Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Second Quarter 2026 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we get started, I refer you to the cautionary note about forward-looking statements in yesterday's earnings release and to risk factors discussed in MetLife's SEC filings.
With that, I will now turn the call over to John Hall, Treasurer and Head of Investor Relations.
Thank you, operator, and good morning, everyone. We appreciate you joining MetLife's Second Quarter 2026 Call. Before we begin, I direct your attention to the information on non-GAAP measures on the Investor Relations section of metlife.com in our earnings release, in our quarterly financial supplement and in our earnings call and investor presentations, which you should review.
On the call today are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer and Head of MetLife Investment Management. Also available to participate in the discussion are other members of senior management. This morning, John McCallion will speak to the earnings call presentation we released last night.
The deck is available on our website. An appendix to the deck features disclosures, GAAP reconciliations and other information, which you should also review. After prepared remarks, we will have a Q&A session, which will end promptly at the top of the hour.
As a reminder, please limit yourself to 1 question and 1 follow-up. Now to Michel.
Michel Khalaf
President & CEO
Thank you, John, and good morning, everyone. This was an outstanding quarter and another clear demonstration of how our New Frontier strategy is working as intended and how repeatable our model is built on a powerful recurring revenue base and the flexibility to invest where we see the most compelling global risk-adjusted opportunities. At the heart of our New Frontier strategy are 2 complementary earnings engines that contribute roughly equally One is capital light, where businesses like Group Benefits, Latin America, EMEA and Asset Management generate attractive fee and underwriting income with strong cash generation.
The other is capital driven, where our retirement and spread-based businesses leverage our origination, investment and risk management capabilities to put our balance sheet to work at attractive risk-adjusted returns. Importantly, the 2 engines reinforce one another. Our capital-driven businesses originate assets that are managed by MetLife Investment Management, supporting the growth of our asset management platform and expanding our capital-light earnings over time.
Together, they create a company that's more balanced, more resilient and better positioned to perform through different market environments. And that's exactly what we saw this quarter. Adjusted earnings increased in every business segment compared with a year ago.
Underwriting performance was strong. Volume growth was broad-based, and we continue to fund promising growth opportunities while returning excess capital to shareholders. This is New Frontier in action, leveraging our scale, market-leading businesses and strategic diversification to generate durable growth and attractive returns across a range of economic conditions.
Turning to second quarter results. We reported adjusted earnings of approximately $1.6 billion or $2.43 per share. Adjusted earnings increased 15% from the prior year period.
Adjusted earnings per share increased 20%, faster than earnings growth, reflecting our measured and consistent approach to capital management. Adjusted premiums, fees and other revenues, excluding pension risk transfers, increased 5% year-over-year. Sales rose 7%, led by strong growth across our international businesses.
Variable investment income totaled $231 million pretax and was higher than the prior year period. Adjusted return on equity was 17% at the top end of our 15% to 17% annual target range for the second quarter in a row and well above our cost of capital. Our direct expense ratio, which is a product of both revenues and expenses, was 12.1%, in line with our full year target.
We achieved this despite approximately 50 basis points of impact from the addition of PineBridge Investments, a fee-based business with a structurally higher expense profile. Even as we integrate that business, we remain on target through rigorous expense management and productivity gains from AI and other technologies. To that point, AI is becoming a structural advantage for MetLife and our scale sets us apart.
The sheer volume of new policies, service interactions and claims we handle every day gives us more places to apply AI and more data to make it smarter. Over time, we expect that to be a meaningful and durable tailwind to both growth and productivity while creating an even more seamless experience for our customers. Critically, we carefully monitor our AI-related investments and expenses, including model usage and token costs.
They're held to the same return standards we have for any other investments we make or expenses we have. And the gains we're achieving in growth, productivity and customer service, which is evident in our direct expense ratio, far exceed the costs. And above all, governance and risk oversight remains central to how we deploy AI, consistent with the trust our customers place in MetLife.
Turning to the performance of our business segments, starting with Group, starting with Group Benefits. The segment generated adjusted earnings of $503 million, up 25% year-over-year. Life underwriting was particularly favorable.
The Group Life mortality ratio was 79%, reflecting continued improvement in mortality among the working age population. Adjusted PFOs increased 1%. Excluding participating contracts, adjusted PFOs rose 4%.
Year-to-date sales are up 9% with regional business advancing 11% led by the under-1,000 employee market. We saw double-digit sales gains year-to-date in disability and voluntary products with particular strength in A&H. These results demonstrate the quality of this flagship franchise. Our scale, broad product set and long-standing customer relationships set us apart and position us well to meet the evolving needs of employers and employees, while delivering responsible growth over time.
Moving to Retirement and Income Solutions, or RIS, we reported adjusted earnings of $377 million, up 2% from a year ago. Adjusted PFOs, excluding pension risk transfers, increased 19%, driven primarily by U.K. longevity reinsurance and structured settlement sales. The long-term retirement opportunity remains compelling.
Aging populations are increasing demand for retirement income and risk transfer solutions. And MetLife has the origination capabilities, investment expertise and product breadth to serve that demand across key global markets. Our portfolio spans risk transfer, pensions, annuities, stable value and other global risk solutions.
This breadth affords Metlife the capacity to be selective in deploying capital, choosing to pursue only the highest returning risk-adjusted opportunities. Turning now to Asia. Adjusted earnings of $420 million increased 21% on a reported basis and 25% on a constant currency basis.
Sales advanced 17% on a constant currency basis, reflecting strong performance across markets, particularly in Korea, where we continue to see momentum. And Japan countered a solid year ago sales quarter for life and annuities with almost 90% A&H growth on a constant currency basis following a newly launched medical product. And the roughly even mix of U.S. dollars and yen product sales points to the balanced growth we're delivering, not reliant on any single product or currency.
And with favorable demographics, deep distribution and continued product innovation, we see meaningful opportunities ahead. In Latin America, adjusted earnings of $268 million represented a quarterly record and an increase of 15% and 4% on a constant currency basis. Adjusted PFOs increased 6% on a constant currency basis, reflecting robust growth and solid persistency across the region.
Sales rose 9% on the same basis. Latin America continues to demonstrate the value of our leading market positions, multipronged distribution and ability to serve a growing need for protection, health and retirement solutions. Turning to EMEA.
Adjusted earnings of $108 million increased 8% or 11% on a constant currency basis. Adjusted PFOs grew 12% on a constant currency basis, supported by sales and renewal activity across the region. Sales increased 15%, reflecting sustained and broad-based growth.
Now shifting to MetLife Investment Management, or MIM. The segment generated adjusted earnings of $57 million, up 6%. Growth reflected the contribution from integrating PineBridge Investments and expense management.
Other revenues increased 34% and total assets under management reached approximately $748 billion. Our second quarter performance illustrates the advantage of diversification. Different businesses contribute in different ways, but together, they each benefit from the scale and capabilities of the broader MetLife enterprise.
Shifting to cash and capital, MetLife continues to operate from a position of financial strength. During the quarter, we repurchased approximately $700 million of common shares. Year-to-date through July, we have returned over $2.4 billion to MetLife shareholders through a combination of stock buybacks and common dividends.
Last night, we announced a new $3 billion share repurchase authorization, reflecting our confidence in MetLife's capital generation and long-term outlook. And we ended the quarter with $3.4 billion of cash and liquid assets at our holding companies, firmly within our $3 billion to $4 billion target buffer. Our approach to capital deployment and allocation remains consistent.
Our first priority is to fund responsible organic growth where MetLife has structural advantages and opportunities to earn attractive risk-adjusted returns. We will pursue inorganic investments when they add strategic capabilities, meet our financial criteria and create value. Beyond those opportunities, we return excess capital to shareholders over time.
We are also using reinsurance and third-party capital to support additional retirement origination while creating assets for MIM to manage. This enables us to pursue customer demand in a more capital-efficient manner and extend the value of our platform across the enterprise. Most importantly, growth is translating into tangible shareholder value.
Disciplined strategic capital deployment fuels future earnings and strong recurring free cash flow enables us to invest in our businesses and also return capital consistently. In closing, this was an excellent quarter that once again demonstrated the investment case for MetLife under New Frontier. Our complementary earnings engines, capital-light and capital-driven are working together as intended.
They create a more balanced and durable earnings profile, along with a stronger foundation for long-term value creation. We are pleased with our progress. We have confidence in the strengths we have built over time, the momentum across our businesses and our ability to execute through a range of environments.
New Frontier is the right strategy for MetLife, and we are moving forward with speed and purpose. With that, I'll turn it over to John to walk through the results in more detail.
Thank you, Michel, and good morning, everyone. This quarter is another strong demonstration of MetLife's earnings power and the strength of our business model. We generated broad-based growth across the enterprise, delivered excellent underwriting results, maintained disciplined expense management and continue to deploy capital prudently.
So I'll start on Page 3 of the earnings call presentation and walk through the key drivers of the second quarter performance. It was an excellent quarter, and the combination of growth, returns and execution enabled us to meet or exceed our key financial commitments once again. Adjusted EPS grew 20%, while adjusted ROE reached 17% at the top end of our 15% to 17% target range.
Our direct expense ratio was 12.1% and keeping us on track to beat our 12.1% 2026 annual target. Net income totaled $705 million or $1.09 per share, while adjusted earnings were $1.6 billion or $2.43 per share. The difference between net income and adjusted earnings was primarily driven by mark-to-market accounting on our derivatives and net investment losses.
Overall, our outlook on credit remains stable, and our hedging program continues to perform as expected. Moving to Page 4. Adjusted earnings increased 15% year-over-year or 14% on a constant currency basis.
Growth was balanced across the enterprise, driven by favorable underwriting margins, strong volume growth across all segments and higher investment margins, partially offset by less favorable expense margins. Adjusted earnings per share were up 20% and 19% on a constant currency basis, with strong earnings growth supported by disciplined capital management. Now moving to the businesses.
Group Benefits had an outstanding quarter, generating adjusted earnings of $503 million, up 25% year-over-year, driven by favorable underwriting margins and volume growth. The Group Life mortality ratio was 79% for the quarter, better than our 2026 target range of 83% to 88%, reflecting continued favorable mortality trends among the working age population. The non-medical health interest-adjusted benefit ratio was 73.9% within our annual target range of 70% to 75% and a 190 basis point improvement sequentially, consistent with our seasonal utilization patterns.
Growth remains healthy across the franchise. Sales were up 9% year-to-date and adjusted PFOs increased 1% and up 4%, excluding participating contracts, reflecting growth in both national accounts and regional business. Turning to RIS.
Adjusted earnings were $377 million, up 2% year-over-year, driven by favorable recurring interest margins and volume growth, partially offset by lower variable investment income. Total investment spread was 97 basis points in the second quarter, below our guidance range of 100 to 120 basis points, driven by weaker private equity returns within VII. While core spread, excluding VII, was 100 basis points, up 5 basis points sequentially, reflecting the benefit of asset deployment along with improved real estate equity income.
RIS continues to benefit from the strength of its origination platform. RIS adjusted PFOs, excluding pension risk transfers, were up 19%, driven by strong growth in U.K. longevity reinsurance and structured settlements. Retained liability exposures grew 3% year-over-year at the low end of our 2026 outlook range, consistent with our expectation that growth would build over the year.
Importantly, even with a lighter PRT market in the first half of 2026, the team has continued to advance other sources of growth across the platform. U.K. FundedRe is a strong example. It underscores our ability to leverage existing capabilities, develop new solutions and create attractive growth opportunities even when certain markets become more limited.
Asia adjusted earnings were $420 million, up 21% and 25% on a constant currency basis. Results reflect strength across the business, supported by favorable equity markets, higher variable investment income and continued volume growth. Asia's key top line growth metrics continued their strong momentum in Q2.
General account assets under management at amortized costs were up 6% on a constant currency basis. Sales rose 17% on a constant currency basis, fueled by equity market tailwinds in Korea plus traction from recent product launches. In Japan, sales increased 2% year-over-year against a strong prior year comparison and 13% sequentially.
Taken together, these results reinforce our confidence in Asia's long-term growth trajectory and the strength of our franchise across the region. Latin America delivered adjusted earnings of $268 million, up 15% year-over-year or 4% on a constant currency basis. Results were driven by strong volume growth as well as favorable market factors, including an elevated encaje return of 5.6% in the second quarter and lower taxes.
This was partially offset by the impact of the Mexico VAT change. Top line momentum remained strong with sales up 9% on a constant currency basis and adjusted PFOs up 16% or 6% on a constant currency basis. Growth was broad-based across the region, led by Brazil, Mexico and Chile.
And we continue to see attractive growth opportunities across the region, supported by strong distribution capabilities, favorable product demand and the increasing reach of our MetLife Accelerator platform. EMEA delivered adjusted earnings of $108 million, up 8% year-over-year or 11% on a constant currency basis. Results were driven by strong volume growth, partially offset by higher expenses in the quarter.
EMEA's top line remained strong with adjusted PFOs up 12%, supported by ongoing sales momentum and solid renewal activity across the region. Sales increased 15% on a constant currency basis, reflecting broad gains across markets and geographies. Importantly, as the business has continued to scale, we are seeing that growth translate into increasingly consistent and durable earnings power.
Turning to MetLife Investment Management, or MIM. Adjusted earnings were $57 million, up 6%, driven by solid business growth and expense management. Momentum is building across the platform.
And as integration benefits continue to emerge, we expect adjusted earnings to maintain their upward trajectory through the second half of the year. Total AUM increased $12 billion sequentially to $748 billion at June 30, including a notable $7 billion increase in institutional client AUM. This growth, combined with a 410 basis point improvement in operating margin during the quarter, positions MIM to deliver full year adjusted earnings within its guidance range of $240 million to $280 million, though likely toward the low end.
We remain confident in the sustained success of this business and our 2027 guidance remains intact. Corporate & Other reported an adjusted loss of $160 million in the second quarter compared with a loss of $142 million a year ago. The year-over-year change primarily reflected foregone earnings from the prior year strategic reinsurance transactions and market-related employee costs.
These impacts were partly offset by favorable life underwriting margins. And the company's effective tax rate on adjusted earnings in the quarter was 23%, below our 2026 guidance range of 24% to 26%. Now moving to Page 5.
Pretax variable investment income was $231 million in the second quarter of 2026. Results were below the implied quarterly run rate, primarily reflecting lower private equity returns with an average return of 0.8% and real estate and other funds average returns of 1.1%. As a reminder, private equity and real estate and other funds are reported on a 1-quarter lag and accounted for on a mark-to-market basis.
Looking ahead, we expect stronger private equity returns in the third quarter, particularly from our venture capital investments, supported by elevated IPO activity and higher public market valuations. On Page 6, we show post-tax VII by segment and Corporate & Other for the past 5 quarters. The majority of our VII assets are concentrated in Asia and RIS and Corporate & Other, consistent with the long duration nature of these obligations.
While VII can vary from quarter-to-quarter, we manage the business for normalized returns over time and remain comfortable with our full year outlook. Now turning to expenses on Page 7. Our direct expense ratio was 12.1% in Q2 of '26.
This compares with 11.7% for both the full year 2025 and the second quarter of last year. Strong PFO growth and continued expense discipline enabled us to absorb the previously disclosed roughly 50 basis point impact from the PineBridge acquisition. We manage expenses on a full year basis and we remain confident in our ability to beat our 2026 target of 12.1%.
Our consistent execution continues to be a MetLife differentiator, reinforcing the durability of our earnings and our ability to invest in growth, while delivering on our financial commitments. Moving to Slide 8. MetLife continues to operate from a position of strong capital and robust liquidity.
As of June 30, cash and liquid assets at the holding companies totaled $3.4 billion within our $3 billion to $4 billion target cash buffer. In the second quarter, we returned approximately $1.1 billion to shareholders, including approximately $700 million of share repurchases. We also repurchased approximately $225 million of additional shares in July.
These actions underscore the confidence in MetLife's earnings power, the strength of our balance sheet and our ability to generate durable free cash flow over time. For our U.S. companies, we estimate total statutory adjusted capital on an NAIC basis of approximately $16.4 billion as of June 30, 2026, up 1% from March 31, 2026. Finally, in Japan, we now expect our initial economic solvency ratio or ESR to be at the top end of a 170% to 190% range for the fiscal year ended March 31, 2026, up from our prior expectation of middle of the range.
While results will vary year-to-year, we are comfortable managing ESR anywhere within this range. In summary, MetLife delivered an excellent second quarter. We generated strong and broad-based growth, produced attractive returns, maintained disciplined expense management and continued to deploy capital from a position of strength.
Just as importantly, these results were driven by performance across the enterprise, demonstrating the quality, resilience and diversification of our earnings. As we move forward, we remain focused on executing our New Frontier strategy, delivering on our commitments and creating long-term value for our shareholders. And with that, I'll turn the call back to the operator for your questions.
We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Ryan Krueger with KBW.
My first question was on inorganic opportunities. You mentioned that in the prepared remarks if it adds value and strategic fit. I guess maybe just could you give an update on what areas of the company at this point in time based on your business portfolio would be potential areas you'd be interested in adding to if something comes about?
Michel Khalaf
President & CEO
Sure. Ryan, thanks for the question. It's Michel.
So first, what I will say is that nothing has really changed for us in terms of our M&A philosophy and approach. We've always viewed M&A as a strategic capability. And to your direct question, I've talked in the past about 2 areas where potentially, we would be likely to consider M&A. And those are asset management and group.
Let me start with group. I would say that whereas we don't see any gaps in terms of our product set, which is the widest in the industry, our capabilities. We've invested heavily, as you know, in technology as well, and that's really sort of helping us further drive our competitive advantage.
So whereas, we don't see any gaps there, we're always in conversation with our customers, try to understand if there are things that are of interest to them that we might want to consider. You've seen us over the last few years add pet insurance, for example, vision. More recently, we've added an identity theft product to our offering.
So we're always open to considering new capabilities or solutions if that makes sense. Although, as I said, we don't see any gaps in terms of our offering. The more likely area I would say is asset management, and you saw us do the PineBridge Investments deal late last year.
And again, here, I would sort of emphasize that we'd be looking at adjacencies or a complementary capabilities as opposed to anything transformational. We have a good path to growing organically this business, but we would be open to complementing that with inorganic complementary opportunities. And elsewhere, I would say, we're going to remain opportunistic outside of these 2 areas.
I would also point out that we have a history of being very disciplined with capital deployment and M&A. And we have a high bar to clear to ensure that we create long-term value for our shareholders.
And then I had a question on Group Life. It's been -- mortality has been favorable for both MetLife and the industry for the last couple of years now. Do you think if this continues, there'll be any need to pass through some of these -- this favorability to customers through pricing actions?
Or do you see it as -- if the mortality remains favorable, you can continue to maintain price?
Ryan, it's Ramy here. Maybe let me just spend a minute to talk about the quarter, and then I'll get to your question on pricing. We've been seeing favorability in mortality for a couple of quarters -- or a number of quarters right now.
Now this quarter, in particular, we saw about 2 points of favorability that came from a combination of prior period development as well as below expectations in terms of severity of claims. So think about those 2 points as being -- we expect those to normalize as we go forward. And there's early evidence of that, if you look at our July numbers.
So I just want to make sure you look at this quarter in perspective and expect moderation for the rest of the year. Now to your question, if I think about the overall results, and I think about the go-forward trend here, should we see this favorability continue in mortality? You would think that our margins here are going to gradually normalize over time.
But I would emphasize the gradual nature of this. This is a business that has a renewal cycle between 3 to 5 years in our life book. So any normalization would unfold over a number of years here versus a quarter or a '27 type impact.
Your next question comes from the line of Pablo Singzon with JPMorgan.
First question I had is, I noted that you mentioned working age mortality is a driver of good Group Life results. Can you talk about mortality experience for other blocks of business you have? So I'm thinking about individual life and Corporate & Other and PRT and RIS.
I think those are older age customers, but any sort of perspective there would be appreciated.
Pablo, we're having a lot of interference on your question. Could you try to repeat it or see what's causing the impact?
Yes. Sorry about that. Is it better?
Yes.
I noted -- Yes. All right. I now speak a little more slowly.
So I noted that you mentioned working age mortality is a driver of good Group Life results. Can you talk about the mortality experience for the other blocks of business you have. So I'm thinking about individual life and Corporate and then PRT and RIS.
I think those are older age customers and maybe the experience is different, but any perspective there would be appreciated.
Pablo, it's Ramy here. We're still hard to hear, but I think you're asking about mortality beyond the group business and in particular, how that's playing out in RIS. I would say, think about the RIS population as being sitting largely older population, retiree population and the improvements we're seeing in that population are very much in line with what we have baked into our expectations and reserves.
And therefore, I think about the underwriting results in RIS emerging largely in line with our expectations there. I would note that if you look at the overall population data, the improvements in the working age populations have been a lot faster than the improvements in the above 65 population. So that dynamic is different between those 2 populations.
And also the dynamic for us in terms of our results is how we're pricing and reserving. And RIS is very much performing in line with our pricing and reserving expectations.
I'll just -- I was just going to add something, Pablo. I think overall, just as we see, and obviously, there's been quite a bit of multiple years of just change in mortality, we would argue, in general, that we've moved back to the trend line that we were on pre-COVID, right? But as Ramy said, we're seeing that drop more materially in the working age, less so in the retiree and older population.
So overall, there's an improvement. I think it varies by different age groups. But overall, we generally see us being back to the trend line of pre-COVID.
Your next question comes from the line of Suneet Kamath with Jefferies.
Okay. Hopefully, there's no interference on my end. So I wanted to go to the PRT market.
A couple of companies so far this earnings season have been a little cautious about full year 2026 results relative to last year. So I was just curious if you're seeing the same thing. And what do you think is holding back the market and what needs to happen to see better growth ahead?
Look, we're -- when you think about this market, and especially the part of the market where we are focused on, which is the jumbo market, it's always going to be lumpy. So I wouldn't try to overread into activity in any 1 quarter or even over a year, frankly. So think about our performance here.
We're coming off a record year in '25. We sold close to $14 billion of PRTs that year with $12 billion coming in the fourth quarter. So that just to emphasize the lumpiness of the activity here.
The first half of the year has been lighter, particularly from the jumbo space. But we are seeing a stronger pipeline in the second half of the year. And so we see more opportunities emerging for Q3 and Q4.
And we're going to always be disciplined in terms of how we price this business and focus on generating attractive risk-adjusted returns. But I would say, when you look at PRT, you always have to look at the macro picture and the macro picture is extremely positive. You've got $3 trillion of defined benefit pension assets with solid funding levels and a very compelling industrial logic for those corporates to offload that risk.
And we are a leading player in that market, and we will be a beneficiary of that. And the other point I would make with respect to PRT is the same trends that are playing out in the U.S. markets are also playing out in the U.K. market. And to Michel's point, we are diversified, and we're able to find other pockets of growth, and that's exactly what we've done so far this year.
We've written more than $1 billion of U.K. funded reinsurance year-to-date. Think of that as PRT, but in the form of reinsurance, and that's been done at attractive returns. And that's contributing to our growth here.
So net-net, if you look at all of RIS, we're pretty confident that we're going to be within our retained balance growth of 3% to 5% for the full year, reflecting just the power of the franchise and the product portfolio that we have.
Okay. That's helpful. And then I wanted to pivot to Japan.
It just seems like there's a lot going on there with the bank's [indiscernible] issue, yen and rate volatility. So there's a lot for the industry to deal with. But your sales seem to be steadily growing.
So I was just hoping to better understand what's different about your model. And does some of this, call it, turmoil that's going on in Japan give you the opportunity to lean in a little bit more?
Suneet, it's Lyndon here. So look, we're really pleased with the sales performance that we've seen all across Asia, not just in Japan. And if we look at second quarter, sales were up 17%.
And year-to-date, sales are up 19% year-over-year. So strong performance across all our franchises. And really, what's driving it is we've seen really a sustained momentum this year, a payoff from a lot of actions we've taken.
We have the scale and the diversification that we have in our distribution in pretty much all the markets, but particularly true in markets like Japan and Korea. We've got product innovation. You have strong product development, both in U.S. dollar as well as local currency products.
In U.S. dollar, we're the first to market in those. And we really have strong execution excellence across all the markets. So it's the combination of all these 3 drivers that are really driving our success in Japan.
But not just there, across all the markets, and you can see the results all across Asia. There's been some volatility in the market. We've seen some yen volatility of late.
But for the most part, we see customers kind of holding off when there's a lot of volatility. But our sales through June have been strong. And if we go into July, that momentum is continuing.
So we're really in a good position because of all these key drivers in the market. And I think that has really been the key to our success in the Asia story.
Your next question comes from the line of Tom Gallagher with Evercore.
Michel, just wanted to come back to the M&A question for a minute. I heard your answer is asset management and group -- adjacent businesses in group. On the remain opportunistic comment, though, I think there's some emerging market properties that we heard yesterday are going to become available for sale.
With Latin America, I think you've done 2 very successful deals in Latin America in the past. Would that be an interest if those opportunities present themselves?
Michel Khalaf
President & CEO
Yes. Tom, thanks for the question. We don't comment on market speculation, and we're not going to start now.
Look, like I said, nothing has changed in terms of how we think about M&A here. We're always in the flow. There's hardly a deal that comes to market that doesn't come across Adora Whitaker's desk.
So we have obviously good visibility in terms of what's happening. But I would emphasize that we are very, very disciplined when it comes to M&A. And like I said, there's a high bar to clear here, and we compare M&A to other potential uses of capital as well. So that's what I would say.
With regards to LatAm, I would just add that we're really, really pleased with our business in LatAm. I think Eric and his team have done really an outstanding job and continue to do so. And you can see from our results that LatAm is very much on a path to generate $1 billion in earnings this year, which, by the way, is roughly double from pre-pandemic levels, and this is being fueled by sustained growth there.
And whereas we're seeing growth across the region, our business in Brazil has been the fastest-growing life insurer in that market in that country for several years now and is now contributing about 20% of overall LatAm sales. So really pleased with the momentum there as well. So that's what I can offer.
Okay. My follow-up is just kind of an interest rate portfolio repositioning type question. So interest rates are meaningfully higher in both Japan and the U.S. Have you either begun or considered any portfolio repositioning within either business?
Or even mechanically, could we see base spreads go higher just given where rates are when you think about maturing assets and new money in either of those regions?
Tom, it's John. I'd say, broadly speaking, first of all, we think about ALM and risk management. And obviously, when we have the opportunity to reinvest, we leverage the collective power of all of our differentiated capabilities when it comes to investment capabilities.
And so I would just say like everything is on the margin, when it comes to things like that. There's no free lunch with just changing the portfolio. If I take RIS, we've talked about spreads being fairly stable.
Part of that has to do with the diversification of the product mix that was referenced earlier. In Japan, we have a real balanced portfolio between U.S. and yen now. So I just think those things are -- there's no quick change that would ever occur.
But over time, higher rates, as we talked about before, are -- do provide kind of positive momentum.
Your next question comes from the line of Wilma Burdis with Raymond James.
Could you just give your latest thinking on private equity? We saw that you trimmed the position a little bit in the last quarter. And it seems like it's been -- you've been trimming a little bit over the last several quarters.
Is that how you see it? And could you talk about the rationale there?
Wilma, it's John. I think we've referenced this before that -- and this has been kind of a multiyear journey for us, but the fact that we are in a, I guess, relatively higher rate environment than where we were, let's say, several, several years ago, we've talked about the fact that over time, we would probably see a slightly lower allocation to PE, albeit we're still investing, but the runoff is probably faster than the contributions. And so -- and then you referenced in the first quarter, we did -- we were opportunistic.
We saw an opportunity to do a sale, but also have the opportunity to continue to manage those funds for third parties and raise some additional capital around that. So I think all in all, the direction of travel is a modest decline over time on PE, but that doesn't mean we're going to continue to invest in the space. It's just that the -- given the seasoned portfolio we have and the diversification we have, we would expect distributions to outpace contributions.
Okay. And then as group PFO growth around 4%, I realize that's better than the industry, but is that where you want to be in the current environment? Or do you have plans to accelerate it more towards the 7%?
What does the current market look like for that? And what are the growth options?
Thank you, Wilma. It's Ramy here. I would say just the headline here for group from a top line perspective is we're seeing really good momentum.
And all the underlying indicators are positive. We talked about sales being up year-over-year. If you look at the below 1,000 segment, they're actually up year-over-year and well into the double digits.
Our persistency is higher this year. In particular, we saw that in our dental block. Our rate actions, which also contributed to that PFO numbers are running in line with our expectations.
We continue to see rising participation rates within the employee population and continued double-digit growth in the voluntary suite of products. So all really solid top line indicators. When it comes to the kind of 4% to 7% range, think of that as a multiyear number.
In any given year, we could be at the low end, high end of the range. There's timing of sales. There is jumbo sales, the size of the cases we win and so on and so forth.
So we're pleased with the growth, and we're pleased to be in the range. And we see really good momentum going forward here across all markets in this business.
Your next question comes from the line of Joel Hurwitz with Dowling.
Ramy, could you just provide some color on the nonmedical health experience in the quarter? How was dental and disability? And I guess, PFML has been an area of focus with others.
How was that experience for you guys in the quarter?
Thanks, Joel. So maybe let me start with PFML. The dynamics we've experienced this quarter very much followed what we discussed on our Q1 earnings call.
As you may recall, the PFML products have a claim pattern where you have higher upfront claims that tend to normalize after a few months of the introduction of that program. And this is very much playing out in this quarter, and we did see lower PFML submissions as that run-in effect, if you will, is behind us. And at the same time, as part of our BAU, when we need rate actions against this business, we are taking appropriate rate actions.
And then staying with disability for a minute, if you step back and look at the overall disability results in the quarter, they have been favorable. We've seen incidents and recoveries to be in line with our expectations, and we've seen improvements from a year-over-year perspective. And I would say this is not an accident.
This is very intentional given the investments we're making in the business, the investments we're making from a data analytics, AI perspective that are driving improved recoveries here, which is giving us positive results this quarter. And then maybe taking one last step back and look at the overall nonmedical health ratio. Dental is exhibiting the normal seasonality here, and that seasonality would point to a fact that the second half of the year would give us more favorable results and, therefore, more favorable nonmedical health ratio in aggregate compared to the first half of the year.
I hope that helps.
Okay. That was helpful. And then one on Asia.
So you've been highlighting AUM growth as a metric to focus on, and that's been strong. But curious on PFO growth because that's been really strong for another quarter here. Any color on what's driving the reacceleration of PFO growth in Asia and the sustainability of that?
Joel, it's Lyndon here. So look, we are an AUM business. We're primarily focused on the retirement space.
So a lot of our business ends up in the AUM components. As far as PFOs grow, we sell some of the FAS 60 type business as well. That has been a growing part of our business.
We're seeing it -- some of it come through in the yen space, and especially as the yen product starts to pick up and today, it represents over 50% of our sales. Michel mentioned that earlier. So we'll start seeing PFOs sort of continue to grow.
But really, the bulk of our business continues to be AUM focused. So that is sort of the key driver behind our growth.
Your next question comes from the line of Wes Carmichael with Wells Fargo.
Just wanted to follow up on RIS, but base spread expanded 5 basis points sequentially, and I think that's probably a little bit better than expected headed into the quarter. So maybe as a follow-up on Tom's question, but with where rates are, fewer Fed cuts, the long-end higher, how are you thinking about base spreads trending in the back half of the year?
Wes, this is John. Yes. As you call out, I mean, total spreads were 97 basis points, but that was a function of just a lower and weaker private equity returns that we referenced, but core spreads at 100 were at the top end, and we kind of created this new range of 95 to 100 previously.
And we talked about asset deployment. We knew that was going to happen. We did see a little bit better improved real estate equity income in the quarter that is likely to probably seasonally reverse in the third quarter.
So when we think about looking ahead, we still think the 95 to 100 even with the rate environment. And in a way, we're positioned fairly well regardless of what happens with the curve. We've been able to kind of put ourselves in a position where should the curve steepen or even stay flat, we still think that 95 to 100 is a good baseline.
So if we had to kind of pick a point for the third quarter, it'd be more like the midpoint of the range at this point, just because of the seasonality of some of the real estate returns in 3Q.
And just a follow-up on group mortality. So very favorable results year-to-date. I think if I heard your comments, and there's maybe a couple of points of normalization.
Even if I include that in the third and fourth quarter and then you have maybe 2 or 3 points below the low end of your range. So any help on where you think that might come in for the back half of the year or the full year?
Yes. I mean, look, the ratio is always going to kind of fluctuate here. But I would say, the most pronounced seasonality in the group mortality ratio typically occurs in Q1, which is a function of the severity of the flu season.
So if current kind of trends continue, think about those normalization items that I've mentioned coming back, and that would be a good best estimate here. But I would point you to the 2 points of normalization here that we've seen this quarter that we don't expect to repeat in the second half of the year.
Our last question comes from the line of Tracy Benguigui with Wolfe Research.
All right. It looks like we've reached the end of our call. Thanks for participating, everybody, and have a great day.
Thank you.
This concludes today's call. Thank you for attending. You may now disconnect.
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