Ladies and gentlemen, we'd like to thank you for standing by and welcome to the MetLife Q3 2021 earnings release conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session with instructions to be given at that time. As a reminder, this conference is being recorded. Before we get started, I would refer you to the cautionary note about 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. The floor is yours, sir.
Thank you, operator. Good morning, everyone. Welcome to MetLife's third quarter 2021 earnings call. Before we begin, I refer you to the information on non-GAAP measures on the 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 discussions are other members of senior management. Last night we released a set of supplemental slides which address third quarter results. 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 additional disclosures, GAAP reconciliations, and other information which you should also review.
After prepared remarks, we will have a Q&A session that will extend to the top of the hour. In fairness to all participants, please limit yourself to one question and one follow-up. With that, over to Michel.
Thank you, John, and good morning, everyone. As I reflect on the journey MetLife has been on these past two years, I am more convinced than ever that we are focused on what matters most. We are a purpose-driven company at a time when stakeholders will accept nothing less. We have the right strategy to see us through even the most turbulent environments, and we have a strong culture of execution that gives our shareholders confidence. All of these attributes were on display in the third quarter of 2021. Starting with our financial results, adjusted earnings were $2.1 billion, up 31% year-over-year. Adjusted earnings per share were $2.39, up 38% year-over-year. Excluding total notable items in both periods, adjusted earnings were up 24% and adjusted EPS was up 31%.
Looking at the quarterly performance of the enterprise as a whole, variable investment income was outstanding, underlying PFOs were strong and expense discipline held firm. The main area where we have seen headwinds is from elevated COVID claims. In key respects, the third quarter of 2021 looks very much like the first quarter, with exceptionally strong VII more than offsetting excess mortality. On the investment side, our private equity portfolio returned $1.5 billion in Q3, its highest quarterly contribution in 2021, and a major contributor to VII, which was well above the top end of our implied quarterly guidance range. On underwriting in our U.S. business, the group life mortality ratio was elevated at 106.2% in Q3 on higher claim severity and frequency due to a shift younger in the age distribution of COVID deaths.
Our Latin America business incurred COVID losses of $137 million in Q3. Two aspects of our underwriting results are noteworthy. From a social perspective, paying COVID claims is precisely how life insurance companies make a positive difference in the world. The human toll of the pandemic on families is catastrophic, but where life insurance is present, the financial burden is eased. This is our purpose, to help repair the financial damage after life's most destabilizing moments. Pandemic to date in our U.S. group business, we've incurred U.S. life claims of around $2.1 billion. Life insurance is not like other businesses where losses are just losses. Every underwriting claim represents a beneficiary who is receiving the financial help they were promised.
From a financial perspective, even though our life businesses have been hit with the most severe pandemic in more than 100 years, they remain profitable. MetLife has actually paid out more in COVID-related claims in 2021 than we did in 2020, and yet our adjusted earnings per share are higher this year than last year, as is our adjusted return on equity. What has enhanced MetLife's capacity to pay outsized claims while still generating exceptional earnings is our strategic decision to allocate a prudent portion of our investment portfolio to private equity. While not a direct COVID offset, the valuation of our PE and VC funds with significant technology exposure has benefited from global capital flows to this growth sector. The return on our PE portfolio in the quarter was an outstanding 12.6% and stands at approximately 36% year- to- date.
The gains on our well-seasoned portfolio are not mere accounting marks. Year- to- date, we have received $1.9 billion in cash distributions from our PE funds. Since 2016, the figure is $7.6 billion. While we often reinvest PE cash proceeds as funds mature and terminate, the cash generated is steady and significant. Turning to the underlying performance of MetLife's businesses, we are seeing solid momentum. In U.S. Group Benefits, adjusted PFOs grew 13% year-over-year. Excluding Versant Health, PFO growth was 6.2% on strong jumbo sales and persistency, and we expect to end the year near the top end of our guidance range. In voluntary benefits, which for us consists of accident and health, legal plans, and pet insurance, we saw strong double-digit PFO growth in the third quarter. The trend in sales is even stronger.
Year- to- date, sales are up 40% over the prior period, and we remain on track for a record sales year. While group sales can fluctuate from year- to- year due to jumbo cases, we believe the robust U.S. job market and the competition for talent are creating a strong tailwind. In connection with open enrollment season this fall, we conducted consumer research on benefit preferences among millennials, who are now the largest age group cohort in the U.S. with more than 70 million members. Millennials are expressing strong interest in both traditional benefits such as life insurance and dental, and in voluntary benefits such as legal plans and pet insurance. Another top desire is for help with financial planning. MetLife entered this space in late September with a digital financial wellness tool called Upwise, which helps us connect with employees directly.
The app is designed to address the emotional barriers to financial progress and help people tackle debt, save more, or even create a digital will. Within our RIS business, after a quiet first three quarters, we have already booked four cases totaling $3.5 billion of pension risk transfer deals in the first month of the fourth quarter. Next Tuesday marks the 100th anniversary of the first group annuity contract MetLife ever wrote with the William Rudge Printing Company. We are pleased to be a leader in the business of helping companies honor the retirement promises they have made to their workers. Last month, MetLife released the results of our annual pension risk transfer poll. We only survey companies that want to de-risk.
Of the 253 respondents, nearly seven in 10 have pension plan assets of $500 million or more, and 93% intend to divest all of their defined benefit pension liabilities at some point in the future, up from 76% in 2019. Elsewhere in RIS, excluding PRTs from both periods, adjusted PFOs were up 70% year-over-year. There were two main drivers. The first was longevity reinsurance, a market we entered in the U.K. last year. The second was post-retirement benefits, where we take on blocks of retiree life insurance from employers. This is an attractive adjacency to our group business that plays to MetLife's competitive advantages. In Latin America, we delivered exceptional sales growth in the quarter, up 45% year-over-year on a constant currency basis.
In fact, sales were higher in Q3 2021 than they were in Q3 2019 before the COVID pandemic began. In most markets across the region, we saw double-digit growth in both sales and PFOs. Moving to cash and capital, MetLife ended the third quarter with $5.1 billion of cash at its holding companies. During the quarter, we paid $400 million in common stock dividends and repurchased $1 billion worth of outstanding common shares with another $233 million repurchased so far in Q4. We have $2.5 billion remaining on the $3 billion share repurchase authorization we announced in August. We are on track to return more than $5.5 billion of capital to shareholders in 2021, and we continue to strive for a balanced mix between business investment and capital return.
In 2020, for example, we returned $2.8 billion to shareholders and invested approximately $5 billion in organic growth and M&A. Our test for capital deployment remains consistent. Does it clear our risk-adjusted hurdle rate? As John will describe in greater detail, the new business we wrote in 2020, a period when interest rates were at all-time lows, was the most attractive of the past five years. It had the shortest payback period, the highest internal rate of return, and the highest value of new business relative to the amount of capital deployed. This was the natural outgrowth of our Accelerating Value initiative. By optimizing our portfolio of businesses, shifting our product mix to be more capital efficient, and fully embracing an efficiency mindset, we have consistently improved VNB over time, and it is now an integral part of our capital allocation process.
This year, in addition to organic growth, we increased the stake in our India joint venture, PNB MetLife, to 47% from 32%. India is one of the five secular growth markets we identified in our Next Horizon strategy. Consistent with that strategy, we are increasing our exposure to a market where PNB MetLife has access to more than 200 million customers across 15,000 sales locations. In September, we held an in-depth session with our board of directors to pressure test every aspect of our Next Horizon strategy. We've done this each year of my tenure as CEO. As representatives of our shareholders and shareholders themselves, our board challenged us to make sure we are positioned and on track to deliver on our goals. I believe the alignment between the board and management is as strong as it's ever been, and our shared commitments remain clear.
Focus on deploying capital to its best use, simplify the company to improve efficiency and the customer experience, and truly differentiate ourselves in the marketplace. Now I'll turn it over to John for a detailed review of our quarterly performance.
Thank you, Michel, and good morning. I will start with the 3Q 2021 supplemental slides which provide highlights of our financial performance, details of our annual global actuarial assumption review, and updates on our value of new business metrics and our cash and capital positions. Starting on Page 3, we provide a comparison of net income to adjusted earnings. Net income in the third quarter was $1.5 billion, or $541 million lower than adjusted earnings. Net derivative losses of $172 million were primarily driven by the strengthening of the U.S. dollar in the quarter. In addition, our actuarial assumption review accounted for $76 million of the variance between net income and adjusted earnings.
In total, the assumption review reduced net income by $216 million, including a notable item to adjusted earnings of $140 million. The table on Page 4 provides highlights of the actuarial assumption review with a breakdown of the adjusted earnings and net income impact by business segment. We have kept our U.S. mean reversion interest rate unchanged at 2.75% and maintain our long-term mortality assumptions despite the near-term impacts from COVID-19. Most of the net income impact was in MetLife Holdings and Asia. For MetLife Holdings, the primary driver was a refinement to the variable annuity lapse rate function to better reflect policyholder behavior based on withdrawal status. In Asia, the largest impact was due to the lowering of the earned rate assumption in Japan, where we assume current earned rates for a long-term rate assumption.
On Page 5 , you can see the year-over-year comparison of adjusted earnings by segment, excluding notable items in both periods. Adjusted earnings, excluding notable items, were $2.2 billion, up 24% and up 23% on a constant currency basis, primarily driven by strong returns in our private equity portfolio. Adjusted earnings per share, excluding notable items, was $2.56, up 31% year-over-year on both a reported and constant currency basis, aided by capital management. Moving to the businesses, starting with the U.S. Group Benefits adjusted earnings were down 72% year-over-year, driven by unfavorable underwriting margins in Group Life, which I'll discuss in more detail shortly.
Regarding non-medical health, the interest adjusted benefit ratio was 70.7% in 3Q 2021, at the low end of its annual target range of 70%-75%, but higher than the prior- year quarter of 67.4%, which benefited from extremely low dental utilization and favorable disability incidents. Volume growth, the addition of Versant Health, and favorable expense margins were partial offsets to the decline in year-over-year results. Group Benefits continues to have strong top-line growth. Year-to-date sales were up 40%, primarily due to higher jumbo case activity. Adjusted PFOs in the quarter were up 13% year-over-year, driven by solid volume growth across most products, including voluntary and the addition of Versant Health. Retirement and Income Solutions, or RIS, adjusted earnings were up 60% year-over-year.
The primary driver was higher variable investment income, largely due to strong private equity returns. Favorable underwriting margins and volume growth also contributed to year-over-year performance. RIS investment spreads were 256 basis points, up 100 basis points year- over- year due to higher variable investment income. Spreads, excluding VII, were 93 basis points, down 5 basis points year- over- year and sequentially, primarily due to lower paydowns in our portfolios of residential mortgage-backed securities and residential mortgage loans. RIS liability exposures, including U.K. longevity reinsurance, increased 4% year-o ver- year due to solid volume growth across the product portfolio. With regards to pension risk transfers, as Michel noted, we have already completed $3.5 billion of transactions in the fourth quarter and continue to see an active market.
Moving to Asia, adjusted earnings were up 31% on both a reported and constant currency basis, primarily due to higher variable investment income. Asia's solid volume growth also contributed to the strong performance, driven by higher general account assets under management on an amortized cost basis, which were up 7% on a constant currency basis. Lower accident and health utilization in the prior period was a partial offset. Asia sales were down 12% year- over- year on a constant currency basis, reflecting pressure from COVID-related lockdowns in the region. Asia year-to-date sales were up 10% on a constant currency basis and remain on target to achieve double-digit growth in 2021. Latin America adjusted earnings were down 35% and down 38% on a constant currency basis, primarily driven by unfavorable underwriting margins due to elevated COVID-19 related claims, mainly in Mexico.
The impact to Latin America's third quarter adjusted earnings was approximately $137 million. While the situation remains fluid, we have seen COVID-related hospitalizations and deaths in Latin America significantly decline in October. Favorable investment and expense margins, as well as lower taxes versus the prior- year quarter, were partial offsets. While Latin America's adjusted earnings have been pressured by elevated COVID-19 related claims, sales and persistency throughout the region remain strong. Latin America adjusted PFOs were up 22% year-over-year on a constant currency basis, and sales were up 45% on a constant currency basis, driven by solid growth across most markets. EMEA adjusted earnings were up 20% on both a reported and constant currency basis, primarily driven by volume growth across the region and favorable underwriting margins, primarily in the Gulf.
We expect EMEA adjusted earnings to decline in the fourth quarter due to the timing of certain technology investments across the region. EMEA adjusted PFOs were down 2% on a constant currency basis, and sales were down 5% on a constant currency basis, reflecting divested businesses, partially offset by growth in Turkey and Europe. MetLife Holdings adjusted earnings, excluding notable items in both periods, were up $271 million year-over-year. The increase was primarily driven by strong private equity returns. Underwriting margins did reflect higher life claim severity than expected during the third quarter of 2021. However, the life interest adjusted benefit ratio of 53.3% was within our annual target range of 50%-55%.
In addition, LTC new claims returned to more normal levels in the quarter versus very low new claim submissions in the prior- year quarter. Corporate and other adjusted loss was $131 million in both periods. Lower tax benefits were mostly offset by higher net investment income year-o ver- year. The company's effective tax rate on adjusted earnings in the quarter was 20.6% and within our 2021 guidance range of 20%-22%. Now I'll provide more detail on Group Benefits mortality results on Page 6. This chart reflects our group life mortality ratio for the first three quarters of 2021, including the COVID-19 impact on the ratio and on Group Benefits adjusted earnings.
Group Life mortality ratio is 106.2% in the third quarter of 2021, which is well above our annual target range of 85%-90%. COVID-reported claims have reduced Group Benefits adjusted earnings by approximately $290 million. The primary drivers were higher claim frequency and severity. Approximately 40% of U.S. COVID deaths in the quarter were under age 65, about double the rate of the first quarter of this year and the highest percentage in any quarter since the pandemic began, and therefore, having a greater proportional impact on the working age population. In addition, we estimate that the quarter included roughly one to two incremental percentage points impact on the mortality ratio from claims that appear to be COVID related but were not specifically identified as COVID on the death certificate.
Despite the impact from COVID, Group Benefits remains a profitable and growing business for MetLife. Group Benefits reported adjusted earnings are roughly $450 million year- to- date, an adjusted PFO growth of 13%. Now let's turn to Page 7 . This chart reflects our pre-tax variable investment income over the last five quarters, including approximately $1.8 billion in the third quarter. This very strong result was mostly attributable to the private equity portfolio, which had a 12.6% return in the quarter. As we have previously discussed, the private equities are generally accounted for on a one-quarter lag.
While all private equity asset classes performed well in the quarter, our venture capital funds, which account for roughly 23% of our PE account balance of $12.8 billion, were the strongest performer across subsectors with a roughly 18% quarterly return. Page 8 highlights VII by segment for the first three quarters of 2021, including $1.4 billion post-tax in the third quarter. The attribution of VII by business is based on the quarterly returns for each segment's individual portfolio. As we have previously noted, RIS, MetLife Holdings, and Asia generally account for 90% or more of the total VII and are split roughly one-third each, although it can vary from quarter- to- quarter.
The VII results in the quarter were more heavily weighted towards RIS and MetLife Holdings as Asia's private equity portfolio is less mature and has a smaller proportion of venture capital funds I referenced earlier. Turning to Page 9, this chart shows our direct expense ratio over the prior five quarters and full- year 2020, including 11.1% in the third quarter of 2021. We have highlighted previously, we believe our full-y ear direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our third quarter direct expense ratio benefited from solid top-line growth and ongoing expense discipline. This did include approximately 20 basis points from premiums that relate to participating cases and 20 basis points from a single premium group life sale in RIS.
In addition, the impact from seasonal enrollment costs and timing of certain technology investments are expected to be more heavily weighted to the fourth quarter. Therefore, we do expect the direct expense ratio to be elevated in Q4. Now let's turn to Page 10. This chart reflects new business value metrics from MetLife's major segments for the past five years, including an update for 2020. Consistent with our Next Horizon strategy, we continue to have a relentless focus on deploying capital and resources to the highest value opportunities. As evidence of that commitment, MetLife invested $3.2 billion of capital in 2020 to support new business, which was deployed at an average unlevered IRR of approximately 17% with a payback period of six years.
New business written in 2020 reflects our disciplined approach to building profitable growth while creating value, generating cash, and mitigating risk. Despite the sales challenges in 2020 associated with lockdowns related to the pandemic, we were able to increase our value of new business and IRR while lowering our cash payback period versus 2019. Now I'll discuss our cash and capital position on Page 11. Cash and liquid assets at the holding companies were $5.1 billion as of September 30th, which is down from $6.5 billion at June 30th, but still well above our target cash buffer of $3 billion-$4 billion.
The sequential decrease in cash at the holding companies includes the net effects of share repurchases of $1 billion, payment of our common stock dividend of roughly $400 million, subsidiary dividends, as well as holding company expenses and other cash flows. In addition, we had a long-term debt repayment of $500 million in the third quarter. Our next long-term debt maturity is not until September 2023. Next, I would like to provide you with an update on our capital position. For our U.S. companies, preliminary third quarter year-to-date 2021 statutory operating earnings were approximately $4 billion, while net income was approximately $3 billion. Statutory operating earnings increased by approximately $1 billion year-over-year, primarily driven by higher variable investment income and lower variable annuity rider reserves.
Year-to-date 2021 net income increased by roughly $400 million as compared to the first nine months of 2020. The primary drivers were higher operating earnings and net investment gains, which was partially offset by derivative losses. We estimate that our total U.S. statutory adjusted capital was approximately $19.7 billion as of September 30th, 2021, up 16% compared to December 31st, 2020. Favorable operating earnings and net investment gains were partially offset by derivative losses and dividends paid to the holding company. Finally, the Japan solvency margin ratio was 960 as of June 30th, which is the latest public data. In summary, MetLife delivered another very strong quarter driven by exceptional private equity returns, solid top-line growth, ongoing expense discipline, and the benefits of our diverse set of market-leading businesses and capabilities.
While earnings power of our Group Benefits in Latin America businesses has been dampened by COVID-19 excess mortality, we are pleased with the momentum behind these market-leading franchises. 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.
Ladies and gentlemen, we'll now begin the question and- answer session of today's conference. If you wish to ask a question, please depress the one followed by the zero on your touch- tone phone. You'll hear a tone indicating that you've placed yourself in queue, and all questions will be pulled in the order they are received. You may remove yourself at any time by once again depressing the one followed by the zero on your touch- tone phone. If you're using a speaker phone, please pick up your handset before depressing the keys. Our first question will come from the line of Ryan Krueger of KBW. Please go ahead.
Hi, good morning. I was hoping you could provide a little bit more detail on your group non-medical health claim trends in the quarter. I guess in particular, and I know disability is a bit smaller for you, but, you know, some companies have had weaker disability results, and it sounds like yours held up pretty well. I appreciate any detail you can provide.
Good morning, Ryan. It's Ramy here. On the disability front, as you noted, it's relative to our premium, it's about 12% of our overall PFOs in group
I can give you some color based on both the LTD and the STD portions of the book. For the LTD side, what we saw is an incidence rate this quarter that's much more in line with our historical norms. It was higher than last year, but last year was a favorable incidence year from a disability perspective. We're seeing it tick back to where it was historically from a frequency perspective. The recoveries continue to be up pretty strong. The other thing I would add there on the LTD side is so far we have not seen any significant impact on the business from kind of COVID or long COVID effect. Neither have we seen any material impacts from the overall economy.
It's been pretty much a return to pre-pandemic levels as far as the LTD book. For the STD side, it's a bit different. Think about that 12% of disability premium. Two-thirds of it is sitting in the LTD, only a 1/3 of it sits in the STD. Then for that one-third that's in STD, about half of those employees are comprised of ASO-only business. We are administering the disability claims, but not on the hook for the actual claims themselves. While for the STD portion, we have seen and continue to see elevated STD COVID claims, their actual impact on the non-medical health ratios is pretty de minimis given the composition of our book and the ASO exposure.
Great. That was helpful. Thank you. You've had some benefit from RMBS paydowns in RIS. How should we think about the ongoing impact of that or what's left of it from here?
Good morning, Ryan. It's John. Yeah, obviously, RIS spreads, I think overall have been just a beneficiary of just the excellent performance here in private equity portfolio. We saw that continue in this quarter. You're referencing after excluding VII that, you know, spreads have remained resilient at 93 basis points, although a 5 basis point decline from second quarter. Pretty much in line with what we set back 90 days ago. You know, you're referencing that continued elevated levels of paydown activity on the residential mortgage book, and that accelerates the income from those securities or loans that we purchased at a discount. As we said, you know, we believe we've seen the peak of that, and so that 5 basis point runoff was generally expected.
We would expect that to continue into 4Q and, you know, kind of start to make its way down. I think kind of a similar trajectory seems reasonable at this point.
Got it. Thank you very much.
Our next question will come from the line of Erik Bass of Autonomous Research. Please go ahead.
Hi, thank you. We've seen more enforced block transactions over the past quarter with sellers getting pretty attractive multiples, and it seems like there's plenty of buyer interest in the types of liabilities you have. Now there are some potential counterparties that have New York entities, so I'm curious if you're getting more optimistic about finding a transaction that could potentially unlock value in portions of your MetLife Holdings blocks.
Good morning, Erik Bass. It's John. I'd say the short answer is yes. If the question is, are we getting more optimistic? Yes. We are seeing what you're referencing as well. I think the supplier and buyer base is continuing to remain, I'd say, robust. I think our team continues to work and take a third-party view and do the analytics around our portfolio. As I've talked about before, you know, quite a bit of it is thinking about what is of interest to different buyers. It differs. Not everyone is thinking the same way or have they, you know. Buyers have different tools for creating value. We have to think through that and think about our situation as well and how we would optimize from our end.
I think there is a you know a puzzle to put together there to think through how to best optimize a situation like that. As we've talked about before, we're not gonna do something at any cost, but we are continuing to look at things to optimize and accelerate the release of reserves and capital appropriately. I think that's. You know, we're still on track with that.
Great. Thank you. Second, I was hoping you could give some perspective on what's going on in Chile and the potential implications for your business. I guess specifically, what are the different proposals that are out there for the AFP system from the leading presidential candidates? Do you see risk of significant change to that business following the election? Also, hoping you could talk about the early annuity payouts issues that's been covered in the press and whether that's material for you at all.
Yeah. Hi, Erik. It's Michel here. So let me give you some comments, and then we'll see if Erik would wanna add anything. You know, the pension system in Chile has been subject to public debate for a number of years now, I would say, and that debate tends to heat up around elections.
You know, one thing I would say is that despite the, you know, general perception to the contrary, if you think about the pension system, I mean, it's functioned quite well and the returns have been quite good as well for the industry as a whole. You know, the problem with the system is that, you know, due to inconsistent contributions, the fact that you have widespread informal labor in Chile, and the contribution rates are low, you know, that's led to sort of low projected replacement rates at retirement. You know, the debate is continuing now, with presidential elections. Round one is in late November, and then you'll have the second round in December. Different candidates are taking very different views.
You know, some are supportive of the system, you know, others are in favor of radical reform. We'd have to see how that plays out. You know, the other thing that's happening in Chile is that you know, there's a redrafting of the Constitution that's taking place that's going to play out, you know, next year as well. You know, we'll see what comes out of that. You know, we are very much engaged with the local authorities. We have great relationships in Chile. We're a leading player there, as you know. We're also, you know, in collaboration with the industry, making sure that, you know, our point of view is, you know, being heard and hopefully addressed as well.
Look, you know, we're in favor of reform that makes sense for the participants in the system that protects their retirement. We are also cautioning against any measures that ultimately would damage you know Chile's capital markets as well as you know investor perceptions of the you know Chilean Chile as an investment destination. You know, we continue to be engaged. You know, as you know, there's been three rounds of withdrawals already. There's another proposal for a fourth round of pension withdrawals. You know, we'll see whether that gets passed or not.
You know, clearly if it does, whereas, you know, these withdrawals don't have a material impact on earnings, you know, they, you know, the damage, sort of the viability of the system, if you like, which is something that we are, you know, we advocate against. Then on the annuities front that you referenced, you know, this, there's been one withdrawal there. Again, we don't know if there'll be another one. I think probably our view is that the likelihood of that is not, you know, very high, but we'd have to wait and see. I mean, all in all, our pension business is 2% of MetLife's overall earnings.
you know, our view is that, you know, we continue to engage, we continue to keep a close eye on the situation, and, you know, we'll have to see how this plays out over the coming, you know, weeks and months. Anything to add, Erik?
Nope. I think you covered it.
I hope that sort of answers the question, Erik.
Yes. Appreciate the perspective. Thank you.
Our next question comes from the line of Jimmy Bhullar of JP Morgan. Please go ahead.
Hi. Good morning. Just had a question on the group business. If you can talk about what you're seeing in terms of claims utilization, both frequency and severity in your dental book?
Sure, Jimmy, it's Ramy here. I would say the dental story is very much a return to pre-pandemic utilization. So if you look at the quarter-over-quarter results, 2020 was exceptionally low in terms of dental utilization. We've seen that come back to normal levels. Q3 tends to be seasonally lower, so Q4 tends to kind of slightly tick up typically in terms of the dental business. So very much kind of a return to normal. I would say if you look at the overall ratio or non-medical health ratio, and our expectation right now is that for the full- year, we're going to get a ratio that's you know very close to the midpoint of our range.
On the accounting changes, can you talk about where you are internally, on sort of the process of figuring out what the impact will be on MetLife? Relatedly, when do you think you'll start quantifying the impact, and sharing it with the investment community?
Hey, good morning, Jimmy. It's John. We are well underway on our implementation work. Progress continues, and I'd say continue to be on target for implementation come 1/1/2023. You know, we're in the process of evaluating transition amounts and ongoing impacts of the new guidance. I'd say our plan is still intact, which would be kind of a mid-2022 timeframe, give or take, for disclosing and, you know, kind of sharing, you know, how to think about the transition and the insights you should draw upon this.
Again, I'd remind everyone that ultimately economics, cash flow, pricing. A product does not change, and I think, you know, we're working well with the industry to think through how we collectively transition ourselves and kind of explain the results, and I think that's, you know, going well. At this point, I'd say nothing has caused us to feel the need to change the timeline.
Have you had conversations with the rating agencies on how they would view? Obviously, they focus on cash flows and stat as well, but they do look at GAAP also. Do you think there will be changes? Because a lot of your GAAP ratios would obviously end up changing once the rules are implemented.
Yeah. We've had periodic discussions with them over time. I think the rating agencies get it. You know, not everything's changing. When you say ratios, not all ratios are changing. I mean, our group business ratios won't change. You know, I think it's not all businesses. It's not all products. I think, you know, it's there will be certain unique circumstances that will arise in certain books. In general, I think you know, my assessment is that they have a very balanced, methodical way of thinking about it, and they recognize the fact that, you know, economics, cash flow, and pricing of products is not changing.
Okay. Thank you.
Our next question will come from the line of Tom Gallagher of Evercore ISI. Please go ahead.
Yeah, good morning, John. Just to follow up on Erik's question on risk transfer, would you say are variable annuities the priority, or are you looking broader that might include life insurance and fixed annuities? And just a related question, does your New York domicile limit the types of counterparties that you might transact with? Or would you say it's still a pretty robust list, as you're thinking about things that would be in a potential auction bidding situation?
Hey, good morning, Tom. I would say the answer to the first question would be we're open to, you know, all blocks of business that create value for us. I think a lot of different aspects go into value creation when it comes to that question. I don't think it's one focus or another. I would say probably the only one I could probably scope out or say is less likely is LTC, just given-
Right
... where bid-ask spreads are these days. I'd say, you know, markets are evolving on all the other ones. Then you have to look at your own, you know, kind of situation or to think about the benefits we get from having them in our New York domiciled entity. That's how we would kind of frame. I wouldn't exclude anything outside of, let's say, LTC, just given where I think, you know, pricing is. There's a pretty big divergence in what people think at this point. On the other aspect of counterparty, I would say we come at it probably the same way that our New York domiciled partners would come at it, as well.
I don't know if it changes who or how we would do a transaction. I think we probably take somewhat of a similar construct, 'cause at the end of the day, you know, our situation would be a reinsurance transaction from the New York domiciled entity, and so, you know, credit risk would matter. You know, structure can help with that as well, but I don't think it excludes anything per se. That would be a strong consideration.
Okay. Okay, thanks. Just one quick one. Long-term care claims, you said, returned to more normal levels this quarter. Was that on both claim frequency and severity? Because and the reason-
Uh-huh
What I ask is, you know, there's clearly, from what we've heard from others, been a shift away from skilled nursing facility care to home healthcare, which has lowered severity. I'm just curious if you have that level of detail for how that's trending right now.
Yeah, sure. Good question, Tom, 'cause you're right. It had shifted. I mean, it quite honestly, every metric has shifted back to pre-pandemic levels. I mean, we maybe were off slightly on the relationship of in-home versus external care. It's very close. It's very close to being pre-pandemic.
Okay, thanks.
Our next question will come from the line of Humphrey Lee of Dowling & Partners. Please go ahead.
Good morning, and thank you for taking my questions. Related to EMEA, you talked about there are some favorable items in the quarter and expect fourth quarter to trend down, along with some of the high expenses. Is there any way to help us think about what would be the kind of run rate earnings for EMEA?
Yeah. Good morning. Good morning, Humphrey. Yeah, we had a very strong Q3. I would say a number of items went in one direction that caused us to have a very strong result in Q3. You know, as we think about quantification of that, you know, you could put it in the area of call it $20 million-$25 million, give or take. As I said in my prepared remarks, you know, we'd expect some elevated technology investments in the fourth quarter. I'll give you some data points. I'm not so sure I'll give you anything outside of that, but that should probably help you kind of frame your modeling.
Got it. In terms of the overall kind of expenses for the company, is the 12.3% for the full- year still an appropriate way to think about the expenses for 2021?
Yeah. I would say we continue to focus on the full- year. That's our target to be under 12.3% full- year. Obviously, we've been running well below that. I mentioned that we would expect to have elevated expenses in the fourth quarter. You know, quite honestly, it's not much different than the trend you saw a year ago in terms of how things transpired for most of the year, and then we saw an uptick. You know, if we're above 12.3% in the fourth quarter by a bit, that would not be a surprise per se, but that's not our focus. I'm just using that as an example when you talk about the 12.3%. What's important to us is the 12.3% for the full- year.
You know, that's kind of our mindset when we think about our expense ratio, and we continue to anticipate to be under that on a full- year basis.
Understood. Thank you.
Our next question will come from the line of John Barnidge of Piper Sandler. Please go ahead.
An increased COVID impact on the Group Life business, is there a need to increase administrative expenses to deal with the enduring nature of the pandemic at all?
Hey John, it's Ramy here. The expense ratio on a life business is pretty small. The real issue is not operations or expenses. The real issue and the challenge you're seeing is just the claims front. It's not really an expense issue at all at this point.
Okay. Would it be fair to say if the seasonal increase in the direct expense ratio overall, obviously above 12.3% seems fair to come in well below 12% for the year, would there be a reevaluation of it longer term, possibly? Thank you.
Hey, John, it's Ramy again here. I just wanna maybe also further clarify. I wasn't sure with the intent of your question. With respect to what's going to change and what is changing on the life side is pricing. We did talk about this the last quarter. We have and we continue to make rate adjustments in the Group Life business in line with our prospective view of the pandemic. It's not operations related, it's related to the underwriting and the mortality. As you look at the upcoming renewal season, we have been able to achieve rate adjustments and rate increases in line with our prospective view of mortality while maintaining pretty strong persistency in our book. That's gonna be an ongoing process that we're undertaking.
That's kind of what's changing, if you will, with respect to the Group Life piece.
Yeah. Then I can take the second question you had, John. This is John as well. Yeah. Look, our target is 12.3. You said, is it possible? Sure, anything's possible, I guess. Ultimately, you know, we are kinda steadfast on, you know, being at or below 12.3. Again, what we also are trying to do is shift the mix of expenses that are within our expense base and continue to drive savings and capacity for reinvestment. We wanna maintain being at or below 12.3% on a persistent basis every year. At the same time, we wanna continue to drive efficiencies that free up, you know, the allocation of resources to invest in the customer, invest in our processes, and to continue to drive growth for the firm.
At the same time, if we see headwinds in an economy, we can use that capacity as a protection for profit margin. That's kind of our philosophy when it comes to our efficiency mindset, and I'd say, you know, nothing would kinda take us off that track at this point.
Thank you for the answer.
There are no further questions in queue at this time. I would now like to turn the conference back over to our CEO, Michel Khalaf, for any closing remarks. Please go ahead, sir.
Great. Thank you, operator. While the third quarter had outsized PE returns and COVID claims, we believe the underlying performance of our business demonstrates the enduring strength and growth potential of the MetLife Global Insurance franchise. Although the pandemic continues to create uncertainty, I am confident in our ability to continue to execute and create long-term shareholder value for shareholders. Have a great day.
Ladies and gentlemen, that does conclude our conference call for today. On behalf of today's panel, we'd like to thank you for your participation in today's earnings call, and thank you for using our service. Have a wonderful day. You may now disconnect.