MetLife, Inc. (NYSE:MET) Q1 2024 Earnings Conference Call May 2, 2024 9:00 AM ET

Company Participants

John Hall – Global Head-Investor Relations
Michel Khalaf – President and Chief Executive Officer
John McCallion – Chief Financial Officer
Ramy Tadros – Regional President, U.S. Business, Head-MetLife Holdings
Eric Clurfain – Regional President-Latin America

Conference Call Participants

Suneet Kamath – Jefferies
Ryan Krueger – KBW
Wes Carmichael – Autonomous Research
Jimmy Bhullar – J.P. Morgan
Tom Gallagher – Evercore ISI
Justin Tucker – UBS

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MetLife First Quarter 2024 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 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 your participation on MetLife’s first quarter 2024 earnings call. In addition to our earnings release, we issued a press release last night announcing a $3 billion increase to our share repurchase authorization. Before we begin, I’d 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 discussions are other members of senior management.

As usual, last night, we released our standard set of supplemental slides, which are available on our website. John McCallion will speak to them in his prepared remarks if you wish to follow along. An appendix to the slides features disclosures GAAP reconciliations and other information, which you should similarly review. After prepared remarks, we will have a Q&A session. Given the busy morning, Q&A will end promptly just before the top of the hour. In fairness to everyone, please limit yourself to one question and one follow-up.

With that, over to Michel.

Michel Khalaf

Thank you, John, and good morning, everyone. As you can see from last night’s report, MetLife is getting off to a good start for the year. We delivered another solid quarter of financial results reflecting strong top line growth, consistent execution and sustained momentum across our market-leading portfolio of businesses. We achieved this mindful that change and uncertainty remain constant in the current environment. Our resilience and consistency are made possible by the unwavering commitment of our associates our unabated confidence in our all-weather next horizon strategy and our unyielding focus on controlling those factors we can control to drive value for our shareholders and other stakeholders.

With change as a persistent backdrop, MetLife’s 156-year track record of risk management is stable stakes for our customers and shareholders. As I addressed in my shareholder letter, central to this notion is protecting our balance sheet so we can meet the promises we’ve made to our policyholders and shareholders regardless of economic or geopolitical conditions. Risk management extends across virtually everything we do, the way we invest and manage our capital and liquidity to the way we price, underwrite and reserve for the products we sell. Another element of risk management at MetLife lies in our diversification. We operate across a range of products and geographies, many that have offsetting risk characteristics such as mortality versus longevity among others.

Even within our business segments, we have diversification. Our Group Benefits business serves employers across a wide range of business sizes and industries and has customers in every state. A similar theme runs through retirement and income solutions and can be seen in the multiple liability streams we are able to originate, capital markets, pension risk transfers, structured settlements, stable value, corporate-owned life insurance and longevity reinsurance, among others. Our diversification is at the core of who we are and further differentiates MetLife. It is not coincident, but by design. We have constructed a platform to deliver for the long term and believe our diversification promotes both sustainable and responsible growth.

Turning to the quarter. We reported adjusted earnings of $1.3 billion, or $1.83 per share, up 20% per share from the prior year period. This was aided by a partial rebound in variable investment income led by private equity gains, which delivered a positive return of 2.1%. In the aggregate, net income for the first quarter was $800 million, well above $14 million from the prior year period. Top line growth was strong across our market-leading set of businesses with adjusted premium fees and other revenues, or PFOs, totaling $12 billion, up 4% compared to the first quarter of 2023. On a constant currency basis, PFOs were up 5%.

Our unrelenting focus on execution continues to drive positive results across important key metrics. MetLife posted a 13.8% adjusted return on equity in the quarter, still within the 13% to 15% target range despite VII not yet hitting a more normal quarterly run rate. Our direct expense ratio of 11.9% improved from a year ago and was lower than our 12.3% annual target. The positive leverage captured by this ratio illustrates our ability to control costs as well as grow revenues at a faster rate than expenses.

Shifting to MetLife’s business performance in the quarter, Group Benefits generated $6.3 billion of adjusted PFOs, up 5% or up 6% adjusting for participating policies from the prior year period, driven by solid growth across most products including further expansion and voluntary benefits. Our premier national accounts franchise continues to demonstrate its differentiation and deliver value to customers through its comprehensive range of products and a customer experience enhanced by innovative technology platforms. In the quarter, Group Benefits adjusted earnings of $284 million was impacted by seasonally high life mortality and seasonally elevated non-medical health utilization returning to a historical trend more recently masked by the pandemic.

Showing the continued vitality of this flagship business, sales were up 25% from the prior year, propelled by our sustained efforts to drive enrollment, which pushed growth across core and voluntary products. Last month, MetLife launched our 2024 employee benefit front study in its 22nd year the survey tracks evolving employer and employee dynamics and the impact that macro environment and other trends have on the workplace and the employee benefits ecosystem. Through the years, we’ve enjoyed tremendous engagement with our customers as a result of the survey demonstrated thought leadership and this year’s survey with its focus on employee care was no different.

The business case for employee care is clear. Our research and other studies showed that one organizations offer a range of benefits, employees are more holistically healthy and business performance is stronger. As the largest group benefits provider, this ties directly into our strategy to offer the widest array of products, which gives MetLife more opportunities to serve our customers and more avenues to drive growth. Our leading Retirement and Income Solutions business reported adjusted earnings of $399 million, essentially flat with last year. Higher interest rates continue to increase the attractiveness of many of the products we offer within RIS. Overall, quarterly sales in RIS were $2.7 billion, up 49% from the prior year, led by structured settlements and corporate-owned life insurance production.

Our business in Asia posted a 51% increase in adjusted earnings on better variable investment income and favorable underwriting, particularly in Japan. Sales while robust were down relative to a strong quarter a year ago. Yet illustrating the strength of recent quarters, assets under management in Asia are up 6% year-over-year on a constant currency basis. In Latin America, our momentum continues across the region, particularly in our two largest markets of Mexico and Chile. The segment generated another record quarter of adjusted earnings with $233 million, rising 8% and 5% on a constant currency basis.

Moving to capital and cash. Our operative philosophy on capital deployment relies on a balance across investing in organic and inorganic growth and returning capital to shareholders via common dividends and share repurchase. During the first quarter, MetLife linked into capital management. We paid $377 million to shareholders via common stock dividends, and we repurchased almost $1.2 billion of our common stock. After the quarter, we have repurchased about another $300 million of common stock in April. Also in April, we boosted our common dividend per share by 4.8%. Year-to-date through April, we have repurchased about $1.5 billion of our common shares. Along with reporting our first quarter results, you saw that we also announced the addition of $3 billion to our repurchase authorization. Our total share repurchase authorization now stands at approximately $3.6 billion, which allows us to proceed with repurchase at a more measured pace for the balance of the year.

Shifting to governance, we announced during the quarter that Laura Hay joined our Board of Directors effective in February. Most recently, she was the Global Head of KPMG’s insurance practice. We are excited to have Laura bring her broad set of actuarial and financial skills and her business experience to our board.

In closing, as we near the conclusion of our five-year Next Horizon framework, we are engaged in a thoughtful process to chart the next course of our strategic journey, building on a strong well-established foundation. I don’t anticipate an abrupt departure from what has successfully delivered on our purpose always with you building a more confident future, but rather a further evolution. As we sought to raise the bar during Next Horizon, asking more of ourselves and delivering more than our stated goals, we’ve already started advancing towards the next phase of our strategy. The core principles of Next Horizon anchor our future actions and we remain embedded in our strategic thinking as we move ahead.

We are building on our strong foundation with a growth mindset and a range of opportunities that would not have been possible just a few years ago. We are well positioned to further differentiate ourselves and deliver additional value to customers fueling higher levels of growth. We have a tremendous opportunity to leverage our scale and harness emerging technologies to drive margin expansion, all the while achieving greater overall operating consistency.

Taken together, we believe these powerful factors will result in greater returns for our shareholders. To that end, I look forward to discussing our refreshed strategy at an Investor Day here in New York on December 12 of this year.

Now I will turn it over to John to cover our first quarter performance in greater detail.

John McCallion

Thank you, Michel, and good morning. I will start with the 1Q 2024 supplemental slides, which provide highlights of our financial performance and an update on our liquidity and capital position.

Starting on Page 3, we provide a comparison of net income to adjusted earnings in the first quarter. We had net derivative losses, primarily due to the strengthening of the U.S. dollar versus the yen and Chilean peso as well as favorable equity markets and higher interest rates. That said, derivative losses were mostly offset by market risk benefit or MRB remeasurement gains due to the higher interest rates and stronger equity markets.

Net investment losses were mainly the result of normal trading activity for fixed maturity securities in a rising rate environment. Overall, the investment portfolio remains well positioned. Credit losses continued to be modest and our hedging program performed as expected.

On Page 4, you can see the first quarter year-over-year comparison of adjusted earnings by segment, which do not have any notable items in either period. Adjusted earnings were $1.3 billion, up 13% on a reported and constant currency basis, higher variable investment income due to a rebound in private equity returns drove the year-over-year increase.

Adjusted earnings per share were $1.83, up 20% and up 21% on a constant currency basis.

Moving to the businesses, Group Benefits adjusted earnings were $284 million, down 7% year-over-year, primarily due to less favorable underwriting margins. The Group Life mortality ratio was 90.2%, a slight improvement versus Q1 of 2023 of 90.5% and above the top end of our annual target range of 84% to 89% and as Group Life mortality ratio tends to be seasonally highest in the first quarter.

Regarding Non-Medical Health, the interest adjusted benefit ratio was 73.9% in the quarter, at the top end of its annual target range of 69% to 74%, in line with our expectation of higher seasonal dental utilization in the first quarter.

Turning to the top line, Group Benefits adjusted PFOs were up 5% year-over-year. Taking participating contracts into account, which dampened growth by roughly 100 basis points, the underlying PFOs were up approximately 6% year-over-year and at the top end of our 2024 target growth range of 4% to 6%. In addition, Group Benefits sales were up 25%, driven by strong growth across core and voluntary products.

RIS adjusted earnings were $399 million, essentially flat versus Q1 of 2023. Higher variable investment income was offset by lower recurring interest margins as well as less favorable underwriting margins. RIS investment spreads were 127 basis points at the midpoint of our annual target range of 115 to 140 basis points. This incorporates both the impact of the roll-off of our interest rate caps and the offsetting benefit of VII reemerging.

RIS adjusted PFOs were up 25% year-over-year, primarily driven by strong sales of structured settlement products as well as growth in UK longevity reinsurance.

With regards to pension risk transfers, while we did not complete any transactions in the first quarter, we continue to see an active market.

Moving to Asia, adjusted earnings were $423 million, up 51% and 57% on a constant currency basis, primarily due to higher variable investment income, favorable underwriting margins and favorable tax benefits in Q1 of 2024. For Asia’s key growth metrics, general account assets under management on an amortized cost basis were up 6% year-over-year on a constant currency basis. Sales were down 8% on a constant currency basis versus a strong prior year quarter.

Latin America adjusted earnings were $233 million, up 8% and 5% on a constant currency basis, primarily due to volume growth and favorable underwriting margins. In addition, solid Chilean encaje returns of 4.8% in Q1 of 2024 compared to a negative 0.9% in Q1 of the prior year. Latin America’s top line continues to perform well as adjusted PFOs were up 9% and 8% on a constant currency basis, driven by growth across the region.

EMEA adjusted earnings were $77 million, up 28% and 35% on a constant currency basis, driven by favorable underwriting, volume growth and higher recurring interest margins. This was partially offset by less favorable expense margins year-over-year. While EMEA adjusted earnings were above trend this quarter, we still view the run rate to be $60 million to $65 million per quarter for the remainder of the year.

EMEA adjusted PFOs were up 7% and 9% on a constant currency basis, and sales were up 16% on a constant currency basis, reflecting strong growth in Turkey and the UK.

MetLife Holdings adjusted earnings were $159 million versus $158 million in the prior year quarter. Higher private equity returns were offset by roughly $50 million in foregone earnings as a result of the reinsurance transaction that closed in November, in line with expectations. Adjusted earnings in the quarter were also pressured by a true-up associated with the reinsurance transaction.

Corporate and other adjusted loss was $241 million versus an adjusted loss of $236 million in the prior year. The Company’s effective tax rate on adjusted earnings in the quarter was approximately 23%, below our 2024 guidance range of 24% to 26% due to several favorable tax items in the quarter.

On Page 5, this chart reflects our pretax variable investment income for the prior five quarters, including $260 million in Q1 of 2024. The private equity portfolio, which makes up the majority of the VII asset balance, had a positive 2.1% return in the quarter, while real estate equity funds had a negative 5.8% return in Q1 of 2024. Both are reported on a one-quarter lag.

In addition, as we have seen signs of improvement in PE secondary markets, we have opportunistically divested roughly $750 million of private equity general account assets in Q1 of 2024 at a modest discount. The transaction structure will allow MetLife Investment Management to continue managing the assets from the sale. We believe this transaction, which is similar to the roughly $1 billion divestment that we made in 2022 is a thoughtful approach to managing our investment allocation while supporting an important and growing fee-generating business for MetLife.

Looking ahead, we continue to expect VII returns to move toward the upper end of our near-term outlook range in the second half of the year, and we remain comfortable with our full year VII guidance of $1.5 billion.

On Page 6, we provide VII post-tax by segment for the fourth quarter of 2023 and Q1 of 2024. As you can see in the chart, RIS Asia and MetLife Holdings continue to hold the largest proportion of VII assets given their long-dated liability profile.

Now turning to Page 7. The chart on the left of the page shows the split of our net investment income between recurring and VII for the past three years and Q1 of 2023 versus Q1 of 2024. Adjusted net investment income in Q1 of 2024 was up roughly $500 million or 10% year-over-year. While recurring investment income moderated in the quarter due to the roll off of the interest rate caps, we did see a solid recovery in PE returns driving the VII improvement year-over-year.

Shifting your attention to the right of the page, which shows our new money yield versus roll-off yields since Q1 of 2021. New money yields continue to outpace roll-off yields over the past eight quarters, consistent with the rising rates. In the first quarter of 2024, our global new money rate achieved a yield of 6.6%, 103 basis points higher than the roll-off rate. Keep in mind, the roll-off rate can fluctuate from period to period as it did in the first quarter due to a greater volume of higher-yielding floating rate assets paying off. We would expect this positive trend of new money yields outpacing roll-off yields to persist given the current level of interest rates.

Now, let’s switch gears to discuss expenses on Page 8. This chart shows a comparison of our direct expense ratio for the full year 2023 of 12.2% and Q1 of 2024 of 11.9%. 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 Q1 direct expense ratio benefited from solid top line growth and ongoing expense discipline. We are off to a good start achieving a full year 2024 direct expense ratio of 12.3% or below, demonstrating our consistent execution and a sustained efficiency mindset.

I will now discuss our cash and capital positions on Page 9. Cash and liquid assets at the holding companies were $5.2 billion at March 31, which is above our target cash buffer of $3 billion to $4 billion. This includes approximately $1.4 billion used in April for a debt maturity and a debt redemption.

We do not have any further debt maturities for the balance of the year. Beyond this, cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend and share repurchases of roughly $1.2 billion in the first quarter. As well as holding company expenses and other cash flows.

In addition, we have repurchased shares totaling approximately $330 million in April. Regarding our statutory capital for our U.S. companies, our 2023 combined NAIC RBC ratio was 407%, which is above our target ratio of 360%. For our U.S. companies, preliminary first quarter 2024 statutory operating earnings were approximately $1 billion, essentially flat year-over-year, while net income was approximately $570 million.

We estimate that our total U.S. statutory adjusted capital was approximately $18.3 billion as of March 31, 2024, down 6% from year-end 2023, primarily due to dividends paid and surplus notes repaid partially offset by operating earnings. Finally, we expect the Japan solvency margin ratio to be approximately 725% as of March 31, which will be based on statutory statements that will be filed in the next few weeks.

Before I wrap up, I would just highlight that we have an updated commercial mortgage loan slide as of March 31 in the appendix. Overall, the CML portfolio continues to perform as expected with attractive loan-to-value and debt service coverage ratios as well as the expectation of modest losses.

Let me conclude by saying that MetLife delivered another solid quarter to begin the new year. The underlying strength of our business fundamentals was evident with strong top line growth, coupled with disciplined underwriting and expense management.

In addition, our core spreads remain robust and sustainable given the higher yield environment. Also, we saw a nice rebound in our private equity returns. While the current environment remains uncertain, we are excited about the outlook and growth prospects of our businesses over the near-term and beyond.

MetLife continues to move forward from a position of strength with a strong balance sheet and a diversified set of market-leading businesses, which generate solid recurring free cash flow. And we are committed to deploying this free cash flow to achieve responsible growth and build long-term sustainable value for our customers and our shareholders.

And with that, I’ll turn the call back to the operator for your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we have a question from Suneet Kamath with Jefferies. Please go ahead.

Suneet Kamath

Hi, thanks. Just wanted to start with VII. John, you had mentioned, I think, a real estate loss of 5.8%. Can you just unpack that a little bit? Was that actually losses on sales or appraisals? And how do you see that tracking as we move through the balance of the year?

John McCallion

Sure. Good morning, Suneet. Primarily appraisals and valuation. So we actually saw, if you recall, in the fourth quarter, it was fairly flat. Appraisals, they tend to lag a bit in terms of just market declines. And so we saw kind of a catch-up of that in the fourth quarter, which obviously gets reported here in the first quarter.

Our view is that it will start to moderate. We probably still have some pressure in 2Q, but less so. And then moderates through the rest of this year. And then we think you start to see things start to pick up in a positive way towards the latter part of this year into 2025. That’s kind of the outlook, if you will.

Suneet Kamath

Okay. That makes sense. And then I guess, Michel, on your comments for future share buybacks, I think you used the word measured pace. Is that measured pace relative to what you did in the first quarter? Or is that relative to what you did in April? And is the plan to exhaust the $3.6 billion authorization in 2024?

Michel Khalaf

Yes. Hi, Suneet, thanks for the question. So yes, I did use the word measure, and I was referring to the first quarter. But I think as you’ve seen in the first quarter and what you’ve seen from us over time is that we do move expeditiously and deliberately to return capital to shareholders.

Especially in the absence of other high-value capital deployment opportunities following divestments, we did so following the spin-off of our former retail business, following the sale of Auto and Home and we closed on our risk transfer deal in the fourth quarter. So looking ahead and without me getting overly prescriptive, I would say that we lead into the first quarter at a pace that is greater than what you might see for the balance of the year.

Suneet Kamath

Okay. Thanks, Michel.

Operator

Next, we go to the line of Ryan Krueger with KBW. Please go ahead.

Ryan Krueger

Thanks. Good morning. First, I just wanted to clarify one thing on the variable investment income comment. John, did you say that you expected to be towards the higher end of the range that you had given for the balance of the year?

John McCallion

Yes. Hey Ryan, it’s John. I think Suneet’s question was focused on real estate. And so I think what we’re just trying to – and regarding outlook in terms of the real estate funds and so we saw a negative return this quarter of 5.8%. I mentioned I thought it would be less negative next quarter, but we still think there’ll be a little pressure in just kind of the appraisals coming through and then it will start – it will kind of moderate from there and start to have an upward trajectory is kind of the way we put it.

Ryan Krueger

Okay. Got it. Other question was on the Group Benefits business. Can you talk more about the competitive environment you’re seeing at this point as you went through January 1 renewals as well as what you saw with persistency and pricing?

Ramy Tadros

Sure, Ryan. It’s Ramy here. Good morning. I would say, in terms of our view of the competitive dynamics of the group business, it really hasn’t changed. I mean, we’ve always talked about this as a competitive marketplace. And one, because of the short-tail nature of this business is on the whole rationale. And we also think and see that this is a market where there are many avenues for differentiation beyond price. And look, if you have the scale to invest in the business, you can create true differentiation in this market and grow profitability – and grow profitably. So the price, while important, becomes one out of multiple factors in the consideration set.

So with that background, we’re very pleased with our growth in sales this year. You saw a 25% increase in sales year-over-year. I should note that the strength of that momentum was across the board. So life, disability, dental as well as our voluntary suite of products. And from a pricing perspective, we’re very pleased with the rate adequacy we got for that new business. And we’re also very pleased with the rate increases that we got on renewals that were commensurate with our targets. So it’s not a pretty solid picture, both in terms of the growth, persistency as well as the pricing and the rate increases.

Ryan Krueger

Great. Thanks a lot.

Operator

Next, we move on to Wes Carmichael with Autonomous Research. Please go ahead.

Wes Carmichael

Hey, good morning, and thanks for the question. I had a question on pension risk transfer. I know you guys didn’t have any deals in the quarter. But there were some deals that were done that were reasonable size and Petersen [ph] has plenty of capital to support this marketplace right now. And there’s actually another ongoing call right now that one of your peers are saying that PRT is not that good of a business this year, there’s not as much spread. So I’m just wondering if pricing is getting more competitive there, if there’s any dynamics changing in the marketplace.

Ramy Tadros

Thank you. It’s Ramy here, again. Look, the – we’re coming off a very successful 2023 year in terms of PRT, we wrote five cases totaling more than $5 billion in premium, and that was off the back of a record year in 2022, where we wrote more than $12 billion of premiums. This business is lumpy. So I would remind you, we did not win any deals in Q1 of 2023 either, and we did not win any deals in Q1 of 2024.

But having said that, we continue to see a very robust pipeline ahead of us, particularly for the jumbo end of the market, where we focus. And this is not surprising. We’ve got very healthy funding levels of defined benefit plans and the desire for large plan sponsors to derisk. And we see this trend continuing for many, many years, and we’re well positioned to win our fair share of the market here.

From a pricing perspective, I would just emphasize what we’ve always said is that we look at these jumbo PRT deals with an M&A lens, and you kind of need to do that given the large quantum of capital that any given deal can consume. And we’re very disciplined to ensure that we deploy that capital to its best and highest use. So we evaluate each transaction carefully. We will only deploy capital if the risk-adjusted returns are healthy and the ROEs are aligned with our enterprise targets. And as you look forward, we still see this as a large profit pool, a big opportunity and one where we’re going to get our fair share.

Wes Carmichael

Thanks, Ramy. And Michel, I think you talked about higher rates increasing the attractiveness of your products. Just wanted to get a little perspective on capital deployment and how you’re thinking about allocating capital towards growth in capital-intensive businesses where you can generate good IRRs versus buying back more stock, which continues to be pretty strong.

Michel Khalaf

Yes. Sure, Wes. Thanks for the question. So our philosophy and approach is that we want to support organic growth. We’ve been doing so consistently. And you can see from our VNB disclosures the returns that we’ve been able to generate high teens and paybacks in the sort of mid-single digits. We like a good balance in terms of supporting organic – deploying capital in support of organic growth. We continue to be in the flow looking at potential M&A transactions. We consider M&A to be a strategic capability here, but we’re extremely disciplined when it comes to strategic set and sort of a consistent basis globally by which we look at M&A transactions.

And then excess capital, as we’ve said, belongs to our shareholders. We want to continue to have an attractive dividend yield, and you can see that we increased our dividend by 4.8%. And then share repurchases, it’s also sort of part of the equation. And so it’s that balance that we like to maintain. And – but we’re certainly very keen on continuing to deploy capital in support of organic growth at attractive returns.

Wes Carmichael

Thank you.

Operator

And next, we move on to Jimmy Bhullar with J.P. Morgan. Please go ahead.

Jimmy Bhullar

Hi, good morning. So first on the question for John on your spreads in RIS healthy overall, but we saw a sequential decline in spreads, excluding variable investment income. And I think you attributed that to the expiration of some of the interest rate cap. So I’m wondering if you could give us some idea on the trajectory of that? And should we assume sort of a similar level of an impact from caps that are expiring in the next few quarters? And when should we assume that dynamic is going to be over.

John McCallion

Good morning, Jimmy. Thanks for the question. Yes, I think it’s pretty much in line in terms of the roll off of the – given the roll-off of the cap. So in terms of XVI, that was generally in line. I think VII came in better than we expected. As you recall, we talked about a 115 to 140 spread range for the segment. So the middle of the range was 127 for the year. We still think that’s the right answer. And the way we got there was that we have a kind of a quarterly roll off of these interest rate caps. Remember, we bought these back a while ago when there wasn’t a risk of rising rates, but is to protect against a short-end rise fairly quickly so that it allows the long end to kind of emerge in over time. It’s basically worked as planned. But they all effectively roll off for the most part throughout this year.

So in terms of expectations, we will see another – so I think it was 10 bps maybe decline between 4Q and 1Q. I think 8% to 10% next quarter is not a bad estimate. It will depend on what VII does next quarter. We still think VII has kind of a reemergence to occur. So we had a good quarter this quarter, but that can gradually grow throughout the year, probably a bigger growth in the second half.

And then probably have one more quarter of 8 to 10 bps occurring, and it flattens out between third and fourth quarter, basically, it’s minimal, if not immaterial roll off. So that’s how to think about the roll off, and that’s how we get to the midpoint of that range when we gave the guidance. So we – obviously, in the past, we’ve spent quite a bit of time on XVII. We’re happy to give that number, but we’re really looking at the total spread all in now and as you think about the reemergence of VII.

Jimmy Bhullar

Okay. And then for Ramy, on margins and Group Benefits, I think group life margin, you had assumed that they’d be weak in 1Q because of seasonality. Dental claims picked up as well and do you attribute most of that to seasonality as well? Or are you seeing just higher incidents for some reason?

Ramy Tadros

Hi. Jimmy, it’s basically seasonality story. As you know, with dental claims, the benefits reset at the end of the calendar year. So come January you just get to see more utilization as the claims reset. And therefore, that’s just a seasonally higher ratio. If you look at our overall non-medical health ratio, this first quarter seasonality is baked into our guidance ranges. I remind you, these are annual ranges, and our expectations are at this point, that will be well within our range, 69% to 74% for the full year. And I would also remind you that we did lower that range by 1 point earlier this year. So very much a seasonality story and feel very good about being within that range for the full year.

Jimmy Bhullar

Okay. Thanks.

Operator

And next, we move to Tom Gallagher with Evercore ISI. Please go ahead.

Tom Gallagher

Good morning. Just a few follow-ups to Jimmy’s questions. John, if I followed your math that would suggest about 20 basis points of lower base spreads for RIS versus Q1 level if I look at towards the end of 2024. Is that directionally right?

John McCallion

Yes, 8% to 10%, you took the top end of that range, but sure it’s close, so 16% to 20%.

Tom Gallagher

Okay. 16% to 20%?

John McCallion

Yes.

Tom Gallagher

Okay. And then for – and Ramy, for Group Benefits, I just want to make sure I have the right expectation here. The – if I look at last year, and I look at the last three quarters of the year, I think earnings averaged around $450 million, that’s probably $170 million, $180 million above what you did in Q1 this year. So is it fair to say you still expect to grow above the $450 million earnings level for the next three quarters. In other words, it was just worse seasonality this year? And then is it – and said another way, it sounds like dental utilization was quite high. You fully expect to recover and see a big earnings snapback in dental for the balance of the year? Thanks.

Ramy Tadros

Hey, Tom. I mean, the way you can triangulate to an earnings number is take our top line and our guidance ratio. So from a top line perspective, we’re still very much within the 4% to 6% range. We got a 6% PFO growth this year – this quarter, but think of that ratio being close to the midpoint of the range for the full year. And for sure, think of both non-medical health which includes dental moderating for the full year. So think of that going towards the midpoint of the range, and think of the same thing happening with the life underwriting ratio; so very much a seasonality story for this quarter.

Remember, as Michel alluded in his remarks, that seasonality was kind of masked in the last few years with COVID and different behaviors on the dental side and clearly on the mortality side in terms of what we’ve seen. And that’s just now returning to a more regular pattern, if you will. So I hope that helps you think through the guidance growth, both given the top line number that I’ve articulated as well as the midpoint of these ratios for the full year?

Tom Gallagher

That does, and if I could just sneak in one other follow-up. So dental utilization, you would fully expect that to be far lower in 2Q than 1Q? Or is there going to be some tail on that where you might see some level of higher utilization and lower earnings into 2Q as well, would you say?

Ramy Tadros

I mean Q3 tends to be the lightest. So you’d expect it to come down in the second quarter. Q3 will be a lot lighter. So there’s going to be always – there will be a decrease whether it’s going to happen as a sharp cliff in Q2 and then another one in Q3 or different patent, it’s hard to predict. But again, think of it as a full year range and think of that ratio coming to the midpoint for the full year.

Tom Gallagher

Okay. Thanks.

John McCallion

And Tom, maybe I’ll just add a follow-up again on your first question. I mean, I think also just you only focused on XVII, but as I said, I think what’s really important is that we think of the all-in spread here, and that’s, all of that is very much in line with what we gave in the outlook for the midpoint of the range.

Tom Gallagher

Okay. Thanks.

Operator

Next, we move on to Brian Meredith with UBS. Please go ahead.

Justin Tucker

Hi. This is Justin Tucker on for Brian. Thanks for taking my call.

My first question is about RIS, when looking at the structured settlement results could you kind of help us understand how much of the demand is driven by the favorable interest rate environment? And then how much of it is driven by the courts opening and social inflation? And then furthermore, just curious about the sensitivity to those factors, if interest rates do decrease, do you think that has a bigger impact on structured settlement demand versus a dampening of social inflation? Thank you.

Ramy Tadros

Hi. It’s Ramy here. I mean, I would say interest rates is the primary driver of this. You have seen coming out of the pandemic call it, pent-up demand with the courts being closed and some of that clearly kind of caused an increase in volumes earlier on. That’s now stabilized, and it’s very much an interest rate-driven volume increases. And you do have given court settlements have increased. You do have some social inflation component, but I would say interest rates is the primary one.

We are a major player in this market. The market has grown substantially over the last few years, and we have maintained a pretty good share in that market. And it’s a very specialized market in terms of the distribution channel, the underwriting, et cetera. And we’re extremely pleased both with the volume, but as importantly with the ROEs and the returns we’re able to achieve in this market.

Justin Tucker

Great. Thank you. And then my follow-up question is just on Latin America. Sales were flat year-over-year. I’m just kind of curious about what you’re seeing in the overall market for demand and what you expect with sales going forward?

Eric Clurfain

Yes. Hi Justin. Thanks for the question. This is Eric.

So overall, we’re pleased really with our results this quarter. This is a good start of the year after what was a record year in 2023. The quarter’s results are primarily driven by favorable underwriting, some of which we don’t expect to recur strong in encaje [ph] returns and solid volume growth.

And to your question, from a top line perspective, we’ve seen all key markets contributing to the high solid high single-digit PFO growth, and that was supported by a solid sales and strong persistency. So from a sales perspective, specifically, this quarter is a tough compare given that last year we had a 36% growth, which included two large employee benefits and corporate pension sales in Mexico and Brazil.

Now if you exclude these two sales from 2023 our sales are up roughly 10% year-over-year. So all in all, we’re really pleased with the growth trajectory and the momentum in the region. And we believe that the outlook guidance we provided is still a reasonable run rate for the remainder of the year.

Justin Tucker

Okay. Thank you.

Operator

And we have no other questions. I’ll be turning the conference back to John Hall for closing comments.

John Hall

Great. Thank you very much, operator, and thank you, everybody, for joining us this morning on a very busy day.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.