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Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Second Quarter 2025 Earnings Conference Call. [Operator Instructions]. 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. Sir, you may begin.
Thank you, operator. Good morning, everyone. We appreciate your participation today on MetLife's Second Quarter 2025 Earnings Call. Before we begin, I direct 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 supplement, which you should review.
On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer and Head of MetLife Investment Management. Also available to participate in the discussion are other members of senior management. Last night, we released a set of supplemental slides, which address the quarter. They are available on our website.
John McCallion will speak to those supplemental slides in his prepared remarks. An appendix to the slides features additional disclosures, GAAP reconciliations and other information, which you should also review. After prepared remarks, we will have a Q&A session, which will end at the top of the hour. As a reminder, please limit yourself to 1 question and 1 follow-up.
With that, over to Michel.
Thank you, John, and welcome, everyone, to this morning's call. During the second quarter, we continued to navigate an evolving and dynamic economic environment, while executing against our New Frontier growth strategy. We demonstrated all weather performance and clear momentum across business segments posting strong sales in many markets, executing strategic transactions maintaining a laser focus on managing expenses and returning capital to shareholders. Although the second quarter does not demonstrate the full earnings power of MetLife, we're confident in our ability to deliver on the commitments of our New Frontier strategy.
Looking ahead, we are encouraged by the underlying momentum across our businesses as we head into the back half of the year. Turning to the results. We reported adjusted earnings of $1.4 billion or $2.02 per share for the second quarter. This reflects less favorable underwriting, albeit within normal fluctuations and less favorable investment margins versus a year ago.
Variable investment income, which we report on a 1 quarter lag, was in line with our June disclosure. Our private equity portfolio generated a positive 0.9% return in contrast to a negative 4.6% return for the comparable time frame for the S&P 500. We anticipate a better result in the third quarter and will continue with our advanced disclosure protocol. Among key performance metrics aligned to our New Frontier commitments, we generated a quarterly adjusted return on equity of 14.6%, well above our cost of capital and very near our mid-teen target range while also absorbing below par variable investment income.
We continue to focus on what we can control, actively managing our expenses while still investing for growth and achieving a quarterly direct expense ratio of 11.7%, beating our annual target of 12.1%, and we generated strong free cash flow, enabling us to return roughly $900 million to shareholders in the form of common dividends and share repurchases in the quarter. Moving to business segment highlights. Group Benefits adjusted earnings of $400 million were down from a record quarter in the prior year, largely due to less favorable life and non-medical health underwriting in the quarter. Although group life underwriting was less favorable than a year ago, we outperformed relative to our 2025 outlook range, which we expect to continue for this year.
For non-medical health, while still within a normal range, we saw some elevated experience in several products, which we do not expect to continue in the balance of the year. We also saw a small number of large disability claims during the quarter that can occur from time to time, which we do not believe to be a trend. Year-to-date, Group Benefit sales are up 9%, driven by growth in regional business. Adjusted premiums, fees and other revenues grew 4% from a year ago.
We continue to find new ways to grow and capitalize on market trends, including investing in tools that simplify and enable the benefits experience while creating a distribution advantage. We signed an additional strategic partnership with Workday in June to reach more employers and better serve their employees with our benefits experience platform applies. In fact, 2/3 of employees surveyed have shared that Upwise makes the process of choosing benefits easier, leading to greater participation and voluntary products. In our Retirement and Income Solutions, or RIS, segment, we reported adjusted earnings of $368 million, mainly due to lower recurring interest margins.
Total liability exposures were up 6% from a year ago, and above our 2025 outlook range of 3% to 5%. This was driven by outstanding growth in U.K. longevity reinsurance and a strong contribution from general account products. Another product line within RIS is our funding agreement back note or FABN business as a pioneer in this stack of spread lending, our ability to originate this business is well established. We originate at a favorable cost of funding due to the quality of our balance sheet and the breadth and liquidity of our market presence.
We match our low-cost origination with our top flight asset and liability management. We do all this while minimizing funding and maturity risks, satisfying 2 principal tenets of our New Frontier strategy, attractive returns with lower risk. Shifting to Asia, adjusted earnings were $350 million on less favorable investment and underwriting margins. Business momentum was particularly strong as sales rose 9% on a constant currency basis, propelled by our 2 largest markets in the region.
On a constant currency basis, sales jumped 29% and 36% in Japan and Korea, respectively, following successful new product launches. Strong sales growth also translated into growth in general account assets under management, which rose 6% year-over-year on a constant currency basis. Tied to this momentum, I recently visited Japan and Korea where I had the opportunity to witness firsthand the team's energy and focus on achieving our New Frontier commitments. For Latin America, adjusted earnings totaled $233 million matching the segment's all-time quarterly high results.
Adjusted earnings were up 3% and 15% on a constant currency basis from the same period a year ago. Contributors included volume growth across the region, a consistent theme for Latin America, along with favorable Chilean encaje returns in the quarter. Rounding out our international markets, EMEA posted near-record adjusted earnings of $100 million up 30% on both a reported and constant currency basis, primarily due to volume and sales growth across the region. In addition to driving organic growth across our portfolio of businesses, we are adding value through strategic transactions, including 3 we've announced since December, the acquisition of PineBridge Investments, the formation of Chariot Re and the risk transfer deal with Talcott Financial Group.
We are excited about the growth prospects for our expanded investment management platform with PineBridge. The acquisition has been well received by both firms clients, and we're on track to close in the second half of this year. On July 1, we successfully launched Chariot Re alongside our cosponsor, General Atlantic, with an initial $10 billion reinsurance deal and more to come. Our strategic partnership with Chariot Re will support growth in our diversified retirement platform and generate institutional client assets under management for MetLife Investment Management.
And our variable annuity risk transfer deal with Talcott is moving forward, and we're on schedule for our second half close. This transaction will positively reduce MetLife's enterprise risk associated with the capital markets. These 3 initiatives showcased New Frontier and action. They are closely linked and illustrate how we are already delivering on our New Frontier priorities.
Significantly, they place us at the conversions of insurance and asset management and position us to leverage the full power of MetLife. Turning to capital and cash. MetLife was active with capital management in the second quarter. We paid roughly $400 million of common stock dividends to shareholders and repurchased approximately $500 million of our common stock.
In July, we repurchased around $140 million of our common stock which brings our total year-to-date to over $2 billion. Since 2021, we've repurchased nearly $16 billion of our shares. We've done so consistently and evenly over that time frame, reducing our share count by more than 240 million shares. At the same time, we continue to invest for growth, funding acquisitions like PineBridge, which is in addition to the capital will return to shareholders in 2025. At the end of the quarter, we had $5.2 billion of cash and liquid assets at our holding companies which is above the high end of our $3 billion to $4 billion target buffer range.
We have prefunded second half preferred stock redemptions and debt maturities totaling $1.5 billion, which are included in our second quarter cash balance. In closing, this quarter showed how MetLife's diversified portfolio of market-leading businesses can deliver across economic cycles while providing a strong foundation for future financial outperformance. Our focus is unchanged. Generating responsible growth and attractive returns with lower risk for our shareholders as well as value for our customers as we execute on the strategic priorities outlined by our New Frontier strategy.
Now I'll turn it over to John to cover our performance in greater detail.
Thank you, Michel, and good morning, everyone. I'll refer to the 2Q '25 supplemental slides, which covers 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 second quarter. Net derivative losses driven by stronger equity markets and an increase in long-term interest rates were the primary drivers of the variance between net income and adjusted earnings in the quarter.
In addition, net investment losses reflect normal trading activity on the portfolio and a stable credit environment. On Page 4, you can see the second quarter year-over-year comparison of adjusted earnings by segment and Corporate and Other. Adjusted earnings were $1.4 billion, down 16% and down 15% on a constant currency basis. The primary drivers were less favorable underwriting and lower investment margins.
These were partially offset by volume growth and favorable expense margins year-over- year. Adjusted earnings per share were $2.02, down 11% and down 10% on a constant currency basis. Moving to the businesses. Group Benefits adjusted earnings were $400 million, down 25% from the record quarter in the prior year.
The key driver was less favorable underwriting margins across life and non-medical health products compared to Q2 of '24. The Group Life mortality ratio was 83% for the quarter, which is below the bottom end of our 2025 target range of 84% to 89% but less favorable than the record low mortality ratio of 79.1% in the prior year. The non-medical health interest-adjusted benefit ratio was 74.8%, modestly above our annual target range of 69% to 74% and less favorable to the prior year quarter of 70.8%, which also benefited from a positive disability reserve adjustment of approximately $30 million after tax.
While individual product experiences were elevated, they generally fell within a normal quarterly fluctuation. However, collectively, they had a larger impact this quarter. Looking ahead to Q3, we expect the Group Life mortality ratio to continue its positive trend and be at or slightly below the bottom end of its annual target range. For the nonmedical health interest adjusted benefit ratio, we expect the Q3 ratio show an approximate 200 basis point improvement from Q2 levels.
Turning to the top line, Group Benefits adjusted PFOs were up 4% and driven by growth in core and voluntary products, while sales were up 9% year-to-date, led by growth in regional business and strong re-enrollment across products. RIS adjusted earnings were $368 million, down 10% year-over-year. The primary driver was less favorable recurring interest margins compared to Q2 of '24, which benefited from income from interest rate caps that have since matured. RIS investment spreads were 102 basis points, down 12 basis points sequentially due to lower variable investment income.
RIS spreads, excluding VII, were flat sequentially at 101 basis points. RIS continues to achieve strong business momentum. While adjusted PFOs declined year-over-year due to strong U.S. pension risk transfer sales in Q2 of '24. Adjusted PFOs, excluding PRTs were up 24%, primarily driven by continued robust growth in U.K. longevity reinsurance. In addition, total liability exposures grew 6% versus the prior year period, including 5% in our spread earning general account liabilities.
Moving to Asia. Adjusted earnings were $350 million, down 22% on both a reported and constant currency basis. The primary drivers were less favorable investment in underwriting margins. Higher volume growth was a partial offset.
Asia's key growth metrics remain healthy. General account assets under management at amortized costs were up 6% year-over-year on a constant currency basis, and sales were up 9% on a constant currency basis. Japan sales were up 29% on a constant currency basis with growth across all product categories, but mainly in life and annuities following product launches and enhancements in the first quarter. Other Asia sales were also strong, but year-over-year growth was dampened by a large group case sale in Australia in Q2 of '24. In Korea, sales were up 36% year-over-year on a constant currency basis.
Driven by the launch of a new single premium foreign currency annuity product in the first quarter and from continued momentum in face-to-face channels. Latin America adjusted earnings were $233 million, up 3% and up 15% on a constant currency basis, primarily due to volume growth across the region. In addition, a favorable Chilean encaje return of approximately 5% contributed to LatAm's strong performance. Latin America's top line continues to perform well. adjusted PFOs were up 8% and up 18% on a constant currency basis, driven by strong growth and solid persistency across the region.
EMEA adjusted earnings were $100 million, up 30% on both a reported and constant currency basis, primarily driven by strong volume growth across the region. Given EMEA's growth in the first half of the year, coupled with improved foreign currency and interest rates, we expect EMEA's quarterly run rate to continue to run above its 2025 quarterly guidance of $70 million to $75 million for the remainder of the year. EMEA adjusted PFOs were up 16% and up 14% on a constant currency basis, and sales were up 13% on a constant currency basis, reflecting strength across the region. MetLife Holdings adjusted earnings were $144 million, down 6%, reflecting lower variable investment income as well as the continued runoff of the business.
Favorable underwriting was a partial offset. Corporate and other adjusted loss was $233 million versus an adjusted loss of $220 million in the prior year period. Lower variable investment income was partially offset by favorable expense margins year-over-year. The company's effective tax rate on adjusted earnings in the quarter was approximately 24%, which is at the bottom end of our 2025 guidance range of 24% to 26%.
On Page 5, this chart reflects our pretax variable investment income for the past 5 quarters, including the second quarter of 2025, which was $195 million. Private equity returns were 0.9% and our real estate and other funds yielded an average return of roughly 1% in the quarter. As a reminder, PE and real estate and other funds are reported on a 1 quarter lag and accounted for on a mark-to-market basis. While VII and 2Q '25 was below its quarterly guidance of $425 million, it was within the range of $175 million to $225 million that we disclosed in a Form 8-K at the end of June.
Given the continued difficulty in forecasting VII, we plan to once again disclose preliminary information regarding our Q3 expectations for VII toward the end of September. On Page 6, we provide VII post-tax by segment and Corporate and Other for the past 5 quarters. As a reminder, each business has its own discrete portfolio aligned and matched with its liabilities. Asia, RIS and MetLife Holdings continue to hold the larger proportion of VII assets, given their long-dated liability profiles.
Of the total VII asset balances of nearly $19 billion as of June 30, 2025. Asia accounted for more than 40% of the total. While RIS and MetLife Holdings accounted for roughly 30% and 20%, respectively. Moving to expenses on Page 7. This chart shows a comparison of our direct expense ratio for the full year '24 of 12.1%, Q2 of '24 of 11.9% and Q2 of '25 of 11.7%. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuation in quarterly results.
That said, our direct expense ratio in the second quarter was well below our full year target of 12.1%. This strong performance provides another proof point of our ongoing expense discipline and the sustained efficiency mindset that is supported by our top line growing responsibly. I will now discuss our cash and capital position on Page 8. Overall, MetLife is well capitalized with more than ample liquidity. Cash and liquid assets at the holding companies were $5.2 billion, as of June 30, which is above our target cash buffer of $3 billion to $4 billion.
And we continue to consistently return excess capital to our shareholders. In Q2, our total cash return was approximately $900 million, roughly $500 million in share repurchases and about another $400 million in common stock dividends. Beyond share repurchases and common stock dividends, cash at holding companies reflects the net effects of subsidiary dividends, net debt issuances and holding company expenses and other cash flows. Regarding our statutory capital for our U.S. companies, preliminary second quarter year-to-date 2025 statutory operating earnings were approximately $1.3 billion, while net income was approximately $1 billion.
We estimate that our total U.S. Statutory Adjusted Capital on an NAIC basis was approximately $17.1 billion as of June 30, 2025, down 3% from March 31, primarily due to derivative losses and dividends paid, partially offset by operating earnings. Finally, we expect the Japan solvency margin ratio to be approximately 710% as of June 30, which will be based on statutory statements that will be filed in the next few weeks. Let me conclude by saying that MetLife delivered a solid quarter, highlighted by strong momentum and underlying fundamentals across our portfolio of businesses.
While our earnings power was not fully evident this quarter given the lower-than-expected variable investment income, we remain confident in delivering all weather performance achieved through a position of strength with a strong balance sheet and recurring free cash flow generation. And as we embark on the New Frontier, our strategic priorities allow us to achieve responsible growth and generate attractive returns with lower risk. And with that, I will turn the call back to the operator for your questions.
[Operator Instructions] Our first question comes from the line of Suneet Kamath from Jefferies.
Benefits, as we think about second quarter results across the sector, it seems like performance has been pretty mixed this quarter. So just curious if you're seeing anything that's surprising to you in terms of the elevated claims? Or is this just sort of random Volatility?
Suneet, it's Ramy here. I mean I would say we're not seeing anything that is surprising per se. So let me just give you some context on the nonmedical health ratio specifically for us and what we're actually seeing. So as we stated, the ratio was pressured this quarter.
And as we also stated, we expect improvements in our earnings in the third and further improvements in the fourth quarter. Just to give you a sense of the magnitude of the improvements, we expect to see about a 2-point improvement in this ratio in the third quarter, as John stated, and we expect to see a further 2 points improvement in the fourth quarter. And just to get to your question, the clearest way to really think about the dynamics and what we're seeing in our own book -- for our Dental business, the results are very much running in line with our expectations. We are seeing the continued benefits from our rate actions here.
The other thing I would note is that Dental business is returning to its well-established seasonal patterns and with favorability coming through in the second half of the year, and in particular, in the fourth quarter. And we're starting to see that come through even in July and therefore, expect to see sequential improvements in earnings. In disability incidents and recoveries continue to be very much in line with our expectations. We continue to monitor this very carefully and continue to see both of these metrics be in line with our pricing and expectations.
And similar to dental, that also continues to be the case in July. So we don't see any macro impacts here. Where you've seen, if you will, the pressure, and it is a bit of I would say, part of the normal fluctuation in some of the other products in the nonmedical health ratio. So I think accident, hospital, critical illness.
When you look at the claims pattern here, we did experience a number of fairly small increases across each of these products, each of which was in line with our normal range that we typically see. What's different about this quarter is normally our results benefits from diversification across these products called them puts and takes that we see each quarter. What is unusual here is that these products all moved in one direction for us. And again, very different set of products, very different sort of drivers.
So nothing macro here that we expect to trend over time, and therefore, we think all of these are going to effectively normalize in the outer quarters.
Okay. That's very helpful. And then I guess on Chariot Re, and sidecars in general, we've seen a number of companies announce these things, but we haven't really seen any major deals with sort of third-party liabilities. So just wondering, I think, Michel, in your prepared remarks, you said more to come.
Can you just give us a sense of what your outlook is there maybe over the next couple of quarters? And if anything kind of needs to happen in order to accelerate this growth opportunity.
Suneet, thanks for the question. Yes. I mean as we had mentioned, really sort of Chariot Re, we see it as a vehicle to enable our growth basically, especially sort of as we see growth opportunities beyond our capital generation capabilities. If that were to happen, that's where we see the partnership with Chariot Re being helpful to us.
We -- as we said, especially in the sort of early years, the intention is not to sort of look for third-party liabilities for Chariot Re. That will be liabilities that are originated by MetLife. And we continue to see really good sort of opportunities ahead. So as we had said before, we completed the $10 billion transaction with Chariot within the time frame that we had discussed.
And we think there will be more to come, but those would be MetLife liabilities basically.
Our next question comes from the line of Ryan Krueger from KBW.
Could you give a little bit more color on the strong sales in both Japan and Korea and your thoughts on that if that can continue going forward?
Ryan, it's Lyndon here. So look, we're really pleased with the strong sales performance we've had in Asia, both when you look at the second quarter as well as when you look at the whole first half of the year. Asia's year-to-date sales through the first half have increased 10% when you look year-over-year. And when we look at Japan, in the first half, we were up 10% compared to the prior year, and that's been driven primarily by the foreign currency products.
So as I mentioned in the first quarter earnings call, we launched a new single premium FX product in April and this has been really well received by the market. We continue to enhance our single premium annuity product. And we're starting to see some benefit from the yen strengthening, and this has really been a tailwind for sales. So when you look at all these product actions, combined with our distribution strength, this is really driving strong growth against all our channels when you look at Japan.
When you get to the rest of Asia, sales there, when you look at the first half have increased 9% year-over-year and this is driven primarily by Korea as well as China. In Korea, now here, we're really being able to leverage what we've done in Japan. We've taken our U.S. dollar-denominated products and taken that expertise and we actually launched products in Korea. And we're actually seeing a lot of strength in our U.S. dollar products in Korea.
And the Korea sales have grown 41% when you look at the first half year-over-year sales. When you look at China, here, the sales growth is driven by the expansion in the bancassurance channel. And we've achieved this through getting deeper penetration within our existing bank partners as well as with the addition of some new bank partners. Now when you look at the prior year quarter for the rest of Asia, we actually had a large group pace in Australia in the prior quarter.
So if you actually take out that large group case quarterly sales for the rest of Asia were up 25% when you look year-over-year. Now looking ahead through the rest of the year, we kind of expect our -- to be at the top end of our guidance range when it comes to overall sales for Asia. So we hope that helps.
I appreciate it. And then a quick 1 probably for John. Just on retirement spread, would you expect them to continue to be stable with the first half of the year and the second half of the year?
Ryan, it's John. Yes, I think as you're kind of alluding to spreads ex VII, they largely played out as we expected and as we discussed in the first quarter earnings call, as we head into Q3, based on the forward curve, we do expect core spreads to remain stable. Although we do see a few bps of seasonality in Q3. It's interesting. RIS holds a small portion of wholly owned and joint venture real estate investments.
And just kind of the nature of the asset class, which includes some hotels, they tend to have some third quarter seasonality, although in the past, I'm not so sure we saw it as much because there are other things like the caps and things like that, that we're masking it. So we do see a few points of headwind, but we would revert back to the kind of low 100s come 4Q. While we're on RIS margins, I would just call out and just kind of referencing the Chariot point. We -- [ 7-1 ], we launched Chariot.
We reinsured just under $10 billion and so this -- as a [ 7-1 ] technically lowers our liability exposures, although we think, given the current pipeline, we expect to be within the 3% to 5% growth rate by the end of the year. But I should point out a couple of things. One, initially, enterprise earnings will have a few pennies of impact until that excess capital is redeployed. Once that's redeployed, do you think of it as being accretive to earnings.
And then within RIS itself, because it's a mix of RIS, the MIM fees, also our investment in Chariot so that all nets to a few pennies. But within RIS itself, we could think of like another $15 million to $20 million short-term headwind there, considering the loss of earnings from the reinsurance. So just wanted to kind of wrap that in there from an outlook perspective.
Our next question comes from the line of Tom Gallagher from Evercore.
First, Ramy, just a follow-up on Non-Medical Health. The -- so I think the disability pressure you saw this quarter came from high net worth. Unum seemed to see something similar. Have you done any more analysis on what's going on there?
Whether it's something could be structural, like mental nervous claims, employment related or that's mainly permanent disability. Just want to get a better sense for -- like is that something you've even really looked into? And then just remind us how big disability is as a percent of total earned premium versus dental just to size the 2 of them?
Sure, Tom. So we definitely did look into it. And we are really talking here about 2 clients, which are specialty clients. These are clients that have been with us for a very long time, and the economics of these have been accretive to us.
They're really related to injuries, which have very high claim amounts and has nothing to do with any of the other macro factors or any of the other potential causes that you've mentioned there. So that's kind of as far as the specific kind of elevation for the quarter. In terms of the PFO ratios, think about give or take, you've got about 10 low-digit in terms of the disability premiums as a percentage of the total and dentals, give or take, about a $5 billion premium line for us.
And sorry, Ramy, the disability you said -- is that 10% or below?
It's about -- just above 10%. It's about just above 10% of the total PFOs.
Got you. Okay. And then my follow-up is just on credit, which I guess, hasn't really been a focus for a while, but I noticed you did take CECL reserves for I think it was commercial mortgage loans of around $235 million this quarter. Were those office foreclosures, is there an impact? Is there going -- was there? Or will there be an impact on statutory risk-based capital as a result of that?
Tom, it's John. Yes, we did see an uptick in reserves, a little over $200 million in commercial mortgages and we've anticipated some charge-offs and some losses would emerge in 2025. We -- I think I've referenced this before that as you start to get into the ongoing orderly resolution of loans, this typically occurs, and we believe is actually a good sign. It's usually kind of indicative that there's some stabilization in getting to the price clearing levels and that's usually a sign where you've kind of hit the trough. And just to your point, so we would expect the resolution of loans to pick up this year, probably peak a little bit this year.
But the reality is a lot of this is already in our capital maybe it's a couple to 5 points of extra impact, but all within the normal levels of our excess capital and would not impact any capital management or dividend activity.
Our next question comes from the line of Jimmy Bhullar from JPMorgan.
So first, I just had a question for Ramy. Along the same lines on nonmedical, your optimism on results getting better in the third quarter. Is it based on just the fact that many of these things move around quarter-to-quarter and this quarter was just bad, especially on the voluntary side? Or is it -- or have you seen an improvement already in 3Q, I guess, we're almost halfway through it?
I mean it is both. It's based on one, the seasonal patterns in dental, which I've talked about. So you expect seasonality to kick in, in both of the subsequent quarters for dental. So Q3 will get better.
Q4 gets better. So that's a big driver. The other one is lack of any macro impacts on disability. It's running right in line with our expectations, incidents and recoveries as I've talked about before, inclusive of July.
The specialty claims that we had this quarter, we're really talking about a single-digit number of claims that are high value that had a disproportionate impact. These happen from time to time. We certainly don't expect them to happen each quarter. So none of these things, I would say, are in the optimistic bucket.
They are in well-established trends and based on what we're -- what we're seeing and into July. I think this notion that those puts and takes across the rest of the portfolio are going to normalize. That's kind of would be our expectation. And that's based on the fact, Jimmy, that there is no single driver.
I mean these are all different products with different dynamics in them, and we looked at them 1 by 1 and they all happened just to move in the wrong direction for us, and we would just expect that to normalize. So you bake it all in, and as of now, we feel pretty good about the 200 basis points improvement in each of the subsequent quarters.
Okay. And then I had a question for Lyndon on Asia earnings. So obviously, your sales in Asia were pretty strong. The earnings seemed a little weaker.
It's, I think, the second lowest quarter you've had in the past 6 and some of that might have been lower variable investment income, but earnings are lower than other quarters even adjusted for that. So is this more of a normal quarter and representative of the division's earnings power? Or were earnings depressed for whatever reason? Just trying to get a sense of is this normal?
Or were you over-earning in the past?
Jimmy, Lyndon here. So thanks for the question. So Yes, you're right. Asia earnings were lower year-over-year, and there were a couple of drivers here.
First, as you pointed out, lower variable investment income due to the fact we have lower PE returns, and John pointed out right at the beginning that Asia accounts now for over 40% of the VII assets in the company. Next, when you look at the underwriting margin, it was less favorable compared to the prior year. And this is because we've got a strengthening yen, which is driving lower surrenders right now. So it's creating a short-term headwind for earnings, due to the overall lower surrender income.
But it does drive higher sales. It does drive higher AUM, and this will kind of support us as we get higher future earnings here. So relative to expectations, earnings were lower due primarily to the variable investment income. But when you look at the outlook, we expect full year underlying earnings to remain strong and in line with guidance.
VII performance will continue to be a factor that will impact our overall reported earnings.
Our next question comes from the line of Wes Carmichael from Autonomous Research.
I actually wanted to follow up on the last question on Japan. Just hoping maybe, Lyndon, can you unpack the surrender activity? How pronounced is that as we've seen a bit yen strengthening? And I guess relatedly, how do we think about higher long JGB yields impacting your savings product offering there?
Yes. All right. So Wes, just first on surrenders. So we've seen surrenders come down relative to the prior year, but persistency is back in line with our expectation right now.
So the underwrite -- unfavorable underwriting margin compared to the prior year's really because we've got the strengthening yen, which is driving these lower surrenders. So this is creating a short-term headwind when we look at our overall surrender income. But as I pointed out, it is a good benefit when it comes to sales and AUM growth to get our future earnings. But we are seeing surrenders kind of come back down to our expectations now.
Now when it comes to higher yen interest rates for the Japan business, look, when you look at the overall environment in Japan, things are improving. It's a favorable macroeconomic environment, and we are seeing higher interest rates in the yen. So overall, it's a positive for our business. And we've been anticipating these higher rates and been planning for it.
We've got a good yen-denominated products. We've got ANH. We've got variable life segments, and these address needs when you're looking at protection as well as accumulation and we're working on adding other product offerings and the product economics now for yen products have really improved with these higher rates. So it gives us a lot of options when it comes to adding to the yen products.
When you look at the U.S. denominated products there, it continues to be a differential between U.S. dollar and Japanese yen rates despite the fact that the yen rates are rising. So the FX products will continue to be attractive for our customers. So when you look at the overall product portfolio, you look at the strength of our distribution, you look at our ability to product launches, we're really in a good position to meet customer demand, whether it comes to yen or dollar FX products there.
I would just add, Wes, just Lyndon's comments, it's probably roughly $15 million to $20 million relative to expectation in terms of underwriting and kind of the impact of the lower surrender fees.
That's helpful. And maybe just switching to a topic, I guess, we haven't talked about much on these earnings calls. But FABN and Michel, I think you mentioned the program in your prepared remarks, and I think you're the largest player in the market in terms of at least outstanding programs. But maybe you could touch on the outlook for that business.
It looks like the industry is probably going to have its largest issuance here ever for 2025.
Wes, it's Ramy here. I would say, as far as our program, we've been -- we've had a very well-established program. It's about 10% of our overall general account liabilities. And we consistently issue somewhere between $6 billion to $8 billion a year in the market.
And as Michel mentioned, we do benefit from favorable funding costs here in terms of the financial strength of our balance sheet and therefore, earned relatively higher spreads compared to the rest of RIS. I think with respect to the overall growth in issuance, I would say this is a really good thing for us. We welcome new entrants into the market. We think it's a net positive, as the issuing grows, it also attracts more investors and establish funding agreement back notes as an asset class that has wider appeal.
So -- and so we're actually pleased by the growth, overall growth in the market here.
Our next question comes from the line of Cave Montazeri from Deutsche Bank.
My first question is on the state of the PRT market. So Q2 wasn't your best quarter for PRT, but I appreciate that's a lumpy business, especially at the jumbo land. Just love to get some -- what are your thoughts, expectations into the second half? And also, how do you think about the attractiveness of the U.S. versus the U.K. PRT market.
Thank you. It's Ramy here. I would say, look, second quarter was a bit lighter. But year-to-date, we wrote $2.2 billion of PRT.
So we had a really good first quarter. And I would say those were deals with well-established firms that you would recognize in terms of their prominence. And as we look forward to the second half of the year, we see a number of jumbo cases, which are expected to transact in the third and the fourth quarter. Our approach here is to continue to be disciplined in terms of how we price and how we think about value versus volume.
That's an approach that has served us well, and we expect to earn our fair share of the market going forward. And then the last thing I would say on the U.S. market over the medium term, all the fundamental drivers that we've spoken about in terms of funding levels, the desire of plan sponsors to derisk, frozen plans all continue to give us a high sense of expectation that this is a market that's going to continue to be growing for the foreseeable future. And as you mentioned, it's always going to be lumpy. In the U.K., we do participate in that market as a reinsurer, not as a primary insurer and we do it in 2 ways.
We do it by being -- issuing longevity swaps. So think of that as really a fee business. And as we've been very successful at that, from a starting start, we've got $30 billion of balances. And as we've talked about late last year, we're now also participating in that business on a funded basis.
As and when we're providing, think of a reinsurance on a fully-funded basis. So think of it as U.S. PRT but on a reinsurance basis. And the same dynamics in the U.K. market are playing -- in the U.S. market rather are playing in the U.K. market.
So well-funded plans, they look to exit, I would say, more limited capacity in terms of insurance capital there and hence, the need for reinsurers like us with strong balance sheet, strong counterparty credit risk protections, and we expect to see nice growth there as well.
My follow-up is on GenAI. Could you give us an update on your implementation of GenAI in your processes, which parts of your business do you think can benefit most from GenAI, not just to improve efficiencies but also to drive growth?
Yes. Cave, it's Michel. Thank you for the question. Yes, I think we're sort of really excited about the potential of emerging technologies, broadly speaking, AI in particular.
And as we discussed at Investor Day, we view technology as a key enabler of our New Frontier strategy. I would say scale is important and matters here, and our scale has enabled us over a number of years of making important investments in this space. Those investments have been helpful to us from an efficiency perspective as well as in terms of enabling our growth. A few things that I think position us really well in terms of taking advantage of AI and of emerging technologies is one that we've been on a multiyear journey to modernize our legacy systems here, also in improving and enhancing the quality and the governance of our data.
Also, we've been on a multiyear journey to reengineer and in some cases, we imagine a lot of our key processes here. Those are important because for AI and emerging technologies to really be force multipliers, you have to inject them into contemporary processes and a sort of a modern infrastructure and systems. And I would say also the continued evolution of our culture here is important because we've been promoting a culture of experimentation of challenging the status quo at all levels of the organization. So all these things taken together, along with a mindset that views AI as a disruptor to many industries, including our own in a positive sense, have led us to be early adopters, and we've implemented a number of not only experiments, I would say, a lot of these are now in full production mode, both on the -- from a productivity and efficiency perspective as well as in terms of the customer experience and enabling growth as well.
And we're seeing really good results and traction here. I think we're still in the early days of what this technology is really going to deliver for us. But we certainly feel really good about how we're positioned, including sort of the partnerships that we've established. Some are well-established partnerships with key players in the space, but also a lot of partnerships with more specialized players that provide us with plug-and-play type solutions as well.
The areas where we are seeing a big impact, I would say, already are in the programming space, application development, if you like, call centers, claims as well, but many others, and it's a good balance between productivity and efficiency as well as growth-oriented initiatives. I hope this helps.
Our next question comes from the line of Elyse Greenspan from Wells Fargo.
My first question, just on Holdings, we've seen some recent deals on transacted within the long-term care space. Just wanted to get some updated thoughts on whether Met would potentially consider transacting with its block? And then are there other blocks that you're kind of looking to dispose within Holdings?
Thanks, Elyse. It's Ramy here. I would say with respect to LTC, we are clearly seeing the same activity that you're seeing and the fact that you're seeing more activity tells you there's more of a convergence, if you will, between cedents and reinsurers which is encouraging. I would say, as you know, these are complex transactions to execute, and we continue to be looking at them and an active dialogue in terms of price discovery as well as structured discovery, but these are complex.
They take time. And our objective is always going to be the same. We want to maximize shareholder value and continue to serve our customers. And so for us, price as well as structure matters.
In the interim, when we look through our book, it's well capitalized, well reserved. It continues to perform in line with our expectations. We have a really successful rate action program that's allowing us to obtain the necessary premium increases as well in the marketplace. So kind of -- that's kind of where we stand today.
And with respect to other Holdings transactions, we are expecting to close the Talcott transaction in the second half of the year, and we're going to be continuing to explore other risk transfer opportunities there going forward.
And then my second question, just in regards to recent health insurer adverse performance, some companies have said that if it's an incidence versus severity issues could start to see impacts to supplemental health businesses. Is this something we're beginning to see here with your business?
These are really distinct patents here. So we're not in the major medical business. There is no real trend impact on us. All the claims that we have in our voluntary suite of products are fixed dollar claims and then with respect to kind of the incidents, I would say what we've seen is very much in line with normal deviations that we would see fluctuations that we would see in any given quarter.
And if I was to give you just a bit more color on that, the 1 that you may have heard in the medical space is cancer and our critical illness product is actually running in line with expectations. So we're not even seeing any adverse incidents there. So I wouldn't try to extrapolate from what's going on in the medical world, into the voluntary world from what we can see in our book at the moment.
Our question comes from the line of Joel Hurwitz from Dowling.
Ramy, one more for you on Group You had really strong sales in the quarter, and you guys had highlighted regional business growth. Can you just provide some more color on the growth you're seeing in that regional market and maybe provide some color on the competitive landscape there?
Sure. So look, from a competitive perspective, we operate in a competitive, but I would still say rational market. And therefore, we compete based on a whole set of factors beyond price in terms of our capabilities, employer, employee experience, connectivity into the overall ecosystem relationships with the brokers that are very well established. So we really like the basis of competition in this business, and that's true up market, and it's also true in regional markets.
I would say from an overall growth perspective, you saw a 9% increase year-to-date from a sales perspective. Regional is a very important contributor of that, in particular, because we had a slower jumbo year this year versus last year. So regional continues to be a significant contributor when you think about our year-to-date sales growth.
Okay. And then just going to LatAm. The top line is running well ahead of your guidance. I guess, just what's fueling the better-than- expected growth again in '25?
Joel, this is Eric. Yes. So as we outlined at Investor Day, LatAm is a growth engine for the enterprise, and we've been delivering high single-digit growth in both top and bottom line in the past few years, double digit, if you look at it from a constant rate perspective. And that solid performance so far this year with premiums growing at a healthy double digit as well on a constant currency base.
And as we discussed, the business fundamentals of our franchises across the region are very strong, and we're well positioned to extend our growth trajectory into this year and beyond. Just to give you a little context about our LatAm. We're the largest life insurance company in the region. We have a strong franchise.
We serve close to 30 million customers. We operate in 6 markets, which are the most relevant ones. Mexico, Chile, where we are #1 leaders in Brazil, where we are the fastest growing company there. And we are very well diversified in terms of products as well as distribution channels.
We have a network of above 10,000 agents across the region in our face-to-face business. We're also the leading employee benefits provider to large employers as well as SMEs, offering a wide variety of life and health products. But our fastest-growing channel in the past few years has been our third-party distribution channel, where we distribute products through a variety of over 100 partners such as banks retailers, clinics, utility companies, among others. And in the past few years, we've witnessed significant growth through the rapid emergence of these digital ecosystem, whether that be digital banks, digital retailers and a wide variety of e-commerce ecosystems.
And to harness this opportunity, we launched Accelerator a couple of years ago. And this is really our regional embedded insurance fully end-to-end digital. And we've already integrated 21 partners. We've issued about $300 million in PFO since the launch.
We're serving 5 million customers on that platform. So this is growing really fast, and we're partnering with important players across markets and continue to scale that business to capitalize our competitive advantage. So it's really long summary about LatAm, but I think it was important to put things in context that this doesn't come from a specific country growth doesn't come from a specific line of business, but all lines are contributing to the growth and today and moving forward. Hope this helps.
Unfortunately, we don't have time for questions. I will now turn the call over to Mr. John Hall for closing remarks.
Great. Thank you, everybody, for joining us this morning, and we look forward to engaging throughout the quarter. Have a great day.
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