Hello, and good morning, everyone. I hope you found that video just as inspiring as I did. My name is Shubha Khan. I'm Head of Investor Relations at Great-West Lifeco. Paul Mahon, welcome to our 2025 Investor Day. I'm very grateful so many of you have showed up here in person to join us for Investor Day today. For those of us joining us via the live webcast, a warm welcome to you as well. Some of you might recall that our more recent Investor Days have generally focused on one line of business or one operating segment. Today, we're taking a different approach. This is the first time since our 2016-2020 Investor Day, in fact, that we will cover the full spectrum of our businesses.
We've had a lot of investor queries on all of our operating divisions in the short time that I've been here with the company, and I couldn't be more excited to be here as we discuss the next phase of Lifeco's story. If you look at the backdrop behind me, to the extent that you can see it, you will notice that there's a theme to Investor Day today. The theme today is driving growth, delivering lasting value. It signifies the transformation the business has undergone over the years, especially in the last five. This is the focus of today, on Lifeco's continued evolution towards a more capital-efficient, more cash-generative portfolio of businesses.
Over the last 12 months or so, we've made a big effort to equip investors and analysts with the tools to better understand our business, our operations, better understand our financial performance, and more fully appreciate our financial outlook. An example of this is our refreshed supplementary information package, which was released just a few short weeks ago, and it more clearly ties our financial performance to the underlying earnings drivers. We hope that you find today's presentations to be a continuation of that desire to provide more information, better information, and to engage with the investment community more actively. Before we begin, I should highlight one key housekeeping item in our remarks. Today, we make statements containing forward-looking information or non-IFRS financial measures.
Please refer to the cautionary notes in the presentation, which can also be found in our 2024 year-end disclosures on our website. Rest assured, this is the most boring slide you'll see today. It does contain information, important information, but the content will become far more compelling after this. Just to underscore that point, I present to you our action-packed agenda for today. We'll start with a presentation from our CEO Paul Mahon, followed by our CFO, Jon Nielsen. We'll then hear from the leaders of our four operating segments. I'm sure you'll have plenty of questions throughout the day. We've structured the day to include three Q&A segments, so you'll have plenty of opportunity to ask questions.
We'll wrap up the formal agenda by around 12:30 and hope that those of you here in person today will join us for an informal lunch. With that said, it's my pleasure to invite our President and CEO, Paul Mahon, to the stage to begin today's session. Thank you.
I am betting that lunch attendance will depend on how wet or dry it is outside at around 12:35. Good morning, everyone. Welcome to our guests here in Toronto, and welcome to those of you who are joining us virtually. Before I get into my formal presentation, I want to share how excited I am about the strength of our team here today. Businesses are built over generations, and when you think about an insurance company, they're built over fundamentally generations, given the promises we make are sometimes 20, 40, 60, you know, 100 years in the future. What we've accomplished is really, you know, on the shoulders of others. I have to admit, I'm very proud of the work the team here today is doing to unlock value. I think you'll see evidence of that as we go through the presentations.
There are four leaders actually presenting today who were not part of our 2023 Investor Day. The first of those actually was Shubha Khan, in investor relations, who you just heard from, and I'm so glad that Shubha's here. Jon Nielsen, our CFO, Jon joined us about 18 months ago. He's been in place for about a year now. He's up next after me. Fabrice Morin, who leads our Canadian operations. I'm glad to have Fabrice here. And then Lindsay Rix-Broom, who leads our U.K. business. She'll be joining David Harney on stage to provide you with insight into our U.K. operations. Now, turning to my presentation, while the focus of today is on how Lifeco is positioned to deliver strong organic growth, I do want to take a moment to reflect on the current external environment. Top of mind for many is the geopolitical backdrop.
That includes protectionism, tariff threats, and actually all of the uncertainty this creates. I want to let you know that we take these threats seriously. We respond, we react. At the same time, we believe we're very well positioned to manage through this uncertainty with strong risk-based disciplines. We're a company that thrived for more than 170 years through major change and challenge. Think of the generations of change we've been through. Through it all, we've maintained an unwavering commitment to our customers, our employees, and our partners. That includes you here today. From a commercial perspective, we also believe we're well positioned. Consider our portfolio, which is diversified across sectors and geographies. In fact, 40% of our earnings are US dollar-based.
Our businesses are predominantly domestic in nature, so we do not deal with the issues of cross-border friction. Our focus is on more stable financial necessities, things like pensions and benefits and retirement and things that, you know, people rely on. Generally speaking, as we saw through COVID, during periods of stress, people actually turn to products and services that will give them security. We believe we are well positioned. The presentations you will hear today will focus on our current strategies that are delivering strong organic growth and financial performance. We will provide deeper insight into two important areas: the steps we have taken across our businesses already that will continue to drive organic growth, and the strength of our overall portfolio driving capital-efficient growth and strong capital and cash generation. That will be an important theme that Jon will touch on.
Across the presentations, you're going to hear some fairly common themes: that we have clear strategies to build and extend market leadership positions, that we remain disciplined and risk-aware as we think about our capital allocation, and that our focus is on organic growth in stable markets supported by secular tailwinds. That will be a theme you're going to hear about from each of the business leaders. We'll actually share our financial outlook, including our base earnings growth outlook for each segment, our expectations of a continued shift to more capital-light business, and our capacity to deliver strong capital and cash generation. Given this outlook, we're raising and enhancing some of our medium-term objectives. This reflects our confidence in our strategies. It reflects our confidence in our teams, and it reflects our confidence in our ability to execute.
Our company has thrived for more than 175 years, responding to opportunity and challenge. Consider today's scale with over $3.1 trillion in assets under administration and over $1 trillion in assets that are either managed or advised. We've earned the trust of millions of customers, and our reach continues to grow. We operate from a position of strength with a strong balance sheet and ratings. We benefit from our relationship with Power Corporation of Canada. Their long-term majority stake aligns with our focus on long. The reality is we've done a lot to strengthen our businesses over the last five years. Consider the actions taken in the US: the wealth-focused acquisition of Personal Capital, our retirement expansion through the acquisitions of MassMutual and Prudential, the dispositions of our US individual markets business, and Putnam. We now have a very focused Empower strategy in the US.
It's leveraging retirement leadership, and it's also focused on driving strong growth and Empower Personal Wealth. In Canada, the addition of Investment Planning Council and Value Partners positions us with a leading wealth platform well positioned for organic growth. In Ireland, the launch of Unio Wealth and also our joint venture with AIB are each unlocking growth potential. In the U.K., we actually had both dispositions and acquisitions. We disposed our individual protection and non-share wealth businesses, which has really brought focus to pension risk transfer and group protection, two areas of leadership and organic growth for our U.K. operations. Our Capital and Risk Solutions business continues to focus on strong organic growth paths driven by their expertise, their innovation, and significant market opportunity. Compared to five years ago, we have four at-scale business segments.
Each are executing clear strategies to unlock value and drive long-term growth. A clear strategy guides our actions and will remain central to our capital allocation. At the core of this strategy is a focus on building leadership positions in attractive markets supported by secular tailwinds. Key to this strategy is in-market leadership driving our customer strategies, complemented by a Lifeco team focused on disciplined capital allocation. Leadership positions represent launching points for business extensions into attractive adjacencies, and you'll hear that as a theme throughout the day. While M&A remains a tool to strengthen leadership positions, investment in brand and capabilities will drive capital-efficient growth. Consider this playbook in the context of Empower. I'll give you an example. We built a market-leading retirement platform with strong organic growth potential.
We used that platform as a launching point to move into an extension into the wealth management space, our Empower Personal Wealth business. We are now investing in brand and capabilities to capture significant organic growth potential in the underserved mass to affluent market segments. While opportunities in each of our segments will differ, the playbook remains central to our value creation. The strategic steps we have taken over the last five years are paying off. Our strong base EPS growth reflects solid contributions across all of our businesses led by Empower, which had both strong organic and inorganic contributions. Our base ROE increase is driven by growth in earnings and a shift to more capital-light mix of business supported by wealth and retirement growth. Our dividend payout ratio is now squarely in the middle of our target range, delivering increases in line with our business growth.
I should note that this performance reflects the transition to IFRS 17 in 2022, where we had a modest drag on 2020, on, EPS growth and a modest boost to ROE. Our strategy of building leadership positions is playing out as planned across our four segments. Leadership positions provide us with the scale to support low-cost operations and the capacity to invest in organic growth. Except for capital and risk solutions, our businesses are domestic in nature, supported by strong in-market brands and local teams with deep insight into their customers, into their distributors, and into their competition. Capital and risk solutions leverage similar strengths, including deep insight into the challenges facing their clients, top global insurers. A consistent theme that you will hear across our businesses is targeting market sectors with the greatest opportunities for sustainable organic growth and stable margins.
Given our businesses operate in more mature markets, our approach to growth and value creation is to target market sectors with outsized growth potential. In some cases, this includes the benefits of scaling businesses in markets that remain fragmented. More important is our focus on market sectors supported by secular tailwinds that drive higher growth and demand for our products and our services. While our segment leaders will provide deeper insight, I'm going to provide a couple of examples. First, consider aging populations combined with known advice gaps amongst the mass to affluent market segments. This is driving increased demand for retirement and wealth advice, a key driver of our growth. Consider this second example: the challenges that governments face in supporting the health and retirement needs of aging populations.
These two factors create opportunities in private retirement savings and healthcare delivery, areas where we participate in a meaningful way. Each of our segment presentations will highlight how secular tailwinds are helping to drive their organic growth. Looking back just two years, you can see a notable shift in our mix of business across the four lines of business represented here. You will note that we're now breaking out group benefits and retirement to provide greater insight into our performance. Looking forward, we project a continued shift to a more capital-light earnings mix supported by strong growth in retirement and wealth. At the same time, we're projecting solid growth in group benefits and insurance and risk solutions. These lines of business represent important diversification for Lifeco. An underappreciated feature of our portfolio is the capital-generative nature of our earnings.
Jon will provide a lot more color on this, including how our changing mix will strengthen this aspect of our performance. While the big-picture strategy is important, execution happens locally. There are some key themes that you will hear from our segment leaders today that I'm going to highlight here so that as you, as we go into those, you can be focused on that. For Empower, it's about leveraging and strengthening our retirement business while unlocking significant growth potential in Empower Personal Wealth. In Canada, it's about our focus on higher growth sectors driving organic and extension growth. Our independent wealth platform is a great example of this. In Europe, it's how we're leveraging our strengths combined with secular tailwinds. Two examples are our wealth business in Ireland and bulk annuities in the U.K.
For capital and risk solutions, it's how we're using our deep expertise, our risk discipline, and importantly, trusted relationships with clients to help them manage their growth. There are also some common themes across our businesses. The first is disciplined cost management and taking advantage of operating leverage. A good example is the synergies we captured as part of the acquisitions of MassMutual and Prudential at Empower, where we took out more than 30% of the cost at transition. That is an example of operating leverage. The second theme is about a focus on investing in areas where we see the greatest opportunities for organic growth. It's about the choices we make. Good examples are wealth extensions we've done in Canada, in Ireland, and in the U.S.
Focus also means being prepared to either step back or even step away from businesses where we don't see a clear path to leadership. I'm going to provide you two a couple of examples. First would be our US individual insurance and our UK individual protection businesses, where we didn't see a path to leadership. We said that capital is better deployed elsewhere. More importantly, management's mindset focus can really drive greater things. We see that happening with Lindsay and her team. Another example would be our GLC asset management in Canada. We looked at that and we said, you know what? We don't see a path to leadership. We think we're better to combine that with an entity and drive a partnership and focus on wealth. We've been doing this across our platform.
The playbook is not just about, you know, the organic actions to drive each business inside of them. It's also about the choices we're making. We think that's fundamentally important. I would like to highlight two key strengths that we believe drive strong performance at Lifeco. First, our segment leadership teams that define and drive our in-market strategies. These teams bring deep in-market experience and insight, the insight required to build strong and highly competitive teams and businesses. I underline teams and businesses. When you see the strength of the teams we have, that's what drives business strength. Following Jon Nielsen, you'll hear from a number of these leaders about their segment strategies. A second strength is the important role that Lifeco plays at a portfolio level.
While Jon will touch on a number of the benefits, I want to highlight the importance of this centralized expertise at Lifeco in areas like M&A, asset liability management, and capital and risk management. These are areas where our investments and people and capabilities are really paying off. You will see this play out in the bulk annuity example that Jon will refer to and that Lindsay will actually cover in her comments. Our leadership positions and strong momentum are supported by persistent secular tailwinds that position us for continued growth. This gives us the confidence to raise and enhance some of our medium-term objectives. I'm happy to share that we're raising our base ROE objective to 19%+, reflecting our growth targets and our continued shift to more capital-light business mix. We're also introducing a new capital generation objective.
Jon Nielsen will provide a lot more color on this in his comments. We are maintaining our dividend payout objective of 45-55% of base earnings. This provides for attractive shareholder returns while preserving capital for growth and stability. We are maintaining our medium-term base EPS growth objective of 8-10%, which reflects our view of our organic growth potential. Like you have seen over the last few years, we have the real potential to outperform this EPS growth objective through a creative deployment of excess capital. The balance of today's presentations will provide deeper insight into our businesses, how we are positioned to drive organic growth and strong financial performance. The presentations from Jon and the segment leaders will highlight three important themes. Our leadership positions are backed by strong secular tailwinds that support long-term organic growth.
Our focus strategies are well-positioned to deliver for our customers and drive value creation for shareholders. Our strong cash and capital generation across businesses gives us the financial strength to deliver strong shareholder returns while preserving capital for growth. With that, I'm now going to hand it over to Jon, who will take you through the financial performance of our portfolio in more detail. Thank you.
Good morning. I want to welcome you to this beautiful venue. I'm Jon Nielsen, the Group CFO, and I'm excited to share more of the Great-West story. I've been in my role for just over a year now, and I couldn't have joined at a more exciting time. Today, I'm going to walk you through four main topics. First, we have a strong track record of delivery, and our shareholders have enjoyed strong returns as a result.
We will share our approach for providing more transparency into the attractive businesses and portfolio that we have. I want to walk you through the significant capital our portfolio generates and the financial flexibility and resiliency that we have as a result. Finally, we will cover the significant opportunities we see to drive growth and expand returns, leading to the medium-term objectives that Paul shared with you. These opportunities give us great confidence to continue to deliver strong and sustainable total shareholder returns. As Paul shared, our strategy is playing out as we intended and has been delivering outstanding results. We have a great deal of confidence that this will continue. We've outperformed our medium-term objectives for base earnings and ROE by a margin while continuing to deliver an industry-leading dividend payout.
We've invested a lot in our businesses for growth and return, and this has enabled us to revisit our medium-term objectives as we look forward to an exciting future. Since joining the company, I've been very pleasantly surprised of just how focused our strategic plans are on delivering total shareholder return. Those results speak for themselves and have translated into attractive returns for our shareholders. Now, as you can see here, over one, three, and five-year periods, our TSR has meaningfully exceeded key benchmarks on the fundamental results of our business. Over this period, the returns we've delivered have benefited from little to no expansion to our earnings multiple. You'll see here, I've also provided an adjusted five-year period back to December 31, 2019, to extend through COVID to show that this outperformance wasn't driven by the time period.
Now, we've raised our financial performance ambitions, and achieving these new ambitions would deliver mid-teens, sustainable total shareholder returns. I'm very impressed with the business that has been built over the years. As I've interacted with investors over the last 18 months, I've gained an appreciation that some elements of our business are not as well understood as they should be. We've been reflective on this. I'm taking further steps to share the strengths of our businesses with the investment community. We're enhancing our disclosures to highlight the significant amount of capital that we generate and the fungibility of that capital in terms of cash remittances. We've taken concrete steps to improve here, and we think we're now industry-leading. I'll be sharing additional enhanced insights into the attractive and growing reinvestment economics of our business and the details of our uses of capital.
Further, we've taken an investor-centric approach to disclosing additional details about our business as well as its earnings drivers. This will provide deeper insight into our operating performance as we look forward. Our segments are growing while at the same time expanding their returns. This is a trend that we expect to continue over time. Later in the day, our leaders will take you through the deliberate actions that they have planned to deliver these outcomes. These plans will drive 8-10% growth organically in earnings per share overall, as well as generating capital in excess of 80% or more of our base earnings, which will be the focus of the upcoming slides. Now, this combination leads to significant opportunities to deploy capital into attractive shareholder-focused actions, which give us comfort that we will meet or exceed our medium-term objective for growth in base earnings per share.
As you'll see here, our businesses generate substantial capital. Now, let me walk you through some of the details. As you can see, over the last five years, we generated approximately $17 billion of earnings, base earnings. Of that, we invested about $4 billion into organic growth. We enjoy a high fungibility of our capital, and this has resulted in $13 billion of remittances to Lifeco. Over that period, capital generation was between 70-75% of base earnings. Now, of this amount, we returned about $9 billion to our shareholders. We invested $4 billion into inorganic opportunities and further strengthening our balance sheet. As we look forward, as Paul mentioned, we've introduced a medium-term objective to generate capital in excess of 80% of our base earnings.
Now, there are several drivers of how we'll get there, each of which I'm going to cover on the upcoming slides in some detail. These drivers will improve returns on our portfolio while also driving capital efficiency into our organic growth. We will generate significant excess capital after funding our industry-leading dividend payout ratio. This excess capital of approximately 30% of base earnings enables us to pull multiple levers to maximize total shareholder return as we move forward and is a real contributor to our optimism in driving earnings growth. Now, let me take you through in some detail our strong reinvestment economics and the attractive returns that our business generates. Here on this slide, we've illustrated the relative returns on capital for our business. This is internally consistent with how we price and how we manage our business.
It factors in the capital that our business consumes. The returns on capital are indicative of our reinvestment economics being the marginal return on capital that we earn from deploying the next dollar of capital into organic growth. As you can see here, these underlying returns are attractive, and they're growing, and they're higher than our overall reported ROE. Our retirement and wealth businesses are expected to continue strong growth, and they have higher returns on capital, as you can see, than the remainder of our portfolio. These businesses also benefit as organic growth is highly capital efficient, delivering higher capital generation as a percentage of base earnings. As a result, our overall portfolio returns will be enhanced by both a business mix, a shift in business mix, as well as overall margin enhancement. This is a material lever of the growth in our ROE over time.
Now, our insurance businesses will also benefit from expense efficiency and capital initiatives leading to improved returns. As we've shared with you in the past, we are focused on driving further expense efficiency and operating leverage across our business. There is more room to go. The demonstrable progress that we've achieved is evident from the change in our expense efficiency ratio over time. Our growth will benefit from continued cost discipline as we have plans to deliver an efficiency ratio below 50%. Here, our plans include modernizing our technology portfolio, including a move to the cloud, which will enable AI, and gaining the efficiencies of a single brand and advisor channel in Canada. These lead to increased automation and productivity. Further, we'll continue to leverage a global workforce with the use of our service centers.
Now, these initiatives come with an investment in our businesses, and we expect to incur $250 million-$300 million in post-tax transformation charges over the next 36 months to deliver these savings, which we have reflected in our medium-term objective. As with our usual practice, we'll provide updates on our progress in our normal course of reporting to shareholders. We're continuously looking to achieve greater capital efficiency. This is a capability where we already have strength and will continue to get better. Now, I want to walk you through just one example of a portfolio of initiatives that we already have underway. In the U.K., we've identified and been pursuing actions that will yield $3 billion of capital benefits. These include optimizing our ALM, more strategic use of reinsurance, and implementing enhanced risk models.
Today, our results here have been impressive, and we've already realized $1 billion of capital benefits. We expect to achieve another $1 billion from the identified actions over the next two to three years, which will benefit our capital remittances and return on capital. These initiatives will also reduce capital strain for our new organic business by an additional $1 billion in the U.K., boosting our competitiveness and allowing us to grow profitably. Lindsay and David are going to share more about their plans in their upcoming presentation. Now, let me walk you through how these initiatives lead to delivering meaningful upside to our ROE and result in our revised medium-term objective of 19% or higher.
Now, in terms of rough percentages, the strategic mix shift towards higher growth, retirement, and wealth will deliver about 80% of the increase, with the remainder coming from the expense efficiency and capital actions that our businesses have identified so far. We expect the growth in ROE will be significant in the U.S., given our focus on retirement and wealth and the underlying double-digit growth that we expect to achieve. We'll also see higher returns in Canada and Europe. As you'll hear from Jeff, CRS is really opportunity-dependent. We plan for some moderation from the strong returns that we've delivered in recent years. Now, we have a clear path to deliver a stronger ROE over time, but we're not doing so by taking greater risk. Our approach to risk management has always been deliberately conservative, and we don't intend to have that approach change.
Let me share with you some of what gives me great comfort as CFO. First, we are highly diversified across geographies and lines of business. This has allowed us to operate nimbly through market cycles. We have a net-to-base earnings ratio that has been consistently less volatile than our peers, demonstrating the resilient and high quality of earnings and our disciplined ALM. 94% of our portfolio is in investment-grade fixed income, and we have manageable exposures to equity market downturns. We have a diversified product portfolio with well-controlled exposures, and we have had manageable actuarial assumption changes and very strong underwriting experience over time. Our credit ratings and coverage ratio of over nine times underscore our financial strength and a prudent and resilient balance sheet.
This has been a business that's managed successfully through many economic cycles, and this is evident in our ratings being in the top 5% of our peers, and they've been consistent for over 20 years. This has left me very impressed with what I've seen over the last 12 months as CFO. Now, as I shared with you so far today, we will generate a significant amount of excess capital. Before I wrap up, let me walk you through our capital allocation priorities. We, of course, will preserve a strong balance sheet and will continue to deliver profitable organic growth at the attractive returns that we've shared. Our commitment to a strong dividend payout is long evident and will continue to grow the dividend while maintaining our payout ratio in line with our medium-term objectives.
We have a strong track record of delivering strong returns through inorganic growth and will continue to pursue those opportunities that are accretive and aligned with our strategic priorities. Now, there's nothing imminent now, but we're always on and will maintain our discipline and high standards here. Given our ownership structure, we do recognize the need to maintain sufficient liquidity for our minority shareholders. This results in some limitations on traditional buybacks, but we've shown the ability to execute a substantial issuer bid in the past. Subject to market conditions, this is a tool for larger buybacks while minimizing liquidity implications. Now, before we move into a Q&A session, let me share a few concluding remarks. We've built a strong business that has delivered results that have exceeded the objectives we set in the past. This is translated into strong total shareholder returns relative to benchmarks.
We have every intention to build on this track record of success. Historically, some of our strengths have not been well communicated, but this is a business with strong and growing returns, and we generate a significant amount of excess capital. We see many opportunities to continue to drive growth and expand returns as we allocate this capital in a very disciplined manner. This all results in a very exciting time ahead as we deliver against the revised medium-term objectives that Paul shared with us. These include delivering at least 8-10% organically in growth and earnings per share, those earnings turning into more than 80% or more in capital generation, a growing ROE of 19% or higher, as well as continuing our industry-leading dividend payout ratio. I want to thank you for your time today and the support you've given me over the last 12 months.
Paul, Shubha, and I will be happy to take some Q&A. Perfect.
Excellent. Thank you. We have approximately 20-25 minutes for this first Q&A segment. Paul and Jon are in hand for this first session. If you have any questions that relate specifically to one of our four operating segments, I recommend that you wait for our second or third Q&A segments. In order to accommodate as many members of the audience as possible, I ask that you limit yourselves to two questions at the outset. You are more than welcome to ask a follow-up after other people have had an opportunity to ask their question. If you have a question, please raise your hand and wait to be recognized. We will then bring a microphone to you. Once you have been recognized, please state your name and your company for the purposes of the transcript.
With that, we're ready to begin. Any questions from the audience? I believe Tom, you have the mic. Okay. Thanks.
Tom MacKinnon, BMO Capital. I noticed that in the targets, you did not have a leverage target. Was there any reason for that? To what extent do you think that plays in capital generation? I mean, one easy way to get a lot of capital is to raise a lot of debt, and then remit that back to the Holdco. Is there any reason why you did not have a leverage target, and what is your thinking about leverage? Thanks.
Yeah. One of the things that we have always taken into consideration, and you would have seen at the top of our capital allocation priorities, is maintaining our strong ratings. These are sacrosanct, super important to our business.
Over the last couple of years, we've got our leverage ratio right where we want it. I think at the last point in time, it was below 30%. We're happy operating in that kind of 25-30% level. We have, in the past, been able to use leverage as a short-term liquidity or funding mechanism in terms of funding M&A. That's something that we'll always consider, and we'd have discussions with our rating agencies. We're certainly committed to the strong ratings that we have. The capital numbers that I've shared here are all liquidity that we get from our subsidiaries. We've had strong fungibility. I just keep going back to fungibility. The importance of getting that capital as you're in it up to Lifeco, and that's really enabled us to reinvest it or return it to shareholders. I think the track record's very strong there.
To what extent do you think the strong ratings are related to your relationship with Power Corporation? Does that help in terms of the overall ratings?
I mean, maybe you want to start.
I'll start on that one. I think the stronger ratings are really a function of the strength of the business, the stability, the delivery over the long term. As we think about the relationship with Power, for sure, as I said, that represents, in our minds, stability for us. Ultimately, rating agencies are going to look at the business and its ability to deliver. That's what I think is underlying our ratings.
Okay. Maybe just add a couple of points. First, we have a cover ratio of over nine times. If you look at our peerset, that's a really advantageous position to be in.
You think of Power where somewhere around two-thirds of their earnings were probably the anchor of the ratings, our strength, as I shared with you, high capital generation, prudent balance sheet really enables us to hold those ratings as a standalone. The broader group, obviously, they look at their balance sheet positions with the rating agencies and have independent discussions. Thanks.
Thank you. Meny?
Meny Grauman from Scotiabank. First question is just the market assumptions that are underpinning your financial targets. It strikes me that's particularly important because I noticed MixShift is a big part of the ROE waterfall chart, and you're shifting towards market-sensitive businesses, particularly in Power. Just trying to understand that and the sensitivity. If markets do not meet your expectations, how does that change your outlook here?
Yes. Yeah.
In terms of sensitivity to earnings, a 10% fall in markets is a couple hundred million dollars overall. Power is about half of that. I think Ed's going to share a lot of details on the diversified revenues that we have in Power. Let me just walk you through a few highlights before he comes on. Half of our earnings are market or half of our revenues are market-sensitive in Power. Out of that half, our clients hold a very diversified portfolio. Think of it as about 60% being in S&P, another 20 or so in a varied range of equity securities, international markets, and the remainder of 20% in fixed income. The other 50% of our revenues are less market-sensitive. They're based upon prevailing interest rates and participant or other fee-based transactions.
Ed can I think share a lot more details on the composition of those revenues, but we're very comfortable with that diversification and with the overall diversification. I think we mentioned the comment about having a diversified set of earnings. You'll hear more about how we intend to keep that diversification through growing our other segments. None of these assumptions that we've used to come up with our plans are different than anything that we've used in the past. It's a consistent framework, and we feel confident in our ability to drive growth towards those objectives.
The second question is just on that new objective, the 80% of base capital generation. Going from 75% to 80%, why is that a good thing? Why is that important?
I think maybe just accelerating the organic investment, especially in a vehicle like Empower Wealth, would actually be the better choice given the kind of incremental returns that you highlighted there being so strong. Why is that a good thing?
Yeah. Good question, Meny. I think it's reflective of just the expected trajectory of growth we see in various businesses. It is a bit of that mix shift. It's really a function of already strong growth that we've got in those businesses. I would say that we're very minded to making the right investments in our business. We're minded to investing in brand. We're minded to investing in technology. The reality is, as management brings forward annual plans, if we see opportunity, we will deploy capital. I think one of the things that Jon outlined is we will have lots of firepower.
We do not feel constrained either in our organic or our inorganic growth opportunities.
Thank you.
Alex.
Hi. Good morning. It is Alex Scott from Barclays. The first question I had is just around the trajectory of hitting this 19%. I know medium term is what we specifically put on the slide, but just given some of it comes from operating leverage, some of it comes from MixShift, some of these things take a while to form. How should we think about what that looks like?
Yeah. I think we ended the year, got a lot of questions because a previous target was 16-17%. Last year, we ended the year closer to 18%. Over time, Paul and I had shared with the market that was something that we needed to revisit in terms of the ROE.
We're very minded in setting this that we leave room to grow, that we leave room to deploy capital opportunistically. We felt landing on the new revised medium-term objective of 19% plus gives us room to grow, gives us room to allocate capital in a very disciplined manner. We have line of sight pretty clearly of how we get there. If you think of Empower's growth, we shared today it's double-digit that we expect organically. That business grows with is growing with little in terms of capital deployment into it. Over time, that MixShift, driven by Empower or other wealth businesses, as we shared, would give us 80%. You'll see it incrementally step up over the medium term to that target and potentially beyond as we've shared that our objectives, 19% or higher.
Thanks.
As a follow-up, I just wanted to ask around the double-digit in the US. You may get more into it later in the discussion here. Many of the peers in the US that you guys compete with are growing top line closer to very low single digits because of the fee compression, flow headwinds from the demographics, etc. What kind of assumptions are you making around how you're going to capture money going into the wealth business? Is it a very large ramp-up? What does that look like?
I think we're better to get into the details of that. Let Ed take you through his presentation. He's going to provide a lot of insight into that. If I was just to provide a bit of perspective, we actually see growth in the retirement business. We've got a leading platform.
We're winning more organically at a plan level day after day. There's discussions about concerns about outflows, for example, at a plan member level. If you think about the building blocks of growing that retirement business, we're increasingly providing managed account services and advice in plan. We are winning more business than we're losing on an organic basis at a plan level. We're adding new products and services like the Option Tracks product we added last year. We're actually growing revenues at the same time that Ed will talk about cost actions and automation and the benefits of global servicing that will actually widen the margins. In and of itself, the retirement business has real growth in it. The only growth play is not wealth. You think about wealth. Ed will talk about money in motion and our opportunity to capture that.
I think when you put all that together, we have high confidence in our ability to drive that growth.
Thank you.
Any other questions in the audience? Dave?
Thanks. A couple of questions. One, just I like the pictures and all, but it looks like the U.S. and U.S. wealth are going to be key components to getting the business mix that you're targeting. If I look at your U.S. wealth business today, it's around 5% of your earnings. Are we hitting some sort of step function where this thing just takes off? It used to be the personal wealth business, and it was losing money. Then you reshuffled a few things, and now it's a more profitable entity. It's still quite small. I know Ed's going to have a presentation later, but if you can give me a couple of sound bites there.
You did mention it's not just acquisitions. You got to look at dispositions that you have in the past, getting out of some business lines. Just ask you, why are you in Germany? It's 3% of earnings. I don't think I've ever received a question about Germany. It's small. It makes money. It seems to me it's like one of those businesses where we would notice it more if you sold it, that some local player paid up for it. Like, "Whoa, great. You got a nice little capital uplift there for something nobody cared about." That's just maybe a crude way of putting it, but it is a way of putting it. Maybe I'll take question two first, and then you can maybe provide a bit of color on Empower. We could do an investor day there in September. Pardon me.
We could do an investor day there in the September timeframe. That'd be great. Exactly. October. October. Yeah, for sure. That's why. No.
The reality is when we acquired Canada Life many years ago, that was as part of the portfolio. And we don't look at businesses from the standpoint of how does it fit in the context of the broad market. We tend to look at where the sectors where we play. And when we look at the broker unitized, unit-linked profit market, we actually have a meaningful position there. We tend to lead surveys in terms of our ability to serve that market. The market has seen quite a bit of dislocation with changes to their capital regime, but maybe a little bit similar to the patience we had in Ireland. If you think about we had Canada Life Ireland.
Canda Life Ireland probably lined up kind of the way our German business does today, where it was kind of a mid-tier player, had good people, had some real strengths. We remained patient, and we waited for opportunities where we could see some breakout growth. If you think about Germany, it's a very large financial services market that's going through quite a bit of structural change where governments are having to offload savings to individuals and to businesses. We see this as being a lift not only in individual retirement savings but also group retirement savings. We've invested in systems. We look at it as optionality for growth. At some point, would it be better in combination? Maybe we'll be the organization that will be doing the combining as opposed to someone else.
I would remain focused on the fact that there are structural opportunities there for that business to grow, and we remain patient with it. We also run it by leveraging Ireland and Germany as part of the Eurozone, where we can actually get some synergies in managing that, synergies in terms of the way we manage it from a talent perspective. We remain patient in Germany, and I think there are opportunities there.
When you reference Canda Life Ireland as the proxy, you're talking about the entity before you acquired Ireland.
Before we acquired Irish Life. We combined those businesses, and we ended up with something that has been a massive value driver for us. Patience is sometimes virtuous.
Dave, you're a man after my heart. I had the opportunity to live and work in Munich for three years.
Maybe we'll accept your invitation for the Mix Investor Day. In terms of wealth, you're absolutely right. This is an opportunity that's significant. I don't want to steal the thunder from Carol and Ed, but it's a trillion-dollar funnel of opportunity for us to capture over the next five years. We have a differentiated approach to wealth management, and you're going to hear more about that from Ed and Carol, which is we're going after the mass affluent where there's less competition, where there's a need for the valued services that we provide. Those services aren't being provided by the rest of the wealth management industry. We do it through a combination of human touch and digital. We're super excited about the opportunity ahead.
As we always say, we're in early innings here, and this could be a business that's much larger than a retirement business in the US over time.
All right. Thanks.
Any other questions?
Paul Holden, CIBC. First question, I guess, for Jon. You articulate that 30% of earnings are basically deployable capital. That's a lot, about $1.2 billion a year by my math. Usually, capital deployment, particularly through acquisitions, is a little bit of a competing force on ROE expansion, at least in the short term. Maybe talk a little bit about how you balance the objective of wanting to expand ROE versus all that capital you may be generating and the need to deploy that.
Yeah. It is a balance that we talk about all the time in terms of the different deployment options that we have in terms of that significant amount of capital.
This is nothing new, Paul. I mean, we've been generating a lot of excess capital over the last five years, somewhere probably around the 20%-25% level. We were able to deploy that quite significantly and expand ROE over time. We think it's a combination of organic growth. I think we've given you all the details that you can see the kind of mixed dollar deployment into organic growth. It's much higher than our portfolio ROC. If you think about deploying 20% into 9% growth, it's an attractive return. Complementing that with well-disciplined, we shared that we would always look at M&A only if it was accretive, IRR 15%. You're right. There is sometimes a transition period to get to the run rate.
If we were to do M&A that was more significant, we obviously would articulate the time period in which we would get there. We have the opportunity to return capital. This is something that we've done in the past with the substantial risk we've been that we think we continue to look at in the future. We pulled the levers of capital return quite hard at year-end results with the double-digit dividend growth and announcement of a buyback. That's something we're always going to consider as well.
Jon, I might add, if you consider the last five years, we deployed about CAD 10 billion into transactions between leverage and capital allocated. We were very disciplined in paying down that leverage and very disciplined in sort of getting to a point where Empower is actually driving this ROE growth.
There could be some temporary moderation, but if you're focused on accretive value-creating transactions, I think we will get buy-in from our investors that it's the right thing to do.
Second question is with respect to the capital optimization strategy. Paul, you provided a couple of examples of what has been done. My question is, are there things you're currently reviewing that could be done in the future? If you want to provide examples of what could be done, that's great. Or maybe just give us a sense of whether there is more to do or if that mission is substantially complete.
Yeah. I'll start off, but I'll let Jon add a little bit of color. We've been building kind of muscle and toolkit around things like ALM, things like capital optimization and management. That's the tools and the team.
The first area where we've had strong focus on that was in the U.K. because we were looking at this opportunity in the bulk space. We were saying, "How do we actually have that be more value-creating for us?" We had an area of focus there. As we think about our portfolio, those opportunities to try and align your asset liability management and your capital management to optimize and to unlock capital, I think they exist right across the portfolio. For sure, the $3 billion that Jon referenced is pretty meaningful in the context of the U.K. business. It is a fairly capital-intensive business. From that standpoint, there is opportunity there. There are opportunities within Canada and the U.S. Jon, do you want to provide a bit of color there?
Yeah.
In fact, over the last 12 months, we have a dedicated team that we've established to go through everything in the portfolio: product, investment strategy, use of reinsurance, financial structure. We're being very disciplined in doing that. We have a series of actions, as I mentioned, that are already underway. They vary up to $3 billion, but they vary in scale and size from tens of millions to potentially hundreds of millions. Some of those are baked into our numbers here, but I suspect over time we'll continue to identify more, particularly around risk-adjusted returns. We're using—let's say we're providing different lenses in how we measure returns to make sure that we look through economic, regulatory, and things like driving a velocity of capital back.
We think there's more room to go, but we've got a reasonable amount of things already underway that'll keep us busy over the next 12 to 24 months.
Darko?
Thank you. I have two questions. I'll start with the easy one, I think, Jon. 80% base capital generation up from 75%. Can you just give us a little bit of reference? How volatile has that been in the past?
In terms of capital generation, it's been pretty stable. As you see, what we actually disclosed for you, Darko, is the cash remittances. That is the hard facts of how much capital came back. As we look forward, obviously, there's capital actions that we're pulling. I shared some of those actions. It's a mixture. We feel very, very comfortable with that target.
As I mentioned, we'll continue to look for optimization actions that could help us outperform. In terms of volatility, I think it's been fairly stable. That goes to the disciplined ALM and risk management that we've had. We had to transition, as you remember, through different capital regimes over the last 10 years. Solvency II to OSFI changes. We have a LICAT. We have another one that comes in this quarter. We shared the details. IFRS had some implications there. What we're really excited about is hopefully a more stable period. When you have a stable period of regulatory change or a more stable, you can actually get in under the hood and really get at this topic. That gives us a great deal of confidence as we look forward.
Having said that, Jon, I think the team did an exceptional job in transition to LICAT and in transition to IFRS 17 to set us up for where we are now. Because if not for having made some of those really important decisions at those moments of transition, we could have some more volatility in it. I think we've got a stable foundation that we're building off of right now.
I mean, our volatility disclosures speak for themselves. Less than 1% from interest rate and equity, manageable earnings type of volatility, a very diversified portfolio, almost 25, 25, 25, whether you look at lines of business or geography. I feel very comfortable.
Okay. That brings me to my real question, which is every time I think about your presentation and an increase in ROE and increase in cash generation, I think about the parent.
I think about Power and what Power wants. I think about, if you have some limitations on your NCIB, can you maybe specifically talk about what it would take for you to do a substantial issue or bid? Third, why not play at the upper end of the dividend payout ratio? Why not raise the dividend payout ratio?
Yeah. It's good. We think of all these things, Darko. We consult with our board. We consult across the different specialists of leaders that we have, risk, investments, actuarial, when we think through our capital allocation decisions. We obviously have a range of outcomes. We like the range of dividend payout ratio. As far as I'm aware, our shareholders are very happy with the dividend increases that we've given. That ratio allows us to really maintain a disciplined, balance sheet, strong ratings.
We could move up in that ratio, obviously, for periods of time if we did not see ways to deploy capital. We did not have strong opportunities. We would probably more likely move to buybacks as an option. We obviously executed a substantial issuer bid in the past with the support of our shareholder. We do not see any reason that we could not do that in the future, but that would be something we would have to think through at the appropriate time.
Any other questions in the room? Seeing none and seeing as we are running ahead of schedule, I think that gives us an opportunity for an extended break. We will reconvene at the top of the hour at 10:00 A.M. Thank you.
Summer leaves. This place is so divine. I can hear the birds that you say that it will be fine. And daydreams. We focus on a view.
Sit troubles for another day. Got nothing to lose. Blue skies. Our unprevented days. Forget about them old mistakes. Yeah, that's what I do. Sun going sighter when the wind's out going so cold. Feels like you're broken and you just want to sink like a stone. Sun leaves. I can hear the sirens in the night.
Good morning. Microphone on? You guys hear me okay?
Okay, yeah, I can.
It is a pleasure to be here. Thank you for coming. My name's Ed Murphy, and I'm the CEO of Empower, and I look forward to walking you through our story. I'll be joined by Carol Waddell, who runs our personal wealth business. In particular, today we'll focus a little bit more on personal wealth than our workplace business. I think it's important to acknowledge our foundation to help explain our path forward.
Empower was created about a decade ago to disrupt the retirement services market in the U.S., which at the time was ripe for improvement and innovation. We believe that we could deliver a greater opportunity to save and invest for investors through outstanding service and a compelling user experience. We've done that. The numbers prove it out. This has led to Empower becoming the second largest retirement services provider in the U.S., with tremendous scale advantages. We are today a leading retirement services provider with 19 million customers, while growing at more than twice the rate of the market. We've been able to gain tremendous scale advantage and operating leverage to achieve higher returns and sustainable growth.
As we march into our 11th year, we believe strongly in what we've created, but see an enormous opportunity as we expand our mission to help people manage more of their finances. Our leadership position in the U.S. retirement market is fueling growth in personal wealth. This enables us to extend our reach to provide advice and planning at all levels. As we attract an increasing number of customers, they choose to expand their relationship with us, and our wealth business grows. We are expanding advice-based offerings, delivering comprehensive planning that caters to all customer needs. In our wealth segment, we have grown assets under administration at nearly a 50% compounded annual growth rate over the past five years. This highlights our ability to grow and shift towards advice-based solutions, powered by technology and combined with skilled advisors.
Our model is a hybrid construct where we bring the best of technology together with human capital. Looking ahead, we are targeting double-digit earnings growth in the medium term by expanding our workplace-affiliated initiatives, introducing new value-added products, and further expanding into the wealth market. To build on our momentum, we will continue to lower our cost through automation, operational improvement powered by generative AI, and the expansion of our global footprint. Today, we have 3,000 employees in Bangalore and Manila, and we are going to continue to expand and grow that footprint as the business grows. Our mission is to put the customers at the center of everything we do. In our workplace business, we provide solutions to administer both defined contribution, defined benefit, and non-qualified plans for employers.
In addition to our total retirement services offering, we offer consumer-directed healthcare, equity plan administration, and advice and planning solutions, both for in-plan and, of course, in our wealth business. All of this through an integrated, seamless, elegant, actionable user experience that has been a difference-maker for us. We provide retirement services to all types of employers: corporations, public plans, not-for-profits, trade unions. Empower provides retirement services to more than 88,000 employers of all types through a highly disciplined and focused segmentation model. We serve corporate plans ranging from startups to companies—in fact, several companies—with more than 300,000 employees in the United States. These plans are sold and serviced by highly specialized teams who are experts in their respective market segments. In our personal wealth business, our solutions encompass personal financial planning and a broad spectrum of goals and objectives that we serve customers through that planning process.
There is an immense opportunity in the United States. I can't underscore this enough. If you look at the workplace institutional market, it's a $12 trillion market. If you look at the individual IRA market, which includes contributory IRAs and rollover IRAs and taxable investments, it's a $60 trillion market. At Empower, we have created a seamless experience that drives engagement and better outcomes for both employers and employees. Looking at the sources of workplace revenue—and this was touched on a bit during Jon and Paul's remarks—we have a diversified revenue stream consisting of asset-based fees, which make up 50% of Empower workplace, primarily representative of asset-based administration fees that we earn from the employers, asset advisory fees, and then product fees.
The other 50% of our fees are coming from typically participant plan and transaction-based fees that occur quite frequently, and then also spread-based income that we have through our general account product. While rising equity markets favorably impact our asset-based fees and overall results, it's not a one-for-one relationship, and Jon touched on that a bit. 40% of our asset-based fees and 20% of our overall revenue is correlated to the S&P 500. Our spread income is not directly affected by equity markets but is impacted by interest rates, of course. We generally see demand for our stable value products in markets like the one we're experiencing. A little bit of uncertainty, a little bit of volatility. You do see some flight to safety there. 50% of our revenue comes from value-added products such as advice and investment solutions, while the other 50% from plan administration.
Our revenue diversification leads to stable cash flow, greater resiliency, and less sensitivity to just one earnings driver. Let's talk about the personal wealth business. Currently, about 20% of Empower's revenue, with 60% of the revenue coming from asset-based fees and the remaining 40% from spread income and customer transaction fees. Approximately 75% of personal wealth revenue is derived from a customer that originally had a workplace relationship with Empower. The other 25% is from what we call a non-affiliated customer, our direct-to-consumer channel, our crossover channel. Carol will touch on that a little bit later. Here is a snapshot of our growth from 2019 to 2024. You can see individual relationships and assets are growing significantly or have grown significantly, I should say. The profitability metrics are growing much quicker due to increasing operating leverage in the business.
Our individual relationships grew at a compounded annual growth rate of 15%, while earnings grew at 40%. As the chart illustrates, we have seen robust growth across our main key performance indicators. The assets in the U.S. defined contribution market have grown at 6% compounded annual growth over the past few years, reaching the $12 trillion mark I referenced earlier. We expect overall assets to hit $18 trillion by 2029. We are projecting a continued growth of about 6%. This reflects both favorable demographics and market returns. Legislation, which Empower is very active in advocating for, is encouraging retirement preparedness among Americans and security. Along with industry innovation, because we have seen a lot of innovation in that micro end of the market, we are seeing more plans be created, and we are seeing greater adoption among small employers, typically companies with less than 10 employees. We do play in that market.
We think that will continue to grow nicely. In fact, if you look at the numbers, it took the industry in the U.S. over 40 years to get to 700,000 plans. We are projecting that in the next five years, we will add roughly 300,000, and we will eclipse a million plans in the U.S. by 2029. Empower, as Paul mentioned, has grown consistently faster than the market at a rate of more than twice. I think it is a reflection of our value proposition and the compelling offering that we bring to the marketplace. While the top three players account for 50% of the market, Empower's organic growth has grown from 7% to 9% of industry since 2020, and inorganic has reached 13%.
Our success in growing our share is reflected in net promoter scores, client retention, which is world-class, our client satisfaction metrics, and the comprehensive nature of our service offerings. I would note on the workplace side of our business, we offer a multitude of solutions for employers. The opportunity to grow those relationships with more products and more services is very much a focal point of our team. In fact, if you look at our client base, less than 20% of our employers have more than one product with us. The opportunity to connect deeper into that customer base represents a significant opportunity for Empower over the next several years. At Empower, I will say advice is at the cornerstone of our value proposition. Whether it's on the workplace side or on the wealth side, we're generally leading with advice. The demand for it is very high.
We've delivered advice through multiple channels: in person, through digital enablement. It's also embedded in a lot of our products. Many of you know that target date funds are very common in the United States. In fact, about 60% of our flows go into target date funds. In effect, that is a default advice-type solution. We see this insatiable demand for advice. What's interesting, it's across all age cohorts and income cohorts. We are set up to really address that with our service offering and our product offering because it does, in fact, vary from mass market to mass affluent to high net worth. We have a segmented approach to the way we serve those customers. Let's turn to our financial performance for a minute.
More than 90% of our base earnings convert directly into organic capital generation, funding both future expansion and consistent returns to Lifeco. 29% compounded annual growth rate in base earnings demonstrates our success in scaling up and improving operating leverage in both the retirement business and the wealth segment. We believe we are growing and building a sustainable business model. We are seizing opportunities to meet customers' needs and deepening our relationships with them. By delivering comprehensive, unconflicted advice through the workplace, we can help customers achieve financial security, win their trust, and earn the right to be their provider for life. That's the goal. I look at our workplace business as an entity or as a capability that's, in many ways, fueling our wealth business. Serving customers for life while improving operating efficiency will lead to the double-digits earnings growth that we've shared with you as a goal.
Prior to any of the recent acquisitions, the Empower business had approximately 8% of its assets within these advice-based products. The recent large acquisitions, namely MassMutual and Prudential, represent a great opportunity to extend our reach of advice and advice solutions. We expect to see higher plan and participant adoption of our advice products over the next several years. It is a key focal point for our teams. What is interesting is we found that those that are enrolled in advice-based offerings engage more often with us. They are more confident in their financial future. Here is the real key point: their savings rates are 20% higher than those that are not enrolled. It is very compelling. If you think about what our goal and our mission is, it is to replace the income you made while working.
That is a very compelling value proposition to our employers when we can demonstrate these proof points. A pillar to success on the workplace side is our ability to increase our operating leverage in the business. We have demonstrated that. We have reduced our cost per participant 15 percentage points over the last two years. We expect to reduce another 10 percentage points in the next few years. Efficiency enables profitable growth. Some of the key drivers over the next few years will be adding volume to the workplace business at a less variable rate, whether organically or inorganically. Investing in technology to achieve greater efficiency through automation. That has been a big focal point for us over the last several years and will continue. Accelerating investment in GenAI. We are deep into GenAI at Empower. It is a big focus for us. We have several things in production now.
In fact, if you look at our application development capability, we built in a 25% improvement in capacity in 2025 into our budget, which means we can drive more throughput with all the initiatives that we're trying to bring forward to our sponsors and our individual customers. As I referenced earlier, we want to continue to expand our global capabilities. We think there's a real opportunity in Manila. We've invested there. We're expanding there. Our presence in Bangalore dates back to 2015. It's been a complete home run for us. The talent, the skills that we have there, and every single one of my direct reports and every single function in Empower has representation in Bangalore, from internal audit to compliance to risk to finance to marketing. It's worked exceedingly well. We view that operation as another branch, whether it's Kansas City, Denver, Boston.
It's not an outsourced mechanism. They're very much a part of our team. With that, what I'd like to do is to turn it over to my colleague, Carol Waddell, and she's going to give you an update on personal wealth. Carol?
There we go. Thank you. I thought I'd start things off by providing an overview of the Empower personal wealth business, how we're positioned, and what's really driving our success in the marketplace. We're poised to win in wealth by leveraging the scale and the relationships we've built in the workplace business. We already serve 19 million individuals as a trusted advisor whose reputation and scale enables us to have deeper engagement with customers looking to roll over or consolidate accounts with Empower.
Those engagements are often occurring in key life events or moments that matter when people are leaving their employer, either for retirement or actually changing jobs. Our continuous brand building and marketing efforts are amplifying our presence and our visibility as a leading financial services provider versus just a retirement planner. That is going to enable us to grow share in the wealth market as well. We have a growing team of more than 1,000 skilled advisors. It has quadrupled. That team has quadrupled since 2019. It underpins our ability to deliver both high-touch as well as built digital wealth solutions at scale. Growing this team of advisors is one of the ways we are going to achieve operational leverage going forward. Roughly 90% of our rollover opportunities are in the mass affluent segment, which we talked about earlier.
That is a segment that is often not—there is no presence or focus by some of the traditional wealth management firms in the marketplace. Our average rollover size actually is about $160,000-$170,000. We know that many rollover customers have assets above and beyond those retirement assets. In fact, when we look at our proprietary research, we see that the retirement plan assets actually only represent about 30%-40% of any individual's investable assets. We feel like we are very well suited to offer a full slate of solutions to address some of those broader financial needs. We leverage personalized communications to provide individuals with relevant investment advice, creating higher satisfaction and beginning to unlock deeper client relationships. Our personal dashboard is critical. It is the digital financial planning tool that provides a customer with their end-to-end view of both their workplace as well as their personal investments.
It's a state-of-the-art offering. It's shared between our advisors and our clients. It's a huge differentiator for Empower. It serves as a foundation for our planning and our advice interactions. If we turn to the next slide, I thought it might be helpful to show some examples of our customer types. You can see crossover, rollover, and direct-to-consumer. A crossover customer is somebody that is currently working in the plan and might seek advice about their broader financial needs above and beyond the retirement plan. We have a rollover customer. Those are, again, people that are typically in transition. Think about that as individuals that need to think about what to do with their account once they're leaving their employer. We have the opportunity to provide guidance and advice with that discussion.
The direct-to-consumer space, those are people that do not have a relationship with Empower today. They do not have a wealth account or a retirement account. They are actually typically using our free dashboard and our set of tools. Often, this provides us with the opportunity to engage them with an advisor as well to address their broader financial needs. As you can see, we have a wide variety of customers and solutions that are helping them through an evolving set of products that are really meeting people where they are today. We are able to deliver those products through highly scalable and efficient processes that put our client at the center of everything we do. It is a model we are continuing to optimize and will evolve and grow as our customer needs do as well.
I talked a little bit about crossover, a little bit about rollover, and a little bit about direct-to-consumer. I thought I'd really focus on the rollover opportunity now. As Jon mentioned earlier, we have a substantial rollover pipeline. You see about $1 trillion rolling out of our retirement plans over the next five years. This presents an enormous opportunity for our wealth business. Rollovers are driven by many of the factors I've mentioned, so changing jobs or retiring. When you look at the job changers in the U.S., an average customer is going to change jobs 12 times. That creates a lot of money in motion and opportunities for us to engage with individuals. We look at our growth. This is going to enable us to grow wealth assets organically from roughly $90 billion today to over $200 billion by 2029.
We are going to do that by improving rollover rates by roughly 30% over the next five years, which is actually the improvement we have experienced over the last five years. We are going to increase those rollover rates by strengthening the relationship. It is all about beginning early and connecting early with individual participants so that they receive our advice, they trust our advice, and they are aware of the services that we provide. We talked a lot about brand. Brand loyalty, brand image, and brand preference will be critical in this journey. We will also be expanding our financial solutions, which will enable us to be more effective. We will really focus on that world-class experience that Ed mentioned earlier. We will be leveraging AI and analytics to help guide our advisors to better engage with individuals. All of those things will help us improve rollover capture.
With that, I'm going to turn it back to Ed for some closing remarks.
Thank you. Thanks, Carol. As you think about the Empower story, there are a few key narratives to consider. The first is that we are very early in the journey, and the opportunity for exponential growth is significant. Significant opportunity. I would say, second, we've created a culture comprised of 13,000 associates who bring passion and expertise to their work every day. That should never be underestimated. I always say it's a labor-intensive business because of the approach that we have, which I would say is very much a client-intimate type model. Yes, we leverage technology, but there's a level of client intimacy that we pursue that I think is a core differentiator for us in the marketplace. Third, we have a very, very powerful sales and acquisition engine that's reflected in the results that you've seen. It's the envy of the industry in the United States.
I say that with humility. We have also developed a discipline and an expertise around acquiring and integrating businesses. If you look at the MassMutual transaction, you look at the Prudential transaction, not only did we achieve the cost synergies, we retained 86% of the revenue, which is well above market standard. Fourth, we are going to build a great American brand in the U.S. We do not have necessarily the disposable resources to invest hundreds of millions of dollars in the brand, but we have accelerated that investment over the last few years. That is very, very important to drive awareness and consideration. We have seen the ability to move the needle on that based on the things that we have done over the last three to four years. We are really excited about the opportunity there.
Finally, I know I speak for all the Empower associates in saying that we are driven and energized to achieve a leadership position in the United States wealth market that mirrors what we have accomplished as a market leader in workplace retirement. Thank you for your attention. With that, I am going to turn it over to my colleague, Fabrice Morin, the CEO and head of Canada. Fabrice?
Thank you, Ed. Good morning, everyone. My name is Fabrice Morin. I lead our Canadian business. I'm pleased to be here today to talk about our Canadian business profile, strategic direction, and our plan for the future. There are really four key messages I want to talk about today. Number one, I want to talk about our leadership position in key market segments. These segments are growing, and scale matters in these segments. We believe we're very well positioned in the segments we're in. Number two, I want to talk about the high-cash-generative nature of our business. Jon talked about it as well. It's been a key feature of Canada in the past, and it's going to continue to be a key feature of Canada in the future. Number three, we've got growth in the business.
I want to talk about three focused growth opportunities that we have and that we're working hard on, where we already see results and we have strong plans for the future. Number four, I want to talk about our efficiency and automation agenda, not only to improve the ease of doing business and experience for our customers and advisors, but also to continue to manage our operating leverage and our unit cost in each of our businesses. Before I talk about where we're going, let me talk a little bit about where we come from, because we have a rich history. We have a track record of over 175 years of serving Canadians with a strong reputation, strong relationship, strong intermediary advisor relationships in the market, and strong discipline. These advisor relationships, in particular, are quite unique.
We've had in the past the strongest insurance agency in the country. Now, these relationships have changed, but they're still very strong today, in many cases spanning multiple lines of business and, in some cases, spanning multiple generations of advisors. Where does that lead us today? We've got scale. We touch more than 14 million Canadians in our business. And we've got leadership positions in a number of areas. Namely, we're number one in group benefits. We're top three in the non-bank wealth management segment. That leads us to what we're aiming for in the future. We have strong conviction that we can drive mid-single-digit earnings growth in Canada. We're a business today. I'll talk about three focused areas of growth that we have. I'll talk about our wealth management plan. I'll talk about our actions to continue to create an attractive platform for entrepreneurial advisors to succeed.
I'll talk about actions that we're taking to do more with some of the 14 million relationships that we have in Canada. Lastly, I'll cover our efficiency agenda. Now, before I talk about our business, let me say a few words about the industry we're in. We're in some specific business segments that benefit not only from the stability of the Canadian market, but also from secular tailwinds, premium growth, asset growth, and employment growth. There is growth in the businesses we're in, and we believe that that growth is underappreciated. We see that growth. If I take our business segments one by one, starting with group benefits, we have seen in the past five years 7% premium growth at the industry level in the group benefits segment. There are 25 million Canadians who count on their benefit provider for their health services in an environment that's complexifying.
Many of them are looking to do more with their benefit provider. We're there for them. In retirement, we've seen 7% asset growth in group retirement, again at the industry level in Canada. The retirement industry is less mature than it is in other countries. We've been slower as a country than others to move from defined benefits to defined contribution. That leads to some growth in the retirement sector. We're seeing consistently about 1% net flows into retirement, into the group retirement sector in Canada. In wealth management, as defined by the non-bank entrepreneurial advisor segment, we're seeing growth, 5% AUA growth in that segment of wealth management alone in Canada over the past five years. Now, what's specific about that segment is there are many experienced advisors. In fact, there are more than 50% of advisors with more than 20 years of experience.
They're looking for succession solutions. They're looking for succession to transform their business. And we've got specific solutions for them. What's unique about this segment as well, when I turn south to the U.S., I look at the registered investment advisor, the RIA segment, the independent broker dealer segment. In the U.S., it's 35% of household financial wealth that is advised by entrepreneurial advisors who live and thrive by the good service that they provide in their regions. In Canada, that segment's only 13% of household financial wealth. We believe there's room to grow in this segment at the industry level if we do well as an industry. Lastly, in individual insurance, we've seen some growth. We've seen 6% a year premium growth at the industry level, mainly driven by estate planning products and by permanent insurance. Here again, we've got a unique position.
Let's talk about our position in these various market segments. That's Canada Life's position in these market segments. In group benefits, we've got a leading position, as I said earlier. We've got that position mainly on the back of strong intermediary relationships. That gives us a very high—we're the partner of choice, especially to the mid-sized businesses and the small businesses around the country. We're active across all size segments of the market. We're also a leader in disability management. That requires scale, and it's not easy. Helping an individual facing health challenges to overcome these health challenges and get back to an active and productive life requires resources. We've got a unique model to manage disability, and we've got strong results consistently through cycles. In retirement, we're a top three player, and that's a place where scale matters in retirement.
We've got, again here, strong intermediary relationships, and we also have very high-quality and high-performing investment solutions when we benchmark ourselves with others. In wealth management, we've made some acquisitions lately. That gives us a very broad offering. We've got products across segregated funds, mutual funds, security solutions that serve clients across the mass affluent sector to the high net worth sector. Lastly, in insurance and risk solutions, we've got the largest participating account in the country. More than half of the participating life insurance assets are in our participating account. Scale makes a difference. Many high-net-worth Canadians turn to us when they want to look for participating insurance solutions. We're also participating in the protection side and the non-participating protection side at the right price with the right risk management. Now, that leads me to talk about how we fared financially.
As Jon mentioned earlier, across our businesses, and certainly in Canada, we've got strong return on regulatory capital. Our return on regulatory capital is higher than the ROE that we publish. That's a sign of the type of reinvestment economics that we have in each of our businesses. When we grow, the cost of that reinvestment and the return that we get on that reinvestment is quite significant. We're a strong source of capital generation. Historically, we've been able to generate 80%-90% of our base earnings in cash remittances and capital generation. We project to continue to be able to do this in the future with the business mix that we have and with the discipline management in our business. Lastly, we believe we've got a strong earnings growth engine. Now, if I look at the past two years, we've grown faster than the economy.
This slide probably underestimates the growth that we've seen in the underlying business. If I look at 2022, you would see significant tax benefits in our base earnings, one-time tax benefits in our base earnings in 2022. If you were to correct for this, we've seen significant underlying growth in the past couple of years. The other thing that I'd mention here is the transition to IFRS 17, we believe, has brought a lot more visibility into the core driver of earnings as it translates into our businesses. We believe we've got high-quality earnings, so we're well-positioned for growth in a new system. I said I'd focus on a few opportunities for growth that we have in our business. I said I'd talk about three of them. I'll talk about our efforts to grow in wealth.
I'll talk about our efforts to expand our platform for entrepreneurial advisors. I'll talk about our efforts to deepen client relationships. We've got many relationships in the system, and we've got opportunities to deepen these relationships. Lastly, I'll talk about our efforts to drive efficiency. The sum of these things, added to the core momentum in our businesses, makes us very confident about our plans to grow the business in the future. Let me go through those. In wealth, at our last investor day, we had just announced some acquisitions in the wealth space, and we talked about our plans for wealth. Our plans for wealth have not changed. What I'm going to talk about today is very consistent with what I talked about in June 2023. I'm very proud of the progress we've made on these dimensions since June 2023. First, attracting entrepreneurial advisors.
We've got more than $100 billion on our platform in Canada with entrepreneurial advisors, which makes us a top three non-bank platform for advisors. That's important because scale matters. Technology is more and more important in that space. Secondly, providing high-quality, comprehensive value-add solutions. I mentioned earlier, segregated funds, mutual funds. Now, with the acquisitions that we've done that gave us scale and capabilities, security solution, we're well-positioned. We've got a high penetration of our own solutions with our advisors and this continues in the future. Lastly, and importantly, we've been developing succession solutions for advisors. Now, some advisors look to retire. Some advisors look to change their business. And the clients they were serving in the past are not necessarily the clients they're targeting for the future. We have solutions to transition these clients to institutional service models that we manage that bring high-quality service to the clients.
It's good for the advisors. It's good for the client. That is one of the few areas where we deploy capital on an organic basis in our business. When we do it, we do it at a high return. We have acquired more than $10 billion of advisor assets lately with that strategy. Next, let me talk about our advice platform. As I said earlier, we come from a strong legacy of having the strongest insurance agency in the country and many tied relationships. Now, in this day and age, in the channels that we're into, this exclusive contractual exclusivity with advisors doesn't work anymore. We have been recognizing for a long period of time that it doesn't work. We have been on this transformation journey for many years. It started with us being the first insurer to acquire a managing general agent, Financial Horizons.
It was followed by the move to a single brand. Behind that was really the convergence of channels and simplification of value proposition. It was followed by acquisitions in wealth, where we gain not only scale, but also capabilities. It was followed a few weeks ago by the launch of a platform for advisors that we call Advice Canada. What's Advice Canada? It's a platform. It's a value proposition for advisors. It brings together our MGA, the largest managing general agent in the country for insurance solutions, and our wealth platform, a top three wealth platform in Canada. Many advisors who work with us do business across wealth and insurance. It makes it easy for them to go across and serve their clients across. It's a unique offering in the Canadian market.
Lastly, let me talk about what we're doing with some of the 14 million Canadians who work with us. We're doing more with them in each of our lines of business. We're doing this in group benefits, where some of our members, under the right framework, want to do more with us. They want more coverage than what their employer offers in the base plan. We offer voluntary products, but also portable products that they can keep with them post-period of employment. We've seen significant growth in that space. When we do it, we do it with a high-value offering that's valued by the member, that's valued by the intermediary, and we're able to drive good results. In retirement, we do the same thing.
We allow our members to do more with us during the period of employment, similar to Empower, and to do more with us post-period of employment and into retirement. Again, we have seen strong growth in that space. Because of the affinity relationship and the high-valued solution we bring, we see great results. We do it in wealth. I have talked about our strategies to acquire advisor books of business. We are seeing great retention, great growth in that space. That is also a productive engine for our business. We do it in individual insurance as well at a different scale. In each of these cases, there is often an advisor in the mix, an employer or sponsor in the mix. We have been very close to advisor and intermediary relationships historically as a company.
When we do these things, we do them in respect and enabling advice relationships and other relationships that are in the system. Lastly, let me talk about our efforts on efficiency. If I look at the past two years, we've been able, if we adjust for our business mix that has changed over the past couple of years, to improve our efficiency ratio. We've been able to grow expenses at a lower rate than inflation for our existing business. We intend to continue on that journey to capture economies of scale and operating leverage as we look to our midterm ambition. How do we do this? Leveraging economies of scale. We're simplifying our business in many places. We still have the opportunity to harvest these benefits as we simplify the systems and technology behind the multitude of channels that we had before. We're transforming our technology.
We do this to bring better service to our clients and members, to make it easier to do business with us, but also to continue to manage our unit cost and economies of scale. Lastly, we're driving efficiency even beyond technology and operations. If I recap, I really had four messages today. Number one, we've got leadership position in market segments, market segments that are growing and where scale matters. We've got scale in these segments. Number two, we've been a strong cash generator for Lifeco historically. We will continue to be a strong cash generator in the future because we will continue to apply discipline as we manage the business. Number three, beyond the momentum growth of our business, we've got a few focused areas where we see significant growth. We've seen some results lately, and we will continue to see some results in the future.
We continue to be focused on an efficiency and automation agenda, not only for the benefits of our clients and members in making it easy to do business with us, but also to manage our unit cost and economies of scale. These four things together lead us to have high confidence to our objectives of mid-single-digit earnings growth, of increasing base ROE because our growth is in less capital-intensive areas, and increasing our base capital generation. Thank you. I'm looking forward to moving to Q&A. Thank you.
Okay, this will be our second Q&A segment. I see a few hands shooting up in the air already. I really appreciate the enthusiasm. We have an expanded Q&A panel on stage. The focus, if you can, will be on Empower and the Canadian business.
As in the first, we'll follow the same protocol as in the first Q&A segment. If you have a question, please raise your hand. Please wait to be recognized and a mic to be brought to you. Then please state your name and company for the purposes of the transcript. The first question, I believe, comes from Doug Young, whose hand shot up really fast.
Just, I guess. Hello. Hello. I think we have a question. I guess for Ed, on the product side, is there anything that you're missing? I'm thinking alts or payout structure. Within that, is there a way to do that internally? Do you have to go outside? Do you have to make acquisitions to build that?
Thanks for the question. I don't know if everybody heard, but it was a question about products and specifically alts, private asset.
It was alts and payouts.
Yeah. Actually, I've been pretty outspoken about alternatives. I think Larry Fink and I have probably been the two people that have spoke about it mostly in the United States in terms of the appropriateness of alternatives in the defined contribution space. It's going to happen. We are working on partnerships today with best-of-breed providers. We're only going to offer top decile, top quartile type solutions. I'd say the demand is a bit tepid right now, but it will happen in the US. We will not build that capability. It's not our expertise. Needless to say, some of the biggest private equity firms and alternative managers in the United States want to partner with us because of our distribution and our scale. We also do offer alternatives in the personal wealth business through a relationship we have with iCapital.
We've seen some adoption there, but I think that will continue to grow over time. On the annuity side or on the distribution phase, we didn't talk a lot about this in the presentation, but I do think in our workplace business, as more and more Americans are turning 65 and starting to draw down on their assets, there's a significant opportunity with products like deferred income annuities and other payout-type products. Here at Empower, we've generally partnered in that regard. We announced not too long ago a relationship with TIAA. I think on a go-forward basis, one of the things that we're evaluating is to offer our own solution as well. More to come on that. I might just add that we actually have deep expertise in terms of retirement income solutions in the U.K. We're still active in that market in Canada.
We would view that as an opportunity. I think it's important when you think about alternatives, Ed said, this idea of partnerships. One of Empower's strengths is this open architecture concept that we do bring best-of-breed asset solutions to the plan. We wouldn't see ourselves wanting to move away from that. I think it's one of the key strengths that Empower brings to the market.
Okay, and the second question just on the personal wealth. You have 1,000 advisors. What do
you hope to take that to? Do you have to make an acquisition to kind of really build out that side of the advisor side? Yeah, the advisor population will be critical to us going forward. We have scaled rapidly. As I mentioned, we've four-exped that group over time.
One of the things we're doing is we have created dedicated recruiting teams that are nurturing those relationships so that we can expand the pipeline as necessary. We have a robust onboarding program. We are bringing people on and retaining them and getting them licensed and up to speed more rapidly. We are leveraging technology through knowledge management, coaching, as well as supervision to accelerate our efforts there. I would not say it is a target number. It will grow relative to our growth in assets, but certainly an area where we are investing very heavily.
I think I would just add that clearly distribution presence is a very core part of our strategy to continue to scale that business.
I think looking at M&A, that not only brings us the talent and the skill set, but also some capabilities that we can leverage more broadly across our platform is definitely something that we would consider as we go forward.
Gabriel.
Hi. Just a question on how the business works and then back to the plan, the ROE trajectory thing. How the business works. When you're at Empower, you're a plan participant, it's open architecture. If you retire, change jobs, and you roll over, you've got the same or more options to invest. I guess it's the same menu.
Yeah. We maintain open architecture. You can invest in a mutual fund solution, much like you might have done in a retirement plan, and it has more than 25 different asset managers underlying that.
We also offer a highly customizable personal strategy product, which is built at an individual security level. Again, highly customized and includes things like private equity.
Okay. My question earlier, when you were not on the stage and now you are, so I will ask it. The US and personal wealth, that seems to be the biggest driver of this ROE improvement trajectory. You quantified the trillion-dollar money in motion over the next five years. Is that the holy grail of this trajectory, capturing 30% more rollover assets than you are currently? That is the key. Maybe if you can add some sizzle to the steak, the margin pickup between when you have a rollover asset versus when they were at Empower. Could you help me understand that?
You want me to say it?
You go ahead.
There are really three channels of opportunity for us.
There's the direct-to-consumer channel. We have about 3.5 million registered users that see value in our tools that are aggregating their assets with us, but they have not yet hired us to manage their money. That is one opportunity.
That is the old personal.
That is the direct-to-consumer Empower personal wealth. The second channel is the one Carol touched on, which is crossover. We know that if we can build a relationship with an existing defined contribution participant before they have a life event, they are more likely to be predisposed to consider us and to roll to us with a job change or retirement. That is the crossover opportunity. There are also those that maybe we do not have a relationship with, a pre-existing relationship. That is the rollover where there is an event. We have to compete for that on our own merits.
Some of them may have an existing advisory relationship, and they'll roll to that advisor. Some, particularly in the mass affluence space, don't really have existing relationships. That creates an opportunity for us. It is hyper-competitive, and that's why we have to continue to invest in our value proposition. Those are the three channels. Your question around the economics, the economics are far more compelling on the workplace side. Particularly if what happens, and this often happens in Carol's business, is the rollover event may be that $160,000, $170,000. Invariably, what happens is if we deliver on our promise, they aggregate with us. We don't really view it as a $160,000 account. We view it as a $500,000 account for opportunity, I should say. Hopefully that answers your question.
Maybe I didn't ask it the right way.
I'm thinking maybe this is an old way of thinking, but AUA to AUM. When you're a plan participant, the way I think of it is you go to your screen, you adjust, you hit 60, you go to 80% bonds, whatever. The revenue that you're getting as Empower is maybe a flat fee for that customer. When they retire, they take that money, put it into some sort of proprietary product, and you go from a flat fee or whatever it is to something more meaningful. I want to get a sense for what the enhancement is to your economics.
Some customers that transition to us, as Carol noted, will hire us on a managed account basis. They're paying roughly 80 basis points in fees. Okay. Some roll to us and they say, "You know what?
I want to buy Treasury bonds or certificates of deposit or individual securities. We have a brokerage platform that can essentially meet the needs of all of our clients. We also have the spread product inside the personal wealth business as well. To the extent that people are maintaining some level of liquidity, they're paying fees to us through the spread account. It really depends on the product and service that people choose. Our goal is you can't build a trillion-dollar business if you're a one-trick pony, right? People have different needs. They have different requirements. Part of what we're building is a multidimensional wealth management capability.
Ed, it's fair to say that what we do with a participant that becomes a direct-to-consumer customer is more. We're doing more. We're advising more. Generally, there's going to be more personalized advice.
The net impact is that the average margin that we're making because of all those services is meaningfully higher in Empower personal wealth than it was when they were just a direct retirement client. Yeah, I guess there's a lift because we do more. Right.
Okay. Thanks.
Alex. Can I have you?
Hi, it's Alex Scott from Barclays. First one I had for you is just related to distribution and how wealth kind of plays into everything. My understanding from talking to some of the US companies is that they have to be careful with the distribution of the 401(k) or defined contribution and just their desire to control some of the assets that are coming out of 401(k) as people retire. How do you manage that? Is that part of why you've chosen the more mass affluent part of the market as opposed to the wealthier end?
Just help me think through what you're doing there. Yeah. Do you want to comment about the response or access or advisory?
Yeah. All of the markets we serve are very different. If you think about corporate plans and government plans and smaller companies that typically have plan advisors that are also sometimes in the wealth management business. We work with all of them differently. In some areas, really provide more access, provide greater access to our broader capabilities, like a high-yield savings account that you could use for emergency savings. In other segments of the market, like in the smaller end of the market where the plan advisor is present, we really partner with plan advisors to help individuals get access to advice at point of transition. Each of the markets, I think, varies, and we approach them differently.
Just as a follow-up, you all talked about transformation costs, I guess, in the first presentation and the efficiency ratio benefits that you'd feel across the firm. It feels like a fair amount of that's in the U.S. So just interested if you could give us some more detail on what you're spending money on there with the transformation costs and what the benefits are, if there's a timeline to any of that that we should think about.
You might want to start because it's not necessarily in the U.S.
Yeah. Probably about half the costs are in Canada as a residual in Europe and the U.S. A lot of it is technology or people-related, about half and half, included in technology, some sourcing or procurement opportunities. A lot of those will come through over the first two to three years.
We expect run rate savings to be equivalent to charges.
Thank you. Maybe I'll go to that side of the room before I come back here. Tom?
Yeah, Tom MacKinnon, BMO Capital. Two questions. The first, Carol, you made a comment here. Growing advisors is one way of achieving increasing operational leverage. Sometimes you think the way you increase your operational leverage is you do not grow your advisors as fast as you grow your assets. You have talked about growing your advisors as fast as you are growing your assets. And then you talk about increasing numbers of advisors as improving operational leverage. Just kind of help me square that.
Yeah. I would not say as fast as we are increasing our assets, but as we increase our assets, we would be growing our advisors.
Leveraging things like AI and helping us target more work with customers in a more appropriate way, like sending the right customer to the right advisor, will be critical. Also, preparing them to have those conversations by automating more data into the conversation will be another way that we achieve leverage. It's not necessarily growing at the same rate.
It sounds like it's more about increasing the productivity of the advisors as the way of improving operational leverage. Is that the way? Okay. That's the way to interpret that.
I would say, Tom, that's the trigger for adding staff. Okay? Once you get to that level where you've optimized the productivity, the flows are there. The opportunity for us is to then add staff. We're doing a little bit of both, right?
We're driving increases in productivity, and we're adhering to those core metrics, but we're also adding capacity when you have the kind of volumes that we've shared with you.
Great. The second question is, if I look at the company, it's got wealth in all the divisions it's kind of in, and it kind of plays in retirement, but it really only does bulk annuity business in Europe and in the U.K. Fabrice noted that there's an opportunity, it seems, with the number of DB plans here in Canada being higher than in other places. Why not do bulk annuity business or pension risk transfer business in Canada or in the U.S.? There's lots of opportunities there. Why do you just limit it to that smaller market there? Or not smaller market, but just a one market?
Yeah. It's an obvious opportunity for us.
We do, sorry, just to add and step backwards, our capital and risk solutions has got historical intellectual capacity there as well. So it's deeply embedded in the company. What we look for in Canada at some point is an acceleration towards DC. That could do two things for us. One, it could make our DC business grow at a faster pace. And second would be, is there an opportunity to do more in the pension risk transfer? We're looking deeper into that. It's something that we need to be more competitive with in terms of our ALM and risk-adjusted returns. As Ed shared, a natural area, and one that there is regulatory by hardest of support for us to introduce retirement income into plan, not at rollover, but the option in plan. That's something that we're definitely going to look at.
We have the right to win 19 million customers. Something that could create an opportunity for further organic growth as we look to the future. I might add to this that we were in the DB pension risk transfer business in Canada. We have exited that business a few years ago given the market condition. Every market is different. Some market requires more risk on the investment side. Some markets offer less returns given where we are. We will hear from our capital and risk solutions. We look at these markets globally. We are in a position to take the right market for the right capability that we have. That is a market where we have decided in Canada that the competitive intensity and the regulatory capital framework is not the right one for us to compete into.
Yeah.
To sum up, we can meet our risk appetite and our appetite for that amount for that risk in the opportunity we have within bulk annuities in the U.K. and through Jeff Poulin's business, where he can be very selective. Frankly, we look at the U.S. market and the Canadian market. We do not like the competitive dynamics and the margins. We will be very disciplined and selective on where we want to grow and deploy that capital.
Meny?
Just wanted to know if you can achieve your targets in the Empower business without M&A, both on the workplace and the wealth side.
Yes.
Also, we talked a little bit about alts before. Is that built into the plan at all, or would that be additive?
Additive.
Okay.
Just as a follow-up, in terms of you mentioned looking at M&A on the wealth side, just your thoughts there in terms of valuation and sort of the state of the market right now. Is it a market where, given current pricing, you would be interested in these types of valuations?
Yeah. It's a great question, buddy. The valuations in the US are very, very high as the market continues to consolidate, for sure. I guess I would say, sort of given where we are on our journey with personal wealth, if I was asked about sequencing M&A, I'd probably think more about another scale transaction on the workplace side as opposed to doing something in the wealth space over the next 12 months or so. That's kind of the way I sort of think about it.
We've got a lot of growth that's occurring in Carol's business today. If I look at one of the key metrics in our industry, it is net new assets. If you look at our net new assets in our wealth business as a percentage of AUA or AUM, however you want to define it, we are a top decile player right now. We want to continue to accelerate that growth. We want to continue to build our capabilities both on the product side and on the distribution side. That is kind of our focus right now, I would say, on EPW.
Thank you.
Any other questions in the room? Paul?
Thank you. Fabrice, you were not running the business back in 2016, but I go back to that investor deck. I remember the growth objective for the industry was roughly the same, 5%-6%, so mid-single digits.
The target back then was for Great-West Lifeco to grow faster than the industry. The impression I come away with today is you're more looking to grow in line with the industry at mid-single digits. Is that an incorrect interpretation? What's then changed?
The complexion of our business has changed since 2016. We're into business segments. I talked about group benefits accounting for half of our earnings. I talked about the acquisitions we've made in wealth. We're in business segments where we believe there's more momentum today. I would say as well that the transition to IFRS 17 has brought not only more visibility into the earnings driver, but we've had some different presentation. You're able to look at our performance in a different way. There's been a reset in a number of areas.
On that basis, I believe it's a better basis to look at the growth potential of our business. I would look at these two things that make us confident in the growth potential that we have in addition to the strategic actions that we've taken over the past several years.
The second question is with respect to the Empower rollover. Interesting to see that you've increased it already or improved it 30% to target another 30%. I think it'd probably be helpful for us to understand roughly where you're sitting today in terms of rollover capture rates.
We're in the high teens today.
Any other questions on the floor? Okay. Seeing none, we'll move on with the next part of our agenda. I'd like to thank the Q&A panel first. Thank you. Thanks.
I'd like to call onto the stage David Harney and Lindsay Rix-Broom to present our European business.
Sorry, just waiting for slides. Okay. Good morning, everybody. I'm David Harney, and I run the European segment. I'm here today with Lindsay Rix-Broom, who's CEO of Canada Life UK. We're delighted to be here with you this morning and to share a very positive update on the outlook for our European business. We're not going to cover all aspects of the portfolio this morning. We're going to focus in on Ireland and the UK. Thanks very much for the question on Germany earlier this morning, which Paul covered well. The focus for our discussion this morning is Ireland and the UK. First, we'll discuss growing and extending our market-leading position in Ireland.
Second, we'll talk to you about how we are growing our share of the U.K. bulk annuity market. I'll also give an update on actions that we have taken that are translating consistent top-line revenue growth in Europe into earnings growth combined with very strong cash generation for Great-West Lifeco. Our strategy in Europe is anchored in two large positions, one in Ireland and the other in the U.K. Ireland is the most dynamic and one of the fastest-growing economies in Europe. We are very proud of our market-leading position here. Irish Life touches 50% of the working population, and we are uniquely positioned to serve Ireland's rapidly growing wealth and affluent market. The U.K. is one of the largest insurance markets in the world.
It is well protected and one where it is essential to have an established in-market presence that's respected both by advisors and the regulator. We have a great insurance franchise in the U.K., one which we have recently extended to grow our bulk annuity market share, which Lindsay will cover shortly. These two key positions mean that we are very confident of achieving at least mid-single digit earnings growth for Europe. Not only do we play in these two key markets, but they are experiencing strong secular tailwinds. Ireland has successfully established itself as a key strategic gateway for U.S. multinationals. Over four decades, Ireland has transformed from one of the poorest countries in Europe to one of the richest. This has created one of the fastest-growing wealth and affluent markets in Europe, but also one that is underserved.
Paul talked earlier about the growing need for advice in underserved markets, and this is particularly the case in Ireland. The U.K. is a more mature economy with one of the largest insurance markets in the world. We are all aware of the scale of the U.K. pension risk transfer market, which has seen rapid growth and in 2024 alone transferred GBP 80 billion of assets to insurance companies. These volumes will continue for at least the next decade as U.K. corporations transfer legacy defined benefits from their balance sheets to insurance companies. Like the rest of Great-West Lifeco, our European portfolio has a great mix of capital-supported and capital-light businesses.
We really like the way our Ireland and U.K. businesses combine alongside Germany to give a diversified portfolio that is excellently balanced between the capital-light businesses of group benefits, retirement savings, and wealth, and the longer-term insurance and annuity businesses that require capital support. We are proud of the long-established position in each of our markets. Our market-leading positions are built on trusted brands, deep expertise, and good customer service. Our portfolio will continue to grow in a balanced way between capital-light and capital-supported businesses. You really see the benefit of this balanced portfolio when it comes to capital generation. Europe is already and will continue to be a predictable and strong source of capital generation for Great-West Lifeco.
Jon mentioned earlier capital efficiency initiatives, and these include better reinsurance arrangements and the expansion of our PRA-approved matching adjustment fund, which means we get better access to better risk-adjusted asset returns. These initiatives reduce the capital required for new business growth. This combined with high growth in capital-light businesses means we can continue to target at least mid-single digit base earnings growth and still expect ongoing capital generation of close to 90% of base earnings. This focus on capital-efficient growth also means that our incremental returns are higher than our current return on equity, which therefore increases future return on equity. I've said already that we are very confident of at least mid-single digit earnings growth for Europe, and this will be successfully achieved by executing in three key areas.
Firstly, in Ireland, we will continue to scale and grow our market-leading core business and successfully extend into the nascent Irish wealth market. Secondly, in the U.K., we will continue to grow our bulk annuity franchise to capture a fair and readily achievable share of the large pension risk transfer market. Thirdly, we will continue to limit expense growth and execute on further capital initiatives. We'll now unpack each of these in some more detail. First, turning to Ireland. To recap, Ireland is the most dynamic and one of the fastest-growing economies in Europe. It is a key gateway for U.S. multinationals, and we have an enviable and broad market position. One statistic which truly underlines our position in Ireland is that we have an existing business relationship with 28 of the 30 largest multinationals in Ireland.
By that, I mean we are the provider of their workplace insurance benefits, or we work with them to provide their workplace retirement benefits, and in many cases, both. We are excellently positioned to capture future growth in the workplace market. We have also worked hard to position ourselves for the new and growing wealth and affluent market in Ireland, continuing to develop our own distribution, successfully launching our joint venture with AIB, Ireland's largest bank, and acquiring and integrating large Irish broker companies to launch Unio, Ireland's newest wealth platform. Remember, although Ireland is one of the wealthiest countries in Europe, this wealth is young and new. It is an underserved market poised for high growth. I'll now turn over to Lindsay to talk about the U.K. bulk annuity market.
Thank you, David. Good morning, everyone.
It's a real pleasure to be here with you today. As David mentioned earlier, our U.K. business is a respected leader in the group benefits and annuities markets. Having operated in the U.K. bulk annuity space for a number of years, we've now hired a great team. We've invested in our proposition, developed a track record, and built distribution relationships needed to capture ongoing market growth. To achieve this growth, we're targeting the small to medium enterprise pension market, where existing distribution partnerships and fewer competitors are positioning us for accelerated expansion. The bulk annuity sector in the U.K. presents high barriers to entry. With consistent demand for pension de-risking, it also offers us an attractive opportunity for us to continue capitalizing on operational improvements, such as scheme quoting efficiencies.
Our ALM expertise, optimized capital allocation, and improved enforced portfolio returns enable us to manage both existing and new business with confidence. The good news is that we've already got a proof of concept for this approach. We have grown from under a 1% to a 3% market share and project an additional 2-4 percentage points over the medium term, demonstrating the success of our approach in seizing high-return bulk annuity opportunities. We have talked about the big picture, but let's take a closer look at this from a customer's perspective. If we look at a real-world scenario, Alison exemplifies the type of trustee facing de-risking decisions. Her GBP 250 million plan illustrates the real need for secure, long-term solutions in the U.K.'s corporate pension market.
By transferring pension liabilities off the sponsor's books, bulk annuities free up capital, lower corporate risk exposure, and give members greater financial security. We expect that our long-standing history, recognized brand, and robust financial standing make us a top choice for trustees like Alison, who aim to maximize member outcomes. Whilst we've successfully built expertise in the SME market, we do plan to expand our focus long-term to larger plans, enhancing capabilities to serve more complex pension schemes. Whilst the Alison example offers a glimpse of the path forward, with about 5,000 defined benefit U.K. pension schemes and an estimated $1 trillion in liabilities set for de-risking over the next decade, we see the bulk annuity space as one that offers ample growth potential for our European segment. Now I'll pass it back to David.
Thanks very much, Lindsay and me.
Look forward to winning that case from Alison. Best of luck with that. I suppose Lindsay has given an update on the U.K. market. In addition to our growth strategies in Ireland and the U.K., the third leg then to secure mid-single digit earnings growth for Europe is the continued focus on efficiency gains. Actions already taken have reduced our expense ratio from 2022 to 2024. This focus on operational efficiency includes optimizing third-party expenses, reducing our real estate footprint, and, as Ed mentioned earlier, leveraging AI for further process automation. In Europe, we have also exited subscale businesses and are working through the disposal of these legacy books. All of these actions give us operating leverage as we grow. We will see further reductions in our expense ratio, and these reductions will continue to translate top-line revenue growth into earnings growth.
Finally, to conclude for Europe, we have attractive market positions in Ireland and the U.K., which are benefiting from strong secular tailwinds. We have taken actions in Europe, and we are very proud to have a well-run business. We are proactive, and we will continue to take further actions to improve the business. We are confident of our forward-looking statements for Europe to achieve at least mid-single digit earnings growth, 80-90% capital generation, and an increasing ROE. Thank you very much for your time this morning. I'll now pass over to Jeff Poulin to talk about our Capital and Risk Solutions business.
Thank you, David and Lindsay. We have to wait for the slide. We saved the best for last here, so that's going to be exciting. Good morning, everyone. My name is Jeff Poulin. I'm in charge of Capital and Risk Solutions.
Over the years, we've built a global reinsurer franchise with a good story to tell. We've developed all sorts of opportunities. We're opportunistic. We have good diversification of risk, good returns, and great distributable earnings that we've brought to Lifeco over the years. Like all other segments, we concentrate on business that benefit from the secular tailwinds that have been talked about earlier. I will show you how we've built our expertise and focus on solutions that help our clients grow. I'd like to start by sharing more of a story about our business, who we are, what we do, and how we do it. I'm going to go back a little bit and tell you a story about myself. I've been with this business since 1991, so very early days of the business. I think second year we were in business.
In 1991, there were seven of us, and we made $1 million. We burned all the capital, the investment income on the capital through expenses, made a million bucks. We were very happy with that result. You move back to 2024, we have 370 employees. We've made over $800 million. It is a really good story. I'll tell you how we got there. Through those 35 years of history, we've built trusted relationships with our clients and have grown organically to become a global reinsurer. We're a recognized market leader in providing reinsurance solutions to help clients grow. We do it through optimizing risk and capital for our clients. We have the market reach, the expertise, and the discipline to identify attractive reinsurance markets, nimbly enter them, exit them, and execute on opportunistic deals.
In addition to our expertise, we benefit from Lifeco's financial backing, which makes us a very compelling counterpart. Today, we're recognized as the number one reinsurer of US health business, and we're the number one reinsurer of group life business in the US. We're also a proven leader when it comes down to capital solutions worldwide. When insurers and brokers are looking for innovative solutions to help with solutions on their capital issues, they come to us. We're the destination of choice. Going forward, we'll balance return and risk, and we'll grow to achieve mid to single digit growth of our earnings. We'll continue to be opportunistic and find the best way to deploy Lifeco's capital into high-return transactions. Let's unpack our business a bit more. As you can see on the slide, we split our business about 50/50 between capital solutions and risk solutions.
Both of these are there to optimize the client's balance sheet. On the risk solution side, we're dealing with more traditional markets. We're reinsuring mortality, longevity, and catastrophe risk. We tend to be opportunistic, and we enter markets when the transactions and the markets are appealing. We're also showing great discipline by exiting these markets when they get too competitive. On the capital solution side, it's a little different. We offer bespoke transactions to help our clients grow. There, for us to lose money, we have contracts. For us to lose money on those contracts, we really have to have a client that's under a stress position. We're trying to focus on having contract clauses that help us to really reduce the risk on these transactions.
We're very, very specific in the way we look at risk and try to be as risk-averse as possible when we do that. For both these types of business, the capital and the risk solutions, we're very lucky that Lifeco has given us the strategic freedom to focus on high-return, well-selected transactions rather than volume target-based. This allows us to preserve our very well-disciplined underwriting approach. Our right to win lies in innovation, efficiency, and relationships. On the innovation side, we continue to deliver new solutions to the ever-changing market conditions. As I say to my team, we need new mousetraps as the conditions change. We're very efficient. Our business model keeps us at a very low operating cost. That's been a great advantage, and I'll touch on that a bit later.
Our relationships, over the last 35 years, our highly technical and well-rounded team has developed a really good reputation that has kept our clients coming back to us. As these clients and these partners grow, we grow with them. As we pursue opportunities, we look for markets where we see growth and demand. We are naturally drawn to markets that benefit from current and emerging secular tailwinds that were mentioned by Paul and others earlier. Due to the way we are set up, we can enter and exit these markets swiftly when the opportunities arise. All three tailwinds shown on this slide serve as an example of the increasing demand for reinsurance of annuities, of savings products, of health insurance, and of pension solutions.
Our relationships with annuity riders, with health insurers, and pension risk insurers have helped us capture the growth and these trends that are reshaping the insurance market globally. One of the ways we run our business is we're trying to find ways to bring business that diversifies well with Lifeco's portfolio. CRS diversifies the portfolio by being countercyclical to market. What does that mean? That means when the markets are down, our clients worry about capital, and we're there to offer them the right tailored solution to help with their capital and their risk. That's important. It's to be there for them when they need it. We also have a portfolio that has Lifeco's portfolio has more market and credit risk. You can see that on the right-hand side of the page. We help balance the Lifeco portfolio by bringing in more insurance risk.
We also provide geographical diversification. 25%-30% of our business is coming from areas and geographies that other segments of Lifeco are not in. The important takeaway at the bottom of the slide here is that our risk, our contribution to Lifeco's risk, is proportional to our base earnings contribution. So we do not add undue risk to Lifeco. We have looked at the benefit of diversification within Lifeco. Let's look at the diversification within CRS. The first thing is we maintain a diversified portfolio of risk. Capital solutions and risk solutions each contribute 50% of our earnings, and that is spread across a variety of risks without concentration. On the risk solution side, we carefully manage our risk exposure and have been decreasing our P&C catastrophe exposure relative to the rest of the portfolio such that it is less than 10% of our earnings overall.
The rest of the portfolio on the risk side is well-diversified, and there's an embedded benefit there between the mortality and the longevity risk. We saw that during COVID where our higher claims due to mortality were offset by benefits on the longevity side. Our capital solution is different. Our tailored contracts are such that to incur a loss—I mentioned that earlier, sorry. We use protection in these contracts to mitigate our risk. All right? All these contracts, regardless of the risk that we're taking, we're trying to be very specific, very keen on having as low a risk as possible, and we protect ourselves in the contracts. This balanced approach between our two lines of business ensures that year over year we have consistency of earnings. I'll show you that in a little bit.
All in all, by not relying on a single product or region, we maintain reliable foundations for sustainable profit. I'm going to spend a bit of time on this slide because that's our secret sauce, right? That's what makes us special. I think that's the advantage we have over most of our competitors. We have a unique expertise. We've got disciplined execution and the desirability of our counterparty. On the expertise side, we have a unique goal when we look at transactions. We're focused on solving capital issues for our clients, right? It's a solution-first situation. We've got lawyers, accountants, and reinsurance professionals that are focused on making sure we find solutions for our clients. We're looking at new products and new regulations, and we're trying to find ways to help the clients with that.
Our competitors tend to sell off-the-shelf risk solutions to their clients, and they often look at capital solutions, but only if they do not compete with their risk solution. What we do is we try to find the right solution for the client, whether it is on the risk side or on the capital side. We are very disciplined. We have a parent company who wants us to be opportunistic and get the right balance of growth and risk selection. We have their backing when we see the right transactions, even if it is a really large transaction. That ensures that we are able to guarantee execution to our client. That is a big advantage as well. The last one, I cannot emphasize enough how important it is for us to have Lifeco as a backing.
Their financial strength, their capital support, their diversification, and their credit rating is really, really important to us. Both Paul and Jon have talked about that earlier, but it is a well-diversified direct company. Most of our competitors are reinsurers. They're usually concentrated on catastrophe risk and on mortality risk. We're a big diversified company, and all the clients like it. I've asked the accountants to look at our history, and for the last 30 years, Lifeco has not lost money once in a quarter. There's not very many companies in the world who can say that. Maybe it's gone longer. They stopped looking after 30 years. It is really good and a compelling advantage that we have. You add the 175 years of history that we have, and most of our clients want us on their panel. It really resonates with them.
These three drivers have allowed us to build long-term relationships with clients that keep coming back to us for more. We're offering them solutions that often our clients cannot offer. Some of our competitors have two of these attributes or one of these attributes, but not all three. Because we have all of this, we often have relationships with clients who are giving us the first look at transactions, but also come back to us for a last look afterwards to make sure that we're part of the panel. That is a big advantage. You may wonder, like, how are we going to continue to fuel this business, really? It's really the demand for our service is going to continue because we've got a constant and evolving change in market conditions, in products, in regulation, and in other government actions.
These changes require adapting and responding quickly to take advantage of these situations, and that's what we do. The main drivers I just highlighted on the previous slide resulted in the great growth that you see on this slide. It is an impressive growth, but that's not what I wanted to highlight here. What I want to highlight is how there's little volatility in these results, right? Like, despite all the catastrophe that we've incurred over the last 15 years and all the economic problems that we've seen, we have produced really, really good results. If you look at the years from 2017 to 2022, they were really bad years for reinsurers, and we fared really well. You can compare us to others, and you'll see the results there are really good.
The other advantage here, or the other things I want to highlight, is we produce—we constantly convert 60-80% of our base earnings into capital. That means we've paid 60-80% of our base earnings in dividends back to Lifeco. This approach has fueled reinvestment for growth. We've kept some of the profit to keep the growth going, and then we've delivered steady returns to our shareholders. If you look at that slide, and if you think about our business, you can think it's easily reproduced, but the world is constantly changing, and being ready with a product that the clients need when the world changes is what we do well. This is why we have 50% of our business concentrated in the capital solution. This slide shows an example that we have uncovered opportunities during turbulent times.
You can see these are all examples of us responding to market conditions. I'm going to use the last example to illustrate this because I think it does a good job. In the last few years, what we've done is what we've seen is we've seen higher interest rates, and that has fueled the new business for fixed annuities in the U.S. We saw that as an opportunity because the annuity writers have a lot of strain on their capital due to this new business. Some people tripled the amount of business they wrote in a given year. We have come up with solutions where we're bringing the capital closer to the economic capital of the company, and we've helped these companies be able to grow without undue capital. That has created good relationships. We have, I think, six annuity writers in the U.S.
that are dealing with us and still producing new business for us because of this product. Let's dive into our underwriting and our efficiency. Every year, we explore hundreds of potential deals. We've got marketing people, brokers, companies coming directly to us, and we get to see a lot of transactions. We've got a disciplined and focused underwriting process, which allows us to look at these opportunities at various stages of the process. Through this, we eliminate about 90% of the opportunities we initially look at. That is a very selective process. We also have a much lower expense ratio than our peers. We're at 15% of revenue. You can see the median of our peers is at 45%. This advantage comes from two main areas.
Our business model, we have centers of excellence, and we've got our people concentrating and collaborating in these centers of excellence. That's an advantage over our competitors who have boots on the ground in most of the countries they deal with. We also have a larger proportion of our book on the capital solution side, which requires less administration than risk solutions. Being extremely selective and having lean infrastructures enables us to source and execute transactions globally without carrying the overhead that burdens many of our peers. I spent a lot of time focusing on the big picture, so I would like to give you an example of one of the capital solutions that we've done. We're going to focus on the U.S. health market. You saw that we're number one on the U.S. health market. This U.S.
Health market is growing due to constrained government spending and to demographics, people getting older. The capital in the U.S. is directly related to the premium you write. If you're growing your premium by 20%, your capital grows by 20%. If you're a health insurer, you have to—the cost, the claims cost is going up in the high single digit every year. You have 8% or 9% growth, even if you're not growing your book. That comes from medical inflation, and it comes from the population aging. Having a capital solution for a health company is critical because their premium's growing every year, and they need capital to grow as well. We have come up with a solution that aligns the capital, the regulatory capital of the ceding company, more in line with their economic capital.
We have been doing this business for a long time. We get a decent return out of this. It is a diversifying risk for us. We are very selective in the portfolios we look at, and that allows us to get a good return. The client is fueling this growth at a lower cost than if they issue equity or issue debt, and it makes it a win-win situation. This has essentially allowed the clients to—it means the clients tend to come back to us for the same solution. We have been in the health business. We have clients that have been with us for over 20 years now, and they keep coming back to us. It often means they will give us the first look and the last look, like I explained earlier.
To summarize our plan, to summarize our plans to continue to create value for Lifeco by nimbly taking advantage of markets with secular tailwinds and other evolving changes like regulations and economic conditions. We'll continue to innovate, remain efficient, and grow our relationships. We have a balanced set of risks within CRS, and then we also diversify Lifeco's portfolio. We'll use our unique expertise, our discipline, and the strong balance sheet of our parent to continue to produce high-return capital-generating transactions. Moving forward, we intend to deliver earnings at at least a mid-single digit. Thanks for your time. I think we'll have questions.
All right. We'll wait for the Q&A panel to find its seats, and we'll get underway shortly. Same drill as the first two segments, Q&A segments. I see a few hands shooting up in the air again. Please wait for it to be recognized.
Once the mic is brought to you, please state your name and company for the purposes of the transcript. With that, I'll open up the floor to questions. Doug Young.
The question is, I guess, for David and for Jeff, there's been a lot of change in the U.K. annuity market from a regulatory perspective. Can you talk a bit about what that change is and what the risks are for your business and the opportunities are for the business?
Maybe I'll kick off. I think at a high level, I'd say, as I said when I was talking, it's a very well-protected market, and I think that's always been the case. There's very low tolerance from the regulator or the system there for insurance companies not to be able to pay pensioners.
I think there's equally that very low tolerance for defined benefit schemes not to be able to honor those promises. That's what creates the pressure on defined benefit schemes to transfer those liabilities to insurance companies in the U.K. That dynamic has always been there. I think that's why it's so important to have an established in-market presence. It's not easy to get a licensed operation in this market. That means there's a small number of insurance companies that have great brands that are well respected by the advisors, and it just takes time to build up that position. There have been some changes just on what assets are allowed to back those liabilities, and I suppose there's new pressures in the system now that prevent companies sort of offshoring some of the assets that back those liabilities. They need to be held closer to insurance companies.
That, I suppose, creates a dynamic where we're writing more of this business now within the U.K., within Canada Life UK, rather than within the reinsurance business.
Yeah, I can add on the reinsurance side. I think the U.K. is a very well-regulated market. David mentioned the asset mix has to be relatively conservative. We like that. I think our creditworthiness makes us a very good counterparty on the reinsurance side. All these changes that have happened, I think, are going to encourage people to come to us as a reinsurer as well. We're working right now with two of the largest pension insurers, and I think we're going to continue to develop those regulations. There's an encouragement to have a diversified panel of reinsurers, and I think that's why it benefits us.
Then second, Paul, I mean, CRS gives you a pretty good global view of what's going on in the insurance market. Can you talk a bit about the benefits as you sit back and you look at what CRS is doing? What's the benefits of having that business just from an intellectual capital perspective?
Yeah, really good point. Jeff and his team bring kind of a window on the world out beyond our business. Sometimes you can get a bit of—you get sort of stuck in your own rut, and you do not sort of look outside. We get competitive perspectives in risk-based businesses. We understand how geographies and other regulatory environments are evolving. The impact of that is that Jeff and his team sort of act in three ways. Strong commercial business. Clearly, it is providing good results.
They operate as an internal reinsurer to us, so we actually diversify our own risk using them as an internal counterparty, and that works. That helps us optimize. The third one is they offer sort of intellectual insight, and they keep us intellectually honest. Sometimes you can actually kind of get stuck and say, "Well, we think this is a good business," and we get challenged from Jeff and his team, so they bring that insight as well.
Tom?
Yeah, Tom McKinnon, BMO Capital. Maybe just continue with the question I asked before. You do not like pension risk transfer in Canada, and you do not like it in the U.S., but you like it in the U.K. I mean, it is kind of still the same kind of business. You buy it.
Is it because the capital constraints are different in the U.K., or is it because somehow people just price with better margin in the U.K. when they do that business? What is it that makes that business good but U.S. and Canada bad?
Tell me that. We do not do business in Canada, right? We are already a big direct player in Canada, and we tend not to reinsure in Canada. Canada is not a market we look at. In the U.S., it is a risk issue. I said we are very peculiar about our risk, and the market there is very big, as you mentioned, but the problem is that it is very aggressive right now. To compete in that market, you have to invest in assets that we may not be interested in investing in. I think at this point, it is an interesting market.
We're looking at it, but we're maybe just one crisis away from being in it, right? At this point, that's how I would look at it. It's too aggressive at this point for us to be in it. I've explained how we get in and out of these markets, and right now we're out.
Try to just build a bit on the—
Yeah, I mean, I was interested why Jeff answered that question when all the bulk annuity stuff does not come from his P&L, but still. Yeah.
Yeah, no, just to build from a U.K.
Perspective, I think with the work that we've been doing around capital optimization that Jon and David and I have spoken about earlier on today, you add that with the team that we've built, and it's a, as David just said, it's a market that's got high barriers to entry in the U.K. because of the regulation that sits in it, which means that there's actually a small number of insurers that are playing in it. I think that leads you to a place where actually we can make the pricing work really well for us. I think we're looking at high teen returns on this business going forward. I think we're very happy with the returns that we're making and the forecast that we can have in the U.K. business. It's a strong market for us to be in here.
Yeah.
There's no specific kind of capital advantage in—I mean, is Solvency II, is that just as onerous as that would have been as RBC?
There's no particular capital advantage there. We're writing the business directly through Lindsay's company there, and yeah, there's no return or arbitrage advantage or anything. Yeah, and Tom, all the returns we've communicated are on Solvency II. All the work we've done is to optimize Solvency II to bring more liquidity up to the holding company, and it's a good return.
General over there.
Tim Pachowski from ACR Alpine Capital Research. I guess question for Jeff and maybe some comments from Paul, follow up on it. The business lines you're in are largely commodity-driven, as you say. Capital providers are in and out.
The retrospection space in catastrophe pricing has been very good for the last several years at this point, and the group has chosen to shrink exposure. Kind of two questions in that is one, how can you be a commodity business in that space and be shrinking exposure when pricing is so good? Maybe this is a question for Paul, is any of that driven by a desire to have consistency in earnings as opposed to perhaps having good one-off earnings in periods where pricing is very strong?
I'll start with the second part of that. I would say we like diversification as much as consistency. Over time, we'll have greater opportunities, whether at a point in time, as Jeff said, it was longevity during periods of low interest rates, then you might see some hardening in pricing to get some opportunities there.
It's always trying to get back to that point of diversification, making sure that we don't have concentration. When you think about it, Capital & Risk Solutions represents, we'll say, 20% of our overall earnings, and the P&C cap business is kind of 10% of your 9% of your earnings. Yeah, 10% of the 20. So that is that part, but as Jeff said, we also have our structured business that we do on the P&C side. We have structured that we do on things like mortgages, and we just really like that diversification. I think that would be the bigger driver than thinking about it as a concentration risk because it's 2%, right? The volatility of 2% is not anything that would keep me up at night. The other point would be when we operate in this P&C space, we have capped losses.
Any of those capped losses would not be anything that would, again, keep me up at night. It is more that diversification that is important to us. Jeff, do you want to speak to the pricing?
You are right about pricing going up. It has been really happening in the last few years, and that is the result of these years I talked about, 2017 to 2022 were abysmal years from a P&C perspective. Our approach has been to stay away from that until we know more. It may be that the pricing is great, but we do not know where that is going. Our approach, and as Paul mentioned, we have really good governance on the risk side.
We've got limits on how much we can expose the company to, and those limits have not changed, but we've chosen to go higher up in the layers to try to avoid these flood, hail, storm, the smaller stuff that has been affecting most of the players. It has been a conscious way to move away from the risk to try to limit our exposure to fluctuations. That is what you saw on the graph of earnings as we've done really well with all these potential issues that other reinsurers have dealt with.
Thank you.
Alex.
Hi, Alex Scott Barclays. First, what I had is for Jeff. Can you talk a bit about the competitive environment you're seeing more broadly? You mentioned it in pension risk transfer, but specifically related to private equity-backed reinsurance, I mean, it seems like every year they're going into more products, different kinds of risks.
To your point, they're leveraging asset origination capabilities to be able to, whether it's priced aggressively or priced to the kind of yield that they're expected to get, seems like they're moving.
Yeah, there's been a big trend, you're right, that private equities have come in the market and have taken blocks of business. It's almost acquisition-based to get assets. It's not a market we compete in. It's a market we could participate in if the buyer has some capital issues, and we'll look at that. We have done a little bit on that side, but really have not competed against the asset players, especially in the U.S. I would say on the U.K. side with pension risk transfer, we're looking at asset deals. What we like there is that the asset selection is limited by the regulator, which means less asset risk from our perspective.
That's helpful. Maybe a follow-up just as a housekeeping item. I think you guys have given a pretty wide range on the wildfires, if I recall. Any extra help as we kind of get closer to the quarter on what to expect there?
Yeah, I'm not going to make your comments on that. The guard guys are still looking at it. You'll find out at the end of the quarter. I think that my friend to my right here wouldn't be happy if I said anything, and I don't think we have a final number. Yeah.
He can answer too. No, I appreciate that. Thank you.
Here we go with Meny and then Gabe.
Just had a question out of curiosity. Slide 86 shows the deal review process, Jeff, and you showed 10% approved deals.
I'm just wondering, is that 10% a target that you have, or just historically that's what comes up? I think historically that's what we've achieved. I think that we're very risk selective. We've got high governance, and that's the result of that. Just a separate question just on M&A. I think the early session, Paul, you mentioned potential for M&A in Germany. Just wondering about perspective in Europe and how you would rank sort of the acquisition appetite in Europe specifically.
Yeah, I would say that our priorities really haven't changed since we've last spoken about that. I'd say our highest priority and opportunity areas would be U.S. in terms of a retirement market that remains fragmented, and that puts pressure on participants, companies in the market to sustain their position. We see that as opportunity.
Ed spoke to the idea of a wealth acquisition, either an expansion of our distribution capability. You look at some of the tuck-in things we've done in the U.S., like Option Tracks. When I turn to Europe, I look to places like Ireland where we've built up a wealth business through acquisition, acquiring brokers. I would see us continuing to think about those. The Irish business itself, we've done a lot of extension off of that business, attractive extensions, building a health business, starting to build a wealth business. I see opportunities there. The U.K. at this point, I think we've got lots on our plate to take advantage of this bulk annuity opportunity. If you thought about capital deployment, in our plan is a certain amount of capital deployment, and we'll call that organic.
If we were to think about stepping that up because we realized that the rates of the returns were higher, that might be a place for some incremental capital growth. In terms of business extension, I would say we do not have a specific target in mind other than to say that if we could actually extend into an adjacency that added value that we really thought was going to add value, we will be open to it. As Jon said, we are always on. We look at, we do not have blinders on saying we are only looking in the U.S. right now. Canada Wealth, there may be pieces that could expand that one. Germany, my comment there was, I do not see anything on the horizon in Germany at this point, but I also think patience can really be a virtue from the standpoint of a market that is going through restructuring.
When we talk about U.S. as a priority, I think that's clear, but that doesn't mean we put blinders on. We are looking at opportunities across the portfolio. Greater likelihood, though, U.S. in the medium term, I'd say.
Thank you.
Okay. I'll move off of this Germany thing. I don't know why Meny's so obsessed.
No, the CRS business, a couple of questions. One, okay, I get the risk solutions, what you're covering there, but how do you lose money in the capital solutions, or what are the risks? Is it a regulatory issue that a regulator says, "Oh, that's arbitrage," so the contract? I don't know. What is the risk? How do you lose money in it?
I don't think you lose money because of the regulator. We have what I would call sometimes limited risk. We try to limit the risk in our contracts.
Like I said, we're very selective. We try to go through very good underwriting. Examples of what we've done, for example, and I had a slide there on the Eurozone crisis. We had a bank that wanted to monetize a portfolio of creditor that was associated with mortgage, and we came up with a way to give them the value on that block business, but at a very attractive cost to us at the time. It was the Eurozone crisis, and we looked at the risk. We felt, "Hey, we're going to get our money back on this transaction and make a lot of money in the future." We have, right? We've made the money that we paid them, probably an extra $200 million since then, and still making money on the block business today.
We're looking at the risk very specifically and trying to find the right opportunities, the right advantage, and the right portfolios for us.
Are you still taking on insurance risk? You're just offering an additional capital benefit too? We have to. We have some insurance risk.
Generally, Gabe, it's a tail insurance risk, and it's something that's way out on the tail. It's generally dealing with parts of the capital structure that are beyond the pure economic capital. We're helping people manage their capital planning more than anything else. There will always be some element of tail risk associated with any transaction.
Okay. As far as the risk solutions part, is there any—I mean, it's one of the businesses that's, I guess, declining as an earnings contributor over the next few years.
Is that a function primarily as the pie is growing, but other parts of it are growing faster?
Yeah, it's not by design. I mean, I'd like to have a—I think we have a right balance now, so I would like to keep it that way. It's just a matter of the market. I said we were very selective. If we look at certain markets right now, we don't find them exciting, so we'll sit until they get exciting again. We have seen that, right? The longevity market in the U.K., for example, we have done very well in the early 2000. Then it got aggressive, and then it came back again, and we got back into it. That is our approach. You build big enforced blocks of business to produce earnings for a long time when you write that type of business.
It's our approach, but it's been declining because we've grown the capital solution more than we've grown the risk solution. That doesn't mean that it's not going to turn around depending on the opportunities.
Last one, in terms of decision criteria on whether or not to take on this new contract or whatever, where does, if at all, being part of Great-West factor in? Great-West has a lot of longevity risk with the annuities business, with the bulk annuities business, so that constrains your ability to grow in longevity or—
It does. We've got risk governance, like I said, and we're looking for opportunities to grow things that Great-West doesn't have, right? We want to diversify the book that Great-West has.
That's how we view ourselves as a division, is that we're going to get into things that maybe we're not elsewhere.
I would say a good way to think about our risk diversification is that there is a bottom-up. Each of the businesses bringing forward what their greatest opportunities are, and then there's a top-down. How do we want to deploy our risk appetite? When you think about it, the work we're doing in the U.K. on bulks, the work we're doing within the Capital and Risk Solutions business, those both need to be taken into account. The thing we like about Jeff's business alongside all the other businesses is it diversifies really well. Where it overlaps, then we have to make decisions on where we want to deploy that capital. Where's the greatest opportunity?
Paul? Yeah,
Paul Holden's here, CIBC. A couple more questions for Jeff.
First off, I was looking at a breakdown of the CRS business in 2015. I did not see health on there. Has that been a major driver of growth over the last 10 years?
It has been, but I think we were in the business back then. I think the first health transaction we did, early 2000, late 1990s. We have been in that business for a while. I think it has been developing more as the government have unloaded some of the burden that they have to the private sector. That has created a lot of growth, and health insurers are coming to us more and more for solutions.
The second part, I think it would be helpful for us to understand a little bit more of the risk profile of that specific business. When I hear things like tail risk, you are not taking on primary health risk.
I start thinking about, is it comparable to stop loss? I get that it's not a stop loss business, but given the recent example from a competitor, I think that's going to be the question many people are asking. What are the similarities or differences to stop loss?
Yeah. In stop loss business, you take a one-year risk, and that's the way we look at the business. We take a longer-term view. As a result, we tend to have features in our contracts that limit the risk. I would say, I will repeat what we said in the presentation, for us to lose money on that line of business, we need the underlying company to be in a very stressed situation. Obviously, we haven't seen that. We have never lost money in the health sector, so.
I'll try to put it another way.
How sensitive would be the profitability in that business to claims experience?
Obviously, it affects it, but we have the benefit of some of the features we'll have. We concentrate on the best blocks of business that the companies would have. We try to be very specific in the way we look at the business. We try to get the best cream of the crop, the stuff that diversifies well with us. Obviously, if claims go up, it could create problems, but it needs to go up in the long run the way we're setting up our contracts. I do not want to divulge any secrets here, but they would need to go up and stay up for a long time. Again, it is more a credit risk than it is a sustained claims risk. These products get repriced every year, right?
That is the advantage of it.
Any other questions in the room? Seeing none, I think that concludes this Q&A session. I would like to thank the Q&A panel for participating and ask Paul to stay on the stage to offer some closing remarks.
As Shubha outlined at the beginning, the investor days we have done over the last few years, we have actually done a number of them, have been sort of business-specific. We dealt with Empower a few years back. We dealt with Wealth. Today was really giving you a sense of the whole. I think one of the powerful things about a sense of the whole is getting a sense of the people that you saw on stage here. Businesses often think about, "What is your secret sauce? Do you have a better product? Products are not sustainable. Do you have, I do not know, a specific market opportunity?
If you find it, others will find it. I never view those things as sustainable. I think what's sustainable are two things. One is, do you get closer to the customer and build trust? That's number one. Because trust is hard to gather, but it's hard to break. We are in businesses where we fundamentally believe that at the core of that is trust. Trust and advice will build businesses long-term. Jeff talked about his business, a very technical business, but so much of that business is built on the trust he's built and the ability for his business to deliver for their clients, those insurers that are their clients. The second thing is our people. You saw the quality of the leaders here, and the quality of when you get high-quality leaders, they attract high-quality teams.
You just see the top of the chart there, but I assure you that the strength of the teams we have globally, the teams we have in the U.S. and Canada and Europe, I would say are second to none. I would say that is our secret sauce that allows us to attract the teams and then to deliver the business. That is why I come back to what did we tell you today and why we come to those things with confidence. Strong and focused leadership positions in our businesses with organic growth. We do believe these secular tailwinds are sustained things that will drive growth. I get excited about hearing the answers there because our people are intimate with their businesses. They understand them. We do have a focused organic growth strategy.
I think sometimes there's been a perspective that we are an M&A machine. Actually, we are an M&A machine. We're very good at it when we do it. We have strong organic growth across our businesses that we're confident in. That is what we shared with you today. It is aligned with higher growth markets. We are increasing some of our medium-term objectives, and we're doing that from a position of strength and confidence. The higher ROE objective is reflective of the trajectory of our businesses. The new capital generation objective, it's always been there. We just haven't talked about it. We hadn't done the work to actually unearth it to be able to bring it to you. We've always understood that.
When you think about the way we've grown over the last 20 years, it's been by leveraging that strength, that capital, whether it's been delivering for our shareholders or whether it's been delivering into value-creating acquisitions. We reiterated our strong dividend payout objective, and I think that's a differentiator. We come back to that 8-10% EPS growth objective as an organic objective, knowing that we have strong capital and we will continue to have strong capital in hand. With that in mind, I want to close by just saying that from a personal perspective, I'm very excited about the future. I think we've never been better positioned. The last five years have been great. I will tell you that. It's been great sort of getting active. There was a lot of heavy lifting here. We were selling businesses. We were acquiring businesses.
We're now positioned with four very strong business segments. I think we have an opportunity to do more for our customers through better products and services, through more advice by getting closer to them. We can do more for our shareholders with continued growth in our business. Ultimately, that will be driven by the team you've met today. I want to thank you for your time and really look forward to connecting with you next time. Take care.