MetLife, Inc. (MET) Q2 2021 Earnings Call Transcript

MetLife, Inc. (NYSE: MET) Q2 2021 earnings call dated Aug. 05, 2021

Corporate Participants:

John Hall — Senior Vice President and Global Head of Investor Relations

Michel A. Khalaf — President and Chief Executive Officer

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

Ramy Tadros — President, US Business

Kishore Ponnavolu — President, Asia

Eric Clurfain — Regional President, Latin America

Analysts:

Erik Bass — Autonomous Research — Analyst

Tom Gallagher — Evercore ISI — Analyst

Jimmy Bhullar — J.P. Morgan — Analyst

Ryan Krueger — Keefe, Bruyette & Woods — Analyst

Mike Ward — UBS — Analyst

Tracy Benguigui — Barclays — Analyst

Suneet Kamath — Citigroup — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MetLife’s Second Quarter 2021 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Before we get started, I refer you to the cautionary note about forward-looking statements in yesterday’s earnings release and to risk factors discussed in MetLife’s SEC filings.

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

John Hall — Senior Vice President and Global Head of Investor Relations

Thank you, operator. Good morning, everyone. Welcome to MetLife’s second quarter 2021 earnings call. Before we begin, 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. On the call this morning are Michel Khalaf, President and Chief Executive Officer and John McCallion, Chief Financial Officer. Also participating in the discussions are other members of senior management.

Last night, we released a set of supplemental slides which address second quarter results. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to these slides features additional disclosures, GAAP reconciliations and other information which you should also review. After prepared remarks, we will have a Q&A session that will extend to the top of the hour. In fairness to all participants, please limit yourself to one question and one follow-up.

With that, over to Michel.

Michel A. Khalaf — President and Chief Executive Officer

Thank you, John and good morning everyone. MetLife’s outstanding financial results in the second quarter provides further evidence of the tremendous progress we’re making on the pillars of our Next Horizon strategy. We’re continuing to focus with the right capital allocation and investment decisions. We’re continuing to simplify with exceptional expense discipline and we’re continuing to differentiate with enhancements to our market-leading Group Benefits platform that are helping to drive record sales. When it comes to our strategy, we’ve transitioned from a period of execution risk to one of additional opportunity.

Net income in the second quarter was $3.4 billion, up from $68 million a year ago. The primary drivers were growth in adjusted earnings, the gain we booked on the sale of our Auto and Home Business and derivative gains in the current quarter relative to derivative losses a year ago. Strong net income drove book value per share, excluding AOCI, other than FCTA growth, of 8%. Adjusted earnings in the second quarter were $2.1 billion or $2.37 per share, up 186% from $0.83 per share a year ago.

As in the first quarter, our investment portfolio generated exceptionally strong variable investment income. Private equity remained the key driver of VII. As you know, private equity returns are reported on a one quarter lag, so the strong Q2 performance reflected gains from Q1. We reported private equity gains of 9.7% in the second quarter compared with a negative 8.2% a year ago. Equity markets continued to perform well from April through June, which we anticipate being reflected in our Q3 earnings.

When we unveiled our Next Horizon Strategy at Investor Day in December 2019, we pointed to the scale and expertise that we have in investments as a competitive advantage for MetLife. The strategic approach we have taken on private equity is a case in point. Our decision to sell most of our $2.5 billion hedge fund portfolio and increase the allocation to private equity has provided a better match for our long-dated liabilities, while creating significant value for our shareholders. This was no accident, but the latest in a series of successful investment decisions from de-risking our portfolio ahead of the financial crisis to selling Peter Cooper Village/Stuyvesant Town nearer [Phonetic] market top.

Turning to our reporting segments. John McCallion will provide a complete overview shortly. I would like to focus on how our results show that COVID-19 is both still with us but lessening in its impact. From an underwriting perspective, we’ve seen a sizable improvement, but we are still experiencing excess mortality. In the quarter, the Group Life mortality ratio was 94.3%, below the 106.3% from last quarter but still above the top end of our guidance range.

In Latin America, we had $66 million of COVID losses, again, below the $150 million of COVID losses from Q1, but still above normal. Yet, at the same time, COVID-19s economic grip is easing somewhat. At MetLife, we see this emerging in sales trends. In the U.S. Group business, sales through the first half of 2021 are 39% higher than they were in the first half of 2020 and if current trends hold, 2021 will be a record sales year. In Latin America, sales are up 55% year-over-year. On a year-over-year basis, Asia sales are up 42%, while EMEA sales are up 20%. By their nature, claims are a backward looking indicator and sales are a forward-looking indicator.

So while we are not out of the woods, we are starting to see a clearing in the trees ahead. The path of the pandemic is something outside of our control, but as we have demonstrated over the past year and a half, we are not standing still. We are moving ahead with urgency to accelerate our strategy.

To further differentiate our Group Benefits business, we acquired Versant Health and immediately became the third largest vision care provider in the United States. Versant has now been part of our results for two quarters and in Q2, it contributed 6 points of year-over-year growth in U.S. Group premiums, fees and other revenues, consistent with our expectations. Year-over-year request for vision care proposals are up more than 20% among our national account customers. We are pleased with how our new vision care offering is performing in the marketplace and expect it to contribute meaningfully to growth going forward.

Similarly, we have enhanced our pet insurance offering to make it even more attractive to customers. We now offer telehealth concierge services, rollover benefits from the prior year, and family plans covering multiple pets. In what we believe is a first for the industry, we also cover pre-existing conditions when an employee switches to MetLife pet Insurance from another carrier as long as the condition was covered by the prior plan. More than 500 employers now offer MetLife pet insurance as a voluntary benefit to their employees and we believe our best-in-class product will continue to make gains in this highly attractive and underpenetrated market.

To strengthen our focus, we made a decision to sell our businesses in Poland and Greece to NN Group. This was another promise we made at Investor Day to continue to look at our portfolio through the lens of strategic fit and ability to achieve scale and clear our hurdle rate. Since that time, we have sold or reached agreements to sell our businesses in four markets and we will continue to apply this disciplined approach.

In early April, we also closed on the sale of our Auto and Home Business to Farmers Insurance for $3.94 billion in cash. The 10-year strategic partnership we forged allows each company to focus on its core strengths: Farmers’ 90 years of P&C underwriting and service excellence and MetLife’s unrivaled distribution reach in the U.S. Group Benefits space.

The simplified pillar of our strategy was evident in our exceptional expense management. In the quarter, we delivered a direct expense ratio of 11.4% and we now expect to beat our 12.3% target ratio, not only for all of 2021, but for 2022 as well. We are making this commitment despite selling our Auto and Home Business, which operated at a lower expense ratio than the overall enterprise. As we have said many times, we are embedding an efficiency mindset across everything we do that is central to our ability to deliver continuous improvement.

At MetLife, we no longer have expense reduction programs. We do not need them. What we have instead is a publicly-disclosed direct expense ratio target that we have brought down by 200 basis points over the past five years and promise to keep there. This is how we hold ourselves accountable and this is how investors can hold us accountable as well.

Our strategic decision to sell Auto and Home contributed to a $6.5 billion cash buffer as of June 30, well above our target range. We repurchased $1.1 billion of common shares in the second quarter and another $248 million of common shares so far in the third. And yesterday, our Board approved a new $3 billion share repurchase authorization. This is on top of the $475 million we have remaining on our December 2020 authorization. We believe that investing in responsible growth, steadily increasing our common dividend, and buying back common stock are all vital parts of a balanced approach to creating long-term shareholder value.

COVID-19 continues to present MetLife with the opportunity and the obligation to step up for our employees, our customers and our communities. That work is ongoing. We are in a new phase of the pandemic. The primary focus now is on vaccinating as many people as possible. Nothing will do more to prevent needless tasks and a potential resurgence of the lockdown measures that caused so much economic harm.

As we did over 100 years ago with our visiting nurses program, MetLife has mobilized to make a positive contribution to advance public health. First and foremost, this means doing all we can to give our own employees and their families access to the vaccines. Examples from our markets include giving employees paid leave to get vaccinated, covering vaccine-related expenses such as travel and childcare, and holding free vaccine clinics for employees and their families in locations as varied as Oriskany, New York and Osaka, Japan. But it also means helping to vaccinate the broader population as well. In Nagasaki, Japan, we’ve opened 6,500 square feet of our headquarters as a free vaccination site. MetLife Foundation has committed $500,000 to delivering vaccines to underserved communities across the U.S. and our medically-trained staff are volunteering to administer doses at vaccine sites.

In closing, to perform as well as we have through a pandemic highlights some fundamental truths about MetLife. We have an all-weather strategy that holds up well to stress. We have an investment portfolio that captures meaningful upside. We have competitive advantages that enable us to grow in the most attractive markets and we have a relentless focus on execution. At our 2019 Investor Day, we said our Next Horizon Strategy would generate tangible benefits for shareholders: a 12% to 14% adjusted ROE; $20 billion of distributable cash over five years; and an additional $1 billion of operating leverage to self-fund growth. We are on track to meet every one of those commitments.

Thank you. And with that, I’ll turn it over to John.

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

Thank you, Michel, and good morning. I will start with the 2Q ’21 supplemental slides which provide highlights of our financial performance and an update on our cash and capital positions. Please note, in the appendix, we have also provided an updated 25 basis points sensitivity for our U.S. long-term interest rate assumption.

Starting on Page 3. We provide a comparison of net income to adjusted earnings in the second quarter. Net income in the quarter was $3.4 billion or approximately $1.3 billion higher than adjusted earnings. This variance was primarily due to the net investment gains of $1.3 billion, of which $1.1 billion relates to the sale of our Property & Casualty business to Farmers Insurance. Our investment portfolio and our hedging program continue to perform as expected. Additionally, adjusted earnings include one notable item of $66 million related to a legal reserve release.

On Page 4 you can see the year-over-year comparison of adjusted earnings by segment excluding notable items. As I previously noted, there was one notable item of $66 million in 2Q of ’21 and no notable items for the prior year period. Adjusted earnings per share, excluding the notable item, was $2.30, benefiting from strong returns in our private equity portfolio but show most of the year-over-year variance.

Moving to the businesses, starting with the U.S., Group Benefits adjusted earnings were flat year-over-year as volume growth and the Versant Health acquisition largely offset unfavorable underwriting margins. Group Life mortality improved sequentially but remained elevated in the quarter. I will discuss in more detail shortly. Regarding non-medical health, the interest adjusted benefit ratio was 73.8% in 2Q of ’21, within its annual target range of 70% to 75%, but higher than the prior year quarter of 58.5%, which benefited from extremely low dental utilization and favorable disability incidence. We’ve seen a return to more normal utilization rates for non-medical health and expect this trend to continue. Therefore, we expect the interest adjusted benefit ratio to remain within its annual target range for the remainder of the year.

Overall, business fundamentals for Group Benefits remained healthy, highlighted by strong top-line growth and persistency. Group Benefits sales were up 39% year-to-date, primarily due to higher jumbo case activity and remain on track to deliver a record sales year in 2021. Adjusted PFOs were $5.6 billion, up 29% year-over-year. Several factors contributed to the strong year-over-year growth, including a $500 million impact relating to dental premium credits and the establishment of a dental unearned premium reserve, both reducing premiums in the second quarter of 2020, which collectively contributed 13 percentage points to the year-over-year growth rate. In addition, 4 percentage points were related to higher premiums in the current quarter from participating contracts, which can fluctuate with claim experience.

After considering these factors, underlying PFO growth for Group Benefits was roughly 12%, driven by solid volume growth across most products, including continued strong momentum in voluntary and the addition of Versant Health. Looking ahead to the second half of the year, while Group Benefits reported PFO growth rates will be impacted by the dental unearned premium reserve release in Q3 and Q4, we expect the underlying PFO growth to maintain its strength and resilience for the remainder of 2021.

Retirement and Income Solutions or RIS adjusted earnings were $654 million, up $462 million year-over-year. The primary driver was higher variable investment income, largely due to strong private equity returns. This was partially offset by less favorable underwriting margins compared to 2Q of ’20. RIS investment spreads were 224 basis points, up 199 basis points year-over-year, primarily due to higher variable investment income. Spreads, excluding VII, were 98 basis points, up 13 basis points year-over-year due, in part, to sustained paydowns in our portfolios of residential mortgage loans and residential mortgage-backed securities, a partial recovery in real estate equities and lower LIBOR rates. RIS liability exposures, including U.K. longevity reinsurance, grew 8% year-over-year due to strong volume growth across the product portfolio, as well as separate account investment performance. With regards to pension risk transfers, we continue to see a robust PRT pipeline.

Moving to Asia. Adjusted earnings were up 103% and 91% on a constant currency basis, primarily due to higher variable investment income. Asia’s solid volume growth also contributed to the strong performance driven by higher general account assets under management on an amortized cost basis, which were up 7% and 6% on a constant currency basis. Additionally, while against a weak 2Q of ’20, Asia sales were up 42% year-over-year on a constant currency basis, demonstrating the resiliency in the business.

Latin America adjusted earnings were down 27% and 38% on a constant currency basis, primarily driven by unfavorable underwriting and unfavorable equity markets related to the Chilean encaje, which had a negative 1.5% return in the quarter versus a positive 14% in 2Q of ’20. This was partially offset by favorable investment margins. COVID-19-related claims improved sequentially. The impact on Latin America’s second quarter adjusted earnings was approximately $66 million after tax. While Latin America’s bottom line has been dampened by the elevated COVID-19-related claims, the underlying fundamentals of the business remain robust as evidenced by strong sales and persistency throughout the region. Latin America adjusted PFOs were up 12% year-over-year on a constant currency basis and sales were up 55% driven by solid growth in all markets.

EMEA adjusted earnings were down 19% and 23% on a constant currency basis, primarily driven by higher COVID-19-related claims in the current period compared to low utilization in the prior year period. Solid volume growth was a partial offset. The current quarter has also benefited from a favorable refinement to an unearned premium reserve positively impacting adjusted PFOs and adjusted earnings by approximately $15 million after tax. In addition, Poland increase contributed roughly 10% to run rate earnings that will be reported in divested businesses beginning in the third quarter. EMEA adjusted PFOs were up 8% on a constant currency basis and sales were up 20% on a constant currency basis, primarily due to higher credit life sales in Turkey and solid growth in U.K. employee benefits.

MetLife Holdings adjusted earnings were up $515 million year-over-year. The increase was primarily driven by strong private equity returns. In addition, life underwriting margins were favorable. The life interest adjusted benefit ratio was 47.1%, lower than the prior year quarter of 59.1% and below our annual target range of 50% to 55%.

Corporate and Other adjusted loss, excluding the favorable notable item of $66 million related to a legal reserve release, was $126 million. This result compared favorably to the adjusted loss of $289 million in 2Q of ’20 due to higher net investment income, lower expenses and lower preferred stock dividends.

The company’s effective tax rate on adjusted earnings in the quarter was 21.6% and within our 2021 guidance range of 20% to 22%.

Now, I will provide more detail on Group Benefits mortality results on Page 5. The Group Life mortality ratio was 94.3% in the second quarter of 2021, which is above our annual target range of 85% to 90%. COVID reported claims in 2Q of ’21 were roughly 4.5 percentage points, which reduced Group Benefits adjusted earnings by approximately $75 million after tax. Additionally, the quarter included a higher level of life claims above $2.5 million and an additional level of excess mortality that appears to be COVID-related. These, collectively, impacted the ratio by an additional 2.7 percentage points or $40 million after tax. There were approximately 50,000 COVID-19-related deaths in the U.S. in the second quarter of ’21. While still elevated, total debts have moderated versus the prior year and sequential quarters. Looking ahead, we expect COVID-19-related deaths in Group Benefits to continue to trend lower.

Now let’s turn to Page 6. This chart reflects our pre-tax variable investment income over the last five quarters, including approximately $1.2 billion in the second quarter of 2021. This very strong result was mostly attributable to the private equity portfolio, which had a 9.7% return in the quarter. As we have previously discussed, private equities are generally accounted for on a one quarter lag. Our second quarter results were essentially in line with PE industry benchmarks. While all private equity asset classes performed well in the quarter, our venture capital funds, which accounted for roughly 22% of our PE account balance of $11.3 billion with the strongest performer across subsectors with a roughly 19% quarterly return.

On Page 7, second quarter VII of $950 million post-tax is shown by segment. The attribution of VII by business is based on the quarterly returns for each segment’s individual portfolio. As we have previously noted, RIS, MetLife Holdings and Asia generally account for approximately 90% or more of the total VII and are split roughly one-third each, although it can vary from quarter-to-quarter. VII results in 2Q of ’21 were more heavily weighted towards RIS and MetLife Holdings, as Asia’s private equity portfolio is less mature and has a smaller proportion of the venture capital funds that I referenced earlier.

Turning to Page 8. This chart shows our direct expense ratio over the prior five quarters and full year 2020, including 11.4% in the second quarter of ’21. 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. In 2Q of ’21, our favorable direct expense ratio benefited from solid top-line growth and ongoing expense discipline, as well as lower employee-related benefits in the quarter. We expect the direct expense ratio for the remainder of 2021 to be elevated compared to the first half of 2021 due to timing of investments and seasonality. But as Michel noted, we expect full year ’21 and ’22 direct expense ratio to be our 12.3% guidance.

Now I will discuss our cash and capital position on Page 9. Cash and liquid assets at the holding companies were approximately $6.5 billion at June 30, which is up from $3.8 billion at March 31 and well above our target cash buffer of $3 billion to $4 billion. The sequential increase in cash at the holding companies was primarily due to the proceeds received from our P&C sale to Farmers Insurance of $3.9 billion. In addition, HoldCo cash includes the net effects of subsidiary dividends, payment of our common stock dividend, a $500 million redemption of preferred stock, share repurchases of $1.1 billion, as well as holding company expenses and other cash flows.

Next, I would like to provide you with an update on our capital position. For our U.S. company’s preliminary second quarter year-to-date 2021, statutory operating earnings were approximately $2.8 billion, while net income was approximately $1.6 billion. Statutory operating earnings increased by approximately $1.2 billion year-over-year, driven by lower variable annuity rider reserves and an increase in investment margin. Year-to-date 2021, net income decreased by $286 million as compared to the first half of 2020. The primary drivers were derivative losses, mostly offset by increases in operating earnings and net investment gains in the current six-month period compared to large derivative gains in the prior year’s six-month period. We estimate that our total U.S. statutory adjusted capital was approximately $18.5 billion as of June 30, 2021, up 9% compared to December 31, 2020 when excluding our P&C business sold to Farmers. Favorable operating earnings and net investment gains were partially offset by derivative losses and dividends paid to the holding company.

Finally, the Japan solvency margin ratio was 873% as of March 31, which is the latest public data. The sequential decline in the Japan SMR from 967% at December 31 reflects seasonal dividends and the rise in U.S. interest rates in the quarter ending March 31.

In summary, MetLife delivered another strong quarter, driven by exceptional private equity returns, good business fundamentals, ongoing expense discipline, and the benefits of our diverse set of market-leading businesses and capabilities. While higher mortality due to COVID-19 has masked the earnings power of Group Benefits in Latin America, the strength of these franchises remain healthy and intact. In addition, our capital, liquidity and investment portfolio are strong, resilient and position us for success.

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

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Erik Bass with Autonomous Research. Please go ahead.

Erik Bass — Autonomous Research — Analyst

Hi, thank you. So maybe you could provide some more details on your expense ratio outlook and the drivers of the improved guidance there. And how are you thinking about expenses in the second half of 2021 and the longer-term target level for the expense ratio?

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

Good morning, Erik. So I’d just start out by saying we are — we’re very pleased with the results and the execution by everyone in the firm. And I think as Michel said in his opening remarks, this has really become part of our culture and it’s a cultural shift that we’ve made. Our efficiency mindset is built into our strategy, it’s built into our everyday activities. And I think the results are — kind of, speak for themselves. As I mentioned, in this quarter, there is a few timing-related items. So we do see an uptick in expenses in the second half of the year relative to the first half. We did have some benefit from some employee-related costs, particularly as they relate to the impact of how markets move. And so that came — that was a benefit this quarter. And then there is a — there’s seasonality with regards to preferred stock dividends. So the second and the fourth quarter typically are low quarters for those dividends.

As you look to the second half of this year, directionally speaking, we would see just typically — we do see seasonally higher expenses in the second half. Some of it’s related obviously to our Group business and the enrollment activities we go through. And oftentimes too, there has been some delays just as a result of a number of activities going on in some of the investments. So we do see kind of an uptick. Having said that, one of the things that we both pointed out is our expectation, which is different than where we were on our outlook call in February, is to now be under our 12.3% guidance despite the removal of our Property & Casualty business, which had a lower expense ratio. So all in all, I think our efficiency mindset is built into the culture, it’s all working and we expect that to continue as we look forward. I think I would probably stop there on your last question and probably leave that for another day.

Erik Bass — Autonomous Research — Analyst

Got it. Appreciate that. And then secondly, can you expand a bit on the Group Life mortality results? And given vaccination trends, are you seeing more of the COVID impact shifting to Group? And I think that you mentioned the benefits ratio even taking out the $75 million was still at the high end of the target range. So, you think these other access claims relate directly to the pandemic, but just more recorded as COVID deaths or are you seeing any increase in non-COVID mortality?

Ramy Tadros — President, US Business

Hey, good morning, Erik. It’s Ramy here. So let me just start by giving you a bit more color on the results and I’ll essentially just give you a bit of a walk from the headline number of 94.3% in terms of the major drivers of that. So, the first is COVID-related — COVID deaths in the quarter, that’s the 50,000 population death number impacting our portfolio, and that’s worth about 4.5 points, as John pointed out. There is another piece in the quarter, which is that from time to time we do experience higher volume of claims with larger face amounts, which does impact our mortality ratio. This is non-COVID-related, and that was about — worth about 1 point at our loss ratio on this quarter. And then the third piece of this is when we looked at our claims data, we did see an increase in certain deaths quotes, which are highly correlated to COVID. So while the cause of death for those claims is not explicitly stated as COVID, the excess mortality does appear to be COVID-related, and that was worth another 1.7% on our ratio.

So if I think about the quarter and looking forward, there are probably two headlines I’d leave you with. One is that if you strip out those three factors, our loss ratio is very close to the midpoint of our range. And the second headline is that we have seen significant declines in death in Q2 versus Q1. We’ve also seen sequential declines in deaths month-on-month continuing into July. So despite the current uncertainty with the delta variant, we’re also encouraged by the increase in the pace of vaccination, we’re encouraged by the actions undertaken by many large employers, which are impacting the vaccination rates for the insured population. So sitting here in August, on a go-forward basis, we do think that the impact of the pandemic will gradually subside and you should expect, from a run rate perspective, our loss ratio to return back to pre-pandemic levels.

Erik Bass — Autonomous Research — Analyst

Great, thank you. I appreciate the color.

Operator

And our next question is from Tom Gallagher with Evercore ISI. Please go ahead.

Tom Gallagher — Evercore ISI — Analyst

Thanks. Hey, John, just a question on the comment you made on base spreads in RIS, which came back nicely this quarter. You highlighted the mortgage pre-pays. How should we think about that from a timing standpoint? Because — tell me if I’m thinking about this right. It definitely creates near-term gains and I presume with rates remaining low, that’s going to remain strong. So probably the base spread in that business will remain strong assuming mortgage pre-pays remain high. But then there is sort of the back-end question which is, as we kind of go — as this levels off and diminishes, then there is the reinvestment pressure that kind of emerges. Would — so would you ultimately expect this to be a negative for base spreads? And if so, when would we likely see that?

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

Hi, good morning, Tom. So as you said, we have had a uptick there in the spreads, ex VII, and as I’ve mentioned in my remarks, a plus 13% year-over-year and then you see a plus 10% sequentially. So it’s a number of factors. We got lower LIBOR year-over-year, you have a partial recovery in real estate equity returns, we saw — we’ve had very good strong new business spreads, particularly, or I should say, in RIS there. And then as you said, the last thing is, we’ve seen elevated levels of the residential mortgage paydown activity. I would use the word paydown just to not confuse that with pre-payment fees that we categorize in VII. And so what that really is, is that acceleration of the recognition of income on those securities that were purchased at a discount previously.

So we do think this will stay elevated. I think it’s a combination of low rates, coupled with the home price appreciation that we’ve seen in a lot of markets. So that has spurred others and I think also if you think of it in combination with more remote work opportunities, there has been, probably, some movements in terms of the residential housing market. So, we do see that continuing, particularly, although they probably peaked, the time between when action occurs and when it hits our securities or mortgage loans is usually two to five month lag. So we think the second half of the year, we’ll still see an elevated level, maybe not to this level that we saw in the second quarter. We expect it to probably be somewhat less than that. But — so that’s kind of our expectation.

As you look forward, look, this is all just part of our broader portfolio and I wouldn’t say this, in and of itself, is going to change the trajectory. I think what it’s done is, it’s changed the trajectory upwards. We don’t consider that to be a long-term trend, probably remains a trend for the remainder of this year but probably goes back to more baseline run rate in ’22.

Tom Gallagher — Evercore ISI — Analyst

That makes sense. Thanks. And then just a follow-up, non-Japan Asia sales declined a lot sequentially. Any color on what regions drove that and what happened there?

Kishore Ponnavolu — President, Asia

Yeah, Tom, so certainly, we have to think about sequential in the context of overall sales environment in which we’re in. So if I take a step back, if you don’t mind me, and think about this in the overall Asia context, overall Asia, we did well this quarter, 42% up year-over-year, 71% in Japan, 11% in Asia, ex-Japan. Still positive in Asia ex-Japan as well and this is despite COVID spurts in many of our markets. And if you take the first half, all in total, we have a 25% year-over-year, collectively, for the first half. And so there are a number of reasons, which certainly drove that strong performance.

On a sequential basis — and if you look at Japan, and I’ll come to other Asia very quickly, and if you look at the sequential — sequentially, both on the life side and, as well as the AMH [Phonetic] sales, we were up. Right? And that speaks to the resilience of our face-to-face channels in our market, and Japan, in particular. And the pressure on a sequential basis came in from the annuities because the Banca channel is certainly — they have a March end and so therefore they’re much stronger on the Banca side and that’s what the annuity shows the drop sequentially.

On Other Asia, if you think about it, this is COVID playing out significantly in South Asia and Southeast Asia. There is a fair amount of pressure in all these markets and we’re very much a face-to-face sales business and that certainly is weighing in despite, by the way, all our efforts in terms of strong execution, our — success of our new products and certainly our digitization efforts are paying off as well. Now, as I said, this COVID uncertainty is continuing on and a vast majority of our markets significantly lagged the U.S., say for example, in terms of vaccination rate.

And right now because of the resurgence of COVID in some of our markets, social distancing measures are being reintroduced. Right? So while we did well year-over-year in Other Asia, sequentially, we’ve been impacted. And both in Japan and Other Asia, we expect to see Q3 sales to be sequentially flat to Q2 as well. But considering everything at this point, if you think about our guidance for the full year, we expect to be on track to meet the double-digit guidance that we provided in February. I hope that helps.

Tom Gallagher — Evercore ISI — Analyst

That does. Thank you.

Operator

And next we go to the line of Jimmy Bhullar with J.P. Morgan. Please go ahead.

Jimmy Bhullar — J.P. Morgan — Analyst

Hi, good morning. First, I just had a question on MetLife Holdings. If you look at earnings in the business, they’ve been pretty high in the last couple of quarters. And I think this quarter you had alternative investment income that helped and also lower life mortality. But I’m wondering to what extent long-term care was entailed [Phonetic] and just what you’re seeing in terms of claims submission in the LTC business. Has that gotten back to normal as the — versus what it was last year?

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

Good morning, Jimmy, it’s John. Yes. So I’ll just break it up. In the life side, as you saw in our interest adjusted benefit ratio, we had a strong result. Really, for this block of business, minimal — actually de minimis COVID impact this quarter. So it actually, I would say, declined faster — the impact declined faster than we had probably expected. But I think a number of factors that you can probably come to, it probably makes that make sense, whether it’s the average age and the percent of vaccinations at the older-age, things like that.

On the LTC side metrics — there was — It was really — there was no material positive from LTC. It was in line with expectations. What we’re seeing is that — and, I’d say, in line with, I’ll say, pre-pandemic expectations. And so what we’re seeing is metrics and results really trending back towards those pre-COVID, COVID levels. New claims are, I’d say, marginally below trend, but all indications are showing that we’ll be back to trend very soon. The only metric that’s lagging but again I will say trending back to pre-pandemic is the relationship of homecare versus nursing home claims. So it’s still probably a little elevated in the homecare side, but that’s — it’s trending down, it’s trending back to the pre-pandemic ratios.

Jimmy Bhullar — J.P. Morgan — Analyst

Okay. And then on Group Life, how are you thinking — it doesn’t seem like anybody sort of assumed COVID in their pricing this year and obviously not all of the business prices — reprices each year. But how are you thinking about sort of renewals in the Group Life side if we still — if the pandemic’s still ongoing? Do you think you’ll try to get higher prices in part of the book or would you just have to — would the market not bear that, given that most companies are not really making any adjustments? And should we assume margins will remain weak until the pandemic stem?

Ramy Tadros — President, US Business

Hey, Jimmy. Look, when we price our business, be it new business and/or renewals, we take a whole number of factors into account. Many of them are case-specific factors, but clearly the outlook both near term and medium term for mortality is a component of that. So as the pandemic unfolded, we certainly did take into account a view with respect to near-term mortality in our pricing. And again, it does vary by case and it depends on the length of the guarantee period and the size of the case and a number of other factors. But certainly that has been taken into account as we look to renew business or price for new business.

The other point I would just point you to here, as you think about our business in particular and our skew towards the larger end of the market is we have a very consistent track record over many, many years of taking appropriate renewal actions, while maintaining very high persistency on that book tool [Phonetic] from the mid to the high 90s. So that’s another factor that I would point you to as well.

Jimmy Bhullar — J.P. Morgan — Analyst

Okay, thanks.

Operator

And our next question is from Ryan Krueger with KBW. Please go ahead.

Ryan Krueger — Keefe, Bruyette & Woods — Analyst

Hi, good morning. Could you provide some additional detail on non-medical health trends you saw in the quarter, particularly on dental utilization and severity and how you’d expect that to trend towards — throughout the rest of the year?

Ramy Tadros — President, US Business

Hey, Ryan, it’s Ramy here again. I think the other headline that I’d leave you with for both dental and disability is that we are seeing our results normalize back to pre-pandemic levels. And so specifically to your question on dental, if you look at the entirety of the first half, the overall results certainly reflects that return to pre-pandemic utilization levels, albeit, there were some, if you will, Q1 versus Q2 dynamics with respect to the utilization of certain services that others have spoke about and we’ve seen that to be pretty consistent with our book. But in aggregate, the first half is trending towards the pre-pandemic utilization level. And we’re certainly seeing that normalization continue into July as we look at it. So, in aggregate, If you want to kind of take a really big step back and look at our non-medical health ratio, we expect that, for the full year, to be close to the midpoint of our guidance and that’s inclusive clearly of the various products that we have in there.

Ryan Krueger — Keefe, Bruyette & Woods — Analyst

Thanks. And then for LatAm COVID impact, can you give us a sense of how those trended throughout the quarter and did they continue to decline? Did they decline kind of throughout the quarter and into July?

Eric Clurfain — Regional President, Latin America

If I — Ryan, this is Eric. So with regards to COVID, we noticed a significant sequential improvement this quarter with month-to-month positive trend, but as you know, the delta variant and the slower pace of vaccination obviously creates some uncertainty moving forward. Nevertheless, overall, we expect the second half of the year to be better than the first half. Now, as John referenced, this quarter has also highlighted again the strength of our business fundamentals and our franchise across the region, and we expect overall our revenues to continue to grow, supported by a strong persistency and recovery in sales.

We’ve had a good momentum in sales we created since the beginning of this year. We reported $222 million for the quarter back in line with the levels of pre-pandemic. And this really demonstrates the strength, diversity and resiliency of our distribution channel and product mix. Our persistency, as I mentioned earlier, has been also very resilient and above expectations. And that’s true across the region. So, in summary, from an outlook perspective for the year remains unchanged. And we expect 2022 earnings to return to the normal run rate levels once the pandemic recedes.

Ryan Krueger — Keefe, Bruyette & Woods — Analyst

Thank you.

Operator

And our next question is from Mike Ward with UBS. Please go ahead.

Mike Ward — UBS — Analyst

Thanks, good morning. So I think the buybacks in the quarter and the new authorization are pretty well received. I’m just curious, should we go forward with the assumption, absent any other opportunities for deployment, should we expect to you to continue at this $1 billion-plus buyback rate quarterly?

Ramy Tadros — President, US Business

Yeah. Hi, Mike. Thank you for the question. So let me start by saying that we continue to be comfortable with the $3 billion to $4 billion buffer. And over time we expect to return to these levels. We’re very deliberate and disciplined in how we deploy capital. One of our highest priorities and how we use capital is to fund responsible growth and we continue to deploy capital in support of organic growth, growth at attractive IRRs and payback periods. We’re also opportunistic when it comes to M&A. Any M&A transaction must be supported strategically. And we look forward to add to the top-line a clear number of important financial metrics, including accretion. So — but if we are not able to deploy excess capital to fund business growth, then we have a commitment to return it to shareholders. And I think that our recent buyback activity should give you a sense of our pacing and the fact that our Board has just issued a new authorization should also provide you a sense of its sustainability. So I hope this helps.

Mike Ward — UBS — Analyst

It does. Thanks. And then I was just wondering if you might be able to comment on the bid-ask spread in terms of any further de-risking perhaps in areas like Holdings or RIS. And I don’t want to downplay the efforts and success you’ve had so far, but it just seems like M&A in this industry continues to pick up specifically in some capital-intensive areas and it feels like that’s going to continue. Just trying to gauge your willingness or ability to further de-risk anywhere. And given your excess capital position, is it sort of within the realm of possibility that you could utilize any of that within anything for further de-risking?

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

Yeah, good morning, Mike. It’s John. So, look, I think the trend that you’re referencing, our belief is the trend is going to continue. It’s not going anywhere. I don’t think that changes what — how we’re addressing and focusing on MetLife Holdings. It’s, as you said, has performed very well. Our focus is on optimization, whether — and it’s a diversified block with a number of natural offsets and the team’s done a great job managing it. But at the same time, as I said, the team’s mandate is to kind of take a third-party view, an external view and make sure that we’re continuing to look at different ways to be prepared for the opportunity in, what I’d say is, the new — a new market within the industry, which is this new kind of block acquisition or transfer or risk transfer. So nothing’s changed on our end in terms of bid-ask. I don’t know if I’ve seen any, I’ll say, clear signs that it’s changed at this point. But this is a dynamic, I’d say, area right now and our focus is to be ready if it does change so.

Mike Ward — UBS — Analyst

Thank you.

Operator

And our next question is from Tracy Benguigui with Barclays. Please go ahead.

Tracy Benguigui — Barclays — Analyst

Thank you. Good morning. Yes, some of my questions are already asked. So I only have one. When looking at your Group Benefits, since you operate in the larger segment, I’m wondering if you could contextualize the lifecycle of sales. Would it take longer as we anticipate a rebound when the economy reopens?

Ramy Tadros — President, US Business

I think there are few things I’d point you to, we’ve seen from a lifecycle perspective, we’ve seen less of an impact on the large employers during the pandemic. You see we are on track for a record year in terms of sales in 2021 and a lot of that activity happened in 2020, if you think about this in terms of when these cases came to market and our dialog with the employers. So, from that perspective, we have not seen a real disruption and we’re very, very pleased with our sales results for the year. And as John and Michel referenced, we’re on track for a record year in Group sales and our national accounts segment is an important driver of that and so is our momentum in voluntary, where we’re less reliant on face-to-face distribution, given the digital capabilities that we have and that has continued to drive our sales momentum there.

The last thing I would just say is, if you just really take a big step back, think about the impact that COVID had on the environment, we’ve seen a significant increase in awareness on the part of employees for the need of — for needs of protection, for obvious reasons. But we’ve also seen employers be really, really focused on benefits as a key lever in terms of engaging with their talent. So we’re seeing very high receptivity and more strategic dialog, I would say, with some of the large employers on how to utilize those benefits to attract, retain and motivate talent.

Tracy Benguigui — Barclays — Analyst

Yeah, I fully recognize that, I was just thinking about further upside. And I’ve heard you speak at another event where you were saying basically that folks working from home care a little bit more about some of these voluntary offerings that they’re thinking about their family. So I fully recognize where you are in the pandemic and just thinking about the possibility of future sales and when that would flow through.

Ramy Tadros — President, US Business

Yeah, I mean, those were — the fundamental trends is the employers’, kind of, perspective on the benefit as you just described and they are more keen to engage with their employees — the employees awareness of the need for protection. So those two trends I think have clearly kind of emerged in the pandemic and they’re going to drive momentum going forward. With respect to the sales numbers, I would also just remind you that the sales in the jumbo market can be lumpy from year-to-year. So you saw a dip in 2020 and saw a spike in ’21. So some of those can be lumpy year-over-year from a jumbo perspective. But the secular trends on employer or on employee, I think, we’re seeing providing overall tailwinds for our business here.

Tracy Benguigui — Barclays — Analyst

Excellent. Thank you.

Operator

And our next question is from Suneet Kamath with Citi. Please go ahead.

Suneet Kamath — Citigroup — Analyst

Thanks, good morning. Just in terms of EMEA, can you give us a sense, are there other countries that may not be, kind of, at scale, kind of, like, I think, Greece and Poland? And can you give us some color in terms of like the M&A environment in EMEA as it relates to interest from third parties and in just consolidating the European insurance market?

Michel A. Khalaf — President and Chief Executive Officer

Yeah, hi, Suneet, it’s Michel. So we’re — first of all, I would say, we’re happy with our EMEA business, as I sort of referenced before. It’s predominantly a protection business with high free cash flow generation. So it plays a role in terms of — in how it contributes to the enterprise. Since the Alico acquisition, we’ve reduced our footprint globally in terms of the markets that we’re in. We were in 66 markets, we’re now in 40. And so this sort of the process that we are committed to, which is to continue to look at our businesses through the lens of strategic fit in terms of whether they clear our risk adjusted hurdle rate, whether we see a path to them achieving that and achieving scale, I think that applies, sort of, across the board and I expect us to continue to look at our portfolio through that lens, but nothing in particular that I would point to.

And in terms of EMEA, I think if you think about Poland and Greece, those were two businesses that sat outside of our European super carrier. As you know, we have an efficient operating model in EMEA, especially in Europe, where we — all of our businesses are branches of our Irish entity. Poland and Greece were both subsidiaries that sat outside of that. So in a way, this transaction helps us simplify the region and the business operation. But I think in terms of the market environment, I mean, we continue to see sort of — we were not the first company to divest from Poland. There was — Aviva was — had a transaction prior to that. So there is — continues to be interest by mainly European players in terms of opportunities in those markets. That’s what I would sort of point to there.

Suneet Kamath — Citigroup — Analyst

Okay, got it. And then just last one for John on free cash flow. It seems, based on the commentary in the buyback press release, that maybe free cash flow in 2020 was below your 65% to 75% target. I just wanted to see if that was a fair characterization. And then are we still thinking about 65% to 75% as kind of the range that you guys would like to be in, kind of, going forward?

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

Yeah, I mean, the quick answer is no. It was — I don’t think — that wasn’t our intention if that was the takeaway. But it was definitely within the 65% to 75%, if not higher. And I think the go forward is, the range is intact.

Suneet Kamath — Citigroup — Analyst

Okay, thanks.

Operator

And ladies and gentlemen, thank you very much. We will now turn the conference back over to Chairman, Michel Khalaf, for final comments. Please go ahead.

Michel A. Khalaf — President and Chief Executive Officer

Thank you, operator. As many of you prepare to spend time with family and loved ones this summer, I want to wish everyone well. I also want to express my thanks to our employees who have done so much to help MetLife live our purpose; to our customers who trust us to safeguard their financial futures; and to our shareholders who provide us with the capital to keep this great company forging ahead. Thank you again and have a great day.

Operator

Ladies and gentlemen, your conference is available for digitized replay after 11:00 AM Eastern Time today through August 12 at midnight. You may access a digitized replay service at any time by calling 1866-207-1041 and enter the access code of 5532581. International participants may dial 402-970-0847. [Operator Closing Remarks]