers. So, again, very broad, very deep exposure across all the sectors of private equity. And again, I think you have to take into consideration what was happening in the environment, and when we think about it, despite the pandemic, equity valuations continued decline in the fourth quarter. The combination of fiscal and monetary stimulus continued to be major contributors that led to strong equity performance really across all sectors. And so I would think about it in that respect that we really think of this as a diversified private equity portfolio. Now that all said, we do think that the past quarter was probably something of an anomaly because when we look at our historical experience, at least until this quarter. Now, it has been that our PE returns have always been moderated versus the S&P 500, particularly in high market return quarters. So this was an unusual quarter in that respect. And when we think about future returns or relationships, we still think that what we've been saying for the last couple of years as far as our plans go, the kind of low single - or low double-digits 12% is still the right way for us to think about these returns. Again, it's going to be vary quarter-by-quarter, but that's how we think about this on a long-term basis and again, it just reflects our continued efforts to have a very diversified portfolio across all sectors.

Sounds like it's a real area of excellence in we see though but I'll move on from that. And then Erik was asking a question earlier about Asian - sales in the Asia region, and I'm still trying to reconcile those numbers with what we've been seeing as other companies, which is sales pressures flattish premium growth, and MET being - having a very large proportion of its business in Japan, which is a more mature market. It's just kind of striking to see 12% year-over-year sales growth and then a target of double-digit. So, if you could flesh that out a little bit more specifically, is it the banks that are driving the sales growth in Japan, and what particular other countries are kind of driving growth in other parts of Asia.

Sure, Andrew. So, if you - if we parse out the total Asia sales into Japan and other Asia, they will pretend for a minute. While sequentially and even on the previous calls right, we've been making steady progress in Japan sales since Q2, right? Q3 was better than Q2, last year Q4 was better than Q3. And Q1 is a build off of Q4 from last year. And if you then say, okay, where is this coming from? A couple of things. We have three broad product lines, life, A&H and annuities. And then we have a couple of channels, right? We've got essentially what I would broadly classify as face-to-face channels. We can go further breakdown of that, but that's not needed for this call and - the good news for us is even in this tough environment, our face-to-face channels were pretty resilient from a year-over-year perspective. There's a little bit of pressure on A&H, but our life segment pretty much held flat. And then much of the growth came in from the annuities, which are primarily sold through banks. And in the previous calls, I talked a lot about our advantages in the annuity space on the FX because these are all foreign currency or dollar denominated. And we have many advantages that we bring to the table on that and also the strength of the bank partnerships that we bring to the table as well. So because of that, because of this diversification of products and diversification of channels and our lean in on our strengths that's basically contributed to the resiliency of our sales in Japan. Now with regards to - and by the way, this has not been easy. I have to tell you that. But our teams on the ground have done, I think, a fantastic job with regards to that. Now again, this is playing out, right? I can't sit here and say, this is definitive because COVID is a factor that's an ongoing concern across Asia. With regards to other Asia, again, very strong sales growth. But remember, last year, the pressure started early outside of Japan, in China, right, because of COVID. And so the year-over-year comparisons look very favorable on the other Asia segment. But again, I think I'd lean more on the strength of our businesses and our market presence in terms of how we've executed this quarter. Korea was very strong in terms of performance. India was also strong in performance from a sales perspective. We've recovered nicely in China, which is a major factor. Again, COVID is still a factor in all these markets. And we continue to stay focused on execution. At the end, that's what it boils down to. I hope that helps.

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

Just a question on RIS spreads declining excluding VII. I think John McCallion, I know you mentioned last quarter that the over 100 basis point spread level was probably not sustainable. But I guess, the big drop back into the high 80s seemed a bit surprising to me. Question is, is that now a good level to run rate? Or would you expect to trend up or down? And any color as to why such a large sequential drop?

Good morning, Tom, sorry for the voice. Just overcoming little COVID recovery here. So all right, let me try to take that. Look, it's probably not going to go too far back because that was the whole reason we gave you in guidance, right? But look, we talked about some pretty large one-time items in the third and fourth quarter last year from prepayments and other things like that. And we knew those things weren't going to recur. And so those - that's probably one item. Second is we did reference that new re-class and real estate funds up into VII. And that probably cost another four points of shift. So we really kind of migrate back to the range. I mean I wouldn't go backwards so much as I would think about how we look relative to the guidance we gave in February. And I think we're right in line, I mean, maybe even slightly above this quarter. But honestly, the 80s is probably a little above. And I think the outlook, putting aside yet VII, is intact.

Appreciate it, John. Hope you recover soon. Sorry to draw you into the call, too. But the - I guess my only follow-up is maybe for Steve Goulart. The - just a reminder, VII, does that no longer include prepayment income? Or does prepayment income still included in that number?

Prepayment income is still in that number. It's just dwarfed by our alternative income. They're fairly modest on the prepayments.

Yes. Let me clarify where you're going. So, that - I'm not talking about prepayment income when I said that there were prepayment activities impacting the non-VII spread in the third and fourth quarter. What happened was we saw just a real jump in refinancing, and that was impacting the RMBS securities and how they were running off. And that was having a jump in our non-VII spread. So, hopefully, that helps.

That does. And Steve, just to clarify, could you quantify, of the $1.4 billion of VII, how much is prepayment income?

Yes. Tom, this is John Hall. We typically haven't broken out that number, but if you got your ruler out and you took a real careful measurement of that table in the supplemental slides, you could probably reasonably get close.

Your next question comes from the line of Suneet Kamath from Citi. Please go ahead.

Thanks. I wanted to start with the direct expense ratio guide, just so I understand it, obviously came in much better in the first quarter. In terms of your comments about the next couple of quarters, is the expectation that you'll be sort of above your 12.3% BRIC, get the full year to land around 12.3%? Or is it the expectation over the next few quarters that you'll be somewhere around 12.3%, so you could end up with a lower full year number? I just didn't quite get the guide there.

Yes. I'm not sure - hi Suneet, Michel. I'm not sure we provided a guide, but let me just remind of what we said on the outlook, which is that this year's expense ratio will be pressured because of the sale of P&C, which has a lower direct expense ratio and that we would expect to get back to at or below the 12.3% by 2022. Now, obviously, we came in at 11% in Q1. A few factors that contributed to this. One is the PFO growth, obviously. And I think there were - in John's comments, we mentioned some of the impact of participating group life contracts, for example, on that PFO growth. Versant was an important also factor there. Then we had really good expense discipline across our businesses. And we did have also some, I would say, timing related expenses that maybe benefited us by about 25 basis points. So our expectation for the second to fourth quarter is that the expense ratio will be consistent with our full year outlook guidance. And as I said, we believe that 12.3% is the right level for us, because that allows us to continue to make important investments in our business. So no change in terms of how you should look at the balance of the year.

Okay. Got it. And then just - sorry. Go ahead.

Suneet, I'll just add that, like, just to the point on the guide, we give an annual guide. This quarter came in much better than we thought. But if you adjust for this quarter and think about the rest, we're expecting to be slightly above this year, but trending well.

And then just on the Group Benefits business, I was just wondering if you could unpack some of the growth rates that we're seeing. PFOs, I think, were up 16%. How much of that was Versant versus the other parts of the business? And then on the sales growth, up 45%, can you just give a little color in terms of what's behind that? How much of it is sort of new clients, headcount increases or new products? Just so we get a sense of where the growth is coming from.

Hi, Suneet, it's Ramy here. So I'll start off with the sales. We're really pleased with our performance this quarter. And as John mentioned, 2021 is shaping up to be a record year for us in terms of Group Benefits. I would say the three drivers of sales; the first one is a significant uptick in the jumbo activity in national accounts. Now that's coming off a low in 2020, but this is our sweet spot. This is where we excel, and we've done exceptionally well this quarter there. I would also remind you, just for jumbo accounts, these sales can be lumpy from year-to-year. Beyond that, if you look at products and markets, we've just seen, I would say, strength across the board from a product perspective, as well as increased sales in both regional and small. So it's pretty even. And then, the last driver of sales I would point to is, we continue to successfully execute on our enrollment and reenrollment strategy at the worksite that we've talked about on prior occasions. So we're seeing pretty strong underlying sales growth there. When it comes to PFO growth, which we think is the actual measure that best captures the top line of this business; you really need to peel back from that 16%, 5 points due to these participating contracts. So think about 11 as the underlying growth there, and that is in line with our expectations and in line with our outlook. So we're very pleased with that result as well. And the PFO drivers, in addition to sales, would be strong persistency. We continue to see very high persistency with our customers. And our value proposition is resonating with those customers, and they're doing more business with us. We're getting all of our rate actions at renewals also in line with our expectations. And then also what's driving the PFO number, coming back to that reenrollment strategy, is very disciplined execution of our voluntary strategy in the work site. And so, we continue to see those double-digit growth in voluntary in that PFO number.

Great. How much of that 11% was Versant? Are you able to spike that out?

We don't break that out. At the transaction, we did indicate that we that we expected to add about $1.3 billion of PFO from Versant in the year. So you can use that as a framework.

Your next question comes from the line of Mike Ward from UBS. Please go ahead.

Thank you, guys. Good morning. I just had a higher-level question on holdings. Interest rates have come up a bit this year, they're still pretty low, but COVID is kind of subsiding. Would you say there's an uptick in conversations on potential derisking there? If and when the time comes, just curious if you could comment at all maybe on which lines there that you're thinking you might want to work on first.

Hi Mike. Good to hear you. Yeah. So, I'd say things are trending positively in the space. It's still slow. Rates are still low. Spreads are wide. But things are emerging. And I think our philosophy has been to just continue to be ready. But it's - there's a lot of activity and we're just going to make sure we're ready to act if something is value accretive. So I don't think there's any material change from the last call.

Thanks, John. I appreciate that. And then just on the P&C proceeds, I know you said going to be thoughtful and balanced. And you've got a solid track record, but this is a solid amount of capital there. So I was just wondering if there was any more detail you could give around if there's nothing inorganic out there, what the buyback run rate might look like as we move forward. Thanks.

Hi, Mike. I mean, I would just refer you back to our overall sort of approach and philosophy and the track record also post divestment. And I think that should give you a good sense of how we would sort of move forward here.

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

Ramy, can you provide some more underlying details on the non-medical health underwriting trends you saw in the quarter, both in dental and vision utilization and disability experience?

Sure. So I'll keep this brief. In the quarter, the two I'll point out to, one is dental. We did see some benefit from lower utilization early in the quarter. But as we expected, the utilization normalized back in line with historical levels as the quarter progressed. And then in disability, we're still seeing very favorable results. We saw a slight uptick in incidence rates from years ago, but we continue to see positive trends on recoverability there.

And it seems we have no time for any further questions, I would like to now turn the call back to Michel Khalaf for any closing remarks.

Great, thank you. So let me close by saying that we're very pleased with our first quarter financial results. While they were puts and takes with variable investment income and mortality, our underlying results showed both strength and positive momentum across our business segment. We consider the quarter's results and other installment on our commitment to consistent execution and we look forward to continuing to generate long term value for all our stakeholders. Thank you for joining us this morning and have a great day.

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