Good morning, everyone, and thank you for joining us. We're very excited to give you a chance to learn a lot more about our consumer business today. We have a number of speakers that you'll hear from. Before we begin, I'm sure you've all seen the news that we made the announcement that we have a new CEO, Brian Duperreault, and he will introduce today and make a few remarks. Before I turn the stage over to him, I just have to read through our cautionary statements very quickly, so bear with me. Today's comments will contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual performance events may differ, possibly materially, from such forward-looking statements.
Factors that could cause this include the factors described in our first quarter 10-Q and our Form 10-K, the 2016 Form 10-K under management's discussion and analysis of financial condition and results of operations and under risk factors. AIG is under no obligation and disclaims any obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. With that, it's my great pleasure to turn the podium over to Brian.
Well, thanks, everybody. Thanks, Liz, and good morning. I'm horning in on Kevin's show here. He's been very nice to allow me to say a few words. I'm going to just say a few words, then I'm going to duck out. Please forgive me. Let me get started by first saying that I am very excited to be here. As you know, I spent 21 years at AIG, and it's great to be back. For those of you who are familiar with my track record, I don't think you'll be surprised to hear my priorities will include a commitment to technology and a focus on growth, accompanied by underwriting discipline. Technology is essential to long-term success across industries, the insurance industry is no exception.
This morning's announcement includes initiatives that are unique to the industry and will further AIG's focus on technology and data analytics. The work going on in Hamilton USA will increase the underwriters' speed to market and efficiency, the company will continue as a separate operation within AIG. Attune will remain our technology-based distribution joint venture for the small and middle market and will expand its reach. Finally, our investment with Two Sigma will support the creation of a next generation insurance platform. I see technology, data analytics, and innovation as transforming the delivery and underwriting of insurance, these initiatives will put AIG at the forefront of the industry. While technology is an essential component of the long-term strategy, let me be clear, I am here to grow AIG. This company has the substance in its businesses and people to pursue organic growth and inorganic growth opportunities.
Growth combined with underwriting discipline is the path to outperforming our peers. My priority to grow AIG drives my capital management philosophy. This company has met its tremendous commitment to return capital to shareholders. Going forward, capital will also be deployed to expand and grow our businesses with the goal of building long-term shareholder value. Underwriting discipline and a more balanced commercial businesses are keys to positioning AIG to deliver more sustainable underwriting profits. As you know, the very tough commercial markets create a challenge for our commercial property casualty business. Through the right combination of underwriting discipline, diversification, and growth, we will build a more balanced commercial business that can deliver consistent underwriting profits. The improvement on our commercial property casualty business will be judged by the growth in our bottom line. Growth and profitability and book value are the measures of success in our business.
Financial targets are important in the management of the company, they have to be put in balance. I am not going to emphasize one over the other. Loss ratios are important. Loss ratios are important, but so is the mix of business and the level of expenses. Another important element is balance sheet strength, and based on my initial review, the reserves appear reasonable. I'm very happy to be back at AIG as CEO, and I look forward to making AIG better than it has ever been. In that regard, I recognize the value of the company's multi-line structure. I didn't come here to break the company up. I came here to grow it. This morning, you're going to have Kevin and his team discuss some of the great businesses at AIG.
Across the company, our businesses provide a terrific foundation for our future, and that future starts now. At this time, I'm going to turn the podium over to Kevin Hogan. I've had the pleasure of working with Kevin in the past and in fact, had the great judgment to hire Kevin. I got to tell you, it's wonderful to see how far he's come. Kevin, come on up. Thank you, everybody.
Thank you very much, Brian, and welcome back to AIG. I think Brian is well known to all of you here, certainly is to us, and we very much look forward to his experienced leadership and guidance. That's not what we are here to talk about today. Today, we're here to provide some insight into the consumer businesses beyond what we are able to provide through our regular prepared remarks. Today is the first of two events at which we'll address some of the consumer businesses. Today, we're going to focus on personal insurance and Japan, and later, we hope to have a similar session focusing on the retirements and life businesses. Why are we focusing on personal insurance and Japan? There's really two reasons.
The first is with the modular reporting that we started in the fourth quarter of 2016, there was more information available about the performance of these businesses than in our previous reporting regimen. The second is that each of these businesses have transformed their results in the last couple of years. Each of them are now producing a return on equity excess of 10%, and each of them are performing now, but more importantly, have established a foundation on which to build for the future. I will be joined by two colleagues this morning that I would like to introduce, and the bios are in your books, I think page 42. The first is Gaurav Garg, who is the CEO of Personal Insurance.
Gaurav has been in that role just over two years, and in the short two years that he has been there, he has really engaged in a total transformation of the Personal Insurance business. My colleague Bob Noddin, who is the CEO of Japan, and Bob has been engaging in the transformation of the Japanese business in many ways for most of his career. I have known Bob for a very long time, and he is now at the helm and has overseen the Fuji Fire and Marine acquisition and the preparation for the merger that is to come. The three of us this morning hope to share some perspective and provide context into these business transformations and why we are confident that we have a sound foundation on which to build for the future.
But first, I would like to provide a brief update on the overall of the consumer business. In November, I explained to you that the consumer franchise was a unique and powerful franchise that was well-positioned for the future. Today, I would like to reinforce five points around that. First, we are an important contributor to AIG's results. Second, we are delivering on our targets. In 2016, we reduced our general operating expenses 12%. We produced an above hurdle return of 10.3% return on equity, and we contributed to AIG's capital management efforts with a combined $8.9 billion of dividends and tax sharing payments over the last five quarters, including the first quarter of 2017. The third message is that after our transformation, our business is composed of industry leaders in their target markets. The fourth, we are delivering current results whilst we are building that foundation for the future.
The fifth is we have an extremely experienced and consistent executive team, and we have a deep talent bench. Now let us look at the contribution the consumer makes to AIG. This exhibit, the top half is the representation of our business modules by business, by the lines of business, and the bottom half is a view of AIG's results by geography. These are not additive. These are two different views of AIG's results. As you can see, consumer is a very important contributor, 49% of AIG's GAAP revenues, but that doesn't include deposits. The definition of GAAP revenues, as you know, doesn't include deposits. We also generated $25 billion of deposits, and we produced that ROE of the 10.3%. The Japan and the Personal Insurance businesses overlap a lot, as this exhibit does.
I think that's one of the reasons why we want to bring the two of them to you today together. Around 80% of Japan's business is personal insurance. Around 30% of personal insurance is its business in Japan. We'll reinforce these points a couple of times during today's discussion. Ultimately, the consumer business and personal insurance and Japan are very important contributors to AIG, each generating return on equity excess of 10%. Let's look at the last five quarters. These consumer business has generated five solid quarters of consistent operating performance. Over the last three or four years, we laid out some long-term strategies in each of our businesses, and we have performed an execution on that, narrowing our focus on the places we are best positioned to win. Our ROEs were consistently over 10% in 2016 and also in the first quarter of 2017.
Our pre-tax operating income, 2016, grew by $900 million, supported in an important way by both personal insurance and Japan and exceeding the $800 million target that we set on January 26th of last year. As I mentioned, our GOE reduction was 12% throughout 2016, and the first quarter of 2017 was another 10% as a result of our own portfolio and management initiatives in consumer, but also benefiting from AIG's overall simplification efforts. We're getting closer to our combined ratio midterm target of 92-94, which is true for both Japan and personal insurance. I just want to remind you that our progress from where we are now, 94-96, will not be linear in getting to that 92-94. This is a view of our businesses by deployment of internal capital.
Ultimately, each of these modules, as you can see, delivered solid performance, except for our life insurance module. Our new business pricing for our life insurance in the U.S. is at its target margins, and we still need to work on improving efficiencies in that business and also working on aspects of the back book in order to achieve the return profile that we expect in this business over time. The ROE is impacted by the surplus strain from our fast-growing U.K. life business, which also enjoys high-quality new business pricing. We believe that we are on track to bring this business back to our expected targeted return over the next three years as the U.K. business reaches equilibrium and as the high-quality U.S. new business begins to flow through its results.
Our most important business is clearly our individual retirement and group retirement businesses, our largest businesses, and what we believe is the largest consumer market, the U.S. retirement market, which have delivered solid returns and continue to do so. This next slide is a reminder of our first quarter results, which we just released recently, so I'm not going to dwell on this. This covers the retirement and the life businesses. On the next page, I would like to touch on a couple of aspects of the personal insurance and the Japan results. Each of these businesses has been on their own journey over the last few years. In personal insurance, we started to right size the footprint three years ago. We're now originating new business in 42 fewer territories than we were at that time.
We worked on improving the results, first in the loss ratio, which we were able to address, and more recently in the expense ratio. We are on a march to achieving that midterm target combined of 92%-94%. We're delivering on current results while building an important foundation for the future, and that's something that Gaurav is going to describe in more detail in his presentation. I'd also like to comment on the return on equity in Japan, which is higher than we would normally expect in the first quarter, both on a reported and a normalized basis. Our business in Japan is very complementary to AIG. It's important geographic diversification. It's predominantly a personal insurance business. In fact, the largest line of business is personal accident, which is a low capital, low volatility, stable return business.
As a result, our Japan business does not attract a lot of internal capital. It's a modest-size internal capital. As a result, its results are leveraged to anomalies in either expense or loss ratio patterns. That's essentially what happened in the first quarter. The weather was unusually good in Japan for the first quarter. There were no catastrophes, and the attritional loss ratio was lower than we would normally expect it to be. Our expectations for the Japan business are to be a low double-digit ROE business until we get through the entire merger process and the first cycle of renewal, as Bob's going to explain in a minute. I would encourage you not to pay attention to the volatility of the Japan ROE quarter-to-quarter, but rather to look at its trend over time.
Ultimately, the consumer businesses are very well-positioned. We're delivering on performance now, we're achieving our milestones, and we're building the foundation for the future. That's the story that you're going to hear from Bob and from Gaurav, who I'm very happy to introduce now. Gaurav, welcome. Thank you.
Thank you, Kevin. Good morning. Delighted to be here to present personal insurance, probably the first time that we are meeting. Before I start, let me tell you what I'm going to talk about in the next 30 minutes. Number one, I will talk about our attractive mix of business, both geographic as well as the products that we carry. Number two, I will talk about the personal insurance strategy. Number three, I do want to spend some time on the growth initiatives that we have in the personal insurance business. Let me get my clicker. Looking at the key things that we want to cover today and the key messages that I would like you to take away. Number one, we have a very attractive mix of business.
Number two, we are well-positioned to deliver our midterm 92-94 combined ratio and mid digits ROE. Number three, we are poised for growth in 2018. I'll spend a minute explaining why we say poised for growth in 2018. This growth is going to come, the earnings growth will continue, but we have certain actions that we've taken, as Kevin described, on our footprint strategy and our portfolio, which will result in a loss of some net written premium in the next two years. Our growth initiatives, which I will talk about, will offset some of it, but really the strong growth is going to start in 2018. That's what I mean when I say poised for growth in 2018. This slide you've seen. Kevin has presented this slide.
The key thing to take away from this slide is, number one, personal insurance is one fourth of the revenues of AIG. It's a large business. Number two, on our modular reporting structure, this is the second-largest module of AIG on revenue. I want to spend some time walking you through our mix of businesses. As you see, we are well-positioned to provide solutions to individual clients and to group clients on a global basis, and I'll spend some time on both of them. The largest part of our book is personal accident, which is at 35%, which is really unique. This is a very attractive business. The next piece that you see is auto. Auto for us is highly concentrated in Japan, and Bob will talk about the auto business.
The other thing on our footprint strategy is that we are actually going to focus auto and personal property in 15 geographies, one of them obviously being Japan, 15 geographies where we'll be profitable, and I'll talk about our footprint strategy in a moment. We are very proud of our Private Client Group business that is our high net worth segment in the U.S., which is fast-growing. I will talk about that as well. What I want you to take away from this slide is that the mix of our business is conducive for generating stable and predictable earnings for us. Another very important aspect is you see the four boxes. Our businesses actually have characteristics to provide these stable earnings for us. Number one, our businesses are short tail and have stable cash flows. Number two, they have no reserve volatility because the nature of our businesses.
Number three, our product set is less exposed to capital markets. Number four, because of the mix of business, heavy on personal accident, we are less exposed to insurance cycles. This really tells you how stable, predictable earnings potential this business has. Let me talk about the numbers. Kevin did mention that we've had five quarters now of consistent earnings growth, which is true for personal insurance as well. We've delivered on targets in 2016. We are well on track to deliver on targets in 2017. We've actually increased our ROE by 1,300 basis points in 2016, as you can see on the graph. Our expense discipline, we've actually delivered $280 million of expense reduction last year, which is 13% over prior. We are on track in 2017. Our expense reduction in quarter 1 is 9%.
However, as we go through the year, you should not expect the expense reduction to be at the same clip as you've seen in the past, because these actions as they earn out, you will see that gradually this come down a bit. We are on track, as you see from our accident year combined ratios, and Kevin talked about, we are well-positioned to deliver on our 2017 targets. This is an interesting slide. Two things I want you to focus on these slides. One, our stable loss ratio. Number two, our improving expense ratio, which is pretty dramatic, actually, if you see the slide. Let me talk about both of them in a little bit more detail. If you see our expense ratio line, we took, as Kevin said, at the back end of 2014, 2015 on writing actions, corrected our U.S. warranty book.
We also looked at, and corrected our Japan. Bob will talk about the Japan auto book and loss ratio trajectory there. We actually started our footprint strategy and started getting out of loss-making countries as early as that. You hear about this more advanced footprint strategy now, but it actually had started at that time, which has actually shown to have a sustainable loss ratio, which is where we will be. There will be quarter on quarter volatility, so don't expect that there won't be any volatility. For example, in Q1, as Kevin said in the earnings call, we had one severe loss. That you would see in the numbers. Let me talk about our expense lines. As you know, in the last two years, we've worked very hard to bring our expenses down.
What you see here are actions taken by personal insurance, you also see here that we've benefited from AIG actions that Sid and Kevin have been talking about in the past year. What actions did we take in personal insurance? Number one, prioritization of our projects, portfolios, and strategic footprint. That's number one. Number two, simplification of our operating structure. Number three, which is now table stakes, as Brian talked about today, disciplined cost reduction actions. Overall, if you see on the right side of the slide, you see the trajectory, you see that we are actually confident and well-placed to deliver our medium-term run rate target of 92-94 combined ratio, and ROE is in the middle digit. How do we do this? This is just illustrative, so you'll see these four boxes there.
This is illustrative of the advanced risk management techniques that we have in the business to maintain a stable and still a competitive loss ratio. We monitor exposures, risk selection, segmentation through these advanced risk management techniques. We have the generalized linear models, we have the regularized generalized linear modeling. I don't want to get into technical details. As you heard Brian say, we are an underwriting company, that is seen in the results. Let me talk about our geographic footprint strategy, which you've heard in the last Investor Day in November when Kevin spoke about it and showed this chart. He spoke about it today. What was the guiding principles for this? There were four factors we considered when we thought of divesting out of some of our territories. Number one, do we have sustainable profit pools?
Number two, do we have scale, or do we have room to grow in those territories? Number three, what are the AIG adjacencies? Do we have AIG businesses and infrastructure to support our businesses there? Number four, what is our market position there? Do we have meaningful leading market positions or leading market positions in niche markets there? These were the four lenses that we applied when we started looking at our geographic footprint. It's interesting to note that the numbers may sound large. I mean, Kevin just said 42 countries. That sounds like a large number. But the impact on our top line is less than 10%. That really tells the story that they were subscale, loss-making markets where we weren't seeing profitable growth. Therefore, this decision is actually to focus us on profitable scale and growing businesses.
That is what our focus is, that's what is our strategy on the footprint strategy. While we talked about footprint strategy, let me also assure you that we continue to maintain our global franchise and our multinational capabilities. On this slide, what you will see is that in addition to our target footprint, we still have more than 55 countries where we have network partners and we service our global businesses. We've got service centers across, strategically located, which are wholly owned by us and can provide service in multiple languages across to our client base. We have a network of more than 650,000 providers across the world to provide these services. Just to give you a data point, last year in 2016, we received 2.8 million assistance calls across the world for our service businesses. I'll talk about these businesses in a moment.
The real message here is that we still have the capability to deliver global products and services across the AIG global franchise. Moving on to our businesses. As you saw in the business mix, our largest business is personal accident and total on this page, these are our global businesses. It's a $6 billion group global businesses where we service global customers. Personal accident for us, actually, we are present in personal accident in a lot of markets. We service more than 90+ countries. We are in mature markets, we are in emerging markets, and we have this whole global network. We go to market through various channels, including direct to marketing operations in many countries. This line of business is highly attractive to us.
In Japan, as you will hear from Bob, we are the number one foreign insurer in personal accident, he will explain how our mix of business in Japan is skewed towards profitable mix of business. We'll talk about that during the Japan presentation. Let me tell you about our travel business and our franchise under the Travel Guard umbrella. That's what is our brand name that we go to market with. In travel, we are thought leaders in the industry. We have exclusive alliances with 25 airlines across the world, we've won several awards being thought leaders in travel. These businesses, when you look at the numbers I talked about, the number of calls we get, the number of claims that we settle, and the number of medical emergencies and security incidents that we actually cater to.
These businesses are global, they are on an industrial scale. Why do I point that out? Because that drives efficiency and profitability. Similar is our warranty service program business, where we are the number 1 provider in the U.S. for consumer electronics and appliances. We have, again, more than 60 countries that we can service these businesses. If net net, if you look at these global businesses, you will see why this business is so attractive and so well diversified and runs on an industrial scale for increased efficiencies and attractive operating margins. Let me move to the other businesses that we run for individuals. These are our auto and property businesses and our high-net worth Private Client Group in the U.S. Roughly $5.5 billion of individual businesses.
I'll spend some time on high net worth, but let me talk about global auto and property. On auto, majority of our book, as I said, comes from Japan, that is 1 line of business that you will see on the Focused Footprint Strategy that we are narrowing our focus on auto to 15 countries only. These are the countries where we would have scale, where we'll be profitable, and get good, attractive returns. That's really where we are taking auto to. We, in some of these countries, are also forging strategic alliances to build scale rapidly. The 2 examples that you see on the page are our recent partnerships, which are with Steadfast in Australia. Steadfast is the largest broker growing in Australia, and we've got a very good distribution alliance with them.
Virgin Group actually started with Bob who's here, with a relationship that Virgin had with Commercial, the excellent service that Commercial provided to the Virgin Group led us into an alliance with them in South Africa to launch Virgin Money South Africa, I'll talk a little bit about that later. Let me talk about our high-net worth Private Client Group business, which really we lead in the market on the ultra-high-net-worth space. On the ultra-high-net-worth space, we actually insure 40% of U.S. billionaires, as per Forbes 400. We insure more than 50% of U.S. art collectors. This Private Client Group business goes not only from high-value home, high-value auto, but to collections, personal umbrella, excess, and many more covers. This is our unique position in the market. Our retention ratio for the ultra-high-net-worth segment is as high as 98%.
There's a lot of stickiness with our business in this market. Overall, also, our retention ratio is above 95%, which I'll talk about on the next slide. What is important here is not simply the $8 billion market that we know of in the high-net-worth space, and we know the players in the United States. There is another approximately $30 billion market that is underserved, which is the high-net-worth market, which makes it very exciting. You've seen a lot of activity in this space with new entrants coming in because everyone is seeing the same thing. They're seeing this huge untapped market, that's what we are geared up to serve as well. We have some unique programs, and I'll talk about it. One point I would like to make is that this business is not simply a personal insurance business.
This is a very strategic business for AIG because of the connections it has within our entire network. Apart from the fact that most of the clients are important decision-makers, but we have products from across Commercial, like K&R, small office, D&O, and recently we took the product from Commercial, the CyberEdge product, and launched an individual CyberEdge on our personal insurance or high-net-worth portfolio. It's really exciting business. We are focused on growth in individuals and target markets where we get attractive returns. That's the key message of the footprint strategy and these businesses. Let me talk about, this is a very interesting and exciting slide. I don't know how many of you are actually customers of Private Client Group. If you are, then you'll probably have seen some of this.
If you're not, I would encourage you to become customers of Private Client Group. Our risk management services are excellent, I can tell you that. That is really our competitive advantage. More importantly, that is the barrier for entry for new entrants to create the infrastructure and provide the service. Let me talk about a few services, and I will also give you a couple of examples. We have these services on basically for catastrophic management. On the West Coast, you have wildfires. On the East Coast, you have hurricanes. We have the wildfire protection unit and the hurricane protection unit. Remember, these are all owned by AIG, so we have our own fire trucks, own trained firefighters, and they go out and protect homes on the West Coast.
We can't tell you for client confidentiality reasons and show you pictures, but believe me, there are some very dramatic pictures of a single house standing on a street, which is not damaged by fire and surrounded by all houses that are burned. We go in, we protect those houses, and actively real time. We have softwares which track fire, and we give active fire alerts. On the hurricane side, the recent Hurricane Matthew, we had 1,900 calls go out to our clients who were in the path of the hurricane to be able to advise them and protect them. That's very unique services. On the other services, I won't spend so much time talking about it, but there are links that if any one of you are interested, you can see that.
I do want to leave you with our, I think a sweet spot is our art collection. We've got people with decades of experience on our art collection side. We insure vintage cars, we insure exotic cars, high-value cars. Let me give you one interesting example of the value proposition that we have. We had insured a Ferrari Enzo. You would know that actually Enzo Ferrari was the person who started Ferrari. There were only 399 cars made in 2003, which were actually sold by invitation. There was one more car made later, which was given to Vatican and was actually sold for $1 million. This client of ours had an unfortunate accident. When we reached the spot, the only thing left of the car were the four wheels, two seats, and the engine block. It was carbon fiber. Everything was dispersed on the road.
The client was devastated. We tried in the U.S. to find places where they could rebuild the car. Couldn't. We went to Ferrari in Italy and talked to them. They said, "Send us whatever you have." We send them whatever we had. We were ready to pay $950,000 to the client, but because of the connect and if he couldn't replace it, Italy Ferrari actually rebuilt the car. We paid for two visits for our client to go and see it. On the second visit, the client actually sat in his car, took a lap on the Ferrari track, and the car was shipped back to him. We actually made the client whole, and it cost us $650,000 versus what we were going to pay him, plus a client for life. That's the kind of service I am talking about in this Private Client Group .
You will see on the slide on our growth. I mean, our growth has been tremendous, 45% in the last four years. This is a business that we really want to invest in. I will just spend a few minutes on this slide, trying to, as you heard Brian say, and it's been an AIG strategy to invest in technology. We are upgrading our technology platforms. What you see on the slide is really a blueprint of what we are doing in many parts of the world. What does this do? It actually improves customer experience, makes us more competitive, and drives growth and margin expansion. That's why it's important. It's not simply that we are giving customer experience, but we are driving growth and margin expansion as well.
We recently launched the same kind of platform, which is digital, in South Korea, which I will tell you about in a bit, in South Africa, and closer home to the Private Client Group , both in the U.S. and Canada. I think this is a key enabler for us to drive earnings and drive growth. Let me move to some of the other telematics and other apps that we have in the market. Telematics for us actually doesn't simply drive good behavior, driving behavior, but drives the loss ratios down, and therefore, it's good thing to invest. Our app in Israel won the product of the year for product innovation in 2017. We are really state of art on this. On the right side, we relaunched our global travel app, which is very unique.
In fact, all of the AIG people have this app because all of the AIG are covered in the business travel accident cover. Not only do you have features like single button to contact anywhere from anywhere, our assistance centers, but you have more than 200 country reports that are real-time updated on the events happening in countries. You can set up alerts of wherever one is traveling, and it will keep sending you alerts on what is happening real time on security, political situation in the country. This is really, I think, cutting edge for us and adds to our offering on the business. Let me take a walk around the world. We talked about how we are positioned and investing in growth, and this is what is going to lead to our 2018 plus growth and growth in earnings as well.
Let me start with the U.S. I talked about PCG and high net worth. We are really, really focused on that business, not simply in the U.S., but internationally and talk about it in a minute. We are investing not only in technology, but in advanced risk analytics, product design, and launches, and also in enhancing our risk management services, including recently a cybersecurity assessment service that we launched very recently, which, as you know, is very topical with all that has been happening in the last two days, and now it's spreading into Asia as well. That's unique. We are positioned to get into that $30 billion market in the United States, which is underserved on the Private Client Group segment.
In Canada, we just signed a deal with a big chain, DAVIDsTEA, which has 150 retail stores. This is a digitally driven multi-product strategy that we have launched in China for growth. In the U.S., we are also growing all our other businesses. We have unique capabilities to grow that given our franchise with commercial and consumer, including the large consumer businesses that we have in the U.S. We are creating what we call as the one call for anything that a customer needs across the consumer and commercial businesses. This is something that I think will drive quite a lot of growth here. Most importantly, Kevin in the investor analyst call in Q1, mentioned that we signed a large airline, a global airline.
I'm happy to tell you now, at that time, we didn't have permission to say that we signed United, which is one of the largest airlines to provide global travel insurance and assistance program. That's, I think, affirming our position as a global leader in the market in travel. Let me move to U.K. and Europe. As you know that we are investing in a new age technology, we recently signed a joint venture creating an MGA with Azur, which is a tech start-up firm to grow PCG business. It's been running for over a year now, and we are seeing very good progress there. That's another growth area that we're talking about. Israel. Israel for us is a direct marketing, 20-year operation, which is growing rapidly. We've received a lot of prizes on customer service in the last many years.
In fact, it is the 20th anniversary for Israel operations, and both Kevin and I are heading over this weekend to Israel for the occasion. Let me talk about Virgin Money South Africa. We launched a digital platform with Virgin Money. It's state-of-the-art. We can do online binding quote in five minutes. 30% of our leads are digital. Let me talk about India. India, closer to home. I was CEO of this company for five years. Basically I was with AIG since 2000. Came back like Kevin and Brian did, the three of us who went and came back. In India, this business is doing exceedingly well. The CAGR for India is 17% for the market. Our JV for the last five years CAGR is growing at 20%. It's outperforming the market.
In Singapore, we just signed a deal with Uber, 10,000 cars, again, with collaboration with commercial. It's a commercial client. In China, which is the largest economy, we are working with Alibaba companies, the Tmall, Alipay. We have a company called WeChat, which has almost $900 million actually subscribers to WeChat, and 90% actually are active. We've launched an artificial intelligence-based chatbot with WeChat, where we've already got many transactions. We sell travel insurance. We are the largest provider of outbound travel in China. Coming to Korea, which is really a great success story. In Korea, we went from an old legacy system to a brand new digital-enabled system in a short time span of 24 months. It not only changed the technology, but it transformed the business.
After launch, we saw in the last quarter of 2016, very soon after launch, we saw four times the business that we saw in the same quarter last year at 30% lower cost. You can see how these tech investments are reforming and transforming business into high earnings businesses. Before I close, our biggest investment is in Japan, and I'll have Bob talk about Japan. Before I close, I just wanted to leave you with a couple of things. Number one, that we have a very attractive portfolio mix, both our products and geographies. Number two, that our business is poised for earnings growth as you've seen in the last five quarters, and this will continue. Number three, we have very good momentum to meet our target of 92-94 combined ratio and mid-double-digit ROE. With that, thank you.
Over to Bob Noddin, our CEO of Japan.
No, I'm going to let everyone do that. Thank you, Gaurav. Thank you. Good morning. Let me try to reset just real quickly for all of you. As Kevin mentioned in the beginning when he showed you the slide of the AIG portfolios by product or business, if you will, by geographies, Japan is a little bit unique in a lot of respects. One of the things I want to reemphasize is that the business in Japan is not just consumer. As Kevin said, about 80% of that business is personal insurance. We're a substantial commercial operation, a big part of our business continues to flow through Rob's organization, both George Stratts ' property and special risks, and Lex Baugh's liability product lines. Let me give you a context for what we're doing in Japan and what we've been doing.
Interestingly enough, for those of you who might not pick it up in his bio, Brian actually did my job about 25 years ago in Japan. I think I'll have a good coach in the years ahead as we move forward. Let's go to the first slide. Okay. Couple of key takeaways I want to try to emphasize for everybody today, and that is that 2011, we completed the acquisition of the Fuji Fire and Marine Insurance Company. Since that time, we've spent an awful lot of energy and effort focusing on improving its performance. We'll get a chance a few slides in to show you what we've been doing from a loss ratio standpoint and an expense ratio standpoint. That has been a big factor in helping us contribute more effectively to AIG's results.
We also, in addition to strong underwriting performance in both AIU, our core business, and Fuji Fire, the acquisition, we made some strategic marketing decision changes in our business with American Home, the direct writer in Japan. As a result of that, we've seen substantial improvement in the overall results of that business, which has also contributed to the Japanese results. We've made good progress, I'll talk to this in the slide ahead, in terms of bringing costs down while we've been focusing on the merger that I'm sure most of you are familiar with. We believe that that's positioning us to be able, over the medium term, to achieve the target run rates of a 92%-94% combined ratio and a mid double-digit ROE contribution to AIG. Next slide, please. What's the key here? First of all, we're a big business.
The numbers you saw at the beginning that Kevin showed you are net local numbers, it's net of reinsurance. We are both consumer and commercial, and I'll talk a little bit about how segments play out in that process, because there's elements of the Japanese business for AIG that are a bit unique to a typical footprint from AIG's standpoint. We are the fourth largest property casualty group in Japan. We, by ourselves, are larger than all the other foreign companies combined in the Japanese marketplace. We have been focused for the last few years on ensuring that while we're working on this merger, which is a pretty extensive effort and is making good progress, we can at the same time provide proper contribution to AIG's overall performance, and last year was the first year of really seeing that flow through in our results.
We have been continuing to work on our merger with Fuji Fire Marine and AIU and that's made good progress. I'll talk to some of the milestones in that process in a few minutes. What we've been able to do as a result of that marketing change with American Home is to continue the investment we need to do into the merger process without putting extra strain on the overall results of the Japanese business. Lastly, I think it's important to note, we'll see this in slides ahead as well, like Gaurav has talked about, we have had considerable progress in improving the overall loss ratio of that Fuji Fire portfolio, and that's contributed to our success to date. Next slide, please.
I'm going to try to give you a few slides here to give you the context of why we're unique in Japan, not only as an AIG business, but unique to the marketplace as well. The origins of our AIG business started with AIU back in 1946. Fuji Fire Marine actually predates that and actually goes back almost 100 years. Through this relationship in Japan, one of the things we needed to do in order to compete in that market was find distribution and segment opportunities, and we'll speak specifically about that as we go forward. We've done a lot of work in finding the right kind of association partnerships to tap into distribution opportunities that allow us to get to markets that are not necessarily right on the surface. We've been focusing aggressively in the last few years around simplification.
A common theme in AIG, but certainly for our businesses, as Kevin mentioned, you'll see here, just two weeks ago, we completed the sale of the AIG Fuji Life operation to the FWD Group from the PCCW business, that went quite smoothly. We've continued to maintain the distribution partnership with them and look to opportunities for that in the future, similar to other life company arrangements we have in Japan. Last year, April 1st, we announced the stopping of new business sales in the American Home operation. This is a pioneering direct marketing company in Japan. AIG was the first to launch that with American Home about 40 years ago. The nature of the market change in Japan, regulatory issues around insurance business law changes, your customer needs-based selling activities, we believe that that model needs to change.
As we look to new ways to do that, we recognize that the current model was not one we wanted to continue. That had a considerable impact in actually providing not only a reduction in the marketing cost, but at the same time, the underlying inherent attractiveness of that portfolio, which is a lot of personal accident and medical insurance, has allowed itself to flow through. April 1st, 2nd this year, we got regulatory approval to go to the next step and finally the last step along the merger path. That's called pre-merger. What pre-merger allows us to do is to actually begin single hatting the leadership team across both of the two companies.
While AIU and Fuji Fire continue and run up to the merger, which is on schedule for January 1st of 2018, we're allowed to be able to begin putting one person in charge of both around a function or a geography for both companies. That allows us the process of beginning to simplify the structure and begin to start looking at how that can become more efficient as a business. That also actually allows us to begin consolidating branches. We have an awful lot of branches across the country, Fuji and AIU, in different offices in the same town. We're about a third of the way through the process now of bringing them together and putting them into a single building, driving costs down, and we'll see the impact of that as we go forward.
January 1st, 2018, AIG General Insurance, or in this Japanese would say AIG Sonpo, will be launched. Since a significant portion of our business is renewal business in the property casualty space, starting with October 1st, you'll begin to see those renewals roll out into the marketplace with effective date of January 1st or later. For the bulk of next year, what will actually be happening is we'll be running three companies. The AIU and the Fuji Fire existing businesses who will be renewing into the new merged entity and the new merged entity. One of the challenges that we have in that process is to ensure that we bring that retention business across with us, get that new company launched around new product lines. There's a significant product rationalization that's taken place. We're moving from about 330 products that the two companies offer now.
The new merged entity will be offering about 120. That process has been ongoing now for quite some time, and that's really where the bulk of our remaining work is just around testing the application tools that our producers will be using to support that business. January 1st, we're on plan to achieve that. We think all of those things together will allow us to continue to position our business 2019 and onward to be able to really start focusing on new growth opportunities, as well as the opportunity for us to continue to improve the efficiency of that business. Let's go to the next slide, please. This is kind of key. What I want you to take away from this.
If you look at the upper right-hand corner, gives you a sense of the overall improvement of the loss ratio over the 2012 to 2016 windows for the Fuji Fire business. We did that on a combination of underwriting and pricing moves by bringing some AIG discipline to those operations. We did some work around rationalizing and segmenting distribution in that process as well. It's had a considerable impact in improving the underlying underwriting performance of that business. Likewise, we've had tremendous success in bringing expenses down in that business. We've achieved about $120 million worth of GOE reductions for that Fuji business over that 2012 to 2016 window. We think we're positioned as we go forward to continue on that path of improvement.
Also, as we've mentioned before, the American Home change allowed us to fund the merger work and at the same time allowed the performance of that underlying portfolio to flow through the overall results for AIG. Post-merger, as I mentioned, 2018 will be a transition year. We believe we'll be able to pull an additional $80 million worth of recurring GOE out of our business in Japan. We will have some shock lapse in that process. There are some distribution channels and some products that we don't feel are strategic, and we will not be continuing post-merger. There'll be a little bit of impact on that, but we'll continue to look at ways to continue to grow those strength markets we have. I'll talk about one of those, which is the Hojinkai market in a minute.
We'll have no more one-time spend on the project, which has been substantial, but there will be a bit of amortization that starts at the end of this year as that business starts to take hold and those costs flow into the results. Net-net, I think as Gaurav said, and Kevin said, we're not going to have a linear line in this process, but we will start in 2019, see all of that expense benefit flow continue through that portfolio. Some of the initiatives we have around finding new markets and our segmentation initiatives should play out. Next slide, please. What's different and unique about AIG in Japan? Top section here shows you how the products themselves play out. Just a little bit of a couple of tricks here. Automobile and the CALI, 11% up there, that's compulsory automobile in the Japanese market.
More than 50% of the property casualty market in Japan is auto. Frankly, AIG is not overweight in the auto business, and that's attractive from a number of standpoints. One of them is that, frankly, that market's going to continue to decline as the age demographics kick into the environment in Japan and as things like advanced safety features and telematics and auto drive, autonomous drive technologies become more pervasive in the marketplace. We are a major player and substantially heavy in the personal accident space. That's a bread and butter area for AIG. It's something that dates back to Mr. Greenberg, and it's been a sweet spot for us for an awful long time. Tremendous loss ratios, very attractive business. Last piece on this, fire. In Japan, the market does not distinguish residential from commercial. It's all boiled in together.
In our case, while we're a little bit larger than the market in fire, a large portion of that, the majority of that is actually the residential fire, which has much better loss ratio tendencies than the commercial product does. If you look down at the bottom, AIG Japan's been at the forefront of customer segmentation work for quite some time, and I'm going to talk to you through that over the next couple of slides. Because of that huge automobile portfolio that the local companies write, they're heavy in automobile, and that's reflected in that individual space as well. An awful lot of their automobile business comes through their Keiretsu relationships, the major corporate cross-shareholdings in Japan, which links into automobile dealers, et cetera. AIG doesn't really play in that space and never really has and won't be as we go forward either. Small business.
Brian talked about what we're doing in the United States. It's an area that we continue to explore in different ways. In Japan, we've been in that business for 45 years, and I'm going to talk to you about that in the next couple of slides. That's an important part of our business. When we think about it in terms of a product, it's where Japan sort of doesn't quite compute when you try to look at this on an additive basis. Those small business customers of ours, we sell a tremendous amount of products that roll up into Gaurav's PI portfolio, and we sell a tremendous amount of products that roll up into Rob's commercial portfolio, and I'll give you some examples of that in the next few slides.
Playing in the small business space has been something that's been a very important part of our business in Japan. I'm going to talk to you about that now as we go to the next slide. No, I'm going to wait. Hold on, I'm going to talk distribution. This will give you a sense for the diversity of the distribution that takes place in Japan. More than 50% of our business comes through professional, independent insurance agents. That has a long history in Japan, where basically in order to create and to be competitive and innovative in the marketplace, we would recruit prospective producers into the company. They would work on a five-year agenda where they'd start out initially learning product, learning sales techniques, understanding how to position risk education and risk transfer opportunities into commercial segments.
Over time, over five years, they would begin being paid through commission on their sales, and we would drop their salaries down. At five years, they'd graduate and become independent producers. When they did that, we would encourage that you better go get a license with another company because there are certain products that you'll be looking for that frankly, we're not going to write. Those independent agents, 47% of the vast majority of those have come through that process. We call it the IS process, independent solicitor program, and it has a 40-year plus history in AIG. The career agents are internal staff. These are people who are only licensed and capable of selling AIG products. They typically have focused more towards the middle market commercial space in Japan, and that's an orientation that both AIU and Fuji Fire have.
Partner, these are folks who their primary business is not insurance. They may be a travel agent, as Gaurav mentioned. They may be a home builder, a real estate agent, they could be an automobile garage, et cetera. We provide a product offering that is a companion to what their primary business is. Life Alliance, we do have a long-standing relationship with a number of Japanese life insurance companies where their distribution is supporting AIG as its P&C provider to its customer base. Global brokers, quite small. It's quite specific to the Japanese market, and for those of you who aren't familiar with it, there's a group, there's a business type called case agents. The large Japanese corporations have an entity that's responsible for placing risk for its subsidiaries. That is a market that will be changing over time.
I think global broker business will grow as a result of that, and the case agent business will come down. Direct marketing is still, while we're not doing new business sales, we're still servicing a tremendous amount of customers through the American Home organization, and that's the direct marketing piece. Total number of licensed agencies is about 30,000, and inside of them there's roughly 150,000 licensed and certified individual sales representatives. Next slide. Small business, why is this different and unique? There are 3.8 million SMEs in the Japanese market. The vast majority of the workforce is employed by them, and they represent more than 90% of the businesses that exist, licensed businesses in Japan. The Hojinkai Association is the small business taxpayers association for Japan. Think of it, if you will, like a chamber of commerce type of thing, right? It's a national association.
There is one area, Osaka, the Kansai region, where there's a separate association that's called the Nozei Kyokai. We're partnered with them as well. This relationship goes back, as I said, 45 years. For 45 years, partnering with a very large Japanese life insurance company called Daido Life Insurance, we provided a unique value proposition that covered key man insurance for the small business owners. The death and the accidental injury and illness for the owner would keep the business going in terms of difficulty. We began through them the marketing and distribution of that product. We're almost effectively an embedded value to the members of that association. Subsequent to that, we began introducing new product lines, and we now have a vast array of products that get sold to that marketplace, I'll give you an example of that on the next slide.
Construction, here's a combination of the distribution work we do in building distribution around the partnership with the association around bringing the product suite to the fore. We started out providing key man insurance to the owner of the small construction companies across Japan. We've got about 25%, 30% of the market in this space. We introduced new product offerings as the market changed, as opportunity presented itself. We offer liability covers to the owner around workplace negligence and accidents in the workplace. We have frequently a property cover that covers warehouses, equipment storage, et cetera. In many cases, we'll have a small corporate automobile fleet where say the company has maybe eight vehicles, two or three vans or trucks for delivery, one or two cars for the sales and admin staff, and maybe sometimes even the owner's car themselves.
The product suite is not a particular sole product. Most of these customers have at least two products with us, if not more. The beauty of the AIU and the Fuji piece is this. AIU was predominantly successful in big cities in Japan, had very limited footprint outside of the big cities. Fuji, on the other hand, had a lot of presence in the smaller cities and outlying parts of the countryside and not in the big cities. Bringing those two together allows us to begin to take this Hojinkai relationship through the Fuji distribution channel on the endorsed product set out to those Hojinkai members across the country that we were not able to get to before through AIU. The key to this is we are the sole endorsed product, P&C product from the association. They market, they support administering that.
They allow us and work with us to provide the distribution programs for that. Let's go to the next slide. All of that leads to the fact that AIU and Fuji have consistently produced customer excellence awards through J.D. Power in service and product assistance, both in Fuji and in AIU in that space. Next slide. Merger and how we go forward. Simplifying the AIG footprint, we're introducing a new brand, AIG General Insurance. Historically, we were operating company brand specific, AIU, Fuji Fire, et cetera. By bringing that new brand in, we wanted to focus on how do we drive a new agenda, how do we drive new value in the marketplace? We've hedged at Active Care.
We talk an awful lot about how, as an insurance industry, instead of taking 100,000 points of data historically, actuarializing a new customer and determining their underwriting portfolio and preferences and how to price them, we're trying to take that information and use that to constructively engage customers in better understanding risk and taking preventive action, not just waiting for the bad thing to happen. When we surveyed the marketplace three years ago, as we began looking at the brand image we wanted to create with the new merged entity, we interviewed 6,000 customers in Japan, and they overwhelmingly said, "Ugh, the insurance industry, it's reactive. It's bureaucratic. Something bad happens, and then I call my insurance company." We saw that as the opportunity, and we began focusing on how could we begin positioning value add service and information and knowledge that would help people make better decisions.
Our Active Care agenda does things like last year, we used drones up in Hokkaido to inspect commercial and residential roofs to see if there was anything that would give us any indication of telltale susceptibility in the coming winter. We could do preventive measures in that process. We've been doing education forums around bicycle safety in Japan. We focused on how can we get people back to the workplace or back into society more rapidly as a result of having had serious injuries. We partnered with a company called Cyberdyne, which is a robotics and exoskeleton company in Japan, and we're introducing exoskeletons as a means of facilitating faster rehabilitation to our customers that have suffered severe and significant injuries and accidents in the workplace. Next slide and last slide. The one piece here that I get quite excited about, this information is a little dated.
As of this morning, we've had over 100 million views of this video across the globe. About a third of those have actually taken place in Japan. As we began focusing on how we're going to introduce that new entity, we wanted to get the AIG brand out there in the marketplace in a different and constructive way. We used our relationship with the New Zealand rugby team at the end of last year. They came through and helped us shoot this video content in Tokyo. People here are tackling risk. They're seeking preventive measures to help prevent bad things from happening from our customers. It's been overwhelmingly positively received. That's exciting from our standpoint because what it has allowed us to do, the commercial itself, fully digital, has been nominated for four different advertising awards in Cannes next month.
That's led to huge publicity without having to pay for it in the national media in Japan. We've had four different national media stories on this commercial. It's different, it's innovative, and it's exciting. I think at the very end of this, when we're actually done, we'll have it up on the screen for those of you who haven't seen it. If you'll please go Google #TackleTheRisk, you'll help me push it up beyond 100 million as well. Lastly, I think what's kind of cool and neat about it is, from our standpoint, 2019 is AIG's 100th anniversary. 2019, Japan hosts the Rugby World Cup. 2019, AIG is a sponsor of the New Zealand All Blacks, who hopefully would be a three-peat in reigning World Championships.
That gives us huge opportunity to continue to promote that brand and image over the next couple of years as we lead up to that, as well as the 2020 Tokyo Olympics, where rugby as a seven-player sport is also played. We're excited about what this allows us to do. We're excited about the energy that it's created in Japan when they start talking about insurance in a very different fashion. I thank you. I'm going to hand it over to Kevin to wrap it up, and then I guess we'll go to Q&A after that. Thank you.
Excellent. Thanks, Bob, and thanks, Bob. Ladies and gentlemen, I hope that there's maybe an additional important takeaway from today's discussions, and that is that our personal insurance business and our Japan business, like our other consumer businesses, are not commodity businesses. These are businesses that are led by understanding of customers' needs. They're led by unique services. They're all about target markets, niche markets, segment and sub-segment strategies, and about unique market positions, Active Care, being proactive about risk. An assistance company that can help employees all over the world, whether the underlying coverage is travel accident or group personal accident or kidnap and ransom. These are unique solutions that are difficult to duplicate, They give us a distinctive value proposition and also present to a certain extent, a barrier to entry for our competitors.
Clearly, consumer is an important contributor to AIG's results. Personal insurance in Japan definitely are. Each of these businesses is delivering today on their targets, but also preparing for that important future. We have a solid foundation for growth, something that clearly Brian emphasized in his comments is what we're going to be turning our attention towards. We have sustainable business models, and we look forward to improving our returns from the 94%-96% low double digits to the 92%-94% mid-double digits after we get through the transitional period of 2018. Now we're going to take some Q&A. I invite my colleagues, Gaurav and Bob, to come up here and join me. Just give us a second to get settled and look forward to your questions.
Yeah. Go ahead, Tom. I'll start there. Right next to you, Tracy. Yeah, see you.
Thanks. Tom Gallagher, Evercore ISI. Just a few questions about Japan. If the goal is mid-teens ROE, and I guess you're there already, but you had indicated the loss ratio is unusually low. The domestic competitors in that market are less than half of that level. I'd be curious, what you see as the structural differences? I know you highlighted personal accident versus auto and mix shift being a big issue, but if your returns are really that much better than the competitors, what do you feel about, or how do you feel about the sustainability? If you could talk a bit more, if personal accident is really the secret sauce here, talk about the competition in that market. Are you seeing the domestics coming after you harder in that market if the returns are really better there? Thanks.
Do you want to start with that, Bob, and then-
Sure. I think one of the things you have to appreciate in the Japanese market is the context around how their investor community looks at the local market. They don't have the same ROE pressure in the Japanese market that we do in the U.S. That's changing. As the government focuses more around transparency and better governance, et cetera, and they've made a lot of strides in that respect, I think you'll see that greater attention to that play out. I think the other thing that's important to note is that because of the keiretsu relationships and the cross-shareholdings that have taken place, the natural tendency of those businesses was to buy the products that the other shared companies were associated with.
If Kevin was in the chemicals business and I was insurance and Gaurav was in the paper business, we were busy supporting each other because we had equity stake in each other in that process. As that moves away, I think you'll see a greater pressure for them to do better on their ROE performance. Now, that will mean more emphasis on them trying to get into some of those sweet spots. We've seen them try to move into the PA product area. I think what's key to this is, and that's an awful lot to do with our Active Care strategy, is we don't want to focus strictly on the product and the price. It needs to be about the value add and the uniqueness of what we can deliver in that process. They have made attempts to get into the Hojinkai association in the past.
One of the big competitors came in and bypassed the National Association and went into the local chapters and offered a trade credit product in order so that they could hope that that would allow them to get in the back door. They run it at about a 200% loss ratio, if they want to continue to do that, I'm real happy for them to do that. I would say that I think that market's going to continue to change with the heavy dominance of automobile in that space, with the changing in terms of the aging population, fewer younger drivers, advanced safety features, autonomous. It's going to continue to evolve and change, and that's going to put pressure on them because it is such a large portion of their overall performance. How are they going to cope with it?
It's going to be the biggest challenge that they'll have and how we respond to that.
A couple of other things I think important to note, Tom. First of all, we're diversifying away from the U.S. into Japan with a short tail, low volatility portfolio. As we look at the internal capital consumption from Japan, that is one advantage that we have. We have a different portfolio. In terms of the competitiveness in the personal accident, all I'll say is that this has been our main line of business for 45 years in Japan, and our agents have grown up learning about the needs of our SME customers and understanding how to serve those. That's a sustainable position in terms of the value proposition will be very difficult for others to ultimately emulate.
Good. Sounds good.
Hi, Jay Cohen, BofA Merrill Lynch. A couple questions. One is, you talked about the $80 million of operating expense savings in 2019. You also mentioned a reduction in one-time spending on projects. I'm wondering if you can quantify that. Separately, does the merger of the two companies have any implications for capital as well as expenses?
We've focused for three years now with hundreds of people on making this merger happen. That's had to do with product, with process, and technology. It's been a considerable effort to pull all of that off. That work's done other than the voluminous amount of testing we have to do to satisfy the regulator in moving forward in that process. There's one bubble left, and that is that as you take the renewing products out of AIU and Fuji Fire and move them into the new product structure of AIG General, there's a bit of work to get there because each of those product offerings is slightly modified to get into a better product that the new company will produce. We got a little bit more work to do in that space.
That all of that cost to be able to support making that happen falls away by the end of next year, by the end of 2018. There'll be some amortization that will kick into that process, but it's not as extensive as the amount of one-time cost that's sitting in the numbers you've seen here. We didn't pull them out. It's in there, and we've been able to hit those targets in spite of the fact that we had to spend that amount of money as well.
Can you clarify that?
Sorry?
Can you clarify that?
Well, it's been $200 million, as we've talked about in the past, to make that happen. What we get out of it on the other side in terms of the expense reductions is a smaller footprint as we move towards one management structure, not two management structures. As we simplify some of the distribution channels in that process, there was a reasonable amount of business that Fuji was coming in that frankly wasn't carrying its weight in terms of what it was producing revenue and profit versus the cost to support it. It's kind of a combination of those different pieces.
I don't know if, Kevin, you wanted to talk about the offsets to the 2018 decline, but in terms of the bottom line impact, that would have an effect as well.
Yeah, that's right. A couple of things happen after 2018. Amortization starts, right? Amortization of the whole project begins. That will consume more than half of the savings in the one-time project spend. We have the $120 million of year-to-date or of history-to-date reductions as of 2016, plus the next $80 million. That's what's going to allow us to bring the combined ratio down, the expense ratio down to that 92%-94% level. That 92%-94% is what will produce that mid double-digit ROE. In terms of capital, there's aspects of restructuring that also include the legal entity structures. At the same time, as we get to a normalized operating status in 2019 and beyond, we do believe that we'll have the opportunities to once again produce dividends from the businesses in Japan.
The new entity will have a slightly different reinsurance structure. The local nets will go up slightly in that process as well.
Okay. Jay?
Thank you.
You can get that.
Jay Gelb from Barclays. I had two questions unrelated. First, is AIG's personal accident product similar to what's commonly referred to as the third-
Sector
third sector products in Japan?
Yes. It is one and the same.
That's one of the third sectors. As you look across industries, property casualty companies are able to provide essentially indemnity-oriented personal accident products. It's a little bit different than the longer-term supplemental health style products that you may be familiar with from some of the life insurance companies. There is some overlap between those two, but we've really focused on group personal accident, business travel accident products in the property casualty entities.
Right. Okay.
My follow-up, the one business that really kind of sticks out from a return profile standpoint is U.S. Life. I know you mentioned a couple of factors that are a drag on that, but can you give us some concrete examples of steps that are being taken to improve that return profile?
Absolutely. If you go back to the beginning of 2016, we made an important decision with respect to our distribution to focus on independent. We wound down the bulk of our career agent network, AIG Financial Network. That represented around 1,100 agents and about 400 people that were going door to door to collect cash. That produced a year-over-year expense savings of around $70 million and a reduction in commissions of about $30 million. In addition to that, we made the announcement later in the year of our exit from the group employee benefits business, AIG Benefit Solutions. That is something that is still underway. Some of those relationships, we're being very respectful of our client relationships as we're trying to find new homes for that business. The running off of that business will not be at as rapid a pace as the agency.
I think those are two good examples. We're focusing our new business on the term, a new index universal life product. We are focusing on larger scale distribution through the BGAs, the IMOs. Most importantly, we have the tremendous network of wholesale relationships that we support our retirement business with. We work with over 218,000 independents, so that's very efficient distribution for us. We're also working on expanding our life activity into the distribution that we have access through the banks and through the IFAs and those wholesalers.
Is the bigger issue now margins on the products or capital to balance sheet?
It's really neither. Our new business pricing is at our target margins. It has to do with the history of the portfolios that are there. One of it is the expense efficiency, which I described that we're addressing. The other is there are some products in the historical portfolio that just aren't delivering the types of returns, and we're still working on strategies to improve the back book performance. The quality of the new business during AIG's recovery period, our new business sales slowed down a lot. As we're recovering our new business sales and we're back in the top 5 providers of term now for the first time since 2007, as our new business continues to grow, it will be able to earn through its results as part of that whole portfolio.
Tracy, I think we had a couple over there.
Amit Kumar, Macquarie Capital. Just one question on capital. Brian Duperreault in his opening remarks was very forceful in terms of talking about the growth strategy
Organic and inorganic. I'm wondering, does that signal a change in how capital is being generated, utilized, and perhaps being freed up for capital management activities going down the road? Should we think about something of a buyback in a different light today versus in the past? Thanks.
Well, I'm not going to make any specific comments about that. Ultimately, what we're doing is we're delivering on our current targets. We're achieving important milestones for the future, and we are establishing a foundation for growth.
In the back. Tracy, thanks.
Okay. Randy Binner, FBR Capital Markets. Quick follow-up there on the life question. Understood all the commentary, but just from kind of a modeling perspective, you showed some profitability in the life segment there. It has not been profitable. Life insurance is a long-tail business. When would our expectation be of kind of more consistent profitability in that newly broken-out life segment?
I think both in terms of the U.K. part of the contribution as well as the U.S. business, I think of returning to the type of target levels that we would expect over the next three years.
Where would you expect to be this year?
This year?
Yeah.
I think this year there's unlikely to be a material change from the levels that they started at. For the U.S. business, it's around 5%. For the U.K. business, which is a much smaller balance sheet, the capital strain of its fast-growing new business produces a modest GAAP loss.
We'll go with Meyer in front.
Oh, sorry. Meyer Shields, KBW. You talk about, I guess, amortization replacing some of the cash expenses in Japan post-merger. Can you explain what, if any, impairments or impediments there are to taking capital out of Japan, I guess repatriating it?
That's a complex question. Maybe we won't answer it here. We can come back to you with an answer to that. It has to do with the legal structures that are there. It has to do with the regulatory requirements. It has to do with some of the-
They can't reserve.
-statutory reserving issues and also the history of our legal entities there. We're working our way through it.
Steven?
Steven Gavios from Jennison Associates. Can we talk about the personal accident business a little more in terms of competition? Putting aside the Japanese players who are in a very different market, it seems that virtually every U.S., Bermudian, Swiss, whatever significant competitor I can think of, including many AIG alumni in that list, are targeting the personal accident business. You've been a leader in that business for many, many years. Can you talk about how you're defending yourself against those newer competitors?
Gaurav, do you want to start?
Okay. Thank you for the question. The unique proposition for us as we've developed personal accident over many years is basically riding on our whole AIG network. One of the things that for us in personal accident is not simply providing the product, which can be copied, right? But it's also being able to provide the service. Through our multinational network that we have across on the commercial side, our footprint that we have, the servicing capability we have globally, we are one of the very few companies that could provide, like, a controlled master program on the group personal accident side, on the business travel accident side, across all the territories. That's pretty unique in what we do. The other thing is that even on the product set, we are able to actually identify need-based products for our various partners.
We do various different sets of products across different sets of countries. We have experience and expertise in direct marketing, so there are certain very efficient and profitable direct marketing personal accident businesses. We have long-standing affinity and sponsor partnerships, as you saw some of them in Japan, that have been there with us for a long time, and we continue to service them over a period of time.
Yeah. Just to follow up. For both the personal accident business and increasingly our warranty business, these are businesses that I think you'd want to think about as partnership marketing businesses. Again, it's not a commodity play. Everyone talks about in the new economy today, companies working together in new and creative ways. Frankly, our business model in the personal accident space has been doing that for 50 years. We are able to extend our distribution footprint, access customers through these partnerships, and we have the capabilities not only in terms of the product and the delivery mechanisms, but the service, the assistance that comes with it, the data, the insight, the marketing delivery that we've learned about through direct marketing, but we can now deploy through partners that creates that long-term relationship.
Our PA business, our personal accident business, is really about this extended network of these long-term relationships.
Okay. We have one more. Last question since we're at the top of the hour.
All right.
Shailesh, Morgan Stanley. A couple questions. First for Kevin. One of the things you mentioned is achieving efficiency target and returning excess to cost of capital. If you achieve your efficiency target, how much excess capital do you think the consumer business will generate, let's say going forward 2018, 2019 onwards? One for Gaurav. You have medium term target of 92 to 94. Is that all based on the expense initiatives that you have put in right now? Does it include the Japan savings if they come in future?
Okay. The first part of the question, we are achieving our efficiency targets. That's a never ending initiative. We know that we have to continue focusing on our efficiency all of the time. Excluding specific transactions, we expect the run rate capability of these businesses around $1.5 billion-$2 billion a year. In terms of the medium term combined ratio, Gaurav, you can
Yeah. I'll answer the second part of the question is that, yes, Japan is definitely in the 92 to 94 because as you know, the 30% of our business comes from Japan. The other part of the question is that we will continue to drive expense saving efficiencies, but the mix of business and to get to 92, 94, there's an element of growth involved as well. What you saw on the slide was there are a series of growth initiatives which are actually in flight, which would give us those run rate. That's why, as I said, is that 2018 afterwards, you'll see strong growth because all of these will come in. While earnings will continue to grow, top line will also start growing, and it'll become more earnings accretive than it is today. We have a solid foundation for that.
Great. Thank you everybody for joining us, and if you have any follow-up questions, please don't hesitate to reach out.