大都會人壽保險 (MET) 2004 Q4 法說會逐字稿

Ladies and gentlemen, good day, 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.

And later, there will be a question and answer session.

Instructions will be given at that time.

If you should require assistance during the conference, press star, then 0, an operator will assist you.

And as a reminder, today's conference call is being recorded.

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

Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends in the Company's operations and financial results, the markets for its products and the future development of its business.

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

MetLife, Inc. 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'd like to turn the call over to Tracey Dedrick, Head of Investor Relations.

Please go ahead.

Thank you, Barb, good morning, everyone.

Welcome MetLife's fourth quarter 2004 earnings conference call.

Joining me this morning are Bob Benmosche, Chairman and Chief Executive Officer, Rob Henrikson, President and Chief Operating Officer , and Bill Wheeler, Chief Financial Officer.

After our brief prepared comments, we will take your questions.

Here with us to participate in the discussion are Lee Launer, Chief Investment Officer, Bill Toppeta, President of International, Cathy Rein, Chief Administrative Officer, Lisa Weber, President of Individual Business , and Stan Talbi, Financial Officer for the Revenue Businesses.

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 on our website at www.metlife.com, on our Investor Relations page.

A reconciliation of forward-looking financial information to the most directly comparable GAAP measure is not accessible because MetLife believes that it's not possible to provide a reliable forecast of investment-related gains and losses, which can fluctuate from period to period and may have a significant impact on GAAP net income.

With that now I'd like to turn the call over to our Chairman and Chief Executive Officer, Bob Benmosche.

Thanks, Tracy, and good morning, everybody.

We're pleased to report another great quarter for our company.

It's really a great quarter across all of our business segments.

You can see there's solid growth in the top-line as well as the bottom line.

So, in terms of EPS, we come in at 3.36, which is just above the high-end of our range that we revised and issued to all of you last year.

These strong earnings, I want to stress this, is really a direct result of a very disciplined approach which we've been sharing with you over the last several years in great detail .

Presentations on investor day.

And I just want to approach the underwriting.

And by the way, it takes a while for discipline and underwriting to emerge in profits, pricing as well as spread management.

So, when you think about that, I want you to put a little bit of this quarter in context, for example, and just one of the examples, retail annuities.

If you compare our sales this quarter versus third quarter, you can see we're up.

If you compare us to the fourth quarter of last year, you'll see we're down.

What was decided last year and in the fourth quarter was to let people know that we're going to change the pricing from 6 percent to 5 percent on a GMIB.

That actually took effect during the first quarter of '04.

So, when you look at us year-to-year, you'll see that because of that pricing decision, you had an acceleration of sales and then sales returned to normal and started to grow again in the second half, in particular, of 2004.

What we're most pleased with is the persistency of our business.

And you look at our last rates.

So, when you compare our annuity sales, you ought to look at our net sales.

We generated almost $4 billion of net sales in our annuity product line just in retail alone.

So, when you look at our sales, you've got to think about our pricing, think about our margin management and think about the retention of business because of the quality of our company and how we're doing business today.

Because of our operating results, because of our strong capital position, clearly in our renewed focus on our businesses, for example, the selling of State Street, because we never could get to the right size, and selling it to the right buyer, being BlackRock, our clients, what you see this renewed focus has clearly allowed Moody's, before the Travelers' acquisition, to return us to stable.

Now we'll see where our negative outlook again because of this transaction.

But we're confident we're going to execute that transaction very well.

Another thing to keep in mind as you think about Travelers, it leverages across our entire businesses, our investments in technology and so on.

We've talked to all of you about international.

We talked about the fact that we're going to put money and invest money in international, grow organically.

But we also said to you we're going to be careful to make sure our profits continue at the right level, but there's always going to be this investment which has a long-term effect to it because you don't see the profits for many, many years.

This investment in Travelers allows us to significantly grow our international footprint outside the United States and clearly what it does is it says we can invest in this business and see it become accretive immediately.

So, the investments aren't as long-term going forward as they were in the past as we thought about this business segment.

So, we're excited about where we are, we're excited about this company and the people in this company have done an outstanding job.

We think the Travelers will take us to a whole new level, for them as well as for us, as we integrate the 2 companies.

And bottom line is we had another record year, 3 years in a row, and we're excited about '05, as well.

So, let me turn it over to Rob and he will bring you up to date on more details by the segment.

Thanks, Bob and good morning, everyone.

As Bob has said and as all of you can see, 2004 was an excellent year.

As we indicated to you on investor day in December, all revenue-generating businesses have met or exceeded their operating earnings and ROE targets.

In general, sales growth, favorable investment margins, improved mortality and morbidity ratios in our group business and declines in non-cash frequency and severity in auto and home aided the results.

These excellent results were also the result, I must say, of the focus of our people on innovation and partnering opportunities across the enterprise.

The result is improved service capabilities and process redesign across the businesses that have made us stronger and a much more efficient competitor in the years to come.

As we also mentioned on investor day, we spend time and money this year investing for the future.

In 2004, we developed and are currently piloting critical illness insurance, business travel accident insurance and retirement and savings suite of products that will be rolled out in the full as the year progresses.

Now turning to specific segments.

In institutional business, the year was earmarked by many successes.

Top-line, premium and fee growth exceeded 11 percent and the general account assets grew by approximately 13.9 percent.

As you know, we've been talking all along about the unusual opportunities that we have here at MetLife to grow our business through existing customers.

As an example, we've mentioned the importance of group, auto and home as a demand product that provides us with the opportunity to cross-sell our other products and services to our institutional clients.

In the fourth quarter of 2004, we added a very important Fortune 100 company to our list of group life clients, as a result of this cross-selling opportunity.

Also in group life, in addition to the jumbo account activity, we continue to grow in the small, mid and large group markets.

In addition, our life underwriting continues to perform favorably versus our targets and our ratios, once again, came in favorably below target in the fourth quarter.

In retirement and savings it was a strong year for GIC sales and a record year for structured settlements and for our producer-sold Met Retirement 401k) plans.

To give you an update, by the way, on investor day, we mentioned that we expected structured settlement sales to slow down in the fourth quarter, which they did.

And we talked about a large closeout sale that we were expecting to close in the fourth quarter.

That sale did not close at the end of the year, but right after the first of the year, so, you will see that result in our 2005 numbers, rather than 2004.

In nonmedical health, we made great strides during the year in reducing our disability morbidity ratio through back to work process redesign.

You will notice that we had a little uptick in the ratio quarter-over-quarter, primarily due to seasonality, similar to what occurred last year.

However, we are still 4 percentage points below the fourth quarter number from last year. 2005 morbidity, we believe, will be more reflective of the early 2004 attractive quarters.

In addition, we completed the acquisition of the TIAA block of long-term care policies.

Expenses were higher in the non-medical health segment in 2004 due to growth in the business, investment in our long-term care product and the one-time charges we occurred in closing our Alfareda(ph) disability claims operation.

The expenses will return to a more normal level in 2005.

In the group insurance sales and service arena, in general in 2004, we invested in growth for the future.

As Maria Morris showed you on investor day, we redesigned sales and service teams to approach the market as 1 MetLife.

This should lead to increased penetration and higher growth rates, particularly in our small and mid-market areas that continue to contain excellent growth prospects.

In individual business, operating earnings are up approximately 23 percent over the prior year, led by extraordinary growth in annuities, expense management and higher spreads in both UL and annuities.

In our key growth product segments, operating earnings in UL were up 26 percent and I note this is after excluding the charges taken in the second quarter of last year.

Despite the fact the variable first year deposits remain lower, our UL first year deposits are up 47 percent.

In universal life, we expect the rest of the industry will be pressured to increase prices on their UL products in 2005 due to the increasing costs and scarcity of reinsurance.

This bodes well for our sales as we currently feel comfortable with product pricing, design and positioning for 2005.

Operating earnings and annuities are up 58 percent year-over-year and sequentially, annuity deposits, as Bob mentioned, rebound in the fourth quarter by 6.5 percent.

We're also pleased to report that year-over-year our annuities and UL separate account liabilities grew 31 percent.

We continue our activities to rationalize our agency distribution, to improve its productivity and profitability.

You will notice that for the first time since 1999, MetLife agent count is up year-over-year.

In New England, we continue to consolidate and strengthen agencies as we focus on support of our strongest core producers, consistent with a profitability model.

Overall, we're very pleased with the persistency of our business during the year, our lapses for the year have been well within pricing assumptions.

And finally, individual business met all of its other sales growth targets this year with respect to sales of long-term care, individual disability and the 401k products.

Turning to auto and home, anyone who's been listening to our earnings calls and our investor day know that auto and home had a phenomenal year.

Despite a difficult hurricane season, auto and home managed to meet full-year financial targets on all fronts.

This is a reflection of our actions to manage the volatility of this segment, take rate increases where appropriate and continue to improve and refine our underwriting.

In 2005, our objectives will obviously be to maintain profitability while growing the business.

We will accelerate our efforts in 2005 to achieve growth, but resulting expense will be offset by continued growth and retention in attractive segments resulting from our tiering model and introduction of our new grand protect product.

In international, our 2004 results were favorable despite some reserving increases in Canada in the fourth quarter.

Renewal of our business in Mexico to date has continued to progress well.

Some other significant items worth mentioning -- In Korea, we've become the number one writer of VUL products and our professional agency productivity and persistency rates are both excellent.

In India, we're the fastest-growing group life underwriter and fourth largest in the group life market.

And finally in China, we're the first American company that has been approved to write group business.

In international, as we mentioned during investor day, we continue to refine and rationalize our business focus to help us pursue our goal of providing solutions in emerging markets in both developed and developing economies.

Looking forward, of course, we continue to monitor interest rates in 2005 and beyond.

The yield curve is flatter and the 10 year treasury is lower than when we last spoke to you on investor day.

As we stated in the past, this will put some pressure on spreads if it persists.

And finally, as Bob mentioned, the Travelers' acquisition is moving along nicely.

We further our integration plans and you'll be hearing more about this as we go forward.

And with that I will turn it over to our Chief Financial Officer, Bill Wheeler.

Thanks, Rob.

Good morning, everyone.

MetLife had a very solid fourth quarter, earning $0.87 per share of operating income and that caps off a record year for Met, as we've said on this call a few times, in terms of revenues, operating earnings and also return on equity.

The adjusted operating ROE for all of 2004 was 13.3 percent.

And I say adjusted because I'm pulling out the benefit we received from the tax settlements in mid year.

This morning, I'm going to review the highlights of the quarter as well as the year.

And as usual I'd like to start with the top line.

Top line revenues, which are defined as premiums, fees and other income, for the fourth quarter were 4.4 percent higher than the fourth quarter a year ago.

This growth rate is a little lower than normal and there are a couple of reasons for it.

Revenues in the reinsurance segment were down 2.6 percent from the year ago because of a tough comparative period.

In the fourth quarter of 2003, RGA acquired Allianz life reinsurance business and when they did that they acquired more than a quarter's worth of revenue from the acquisition.

It was recorded at that time, it's the way the accounting worked out.

But for the full year, our reinsurance segment had a 26 percent increase in revenue, obviously benefiting from Allianz going forward.

So, it caused a tough comparative period.

And the same story was true in retirement and savings.

They had a revenue decline of 2.8 percent in the fourth quarter.

And as we say almost every quarter on these calls, revenue and retirement savings can be lumpy.

There was a large closeout sale in the fourth quarter of 2003 which caused a difficult comparison.

If you look at the full year for retirement savings in 2004, the revenues were up 14.4 percent.

The strongest performers this quarter were non-medical health and other, which was up 60 percent year-over-year, and annuities, which were up 44 percent versus the year-ago period.

In non-medical health, long-term care in the small business market had the largest increases in revenues over the prior quarter, while annuities had another solid quarter with deposits at $2.6 billion and an increase in its separate account balances of over 4 billion.

For all of 2004, premiums and fees and other income increased 8.7 percent.

Now, this is for MetLife overall, which is a little better than our expectations.

Institutional business for all of 2004 grew at 11 percent and that's obviously a big driver of our overall growth.

International was up 14.6 percent adjusting for the divestiture of our Spanish business at the beginning of the year.

And annuities, obviously, had a fantastic year with revenue growth of 54 percent.

Turning to our operating margins, I'd like to start with our underwriting results.

Individual life mortality was good, not great, but good this quarter at 85.6 percent.

Group life mortality was actually outstanding at 90.9 percent.

Group disability morbidity was the highest it's been all year at 98.7 percent, but that's still 4 points lower than it was a year ago at this time.

Reported incidents in group disability is higher this quarter and we also suspect that there may be some seasonality affecting our claims management.

In terms of the last 2 weeks of the year, we don't seem to get a lot of claims closed.

In auto and home, the total combined ratio included catastrophes -- including catastrophes, was 95.2 percent, which is a good, solid quarter.

As I think was mentioned in our press release, during the fourth quarter, auto and home increased its reserve for the Florida hurricanes by $15 million pre-tax.

This was essentially offset by favorable prior year reserve development.

So, it kind of washes.

Now, there are 2 other notable reserve items that affected MetLife's results this quarter, that I want to make sure I mention.

First, there was a $7 million after tax favorable true up of a experienced rated reinsurance contract regarding our Bermuda captive.

This shows up in our reinsurance segment.

Second, our international business increased its reserve on its Canadian pension business by $9 million after taxes, due to low interest rates.

Moving to investment spreads, we had very high corporate joint venture income this quarter and we estimate that it was approximately $115 million higher than we would normally expect.

Annuities, retirement, savings and corporate were the main recipients of this additional investment income.

We also had prepayment income of $25 million above our normal run rate this quarter.

Because of this additional income, our annuities investment spread was 280 basis points.

But when you adjust for the additional income, the annuity spread would have still been well over 220 basis points, which is the high-end of our 2005 guidance when we think out about next year.

And the same story was true in our retirement savings, where the investment spread this quarter was a very high 183 basis points and when you adjust for the additional investment income it would have been in excess of 135 basis points, which, again, is the high end of our guidance for all of '05.

So, when you adjust for this higher investment income from CJVs and from prepayments, our investment spreads were still very strong.

Moving to expenses, our operating expenses, net of any tax adjustments, increased by $288 million this -- versus the third quarter of this year.

And that's a lot.

There are a number of unusual items as well as some one-time charges which caused this increase and it's worth spending a moment on this because it's a big number.

For example, in our reinsurance segment, expenses increased by $33 million.

Now, this was almost entirely due to the reclassification of a reinsurance treaty at RGA and so if you follow RGA, you probably noticed that, as well, and on their call.

There was an offsetting increase in investment income and so, there was no bottom line impact, but because of the accounting changes it made expenses go up.

Another example of this is in asset management, where there was a $49 million increase in expenses. 30 million of this increase had no bottom line impact.

It included some severance costs that we're being reimbursed by blackrock.

Our deal with black rock on the sale of State Street was is that we would share severance costs equally.

As people were severed, expenses went up but there was also additional income which covered that.

There was also some payment of some performance fees relating to one of state Street's hedge funds.

They had a big payout of one of their hedge funds and we had some higher compensation because of it.

So, that was 30 of the 49.

The remaining 19 million of additional expenses are also related to the sale of state Street, including more severance and such and, by the way, State Street did close at the end of January this year.

In individual business, operating expenses increased $70 million versus the third quarter of 2004. 28 million of that increase, which was spread among the individual business segments, was due to DAC and locking events resulting from a comprehensive review of our DAC assumptions.

For the rest of MetLife, including individual business, there was approximately $115 million of unusual charges, which increased overall expense levels.

The reason I can say that with such precision, it is not a guess, we have an itemized list of them.

These included certain IT initiatives, increased branding and advertising expenses, both domestically and internationally, the write-off of some unoccupied space, office space of ours in New Jersey City, New Jersey.

The closing of a disability claims office in Georgia, which Rob mentioned, and the write-off of certain fixed assets.

As well as a number of other smaller things.

Adjusting for these factors, we actually think that our normal expense growth would have been approximately $60 million this quarter.

And that our operating expense ratio would have been essentially flat versus the third quarter.

Turning to our bottom line results.

We earned $652 million in operating income or $0.87 a share.

This is almost an 18 percent increase in our operating EPS over the fourth quarter of 2003.

For the full year, we had operating earnings of $3.51 a share but that includes $0.15 a share of certain tax benefits.

So our adjusted operating EPS was actually 3.36 a share and I think that's the number we focus on.

And that's a 20 percent increase over the comparable 2003 number.

So, a very good year.

In addition, as I mentioned earlier, our adjusted operating ROE was 13.3 percent for the full year, taking out those same tax benefits.

Now, in the fourth quarter, we also had $141 million of after-tax realized investment losses, including related adjustments.

If you turn to page 46 of your QFS, if you have it handy, I think it's worth highlighting, we had 268 million of derivative losses this quarter, which were primarily on derivatives that did not qualify for hedge accounting.

Now, we say this a lot but it's worth repeating here.

We use derivatives only to hedge certain economic factors, such as interest rates or currency risks, mainly in our bond portfolio.

Derivatives that do not qualify for hedge accounting must be marked-to-market each quarter.

So, when you have a fairly volatile quarter, like we did in the fourth quarter of 2004, the number can get significant.

It's important to remember that there is an offset to this mark-to-market sitting on our balance sheet somewhere, most probably in accumulated other comprehensive income.

And now moving to statutory, on a statutory basis, for all the combined statutory entities, we produced $747 million of statutory net income in the fourth quarter.

For the full year, our statutory net income was $2.6 billion and that includes approximately $200 million of realized capital gains.

Total adjusted statutory capital at year-end is $16.8 billion.

So, things are going well on the statutory basis, as well.

During the fourth quarter we repurchased approximately 12 million shares for a total of $503 million.

This included 200 million representing 5 million shares which we bought throughout the quarter, kind of our normal repurchase activity.

We also repurchased an additional $300 million, which represented 7.3 million shares, through a forward-purchase agreement at year-end.

The forward-purchase agreement had almost no impact on average shares outstanding in the fourth quarter, but we will get the full impact of that transaction throughout 2005.

You should view this $300 million forward-purchase agreement transaction as part of the 750 million we intended to repurchase during 2005 as we indicated to you on our investor day.

Now, of course, with the announcement of the Travelers' acquisition, we are suspending stock repurchases for the remainder of the year.

Again, I think this was a good solid quarter for Met and I also think it was, obviously, an outstanding year in terms of our financial performance.

I think we've got a lot of momentum going into 2005 and we're obviously looking forward to enhancing our future results with the acquisition of Travelers.

So that ends my prepared remarks and we'd be happy to take your questions.

Very good.

Ladies and gentlemen, [Operator Instructions] Our first question is from the line of Nigel Dally from Morgan Stanley.

Please go ahead.

Thank you.

First question is just on your guidance.

Your guidance is based on an average 10 year treasury of 4.5.

The 10 year treasury is now below 4.

So, my question is how would your guidance change if rates remain at this low level?

I actually think, Nigel, we probably wouldn't change guidance.

Even though, obviously, that means yields are going down, if the 10 year stays at this low, prepayments will probably go up, okay?

That's not the way we want it to happen, but that's probably what will happen.

So, I think there's enough flexibility, our guidance is wide enough to kind of incorporate that scenario.

More of the impact would be more likely felt in 2006?

I think that's correct.

Okay.

Second question is just on annuities.

Do you have details on the level of withdrawal benefit annuities you sold in the fourth quarter?

You've had them out for a while now.

Nigel, it's Hugh McHaffie.

The GWB that we introduced last year is running about 8.5 to 9 percent up for the quarter.

We still have a few key states to get approved, most specifically New York and New Jersey, so, as we get those online in the first quarter we'll see that utilization go up.

New York and New Jersey, obviously, are key states for us in sales.

Okay.

And then just a last question on modeling.

In the past you've talked about your fourth quarter as typically being your strongest and the first quarter as being your weakest.

Is that still accurate as we look forward to 2005?

Yes.

That's great.

Thanks a lot.

Your next question is from the line of John Nadell from Fox-Pitt Kelton.

Please go ahead.

Thank you, good morning, everyone.

I was interested in the -- in the accelerated stock buyback in the fourth quarter and whether that, you know, could be taken as a signal related to the Travelers' announcement that you don't think you will need to raise much straight equity when it comes to the closing of that deal.

Otherwise, I'm just a little confused as to why you'd accelerate buybacks just to reissue later in '05?

Well, we actually made the decision to do the accelerated buyback well before anybody from Citigroup called us.

So, the 2 events are pretty unrelated.

The reason we did the accelerated repurchase is as sort of a down-payment on the '05 buyback because it gets you the optimal accounting treatment.

In terms of you get to recognize beginning at the very beginning of the first quarter, those shares as being repurchased.

So, that's really our sole motivation there.

Now, obviously, the minute we realized we were going to do Travelers and sign it, we had to stop buying.

And we are going to have to issue equity.

We have stopped stock buybacks.

Okay.

Do you have an estimate for year-end risk-based capital?

I think on investor day we talked about 300 to 310.

It appears we're not done yet because we, obviously, haven't issued our final stat things, but it's going to be north of 310.

And then one last question, there was a lot of moving parts in the DAK amortization and individual business this quarter.

I was wondering if you could maybe give a little bit more detail on some of the, you know, assumptions, the major assumptions that changed as a result of your full review and whether we should, you know, take this into account or expect it to impact the '05 run rates for amortization across each of those product lines?

Yes, John, I will answer that question.

The -- you know, we looked at all of our assumptions and we did a comprehensive review.

So we looked at our maintenance expenses, glasses, the long-term earned rate that we have and our expected gross profit margins.

We also had a couple of exchange programs where our policy has been, you know, entering exchange programs that we write-off to DAK on it.

So, when you look at the net impact, there were some positive impacts as a result of better than modeled persistency and a little bit worse than modeled maintenance expenses.

We also lowered the long-term rate, you know, to lower our expected gross profits going forward because of the interest rate environment.

So, the net impact was $28 million pre-tax plus all the individual segments.

And of the $28 million, 12 of that was the result of expected exchange programs.

Okay.

So, $12 million --

It was relatively small.

And did I catch you right that you also lowered your assumption for interest margins, as well?

Not interest margins, but the earned rate.

It's the rate at which the accounts will accumulate on the fixed side --

On the fixed --

below interest rate environment.

Okay.

And then one last question if I could, I'm sorry to take so much time.

Looking at some of the info on the Travelers Life and Annuity segment from Citi's statistical supplement, it looks like the base of expenses excluding DAK is about a billion dollars give or take and you guys are targeting 150 million in cost saves.

Do you think based on some of the overlaps in the businesses that we should reasonably assume that you can take that expense cutting higher?

John, you can't take the $150 million pre-tax and apply it to Travelers.

You need to apply it to the entire company.

For example, we hadn't decided to grow in the independent distribution channel our life sales, which meant that we had a plan to spend a lot of money this year to be able to hire people, get the people on board and begin to create sales.

Because of this acquisition, we just received all of that.

So, we don't have to invest money that was in the MetLife plan.

We had planned to invest a lot overseas and Bill's plan, he talked to you about that on investor day.

We don't have to take a lot of the money that he was investing and continue to invest it now.

What we've got to do is integrate what he has, rationalize what he has and focus on profit growth.

So, that's money that would come out of the MetLife plan, not out of the run rate, but out of the MetLife plan, which we shared with you on investor day when we gave you the guidance.

So, this is 150 million in total from both companies and again, we no longer have to make these investments which are long-term and seeing them become accretive.

They become accretive now.

So, this is not going to come entirely out of the Travelers' organization.

Okay, that's very helpful, thank you.

I would also just say your bill for the target -- a billion dollars of expenses for the target business is high.

It's hard based on the statistical supplement to get to the right number because that obviously includes some things that we're not buying.

Definitely and they don't break out many line items, but thank you, appreciate it.

Next question is from the line of Colin Devine from Smith Barney.

Please go ahead.

Good morning, gentlemen.

Wonder if we can just focus on a couple things.

First, on auto and home, you know, that sector seems to be tightening up right now and -- and certainly in looking at various insurance companies, I think they're expecting a much more challenging '05 and perhaps you could comment on your outlook for that and how that may impact your overall guidance for the year.

Second, with respect to the AG 30 A-reg passed in New York, I'd like a little bit more color on what that may do to your pricing.

I'd also like to know what you've assumed for the cost of financing the tail risk in the no lapse product?

And then lastly, if you could just talk a little bit about your distribution expansion efforts, excluding the Travelers deal and where you stand on those?

Colin, this is Rob.

Let me pass this to Bill Mullaney head of auto and home to answer your first question.

With regard to what we see happening in 2005, we've been focused a lot on improving our segmentation models as it relates to identifying good risks and pricing.

So, we think that combined with, you know, continuing to focus on disciplined underwriting, we feel pretty comfortable about where we are and what we said was going to happen at investor day with regard to our guidance.

So, I think right now, Colin, even though we see some of our competitors taking rate reductions, most of what we're seeing so far has been pretty rational.

And so we think that we're okay in terms of where we are relative to the rest of the market.

Colin, it's Hugh McHaffie on the AG-38.

The change in New York is actually relatively modest to us for a couple of reasons.

Number one, on in force business a fair bit of that was reinsured.

So, we're not having to establish those reserves.

Secondly, you know, as we redid our pricing of our UL product, we just did that in November, we did factor in higher capital amounts and also, as this is an increase in reserves that if you can get the tax deductibility of that reserve, it has a minor relative impact on our pricing.

As far as cost to capital goes, I don't give an exact number but it's going up long-term, you know, north of 125 basis points for letter of credits.

I'm sorry, Colin, what was the last question?

And third party distribution efforts.

This is Mike Farrell, Colin.

Our expansion into Smith Barney began late in the fourth quarter.

Sales seemed to be building great momentum there.

We're in the process of expanding our wholesaling system, both on the life and annuity side and as Bob mentioned, we're going to pick up quite a bit of distribution in the transaction, as well.

So, our hiring efforts may not be as accelerated as we originally planned on investor day but our narrow and deep strategy throughout the systems, we've expanded our marketing efforts in Edward Jones, with significant deployment of wholesaling efforts there.

And throughout our key focus firms we're seeing a considerable activity and increased sales opportunities, both on the life long-term care, which is now part of the annuity wholesalers bag as well as our specialized long-term care system.

And on the life side, which, as you know, we are deploying a point-of-sale model in a number of our key accounts.

We expect to have a life product sales begin in Merrill Lynch in the first quarter, with the deployment of 10 point-of-sale wholesalers which we're in the process of adding.

Okay.

And then 2 quick follow-ups.

Bob, could you comment on where you stand with your wells notices and I guess overall where you are with the regulators?

I don't think -- I can tell you we don't have anything further to report on that, other than what we've told you.

Okay.

I'm not sure if that's good or bad, but all right.

And then second, with the rating agencies, clearly you factored in the likelihood you'd be downgraded on the debt ratings when you did the deal, but I guess you're also on negative watch for any claims paying rating downgrade.

How much will that hurt your business or will it have any effect at all if it happens?

Which I guess will get resolved in the next 30 days or so.

It will have no affect on our business.

The power of this brand, the power of this organization and the power of these people is being felt everywhere.

I guess the best illustration is we had a client that wanted to make sure our bank was really the MetLife Bank and they sent us a $15 million deposit over the Internet.

I think that's a good statement of people's belief in our credit worthiness.

Thank you.

You're welcome.

Next question is from the line of Andrew Kligerman from UBS Securities.

Please go ahead.

Thanks a lot and good morning.

I first want to go back to John Nadell's question about the accelerated share repurchase.

I'm calculating $7.41 a share based on that.

So, can you just take me back.

Was the purpose of it just for accounting treatment?

That's my first question on it.

Well, obviously we do -- part of our normal business is to use our excess capital buyback stock. $41 relative to where the market was at the time, I can't exactly tell you, but there's a trueup.

The way this works is there will be a trueup on when the investment bank that did this for us finishes their purchase activity, there will be a trueup about how the payment was made, about how much they had to spend and what they ultimately will get.

So, that's sort of -- $41 is sort of the final price is probably -- and I'd wait a little bit.

And it locks it in so you basically agree to a price, Bill, and you say on January 1 we're going to give you $41 a share.

Is that pretty much how it works?

The investment bank does, it says look, for now let's assume a specific price and then when we're done with our share repurchase activity, and I'm not actually sure if they're done, they will tell us when they're done.

I don't supervise it.

They're buying through our blackout period.

I see, they're going to buy it at market prices and then you will find out, but you get January 1 treatment.

You got it.

Okay.

And then with respect to the expense savings and -- and maybe you can help me out, you said that there were sort of $115 million of unusual charges there and one of the areas you rattled off was branding and advertising.

How much of the 115 was that?

And, you know, I guess why should I think about that as -- as one-time, especially because you're going to get revenue benefits from that?

Well, that's a fair comment because , obviously, we're going to continue to do advertising.

But these were some extraordinary events that we will not repeat, okay, in coming quarters.

I don't want to give you a lot more color than that.

I mean, did you buy another Met blimp?

Or... [ Laughter ]

Andrew, we're going into the rides business! [ Laughter ]

But it really -- it really was --

t's very simple about the fact that if, in fact, we're having a good quarter, we have a powerful brand, and to the extent we're having a great quarter, we can do more in terms of branding and building future value.

So, you constantly want to be sending waves out there and we have, because of the strength of our brand, the ability to say we will do something this quarter and we don't have to repeat it for 4 more quarters and we still get the long-term benefit of the MetLife brand.

Okay.

Thanks a lot.

Thank you.

And your next is from the line of Tom Gallagher from CSFB.

Please go ahead.

Good morning, a couple of questions.

First is can you just comment on where your excess capital stood at year-end?

And also, I guess as you go into the Travelers deal, will you still need to hold, which I think your target in the past was a billion dollars of excess capital at the holding company, for just a cushion and for liquidity purposes?

Or can you use that during sort of an interim period?

Boy, what's our excess capital at year-end?

It's a number we don't calculate!

I think what you're seeing, though is, you know, we talked about how we're going to pay for Travelers.

You're seeing where we're sort of pulling out some excess capital, okay?

But, we don't -- you know, there's a lot.

Okay?

That's sort of one way to say it.

In terms of -- our agreement with the rating agencies is not to hold a bill of extra cash at the holding company, it's $500 million.

That hasn't changed and we need to hold that going forward, as well.

So, that's not -- you know, through the acquisitions.

What the rating agencies have allowed us to do is as part of the transaction, to lever up to as much as a 29 percent debt to total cap leverage ratio.

Normally we -- our normal limit would be 25, but on a temporary basis we can lever up to 29.

That's sort of how we're dealing with debt.

And one related question on the capital front, because I believe you all had said when you announced the deal that one of the reasons for not securitizing the closed block was because it wasn't the most efficient, I guess, lowest cost source of capital.

And I guess looking at that, balancing that versus the cost of equity financing, is really what's driving that the fact that you need to keep the debt-to-cap at 29 percent, which is sort of precipitating the need for equity?

That's correct.

It's really hard for us to write an $11.5 billion ticket without selling some equity and getting some equity credit.

That's why you're seeing the issuance of common to Citi as well as potentially pretty significant convert offering.

Most of this purchase price will have to be equity-linked, one way or another.

It's too big a ticket to write otherwise.

Okay.

I guess I just would have thought that securitizing the closed block would have been a slightly cheaper form of financing.

Not relative, obviously, to debt and we're not going to get equity credit for doing it, you know, as closed block securitization.

You know, part of the way the closed block securitization benefits you is you get to lever up and you get permission from the ratings agency to do that.

And I've already, frankly, I've gotten that or we've gotten -- the company has gotten that.

That's sort of our understanding with that.

So, it's -- I don't think they would have allowed to us do both, to lever up for a closed block as well as just lever up generally.

Gotcha.

And just one last question.

At your investor day, you had some pretty healthy growth targets for variable annuities.

Now, I guess the market, at least from what I've been observing, seems like it's a little bit soft for variable annuities right now.

Does that combine with the Travelers deal, change your view at all with where you expect sales to come in in '05?

No.

Okay, thanks.

Do you want to say something, Lisa?

Yes, the only thing I was going to add is that with Travelers, the Travelers adds for us is -- right now we have 100,000 points-of-sale and on a pro forma basis with Travelers, that brings us to close to 150,000 points-of-sale.

So, our capacity increases substantially.

Okay, thanks.

Your next question is from the line of Ed Spehar from Merrill Lynch.

Please go ahead.

Good morning.

Good morning.

I have a few questions.

First of all, I was wondering if you could talk a little bit about just the competitive environment in variable annuities and what you're seeing going on with the new living benefit offerings.

Second, on the Travelers deal, if the guidance was going to prove to be conservative in '06, what would be the most likely source of -- of upside?

And I'm wondering, you know, we sort of talked around the expense base that's appropriate to look at to assess the 150 million target expense saves.

Could you just give us a guess as to what that expense base is?

And then finally, I know there was some negative DAK on locking in the traditional life line this quarter.

But even adjusting for that, it looks like this was a particularly low quarter.

So I'm wondering if you could tell us what else unusual might have been going on there?

Thanks.

This is Hugh McHaffie on the competitive side of the variable annuity business.

You know, 2003/2004 has been the year of living benefits and GWB and GMIBs have been very strong.

We're very excited about is that, especially with the acquisition of Travelers, they've been very strong in certain product features through their distribution channels and we're going to be able to bring our slightly different features into their distribution and bring some of their features into our distribution.

So, we think that we've got some great opportunity as we bring these 2 organizations together to put some very unique solutions out for the variable annuity business.

So, you know, for our look on the variable annuity business, we're very bullish about it.

We're thinking a great spot there.

Secondly on the fixed annuity business, you know, we do see this as an opportunity for us to further leverage our beginning of getting into the fixed annuity business.

Obviously, like to see interest rates go up a little bit to make the overall product more attractive, but it's going to be a great opportunity for us to take some of our products that we've been developing on the fixed side with further distribution.

So, you know, we're just excited about the transaction and I think we can really leverage these 2 organizations.

And beyond that, I talked at investor day, this is Lisa.

At investor day I talked about the huge retirement need out there and the opportunity and if you recall, one of the things that I talked about is the $12 trillion opportunity that's out there.

So, you know, we were there for the growth and we believe that there's a lot more to come.

And so we do look forward to the Travelers acquisition.

But just specifically on the level of competition today, in the living benefits market, how would you categorize it?

It seems like it's getting more -- excuse me -- more aggressive.

And I just want to know what your thoughts are, just today on a level of competition?

You know, it's interesting.

You've seen some of our competitors who've actually come out with watered down benefits at lowered costs.

Such an interesting trend.

In a way it's actually coming backwards -- coming a little bit off aggressiveness.

You know, I think at the end of the day, you've got to develop products that are priced soundly, solve client issues.

GWB provides people to have secured income, current income.

We're comfortable with our pricing, we -- actually, as you can see with our GMIB, we've backed off of a little bit and still have very strong market presence and continue to hold our market share.

We really do believe that our brand is worth something and continues to be worth something and I think we've proven that in our sales.

So, it is competitive like any other marketplace.

We'll make sure that our products are appropriately priced and appropriately priced for the brand that we bring to the marketplace.

I see GWB continuing to be an interesting evolution as we go forward the next couple of years.

Ed, I think your second question was about the Travelers deal and whether or -- and what's the upside to 4 to 6 percent, if I think I got that right?

And then what about expenses.

You know, look, a lot of things can obviously happen.

I think a lot -- a lot of it will depend on how well we integrate the transaction.

How -- how successful we are with our potential asset sales.

And obviously what overhangs all of this is what's the overall, you know, market climate going to be like in '06?

And so, you know, we feel good about the 4 to 6 but I wouldn't want to move off of that now.

In term of expense levels, look, you know, we're in the middle of our expense plan today and are obviously, we're going through it in very careful details, sort of our detailed integration plan.

I think we will be able to give you some more color on that in the months ahead.

But we don't know enough now to, I think, give you any more precision than that.

Okay.

And then on the -- on the traditional life?

Your last question is on the traditional life earnings.

You know, there are probably 3 factors that took the numbers down this quarter.

The first one you mentioned, the DAC unlocking, that was about 26 million pre-tax.

The expenses that Bill talked about earlier, the 115, about 21 of that hit the traditional life line.

And the other thing I'd say is that mortality and the traditional life line was a little worse than expected, probably about 5 to 7 million, but that was offset in our variable life segment.

So, I mean on balance, individual life mortality was about where we expected but it was a little bit worse in trend and that impacted quarter's earnings there.

Okay, thank you very much.

Next question is from the line of Eric Berg from Lehman Brothers.

Please go ahead.

Thanks very much.

I have sort of a high-level question for you, Bob.

And it is, maybe I have misread you, but I've always had the impression over the years, really from even before the IPO, that if you stood for anything it was for the strength of the brand and protecting the ratings, no matter what.

So, you know, going back to Colin's question.

I was quite frankly surprised that you did this Travelers deal when presumably you knew it was going to put the ratings at risk.

Have I been misreading you?

Why did you go forward with this deal if it has jeopardized the ratings?

Well, actually, you read me correctly.

I would not -- I would not put this company's ratings in jeopardy.

When we met with the ratings agencies, obviously they have to say something and clearly their decision was do you see this as equally upside and downside?

If they don't see a big upside that we're going to -- and we're discussing a rating increase.

But, they're not ready to say something about that right now and we struggle with that but they will get there.

But since they're not there yet, the probability is that it will stay the same or go down.

And therefore they have to, under their approach to ratings, put us on some negative outlook.

But I am absolutely convinced of is that that's just an outlook and I am absolutely convinced that the people of this company, the investments we've made, will get executed on schedule as we've talked about the integration plan and I believe that we're not putting these ratings at risk at all.

But, people are gong to want to wait and see can we execute what it is we said we're going to do?

And I have absolute confidence that we will execute and the rating agencies will see the result and as we move into '06, you will see this company cooking at a whole new level with all the engines moving forward.

So, I am not, and I would not, put this company's ratings in jeopardy.

Is there -- just a quick follow-up and then I'll be done -- is there anything that you and Bill can do in the interim, since the rating agencies will act, presumably, in the next, call it as Colin said, 30 days, 45 days, whatever, in a relatively short period, are there things that you can do even before the closing to reduce the chances of a downgrade?

I believe Colin is wrong.

Okay.

I believe Colin is very wrong, but he likes to give speeches so let me give you mine.

The fact is, when I met with the agencies it was very clear that we have plenty of time to prove to them we can execute this transaction.

We have to make sure we get this thing financed correctly, make sure we have the right numbers here and so we have time and they've given us time to get this thing executed correctly.

And I am convinced that this will not harm our ratings at all because we will execute everything we said we're going do.

Thank you.

You're welcome.

Next question is from the line of Joan Zief from Goldman Sachs.

Please go ahead.

Thank you.

I have 2 questions.

The first one is did you make any change to your pension assumptions?

And is that going to have any impact on 2005?

The next question has to do with actually borrowing to fund this acquisition that you're making.

Interest rates are really low, credit quality spreads are really tight.

So, is there any way that you can fund right now, the -- the debt or even the convert at these very attractive interest rate levels?

Sure, Joan, it's Bill.

The pension question.

We did lower our discount rate at year-end a little bit, given the low interest rate environment.

That was essentially offset by the very good investment performance we had, especially in the fourth quarter, inside the pension plan.

So, I don't think it's going to be materially different, our pension expense year-over-year.

The -- in terms of borrowing now because it's very low interest rate, we haven't done anything yet.

We're obviously thinking about it.

We need to -- and we may put on a hedge now.

We're, you know, we're -- the thing is we're -- and that would be more focused on the debt than the convert.

You know, the convert we really want to wait until we understand where we are with that.

The convert is not cheap in the long run.

I think you know that.

I think it's -- so, we want to make sure we sell as much -- only as much convert as we really need to and not extra.

And I think that's a little less sensitive to -- to the overall interest rate environment than debt would be.

So, given where interest rates are, would you actually consider maybe borrowing at the high-end of your range for the debt?

Well, the way the math kind of works, you want to get a feel for your asset sales before you do that, okay?

But there is some minimum level that we're going have to borrow no matter what.

We may do that now, we may wait, we may just put a hedge on to protect ourselves.

We're studying the question as we speak.

But it's a guide point.

All right.

The other follow-up I had is just on the international side, where you're talking about group life in China and group life in India.

I mean, is there a potential that this actually can be noticeable at some time soon?

Well, it's -- this is Rob, Joan.

We mentioned them because it's an exciting first step in a very, very dynamic market that's going to be something that's -- that everyone will be interested in hearing about, let's say 10 years from today.

So, we do a lot at the Company, as you know, to -- to manage the business as we say, for the -- for the lifetime of our clients, as well as look at the Company going forward out there.

And it's -- it's -- it's important for us to take steps where we are particularly strong in a marketplace that -- that has such potential.

But, no, we're not going to be talking about material results, certainly in China for, you know, for a while.

Okay.

Thank you.

Your next question is from the line of Suneet Kamath from Sanford Bernstein.

Please go ahead.

2 questions.

First, just on the consideration mix for the Travelers deal.

I just want to get a sense of when we're going to know that because as I try to model the transaction, my earnings and ROEs swing around quite a bit, based on scenarios that I use.

And then second, on the stat earnings, I think you said 2.6 billion for the year, less about 200 million of realized capital gains gets you 2.4.

I think in the past you talked about 1.7 to 2.

Just wondering if there's anything else that's unusual in the 2.4.

And then do you have a stat earnings number for the Travelers business for 2004?

Thanks.

Yes, sure.

Suneet, I guess the first thing on borrowing is -- or financing of the Travelers transaction, when we'll know.

Look, I think you'll -- it will be a few months, I think before they think it will clearly come into shape because we're in the middle of pursuing our -- our asset sales now or potential asset sales, I need to be careful to say.

And they -- and so we're working on that but when we do those, when we have something to announce there, we will, so, that'll kind of help shape your thinking.

And the second thing is is about statutory net income.

Now, I think you're -- that's not my recollection that we were 1.7 to 2, I think we were always at sort of 2 plus, or we've been at 2 plus for '04 for quite a while.

There's always unusual things going on in statutory and there will be unusual things going on in '05, as well.

But in terms of an outlook, I think we're thinking our statutory earnings will sort of again be in sort of the 2 plus kind of range.

And then on the Travelers, do you have a stat number for them?

Oh, it's -- it's -- I don't have a precise one, it's roughly $800 million.

It's 700 or $800 million.

Okay.

Thanks.

Operator, we will take one more question, please.

Very good.

It will be from the line of Vanessa Wilson from Deutsche bank.

Please go ahead.

Thank you.

I know you're at the end here so I will make this very quick.

Just on the ratings questions, did you notify the rating agencies of the forward purchase of the stock in your conversations so they're well aware of that already, with respect to Travelers?

With respect to Travelers.

Well, we told them -- obviously, when we talked -- just so you know, Vanessa, and so it's clear to everyone, we obviously have had extensive conversations with the rating agencies about this whole transaction and the level of our capital structure, both at year-end and when we actually will close the deal.

So, we've given them the real picture.

I think they're comfortable with where they're at.

But, specifically the forward-purchase of stock, Bill.

Yes, we did, because we, obviously, showed them balance sheets which included that.

Come on up, Tony.

All I was going to say just the projections that we gave them take that into account.

It started -- certainly included that.

Okay.

And then, Bill, when you gave us your overview at investor day, you had a slide on variable income that was running about maybe 250 a quarter this year.

And you've identified the 140 million of CJV and prepayment.

Is that 140 million delta over and above a normal quarterly run rate?

Yes, I think Lee gave the -- I think Lee has the chart, actually.

I'm sorry, Lee.

Yes, hi, Vanessa.

That was exactly right.

So, over the 200, the delta is the 140 that we've been talking about here.

Okay.

And given that you had such a strong fourth quarter and such a strong '04, how does that change your outlook for '05 with respect to that variable income?

It really doesn't.

I mean we're still holding on.

It's going to move around a little bit, but we're still holding on, about 200 a quarter.

Okay, and then my last question is, on Travelers will there be a point where you can give us a little better sense of the sales through all the Citi channels, Smith Barney, Citi, and everything so we can have a sense of how much they were selling through independent agents or third parties versus how much was propriety sales by product?

Yes, I mean obviously I think that -- I think the place where that'll officially get done is when we do our financings, but we can give you some color now, if you'd like, to give you a sense of it.

Okay.

Mike?

Yes, of their top 7 sales markets, 6 of them were propriety.

I think the 7th -- or 6 may have been Morgan Stanley and the 7th --

On annuities.

On annuities.

Merrill Lynch on --

You know the percent of sales?

Yes.

It's, Hugh McHaffie, two-thirds of the annuity sales are through either distribution that we have a marking agreement to sell through and/or our what I call propriety distributions.

I'm interested, Hugh, in just propriety.

Just propriety. 27 percent in annuity sales if you want to call it propriety distribution.

And on the life side, about 15 percent.

It's about 5 to 1 outside versus inside on life.

Okay.

On target premiums.

Okay.

And we're talking predominately domestically here.

That's correct.

Yes.

On the international front it's a more complex question.

Okay, thank you all very much.

Yep.

All right, that's it.

Thank you very much, everybody, for joining us again today.

We look forward to speaking with you throughout the quarter.

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