01—Abstract
Summary
Summary of the 10-K filed February 23, 2023. Cited figures are marked; the original filing is the authoritative source.
MetLife (MET) closed 2022 with a sharp drop in GAAP earnings and equity, driven by market forces rather than operating deterioration.
Net income available to common shareholders fell to $2.35 billiona from $6.35 billion, and adjusted earnings available to common shareholders fell 30% to $5.5 billion. The main drags were lower private equity and hedge fund returns, higher interest credited expense, and higher corporate expenses. Net investment gains turned to a $1.26 billion loss, and net derivative losses reached $2.37 billion as long-term interest rates rose sharply.
Underwriting was favorable, with COVID-19 claims declining, and the U.S. segment grew adjusted premiums by 32%, largely from pension risk transfer business in RIS. The balance sheet absorbed a steep rise in interest rates. Accumulated other comprehensive income swung to a $27.1 billionb loss from a $10.9 billion gain, pulling total MetLife, Inc. stockholders' equity down to $27.0 billion from $67.5 billion.
Management reports $5.4 billionc of holding company liquid assets, above its $3.0 to $4.0 billion target, and a free cash flow to adjusted earnings ratio of 84%. Shareholder returns continued, with $3.3 billion of buybacks and $1.6 billion of common dividends, and $1.2 billion of authorization remaining. The most important forward-looking item is the January 1, 2023 adoption of LDTI (ASU 2018-12).
Management expects a roughly $22.5 billiond reduction to total equity as of the January 1, 2021 transition date, including about $17.5 billion through AOCI and about $5.0 billion through retained earnings. Management also raised its adjusted return on equity target to 13% to 15% and set a 12.6% direct expense ratio target, and it flags continuing risks from interest rates, LIBOR transition, the Japan and Chile pension reform environments, and the asbestos and unclaimed property litigation.
02—Key points
Key Highlights
- Adjusted earnings available to common shareholders fell $2.4 billion (about 30%) to $5.5 billion, driven by lower private equity and hedge fund returns, higher interest credited expense, and higher corporate expenses
- GAAP net income available to common shareholders fell to $2.35 billion from $6.35 billion, with a $2.8 billion unfavorable swing in net investment gains (losses) and a $144 million unfavorable change in net derivative losses
- Total MetLife, Inc. stockholders' equity fell to $27.0 billion from $67.5 billion as AOCI swung to a $27.1 billion loss on rising interest rates
- Expected LDTI adoption on January 1, 2023 is estimated to reduce total equity by about $22.5 billion as of the January 1, 2021 transition date, with roughly $5.0 billion through retained earnings and $17.5 billion through AOCI
- Management raised its near-term adjusted return on equity target to 13% to 15% (excluding AOCI other than FCTA) and expects free cash flow of 65% to 75% of adjusted earnings over the two-year average
- U.S. segment adjusted premiums, fees and other revenues grew 32%, mainly from a large 2022 pension risk transfer transaction in RIS and growth in Group Benefits
- Capital return remained active with $3.3 billion of share repurchases and $1.6 billion of common dividends, with $1.2 billion of authorization remaining at year end; holding company liquid assets were $5.4 billion, above the $3.0 to $4.0 billion target
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 23, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $68.77B$68.70B | +0.1% |
| Operating Expenses | $11.86B$12.02B | −1.3% |
| Operating Income | $5.98B— | — |
| Interest Expense | $655.00M$647.00M | +1.2% |
| Net Income | $5.30B$6.88B | −22.9% |
| EPS (Basic) | $6.35$7.71 | −17.6% |
| EPS (Diluted) | $6.30$7.65 | −17.6% |
| Shares Outstanding (Basic) | 803.20M862.70M | −6.9% |
| Shares Outstanding (Diluted) | 808.90M869.40M | −7.0% |
05—Questions
Frequently Asked Questions
Why did MetLife's earnings decline so sharply in 2022?
Most of the decline came from market-driven items rather than underwriting. Lower equity markets reduced returns on private equity and hedge funds, which cut net investment income. Rising long-term interest rates produced unfavorable derivative results and a $2.8 billion swing in net investment gains (losses), mainly from losses on fixed maturity sales. Higher interest credited expense also reduced adjusted earnings. Underwriting was favorable because COVID-19 claims declined.
How significant is the LDTI accounting change for MetLife's reported equity?
Very significant for reported book equity. Management estimates a roughly $22.5 billion decrease in total equity at the January 1, 2021 transition date, consisting of about $17.5 billion through AOCI and about $5.0 billion through retained earnings. Management also states that as of December 31, 2022, the retained earnings reduction is expected to reverse significantly and the AOCI reduction to fully reverse, because interest rates rose after the transition date. This change affects reported equity and book value, not necessarily economic value or cash flow.
Is MetLife's capital position and liquidity under pressure?
Management characterizes liquidity as strong. It reports $5.4 billion of holding company liquid assets, above its target, and expects to maintain the target in 2023. Free cash flow of all holding companies was $4.7 billion, or 84% of adjusted earnings available to common shareholders. The U.S. statutory RBC ratios remain well above company action levels, with the Statement-Based Combined RBC Ratio above 340%. Dividend capacity from subsidiaries and the Series A preferred and junior subordinated debt dividend stopper provisions are the main constraints on capital returns.
What are the key risks investors should monitor from this filing?
Key risks include continued interest rate volatility, which affects derivative results, investment spreads, and the value of fixed income assets; credit spread widening; equity market declines affecting variable annuity guarantees and alternative investment income; and sovereign and pension reform risk in Japan and Chile. Litigation is also relevant, including the Total Asset Recovery unclaimed property case, group annuity and assumed variable annuity reserve matters, and asbestos claims, where the recorded liability was $320 million at year end 2022. Management also flags the LIBOR transition and the June 2023 cessation of remaining U.S. dollar LIBOR settings.
What is management's outlook for growth and profitability?
Management expects continued premium and fee growth in the U.S. and international segments, while MetLife Holdings is expected to decline by about 12% to 14% in 2023 and 6% to 8% annually thereafter from business run-off. It targets a full-year direct expense ratio of 12.6% over the near term. Its outlook assumes interest rates following forward curves, S&P 500 returns of 5%, and private equity returns of 12%. Adjusted return on equity is targeted at 13% to 15% over the near term, reflecting the LDTI effect.
06—Continue