MetLife, Inc. (MET) Q3 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Third Quarter 2026 Earnings 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, Treasurer and Global Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to MetLife's Third Quarter 2026 Earnings Call. Before we begin, please review the information on non-GAAP measures in our earnings release, in our quarterly financial supplement and in our earnings call and investor presentations, all of which can be found on the Investor Relations website at metlife.com. On the call today are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer and Head of MetLife Investment Management. Other members of senior management are also available to participate. This morning, John will speak to the earnings call presentation we released last night on our website. An appendix to the deck features disclosures, GAAP reconciliations and other information, which you should review. After prepared remarks, we will have a Q&A session that ends at the top of the hour. As a reminder, please limit yourself to 1 question and 1 follow-up. Now to Michel.

Thank you, John, and good morning, everyone. The third quarter was another excellent quarter under our New Frontier strategy. We delivered MetLife's highest adjusted earnings per share quarter ever with top line growth across all operating segments. More importantly, the quarter extends the pattern we have demonstrated throughout the year, broad-based growth, attractive returns and disciplined capital management. Variable investment income was a significant contributor this quarter, particularly through private equity and venture capital returns. While VII amplified the quarter, it did not define it. We also delivered strong underwriting and volume growth across the enterprise. No single business drove results. That breadth is the central strength of MetLife. Our complementary capital-light and capital-driven earnings engines allow us to create value in different ways and across different market environments. Underwriting margins, fees and spread income generate durable earnings and recurring cash flow. We reinvest that cash where MetLife has structural advantages and return excess capital to shareholders. The engines also reinforce one another. Our retirement businesses originate liabilities backed by long-term assets, and we use insurance and third-party capital to support that growth. MetLife Investment Management manages most of the assets, adding fee income and expanding our capital-light earnings. This efficient model helps fuel growth and generate capital to reinvest. It is a model designed to compound. Two years into New Frontier, the evidence that the strategy is working as intended is increasingly clear. Year-to-date, adjusted earnings per share, excluding notable items, are up 22%, with adjusted return on equity above 17%. The sources of growth vary from quarter-to-quarter, but the pattern is consistent, broad-based execution, attractive returns and strong cash generation. Now to the third quarter numbers. We reported adjusted earnings of $1.8 billion or $2.78 per share. That includes $46 million of notable items, primarily from our annual actuarial assumption review. Excluding notable items, adjusted earnings were $1.8 billion, up 17% and adjusted earnings per share were $2.85, up 22%, both from a year ago. Variable investment income totaled $720 million pretax on private equity returns of more than 4% versus 3% a year ago. Our direct expense ratio was 11.9%, on track to beat our 12.1% full year target. Productivity is a big driver of that, and AI is a growing part of it. AI is a force multiplier for us. It's helping us grow, improve customer experience and operate with greater speed and precision, all while holding down our ratio as we absorb the acquisition of PineBridge Investments, a structurally higher expense business. Adjusted return on equity, excluding notable items, was 19.6%, well above our full year 15% to 17% target range. This is what compounding looks like. We earn a high return on equity, return capital to shareholders and still grow adjusted book value per share, up 5% from a year ago to $59.41. Turning to the performance of our businesses. Starting with Group Benefits, adjusted earnings were $523 million, excluding notables, up 14%. Life underwriting was favorable as broad-based improvement in working age mortality continues. The group life mortality ratio was 79.5%, well below our target range. The non-medical health ratio was 72.3%, just below the midpoint of our target range. On an adjusted basis, our premiums, fees and other revenues, or PFOs, increased 5% when you exclude participating contracts with sales up 12% year-to-date. In my view, Group Benefits is the most attractive segment of U.S. life insurance, and MetLife is far and away best-in-class across the widest array of products and markets in the industry. This unparalleled scale translates to above-market growth with close to $26 billion of annual PFO. And these capital-light PFOs turn into adjusted earnings with a high free cash flow conversion ratio. Moving to Retirement and Income Solutions, or RIS. Adjusted earnings, excluding notable items, were $478 million, up 12% on higher investment margins and volume growth. Adjusted PFOs, excluding pension risk transfers, increased 33%, driven in part by U.K. longevity reinsurance and retained liability balances were up 7%. While U.S. pension risk transfers activity has been lighter this year, we see this as timing, not a structural change. High funding levels provide plan sponsors with execution flexibility relative to timing and structure and the intent to derisk remains strong. All key observations from our annual pension risk transfer poll of plan sponsors. And this highlights a core strength of our retirement business, its diversified multichannel and multiproduct breadth. Alongside PRT, we are a leader across U.K. longevity Re, U.K. funded Re, structured settlements, stable value, corporate-owned life insurance, and we have a growing presence in U.S. retail annuity reinsurance. Our broad scope and leading positions mean we are not reliant on any single retirement market, and we're able to pivot to those opportunities that represent the highest and best use of our capital. In Asia, adjusted earnings, excluding notable items, were $550 million, up 21% on a constant currency basis. Results benefited from higher VII and favorable equity markets performance. Adjusted PFOs rose 5% on a constant currency basis with Korea continuing to show strong momentum. In Latin America, adjusted earnings were $229 million, excluding notable items. The result was impacted by market conditions in Chile, resulting in a negative encaje return. What stands out here is our momentum. Adjusted PFOs grew 14% on a constant currency basis, led by Mexico and Chile. As the #1 life insurer in Latin America, we reached about 30 million customers across group, agency and direct channels, including our Xcelerator embedded insurance platform. In EMEA, adjusted earnings were $114 million, excluding notable items, up 30% -- this was above the $90 million to $100 million quarterly run rate we've discussed, driven by volume growth. Adjusted PFOs grew 17% on a constant currency basis. Embedded insurance is working here, too. Our new multi-market partnership with Revolut, one of Europe's largest digital banks, offers a seamless integrated customer experience. This is part of a larger story on MetLife being able to leverage its capabilities on a global scale. We're applying the digital lessons we've learned and the capabilities and experience we've built in Latin America, in EMEA and soon Asia as well, demonstrating the power of One MetLife. At MetLife Investment Management, or MIM, adjusted earnings were $63 million, up 9% and 19% year-to-date, reflecting the addition of PineBridge and sequential profit margin expansion. No single business carried the quarter. Group-led on underwriting, RIS and Asia on investments, Latin America and EMEA on top line growth. This is diversification at work, and it underscores the all-weather nature of our results. Against a favorable backdrop for the life insurance industry, including higher rates, stable credit and rising demand for retirement products, our strong capital position gives us multiple attractive avenues for growth. It all starts with our steady recurring capital generation and free cash flow and our disciplined framework for deploying. Organic growth comes first, where we have structural advantages and can earn attractive risk-adjusted returns. We hold every dollar deployed to support new business to a strict return standard, and we track the value it creates, VNB, or the value of new business. We have done this consistently for more than a decade. At the start of this journey 10 years ago, we put $2.9 billion of capital to work at an internal rate of return of 12% and a payback period of 8 years. Fast forward to last year, where we deployed $3.8 billion at an IRR of 19% and a payback of 5 years. More capital deployed at a higher IRR with a faster payback. That discipline has been compounding, and it is showing up in our rising return on equity. After funding attractive organic growth, we consider acquisitions, but only when they add a strategic capability and meet our stringent financial criteria. A deal has to earn at least as much as we earn by investing in our own business or buying back our shares. Beyond those opportunities, we consistently return excess capital to shareholders. In the third quarter, we repurchased $650 million of our common shares and another $265 million in October. Year-to-date, that brings total capital return to shareholders to roughly $3.5 billion through both buybacks and common stock dividends. Liquidity remains strong with holding company cash and liquid assets totaling $3.4 billion at quarter's end. To close, the recurring revenue model under New Frontier is firing on all cylinders. We have market-leading businesses, 2 complementary earnings engines and a disciplined approach to capital allocation. Together, they produce durable earnings, recurring free cash flow and multiple avenues for profitable growth. We regularly pressure test our strategy with our Board of Directors, including an in-depth review during the third quarter. That work reinforced our conviction in New Frontier and in MetLife standing as a quality compounder, a company capable of delivering differentiated earnings growth, attractive returns and consistently returning capital to shareholders. This was a record quarter, but the more important point is the pattern behind it. The model is working. The breadth of growth is increasing, and we are executing with discipline. With that, I'll turn it over to John to walk through the results in more detail.

Thank you, Michel, and good morning, everyone. As Michel outlined, we continue to see strong momentum across the enterprise. And what stands out is the quality of that growth. We're generating attractive returns, maintaining expense discipline and deploying capital into opportunities that create long-term value. Those are important characteristics of our model. They allow us to invest in growth, generate strong free cash flow and return excess capital to shareholders, all while maintaining a strong balance sheet. I'll walk through the third quarter results and then spend some time on several proof points behind that performance, including our expense discipline, the returns we're generating on new business, the quality of our investment portfolio and our cash and capital position. Starting on Page 3. We again exceeded our key financial commitments. Adjusted EPS, excluding notable items, grew 22%, well above our double-digit target. And adjusted ROE, excluding notables, was 19.6%, on track to exceed our annual 15% to 17% target range. Our direct expense ratio was 11.9%, keeping us on track to beat our 12.1% annual target. And importantly, these results build on strong performance throughout the year. Year-to-date adjusted EPS, excluding notable items, is up 22% and adjusted ROE is above 17%. For the quarter, net income was $2.4 billion or $3.67 per share. Adjusted earnings were $1.8 billion or $2.78 per share. Net income exceeded adjusted earnings by about $570 million, mainly due to a noneconomic accounting gain following the rise in interest rates in the quarter. The balance of the difference reflects net investment losses, including normal trading activity, partially offset by market risk benefit gains, and our credit outlook remains stable. Turning to Page 4. Let me provide some additional detail on the notable items Michel referenced. As we do each third quarter, we completed our annual global actuarial assumption review, which had a modest overall impact. This review, together with other insurance adjustments shown on Page 4, reduced adjusted earnings by $46 million or $0.07 per share. Retirement and Income Solutions, or RIS, had an unfavorable impact due to lower mortality, which was largely offset by favorable economic and mortality updates in Asia. Now let's look at the underlying business performance on Page 5, and all comparisons here are year-over-year and exclude total notable items. Adjusted earnings increased 17% to $1.8 billion, driven by higher variable investment income, or VII, volume growth and favorable underwriting. Higher expenses, mainly employee-related costs, were a partial offset. Adjusted EPS grew 22% to $2.85, supported by disciplined capital management. Starting with Group Benefits. Adjusted earnings were $523 million, up 14%, primarily driven by favorable underwriting. The group life mortality ratio was 79.5%, below our 2026 target range of 83% to 88% and better than the 83.4% a year ago. Mortality among the working age population remained favorable. In non-medical health, the interest-adjusted benefit ratio was 72.3%, within our 70% to 75% target range. It improved 160 basis points from the last quarter, consistent with seasonal dental utilization. Growth also remained healthy. Adjusted PFOs rose 3% or 5%, excluding participating contracts and year-to-date sales were up 12%, driven by strong performance in both national accounts and regional business. In RIS, adjusted earnings were $478 million, up 12%, driven by higher investment margins and volume growth. Stronger private equity returns lifted the total investment spread to 130 basis points, above our 100 to 120 basis point guidance range. Core spread, excluding VII, was 99 basis points, in line with expectations. Adjusted PFOs, excluding pension risk transfers, rose 33%, mainly driven by higher sales of post-retirement benefits and U.K. longevity reinsurance. Total retained liability exposures grew 7%, above our 3% to 5% outlook range. Given the strength of the business year-to-date and assuming normal VII in the fourth quarter, we expect full year RIS adjusted earnings to finish slightly north of the midpoint of our $1.6 billion to $1.8 billion outlook range. Asia delivered adjusted earnings of $550 million, up 17% or 21% on a constant currency basis. Higher VII was the primary driver. Favorable equity markets and volume growth also contributed to the strong result. These benefits were partially offset by less favorable underwriting against a particularly strong prior year quarter. General account assets under management at amortized cost were up 4% on a constant currency basis. Asia sales declined 6% on a constant currency basis against a strong prior year comparison. However, year-to-date sales are up 10% on a constant currency basis, led by Japan and Korea. In Latin America, adjusted earnings were $229 million, up 3% or down 5% on a constant currency basis. Strong volume growth was largely offset by a weaker encaje return of negative 3% compared with a positive 6% in the prior year period, which created a year-over-year headwind of about $30 million. Top line momentum remains strong and broad-based across the region, with adjusted PFOs up 22% or 14% on a constant currency basis and sales were up 6% on a constant currency basis. EMEA adjusted earnings increased 30% to $114 million or 37% on a constant currency basis, driven by volume growth. EMEA's continued expansion drove adjusted PFO growth of 14% or 17% on a constant currency basis, supported by strong sales momentum and solid renewal activity. Sales rose 16% on a constant currency basis. As the business scales, growth is translating into increasingly consistent and durable earnings. At MetLife Investment Management, or MIM, adjusted earnings were $63 million, up 9%, reflecting business growth, including the addition of PineBridge. Total AUM was $723 billion, up 14%, including institutional client AUM of $308 billion, up 45% from a year ago. Total AUM declined $25 billion sequentially, primarily reflecting higher rate mark-to-market impacts on public fixed income. We remain on track for full year adjusted earnings within our $240 million to $280 million target range. Finally, Corporate and Other reported an adjusted loss of $131 million compared with a $159 million loss a year ago. Higher VII and lower preferred dividends following last year's redemption of the Series G preferred stock more than offset higher employee-related costs. The company's effective tax rate on adjusted earnings in the quarter was 23%, modestly below our 2026 guidance range of 24% to 26%. On Page 6, we provide a 5-quarter view of pretax VII. At $720 million in the third quarter, VII was well above our implied quarterly guidance of $400 million. As we anticipated last quarter, stronger private equity returns drove the outperformance. Average returns were 4.2%, led by venture capital, reflecting strong IPO activity and public market valuations. As a reminder, private equity and real estate and other funds are reported on a 1 quarter lag and mark-to-market. Year-to-date VII is approximately $1.5 billion, putting us on course to exceed our full year guidance of approximately $1.6 billion. Page 7 shows how post-tax VII is distributed across the business segments and Corporate and Other. As of September 30, total VII assets were $18.8 billion with 48% in Asia, 26% in RIS and 22% in Corporate and Other. Each business has its own discrete portfolio constructed to align with the long-term nature of their obligations. On Page 8, our third quarter direct expense ratio was 11.9% compared with 11.6% a year ago and 11.7% for the full year 2025. Year-to-date, the ratio is 12%, below our 12.1% target, even as we absorb roughly 50 basis points from PineBridge. Strong PFO growth and continued expense discipline, including AI and technology-driven productivity gains are helping offset higher employee-related costs. We manage expenses on a full year basis and remain on track to beat our target. Let me turn to Page 9 because this gets into an important part of our capital allocation story, not simply how much we grow, but the value we create from the capital we deploy. In 2025, we deployed $3.8 billion of capital and generated $2.8 billion of value of new business, or VNB, up 8% from 2024, with new business premium growth in every segment. For the third straight year, we achieved a 19% internal rate of return and a 5-year payback compared with 2021 as 2 points better on IRR and 1 year faster on payback. And over that period, VNB grew 50% from $1.9 billion to $2.8 billion, while capital deployed increased by only about 1/3 from $2.8 billion to $3.8 billion. So we're generating more value from each dollar of capital deployed. That's the capital efficiency we're focused on. It also creates a reinforcing cycle. Attractive returns and faster payback support capital generation. That capital can then fund the next round of attractive growth or be returned to shareholders. Adjusted ROE, excluding notables, is above 17% year-to-date. And last year's free cash flow ratio exceeded the top end of our 65% to 75% target. Our approach is straightforward. We lean into opportunities when returns clear our hurdles, and we remain disciplined when they don't. The same focus on risk-adjusted returns applies to our investment portfolio. I want to spend a moment on our exposure to AI-related infrastructure, given the increasing attention this area is receiving. On Page 10, starting on the left, our hyperscaler exposure totals $1.6 billion. Most of it, $1.4 billion, is public fixed income and the other $200 million is private fixed income. The entire hyperscaler exposure is investment grade with an average rating of Aa3 and a weighted average life of approximately 17 years. On the right, our data center exposure totals $2.5 billion. About half, $1.3 billion, is private fixed income, followed by public fixed income of $1 billion and real estate is approximately $200 million. Over 95% of the fixed income is investment grade and the weighted average life is about 4 years. Combined, our exposures totaled $4.1 billion. Each category represents less than 1% of our general account, making this a modest exposure relative to the overall portfolio. And importantly, we have no delinquencies or impairments in either category. The takeaway is that these are high-quality, diversified exposures and modest relative to our balance sheet. As the opportunity set evolves, we'll continue to apply the same disciplined underwriting and risk-adjusted return standards we use across the portfolio. Now let's turn to capital and liquidity on Page 11. We continue to operate from a position of strength, giving us the flexibility to fund attractive growth while returning excess capital to shareholders. As of September 30, holding company cash and liquid assets totaled $3.4 billion within our $3 billion to $4 billion target buffer. We returned approximately $1 billion to shareholders in the third quarter, including $380 million of common dividends and $650 million of share repurchases. In October, we repurchased another $265 million of shares, bringing year-to-date share repurchases through October to $2.4 billion. Our capital allocation framework remains consistent and our strong capital and liquidity gives us the flexibility to execute against it. For our U.S. companies, we estimate total statutory adjusted capital on an NAIC basis of approximately $17 billion as of September 30, up 3% from June 30. Finally, in Japan, our economic solvency ratio, or ESR, was 192% for the fiscal year ended March 31, 2026. That's just above the top end of the 170% to 190% range we previously discussed. Let me close with 3 takeaways. First, this quarter reinforces the quality and the breadth of our growth. We delivered strong underlying performance across the enterprise, and our diversification continues to give us multiple sources of earnings growth. Second, we're focused on making the growth increasingly valuable. Our expense discipline, strong returns on new business and improving capital efficiency are helping translate growth into higher returns and strong cash generation. And third, our balance sheet and liquidity give us the flexibility to keep investing where we see attractive opportunities while continuing to return excess capital to shareholders. Taken together, this is how we see New Frontier creating long-term value: durable growth, attractive returns, disciplined capital deployment and the financial flexibility to keep compounding. We're pleased with our progress and confident in our ability to deliver on our 2026 commitments and our longer-term objectives. With that, I'll turn the call back to the operator for your questions.

[Operator Instructions] Your first question comes from the line of Ryan Krueger from KBW.

Start with non-medical health. Can you unpack the loss ratio you saw in the quarter a little bit more between disability and dental. I'm sure you've seen that many companies in the industry have seen weaker disability results. So I wanted to understand how that impacted Met and then separately, what you saw in dental.

Ryan, it's Ramy here. Let me just begin by saying for the quarter, we're really pleased with our overall group results, solid year-over-year growth, both in top line and bottom line. So our non-medical health ratio is a part of that. And as you stated, it does include disability. That number, as you see, is right in the middle of our guidance range as well. So let me just unpack that for you and specifically start with disability. We saw some puts and takes in the quarter with disability. We saw a slight increase in severity. We had offsetting items there, inclusive of very strong recoveries in terms of claims closures. And that's a direct result of the investments we continue to make there. So we're really pleased with the results there. Overall, incidence do remain broadly in line with our expectations. Coming into '26, we did expect and plan for an uptick in incidence. And we did see an increase in claims submissions. And in particular, we did see an increase in mental and nervous claims over the course of the year. But again, overall, the results are broadly in line. And as you kind of look forward and think about disability and the broader non-medical health ratio, look, disability is a line that could be impacted by the macro environment. We will continue to monitor this carefully and continue to be proactive in terms of putting all the right levers in place to stay within our target margins, and you saw us do that this year. The other point I would make and just to add to the dental piece is diversification matters. So we are benefiting from the actions, pricing, network growth that we've done on dental in terms of our loss ratio there. And disability is about 15% of our premiums. So when you put all of that together, we feel we're really well positioned going into the future.

And then one on expenses. I think they were somewhat impacted negatively by stock compensation from your stock move. Can you size that at all? Just to help us understand how that impacted results?

Ryan, it's John. It was probably maybe 1 point or 2 on the expense ratio. So overall, like you said, we had an increase in incentive comp going into the quarter. So it's probably, like I said, probably a point or 2 on the expense ratio is probably the best guide.

Your next question comes from the line from Suneet Kamath from Jefferies.

Just on Group Life, we've seen this working age mortality phenomenon continue to benefit the industry as a whole and you guys as well. Is your sense that -- and again, I think we've talked about this in the past that some of it could be COVID pull-forward and those types of things. But is your sense that we're sort of running -- it's run its course at this point? Or would you expect that this favorability could continue? And at what point does it sort of get factored into pricing?

Suneet, it's Ramy. Look, it's very hard to predict this. There are different potential drivers for the favorability. There's the pull-forward effects and there are other kind of contributors there. But the way I would think about it as it translates to our financial results is this is a competitive market. And should these trends continue, we would expect the favorability to gradually normalize over time, but gradually being the operative word here. We have a business largely national accounts skewed and the renewal cycle is 3 to 5 years. So think about this gradual normalization happening over the period of years versus quarters. The other point I'll just make for you is we've had a really good outcome this year. It wasn't just all population. We had a mild flu season in Q1. We had now 2 quarters of lower severity, which I would not necessarily trend. So looking at the very near term, I think Q4 and Q1, we would expect a seasonal uptick in both of those quarters, largely driven by normal flu seasonality. So think about that as the short-term dynamic and juxtaposed with the long-term dynamic that I just talked about earlier.

Okay. That's helpful. And then I guess for John, on the VNB stuff, if we track this over a little bit of a longer period than you show on your slide, I think you're up maybe 500 basis points in terms of IRR over the past 10 years. And I guess I'm wondering if you've done any work on sort of what the components of that improvement or what the drivers have been? How much of it has been interest rates, how much have been mix, how much have been cost? Just to get a sense of how sustainable the current levels are.

Yes. Thanks for the question, Suneet. It's John. Yes, it's hard probably to be really precise around that. You are right. It's probably 500 basis points, maybe even plus, but in the -- if you compare it to when we ultimately started the first time. I would say that if we step back and think about what was the biggest driver, it was putting the tools into the hands of our leaders to make good decisions holistically around things like product design, like you said, expense management because you see the power of unit costs and the present value of those benefits coming through. Interest rates are a component to your point. So we have seen an aspect of that. So I would probably feel pretty balanced around all those things in terms of what the contributions have been. But I think overall, probably -- like I said, the most important thing has been culturally and from a DNA perspective, getting those tools and the value-driven mentality into the hands of our leaders has been probably the biggest driver of the change.

So presumably pretty sustainable then?

Yes, we believe so. And I think the other thing to highlight is we've also seen kind of our mix, and we've talked and Michel opened with this around kind of how we're talking about these 2 complementary engines. And we've seen a growing mix of capital-light. We still favor our capital-driven businesses, and we feel like there's good growth opportunities there as well. But from a mix perspective, we are seeing a higher ROE group of businesses take a higher proportion of our earnings. And then also remember, we've been -- there's been an accelerated runoff of our legacy retail business, which has a lower ROE. So all of those things are factoring into the sustainability.

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

First question for Ramy. How do you see this pricing for disability situation playing out given recent competitor elevated claims? You mentioned your own claims are a bit elevated because claims are elevated, but the ROEs in the business are still very good, I believe. Should we think about it as maybe a soft market neutralizing on pricing? Or do you think this actually hardens the market and we start to see rate increases here?

Thanks, Tom. I think, look, as an industry, we always said and we still see this to be a competitive but rationally priced industry. So whenever you see an uptick in trend, we have seen the industry react and look to get back to its target margins. And a lot of that is driven by the very short-tail nature of the business and the ability to reprice. And we are a market leader here, and we continue to lead the way. So you saw us do that in dental last year. You saw us coming into this year with an expectation of rising incidence after what has been a few good years, and we baked that into our plan. We bake that into trend. And so that's kind of part of how we approach this. The other piece I would say, when we look at it, the power of diversification for us is really important, right? And that means that when we look at an account-by-account basis, we typically have a bundle. We don't have a single product. And we're, therefore, able to make the bundle attractive, get the right economics at an account level and get those rate increases that we need, be it in disability or other lines. So this is very much a strategy that is sitting at the account level. But again, to your overall question, we think pricing will reflect experience. We certainly have been planning for an additional uptick in trend in disability and are also planning for that next year, and that's reflected in our pricing and rate actions.

Got you. Follow-up, John, can you comment at all where you stand on capital management as it relates to potential risk transfer deals with MetLife Holdings or potential reinsurance with Chariot Re? Any updates? Or where do you see that market evolving for you?

Yes. I think I would say things haven't changed, broadly speaking, when it comes to risk transfer or leveraging Chariot. I'd say just on the Chariot side, we continue to progress. We actually just had another deal closed at the end of the quarter. And again, if you just step back and think about what we're trying to accomplish there, we see a lot of attractive opportunities to grow our retirement businesses. We can do that by leveraging third-party capital. That third-party capital can result in additional MIM fees for us. So we are still looking at Chariot as a strategic growth opportunity for us. On the risk transfer side, and maybe I'll have Ramy share some insights just from his perspective. But I would say nothing has changed from our perspective. We continue to look and talk with third parties. And at the same time, we have no burning platform to have to do anything. But if we see good opportunities out there, and we do see markets continuing to evolve, then we would look to take advantage of that. I don't know if you want to add anything, Ramy.

No, I think you've captured it well, John. Nothing to add here.

Your next question comes from the line of Wes Carmichael from Wells Fargo.

Just the first one on RIS spread. I think the base spread ticked down maybe a basis point to 99 basis points in the quarter, but long-term rates have been a little bit more volatile recently. So I'm just wondering how you're seeing base spread trending from here.

Wes, it's John. Just maybe start with overall, obviously, we're above the range in total. We're at 130 basis points in the quarter, so up sequentially. And certainly, the VII drove the beat, while core spread remained very stable within our 95 to 100 range that we've referenced in the past and therefore, in line with expectations. We -- while rates have been volatile, I think what we've talked about is that we see -- we continue to see stability in the spread. And probably that would be our sense for fourth quarter as well. We still believe on a core basis that we should be within the 95 to 100, so that stability will remain. And then from a VII perspective, we're assuming we get back to the normal $400 million run rate. So we would be within the $100 million to $120 million come 4Q for RIS.

All right. And just maybe a higher-level question on capital and maybe it ties into the VNB and payback period discussion. But just looking forward, I'm wondering if you're seeing the direction of travel for free cash flow conversion changing at all. I know you have your 2-year target of 65% to 75% free cash flow conversion. Just wondering if you're seeing that change in the business or if you're thinking about investing more into organic growth given the opportunity set.

Yes. I think to your point, maybe a few factors to consider. One, let me just start with, we still feel comfortable with our 65% to 75% range that we provided. I think the other thing to highlight, though, is that we've seen good growth across all our businesses. And to your point, we want to kind of maintain that growth. We think we can maintain and support that strong, healthy breadth of growth that we have while maintaining our 65% to 75% free cash flow ratio. So -- and I think if you look back, our -- I'd say our growth rate right now as a firm is incrementally stronger in totality. Obviously, we have less of a runoff business than we used to have. I think all the businesses are generally performing well across the board. So I think if you take that all into context, capital generation is probably stronger, but our growth is also higher, and we're still maintaining our 65% to 75% free cash flow ratio.

Your next question comes from the line of Alex Scott from Barclays.

I wanted to start on expenses. I appreciate you guys have been outperforming the expense ratio guidance that you've thrown out there. How do you see that progressing as we think through heading into 2027?

Yes. Alex, it's Michel. Yes, we're really pleased with the continued expense discipline, I would say, that we're seeing. And keep in mind that we've had to absorb a higher expense business in PineBridge this year. That's about 50 basis points. And yet we're coming -- we're expecting to come in below the 12.1% target for this year. And we're seeing benefits here from investments we've made in technology. AI, in particular, has been, I would say, a force multiplier. We will continue to do so as we move forward here. And it's helping us both on the efficiency front as well as on the growth and revenue front as well, which is why we like the expense ratio, direct expense ratio as a proxy in terms of the progress we're making on that front as well. So all in all, I would say there's good inertia here. And so as we look forward, I think we see opportunity to continue to drive that ratio down. For the time being, we are sticking with the 11.3% ratio that we talked about at Investor Day. And that's the 2029 ratio. But -- and if we need to update things, we'll keep you posted.

Japanese business' cash flow. Obviously, the ESR is in a healthy spot. But could you talk a bit about just the cash flow you're seeing from that business? And we've seen some other companies ramp up reinsurance to provide a little bit more cash out of the Japanese business as well. So do you have any opportunities there to do reinsurance?

Yes. Alex, it's John. I'll take that one real quickly. Yes, first, and maybe I'll let Lyndon comment on just the growth, but we've seen great growth in that business. And you look over the last few years and how that business has continued to drive through innovation and the distribution network we have. It's been really, really strong and incredible. Having said that, we do leverage reinsurance as well internally, and we have been doing that. So this is -- we're really not changing tack. We're kind of staying the course. So at times, we leverage for certain products, reinsurance and other ones, we don't. And so I wouldn't say there's any opportunity to change what we're doing. It's a continuation of what we're doing.

Your next question comes from the line of Wilma Burdis from Raymond James.

Could you break down in the quarter between private equity and venture capital? If you can also provide the balances, that would be helpful as well. And maybe give us any indication of what you're thinking into 4Q on the VII side?

Yes, let me just start with maybe just a step back first. I think what's really important to remember here is that private equity is -- it's been a long-term allocation for us to match up with our longer-term liabilities. So this really hasn't been a quarterly trade kind of mentality, right? This is a portfolio that's well diversified across 700 funds, 200 managers across strategies and vintages and overall, just from a percentage perspective, our VC portfolio makes up about 25% of our PE portfolio. And we've been a steady investor for decades. And so I think the highlight and the takeaway here is Q3 really shows the payoff of that approach overall. From an overall return perspective, I think in the quarter, we saw an actual return in VC funds above 8%. And so it's a very strong return in the quarter. Even -- but other funds performed well, too. I think on average, the portfolio had, as we said, over 4% return. And so others were above plan as well. As we look forward, certainly, year-to-date, we're at about $1.5 billion. So we expect to be above our $1.6 billion guide that we provided as part of the outlook call. And -- but at this juncture, we don't really have much better information other than to assume that we'll stick to our quarterly run rate of $400 million for 4Q. And as we get closer, as we've done in the past, we'll also provide an early disclosure around where we are come the end of the quarter.

And then both within the VC portfolio and the private equity portfolio, can you just talk about the recent performance and how much has been driven by realized exits versus, I guess, marks or increases in valuation? And any color, I guess, on potential AI exposure upside, whatever however you want to disclose that, but any thoughts on the AI impact on those returns?

Yes. I'll -- generally, the way it works is the marks are what drive and then you have realizations within the quarter that realize the marks. So I would just say at the highest level, we had more realizations this quarter than any other quarter. That's maybe I would just start with. I don't have the exact number of percentages, but we were back -- we had a higher level of realizations, but we also had a higher level of mark-to-market in the quarter. So I think we are starting to see realizations pick up, which is a good sign. I also think that has helped some of the performance in the portfolio. At the same time, we were beneficiaries of many of what you referenced in the portfolio, we have probably across a good 10 managers exposure to some of the newsworthy names that are out there on AI. And so that was -- that certainly was a benefit in the quarter.

Your last question comes from the line of Jack Matten from BMO Capital Markets.

First one on RIS. I guess 2 parts. First, is there any change to run rate earnings coming out of the assumption review? And then secondly, for the more longevity-focused business lines, is the lower mortality experience that you've seen change anything regarding either return hurdles or pricing on new business?

Yes. I can take the first, Jack. It's John. Thanks for the question. I think real quickly, the -- nothing from the actuarial assumption review would change ongoing run rate. And I think you can see where we're headed. And also we've provided you a guide in terms of where we look towards for the full year and the fourth quarter, which is indicative of what we believe run rate is there. So I'll turn it over to Ramy for the second question.

Yes. Jack, in terms of just the pricing, look, we had a modest actuarial assumption review here in RIS, driven by kind of what we do on an annual basis. It's a true-up of our baseline assumptions. If you look at the reviews over the last 4 years, we saw both favorable and unfavorable adjustments. The actual net number in aggregate was favorable. Our long-term assumptions, which include mortality improvements over time have not changed, and there's kind of no change in our hurdle rates, if you will, or our pricing philosophy here.

Makes sense. And second question is on MIM. Any color on drivers of net flows and your outlook for flows or your pipeline into the coming quarters? And in terms of the mix of inflows versus outflows, any meaningful difference in kind of the fee rate or margin profile of the current mix shift there?

Jack, it's John again. Thanks for the question. Yes, let me just start with -- we are very pleased with the progress that the team has been making, integration execution. We've launched the -- one brand, One MIM brand platform over the summer. So very pleased overall. And we have seen -- while some early results were affected by the transaction related, you've seen some revenue dissynergies and some mark-to-market. as we talked about in the opening remarks, the earnings are up 19% year-to-date. We've seen earnings building every quarter, and we expect that to continue. We've seen margins expand in terms of profit margins sequentially. And also, if you kind of take a closer look, you've seen a more profitable mix emerging and the revenue yields are up. On top of that, we've seen the integration accelerate, and we've seen some expense synergies get materialized and realized in the -- throughout the year. So overall, one on the integration performing well. On the commercial side, I would say momentum is strong. We've actually -- even though we had some outflows on the roll-forward there, we've had -- we've won more private mandates than we've had outflows in the quarter. So obviously, the private mandates do lag because the AUM builds as they are -- as those assets are deployed. So that was in both our private fixed income and our private credit areas. And -- but in terms of the outflows, those have generally been in more of the public fixed income area. So I think overall, if we step back, as we said in the opening remarks, we expect to be within the range this year and our confidence in hitting our 2027 growth targets remains the same.

Your next question comes from the line of Pablo Singzon from JPMorgan.

So early in the call, I think Michel has made some comments about PRT timing. Are you referring to a deferral to the fourth quarter? Or do you think it's more likely that deals show up next year? And I guess the context of the question that some of your competitors have talked about a catch-up in 4Q, but I'm not sure if your appetite aligns there.

It's Ramy here. I think Michel's comment, I'll reiterate is broader, right? So we have an outlook -- a medium-term outlook for this market that is positive. We think this is -- the slowdown year-to-date in terms of volume is just timing. When you look at this from a structural perspective, every single indication that we look at, be it in terms of funding levels, be it in terms of the surveys that we do with corporate plan sponsors and their desire to derisk and exit their pension obligations, all point to a market that still has a lot of runway to go. We, as you know, play in the lumpy end, the jumbo end of the market, which is always going to be lumpy. So we're coming off a year last year where we did $14 billion of PRTs. We do have a back-ended pipeline this year. We've got a few more deals coming in the quarter. But I would say, just if you step back, we still see a really positive outlook and momentum for the business given all the structural reasons I mentioned.

And then second question, M&A is just more topical in life insurance these days for various reasons. So I guess, can you remind us about what assets you might be interested in buying and sort of the general lens you use in evaluating opportunities?

Yes. Pablo, it's Michel. Yes, I mean, I would say no change whatsoever in terms of our philosophy or approach here. First-order priority is to continue to deploy capital in support of organic growth. And you can see how we're doing so at attractive returns and paybacks, and we see a lot of opportunity to continue to do so. M&A is a strategic capability for us, but we are very disciplined. And M&A has to clear a high bar, I would say, when it comes to how we compare any transaction to other potential uses of capital, including buying back our own shares. The 2 areas that we have talked about as potentially areas of interest are, one, asset management; we think that this is a space that's going to continue to consolidate. We are also sort of attractive in terms of what we bring to the table when it comes to our capabilities, especially if you think about the broader MetLife. We did a transaction last year that we're very pleased with PineBridge. And the way we think about this is we don't need anything transformational. We'll be looking at the types of assets that can bring an adjacency, a capability, a solution or solutions that can help accelerate our growth trajectory. So that's one area. The other area that I've mentioned is group. And whereas we don't see any gaps in terms of we have the widest, deepest product offering, solutions offering in the industry. We're always in conversations with customers to see if there are things that we should consider that are important to them. And outside of that, we would be opportunistic. So -- but that's a little bit sort of the approach and the philosophy, which, like I said, is unchanged.

There are no further questions at this time. I will now turn the call back to John Hall, Treasurer and Global Head of Investor Relations, for closing remarks.

Thank you very much, operator, and thanks all for joining us on a very busy morning. Take care, and enjoy the day.

This concludes today's call. Thank you for attending. You may now disconnect.