大都會人壽保險 (MET) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the MetLife fourth quarter earnings release conference call.

At this time all telephone lines are in a listen only mode.

Later we will have an opportunity for questions and answers with instructions given at that time.

If you should require assistance at any time during the conference call please press zero followed by star.

As a reminder your conference call today is being recorded.

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 constitute forward-looking statements within the meaning of the federal securities laws including statements relating to trends in the company's operations and financial results, the markets for its products, and 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 risks and uncertainties including those described with MetLife Inc.'s filings with the S.E.C. including its S-1 and S 3 registration statement.

MetLife Inc. specifically disclaims any obligation to update or revise forward-looking statements whether as a result of future developments or otherwise.

With that I'd like to turn the conference call over to your host Kevin Helmintoller, head of investor relations.

Please go ahead.

Thank you.

Good morning and welcome to MetLife's fourth quarter conference call.

We will hear from Robert H. Benmosche, our chairman and CEO, Gerald Clark, our vice chairman and Chief Investment Officer, and Stewart Nagler, our CFO, and then we'll open it up for your questions.

With that, I'll go ahead and turn it over to Bob.

Clearly the company has performed very well across all of our major segments.

And our core earnings this year in 2002 has really been in spite of some really significant market hurdles and a difficult operating environment.

So you can see the broad diversity of our product offerings and our earnings sources coming to play here as we look at 2002.

In addition to good earnings if you look at our book value that also has grown about 11% this year, 2002 versus 2001.

During the fourth quarter, we completed a study, because of activity in particular in the month of December, around ASBESTOS liability.

And I just want to stress again that there will be no impact of increase in that liability to our statutory results or surplus.

The GAAP charge which is associated with this deferred gain as we utilize more of the insurance policy that we have to cover this liability, this will be arm tied back into earnings in future years.

And I encourage each and every one of you to look at the 8- K for full explanation to that.

The key for us going forward is a strategy that we know works well and is right for this company, and to stay focused on that strategy.

And we're going to continue to do that as we reported to all of you in the investor conference in December.

We also said at that time that knowing what's going on in America, and the concerns about companies, their financial strength, and the guarantees that companies make to people of the United States for future benefits, our ratings are absolutely important to us.

We said that we're going to improve our RBC ratio to a range of $2.75 to $2.85 by the end of the year.

We believe we'll come within that range and in fact we should be at the high end of the range approaching $2.85.

Other highlights, just to comment.

As we complete the year, we did achieve more than $200m of expense savings in individual business.

That came in about $215m.

The auto and home business -- which we said is going to complete its St. Paul integration and increase its size so it has the critical mass it needs to be competitive with the right earnings -- they exceeded their $155m taut and in fact came in at $162m after taxes.

So they are continuing to move forward.

We have our objectives in front of us and we feel very confident while we've gone through these tough environments.

If you look at our sales figures and so on the company is still very strong as we move into 2003.

What we said was that we expect to grow our operating earnings about ten to 15%.

That's still our scent.

But clearly as you look at this year we gave guidance of 2.80 to 2.90.

We're still comfortable with that but I encourage you to look at our pattern of earnings because clearly the fourth quarter of 2003 will be much higher than the first quarter.

So go back to prior years and look at that pattern and see how we expect this year to unfold as well.

We're going to continue to invest in technology to deal with efficiencies and cost.

And we will continue to work hard to maintain our financial strength and our current credit ratings.

There is no doubt we have the brand, the products.

Our distribution has done an outstanding job in 2002.

Just look at our sales numbers and our continuing to grow our businesses and bring in new premiums and deposits.

And our financial flexibility and our national commitment to get through these very, very difficult times as we face the uncertainty in markets, the war in Iraq and so on.

I'll turn it over to Gerry who will bring you up to date on the investment side.

Thank you Bob and good morning.

Bob said the company's very strong and let me state from the beginning that MetLife's portfolio is very strong.

And given the weak economy and the volatile investment markets over the past three years, it has performed in a very satisfactory manner during both the fourth quarter and for the entire year.

We attribute a significant degree of this strength in our portfolio to its high degree of diversification, both in absolute sense and relative to other insurance-based financial service institutions.

The context for these statements is that 2002 was the most challenging year in credit in some respects in many, many years.

With record dollar amounts of downgrades, distressed credits defaults and losses.

And the fourth quarter itself continued the patterns established over the first nine months of the year.

As to MetLife's experience during the quarter, we continued the strategy that we've employed for over the past 30 months.

And have discussed often with the analyst community and the rating agencies.

And that is the strategy of proactively addressing problems by recognizing our significant asset impairments and realizing losses.

Always with the goal of going forward with a relatively unimpaired investment portfolio as reasonably possible.

As a result of employing this strategy and with the interest rate movements of the past 12 months, the unrealized net gain in our portfolio has increased during 2002 by $5b to $13.9b.

This unrealized net gain of $13.9b is after deducting $1.7b of gross unrealized losses.

And such gross unrealized losses amounted to just about nine-10th of 1% of our investment portfolio.

During the fourth quarter our problems, in addition to a write-down from the alleged fraudulent national century financial enterprises situation, we're concentrated in the airlines, communications and utility merchant energy sectors.

Although we have been under way in most of the highly publicized telecom and energy credits, we have suffered along with many other investors from some of the large negative surprises in the market, particularly amongst fallen angels.

To be specific, during the fourth quarter we had net realized investment gains after offsets and taxes totaling $223., However, after excluding gains from real estate, which I'll discuss later, we would have incurred a $152m loss after offsets and taxes, slightly over our $100m to $150m per quarter guidance.

While our full year net after tax realized losses of $505m were within our cumulative guidance for the year.

Following are the specific components of the quarter's capital gains and losses.

The fourth quarter's pre-offset, pretax net realized gain was $310m.

And was comprised of $1.033b of gross realized gains, $384m of gross realized losses, and $339m of write-downs.

The gross gains were primarily derived from the company's real estate sales program which resulted in $575m of pretax gains.

The vast majority of the gross losses and write-downs were in fixed maturities.

The largest single write down for the quarter was from National Century at approximately $90m.

The next largest was $47m and a credit which is not in default at this time.

In the case of the National Century health care securitizations, this was an investment grade security.

In fact, a triple A rated security at the end of the third quarter, in which alleged fraudulent activity resulted in its decline and eventual declaration of bankruptcy.

As to the results related to our real estate sales program you'll recall on investor day we outlined in detail that we were in the midst of a sale of our number of our real estate properties.

Our stated goal was to achieve a gain of at least $500m, partially in support of corporate strengthening effort.

As of year-end, we were successful with this effort, having sold 17 properties with, as I mentioned earlier, pretax capital gain of $575m.

By all measures the program was a Success.

It took advantage of investors' demands for quality assets in an uncertain economy.

This facilitates the completion of our program under an ambitious time line whereby the properties were identified, marketed, and sold in less than a three-month time period concluding by year-end.

The secondary goal of investing up half the prose in commercial mortgages was also accomplished as MetLife provided seller financing of 13 mortgages totaling $716m.

And a final attraction is that the property sold for 6% higher than our internal appraisals, underscoring what we believe is a conservative appraisal process.

The sales program did not represent any fundamental change in business strategy.

We actively manage our real estate portfolio by acquiring properties that will enhance our yield on a long term basis.

And selling underperforming assets as market conditions permit.

It remains a seller's market for certain types of properties.

Money is flowing into equity real estate due to the attractive cash returns.

We have a few properties on the market now but it's still too early to predict what our overall level will be in 2003.

In closing, I'd like to make some additional remarks regarding the general quality of our portfolio.

First, problem fixed income securities represented 25 basis points of total fixed maturities.

Total problem assets including all asset categories represented less than 30 basis points of total invested assets.

Secondly, commercial and agricultural mortgage delinquencies remain at historical lows in line with the ACLI benchmarks.

At seven one hundreds of 1%, and one quarter of one percent respectively.

Next the unrealized gains position in our portfolio of almost $14b which I referenced earlier consisted of $7.4b in fixed maturities, $3.7b in real estate equities, and $2.7b in commercial mortgages.

And finally, though our primary focus has been in generating operating income to support our various businesses, we do monitor total rate of return of our portfolio.

As it provides a good measure of the health of our portfolio and allows us to compare our performance to the market.

For the full year, the tested segment of our portfolio, that is fixed income securities, had a total rate of return of 11.24 or 98 basis points above the Lehman aggregate index.

With that I'd like to turn the mike over to Stewart Nagler.

Stewart.

Thanks, Gerry and good morning to everyone.

Once again our quarter showed very strong operation and performance for the company.

And that was pretty much across the board with segment earnings coming in at or above the expectations we laid out for you at investor day.

We also had strong statutory performance, and capital enhancement, which I'll discuss in just a moment.

But first, I'd like to quickly discuss a number of unusual items for the quarter.

Of course, you've seen them in the press release, but along with some other items in the segment results which I won't discuss here.

As Bob mentioned our ongoing review of asbestos litigation resulted in an increase in our liability.

And as you can read the 10-K which we filed last night, this increase resulted from a number of items.

But most importantly, our total recorded liability is still within the coverage limits of our $1.5b excess insurance policies.

The increase in liability resulted in an after-tax charge of $142m, due to the deferred gain accounting required by GAAP.

And $27m due to the equity market impact on current and future recoveries, totaling $169m after tax.

The $142m portion is expected to be amortized back into income over the life of the contract.

On a statutory basis, the only impact is the $42m for the forgone lost reimbursements due to poor equity market performance.

On a statutory basis there is no deferral treatment so we get immediate full credit for the excess insurance.

And there's no other impact on statutory capital and surplus.

Turning now to our restructuring charges, which we established in October of 2001.

We've made a careful review of those.

And it resulted in an after-tax release of $20m which appears in the retirement and savings product line within institutional business.

Also, as promised, we established a 9/11 reserve for potential disability claims.

We're updating you with regard to our expectations for future claims and released $17m after tax in the fourth quarter.

This appears in the non-medical health and other product line within institutional business.

And at 12-31-02, we were still holding $38m in disability reserves for future claims associated with these policies.

Now, let me turn to the product lines.

And again, the operating results were strong across all product lines.

Owing to the diversity and strength of our earning sources.

Institutional had another strong quarter.

They continue to grow their business efficiently by focusing on profitable growth, termination or re-pricing of business that doesn't meet return expectations.

And at the same time, keeping headcount relatively flat, while premiums and fees improved nicely in the quarter, up over 20% versus the prior year quarter.

The institutional segment benefited from stable to improving spreads, strong underwriting results, and good sales growth in group life and non-medical health and other.

The broad pricing increase is taken in the disability segment are producing the desired results with the morbidity ratio coming in the middle of our target range at 97.7%.

We had very good results from institutional with an ROE for the segment of 22% for the year.

Individual results were roughly flat with the prior year quarter, when you look at the core results.

As you'll recall, the individual segment absorbed the largest portion of the pension and other post-retirement benefit increases for 2002.

And of course this segment also reflects the impacts of the poor equity markets.

With the combination of these hurdles to overcome, relatively flat performance is a good outcome.

We exceeded the full year target of $200m in expense reductions, coming in at $215m to $220m.

And we believe we can achieve another $120m pretax in 2003.

Individual results were characterized by good expense control, as discussed, though the actual savings are somewhat masked by the impact of the pension increases.

Universal life and annuity sales continue to be strong, with total annuity deposits up 33% for the quarter, to $2.4b.

And with variable annuities up 49%.

For the quarter, we still saw about 45% of our variable annuity deposits going into the fixed account.

Interest spreads also continued to be strong.

And the flight to quality clearly benefits this segment.

Auto and home did a tremendous job this year.

They achieved the goal which we laid out to you a year ago.

They focused on improving the operating performance of the company, with targeted price increases, more sophisticated underwriting and claims management, and aggressive expense control.

And the operating results clearly indicate the success.

Average earned premium was up 11%, quarter 4 versus quarter 4, and 2% sequentially.

And the combined ratio was 96.4% for the quarter, and 94.1% excluding Cats.

They had a very strong result and expect to continue.

Another key part of our diversification story is international.

Our investment in the Mexican life insurance market is paying off well and helps balance the total company.

Progress on integration of Hidalgo continues ahead of plan.

Hidalgo produced $22.5m in operating earnings in the fourth quarter.

And we have repatriated nearly $60m in excess capital from Mexico.

We also had good contributions from Korea and Taiwan in the fourth quarter.

Now, let me update you briefly on our pension plan.

As we mentioned in investor day, we planned on making a contribution to the pension plan in December.

We put $400m into our plan in December.

And we also adjusted our future market performance assumption to 8 ½% and lowered our discount rate to 6.75%.

And these assumption changes are reflected in the previously discussed after-tax increase and pension expense which we laid out on investor day.

Looking at our statutory results.

Metropolitan Life Insurance Company statutory results were also quite strong.

Operating results were $934m in the fourth quarter and $2b for the years.

Net income was $1.4b for the fourth quarter and $1.5b for the year.

The results from the fourth quarter benefited from some unusual items, including restacking of subsidiaries as well as some tax benefits associated with the sale of some previously written-down securities.

When we look forward, we expect the '03 quarters to be closer to what you saw in the beginning of the year in terms of operating earnings, $300m to $400m a quarter.

Total adjusted capital for MetLife ended the year at approximately $11.5b, up from $10b at the prior year end.

And, as Bob said, while the RBC numbers are not yet finalized, we expect to achieve our targeted range of 275 to 295 on a NAIC basis.

So as I said, we're very pleased with our results. 15% top-line growth, continued progress on expense reductions, integration of acquisitions, and overall achievement of our objectives.

Our financial flexibility allows us to weather the tough economic times.

We continue to grow our earnings, at or above targeted range, and we also have strengthened our capital position in Metropolitan Life.

We expect this progress on both fronts will continue in '03.

With that I'd like to turn it back to the operator for questions.

Ladies and gentlemen, if you do have any questions, please press the 1 on your touch tone phone.

You'll hear a tone indicating you've been placed in queue and you may remove yourself from queue using the pound key.

If you are using a speaker phone please pick up the hand set.

Also if you press 1 prior to the announcement please press 1 again at this time.

Again, if you have questions press 1 on your touch tone phone.

One moment please for our first question.

We'll first go to the line of Jason Zucker.

Go ahead please.

Good morning, thank you.

Had a few questions.

One, could you talk about the timing behind the asbestos study, the increase for -- the increase in reserves?

Were you following just some of the others in the PC industry?

Or was it more a matter of just watching some of your claim activity increase?

The next question.

In terms of capital raising, you mentioned that there might be some real estate sales this next year.

But do we think for the most part that capital raising is probably over?

And do you feel that your ratings are currently secure?

And then last, on the investment portfolio, were you more aggressive in the fourth quarter, writing down some credits?

You mentioned that you'd like to be proactive.

And, looking into 2003, how much do you think impairments are going to decline?

I'll do the asbestos, Jason.

And what happened was, through the first three quarters of this year, we began to see a trending down of this year versus last year.

And we were in the same time which we said to all of you earlier that we were going to do a study of what we think the future will be.

And during the month of December, in particular, we saw a significant increase in claims just for that month, which took us up over the year before.

And it's just a matter of people meeting some kind of a deadline they have of giving us a lot of stuff to look at the end of the year to meet their own targets or time frames.

So we incorporated that in the study, and that's our study, based on what we understand, which takes into account what's happening in the industry.

But it's our best effort to think through what the next 10 to 15 years are going to look like.

Stu.

In terms of capital raising and ratings.

When we talk about ratings -- let me come back to a point that I've said before, that the strength of our earnings is one of the most important parts of our ratings.

So while we never can speak for the rating agencies, they understand our earnings and we believe they're pleased with the pattern of our earnings.

Now, clearly, we had to get our capital up this year.

We achieved our objective.

And part of achieving that objective was demonstrating that we had both the capacity and the will to increase our capital.

And we believe we've demonstrated both of those things.

So in terms of dealing with the rating agencies, we don't think we have to do more capital-raising at this point.

Remember, we have strong statutory earnings which produce capital, just in and of themselves.

In terms of a process for writing down securities, we follow a very consistent process.

We look at every security that has an unrealized loss.

We take appropriate action on each one.

And so we just continue to follow the same process, being very realistic in terms of what we need to do, and taking the actions that we have to take.

Yes, Jason, Gerald Clark.

In terms of impairments.

And in the fourth quarter, as Stu referenced, we really weren't any more aggressive.

We had a very good policy throughout the year, so our activities are pretty much the same.

Our standards are pretty much the same in the fourth quarter.

In terms of the level in '03.

While we have a slight bias to looking to improvement, it really is going to be highly correlated with the state of the economy.

And given the current weak state of the economy, at best I think we'd be deemed very cautious.

But I would like to just comment on another aspect of the quality of our portfolio which gets to future losses or impairments.

While you can't predict them, while you look at the gross unrealized losses that I mentioned earlier, about $1.7b.

The composition of that is very conservative, in that only $234m of those securities were in a loss position of greater than 20% for six months or longer.

And of that total, only $75m were in a loss position of 20% or longer for nine months.

And in terms of our equity portfolio, the balance is zero, in terms of what was in a loss position of greater than 20% for six months.

So the composition of the unrealized loss portfolio is very, very conservative at this point in time.

But it's really going to come back to what the economy is going to do during the year.

And Gerry, I guess Stu just brought it up.

Could you get into a little bit more detail in the process you take when impairing securities?

Well, we do about through -- I mean it's a continuous process, first of all.

There are a couple of formal dates within each quarter.

But it's a continuous process.

And we look at 100% of the securities that have unrealized loss to determine what securities we might impair.

And we do what a lot of other institutions do in terms of looking at the underlying credit, and looking at the fundamentals in the industry.

And then looking at market values for public securities, and coming up with an estimated value for the private securities.

And really, our portfolio is composed more of public securities, whereby we have a benchmark, an active benchmark of a price to look at.

And that's comprised of private placement securities.

So in that standpoint it's conservative also.

Our associates from the FMG are clearly very much our partners and [Dee loit and Touche] (ph) is also a partner as we go along.

So it is a very proactive robust process.

Jason there's two things to keep in mind the question you ask.

One is that we have said to the rating agencies that we will do what we need to do to maintain our ratings and to continue to exercise our flexibility.

And clearly that ties to what Gerry just said in terms of any pressure that comes from the writing-down of some of the securities.

And what I think everyone has to recognize, in this climate, there's been an enormous sea change that has happened, enormous.

And clearly this issue of dealing with, quote, impairments, may be nothing more than you get to write down and mark to the market that which is below market.

And you don't get to mark up based upon our accounting rules in the insurance industry.

And so we at MetLife have taken the position having gone through extensive reviews of our process, to make sure that we write down aggressively so there's no question about what we're doing.

So we are taking a very aggressive posture which is why as Gerry just said we only have about $75m sitting in the unrealized loss position.

Or unrealized loss implies lose but it is really where our market, the market is below our book.

And for nine months or more.

So we're going to continue that aggressive posture as we go through this enormous change in the attitude of what corporations do and how they report numbers.

Great, thank you for all that.

We have a question in cue from the line of Joanne Smith.

Please go ahead.

Good morning.

I have a couple of questions if you could just bear with me for a second here.

On the variable and universal life line, could you just talk us through, or talk through for us, what led to the higher DAC amortization in the quarter?

And how we should look at that going forward?

Second question is, how comfortable are you now with the established level of reserves for the asbestos liability?

What would have to happen for you to have to take another charge?

Third question is, can you talk about prepayments?

And whether there was an impact on any of the individual segments during the quarter?

And also, if you could take us through the treatment of those?

And lastly, on your strong variable annuity sales, can you talk about what drove the sales increase?

And were there any new distribution relationships that impacted numbers in the quarter?

Thank you.

Let me start with where we first life lined in the DAC amortization there.

This is [Stan Talby] (ph) speaking, by the way.

As most companies do, we review our assumptions for DAC amortizations periodically.

And we have been doing much in terms of making our expected gross profit projections consistent among our blocks of business.

As we have migrated some of our New England and general American and other franchises on to common platforms.

As a result of that review, we've updated our future assumptions with respect to mortality, lapses, expenses and other things.

And that's what really triggered the $20m pretax, $13m post tax effect on the variable life line.

I view that as nonrecurring.

We amortized DAC in that segment over 30 years.

So this is kind of a tweaking of assumptions.

And the DAC amortization increase is relatively minor and shouldn't have a major impact going forward.

Stan, was it mortality or was it lapses that made you change, or was it a combination of the two?

It was more our expected mortality experience, including recoveries on reinsurance.

Okay.

Am I correct to assume that it had something to do with the higher cost of mortality reinsurance?

Yes, that was a factor.

Okay, thank you.

I'm sorry, Joann, it's Rob.

On the variable annuity sales, I think what you're seeing here are a couple of things happening.

One, people are being linked to the common chassis in the much more direct way in the MetLife distribution channels.

So MLFS sales are up, NEF sales are up dramatically.

Of course the big story in MLI, which is really about continued strong brand and product rollout, as you know, into distributors like Merrill Lynch, A.G.

Edwards, so forth, Paine Weber.

The ones – Merrill Lynch, for example, over $3m on a year to date basis.

So that continues to grow rapidly.

And names not even in the mix going back six months ago.

Rob, are you doing anything in terms of incentives or bonuses and this to attract the sales in the wire house channel?

Or is it just flight to quality and, you know, strong relationships that you've been able to develop over a quick period of time?

Well, we have some targeted indications and so forth.

In terms of bonus payments, no, none of that.

As a matter of fact, you know, some relief there in terms of gross dealer concession.

Because people are looking for a flight to quality and so forth.

The brand name is very strong, and of course a lot of it has to do with space being given up by weaker competitors.

Thanks, Rob.

I just -- it's Robert H. Benmosche.

I did want to stress, on that point, in that we are now selling in our old alma mater.

It’s UBS financial, I guess is what it is called now.

But I would say the feedback I got from the brokers there.

The power of the MetLife brand when they talk about a company, the recognition of our name relative to companies that are actually bigger than we are -- might even be perceived a little stronger than us from a financial point of view -- their names are not known to the general public.

And so right now what's working is names that people know and understand at the buyer level.

And our name is playing very, very well in that community right now.

Thank you.

Joann on the prepayment question, they were really relatively low.

In total they were $40m in the fourth quarter and about $140m for the year.

And that $140m is part of the net investment income of $11.4b.

So it is not a significant impact.

So you do take them through investment Gerry?

For the most part.

There are some instances where it's treated as a capital gain.

But in most instances it's treated as investment income.

Any concentration of the $40m in any particular line of business that we should adjust out?

I would say no.

That $40m won't have a big impact on any particular line of business in total.

Okay, thank you.

I was just going to say, you'll see a little bit of it in the individual annuity segment as well as a little bit in the retirement savings segment.

Those are our two largest savings portfolios.

The last question on asbestos.

We make an effort working with our auditors and the actuaries to really project out what we think will happen. –You should keep in mind that we are conservative in that estimate.

We have two situations now where the judges have found for us in terms of the law, in terms of where we've gone all the way through and reached that point in trial.

So it appears that while that's an optimistic feeling about what's going on here, we're still being very conservative in the run out of these claims.

And so right now we feel this is the right number based upon what we see and what we think coming down the road.

But keep in mind we still have another $275m in our insurance policy still available to us down the road if we need it to cover future claims if this current recorded liability is insufficient.

Next question.

Coming from the line of Nigel Dally.

Please go ahead.

Three questions.

First asbestos.

Large increase in asbestos claims due to spark in claims activity in December.

I just wondered if this spark in claims has continued in general or whether it's calmed down?

That’s the first question.

Second question on capital.

Now that you picked your [RBC] (ph) targets, perhaps you can discuss when you consider stock buy backs?

And lastly on international.

You commented you repatriated $60m from Mexico.

Do you have a target of how much can you repatriate in 2003?

As far as the month of January is concerned.

We actually don't get the claims are submitted through -- people can submit claims all they want but they have to go through a review process.

And actually, you get the report probably sometime in the month following when they're submitted.

So for example, the December activity really didn't become known to us and we didn't understand it until January.

And then we don't understand the quality of those, whether they're just frivolous or not.

So we don't have any sense of it right now for January.

Well, I guess just the reserves that you've set up.

Have you incorporated further deterioration in the claims patent or you're expecting some kind of return to normal?

Gary, why don't you make a comment.

Gary Beller, comment in terms of that.

I think when our folks were running the numbers, what they looked at was the level of claims coming in over the last three years.

And that's what they based their calculations on, assuming that they continue at that level which is a little heightened level than prior to the last three years.

But we didn't anticipate and they don't anticipate any increasing growth in the level of claims coming in.

Great, thank you.

Yes, Nigel, Bill.

Toppeta.

On your questions on repatriation.

What we said is we would repatriate approximately $200m over a 3-year period starting in '02.

So having repatriated $60m, that leaves us with roughly $140m.

And I would say that would roughly be evenly split between '03 and '04.

That's great.

Your question about the capital position.

As we've stated a number of times, our main priority now is on preserving a flexibility, building flexibility, and maintaining our ratings.

So, clearly, share repurchases are a secondary priority.

It's not something we're going to do in the short run.

And if things change we'll tell you about it.

But at this point you shouldn't count on it.

I guess just coming back to that though, wouldn't an RB ratio of over 6%, or above that you would have more flexibility to come back to the market or is it just something you'll --

This is an uncertain climate.

There's still things that people are worried about.

And once the climate stabilizes and everybody's comfortable, I'm going to take the lead from the rating agencies.

So I don't know that there's a number that they would want to assure us.

But clearly for this year, keep in mind there are no stock buy-backs in our guidance.

So there's assumption we will not do any buy-backs this year.

And the key for us right now, and the key message for this company, is we have to continually project and show that we have the financial strength to live up to our long term guarantees.

That is absolutely essential.

We are hearing that from our corporate customers that are coming to us.

They want to know we can stand by the products we priced and sell.

We are not going to play some of the games that others are doing in terms of rate increases down the road on some of their products.

We have to live up to that commitment and that's the first priority.

For the year 2003 our guidance is what it is.

It assumes no buy-backs.

And until the rate agencies give us a sense that they're comfortable with whatever numbers they are we are not going to proceed until we reach that point.

Great, that's very helpful, thank you.

Our next question will come from the line of Caitlin Long.

Go ahead please.

Good morning, couple of questions.

Can you talk about the competitive environment in the Gibson funding agreement?

It looks like you did an incredible amount of work to maintain your credit rating.

How much of a competitive advantage is that to you in the fact that your competitors have been downgraded?

And was it worth it?

Caitlin, that is a tough one to answer.

I can speculate.

I don't think the Gic market is as sensitive to ratings until somebody hits a certain cliff.

And then we see some activity.

But the Gic market is, you know, we just -- we're holding our ground in terms of how we price and what kind of risks we take.

You can see it in our numbers.

We've had good Gic sales and I think that has to do with more money going into fixed portfolios, more people want the MetLife name in their portfolio.

I don't think it is that much of an analytical situation.

The belief of our individual sales agents in terms of the guarantees that our company makes.

Especially, if variable annuity sales with the strong fixed account that's in it, whether they're in there because they choose to be or dollar cost averaging.

When you talk to people you can talk about the strength and talent of MetLife.

It is also our corporate customers who think about -- again as we compete with various product lines and product sets, it's about just the overall confidence that people have in the company.

So it's one that I've always stressed that it's hard to measure exactly in terms of spreads or return.

But it really is all part of what we stand for.

And it helps both from the buyer point of view and the people who are selling our stuff.

Okay.

And then just a follow up on asbestos.

Not to beat a dead horse but why aren't you litigating this?

It seems like when you first bought the reinsurance the environment was different, there were more companies that the plaintiff's bar could go after.

Now several of them have filed for bankruptcy.

And Met's still standing.

Why aren't you just litigating?

The answer is very simple, that we do take a very aggressive stand.

The cost of litigation is high.

And winning one doesn't mean you've one all.

So we've been very successful in San Francisco with the judge, in terms of finding on our liability relative to the law.

We had another wonderful case that we won this year in Utah.

We several years ago won a trial in Washington state.

But the fact is you need to keep doing it and keep doing it and keep doing it.

So over time, we expect that we will continue to build enough success that we can continue to become more aggressive each year.

But keep in mind that there's a cost to do that, and that's the unfortunate thing as we go forward.

That winning one, two, three, four, five cases doesn't mean that in various states they can't bring actions and keep suing us.

So this is -- we are aggressive in how we respond to people.

And we have our limits and if people push us beyond the limits then we go all the way.

And so far we've been successful in doing that.

Have you ever lost any of the major cases?

No, we have not.

Okay, thanks.

We have a question from the line of Colin Devine, please go ahead.

Good morning.

Couple questions.

First, on the investment portfolio.

Could you put in perspective, historical perspective, the level of gross losses you took this year?

You certainly mention at the analyst day.

I think that was the appropriate measure to look at.

So maybe we can compare how that's done in the past versus what, I guess, almost 20% of equity which they represented this year.

Secondly, on group life.

Was there a large surrender in the fourth quarter?

If you could comment on that.

And then lastly, if we could talk a bit about New England and what's happening there.

And one follow-up on the investment losses.

Was there any DAC offset against that?

And if so, how much?

To your first question, this is Gerald Clark.

In 2001, let me start off by saying, as I've indicated earlier, we've had this practice for 30 months, really.

Going back to the year 2000.

We were very proactive in taking our losses, keeping our balance sheet as healthy as possible going forward.

And that's the position we feel we are in right now.

That resulted in taking $1.98b of gross losses in 2000, and $1.6b of gross losses in 2001.

And as you're aware, in realizing these gross losses, this reduces the level of our unrealized gross losses by a considerable amount.

Getting it to the point where we have nine tenths of 1% in terms of unrealized gross losses.

Gerry, now you mentioned your gross unrealized gains.

And I guess I was a little puzzled with that because it was my understanding that your tight liability matched your portfolios.

So other than the real estate, wouldn't I be correct in assuming those are hedged against unrealized losses?

Or have you changed your strategy in the fourth quarter?

No, we have not changed our strategy.

As we spoke of in investor day, we talk about relative value investing.

And that is whereby a very diversified portfolio -- number of diversified sectors that we invest in -- from time to time they'll be reasons to move at out of one sector or particular securities into some other sector that we feel, from the standpoint of value, are undervalued.

So there's an undefined level.

Significant amount, though, of our gross gains that are related to relative value investing.

There's also the fact that a lot of our investment activity may be when we enter into a line, a transaction with our lines of business.

And we receive the funds, we're not able to go into the eventual asset sector right away.

So we'll put them into a highly liquid sector like [treshris] (ph).

And then over time, we work down and put those [treshris] into different asset sectors.

So you get gains out of that too, particularly in this environment where [treshris] were very, very valid.

But am I correct in understanding though that other than the real estate, the bulk of the unrealized gains you referenced are going to be matched off by unrealized losses on the liabilities?

Is that correct, or not?

I don't know if I understand that.

Well, if you're hedged and you've got an unrealized gain on a bond, isn't it hedged off against an unrealized loss on a liability such as the business?

Well, our asset liability management practice as we stated all along is to be closely tied to our liabilities.

Now also those liabilities -- they are all not non-par.

There are participating liabilities as you're aware of where we're able to, as we've demonstrated, in being able to maintain our margins in this year of declining interest rates.

We have some flexibility on the liability side.

When our assets don't perform according to plan or we sell some earlier.

Okay.

On losses, Hancock I think were predicting their most likely case 20 to 30% improvement.

Is that what you're looking for this year in losses?

I'd like to talk to Don and see how he's able to forecast the future.

We're not able to forecast what the economy does.

What was your question on New England?

What's happening there with life sales.

This is Rob.

Let me take that.

One of the things you'll see in terms of us moving from a mentality of what I'd call the vertically integrated insurance companies who manufacture products and then thinking about reporting on a manufactured basis.

What you're seeing is the activity of NEF salespeople selling enterprise products.

So life sales at NEF, at MLFS for example, are up slightly, very slightly.

NEF down very, very slightly.

But selling into Gen AM product in terms of universal life and so forth.

So the sales in life, if you really take a look at it enterprise wide, we were about equal with where Lemmer is coming out on the industry, MLSF up slightly, NEF flat to just slightly down, Gen Am up which results in a 3% increase.

So we'll be talking and the more I'm talking about it, you're going to hear us about the distribution.

And the footnote in the QFS should explain that to you.

Also keep in mind that the annuity sales in the New England channel are up substantially this year than last.

So we're doing more proprietary sales in that New England sales.

Up 40% in annuity sales.

You mentioned annuities.

How much of your annuity sales cared the GMIB rider on it?

About 50%.

In terms of your question on group life, Colin.

On the general account, the trend in withdrawals are about on par with the last quarters.

You're talking about the separate account.

We don't get premiums and deposits.

Those look high and the withdrawals are higher, but the net amount is about the same.

What happens on the separate accounts is some of the transfers runs through both lines.

So you see a higher level of transfers of about $600m in the quarter.

Just your question about back offsetting against capital gains and losses.

It's our policy that we take DAC offset.

So if you just look at the year, for example, the total DAC offset was $144m for the full year.

So that we had a total loss for the year before DAC offsets and taxes of about $346m.

DAC offset of $144m.

And then it works down to an after-tax, after-DAC number, also happens to be $145m.

Operator, could we take the next question?

Next question, please.

Joan Zief your line is open.

Please go ahead.

Thank you, good morning.

I have a few questions.

On the institutional side, we've just finished a few years of relatively good profitability for the group life and disability, particularly riders.

And I was wondering if you felt that there would be reticence with your corporate clients to get the kind of rate increases that you might want in order to maintain the margins.

And also on the institutional side.

Are you seeing any change in the competitive environment based on different competitors ratings or financial troubles?

So that's my first question.

My second question is, could you talk about where you're investing your new cash flow?

And what type of yield erosion are you expecting in 2003?

And then my other question is, we talked a lot about the asbestos reserve and things like that.

But could you just give us a flavor about the cash flows and how that works as you're working through this asbestos issue?

Okay.

Let me try the first one, Joan, in terms of the clients.

Let me assure you, clients never like rate increases.

So I wish I could say something different.

Having said that, one of the things -- if you look at our disability numbers, for example -- where we actually had higher growth than we anticipated.

Most of that growth is really a combination of things.

But we had very positive renewal actions.

Some clients didn't like it and they left.

But we had a nice renewal action on the entire block of business.

The persistency in the business we had was higher than we expected.

And that's always good news.

And in terms of the total block, we're basically renewing the clients that we like and they certainly like us.

And continuing to clean out the block of business that's not particularly attractive to us.

So what you're saying is, you really think 2003, and the renewal action that you're going to put through, will be similar to 2002?

That you'll be able to get the same sort of renewal prices?

Well, we have gotten them.

Keep in mind as you look at the different segments in our business, much of the -- starting from the top end down, we know that the rate increases have already been accepted going back into the summer.

So yes.

We have received those renewal actions.

And relative to 2002, it's quite attractive because if you look at the life insurance side, for example.

One of the reasons we're up, and we seem to be very predictive on the life insurance business.

But part of that is because so much of the business is determined starting in the spring of the preceding year and so forth.

So you may remember that last year in the life side, we predicted a flat growth pattern because of renewal actions we had taken.

We were a little surprised on the upside because people took some renewal actions in the lower part of the market that we didn't expect.

And we were happy with that.

We knew that our growth rate would go back to an increase of over what the market would be, based on our activity way back in the first half of 2002.

So very positive, very, very positive for us across the aboard in all of our products, both life and the non-medical health business.

Joan, you asked a couple of investment questions.

In terms of sectors that we're more active now, it's really continuing what we were for a lot of '02.

And that is in the commercial mortgage sector, in agricultural mortgages and private placements.

In terms of -- we're really in each of these three sectors to the extent that we can get the quality which is the first priority that we want in each of these sectors.

We pretty much are doing whatever we can do in those three areas.

In terms of yield give-up or decrease in overall portfolio yield in '03, that will be difficult to answer.

We went down by about 30 basis points all told in '02.

And of course, the level of interest rates during '03 will drive a lot of what we're doing.

But I'd answer the question in a different way.

Our asset liability process, which we discuss often, really gets to the profitability of MetLife.

And by and large we won't be taking on new business in our lines of business unless we're able to adequately fund that business on the investment side.

Joan, just on the cash flow with respect to asbestos.

All the charges, of course, that we were talking about were non-cash charges, just establishing liabilities.

In terms of cash flow, we've disclosed in our public documents how much we pay each year in claims.

Up until now, that's been a self-insured retention.

So we've been paying those amounts directly out of our funds, without reimbursement.

We've now reached a point where we get reimbursement from our carriers.

So in '03, we expect to get some reimbursement for '02 payments.

And those reimbursements are subject to some inside limits on year by year.

But the idea is we will be getting reimbursed for our payments going forward up to the policy limits.

So do you think that come 2003, from a cash flow standpoint, you may be at a net zero?

That your reimbursements will basically be covering what you're paying out in '03?

I'd say conceptually that's right.

I mean, there may be some differences because of exactly the way the mechanics work.

But that's the idea that we will be getting reimbursed.

But again, there are some limits.

I think we only have time for one more question.

Thank you.

That will come from the line of Michelle Giordano.

Please go ahead.

Good morning, thank you.

On the institutional segment.

I was wondering what you would address for the top line growth outlook is for the group life and non-medical health and other segments.

And do you think the remarkable returns you were able to achieve in the overall institutional segment are going to be sustainable in 2003?

Secondly on the variable annuity side.

I was wondering if you could coming on what sales are doing thus far in the first quarter given the slow down in the equity market?

And it would seem to me that 45% of your deposits going into the fixed bucket of variable annuities is a little bit higher than what you would expect over the long term of the product.

And I was wondering if you could address, what does that do to your ROAs on the variable annuities?

Does it help it or does it hurt it a little bit?

I'm sorry, the last part of the question, I didn't -- I didn't hear you, Michelle.

Sure.

On the variable annuity side, with 45% of your deposits going into the fixed bucket of variable annuities.

I've got to think that that was a little bit higher than what you would price for sort of over the long term in this product.

And I was wondering, by having about 45% of your deposits going into the fixed bucket, does that help or hurt your ROE -- your ROA in the short term?

Well, let me make a general statement, then maybe Bill Wheeler will chime in.

One of the things about the variable annuity business that we see, at least from my point of view.

It's extremely -- it doesn't change very much relative to the mix of fixed and variable.

And it hasn't shown that change going into the first part of the year.

And sales continue to be very strong.

Bill might want to comment on the --

Well, from a -- you have to understand, where we're getting a lot of fixed account activities in the NLFS channel.

We've always had a lot of fixed account activities.

That's always been the way that annuity has worked.

In terms of ROA, being in the fixed account actually helps the ROA, okay?

Because in many ways the higher margin business.

But the capital charges against the fixed account are also higher.

So on an ROE basis, all things being equal you would rather have the money on an ROE bases going into variable as opposed to fixed.

That’s the same debate whether it’s a fixed annuity versus a variable annuity.

But we're not concerned about this level of activity going into the fixed account.

It's the way it's always been in MFLS.

We think that's not a bad way for our customers to invest because they can always move it over to the variable side later.

And so what we always say that that money's just one phone call away from being moved into variable assets.

So it doesn't cause us any concern.

Your other question Michelle --

If I can just interrupt there.

The reason I was asking was because typically the kinds of crediting rates you would offer in the fixed bucket of the variable annuity would typically be a lit bit higher than you might offer on a fixed annuity.

So could you tell me what the dollar cost averaging promotions are that you did offer for the quarter for your six month bucket and your 12 month bucket?

I'd say that the crediting rates on the fixed bucket on the variable annuity is certainly no higher than the straight fixed annuity.

In fact it may even be the reverse.

When we're seeing people take a conservative posture given the equity market.

So the driver there I think is the strength of the product and you know the strength of the guarantees in there.

Michelle, it is not about a dollar cost averaging.

This has been a long term strategy over the last seven or eight years.

And the marketing strategy here was, how do you get first-time risk sellers to sell a variable annuity?

And if you look at what we have right now and you look at the plus side by the death benefits and so on -- keep that in mind as we talk about the fixed versus variable -- that has been a strategy here that not only do we use the fixed account as an important feature of that product.

And it is not dollar cost averaging.

It also says that you have investment strategies that are part of the variable annuity that allows to you invest in stocks bonds and cash with certain allocation model.

So this is about how people can get into the market and do it in a very conservative way.

So this is the $2.6b or so in sales coming out of MLFS are strong because it really is around the conservative nature of the client and how we approach it here.

So you can draw a correlation between that fixed account and sales versus dollar cost averaging that might be coming in out of the Wall Street community.

Someone just reminded me Michelle that I didn't answer your last question.

In terms of the investor line going forward, as we said on investor day, life 4% to 6%, health 15% to 20%.

And I see nothing to change that.

Thanks very much.

Okay.

I thank you all.

I think we got a lot of material covered.

I know that John and Kevin are always available.

And they were here until late last night so they're ready to go again for another day.

I thank you all and I look forward to seeing you and hearing from you over the next quarter.

Thank you.

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