METLIFE INC annual report, FY2022

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Business context and reporting period

MetLife, Inc. filed this Form 10-K for the fiscal year ended December 31, 2022 (filed February 23, 2023). It is an annual report, not a standalone quarterly report. MetLife provides insurance, annuities, employee benefits and asset management through its U.S., Asia, Latin America, EMEA and MetLife Holdings segments, with additional results in Corporate & Other.

Financial results and key metrics

Unless stated otherwise, amounts are in U.S. dollars. Year-over-year comparisons are 2022 versus 2021.

  • Revenue: Total revenue was $69.9 billion, down from $71.1 billion. Premiums rose to $49.4 billion from $42.0 billion, while net investment income fell to $15.9 billion from $21.4 billion. The premium increase included a large U.S. pension risk transfer transaction.
  • Profit: Net income available to common shareholders was $2.354 billion, versus $6.353 billion. Diluted EPS was $2.91, versus $7.31. Adjusted earnings available to common shareholders, a non-GAAP measure, declined to $5.545 billion from $7.954 billion.
  • Drivers: Management cited lower returns on private equity and hedge funds, higher interest credited expense and higher expenses as drags on adjusted earnings. Favorable underwriting, including lower COVID-19-related claims, higher average invested assets and the 2022 actuarial assumption review partly offset the declines. Net investment losses were $1.262 billion, versus gains of $1.529 billion; net derivative losses were $2.372 billion, versus losses of $2.228 billion.
  • Margins: The filing does not state a conventional consolidated profit-margin target. Calculated net income available to common shareholders divided by total revenue was approximately 3.4% in 2022 versus 8.9% in 2021; this comparison reflects substantial investment and derivative volatility.
  • Cash flow: Net cash provided by operating activities was $13.204 billion, up from $12.596 billion. Free cash flow of all holding companies, a non-GAAP measure, was $4.666 billion versus $3.835 billion; the reported ratio to adjusted earnings available to common shareholders was 84% versus 48%.
  • Investments and equity: Total investments were $433.3 billion, down from $494.8 billion. Fixed maturity securities available-for-sale had $29.1 billion of net unrealized losses at year-end, mostly reflecting higher interest rates and wider credit spreads; 95.2% of the portfolio was investment grade. MetLife reported a comprehensive loss of $35.5 billion and total equity of $27.3 billion, down from $67.7 billion, primarily reflecting the large after-tax decline in unrealized investment gains recorded in accumulated other comprehensive income.
  • Debt and liquidity: Consolidated long-term debt was $14.6 billion, short-term debt $175 million, collateral financing arrangement $716 million and junior subordinated debt $3.2 billion. Cash and cash equivalents were $20.2 billion. Short-term liquidity was $16.4 billion and liquid assets were $180.4 billion. Holding companies had $5.4 billion of liquid assets, above the stated $3.0–$4.0 billion target.
  • Capital: MetLife’s internally calculated U.S. Statement-Based Combined RBC Ratio was above 340% at year-end 2022, compared with above 360% in 2021. The company reported that each U.S. insurance subsidiary subject to RBC requirements exceeded applicable regulatory action levels.

Material changes versus the prior comparable period

  • Adjusted premiums, fees and other revenues rose 17% to $57.4 billion; on a constant-currency basis, they increased 21%. Growth was led by U.S. Retirement and Income Solutions and Group Benefits, with Latin America also contributing.
  • Adjusted earnings available to common shareholders fell about 30%, from $7.954 billion to $5.545 billion. The largest cited pressure was a $3.4 billion decrease in adjusted earnings from market factors; favorable underwriting increased adjusted earnings by $1.1 billion.
  • Segment adjusted earnings declined in the U.S. ($3.0 billion from $3.2 billion), Asia ($1.4 billion from $2.3 billion), EMEA ($246 million from $301 million) and MetLife Holdings ($1.0 billion from $2.2 billion). Latin America improved to $761 million from $291 million. Corporate & Other’s adjusted loss available to common shareholders widened to $844 million from $399 million.
  • The fair value of fixed maturity securities available-for-sale declined to $276.8 billion from $340.3 billion. This contributed to the substantial movement in AOCI and reported equity; the filing states that the year-end unrealized losses did not, in management’s assessment, indicate credit losses requiring an allowance for the securities in a loss position without an existing allowance.

Outlook, management commentary, risks and unusual items

  • Outlook: Under stated economic assumptions, management targeted a two-year average annual free-cash-flow-to-adjusted-earnings ratio of 65%–75%, excluding total notable items, and raised its near-term adjusted return-on-equity target, excluding specified AOCI components, to 13%–15%. It expected to exceed its 2020–2024 goals of approximately $20 billion of free cash flow and an additional $1 billion for growth and innovation. These are targets, not guarantees.
  • Assumptions: Management expected interest rates to remain elevated relative to year-end 2022, assumed COVID-19 was endemic, and cited continued uncertainty around inflation and potential recession. It stated it did not expect material liquidity deficiencies and expected to comply with credit-agreement covenants.
  • Accounting change: MetLife adopted the long-duration contract accounting standard (LDTI) effective January 1, 2023. Before adoption, it estimated a January 1, 2021 transition-date reduction in total equity of approximately $22.5 billion, including $17.5 billion in AOCI and $5.0 billion in retained earnings, net of tax. The company said higher interest rates through year-end 2022 were expected to reverse the AOCI reduction fully and significantly reverse the retained-earnings reduction. Adoption may materially affect financial presentation and comparability.
  • Actuarial and other items: The 2022 annual actuarial assumption review produced a $75 million pre-tax gain in GAAP results; adjusted earnings included a $48 million after-tax gain from the review. Adjusted earnings also included a favorable U.S. reinsurance recapture and an unfavorable MetLife Holdings model-refinement charge.
  • Risks: Key exposures include interest rates and asset-liability mismatch, investment and credit losses, equity-market sensitivity of variable annuity guarantees, policyholder behavior and claims assumptions, foreign exchange, liquidity and collateral demands, reinsurance counterparty risk, regulation, litigation, cybersecurity and data privacy. The filing also identifies the transition from LIBOR, climate-related financial risks and geopolitical uncertainty, including the Russia-Ukraine conflict.
  • Contingencies: For matters where loss was reasonably possible but not probable, MetLife estimated aggregate reasonably possible losses in excess of accruals at $0–$125 million. Its asbestos-related liability was $320 million at year-end 2022, with approximately 58,073 claims pending. Management cautioned that litigation outcomes and ultimate asbestos exposure remain uncertain.
  • Other notable developments: MetLife completed the sales of its Greece and Poland subsidiaries in 2022 and increased its ownership in PNB MetLife India to approximately 47%. In February 2023, it agreed to acquire Raven Capital Management, subject to customary closing conditions. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; identified critical audit matters included Level 3 securities valuation, long-term-care reserves, embedded derivative liabilities and the LDTI transition estimate.

Important facts for investors to verify

  1. Reconcile GAAP net income with adjusted earnings and assess how investment and derivative volatility affected each measure.
  2. Review the effect of LDTI adoption on reported equity, earnings, reserves and year-over-year comparability.
  3. Assess the quality and sensitivity of the investment portfolio, including unrealized bond losses, private investments and commercial real estate exposure.
  4. Verify the sustainability of holding-company liquidity, subsidiary dividend capacity, capital ratios, debt maturities and share repurchases.
  5. Monitor long-term-care and variable-annuity guarantee assumptions, claims experience, reinsurance recoverables and the disclosed litigation and asbestos exposures.
  6. Compare performance with management’s cash-flow, adjusted-return-on-equity and expense targets, taking account of the assumptions and non-GAAP definitions used.