Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Fourth Quarter and Full Year 2021 Earnings and Outlook Conference Call. [Operator Instructions] 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 fourth quarter 2021 earnings and near-term outlook call. Before we begin, I’d point 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 discussion are other members of senior management. Last evening, we released a set of supplemental slides, which address the quarter as well as our near-term outlook. 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 outlook sensitivities, disclosures, GAAP reconciliations and other information, which you should also review. After prepared remarks, we will have a Q&A session. In light of the busy morning, Q&A will last no later than the top of the hour. In fairness to all, please limit yourself to one question and one follow-up. With that, over to Michel.

Thank you, John and good morning everyone. MetLife’s financial performance in the fourth quarter and full year of 2021 was outstanding. Our strategic decisions to diversify MetLife by product and geography allocate a prudent portion of our assets to private equity, balanced growth with cash generation and return excess capital to shareholders paid off in the form of banner adjusted earnings and adjusted earnings per share. In the fourth quarter of 2021, MetLife delivered adjusted earnings of $1.8 billion level with Q4 2020. Adjusted earnings per share were $2.17, up 7% year-over-year. Excluding the notable tax item in the quarter, adjusted earnings per share were $2.01. Heading into the quarter, one of the biggest questions facing life insurers was whether Q4 COVID-related impacts would be as challenging as they were in Q3. In the U.S. group business, that remains the case as lower severity was offset by higher frequency to keep the group life ratio well above normal, yet MetLife’s diversity remained evident and the continued outperformance of our investment portfolio. Variable investment income contributed $1.3 billion in the quarter. Our private equity holdings returned 7.9%, with venture capital once again the standout at 13%. As we noted last quarter, PE generates significant cash for MetLife. Over the last 6 years, cash distributions from the portfolio have totaled $8.6 billion. Looking at 2021 as a whole, it was a year of performance, purpose and progress. MetLife delivered strong performance across the board. Despite the divestiture of P&C and other businesses, adjusted PFOs, excluding PRTs were still up 2% to $45.5 billion. Full year sales were up 40% in U.S. group, 19% in Latin America and 11% in Asia. The return on our private equity portfolio was above 40%. Our direct expense ratio was down 40 basis points to 11.6% and…

Thank you, Michel and good morning. I will start with the 4Q ‘21 supplemental slides, which provide highlights of our financial performance and update on our cash and capital positions and more detail on our near-term outlook. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the fourth quarter and full year. Net income in the quarter was $1.2 billion or $662 million lower than adjusted earnings. Net derivative losses were primarily due to the stronger equity markets and the strengthening of the U.S. dollar in the quarter. For the full year, net derivative losses of $1.8 billion primarily due to higher interest rates in 2021 accounted for most of the variance between net income and adjusted earnings. On Page 4, you can see the fourth quarter year-over-year comparison of adjusted earnings by segment, excluding $140 million of notable tax items that were favorable in the fourth quarter of ‘21 and accounted for in Corporate & Other. Adjusted earnings, excluding notable items, were $1.7 billion, down 8% and down 7% on a constant currency basis. Adjusted earnings per share excluding notable items, was $2.01, down 1% year-over-year on a reported basis and essentially flat on a constant currency basis, aided by capital management. Moving to the businesses, starting with the U.S. Group Benefits adjusted earnings were down 95% year-over-year due to unfavorable underwriting margins. I will discuss group life underwriting in more detail shortly. Regarding non-medical health, the interest adjusted benefit ratio was 74.2% in 4Q of ‘21 at the upper end of its annual target range of 70% to 75%, but generally in line given fourth quarter seasonality for dental utilization. That said the ratio was higher than the prior year quarter ratio of 61.7%, which benefited from low dental utilization and favorable…

[Operator Instructions] And first, we go to Suneet Kamath with Jefferies. Please go ahead.

Thanks. Good morning. Just wanted to start off on the VII, can you give us a sense of how much of the VII or excess VII came from marks as opposed to realized gains in 2021 and maybe how that would compare to prior years?

Suneet, in general, think about what Michelle said, I mean, over the last – since 2016, basically, we’ve had equal amounts of cash distribution as well as marks. Last year was a little bit more heavily weighted toward marks just given, I think, market returns, but that’s still been the trend. I mean we get a significant amount of cash distributions that I think we wanted to really sort of emphasize that this just isn’t marks.

Got it. Sorry, I missed that. I got on late. And then I guess, for John, on the direct expense ratio, I mean, less than $12.3 million guide. Can we look at 2021, the 11.6% is sort of a reasonable place for this year? And can you talk a little bit about inflationary pressures on your cost base?

Sure, and good morning, Suneet, welcome back. So now overall, I would just say and as we said in prior meetings, I think the in general, the team continues to execute here and it’s really been embedded in our culture from an efficiency mindset perspective. And fourth quarter was elevated. It’s in line with what we expected. We have those seasonal enrollment costs. We had some timing on some investments in technology. And then we did see a creep up in employee costs occur in the quarter. That was that was offset from a ratio perspective by the fact that we did have some elevated participating claims, which impacts PFOs in the group business. And full year, that’s a little over $1 billion, as we mentioned earlier. So you need to – if you think about the full year ratio, you almost need to adjust for that, so maybe 30 basis points normalization. So nonetheless, I mean, still a very healthy margin relative to our 12.3%. And I think as we look forward, we continue to target 12.3%. I mean we do see an inflationary environment ahead of us. We think our – we believe and we expect to still manage within our 12.3%. We think it’s the right target for us. And I think it allows us to utilize our expense leverage to fund investment in growth and technology. If circumstances dictate, we can let some of that leverage fall to the bottom line. And manage the firm that way. But ultimately, this kind of mentality helps us to build our efficiency muscles in the firm. It keeps us away from those disruptive often fleeting big bang expense program. So all in all, we’re still committed to the 12.3% at this point.

Okay. Thanks, John.

And next, we have a question from Tom Gallagher with Evercore. Please go ahead.

Thanks. A couple of questions on Group for me. On – first, just on the elevated non-medical health benefit ratio. John, you mentioned, it was mainly dental utilization being higher. How is disability trending also? And taking these together, would you expect 2022 to more likely stay towards the high end of the 70 to 75 guidance range or do you think midpoint is still a good base case?

Hi, Tom, it’s Ramy here. So first of all, with respect to the range, the guidance still remains between 70 to 75. So we’re not changing that range. And as you correctly pointed out, the uptick in this quarter for the ratio was largely driven by the seasonality of the dental claims. I would point out that this is kind of entirely expected as we typically see an increase in the utilization in the fourth quarter was participants and providers look to the annual maximums in mind and essentially look to utilize the benefit. So we typically see that uptick in the fourth quarter with Dental. With respect to disability, I’ll maybe break it down for you into two pieces. First is the long-term disability piece. We did see slightly higher incident rates this quarter compared to historical pre-pandemic norms. This is a slight tick up and well within the range of the normal variations we’ve seen around these claims. At the same time, for long-term disability, we continue to see pretty strong offsets with respect to recoveries, which are also trending higher than the historical norms. So that’s kind of the long-term piece on this ability. The short-term disability piece, we have seen a rise in COVID claims in the quarter. And we’ve also seen a rise in some non-covered incidents, which rise in pregnancies as an example. But however, the financial impact on our bottom line from the STD block is really small, and that’s driven by the relative size of the STD block. It’s about third of our overall disability block as well as the mix of our STD business, where half of the block by live is ASO business where we’re not on the hook for the claims. So all in all, when you just step back from a disability perspective, while we’ve seen that small increase in the LTD levels, we are not seeing any evidence of a trend here at this point, but we clearly continue to watch this very carefully.

Got it. Thanks, Ramy. And just a follow-up, so a number of peers are showing weak group sales this quarter, Met seems to be holding up better. Can you talk a little bit about pricing and what you’re seeing competitive-wise right now, whether are you getting rate in low of recent results or are you holding the line on pricing and opting for growth?

Tom. I’ll start off with sales and then give you some color on the pricing side. So first of all, I would say we’re extremely pleased with the sales in ‘21. They’re record sales for us, and that’s something we’re very happy about. If you look at the composition of those sales, we’ve had positive momentum across all of our products and markets. But what really stood out in ‘21 is the main driver of the increase in sales was the jumbo end of the market. And remember, this is the higher end of our national accounts business. So different companies define that differently, but our national accounts business comprise employers with 5,000-plus employees, and this is at the higher end of that segment. Those sales came from across the entire portfolio of products across core and voluntary. The other kind of color I’d give you here is that almost 90% of those jumbo sales came from our existing customers. So these are customers who have been with us for years and in some instances, decades. And the other thing I’d point out on sales here, and we’ve discussed this in the past, this jumbo end of the market is a part of the market where price is not the sole determining factor for winning the business. There are a lot of non-price elements here, such as service, administration, capabilities, etcetera, that are an important part of the decision-making. And then maybe the last piece on sales is those jumbo sales can be lumpy. And as we look forward into ‘22, we are seeing less movement in the jumbo market. And so we are expecting that activity to come down in ‘22 from a jumbo perspective. So, that’s kind of a bit of a color on sales. With respect to…

Okay. Thanks for all that color.

And next, we have a question from Jimmy Bhullar with JPMorgan. Please go ahead.

Yes. Good morning. So, just a question on interest rates, and you touched on this a little bit in your comments as well. But how do you think about the benefit of rising interest rates based on what the forward yield curve is predicting right now being sort of negated by and just a likely flatter yield curve. And if you could just discuss what are the businesses that would be most affected by that dynamic. But how much of the benefit of rates would actually be taken away by a flatter yield curve?

Good morning Jimmy, it’s John. So, I think the – and you can see it in our sensitivities at the bottom of the first page and the outlook. We are generally still a net positive to rising rates and the curve is flattening in the base case, right. And that’s based on the forward curve as of 12/31. But it’s – as we talked about, our sensitivity is much less these days. So, it’s a modest benefit. And then you have to kind of look deeper into why rates are rising. I think there is a number of things around like inflationary pressures, is that it and what the other drivers are. So, just on an interest rate perspective, as we – as I said in my opening remarks, the higher rates are positive, and they are partially offset by the fact that the curve is flattening. And partly – you can see that a little bit in, say, the RIS spreads as they emerge in 2022. That’s one of the drivers for why they would come down. The ex-VII spreads would come down off of ‘21, not the only one, but one of them. And then I think just holistically on – as you think about what could drive if it’s inflationary pressures, and that could be another thing for consideration. I think again, we are probably a net neutral to positive on inflationary pressures. If you think about our businesses and certainly the group business and is probably a net positive, what also could it be a GDP growth along with that. So, a number of different factors that go into it. But all-in-all, I would say just the short answer to the question would be kind of a modest positive for rising rates.

Okay. And if I just ask one more on just dental usage, when COVID had initially hit obviously dental usage had dropped a lot. It doesn’t seem like this anecdotally, that that’s happening with the Omicron surge that we have seen recently, which if it was happening, obviously, I think it would show up in 1Q. But have you seen a similar decline in usage in dental with the surge in claims that we have seen or surge in cases that we have seen over the past 1.5 months?

Jimmy, it’s Ramy. I think the big driver in the beginning of the pandemic was the actual closure of the dental offices. So, you have got – that was – just the offices were not open. Now clearly, there was also some sort of hesitancy on the part of people to go out as well. I would say at this point, the dental offices are open, and it’s pretty much a return to normal kind of outcome in terms of the utilization patterns that we are seeing in dental.

Okay. Thank you.

And next, we have a question from Elyse Greenspan with Wells Fargo. Please go ahead.

Hi. Thanks. Good morning. My first question is on holdings. You guys provided pretty stable earnings outlook this year with what you had expected at the start of last year. And I know in the past, you guys have mentioned the cash flow being generated by the business is a reason that you kind of counterbalance against potentially entering into a risk transfer transaction. Can you just provide an update on your thoughts relative to transactions within the blocks within holdings? And if perhaps the rising rate environment increases your prospects of entering into a deal?

Good morning Elyse, it’s John. I think in terms of the kind of the back end of your question and risk transfers, I would say nothing has really changed. I think from the comments we gave in the third quarter, we are continuing to kind of stick with our primary objectives of optimizing the business, meeting customer obligations and continuing to look for further efficiencies as the block runs off. And at the same time, we are taking a third-party perspective of this block. I would say – and I think I mentioned this in the third quarter. I think the environment has continued to be robust. Interest rates rising would be another positive factor, I think in doing a transaction like that, that would be value creative and maybe helps close the bid-ask spread. So, that’s probably a consideration. I think as you pointed out in the kind of the first part of your question around MetLife Holdings. It’s been a resilient runoff. It’s probably a way to comment on that maybe better than we thought. And obviously, I think that’s hats off to the team and the efforts that they have made on different actions on optimizing the business and really doing well on expenses. And in addition, we did – I did comment on lower policyholder dividend levels that does have an impact. It’s impacting the ratio and that’s helping kind of keep earnings up as well as just the higher equity market. So, there is just a variety of factors that have allowed for a stable outlook in terms of earnings range. But – so we feel very good about it, but it’s just a number of items that’s kind of getting us there. I think that’s how I would summarize it.

Thanks. And then my second question, you guys called out – you guys said you didn’t see any excess mortality within getaway from COVID. I was just hoping to just get some more color there. I know we have seen some companies that flagged elevated mortality. I just wanted to get additional color on what you are seeing in your book? Thank you.

Hi Elyse, it’s Ramy here. So, as you heard in our prepared remarks, the COVID-specific impact was 18 points and just to be really clear about the definition of that, these are deaths where COVID is marked as the actual cause of death. What we do every quarter as part of our analysis is we look at additional excess mortality, which appears to be COVID-driven. And so what I mean by that are increases in death reasons that kind of are related to perhaps heart or lung disease. And for this quarter, that appears to be about another point as well. Now that has come down from prior quarters, where it was hovering in the kind of 2%, 2.5% range. So, there is, call it, another point of what appears to be COVID in the results for this quarter.

Thank you.

And our next question is from Erik Bass with Autonomous Research. Please go ahead.

Hi. Thank you. Can you talk a little bit more about the free cash flow outlook? And given the lagged impact of statutory ordinary dividends that you mentioned, should we expect a higher level of cash flow coming through in 2022 on a dollar basis?

Good morning Erik, it’s John. Thanks for the question. Yes, I think that’s a good way to put it. Certainly, this year, as I mentioned earlier, it’s simply math, outsized earnings. Free cash flow was at or above actually expectations for us. And then – but the ratio is a bit down. But the expectation – and you can think of it, it’s $1 billion roughly, give or take, right. If you think about the middle of the range and we would expect that to come in over the next year or 2 years. So all-in-all, we would expect a higher level in ‘22 and ‘23.

Great. Thank you. And then just a question on VII and I guess as you are thinking about the sizing of your alternatives portfolio over time. And certainly, it’s been an important contributor to results and the portfolio continues to grow, but is there just kind of a limit on kind of where you would want that to get to as a percentage of investments and how are you thinking about managing that and the ability to grow it further?

Hi, it’s Steve. And I will refer to John’s comment during the outlook about the sale of $1 billion of PE interest. What I would say on it is this is part of our normal investment process. And part of that was a consideration of the size of the alternatives portfolio as well. It does have a valuable position in the portfolio from an ALM perspective. As far as hedging long-term tails go equity is very valuable in that respect. But again, we have seen a run up, obviously, in the last couple of years in the PE portfolio, particularly. And so part of our overall process is continuing to evaluate the exposures, and that’s what’s led to the decision to go forward with that sale. So, I think that’s reflective of how our process works and how we – how we will continue to look at our overall asset allocation and particularly the VII and alternatives.

Got it. Thank you.

And next, we have a question from Ryan Krueger with KBW. Please go ahead.

Hi. Good morning. Could you give a little bit more color on how you expect the RIS spread, excluding VII to trend in 2022?

Hi Ryan, it’s John. Good morning. So yes, I would say, so full year ‘21 spreads were 229. And with excess VII spread around 93 bps, so 136 bps contribution from VII. And so as we talked about focusing on the ex-VII spread, it’s been elevated pay-down activity on our residential mortgage loans and securities portfolio. We also saw a pretty sizable drop during the course of the year in LIBOR, right. And so when you look forward, we are assuming holistically, obviously, private equity returns get more in line with our historical average. The pay-down activity continues to moderate, LIBOR rises. And so therefore, all-in, we would expect that RIS spread, as we talked about to be $95 million to $120 million. And then just on – going back to the ex-VII, we should expect like sequentially because of the last two factors I mentioned, it lead to like a 5 basis point to 7 basis point drop sequentially from where we are today, and maybe for full year, so call it a 7 basis points to 9 basis point drop versus ‘21.

Great. Thank you.

And our next question is from Alex Scott with Goldman Sachs. Please go ahead.

Hi. One of the things that caught my eye in the outlook was just a pretty strong anticipated recovery in LatAm and pretty strong growth in the out years. So, I was just interested if you could talk about what some of the drivers are there and some of the things you are doing as part of that horizon strategy to give you the confidence in that growth?

Yes. Sure, Alex. Hi, this is Eric. Thanks for the question. Let me focus on a couple of things. If you think about our top line and what we have seen in 2021, we have achieved really a great momentum across the region. Sales reached a pre-pandemic level – levels in the third quarter. And then again, in the fourth quarter, our persistency has also been very resilient and above expectations across most markets. And coupled with the strong sales has really delivered a strong and solid PFO growth in 2021. And when we are seeing this, we are confident to see this moving forward, that momentum to continue. And that demonstrates really the strength, the diversity and the resiliency of our distribution channels and product mix, right. So, if you combine this with the swift implementation of several digital capabilities in our largest markets. That allows us to service our customers faster and better and to be more efficient. So, all-in-all, this highlights the underlying fundamentals of the franchise and the strength and the view in the view that once the pandemic returns to normal, and the pandemic recedes, our earnings run rate also will return to normal. And to John’s point on outlook, we expect earnings to double, excluding COVID next year.

Thank you.

And next, we will move on to Humphrey Lee with Dowling & Partners. Please go ahead.

Good morning and thank you for taking my question. I have a follow-up question on VII. Just looking at the outperformance to-date and just this year alone, you had over $4 billion above your plan. How should we think about the impact of the strong appreciation on your capital going forward? You talked about doing a secondary sales this year for $1 billion, which would be one way to monetize it. But if I were to think about the increasing carrying value of these assets on a statutory basis, it should help your capital base even with the high risk charge. So, maybe just can you talk about the capital implication of the strong VII to-date?

Hi, good morning Humphrey, it’s John. So, I think you have articulated it well that we are getting a benefit of the strong appreciation in our capital levels. I mean we talked about – we expect to be above 360%. I mean I would say, yes, that will definitely be the case. And I think you can see that in some of the statistics I gave in the earlier part around just growth in TAC. In terms of how you monetize that from a dividend perspective, I would say the sale doesn’t really change that, right? Just kind of monetizes the unrealized to realized, if you think about that $1 billion. And then the way this gets monetized through status is through growth in earnings, which comes through in cash just if we are going to get into a little bit of accounting. It’s the cash distributions that come through as well as we have kind of a greater of test with regards to a percent of surplus versus earnings. So, just if surplus is greater than – and that apply that percentage that will be another way you can kind of realize that through dividends.

Got it. And then just to follow-up your earlier comment about the free cash flow conversion should trend higher kind of in ‘22 through ‘24. As I think about these kind of VII cash flow come through on a LACT basis. Like should we actually think about the free cash flow conversion could be towards the upper end or even maybe above your guided range kind of over the next several years as some of these cash flows come through?

Yes. So we – remember, we give our guidance ranges on a 2-year average. And just because of this lumpiness as we were basically talking about, right. And so I think you are referencing kind of on a 1-year basis. And so certainly, that’s why we use an average. When we think about that 65% incentive, so it’s a little lower this quarter, I mean this year, on an annual basis, we would expect it to be higher next year. And then on average, get us back into the range, maybe at the low end as we do our math. But I think you have articulated the direction correctly.

Got it. Thank you.

And ladies and gentlemen, we have time for no further questions. I will now turn the call back to the CEO, Michel Khalaf. Please go ahead.

Thank you, operator. At our Investor Day in December 2019, we said and I quote, MetLife is a simpler and more focused company with a great set of businesses that generate strong free cash flow. That is more true than ever. And as we enter 2022, we do so with a high degree of confidence that we will continue to create value for 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. You may now disconnect.