John D. McCallion
Executive Vice President, Chief Financial Officer and Head-MetLife Investment Management at MetLife
Thank you, Michel, and good morning. I'll start with the 3Q 2024 supplemental slides, which provide 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.
Starting on Page 3, we provide a comparison of net income to adjusted earnings in the third quarter. Net income was $1.3 billion, $100 million lower than adjusted earnings. We had net derivative gains primarily due to the strengthening of the yen versus the US dollar and the decline in interest rates in the third quarter. That said, derivative gains were partially offset by market risk benefit, or MRB, remeasurement losses due to lower interest rates.
Net investment losses were modest, reflecting normal trading activity and a continuation of a stable credit environment. Overall, the investment portfolio remains high quality and resilient and our hedging program performed as expected.
The table on page four provides highlights of our annual actuarial assumption review and other insurance adjustments with the breakdown of the adjusted earnings and net income impact by segment. Overall, the impact to adjusted earnings and net income was modest. In Group Benefits, we had an unfavorable impact due to a liability refinement related to an annuity payout feature on a small subset of our Group Life portfolio. There is no ongoing impact due to this refinement.
In Retirement and Income Solutions, or RIS, while we have maintained our long-term mortality trend assumption consistent with pre-COVID. This reflects the impact of higher mortality over the last few years, which resulted in a positive impact to adjusted earnings. And in Asia, the net unfavorable impact was primarily due to three factors: unfavorable changes to lapsed assumptions across life and accident health products in Japan; lower expected fund returns for variable life products in Korea; and these were partially offset by a positive impact from improved morbidity for accident and health products in Japan and Korea.
On Page 5, you can see the third quarter year-over-year comparison of adjusted earnings by segment, excluding notable items. Adjusted earnings were $1.4 billion, down 8% and 6% on a constant currency basis primarily due to lower recurring interest margins, partially offset by solid volume growth year-over-year. Adjusted earnings per share were $1.93, down 1% on a reported basis but up 1% on a constant currency basis.
Moving to the businesses. Group Benefits adjusted earnings were $431 million, down 11% year-over-year, primarily due to less favorable nonmedical health underwriting margins versus a strong comparison in Q3 of 2023. The Group Life mortality ratio was 85.6% and 82.4% when excluding the notable items discussed earlier. This was below our annual target of 84% to 89%. Our mortality results remain seasonally strong, albeit following record-low life claims in 2Q of 2024. Year-to-date, our Group Life mortality ratio remained at the low end of our annual target range, although we would expect the ratio to be toward the middle of the range in the fourth quarter.
Regarding nonmedical health, the interest-adjusted benefit ratio was 72.4% in the quarter, within our annual target range of 69% to 70% but higher than the prior year quarter of 69% or 70.4% excluding a favorable notable item related to disability in 3Q of 2023.
Turning to the top line. Group Benefits adjusted PFOs were up 5% year-over-year and at the midpoint of our 2024 target growth range of 4% to 6%. Group Benefits year-to-date sales were up 9% driven by strong growth in national accounts. RIS adjusted earnings were $368 million, down 10% versus the prior year. Lower recurring interest margins were partially offset by strong volume growth and favorable underwriting margins.
RIS total investment spreads were 106 basis points, down 15 basis points sequentially mainly due to the continued expiration of interest rate caps and lower variable investment income. As we highlighted in the Q2 earnings call, the continued roll-off of the interest rate caps drove the majority of the sequential decline. Given the vast majority of interest caps have expired and based on the current forward interest rate curve, we expect fourth quarter spreads, excluding variable investment income, to now stabilize and be flat to up one to two basis points.
RIS adjusted PFOs, excluding pension risk transfers, were up 3% year-over-year primarily driven by strong sales in UK longevity reinsurance. With regards to PRT, we continue to see an active market. We had premiums of approximately $500 million in the third quarter, and we have already seen a strong start to Q4 with over $1.5 billion in PRT wins in the past month alone.
Moving to Asia. Adjusted earnings were $347 million, down 6% and 5% on a constant currency basis primarily due to market-related items in the quarter, partially offset by favorable underwriting margins. For Asia's growth metrics, general account assets under management on an amortized cost basis were up 6% year-over-year on a constant currency basis. Asia sales were down 1% on a constant currency basis.
Lower Japan sales were mostly offset by other Asian markets, which were up 10%, most notably due to strong growth in India and China. In Japan, sales were down 7% year-over-year primarily due to the impact of yen volatility on foreign currency products. However, we continue to see a favorable outlook given higher interest rates and positive macro changes in Japan. For example, our refreshed yen-denominated variable life and cancer products introduced earlier this year have been well.
Latin America adjusted earnings were $217 million, up 9% and 21% on a constant currency basis primarily driven by strong Chilean encaje returns in the quarter and volume growth in our key markets. Latin America's top line also continues to perform well as adjusted PFOs were up 1% or 11% on a constant currency basis driven by strong sales and solid persistency across the region.
Turning to EMEA. Adjusted earnings were $75 million, up 7% on a reported basis and 9% on a constant currency basis primarily driven by strong volume growth year-over-year. EMEA adjusted PFOs were up 11% and 14% on a constant currency basis driven by growth across the region, and sales were up 32% on a constant currency basis primarily from Turkey and Egypt.
MetLife Holdings adjusted earnings were $170 million, down 17% versus the prior year quarter. The primary driver was the foregone earnings due to the reinsurance transaction that closed in November of 2023. Corporate & Other adjusted loss was $249 million versus an adjusted loss of $262 million in the prior year. The company's effective tax rate adjusted earnings in the quarter was approximately 24% and within our 2024 guidance range of 24% to 26%.
On Page 6, this chart reflects our pretax investment income for the prior five quarters, including $162 million in Q3 2024. This was down $17 million versus Q3 of 2023. The private equity portfolio, which had over $14 billion in VII assets as of September 30 had a positive 0.6% return in the quarter. This compared to a 1.4% return in Q3 of 2023. While PE returns were below recent trends, our real estate-related and other funds of roughly $4.5 billion continued to improve with a 1.1% return in the quarter. As a reminder, PE, real estate-related and other funds are reported on a one-quarter lag and accounted for on a mark-to-market basis.
On Page 7, we provide VII post-tax by segment for the last four quarters and the third quarter of 2024. As you can see in the chart, RIS, Asia and MetLife Holdings continue to hold the largest proportion of VII assets given their long-dated liability profile.
Now turning to Page 8. The chart on the left of the page illustrates the split of our adjusted net investment income between recurring and VII for the last three years, including third quarter of 2023 and 2024. Adjusted net investment income in Q3 of 2024 was essentially flat versus the prior year, while recurring investment income has benefited from asset growth and higher interest rates, it has been offset by the roll-off of interest rate caps.
Turning your attention to the right side of the page. This shows our new money rate versus roll-off yield since the third quarter of 2021. Over last the 10 quarters, new money yields have outpaced roll-off yields, consistent with higher interest rates. In Q3 of 2024, our global new money rate achieved a yield of 6%, 22 basis points higher than the roll-off rate. The narrowing of the spread between new money rates and roll-off yields in 3Q was primarily due to a roughly 70 basis point decline in US interest rates and elevated pay downs in the quarter of recently purchased higher-yield securities. That said, the proceeds from these pay downs in 3Q have been reinvested in high relative value public and private assets with similar yields.
I would also note that the new money rate-related purchases in 3Q of roughly $14 billion, more than twice that of the invested assets rolling off. So while the difference between our new money rates and roll-off yields shown here is as an indicative metric for future investment margin impact, it's only directional in nature and not a perfect depiction of spread impacts. At these levels, we continue to see positive impact of higher yields on our in-force and new business growth.
Now moving to expenses on Page 9. This chart shows a comparison of our direct expense ratio for the full year of 2023 of 12.2% and the first three quarters to 2024 all below 12%, including 11.7% in Q3 of 2024. 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 Q3 direct expense ratio benefited from solid top line growth and ongoing expense discipline.
Looking ahead, we would expect our direct expense ratio to be higher in the fourth quarter, consistent with the seasonal nature of our business. That said, our performance year-to-date positions us to beat our full year 2024 direct expense ratio target of 12.3%, demonstrating our consistent execution and a sustained efficiency mindset.
Now let's turn to Page 10. This chart reflects new business value metrics for MetLife's major segments for the past five years, including an update for 2023. MetLife invested $3.6 billion of capital in 2023 to support new business. This was deployed at an average unlevered IRR of approximately 19% with a payback period of five years, generating roughly $2.6 billion in value.
I will now discuss our cash and capital position on Page 11. Cash and liquid assets at the holding companies were $4.5 billion at September 30, which is above our target cash buffer of $3 billion to $4 billion. Cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend and share repurchases of roughly $800 million in the third quarter as well as holding company expenses and other cash flows. In addition, we have repurchased shares totaling approximately $130 million in October.
For our US companies, preliminary third quarter year-to-date 2024 statutory operating earnings were approximately $2.8 billion, essentially flat year-over-year, while net income was approximately $2 billion. We estimate that our total US statutory adjusted capital was approximately $17.6 billion as of September 30, 2024, down 2% from June 30, 2024 primarily due to dividends paid and derivative losses, partially offset by operating earnings.
Finally, we expect the Japan solvency margin ratio to be approximately 745% as of September 30, which will be based on statutory statements that will be filed in the next few weeks.
Before I wrap up, I would just like to highlight that we have an updated commercial mortgage loan slide as of September 30 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.
In summary, while adjusted earnings were below our expectations primarily due to lower VII, the underlying strength of our business fundamentals was evident with strong top line growth, disciplined underwriting and prudent expense management. In addition, our strong value of new business metrics demonstrate our disciplined approach to deploying capital to its highest and best use, consistent with our all-weather strategy.
MetLife remains in a position of strength given our balance sheet, free cash flow generation and diversification of our market-leading businesses, and we are committed to deploying capital to achieve responsible growth and building sustainable value for our customers and our shareholders.
Finally, let me close by saying that we look forward to seeing many of you on December 12 at our Investor Day, which will focus on the introduction of our New Frontier strategy. As we have in the past several years, we will be offering our near-term outlook in early February as part of our fourth quarter 2024 earnings call.
And with that, I'll turn the call back to the operator for your questions.