Earnings Call Transcript
METLIFE INC (MET)
Earnings Call Transcript - MET Q2 2022
Operator, Operator
Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Second Quarter 2022 Earnings Release 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 the risk factors discussed in MetLife's SEC filings. With that, I will now turn the call over to John Hall, Global Head of Investor Relations.
John Hall, Global Head of Investor Relations
Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife's Second Quarter 2022 Earnings Call. Before we begin, I'd point 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. Also participating 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 if you wish to follow along. An appendix to these slides features incremental disclosures, GAAP reconciliations and other information which you should also review. After prepared remarks, we will have a Q&A session, which will end no later than the top of the hour. In fairness to all, please limit yourself to one question and one follow-up. Now over to Michel.
Michel Khalaf, President and CEO
Thank you, John, and good morning, everyone. Over time, I have referred to our Next Horizon strategy as being all-weather designed to guide MetLife through a variety of economic environments. The environment has shifted with equity markets falling from historic highs, interest rates trending up from historic lows, further strengthening of the dollar, and the odds of a U.S. recession on the rise. The resilience of Next Horizon, combined with our clarity of purpose, positioned MetLife to meet these challenges in the second quarter of 2022. While certain things may be outside our control, we continue to execute with urgency across those things we do control. Let's turn to some numbers. MetLife reported strong financial results for the second quarter. Adjusted earnings were $1.6 billion or $2 per share compared to $2.37 per share a year ago. Excluding one notable item, adjusted earnings were $1.90 per share. The combination of strong underwriting margins and good volume growth drove solid adjusted earnings results while variable investment income fell below our quarterly outlook expectations. Net income in the second quarter was $103 million compared to $3.4 billion a year ago. Current period net income was driven by adjusted earnings, offset by interest rate and foreign currency derivative losses from securities held to protect our balance sheet. Also, standard investment activity resulted in realized losses as interest rates rose during the quarter. Year ago net income includes the gain we booked on the successful sale of our Auto & Home business. Now moving to variable investment income, which returned to a more typical level following seven consecutive quarters of truly outstanding results. During the seven-quarter period, MetLife generated more than $8 billion of cumulative pretax variable investment income. This type of investment performance serves to validate MetLife's long-term prudent exposure to this value-added asset class. In the second quarter, variable investment income of $389 million was aided by private equity investments and real estate funds, which generated returns of 1.5% and 7.9%, respectively. Our private equity returns are reported on a one-quarter lag and the weak second quarter equity market should negatively impact our variable investment income in the third quarter. Throughout the pandemic, the broad diversity of MetLife's businesses across product lines and geographies has clearly been a great strength. Initially, underwriting gains in one business offset underwriting losses elsewhere. When COVID claims seemed to reach their peak, our private equity gains then filled the gap. And the current quarter continues to illustrate this point as variable investment income has returned to more normal levels in the second quarter, so too have our underwriting margins. Turning to MetLife's business performance, I'll start with our U.S. Group Benefits results. Adjusted earnings of $400 million were up 61% year-over-year. This represents the highest quarterly result ever posted by this flagship business, primarily driven by favorable underwriting. Historically, the second quarter tends to be a low mortality quarter, something that was also evident this year. Group Life mortality, including COVID-19 losses, registered a benefit ratio of 85.8%, which is at the low end of our target range of 85% to 90%. A significant contraction in U.S. COVID-related deaths and a further shift upward in the age of death contributed to the improvement in the second quarter benefit ratio. Having witnessed prior losses during this 2.5-year-long pandemic, we are cautiously optimistic and note the absence of much, if any, excess mortality in our current period group benefits results. At the current pace, MetLife is on track to generate close to $25 billion of adjusted group benefit revenue in 2022, a true testament to our product breadth, scale, and momentum in this attractive market-leading business. For Retirement and Income Solutions, or RIS, adjusted earnings totaled $388 million, which were down from a year ago due to less variable investment income but helped by favorable volume growth. Looking past the decline in variable investment income, recurring investment income spreads were strong at 103 basis points as we continue to manage against a shifting yield curve. During the quarter, we booked $2.6 billion of new pension risk transfer business, which brings our year-to-date total to roughly $4 billion. We continue to see a strong pipeline for the balance of the year based on good funding levels and higher long-term interest rates. In Asia, adjusted earnings of $386 million were below a year ago on lower variable investment income and less favorable underwriting. COVID claims in Japan impacted adjusted earnings in the quarter, driven largely by deemed hospitalization, which allows for payment of COVID claims incurred for care outside of the hospital. Other Asia business metrics remained favorable, with sales growing 2% year-over-year on a constant currency basis, while general account AUMs in the region were up 5% on the same basis. In Japan, sales grew 5% on a constant currency basis. MetLife has a history of product innovation in Japan. Most recently, we've built on that legacy with product launches in September, February, and April, illustrating both our speed to market for new products and our leading digital distribution capabilities. We continue to have good sales momentum in Japan, supported by a resilient business model, and we remain on track to achieve our Asia region sales outlook for the year. Looking to Latin America, adjusted earnings totaled $267 million, well above $97 million a year ago. Lower COVID claims, a favorable impact from inflation, a strong encaje, and continued volume growth, all combined to generate substantial outperformance in the second quarter. Fundamental drivers in Latin America also remain strong with sales and PFOs up from a year ago on a constant currency basis by 19% and 26%, respectively. Moving to capital and cash. MetLife was active with capital management during the second quarter, and we returned more than $1.5 billion to shareholders through $408 million of common dividends and $1.1 billion of share repurchase. In the first half of 2022, MetLife repurchased approximately $2 billion of common stock. Given the accelerated pace of buyback activity in the first half of the year, we anticipate a modestly slower pace in the back half. There remains $2.5 billion outstanding on our current $3 billion authorization. MetLife continues to be well capitalized and highly liquid. At the end of the quarter, we had $4.5 billion of cash and liquid assets at our holding companies, which includes the proceeds from the sale of our Poland business, and we remain comfortably above our target cash buffer of $3 billion to $4 billion. Financial flexibility was further enhanced after the second quarter's end when we tapped the debt market raising $1 billion of 30-year paper in a well-oversubscribed offering, another example of the value the market attributes to MetLife's financial strength. Turning to sustainability. At the end of last quarter, MetLife announced a broad set of DEI commitments designed to address the needs of the underserved and underrepresented by 2030. The MetLife Foundation recently announced an updated strategy aimed at driving inclusive economic mobility by addressing the needs of underserved and underrepresented communities around the globe. The foundation's grant-making and impact investments will be aligned across three core portfolios: Economic inclusion, financial health, and resilient communities, and will advance the broad set of diversity, equity, and inclusion commitments MetLife announced at the end of last quarter. In closing, when we introduced our Next Horizon strategy, little did we know that it would be put to the test so quickly and so severely. Our results this quarter clearly demonstrate its resilience. We saw solid underlying business performance supported by a strong capital base, which reinforces our confidence that Next Horizon is the right strategy for MetLife. With our purpose as our North Star and with our strategic pillars to guide us along the way, MetLife is well positioned to rise to the challenges ahead and deliver significant long-term value to our shareholders and other stakeholders. With that, I will turn things over to John.
John McCallion, CFO
Thank you, Michel, and good morning. I will start with the 2Q '22 supplemental slides, which provide highlights of our financial performance, an update on our cash and capital positions as well as commentary on the new U.S. GAAP accounting known as Long Duration Targeted Improvements or LDTI, effective 1/1/23. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the second quarter. Higher interest rates and the strengthening of the U.S. dollar in the quarter drove net derivative losses. As a reminder, MetLife uses derivatives as part of our broader asset liability management strategy to hedge certain risks. This hedging activity often generates derivative gains or losses and creates fluctuations in net income because the risk being hedged may not have the same GAAP accounting treatment. In addition, we had net investment losses from our normal trading activity in the portfolio given the rising interest rate environment. We had one favorable notable item this quarter of $77 million or $0.09 per share related to a reinsurance settlement, which was accounted for in MetLife Holdings. On Page 4, you can see the second quarter year-over-year comparison of adjusted earnings by segment, which excludes notable items in both periods. Adjusted earnings in the second quarter of 2022, excluding the notable item, were $1.5 billion, down 23% and down 21% on a constant currency basis. Lower variable investment income drove the year-over-year decline, while favorable underwriting and solid volume growth were partial offsets. Adjusted earnings per share, excluding the notable item, was $1.90, down 17% year-over-year on a reported basis and down 15% on a constant currency basis. Moving to the businesses, starting with the U.S. business. Group Benefits adjusted earnings were up 61% year-over-year, primarily due to significant improvement in underwriting margins aided by lower COVID-19 Life claims as well as higher volume growth. The Group Life mortality ratio was 85.8% in the second quarter of '22 towards the bottom end of our annual target range of 85% to 90%. The business benefited from lower U.S. COVID deaths in the quarter and a continued favorable shift in the percentage of death under age 65, declining from approximately 23% in the first quarter to roughly 17% in the second quarter. The adjusted earnings impact of Group Life COVID-19 reported claims was approximately $35 million offset in part by an IBNR release related to 1Q '22 COVID-19 claims of approximately $25 million. Therefore, the net COVID impact was roughly $10 million or one percentage point on the Group Life mortality ratio. More detail on the Group Life mortality results over the past five quarters can be found on Page 11 in the appendix. Regarding non-medical health, the interest-adjusted benefit ratio was 73.1% in Q2 of '22 within its annual target range of 70% to 75% and favorable to the prior year quarter of 73.8%. Turning to the top line, Group Benefits adjusted PFOs were up 3% year-over-year. As we discussed in the prior quarters, excess mortality can result in higher premiums from participating contracts in the period. The higher excess mortality in Q2 of '21 versus Q2 of '22 resulted in a year-over-year decline in premiums from participating contracts, which dampened growth by roughly 1.5 percentage points. The underlying PFO increase of approximately 4.5% was due to solid growth across most products, including continued strong momentum in voluntary. Retirement and Income Solutions, or RIS, adjusted earnings were down 41% year-over-year. The primary driver was less favorable private equity returns versus a very strong Q2 of '21. Favorable volume growth was a partial offset. RIS investment spreads were 116 basis points within our full year 2022 guidance of 95 to 120 basis points, but well below the prior year quarter of 224 basis points due to the significant decline in variable investment income. Spreads, excluding VII, were 103 basis points, up 5 basis points versus Q2 of '21 and up 14 basis points sequentially due to higher interest rates, wider credit spreads, and favorable real estate performance. RIS liability exposures were down 3% year-over-year despite strong top line growth. The key drivers of this decrease came from reductions in accounting adjustments that impact our liabilities, but do not impact fees or spread income and thus have no impact on adjusted earnings. RIS sales were up 30% year-to-date, primarily driven by pension risk transfers and stable value products. With regards to PRT, we completed three transactions worth $2.6 billion in the quarter, a strong first half of 2022, and we continue to see an active market. Moving to Asia, adjusted earnings were down 26% and 22% on a constant currency basis, primarily due to lower variable investment income and unfavorable underwriting. This was partially offset by solid volume growth as assets under management on an amortized cost basis grew 5% on a constant currency basis. In addition, Asia sales were up 2% year-over-year on a constant currency basis, primarily driven by another solid performance in Japan. Overall, Japan sales were up 5% driven by FX annuities and accident and health products sold through face-to-face channels. Latin America adjusted earnings were $267 million versus $97 million in the prior year quarter. This strong performance was driven by several positive factors, primarily favorable underwriting and investment margins as well as solid volume growth. Overall, COVID-19 related deaths in Mexico were down significantly in Q2. This positive trend, coupled with the emergence of even more favorable mortality experience in our own book, resulted in a reduction to the IBNR reserve that was established in prior periods. This benefited LatAm's adjusted earnings by roughly $40 million after tax in 2Q '22. The LatAm adjusted earnings in the quarter also benefited from strong investment margins, primarily due to the net impact from inflation-linked assets and liabilities in Chile that increased with higher inflation rates, as well as the Chilean encaje, which had a 4.8% return in 2Q '22 versus a negative 1.5% in the prior year quarter. LATAM's top line continues to perform well as adjusted PFOs were up 26% year-over-year on a constant currency basis, and sales were up 19% on a constant currency basis, driven by growth across the region, primarily from higher single premium immediate annuity sales in Chile and group cases in Mexico. EMEA adjusted earnings were down 32% and 16% on a constant currency basis compared to a strong Q2 of '21, which benefited from a favorable refinement of an unearned premium reserve in the prior year period totaling approximately $15 million after tax. In addition, adverse equity market impacts in the current year period were partially offset by favorable underwriting margins. MetLife Holdings adjusted earnings were down 46%, excluding the favorable notable item of $77 million after tax as discussed earlier. This decline was primarily driven by lower variable investment income; adverse equity market impacts; and less favorable underwriting were also contributors to the year-over-year decline. MetLife Holdings separate account return was negative 14% in the quarter versus a positive 6% in Q2 of '21. Corporate and other adjusted loss was $243 million versus an adjusted loss of $126 million, excluding notables in the prior year quarter. The year-over-year variance was primarily due to higher expenses from corporate-related costs associated with less favorable equity markets and higher interest rates. Higher taxes and lower variable investment income were also contributors. The company's effective tax rate on adjusted earnings in the quarter was 22.3% and within our 2022 guidance range of 21% to 23%. On Page 5, this chart reflects our pretax variable investment income for the past five quarters, including $389 million in the second quarter of '22. The majority of VII was attributable to the private equity portfolio of roughly $14 billion, which had an overall return of 1.5% in the quarter. As we have previously discussed, private equity is generally accounted for on a one-quarter lag. In addition, real estate equity funds were also a strong contributor to VII with nearly an 8% return in the quarter while hedge funds, which are reported on a one-month lag, had a loss. While VII in 2Q '22 was below expectation and recent trends, our new money rate was 3.92% and above our roll-off yield of 3.71%. This marks the first time in over a decade in which we did not experience quarterly spread compression in the investment portfolio. On Page 6, we provide VII post-tax by segment for the prior five quarters, including $307 million in Q2 of '22. Asia, MetLife Holdings, and RIS continue to earn the vast majority of variable investment income consistent with the higher VII assets in their respective investment portfolios. VII assets are primarily owned to match longer-date liabilities, which are mostly in these three businesses. Turning to Page 7. This chart shows a comparison of our direct expense ratio over the prior five quarters, including 11.9% in Q2 of '22. As we have highlighted previously, we believe our full-year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our second quarter direct expense ratio benefited from solid top line growth and ongoing expense discipline. While we would expect our direct expense ratio to be higher in the second half of the year, consistent with the seasonality of our business, we remain committed to achieving a full-year direct expense ratio below 12.3% in 2022 despite the challenging inflationary environment. We believe this demonstrates our consistent execution and focus on an efficiency mindset. I will now discuss our cash and capital position on Page 8. Cash and liquid assets at the holding companies were approximately $4.5 billion at June 30, which is up from $4.2 billion at March 31 and remains above our target cash buffer of $3 billion to $4 billion. The sequential increase in cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of $1.1 billion in the second quarter, as well as holding company expenses and other cash flows. In addition, the holdco cash includes the proceeds from the sale of our Poland business, which closed in April. In regard to our statutory capital for our U.S. companies, our preliminary second quarter year-to-date 2022 statutory operating earnings were approximately $700 million, while net income was approximately $1.3 billion. Statutory operating earnings decreased by approximately $2 billion year-over-year, driven by unfavorable VA rider reserves, underwriting results, and lower variable investment income. We estimate that our total U.S. statutory adjusted capital was approximately $19.1 billion as of June 30, 2022, up 2% sequentially. Finally, the Japan solvency margin ratio was 764% as of March 31, which is the latest public data. The decline from December 2021 was primarily due to higher U.S. interest rates. Now shifting to LDTI on Page 9. While there is quite a bit of work still to be done prior to implementation on January 1, let me take a moment to recognize the great work of our MetLife associates and our partners in getting us to this point. This slide provides an update on our expected transition balances as of January 1, 2021, under LDTI. The column on the left was our actual balances at 12/31/'20, and the middle column contains the estimated range of our restated balances under LDTI. The changes under LDTI that account for the bulk of the book value adjustment at transition include the market risk benefit adjustment associated with variable annuities, not presently accounted for at market, the impact of disaggregation and the revaluation of in-scope long-duration insurance contracts using a proper equivalent discount rate and the elimination of relevant shadow account balances. As you can see from MetLife at the end of 2020, there is greater convergence between book value and book value excluding AOCI under LDTI. However, this may not always be the case as certain assets are not marked to market and not all liabilities are in scope under LDTI. While LDTI will provide additional information and transparency and improve consistency around accounting for certain aspects of the life insurance industry, it does not impact cumulative product profitability, cash flow generation, our strategy, or how we manage the business. Let me conclude by saying MetLife delivered another strong quarter, highlighted by solid top line growth, ongoing expense discipline, and the benefits of our diverse set of market-leading businesses and capabilities that allow us to navigate successfully through uncertain environments. While private equity returns were lower this quarter, it was offset by favorable underwriting, most notably in our market-leading franchises in Group Benefits and Mexico, which saw a return to more normal mortality as COVID-19 deaths significantly declined. Finally, our capital, liquidity, and investment portfolio remain strong and position us for further success. And we are confident that the actions we are taking to be a simpler and more focused company will continue to create long-term sustainable value for our customers and our shareholders. And with that, I will turn the call back to the operator for your questions.
Operator, Operator
Our first question is from Ryan Krueger with KBW.
Ryan Krueger, Analyst
First question was, thanks for the LDTI disclosure on the balance sheet. I guess, at this point, are you able to give any sense, I guess, directionally on the potential impact to ongoing earnings?
John McCallion, CFO
Ryan, it's John. We're still working through that. And I think our plan would be to discuss more details at a later date. But I think the general point I would probably leave you with is that we don't expect major differences in the core underlying earnings, but there are sources of differences when actuals emerge, right? So how actual experience may deviate from expectation gets treated one way in current GAAP versus under LDTI, and then there's a number of different aspects. But I think all in all, we would expect kind of core earnings. Maybe I'll just give you a little color, too. I think this is probably a good perspective as to why that would be the case. So it does not affect all of our segments, right? If you think about group minimal impact, vastly the majority, not subject to it given it's a short duration product. We go through RIS and it's mainly a spread business. We would expect spread calculations to look similar. As you move into MLH, not all products are impacted, right? We have a number of old accounting standard FAS 97 products, universal life fixed annuities. Also, the participating business is not subject to LDTI. And if we took kind of an early look at that and kind of assumed that we would implement this at the beginning of this year, we probably would have given you the same range of guidance that we would have otherwise given back in February. And then Asia is probably the other one that's somewhat sizable. Again, there's a lot of FAS 97 products there. Japan, if you think about our flagship products in FX, they're all under FAS 97 versus FAS 60. And then EMEA and LatAm are much more modest. So hopefully, that gives you color as to why I kind of give you that general statement.
Ryan Krueger, Analyst
Yes. No, that's very helpful. And then on VII, obviously acknowledging how strong it's been over the last couple of years. But can you give any sense of what it could look like in the third quarter?
Steven Goulart, Chief Investment Officer
Ryan, it's Steve Goulart. I want to remind everyone of the slide John presented, which outlines our guidance. Our guidance is essentially a standard assumption of 12% per year, or 3% per quarter, acknowledging that there's typically a one-quarter lag. In terms of broad market returns during the second quarter, we saw they were generally negative in the teens. However, what we've demonstrated over time through our diverse portfolio across different strategies and regions is that while we expect a similar trend, it will likely not be as pronounced as the overall market. That's about all we can share at this point.
Operator, Operator
And our next question is from Jimmy Bhullar with JPMorgan.
Jamminder Bhullar, Analyst
So first, I had a question on the retirement business in terms of spreads. I think they expanded about 14 basis points sequentially. And I think you had been cautioning that they might actually decline or certainly weren't expecting much of an improvement. So wondering how much of the improvement has to do with interest rate caps or other types of hedging activities? And do you expect this to be a good base for spreads going forward? Or should we think about the 1Q level and adjust off of that looking forward?
John McCallion, CFO
Jimmy, it's John. As you mentioned, we experienced a resilient level of spreads this quarter, increasing by 14 basis points sequentially. We didn't anticipate this during the Q1 call since our comments were based on the forward rate curve. Since then, the 10-year treasury has risen about 65 basis points, and spreads have widened, leading to strong reinvestments. Additionally, the 3-month LIBOR exceeded our expectations, finishing the quarter at around 2.3%. Throughout the quarter, it hovered around 1.50%, then spiked at the end of May into June. As LIBOR approached and exceeded the 2% mark, it could create a tailwind for us, especially as we have several caps that became beneficial. This transition from a headwind due to rising LIBOR to a benefit from in-the-money caps was crucial. Moreover, real estate equity performed better than expected, contributing positively to our core investment income, though we anticipate some moderation. Looking ahead, assuming current forward rates, which may change, we expect the ex-VII spreads to stay relatively stable compared to today's levels, with potential minor fluctuations, even considering some moderation in real estate returns.
Jamminder Bhullar, Analyst
And then sales...
John McCallion, CFO
Sorry, Jimmy, let me just add. I would just tell you that that's probably for the next couple of quarters, right? I mean we'll give guidance for next year when we get towards the latter part of the year.
Jamminder Bhullar, Analyst
And then obviously, the changes in new money yields and those affect that as well, obviously, modestly, but they do have an effect.
John McCallion, CFO
Yes, you're right. Yes.
Jamminder Bhullar, Analyst
Regarding sales in the Asia business outside of Japan, you previously mentioned that in Korea, many salespeople were affected by COVID, and case numbers remain high. In China, mobility restrictions are negatively impacting sales. Are sales down more due to these factors in the second quarter, or are there other underlying market issues that may persist beyond the COVID situation?
Unidentified Company Representative, Unidentified Representative
Jimmy, it's Lindon here. So let me give you the color on total Asia sales, and then I'll get into the other markets as well. We have good diversification across all the markets, products, and channels, and that really drives very consistent execution through these market conditions. So overall, we've had positive growth in the second quarter, led by strong performance in Japan. If we look a little bit at Japan sales, we're up 5%. And that's actually driven by three factors. First, the execution on the ground of the team has been very strong. We have a very diversified distribution channel, and the products and capabilities we've launched in the past year have really helped us drive the growth over there. But as you pointed out in Other Asia, we've faced a couple of headwinds. We've got COVID restrictions going on in China right now, and the stronger U.S. dollar has really impacted sales for the FX products in Korea. But despite these challenges, we actually have other markets that are compensating for these and helping offset some of these headwinds. Looking forward, we expect strong momentum going into the third quarter. We're introducing new products in Korea. And we also expect some relief in the lockdown conditions in China. So full-year, we are comfortable with the guidance of mid-single-digit growth that we gave at the outlook call.
Operator, Operator
And next, we go to Tom Gallagher with Evercore ISI.
Thomas Gallagher, Analyst
I had two capital questions. The first is the new C2 factor change that's coming year-end for mortality, morbidity. My understanding is it positively impacts Group Life and negatively affects Individual Life. If so, is that a positive for Met? And if so, could you quantify it?
Ramy Tadros, CFO
Tom, it's Ramy here. I would say it's overall neutral. I mean we have been looking at our business and pricing it in anticipation of changes to the C2 factors, and there's a fair bit of diversification calculation in that number. So I would say very small and neutral in terms of its impact.
Thomas Gallagher, Analyst
Okay. And the SMR change in Japan dropped a lot in March, I assume that's going to go down a lot more in June just based on where rates went. How are you thinking about managing through that? Or are you contemplating hedging this at all? And also, is there a risk that, that can impact the dividend remittances out of Japan?
John McCallion, CFO
Tom, it's John. As you mentioned, the increase in U.S. rates is what is causing that decline for us. They've continued to rise throughout Q2. I want to remind you of a couple of things. First, rising rates actually enhance the economic value for that business. However, we are currently under a solvency regime that has some uneven accounting, leading to results that may seem counterintuitive. Secondly, in a few years, we are likely to transition to a new economic solvency regime, which would better align solvency accounting with economic reality. We do not have concerns about dividends or our capacity to pay dividends at this time. Overall, this is a positive economic situation, and we have many tools to effectively manage it. So at this moment, we are in a good position.
Operator, Operator
And next, we move to Elyse Greenspan with Wells Fargo.
Elyse Greenspan, Analyst
You guys had strong results in LatAm in the quarter, and I know you called out around $40 million from favorable mortality. Can you just expand on the other underlying drivers of the results this quarter and just with the sustainability of results there?
Eric Clurfain, Executive
Elyse, this is Eric. So yes, as you pointed out. Overall, this was a strong quarter for the region, supported by solid business fundamentals and several positive items that we really put into two buckets, right, the market factors and underwriting. So starting with market factors, we had very strong net investment margins this quarter, which include the net positive impact of inflation in Chile as well as the above-average encaje results. And the quarter also benefited from strong variable investment income. So these items combined contributed to roughly $60 million in adjusted earnings. Then the second bucket, underwriting, and John mentioned that earlier, this quarter was really recorded a 40 million after-tax benefit from a favorable prior year developments related mainly to COVID mortality experience. So these are the two main items. Now putting these items aside, we're also very pleased to see our business continues to deliver. As you may recall, last quarter, I mentioned that our earnings growth continued to be supported by strong and resilient business fundamentals, which are driving solid top line growth. And that sales momentum that began last year has continued this quarter as well. And this reflects really the strengths, the resiliency, and the diversity of our distribution franchise across the region, combined with a noticeable flight to quality. And then this emphasis on quality is also evidenced by a very solid persistency across the region, which, combined with the strong sales momentum that I mentioned has resulted in a 26% growth year-over-year in PFOs on a constant rate basis. Now about half of that growth came from the SPIA business in Chile, where our market share has increased, but the market as well has grown over the past quarter. So that's in a nutshell, the story for LatAm this quarter. I hope this helps.
Elyse Greenspan, Analyst
Yes. And then my second question, you guys bought back $1.1 billion in the quarter, a pretty strong number. Was there any acceleration in buybacks, just given the market weakness and an opportunity to buy your shares at a more attractive price? And can you just give us a sense of the outlook for future levels of share repurchase for the balance of the year?
Michel Khalaf, President and CEO
This is Michel. So yes, as I noted in my opening comments, we had our foot on the gas pedal a little bit in the second quarter, in particular. So expect a modestly slower pace, I would say, in the second half. Our overall view has not changed. Our philosophy, our approach have not changed. We're still comfortable with the $3 billion to $4 billion cash buffer over time. We'll get back to that. So no change in approach here. It's just that we had an acceleration in the first half. So it will be modestly slower in the second.
Operator, Operator
And our next question is from Erik Bass with Autonomous Research.
Erik Bass, Analyst
Can you provide some more color on the expected adjustment to retained earnings from adopting LDTI? And is this all being driven by the impact of bringing market risk benefits to fair value? Or are there any meaningful reserve adjustments? And I guess given the rise in interest rates since year-end '20, should we expect the adjustment to be smaller today than what you're showing on the slide?
John McCallion, CFO
The impact on retained earnings influences both market risk benefits and disaggregation, which accounts for about 20% to 25% of the total. This is primarily due to how we account for variable annuities and specifically for Guaranteed Minimum Income Benefits, as well as Guaranteed Minimum Death Benefits, which are now marked to market, leading to a different discussion. The transition for GMIBs to a mark-to-market approach is the key factor here. In relation to the initial impact we previously disclosed, it appears to be somewhat more favorable as we approach year-end 2021, reflecting a smaller change. Interest rates have risen around 60 basis points on the 10-year, and this trend is expected to continue declining into 2022 because of the rising rate environment. Those are the main factors at play.
Erik Bass, Analyst
Perfect. And then maybe if you could touch on your U.S. mortality experience this quarter across both Group and Holdings. And it looks like even ex COVID margins were favorable versus your targets. So have you seen some of the elevated non-COVID mortality that have been a factor in recent quarters? Has that started to come down as well?
Ramy Tadros, CFO
Eric. It's Ramy here. I'll start off with group and Michel and John will comment on Holdings. So for the quarter, if you look at our ratio sequentially, I would say the decline can be broken down into four pieces. So the first one is just the lower frequency in terms of overall population death. The second piece is the material decrease in the percentage of deaths under 65, which clearly reduced the impact on the working age population. The third piece is the Q1 reserves, which competed favorably, which John spoke about, and that was less than a point or so. And the final piece is we did see little by way of non-COVID excess mortality in the quarter. And as Michel pointed out, the second quarter tends to be a bit lighter in general in terms of mortality. As we look at the rest of the year, on the Group business side, we're cautiously optimistic given the results here. But clearly, the trajectory of the pandemic is uncertain. At this point, I would say, if you exclude COVID, we anticipate that our mortality ratio to be comfortably inside our range for the second half of the year for the group business.
John McCallion, CFO
Yes. Regarding Holdings, we definitely observed a decrease in claims during the quarter, and there was no significant effect from COVID. If you examine the life interest adjusted benefit ratio, you need to account for the reinsurance settlement, but if we exclude that, it stands at 43.8. We also experienced a favorable non-COVID claim experience in the quarter.
Operator, Operator
And our next question is from Suneet Kamath with Jefferies.
Suneet Kamath, Analyst
Maybe just for Steve to start out with. Can you just maybe talk a little bit about your outlook for credit and the potential for credit losses if we move into a recession? Is there any asset classes or sectors that you're paying particular attention to these days?
Steven Goulart, Chief Investment Officer
Sure. Thanks, Suneet. I think obviously, there's still a lot of uncertainty and clearly, volatility in the markets about where we're headed from a macro perspective. What I do is really sort of rewind the clock a little bit. And remember, in a way, we sound like a broken record, but we go back to really even pre-COVID where we were actually starting to get concerned about a recession occurring sometime in 2020 and started preparing the portfolio then. Our derisking efforts started in a pretty big way. And I think then, of course, was accelerated during COVID, and we went through over $8 billion of derisking in that time period. And that really set the portfolio in a position that we're very comfortable with. Obviously, we continue to watch as we go through this period now, expectations of recessions, again, of course, depend on how one defines a recession, I guess, these days are clearly picking up. But we're very comfortable with the derisking we've done over the last couple of years and think the portfolio is in very good shape. Obviously, we continue to have a cautious attitude, but opportunistic at the same time because we do see some attractive investments and we have the opportunity to do that. One metric that might be of interest to you is just in looking at the portfolio, during the course of this year, we've actually had twice as many upgrades as downgrades. And I think that says a lot about how we've been positioning the portfolio and our overall outlook. So we're very comfortable with where we are today.
Suneet Kamath, Analyst
Okay. And then for Ramy, regarding the Group Benefit side, I know Q2 tends to be a slow quarter for sales. However, I'm curious about any insights from your discussions with clients concerning pricing, especially since I assume they are all experiencing cost pressures due to inflation. Could you provide any details on how those discussions are progressing as we approach January 1 next year?
Ramy Tadros, CFO
Sure. Just with respect to your comment on sales, as we've kind of discussed earlier, the year-to-date drop in sales is very much a function of the record year we had last year where we had a record number of jumbo contracts. And as you know, these jumbo contract sales can be pretty lumpy. So this is something we expected in terms of the sales coming down. And I would just also point you to the fact that really the better measure to think about the overall growth of this business is the PFO number, and we're certainly very pleased with the PFO growth number that we're seeing this quarter. In terms of the pricing environment, I would say, the market is competitive but remains rational. In aggregate, we have put in place price increases, both on the life and the disability side to reflect our expectation of the coming environment to reflect also a load with respect to the COVID deaths. And in aggregate, we are getting our target price increases, and we're also continuing to see very strong persistency in the book.
Operator, Operator
And our next question is from Alex Scott with Goldman Sachs.
Alexander Scott, Analyst
First one I had for you was just to get your latest thoughts on MetLife Holdings and the potential for risk transfer. And also any commentary you have around if doing something – taking action on something in holdings could influence the way that these impacts look from LDTI?
John McCallion, CFO
Alex, it's John. Overall, regarding risk transfer, I don't have any new updates to share. We've maintained a consistent message for quite some time now, and that remains unchanged. We're focused on optimizing our processes both internally and by exploring opportunities in the expanding risk transfer market. Therefore, we continue to engage with third parties. Our approach indicates that we do not see an immediate need for drastic change. We are committed to refining our internal strategies while keeping the option open to speed up the release of capital and reserves as suitable. It's important to note that if we pursue a reinsurance transaction, we view it as a long-term relationship that requires time to ensure we establish a solid partnership and structure. We're still actively evaluating this matter. Regarding the impact on LDTI, I cannot provide a definitive answer. We must be cautious since LDTI presents some uneven accounting issues when entering reinsurance agreements under GAAP. Therefore, the situation doesn't align perfectly, and I would say the answer varies depending on the specifics.
Alexander Scott, Analyst
It's helpful color. And then the follow-up I had was maybe just a question on sort of the broader economy. I mean, you guys get such an interesting look at the labor market given your presence in the Group Benefits. I mean anything that you can give us color on, even maybe thinking through like beyond the end of the quarter that you're seeing in labor markets and potential implications just more broadly for your business?
Ramy Tadros, CFO
Alex, I would say, the numbers we're continuing to track clearly is just overall eligibility in our book, and we have a highly diversified book of business. With the low unemployment levels, clearly, those numbers continue to increase and remain very solid. And we're seeing some kind of form of wage inflation come through as well, and both of these have been kind of tailwinds to the business. So we're kind of seeing in the book what you're seeing probably in the broader economy. And maybe that's kind of as much color as I can give you in terms of what we're seeing.
Operator, Operator
And our next question is from John Barnidge with Piper Sandler.
John Barnidge, Analyst
So you had an IBNR reserve release in both group and Latin America. Is there any tail that we should be thinking about for subsequent quarters from that?
John McCallion, CFO
John, it's John. Just when you say tail, you're referencing just more releases. Is that what you mean?
John Barnidge, Analyst
Yes, correct.
John McCallion, CFO
Yes. I believe this is a reserve that was established based on the best estimates at that time. The reality is that the actual outcomes have turned out differently than anticipated, which explains the release. I wouldn't assume there will be ongoing releases because if we expected more, we would have adjusted accordingly. Our current estimates are reflected on our balance sheet. As we do each quarter, we'll keep reviewing the actual outcomes and make any necessary adjustments.
John Barnidge, Analyst
Okay. And then my follow-up to that, if we're talking about emergence versus expected, the LDTI disclosure, can you maybe talk about is there any unrealized insurance margin that's something we've seen from other companies that have large operations in Japan?
John McCallion, CFO
Yes, it's John. The reality is that this largely depends on our mix of business. If you recall my earlier comments about our earnings and which segments are affected, that plays a significant role in this outcome. Many of our segments and products are not significantly impacted by LDTI, including our offerings in Asia, where some of those products have unrealized returns. For instance, our flagship products in Japan are not affected by this. Additionally, many of the foreign exchange products we sell fall under FAS 97. Therefore, our situation is somewhat different. Overall, it really hinges on the mix of business to address your question.
Operator, Operator
Next, we go to Andrew Kligerman with Credit Suisse.
Andrew Kligerman, Analyst
A lot of most of the questions have been asked. But I'm wondering, as we look at another excellent quarter at MetLife, if there's anything transformative that you need to do from an M&A perspective, anything that you think in your business lines that could change kind of or improve MetLife?
Michel Khalaf, President and CEO
I believe our portfolio is solid, and we are satisfied with it. We've undergone a significant transformation to reach our current position, and we trust that we have the right strategy in place. However, mergers and acquisitions are a key capability for us, and if we identify opportunities that could enhance revenue growth in specific areas, we are open to pursuing them. Our recent increase in shareholding in our joint venture in India to 47% shows we are engaged, though we maintain a disciplined approach; any actions we take must align with our strategic goals.
Andrew Kligerman, Analyst
And then with regard to pension risk transfer, I think you said you did three deals of $2-plus billion. Maybe a little color around the pipeline. It seems like there are a lot of new players in pension risk transfer that we didn't see three years ago. So do you think that pipeline will continue to be robust and that we'll have quarters like this one?
Ramy Tadros, CFO
Andrew, it's Ramy here. I mean, as you know, the activity in the first half of the year was pretty substantial in the PRT space. Year-to-date, we've written $3.8 billion worth of deals, and that comes after a successful fourth quarter where we rolled $3.6 billion worth of deals. So that's cumulatively about $7.5 billion year-over-year. The pipeline continues to be pretty active and robust, as Michel mentioned. And we are focused on a specific part of that pipeline where we enjoy our own kind of set of competitive advantages, namely the jumbo end of the plans, and there are fewer competitors there. When you go down in size, clearly, there is more competition and more providers, but where we play, it's another set of competitors because of the size of the transactions that we bid for.
Operator, Operator
And ladies and gentlemen, we will now turn the conference back to the CEO, Michel Khalaf.
Michel Khalaf, President and CEO
Thank you all for joining us this morning. I know it's a busy morning. Our second quarter results add to MetLife's track record of consistent, strong performance and provide further evidence of the strength and momentum of our well-diversified, market-leading businesses. With our clarity of purpose, a compelling all-weather strategy, and a relentless focus on execution, we are well positioned to deliver superior value to all our stakeholders. Thank you, and have a great day.
Operator, Operator
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