MetLife(MET) - 2023 Q4 - Annual Report

Part I Business MetLife is a global financial services company offering insurance, annuities, employee benefits, and asset management, operating through six segments under its 'Next Horizon' strategy - MetLife is a leading global financial services company with significant market positions in the U.S., Japan, Latin America, Asia, Europe, and the Middle East[13] - The company's 'Next Horizon' strategy is built on three pillars: Focus (deploying capital to high-value opportunities), Simplify (enhancing operational efficiency and customer experience), and Differentiate (leveraging brand, scale, and talent)[14][15] - In Q4 2023, MetLife reorganized its business into six segments: Group Benefits, Retirement and Income Solutions (RIS), Asia, Latin America, EMEA, and MetLife Holdings, splitting the former U.S. segment[16] Business Overview & Strategy MetLife is a premier global provider of insurance, annuities, employee benefits, and asset management, guided by its 'Next Horizon' strategy and a recent six-segment reorganization Segments and Corporate & Other MetLife's operations are structured into six distinct segments, each focusing on specific product offerings and geographic markets, alongside a Corporate & Other category Overview of MetLife Segments | Segment | Description | | :--- | :--- | | Group Benefits | Offers life, dental, disability, vision, and accident & health insurance primarily to U.S. employers | | Retirement and Income Solutions (RIS) | Provides funding and financing solutions like stable value products and pension risk transfers to U.S. institutional customers | | Asia | Operates in nine jurisdictions, with Japan as the largest market, offering life, accident & health, and retirement products | | Latin America | Largest operations in Mexico and Chile, providing life, retirement, accident & health, and credit insurance | | EMEA | Operates in developed and emerging markets across Europe, the Middle East, and Africa, offering a range of insurance products | | MetLife Holdings | Manages products no longer actively marketed in the U.S., such as certain life insurance, annuities, and long-term care | | Corporate & Other | Contains start-up businesses, excess capital, unallocated corporate expenses, and the institutional investment management business | Policyholder Liabilities MetLife establishes actuarially determined liabilities for future policy obligations based on estimates and assumptions, adhering to both GAAP and statutory accounting principles - Actuarially determined liabilities are established to meet obligations from policy maturity, surrender, death, or disability, based on estimates of future benefits and claims[36] - Statutory reserves, required by insurance laws, are established to ensure policy and contract obligations can be met, and generally differ from actuarial liabilities reported under GAAP[36] Underwriting and Pricing MetLife's Global Risk Management department oversees disciplined underwriting and pricing, based on risk assessment and expected benefit payouts using actuarial assumptions - The Global Risk Management department develops product pricing standards and oversees underwriting practices across MetLife's insurance businesses[39] - Product pricing is based on expected benefit payouts, calculated using assumptions for mortality, longevity, morbidity, expenses, persistency, and investment returns[41] Reinsurance Activity MetLife uses reinsurance to limit losses, manage significant risks, and increase growth capacity, both purchasing and providing it for third parties and affiliates - The company enters into reinsurance agreements to limit losses, minimize exposure to significant risks, and provide additional capacity for future growth[44] - Reinsurance is also utilized for risk and capital management among affiliates, including U.S. captive reinsurers and non-U.S. reinsurers[45] Regulation MetLife operates under a complex regulatory framework, primarily state-level in the U.S. with federal oversight, and international local authorities, with increasing focus on emerging risks like AI and climate - In the U.S., MetLife's insurance companies are primarily regulated by state authorities, with additional federal regulation for some products and services[46] - The Dodd-Frank Act increased the potential federal role in regulation, including the FSOC's ability to designate non-bank Systemically Important Financial Institutions (SIFIs)[48] - Most U.S. insurance subsidiaries are subject to Risk-Based Capital (RBC) requirements, an early warning tool used by regulators to identify potentially undercapitalized insurers[56] - International insurance businesses are subject to various solvency regimes, such as Solvency II in the EEA, and similar frameworks in Mexico, Japan, and other key markets[65] - There is growing regulatory scrutiny on cybersecurity, data privacy, the use of AI in underwriting, climate risk management, and standards of conduct for providing investment advice[69][75][80] Competition The highly competitive life insurance industry sees MetLife competing globally on service, product features, price, financial strength, and technology, with adaptability and agility as key differentiators - Competition is based on factors including service, product features, scale, price, financial strength, ratings, e-business capabilities, and name recognition[97] - MetLife competes with a large number of domestic and foreign-owned life insurance companies, as well as non-insurance financial services firms like banks and asset managers[97] Human Capital Resources As of December 31, 2023, MetLife employed approximately 45,000 people, prioritizing a supportive culture, global diversity, equity, and inclusion (DEI), talent development, and fair compensation - MetLife employed approximately 45,000 people as of December 31, 2023[103] - Key human capital priorities include fostering a supportive culture, promoting diversity, equity and inclusion (DEI), developing talent, and ensuring competitive benefits and compensation[104] - As of year-end 2023, women represented 30% of the Executive Leadership Team and 36% of the Board of Directors globally. In the U.S., ethnically and racially diverse employees represented 13% of the Executive Leadership Team and 36% of the Board[104] Risk Factors MetLife faces diverse risks including economic and capital market volatility, regulatory and legal changes, capital and investment challenges, and business and operational risks from assumptions, competition, and technology - Economic & Capital Markets Risks: The company is exposed to difficult economic conditions, including risks from interest rates, credit spreads, equity markets, real estate, currency exchange rates, and counterparty defaults[116][117][120][121] - Regulatory & Legal Risks: Changes in laws, regulations, or tax policies could reduce profitability. The company also faces risks from increasing litigation and regulatory investigations, and challenges in meeting evolving ESG standards[130][134] - Business & Operational Risks: Key risks include actual claims differing from estimates, global political and economic instability, intense competition, failure to adapt to technological changes, catastrophes, and potential failures in risk management, cybersecurity, and data protection[143][144][147][159] - Capital & Investment Risks: The company may be unable to pay dividends or repurchase stock due to restrictions. Investment risks include defaults, downgrades, volatility, and difficulty selling assets in a timely manner[135][139] Cybersecurity MetLife manages cybersecurity risk via a comprehensive Information Security Program, overseen by the Board and CISO, based on the NIST framework, and has identified no material threats - The company's Information Security Program aims to protect data and technology assets through physical, technical, and administrative safeguards, guided by the NIST cybersecurity framework[171] - Key features of the program include an incident response team, annual response plan testing, regular network surveillance, risk assessments, and robust vendor management procedures[171] - Cybersecurity governance is overseen by the Board of Directors' Audit Committee, with the CISO providing quarterly updates. The company operates under a 'Three Lines of Defense' risk management model[173] - During the reporting period, MetLife has not identified any cybersecurity risks that have materially affected or are reasonably likely to materially affect the company's business, strategy, or financial condition[171] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MetLife's common stock trades on the NYSE under 'MET', with 13.67 million shares repurchased in Q4 2023 and $2.1 billion remaining in repurchase authorization Issuer Purchases of Common Stock (Q4 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2023 | 4,187,473 | $61.64 | | Nov 1 - Nov 30, 2023 | 4,802,596 | $61.64 | | Dec 1 - Dec 31, 2023 | 4,676,556 | $65.00 | | Total Q4 2023 | 13,666,625 | ~$62.76 | - As of December 31, 2023, MetLife had $2.1 billion remaining under its common stock repurchase authorization, which was initially approved for $4.0 billion in May 2023[177] Management's Discussion and Analysis of Financial Condition and Results of Operations MetLife anticipates 2024 economic uncertainty but expects strong investment portfolio performance, maintaining robust liquidity and key financial targets despite a significant 2023 net income decrease - The company's 2024 outlook reflects uncertainty around inflation and unemployment, but it expects its diversified investment portfolio to perform well across various economic scenarios[187][188] - MetLife maintains a strong liquidity position, with $5.2 billion in cash and liquid assets at its holding companies as of year-end 2023, exceeding the target range of $3.0 billion to $4.0 billion[189] - Key near-term financial targets include maintaining a two-year average free cash flow to adjusted earnings ratio of 65% to 75% and an adjusted return on equity of 13% to 15%[191][192] Key Financial Results (Years Ended Dec 31) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Income Available to Common Shareholders | $1.4 billion | $5.1 billion | $6.7 billion | | Adjusted Earnings Available to Common Shareholders | $5.5 billion | $5.8 billion | $7.9 billion | Consolidated Company Outlook MetLife's 2024 outlook anticipates economic uncertainty but expects stable long-term interest rates, maintaining strong liquidity and financial targets while lowering its direct expense ratio target Industry Trends MetLife's performance is significantly influenced by global financial trends, especially interest rates, intense competition, and an evolving regulatory landscape impacting capital and sales practices Summary of Critical Accounting Estimates MetLife's financial statements depend on critical accounting estimates requiring significant judgment, particularly for future policy benefits and market risk benefits, further impacted by the 2023 LDTI standard adoption Acquisitions and Dispositions MetLife actively manages its portfolio through acquisitions, including Raven Capital Management in 2023, and dispositions, such as pending sales in Malaysia and completed sales in Poland and Greece Results of Operations MetLife's 2023 net income available to common shareholders significantly decreased to $1.4 billion from $5.1 billion in 2022, primarily due to unfavorable investment gains and market risk benefit remeasurements Investments MetLife maintains a diversified global investment portfolio, primarily fixed income and mortgage loans, with $281.4 billion in fixed maturity securities and $84.8 billion in mortgage loans as of December 31, 2023 Derivatives MetLife utilizes various derivative instruments to manage interest rate, foreign currency, credit, and equity market risks, employing both specific and macro hedges for capital protection Liquidity and Capital Resources MetLife maintains a strong liquidity and capital position, with $5.2 billion in holding company liquid assets as of December 31, 2023, and robust statutory surplus in its U.S. insurance subsidiaries Risk Management MetLife employs an integrated risk management process, guided by a Board-approved Risk Appetite Statement and a 'Three Lines of Defense' model, to manage market, credit, insurance, non-financial, and liquidity risks Quantitative and Qualitative Disclosures About Market Risk MetLife is exposed to market risks from interest rates, foreign currency, and equity markets, managed through ALM and derivatives, with sensitivity analysis showing potential losses of $8.6 billion for interest rates and $2.3 billion for currency - The company's primary market risk exposures are to interest rates, foreign currency exchange rates, and equity market prices, affecting both its investment portfolio and insurance liabilities[443] - Risk management strategies include product design, ALM, and extensive use of derivatives (swaps, futures, options) to hedge specific risks and for macro portfolio protection[447][449][453] Market Risk Sensitivity Analysis (Potential Loss in Fair Value at Dec 31, 2023) | Risk Exposure | Scenario | Potential Loss (in millions USD) | | :--- | :--- | :--- | | Interest rate risk | 100 bps increase in rates | $8,610 | | Foreign currency exchange rate risk | 10% strengthening of USD | $2,322 | | Equity market risk | 10% decrease in equity prices | $131 | Financial Statements and Supplementary Data This section presents MetLife's consolidated financial statements for FY2023, with an unqualified auditor's opinion, highlighting the impact of LDTI adoption and three critical audit matters related to valuations - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the Company's consolidated financial statements for the year ended December 31, 2023[465] - The company adopted a new accounting standard (ASU 2018-12, or LDTI) for long-duration insurance contracts, which significantly changed the accounting and presentation for these contracts effective January 1, 2023, with a transition date of January 1, 2021[467] - The audit identified three Critical Audit Matters: 1) Fair value of Level 3 fixed maturity securities valued using internal models; 2) Valuation of future policy benefits for long-term care insurance due to significant management judgment in assumptions; and 3) Valuation of Market Risk Benefits for the MetLife Holdings segment, also due to high-judgment assumptions[472][475][480] Notes to the Consolidated Financial Statements The notes provide detailed disclosures on MetLife's accounting policies and financial results, including the impact of LDTI, the new segment structure, key liabilities, reinsurance, investments, and equity activities