Q3 2025 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Third Quarter 202 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.

Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you being with us today for MetLife's Third 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 supplements, 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.

Other members of senior management are also available to participate in today's discussion. Last night, we released a set of quarterly supplemental slides, and they're available on our website. John McCallion will speak to these slides in his prepared remarks. An appendix to the slides features additional disclosures, GAAP reconciliations and other information, which you should also review.

After the prepared remarks, we will have a Q&A session, which will close at the top of the hour. As a reminder, please limit yourself to one question and one follow-up. With that, over to Michel.

Thank you, John, and welcome, everyone, to this morning's call. Last night, MetLife reported strong third quarter results, showcasing the earnings power of our diversified set of market-leading businesses and shining a spotlight on the positive impact of our New Frontier strategy. The expectations we outlined in the second quarter emerged in the third quarter as anticipated. Most notably, underwriting results bounced back in our flagship Group Benefits business on normal disability experience and seasonally better dental profitability.

Variable investment income posted its highest recent contribution to adjusted earnings as capital markets activity accelerated, unlocking value in private equity. Our global retirement liability origination platform is in high gear with growth in the U.S. and the U.K. as well as in Japan, where our efficient capital structure is supporting stellar sales growth. And in Latin America, our innovative digital platform for embedded insurance, Accelerator continues to attract and win over new strategic partners. Turning to our quarterly results.

We reported adjusted earnings of $1.6 billion or $2.37 per share, up 22% per share from the prior year period. Notable items totaled $18 million or $0.03 per share and included our annual actuarial assumption review and a tax adjustment in Mexico. Excluding notable items, adjusted earnings totaled $1.6 billion or $2.34 per share, a 21% increase from a year ago. The greatest driver of our outperformance in the quarter was strong investment margins led by variable investment income as well as volume growth across several business segments.

We reported variable investment income of $483 million, above our implied quarterly outlook of $425 million on higher private equity returns, which reached 3% for the quarter. With the rebound in variable investment income, MetLife generated an adjusted return on equity, excluding notables, of 16.7%, a level more on par with the company's earnings power and near the top of our target of 15% to 17%. And we delivered a direct expense ratio of 11.6% in the third quarter. We are well ahead of schedule with this ratio relative to our New Frontier commitment with the force multiplier effect of AI and other emerging technologies accelerating our productivity and efficiency gains.

Moving to MetLife's businesses. Group Benefits adjusted earnings, excluding notable items, totaled $457 million, up 6% from a year ago, reflecting solid underwriting results. Disability results returned to normal and dental profitability ramped up in the quarter, consistent with its seasonal profit pattern. As a result, we saw a 230 basis point sequential improvement in our nonmedical health loss ratio, providing further confidence in achieving a combined 400 basis points of improvement across the third and fourth quarters.

In Retirement and Income Solutions, adjusted earnings, excluding notable items, totaled $423 million, up 15% from the prior year quarter, reflecting higher variable investment income. Chariot Re officially launched in the third quarter with an initial reinsurance transaction of roughly $10 billion. This strategic partnership helps expand MetLife's retirement liability origination capacity in a capital-efficient manner while also generating institutional assets for MetLife Investment Management. Total liability balances in RIS were up 3%.

The solid result was driven by strong general account balance growth, including structured settlement production, a record quarter for us, in fact, and volume growth in U.K. longevity reinsurance. We did not report any new pension risk transfer deals in the third quarter. However, the fourth quarter is shaping up to be a record quarter as we've already written $12 billion of PRT transactions, demonstrating the trust the marketplaces in MetLife. Our long-term outlook for the PRT business is positive.

A few weeks ago, we released the results of our annual poll of pension plan sponsors. The survey found that 94% of those sponsors planning to derisk their portfolios expect to fully divest in the next 5 years. This is the highest percentage we've recorded since we initiated the survey 10 years ago. Shifting to Asia.

Adjusted earnings, excluding notable items, were $473 million, a 36% increase on a reported basis from the prior year quarter. Sales surged 34% on a constant currency basis, driven by an outstanding 31% increase in Japan. Our competitive Japanese product portfolio, which includes both foreign currency and yen-denominated retirement products has gained excellent traction across our multipronged distribution in the country. More than keeping pace, constant currency sales in other Asia markets jumped 39%, led by Korea, China and India.

In Latin America, adjusted earnings, excluding notable items, were $222 million, up 2%. Adjusted PFOs for the region totaled $1.7 billion, up 11% on both a reported and constant currency basis, indicative of continued business momentum across the region, most notably in Mexico, Chile and Brazil. We recently added e-commerce leader, MercadoLibre as a partner on our Accelerator digital platform in Mexico and Brazil. We now have more than 20 partners across Latin America, and the Accelerator platform has generated more than $340 million of annualized premiums since its launch, another powerful example of New Frontier in action.

Finally, EMEA posted another strong quarter with adjusted earnings, excluding notable items of $89 million, up 19% on a reported basis, primarily due to volume growth. As we do each third quarter, we published our 2024 value of new business or VNB results. It is hard to overstate VNB's importance as a tool for MetLife in maintaining capital and pricing discipline around the globe. Over time, the principal use of VNB has powered our transformation into a more capital-light business with consistent improvement demonstrated year after year.

Again, the results for the past year are impressive. In 2024, we deployed $3.4 billion of capital to support new business origination. This is the highest order use of our precious capital. The capital deployed in 2024 was put to use at an average internal rate of return of 19% and a payback period of 5 years.

Our success with VNB does not occur in isolation. Achieving high internal rates of return on new business with short payback periods feeds directly into our ability to produce a high return on equity and generate strong free cash flow. To that end, we continue to manage capital with discipline, protecting liquidity and balance sheet strength while returning excess capital to shareholders. Our track record is well established.

We have returned almost $24 billion to shareholders through buybacks and common dividends in the past 5 years. And the third quarter was no exception. We returned about $875 million to shareholders through common stock dividends and share repurchases. We paid roughly $375 million of common stock dividends and repurchased around $500 million of our common stock.

With approximately $150 million of repurchases in October, our total year-to-date share buyback is now roughly $2.6 billion. We ended the quarter with cash and liquid assets at our holding companies of roughly $4.9 billion, which includes about $700 million earmarked for near-term debt maturities and is above our target cash buffer of $3 billion to $4 billion. There is no doubt capital deployment and capital management have been integral to our past success and will continue to be as we push forward with the execution of our New Frontier strategy. We are working hard towards the successful closing of 2 strategic transactions: the acquisition of PineBridge and the sale of a legacy block of variable annuities to Talcott Resolution Life.

In both cases, we are fully engaged and on track to close in the fourth quarter. As we execute across our New Frontier strategic priorities, we are extending our leadership in the places we have the right to win. Underpinning our strategic priorities is our investment portfolio and our time-tested approach to credit and our unwavering commitment to risk management. For 157 years, MetLife has navigated complex and evolving credit markets, delivering consistent investment results even through periods of significant volatility.

Today, while the credit environment is reasonably stable and credit fundamentals resilient, we recognize spreads are historically tight and in some ways, priced for perfection. We maintain an up and quality bias across our portfolio, supported by active surveillance and disciplined underwriting. Our diversified high-quality portfolio and active risk management position us well to navigate a wide range of economic outcomes, ensuring we deliver regardless of the market environment. In closing, our third quarter results illustrate MetLife's ability to create exceptional value for shareholders and stakeholders alike and the power of the New Frontier as a growth engine.

As we do each year, we just completed the annual pressure testing of our strategy with our Board of Directors and came away confident we have the right strategy for the right time. Our focus on consistent execution, steady capital management and expense discipline will continue to strengthen and differentiate our market leadership while fueling our superior value proposition comprised of strong growth and attractive returns with lower risk. Now I'll turn it over to John to cover the quarter in more detail.

Thank you, Michel, and good morning, everyone. I'll walk through our third quarter results and refer to the 3Q '25 supplemental slides, which covers highlights of our financial performance, including details of our annual global actuarial assumption review. In addition, I'll provide updates on our value of new business metrics and our liquidity and capital position. Beginning on Page 3, we provide a comparison of net income and adjusted earnings for the third quarter.

We have introduced a new line item, net activity attributable to ceded reinsurance arrangements, which captures the net income impact from the growing use of ceded reinsurance following the launch of Chariot Re in Q3 of '25. Much of the offsetting amounts are captured in accumulated other comprehensive income, or AOCI, and primarily represents the change in unrealized gains or losses on the reinsured portfolio ceded to the reinsurer. Therefore, we believe most of the accounting for this item to be asymmetric or noneconomic in nature. Additionally, the main factors contributing to the difference between net income and adjusted earnings this quarter were net derivative losses resulting from stronger equity markets, rising long-term interest rates and strengthening of the U.S. dollar.

The net investment losses were generally in line with recent quarters. Overall, we continue to believe we are operating in a relatively stable credit environment. Moving to the bottom of the table, we recorded 2 notable items that mostly offset each other, resulting in a net increase to adjusted earnings of $18 million or $0.03 per share. The first item relates to the resolution of an industry-wide tax matter in Mexico regarding the value-added tax deduction of certain health insurance claims expenses.

This resolution and related change in tax law resulted in an after-tax charge of $71 million in 3Q of '25 in Latin America. We anticipate an additional after-tax charge of $20 million to $25 million in 4Q. And for 2026, we estimate a reduction in Latin America adjusted earnings of roughly $50 million to $60 million as we recalibrate our underlying rate assumptions in Mexico with little to no impact in 2027 and beyond. The second item relates to our annual actuarial assumption review, which increased adjusted earnings by $89 million.

Turning to Page 4. We provide additional details of these effects on adjusted earnings and net income by segment. The overall impact from the annual review was modest. In Retirement Income Solutions, or RIS, our payout annuity business benefited from higher mortality. Within Asia, we recognized more favorable experience in Japan due to lower morbidity in accident and health products and favorable lapse experience in life insurance.

And in MetLife Holdings, we had favorable mortality in life insurance and favorable lapse rates in variable annuities. Next, let's look at adjusted earnings by segment on Page 5. This shows third quarter year-over-year comparison of adjusted earnings, excluding notable items by segment and Corporate and Other. All my comments related to this slide will be made on an ex notables basis. Adjusted earnings were $1.6 billion, representing a 15% increase year-over-year.

This was primarily driven by higher variable investment income and strong volume growth. These were partially offset by less favorable underwriting and lower recurring interest margins when compared to the prior year. Adjusted earnings per share were $2.34, up 21%. Growth was supported by disciplined capital management.

Moving to the businesses. Group Benefits results showed steady growth and improved margins. Adjusted earnings were $457 million, up 6%. The key drivers were favorable expense margins and volume growth.

This was partially offset by less favorable life underwriting. The group life mortality ratio, excluding the assumption review, was 83.3% for the quarter, which is below the bottom end of our 2025 target range of 84% to 89%, but less favorable than the 82.4% on the same basis in the prior year. The nonmedical health interest adjusted benefit ratio was 72.5%, modestly above the midpoint of our annual target range of 69% to 74% and essentially flat to Q3 of '24 of 72.4%. This result represented an improvement of 230 basis points sequentially from the second quarter, primarily due to the anticipated dental seasonality and an expected recovery in disability.

We continue to expect our nonmedical health ratio to improve further in 4Q due to typical lower seasonal utilization in dental. Turning to the top line, Group Benefits adjusted PFOs were up 3%, which was dampened by approximately 1 percentage point due to the impact on premiums from participating life contracts. In addition, sales were up 5% year-to-date due to growth across most products. RIS maintained its strong momentum, coupled with higher investment income.

Adjusted earnings were $423 million, up 15% year-over-year. The primary driver was higher Variable Investment Income or VII. RIS investment spreads were 131 basis points, up 29 basis points sequentially due to higher variable investment income. RIS spreads, excluding VII, were up 1 basis point sequentially at 102 basis points.

In addition, the transfer of approximately $10 billion of RIS liabilities to Chariot Re in 3Q of '25 resulted in a reduction in adjusted earnings, which was in line with our prior guidance of $15 million to $20 million per quarter. RIS continues to achieve strong business momentum. Adjusted PFOs, excluding PRTs were up 14%, primarily driven by higher structured settlements and U.K. longevity reinsurance sales. In addition, our spread earning general account liabilities grew 4% year-over-year, while total liability exposures grew 3%.

And as Michel mentioned, we've already secured a record level of new PRT mandates so far in Q4. Turning to Asia. The segment displayed strong performance across all key metrics. Adjusted earnings were $473 million, up 36% and up 37% on a constant currency basis. The primary drivers were higher variable investment income and volume growth.

Additionally, results were positively impacted by a $30 million after-tax benefit from a model refinement applied to accident and health products in Japan. General account assets under management at amortized costs were up 6% year-over-year on a constant currency basis, and sales were up 34% on a constant currency basis. Sales in Japan, our largest market in the region, were up 31% on a constant currency basis, driven by product launches and enhancements earlier in the year. And other Asia markets also contributed meaningfully with sales up 39% year-over-year on a constant currency basis, led by Korea and China.

Latin America had solid top line growth and resilient earnings. Adjusted earnings were $222 million, up 2% on both a reported and constant currency basis, primarily due to volume growth across the region. In addition, a favorable Chilean encaje return of 6% contributed to LatAm's solid performance, although it was below the 8% earned in 3Q of '24. Latin America's top line continues to perform well. Adjusted PFOs are up 11% on both a reported and constant currency basis, and sales were up 15% on a constant currency basis, with strong growth across the region, most notably in Mexico, Chile and Brazil.

EMEA had broad-based volume growth, driving a double-digit adjusted earnings increase. Adjusted earnings were $89 million, up 19% and 17% on a constant currency basis. EMEA adjusted PFOs were up 11% and up 9% on a constant currency basis, and sales were up 24% on a constant currency basis, reflecting strength across most markets led by Turkey, Gulf and the U.K. MetLife Holdings delivered adjusted earnings of $190 million, up 12%, primarily reflecting higher variable investment income.

Corporate and Other reported an adjusted loss of $288 million for 3Q of '25 compared to a loss of $249 million in the same period last year. This increase was primarily driven by market-related employee costs as well as higher interest payments on outstanding debt. 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 6, this chart reflects our pretax variable investment income for the past 5 quarters, including the third quarter of 2025, which was $483 million, above our implied quarterly guidance of $425 million.

Private equity returns of 3% in the quarter drove the outperformance, while our real estate and other funds yielded an average return of approximately 50 basis points. 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. Page 7 presents post-tax variable investment income by segment and Corporate and Other covering the last 5 quarters. Each business segment maintains a distinct investment portfolio, carefully matching its liability profile.

The majority of VII assets are concentrated in Asia, RIS and MetLife Holdings, reflecting the long-term nature of these obligations. As of September 30, 2025, total VII assets stood at approximately $19 billion. Asia represented over 40% of these assets, while RIS and MetLife Holdings accounted for about 30% and 20%, respectively. This distribution underscores our strategic approach to asset allocation, ensuring that the investment portfolios are aligned with the duration and risk characteristics of each segment's liabilities.

Turning to expenses. Page 8 illustrates our direct expense ratio trends over time. For the third quarter of 2025, our direct expense ratio was 11.6%, an improvement from 11.7% in Q3 of '24 and notably below our full year target of 12.1%. We continue to emphasize that the full year direct expense ratio offers the most meaningful measure of our expense management given the inherent variability in quarterly results.

However, this quarter's outcome further demonstrates our continued commitment to disciplined expense control and operational efficiency while maintaining responsible growth across our businesses. Turning to Page 9. The chart highlights MetLife's value of new business, or VNB, metrics across our major segments, which we report annually and highlight the past 5 years. During 2024, we allocated $3.4 billion in capital to support new business initiatives, achieving an average unlevered internal rate of return of approximately 19% and a payback period of 5 years. This disciplined capital deployment generated about $2.6 billion in new business value.

The 2024 VNB results underscore our ongoing commitment to investing in opportunities that deliver responsible growth and attractive returns. We view annual VNB as a key indicator of our ability to expand our ROE and accelerate free cash flow generation over time. Let me now review our cash and capital position as detailed on Page 10. MetLife remains strongly capitalized, maintaining robust liquidity well above our internal targets. As of September 30, cash and liquid assets at the holding companies totaled $4.9 billion, exceeding our target cash buffer of $3 billion to $4 billion.

We continue to prioritize returning excess capital to our shareholders with total cash returns in the third quarter reaching approximately $875 million, comprised of roughly $500 million in share repurchases and approximately $375 million in common stock dividends. In addition to these returns, holding company cash reflects the net impact of subsidiary dividends, debt issuances, operating expenses and other cash flows. For our U.S. entities, preliminary statutory operating earnings for the first 9 months of 2025 were approximately $2.1 billion, with net income of $1.3 billion. Our estimated U.S. statutory adjusted capital on an NAIC basis stood at approximately $17.1 billion as of September 30, essentially unchanged from the prior quarter.

We anticipate the Japan solvency margin ratio to be around 740% as of September 30, pending the final statutory filings in the coming weeks. Looking ahead, we are pleased with our progress toward the transition in Japan to ESR, a capital framework that closely aligns to the economic capital model we use to manage our business. Based on our initial work, we expect to report an economic solvency ratio within a range of 170% to 190% from March 2026. This ratio reflects the strong capitalization of MetLife Japan as evidenced by its stand-alone AA- rating from S&P as well as our capital management efficiency.

We have yielded cash dividends from Japan totaling more than $4 billion over the past 5 years. Before I wrap up, I'd like to note that starting in the fourth quarter, we plan to report MetLife Investment Management or MIM, as its own business segment. In addition, we plan to eliminate MetLife Holdings as a stand-alone segment by consolidating it into Corporate and Other. This new reporting structure aligns with our New Frontier strategy.

As part of this resegmentation, we will disclose recasted historical financial results in early January, which should allow enough time to update your models prior to our fourth quarter earnings call. In summary, MetLife delivered a strong quarter, underpinned by sustained momentum and solid fundamentals across our diverse set of market-leading businesses. We achieved robust top line growth, maintained disciplined underwriting and exercised prudent expense management, all while benefiting from higher private equity returns. And our value of new business metrics highlight our strategic and disciplined approach to allocating capital.

Backed by a strong balance sheet and reliable free cash flow generation, we are well positioned to achieve responsible growth and deliver attractive returns with lower risk, creating sustainable value for both our customers and shareholders. And with that, I will turn the call back to the operator for your questions.

[Operator Instructions] We'll take our first question from Ryan Krueger at KBW.

My first question was on Asia sales. Can you provide some additional color on the strength that you saw? What were the key drivers? And what do you think will -- to what extent can this momentum continue going forward?

Ryan, it's Lyndon here. Look, we're really pleased with the strong quarter we've had in Asia. We've seen a 34% increase in the overall Asia market. So let me give you some more color here.

Let's start with Japan. Sales were up 31% year-over-year. We've launched a couple of new products. We've got a new single premium FX Life product that we launched in April.

And this product continues to do very well. In addition, we launched a new yen variable life product in August, and this too has been received very well by the market. We've also made some product enhancements. We've enhanced our single premium FX Annuity product earlier this year, and this continues to do well when we compare to the prior year.

So if you take all the product launches we put in place as well as the product enhancements, combine it with our distribution strength, that's really what's driving the strong growth that we see in both our channels, bancassurance as well as the face-to-face channel in Japan. Now when we look to the rest of Asia, sales there were up 39% year-over-year. And we're really seeing strong performance in Korea and China here. China sales were higher in the bancassurance channel, and that's really been driven by the fact that we've launched some new key bank partners as well as been able to penetrate existing bank partners.

In Korea, we continue to deliver consistently strong performance. And here, we are showing strength in our U.S. dollar product sales as well as our one variable life product and in the face-to-face channels. So good results overall. Now looking ahead, we expect this momentum to continue going into the fourth quarter, and we expect to exceed full year sales guidance for '25. I hope that helps.

Great. And then just a quick one on expense seasonality. Can you -- I think you typically do have some expense seasonality in the fourth quarter. Can you give us any rough magnitude of what to expect there?

Yes. Ryan, it's Michel. Yes. Look, we are really pleased with the -- our direct expense ratio coming in well below the 12.1% that the target that we had set during the outlook.

There is some seasonality, fourth quarter being somewhat higher than the first 3 quarters. But I would say that our expectation is that we will come in below the 12.1%, I would say, even well below the 1.1 at year-end. And 2 factors contributing to this, I will say. One is early this year, we had asked our teams, given the uncertain environment to tighten our belts and to see how we can manage expenses to a greater extent without sacrificing any of the investments we're making in growth and strategic initiatives.

And the reaction has been really great, really pleased with it. And we've also asked the team to make sure that we carry some of those savings into next year and beyond. And the other factor here is technology related. Over the last 5 years, we've invested over $3 billion to simplify and modernize our technology ecosystem.

This really has laid the foundation for us to integrate emerging technologies, including AI into our core processes, products and services. We've also developed a proprietary AI platform, which we call MetIQ. This platform blends generative agentic and classical AI capabilities that support responsible solutioning across business domains. So think about app development and customer service, for example.

We've also provided tools for our employees, our associates as well as increased training. So this is all leading to both productivity gains as well as driving further efficiencies. And this is also contributing to the lower direct expense ratio that you're seeing here.

We'll move next to Tom Gallagher at Evercore.

First question, just on the $12 billion of PRTs that you've won so far in Q4. Is that a few large deals, several smaller ones? And can you just comment on what's happening competitively in that market to allow you to have so many wins?

Thank you, Tom. It's Ramy here. We're really pleased with our 2025 performance in PRT. To date, we have written more than $14 billion.

And as Michel mentioned, there's $12 billion of that coming in the fourth quarter, which is making it a record for us. It's a few large deals. So as you know, we focus on the jumbo end of the market versus the small end of the market. So think of those as jumbos, not small deals.

And the other -- maybe 3 other points just to think about and put this kind of record quarter in context for us. One is that we have distinct competitive advantages in that jumbo end of the market. It's our balance sheet size, our investment capabilities. And look, Tom, at the jumbo end of the market, financial strength, disciplined risk management and established track record are all very important factors for plan sponsors and their advisers, and we're extremely pleased that we're winning the trust of the marketplace here and having a record quarter.

The 2 other points I'd make here as well is to also reiterate our disciplined approach to these deals. We do take an M&A lens to our capital deployment here and evaluate the risk and return of each deal. So the focus on value is very much there, and you see us also disclosing our VNB metrics, which really also encapsulates that. And for PRT, we continue to achieve ROEs in this business, which are supportive of our enterprise ROE targets.

And then maybe the last point also though, just to put this in context, this is also a quarter where this win is a great illustration of us deploying our retirement platform and our capital strategies that we talked about at our Investor Day. So we're bringing the strength of our liability origination, our RIS platform. We're using our own balance sheet, but we're also using third-party capital here to enhance financial flexibility. So think about those deals driving spread earnings for RIS as well as additional growth and fee revenue for MetLife Investment Management.

So it really ticks a lot of the boxes that we talked about back in Investor Day with respect to our strategy here.

That's good color. I appreciate it, Ramy. I guess my follow-up would be for you as well. Can you just comment on what's happening underneath nonmedical health on your improvement?

I guess several peers have seen some volatility in group disability this quarter. Can you comment on the split between dental and disability, what you saw in Q3 and then why you're still confident that you can continue to improve into Q4?

Thanks, Tom. We're also very pleased with our underwriting results here in group. And you saw us print a nonmedical health ratio that's 230 basis points down sequentially, which is slightly above where we indicated last quarter. So just to split that up for you in terms of disability, in particular, and then Dental.

I would say the 2 drivers behind the sequential improvement. One is the favorable seasonal utilization pattern in dental. We did talk about that in the last quarter, and that's materialized here in the third quarter. We also have the benefits of our pricing actions continuing to flow through our bottom line.

And I would remind you that this seasonality also exists in the fourth quarter, which is why we expect to see a further improvement in this ratio come Q4. Disability is performing well for us. It's very much in line with our expectations. Incidents and claim severity are in line. We are seeing very strong recoveries.

And I would say that's an outcome of investments we've made in various capabilities in disability over a number of years. So this is coming through as well in very strong recoveries. So all in all, consistent with what we talked about in the last quarter. And so think about that 400 basis points improvement that we talked about, this 230 gets us more than halfway through in that direction of the overall 400. I hope that helps.

I'll go next to Suneet Kamath at Jefferies.

Just on PRT, is any of the $14 billion that you are planning to write this year going into Chariot Re? And how do we think about the difference in earnings impact if it goes in Chariot Re or if it stays on your balance sheet?

Suneet, it's John. Let's just start with -- we launched Chariot Re on 7/1. We transferred just under $10 billion of liabilities to Chariot Re and did all that launching in less than -- a little less than or just over a year. So -- we're very pleased with the progress we've made. Look, I think this comes back to our strategic approach and something we laid out in Investor Day and that Michel kind of articulated around just how we think about complementing our own capital with third-party capital.

We see more growth in the retirement business. So it's hard to kind of pinpoint is this Chariot or is -- Chariot is kind of ongoing. We're always working with them. That's kind of the process.

And that will be part of the -- how we accelerate growth on our retirement platforms. It's -- but it's not necessarily always so perfectly aligned and things don't always line up. So I'd say yes, but to your answer, I think you could argue that we'll look more holistically at just our total asset growth and then use third-party capital to augment that. And then I think the comments we gave back a quarter ago in terms of like the impact, the temporary impact on earnings is somewhere between $15 billion to $20 billion on the $10 billion deal.

That's kind of a rough justice of an earnings impact in any one quarter. So just so you have like a sensitivity, but we would expect that to be temporary in nature while we then refund that with other growth.

Okay. That's helpful. And then I guess, Michel, in your prepared remarks, you referenced this efficient capital structure in Japan. I was hoping you could unpack that a little bit. Is that unique to Met? And then relatedly, on the ESR, the $170 million to $190 million, are there any adjustments that you're making to, I guess, the rules that come from the FSA?

Yes. It's John again. Maybe I'll just touch on that given your -- the collective components of that question. So when we talk about the efficient structure, obviously, we're referencing we have a pretty big presence in Bermuda.

So we've leveraged Bermuda for certain products. And that has helped us get to a more economic regime. We've continued to build our presence in size in Bermuda, both our affiliate and as well as obviously the launch of Chariot Re. So we've leveraging that framework.

And then your question was on ESR. Was it just how that relates to ESR, that was your question? I just want to make sure I got it correct.

Yes. No, it's the 170 to 190. Some companies have talked about company-specific adjustments that are made when they report those ratios. That's what I was looking.

Okay. Yes, this has no adjustments. This is just prescribed. We're following the prescribed rules here.

So that's the $170 million to $190 million. And look, as we've been -- we have operated under an economic framework. We've always used both to kind of think about our products and how we run that business. I referenced in my remarks about we've been consistently dividending, including this year out of Japan.

We've had $4 billion of distributions up to the holdco over the last 5 years. So this is just the general range that we would expect to run this company.

We'll move next to Alex Scott at Barclays.

First one on -- going back to Group Benefits. Can you talk a bit about just what you're seeing in the competitive environment, pricing environment and what you think that could lead to in terms of growth? Do you feel like at this point, you can get back to a more long-term growth outlook for 2026?

Thanks, Alex. I would say we continue to see a market that's competitive, but a market that's rationally priced, which means we kind of always find opportunities to grow and we grow that business while maintaining discipline in terms of underwriting and achieving our target returns. And you hear us talk about that, but I think just keep in mind, 2 specific attributes here that have sustained this competitive yet rational environment. The first is the fact that these are short-term products.

So underwriting results emerge fairly quickly. And this acts as a natural check, if you will, on the competitive dynamics. The other is, look, customers here are looking for real solutions to help them deliver their overall talent strategies and drive business outcomes. So yes, price matters, but they're also looking for solutions that give their employees good experiences, enhances their productivity.

In many instances, they're looking to transfer administrative burden in terms of leave and absence. They want to do that with a carrier that's tightly integrated with them and is easy to do business with. They want to do more with fewer. So they're looking for bundled solutions across the entire range of products.

And look, we are a leader in this industry. And so we bring all of the above and more to the table. which allows us to drive good growth, and that comes through good retention, good renewal pricing and also we can do that while maintaining discipline. So I would say all of these things are really good attributes that we -- that the market has. And we have a 4% growth rate in this quarter once you kind of net out the impact of the [indiscernible] contracts, 4% on top of $25 billion in absolute terms is a pretty significant number, and we're really pleased with the momentum that we have in this business.

Second one I have for you is just if you could give us your views on some of the comments that have been made around private credit investing in insurance recently. And I think some of the comments were focusing on private letter ratings and this idea that maybe there's ratings inflation out there. So if there's any kind of stats you can give us about your private credit book and the way that you go about applying ratings and so forth, that would be helpful too.

Alex, it's John. I'll start here and maybe I'll ask my partner here to even add some color. So let me just give you some broad themes. So -- and Michel referenced before, first, let's just -- we are constructive on the credit environment right now.

There's strong fundamentals, corporate profits are strong. But as you heard from Michel, spreads are tight. So you need to be very mindful and disciplined around value and risk right now. And for us, that generally means up in quality.

Even in higher-yielding strategies, we're up in quality. I did see the same referenced article that you had. And look, they were pretty generic comments. So hard to kind of unpack that and wouldn't try to even do that here.

But I think for us, if I look at just us, we're a top-tier private asset, private credit manager. We've been doing this for decades. Importantly, having done this through credit cycles, right? Not everyone has done that.

And these assets give us many, many benefits. And I'll ask Chuck. Chuck is our Chief Investment Officer, and he can give a little color on some of the specifics and how we think about underwriting.

I mean I think John's first point is spot on in that we've been a major investor in this sector for a long period of time. And I think it's important when you -- when we hear all the comments out there to understand that MIM does our own underwriting. Our primary source of credit underwriting is the own work we do. It's not rating agencies.

It's not a rating letter. It's our specific underwriting. And the vast majority of our corporate bonds are investment grade, 95%. And the exposure that we have to below investment grade is mostly up in quality.

So I think all those factors, good underwriting, good experience, focus up in quality puts the portfolio in pretty good position.

We will move next to Wes Carmichael at Autonomous Research.

First question I had for you was on RIS and just kind of your outlook for the base spread from here. I think, John, you mentioned it improved a basis point. But as we look forward, how are you thinking about the base spread?

As you said, we had 131 basis points in spreads, about 29 basis points of that was VII. And so we came in at 102%, and that was actually up 1 basis point from Q2 and better than our guidance we had given. And we had expected some seasonality in some real estate that wasn't as severe as we thought, and there was also a few other smaller favorable items that helped us maintain consistency. As we think about Q4, all else equal, we'd expect kind of a steady spread level from Q3. The one headwind we'll have to be just think about or be mindful of is with the large amount of PRT mandates that we've won during this quarter, that can cause a quarter -- temporary quarter headwind as you reposition assets, and that could be a couple of basis points, if any.

But I think putting it all together, we see relatively flat, I think, would be kind of our viewpoint at this point.

That's helpful. And second, I guess there's a press release out this morning from Brighthouse, the company is expected to be acquired by Aquarian. And I believe MIM manages a portion of assets for Brighthouse. But I just wanted to see if there's any other potential impacts to MetLife.

I don't think it should be AUM you managed, but are there any other impacts that we should be thinking about from here?

Yes. No, we saw the report as well, and I think congratulations to the team. And obviously, all this was rumors until it's not. And -- but to the extent that it's not a rumor, you know then that there was a lot of hard work that went into something like this.

So we're certainly happy and congratulate the team for all the hard work they went through. Look, for us, it's been a -- we have a great relationship with Brighthouse. We obviously have a long history with them. And so we have kind of a fun place in our heart for that relationship.

At the same time, we have some very unique asset management capabilities that we think help them achieve their strategic objectives. So the key relationship right now, to your question, is our asset management relationship, and we look forward to leveraging the partnership and working with them to help them with their strategic outcomes.

Next, we'll go to Joel Hurwitz at Dowling.

On MIM, any color on the performance of the business this year and how third-party flows have been?

Joel, it's been a good year. To be honest, if we had to kind of unpack the first and second half of the year, the first half, just given the market volatility was a little muted. Also, the announcement of PineBridge probably put a little bit of a slowness on things in the beginning of the year, but the team has worked tremendously hard to kind of educate the external environment. And we saw -- we had a strong second half.

I think we're just above on total assets under management of just over $630 billion of AUM, above $200 billion on third-party assets. So -- and the flows in the second half of the year have been very strong. So we're very excited about what's ahead for MIM. And obviously, kind of it's one of our strategic initiatives to accelerate the growth of -- and the team has been working very hard and excited to become our own segment come next year.

Got it. And then a couple on LTC. First, any material changes to the assumption set there? We've seen a couple of players have some adverse incidence trends. Not sure how that's trending for you guys. And then just any update on what you're seeing in the risk transfer market for that business?

Yes, sure. I'll start, and then I'll hand it over to Ramy to give some thoughts on the market. So broadly, you saw our actuarial assumption review pretty modest, slight positive overall, some slight positive in RIS with some higher mortality benefiting there and -- then in Asia, some favorable experience on morbidity and lapse rates. And then in Holdings, we actually had some favorable life experience as well as some favorable lapse experience on VA, a very, very modest LTC number of 2 million post-tax change.

And so I think the block continues to perform well. The ADE is in line with what we would typically expect. And I'll turn it over to Ramy to give some color on just what he's seeing in the market.

Thanks, John. As we've said before, we have and continue to look at risk transfer opportunities here. And clearly, very much seeing the recent risk transfer activity that's taken place -- so we're engaged and continue to look at that. And having said that, though, we will be very disciplined here as we explore these opportunities.

We have a very well-managed book of business. It's well capitalized and well reserved. We continue to have a successful rate action program that's allowing us to obtain the necessary premium increases that the book needs. So as we look at any potential transaction, price is going to really matter here.

And ultimately, any transaction needs to be accretive from us -- for us from a shareholder value perspective.

We'll take our next question from Wilma Burdis at Raymond James.

Could you just discuss the forward timing of the impact of the Mexico tax law change?

Yes, this is Eric. So as John mentioned, this quarter, we took a notable charge related to the change law in the tax law in Mexico. So first, let me start by giving you a little bit background on this item. So in the past few years, the Mexican tax authorities have been challenging the VAT deduction of certain insurance claims-related expenses.

And although the discussions were ongoing for several years, there was really no -- little to no progress until the past few weeks when the government and the industry reached an agreement, making the change effective for 2025 and beyond. And this revision to the tax law just passed the legislator last week. So for MetLife, this industry-wide insurance change only affects our health product offering. The change to the VAT deductions results in notable impacts in 2025 with lesser impact in 2026. And as we transition to the new rule, and then there will be little to no impact in earnings by 2027. So we are already working to adjust our underlying rate assumptions for this annually renewable product, along with other management actions which will help mitigate the impact of this transition.

So from our experience also, this market has been very resilient and rational, which gives us confidence that we will work through this quickly. Our business in Mexico is strong. We have a large and very well-diversified franchise, and we're confident in our ability to continue to deliver on that strong performance. So in summary, this impact to the VAT change is isolated in nature, and it's temporary.

And we expect we'll be back to our run rate and growth trajectory for the region by 2027. I hope this helps.

Okay. And then you had some positive assumption updates in Asia. Is any of that potentially ongoing?

Wilma, it's John. No, that's -- those are all generally onetime in nature.

And that concludes our Q&A session. I will now turn the conference back over to John Hall for closing remarks.

Great. Thank you, everybody, for joining us this morning, and we look forward to engaging as the quarter goes on.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.