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metlife Investor Day 2008 Finance
1. 08 ยฉ UFS
William J. Wheeler
Executive Vice President &
Chief Financial Officer
2. Agenda
โข Review of 4th Quarter 2008 Estimated Results
โข Review of Full Year 2008 Estimated Results
โข Review of 2009 Plan
โข Variable Annuities
โ GMIB rider liability
โ Hedging activity
โข MetLife Liquidity and Capital Position
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3. Fourth Quarter 2008 Estimate
($ Millions, except per share data)
4th Quarter
Operating Earnings ($50) - $150
Operating EPS ($0.05) - $0.20
Realized Gains $1,200 - $1,800
Net Income $1,150 - $1,950
Net Income EPS $1.50 - $2.55
Book Value per Share (including AOCI) $27.25 - $28.25
Book Value per Share (excluding AOCI) $45.50 - $46.50
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4. Fourth Quarter 2008 Estimate โ Operating Earnings
โข Solid revenue growth
โข Underwriting results (+/-)
โ Auto & Home prior year development (+)
โ Non-medical Health modestly below plan (-)
โข Investment margins (-)
โ Negative variable investment income (-)
โ Higher cash balances (-)
โข Expenses (+/-)
โ Operating expenses under control (+)
โ Higher DAC amortization (-)
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6. 2008 Operating EPS Estimate
2008 Operating EPS
Estimated 4th Quarter ($0.05) - $0.20
First 9 Months 2008 $3.56
Estimated Full Year 2008 $3.50 - $3.75
See Appendix for non-GAAP financial information definitions and/or reconciliations.
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7. 2008 Financial Review
โข Strong revenue growth: 10.9% increase vs. 2007
โข Mixed underwriting results:
โ Individual mortality below plan, but not systemic
โ Higher non-medical health claims in 2nd half
โ Auto & Home very strong even with higher catastrophes
โข Investment margins:
โ Below plan variable investment income
โข Expenses:
โ Higher DAC amortization due to weak equity market
โ Underlying expenses well controlled
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10. 2009 Plan
($ Millions, except per share data)
2009 Plan
Operating Earnings $2,920 - $3,250
Operational Excellence Charges $70
Adjusted Operating Earnings $2,990 - $3,320
Average Shares Outstanding 824.8
Adjusted Operating Earnings per Share $3.60 - $4.00
$47.20 - $48.60
Book Value per Share (excluding AOCI)
7.7% - 8.6%
Return on Equity1
1 Based on unadjusted operating earnings
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11. 2009 Plan Assumptions
โข Revenue growth of 4% to 5%
โข Solid underwriting results
โข Investment spreads:
โ Low variable investment income
โ 5% annual growth in S&P 500 (900 at 12/31/08)
โข Expenses:
โ New expense ratio1 of 21% to 23%
โ Higher pension pre-tax costs of approximately $180 million
โ Operational Excellence pre-tax charge of $100 million
1 Excludes DAC amortization
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12. Longer Term Financial Outlook
โข Variable investment income expected to be weak in
2009, but recover modestly in 2010
โข We are not assuming a rebound in the equity market
for 2010
โข As the environment gradually improves, we expect
earnings growth of about 25% in 2010
โข We project ROE to return to double digits in 2010
โข If the equity market increases by 20% instead of 5%,
that could improve 2010 earnings by another $0.20 -
$0.25 per share
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13. Operational Excellence
โข Enterprise-wide strategic review to build a better
and more profitable MetLife
โข 2008 action:
โ $100 million pre-tax charge creating annualized pre-tax
expense savings of $150 million
โข 2009 plan:
โ Additional pre-tax charges of $100 million
โข Severance
โข Real Estate and IT-related charges
โข Overall goal:
โ At least $400 million of annualized pre-tax expense
savings
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14. Operating Earnings by Line of Business
($ Millions)
2008 Estimate 2009 Plan
Institutional $1,655 - $1,675 $1,600 - $1,660
Individual 545 - 675 850 - 1,050
International 480 - 500 525 - 565
Auto & Home 355 - 375 310 - 330
Corporate & Other (480) - (470) (365) - (355)
Total $2,555 - $2,755 $2,920 - $3,250
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15. Variable Annuities: GMIB
โข Our U.S. variable annuity business had $92.5 billion
of assets at 9/30/08, $75.9 billion in separate
accounts and $16.6 billion in the general account
โข Approximately 40% of our variable annuity business
has a living benefit rider
โ Approximately 70% of our living benefit riders are
guaranteed minimum income benefit (GMIB)
โข In the 3rd quarter of 2008 approximately 80% of our
living benefit rider sales were GMIB
โข GMIB contract holders can first annuitize in 2011
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16. โWelcome to the Tail1โ GMIB Analysis
โFocus on the GMIBs: Under reserved and
under hedged? โฆ. we calculate a possible
$50 billion liability for the industry on GMIBs โฆโ
โEstimated GMIB Loss โ MetLife: 6.288 billionโ
This is NOT correct!
1Source: Goldman Sachs Global Investments Research report dated 11/11/2008
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17. Calculating GMIB Economic Loss
Model Assumptions: MetLife:
โข No hedging โข Hedging offset is significant
โข 100% annuitization as soon as โข We assume quick annuitization,
possible but not 100% day one
โข Seems to assume no lapses since
โข There are lapses which can be meaningful
date of issue
โข Approximately 1/3 of GMIB assets are in
โข 100% investment in equities
fixed income
โข In excess of 6%
โข Current annuitization interest of 5%
โข GMIB annuity factor of 8.53 โข GMIB annuity factor is 17.46 at age 70
โข Current rate annuity factor of 7.72 โข Current rate annuity factor is 11.91 at age 70
โข Guaranteed Ratio = 90% โข Guaranteed Ratio = 68%
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18. GMIB Annuity Factor
โข Guaranteed Ratio: determines the payout based on longevity
assumptions and interest rates
โข โWelcome to the Tailโ Analysis assumes Guaranteed Ratio of 90% using
assumptions that differ from MetLifeโs:
Model Assumptions: MetLife:
โข 10 years of payments โข Lifetime payments with a 10 year guarantee
โข Mortality margin is based on an age
โข No mortality margin setback to cover possible mortality
improvements in the future
โข Guaranteed annuitization rate is 2.5%
โข Annuitization interest is 3%
โข Applying a 68% guaranteed ratio, and keeping all other assumptions the
same, calculated loss from the model is not $6.288 billion, itโs zero.
โข In reality, some GMIB annuities are โin the money,โ however:
โ The amount is manageable
โ We hedge our exposure
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19. Variable Annuity Rider Hedging Activity
MLIC External
Reinsurance
MLI - USA
Captive Reinsurer
Japan JV
Hedging
Others
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21. Statutory Variable Annuity Rider Reserves
($ Billions)
$7.51
$8.0
$6.60
$7.0
$6.18 $7.11
$6.0
$4.94
$5.0
$3.63
$4.0
$3.0
$2.0
$1.0
$0.0
S&P 500 @ 896 S&P Down 10% S&P Down 20%
11/30/08
Japan JV GMDB Living Riders
= Hedge Asset and Reinsurance Value
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22. Variable Annuity Hedging
โข MetLife has a strong and effective hedge program
โข Why have we been successful?
โ We did what we said we would do (3 Greeks)
โ We hedged our Japanese products
โ Regulation 128 has been adjusted
โข Variable annuity riders and hedging are
manageable capital issues
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23. Liquidity
โข Cash
โ At 9/30/08 = $20.2 billion
โ Current balance at 11/30/08 โ $27 billion
โข Securities lending
โ At 9/30/08 = $41.2 billion
โ Current balance at 11/30/08 = $26.8 billion
โข Lapses in insurance products are declining or
stable
โข No debt maturities in the near term
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24. MetLife Capital Position
($ Millions)
Low High
Combined RBC ratio
365 points 400 points
Year End 2008 Estimate
Excess capital above 350 $900 $3,000
Excess cash at holding company $1,650 $1,650
Cash from February 2009 convert $1,040 $1,040
Total Excess Capital $3,590 $5,690
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25. MetLife Capital Position
โข The RBC range is primarily affected by the results
of C3 Phase 1, which is the stochastic ALM test
โข Due to higher liquidity needs, our general account
portfolio duration is relatively short
โข We are currently making some adjustments in our
general account to limit the negative impact of the
C3 Phase 1 test
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26. Summary
โข Earnings power of MetLife is intact
โข Annuity earnings and variable investment income
are affecting overall results in the near term
โข Variable annuity hedging has been effective and
potential capital impact going forward is
manageable
โข Overall capital cushion is strong
โข We are well positioned to succeed in this difficult
environment
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