John D. McCallion
Executive Vice President and Chief Financial Officer, MetLife, Inc., and Head of MetLife Investment at MetLife
Thank you, Michelle, and good morning, everyone. I'll start with the 4Q '24 supplemental slides, which covers highlights of our financial performance, including an update on our liquidity and capital position. In addition, I will discuss our near-term outlook.
Starting on Page 3, we provide a comparison of net income to adjusted earnings in the 4th-quarter and full-year of 2024. Net income was $1.2 billion and $4.2 billion for the 4th-quarter and full-year of '24, respectively. The difference between net income and adjusted earnings is attributable to net derivative losses, primarily due to the rise in long-term interest rates and the strengthening of the US dollar. That said, derivative losses were partially offset by market risk-benefit or MRB remeasurement gains due to higher interest rates. In addition, net investment losses were largely the result of normal trading activity on the portfolio in a rising interest-rate environment and credit remained stable.
As highlighted on the bottom of the page, we had two notable items in the current quarter that net to a positive impact to adjusted earnings of $10 million. This was primarily due to interest associated with a tax refund, partially offset by higher asbestos litigation reserves in the quarter.
On Page 4, we provide a year-over-year comparison of 4th-quarter adjusted earnings by segment, excluding total notable items in both periods. Adjusted earnings, excluding total notable items were $1.4 billion, up 1% and 3% on a constant-currency basis. The increase was primarily driven by higher variable investment income and solid volume growth, which were partially offset by less favorable recurring interest and expense margins compared to the previous year. Adjusted earnings per share, excluding total notable items were $2.08, up 8% and 10% on a constant-currency basis.
Moving to the businesses, group benefits adjusted earnings were $416 million, down 11% from the prior year quarter. The key driver was less favorable non-medical health underwriting margins compared to the prior year. The non-medical health interest-adjusted benefit ratio was 71.8%, although above prior year, was in-line with expectations and within our annual target range of 69% to 74%. The Group life mortality ratio was 83.2% for the quarter. For the full-year, the ratio was 84.5% at the bottom-end of our 2024 target range of 84% to 89%.
Turning to the top-line, Group Benefits adjusted PFOs on a full-year basis were up 4% year-over-year. Taking participating contracts into account, which dampened growth by roughly 100 basis-points. The underlying PFOs were up approximately 5% year-over-year within our 2024 target growth range of 4% to 6%. RIS adjusted earnings were $386 million in 4Q of '24, down 8% year-over-year. The primary drivers were lower recurring interest margins and less favorable underwriting, partially offset by higher variable investment income. Solid volume growth also contributed to the year-over-year results. RIS total investment spreads were 112 basis-points in the 4th-quarter, up 6 basis-points sequentially, mainly due to higher variable investment income, as our core spread remained flat at 108 basis-points, consistent with expectations. RES adjusted PFOs were up 26%, primarily driven by growth across several products, most notably PRT, including UK. Funded reinsurance.
As we highlighted at Investor Day, we completed our inaugural funded reinsurance transaction for approximately $300 million, demonstrating the successful relationships that we have built with leading UK insurers. This brings our total PRT inflows for both the US and UK. Combined to approximately $6.7 billion for 2024.
Moving to Asia, adjusted earnings were $443 million, up 50% and 52% on a constant-currency basis, primarily due to higher variable investment income and favorable underwriting margins, which included positive reserve refinements that benefited adjusted earnings by roughly $30 million. For Asia's full-year 2024 key growth metrics, general account assets under management on an amortized cost basis were up 5% year-over-year on a constant-currency basis and sales were down 5% on a constant-currency basis versus 2023. Lower Japan sales were partially offset by other Asia markets, which were up 21%, most notably due to solid growth in Korea, India and China. In Japan, sales were down 18% year-over-year, primarily due to the impact of yen volatility on foreign currency products.
Latin-America adjusted earnings were $201 million, down 3%, but up 10% on a constant-currency basis, primarily due to higher-volume growth across the region, partially offset by lower Chilean and returns versus a strong Q4 '23. Latin America's top-line continues to perform well, although reported growth rates are being masked by recent currency headwinds. Adjusted PFOs were down 3%, but up 9% on a constant-currency basis, driven by strong growth and solid persistency across the region.
EMEA adjusted earnings were $59 million, up 26% and 31% on a constant-currency basis, primarily driven by solid volume growth and lower tax charges in the quarter. This was partially offset by less favorable expense margins and underwriting margins year-over-year. EMEA adjusted PFOs were up 10% and 13% on a constant-currency basis, reflecting strong sales across the region. MetLife Holdings adjusted earnings were $153 million, down 2%, largely driven by foregone earnings as a result of the reinsurance transaction that closed in November of 2023. Favorable life underwriting was a partial offset.
Corporate and other adjusted loss was $209 million versus an adjusted loss of $156 million in the prior year. Higher expenses and taxes were partially offset by higher variable investment income year-over-year. The company's effective tax-rate on adjusted earnings in the quarter was 23.5%, modestly below our 2024 guidance range of 24% to 26%.
On Page 5, this chart reflects our pretax variable investment income for the four quarters and full-year of 2024. Variable investment income was $293 million in Q4, driven by the private-equity portfolio, which had an average return of 1.8% in the quarter. Our real-estate and other funds had an average return of essentially zero in the quarter. As a reminder, PE and real-estate and other funds are reported on a 1/4 lag and accounted for on a mark-to-market basis. For the full-year, variable investment income or VII was $1 billion, below our 2024 target of approximately $1.5 billion, but well-ahead of the prior year. Real-estate and other funds accounted for most of the shortfall, while PE returns were largely in-line with our annual 2024 expected returns.
On Page 6, we provide VII post-tax by segment and Corporate and other for the four quarters and full-year 2024. As reflected in the chart, Asia RIS and MetLife Holdings continue to hold the largest proportion of VII assets given their long-dated liability profiles. However, as a reminder, each business has its own discrete portfolio aligned and matched to its liabilities. Asia's VII portfolio outperformed in the quarter, generating more than 50% of the total.
Turning to Page 7, this chart shows a comparison of our direct expense ratio over eight quarters and full-year 2023 and 2024. Our direct expense ratio in 4Q of '24 was elevated at 13.1%, reflecting the impact from seasonal enrollment costs and group benefits as well as higher employee-related costs and technology initiatives. That said, as we've highlighted previously, we believe our full-year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. For the full-year of 2024, our direct expense ratio was 12.1%, below our 2024 target of 12.3%. We believe this result once again demonstrates our consistent execution and focus on a sustained efficiency mindset.
I will now discuss our cash and capital positions on Page 8. Overall, MetLife is well-capitalized with more than ample liquidity. We had share repurchases of roughly $400 million in the 4th-quarter and have repurchased shares totaling $470 million in January. In terms of statutory capital for our US companies, preliminary 2024 statutory operating earnings were approximately $4 billion, while net income was approximately $2.9 billion. Statutory operating earnings decreased by approximately $500 million year-over-year, primarily driven by impacts of the reinsurance transaction in November of 2023 and lower net investment income, partially offset by favorable underwriting.
On Page 9, this chart shows the final tally and beating our five-year financial commitments under Next Horizon. Our full-year 2024 adjusted ROE of 15.2% was above our original 12% to 14% commitment made in 2019 and above our 13% to 15% guidance for 2024. For the years 2020 through 2024, we generated distributable cash of $20.7 billion, above our $20 billion commitment and created $1.2 billion of additional operating leverage capacity to accelerate growth above our $1 billion commitment.
Now let's turn to Page 11 for further details on our near-term outlook, starting with the overview. Based on the forward currency curve, the US dollar is expected to further strengthen, which creates a headwind to adjusted earnings growth of approximately $150 million to $175 million in 2025. This impact is embedded in the non-US segment outlooks that I will discuss in a moment. The forward interest-rate curve projects long-term interest rates to be stable and the yield curve to steepen. A positive development and we use an assumption of 5% annual return for the S&P 500. For our near-term targets, these are consistent with our new frontier commitments that we announced at Investor Day. We expect to achieve double-digit adjusted EPS growth.
We expect adjusted ROE to be in the range of 15% to 17%. We expect to maintain our two-year average free-cash flow ratio of 65% to 75% of adjusted earnings, which supports our five-year commitment to generate $25 billion-plus of free-cash flow. Also, given our continued focus on expense discipline, we target reducing our expense ratio down 100 basis-points to 11.3% by 2029. And therefore, for 2025, we are lowering our direct expense ratio guidance to 12.1%, down from 12.3% in 2024. Specifically, for 2025, variable investment income is expected to be approximately $1.7 billion pre-tax.
Our corporate and other adjusted loss is expected to be between $850 million to $950 million after tax. And we are maintaining our expected effective tax-rate range of 24% to 26%. At the bottom of the page, you will see certain interest-rate sensitivities relative to our base-case, reflecting a relatively modest impact on adjusted earnings over the near-term. Further sensitivities are in the appendix to these slides.
On Page 12, the chart reflects our expectation of VII average asset balances to be stable in 2025. We are increasing our near-term expected annual returns for private-equity to be between 9% to 11%, and we are also increasing our expected returns for real-estate and other funds to be in a range of 7% to 9% over the near-term. In 2025, we expect both PE and real-estate and other funds to be toward the lower-end of their respective ranges before trending higher in 2026 and 2027. Finally, as a reminder, we include prepayment fees on fixed maturities and mortgage loans in VII.
So now I will discuss our near-term outlook for our business segments. Let's start with the US on Page 13. For Group Benefits, we are increasing our adjusted PFO growth target to 4% to 7% annually over the near-term. We are maintaining our near-term underwriting guidance ranges. Group life mortality ratio of 84% to 89% and group non-medical health interest-adjusted benefit ratio of 69% to 74%. Please keep in mind, these are annual ratios and both typically skew to the higher-end of the ranges in the first-quarter given the seasonality of the business. However, for Group Life, if the positive trend we have seen in the last couple of quarters persist into the first-half of the year, we expect the full-year ratio be in the bottom half of the guidance range in 2025.
Lastly, we expect Group Benefits adjusted earnings to benefit from factors outside of underwriting, largely from continued change in our product mix, greater operating efficiencies and higher investment income. This will add an incremental 5% to 10% to adjusted earnings in 2025. For RIS, we've talked about the business being comprised primarily of spread and fee earnings. To that end, we provide a long-term balanced growth range for total liabilities, which can be used to project our future spread and fee balances. And in light of the opportunity we see under New Frontier, we are now increasing our total liability annual growth guidance to 3% to 5%.
The total spread guidance range for the upcoming year can be applied to our projected general account balances to get a good proxy for our pretax spread income before expenses. We expect 2025 total general account investment spread to be 110 to 135 basis-points, assuming the forward curve holds and based on our VII estimate for 2025. We anticipate our core spread to stabilize from 2025 forward now that all remaining interest-rate caps have matured. Beyond spread earnings, total fee and underwriting income, net of expenses adds an incremental 5% to RIS adjusted earnings.
For MetLife Holdings, we are expecting adjusted PFOs to decline approximately 4% to 6% in 2025, and we are lowering the adjusted earnings guidance range to $650 million to $800 million in 2025. The business runoff accelerated in 2024 to roughly 9% of adjusted earnings as life and variable annuity lapses were higher during the year.
Now let's look at the near-term guidance for our segments outside the US on Page 14. For Asia, we expect sales to grow mid to-high single-digits on a constant-currency basis over the near-term. In addition, we expect general account AUM on a constant-currency basis to maintain mid-single-digit growth. Asia adjusted earnings in 2025 are expected to grow mid-single digits on a constant-currency basis and low-single digits on a reported basis given the yen weakness assumed in the forward curve. For 2026 and 2027, adjusted earnings are expected to grow mid-single digits on both a reported and constant-currency basis.
For Latin-America, we expect both adjusted PFOs and adjusted earnings in 2025 to grow high-single-digits on a constant-currency basis and flat on a reported basis given the forward currency rates, which assumes Mexican and Chilean pesos weaken in 2025. For 2026 and 2027, we expect adjusted PFOs and adjusted earnings to grow high-single-digits on both a reported and constant-currency basis. Finally, for EMEA, we are expecting adjusted PFOs to grow mid to-high single-digits on a reported basis. For adjusted earnings, we expect EMEA's new quarterly run-rate to be $70 million to $75 million in 2025 and then grow mid-single digits in 2026 2027.
Let me conclude by saying that MetLife delivered a solid quarter to close-out another strong year. Our 4th-quarter and full-year results reflected the strong underlying fundamentals across our portfolio of businesses. We continue to move forward from a position of strength with a strong balance sheet, recurring free-cash flow generation and a diversified set of market-leading businesses. As we complete the final leg of our Next Horizon journey, we are pleased to have exceeded all the commitments that we made. Now as we forge our way into the new frontier, our strategic priorities position us well to deliver on our unique value proposition of accelerating responsible growth and generating attractive returns with lower-risk.
And with that, I'll turn the call-back to the operator for your questions.
