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Metlife Inc  (NYSE:MET)
Q4 2018 Earnings Conference Call
Feb. 07, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Fourth Quarter 2018 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, instructions will be given at that time. As a reminder, this conference is being recorded. Before we get started, I refer you to the cautionary note on the forward-looking statements in yesterday's earnings release.

With that, I will turn the call over to John Hall, Head of Investor Relations.

John Hall -- Head, Investor Relations

Thank you, operator. Good morning, everyone and welcome to MetLife fourth quarter 2018 earnings call. Before starting, I refer 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. Now joining me this morning on the call are Steve Kandarian, Chairman, President and Chief Executive Officer; and John McCallion, Chief Financial Officer, also here with us today to participate in discussions are other members of senior management.

Last night we released an expanded set of supplemental slides, they are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. The content for the slides begins following the romanette pages that feature a number of GAAP reconciliations. After prepared remarks, we will have a Q&A session that given the busy earnings call scheduled this morning, we'll extend no longer than the top of the hour. So in fairness to all participants, please limit yourself to one question and one follow-up.

With that, I will turn the call over to Steve.

Steven A. Kandarian -- Chairman, President and Chief Executive Officer

Thank you, John and good morning, everyone. Last night we reported fourth quarter earnings to close at a very strong 2018. Quarterly adjusted earnings totaled $1.3 billion or $1.35 per share, up from $0.64 per share a year ago. Adjusted earnings benefited from a tax settlement that more than offset weaker capital markets, weaker underwriting and refinement to the estimated impact of US tax reform.

Net income was $2 billion or $2.04 per share, down from $2.14 per share a year ago. Falling interest rates, falling equity markets and a strengthening dollar drove substantial gains in the derivatives we hold to protect our balance sheet. These gains reversed much of the non-economic derivative losses incurred earlier in the year.

For the full year 2018, MetLife generated adjusted earnings of $5.5 billion or $5.39 per share, an increase of 37%. Net income for the year was $5 billion or $4.91 per share. Overall, 2018 was an excellent year, driven by solid underwriting, good volume growth, disciplined expense management and tax reform. These positive fundamentals were enhanced by the impact of significant and consistent capital management. Reflecting the strong full year results, adjusted return on equity in 2018 was 12.6%.

Turning to total Company investments. Our investment portfolio continues to benefit from higher investment rates. Our new money rate rose from 3.23% a year ago to 4.24% in the fourth quarter. Our average roll-off rate in the quarter was 4.4%. In absolute terms, recurring investment income was up 6.5% compared to a year ago, as higher asset balances and rates combined to offset the roll-off of higher-yielding securities. Variable investment income of $237 million came in above the midpoint of our quarterly guidance range, it was aided by another strong quarter of private equity returns.

For the full year, VII totaled $962 million at the upper end of our annual range of $800 million to $1 billion. Looking ahead, we anticipate weaker first quarter private equity returns in our alternative investment portfolio, given fourth quarter market conditions and the one quarter reporting lag. Our full year 2019 guidance for variable investment income remains unchanged.

Before I address capital management, I want to provide an update regarding the Group annuity issue we disclosed in December 2017. We continue to make good progress on the remediation of this issue and expect to report in our 2018 Form 10-K later this month, the lifting of the related material weakness. At the same time, we also expect to report the lifting of the previously reported material weakness associated with over reserving in our Japan variable annuity book.

Moving to capital management. When we held our outlook call in mid-December, I indicated that we had repurchased $700 million of MetLife shares since reporting earnings on November 1st, which extinguish our prior authorization and began utilization of our current $2 billion authorization. During the balance of December, we took advantage of market conditions and repurchased an additional $500 million at an average price of $39.46 per share, bringing fourth quarter share repurchases to $1.2 billion.

There remains $1.3 billion outstanding on our current authorization. All totaled, we repurchased $4 billion of MetLife common stock and paid $1.7 billion of common dividends during 2018 to bring total capital return to common shareholders to $5.7 billion, well ahead of our $5 billion target, and more than 100% of full year adjusted earnings. By now it should be clear to all, that we have a strong commitment to returning excess capital to shareholders.

As this is my last earnings call before Michel Khalaf takes over as CEO, I have been thinking about what defines my time with MetLife. The one word that sums it up best is derisking. Whether on the asset side of our balance sheet, the liability side or in the regulatory arena. My goal is for MetLife to perform well in any economic environment. 18 months after joining MetLife as Chief Investment Officer in 2005, we sold Peter Cooper Village/Stuyvesant Town in Manhattan for a $5.4 billion. While this was regarded as a historic top of the market asset sale, it was actually a derisking move.

That one property had risen so much in value that they represented nearly 50% of our entire real estate portfolio. The same approach to risk guided us as the storm clouds of the financial crisis began together. I am proud that we saw the housing bubble earlier than most and took action to significantly reduce our holdings of subprime mortgage-backed securities. We also saw the recession coming in October of 2007, two months ahead of the official call and made a decision to sell down approximately $8 billion of assets we thought would be most vulnerable in a downturn. Our efforts to derisk MetLife's asset portfolio helped us come to the financial crisis in such strong financial shape that we were able to buy Alico from AIG for $16.4 billion. Money that AIG used to repay US taxpayers.

When I became CEO in May of 2011, I knew our major task would be to derisk our liabilities, just as we had derisked our assets. After going public, the Company had been growing the top line with complicated guarantees that produced an impressive GAAP earnings, but with poor underlying economics. We had exited the long-term care business, the prior year, largely because some of us in leadership viewed the liabilities as an hedgeable. But we are still in danger putting a lot of value at risk in a lower for longer industry environment.

Initially I thought that exiting universal life with secondary guarantees and rationing down variable annuity sales, we get the job done. Eventually we realize the best course will be to spin off our US retail business all together and create two distinct value propositions. In light of these actions, I believe we have made tremendous progress in derisking MetLife. At the same time, we were improving MetLife's economics by boosting free cash flow and the value of new business written. We expanded capital-light businesses with high internal rates of return and shorter payback periods and fixed or exited businesses that fail to meet those criteria.

As a result, our free cash flow ratio rose from 26% in 2012 to an average of 66% over 2017 and 2018. This stronger free cash flow enabled MetLife to repurchase more than $10 billion of common shares over the last five years. Even as we increased our common dividend at a 12% compound average growth rate since 2011. Operationally, we made significant investments to upgrade MetLife's technology, expand our digital capabilities and deliver a better customer experience, all without negatively impacting expenses.

To the contrary, our unit costs initiative has already improved MetLife's direct expense ratio by 140 basis points, and is on track to deliver $800 million of pre-tax margin improvement by 2020. In the midst of all these efforts, we were confronted with a regulatory risk larger than any MetLife has faced in its history. Because we won our lawsuit against the government to shed our designation as a systemically important financial institution or SIFI, it may be hard to remember how ominous the threat appeared in 2013.

The actions of the Financial Stability Oversight Council in the Federal Reserve at the time made two things clear. First, only three out of more than 800 (ph) US life insurers would be labeled SIFIs. And second, the capital requirements for SIFIs will be significantly higher than for other firms. We view this as an existential threat that would make it impossible for MetLife to price many of its products competitively, harming customers and shareholders alike.

The Dodd-Frank Act included a provision allowing companies to seek judicial review other SIFI designations. No Company wants to take the federal government to court, but this was the path I felt we must pursue for the sake of our customers, employees and shareholders. We were given many warnings, you will lose, your brand will suffer, you will face retribution. But, if anything because we took a principle stand and fought for what we knew was right, MetLife emerged with its reputation enhanced.

I believe, I was the right person to lead the derisking of MetLife, which has stabilized our balance sheet, strengthened our free cash flow and position us for profitable growth. I also believe that MetLife is now at an inflection point, where a different kind of leadership is needed. Someone with a strong track record of execution, who sets ambitious targets and knows how to meet or beat them. That person is Michel Khalaf and I'm very excited that he is taking over as CEO on May 1st.

The Board of Directors conducted a thorough internal and external search to find the right executive to lead MetLife. We knew it was critical to find someone who combine deep knowledge of the industry, an entrepreneurial spirit, a commitment to innovation and a strong leadership skills. The Board and I have every confidence that Michel is the right executive to lead our global Company into the future. In closing, I want to thank everyone who has helped to transform MetLife into a more efficient, innovative and financially successful Company. This starts with MetLife's 48,000 employees who bring a deep sense of purpose to our mission of making people's lives more financially secure.

I also want to thank MetLife's senior leaders for their willingness to make hard decisions to move us forward. We have built one of the strongest leadership teams anywhere in the industry. I'm confident they will lead MetLife to new levels of success. To my fellow Board members, I want to say thank you for your support, especially during our long SIFI's struggle. Few Boards would have had the courage to stick with us through this challenge. I am very pleased that your trust was rewarded.

And finally to our shareholders. Thank you for your patience. Large life insurance companies are difficult ships to turn, but it was critical that we set MetLife on a better course for the future. As the owners of the Company, you deserve a fair return on the capital you entrusted to us. I believe our efforts are now delivering on that promise, it will continue to do so in the years to come.

With that, I will turn the call over to John McCallion.

John D. McCallion -- Executive Vice President and Chief Financial Officer

Thank you, Steve and good morning. I will begin by discussing the 4Q18 supplemental slides that we released last evening, along with our earnings release and quarterly financial supplement. These slides cover our fourth quarter and full year 2018 financial results. Starting on Page four, the schedule provides a comparison of net income and adjusted earnings in the fourth quarter and full year 2018. In the quarter, net income was $2 billion or roughly $700 million higher than the adjusted earnings of $1.3 billion. The primary driver for the variance was net derivative gains due to significant market movements during the fourth quarter.

Lower interest rates, equity market weakness and the strength of the US dollar combined to drive the net derivative gains. For the full year 2018, net income was $5 billion, which was roughly $500 million less than adjusted earnings of $5.5 billion. Overall, the results in the investment portfolio and hedging program continue to perform as expected. We had three notable items in the quarter as shown on Page five, and highlighted in our earnings release and quarterly financial supplement.

First, favorable tax items increased adjusted earnings by $247 million after tax or $0.25 per share. The largest component of this benefit was the result of an IRS audit settlement related to the tax treatment of a wholly owned UK investment subsidiary of Metropolitan Life Insurance Company. As some of you may recall, MetLife established a reserve in the third quarter of 2015, related to this matter.

Second, expenses related to our unit cost initiative decreased adjusted earnings by a $100 million after tax or $0.10 per share, which is the highest UCI expenses of the year. Third, litigation reserves and settlement costs were $60 million after tax or $0.06 per share. This includes separate fines, totaling approximately $20 million, paid to the Insurance Department of New York and the securities division of Massachusetts related to our Group annuity business.

Adjusted earnings, excluding notable items were $1.2 billion or $1.26 per share. On Page six, you can see the year-over-year adjusted earnings excluding notable items by segment. Excluding all notable items in both periods, adjusted earnings were up 6% year-over-year and 8% on a constant currency basis. On a per share basis, adjusted earnings were up 14% and up 16% on a constant currency basis. The better results on an EPS basis reflect a cumulative impact from share repurchases.

Overall, positive year-over-year drivers in the quarter included better expense margins and solid volume growth, as well as lower taxes, primarily to the US tax reform. These were partially offset by the impact from weaker equity markets, lower recurring interest margins and less favorable underwriting. Pre-tax variable investment income was $237 million, up $21 million versus the prior year quarter, driven by higher private equity returns.

With regards to our business performance, Group Benefits' adjusted earnings were flat year-over-year. The key drivers were solid volume growth and lower taxes which were offset by less favorable underwriting, higher expenses and lower investment margin. With respect to underwriting, the Group life mortality ratio was 89.4%, which was higher than the prior year quarter of 87.2% primarily due to elevated severity. Notwithstanding this quarter's results, the Group life mortality ratio was 87.5% for the full year 2018. And exactly in the middle of our target range of 85% to 90%.

The interest adjusted benefit ratio for non-medical health was 73.2%, which was lower than the 73.7% in the prior year quarter and below the 2018 target range of 75% to 80%. The year-over-year improvement in the ratio was primarily driven by continued positive trends in disability. This was partially offset by higher utilization in dental in the quarter. Group Benefits continues to see strong momentum in this top line. Adjusted PFOs in the quarter and full year were up 4% with growth across most markets and product lines.

Full year sales were down 1% versus 2017, which had record jumbo cases. Voluntary products saw continued momentum with sales up double-digits in 2018. In addition, we also continue to grow down market as regional and small-market sales were strong and well above full year expectations. Retirement and Income Solutions or RIS adjusted earnings, excluding notable items were up 51%. The key drivers were favorable underwriting and investment margins, solid volume growth, as well as lower taxes due to US tax reform. While the flatter yield curve has continued to pressure RIS adjusted earnings, this was more than offset by higher total liabilities, which were up 5% versus the prior year quarter.

Excluding the FedEx transaction announced in May of 2018, total liabilities were up 2%. As a result of higher variable investment income in this quarter, we have been able to maintain spreads, which were 130 basis points in 4Q18 and within our prior outlook call range of 110 basis points to 135 basis points.

Excluding VII, RIS spreads were 103 basis points, down 2 basis points year-over-year and 1 basis point sequentially. RIS adjusted PFOs were $523 million, down from $1 billion in the prior year quarter due to lower pension risk transfer sales. While we did not complete any transactions in the fourth quarter, PRT, PFOs were $6.9 billion in 2018, a record year for us. As we look to 2019, we remain optimistic on winning our share of PRT deals given the strong pipeline that we continue to see.

Excluding PRT deals, adjusted PFOs were up 40% versus the prior year quarter and up 13% for the full year primarily due to structured settlements and income annuities. Property and casualty or P&C adjusted earnings, excluding notable items in the prior quarter were up 13%, primarily due to lower taxes. Pre-tax cat losses were $25 million in the quarter, which was $2 million lower than the prior year quarter.

With regards to the top line, P&C adjusted PFOs were up 1%, while sales were up 13% versus 4Q17. Asia adjusted earnings were down 9% and 8% on a constant currency basis. The key drivers were less favorable underwriting and the impact of weaker capital markets in Japan and Korea in the quarter. This was partially offset by solid growth in assets under management, as well as lower taxes. Asia sales were up 5% on a constant currency basis. In Japan, sales were up 19% primarily driven by strong foreign currency denominated annuities, as well as accident and health sales. FX and A&H products remain our primary focus in Japan and we continue to see strong momentum in the market.

Other Asia sales were down 13%, primarily driven by regulatory changes in Korea. Latin America adjusted earnings were up 10% and 19% on a constant currency basis. The key drivers were better expense margins, favorable underwriting and volume growth. This was partially offset by the impact from a lower equity market on our Chilean encaje and higher taxes. Latin America adjusted PFOs were down 3%, but up 5% on a constant currency basis, driven by volume growth across the region.

Latin America sales were up 6% on a constant currency basis. The divestiture of MetLife Afore, our former pension management business in Mexico dampened sales growth by 4 points compared to the prior year quarter. EMEA adjusted earnings were down 30% and 24% on a constant currency basis, primarily due to less favorable underwriting and higher taxes. This was partially offset by better expense margins. In addition, EMEA's adjusted earnings were negatively impacted by a few one-time items, totaling roughly $9 million, that we don't expect to repeat.

EMEA adjusted PFOs were up 3% on a constant currency basis, reflecting growth in Western Europe and Turkey. EMEA sales were down 7% on a constant currency basis, primarily due to lower volumes in the Gulf. MetLife Holdings' adjusted earnings, excluding notable items in 4Q17 were down 8% year-over-year. The primary drivers were unfavorable equity market impacts and life mortality. This was partially offset by improved expense margins and the benefits from US tax reform.

With regards to equity market performance, MetLife Holdings' separate account returns were down 10% in the quarter and resulted in an initial market impact of approximately $25 million to adjusted earnings, which is roughly in line with our sensitivity guidance. Underwriting results included unfavorable mortality due to higher large phase claims in the quarter, which drove the life interest adjusted benefit ratio to 58%.

Despite the higher life claims in 4Q, the full year interest adjusted benefit ratio was 52.4% excluding notable items, and in the middle of our target range of 50% to 55%. Corporate and other adjusted loss excluding notable items was a $132 million. Overall, the Company's effective tax rate on adjusted earnings in the quarter was 12.2%. Excluding the favorable notable tax items discussed earlier, the Company's effective tax rate in the quarter was 18%.

Turning to Page seven, this chart shows our direct expense ratio from 2015 through 2018, as well as the quarterly details for 2018. As we have previously stated, we believe the annual direct expense ratio best reflects the impact on profit margins as it captures the relationship of revenues and the expenses over which we have the most control. We have also noted previously that our goal is to realize $800 million of pre-tax profit margin improvement by 2020, which represents an approximate 200 basis point decline from the 2015 baseline year.

We continue to make consistent progress toward achieving our target by 2020 and as the chart illustrates, we have already achieved 140 basis point improvement in the annual direct expense ratio from 2015 to 2018. While we are pleased with these results, we had certain expense items in the fourth quarter that lowered the full year ratio by approximately 20 basis points. We don't anticipate these items recurring in future periods.

I will now discuss our cash and capital position on Slide eight. Cash and liquid assets at our Holding Companies were approximately $3 billion at December 31st, which is down from $4.5 billion at September 30th. A $1.5 billion decrease in cash in the quarter reflects the net effects of subsidiary dividends, share repurchases, payment of our common dividend, Holding Company expenses and liability Management actions. Our average 2017 and 2018 free cash flow ratio was 66% of adjusted earnings, excluding notable and Brighthouse separation related items. This was within our two-year average target of 65% to 75%.

Next, I would like to provide you with an update on our capital position. For our US Companies, our new combined NAIC RBC target ratio post US tax reform is 360%. And we will be in excess of that amount for the full year 2018. For our US Companies, preliminary 2018 statutory operating earnings were approximately $4.4 billion and net earnings were approximately $4.2 billion.

Statutory operating earnings increased by $1 billion from the prior year. The increase was primarily due to dividends received from an investment subsidiary, which had a corresponding offset in statutory adjusted capital as well as lower taxes. These items were partially offset by less favorable capital markets in 2018 and reinsurance recaptures in 2017. We estimate that our total US statutory adjusted capital was approximately $18.5 billion as of December 31 2018, which remained relatively flat versus 2017. Net earnings and investment gains were offset by dividends paid to the Holding Companies.

Finally, the Japan solvency margin ratio was 794% as of September 30th, which is the latest public data. Overall, MetLife generated a solid quarter despite challenging market conditions to close out a very strong year. Our full year financial accomplishments in 2018 include; 22% growth in adjusted EPS, excluding notable items; record PRT PFOs of $6.9 billion; returned a record $5.7 billion of capital to shareholders; improved the direct expense ratio and remain on track to achieve our target by 2020. In addition, our cash and capital position, as well as our balance sheet remained strong. Finally, we remain confident that the actions we were taken to implement our strategy will continue to drive free cash flow and create long-term sustainable value to our shareholders.

And with that, I will turn back to the operator for your questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And one moment, please for your first question. Your first question comes from the line of Andrew Kligerman from Credit Suisse. Please go ahead.

Andrew Kligerman -- Credit Suisse -- Analyst

Hey, good morning. A question around mortality. It looked like it was -- and you brought -- called that out in the press release as well. It looks like Group Asia, EMEA and MetLife Holdings all had somewhat elevated mortalities. So I just wanted to get a sense, is this kind of a blip? Could it reverse the next quarter? How do you see the outlook?

John D. McCallion -- Executive Vice President and Chief Financial Officer

Good morning, Andrew. It's John. Let me take it from the top. I might ask Michel to jump in a little bit too on the Group side. But I think in general what you said is true. I would consider this just normal volatility. I think the important thing to point out, if you go back to our full year benefit ratios were generally in line with our targets. So I would tend to agree with your, I guess that's your statement that, this is just a kind of normal volatility is generally severity in a lot of places. We did have a reserve refinement in Asia. I think the one place -- we did see some higher utilization in dental and maybe I'll just have Michel comment on that. So we'll monitor that. But I think otherwise, the other mortality or unfavorable mortality is generally just considered a blip.

Michel A. Khalaf -- President, U.S. Business and EMEA

Yeah, hi Andrew, it's Michel. So on the dental front, we did see higher utilization in Q4. As a reminder, we had a very strong first quarter. Typically, the fourth quarter we see lower utilization. A lot of insureds reached their limits. So that drives the lower utilization. As I said, we had a low utilization in the first quarter. We've analyzed this. We see no particular trends in any block area or service and some of the Q4 results are also due to prior quarter development as well so trailing from Q3. So we're keeping a close eye, but nothing to suggest that this is the beginning of a trend.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. And then just on the pension risk transfer. You mentioned earlier, John that the pipeline still looks very good. But it was quiet in the fourth quarter. Is it getting too competitive? Is pricing under any pressure here or you feel good about the returns going forward?

Michel A. Khalaf -- President, U.S. Business and EMEA

Yeah, Andrew, Michel again. So it's a competitive marketplace, but we see a good pipeline based on discussions that we're having on intermediaries and plan sponsors. We feel confident in our ability to continue to win our fair share of deals, while sticking to our discipline in terms of how we evaluate and assess those opportunities going forward. So we're still bullish and confident in terms of the PRT opportunity going forward.

Andrew Kligerman -- Credit Suisse -- Analyst

A double-digit returns are still viable?

Michel A. Khalaf -- President, U.S. Business and EMEA

Well certainly we're sticking to our discipline in terms of the returns that we look for and on those deals. And again as a reminder, we had a record year in 2017 and we are more than doubled '17 and '18. So another record year there as well. So we are still sort of optimistic about the market opportunity there.

Andrew Kligerman -- Credit Suisse -- Analyst

So thanks.

Operator

Your next question comes from the line of Tom Gallagher from Evercore. Please go ahead.

Thomas Gallagher -- Evercore ISI -- Analyst

Good morning. Steve, just a follow-up on your point on derisking. As you think about how you lead the MET position here. I think the perception is the only real remaining tail risk might be long-term care. And when you think about this risk going forward, while MET's block has performed pretty much better than everyone else in the industry so far. Is there a risk that every block is under water and eventually that will -- it will catch up to MET or do you have reason to believe that MET's long-term care blocks going to be fine over the next several years?

Steven A. Kandarian -- Chairman, President and Chief Executive Officer

Hi, Tom. We feel good about our long-term care block and we talked about this, I think it was the last earnings call and we gave a fair amount of detail on it. We are getting rate relief in many states, we're continuing those efforts. As you know, as most of this business is written at MLIC, that's under New York regulations which we always had pretty strong capital rules and reserving requirements.

So we feel our book is in a good position and we stopped writing this business back in 2010 as I mentioned, but obviously we still have a block of business on our books and we still get premiums in for those policies that have been out there for quite some time. But we have looked at that very, very carefully. We've done a lot of work on it and we feel that it's in a good place.

Thomas Gallagher -- Evercore ISI -- Analyst

Got you. And then just my follow up is just on the HoldCo liquidity and capital management. So, it looks like you're toward the low end of your HoldCo liquidity target of $3 billion to $4 billion now. My question is, how much above the 360% RBC target are you in terms of your stat surplus and when you think about what your excess capital position is now or maybe you don't have that much excess capital. Is there a thought for 2019 that you might want to build a bigger buffer or do you think you'll be able to use all of your free cash flow for '19 for shareholder return purposes?

John D. McCallion -- Executive Vice President and Chief Financial Officer

Good morning, Tom. This is John. Let me take it from the HoldCo and I'll touch on the RBC at the end. So first, let me just start to just help reconcile and maybe roll through -- roll forward our cash from over the course of the quarter. I think is important to recognize that we had $1.2 billion of share repurchases in the quarter and I think may, you may realize that we had an additional $500 million post the outlook call. And I'd take that as a decision to accelerate some of the -- what otherwise would have been repurchased in '19 and we did so at an average price of $39.46.

So we view that as a good use of excess cash at the time, given the market weakness and so we'll be mindful of that as we see how markets trend. I think the second thing to keep in mind in the quarter, we did complete our net liability management actions in the fourth quarter and just to remind you, we said during '18 that we would complete $1 billion to $2 billion of net liability management during '18, we ended up at about $1.5 billion, which we completed in the fourth quarter, roughly $400 million or $500 million of debt repurchases. And then I'd attribute the remaining portions is just lumpiness in any one quarter of intercompany cash flows and tax sharing payments.

So then turning to the buffers. So we're at the low end of the range today. We -- this process of setting the buffer we use some severe and very severe liquidity stress tests. We look at the related calls on Holding Company cash and capital and then we set the buffer quarterly. And so we did so a number of years, I guess it was three years ago or so we set the $3 billion to $4 billion range and it's a range for a reason. So we take into account our outlook and one other things these liability management actions did is, it helps reduce some of the complexity over the calls on cash at the Holding Company.

We've historically run at about $1 billion of maturities every year in debt -- debt maturities and a lot of the liability management actions has helped to push out some of those maturities. So just to give you a sense of that, we have no debt maturities in '19. We have like $400 million to $500 million each year from 2020 to 2022. So our debt maturity towers are much different today and as a result, the Holding Company under a stress can be -- can think about that. So it's just, we've kind of continued to reduce the risk I'd say at the HoldCo, and therefore, I would expect us to manage to the lower end of that range in the near-term.

Moving to RBC, we did lower our RBC target as a result of tax reform by 40 points, remember, it did not have any impact on our adjusted -- total adjusted capital, this was just merely a impact to the formula for a required capital, it doesn't change anything in terms of our available resources or anything like that. So we adjusted that down by the 40 points from 400% to 360%. Today, our best estimate would be that we're above 380% at the end of the year.

Thomas Gallagher -- Evercore ISI -- Analyst

Got you. That's helpful. Thanks, John.

Operator

Your next question comes from the line of Ryan Krueger from KBW. Please go ahead.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Hi, thanks. Good morning. In Asia, the earnings this quarter were about $50 million lower than the full year quarterly average ex notable items. I think, John you mentioned a reserve item, but I'm just curious is any -- if anything in the quarter you as ongoing or if it was just a weaker quarter in terms of underwriting and some of the other things you mentioned on capital markets and reserve true-ups?

Kishore Ponnavolu -- President, Asia

Ryan, this is Kishore. For the full year 2018, if you exclude notables, the Asia's segments reported adjusted earnings is up 8%. That certainly exceeds the outlook we provided for the year. In terms of this quarter, there were four factors that put pressure on our earnings. One was unfavorable underwriting and John spoke to the reserve refinement, that's about $20 million. There were two one-timers. One in the Japan segment and the other one was in the other Asia segment. So that's first one.

Then the second one is VII. Although VII was up for MetLife as a whole, it was lower for the Asia segment by about $13 million. The third factor is the US dollar strengthened in the fourth quarter against the Korean won and the Aussie dollar that's about a point there. Finally, we had significant pressure on the equity markets in both Japan and Korea. Topics was down 18%, cost it was down 13%. So this led to some reserve increases in some variable products.

Just to give you a little bit of context around this, right. These reserves represent 2% of our total reserves. So that's a -- so that's point number one. And then point number two is, in Korea, which represents a bulk of this impact, we are hedged on a statutory basis. So given all this and looking at 2019, I'm quite comfortable reaffirming our earnings outlook guidance. Thank you.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Great, thanks a lot. That was helpful. And then, on the weaker VII in 1Q19 from a lagged private equity returns. Can you give us any quantification of that?

Steven J. Goulart -- Executive Vice President and Chief Investment Officer

Hi, Ryan, it's Steve Goulart. Well as Steve Kandarian said in his prepared remarks, that we do expect a weaker first quarter. Remember, that's the lag in private equity. We've gone back and relooked at it. We looked at our outlook. What we've done, we have lowered our expected yield, but it's still low double-digits as we said at the outlook call and most important, I think is, we're still confident that our VII will come within the range that we gave at the outlook call of $800 million to $1 billion. Undoubtedly, it will be weaker -- the private equity will be weaker in the first quarter, reflecting the fourth quarter markets, but we are confident overall still.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of Jimmy Bhullar from JPMorgan. Please go ahead. Jimmy Bhullar, your line is open. Check your mute button.

Jamminder Bhullar -- JPMorgan -- Analyst

Yeah, hi. So I had a couple of questions. First on just that you mentioned new money yields going up throughout last year. And if you can talk about where your new money -- the yields set right now versus the rates that -- rates on the bonds that are rolling off and just to get an idea on, if you are close to a point where you think spread compression will begin to abate in the business?

Steven A. Kandarian -- Chairman, President and Chief Executive Officer

Well, if you look at the trend, the trend continues to be positive and I think we've had four quarters in a row of a rising new money yield. But remember what happened in the sort of late in the fourth quarter too rates have fallen again. Where we would stand though is, we're still confident that as rates continue to rise, we're going to be approaching that breakeven threshold. But for now, we're still looking at kind of 25 basis point to 100 basis point for each quarter just given the volatility and some of the run-off assets. But we're getting closer, we're not there yet.

Jamminder Bhullar -- JPMorgan -- Analyst

Okay. And then on the international business. You've had sort of a few dispositions recently with the Mexico Afore and the UK wealth management business. As you're looking at your international franchise overall, are there other pieces that you're looking to sort of de-emphasize or are you comfortable with their -- or is most of the restructuring effort already done?

Steven A. Kandarian -- Chairman, President and Chief Executive Officer

Jimmy, we constantly look at our overall portfolio of businesses in terms of where we're going to put more capital and where we were -- we're going to put less capital and even in some cases as you've mentioned, sell-off or disinvest in those areas. So that's an ongoing process, but if there's anything there that we come to conclude on, we'll certainly let you know.

Jamminder Bhullar -- JPMorgan -- Analyst

Okay. And then just lastly if I could ask on the MetLife Holding segment, the fact that a lot of the businesses in New York I think makes it difficult to sort of transact it with the reinsurers. So and that hasn't anything changed to where you think that there is an opportunity for you to offload that exposure?

Steven A. Kandarian -- Chairman, President and Chief Executive Officer

So we are comfortable with that business as cash flow characteristics, but we always look at opportunities to create value for the shareholders. So it is an area that we have spent a great deal of time looking at in the past, and we continue to do so and we'll continue to do so going forward. If we find a way to transact in that area, that's beneficial to our shareholders, we certainly will get that full consideration.

Jamminder Bhullar -- JPMorgan -- Analyst

Yeah. Thanks.

Operator

Your next question comes from the line of Erik Bass from Autonomous Research. Please go ahead.

Erik Bass -- Autonomous Research -- Analyst

Hi, thank you. And I realized you've touched on this for a couple of the outlook pieces already, but I guess the broader question, is there anything in the 4Q results that changes your view on the 2019 outlook for any of the businesses or do you view all of the fluctuations this quarter as things that would fall within your range of normal expectations?

John D. McCallion -- Executive Vice President and Chief Financial Officer

Erik, it's John. Yes, that's correct. We would view this as this quarter not -- this quarter does not impact our outlook for '19. I think the only place I would just refer back to what Steven Goulart said is, maybe there are some pressure on returns, but we think the return for the year is still within our outlook range.

Erik Bass -- Autonomous Research -- Analyst

Got it. Thank you. And then can you comment on the competitive dynamics in the Group business and how they're affecting sales and persistency trends? Maybe how was your experience around year end renewals?

Michel A. Khalaf -- President, U.S. Business and EMEA

Sure. Erik, it's Michel. So it's a competitive marketplace, I would say, in particular in the dental space. But we are -- I would say we're winning our fair share of business. I think 1,1,'19 sales and renewals are in line with expectations and that we continue to see excellent momentum in our voluntary business as well. And that's really making up for some of the weakness that we see on the dental front, where we are really continuing to hold our ground in terms of discipline on pricing. But overall, I would say sales and persistency are in line with expectations.

Erik Bass -- Autonomous Research -- Analyst

Thank you.

Operator

Your next question comes from the line of John Nadel from UBS. Please go ahead.

John Nadel -- UBS -- Analyst

Good morning. Thanks for taking my questions. Maybe just a broader question, John. Capital markets' impacts sort of broadly speaking in the fourth quarter, do you have any estimate on what markets, I mean, I know it was mentioned that Japan, Korea, obviously the US et cetera. Can you just give us a sense for what kind of impact that had on your earnings in the fourth quarter and how should we think about the 1Q balances that sort of go into your point of recovery?

John D. McCallion -- Executive Vice President and Chief Financial Officer

Good morning, John. Yeah as you said there's been quite a bit of recovery already in the first quarter. I think we're close to 9% year-to-date something like that, and only a point off of where the S&P was at our outlook call if I believe is correct. In terms of the -- in the fourth quarter, I would estimate the impact to be around $0.06, about half in the US and half outside. So I don't know if that helps frame the fourth quarter.

And then as you said, I think, but I don't see that impact continuing is our view right now, particularly given the recovery that we've seen so far. The only place that we -- as Steve Goulart highlighted, there will be some pressure in the first quarter that we think will -- that we will recover and get to a return that keeps us within the range for the full year for VII.

John Nadel -- UBS -- Analyst

Okay. And then maybe a little bit premature, but I guess a question for Michel, as you're taking over the reins. What are your priorities and how should investors be thinking about those priorities. I know as Steve had characterized and thanked the investors for some patience given the transformation and some derisking. How are you going to reward that patience as you think about priorities over the next 1 to two years?

Michel A. Khalaf -- President, U.S. Business and EMEA

Yeah. Thanks, John. So first of all, let me say that I'm very excited for the opportunity to lead MetLife and continue to create value for our customers and shareholders alike. Here let me tell you what will not change under my watch, and that's my commitment to MetLife's core goals of capital efficiency, strong risk-adjusted returns and profitable growth.

Like Steve, I believe that excess capital above and beyond what is required to fund the organic growth belongs to our shareholders and should be used for share repurchase, common dividends or if and when it makes sense, strategic acquisitions that's clear, a risk adjusted hurdle rate. I believe that as Steve said, MetLife is at an inflection point and while much has been accomplished and derisking our business, we still have work to do to accelerate revenue growth, further optimize our business and product portfolios and strengthen our expense discipline, obviously I'm now in a transition phase. So I look forward to share more post-May 1st.

John Nadel -- UBS -- Analyst

Appreciate that. Thanks so much.

Operator

Your next question comes from the line of Elyse Greenspan from Wells Fargo. Please go ahead. Elyse Greenspan, your line is open. Check your mute button. Okay, we'll move on. Your next question comes from the line of Alex Scott from Goldman Sachs. Please go ahead.

Alex Scott -- Goldman Sachs -- Analyst

Hi, good morning. First question I had was just on -- when I think about the sales growth in Asia in the FX annuities you're selling. Could you talk a little bit about like what makes that products different from sort of your decision to exit the retail annuities business in the US. I mean, clearly it's a different type of product, different regulatory regime, different geography. But I guess any color you can provide that would kind of give us more comfort that that product will ultimately have much better economics and then the outcome when you're wrapping up on sales of annuities in the US?

Kishore Ponnavolu -- President, Asia

Alex, I know you were at the Asia Investor Day and we went into this in fair amount of depth and certainly these products from a risk adjusted return perspective, are very attractive. And then we talked about the compelling value proposition not just from a customer perspective, from MetLife perspective as well. Because that much of these products go through the bank channel and a lot of them are single premium, a vast majority of our sales are actually single premium and we take advantage of our strengths which is our investments in the US dollar portfolio, we'd leverage that combined with our distribution power, that's driven pretty much our success.

And if you look at the category as a whole, that's been growing and our share has been growing, because we have a very strong value proposition. I talked about the market value adjustment feature, also talked about the constant repricing that we look at it pretty much on a bi-weekly basis. So this is a very actively managed portfolio and we are very happy with it.

Alex Scott -- Goldman Sachs -- Analyst

Okay, that's helpful. Then maybe one follow-up just on the US Group business. Can you give an update on sort of the year end renewals, any insight on competition price index there?

Michel A. Khalaf -- President, U.S. Business and EMEA

Yeah. As I mentioned earlier, very much in line with expectations. We're getting the renewal action that we are seeking in the market and persistency is in line with expectations. So it is a competitive market and -- our pricing reflects that. But again, nothing to point out in terms of deviation from what we expected or what we discussed on the outlook call.

Alex Scott -- Goldman Sachs -- Analyst

Thanks.

Operator

Your next question comes from the line of Humphrey Lee from Dowling & Partners. Please go ahead.

Humphrey Lee -- Dowling & Partners -- Analyst

Good morning and thank you for taking my questions. Just to follow up on Asia's sales, but on a different direction. In other Asia, you talked about the regulatory changes in Korea hurting your sales in that segment. But I assume you have -- your sales in China is probably better. So I was wondering if you can provide some color in terms of how much the challenges in Korea hurts your other Asia's sales and then also the other components of the other countries in the region in terms of sales prospects?

Kishore Ponnavolu -- President, Asia

Sure. Again, if you take Asia segment as a whole, we've really done well, 11% year-on-year growth for Asia segment. Now, if you take the fourth quarter, Japan obviously delivered a stellar performance, 19% (ph) year-over-year for the fourth quarter, 13% down on the other Asia segment, leading to a 5% overall growth that John mentioned.

Where pretty much all of it comes from the Korea shortfall. Certainly, we've got some smaller markets, but they're certainly growing healthy, no issues on China, China is I think posted strong growth as well. And the challenge with Korea is that, our -- one of our products, which is our lead product has been impacted by the regulatory change on commissions. We're working very hard on repricing it and reintroducing it to the marketplace with additional marketing efforts. So looking forward to next year for this year, I think we'll be fine, I just want to reaffirm the outlook guidance of mid single-digit growth for 2019.

Humphrey Lee -- Dowling & Partners -- Analyst

Thank you for that color. And then shifting gear to Group benefits in the prepared remarks I think you talked about dental was a little bit unfavorable in the quarter. I guess that's a little bit surprising given the seasonality pattern of that particular product line. I was just wondering if you can elaborate a little bit more in terms of what you saw in the fourth quarter?

Michel A. Khalaf -- President, U.S. Business and EMEA

Yeah, sure Humphrey. So as you said, typically the fourth quarter we see favorable utilization in dental, because a lot of the insureds reached their maximum limits, which lowers utilization. However, this year we had a very low first quarter which typically tends to be high. I mean, 2018. So that might have impacted the fourth quarter results. As I said, we've analyzed this. We see no issues with any particular block, service or area here. So this would indicate that this is not a beginning of a trend, but we're obviously keeping the -- close eye on the situation.

Humphrey Lee -- Dowling & Partners -- Analyst

Thank you.

Operator

And your final question today comes from the line of John Barnidge from Sandler O'Neill. Please go ahead.

John Barnidge -- Sandler O'Neill and Partners -- Analyst

Your property casualty business has meaningfully improved the underwriting. How much rate are you currently pushing on auto and also on home?

Michel A. Khalaf -- President, U.S. Business and EMEA

Yeah. Hi, John. We think that the industry as a whole has taken about 2% to 3% on auto over the last 12 months. We've taken slightly a higher rate action than that. Going forward, we think that we're going to be more in line with industry. And I would say the same on homeowners, we think we're going to be in line with the industry going forward.

John Barnidge -- Sandler O'Neill and Partners -- Analyst

Have you been pushing more rate than this -- than that is previously and now you're going back to industry levels. Does that imply possibly a greater share you're going to take or planning to take?

Michel A. Khalaf -- President, U.S. Business and EMEA

While we -- in our outlook call we provided -- we increased our outlook for PFO growth in 2019 to 2% to 4% and we think that's going to grow further to between 5% and -- over 5% and 20% and beyond. We are also making important investments in our P&C business, we are replatforming that business which and we're rolling that out in 2019 and 2020. So we think that -- that's going to give us also some competitive advantages in the market, which will help our top line growth going forward.

John Barnidge -- Sandler O'Neill and Partners -- Analyst

Great, thank you for the answers.

John Hall -- Head, Investor Relations

Thank you very much. That's our last question. We look forward to speaking with everyone throughout the quarter. Bye-bye.

Operator

Ladies and gentlemen, this conference will be available for a replay after 11:00 AM Eastern Time today through February 14th. You may access the AT&T Teleconference Replay System at any time by dialing 1800-475-6701 and entering the access code 462-460. International participants dial 320-365-3844. Those numbers once again are, 1800-475-6701 or 320-365-3844 with the access code 462-460. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

Duration: 61 minutes

Call participants:

John Hall -- Head, Investor Relations

Steven A. Kandarian -- Chairman, President and Chief Executive Officer

John D. McCallion -- Executive Vice President and Chief Financial Officer

Andrew Kligerman -- Credit Suisse -- Analyst

Michel A. Khalaf -- President, U.S. Business and EMEA

Thomas Gallagher -- Evercore ISI -- Analyst

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Kishore Ponnavolu -- President, Asia

Steven J. Goulart -- Executive Vice President and Chief Investment Officer

Jamminder Bhullar -- JPMorgan -- Analyst

Erik Bass -- Autonomous Research -- Analyst

John Nadel -- UBS -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

Humphrey Lee -- Dowling & Partners -- Analyst

John Barnidge -- Sandler O'Neill and Partners -- Analyst

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