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MetLife, Inc. (NYSE:MET)

September 12, 2012 12:30 am ET

Executives

Christopher Townsend - Head of Asia Region

John McCallion - Head of Investor Relations and Vice President

William Hogan

Sachin Shah

Hiroyoshi Kitamura

Atsushi Yagai

Jong Kim

Bob Pei

Toby Brown

Analysts

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Edward A. Spehar - BofA Merrill Lynch, Research Division

Suneet L. Kamath - UBS Investment Bank, Research Division

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Sean Dargan - Macquarie Research

Eric N. Berg - RBC Capital Markets, LLC, Research Division

Ryan Krueger - Dowling & Partners Securities, LLC

Christopher Townsend

Ladies and gentlemen, welcome to MetLife 2012 Asia Investor Day. Please welcome, MetLife's Vice President of Investor Relations, John McCallion.

John McCallion

Good afternoon. Thanks for joining us on our 2012 Asia Investor Day. We are delighted to have the chance to talk to you about our Asia region. Before I do that, a couple of housekeeping items. This is distinctly written Safe Harbor Statement that says that there will be some forward-looking statements made today, and they can all turn out to be an wrong. We've also listed all the risk factors that could cause all those statements to be wrong, and you could see those also in our filings with the SEC. And then we have our non-GAAP measures, which we commonly use to measure the company and explain the results. You can see reconciliations of the historical data to the most directly comparable GAAP measures there in the Appendix and also on our Investor Relations website, which is a portion of our metlife.com website. Okay. All right.

So before I invite Chris up to give a brief overview, let me just run through the agenda for the day. So Bill Hogan and his team will give a run -- overview of the Japan operations, and then we'll take a 10-minute break. And then I'll ask Jong Kim and Bob Pei to come up, and they'll discuss our Korea and China operations, respectively. And then Toby Brown, our CFO of Asia will wrap up the day and presentation. We'll take another quick 10-minute break, and then we'll come back and we'll have one Q&A at the end to go through and give you a chance to ask some questions of our presenters.

So as you know, Chris Townsend just joined us in the beginning of August. Prior to that, he spent 21 years at Chartist, half of those -- half of that time, he was in the Asia-Pacific region. And most recently, was the Chief Executive officer of Asia Pacific for Chartist. So it's my pleasure to introduce our President of Asia, Chris Townsend.

Christopher Townsend

Thank you, John, and good afternoon. So let me first of all add my personal welcome to all of you to Tokyo, and for those of you who have traveled a great distance, thank you. We really do appreciate it. Now before I pass over to the team, my job really is just to spend a few minutes talking broadly about Asia, and explaining how this part of the world fits into the overall enterprise strategy that Steve shared with you at Investor Day back in May. And as you'll note very soon, a number of the slides I'm going to use are identical to the ones Steve used, and that's no coincidence, it's intentional. So I want to reiterate the fact that I'm not looking to make wholesale changes to the business, I'm looking to execute on the agreed company strategy, which has already been hopefully, clearly articulated through to you.

So I don't have anything with MetLife with the 6 weeks now. I would suggest that whilst I've been doing my own due diligence on being on a listing source for the most of that time, I really do believe that we are coming into this in a position of strength and with a great platform to further grow our business profitably in the region. So my goal is to make sure we're executing on that agreed company strategy, and to continue all the good work, particularly in Japan, we've done at integrating the Alico business to MetLife Group from AIG Group to MetLife.

So let me first discuss with you our company strategy. The first point to note is the circle in the middle here. We are One MetLife, a truly global company, moving very much towards a global mindset. And clearly, that's going to take some time, because we've been a significant U.S.-centric organization for many, many years, but I believe we're moving in that direction quickly and with great purpose. This global mindset really is the reason we broke the company down into 3 parts a while ago, and that's obviously the Americas, EMEA and the part that John has announced too, that being Asia.

The final foundational principle that Steve discussed is the need really for us to leverage our global scale. So there has to be a fundamental benefit of being big. We need to make it truly matter through all of our constituents, be it our shareholders, our customers, our employees, and of course, our distribution partners. So it's really about making sure that we create and maintain value.

So with those fundamental principles as a backdrop, let me just walk around the 4 individual strategic pillars to make sure you understand how it hangs together and how it resonates with us here in Asia.

The first, obviously is top left-hand corner there is to refocus the U.S. Business, and I think Bill in his team have been very clear with you in terms of how we're achieving that balance between profitable returns and growth, so they've already made some great progress in that work. The second one is top right-hand corner, building the global employee benefit business. Maria Morris is leveraging all of the great talent and expertise we have in the U.S. business to bring that to a number of the larger global insurance markets in which we operate. And again, I think they've had some good wins to their credit. So I look forward to being a very helpful partner to Maria, and that ambition on behalf of Asia.

Michel Khalaf discussed our emerging market strategy, not only for his business in EMEA, but on behalf of the entire organization. And I would just like to add my support to that, but I think we've got a wonderful opportunity in the emerging markets in this part of the world, obviously, China being front and center of that, but also in a number of the other markets which we'll talk a bit about later, where we don't currently have an operation.

And then finally, we talked about driving customer centricity and creating a global brand, and you're going to hear a lot more from this -- about this from Bill with regards to Japan and Jong for Korea, and I really believe that this is very much one of the keys to success in this part of the world.

So turning to the next slide, let me just start to articulate some of the macro -- or the macro changes we're seeing within the region. So first and foremost, we're continually seeing governments shifting a lot of the social welfare burden on to individuals. We're seeing an aging population, which are more and more in need of health solutions. And obviously, a growing middle class in emerging markets and again, China is front and center of that, which means protection products. So the good thing for us about all 3 of those broad dynamics is that it plays into our current capabilities and our skill set that we have in the region and all can create value for us longer-term.

So our strategy to take advantage of those developing opportunities, really, is to grow our accident and health solutions in the region, and to the really leverage our multichannel distribution network with -- as the newcomer coming into the organization, I really believe that the strength of ours is something, which sets us apart from our peers.

In terms of the numbers, just to give you a quick snap shot of the business we have today, overall for Asia, you see we have operating revenue of USD 9 billion. But more importantly, nearly $900 million of operating earnings. In Japan, we're the #2 foreign life insurer, and #2 in accident and health products. We're the #1 foreign life insurer in Korea. And we continue to our presence in China, which again, is a key emerging market for us. We just called out the 2 most important markets for us in the region, that being Japan and Korea, both that you would appreciate are mature markets and we manage them accordingly and appropriately.

So Japan is the second-largest market for the MetLife [indiscernible] in the United States. And we've got strong growth in some high-margin products, despite the challenging environment, and we look at Japan very much as a cornerstone or launch pad for us for the rest of our Asia strategy. And Bill is obviously going to talk more about that very shortly.

If we turn to Korea, it's our fourth biggest market in the world. And we're using a diverse distribution platform there centered around a strong career agency force, which has been the backbone of our business there for a couple decades. If you look at Korea, obviously, the aging population does create a significant opportunity for us in the accident health products, and since we've launched those, we've had some very good success from those products, and Jong Kim will talk to you those in more detail to explain how they're working.

We discussed the emerging markets in Asia. We are a top 5 insurance play in both direct marketing and bancassurance in China. You'll see from the footnote there, that 2011 data, and having spent most of last there, I'm pleased to tell you that the actual numbers, since that, and for the first part of 2012, shows a much better light, so what we're doing is working well in China. We're also expanding the agency model in the more Chinese provinces, the more cities, and then Bob Pei will explain how we've taken advantage of the opportunities in China.

Also as you probably know, there are a number of high-growth markets throughout Southeast Asia. Steve indicated to you at the Investor Day that we are looking to enter some of those markets where appropriate, either organically or inorganically, but this just to make sure we manage your expectation, we're not going to talk about those in our prepared remarks but we'll obviously respond to any questions you have in the Q&A session later on.

So let me just try to, first, to pull this together for you in terms of the key takeaways, it's what really we want you to know for our business in Asia. First and foremost, Asia is the key market for the MetLife, representing roughly, 20% of the company's earnings in 2011 and clearly, it intended to be a very strong contributor for each of the 2016 goals and aspirations that have been outlined to you.

As you see, we have a growing market share in the mature markets of Japan and Korea, but more importantly, we're doing this very much through a disciplined approach, focused on the bottom line and achieving the appropriate risk adjusted reward. So you always see us create volume for value. Finally, we will continue to pursue organic and inorganic opportunities in the emerging markets. So with that as an intro, let me introduce Bill Hogan, who will talk you through the Japan story. Bill?

William Hogan

Thank you, Chris. The opportunity here in Japan for meaningful future growth under the combined strength of Alico in Japan and MetLife, we are uniquely positioned in the industry, with a broad product line up and a long history of working with our 4 major distribution channels. Developing 4 distribution channels of the size and scale that we have, has not been easy and it requires significant investment, lots of patience, and managing channel conflict. Many of our competitors are just working through these issues today. While a multidistribution platform allows us access to a broad customer base, our broad product portfolio allows us to best serve the total customer needs. And also, to not be tied or compelled to grow product that have become less profitable or more risky. We can effectively be selective in what products we choose to sell over the longer-term.

While the Japan license market is mature, our position in the market still leaves us a lot of opportunities for growth above the market. And as I will show you shortly, we have developed an impressive track record of success, remembering that this was achieved while taking on 2 very substantial projects over the last year and half: Our separation from AIG and our conversion of our company from a branch to a subsidiary. These projects, the conversion is completed as of May 31, and we're on track to finish our separation from AIG as of October. When these 2 are complete, this will give us a great opportunity to really focus truly on growing our business and driving towards the future.

We are focused on creating value for our customers and our shareholders. Over the next hour, the Japan team will go through the details of the initiatives underlying our 3 key performance drivers: Growth, value, and the multiplier. Profitable growth is coming from leveraging our multiple distribution platform to broaden our customer reach, and from our existing customers, through our cross-selling efforts. Value is driven by improving our distribution, sales productivity, improving our operating efficiency, and enhancing our investment capabilities, which not only will improve our NII, but also help us diversify our investment portfolio further.

The multiplier, which comes from a greater focus on the customer, becoming a trusted brand, leading to persistency improvement and greater brand preference. These are in the multiplier category because improvements in these areas will impact our ability to grow more quickly and increase our value by retaining customers longer, and acquiring customers more easily. These are the drivers that will create long-term shareholder value, and as I will show you, our strategy and initiatives are well aligned to deliver on these results.

As I said before, we developed a solid track record of execution while outperforming the market. All the metrics are showing strong improvement versus prior year, but let me highlight just a few of those. The ANP line, which we commonly call sales in our press release, up 31% in the first half of 2012 versus 2011. Earnings are up an incredible 50%, if adjusted for a number of unusual items, are still up a very strong 28%. Two important reasons for this earnings growth are highlighted in the last 2 metrics. Persistency improvement, up 124%, and due to tight expense management and repositioning of our DM business, which are the primary drivers of an improvement of our expense ratio of almost 200 basis points. These numbers are a compelling demonstration of our work in Japan today. The team is looking forward to sharing more details on the initiatives behind the success and our plans for the future.

With that, I'd like to introduce Sachin Shah, our Chief Operating Officer in Japan.

Sachin Shah

Thank you, Bill. Good afternoon. It's also pleasing for me to see a lot of familiar faces in the audience, and to have you here in Tokyo to listen to our story. So welcome. I want to begin by sharing 4 key messages. The first few are important repeats of what Bill said, and then the last couple, important to set up the rest of my presentation. First and foremost, macro trends are driving several very attractive profitable growth opportunities. Second, our multichannel, advice-based distribution footprint and broad solutions portfolio, uniquely positions us to continue to profitably capture these growth opportunities, and we'll spend a little bit of time on that shortly. Third, we have started this journey and have a demonstrated track record of profitable growth and market share expansion. And fourth, which I'll address in the second half of my presentation, we are further enhancing our multi-distribution advice-based capability to accelerate profitable growth.

We're focused on 4 things in particular: Advisor productivity, we've had good success here and we see that continuing. The second, expanding channel capacity, we see opportunity to grow capacity of each of our distribution channels, and I'll spend a little bit of time on that for each channel. The third is uniquely leveraging and combining distribution capabilities to provide Japanese consumers more ways to access MetLife Alico Japan. And the fourth, improving distribution margin, with better expense management and continuing to manage product mix. So let's get started.

Now I know it's been a long week for all of you and you had a lot of slides on Japan. So here's the good news, we're going to give you the abbreviated version of the Japanese market, it's right here. It's a mature market but we see significant opportunities for continued profitable growth, driven by 4 factors. The first and foremost, the continued strain in social healthcare and pension systems are driving Japanese consumers to seek private insurance solutions for their healthcare and retirement needs. The second, demographics and social economic factors in Japan are changing consumer behaviors, and consumers want multichannel access and service. The third, consumers are becoming more selective, they want and they seek trusted guidance, and you'll see that when Yagai-san presents later today. And the fourth, sort of the combination of all of these, there are significant unmet consumer needs in what is the world's #2 largest life insurance market.

There are attractive growth opportunities for those insurance companies to deliver value-added advice, provide multichannel access and service, and have a diverse portfolio of solutions to meet consumers' changing needs. We have that unique platform. We have a long history of multichannel distribution, we have deep knowledge on how to successfully manage and grow multi-solution, multi-distribution. As you may know, the majority of the industry has historically been mono-distribution and mono-products. Adding the word multi as a competitive advantage is not easy, and is ultimately about having, growing and retaining the right people. And we have those people.

Through our face-to-face distribution channel, we have professional and highly-productive career agents and independent agents. They offer a full suite of solutions: Life, accident and health, annuity, using a consultative approach to satisfy the needs of consumers who are predominantly families and small- to medium-sized enterprises. Through bancassurance, we access wealthier retirees and pre-retirees who are seeking retirement savings, asset transfer, and healthcare solutions, through bank branches. Direct marketing, one of our most unique capabilities accesses a broad spectrum of customers through TV historically and now through our fast growing online capability. These consumers are much more comfortable at a self-service or talent-assisted sales and service model. Another unique aspect of our direct marketing business is our sponsors. This group of sponsors includes many of the leading credit card and catalog companies in Japan.

As I mentioned, one of our unique abilities is to take these channels and combine them and leverage them in ways that provide Japanese consumers more ways to access us. For example, at our direct marketing call centers, our telemarketers have prospect customers who are usually calling in due to a TV commercial or a web ad if they are interested in meeting with one of our agents face-to-face. Almost 20% of our prospect customers choose this option. It's not only improved customer satisfaction, we see significantly higher closing rate and significantly higher average premium from these customers. Now this is not new for us. We have many examples like this. Each one, perhaps, too small to talk about individually here today. But the sum of the parts leads to steady, profitable growth opportunities for us. We believe this sales and service model gives us an unmatched competitive advantage in Japan. And we have built the track record of profitably gaining market share and we have strong momentum that we believe will continue into the future.

As you probably know, this is a low growth market and we are growing profitably by capturing share. Growth is broad-based, which we'll talk about shortly across all channels and all product lines. The mix of business has been and continues to be very healthy, weighted towards profitable protection products in foreign currency products. Importantly, persistency is improving, as Bill shared with you, as we focus on growing our existing relationships while we continue acquiring new ones. This has been an important shift where we now focus on revenue growth, not just ANP. So the combination of MetLife and Alico provides us a strong foundation in Japan. We believe no other insurance company in Japan has the same level and scale of multiple advice-based distribution channels, broad solutions portfolio that can meet customers' access and changing needs. This diversity of distribution and solution allows us to remain disciplined and focused on profitable growth, particularly when economic and competitive environments are turbulent. We do not have to chase business to grow our business.

MetLife added strong balance sheet and risk management capabilities, which have further strengthened our foundation. Importantly, MetLife also added attractive brand assets of being #1 in the U.S., Snoopy and The Blimp. And this is a point worth expanding on. Snoopy as some of you may know, is the second-most recognized cartoon character in Japan behind only Mickey Mouse. Not a bad start, and we got there without having to do any advertising. Our Blimp, which some of you may have seen, that's flying around, is also a unique asset. No other company in Japan, whether it's insurance or other industry, has a Blimp as part of its branding strategy. Yagai-san will share with you later the success these brand assets are having for us.

But let me underscore perhaps, the most important point on this slide. We have a strong culture of execution. Once we set direction, our people know how to execute very well. As we pursue building these capabilities, we have not, for a moment, lost sight of the fact that this is a people business. We serve people with people. Accordingly, we are upscaling and adding to our exceptional team to ensure that execution excellence continues. I think you see that we have brought together the best of MetLife and Alico, creating a strong foundation for continued profitable growth in Japan.

Our strategy, as Bill outlined, is very simple, that's what makes it so compelling, so exciting and execution path relatively clear. Bill shared how we think about our business from a performance point of view -- growth, value, and multiplier. We are organizing ourselves and our efforts in Japan along these lines. Specifically, we have 4 strategies. The first, distribution growth, growing the number of ways that we give customers to access us and focusing on improving adviser productivity. The second, value growth. Value growth through innovative products that continue to meet changing consumer needs, and value growth through margin expansion. The third, customer centricity, something we believe is a real multiplier. In a country with very high service standards, we unfortunately, are part of an industry that has consistently underperformed, and we see opportunities to differentiate and take a lead. The fourth, brand enhancement. And brand enhancement is the sum of all of these. Particularly, important in Japan and in this region, where brand, as Yagai-san will show you, is a key driver of consumer purchase decision.

In the second half of my presentation, I will discuss distribution growth. Then Kitamura-san will speak to you about how we are growing margin by driving value growth. Finally, Yagai-san will close out the Japan portion of our presentation today by discussing how customer centricity and brand enhancement provide a multiplier effect to both growth and value as Bill outlined.

Okay. Let's shift gears to distribution growth. I'll apologize upfront for saying this again but you're going to hear it a few more times. We are a leading company in all 4 distribution channels. We have over 5,000 prominent professional career agents nationwide. We have more than 10,000 strong independent agencies nationwide. Our partnerships with Japan's leading banks gives us access to almost 90% of the bank's deposit assets in Japan. And we are a leader and pioneer in direct marketing. Bill Hogan used the words channel conflict, I will tell you that is the first time those words have been used in our business. It doesn't exist, we don't think about it, and we go to market in a multiway. The pie chart on the right shows that our total premium income is well-diversified and in an our view, balanced in terms of distribution mix. This is very important. As I mentioned earlier, a key aspect of how we achieve profitable growth is ensuring we manage both channel and product mix in channel almost on a realtime basis. We do not need to chase business to grow.

Let me talk a bit more about our face-to-face channel. We are a leading player in terms of productivity in face-to-face distribution. And with our more profitable product mix, we probably rank even higher on a profitability basis. We do this by focusing heavily on quality recruiting, continuous training, dedicated wholesaling and sales support uniquely aligned to each channel's specific requirement. This drives industry-leading activity ratio, policy productivity and cross-selling. Let me reiterate by saying our key advantage here is our people. We have some of the best people in the business who know our business, and who know distribution in Japan very well. And we don't plan to just coast on our strength, we are continuing to invest in face-to-face distribution to drive both growth and profitability.

We have 4 main levers: The first, we are an early entrant in the fast-growing, broker-general agency segment of the independent agency channel. The brokerage general agencies are multi-registered over-the-counter shops, typically, with over 50 sales reps. I believe some of you, in your past visits, have had a chance to go to these types of shops. Our early entry into this segment allowed us to develop strong relationships with our VGA partners, giving us inside access to their expansion plan. Second, our unique, independent agency federation, significantly more productive than the industry average, and provides us steady year-over-year growth. This strategic partnership also provides us with unique insights into emerging consumer, competitive and marketplace changes, allowing us to essentially, stay ahead of the competition. Third, while we expand channel capacity in both independent and career, we continue to focus on improving advisor productivity and cross sell, and this is a particular emphasis for us in our career agency system. You'll also hear more from Kitamura-san on how our product capabilities allow us to enhance our cross-selling efforts. And fourth, we see opportunities to improve distribution margin, with better expense management and continued focus on profitable product mix.

The chart on the right shows that 70% of the ANP from our face-to-face distribution channel comes from what we call, pure protection product. Keep in mind that face-to-face distribution represents somewhere between 60% to 70% of our total company ANP, for this is a significant contributor for us. You might ask, what is pure protection? Pure protection is, accident and health, level premium term, level premium whole life. It does not include single premium whole life, it does not include annuities or other retirement products. So these are more profitable products, and make up 70% of our face-to-face distribution. And that trend of an 11% CAGR over the period is significantly faster than the market over the same period, and we expect the trend to continue.

Let's shift gears now to the bank business. I'm sure you've heard a lot about the bank business over the last few days. For us, bancassurance is about our focus on quality. Quality in institution, quality of our relationship, and the quality of the business we sell to the institutions' customers. We are not about maximizing the number of bank partnerships. Our focus is on building high-quality distribution models and partnerships with the country's leading financial institutions, giving us access today to a wealthier customer segment. Specifically, we focus on the top 100 financial institutions with sizable deposits. Our value proposition is competitive multicurrency products and uniquely tailored accident and health product and a multilayer wholesaling and training model. Our target customer today is a wealthier retiree or pre-retiree, typically representing the top 5 to 10% of the bank's consumer pyramids, and in essence, only that customer that shows up to the bank branch. By focusing on the top banks and the wealthier customer base, the productivity of our partner banks is among the best in the industry. This is also driven by our focus and goal of diversifying production across these relationships, both in terms of overall growth and volume by bank.

Let me make an important point here about people and relationship. We've been in this business since it was first deregulated in 2002. Essentially, the same senior leadership that launched the business runs the business today. They've been through several cycles, they understand the bank business well, they've developed strong relationships that we believe we can leverage. And in fact, our senior-most leader in this channel, not only has he been with us since the beginning of the launch, he himself brings over 35 years of banking industry experience in Japan. He understand how banks think. So we feel very good about where our bancassurance business is positioned today.

Let's talk about growth in banks. The industry is certainly focused on growth in bancassurance. We are focused on profitable growth. Much of the recent bancassurance industry growth have come from single premium yen whole life product. And most of the major and domestic and foreign competitors have jumped in to bancassurance looking for ANP growth. With lower interest rates, and this increased competition, margins have been coming down for everyone. We have and will remain focused on foreign currency products where there are better margins and less competitors. Foreign currency products represent 70% to 80% of our bank assurance ANP. In addition, we are a leader in accident health distribution through banks. While this is a relatively new segment deregulated a few years ago, it is growing at double-digits for us and for the industry.

Looking forward with the recent full deregulation now in place, we see a growing protection opportunity through banks. This opportunity includes both the wealthier customer base, but perhaps even more importantly, now gives us access or opportunity to access the banks' small- to medium-sized enterprises and their middle market customer base, the 95% that nobody accesses today. Realizing this opportunity will require a unique combination of capability, both in terms of broader solutions, but equally importantly, advice-based model and direct marketing capabilities. It is simply not efficient to reach the middle market bank customer through bank branches using the current distribution model. We believe that we are uniquely positioned to capture this growing protection opportunity and are seeing some good traction here.

Let's now move to the direct marketing business. We pioneered direct marketing in the Japanese life insurance industry and we remain a leader. Our long history in direct marketing provides us with a strong foundation of capabilities, including: Large high-quality sponsor base with some of the leading credit card and catalog companies in Japan; best-in-class telemarketing capabilities, which are critical to the success of a DM operation, both in-sourced and outsourced; and a source of leads for our face-to-face channel, which allows us to essentially create market for our agents, a critical element of our distributor value proposition. And as the chart on the right shows, our DM business predominantly sells more profitable accident and health products, and almost exclusively, what we would call, pure protection. Over time, this has created a very profitable and persistent block of customers for us. Combined with our continued product innovation, responding to medical advances in the marketplace, and our customer relationship marketing efforts, we see opportunities for more growth here.

As Bill Hogan mentioned, over the last 18 months, we have been repositioning our direct marketing business to respond to changes in the external environment, and capture the next wave of growth. The repositioning is focused on 3 things: Improving marketing efficiencies by better managing the media that we use. Second, shifting to higher growth segments like the Internet and online aggregators. Third, improving distribution margins by better managing expenses. As the chart on the right shows, the repositioning has gone very well, our business is growing, profitability is higher, and overall marketing efficiency is improving. And as you'll hear in a few moments from Yagai-san, we have also changed the tone and image of our TV commercial to support our brand enhancement effort in Japan.

So let me wrap up by repeating what I said at the beginning. When we look at Japan, we see a profitable growth business, not just a mature market. The market has very attractive growth segment that allow us to grow market share profitably, and we are uniquely positioned to capture these opportunities. We are continuing to increase face-to-face distribution capacity and productivity, while we sell a more profitable product mix. We have high-quality bank relationships that we're leveraging to begin to capture the growing protection opportunity through banks. And our direct marketing repositioning has gone very well. We're seeing improved efficiencies, improved profitability and continued growth in that channel. With that, I'd like to introduce Kitamura-san, who will not present on how we are expanding margins to drive value growth.

Hiroyoshi Kitamura

Thank you, Sachin. Good afternoon, everyone, welcome to Tokyo. Sachin just walked you through the growth in sales, now I'm going to explain you how we achieved growth in value. Here's what I'm going to cover. First of all, broad products portfolio that meets our customer needs; second, well diversified on the balance products and the investment portfolio; third, investor lower capital intensity and higher-margin products; and fourth, leveraging global investment capabilities; and finally, continued product innovation.

So let me first remind you of our competitive advantage, which is our broader suite of attractive products. Customer needs are varied, depending on life space, income and asset level, and administration. And in many cases, it's hard to provide solutions for the customers with only one product line. Our broad product portfolio, our [indiscernible] agent, though [indiscernible]. Having a broad suite of products, also ahead of that being diversifying financial risks and the profit process. We have a well diversified products mix as shown in this chart, but more importantly, our product mix is significantly weighted towards higher margin protection product.

Different pie chart show the MetLife Alico Japan statutory in-force premium for the first half of 2012. As you can see, 45% of our premium income is life insurance premium. But the 35% of life premium is from our single premium. Reflecting the recent set of increase in single premium whole life in bancassurance business. Similarly, the right hand-side chart shows the -- our operating income for the first half of 2012. As you can see, 30% of our profit is from accident and health, so-called A&H. We have been promoting consultative [indiscernible] for a long time, and currently, 60% to 65% of our developed premium whole life sales is coming also with the A&H. This is what we call, multiplier effect approach, that not only satisfies our customer and deliver the growth in sales, but at the same time, help us grow the value.

We are focused on growth in value through 5 to 6 levers. First of all, to manage proximity in lower interest environments, we are repricing some of our products, and we are continuing to maintain our product mix and enhancing investment yields. Second, we are leveraging MetLife global investment capability to diversify assets across currencies and asset classes to better manage our market availability. Third, we are growing value by continued focus on product innovation. Last week, we just launched 2 new products that are very attractive for the market. Fourth, we are leveraging our sizable in-force customer base through cross sell and upsell of our products and write-ups. Last but not the least, we are managing expenses and driving operational efficiency in line with corporate. We have seen minimal impact from lower interest rates, due to our diversified products portfolio.

Let me remind you that our business return on total new business achieved our targets. As you can see on the slide, low interest debt have impacted profitability of single premium life products the most. Single premium whole life represents only less than 10% over end of this year, and we are repricing those products over the next 6 months to get back to the target return of sales of product. The biggest sales impact due to the lower interest rates using fixed annuity, but this is an industry wide impact, and thus, we have seen a proportional impact on our sales. Investment capability is MetLife's strength at the global level, and the Japan business is utilizing this to grow value.

Right-hand pie chart shows how our asset portfolio diversified in terms of currency. I think this is very unique compared to our peers in Japan, because we have U.S. dollar assets more than Japanese yen assets. This is a strong evidence that we are the leading provider of foreign currency products. Where there's no effect to us as part of asset much through liabilities. Left-hand side shows some of the example that we are doing to enhance investment yield. As you can see, we are taking a lot of measures, such as trust bonds and private placement. And we are seeing a positive impact from those initiatives.

Our [indiscernible] focus on cross-selling is the key driver of delivering growth in value. We are using a higher standard in measuring our cross-sell effort, which is number of policies and not number write-ups per customers. Currently, one policyholder owned 1.6 MetLife Alico policies. This number has been increasing over the period, in which we cross-sell over 130,000 policies for the existing customers. If we count policies and the write-ups together, one customer had 1.6 policies, and 2.9 write-ups. That said, we believe there's an opportunity to derive even more cross-selling by leveraging our best-selling [indiscernible] approach, and also a broader product portfolio. As Sachin mentioned earlier, we are promoting these initiatives to our existing customers using the DM capabilities. Also, product development is the key. When we develop a new product, we design the product so that the product can be easily cross-sold, and upsold to existing customer.

Cross-sell product innovation is our DNA. We have a long history of product innovation and our actually we are well known as a product innovator. We have developed over 20 industry first products in our history. With innovative products, we have created new markets, such as foreign currency insurance market, substandard market, and high-end A&H market. In those new markets, we can enjoy very highly profitable sales as a first to move advantage before the entrance of our competitors. And actually, we are still the market leader in those markets, even though competitors already are joining the market. We think product innovation is critical, and I think our capability in product development is one of our competitive advantage.

This slide shows the recent products innovation in A&H area. We have medical and health care technologies advancing and the government policy throughout controlling medical expenses tightened. Last week, we just launched cancer rider for substandard market. This is also the industry product that offers cancer diagnosed benefits to the substandard consumer. We also launched last week the OTR single premium whole life product to expand our foreign currency products offering. As such, we will remain to be a product innovator and the market creator going forward.

Let me wrap up with a few key message on how we are delivering growth and value. We have a broad suite of alternative products, that meets the customer lifetime needs through our unique multi-distribution platform. We are maintaining diversified and balanced product mix, although weighted towards higher margin and the protection product. Also, we are diversifying the investment portfolio. We are heavily focused on lower capital and the high-return protection products, especially a&H. We are able to capitalize to grow our investment capabilities and continuing products innovation.

With that, I'm going to hand it over to Yagai-san.

Atsushi Yagai

Thank you, Kitamura-san. And good afternoon, everybody. On my part, I would like to talk about how we are building the capabilities to multiply both growth and value that Bill, Sachin, and Kitamura-san had talked about. This multiplier effect is driven by improvement in persistency, increased focus on customer centricity and brand strengthening. The foundation for achieving these results is to develop a deep understanding of consumer. I would like to begin by showing a short video of consumer interview that we have conducted. The interviewee don't know who is conducting this research, so we can hear their neutral perspective on different industries.

[Presentation].

Atsushi Yagai

I hope you could read the English script. As you saw, a growing number of consumers have anxiety on the future sustainability of the public pension and health care system and feel a strong need to defend themselves by processing private life insurance. But they also see a lot of barriers or difficulties in the services insurance companies are now offering. In general, consumers are not satisfied with the services being provided by insurance companies and are seeking a new kind of insurance company. The fact from industry data that 70% of policyholders are considering changing their current policy is amazing. This is a great opportunity and also a frightening threat for all insurance companies. A company that succeeds to breakdown the barrier and provide trusted guidance that truly meet consumers' expectations will win in the market and can grow this year. We believe we are building the capabilities to these carriers. As more consumer are starting to take proactive actions as the process consideration states, brand is becoming even more important. If there is only room for 2 brands in consumers' minds at this stage, it is indispensable for us to be in the one of these brands.

Over the past 2 years, we have begun to build the capabilities for improving our customer experience through post status follow-ups and brand enhancement. I also want to share with you several additional initiatives we have implemented to breakdown the barrier that consumers face when doing business with insurers. Let me share more details with you in the next 3 slides.

In order to strengthen the ties with our policyholders, we have initiated several initiatives that have helped us to significantly improve our persistency rate. First, for those customers who missed to pay their monthly premiums, in order to avoid the policy to be lapsed, we have developed an agency notification system. This enables our agents to call consumers -- customers in a timely manner to remind them of their pending payment. This discipline is now strictly executed throughout our face-to-face organization. Second, since credit card payment help avoid customers who miss the fulfillment of premium payments, we are promoting a larger usage of credit cards. Our a results show that credit card payment provides far low lapse rates compared to the bank transfer. Third, Orphan Policy Management, which is a long-standing issue in the industry. As you can imagine, leading the customers along without taking any follow-up or care is one of the key pain points customers face, and those customers tend to have lower persistency rates. By leveraging our DM outbound capability, we have established a dedicated team who makes calls to these urban customers, and we respond to the customers' various access needs by connecting them to the channel of their choice. Finally, we have also began to further emphasize persistency-related measures in our sales incentive system. Together, these efforts have contributed positively to our persistency ratio, and we have already achieved an impressive 260 basis points improvement over the last 3 years.

We are also seeing other improvements in 2012. As Bill mentioned, we are almost released from integration and local diversification activity which required significant resources. Now we want to shift our focus and strengthen our response to the customer. We have studied various voice of customers, and found similar issues that our industry have. Most of these issues are also common in U.S., which we can fully leverage our global capability. Through this study, we have identified further opportunities to improve our customer satisfaction and persistency. We are especially focusing on 3 areas: New business process, post service relationship management, and benefit payment processes. In the new business area, we believe a cumbersome process and complicated forms are the issues to be tackled. We are streamlining these processes, simplifying the forms to improve nonvalid application rates. In post service relationship management, together with strengthening our communication to customers, we will seek for the enhancement of sales service capabilities. And in the benefit payment, we have started an initiative to streamline and simplify claims processing by creating a more ideal organizational structure making the process for claims inspection more effective and simplifying the claims document.

As you have seen, these are industry issues and currently, no insurance company is fully meeting customers' expectation standards. We are working on breaking down these barriers for our customers, and aim to differentiate us from other, become a carrier of choice, a company that is busy to do business with.

MetLife has provided powerful brand assets to Japan, which are Snoopy and The Blimp. Though Snoopy was born in the U.S., Japan is the largest market for Snoopy-related goods sales. And this chart shows how much Japanese love Snoopy. Also our Blimp, Snoopy is the only Blimp over Japan. Since we started to fly our Blimp in November 2010, it has been well accepted by Japanese consumers, and already 18% of consumers are recognizing our Blimp, and many of them are following us on Japanese Twitter sites. I hope many of you have enjoyed watching our Blimp flying above this hotel today.

Building on this popular brand asset, we have implemented several brand ad campaign since our rebranding in April 2011. Through TV and web media, we have broadcasted commercial films featuring The Blimp and Peanut character, and it has helped us helped us to improve the awareness of our rebranded name, MetLife Alico, significantly. In August of this year, we have launched our Facebook site, and it is already attracting lots of fans, thanks to Peanut characters The Blimp. This is our first success to the wholesale media space, and we believe we can further expand our presence in the web community. Over the past 2 years, we have been focusing our advertising efforts on driving brand awareness, letting more customers get to know us. In addition to this effort, we are now also focusing our -- communicating our brand value proposition, our trusted guidance with caring and professional manner.

Now, I would like to show our new TV commercial film which we plan to launch later this week. Please enjoy a sneak preview.

[Presentation]

Atsushi Yagai

As you have seen in the commercial we are utilizing Lucy to be a spokesperson for customer needs, and we show that we understand the customer issues and are trying to solve them. Now let me wrap up summarizing my key messages. We know customers are not satisfied with the current insurance industry services, and wants a new kind of insurance company. We want to get ahead of our competitors. We have already built several impressive capabilities to improve our persistency rate and are further strengthening our customer centricity activities by becoming a company that is easier to do business with and by strengthening our brand even further. These efforts are creating a multiplier effect on both growth and value, by not only contributing to our new sales, but also improving our cost efficiency and persistency. We believe we are defining the insurance company of the future. Thank you very much.

And let me now reintroduce Bill Hogan to wrap up Japan part. Thank you very much.

William Hogan

Focus is critical to fix that and as you've heard, there are 3 things that we're focused on here. Number one, profitable disciplined growth to better leverage of our in-force customer base and new customer access to our broad distribution network. We're able to do business the way our customers want us to do business. Second, value. Driven by improved distribution, productivity and operational efficiency. And third, the multiplier multiplied by solid persistency and a strong brand that comes from a company that focused on the customer. Growth, value, multiplier, a path leading to market leadership in Japan.

With that, let's take a 10-minute break, and we'll come back and talk about Korea and China. Thank you.

[Break]

John McCallion

Ladies and gentlemen, take your seats. Thank you. Chris Giovanni, we're just waiting for you. All right. We're going to keep going, and I think we've got everybody back in just about. Okay. We're going to -- the second half for our presentation, then we'll have another 10-minute break, and then we will have some Q&A. So I'd like to introduce our Chief Executive Officer of MetLife Korea, Jong Kim.

Jong Kim

Thank you, John. Good afternoon. I'm very pleased to be here to present you on Korean operation. Thank you for coming back. It's a very simple MetLife Korea, is we are building value through discipline. The price for all distribution businesses we are engaging in today, I'll give you an example about how we've built our career agency channel to bring value to Korean operation. We've built our professional career agency channel back in 1998 and we are one of the first life insurance companies to introduce the concept of professionalism and financial planning. It has been 14 years since we started this effort to lead the market with a professional career agency, and now MetLife differentiate itself from other companies with the most productive agents in the market. Our ability to bring up agent productivity enhanced our company's profit margin and our value proposition, which attracts the agents to MetLife. This has been our discipline in building our career agency and today, this channel has achieved volume and value creation for Korean operation.

In addition to strong career agency, we launched the independent general agent channel in year 2008. We diversified our own industry mix, and we gained a greater access to different segments of customers. I'll talk about our fast-growing GA, general agency, and new accident and health initiative late in this presentation. But before going there, let's first take a look at the market trends in Korea, and how MetLife's strategic focus will address this trend.

Korean society is rapidly aging, and this is driving the need for retirement solutions. Recognizing this trend and catering to customers' needs, we're the first company to introduce variable life products in Korean market the year 2003. This year, following the regulation change, we are one of the first insurer in the market to introduce individual retirement product. This new type of IRP product will be used to serve our customers with their retirement planning, and on top of that, IRD product is effective to play a lead generating role for our agents to upsell our savings and protection product. Korea agency channel is the biggest channel in Korea, and is now sales represents over 50% of our total sales in Korea. However, market has a very slow growth since 2008, thus resulting in higher market competition among the big career agency channel players.

Statistic from Korea Life Insurance Association show that total number of career agents in market dropped by 15% from year 2008 to 2010. But at this point, I want to stress out that MetLife significantly grew our agency force since 2008.

As a way to differentiate ourselves from competitors in this competitive market, we have started to enhance professional consulting and the lead-based [indiscernible] of our career agency. We have a high-quality professional career agency, this is believed to be one of our core strength. Although the total market growth is slow, the independent general agency channel has continued to grow fast for the past few years, is now the second-largest channel in the market. MetLife expanded into general agency, leveraging proven capabilities and expertise, derived from our successful career agency channel.

One other trend, the aging Korea is increasing demand for A&H product. MetLife has launched A&H sales growth initiatives, and I'll talk about that later in this presentation. Korea is expected to become a super aged society by year 2026. The definition was super aged society if over 20% of population are 65 years and older. 1 out of 5 is 65 years and older, and 14 years away. I may be counted one, if I'm lucky. With the rapidly increasing dependent population, individuals now understand that public tender will lie only on government pension, they will have to provide for their own retirement, and this will drive market growth in areas such as retirement solutions and protection coverages.

Based on survey conducted by MetLife Korea last summer, the biggest concern of our consumers about their post-retirement period were observed to be health and income concern. Furthermore, following the regulation change in July this year, that allowed career agents to distribute individual pension products, MetLife has just started to penetrating the individual pension market, with our professional agents, and we are one of the first companies in Korea to serve customers with individual pension needs.

I also like to share our efforts to improve our business value by talking about some of the key initiatives we've taken recently. One of our main aims is to enhance productivity of our sales force, leveraging technology. Only this year, MetLife launched a mobile office system, MOS, for our agents which enabled automatic financial planning and illustration, customer management, and sales activity management. How the change impacted our agents in serving our customers. We'll watch a video in a few minutes to see how technology differentiated our agents from others in the market.

We have also changed our agent compensation plan to better align incentives with policy persistency. With our new compensation plan highlighting the importance of persistency, agents are expected to pay greater attention to manage their customers in the longer-term. Product profitability is another key driver to improve the operation of overall margins.

In a competitive market, we have always maintained product discipline to secure our desire to leverage margin and have not chased the market share by selling low margin on profitable products. As I mentioned earlier, the career agency channel is the biggest channel in the market with over 50% of market share. It is career agency channel that is the whole of our MetLife business. To illustrate, over 80% of total sales came from the A channel last year. MetLife's career agency channel successfully distinguished itself from the market by outperforming the market over the last 3 years while the market showed almost no growth. Our career agency channel's new sales grew over 23% per year in this time. This growth came from both growth in number of professional career agents and an improvement in productivity. The number of professional agents grew by over 15% from 2009 to year 2011. And as of end of 2011, MetLife has the largest professional career agency force in the Korean market.

In first half of this year, sales of Korea agency channel has slowed down due to competitive of pressure in the market. A number of our competitors are investing to build up their own professional agency channel and open MetLife's agency to become recruiting target. We lost some agents to competitors, and we are putting efforts to retain top performers against [indiscernible] recruiting [indiscernible] to our agent.

As another indication to show the high productivity of our sales force, this year we have the highest percentage of MDRT, Million Dollar Round Table qualifiers out of a total agents, and our continued focus will be to further improved agent productivity. This is how we are responding to challenges, with efforts to retain productive agents with a value proposition we offer to our agents as a primary Korea agency-focused player in the market.

As mentioned on the previous slide, MetLife's Korean agent high-quality behind this dramatic base growth. This can be supported with the following evidence. Number 1, agent productivity. Number 2, the percentage of MDRT qualifiers.

In terms of agent productivity for full year 2011, MetLife has the highest productivity in the market. Based on the monthly new regular premium earned per agencies, which is the productivity measure in Korea, MetLife's Asian productivity was 16% higher than the average of our top 5 life insurers, focusing on Korean agent channel business.

Our agent quality is also proven with a number of Million Dollar Round Table qualifiers. 1 out of 4 MetLife agent is qualified for MDRT membership this year. This is the highest level in the industry, which is 10% of points higher than the top 5 Korean agent channel players.

In a competitive market, agent recruiting and sales force side growing just tougher and tougher, and we have the focus on improving agent productivity and operational efficiency to maximize the shareholder and customer value.

As mentioned, MetLife launched a new system called the mobile office system in January this year. This platform is designed to support agent sales activities or to make the financial planning illustration and customer management. Since the launch of the platform, acknowledge the portion of the lead generation has been increased, and over 70% of our sales force use this technology base system in their sales.

Last year, we plan to introduce automated mobile service system for our customers, and as you know, Korea has the highest speed wireless Internet penetration rate. All users, including agents, customers are keeping demand for technology support every year in our business.

I will now show you a video to see how technology differentiated the agency using it from the agents who doesn't.

[Presentation]

Jong Kim

I hope you enjoy the video. They are real agents who are working in MetLife Korea today. The main character in the video, Jim, Mr. Jim decide to join his 4,000 colleagues to use the [indiscernible] MOS system to make his sales activities easier to do.

Now I would like to shift the gear to explain our General Agency business. GA has been the fastest growing channel in the market for the past few years. MetLife has specifically focused to grow our GA channel as a way to drive new sales growth and to diversify our disciplined channel mix. Our GA channel growth is 4x faster than the market growth speed over the past few years. Market grew by CAGR, it will be less than 20%, this is very strong growth, and MetLife grew by 86% in CAGR. It was also mainly driven by our effort to increase the number of a GA partner and our proven capabilities, such as innovative products and advanced training program from CA channel were used to attract GA partners to be MetLife advocates. Along with increasing the number of GA partners, the share of [indiscernible] channel in MetLife has increased from only 6% in 2009 to 14% in 2011 in terms of a new phase.

Why growing GA business? MetLife has not traded off the business profitability for volume growth. MetLife has selectively positively large but disciplined to GAs only and carefully monitor the quality of business that GA has produced. Also all products distributed through General Agencies complied with our Internet packet guideline.

I'm really excited about this slide to explain our success with A&H growth initiative. Some of you may remember from the Investor Day they had 3 years ago, at the time MetLife Korea shared its [indiscernible] expensive grow energy sales. As the 1 year of preparation, in September last year, we launched A&H growth initiative called A&H Everything. This innovative whole life Cancer product was launched for the first time in the market. The product was developed and leveraged MetLife's Japan expertise in A&H business. The product perspective, A&H product are focused on MetLife, and in Korea, we have been very successful over the previous year.

As we can see from the chart, monthy [indiscernible] along A&H products after the launch in September, jumped by over 500% compared to prior sales. Not only the focus [indiscernible] to gross of a stand-alone A&H product sales, but we also provide comprehensive A&H [indiscernible] to whole life product to offer full range of A&H coverages to our customers.

This is my last slide. I would like to leave you with a few key messages about our business in Korea. Since I last spoke at the Asia Investor Day in 19 -- in 2010, we have been successful in growing and diversifying our business, and as a result, have exceeded sustainable, profitable growth. As you can see, we con to be at the forefront of the industry and a leader in innovation. We built the premier Korea agency in Korea and continue to invest in this channel, we ensure this continued to success. Now we are building the premier-generated business and have demonstrated indiscernible] growth over the last few years. And we continue to innovate in terms of a new product, such as individual retirement product and Whole Life Cancer A&H products to capture new market opportunities that have served our customers.

It's my pleasure to share the story of Korea. And with that, I'll now hand over to my colleague, Bob Pei. Thank you very much.

Bob Pei

Thanks, Jong. Ladies and gentlemen, good afternoon. Allow me to use the next 20 minutes to talk to you about China. Before we go into the presentation slide, let me give you just a few facts of the China insurance market. China is the fifth largest life insurance market in the world, yet the insurance penetration is pretty low. Life insurance as a percentage of GDP is only 2.3%. The market is pretty competitive. Right now, we have 62 life insurer, of which 25 are foreign operating in this market. MetLife come into China in 2004 as a 50-50 joint venture from a greenfield. This is about clearly over 8 years ago. Since then, our focus has been building a strong franchise for the future.

I'm happy to report that in 2012, we still maintain a very strong sales growth. Our sales growth in terms of ANP is 33% compared to last year in the same period for the first half of 2012. Historically, we follow a very defined strategy to grow. Our strategic guidance in terms of geographic expansion, including selecting partners and affiliates where we need to make sure our distribution service can be leveraged. We established half in the capital city of that province and we build spoke city around it to capture that market.

Building a strong distribution strength is a key to a young company like us. In the past 8 years, we have established a strong multi-distribution capability to include agency, bancassurance and direct marketing. Each of our channel has a unique set of factors that differentiate us from the rest of the competitors. Also all our distribution channel has a very disciplined marketing strategy where we do not compete with all customer segment. We only compete with the customer segment where we can -- where our value can be appreciated by our consumer, and that they appreciate also professional service we provide.

Lastly, we have a very strong working relationship with our JV partners. They provide strong support in the guidance in local market in terms of regulatory support and in terms of banking relationship support, and they allow us to use our insurance activities to manage company. JV relationship is another key factor success in China.

Now I would like to talk a little bit about market trends, our strategic guidance, and how do we build long-term value for MetLife in China. Over the last decade, China has very high growth rate. And then prior to year 2010, the growth rate of life insurance company itself has always been double-digit. Most insurance companies be able to achieve strong sales in the past. However, towards end of 2010, the insurance market growth has reduced. In fact, general life insurance GWP, gross written premium, grew 6.8% from 2010 to 2011, which is still quite strong growth compared to the mature market. We have 2 reasons for this slowdown. The first one is overall economic slowdown. The second reason is both bank and the insurance regulator has increased regulation in comparison performance to prevent mis-selling and to ensure that customer receive the good value of whatever they purchase.

While the increased regulation has resulted decreased sales for the industry, it has been a benefit for MetLife because we have very disciplined self practice, we're focus on customer needs and then we operate professional distribution. We have been able to continue our strong top line growth in this new environment. I would also like to add, we still see quite strong growth in Tier 2 and Tier 3 cities, as they mature and become more insurance awareness.

I also like to talk about the fact that foreign players marketing in China is quite small. It's around 3.8% of our GWP, it's really kind of misleading because most of the foreign insurer, they operating in larger city in China plus they do not offer [indiscernible] domestic players. In Tier 1 city, where the insurance penetration is high and a foreign market is also high. For example, Beijing and Shanghai foreign participation of market share is now 13% to 14%. MetLife is well-positioned in those Tier 1 cities. While we continue to evaluate the new province of the new cities, our focus in 2012 is to optimize the existing province in the city we entered and we need to make sure our established distribution strength can continue to build in our city.

Finally, the employee benefit is emerging as the company development mature. MetLife -- I give you MetLife global strength in this area, we see this as is as good thing for China. In this year, we've launched medical group product to enhance our existing group product portfolio, then we can [indiscernible] full suite of product to offer to our global -- to our corporate customers.

The strong 29% PFO growth is driven by 3 factors. Geographic expansion, not a complicated area. I will talk about it in later part of this presentation.

Improved productivity. In the past 3 -- in the last, in those 3 years, we are not only building the new city and new province. We also optimize our distribution in existing cities. This include [indiscernible] more telemarketing and the bancassurance relationship, achieving #1 productivity in agency and the telemarketing productivity, also become a leading provider for foreign banks.

Two JV mergers. Historically, we offer 2 JVs in China, Sino-U.S. MetLife in Beijing and the United MetLife based in Shanghai. In April 2011, we merge these 2 joint ventures. This is the first life insurance company merged in China life insurance history. With a successful merge of the 2 JVs, we'll be able to leverage the relationship of both JVs in both telemarketing and bancassurance; we also be able to leverage the talent in both organization to form one organization; and we can increase a better efficiency in delivering service to our customers. Our JV combined market share at end of 2009 in terms of GWP among 25 life insurers we ranked in #6. By the end of 2011, we'll be able to advance that position to #2 at end of 2011.

Geographic expansion. Prior to 2004, there's nothing. Between 2004 and 2009, remember, we firstly establish our operation in Beijing. So -- and then, we use Shanghai to develop the Yangtze Delta. They used Guangzhou to develop her Delta. Those 3 economic zones that's sitting in our zone, virtually, our business develop in the best way of the welfare. We also established Chongqing, because Chongqing has been identified as a base for China Western development. So we used Beijing, Shanghai, Guangzhou and Chongqing as a 4 regional hubs for our expansion. Why 4 regional hubs? Firstly, despite all the Chinese, they all speak Mandarin, but its province has its own dialect and in fact its own culture, like yours. Second, given the China's massive size and the population, we believe organizing this way, we are more effective.

I'll give you one example. Each province has a massive population. You all know that province next to Hong Kong or Guangdong. Guangdong has a 105 million population, which is more than 82 million of Germany. You can see in 2010, we have advanced our city to 19; 2011, to 24. With that expansion, we used our 4 hubs in a more mature operation to provide distribution support and to fund new provincial expansion. We further leverage an established distribution centers in the 4 hubs to duplicate that into the new city and the new province we established. We are now in 10 province, 24 cities and that means we can access the 37% of the channel life insurance market.

Now allow me to talk a little bit about our business overall. It is important to know that we've had a very balanced and diversified business. On a channel perspective, our telemarketing is 58%, our bank is 30%, agency, 10%. The fact that telemarketing and the bank has more advanced because in each time we obtain a license in a province, we can call the whole province in telemarketing. Each time we get a city, we can leverage our national relationship with existing bank relationship to quickly build up the scale of the bank channel in that city. Also financially, TM and the bank had showed a break-even period.

As the market develop and our operation become more mature, we enter agency and the group. This channel also benefit from the hub and spoke model we established. We can use a talent, use the people of the existing hub to support their growth.

Looking at a business across cities in terms of Tier 1, 2 and 3, clearly, Tier 1 cities have bigger part because we are operating there longer, and also those markets has some higher insurance penetration and with much higher foreign company participation. We believe as we mature, the Tier 2 and Tier 3 cities will be more balanced.

We are market leader in direct marketing. As of the end of last year, we have 3,500 telemarketers operating in 8 major cities in China. [indiscernible] 46% is [indiscernible] credit card calls and a 51% proprietary calls. As of last year end, our telemarketing productivity ranked #1, it's twice of the industry average. Also our telemarketing AMP ranked #1 among all 25 foreign JVs, and it ranked #2 nationwide. Our proprietary call is based on effective lead regeneration and upselling skills. Currently, we have 12 [indiscernible] and we also build up a capacity to generally at a 400,000 per month.

Our bank channel is differentiated in a number of ways. We're focused on foreign bank wealth management segment. In 2012 first half, we are a leading provider of the bank segment with a 30% market share. We also ranked #3 in terms of FYP new business among -- among all foreign players in China. The reasons why we can become a leader due to we provide a very unique outcome management in our wholesaler insurance consulting model. This also includes the e-solution for our banking partner to help them to penetrate the upper end customer base who are more financially sophisticated, who value professional support and innovative product we offer. We then duplicate the same foreign bank model to the selective national bank wealth management segment and their private bank sectors. We have a track record for product innovation. Last year, we selected at 1 of 3 insurance provider for the insurance regulator to develop retirement product, and we launched that product at end of last year.

Highly productive agency force. Currently, there are 2.5 million agents operating in China. Their productivity are pretty low, they rely on relationship selling, and the agent of the product varies. And our model is different. We have very high selection criteria, we're focused on quality recruitment and productivity. As a result, our agent be able to access a more active segment of the market, and their average productivity is about 2x to 3x of the industry average. Right now, we have around 1,600 agents operate with us.

We further differentiate in terms of the way we conduct business through the e-solution. You all saw the Korean MOS system. We follow that and modify that into Chinese version, and we use that on our iPad, base needs analysis and self-administration, and it's available to all our agents.

Last, it's my last page. I'd like to give you some takeaways. The first is that we continue to maintain a strong growth in the peer growth and we'll continue to exceed market growth. This is due to we have that balance of diversified channel and we really do have a very good through distribution agencies across all channels. Second point is, we will continue to expand, but we need to balance the new territory versus optimize existing cities. We also [indiscernible] maintained the discipline in selecting city and province to make sure whenever we go, we can be successful there.

That concludes my presentation. I'd like to turn this over to Toby Brown, our CFO. Thank you for your time.

Toby Brown

Thank you, Bob. Good afternoon, everyone. So before I start, I thought I'd take this opportunity just to -- before jumping into the numbers, to remind you of some of the themes that you've heard already this afternoon. I'm sure you've already written them down on your notepads. MetLife has a growing financial position in Asia, and we'll talk about that in a minute. We've got clear strategies, which focused not only on growth but also on value creation. We're already executing on several programs to protect and expand our margins, and we see more opportunity here going forward, and I'll show you some examples of that. And we're also seeing enhanced financial benefit from what has been described to you earlier as multipliers. We call our multipliers customer centricity and the value of our brand. And I'll finish up my presentation later by showing you our strong and stable capital position across Asia, which positions us very well to take advantage of all the opportunities you've heard about already.

So let's look at some numbers. So as I mentioned to you, I want to share with you an outline of the growing financial position MetLife has in Asia. As Chris mentioned, right at the outset of the day, about 1/3 of MetLife's global operating earnings already come from Asia. The first half of 2012, as you can see here from some of our key metrics, has been very good. Our operating earnings after tax are up 45% year-over-year to $572 million; sales, which we measure on an ANP basis, are up 13% to $1.78 billion; and our revenues on a U.S. GAAP PFO basis are up 7% to $4.6 billion, and we've grown those revenues, whilst at the same time, managing to reduce our expense ratio by over 200 basis points.

You'll see here as well on this page our key solvency position for our key market at Japan. As you heard from Bill Hogan and the rest of the Japan team, we've successfully completed this year the very complicated conversion from a branch to subsidiary. We've managed to do that successfully and still maintain a very strong solvency margin ratio, as you can see. And more importantly, we've also managed to repatriate over $1.5 billion of capital back to the United States.

So let's walk through some of these metrics in a little more detail now. So you can see on this slide a little bit more information about our operating earnings growth. Clearly, 45% growth is a tremendous achievement. And as you would expect, there's some items in there, which we believe are onetime in nature and that's what we've adjusted for them on this page. 2011, as you'll recall, included the tragic event here in Japan, the earthquake and tsunami. We incurred some additional costs and claims, which we've adjusted for here. Also in the first half of 2012, we've had higher than expected variable investment income, which we don't think will repeat on an ongoing basis, so we've also adjusted for that. Even adjusting for these items, our growth is still 26% year-over-year.

So what's driving this growth? It's driven by a number of things. It's driven by the strength of our underlying businesses. You've heard some of that already from my fellow presenters this afternoon. But you'll also see in my next slide, it is driven by increased efficiency in our sales, processes and in our operation; increased investment performance and our continued focus on our inforce portfolio and our customer.

So let's take a look now at one of our leading indicators of future value creation, our sales. So as you will recall from the first page, our sales are up 13% year-over-year. You've heard from all of the previous presenters a lot of information about our sales, so I'm not going to go into too much more detail here, other than to tell you 2 things: all of our distribution channels have been performing well this year; secondly, MetLife has clear and disciplined pricing, which is applied consistently across all of our markets. This ensures that we're not only growing sales but growing value.

Let me show you another cut of sales, which will maybe highlight that a little clearer. So you've heard many times already today about the strength of our distribution and our superior experience of managing multiple channels and leveraging our expertise between the channels. You've also heard that we are very used to managing multiple and complementary product lines and using innovative cross-selling to sell between them. These factors, coupled with our pricing philosophy mean that we have a disciplined or innovative platform. This means that our sales growth is balanced and driving future value creation. This is highlighted to me when I look at the first half numbers by seeing this increased growth in protection sales.

As you would expect in a low rate environment, which we're seeing at the moment, I've been much more concerned if I was seeing the high growth in intra-sensitive products versus protection products.

So we also manage our inforce product portfolio to maximize value, and I wanted to highlight to you now some of the financial benefits we're seeing from that. So you heard many, many times already today some consistent themes around customer centricity and brand. So I want to try and show to you what this page, what this means for us financially and why we really believe in these strategic priorities.

A strong brand which draws customer to us, clearly, support our sales efforts. A great customer experience will also increase our draw but for us it also means 3 are really critical things; higher client retention, higher portfolio persistency with more opportunities to upsell and cross-sell, and higher and more stable revenues and higher and more stable earnings. The important message for you to take from this slide is that sales growth is good, but sales growth alone is not good enough. You have to keep the clients. Our value multiplier versus the competition we believe is going to be driven, not only by our ability to have great products and great distribution, but our ability to draw customers to us, keep them for longer even through family generation. We're already seeing this play out in the numbers. On this page, you can see on the left-hand side our statutory renewal premium, which is a good indicator of how that's playing out. We look forward for this trend continuing.

So let me change topics now and talk to you a little bit about our asset portfolio and how we're leveraging some of MetLife's global capabilities to enhance our margins here. So this chart shows to you our general account portfolio in Asia is large over $92 billion, and I want to highlight to you a couple of important items which you can see on the right-hand side. Our investment income is up 25% year-over-year. That's driven by 3 things primarily. As you've heard about and as you've seen, we've got strong business growth. Secondly, as I just mentioned to you a moment ago, we're also benefiting from higher client persistence. Thirdly and importantly, we're benefiting from some investment margin enhancement strategies which we've been implementing in Asia, supported by MetLife's global investment capabilities. The other thing I'll just mention briefly on this page is the -- you can see the investment portfolio gains and losses there. The small uptick over our usual run rate there is entirely related to us, reducing our [indiscernible] bond position since last year.

So as a backdrop to what's going on in investments, we all know that it's a very challenging economic environment and we all like it to be better, but we're not letting that hamper us with our -- against our strategies to drive increased value creation. And we continue to be focused on leveraging MetLife's global investment capabilities, especially, as you heard earlier, that the Japan portfolio which was a legacy Alico portfolio. Using MetLife's capabilities, we've managed to protect and enhance our investment margin through using, for example, MetLife's global sourcing discipline and expertise in particular for privately placed assets and diversified corporate. We've been able to do this without any compromise of our proven disciplined risk management principles focused on asset strategies, tailored to much liability.

So we've talked already about how we make sure there are sales and the right kind of sales, how we're focused on our portfolio and our customers to drive extra value and how we're using MetLife's global investment expertise to increase our investment margins.

So let's look now at how we're improving operational efficiency, too. So in the Investor Day that MetLife held earlier this year, I think you all have heard all that Steve Kandarian talked about ROE expansion opportunity and also outlined the importance of leveraging global scale and operational simplicity before that.

Here in Asia, we're focused on this area every day and we're seeing increased operating efficiency with 140 basis point improvement year-over-year, adjusted for the impact of the earthquake expenses last year on this slide. This is driven by some of the things that we've already talked about earlier, like increasing the efficiency of our sales process. You saw the direct marketing example mentioned during the Japan presentation, but we're also focusing on making sure there are businesses are sufficient as possible. Through the global scale and simplicity initiative of MetLife, we're making sure that we perform the right things and the right place globally for the right cost.

Let's talk now a little bit about our capital position, which I mentioned to you at the beginning is strong and stable, and we think we're well-positioned to capitalize on the investment opportunities we have within our existing businesses and elsewhere. So Japan and Korea are shown on the page here, our 2 largest market. We're well-positioned, as you can see, versus our peer group, and more importantly for us, versus what we believe our current needs are from a risk management and regulatory perspective. In particular for Japan, I want to remind you again that we've managed to maintain the strong capital position, whilst completing the conversion of our business from a branch to subsidiary and returning over $1.5 billion of capital.

Let's look at a few more details about Japan solvency margin now. So clearly, the biggest sensitivity in Japan we have in relation to our solvency margin is the interest rate movement. This chart shows you the sensitivity of our solvency margin, the interest rate changes of up to 200 basis points, the longer curve for each of the major currencies we've held in Japan. As you heard earlier, we have a pretty unique balance sheet here with a large amount of not only yen but also U.S. dollar and Aussie dollar assets.

For U.S. dollar rates, which is the green line on this picture here, you can see that 200 basis point increase would mean that our solvency margin would decline but it would still be well in excess of 700%. Likewise, the yen, if rates were despite the yen by 200 basis points, which is the blue line on the chart, we would still comfortably be above 600% and we believe in a much stronger position than many of our peers. Aussie dollar, as you can see, has very little impact for us.

So clearly, all these interest rate movements are a little bit counter-economic, as rate increases are generally good for us economically because, as I mentioned earlier, we have very disciplined pricing and we're very focused on our ALM principle.

Similarly for FX movements, we have very little sensitivity even on this pretty wide spectrum, which is plus or minus 25%, but we have very little sensitivity to the FX movements between U.S. dollar and yen.

So I talked about a lot of different topics there, so let me wrap up now for you our key finance messages and the reasons why we have a growing financial position in Asia. Firstly, we still have opportunities for further efficiencies as part of the global scale and simplicity initiatives of MetLife. We have sales growth, which, as we've shown you with good growth, because of our disciplined pricing and focused on cross-selling. We're leveraging MetLife's global investment expertise to maximize return, whilst staying true to our risk and ALM philosophy. We're focused on operational efficiency at a business level, and we're benefiting from this already in the first half of 2012. And we're well-positioned and secured from a capital perspective, and our legal repositioning in Japan has increased our capital efficiency and will lead to greater capital deployment possibilities going forward.

So with that, this is the last page between you and a short break and then questions. So on behalf of the team, I want to thank you for your patience this afternoon, listening to all of our presentations. And before we take that break, I want to take a couple of minutes now to remind you of some of the key messages you've heard today and some of the reasons why we're also excited about the future of MetLife in Asia.

Asia is already a core and growing contributor to MetLife's global earnings. We believe we are the unique balance of mature, developing and emerging markets, and as you've heard this afternoon, we've got growth opportunities in them all. We're maintaining our profitability discipline despite the macro headwinds around us, and we believe that our business initiatives capitalized on the key market trends and opportunities and more importantly, I think you've seen today that we've got the right platforms, people and skills to execute on.

Finally, as you've heard, we believe there is still further value enhancement opportunity from our continued focus on our key business fundamentals, profitable sales, our focus on our clients to ensure they stay with us for longer, operational efficiency and leveraging our global investment and risk management capabilities.

Thank you for your attention, and I think you now have the pleasure of a 5-minute break. Thank you.

[Break]

Question-and-Answer Session

John McCallion

All right. Let's try to get started. I know you got a lot of questions. I want to give you all the time you need to ask. So let's get -- raise your hand, I'll call on you, wait for the mic. Please give me your name and your firm, and stand up if you can. Thanks. Let's start with -- why don't we go here, Jeff Schuman, I respect his courage after this morning.

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

Jeff Schuman from KBW. Thank you for the [indiscernible] the normal [indiscernible] convention and allowing me to ask you questions. I want to first, get a clarification from Slide #38, I don't if you could put the slide up. I thought I heard Kitamura said there's something about single premium life being 35%, but I wasn't sure if that this 35% of life premium or 35% of total premium, so that's the first question.

John McCallion

35% of life premium.

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

35% of life premium.

John McCallion

Right.

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then there was acknowledgment later, of course, that single premium is highly sensitive to low rate and then you would be repricing. So is there's some way to give us a sense of sort of how underwater or under earnings is the current product are and how big an issue that is?

John McCallion

We've got several products and they -- that are single premium products that are all impacted by the lower interest rates. Returns on economic capital, which is our measure of profitability, are down 5-plus percent in terms of most of those products, so those are our priorities for repricing.

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

Were the ROEs down 500 bps or...

John McCallion

Right, exactly. Yes. Tom?

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Tom Gallagher, Crédit Suisse. I just got a question on Slide 87 just in terms of the subsidiary conversion in Japan where you repatriated $1.6 billion. Can you comment why you did the conversion, question number one? How did that actually free up capital? I would assume that would consume capital not free up capital. And then the third question is, were there any tax implications when you did that?

Christopher Townsend

Why we did that? A couple of reasons. One is a deeper commitment to the market, and I'm working with the local regulators, they were really keen on us doing that. And I think in terms of our customers wanting to deal with and be responsive to a local insurance company was certainly an important factor. In addition, there are some issues with the IRS in the U.S. in terms of a branch versus a subsidiary that we had an agreement with the IRS that basically said that we would work to convert the company from a branch to a subsidiary, which eliminated any of their concerns, so that was the second major reason for doing that. That was something that was inherited from the Alico AIG day. So that's the answer to the first question, I think.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

And the other 2 were whether a -- why weren't there any tax consequences, and how did it actually end up freeing up capital?

Christopher Townsend

Yes. In terms of how did it actually end up freeing up capital, the situation was that, this was a onetime opportunity as we move from a branch to a subsidiary to actually repatriate some of the capital from the branch to the home office, as opposed to going into the new subsidiary. And basically, most of the subsidiary, the clock starts over again in terms of the retained earnings that start off at 0, you only can dividend off retained earnings. As a matter of fact, given the way we have structured the new company, we set up a new company first. It got 2 months of new business in it, which actually created a lot and the company creating a retained earnings, a negative situation that's going to take 1 year or 2 to actually become positive again, so we wanted to basically, pre-dividend some of the surplus that we had available in the branch, that's reflection of a fact that we wouldn't be able to do any dividend after the subsidiary is set up for the next year.

Toby Brown

In relation to tax, there was a tax reform bill immediately prior to its completing the conversion. But basically, this allowed us to tax-defer the transaction, so there's no tax consequences.

Thomas G. Gallagher - Crédit Suisse AG, Research Division

So will that yield in the future then, how substantial might that be?

Christopher Townsend

The tax basis was basically just transferred, so there's no implication at all in terms of the taxes going forward. They did the same as if we stayed with the branch effectively.

John McCallion

We'll over here, Chris Giovanni.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Chris Giovanni, Goldman Sachs. I guess first question, back in May, you guys kind of alluded to international A&H being one of the big drivers for ROE expansion. I guess there weren't any slides kind of talking about ROE for the Asian operations, so can you talk some whether it's overall operations, whether it's product level, how we should be thinking about returns for this business, and then I have one follow-up.

John McCallion

So maybe I'll just start. We selected almost, 2 years ago, stop showing ROE by segment, and there's a number of reasons for that, that we've gone through with you. So we're not going to go through ROEs by segment. I mean, what we can talk about, and which is a leading indicator for ROE expansion, would be just new business return, and I think we've touched on that today and could add some color there.

Christopher Townsend

Yes. The business recurring for Japan, as we look at them at the company as a whole and also look at them in terms of by channel, our 4 major distribution channels all are in excess of 15%, by targeting 15% and they're all in excess of 15% today. Obviously, within that, there are some products that may be a little bit below, and as we talked about, the single premium products are a little bit below. But as a consequence of that, in total, you still have a portfolio that's yielding over 15%.

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Okay. And this maybe insignificant, but I believe when you completed the sale of the joint venture through Mitsui Sumitomo, you guys are still reinsuring a portion of the VA business that we've written through 2011. So just curious, one, if that's true? And then two, if it is, how should we be thinking about, whether it's capital behind that business or has new strategy to reduce some of the liability?

Christopher Townsend

We did reinsure for a period of time the business -- the JV. That's a closed block at this point in time. We still have the inforce business that we've had reinsured. That will be with us, at least 10 years, and maybe for the lifetime event, the annuity product. We're hedging that in the same methods that we hedged our domestic business for the same team. The results are not reported as part of the Asian segments. They're reported separately.

John McCallion

In the back, Mark?

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Mark Finkelstein, Evercore. A question about persistency. Obviously, you've had some nice increases in that, I think 260 basis points according to Slide 48, it's been a nice tailwind to grow. I'm just curious, where do you see persistency going 87 to 88? If you look at some of your competitors, they're in the 90s. Do you see it going kind of into the 90s or is the product differences are kind of the -- an obstacle to that?

Christopher Townsend

Our products are -- we're exceeding our price [indiscernible]. Let me start there in terms of our assumptions. We're actually doing better than our pricing assumption in terms of lapse performance. So our channels do, in general, probably, are in a situation where you'll see a little more lapses than maybe some of our competitors. Direct marketing are certainly one channel where there's -- naturally, there's some more lapses in that channel. So I'm not sure we'll get to the same level because we've got a different mix of business. And that's okay, because that's how we price the product. I do expect this year to pick up probably another 50 to 70 basis points as we had talked about in our, I think, it was fourth quarter analyst call, the expectations within that range. I still anticipate us being on track to do that. We're looking at what 2013 is right now. I think they're still similar upside, but it's probably not quite the same level because of the change in the mix of business.

John McCallion

Right here in front, Michelle?

Unknown Analyst

Michelle Giordano [ph], [indiscernible]. My question is for Chris. Chris, I was wondering if you could share with us what some of your personal goals are for the next 3 years now that you're here at MET, and what you see is the biggest challenges in obtaining those goals?

Toby Brown

Well, I think the first half, we've got to do is to pull together 2 leadership teams, the majority of which you'll see here in front of me here today. We've put together Japan business and old Asia Pac business into one leadership group, which supply the strategy going forward, and we have to have that pretty much in place by the end of the year. So that's from a leadership perspective. In terms of the -- well, I'm going to focus on some. I think the key goal overall, and probably the way you should think about it is that we've got a very strong base already in some of our existing business. So my focus will be making sure that we -- both business continue to add great value to the organization overall than obviously spending a lot more time focusing in terms of trying to grow the business where we're not already. So we'll be looking at opportunities in other parts of the South East Asian region.

Unknown Analyst

And the biggest challenges you're seeing?

Toby Brown

It's actually a quite a nice challenge. I really think in terms of existing busness, the biggest challenge will be prioritizing the opportunity. We got a wealth of opportunities which are being articulated to you today, and we just have to make sure we're very organized and we're lined up in terms of prioritization to make sure we execute on those. We've got a pretty good history of execution, I think, Bill did a nice job of talking to that today in terms of the subsidization proxy, the integration work. So we've proven in terms of execution, it just we've got so many things to go after, the guys are making sure we're clear with that. I think the other 2 challenges would be one in China, just working out the whole time, [indiscernible] and how we really grow our business and make sure we get the right balance between the profit and growth in that market. And secondly, looking at the broad Southeast Asian region. You all know that the price are fairly lofty in terms of inorganic growth there since it's working and how we enter those markets.

John McCallion

Right in the middle here, Ed?

Edward A. Spehar - BofA Merrill Lynch, Research Division

Ed Spehar from BofA Merrill Lynch. A couple of questions. First, could you give us some sense of what the ratio is between FSA-based earnings and GAAP earnings in Japan? And second, if we look at the Asia earnings of about $1.1 billion, you took this $1.6 billion dividend or capital return, and part of that was prefunding I guess you're saying next year's dividend. Should we assume that $800 million a year is kind of a normal amount that you can distribute or 75% roughly or so of GAAP earnings?

Toby Brown

Let me answer the first part of the question first. So the -- our FSA earnings, basically, they reset when we changed from a branch through the new subsidiary. So our dividend capacity, as Bill mentioned, for the first couple of years is restricted, whilst that some level of earnings starts to accumulate. And there are some statutory restrictions that we have to satisfy first as part of the regular Japanese company's law. Once those things are passed, we expect our statutory earnings, our FSA-based earnings to be approximately half of the U.S. GAAP earnings. I think that's a good proxy for the run rate. And also, statutory earnings will probably dividending subject to I think changes in solvency requirements or risk profile, about 80% of those FSA base earnings up to the parent. What that means in terms of proportion of GAAP earnings? If you do the math, it's about 40%, 40% to 50%.

Edward A. Spehar - BofA Merrill Lynch, Research Division

I guess, I recall for when the deal with Alico, the Japan business was going to be more free cash flow story, funding some of the other regions. Does that changed? The 40% of the lower number, I'm thinking?

Toby Brown

No, that hasn't changed. And I think the guidance that MetLife's given overall is that for our whole enterprise, we expect the range of distributable earnings versus GAAP earnings to be in the range -- that kind of range.

John McCallion

Don't forget, we're growing here as well, sorry. On the back?

Suneet L. Kamath - UBS Investment Bank, Research Division

I just have a question about Slide 88, the solvency margin?

John McCallion

Your name?

Suneet L. Kamath - UBS Investment Bank, Research Division

Sorry, Suneet Kamath from UBS. So Slide 88, I just want to make sure I understand how to interpret those lines. So I guess the bullet point says the solvency margin would be 600 to 700 if Japan interest rates rise, but what if you have a combination of the Japan rate rising 200 basis points as well as the U.S. rate, because I think those lines are -- I'm wondering if there in dependent upon others?

Toby Brown

So yes. These are independent stresses, and I had the discussion at the break with someone else as well. So in the unlikely scenario, all these things move exactly the same time, the result on the SMR is slightly more than adequate. But one of the things that, obviously, you can't get an idea of with this kind of static picture is the action that we take around ourselves to adjust for the rates as we saw rates moving up. So the impact would be more than additive, but that obviously doesn't take into account any management actions we would be taking. The other thing I would mention here, just as important is, you heard a lot of discussion today about how we've been repositioning our investment portfolio in Japan over the last couple of years. Because of that, we keep the relatively higher proportion of available-for-sale securities than probably some of our peer group. Now a lot of our portfolio repositionings being completed will be rebalancing our portfolio away from AFS into the BMR classification here in Japan. That will reduce the sensitivities, the volatility of these sensitivities as well.

Suneet L. Kamath - UBS Investment Bank, Research Division

To suggest -- to put some numbers around it, when you say added, so where would that put that range if we get the 200 basis points, both the U.S. and Japan? What was the solvency margin range that you would expect assuming no management act?

Toby Brown

If everything move at the same time on the same day, we probably be pretty close at the minimum solvency requirement, somewhere between 200% and 300%.

Christopher Townsend

Right. So we're talking about a major shift in a one-day time period that allows us not to make management action, which clearly, a non -- very unlikely type of scenario. The reality of it is, an increase is going to start causing us to make some shift that Toby's talking about, then we'll respond effectively and really make this the solvency margin much more favorable.

Suneet L. Kamath - UBS Investment Bank, Research Division

Great. Did the primary shift that move to -- from AFS to held to maturity? What are some of the other actions that you were talking about?

Christopher Townsend

That would be the primary one. We made life and duration again. It depends on the yield curve, the steepness of the yield curve, et cetera. There are several other actions we could re-look at financial reinsurance, which we use some of that as well that would be an option to consider.

Suneet L. Kamath - UBS Investment Bank, Research Division

And sorry, the last one, you just said, the health and maturity, the move to health and maturity, is that completely your discretion, or are there certain assume things that you achieve before you can do that?

Christopher Townsend

We can shift to this BMR category on this local statutory basis. We have to sell the asset and re-buy them.

John McCallion

Go right here in the middle. Steve, Steve Schwartz?

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Steven Schwartz from Raymond James. I do want to follow-up one more time on the subsidiary questions. Is the issue here that following the conversion that [indiscernible] surplus is reset to 0?

Christopher Townsend

The retained earnings was reset to 0, basically.

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

And that's a cap on how much you could -- that your retained earnings is a cap on how much you can...

Christopher Townsend

That would be a general rule in Japan, yes.

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

H

Okay. And then I want to ask about -- maybe the [indiscernible] would want to talk about is, let's call it, Snoopy capture. I mean Snoopy is, I remember from the original deal, Snoopy is widely used here. I'm wondering about MetLife capturing Snoopy as it did back in the day in the U.S. [indiscernible]?

John McCallion

Maybe, you can expand on the question a little bit more?

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Snoopy is widely used, is that correct?

Christopher Townsend

We have the rights to Snoopy in Japan for financial insurance company.

John McCallion

MetLifehas a global license with Peanuts, for the Peanuts characters, and Snoopy, in particular, in the financial services category on which obviously Japan falls into. So we are the exclusive licenser of Snoopy and Peanuts in Japan in financial services.

Christopher Townsend

So it's similar to the U.S. situation.

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Okay. Are you seeing less use Snoopy from other types of profits since you've been here?

John McCallion

We don't know other companies that are using Snoopy to the level we are outside of financial services here. I think as [indiscernible] said, in general, there is a fairly significant affinity to the Peanuts, and good sales here are the highest good sales of any country in the world for Peanuts goods. So in that sense is already a consumer affinity with Snoopy and the Peanuts characters.

Unknown Analyst

[Indiscernible]

John McCallion

Hold on, you guys. Get a microphone first.

Hiroyoshi Kitamura

If I take the advertising, MetLife Alico is the only company now using Snoopy Peanuts character being the TV commercial field or the web advertising. So there are in different industry who are using Snoopy for their promotions, but not in a TV advertising level.

John McCallion

Right there.

Sean Dargan - Macquarie Research

It's sean Dargan from Macquarie. Just returning to the topic of ROE, I appreciate you don't want to talk about segment ROEs. So new business in our 4 channels [indiscernible] in excess of 15%. Is it fair to think that negative spread is impacting inforce book that's somewhat less than that?

Christopher Townsend

Well, I don't believe we are in a situation where we have negative spread. I mean, we've certainly positioned the portfolio that have some very tight asset liability management, and so the business that's on the book is a profitable business and has not been influenced very much at all by the change in the interest rate. And again, since we did purchase accounting back when we acquired the company, there are only will be changes in assets when we position or change the asset portfolio as well since then. So we're pretty tight there and we really don't have much of a deterioration at all in the profitability. Clearly, if surplus get reinvested lower, if that rolls off, the maturity has roll off there, that impacts the profitability, but that's really the only thing.

John McCallion

Right here, Eric?

Eric N. Berg - RBC Capital Markets, LLC, Research Division

Eric Berg from RBC Capital Markets. I come away with the impression that you favor your businesses here, really across Asia, the protection products over the savings products, that's my impression for now and that is interest rate related. But why is that? After all, interest rates are what they are. Presumably, you can price product today to reflect today's low level of interest rates. You've talked about how you're pricing with 15% return, that you're capitalizing on that global investment capability. So why do you favor the -- why the retirement product per se a problem right now?

Christopher Townsend

I don't think we said there are problem. I think there is -- protection product have higher margins that are better to sell. We certainly are selling savings products where we can, and we're selling a fair amount of those in all of Asia. But if we have a choice, when we sell $1 of ANP in protection or $1 of ANP in savings, we sell $1 of ANP in protection. It's a much more profitable business to us.

John McCallion

At the back?

Unknown Analyst

David [indiscernible] from JPMorgan. Just on Page 42, you talked about investing in dollars and swapping into Australian dollars. Could you just tell us, is that hedging -- how you hedge that? Is that forward or is that cross-currency swap? What's your strategy? And then do you also buy dollars, dollar-denominated assets for the yen, for the -- back in yen liability?

Christopher Townsend

I'll let Chuck go into detail. We just started that program or the swap asset. Today, our dollar asset only back dollar liability in our surplus account. So we are not using dollar asset to back the yen liability. But Chuck, do you want to go through a little bit of how we're thinking about managing the hedging there?

Unknown Executive

So on the Australia, it growing us [indiscernible] portfolio. So our plan is to use full currency swaps, match swap, to take U.S. dollar assets and put those into Aussie dollar assets. If the yield works for us and [indiscernible] some work be able to diversify in the -- into the -- in that market, have work reflect portfolio we think [indiscernible] U.S. capability of swapping, [indiscernible] will be profitable relative to the liabilities and useful terms of risk management. Your other question was whether we have dollar exposure. We have the total FX position of around $11.5 billion. Most of that is U.S. dollars. About half of that is hedged, half of that is less unhedged. The hedges are basically short-term currency forward, 3 months mostly, some 6 months. And overall, we're comfortable with that position. It's a strategy we've been employing for a number of years prior to MetLife becoming involved with the company. And we think it gives us the balance of healthy hedge over U.S. dollars surplus, that's apparent, it gives the yield enhancement, and we think we've got -- with the hedges in place, we're properly managing our capital.

Christopher Townsend

I should have introduced Chuck Daugherty [ph], who's the Chief Investment Officer for Asia.

Unknown Executive

Yes, I've been here about 1 year. I came from MetLife. I was running structured financial portfolio back in the U.S. prior to coming here to Asia. And one of our goals here is to talk about is integrate the global U.S. investment capabilities, which are familiar with my prior experiences to help us sort of leverage the agencies here in Asia.

Unknown Analyst

So just as a quick follow-up, do you see -- one of your competitors talked about the opportunity to increase the money over in Japan by buying dollar assets and swapping NCN. Do you look at that, is that an opportunity to offset some of the industry pressure that you alluded to earlier?

Unknown Executive

I think as we have said, we have a fairly tight preposition on. It's something that we could feel right now. We're not planning on doing more. I think we're more focused on some of the revenue yield enhancing strategies we're employing using private placement, expanding commercial mortgages, expanding our efforts and all [indiscernible]. So for now, I think we're comfortable with this position we have, it may change

Some more questions?.

Unknown Analyst

[indiscernible] from [indiscernible]. Could you maybe comment on how your solvency ratio under the new economic capital rule or maybe coming in, in a couple of years?

John McCallion

Which market?

Unknown Analyst

Japan.

John McCallion

No.

Toby Brown

So in Japan, there's been a lot of talk about moving to a Solvency II style, solvency regime. We haven't run -- we haven't seen enough data yet to run any clear scenarios on that, so I can't really give you a clear indication other than, I think you've seen from what we've shown you early today, the strength of our capital position, how we manage risks, how we manage ALM. I don't think we would have, based on the work we've done in Europe with Solvency II already, I don't think we would see any deterioration of our position with our peer group. In relation to Korea, there's probably a more imminent change. There are some changes happening already in Korea. We're making some adjustments to the way that we have to reserve. And we have model that out in Korea. It reduces our solvency margin ratio as it would for the whole industry. There's some strengthening of requirements for some of the touch of variable products we hold. I think on the current draft guidance, our solvency margin ratio in Korea would be about 300%.

John McCallion

So maybe a time for 1 or 2 more questions. Yes, one more. All right, last question. Ryan?

Ryan Krueger - Dowling & Partners Securities, LLC

It's Ryan Krueger with Dowling . I just wanted to follow up on the BMR reclassification potential. Is there any limit on how much of the portfolio youthink you can transfer to BMR? And with this sale and buyback of the asset, with doing that cause any type of accounting gains or impact on the future earnings, or can you do that with no impact?

Christopher Townsend

Yes. I think in short, the reason that we would want to wait till interest rates rose some is that it would create capital gain and reduce net investment income in the short term. There are a wide variety of rules that apply to the CMR account, and it requires certain tight asset management, certain percentage of reserve, but there's certainly a -- the restrictions that apply are certainly not limiting in terms of our ability to effectively substantially increase our BMR position and reduce further the risk of the rate rise.

Ryan Krueger - Dowling & Partners Securities, LLC

Okay. So is it fair to say that given the impact of the sale and buyback of the assets, that in the near-term, it will be more of a focus on new business assets?

Christopher Townsend

That's exactly right.

John McCallion

Okay, great. Well, thank you very much for joining us today. And if you have any follow-up questions, obviously, don't hesitate to contact our Investor Relations Department here at MetLife. So thank you.

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Source: MetLife, Inc. - Analyst/Investor Day
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