All right. Good morning, everyone. We're going to get started with our next session. I'm Ryan Krueger from KBW, and it's great to have MetLife back with us today. Up on stage with me is Michel Khalaf, President and CEO, John McCallion, CFO, and Head of MetLife Investment Management. Also want to recognize John Hall and the IR team from Met. To kick it off with Michel, you launched a new five-year strategy called New Frontier in December of 2024. Can you review the key components of that strategy and just how things are tracking so far relative to your targets?
Sure. First of all, it's great to be back with you, Ryan, this year. When we launched New Frontier, our goal was to accelerate growth, deliver strong returns, and do so across cycles, positioning MetLife as a quality compounder over time. I think two years into the strategy, or nearly two years into the strategy, really pleased with the progress that we're making. Our approach is simple. We want to deploy capital and resources to market-leading businesses where we have structural advantages. Think about size, scale, distribution, and product and origination capabilities. The four priorities that we set at Investor Day, I believe we're making good progress across the board. The first one was expanding and accelerating growth in our Group Benefits business, where we are the largest player, 3x the size of our nearest competitor.
Capitalizing on our unique Retirement and Liability Origination capabilities in the U.S. and Japan and in the U.K. Accelerating growth in our asset management business. We want Met to become a greater contributor to our overall earnings over time. Last but not least, accelerating growth in international markets. We feel that we're really well-positioned. We're in markets that have strong tailwinds when it comes to trends that we're seeing in those markets, and we feel good about our opportunity to capitalize on those. Those are our main strategic priorities. We set, I think, an ambitious set of commitments and goals to support those. I would say we're tracking ahead of schedule in terms of delivering on those. We delivered a 10% EPS growth in 2025. We're exceeding that this year. A 16% adjusted ROE in 2025.
We're at 17% this year, which is at the top of our 15%-17% range. Our direct expense ratio came in below target in 2025. We're absorbing PineBridge this year, and we're still committed to achieving our five-year target when it comes to the direct expense ratio. Where the rubber meets the road on free cash flow, we delivered nearly $5 billion in 2025, and the pace is continuing strong this year. All in all, I think we feel good about the momentum we're seeing across our businesses. One point I would make here is that our model is repeatable. It's based on recurring revenues and the flexibility to invest where we see the most compelling risk-adjusted opportunities. And if you consider that technology and AI are force multipliers, that further supports our ability not only to deliver on our five-year commitments, but hopefully to exceed those.
Great. Maybe delving in a bit more. One aspect of the New Frontier strategy you've been discussing is a balanced mix of earnings from capital-light and capital-driven businesses. Can you expand a little bit more on what you mean by that and how you see that evolving over time from here?
Sure. I've described diversification as MetLife's superpower. We really believe that, and it extends to every facet of our business, be it the geographies and markets that we operate in, our products and distribution channels, the various risks that we take, our investment portfolio, and it also extends to this balance between capital-light and capital-driven businesses. That balance is roughly 50/50 today. We think of them as two engines that power the company. One point I'd make is that those two engines have been constructed deliberately over time. We've made significant progress in achieving this balance, this 50/50 balance. On the capital-light front, you have Group Benefits, Asset Management, LATAM, EMEA, businesses that are not very capital-intensive, that deliver high ROEs. Then from a capital-driven perspective, you have our Retirement & Spread businesses. Here we deploy our balance sheet to generate attractive risk-adjusted returns.
One point I would make here also is that one engine feeds the other, because our capital-driven businesses originate assets for MetLife Investment Management to manage, which fuels our fee-based capital-light engine. So those businesses are highly complementary.
On expenses, you had mentioned being ahead of target so far. One of the targets was a 100-basis-point improvement in the expense ratio over five years. Can you talk a little bit more about what types of things you are doing to drive down the expense ratio? And to what extent things like AI and technology are playing a role in that?
Yeah, sure. Let me just echo Michel's comments. Great to be here, so thanks for having us back. Maybe just two things, and I might just tie in ROE to that as well because they are connected, and also just coming off of Michel's comments on the mix of business. I think a couple of things I would point out. The unit cost initiative is really a cultural thing for us, and it is really not about cost reduction. We are really trying to drive a sustainable operating leverage within the firm where revenues outpace expenses. We want to be able to invest in the business for growth. We have been doing that, and at the same time, we are seeing a reduction in our unit cost occur. We had that occur under Next Horizon.
We are already off to a great start under New Frontier, and I think as Michel pointed out, I would highlight again just the point, we acquired PineBridge, which is an asset management business, which is a high expense ratio business, right? That probably put about a 50-basis-point headwind on our expense ratio, yet it has not taken us off track. So we have absorbed all 50 basis points this year. If we had not had PineBridge, we would probably have a target of like 11.6 instead of the 12.1 we have for this year. So I think all in all, there is a real cultural inertia that is going on around our focus on driving operating leverage across the firm, and I wanted to bring ROE into that. That is also helping with ROE. If you tie together the points Michel made around our mix of business.
Our pace of capital-light businesses is outpacing capital-driven, and it will likely continue. So that in and of itself will drive up ROEs. Unit costs will drive up ROEs. We have been delivering high unlevered IRRs on new business, high teens call it, right? So if you take all of those things, couple that with the fact that we have a runoff block that is more capital-intensive. That is also one reason why you are starting to see the ROEs push up to the upper end of the range. We have been at 17% for the first half of this year relative to our 15%-17%, and we see good momentum going forward. I would say the other thing, I think you referenced a little bit around just what is driving these things.
We've been on a journey around delivering a foundational tech stack, a journey around a data strategy, and now you embed AI. Going back to how are you absorbing the 50? These things are real. We're really seeing the productivity gains come through the firm, and we see that continuing throughout. Workflows are changing, how we process claims are changing, how we underwrite is changing. There's opportunities for AI to drive growth. That really continues to drive down that unit cost over time.
Great. Shifting into the businesses. Within the Group Benefits business, your premium and fee growth has been trending towards the lower end of your 4%-7% target over the last couple of years. Certainly want to acknowledge it's a great business and there's nothing wrong with growing 4%, but do you still see an opportunity to accelerate revenues within that target?
Yeah, we do. To your point, PFO growth was the underlying growth was about 4% in the first half of the year. We're pleased with that. That's higher than market growth in the first half. We believe it will tick up somewhat in the second half of the year, and we certainly see a path to it migrating towards the midpoint of the range, if not higher over time. I think a few things that give us confidence in our ability to do that. If you think about our strategy, it's based on accelerating growth in regional market, which is a segment of the market that's more fragmented. We're seeing good momentum there. We're also given our relationships, especially at the high end of the market, we have the opportunity with more employers looking to do more with fewer providers to add more product to existing customers.
Increasing the take-up rates on our voluntary products. We've seen also good traction there, and we've made investments that have been helpful to us in terms of driving up take-up rates there. I think all those strategies support our view that the 4% is certainly not the ceiling. We think that we will be able to deliver certainly growth towards the midpoint of the 4%-7% range that we declared. The other thing that I would point to is, again, it's not about growing for the sake of growing. It's about disciplined, profitable growth. If you look at our earnings so far this year, up 22% vs last year, and we're certainly trending ahead of the 7%-9% that we sort of discussed at the outlook from an earnings perspective. We are growing, but we are growing in a way that also helps us protect margins.
Can you talk more about the underwriting trends you are seeing in the Group Benefits business across group life and non-medical health, and just any key things we should be thinking about there for the second half of this year?
Yeah. Let me start with the fact that they certainly have been favorable to start this year. Year- to- date, as Michel said, has had a strong growth in margins year-over-year. As you break it down, obviously we have seen strong mortality trends when it comes to group life. The second quarter, we had a benefit ratio of 79%, well below our range that we gave for our annual range for the year. While we did have, call it two points of favorability from prior development and some claim severity, nonetheless, it was a very strong mortality trends. I think what is important in this business, particularly in the group life business, is these tend to have three to five-year guarantees. So we do expect some moderation to happen in the second half and as we move forward, but it will be slow moving.
We do not expect everything to happen at once. But certainly, group life mortality ratio has been a nice tailwind, and we expect it to continue in the near future. On the non-medical health side, we did a lot to come into this year much better positioned. We got our dental repricing done. Disability has continued to maintain in line with expectations. So we have seen the seasonal improvement occur. We did have some headwinds, and I think the industry did around PFML in the early part of the year. We have seen that moderate in line with expectations now. So we expect the rest of the year to start to continue to see that seasonal improvement occur. So I think broadly speaking, Group Benefits underwriting margins will remain intact for the near term, and we see good momentum going forward.
I guess when it comes to competition in the Group Benefits market, how would you characterize how things stand today, and are there any particular areas, whether it be product or market, where you're seeing more price firming or softening at this point?
I would say that overall the market is competitive but rational. I think the fact that this business is short-term in nature, so claims do show up fairly quickly. I think that acts as a sort of incentive for folks not to get overly aggressive. We've certainly seen that in recent years. Look, price matters and will always matter in this business. It's not just about price, and I think increasingly so, we are seeing service delivery and the experiences that you deliver to employers and employees play a very important role in decisions that are made when it comes to this business. We've always talked about the importance of scale here, because that's what allows you to make important investments to keep up with customer expectations, customer needs. Something that we've done consistently over many years.
A good example I would give you there is our investment in My Leave Navigator, which is our leave and absence platform. That was a multi-year project. We deployed significant dollars into that, and that's paying off big time for us because it's been very well received by the market. It takes away from employers a burden when it comes to administering complex plans, especially as more and more state enact PFML regulation. It's helping us grow, but not only grow that business. Typically, we sell that product with four additional coverages. Again, ensuring that we're achieving returns and margins that we feel comfortable with and to support what we're seeing in terms of how we're protecting margins in that business. Yeah, it's a competitive market, but I think it's not just price anymore.
In your U.S. Retirement business, one component of it is pension risk transfer. The market as a whole has been pretty quiet so far this year. What do you think is driving that, and then how do you feel about the pipeline as we move forward?
Yeah, I think it has been a slow, I would say, first half of the year. I would say that this business tends to be lumpy anyway, especially at the jumbo end where we tend to focus. Obviously, last year was a record year for us, $14 billion in PRT sales. I think what we're seeing is more of a timing thing as opposed to a structural shift in this market or in the attractiveness of this market. Because if you think about the $1.5 trillion sitting in plans that are well-funded, if you think about the incentive for plan sponsors to transact, reduce balance sheet volatility, remove admin burden, and make sure that benefits payments are delivered by strong quality insurers. I think those fundamentals are still there and support a market that I believe will continue to be robust for years to come.
We already see a healthier pipeline in the second half of the year compared to the first. We're obviously a market leader here. We bring a lot of capabilities to the table. I think we feel good about the mid- to long-term prospects of this market and our ability to continue to win, but continue to be very disciplined in our approach as well.
The market probably focuses a lot on PRT, but you do have a lot of other products in the Retirement & Income Solutions business. Can you talk more about the growth opportunities you're seeing outside of PRT and how you're feeling about the 3%-5% target you have for growing retained liabilities there?
Yeah, we feel good about the 3%-5%, and we're confident in achieving that. To your point, I think PRT gets the headlines, but it's not just about PRT, and we're very well diversified when it comes to our RIS business. We're market leaders in structural settlements and stable value, for example, and we've been able to tap into some, I would say, important growth areas as well. U.K. Longevity Reinsurance has been a business that we stood up in 2020, and that's contributed significantly over the years. We continue to see a healthy pipeline there. U.K. Funded Re, which is a business that we entered last year, we've already written a billion dollars there this year. We talked about entering the retail annuity market here in the U.S. on reinsurance basis, and since we did that last year, we've already written $2.5 billion there.
We are continuing to tap into areas well beyond PRT when it comes to growth. What is important for us is this flexibility of we want to be able to pivot to where we see the most compelling risk-adjusted opportunities. I think that diversification that we have allows us to do that.
Spreads in the Retirement business, excluding variable investment income, have been pretty stable lately in the 95 basis points- 100 basis point range. Would you expect that to continue going forward, and then how would you anticipate changes in the yield curve potentially affecting that outlook?
Yeah. It has been pretty stable now for a few quarters, and obviously, a few years ago we came off some highs just because we had some protection to protect against a sharp rise in the short end of the curve, but since then, those have rolled off. We have a very diversified portfolio, as Michel said, both not just from an origination perspective, but also across the curve, short and longer duration. Obviously, the higher yielding longer rates have been a positive tailwind for us, and that is continuing. At the same time, a flatter curve on the shorter duration is not as ideal. But they are balancing each other out, and what I would say is we are well-positioned to maintain the current spreads regardless of where, I am assuming there is no steepening of the front end of the curve from here, let us say.
Whether it stays here or steepens, we would probably be able to sit within that range that we have talked about, which is like 95 basis points- 100 basis points.
Got it. Then on variable investment income, it is volatile by definition, but for the overall first half of the year, it was pretty in line with your expectation. Can you talk more about, I guess, the underlying pieces between venture capital, private equity, real estate, and how you are feeling about the back half of this year?
Yeah. The first half, if we take the first two quarters, we came in roughly $750 million of pretax. Our annual guidance range is $1.6 billion. We said in the second quarter earnings call that we still expect to hit our outlook of $1.6 billion, so that implies obviously a slightly higher second half than what we saw in the first half. I think everyone has recognized the second quarter has produced some constructive backdrop for this portfolio, particularly VC. Venture capital is about 25% of our private equity portfolio. Certainly the IPO market, the AI-related investment activity in the second quarter, all those things are strong tailwinds for the VC portfolio. Even the broader PE portfolio is going to benefit from just the broader public equity market marks that are occurring. So there is some good momentum going into the third quarter.
Our sense is we will be at the $1.6 billion if not upward biased at this point to the $1.6 billion for the year. Certainly, I would say for the third quarter, we have an upward bias relative to our quarterly annualized number just given that backdrop.
Got it. To move to Asia, it is the highest rate environment there that we have had in quite a long time now in Japan and Korea. How are you seeing that affect consumer behavior? I guess both in terms of demand for new products, but also surrender activity on existing business?
Yeah. I think we've seen very strong sales in Asia overall in the first half of the year. The second quarter was a record quarter for us when it comes to sales in Asia, 17% growth. The second half, I should point out, is a much tougher comparison because we had a very strong second half last year as well. But overall, for the full year, we'll come in above the mid to high single range that we gave at outlook for sales in Asia. In Japan, the higher rates are increasing demand for yen products. This is a trend that we had sort of anticipated, I would say, hence several new yen product introductions over the last couple of years. And to give you a sense of the progress we've made there, last year, 30% of our sales came from yen-denominated products. This year, it's 50%.
We're seeing really good traction on that front and good momentum. From a surrender activity perspective, the weaker yen is increasing policy value, so hence leading to higher surrenders compared to what we would normally see. I think a good measure that we use, certainly we think is important for Asia, is AUM growth, because that accounts for inflows and outflows. That's 6% year-on-year, so very healthy and gives you a sense of how the region is performing and the momentum that we're seeing there. And outside of Japan, I would say again, we are continuing to see really good momentum. Korea is performing very strongly. Strong equity markets there are supporting some of our variable products. And we've also been able to leverage a lot of our expertise from Japan on the FX front, brought that know-how to Korea, and that's also resonating in the market.
And our other markets are doing fairly well as well. All in all, really pleased with Asia's overall performance.
Have you been able to do any asset repositioning to take advantage of higher yields in Asia, and to what extent could that be an ongoing opportunity?
Yeah. I think it's important to understand the construct that we operate in, and for us, certainly when it comes to interest rates and FX, we tend to try to really focus on our disciplined asset liability management approach. That also ensures that, and we've talked about our sensitivities under ESR, for example, in Japan, they're very limited relative to large movements. That's a function of ALM. So we tend to not take large directional market positions in the portfolio. Having said that, in general, there is a higher rate environment in yen, is a positive aspect to that business over time. We will also look for opportunities to reposition where we see there's a strong payback period to something like that.
Over the course of the year, we've done a few hundred million of repositioning in the portfolio, but we're also mindful that we're, relatively speaking, matched or as much as you can be in some of the real long-duration liabilities. So, over time, you would see that higher rate environment come in through the roll-off reinvest, and then we would also be opportunistic. But it wouldn't be very large amounts of trading that you'd see.
Got it. Asia earnings have also just come in above expectations that you had set coming into the year. Are there any particular drivers that you'd call out that has led to that, and any reason to think it's not sustainable?
Yeah, I think Michel touched on a lot of them. You're seeing broad-based growth across that region. Japan, mentioned Korea, all of those things. The 17% growth in sales in the second quarter, the record sales, we see that strong sales momentum continuing. Obviously, the compares might be a little different relative to last year, so year-over-year may feel different, but certainly the level of sales is on track and will continue to drive that AUM growth that Michel referenced of the, call it mid-single digits, 5%-6% or so. Equity markets have also been positive. In addition to interest rates, let's put those are kind of known. Equity markets, as Michel mentioned, Korea, also China. We actually have some equities in the China portfolio, so that comes through NII because it's a joint venture.
We've seen strong NII in the Asia segment, some of that coming through China, and they've had some strong equity market performance in the country.
Got it. In Latin America, as we emerged from the pandemic, you've had a really strong run of results and growth there. What would you attribute that to, and what would, in your view, be the biggest risks of that not continuing from here?
Yeah, I think LATAM has been a powerful growth engine, I would say, for us. We've seen really strong momentum, top-line sales growth, PFO growth translating into earnings growth as well. I think we continue to do very well in our core markets of Mexico and Chile. I put that down to diversification when it comes to distribution capabilities and products as well. We've seen, I did mention that in the past, we've seen coming out of COVID a flight to quality, if you like, that we benefited from to some extent, but very strong execution on the ground. Brazil has been one of our fastest-growing markets anywhere, certainly fastest-growing in LATAM. We grew sales 70%, 30% PFO growth, and Brazil is now contributing 20% of LATAM sales overall.
A major driver of the growth that we're seeing has been our Accelerator platform, which is our embedded insurance digital platform. We've been able to acquire a number of digital banks, e-commerce companies, retailers on that platform. That platform now accounts for 20% of overall LATAM sales. That's been a major driver. But again, we've seen really good execution when it comes to the expense discipline in the region as well. To the point you made, Ryan, that's translating into basically earnings doubling from pre-pandemic levels, and we're on track to deliver a billion dollars this year. The risks, I would say, are macro in nature. I would say currency has been favorable, but that's always something that we look at. The overall economic conditions, I would say, are things that we would watch for.
In terms of our business, we don't see anything from a regulatory perspective, for example, that creates risks or concerns for us at this point.
EMEA has been pretty consistently outperforming expectations the last year or two. What's been going better than you expected in that region, and do you think the outlook has actually permanently moved higher at this point?
Yeah. I'm so glad we get to talk about EMEA.
Yeah.
Because I think EMEA has been a really great story for us in terms of it's a high-quality business, capital light, protection oriented. It's important contributor to our free cash flow. Basically, we've averaged 100% of earnings in free cash flow for a number of years now. I think it's a good example of a region where we've done a lot of simplification, and we've really done a good job managing expenses, unit costs. We're in 23 markets, but we operate out of five legal entities, so it's a very efficient structure when it comes to expenses and capital. We focus on segments of the market where I say we have a right to play in terms of the value that we bring and the value that we can extract as well. The team there has done a really good job of that.
We have seen top-line growth translate into earnings growth as well. We have been running at the high end of the 90-100 range, quarterly range that we gave at the outlook, and I think I would expect us to continue to be at the high end of that range for the second half of the year.
MetLife Investment Management or MIM, you touched on the PineBridge acquisition earlier, but can you give an update on how that has been going so far and the integration?
Yeah. We are a little over half of a year into the integration, and I say this internally to the team. You go through obviously some challenges here and there, but overall it has been a very strong integration. Culturally, there is a great fit. We got the leadership team in place, one MIM, and we are off and running. Clients have been extremely receptive to the combination. It just made sense. Where they have come from, their history, and their heritage coming into us, coming into our global brand, and I would say the power of the two have one plus one is more than two. Look, this was, as we have said before, the strategic aspects of this is how do we continue to grow our global asset management footprint? That includes capabilities, distribution, and also institutional client reach.
We have significant opportunities for us to cross-sell across just our existing clients. That has been a big aspect to us. In the first half of the year, we saw some natural revenue dyssynergies with any integration. Actually, a lot of that was covered as part of structure that we built into the deal and the performance-based structure aspects of that. We feel like that is mostly moderated as of now. In addition, I think we were able to accelerate some expense synergies, so we have been able to capture about $50 million of annualized run rate saves so far. We see now the path for us to continue to drive growth.
The reality is, I think if we look at the range for this year, we are probably heading towards the lower end of that range for this year, but we actually feel like we are still on target to hit our 2027 and 2028 implied numbers that we gave in the outlook. And that would also imply getting to that operating margin that we referenced. All in all, we're very pleased with the integration, what the combined platform now brings to our clients, and look forward to continuing to drive growth.
What are the big moving parts to get to the 32% margin target for 2029?
Yeah. I think it's a little bit of those things that I referenced before. We need to now drive revenue growth through that cross-sell opportunity. We have a lot of dry powder in our private area today, probably close to $4 billion of dry powder that will be deployed over the next, I'd say, year to 18 months. So there's a natural revenue opportunity ahead of us there with the commitments that we have. Then ultimately, continuing to drive our expense synergies and the operating leverage. One of the things that we focused on for a number of years is maintaining a one MIM platform. That's been very important for us to drive that sustainable operating leverage. So now we need to continue to do that.
There's a lot of technology implementation and convergence that we have to do over the next few months and into next year, and that will be important to maintain and to accelerate that.
My last question was on capital management. How are you prioritizing M&A, share repurchase, buybacks, as well as any further opportunities for divestitures?
Yeah. I think this is an area where we've been very consistent, and I would say no change whatsoever in terms of our philosophy or approach here. Our first order priority is to support organic growth, and we're doing so at attractive returns and paybacks. We'll continue to focus there. On the M&A front, we're very disciplined. I would say any deal would have a high bar to clear. We think about strategic fit, cultural fit, but we also think about value creation over time and how any deal would compare to other potential uses of capital as well. Excess capital, we will continue to return to shareholders. Recently, we announced a new $3 billion buyback authorization from our board.
I think that's another indication of the confidence that we have in our financial standing and, again, ability to continue to return capital to shareholders over time. We want to continue to have an attractive dividend yield that's an important, I think, part of our story. An increasing dividend is something that's important to us. From a divestiture perspective, we're always going to look at our lens using the same lens, I would say, that would apply to acquisitions in terms of strategic fit, in terms of value creation, and the like. But there are no burning platforms, and we really like the mix of business that we have currently.
Excellent. We're going to wrap it up here, but thanks a lot to Michel, John, and the MetLife team.
Thank you.
Thank you.
Thank you, Ryan.