MetLife, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results are presented under U.S. GAAP; 2022 comparative results were revised for adoption of long-duration targeted improvements (LDTI). MetLife provides insurance, annuities, employee benefits and asset management through U.S., Asia, Latin America, EMEA and MetLife Holdings segments.
Financial performance and position
Amounts below are in millions except per-share data. Adjusted earnings are non-GAAP and should not be treated as a substitute for GAAP net income.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenues | $16,623 | $15,474 | $32,011 | $30,879 |
| Net income attributable to MetLife | $402 | $910 | $482 | $2,544 |
| Net income available to common shareholders | $370 | $881 | $384 | $2,452 |
| Diluted EPS | $0.48 | $1.08 | $0.50 | $2.98 |
| Adjusted earnings available to common shareholders | $1,492 | $1,738 | $2,676 | $3,433 |
- Q2 net investment income was $5,072, up from $3,583; net investment losses were $1,039 and net derivative losses were $997.
- Q2 expenses were $16,193 versus $14,486; interest credited to policyholder account balances rose to $1,933 from $527. The reported pre-tax income margin was approximately 2.6% of revenue, versus 6.4% a year earlier.
- Six-month operating cash flow was $5,064, compared with $6,433. Investing activities used $7,850; financing activities used $1,916. Cash and equivalents ended at $15,417, down $4,778 from year-end 2022.
- At June 30, total assets were $677,279, total liabilities $646,787 and total equity $30,492. Investments totaled $450,948. Long-term debt was $14,539, short-term debt $200 and junior subordinated debt $3,160.
- Management reported short-term liquidity of $14.9 billion and liquid assets of $181.1 billion. MetLife, Inc. and other holding companies together held $4.2 billion of liquid assets. The $3.0 billion revolving credit facility had no borrowings and $2.7 billion of remaining availability.
Material changes versus comparable periods
- GAAP common-shareholder income fell $511 million in Q2 and $2.1 billion for the first half. Adjusted common-shareholder earnings declined $246 million in Q2 and $757 million for the first half.
- Higher investment income supported revenue, but investment losses and market-sensitive accounting remained significant. For the six months, net investment losses were $1,723 versus $1,199; derivative losses narrowed to $1,087 from $1,921. Market risk benefit remeasurement gains were smaller than in 2022, at $629 versus $2,197.
- Management attributed lower first-half adjusted earnings principally to weaker private-equity and real-estate fund returns and higher crediting rates. Lower COVID-19 claims supported underwriting results, particularly in the U.S.; higher expenses were a headwind.
- Segment adjusted earnings for the first half increased in the U.S. ($1,496 versus $1,443), Latin America ($434 versus $386) and EMEA ($130 versus $121), and declined in Asia ($711 versus $1,085) and MetLife Holdings ($369 versus $730).
- Net unrealized investment losses on available-for-sale fixed maturities were $23.2 billion at June 30, compared with $29.3 billion at year-end. The filing says gross unrealized losses on securities without a credit-loss allowance declined during the first half; management concluded those securities had not incurred credit losses and did not intend, or expect to be required, to sell them before recovery.
Outlook, risks and unusual items
- MetLife expects adjusted premiums, fees and other revenues in the run-off MetLife Holdings segment to decline approximately 12%–14% in 2023 and 6%–8% annually in 2024 and beyond. The filing provides no company-wide earnings guidance.
- In May, MetLife agreed to reinsure approximately $17.0 billion of MetLife Holdings liabilities with Global Atlantic subsidiaries. The transaction is expected to close in the second half of 2023, subject to regulatory approvals and other conditions. Assets supporting general-account liabilities will transfer, reduced by an approximately $2.3 billion pre-tax ceding commission; MetLife will retain approximately $5.5 billion of separate-account assets under modified coinsurance. Related investment impairments were recorded in Q2.
- Management cited inflation, interest-rate and credit-market changes, banking-sector volatility, geopolitical uncertainty, foreign-exchange movements, and continuing pandemic effects as factors that could affect investments, liabilities and derivatives. Market-risk sensitivities estimate potential fair-value losses of $9.4 billion for a 100-basis-point rate increase, $2.2 billion for a 10% U.S.-dollar appreciation, and $87 million for a 10% equity-price decline; these are model estimates, not forecasts.
- Mortgage loans increased to $93.0 billion, with a $724 million credit-loss allowance versus $527 million at year-end. Management reported 99% of mortgage loans as performing. Commercial real estate is a notable exposure: office loans represented 38.3% of net commercial mortgage amortized cost, and average commercial-loan DSCR declined to 2.3x from 2.6x.
- Litigation and regulatory matters remain uncertain. The estimated aggregate reasonably possible loss beyond accruals for matters where a range could be estimated was $0–$125 million; other matters, including asbestos claims, could not be quantified clearly. Management said adverse outcomes could materially affect individual-period income or cash flows, but did not expect such charges to materially affect financial position.
- A second-quarter correction changed certain mortgage cash-flow transfers from sale accounting to secured-borrowing accounting; management said it did not change economic exposure or key financial reporting metrics and prior periods were not revised. The company adopted LDTI effective January 1, 2023, with a January 1, 2021 transition date, changing insurance-liability measurement and presentation.
- Disclosure controls were deemed effective, and the filing reported no material change in internal control over financial reporting during the quarter. MetLife stated there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Closing conditions, approvals, final economics and capital/liquidity effects of the Global Atlantic reinsurance transaction, including the ceding commission and recorded impairments.
- Whether adjusted earnings recover from first-half weakness, particularly in Asia and MetLife Holdings, and whether investment-fund returns and interest-crediting costs improve.
- Mortgage-credit trends, especially office exposure, changes in commercial DSCR and loan-to-value measures, and growth in the allowance for credit losses.
- Holding-company liquidity, subsidiary dividend capacity, statutory capital and regulatory constraints on the announced share-repurchase authorization and dividends.
- Developments in asbestos and other litigation, the unquantified contingency exposure, and any changes to the $0–$125 million estimated reasonably possible loss range.
- Comparability of reported earnings and equity across periods following LDTI adoption; assess GAAP results alongside, not solely through, management’s non-GAAP adjusted earnings measure.