MetLife(US:MET)2022-08-03 16:00Part I — Financial Information This section presents the company's unaudited interim financial statements and management's detailed analysis of financial condition and operational results Financial Statements (Unaudited) This section presents the unaudited interim consolidated financial statements, highlighting significant declines in assets, equity, and net income due to investment losses, while operating cash flow remained strong Interim Condensed Consolidated Balance Sheets Total assets and liabilities decreased, leading to a sharp decline in total equity, primarily due to a significant drop in the fair value of fixed maturity securities Consolidated Balance Sheet Highlights (in millions USD) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $662,893 | $759,708 | | Total Investments | $436,025 | $494,821 | | Total Liabilities | $625,526 | $691,959 | | Future policy benefits | $193,474 | $199,721 | | Policyholder account balances | $200,580 | $203,473 | | Total Equity | $37,367 | $67,749 | | Accumulated other comprehensive income (loss) | $(17,372) | $10,919 | Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Net income available to common shareholders significantly declined in Q2 2022 and for the six-month period, primarily due to substantial net investment and derivative losses Statement of Operations Highlights (in millions USD, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $15,556 | $18,524 | $31,312 | $34,086 | | Net investment gains (losses) | $(685) | $1,605 | $(1,203) | $1,739 | | Net derivative gains (losses) | $(1,195) | $421 | $(2,054) | $(1,814) | | Net income (loss) available to common shareholders | $103 | $3,366 | $709 | $3,656 | | Diluted EPS | $0.13 | $3.83 | $0.86 | $4.13 | Interim Condensed Consolidated Statements of Equity Total equity significantly decreased due to substantial negative changes in other comprehensive income from unrealized investment losses, despite partial offsets from net income Changes in Equity for the Six Months Ended June 30, 2022 (in millions USD) | Item | Amount | | :--- | :--- | | Balance at Dec 31, 2021 | $67,749 | | Net Income | $674 | | Other comprehensive loss, net of tax | $(12,833) | | Treasury stock acquired | $(2,031) | | Dividends on common stock | $(805) | | Balance at June 30, 2022 | $37,367 | Interim Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased, while investing activities generated a net inflow, and financing activities resulted in a substantial net cash use, leading to an overall increase in cash Cash Flow Summary for the Six Months Ended June 30 (in millions USD) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,392 | $3,750 | | Net cash provided by (used in) investing activities | $1,689 | $(45) | | Net cash provided by (used in) financing activities | $(7,182) | $1,068 | | Change in cash and cash equivalents | $432 | $4,581 | Notes to the Interim Condensed Consolidated Financial Statements These notes detail the company's segment structure, accounting policies, investment portfolio, derivative strategies, and the significant projected impact of ASU 2018-12 on total equity - MetLife is organized into five segments: U.S.; Asia; Latin America; EMEA; and MetLife Holdings29 - The upcoming adoption of ASU 2018-12 on January 1, 2023, is expected to have a material impact, with an estimated decrease to total equity in a range of approximately $21.5 billion to $24.0 billion, net of income tax, as of the January 1, 2021 transition date41 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the significant decline in net income and adjusted earnings due to market volatility and lower investment yields, partially offset by favorable underwriting, while maintaining strong liquidity and capital return Executive Summary Q2 2022 performance saw a significant decrease in net income and adjusted earnings due to unfavorable investment and derivative results, partially offset by favorable underwriting and revenue growth - Net income available to common shareholders decreased by $3.3 billion compared to Q2 2021, primarily due to an unfavorable change in net investment gains (losses) of $2.3 billion and an unfavorable change in net derivative gains (losses) of $1.6 billion350 - Adjusted earnings available to common shareholders decreased by $463 million, mainly due to lower investment yields from private equity and hedge funds, partially offset by favorable underwriting from a decline in COVID-19 claims350 - Adjusted premiums, fees and other revenues grew, driven by the U.S. segment, particularly the Retirement and Income Solutions (RIS) business344 Industry Trends The company monitors global economic conditions, including inflation and geopolitical conflicts, central bank monetary policies, and increasing regulatory focus on climate-related financial risks - The company is monitoring global inflation, supply chain disruptions, and the Russia-Ukraine conflict as key factors contributing to market volatility354 - Central banks in the U.S. and Europe are raising interest rates to combat inflation, while the Bank of Japan has maintained its accommodative monetary policy355 - The SEC has proposed rules requiring additional climate-related disclosures in registrant filings, and federal legislation has been enacted to address the transition from LIBOR360362 Acquisitions and Dispositions The company increased its stake in PNB MetLife India and completed the dispositions of its wholly-owned subsidiaries in Poland and Greece during the first half of 2022 - In February 2022, the Company acquired an additional 15.0% ownership in PNB MetLife India Insurance Company Limited, increasing its total stake to approximately 47.0%366 - The Company completed the dispositions of its wholly-owned subsidiaries in Poland and Greece during the first half of 2022367 Results of Operations Consolidated net income and adjusted earnings declined due to market volatility and lower investment yields, with varied segment performance including growth in Latin America and declines in U.S., Asia, and MetLife Holdings Adjusted Earnings Available to Common Shareholders by Segment (in millions USD) | Segment | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | U.S. | $788 | $902 | | Asia | $386 | $520 | | Latin America | $267 | $97 | | EMEA | $64 | $94 | | MetLife Holdings | $364 | $536 | | Corporate & Other | $(243) | $(60) | | Total | $1,626 | $2,089 | - The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $1.5 billion, primarily due to rising long-term interest rates impacting receive fixed interest rate swaps374 - The unfavorable change in net investment gains (losses) of $2.3 billion primarily reflects a prior period gain on the disposition of MetLife P&C and current period losses on sales of fixed maturity securities377 Investments The investment portfolio, primarily fixed income, saw a decrease in adjusted net investment income and yield, though it remains high quality with 95.0% investment-grade fixed maturity securities and strong commercial mortgage loan metrics Adjusted Net Investment Income and Yield (in millions USD) | Period | Adjusted Net Investment Income (millions) | Yield % | | :--- | :--- | :--- | | Q2 2022 | $4,504 | 4.17% | | Q2 2021 | $5,117 | 4.73% | | H1 2022 | $9,496 | 4.38% | | H1 2021 | $10,411 | 4.82% | - At June 30, 2022, 95.0% of the fixed maturity securities AFS portfolio was rated investment grade, with an estimated fair value of $269.9 billion457 - The commercial mortgage loan portfolio had an average LTV ratio of 56% and an average DSCR of 2.6x as of June 30, 2022, indicating a high-quality, lower-risk profile478 Derivatives The company uses derivatives to manage various market risks, with a significant portion not designated as accounting hedges, and employs credit default swaps for risk mitigation and synthetic bond creation - The company uses derivatives to manage interest rate, foreign currency, credit, and equity market risks, with a total gross notional amount of $321.1 billion at June 30, 2022486182 - Written credit default swaps are used in replication transactions to synthetically create corporate bond exposures, providing flexibility in managing credit risk495 - For the six months ended June 30, 2022, net losses on written credit default swaps were $245 million, while net gains on purchased credit default swaps were $92 million, reflecting widening credit spreads494495 Policyholder Liabilities The company establishes actuarially determined policyholder liabilities, sensitive to market conditions, with a significant portion related to variable annuity guarantees, managed through product design, hedging, and reinsurance Variable Annuity Guarantee Liabilities (in millions USD) | Liability Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Future Policy Benefits | $1,861 | $1,822 | | Policyholder Account Balances | $414 | $499 | - As of June 30, 2022, only 40% of contracts with GMIBs were eligible for annuitization, with the remainder becoming eligible in an average of three years527 - The net amount at risk for GMIBs was $569 million at June 30, 2022, with only a small fraction of the total account value being significantly 'in-the-money'527528 Liquidity and Capital Resources The company maintains a strong liquidity position with substantial liquid assets and access to funding, utilizing operating cash flows and subsidiary dividends to support debt service, shareholder returns, and share repurchases - The company maintained a short-term liquidity position of $12.6 billion and total liquid assets of $179.3 billion as of June 30, 2022534535 - MetLife, Inc. and other holding companies held $4.5 billion in liquid assets at June 30, 2022569 Capital Uses - H1 2022 (in millions USD) | Use of Capital | Amount | | :--- | :--- | | Common Stock Repurchases | $2,056 | | Dividends on Common Stock | $805 | | Dividends on Preferred Stock | $92 | - For the six months ended June 30, 2022, MetLife, Inc. received $1.56 billion in dividends from Metropolitan Life Insurance Company and $620 million from American Life Insurance Company572573294 Quantitative and Qualitative Disclosures About Market Risk The company analyzes and manages its exposure to interest rate, equity, and foreign currency risks through various strategies, with no material changes reported from the prior annual report - The company is materially exposed to changes in interest rates, foreign currency exchange rates, and equity markets through its insurance and investment activities591 - A variety of strategies, including the use of derivatives, are employed to manage these market risks591 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022593 - No material changes were made to the company's internal control over financial reporting during the second quarter of 2022593 Part II — Other Information This section provides additional information including legal proceedings, risk factors, equity security sales, and required exhibits Legal Proceedings Details on legal proceedings, including asbestos-related claims and specific lawsuits, are referenced in Note 14 of the financial statements - For details on legal proceedings, the company refers to Note 14 of the financial statements595 Risk Factors No material changes to the company's previously disclosed risk factors from the 2021 Annual Report on Form 10-K were reported - There have been no material changes to the company's risk factors from those disclosed in the 2021 Annual Report596 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased over 17 million common shares and authorized a new $3.0 billion share repurchase program, with $2.5 billion remaining Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 1,652,938 | $70.58 | | May 2022 | 7,035,408 | $63.90 | | June 2022 | 8,629,772 | $63.78 | | Total | 17,318,118 | N/A | - In May 2022, the Board of Directors authorized a new $3.0 billion common stock repurchase program. As of June 30, 2022, $2.5 billion remained available under this authorization597 Exhibits This section lists filed exhibits, including CEO and CFO certifications and Inline XBRL documents, noting that agreements are for informational purposes only - Exhibits filed include CEO/CFO certifications (Sections 302 and 906) and Inline XBRL data files601