MetLife, Inc.

Ladies and gentlemen, we'd like to thank you for standing by and welcome to the MetLife third quarter 2021 earnings release conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session with instructions being given at that time. As a reminder, this conference is being recorded. Before we get started, I would 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. The floor is yours, sir.

Thank you, operator. Good morning, everyone. Welcome to MetLife's third quarter 2021 earnings call. Before we begin, I refer 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 Michelle Halaf, President and Chief Executive Officer, and John McCallion, Chief Financial Officer. Also participating in the discussions are other members of senior management. Last night, we released a set of supplemental slides, which addressed third quarter results. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to these slides features additional disclosures, gap reconciliations, and other information which you should also review. After prepared remarks, we will have a Q&A session that will extend to the top of the hour. In fairness to all participants, please limit yourself to one question and one follow-up. With that, over to Michel.

Thank you, John, and good morning, everyone. As I reflect on the journey MetLife has been on these past two years, I am more convinced than ever that we are focused on what matters most. We are a purpose-driven company at a time when stakeholders will accept nothing less. We have the right strategy to see us through even the most turbulent environments, and we have a strong culture of execution that gives our shareholders confidence. All of these attributes were on display in the third quarter of 2021. Starting with our financial results, adjusted earnings were $2.1 billion, up 31% year over year. Adjusted earnings per share were $2.39, up 38% year over year. Excluding total notable items in both periods, adjusted earnings were up 24% and adjusted EPS was up 31%. Looking at the quarterly performance of the enterprise as a whole, variable investment income was outstanding, underlying PFOs were strong, and expense discipline held firm. The main area where we have seen headwinds is from elevated COVID claims. In key respects, the third quarter of 2021 looks very much like the first quarter, with exceptionally strong vii more than offsetting excess mortality on the investment side our private equity portfolio returned 1.5 billion dollars in q3 its highest quarterly contribution in 2021 and the major contributor to vii which was well above the top end of our implied quarterly guidance range on underwriting in our u.s business The group life mortality ratio was elevated at 106.2% in Q3 on higher claims severity and frequency due to a shift younger in the age distribution of COVID deaths. Our Latin America business incurred COVID losses of $137 million in Q3. Two aspects of our underwriting results are noteworthy. From a social perspective, Paying COVID claims is precisely how life insurance companies make a positive difference in the world. The human toll of the pandemic on families is catastrophic, but where life insurance is present, the financial burden is eased. This is our purpose, to help repair the financial damage after life's most destabilizing moments. Pandemic to date, in our U.S. group business, we've incurred U.S. life claims of around $2.1 billion. Life insurance is not like other businesses where losses are just losses. Every underwriting claim represents a beneficiary who is receiving the financial help they were promised. From a financial perspective, even though our life businesses have been hit with the most severe pandemic in more than 100 years, they remain profitable. MetLife has actually paid out more in COVID-related claims in 2021 than we did in 2020, and yet, Our adjusted earnings per share are higher this year than last year, as is our adjusted return on equity. What has enhanced MetLife's capacity to pay outsized claims while still generating exceptional earnings is our strategic decision to allocate a prudent portion of our investment portfolio to private equity. While not a direct COVID offset, the valuation of our PE and VC funds with significant technology exposure has benefited from global capital flows to this growth sector. The return on our PE portfolio in the quarter was an outstanding 12.6% and stands at approximately 36% year to date. The gains on our well-seasoned portfolio are not mere accounting marks. Year to date, we have received $1.9 billion in cash distributions from our PE funds. Since 2016, the figure is $7.6 billion. While we often reinvest PE cash proceeds as funds mature and terminate, the cash generated is steady and significant. Turning to the underlying performance of MetLife's businesses, we are seeing solid momentum. In U.S. group benefits, adjusted PFOs grew 13% year over year. Excluding Versant Health, PFO growth was 6.2% on strong jumbo sales and persistency. and we expect to end the year near the top end of our guidance range. Involuntary benefits, which for us consists of accident and health, legal plans, and pet insurance, we saw strong double-digit PFO growth in the third quarter. The trend in sales is even stronger. Year to date, sales are up 40% over the prior period, and we remain on track for a record sales year. While group sales can fluctuate from year to year due to jumbo cases, We believe the robust U.S. job market and the competition for talent are creating a strong tailwind. In connection with open enrollment season this fall, we conducted consumer research on benefit preferences among millennials, who are now the largest age group cohort in the U.S. with more than 70 million members. Millennials are expressing strong interest in both traditional benefits, such as life insurance and dental, and in voluntary benefits, such as legal plans and pet insurance. Another top desire is for help with financial planning. MetLife entered the space in late September with a digital financial wellness tool called Upwise, which helps us connect with employees directly. The app is designed to address the emotional barriers to financial progress and help people tackle debt, save more, or even create a digital will. Within our RIS business, After acquired first three quarters, we have already booked four cases totaling $3.5 billion of pension risk transfer deals in the first month of the fourth quarter. Next Tuesday marks the 100th anniversary of the first group annuity contract MetLife ever wrote with the William Rudge Printing Company. We are pleased to be a leader in the business of helping companies honor the retirement promises they have made to their workers. Last month, MetLife released the results of our annual pension risk transfer poll. We only survey companies that want to de-risk. Of the 253 respondents, nearly 7 in 10 have pension plan assets of $500 million or more, and 93% intend to divest all of their defined benefit pension liabilities at some point in the future, up from 76% in 2019. Elsewhere in RIS, excluding PRTs from both periods, adjusted PFOs were up 70% year over year. There were two main drivers. The first was longevity reinsurance, a market we entered in the UK last year. The second was post-retirement benefits, where we take on blocks of retiree life insurance from employers. This is an attractive adjacency to our group business that plays to MetLife's competitive advantages. In Latin America, we delivered exceptional sales growth in the quarter up 45% year over year on a constant currency basis. In fact, sales were higher in Q3 2021 than they were in Q3 2019 before the COVID pandemic began. In most markets across the region, we saw double digit growth in both sales and PFOs. Moving to cash and capital, MetLife ended the third quarter with $5.1 billion of cash at its holding companies. During the quarter, we paid $400 million in common stock dividends and repurchased $1 billion worth of outstanding common shares, with another $233 million repurchased so far in Q4. We have $2.5 billion remaining on the $3 billion share repurchase authorization we announced in August. We are on track to return more than $5.5 billion of capital to shareholders in 2021, and we continue to strive for a balanced mix between business investment and capital return. In 2020, for example, we returned $2.8 billion to shareholders and invested approximately $5 billion in organic growth and M&A. Our test for capital deployment remains consistent. Does it clear our risk-adjusted hurdle rate? As John will describe in greater detail, the new business we wrote in 2020, a period when interest rates were at all-time lows, was the most attractive of the past five years.