MetLife, Inc. (NYSE:MET) Q1 2022 Earnings Conference Call May 5, 2022 9:00 AM ET

Company Participants

John Hall - Global Head, Investor Relations

Michel Khalaf - President and CEO

John McCallion - Chief Financial Officer

Ramy Tadros - Executive Vice President and President, U.S. Business

Eric Clurfain - Regional President, Latin America

Kishore Ponnavolu - President, Asia

Steve Goulart - Executive Vice President and CIO

Conference Call Participants

Ryan Krueger - KBW

Jimmy Bhullar - JPMorgan

Elyse Greenspan - Wells Fargo

Erik Bass - Autonomous

Tom Gallagher - Evercore

Suneet Kamath - Jefferies

Alex Scott - Goldman Sachs

Tracy Benguigui - Barclays

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MetLife First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. Before we get started, I refer you to the cautionary note about the 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.

John Hall

Thank you, Operator. Good morning, everyone. We appreciate you joining us for MetLife’s first quarter 2022 earnings call. Before we begin, I would point 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 discussion are other members of senior management.

Last night, we released a set of supplemental slides, which addressed the quarter. 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 disclosures, GAAP reconciliations and other information, which you should also review.

After prepared remarks, we will have a Q&A session. In light of the busy morning, Q&A will last no later than the top of the hour. In fairness to all, please limit yourself to one question and one follow-up.

With that, over to Michel.

Michel Khalaf

Thank you, John, and good morning, everyone. MetLife delivered strong financial results in the first quarter of 2022, with the rise in geopolitical uncertainty and the pandemic that has not fully loosened its grip. These results demonstrate the strength and resiliency of our underlying businesses. MetLife’s purpose of always with you building a more confident future is ringing true with our customers now more than ever.

Starting with our financial results, we reported first quarter 2022 adjusted earnings of $1.7 billion or $2.08 per share, which was well above consensus expectations. The primary driver was strong variable investment income, partly offset by continued elevated COVID-19 claims, mostly in the U.S. Trends in our business point to continued momentum despite the many global dislocations.

Net income for the quarter was $606 million, up from $290 million a year ago and below adjusted earnings in the quarter. Losses on derivatives helped to protect our balance sheet from interest rate movement and payments on bonds account for most of the difference between net income and adjusted earnings.

Interest rates rose rapidly during the quarter with the yield on the 10-year treasury advancing 83 basis points, triggering market value adjustments to our derivative hedges. The tragic events in Ukraine led to an impairment of Russian and Ukrainian bonds in the quarter.

Let’s shift to our continued strong performance and variable investment income, which totaled $1.2 billion pre-tax in the quarter. Private equity was again the engine producing an approximately 7% quarterly return, with the higher PD balances also a factor.

Our private equity returns are reported on a one quarter lag and the weaker first quarter equity market may impact or VII results in the second quarter. For MetLife, private equity has long been an important source of value creation, generating strong returns and supporting our long dated liabilities. It is an asset class we manage prudently.

Last quarter, we indicated that we would divest roughly $1 billion of general account PE assets. Just after the first quarter close, we launched a PE fund of funds to be managed by MetLife Investment Management and the transaction that creatively and thoughtfully addressed investment allocation, while establishing a new fee generating business venture.

Turning to some first quarter business segment highlights, I will start with our U.S. Group Benefits results. Adjusted earnings of $112 million were up 20% year-over-year. We saw strong growth within our current customer base, reflecting a combination of higher enrollment, higher employment level and higher salaries. Although, COVID-19 life claims remained elevated, the Group life mortality ratio fell sequentially 250 basis points to 103.8%.

Our flagship U.S. Group Benefits franchise has generated a profit for shareholders in every quarter since the pandemic began, a testament to the breadth, strength and resilience of this business.

With our scalar leadership, the biggest threat in this business is becoming complacent something we will simply not allow to happen. We have taken concrete actions to grow and establish products like Group Life, Dental and Disability, voluntary products like legal and newer products like vision and Pat [ph]. The results are showing up in solid recurring PFOs, which have grown by more than $3 billion over the last three years looking past per claims.

In Retirement and Income Solutions or RIS, adjusted earnings were down 16%, primarily due to a tough comparison as the strong contribution from VII in the current quarter fell below the extraordinary contribution of a year ago. Beyond VII, a number of key metrics in this business were strong, including volume growth and spreads.

Continuing the momentum from the fourth quarter, we booked a $1.3 billion pension risk transfer deal in the first quarter. With funding level strong and interest rates on the rise, we see a robust PRT pipeline going forward.

For Asia, adjusted earnings similarly benefited from strong VII, partly offset by a negative impact from foreign exchange. At the same time, business momentum was solid. General account AUM was up 7% on a constant currency basis from a year ago. Sales in Asia grew 2% on a constant currency basis year-over-year driven by a good fiscal year end in Japan.

In Latin America, adjusted earnings were up by more than $100 million from the prior period. As COVID 19 claims moderated in Mexico, the exceptional sales success posted in 2021 has carried into 2022 with sales on a constant currency basis jumping 40% in the first quarter.

The pandemic has ushered in a renewed focus on the importance of insurance across Latin America. This has fueled a flight to quality, which in turn has helped drive our sales and boost our persistency.

Shifting to capital and cash, we returned more than $1.3 billion to shareholders through common dividends and share repurchase in the first quarter. Based on the strength of our balance sheet and free cash flow generation, we announced a 4.2% increase in our common dividend per share, which has grown at a compound annual rate of 9.5% since 2011.

With $475 million left on our current repurchase authorization, our Board of Directors has authorized an incremental $3 billion authorization, which brings our total buyback capacity to roughly $3.5 billion.

At the end of the quarter, we had $4.2 billion of cash and liquid assets at our holding companies. Despite the seasonally low quarter for subsidiary dividends, we remain comfortably above our target cash buffer of $3 billion to $4 billion. The proceeds from the sale of our Poland business, which closed in April, will contribute to our cash balances in the second quarter.

Turning to governance, MetLife has a highly experienced and diverse Board of Directors and we were pleased to announce the addition of Carla Harris at the end of April. Carla is a well-recognized leader across the financial services industry. She brings deep expertise and fresh perspectives and her experience and knowledge will serve MetLife well.

Our talent is also a competitive advantage that sets us apart from our peers. As a global company, MetLife can grow talent from around the world and match it to our greatest opportunities. Our recent leadership changes demonstrate this deep strength.

I want to start by thanking Kishore Ponnavolu for his distinguished service to MetLife over the past 11 years. During his time with MetLife, Kishore served as Chief Enterprise Strategy Officer and Head of MetLife Auto and Home, and finally as Regional President, Asia, where his leadership delivered outstanding results.

When Kishore steps away from this position at the end of June, we will rotate several executives into new roles. Lyndon Oliver will move from Treasurer and Head of Strategy to Regional President, Asia.

John Hall will add Treasurer to his current responsibilities and Dimitri Lorenzon will move from Head of Strategy Product and Marketing from MetLife Japan to Head of Strategy for MetLife. These moves demonstrate our commitment to talent development and highlight our deep bench of leaders who are ready to step up and deliver value to our customers and shareholders. We are broadening and deepening our leadership commitment to and accountability for diversity, equity and inclusion.

At the end of quarter, MetLife announced a broad set of VII commitment designed to address the needs of the underserved and underrepresented by 2030. These commitments encompass a mix of investments, partnerships and solutions, and other efforts, and are firmly aligned with MetLife’s purpose. In setting these commitments, we are establishing clear roadmaps and strengthening accountability for progress.

Before I close, I would like to say a few words about MetLife return to office in the U.S., which started on March 28th. Our new model Future Work combines the best of office and virtual environments and is an essential element in attracting and retaining top talent.

Our Future Work model has been well received in the U.S. and we are seeing tremendous collaboration and partnership across the organization. We are also well underway to adopting our Future Work model outside the U.S. as conditions allow.

From my own perspective, it is great to walk the floors again, host in-person meetings and feel of the energy in the building. Over the past few weeks, I have visited several of our offices across the U.S. and the team’s enthusiasm and energy levels have been outstanding. I look forward to more such visits as the world increasingly open and I also welcome the opportunity to sit down face to face with many of you in the months ahead.

The past two years has been an unprecedented period, but with all of the challenges, MetLife remain laser focused on consistent execution and we look forward to building on our momentum.

With that, I will turn things over to John.

John McCallion

Thank you, Michel, and good morning. I will start with the 1Q 2022 supplemental slides, which provide highlights of our financial performance and an update on our cash and capital positions. Starting on page three, we provide a comparison of net income to adjusted earnings in the first quarter.

Net income was $606 million or $1.1 billion lower than adjusted earnings. The majority of this variance was due to net derivative losses as a result of the significant rise in long-term interest rates in the quarter.

In addition, we had net investment losses, primarily due to impairments on our Russian premium bonds, as well as normal trading activity in the portfolio that resulted in losses given the rising interest rate environment. Following the impairments and a sale of Russian bonds in April, our current combined exposure in Russia and Ukraine is roughly $125 million.

On page four, you can see the first quarter year-over-year comparison of adjusted earnings by segment, which did not have any notable items on either period. Adjusted earnings were $1.7 billion, down 12% and down 10% on a constant currency basis. Lower variable investment income accounted for the majority of the year-over-year decline.

While private equity returns were again strong, they compared to an even stronger Q1 of 2021, adjusted earnings per share was $2.08, down 5% year-over-year on a reported basis and down 4% on a constant currency basis.

Moving to the businesses, starting with the U.S., Group Benefits adjusted earnings were up 20% year-over-year due to higher volume growth and an improvement in underwriting margins. I will discuss Group Life underwriting in more detail shortly.

Regarding non-medical health, the interest adjusted benefit ratio was 72.5% in Q1 of 2022 at the midpoint of its annual target range of 70% to 75%. That said, the ratio higher than the prior year quarter of 71.1%, due to higher incidences in disability relative to favorable incidence levels in the prior year quarter.

Turning to topline, Group Benefits adjusted PFOs were up 7% year-over-year. This growth included 2 percentage points related to higher premiums from participating contracts, which can fluctuate with claim experience. The balance of the PFO growth of 5% was due to solid growth across most products, including continued strong momentum in voluntary.

Group Benefits sales were down 31% compared to record sales in Q1 of 2021, which were driven by exceptionally strong jumbo cases. While jumbo case activity was significantly lower in 1Q 2022, we continue to see good growth in the business and our persistency remained strong.

Retirement Income Solutions or RIS adjusted earnings were down 16% year-over-year. The primary driver was less favorable private equity returns versus a very strong Q1 of 2021. Favorable volume growth was a partial offset.

RIS investment spreads were 181 basis points, driven by another strong quarter of variable investment income, spreads excluding VII were 89 basis points, up 1 basis point versus 1Q 2021, but down 2 basis points sequentially due to higher LIBOR rates.

RIS liability exposures were essentially flat year-over-year, as growth across most products primarily U.K. longevity reinsurance and pension risk transfers were offset by lower separate account balances. With regards to pension risk transfers, we completed one transaction worth $1.3 billion in the first quarter and continue to see an active market.

Moving to Asia, the adjusted earnings were down 7% and 4% on a constant currency basis, primarily due to lower recurring interest margins and a decline in first quarter equity markets in Japan and Korea. This is partially offset by solid volume growth as assets under management on an amortized cost basis grew 7% on a constant currency basis. In addition, sales were up 2% year-over-year on a constant currency basis driven by strong sales in Japan.

Latin America adjusted earnings were $142 million versus $40 million in the prior year quarter, while COVID-19 related claims remained elevated in 1Q 2002 at roughly $30 million after-tax. They were down significantly versus the prior year quarter.

In addition, volume growth was a positive contributor, while lower equity markets were a partial offset. The Chilean Encaje had negative 4% return in 1Q 2022 versus the prior year quarter, which was a modest positive.

While LatAm’s bottomline has been trending towards pre-pandemic levels, its topline continues to demonstrate strength as adjusted PFOs were up 22% year-over-year on a constant currency basis and sales were up 40% on a constant currency basis, driven by solid growth across the region.

EMEA adjusted earnings were down 27% and 15% on a constant currency basis, primarily driven by the exclusion of divested businesses, Poland and Greece, which were included in the first quarter of 2021 adjusted earnings.

In addition, higher expenses were partially offset by favorable underwriting margins and volume growth. While the region reported excess COVID claims in Q1, they were lower than the prior year quarter.

MetLife Holdings adjusted earnings were down 39%. This decline was primarily driven by lower variable investment income and less favorable underwriting.

Corporate and other adjusted loss was $117 million versus an adjusted loss of $171 million in the prior year quarter. Higher variable investment income was the result of a $1.1 billion transfer of PE assets to corporate and other from IRS and MetLife Holdings in Q1 of 2022.

To better align asset liability management for these two segments, higher expenses were partial offset. The company’s effective tax rate on adjusted earnings in the quarter was 21.3% and within our 2022 guidance range of 21% to 23%.

Now, I will provide more detail on Group Benefits mortality results on page five. This chart reflects our Group Life mortality ratio for the last five quarters, including the COVID-19 impact on the ratio and on Group Benefits adjusted earnings.

The Group Life mortality ratio was one hundred and 103.8 in the first quarter of 2022, which is well above our annual target range of 85% to 90%. COVID reported claims were roughly 14% points, which reduced Group Benefits adjusted earnings by approximately $230 million.

While U.S. COVID deaths were higher sequentially, there was a favorable shift in the percentage of deaths under age 65, declining from approximately 33% in the fourth quarter to roughly 23% in the first quarter. As a result of these two competing factors, we saw a modest improvement in mortality results this quarter.

In addition we experienced 1 percentage point to 2 percentage points from non-COVID excess mortality. This included a large number of high dollar claims, which can fluctuate from period-to-period.

On page six, this chart reflects our pre-tax variable investment income for the past five quarters, including $1.2 billion in the first of 2022. This strong result was mostly attributable to the private equity portfolio of roughly $14 billion, which had an overall return of 7% in the quarter. Unlike previous quarters where we have seen a dispersion in returns by fund type, this quarter our major PE returns were tightly coupled around 7% overall.

As we have previously discussed, private equities generally accounted for on a quarter lag. In addition, real estate equity funds were also a strong contributor to VII with a 10% return in the quarter, while hedge funds, which are reported on a one-month lag had a loss.

On page seven, we provide VII post-tax by segment for the prior five quarters, including $936 million in Q1 of 2022. You will note that our general rule of thumb that RIS, MetLife Holdings in Asia account for 90% or more of the total VII did not hold in 1Q 2022, coming in at 83%.

This lower percentage was primarily due to the transfer of PES to corporate and other from RIS and MetLife Holdings that I discussed earlier. In addition, Asia’s higher VII year-over-year was primarily due to strong real estate equity fund performance, as well as higher PE asset balances.

Turning to page eight, this chart shows a comparison of our direct expense ratio over the prior five quarters, including 11.7% in Q1 of 2022. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results.

Our first quarter direct expense ratio benefited from solid topline growth and ongoing expense discipline. This included approximately 40 basis points from premiums that relate to participating cases in Group Benefits due to excess mortality. We remain committed to achieving a full year direct expense ratio below 12.3% in 2022, demonstrating our consistent execution and focus on an efficiency mindset.

I will now discuss our cash and capital position on page nine. Cash and liquid assets at the holding companies were approximately $4.2 billion at March 31st, which was down from $5.4 billion at December 31st, but remains above our target cash buffer of $3 billion to $4 billion. The sequential decline in cash at the holding companies reflect the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of $915 million in the first quarter, as well as holding company expenses and other cash flows.

Our first quarter tends to be lower in subsidiary dividends and higher in holding company expenses. Therefore, we would expect HoldCo cash balances to increase in the second quarter due to higher subsidiary dividends, as well as proceeds from the sale of our Poland business, which closed in April, as Michel noted.

In regard to our statutory capital, for our U.S. companies are 2021 combined NAIC RBC ratio was 386%, which was above our target ratio of 360%. For our U.S. companies, preliminary first-quarter year-to-date 2022 statutory operating earnings were approximately $400 million, while net income was approximately $800 million.

Statutory operating earnings decreased by approximately $1.1 billion year-over-year primarily due to less favorable VA rider reserves, underwriting results and higher expenses. We estimate that our total U.S. statutory adjusted capital was approximately $18.7 billion as of March 31, 2022, down 2% compared to December 31, 2021.

Finally, the Japan solvency margin ratio was 947% as of December 31st, which is the latest public data. Looking ahead, we expect the Japan SMR to decline in 2022, as a result of higher U.S. interest rates, but remained well above its capital target level.

Let me conclude by saying MetLife delivered another strong quarter, highlighted by outstanding private equity returns, solid topline growth, ongoing expense discipline and the benefits of our diverse set of market-leading businesses and capabilities that allow us to navigate successfully through uncertain environments. 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.

And with that, I will turn the call back to the Operator for your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we go to the line of Ryan Krueger with KBW. Please go ahead.

Ryan Krueger

Hi. Thanks. Good morning. Could you discuss your outlook for the retirement spread over the next few quarters in light of the higher interest rate environment but also the flatter yield curve?

Michel Khalaf

Good morning, Ryan. Yes. So, let me just start with Q1, obviously it was 181, main driver there being VII and then our result ex-VII was 89 basis points of spread. And just -- maybe start with just the sequential decline in the spread with a few basis points and that was generally the rising LIBOR, which is something we highlighted as in our sensitivities that would put pressure on the spread.

I think one of the things that was performed better than expected as we did see a recovery in some of our real estate property income investments in the quarter in Q1, so that helped to offset some of that downward pressure that we expected.

I’d say, given the upward trend in LIBOR we have already seen in 2Q, we would probably expect kind of that mid single-digit decline to occur that we would have thought to have seen in the first quarter, but to start to see in the second quarter.

But if the forward curves come to fruition, we would actually start to see maybe a shift in the spread moving back up a little bit, and I’d say, there’s probably two reasons for that. So one is, so we get these sensitivities at the outlook and then typically the day after they are not as good as they were the day before.

Ad so in terms of LIBOR, we talked about a rise in LIBOR having a headwind, at some point that kind of flips to be a positive and that’s probably kind of around the 200-basis-point level and so we are at maybe a little above 130-basis-point today. So, we expect kind of rising LIBOR to continue to pressure us in the second quarter, but if it continues to rise, it would actually begin to provide income.

And then the second thing as you point out just kind of the overall increase in rates, it typically comes in 10 -- the benefit of the 10-year comes in at a slower, not as quickly and so, but that will start to emerge over time. So hopefully that helps.

Ryan Krueger

Thanks. Very helpful. And then, I guess, the follow-up is just I think we all know rising interest rates are generally good for life insurance. I just want to make sure that there are any unusual impact from things like interest rate derivative mark on a stat basis that would have any kind of negative impact on dividend capacity going forward?

Michel Khalaf

Yeah. We don’t -- we would not expect any unusual impacts to occur. I think the broad interest rate sensitivities we gave as part of our outlook directionally still hold, even though the shape of the curve is a little different, so numbers may not be exact, but I would say the directional nature of that from an earnings perspective, which means that it’s a little negative in the first year, may -- I might call it neutral-ish now just the way things have kind of panned out and then you start to see kind of the positive momentum emerge in the 2023 and 2024, again, assuming rates kind of pan out as they are projected to. And then in terms of stat capital now, we would not expect any unusual volatility or result as a -- as a result of a rising rate environment.

Ryan Krueger

Great. Thanks a lot.

Operator

And our next question is from Jimmy Bhullar with JPMorgan. Please go ahead.

Jimmy Bhullar

Hi. Good morning. First, I just had a question on what you are seeing in terms of activity in the pension closeout market. I think you mentioned that the pipeline is healthy, but how do you see, I guess, interest rates are obviously benefiting, but the weak equity market and its impact on funding levels, are you seeing a little bit of a slowdown or just the uncertainty causing plan sponsors to put off any transactions.

Ramy Tadros

Good morning, Jimmy. It’s Ramy here. So, maybe just, I will -- maybe helpful just to reiterate our philosophy towards the PRT market and then I will come and hit your question in terms of the pipeline.

The two aspects of our philosophy, which I would like to reiterate here and highlight one is that, this is a business where we continue to exercise pricing discipline, and I would say in aggregate, our capital deployment in the business is in line with our enterprise ROE targets and it’s also accretive to the in-force annuity spreads.

The second one, which you have heard us talk about before is that, we are focused on the large and jumbo end of the market. There are fewer players there and the deals tend to play to our competitive strengths in terms of size and rating, our balance sheet and the investment capabilities.

In terms of the outlook, as you know, we have a very strong quarter in 2021. The fourth quarter of 2021, we ended with five transaction that were total of $3.6 billion. We did one transaction this quarter for $1.3 billion and we still see a very robust pipeline in front of us as we look towards the rest of the year.

In terms of the segments we play in that jumbo segment. Many of these plans have been on a multiyear derisking journey, so they don’t kind of turn on a dime, if you will, in terms of making that decision.

So a lot of those kinds of asset allocations have been pre-positioned, and therefore, that jumbo end, it doesn’t tend to be as sensitive to equity market volatility. But having said that, clearly, the overall market, as it stands today stands at a very high funding levels and that bodes well for the overall pipeline as well.

Jimmy Bhullar

Okay. Thanks. And then on your Latin American sales, they were pretty strong across every single major market. To what extent is that a function of the pandemic receding versus just anything that you have done on the product or distribution side.

Eric Clurfain

Yes. Hi, Jimmy. This is Eric here. So, yeah, you noticed the sales momentum really demonstrates, really the strength and -- of our distribution channels and the diversity of our product mix.

We are seeing the benefits of that diversification strategy that combined with the increased awareness that Michel mentioned and that demand of insurance combined with the swift implementation of digital capabilities before during and now as we get out of the pandemic allows us to sell and serve our customers better and the marketplace is really responding to this with a true flight to quality.

And that emphasis on quality is also evidenced by the strong persistency, which combined with the robust sales as resulted with an over 20% growth year-over-year on PFOs on a constant currency basis.

Now about half of that’s -- these sales are coming from the SPA [ph] business in Chile, as we have seen the annuity market expanding during the first quarter. So, overall I would say, it’s a combination of factors and the strength of our franchise in LatAm is showing up as the pandemic recedes.

Jimmy Bhullar

Thank you.

Operator

And our next question is from Elyse Greenspan with Wells Fargo. Please go ahead.

Elyse Greenspan

Hi. Thanks. Good morning. My first question, we have seen move up in interest rates this year. I was just wondering if that has an impact on the potential fee by secure transaction with one of your blocks within holdings.

John McCallion

Hey, Elyse. It’s John. Good morning. I think as we have said before, rising interest rates are, I think, beneficial to the block, the risk transfer, block transfer market and I think there is, so that gives, but I don’t think that’s the only thing that people are focused on. I don’t think it changes materially. I think is a modest positive as we have talked about improving interest rates, solid equity markets, I think they all kinds of support a healthy risk transfer market. So, but again, I don’t think that’s the only driver and I think as we have seen over the years, the last few years, there is been plenty of transactions even at lower rates. So, but again, I think, it’s a modest positive.

Elyse Greenspan

Okay. And then within Group, you guys called out the non-COVID mortality this quarter. I just was hoping to get a little bit more color there and if you guys expect this to continue as we move through this year and even potentially get on the other side of the pandemic.

Michel Khalaf

Hi, Elyse. I would say what we saw this quarter is very much in line with kind of normal quarterly fluctuations we see. Just to give you some color in terms of one of the drivers here, if you look at our kind of large claims here define, let’s say, you take a $2 million mark. We have got higher number of those claims. But when I say higher, you think high-single digits and we have got quarters when that came below our expectation.

So this is kind of normal quarterly fluctuation. We clearly look at the numbers, we are the largest writer of Group Life Benefits in the industry, and as of this point, we are not seeing any real evidence outside of COVID of any long-term adverse trends here.

Elyse Greenspan

Okay. Thanks for the color.

Operator

Next we go to the line of Erik Bass with Autonomous. Please go ahead.

Erik Bass

Hi. Thank you. In the Group business, can you talk about enrollment and persistency trends in the level of benefit you are seeing from rising employment and rates growth?

Michel Khalaf

Erik, could you just repeat the question, you were just coming off a bit.

Erik Bass

Sorry, I was just asking in the Group business, if you could talk about enrollment and persistency trends and then the level of benefit that you are seeing from rising employment and wage growth?

Michel Khalaf

Sure. In terms of persistency, we continue to see very, very strong persistency on our book. That’s up and down market and very much kind of in line with our expectations. And as I have highlighted before, we are seeing that persistency even in a environment where we have been taking price increases on -- in particular on the life book given the uncertainty around COVID, so the persistency has been really excellent.

We are also seeing continued momentum on our voluntary portfolio and that’s going to continue to drive double-digit PFO growth in our business. And just to give you a flavor of that, we ended the year well above $1 billion of PFOs in voluntary and we continue to see good growth on that.

In terms of employment, that’s a tailwind. We are starting to see that in the business. Clearly higher employment levels provide just more eligibles and therefore more premiums. Wage inflation is another tailwind, although that does play out gradually over time.

So we don’t expect that to see kind of having an immediate uptick and it does depend on the population that’s getting those wage increases, et cetera, but both of these I would think of as general tailwinds to the business and we are seeing evidence of that in our book today.

Erik Bass

Great. Thank you. And then can you discuss your earnings and capital exposures to a weaker yen and what hedges you have in place?

Kishore Ponnavolu

Hi, Erik. This is Kishore. So if you think about the yen impact, you can think about this in two aspects. One is the translation impact on earnings and the second one is the impact on sales. On earnings, we have a multi-currency balance sheet in Japan, because of our FX products.

And if you think about it holistically for MetLife Asia, roughly 15% of our earnings are yen-denominated and so, therefore, any depreciation on the yen has a moderate impact, I can say that on Asia adjusted earnings.

On the sales, however, the FX volatility more than the rate itself is the volatility that is very important to rates consideration as well. It impacts volumes so far FX products in the near-term. In periods of high FX volatility, our customers tend to wait and see before the commit there yen to be converted to U.S. dollars, say, if it’s the U.S. dollar product.

At the same time, the yen, the increase in U.S. dollar rates, which is certainly true now enhances the customer value making them more attractive. So there is a balanced both ways. And currently, we are seeing the impact of both the yen weakening and the higher U.S. dollar interest rates on both sides. So if you think about, that’s the way I would look at it. I will leave it at that.

Erik Bass

Great. Thank you

Operator

And our next question is from Tom Gallagher with Evercore. Please go ahead.

Tom Gallagher

Good morning. First question is just can you provide a little bit of color behind the around $400 billion of investment losses. I presume most of that was Russia-Ukraine, but can you just give some specificity for the accounting for the $400 million?

Steve Goulart

Sure. Hey, Tom. It’s Steve Goulart. And you are right on that, but I think, John mentioned is too in his script, too, there really were two issues that led to virtually all of the realized losses in the first quarter.

One, as you point out was Russia and that was roughly half of the credit losses and provisions. And again, I’d start out by reminding everyone that our total exposure to Russia is less than one-tenth of 1% of the general account. So, in sum some not really a material number.

And then the second piece on the losses, John also mentioned was, normal trading activity, but that really just reflected what was happening with interest rates in the quarter. And if you think about, again, our asset liability management, we are heavily investing in private assets right now, and it takes time to originate those private assets.

So we are putting in assets that are more liquid and as we replace those in the permanent structure with private assets, given the interest rate movements in the quarter we saw losses in that. But again we pick it up on the back end, of course, because the private assets are higher yielding.

Tom Gallagher

Got it. That makes sense, Steve. So I would assume some of that, there could be a little bit of a tail to the trading aspect of that as you roll into 2Q and rates have continued to go up. Is that fair.

Steve Goulart

I think as long as rates are moving, we will probably see similar action and similar results, yeah.

Tom Gallagher

Okay. Got you. And then, just, I guess for Kishore, just a follow-up on Japan, the sales there seemed pretty good and your competitors that are in Japan were quite weak with the state of emergency orders in Japan. Just curious how you were able to drive sales growth, is there something unique about product launches or your distribution that that allowed you to still grow sales across -- it looks like across all products in Japan.

Kishore Ponnavolu

I love the premise of your question, Erik, and I will certainly pass on that complement to our associates in Japan. I think it’s a great question. I love the way you worded it. Certainly, that said, our sales increased 18% in Japan. That’s a very strong performance.

There are three reasons why I would attribute that. We -- our execution on the ground has been quite strong

Secondly, we do have a very diversified channel mix, as you know, and that is continuing to show where certainly there is a little bit of softness on the banker side on a relative basis, but that got picked up on the CA, so that balance is back and forth certainly is coming through really well.

And then, thirdly, we have been investing quite a bit on our products and capabilities over the past two years. But most notably over the past 12 months, we have had a couple of successful product launches, and most recently, we entered the quarterly market again and so that was well received in the marketplace.

We launched a new banker platform in last year, which has got very strong reception and then we also entered the variable product markets. So that’s also getting good traction as well. So we are very happy about that.

However, since you asked the question, I wanted to give you a little bit of context for overall Asia in terms of our performance this quarter, which is really were very good, but also caution that, we are continuing to deal with COVID and that’s a big factor across all our markets, clearly, Korea and Japan, we have a surge in cases in quarter one and we are dealing with that even in China as well,

And so-- and then on top of that, in Q2, we are dealing with a bunch of market-specific regulatory and exchange related challenges, which are ongoing. And then there is a seasonality factor in Q1 with March being the fiscal year-end, so that’s been a tailwind which doesn’t carry through Q2.

Given all that, the volume of sales in the next quarter will be under pressure. But on a year-on-year basis, I expect Asia ex-Japan to come stronger in Q2 to offset that as well. So that’s done well in Q1, little bit of pressure in Q2 and then I want to switch to the overall frame, which is despite all of this.

Our execution has been very strong. Our diversity of markets are coming through. And so, from a guidance perspective, hitting to the mid-to-high single sales growth guidance we gave in February. And in terms of timing, I expect a much stronger year-on-year performance in the second half for Asia as a whole. So I hope that was helpful from a commentary perspective.

Tom Gallagher

That was. Thank you.

Kishore Ponnavolu

Great.

Operator

And -- oh, go ahead. My apologies. Mr. Gallagher, did you have anything further.

Tom Gallagher

No. That’s all. Thank you.

Operator

Very good. We will move on to Suneet Kamath with Jefferies. Please go ahead.

Suneet Kamath

Thanks. Good morning. I just wanted to go back to Group Life for a second. So we are seeing COVID deaths -- COVID mortality decline pretty substantially here in 2Q, but just wondering as we think about earnings in that business in 2Q, is there any kind of lag that we should be reflecting in terms of when you may get death notices in Group?

Ramy Tadros

Hey. It’s Ramy here. Generally speaking, we are pretty quick in terms of recognizing the getting the death claims and recognizing those and we clearly hold the reserved essentially account for the IBNR.

So I would say, on average, we have been getting up pretty well over the last kind of year and a half. So I would just continue to anchor any of your kind of estimates based on the headline mortality numbers for the entire population.

So I would say, you looked at those and those have trended favorably in April. And the other statistic, I would also look at, is the percentage of deaths, which are under 65, which looking at April, that has continued to be at the same level as we saw in the first quarter, which, as John mentioned, would be favorable for us from a severity perspective.

Suneet Kamath

Okay. Got it. And then, I guess, for John on capital. I think you had said that, statutory operating earnings was lower than stat net income. So I just want to make sure I got that right and maybe some color on what happened there? And then, also, I think you said, Pat decline relative to the end of the year. So can you just talk a little bit about what happened there?

John McCallion

Sure. Good morning. Good morning, Suneet. Yeah. That’s right. I mean I think it’s just the kind of some of the geography between our -- where our VA reserves go versus some of the kind of the hedges and you think about just what equity markets did that probably explains some of that difference and some of the realization of that. So that’s kind of number one.

You commented and then your second point is just on stat capital generation. Yeah, I think, it was down 2%, so maybe a little over $300 million. I’d kind of put that in the normal volatility in any one quarter we paid our normal kind of a fourth of 25% of our kind of target dividend for the year, give or take in the quarter and which had a little additional volatility. So I wouldn’t read into that any -- in anyway, I’d kind of sort of consider that to be normal volatility and I wouldn’t consider a trend.

Suneet Kamath

Okay. Thank you.

Operator

And next we go to the line of Alex Scott with Goldman Sachs. Please go ahead.

Alex Scott

Hi. Thanks for taking the question. First one I had is on just expenses. I think they have kind of consistently come in below sort of the target you guys outlined at Investor Day with the Horizon strategy and so forth, and you are achieving pretty good organic growth across a number of your businesses. And so I was just interested in any commentary on where that could go from here. If -- I think sometimes in the past you have called out one timers and things like that on expenses that would get you back up to sort of the targeted level, but this feels like maybe you are benefiting more from operating leverage and could it be driven down further from there.

John McCallion

Good morning, Alex. Yes. We are certainly pleased with the execution and that’s not without headwinds and what we are all dealing with today in terms of inflation, wage increases and things like that, but I think it’s a testament to the team and really the embedded culture that we have built here around efficiency mindset. It’s a critical point of our strategy as you mentioned.

And just on the ratio itself, it was 11.7. I mentioned in the opening remarks that, you have to be careful, the headline number is probably benefiting about 40 basis points from elevated COVID claims, which impact our participating cases and that creates increase in revenue is a bit of a gross-up on the P&L.

So, net-net, we are still -- we are a little above 12, but maybe -- but still below the 12.3. And that’s -- within there is also includes our intention to continue to invest in the firm for growth to improve our use of technologies and then, obviously, if circumstances dictate that gives us optionality to leverage that capacity in different ways and to protect margins. So, all in all, I’d say, we are executing on our target, our initiative, when it comes to managing expenses.

Alex Scott

Thanks. And then my follow-up is just if you could provide a brief update on the asset management business and just what you are thinking in terms of inorganic opportunities that are out there and if the current environment makes that more challenging or maybe it presents more opportunities, just interested in if anything changing there?

Steve Goulart

Hey, Alex. It’s Steve Goulart. So the updated continues to be very positive. We continue to grow MetLife Investment Management. I think we have been really achieving an aggressive organic growth plan that is in line with what we laid out at our 2019 Investor Day on our objectives and targets for where we are going to see the business grow.

At the same time, you are right, it’s a very active market right now and we continue to be active in it as well and looking at opportunities for acquisitions and it does cut both ways and there is a lot of activity, but there are a lot of people looking in the markets, too.

We know what we are looking for strategically. We are very disciplined financially and we want to make sure that anything we do fits culturally and strategically. So we will continue to be active and hopefully when we find something that meets those criteria we will be successful in acquiring it.

Alex Scott

Thank you.

Operator

And we have a question from Tracy Benguigui with Barclays. Please go ahead.

Tracy Benguigui

Good morning. I realized later in the year you review your reserving assumption, but still were the 10-year treasury you read it today at 3% and where it maybe heading and how should we be thinking about your 2.75% reversion mean assumption and how does inflation come into play with respect to your reserve position?

Michel Khalaf

Hey. Good morning, Tracy. Good question. Obviously, we have that long-term assumption and things have changed quite a bit. I think it’s early for us to make any predictions at this point. Obviously, as we get into that kind of the end of the second quarter into the third quarter, really more of the third quarter, we will start to think about it. I think as we have all realized that things can change quickly. So -- and so I think it’s -- and it is a long-term assumption.

But having said that, I think, you highlighted some kind of the circumstances we are in that the current rates are higher than our long-term assumption that we are -- we projected to hit in 12 years.

So that is -- but I wouldn’t anticipate kind of any abrupt change one way or the other, we just made that change recent, few years ago and so you need to kind of see a trend before you would necessarily make a change, but again we will have to kind of evaluate all the data that’s out there when we get closer.

In terms of inflation, it’s probably, it’s not a -- it’s really, I’d say, probably, more related to your first part of the question, what does that, how does that really impact rates. That’s probably the biggest area for us when it comes to reserving. I think outside of that, it’s -- there is generally, if you have any inflation impact, it’s generally offset by other factors, net-net, so that’s probably how I’d answer the inflation point.

Tracy Benguigui

Great. Thank you. I noticed in prior years, you didn’t fully utilize your U.S. statutory dividend capacity, but in 2021 it appear in the U.S. Co. and I realize you have various sources. But just looking at Metropolitan Life Insurance Company you have $3.5 billion ordinary capacity in 2022, are you expecting again to fully utilize that this year?

John McCallion

Yeah. I think, as you point out, we have a lot of sources of cash to the holding company. I think what we have committed to, we don’t commit to kind of a dividend in any one legal entity. And I think the benefit of having a diverse set of cash generation that can be sent to the holding company is that, it gives us the benefit of being able to commit to the 65% to 75% free cash flow ratio on average over two-year period.

And so it’s not something we target at any one entity. We look at all aspects of how we are trying to manage our cash and capital at the operating entities, where we are looking to grow, where we need extra capital, things like that. And I think the benefit is, like I said, it’s a diverse set of sources is very helpful. So we don’t set a target at any legal entity externally, I should say, and then we kind of, just like you manage your own wallet, we manage our collective wallets the same way.

Tracy Benguigui

Thank you.

Operator

And we have no more questions at this time. I will turn the call back to Michel Khalaf.

Michel Khalaf

Great. Well, thank you again for joining us on this busy morning. Our strong performance in the first quarter of 2022 building on last year’s outstanding results should provide further evidence of the significant progress we are making in delivering on our all-weather Next Horizon strategy. This management team is laser-focused on continuing to execute with urgency and we are confident in our ability to create long-term sustainable value for all stakeholders. Thanks again and talk soon.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference service. You may now disconnect.