Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [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. Please go ahead.

Thank you, operator. Good morning, all. We appreciate you joining MetLife's Second Quarter 2024 Earnings 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. Other members of senior management are also are also available to participate. We released our supplemental slides last night, and they are available on our website. John McCallion will speak to them in his prepared remarks. An appendix to the slides features disclosures, GAAP reconciliations and other information for your review. Q&A will follow prepared remarks, and we'll end just before the top of the hour. As a reminder, please limit yourself to yourself to 1 question and 1 follow-up. Now to Michel.

Thank you, John, and good morning, everyone. We're very pleased with the second quarter results that we posted last night and believe the quarter clearly reflects MetLife's core strength, including the momentum across our businesses and greater predictability of our performance achieved through our consistent execution. The expectations we shared about our about our performance came to pass in the second, in line with our forecast, and in some cases, even better. After normal seasonal impacts in the first quarter, the performance of our flagship Group Benefits Group Benefits franchise shone through in the second quarter. Variable investment income, or VII, performed in line with the expectations we laid out in the first quarter, with the recovery in private equity returns partially offset by the performance of real estate funds, which saw significantly narrower losses in the second quarter. The broad diversification of our businesses has proven to be a fundamental strength for MetLife, creating many natural offsets and allowing us to generate growth while navigating the tides of shifting business and economic dynamics. And our ability to generate strong recurring cash flow, coupled with our discipline to apply capital to its highest and best use, enables us to drive sustained long-term value for our highest. In the second quarter, we reported adjusted earnings of $1.6 billion or $2.28 per share, up 18% from the prior year. The strong result was driven by favorable underwriting, good volume growth and higher variable investment income led by the positive performance I just mentioned. In total, net income in the mentioned was $912 million, substantially higher than $370 million in the prior year period. Strong adjusted earnings growth, aided by our unwavering focus on execution, generated outstanding results measured by several of our key performance metrics. MetLife posted a 17.3% adjusted return on…

Thank you, Michel, and good morning. I'll start with the 2Q 2024 supplemental slides, which provide highlights of our financial performance and an update on our liquidity and capital position. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the second quarter. We had net derivative losses, primarily due to the strengthening of the US dollar versus the yen, as well as higher interest rates. That said, derivative losses were partially offset by market risk benefit, or MRB, remeasurement gains due to the higher interest rates and stronger equity markets. Net investment losses were mainly the result of normal trading activity for fixed maturity securities in a higher rate environment. Overall, the investment portfolio remains well positioned, credit losses continue to be modest, and our hedging program performed as expected. On page 4, you can see the second quarter year-over-year comparison of adjusted earnings by segment, which should not have any notable items in either period. Adjusted earnings were $1.6 billion, up 9% and 11% on a constant currency basis. Favorable underwriting, volume growth and higher variable investment income drove the year-over-year increase. This was partially offset by lower recurring interest margins. Adjusted earnings per share were $2.28, up 18% and up 20% on a constant currency basis. Moving to the businesses, group benefits adjusted earnings were $533 million, up 43% year-over-year, primarily due to favorable underwriting margins. The group life mortality ratio was a record low of 79.1%, well below our annual target range of 84% to 89%, driven by favorable experience across all coverages. The strong group life results mirrored the notably low number of US deaths between the ages of 25 and 64 in April and May, according to CDC data. Regarding non-medical health, the interest-adjusted benefit ratio was 70.8% in…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We'll go to our first question from Tom Gallagher at Evercore.

Good morning. Wanted to ask a couple on the Group Benefits business. First is, can you just unpack the non-medical health results? How were -- how was the underlying disability versus dental? And where -- also, can you just comment on pricing, maybe on both of those products and how you think about renewals? Thanks.

Sure, Tom. Good morning. It's Ramy Tadros here. So, I think just from a headline ratio perspective, just to reference John's remarks, the overall ratio of 70.8, you want to just normalize that for one-off nonrecurring reserve adjustment. So that gets you back into kind of the 72.2 range. So, on your question on dental and disability. So in the second quarter for dental, we did see utilization rates come down from the first quarter. And what you're seeing here is just normal seasonality in that business and where Q1 tends to be heavier in terms of utilization as these benefits reset typically at the beginning of the year. And in terms of how we think about dental and dental pricing going forward, if you step back from the current quarter -- as you know, dental is an inflationary product, and we do deploy a number of levers to ensure we manage and stay within our target margins. And the two, I would highlight here is that the majority of our claims come within our network, which gives us a greater line of sight and control over margin. And the other key lever here is renewal pricing. And this is a business where we remain disciplined in terms of our rate guarantee periods. And in aggregate, we can reprice about 80% of our book every year. And that's exactly what we've been doing. So we've been seeing overall trends in the last kind of, call it, year and a half pick up, and we've seen pressure on margins because of that. And we've been taking appropriate action -- pricing action across the entire block in response to that trend. At this stage, most of these actions are behind us. We've implemented them across the book. And going forward, we'll continue to kind of monitor the trend and take actions as necessary. But just think of that as more business as usual of how you manage an inflationary product like dental. On disability, I would say the underlying block is running very much in line with expectations. We see some slight increases in incidents, but severity has come down and we continue to still see very strong recoveries. And so, the core business continues to be healthy and very much in line. And I would say just on renewals, in aggregate, we're hitting our target renewal pricing across the book. And we're still maintaining very strong persistency here. So we feel pretty good about both the new business, both about the renewal pricing, coupled with persistency and you clearly need to watch both in this business.

Great. Thanks for that, Ramy. And just my quick follow-up. How are you feeling about the level of competition in the market? We've heard about new entrants putting some pressure on sales and pricing. Are you guys seeing that? Or are you -- is not affecting you in terms of margin and pricing?

I mean the short answer is that it's not affecting us. I would overall characterize the market as competitive, largely rational. You occasionally see aggressive pricing, but that is more of a -- of an outlier than the norm here, Tom. I mean our perspective here is also informed by ongoing rigorous surveillance. We look at every single metric in the market on an ongoing basis. And I would say we have not seen any evidence of a change in the competitive environment. The key point here for us is, as we've always talked about before, we have positioned this business to compete on a range of factors, inclusive of price. So while price is important, the basis of how we compete extends to multiple factors beyond price. This is ultimately a scale business, capabilities matter, experience matter, product breadth matters. And the ability to invest, which comes with scale, also really matters. So some of the new entrants that you've referenced are pretty small in terms of their overall premium size, they largely operate at the very small end of the market with narrower capabilities. And we haven't seen any meaningful impact or say, any impact on our book from those new competitors.

Great. Thanks.

We'll move next to Suneet Kamath at Jefferies.

Thanks. Good morning. Maybe just to follow-up on Group Benefits. The earnings power of this business has improved pretty substantially. I mean, normally think about this as maybe a $400 million business and excluding the reserve release, you're over $500 million. Is that sort of a sustainable level of earnings power for this business? Or is there anything that we should be thinking about that maybe broke the right way in the quarter?

Yeah. Good morning. It's Ramy here. Again, I think the one item I would point to here is the Group Life ratio. This is a historical low for us. It's mainly driven by lower volume. And the lower volume, if you step back and look at the CDC data, in terms of the old course [ph] death in the US population, that has come down significantly in the second quarter as well. So I would say that's the one here that was tailwind in the quarter, which we're pleased with. But if you think about our expectations on a go-forward basis, we think mortality will kind of moderate back in line with historical levels. You still see the seasonality that you in this business. And so a better view of that on a run rate basis, I'll bring you back to our guidance range. And if you look at that on a year-to-date basis, we're about 84.7. So I think that's the one that you want to kind of look out for in terms of the, I would say, the one item this quarter, which was material, which gave us a bit of a tailwind here.

Got it. That makes sense. And then I guess on RIS, in terms of the spreads, I mean, think last quarter, you guided to maybe 8 bps to 10 bps of sequential compression. I think you came in much better than that. So just curious what you'd attribute that to? And then how should we be thinking about the progress of that spread as we kind of transition to 3Q and then ultimately 4Q?

Yes. Thanks, Suneet. It's John. Good morning. So as you mentioned, so in the quarter, we came in at 121 basis points, that was within the 115 to 140 guidance. And then if you exclude VII, it was 119. And so a couple of things, right? We saw continued improvement in VII in the quarter. As you mentioned, we expected a decline from first quarter as a result of lower recurring interest margins due to the roll off of the interest rate caps. And we did anticipate it to be 8 to 10. It came in less, and it's primarily due higher-than-expected interest rates which we took advantage of during the course of the quarter. And so it was a little better than we thought. Having said that, I think our guidance that we gave last quarter is we continued to believe another 8 to 10 would occur during the course of the Q3 on ex-VII as most of the of the remaining interest rate caps mature over the course next few months. And then we should see spreads stabilize in most of the in-the-money interest rate caps purchased primarily during kind of pre- and even in the COVID era matures by then. So that's kind of how I would kind of play out the rest of this year. And I think if you go back to what we said at the outlook call, which was, we thought, all in, 2024 would show an all-in spread similar to 2023. And that's generally where we're trending towards.

Okay. Thanks, John.

Next, we'll move to Ryan Krueger at KBW.

Hey, thanks. Good morning. I guess on Japan, could you give some perspective on the sales environment there? I think you had -- it was a tougher year ago comparison, but you had some declines in sales. So just hoping to get a little more color on the different product areas there.

Hey, Ryan, it's Lyndon here. So let me give you some color on sales across Asia, including what we're seeing in Japan. So sales for the quarter grew 5%, including our divested operations in Malaysia. We also saw a 5% growth in assets under management. While Japan single premium FX sales were impacted by the yen weakness, we did see an offset when we look at across the rest of Asia. Japan sales were lower in the single premium US dollar products. But as you said, we're up against a tough comparative. In the second quarter, the weaker yen did impact the overall market for the foreign currency products. And so if we look at the overall banca market, this market has shrunk, but we continue to maintain our share in this space. Look, we have a diversified portfolio, and we are rebalancing between product mix between yen and US dollars. So if you look at the outlook for yen products, it has improved with higher interest rates and also with the positive macro environment that we're seeing in Japan. Now we have introduced a couple of new products, both the variable life as well as cancer product earlier this year. And they both have performed very well. We've got other product launches planned in the pipeline, some coming in later this year, as well as at the beginning of next year. So we've got strong growth in the rest of Asia, and that's also contributing to the overall story. We saw solid performance in Korea, in China, in India, and also strong year-over-year growth in all these countries. And then in the quarter, in Japan, we benefited from a large group case which came on risk in the second quarter. If we look at the outlook, first half actual sales were in line with the prior year, and we expect a similar trend as we go through the second half. So given this, we expect full year sales for Asia to be flat year-over-year. I hope that helps.

Yes. And I would just -- it's a large group case in Australia. I think you mentioned Japan, but...

Sorry, yes, in Australia.

Thanks. One quick follow-up. I think I think you -- I think there's been some elevated surrender activity in Japan. Just -- any more info on that? And to what extent has that impacted earnings in recent quarters?

Yes. Now we did see some benefit in earnings. We saw a 4% increase in adjusted earnings on a reported as well as an 8% increase on a constant currency basis. This was driven both by favorable underwriting given by the surrenders, as well as variable investment income. When you look at surrender activities, it was higher than expected in the quarter, given we had the weaker yen as some customers choose to lock in some of the gains. And if we look at the VII in the quarter, Asia does get a higher allocation of real estate equity funds in the -- and so in the quarter, we did see better performance in the real estate relative to the prior year. We've also had good expense management in the quarter, and that's contributed to the stronger earnings. If you look at the outlook for the year, we expect full year earnings to kind of remain strong, in line with guidance. VII performance will continue to be a factor that will impact our earnings going forward.

Thank you.

We'll go next to Wes Carmichael at Autonomous Research.

Hey good morning. Thanks for taking my question. Maybe just focusing on Japan for a second, but with the SMR ratio around 670% in the quarter, could you maybe just give us an update regarding the transition to ESR in Japan, if there's been any material changes in how you're feeling about implementation at this point?

Wes, it's John. Good morning. So as you mentioned, 670% is our estimate for the quarter. We'll file that in a few weeks. I'd just like to start out by saying no concerns around capital generation or dividends, right? And that ratio tends to have some asymmetrical impacts when rates rise. But as we know, the overall economic value of businesses improved. So the other thing we saw in this quarter is it's generally a heavier cash out quarter for us. We have higher dividends. We pay taxes. So there's a little bit of timing there. And then as you mentioned, the new ESR comes into effect April 1, 2025. We'll report on that for the first time, March 31, 2026. And that is more of an economic framework, one of which that we have typically managed this business. We've used economic as well as stat as we think about like product pricing and development and things like that. So that's kind of a good place to start from. In addition, I'd say implementation is going well. We don't see any big issues. There are some -- a few items that we're just continuing to work through with the regulator. But even if those don't come to fruition, we can certainly manage, but we're hopeful to make some improvements to the kind of the current situation. All in, we're comfortable. And I'd say -- I'd say, supportive of moving from the SMR to the ESR.

Thanks, John. And just maybe switching to the commercial mortgage loan portfolio. I think the loan-to-value ratio has deteriorated a little bit, at least in office quarter-over-quarter. But could you give us an update on your watch list? Any loans that are in the foreclosure process and if there's any properties where you might be expecting to take them on balance sheet?

Okay. Great. Thanks, Wes. A lot in there to unpack, but let me just maybe start with the LTV. So you mentioned -- and we kind of forecasted this in the first quarter. We thought year prior, we had kind of given some peak to trough views. We thought it had another 10% broadly to go in some of the more distressed areas. And as you know, when we go through our annual appraisal process, it happens throughout the year, we typically wait for the second quarter. We find it hard to do it in the first quarter because we'd like to get financial information in our hands before we start that. So 2Q tends to be a heavy revaluation quarter. And so that's kind of what we saw happen generally in line with expectations. Overall, LTV ticked up one point overall. A couple of points more in office. And then as we look out for the rest of this year, probably heavier ones were done in the second quarter. We'll still see some, I'd say, modest deterioration, maybe another point overall in the second half and a little more maybe a couple of points in office. Look, I think it's playing out as expected. Last year, we had write-offs of roughly 20. We think this year, you're in kind of closer to maybe 100, but maybe below. So still modest. We had a little under $30 million year-to-date so far, and we think we're on track for kind of that kind of closer to $100 million of write-offs for the year, very well within kind of the modest area for us in terms of our capital and size and position. So again, we think the environment is -- despite the pressure, economic growth remains healthy and that's actually good news for real estate fundamentals. Despite office sector still probably has some kind of some work to do there, but you also have moderating construction pipeline, which is benefiting all properties. And so this is how this sector generally works out. It takes time. It doesn't happen overnight. You need to be well positioned going into it to be able to kind of manage through the kind of the pressure and the distress. And generally, the demand and supply factors typically work themselves out. So all in all, I think things are performing as expected for us, and no change to our view.

Thanks, John.

We'll move next to Jimmy Bhullar at JPMorgan.

Hey. Good morning. My questions are mostly answered, but I just wanted to follow-up on a couple of points. First, on Japan, the decline in sales that you saw, how much of that is just a function of comps and maybe the volatility in the yen depressing sales of ForEx products versus an uptick in competition or price reductions by competitors or other market dynamics that are causing you to actively pull back?

Hey Jimmy, it's Lyndon here. So yeah, look, we did have a tough comparative last year. I think sales in Japan were up over 40% when we look at last year. So that is driving a lot of the results this year, but we are also seeing a weaker yen, and this has impacted the overall market for foreign currency products. The bank market, as I said, has declined, but we continue to maintain our market position over there. So I do think the volatility in the end is driving some of the decline we're seeing in sales.

Okay. And then on RIS spreads, I think you've been clear that there's interest rate caps that are expiring later this year or in the third quarter. But should we assume that they'll stabilize in 4Q on a core basis ex-VII? And then are there other puts and takes as you're thinking about spreads going into next year, whether it's caps or sort of maturity of blocks or anything else or business coming out of end of period that would drive a shift in spread margins one way or the other?

Hey Jimmy. It's John. Good morning. Yeah, as was alluded to in kind of the opening remarks and earlier is that we do have another quarter of 8 to 10 bps is what we forecasted. Like I said earlier, we thought we were going to have 8 to 10 this quarter, but interest rates were a bit higher than we had assumed at the time we were discussing this in the Q1, and we took advantage of that and a few different things we could do. So then the remainder -- most of the remaining interest rate cash roll off this quarter, and then you should see stabilization. Also, we're projecting VII to marginally increase each of the next two quarters as well, kind of similar to the trend that we saw here. So, that would be kind of the offset comment I'd make to you. And then you should see some stabilization in the Q4. In terms of beyond that, we'll wait for outlook to go through that information.

Okay. And then on competition in Japan, is it still rational? Or are you seeing any evidence of price reductions with the higher interest rates in that market?

Look, I mean it is a competitive environment. But I would say it's rational. We always see a player get more aggressive once in a while, but we continue to maintain our pricing discipline and our focus on profitability. We've got a very diversified distribution platform. We've got a wide range of product set to both yen as well as U.S. dollar. We've got good investment origination capabilities along with strong internal reinsurance capabilities. All this combined kind of puts us in a good position, allows us to differentiate and maintain our competitive position in the market.

Thank you.

We'll go next to Elyse Greenspan with Wells Fargo.

Hi. Thanks and good morning. My first question, maybe starting on the PRT side, can you just give some color just on what you see in the pipeline for back half of this year and just any change in the competitive market for that business?

Good morning, Elyse. It's Ramy here. With respect to the pipeline, we're still seeing a pretty healthy pipeline here, particularly on the larger end of the market, which is where we focus and where we have [Technical Difficulty] advantages. And if you step beyond the next couple of quarters, there are just secular trends here that bode really well for us and how we're positioned. If you survey corporate DB plan sponsors and survey after survey, including ours, they all point to a significant and rising proportion of those plan sponsors who are looking to derisk and transfer the risk. You also have a very large stock of corporate DB assets, $3 trillion if you look at the private market only. And you've got funding status that's pretty good, which makes all of these risk transfers a lot more affordable. So these will always be lumpy, but sitting here now, looking at the rest of the year, we're seeing a pretty healthy jumbo pipeline. And we're also very pleased with what we've done this quarter. As you saw, we did $3.5 billion of PRT. And we're clearly very pleased with our performance here.

Thank you. And maybe the second question on Asia, the earnings were pretty strong in the quarter. I think you guys called out favorable underwriting maybe in the prepared remarks. Anything just more to think about just kind of the run rate earnings within that segment and anything that stood out in the quarter?

Yeah, hi Elyse, its Lyndon here. As I said earlier, I mean, we're pleased with the overall results in Asia or earnings in the quarter. We did see higher-than-expected surrender activity, and that was driven by the weaker yen as some customers start to lock in their gains. And that was higher than expected in the quarter. In addition, we did see Asia does get a higher allocation of real estate equity funds. And in the quarter, we saw better performance in real estate relative to the prior year, so those two are sort of drivers for the strong earnings results in the quarter for Asia.

Thank you.

We'll take our next question from John Barnidge at Piper Sandler.

Good morning. Thank you for the opportunity. With the capital regime change in Japan, is there an opportunity to broaden out the Bermuda platform, create more capital-light model? Thank you.

Hey John, it's John. Good morning. I'll take that one. So look, I think that's something we've always had in place for quite some time. We actually have two Bermuda entities right now. And we've had them for close to a decade in place. So it's a tool we have used and probably one that we have used successfully with some of our Japan products. I think ESR will allow you to reevaluate some of that and determine what's fit for purpose. And it's really -- we look at -- one of the factors we always consider as we kind of take our own internal economic model and think about what's a prudent level of capital and then we evaluate that relative to some of the jurisdiction requirements. So -- but certainly, Bermuda has been and continues to be an optimization tool for us. And I think we'll continue to do that, not just -- and by the way, not just with Japan, sometimes we use it with other jurisdictions as well.

Thanks for the answer, John. And my follow-up question is on the opportunity to leverage the large data that you have. Can you talk about the opportunity set? Is it about driving greater profitability or revenues or close rates of persistency? Thanks.

Hi, John, it's Michel. Thanks for the question. So as I mentioned in my remarks, we've been investing in technology and capabilities and -- that's part of our sort the efficiency mindset that we've built here, freeing up capacity to make those important investments. And the fact that we have size here, we have a lot of data, obviously, is an advantage because we're able to leverage this data. And I would say there are three areas where we've seen, in some cases, early signs, in other cases, more advanced signs of real impact on progress. One is around the customer experience. And again, if you think about that, very important in terms of meeting not only current but future customer expectations, driving our competitive advantage. I think the other area where we're seeing a potential impact is around driving revenue growth. So technology and data can help drive that. And the third area is around efficiency. And again, here, we see significant opportunities. You can see from our direct expense ratio, which has come in at below the 12.3 [ph] guidance that we provided in the first half. And our expectation is that whereas we'll see sort of a tick up in the second half, which is typical, we will still expect to come in under the 12.3. And I would say, going forward, those investments that we're making and our ability to leverage data will continue to drive sort of a downward trend when it comes to that as well.

Thank you for that.

And we'll move next to Mike Ward at Citi.

Thanks, guys. Good morning. I was hoping to ask about holdings to your scheme. I'm curious how active those discussions are? Any kind of pressure or change in activity to execute before Fed cuts? Or is it agnostic to that, but any update?

Hey, Mike, good morning. It's John. Thanks for the question. I think I can't remember the last time we spoke about this, but I'd say that obviously, we did the transaction back in November of last year. And think the environment has continued to progress is way I think we would put it. We are still in the same position today, which is that we don't -- we are continuing to meet with third parties. We continue to explore opportunities. This needs to be kind of a win-win, but there's no burning platform where we have to do something. So it's a real -- it's an opportunity. It's not a requirement for us to or a necessity for us. And so -- but that requires continuous discussions, evaluations, reviews We did a large nontraditional life transaction last year. We generally have traditional life blocks left. We have obviously LTC, and then we have VA. And obviously, the traditional life is very attractive to people, but it's also attractive to us in terms of returns. So I think that would be a price one. And then the other ones, there's limited supply of partners that would be willing to kind of think about that. So you're talking about a more narrow universe. So you continue to discuss those things, and we're happy to manage it ourselves. But if we're able to find unique opportunities, then we'll do that. But I would say it's gotten -- discussions continue, but no material changes in terms of momentum.

Helpful. Thanks, John. And then maybe on private credit. It seems to be an area of attention, maybe a bit frothy. Just curious how you guys see that landscape? Are you leaning in or being more cautious? And I guess like -- what's your strategy? How do you balance having the ability to originate directly versus investing in some of the boutique shops that you've done?

It's John again. It's an interesting question. I think, first, definitionally, private credit probably has 100 different definitions out there. So that's always a tough 1 to kind of decide which 1 you -- which everyone is talking about. But I think at the end of the day, we have been in private credit, broadly speaking, for 150 years, right? I mean you can -- if you cast a wide net there, whether it's our commercial mortgage loan origination, we have an ag loan platform, we're the largest ag lender outside of the US government. We're -- I think we're the number one infrastructure lender as well. And so -- but we typically were higher grade, and we have some higher-yielding products as well and so we have a number of origination platforms. It's something we've talked about over the years is a unique capability for us. And so -- but to your point, it's an area that everyone has been jumping in. So now you need to be much -- very disciplined in your approach. There is kind of a -- kind of view around the term private credit. And so we have approached it our way, which is for the long-term is the way we think about it. And -- so I think that's used to our approach and everyone has their own unique approach to it, but we're -- there are sectors that much more competitive today that I think we would say you need to be mindful of.

Thanks, John.

And that concludes our Q&A session. I will now turn the conference back over to John Hall for closing remarks.

Great. Thank you, operator, and thanks, everybody for joining for joining us this morning. Have a great summer.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.