大都會人壽保險 (MET) 2003 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 participants are in a listen-only mode.

Later we will conduct a question and answer session.

Instructions will be given at that time.

If you should require assistance during the call please press star 0.

As a reminder this conference is being recorded.

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

With respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities law, including statements relating to trends in the company's operation and financial results.

The market or its products and future development of its business.

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

MetLife specifically disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise.

With that, I would like to turn the conference over to Kevin Helmintoller, head of Investor Relations.

Thanks and good morning.

Welcome to MetLife's fourth quarter 2003 earnings conference call.

Joining me this morning with brief prepared comments are Bob Benmosche, Chairman and CEO, Lee Launer our CIO, Bill Wheeler the CFO, and Rob Henrikson President of U.S.

Insurance and Financial Services.

We will then take your questions.

Also with us to participate in the discussion are Stan Talby, Finance Officer for U.S.

Insurance and Financial Services Operations, Bill Toppeta, President of International Operations, and Cathy Rein President of our Auto and Home Operations.

Quickly a couple of additions to the quarterly financial supplement.

Page 15 now present a rolling eight-quarter segment of all segment operating earnings and we've also added a roll-up earnings income statement for each of our primary operating segments.

This morning we will be discussing certain financial measures not based on generally accepted accounting principles, so-called non-GAAP measures.

We've reconciled these non-GAAP measures to the most directly comparable GAAP measures in our earnings press release and in our quarterly financial supplement, both of which are available at www.metlife.com and on our Investor Relations page.

With that I would now like to turn the call over to Bob Benmosche.

Just to be brief because we have a lot to cover with you this morning.

We are pleased with the results for the quarter and the year.

They're at the low end of the range we talked about over a year ago at our investor day when we talked to you how we thought 2003 was going to turn out.

We also said that you're going see strong top line growth and bottom line growth.

This is not just simply an expense save story.

This is a story about how we're continuing to grow this business.

I think you see that across all of our businesses.

One measure is the assets under management.

As you can see we're up to about $350 billion right now, which is a 17% improvement over last year and that helps us, you know, for management fees as well as takes the pressure off our DAC and so on.

We continue to be disciplined in pricing.

You see that in all the measures, and we would be glad to take any specific questions you have on that.

Most importantly it's about capital flexibility and making sure we have the right capital to maintain our strong ratings.

We've been working with the ratings agencies and our RBC ratio will come in at approximately 10 basis points, where we said it would come out.

So we're continuing to work closely with the rating agencies and we hope to have some answers in March as to how we stand with Moody's in particular.

Because of the confidence of our statutory earnings and the overall breath of earnings of our company we feel very confident in our 2004 guidance we gave you on investor day so we feel very confident in that range.

We also feel confident that we will continue to start our repurchase program and we anticipate a $500 million repurchase during the year 2004.

So what I'd like to do now is, I'd be more interested in answering any questions you have, is turn this over to Lee Launer who will talk about our investment performance for the quarter and some strategies behind it.

Good morning everybody.

During the quarter the portfolio performed pretty well as you see by the numbers.

Investment income coming in a little above normal.

I did want to highlight the strength of the quarter by focusing on really two items.

Namely the yield item and realized and nonrealized credit losses.

So first the yield.

Been rather consistently saying on the call that we expect a decline in the portfolio yield to be about 10 to 15 basis points and we refined that on investor day to about 10 basis points.

So one would have expected to see the yields right around that 636, 635 zone, and we recorded an actually 668 yield, so let me get into that and explain that a little bit, if I could.

First, CJV income which was kind of the story last quarter since it was an unusual negative quarter came back to its normal pattern which was certainly a positive number, and that added about 10 basis points to the yield right there.

Second, FAS 9-1 adjustments, that relates to structured securities like residential mortgages.

FAS 91 returned to a more normal pattern as well during Q4 and that added about 10 basis points.

We expect both of those to remain that range throughout 2004.

But really, third, we undertook a number of investment programs during the fourth quarter to better position our portfolio, better position meaning less exposure to potential rise in rates, less exposure to certain countries that we have, emerging market countries, in our portfolio, a little less exposure to rmbs and convexity risk.

For example, we reached out to our commercial mortgage borrowers and negotiate deals to extend the maturities of certain commercial mortgages there by keeping some quality assets on our books.

In many of those cases there were prepayment fees paid, and that's part of the reason you see prepayment income coming in higher than what you would normally see.

So in total those Q4 programs really raised operating income, they raised capital gain income, and they raised capital loss, and you see all of those effects really on page 37 which is our yield chart, and the effects are spread throughout all the product spread tables that you also see.

In terms of operating income, let me be a little bit more specific.

There was -- we see those programs continuing in 2004 but we do not predict that high level of prepayment income continuing into Q1.

We had about $100 million of prepayment income in Q4 and we see more like the $20 to $25 million in Q1.

So we see the overall yield in the portfolio kind of coming back to that normal range, and we would predict in that 630 to 640 range at the end of Q1.

So let me focus next on realized and nonrealized gains and losses.

Capital gains as you saw in the quarter were large, 564 million.

That's well written about.

Two large properties being sold.

We also sold a sizable stock position, and that created a gain, and we moved those funds into fixed income securities.

Gross capital losses were ticked up a little bit in the quarter as well, gross capital losses, totaled 280 million. 250 million of that, though, can really be traced back to the sale of securities that were trading under par, or under cost, simply because of interest rate rises, so they had nothing to do with real economic or credit losses, just simply the market.

Again, this is part of our restructuring of the portfolio during the quarter.

Let me touch on write-downs.

You have that number again on page 37. $73 million.

That's the lowest number in the last eight quarters.

That write-down amount would have been half that amount if it wasn't for Parmalat, which we wrote down to 18 cents on the dollar, took a loss of 38 million in the quarter.

We'd expect credit losses to be below that $100 million mark in each of the forthcoming quarters.

Finally on credit risk, go to page 39 you'll see that tun realized loss statistics are down again this quarter, and I'd point out that only about 20% of this amount is related to really credit-related reasons, and the balance is really just because of rising interest rates.

So let me recap, too.

You know, we had somewhat of an unusual quarter, a number of repositioning programs generated an $80 million blip, if you will, in operating income, but the result of all the programs is we're better positioned in 2004 and we did so without really sacrificing annual ongoing income.

So with that I'll take your questions later, but with that I'd like to turn it over to Bill Wheeler.

Thanks, Lee.

Good morning everyone.

Overall I thought this was a good quarter for MetLife, and I think it caps off what was a solid year in terms of our financial performance.

I'm going to spend a few minutes highlighting what I think are the major financial highlights of the quarter, and then also discuss our statutory results and our capital position here at year end.

So starting with the top line growth which we think was quite strong, premiums, fees, and other income increased 10.2% versus the prior year's fourth quarter, and 11.5% increase sequentially.

Some of the big stories there were annuities revenue were up 27.1%, retirement and savings revenue was up 19.8%.

Rja's acquisition of the U.S. life insurance business was closed so that also contributed to the top-line growth.

If you look at the full year, premiums, fees, and other income increased 8.7%.

Again, strong performance in annuities and variable and UL product lines.

Our annuity deposits were 11.2 billion, up 42%, I think that easily outpaces the overall annuity marketplace, and our annuity separate account balance, that closed the year at 28.7 billion, is up almost 60% versus a year ago so you get a sense of why we're very optimistic about our annuity business going forward.

Another good indicator of our top line growth is what's happening with total assets under management, and Bob mentioned this.

We reached 350.2 billion at year end in total assets under management and that's a 17% increase over a year ago.

Our strong sales, coupled with favorable market, you know, helped drive this growth.

So that's sort of the top-line story.

If you think about some of our key operating mar against, let me start with investment spreads which were obviously very strong in the quarter in virtually every product line we have.

You heard Lee just talking about the reason the yields were up so much, and, in fact, our investment income came in at over $3 billion this the first time in our history for the quarter.

The other part of this equation is what's happening with crediting rates.

And in all of our key areas crediting rates continue to tick down as you would expect they would in this marketing environment.

If interest rates stay low this year, we still have the flex alternative to preserve our investment margins for some time to come.

Now, another key operating margin is our underwriting results, and the performance here was a little mixed.

Group Life mortality was very strong at 91.4% for the quarter.

Individual life mortality was solid overall in terms of the loss ratio, but we had several large claims in our VL and UL product line which have lower levels of reinsurance cover and that cost us approximately $11 million in after-tax earnings for that particular product segment.

If you look at group disability our morbidity ratio increased 102.7% in the fourth quarter, which is above our expected range.

However, for the year the ratio was 98.5 which is is right in the range.

And when we examine what happened here, when we look at some of our -- unlike some of our competitors who are apparently reporting increased incidence, that hasn't been our experience.

We believe our results have been driven more by decline in claim closures in the fourth quarter and we think that was due to the timing of the holiday's day, and based on our experience in January we think we've confirmed that that was the culprit, so we expect that our group morbidity ratio would return to a more normal number in the first quarter.

Rob Henrikson will give you more color on that in a moment.

Finally our Auto & Home combined ratio was good at 95.4% this quarter excluding cash.

Moving to operating expenses they appear to be quite high this quarter, and there's some very specific reasons for that.

There were a number of consolidation charges we took this quarter, and those totaled $62 million pre-tax, and they were comprised of about $29 million in individual business segment, $26 million in institutional, $4 million in international, and $3 million in corporate and other.

And included in these consolidation expenses were lease terminations, office closures, some fixed asset write-offs, some severance.

In addition, our pension and post-retirement expenses increased $64 million pre-tax from the fourth quarter of last year, and we believe that given the $700 million contributions we made to the pension plan over year end and the strong performance of the pension plan assets in 2003 that these costs will moderate in '04.

Now, before I move to a discussion of profits, I'd like to just mention a couple of other things.

We had a loss recognition event in our Taiwan operation due to low interest rates relative to product guarantees, and that cost us approximately $19 million after taxes.

This charge was essentially offset by a $12 million tax benefit in Chile and an $8 million reinsurance benefit involving several international treaties.

In addition, in our variable and individual business we recaptured some previously reinsured business from one particular reinsurance carrier.

This causes the P&L for that product line to look a little unusual this quarter.

The recapture also cost us approximately $6 million after taxes.

If you turn to our bottom line the net income for the quarter was excellent at $701 million, increase of 25% from the year-ago period.

As Lee mentioned, after-tax net investment gains were $162 million in the quarter.

The $701 million net income also includes a charge for the adoption of the new embedded derivative accounting which we adopted in Q4 and that had a charge of $26 million.

If you look at our operating earnings they were $565 million for the quarter, or 74 cents a share.

That's an increase of 57% over a year ago period on a per-share basis, but the year-ago period did have some one-time charges in it, and those charges are listed in our QFS and in our press release.

If you adjust for those charges earnings per share increased 13.9% quarter over quarter.

For the full year operating EPS was $3.01 which included for the full year 2003, 21 cents of what we would call positive unusual items and we have detailed those for you.

These EPS calculations also include the impact of the conversion of our equity security units on May 15th this year, and this added about 15 million to average shares outstanding, and 40 million to average share count for the quarter.

Finally we also repurchased 3 million shares in the fourth quarter of '03 at a cost of $97 million.

Now, if you turn to our statutory results, they were also very strong.

In the fourth quarter, combined statutory net income for the company was 1.6 billion, while for all of 2003 statutory net income was 2.8 billion.

Statutory operating earnings were 690 million and 2 billion for the quarter and year respectively.

And as Bob mentioned we expect the company's RBC ratio to be approximately 300 at year end.

Generally I think the fourth quarter was a strong end to a very solid year for met and I think we're very well positioned for '04.

Good top-line momentum, our operating margins and underlying business fundamentals are in good shape, and we are once again operating from a position of strength with regard to our capital position.

Now let me turn the call over to Rob Henrikson, President of our U.S.

Insurance and Financial Services division.

Thanks Bill and good morning everybody.

I'm pleased to report on the U.S. insurance and financial services businesses which as you know is comprised of individual, institutional and the MetLife Bank.

First, individual business.

Considering the challenges we faced in 2003 we're quite pleased with the performance of individual business.

As you know we've taken dramatic action to focus on our core strengths and eliminate hobbies and extensive redundancies in our distribution systems.

In reducing our nonsales headcount we eliminated 70 redundant management positions and their related expense.

During the last half of this year I brought in an experienced management team to take individual business to the next level and we are seeing early indications of success in all channels.

We centralized independent distribution under the leadership of Mike Farrell who has demonstrated tremendous success with MetLife resources and MetLife investors group where we now have positive margin from expenses incurred.

These streamlining objectives in individual were accomplished while also growing premiums and deposits by 19% to over $19 billion for the full year 2003.

Annuity deposits grew by 42% over the prior year led by MetLife investors in addition to strong and growing sales in our MetLife financial services and New England distribution channels.

At the same time we've refocused channel management and our sales people on profitability down to the individual agency level.

So individual businesses is well positioned to meet its objectives while improving its ROE over 100 basis points in 2004.

On the institutional side of the house we are also happy with a continued strong return from our well diversified industry-leading group product lines.

Institutional produced a 20.1% return on economic capital while growing premiums and fees over 9% for the full year.

At the same time, we continue to invest in our service platforms and believe that in this business market consolidation will continue as small players will be unable to provide the services that will be expected in the group marketplace.

In fact, we spent over $100 million on new IT development in institutional in addition to our normal maintenance costs.

New sales were quite strong in 2003, helping to drive Group Life premiums and fees up over market growth rates at 5% for the year while group non-medical health and premium indisease grew by 4%.

While we've seen more migration to administration only, profit growth has remained quite strong.

Looking forward our introduction of new product asked for by the market in dental should accelerate growth in 2004.

As Bill mentioned our disability morbidity ratio rose in the fourth quarter.

This due to reported closures due to death were particularly low.

But we came in for the full year at 98.5, which is well within our range.

Looking at our emerging experience in the early weeks of 2004 to date, assuming this trend continues for the full quarter, we will be well within our targeted loss ratio of 95 to 100%.

This plus an average 10% rate increase across the book on1104 renewals strengthens our confidence for 2004.

We're excited about the opportunities that exist for us in the critical illness product arena.

A number of our large institutional clients have inquired about this product.

We'll pilot later this year in select markets both in institutional and individual.

Though we've seen some variability in the spread in retirement savings and to a lesser extent in Group Life, the full year spread remains strong, and our expectation for spread for 2004 have not changed since investor day.

As you may recall we took action to protect Group Life spreads by reducing its minimum crediting rates on deposits from April 1st forward from 3 to 1.5%.

All in all the institutional segment should be able to meet our earnings objectives even if we continue to see a flat interest rate environment.

Just a word on the MetLife Bank.

The bank was formed, as you know to create new enterprise customers and deepen existing relationships by leveraging our broad distribution.

During the 2003 pilot stage the bank grew deposits by a net, that's including attrition, of $950 million.

Of interest, 39% of this net growth is attributable to individual business, 8% attributable to a very limited institutional pilot, the remaining 53% is attributable to the direct customer channels, that is the web and our call centers.

So with our comments we believe the company is well positioned for 2004 and, Stacy, with that we'd be happy to take questions.

Thank you.

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

You will hear a tone indicating that you've been placed in queue.

You may remove yourself from the queue at any time by pressing the pound key.

Once again if you wish to ask a question please press star 1 at this time.

And our first question will go to the line of Joan Zief with Goldman Sachs.

Thank you.

Just wanted to talk about the variable annuity, or the annuity business.

You seem to have very low 1035 exchanges.

I just wanted to know if you could review what's going on there, what your internal replacement is like, you know, basically what your thoughts are for your ability to continue to drive those sales, and then basically what sort of margins are you looking for in 2004?

Do you think that you will see improvement in the margins as -- you know, as you can bring some of the market leverage to the bottom line, or should we expect pretty stable margins there?

Joan this is Rob.

Let me comment on the exchanges and so forth, then perhaps Stan will talk about the spreads.

We do have -- I mean, listening to the commentary in the marketplace about replacements, we do have unusually low replacement numbers relative to the industry.

Replacements annuity to annuity are just over 17%, in terms of our proprietary products.

I mentioned those annuity to annuity replacements because 1035s specifically are a sub category of that, because some annuity to annuity replacements are trustee to trustee related.

So 17% is quite low and I would mention that it's -- there's no meaningful discernible difference in our distribution channels.

That is, MLI, Met, and New England financial.

We're pleased with that.

And I don't know what else to say other than it's certainly seems to be much better than what we see from the rest of the industry.

Joan, in terms of the margins, on the fixed component of the variable annuity, we have a target of 205 to 210 basis points of margin and we expect to be able to maintain that.

Our goal hasn't changed even though we exceeded that in the fourth quarter of 2003.

In terms of the variable component, certainly fast market growth will help us cover more of our fixed expense and we will benefit a little bit from that.

Are there any other pressures on margins, on the variable annuity side that you see either added, reserving, added capital, tax rates going up, anything else that we should keep an eye on?

No.

Okay.

Thank you.

Thank you.

We have a question from the line of Vanessa Wilson with Deutsche Bank.

Please go ahead.

Thank you.

Good morning.

In the individual business which product should we really keep our eye on to drive the growth of the franchise?

Is it the variable annuities?

Do you think variable life is going to come back?

And which distribution channels are you most focused on to really drive your growth there?

Well, starting with the last one, Vanessa, we're focused on all of our distribution channels.

As I mentioned before the slight difference in mix between channels is probably more reflective of those distribution histories in terms of where they started and their focus on variable product and so forth.

To answer you, we see continued growth in universal life.

It's really quite strong, and we see in certain markets, for example, fixed-type products are stronger in that others.

For example, in our ethnic market, there's quite a focus there.

On the variable side we're probably slower on the variable life side we're probably slower than the industry by a tick or two in terms of coming back, but universal life sales are very, very strong.

Variable annuity sales continue to be strong.

We see robust sales across our distribution arms there, and, you know, we're happy about the fact that we've increased our market share numbers jumping from 5 to 3 with our strong production in 2003.

So we're -- and, of course, in terms of other products that we speak less of in terms of on calls and so forth we're seeing pretty strong pickup across the distribution arms into proprietary MetLife product like individual disability and long-term care.

Thank you.

Lee, if could you just help clarify, you gave us a wealth of information on the yield and why it was high this quarter.

I wasn't clear as to what our starting point is for '04, sort of a normalized starting point, and if you still expect the yield to migrate down 10 basis points a quarter.

Vanessa, yeah, I think that as best we can project out through the end of quarter 1 I think the yield being at 635, 640 for the entire portfolio, so that's the number that would compare to the 668 that you're looking at for the end of the year, and I do believe that we still see the underlying portfolio drifting 8, 10, 12 basis points a quarter.

My final question, Bill, on the crediting rates, liability side, do you see yourself keeping up with that 8 to 10 basis points?

Yes.

We don't think we're going to have any difficulty holding our spreads this year, the spreads that we indicated on investor day.

Great.

Thank you very much.

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

First with the office closings and consolidations.

Do you have an estimate on how much those initiatives will positively influence earnings in 2004 and beyond?

Second with repurchases, 500 million of expected stock repurchases still contingent on being taken off negative watch?

Third, on your hedging program, I was hoping to get an update as to where you currently stand with regard to getting hedging strategy.

I'll take the first two.

This is Bill.

The office closing and the other sort of charges that we took in the fourth quarter, those are something we've planned.

That was in our 2004 plan sort of baked into our earnings guidance that we've given you previously, so there isn't something incremental going on there.

With regard to the repurchase, yes, the 500 million is contingent on Moody's taking us off negative outlook.

Our expectation is, is that Moody's -- I can't speak for Moody's, I have to be careful, but Moody's policy is that they will do something.

They won't just keep us on negative outlook indefinitely I don't think.

If you look at their concerns from 18 months ago, when we went on negative outlook, the credit cycle, low interest rates, and our own RBC ratio, I think we sort of feel like those concerns have all been alleviated, so we're confident.

But there's no guarantees, and -- but assuming we do get a favorable resolution we do expect to have $500 million for the year.

By the way, our expectation -- and Moody's, by the way, will probably tell us sometime in March but our expectation is what we will be buying in March, even before we know.

So that's sort of where we're at.

Nigel, in terms of the hedging program we are now actively working with a consultant.

We expect to be able to do our testing in the second quarter with implementation to hedge the GMIB benefit by the end of the second quarter.

Just a follow-up on that, do you have any color on what sort of hedging program you're going to have in place?

I guess there's a fair range of different hedging programs which have been introduced by different companies.

Each company talked about them in different ways.

Do you have any color on what sort of hedging program?

Definite a delta hedging program, maybe some roe.

We're looking at a number of different possibilities, and, you know, really it's going to depend on what our models tell us about text on operating income.

That's great.

Thank you.

Thank you.

We have a question from Tom Gallagher with Credit Suisse First Boston.

Please go ahead.

Good morning.

First question on Asian re -- agent retention.

I noticed that headcount at New England and General American declined a bit from last quarter.

Was this just a year-end flushing out of the system or was that true runoff of some of the distribution there?

I would say it's more runoff in some respects.

We did, as you know, at New England, take some action relative to managing partners who were not productive and put some of those agencies under common management, and there was a little bit of reduction due there.

By the way, the numbers coming out are, you know, really due to low producers and so, you know, we're really comfortable with what's happened there, and I think you'll see increased sense of production and so forth coming into the year.

So nothing unusual there that we hadn't talked about at investor day.

Rob, do you expect the base to remain fairly stable from here, given that you implemented those changes pretty recently, or do you think there might be some more runoff?

No, I think we're expecting certainly stable with the rise coming through the year.

Perhaps in the 3 to 5% range.

Okay.

And then just a question on the group disability.

Premiums and fees were essentially flat year-over-year.

Can you talk about whether this is a function of sales or retention and what trend do you expect to see in this line going forward?

Well, I think the flatness of disability relative to some of our other products is due to sales activity, not retention.

As you know, there continues to be interesting changes in customers in the disability business, and we continue to maintain our disciplines there.

It's interesting since 2000 when we first started talking to the investor community, you know, I mentioned our closing ratios were about 1 in 20 on disability, and that remains amazingly consistent.

So we like the disability business.

We like its growth pattern.

We are not growing faster than the industry in that level like we do in some other areas, but that's okay.

And we really keep a close, close eye, as you know, on the financials.

The other thing I would point out is that we did have some reserve buy-outs in the fourth quarter of last year, so it kind of masked some of the underlying growth in premiums and fees.

One other comment, it's Bob Benmosche, I just want to remind everyone, in 2002 I had reported to you that at the General American distribution channel we had provided a 20% bonus, first year premiums, 20% of first-year premiums, for two years to new producers who wanted to join the organization.

And that just was not sustainable, and it was affecting our profitability, but there was a two-year runoff on all the people that came in under that deal.

So that's been a drag on some of our earnings, and it's also -- you've seen the effect of these contracts coming off, the sales are coming off, so that's put pressure on our life sales over the last two years, also put pressure on particular things like term and some of the variable life contracts that you see.

So that is really pretty much behind us, so as we go into '04, and also, by the way, General American had no minimum reduction which we put in.

So you will see gen am begin to stabilize in '04 and all of the loss without the 20% first year bonus we should normalize that as well and I think you'll see growth, so that drag I believe is behind us, and that's some of what you see in the in connection with.

To emphasize what Bob said, the decline in the Gen Am sales due to the factors just mentioned if you exclude those total sales are right where the industry is.

Okay.

Thanks, guys.

Thank you.

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

Please go ahead.

Good morning.

Just a couple of questions.

First, it wasn't clear to me, the 80 million from prepayments and other income types, was that pre or post-tax?

Pre-tax.

That was pre-tax?

Yeah.

Okay.

For something completely different I was just wondering if we could touch on the Auto & Home, what kind of 1/1 renewals we saw in terms of price?

Renewals on reinsurance?

No, no, no, no, no.

In your Auto & Home.

What kind of rate increase are we looking at?

Shoe we're looking at about 6 on auto and 13 on homeowners, for the year.

And then just -- maybe I'm getting confused here between companies.

Maybe you could touch on your group LTC business and kind of how that developed in the quarter.

And if I remember correctly, and maybe I'm wrong here, but did you mention at the investor conference that you were looking at entering the individual LTC market, and if I'm correct, how's that going?

Let me start with the last first.

In long-term care, MetLife, unlike other companies, began its for ray into long-term care in the group insurance area but we've been in individual since 1996.

I'm just getting confused.

That's okay.

In terms of our sales, new business sales from the non-federal program, which, of course, is robust, the federal program, but if you take even the non-federal program business channel group, AARP and individual, were 56% greater than the prior year's fourth quarter.

The growth there has been very, very strong.

And individual business was especially strong in the fourth quarter, I might mention, which is 136% increase over the prior year fourth quarter.

The reason I mention that is because this is real indication of the connectivity of both New England -- particularly New England, and, of course, MetLife, two proprietary prick, where historically New England, specifically, sold new-prop products.

So we're bringing them home to MetLife product and this is quite a nice lift for us.

Thank you very much.

I think what you announced was critical.

Okay.

Bob's mentioning that you may have been thinking of critical illness, in terms of an entry into a new product area.

No, no, you mentioned that.

As a reminder if you wish to ask a question please press star 1 at this time.

And we'll go to the line of Eric Berg with Lehman Brothers.

Tha, very much and good morning.

Couple of questions.

First, as we think about the expense ratio, both on the institutional side and the individual side it's my sense that sense the common de-mutualized, there has been a focus on expense control.

At least the what we see in the statistical supplement that was released last night what we see is not really an improvement in the expense ratio as much as stability.

I guess there are two ways one could look at that one could say met is dag a very good job of sort of holding the line on expenses but given that your stated goal is to grow revenues more quickly than expense, and therefore to bring down the expense ratio, something that really hasn't happened too much in the last few quarters, when can we expect that ratio to come down?

Then I have just one other question.

Thank you.

Let me put a general kind of answer, and, Bill is eager to jump in.

Good.

As you have probably heard me say before, Eric, the expense ratio as measured using premium dollars is not particularly the best ratio to talk about the health and growth of our business, considering the different mix of contracts we have.

So that's why we do focus, you're correct, in terms of growing the revenue line more rapidly than than the expense line.

So the expense ratio in and of itself has a lot of noise in it because of the change revenue every time premium or deposits or premium equivalents and using our kind of internal language here, so it's not a good measure, and we wouldn't want to focus on a measure that's not particularly true in terms of the amount of new customer creation you have in growth, because remember we have to serve all this wonderful business that we're writing.

Hang on, Rob, if I can interrupt for one second.

While certainly I understand this concept of FAS 60 versus FAS 97 and the idea if you're selling investment-oriented product you may not get as much revenue.

Doesn't the expense ratio take that into consideration?

No.

It doesn't?

It doesn't.

And going back, for example, one of the best examples of this in our business was decisions we made in disability sometime ago because everybody was focusing on that expense ratio as well.

And I can tell if you we focused on the expense ratio in disability we would not be able to manage our claims and do the kind of service we must for that large institutional marketplace, and yet we've done well in terms of expense control.

So Bill might want to add to that.

Another thing I'd add, Rob, the -- obviously in '03, '03 in many ways, if you look at sort of the expense ratios, try to get the best ham on our expense improvement, since the IPO, by the way, if you just look at the company overall, our expense ratio is a percentage of premiums, fees, and other income has dropped about 300 basis points.

If you do the math it implies something like a $600 million improvement in our pre-tax income because of it.

That's the good news, which is I think good progress.

What makes that more impressive is we did that in the face of a $300 million increase in pension and post-retirement benefits.

And so I think the outcome -- what do you think about the future?

Yes.

On investor day we talked about the idea that we're going to grow this company, and that we expect the top line to grow well, and our expenses, with good growth, probably can't be held flat, but they can probably grow a lot slower than the top line, and we would expect what I would call our expense ratio to drop another 200 basis points over the next three years.

Okay?

In total.

And that implies another, about, $500 million of expense saves during that period in terms of margin improvement.

Part of the way we'll get there is we expect, for instance, the pension charges are going to improve.

Based on the contributions we made at year end we're expecting a -- roughly a $50 million pre-tax save this year for our pension charges.

Some of that, obviously, isn't in our control but that gives you a little feel for the future.

That was great.

My follow-up question is, as we think of the pretty significant difference in profitability as measured by ROE between the institutional and individual business I'd like for you to remind me, please, is it just something inherent about, say, the institutional business versus the individual that makes it permanently more profitable than the individual business?

Is there something sort of long-lasting and economic about that business that makes it a better business, or do there continue to be sort of problems, challenges, issues on the individual side that are dampening or depressing ROE, and, you know, just what -- help me understand the pretty significant difference in profitability between the two main businesses.

Eric, let me kind of introduce that, then I'll pass to the Stan.

Return on equity specifically, as opposed to the broader term profitability, is explained in the institutional business particularly at MetLife because of the large amount of business we have that requires relatively small amounts of capital to support it, because of the nature of our administrative service-only business, the nature of our participating business, where, in effect, the customer is supplying the capital to absorb that activity.

So I think it's more that than anything else.

And Stan may want to follow up.

Yeah, I would just add, you know, in terms of what we said on investor day, I would just reiterate that when you look at the institutional business it's been developed within the company, you know, over the last, you know, 50 to 100 years.

We have deep relationships with customers, so we have broad product penetration.

The financial arrangements, you know, help us use capital efficiently, particularly in some of our higher risk products.

We have an asset base that's very strong in our Group Life segment.

I don't think you'd find that with most other companies.

So, you know, on the institutional side, we do have a 20% ROE for a reason.

And on the individual business side, I mean, we continue to work towards raising that ROE.

Our plan for 2004 that we discussed on investor day was to raise the ROE by 100 basis points, and as you know the closed block is there, and there's not much we can do about that going forward, in terms of the average ROE.

Thank you.

Thank you.

We have a question from the line of Suneet Kamath Sanford Bernstein.

Please go ahead.

Two quick questions.

First if Bill is there, if he could give us an update on the the Mexican operation and what's going on with some of the case renewals that, I guess, are coming up.

Second, on the UL sales, I think Lincoln mentioned yesterday in the conference call that they were seeing aggressive pricing.

Can you comment in terms of what you're seeing in the UL market?

Thanks.

Want me to start?

This is Bill.

On Mexico, it's very early in the year, so let me preface my comments by saying we have, as I told you on investor day, a considerable number of cases which come up, potentially, for renewal this year.

First point is that whether the case actually goes to bid, of course, is up to the customer.

So customers are making individual decisions.

Thesis are group customers.

They make individual decisions on whether to put the case out to bids or not.

What we're seeing in Mexico in the first month I would say so far so good.

In the sense that a number of our customers are choosing to renew with us without putting cases out to bid, and where cases are coming out to bid, we are, you know, in a very, very preliminary way, pleased with the results so far.

But I've got to caution you that it's basically four weeks of results.

So I'd say so far, so good.

In terms of the UL pricing and so forth, we, as others, are aware that there's some aggressive pricing in the UL marketplace.

Keep in mind our growth we think is quite attractive, and it's all about distribution there.

So we see no reason to try to chase what I'd call aggressive pricing, and so there it's a hold-steady attitude and continue to broaden our distribution power there.

Just keep in mind that the UL product requires a company guarantee, and, you know, to have the AA is important gash tee, and one of the things it says is that price is important, but getting your policies paid 10, 20, 30, 40 years in the future is also important as part of the sale so.

When we talk about our reputation we talk about the importance of our ratings and what we represent to the public.

It's not only price, it's the ability to pay and live up to the guarantees in the future, and that's the package we sell, and that's why if you look at our UL sales they continue to be strong, without having to be aggressive on pricing.

Our last question will come from Ira Zuckerman with Nutmeg Securities.

Is this alphabetically? [ LAUGHTER ] Comment on the question, the product breakout is nice but it would be appreciated if you could do a cumulative one.

Not only four quarters, but, for example this one for the years as a whole so we don't have to start adding up four quarters to get the product by-line numbers.

The question I've got is more in terms of capital management.

There seem to be a number of life insurance operations for sale or being sold.

Do you see yourself an accumulator of product rather than buying your stock as an alternative?

We are looking at all of the opportunities that are available to us and anything that we believe is at the right price where it would be accretive or benefit to our shareholders we would consider it provided that it's not small or inappropriate where it's going to waist too hutch of our time.

So it has to be meaningful, it has to be a benefit to our shareholders, and if not we're going to continue what we've been doing for quite a long time now, and that's consistently growing our businesses, doing it the right way, growing our sales, maintaining the assess and the clients we have, which is our consistency, focusing on top and bottom line.

That takes a lot of work for a company our size, and, quite frankly, growing the core of what MetLife is all about is bigger and more important than some super if you lus activities, and if it makes sense, we would look at it, where it's easy to do and quick to do, and a benefit to our shareholders, we'll do it.

We have a question from the line of Ed Spehar with Merrill Lynch.

One of these days I'm going to figure out how to do this.

A few questions --.

ask a question or --.

how to work the queue.

The star 1 just doesn't seem to work for me.

A few questions.

A couple for Lee.

If we look at the hundred million of provide pays that you had this quarter, would we be that far off if we assume that the ongoing negative impact of that, if we think about the assets that that hundred million related to that maybe that would be a 10 basis point decline in the overall portfolio yield, or is that too high?

Ed, Lee here, yeah, that's way too high.

It's not nearly that significant.

I'd say a couple basis points.

And the second question for Lee, if you look at the comments you made about efforts to reduce convexity, could you give us a few more comments on that?

I don't have the asset in front of me but the R&D is down for second quarter in a row.

Just that whole category as a percent of overall asset allocation is trickling down a little bit, so I think that's in there.

Also there were some hedging programs that we put in place that would counteract a little bit of the negative convexity in some of our short portfolios, so that's principally what I'm referring to.

So more just the size of the portfolio, not any change in the allocation within the portfolio?

I think if you look at the allocation, I think the data is in there, you're going to see the split is really much the same.

So I don't think it's so much that.

It's just relative size and although bit of restructuring within, and, again, some hedging that we've done that you wouldn't really see if you looked inside that portfolio, but it's been done.

Okay.

And then finally, for Bill, if we look at the stat earnings, what would you think about as a normal percentage of stat earnings that you can dividend up to the holding company each year, thinking about your mix of business and where you think you're going to grow, what portion of the $2 billion you think you need to retain each year at the statutory level?

That's a more complex question than it was a couple quarters ago, and the reason it is is because we've restacked a lot of our subsidiaries, so we've pulled them away from the main life insurance company and now they hang directly from the holding company.

Before, turned New York dividend law we would have been able to dividend about $700 million a year up through MLIC.

Now we have the capacity to dividend up quite a lot more, so now you understand the motivation for restack.

So, you know, that could comfortably be a bill in terms of the amount we could dividend up to the holding company.

That's kind of the rule of thumb I use in terms of how much we would keep in the lines versus how much would go up in the holding company.

But we have a fair amount of flexibility there, assuming we've got the underlying capital at the life companies that we need.

Okay.

And then if I think about the requirements at the holding company, interest expense, corporate expense, dividends, I mean, is that something in the 450 million range?

Roughly.

Maybe a little south of that, but that's roughly it.

That's sort of what our total needs are given year.

So maybe 5 to 600 million is the number for share buyback which would presumably be growing over time?

Right, just for steady target.

The rule of thumb, that's a good number.

Obviously, actual results will differ, but that's a good number.

Thank you.

Thank you.

We'll go to the line of John Hall with Prudential Securities.

Please go ahead.

Yeah, just one quick point of clarification for you, Bill.

As I kind of go through the quarter and I look at the various positive unusual items and the various negative unusual items, I come up with a modest, you know, penny or two drag.

Is that consistent with your internal view?

Drag versus consensus?

A drag -- I get, you know, roughly 9 cents of positive items and 1 cents of negative items in the quarter.

Oh, I gotcha.

You know, I honestly -- I wouldn't -- I don't try to be that precise, but I think obviously I would just think of it more as a wash, more or less a wash.

If the negative's turn out to be a penny or two higher, that's not an unreasonable conclusion but it's effectively a wash.

Our final question will come from the line of Liz Werner with Sandler O'Neill.

I almost hate to do it.

I just actually wanted to get a couple numbers from Lee.

I'm sorry?

Yeah.

No, we're here.

All right.

I just wanted to get the return on new money that you're investing and or the spread over treasuries, whichever is easier, and has there been any change to the duration of your investment portfolio given some of the restructuring activity or how you're allocating new money?

I think the new money for the quarter, excluding some of the really, really short portfolios is in that 4 1/8, 4 1/4 range is what we're putting on the books.

We haven't had any programs in big durational shift.

We're a little shorter than maybe we were prior to the quarter beginning.

Great.

Thank you very much.

Any other?

At this time there are no further questions.

I want to thank you all for your questions and your participation, and all I can say is that we're really in good shape for 2004, and we're pretty confident we have a good team in place, and we're moving ahead very strongly.

So I thank you much, and I look forward to speaking with you in the next quarter.

Thank you.

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