(Bloomberg) – MetLife Inc. Chief Executive Officer Steve Kandarian has highlighted free cash flow as a key metric for investors to evaluate when judging his company.
If you want to take his advice, you’ll have to wait to get a thorough look. The insurer reports the figure only on an annual basis, and just as a share of operating earnings, rather than giving a dollar figure.
Life insurers, particularly the two largest in the U.S., MetLife and Prudential Financial Inc., “are not the most transparent,” Cathy Seifert, an equity analyst at Standard & Poor’s Capital IQ, said by phone. ‘Some companies have sort of closed up the kimono a little,’’ she said. “There’s the talk and then the walk. We’re still getting the talk but maybe the numbers are not playing that out.”
Kandarian has sought to downplay the importance of net income, which can fluctuate on a quarterly basis because of derivatives tied to currencies and interest rates. The CEO said in his annual letter in March that the company should be measured on its ability to return cash to shareholders.
“Since the financial crisis, investors have shown increasing skepticism toward reported earnings for life insurers,” Kandarian wrote. “Nothing is more fundamental than cash.”
Oversight from regulators and ratings firms can limit how much of a life insurer’s earnings can be distributed to shareholders. Free cash flow, which subtracts capital investment from operating cash flow, can be used for share buybacks and dividends.
The number can be difficult to compute every three months because it is calculated based on annual filings to state insurance regulators, according to John Calagna, a spokesman for MetLife.
“A lot of work goes into calculating free cash flow, and it is too volatile on a quarterly basis to be meaningful,” Calagna said in an e-mail. “Analysts and shareholders are very pleased that MetLife is providing free cash flow information.”