大都會人壽保險 (MET) 2011 Q3 法說會逐字稿

Welcome to the MetLife third-quarter earnings release conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. As a reminder, this conference is being recorded.

Before we get started I would like to read the following statement on behalf of MetLife. Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends in the Company's operations and financial results in 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's filings with the US Securities and Exchange Commission. MetLife 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 John McCallion, Head of Investor Relations.

Thank you, Greg, and good morning, everyone. Welcome to Met Life's third-quarter 2011 earnings call. Before I start, let me briefly outline the logistics of today's call. We have a two-hour call today divided into two sessions. The first session will focus on our third-quarter 2011 results, which will end promptly at 8.55 a.m.

We will take a 10-minute break at which time the phones will be placed on musical hold. Then at 9.05 a.m., we will host a discussion to address market concerns about a potential long-term low interest rate environment in the US. Presentation materials for this interest rate discussion are currently available at MetLife.com through a link on the Investor Relations page.

Now let's get started. We will be discussing certain financial measures not based on generally accepted accounting principles, so-called non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures may be found on the Investor Relations portion of MetLife.com and our earnings press release, our quarterly financial supplements and in the other financial information section. A reconciliation of forward-looking financial information to the most directly comparable GAAP measure is non-accessible because MetLife believes it's not possible to provide a reliable forecast of net investment and net derivative in 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 Steve Kandarian, President and Chief Executive Officer and Bill Wheeler, Chief Financial Officer. After their prepared remarks, we will take your questions.

Also here with us today to participate in the discussion are other members of management, including Bill Toppeta, President of International Business; Bill Mullaney, President of US Business; Steve Goulart, Chief Investment Officer; and Donna Demaio, President of MetLife Bank. With that, I'd like to turn the call over to Steve.

Thank you, John and good morning, everyone. Before I discuss this quarter's results, I would like to comment on our recent annual dividend declaration. Earlier this week, we declared an annual common stock dividend of $0.74 per share for 2011. As we announced, we recently submitted a capital distribution plan to the Federal Reserve for approval that included both an increase in MetLife's annual dividend, as well as the resumption of stock repurchases.

The Federal Reserve has concluded that the Company's planned capital actions should be tested under a revised adverse macroeconomic scenario, which is being developed for those firms that will participate in the 2012 comprehensive capital analysis and review.

As a result, the Federal Reserve did not approve the Company's planned dividend increase and other proposed capital actions at this time. We are disappointed that we cannot commence increased capital actions now. Our analysis shows that the Company's current capital level and financial strength support capital action increases.

Moreover, we believe increasing our capital actions in this time of high unemployment would prove beneficial to the economy as our shareholders redeploy these funds in a productive manner. We look forward to seeking and gaining the approval of our capital plan from the Federal Reserve early next year. We are firmly committed to creating shareholder value in returning capital to our shareholders.

In addition, we continue to move forward on our plans to explore the sale of the depository business and the forward mortgage origination business conducted at MetLife Bank and to take the necessary steps to no longer be a bank holding company. As I have previously noted, this will ensure that MetLife is able to operate on a level regulatory playing field with other insurance companies.

Now let's discuss this quarter's results. Despite some significant economic headwinds during the quarter, MetLife delivered earnings per share of $1.11, up 3% from the prior-year quarter. As noted in the 8-K we filed October 6, MetLife recorded a number of one-time charges in the third quarter. Absent these charges and some other one-time items, MetLife's earnings would have been $1.28 per share, which we believe is closer to the Company's true earnings power. In addition, our annualized operating return on equity of 10.9% for the first nine months of the year would have been 11.5% without one-time items.

Now, let me turn to some of the broader issues facing the market. First, while Europe remains unsettled, we believe our exposure is manageable, especially given a number of actions we've taken over the past year. Out of a general account asset pool of $493 billion, our exposure to peripheral Europe sovereign debt was $571 million on a book value basis as of September 30, down from $1.6 billion as of December 31, 2010. And our exposure at quarter-end to European banks was $6.9 billion, down significantly from year-end.

In addition, our total $42 billion of European exposure -- more than 90% is investment grade. We have provided greater detail on our exposure to Europe in the appendix to the presentation deck for our call at 9.05 a.m.

Second, the variable annuity market continues to experience strong growth. While the market and our sales grew substantially in the third quarter, we are taking a proactive approach to managing the growth of our variable annuity business. As you know, we recently adjusted our GMIB Max offering to reduce risk and improve returns and we will be making further adjustments in January.

While we are comfortable with the pricing and returns on our third-quarter VA sales, we continue to seek opportunities to reprice and improve the risk profile of our product offerings. As of January, the rollup rate on our GMIB Max product will be reduced from 5.5% to 5%.

We are closely monitoring sales and if they rise above plan, there are steps we can take and will take to bring sales in line. You can be assured that we are reviewing all of our product features to maintain a disciplined balance between customer value, risk and return. As a matter of sound capital management, we will only pursue growth that we believe maximizes long-term shareholder value.

And third, while interest rates have rebounded somewhat since the announcement of Operation Twist, they still remain at low levels. While long-term low interest rates have an impact on our earnings, we have taken proactive steps to mitigate this impact. We will talk much more about this topic during the special one-hour teleconference following today's earnings call.

For now, I would simply note that even if the 10-year treasury remained at 2% for the next five years, MetLife would still expect to grow earnings and generate excess capital. One reason is our focus on risk management. For example, as Steve Goulart will discuss in the second hour, we purchased $18 billion of notional interest rate floors in 2004 and 2005 to protect against a sustained low rate environment.

Finally, let me cover a few highlights from this quarter. We are extremely pleased with the performance of our international business and believe that it will continue to drive profitable growth for the enterprise.

Total international sales were up 25%, including a 28% increase in Japan sales compared with MetLife's and Alico's combined results from the third quarter of 2010. Our business in Japan continues to recover from the impact of the March earthquake and tsunami. International business's operating earnings in the quarter reached $578 million on solid performance in Latin America and Asia-Pacific. In these regions, our accident and health products, which have low capital requirements and attractive returns, are making a strong contribution to our bottom line.

Recently, we launched a new stand-alone Whole Life product, which is the only cancer-specialized product available in Korea offering both a whole life feature and additional protection for secondary cancer diagnosis.

The integration of Alico is proceeding well. On October 3, almost 17 months after changing MetLife's long-term ratings outlook to negative on news of our agreement to purchase Alico, Moody's returned our ratings outlook to stable. In upgrading MetLife's ratings outlook, Moody's pointed to, among other things, our substantial progress and success with the integration of Alico.

In the United States, premiums and fees grew 9%, primarily driven by higher pension closeouts and structured settlement sales in the Corporate Benefit Funding segment. In addition, we continue to maintain the leading position in the group insurance market. Underwriting results improved, particularly in the dental business as we maintained our disciplined approach to underwriting.

In summary, I believe MetLife is well-positioned to create long-term shareholder value. With that, I will turn the call over to Bill Wheeler to cover our third-quarter results in greater detail. Bill.

Thanks, Steve and good morning, everybody. MetLife reported net income of $3.6 billion or $3.33 per share and operating earnings of $1.2 billion or $1.11 per share for the third quarter. There were several unusual items in this quarter. First, we have taken an after-tax charge of $117 million or $0.11 per share to increase reserves in connection with our use of the US Social Security Administration's Death Master File and similar databases to identify potential life insurance claims for pending and incurred, but not reported claim liabilities referred to as IBNR -- over 70% of the charges in our Group Life business, nearly 25% in Individual Life with the balance in Corporate Benefit Funding.

Next, our Auto and Home business incurred catastrophe losses of $88 million after-tax in the quarter, including the impact of hurricane Irene. This result was $50 million after-tax or $0.05 per share above our third-quarter plan provision of $38 million. Partially offsetting the impact of the cats, Auto and Home had a favorable prior-year development reserve release in its Auto business of $19 million or $0.02 per share.

Also, we have recorded a $40 million after-tax charge or $0.04 per share related to MetLife's obligations under the New York State liquidation plan for Executive Life Insurance Company of New York, which is called -- we call ELNY. This charge has been recorded in our Corporate and Other segment.

Pretax variable investment income was $400 million. After taxes and the impact of deferred acquisition costs, variable investment income was $37 million or $0.03 per share above the top of our Investor Day guidance, driven by strong securities lending and private equity returns, which more than offset weakness in our hedge fund performance.

I should remind you that we report our private equities on a one-quarter lag while hedge funds are reported on a one-month lag. Therefore, we would expect that our private equity portfolio would be negatively impacted in the fourth quarter based on the market performance in the third quarter.

Adjusting for the items that I just mentioned and a few other minor adjustments that also impacted this quarter, our normalized operating earnings was $1.28 per share and our normalized ROE for the first nine months of the year was 11.5%.

In addition, Retirement Products' earnings were negatively affected by the 14% decline in the S&P 500 in the quarter. The initial market impact as a result of the higher DAC amortization cost the segment $90 million after-tax or $0.08 per share this quarter. Clearly, there were a number of unusual items in the quarter. However, when you strip those out, I believe our results are quite strong reflecting good underlying fundamentals in a challenging environment.

Now, let's take a look at the results in the quarter by line of business. US Business reported operating earnings of $655 million for the third quarter. Excluding the impact of unusual items in this quarter, normalized earnings for US Business was $768 million. If you exclude the initial market impact of $90 million after-tax in the quarter, US Business operating earnings were up 7% versus normalized operating earnings in the prior-year period.

US Business had strong top-line growth in the quarter as premiums, fees and other revenue were $7.7 billion, up 9% from the prior-year quarter driven by solid closeout and structured settlement sales in Corporate Benefit Funding and strong net flows in our Retirement Products business due to variable annuity sales and continued low lapse rates.

While the Insurance Products top line was essentially flat this quarter, we are having a good 2012 sales and renewal season as favorable pricing trends are slowly returning to the group insurance market.

Insurance Products normalized earnings of $362 million is up 9% over the prior-year quarter. This strong performance reflects improved nonmedical health underwriting margins, a better individual expense margin and continued solid interest margins.

The Group Life mortality ratio for the quarter was 98.5%. It's elevated due to the reserve strengthening related to the life insurance claims adjustment that I mentioned previously. Adjusting for this item, the loss ratio was 88.9%, near the low end of the 2011 guidance range of 88% to 93% and in line versus the prior-year quarter of 89%. Overall, we are pleased with Group Life's steady underwriting results reflecting our ongoing pricing discipline.

The nonmedical health total benefits ratio for the quarter was 86.6%, which was down from the prior-year quarter of 88% and well within our 2011 guidance of 86% to 90%. Results in dental continue to improve as we execute the second year of our remargining strategy. We are seeing more stable utilization and favorable price trends. Disability results improved significantly versus a very poor quarter last year. Incidents, recoveries and offsets on open claims were all better versus the third quarter of 2010.

Our Individual Life mortality ratio for the quarter was 98.5%, elevated due to the reserve strengthening related to the life insurance claims adjustment that I mentioned previously. On the normalized basis, the mortality loss ratio was 89%, up from the prior-year quarter of 86.7% and above plan due to higher large face claims in the quarter.

I should point out that we introduced a new higher priced ULSG product in the third quarter. However, as the old product was still available in the quarter, we saw UL sales somewhat elevated. We would expect to see lower UL sales going forward.

Turning to our Auto and Home business, the combined ratio, including catastrophes, was 105.7% for the third quarter, which was up over the prior year quarter's results of 93.6% due to unusually heavy storm activity, including the impact from hurricane Irene. The combined ratio, excluding catastrophes, was 88% in the third quarter versus 88.2% in the prior-year period. Auto and Home operating earnings were significantly impacted by the cat impact this quarter, as well as other related non-catastrophe losses.

I should note that this has already been the worst catastrophe year in the history of the Company and despite that fact, our Auto and Home business is expected to pay a dividend up to the holding company before the end of the year.

Auto and Home's premiums, fees and other revenues were up 3% on solid growth fundamentals and favorable pricing trends in the market. We will look to take further pricing actions consistent with the market.

Retirement Products' operating earnings were down significantly due to the 14% drop in the S&P 500 this quarter. This negatively impacted the segment by $90 million after-tax due to higher DAC amortization. Premiums, fees and other revenue were up 39% from the prior-year quarter driven by strong net flows due to variable annuity sales of $8.6 billion and continued low lapse rates. Also, our hedging program continues to perform well despite the very volatile markets.

Corporate Benefit Funding operating earnings were up 45% over the prior-period quarter driven by higher net investment income coming from both variable and recurring income. Premiums, fees and other revenues were up 65% due to higher closeouts, both in the US and the UK and structured settlement sales.

Now let's move to International business. International reported operating earnings in the third quarter of $578 million, up from $189 million in the prior-year quarter, largely due to the acquisition of Alico and strong growth in the business, particularly in the Latin American and Asia-Pacific regions.

To give you a better sense of International's overall growth for the quarter, our International revenues were $4 billion. This is approximately 11% higher than the third quarter of 2010 on a combined basis as if we had owned Alico in both periods and it is 3% higher on a constant currency basis.

In addition, we continue to see strong sales growth for the business. The sales of $1.5 billion in the quarter represent year-over-year and sequential growth of 25% and 9% respectively on a constant rate basis.

In Japan, operating earnings were $315 million, up 29% over the second quarter of 2011, due to higher net investment income, reduced claims from the March earthquake, lower operating expenses and improved persistency.

The year-over-year increase in revenues on a combined basis was approximately 13%, driven largely by the favorable exchange rate of the yen versus the US dollar and higher persistency. On a constant rate basis, revenues were up 2%. Japan sales recovered strongly in the quarter at $534 million, up 28% year-over-year on a constant rate basis and 22% over the sequential quarter. Sales increased in all product and distribution channels with the strongest gains coming from the bank channel and in Whole Life and Fixed Annuities.

In the other International regions, operating earnings were $263 million, up 39%, driven by the Alico acquisition and growth in the Latin American and Asia-Pacific regions. Overall, the key business drivers included solid underwriting, improved persistency, lower operating expenses and a focus on high ROI products. The year-over-year increase in revenues on a combined basis was approximately 10% for the region with strong revenue growth in both Latin America and Asia-Pacific driving these results. In Latin America, premiums, fees and other revenue were up 10% year-over-year highlighted by strong sales in Accident and Health in Argentina and Chile and the pension business in Mexico. Overall, persistency remains strong for the region.

Asia-Pacific revenue is up 11% year-over-year, driven by group sales in Australia and persistency improvements in Korea. On a constant rate basis, revenues were up 4% year-over-year while sales were up 23% on a constant rate basis, a very strong result.

Overall, our International business had a very good quarter and continues to perform well in spite of the challenging global environment. We are realizing the value and growth expected from the Alico acquisition and we are delivering on our commitments. Diversification of geography, products and distribution has positioned International to withstand recessionary pressures.

Moving to expenses, our operating expense ratio for the quarter was 23.2% and 20.3% when excluding the impact of MetLife Bank and pension and post-retirement benefits. Both ratios are below our 2011 guidance of 23.5% to 24.1% and 21.2% to 21.7% respectively. Overall, a very good result.

Turning to our investment portfolio, net unrealized gains in fixed maturity and equity securities were $19.8 billion, up from $11 billion last quarter. Please keep in mind that interest rate-driven unrealized gains and losses in our investment portfolio are generally offset by changes in the economic value of our liabilities.

With regard to realized investment gains and losses, in the third quarter, we had after-tax investment portfolio net gains of $14 million. Included in this net gain are impairments of $167 million after-tax, of which $134 million after-tax relate to our Greek sovereign debt holdings.

With respect to our derivatives portfolio, we had net after-tax gains of $2.7 billion. The impact of MetLife's own credit spreads contributed $1.3 billion after-tax while lower interest rates was the other key driver. As a reminder, derivative gains or losses related to MetLife's credit spreads do not have an economic impact on the Company.

These large derivative gains had a significant and somewhat unintended impact on our overall portfolio yield for the quarter as a result of the mechanics of the yield calculation. The overall portfolio yield fell by 20 basis points from 4.83% in Q2 to 4.63% this period. Approximately one-half of this yield decline relates to the substantial increase in derivative asset values, coupled with the related increase in cash collateral that we receive from our derivative counterparties.

Overall, we are very pleased with the performance of our investment portfolio and feel it is well-positioned to deal with the challenging macroenvironment, including a potential sustained flat rate environment. Steve Goulart will provide you with more details on our investment portfolio shortly.

Now, I would like to provide you with an update on our capital position. Our preliminary statutory operating earnings and statutory net income for our domestic insurance companies for the third quarter of 2011 was approximately a $5 million loss and a $117 million gain respectively. The results in the quarter were impacted by higher reserves related to the market performance in the quarter and other nonrecurring items, which we mentioned earlier.

While reserve adjustments go through the income statement, the hedges in our derivatives portfolio do not go through the income statement, but are rather reflected in unrealized gains. Therefore, our total adjusted capital, or TAC, increased by $2.3 billion in the quarter, primarily due to unrealized gains on derivatives and other invested assets and now stands at $28.7 billion as of September 30.

For the first nine months of 2011, statutory operating earnings and statutory net income was approximately $1.4 billion and $1.5 billion respectively. On a year-to-date basis, this is about in line with our expectations.

In addition, our international capital position is strong with Alico's Japan's reported second-quarter solvency margin ratio on the 2012 basis is 896%. While the third quarter has not been reported, we do expect to see similar levels.

Cash and liquid assets at the holding company at September 30 were approximately $3.3 billion. Last quarter, we provided an estimate of year-end 2011 holding company access capital of about $5 billion, which continues to be in line. This excess was before capital management actions and assumed the $1 billion liquidity buffer. Of this total, we plan to use $750 million to repay maturing debt and about $780 million for common dividend payments in December of this year, which leaves a little bit over $3 billion of additional holding company excess capital at year-end.

In summary, MetLife had a very good third quarter in spite of the ongoing challenging environment.

Now before I turn it over to the operator for questions, John McCallion has asked me, due to time constraints, that you limit yourself to one question and only one and only one follow-up, which relates to your initial question. Make sure they relate. Now I'd like to turn it back to the operator. Thanks.

(Operator Instructions). Jay Gelb, Barclays Capital.

The variable annuities clearly benefited from trying to get the current rollup rate. What do you think that contributed in the quarter?

Hi, Jay. It's Bill Mullaney. Is your question about specifically do I think the higher rollup rate contributed to higher sales, is that your question?

Well, yes, I'm pretty sure that is the case. But I'm just -- with $9 billion of sales in the quarter, what do you think is a reasonable run rate going forward?

Well, as you know, we are taking some steps to bring the rollup rate down. When we set the rollup rate on Max, it was very early in the year when interest rates were higher and there were some competitor products out there at 6%. We wanted Max to get good traction in the market and so we set a 6% rollup rate. And then obviously the macroeconomic environment changed by the time that product got in the market, which obviously made it quite attractive and that was a big contributor to the overall sales level in the third quarter.

In addition, we did announce that we were bringing the rollup rate down to 5.5%. So there is some fire sale impact in the third quarter as a result of that.

So I think, for the fourth quarter, you can expect to see sales be lower than they were in the third quarter, probably in the $7 billion to $7.5 billion range. Again, you're going to see some fire sale impact because the changes didn't take place until the second week in October. And so we saw pretty heavy volume on the 6% product in the first couple of weeks of October. But then the run rate will obviously come down as a result of being at 5.5%.

So would you think maybe a $5 billion run rate going into early 2012 on a quarterly basis is good for a placeholder?

Yes, I would say it's probably in that range. That's a good way to look at it.

Thanks very much.

Jimmy Bhullar, JPMorgan.

I had a question also on variable annuities. Bill, maybe if you could talk about -- given your equity market volatilities and cost of options, just the price that you are charging for guarantees, is that enough to cover the cost of hedging? And it doesn't seem like it would be and if it isn't, are you planning on taking any actions at some point? How are you looking at that?

Yes, Jimmy, we're looking very closely at that. For the third quarter, because of the volatility in the markets, the cost to hedge for the overall book was slightly above the fees that we were charging for the hedges. So we are monitoring that pretty closely and over time, if hedging costs don't come back in line, we would take some steps to adjust our fees.

And then just cheating a little bit I guess, on variable annuities also, Bill Wheeler mentioned that there was about an $0.08 on -- because of a higher DAC. I think Steve's comments mentioned $1.28 as a normal run rate. In the past, you've added -- any market-related items to your estimate of run rate because that shouldn't repeat going forward? But just was wondering why you view $1.28 as a run rate as opposed to $1.36? That's all I have.

So, Jimmy, I mean I think that the answer to that is pretty simple. We actually generally don't add back market impact one way or another. And I think the only time I can remember that we did adjust for it is when we had a huge change in the performance of the stock market. So we actually did debate whether or not we should add this to normalizing run rate, but I guess my feeling is is that markets move up and down, that's part of the business we're in and unless it truly distorted the number, it shouldn't -- it shouldn't be adjusted.

Because I'm looking at the list of numbers you gave us in the third quarter last year and this was one of the items that you had mentioned.

Well, I can't remember the third quarter last year right off the top of my head, but I'm not -- there isn't some special message there. We (multiple speakers) .

It was like $0.05 last quarter, $43 million.

Okay. What we'll do is -- as we thought -- we will give people the information. We obviously will quantify the market impact and let them decide what they should normalize.

But as we think about that business, that $0.08 is specifically related to DAC and not lower fees or something else that might be ongoing, right?

I'm sorry. Can you just say that one more time?

The $0.08 in the annuity business was specifically related to DAC and it's not lower fees or anything else that might be ongoing?

That's correct, it's DAC-related.

Okay, thank you.

Chris Giovanni, Goldman Sachs.

Just one question regarding the decision by the Fed. Any way you can provide any insight into terms of what you went to the Fed with? And then around that same tone, any reason not to go to the Board and get the approval from the Board for what internally you guys are comfortable deploying and sharing that with investors?

The Fed process -- this is Steve -- the Fed process is one in which disclosure around their supervisory information is not permitted. Some of the language you've heard from us actually was approved specifically by the Fed for us to give to you because we felt as if -- we felt that given their action, we really needed to say more than simply we can't raise our dividend. The language we gave you is pretty much all we can tell you about the inner workings of this process. We are simply not allowed to give you more than what we've given so far. So I'm sorry to limit it, but it's not our decision in terms of what can be disclosed.

Can you just talk some about the conversations you and the Board are having in terms of internally what you guys might be thinking is comfortable in terms of deployment?

I think it's not a wise thing for us in the middle of this process with the Fed to start putting out those numbers. We're working with the Fed closely. You can be assured our Board and we, management, are in sync on this issue. We want to return capital to our shareholders as soon as possible. We are working hard with the Fed to enable that to happen.

Okay, thank you very much.

Colin Devine, Citigroup.

I just have three small ones. Bill, first, you mentioned stat earnings. Can you just I guess quantify what the strain was from the very large VA sales because it seemed to me that was the bigger driver of why you actually reported a stat loss?

Second, can you confirm that the -- I didn't catch it in the opening remarks -- that the guarantee step up on the VA has now since been lowered to 5%? So I would assume, maybe for Bill Mullaney, we are going to continue to have a fire sale, at least through this quarter until you get that product off.

And then lastly, Bill, what if you can't sell the bank, what are you going to do?

Okay, you asked three questions.

Yes, well, two of them are small ones.

Okay, you're right, they were small. Just a couple layups there. So I'll answer one and three and then I'll let Mr. Mullaney answer two. So with regard to STAT earnings, so, yes, we had a -- so we did report basically a breakeven stat operating earnings quarter. And you're right; it was driven -- the breakeven number was driven by the fact that we did have to increase some of our stat reserves because of the VA -- not just the sales necessarily, the strain from the sales, but because of the market performance in the third quarter. And that order of magnitude after-tax was $400 million or $500 million.

Now keep in mind that the hedging offset to that, and that's what I tried to say in my prepared remarks, is doesn't actually flow through the income statement, but it does -- it shows up later in our statutory financials. Stat is strange. And if you take all of our hedging, including the hedging related to the VAs, obviously we had a very, very big stat gain with regard to total adjusted capital.

So the outlook -- so, yes, we did have some strain caused by market performance in the variable annuity block, but it was obviously substantially offset by hedging activity.

Yes, getting into commissions, Bill, I mean if I'm thinking 6% on almost $9 billion of sales, (inaudible), it seems that's the biggest swing factor.

Well, yes, you do -- look, you do have ongoing strain, but remember this -- just keep in mind that we have a very large, variable annuity block, which we have ongoing fees. So, yes, so we have decent stat strain from commissions every quarter, right, but obviously our in-force sort of overwhelms that number in terms of the profits we get.

So with regard to the bank, look, I would just say we've talked about a sale process. That sale process is on track and so we're confident we will be able to sell the bank. But the -- if we do have a -- if for some reason that doesn't happen or we would probably go to plan B, though I think this would be an extreme scenario, which we would wind it down. But I think a sale is much more likely.

Colin, it's Bill Mullaney. So let me just add a little color to what Steve Kandarian said in his opening remarks about VAs. So we made a decision to drop the rollup rate to 5.5%. That was effective in the middle of October. And then we've since filed to bring our rollup rate down to 5% and that change will take place in the first quarter, actually the first week of January of 2012.

And so, yes, I think the fourth quarter will be somewhat noisy, the run rate of VA sales just on the 5.5% product, a fire sale impact going from 6% to 5.5% and there will be some, though I think less of a fire sale impact going from 5.5% to 5%.

A couple of points I would make. The sales at 5.5%, the return on those sales are good. The ROIs are around 15% and so even in the fourth quarter or in the third quarter, at the 9/30 capital markets, the returns on the products were about 14% on the Max product. The Max was over two-thirds of our VA sales in the third quarter. And by moving down to 5%, it also reduces our hedging costs and hedging costs are already reduced in the Max product because some of the hedging is being done inside the funds. So we think that the steps we're taking to bring the rollup rate down will get us to an appropriate level of sales going into 2012.

And (inaudible) of the returns, Bill.

Joanne Smith, Scotia Capital.

I just wanted to talk about -- I had so many things I want to talk about and I know I'm only allowed one question. So I'm going to talk about non-bank SIFI. So let's say that you get the bank sold and you are designated a non-bank SIFI, it seems to me that the regulatory trends in this country are getting more and more tight to say the least. And so what do you think the implications are for any insurance company that's designated a non-bank SIFI, if you're having so much trouble as a bank holding company getting your capital plan approved, does that imply that there might be some constraints under the non-SIFI bank -- non-bank SIFI categorization?

Obviously, at this point, no one knows exactly who will be designated non-bank SIFI or if you are designated, what the rules will be. And I suspect we won't know who's designated until sometime in 2012. And as to what it means, it might even be 2013. So that's just a guess on my part, but that seems to be the direction things are going in.

The hope is that, over time, people in Washington will understand the difference between the banking business model and the insurance industry business model and they are quite different -- very different liquidity factors in terms of what kinds of liabilities they have. It's just a very different business model.

One of the challenges is Washington has not regulated insurance. The states have. And the level of understanding of our industry is relatively limited. It's growing, but it's relatively limited at this point in time. And we and others in the industry are working hard to help those in Washington making these policies better understand the differences in these models. And if we are designated non-bank SIFI, what might be the appropriate way to regulate that group of companies.

And the end of the day, we are discussing this issue at length with people in Washington and we are trying to make sure they understand the importance of a level of regulatory feel for our industry so that they don't simply pluck out a few companies and say you're a non-bank SIFI and everyone else is not. So that's also very important to us. And the story is unfolding over really years here and our hope is we get to the right answer within the day. But no one knows at this point how this will sort out.

What worries me, Steve, is that the federal government seems to think that they know the banking system very well and they've really kind of messed that up. I certainly hope that there is a good education process that happens over the next year or so for the insurance industry because that could just be a mess. Thank you very much.

Mark Finkelstein, Evercore Partners.

I'm actually going to use my follow-up to follow up on Colin's question and then a real question. Can you just explain one thing, which is, if the hedging costs exceed the rider fee, it's a little counterintuitive that the projected margins on Q3 sales, and I assume into Q4, that the returns would be in the mid-teens. I guess, one, can you just explain that? And two, are you fully hedging the product and is that incorporated in that mid-teen projected return on Q3 sales on VAs?

Yes, Mark, it's Bill Mullaney. The base contract is performing well in the annuity business. So even though the rider fees are slightly below the cost of hedging, we are still able to generate the returns that I talked about earlier.

Okay. Bill Wheeler, you gave a comment on private equity into the fourth quarter. I don't think that's a huge surprise. But you also mentioned that sec lending was fairly strong. Can you just talk a little bit about securities lending and what is the outlook on that revenue stream and how sustainable is it?

Maybe I will pass that over to Steve Goulart. Thanks, Bill.

Both on -- let me comment on private equity and sec lending. For private equity, as Bill said, we had very good returns this quarter, but given the lag in that and given what happened in the third-quarter equity markets, we do expect that to fall off in the fourth quarter. So I think we wanted everyone to realize that. Again, just reminding you that there is a lag in our performance and so we'll probably see that in the fourth quarter.

Sec lending continues to be very stable and very strong for us and over the near term, we don't see that really changing. Our balances remain pretty flat and margins still remain very positive. The curve has seen some compression, but given our investment strategies and the low cost of funds, we are able to maintain the spreads that we have in that business and like I said, we foresee that continuing in the near future.

Okay, all right, thank you.

Andrew Kligerman, UBS.

Great. I'm going to go with the Colin Devine three, including two easy ones. One, the tax rate, it was 26.4%. I think at the beginning of the year, you guided for 32%. So should I consider the difference as unusual?

Second, on the SIFI item, the regulator, let's say you are designated a SIFI, would your regulator be the Fed or would it still be your insurance regulator?

And then more extensive, on International, your PFO you mentioned was 3%. Would that -- I think with some of the asset dispositions, that would have been closer to say 6%, 7%, 8% if you kind of normalized it. Is that right? And then what kind of revenue outlook are you expecting?

Okay, this is Bill Wheeler. I'll do the tax thing quickly. I think our projected tax rate for -- at the -- that we said at the beginning of the year would be about -- effective tax rate would be about 30%. Because earnings are coming in just a little bit lower mainly because of a lot of the one-timers we've talked about on this call, we've moved the effective tax rate down to 29% for the year and the catch-up occurred this quarter. So that's why you see the dip to 26%. So it's a true-up basically based on what's happened in the last two quarters, but still just getting the overall tax rate down to 29%.

Andrew, it's Steve. On the SIFI question, we would be regulated both by the Fed and we continue to be regulated by the state regulators. So it would be both.

I think we've got one more answer before we get to the next question, right?

It's Bill Toppeta, Andrew. Let me start for context and go back to last year's Investor Day on the question of premiums and fees. And if you recall what we said at that point was, overall for the International segment, we called out that sales growth would be 22%, premium and fee growth would be 8% and the combination of those two would lead to earnings growth of 16% for this year.

So where do we stand now? I would say, simply put, we are right on track for the earnings growth, which I think is the most important. We're also on track for the sales growth. The premium and fee growth, as you said correct, is on a constant rate basis, 3%, so we're short. So here is why. In the legacy MetLife business, we have intentionally not renewed some large group cases. I can think of a few in particular, one in Mexico, a large one, one in Australia on the basis that they did not meet our profitability targets. So those cases I would say would accounts for about 3%.

Also, as you pointed out, we've been making dispositions during the course of the year and I think it's important for me to tell you what is our planning process with respect to acquisitions and dispositions. And that is simply that we don't include anything in the plan unless it's actually done, okay. So even though we're very certain that we are going to dispose of something, as long as we still own it at the time of the plan, we put it in the plan and we put it in for the full year. Same thing is true for acquisitions.

So, we have been making dispositions during the course of this year, things like Taiwan, things like the closed block in the UK, things like Venezuela and those dispositions, and I would say one other thing, softness in the credit life business in Europe, all those things account for almost the remaining 2%. So I think that gets you from the 3% to the 8% that we talked about on Investor Day.

Now the only other item that I would mention here is that, one more thing, in some countries, we are seeing a change in product mix from FAS60 products to FAS97 products, which tends to dampen premium and fee growth.

Now generally, I would say our experience tells us that that kind of thing is usually cyclical and not permanent. That's one piece to remember. The second thing I would say is, on the margins and the ROEs on our FAS97 products, they are just as good or better than on our FAS60 products. So the product mix shift does not affect profitability.

But I would say this is also, and I spoke about this on the last quarter conference call a little bit, this is also why I think to get a fuller picture of our business of really what's going on in the business, it's important not just to look at premiums and fees, but it's also important to look at sales, to look at persistency and to look at other metrics so that gives you a fuller picture. I hope I'm being responsive to your question.

That was perfect. Thanks.

Randy Binner, FBR Capital Markets.

Just hoping to get an update on the DAC 09-G changes, if you have any estimates or color you can provide on the book value or earnings impact.

We are going to give those estimates on Investor Day in early December. We are not quite ready to give people I think a refined estimate. Just a little color, of course, is what -- the thing that will impact us more than others is maybe the fact that we have a substantial amount of VOBA, which has been created through our acquisitions over the past number of years. So we do expect an earnings drag, though we will be able to quantify that more clearly in early December.

Is the VOBA issue more related to the recent Alico acquisition or is it kind of balanced across all the acquisitions over the years?

Well, it's more about Alico, but that's only because Alico is the biggest and the most recent. Obviously VOBA has been created and other acquisitions like Travelers and such.

And so that VOBA was kind of branch distribution heavy or controlled distribution heavy? Is that a fair way to describe the Alico business?

No, no. VOBA -- that's not -- VOBA -- remember DAC gets wiped out in purchase accounting and then it's replaced by VOBA. VOBA is value of business acquired, so it's really sort of determining the value of the in-force block based on various discount rates and hurdle returns. That's how VOBA gets billed.

That's fair. Thank you.

Jeffrey Schuman, KBW.

I just wanted to come back for a clarification on the non-bank SIFI. I think Steve said that non-bank SIFIs would be the answer to the Fed, but I was wondering about the role of the FSOC. The FSOC clearly determines who is a non-bank SIFI, but do they have any role in determining how they are regulated by the Fed or what the capital standards are or anything like that?

FSOC is going to be involved in determining whether you're a non-bank SIFI, but the regulation will be by the Fed going forward if you are designated as such.

Okay, because I was wondering because obviously you have insurance representation on the FSOC, but I guess if they were to hand you over to the Fed then I guess that influence doesn't continue. Okay, thank you.

Okay, thank you. Greg, we will, and everyone on the phone, we will take a 10-minute break and we will come back to you at 9.05. Thanks.

Ladies and gentlemen, you will now hear music. Please stay on the line.

Ladies and gentlemen, thank you for standing by. Your host, John McCallion, is back on the line. Please go ahead.

Thank you, Greg. We apologize, everyone. We had some technical difficulties with AT&T. But welcome back and we're going to get through this session of the call. For this session of the call we'll be referring to the interest rate presentation materials that can be found on the Investor Relations portion of MetLife.com.

Before I start -- before we start let me refer you to the Safe Harbor statement on slide 2. This governs the statements made on today's call. As the statement notes, any and all forward-looking statements may turn out to be wrong. For a discussion of the factors that could cause actual results to differ, please see the risk factors in our 10-K and 10-Q reports filed with the SEC.

Starting on slide 3, let me remind you that we will be using non-GAAP financial measures on today's call. Slides 3 and 4 explain how we calculate these measures and the reasons we believe they are useful. Reconciliations to the most directly comparable GAAP measures are included in the appendix. Now, I'd like to turn the call over to Steve Kandarian.

Thank you, John. Slide 5 contains our agenda for today. After some opening remarks I will turn the call over to Bill Wheeler who will go through the low interest rate scenario in detail, highlighting where we have exposure and why our earnings would still be expected to grow, but at a slower pace.

Steve Goulart will then describe the proactive steps we have taken to protect our portfolio from the impact of low interest rates, including our purchase of derivatives that provide significant low rate protection that extends well into the next decade.

Finally, Bill Mullaney will briefly cover some additional business actions that could be taken to address the low interest rates should they persist.

As to recent actions, we mentioned on our previous call that we're reducing the roll-up rate on our GMIB Max product to 5% in January. My hope is that by the end of this hour you'll have a deeper appreciation of MetLife's ability to continue to grow earnings in capital even if interest rates remind at current levels for a number of years.

Now let's turn to slide 6. Like most major life insurers, MetLife has-been trading in tight correlation to the yield on the 10-year treasury note. However, I believe the market has over reacted to the impact low rates have on our business. So I thought I would take a few moments to discuss the key reasons why MetLife can still prosper in a low rate environment.

First MetLife is well diversified across products, distribution channels and geography; it is truly one of our real strengths.

Second, risk management is fundamental to how we run the business. It starts with prudent product design and continues through asset liability management, which is a key reason why low interest rates have a relatively modest impact on our financial performance.

In addition, we continue to leverage our private asset origination capabilities and look to opportunistically deploy derivatives to protect against difficult economic environments. That's why we started purchasing interest rate floors in 2004 when the 10-year treasury traded above 4%.

Through proactive portfolio management we are well positioned to navigate through difficult economic environments, whether it's the financial crisis that started in 2008 or a period of sustained low interest rates.

Slide 7 is a useful reminder of how diverse our business is from an earnings perspective. Currently nearly 40% of our earnings are generated outside the United States. Over time we believe this number will move closer to parity.

Most of our international products are not particularly sensitive to interest rates or equity markets. They are primarily protection products where we assume insurance risk rather than market risk.

In addition, many parts of our US business are not materially impacted by low interest rates. While all of our products have some sensitivity to rates, significant interest rate sensitivity is concentrated in three areas, and here they are -- Group Life, Individual Life and our Retirement Products segment.

To be clear, it is not all parts of these businesses. However, these are businesses and products in which we provide some minimum rate guarantees. As a result, in a sustained low interest rate environment these products will experience spread compression. That doesn't mean that we don't make money on these products, it just means that our earnings growth rate will be dampened.

You may have noticed that we did not mention certain long-tail products such as long-term care and those in corporate benefit funding. While there is reinvestment risk with these products, you will see later in this presentation that because of tight asset and liability management and prudent hedging the financial impact of low rates on these products is very modest.

Now let's turn to slide 9. The blue line is the four-quarter moving average of a blended five-year and 10-year US treasury yield. As you can see in the chart, back in 2000 when we became a public company the blended rate was around 6%. These rates have come down significantly over the past decade and recently have been in the 2% to 3% range.

The red line in this chart represents the unweighted average of the annualized spreads shown in our quarterly financial supplement for Group Life, Variable and Universal life, Nonmedical Health, Deferred Annuities which is part of our Retirement products segment, and Corporate Benefit Funding.

While our spreads have fluctuated largely due to the performance of variable investment income, core spreads have been relatively stable over time. You can see that the average spread over the entire periods shown, reflected by the gray line, is around 200 basis points. This didn't happen by accident; it is the result of our making effective use of the management tools I mentioned earlier -- prudent product design, ALM, hedging, risk management and managing the Company for the long run.

Turning to slide 10, let me first describe the assumptions we used to create this analysis. We held interest rates flat for the next five years with a 10-year treasury yield at 2% and we held the slope of the treasury yield curve constant as well. Then to gauge the impact of this scenario we compared the results to a base case which is the June 2011 forward curve incentives.

In the base case the 10-year treasury starts at 3% and increases to 4.5% by 2013. We also assumed an S&P 500 growth rate of 5%. In addition, GDP growth remains slow and there is no material change to the current unemployment rate. Nor do we assume any extraordinary management actions to counteract this environment. The intent is to isolate the impact of low interest rates.

Turning to slide 11. Here is a summary of the results of our analysis. Overall earnings for MetLife will continue to grow but at a slower rate. While US business earnings will remain relatively flat, this will be offset by the limited impact of low rates on our international earnings. I should note, while we would not be required to strengthen statutory capital reserves we might make modest adjustments as we have in the past.

Finally, on a GAAP basis we'd expect no loss recognition over the next five years but some impact to DAC and goodwill. All in all we think the impact as of a sustained low rate environment on our financial performance is quite manageable. With that I will turn the call over to Bill Wheeler who will walk you through our analysis in greater detail. Bill?

Thanks, Steve, and good morning again, everybody. Steve just walked you through the assumptions for this analysis and the financial impact for us if we were to remain in a sustained flat rate interest environment. My job is now to provide with a detailed view of that analysis, so let's turn to slide 13.

To analyze the impact of this scenario we looked at both what would happen to operating earnings as well as to certain areas of our balance sheet. First the blue line shows the base case interest rate assumption where the ten-year starts at roughly 3% and then if you follow that blue line increases to 4.5% by 2013. Then we illustrate the flat rate scenario with the yellow line where the 10-year yield drops to 2% and then it stays there are over the time period.

The operating earnings difference in 2012 as a result of this scenario is $0.21. In 2013 the total impact will be $0.42. It's a coincidence that it happens to be an additional $0.21. Now it's important to understand that this is the incremental impact; MetLife's earnings would be growing in the base case. Another way to show this is on the next slide.

So let me explain this chart on slide 14 to you. In 2011 we assume MetLife will earn approximately $5 billion in operating earnings, that includes both the domestic and international businesses. We've assumed for purposes of this illustration that MetLife's earnings would grew at 8% per year, that's 6% growth domestically and about 10% growth in international for a blended rate of 8%.

So, in 2016 earnings would have grown to about $7.5 billion. However, in the flat rate scenario we project that we would have about $500 million of spread compression in our US business by 2016. I'll give you more details about that in a minute.

We would also have a decline in operating earnings of roughly $700 million primarily from two other factors. First, we estimate our pension costs would increase another $50 million after-tax and there would also be a $600 million decline in investment income from the assets held in our surplus account which shows up in corporate and other. The remaining $50 million is made up primarily of international's US-related assets.

Therefore the total incremental decline in operating earnings in 2016 would be approximately $1.2 billion. Remember in the base case we said earnings would grow to approximately $7.5 billion so that in the stress case they would only grow to $6.3 billion. That represents about a 4% implied annual growth rate over the five-year period.

I think that's worth repeating. Our earnings will grow at about 4% annually, not decline as the market seems to expect.

Now let's look at the components of spread compression for US business in 2016 and that's shown on slide 15. The bars show the compression in earnings relative to the base case interest rate environment for each business segment by 2016. It is important to note that the benefit from our interest rate hedges is also in these numbers. Steve Goulart will give more detail about our interest-rate hedging program in a moment.

The biggest impact is in Retirement Products, or our annuity business, at $200 million in 2016. Almost all of the impact here is in our deferred annuities where much of the in-force block has a 3% minimum guarantee. We assume that customers will maintain their funds in their contracts with the 3% minimum and we will therefore experience spread compression as we reinvest assets at lower interest rates.

Partially offsetting this compression is the fact that we will lower crediting rates on that part of our block where we are not at minimum crediting rates today; we will also receive income from our hedging contracts.

The story is similar in Individual Life, lower reinvestment income partially offset by dividend cuts in our traditional products and crediting rate reductions in our UL products as well as higher hedging income. There's also a DAC true-up caused by lowering dividends here.

While Universal Life has interest-rate risk, only 35% of the block is at minimum crediting rates and we have a very effective ALM strategy. Therefore much of the potential impact in this scenario is muted.

In Group Life, while these products in general have significant repricing flexibility, the impact is in the total control account, or TCA. In the flat rate scenario all of our TCA balances are already at their crediting rate minimums, but we do have substantial hedging activity here to partially offset the decline in reinvestment income.

In Non-Medical Health only a small amount of the impact comes from long-term care which might surprise some of you. Our long-term care block, which is now closed to new business, is very well immunized against changes in interest rates. Most of the impact here comes from our disability business where lower reinvestment income cannot be offset by a reduction in liability crediting rates, although we do have some hedging income here as well.

The small impact of $40 million in Corporate Benefit Funding is probably the most surprising number on this slide. Despite the long duration of these products, the cash flows here are very predictable and we have very tight cash flow matching in this segment as well as several deferred starting derivative contracts to help. Again, Steve Goulart will give you some more details about that in a minute.

Finally, as you would expect, the impact in Auto & Home is very small.

So we've discussed how low interest rates can affect normal operating earnings. Now we turn to the potential impact on our balance sheet on slide 16.

We conduct a number of examinations, at least annually and sometimes more often, to determine the adequacy of our statutory reserves, our GAAP reserves, the level of our deferred acquisition costs and whether or not our goodwill should be impaired. Each one of these analyses is influenced by where interest rates are at the moment and what our interest-rate outlook is for the future.

So starting with the statutory reserve cash flow testing, we are required by New York State to analyze every major block of business in the US annually. Other states generally allow cash flow testing to be done on a more consolidated basis.

We take the current policy liabilities and the specific assets backing those liabilities and project that at the net cash flow for virtually the entire life of the liabilities and that could be as long as 75 years. We do these cash flow projections under seven different interest-rate scenarios which are called the New York Seven. And we do a similar type of analysis for GAAP reserve cash flow testing as well.

With regard to DAC, or deferred acquisition costs, we amortize DAC over the life of the in-force policy generally in sync with when the profits emerge from the in-force block. We review the assumptions about the ultimate profitability of each block of business and that would include our claims experience, our lapse rates, the expenses of servicing the block, the performance of the stock market if it's a product like a variable annuity and of course the impact of interest-rates.

We don't change these assumptions very often because the liabilities are generally very long. So even if current experience is different from our DAC assumptions we usually assume that over the life of the product the results will refer back to the norm. But we do occasionally change these assumptions, that's called a DAC unlocking, and it will cause us to change our DAC balance and that might be positive or negative, by the way.

I give you this background because in this low interest rate scenario we assume that we will start lowering our interest-rate assumptions in our DAC calculations beginning in 2014. I don't believe it would happen if any earlier than that.

If we believe that interest rates were going to improve after five years I don't think we would change any of our long-term interest rate assumptions. But in this scenario we don't assume an improvement and I think it's important we show how big the DAC write-off might be if we don't assume any future improvements.

Finally, when we acquire a business goodwill is usually created in the purchase accounting process and then is allocated to the appropriate business line. In the last financial crisis we came very close to impairing the goodwill in our Retirement Products business because both the stock market and the interest rates had declined materially and significantly affected the profitability of the business.

Many of our peers did write off some or all of their goodwill in the annuities businesses during that period. No other business at MetLife is even close to a goodwill impairment. But in this scenario the stock market performance is better, but interest rates are even lower, so there is a chance we would have some good level of goodwill impairment likely sooner rather than later.

Now let's look at slide 17 which shows the results of our balance sheet analysis. So in our low interest rate scenario what were the results? I'm sure you will be glad to know that we had very healthy statutory insurance reserves. And while we don't think we will be required to strengthen reserves even at these interest-rate levels, we may have some modest strengthening. Our GAAP reserves are also very strong and we expect no GAAP loss recognition under this scenario.

With regard to DAC, we have assumed we will have negative unlockings in 2014, '15 and '16 in our annuities and Universal Life product areas. The cumulative impact of these unlockings is estimated at $425 million after-tax with most of that occurring in 2016. Also, we believe that in this scenario we would impair some or all of the $1.7 billion in our retirement product segment. If we impaired it all that would be about $1.2 billion after-tax.

To put the DAC and goodwill write-offs in context, we currently have $61 billion of GAAP stockholders equity and these charges would represent a little more than one quarter's earnings for us. In other words, they would not materially change MetLife's financial position.

So, I think the bottom line of this study we have undertaken is that if the current low interest rate environment lasted for the next five years it would have an impact on our financial performance, but it definitely would not weaken the Company or put us in a perilous financial position.

Now I'd like to pass the presentation over to Steve Goulart to discuss how our investment actions have positioned us to mitigate some of the financial impact of a low interest rate environment. Steve.

Thanks, Bill, and good morning, everyone. I'll start on slide 19. I'm going to talk a lot about our asset liability management in this section; it's the critical underpinning to this analysis.

And most importantly, it's the asset liability management you've practiced in the past that matters most, because what you can do today is not that meaningful, there really aren't any magic levers to pull at this point. If you practice sound asset liability management you're going to be in reasonably protected shape. And at Met we've always practiced sound, consistent and disciplined asset liability management.

Our investment management structure and practices include not only investment professionals but also associates from finance and the business lines as well. Portfolios are managed according to underlying guidelines as well as ongoing input from ALM committees and regular relative value and asset allocation reviews.

And importantly, while we pay attention to total returns, we're essentially liability driven investors, that is we invest according to the needs our liabilities create while seeking optimal returns in liquidity. As a result our portfolios are highly matched from a cash flow perspective and I'll show you some examples shortly.

Additionally, Steve showed you the steadiness and dependability of our net margins over the last 10 years. This is a reflection of our disciplined ALM practices. It is also what led us to add low interest-rate protection starting in 2004, long before anyone started talking about it, and I'll discuss that further in a few minutes too.

We've continued to expand our capabilities as we have grown. Our commercial and agriculture mortgage lending and real estate platform is the best in the industry and we have the track record to prove it. Over the last 10 years we've originated over $74 billion of commercial mortgages and in that time period our total credit losses are well less than one half of 1%.

Our ability to originate assets like these and private placements continues to be strong in this environment. They provide significant additional net investment income compared to public securities and government bonds.

Given the focus on ALM, on asset allocation and risk management, we actively review and manage our portfolios to ensure we will continue to meet the needs of the liabilities and our policyholders as well as, most importantly, generate attractive returns to our shareholders.

Let's take a closer look at three product investment portfolios that have traditionally been thought of as having significant reinvestment risk -- Corporate Benefit Funding, Deferred Annuities and Long-Term Care. As a result of our consistent ALM practices we have modest reinvestment risk in all three.

First is Corporate Benefit Funding, specifically our long-term portion which consists of US and UK pension closeouts, structured settlements and other benefit funding products. It is a fairly large portfolio consisting of $45 billion in invested assets. On the right bar you can see total expected investable cash flow for 2012 of $2.9 billion.

However, as indicated in green, $2.6 billion of this represents new sales which are priced in current markets, so there is no reinvestment risk for the bulk of the cash flows. The small red slice of $300 million represents net cash flow from the portfolio to be reinvested. This includes net investment income roll-offs and maturities net of outflows to customers.

This relationship continues very steadily into the future, 2013 has actually been better than this. So you can see the true reinvestment risk and corporate benefit funding is minimal.

On slide 21 we look at Deferred Annuities, part of our Retirement Product segment. Assets are nearly $25 billion. On the right you see investable cash flow totals $2.7 billion, $600 million of this total represents new sales which, again, are sold at current market rate, so a minimal reinvestment risk. But there are two other categories to show you.

First the orange slice represents our estimate of how much existing customers will deposit at their guaranteed rates which would represent reinvestment risk to us. However, it is worth noting that we also have $10 billion of interest-rate floors in this portfolio protecting us against rate guarantees.

The red slice is $1 billion of net cash flows from the portfolio, again representing inflows from the portfolio net of outflows to customers. These two slices account for nearly all of the $200 million in spread compression over five years that Bill Wheeler showed you in Retirement Products earlier.

The final portfolio that I want to show you is Long-Term Care on slide 22. Long-Term Care is a fairly small portfolio at $6.8 billion. As you know, we stopped selling Long-Term Care so there are no new sales. However, we still receive renewal premiums on the block. You can see here we expect investable cash flows of $900 million in 2012 representing those renewal premiums and portfolio cash flows.

Nearly half of the $900 million, or about $400 million, is already hedged on a longer-term basis to provide us with interest rate protection. And again, this relationship continues into the future. I hope this has helped further impress upon you the importance of asset liability management at MetLife. We're very disciplined and consistent and it has served us well.

Now let's turn to slide 23. I mentioned earlier one of the previous outgrowths of our diversified ALM, existing low rate protection. In 2004 we started adding interest-rate floors; they were very cheap at the time and we thought they added prudent protection against a low interest-rate environment. I don't think many people were concerning themselves with this kind of an environment at the time, but we were.

We added over $47 billion notional amounts through interest-rate floors, swaps and swaptions over the ensuing years. In 2012 this protection would provide nearly $500 million in pre-tax income. Almost as important, you should note that this protection extends beyond 2020 and well into the next decade. Further, it is with a large and diversified group of counterparties.

And consistent with our practices, we continue to look at different scenarios and what they mean to us. As an example, we have been modestly adding protection against rising rate scenarios.

On to slide 24. As we look forward there's more to do. We will continue broadening the asset mix and diversity of our international portfolios which was part of our strategy upon closing Alico. We do this regardless of interest rates, but it will further bolster our net investment income.

I mentioned commercial mortgages earlier. We've enabled to continue expanding here as well as in agricultural lending, real estate equity and private placements without taking undue risk due in large part to current market conditions and opportunities and our strong franchises in these areas.

Of course, we'll continue to analyze ways of protecting the portfolio through derivative and other ALM strategies. But most of all we will continue to adhere to the disciplined ALM and risk management practices the way we've always done.

Now before I turn it over to Bill Mullaney I want to quickly review another topic with you, our European investment exposure. There are three sides in the appendix starting on slide 32 which summarize this.

MetLife's total European exposure is approximately $42 billion in GAAP book value which is a less than 10% of our general account portfolio. It's important to note that the market value exceeds the GAAP book value by more than $1 million.

Generally speaking, our European exposure is focused on those higher rated countries in the region. The largest holdings are $24 billion of nonfinancial corporate bonds. These holdings are in companies that are market leaders in the utility, telecom or infrastructure sectors or large investment grade companies that are globally diversified such as food and beverage, energy or pharmaceuticals.

I would highlight that over at 90% of our European portfolio is investment grade and of the 10% which is below investment grade approximately 60% of it is in the corporate sector. Less than 2% or about $8.8 billion of our portfolio is invested in European financials. This is an area where MetLife has been reducing exposure for nearly two years.

Within financials our European hybrid exposure is less than $1.4 billion or less than 0.35% of our total portfolio. Our hybrid positions are concentrated in financial companies in the UK, Netherlands and Switzerland. As you can see from the slide, we hold approximately $6.9 billion in European banks.

We've sold nearly $3.5 billion in book value since early 2010 at average prices in the mid-90s. Sales have focused on institutions with exposure to peripheral Europe, lower preference capital structure instruments and larger absolute exposures particularly where we had any credit concerns. Our remaining holdings are generally in the larger, better capitalized European banks.

Turning to our peripheral sovereign exposure, when we purchased Alico a year ago we initially acquired $1.8 billion of GAAP book value exposure of which approximately $726 million or 40% was Greece. Since then we've sold approximately $1.1 billion in book value of peripheral sovereigns. Our remaining book value exposure to the peripheral sovereigns is now $571 million of which $377 million is Greece.

Slide 34 provides the key takeaways relating to our European exposure, but let me just say in summary, we've managed exposures to the most sensitive credits very well and according to plan. We knew Alico had exposures that we would need to proactively manage. We've managed them down materially and we will continue to do so.

Given the size and diversification of our total portfolio we do not feel that our remaining European exposures pose a material risk and we deem our level of exposure to be very manageable going forward. With that let me now introduce Bill Mullaney.

Thanks, Steve, and good morning, everybody. In addition to the actions that we're taking on the investment portfolio, there are also actions being taken in the business to address the interest rate risk environment.

As you would expect, the most impactful action we can take is to increase prices where we can on existing business. The most common way this is done is for products with shorter liabilities that renew periodically. An example of this is our Group Insurance businesses. This business renews annually, subject to rate guarantees. So we have the opportunity to adjust prices to reflect the current environment.

Auto & Home is another business that renews annually where we have the ability to change prices. So as you saw in the earlier slide, these businesses are not particularly interest rate sensitive. We also have some longer liability businesses in which the contract permits us to increase prices. As we have discussed in the past, we've been raising prices on our in-force Long-Term Care business to improve returns.

On slide 26 here are some of the additional actions that we're taking and some of the actions that we can take in the future in dealing with low interest rates. For longer liability businesses where we can change prices, here are some actions we can take.

In our Variable Annuity business, for example, one of the actions we are pursuing is adding some of the new funds that we have in our new VA product to our in-force business. These funds are managed to reduce volatility but also reduce interest rate exposure by virtue of the interest rate swaps that are in the protected growth strategy's funds. As a result these products require less capital.

Getting these funds adopted in existing business in a meaningful way could increase returns by reducing our capital requirements. It will also decrease the amount of hedging that we need to do since some of the hedges are embedded in the funds. If low interest rates persist we're also looking at implementing an increase in fees when a VA policyholder elects to a step up a contract to the higher income base.

We have more flexibility on business we write going forward as we can adjust prices to reflect the current environment. In the past we've talked about how we measure returns on new business. As interest rates have come down over the last couple of years we continue to adjust prices to reflect the low interest rate environment.

More interest rate sensitive products such as Universal Life, Structured Settlements, Pension Closeouts and Group Disability have all seen increases in prices, in some cases multiple price increases, to reflect our expected returns on the asset's investment and we will continue to do this.

Another action we've taken is to reduce the minimum interest rate guarantees we have embedded in our products. Before the year 2000 it was not uncommon for many products to have minimum interest rate guarantees of 3%. Over the last decade we've been reducing these minimum guarantees.

The total control account is a great example of this. The 3% minimum guaranteed rate was reduced to 1.5% in April 2003 and reduced again to 0.5% in April 2009. We're also considering whether to reduce the minimum further to reflect the current environment and we are taking similar steps with our other products.

And finally, we can put greater emphasis on selling less interest-rate sensitive products either through pricing actions, adjusting compensation to agents or placing some limits on more interest rate sensitive offerings.

And not on a slide here, but obviously we also have the option to reduce expenses in our businesses as we look to maintain returns in a low interest rate environment. With that let me turn it back over to Steve Kandarian.

Thank you, Bill. Let me wrap up by summarizing the key takeaways from today's calls starting on slide 28. Overall, even if interest rates remain at historically low levels for another five years, MetLife's earnings will continue to grow, the impact on our balance sheet will be modest, no STAT reserve strengthening would be required and, most importantly, we would continue to generate excess capital. We also possess a number of tools that management can and would use to respond to protracted low rates.

To conclude on slide 29, I believe MetLife is less of a play on the 10-year treasury and more of a play on the growing middle class around the world, which is eagerly seeking financial protection and retirement security. It is our diversification that will provide us with strong and growing earnings. Even under a scenario of prolonged low interest rates, the US business would hold steady while the international business would provide continued earnings growth.

This is yet another testament to our commitment to managing MetLife for the long term. We saw the financial downturn coming long before others and took a number of steps that might have seemed overly cautious at the time.

Now with our recent acquisition of Alico and the actions we have taken in our US business, we are well positioned to weather a prolonged period of low interest rates. If rates return to more normal levels the amount of value we create for our shareholders will only accelerate. With that I will turn the call back to John McCallion.

Thanks, Steve. And again, we'd like to apologize for the technical difficulties we had. This will be available for replay. Again, you can -- the dial-in number is the same as was in the press release at 320-365-3844. And obviously we in Investor Relations will be available for your questions as well.

We're going to extend the call for 10 minutes for Q&A. I understand we're backing up against some other calls here, but for those that can stay on we'll make our call available for another 10 minutes. So, let me turn it back over to Greg for questions.

(Operator Instructions). John Nadel, Sterne, Agee.

I have one going back to the third quarter and then one for this one, if I could. When you guys characterize excess capital, in the prior call you mentioned $3 billion at the holding company at year end after you paid the common dividend and the $750 million debt maturity. I believe that was above your $1 billion consistent cushion.

My question for you is this -- hypothetically speaking, if you weren't a bank holding company and subject to the stress testing, is it your view that entire $3 billion is fully deployable?

Yes.

And then the last question I have for you is just is there a certain type of insurance business that if you were looking at it let's say from an M&A perspective in this type of five-year 2% 10-year treasury yield type of environment that you would be extremely concerned about its ability to pass the statutory cash flow testing or New York Seven test? And if so, which types of business would be on the top of your list of concerns?

No, I'm not going to go there (laughter). No, you've got your job, John, you're the one that's looking --.

(Laughter). Alright then, if I could just follow up then with a different one. The pension cost, the incremental $50 million over the next several years -- that surprised me as well. I guess the question for you is why?

You're right, it is up. But remember, that's the 2016 number. It actually -- it's interesting, the impact is later in the 2016 time frame as assumptions get modified and smoothed. It's a bigger impact in the early years and that's factored into that $0.21.

Okay, okay, understood. So that's just the incremental $50 million -- from 2015 to '16?

No, actually it's from now until then. But it starts out -- if it's a $50 million impact then, it's a bigger number now and then the impact gets smoothed over time. But in the $0.21 number for 2012 we include the full '12 impact of the pension.

Okay, appreciate it, thank you.

Thomas Gallagher, Credit Suisse.

I just had a quick one from the earlier call as well, then an interest rate one. I just want to confirm -- I know for 2012 you're going to need Fed approval for your capital management. Assuming the bank sale goes through, I just want to confirm that your understanding is you will no longer need Fed approval post the sale of that bank in terms of capital management?

That's correct. If the bank is sold and we're no longer a bank holding company the Fed would not be approving our capital management. Obviously it's a little time before we get that bank sold, we're doing everything we can to move that along as fast as possible, but there are a number of regulatory approvals that are necessary to go through.

So I can't tell you exactly what the timing is going to be, we're hoping by the end of the second quarter of 2012 that we'd no longer be a bank holding company. Tom, I should probably add that we're going to resubmit here in January and are looking forward to hearing back from the Fed in -- sometime before the end of March. So you can figure out that timing in terms of the bank holding company.

Got it. So your timing back from the SCAP would be potentially March, the potential close of the sale of the bank end of 2Q. So for the 2012 plan it sounds like it would be Fed approval, but then beyond that the hope would be no longer assuming the sale of the bank goes through, is that the right way to think about it?

Yes. So most likely we'll be receiving a response from the Fed before we're no longer a bank holding company.

Got it, that's what I thought. And then on the interest rate side, on slide 15 when you get into the $540 million of spread compression by product, are you allocating any hedge offsets and can you just give us an idea of how you're allocating the hedge gains as a partial [loss]? Is it done pro rata or --? That's my first question on interest rates.

Yes, the hedging offsets, and that was in my remarks, are in these numbers. And it's not pro rata or anything like that. The derivative -- the specific derivatives contracts, which are both swaps and floors as well as now swaptions, are allocated to different portfolios. And of course it's to match the risk and the liability shape and things like that. So that's how it's allocated.

And Bill, what's the aggregate hedge gain in 2016 again, that are -- these are net numbers obviously, but what is the absolute hedge gain that's being assumed here for 2016?

I think the way to look at that is look at the chart. Let's just go to that page quickly, whatever it is (inaudible). I think it's on page 23. And you can kind of see that. That's the -- if you assume the orange line which is the middle in 2016 you can see that the number is crudely $600 million pre-tax of derivative income from all these contracts.

These are -- that's pre-tax and these are after-tax numbers, the $540 million?

That's right.

Okay, got it. And then the last question I had is, are you -- when you do this interest rate assumption are you assuming any level of stressed prepayment activity from your portfolio? Meaning some convexity pre-pays on mortgage backs or bond calls? Or are you not making much of an assumption there?

It's Steve Goulart. Yes, we are. Again, we're reflecting how we think the investment portfolio would perform given this interest rate environment.

And, Steve, just broadly speaking, how should we think about that? Is 20% of your portfolio really of convexity risk? Or maybe just walk -- just a little bit of explanation as to under normal markets not low interest rates and how that roll-off of your portfolio would change under the low-rate stress scenario due to early bond calls and/or mortgage-backed pre-pays?

Tom, it's John. We'll address that off-line. We're going to just keep moving here.

Got it.

Why don't we take the next question, Greg?

Suneet Kamath, Sanford Bernstein.

Thanks. I'm going to stick with the pattern of one earnings call and then one interest rate call question. On the capital issue, and I hear what you're saying about applying for approval and all that. But let's just assume that for whatever reason regulatory wise or political wise you don't get to redeploy the capital that you'd like to.

My question is what is plan B? Because you're going to be building a ton of capital. You mentioned the dividends coming out of the international subs in January. So you're going to be sitting on a lot of this capital. So what is plan B? What are the alternatives in terms of what you can do with that? And then I'll have an interest rate question.

Well, let me start by saying our expectation is that our plan will be approved next year. So that's our starting point. So you're saying what if it's not approved. We will continue generating excess capital, we will look for ways to deploy it, we hope to no longer be a bank holding company by midyear. So we will -- things will unfold on that basis.

So just as a follow up, I mean if you wanted to do something with that capital in terms of M&A or what have you, would you need approval for that as well or is it just the capital return to shareholders?

We'll look at M&A in the normal course. Obviously we look at it in the context of how accretive is it compared to a share buyback. Right now, as you know, we can't do the share buyback, but our assumption is we will be able to do share buybacks in the first part of next year. So we'll continue looking at M&A opportunities, we inform the Fed about our activities, but we don't seek approval from them.

Okay, terrific. And then just on the interest rate presentation; thanks, by the way, that was very helpful. But you mentioned no STAT reserve impact or the GAAP impact is pretty small in terms of reserves five years out. Not that this is likely -- but what happens if we extend the time frame beyond 2016? I guess at what point does it become a bigger problem in terms of STAT reserves or GAAP reserves? Is there a cliff sometime beyond 2016 or how should we think about that?

No, there's no cliff. Remember, the way STAT works is we're actually projecting the cash flows for the life of the liability and then present valuing it back. So we're not thinking that somehow magically in like 2017 that answer will change. So there's -- and GAAP analysis works the same way. So there wouldn't be a cliff kind of impact there.

Okay. And a quick question for Steve Goulart. In your plan what is the new money rate assumption that you're using in this five-year outlook?

Based on -- essentially what we're seeing currently which is just under 4%.

Okay, thanks.

Nigel Dally, Morgan Stanley.

On the investment portfolio can you provide some details as to how you're changing your asset mix given the current environment? I'm guessing traditional corporate is somewhat less attractive. So what are the key areas that you're looking at increasing your allocation of you investments? And perhaps you can also provide some details internationally as to how you're broadening your asset mix there as well.

Yes, Nigel, it's Steve. Some of this is also what I commented on in the low-rate scenario too. What we're seeing today is really still great opportunities in private asset originations in commercial mortgages and agricultural mortgages. So we have been over the course of the year increasing our allocation to those sectors. And as we look forward to next year we're likely to see that relationship continue.

At the same time we continue to check, from a relative value basis, how it compares versus other opportunities in traditional corporate bonds and the like. But we really like what we see in private assets.

Very good, thanks.

Great. Well, thank you, everyone. Again, we will post the replay information on our Investor Relations portion of the website and that's going to end the call. Thanks for joining.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.