大都會人壽保險 (MET) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the MetLife fourth quarter earnings release.

For the conference today all the lines will be in a listen only mode, however there will be an opportunity for your questions and instructions will be given at that time.

(OPERATOR INSTRUCTIONS) 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 and 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's filings with the SEC including its S-1 and S-3 registration statements.

MetLife Incorporated 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 now to Mr.

Conor Murphy, Head of Investor Relations.

Thank you, John.

Good morning and welcome to MetLife's fourth quarter 2007 earnings call.

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

This morning, we will be discussing certain financial measures, not based on Generally Accepted Accounting Principles or so-called non-GAAP measures.

We have reconciled these non-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 MetLife.Com and an our investor relations page.

A reconciliation of forward-looking financial information to the most directly comparable GAAP measure is not accessible 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.

Just to let you know, we had a typo on page five of the QFS attached to the earnings press release.

It had no aggregate effect, it has been corrected and it's the revised QFS that's on our website.

Joining me this morning on the call are Rob Henrikson, our Chairman, President, and CEO; 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; Bill Toppeta, President of International; and Bill Moore, President of Auto & Home.

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

Thank you, Conor, and good morning, everyone.

MetLife had another outstanding quarter.

We generated record top line results across all four of our major business segments.

This broad based growth drove total premiums, fees, and other revenues to $9.1 billion in the quarter.

More importantly, we continued to convert that revenue growth into earnings, increasing our fourth quarter operating earnings by 15% year-over-year.

Without question, MetLife is winning in the marketplace every day and we are delivering shareholder value.

I want to share a few specific highlights from the quarter.

Our Institutional Business continues to out perform.

We grew our operating earnings 20% over the prior year period and produced an operating ROE of 21.8 in the fourth quarter.

I've said it before and I'm going to keep saying it, MetLife 's Institutional Business is a unique franchise that stands alone in the industry.

And despite the current economic environment our leadership position is solid.

We continue to grow and retain customers, leveraging our expertise in the group benefits business and we continue to enhance our product offerings.

Last quarter, for example, we announced a strategic acquisition of SafeGuard Health Enterprises to expand our dental offering and I'm pleased to report that that transaction closed last Friday.

Following on a theme we've stated before about being opportunistic relative to acquisitions, SafeGuard gives us expanded capabilities in fast growing markets that we expect to fuel continued growth in our highly profitable dental business.

In individual business, our focus on the fundamentals is driving our results.

Our new product offerings and service enhancements initiatives are working and we're leveraging our distribution strength to grow sales.

We grew fourth quarter variable annuity, statutory premiums, and deposits 13% over the prior year period, and that growth was consistent both across our agency and independent distribution channels.

On the life side, we increased total life first year premiums and deposits by an impressive 19% over the prior year period.

This is our best result in nine quarters.

We have remained disciplined in our pricing and our underwriting and now the market is coming back to MetLife.

We continue to see substantial momentum in our international segment.

In the fourth quarter we achieved record top and bottom line results.

Premiums and fees and other revenues grew 14% over the prior year period and exceeded 1 billion for the third consecutive quarter.

Our operating earnings grew 26% on a normalized basis, a significant increase over the prior year period.

MetLife's business in South Korea continues to be a highlight, driven by a combination of new product launches and our productive agency salesforce that now numbers more than 4,000 sales professionals.

In Mexico, we announced our strategic acquisition of a AFORE Actinver, this is another great example of MetLife Being opportunistic with regard to acquisitions.

AFORE Actinver expands MetLife's distribution power and adds more than 1 million customers to our growing pension business in Mexico.

Also in the fourth quarter our Japanese joint venture, MSI MetLife, was selected by the Japan Post to be the sole provider of GMWB annuity products.

This is another great opportunity for MetLife.

Turning to our investment portfolio, we again produced very strong results.

For the first time our quarterly net investment exceeded $5 billion.

Steve Kandarian will provide a more detailed update on our portfolio in a moment but first let me reiterate a few overarching principles.

MetLife is focused on risk management.

We conduct our due diligence and underwriting to drive our investment decisions.

We start with a liability, a promise to our customers and then we invest in assets that defease those liabilities.

For all of these reasons, MetLife continues to focus on a high quality and well managed investment portfolio.

As I look back on full year 2007, I'm pleased to report another record year for MetLife.

We improved both our top and bottom line results, growing each measure by 7% and 18% respectively.

We continue to expand our operating ROE and grow our book value at the same time.

We also repurchased $1.7 billion in common stock and increased our annual dividend by 25%.

And we are also pleased to have finished the year with Forbes Magazine naming MetLife as the best Managed Insurance Company for 2008.

Looking ahead I'm confident MetLife is well positioned to achieve further success.

We will keep winning in the marketplace and building value for our shareholders.

And with that I'd like to turn it over to Steve.

Thanks, Rob.

Given the continued volatility in the financial markets I wanted to update you on our portfolio and its performance over the quarter.

The fourth quarter was a record for MetLife reaching $5 billion of net investment income for the first time.

In short, we remain comfortable with the overall strength and diversification of our portfolio.

Due to our focus on fundamental analysis, risk management and proactive portfolio management, MetLife has fared very well in this environment of great volatility.

First, let me cover variable income.

In this quarter, pre-tax variable income continued to be strong and was approximately $270 million higher than planed.

This performance was driven largely by higher corporate joint venture in securities lending income.

At Investor Day we projected that our 2008 average variable income would be $305 million per quarter.

This included corporate joint ventures, security lending income, bond and commercial mortgage pre-payments, and real estate joint ventures.

Beginning in the first quarter, we will move hedge funds into variable income and increase our 2008 average plan variable income per quarter to $350 million.

We feel this adjustment is appropriate given the growth of our hedge fund program and the variability of returns.

Now, let me give you an update on our subprime holdings.

We remain comfortable with both the amount and quality of our subprime residential mortgage backed securities.

These holdings continue to represent less than 1% of our $345 billion portfolio and we're approximately $2.2 billion as of December 31, including our holdings through RGA.

There were no writedowns and less than $1 million of realized losses on MetLife's subprime holdings during the quarter.

The total unrealized loss increased to $222 million at December 31, due to continued spread widening.

It's important to remember that these unrealized losses are only realized if we sell the security or write down its value.

97% of these holdings are rated AAA or AA, consistent with last quarter.

The 3% of these securities rated A or below are all from earlier vintages, benefiting from stronger underwriting and greater housing value appreciation.

Our holdings of CDO's backed by subprime mortgages remain very small and declined to $48 million as of December 31.

Virtually all these holdings are rated AAA and AA.

The unrealized loss on our remaining subprime CDO's was $15 million at December 31.

Our Alt A RMBS exposure also decreased during the fourth quarter to $6.4 billion.

These holdings appear in the residential mortgage backed securities line on Page 39 of the QFS.

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

These super senior traunches have approximately doubled the credit enhancement of the standard AAA traunch.

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

During the fourth quarter, spreads in our holdings widened significantly less than the Alt A market overall, reflecting conservative nature of our portfolio.

The unrealized loss on these Alt A holdings was $142 million at December 31, up from last quarters $37 million, again due to spread widening.

I'd like to take a few minutes to discuss our commercial mortgage holdings.

We owned approximately $17.7 billion of commercial mortgage backed securities at December 31.

Two-thirds of our holdings are from the 2005 and earlier vintages which benefit from better underwriting and price appreciation.

In response to the aggressive underwriting and declining credit enhancements in the market, we limited our purchases in 2006 and 2007 primarily to AAA and AA traunch es.

Overall, 94% of our CMBS portfolio is rated AAA or AA.

As of December 31, our CMBS portfolio had an unrealized gain of approximately $49 million reflecting its high quality.

In addition to CMBS, we also hold approximately $35.5 billion of commercial mortgage home loans, which we view as a competitive advantage for MetLife, utilizing or network of 11 domestic and international feal estate offices.

When we first observed signs in 2005 of aggressive lending in this market, we shifted our new production to focus on lower loan to value mortgages that provide greater protection from default.

The average loan to value on our portfolio is now below 60%, and less than $2 billion are in the high loan to value bucket of 80% or greater.

We are maintaining our disciplined underwriting approach in this market and continue to focus on lower risk, high quality mortgages.

Now let me briefly discuss current developments relating to monoline insurers.

We hold only $48 million of securities issued by monoline insurers.

In addition, approximately $6.7 billion of our holdings are guaranteed by monoline insurers and this includes $2.5 billion of municipal bonds, $2.5 billion of private placements which are primarily military housing transactions and $1.7 billion of structured finance securities.

When we purchased these types of assets we underwrite the underlying collateral and do not rely solely on the rep providers.

As a result, we are generally comfortable with owning these assets with or without a guarantee.

The average underlying credit quality of these holdings is A and 95% of the holdings, are investment grade.

Finally, credit related losses in the fourth quarter were relatively modest at $49 million after-tax.

This includes fixed maturity writedowns, a real estate reserve adjustment, and losses on credit related sales.

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

With that I'll turn the call over to Bill Wheeler.

Thanks, Steve and good morning, everybody.

MetLife reported $1.60 of operating earnings per share for the fourth quarter, an a increase of 17.6% over the fourth quarter 2006.

We also earned $6.25 for all of 2007, an increase of 19.7% over 2006.

This was another outstanding year.

With top line revenues of $34.8 billion, operating earnings of $4.8 billion, net income of $4.2 billion, total assets of nearly $559 billion, and an operating return on equity of 15.2%.

Maybe I should just read that sentence again.

Okay, I won't.

This morning I will walk through our financial results and point out some highlights as well as some unusual items which occurred in the fourth quarter.

In the fourth quarter we had top line revenues which we define as premiums, fees, and other income of $9.1 billion, a record.

This represents an increase of 5.8% over the fourth quarter of 2006.

Many of our businesses turned in a strong performance this quarter.

Institution, excuse me, international revenue increased by 13.7% over the year ago period and that was driven by strong sales throughout the Latin American and Asia Pacific regions, in individual business, annuity revenues increased by 13% this quarter and institutionals revenue growth was only 3.5% this quarter which is below its normal growth rate.

Strong growth in non-medical health of 11.7% and an increase in Group Life revenue of 5.8% were offset by a decline in retirement and savings revenues.

As I've said many times, retirement and savings sales can can be lumpy and we did have fewer close out instruction settlement sales this quarter in a challenging environment.

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

In general underwriting results were solid and in line with our expectations.

In institutional, Group Life mortality of 93.2% for the quarter reflect an expected seasonal uptick, but was well within our guidance range of 91 to 95%.

Disabilities morbidity ratio for the quarter at 90.6% is a significant decline from the prior year period and is reflective of our continued underwriting discipline.

In individual business our mortality ratio of 82.3% for the quarter was within our expected range but net underwriting results were less favorable than in the prior year due to low reinsurance coverage on certain claims, and also a $25 million after-tax increase in our reserve for unreported claims.

In addition, there were a number of DAC adjustments in both institutional and individual businesses that came ought of our annual review of DAC assumptions and experience.

These adjustments are reflected in our DAC balances which flow through expenses in our income statement.

The net result was an after-tax $7 million favorable adjustment in individual business and an after-tax $13 million unfavorable adjustment in institutional.

Turning to Auto & Home, the combined ratio which included -- including catastrophes was 91.1%.

Included in this result is a prior accident year reserve release of $25 million after-tax compared to a $52 million after-tax release in the prior year period.

Catastrophe losses were right on plan.

As for international, changes in Argentine pension regulations caused us to modify certain liabilities and make tax adjustments.

The net effect was an after-tax $105 million increase in earnings.

Moving to investment spreads, this quarter we had high returns primarily from corporate joint ventures and securities lending, which resulted in record variable investment income of $143 million after DAC tax and other offsets or $0.19 per share, higher than our baseline plan.

Retirement in savings, annuities, and corporate and other were the main recipients of this income.

We also benefited from significant spread improvements the in the quarter, and some of our short-term liability products as liability crediting rates fell quickly with the sharp drop in short-term rates.

Moving to expenses, our overall expense levels were up this quarter but there are a number of one-time items which contributed to the increase.

In connection with the Argentina pension business, a $128 million pre-tax liability was accrued to cover an obligation to administer certain accounts.

Implementation of SOP 05-1 increased expenses by $11 million pre-tax in institutional om corporate and other we made a $12 million pre-tax contribution to the MetLife Foundation, and finally there were a number of litigation reserves and other non-recurring expenses this quarter which also increased our overall expense levels.

I appreciate that the expense line on our income statement was noisy this quarter but we're actually very comfortable with the underlying expense activity.

At Investor Day in December we projected the expense ratio would decline to 28 to 29% in 2008, and we are still comfortable with that projection.

Turning to our bottom line results, we earned $1.2 billion in operating income or $1.60 per share, and that again is a 17.6% increase in operating EPS over the fourth quarter of last year.

Also, in finalizing our tax provision in 2007, we decreased our separate account dividend received deduction estimate, and therefore, trued up our annual estimated tax expense by $28 million this quarter.

Turning to investment gains and losses in the fourth quarter with we had net realized investment losses of $180 million after-tax, DAC.

and other adjustments, as Steve mentioned our credit related losses for the quarter were $49 million after-tax.

The remainder of the net realized investment losses was primarily driven by net derivative losses, related to positions that protect economic value but do not qualify for hedge accounting.

Our preliminary statutory operating earnings were approximately $540 million this quarter and $2.9 billion for the full year.

Certain adjustments relating to our closed block securitization reduced operating earnings in the fourth quarter but these adjustments do get added back into our statutory capital balance so total statutory capital at year-end is approximately $20.3 billion.

In the fourth quarter MetLife repurchased 11.6 million shares of common stock at an aggregate cost of $731 million, under an accelerated share repurchase agreement.

For the full year 2007, the Company repurchased 26.6 million shares of common stock for $1.7 billion.

For 2008 year-to-date to date, has repurchased approximately 7.7 million shares of its common stock at an aggregate cost of $450 million, pursuant to an accelerated share repurchase agreement signed in December.

Currently, MetLife has roughly 1 billion remaining on its existing share repurchase authorization.

In summary this was a solid quarter and obviously a very strong 2007 for MetLife and with that let me turn it over to the Operator so that we can take your questions.

(OPERATOR INSTRUCTIONS) Our first question is from the line of Tamara Kravec with Banc of America.

Please go ahead.

Thank you, good morning.

I have a couple of questions.

First, for Steve.

The hedge fund program that you're moving, can you remind us what size that is and what the average returns have been there over the last say couple of years?

And in your CMBS, have you seen any stress there?

You gave us a rundown of what your book looks like and then on the 6.7 billion of guaranteed exposure, if you could by chance tell us who that is specifically to?

And what would the, I guess I don't know if it's too early to tell but what would the credit writedown be given that some of these are going from AAA to aA and the underlying is A, so have you thought about what that would look like?

Those are my questions for Steve.

Okay, the size of our hedge fund program is $1.9 billion.

That program began in the year 2004 and has grown over time.

It's a diversified group of funds, over actually 25 funds in total, diversified is the style, and approach the marketplace.

We seek to get kind of LIBOR plus 400 to 500 kinds of returns on that portfolio, kind of inception to date, we've gotten those kinds of returns.

Obviously right now the markets are a lot more lumpier than they have been in the past so we'll see how things turn out over the course of this year in terms of returns.

And again we're making that part of the now $350 million per quarter variable income number, and we put those items into a category of variable income because of the uncertainty of quarter to quarter kind of returns, and also because to some degree, they are really meant to balance each other out.

So we have a lot diversification not only within these asset classes but along them.

We look very closely at things like correlation between these alternative asset classes and that's what helped us over time.

As to CMBS, as I mentioned, we actually had a gain on this portfolio overall as of December 31, now since that time as you may know, the spreads in that marketplace overall have gapped out, fairly significantly, so we'll see where that goes in the coming quarters but we do feel very comfortable with those securities we own.

They're high quality securities.

We don't rely purely upon the bond rating agencies to make a decision as to whether to buy these securities but underwrite these securities ourselves.

The $6.7 billion of guarantees by the monolines are really across a variety of different securities and also with a variety of different monoline insurers.

you can guess which ones they are in.

I'm not going to lay out specifically on this call how much we have with each one of them but there is diversity in terms of our exposure to monoline insurers as to guarantees.

Regarding credit writedowns, we do look at that, every quarter in terms of both writedowns, losses, obviously if we sell something at a loss that gets reflected in the numbers I've already given you but that is taking into account all of the comments I've made in my prepared remarks, and as I mentioned, overall we're still very comfortable with these securities because we underwrite them, notwithstanding these guarantees.

In other words, we'd still buy these securities without the guarantees.

The guarantees are an enhancement for us, spreads obviously have widened because the guarantees now are not viewed as being as solid as previously thought but again those are all reflected in our numbers we gave you about unrealized losses and credit writedowns.

Okay, and then I guess my question for Bill would be just given the challenge in the loan markets right now, LIBOR has basically collapsed with the acceleration of the Fed funds rate being cut.

Has your outlook at all changed, you're looking for a steeper yield in the second half of '08, but I know you're more predisposed to the spread between the LIBOR and the two year Treasury so if you could just talk about that, that would be great.

Sure.

On Investor Day I showed this really clever graph that showed spread between two year Treasuries and one with LIBOR and I said that's what you should look at to assume how profitability is sort of our short-term spreads, and in hindsight I think, well, experience has proven that was probably inaccurate, because when we do SEC lending or any sort of short-term lending, or short-term investing, we're not buying two year Treasuries, so even though the Treasury yield curve is still sort of inverted because the two year is so low, even after all of the rate cuts, credit spreads have widened and they have sort of compensated for that, so when we think about our SEC lending activity or our investing in the short-term liabilities related to Group Life or retirement and savings, we're already at what I would say kind of a normal shaped yield curve and that's what sort of happened in the fourth quarter, so our spreads clearly widened and we clearly benefited from the drop in LIBOR and Fed funds.

So, we're less tied to the Treasury curve than I probably appreciated in December because credit spreads have clearly compensated for that.

That's good news.

In terms of our outlook, we had assumed that short-term rates would come down sort of in the second half of 2008 and of course, they've come down a lot in January.

I think Fed fund rates have been kind of 125 basis points so far and people think there are more to come.

This is clearly going to help our short-term investment spread margins, and it's a nice big thing.

Now, we did expect that these spreads would widen over the course of the year and that was built into our plan, but clearly spreads are going to be wider and that's a good thing.

That in my mind kind of compensates for the relatively poor equity performance that's happened so far this year and in many other worries we really have.

So the short-term interest rate environment and what's happened is clearly a positive for us and has given us a lot of confidence.

Okay, and my last question is just on in Japan, I know it's only been two months since you commented on the Japan Post but is there any update there in terms of an outlook on distribution sales, anything?

Hi, Tamara, Bill Toppeta.

No, there's really no update.

We continue to work with the colleagues at the Post and to get ready for the commencement of sales and the sales will begin around the middle of the year, but nothing further that I have to add beyond what I told you on Investor Day.

Okay, great.

Thank you.

Okay.

Our next question is from the line of Nigel Dally with Morgan Stanley.

Great, thank you good morning.

Just to follow-up on the progress, you said spreads are clearly going to be wider.

Is it possible to put the numbers around the earnings impact from what we've seen from the Fed?

Second, on the monolines, can you give a little more color on the $1.7 billion of the rap structured finance investments, was included in that and what are the underlying ratings on that bucket?

And then just lastly on excess variable income, if you can provide an update on the outlook for that for the next quarter or two given the term on the equity markets is $350 million of quarterly earnings, still achievable in the near term?

Thanks.

I'll take the first and the third and I'll let Steve comment on the monoline exposure in a minute.

Nigel, can you just repeat your first question a little more clearly?

I want to make sure I typed it correctly, it was a little clipped.

Yes, sure.

Just you mentioned the spreads are clearly going to be wider given the aggressive Fed easing.

I'm just hoping to get some numbers around what kind of earnings impact we'd likely see from that, if it's possible to put that kind of like a range around the potential earnings impact?

Well, I think it's a little too early to say yet.

But the -- and so I can't give you a specific number.

Remember in a lot of -- to kind of size it for you, and for everybody on the phone, remember we've said many times and I think I said it in last December, that with the inverted yield curve costs us about $200 million a year after-tax.

Now so does that mean we're going to have, which is about $0.30, not quite $0.30 a share.

Does that mean we're going to have, we're going to, this environment is going to swing back a full $0.30 this year?

I don't think so.

It will be some fraction of that, but probably a healthy fraction, and so it's a little bit about how fast it comes back and how quickly we get the portfolio repositioned.

Though it seemed to happen in the fourth quarter, the transition doesn't happen all overnight, but that gives you sort of a feel for the order of magnitude of this phenomenon.

You want to do the monoline?

The monoline guarantees the $1.7 billion in the structured assets, really cover a lot of different asset categories.

A lot of it is in the ABS segment, auto loans, some of that is also subprime as well as a little bit in credit cards.

And then finally what's going on with excess variable income?

Well okay, remember now just to sort of repeat, we had a record variable income quarter.

Why?

Well, private equity returns were good.

They were the best we've ever had.

They weren't the best we've ever had, they were good, and but also, but really what really was probably we had the best SEC lending quarter I think we've had in a long time so that's sort of what drove the bottom line there.

In terms of the outlook, on Investor Day, we said, look, we don't expect private equity returns to be this good and in fact, in terms of our return assumptions in our base plan, we're lowering them from the 2007 plan.

Okay?

Now the question is, and I think that's probably prudent.

The question is, did we lower them enough, and I really have no idea.

I do know this, however.

We do have some insight into some visibility into the first quarter results and private equity and I think it's going to be okay, and consistent with sort of our plan assumptions, so now the second quarter, I have no idea.

Now, the other thing you have to keep in mind is and this relates to variable income is securities lending is in our variable income calculation, and securities lending spreads are going to widen and we're going to make more money there.

Will it compensate entirely for any shortfall in private equity?

I cannot say but it's going to be a positive thing.

So I don't know, it's in the middle of February, we're pretty sanguine in terms of how we feel right now, and that's about as much insight as I can give you.

Very helpful.

Just one follow-up, just with equity markets down.

Can you just provide us an update on how sensitive your core earnings are, outside of the private equity and life, the change in the equity markets?

Yes, the rule of thumb is a 1% change in the S&P 500 is a $0.01 change in our earnings per year.

Perfect.

Thanks a lot.

Our next question is from the line of Tom Gallagher with Credit Suisse.

Good morning.

Bill, I just wanted to follow-up on Nigel's question about equity sensitivity first.

The 1% or the $0.01 impact from a 1% decline.

Does that contemplate any change in the net investment income yield in the 12.2 billion of equity securities and other LP interest?

Yes, that's -- we have to think about redefining that category because it causes a lot of confusion.

By the way, one other thing I thought of while you were asking your question, Tom before I get to that is, in our base plan, we assume a 5% return in the equity markets, when we figure out our profitability.

By the way, we've done that forever, ever since we've been public and we've assumed 5%, so we're not too hopeful in terms of when we set out our base expectations.

With regard to the equity securities and I'll look at Steve and he'll wink at me if I say something incorrectly, there's a lot of stuff in there.

There's all of our alternatives are in that category, that 12 billion or so bucket, and there's very little real common equity in there.

There's a little in there.

Most of the rest of it is sort of preferred that has got an income yield and so that's what's going on there a little bit.

Anything else you'd add to that?

Well, excuse me, preferred and by preferred we're also talking about hybrids, okay?

Which obviously have an income that are a little lower on the capital structure, so sometimes those get classified as preferred or equities and sometimes they get classified as debt and it all just depends on the terms of their indenture, so that's a little bit, that gives you a sense of that.

So almost, I would say virtually none of that category is factored into my $0.01/1% equation.

What I'm talking about with our equity exposure is really fees on the very separate accounts and variable annuities and that's most of it and then a little bit is related to our pension plan.

Okay, okay, so the variability in that line is we should isolate separately if that's going to move around at all?

That's right.

Okay, that's fair enough.

Can you remind us how big the pool of liabilities that you have are that reset with short-term crediting rates and exactly what those are?

I believe some of those are behind the Group Life business and MetLife Bank, but anyway I was just curious on that?

Sure, well, you can see it -- you can pick it right off our balance sheet that the securities lending activity was just under 45 -- the footings are just under $45 billion at year-end.

It's a pretty big number.

The Group Life, I think the Group Life we put in two buckets, $10 billion of short-term liabilities which reset practically weekly are in something called the Total Control Account and there's another $5 billion or so?

Yes, 8 billion or 9 billion that's sort of in the other bucket that's also tied to Fed funds rates, so they reset so that's another in totaling Group Life about $18 billion.

And then in Retirement & Savings, short-term liabilities are roughly $20 billion, so that gives you, so 20, 38, 45, that's 83 billion.

That's a lot, the total general account is 335 billion I think at year-end, so almost a fourth of our entire general account is tied to short-term rates so you can see the kind of leverage that a decline in short-term rates has for us.

It's a good thing.

So this is important.

Okay, so bottom line there is $80 billion or so of your liabilities really do benefit from the steepening curve, or almost virtually immediately?

Yes, no, I mean virtually immediately is, it can take a couple of quarters.

Okay.

That would be as long as it takes, but yes, that benefits.

Okay, and last question I had for Steve.

I think some of the private equity concerns that are coming up right now center around kind of 06, '07 vintage investments, so just curious if you could give us any kind of reconciliation in terms of your total portfolio, how much of your commitments or investments have made 06, '07 versus prior?

About 31% of our out standings in the LBO category are 06, '07 vintages.

So that the would have some impact obviously depending how those deals turn out.

At the same time I'd say that -- the good news is the ability to buy things at lower prices today certainly is more, it's more attractive in that way, and financing is tough, so we'll see what kind of deals end up getting done here, but as we said before, this is a category that has some cycles to it.

We've had a lot of wind to our back the last few years, we've benefited from that.

We were mindful and we've called this out for quite some time that this is not going to last forever, these kinds of 30, 40% returns would not last forever, so we have anticipated and we reflected in our guidance a softening in this marketplace and as Bill has mentioned I think I've mentioned as well, we anticipate that other categories of our all term investments may do better and could be some offsetting here.

So and we were still comfortable overall.

Okay, thanks.

Our next question is from the line of Ed Spehar, with Merrill Lynch.

Thank you, good morning, everyone.

A couple questions on commercial real estate, and then one on short-term liabilities.

First, could you give us a comparable number, perhaps, to the 60% or less than 60% loan to value today back in the late 80's, early 90's period?

I don't know if you have that.

And then related, could you tell us how to think about or your thoughts on the percentage decline that you could see in commercial real estate that could be absorbed by the AA or AAA type traunches of CMBS, so we can get some sense of how to think about comparable loan to value type approach?

And then finally, Bill, on the 83 billion of short-term liabilities, if you just looked at 100 basis point decline in rates I think you neat to sort of tax effecting, you get a fairly big number, so I'm wondering, is there some offset when we think about kind of spread widening for those businesses?

Thanks.

I'll take the first couple, Ed.

In terms of commercial real estate market, we mentioned our portfolio is overall below 60% loan to value, and it really backed off in the 06, '07 time frame in terms of how we were lending in terms of risk levels.

So let me kind of back up a little bit and tell you what we really issue mortgages on.

We really have pulled back from a lot of the secondary markets really for several years now, so virtually everything we have now in portfolio is what I call A markets and A kinds of properties and fully leased out kinds of properties.

So it's really a very low risk low loan to value portfolio overall, and we felt that was prudent to do.

In fact if you remember the last couple of Investor Days, I talked about not being paid to take risk.

Well, this is one of the parts of the portfolio where we felt we were not being paid to take risk.

We were mindful of, you just brought up the late 80's, early 90's period where the real estate market got sideways and there were significant losses and I should point out though that this market probably has to be distinguished from that late 80's, early 90's marketplace where people are building buildings with oftentimes little or no equity in the deals, and there was great oversupply in the marketplace in that point in time.

That's not what we're seeing.

We're seeing today I think is a decline in market values because of cap rates have become so compressed, people start saying to themselves that just doesn't make sense.

I can't make a reasonable return.

There's other ways I can make returns than this asset category given current market conditions.

So as of now, we feel very comfortable with our overall standing in our own whole loans, and as to the CMBS marketplace, again, well over 90% we hold is AAA, AA.

There's a lot of subordination in those structures.

We underwrite them ourselves and as I mentioned, at year-end at least, there was a gain in that portfolio in the marketplace, which is traded mark-to-market day-to-day.

So I think that demonstrates even with the spread widening I mentioned since December that the portfolio overall is very very high quality and we really feel good about what we're holding right now.

And Ed, this is Rob.

This is one of these things where I think Steve's answers are right on.

I'd like to crow a little bit if I might about our real estate operations.

Keep in mind, we have been and continue to be a very complete real estate organization and so that when you're looking at say 60% loan to value ratios, people like to focus on the 60%, we kind of focus on 60% of what.

So in other words, when we value the properties to which we are lending and the owners and the operators and so fourth and so on, we value that property in the same way we would as if we were buying it as an equity investment ourselves, and so I think this is an area in terms of those high quality properties, in terms of their locations of the diversification, the operators of them, the quality of the locations themselves and so fourth, I think it might be helpful to view that in the context of MetLife as a real estate investor in a broader way, and as you know, our track record on the equity side would certainly indicate that we're pretty good at estimating real estate values in such a way that we take into account recessionary pressures, real estate changes in the marketplace and so fourth that the have much greater effect on the secondary markets than they do our portfolio and right now, where the competition for this lending tends to be, for example, banks at this area of the business, we actually have more opportunity now to do deals at that 60% loan to value ratio.

So it's a very very nice position to be in.

Just thought I'd add that thought.

Okay, Ed, your last question about math on spread widening, you said $83 billion, if the spreads, if the short-term rates go down 100 bips, that's a lot of money, that seems like a lot more money than what you've been discussing, just to do the math there, everybody hopefully I can do this in my head, the 83 billion, 100 bips, that's $830 million pre-tax, I talked about $200 million after-tax adjustment, that's about $300 million pre-tax so what's difference between 800 and 300?

You have to remember that in our short-term portfolios, we're not, what are the assets that back those short-term liabilities that float?

Well, they're short-term assets that float, that's what a lot of it is so even though our crediting rates will also come down, so will a lot of the assets in terms of their yield, they will also come down.

That's asset liability matching, that's what insurance companies do.

The reason why we'll get spread widening is because we do run in these short-term liabilities, we do run a mismatch, and we've talked about this off and on for a long long time, where sometimes we'll increase duration and we'll use fixed rates and the mismatch isn't dramatic.

It's maybe a 1 or 1.5 year sort of mismatch when you get a good steep yield curve, but that's sort of where the spread widening comes in and so it's only a part of the -- the liabilities are $83 billion but obviously the mismatch part of the asset portfolio is smaller than that.

And so yes, there's a big offset to sort of just 100 bips times 83 billion and again so the order of magnitude $300 million pre-tax that's for a full year at a full steep curve that's not a bad number.

Thank you very much.

Yes.

Next question is from the the line of Suneet Kamath, with Sanford Bernstein.

Please go ahead.

Good morning, just two questions.

First, could you just walk through your methodology for other than temporary impairments, just wondering if you go by the rule of thumb of $0.80 on the $1 for six months or longer, is there another level of subjectivity in there where you may or may not take the writedown or is it pretty much formulaic?

And then second in terms of the buybacks, you mentioned the accelerated share repurchase program in the first month of the year.

Any thoughts in terms of executing another one in the near term and is there an issue around having to wait for that other program to expire before you do another one?

Thanks.

I'll take the impairment question first.

The first thing we look at is whether we're receiving all contractual payments, and whether we plan to hold the security to maturity, and then we do use rules of thumb related to six months and 80% but they are just rules of thumb.

So we have laid out for you in the QFS movements in those numbers for the six-month category, which you can see, obviously with spread widening in certain asset classes, that have been fairly dramatic in the marketplace, that number has gone up.

And we'll continue to monitor that.

We'll see what the market brings to us in terms of spreads, up or down from here on, but that's a standard we use as I just laid out.

And Suneet, in terms of the buyback activity this is worth talking about just a minute.

In December before we went into blackout, we executed an ASR, and the terms of it were we paid the Investment Bank the money and they started buying back stock in early January, and they bought back 7.7 million shares.

That program is done, okay?

They've already executed it.

So but we're still in blackout obviously and we will be until we file our K, and then we can consider our options for buying back more stock and whether we'll do another ASR or not.

And ASR's don't necessarily mean you get stuff cheaper but it just helps you -- especially, it helps you sometimes in terms of flexibility in terms of doing buybacks in more challenging periods.

We've put out a goal or an objective on investor day of buying back $2.2 billion worth of stock this year.

Remember that was in two buckets, that was $750 million as sort of a general by back and a $1.45 billion buyback related to just effectively defease the converts.

I don't think by the way that, -- because if stock prices come down, I don't think the cost of defeasing the converts is 1.45 billion anymore, it's a little less than that.

With the stock where it's at now, without commenting on the stock price I think we'll be aggressive buyers in the near term.

We have a lot of stock to buyback this year and I see no reason to hesitate in terms of moving forward.

So but we got to get through blackout first.

Okay, thank you.

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

Thanks very much and good morning to everyone.

Two questions.

With respect to variable income, while you nominally have changed your per quarter forecast or full year forecast, does this reflect only the inclusion now of hedge funds or have you really upped your forecast, if you sort of see what I mean?

Eric, it's Steve.

We simply have layered in the hedge fund component of our returns.

So it's just a matter of we've redefined it a little bit.

We haven't really changed the underlying investment return forecast.

Well, go ahead, Bill, I'm sorry.

Well, it's worth spending just a second on this.

We've had this concept of variable income for a while now.

We didn't include hedge funds when we first defined variable income because we had very little hedge fund investments, and since that time, the category has grown and certainly in this past year, 2007, we've had some quarters where we had one quarter where it really outperformed and two quarters where it underperformed and we realized I don't think it was any shock to us but it's material enough now that it has -- it should, the variability and the performance is starting to matter.

And so we said, this is just like any of these other alternative asset classes.

It really should be redefined and put in variable income.

It makes sense to do it that way so we're just saying, so in our plan, we assumed we'll hit about roughly 45 million or so from hedge fund returns and we're going to just redefine variable income so there's really no change in our bottom line forecast because of that.

I hope that was clear.

It was very clear, but I guess my follow-up question, I just have a couple more, would be this.

If the only thing that has changed here since we last left you is that it seems, at least is my impression is that you've become much more optimistic than you have been about the outlook for securities lending income, a big and important earner for MetLife.

So if your views on private equity haven't really changed, you've ratcheted down your expectations from 2007 but it doesn't sound like you're any more optimistic or pessimistic than you were in December.

Your views basically haven't changed I think.

On the other hand, you're much more optimistic about securities lending.

I would think you'd be raising your outlook for variable income.

Last time you set I should be a lawyer, maybe I should be.

Exactly.

You're in the wrong profession, Eric.

Obviously, I think what you say is true but I guess I would, because I don't know, we obviously assumed the private equity returns were going to come down in 2008.

We just don't know exactly how much.

There's no really clever refined way to assume what private equity returns are going to be.

We know they were going to come down, we revised our plan accordingly versus our '07 performance or even our '07 plan.

Did we bring them down enough?

I just don't know.

Again, we have some insight that the first quarter is going to be okay.

Okay.

But the rest of the year is just a great unknown, so in my mind, I'm not ready yet to kind of revise '08 guidance because of it.

I mean, it's just too early.

But I think you sort of captured the spirit of our thinking pretty well.

Okay, I understand that.

And helpful answer.

Last question relates to yields in your portfolio.

I think you said today that because of the widening of credit spreads, that even though there's been a decline in interest rates, yields are going up, is that the right take away because we looked last night at what has happened on I don't know, BB traunches over time -- not traunches BB bonds, BBB bonds, A and so fourth and it looks to us like the decline in interest rates, the shift down in the yield curve has in most instances overwhelmed by a wide margin the widening of credit spreads meaning it looks to us like in general, investment yields on new investments have come down, not gone up.

Maybe this question is best directed to Steve but what are you investing your new money at today and how does it compare, given these cross currents to what the rates were just a few months ago.

It is moving around a lot, Eric and depends upon the asset class as well, so overall rates have come down more than probably spreads in certain categories but then other categories, for example, commercial mortgages, as Rob was saying, the banks have basically stopped lending some CMBS kinds of structures have really slowed down because that market has kind of seized up.

So we're now issuing commercial mortgages at a 55% kind of loan to value situations with very low risk and at very very wide spreads, and we're taking advantage of that in the marketplace that more than offsets the interest rate declines.

So really is asset category by asset category and also I'd mention that we really were in a defensive posture in 2007 and again we signaled that to you in our Investor Day, in our comments then about not being paid for risk and now we're able to go into things we think still are high quality, A and above but the spreads have really widened out because of dislocations in the capital markets.

So I'd say overall, our new money yields are about flat, maybe down slightly, but very very slightly.

Thank you very much to both of you.

Our final question will be from the line of Tom Cholnoky with Goldman Sachs.

Thank you, let me try to make two quick questions here.

One, Steve, if I just follow-up, just a little bit more clarification on the, sorry on the commercial real estate, of this approximate $36 billion, how much of that would be in the '06 and '07 vintages/ and can you distinguish between loan to values in those years versus kind of the average for the whole portfolio and what kind of the min and max is?

And then I've got a second question.

Did you understand that?

I'm trying to find the data.

Oh, sorry.

Just to give you a specific answer.

You're referring to the whole loans?

I guess $35.5 billion is what we've been focusing on in terms of the commercial real estate loans?

Yes, the commercial real estate loans that we generate ourself is $36 billion roughly.

Right.

I was just wondering in the '06, '07 vintage, roughly how much would be in those years?

There's about $20 billion in '06 and '07 which is why you saw that number go down in terms of loan to value because as I mentioned, we became very conservative.

We got to a point where we said that we're not being paid to take risk, so we're going to big markets, major buildings, low loan to value and so on.

So your loan to value went down, I just want to clarify?

I thought that's what I heard.

It went down because as you may remember, a lot of refinancings got done in that period so some of our mortgages from the past got refinanced away from us in some cases because we didn't want to play in riskier things, and they could find, CMBS structures at very tight spreads and they were refinancing away from us, but the loans we put on the books were again, very conservative.

Right, okay.

And then I just wanted to just clarify one other thing.

I know we've been over this a couple times but just is the whole interest rate sensitivity because in your Investor Day, you had a chart in there where you ran a variety of interest rate scenarios with Federal Reserve cuts rates aggressive and you seem to imply it's about, worth about $115 million.

Does that, should we assume that what the Fed has done thus far is not aggressive or it is aggressive?

And is the 115 still hold?

Yes, I'm trying to remember exactly those models how far down we took Fed funds and the discount rate and all of the rest but it was a pretty aggressive decline, so I'm sorry I don't have that data with me right now, but--.

Would you characterize what the Fed, not to put words in your mouth but it seems to me that what the Fed has done is pretty aggressive.

It is pretty aggressive and we anticipate more as well.

I think the numbers you saw at Investor Day I don't think would change very much at all.

Terrific, thank you.

Ladies and gentlemen, this conference is available for replay, it starts today, February 7, at 10 a.m.

Eastern, will last until next Wednesday, February 14, at midnight.

You may access the replay at any time by dialing 320-365-3844 and entering the access code 904277.

That number again, 320-365-3844 and the access code 904277.

That does conclude your conference for today.

Thank you for your participation and you may now disconnect.