大都會人壽保險 (MET) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the MetLife first-quarter earnings release.

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

Later we will conduct a question-and-answer session with instructions given at that time.

(Operator Instructions).

As a reminder, today's conference is being recorded.

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

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

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 from time to time in MetLife Inc.'s filings with the US Securities and Exchange Commission.

MetLife Inc.

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

With that, I would like to turn the call over to Conor Murphy, Head of Investor Relations.

Please go ahead.

Thank you, Julie, and good morning, everyone.

Welcome to MetLife's first-quarter 2010 earnings call.

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

We will be discussing certain financial measures not based on Generally Accepted Accounting Principles, 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.

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 gains and losses, which can fluctuate from period to period and may have a significant impact on GAAP net income.

Joining me this morning 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; 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, Connor, and good morning, everyone.

We are off to an excellent start in 2010, delivering strong results across the board.

During the first quarter, MetLife generated $8.8 billion in premiums and fees and other revenues.

That's up 12% over the prior-year period.

We grew operating earnings to $834 million.

That's up significantly from a year ago, and it's up nearly 5% sequentially.

Book values per share improved noticeably in the quarter as well.

Book value, including AOCI, is up 9% sequentially and book value excluding AOCI is up over 2%.

The growth we're seeing in the bottom line demonstrates the discipline we have maintained in our underwriting, pricing, risk management and expense control.

We are also benefiting from the more favorable equity markets as they continue to recover.

And, as you know, MetLife emerged from the economic crisis financially strong, which positions us very well for the solid first-quarter performance you will hear about today.

Before we do that, let me take a moment to comment on our recent agreement to acquire Alico.

As I've said before, we expect that the acquisition of this highly complementary business will be rewarding to our shareholders and will accelerate our growth strategy.

While we can't comment on Alico's first-quarter financial results, let me highlight some integration progress to date.

There are 30 regional and functional teams comprised of both MetLife and Alico associates dedicated to the integration.

And we have deployed a rigorous management plan to ensure a seamless transition.

In the first few weeks after the announcement, our team visited each of Alico's major locations and met with many employees and approximately 200 senior leaders.

We also are designing the optimal enterprise operating model, which will fuel the growth of our combined businesses.

Having said that, let me be clear that although the integration is a high priority, we will not be distracted from achieving our 2010 plans, and we know the same is true at Alico.

We will continue to focus on the fundamentals of our business in order to drive growth and shareholder value.

Now turning to some highlights from our businesses.

In US Business, premiums fees and other revenues increased to $7.4 billion, up 11% over the prior year.

This strong result reflects top-line growth in Corporate Benefit Funding, which more than doubled; Retirement Products, which also increased dramatically; and insurance products.

Operating earnings were strong across all of US Business, and at $757 million, represents a substantial increase from the $178 million one year ago.

In our Insurance Products segment, growth in premiums, fees and other revenues was driven primarily by a 6% increase in Group Life premiums over the first quarter of 2009.

Non-Medical Health revenues were flat.

Dental revenues increased but was partially offset by a decline in disability.

Individual Life premiums, fees and other revenues were also flat over the prior year.

However, sales grew 15%, driven by increases in whole, term and Universal Life products.

And operating earnings nearly doubled over the prior-year period with 92% growth from higher investment income, solid Group Life underwriting and lower expenses.

In Retirement Products, better equity market performance and thus higher fee income contributed to strong top-line growth of 27%.

Fixed annuity sales of almost $360 million are lower than last year's record levels due to the high demand from MetLife fixed annuities at the onset of the financial crisis.

Variable annuity sales of over $4 billion are up 9% sequentially and 8% over the prior year.

Net flows remain strong.

Lapse rates continue to decline, and the success of our new fidelity product is contributing to our increased market share.

Operating earnings in Retirement Products were strong at $159 million.

In Corporate Benefit Funding, premiums, fees and other revenues increased 112% over the first quarter of 2009, driven by higher pension close-out activity primarily in the UK.

Structured settlement premiums also continue to drive the excellent top-line growth in corporate funding.

Our earnings for this segment were up significantly from the prior year.

Finally, within US Business, Auto & Home's results were solid.

Top-line growth was consistent with expectations and earnings were steady at $72 million.

The combined ratio, excluding catastrophes, was very good at 88.8%.

MetLife Bank delivered another good quarter.

The Bank generated revenues of $299 million, down from the unusually high levels in the prior period and consistent with overall market activity.

Operating earnings remained healthy at $53 million.

Turning to our international business, we achieved another very strong quarter with growth across all three regions.

On a reported basis, premiums, fees and other revenues grew 27% over the prior year, and operating earnings grew 15%.

In Latin America, growth in Mexico, Chile, and Brazil contributed to top-line growth of 28%.

The Asia-Pacific region grew 24%, due to higher sales primarily in Hong Kong.

In our Europe/Middle East/and India region, the top line increased by 30%, driven by continued growth in India and strong sales in Europe.

We continue to experience excellent top and bottom-line growth internationally, which is part of the reason why I'm so excited about Alico.

We can build upon this and leverage the complementary strength of both companies to accelerate our growth even further.

Steve will talk to you about our investments in a moment.

I would like to say though that I'm very pleased with the overall performance of the portfolio, which has returned to a net unrealized gain position.

We also had a small net realized gain for the quarter, which included impairments of $97 million after-tax.

So our run rate of credit losses is significantly below our projection of $1 billion for 2010.

Finally, this month, MetLife celebrated its 10th anniversary as a publicly traded company.

In those 10 years, we have become stronger, and have significantly accelerated our growth, demonstrated by our consistent delivery of shareholder value.

With all that has been accomplished and with what is on the horizon, I feel very optimistic about the future.

While there are undoubtedly challenges ahead, I believe we have the strategy, leadership and momentum to position MetLife as one of the leading insurance companies in the world.

And with that, I will turn it over to Steve Kandarian.

Thanks, Rob.

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

Overall, we continue to see improvement in the markets, with rising variable income and lower losses.

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

Pretax variable investment income for the first quarter was $314 million, which is $114 million above the top of the planned range that I gave at Investor Day.

This was primarily driven by strong private equity and hedge fund returns.

While we expect returns to be below this level during the remainder of the year, we believe variable income should remain strong.

Now let me cover investment losses for the quarter.

Gross investment losses continued to decline and were $211 million while gross realized gains were $400 million.

Write-downs also declined and were $149 million.

Excluding derivatives, we had a net realized investment gain of $40 million this quarter.

Gross unrealized losses on fixed maturity and equity securities were $8.5 billion at March 31, down from $10.8 billion at December 31, as spreads declined across most sectors.

Overall, the portfolio was in a net unrealized gain position of $1.5 billion at quarter end.

Next, I would like to briefly touch upon our commercial mortgage holdings.

During the first quarter, delinquent loans increased from $8 million to $162 million.

This increase resulted from three loans, one of which is expected to be paid off during the second quarter with a loss of no more than $2 million.

The second has been restructured.

And the third is a high-quality property that we plan to transfer to our real estate equity portfolio.

As such, we expect limited losses as the recoveries on these loans are projected to be significantly above the historical average of 75%.

As I noted on the last call, we anticipated that delinquencies might increase in 2010, but would be manageable, particularly given our commercial mortgage valuation allowance of $624 million.

We believe that commercial real estate valuations have bottomed out with an average peak to trough decline of about 40%.

The loan to value ratio of our portfolio increased slightly in the first quarter to 69%, based on a rolling four-quarter valuation process, or we estimate to the low to mid 70% range if all properties were revalued today.

Importantly, only 2% of our portfolio has a loan to value greater than 80% and a debt service coverage ratio of less than 1 times.

Furthermore, we have seen a pickup in office leasing activities compared to last year, and hotel occupancies are also starting to improve.

In summary, we remain confident that our commercial mortgage portfolio will outperform the overall market and that loss levels will likely remain low.

Finally, given the recent headlines, I would like to make a brief comment on MetLife's exposure to Europe's perimeter region.

As I mentioned in March when we announced our pending Alico transaction, MetLife's general account has less than $40 million of total sovereign debt exposure to Italy, Ireland, Spain and Greece combined, and we have no exposure to Portugal.

These are countries in which we do very little business.

Alico holds approximately $1.3 billion in Greek sovereign debt, and the Greek bank holdings are de minimis.

Remember, when a transaction closes, these assets will transfer at market value to our GAAP financials.

And on a statutory basis, Alico must be delivered with a 400% RBC ratio.

While we are closely monitoring the impact of any country-specific situation, we continue to believe that Alico's portfolio is of relatively high quality with manageable loss expectations.

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

Thanks, Steve, and good morning, everyone.

MetLife reported $1.01 of operating earnings per share for the first quarter.

As Rob mentioned, this strong bottom-line result represents solid business growth, higher investment income, improved equity markets and the results of our expense management efforts.

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

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

Total premiums, fees and other revenues, which were $8.8 billion in the first quarter, are up 12% from the first quarter of last year and 10% on a constant currency basis.

US Business premiums, fees and other revenues of $7.4 billion reflect an 11% increase over the prior year.

This includes a 27% increase in Retirement Products revenue due to increases in fees from positive net flows and higher separate account investment returns.

Also, revenue growth in Corporate Benefit Funding is up over 100% from the prior-year quarter, driven by strong structured settlement and UK closeout sales.

As we have noted before, closeout sales do fluctuate and cannot be expected to recur at the same level each quarter.

International's revenues are up 27% on a reported basis and 10% on a constant currency basis over the prior-year quarter, driven by growth in all three regions.

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

In US Business, our mortality results were mixed this quarter.

The Group Life mortality ratio for the quarter was 89.5% versus our estimated range of 90% to 95%, which is an excellent result.

Our individual life mortality ratio for the quarter was 87.6%, which is slightly below our plan.

At 91.2% for the quarter, the nonmedical health total benefits ratio is up from 87.4% in the prior-year quarter.

While we continue to see signs of stabilization in dental utilization, we did experience higher claims activity.

Disability margins are also weaker due to higher incidence and lower claim recoveries.

Turning to our Auto & Home business, the combined ratio including catastrophes was 94.1% for the first quarter, which is up over the prior year's quarter results of 92.4%.

That's due to higher catastrophes and less prior-year reserve releases.

The combined ratio excluding catastrophes was 88.8% in the first quarter versus 88.1% in the prior-year period.

A non-catastrophe prior accident year reserve release of $5 million after tax was taken in this quarter compared to a $17 million after-tax release in the prior-year period.

Needing to investment spreads, we saw an improvement in investment spreads this quarter with the improvement in the market and variable investment income results.

For the quarter, variable investment income after tax and the impact of deferred acquisition costs was $71 million or $0.09 per share above the top of the 2010 quarterly guidance range given at investor day.

As Steve explained, this was primarily driven by strong private equity and hedge fund returns.

Moving to expenses, our operational excellence initiative continues to prove successful.

Additionally, pension costs have stabilized and are no longer causing a significant impact year over year.

Our expense ratio for the quarter was 21.7%, a solid result and below the 2010 guidance of 21.8% to 22.5% given at Investor Day.

This quarter, we did incur a $20 million after tax or $0.02 per share in operational excellence charges, and certain other one-time items.

Turning to our bottom-line results, we earned $834 million in operating earnings or $1.01 per share.

Included in our first-quarter results is a one-time tax charge of $75 million or $0.09 per share related to the tax law change from Medicare Part D subsidy embedded in the recently enacted health care reform legislation; as well as a $13 million or $0.02 per share impact due to the expiration of certain business tax incentives for controlled foreign corporations.

With regard to investment gains and losses, in the first quarter, we had after-tax net realized investment gains of $2 million, which included derivative losses of $19 million after tax.

MetLife uses derivatives to hedge a number of risks.

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

Impairments were $97 million after tax in the first quarter, which is a 50% decline from the fourth quarter of 2009.

Our preliminary statutory operating earnings for the first quarter of 2010 are approximately $580 million, and our preliminary statutory net income is $660 million.

Finally, cash and liquid assets at the holding company at quarter end were $3.8 billion.

In summary, MetLife had a very good first quarter.

Our revenue growth is strong.

Our investment performance has improved and our earnings continue to grow.

And with that I will turn it back to the operator for your questions.

(Operator Instructions).

Suneet Kamath, Sanford Bernstein.

Thanks and good morning.

Two questions.

First, on the Alico deal, with respect to the 400% minimum RBC at close guarantee, are there any stipulations in the contract in terms of how Alico gets to 400%?

In other words, if something happens that forces them below, does it necessitate a capital infusion by AIG or can they do something else such as slow growth or take offsetting realized gains?

Any color on that would be helpful.

And then I'll have another question.

No, there isn't a stipulation about how they solve the 400%.

Though my expectation -- but if you know how RBC is calculated and how complex a calculation it is, it's not the thing that you can kind of manage two quarters ahead of time by slowing growth.

So my expectation is that if -- for some reason -- by the way, and I think I've said this in a number of forums, absent investment losses this year, my expectation is that Alico's RBC will be well above 400%.

And so they're going to have some cushion.

And so if there are investment losses between now and when we close -- by the way our expectation is we are six months away from closing.

If there are going to be investment losses, they have some cushion to probably solve that problem.

So my guess is capital infusion will not be necessary.

Got it.

I guess their ownership stake in Met is a pretty good incentive not to do anything too tricky there.

The second question is on derivatives regulation.

I know it's early days here, but I'm assuming that you guys are in touch with folks in Washington about what might happen there.

Can you just at a high level give us some thoughts in terms of what we should be looking for or what we might expect in terms of an impact on Met?

Yes, in terms of being in touch, let me start out there.

We both as a company and as an industry leader are very in touch continuously with people on the Hill and people in the agencies and so forth.

So, let me -- I'll be a little more philosophical about this than you might want, but it would be hard to be more specific.

Everybody recognizes -- and I mean everyone -- that closing regulatory gaps to avoid future crisis is an objective.

If we had all started out with a blank sheet of paper and said, you know, let's identify the challenges and the objectives, and from that we will glean language, and that language will be efficient, elegant, and clear relative to reform, one would have envisioned a racehorse, something very elegant.

In fact, we knew that that was not possible a long time ago.

So you've got, realistically, given the charged political climate and so forth, people have been working on constructing a camel now for some time.

And if you know anything about camels, you can construct one and it might look a little funny and it may not be particularly elegant, but it gets you there.

And so we, in the industry, are working to make sure that the camel gets us where we want to go and it doesn't spit and bite and kick.

And so, that's the full philosophical answer, and it's a good one relative to where discussions are because quite frankly, most everyone in the debate recognizes that the business of insurance needs to be protected from unintended consequences on bank regulations and we're pretty optimistic that the debate is proceeding pretty nicely actually despite the turmoil that we see in the press.

And we don't think it's going to have too much adverse effect on the insurance industry.

So, that's a prognostication, but tune in.

Maybe one quick follow-up.

While the racehorse/camel analogy will probably live on for a while.

Warren Buffet I guess was trying to get some rules changed or some sort of an exemption around how much capital or collateral he would have to post or his company would have to post.

Is that something that will impact you in terms of how you manage the business?

Any thought there would be helpful.

Thanks.

Well I think it may impact others much more than it would us because remember, in terms of derivatives use and whatnot, being regulated, we have a derivatives use plan that has to be approved by the regulator.

We are collateralized in that activity.

And so, most -- the idea of a carve-out for the insurance companies is probably not going to happen, but the carve-out around specific insurance activities, and how you measure that, both on the liability and the asset side most likely will be the result.

And so, rather than start out totally clean with some exceptions, we will start out with the other end of the spectrum and then back out the business of insurance that needs to be protected.

So that's kind of the flavor of what's going on at present.

Got it.

Thank you.

Jimmy Bhullar, JPMorgan.

Thanks.

I had a couple of questions.

The first one is on just your spreads; obviously very strong across the board this quarter.

And I think part of the reason is variable investment income, but you've been deploying excess liquidity as well.

So maybe Bill or Steve, if you could give us numbers on where your liquidity position stood at the end of the quarter and whether you intended to reduce that this quarter as well?

Secondly, on disability losses or non-medical loss ratio, your disability losses seem like they're picking up not a lot, but they are picking up as the economy has gotten worse.

And that's a little different than what the results have been for some of the other disability companies, which have shown relatively stable margins.

So, if you could just give some detail on whether it's incidence rates picking up or the recovery is not being that great?

And finally, just a numbers question since there were questions on Alico before.

What was the RBC of Alico when the deal was announced so we could get an idea on how much they could absorb in terms of losses before having to put in more capital?

This is Steve.

Jimmy, I'll take the one on us reinvesting some cash, which we've done over the last couple quarters.

Our cash is down over $5 billion since the third quarter.

And those funds have been invested in a broad array of the normal assets and asset sectors that we typically invest in.

So it's been kind of across the board in various different sectors.

We've seen spreads tighten in a little bit more recently.

But we have taken advantage earlier on in terms of some higher spread assets that we thought had very good risk reward trade-offs.

And that obviously has helped our yields here in our spreads.

Okay.

It's Bill Mullaney.

On disability, I think what's happening in disability is really as a result of macroeconomic trends.

We've been seeing the disability loss ratio tick up really for a good part of 2009.

It's actually down a little bit over where it was in the fourth quarter.

It's driven by a few things.

The primary thing that's driving the loss ratio is recoveries and getting people back to work.

Our level of recoveries is significantly below where we would expect it to be, and that's having a big impact on the loss ratio.

Incidence is up a little bit, but it's not up a lot.

And so we had anticipated that we were going to see this as the economy started to soften.

We've been raising prices on the disability business.

That's one of the reasons why nonmedical health revenue was a little bit depressed because our disability sales have been below what we would have expected if we hadn't been taking the price increases.

So it's something that we've been watching for a while.

We continue to manage it aggressively, and we think that the numbers will start to improve as the unemployment rate begins to come down.

And related to that, have dental claims been picking up as well or have they stabilized?

Well we saw a pretty big spike in dental claims starting in the first quarter of '09, which went through pretty much the rest of '09.

2010 is better than the increase that we saw in 2009.

But it's still a little bit elevated over where we would have expected it to be.

Again, we were pretty aggressive on pricing actions in dental.

We reprice most of those contracts either every year or every other year.

And so we took some pricing actions in 2010.

That's bringing the dental loss ratio down.

So I would say -- the way I would characterize dental is I would say that the claim activity there is stabilizing and that we expect over time that it is going to improve.

Thank you.

Jimmy, finally, Alico's RBC ratio, Alico doesn't actually -- you probably know this -- doesn't actually publish an RBC ratio.

They have kind of a unique statutory filing.

So it's not a number in the public domain.

That's why I was asking.

I will help you out.

Think a number approximately 400% RBC ratio.

Okay, so then the pluses and minuses, obviously the earnings accrue to that and that goes up but then you have investment losses and whatever other changes, right?

Exactly.

Okay.

Thank you.

Nigel Dally, Morgan Stanley.

Just a question on the expense ratio this quarter.

It came in very robust, bringing you below the low end of your guidance range you provided at Investor Day.

How sustainable is that likely to be?

And what level of incremental expense left do you still have from the operational excellence initiatives year to come?

The 21.7% is slightly below the target range in our plan.

I think our target range was 21.8% to 22.3%.

And so we are trending a little bit better than plan.

I will also tell you, though, the 21.7%, if anything, is a little high this -- well, what drove the number?

Revenues were better than forecast, so that obviously helps the number look better.

But also we had some one-time negative expenses, which were obviously not planned for.

And I don't know if those quite cancel each other out, but they are probably close.

We are -- I actually think it's quite sustainable, though it is a little bit below plan, obviously, but it's certainly within the reasonable range.

How much more room do we have?

You know as you know, we put out an original expense, operational excellence expense reduction target of $400 million.

We upped it to $600 million at last December, and we said we would be sort of a $600 million run rate by the end of this year.

And we are clearly on track to do that.

And we feel very comfortable about that number.

So, that's probably all I'd say today.

Okay.

Second question, there's been various proposals out there by the regulators with regards to required capital gains commercial mortgage loans.

Have you done any calculations as to how that would impact your risk-based capital?

That got jumbled a little bit.

Were you talking about some of the proposed increases to the capital for commercial mortgages?

Yes, that's right.

Exactly.

And what impact that would have on your RBC ratio.

Yes, there's been some speculation that the NAIC -- well, certainly there's some discussions among NAIC members.

By the way, that's different than being an initiative of the NAIC.

Everybody needs to appreciate that.

Is that they may raise the capital requirement for commercial mortgages.

I think the current number is 2.6%.

And the idea was that it would go to 4%.

But depending on how your portfolio was performing, it could be anywhere from 3% to 5% is sort of; so interestingly, since I think our performance of our commercial mortgage portfolio will be at the positive end, it's possible that, and depending on how wide that band ultimately is between 3% and 5% and how low it dips, the honest truth is even if this passed, it might have a very, very modest effect on our RBC ratio.

And -- but I think if you took the midpoint of the range and said 4%, I think Moody's put out a piece which estimated the impact on us would be like 25 RBC points.

I think the -- I actually think we are obviously very close to what goes on in the NAIC.

And I think we have to wait and see about how that initiative lands, but we feel pretty good that that's probably not going to be the final result of the capital requirements for commercial mortgages.

That's great.

Thank you.

Tom Gallagher, Credit Suisse.

Good morning.

First question is, I know one of the rating agencies has been talking about, and I think has you guys on negative watch and is suggesting they would like to see more capital pro forma the Alico deal.

Can you just give an update as to where you stand in terms of overall capital adequacy relative to balancing out the rating situation?

That's my first question.

The second one is for Steve.

I noticed you had a $160 million increase in net investment income for fixed maturity securities.

And the actual annualized yield went up by 14 basis points.

That compares to 4Q and to 1Q.

And just curious what's driving that.

What kind of new money yields you are seeing for bonds?

And is it possible that you can keep that steady or are you investing below where you are?

And might we see a drag there?

Yes, so with regard to the capital situation, as opposed to sort of aiming this at a rating agency, let me just give you a synopsis of where we think we are.

We ended up 2009 with a 432% consolidated RBC ratio.

That's the highest RBC ratio this Company has ever had, frankly, by quite a ways.

And on top of that, we had $3.8 billion of cash.

And so fast forward a quarter, while we had very good statutory earnings, on a stat basis, a realized investment gain, and the cash position at the holding company hasn't changed.

So in many ways I think our capital position frankly is as strong as it's ever been.

And, I don't think the risk profile of this Company has changed one wit, frankly.

So, certainly we feel like we are properly capitalized and we have a very nice capital cushion currently.

Now, the rating agencies obviously are concerned about the industry and about asset problems in certain categories, especially the real estate business, commercial mortgages.

I think we've spent a lot of air time discussing the high quality of our commercial mortgage portfolio, about how differentiated it really is.

It's also, and that's not just us talking.

Remember the federal government stress test a year ago right about this time?

The 19 large financial institutions in this country -- we were the only insurance company in that group.

Our performance or our result of their stress test in our commercial mortgage portfolio is we had the highest performing portfolio and it wasn't really close.

So, it -- I think -- so we feel we're in very good shape.

But, I think we're at a point in time as I think of the economic cycle where we've gone through a crisis.

We've gone through the fire.

A lot of people are very nervous.

I think as the months tick by, I think -- and our results are good and market environment is getting better, I think people will feel better.

So I don't know that the answer is that we should be stockpiling more capital.

But, we'll continue to monitor it, and we will obviously continue to have discussions with the rating agencies to make sure that they -- we'd like to persuade them of our position.

So that's how I -- that's my general feeling about capital.

With regard to financing for Alico, I think we've said this before, we do need to raise some external capital.

We've said on -- when we announced this transaction we expected to raise $2 billion of common and that we expected to do that either publicly or privately.

And if we did it publicly, we would be in a position to do it sometime this summer.

None of that has changed.

And the only thing that has changed is I think when we made that announcement, the stock was at $38 and I think it closed yesterday at $45 and change.

So, obviously we don't have to sell quite as many shares.

We probably wouldn't have to sell quite as many shares as we originally modeled.

So, the -- that's sort of where we stand.

Okay, thanks.

And then for Steve?

Yes, Tom, I would say two factors are driving that increase.

One is the reinvestment of about $1.3 billion of cash in the quarter.

The second thing is we have some inflation linked assets in Latin America, and due to some accounting quirks, if you will, that resulted in some more positive net investment income that shows up in that line item.

There is an offset though on the liability side.

So you might see that elsewhere in the financial statements.

And --

The bottom line is that you wouldn't necessarily expect that number to trend up given current yields and spreads in the marketplace.

Steve, what kind of yields are you seeing in terms of new money as it relates to just the fixed income portfolio?

It's around, 5% right now for fixed income.

But obviously that varies based upon whether you are buying floating-rate assets matching up against floating-rate liabilities or buying longer assets, matching up against our longer liabilities.

Okay, thanks.

Colin Devine, Citigroup.

Just a couple questions.

First on pension products, obviously some strong sales this quarter, but as you noted they were coming out of the UK.

I'm starting to hear that there's maybe a couple of large deals being worked on in the US.

And I'm not sure, Rob, if you will comment on that, but maybe we'll get something out of you on it.

Even as Bill mentioned with your own pension, it's finding the situation stabilize.

So are we starting to see the domestic pension closeout market warm up?

Secondly, with respect to the legislative development, I guess there's also some continued chatter out of Washington that we may see some several favorable tax treatment change on annuities and specifically encouraging people to annuitize.

Rob, if you could perhaps comment on that.

And then Bill, with respect to the comments you made earlier on with the NAIC's change to the commercial mortgage charge, is that really all that important for you?

I would assume it's really the rating agencies charged on commercial mortgages that's ruling the day here.

And perhaps you could compare the figures you put up for where the NAIC charge or capital charge may go on mortgages for what you're holding now onto the various rating agency models.

Thanks.

Hi, Colin.

It's Bill Mullaney.

Let me start by talking about closeouts.

We did have a very strong quarter in pension closeouts, particularly in the UK.

The UK market has changed quite a bit over the last couple of years.

A number of the competitors that were very aggressive in terms of pricing closeouts back in 2007 and 2008 have pulled back out of the market.

There's still quite a bit of closeout activity.

And as a result, we are writing a fair amount of business and we're writing it at good returns.

In terms of what's happening in the US, I think your observations are right.

The market is starting to open up a little bit I think as equity markets have recovered and funding status of pension plans has improved.

There are more deals to be done.

I would say some of the deals that are currently close to being resolved are on the smaller end in terms of size.

Having said that, there are some bigger deals and there are conversations that have been taking place over a number of months with some larger plan sponsors about potential closeout activity there.

So we will see how that ultimately develops.

Okay, Colin, relative to tax changes, a broad answer is obviously there's a thirst for revenue from the federal government.

And so everyone is working very hard relative to making sure that tax increases, that at least are consistent with what the overall focus is.

For example, driven by both the Department of Labor and the Treasury Department at the moment, there's quite a bit of focus on the need for securing more retirement income.

And that's work being done by DoL and the Treasury, not driven by the life industry.

So, one might presume that it would be counter to exactly what the focus is to turn round and focus on taxes out of annuities.

But, who knows.

And that's across almost any kind of business activity in the United States.

Everybody is hunkering down in terms of making sure there are not unintended consequences about revenue gathering.

So, I wish I could be more specific, but obviously again, both we as a company and we as a leader in the industry are very involved in these dialogs.

Colin, with regard to your question about commercial mortgages and the capital we hold, and I guess your point was is -- it's really not so much about what the RBC impact is.

It's really about what the rating agencies think we should be holding for capital against those asset classes and how that may or may not change.

Is that kind of the gist of it?

I think that's fair, Bill.

Okay.

Well, Moody's just put out a piece recently, and they were pretty explicit.

They sort of said well, the proposed NAIC change is probably consistent with our base case in terms of losses that we expect over the next three years for the industry.

And so they've sort of -- but they said you know the fact that this -- this doesn't really change our view because obviously we already had a view about investor losses.

They did say, though, that in a stress scenario, the losses could be significantly larger.

And I think that's kind of the point.

Because S&P, though, I don't think they've put out quite the same sort of piece, is I think messaging the same thing.

They feel in a stress scenario that the losses in the commercial mortgage sector could be significantly larger, and, therefore, people need to hold even more capital to deal with the stress scenario.

And this is sort of about an economic capital, third sigma event or fourth sigma event or whatever you want to call it, a tail event.

And it's interesting.

We obviously build our own economic capital models and I think have done a lot of really good work.

And one thing we've sort of learned is tail events are very, very hard.

And the world has also learned over the last two years, tail events are very hard to predict.

Okay?

And how much capital or what the losses are likely to be in a tail event are difficult, and it's really more art than science.

And this is maybe, if you want to think about it, sort of the dispute we're sort of having with the rating agencies right now is sort of -- what capital is really appropriate for a tale event?

And I don't know if there's any obvious answer to that.

But I guess I sort of think a couple things.

One, our -- I don't think there's any doubt that the quality of our commercial mortgage portfolio is at one end of the spectrum, both in this industry and just generally for the asset class.

So it is high quality.

The way that portfolio was built over many years is really -- was not an effort to chase yield.

It was an effort to diversify against corporate credit risk.

And it's a -- and I think anybody who's looked at those properties or understands the portfolio or the mortgage portfolio would -- readily agrees with us.

It's very high quality and the statistics we give kind of back that up.

So, what may happen for the industry I don't think is necessarily indicative of what may happen to us.

And then I think it becomes a debate about kind of a theoretical debate about what capital levels should be to deal with a stress test environment.

And that's sort of an interesting risk policy kind of decision.

I think we're in a very good spot in terms of how we look at it.

And I think -- so that's sort of why we are holding the capital we are today.

So, it's -- so you know I'm giving kind of a long-winded rant here.

But that's sort of -- you're right; it really isn't just necessarily about what is the immediate RBC impact.

It really has more to do with what people think ultimate -- what theoretically should be the ultimate level of capital held against that asset class?

Bill, one quick follow-up.

On the pension closeouts in the US, and as Bill mentioned, there may be some big ones, you all have talked about that as being analogous potentially to an M&A deal.

Do you have enough capital available right now post Alico that you can really be a player if we start to see closeouts in the US?

Certainly.

But it may -- just think about it.

First of all, it depends on the size.

How big are we really talking there?

I'm hearing big.

Right.

Well, some are -- I think you could come up with a -- I think there are certainly pension plans out there that are big enough that probably might require additional capital.

So I couldn't say under all cases that we would have enough.

But certainly we have enough for any reasonable level of activity.

And remember, this becomes a capital allocation decision.

We're going to generate -- even though we are not back to full earnings power, we're going to generate good earnings this year, and we're going to have -- and we're going to generate excess capital this year.

And then the question becomes where does that get redeployed?

Okay?

If business is good enough, and we're seeing a lot of well priced pension closeout business, that's where it's going to get redeployed to because that's a great growth initiative, just like any growth initiative.

If there's no big growth initiative, it will get redeployed in another manner.

But that's the kind of decision we make every day.

Colin, I would just make the observation that our discussion over the last few minutes in the absolute jumbo market, clearly both the buyer and the seller understand the dynamics of everything we've just discussed.

So that's just a comment I would make.

And there again, I would make the analogy to the M&A business.

Okay, thank you.

John Hall, Wells Fargo.

Good morning, everyone.

Just a couple of questions I guess around Alico.

Steve, when you mentioned the exposure to Greece, you didn't really mention any of the other perimeter countries.

I was wondering if you could just give us an idea of where we stand there.

And then secondly, Bill, you talked about the 400% RBC kind of I guess floor.

Does Alico really need a 400% RBC really to operate?

And so I guess the question is, if you get it at 400% RBC, are you going to be getting a company that's effectively overcapitalized, given the mix of business it has?

Okay, John, I'll start.

We have to be a little careful in terms of what we put out because these are Alico numbers, and I'll simply point you to the stat filing Schedule D for them.

And if you look at the other perimeter countries, in total, if you look at the Schedule D, you will see that there's sovereign exposure to Ireland, Italy, Portugal, Spain, equal in aggregate about what they have to Greece, in rough numbers.

So that will give you some direction in terms of their holdings.

Fair enough.

With regard to Alico's 400% RBC.

You know, here's a good way to answer that.

We've -- for MetLife overall, we have said we have a bright line that we need to be above 350%.

And I think that means 350% plus a cushion, and I think we're always -- I think the debate is therefore about the size of the cushion.

By the way, Moody's is -- I think still says 350% is what's necessary to be a AA company in normal times at least.

I think -- so, and I wouldn't think that there's anything about Alico which would make me change that policy in terms of -- so I start with the idea that what's good for MetLife would certainly be good for Alico.

And so 350%+ is what makes sense.

400%, I would not expect that we would need to actually manage Alico to an RBC of 400% but it's 350% plus a cushion, which might get you close to 400%.

So clearly the capital requirements in most of these foreign operations are not as tough as they are in the US for instance or what we really think is required in the US.

So if anything, the bias is the other direction.

Got it.

Great.

Thank you.

John Nadel, Sterne, Agee.

Good morning.

I have two questions, one on Alico and then one on group insurance sales.

With respect to Alico, I think when you guys announced the deal, one of the things you highlighted was the improved perception I guess of Alico with Met behind it, especially within the bank distribution channel in Japan.

And I know it's been a relatively short period of time, but I was hoping you could give us maybe an update on whether you are seeing any real evidence of that in the sales or surrender activities in the bank channel in Japan from Alico.

John, it's Bill Toppeta.

I really don't want to front run any announcements that AIG is going to make, including Alico performance, so I think I would prefer to defer on that question until after they have made their announcements.

Okay.

Can you answer yes or no?

What I'm saying is I think it's most appropriate that we defer.

Okay.

That's fair, I guess.

On the group insurance side, your results this quarter I think stand in stark contrast to a couple of your larger competitors in terms of loss ratios.

And I know you guys have talked about over the past couple of years, some increased competition and maybe not just on price, but on terms as well.

And so I'm just wondering with some of the elevated loss activity that we are seeing at some of the guys who maybe were taking market share over the past couple of years, whether you are seeing that come back to you in terms of new sales opportunities.

And if you could just comment on what January 1 sales activity looked like in the group biz.

Sure, John.

It's Bill Mullaney.

I can give you some perspective on first-quarter sales.

First-quarter sales were relatively strong compared to our expectation.

As I mentioned in a response to an earlier question, we took some pretty aggressive pricing actions in both disability and dental.

And as a result of that, we expected sales to be down in the first quarter of 2010 relative to 2009.

And that actually occurred.

You see that I think reflected in the top line in the Non-Medical Health segment.

But, pretty much in line with what we expected.

From a life insurance perspective, pricing has continued to be very aggressive in the Group Life segment, particularly at the upper end of the market.

We saw that very evidently in the first quarter of this year.

We have, as we have talked about all along, been very disciplined about our pricing really over the last couple of years.

That has had some impact on our sales results or our sales results in Group Life.

Although in line with our expectations for 1/1, were down relative to 2009.

But I think the real testament to the way that we run our business is in the mortality ratio.

And we had one of the strongest mortality ratios that we've had in Group Life in the first quarter, which is typically not a great quarter for us.

So we really feel like the strategy that we've deployed over the last few years in terms of running that business is the right one, and we think that that's showing up in our results for this quarter, particularly as it relates to the mortality ratio.

I couldn't agree more.

Thank you.

Eric Berg, Barclays Capital.

Thanks very much.

I actually just have one question so we should be able to adjourn quickly.

And that is, it just seems like we're in this blissful state right now where -- in which your yields are going up, but you're somehow able to pay less to your customers in their crediting rates.

And my question is why is that possible?

One would think that in an environment of improving yields, that would need to be passed on to your customer, in that yields and crediting rates would be moving in the same direction rather than in an opposite directions.

Maybe Steve or another member of the team could help me understand how those two numbers are moving away from each other rather than sort of in parallel.

Thank you.

Well, Eric, you're absolutely right.

Given the macro environment, both crediting rates and yields should be going up or going in the same direction.

And then you manage to kind of a steady spread.

But of course what's happening here is the macro environment is -- didn't change much in the first quarter.

And interest rates are still very low.

And so as liabilities get repriced, if you will, they -- or the crediting rates get adjusted slowly for the whole book, because sometimes crediting rates don't change for as much as a year -- that means that in a low environment, you're still going to see crediting rates tick down.

For us, the reason yields have gone up isn't really because the interest-rate environment is better.

It really is because we are putting more money to work.

Cash balances dropped this quarter.

And we're just getting better investment performance out of our alternative asset classes or through variable investment income.

So that's why you see the -- but by the way, I would just say that you know, in general, spreads widened, but they're only getting back to normal.

You know, in terms of -- and if you compare them to our guidance that we gave this year, they're a little better than guidance in many cases, but really only back to normal.

Thanks very much.

Thank you, everyone.

Thank you.

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