大都會人壽保險 (MET) 2003 Q3 法說會逐字稿

Before we get started, I'd like to read the following statement on behalf of Met Life.

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 market for its product and the future development of its business.

Met Life's actual results may differ materially from results anticipated in the forward-looking statements as a result of risks and uncertainties including those described in Met Life's filings with the SEC, including its S-1 and S-3 registration statements.

Met Life incorporated 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 conference over to Kevin Helmintoller, head of Investor Relations.

Good morning.

Welcome to the MetLife's third quarter earnings conference call.

This morning we'll hear from Bob Benmosche, Lee Launer, our Chief Investment Officer, and Stu Nagler, our Chief Financial Officer, and then we'll get right to your questions.

So let me quickly turn it over to Bob.

We're pleased with the operating performance for the quarter and we're continuing to operate against a very tough plan.

We talked about the plan for the year, and we're executing very well through the third quarter.

And it's really across all our major businesses.

If you take a look at what we've already announced, it's growing.

Our sales.

And it's not only growing our sales, but it's retaining assets.

Assets under management are up to about $337 billion.

Part of this is a strong organization, strong distribution, but also our brand is playing very well in the marketplace right now as people are looking for a company that they know and they can rely on as that flight to quality.

We did announce a 10% increase in our annual dividends, and it's in line with our projected growth in earnings of 10 to 15%, and it also has an eye towards 2004.

And for a company, we want to make sure we maintain maximum flexibility in how we manage our capital as we move into next year.

And by just providing this level of dividend increase it gives us that maximum flexibility.

On the investment side you can see we've had very good results.

We talked about the pattern improving as we entered into 2003, and we asked you to keep an eye on these patterns.

And you can see that we're in a very good position.

Lee will talk about that in just a minute.

But I also want to talk to our statutory results because it really talks about the quality of our capital surplus as well as overall total adjusted capital.

And you can see for the first nine months of this year we earned 1.35 billion, and our total adjusted capital now is up to 13.3 billion, a strong 50% growth since the beginning of this year, so, from a capital point of view, we're in very good position.

Our operating earnings continue to perform well.

And when one talks about rating agencies and the quality of our company, it's really about all of it coming together and doing well as we move into 2004.

So, I'm pleased with the progress of our organization.

Our people have done an outstanding job in a tough environment.

You can see strong sales, strong performance.

And one of the keys behind it has been the investment side.

What I would like to do now is turn it over to Lee Launer who will bring you up to date on our investments.

Good morning, everybody.

First let me comment, as I usually do, on the health of the corporate bond portfolio.

All the statistics there show a level of improvement.

For example if you note, on the unrealized loss schedule on page 35, you see the losses on bonds trading below 80 total 164 million as of the quarter end.

That's down from 185, the previous quarter and 495 the quarter before that.

So, in equities if you look at that table it would show the same pattern.

So, further, if you stripped out, you know, from realized and unrealized losses that resulted in this quarter, from rising rates, and really just isolated on the pure credit losses, one would see improvement in both of those measures, as well.

For example, I'll mention the realized area where if you look at the pure credit loss, it would be about 110 million.

Once you strip out about $50 million of losses that were realized simply because rates went up, and we took a $35 million commercial mortgage reserve in the quarter.

So, the 110 is down from the 188 the quarter before and the 357.

So, we can go through more of these numbers, but the credit losses are improving, and they're rather small at this point and lead us to the conclusion that this corporate credit cycle is getting nicely behind us and we can spend more time reporting on other items.

One other item I should report on is the Sears Tower.

As you know, we acquired the tower in the quarter for about $9 million, and therefore, this investment has moved from the commercial mortgage line where it was listed at about 525 million to the equity real estate line.

And the book value there is about $700 million.

And the ultimate result of this will be to decrease the yield line for the commercial mortgages about 3 to 5 basis points and decrease the equity real estate line by about 80 points.

And part of that is reflected in the quarter that we posted up here.

And speaking to Sears, we receive about the same amount of cash as we did before, but now that we own the property, we're need to depreciate the property.

And that charge is going through our financial statements and the yield table.

But the tower is a terrific building, and we very much enjoy the fact that we have control of the tower at this point.

We can control leasing and marketing and the overall positioning of the investment going forward.

Turning your attention to yield and the yield table on page 33, I did want to make one specific comment on the asset category titled Equity Securities and Other Limited Partnerships.

And this category refers to the roughly $2.4 billion of private equity partnerships and a billion six of common and preferred stock.

During the quarter, as you can see, we had a much lower income number, and that resulted from really two things: Lower than average realizations during the quarter and a higher than average, I would call it, an accounting true-up to the books of the CJVs.

And each of those is about 20 million.

So, you total those two, it's a $40 million pretax hit.

It just happened in the quarter.

And that's the first time we've gone negative, as you can see, in the seven quarters previously.

So, there's nothing in here to suggest that we're not going to return to the same pattern that we had prior.

On overall yields, I'll have you note that the overall yield in the portfolio declined in Q3 by 15 basis points.

And that's within the range that we had discussed during the last call.

You know, we'd prefer rates to go up and yields to increase; however, I think if you turned your attention to the product spread tables and the QFS, you can really get the two parts to the equation there, the yields and then the crediting rates.

As you can see we've effectively managed the crediting rates to preserve rates in a down interest markets.

Finally, on asset allocation, you can see from the tables, you know, asset allocation didn't really change much in Q3.

We broke out CNBS so it's easier to isolate the residential security line.

And residential securities did decline, as you note, in dollars and proportion as we moved some of that money to the credit market.

Otherwise I don't see much change in the portfolio from what you see in the tables.

So, in closing and before I turn it over to Stu, I'd just say we're comfortable with the level of risk we're taking and the allocation of risk in the portfolio and I look forward to your questions.

Thanks, Lee.

Good morning.

I'll make some comments on the consolidated financial results and several areas of interest in our segments and then turn it over to the operator for questions.

Operating earnings came in at $616 million this quarter, or 81 cents per diluted share.

This included approximately [8] cents per share related to a release of a portion of our rate-conscious underwriting reserve and an adjustment to a previously established tax liability.

Also notice that the weighted average diluted share count increased to 760.9 million shares versus 722.7 million shares for the year ago quarter, an increase of 5.3%, due to the process of conversion of the equity security [inaudible].

As discussed in the press release, top line growth was strong with premiums and fees up 8% to $5.7 billion while assets under management were up 16%.

Turning to the major segments, as you've seen, the institutional segment reported $264 million in operating earnings in the current year quarter compared with $234 million in the prior year, up nearly 13%.

These results were driven by strong underwriting results, continued controllable expense management and a $4 million after tax benefit related to the change to economic capital, offset by a $7 million after tax increase and pension and post--retirement costs.

As we discussed previously and again in this earnings release, we switched to an economic capital model for allocating capital to segments in 2003.

This resulted until institutional picking up $4 million in after tax earnings in the quarter about the prior year.

Underwriting results were again strong in our non-medical and group life product lines.

Spreads in group life and retirement savings were approximately flat year-over-year.

However, as you can see in the QFS, sequential retirement savings spreads were down, primarily due to lower yields and corporate joint ventures just discussed by Lee.

Sales to date in retirement and savings have been particularly strong, up over 50% with strong contributions from structured settlements and global GICs.

Looking at the individual business, operating earnings in this segment were $171 million versus $226 million in the prior year quarter.

As discussed in the release, the third quarter 2002 results were favorably impacted by approximately $50 million after tax of unusual items in the individual segment.

Further, this year's individual results absorbed a $6 million after-tax decline from the interest on the change in allocated capital as well as a $9 million after tax increase in pension and post--retirement costs.

Annuity spreads were roughly flat compared to the prior year, but widen sequentially to 222 basis points, up from 195 basis points.

The second quarter spread this year was unusually low, as we discussed in the prior call.

Growth in this product line remains robust with annuity deposits up 43% versus the prior year quarter and operating earnings in the annuity segment were up 52% versus the prior year.

Sales in Universal life were up 30% for the quarter while Variable life sales were down 11%.

Moving to auto and home, P & C operations again generated predictable results in spite of the weather challenges in the quarter, including Hurricane Isabel and a series of wind events in July.

The risk management program is continuing to service us well, and we can directly attribute lower levels of losses to specific actions we've taken in underwriting, claims management and reinsurance.

Average earned premium was up 7% in the quarter in auto and 17% in property, reflecting the earning of previously implemented rate increases with continued earning to come.

The combined ratio came in at 95.9% for the quarter excluding catastrophes and 99.3% with catastrophes.

We remain confident that the auto and home segment will meet its target for the year.

Our other segments generally performed in line with our expectations, with International producing $37 million in operating earnings, driven primarily by growth in earnings in Mexico.

Reinsurance earnings were down year-over-year, due primarily to a change in capital allocation, which I mentioned previously.

And asset management's earnings were up due to improvements from capital allocation and improved market performance.

As discussed in our press release, corporate and other benefited from the $28 million after tax release of rates-conscious underwriting reserves, while taxes benefited from a $36 million reduction of the previously established tax liability.

Corporate and other also benefited from higher investment income, and the full quarter impact of the conversion of the equity security units in the second quarter of this year.

Finally, as Bob mentioned, our combined statutory results for the quarter were quite strong.

For the quarter we produced combined statutory operating earnings of $610 million, bringing the year to date total to [$1.35] billion.

And combined statutory net income for the quarter was $773 million and $1.18 billion year to date.

Total adjusted capital and surplus for Metropolitan Life Insurance Company ended the quarter at $13.3 billion up 15% since the beginning of the year.

This reflects continued enhancement of our already strong capital position, and we estimate the risk-based capital ratio at September 30th at approximately 320% on a NAIC basis.

So, as you can see, the results continue to demonstrate core operating strengths and the ability to achieve our plans in spite of lower interest rates and rising pension costs.

We continue to believe we'll achieve our [full] year plan for '03.

We look forward to updating you on our plans and strategies for '04 and beyond at our Investor Day on December 16.

With that I'll turn it over to the operator for your questions.

Ladies and gentlemen, if you wish to ask a question, please press star, then 1 on your touch-tone phone.

Question & Answer To remove yourself from the queue, press the pound key.

Once again, if you do have a question or a comment, press star 1 at this time.

One moment, please, for the first question.

Our first question comes from the line of Ed Spehar with Merrill Lynch.

Good morning, everyone.

I have a couple questions.

The first question is the strengths of the statutory operating earnings;

Stu you talk about the 15% increase in the capital and surplus, and I think the operating earnings in the nine months seem to be above what you might have been talking about for full year numbers, if I'm correct.

You know, it seems like at some point here there's going to be some significant excess capital that's gonna be, you know, given your history, coming back to shareholders.

And I'm wondering if in any way you could talk about what are the events that we have to see for the rating agencies to be comfortable or you to be comfortable that some of this excess capital is going to be paid out, and how are you looking at this in terms of your preference at this point, dividends versus share buy back?

Thank you.

First, on the capital, again we are quite pleased with the statutory results.

When you talk about where we are, we felt comfortable with our capital position last year-end.

We feel even more comfortable now.

Relative to the rating agencies, I'd again say that they can toll us that the most important factor in preserving our rating is the continuing strength in our operating earnings.

We're pleased with the growth in our operating earnings, with the diversity of our businesses and the businesses we're in, particularly individual life insurance business, which they like, so that the power of our earnings make them comfortable.

Standard & Poor's recently came out with a report where they confirmed our AA rating, and they also confirmed that they felt our level of capital was at AA level.

As you know, with Moody's, we're still on negative outlook.

We have conversation with them.

We think they're pleased with the progress we're making, but we're still on negative outlook.

So, the question of as we build up capital, our first priority as we discussed yesterday, is to maintain our strong ratings.

So, we're please where we are with Standard & Poor's.

We want to get off negative outlook with Moody's and maintain our ratings.

And then, you know, our priorities certainly are to, if we can, invest capital in our businesses at our hurdle rates.

But if we can't invest and we generate excess capital, then share buybacks are one of the alternatives that we look at.

And we've always looked at share buybacks favorably when we can't invest that capital in our business and when we're sure that our ratings are where they should be.

So, clearly the first priority is to get our ratings where they should be, meaning removing the negative outlook at Moody's, and then we can look at all kinds of alternatives.

And as Bob said, when we looked at our dividend, we thought it was a nice and appropriate increase, but we wanted to maintain flexibility.

And flexibility; obviously share buybacks is one way that you use flexibility.

Okay.

If I could have just one follow-up, the portfolio yield decline of 15 basis points--if you look at the crediting rates in annuities, I think they were down 8 basis points, and the crediting rates in life -- sequentially--and the crediting rates in life, I know you reported that they were up, but I think there was some unusual item.

And if you adjust for that, maybe they were down 4 or 5 basis points on an adjusted basis.

Why wouldn't we see -- given where rates are--why wouldn't we see some spread compression given that it seems like it would be difficult to have crediting rates decline at a faster rate maybe than what you did in the third quarter, or is that an incorrect assumption?

You know, I think you're in the -- This is Stan Talbi, by the way.

You're correct in terms of the movement of the crediting rates and there was a little bit of noise in the variable universal life segment in the crediting rate.

But I think on whole if you look at where we are relative to our minimum guarantees both on the annuity segment and universal life segment, we're well below the minimums and we continue to have a lot of flexibility balancing -- maintaining our spreads and being fair to our policyholders.

What we maintain, the 222 that we achieved on the annuity line, we had a very good quarter this quarter.

We wouldn't target a spread that high, but we do expect to maintain it above, you know, 200.

And on the universal life side, we were a little low this quarter and we'd expect, you know, to maintain that at 175.

Thank you.

I think, Ed, the most important thing to keep in mind is the way we match.

We don't take big bets here.

That's not our business.

And as Stan said, we've got -- and we watch ourselves constantly where we are vis-a-vis the minimums, and we're in very good shape there.

We have a question from the line of Nigel Dally with Morgan Stanley.

Couple of questions. [Inaudible] corporate ventures, obviously a large [inaudible] income.

Hoping to get some additional data on the nature of these investments and why you're confident they'll now return to positive earnings looking forward.

Second, with regards to real estate, I heard that you're likely to sell some more real estate later this year.

Could you provide some details on the amount and possible range of gains we're likely to see?

And lastly, any comments you can provide on the market timing issue.

Okay.

Well, Lee Launer will take the first two certainly.

Lee does not do any market timing.

Right.

I let somebody else do that.

Well, we time the markets a little bit with our investments.

But I would say on CJVs, these are the 200 partnerships where we've made private equity investments.

They are equity-oriented in corporate equities by and large.

So, why we believe we'll go back is just the performance that you've seen in even the public marketplaces will filter through and start to be exhibited in the private side, as well, as it has in the past.

So, that's the nature of the investment there.

In terms of the real estate, there's only one property, big property that we have in the marketplace right now and that's 11 Madison Ave here in Manhattan, which is part of our headquarters facility here.

So, that's the only place that's in the market place right now.

I'm not going to venture as to what it's going to hit in the marketplace, but we have a significant amount of interest in it.

I'm being reminded we're selling one property or in the process of selling one property in Los Angeles, One Cal Plaza; that's not a completed transaction, but we have a very fair price on that one.

And that's in the 225 area in terms of price.

So, no major redo of what we did in Q4 of last year.

And those are the two major properties that are in the markets.

And as far as market timing is concerned, we're responding to all the requests for information from the regulatory bodies.

And at this time we're not aware of any systemic problems with market timing for the company.

Great.

Thanks.

Our next question will come from the line of Tom Gallagher with CSFB.

Please go ahead.

Good morning.

Bob, just a quick question for you.

Can you just comment on how asbestos claims trended during the quarter, if you could, and your comfort level with reserves?

Year to date we're about 53.5 thousand claims.

So, you can see we're up a very small amount to where we were at the end of the second quarter.

I did report to you last time that we had a huge increase in the month of April.

And we said that we thought that huge increase was an acceleration of claims.

It's hard to look at these patterns.

But very clearly we are very comfortable with the reserves we've set up.

As I've shared with you, we still have another 275 million on top of the reserve as an insurance coverage as a layer that has not been accessed in that reserve.

And if we look at the patterns of claims and what's been going on here, we're in a very comfortable position that we're going to be okay financially going forward in terms of what's expected.

Gotcha.

Okay.

And then just a question on the level of prepayment income.

I guess this would be for Lee.

That you received in the quarter.

And I know you talked about venture capital results coming in below expectations.

Can you comment on, especially given your sizeable mortgage-backed portfolio and commercial mortgage portfolio whether or not you've been benfitting from prepayment income and how much?

Sure.

Well, the prepayment income for the quarter, if you look at the bond portfolio, the commercial mortgage portfolio, it was really around $50 million.

So, just a little -- $50 million pretax.

And that's a little bit larger than what we've been seeing normally.

But we've been averaging -- I think the number is roughly 30 to 35 million dollars a quarter.

So, it was slightly up.

And so, -- and we continued to believe we're going to see a little bit more of that activity going forward.

So, in terms of residential mortgages, that's not -- that's a whole different category and that's not in the numbers.

I think you're asking about the commercials and the bond side.

Well, Lee, also on the NBS side, was there any unusual level of prepayment activity given where rates went?

And was that positive only impacting spreads, at least temporarily?

There was -- okay.

I'm back on RNBS.

There was a high level of prepayment in RNBS during the quarter.

It was actually up a little bit over Q2.

There was a little bit of a lag effect.

And as you remember, rates did go down.

But it's not had any effect overall on the net income or spread levels.

The vast majority of that prepayment we expected at the time we actually bought the bonds.

I'm not saying there wasn't some unexpected prepayment.

There was some.

But the vast majority we expected.

So, it was up in Q3.

Okay.

And the comment you were making was not NBS, but was stand alone residential mortgage, is the latter comment you were just making?

The latter part was all securityized residential mortgage securities.

Okay, thanks.

Our next question is from the line of Michell Giordano of JP Morgan.

I was hoping you could comment on the nice pickup you saw sequentially in variable life sales in the quarter.

And then I was also hoping that you can talk about what your [locations] are looking like for the fourth quarter in both variable and universal life.

And then lastly, any new product introductions you have going on in either the annuity or the life insurance area?

Hi, Michelle.

It's Rob.

I'm glad your people are asking about customer creation and growing our business because we're doing very nicely.

In terms of the variable life sales, I would say that sequential result, if you adjust that for some private placements, it really does not show the uptick that it would suggest.

So, we're doing fine there, but there's not the uptick, and you shouldn't expect to see that going forward in terms of variable life.

Universal life sales are up very handsomely.

We continue to do well.

As a matter of fact, in all of our life sales.

As you know, we are in the process and have an entire new management team on all of our life distribution organizations, and that is starting to kick in and we will hear more about that on our Investor Day.

But life sales for us are about equal to or in some places higher than the market in general.

You know it's a tough marketplace out there.

So, on the annuity side, of course, we continue to grow very rapidly.

And I'm very pleased to say there that the success of MLI in terms of its distribution is really starting to spill into both the MetLife field and NEF;

NEF having, I believe, the strongest month they've had in their history.

Great.

Thank you.

We have a question from the line of Colin Devine with Smith Barney.

Please go ahead.

Good morning.

A couple quick questions.

One, Bob, if you could give us an update on the situation at New England?

Obviously a fair amount has happened there since the last call.

Second, for Rob, I would guess that the pickup in your UL sales reflects the no laps product features.

And if you can tell us if triple X will have any impact on your pricing?

And then lastly, with respect to the investment portfolio, am I right, then, in hearing that basically you had 5 cents of prepayment gains that came into operating earnings this quarter, and while you felt that was high, the run rate?

And also, perhaps, if you can justify why are you taking in operating earnings when some other companies such as Hancock are actually taking it into realized gains below the line?

I think it's important Lee comment on the last one because I think that's not how I would characterize what was said.

But let me come back to New England for a moment.

We acted quickly when we understood we had a problem.

We put a new leader at New England.

Eileen McNaul, who has done a sensational job of picking up the ball and running with it.

We have lost almost no momentum at the New England Financial organization.

We are committed to that franchise.

We're committed to the general agents of that franchise.

They have an excellent franchise system, excellent people in that organization, and as Rob just said, this past month they had a record in annuity sales.

We're focusing on life sales, which has not been a focus in recent years, and we're going back to basics there, teaching them basic tools of life insurance, life insurance sales, life insurance wholesalers.

We're going to put out a press -- New England Financial organization.

So, the organization really is in very good shape, much more than one would have thought after the announcement we had to make last quarter.

So, we're pretty confident you're going to see very strong close at New England Financial in the fourth quarter this year.

Bob, just back on that as a follow-up, what additional steps have you taken to assure shareholders that there's no more, I guess, accounting surprises lurking in the woods?

Well, you know, this was not an accounting surprise, Colin.

This was about people consciously and very intentionally and very cleverly hiding the expenses behind that organization.

In fact, if you look at our expenses for this quarter, we're now having to show expenses that were hidden in prior quarters.

So, this is about people doing something that was inappropriate.

We took action on it.

I'm very confident as we look at our finance organization, the people throughout this company, that we do a very good job of reporting the numbers.

And they're accurate numbers.

And I believe that there are no other pockets at this time of people doing something that's inappropriate.

I'm very confident as we look at our auditors, our finance organization, the people throughout this company, that we do a very good job of reporting the numbers.

And they're accurate numbers.

And I believe that there are no other pockets at this time of people doing something that's inappropriate.

I believe that this was a very inappropriate thing that was done.

It had nothing to do with accounting systems or whatever.

It's what people sometimes do when they do the wrong thing.

Did you engage any external auditors to do a third party review?

Absolutely.

Colin, as a segue there, I would just say and emphasize this, that as you know, in terms of the whole management structure of our life distribution channels, we made substantial changes to take a horizontal view across the organization.

And that even bolsters even more the idea that there's little room for what I call mischievous behavior in terms of what were previously invertically integrated insurance companies.

So, that's behind us.

In terms of the universal sales, it is a no lapse policy and so forth.

I would say the uptick is probably more directly related to the switch from variable to universal life by our producers that in the past had been very, very focused on variable product only.

And in terms of the triple X, I don't believe that has any effect here.

That's more a term question.

It does on the no lapse guarantee, and if you're going to have to put up extra reserves on it.

No.

I would just say, Colin, that it's built into the pricing.

And if the requirements change, we'll wind up revising the pricing.

But at this point we don't expect to see any changes.

Colin, Lee here, just on your point about the prepayments, we'd have to go off-line for the accounting standards to talk about above or below the line.

But it's been $50 million.

I would just point out it's a pretax number for one.

And two, it's just like any other piece of investment income, which we had $2.9 billion in the quarter, so, this is $50 million of it.

And some of it's credited and some of it is not credited to clients.

So, I'd have to answer you in that way.

But I'm correct about 5 cents a share was the benefit?

No, that's not what he said, Colin.

I think this is a top line number.

How much of that drops straight down to the bottom line?

Else that the question.

I can't answer that for every $50 million chunk out of the 2.9 billion.

Colin, this is Kevin.

I would point out, though, that on the prepayment income, just to give you a relative comparison, it was approximately 50 million this quarter .

It was also approximately 50 million in the second quarter of '03 and 50 million in the third quarter of '02.

Okay.

Thanks, Kevin.

We have a question from the line of Joan Zief with Goldman Sachs.

Thank you.

Good morning.

I have two questions.

The first is I was wondering if you could review any expense initiatives for 2004?

And basically how has the move to Long Island city, out of Manhattan gone, now that it's been a while?

And are there any personnel issues that you're dealing with because of that move?

And my second question is given all this legislative and regulatory scrutiny that is happening these days, do you expect any products to be affected, either because of poor publicity or sort of changes in structure, say, like, COLI or, say, even the variable annuity product, you know, if there are issues around market timing in that, as well?

Whole, let me just overall on expenses, we are finishing '03 and we are working very hard on our expense management knowing that we had a couple things that are in the numbers this year that we had not planned on, being one the New England situation, also the increase in our pension costs which we're now identifying to all of you.

We do have initiatives as we work on our plans, and we'll have that thought through for our December Investor Day.

So, we're working on '04 as we speak.

In fact, we meet on it later this week.

The move to Long Island City has gone well.

The internal environment in that building is extremely well received.

We're beginning to see the neighborhood in terms of quality of restaurants is improving, so our associates who would wish we had better restaurants than we have here in New York City.

But turnover is not an issue there.

In fact, turnover for the company continues to be exactly as we've talked about in prior years.

We will retain by the end of this year 95% of the top 30% of our non-salespeople in this company.

We will continue to have below normal turnover for the middle half and the bottom 20% of the company.

It's the highest category of turnover we have.

So, it's really around performance.

It's not around where people are located.

So, that continues to bode very well for us as we move into the future.

Do you want to comment, Rob, about the products?

And John, I'm looking forward to spending more time in Long Island City so I can spends more time with my team.

When do you go?

First quarter.

We all go in March.

If you like my office, it's available.

But don't tell Hank, because I don't think he wants any more real estate.

Joan, in terms of the question about legislative and regulatory scrutiny and so forth, and you mentioned COLI specifically, it's hard for me not [inaudible] to talk about COLI.

COLI has been under pressure for a lot of years with some carriers who were a little bit perhaps on the edge in terms of the use of the product.

And as you may know, we've been very vocal about how strong our COLI business has been for years and years.

The COLI business that up until now was in the individual side of the house in the different locations has been consolidated into what was really our substitutional COLI operation.

And that has streamlined that product service and set even more.

So, I'm very comfortable where we are with COLI.

I think that in terms of perhaps noise in the marketplace, you'll have to talk to others about any problems that they might have.

In terms of variable annuity product, you know, I don't see anything.

As was mentioned, we have in terms of any issues around products that have investment components in general.

We have, you know, nothing here that would appear to be systemic in any way, and we have, you know, good experience with our variable products around those issues and continue to have a good product with good design.

So, I see no effect there.

You know, nobody has a crystal ball, but we're certainly not concerned about it.

Thank you.

We have a question from the line of Liz Werner with [Standler Owen].

Please go ahead.

I wanted to ask about the structured settlement in the global [inaudible] business.

I was wondering if you could give us a little more detail on how meaningful that product was to the quarter.

And secondly, I was wondering if you could just remind me what your total exposure is relative to assets -- I think, if I remember correctly, you are pretty far below the limits that the rating agencies might be setting for you.

And I wanted to get a sense of whether or not those assets would be continuing to grow as a percentage of the general account.

You're right in the terms of them being quite below any kind of -- any kind of ceiling.

You know, historically, particularly in the global [inaudible] business, we were a late starter, as you may recall, and therefore have taken a very precise way into that marketplace relative to what we can do in other parts of the business.

So, the main part of our business is growing in that area, substitutional clients.

When we can find better spreads opportunistically in the global GIC marketplace, we do, and we still have quite a bit of room there.

What was the other question?

I'm sorry.

Just -- I guess I'm trying -- in thinking about the growth going forward, it just seems as though that's an area where you could really grow.

And relative to your other segments, because you do have some room.

And so, I wanted to get a sense for how much you did in terms of sales this quarter, you know, and how things look going forward.

Well, in terms of -- there's several parts of retirement savings that utilize general account assets and/or guarantees around certain separate account products.

And so, we balance that in terms of the opportunity.

As you know, I've said in the past that the story on our retirement savings business is really more one of asset growth and have downplayed a little bit the lumpyness of sales.

However, I would say that the sales we've had in structured settlements in particular are not only a result of some opportunities for us but a better and more focussed management in terms of the interimmediate yar's in that business, and we're seeing an uptick in their activity because of that.

In terms of financial solutions for pension plan sponsors and whatnot, we saw rather healthy growth there,as well.

So, we're seeing in terms of our sales growth in institutional sales all across the board, annuities, our financial solutions, which would include GIC contracts written to plan sponsors and, of course, the global GICs.

And I would say we're also seeing a very nice uptick in terms of our cash flows into the retirement plans group, which is our 401-K platform.

So, we're seeing opportunity across the board there and we're growing assets very nicely, both in terms of separate accounts and general accounts in the retirement savings area.

Okay.

Thank you very much.

We have a question from the line of Steven Schwartz with Raymond James.

Please go ahead.

Good morning, everybody.

Two questions.

First, you mentioned it in your write-up.

I was wondering if you could touch on mortality in the life segment?

That looked to be a little high, what you were seeing there.

And then, I was hoping, and this might not be possible in this venue, but I was hoping if we can go back to the 40 million shortfall, if you will, on the -- in the equities in JVs and for modeling purposes kinds of put that where it belongs within the various segments.

This is Stan Talbi.

I'll handle the mortality experience on the life segment.

We did have a very good quarter in the life segment.

You can see our loss ratio was down around 91%, which is the lowest it's been in several quarters.

So, yeah, I wouldn't expect to maintain it at that level.

Our target, if you recall, was 94 to 98%.

We've consistently been below that.

I would expect it to continue to be below that for the next couple quarters, but not quite as low as 91.

And in individual?

Individual, you know, if you recall, we had a real good mortality quarter in the second quarter.

So, this quarter, you know, it was good, but not as good as the second quarter.

On comparison.

Yeah.

Lee Launer here.

I think the CJV I think if [inaudible] but pretty much on a lag basis.

So, I think you just have to throw in a lag from where -- from the public market areas.

And I think that those true-ups are a little bit of a lag from prior period results.

No, what I was actually referring to -- I'm sorry if I was unclear.

But what I was actually referring to is if you look at that $40 million, for example, how much of that would have been in the retirement savings?

Oh, I'm sorry.

I don't --

We don't have an exact number, but the retirement savings was clearly affected knowingly by corporate joint von ventures.

And you see that effect in the spread.

On the other hand, corporation ran and -- corporate and other was affected positively.

As Lee mentioned, discreet deals, so you can't go deal by deal.

Corporate was affected positively by corporate joint ventures.

I don't have the exact numbers, but you can kind of see the texture of it.

Thanks.

We have a question from the line of Michael Levy with Lehman Brothers.

Please go ahead.

Good morning.

I was wondering whether you could give me some color about the annuity business.

How long do you see the transfers to the separate account continuing to be as strong as they have been?

And just what is your access to variable annuity reinsurance like?

Are you actively reinsuring that business, and do you see composites in variable annuities as slow in comparable quarters over what they've been in the last months?

In terms of trying to track consumer behavior on this, I think it's better to look sort of at the top line and say that we kind of reflect what consumers in general feel about the marketplace in terms of bullishness and whatnot, and they tend to move into the equity markets when they feel comfortable.

So, we have very flexible products where in our variable annuity products the individual investor has the ability to move to safe haven in terms of fixed income and still be able to take advantage of the equity markets when they're comfortable to do so.

So, I think that's more -- that's a better way to look at it opposed to picking one product over another because they have quite a bit of flexibility within our variable annuity product line.

In terms of reinsurance, as you know, we [were] reinsuring 25% of our variable annuities with the GMIB benefit in it.

And in August our capacity ran out.

And we continue to look for opportunities to reinsure a part of that.

The cost is pretty expensive right now, so we have not engaged in another reinsurance contract at this point.

We are looking at different hedging programs, which we would expect to implement, you know, in its place.

So, would you say that -- is that a concern in writing new business, that your availability for reinsurance has diminished?

No, not at all.

We look at our overall exposure, and we feel comfortable with our exposure where it is today and, you know, for the next several months.

Okay.

Thanks.

Our final question will come from the line of Ken Zuckerberg with [Stadia Capital].

Please go ahead.

Rob, could you provide us with an update on the disability market and some additional color on the loss experience you've seen there?

Yeah.

The disability market -- and by the way, you know, just a little -- because I like to talk about broader things, as well, the entire substitutional business, I think if you look at it in this way, we're at right in the middle of the aggressive targets we set in terms of top line growth.

The bottom line growth quarter over quarter is exceeding those expectations generally across the business.

This means, however, that we should come in either at or slightly at the upper ends of what we've talked about in terms of our earnings power there.

Disability, sales there are attractive, but you know, we're not knocking the lights out in terms of sales, which is fine.

Our persistency is very strong, and in terms of our ratios, you've seen a little bit of a pickup there.

We are confident that we'll finish the year probably slightly down from where the quarter shows and well within our target.

So, disability continues to be a good performer for us.

In terms of all the products across the board, the disability sales quarter over quarter are actually down a little bit, which is okay, particularly considering some of the price actions we've been able to take and so forth.

So, strong price actions, high persistency, and acceptable sales.

And Rob, just to follow up with regard to price actions, can you quantify whether -- well, can you quantify the overall figure, and then if there are any region-specific variations?

I can answer that question.

You know, our price increases are really at the case level.

So, we're kind of looking at the experience at the case level, looking at incidence at the case level, particularly for our largest cases, and our pricing actions do vary.

It's a -- you know, on average probably around 10%.

Most of those cases do renew on January 1st, so, you know, we've already seen those price increases either be accepted or rejected at this point going into 2004.

But just to add a little more color to what Rob said, our targeted loss ratio for disability is in the 95 to 100% range.

So, we were at the upper end of the range, but within our range.

And in this quarter incidents did tick up a little bit, but nothing to be concerned about.

And I would expect it to return to normal levels in the next few quarters.

In terms of variability by region as you mentioned, you know, our book of business is very broad and deep, as you know.

And I would say that normally if we were talking about differences in experience, we would talk more in terms of the jumbo market versus the mid-market versus the small market.

And our levels of experience there are right where we target them.

We do vary quite a bit in terms of market.

And also keep in mind that the arrangements we have, par, non-par, participating business with our customers where they share the risk varies quite a bit.

So, we take all that into account, but we're very, very pleased with our disability results.

Thanks very much.

Shelley, I think we have time for one more question.

Okay.

Our final question will come from Suneet Kamath with Sanford Bernstein.

Please go ahead.

Thank you.

Just wondering if any of the consolidation activity we've seen in the past couple months has created a recruiting opportunity for you in terms of agents that may not wants to participate in some of the merger disruption come to a -- come over to Met Life to sell your products?

Thanks.

I thought you were going to talk about market opportunities in terms of growth, where there are quite a few because of that.

When it comes to the agents, what we're not interested in doing is simply taking spillover from other companies.

And so, we have instituted with our new management team very specific recruiting guidelines in terms of both compensation and selection and ability for producers to understand what the MetLife culture is about in terms of growing and retaining clients.

So, yes, we do see some opportunities where we can find very, very strong producers who know how to really run an agency extremely well.

We would love to have them join the Met Life family.

You know, just for the company, I just want to keep you in mind.

Nobody asked the question, but as far as consolidation is concerned, size is not a barrier.

I just wanted to remind everybody of that.

Our goal is to have high quality ratings, as people think about the guarantees and promises we make.

And that's how we're viewing 2004.

If something comes our way where we think it makes good sense for our shareholders, we would consider it.

But there's no need for us in the U.S. market to grow, and overseas build continues to get Mexico where we have good, solid results there.

And we'll look for other opportunities where they present outside the U.S.

I just wants to thank everybody for joining the call.

I look forward to seeing you on December 16th as we talk about 2004 and beyond.

Thank you very much.

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