MetLife, Inc. (NYSE:MET.PRA) Q2 2016 Earnings Conference Call Transcript
Aug 04, 2016 • 08:00 am ET
Ladies and gentlemen, thank you for standing by, and welcome to the MetLife Second Quarter 2016 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 would like to read the following statement on behalf of MetLife.
(Forward-Looking Cautionary Statements)
With that, I would like to turn the call over to John Hall, Head of Investor Relations.
Thank you, Greg. Good morning, everyone, and welcome to MetLife's second quarter 2016 earnings call. On this call, we will be discussing certain financial measures not based on generally accepted accounting principles, so-called non-GAAP measures. Reconciliations of these non-GAAP measures and related definitions to the most directly comparable GAAP measures may be found on the Investor Relations portion of metlife.com, in our earnings release, and on our quarterly financial supplements.
A reconciliation of forward-looking financial information to the most directly comparable GAAP measures is not accessible because MetLife believes it's not possible to provide a reliable forecast of net investment and net derivative gains and losses, which can fluctuate from period to period and may have a significant impact on GAAP net income.
Now, joining me this morning on the call are Steve Kandarian, Chairman, President and Chief Executive Officer; and John Hele, Chief Financial Officer. Also here with us today to participate in the discussions are other members of senior management. After prepared remarks, we will have a Q&A session. In fairness to all participants, please limit yourself to one question and one follow-up.
With that, I'd like to turn the call over to Steve.
Thank you, John, and good morning, everyone. Last night, we reported second quarter operating earnings per share of $0.83. Adjusting for notable items, operating earnings were $1.27 per share, which compares to $1.51 per share on the same basis in the prior-year period. Two reserve actions account for much of the operating earnings pressure: $161 million relating to our variable annuity actuarial assumption review and $257 million from modeling improvements in the reserving process, mostly for our book of universal life policies with secondary guarantees.
Compared to a year ago, foreign currency, equity markets and interest rates were all headwinds in the quarter. As previously announced, we accelerated the VA policyholder behavior assumption review to the second quarter in light of our plan to separate a substantial portion of our US Retail business.
In addition, we completed our VA economic assumption review. The balance of our annual assumption reviews will take place in the third quarter as usual. Following these reviews, we have strengthened our VA reserves on a GAAP basis to reflect changes in our lapse in benefit utilization assumptions, resulting in an after-tax non-cash charge of $2 billion. This action clearly had a large impact on our reported GAAP net income of $64 million in the quarter.
The reserve strengthening consists of several elements and