MetLife, Inc. Q3 FY2026 earnings call

• Broad-Based Growth: The quarter demonstrated broad-based execution across all segments, with no single business driving results. Adjusted EPS excluding notable items rose 22%, and adjusted ROE exceeded 17%.
• Variable Investment Income (VII): VII totaled $720 million pre-tax, significantly exceeding guidance due to strong private equity returns (>4%) and venture capital activity. Year-to-date VII is approximately $1.5 billion.
• Expense Discipline: The direct expense ratio was 11.9%, on track to beat the full-year target of 12.1%. AI is being leveraged as a force multiplier to improve productivity and offset costs from the Pinebridge acquisition.
• Capital Efficiency: The company has improved capital deployment efficiency, achieving a 19% internal rate of return (IRR) and a five-year payback period for new business in 2025, compared to a 12% IRR and eight-year payback ten years ago.
• AI Exposure: MetLife disclosed modest exposure to AI-related infrastructure, totaling $4.1 billion ($1.6 billion hyperscaler, $2.5 billion data center). All exposures are investment grade, representing less than 1% of the general account each, with no delinquencies or impairments.
• Capital Return: The company returned approximately $1 billion to shareholders in Q3 via buybacks and dividends. Year-to-date share repurchases through October totaled $2.4 billion.

• Group Benefits: Adjusted earnings of $523 million (excluding notable items), up 14% year-over-year. Premium fees and other revenues (PFOs) increased 5% (excluding participating contracts). This segment represents the largest contributor with close to $26 billion in annual PFOs.
• Retirement and Income Solutions (RIS): Adjusted earnings of $478 million, up 12%. Adjusted PFOs excluding pension risk transfers rose 33%, driven by UK longevity reinsurance and post-retirement benefits. Retained liability balances grew 7%.
• Asia: Adjusted earnings of $550 million, up 21% on a constant currency basis, driven by higher variable investment income (VII) and favorable equity markets. Adjusted PFOs rose 5% on a constant currency basis.
• Latin America: Adjusted earnings of $229 million. While volume growth was strong (PFOs up 14% on a constant currency basis), results were impacted by negative inflation adjustments in Chile.
• EMEA: Adjusted earnings of $114 million, up 30% year-over-year. Adjusted PFOs grew 17% on a constant currency basis, supported by embedded insurance partnerships like Revolut.
• MetLife Investment Management (MIM): Adjusted earnings of $63 million, up 9%. Total AUM reached $723 billion, up 14%, including institutional client AUM of $308 billion.

• Full-Year RIS Earnings: Expected to finish slightly north of the midpoint of the $1.6 to $1.8 billion outlook range.
• Full-Year MIM Earnings: On track to remain within the $240 to $280 million target range.
• Full-Year VII: With year-to-date VII at $1.5 billion, the company expects to exceed its full-year guidance of approximately $1.6 billion.
• Expense Ratio: Maintaining the target to beat the 12.1% full-year direct expense ratio.
• Free Cash Flow Conversion: Maintaining the 65% to 75% free cash flow conversion target despite stronger organic growth.

• Mortality Trends: While working-age mortality remains favorable, management notes that this favorability may be partly due to COVID pull-forward effects and mild flu seasons. Seasonal upticks in morbidity are expected in Q4 and Q1.
• Disability Claims: There is an industry-wide uptick in disability claims severity and mental/nervous system incidents. Management is monitoring macro impacts but remains confident in pricing power and diversification.
• Market Volatility: Higher interest rates caused sequential declines in public fixed income AUM due to mark-to-market impacts, though the core portfolio remains stable.
• Inflation Risks: Latin American results were negatively impacted by adverse inflation adjustments (incaja) in Chile, highlighting regional economic sensitivity.

Q: Analyst asked about non-medical health loss ratios, specifically disability vs. dental trends and industry competitor weakness. / A: Ramy Tadros explained that disability results were in line with expectations despite slight severity increases, offset by strong claim recoveries. Dental performance benefited from prior pricing and network actions. He noted that while mental health claims increased, overall incidents remain broadly in line. The company plans for trend upticks in pricing and relies on diversified bundles to maintain margins.

Q: Analyst inquired if working-age mortality favorability is running its course and how it impacts pricing. / A: Ramy Tadros stated that predicting mortality is difficult, citing potential COVID pull-forward effects. He highlighted that recent quarters saw lower severity and mild flu, which may not trend forward. He expects seasonal upticks in morbidity in Q4/Q1 due to normal flu seasonality, contrasting with long-term competitive dynamics where pricing reflects experience.

Q: Analyst asked about drivers behind the 500 bps increase in New Business IRR over 10 years and sustainability. / A: John McCallion attributed the improvement primarily to cultural shifts and empowering leaders with value-driven tools rather than just interest rates. He emphasized that expense management and product design improvements are key. He believes the higher ROE mix, accelerated runoff of legacy low-ROE retail business, and capital-light growth make these returns sustainable.

Q: Analyst questioned the market impact of elevated competitor disability claims on MetLife's pricing strategy. / A: Ramy Tadros described the market as competitive but rational, noting that competitors react to trend upticks by seeking target margins. MetLife baked expected incident upticks into its planning and pricing. He stressed that their account-level bundling strategy allows them to secure necessary rate increases across disability and other lines, maintaining leadership in profitability.

Q: Analyst asked about updates on risk transfer deals with MetLife Holdings or Chariot Re, and capital management direction. / A: John McCallion confirmed no change in strategy; Chariot deals continue to progress with another closing at quarter-end to leverage third-party capital for fee growth. Regarding capital, he reiterated comfort with the 65-75% free cash flow conversion target. Despite stronger organic growth and less runoff, the company maintains this ratio while funding attractive opportunities.