大都會人壽保險 (MET) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the MetLife fourth-quarter earnings release.

For the conference today, all of the participants lines are in a listen-only mode.

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

(Operator Instructions).

As a reminder, today's call 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, and the business and the products of the Company and its subsidiaries.

MetLife's actual results may differ materially from the results anticipated in those forward-looking statements as a result of risks and uncertainties, including those described from time to time in MetLife Incorporated's filings with the US Securities and Exchange Commission.

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 over to Conor Murphy, head of Investor Relations.

Thank you, John, and good morning, everyone.

Welcome to MetLife's fourth-quarter 2009 earnings call.

We are delighted to be here with you this morning to talk about our results.

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 supplement, both of which are available at MetLife.com on our Investor Relations page.

A reconciliation of forward-looking financial information to the mostly directly comparable GAAP measure is not accessible because MetLife believes it is not possible to provide a reliable forecast of the net investment-related gains and 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, our Chairman and 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 other members of management, including Bill Mullaney, President of US business, and Bill Toppeta, President of International.

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

Thank you, Conor.

Good morning, everyone.

Before we get into earnings results, I would like to take a moment to comment on recent developments that we noted in our press release.

As we stated, we are in discussions with AIG over the potential acquisition of ALICO, but we have not reached an agreement and there is no certainty that we will.

Beyond that, I have nothing further to say about those discussions but as I have repeatedly said, MetLife does not need to enter into any M&A transaction to meet our business objectives, and any transaction we undertake would be accretive and financially attractive to our shareholders, would accelerate our strategy.

And importantly, we would be confident in our ability to execute and realize the transaction's economic value.

In other words, our acquisition criteria have not changed.

Now, let's get started on our year-end results.

During the fourth quarter, MetLife delivered very strong results, growing premiums, fees and other revenues to $9.3 billion, up 14% over the prior year and 10% sequentially.

We converted growth into earnings with operating earnings of $793 million, significantly higher than they were a year ago and 10% higher than the third quarter of 2009.

We have again demonstrated our strength as we grew our businesses and extended our lead in the marketplace.

We did this while maintaining our discipline in underwriting, pricing, and risk management.

Now, let me share a few highlights from our businesses.

In US business, results for the quarter were very good.

Premiums, fees and other revenues of $7.8 billion grew 11% over the prior period, driven by a 32% growth in retirement products, 26% in corporate funding, and 8% in insurance products.

Within our Insurance Products segment, we enjoyed growth across all product groups.

Individual Life delivered solid results with increased whole-term and universal life sales.

Group Life grew by nearly 10%, and nonmedical health grew by almost 5%, due largely to continued organic growth in our dental business.

In retirement products, this significant topline growth is due to higher income annuity premiums and fee income on our variable annuities.

Total annuity sales were strong again at $4.2 billion, up from the third quarter and driven mostly by $3.7 billion of variable annuity sales.

This performance reflects continued strong sales in our traditional markets, including individual distribution, banks and wire houses, as well as our expanded partnership with Fidelity.

We also continue to experience positive net flows and declining lapse rates, which I believe is a strong demonstration of a continuing flight to MetLife.

In corporate benefit funding premiums, fees and other revenues were $1 billion for the quarter, up from the prior period due to higher structured settlement premiums -- another area where we have gained market share and increased pension closeout premiums, which were strong in both the US and the UK.

Rounding out the US business segments, Auto and Home also had another very solid quarter.

Turning to International, we achieved double-digit growth across all of our regions.

Premiums, fees and other revenues grew 22% over the prior period.

Driven by strong growth in Mexico, Chile and Brazil, our Latin America region grew its topline 18%.

Asia Pacific grew 25% due to higher sales in Korea and China.

In Japan, annuity sales continue to be impacted by current market conditions with an 18% increase in fixed annuity sales and a 35% decline in variable annuity sales.

In our European region, which includes Europe, the Middle East and India, premiums, fees and other revenues increased by 32%, driven by growth in India.

With momentum in our International businesses, we will continue to invest where we see growth opportunities

At our investor day in December, we talked about MetLife Bank and how closely the Bank ties to our retirement strategy.

As you can see, with another solid quarter, the Bank achieved almost $300 million in operating earnings for 2009, clearly a great result which we have built from two relatively small but important acquisitions.

In a few moments, you'll hear from Steve about our investment portfolio, but first I'd like to say that the results are good, and as we projected at investor day, our credit losses are much lower this quarter.

Looking back at the full-year 2009, I am pleased with our strong and consistent performance, particularly during a period marked by unprecedented economic events.

We grew our premiums, fees and other revenues to $34 billion, up 4% over 2008.

Our US annuity sales totaled $21 billion, an increase of 10% over 2008.

Our book value is recovering, up 37% from year-end 2008.

During this time, MetLife has truly distinguished itself by increasing market share and growing our business when others could not, while at the same time practicing sound risk management and expense control.

As we shared with you at investor day, we are proud of the success of our operational excellence initiative, surpassing our initial goal one year ahead of schedule and raising the bar relative to both expense management and operational efficiencies going forward.

As we move forward to 2010, let me assure you that we will exercise the same discipline that led us through the crisis and allowed us to extend our lead in the marketplace.

I believe we are well positioned for future growth.

Backed by a strong brand, solid financial position and a talented and dedicated management team, we have the foundation to create an even stronger, more valued and more profitable MetLife.

With that, I will turn it over to Steve.

Thanks, Rob.

I would like to spend a few minutes reviewing the key components of our investment results for the quarter.

First, let me start with a comment on variable investment income.

Pretax variable investment income for the fourth quarter was $212 million, which is above plan by $62 million, primarily from strong corporate joint venture and hedge fund returns partially offset by continued negative real estate fund returns.

Let me touch on our investment activity during the quarter.

As discussed at investor day, we are reducing our cash position and purchasing spread assets as markets have stabilized.

During the fourth quarter, we reinvested approximately $1.6 billion of cash in spread assets.

Our overall investment yield for spread assets during the quarter, excluding short-term portfolios such as securities lending, was approximately 5.2%.

Now, let me cover investment losses for the quarter.

Gross investment losses continued to decline and were $272 million.

Write-downs also continued to decline and were $297 million.

These write-downs included $164 million in structured finance securities, $52 million from the strengthening of the mortgage valuation allowance, and $16 million of corporate securities.

Write-downs also included $49 million of hybrid securities and $16 million of partnerships and equity securities which were impaired because of the length of time and the extent to which the market value has been below amortized cost.

Overall gross investment losses and impairments for Q4, excluding derivatives, were at the lower end of the post-tax range discussed at investor day.

Losses from derivatives that do not qualify for hedge accounting were $810 million.

This was primarily attributable to pretax losses of $383 million caused by higher interest rates and $327 million due to an improvement in MetLife's own credit spread and its impact on the valuation of certain insurance liabilities.

Gross unrealized losses continued to decline and were $10.8 billion at December 31, down from $11.8 billion at September 30 as spreads decline across all sectors.

For example, spreads for BBBB-rated corporate bonds and CMBS declined about 60 basis points during the quarter.

However, the gross unrealized gain decreased to $8.6 billion due to higher interest rates.

As a result, the net unrealized loss increased slightly to $2.2 billion from $1.6 billion at September 30.

Finally, I'd like to touch briefly upon our commercial mortgage holdings.

During the fourth quarter, we had no delinquencies in our US portfolio and total delinquencies seas were only $8 million or 2 basis points on the overall portfolio.

While we expect that delinquencies may increase in 2010, we view the level of delinquencies as manageable, particularly given our commercial mortgage valuation allowance of approximately $590 million.

This allowance represents 1.7% of our portfolio, which we believe would cover a 5.7% default rate.

The loan-to-value ratio of our portfolio decreased slightly to 68% from 67% based on a rolling fourth-quarter valuation process, as the pace of value declines slowed.

We estimate that market values will decline an additional 5% during 2010.

Our average debt service coverage ratio remains strong at 2.2 times, and the loans above 80% loan-to-value have an averaged coverage ratio of 1.5 times.

Near-term maturities remain manageable with only $2.1 billion maturing in 2010.

While we expect that the real estate sector will remain challenged, we are confident that our commercial mortgage portfolio will outperform the overall market.

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

Thanks, Steve.

Good morning, everyone.

MetLife reported $0.96 of operating earnings per share for the fourth quarter and $2.87 for the full year 2009, which are above our investor day estimates.

As I think you will see, our business has performed well in the quarter.

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

Before I get started, I just want to remind you that I will now be speaking to our new US business, which consists of insurance products, retirement products, corporate benefit funding and Auto and Home.

Also, as we had mentioned on last quarter's call and again at investor day, MetLife Bank has become more impactful to our financial results and so with the fourth quarter of 2009, we have started separating the Bank within Banking, Corporate and Other, in our QFS.

So I will speak to the Bank's results as well.

With that, let's get started.

Let's begin with premiums, fees and other revenues.

Premiums, fees and other revenues, which totaled $9.3 billion in the fourth quarter, are up 14% from the fourth quarter of last year, which is an excellent result.

For the full, year our topline revenues totaled $34 billion, a 4% increase over 2008.

Total premiums, fees and other revenues for US business of $7.8 billion reflect an 11% increase over the fourth quarter of 2008.

The growth of insurance products revenues of 8% in the fourth quarter reflects across-the-board strength in Group Life, Individual Life and nonmedical health.

Retirement products revenue increase of 32% was driven by fee growth due to positive net flows and higher separate account investment returns and annuities as well as an increase in income annuity premiums.

Revenue growth and corporate benefit funding of 26% was driven by strong structured settlement premiums in the current quarter.

International's premiums, fees and other revenue are up 22% over the fourth quarter of 2008 on a reported basis and 13% on a constant-currency basis, driven by growth across all three International regions.

MetLife Bank's fees and other revenues from both forward and reverse mortgage activity increased to $258 million from $94 million in the prior-year period, an increase of 175%.

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

In US business, our mortality results were very strong in both Group Life and Individual Life with full-your mortality ratios coming in below investor day ranges.

The Group Life mortality ratio for the quarter was 89.7%, bringing the full year ratio to 90.3% versus our estimated range of 91% to 93%.

Our individual mortality ratio for the quarter was 81.1%, bringing the full-year ratio to 82.5% versus our estimated range of 84% to 86%.

As I mentioned on investor day, historically we spoke of our group disability morbidity ratios.

Now that our dental business has become just as important as our disability business in terms of the bottom line at MetLife, for nonmedical health we will discuss a total benefits ratio that includes dental, disability, and other nonmedical health coverages such as long-term care, which we think is a better indicator of morbidity trends across the products in this segment.

At 90.2% for the fourth quarter, this total benefits ratio is up from 86.3% in the prior-year quarter.

That was driven by higher dental claims activity and weaker disability margins during the recession.

Turning to our Auto and Home business, the combined ratio, including catastrophes, while up, remains strong at 92.3% for the fourth quarter.

This compares to last year's result of 84.9%.

Also included in this combined ratio result is a non-cap prior accident year reserve release of 9% -- of $9 million after-tax compared to a $27 million after-tax release in the prior-year period.

Moving to investment spreads, as Steve mentioned, investment spreads improved this quarter as we continue to shift funds from cash and government securities to higher-yielding investments.

In addition, variable investment income continues to improve.

With regard to variable investment income, as Steve explained, we again saw mixed performance of certain variable alternative asset classes this quarter.

Strong returns on corporate joint ventures and hedge funds were partially offset by negative returns in real estate.

For the quarter, variable investment income after tax and the impact of deferred acquisition costs was $40 million or $0.05 per share, above the 2009 quarterly plan.

Moving to expenses, our operational excellence initiative continues to prove successful, but we had some unusual items flowing through expenses this quarter which drove our reported expenses up.

Expenses at MetLife Bank were higher this quarter as compared to the prior year due to the significant growth in that business, and as I have mentioned in previous quarters, pension and post-retirement benefit costs were also up from the prior-year.

This quarter, we incurred $18 million after-tax in operational excellence charges, which consisted mainly of real estate write-downs.

We also had certain one-time expenses this quarter that amounted to $44 million after-tax.

Together these items amounted to $0.08 per share.

All of these expenses appear in Corporate & Other.

Turning to our bottom-line results, we earned $793 million in operating income, or $0.96 per share.

If you at investor day, we noted that we anticipated a positive impact from annual [Dakken] locking this and other adjustments which would did not yet include in our projected operating earnings range because the amount was not yet final.

This ultimately added $0.12 to our operating earnings.

Offsetting this is an adjustment made in our International business relating to a change in assumptions for measuring the effects of inflation on inflation-indexed securities in Chile, Argentina and Mexico.

This reduced earnings by $0.13 per share.

When we normalize for these two items as well as the other factors described earlier, we are still above are investor day estimates.

With regard to investment gains and losses, in the fourth quarter, we had after-tax, net realized investment losses of $557 million, which included derivative losses of $527 million after-tax.

As Steve mentioned, the derivative losses were primarily attributable to a tightening of MetLife's own credit spread, which amounted to $213 million after-tax, and a rise in interest rates impacting our interest-rate swaps and floors.

MetLife uses derivatives to hedge a number of its risks.

Changes in the values of these derivatives are, in general, offset on an economic basis across various assets and liabilities.

Impairments were $193 million after-tax in the fourth quarter, and have been declining each quarter in 2009.

Now, I'd like to take a moment to talk about cash and capital.

For the fourth quarter, statutory -- preliminary statutory operating earnings are an estimated $730 million.

For the full year 2009, we had preliminary statutory operating earnings that were approximately $3.3 billion after-tax and preliminary net income of approximately $1.8 billion after-tax.

Total adjusted statutory capital and surplus at year-end is approximately $21 billion.

Cash and liquid assets at the holding company at year-end totaled $3.8 billion.

During the fourth quarter, the holding company paid our annual common stock dividend amounting to just over $600 million.

We also invested $375 million into Metropolitan Life Insurance Company, or MLIC, in the form of surplus notes during the quarter.

We have not finished our RBC calculations for year-end 2009, but based on our work to date, we are estimating that consolidated RBC will end the year at approximately 400, significantly above the 355 to 375 range provided at investor day.

The increase was largely driven by better-than-expected results in the NAIC re-rating of RMBS securities, as well as generally stronger fundamentals.

I'd like to point out one thing about our book value.

Book value per share, including AOCI, was $37.96 at year-end.

That's a little lower than our investor day projection.

This was almost entirely driven by an overall increase in interest rates during December.

The general account, which was essentially at breakeven just before investor day, moved to a small unrealized loss at quarter end.

By the way, since quarter end, the general account has swung back to an unrealized gain.

In summary, our revenue growth remains strong, our investment performance has improved, and our earnings have grown considerably over the course of 2009.

With that, I will turn it back to the operator for your questions.

(Operator Instructions).

Nigel Dally, Morgan Stanley.

Great, thanks.

Over this past month or so, within a broad range of different regulatory and tax proposals, financial services, responsibility fees, the Volcker rules, reduction in dividend received deductions.

Is it possible to discuss the potential impact of those proposals on your fundamental outlook?

I know it's still very early stages, but any perspectives to help [to mention] that would be very helpful.

Thanks.

Yes.

Nigel, I'm sorry, a little bit of an echo here.

I think what you asked was -- just in case not everybody heard it -- I think what you asked is about the financial responsibility fee and then also the recent administration proposal regarding taxes.

Correct.

The financial responsibility fee -- I mean I'm sure Rob will maybe have a comment about this.

I would like to think that number would be 0 (laughter) given what it's labeled.

But I think, based on everybody's assumptions regarding how that will be interpreted and implemented, you know, it will have a relatively modest effect on our results.

But it frankly all depends on what the details are in terms of do they exclude insurance liabilities?

I read something the other day which said they might exclude repos, which consistent with that would mean you would exclude securities lending, footings.

So I think -- so if you are really just talking about our debt balances that would be affected by the fee -- which I think that's where the argument ultimately does.

You know, it's a really modest number; we are talking a few pennies.

But again, I'm not sure why we would pay anything.

With regard to the administration's tax proposals, again the details are really preliminary.

I would say, with regard to the COLI proposal or anything to do with the IOLI, those are immaterial to us and I think in some ways would obviously help us.

With regard to the DRD benefit, our total benefit that we receive from the dividends that received deduction today is approximately $0.20 annually.

So, I don't -- so that's I guess what's potentially at risk.

It's not clear to me if the proposal would assume the assumption of the loss of all of that or a piece of it.

That's hard to say.

I think, though, kind of the silver lining here maybe is that, as marginal tax rates go up on individuals, that probably on the margin increases the demand for a lot of our insurance products.

So there may be -- there are obviously some ways we get penalized in this tax bill; there may be some benefits as well.

That's very helpful.

Thank you.

Nigel, only because Bill said I would have something to say about this, I would say he's --- I can't improve on his answer in any way other than just to point out that as he stated.

But there are many discussions going on about this in terms of definitions, unintended consequences and so forth.

Those discussions are occurring with treasury, with various people on the Hill who have responsibilities relative to the committees that are overseeing this and so forth, so I would say "stay tuned", but Bill's answers are right on.

Great, thanks a lot.

Andrew Kligerman, UBS.

Good morning.

A few questions -- maybe the most important is, as the M&A environment is changing, you mentioned on the call and in your press release that any transaction needs to meet your criteria.

So when I evaluate a transaction, I like to know what is the return on invested capital.

So if you were to do a deal, any deal, what type of return would you want on your capital and over what time frame?

I have some follow-up questions.

This is Bill.

Andrew, I just apologize; I don't mean to be -- to duck you.

Obviously, at the right time, I would be happy to answer that question.

I just don't want to kind of give any more sort of back-door color on the discussions we are currently having with AIG regarding ALICO.

So if you don't mind, I would just as soon skip that one to another day.

I mind but I guess we will have to skip it anyway.

All right.

With regard to the investment portfolio -- and Steve gave some excellent color around the commercial mortgage loan portfolio -- but just looking at the losses, you had about $1.3 billion in Q4 '08.

It went to $1.2 billion in Q3 '09 and then this quarter you're looking at less than $600 million.

The guidance was for about $1 billion in after-tax investment losses and economic investment losses in '10.

So does that indicate that you're right on track for that?

Maybe just a little color of how you feel about that guidance now?

Andrew, it's Steve.

the investment losses are trending down nicely.

We are seeing our impairment number coming down or loss number coming down and actually some of our gains going up.

So it's reflecting the marketplace overall, especially the tighter spread -- tighter spreads we are seeing in the marketplace.

In terms of what we are projecting and thinking about for the coming year, or the current year I should say, we think the trend will continue to improve.

That's based upon our review of the overall economy, which is that there will be a slow recovery but a slow and steady recovery.

Obviously, if there is a faster recovery, the numbers could get even better.

If there is a double dip, which we are not projecting, they could turn around and get worse.

But we've seen some real improvement over the course of the year.

Even some of the securities that we impair still -- or most of them are still paying us in full, and we are very hopeful in terms of how this will play out over time.

Just lastly, with regard to RBC, Bill mentioned about a 400% ratio at the end of the year, cash and liquidity at the hold co.

of about $3.8 billion.

So just in terms of an update, what is your redeployable capital at the end of the year?

Do you anticipate, given the higher RBC ratio, any need to downstream money to the life cos.

during the year?

Yes, redeployable capital -- you mean excess capital?

Excess capital (multiple speakers)

Your definitions worry me.

(laughter)

They -- well, I think we set a lot a couple things, a couple of lines in the sand here.

We need to hold $750 million minimum cash at the holding company, so $3.8 billion times -- minus $750 million is just a little over $3 billion.

Obviously we've also said many times we view the line in the sand regarding RBC as $350 million on a consolidated basis.

Obviously, that turns out to be about 50 RBC points higher than where it are today and you can think $60 an RBC point, so that's $3 billion.

It's -- in terms of do I think we will need to make an investment then in the insurance subs?

I do not.

You know, I expect those businesses to be -- have a respectable level of profitability in 2010.

Obviously, this is the highest RBC -- consolidated RBC ratio we've ever posted.

So we have more cushion down those businesses than we really ever had.

So I don't think we will have to put money down.

In fact, I fully expect to pay meaningful dividends up to the holding company in 2010.

Thanks.

Suneet Kamath, Sanford Bernstein.

Good morning.

First, just a quick follow-up to Nigel's question about the regulatory reforms -- I'm not sure you commented on the one that he had mentioned that is sort of the Volcker changes around hedge funds and corporate JVs.

Is there going to be any impact, as far as you can tell, on your investment strategies as it relates to your alternative portfolio?

Then I will have a follow-up.

Suneet, obviously the details are to come.

We don't know how this will impact us, if at all.

As you know, we do invest in hedge funds.

We have $1.3 billion currently outstanding in hedge funds.

The proprietary trading aspect wouldn't really apply to us.

So we are sort of staying tuned, but we are regulated of course by the states, and we have RBC charges against any and all assets that we purchase.

So, I would think the logic would suggest this would not touch us but again we will have to see how the bill as written.

The only thing that I would add to that is I think the thesis was investing that you do on behalf of your clients, your customers versus your own account.

Well, all of our investing is on behalf of our customers and clients; we don't have some prop desk.

So I think that's a pretty key distinction.

Okay.

Then just on the investment portfolio, Steve, I think you had mentioned $1.6 billion of cash invested in the fourth quarter.

I'm just wondering what the new money investment rate on that was and where you put it to work in terms of asset class.

Then as it relates to the consolidated yield ex the short-term portfolio of 5.2%, how does that compare to your pricing assumptions as you think about managing the business?

Thanks.

We are investing across a broad array of assets, really the entire sort of array that we normally invest in.

Our yield is about 5.2% when you exclude things like securities lending.

As of now, it's hard to know exactly where that's going to go in the current year, but we are certainly seeing a little pick up here in interest rates but we are also seeing spreads tightening.

I'm not quite sure I understood the last part of your question regarding what this means for -- were you referring to the liability side, how we're doing crediting rates?

I wasn't quite sure what you were saying there.

Yes, actually the other question was at what rate did you put the $1.6 billion?

I think the 5.2% relates to the total portfolio.

As it relates to the other question, I just assume you have in your pricing models some sort of a yield assumption, you know, we assume get this level of yield.

I am just wondering what that number is, if you could give a range as it compares to the 5.2%.

That's all.

Yes, well, there is no simple number there.

Obviously, every product we sell has different duration characteristics and the portfolio makeup is quite different in terms of how much would be in treasuries or private equities or corporates or what have you, so every product has a different sort of target new money yield.

I would say this though.

Keep in mind any sort of product we have that has sort of I would say a fixed component to it, whether it's like a fixed annuity or a structured settlement, those get repriced pretty continuously not literally every day but certainly close to every day.

And they -- and so -- and whatever the new money yields are at that time get factored into our pricing so that we earn our requisite spread.

So it's really quite dynamic in terms of how we manage pricing there.

As I think we have said on a number of occasions this whole year, we've been raising prices or in some ways lowering crediting rates on our products all year pretty much across the board, so that's something just to factor when you think about our revenue growth here, especially with the backdrop of the kind of pricing changes we've made, it's really pretty impressive.

Darin Arita, Deutsche Bank.

Thank you.

I was hoping that you could comment on the financial leverage of MetLife.

What is the number that you're looking at?

I know that there are some adjustments that you would make to that.

Then also just wondering how much debt and hybrid capacity you would have from those numbers.

Yes, so not to give anybody a little free advertising, but we generally look at the Moody's leverage ratio and they -- as sort of our expected -- as sort of how to discuss it.

You are right, Darin.

There's a lot of ways to calculate leverage and everybody does it a little differently.

On a Moody's leverage ratio basis, we are just under 30%.

At debt leverage ratio, we are a little under 30%.

So I would say, as of now, based on that ratio, our current capacity for more debt or hybrid financing is nearly 0.

Keep in mind one thing though, and this is sort of a conscious decision we made.

We, at the beginning of 2009, in the throes of the financial crisis, we said "You know, if we have an ability to go issue debt or raise money, raise cash to deal with whatever problems occur, we're going to do that" because our debt leverage ratio at the end of 2008 was below 25%, I think, or around 25%.

So we consciously issued securities, moved up the leverage ratio and then warehoused that cash on our balance sheet.

So that's why we have such a big cash balance at the holding company now.

So we let the leverage ratio go up.

Well, the good news is, happily, we needed almost none of that money.

Okay?

We did put a little down on the insurance subs at year-end as I discussed, but the rest of it is still sitting there.

So if you think about it, that's where my debt capacity went.

Okay?

It's now sitting in cash.

I've already used it and it is sitting in cash at my holding company.

Okay, that's helpful.

Just a quick question turning to the Auto and Home segment -- overall results look good but as I look at the Auto segment, the combined ratio ticked up above 100%.

Anything happening there?

This is Bill Moore, Darin.

Let me start by saying the fourth quarter is seasonally the worst quarter for us for Auto and the best quarter for homeowners.

Our combined ratio target for the fourth quarter of '09 was actually about 98.

Now, that being said, there was about an 8.5 point change from Q4 '08 to Q4 '09.

?

The drivers of that change look like this.

It's about 3 points less for prior-year development which was still favorable as you are aware; we had about 2 points from one-time items; and then the remaining 3.5 points was from an increase in non-Cat accident year loss ratio of about which 1 point was adverse weather and then the other 2 points came from an increase in auto injury cost, which we are also seeing in the industry and we are addressing through pricing.

Now, looking at the year, which removes the seasonality, the Auto combined ratio came in at 94.7, which is an excellent result and still below our long-term target of

Mark Finkelstein, Macquarie.

Good morning.

I want to actually go back to kind of along Andrew's lines and maybe just get help with the framework here.

I guess on capital, if you add up what's excess or I should say capital margin at the insurance company plus the holding company cash less kind of the $750 million that you typically think about as one year's fixed charges, you get down to about a $6 billion number.

Obviously, you need to keep a margin.

But I guess is there any framework you can give us in terms of how you think about what would be a deployable number on an acquisition or what have you out of that $6 billion?

Well, yes, obviously the excess at the holding company is available to do other things with, you know, so that's sort of -- and should you draw it all down?

Should you draw some of it down?

Well, that's obviously situational.

The stuff at the insurance company, we will be able to access that obviously through dividends in 2010, but as long as it's in the insurance sub, not much I can do with it.

So obviously some of it will come out in 2010.

I'll have to use some of that money to pay interest and preferred and common dividends at the holding company, so -- but obviously some of that is available during 2010 to use for other purposes.

But again, I guess I would say that is situational.

I guess maybe just kind of to elaborate, would you be comfortable using that $3 billion at the holding company?

Ultimately, sure.

Okay.

A question for Steve -- based on your forecast of real estate, I think you mentioned you see another 5% down, commercial real estate.

I guess based on that assumption, would it be your assumption that we would continue to see further write-downs in the real estate funds, or do we think that, with the write-downs that we showed in the fourth quarter, that we are kind of factoring that in?

As to the real estate funds, I would say we have taken a large amount of write-downs to date, and there could be some more coming in the current year, but I would not anticipate it being the same level certainly as 2009.

Okay, and then I guess just on the delinquency build on commercial mortgage loans, it looks like you added about $50 million to that allowance.

What is the commentary on that?

I mean, given where you are in terms of the actual delinquencies in the portfolio, do we expect to see continued build in that?

We look forward 12 months, we put that number together, and the delinquencies, as I mentioned, are very small, only $8 million, all offshore at this point in time.

But real estate tends to have a lag effect.

As the economy dips, eventually commercial real estate mortgages will default in some cases but it tends to happen over a period of time, over a couple year period of time.

So we think this reserve is an adequate reserve, a conservative reserve, but a good reserve.

We will reevaluate it every quarter.

Based upon market conditions, we will make changes up or down as time goes on.

Okay, thank you.

John Nadel, Sterne Agee.

Good morning, everybody.

I've got a couple of questions; I think they are really quick.

How much was the negative component in variable investment income from the real estate funds in the fourth quarter?

It was a couple hundred million dollars.

Okay.

How much was the benefit from the PIMCO RMBS re-rating on the risk-based capital ratio?

I guess related to that, do you think the rating agencies give you credit for that, or give the industry credit for that?

I thought you said this was going to be quick?

(laughter)

Well, I guess the first part of that is quick!

Okay as I start my soliloquy -- you know, I think, on investor day, we said that the benefit from the NAIC re-rating would be between 15 and 20 RBC points.

It's better than that.

The number isn't final obviously but it's clearly better.

I would tell you, since you've given me this opportunity, I would say I kind of want people to understand something about this, because I think it sometimes gets lost here.

Somehow this is perceived as a freebie.

You know, we had substantial ratings migration in the RMBS sector during 2009.

We did get an adjustment from the NAIC re-rating process, but even net of all that, the increase in cap or the capital charge, if you will, from that ratings migration on a net basis was still over $1 billion.

So ratings migration still hurt us significantly in terms of our capital levels in 2009.

So it's not like that's a big deal.

I would say, in terms of -- do the rating agencies give you credit for it?

You know, I don't really get a straight -- I don't think you ever get -- you're ever going to get quite a straight answer from them.

I don't think they are just going to ever say "yes" unequivocally.

I do think they understand the point of why this was done, and I think, depending on who you talk to inside the ratings agencies, they accept the methodology and the fact that, given sort of uniquely what's happened to RMBS, sort of the ratings and the way they -- the rating agency ratings versus the way they used to match up with the NAIC ratings doesn't really work any more.

That sort of methodology is sort of broken.

I think you will get consensus on that.

I do effectively think they will give us credit for it, but they will look at it closely.

Obviously, time will tell in terms of how these securities continue to perform.

If they are consistent with the NAIC's re-rating process -- we think they will be -- ultimately of course they will give credit for.

Got it, okay.

Then two more just quick ones, and I don't want to get into ALICO but just thinking about potential financing for any sort of deal, I guess two questions.

One, would you entertain the idea of selling any of your current businesses to help generate cash to finance something else?

Yes, I have a list here!

I will name them now!

(laughter) see if I can scare everybody.

No, the answer is we really don't want to talk about this but the answer is no.

All right, and then just I will try one more.

You've got a lot of extra capital that doesn't get credit for in risk-based capital or other places in your offshore reinsurance entity.

I think at year end you sort of put around a $2 billion number on that.

I'm wondering if any of that capital is available to the holding company or otherwise if needed for some other reason.

Well, I guess it is theoretically available, but that's just not something we would ever do.

I think that's a really, really bad risk-management practice, so that's not something we would ever entertain.

I applaud that answer.

Thanks.

Ed Spehar, Banc of America Merrill Lynch.

Thank you.

Good morning.

Bill, I wanted to go back to the comment you made about you expect to pay meaningful dividends from the insurance subsidiary in 2010.

Would this be your expectation independent of whether or not you do an acquisition?

Yes.

Okay, and if so, why?

It's unclear to me then why you put capital down in the sub in the fourth quarter, considering that you expect to pay material dividends this year.

I feel a little foolish, too.

When we -- you know, obviously, to get credit for it, we need to put the capital down before year end.

Okay?

So on December 28 -- I'm looking at my treasurer -- slightly just before year end, we said "Well, we think the RBC ratio looks good, but obviously the numbers aren't final and things can jump around.

So let's be safe rather than sorry and let's put some money down." In hindsight, we didn't need to do that.

So I think the good news is we can probably get it back out relatively quickly, but we clearly didn't need to do it.

By the way, that $375 million, just to put it into context, that's roughly 6 points-plus of RBC, so we clearly didn't need to do it.

Colin Devine, Citigroup.

Good morning.

Just I want to clarify a couple of points.

Bill, in terms of I guess a target capital structure with this deal out there, what Moody's will hold you to, obviously the 30% debt if you can do the 10% hybrids on top of that is question number one.

Question two is maybe for Rob -- is to talk a little more about the dental business.

This is really the first time you sort of held it out there as how much money you make.

Expand a little bit.

I'm not going to use the word "color".

I don't think any of us want to hear that one again, but perhaps expand a little bit on what's driving the dental business.

You've also talked about potentially doing some M&A there, so not maybe on the ALICO situation, but perhaps some of the other opportunities you are looking at to accelerate the growth of MetLife right now.

Thanks.

I really don't want to talk about ALICO, but I don't want to leave -- or sort of theoretical financing situations.

But I just would remind everybody, you know, if you issue common, you create debt capacity and you create hybrid capacity, so by putting that additional common footing out there.

So that's sort of obviously how the math works.

In terms of I talked about -- so on our current balance sheet today, I don't think we have any incremental debt or hybrid capacity.

That doesn't mean we wouldn't have some created by issuing common, so hopefully that's clear to people.

Colin, let me pass the dental question to Bill Mullaney.

Colin, just to give you some perspective, at the investor day, we talked about changing the benefit ratio that we report out, moving away from the disability ratio to a nonmedical health ratio.

The reason we did that is, in nonmedical health, dental is about 50% of the total premium today.

Disability premium is less than 25% of nonmedical health and less than 5% of US business overall.

So the dental business, over the last several years, because of the growth we've gotten, primarily organic growth but also from a small acquisition we did in 2008, has become a very important part of the US business growth story.

In terms of our outlook for dental going forward, as you know, dental faced some pressure from an earnings perspective in 2009.

We saw utilization spike up, we think, directly related to the increase in unemployment.

However, that has started to stabilize as we look at the fourth quarter, and we've taken some significant pricing actions, both from a renewal perspective as well as a new business perspective going into 2010.

So, we expect earnings on that business to begin to rebound.

In terms of acquisitions for that business, it's a great business for us, as we talked about before.

It's been a strong grower.

It's got a very high ROE because the capital requirements for dental are low.

The acquisition we did in 2008, which was a small DHMO acquisition in some key states in the West and the Southwest, not only helped us to grow the acquired business faster but it gave us entree into customers that we were not able to quote on before for our traditional PPO business because we didn't have the DHMO capabilities.

So if we could do other acquisitions like that, that would help us to expand out our DHMO capability as well as our traditional dental capability in other markets, we would certainly do that.

Bill, can you just perhaps what is a high ROE for you?

Is that a 15% to 20% ROE if I think of Met's long-term target now at 12% to 13%?

Is it better than that?

Yes, the historical ROE on dental is north of 20%.

Then just one quick follow-up for Steve Kandarian -- with the defaults on Peter Cooper, can you just reiterate perhaps one more time so I will sleep better that Met has no residual exposure to that?

Colin, that's correct.

We sold that property; it was a cash sale.

We did not buy, for example, any of the CMBS that was issued out of that sale, and all of our purchase price consideration was received at closing.

You're not thinking of getting back into it?

Colin, I don't know if they heard might your question, so my ears are really clean this morning.

No.

(laughter)

I'm sure Donald Trump is feeling better about that.

Thanks.

Jeff Schuman, KBW.

Good morning.

We talked a little bit about some of the tax and regulatory proposals, but given that there are a lot of things potentially floating out there in terms of regulatory reform and that some of the changes may carry various costs or burdens or limitations for banks or bank holding companies, I am wondering how wedded you are necessarily to sort of keeping the bank and being a bank holding company under all scenarios.

I know you're pretty pleased with the way that's running now.

But is there a limit to the inconvenience, I guess, you would accept under sort of new regulatory scenarios?

Well, let me take a crack at that.

I mean, in the first place, with the discussions occurring in Washington now -- and I would broaden it and just emphasize that you've got a lot of people involved in discussions on this whole topic.

Therefore, it is moving and quite fluid.

I would say it probably moves, in terms of rhetoric, a little bit differently since recent elections have changed a little bit the landscape in terms of people being willing to change rhetoric and compromise and so forth and so on.

So we like the bank very much.

The fact that we are federally regulated as a bank holding company in and of itself has caused really no problems for us in terms of moving forward, and we don't see that it would cause problems anyway.

Much of the discussion going back, if you put it all together over the last several months, one would wonder whether it made any difference whether you are a bank holding company or not.

So certainly it wouldn't make any sense to divest something under the theory that would somehow insulate from all regulatory reform and then turn around in the end and see that you've sold something that had a great deal of value, was strategically value and helped to cross-sell products and services.

So we are always looking at the landscape, always looking at the value.

If in fact this somehow created some sort of value deterioration for our shareholders, obviously we would take whatever action is necessary.

Good, that's helpful.

Just one other question -- you did see an improvement in individual life sales this quarter, at least year-over-year.

Does that reflect the market coming back a little bit, or did you have some company-specific things at work here, or how should we read that?

It's Bill Mullaney.

Yes, individual sales did improve.

We saw individual sales up about 13% over the last quarter and 17% up year-over-year.

A lot of that came from whole life.

Whole life sales were up a lot in both [our CUR] agency as well as our third-party channel.

We also saw an increase in term sales which came primarily from third-party and an increase in universal life sales, and then a decrease in variable sales because of the changes in the equity market.

So we are pretty happy with what we are seeing in the individual life market.

We've made some changes to our products and some changes to our pricing, increasing prices on certain products and certain segments to improve the returns.

So to play off something that Bill Wheeler said earlier, we have a pretty dynamic approach to pricing all of our products.

From a life insurance perspective, we have been taking a look at some of the returns that we've been making and changing our prices to improve some of the returns.

Despite that, we are seeing increased sales, which we think is a function of our brand and a flight to quality.

Thank you very much.

Tom Gallagher, Credit Suisse.

Thanks.

Bill, I wanted to come back to a comment you made on your hold co.

cash position.

I think your response was that the full, I believe it is $3 billion to $4 billion of excess cash at the holding company would ultimately be available for redeployment.

What do you mean by ultimately?

Is the thought that the $3 billion to $4 billion is a real nice cushion to have, just given the economic uncertainty, so you would rather sit on that for the time being, or can you just elaborate it in terms of how you are thinking about it?

(laughter) I shouldn't laugh with the mics on.

I -- just so it's clear, because you use (inaudible) $3 billion to $4 billion, we have $3.8 billion of cash at the holding company.

We need $750 million so the excess in my mind is $3 billion.

It is excess.

So it is available.

The timing of that -- again, I obviously -- for me to try to say what's near term versus long term just in my speculation about ALICO, which I'm really not going to do, but in my mind that is really excess capital and it is ultimately available.

Whether I spend it sooner rather than later, that's a judgment call we will make.

So, Bill, so bottom line is, given the strong RBC other potential levers, you'd be comfortable -- forget about ALICO -- you would be comfortable using the excess cash over the $750 million to do something with that immediately?

So, you don't feel the need to sit on dry powder, per se?

Well, I didn't say immediately, but I did say it ultimately.

I think we know the difference there.

But it is excess cash.

Okay.

Then just one question for Steve on the mortgage reserve and your comment on the default rate.

I just want to make sure I understand the math.

So you were saying your current mortgage reserve you think would cover a 5.7% default rate.

I get the fact that's because you expect to have recoveries, because you have pretty good LTVs.

But can you tell me what your recovery assumption would be embedded in that comment?

Sure.

We are assuming a 30% loss, 70% recovery, based upon the nature of these mortgages that we're looking at and historical norms and past cycles and so on.

Let me actually take the opportunity just to go back to Colin's question for one second on Peter Cooper's (inaudible).

I think most of you know there is a lawsuit outstanding in which we are a named party.

It relates to some rather complicated tax issues.

I won't go into the details of that, but our exposure, based upon our analysis, is a relatively small number.

Should the plaintiffs be successful in that lawsuit, it would be less than 1% of the sale price of that property.

So we view it as being relatively immaterial.

Okay, thank you.

Thank you, everyone.

Ladies and gentlemen, that does conclude your conference for today.

Thank you for your participation.

You may now disconnect.