Yes, hello. This is Moriya, Managing Executive Director. Thank you very much for attending this IR Day Fortitude Presentation in spite of your busy schedule. Our group has been holding a stake, has been investing in Fortitude ever since June 2020, and the proportion of Fortitude within our consolidated profit happens to be the third largest, next to Daido Life and Taiyo Life. It is the third pillar, and this year we have received the first dividend, approximately JPY 8 billion worth. We also had an IR session last month on November 27, and there we also explained about Fortitude. I'm sure today will be also beneficial for you to learn more from Fortitude. Allow me to introduce the presenters today. Today we have Fortitude CEO, Mr. Alon Neches, Chief Growth and Optimization Officer, Kai Talarek, Mr. Kai Talarek, and Chairman, Mr. Brian Schreiber.
So these are the three members from Fortitude. The profiles of our presenters, you'll be able to find them on page 23 within the materials. We're going to spend the first approximately 30 minutes to hear from the three speakers, and after that, we'd like to open the floor for Q&A. We expect to end the session around 3:00 P.M., but it may change depending on how many questions we receive. We will now like to ask Mr. Alon Neches, CEO, to start off, please.
Thank you very much, Moriya-san. Thank you for all of you for attending, or to all of you for attending today's presentation. We are very pleased to be able to spend this time with you. Fortitude Re is one of the world's leading asset-intensive reinsurers. As you can see on page five, we have grown our balance sheet from approximately $32 billion in 2020 to over $76 billion today in 2024. That success has been built by executing 14 transactions with leading insurers around the world. We are able to accomplish this thanks to a team of the most talented insurance and reinsurance professionals in the industry.
As you can see in the middle of the page, today we have over 500 professionals on our team, and approximately 150 of those are actuaries dedicated to our underwriting and valuation capabilities that are at the core of our value proposition to our clients. In addition to those underwriting capabilities, it bears noting that our focus is always on delivering the best value proposition to clients, to their policyholders, and to shareholders, and to do that, as you can see on the bottom left of the page, we work with 10 asset managers, most notably, of course, Carlyle, who you will hear about later from our Chairman, Brian Schreiber, and with whom we have a very deep relationship. These asset managers help us ensure that at all times we are sourcing the absolute best assets on a risk-adjusted basis to support our liabilities.
Our success has earned the trust of our shareholders, and thanks to them today, our business benefits from $7 billion of capital supported by, of course, our strategic partners at T&D, Carlyle, and several other pension funds and sovereign wealth funds. Before moving off this page, I'd like to point out the statistic on the bottom right. We recently achieved an A3 rating from Moody's, and in addition to that, Fitch put us on positive outlook. In addition to all the positive things these developments say about our business and our people, they also achieve two important factors that will support our continued strength and growth. First, that A3 rating will help us become far more capital efficient, and second, it will help open new origination channels that will accelerate our growth.
If I can ask you to turn to page six, I love our team, and I could speak for hours about it, but to summarize quickly, what you see in front of you is a team with deep industry expertise. In fact, between us, we have over 200 years of insurance and reinsurance expertise, and we all share one philosophy, which is that we know that to serve our shareholders well, we must serve our clients and our policyholders exceptionally. On page seven, you see a quick snapshot of our capital strength and our capital generation capabilities. On the left side, you see that at each legal entity and at our group, our capital position is well in excess of all of our regulatory targets. On the right side, you see the power of our performance at work.
As Moriya-san mentioned, this year we paid our first dividend to shareholders of $200 million, and that rests on a long track record of dividends from our operating companies up to our holding company. As you can see on the page, together, from our inception, we've paid over $2 billion of dividends from the operating companies up to the holding companies, all while supporting significant growth. I think it's important to keep these two in mind together. We're generating capital, we're distributing upstream, and we are supporting growth. Finally, on page eight, I'd like to tell you a little bit about our portfolio. We benefit from a diversified liability portfolio, which, as you can see on the page, is approximately half in annuities, 40% in life insurance, and the remainder in casualty. What is especially notable about this high-quality, well-underwritten, diversified liability portfolio is how long-dated and illiquid it is.
As you can see on the bottom left of the page, approximately 75% of our reserves will still be on our books a decade from now. What's not on the page is that approximately two-thirds of these liabilities are either non-callable or not economic for policyholders to call. And it's quite important to us to convey to you that it's not only long-dated, but truly an illiquid liability portfolio that provides safe, stable funding. On the right side of the page, you see a quick snapshot of our asset portfolio. A few things worth noting here. First, approximately, I think on the page it says 94%, approximately 95% of our portfolio is in fixed income, and of that 95%, 95% is investment grade. So in summary, it is an incredibly high-quality investment portfolio. As you can imagine, we track the Japanese insurance industry closely.
We have read some of the comments about commercial mortgage loan exposures. It's important to us to convey to you that only approximately 4% of our portfolios in commercial mortgage loans. Of that portfolio, our loan-to-value is approximately 60%, modest exposure to office. As you can imagine, we thoroughly review this portfolio every quarter to ensure that we have the appropriate marks and, where necessary, taking the appropriate risk management actions. With that overview, I'd like to turn it over to the next section where my colleague, Kai Talarek, will lead us through the marketplace and transactions.
Thank you, Alon. If we turn to slide 10, please. Thank you. Over the last four years, we have built a significant stable of infrastructure and capabilities, products, structures, service capabilities, investment capabilities. We've also raised capital to have one of the largest balance sheets in the industry, so we have scale and we have capacity to take on some of the most significant and complex transactions. We've also worked hard at earning the trust of our regulators and the rating agencies. These capabilities in total have enabled us to engage in 14 transactions with some of the most respected names in the industry, both in the U.S. as well as in Japan. None of this would have been possible without the strong support from our long-term committed investors, including our strategic partners of T&D and Carlyle. If we look to slide 11, where that leaves us.
Today, we have roughly $100 billion in assets on our balance sheet, $75 billion in general account, and $25 billion in separate account. We have a very diversified portfolio geographically, product exposure, flow, and block, and we continue to see significant growth opportunities and have a rich pipeline of opportunities on which we're going to engage to deploy our capital in 2025. We move to slide 12. The total growth that we've been able to achieve is above what the industry has grown at on average. It is very balanced, and it has the two key qualities that Alon already mentioned, which is that our liabilities are two-thirds non-callable.
So when we invest in illiquid assets, we really can try to match maturity as opposed to having to worry about liquidating assets in an unforeseen circumstance when the policyholders come back and want our money, and it runs up very slowly. From a marketing perspective, this immense stability is key to us engaging with the market on transactions that take a long time to prepare and analyze and structure, and that may make our growth be larger in some years than others, but it is steady over our long term nonetheless because we can be a little bit choosers, not beggars, on account of our strong balance sheet. If we look to slide 13, Japan is our second home market.
We see opportunity on par with the U.S., and we think with our full slew of capabilities: block transactions, flow transactions, protection, annuities, and our strong balance sheet, we have a compelling value proposition that has found traction and will continue to find traction in the Japanese market. Add to that our very strong risk and ALM discipline, something that in our experience is particularly valued in Japan, where risk management, counterparty risk management, is truly valued, and we're well positioned for more growth in years to come. With that, I'll turn it over to our Chairman, Mr. Brian Schreiber. Thank you.
Thank you, Kai, and good afternoon. In addition to being Chairman of Fortitude, I have the privilege of being a partner at the Carlyle Group in leading our insurance solutions business. While many of you may know that Carlyle has had a long and successful 24 years investing in Japan, today the firm is a leading global alternative asset manager managing close to $500 billion in assets across three key segments, including private equity, global credit, and investment solutions, which is our secondaries and co-investment business, operating out of 29 offices around the world in all key markets. Our credit platform, if you turn actually to page 16, please. Our credit platform is really the key to our insurance strategy. We manage close to $200 billion across the risk spectrum in credit.
That runs from our liquid credit CLO business, private credit, which includes direct lending and opportunistic credit, our real asset finance businesses, and importantly, our asset-backed finance business. This is the segment that creates a lot of the investment-grade private credit that is the lifeblood of our insurance clients and provides them with the excess spread they desire. If you now turn to page 17, please. There has been a lot about the convergence of alternative asset management and insurance being reported over the last several years. Like everything, there are usually lots of benefits for why these types of trends happen. In the case of private credit, it's really been driven by a market appetite for these assets. And the key benefits to markets are that the lending is more consistent, and it provides critical access to capital for borrowers during difficult economic times, but also good times.
It fills a gap that's been created by stricter capital and lending standards imposed after the financial crisis on banks and continues to provide an alternative to traditional banks, as we've seen during COVID. So it's not as if these are new types of underlying assets or credit. It's just we're witnessing a shift from traditional bank lending to lenders who have better funding profiles than banks do, such as insurance. This mitigates liquidity risk associated with bank deposit funding. And the Federal Reserve actually put out a report that described the financial stability risks from private credit funds as being relatively low. This is also a large market. Today, it's $1.7 trillion and is expected to grow more than double between now and 2028 to $3.5 trillion. Now, what are the benefits to the investors in private credit?
First and foremost are the excess risk-adjusted returns that are generated in these asset classes. It's an ability for insurance investors to harvest the illiquidity premia and complexity premia without increasing portfolio credit risk. As we've seen over the last decade, just in direct lending, there's been a 430 basis point average higher spread than the leveraged loan market. And I would also make the case that the terms and conditions of the underlying credit is better. It provides diversification through unique and bespoke underwriting and broader asset sourcing around these investments. This diversifies the investment content for investors. And lower expected losses. This is important, particularly under stress. Differentiated origination capabilities, greater structural protections, enhanced monitoring all benefit the investors. Private credit defaults during the COVID pandemic were less than 2% and lower than that of high-yield bonds and leveraged loans.
So as I think about it, alternative asset managers sit at the intersection of capital providers, asset originators, and insurance companies. What we've seen, if you turn to the next page, as a result of that, a large source of new capital for the industry over the last 10 years has been through alternative asset managers. It's been over $30 billion. Transaction volume has been significant, $800 billion in insurance reserves. That includes retail and block reinsurance and flow reinsurance from sponsor-backed entities. The typical net yield benefit or net yield excess that the private capital-backed insurers generate is typically 60 basis points above the net yield of the traditional insurers. Today, 13% of insurance-invested assets in the United States are held by sponsor-backed insurance enterprises. And those companies represent 35% of new sales volume in the U.S. So this is more than a trend.
I think it's a structural shift in the competitive landscape of the industry. And we are really excited about the opportunities that we see for us at Fortitude as a result of this. And with that, Moriya-san, I'll hand it back over to you for Q&A.
So we're going to ask here first from Watanabe-s an.
I'm Watanabe from Daiwa. I have two questions. First question is on dividend payout on slide seven. What was the trigger to decide to pay JPY 200 million in dividend to your shareholders this time? And also, can we have the outlook of the dividend payout to the shareholder, including T&D? Or can we have the dividend payout policy to the shareholders? The second question is on commercial mortgage on slide 22. You explained LTV of CML is a low 60%, and it was almost flat compared with one year ago. But is it means the value of commercial real estate on your portfolio was flat? Or are you increasing a provision on your portfolio? Can we have the reason?
Great questions. Thank you. Well, I'll lead off. My colleagues may have additional comments. What triggered the dividend payment is an acknowledgment that we are nearly five years old as a company and approaching the state of maturity where it is appropriate for us as an entity that raises capital, helps that capital grow, to also demonstrate that we can distribute that capital. It's part of our value proposition to investors. In terms of outlook, I think you can expect similarly sized dividends from us going forward. However, it's important to acknowledge the growth opportunities in our business are episodic, and we work very, very closely with all of our shareholders to balance these trade-offs between capital distribution and pursuing growth. Should there be large growth opportunities, you can expect that we will ask our shareholders to be able to deploy toward them.
Finally, on CML, I think you got it right. We feel comfortable that we've taken the appropriate marks on our CML portfolio already.
Thank you. I have a successive question on the first part. You mean, except for the large acquisition pipeline, can we expect JPY 200 million dividend payout on an annual basis?
I think that's fair. The way to interpret my comment is that's the appropriate base case. But in the desire to be transparent with you, I acknowledge we are in an institutional acquisition business. And while that is absolutely the appropriate base case, by all accounts, and thanks to our very supportive shareholders, our partnership with T&D, our partnership with Carlyle, the mandate we have from our shareholders is always to become the best reinsurance company we can be. And so the important footnote around that base case is to acknowledge that where compelling growth opportunities arise, either we're going to pay that dividend and raise more capital, or we're going to adjust our dividend policy. We are a growth company, and we are a leader in our industry. That's our true north.
[Sushil-san] here next.
So, [Sushil-san from BofA Securities]. I actually have three little long questions. One is, recently, there is a very big transaction of the closed-book player in the world involving Japanese big life insurance company, and the pricing was sort of expensive, two times the value or economic capital basis, and this is the transaction of acquiring a company. However, I would like to get your sense of what sort of implication to your business. Maybe he wants to acquire another book of closed-book. The pricing may increase, so that's sort of implication. That's my first question, and second question is the question to Mr. Schreiber, well, I do understand the basic situation of the private credit market, but it doesn't sound really economic. Some kind of regulatory capital arbitrage or something has to be going on.
Otherwise, why this sort of good spread can be enjoyed by the private credit player funded by insurance companies? Is bank has kind of inability to price something properly, or maybe there must be something. The third thing is the, oh, okay. So you have increased the, you have added the new business in 2000 that is from the, sorry. So therefore, the protection type business increased as shown in page 12. Yeah, that's the Lincoln transaction. And in the U.S., I heard that the life expectancy is a little shortening. And so we understand the situation of Protective Life that Dai-ichi Life , etc. And that issue is actually a burden for the liability reserve provision. So what do you think about that? That's my third question.
Okay. You want to start with the—or do you want to?
I'll start with Resolution and turn over to our chairman for private credit and see your last question. On Resolution, we notice very prominent large transaction. We observe the fact that it happened as a validation of our business model. We view the price point as both an outcome of the assets you built, the capabilities you built when you built a franchise like the one that was transacted here, as well as the growth prospects of the industry. Of course, any given transaction always has idiosyncratic motivations of the affected players engaged in the transaction. But overall, we view it as an endorsement of sorts of the asset-intensive reinsurance in our business model. So we're pleased to see it.
With Resolution Life being fully owned by Nippon Life, we expect that on a go-forward basis, they might be less active outside of Nippon Life business in the Japanese market, but they will continue to be very busy competing with us in the U.S. market.
Okay. Yeah, I agree, and in the way we think about it, and I'll just add to those comments, it's very hard to build a platform like we've built at Fortitude, and I think the transaction just signifies that people will pay a premium to acquire. We think of that as franchise value. As to your question on the private credit spreads, there really isn't any arbitrage. What we're doing is very efficiently originating assets and getting paid for both the illiquidity in those assets, which are ideally suited to match off against the liquidity profile or illiquidity profile of our liabilities, some of the complexity in those assets, and our ability to sort of commit to forward purchases of those assets from the originators, which is quite valuable, so we generate spread from that, so I don't think there's any sort of regulatory arbitrage at all associated with it.
I think it's fairly straightforward, and as I mentioned in my comments, we get great comfort in the fact that we have such transparency into the underlying assets, the way we can underwrite them, price them, monitor them. We think they provide exceptional quality and yield for the level of risk we take.
Let me address your third question about mortality.
May I interrupt you, Kai, just on the second one? I would also note, in addition to Brian's comments, in 2023, going into 2024, the Bermuda Monetary Authority completed a regulatory review that we colloquially refer to as the consultation paper. Based on the consultation paper, all of the capital risk charges around both private and public credit have been revised in large part to be harder or larger capital charges. And so I think in addition to Brian's comments, you can have comfort that from a regulatory capital perspective, there is no advantage to owning private credit unless that private credit truly delivers superior risk-adjusted returns. Sorry, Kai.
Thank you. That's a great point. So your mortality question, we are aware of the fact that life expectancy on statistical average in the U.S. as of late has been slightly declining. But as is often the case, the average doesn't tell the whole story. It is the story of both the opioid pandemic, opioid drug abuse that has led in certain populations to increased mortality. It is a very sad reality, but it is also a very confined reality that affects certain geographies as well as certain socioeconomic groups more than others. And as such, we have not been affected in measurable scale by these changes. When you think about where we were before the Lincoln transaction, we had a preponderance of longevity exposure. And if this trend had affected us, it would have actually manifested as a positive impact.
It really hasn't because the individual lives whose longevity, in the case of our structured settlements and other annuity businesses underwritten, is not significantly impacted by the opioid crisis. With the move of the Lincoln transaction, we then just balance our overall exposure to a more even distribution between longevity and mortality. So we think the resulting overall risk distribution is less risky than it was before.
Next question, Suzuki-san, please.
This is Suzuki from Nomura Securities. I'd like to ask my question in Japanese. I actually have three questions that I'd like to raise. My first question goes to slide 11. I want to have a better understanding of what you say here. So here you're saying it's going to be $100 billion for 2023, and then in 2024, that's 140. And that's exactly the target that you've set for GAAP reserves. But what is going to be the pathway from 100 to 140? Because I do want to know how much visibility you have for the sourcing, for example, from which region, and what is going to be some of the conditions behind the negotiation. So can you share that with us to the extent you can?
At the same time, if you're going to be increasing the liability to $140 billion, I would assume that you're also going to be doing some capital financing, if that's correct. So I wanted to know about that. That's my first question. My second question, I think you did refer to Japan business. And so in Japan, if you're trying to do any, for example, asset-intensive type of reinsurance or flow type of reinsurance, is there anything that you'd be able to share with us from a global perspective? What could be the difference in Japan? What could be more challenging in Japan? If there's anything that you can point out to, I would like to know. And I would assume you're going to be doing this business in yen, Japanese yen.
But then if there's going to be any difference to the currency or any difference to the market, is that really going to change how high or low the margin would be? Is there going to be any difference to that? That's my second question. My third question, now. I don't know if maybe my question could be too naive, and if that's going to be the case, you can say so. But then as you look into, well, as we look into next year, we hear about rate hikes by BOJ. And so the general consensus is that it might be like till 1%. And when that happens, the deposit rate by banks could be like 0.4%-0.5%. I'm sure a lot of people would think that way.
But on the other hand, when it comes to liability held by Japanese insurance companies, if it's about level premium, the payment, the assumed rate could probably continue in 0.5 or 0.5%. And you did mention that the long-standing liability is going to be very important. I think that's something that, Alon, you mentioned. And maybe that means that from private equity people, Japanese insurance company may seem very, very attractive. Is this correct? And it might be too naive a question. You can say so. But I wanted to know from your global perspective what you think. So can you share with us your thought on my three questions? Thank you.
First of all, thank you for the questions. They're all fantastic. We'll do our best to address each one. I think the short version of how we get to 140, frankly, looks a lot like the way we got to 100. You heard Kai mention the balance of our business mix. If I think about our pipeline today and our growth opportunities today, they are reasonably balanced pretty similarly to the way our book looks. To your second question, how we get there, by and large, thanks to our performance, we can get there by self-funding. It doesn't mean we might not raise capital. It just means I'm not sure that we would have to.
It very much depends on the type of business and, frankly, on the asset leverage within the business because there are lines of business in our industry where you hold $1 of capital for every $5 of reserves. And there are lines of business in our industry where you hold $1 of capital for $20 of reserves. So, frankly, the answer around how we finance that path to growth is very much dependent on which lines of business comprise that path to growth. But certainly, there is a completely self-financed path to achieving that. Your third question actually excites me. I hope it's difficult to do reinsurance business in Japan. I hope it's very challenging because we have made the investments in infrastructure and underwriting capabilities and in hedging capabilities to stand out as a high-value service provider to insurance clients in Japan.
So take, for example, your comment around currency. I think you're exactly right. For most firms, reinsuring Japanese yen liabilities and using U.S. dollar assets to support those liabilities is challenging. At Fortitude Re, we have developed a world-class FX hedging infrastructure where we actually warehouse zero FX risk. We hedge out 100% of it. As you can imagine, that requires both experts in the field and technology. We've made that investment thanks to our shareholders supporting that investment. We deliver the value of that to our Japanese insurance clients. And so I can't say enough. I welcome that, and I'm excited by how challenging it is because I think that's where we differentiate ourselves relative to competitors. On your last point, it's not for me to speculate about interest rates. You heard Kai mention our ALM discipline, so similar to FX.
While we underwrite interest rate risk for the benefit of our clients, we warehouse none of it because we hedge out 100% of our rate risk. So, to my mind, if we analogize from the U.S., higher rates should drive sales. Sales should drive needs for capital. Needs for capital should be constructive for reinsurance, whether through flow or through block. And so, on balance, the way we think about it is constructive for our business. And I would share your observations. It would make those businesses more attractive to outside parties as well.
To add to the point about interest rate-driven motivation of sellers, in our experience, it's not the absolute level of interest rates that drives transactions, but the outlook. If you think that rates are going to rise further, you are not going to transact if you are, as is often the case, book is short, assets are shorter than their liabilities. So rising rates are economically beneficial to you. So you'll wait. If you think that rates have peaked, plateaued, or are going to reverse course, then you transact because you are worried about this benefit reversing. That outlook is really what drives transactions. Second motivation is, of course, the implications from an accounting perspective, which is what you alluded to when you are talking about a book liability.
As rates go up, the pain from transacting and from shedding a fixed value liability with a declining premium in a rising rate environment is clearly something that makes it easier for companies to transact. So there's some effect. But I would imagine that with the arrival of IFRS accounting, that too is going to be less of a factor so that it's going to be mostly driven by the interest rate outlook of the individuals.
Maybe my question, the intentions were not. I did not come across. So allow me to repeat myself again. So there's probably going to be a lot of people, in other words, a lot of life insurance companies that be able to finance themselves at the same cost with a deposit rate. They'd be able to do that for 20 and 30 years. And I think that you're the one who'd be able to tailor the liabilities held by insurance companies. So if my perspective is right as a global reinsurance operator, is this the way that I'd be able to take it? So that's really my intention behind my third question. In other words, I feel like there's a lot of money in all places around the Japanese markets that's worth upgrading the value. And I think there needs to be something done there, but that's what I would think.
But if you'd be able to give some comments there, please.
Frankly, I think of us as a business that introduces capital into the Japanese market, not takes it out of. We're not utilizing the capital that's in the Japanese market. What we're doing is, through reinsurance, we're helping our clients release their capital and then reinvest it into their businesses or pay it out to their shareholders. By doing that, we think we're adding value to the marketplace. So if your question is, how do we utilize their capital? Frankly, we're not there to utilize their capital. We're there to help them create and release capital. If your question is, how do we do that and whether interest rates impact how we do that? Because we hedge interest rates, I don't think of interest rates as a big factor to how we do our business.
But I think what you heard from both me and Kai is both the absolute level of rates and the outlook for interest rates impact the demand for our services.
Thank you very much.
Let's move on to the next question. People from Zoom. Sato-san from JP Morgan. Please go ahead.
I'm Sato from JP Morgan. I'd like to ask about opportunities in Japan, mainly. As stated on page 13, for asset-intensive reinsurers, you were saying that Japan presents business opportunities that are comparable to the U.S. So the market is very abundant of opportunities. However, I presume that the number of competition is also on the rise. When you just look at the past one year or two, have you been seeing these trends take place? In light of these trends, your company has a transaction record. You also have an office in Japan. Do you think this kind of competitive advantage is going to be maintained in the future? So I wanted to check if this is correct.
Another thing is, finally, in Japan, interest rates have been rising, and we are about to have the implementation of new solvency regulations in place, and like some Asian countries, there has been some discussion around massive lapse risk, so regarding massive lapse reinsurance and the opportunity for expanding this business, and regarding Fortitude's appetite for this kind of business, can you share with us your thoughts, if any? That's all from me.
So, I think the short answer. Thank you for the question. Of course, we've seen more competition. It's an attractive business. It's an attractive market. And I don't think it should surprise anybody that not only many reinsurers, but many asset managers seeking to get into reinsurance are seeking market entry. Frankly, so long as they are responsible players, we welcome them. Our commitment is to this marketplace and to our clients. And we're quite confident that if we can demonstrate the value proposition to our clients, there will be plenty of opportunity for us and for others. Our biggest concern as insurance professionals is that every player in the marketplace operate responsibly. If they do, like I said, I think we're very confident that our value proposition will resonate with our clients. If you think about your second question, why do I say that? I think you nailed it.
Our track record is an advantage. It's not just the track record. It's the people and it's the experience that come with that track record. It's the fact that Kawafuji-san, who's in the audience today, is here on the ground in Tokyo and leading our capabilities here. These are long-term relationships, oftentimes multi-decade. And we are committed to making the investments to ensure that we stand out as the reinsurance company that every insurer will want to do business with.
I was just going to add something that you often say, Alon, which is we don't often compete solely on price, but rather on value that we deliver. Every one of the transactions we've executed so far in Japan, there's six of them, I think, to date, have been competitive, where there's been some degree of competition. So we know how to compete, and we really try and understand what the counterparties are looking for. I think a number of players oversimplify the business somewhat. It's quite operationally intensive, as you've heard from some of the earlier conversation, to be able to give a counterparty the confidence that you can onboard the reinsurance, report it accurately, manage all the collateral against the reinsurance and the hedging, and report on all of that accurately and timely is extremely important.
And I think what we've built is truly differentiated and of the highest quality. So I, too, like Alon, welcome competition, rational competition. And my expectation is we will have our unfair share of the business in Japan.
Yeah, Brian, that's a great segue, I think, into the final question on lapseable business. Yeah. Going back to this presentation, as we mentioned, about two-thirds of our book today is either non-callable or not economic to call, but we do have about one-third that is callable, and we price and manage lapse risk regularly, both in the United States and in Japan. When you hear our comments about responsible players, that's very much to do with appropriately pricing for lapse risk and other insurance risk and policyholder behavior risk issues. We do think that our ability to demonstrate our track record both here and in the United States at pricing and managing these risks is part of our value proposition to our clients. As Brian just mentioned, we're not trying to be the lowest-cost provider. We're trying to be the highest-value provider.
Sometimes being the highest-value provider means educating our clients on why our pricing approach might be different than their original pricing approach. Again, for a business where we are entering into multi-decade relationships, having those honest conversations upfront, demonstrating that we have invested in the expertise to price responsibly and to deliver value to all parties is at the core of why we are so confident about the value of our franchise and our ability to add value to this market.
Thank you, explanation.
Thank you.
Next, we'd like to take the next question. From SMBC Nikko Securities, I think Muraki-san, you have your hand raised.
This is Muraki from SMBC Nikko. I hope you can hear me.
Yes.
...for not being able to physically attend this event today. I have two questions. Page 16 shows the breakdown of $194 billion in credit AUM. Of this, in which asset classes are insurance companies investing most? I suppose you are also marketing to the Japanese insurers, banks, and securities firms. What are the characteristics of the type of investors or products that have strong demand? My second question is on page 20. About matching asset and liability. Related to the previous questions, what percentage of the liability cash flow is over 10 or 20 years? I understand that your redemption risk on the portfolio is not material. Because of the products. But how do you model the dynamic challenge and the lapse and control it in the United States?
Because we are facing unknown interest rate risks and lapse risk in Japan, can your knowledge in the United States be of any help to Japanese life insurance company?
You want me to start in the beginning? Because it's the shorter answer, I suspect, so thank you for joining, Muraki-san, and thanks for the question. Roughly 40%-50% of our credit assets are held by insurance or financial institutions' clients. What we're seeing is a lot of demand for the asset-backed finance product because it's investment grade. For those institutions that are seeking longer-duration infrastructure credit, and products like that are actively sought out, looking for yield enhancement with accompanying higher capital charges, you see interest in direct lending and opportunistic credit. I think you see interest across the product suite, which is why we've built it out the way we have. A substantial portion of our credit investors come from the insurance industry. I hope that answers your question. Muraki-san, let me address your question about lapse risk and interest rates.
We have three actions that we take to mitigate interest rate-induced lapse risk. The first one is to quantify, based on best estimates, what the value of the embedded optionality is in lapseable products, and we do that when we price transactions, so when we look at two competing portfolios and one has embedded lapse optionality, we have an explicit allowance for that lapse optionality that equals the cost to hedge that optionality, so risk-adjusted, risk-reflective pricing is the first line of defense, but similar to Japan, the U.S. is coming off of a period of continued low and relatively stably low interest rates. The COVID experience notwithstanding, rates have been hovering around 2%-3%. Now they're at 4%. The U.S. does not have a lot of recent actuarial experience about how consumers are going to respond to the rising interest rates.
We've seen some of it last year when rates were as high as 5%. But there is certainly a dearth of data. And at the same time, we have to acknowledge that interest rates are more volatile because the markets are more uncertain than they have been in a long time. So for us, that means two things. One thing is that we put in place macro hedges. These are out-of-the-money hedging strategies that protect us in larger moves of the markets. And they're a tacit acknowledgment of the fact that while we have models and we have assumptions, ultimately, we do not know how consumers might respond if rates rose in the U.S., let's say, to 6% or 7%. So we take precautions and buy protection. And then the last line of defense, very important, is ongoing close management and measurement and monitoring.
So we keep our ears on the ground and look at what the experience is coming in to learn how interest-sensitive our customers are and adjust our actuarial parameters and, by extension, our hedging parameters accordingly.
Kai, I think you would agree. And Muraki-san, I'm sensitive to your question. Yes, I think there is something we can bring to the Japanese insurance industry by analogizing our experience in the US. However, I acknowledge part of the way we are able to get such a good grasp on it in the U.S. is our actuaries spend time with our clients' actuaries to best understand what's going on in that behavior that they see, which is what Kai just mentioned. And I think that's something that we will need to do here in Japan and work with our clients to not only for our own benefit as a reinsurer, but potentially even for their own account, help develop those types of modeling capabilities.
Thank you. Same question on sharing your insight. I appreciate it.
Thank you.
Takemura-san from MUFG Morgan Stanley Securities, please.
Hello. Takemura from Morgan Stanley M UFG Securities. Sorry for not joining physically, but thank you for taking my question. Let me ask one question. Sorry, I think that today's presentation does not cover the topic, but I'm interested in the normalized base profit of Fortitude. I think in the previous presentation in 2023, you mentioned removing one-time factors. The profit level of the Fortitude is $385 million. And the acquisition of the Lincoln book may add $200 million on that, implying $585 million. And do you see different rate today, or is that remaining unchanged? That is my question. Thank you.
Yeah, thank you for the question. The short answer is we see it consistently. In fact, in 2024, we expect to be modestly ahead of that.
Ahead of that. Great. Great. Thank you. And sorry, let me ask one follow-up question regarding slide 21. You show the current investment yield is 4.8%, and that is much higher than 4.3% in 2020. And do you think how much it can go from current 4.8%? I think the previous slide, say, the SAA portfolio target would be 6.5% of the yield. Then can we expect additional 1.7% increase from current 4.8%? So this is my follow-up question.
Thank you for that question. I think the answer is no because what we're looking at here is historical book yield. So when you think about how book yield comes about, whenever we enter into a transaction, we lock in a specific book yield that reflects the market conditions at the point of time that the transaction closes. We do rotate some assets after a transaction close, but for the most part, within six to nine months, all the assets are rotated, and we're talking about a fixed buy-and-hold position that has a book yield that does not change over the life of the transaction and that sort of contributes to the overall portfolio book yield in the proportion of the size of that transaction to the overall balance sheet.
What has happened and what you see here on slide 21 is that we have entered into new transactions, and those transactions successfully started to happen in higher-rate environments after the low rates during the height of the COVID pandemic. And so when we, for example, transacted with Lincoln in late 2023, the book yield of the assets that came over as part of that transaction, $28 billion, were all above 5%-6%. So they were weighted to this average, and they're reflective in the numbers that you see, and they've driven the average up. It's not a performance metric per se, I want to add, because you always have to look at the book yield relative to the book cost of the liabilities that we originate, and it is the spread between the two that generates our profit.
So in and of itself, a higher book yield versus a lower book yield does not engender higher profitability.
Got it. Thank you.