Ladies and gentlemen, thank you for standing by, and welcome to the MetLife Year-End 2014 Outlook 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 in the business and the products of the company and its subsidiaries.
MetLife's actual results may differ materially from the results anticipated in the 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 Factors 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 Ed Spehar, Head of Investor Relations.
Thank you, Greg, and good morning, everyone. Welcome to MetLife's year-end outlook call. Presentation materials for this discussion are currently available at metlife.com through a link on the investor relations page. Please turn to slide two of the presentation. This is the cautionary statement on forward-looking statements and non-GAAP financial information. This governs the forward-looking statements made on today's call. As the statement notes, actual results might differ materially from the projected results we will be discussing today. For a discussion of the factors that could cause actual results to differ, please see the risk factors in our 10-K and 10-Q reports filed with the SEC. Let me remind you that we will be using non-GAAP financial measures on today's call. Explanations on how we calculate these measures and the reasons we believe they are useful are included in the appendix.
Reconciliations to the most directly comparable GAAP measures are also included in the appendix. Slide three is our agenda for today. We will begin the presentation with opening remarks from MetLife's Chairman, President, and Chief Executive Officer, Steve Kandarian. Following Steve, Bill Wheeler, President of Americas, Chris Townsend, President of Asia, and Michel Khalaf, President of Europe, Middle East, and Africa, will provide outlooks for their businesses. Following the business discussion, John Hall, MetLife's Chief Financial Officer, will provide a financial update, including comments on segment equity, interest rates, and free cash flow. We will then have closing remarks from Steve, followed by Q&A. In fairness to all participants, please limit yourself to one question and one follow-up. We will strictly enforce this. Slide four highlights the framework we will use on this call to discuss each of the business segments in our quarterly financial supplement.
It is the same approach that we used last year. For the business segment discussions, we will start with what we call baseline operating earnings. This definition of earnings is the 12 months ended September 30, 2014, and is meant to be our best estimate of the earnings level you should consider as the starting point for growth. We will then talk about key sensitivities for earnings in our balance sheet, which should provide a better understanding of the earnings trend for each segment. Next, we will discuss the near-term outlook, beginning with the qualitative discussion of opportunities and challenges. This is intended to provide you with insights into our business outlook from 2015 through 2017. In addition, we will provide guidance on certain key items that should help you build more accurate earnings models.
Finally, we will close with a discussion of the long-term outlook for each business segment, including the secular growth trend beyond 2017. Turning to slide five, I will discuss anticipated changes in MetLife's segment results for 2015. There are four changes in segment results anticipated for next year. First, we have revised our capital allocation methodology, and this will have an impact on net investment income at the segment level. Second, we are moving certain tax benefits from corporate and other to business segments, and the impact will be almost entirely in retail. Third, we are moving our consumer direct business from corporate and other to Latin America, which is where our sponsored direct business is reported. Finally, we will have an expense allocation change, which primarily impacts corporate and other and EMEA.
You will notice in the business segment presentation that there are two definitions of baseline operating earnings. The first is derived from reported results during the past 12 months. The second is adjusted for the estimated impact of the changes in how we will report segment results in 2015. The latter number is meant to assist you as you forecast MetLife's results for 2015 and beyond. However, keep in mind that our fourth quarter results will be reported consistent with the methodology of the first three quarters of this year. Now I'd like to turn the call over to Steve Kandarian. Steve?
Good morning, everyone, and thank you for participating on MetLife's outlook call. Before we begin, I want to say how pleased I am that Congress has passed the Insurance Capital Standards Clarification Act, which gives the Federal Reserve flexibility to tailor capital rules for life insurance companies under its supervision. In the event that MetLife is designated a systemically important financial institution, we look forward to working with the Fed on rules that properly reflect the insurance business model.
As you know, last year we discontinued annual earnings per share guidance and replaced it with an outlook call to help you better understand MetLife's prospects over a multi-year period. The focus of today's presentation is consistent with our internal emphasis on multi-year strategic and financial goals. We sell financial products that represent long-term promises to our customers, and profits from these sales often emerge over many years. We believe that in a long-term business, value creation is driven by results over time, not performance in any single year. Considering the importance we place on multi-year results, we are pleased with the performance of MetLife since we announced our new strategy at the May 2012 Investor Day. Slide seven illustrates the trend in operating earnings and return on equity since 2011, the year before we began implementing our strategy. We are ahead of our strategic plan on both measures.
Operating earnings have been almost 10% better than projected, and operating return on equity is at the low end of our 2016 target of 12%-14%. At the same time, the risk profile of the company has improved largely as a result of de-risking efforts in our U.S. business and a cautious approach to balance sheet leverage. This disciplined approach extends to expense management. We have already achieved the $600 million in net cost saves targeted in the strategic plan, and we expect to achieve our targeted gross expense saves of $1 billion in 2015. MetLife has delivered strong performance despite a mixed external environment, as highlighted on slide eight. While results have benefited from a strong equity market, other external factors have been unfavorable. New money investment yields have been well below the portfolio yield as a result of low interest rates.
Strength in the U.S. dollar has hurt earnings from non-U.S. businesses, with weakness in the yen having the largest impact given the size of our Japan operation. The regulatory environment has also been challenging. When we announced our strategy, we expected share repurchases would be $4.6 billion by the third quarter of 2014. In light of increased regulatory uncertainty, we are well below that level. Although our approach to capital management will remain cautious during this period of regulatory uncertainty, we are pleased to announce our plan to repurchase up to $1 billion in common stock after completion of the $1 billion buyback plan announced in June 2014. As you can see on slide nine, we have repurchased $967 million of stock under the June plan.
Given our estimate that MetLife will have approximately $6 billion in cash and liquid assets at the holding companies at year-end 2014, we believe that the new program is consistent with our prudent capital management approach. Our philosophy remains unchanged. Excess capital belongs to our shareholders. The challenge is to strike the right balance between adherence to this philosophy and recognition that required capital levels for MetLife are still unknown. As was the case with the buyback plan announced in June, we will repurchase shares opportunistically and have not set a timetable for completion. Turning to slide 10, there are three things we would like to accomplish this morning. First, we want to improve your understanding of MetLife's business model. Today's presentation builds on the business segment detail we initially provided on the December 2013 outlook call and expanded at the 2014 Investor Days in New York City and Tokyo.
Second, we want to provide high-quality information and more transparency. For example, later in the presentation, John Hall will discuss equity allocations and returns at the segment level, the first time we have provided this information since the acquisition of Alico in 2010. Third, we want to focus on the financial outlook beyond next year. We believe that the information provided today will help you forecast results for 2015, but more importantly, will help you better understand our strategic and financial outlook for both the near and long term. Slide 11 provides key macro assumptions behind the near-term outlook for our business. We assume that the S&P 500 goes up 5% annually through 2017, which is conservative relative to long-term historical returns. Our U.S. interest rate assumptions are based on market consensus through 2015 and our own estimates for 2016 and 2017.
The consensus estimates are a 10-year Treasury yield of 2.5% at the end of 2014 and 3.24% at the end of 2015. We assume the 10-year Treasury yield will be 4.5% by the end of 2017. Our 2017 assumption is based on the Federal Reserve's long-term inflation target of 2%, plus a real rate of return of 2.5%, which is consistent with long-term historical averages. Our foreign currency exchange rate assumptions are based on consensus. With a diverse mix of non-U.S. operations, our earnings are not heavily dependent on any one foreign currency. Because of this diversity, we do not consistently hedge currency translation risk. However, we will opportunistically hedge foreign currency exposure if we have a strong view on exchange rates. For example, we have hedged our yen-based earnings through the end of 2016. Finally, I want to reiterate that we are dedicated to helping investors better understand MetLife.
I believe the presentations this morning will illustrate our commitment to transparency. While we are pleased with our progress on MetLife's strategic plan, we know there's still more to do. We continue to search for ways to improve our existing strategy to maximize shareholder value. With that, I will now hand over the call to Bill Wheeler to discuss the outlook for the Americas. Bill?
Thank you, Steve, and good morning. As we did last year, I'll review our four domestic business segments as well as Latin America. For each segment, I will review baseline earnings for the last four quarters, key sensitivities, near-term opportunities and challenges, near-term guidance on certain key items, and how we view each business's long-term growth prospects. The focus of my commentary will be on what has changed from last year. Let me begin on slide 13 with a general overview of the Americas region, starting on the left with key strategies. These strategies have essentially remained the same over the past three years, and we've experienced strong success as we have executed them. After several years of repositioning our U.S. retail business, we are now in a position to begin to grow in this segment, and our expectation is that we will see meaningful sales growth in 2015.
Turning to the middle column, I will discuss our major opportunities and challenges as I review each business. With regard to our long-term outlook, which is meant to apply to our post-2017 earnings growth rate, you can see our guidelines for each of the major businesses. Overall, we project a mid-single-digit operating earnings growth rate for the Americas based on our current business mix. Our long-term outlook has not changed from last year's call. Turning to our Group Voluntary and Worksite business segment on slide 14, we show baseline operating earnings of $823 million for the past four quarters. Adjusting for the 2015 changes, this gives you an adjusted baseline of $840 million. For 2015, we expect significant growth in operating earnings driven by revenue growth and a recovery in our underwriting margins. Slide 15 shows the annual earnings impact from a one-point change in our key underwriting ratios.
These sensitivities are similar but rounded from last year's numbers. Turning to slide 16, the factors driving our near-term outlook are essentially the same as last year, except that job gains are a little stronger, offset by slow wage growth. Let me comment on a couple of these factors. The growth trajectory in private exchanges has been slower than initially expected. We believe this will become an increasingly important channel as employees begin to buy down on medical and buy more voluntary product. In addition, more products will be offered on exchanges. On some exchanges, we are offering our full product suite, which spans over 7 product categories, and we are active on 14 exchanges this year. Pricing in the group insurance market continues to be aggressive.
We have seen some of the irrationalities subside and pricing firm up a bit, but there are always competitors that are willing to chase sales by getting too aggressive on any particular deal. With regard to our guidance concerning key items on slide 17, we expect PFO growth of 2%-4% in the next year, with growth accelerating in 2016 and 2017 as our strategies continue to gain momentum. In addition, we expect our key underwriting ratios to rebound, as our experience in 2014 was driven largely by higher group life claims severity and certain disability claim management issues. The disability claim management issues have been addressed, and changes in group life claims severity generally represent normal fluctuations in the business. We also had a strong January 1st, 2015 renewal season. These guidance ranges are on an annual basis. Seasonality and some inherent volatility will impact the quarterly ratios.
In 2015, we anticipate moving AD&D from the non-medical health benefit ratio to the group life mortality ratio. AD&D is usually sold with term life and is managed as part of the group life product set. The majority of the benefit is mortality related. We expect this change to have a modest impact and also expect to be within the targeted range for both ratios. Turning to slide 18, our long-term outlook for the Group Voluntary and Worksite Benefits business remains the same. We have had some underwriting challenges recently in this business, but Group is fundamentally a very attractive business with high ROEs, attractive free cash flow, and our competitive position in this business is very strong.
Turning now to Corporate Benefit Funding on slide 19, we show baseline operating earnings for this segment at $1.408 billion over the past four quarters, which is more than 50% growth year-over-year. Adjusting for the 2015 changes, the baseline is $1.347 billion. Looking forward to 2015, we expect earnings to be down slightly due to spread compression. On slide 20, we show key sensitivities, which are essentially the same as last year. On slide 21, the near-term opportunities for CBF continue to reflect the upside in pension closeout. In our recent pension risk transfer survey, almost one-third of plan sponsors indicated that they are likely to consider a pension risk transfer option for their plans in the next several years. We continue to estimate that there are approximately $800 billion of private defined benefit pension liabilities that are attractive candidates for closeout, and our pipeline looks strong.
We've also added employer-sponsored retirement income solutions as a near-term opportunity in this business. Defined contribution plans such as 401 and 403 plans are the primary retirement programs for many employers. Rollovers from those plans are creating increased demand for our institutional income annuities. For CBF overall, our challenges continue to be driven by the asset-intensive nature of this business, the uncertain capital rules, and a flattening yield curve. We are very conscious of maintaining pricing discipline across the segment. With regard to guidance on our near-term outlook on slide 22, we expect to see operating earnings decline slightly, driven by spread compression in the next few years. On slide 23, the longer-term outlook for CBF remains unchanged, but subject to the evolving regulatory environment. Disciplined pricing, along with expertise in underwriting and risk management are strengths that we use to compete effectively in this business.
Turning to the retail business, specifically annuities on slide 24, we show baseline operating earnings of $1.405 billion, a 7% increase over last year. The adjusted number is $1.488 billion. In 2015, we expect earnings to increase slightly despite some spread compression. Turning to key sensitivities on slide 25, we added the point that 65%-70% of separate account assets are in equity. Sensitivities are based on ±10% changes in total separate account returns, which include equities and fixed income. You will notice that the initial market impacts are not symmetrical. With respect to the factors affecting our near-term outlook for annuities on slide 26, by early 2015, we will have fully refreshed our core annuity product suite. Our recently launched Investment Portfolio Architect variable annuity offers a simplified approach to asset allocation and can provide tax deferral for non-qualified clients.
In the first quarter of 2015, we will launch a new flagship living benefit and expect it to be one of many client solutions. Over the last few years, we have also deepened key strategic relationships. MetLife is the exclusive provider of two variable annuity products for Fidelity, and this is an attractive model for us. We recently launched a new simplified accumulation living benefit in this channel. Spread compression is the primary near-term challenge facing our retail annuity business. On slide 27, we expect annuity sales to increase by more than 50% in 2015, driven by the introduction of competitive new products. Because of this, we expect that net outflows in 2015 will improve, and while we expect sales to exceed 2014 levels, there will be more balance between fixed, variable, and index-linked annuity sales. We also expect lower spreads over the three-year period.
The long-term outlook for the retail annuity market on slide 28 is attractive. Our expectation is that the industry will introduce innovative products that are less capital-intensive in order to meet customer needs. MetLife's market share should improve in the near term and then stabilize. Over the long term, we expect to return to positive flows, which, along with supportive equity market returns, will be the basis for 3%-5% growth in PFOs and operating earnings. Moving on to the Retail Life and Other Business segment on slide 29, we show baseline operating earnings of $1.015 billion for the past four quarters, which is up over the prior year. The adjusted number is $1.085 billion. In 2015, we expect modest earnings growth driven by a rebound in underwriting margins, partially offset by the closed block earnings returning to a more normal level.
On slide 30, the key sensitivities have been updated to reflect the impact of a one percentage point change in the interest-adjusted benefit ratio. Before discussing our near-term outlook on slide 31, let's review a little history. In the past two years, we have migrated our new sales away from lifetime secondary guarantees, such as ULSG. We completed our refresh of whole life products, which are positioned to offer both protection and a tax-efficient vehicle for cash value growth. In 2015, we expect to continue to bring innovations to the marketplace that offer new solutions to clients, complete the migration to our new administrative platform, and revamp the way we engage with third-party distribution. While the pace of market adoption of these changes may take a while, we expect it to start delivering positive returns in the near term.
This should position the retail business well for the future, especially to somewhat offset the headwind from the slow runoff of the profitable closed blocks of business. On slide 32, we expect double-digit growth in our life sales in 2015, driven by new product releases and focused growth in third-party distribution. Underwriting results are expected to rebound from the elevated mortality we experienced in 2014. We forecast the adjusted benefit ratio to return towards the middle of the range. Despite healthy variable investment income, we expect to see modest declines in the coming years. We do expect an earnings growth headwind of $150 million from a return to normal earnings levels for the closed block. With regard to the long-term outlook on Slide 33, the life industry distribution is shifting from traditional producers to financial advisors and banks.
MetLife's current market share is around 3%, and we expect the business to grow faster than the market over time. Before I leave the retail business, I think it is worth noting that since 2012, we have aggressively refocused retail and grown earnings by 30%. The changes that we have been driving in this business will leave us with one of the best branded affiliated distribution networks in the industry and will allow us to offer our retail clients a broad suite of solutions. This will enable us to grow and deliver superior shareholder value in 2015 and beyond. My last segment this morning is our Latin American business. On Slide 34, we show a trailing four quarters baseline operating earnings of $676 million for Latin America, where we have enjoyed substantial growth year-over-year.
This has been driven by the Provida acquisition, which closed on October 1st, 2013, and by business growth across the region. Adjusting for the 2015 changes, the baseline earnings are $571 million. The 2015 changes reflect lower capital and the combination of our direct business initiatives into one unit. While we build out our direct business, we will have some growth strength. On Slide 35, sensitivities remain unchanged from last year, reflecting the impact of a 1 percentage point change in the Mexican and Chilean exchange rate and the Provida and Encaje return. On Slide 36, we highlight some of the factors driving our near-term outlook for Latin America. As we shared with you at Investor Day in June, in addition to completing the Provida acquisition and growing that business, we are focused on three key strategies.
Leveraging our global employee benefits and worksite marketing position, strengthening and expanding our retail and agency channels in key markets, and building direct marketing as a regional engine of growth. With regard to the challenges, we have experienced regulatory reform in our two biggest markets, Mexico and Chile, since late last year. The impact to date has mostly been an increase in tax rates. The implementation of Solvency II in Mexico, which has been delayed to 2016, will increase our regulatory expenses there. Finally, of course, we will be affected by any weaknesses in currency or economic growth in the region. Turning to near-term guidance on Slide 37, we expect Mexico and Chile to continue to be our largest earnings contributors, producing approximately 85% of our Latin American earnings between them. We expect low double-digit PFO growth.
Earnings growth is expected to be consistent with PFO growth in the near term. As we have discussed in June, we had two direct business initiatives in MetLife, one in the Latin America segment and the other in Corporate and Other. Beginning in 2015, we will be combining the results for both of those initiatives in the Latin America segment and, as I mentioned previously, have reflected this change in the adjusted baseline earnings. Turning to Slide 38, in the long term, we expect low double-digit PFO growth in the region consistent with the overall market. Operating earnings growth should exceed PFO growth for all the reasons listed on the slide. Our long-term outlook remains constant. Our expectation is that the Latin American market will continue to be an important growth engine for MetLife, producing high returns and cash flow.
I'd like to turn the presentation over to my partner, Chris Townsend, President of our Asia region.
Thank you, Bill. This morning, I'll provide you with a brief update on many of the themes that we explored at our Asia Investor Day in September. Let me start by providing you with an overview of our businesses in Asia. Turning to Slide 40, with active operations in 10 markets, we've established a strong track record in Asia as a global carrier. Our businesses in Japan and Korea account for the bulk of our revenues and earnings today. However, through successful execution of our Asia strategy, we're rebalancing our footprint across the region and are enjoying good growth in emerging Asia, particularly in China. This year, we've successfully launched operations in the fast growth Southeast Asian markets of Malaysia and Vietnam. As we discussed in depth at our Asia Investor Day, our strategy remains unchanged and can be summarized in four key points.
First, to secure maximum earnings contribution from our scale businesses in Japan and Korea. Second, to build a long-term profitable growth platform in China and India. Third, to ensure solid earnings contribution to our remaining designated Asian markets. Fourth, to expand into the high growth, high margin markets of Southeast Asia in a disciplined fashion. Our business is well diversified by currency, by product, and by distribution channel. This provides us with an important source of competitive advantage and earning stability. Per our prior guidance, the continued successful execution of this strategy will generate high single to low double-digit earnings growth over time on a constant currency basis. Slide 41 shows an analysis of our operating earnings adjusted for some noteworthy items.
For the past 12 months, Asia has delivered baseline operating earnings of $1.2 billion, representing an 11% growth rate over the prior year on a constant currency basis. Looking forward to 2015, as just stated, we expect to deliver continued growth in baseline operating earnings driven by business growth right across the region. On Slide 42, I'll provide you with a breakdown of our earnings profile. On a constant currency basis, we expect that Japan and Korea will account for the majority of our earnings in 2014. It's important to note that only 45%-55% of Japan's earnings are yen denominated, with the balance being mostly US dollar and, to a lesser extent, Australian dollar based.
By 2017, we expect further geographical diversification of our earnings. Growth in the rest of Asia is projected to be higher than both Japan and Korea, despite us outpacing market growth in both of those markets. This will drive the contribution from the rest of Asia to around 10%-15% by 2017, with emerging markets accounting for approximately two-thirds of this growth. Slide 43 sets out some key sensitivities. One source of potential earnings volatility is currency risk, especially our exposure to the Japanese yen. For example, on a gross or a pre-hedge basis, for every one yen currency movement, the earnings impact is between $4 million and $5 million. We actively manage this exposure, for 2015 and 2016, we have hedges in place for approximately two-thirds of our yen-denominated earnings.
For every one yen movement above JPY 107 in 2015 and JPY 104 in 2016, the mitigating impact of these hedges is $2 million-$3 million. Asia's earnings and statutory capital positions are also sensitive to shifts in interest rates. As we explained at our Asia Investor Day, we actively monitor and implement solutions to manage this risk across all of our Asian operations. Moving to our near term outlook on slide 44, we're exploiting a number of opportunities whilst working to overcome some key challenges. With over 50,000 career agents, 100,000 independent agents, and over 130 bank assurance partners, our distribution mix is very well diversified. We have a clear opportunity to continually enhance our distribution productivity, we're pursuing a number of actions and enhancements to drive this across the region.
The second opportunity is to continually optimize the product portfolio to enhance value, you'll be aware that we've taken a number of actions to enhance product margins this year, especially in Japan. Third, we're already a significant carrier in the health category in Asia, as showcased at the Asia Investor Day, we're executing on a differentiated health strategy that not only leverages our existing health expertise, but also responds to the significant long-term social, economic, and demographic drivers of this important market segment in Asia. These efforts, combined with an enhanced focus on customer centricity and product persistency rates, will continue to improve growth margins. Fourth, we've built a strong digital ecosystem in Asia and improved our front office sales capability, both direct to the consumer and via a hybrid mechanism to support sales through other distribution channels.
For example, we've just launched a market leading digital platform in China that includes back end integration, customer relationship management, data analytics, a comparator capability, plus social media tools to really enhance the overall customer experience. 75% of this functionality is reusable, we'll be rolling out this best in class technology to other countries throughout 2015 and 2016. This scale deployment will provide us with a further source of competitive advantage in a region where there is a high proclivity to purchasing financial services on mobile devices. In line with our enterprise strategy, the final opportunity is leveraging our world-class capabilities in employee benefits so as to take advantage of the growing multinational presence across the region. As you saw from the prior slide, one of the challenges facing the business could be the continued strengthening of the U.S. dollar against Asian currencies, especially the Japanese yen.
The second challenge is the dynamic regulatory environment, with the principal impact being around product disclosures and data protection. We continue to engage constructively with regulators around the region, where our focus on customer centricity and portfolio optimization has been very much welcomed. The third challenge relates to the short-term negative impact of the continued low interest rate environment across the region. As was demonstrated on the prior slide, our operating earnings sensitivity to interest rates is not especially material, but a continued low interest rate environment might have an impact on pricing and could constrain our growth. Turning to slide 45, I'll comment on a number of guidance items for the next three-year period. First, we expect that proportion of sales from protection products will grow to between 50%-55% by 2017.
Given the higher margin and more favorable capital requirements for these products, the sales mix shift will have a disproportionately greater impact on value creation. Second, we see PFO growth of 5%-10% on a constant currency basis. As per our 2014 guidance, we expect 2015 to be at the lower end of that range. Third, we expect distribution expenses to grow proportional to sales growth. Administration expenses will increase at half the rate of the overall revenue growth due to operational scale and continued efficiency improvement. Four, as explained earlier, we expect to see high single-digits to low double-digit earnings growth on a constant currency basis. Turning to slide 46, we expect the long-term growth prospects in Asia to remain strong, fueled by the region's favorable social, economic, and demographic trends.
With the continued execution of our strategy, we expect to generate revenue growth faster than that of the underlying market. 50% of the world's life insurance growth will come from Asia over the next 10 years. As we've set out, we believe that we're very well placed to exploit this growth and to drive greater shareholder value over time. With that, I'd like to hand over to my colleague, Michel Khalaf.
Thank you, Chris, and good morning. On slide 48, there are no material changes to our view of the region and the opportunities we have in our key market. While we face some near-term headwinds, which I will touch on in a moment, we have a unique geographic footprint in EMEA with established and market-leading businesses in a number of attractive emerging markets. These markets, which will contribute 80% of our earnings, have a growing middle class and low levels of insurance penetration. This, combined with the competitive advantage from our product and channel diversification, provide us the platform to significantly grow our business going forward. Turning to slide 49, this shows reported operating earnings for the trailing 12 months. We generated $366 million of reported operating earnings. During this period, we had $37 million of notable items.
In addition, as we previously mentioned, we're in the process of converting certain operations to calendar year reporting, which contributed another $11 million to earnings during the period. Lastly, the 2015 changes that Ed discussed earlier have an estimated impact of $83 million. After adjusting for these items, we come to baseline operating earnings of $235 million. Turning to slide 50, Poland, the Gulf, and Russia continue to represent approximately 50% of our emerging markets earnings. Both Poland and the Gulf had strong sales growth this year, with Poland recording its highest level of sales in the 24-year history of the operation. This has helped us improve our standing on the Polish life insurance market, where we now rank third in terms of market share. Our business in the Gulf is well diversified, and we are a leading provider of employee benefits.
In the second half of 2014, we signed a distribution agreement with the leading local bank in the UAE, which will further boost the contribution of the bank assurance channel to our business in the Gulf. Russia continues to be a key market for us, despite the economic and political headwinds we faced this past year. From a currency perspective, our earnings are primarily exposed to fluctuations in the EUR, PLN, RUB, and TRY. The remainder includes exposures to certain other currencies in Central and Eastern Europe. During 2014, we have seen weakening in most currencies relative to the US dollar. Both the EUR and PLN have depreciated about 10% this year, while the RUB has depreciated by more than 40% since the beginning of the year.
While we have a fairly diversified currency mix, we are projecting some currency headwinds in 2015, with most currencies weakening on average compared to 2014. For example, if current spot rates persist, this could dampen earnings growth in 2015 by $25 million-$30 million. Slide 51 gives you a sense of the opportunities and challenges we have to our near-term guidance. Let me highlight a few items on this slide. First, as I mentioned at our June Investor Day, emerging markets continue to provide us a great opportunity to support sustainable growth over the long term with our bank assurance and direct-to-consumer channels as key enablers to drive our growth. We have significant contributions today from emerging markets, and we believe we are well positioned to take advantage of the future growth expected from these markets. Also, we see our investment in the brand as an opportunity.
On last year's call, we discussed our plan to rebrand to MetLife and to invest in building our brand in key markets over the next few years. We see this as an opportunity to fully leverage the strength of the MetLife brand and our campaigns launched in Poland, Turkey, the UAE, and Greece have been very well received. In terms of challenges, as referred to on the previous slide, the US dollar has strengthened since the beginning of the year against our largest currency exposures, and therefore could challenge our growth in 2015. Lastly, the economic and political headwinds, particularly in Russia, which negatively impacted sales in 2014, may continue to be a challenge in the near term. However, we believe these can be mitigated through expense management in the short term to protect earnings.
Turning to slide 52, let me provide an update on our outlook over the next three years. In terms of sales, the continued economic and political headwinds in Russia will put pressure on sales next year. As a result, we assume high single-digit sales growth in 2015, moving to mid-teens in subsequent years. The conversion of certain operations to calendar year reporting and divestitures in 2014 will negatively impact 2015 PFO growth. In addition, the strengthening of the US dollar against our key currencies will further pressure PFO in 2015. Subsequently, we expect 2016 and 2017 growth rate to be mid to high single digits. With regards to earnings, we expect underlying earnings growth close to mid-teens over the next three years. Lastly, turning to slide 53. While we expect to face some headwinds in the near term, we have not changed our view of our long-term outlook.
With our strong position in some of the larger growth markets in EMEA, we believe we can grow faster than the market. In terms of developed market, we expect growth will continue at low single digit, but given our focus on attractive niche segments, we believe our growth can outpace the broader market. Lastly, in terms of expenses, while we will continue to invest in our business, especially in emerging markets to drive growth, we expect that expense growth will be slower than that of the top line and would result in an improvement in our profit margins over time. With that, I would now like to turn it over to John Hall.
Thank you, Michel, and good morning. Turning now to slide 55, I will cover four topics. First, I will discuss the allocation of equity and operating return on equity at the segment level. Investors and analysts have asked for this information, and we believe this disclosure will help the market better understand the potential for total company ROE improvement over time. Second, I will provide an update on the income statement and balance sheet sensitivity associated with the current low interest rate environment. We continue to believe that low interest rates are a manageable risk factor for MetLife. Third, I will provide guidance on corporate and other, and the tax rate. Finally, I will talk about free cash flow. As Steve mentioned, we understand the importance of distributable earnings for stock price performance over time, and improving free cash flow is the top priority for the firm.
Slide 56 shows average common equity and operating return on equity by segment based on our new allocation methodology for capital, taxes, and other items, which will be effective in 2015. Our determination of required capital is based on existing regulatory regimes and our view of economic risk. Therefore, capital requirements could change if we are regulated by the Federal Reserve. Our fastest growth businesses generate high returns on equity, which suggests potential improvement in total company ROE over time. In the Americas, the business with the highest long-term growth rate is Latin America, and the operating return on equity is 15%-16% with a tangible ROE of more than 20%. The business with the second highest long-term growth rate is GVWB, and even though underwriting results have been unfavorable this year, the operating return on equity is still in the mid-teens.
For Asia and EMEA, we believe the best measure of underlying business returns is tangible ROE because equity includes substantial goodwill from the acquisition of Alico. For Asia, we anticipate earnings growth in the high single to low double digits, and the tangible return on equity is in the high teens. For EMEA, we anticipate earnings growth in the double digits over the long term and expect that the tangible ROE will improve from the current 13%-14% as more operations achieve scale. On slide 57, we provide an update on potential balance sheet and income statement impacts from low interest rates. With the 10-year Treasury yield down more than 80 basis points this year, there are renewed concerns in the market about the risk of a prolonged period of low interest rates.
Starting with the balance sheet, we estimate a modest impact even if we were to assume that the 10-year Treasury yield remains at 2% indefinitely. This is an update of the balance sheet analysis that we presented at our May 2013 Investor Day. On a statutory basis, we believe that the interest rate related increase in reserves will be less than what we had communicated in May 2013, partially because we strengthened statutory reserves in 2013 and plan to do so again in 2014. This reserve strengthening primarily relates to long-term care reserves at Metropolitan Life Insurance Company, our New York subsidiary. On a GAAP basis, we estimate the present value of negative unlocking of deferred acquisition costs and reserve loss recognition would total approximately $3 billion after tax. A charge of this magnitude would be less than half our current annual operating earnings run rate.
In reality, it would be unlikely that we would eliminate our mean reversion assumption for interest rates in a year, so any potential GAAP charges would likely occur over time. We have also updated the interest rate stress scenario that we published in our 10-K, which is an earnings sensitivity analysis. If we assume that the 10-year Treasury yield is 2% through year-end 2016 versus our assumption for an increase to 3.2% at year-end 2015 and 3.8% at year-end 2016, the negative impact on operating would be approximately $80 million in 2015 and $180 million in 2016. Based on our current share count, that translates to $0.07 per share in 2015 and $0.16 per share in 2016. Slide 58 is the only slide that includes guidance for 2014, as we are pre-announcing a fourth quarter litigation asbestos reserve charge of $110 million-$130 million after tax.
The frequency and severity of claims relating to asbestos has increased, and we intend to reflect this in our provision. As disclosed in our 10-K, we have litigation asbestos reserves as a result of claims related to certain research and other activities by MetLife from the 1920s to the 1950s. The lawsuits allege that MetLife learned or should have learned of certain health risks posed by asbestos, and among other things, improperly publicized or failed to disclose those health risks. MetLife has never engaged in any asbestos-related business, nor has it sold casualty insurance coverage to any company in an asbestos-related business. Turning to our outlook for corporate and other, we are forecasting an operating loss of $550 million-$750 million in 2015. Finally, we anticipate an effective tax rate of 26.3% in 2015. Now turning to slide 59.
We are pleased to report that our free cash flow estimate for 2014 has increased from the projection we discussed on our December 2013 outlook call. We estimate that the ratio of free cash flow to operating earnings will be approximately 40% in 2014, up from our December 2013 projection of approximately 35%. The ratio is better than we had anticipated, even though we were taking a smaller dividend from our New York subsidiary than initially planned. The smaller dividend from New York is a function of statutory insurance reserve increases that are $400 million-$600 million more than we had contemplated, and the $110 million-$130 million after-tax accrual for asbestos legal liability. The offset to lower subsidiary dividend is favorable tax inflows to the parent company, which are difficult to predict and can be volatile from period to period.
Looking beyond 2014, we continue to project that the ratio of free cash flow to operating earnings will be in the range of 45%-55% in the near term. The improvement we forecast relative to 2014 is driven by an increase in subsidiary dividends, partially offset by a normalization of tax inflows to the parent company. Improving free cash flow is our top priority, and we believe that success on this front will be the key determinant of shareholder returns over time. I will now turn the call back to Steve for some closing remarks.
Thank you, John. I would like to conclude with a few key takeaways before we open it up to questions. The risk profile at MetLife has improved since we embarked on our new strategy. We have made progress in improving the spread between our operating return on equity and our cost of equity capital. While our fundamental performance has been strong, some of the macro headwinds we face will put pressure on next year's results. For example, we expect investment margins to decline in all of our U.S. operating segments as a result of a low interest rate environment, and our non-U.S. businesses are challenged by a strong dollar. My hope is that today's presentation has illustrated our commitment to providing investors with better information and more transparency.
We continue to work to make our business model and financial results easier to understand. Finally, we know that it takes more than strong GAAP results to maximize shareholder value. We are pleased that our ratio of free cash flow to operating earnings has improved and is better than the guidance we provided for 2014. We remain committed to improving the free cash flow ratio to a range of 45%-55%. Thank you. With that, I will now turn the call over to the operator for your questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star then one on your touch tone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press star one at this time. One moment, please, for your first question. Your first question comes from the line of John Nadel from Sterne Agee. Please go ahead.
Excuse me. Hey, good morning, everybody. I think in past presentations, you've told us that your long-term ROE objective for the company is 12%-14%. Maybe I'm missing it, I'm not sure exactly that we saw that here in today's presentation. Is there any change to that longer-term outlook?
Hi, John. What we've said before is a couple of things around that. 12%-14% was by 2016. We're running at 12% now year to date in 2014. We pointed out that persistent low interest rates do put pressure on those numbers, and we've said the low end of the range of 12%-14% would be more in order based upon low rates if it continues. Second thing we've talked about is our projections for 2016 anticipated $8 billion of share repurchases. As you know, we've done roughly $1 billion to date, and we've announced today another $1 billion. Those two factors do put pressure on that range.
Okay. Still long-term objective 12%-14%, understanding we've got some pressure from those two factors.
Yes. We don't anticipate low rates will persist forever. We think at some point the economy turns around, the range becomes more realistic in terms of the midpoint or perhaps even higher.
Okay. I guess my follow-up question is this. First, thank you very much for the new segment disclosures on ROE and allocated equity. I guess it does beg the question, if we look at the segment ROE on a reported basis, not tangible for Asia and for EMEA, how fast can we think about the 10%-11% for Asia and the 7% for EMEA? How fast can we think about over the next few years, those two segment ROEs improving?
Right.
It seems to me, ex capital management, where the Americas is, Asia and EMEA has to be the driver of the overall consolidated ROE improvement. Maybe I'm mistaken there.
Well, that's why, John, we've given you the tangible as well. That'll drive it. Goodwill is just sitting there on the balance sheet. The vast majority of the intangibles are goodwill, but are not really amortized. It's just a set number. You can project out with the higher growth rates from some of the businesses. You can see how this will move over time. I have to caution, it does move slowly in terms of earnings and the overall mix. The strategy implementation, both in Latin America and some of the emerging markets, do have very good tangible ROEs.
If I think about that hypothetically, John, if the overall company is going to produce 45%-55% free cash flow, can we simply apply that to the segments to think about how much the equity in each segment needs to grow? I suspect, actually, it'll be a little bit different at the segments, correct?
Well, free cash flow comes from different areas.
Yeah.
Most of the free cash flow comes from the U.S. businesses today. The emerging markets are generally self-supporting, so they're growing well, but they're doing it on their own cash. We're not having to put a lot of cash down from our holding company into the emerging markets.
You're not taking much from them either. I'm just trying to think about the pace of equity growth versus earnings growth for those two segments.
We are taking dividends out internationally as well.
Okay. All right. I'll follow up. Thanks.
Your next question comes from the line of Jimmy Bhullar from J.P. Morgan. Please go ahead.
Hi. Good morning. I had a question for Bill. I think in your presentation, you mentioned that for each $1 billion of pension closeout sales, the earnings are equal to about $10 million. Relatively high ROA, and assuming that equity is close to 5% or 6% of assets, it implies a high teens ROE on that business. Does that make sense? Related to that is, because you've done a few deals, but obviously you've lost on a lot of the large deals that have been announced.
Just wondering if you could talk in a little bit more detail on when you have lost deals in the pension closeout markets, has it been more because of pricing or is it capabilities or other things that have enabled some of your competitors to actually end up with a bigger market share over the past year or two years?
Jimmy, a couple things. In terms of incremental sales and earnings contribution and the relative ROE of that contribution, I think your rule of thumb of 5%-6% capital allocation for a new closeout is probably a little low. It's probably closer to 7% or 8%. Each deal is a little different, and the asset mix is a little different. Remember, there's some equities in those closeout portfolios to deal with the long-term liability. The ROEs, I think, are still attractive, but they're not high teens. They're probably mid-teens, roughly. That's one. In terms of how we feel about the markets and the fact that even though we've had a lot of good success in terms of winning deals in, I would say, the mid-sized market, we have not been successful in the jumbo.
One, there's not a lot of jumbo deals, so it's the smallest group of data points. I think the issue is, I think pricing is the most important thing in terms of winning any closeout. I think capabilities matters. I think our capabilities in this market are as good as anyone's. We have been in this market a long time, we have done a lot of deals over the years, we have invested a significant amount of money in a new administrative platform. Remember, we're going to be administering these cases for literally decades. You have to have the right kind of investment in technology to make sure that you can administer them effectively deep 15, 20 years from now. We've spent a lot of money in a new administrative platform to do that.
I would say, I believe the reason that we have not been successful in the jumbo market is mostly price. Maybe not entirely, but I would say that's most of it.
Okay. Just to follow up on some of your other comments on the U.S. business. In annuities, you mentioned that you expect sales to be up over 50%. Wondering if you could give us a little bit more detail on what type of products. Is it more fixed annuities? I'm assuming it's variable and index, not fixed in this rate environment. What are you doing in terms of competitive new products? Are you lowering prices, better features? What did your comment on competitive new products imply?
We've had some good success in, I would say, the immediate annuity market this year. Our sales have been up nicely, and actually, our fixed sales have improved this year as well. We expect that to continue into 2015. We just announced a few weeks ago, what I would call investment-only product called IPA, which I referred to in my comments. IPA, we expect to get very attractive fund lineup, but no living benefit rider. This is really about people looking for interesting investments in a tax-deferred structure. I think that's going to be an attractive seller. Our index link product, Shield, has been approved in New York now, so we're expecting pre-sales there as well. With regard to the, what I would say, the flagship lifetime annuity product, which we call FlexChoice, which will roll out in the first part of next year.
As opposed to a GMIB, this has been filed, so this is public information, it's a withdrawal benefit. We think that'll be more attractive to the market. Secondly, in terms of guarantees, it's got effectively a 5% roll-up embedded in the lifetime living benefit rider, which I think puts us with our peers in that marketplace, as opposed to where our living benefit rider now is, frankly, was a lower benefit than most of our peer groups. More competitive product should improve our sales. By the way, just the last thing on this. One thing to keep in mind is, remember, a substantial part of our annuity sales actually goes through our own distribution system, the MetLife field force. In the last year, the sales of third-party products through that field force have increased substantially.
Roughly today, or in 2014, maybe half of the deposits are our product versus half being third party. We expect next year to recapture a significant amount of that business with these new product introductions, and we feel pretty good about that. That's going to be, I would say, the main portion of our growth is from our own sales force.
Your next question comes from the line of Tom Gallagher from Credit Suisse. Please go ahead.
Good morning. Bill, my first one, just a quick follow-up on the last point you made on your new variable annuity product, moving from an IB to a WB. Is that more of a risk management decision based on interest rate tail risk or what's really driving that? Because I think you've done a good job over the years defending why you're very comfortable with the GMIB risk you've sold. I just want to understand what's behind that.
I think the WB, we will have a more thorough risk. We've done a lot of good things over the years to manage our IB risk in terms of hedging it. I think you know that we have changed our hedging strategy in 2014. We have brought our hedging program back on shore. Obviously, we have to hedge all the in-force there, so we've changed how we're hedging. We think the withdrawal benefit is going to get us a better hedge than the IB did historically. I don't think the IB was bad, but this will be really tight. Part of it is risk management. I think part of it too is the market reality. The market reality is most of the industry sells a WB. That's what producers are more comfortable explaining and talking about.
I think that's going to be a positive as well.
Okay. Just a question for Christopher Townsend. Can you comment a little more, I think you had mentioned China and India were two key markets in terms of future growth and build-out of your Asian business. I guess from what I've heard in those markets, those are two of the most challenging markets for foreign companies to operate in. Just curious if you agree with that, and if so, why those would be two focal points for you and anything else you can elaborate in terms of the longer-term strategy in Asia?
Let me just start by taking you back to our sort of cornerstone strategies. One of the key strategies which Steve has outlined is the growth of our emerging markets business. With two large emerging markets, both with a billion plus people, it would be odd not to have a good penetration in both of those markets. I think you know that we're restricted in terms of ownership for those markets. In China, we have a 50% ownership and a joint venture partner there, and we have 26% ownership of our business in India. In China, our business actually is in pretty good shape with the third largest foreign joint venture, and there's 26 joint venture companies in that market. Of 70 companies in the total market, we're the 10th most profitable in terms of a local China stat basis.
We're very confident about our China business because it has a differentiator in terms of the distribution. We're the second-largest company in that market of both foreign joint venture and domestic companies in terms of telemarketing business. We think the supplementing of that business with the digital capability we've just launched, which is market leading, will really enhance and further that growth going forward. We're fairly bullish in terms of our business in China. At the moment, it makes a very minor GAAP loss on a U.S. basis, but it will be GAAP profitable on a U.S. basis in 2015. For India, our business is smaller.
As I said, we have 26% market share, but our distribution there, again, I think is differentiated in that one of our partners is the Punjab National Bank, which has about 7,000 branches around the country, and we're at the very early stages of penetration of that. That does give us a unique advantage in that market.
Okay, thanks.
Tom, this is John. Just want to highlight or qualify Chris's comments. I think he said 26% market share. It's 26% economic ownership of the company. We're limited by law in India as to how much we can own. We hope this will increase over time, with the Indian government opening up foreign investors to increase our percentage. Just want to clarify that for you. Thanks.
Thanks.
Your next question comes from the line of Suneet Kamath from UBS. Please go ahead.
Hi, just a question on the growth rate. I guess on a consolidated basis, it's a little hard to roll everything up because I'm not sure how the change in tax rate flows through the guidance. Just wondering if you can give us a little bit of help on, maybe at a high level, Steve, how you're thinking about the near term kind of consolidated growth rate ex-corporate and taxes.
Hi, Suneet, it's John. I'll take this one. I think the best way to answer that question, we've given you details by each area. The U.S. and Japan have a 35% tax rate, and other things average out. I think you can do the math to get the overall.
Okay, fine. Then I guess on VII, I know in years past you've given us a nominal range, in terms of what you've expected. I thought last year it was like $900 million-$1.3 billion, something like that. Just wondering if you have some more range that you can give us in terms of your expectations for 2015.
Sure, Suneet. This is Steve Goulart. We're comfortable with a range of $1.3 billion-$1.7 billion for next year in VII. That's roughly in line or pretty flat to where we expect the VII for the full year this year. If I give you a little bit of color on some of the major components of that too. Private equity is very strong this year. We think it will still be strong next year, but it just can't match the same performance of this year. We'd expect it to be down a little bit. Hedge funds, we're significantly below our projection for the year, but we would expect to see a recovery in those next year. Prepayments have been very strong all year too. We wouldn't expect to see that level continue. We'll see some small decline there.
You put all that together and you end up with basically a number that's pretty much in line with where we think we're going to come out for the full year this year.
All right. Got it. Thanks.
Your next question comes from the line of Ryan Krueger from KBW. Please go ahead.
Hey, good morning. Thanks. Regarding the different intercompany segment allocation changes, can you disclose it for all the segments? I think if I add them all up, there's a negative $65 million impact to the business segment. I just wanted to confirm, does that mean that the corporate segment loss on a similar baseline level would be $65 million, I guess, higher this year after you do those allocation changes?
Right. This is John. The numbers we gave you are post the change, and we worked off the baseline earnings to show you the ROE. This is how it would look next year. We did do a variety of items between capital. Probably one of the largest ones, excess capital over the target for that business is swept out and goes to corporate.
I'm just thinking, I guess, does the corporate segment loss range you provided, if we compared that, how is that being influenced by the changes, is what I'm really asking.
Okay. There's a long set of pluses and minuses here. Corporate lost the DRD deduction. That goes more appropriately to retail annuities from an earnings perspective. It gained the investment income on the excess capital that goes through. When I say excess, I mean, the amount, technically it might be in a statutory entity, but it's above their target, so we're counting that in Corporate because the businesses should be responsible for managing their business with how much target capital they need. It's treasury and Corporate that manages the excess.
Okay. I can follow up more after. Second question, in terms of the yield curve in Corporate Benefit Funding, can you just talk about what part of the yield curve kind of really matters in that business when you talk about a flatter yield curve over time having some negative impact?
Sure. Ryan, it's William Wheeler. In CBF, we have a lot of different variation in terms of the liability duration. A lot of that business, the liabilities are quite long. In the capital market product area, though, we do issue some short-term liabilities that are often where they're floating, and the assets may or may not be floating. There, if you see an increase in LIBOR, there's the potential for some spread compression. Also, the securities lending activity is most of that activity gets pointed towards CBF at the end of the day, and that's to a place where, if you see an increase in LIBOR, you'll see a little margin compression in the short run.
Got it. The short end of the curve, unlike most of your businesses, this one would be impacted by the short end of the curve.
That's right.
Okay. Thank you.
Your next question comes from the line of Seth Weiss from Bank of America Merrill Lynch. Please go ahead.
Hi. Thanks for taking the question. I'd like to follow up with John on the interest rate commentary. You mentioned that the statutory charges going forward, if we assume a flat 2% rate environment forever, less than what you highlighted back in the middle of 2013. You spoke about strengthening measures in 2013 and 2014. I was hoping you could detail what those were a little bit more specifically.
Yeah. Almost all of the statutory strengthening that we've done in 2013 and 2014 come from our New York company. We work, of course, with the New York regulator, who is a bit more prescriptive than perhaps other states in the assumptions we can use in our cash flow testing. Over the last few years, they've required us to be more conservative in that. Some is due to low interest rates, some is due to other factors. We put through these statutory reserve strengthenings. These type of assumptions, though, are not reflected in our GAAP.
Understood. I was wondering if you could actually quantify what those charges were, maybe more specifically this year also.
Right. Well, I think we said $400 million-$600 million more than we had planned for in the year. We had planned for some in the year, and we have, due to work this year with New York, we've increased our statutory reserves, and it's mainly in our long-term care segment. We have to do cash flow testing in long-term care separate from all of our other assets because it's a closed block of business, and New York requires us to test it separately. These assumption changes impacted long-term care. The assumption changes on our other business, we had excess deficiency in the testing. The excess was reduced but did not result in any statutory reserve increases other than in the long-term care business.
Okay, great. My follow-up is just philosophically, if I was thinking about low rates, I suppose I had thought of low rates as a constraining factor on free cash flow conversion because of this consistent need to annually, modestly strengthen stat reserves as you detailed last year. Is it fair to read from your commentary today that while low rates will obviously constrain earnings growth in the long term, it's not going to impact the cash conversion ratio?
Right. Well, the less than $1 billion statutory reserve increase, that's a net present value that'll come in over time. How the statutory U.S. system works is we do cash flow testing that has scenarios of low interest rates in it, and it's sensitive to your starting point. As we start at year-end 2014 for our calculations, we're at lower interest rates, we're just above two, we're thinking about 2.3, roughly, 10-year Treasury. We're not that far off the 2% sensitivity. You can just see how it will impact slowly over time. It is less than we had said a year and a half ago.
Okay. Very helpful. Thank you very much.
Your next question comes from the line of Colin Devine from Jefferies. Please go ahead.
Good morning. I was wondering, just with respect to the outlook, if we could tie it back to what you laid out in Investor Day, specifically on three areas. The first was emerging markets were going to get to 20% of operating earnings, I believe, by the end of 2016. Where are we seeing that here? The second part was on the global employee benefits, where I think you were looking at mid-teens earnings growth. On the capital management piece, Steve, I'm not sure if I heard you correctly mention potentially $8 billion of buybacks. I didn't see that on slide eight. Really, how has that changed since last June? Thanks.
I'll take two. Global employee benefits, we'll have Maria talk about. As to emerging markets, we put a 20% target out there for 2016. A couple of factors that make that a challenge for us to reach by 2016. We may reach it, but the challenging aspects are as follows. We've reduced how much capital we allocate to certain businesses in the emerging markets in Latin America and EMEA, which puts some pressure on NII for that. There's a little bit of a shifting around of capital. I think the bigger factors really are as follows. The first is that we've had very favorable markets in the US equity markets, which have boosted our equity-sensitive earnings around variable investment income as well. The equity-sensitive earnings around variable annuities, variable life, as well as the variable investment income being stronger than planned, have made the US earnings bigger.
The issue is a ratio here more than just how well the emerging markets are doing. The strength in the U.S. dollar is depressing earnings on a dollar basis as we translate back to the U.S. and under GAAP. Finally, our plan assumed a certain amount of M&A activity. We had a large transaction, $2 billion transaction with Provida that we closed in Chile which was basically half of the M&A activity we anticipated. There still could be a transaction between now and 2016 that could change the dynamic here. We are disciplined buyers of companies and businesses, and
We'll just see whether anything comes on the market that's attractive that makes sense for us to pursue aggressively between now and in 2016. That addresses the emerging market piece, the 20% question you had, Colin. As to capital management, what I was saying there was that our initial strategy when we went through that work here in 2011, early 2012, and we announced in 2012 May, assumed $8 billion of share repurchases. Because of uncertainty around regulation associated with potential SIFI designation, Federal Reserve regulation, and unknown capital rules, we did not pursue those share repurchases on the same basis that we anticipated in our strategy work. As you know, we've done roughly $1 billion to date. Not quite.
We'll probably finish the $1 billion in the next couple of weeks, and then we've announced today another $1 billion of share repurchases, and that has, in total, the $8 billion results in about 100 basis point swing in terms of our ROE projections. To global employee benefits, Maria?
Hi, Colin, this is Maria. I just wanted to take you through a couple pieces. You may remember from our June Investor Day that we focused on our life and health growth, group life and health, and we said our top line was going to accelerate in the early years of the plan that would drive bottom line in the later years of the plan. That's exactly what we've been seeing. You saw in our June Investor Day that our sales are well into the double digits. Our PFOs were also double digits over the last few years, and we made some investments in the business that now will fuel earnings growth into 2015 and beyond, and we're well on track to do that. As you know, we also had some headwinds in our pensions business.
From an earnings perspective, you know about what's happened in Poland and to an extent in Mexico, which has had some damping effect on our earnings from that line. Our acceleration of life and health is looking to mitigate some of those headwinds.
Thank you for that. Yep. Steve, one follow-up. With respect to your comments on the passage of the Insurance Capital Standards Clarification Act, and you're looking forward to working with federal regulators, does that mean that if Met is designated as SIFI that you'll not be pursuing it in federal court, a challenge of it?
Look, Colin, we're delighted that the bill got passed, and we anticipate the President will sign the bill before the holidays. That's the good news. That gives the Fed flexibility to write rules, but at this point in time, we don't know what those rules will be, even with the flexibility they've been provided. Passage of this bill doesn't change our view that MetLife does not pose systemic risk to the U.S. economy. I think that's the key thing. We have to see what FSOC does on the administrative appeal that we file. We've had our hearing with them, and we're anticipating a decision soon. They've announced a December 18th meeting. There is speculation that will be considered at that point in time in terms of our administrative appeal.
With a look at their reasoning, and then we'll make a decision in terms of exercising any sort of judicial review right that we have under the Dodd-Frank Act. It's important to remember, when Dodd-Frank was passed by Congress in 2010, there were specific provisions in there to make sure that we get the right public policy outcome, not just for an individual company, but for an entire industry and for consumers associated with that industry. That law provides both that FSOC can designate on an initial basis that there's an appeal process back to the administrative body, FSOC, and then there's a further judicial appeal beyond that, again, to ensure that Congress' will is taken into account in this process. It's just important to remember that these appeals were put in law by Congress to make sure we get the right outcome in cases like this.
Hi, this is John Hall. I just wanted to follow up actually on the first question that John Nadel mentioned and asked about free cash flow by segment. We had, at our June 2014 investor day, given some historical net capital distributions for some of our segments. It was 75% for EMEA and 72% for Latin America. This is divided by GAAP earnings, the net capital distributions up to the holding company. We're looking forward, this can vary from year to year, of course, depending on what happens, but we're about 70% U.S. and 30% non-U.S. in terms of how we see cash coming up to the holding company.
Your next question comes from the line of Erik Bass from Citigroup. Please go ahead.
Thank you. Can you help us think about sizing excess capital for Met, particularly now that you've completed the four-way merger? I guess, do you have an updated estimate for the consolidated RBC ratio?
Hi, Eric. It's John. We've completed the four-way merger. That was done in the middle of November. We expect, as we'd said earlier, I think way back in May of 2013 at our investor day, we expected our consolidated RBC to be about 400%. We still expect that for year-end 2014. As far as excess capital, we still, until we really understand the new capital rules coming out from the Federal Reserve, which may be the most impactful on us, we really don't want to be specific on how much excess capital there is. We do tell you the cash and liquid assets we have at the holding company.
Okay. Just one follow-up on your yen hedging. I just wanted to confirm that the hedges you have in place right now are to cover GAAP earnings and are through 2016. I guess, do you have any additional hedges in place to cover expected capital repatriation?
Let me take the comments. Christopher Townsend, let me take the comments in terms of the operating earnings. Yes, the data I gave in the prepared remarks were both for operating earnings hedge. I think Steve Goulart's got a comment in terms of other activity.
Hi, Eric, it's Steve Goulart. Just related to other hedging programs. We do have, as part of our overall risk management program, a hedge program in place that really sort of ensures our tangible equity exposure to our Japan business. We've had that in place for several years. As you might expect, those hedges are soundly in the money, so it's in good shape. Chris talked earlier about the fact that we continually monitor and manage these programs.
Got it. That's essentially, you would generate equity as those hedges mature, assuming a weaker currency. Is that the benefit?
Well, they would generate gains as the yen did weaken. I think as part of our overall management of the program, we would decide what to do with those gains, whether to monetize them or not and roll them as the hedges mature or not do.
Okay, thank you.
Your next question comes from the line of Eric Berg from RBC Capital Markets. Please go ahead.
Thanks very much, and good morning. If the outlook for capital requirement remains as fluid as it has been, granted the clarifying legislation has been passed, but I think you said, I am paraphrasing it, there is still quite a bit of uncertainty as to what capital regime will ultimately look like. What is driving your decision to announce this morning this additional $1 billion of share repurchase?
Eric, it is Steve. We talked about this a little before, which is we are trying to find the right balance here between returning excess capital to our shareholders, which is our philosophy on the one hand, and given the uncertainty around the capital rules, being prudent to make sure that our balance sheet is strong for whatever capital rules come at us in the future. We anticipated that we would have, if not clarity, certainly draft rules well before this point in time that we would be able to make some decisions. We held off for a number of years in terms of returning capital through share repurchases.
Given how long it has taken for us to see the draft rules, which are still not written, and with this new law being passed and likely to be signed by the President soon, that could even further delay a draft rule for our review. We have tried walk a fine line here between those two different aspects I talked about, being prudent about our balance sheet in this uncertain time and making sure we return capital to shareholders, which is our philosophy. There is about $6 billion in cash and liquid assets with the holding company that we think will be there at year-end 2014. We thought announcing another billion-dollar share repurchase authorization at this point in time made sense in light of all of what I just said there.
My second and final question relates to EMEA. In your guidance, I believe you contemplate earnings growth in rough numbers twice the rate of top-line growth as measured by premium fees and other consideration. What is driving that earnings growth much faster than the revenue or top-line growth in the EMEA region?
Yeah. Hi, Eric, it's Michel. As we mentioned, our top-line growth or PFO growth is impacted by the divestitures and the lag elimination in 2014. Our earnings continue to be strong. I mentioned our standing in many emerging markets in the region. Those markets continue to generate attractive returns and strong earnings for us. We also continue to have very strong expense management which is helping us, especially in circumstances such as Russia, where we are seeing a drop in sales volumes due to the economic headwinds there. Yet, we've managed to adjust our model to protect earnings there. We feel confident about our ability to continue to generate earnings growth in the mid-teen based on our baseline earnings.
Thank you. I'll follow up. Thank you.
Okay. That brings us to 9:30. We thank you for your participation on the call. Have a good day.
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