大都會人壽保險 (MET) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the MetLife third quarter earnings release conference call.

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

Later, there will be an opportunity for questions, and instructions will be given at that time.

(OPERATOR INSTRUCTIONS) And as a reminder this conference is being recorded.

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

Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the Federal Securities laws including statements relating to trends in the Company's operations and financial results, the markets for its products and 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 Inc.'s filings with the SEC.

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 would like to turn the call over to Jorge Ramirez, interim Head of Investor Relations.

Please go ahead, sir.

Good morning.

Thank you and good morning.

Welcome to MetLife's third quarter 2007 earnings call.

We are delighted to be here this morning to talk about our results for the quarter.

This morning we will be discussing certain financial measures not based on generally accepted accounting principles.

So-called non-GAAP measures.

We have reconciled these thon GAAP measures to the most directly comparable GAAP measures in our earnings press release and in our quarterly financial supplements, 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 acceptable because MetLife believes it is not possible to provide a reliable forecast of the net investment related to income losses which can fluctuate from period to period and may have a significant impact on GAAP net income.

Joining me this morning on the call are Rob Henrikson, Chairman, Chief Executive Officer; Steve Kandarian, our Chief Investment Officer; and Bill Wheeler, our Chief Financial Officer.

After our brief prepared comments we will take your questions.

Here with us today to participate in the discussion are Bill Mullaney, President of Institutional; Lisa Weber, President of Individual Business; Bill Toppeta, President of International; and Bill Moore, President of Auto and Home.

With that I would like to turn the call over to Ron.

Thank you, Jorge, and good morning, everyone.

I am pleased to report that MetLife had another very strong quarter.

Yesterday we announced a 23% year-over-year increase in operating earnings per share and produced an operating ROE of 14.4%.

Once again our strong operating discipline fueled our results.

I'd like to talk about a few highlights this quarter.

Operating earnings for institutional business grew 20% year-over-year.

This growth was consistent across all three businesses in the segment.

Our adherence to disciplined underwriting and prudent expense management continues to drive institutional strong performance.

Our customer base is growing.

Retention remains strong.

The 2008 renewal season is off to another strong start.

In nonmedical health, we achieved a significant milestone this quarter, delivering more than $100 million in operating earnings for the first time.

In addition, we announced a strategic acquisition of Safeguard Health Enterprises, significantly enhancing our already strong dental offering in the marketplace.

Individual business generated operating earnings of $363 million for the quarter.

The annuity business produced strong earnings growth of 22% year-over-year.

Our distribution strength and product design initiatives drove near record sales of 4.4 billion.

We also saw encouraging signs in our individual life business this quarter.

We are seeing a more rational competitive environment, and we are making progress on our service improvement initiatives.

As a result, total life first year premiums and deposits grew 14% over the third quarter of 2006 and 12% sequentially.

In international our results were excellent.

Operating earnings grew 86% over the prior year period to $134 million.

Our business in the Asia Pacific region continued to expand.

In Japan, our joint venture generated annuity sales of $1.7 billion, an increase of 10% year-over-year.

In Korea, we continue to grow our sales force.

We now have over 3,500 agents, an increase of 8% since third quarter last year.

Agent productivity remains high, and our annuity sales have tripled year-over-year.

As of September 30, our total international earnings of $375 million have already exceeded our full-year 2007 investor day expectations, and our growth prospects are very compelling.

My most recent trips to Tokyo and Seoul this past month afforded me growing evidence of our substantial opportunities in these markets.

I met with the management team, our agencies, and our current and potential business partners, and I'm very excited about MetLife's future in the region.

Turning to Auto & Home, our business generated strong operating earnings of $109 million.

We continue to grow our business while maintaining our pricing, underwriting, and expense disciplines.

Recently we've all seen the news coverage of the wildfires in Southern California, and our thoughts are with all of those who have been impacted.

MetLife's exposure to this event is very small.

However, as is always the case, we are quickly responding to our customers' claims.

In light of the recent volatility in the capital markets, I feel it's important for me to remind that you MetLife continues to focus on risk management and maintains a high quality, well-managed investment portfolio.

Steve Kandarian will provide you with a more detailed update on our portfolio management shortly.

With respect to capital management so far this year we've repurchased $975 million in common stock, and we just announced an additional $750 million accelerated share repurchase for the fourth quarter.

In addition, last week we were pleased to announce a 25% increase in the annual dividend.

These actions, and our business results, demonstrate MetLife's commitment to deliver shareholder value.

And with that I will turn it over to Steve.

Thanks, Rob.

As Rob mentioned, since there is still volatility in the financial markets, we would like to provide a brief update of our investment portfolio.

In short, we remain comfortable with both the amount and quality of our subprime and alt-A residential mortgage backed securities holdings as well as our hedge fund holdings.

As of September 30, we owned approximately $2.2 billion of subprime residential mortgage-backed securities, which is slightly less than $2.3 billion we reported last quarter.

And represents less than 1% of our total invested assets.

While the unrealized loss on these holdings increased, from the $29 million we reported last quarter to $107 million due to further spread widening, there were no write-downs or realized losses on our holdings.

Our subprime mortgage holdings are classified as asset-backed securities on page 37 of the quarterly financial supplement.

Consistent with last quarter, 98% of these holdings are rated AAA or AA.

The $41 million rated A or below, down from $52 million at the end of the second quarter, are all from 2004 or earlier vintages, benefiting from stronger underwriting and greater housing value appreciation.

At the end of the third quarter we also owned $62 million of collateralized debt obligations, backed by subprime mortgages, down from $83 million at the end of last quarter.

96% of our subprime CDO holdings are rated AAA or AA.

We sold one position during this quarter, generating a $5 million loss, and booked $10 million of impairment.

In addition, the unrealized loss on our remaining subprime CDOs was $4 million at September 30, due to wider spreads.

On alt-A RMBS exposed -- our alt-A RBS exposure also decreased slightly during the third quarter from $6.9 billion to $6.6 billion.

These holdings appear in the residential mortgage-backed securities line on page 37 of the QFS.

All of these investments are rated AAA, and 86% are super senior AAA.

These super senior tranches have approximately double the credit enhancement of the standard AAA tranche.

The unrealized loss on these alt-A holdings was $37 million at September 30, down slightly from last quarter's $39 million unrealized loss.

We have no holdings of alt-A RMBS backed by second liens or option arms.

In addition we hold no asset-backed commercial paper relating to the structured investment vehicles, or SIVs that you probably have read about in the news.

Now I would like to take a few minutes to discuss our hedge fund results for the quarter.

At September 30, we had approximately $1.8 billion of hedge fund investments.

In general, these funds are reported on the equity accounting method on a one-month lag.

So our third quarter hedge fund numbers reflect June through August results.

As you know, the capital markets were volatile during these months, and many hedge funds suffered as well.

During this period, our hedge fund investments generated a loss of $25 million after tax.

Which flowed through the net investment income line.

Despite third quarter losses, we expect our hedge fund investments to perform in line with our plan for the full year.

Finally, let me briefly discuss our credit related losses which totaled approximately $100 million during the quarter.

$35 million of our write-downs and $65 million of gross investment losses were credit related.

Of these losses, $47 million relates to home builders and subprime CDOs.

I realize you may have questions regarding these and other topics relating to our portfolio, which I will be happy to answer in the Q&A session.

With that I will turn the call over to Bill Wheeler.

Thanks, Steve, and good morning, everybody.

MetLife reported $1.2 billion of operating income for the third quarter, or $1.52 per share, which is an increase of 22% over the third quarter of 2006.

Through the first three-quarters of 2007, our operating EPS is $4.64, and our annualized return on equity is 15% for that same period.

A strong result.

Total assets reached $563 billion at quarter end, which is a record.

And this morning I'm going to walk through our financial results and point out some highlights, as well as some unusual items which occurred in the third quarter.

Starting with top-line revenues, which we define as total premiums, fees, and other income, they were $8.6 billion this quarter, up 6.5% over the third quarter of 2006.

International's revenues increased 15% over the year-ago period.

This was driven by strong sales throughout the Latin America and Asia Pacific regions.

This was also driven by -- excuse me, this was -- and also from buying out our joint venture partner in Hong Kong at the end of the second quarter.

Our domestic individual annuity business had another very strong quarter and revenues increased almost 21% versus last year.

Institutionals revenue growth was only 3% this quarter, which is obviously below its normal rate.

Strong growth in Group Life of 7.7% was offset by a shift in revenue mix and non medical health and a decline in retirement and savings revenues.

Nonmedical health's growth rate was 6.4% for the quarter.

Included in that result was a shift to deposit-type revenues for some of our group long-term care business which incorporates a separate account.

Without this shift, revenue growth in nonmedical health would have been approximately 9%, which is in line with our expectations.

Also, as we have said many times, in retirement and savings, GAAP revenues can be lumpy, and we did have fewer close-out and structured settlement sales this quarter.

We believe that the best way to evaluate the growth in retirement and savings is to look at the policy holder account balance roll forward chart on page 15 of the QFS.

In this quarter, the retirement and savings general account liabilities grew at an annualized rate of 9.8%, which is quite good.

Turning to our operating margins let's start with our underwriting results.

Group Life's mortality ratio was 92.4% which is well within our target range of 91 to 95%.

Underwriting results in nonmedical health were also good driven by favorable experience in dental and individual disability.

Included in nonmedical health was a $10 million after-tax gain relating to the refinement of certain long-term care policy holder liabilities.

The group disability morbidity ratio was 91.2%.

That's up from the year-ago period but well within our target range of 89 to 94%.

In individual business, our mortality ratio of 85% was within our expected range but the net underwriting results were less favorable than in the prior year due to low reinsurance coverage on certain of the claims.

International underwriting results included an $8 million after tax reserve release in Argentina.

Turning to Auto & Home finally, we had another excellent quarter with an 87.3% combined ratio including catastrophes.

Included in this result is favorable noncatastrophe prior accident year development of $18 million after tax and also $20 million after-tax lower than planned catastrophe claims.

Moving to investment spreads, again this quarter we had higher returns from corporate joint ventures of private equities which resulted in variable investment income of $94 million after DAC, tax, and other offsets, or $0.12 per share.

Higher than our baseline plan of $295 million pretax.

Partially offsetting this variable income was a decline in hedge fund income of $49 million after tax, or $0.06 per share.

It is important to note that even though we have had very strong private equity income in 2007, well above our plan, we do not expect that to continue in 2008, at least in the first part of the year.

It is difficult to predict the magnitude of the difference.

However, we will set forth our expectations for 2008 at our investor day in December.

In addition, we have discussed with you many times how the shape of the yield curve at the short end affects our investment spreads in certain businesses.

Although we expect the yield curve to return to its normal shape, this has not yet happened.

Many of our short-term liabilities are pegged to LIBOR, and so the best indicator of the environment is two-year treasuries less one-month LIBOR.

This currently stands at approximately negative 75 basis points, and obviously we would like that to be a positive number, not a negative number.

Moving to expenses, our overall expense levels were the lowest they've been in the past year.

They included some one-time items which just about offset each other.

In international better than expected persistency for a certain block of business in Mexico resulted in a favorable $10 million after-tax VOBA adjustment.

In institutional, accelerated DAC amortization required under SOP 05-1 resulted in a $9 million after-tax charge.

Turning to our bottom line results, again, we returned $1.2 billion in operating income, or $1.52 per share.

That's a 23% increase over last year.

With regard to our investment gains and losses in the third quarter we had net realized investment losses of $215 million after tax, or $0.28 per share.

The losses were primarily interest rate driven and resulted from a repositioning of our general account portfolio.

Our preliminary statutory operating earnings are approximately $760 million this quarter and $2.3 billion for the first nine months of 2007.

Also for the quarter ended September 30, MetLife repurchased, through its share repurchase program, 3.2 million shares of common stock at an aggregate cost of 200 million, bringing our year to date share repurchases to 15.1 million shares at an aggregate cost of 975 million.

At September 30, MetLife had 1.2 billion remaining on its existing share repurchase authorization, and in the fourth quarter we expect to repurchase approximately $750 million in common stock under an accelerated share repurchase agreement.

In summary, this was a solid quarter, and obviously a very strong first nine months of 2007.

I look forward to seeing you at our investor day event on December 3, where we'll discuss with you our outlook for the rest of 2007 and also 2008.

And with that, let me turn it over to the operator so we might take your questions.

Thank you.

(OPERATOR INSTRUCTIONS) Our first question is from the line of Eric Berg with Lehman Brothers.

Please go ahead.

Thanks very much, and good morning to everyone.

My question would be to Bill Toppeta, if he's there, and if not to Rob, since I know Rob said he recently returned from Asia.

I was just hoping to get a sense for what is new and significant in the annuity business in Japan?

What is the general trend, from your perspective, in terms of what the public is buying, what the public wants, whether new distribution outlets are being opened up.

If you could hit the highlights for me in describing the competitive environment for the annuity business in Japan.

Thank you.

Hi, Eric.

It's Bill Toppeta.

How are you?

Well, thank you.

Hope you're well, too.

Good.

Rob and I were just in Japan last month, and I would say that you've asked a broad question, so let me start with the marketplace.

We continue to believe that there is great growth potential in the annuity market in Japan, and we see it expanding, two or three times over the next -- over the next three or four years.

And I think you're familiar with the demographic and macro economic trends that lead us to that conclusion.

So we're very bullish on that market.

In terms of changes in the market, as you know, there is a legal change that's been put into effect recently, which is the financial instruments and exchange law, which is directed at investment type products and which is requiring more questionnaires, disclosure, more meetings with clients to assure that people understand what they're buying, and I would say that we believe, in general, that that is a positive development.

We are well prepared for that development.

We have excellent training, and a new training center which we've just opened which Rob had the opportunity to visit while we were there.

We are up to 81 active distributors now, and that includes banks, securities firms, regional banks.

We have close to 100 wholesalers, which are working in that particular market.

In terms of product, the product situation continues to evolve.

I would say that our sales remain strong, and by the way, we've grown ahead of the market for nine consecutive quarters now, greater than the market since we took the Company and our share of the Company in July of 2005.

So our sales continue to be strong.

I would say the most recent development, as you know, is this target product, which we do have, and which we are putting out through a few distributors now, and I would say the prospects there are quite good.

So all in all, I would say positive on the development of the market.

I would also say that because of the new law, it's likely that the whole market will see sales perhaps slow down a bit in the short run.

I don't think there will be a long-term effect.

I think it's really more a question of timing, and I think we're well prepared for that change.

I hope I'm being responsive to your question.

Yes.

Very comprehensive and very helpful.

Thanks very much.

Thank you.

(OPERATOR INSTRUCTIONS) We do have a question from the line of Tamara Kravec with Banc of America Securities.

Can you talk about your hedge fund portfolio, how big it is, what it looks like, what makes you comfortable that you can see performance on plan for the year particularly given the lag that you cited in the numbers.

Then back on the international, can you give us a sense, I guess it surprised you on the up side for the last couple of quarters, and you're obviously running stronger than expected.

Given the growth you're seeing and all the visits you just made what is a reasonable run rate for quarterly earnings you think going forward?

Thanks.

Okay, Tamara.

This is Steve Kandarian.

I'll handle the hedge fund question.

As you know, the markets were in pretty bad shape in that period we talked about, especially July and August.

Our results actually were above plan the first two quarters, and the third quarter we gave back some of those excess returns, if you will.

Hedge fund returns tend to be somewhat volatile but not quite as volatile as a lot of other alternative asset categories.

But this particular, period of credit disruption threw off a lot of different strategies.

It wasn't just subprime.

We have about 25 funds in our portfolio.

It's very diversified both in terms of style and approach to the market, different sectors, whether it's debt or equity and so on, and really what impacted here was some major shifts going on in the capital markets that were obviously unanticipated by most people.

So as I mentioned, we gave back some of those returns in the third quarter.

We already have, obviously, results from September, which falls into our fourth quarter because of one-month lag.

So we have some visibility there.

And October, obviously, is complete.

So we feel pretty comfortable that we'll come close to plan for the year.

It's still one month to go.

Hard to say what happens in the last month.

But we feel pretty good about it.

Just as a note, I should say that to date, or I should say, for the third quarter our returns are about 6% year to date on the portfolio.

Tamara, Bill Toppeta.

In terms of the run rate, I would say this quarter, as you know, there are some one-timers in the overall number.

When we normalize those out, I would say we're in 100ish range, for the run rate.

And we can probably give you some more color on that on investor day as to what we see for 2008.

Okay.

And then just one more question.

You had mentioned in your commentary a shift to deposit-type revenues for some of your group long-term care business.

What is causing that?

Yes, it's really just a refinement of some of those group contracts in terms of how we -- the economic deal, and so we decided the shift was appropriate.

Okay.

And are you seeing anything new on the pension close out front in terms of anything at the margin different from what we've been thinking?

Hi, Tamara.

It's Bill Mullaney.

What I would comment on relative to the pension closeout market is that as we look at the pipeline of deals going out one of the things that we're seeing is we're starting to see some larger close-out opportunities come to the market.

I would say looking at the first three-quarters of '07 it was a lot like 2006, even though there were more deals out there, they were still relatively small.

I would say under $100 million.

So what we're starting to see emerge in the pipeline are some larger deals.

So we expect the activity to pick up later this year and into 2008.

Okay.

Thank you very much.

Thank you.

Our next question is from Jimmy Bhullar with JPMorgan.

I just have a couple of questions.

The first one for Bill, if you can just give us an update on your excess capital position?

And then secondly, for lisa, on the variable annuity business, you had very strong sales this quarter, I think up 35%.

I think there was a commission special during the quarter also.

But I just want to get an idea on what's really driving your sales.

Is it the GMIB being enhanced or is it more just you're being a little bit more in commissions in that so it's driving it?

And if you can talk about why the sales were so strong in the third quarter and then what your outlook is for that business?

Hi, Jimmy.

I'll talk about capital.

Now, of course, there's a lot of different ways to measure this, so I will just give you a sense of it.

One way, of course, is to talk about what's the cash sitting at the holding Company.

We had previously talked about that we expected to be at approximately $4 billion of cash at the holding Company by year end.

What's different now, of course is we have announced the $750 million buyback, so it will drop by roughly that amount in terms of our year-end target, so we did spend a little bit of our excess capital this quarter, or expect to in the fourth, I mean, and so that's one.

Two is, more broadly, are there pockets of excess capital throughout sort of the MetLife group, and the answer, of course, is yes.

Whether you're talking about some investments we have, some equity real estate we own, some capital inefficiency in some of our insurance operations, and I think when somebody asked me this question last year I characterized that those numbers are in the billions.

That obviously remains.

We don't really keep a tote board for that because obviously it's not truly excess capital that can be redeployed until I've got it up into cash at the holding Company, for the most part.

So it's -- but, our cash position -- our capital position is still good.

Just on that is it fair to assume that the equity units that are coming up in August you have enough flexibility to not let those dilute the shares outstanding?

That's our expectation.

We haven't quite yet defined our strategy about how we intend to defease those converts, if you will, but that is our expectation, is that we will nullify the impact on EPS.

Lisa?

Jimmy, it's Lisa.

Our annuity story is really a very solid one.

We continue to flourish in annuity sales, and the good news is, is that it's coming across the board.

Our significant increase is coming from both the independent side as well as the agency distribution side, and it's really driven from the strength of our guaranteed income riders.

And you asked about a commission special.

We did not have a commission special.

We did have a bonus special which ended in August, which was only in the independent market, and yet there was growth in both independent and the affiliated channel, and we saw it from both the -- our withdrawal guarantee riders as well as our 6% GMIB, and a portion of it from the bonus on the independent side.

Hey, Jimmy.

Somebody whispered in my ear, and I just think it's a good point, remember on the converts they are -- they're already in the money.

The strike price is about 54.

So the full -- so we're already seeing sort of leakage into our fully diluted EPS calculation on the impact of that.

Which would be offset if you diffused that.

Right.

Exactly.

Is that all, Mr.

Bhullar?

Yes, thank you.

That's it for me.

We'll go to Ed Spehar with Merrill Lynch.

Bill, I was wondering if you could talk, and I'm sorry if I missed it, but could you talk a little bit about the performance of the hedge program on the VA side?

I guess we've seen some adjustments at some other companies, and I'm wondering if you could talk about what you saw and how we should think about the impact of more expensive options going forward and the pricing of the VA business?

Thanks.

Yes, I'm going to let Stan answer that because he'll give a more accurate answer probably, but our hedge funds, our hedging program performance this quarter was excellent.

We did listen to what some of our peers said, and we found it interesting.

Our hedging performance was excellent.

Stan?

We didn't sea any volatility in our results in the third quarter at all.

We have a very closely matched, Greek matching program.

We do Delta, Vega, and Row hedging, and we've stayed very close to 100% all through the quarter for all our FAS 133 products.

So we were pretty well matched.

In terms of increased volatility and the effect on future pricing, if the remains high, it doesn't affect our in-force business, because that has been fully hedged.

It can impact pricing but not immediately.

Is there any sort of way we can think about what type of volatility is assumed when you're -- when your pricing, by looking at the VICs, can you stay if it stays above 20, that that's going to be an issue?

Or is there any way for us to sort of track what's in line with versus outside of pricing expectations?

Well, when we originally apprized the product, that's when we actually put the hedges in place.

Going forward, I mean, if it does stay above 20, it's possible that we'd have to modify the guarantee fees.

Thank you.

We could do that prospectively.

Thank you.

Thank you.

Next we have a question from the line of Colin Devine with Citigroup.

Good morning, folks.

Couple questions.

Maybe just quickly following up on the last one on the hedging issue.

Stan, to start, is there any distinction you draw between the volatility you might see on the VICs versus how it impacts the cost on your GMIB product versus your GMWB?

Then with respect to the close-out annuity business, as I tally it up we may have, I don't know, $500 million of defined benefit plans freezing at the end of this year.

Is that really what's the driver perhaps behind why you're starting to see some of the bigger plans now coming into the market so we may finally see this business start to go?

And then, Bill, on the excess capital piece, it seemed to me you left off one piece, in talking about that and that's perhaps a couple of noncore assets.

Obviously I am thinking about RGA, but I think your proxy came true about the PC business having sort of peaked at Auto & Home, and at that point you and Bill were thinking about maybe -- I should say you or Rob were thinking about time maybe to move it on.

Maybe you can give us an update on where you there now?

Hi, Colin.

I'll take the first part of that question.

In terms of hedging cost with GMIB and GMWB, it's really the same thing.

It would impact both of them pretty much to the same extent.

Thanks.

Colin, it's Bill Mullaney.

On the closeouts, I would say what we see driving the market are a number of things.

I think first of all, companies have had the opportunity to digest the Pension Protection Act.

I think if you're going to take a plan and ultimately close it out it is a complicated decision, and you want to be thorough about it, so I think for some of the larger plans they have gone through that analysis.

It's also a function, I think, of how well funded those plans are and equity markets have done pretty well, which I think have put funding levels in a good place.

Then some clients may also be sensitive to the interest rate environment as it relates to the overall funding levels that they have.

But I think it's primarily the fact that companies have had the opportunity to understand what the nature of the arrangements are and how they would work and are feeling more comfortable with moving forward.

Just to quickly follow up on that, when we are thinking about what sort of kicks this off, because it seems to me it's kind of a boom or bust sort of business, is it -- do you think it's going to be more what equity markets do, which gets someone to pull the trigger on this or is it going to be interest rates, or are we really still looking at the interplay between those two?

I think it's a combination of both.

I think it's going to be a very individual decision by each company based upon where the assets are relative to the liabilities that they have.

They may have an interest rate trigger in mind so if interest rates were to go up that certainly brings down the price of funding, and that may spur more companies to enter into these kind of an arrangement.

So I think it's going to be more specific to what's happening inside an individual organization and what they want to accomplish as opposed to any one particular external event that's all of a sudden going to trigger a big movement in this market.

Then on to Bill on the noncore assets.

I didn't forget.

I was trying to be discrete, Colin.

I'm not.

But can I just take it -- obviously, we look at our businesses and we evaluate them all the time.

If there's anything more to say there, we'll talk about it at that point in time.

But I would just say this about Auto & Home, because they don't get the play that maybe they should sometimes in this call.

They had a terrific quarter.

Their revenue growth was 3%, their margins are holding very well.

When we benchmark their performance, frankly, versus the peers in the industry, they do extremely well.

Even though it's not that big a competitor, they compete like they're a very big competitor, and so -- and in terms of how we manage the volatility of cats there and stuff like that with reinsurance and how they underwrite, we're very pleased.

By the way, it's a cash machine.

I mean, it generates 20% ROEs, and we like that.

And so it's a good business.

I don't disagree they've done well.

It just seems to me looking at what Lisa's business is putting up, or Bill's, you arguably have more profitable and faster growing places to deploy the capital.

But I recognize the out of home guys have done great.

Fair point.

But there's -- right now, we're very happy.

You didn't answer RGA.

Well, there's nothing new to say there.

We've said many times that RGA is a -- is an investment, not a core part of our strategy going forward.

They continue to perform very well.

They had another very good quarter.

They're winning in the marketplace, in the life reinsurance business.

That's clear.

So it continues to do well.

But we've said a lot in public forums that it's not a core business.

Thanks.

Colin, I would add, gosh, it's nice to be quiet so much this call.

I was wondering what was going on.

I was reading in the paper.

Some people leave the calls.

I am still in the room.

I was just -- so I would use this opportunity to say relative to the Auto & Home, the other thing is, and not talking about its value to group so much, although that's certainly there, but group's value to Auto & Home gives it unusual opportunities.

So we have a broader distribution base than many do, and that gives an extra lever to Auto & Home to manage its business in a way that allows it to compete like a major competitor as if it were a top five competitor in terms of its reach into that marketplace.

But, as Bill mentioned, we continue to look at things, and I say all the time, with other businesses too, we love the Auto & Home business.

We're not in love with it it, but we love it.

And so as long as it's adding value to the shareholder, we're perfectly satisfied.

By the way, congratulations on catching the number one industry rank in VA sales.

I'm not sure anybody before you knocked off TIAA-CREF.

We're very pleased.

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

Just a question on the yield curve at the short end I think you mentioned inversion of 75 basis points.

That's putting some pressure.

Can you just give a sense of, if that goes to 50 or 25, how much earnings leverage that would sort of translate into?

And then just a request.

Obviously international is becoming a bigger part of the story.

The growth there is very good.

I was just -- would like to request maybe that in your financial supplement perhaps you add some more detail in terms of product trends because it would be a lot -- it would be very helpful to have that information as we think about growth going forward.

Thanks.

Thanks, Suneet.

With regard to the yield curve, I hesitate to give how much the 25-bip move in the spread inversion would change things because it doesn't happen immediately.

It depends what our particular strategy is at the moment.

I have said on other occasions that I believe that sort of the inverted yield curve at the short end is costing MetLife, as opposed to a normal curve.

We think it's costing us, order of magnitude, $200 million after tax a year, and I still believe that, by the way.

Even though we've had good fed rate cuts, it hasn't had the -- a lot of our short-term liabilities are really tied to LIBOR.

Some are tied to fed funds or T bills or whatever, but most are tied to LIBOR and we have not seen the move down to LIBOR.

That's a little bit why I want to make that point.

I think a lot of people believe, boy, we finally had the Fed rate cubs.

It must be good for Met right now.

I want to make sure people understand, LIBOR hasn't really come down like it should, or you would expect to yet.

We think it will, but it hasn't happened yet.

And with regard to your comment about international and a little more disclosure, we hear you.

You're absolutely right.

International is becoming more important.

It probably is time.

Bill Toppeta would love to have a little more air time, so in terms of a little more -- a brighter light shined on his business, so we'll take that into consideration.

Okay.

Thank you.

Thank you.

We'll now go to Joan Zief with Goldman Sachs.

I have two questions.

The first on the variable annuities, I want to know if you're finding any pressure on fees on the retail variable annuities, and if you think you do have pricing flexibility within that product, if it turns out that you do need to increase pricing for the cost of hedging?

So that's my first question.

The second question has to do with actually what type of properties you might be interested in buying.

I know you have capital to harvest if you ever needed it, so what businesses are you finding attractive, and how are you looking at the consolidation in this industry for the next year?

With respect to VA fees, the question, Joan, is are we feeling the pressure some is that what you asked?

I apologize.

I wanted to know there's any pricing pressure, if you're feeling any pressure related to the level of fees that those products have, and if you think -- if you need to raise the rider fees for more volatility in the market if you actually have the flexibility to do that.

We have the flexibility, but what I would tell you is that we're very comfortable with our pricing strategy, and so it's really not of a concern.

And you're not getting any push-back from your distributors about the expense of a variable annuity in the sense of how many basis points it costs a year?

No, we're really not.

If anything what we're getting is more demand, and we're seeing it in our sales results.

Okay.

Joan, I guess I'll take the question about properties.

I would say, as we have been saying really relatively consistently, is that the two main areas that come to mind on the top of the list on the domestic business, I would say that we believe there are very attractive opportunities in the marketplace on the group insurance side in particular.

We've felt that way for sometime.

But remember, you have to have a willing seller, and you have to have someone who feels perhaps that they do not have the size and scale to move forward in that marketplace to be really competitive and make the type of investments you need to make in terms of platforms, consumer information, and so forth.

So we continue, as you can see, we continue to do very, very well in that business, and so acquisitions would be attractive to us, particular if they strengthen our offering.

And the Safeguard acquisition, although small, is an example of one of those strategic acquisitions.

On the international side, we, of course, are right now basically very comfortable with the countries we're in.

We're doing well, and we'd like to accelerate that growth, and one way to do it is through acquisitions.

There again, certainly you have to have a willing seller.

But we're not shy about speaking in the marketplace about our interest in growing in those markets.

Thank you.

Thank you.

And I will turn the call back, Mr.

Ramirez, for any final questions -- or final comments.

Sure.

If there are any more questions, we'd like to thank you all for joining us this morning, and we're looking forward to seeing many of you at our investor day on December 3.

Any more questions?

There are no further questions.

Well, have a good day.

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