MetLife Inc. expects its near-term results to be less sensitive to interest rates as it continues to position itself into less-volatile and fee-based businesses.
Assuming that interest rates follow the observable forward yield curves as of Sept. 29, the company expects the average ratio of free cash flow to operating earnings over 2018 and 2019 to be 65% to 75%, depending on a 10-year U.S. Treasury rate of 1.5% to 4.0%. The company expects its ratio of free cash flow to operating earnings to be within that range in 2017.
Further, the company continues to target an operating return on equity, excluding accumulated other comprehensive income other than foreign currency translation adjustments, of 800 to 900 basis points above the risk-free rate as measured by the 10-year U.S. Treasury rate. The company believes this can rise to 1,000 basis points over the longer term. The company said these targets reflect its unit cost improvement program and the initiative to invest $1.0 billion by 2020 to generate $800 million pretax run rate annual savings, net of stranded overhead.
The company expects to have cash commitments of $2.0 billion to $3.0 billion over 2017 and 2018, relating to liability management transactions, potentially including the repayment of certain debt maturities. The company also plans to maintain a liquidity buffer of $3.0 billion to $4.0 billion at the holding companies.