大都會人壽保險 (MET) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, welcome to the MetLife fourth-quarter 2011 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 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.

Great, thank you, Greg, and good morning, everyone.

Welcome to MetLife's fourth-quarter 2011 earnings call.

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, in 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 not accessible because MetLife believes it is not possible to provide a reliable forecast of net investment and net derivative gains and losses, which can fluctuate from period to period and may have a significant impact on GAAP net income.

I would also like to bring attention to one item.

As noted in our press release, during the fourth quarter of 2011 MetLife began reporting certain operations of MetLife Bank and insurance operations in the Caribbean region, Panama and Costa Rica as divested businesses.

As a result we have modified our definition of operating earnings to exclude the impact of these divested businesses and prior periods have been reclassified to conform to the current period segment presentation.

Now, joining me this morning on the call are Steve Kandarian, Chairman, President and Chief Executive Officer, and Eric Steigerwalt, Interim 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 Wheeler, President of Americas; Steve Goulart, Chief Investment Officer; and Bill Toppeta, Vice-Chairman of EMEA and Asia.

With that I'd like to turn the call over to Steve.

Thank you, John, and good morning, everyone.

Let me begin this morning with an overview of MetLife's performance for the full year 2011.

Overall MetLife had a solid year; we generated operating earnings per share of $5.02, up 16% from 2010, and our operating return on shareholders' equity was 11%, up 100 basis points from 10% in 2010.

These results are even more noteworthy in light of the challenging external environment the insurance industry faced in 2011.

The global macroeconomic environment remained volatile, interest rates declined, equity markets were flat and several natural disasters in both the United States and Japan drove up claims.

Adjusting for certain one-time items, which we discussed at our December investor call, MetLife's 2011 operating earnings would have been $5.25 per share.

Capping a solid 2011 was a strong fourth quarter.

MetLife delivered operating earnings per share of $1.31, up 11% year over year.

In our US businesses underwriting discipline continued to produce favorable results in Group Life, with a loss ratio of 85.2% as well as in Dental.

In addition, core spreads held relatively stable despite the low interest rate environment, largely as a result of our disciplined asset liability management, our hedging strategies and our private asset origination capabilities.

Outside the United States we continue to be pleased with our financial results and our progress in integrating Alico.

Compared to the fourth quarter of 2010, sales increased by 12% on a combined basis while premiums, fees and other revenue rose by 1%.

We generated $570 million in operating earnings on $3.8 billion of premiums, fees and other revenues.

Top-line growth was negatively impacted by the disposition of non-core businesses, non-renewals of certain large group accounts and the accounting impact of a shift towards savings products.

In Japan sales increased in the Bank and independent channels.

In other international regions we benefited from our acquisition in Turkey and the leveraging of our accident and health capabilities in Latin America and Asia Pacific.

Total sales of A&H, a low capital, high ROE product, increased roughly 25% year over year.

Looking ahead, we remain confident in the growth of our non-US businesses.

As we said on our December investor call, we expect to grow operating earnings by roughly 14% outside of the United States in 2012, after adjusting for the new accounting treatment of deferred acquisition costs.

One final note from the quarter concerns variable annuity sales.

As we discussed on our last call, we sold $8.6 billion of VAs in the third quarter of 2011.

In the fourth-quarter VA sales declined 16% to $7.2 billion, in line with our expectations.

As I have said previously, one of our guiding principles at MetLife is to strike the right balance between growth, profitability and risk.

Consistent with that principle we are committed to actively managing the level of our VA sales.

In January we once again reduced the roll-up rate on our GMIB Max product from 5.5% to 5%.

This change is having the desired effect; VA sales in the early part of the year are tracking with our 2012 guidance of $17.5 billion to $18.5 billion, consistent with the level of VA sales prior to 2011.

With the management actions we are taking we are confident that VA sales will remain an important part of our overall product mix.

Despite the low interest-rate environment in which we are operating MetLife's businesses continue to generate excess capital.

We finished 2011 where we expected with $3.5 billion of deployable capital.

By the end of 2012 we anticipate deployable capital to grow to $6 billion to $7 billion before any deployments.

As I have previously mentioned, it is our intention to begin returning excess capital to shareholders this year pending regulatory approval.

In January we submitted our 2012 capital plan to the Federal Reserve and expect to receive a response before the end of the first quarter.

Qualitatively we believe we have developed a robust forward-looking capital planning process consistent with the Fed's guidelines.

Quantitatively we specifically designed our capital plan to meet the Fed's requirement that we have sufficient capital to continue operations throughout times of economic and financial stress.

Finally, we believe that approval of our capital plan is consistent with the Fed's mandate to promote maximum employment as MetLife's shareholders would redeploy idle capital in a more productive manner.

At the same time, we continue to move forward with our plans to cease being a bank holding company.

On December 27, 2011 we announced the sale of our depository business, GE Capital, which we expect to close during the second quarter.

In addition, we are winding down our forward mortgage business and exiting our warehouse finance business through an asset sale to EverBank.

Further down the road a number of insurance companies face the possibility of being named non-bank systemically important financial institutions.

To be clear, we do not believe the life insurance business poses a systemic risk to the US economy and we look forward to continuing to meet with policymakers to convey our position.

The business of life insurance is highly regulated with strict capital reserve and derivative use requirements.

With regard to derivatives, which are one of the key aspects of our business that regulators will examine, we are well collateralized and our counterparty exposure is well diversified providing protection to policyholders and shareholders alike.

Just as our decision to reduce VA sales is part of our commitment to managing our portfolio of products, MetLife also continues to manage its portfolio of markets.

In November we announced that we were divesting our businesses in the Caribbean, Panama and Costa Rica, and last month we announced our plans to acquire from Aviva PLC its life insurance businesses in Eastern Europe which will expand MetLife's presence in growth markets.

As I said on our December investor call, we are going to invest in those markets that we consider core and divest from those that do not meet our strategic priorities or financial requirements.

Now let me turn to strategy and our recent organizational changes.

As CEO of MetLife I believe it is important for us to continuously reassess our strategy, especially in light of the uncertain external environment.

We will provide the details of our current strategic review in our next investor event on May 23.

You've already heard me say that capital is precious and that we must limit its use to those activities that can best create long-term shareholder value.

Of course having the right strategy is not sufficient.

On our earnings call last July I outlined some of my key priorities to ensure that MetLife is equipped to deliver strong business results.

I spoke of the importance of maximizing the value of our brand, which we have done with the naming rights to MetLife Stadium, our extensive rebranding efforts in key Alico markets such as Japan, and our new US advertising campaign launched during the Super Bowl.

I discussed sharpening our focus on value creation and have emphasized to our senior leaders that we must pursue profitable growth with returns that exceed our cost to capital.

And I described MetLife's commitment to recruiting top talent, which is our guiding principle in selecting a new CFO and President of Asia.

Last November I also announced that MetLife was reorganizing from a US and international structure into three broad geographic regions, the Americas, EMEA and Asia, and creating a global employee benefits business.

We are continuing to implement that reorganization plan and have taken a number of additional steps to enhance our operating model.

Today I'd like to give you a high level overview of our Americas division.

Under the leadership of Bill Wheeler the Americas is comprised of the following six core businesses -- retail; corporate benefit funding; group; voluntary and worksite; Latin America; and direct.

Once we have named a new CFO, Eric Steigerwalt will lead the retail business which includes Individual Life and VAs.

What will not change as a result of our new structure is MetLife's commitment to ensuring that customers can do business with us through a variety of channels.

For example, even as we work to develop our direct-to-consumer business, we recognize that face-to-face distribution through agents and advisors is critical to our success.

Having a diversity of channels is a competitive advantage that enables us to pursue growth in multiple markets simultaneously.

The final topic I want to address this morning is the impact of interest rates on MetLife's financial performance.

We discussed this topic at length last fall and since that time the shares at MetLife have traded with less correlation to the 10 year treasury.

Even so when the Fed announced its decision to keep short-term interest rates low through 2014 the shares of life insurers fell sharply that day.

One question we have been asked is whether MetLife's 2012 earnings would be impacted by low interest rates over the entire year, especially since our guidance assumed the 10-year treasury would rise from about 2% last fall to 3% by the end of 2012.

The short answer is no.

We reran our 2012 projections assuming the 10-year treasury holds constant during the year.

The decline in investment income would be offset by income generated by our interest rate floors.

Over the longer term low interest rates would have an impact on MetLife's earnings, as we explained in detail last fall.

Under the scenario we used at that time we held a 10-year treasury flat at 2% over five years.

MetLife's operating earnings still grew over the five-year period, but at a slower rate.

It is important to note that we assumed no extraordinary management actions under that scenario.

In reality we have a number of tools that can and would be used to mitigate the impact of sustained low rates including pricing, crediting rates and expense management.

To sum up, MetLife had a solid 2011 and a strong fourth quarter, even in the face of some significant market pressures.

Our capital position is strong and getting stronger.

And our ability to grow operating earnings in the face of low interest rates remains intact.

In short, we think we're the best positioned company in the life insurance sector to deliver shareholder value.

Thank you again for joining us this morning and with that I will turn the call over to Eric Steigerwalt.

Thank you, Steve, and good morning, everyone.

MetLife reported operating earnings of $1.4 billion or $1.31 per share for the fourth quarter.

When adjusting for a few non-recurring items, which I will discuss shortly, normalized operating earnings were $1.30 per share.

You will note this result is comfortably higher than our fourth-quarter guidance range of $1.16 to $1.26 provided to you during our investor call on December 5.

The primary drivers for this outperformance were higher than expected variable investment income, lower expenses and stock market performance in December coming in better than expected.

Overall I would characterize this as a very good quarter driven by solid underwriting margins, strong and stable core investment spreads which reflect how well we have managed the business despite the low rate environment and continuing expense control.

Underwriting margins were healthy due to our ongoing pricing discipline.

This was most evident this quarter in our Group Insurance operations with a very favorable mortality ratio in Group Life and an improving benefit ratio in our non-medical health businesses.

In Japan Accident & Health underwriting margins continue to be quite attractive.

Finally, expenses remained very much under control; our overall expense ratio was 22.3% in the quarter after recasting for the divested businesses in the Bank and the Caribbean, as John indicated earlier.

Now let me walk you through our financial results and point out some of the highlights.

First, let me discuss some normalizing items which occurred during the fourth quarter.

As part of our annual review of DAC assumptions we had net positive DAC unlocking and other adjustments of $27 million after tax in our US businesses.

In our insurance product segment Individual Life had a net positive unlocking and other reserve adjustments of $65 million after tax.

The favorable unlocking was driven by policy holder dividend scale reduction on a portion of our Individual Life business and updates to our SOP reserving model in our universal life business.

In retirement products we had negative DAC unlockings and reserve adjustments of $38 million after tax, primarily as a result of a reduction in the long-term assumption for our separate account returns.

This change was due to the higher allocation to bonds that we are seeing in our separate accounts, which is causing the blended return to be slightly lower.

Next, our Auto & Home business had favorable prior year development reserve release in its auto business of $14 million after tax.

This was partially offset by incurred catastrophe losses of $18 million after tax in the quarter which was $6 million above our fourth-quarter plan provision of $12 million after tax.

The net impact of these two items benefited Auto & Home's operating earnings by $8 million after tax.

And finally, Alico integration expenses in the quarter were $20 million after tax.

We have recorded these expenses in our corporate and other segment.

Now let's take a look at the results in the quarter by line of business.

In US business we reported operating earnings of $932 million for the fourth quarter.

Excluding the impact of one-time items that I mentioned, normalized operating earnings were $897 million.

This reflects solid operating earnings growth of 4% on a reported basis as compared to the prior year period of $894 million and 9% higher on a normalized basis.

The primary drivers of this normalized earnings growth were strong underwriting results in Group Life and Dental, as well as strong separate account fee growth in our Retirement product segment.

Premiums, fees and other revenue were $7.6 billion, up 7% from the prior year quarter driven by higher UK pension closeouts in our corporate benefit funding segment and higher premiums and fees in retirement products.

While insurance products top-line was essentially flat this quarter, we do expect to see a pickup in 2012 revenue growth consistent with our plan as we are experiencing a nice rebound in 2012 Group Life sales and persistency and continued growth in our Dental business primarily driven by the addition of the TRICARE dental account.

Auto & Home had solid growth in the quarter as net written premiums were up 2% year over year.

Insurance products normalized earnings of $346 million were up 7% over the prior year quarter; this strong performance is mainly driven by improved Group Life and non-medical health underwriting margins.

The Group Life mortality ratio for the quarter was a very favorable 85.2%, below both the prior year quarter of 89.7% and our 2011 guidance range of 88% to 93%.

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 88.9% which was down from the prior year quarter of 89.7% and within our 2011 guidance of 86% to 90%.

Underwriting trends in Dental remain favorable due to more stable utilization and pricing trends.

However, disability results were less favorable than recent quarters.

Although claims incidents improved in the quarter we did see higher average claim size and weaker recovery experience.

Our Individual Life mortality ratio for the quarter was 81.1% compared to 82.9% in the prior year quarter.

While direct mortality was good, we did have weaker reinsurance recoverables on some high face amount claims.

Turning to our Auto & Home business, normalized operating earnings for the quarter were $73 million, up 4% versus the year-ago quarter.

The combined ratio, including catastrophes, was 93.8% for the fourth quarter, favorable to the prior year quarter's result of 95.2%.

The combined ratio excluding catastrophes was 90.2% in the fourth quarter, generally in line with the prior year quarter of 90%.

Overall this was a good bounce back quarter for Auto & Home to close out a year that was materially impacted by record catastrophes and adverse weather.

Retirement products' normalized operating earnings of $254 million were up 16% as compared to the fourth quarter of 2010.

Earnings growth was primarily driven by higher fees from growth in the separate accounts balances of 12% year over year.

Corporate benefit funding operating earnings of $224 million were up 8% over the prior year quarter on a normalized basis, largely reflecting increased net investment income from growth in the general account which was up 4% year over year.

Now let's discuss our businesses in Japan and other international regions.

Focusing on Japan first, our Japan operation produced good results for the quarter.

Japan's operating earnings for the fourth quarter were a strong $326 million, up 3% over third quarter 2011 driven by solid Accident & Health underwriting results, improvements in persistency, as well as higher net investment income.

Japan sales grew 16% in the quarter as compared with the combined MetLife and Alico results for the fourth quarter of 2010.

We continue to experience strong sales growth in the Agency and Bank channels.

Our expectation is that sales growth will continue to be solid in 2012 but perhaps at more modest growth rates due to prior year recovery from the financial crisis causing tougher comparisons from our 2011 sales.

The year-over-year increase in fourth-quarter revenues on a combined basis was approximately 5% driven largely by the favorable exchange rate of the yen versus the US dollar.

On a constant rate basis revenues were down 2% on a combined basis as GAAP revenue growth has been dampened by the shift towards FAS 97 savings products.

While the revenue for these products is accounted for differently than the risk protection products sold in Japan, resulting in incrementally lower PFOs and higher net investment income, their margins and earnings are comparable.

In our other international region segment operating earnings were $244 million, down 6% from the third quarter 2011 due to foreign exchange rates and the challenging European market conditions.

However, our Latin America and Middle East businesses continue to deliver strong revenue and earnings growth.

But OIR sales grew 9% in the quarter as compared with the combined MetLife and Alico results in the fourth quarter of 2010 driven by strong sales in Eastern Europe and the Middle East.

Sales growth was negatively impacted by the challenging market conditions in Western Europe and Asia Pacific regions.

The year-over-year revenues decreased on a combined basis by approximately 2% reflecting the strength of the US dollar.

On a constant rate basis revenues were up 2%.

Revenue growth within OIR was relatively soft due to our strategic pruning of non-core businesses, non-renewal of some large institutional cases that did not meet our profitability targets and the annual assumption review in our Korea business which actually has a revenue effect.

Offsetting for these factors OIR revenue growth would have been approximately 8% on a combined basis.

Despite the tragic events in Japan, ongoing unrest in the Middle East and adverse market conditions in Europe, our businesses outside of the United States taken as a whole were within their full-year plan range for sales, premiums, fees and other revenue.

We have made significant progress in leveraging our Accident & Health product portfolio by expanding our capabilities into Asia-Pacific and Latin America.

As Steve mentioned, total Accident & Health sales increased by approximately 25%, a strong result.

These products have low capital requirements, attractive returns and high customer demand in emerging economies which fits nicely into the guiding principles that Steve has already outlined.

Now let me turn to investments.

I'll begin with variable investment income.

Pre-tax variable investment income was $247 million and within our 2011 quarterly guidance range of $225 million to $325 million.

After taxes and the impact of deferred acquisition costs variable investment income was $162 million.

While results were in the plan range, variable investment income is lower sequentially and compared to the prior year driven by lower private equity income reflective of the third-quarter market decline and volatility that we've said can occur within these asset classes.

Next let me briefly mention realized investment gains and losses.

In the fourth quarter we had after tax investment portfolio net losses excluding divested businesses of $213 million.

Included in this net loss are impairments of $163 million after tax of which $123 million relate to our Greek sovereign debt holdings.

Moving to our commercial mortgage holdings, this portfolio continues to perform extremely well.

As of December 31 our valuation of allowance was $398 million, down from $428 million at the end of September.

The loan to value ratio of our portfolio improved again this quarter to 61% from 62% as valuations continue to improve in the markets where we invest.

Additionally, our delinquency rate remains very low and, more importantly, our losses recorded during 2011 were only $12 million on a $40 billion portfolio.

With respect to our derivatives portfolio, we had after tax gains excluding divested businesses of $351 million that were driven primarily by lower interest rates and gains in our variable annuity hedging programs.

Lastly, I'd like to update you on certain European exposures.

During the fourth quarter we continued to manage down our exposure to peripheral European sovereign debt.

As a result of targeted sales and the recognition of impairments, we have reduced our GAAP book value to $254 million, a relatively modest level given the size of our overall investment portfolio.

We continue to reduce our exposure to European banks as well.

We sold approximately $250 million of GAAP book value in the fourth quarter for a loss of $18 million, bringing the full-year 2011 sales total to $3.2 billion.

The sales were focused on those institutions with exposure to peripheral Europe, securities with a lower preference in the capital structure and larger absolute exposures.

Looking forward, we believe our remaining European exposure is quite manageable given the size and diversification of our overall investment portfolio.

Now let me discuss our balance sheet and capital position.

First, our book value per share excluding AOCI is $49.02 as of year-end reflecting strong year-over-year growth of 13%.

Steve referenced earlier how well protected the income statement is in a sustained low interest rate environment.

I would add that our balance sheet remains quite strong and is well-positioned to remain so even in a sustained low rate environment.

As we have previously stated, even if rates stay low for the next five years our balance sheet, both on a GAAP and STAT basis, would only be modestly impacted.

This is the result of managing for the long-term, utilizing prudent risk management techniques and taking actions prior to the crisis, not waiting until it was upon us.

Let me also provide you with an update on our statutory earnings and capital position.

Our preliminary statutory operating earnings and statutory net income for our domestic insurance companies for the fourth quarter of 2011 were approximately $1.2 billion and $1.1 billion respectively.

As you may recall, our third-quarter statutory operating earnings were impacted by an increase in reserves primarily related to the weakness in the equity markets.

Included in our fourth-quarter results is the reversal of a portion of that position due to the strong equity market performance in the fourth quarter.

For full year 2011 our preliminary statutory operating earnings and net income were each approximately $2.6 billion.

These results were negatively impacted by catastrophes similar to GAAP and market-related reserve items in 2011.

Our total adjusted capital is at $27.7 billion as of December 31 reflecting year-over-year growth of 8%.

While we have not completely finished our RBC calculations for 2011, based on our work to date, we are estimating that our consolidated RBC ratio will end the year at the upper end of our guidance range of 420% to 445% that we gave you during our December 5 call.

Also, we are estimating that our Japan solvency margin ratio on the new basis will be within our guidance range of 850% to 950%.

Consistent with our guidance, cash and liquid assets at the holding companies at December 31 were approximately $4.5 billion, giving us deployable capital of $3.5 billion, $1 billion above our holding company cushion.

In addition, we are projecting the deployable capital will be within the guidance range we gave of $6 billion to $7 billion at year-end 2012 prior to any capital management actions.

In conclusion, MetLife had a very good fourth quarter, completing a strong 2011 despite the ongoing challenging environment.

Our margins remain strong as we continue to focus on generating profitable growth.

Our financial strength is intact; our balance sheet is positioned to withstand a sustained low rate environment; and our capital position remains robust.

And with that, I'll turn it back to the operator so we may take your questions.

(Operator Instructions).

Suneet Kamath, Sanford Bernstein.

Thanks and good morning.

My first question is on the variable annuity business.

Obviously, you guys have added a lot of business second half of the year, but even as we go back into the earlier part of 2011, this business had guarantees that were richer than what you're currently worth.

So if I think back to last quarter, I think you talked about ROAs of kind of 14 to 15 -- ROIs -- excuse -- me of 14% to 15% and I'm just wondering, kind of given the environment that we are in, how are you feeling about those returns on a go-forward basis?

Hi, Suneet.

It's Bill Wheeler.

I think the ROIs that we talked about on the previous call; I think those are still consistent even in the fourth quarter.

Obviously we had, I would say, a little bit lower than 15% ROI on our VA sales.

The cost of hedging is still relatively high and so that obviously depressed the number a little bit.

We don't consider those returns adequate.

And so obviously that's why we changed the roll-up rate at the beginning of January back down to 5% and we've also changed a number of other features.

I guess I would say, by the way, just keep in mind when we talk about ROIs we're talking about fully allocated expenses here, not marginal expenses, and that's always important.

That's how we look at it and we think that's the right way to look at it.

And so we feel -- the sales clearly we had in the fourth quarter and in the latter part of the year were above our cost of capital.

We created value through those sales, but we think we need to improve.

And so therefore that's why we've changed our pricing.

I guess I'm a little surprised to hear you say that they're not adequate.

So where should we or where do you think the ROIs on the 5% product would put you?

Well, obviously, it depends on market conditions, but we want to be 15% plus in terms of ROIs.

The risk profile of that product is such that we think we need to earn 15% plus.

Okay.

And then my last question also on VAs is -- during your interest rate call you talked about perhaps using the strategy of going back to your legacy book and using some of the asset allocation techniques in the GMIB Max and sort of rolling those out.

And I guess I'm wondering if you're successful in doing that could that have a significant impact on the ROIs of that back book?

We're still pursuing that strategy.

But it's one of I would say a group of strategies we're doing to improve the performance of the in-force book.

And so, as a whole I think they will -- as a group I think they will have an impact that is measurable, but that one technique is -- it will depend on the adoption and the investment in those new funds which, by the way, have performed very well.

So it's nothing to do with how the funds have performed, but you've got to change policyholder behavior of little bit to want to invest in those new funds under existing annuities.

So I would say we're pursuing a number of strategies to improve the profitability of the in-force block and that's one of them.

All right, thanks.

Andrew Kligerman, UBS.

With regard to the international business, so OIR was up 2% premium fees and other, Japan was down 2% -- could you give us a sense of where you expect that PFO to go in 2012?

And then secondly, why do you think the margins are comparable as you increase your allocation of sales to investment products?

I understand with AFLAC their margins are about two-thirds or less the more traditional medical type products that they're selling.

Andrew, it's Bill Toppeta.

In terms of where we think the PFOs will go next year, the total for international, as we gave you on the investor call in December, would be approximately 6%.

And the breakdown on that is Japan would be a little bit above 5% and then the other regions would be about 6.7%.

So I think that there are a couple of things that will drive that going forward.

The first thing I would say is a big emphasis pretty much in all regions on the Accident & Health business.

We expect that there's going to be a strong emphasis on A&H growth in all regions.

In fact, we just came back from Latin America where there's very strong growth in A&H and a number of countries.

We're seeing very strong A&H growth in Korea.

So I think the trend is very good.

Another point I think would be related to persistency.

There are a number of management actions being taken around persistency, particularly in Japan but also in other places.

I think what we saw this year was a little bit of a delay in getting that started and that was related to the earthquake.

So we're probably -- and I've mentioned this before -- we're probably about three to four months late on the persistency initiatives.

Nonetheless the trend is very good.

The trend this year in Japan has improved resistance by about a percentage point and that's going to benefit premiums and fees next year of course.

And we expect that there's going to be continued growth with that.

So I think those are a couple of the factors that make us confident that we can achieve the premium fee growth that I outlined going forward.

And then to that second question, Bill, about margins.

Will the earnings move in sync with these revenues?

Yes.

The margins -- actually the margins, this is related to the shift between FAS 60 products and FAS 97 products.

The margins -- and we've looked at several of these products.

The margins are every bit as good on the FAS 97 products.

So while you may get a lower PFO number, your profitability is going to hold.

And just to give a little more color on that persistency number, you got 1 point in Japan; how many more points do you think you can get going forward?

Well, I think we probably will be looking at something like that for next year, something between say 0.5 to 0.7, maybe up to a full point of improvement depending upon how successful we are.

But I think it's in that range.

And then just one last point.

On Japan, the A&H business, do you expect some growth in that area as well or is it more other regions?

No, we absolutely expect growth.

In fact, I think that A&H sales growth in Japan is expected to be strong and I think the reason for that is a focus on distribution.

So there's going to be a lot of focus on A&H in both -- well, all three channels I would say.

In face-to-face we certainly are doing very well with respect to the independent agency in Japan.

I think we'll get good strength there, but we'll get even bigger emphasis in the career agent force.

The sale of A&H through the banks is another emphasis.

And then in DM, but DM with sponsors.

So I think that we're going to -- in all those channels we expect to get good, very good growth in A&H sales in Japan.

Perfect, thank you.

Joanne Smith, Scotia Bank.

A couple of questions.

One is with respect to the guidance and the change -- and no change in guidance given a different scenario of interest rates staying at current levels for the full year.

What factors in your assumptions changed that allowed you to maintain the guidance in that type of a scenario?

You're talking about our EPS guidance for 2012?

Yes.

So as we went through on the interest rate presentation, we have interest rate floors not only helping us given the level of interest rates, but we had some deferred start interest rate floors that kick in in July and that's going to help 2012.

In addition, in both our Retirement product and our Life Insurance -- Individual Life Insurance businesses, we still have crediting rate flexibility and you'll see that play itself out depending on what happens with interest rates during the next four quarters.

So as we project out and, as Steve said, we have done these projections, we think that the impact in 2012 will be very modest.

Okay, all right, thanks.

And then just as a separate question, on the VAs, with respect to the lapse rates, they're really low.

And I'm wondering if this level of lapse rate is really within the range of your expectations and what type of utilization rates you're expecting?

Well, our whole product is designed with a series of assumptions about -- we use the phrase dynamic lapse rates assumptions, which means that as the products get more in the money -- and they're relatively in the money now even though we've had a nice rally in the stock market just mainly because they're low interest rates they're in the money -- or the guarantees are in the money -- is that therefore we assume that lapse rates will go down and that's how the business -- and therefore the accounting adjusts for that.

I think utilization rates -- we assume that consumers are going to utilize or annuitize fairly efficiently.

That means if they are in the money and the guarantee is valuable they will take advantage of that.

And then we hedge accordingly.

So we assume that they'll act appropriately.

As a matter of real experience I'm not sure -- I think that's a very conservative assumption.

Okay, thanks.

So you would say that 6% or so lapse rates at this point are within your range of expectations and that you're factoring in further decline in that?

Yes, absolutely.

So the lapse rates where they are today we think is -- we're not surprised by that and that's sort of how the product is designed and how the accounting works.

And in terms of actually annuitizing, we're not seeing a lot of people at -- the very first policyholders are able now to annuitize and it's not a big enough sample to really draw any conclusions from, remember because they have to wait 10 years, and the level of annuitization is very modest.

And we're assuming a lot more will -- the way we hedge we assume a lot more will annuitize.

Thanks, Bill.

Jimmy Bhullar, JPMorgan.

I had a few questions.

First on the group disability business, your margins are weak.

I just wanted to get an idea on what your expectation is for claims recovery rates given the economy and what you've seen in terms of competitor behavior on pricing in the disability market?

And then secondly on capital deployment, you mentioned that it could begin once you get Fed approval, assuming you're referring to share buybacks.

Maybe if you could discuss where acquisitions fit into your capital plans.

Would you consider additional deals in the near-term?

And if yes which products or markets are you most interested in?

And then lastly, in the past I think, Bill, you've mentioned hedging costs for the GMIB feature were higher through 2011 versus the fee that you were charging, where that stands now that the market volatility has declined a little bit?

Okay, so I'll try to do these.

I'm in a new job, Jimmy, so don't put too much pressure on me (laughter).

Well, Steve can answer some of these.

Okay, with regard to group disability I thought Eric explained it pretty well.

Incidence rates are actually down, which is a good sign, but claim closure rates are below plan and below expectations and they actually ticked down a little bit in the fourth quarter, which is not good, and that's all about getting people back to work.

So that's very much driven by the macro factor.

Where that goes from here -- we hope it improves, we're not sure.

The way we're dealing with that of course -- and the other final thing, by the way, which is just unusual, is we had fairly high severity in our disability claims and that's just a blip.

We suspect that will come down to a normal level of severity, probably in the next quarter, though you never can be sure.

The way we're dealing with this is obviously through pricing and obviously making sure we manage claims appropriately.

Because the environment is still difficult we've been raising prices in our group disability business for a while, so that leads to the competitive environment question.

Clearly we've seen a shift in terms of group competitors in terms of how aggressive they've been to obtain business and that's good.

We've seen that both in Group Life and in Group Disability.

And I think -- so the environment is clearly from a pricing environment getting better.

Okay, just I'll do the last one on hedging because I just, I think, mentioned a few minutes ago.

So our hedging costs in the fourth quarter were relatively flat with where they were in the third quarter, which means that they're higher than the fee we're charging on the rider a little bit higher.

Now that's obviously not great, but you have to always remember that we're earning a substantial fee on the base contract and that's very important.

So that's why we still make a return that's just a little south of 15% in the fourth quarter even though these hedging costs are higher.

So, Jimmy, on the capital deployment issue, as I mentioned in my remarks, we had submitted our plan to the Fed earlier this year, we expect to hear back before the end of this quarter.

We feel very good about our submission.

We feel very good about our capital position.

And we are hopeful that we'll be able to return capital to our shareholders this year, but we must await a response from the Federal Reserve.

As to what we will do with that capital, obviously we're looking at all the possible avenues there -- dividends, share buybacks, opportunistic M&A that fits our strategic direction and which provides shareholder value and which provides accretion to our earnings in markets that we think are desirable.

All those things are on the table.

Okay, thank you.

Randy Binner, FBR.

I'd like to follow up on that last question.

So with the CCAR submission, or the submission that you've given to the Fed, that would contemplate a level of capital management that would be considerably below the $6 billion to $7 billion level.

So I just went to clarify the timing.

And I think that it's right that you would go through the CCAR process to the extent you're still a bank holding company.

And then if you can shed the bank holding company status later in the year that would open the door for more material capital management.

So it's kind of a two-step process, is that the right way to think of it?

Let me say this, we've submitted what we're comfortable doing in terms of capital redeployment for 2012 to the Fed.

And again, we can't prejudge things, but we feel good about our submission and we are hopeful that we'll be able to execute it here over the course of the year.

The numbers that we talked to you about, $6 billion to $7 billion by year end, of course that builds over time.

So that capital will be there by year end absent any deployment.

We'll have to see what happens over the course of this year in terms of we do run into areas of dividends and share buybacks again based upon what we hear back from the Fed.

And we'll have to see what happens in the M&A arena over the course of the year.

We look at most any property that's put up for sale; we have very strict criteria in terms of what we will pursue and at what price.

But as we mentioned, we have done some deals recently in Turkey, in Eastern Europe and we'll be looking at other opportunities over the course of this year.

So I can't really say exactly what we'll be doing with that full $6 billion to $7 billion we anticipate having by year end over I'd say it will be a two-year process because a lot of this depends upon what happens in the marketplace and the M&A arena.

It also depends upon what kind of reaction we get from the Federal Reserve to our submission.

And as you point out, we are de-banking, that process is underway.

We're hopeful that will conclude sometime mid-year this year and that would put us in a different status at that point in time.

And that will be taken into account in terms of how we deploy our capital as well.

All right, understood.

And one more, if I could, real quick.

The strategic review is on everyone's mind and you've been I think clear that May 23 is when that's going to be covered in depth.

But is there any other commentary you can give?

It seems like non-US A&H products are favorably mentioned here a couple times, maybe spread-based products domestically are less in favor.

Anything else you can provide there would be appreciated.

Thanks.

So we will talk at much greater length at our May call.

But let me go through the -- some guiding principles; I'll give you some insights into our thinking here.

First let me start by saying obviously the acquisition of Alico, $16.3 billion acquisition transformed MetLife.

We went from being a largely domestic focused life insurance company to being a truly global business.

Now a lot has to happen to catch up with that business in terms of culture, organization, and we've been doing quite a bit in that arena, as you've heard from us.

So that's one issue that we'll be talking more about.

We've talked about how easy it is to do business with us and being more customer centric going forward and allowing people to interact with us on the basis that they want to.

That doesn't mean excluding channels we're in now, it means really in addition here in terms of allowing people to interact with us on a number of different bases.

Let me add also talent.

We talked a lot about our talent here.

You've already heard about some high level hires to MetLife and more coming in the area of the CFO and President of Asia positions.

Another issue to talk about is how we look at our businesses overall as a portfolio, both in terms of products and geographies, and making sure there's a balance there especially when you take into account risk.

So your question alluded to A&H, lower capital charge kind of product, strong ROE kind of product.

So obviously want a good balance between the different products that we sell.

We've told you today that our guidance around VAs for 2012 is roughly $18 billion, that's down from 2011, that's related to our way of looking at risk and making sure we balance this portfolio of products that we offer to the marketplace.

And finally I'll just say in terms of guiding principles all these things I just mentioned heretofore is because we're trying to drive shareholder value, that's the bottom line.

And if we do all those things well we will drive shareholder value and we're confident we can do that.

Thank you.

Great.

Well, thank you, everyone, for joining us today and enjoy the rest of your day and I'll turn it back to Greg, thanks.

Thank you.

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

Thank you for your participation and for using AT&T executive teleconference.

You may now disconnect.