John D. McCallion
Executive Vice President and Chief Financial Officer at MetLife
Thank you, Michel, and good morning. I'll start with the 1Q '22 supplemental slides, which provide highlights of our financial performance and an update on our cash and capital positions. Starting on page three, we provide a comparison of net income to adjusted earnings in the first quarter. Net income was $606 million or $1.1 billion lower than adjusted earnings. The majority of this variance was due to net derivative losses as a result of a significant rise in long-term interest rates in the quarter. In addition, we had net investment losses, primarily due to impairment in Russian and Ukrainian bonds as well as normal trading activity in the portfolio that resulted in losses given the rising interest rate environment.
Following the impairment and the sale of Russian bonds in April, our current combined exposure in Russia and Ukraine is roughly $125 million. On page four, you can see the first quarter year-over-year comparison of adjusted earnings by segment, which did not have any notable items in either period. Adjusted earnings were $1.7 billion, down 12% and down 10% on a constant currency basis. Lower variable investment income accounted for the majority of the year-over-year decline. While private equity returns were again strong, they compared to an even stronger Q1 of '21.
Adjusted earnings per share was $2.08 and down 5% year-over-year on a reported basis and down 4% on a constant currency basis. Moving to the businesses, starting with the U.S. Group Benefits adjusted earnings were up 20% year-over-year due to higher volume growth and an improvement in underwriting margins. I will discuss Group Life underwriting in more detail shortly. Regarding non-medical health, the interest adjusted benefit ratio was 72.5% in Q1 of '22, at the midpoint of its annual target range of 70% to 75%. That said, the ratio was higher than the prior year quarter of 71.1% due to higher incidences in disability relative to favorable incidence levels in the prior year quarter. Turning to top line, Group Benefits adjusted PFOs were up 7% year-over-year. This growth included two percentage points related to higher premiums from participating contracts, which can fluctuate with claim experience. The balance of the PFO growth of 5% was due to solid growth across most products, including continued strong momentum in voluntary.
Group Benefits sales were down 31% compared to record sales in Q1 of '21, which were driven by exceptionally strong jumbo cases. While jumbo case activity was significantly lower in 1Q '22, we continue to see good growth in the business and our persistency remains strong. Retirement and Income Solutions or RIS adjusted earnings were down 16% year-over-year. The primary driver was less favorable private equity return versus a very strong Q1 of '21. Favorable volume growth was a partial offset. RIS investment spreads were 181 basis points, driven by another strong quarter of variable investment income. Spreads, excluding VII, were 89 basis points up one basis point versus 1Q '21, but down two basis points sequentially due to higher LIBOR rates. RIS liability exposures were essentially flat year-over-year as growth across most products, primarily U.K. longevity, reinsurance and pension risk transfers were offset by lower separate account balances. With regards to pension risk transfers, we completed one transaction worth $1.3 billion in the first quarter and continue to see an active market.
Moving to Asia, the adjusted earnings were down 7% and 4% on a constant currency basis, primarily due to lower recurring interest margins and the decline in first quarter equity markets in Japan and Korea. This was partially offset by solid volume growth as assets under management on an amortized cost basis grew 7% on a constant currency basis. In addition, sales were up 2% year-over-year on a constant currency basis, driven by strong sales in Japan. Latin America adjusted earnings were $142 million versus $40 million in the prior year quarter. While COVID-19-related claims remained elevated in 1Q '22 at roughly $30 million after tax, they were down significantly versus the prior year quarter. In addition, volume growth was a positive contributor, while lower equity markets were a partial offset. The Chilean encaje had a negative 4% return in 1Q '22 versus the prior year quarter, which was a modest positive.
While LatAm's bottom line has been trending towards pre-pandemic levels, its top line continues to demonstrate strength as adjusted PFOs were up 22% year-over-year on a constant currency basis, and sales were up 40% on a constant currency basis, driven by solid growth across the region. EMEA adjusted earnings were down 27% and 15% on a constant currency basis, primarily driven by the exclusion of divested businesses, Poland and Greece, which were included in first quarter of '21 adjusted earnings. In addition, higher expenses were partially offset by favorable underwriting margins and volume growth. While the region reported excess COVID claims in Q1, they were lower than the prior year quarter. MetLife Holdings adjusted earnings were down 39%. This decline was primarily driven by lower variable investment income and less favorable underwriting. Corporate & Other adjusted loss was $117 million versus an adjusted loss of $171 million in the prior year quarter.
Higher variable investment income was the result of a $1.1 billion transfer of PE assets to Corporate & Other from RIS and MetLife Holdings in Q1 of '22, to better align asset liability management for these two segments. Higher expenses were a partial offset. The company's effective tax rate on adjusted earnings in the quarter was 21.3% and within our 2022 guidance range of 21% to 23%. Now I will provide more detail on Group Benefits mortality results on page five. This chart reflects our Group Life mortality ratio for the last five quarters, including the COVID-19 impact on the ratio and on Group Benefits' adjusted earnings. The Group Life mortality ratio was 103.8% in the first quarter of '22, which is well above our annual target range of 85% to 90%. COVID reported claims were roughly 14 percentage points, which reduced Group Benefits adjusted earnings by approximately $230 million. While U.S. COVID deaths were higher sequentially, there was a favorable shift in the percentage of deaths under age 65, declining from approximately 33% in the fourth quarter to roughly 23% in the first quarter. As a result of these two competing factors, we saw a modest improvement in mortality results this quarter.
In addition, we experienced one to two percentage points from non-COVID excess mortality. This included a larger number of high dollar claims, which can fluctuate from period to period. On page six, this chart reflects our pretax variable investment income for the past five quarters, including $1.2 billion in the first quarter of '22. The strong result was mostly attributable to the private equity portfolio of roughly $14 billion, which had an overall return of 7% in the quarter. Unlike previous quarters, where we have seen a dispersion on returns by fund type, this quarter, our major PE returns were tightly coupled around 7% overall. As we have previously discussed, private equities generally accounted for on a one-quarter lag. In addition, real estate equity funds were also a strong contributor to VII with a 10% return in the quarter, while hedge funds, which are reported on a one-month lag, had a loss.
On page seven, we provide VII post-tax by segment for the prior five quarters, including $936 million in Q1 of '22. You will note that our general rule of thumb that RIS, MetLife Holdings and Asia account for 90% or more of the total VII did not hold in 1Q '22, coming in at 83%. This lower percentage was primarily due to the transfer of PES as to Corporate & Other from RIS and MetLife Holdings that I discussed earlier. In addition, Asia's higher VII year-over-year was primarily due to strong real estate equity fund performance as well as higher PE asset balances. Turning to page eight. This chart shows a comparison of our direct expense ratio over the prior five quarters, including 11.7% in Q1 of '22. As we have highlighted previously, we believe our full year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our first quarter direct expense ratio benefited from solid top line growth, and ongoing expense discipline. This included approximately 40 basis points from premiums that relate to participating cases in group benefits due to excess mortality.
We remain committed to achieving a full year direct expense ratio below 12.3% in 2022, demonstrating our consistent execution and focus on an efficiency mindset. I will now discuss our cash and capital position on page nine. Cash and liquid assets at the holding companies were approximately $4.2 billion at March 31, which was down from $5.4 billion at December 31, but remains above our target cash buffer of $3 billion to $4 billion. The sequential decline in cash of the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, share repurchases of $915 million in the first quarter as well as holding company expenses and other cash flows. Our first quarter tends to be lower in subsidiary dividends and higher in holding company expenses. Therefore, we would expect holdco cash balances to increase in the second quarter due to higher subsidiary dividends as well as proceeds from the sale of our Poland business, which closed in April, as Michel noted. In regard to our statutory capital for our U.S. companies, our 2021 combined NAIC RBC ratio was 386%, which was above our target ratio of 360%.
For our U.S. companies, preliminary first quarter year-to-date 2022 statutory operating earnings were approximately $400 million while net income was approximately $800 million. Statutory operating earnings decreased by approximately $1.1 billion year-over-year, primarily due to less favorable VA rider reserves, underwriting results and higher expenses. We estimate that our total U.S. statutory adjusted capital was approximately $18.7 billion as of March 31, 2022, down 2% compared to December 31, 2021. Finally, the Japan solvency margin ratio was 947% as of December 31, which is the latest public data. Looking ahead, we expect the Japan SMR to decline in 2022 as a result of higher U.S. interest rates but remain well above its capital target level.
Let me conclude by saying, MetLife delivered another strong quarter, highlighted by outstanding private equity returns, solid top line growth, ongoing expense discipline and the benefits of our diverse set of market-leading businesses and capabilities that allow us to navigate successfully through uncertain environments. In addition, our capital, liquidity and investment portfolio remains strong and position us for further success. Finally, we are confident that the actions we are taking to be a simpler and more focused company, will continue to create long-term sustainable value for our customers and our shareholders.
And with that, I will turn the call back to the operator for your questions.
