Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Fourth Quarter 2023 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 fourth quarter 2023 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 night, we released a set of supplemental slides, which addressed 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. An appendix to the slides features outlook sensitivities, disclosures, GAAP reconciliations and other information, which you should similarly review. After prepared remarks, we will have a Q&A session, which will end promptly at the top of the hour. As a reminder, please limit yourself to one question and one follow-up. With that, over to Michel.

Thank you, John, and good morning, everyone. As we begin 2023, I shared our conviction that despite the uncertain times, MetLife would exit the year stronger than we entered it. We accomplished this by countering the challenging environment with the actions we've taken to focus, simplify, and differentiate our business. We maintained an accelerated momentum in MetLife's diversified set of market-leading businesses, driving strong results for the year and the quarter. And we illustrated our financial strength and flexibility with sound transactions and well-timed capital management, ending the year with solid capital ratios and robust cash on hand. Clearly, our all-weather strategy stood up again in 2023. We remain steadfastly focused on what matters most in delivering for our customers and shareholders. In 2023, we exited a pandemic and have yet to enter a widely expected U.S. recession. We managed through a bank liquidity crisis and the resulting credit concerns. And we adapted to an inverted yield curve that has persisted longer than any in history. Against this backdrop, the fundamentals of our businesses are as strong as I have ever seen. Our successful 2023 is a testament to the resilience and durability of our business model, a relentless focus on execution, concentrating on the factors we control, our risk management culture and processes, the discipline we apply to managing our assets and liabilities, and the prudence of our investment portfolio. On that last point, the strength and stability of our commercial real estate portfolio, which we detailed a year ago, has borne out, as we said, a modest increase in LTVs and stable debt service coverage ratios, and we expect that to remain true in 2024. For the year, we delivered an adjusted return on equity, excluding notable items, of 13.8%, achieving our target for this all-important metric. We…

Thank you, Michel, and good morning. I will start with the 4Q 2023 supplemental slides, which provide highlights of our financial performance, an update of our liquidity and capital positions as well as our commercial mortgage loan portfolio. In addition, I will discuss our near-term outlook in more detail. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the fourth quarter and full year 2023. Market risk benefit or MRB remeasurement losses in the fourth quarter was due to the decline in long-term interest rates. Net derivative gains were only a partial offset as the favorable impact from lower long-term interest rates were mitigated by changes in short-term interest rates and higher equity markets in the quarter. For the full year, the variance between net income and adjusted earnings was mostly attributable to net derivative losses, primarily due to stronger equity markets, changes in foreign currencies and higher interest rates in 2023. In addition, net investment losses were largely the result of normal trading activity on the portfolio in a rising interest rate environment as well as the mark-to-market impact on securities that were transferred as part of the reinsurance transaction with Global Atlantic. Overall, the portfolio remains well positioned with modest levels of credit losses and the hedging program continues to perform as expected. On Page 4, you can see the fourth quarter year-over-year comparison of adjusted earnings by segment, excluding $76 million after tax, of an unfavorable notable item relating to asbestos litigation reserves in 4Q of 2023 that was accounted for in corporate and other. There were no notable items in the prior year quarter. Regarding the asbestos reserve increase of $76 million, based on our latest review, while we continue to observe a declining claim count, the frequency of severe…

[Operator Instructions] Our first question is from Ryan Krueger with KBW. Please go ahead.

Hey, thanks. Good morning. My first question is on the ROE target. And I recognize that you just raised the target by 100 basis points a year ago to 13% to 15%. But it seems like your segment outlook would suggest something at least a bit above 15%, maybe something closer to 15.5%. So I guess I just wanted to hear your perspective on, am I thinking about that incorrectly or is there some potential upside to this ROE based on the current trends you’re seeing?

Good morning, Ryan, it’s John. I think we wouldn’t debate your model calculations there. I think it’s fair to say that we certainly are trending to the high end of that range, if not with a plus sign. But we just moved it a year ago and I think we’ll take a year here and take stock at that time. But I’d say – I think just maybe just to help you with that. One other thing is, like I said, we’ll take stock. We think over time, and we’ve been talking about this, that there has been kind of – as a result of higher rates, there has been a shift in volume and returns on our business. So it wouldn’t preclude us from doing it again. I think we want to take some time to take stock.

Understood. Makes sense. And then I think you said you expected the RBC ratio to be around 400%. Would have thought it would have been maybe a little higher than that following the reinsurance transaction. Do you have any more color on if there were any offsets?

Yes, I think when we announced the deal, we thought this would give us 50 points to 60 points. We still think it will. There’s a little bit of what happens immediately and then how things trend in over time. Also, there’s a lot of other things going on, fungibility, growth. We had some very sizable growth in RAS. So, we deployed some extra capital this year. So, I think a lot of those things. But in terms of the deal economics that we outlined at time of signing, everything came in as expected.

Okay, great. Thank you.

Next we go to the line of Suneet Kamath with Jefferies. Please go ahead.

Yes, thanks, and appreciate all the color on the guidance. But maybe if we could just circle back to consolidated recurring NII, I think you talked about a pretty big lift in 2023 relative to 2022, that $19.3 billion. Any help in terms of what you think that could look like given all of the moving pieces as we think about 2024?

Hey, Suneet, it’s John. It’s a good question. I mean, sometimes, NII, it’s a helpful metric, certainly from, I’d say mix and just to show that higher rates have more than offset or actually offset some of the depression and VII. And I think the point of that slide is to show that there’s more power there once things kind of re emerge on the VII front. Sometimes it’s a little hard with just translating NII to earnings. So, we’re a little cautious on necessarily given a target around that because, we have different products that perform well in different environments and ultimately to spread. So I think we’re a little hesitant to kind of forecast for you. I think the point of that slide was to indicate that it shows the growth in our business. It shows that we’re well diversified. We can perform well in a variety of economic environments. And I think that’s really probably the theme to take away. So sorry, I didn’t get to maybe your exact question or answer, but that’s probably the best I can do.

Okay. Got it. And then as we think about the benefit of the caps in 2023 and what that looks like in 2024 as they roll off? Should we think about the improvement in VII as essentially like those two kind of net as a wash? Or is one kind of greater than the other? I just want to get some additional color on that if we could.

Yes, it’s a great question. I think what you just said at the end around in terms of them being a wash is a pretty good way of thinking about it. So, we had 125 basis points last year, all-in for 2023. We gave a range of 115 basis points to 140 basis points for next year. I think the midpoint is a little above. It’s at 127 basis points, I guess if you did the math. And our view is the interest rate caps will roll off throughout the year and then VII will emerge throughout the year and essentially offset the decline there. And so we think the best way to think about the spreads for the year is relatively flat to what you saw for the full year of 2023. It will give and take here and there. As we point out on the slide, we think VII in the first quarter will continue to be pressured. Obviously, the caps haven’t fully rolled off yet, so we’ll still have income from them. And then as VII merges, you’ll see the caps roll off and they’ll essentially offset.

Okay, that’s helpful. Thanks.

Next, we have a question from Tom Gallagher with Evercore ISI. Please go ahead.

Hi. So your assumed alternative returns are now around 7.5% for 2024. And I think the RBC risk charge, if I was to do a weighted average, would be 15% to 20% on most of that portfolio. Have you considered pivoting some of the portfolio into assets with comparable, let’s say, 7% yields, like private credit or just other fixed income, but much lower risk charges? I’m just thinking about it from the perspective of we’ve had two years of underperformance, your outlook for a third year is below those levels, and rates are higher. And if I think about both your cost of capital and ROE, I think it would be a fairly meaningful positive. Not recognizing you can’t do this overnight, but is that something you consider pivoting or shifting to? Thanks.

Hey good morning, Tom, it’s John. I think the last point you made around you can’t do this overnight is an important piece, but I think direction of travel, that’s probably fair point. And I think we’ve talked about the fact that we are in a different rate environment. So the relative value of investments are probably different than where they were when it was lower for longer. We pride ourselves in diversification. So it’s not that we would make an abrupt shift, but we do believe that making some tweaks to allocations is appropriate in different environments. And I think what you’re referencing is one that we would lean towards. It’s an asset class where you have prior commitments and those – then get deployed judiciously. And actually there's probably some really good opportunities right now that we're leveraging. Having said that, we think distributions will likely outpace new contributions just given our revised level of new commitments. And I think over time you would see a moderate shift in allocation in that asset class versus others.

Okay, thanks. And then just a question on Group Benefits, the 100 basis point improvement in the margin target, or at least the loss ratio targets. Can you comment on what's driving that? Is that stable pricing, sustainably higher disability or lower disability loss ratios, and maybe a little bit on the Group Life side, what you're thinking? Thanks.

Good morning, Tom. It's Ramy here. And I would say at the highest level in terms of our near-term outlook here is, this is driven by the changing business mix, both in terms of the customer segments that we serve as well as the products that we offer. So from a customer perspective, we've executed well on our strategy to target higher growth in regional markets. We're seeing the benefits of that. In terms of growth, regional markets has grown two to three percentage points higher than the overall average, and we see a clear path for that growth to continue. And regional market is a segment that does carry a lower loss ratio across both the life underwriting ratio and non-medical health. And we're also seeing a shift from a product perspective. We've executed well on our employee paid strategy in general, and voluntary strategy in particular and in voluntary we've seen double-digit growth over many years and we expect that to persist in the future given customer needs and the opportunity to drive penetration in the workplace. And the loss ratio here tends to be also more favorable to the overall portfolio. So between that customer segment and that product view, if you think about this over time, we feel kind of a shift to the outlook is warranted. Let me tell you what it's not been driven by. On the Life ratio, this quarter was very favorable and it's really driven, as John pointed out, to the population mortality experience. So this is not one quarter makes a trend, this is one quarter here that was favorable. And we do expect the Q1 numbers to tick up given the seasonality of Life claims. And then on the disability side, our outlook in terms of the ratios does include an expectation that the profitability of our disability line of business will moderate over time. But that is outweighed by the other factors that I've just mentioned. And back to Q1 as well, there – just remember, there's also seasonality in that ratio in Q1 given the seasonality of the dental business. So net-net, think about it as business mix, customer and product mix. That's really driving this shift downwards in the ranges.

That's helpful. Thanks.

Next, we go to the line of Jimmy Bhullar with JPMorgan. Please go ahead.

So the first question on retirement spreads. Can you discuss the driver of the sequential decline in spreads each of the last two quarters? And how much of this is being driven by mix of business versus maybe competition, because what we're seeing is your yields have gone up, but crediting rates seem to be rising even faster than that?

Good morning, Jimmy. It's John. The simple answer just sequentially for us is the lower rates late in the quarter caused a bit of compression on the spread number. Just how – we had the caps were in the money and lower rates were – came in. So it was different than the forward curve at the time of the third quarter when we gave the 135 to 140 range came in at 134 xviii. So that's the main driver. It's not pricing. Pricing has actually been pretty healthy, relatively speaking, we haven't seen any change in pricing. So anything – if anything, it's really just a simple change in the curve.

Okay. And then on the CRE portfolio, you mentioned resolving all of the maturities for 2023. Can you give us a sense of how much of your book is coming due over the next one to two years, especially in office properties? And as you're resolving these loans, are you having to extend more of them than you've done in the past, or are you resolving them similar to how you would have done it over the last several years?

Yes, sure. Jimmy, it's John again. So, just as a reminder, for 2023, just rough percentages of the resolution. About 30% was payoff or refinance. Another 60% was these contractual extensions where the borrower has to be in good financial condition. We have some pretty high level of requirements there. So those are contractual. If you meet those requirements, then you have the right. And they generally be – tend to be more floating rate nature loans, where they're just waiting to lock in fixed rates. There's less than 10% on just, I'll say, maturity extensions. Where we agree with the borrower, there's a good positive situation for us to extend, and then there's kind of a couple of points of foreclosures. In terms of 2024, about 10% of the balance comes due. In terms of maturities, the overall PBO that we have, I'd say that in terms of resolutions, probably a similar mix to what we saw in terms of percentage. And I think in terms of – we gave a little bit of magnitude this past year in terms of what we thought were at risk loans and level of charge offs. Our view in 2024 is that we'd see a similar order of magnitude on both loans at risks and level of charge offs as well.

Thank you.

Next we go to the line of Elyse Greenspan with Wells Fargo. Please go ahead.

Hi. Thanks. Good morning. My first question is on the PRT side. I think we've stopped seeing why the seasonality where deals know much more weighted to the fourth quarter. So just trying to get a sense of your outlook for 2024 and how we should think about the cadence of potential transactions there?

Good morning, Elyse. It's Ramy here. I think you're right to point out that kind of the, we've seen less of that seasonality where we're seeing deals being done throughout the year. Our outlook there remains pretty positive. We continue to see a very healthy pipeline, in particular, a pipeline at the larger end of the market where we are most competitive. And all the macro indicators in terms of what DB plan sponsors are saying, in terms of the funding level, the magnitude of assets sitting in frozen defined benefit plan all kind of indicate expectations of continued kind of high level of activity in this market into 2024. So no change in terms of our view of the robustness of the pipeline and look, if you step back and look at RIS more broadly, the liability exposures are up 3% year-over-year. And most of that growth is coming from our spread and in general account business, which is actually growing at 4%, and that's coming off 2022, where we had the $8 billion PRT deal. And that growth is not just PRT. I mean, PRT was about $5.3 billion, but we're also seeing continued strength across a range of spread-based products, be they structured settlements and be they some of our products in our risk solutions business, and so on.

Thanks. And then my second question: how should we think about dividends to parent that you guys could take in 2024, as you could look to upstream the capital that you guys are getting from the Holdings transaction?

Yes. Hi, Elyse, it's Michel. Thanks for the question. So we talked about the reinsurance transaction as providing us with significant financial flexibility. And as you heard from John, our RBC ratio is approximately 400%. And I would just note here that the 5.2 Holdco cash does not yet include any of the reinsurance proceeds. So the excess capital is sitting in our statutory entities and it will ultimately migrate to the Holdco. We view excess capital as fungible and we will redeploy it over time. And in the absence of attractive organic or inorganic growth opportunities as I think we've built a good track record in terms of being deliberate and expeditious, post major divestitures and how we return capital to shareholders. And as you've seen since we closed on the transaction, we've leaned into buybacks especially in January. I wouldn't sort of consider January as monthly run rate for the full year, but we're going to continue to be opportunistic here. Hope that helps.

And I would just add Elyse, I mean, just too kind of put a finer point on just the financial flexibility and the fungibility of that, I mean, we might, because we have excess capital at the OpCo, we might think differently at the Holdco, it'll depend, right? I mean, I don't think we have to necessarily have it all at the Holdco. We have a range of 3 to 4. It might give us some ability to manage more differently within that range because we have access at the OpCos, I think we just want to, I think the flexibility is the key point.

Thank you.

Next we go to the line of Alex Scott with Goldman Sachs. Please go ahead.

Hi, good morning. First, what I have for you is just going back to the VII guide quickly. Could you frame for us how much of the lower VII guide is maybe a little more specific to first quarter VII and what you see in results that you sort of already have eyes on since it's lagged, as opposed level setting, like the ongoing expectation?

Hey, good morning, Alex, it's John. I'd love to say that we have great insights into the, as a result of having the lag, but I'm not so sure that has proven out the way we thought it would each quarter. I think all we know is that we think, we kind of believe that it'll bump along the, kind of the bottom again before becoming a more meaningful contributor in the outer quarters. We think managers, even though the S&P jumped up in the quarter; it was kind of late in the quarter. We believe managers will be a bit cautious in their yearend remarks and maybe remain conservative before writing investments up based on some of the public market multiples. So that's kind of our base case assumption. We don't have a lot of insight yet in actual financial statements that have come through. So obviously those will come through as we move through the quarter.

Got it. Okay, that's helpful. Maybe for a second one just on what you saw around pricing in group benefits, maybe in the U.S., and LatAm, around yearend enrollment and so forth. I mean, margins are really good. Are you seeing any competition that's starting to heat up there?

Thanks, Alex. It's Ramy here. I would say we're really off to a strong start in 2024. If you look at 2023, overall sales were up 9% year-over-year, as John mentioned. And we saw a very strong persistency in line with our expectations. And we also saw the rate actions that we were able to take also in line with our expectations across market segments. So while there is competition and it is a competitive market, when we think about pricing as well as persistency, I think all the non price factors of differentiations that we've talked about in the past are playing into our favor here. And we've been able to hold margins and as you've seen, we've expanded the margin outlook. One, [ph] I can give you a bit of a flavor on that. We're still in the midst of it, but initial indications in terms of our sales growth are in the 5% to 10% again year-over-year with really solid growth across the product portfolio, across both core and voluntary. So these are really good indicators for us both in terms of volume and margin as we look into 2024.

Understood. Thank you.

And ladies and gentlemen, we have time for one last question from John Barnidge with Piper Sandler. Please go ahead.

Good morning. Thank you very much for the opportunity. Maybe sticking with group benefits. Can you maybe talk about growth in employee counts among your corporate partners, whether it's larger and the small or the jumbo in maybe a viewpoint of one-one renewals with that. Thank you.

Yes. Hey, John, I don't have that number handy. Specifically in terms of employee count. The best thing you could look at for an indicator for that is just overall employment levels because we have a very diversified book up and down market. It's highly diversified by industry. So you could think of us as reflecting the broader economy in terms of our employee count. But the one that I would look at more closely is, and this is where we see a lot of white space with respect to employee counts, is the penetration rate in the workspace. We still see plenty of opportunity to drive penetration of our own products, be they voluntary or employee paid. And that's through the deployment of the right technology, the right tools, the right engagement capabilities. And that's really what's been fueling our voluntary growth over the past few years. And that's where we see continued future growth opportunities.

Thank you for that. My follow up question you talked about the frequency of asbestos claims hasn't declined as expected. Can you maybe talk about that versus what the assumption was? Thank you.

Yes. Hey, good morning, John. It's John. So, as we said, this is something that we look at each third or fourth quarter where we conduct our experience study. This is an exposure where there is a declining claim count, but what hasn't declined as expected or as fast as expected is some of the severe claims. So the larger claims, and that's really what we trued up this quarter. Again, it's kind of a runoff claim count exposure. We've been seeing that for some time. But in the last 12 months, we just saw a slightly different trend that we needed to adjust for. I mean the overall reserves just above 350 million.

Thank you very much.

And I'll now turn the conference back to John hall for closing remarks.

Great. Thank you, Operator. And thank you, everybody, for joining us this morning. Have a great day.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.