Ladies and gentlemen, we'd like to thank you for standing by, and welcome to the MetLife Third 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 would 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. The floor is yours, sir.

Thank you, operator. Good morning, everyone. Welcome to MetLife's Third 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. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussions are other members of senior management. Last night, we released a set of supplemental slides which address third quarter results. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to these slides features additional disclosures, GAAP reconciliations and other information which you should also review. After 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 I reflect on the journey MetLife has been on these past two years, I am more convinced than ever that we are focused on what matters most. We are a purpose-driven company at a time when stakeholders will accept nothing less. We have the right strategy to see us through even the most turbulent environments, and we have a strong culture of execution that gives our shareholders confidence. All of these attributes were on display in the third quarter of 2021. Starting with our financial results. Adjusted earnings were $2.1 billion, up 31% year-over-year. Adjusted earnings per share were $2.39, up 38% year-over-year. Excluding total notable items in both periods, adjusted earnings were up 24% and adjusted EPS was up 31%. Looking at the quarterly performance of the enterprise as a whole, variable investment income was outstanding, underlying PFOs were strong and expense disciplined held firm. The main area where we have seen headwinds is from elevated COVID claims. In key respects, the third quarter of 2021 looks very much like the first quarter with exceptionally strong VII more than offsetting excess mortality. On the investment side, our private equity portfolio returned $1.5 billion in Q3, its highest quarterly contribution in 2021 and the major contributor to VII, which was well above the top end of our implied quarterly guidance range. On underwriting in our U.S. business, the Group Life mortality ratio was elevated at 106.2% in Q3 on higher claim severity and frequency due to a shift younger in the age distribution of COVID deaths. Our Latin America business incurred COVID losses of $137 million in Q3. Two aspects of our underwriting results are noteworthy. From a social perspective, paying COVID claims is precisely how life insurance companies make a positive…

Thank you, Michel, and good morning. I'll start with the 3Q 2021 supplemental slides, which provide highlights of our financial performance, details of our annual global actuarial assumption review and updates on our value of new business metrics and our cash and capital positions. Starting on Page 3, we provide a comparison of net income to adjusted earnings. Net income in the third quarter was $1.5 billion or $541 million lower than adjusted earnings. Net derivative losses of $172 million were primarily driven by the strengthening of the U.S. dollar in the quarter. In addition, our actuarial assumption review accounted for $76 million of the variance between net income and adjusted earnings. In total, the assumption review reduced net income by $216 million, including a notable item to adjusted earnings of $140 million. The table on Page 4 provides highlights of the actuarial assumption review with the breakdown of the adjusted earnings and net income impact by business segment. We have kept our U.S. mean reversion interest rate unchanged at 2.75% and maintain our long-term mortality assumptions despite the near-term impacts from COVID-19. Most of the net income impact was in MetLife Holdings and Asia. For MetLife Holdings, the primary driver was a refinement to the variable annuity lapse rate function to better reflect policyholder behavior based on withdrawal status. In Asia, the largest impact was due to the lowering of the earned rate assumption in Japan, where we assume current earned rates for our long-term rate assumption. On Page 5, you can see the year-over-year comparison of adjusted earnings by segment, excluding notable items in both periods. Adjusted earnings, excluding notable items, were $2.2 billion, up 24% and up 23% on a constant currency basis, primarily driven by strong returns in our private equity portfolio. Adjusted earnings per share,…

[Operator Instructions] Our first question will come from the line of Ryan Krueger of KBW. Please go ahead.

I was hoping you could provide a little bit more detail on your group non-medical health claim trends in the quarter. I guess, in particular, and I know disability is a bit smaller for you, but some companies have had weaker disability results and it sounds like yours held up pretty well. So I appreciate any detail you could provide here.

Good morning Ryan. It's Ramy here. So on the disability front, as you noted, it's - relative to our premium, it's about 12% of our overall PFOs in group. And I can give you some color based on both the LTD and the STD portions of the book. So for the LTD side, what we saw is an incidence rate this quarter that's much more in line with our historical norms. It was higher than last year but last year was a favorable incidence here from a disability perspective. So we're seeing it tick back to where it was historically from a frequency perspective. And then, the recoveries continue to be pretty strong. The other thing I would add there on the LTD side is so far, we have not seen any significant impact on the business from kind of COVID or non-COVID effect, neither have we seen any material impacts from the overall economy. So it's been pretty much a return to, call it, a pre-pandemic levels as far as the LTD book. For the STD side, it's a bit different. So think about that 12% of disability premium, two-thirds of it is sitting in the LTD only a third of it sits in the STD. And then for that one-third that's in STD, about half of those employees are comprised of ASO only business. So we are administering the disability claims but not on the hook for the actual claims themselves. So while for the STD portion, we have seen and continue to see elevated STD COVID claims. The actual impact on the non-medical health ratio is pretty de minimis given the composition of our book and the ASO exposure.

Great. That was helpful. Thank you. And then you've had some benefit from RMBS paydowns in RIS. How should we think about the ongoing impact of that? Or what's left of it from here?

Good morning, Ryan. It's John. Yes, obviously, RIS spreads, I think, overall, have been just a beneficiary of just the excellent performance here in private equity portfolio. So we saw that continue in this quarter. You're referencing, after excluding VII, that spreads have remained resilient at 93 basis points, although a 5 basis point decline from second quarter. But pretty much in line with what we what we set back 90 days ago. So you're referencing that continued alleviated levels paydown activity on the residential mortgage book, and that accelerates the income from those securities or loans that we purchased at a discount. But as we said, we believe we've seen the peak of that. And so that 5 basis point run-off was generally expected. We would expect that to continue into 4Q and kind of start to make its way down. And - but I think kind of a similar trajectory seems reasonable at this point.

Our next question will come from the line of Erik Bass of Autonomous Research. Please go ahead.

So we've seen more in-force block transactions over the past quarter with sellers getting pretty attractive multiples. And it seems like there's plenty of buyer interest in the types of liabilities you have, and now there are some potential counterparties that have New York entities. So I'm curious if you're getting more optimistic about finding a transaction that could potentially unlock value in portions of your MetLife Holdings blocks?

Eric, it's John. I'd say the short answer is, yes. If the question is, are we getting more optimistic? Yes. We are seeing what you're referencing as well. I think the supplier and buyer base is continuing to remain, I'd say, robust. And I think our team continues to work and take a third-party view and do the analytics around our portfolio. And as we've - I've talked about before, quite a bit of it is thinking about what are of interest of different buyers. It differs. Not everyone is thinking the same way or have they - buyers have different tools for creating value. And so we have to think through that and think about our situation as well and how we would optimize from our end. And I think there is a puzzle to put together there to think through how to best optimize a situation like that. As we've talked about before, we're not going to do something at any cost. But we are continuing to look at things to optimize and accelerate the release of reserves and capital appropriately. And I think that's - we're still on track with that.

Great, thank you. And then second, I was hoping you could give some perspective on what's going on in Chile and the potential implications for your business. I guess specifically, what are the different proposals that are out there for the AFP system from the leading presidential candidates. And do you see risk of significant change to that business following the election? And also hoping you could talk about the early annuity payouts issues that's been covered in the press and whether that's material for you at all.

Yes. Hi, Erik. It's Michel here. So let me give you some comments and then we'll see if Eric would want to add anything. The pension system in Chile has been subject to public debate for a number of years now, I would say, and that debate tends to heat up around elections. One thing I would say is that despite the general perception, to the contrary, if you think about the pension system, I mean, it's functioned quite well and the returns have been quite good as well for the industry as a whole. The problem with the system is that due to inconsistent contributions, the fact that you have widespread and formal labor in Chile and contribution rates are low. That's led to sort of low projected replacement rates at retirement. The debate is continuing now with presidential elections, round one is in late November and then you'll have the second round in December, and different candidates are taking very different views. Some are supportive of the system, others are in favor of radical reform. So we'd have to see how that plays out. The other thing that's happening in Chile is that there is a re-drafting of the constitution that's taking place that's going to play out next year as well. So we'll see what comes out of that. We are very much engaged with the local authorities. We have great relationships in Chile, we are a leading player there, as you know. We're also in collaboration with the industry, making sure that our point of view is being heard, and hopefully, addressed as well. And look, we are - we are not - we in favor of reform that makes sense for the participants in the system, that protects them, their retirement. But we are also cautioning against any measures that ultimately would do - would damage today's capital markets, as well as investor perceptions of the Chilean - Chile as an investment destination. So we continue to be engaged. As you know, there has been three rounds of withdrawals already. There is another proposal for a fourth round of pension withdrawals. We'll see whether that gets surpassed or not. Clearly, if it does, whereas these withdrawals don't have a material impact on earnings, the damage sort of the viability of the system, if you like, which is something that we advocate against. And then on the annuities front that you referenced, this - there's been one withdrawal there. Again, we don't know if there'll be another one. I think probably our view is that the likelihood of that is not very high, but we'll have to wait and see. All-in-all, our pension business is 2% of MetLife's overall earnings. But our view is that we continue to engage, we continue to keep a close eye on the situation, and we'll have to see how this plays out over the coming weeks and months. Anything to add, Eric?

No. I think you covered it.

So I hope that gives you sort of - that answer to the question, Erik.

Our next question comes from the line of Jimmy Bhullar of JPMorgan. Please go ahead.

Just had a question on the group business. If you can talk about what you're seeing in terms of claims utilization, both frequency and severity in your dental book?

Sure, Jimmy. It's Ramy here. I would say the dental story is very much a return to pre-pandemic utilization. So if you look at the quarter-over-quarter results, 2020 was exceptionally low in terms of dental utilization. We've seen that come back to normal levels. Q3 tends to be seasonally lower. So Q4 tends to kind of slightly tick up typically in terms of the dental business. So very much kind of a return to normal. And I would say if you look at the overall ratio, our non-medical health ratio. And our expectation right now is that for the full year, we're going to get a ratio that's very close to the midpoint of our range.

Okay. And then on the accounting changes, can you talk about where you are internally on sort of the process of figuring out what the impact will be on MetLife? And then relatedly, when do you think you'll start quantifying the impact and sharing it with the investment community?

Good morning, Jimmy, it's John. We are well underway on our implementation work, progress continues. And I'd say, continue to be on target for implementation come 11/23. We're going to - we're in the process of evaluating transition amounts and ongoing impacts of the new guidance. And I'd say our plan is still intact, which would be kind of a mid-2022 timeframe, give or take, for disclosing and kind of sharing how to think about the transition and the insights you should draw upon this. Again, I'd remind everyone that ultimately economics, cash flow, pricing product does not change. And I think we're working well with the industry to think through how we collectively transition ourselves and kind of explain the results. And I think that's going well. So at this point, I'd say nothing has caused us to feel the need to change the time line.

And have you had conversations with the rating agencies on how they would view, obviously, they focus on cash flows and stat as well but they do look at cap also. But do you think there will be changes because a lot of your GAAP ratios would obviously end up changing once the rules are implemented.

Yes. We've had periodic discussions with them over time. I think the rating agencies get it, and not everything is changing. So when you say ratios, not all ratios are changing. I mean our group business ratios won't change. So I think it's not all businesses. It's not all products. And I think it's - there will be certain unique circumstances that will arise in certain books. But in general, I think my assessment is that - they have a very balanced methodical way of thinking about it, and they recognize the fact that economics, cash flow and pricing of products is not changing.

Our next question will come from the line of Tom Gallagher of Evercore ISI. Please go ahead.

Good morning, John. Just a follow-up on Erik's question on risk transfer. Would you say is - are variable annuities the priority or you're looking broader that might include life insurance and fixed annuities. And just a related question, does your New York domicile limit the types of counterparties that you might transact with? Or would you say it's still a pretty robust list as you're thinking about things that would be in a potential auction bidding situation?

Good morning, Tom. I would say the answer to the first question would be would be, we're open to all blocks of business that create value for us. So I think a lot of different aspects go into value creation when it comes to that question. So I don't think it's one focus there or another. I'd say probably the only one that could probably scope out or say is less likely as LTC just given where bid spreads are at these days. But I'd say markets are evolving on all the other ones. And then you have to look at your own kind of situation to think about the benefits we get from having them in our New York domiciled entity. And so that's how we would kind of frame it. I wouldn't exclude anything outside of, let's say, LTC just given where I think pricing is, there's a pretty big divergence in what people think at this point. On the other aspect of counterparty, I would say, we come at it probably the same way that our New York domicile partners would come at it as well. So I don't know if it changes who or how we would do transaction. I think we probably take somewhat of a similar construct because at the end of the day, our situation would be a reinsurance transaction from the New York domiciled entity. And so credit risk would matter. And so structure can help with that as well. But I don't think it excludes anything per se, but that would be a strong consideration.

Okay. Thanks. And then just one quick one. Long-term care claims, you said, returned to more normal levels this quarter. Was that on both claim frequency and severity? And the reason I ask is, there's clearly, from what we've heard from other has been a shift away from facility care to home health care, which has lowered severity. I'm just curious, if you have that level of detail for how that's trending right now?

Yes, sure. Good question, Tom, because you're right. It has shifted. I mean, quite honestly, every metric has shifted back to pre-pandemic levels. I mean maybe we're off slightly on the relationship of in-home versus kind of external care, but it's very close. It's much - it's very close to being pre-pandemic.

Our next question will come from the line of Humphrey Lee of Dowling Partners. Please go ahead.

Good morning, and thank you for taking my questions. Related to EMEA, you talked about there are some favorable items in the quarter and expect fourth quarter to trend down along with some of the high expenses. Is there any way to help us think about what would be the kind of the run rate earnings for EMEA?

Yes. Good morning, Humphrey. So yes, we had a very strong Q3, I'd say, a number of items went in one direction that caused us to have a very strong result in Q3. As we think about quantification of that, you could put it in the area of, call it, $20 million, $25 million, give or take. And then as I said on - in my prepared remarks, we'd expect some elevated technology investments in the in the fourth quarter. So I'll give you some data point from this sure I give you anything outside of that, but that probably should help you kind of frame for your modeling.

And then in terms of the overall expenses for company, is the 12.3% for the full year still the appropriate way to think about the expenses for 2021?

Yes. So I would say we continue to focus on the full year that's our target to be under 12 3%. Full year obviously we've been running well below that. I mentioned that we would expect to have elevated expenses in the fourth quarter. Quite honestly, it's not much different than the trend you saw a year ago, in terms of how things transpired for most of the year, and then we saw an uptick. And so that, if we're above 12.3% in the fourth quarter by a bit that would that would not be a surprise, per se, but that's not our focus. Just using that as an example when you talk about the 12.3% what's important to us is the 12.3% for the full year. And so, that's kind of our mindset when we think about our expense ratio, and we continue to anticipate to be under that on a full year basis.

And our next question will come from the line of John Barnidge of Piper Sandler. Please go ahead

An increase COVID impact on the group Life business is there a need to increase administrative expenses to deal with him during nature the pandemic at all?

John, it's Rami here. The expense ratio on the Life business is pretty small. So the real the real issue is not operations or expenses, the real issue and the challenge you're seeing is just the claims front. So it's not really an expense issue at all this point.

And then, would it be fair to say, if the seasonal increase in the direct expense ratio overall, obviously about 12.3% seems fair to come in well below 12% for the year, would there be a reevaluation of it longer term possibly? Thank you.

John, it's Rami again here. I just want to maybe also further clarify our issue with the intent of your question with respect to what's going to change and what is changing on the life side is pricing. So we did talk about this, the last quarter we have and we continue to make rate adjustments in the group life business, in line with our perspective view of the pandemics. It's not operations related is related to the underwriting and the mortality. And as you look at the upcoming renewal season, we have been able to achieve rate adjustments and rate increases in line with our perspective view of mortality, while maintaining pretty strong persistency in our book. So and that's going to be an ongoing process that we're undertaking. So that's kind of what's changing, if you will, with respect to the group life piece.

And then I can take the second question you had John. This is John as well. Yes, our target is under 12.3% you said is it possible. Sure, anything is possible I guess, but ultimately, we are steadfast on being at or below 12.3%. Again, what we're trying to do is shift the mix of expenses that are within our expense base, and continue to drive savings and capacity for reinvestment. So we want to maintain being at or below 12.3% on a persistent basis every year. But at the same time, we want to continue to drive efficiencies that free up the allocation of resources to invest in the customer, invest in our processes, and to continue to drive growth for the firm. And so, at the same time, if we see headwinds in an economy, we can use that capacity as a protection for profit margin. So that's kind of our philosophy when it comes to our efficiency mindset. And I'd say nothing would kind of take us off that track at this point.

There are no further questions in queue at this time. I would now like to turn the conference back over to our CEO, Michel Khalaf for any closing remarks. Please go ahead, sir.

Great. Thank you, Operator. While the third quarter had outsized PE returns and COVID claims, we believe the underlying performance of our business, demonstrates the enduring strength and growth potential of the MetLife global insurance franchise. Although the pandemic continues to create uncertainty, I am confident in our ability to continue to execute and create long-term shareholder value for shareholders. Have a great day.

Ladies and gentlemen, it does conclude your conference call for today. ON behalf of today's panel we like to thank you for your participation in today's earnings call and thank you for using our service. Have a wonderful day. You may now disconnect.