MetLife, Inc. — 2024 Q1

Thank you, operator. Good morning, everyone. We appreciate your participation on MetLife's First Quarter 2024 Earnings Call. In addition to our earnings release, we issued a press release last night announcing a $3 billion increase to our share repurchase authorization.

Thank you, John, and good morning, everyone. As you can see from last night's report, MetLife is getting off to a good start for the year. We delivered another solid quarter of financial results, reflecting strong top line growth, consistent execution and sustained momentum across our market-leading portfolio of businesses. We achieved this mindful that change and uncertainty remain constant in the current environment.

Thank you, Michel, and good morning. I will start with the 1Q '24 supplemental slides, which provide highlights of our financial performance and an update on our liquidity and capital position.

Sure, Suneet. Primarily appraisals and valuation. So we actually saw, if you recall, in the fourth quarter, it was fairly flat. Appraisals, they tend to lag a bit in terms of just market declines. And so we saw kind of a catch-up of that in the fourth quarter, which obviously gets reported here in the first quarter.

Yes. Suneet, thanks for the question. So yes, I did use the word measure, and I was referring to the first quarter. But I think as you've seen in the first quarter and what you've seen from us over time is that we do move expeditiously and deliberately to return capital to shareholders, especially in the absence of other high-value capital deployment opportunities following divestments.

First, I just wanted to clarify one thing on the variable investment income comment. John, did you say that you expected to be towards the higher end of the range that you had given for the balance of the year?

Yes. Ryan, it's John. I think Suneet's question was focused on real estate. And so I think what we're just trying to -- and regarding outlook in terms of the real estate funds and so we saw a negative return this quarter of 5.8%. I mentioned I thought it would be less negative next quarter, but we still think there'll be a little pressure in just kind of the appraisals coming through and then it will start -- it will kind of moderate from there and start to have an upward trajectory is kind of the way we put it.

Okay. Got it. Other question was on the Group Benefits business. Can you talk more about the competitive environment you're seeing at this point as you went through January 1 renewals as well as what you saw with persistency and pricing?

Sure, Ryan. It's Ramy here. I would say, in terms of our view of the competitive dynamics of the group business, it really hasn't changed. I mean, we've always talked about this as a competitive marketplace. And one, because of the short-tail nature of this business is on the whole rationale. And we also think and see that this is a market where there are many avenues for differentiation beyond price.

I had a question on pension risk transfer. I know you guys didn't have any deals in the quarter. But there were some deals that were done that were reasonable size and your peers has plenty of capital to support this marketplace right now. And there's actually another ongoing call right now that one of your peers are saying that PRT is not that good of a business this year, there's not as much spread. So I'm just wondering if pricing is getting more competitive there, if there's any dynamics changing in the marketplace.

Thank you. It's Ramy here again. Look, the -- we're coming off a very successful 2023 year in terms of PRT, we had 5 cases totaling more than $5 billion in premium, and that was off the back of a record year in '22, where we wrote more than $12 billion of premiums. This business is lumpy. So I would remind you, we did not win any deals in Q1 of '23 either, and we did not win any deals in Q1 of '24.

And Michel, I think you talked about higher rates increasing the attractiveness of your products. Just wanted to get a little perspective on capital deployment and how you're thinking about allocating capital towards growth in capital-intensive businesses where you can generate good IRRs versus buying back more stock, which continues to be pretty strong.

Yes. Sure, Wes. Thanks for the question. So our philosophy and approach is that we want to support organic growth. We've been doing so consistently. And you can see from our VNB disclosures the returns that we've been able to generate high teens and paybacks in the sort of mid-single digits.

So first on the question for John on your spreads in RIS. Healthy overall, but we saw a sequential decline in spreads, excluding variable investment income. And I think you attributed that to the expiration of some of the interest rate cap. So I'm wondering if you could give us some idea on the trajectory of that? And should we assume sort of a similar level of an impact from caps that are expiring in the next few quarters? And when should we assume that dynamic is going to be over?

Jimmy, thanks for the question. Yes, I think it's pretty much in line in terms of the roll off of the -- given the roll-off of the cap. So in terms of XVII, that was generally in line. I think VII came in better than we expected. As you recall, we talked about a 115 to 140 spread range for the segment. So the middle of the range was 127 for the year.

Okay. And then for Ramy, on margins and Group Benefits. I think group life margin, you had assumed that they'd be weak in 1Q because of seasonality. Dental claims picked up as well. And do you attribute most of that to seasonality as well? Or are you seeing just higher incidents for some reason?

Jimmy, it's basically seasonality story. As you know, with dental claims, the benefits reset at the end of the calendar year. So come January, you just get to see more utilization as the claims reset. And therefore, that's just a seasonally higher ratio. If you look at our overall non-medical health ratio, this first quarter seasonality is baked into our guidance ranges. I remind you, these are annual ranges, and our expectations are at this point, that will be well within our range, 69% to 74% for the full year.

Just a few follow-ups to Jimmy's questions. John, if I followed your math that would suggest about 20 basis points of lower base spreads for RIS versus Q1 level if I look at towards the end of 2024. Is that directionally right?

Yes, 8 to 10, you took the top end of that range, but sure, it's close -- 16 to 20.

18 to 20?

Yes.

Okay. And then for -- and Ramy, for Group Benefits, I just want to make sure I have the right expectation here. The -- if I look at last year, and I look at the last 3 quarters of the year, I think earnings averaged around $450 million, that's probably $170 million, $180 million above what you did in Q1 this year. So is it fair to say you still expect to grow above the $450 million earnings level for the next 3 quarters?

Tom, I mean the way you can triangulate to an earnings number is take our top line and our guidance ratio. So from a top line perspective, we're still very much within the 4% to 6% range. We got a 6% PFO growth this year -- this quarter, but think of that ratio being close to the midpoint of the range for the full year.

That does. And if I could just sneak in one other follow-up. So dental utilization, you would fully expect that to be far lower in 2Q than 1Q? Or is there going to be some tail on that where you might see some level of higher utilization and lower earnings into 2Q as well, would you say?

I mean Q3 tends to be the lightest. So you'd expect it to come down in the second quarter. Q3 will be a lot lighter. So there's going to be always -- there will be a decrease, whether it's going to happen as a sharp cliff in Q2 and then another one in Q3 or different pattern, it's hard to predict. But again, think of it as a full year range and think of that ratio coming to the midpoint for the full year.

And Tom, maybe I'll just add a follow-up again on your first question. I mean, I think also just you only focused on XVII. But as I said, I think what's really important is that we think of the all-in spread here, and that's -- all of that is very much in line with what we gave in the outlook for the midpoint of the range.

This is Justin Tucker on for Brian. My first question is about RIS. When looking at the structured settlement results, could you kind of help us understand how much of the demand is driven by the favorable interest rate environment? And then how much of it is driven by the courts opening and social inflation?

It's Ramy here. I mean I would say interest rates is the primary driver of this. You have seen coming out of the pandemic, call it, pent-up demand with the courts being closed and some of that clearly kind of did cause an increase in volumes earlier on. That's now stabilized, and it's very much an interest rate-driven volume increases.

Great. And then my follow-up question is just on Latin America. Sales were flat year-over-year. I'm just kind of curious about what you're seeing in the overall market for demand and what you expect with sales going forward?

Yes. Justin, thanks for the question. This is Eric. So overall, we're pleased really with our results this quarter. This is a good start of the year after what was a record year in 2023. The quarter's results are primarily driven by favorable underwriting, some of which we don't expect to recur strong encaje returns and solid volume growth.

Great. Thank you very much, operator, and thank you, everybody, for joining us this morning on a very busy day.