MetLife, Inc.
Q4 2017 Earnings Call Transcript

Published: 14 Feb 2018

[Operator:]

Welcome to the MetLife Fourth Quarter 2017 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, instructions will be given at that time. As a reminder, this conference is being recorded. Before we get started, I would like to read the following statement on behalf of MetLife. Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends in the company's operations and financial results and the business and the products of the company and its subsidiaries. MetLife's actual results may differ materially from results anticipated in forward-looking statements as a result of risks and uncertainties, including those described from time to time in MetLife's filings with the U.S. Securities and Exchange Commission, including in the Risk Factor section of those filings. MetLife specifically disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise. With that, I would like to turn the call over to John Hall, Head of Investor Relations.

[John A. Hall:]

Thank you, operator. Good morning, everyone, and welcome to MetLife's fourth quarter 2017 earnings call. On this call we will be discussing certain financial measures not based on generally accepted accounting principles, so-called non-GAAP measures. Reconciliations of these non-GAAP measures and related definitions to the most directly comparable GAAP measures may be found on the Investor Relations portion of metlife.com, in our earnings release, and our quarterly financial supplements. A reconciliation of forward-looking financial information to the most directly comparable GAAP measure is not accessible, because MetLife believes it's not possible to provide a reliable forecast of net investment and net derivative gains and losses, which can fluctuate from period-to-period and may have a significant impact on GAAP net income. Now joining me this morning on the call are Steve Kandarian, Chairman, President and Chief Executive Officer; and John Hele, Chief Financial Officer. Also here with us today to participate in the discussions are other members of senior management. You may have noticed that last night we released an expanded set of supplemental slides. They are available on our website. John Hele will speak to those supplemental slides in his prepared remarks if you wish to follow along. After prepared remarks, we will have a Q&A session. Understanding there is a lot to unpack today, if need be, we will extend our Q&A session beyond the top of the hour. Still, in fairness to all participants, please limit yourself to one question and one follow-up. With that, I will turn the call over to Steve.

[Steven A. Kandarian:]

Thank you, John, and good morning, everyone. Most of my comments this morning will focus on the issue within our Retirement and Income Solutions business that caused us to delay earnings and take an after-tax charge of $331 million or $510 million pre-tax. Simply put, this is not our finest hour. We had an operational failure that never should have happened and it is deeply embarrassing. We are undertaking a thorough review of our practices, processes and people to understand where we fell short and how we can reset the bar at the high level people have come to expect from us over our 150-year history. The Board of Directors is fully engaged on this issue as well. Let's start with MetLife's decision to postpone its earnings release by two weeks. The question we have been getting is, if you knew about this issue on December 15, why couldn't you report earnings as planned on January 31? What we did not know until late in the closing process is that we would have a material weakness and would need to make revisions to our financial statements going back five years. This created a significant amount of work. Rather than to rush the process and risk an error, we decided to take an extra two weeks to provide the most accurate information possible. As you know, we preannounced our high-level financial results on January 29, and our underlying performance in the quarter was solid. We reported fourth quarter net income of $2.1 billion, which reflects the current period after-tax impact of $70 million for the group annuity reserve addition. The remainder of the charge is accounted for as revisions to prior period financial statements. John Hele will discuss the impact and geography of the reserve addition and cover our fourth quarter and full-year financial performance in greater detail Let me describe what happened and how this came to light. MetLife has been in the group annuity business for a very long time. The charge we took relates to a business we wrote going back decades. All the people in pension plans whose obligations we now assume are already retired and in pay status. By contrast, in earlier periods, some of them were not yet in pay. They had earned the benefit, but were years or even decades away from retirement and often had left their companies. These type of annuitants are not always easy to find. What became clear to us is that what had been standard protocol for finding retirees who were owed benefits was no longer sufficient. Recently, the Department of Labor has been urging companies that sponsor pension plans to do a better job of finding their own unresponsive and missing participants. A pilot program MetLife conducted in 2016 and 2017 to affirm that with better outreach we could establish contact with more people. In the 1990s, MetLife established a practice of releasing reserves when the company could not establish contact with an annuitant. In retrospect, based on the process we had in place, this was an error. The reserves released in any single period were not material to MetLife's financial statements. But over time, it led to the charge we announced two weeks ago. In October, when this issue was brought to the attention of the new head of our U.S. business, Michel Khalaf, and me, we moved with a strong sense of urgency to make it right. This has not excused the organizational failure to escalate the issue sooner. We needed to do three things

[John C. R. Hele:]

Thank you, Steve, and good morning. I would like to begin my remarks today by reviewing the 4Q 2017 supplemental slides that we released last evening along with our earnings release and quarterly financial supplement. These slides address several key areas of focus for investors

[Operator:]

Thank you. Your first question comes from the line of Sean Dargan from Wells Fargo. Please go ahead.

[Sean Dargan:]

Thanks, and good morning. I just have a question about the guidance for higher Corporate after-tax losses. Just to be clear, there's no change in guidance at the enterprise level because the operating segments will produce higher earnings due to a lower tax rate, which will more than offset the higher after-tax loss in Corporate?

[John C. R. Hele:]

Hi, Sean. This is John. Yes, that's true. It's not intuitive, if you look at the net number that we talk about with the Corporate loss, and that's because the Corporate pre-tax loss is larger than you may think, and there's more tax credits than normal than the 35%. So, the total change, the increase in our range of $200 million is totally and only due to tax reform changes and this will be mitigated by better margins in the rest of our business.

[Sean Dargan:]

Okay. Thanks. And then I have a question about the reviews that the New York Department and the SEC are doing regarding the group annuitants. Are they essentially doing competing reviews or are they taking the findings of your internal review? I'm just wondering if you can give us any context of your understanding of how their processes are working.

[Steven A. Kandarian:]

Sean, it's Steve. Each has its own regulatory arena. The New York Department of Financial Services is obviously our primary insurance regulator and SEC is for securities matter, so each has its own arena, and we're cooperating with both fully. And we can't predict exactly how long this will play out. It's a process that will take its own course.

[Sean Dargan:]

Okay. Thank you.

[Operator:]

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

[Thomas Gallagher:]

Hey. First question, Steve, just in terms of the internal global claims review you did across all your businesses, it seem to wrap up pretty quickly, considering just the timing here. Can you talk a bit about your confidence in the depth of the review and the fact that you're highly confident this is isolated – this situation is isolated to only the group annuity business?

[Steven A. Kandarian:]

Sure, Tom. When this matter came to light, we made sure we had the resources within countries and regions to put all necessary people against this review to get to the right answers; meaning, determining exactly what might else be out there in the same arena. And people are working very, very long hours, evenings, weekends, et cetera. And as reported, we have found nothing material coming out of that review, which was encouraging. To your point, there's always things in an insurance company, over the years, that you look at. You may change your estimates, change your actuarial assumptions and the like, or find new and better ways of doing things. But this was a very extensive and thorough review of our international operations.

[Thomas Gallagher:]

Got you. And just my follow-up, John, you had mentioned you have a comfortable margin above loss recognition for Long Term Care. Can you help a little bit, at least directionally, on the quantification of that? Are we talking about a margin of 10%, closer to 50%? Just any directional help on that would be appreciated.

[John C. R. Hele:]

In U.S. GAAP, it's over 10% but not 50%. How's that for a range?

[Thomas Gallagher:]

Got it. Somewhere above 10%, below 50%. Okay.

[John C. R. Hele:]

Yeah, it's definitely above 10%. And it's all in the assumptions you make and how you think about it. So, it is complex, but we do a lot of work on this and we continue to work to have a better claims management as well as appropriate rate filings with the state. So, this is an ongoing effort we've had. We've had it for quite a long time on this. And don't forget, on a statutory basis, we tested more conservative assumptions than GAAP and you can see the statutory reserves are larger than the GAAP reserves.

[Thomas Gallagher:]

Okay, thanks.

[Operator:]

Your next question comes from the line of Jimmy Bhullar from JPMorgan. Please go ahead.

[Jamminder Singh Bhullar:]

Hi. Good morning. I had a few questions. First, on your Asia sales, I think they were up just overall around 1%. And if I look at Japan, obviously, there's a product mix shift going on. So, first question on that is what are the annuities that you're selling in Japan? Because that's the product that seem to grow a lot. And then secondly, if you look at non-Asia sales, those were actually up less than 2%, as well. So, what's going on, if you could give us some detail there?

[Steven J. Goulart:]

Hi, Jimmy. It's Steve Goulart. Let me start and I'll ask Sachin Shah to comment a little bit more on Japan. But basically, when you look at all of Asia as a region, it was really some very strong performance and then some sort of flattish performance. But when you look at emerging markets, essentially our sales were up over 25% there on a year-over-year basis, and that was led by China where sales were up over 30%. Offsetting that a little bit were performances in Korea and Hong Kong on a quarterly basis, and those are just unusual events. The timing of a sales campaign in Korea was one impact. In Hong Kong, there were some regulatory changes that I think ended up with sort of a fire sale result when you look at the fourth quarter of last quarter. So, overall, again, very strong, we're very pleased with sales. I think Japan was flat and a lot of that had to do with change in mix. But let me ask Sachin if he wants to comment anymore on Japan.

[Sachin N. Shah:]

Can you hear me? Okay. Sorry, Jimmy, a little technical glitch there. In the Retirement segment, we sell predominantly fixed annuity products. These products are fixed-term products, typically 3 years, 5 years or 10 years in term and the customer is targeting a specific maturity period and looking for a target return. These products also have MVAs built into them, and so the customer is bearing the foreign currency and market risk in the product.

[Jamminder Singh Bhullar:]

And are they primarily forex as opposed to Japanese yen products?

[Sachin N. Shah:]

All of our life insurance products, 90% of our life insurance sales and 100% of our annuities sales are foreign currency products.

[Jamminder Singh Bhullar:]

Okay, thanks. And then for John, on the Brighthouse sale, I realize you had been buying back stock through the whole review process. Can you give us just some color on the process that you have to go through for selling Brighthouse? I think there's a limited window given that you have to do a filing and then after that there's a little bit of a quiet period or so. So, what's the process that you'd need to go through and is it even feasible that you could do it in the first-by the end of the first quarter?

[John C. R. Hele:]

Hi, Jimmy. This is John. Let me follow up on your Asia question. You're right, the Other Asia wasn't up quite as much. Steve was referring to emerging markets were very strong, but in Korea and Hong Kong, there's some timing points of sales quarter-over-quarter. If you look at the full year, though, for Other Asia, the growth of sales is up 20%. So, there's some timing quarter-to-quarter, but we're very pleased with our Other Asia sales growth in the year. And on BHF, you're right, we have to file with the SEC for some work for some no-action relief and we need a long enough open window, 20 days of trading days in order to walk through it. And sometimes it goes a few days beyond that, so we have to pick a window where we don't run afoul of various information. So, the timing we haven't exactly set on yet, but it will have to be in a long enough window and we will let you know when we get it filed and going.

[Jamminder Singh Bhullar:]

And then just lastly, have you disclosed or are you able to disclose what your interest rate assumption is for your Long Term Care reserves?

[John C. R. Hele:]

The interest rates in GAAP start at the current curve and slowly grade like all of our U.S. GAAP assumptions to a (42

[Jamminder Singh Bhullar:]

Okay. Thank you.

[Operator:]

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

[Ryan Krueger:]

Hi. Thanks. Good morning. I was just hoping you could touch upon if we should think about any real go-forward financial impact following the group annuity issue in terms of either elevated expenses related to the remediation efforts or if you think it will impact your growth in the RIS business?

[John C. R. Hele:]

Sure, why don't I take some expenses. We're doing these outreach programs and doing additional efforts there, we expect those costs would be absorbed by the business. There may be for the investigation we're doing led by the Chief Risk Officer could be some slightly higher expenses throughout the year, but we believe those would be still within the Corporate & Other range that we've given you for expenses for the overall year. And I'll turn it over to Michel to speak about the business impacts.

[Michel A. Khalaf:]

So obviously, Ryan, our focus and energy will be on resolving the issue that we disclosed and finding as many of the missing annuitants as possible and initiating payments to them. Having said that, we have a lot of expertise, we're a leader in the PRT space. We have a lot of expertise in terms of asset management, underwriting, liability management. And last year, as a matter of fact, we had a record year in terms of new business in PRT. So we're going to continue to be active in this market and we believe that with our enhanced process, which will be a best-in-class, we will remain competitive and we'll continue to win new business.

[John C. R. Hele:]

Hey, Ryan. This is John again. I want to just add, on slide 7, we showed you the 4Q's in-quarter activity of minus $8 million after-tax. So, you should add that into future modeling that you have of that business, that amount would be roughly recurring.

[Ryan Krueger:]

Got it. And then, separately, can you discuss your view of the sustainability of tax reform benefits in your Group Benefits business versus passing through lower tax rates through pricing over time?

[Michel A. Khalaf:]

Yeah, this is Michel again. So, we're going to see a benefit, but we expect that returns will normalize over time. So, if we think about our group business, obviously, renewals are done for 2018. Typically, our Group Life business has a three to five-year rate guarantee; our disability business, typically two-year guarantees; and dental is renewed annually. So, tax is a factor that goes into our pricing, it's not the only factor. A lot will depend on the competitive environment. Again, we don't compete solely on price. But we expect that over time, as business renews, as we compete for new business, we'll have to give back some of the benefit that we're getting from the tax reform.

[Ryan Krueger:]

Great. Thank you.

[Operator:]

Your next question comes from the line of Suneet Kamath from Citi. Please go ahead.

[Suneet Kamath:]

Thanks. I wanted to follow up on the reviews by the New York Department of Financial Services and the SEC. One of the large banks recently was surprised with the limitations on growth by their main regulator. Do either of those regulators have any jurisdiction on your kind of forward capital management plans or your ability to grow the business?

[Steven A. Kandarian:]

Suneet, I think you're referring to the Federal Reserve, which does not have authority over us.

[Suneet Kamath:]

Right. I'm talking about the specific regulators that are reviewing your group annuity issues. I'm not talking about the Federal Reserve, I'm talking about the NYDFS and the SEC, do they have any jurisdiction on those plans?

[Steven A. Kandarian:]

On the issue of what exactly you're asking?

[Suneet Kamath:]

In terms of your ability to return capital. Like, these reviews are ongoing, right? So, we don't know what the outcome is going to be, but I guess my question is, is there something that could surprise us in terms of what they ultimately decide related to your capital management plan, that's my question.

[Steven A. Kandarian:]

Well, the DFS approves dividends, but I think the case you're referring to, I don't anticipate that being applicable to us.

[Suneet Kamath:]

Okay. And then just given the big move-up in rates that we saw in the first quarter, should we be expecting a stat impact in terms of your capital at the end of the first quarter as well as a GAAP book value impact?

[John C. R. Hele:]

Hi, Suneet. It's John. Well, as you know and as we announced last year, we have changed our hedging strategy to be less sensitive to changes in interest rates than we were historically. So, there will be some impact because it's never perfect, but it should be less muted than it has been in the past.

[Suneet Kamath:]

Got it. And then just lastly on the capital management plan, are you still-is that liability management component that you guided to still kind of part of your expectations for 2018 in terms of debt reduction?

[John C. R. Hele:]

Yes.

[Suneet Kamath:]

Got it. Okay, thanks.

[Operator:]

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

[Erik Bass:]

Hi. Thank you. John, I was hoping you could walk through more of the dynamics around tax reform on your free cash flow. And, I guess, are there places where the actual dollar amount of free cash flow is expected to increase over time?

[John C. R. Hele:]

Well, let's remember, we talk about free cash flow as a percentage of cash we get from our subsidiaries and, well, the largest being the U.S. companies, which is on a statutory basis. And there's a delay, of course, you get the dividend approved for the following year based on your last year's earnings. And then the denominator is your GAAP earnings. So, our GAAP earnings are going to go up by the change in tax reform by about 5 points. So out of the get-go, even with the same dividend and as there's like a year delay in getting this all done, we also have the charge in stat that will impact dividend capacity slightly in 2018. So, we expect, compared to where we were pre, to have some lower numbers in 2018, a little better – it will improve in 2019. So, there's a bit of timing going on. We're not currently a very large cash taxpayer in the U.S. and it will be some time before we are, so you have that dynamic going on. But we have reiterated we expect to be at the low end of the two-year average 65% to 75% over 2018 and 2019.

[Erik Bass:]

Okay, thanks. And then is there any impact from either the reserve review or the ongoing controls remediation efforts on the timing of other projects or investments that you had planned for 2018?

[John C. R. Hele:]

No, we will fund these additionally to what we have, and we are still working very hard on our unit cost initiative projects and all the other improvements we're making throughout the world.

[Erik Bass:]

Okay, thank you. And then, sorry, just last, Steve, you had commented that the board is involved in the review process. Can you just expand on your comment there and what capacity they're playing?

[Steven A. Kandarian:]

They're playing their normal oversight role. The Audit Committee, in particular, and the full Board of Directors is quite involved in all the discussions that we've had internally in the company and we keep them updated on a regular basis.

[Erik Bass:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Jay Gelb from Barclays. Please go ahead.

[Jay Gelb:]

Thank you. My first question is on the capital return expectations for 2018. It was sort of pointing to around the $5 billion range on the outlook call. Just want to make sure that that's still a reasonable expectation for 2018.

[John C. R. Hele:]

Yes, that would include the buybacks we plan, the remaining $1.4 billion we have outstanding under the $2 billion authorization, the exchange of the Brighthouse shares and the common dividend.

[Jay Gelb:]

That's what I thought. Thank you. Second, is there any potential put-back exposure from Brighthouse with regard to any pension risk transfer exposure they might have to MET?

[John C. R. Hele:]

When Brighthouse was spun and separated, we have a separation master agreement and anything prior to 1/1/2017, we have ours, they have theirs, and that's how it's set up.

[Jay Gelb:]

So, it's separate? MET has, in your view, fully addressed any potential exposure there?

[John C. R. Hele:]

Yes.

[Jay Gelb:]

Great, thanks. And then just a final question on tax. Should we just assume a 18% to 20% tax rate across all of MET's segments for simplicity sake or would there be different rates in different segments?

[John C. R. Hele:]

Well, there'll be different rates in different segments. Our overseas tax rate is 25%, 26-ish, and then we have the U.S. tax rate 21%, we get some tax credits from many of our investments, so you will see some changes.

[Jay Gelb:]

Thanks.

[Operator:]

Your next question comes from the line of Alex Scott from Goldman Sachs. Please go ahead.

[Alex Scott:]

Good morning. First one was just following the move-up in the 10-year and, I guess, there's a lot of changes that have been made since the last time you guys kind of opined on ROE, is there any update to thinking about the spread on the 10-year that you'll ultimately be able to achieve as you have the unit cost program phased in?

[John C. R. Hele:]

Well, I think you're referring to the ROE target relative to the 10-year and, as we've said, this is a longer-term target. When the 10-year spikes up in a quarter, our overall company ROE will not spike up and follow instantly in the quarter. It's meant to be a general average over time. We think it makes sense now that we're at slightly higher rates as they stay in. Our earnings power will increase over time and it will move towards that. But at any small period of time moving 30 basis points, 40 basis points, there won't be a direct-it takes time for the whole portfolio to change and move. Have I answered your question correctly?

[Alex Scott:]

Yeah. But just in terms of like the spread piece of it above the 10-year, I mean, is the view sort of unchanged around where you can ultimately get to?

[John C. R. Hele:]

Yes. Over time, we're 800 basis points to 900 basis points and we expect to prove even beyond that as we improve our unit cost post 2020.

[Alex Scott:]

And the follow-up on just the TSAs with Brighthouse, could you quantify for us how that may be impacting either – whether it be MetLife Holdings or earnings in Corporate?

[John C. R. Hele:]

Yeah. Well, we will expect as TSAs go down, we do have higher strand that will increase slowly over time, and that's why we have this unit cost initiative to help offset that as it goes through. So, those two tend to offset each other. And as we announced, we're going to start giving you some expense ratios published with the sub details, so you can track us on a quarterly basis starting in the first quarter of 2018 and you'll be able to see how all this folds out over time.

[Alex Scott:]

Okay. Great, thanks.

[Operator:]

Your next question comes from the line of Larry Greenberg from Janney. Please go ahead.

[Larry Greenberg:]

Good morning. Thank you. So, with the 10-year up over 40 bps since the beginning of the year, you had given us the fourth quarter new money versus roll-off rate. Can you give us some idea where that might stand today?

[Steven J. Goulart:]

Probably not a lot of color, Larry. This is Steve Goulart, by the way. But it's hard when you look at the new money yield. It moves around a lot on a quarter-by-quarter basis, just given our overall activity for the quarter, how much we're reinvesting, whether that's coming off of roll-off and what sort of roll-off and where we're seeing relative value and what our needs are for portfolio investing strategies in that quarter. So really just looking at a quarter-to-quarter basis I think is probably not the best way to think about what's going on. You want to think about long-term trends. And, again, we like the fact that interest rates continue to move up. We think that's going to be good for the portfolio overall and good for our earnings on the portfolio. So I would expect that number in general to increase, but, again, on an actual quarter-to-quarter basis, it's really impacted by a lot of the intra-quarter activity.

[Larry Greenberg:]

Okay. But in terms of the talking about convergence of the two at a 3% 10-year, assume that happened over a period of time, should we assume that there's kind of a linear relationship along that path in how that spread would compress?

[Steven J. Goulart:]

Well, what John was referring to was what we call our sort of roll-off/reinvest dilemma, i.e., the difference between where we're investing new money and what the roll-off yield is. And as we've said for several quarters, we do try and estimate what that would look like, at what point are we reinvesting at a breakeven level versus the roll-off securities from the portfolio, and John mentioned that's roughly 3%, probably a little bit above 3%, but there are also assumptions baked into that, too. Most importantly, that all spread relationships stay the same. Again, it's a positive trend. I mean, interest rates are heading higher. We know that as we approach a 3% 10-year, the portfolio investment options start looking better, we start eliminating some of the negative roll-off that's been impacting our portfolio yield over time, and so it's all very positive. Is it exactly linear? Never exactly linear, but the trend is certainly positive. And, again, as we approach a 3% 10-year that that will persist over time, that will be very positive for us.

[Larry Greenberg:]

Okay. Thank you. And then just one kind of model housekeeping. Can you just tell us where the – for the expense initiatives, where the cumulative savings initiatives stood as of year-end 2017 and what your expectation is for the cumulative savings as of the end of 2018?

[John C. R. Hele:]

As of the end of 2017 cumulatively we're about $400 million in saves. And that was our – that's basically our target we had. Our one-time is running a little less than we had. We expect they'll get caught up, though, throughout the next two years.

[Larry Greenberg:]

And then is there a number for year-end 2018?

[John C. R. Hele:]

Yeah, we're still basically on the original slide that we gave you for the guidance that we had and, again, we'll give you some more details of this in an easier way to follow this on an ongoing basis. The trouble of all these programs is you save money in one place, but you're growing as well, so how do you know whether it's really flowing through or not. And that's why the expense ratio will be really the key measure. That's what we check ourselves with, the board checks us with, because you have these trackings, but it's also not just saving the money in the UCI program, but making sure you're being efficient elsewhere and you're not losing margin elsewhere in your firm. And as I said, we'll give you good clarity on this during the first quarter and we'll have regular discussions on it each quarter for you.

[Larry Greenberg:]

Thank you.

[Operator:]

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

[Humphrey Hung Fai Lee:]

Good morning, and thank you for taking my questions. Just want to follow on Ryan's question related to pension risk transfer. So I hear you loud and clear about your commitments to the business, but have your conversation with clients or brokers changed as a result of the incident?

[Michel A. Khalaf:]

Well, I mean, clearly – this is Michel. Clearly, Humphrey, we are engaging with our key brokers, intermediaries to bring them up to speed on the issue and also to go through what we are doing to address it and the urgency and the resources that we're putting behind addressing this issue. So we're having those conversations as we speak. And ultimately, the market will decide how it will react to this matter. I think from our standpoint, we're making sure that we do everything humanly possible to deal with this issue to find those missing annuitants and to initiate payments and to have a process in place that we believe will be best-in-class in the industry.

[Humphrey Hung Fai Lee:]

So, in John's prepared remarks, he talked about the outlook for 2018 is still pretty strong compared to 2017, but given some of the discussions that you will have, should we expect some of the – I mean, the pipeline will be more back-end loaded in 2018?

[Michel A. Khalaf:]

Well, I mean, typically PRT tends to be back-end loaded. We see much more activity in the second half of the year compared to the first half. So, I mean, this 2018 could be different, but we expect it to be a typical year in this regard. I just want to also stress that PRT is one component of our RIS business. We have other components of this business that continue to perform strongly, stable value, for example, structured settlements, and our capital markets business as well. So, that's one component of our overall RIS business.

[Humphrey Hung Fai Lee:]

Got it. And then, so now with the review completed, are there still any risks that your auditors may issue a qualified opinion for your financial statement?

[Steven A. Kandarian:]

No.

[Humphrey Hung Fai Lee:]

Okay, thanks.

[Operator:]

And your final question today comes from the line of Josh Shanker from Deutsche Bank. Please go ahead.

[Josh D. Shanker:]

Yeah, thanks. Most of my questions have been answered. I just want to confirm, with the regulatory inquiry from the SEC and the New York Department of Finance, will we receive notification at some point that their interest in the matter is concluded? Or could this be an open-ended sort of thing we never really know their position on the matter?

[Steven A. Kandarian:]

Josh, they'll go through their process, and once they've felt like they've come to a conclusion, they'll let us know, and we'll certainly communicate that to the marketplace.

[Josh D. Shanker:]

And do you have any reserve for legal costs associated with that or potential funds?

[Steven A. Kandarian:]

We do not. It's not something that's estimable right now, so we're not able to book that.

[Josh D. Shanker:]

Okay. Thank you very much and good luck.

[Operator:]

Ladies and gentlemen, this conference will be available for replay after 10