MetLife, Inc. ($MET)

All right. Good afternoon, everybody. We're here with John McCallion, the CFO of MetLife. John, really appreciate your time. It's always great to chat about MetLife.

Yes. Great to be here.

So maybe let's start with just the overall broader environment kind of the level set, right? So today, obviously, data points have been uncertain and it varies depending on jurisdiction and you're in various parts of the world. So what do you think would be met less key advantage or competitive advantage here -- and where are you most constructive versus where are you most mindful of risk, so to speak?

Yes, sure. And like I said, thanks for having us. It's good to see you again. Let me start with maybe the macro backdrop. I think a few things are important as you think about the environment. One is unemployment remains low, right? -- to inflation seems -- I know we've had some new data out today, but generally speaking, manageable and then wage growth seems to be keeping up. I think the third thing that we would highlight that's maybe a little more specific is real estate cycle is coming through. Maybe it's on the back end and on the uptick. So you see that kind of improving, although it seems to be more of a U-shaped recovery than a V-shape. And then maybe the fourth thing in terms of backdrop I'd highlight is credit remains stable, broadly speaking, and I know private credit or public credit. But in general, I would say, credit still remains strong. So overall, we put -- we think that really kind of gives a constructive backdrop to our situation. Now for us, as we think about how we built our business and how we think about competitive advantage, it's been important for us to continue to build a market-leading level set of franchises across the globe. That's and diversified by not just geography or product, risk capability. And we think that's really a competitive advantage for us as we work through and because different environments change and you want to have the option to do well in a variety of different economic environments. And we believe that gives us that sustainable growth component to our story. I think the other thing it does is it also -- while it drives -- in our view, it drives growth, it also provides us the opportunity to lower our cost of equity. So all in all, we think it's a strong value proposition. I would probably point to 2 -- broadly speaking, from a mix perspective, we think about that competitive advantage. About 50% of our business is in what we consider to be more capital-light businesses. And we have another 50% in what we consider to be more capital-driven or balance sheet businesses, right? So in that first category, I think of higher ROE, lower capital-intensive business as you can think of our market-leading business and Group Benefits. You can think about us being the #1 life insurer in Latin America, and we've seen some outstanding growth in that region of late. EMEA has kind of emerged with a really strong growth story and other protection-oriented business. And then we have our asset management business, which will -- well, small now is probably our highest growth segment. And then on the other side of the business mix, you have the retirement businesses, which really is our global retirement platform and that's covering the U.S., U.K. and Japan, where the first 2 are more institutional and then Japan is more of a retail. So all in all, we think that gives us a really unique value proposition and mix of business that allows us to perform well in good environments and perform well in a variety of economic environments. So we think that's a real structural advantage for us.

Got it. And I think that kind of segues nicely into the new Frontier strategy that you guys laid out previously, right? Now that is in its second year. so far, you're clearly doing well against the targets you laid out at the time. Would just love to hear as you think about you're executing your strategy going forward, -- any new updates or anything that you think would be interesting going forward.

So first, I think we're very pleased with -- we're off to a great start under that new strategy under New Frontier. And let's just start with -- it's highlighted under 4 strategic pillars, if you will. So one is how do we extend our lead in Group Benefits how do we leverage the global retirement platform we have and capitalize on that unique platform that we have. Third is how do we accelerate growth in asset management. And then fourth is expanding the growth in some of our higher returning, higher yields in growth markets in international markets, particularly in LatAm and Asia. And across the board, I'd say all are off to a great start, right? True benefits $27 billion of annual premium. In 2025, under the retirement platform, we had record sales in pension risk transfer. We closed the PineBridge acquisition, which is a great step forward in how we look to kind of grow and accelerate growth there. And then thirdly, like I said, we've seen outstanding results in both Asia and LatAm from a growth perspective. I think both segments have shown some very strong top line metrics. So all in all, we think from an execution perspective, we're off to a great start. And then when you look at the numbers in 2025, so we had some key commitments that we expect to hit over the 5-year period. And the first one is double-digit EPS growth. So we hit that in 2025. The second one, we talked about an ROE range of 15% to 17%. We're at 16% for '25. Third was a free cash flow range of $65 million to $75 million on an annual basis, $25 billion of distributable cash over 5 years. We're off to a great start. We had 80% free cash flow in 2025 on a 2-year average. And then thirdly, we expect unit cost to continue to get better. We use a direct expense ratio as a measure of that, which is it's our fixed cost divided by our revenue. So it's a growth metric, too. And that came at 11.7%, and we had a target of 12.1%. So I would say, 2025, we hit on all marks. And then when we looked into 2026, we saw that momentum continue, even -- maybe even stronger. We had 23% growth in EPS in the first quarter, we had an ROE of 17%. And while our direct expense ratio went up a tick to 11.9% from 11.7% in -- that is a function of actually absorbing an asset management business that has a higher expense ratio. So one thing we didn't do is we didn't come off our target of 100 basis point reduction in our unit cost over the 5-year period. and we think we'll continue to accelerate that improvement over the 5 years. So overall, we think we've really hit on all segments. And quite honestly, if you look across the businesses, -- each 1 of them has shown strong growth. And so that was another central theme of New Frontier is the growth aspect of our strategy. So all in all, we're very pleased with the results.

And I think part of that exciting part, especially on the expense side, right, when you laid out the targets that technology aspect probably isn't as capable as it is today. And then this wouldn't be a financial conference if we don't talk about AI. So how is Met Life utilizing the technology side to really perhaps even essential the strategy that we just talked about there.

Yes. It's a great point. Like you said, several years ago when we were starting the strategy that was probably not the central theme. It certainly is a central theme today for us. And the good news is I'll say, technology modernization was an integral part of what we've been doing over the last 5 or so years. We probably spent between $3 billion and $3.5 billion just on technology modernization. And what that's really doing for us now, including kind of data quality and things like that, is by us having focused on reengineering our processes, we are setting ourselves up to implement and augment that modernization with it by embedding AI. And this AI trend, which is remarkable, and we certainly see the power of that coming to fruition. We think it's going to be very beneficial. We think that the investments we made, coupled with what we've seen on AI has given us the confidence to maintain I'd say, a conviction around that 100 basis point decline on the expense ratio. I think at the same time, what we found is that while unit costs will be important, this is really a growth opportunity for us. This is about productivity gains -- this is not how we can enhance growth. So while we're doing things like in some businesses, we're able to auto adjudicate claims 9x what we used to because of some of this recent technology. We're able to -- we're also able to get 4x the amount of RFPs out in the same amount of time. So again, that's a growth function there. And then I think lastly, where we really see the power of this is where you have an employee experience that's so important for take-up rates. Think about our Group Benefits business, employee-paid type products, it's going to be a real important aspect of that. And I think when you have the scale and the breadth that we have, we have that much more opportunity to be able to leverage some of these new technologies going forward. So we're really excited about it.

So it sounds like there's a lot to do from there. So if we look at it from a segment perspective, right? So for example, group benefit, Group Benefit has seen favorable mortality trends. especially from the working age population. Just how sustainable do you think this trend is the favorable overall trend in Group Benefit? And then is there a fear that maybe the industry might try to compete this away at some point in time. Curious your thoughts on just group benefits in general.

Yes, it's a good question. We haven't certainly seen any of the latter part of your point yet, but we certainly have seen some favorability in mortality Q1, quite honestly, came in well below in terms of a benefit ratio. Our expectations and certainly below a seasonal expectation for Q1. We saw a much, much lower -- and of course, we probably think that's going to continue throughout the year. To your point about the sustainability of those margins, I think for us, the way we built our business and our portfolio, having the widest breadth of product, so being diversified across that product breadth. By the way, there are some other products that need to do better. So when we think about margins, we don't think about any one product, right? And sometimes, we actually think about customer profitability, right? And because these things are bundled as well. So we think that there's actually for our business and for the way we operate, we think there's a sustainability in profit margin. That probably the way that we think of it. And so you might have some margins and certain products doing better, but others having some more pressure. We saw that with dental. We've repriced, that's coming back. And so I think our view is that it will balance out. But we do think profit margin will be sustainable. I'm not just sure life by itself would be.

Got it. No, that's very helpful. So on to that, so non-medical health benefit ratio in 4Q '25, you're setting that benefit ratio to somewhere between 70% to 75%. And then can you maybe talk about that piece of the business especially performance in 1Q as well as if we think about the outlook for the balance of the year as well?

Sure. Yes. It came in towards the top end of that range that you referenced. In Q1, that's not necessarily outside of the normal variance that we would expect to see, right? There's -- it tends to be higher utilization when it comes to some of the products there. And we certainly saw that with dental, although we're very pleased with the progress we made around dental in general. We saw a little bit of higher severity on disability in the quarter. That's actually one -- that's probably a couple of quarters now where we've seen higher severity, not frequency as much as severity. And then the third one is we had some new states come in on paid family leave. It is a product that can have in the first year, a little bit of higher strain. So we're seeing that. And we expect that to improve. I'm not so sure it's a Q1 and everything else improved after it or it's a first half, second half. I think we still need to see how things emerge here. But all in all, there's a wide variety of diversification in that benefit ratio as well and we feel comfortable with the range that we're at, at least over kind of a near-term basis.

So it feels like it's trending positively.

I think so, but I'm not so sure you're going to as we've seen in the last few years, actually, it's been first -- it's moved to almost a first half seasonality versus the second half. So we have to monitor that and there's nothing jumping out as right now, but we're obviously paying very close attention to it.

Retirement and Income Solutions business, right? So 1 thing the entire industry talks about is spread. The spreads here, 95 basis points in the first quarter, and that was a 4 points of sequential decline, but that was also within our expectation. So if we think about maybe just Met Life, then maybe the industry. So where do you see the trend is going in the current broader environment, understanding that we're constantly getting economic data so...

Yes. I think one of the benefits of that business for us is we have products that cut across the yield curve. So we have some shorter-term products. We have some longer-term products. In general, our view is that -- we came in at 95 basis points in Q1. By the way, if you include VII, we're at the top end of our range, about $120. So I know we look at it ex BI, but VII is important to our spread. But the reality on the ex VI, as we said in -- we kind of expect to hover around this point until the yield curve steepens more. I think that's the one thing that came in so far this year, a little different and probably 1 of the things as a result of some of the positive macro factors that I referenced earlier, the odds of Fed rate cut may be declining this year. So if that's the case, we think hovering around where we are, the 95%, give or take, 1 or 2 basis points in any 1 quarter is probably the sustainable spread for us.

Got it. Okay. So if we move outside of the U.S., so let's start with Asia, right? Sales has been very strong over the last few years, both in Japan and Asia ex Japan. If we think about what you've discussed earlier about the strategy, the macro and everything, can you maybe talk about the opportunity here, especially given geopolitical and economic environment feels somewhat volatile there.

Yes. Yes, it's a good question. I think there's a lot of positive trends behind Japan. Right? And as well as our Asia business overall. Demographics being one of them. So we deliver products that are very supportive of the needs of that emerging and aging population. As you said, we've had some very strong results over the last year or so in Q1, I think Asia sales were just above 20%. -- obviously, Japan is a big component of that given its size. And again, Japan fits into just the broader model, I referenced earlier around what we tried to do. So we have a diversified set of products. We have -- we actually had some yen variable life product. We had a U.S. dollar product that we initiated in the quarter. Our A&H product performed very well. So again, just diversified by type of product. and we're diversified by channel, right? And that allows us to leverage and allocate capital to its highest and best use, depending on what the competitive environment is like. So again, another very strong quarter for Japan. In addition to that Korea, which is leveraging a lot of the learnings from Japan, particularly in the foreign currency products that we've seen. I think Korea was above 40% in terms of sales growth. So we're seeing some real good momentum there as well. And so we're very pleased with what's ahead. there is some volatility. I actually think for our products and for the environment, given the, I'd say, the higher rate -- marginally higher rate environment, it's all relative, right? Hybrid that has emerged coupled with that supportive demographic trend that I referenced, the setup is pretty constructive for Japan.

It's been better than what it was before go -- it's relative.

Yes.

Maybe looking at Latin America, right, you set a path to $1 billion of annual earnings, and then you are making progress towards that. So you also maybe just help us think about the opportunities in that market, obviously, very different, but to a lesser extent, actually somewhat smaller as well so...

Yes. Yes. So again, I put that in that category of capital-light, right, lower capital needs in terms of the products that they deliver. And just a high ROE, high-growth market, that's what we have, right? And it's very important. We're #1 life insurer in Latin America, supported by some very strong structural trends, right? You have a rising wealth population still with low insurance penetration. I think the other thing, which has been very fortunate for us, and again, a function of the scale that we have, we've been making investments in technology. it's the region that we're seeing the fastest uptick on embedding technology into the ecosystem and the process through from end to end with the customer. And we've seen some tremendous results and we have a product called Accelerator, which we leverage. It gives us the ability to enhance our agents, right? This technology that we're leveraging accelerates embedded with some of our partners, which embeds insurance and accelerates growth. And we see in just the last year, I think we had $200 million of sales a year ago. We're already up to $700 million. so through that platform. So we see a real big opportunity ahead of us in Latin America, a place where growth has been accelerating, and we see that continuing, and that path to $1 billion is real. I'd say, real for '26.

Should be pretty impressive. The -- and earlier, you mentioned that EMEA has been a big grower for you?

Right.

And then the growth there. Curious to your thoughts on earnings sustainability also similar to Asia, right? If we think about the geopolitical risk there, just curious of your view on that.

Yes. EMEA is really remarkable, actually, just thinking about it. If you think about that segment, we actually have reduced our footprint over the last several years. So despite that, it's shown like a structural growth trend and real durable growth trend that has emerged really over the last several years. If you take 2023 to 2025, sales have been growing in the 20% range. Top line low double digits and earnings close to 20%. And so it's really set itself up as a strong durable growth engine with products that are protection-oriented, high free cash flow, it's actually a segment that generally gives us a dividend that's about equal to earnings every year. So 100% dividend ratio, right? So again, a growing and emerging part of our story -- and I think also, it's another region that's starting to leverage some of the learnings from Latin America in how insurance is starting to be embedded in a digital journey. So we're seeing a lot of cross learnings from those teams as well. So Overall, we're very pleased with the progress, and we think this is really, like I said, a durable growth story now.

That's a pretty impressive return profile there. So MetLife Investment Management, your newest broken out segment on the financials, right? -- curious as how you think about the performance thus far. Obviously, there's still a lot more to go from there. And I'm curious if your view on the long-term growth for this segment and your vision for the segment in general.

Yes. I think it's important, like I said, it's on of the or 3 of the -- one of the 4 priorities, right, number 3 in the priorities. But one of the 4 priorities that we have under New Frontier. And I'd say it's off to a great start. Our goal here is to scale our asset management business above and beyond where we are. We're already a scale player, but we want this to be a more material piece of our earnings mix as we go forward, right? And probably, like I said, probably our highest growth segment that we should see over time. The PineBridge acquisition that we just did was a kind of a chat towards accelerating growth, added about $100 billion of AUM to our business. And I'd say we're off to a great start. The quarter high growth relative to last year, but obviously, we brought in PineBridge. And I think the team has done a really nice job integrating, building a combined leadership team from both firms and looking for ways to leverage some of the new capabilities we have like. So we've built a leveraged finance platform through PineBridge. We have a new multi-asset solution our alternatives brand has basically tripled their quadrupled inside. So we're very excited about what's ahead.

So maybe on the point on PineBridge, right, you had very strong ROE during the integration in the first quarter. As we think about that integration, which you kind of alluded to and as we think about just the broader outlook for net flows for the investment management piece and for PineBridge, how should we think about the flow picture, but also how should we think about just that integrated firm, so to speak and capability.

Yes. It's a great question. One thing that we've been fortunate to maintain is one platform, one MIM platform. So bringing PineBridge in integrating that into become 1 MIM was very important to us. We've maintained that flush. So we're not trying -- we're not -- we haven't gone out and done a boutique platform. We've built one platform that we believe we can scale either through organic or complemented through inorganic acquisition. So from that perspective, we have a good backdrop for integrating. It's never easy and it takes longer than you think. But we got the teams already up and running net flows like with any acquisition, you're always going to have in the near term, some normal variability in net flows. We also saw some market depression in the first quarter that has come back. But the pipeline looks very constructive, right? So as we think about this business, I think what's important to us is that 3-year outlook and guide, and that's what we're really aiming for. You might see some just some ebbs and flows in the first year. But integration, I would say, is off to a better start than we anticipated.

Got it. So yes, even though first half of the year, market feels lower, we are things will be fine. That's right. So maybe on that is a nice kind of segue into the investment income piece, right? You had very strong variable investment income. We kind you alluded to that a little bit earlier. And then that was during -- heading into second quarter and then also rest of the year, we're looking -- just looking back, 2026 thus far has been sort of a V-shaped market. How are you thinking about the broader impact to your variable investment income in 2026? And then are there things around the edges that you might want to change here and there.

Okay. Yes. So first, I think we entered the year and we've talked about the benefit of having a well-diversified, well-seasoned portfolio. We saw that come through in Q1, over $500 million of pretax VII relative to, call it, the 400 or so kind of quarterly run rate that we guided to. So we think that kind of -- that was a good reflection of what we've been talking about, having that diversified seasoned portfolio and a very strong return in Q1. We mentioned in the earnings call that given the way Q1 closed, we could see a little more pressure going into Q2. We'll deliver our 8-K disclosure in a couple of weeks, maybe 2 or 3 weeks that shares because they're all starting to come in now. But with that, we actually think Q2 backdrop is setting up very well for Q3. Right? If you think about what's happening with the broader market in general and technology in general, and then you throw in there the IPO market, and we have a nice allocation to VC portfolio. We actually think we're pretty well positioned going into Q3. So while we might see a little pressure coming into Q2, we think we're pretty optimistic about what we might see in Q3.

Right, for sure. It's been a sort of a bear going forward. Now part of the overall portfolio, private credit, right? So you provided some helpful disclosures on the first quarter. But I think it's fair to say that a lot of the investors can be influenced by fear from that perspective. Can you maybe help us think about the private credit portfolio for you. But also maybe just some commentaries about the broader industry, if that's possible in terms of private credit yes.

Yes, sure. I think for us, first, and we used the term as part of our disclosure, private fixed income to make sure it's all inclusive, right? I think the terms get used very liberally out there these days. So let's use that as kind of the broad-based term that covers all private fixed income assets to start. And from there, we've been doing this for decades, right? So it's core competency of us. We do it for our own balance sheet. We also do it for third parties. It's a -- we believe, a key competitive advantage for us. And the fact that we do that and we apply that in a way that allocates the right assets to the right liabilities, right? That's very important when we think about our own balance sheet is that ALM, asset liability management. Broadly speaking, the other thing that's very important from that disclosure. 95% of our fixed income part of the fixed income assets is investment grade. So again, we're generally on our balance sheet, an investment-grade shop with some smaller allocation to higher-yielding assets and investments. And then if you move down from there, where people start to reference private credit, maybe with middle market direct lending, it's pretty small allocation in our balance sheet, less than 1%. And we never had any exposure to some of the BDCs. I think our collective view right now is that credit remains pretty stable in general. Remember, we're coming from a set of environments in the years where there was no credit losses. So there might be some credit losses coming back in, but I don't think that means credit's a challenge, right? I think it's just going to be more idiosyncratic versus a systemic issue. I think the other thing that came out with private credit of late is just the funding needs to be right for the asset, right? If you have liquid funding or funding that could move away from you and you put it into an illiquid asset or a less liquid asset as we've seen with some of the BDCs and retail flows, that can be a challenge.

Got it. So sometimes it feels like you're always fighting against a narrative maybe commercial real estate or if I think.

Yes. I think what's really important to your point is we're a high-grade balance sheet. And you've seen that, like you said, with real estate and everything else that have come through, while we're going to all face some challenges, it hasn't had any impact on our capital management activity.

Yes, exactly. The risk management is tightened.

Yes.

So maybe if we shift a little bit to the free cash flow narrative. -- based on everything you have set so far, it should be a very free cash flow generative environment that you're in. And it does feel like you should be on the higher end of that 65% to 75% return rate profile, right? So -- if that is the case, given the solid business momentum going forward, curious as your thoughts on free cash flow going forward.

Yes. And I think, obviously, it's very tied into capital management, things like that, right? And 65% to 75% on average feels like a good target. It's going to vary in any 1 year, by the way, last year, we're 80%.

Exactly, right.

So I get it, there may be some views that, well, why aren't you increasing it we think of our business and we think of the opportunities for supporting organic growth and thinking about other things, maybe other uses of that we think this is a good target for us. Could it vary from that target Sure. But I don't think we're going to move off the 65% to 75% at this point. And remember, that's with -- that's continuing with growth, right.

So essentially -- but at the same time, we have very strong earnings that you have.

That's right.

Then in that case, right, so the capital that you are generating in that case, if we think about just the current broader market valuation, if we think about just the amount of cash that you're getting. Can you maybe discuss the capital deployment opportunities, your thoughts about buyback, potential other activities with the cash, things of that nature.

First, if you start with our philosophy, right, our first goal is how do we support organic growth with high returns, high IRRs, good payback, and you've seen that come through in our B&D disclosure. -- then we would evaluate whether there's any complementary inorganic growth. And then the excess would be returned in share repurchases and dividends. If you take 2025, we have about $4 billion supporting organic growth, another $1 billion or so from inorganic with PineBridge acquisition and a few other things. And then that's, call it, $5 billion of support of growth. You had another $3 billion for share repurchases or so and then another $1.5 billion of shareholder dividends, so call that $4.5 billion. So $9.5 billion, going back to the point around the resiliency of our balance sheet that we deployed in 2025 to drive shareholder return. I think that philosophy is really what should be focused on for us, right? That's the consistent philosophy for us. When it comes to 2026, from our perspective, we would say that the guide that we provided early last year of share repurchase is generally in line with 2025. It's probably the best information we have at this point. But overall, we feel very comfortable around our capital position, all the operating entities and the projections we have around their solvency remain robust. We have significant amount of liquidity at the holding company. So we feel very well positioned regardless of the environment.

We have a couple more minutes. If anybody have any questions you don't want to ask. Please use the microphone there.

Can you talk about the trends you're seeing in the long-term care is transfer market and it met what happened on [indiscernible] .

Yes. I think it's a market that, as we've said in other forums that continues to get more attention -- over the years, I think other blocks and other products have taken a lot of the attention. I think now that a lot of transactions have occurred, you see more people reviewing LTC and being a bit more innovative around solutioning. I think for us, our viewpoint has been the same. -- we're constantly engaged with third parties thinking about being solution-oriented. This tends to be a relationship because it's a reinsurance arrangement. So it needs to be a win-win. And it makes us better. By the way, having those conversations, doing that analysis. So from our standpoint, if it's value accretive, yes, we will be open to that. And there's a lot of factors on determining the definition of that. But in general, we see the conversations continuing yes.

Okay. I think we're out of time. John, I really appreciate your time. Thank you.

Thank Thanks, Bob. Thank you.