大都會人壽保險 (MET) 2017 Q4 法說會逐字稿

Welcome to the MetLife Fourth Quarter 2017 Earnings Release Conference Call.

(Operator Instructions) 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 and the business and the products of the company and its subsidiaries.

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

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 Hall, Head of Investor Relations.

Thank you, operator.

Good morning, everyone and welcome to MetLife's fourth quarter 2017 earnings call.

On this 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 and related definitions to the most directly comparable GAAP measures may be found on the Investor Relations portion of metlife.com, in our earnings release, and our quarterly financial supplements.

A reconciliation of forward-looking financial information to the most directly comparable GAAP measure is not accessible because MetLife believes it's 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.

Joining me this morning on the call are Steve Kandarian; Chairman, President and Chief Executive Officer; and John Hele, Chief Financial Officer.

Also here with us today to participate in the discussions are other members of senior management.

You may have noticed that last night, we released an expanded set of supplemental slides.

They are available on our website.

John Hele will speak to those supplemental slides in his prepared remarks if you wish to follow along.

After prepared remarks, we will have a Q&A session.

Understanding there is a lot to unpack today, if need be, we will extend our Q&A session beyond the top of the hour.

(Operator Instructions)

With that, I will turn the call over to Steve.

Thank you, John, and good morning, everyone.

Most of my comment this morning will focus on the issue within our Retirement and Income Solutions business that caused us to delay earnings and take an after-tax charge of $331 million or $510 million pretax.

Simply put, this is not our finest hour.

We had an operational failure that never should have happened and it is deeply embarrassing.

We are undertaking a thorough review of our practices, processes and people to understand where we fell short and how we can reset the bar at the high level people have come to expect from us over our 150-year history.

The Board of Directors is fully engaged on this issue as well.

Let's start with MetLife's decision to postpone its earnings release by 2 weeks.

The question we have been getting is, "If you knew about this issue on December 15, why couldn't you report earnings as planned on January 31?" What we did not know until late in the closing process is that we would have a material weakness and would need to make revisions to our financial statements going back 5 years.

This created a significant amount of work.

Rather than rush the process and risk an error, we decided to take an extra 2 weeks to provide the most accurate information possible.

As you know, we preannounced our high-level financial results on January 29 and our underlying performance in the quarter was solid.

We reported fourth quarter net income of $2.1 billion, which reflects the current period after-tax impact of $70 million for the group annuity reserve addition.

The remainder of the charge is accounted for as revisions to prior period financial statements.

John Hele will discuss the impact and geography of the reserve addition and cover our fourth quarter and full year financial performance in greater detail.

Let me describe what happened and how those came to light.

MetLife has been a group annuity business for a very long time.

The charge we took relates to business we wrote going back decades.

All the people in pension plans whose obligations we now assume are already retired and in pay status.

By contrast, in earlier periods, some of them were not yet in pay.

They had earned the benefit but were years or even decades away from retirement and often have left their companies.

These type of annuitants are not always easy to find.

What became clear to us is that what had been standard protocol for finding retirees who are owed benefits was no longer sufficient.

Recently, the Department of Labor has been urging companies that sponsor pension plans to do a better job of finding their own unresponsive and missing participants.

A pilot program MetLife conducted in 2016 and 2017 confirmed that with better outreach, we could establish contact with more people.

In the 1990s, MetLife established a practice of releasing reserves when the company could not establish contact with an annuitant.

In retrospect, based in the process we had in place, this was an error.

The reserves released in any single period were not material to the MetLife's financial statements.

But over time, they led to the charge we announced 2 weeks ago.

In October, when this issue was brought to the attention of the new Head of our U.S. Business, Michel Khalaf, and me, we moved with a strong sense of urgency to make it right.

This does not excuse the organizational failure to escalate the issue sooner.

We needed to do 3 things: establish what happened, improve our processes to do a better job locating retirees and assure that we pay everyone we find as we always do.

As we noted publicly in December, we launched an assessment into what happened.

Well, I can report that to date, MetLife has not found any evidence of intentional wrongdoing.

I can also tell you that we are taking action to hold people accountable.

In addition, we have taken steps to strengthen our processes for finding unresponsive and missing annuitants.

These include additional mailings, certified mailings, phone calls and the use of additional third-party firms specializing in locating missing participants.

For every one we find, we will commence payments as soon as they elect to start their benefits.

We will also pay interest on back payments for those we find.

The interest rate will be comparable to that used by the federal Pension Benefit Guaranty Corporation.

And this amount is already reflected in the $331 million reserve charge we took.

For context, MetLife's group annuity reserves in the RIS business are roughly $40 billion.

MetLife's core purpose is providing financial protection to our customers.

Central to that purpose is the timely payment of benefits, which makes this issue especially distressing to me.

I am deeply disappointed that we fell short of our own high standards.

Our customers deserve our best efforts to find and pay them.

We will do better.

While I wish this issue had been escalated earlier for remediation, MetLife discovered the issue itself, self-reported it to our primary regulator, publicly disclosed it and is taking all necessary steps to fix it.

I will now discuss some of the ramifications of the group annuity issue.

As mentioned, we took a charge to restore reserves previously release as well as accrued interest.

Most of the charge is associated with periods prior to 2017.

Given the size and nature of the issue, management has identified a material weakness in internal control of our financial reporting.

This deficiency is only related to group annuity reserves.

The material weakness we identified had 2 components.

First, we had a lack of adequate controls over the administrative and accounting practices that led to the release of the reserves.

Historically, MetLife would try to reach annuitants twice, once when they approach the normal retirement age of 65 and a second time when they approach required minimum distribution age of 70.5.

As noted, we improperly released reserves for those annuitants who were unresponsive after the second attempt.

The second component was failure to escalate sooner.

The reserve release process issues were not communicated or escalated on a timely basis throughout MetLife, which hindered our ability to identify and address them.

We are working hard to remediate the material weakness and expect to make progress in 2018.

John Hele will discuss the material weakness further.

Once the scope of the group annuity issue became clear, prudence dictated a global review of similar administrative and accounting processes across the company.

This review, which was started in December 2017, is now complete.

The review did not identify any additional material issues and the amount of the charge falls slightly below our preannounced range.

We are also cooperating with our regulators on this matter, including the New York Department of Financial Services as our primary insurance regulator as well as the Securities and Exchange Commission as our securities regulator.

I would reiterate that this is an issue MetLife self-identified and self-reported.

The group annuity business is an important business to MetLife that leverages many of the company's core competencies, including asset management, liability management and underwriting.

We have been among the industry leaders in this business for decades and expect to remain so.

We take seriously the responsibilities we bear.

Enhancing our administrative procedures in this business will position us to better serve our customers.

Before I close, I want to update you on our capital management activity.

During the fourth quarter, we completed repurchases on our prior $3 billion authorization and began repurchases on our most recent $2 billion authorization.

All told, we repurchased $621 million of shares in the fourth quarter and returned more than $1 billion to shareholders overall, including dividends.

We have continued buying in the market in 2018, repurchasing $391 million of our shares and have $1.4 billion remaining on our current authorization.

To be clear, the capital management plan that we discussed on our outlook call remains in effect.

We intend to complete our $2 billion authorization and execute the exchange offer for our remaining stake in Brighthouse before the end of 2018.

In conclusion, I want to reiterate how committed we are to making the necessary changes at MetLife.

I am well aware of our recent history.

We had, had a number of charges that took the market by surprise.

At the same time, I believe the strategy we have put in place for MetLife is correct.

My goal for the company and the goal of this entire management team is to leave MetLife better than we found it.

In our view, that means simpler, less capital-intensive and with more predictable free cash flow.

We are confident that MetLife's strict capital budgeting process will position the company to perform well in any economic environment.

Our task now is to insist on a same level of discipline in how we execute.

It is not enough for MetLife to have the right strategy.

Operationally, we must have a culture of continuous improvement, and we will.

With that, I will turn the call over to John Hele.

Thank you, Steve, and good morning.

I would like to begin my remarks today by reviewing the 4Q '17 supplemental slides that we released last evening, along with our earnings release and quarterly financial supplement.

These slides address several key areas of focus for investors: fourth quarter and full year 2017 financial results, our group annuity reserve charge, long-term care and the impacts from tax reform.

I will start with comments on our fourth quarter results and business highlights starting on Page 3. This schedule provides a reconciliation of net income and adjusted earnings in the fourth quarter.

Net income was $2.1 billion and was $1.4 billion higher than adjusted earnings of $678 million, primarily due to the benefits from tax reform.

I will provide more details on tax reform later in this presentation.

Net investment gains and net derivative losses were relatively modest and essentially offset in the quarter.

Overall, the investment portfolio and hedging program performed as expected.

Book value per share, excluding AOCI other than FCTA, was $42.24 as at December 31, up 4% versus the sequential quarter primarily due to the impacts of tax reform.

As of January 1, 2018, we expect this amount to decrease by approximately 2% with the adoption of certain new accounting rules.

This is primarily driven by a onetime reclassification from retained earnings to AOCI due to the impacts of the tax reform that are attributable to AOCI but were required to be reported in net income in 2017.

Our notable items in the quarter are highlighted on Page 4. We've quantified these notable items into 5 categories that we highlighted in our news release and quarterly financial supplement.

First, we had a onetime negative impact of $298 million after tax or $0.28 per share, primarily due to the onetime repatriation transition tax on our unremitted overseas earnings and the revaluation of deferred taxes to the new tax rate of 21%.

Second, various insurance adjustments, including $62 million after tax or $0.06 per share due to the group annuity reserve charge, reduced adjusted earnings by $110 million after tax or $0.10 per share.

Third, litigation and other settlement cost, including the strengthening of asbestos reserves, reduced adjusted earnings by $55 million after tax or $0.05 per share.

Fourth, expenses related to our unit cost initiative decreased adjusted earnings by $42 million after tax or $0.04 per share.

And fifth, favorable prior year development increased adjusted earnings by $7 million after tax or $0.01 per share.

Catastrophe losses were $18 million after tax, in line with plan.

In total, notable items in the quarter reduced adjusted earnings by $498 million or $0.47 per share.

Adjusted earnings excluding notable items were $1.2 billion or $1.11 per share.

On Page 5, you can see the year-over-year adjusted earnings excluding total notable items by segment.

Excluding all notable items in both periods, adjusted earnings were down 2% year-over-year.

On a per share basis, adjusted earnings were $1.11, up 3% and up 2% on a constant currency basis.

The better results on an EPS basis reflect the cumulative impact from share repurchases.

Positive year-over-year drivers in the quarter included solid volume growth, lower expenses and favorable underwriting as well as strong equity market results.

These were offset by weaker investment margins and an unusually low effective tax rate in the fourth quarter of 2016.

Recurring investment income was essentially flat from a year ago.

In the quarter, our global new money yield stood at 3.23% compared to an average roll-off rate of 3.98%.

We would expect our new money rate and roll-off rate to converge at roughly 3% on the 10-year U.S. Treasury.

Pretax variable investment income was $216 million in the quarter, within our quarterly guidance range of $200 million to $215 million.

As a large investor in the U.S. fixed income market, MetLife will benefit if higher economic growth leads to higher interest rates and an extension of the credit cycle.

In regards to business performance, Group Benefits had another strong quarter with adjusted earnings up 32% quarter-over-quarter.

The primary drivers were strong Non-Medical Health underwriting and good expense control.

Group Benefits is a cornerstone franchise for MetLife and delivered stellar results in 2017, highlighted by adjusted earnings growth of 26%, sales rising 19% and PFO growth of 5%, excluding the impact from the loss of a large dental contract as previously discussed.

Adjusted earnings in Retirement and Income Solutions, or RIS, continued to be pressured by the flatter yield curve.

The 20% year-over-year decline excluding notable items was given by lower interest and underwriting margins, including an $8 million after-tax in-quarter impact related to the group annuity reserve charge.

This was partially offset by volume growth and lower expenses.

Despite the recent challenges, RIS is an important business for the company, which aligns well with our strategy and insurance fundamentals.

Specifically, the pension risk transfers, our view of the business has not changed.

In 2017, we had record PRT sales of $3.3 billion and expect 2018 to be another active year.

Property & Casualty, or P&C, had a strong quarter as adjusted earnings excluding notable items doubled year-over-year, driven by favorable auto underwriting results.

Auto results have benefited from targeted rate increases and management actions to create value.

For the full year 2017, P&C adjusted earnings excluding notable items were 45% higher than 2016.

The key driver was the auto combined ratio, which improved 5.8 percentage points in 2017.

Asia adjusted earnings were down 12% year-over-year, primarily due to tax items in Japan, the impact of the change in Japan's effective tax rate and the reversal of tax accrual in the fourth quarter 2016.

Asia sales were up 1% on a constant currency basis.

In Japan, sales were flat year-over-year as the shift to foreign currency whole life has proven successful.

FX life sales were up 27% while yen life sales were down 77%.

FX life sales accounted for 90% of total life sales in Japan this quarter.

Emerging market sales in Asia were up 26%, driven by China, which continues to have strong agency growth.

Latin America adjusted earnings in the fourth quarter were up 2% and flat on a constant currency basis.

The key drivers are volume growth and more favorable market impacts, offset by higher initiative and nonrecurring expenses, the fee reduction in Provida and taxes.

Lat Am PFO growth was up 8% and up 5% on a constant currency basis.

Growth has been tempered by the pension market in Chile and the large group market in Mexico.

Business performance in Provida has been promising as net transfers in this business were positive during the fourth quarter for the first time in over a year.

EMEA adjusted earnings were up 10% and 5% on a constant currency basis, driven by volume growth in Turkey and Western Europe and favorable expense margins.

MetLife Holdings adjusted earnings were down 17% excluding notable items, primarily due to lower interest margin and higher expenses.

While the quarters had been noisy as MetLife Holdings moved through the separation, the year overall has produced solid results.

Adjusting for notable items, earnings for the full year 2017 were down 6% from the previous year.

Favorable equity markets and lower expenses were key contributors as well as solid life underwriting results.

Corporate & Other adjusted loss was $133 million, excluding notable items related to tax reform, our unit cost initiative and litigation expenses.

This was within the quarterly range implied in our 2017 guidance and compares favorably to an adjusted loss of $152 million in the fourth quarter 2016.

I will provide an update to our 2018 guidance for Corporate & Other shortly.

Now let me address the group annuity reserve charge and related material weakness identified by MetLife's management, which required a revision of our prior financial statements.

Page 6 provides some background on our RIS group annuity business.

The practice of releasing group annuity reserves that required correction go back approximately 25 years.

The subgroup most impacted by the group annuity reserve charge is approximately 13,500 of the 600,000 annuitants or approximately 2% of the overall population.

To further size this business, total group annuity reserves are roughly $40 billion.

Page 7 provides a breakdown of the group annuity reserve charge.

In total, the charge is $510 million pretax, which is below the bottom end of the guidance of $525 million to $575 million pretax estimated on our January 29 press release.

On an after-tax basis, the charge was $331 million using the U.S. tax rate of 35% for all periods.

In total, the correction for prior year periods was $372 million pretax or $241 million after tax.

You will notice in our quarterly financial supplement that some of the historical quarterly and annual numbers for 2016 and 2017 have changed slightly.

You can see the impact summarized in the revisions to prior period net income slide in the appendix.

These changes are a function of the historical revisions that we performed during the fourth quarter.

The smaller differences reflect the correction of minor prior period errors, which was required in the U.S. GAAP accounting.

For those who produce financial models of MetLife, this will unfortunately require some updating on your part.

Let me turn to Page 8 to discuss the material weakness in internal control over financial reporting identified by management during the fourth quarter.

As Steve described, the material weakness is only related to the group annuity business with respect to 2 elements: administrative practices and escalation.

On Page 9, I will offer more detail on our efforts to remediate the material weakness.

Relative to our group annuity administrative practices, we are correcting the reserve release practices to ensure improvements are made.

These would include earlier, more frequent and simpler communication to annuitants as well as the use of certified mail, additional external databases and more locator services, among other things.

Relative to escalation, we are reviewing our practices regarding timely communication and knowledge sharing throughout the company.

We are hiring advisers to conduct a comprehensive analysis, which will be overseen by our Chief Risk Officer, Ramy Tadros.

We believe these measures will strengthen MetLife's internal control over financial reporting.

Our efforts to remediate the material weakness are ongoing.

And we expect to make progress throughout 2018.

Turning to Page 10.

Let me address another topic that may be on your mind, long-term care.

We announced our exit from long-term care in 2010.

We were historically conservative in our policy provisions and conservative in new business underwriting.

For example, only 16% of our policies offer lifetime benefits and the vast majority reimbursed actual incurred expenses as opposed to being cash plans.

Our largest blocks were fully underwritten net issue for medical and cognitive impairments.

Beyond that, our long-term care book of business is around 40% group with generally lower ages, smaller policies and less generous provisions than individual.

Our book of long-term care generates annual premium of roughly $750 million, aided by consistent rate action.

In 2017, these were 7% on average across the full LTC book.

We have approximately $11.5 billion of GAAP LTC liabilities and $14 billion of statutory LTC liabilities.

Collecting more premium sooner makes a big difference in the economic performance of the block.

We started that process early, making our first rate increase request with the states in 2008.

We will review updated assumptions each year for loss recognitions and statutory cash flow testing.

Based on our 2017 results, we have a comfortable margin above current loss recognition.

We also update claim reserve assumptions each year to reflect actual experience.

As a New York-domiciled company, we are subject to New York state regulatory oversight.

Among other things, this means that we do not factor in future rate increases into our reserve calculations.

Lastly, we do all of our own claims administration, which means we control the checkbook rather than a third-party administrator.

While we no longer write this business, we have been involved for a long time.

And that experience has been reflected in our long-term care results.

Now let's talk about tax reform on Page 11.

We have a onetime net benefit of $1.2 billion in the fourth quarter as a result of tax reform.

The remeasurement of our deferred tax liability resulted in a benefit of $1.4 billion, which includes a $128 million negative impact to adjusted earnings.

This was less than our guidance that we provided on the outlook call of $1.5 billion to $2 billion due to fourth quarter items and the group annuity reserve charge.

In addition, we have a $170 million charge to adjusted earnings due to a onetime repatriation transition tax.

Looking ahead, we now expect the company's 2018 effective tax rate to be between 18% to 20%, which is lower than our prior guidance of 23% to 25%.

In regards to cash taxes, we expect a modest reduction in our annual U.S. cash tax liability.

And consistent with the recent past, cash tax payments to the IRS will not be significant for at least 6 years.

Next, I would like to update you on some of the guidance we provided on our outlook call in December.

Following tax reform, our guidance in 2018 for the Corporate & Other adjusted loss moves to $650 million to $850 million.

This reflects the new lower 21% corporate tax rate.

Relative to the prior guidance range, the increased Corporate & Other adjusted loss is expected to be more than offset by lower taxes and higher adjusted earnings in our U.S. businesses.

Other points of guidance provided on our outlook call, such as interest rate and other sensitivities, were also based on a 35% tax rate.

For those, simple math can get you to the sensitivities associated with the 21% tax rate.

We are comfortable maintaining our target free cash flow ratio at 65% to 75% of adjusted earnings on average over 2018 and 2019.

There are a couple considerations.

Tax reform will impact the timing of our tax cash flows.

And separately, there's an impact from the group annuity reserve addition.

Taken together, we expect the ratio to be at the lower end of the range over the 2-year period.

As Steve indicated earlier, we anticipate no change to our capital management plan as articulated on our outlook call in December.

I will now discuss our cash and capital position.

Cash and liquid assets at the holding companies were approximately $5.7 billion at December 31, which is down from $6.5 billion at September 30.

The $800 million decrease in HoldCo cash in the quarter reflects the net effects of subsidiary dividends, share repurchases, payment of our common dividend, holding company expenses as well as a $1 billion debt maturity in December.

In addition, our 2017 free cash flow ratio was 75% of adjusted earnings excluding notable items and cash flows related to Brighthouse.

Next, I would like to provide you with an update on our capital position.

While we have not completed our risk-based capital calculations for 2017, we estimate our U.S. combined RBC ratio will remain above 400% on an NAIC basis.

Preliminary full year 2017 U.S. statutory operating earnings were approximately $3.4 billion and net earnings were approximately $2.4 billion.

Statutory operating earnings reflects favorable underwriting, partially offset by higher reserves and higher taxes.

Net earnings were also impacted by losses on derivatives.

We estimate that our total U.S. statutory adjusted capital was approximately $18.5 billion as of December 31, 2017.

Statutory operating earnings were offset by dividends and derivative losses.

Finally, the Japan solvency margin ratio was 863% as of September 30, which is the latest public data.

Overall, while our group annuity issue presented challenges in the fourth quarter, our cash and capital position remains strong.

I would like to add my personal regret over the delay in reporting.

I appreciate your patience, and I look forward to your questions.

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

(Operator Instructions) Your first question comes from the line of Sean Dargan from Wells Fargo.

I just have a question about the guidance for higher corporate after-tax losses.

So just to be clear, there's no change in guidance at the enterprise level because the operating segments will produce higher earnings due to a tax rate, which will more than offset the higher after-tax loss in corporate?

Sean, it's John.

Yes, that's true.

It's not intuitive if you look at the net number that we talk about with the corporate loss.

And that's because the corporate pretax loss is larger than you may think and there's more tax credits than normal than the 35%.

So the total change, the increase in our range of $200 million is totally and only due to tax reform changes.

And this would be mitigated by better margins in the rest of our business.

Okay.

And then I have a question about the review that the New York department and the SEC are doing regarding the group annuitants.

Are they essentially doing competing reviews?

Or are they taking the findings of your internal review?

I'm just wondering if you can give us any context of your understanding of how their processes are working.

Sean, it's Steve.

Each has its own regulatory arena.

The Department of -- the New York Department of Insurance is -- Financial Services, rather, is obviously our primary insurance regulator.

And SEC is for securities matters.

So each has its own arena.

And we're cooperating with both fully.

And we can't predict exactly how long this will play out.

It's a process that will take its own course.

Your next question comes from the line of Tom Gallagher from Evercore ISI.

First question, Steve, just in terms of the internal global claims review you did across all your businesses, it seemed to wrap up pretty quickly, considering just the timing here.

Can you talk a bit about your confidence in the depth of the review and the fact that you're -- are you highly confident this is isolated -- this situation is isolated to only the group annuity business?

Sure, Tom.

When this matter came to light, we made sure we had the resources within countries and regions to put all necessary people against this review to get to the right answers, meaning determining exactly what might else be out there in the same arena.

And people were working very, very long hours, evenings, weekends, et cetera.

And as reported, we have found nothing material coming out of that review, which was encouraging.

To your point, there's always things in an insurance company over the years that you'll look at and you may change your estimates, change your actuarial assumptions and the like or find new and better ways of doing things.

But this was a very extensive and thorough review of our international operations.

Got you.

And just my follow-up, John, you had mentioned your -- you have a comfortable margin above loss recognition for long-term care.

Can you help a little bit at least directionally on the quantification of that?

Are we talking about a margin of 10%, closer to 50%?

Just any directional help on that would be appreciated.

In U.S. GAAP, it's over 10% but not 50%.

How's that for a range?

Got it.

Somewhere above the 10%, below 50%.

It's definitely above 10%.

And it's all in the assumptions you make and how you think about it.

So it is complex.

But we do a lot of work on this.

And we continue to work to have better claims management as well as appropriate rate filings with the states.

So this is an ongoing effort we've had.

We've had it for quite a long time on this.

And don't forget on a statutory basis, we tested more conservative assumptions in GAAP.

And you can see the statutory reserves are larger than the GAAP reserves.

Your next question comes from the line of Jimmy Bhullar from JPMorgan.

I had a few questions.

First, on your Asia sales, I think they were up just overall around 1%.

And if I look at Japan, obviously there's a product mix shift going on.

So first question on that is what are the annuities that you're selling in Japan because that's the product that seemed to grow a lot?

And then secondly, if you look at non-Asia sales, those were actually up less than 2% as well.

So what's going on, if you could give us some detail there?

Jimmy, it's Steve Goulart.

Let me start, and I'll ask Sachin Shah to comment a little bit more on Japan.

But basically, when you look at all of Asia as a region, it was really some very strong performance and then some sort of flattish performance.

But when you look at emerging markets, essentially our sales were up over 25% there on a year-over-year basis.

And that was led by China, where sales were up over 30%.

Offsetting that a little bit were performances in Korea and Hong Kong on a quarterly basis.

And those are just unusual events.

The timing of a sales campaign in Korea was one impact.

In Hong Kong, there were some regulatory changes that, I think, ended up with sort of a fire sale result when we look at the fourth quarter of last year.

So overall again, very strong, we're very pleased with sales.

I think Japan was flat.

And a lot of it had to do with change in mix.

But let me ask Sachin if he wants to comment any more on Japan.

Sorry, Jimmy, a little technical glitch there.

In the retirement segment, we sell predominantly fixed annuity products.

And these products are fixed-term products, typically 3 years, 5 years or 10 years in term and the customer is targeting a specific maturity period and looking for a target return.

These products also have MVAs built into them, and so the customer is bearing the foreign currency and market risk in the product.

And are they primarily ForEx as opposed to Japanese yen products?

All of our life insurance products, 90% of our life insurance sales and 100% of our annuity sales are foreign currency products.

Okay.

And then for John, on the Brighthouse sale, I realized you had been buying back stock through the whole review process.

Can give us just some color on the process that you have to go through for selling Brighthouse?

I think there's a limited window, given that you have to do a filing.

And then after that, there's a little bit of a quiet period or so.

So what's the process that you'd need to go through?

And is it even feasible that you could do it in the first -- by the end of the first quarter?

Jimmy, it's John.

Let me follow up on your Asia question.

You're right, the other Asia wasn't up quite as much.

Steve was referring to emerging markets were very strong.

But in Korea and Hong Kong, there's some timing points of sales quarter-over-quarter.

If you look at the full year though for other Asia, the growth of sales, up 20%.

So there's some timing quarter-to-quarter.

But we're very pleased with our other Asia sales growth in the year.

And on BHF, you're right, we have to file with the SEC for some work, for some no-action relief.

And we need a long enough open window, 20 days of trading days in order to walk through it.

And this sometimes goes a few days beyond that, so we have to pick a window where we don't run afoul of various information.

So the timing, we haven't exactly set on yet, but it will have to be in a long enough window.

And we will let you know when we get it to filed and going.

And then just lastly, have you disclosed -- or are you able to disclose what your interest rate assumption is for your long-term care reserves?

The interest rates in GAAP start at the current curve and slowly graded like all of our U.S. GAAP assumptions to [1.25%] of 10-year Treasury at about 11 years from now.

And then statutory, it's tested at various different rates, including level rate forever.

Your next question comes from the line of Ryan Krueger from KBW.

I was just hoping you could touch upon if we should think about any real go-forward financial impact following the group annuity issue in terms of either elevated expenses related to the remediation efforts or if you think it will impact your growth in the RIS business.

Sure, (inaudible) take some expenses.

We are doing these outreach program and doing additional efforts there.

We expect those cost will be absorbed by the business.

There may be -- for the investigation we're doing, led by the Chief Risk Officer, could be some slightly higher expenses throughout the year.

But we believe those will be still within the Corporate & Other range that we've given you for expenses for the overall year.

And I'll turn it over to Michel to speak about the business impacts.

Yes.

So obviously, Ryan, our focus and energy will be on resolving the issue that we disclosed and finding as many of the missing annuitants as possible and initiating payments to them.

Having said that, we have a lot of expertise.

We're a leader in the PRT space.

We have a lot of expertise in terms of asset management, underwriting, liability management.

And last year, as a matter fact, we had a record year in terms of new business in PRT.

So we're going to continue to be active in this market.

And we believe that with our enhanced process, which will be a best-in-class, we will remain competitive and we'll continue to win new business.

Ryan, this is John again.

Want to just add, on Slide 7, we showed you the 4Q's in-quarter activity of minus $8 million after tax.

So you should add that into future modeling that you have of that business, that amount will be roughly recurring.

Got it.

And then separately, can you discuss your view of the sustainability of tax reform benefits in your Group Benefits business versus passing through lower tax rates through pricing over time?

This is Michel again.

So we're going to see a benefit, but we expect that returns will normalize over time.

So if we think about our group business, obviously renewals are done for 2018.

Typically, our Group Life business has a 3- to 5-year rate guarantee.

Our disability business typically 2-year guarantees.

And dental is renewed annually.

So we don't -- tax is a factor that goes into our pricing, it's not the only factor.

A lot will depend on the competitive environment.

Again, we don't compete solely on price.

But we expect that over time as business renews, as we compete for new business, we'll have to give back some of the benefit that we're getting from the tax reform.

Your next question comes from the line of Suneet Kamath from Citi.

I wanted to follow up on the reviews by the New York Department of Financial Services and the SEC.

One of the large banks recently was surprised with some limitations on growth by their main regulator.

Do either of those regulators have any jurisdictions on your kind of forward capital management plans or your ability to grow the business?

Suneet, I think you're referring to the Federal Reserve, which does not have authority over us.

Right.

But I'm talking about the specific regulators that are reviewing your group annuity issues.

I'm not talking about the Federal Reserve.

I'm talking about the NYDFS and the SEC.

Do they have any jurisdiction on those plans?

On the issue of what exactly are you asking?

In terms of your ability to return capital, like these reviews are ongoing, right?

So we don't know what the outcome is going to be.

But I guess, my question is, is there something that could surprise us in terms of what they ultimately decide related your capital management plans?

That's my question.

Well, the DFS approves dividends.

But I think the case you're referring to, I don't anticipate that thing applicable to us.

Okay.

And then just given the big move-up in rates that we saw in the first quarter, should we be expecting a stat impact in terms of your capital at the end of the first quarter as well as a GAAP book value impact?

Suneet, it's John.

Well, as you know and as we announced last year, we have changed our hedging strategy to be less sensitive to changes in interest rates than we were historically.

So there will be some impact because it's never perfect, but it should be less muted than it has been in the past.

Got it.

And then just lastly, on the capital management plans, are you still -- is that liability management component that you guided to still kind of part of your expectations for 2018 in terms of debt reduction?

Yes.

Your next question comes from the line of Erik Bass from Autonomous Research.

John, I was hoping you could walk through more of the dynamics around tax reform on your free cash flow.

And are other places where the actual dollar amount of free cash flow is expected to increase over time?

Well, let's remember, we talk about free cash flow as a percentage of cash we get from our subsidiaries, and one of the largest being the U.S. companies, which is on a statutory basis and has a delay, of course, you've got dividend approved for the following year based on your last year's earnings.

And then the denominator is your GAAP earnings.

So our GAAP earnings are going to go up by the change in tax reform by about 5 points.

So out of the get-go, even with the same dividends and as there's like a year of delay in getting this all done, we also have the charge in stat that will impact dividend capacity slightly in 2018.

So we expect compared to where we're free to have some lower numbers in '18, a little better, it will improve in '19.

So there's a bit of a timing going on.

We're not currently a very large cash taxpayer in the U.S And it will be sometime before we are.

So you have that dynamic going on.

But we have reiterated we expect to be at the lower end of the 2-year average, 65% to 75%, over '18, '19.

Okay.

And then is there any impact from either the reserve review or the ongoing controls remediation efforts on the timing of other projects or investments that you had planned for 2018?

No, we will fund these additionally to what we have.

And we are still working very hard on our unit cost initiative projects and all the other improvements we're making throughout the world.

Okay.

And then sorry, just last, Steve, you had commented that the board is involved in the review process.

Can you just expand on your comment there what capacity they're playing?

They're playing their normal oversight role, the Audit Committee in particularly and the full Board of Directors is quite involved in all these discussions that we've had internally in the company.

And we keep them updated on a regular basis.

Your next question comes from the line of Jay Gelb from Barclays.

My first question is on the capital return expectations for 2018.

It was sort of pointing to around the $5 billion range on the outlook call, just wanted to make sure that, that's still a reasonable expectation for 2018.

Yes, that would include the buybacks we planned, the remaining $1.4 billion we have outstanding under the $2 billion authorization, the exchange of the Brighthouse shares and the common dividend.

That's what I thought.

Second, is there any potential put-back exposure from Brighthouse with regard to any pension risk transfer exposure they might have to MET?

When Brighthouse was spun and separated, we have a separation master agreement.

And anything prior to 1/1/2017, we have obviously (inaudible).

And that's how it's set up.

So it's separate.

MET has, in your view, fully addressed any potential exposure there?

Yes.

Great.

And then just a final question on tax.

Should we just assume an 18% to 20% tax rate across all of MET's segments for simplicity's sake?

Or would there be different rates in different segments?

Well, there would be different rates in different segments.

Our overseas tax rate is 25%, 26%-ish.

And then we have the U.S. tax rate at 21%.

We've got some tax credits for many of our investments.

So you will see some changes.

Your next question comes from the line of Alex Scott from Goldman Sachs.

First one was just following the move up in the 10-year -- and I guess there's a lot of changes that have been made since the last time you guys kind of opined on ROE.

Is there any update thinking about the spread on the 10-year that you'll ultimately be able to achieve as you have the unit cost program phase-in?

Well, I think you're referring to the ROE target relative to the 10-year.

And as we've said, this is a longer-term target.

When the 10-year spikes up in a quarter, our overall company ROE will not spike up and follow instantly in the quarter.

It's meant to be a general average over time.

But we think it makes sense now that we're at slightly higher rates as they stay in, our earnings power increase over time and it will move towards that.

But in any small period of time moving 30, 40 basis points, there won't be a drag.

It takes time for the whole portfolio to change and move.

Have I answered your question correctly?

Yes.

But just in terms of like the spread piece of it above the 10-year, I mean, is the view sort of unchanged around where you can ultimately get there?

Yes.

Over time, we're $800 million to $900 million.

And we expect to improve even beyond that as we improve our unit cost post 2020.

And the follow-up on just the TSAs with Brighthouse, could you quantify for us how that may be impacting either -- whether it be MetLife Holdings or earnings in corporate?

Yes.

Well, we will expect those TSAs to go down.

We do have higher strand that will increase slowly over time.

And that's why we have this unit cost initiative to help offset that as it goes through.

So those 2 tend to offset each other.

And as we announced, we're going to start giving you some expense ratios published with the sub details, so you can track us on a quarterly basis, starting in the first quarter of '18.

And you'll see how this all folds out over time.

Your next question comes from the line of Larry Greenberg from Janney.

So with the 10-year up over 40 bps since the beginning of the year, you had given us the fourth quarter new money versus roll-off rate.

Can you give us some idea where that might stand today?

Probably not a lot of color there -- and this is Steve Goulart, by the way.

But it's hard when you look at the new money yield.

It moves around a lot on a quarter-by-quarter basis, just given our overall activity for the quarter, how much we're reinvesting, whether that's coming off of roll-off and what sort of roll-off and where we're seeing relative value and what our needs are for portfolio investing strategies in that quarter.

So really just looking at a quarter-to-quarter basis, I think, is probably not the best way to think about what's going on.

You want to think about long-term trends.

And again, we like the fact that interest rates continue to move up.

We think that's going to be good for the portfolio overall and good for our earnings on the portfolio.

So I would expect that number, in general, to increase.

But again, on an actual quarter-to-quarter basis, it's really impacted by a lot of the intra-quarter activity.

Okay.

But in terms of the -- talking about convergence of the 2 at a 3% 10-year, assume that happened over a period of time, should we assume that there's kind of a linear relationship along that path in how that spread would compress?

Well, what John was referring to was what we call sort of roll-off reinvest dilemma, i.e., the difference between where we're investing new money and what that roll-off yield is.

And as we've said for several quarters, we do try and estimate what that would look like, at what point are we reinvesting at a break-even level versus the roll-off securities from the portfolio.

And John mentioned it's roughly 3%, probably a little bit above 3%.

But there's also assumptions baked into that, too.

Most importantly, that all spread relationships stay the same.

Again, it's a positive trend.

I mean, interest rates are heading higher.

We know that as we approach the 3% 10-year, the portfolio investment option start looking better.

We start eliminating some of the negative roll-off that's been impacting our portfolio yield over time.

And so it's all very positive.

Is it exactly linear?

Never exactly linear.

But the trend is certainly positive.

And again, as we approach the 3% 10-year that will persist over time, that will be very positive for us.

Okay.

And then just one kind of model housekeeping, can you just tell us where the -- for the expense initiatives, where the cumulative savings initiative stood as of year-end 2017 and what your expectations is for the cumulative savings as of the end of '18?

As of the end of '17 cumulatively, we're about $400 million in saves.

And that's just basically our target we had.

Our onetime is running a little less than we had.

We expect that will get caught up though throughout the next 2 years.

And then is there a number for year-end '18?

We're still basically on the original slide that we gave you for the guidance that we had.

And again, we'll give you some more details of this and an easier way to follow this on an ongoing basis.

The trouble of all these programs is you save money in one place, but you're growing as well.

So how do you know whether it's really flowing through or not?

And that's why the expense ratio will be really the key measure.

That's what we check ourselves with, the board checks us with.

Because you have these trackings, but it's also not just saving the money in the UCI program but making sure you're being efficient elsewhere and you're not losing margin elsewhere in your firm.

And as I said, we'll give you good clarity on this during the first quarter.

And then we'll have regular discussions on it each quarter for you.

Your next question comes from the line of Humphrey Lee from Dowling.

Just want to follow on Ryan's question related to pension risk transfer.

So I heard you loud and clear about your commitments to the business.

But have your conversation with clients or brokers changed as a result of the incident?

Well, I mean, clearly -- this is Michel.

Clearly, Humphrey, we are engaging with our key brokers, intermediaries to bring them up to speed on the issue and also to go through what we are doing to address it and the urgency and the resources that we're putting behind addressing this issue.

we're having those conversations as we speak.

And ultimately, the market will decide how it will react to this matter.

I think from our standpoint, we're making sure that we do everything humanly possible to deal with this issue, to find those missing annuitants and to initiate payments and to have a process in place that we believe will be best-in-class in the industry.

So in John's prepared remarks, he talked about the outlook for 2018 is still pretty strong compared to 2017.

But given some of the discussions that you will have, should we expect some -- or I mean, the pipeline will be more back-end loaded in 2018?

Well, I mean, typically, PRT tends to be back-end loaded.

We see much more activity in the second half of the year compared to the first half.

So I mean, that's -- this '18 could be different.

But we expect it to be a typical year in this regard.

I just want to also stress that PRT is one component of our RIS business.

We have other components of this business that continue to perform strongly, stable value, for example, structured settlements and our capital markets business as well.

So that's one component of our overall RIS business.

Got it.

And then -- so now with the review completed, are there still any risk that your auditors may issue a qualified opinion for your financial statements?

No.

And your final question today comes from the line of Josh Shanker from Deutsche Bank.

Most of my questions have been answered.

I just want to confirm, with the regulatory inquiry from the SEC and New York Department of Finance, will we receive notification at some point that their interest in the matter has concluded?

Or could this be an open-ended sort of thing, where we never really know their position on the matter?

Josh, they'll go through their process.

And once they've felt like they've come to a conclusion, they'll let us know.

And we'll certainly communicate that to the marketplace.

And do you have any reserve for the (inaudible) associated with that or potential fines?

We do not.

It's not something that is estimable right now.

So we're not able to book that.

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