John McCallion
Chief Financial Officer at MetLife
Thank you, Michel, and good morning. I will start with the 1Q 2024 supplemental slides, which provide highlights of our financial performance and an update on our liquidity and capital position.
Starting on page three, we provide a comparison of net income to adjusted earnings in the first quarter. We had net derivative losses, primarily due to the strengthening of the US dollar versus the yen and Chilean peso as well as favorable equity markets and higher interest rates. That said, derivative losses were mostly offset by market risk benefit or MRB remeasurement gains due to the higher interest rates and stronger equity markets.
Net investment losses were mainly the result of normal trading activity for fixed maturity securities in a rising rate environment. Overall, the investment portfolio remains well positioned. Credit losses continued to be modest and our hedging program performed as expected.
On page four, you can see the first quarter year-over-year comparison of adjusted earnings by segment, which do not have any notable items in either period. Adjusted earnings were $1.3 billion, up 13% on a reported and constant currency basis, higher variable investment income due to a rebound in private equity returns drove the year-over-year increase. Adjusted earnings per share were $1.83, up 20% and up 21% on a constant currency basis.
Moving to the businesses. Group Benefits adjusted earnings were $284 million, down 7% year-over-year, primarily due to less favorable underwriting margins. The Group Life mortality ratio was 90.2%, a slight improvement versus Q1 of 2023 of 90.5% and above the top end of our annual target range of 84% to 89% as group life mortality ratio tends to be seasonally highest in the first quarter. Regarding non-medical health, the interest adjusted benefit ratio was 73.9% in the quarter, at the top end of its annual target range of 69% to 74%, in line with our expectation of higher seasonal dental utilization in the first quarter.
Turning to the top line, Group Benefits adjusted PFOs were up 5% year-over-year. Taking participating contracts into account, which dampened growth by roughly 100 basis points, the underlying PFOs were up approximately 6% year-over-year and at the top end of our 2024 target growth range of 4% to 6%. In addition, Group Benefits sales were up 25%, driven by strong growth across core and voluntary products.
RIS adjusted earnings were $399 million, essentially flat versus Q1 of 2023. Higher variable investment income was offset by lower recurring interest margins as well as less favorable underwriting margins. RIS investment spreads were 127 basis points at the midpoint of our annual target range of 115 to 140 basis points. This incorporates both the impact of the roll-off of our interest rate caps and the offsetting benefit of VII reemerging.
RIS adjusted PFOs were up 25% year-over-year, primarily driven by strong sales of structured settlement products as well as growth in UK longevity reinsurance. With regards to pension risk transfers, while we did not complete any transactions in the first quarter, we continue to see an active market.
Moving to Asia. Adjusted earnings were $423 million, up 51% and 57% on a constant currency basis, primarily due to higher variable investment income, favorable underwriting margins and favorable tax benefits in Q1 of 2024. For Asia's key growth metrics, general account assets under management on an amortized cost basis were up 6% year-over-year on a constant currency basis. Sales were down 8% on a constant currency basis versus a strong prior year quarter.
Latin America adjusted earnings were $233 million, up 8% and 5% on a constant currency basis, primarily due to volume growth and favorable underwriting margins. In addition, solid Chilean encaje returns of 4.8% in Q1 of 2024 compared to a negative 0.9% in Q1 of the prior year. Latin America's top line continues to perform well as adjusted PFOs were up 9% and 8% on a constant currency basis, driven by growth across the region.
EMEA adjusted earnings were $77 million, up 28% and 35% on a constant currency basis, driven by favorable underwriting, volume growth and higher recurring interest margins. This was partially offset by less favorable expense margins year-over-year. While EMEA adjusted earnings were above trend this quarter, we still view the run rate to be $60 million to $65 million per quarter for the remainder of the year. EMEA adjusted PFOs were up 7% and 9% on a constant currency basis, and sales were up 16% on a constant currency basis, reflecting strong growth in Turkey and the UK.
MetLife Holdings adjusted earnings were $159 million versus $158 million in the prior year quarter, higher private equity returns were offset by roughly $50 million in foregone earnings as a result of the reinsurance transaction that closed in November, in line with expectations. Adjusted earnings in the quarter were also pressured by a true-up associated with the reinsurance transaction.
Corporate and other adjusted loss was $241 million versus an adjusted loss of $236 million in the prior year. The company's effective tax rate on adjusted earnings in the quarter was approximately 23%, below our 2024 guidance range of 24% to 26% due to several favorable tax items in the quarter.
On page five, this chart reflects our pre-tax variable investment income for the prior 5 quarters, including $260 million in Q1 of 2024. The private equity portfolio, which makes up the majority of the VII asset balance had a positive 2.1% return in the quarter while real estate equity funds had a negative 5.8% return in Q1 of 2024. Both are reported on a one-quarter lag.
In addition, as we've seen signs of improvement in PE secondary markets, we have opportunistically divested roughly $750 million of private equity general account assets in Q1 of 2024 at a modest discount. The transaction structure will allow MetLife Investment Management to continue managing the assets from the sale.
We believe this transaction, which is similar to the roughly $1 billion divestment that we made in 2022 is a thoughtful approach to managing our investment allocation while supporting an important and growing fee-generating business for MetLife. Looking ahead, we continue to expect VII returns to move toward the upper end of our near-term outlook range in the second half of the year, and we remain comfortable with our full year VII guidance of $1.5 billion.
On page six, we provide VII post-tax by segment for the fourth quarter of 2023 and Q1 of 2024. As you can see in the chart, RIS AGM MetLife Holdings continue to hold the largest proportion of VI assets, given their long-dated liability profile.
Now turning to page seven. The chart on the left of the page shows the split of our net investment income between recurring and VII for the past three years and Q1 of 2023 versus Q1 of 2024. Adjusted net investment income in Q1 of 2024 was up roughly $500 million or 10% year-over-year. While recurring investment income moderated in the quarter due to the roll off of the interest rate caps, we did see a solid recovery in PE returns driving the VII improvement year-over-year.
Shifting your attention to the right of the page, which shows our new money yield versus roll-off yields since Q1 of 2021. New money yields continue to outpace roll-off yields over the past eight quarters, consistent with the rising rates. In the first quarter of 2024, our global new money rate achieved a yield of 6.6%, 103 basis points higher than the roll-off rate.
Keep in mind, the roll-off rate can fluctuate from period to period as it did in the first quarter due to a greater volume of higher-yielding floating rate assets paying off. We would expect this positive trend of new money yields outpacing roll-off yields to persist given the current level of interest rates.
Now let's switch gears to discuss expenses on page eight. This chart shows a comparison of our direct expense ratio for the full year 2023 of 12.2% and Q1 of 2024 of 11.9%. 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 Q1 direct expense ratio benefited from solid top line growth and ongoing expense discipline. We are off to a good start achieving a full year 2024 direct expense ratio of 12.3% or below, demonstrating our consistent execution and a sustained efficiency mindset.
I will now discuss our cash and capital positions on page nine. Cash and liquid assets at the holding companies were $5.2 billion at March 31, which is above our target cash buffer of $3 billion to $4 billion. This includes approximately $1.4 billion used in April for a debt maturity and a debt redemption. We do not have any further debt maturities for the balance of the year.
Beyond this, cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend and share repurchases of roughly $1.2 billion in the first quarter as well as holding company expenses and other cash flows. In addition, we have repurchased shares totaling approximately $330 million in April.
Regarding our statutory capital for our US companies, our 2023 combined NAIC RBC ratio was 407%, which is above our target ratio of 360%. For our US companies, preliminary first quarter 2024 statutory operating earnings were approximately $1 billion, essentially flat year-over-year, while net income was approximately $570 million.
We estimate that our total US statutory adjusted capital was approximately $18.3 billion as of March 31, 2024, down 6% from year-end 2023, primarily due to dividends paid and surplus notes repaid partially offset by operating earnings.
Finally, we expect the Japan solvency margin ratio to be approximately 725% as of March 31, and which will be based on statutory statements that will be filed in the next few weeks.
Before I wrap up, I would just highlight that we have an updated commercial mortgage loan slide as of March 31 in the appendix. Overall, the CML portfolio continues to perform as expected with attractive loan-to-value and debt service coverage ratios as well as the expectation of modest losses.
Let me conclude by saying that MetLife delivered another solid quarter to begin the new year. The underlying strength of our business fundamentals was evident with strong top line growth, coupled with disciplined underwriting and expense management. In addition, our core spreads remain robust and sustainable given the higher yield environment. Also, we saw a nice rebound in our private equity returns.
While the current environment remains uncertain, we are excited about the outlook and growth prospects of our businesses over the near term and beyond. MetLife continues to move forward from a position of strength with a strong balance sheet and a diversified set of market-leading businesses, which generate solid recurring free cash flow. And we are committed to deploying this free cash flow to achieve responsible growth and build long-term sustainable value for our customers and our shareholders.
And with that, I'll turn the call back to the operator for your questions.
