MetLife, Inc. (MET) Earnings Call Transcript & Summary

Welcome to the Bank of America U.S. Financial Services Conference, Generally, what I would call the insurance sleeve. And this is the MetLife presentation. I'm really pleased to have Michel Khalaf, President and CEO; John McCallion, Executive Vice President and CFO. And I guess, a new title, Head of Investment Management, this is a new title or title that's been more...

Head for a while.

It's obviously a bigger topic now because it's a reporting segment now, which had not been the case.

Every day feels new.

Every day feels. That's good. And so we're going to get to investment management as it's a bigger part of the story. But we just want to thank you for being here. And for the audience, if you want to ask a question any time, there's no order to my questions that can't be interrupted. So please just raise your hand, and we'll make that happen.

So let's start with the 3-year strategies and whatnot. We are now in year 1 through, I guess, the New Frontier, which is the, I guess, -- Next Horizons was the old one. The very hard. It sounds like Star Trek episodes a little bit. Can you talk about sort of the learnings through year 1 of New Frontier and where we're at right now?

Sure, sure. And thanks for having us, Josh. It's given us a good excuse to escape New York weather. So thank you for that. Yes. So it's a 5-year strategy, New Frontier. We launched it just over a year ago. And at the time, we talked about MetLife's superior value proposition of strong growth, attractive returns and lower risk. And we established an ambitious set of 5-year commitments to back this superior value proposition with 2025 was our first installment on this -- 1-year installment on this 5-year strategy. And in 2025, we delivered 10% adjusted EPS growth, 16% adjusted ROE and $4.9 billion in free cash flow. In addition, we shaved 40 basis points off of our direct expense ratio target of 12.1%. I think this speaks to the efficiency mindset that we've built in the company, but also to the fact that investments in technology, AI, in particular, are starting to have a real impact as well. As part of -- I'm pleased with the results that we produced in 2025, but I'm also pleased with the progress we've made on the 4 strategic priorities we established back in December '24. And those were: one, extending our lead in group benefits; two, capitalizing on our unique retirement platforms; three, accelerating growth in asset management; and four, further scaling and expanding in highly attractive international growth markets. And I'm very pleased that we've made significant progress on all 4 priorities. In Group, where we got bigger in 2025 and strategic investments we made, especially on the leave and absence front are starting to really resonate with customers, which is giving us really good growth in that segment of the market. In retirement, we had record PRT and U.K. longevity reinsurance origination in 2025 in RIS. And we had 17% sales growth in Japan. Again, I think this speaks to our sort of multipronged unique retirement origination platforms. We closed on the -- and one thing that I will sort of mention here is that we've talked about reinsurance as a strategic capability for MetLife. We further reinforced that with the launch of Chariot Re in 2025. And we completed 2 reinsurance transactions with Chariot Re. What this does, it gives us another tool in the toolbox that can help us help support our growth on the retirement front as well as generate assets for MetLife Investment Management to manage. And speaking of MIM, we closed on the PineBridge acquisition at the end of '25. And we originated $22 billion in net flows. So what this does, it's a step change in terms of -- we were at roughly $600 billion in AUMs. We're now at $740-plus billion in AUM. And we've -- as you mentioned, MIM is now a segment, which hopefully will allow investors to, I think, better recognize the value of this business to the overall franchise. And then outside the U.S., very strong growth, I would say, across the board. I would just point to Mexico and Brazil as really good examples of that, where we're continuing to see very strong momentum consistent with what we talked about at Investor Day. And this is putting LatAm on a sort of a good path towards achieving $1 billion in earnings in the near term. I think we achieved this in the face of continued uncertainty when it comes to the overall environment. And this brings me just to sort of emphasize again the importance of one having all-weather businesses, but also of diversification, which I've called it a really super power for MetLife. Just the importance of diversification, it's foundational to how we manage risk at the company. And it extends to everything from our investment portfolio to geography to our lines of business, products, channels, you name it. And I think a good sort of measure of the effectiveness of this diversification is exhibited in our steady and consistent free cash flow.

Well, I have no more questions. So let's go basically. I want to go through actually each one of the things you mentioned one by one. I guess, John, when we think about the comments that Michel made about double-digit EPS growth. So can we break that down into revenue, share reduction and expenses? And what are the tensions and opportunities to exceed that basic formula that delivers on that?

Yes, sure. And I just want to echo thanks for having us here. And it's great to be in Florida right now, I'd say. One thing to kind of be mindful of, if you think about Next Horizon to New Frontier, we really haven't had an EPS target. And one of the reasons is I think we're -- we've been going over through quite a long journey of transforming our firm, right? And I think as Michel referenced, we've really gotten to the, I'd say, the business mix that is really set for us to establish New Frontier. That also gave us the confidence to establish an EPS target of double-digit EPS growth. And rough justice, what we referenced is that we believe that there's about a 60-40 split between earnings growth and capital management that would support that. I think the other thing to be mindful of is we did have a the legacy runoff business of MetLife Holdings is a legacy retail business of ours. That is shrinking. So it's less of a headwind on growth as well. So again, I think just from a timing perspective, it just felt right as part of New Frontier to establish this as part of our ongoing commitments.

In sort of thinking about how it all comes together with the 15% to 17% ROE goal, is there something about the nature of MetLife's capital-intensive business that puts a ceiling on the type of ROEs the business can achieve. So we're thinking about long term, is this a 15% to 17% in perpetuity? Or will liberty at the end of 5 years saying, hey, look, we've gotten to a level of efficiency, we're actually higher than that going forward?

Yes. I mean, obviously, right now, we're comfortable with the 15% to 17% as part of New Frontier. But there are 3 -- maybe, I guess, 3 dynamics going on right now in our business. One is if you look at the mix of business, we probably -- we probably have growth rates in the higher ROE businesses, greater than the balance sheet businesses that we have. And like Michel said, we're well diversified across both. Second, you have the runoff of MetLife Holdings. And then third, which has been a theme for us, and it does take time in an insurance company for these things to ultimately translate. But if you look at the value of our new business returns, which are unlevered IRRs, we've been in the high teens for quite some time. This is a long-tail business. It takes some time for that to kind of find its way into the overall ROE of the firm, but that is part of what's allowed us to go from 12% to 14% up to now 15% to 17% over the last 7 years or so. And that -- I think those broad themes are still continuing. We're very comfortable with 15% to 17%, but there certainly is kind of an upward opportunity at some point in the future.

And one more part of that, of course, is keeping your expenses down. You guys did the New Frontier presentation and had your expense ratio goals. You integrated the PineBridge acquisition. Expense ratio went up, although I think that we knew that PineBridge was part of the plan at that time. So it was already built into the guidance about how you thought about things? Or how do we make those numbers?

Yes, PineBridge was not part of the plan at the time. Obviously, that came shortly thereafter, but what we provided at the Investor Day was pre- PineBridge. So that had -- at Investor Day, we said over a 5-year period, we would reduce our expense ratio by 100 basis points, and it will be pretty ratable across that 5-year period. Obviously, with an acquisition of an asset manager, which has a naturally higher expense ratio, it's a pretty simple business. profit margin is 30%, your expense ratio is 70%, right? So that by nature, is just going to put pressure on the expense ratio. What we said on our earnings call, though, is because of the progress that we've been making across the firm. And as Michel said, we came in at 11.7% this year relative to a 12.1% target for the firm. While this will push us back up to 12.1% for 2026, we are still going to make the 11.3%. And it just goes to show, I think, the -- what we've been seeing in our firm across process reengineering, Michel likes to refer to when we kind of leverage AI that injecting that into those process reengineering is like a force multiplier. And we're seeing the effects of that. And it's been a great journey. It's been -- it's embedded in our DNA, and I think the team has done an excellent job to allow us to stay committed to 11.3%.

In terms of part of the goal, you want to grow fee revenues at Group Benefits in the 4% to 7% range over the 5-year period. We're at the low end of that range in '25. Should that accelerate? And what happened in '25, you're in the range still, but you're at the lower end of the range. Can you diagnose that a little bit?

Sure, sure. Yes, we feel confident in the 4% to 7% range for 2026. And 2 sort of main reasons for that, I would say. If you think about 2025, we were early movers in taking repricing action on our dental block. That impacted our persistency, put pressure on our persistency for 2025. That was the right thing to do, and we've seen dental margins revert to expectation with the sort of a normal seasonality that you expect to see in that business. And with most of the rate action behind us, we're seeing persistency, just early look at 1/1 renewals, very strong. So it's reverting back to where we would expect it to be. So that's one area. The second one is, again, we have a good sort of view of 1/1 sales, and those are looking really strong. I think what we're seeing there is we talked about this at Investor Day as we launched a New Frontier is that we had identified the stability in particular, as a growth opportunity for us. And for the industry, I would say, that as an industry leader, we thought it was an area where we could we could accelerate our growth. We made important investments in this area, especially in things that sort of make life easier for employers and employees. We talked at Investor Day about My Leave Navigator on the leave and absence front as an important capability in that regard. And we're seeing these investments really resonate with customers. So that's driving significant growth for us. And the thing I would also mention, which, again, we talked about at Investor Day, is this trend of employers wanting to do more with fewer providers. And one of the ways that we are capitalizing on this trend through our leave and absence offering is by bundling other products and services with that offering. So just to give you a sense of that, for our new sales, 1/1 sales, on average, we're bundling 4 to 5 products with leave an absence. So if you sort of take -- you look at these 2 sort of areas I mentioned combined, those give us confidence in our ability to grow well within the 4% to 7% range. And another thing I would mention about our Group business, and I have to go back to this team is diversification because, again, we are extremely well diversified in that business from a product, from an industry, even from a geography here in the U.S. perspective. And that diversification also allows us to sort of adjust and perform even in a varying economic situations and conditions.

You made the comments about taking rates in dental to restore and the profitability is good in dental. Can you talk about trend a little bit in the various group lines in terms of loss trend and what you're trying to compete with right now? I guess, particularly dental, we sort of speaks for itself, but we can talk about disability in life a little bit.

Yes, sure. So on the life front, we had -- our ratio was 81.1% in the fourth quarter, 83.1% for the full year, so below our 84% to 89% range, and we did bring down that range to 83%, 88% for the near term. What we're seeing there is consistent with CDC data for working age population where you see favorability. So we've seen that. I think the industry as a whole has seen that, and we certainly benefited from it across our book. We think that -- we believe that some of this favorability will persist going forward. And then on the disability front, we -- I think sort of disability sort of drove about a percentage point up in terms of our nonmedical health ratio for the fourth quarter. A few things that we saw there. One is a slight increase in average severity on the block. Two, we saw social security decisions come down in the quarter. And then I would say slightly, it's not -- it wasn't sort of pronounced, but we saw some of that. And then we saw higher incidence rates. Again, if you look at the full year, we're still in line with expectations, but that was sort of what we saw in the quarter. And last was lower recoveries, although if you think about recoveries for the full year, they were ahead of expectations. So we don't believe that this is sort of the signals a trend necessarily. It's something that we're obviously going to keep a close eye on, but that's really what sort of impacted our nonmedical health ratio in the fourth quarter.

One or 2 of other companies that I look at who are in the medical stop-loss category report the rise in cancer incidents among young working age individuals. Is that -- could that be affecting disability at all in terms of like trying to diagnose whether it's happening and two, if there's any impact on trend from that?

We're not seeing that in our book. So it's something that obviously we keep a close eye on. But so far, we haven't seen that in our book.

Do you have thoughts on employment, especially with AI yesterday, I saw the insurance stocks were all down a lot because software is going to eat everything. But I think we'll attack sell-side research analysts first. That being said, I believe I'm a MetLife customers, that might be a problem. Can we talk a little bit about what the future of employment is and what it means for the company?

Sure, sure. So first, maybe let me start by saying, I think there was an element of employment hoarding, I would say, post pandemic. And the expectation has always been that this would correct over time. I think we've seen some of that. And it's something that we also sort of factor in when we project our growth rates in any given year. In terms of the headlines, I meet with other CEOs, our customers all the time. And I'm not hearing CEOs say, well, we're going to -- because of AI, we're going to shed 30%, 40% of our workforce in the next few years. What I'm not hearing also is that we want to do the same level of business with 50% less people. I think what I'm hearing is we think with AI, we can do 50% more business, but we won't need 50% more people to do it. And I think this speaks to sort of AI being augmenting what humans do rather than replacing them. I think it speaks to the fact that the real prize with AI is on the productivity front. That's why also we like direct expense ratio as a good measure of progress we're making because it has revenues and expenses, not only expenses. So my sense is that productivity gains are going to drive new opportunities, including for the Group business. And I go back to diversification being our friend here because, again, when you're diversified by size of employer, by industry, by geography, even within industries, I think that also offers you some built-in protection.

Let's switch to retirement a bit. Given the economic outlook, and it's a very spread-sensitive business. Obviously, it's very programmatic. How do you look at the rate environment and the ability to deliver on your objectives given some people say interest rates are coming down. Any thoughts there?

Yes. And I think one of the comments we mentioned last year is we felt 2025, you'd see a stabilization of core spreads, which we did. I think we're just close to 100 basis points, maybe 1 basis point less or so and plus or minus maybe in the 2 basis point range throughout the 4 quarters. So that's kind of where we thought. We also referenced the fact that we have a variety of products that do well at the long end of the curve and the short end of the curve. That diversification allows for some stability. We see the stability continuing. There will be pockets of headwinds here or there for just different reasons. For example, we had a very large level of new flows in the fourth quarter on PRT. Oftentimes, subsequent to that, the quarter later, you have some portfolio changes that have to occur. That has -- that tends to just slow down a little bit and have a little bit of a headwind in terms of spreads. So we might see a couple of basis point headwind in the first quarter. But one of the things we gave as part of the outlook was a little more clarity around RIS earnings, which we said would be relatively flat year-over-year, primarily due to our balances. And we referenced the fact that now in light of -- and Michel referenced strategic reinsurance earlier, leveraging reinsurance in a more strategic way, including with Chariot Re and other external parties, we've now been a little more clear on the growth metric for RIS being retained balances, that is net of reinsurance. And because of the large transaction with Chariot last year, you'll see a little bit of timing in our growth to be more back-ended in the second half of 2026. But spreads overall should remain relatively stable, I think going forward.

I might be using the wrong word here, but 10 years ago, I'd call PRT maybe a greenfield business. And obviously, it's a very much mature business right now. How much opportunity is there in PRT and in 10 years from now, is there anything left?

Yes. I mean I think there would be -- I really do. And I'll tell you why. I mean, I think just if you look at the sheer volume that's out there, it's well over $1 trillion. I mean it's $1.5 trillion by some estimates. You have very healthy funding levels that are supportive, again, of employers, plan sponsors wanting to transact. I think probably the main constraint will be capacity just in terms of capital going forward. There's been some noise lately with some of the sort of lawsuits, et cetera, but this hasn't really dampened the market much. I mean we had a record year last year, $14 billion in PRT. And those are -- this is business that we put on the books with returns that are consistent with our enterprise returns. So we're really pleased with that. It's a lumpy business. We're extremely disciplined when it comes to the business that we put on the books. And we operate in the jumbo end of the market where we think that our brand, our balance sheet, size, our underwriting investment and admin capabilities provide us with a competitive advantage and where you find also fewer competitors. So yes, I mean, I think you're going to continue to see lumpiness in terms of the business and how much comes to market in any given year, but I think this is going to be a growing market for the foreseeable future.

And where does Cherot Re come in? What's the capability that you've gained by adding it to your arsenal?

Yes. I think to Michel's point around the growth metrics and just the trends we're seeing in terms of the need for retirement solutions broadly, whether it's PRT, we have -- we mentioned the growth we're seeing in Japan and the U.K. One of the things we set out as part of the strategy is we wanted to make sure we augment our own existing capital generation with that of third party. That's what Cherot Re does. It's a sponsored entity. It allows us to supplement and provide capital to meet the growing demands in these retirement markets. And it's off to a great start. I think we had -- in the first 6 months, we've closed 2 transactions. We stood up the team. We're off and running. And so it's a unique opportunity for us to leverage this capability across our platform. And I think there's a lot of opportunities ahead.

Again, I want to just bring out if anyone has a question, don't be shy, you can raise your hand and you can ask. So let's pivot now to the latest segment, the Investment Management. And can we talk about some goals? There's always had goals, but we don't see it as a reported segment, they get buried. So now that we see the numbers and we understand what they are, how should we be judging performance in MetLife Investment Management?

Yes. And one of the things we said with making it a reportable segment is we would coincide that with the closing and with the data spare, we closed PineBridge on December 30. So we're off and running now with a reportable segment. And yes, we're really excited. I mean, first, I mean, just the PineBridge acquisition, the team has come in 1/1 and it's just -- it's been really a one-MIM mentality right away. Obviously, we have a lot of work to do to integrate and drive revenue and expense synergies across the platform, but we're off to a great start. In terms of our objectives, and one of the things we referenced at Investor Day is kind of on this path to $1 trillion AUM. I mean that's more of a headline. But at the end of the day, our main objective is to accelerate growth in EBITDA. And with the PineBridge acquisition, we'll have about a 30% growth in revenue next year in '26, I should say, relative to '25 as well as earnings. We gave a range of $240 million to $280 million. And then from there forward, we expect 15% to 20% growth in earnings. And a lot of that will be the revenue synergies we see across the platform as well as through leveraging our scale and operating leverage that we're building as part of the combined group. So we're super excited about what's ahead. And even Chariot Re, I referenced before, that -- if you think back to Chariot Re, that's another way of also growing in this retirement space, but moving from maybe spread-oriented business into -- and moving that to be fee-oriented because we obviously have an investment mandate along with General Atlantic across that entity.

You're calling $1 trillion a headline number, but like there's not necessarily immediate math behind it. But will the main path to be getting there be organic growth? Or will it be through continued acquisition?

Yes. I mean, look, we have a big acquisition to absorb right now. We need to get that right. That's probably the most important thing for us. And I think, like I said, I'm very, very pleased with what I'm seeing out of the gate in the first month as one team. And I think the groups did an excellent job between sign and close, maintaining their momentum, which is not always easy when you have kind of this -- you can put on hold and things like that. But basically, PineBridge came in with the AUM that we expected. So we're off to a great start. The feedback we're getting is that this really makes a lot of sense. So there's a natural fit to the 2 firms together. And then if we get this right, it will give us the opportunity to think about getting this platform in a position that can easily tuck in other things over time. But right now, we're focused on integration.

So what capabilities did MetLife get with PineBridge and what enhanced abilities for fundraising does PineBridge now have with those strategies because it's part of the MetLife family?

Yes. I think they bring to us a bit of a higher-yielding tilt to their strategies, whether it's in the high-yield leveraged loan market, CLO platform. They bring a multi-asset platform. They help us grow our alternatives. And then on -- to your point, the geographic complementary nature, they're a bit more non-U.S., which is very complementary to our current platform. I think over 50% of their assets are outside the U.S. So that obviously gives you that distribution reach. And there's an opportunity looking at the client set to find ways to cross-sell. We actually had some early wins already. So very excited about what we have ahead.

I want to talk about international a little bit. Certainly, I mean, I think that Japan has been a huge part of that story for a while now. I think in terms of both Japan and Korea are advanced markets and mature, but you've had a great deal of success in what some would call mature markets. What have been the secret skills that have allowed you to grow in a place where growth is not as strong as it is in other markets you're in?

Sure. Yes. I mean, really pleased with the growth we're seeing in both Japan and Korea. Japan sales grew 17% in 2025. I think to a large extent, this is down to our diversified distribution and product capabilities in the market and the fact that we've been in Japan for over 50 years. So we know this market really well. I think there's a few things that are sort of from a macro perspective that are happening in Japan that are creating tailwinds as well for the industry for MetLife, I would say. The one, I mean, there's renewed energy and dynamism in Japan. And I think if anything, the recent elections probably reinforce that. With an aging population, with people living longer. I think people are having to start to save earlier. That's creating a new sort of generation of customers for the industry, for MetLife as well. So that's certainly a tailwind. And then with people living longer, there also their needs when it comes to health and to retirement and savings are evolving. I think the other macro sort of trend that we're seeing is around with inflation now part of the system, people are having to move away from cash to other market-linked instruments and cash still represents close to 50% of savings in Japan. And we have seen over the last couple of years, 2, 3 years, a move out of cash things don't happen very quickly in Japan, but they are certainly happening. And the government is encouraging also the people there to sort of consider market-linked instruments. The stock market has been doing well in Japan. So I think those are important sort of trends that create some tailwinds for the industry. For us, some product introductions in 2025 were very helpful. The thing I would mention as well is that 2/3 of our sales in '25 came from U.S. dollar products, but 1/3 came from yen products. And that's important in the context of rising yen interest rates. This gives us the ability to proactively sort of go after that opportunity if and when it manifests itself. And then Korea, I think, is a great example of us taking the know-how, the expertise that we built in Japan and transferring it over to Korea. U.S. dollar sales have been very strong there. And the equity market has done remarkably well as well, which is, again, another tailwind, if you think about sort of our sales momentum. So we feel good. Obviously, we had guided to high single-digit sales -- mid- to high single-digit sales for Asia in '25, we achieved 18%. This -- so off of a strong base, I would say, we still feel confident about delivering mid- to high single-digit sales growth in 2026.

Does the self-imposed 90-day moratorium on sales at Prudential mean that for a short period of time, MetLife is going to be the beneficiary of a competitor not selling your products in the market?

No. I mean, obviously, I don't want to comment on other companies' issues. But I don't see it as such. It's a competitive market. You have many competitors in Japan, including some local companies. We feel really good about our ability to compete in that market. And I think we've been demonstrating that. So that's why that's really sort of how we think about our growth trajectory there.

Can you talk a little bit about the changes in solvency ratios in Japan and what it means for your dividend capacity in the country?

Yes. I mean there's been kind of a broad trend moving to a more economic framework in different jurisdictions. Japan is no different and one of which we are very supportive of, which is why we really don't see a big impact at all from the change. If anything, it's preferred to us where these economic frameworks, they take into account -- they're a lot more focused on ALM and various risks that are being taken. And that's really how we look at managing and our businesses across the globe. So from a product perspective, we don't see any changes. We talked about being within a 170 to 190 ESR ratio come the end of March. I still believe we're on track. And then when we look at the sensitivities, one of the things we gave out at the earnings call and our outlook was whether the U.S. Treasury or the 30-year JGB moves 100 basis points, either of them or both of them at the same time, we're still within the range. So again, it just goes back to ALM is a very important concept under these new ESR frameworks, and we're very, very supportive of it.

If we pivot to Latin America, Mexico is probably the most important country in that cohort. I think we're starting out at a goal for this year 2026 at 6% to 8% growth and then accelerating in the out years of the new horizons. Can -- why are you so confident in that market and your opportunity to not only do well but do better?

Yes. I mean we -- excluding notables, we had the VAT issue in Mexico, which is an industry thing, not a MetLife issue. Excluding notables, we had a record year in '25, both on -- from a top line and a bottom line perspective. And that's not a one-off. I think that's sort of building on the momentum that we have seen in the region for a number of years now. So we feel confident in our ability to continue to grow both the top and the bottom line in the region, including Mexico, where we have diversified channels and products that are continue to resonate in the market and continue to fuel our growth there. And then Brazil has been a growth market for us. We've been growing faster than the market for, again, a number of years now. There, besides the traditional channels, we've seen a lot of momentum in third-party and embedded insurance. And again, based on our New Frontier strategy, we had invested in digital capabilities, we call it accelerator to enable these channels and this growth, and that's really resonated in that market and across the region, I would say. So all in all, we feel really good about LATAM's continued momentum and trajectory. And as I said, we see a clear and I'd like to say imminent, but near term, let's put it -- let's say, near-term path to $1 billion in earnings there.

Very good. And finally, let's close on variable investment income. I think that for a number of years, it was incredibly outsized and pleasurable and wonderful and it's not been so great lately. Have we learned anything from the last decade that informs MetLife's future allocations or -- and just what can we say here?

Yes. I mean I think we should start with it's been a very valuable asset class for us over time. And certainly, it can bring some volatility. But if you look at the overall returns that we've generated there, it's been excellent. So -- but with a higher yielding environment, we have been migrating down our allocations to move into higher-yielding fixed income-oriented assets. And we'll probably continue in that direction. But we've seen -- we did see some stabilization here in 2025, the back end of the year, the back half of the year was very strong. I think we came in just under 9% for full year return. So look, we're cautiously optimistic that there's kind of a continued upward trend here, but we stayed with the 9% annualized return for 2026.

Great. Well, with that, I'm going to call an audible here and say it's time. I really appreciate John and Michel and John for being here.

Thank you.

Thank you.