大都會人壽保險 (MET) 2002 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the MetLife Inc. first quarter earn call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder this conference is being recorded.

Call is - and before we get started I would like to read the following statement on behalf of MetLife. Except with respect to historical information, statements made in this conference call can constitute forward-looking statements within the meaning of the Federal Security Law including statements related to trends and the company's operations and financial results, the market's product and the future development of its business. MetLife's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risk and uncertainties including those described in MetLife Inc.'s filings with the SEC including its S-1 and S-3 registration statements.

MetLife Inc. specifically disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future developments, or otherwise. With that I'd like to turn the call over to Kevin Helmintoller out of Investor Relations. Sir, you may begin.

Good morning and welcome to MetLife's first quarter 2002 earnings conference call. This morning we will review our performance in the first quarter of 2002 and outlook for the remainder of the year. First, I would like to mention that we are delivering the call to you this morning from two host locations. Bob Benmosche, Rob Henrickson, and Jim Benson and myself are off site at a top producer conference while Stu Nagler, Gerry Clark and are in New York.

Please bear with us this morning as we orchestrate comments and questions and answers from two locations. Also, as a notice, we have further enhanced the disclosure on our QFS document this quarter to aid you in analyzing our results. We have added net income reconciliations on the summary pages at the front of the document, versus annuity deposits. And more significantly, we have added the sequential view to all of the operating statement pages.

This morning Bob Benmosche, our Chairman and CEO, will begin with some opening comments. Stu Nagler, our Vice Chairman and Chief Financial Officer will then review the detailed financial performance by segment. And after that we will take questions. With that let me now turn the call over to Bob Benmosche.

All right. Thanks and good morning everyone. Again also thank you for joining us. We're very pleased with this first quarter. As you can see our net income year over year is up 15 percent. If you look at it on an EPS basis, net income is 19 percent. And what that really says is we're achieving the plan. And this is the plan we've talked to many of you about at the time of the IPO as well as updated you in December. So things continue to go very well for us and generally speaking we've seen very few surprises. And the biggest one, of course, you saw was already General American.

As we go through the results to the quarter, it's broad based and I want to start first with our revenues. And what we said to you in the past is not all revenues are created equal. What I want you to keep in mind is that Premium B growth, when you look at it, you have to remember that we are exiting underperforming businesses. We have already talked to you about that as a result of some of the charges in the fourth quarter. We're sticking to our margin targets. We told you again last year that we lost several large group accounts because the prices made absolutely no sense and to maintain market share at enormous prices to profit, we're not going to do that. So you see some of that going on in our premium fees as well as revenue lines.

And also remember that we're getting rid of some of our customers. We talked about our disability income business, raising prices there aggressively on those businesses that did not provide us profit. Layer that into the fact that you do have a transition going on and we talked about it again in December that you have people who are going from a fully insured dental product to a ASO contact. And you'll see this migration - it's the same you saw from whole life moving into variable life in terms of the effect of the top line appearance of growth where you're moving from to product.

So we said that we would get mid to upper single digit growth in our revenue numbers. And we thought and told you that we believed that would be sufficient to grow our earnings per share 15 percent. And the first plan and the results so far that plan show exactly what the results will be from this kind of growth.

I also wanted to comment on our repurchase program. We did purchase $240 million worth of our shares in the first quarter. We still have a plan of 600 million. We thought that we want to front load that a little bit for the year 2002, but we're going to stick to that $600 million plan.

When we look at our expenses, and you all know that we had to take a significant cost increase this year because of our pension plan with the drop in the equity markets and so on. So that's put enormous pressure on us from an expense control point of view, which you can still see our expenses are coming down in spite of that. And the real measure and we all use it and I think it's an appropriate measure and that is head count.

And as we look at the domestic operation - again we told you that international is in a different mode as we grow some of those international businesses. But if we look at the core earnings coming out of the U.S., our non-sales domestic head count is down from this period last year, 7.9 percent. We're down 2,133 positions. When you look at this year, 2002, we're down 2.2 percent in . So that trend is continuing and that's a pretty good barometer of expense management. You think of less phones and less computers and less support of computers and so on at the desktop.

We are leveraging our investment technology to become far more e-business based as we move forward. We're building new efficiencies and new technologies so that we continually use that leverage to give better levels of service at reduced cost and the numbers clearly suggest that.

Let me take you through some of the businesses real quickly and then turn it over to Stu. On the home front clearly we are delivering the results we talked about to get to the $155 million expectation for the year 2002. We said look at the second half of 2001. Watch the performance in 2002 and that will give you an indicator whether we continually make this part of the company strategic and providing the right return on equity and the right earnings growth as we move forward.

Pricing actions are having a meaningful increase on our earnings - our premiums. We've seen a slight decline in our number of policies because of price increases. However, our retention of our better category, or our best category of risk is in the low 90 percent range right now and the retention of people at the bottom - the clients who represent the highest cost and the highest risk to us - the retention is in the low 80s.

So we are really getting the right decline based upon profitability in the auto and the home business. And we had very good weather in the first quarter. But the plan we had for the first quarter with normal weather was basically achieved by this team and

If you were to take out the extra ordinary good weather, we would be right on plan. So that we got a little bit of wind to our back in the first quarter. However, we will this group to continue to achieve their plan throughout the year.

When we look at individual business, we have had solid results in a very difficult market. A lot of uncertainty out in the marketplace. And clearly, while we have solid sales results, a small amount of our sales I will comment, are benefiting from enhanced compensation at General American, where we are looking to retain and recruit new producers and get that franchised turned around.

But if you look at our variable life and universal, excluding BOLI and COLI, we are still up 17 percent year over year. A dollar results in the life insurance business.

Our annuity deposits are up 38 percent, almost 40 percent growth in the variable annuity line. So we are getting good growth there. And the expense reductions continue to be on track. Our expense ratio is right now moving to a 10.4 percent from 11.3 last year. So expense reductions, and keep in mind that that organization is still dealing with that huge increase in our pension clause for the year 2002.

On the institutional from, vary strong results in earnings after taxes of 235 million. That is somewhat above our target for the first quarter.

The institutional business, really have produced good results across the entire spectrum of products within that business. They are benefiting first from strong investment spreads. When we talked to you about it is that we would begin to see tightening of the yield curve 2002, begin to see the economy sort of show good signs of strength as we moved into the second half.

Clearly those spreads are wider than we thought. That's where we are getting some wind to our back, which is positive. We expect to be much more on plan in the remaining three-quarters. You also see institutional benefiting from very tight expense controls. You can see that in the head count numbers and expenses.

So we are also managing, as I said, our crediting rates and making sure that we have the right balance of profitability for the accounts that we deal with in terms of our customers.

You have already seen the RJ announcements, so that business is turning around and showing good solid results for the first quarter. National had operating earnings of about 14 million this quarter, down a little bit from last year. But there was a $3.5 million charge for Argentina, so we think that while Argentina is serious situation, our operating earnings impacts are beginning to get to from that.

So we see that the net, net is a very strong, broad base part of our company. We are continuing to achieve the plans we have laid out. Plans that were clearly executable plans, that we have a lot of confidence in. So we are going to see earnings per share growth this year of 15 percent, which we told you in December.

We also believe that we will add at least 75 basis points and in some cases 100 basis points to to the first quarter with 12.4 percent.

At the IPO, we told everyone that we were fairly confident we could achieve an 11.5 percent at the end of 2002. So we are already ahead, almost 100 basis points ahead of our projection 2002 from the IPO and we are showing good strength our profitability along with our capital.

What I would like to do now, is turn it over to Stu, who will take you through a little bit more details and then we look forward to your questions.

Stu?

Thanks Bob, and good morning.

This morning we reported operating earnings of $400 million, or 54 cents a share for the first quarter. Operating earnings include our recently announced $48 million after-tax charge on the anticipated resolution of the Federal investigation of General American's former Medicare business.

Excluding this charge, our operating earnings were $448 million, up 17 percent from $384 million in the year ago period. Earnings per share, excluding the charge, were 61 cents, up 24 percent from the year ago period. You should note that the current period benefited from the illumination of goodwill amortization, which amounted to approximately $10 million after-tax, or a little over a penny a share.

As we mentioned in last December, we expect the illumination of goodwill amortization to benefit EPS by approximately 5 cents a share for the full year, and our 15 percent EPS growth target, excluding the fix .

Cap reported net income in the current period, was $329 million, up 15 percent from the prior year period. After-tax, net investment losses, which is the major difference between net income and operating income, declined to $76 million, from $97 million in the first quarter of 2001.

As Bob mentioned, during the first quarter, we repurchased 7.7 million shares at a cost of about $240 million. Including these re-purchases, we now have just over $1 billion reaming on our existing board authorization, and have re-purchased just shy of 80 million shares at a total cost of $2.2 billion, since our IPO two years ago.

Metropolitan Life Insurance Company, statutory earnings were $460 in the first quarter of 2002, up 22 percent from $377 million in the prior year period.

Cap revenues were $8.1 billion, up 2 percent from the year ago period. And as Bob mentioned earlier, all revenues are not created equal. We continue to see the shift from FAS 60 and FAS 120, premium type products, towards FAS 97 fee based products. Especially in our individual life insurance and annuity product lines and in our institutional retirement and savings line.

It would seem more of a shift towards administrative service contracts or ASO, in our institution, non-medical product health product lines. I will discuss the top line in more detail as I walk through each of the business segments beginning with individual business.

Operating earnings from individual business were $174 million in the first quarter of 2002, down 5 percent from the prior year period. Overall good progress in managing down expenses, was offset by an increase in pension and other post retirement benefit costs and the continued negative impact on weak equities on our separate account asset values and resulting management fees.

In addition, you may recall that our expense levels in the prior year period were unusually low, due primarily to a slower than expected ramp up in technology related spending, which made for a somewhat difficult comparison this quarter. I will discuss in a bit more detail when I talk about the expense ratio.

Looking at the underlying product lines in individual business. Traditional life operating earnings were flat at $98 million in the first quarter. Investment margins declined between periods, however, this was offset by an improvement in mortality results and lower amortization.

Looking at our variable and universal life product line, operating earnings were $25 million, down 24 percent from the year ago period. An increase in mortality experience, coupled with an adjustment for receivable related to prior period surrender charges, was partially offset by lower amortization from the high level in the prior year period.

In annuities, operating earnings were $40 million, up 11 percent from the prior year period. Continuing weak equity market performance and a decline in investment margins, have put downward pressure on earnings from our annuity product line. Off setting these items, was a large decline in amortization from the high level in the prior year period which reflected the sharp decline in the equity markets in that period.

You'll recall that in July of last year, we implemented a new amortization model to more appropriately address the volatility of equity market performance versus our future assumptions. Had we implemented the new model at the beginning of 2001, the first quarter 2001 amortization would have been $36 million lower on a pretax basis. So the reduction in amortization between periods not only as significant as it currently appears. So as we get past the second quarter of this year, our comparisons to prior year periods at least in terms of amortization should be more consistent.

Turning to expenses. The expense ratio for individual business was 10.4 percent, down from the year ago period ratio of 11.3 percent, though up somewhat from the December 2001 quarter. Looking sequentially, the increase in ratio from the fourth quarter entirely due higher level of premiums and deposits in the fourth quarter. And this is a recurring seasonal pattern for us.

Looking at the components of the ratio, you can see that our net insurance expenses declined $15 million from the fourth quarter while they remained essentially flat versus the year ago period. As I mentioned earlier, our expense levels in the first quarter 2001 were well below expected primarily due to slow spending related to IT initiatives. Our average net insurance expenses last year were $405 million per quarter. And you can see we're meaningfully below that level in the first quarter of 2002.

In addition the swing in pension and other post-retirement benefit costs for individual business between periods was approximately $30 million pretax, which flows through this net insurance expense line. for this increase in benefits cost, which we talked about at our Investor Day Conference last year. Targeted expense levels have come down approximately $50 million in the first quarter 2002 and we're well on our way to achieving the $200 million savings goal for the full year.

So while individual business' bottom line results don't necessarily reflect the impact of these efforts, primarily as a result of weak equity markets and the increase of pension and other retirement benefit costs, we're achieving meaningful improvements in operating expenses in this business.

Turning to the top line for individual business, we believe the results speak to the strength of our multiple distribution channel strategy coupled with improved product offerings. Annuity deposits of $1.7 billion were up 38 percent versus the prior year period. Down three percent from a very strong fourth. A 30 percent increase in fixed annuities and a thin increase of versus the prior year period these . MetLife Investors Group its annuity business bolstered by the ramp up of new selling arrangements, most notably Merrill Lynch announced on March 4th and Prudential (Securities) which began on April 15th. In addition the launch of the American Forerunner Series annuity last a summer as a result with 50 percent growth in annuity deposits through New England financial.

On the life insurance side, we saw a 19 percent increase in first year premiums and deposits excluding single premium non-recurring COLI-BOLI sales. You'll notice that sales growth on the life side continues to be driven by GenAm and this is partially due to enhanced commission arrangements that we launched several months ago to help improve recruiting. The results have been very favorable. As we've added almost 1,000 new producers to this distribution channel since the acquisition closed a little more than two years ago. We'll be watching these results carefully as these enhanced commission arrangements come to an end over the next 12 months.

First year premiums and deposits from variable and universal life products also excluding single premium COLI and BOLI were $147 million in the first quarter 2002, up 17 percent from the prior year period. We're very pleased with our life and annuity sales results in what continues to be a very difficult environment.

Moving to our institutional business segment results. Institutional business had a record quarter as it posted $235 million in operating earnings, up 21 percent from the prior year period. The improvement in earnings resulted from continued strong interest margins, improved underwriting results, especially in the non-medical health and other segment and a disciplined approach to expense management.

Operating earnings and group life increased eight percent to $68 million primarily as a result of wider investment margins and a reduction in operating expenses partially offsetting these improvement was a small up tick in mortality on our group universal life business, which is not part of our term life mortality ratio.

In retirement savings operating earnings improved 21 percent to $114 million in the current period primarily as a result of improved underwriting result and lower expense levels driven somewhat by the exit of two unprofitable businesses last year. In non-medical health and other, operating earnings were $53 million, up 39 percent from the prior year period. Strong improvements in underwriting primarily in the accidental death and dismemberment and group disability products coupled with an improvement in investment margins drove the earnings improvement from the prior year period.

Looking at the top line in institutional. Premiums, fees and other revenues for institutional were flat at $2.2 billion compared with the prior year period. Group life premiums, fees and other revenues were down one percent to $1.25 billion versus a strong prior year period. Adjusting for several one-time items in the prior year period that did not recur in the current quarter, the group life top line grew about two percent. This is still well below our longer term expectation of about six to eight percent for this business. And this reflects continued downsizing of work forces and the loss of term life coverage with several large customers, which Bob mentioned, due to highly competitive pricing by some of our competitors.

Why we do think that pricing is firming somewhat, it won't become evident until 2003 since most new sales have January 1st effective dates. So while the top line growth in group life is well below where we'd like it to be, we're going to continue to adhere to our pricing discipline to maintain appropriate returns for our shareholders.

In non-medical health and other, premiums, fees and other and revenues grew nine percent from the prior year period to $766 million. Again, this growth rate is below our longer term expectations of 15 to 20 percent top line growth in this segment. Several one time items in the prior year quarter made for a difficult comparison between periods including several disability reserve buy outs and premiums received from a customer's use of demutualization proceeds. Adjusting for these items, our normalized top line growth between periods was about 14 to 15 percent, at the low end of our expectations.

As I mentioned earlier, we're continuing to see a shift among corporate customers towards ASO business, away from fully insured business, especially in the dental product line. While profit levels should remain stable and margins will expand, this does alter the pattern of premium revenues from premium type products to fee based products. We expect this shift to continue and therefore we could continue to see top line revenue growth in the non-medical health and other segment come in at the lower end of our 15 to 20 percent target. But as Bob said, this is a demonstration that all revenues are not created equal.

Turning to expenses. You can see that the institutional business expense ratio declined to 15.9 percent versus the prior year period of 16.4 percent. We view this as an excellent result. We are even with flat revenues, which is the denominator of the ratio, we continue to manage operating expenses down.

Turning to auto and home. It reported operating earnings of $30 million for the first quarter of 2002, up dramatically from the very poor prior year result. Improvements in operating fundamentals, through pricing, underwriting, and claims management, coupled with improvements in weather versus a very poor prior year period, helped drive the earnings growth between periods.

As you know in the 2001, we implemented on average 11 percent price increase in our auto business and 18 percent on our homeowners business and we are continuing to see that work it's way into the earned premium. In addition, we are continuing to implement similar price increases this year.

So while our retention has come down slightly, as we expected it would, the pricing and other underwriting actions we are taking resulted in a 6.5 percent increase in average earned premium per policy versus the prior year period. And as more of our pricing works its way into renewals, we expect our average earned premium per policy to be up about 11 to 12 percent by the end of the year.

Overall our auto and home segment delivered strong first quarter results, which gives us confidence in delivering on a full year earnings target of $155 million.

Turning to the re-insurance segment, operating earnings were $22 million, up also 50 percent from a somewhat depressed prior year period. Mortality improvements versus the prior year period, coupled with earnings growth in RGA's international operations, drove the change between periods.

I won't discuss RGA's results in more detail since they conducted their conference call a week and one half ago. I would add that MetLife purchased an addition of 327,600 shares of RGA stock during the first quarter, which increased our ownership level from approximately 58 percent to 59 percent.

Our international segment reported operating earnings of $14 million, down from $18 million in the first quarter of 2001. First quarter earnings from our late 2001 acquisition in Chile, coupled with earnings growth in two of our more mature country operations, Mexico and Korea, were offset by a roughly $4 million loss in Argentina.

In addition, last year's quarter benefited from the low effective tax rate due to our ability to demonstrate recoverability of prior period tax losses.

Our asset management segment reported $1 million of operating income in the first quarter, down from $6 million in the prior year period. Revenues in this segment continue to be pressured by weak equity markets and their resulting impact on fees.

In addition expenses were up a bit from the prior year period due primarily to some additional staffing in our sales and sales related functions.

Our corporate, other and illumination segment reported an operating loss of $76 million compared to an operating loss of $9 million in the prior year period. This year's period includes the impact of the $48 million after-tax charge related to the General American anticipated Medicare settlement.

This summarizes the key drivers of our financial results. Before I turn the call over to the operator for questions, I want to spend a moment on our expectations for the remainder of the year.

We are confident in our ability to achieve our aggressive earnings target of $2.56 to $2.59 for the year. Looking quarterly, we expect each of the remaining quarter to be a few cents higher than the prior quarter due to three factors: Rate increases and seasonality in the auto and home business, continuing expense improvements, and a better investment climate later in the year.

We believe the diversification of our businesses is truly differentiating us from some of our peers and we expect this to continue to be the case going forward.

Now I would like to turn the call over to the operator to begin the question and answer portion of the call.

Thank you. If you do have a question at this time, please press the number one on your touch tone telephone. If your question has been answered, or you wish to remove yourself from Que., please press the pound key.

Once again, if you do have a question, please press the number one. One moment for questions.

Our first question is from of Bear Stearns.

Good morning. Quick, first one question, then I will have two follow-ups. Can you talk about your exposure to the Maryland tornados and what that might impact your Q2 earnings?

Stu, do you want to comment on the minor impact that would have?

That was just going to say. It's a relatively minor impact for us.

OK. Secondly, with regard to your spreads in both individual and institutional, you had basically 193 basis points in annuity, 195 in institutional - where are you targeting the spread to be for the balance of the year and why?

let me let Jim and Rob address that individually.

on the individual annuity side, we were at 193. Our target is to be in the 208 to 210 range as I think indicated on our call last time. We had a $15 million decrease due to some - the lack of prepayments and some other bond and mortgage income items. But what we have planned to do for the balance of the year, is - the investment side, the asset side is probably going to stay relatively flat and we are going to manage the liability side down. $20 of our $26 billion of fixed annuities are on annual resets in our PPA product. We are currently, if you look under QFS at 5.09. We plan to bring that down, probably on average on the whole portfolio, about 10 basis points. So we expect the asset side, the investment side to stay relatively flat, maybe go up a little bit, but manage on the liability side.

And then finally, your unrealized gain came down by about 800 million to 864 million, and you had some net realized investment losses. Could you give some color on larger impact items there and perhaps the quality of your investment portfolio?

Gerry, could you...

Andrew, Gerry Clark. Good morning.

Well, we had a relatively higher level of gross to credit losses in the first quarter. I'd like to say the overall quality of our portfolio remains very high. We had net realized capital losses, including write-downs, of $105 million, which reduced the overall annualized yield on our portfolio by 25 basis points to 7.31 percent - and again, the annualized yield.

The level of the write-down increased in the first quarter due to increased activity in respect to our general account holdings in Argentina in the telecom sector. Our remaining book value exposure to Argentina is light, at $150 million. And we've reduced our exposure to high-yield telecoms from 10.25 percent to 5.75 percent of our high-yield protfolio. We really are underweighted relative to the market. And specifically in respect to our telecom portfolio, 85 percent of it is investment grade, including holdings of a amount of $270 million of WorldCom. I thought that would be of interest to people.

As to the overall portfolio, we continue to benefit from its diversification. As was expected when it was constructed, sectors perform in different fashions during different stages of an economic cycle. For example, over the last two to three years, or real estate portfolio, which consists of our $18 billion of commercial mortgages, $5 billion of mortgages and our $5.8 billion real estate equity portfolio has helped our overall yield while having minimal delinquency in default experience. And not only has the absolute performance of the real estate portfolio been good but also it's performed very well against industry averages.

As to net credit losses, which I addressed earlier, it's difficult to project what will happen for the rest of the year as this economy slowly emerges from the down turn. For all of 2001 our overall yield was reduced by about 43 bases points due to realized losses and breakdowns. First quarter results, as I stated earlier, were at an annualized yield reduction of 26 bases points primarily due to the Argentina's Intellicom situation and offset somewhat by the sale of $800 million of our $1 billion standard import investment that we made in September 20th of last year.

Well at this stage we would expect losses and downs to more approach last year's level as contrasted to the reduced first quarter levels. We feel very good about the overall strength of our portfolio including the unrealized gains of the $7 billion left in the portfolio.

Gerry, just a - can you refresh my memory on last year's level of downs.

This year we had downs of in total of $272 million income and $70 million on the equities.

Thanks a lot.

, this is . I just - we didn't answer this institutional part of your question.

Oh right.

If you look at the, I think if you look at sort of our average spread margin, for the remainder of this year, the last nine months, I think our expectation is that they were 20 to 30 bases points depending on which product segment you're talking about. So in non-medical health, they might be down 20 while in Group Life they might be down 30 on an average basis for the remainder of the year. That's our - let me, that is our expectation in terms of building our earnings projection.

OK. Thanks .

Thank you. Our next question is from of Credit Suisse First Boston.

Good morning everyone. A couple of quick questions. Gerry can you comment on the annuity spreads in the individual segments. They've ranged from 1.83 percent to 2.52 percent and haven't calmed down yet. What should we use for modeling purposes? Also want to verify that there were no reserve releases in the non-medical health and other segments that helped the numbers this quarter? And then I'll have follow up.

Actually could we let comment on the annuity spread first?

Well the annuity spread , you should put into your model 208 bases points from now until the end of the year. And as I mentioned on question by modifying the liability side by rate recess we don't expect a lot of up tick in terms of the investment income.

Is that why it was small - why it was unusually small this quarter? It was the liability side.

The credit union rates has come down an average on the 26 billion from 545 to 509 and we would expect that to come down as opposed to having the investment income side go up.

OK.

OK.

it's , if you - I assume you're talking about the disability on the reserves?

Yes.

We've released less than a million on the disability reserves. We've got, you know, we've seen the claims relative to 9-11 you know come in. But 70 and 75 percent of those related to mental and nervous. But it's a small amount that's reaching LPD, which we think is very positive. But we're - we still think we might see a second wave of claims similar to what we saw with our limited experience in Oklahoma City. So we'll continue to update. But less than a million.

OK. And then the follow up. Why did you release 61 cents as your number and back out the law suit charge when you told us that was not how you were going to disclose it?

No that's not - we didn't tell you how we were going to disclose it . What we said was that we're going to take a charge in the first quarter and what we said was that we are - expect to still achieve our earnings per share target for the year. So we're not talking about the quarter. And so we're just showing you different information. But the fact is that we expect to achieve our earnings per share growth target for the year including this $48 million charge. And that's the - that's what we know. We are - we're not going to get into quarterly forecast here. We just can't. And so what we've given you is here's the year. We're doing our best to give you the information for how you begin to look at each of the quarters. But clearly what we said was that we believe that we can make up this and we will achieve our target by the end of the year.

OK. Thank you.

Thank you. Our next question is from of Goldman Sachs.

Thank you. Good morning. We have a couple of questions. My first question is could you talk us to how confident you are in hitting the guidance that you've previously given on the individual business given first quarter and given the investment income? My second question has to do with expenses and if you get expenses down, how much faster do you think you can expenses down than what you're doing today? Or do we just have to wait for time to pass as that comes through? And then another question is about investment income. Can you just tell me what you're investing in today? If you're investment income is going to stay at the current level, which is significantly lower than it was, what are you investing in? And then we have a follow up question on reinsurance.

OK. , let me let talk to the first two issues and then let's talk to Gerry about the investment issues.

, as far as the expense, our expense plan is to take down our operating expenses exclusive of the $200 million that has been budgeted into the entire year. For the first quarter we were down about $50 million so we're right on target with that. I don't think it's possible frankly to go beyond that because it's part of the plan. We're not going to be short and we're not going to be long from the original estimate, I don't think, hardly at all. So on the expense front, we're going to hit our target.

On the pension side also a higher percentage of that came through in the first quarter. We're on an after-tax basis about $60 million of pension and other post retirement benefits to be absorbed in individual business this year. Eighteen to 19 million of that was absorbed in the first quarter. So a little disproportionate in for the first quarter. So from an expense standpoint, here that we're doing a little better in the second, third and fourth quarters. But I don't think the actual expense management program that we have in place this year will improve for the balance of 2002.

As far as the earnings plan, we're still confident in the earnings plan. It does imply a seven to eight percent market up tick. And too we have a lot of variable accounts in both variable life and variable annuities. And if the market stays flat, it's going to challenge us and we're going to have to come up with other ways to get that original plan.

Gerry.

Yeah. , relative to where we're putting our money. We don't really anticipate any major changes in the sector allocations over this year. Our non-investment grade, for example, stayed at about 5.8 percent of our total portfolio for the last 12 running months and we expect it to stay there. But in the last quarter, we've been on a relative value basis, we've found the mortgage market to be very attractive. And we've increased our sector allocation there by about one and a half percent. And private places. We're always attempting to be active in this market. It provides us very good value in terms of yield and in terms of structure.

OK. We have one follow up on reinsurance rates, I just wanted to know with respect to RGA what's - if you could review your long-term view of that investment. Where you want your ownership share to go to? And what actions Stu is taking as the head of the Board now?

Stu, if you could go ahead and address that thing.

OK. the expectations to be about where we are right now. As we said all along, we didn't want to move up too much because we think there's a value in having outside share holders and yet we like our position. So, the thing for this purchase again was that RGA issued some convertible notes earlier - issued notes last year and we took this action in advance of the convertibility to be sure we could keep our ownership percentage around the level that it was at.

In terms of activity, we continue to work with RGA. They've been an excellent partner. We're just stepping up the level of partnership across a whole bunch of different areas for example IT projects - they have a major IT project going on and we're working together on it since we have a lot of experience in managing large scale projects, sharing information. So I would say you're not looking for anything dramatic here. You're looking for continued improvement based on good partnership between the two organizations.

OK. Thank you.

Thank you. Our next question is from of Bank of America.

Great, I have a couple of questions. The first is: - the Dow Jones News Wire had reported, I guess a couple of weeks ago, that you had put in a bid for in Mexico - and I was hoping perhaps you could comment further on your potential interest in that acquisition or that property?

And the second question is have is in group life, where you mentioned that competitors, some business had gone to competitors in a large case - and I am assuming you do know where the business went and I was hoping perhaps you could comment on a couple of the competitors that did take away some of that business?

First the acquisition front. Let me some guiding principles for everyone. It is exactly what we said in December. Size is not a barrier for us in the US. However, we are going to be in the flow of any deals that are going on, we want to make sure that if something is a financial transaction that won't divert our attention and it's accretive, we would consider any of those activities where we feel that it won't divert us from our major goal. But it has to be where it really makes financial sense for us to get involved. So you are going to hear name associated with a lot of things, because we are in the flow all the time.

When people say who are potential buyers, we are one of them. So you are always going to see us looking at something to make sure that we think makes good sense for our company to pass or it makes good sense for our company to get involved in because in our future.

We also told you that we need to look at property in the global arena because we want to make sure that over the next five to seven years we are more of a global company. And so hear again, you are going to hear our name mentioned in a lot of different things. We are looking at a lot of different things around the globe. And we would not do anything unless we felt we had a core competency that is strategic.

And that would make good financial for our holders and makes strategic sense for the company. So that's what we are looking at. You are going to see us mentioned - we were mentioned in an article about something going on in Korea. You are going hear a lot of things about us, but the fact is we discipline.

We know what that discipline is. You've seen our acquisition in Chile it makes a lot of sense for us in that part of the world. So, that's what we are looking at. So I would not comment on any - obviously you know that I'm not going to that- I can't comment on any specific deal, no matter what.

And that's just the way it is. And some people say what if they asked us about this or that? The answer is no. We are not going to comment period. But understand that we don't see size as a barrier, and we want to be a much more global company if it makes financial sense to do that.

So that's - I don't know how else to answer it for you.

That's fine, then on that question. If you will not comment on specific deals, any comments on specific competitors?

I hate to tell you ...

This is a group insurance question, ?

Yes, follow where they go.

Yes, let me, you know - most of you recall, those who were down at the conference in Naples for example - that I spoke of irrational pricing, you know I talked about some very large cases - and keep in mind because of the lead time at large end of the market. We know this time of year what's happening at the beginning of the . So we knew then, what was happening with the pricing. I mentioned it was, you know, 25 percent below what the financial experience warranted. And you know, we let those guys go. I mean, and I would emphasize that we let that term life go on those large clients, we still have many other lines of business with them.

So we didn't loose the client with the business. And with some of it, later toward the end of the year because of the lower lead-time, some of it went with disability business that we cut out of our portfolio that was under performing.

So, the only thing that I would say, is that, I won't mention the companies, but that same lead phenomena this year, so I can, you know, fore shadow a little bit at - one of the reasons I said that the group life business will resume more along normal growth patterns is because we have the same phenomena in terms of the early sales this year.

Sales of some large clients with us at very attractive prices and so forth. So I don't want to comment on the individual companies. But we are very, very pleased with our group life insurance results and our book of business.

How long does it typically take to get a client back that might have left for aggressive pricing and then eventually comes back to you?

Well, you know, I would say the dynamic historically - I think you may recall that had a national account which basically said at the investor conference that we had some pretty good data that says large clients like that when they come back, tend to come back five to six years.

On three year, non-par deals, that have eclipsed, it may happen faster than that. You know, I mean, I don't know that any - a customer is not going to let somebody renew to make up their losses on a three non-par deal.

Thank you very much.

We're not going to let them.

Thank you. Our next question is from of JP Morgan.

I had a couple of questions. I was wondering if you address what kind of impact you think cutting the renewal crediting rates on your fixed annuities will have on surrenders? And what percentage of your fixed annuity block is currently off the surrender period? Especially if have a rising interest rate environment towards the end of the year.

Secondly, could you tell us what your new money rates were on fixed annuities versus your peers in the quarter?

And third, it sounds like your equity market assumptions for the remainder of the year are fairly aggressive? Could you remind us of how sensitive your earnings are to a one percent move in the market and if we don't get this seven to eight percent market appreciation, what would be some of the other initiative hit earnings?

OK. I will let Jim address the fixed annuity question.

On the fixed annuity front, we don't think that the crediting rate down turn - if we take the crediting rates down on our resets in the PPA product 10 to 15 basis points - will have much of an impact.

And the reason is that these are the fixed account within our variable business and people move back and forth and they are not buying it as fixed rate product.

And we've - it's a very - I don't what to use the word inertia so much, but it is a block of business. It's in the decidedly retail side of our individual business, so we think we can bring rates down, 10 to 15 basis points and not have a spike up.

In terms of the amount under the surrender charge period, I frankly don't have that exact number. My guess is that only 25 to 30 percent are outside of the surrender charge period.

Recall that at MetLife, you began selling the PPA product, and that was the only sale of variable or fixed annuities here beginning in the early 1990's and so only those products that were sold prior to 1994 would be out side the surrender charge period.

So I would guess that it is no more than 25 percent at this point in time and could get back to you on specific number on that a little bit later.

Our reset numbers are right now in the high 4's, 475 or so, depends on the product, but we are certainly not buying the business on, retaining it on that basis.

But we are also as you can tell from your last rates we are not loosing it.

In terms of the impact on earnings based upon the S&P, you should just carry with you the notion that every one- percent increases in the S&P will trigger a $1 million after-tax earnings improvement per quarter.

OK. Then just lastly. How are you going to make this up if the equity market doesn't appreciate seven to eight percent? Is that seven to eight percent appreciation for the full year or from here to the end of the year?

It is for the full year.

Just, Jim, in terms of our plan, I think what we had built in the individual business was five- percent equity appreciation was built into the plan. And so anything that deviates from sort five percent performing during the year that would be deviation you ought to take a look at.

OK. Next question.

Thank you. Our next question is from Brothers.

Thank you and good morning to everyone. A few quick questions here. Actually not so quick. First of all, I need some help on this very important issue of . What I mean by that is, I certainly understand all the concepts that Bob laid out. I understand thoroughly, there should be revenues. You are asking certain customers to no longer do business. You have more ASO business in dental versus fully insured and more FAS 97 versus FAS 60 business. I understand all of that.

But at the end of the day, in the six major businesses of MetLife, which I define as the three businesses, and your individual business, business and the institutional. In most of the businesses, you are showing lower revenues or flat revenues. I'm not talking about sales, I'm talking about GAAP revenues. So my first question is how can we working with the available disclosure see the real growth of this company, the underlying growth of this company? That's point one.

My second question and I have several but because my questions are involved, I'm just going to ask only one more question. On the expense side, another very important issue, in your individual business if you look at your expenses and you exclude the commissions to look at the real sort of overhead of the corporation, it rose year over year in the individual business. If you go to your expense exhibit, take out commissions, it looks like you're spending more money not less.

Now I certainly understand that this is being driven importantly by pension and also the cost of providing health care to your employees. But my question is health care insurance. Why exclude these costs? These pension costs - they're real. They're the result of a lower stock market. I mean Kevin, John and I have talked about them at length. These are real expenses. Why should we conceptually exclude them from our analysis of the cost of doing business at MetLife? Thank you.

OK. I'm just going to let Rob go first to talk about the bond issues.

All right. you mentioned three businesses and institutional, so let me start out with Group Life. The Group Life top line picture, you know, as Stu mentioned after all is said and done, take some of the noise out, there's a two percent growth line. The question is what does that mean? We had because of the downsizings and so forth you have, you know, less employees than we expected and we see sort of a flat picture through the end of the year because of the way the cycle works.

At the beginning of next year. I mean, we don't talk about sales specifically, but let me give you a picture. Group Life Insurance sales in terms of the sales to the corporate client are up substantially. Individuals who have voluntary benefit choices - those who have had coverages in the past, in other words, people who already had coverage, are increasing their coverages, where we do the record keeping and so forth substantially. In double digits. In terms of people who do not have life insurance, we'd like to see them pick up more. They're in single digits. But we think that's an opportunity.

So the Group Life business - I don't know because I don't have other people's figures but I'm confident in saying you know, despite our size, we're continuing to grow faster than the market is growing. In my mind there's no question about that and the business is robust. The clients that we have that are new clients for first quarter of '03 are very attractive names and large companies in the business. So that's very robust.

In terms of the non-medical health and other, our growth there on a revenue basis, if you look at dental for example. Dental, quite frankly, on the dental piece of business if you say how do you feel about companies going to ASO, I would say we're indifferent. I mean we have solution based approaches. The bottom line on dental is driven by cost savings and efficiencies. The business is growing very nicely. Even with those adjustments that Stu mentioned, at the 15 percent growth, it's very, very attractive for us. We continue to grow our lead as the number one independent dental producer. Our network is increasing. The amount of volume going through is much higher and the stuff that we're really doing in a major way in terms of e-business is making that platform even more attractive. So the growth there is very good.

In terms of pensions - the retirement savings in general. There, as I've always mentioned, revenue is really not a good picture because you have a few non-par annuity purchases and it creates lumpy returns. The better look there is the asset. You know, we're relatively flat there and that is primarily because some of the increased sales we have in terms of our managed products and so forth now are going to trust form pieces of business that don't show up as premium or revenue at all in our line.

So I think the three businesses are all quite healthy. Retirement and savings is, as you know, going through a dramatic restructure and we'll see it pick up there in the future. And I think there the premium line will start to grow as the 401K segment starts to move into purchasing annuity products and so forth. So I'd say robust across the line. I don't know how else to put it.

OK.

Jim.

, as it relates to the expenses, I think you're absolutely right. I think you need to build into your model the pension costs going forward as we've built them into our models as well. But in terms of looking year on year, this is a one time blip within these individual business where we're going to be taking on an after tax basis $60 million. And so when you're looking at year on year and trying to compare last year with this year, we don't want you to take it out, but there is an explanation as to why the expense is at least - as we put them out on - in the it doesn't look like we're going down as rapidly as some of the commentary might be indicating.

If you look at 384 versus 386 quarter on quarter, last year we didn't have a pension, which is worth $30 million this quarter pretax. And we didn't have $20 million of IT expenses that were absorbed throughout the balance of the year. And so from that - on a year to year basis we believe that our expenses, what you would call the fixed plan or the overhead, the non-commissionable expenses were down $48 million quarter on quarter. First quarter of last year versus first quarter of this year.

The other point I want to make is that and it's important that we have and continue to invest in technology for our future. And because of that technology investment we believe over the next plan period that we share with all of you that we're going to see enormous benefit from the Internet for MetLife. But we also are bringing the Internet to a real industrial strength level that most companies haven't because that will be our production engine. And that takes money and time to do that. So you will continually see that we are working hard to achieve our expense targets. And that's what we're saying is that those targets that were mentioned. But we would be foolish to cut off our future now to bring our expenses in line and choke off what we think is future growth. So that's really the guiding principle behind all of this.

And you will see as we talk about revenues in the future that you will see this pattern starting to begin to improve as we shake out some of the stuff we want to deal with right now from a profitability point of view.

Kevin, can I just ask one more quick question? May I?

Yeah. Yeah.

Thank you very much. Question for either Stu or for Jim. On the mortality side, you've had quarter and I think asked this question in the past, you've had very, very favorable mortality quarter after quarter after quarter. Simply put, you're being surprised. Things are coming in better than expected quarter after quarter. What are you being surprised by? What's happening? What are you doing from an underwriting perspective that's producing not just - not good results, but results that are catching you off guard? And why should we think more importantly that this surprise because that's what we're dealing with here, should continue?

First I think, you know, in terms of major influence I wish I could say we had huge surprises that were favorable. I think the way I characterized all the mortality movements is we try to break the earnings out for you and give you all the underlying causes. But you're talking about $1 million, $3 million movements in particular segments where there's a huge exposure base. So you know, all the mortality numbers we're talking about are in single digit millions versus you know, our earnings this quarter of $450 so million. And so I guess what I leave you with is you get some fluctuations. They're not huge fluctuations. We have a very diverse earnings stream.

And so while we try to break each thing out, you know, our pattern is to talk about earnings by source. We like to talk about what's happening with interest, what's happening with mortality, what's happening with expenses. When I look at the variations in each sector, they're note huge. And they tend to go both ways. Sometimes we have a good thing, sometimes a bad thing. And so I don't think we're finding ourselves surprised. It's just you can't predict the number down to the last million dollar so people have a way of - they die, you know. And that just creates a little bit of an issue.

, I just want to follow up on what Stu said and that is the fact that we do price by source of earnings. And so therefore what you need to do is look at the pattern. Now there's no surprises here per se. It's just that what traditionally would happen over the year, less pricing going to expenses very simple versus mortality. so you look at those elements what you will see is that probably a little more pricing went to mortality and that expected.

And you expense gap isn't quite as bad as we would measure it by this measure because of the amount of money that was allocated to expenses. So it's really an internal allocation system and you should look at the pattern consistent, that's OK.

And I don't think there are any surprises because we expect mortality to be a little bit better and you expect expenses to be a little bit worst the way we did our pricing allocation.

Thank you.

OK. Next question.

Thank you. Our next question is from of Merrill Lynch.

Good afternoon. A couple of quick questions. I was wondering if you could tell us what the 9/11 reserve balance is? And maybe at what point, at what point do you think we are beyond the likely hood of claims coming as high you thought and when would you start bringing that down? And would that be sort of a gradual thing or would you make decision at some point, you know, 12 months from now, that it is time to release whatever is left?

And then second question, is on the commission specials at General American - I was wondering if you could talk a little bit more about the economic impact of these, the enhanced compensation and how we should think about that in terms of return on capital for the sales with those types of benefits versus what you would typically target? Thank you.

Bill, do you want to answer the question on ...

Sure. It's Bill Wheeler. In terms of the actual of the disability reserve for 9/11, we haven't disclosed it before but if you remember it's a meaningful percentage of the overall 9/11 charge we took. In excess of a quarter of the total charge, so that gives you a sense of where it is - order of magnitude.

We have not released very much of it to date. Frankly, we wouldn't have expected to release very much to date. If you remember, I think when we talked a lot about this on investor day late last year, we said, and against all of the mental health professionals that are predicting it, that we will see a lot of mental and nervous claims in the middle to the latter part of this year.

And they haven't yet materialized. But we are still expecting they, , you know, planning that they might. And so the second, third and possibly even the fourth quarters, we might see some more activity, or it's what we are looking for, because I really didn't think we would see much in the first.

If that doesn't happen, we we'll talk about it on these calls. Again we report every quarter how we are doing, but I think what we will do is - we will obviously assess that reserve and we will release it and my guess is it will be noticeable and it will be fully disclosed, so you will be able to adjust our earnings accordingly.

OK. The question on enhanced compensation. We plan to invest about $20 million dollars, 2001 and 2002 and a little bit of 2003, and if you expect that we will hire approximately 1,000 to 1,500 agents using this particular program, the expected bonus, the formula based experienced agent compensation will about $15,000 to $20,000 per agent which is certainly in line with other companies are doing.

The different between what we are doing, is that we are taking it on a performance basis. We are not paying people up front and hoping that they produce. We are only paying them if they produce.

The charges are built in the pricing. It's been part of our model. It will be realized in earnings over, or the earnings impact over 20 years and we expect that the product that they are selling might have a 1 to 150 basis point drop in expected return as a result of this program. However, we think it is a good investment because going from 600 agents to 1600 probably would not have been accomplished without some type of experience agent financing.

And when we talk about 100 to 150 basis point drop are we still talking return on capital that is double digits?

Absolutely. We are starting with 15 and we are, depending on the product - we are at 15 and we drop it to 13 or 13.5. We think for the acquisition of a distribution system, that was a good investment.

Thank you.

Our next question is from of Deutsche Bank.

Thank you. Good morning. On the guidance, you gave us the range of 256 to 259. Could you clarify if that includes this 6 cents charge?

It does. What we said again, is that we are not going to basically adjust our operating earnings to that $48 million. We are going to make it up by the end of the year. And so that will be our earnings including the charge from General American.

OK. And then also on the guidance, Stu said one of the bullet points was a better investment climate. Could you clarify, if that is a comment intended to address the equity market or also the fixed income market and your credit losses?

, it's Gerry Clark. I think it addresses both markets. In the first instance, in our private equity portfolio, we have built into our plan for very little or nothing realizations this year. And the sense that we are getting that there are more and more plans for some realizations as the year goes on.

And in terms of the fixed income markets, while the default level is a lagging indicator, I believe that if the economy does move along as we anticipate it to, that we will, our over all level of losses maybe reduced.

And your guidance assumes a 5 percent equity market for the full year.

This is just an individual, it's Stu. In individual business what was built into our plan which we are working off, is that the market would appreciate 5 percent during the year. That was in the individual business's asset balances.

And then Jim - today of course we are down a little, so it has to go up as Jim was talking about. So we built in 5 percent and if we get 5 percent then everything goes as expected, if not, then you have take how much we are under and the rule of thumb that Jim gave you which would pretty much give you the idea of what happens.

OK. I just want to be sure I understand too. You reiterated your guidance today of 256 to 259. You know where the market is today. Do we understand that you are expecting the market to recover the loss that has taken place year to date, plus add another 5 percent on top of that? Or are you saying your guidance is solid, despite the year to date decline?

What we are saying is based on what we know today, and how we see the rest of the year moving, we believe that our guidance is the best guidance we can give you at this particular point. Now if the equity market movers strongly against us, then we have to look at other things.

I mean, obviously, whenever we give guidance, there are a lot of assumption built in. But as of where we are today we feel comfortable with the guidance that we are giving you.

Thank you very much for the clarification.

Thank you. Our nest question is from of Morgan Stanley.

Great. Thank you. Two questions. One just on the guidance again. I thought you said that on a quarterly basis the earnings will be increasing by about 2 cents a quarter. By my calculation, it would have to be a lot stronger than that if you are going to hit the guidance of 259. I just wanted to clarify that, 259.

And second on the property and casualty side, just hoping that you can put numbers around how much the weather added to the results in the current quarter? Thanks.

You know, first of all, we are not giving you quarterly guidance. And we said that we were not going to give you annual guidance, so I think you need to look at what we said for the year, see the first quarter and figure out the other three as you go through that.

And as far as the favorable weather, we anticipate if you have normal weather in the first quarter, and not the abnormal bad weather we had last year, but had normal weather in the first quarter, the earnings would have been 17 million after taxes which is just about on our plan versus the 30 we reported.

Right, that's helpful, thank you.

Thank you. Our next question is from of Dresdner.

Good morning. A couple of questions for Jim. The first in on the enhanced commissions at General American. Since,- at least I viewed most of these distributors as independent agents, is there a chance that you can loose some business as move commissions back down?

And also, I realize it helps you in recruiting but have you also seen a significant increase in your share of sales through existing General American agents?

OK. . These are independent agents. They are all experienced when they come to us. So when we give them a, as I put it, a performance based commission enhancement, or experience agent financing incentive, they could take it and it's paid out over a year, and they could go someplace else.

We hope that we're able to entice them and show that the value proposition not only of General American as a distribution company but MetLife overall and the products that they have available through New England and MetLife Individual, MetLife Investors, MetLife Institutional, is so compelling that they don't want to leave. But that's the bet we're making and so far we think it's paying off.

In terms of the existing agents, we offered in some cases not exclusively, but in some cases for the top producers who had been with General American a long time, a similar commission special on the increment on the business that they had done in the year 1999, the year of the problems from General American in the year 2000. And virtually every one of those agents has remained with the company. And so, as in all agent financing, whether it be for experienced agents or inexperienced agents He's making a bet, and told it's a good investment, that experienced agents have a tendency to , or agents have a tendency to move - than traditional career agents.

change the logo of the specials spread out to this year, or how should we look at that?

It depends on the distributor, so then we're to run between 12 months and 18 months. It balances this year and most of them are gone by - two are done in the third and fourth quarters of this year. And then we'll take a look at the sales and we hope to have a good positive report to you that the sales levels remain strong.

OK, and then just one follow up: I noticed financial agent count dropped by about 350 versus the fourth quarter. Is anything happening there, was that just a seasonality of moving into a new year?

Well what we do at New England is we have a February cleansing program where we take a look at contract minimums and people - not so much in the first year, but in the fourth, fifth, and experienced agents that do not get a - the contract minimum of 33,000 of first-year commissions. What we do is move them to broker status.

A number of the agents haven't actually left the company but they've been taken out of our agent count and they're not eligible for certain benefits that a fully sanctioned would get. This year we took out, as you can see from the report, about 400 agents. It's a little bit higher than we did last year but we expect that the agent count will come back to where we were in the fourth quarter and it actually will exceed the 3,200 that we ended the year with by the end of 2002.

And are you getting the sense that you're losing experienced agents or these agents that just haven't cut it yet?

No, what we're really doing is we're weeding out the people who were not performing at our minimum standards. New England had - at 33,000 is one of the highest contractual minimums in the industry. A lot of other companies will not take any action if people are producing in that level. We think that this system requires a higher standard. In many cases, at least 200 of the 400 agents, they haven't left the company at all, they've just gone to a different contractual status.

At the MetLife sales force curves in December, so it would be third quarter to fourth quarter that that weeding out occurs. And so - just different. So - yes, we have different times of the year in which we take a look at the contractual minimums. At MetLife it's different, it's in the middle of the year and at New England it's in February each year.

Thanks.

Sure. Next question?

Thank you. Our next question is from of .

Hi, just two quick questions. In terms of your variable annuity deposit, I think you'd mentioned that the number was up something like 40 percent year over year, if that is in fact correct, that's a much higher increase than I think we're seeing from other companies. I'm just wondering if there's anything going on there that happened last year or this year. And then in terms of the Merrill Lynch relationship, if you could just discuss if there are any first year sales targets - you know, by product or just sort of on a consolidated basis, that would be very helpful. Thanks .

Well, the variable annuity deposits are up 40 percent. We do have a fixed bucket in our variable annuities, so there's some of the money that frankly is called variable but goes into the fixed bucket and if you'll hold on one second I'll let you know what that number is.

For the first quarter, we had 14 - $1.4 billion going into variable annuities. 721 went into the second accounts period, 342 went into the enhanced averaging, which is really fixed for a while and then is transitioned into the variable. So a billion dollars of our 1.4 went into - through separate accounts, and I think the reason for that is because it's a pretty robust product line. There are several ways to get into the product, we have a bonus annuity, we have an enhanced dollar cost averaging, I think we've had some terrific features in terms of our death benefit options, guaranteed minimum income benefit, a full rider, an earnings preservation rider that's somewhat unique, and we have a number of different share classes. And so, while the industry itself has not seen a lot of variable annuity growth. We think that the expansion of MLI into all sorts of new selling agreements, plus the New England field force catching on and - which you'll see going forward, not reflected in these numbers, is that there will be growth in the MetLife field force as far variable annuities as well. So we think that the product line is pretty strong, and that might be the reason why we're seeing stronger growth than the others.

As far as the Merrill Lynch arrangement, that started now earlier this year and we're not going to give a specific number as to what our target is, but we would expect it to be a very strong relationship and our expectations are that certainly 5 to 6 percent of our growth within the overall MLI organization would be attributable to that relationship.

The other, as Jim talks about MLI, if you look at that 40 percent in the first quarter, some of the products weren't fully rolled out in the first quarter of last year. So the 40 percent pattern won't continue in the second half, but you'll still see strong growth. So you have a strong ramp-up period because of getting some of the new products filed in the first quarter of last year.

We didn't actually launch the product until April 12 of last year, so none of the new product is reflected in the first quarter of last year.

OK.

Next

Thank you, our next question is from of .

Good morning, can't believe you're still going at this.

A couple of questions.

Tell them we were waiting for you.

Yes, I'm sure. But I don't want to disappoint you, so let's start with Jim. Jim, when I think of MetLife, the bulk of the growth is going to have to come from the individual business in terms of what's going to really move the company. And yet when I look at New England agent sales, particularly in life, not so much annuities this quarter, but life, for the past few years, they've been putting, I think you had in the K, agent sales growing about 2 percent a year compound for the last five years. And MetLife Career Shop is doing a little bit better than that, but then, even with individual I would have thought New England should go franchise.

It seems to be struggling, and I was wondering maybe if you could expand on that. That's one. Second, I thought Stu mentioned individual benefit for 36 million from the change, policy change this quarter. If I - if that's true and I neutralize for that then earnings were down about 16 percent year over year. And perhaps we could talk about that in light of the expense size.

Then finally, a bit on - I guess on acquisitions. You're spending a lot of cash. There's I guess a lot of speculation out there All America's being sold off right now. I still don't understand why the individual piece might be attractive to you. But I'm just curious in Massachusetts, the auto market there, that's one that some people aren't too fond of. Is that a segment that potentially you'd look to expand into further than your current presence.

OK, well on individual business in New England in particular, sales - life sales have been flat last year and frankly the year before. A lot of that has to do with the estate planning turmoil - I mean, it's an advanced market company. We're actually in an off-site location with both top producers from New England as well as top producers from MetLife. And I think that you will see throughout this year that there will be increase in New England's sales over what they have been in the - we've had new products that have been announced, we have a brand new product out. For the midsize market we're - we've accept a spot for New England agents. The estate planning business is returning. We don't think despite whatever's going on in Congress, most of the estate planning legal community thinks that to get rid of an irrevocable life insurance trust is a form of and that wasn't the case year where many of the advisors were told that telling their and our agents to procrastinate, to hold, to keep you powder dry and we don't think that particular circumstance continues day.

And so we think that the New England field force will be coming back strong. Recruiting is up. The advance marketing firm concept that has been pioneering at New England, is alive and very well. We've seen annuity sales up 50 percent this year. I think you will see that they are strong. That the retirement savings component in New England's performance this year and going forward. But I think the life insurance sales will return as well.

Jim, maybe just come back on that. And maybe you can position New England better for me versus other companies. Your average for them last year was 330,000. Hancock was up at 420 and as far as their concern, their whole survivorship business gone. Lincoln's at a two. It would strike me that they unified credit going to 3.5 million in 2009, that you are only selling policies with an average face of 330,000, how much of an estate tax business do you still have?

Well there are a lot of things that go into the average size face amount for a given company and I cannot speak to Hancock or Lincoln National. I know that Hancock has the M group and that's a certain ...

... that's excluding the M group in that number.

And term insurance has an awful lot to do with that. Again, as far as Lincoln National, they picked up the old Cigna group, so I don't know whither there is a heavy term component in theirs.

One thing that drives down the New England, is the fact that we sell a lot of life insurance into pension plans and that brings down the average face amount. We are also presenting this on a manufacturing view basis so our term insurance is being sold currently through the General American product and frankly the larger average face that would be attributable to term insurance is being reflected in a different legal entity.

So 330,000 might seem low, but I don't know. I think that the advance market sales, investment grade sales, COLI products have low face amounts relative to premiums. I don't think you can just look at one figure and that they vitality of the field force is either there or not there.

Did you just say then that New England agents are selling General America policies? Is that what I just heard you say?

Yes, all of our systems have access to the other manufactured products.

OK.

As far as commenting on any transaction, as I said earlier, we would not do that. But let me give you again the guiding principles that one would want to lay off against that question.

One is the fact that we said it had to be strategic. We said that it had to be accretive. It had to big enough to be worth our while, because size is not a barrier. We also said regarding the auto and home, that the same fall acquisition got us to the size we think makes sense and what we are now going to do is focus on making auto and home much more strategic, both continuing as a voluntary benefit as well as looking at ways in which we could do more joint work between the auto and home people and the MetLife sales organization. In fact that is working quite well.

That strategy we got some auto and home associations that are now doing joint marketing with us selling life and annuity products through their distribution channels to their members and so on.

So whole strategy is working and we said that we not do any acquisition in the auto and home front because we are satisfied with size and now it is a question of doing things organically and continuing to growth that business strategically.

So, with that as a backdrop, I think you need to decide whither you would think that we would do any of these acquisitions. But we wouldn't comment on any specific deal.

Just when I look at the 4 million of cash, I kept wondering what it is sitting there for?

What?

When I look at you holding $4 billion of cash, that makes me wonder?

Well that's for my retirement.

I'm not going to even touch that.

Actually at the end of the first quarter that is 2.5 billion.

Your question about to tell you . The $36 million was a pre-tax number which was the different between the reason we changed the method last year is we felt that we were getting inappropriate volatility in that really the amortization in the first quarter of 2001 is almost too high, but it was produce by the method because of the volatility in the equity markets.

So we switched to a method which we think is more appropriate and we wanted to disclose the numbers to you again to be as transparent as we possibly can.

The way I would look at is that this year's earnings, we think the number appropriately reflects how the business is performing. So in whatever analytics that you are doing and as you project forward, we think that this year's number is a good number and the comparison to this number is distortion because of the amortization.

But Stu, if we - you gave the number as if it last year was calculated the same way this year. And if we are looking on the same store basis, then I guess I am curious as the why you don't feel that's an appropriate comparison when it would indicate that individual life ....

... I think you could make whatever comparison you want in terms of I think adjusted to a same store basis on that correct between the two. But I think what I would focus on is where we are today, thinking that is an appropriate level of earnings.

I guess I am trying to figure out where the earnings growth is coming from going forward. Though, you just acknowledged that on a same store basis, which what we are trying to do here, despite the , now you make your earnings just drop 16 percent. Is that amortization?

Well, I think what you have to do is get into the detail piece by piece. For example, the pension, and retirement, how much that is in terms of year over year comparisons and whither that is not a similar kind of an item. Sort of a one time item that is brought by external performance of markets.

And I think where the performance will come from is when you factor out all these one-time items and you get to the underlying trends in the three basis drivers of earnings. And in particular what's happening in the expense area, I think where you will see the growth in the business earnings in the improvements in expenses, continued good performance in both mortality and interest, and the fact that business is growing the it should.

OK. Thank you. And by the way , how much did favorable mortality add to earnings this quarter.

You would have to go part by part. I think it is , I would almost say it's a wash, but that's a little bit of a generalization. But in terms if you are talking about big picture numbers, that's probably a good .

OK. Thank you.

OK. Could we have one more question?

Actually at this time, we do not have a question.

OK. Again I thank you. This is an extra long call, but with all the complexity out there in the market today, we thought it was worthwhile staying on for the extra time for all of you. So I thank you for time and participation and look forward to seeing you or speaking with you next quarter. Thanks very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a good day.