Thank you for standing by. Welcome to the MetLife First Quarter Earnings 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 refer you to the cautionary note about the forward-looking statements in yesterday's earnings release and to risk factors discussed in MetLife's SEC filings. With that, I will turn the call over to John Hall, Global Head of Investor Relations.
Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife's first quarter 2022 earnings call. Before we begin, I point you to the information on non-GAAP measures on investor relations portion of metlife.com in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer, and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Last night, we released a set of supplemental slides which address the quarter. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to these slides features disclosures, GAAP reconciliations, and other information which you should also review. After prepared remarks, we will have a Q&A session.
In light of the busy morning, Q&A will last no later than the top of the hour. In fairness to all, please limit yourself to one question and one follow-up. With that, over to Michel.
Thank you, John, and good morning, everyone. MetLife delivered strong financial results in the first quarter of 2022. With the rise in geopolitical uncertainty and a pandemic that hasn't fully loosened its grip, these results demonstrate the strength and resiliency of our underlying businesses. MetLife's purpose of always with you, building a more confident future, is ringing true with our customers now more than ever. Starting with our financial results, we reported first-quarter 2022 adjusted earnings of $1.7 billion or $2.08 per share, which was well above consensus expectations. The primary driver was strong variable investment income, partly offset by continued elevated COVID-19 claims, mostly in the U.S. Trends in our business point to continued momentum despite the many global dislocations.
Net income for the quarter was $606 million, up from $290 million a year ago and below adjusted earnings in the quarter. Losses on derivatives helped to protect our balance sheet from interest rate movements, and impairments on bonds account for most of the difference between net income and adjusted earnings. Interest rates rose rapidly during the quarter, with the yield on the 10-year Treasury advancing 83 basis points, triggering market value adjustments to our derivative hedges. The tragic events in Ukraine led to an impairment of Russian and Ukrainian bonds in the quarter. Let's shift to our continued strong performance in variable investment income, which totaled $1.2 billion pre-tax in the quarter. Private equity was again the engine, producing an approximately 7% quarterly return, with higher PE balances also a factor.
Our private equity returns are reported on a one quarter lag, and the weaker first quarter equity market may impact our VII results in the second quarter. For MetLife, private equity has long been an important source of value creation, generating strong returns and supporting our long-dated liabilities. It is an asset class we manage prudently. Last quarter, we indicated that we would divest roughly $1 billion of general account PE assets. Just after the first quarter close, we launched a PE fund of funds to be managed by MetLife Investment Management in a transaction that creatively and thoughtfully addressed investment allocation while establishing a new fee-generating business venture. Turning to some first quarter business segment highlights, I'll start with our U.S. Group Benefits results. Adjusted earnings of $112 million were up 20% year-over-year.
We saw strong growth within our current customer base, reflecting a combination of higher enrollment, higher employment levels, and higher salaries. Although COVID-19 life claims remained elevated, the group life mortality ratio fell sequentially 260 basis points to 103.8%. Our flagship U.S. Group Benefits franchise has generated a profit for shareholders in every quarter since the pandemic began, a testament to the breadth, strength, and resilience of this business. With our scale and leadership, the biggest threat in this business is becoming complacent, something we will simply not allow to happen. We've taken concrete actions to grow and establish products like group life, dental, and disability, voluntary products like legal, and newer products like vision and pet.
The results are showing up in solid recurring PFOs, which have grown by more than $3 billion over the last three years, looking past large claims. In Retirement and Income Solutions or RIS, adjusted earnings were down 16% primarily due to a tough comparison as the strong contribution from VII in the current quarter fell below the extraordinary contribution of a year ago. Beyond VII, a number of key metrics in this business were strong, including volume growth and spreads. Continuing the momentum from the fourth quarter, we booked a $1.3 billion pension risk transfer deal in the first quarter. With funding levels strong and interest rates on the rise, we see a robust PRT pipeline going forward. For Asia, adjusted earnings similarly benefited from strong VII, partly offset by a negative impact from foreign exchange. At the same time, business momentum was solid.
General account AUM was up 7% on a constant currency basis from a year ago. Sales in Asia grew 2% on a constant currency basis year-over-year, driven by a good fiscal year-end in Japan. In Latin America, adjusted earnings were up by more than $100 million from the prior period as COVID-19 claims moderated in Mexico. The exceptional sales success posted in 2021 has carried into 2022, with sales on a constant currency basis jumping 40% in the first quarter. The pandemic has ushered in a renewed focus on the importance of insurance across Latin America. This has fueled a flight to quality, which in turn has helped drive our sales and boost our persistency. Shifting to capital and cash, we returned more than $1.3 billion to shareholders through common dividends and share repurchase in the first quarter.
Based on the strength of our balance sheet and free cash flow generation, we announced a 4.2% increase in our common dividend per share, which has grown at a compound annual rate of 9.5% since 2011. With $475 million left on our current repurchase authorization, our board of directors has authorized an incremental $3 billion authorization, which brings our total buyback capacity to roughly $3.5 billion. At the end of the quarter, we had $4.2 billion of cash and liquid assets at our holding companies. Despite the seasonally low quarter for subsidiary dividends, we remain comfortably above our target cash buffer of $3 billion-$4 billion. The proceeds from the sale of our Poland business, which closed in April, will contribute to our cash balances in the second quarter.
Turning to governance, MetLife has a highly experienced and diverse board of directors, and we were pleased to announce the addition of Carla Harris at the end of April. Carla is a well-recognized leader across the financial services industry. She brings deep expertise and fresh perspectives, and her experience and knowledge will serve MetLife well. Our talent is also a competitive advantage that sets us apart from our peers. As a global company, MetLife can draw talent from around the world and match it to our greatest opportunities. Our recent leadership changes demonstrate this deep strength. I want to start by thanking Kishore Ponnavolu for his distinguished service to MetLife over the past 11 years. During his time with MetLife, Kishore served as Chief Enterprise Strategy Officer, as Head of MetLife Auto & Home, and finally, as Regional President, Asia, where his leadership delivered outstanding results.
When Kishore steps away from his position at the end of June, we will rotate several executives into new roles. Lyndon Oliver will move from Treasurer and Head of Strategy to Regional President, Asia. John Hall will add Treasurer to his current responsibilities, and Dimitri Lorenzon will move from Head of Strategy, Product, and Marketing for MetLife Japan to Head of Strategy for MetLife. These moves demonstrate our commitment to talent development and highlight our deep bench of leaders who are ready to step up and deliver value to our customers and shareholders. We are broadening and deepening our leadership commitment to, and accountability for, diversity, equity, and inclusion. At the end of the quarter, MetLife announced a broad set of DEI commitments designed to address the needs of the underserved and underrepresented by 2030.
These commitments encompass a mix of investments, partnerships and solutions, and other efforts, and are firmly aligned with MetLife's purpose. In setting these commitments, we are establishing clear roadmaps and strengthening accountability for progress. Before I close, I would like to say a few words about MetLife's return to office in the U.S., which started on March 28. Our new model, Future Work, combines the best of office and virtual environments and is an essential element in attracting and retaining top talent. Our Future Work model has been well received in the U.S., and we are seeing tremendous collaboration and partnership across the organization. We are also underway to adopting a Future Work model outside the U.S. as conditions allow. From my own perspective, it is great to walk the floors again, host in-person meetings, and feel the energy in the building.
Over the past few weeks, I have visited several of our offices across the U.S., and the team's enthusiasm and energy levels has been outstanding. I look forward to more such visits as doors increasingly open, and I also welcome the opportunity to sit down face-to-face with many of you in the months ahead. The past two years has been an unprecedented period, but with all the challenges, MetLife remains laser-focused on consistent execution, and we look forward to building on our momentum. With that, I will turn things over to John.
Thank you, Michel, and good morning. I will start with the 1Q22 supplemental slides, which provide highlights of our financial performance and an update on our cash and capital positions. Starting on page three, we provide a comparison of net income to adjusted earnings in the first quarter. Net income was $616 million or $1.1 billion lower than adjusted earnings. The majority of this variance was due to net derivative losses as a result of a significant rise in long-term interest rates in the quarter. In addition, we had net investment losses primarily due to impairment of Russian and Ukrainian bonds as well as normal trading activity in the portfolio that resulted in losses given the rising interest rate environment.
Following the impairments and a sale of Russian bonds in April, our current combined exposure in Russia and Ukraine is roughly $125 million. On page four, you can see the first quarter year-over-year comparison of adjusted earnings by segment, which did not have any notable items on either period. Adjusted earnings were $1.7 billion, down 12% and down 10% on a constant currency basis. Lower variable investment income accounted for the majority of the year-over-year decline. While private equity returns were again strong, they compared to an even stronger Q1 of 2021. Adjusted earnings per share was $2.08, down 5% year-over-year on a reported basis and down 4% on a constant currency basis. Moving to the businesses, starting with the U.S.
Group Benefits adjusted earnings were up 20% year-over-year due to higher volume growth and an improvement in underwriting margins. I will discuss Group Life underwriting in more detail shortly. Regarding non-medical health, the interest-adjusted benefit ratio was 72.5% in Q1 of 2022, at the midpoint of its annual target range of 70%-75%. That said, the ratio was higher than the prior- year- quarter of 71.1% due to higher incidences in disability relative to favorable incidence levels in the prior year quarter. Turning to top line, Group Benefits adjusted PFOs were up 7% year-over-year. This growth included two percentage points related to higher premiums from participating contracts, which can fluctuate with claim experience. The balance of the PFO growth of 5% was due to solid growth across most products, including continued strong momentum in voluntary.
Group Benefits sales were down 31% compared to record sales in Q1 of 2021, which were driven by exceptionally strong jumbo cases. Jumbo case activity was significantly lower in 1Q22. We continue to see good growth in the business and our persistency remains strong. Retirement Income Solutions or RIS adjusted earnings were down 16% year-over-year. The primary driver was less favorable private equity return versus a very strong Q1 of 2021. Favorable volume growth was a partial offset. RIS investment spreads were 181 basis points driven by another strong quarter of variable investment income. Spreads excluding VII were 89 basis points, up one basis point versus 1Q21, but down two basis points sequentially due to higher LIBOR rates.
RIS liability exposures were essentially flat year-over-year as growth across most products, primarily U.K. longevity reinsurance and pension risk transfers, were offset by lower separate account balances. With regards to pension risk transfers, we completed one transaction worth $1.3 billion in the first quarter and continue to see an active market. Moving to Asia, the adjusted earnings were down 7% and 4% on a constant currency basis, primarily due to lower recurring interest margins and a decline in first quarter equity markets in Japan and Korea. This was partially offset by solid volume growth as assets under management on an amortized cost basis grew 7% on a constant currency basis. In addition, sales were up 2% year-over-year on a constant currency basis driven by strong sales in Japan.
Latin America adjusted earnings were $142 million versus $40 million in the prior- year- quarter. While COVID-19 related claims remained elevated in 1Q22 at roughly $30 million after tax, they were down significantly versus the prior -year- quarter. In addition, volume growth was a positive contributor while lower equity markets were a partial offset. The Chilean peso had -4% return in 1Q22 versus the prior- year- quarter, which was a modest positive. While LatAm's bottom line has been trending towards pre-pandemic levels, its top line continues to demonstrate strength as adjusted PFOs were up 22% year-over-year on a constant currency basis, and sales were up 40% on a constant currency basis driven by solid growth across the region.
AMEA adjusted earnings were down 27% and 15% on a constant currency basis, primarily driven by the exclusion of divested businesses, Poland and Greece, which were included in first quarter of 2021 adjusted earnings. In addition, higher expenses were partially offset by favorable underwriting margins and volume growth. While the region reported excess COVID claims in Q1, they were lower than the prior year quarter. MetLife Holdings adjusted earnings were down 39%. This decline was primarily driven by lower variable investment income and less favorable underwriting. Corporate and other adjusted loss was $117 million versus an adjusted loss of $171 million in the prior year quarter.
Higher variable investment income was the result of a $1.1 billion transfer of PE assets to corporate and other from RIS and MetLife Holdings in Q1 of 2022 to better align asset liability management for these two segments. Higher expenses were a partial offset. The company's effective tax rate on adjusted earnings in the quarter was 21.3% and within our 2022 guidance range of 21%-23%. Now I will provide more detail on group benefits mortality results on page five. This chart reflects our group life mortality ratio for the last five quarters, including the COVID-19 impact on the ratio and on group benefits adjusted earnings. The group life mortality ratio was 103.8% in the first quarter of 2022, which is well above our annual target range of 85%-90%.
COVID reported claims were roughly 14 percentage points, which reduced group benefits adjusted earnings by approximately $230 million. While U.S. COVID deaths were higher sequentially, there was a favorable shift in the percentage of deaths under age 65, declining from approximately 33% in the fourth quarter to roughly 23% in the first quarter. As a result of these two competing factors, we saw a modest improvement in mortality results this quarter. In addition, we experienced one to two percentage points from non-COVID excess mortality. This included a larger number of high dollar claims which can fluctuate from period to period. On page six, this chart reflects our pre-tax variable investment income for the past five quarters, including $1.2 billion in the first quarter of 2022.
This strong result was mostly attributable to the private equity portfolio of roughly $14 billion, which had an overall return of 7% in the quarter. Unlike previous quarters, where we have seen a dispersion in returns by fund type, this quarter our major PE returns were tightly coupled around 7% overall. As we have previously discussed, private equity is generally accounted for on a one-quarter lag. In addition, real estate equity funds were also a strong contributor to VII with a 10% return in the quarter, while hedge funds, which are reported on a one-month lag, had a loss. On page 7, we provide VII post-tax by segment for the prior five quarters, including $936 million in Q1 of 2022.
You will note that our general rule of thumb that RIS, MetLife Holdings, and Asia account for 90% or more of the total VII did not hold in 1Q22, coming in at 83%. This lower percentage was primarily due to the transfer of PE assets to corporate and other from RIS and MetLife Holdings that I discussed earlier. In addition, Asia's higher VII year-over-year was primarily due to strong real estate equity fund performance as well as higher PE asset balances. Turning to page 8, this chart shows a comparison of our direct expense ratio over the prior five quarters, including 11.7% in 1Q22. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results.
Our first quarter direct expense ratio benefited from solid top line growth and ongoing expense discipline. This included approximately 40 basis points from premiums that relate to participating cases in group benefits due to excess mortality. We remain committed to achieving a full year direct expense ratio below 12.3% in 2022, demonstrating our consistent execution and focus on an efficiency mindset. I will now discuss our cash and capital position on page nine. Cash and liquid assets at the holding companies were approximately $4.2 billion at March 31, which was down from $5.4 billion at December 31, but remains above our target cash buffer of $3-$4 billion.
The sequential decline in cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of $915 million in the first quarter, as well as holding company expenses and other cash flows. Our first quarter tends to be lower in subsidiary dividends and higher in holding company expenses. Therefore, we would expect holding co cash balances to increase in the second quarter due to higher subsidiary dividends, as well as proceeds from the sale of our Poland business, which closed in April, as Michel noted. In regard to our statutory capital for our U.S. companies, our 2021 combined NAIC RBC ratio was 386%, which was above our target ratio of 360%. For our U.S.
companies, preliminary first quarter year-to-date 2022 statutory operating earnings were approximately $400 million, while net income was approximately $800 million. Statutory operating earnings decreased by approximately $1.1 billion year- over- year, primarily due to less favorable VA rider reserves, underwriting results, and higher expenses. We estimate that our total U.S. statutory adjusted capital was approximately $18.7 billion as of March 31, 2022, down 2% compared to December 31, 2021. Finally, the Japan solvency margin ratio was 947% as of December 31st, which is the latest public data. Looking ahead, we expect the Japan SMR to decline in 2022 as a result of higher U.S. interest rates, but remain well above its capital target level.
Let me conclude by saying MetLife delivered another strong quarter, highlighted by outstanding private equity returns, solid top line growth, ongoing expense discipline, and the benefits of our diverse set of market-leading businesses and capabilities that allow us to navigate successfully through uncertain environments. In addition, our capital, liquidity, and investment portfolio remain strong and position us for further success. Finally, we are confident that the actions we are taking to be a simpler and more focused company will continue to create long-term sustainable value for our customers and our shareholders. With that, I will turn the call back to the operator for your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, you may press one then zero on your telephone keypad. You will hear acknowledgment that your line has been placed in queue, and you may remove yourself from the queue by depressing the one then zero key again. One moment please for the first question. We go to the line of Ryan Krueger with KBW. Please go ahead.
Hi. Thanks. Good morning. Could you discuss your outlook for the retirement spread over the next few quarters in light of the higher interest rate environment, but also the flatter yield curve?
Good morning, Ryan. Yes. Let me just start with Q1 obviously was 181, main driver there being VII, and then our result ex-VII was 89 basis points of spread. Just to maybe start with just the sequential decline in the spread was a few basis points, and that was generally the rising LIBOR, which is something we highlighted as in our sensitivities that would put pressure on the spread. I think one of the things that you know was performed better than expected is we did see a recovery in some of our real estate property income investments in the quarter in Q1. That helped to offset some of that downward pressure that we expected.
You know, I'd say given the upward trend in LIBOR we've already seen in 2Q, we'd probably expect, you know, kind of that mid single digit decline to occur that we would have thought to have seen in the first quarter, but to start to see in the second. If you know, if the forward curves come to fruition, we'd actually start to see maybe a shift in the spread moving back up a little bit. I'd say there's probably two reasons for that. You know, we give these sensitivities at the outlook, and then typically the day after they're not as good as they were the day before.
You know, in terms of LIBOR, we talked about a rising LIBOR having a headwind, at some point that kind of flips to be a positive. That's probably, you know, kind of around the 200 basis point level. We're at, you know, maybe a little above 130 today. We'd expect kind of a rising LIBOR to continue to pressure us in the second quarter, but if it continues to rise, it would actually begin to provide income. The second thing, as you point out, just kind of the overall increase in rates. It typically comes in the benefit of the 10-year comes in at a slower, you know, not as quickly. But that will start to emerge over time. Hopefully that helps.
Thanks. Very helpful. Then I guess the follow-up is just I think we all know rising interest rates are generally good for life insurers. I just wanted to make sure that there aren't any unusual impacts from things like interest rate derivative marks on a stat basis that would have any kind of negative impact on dividend capacity going forward.
Yeah. We would not expect any unusual impacts to occur. I think the broad interest rate sensitivities we gave as part of our outlook directionally still hold, even though the shape of the curve is a little different, so numbers may not be exact. I would say the directional nature of that from an earnings perspective, which means that it's, you know, a little negative in the first year. I might call it neutral-ish now, just the way things have kind of panned out. You start to see kind of the positive momentum emerge in the, you know, the 2023 and 2024. Again, assuming rates kind of pan out as they are projected to.
In terms of statutory capital, no, we would not expect any unusual volatility or results as a result of a rising rate environment.
Great. Thanks a lot.
Our next question is from Jimmy Bhullar with J.P. Morgan. Please go ahead.
Hi, good morning. First just had a question on what you're seeing in terms of activity in the pension closeout market. I think you mentioned that the pipeline's healthy, but how do you see I guess interest rates are obviously benefiting, but with the weak equity market and its impact on funding levels, are you seeing a little bit of a slowdown or just the uncertainty causing plan sponsors to put off any transactions?
Good morning, Jimmy. It's Ramy here. So maybe it'll be helpful just to reiterate our philosophy towards the PRT market and then I'll come and hit your question in terms of the pipeline. The two aspects of our philosophy, which, you know, I would like to reiterate here and highlight. One is that this is a business where we continue to exercise pricing discipline. I would say in aggregate our capital deployment in the business is in line with our enterprise ROE targets, and it's also accretive to the in-force annuity spreads. The second one, which you've heard us talk about before, is that we are focused on the large and jumbo end of the market.
There are fewer players there and the deals tend to play to our competitive strengths in terms of size and rating our balance sheet and the investment capabilities.
In terms of the outlook, as you know, we had a very strong quarter in 2021. The fourth quarter of 2021, we ended with five transactions that were a total of $3.6 billion. We did one transaction this quarter for $1.3 billion. We still see a very robust pipeline in front of us as we look towards the rest of the year. In terms of the segments we play in, that jumbo segment, many of these plans have been on a multi-year de-risking journey, so they don't kind of turn on a dime, if you will, in terms of making that decision.
A lot of those kind of asset allocations have been pre-positioned and therefore at that jumbo end, it doesn't tend to be as sensitive to equity market volatility. But having, you know, said that, clearly the overall market as it stands today stands at a very high funding levels and that bodes well for the overall pipeline as well.
Okay, thanks. On your Latin American sales, they were pretty strong across every single major market. To what extent is that a function of the pandemic receding versus just anything that you've done on the product or distribution side?
Yes. Hi, Jimmy. This is Eric here. So yeah, you noticed the sales momentum really demonstrates the strength and of our distribution channels and the diversity of our product mix. We're seeing the benefits of that diversification strategy that combined with the increased awareness that Michel mentioned and that demand of insurance combined with the swift implementation of digital capabilities before, during, and now as we get out of the pandemic allows us to sell and serve our customers better. The marketplace is really responding to this with a true flight to quality.
That emphasis on quality is also evidenced by the strong persistency, which combined with the robust sales has resulted with an over 20% growth year-over-year on PFOs on a constant currency basis. Now, about half of that of these sales are coming from the SPVA business in Chile as we've seen the annuity market expanding during the first quarter. You know, overall, I would say it's a combination of factors and the strength of our franchise in LatAm is showing up as the pandemic recedes.
Thank you.
Our next question is from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi. Thanks. Good morning. My first question, you know, we've seen, you know, move up in interest rates this year. I was just wondering if that, you know, has an impact on the potential for you guys to do a transaction with one of your blocks within Holdings?
Hi. Hey. Hi, Elyse. It's John. Good morning. I think, as we've said before, rising interest rates are, I think, beneficial to, you know, the risk transfer block transfer market. I don't think that's the only thing that people are focused on. I don't think it changes materially. I think it's a modest positive, as we've talked about. You know, improving interest rates, solid equity markets, I think they all kind of support, you know, a healthy risk transfer market. You know, but again, I don't think that's the only driver, and I think as we've seen over the years, the last few years, there's been plenty of transactions even at lower rates. Again, I think it's a modest positive.
Okay. Within group, you guys called out the non-COVID mortality this quarter. I just was hoping to get a little bit more color there. If you know, do you guys expect this to continue, you know, as we move through this year and even potentially, you know, get on the other side of the pandemic?
Hey, Elyse. I would say what we saw this quarter is very much in line with kind of normal quarterly fluctuations we see. Just to give you sort of some color in terms of one of the drivers here, if you look at our kind of large claims here, defined, let's say, you take a $2 million mark, we've got higher number of those claims. When I say higher, think high single digits. We've got quarters when that came below our expectations. This is kind of normal quarterly fluctuation. We clearly look at the numbers. We are the largest writer of group life benefits in the industry, and as of this point, we're not seeing any real evidence outside of COVID of any long-term adverse trends here.
Okay. Thanks for the color.
Next, we go to the line of Erik Bass with Autonomous Research. Please go ahead.
Hi. Thank you. In the group business, can you talk about enrollment and persistency trends and the level of benefit you're seeing from rising employment and wage growth?
Hey, Eric, could you just repeat the question? You were just cutting off a bit.
Sorry. I was just asking in the group business, if you could talk about enrollment and persistency trends, and then the level of benefit that you're seeing from rising employment and wage growth?
Sure. In terms of persistency, we continue to see very strong persistency on our book, that's up and down market and very much kind of in line with our expectations. As I've highlighted before, we're seeing that persistency even in an environment where we have been taking price increases, in particular on the life book, given the uncertainty around COVID. The persistency has been really excellent. We're also seeing continued momentum on our voluntary portfolio, and that's kind of continued to drive double-digit PFO growth in our business.
Just to give you a flavor of that, we ended the year well above $1 billion of PFO in voluntary, and we continue to see good growth on that. In terms of employment, that's a tailwind. We're starting to see that in the business. Clearly, higher employment levels, you know, provide just more eligibles and therefore more premiums. Wage inflation is another tailwind, although that does play out gradually over time, so I don't expect that to see kind of having an immediate uptick, and it does depend on the population that's getting those wage increases, et cetera. Both of these I would think of as general tailwinds to the business, and we're seeing evidence of that in our book today.
Great. Thank you. Can you discuss your earnings and capital exposures to a weaker yen and what hedges you have in place?
Hi, Eric, this is Kishore. If you think about the yen impact, you can think about this in two aspects. One is the translation impact on earnings, and the second one is the impact on sales. On earnings, we have a multicurrency balance sheet in Japan because of our FX products. If you think about it holistically for MetLife Asia, roughly 15% of our earnings are yen-denominated. Therefore, any depreciation on the yen has a moderate impact, if I can say that, on Asia-adjusted earnings. On the sales, however, you know, the FX volatility more than the rate itself, it's the volatility that is very important. The rates are a consideration as well. It impacts the volumes of our FX products in the near term, you know.
In periods of high FX volatility, you know, our customers tend to wait and see before they commit their yen to be converted to U.S. dollars, say, you know, if it's a U.S. dollar product. At the same time, the yen, the increase in U.S. dollar rates, you know, which is certainly true now, enhances the customer value, making them more attractive. There's a balance both ways. And currently we're seeing the impact of both the yen weakening and the higher U.S. dollar interest rates on both sides. If you think about it, that's the way I would look at it. You know, I'll leave it at that.
Great. Thank you.
Our next question is from Tom Gallagher with Evercore. Please go ahead.
Good morning. First question is just can you provide a little bit of color behind the around $400 million of investment losses? I presume most of that was Russia, Ukraine, but can you just give some specificity for the accounting for the $400 million?
Sure. Hey, Tom, it's Stephen Goulart. You're right on that. I think John mentioned this too in his script. There really were two issues that led to virtually all of the realized losses in the first quarter. One, as you point out, was Russia, and that was roughly half of the credit losses and provisions. Again, I'd start though by reminding everyone that, you know, our total exposure to Russia is, you know, less than one-tenth of 1% of the general account. In sum, not really a material number. The second piece on the losses, John also mentioned was normal trading activity, but that really just reflected what was happening with interest rates in the quarter.
If you think about, again, our asset liability management, you know, we are heavily investing in private assets right now, and it takes time to originate those private assets. We're putting in assets that are, you know, more liquid. And as we replace those in the permanent structure with private assets, given the interest rate movements of the quarter, we saw losses in that. Again, we pick it up on the back end, of course, because the private assets are higher yielding.
Got it. That makes sense, Stephen. I would assume some of that, there could be a little bit of a tail to the trading aspect of that as you roll into 2Q and rates have continued to go up. Is that fair?
You know, I think as long as rates are moving, we'll probably see similar action and similar results, yeah.
Okay. Gotcha. Then just, I guess for Kishore, just to follow up on Japan, the sales there seemed pretty good, and your competitors that are in Japan were quite weak with the state of emergency orders in Japan. Just curious how you were able to drive sales growth. Is there something unique about product launches or your distribution that allowed you to still grow sales, it looks like across all products in Japan?
I love the premise of your question, Eric, and I will certainly pass on that compliment to our associates in Japan. I think it's a great question. I love the way you worded it. Certainly, that said, you know, our sales increased 18% in Japan. That's a very strong performance. There are three reasons why I would attribute that. Three, our execution on the ground has been, you know, quite strong. Secondly, we do have a very diversified channel mix, as you know. That is continuing to show where, you know, certainly there's a little bit of softness on the banker side on a relative basis, but that got picked up on the CA. That balance is, you know, back and forth certainly is coming through really well.
Thirdly, we have been investing quite a bit on our products and capabilities over the past two years, but most notably over the past 12 months, we've had a couple of successful product launches. Most recently, we entered the QLI market again, and so that was well-received in the marketplace. We launched a new banker platform, you know, in last year, which has got you know, very strong reception. We also entered the variable, you know, product market, so that's also getting good traction as well. We're very happy about that.
However, you know, since you asked the question, I wanted to give you a little bit of context for overall Asia in terms of our performance this quarter, which is really. We're very good, but also caution that we're continuing to deal with COVID. You know, that's a big factor across all our markets. Clearly Korea and Japan, we have a surge in cases in quarter one, and we're dealing with that even in China as well. Then on top of that, in Q2, we're dealing with a bunch of market-specific regulatory and exchange-related challenges which are ongoing. Then there's a seasonality factor in Q1 with March being the fiscal year-end. That's been a tailwind which doesn't carry through to two.
Given all that, the volume of sales in the next quarter will be under pressure. On a year-on-year basis, I expect Asia ex-Japan, you know, to come in stronger in Q2 to offset that as well. So that's, we've done well in Q1, little bit of pressure in Q2 and then I want to switch to the overall frame, which is despite all of this, our execution has been very strong. Our diversity of markets are coming through. From a guidance perspective, sticking to the mid to high single sales growth guidance we gave in February. In terms of timing, I expect a much stronger year-on-year performance in the second half for Asia as a whole.
I hope that was helpful from a commentary perspective.
That was. Thank you.
Great.
Oh, go ahead. My apologies, Mr. Gallagher, did you have anything further?
No, that's all. Thank you.
Very good. We will move on to Suneet Kamath with Jefferies. Please go ahead.
Thanks. Good morning. Just wanted to go back to Group Life for a second. We're seeing, you know, COVID deaths, COVID mortality decline pretty substantially here in 2Q. I was just wondering, as we think about our earnings in that business in 2Q, is there any kind of lag that we should be reflecting in terms of when you may get, you know, death notices in Group?
Hey. It's Ramy here. You know, generally speaking, we're pretty quick in terms of recognizing the death claims and recognizing those, and we clearly hold a reserve to essentially account for the IBNR. I would say on average, we've been getting that pretty well over the last kind of year and a half. I would just continue to anchor any of your kind of estimates based on the headline mortality numbers for the entire population. I would say, you know, you looked at those, and those have trended favorably in April.
The other statistic I would also look at is the percentage of deaths which are under 65, which looking at April, that has continued to be at the same level as we saw in the first quarter, which as John mentioned, would be favorable for us from a severity perspective.
Okay, got it. I guess for John on capital, I think you had said that statutory operating earnings was lower than stat net income. I just want to make sure I got that right and maybe some color on what happened there. Also, I think you said TAC declined relative to the end of the year. Can you just talk a little bit about what happened there?
Sure. Good morning. Good morning, Suneet. Yeah, that's right. I mean, I think it's just the kind of some of the geography between our, you know, where our VA reserves go versus some of the, you know, kind of the hedges, and you think about, you know, just what equity markets did, that probably explains some of that difference.
Some of the realization of that. That's kind of number one. You commented, and then your second point is just on stat capital generation. Yeah, I think it was down 2%, so you know, maybe a little over $300. I'd kind of put that in the normal volatility in any one quarter. We paid our normal kind of a fourth of you know 25% of our kind of you know target dividend for the year, give or take in the quarter, and you know we just had a little additional volatility. I wouldn't read into that any in any way. I'd kind of consider that to be normal volatility, and I wouldn't consider it a trend.
Okay. Thank you.
Next we go to the line of Alex Scott with Goldman Sachs. Please go ahead.
Hi. Thanks for taking the question. First one I had is on just the expenses. You know, I think they've kind of consistently come in below sort of the target you guys outlined at the investor day with the Next Horizon strategy and so forth, and, you know, you're achieving pretty good organic growth across a number of your businesses. I was just interested in any commentary on, you know, where, you know, that could go from here. You know, if you know, I think sometimes in the past you've called out one-timers and things like that on expenses that would get you back up to sort of that targeted level. But this feels like maybe you're benefiting more from operating leverage and, you know, could it be driven down, you know, further from here?
Good morning, Alex. Yes. You know, we're certainly pleased with the execution and, you know, that's not without headwinds and, you know, what we're all dealing with today in terms of inflation, wage increases, and things like that. I think it's a testament to the team and really the embedded culture that we've built here around efficiency mindset. It's a critical component of our strategy, as you mentioned. You know, just on the ratio itself, it was 11.7. You know, I mentioned in the opening remarks that, you know, you have to be careful. The headline number is probably benefiting about 40 basis points from elevated COVID claims, which impact our participating cases, and that creates, you know, increase in revenue. There's a bit of a gross up on the P&L.
Net-net, we're still, you know, we're a little above 12%, but still below the 12.3%. You know, that's, you know, within there, it also includes, you know, our intention to continue to invest in the firm for growth, to improve, you know, our use of technologies and then obviously if circumstances dictate, that gives us optionality to leverage that capacity in different ways and to protect margins. All in all, I'd say we're executing on our target, our initiative when it comes to managing expenses.
Thanks. My follow-up is just if you could provide a brief update on the asset management business and just what you're thinking in terms of inorganic opportunities that are out there and if the current environment, you know, makes that, you know, more challenging or maybe it presents more opportunities. Just interested in if anything's changing there.
Yeah, Alex. Steve Goulart. So the update, it continues to be very positive. We continue to grow MetLife Investment Management. I think we've been really achieving an aggressive organic growth plan, that is in line with what we laid out at our 2019 investor day on our objectives and targets for where we want to see the business grow. At the same time, you're right, it's a very active market right now, and we continue to be active in it as well and looking at opportunities for acquisitions. It does cut both ways. I mean, there's a lot of activity, but there are a lot of people looking in the markets too.
We know what we're looking for strategically, you know, we're very disciplined financially, and we want to make sure that anything we do fits, you know, culturally and strategically. We'll continue to be active, and hopefully when we find something that meets those criteria, we'll be successful in acquiring it.
Thank you.
We have a question from Tracy Benguigui with Barclays. Please go ahead.
Good morning. I realize later in the year you review your reserving assumption, but still, where the ten-year treasury rate is today at nearly 3% and where it may be heading, how should we be thinking about your 2.75% reversion of the mean assumption? How does inflation come into play with respect to your reserve position? Good morning, Tracy. Good question. Obviously, we have that long-term assumption and things have changed quite a bit. You know, I think it's early for us to make any predictions at this point. Obviously, you know, as we get into the, you know, kind of the end of the second, into the third, really more the third quarter, you know, we'll start to think about it.
You know, I think as we've all realized that things can change quickly. It is a long-term assumption. Having said that, I think you've highlighted some kind of, you know, kind of the circumstances we're in, that the current rates are higher than our long-term assumption that we projected to hit in 12 years. That is. I wouldn't anticipate, you know, kind of any abrupt change one way or the other. We just made that change a few years ago. You know, you need to kind of see a trend before you would necessarily make a change. Again, we'll have to kind of evaluate all the data that's out there when we get closer. In terms of inflation, it's probably.
It's really, I'd say, probably the more related to your first part of the question, how does that really impact rates? That's probably the biggest area for us when it comes to reserving. You know, I think outside of that, there's generally if you have any inflation impact, it's generally offset by other factors, you know, net-net. That's probably how I'd answer the inflation point.
Great. Thank you. I noticed in prior years you didn't fully utilize your U.S. statutory dividend capacity, but in 2021 you did for your lead U.S. co. I realize you have various sources, but just looking at Metropolitan Life Insurance Company, you have $3.5 billion ordinary capacity in 2022. Are you expecting again to fully utilize that this year?
Yeah. I think as you point out, we have a lot of sources of cash to the holding company. I think what we've committed to, we don't commit to kind of a dividend in any one legal entity. I think the benefit of having a diverse set of cash generation that can be sent to the holding company is that it gives us the benefit of being able to commit to the 65%-75% free cash flow ratio, on average over a two-year period. Yeah, it's not something we target at any one entity. We look at all aspects of how we're trying to manage our cash and capital at the operating entities, you know, where we're looking to grow, you know, where we need extra capital, things like that.
I think the benefit is, like I said, it's the diverse set of sources is very helpful. We don't set a target at any legal entity externally, I should say. We kind of, you know, just like you would manage your own wallet, we manage our collective wallets the same way.
Thank you.
We have no more questions at this time. I will turn the call back to Michel Khalaf.
Great. Well, thank you again for joining us on this busy morning. Our strong performance in the first quarter of 2022, building on last year's outstanding results, should provide further evidence of the significant progress we're making in delivering on our All-Weather Next Horizon strategy. This management team is laser-focused on continuing to execute with urgency, and we are confident in our ability to create long-term sustainable value for all stakeholders. Thanks again, and talk soon.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T TeleConference Service. You may now disconnect.