Good morning. It's good to see all of you here this morning. Thank you for coming. Before we begin, before I go through any of the formats for today, let me read our cautionary statements. I'd like to note that anyone joining us remotely may access the presentation materials online at our website, www.aig.com. Those materials also include cautionary language regarding forward-looking statements and non-GAAP financial information contained in today's presentation. Forward-looking statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Any forward-looking statements are not guarantees of future performance or events. Actual performance and events may differ, possibly materially, from such forward-looking statements.
Factors that could cause this include the factors described in our first, second, and third quarter Form 10-Q and our 2015 Form 10-K under Management's Discussion and Analysis of Financial Condition and Results of Operations and under Risk Factors. AIG is not under any obligation and expressly disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Today's presentation will also contain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in the slides for today's presentation. Today, you're going to have the opportunity to hear from a number of members of our senior management team. I encourage you to read all of their bios in the back of your investor deck this morning.
There will be opportunities for Q&A following our consumer and our commercial presentations. There will also be a Q&A session at the end of the day where you can ask questions of every member of the senior management team. In order for your questions to be heard by those on the webcast today, it's important that you all speak into a mic. The mics will be located in the aisles. You have to go to the mic to ask your questions. Similar to our earnings call format, we are going to have one question and one follow-up. Please adhere to that guidance. Please be aware that you are not going to hold the mic. Please be respectful of the person who is holding the mic.
For those traveling today, we might have the opportunity to finish up a little early to accommodate all the train and plane schedules that you all are dealing with. Most importantly, I think you should get as much as you can out of the day. I hope you enjoy it. It's truly my great pleasure to start off today with our CEO, Peter Hancock.
Thank you very much, Liz. Good morning, everybody. 18 months ago, in my first letter to all of you, I spelled out AIG's vision to be its clients' most valued insurer. I used the word sculpt to describe the work to be done to reshape AIG into a simpler and more focused company. Recently, I stumbled on a wonderful quote from Michelangelo. "I saw the angel in the marble and I carved until I set him free." Today, I want to introduce five of the many Michael and Michelangelos that are busy systematically not only transforming AIG, but also shaping the insurance industry of the future. Each of them bring distinct qualities that made me select them for their roles.
Sid for his thoroughness and energy, Rob for his determination and leadership, Kevin for his worldliness and passion for his craft, Charlie for his versatility and drive for results, and Doug for the brilliant way he creates simple solutions to complex problems. They all share the collective ambition, teamwork, and integrity to realize AIG's goal to be its clients' most valued insurer. You will hear what we've done and are doing to create value for all our stakeholders, but importantly for you, our shareholders. Sustainable growth in intrinsic value requires the trust of our clients, regulators, creditors, rating agencies, and employees. We do that by making difficult promises and keeping them. My predecessor promised to repay the taxpayer in full, with the help of this team, did so quickly and with a sizable profit. We also exceeded the expectations on the capital returned to investors.
Earlier this year, I spelled out a number of goals for the end of 2017. I'm confident that we will meet or exceed them. When I was at college learning to fly with the Royal Air Force, I was repeatedly drilled to keep an eye on the instruments, whether I was upside down recovering from a spin or flying at treetop level under the radar. Likewise, as we monitor progress towards our goals, we too need to operate at multiple altitudes. We have a clear hierarchy of metrics that ensure that we're making the correct trade-offs to achieve our ultimate goal. This chart gives you a sense of what that hierarchy looks like. Growing intrinsic value is that ultimate goal. It's driven by the correct trade-off between profitability and growth and risk.
The correct trade-off in different lines of businesses and geographies and customer segments depends on the maturity of those markets, our penetration in those markets, and where we are in the cycle. The subsidiary goals are the drivers of those. Let's take a look at how far we have flown since we took off on this journey. We've returned $25 billion of capital to shareholders. We've completed 16 divestitures, raising $12 billion. We've improved normalized return on equity by 150 basis points. We've reduced the general operating expense by $1 billion since the end of 2014. The team has been very busy indeed working for you, our shareholders. Now I'd like to turn it over to Sid.
Thank you, Peter, and good morning, everyone. Today, I'll cover progress on our key financial targets, specifically return on equity, where we'll illustrate the performance of our operating and legacy portfolios. Our efficiency program, currently measured by our general operating expense reduction target. Capital management, which includes strategic divestitures and an update on our capital return target, and book value per share growth. In addition, today I'd like to speak to our reserve risk profile, as well as progress on modularity and capital allocation. The key message I would leave you with is we feel we've made strong progress on each of our targets through nine months of the year, and we remain confident in hitting our goals through 2017. If we could turn to slide 10. As we shared with you back in January, we believe AIG is best valued and assessed in three parts.
In blue on the slide is the operating portfolio. This represents approximately 77% of the company's capital at year-end 2015. Our objective is to improve the performance to reach a 10% normalized return on equity with targeted growth in key strategic segments. In green, the legacy portfolio. This represents approximately 23% of the company's capital at year-end 2015. Here our objective is to maximize capital return and free cash flow and liquidity to the parent while minimizing the impact on book value. Finally, in yellow, our deferred tax asset. At September 30th, we had tax attribute DTAs totaling approximately $15.6 billion, of which approximately one-third related to foreign tax credits and two-thirds related to net operating loss carryforwards. In addition, we had a net DTA for temporary differences in the amount of $2.9 billion.
Given recent dialogue around reducing the statutory tax rate, we wanted to share some additional disclosure on the topic. I should highlight, we do note that we think it's far too early to view a change in tax policy as certain. Given market disclosure, we wanted to share some early scenarios. The key message is we believe that a reduction in the corporate tax rate will be a net positive on our intrinsic value. Of note, it will not impact our foreign tax credits, which we expect to fully utilize before they expire. These credits will, as a result, shelter a larger amount of taxable income. A reduction in the statutory corporate tax rate to 25% is expected to increase our normalized ROE by approximately 90 basis points, while a reduction to 20% would be expected to increase our normalized ROE by approximately 150 basis points.
This would help close the gap to many of our peers who have a lower effective tax rate. We will, however, be required to remeasure our DTA for NOLs and temporary differences at the lower statutory tax rate. Our early estimates are that the remeasurement would result in a reduction in our reported DTA by approximately $4 billion, assuming an immediate reduction to a 25% statutory tax rate, and approximately $6 billion, assuming an immediate reduction to a 20% statutory tax rate. Our assumption is, of course, that these would be phased in over time, quite likely. If we turn to slide 11, we illustrate the progress on our operating portfolio, where we've been extremely focused on driving core risk margin and efficiency improvement along with continued capital management. I would call out three things for you.
We've driven approximately 150 basis points of annualized ROE expansion since year-end 2015 and estimate our current operating portfolio ROE is approximately 9% as of today. Our expectation is that we have a roughly 10% normalized return on the operating portfolio for 2017, which we believe is in excess of our cost of capital. This represents roughly 100 basis points of ROE expansion next year, which is driven by two notable items. As we previously discussed, we face some ROE headwinds from lower interest rates than anticipated, although the trajectory for that has recently improved, along with the impact of divestitures. We see the impact of the headwinds being offset by the results of our continued capital management act. We anticipate continued improvement from efficiency gains and underwriting improvement in 2017. Both Rob and Kevin will speak to these improvements as well as their detailed plans.
This represents roughly 100 basis points of ROE expansion. We're focused on sustaining the continued improvement in our operating portfolio ROE and look forward to providing you with additional disclosure at year-end. If we turn the page, we are also providing you today with additional detail on our legacy portfolio managed by Charlie Shamieh. Charlie and the team have done an excellent job in 2016 in reducing risk and increasing free cash flow to the parent. Some key points for you to note. Legacy has continued to act as a drag on our consolidated ROE with an estimated negative 2% return on a reported basis through nine months of the year, and an estimated 5% return normalized basis over that same period. We anticipate in 2017, legacy will have a normalized return on equity in the range of between 3% and 5%.
All that said, our objective with legacy, as I said, is to maximize the return of capital and free cash flow while minimizing the impact to book value. This will always be a trade-off, and time and speed of dispositions are a key variable. Through nine months of the year, we've reduced the proportion of legacy to 16% of the company's capital and returned $6.3 billion of free cash flow to parent since the fourth quarter of last year. Charlie will provide you greater detail on the composition of legacy and the strategies we're applying in his presentation later. As we turn the page, you can see our efficiency program has been executed very effectively, and we expect to exceed our two-year target of $1.4 billion in expense reductions. As of today, we've reduced general operating expense by approximately $800 million, which represents 57% of our $1.4 billion target.
We have also taken additional actions, primarily with respect to compensation, benefits, and professional fees that have yet to earn in. That represents approximately $500 million or 36% of our $1.4 billion target. The combination of these two pieces means actions to date have accomplished 93%, approximately, of our target. Our efficiency program has really been driven off of three core principles: simplification, modularity, and automation. Our thoughtful program to reorganize the company and minimize matrix reporting, as well as align resources with our core business modules, has already yielded benefits with respect to efficiency, agility, and our transformation. The next phase of the efficiency program is really focused on additional operating improvements, including investments in automation, robotics, and advanced technology. These continued investments give us great confidence in not only exceeding our expense targets over this two-year period, but also in shaping the AIG of the future.
Turning the page to slide 14. We've outlined the portfolio of strategic divestitures we've announced or closed in 2016. Based on the current status of these transactions, we anticipate approximately $4.3 billion of free cash flow to be received at parent as proceeds from these transactions yet to close. This past week, we also announced two notable transactions. First, the sale of International Finance Center Seoul to Brookfield from our legacy portfolio. The after-tax gain from this transaction is approximately $300 million. Secondly, the agreement to sell Fuji Life Insurance Company in Japan to FWD. This results in an approximately $430 million after-tax loss to AIG. As Peter said, we continue to be pleased in our progress in sculpting the company to focus on our core operating portfolio. Turning the page. We have a slide that updates you on our continued capital management program.
We remain very confident in our ability to return at least $25 billion of capital to shareholders. A few items to note. As of yesterday, we've completed approximately $11.6 billion of capital management, including $1.8 billion of share and warrant repurchases since October 1st. We have an additional $3.6 billion remaining under our current authorization, leaving $9.8 billion to our capital return target. As you can see on the green bar on this page, we estimate approximately $12 billion-$17 billion of funding sources will be available to us to meet this remaining amount. This includes approximately $5 billion-$7 billion of anticipated dividends and tax sharing payments. Note, this is net of parent interest expense and overhead. Approximately $4 billion-$5 billion of proceeds from divestitures that have yet to close. This is in line with the figure we shared with you on the previous page.
Approximately $3 billion-$4 billion from planned upcoming life reinsurance transactions. As you recall, we recently closed a transaction on our whole life block that resulted in $1 billion of free cash flow to parent. In addition, we also anticipate up to $1 billion of capital freed up from our hedge fund asset allocation redemption. We look forward to updating you further at year-end and remain pleased with our progress in returning capital to shareholders. Most importantly, we've continued to maintain our balance sheet strength with strong capital ratios in our subsidiaries, as well as industry-leading free cash flow and holding company liquidity. Turning the page. We have information on our growth in book value per share. As you can see, our reported growth in book value has been very strong, with an increase of 13% from year-end, driven by growth in AOCI operating earnings and accretive share repurchase.
We've also shown you book value per share growth ex-AOCI and ex-AOCI and DTA adjusted for dividend growth, which are both roughly 5%. As we disclosed in our third-quarter earnings call materials, we believe our core book value per share growth through three quarters lies between these two numbers at roughly 7%-8%. Items to be adjusted for include non-economic items such as the FX loss in our U.K. operations and workers' compensation discount changes, which are offset in AOCI. In addition, our legacy portfolio has impacted book value per share via its negative return on equity year to date. Legacy dispositions and market movements remain the key risk factors to book value per share growth. We still expect to deliver double-digit growth this year on an adjusted basis for the items above and 10%+ in 2017.
I'd like to spend a few minutes discussing our reserve risk profile. We'll turn to page 17. To open, I would say that we're aware of the skepticism around our reserves. We thought carefully about what dialogue would be beneficial to you. First, we believe we've improved the P&C reserve risk profile, controls, and transparency in a number of ways over the past several years. We thought it would be helpful to share an overview of all of the actions that we have taken so that you have them in one place for reference. Most importantly, we've managed the overall capital allocated to long-tail lines with reserve risk in a way that more optimally diversifies our portfolio.
Since 2010, we've reduced overall reserve risk by reducing the intensity of longest tail business that has historically been the source of adverse experience for us and the industry as a whole. This has been a direct output of the introduction of RAP and focusing on long-term sustainable ROEs for our business. You will also recall that we entered into an ADC for A&E exposures with National Indemnity in 2011. We created a specialist runoff entity which accelerated the settlement of claims, improving the decisions over legacy claims, and commuting reinsurance contracts where we saw the most upside. This was historically a challenged area for us. This initiative exceeded our expectations. This team is now part of Charlie Shamieh's legacy group. In addition, for the ongoing book of U.S. casualty business, we've reduced the volatility of the underlying risks by reducing the limits we offer.
For example, in one of the most volatile classes, U.S. excess casualty, we have reduced the aggregate limit by approximately 76% from 2009 to 2015. Exited products with the greatest uncertainty, such as certain multi-year environmental products, excess workers' compensation, among others. As we've stated before, we've reduced U.S. casualty and workers' compensation premiums written by 58% over the last nine years, ending in 2015, with a further 41% reduction being made in the first nine months of 2016. Finally, the use of quota share reinsurance in our U.S. casualty business, both primary and excess, allows us to obtain sophisticated third-party capital to participate in the business with the most reserve risk. These relationships help validate our internal view of losses. The sum total of these underwriting business mix capital allocation decisions represents a material reduction in our reserve risk profile.
A critically important step is that in sync with these decisions, we've also improved the controls and transparency of the pricing and reserving activities to better align AIG's reserve risk profile with the industry's reserve risk profile. We have been advancing our technical pricing tools to reduce the uncertainty of the loss picks for business written since 2011. However, the complexity and nature of many of our products has made this a multi-year process. We are now beginning to see the benefits of these investments today. Our reserving processes have continued to improve. We focus on segmentation that are driven by the same structural drivers used in pricing. Recently, we've restructured our overall U.S. reserve work to move from over 800 segments to approximately 300. We believe this is going to improve our ability to discern signal from noise.
We've used reserve ranges and annual reviews by consulting actuaries to aid the judgments that we make each quarter. Our governance procedures require the process to be respected and the carried reserve to be updated whenever there's evidence around a revised best estimate. The same rigor is applied to favorable and adverse findings, and we explicitly do not maintain a cookie jar of unallocated IBNR. We follow robust procedures in reserving that require documentation, review, and escalation procedures, and our audit committee is engaged, and our ERM team act as a challenger to our decision. Turning the page, given the nature and the mix of our business, we also wanted to share with you how we think about our portfolio. The next page illustrates the reserve uncertainty for three lines of business and illustrates how uncertainty, defined as the 90th percentile, decreases as claims are reported and settled.
You can see in the blue, property has the narrowest and shortest length of reserve risk. For financial lines, which is in the green, you can see the widest dispersion in the earlier years, and you see it narrow very rapidly. This reflects the possibility of another financial crisis and the elimination of that view. U.S. casualty, which is in gray, pictured on the slide, has the longest period of uncertainty, largely due to the occurrence form used on many of these policies. Excess casualty would have the highest uncertainty, primary casualty the least. These uncertainties can be converted into reserve ranges and used to inform judgment as to where the best estimate sits in the range. This is how we think about reserving. As we aggregate the reserve ranges for large segments, judgments are required to determine the diversification impact that each reserve segment has.
Diversification of the book helps reduce our overall reserve risk and is a key piece of how we think about the portfolio. Two other points that are often missed when we compare our portfolio to peers. The pre-2010 reserves aggregate to approximately $21 billion and generate approximately one billion dollars of net interest income per year. Our reserves are reported as not discounted other than U.S. workers' compensation, as you know, and this is an important fact. Discounting the remaining portfolio of our reserves would reduce reserves by approximately five billion dollars. The duration of our overall portfolio is approximately four years, but as you know, U.S. casualty is longer. A key risk factor in settling long-tail reserves is tort temperature. As we've said before, an improvement in overall tort temperature in the U.S. would be a significant positive factor for us with respect to reserve.
Given the nature of the portfolio, while there may be offsets going the other way, these are the two most significant factors to consider when we think about reserve risk. To close, we are confident that our reserve risk has declined, that the management of our reserve position is strong, and that we'll continue to execute on our financial targets. We can't lose sight of the fact that the United States is the largest insurance market in the world because of its need for liability coverages to insure commercial organizations against long-tail lines. We view our role as being the leader in understanding and pricing insurance risks. We expect to be highly vigilant in managing our reserve risk, and we're committed to transparency and will keep you informed with respect to the portfolio. Turning to my final slide on page 19.
We've outlined the key modules on this page, which will receive additional disclosure at year-end in our financial supplement. Our modular reporting is tied to a philosophy of using economic metrics to drive transparency on capital allocation and highlight our performance against our target hurdle rate of 10. We'll have 11 modules broken out between operating and legacy, as well as geographies. These will be allocated debt and equity in line with our economic assessment of the risk. Modules will be levered to compare against pure ROEs. There'll be an economic capital attribution for each module. Corporate overhead allocation will be reflective of our best estimate of a standalone cost structure, and this will be consistent with how we manage the new business portfolio on what we call production risk-adjusted profit or PRAP basis and value of new business or VONB basis.
As we have stated, we are focused on differentiating the operating legacy portfolios based on their unique management objectives. Want you to focus on the distinction between operating and legacy. My finance team and I are looking forward to providing you with additional disclosure at year-end. With that, I'm going to turn the floor over to Rob.
Morning. I'm excited to have the opportunity to share a little bit more about our commercial business than we get a chance to do during our normal quarterly earnings calls. I really want to leave you with three key takeaways today. First, I want to give you an opportunity to really understand some of the unique strengths and capabilities of our commercial team. Second, I want to give you a chance to see in greater detail some of the progress we're making as it relates to the strategic plan that we outlined in January of this year. Lastly, I want to make sure you can walk away with an understanding of where we're taking this business in the future.
In short, I want you to be able to walk away understanding why we think commercial insurance at AIG is special, and I also want you to understand that we are relentlessly focused on executing against the strategic plan that we outlined earlier this year. We are a market leader. Geographically, we're a market leader in the largest insurance market in the world, which is the United States. In addition to the U.S., we're the largest foreign insurance company in Europe and in the Asia-Pacific region. Beyond that, beyond geography, it's also really the types of clients that we serve. We serve 89% of the global Fortune 500 and 99% of the Fortune 500. The best clients in the world are the clients of AIG.
On the right-hand side of the page, I want to give you a sense of the terrific diversity of the portfolio that we have inside of our commercial insurance business. You can actually see the four modules that Sid just referred to up here on this slide. The four modules, if you focus on product for a moment, on the top right-hand side of product, you can see Liability and Financial Lines. Liability and Financial Lines is led by Lex Baugh. On the top left-hand side of product, you can see Property and Special Risks. That's led by George Stratas. Down in geography, you can see the U.S., which is led by Jeremy Johnson, and you can see Europe, which is led by Anthony Baldwin.
Those four leaders have each served AIG domestically here in the United States as well as abroad. Together, on average, 21 years of experience, deep underwriting expertise, that is the leadership team, the commercial insurance business. When I think about competitive advantages, you've got to start with our clients and with our distribution partners. Let me talk for a moment about our clients. I'll bring you right to where Peter started his conversation. Our goal, our vision, is to be our clients' most valued insurer. I'm really excited about the fact that at the beginning of this year, in April, notwithstanding all of the change that we've been pushing through the commercial insurance business, we were recognized as the best overall carrier as National Underwriter released their Risk Manager Choice Awards.
What's really remarkable about that is this is the voting by the people who really matter, the risk managers. That is the client. That is who we're serving on a day-to-day basis. Not only were we the best overall insurer, for 13 of the 20 categories, the business lines that they evaluated, AIG was voted as the number one carrier. In addition to the way our clients feel about us, some of the things that are really important to the way we think about ourselves in commercial insurance is we're delivering capabilities, we're delivering capacity that really are important to our clients and are very hard for them to get from everyone else in the marketplace.
You can see here our market leading capacity, $2.5 billion worth of limits in the commercial property space, $1 billion of property terrorism coverage, $500 million in CAT limits. Those kinds of limits separate AIG from the rest of the pack. We're able, when we offer limits like that, to take a position that otherwise would be shared amongst many carriers in the marketplace and have that space owned by and controlled by AIG. We stay close to our clients using client advisory councils. For example, next month in London, 30 of our most important clients, representing over $1 billion of premium, will be with us in London and a number of our leadership team members.
When we are together with those clients, we're focused on sharing ideas and getting feedback from them about the things that we need to do to really make them feel as though we're their most valued insurer. As I transition you for a moment to the other side of this slide, I think a lot of people would be surprised to see that only 40% of the gross written premium of AIG comes from the global broker channel. A lot of people think of us as mostly tied to global brokers. What I want you to know is we've got great diversity of distribution, but also regardless of which distribution partner we deal with, we tend to be either their number one or at the top of their distribution partners.
That gives us the ability to have power with our distribution partners, and it also is part of the overall picture when we think about the combination of relationships that we have with our distribution partners, the ability to provide problem solutions for our clients through those distribution partners. Ultimately, what we focus on with those distribution partners is we focus on the ability to manage those relationships in a way that are value creating, both for us, for our clients, and for our distribution partners. As I move on to this slide, I guess I want to say to you that above anything, I think the whole backbone of AIG is really around innovation. We have a great history of innovation.
This slide is completely covered with examples of innovation, but I'm just going to take a moment and highlight for you examples of three places where we really stand out in innovation. Earlier this year, you heard us talk about our partnership between AIG, Hamilton, and Two Sigma, known as Attune. What I think is particularly interesting about this relationship is the type of partner that we can really attract. When we partner with Two Sigma, we're partnering with a pioneer in artificial intelligence from MIT. We're partnering with employee number seven from Amazon. We're partnering with the former head of research and development from Google. These are the type of professionals that want to partner with AIG to help disrupt the $80 billion SME market space. In the middle of the page, we show our partnership with Clemson University.
Clemson University brings a tremendous amount of technical capability in the space of their supercomputing power. We're able to advance the modeling capabilities of AIG in a remarkable way. While a lot of others are out in the marketplace pricing risks using generic markets, using markets that are used by everyone else in the marketplace, we're out there with Clemson building models That others couldn't even begin to think about building because of some of the supercomputing power that we're able to bring to the table. In addition to that, we're using our relationship with Clemson to educate our team and our clients. We have a master's in engineering and risk management, and we also use virtual training as a way to really increase the capabilities of the engineers that we're bringing out into the field.
I would just want to give you a simple example of a real tangible innovation in action with respect to Europcar. This is Europcar Ireland, everyone is familiar with telematics, and we bring a crazy idea like let's match telematics and gamification. Using that capability, we've helped Europcar improve the driving of the people who actually drive their rented vehicle through Europcar. The end result, a 23% reduction in the claims cost for Europcar. When you think about a company like that, their two biggest costs, the cost of their fleet and the cost of their insurance. The second-largest cost in their portfolio has been reduced by 23%. Who benefits? The drivers who are safe, Europcar, our client, and oh, by the way, we benefit when we reduce the overall level of losses inside of an organization like that. Moving on.
I'm very proud of our multinational capabilities. This is something that I think absolutely sets AIG apart. This is one of those things that I think is very special about AIG. First thing I want to say is, in our view, this is the best combination of owned operations and network partners operating anywhere in the insurance marketplace. This is also a place, by the way, where I'm partnered with Kevin Hogan. In this capacity, together, we're serving clients in over 200 countries and jurisdictions, bringing seamless service to those clients, regardless of whether they're commercial clients or consumer clients. It's also a space that has very high barriers of entry. Yes, you can get into an international market, but there's so much knowledge and so much capability that it takes to really serve a sophisticated client with sophisticated needs in this multinational arena.
What I love about this space, it's profitable. As you can see from the picture on the right-hand side on the bottom, it's got great growth. 7% compound annual growth rate in the number of policies that we've issued in the multinational space since 2012, and an 8% growth in the level of clients that we've continued to add to this portfolio since 2012. It's very hard to unseat us as a incumbent, very sticky business for us, great profitability, very tough barriers of entry. We love this space, and it's one of the key competitive advantages for our team. Moving on. Data and claims. Peter talked at the very beginning about the mission, the vision, and the values of AIG.
One of the values of AIG, value number 1 is the value where we say in our core is the fact that we're willing to make tough commitments, and we've got the integrity to stand behind those commitments. No place is that demonstrated more clearly than what will we do in the claims space. We pay, in commercial alone, $75 million a day in claims across the world. We've got 5,000 dedicated employees, and we're recognized consistently. In the middle of the page, you can see whether it's by Advisen here in the United States or whether it's by Insurance Post across the Atlantic Ocean over in Europe, we're recognized for our claims capabilities. It's not just claims processing capabilities. Lots of people can do that. It's the ability to handle the toughest claims and get the best possible outcome for our client. That's what we're recognized.
That's what we're capable of. When people say, "Why is it that your client retention is so good when you've driven so much change through the organization?" This is one of those key examples, and this is one of those things that's really special about the AIG organization. On the top left-hand side, this is an example where we're bringing together Peter's Science team and the data that we've created when we built our claims organization. We use something called client-centric analytics that helps us to be able to benchmark the results, the claims results of any one client against the rest of our clients in our database.
We're able to share with them where they're better than the others in their class and where they're performing worse than others in the class to help them to better understand what they should change to bend the loss curve for that particular company and improve their results. When they improve, it's better for us too. In the bottom left-hand side, I'll just point out one quick thought, and that is we also use our claims for thought leadership. This is a key part of what we think we can bring to the marketplace. I'm showing you here an M&A claims study. This is a claims study that we did using the data that comes out of our claims organization. We've been writing M&A business for 15 years. We've handled over 1,000 different deals.
Where we're able to mine that data and share back to the industry, share back to our brokers and to our clients what happens when you buy M&A insurance. Where do we get sued? Where do we win? What kind of severity do we have? What kind of frequency do we have? We're the only carrier in this marketplace that has the data and the capability to be able to deliver a study like that. Those are the kinds of things that make AIG special. I'm going to transition now on to how we're doing against the strategic goals that we outlined in January. This is a reminder of what we said at the beginning of the year. Again, our goal, to create a leaner, more focused, and highly profitable commercial insurance organization. Very straightforward. You're familiar with us. These five areas, you've seen them from us before.
You've seen them from me in January. What I guess I would say to you, in general, is that we've made great progress across all five of these areas. In particular, I think the portfolio exits and the reinsurance, I think we've kind of done about what we need to do. With respect to the others, client focus, risk selection, and innovation for growth, we'll never be done, right? It's part of the ongoing fiber of what it takes to run a successful commercial insurance operation. I'm going to give you a little bit more detail now. Moving on to the next slide. So this is our accident year combined ratio as adjusted between 2012, and I'm showing you all the way to where we think we will end in the fourth quarter of 2017 with our target exit run rate as we've described in our strategic plan.
Point number one, we expect to have improved the combined ratio by 12 points from the end of 2012 to the fourth quarter run rate at the end of 2017. It takes a combination of two things to make this happen. One, you've got to absolutely control your expenses, and two, of course, you've got to absolutely make sure that you're relentless in improving your loss ratio. I think what you can see from this picture is you can see that we've done both. Just through the first nine months of 2016, you can see that the loss ratio is improved by six points from where it was at the end of 2012. You can also see that we've worked really hard on the efficiency because the expense ratio is also improved, and it improved by two points during that same time period.
I think those two things are important. Peter has mentioned, and I think Sid really expressed it in his comments earlier, this is critical to the ability of this organization to meet its overall financial objectives. What gives me the absolute confidence to use the Value over Volume initiative or the efforts that Peter has described is you've got to first make sure you've controlled your expenses. If you don't control your expenses, reducing your volume will simply increase your loss ratio. You've got to do both. I think this shows you here that we've done a very good job of that since 2012. On the next slide, I know you've seen this picture from me before, my favorite picture, hopefully your favorite picture too, maybe not. This is a picture, I refer to this as the dispersion charge, right?
This shows our business that we wrote in 2015, and we break it into four different buckets. Products at one, which is grow, 2A, which is maintain, 2B, which is improve, and three, which is remediate. What I show you is the business we wrote through the first nine months of the year. Are we improving that the way that we had promised to you that we would? I think what you can see here is you can see significant improvement in the mix of business as we've continued to shrink products at 2B and three, and on a proportional basis grow products at one and 2A. Let me just give you a little bit more information here that I think will shed some more light for you.
On the bottom right-hand side of the page here, what you're seeing is you're seeing that the improve and remediate part of this portfolio has declined 33% in the first nine months of 2016. 33%. Folks, that is about a $2.6 billion decrease in the business that sat on the improve and remediate side of the picture here. If you want to talk about actually stepping up and truly following through on Value over Volume, this is the evidence of Value over Volume right here. The other point that I want to make to you, I'm going to make by kind of flipping in the other side of the page, and you get a chance, people ask me all the time, "What's the collateral damage from actually driving the improvement in your improve and remediate?" Here you go. Here's what we've done in the grow and maintain.
What you can see in the grow and maintain portion of the portfolio, the piece that I want to grow and that I want to maintain, how's it doing? The answer is it clearly has not suffered significant collateral damage as a result of making the direct specific improvements that we've been striving for on the improve and remediate side of the portfolio. I'm extremely pleased with that. The other point that I would make, though, is while it's not up in percentage, what I want to make sure that you understand is Peter showed earlier something that's very, very, very important, and please understand this. I have to show you a simple way to understand this picture.
Please understand that at the top of the pyramid in Peter's hierarchy of goals- It's not loss ratio that's at the top of the hierarchy of goals, it's intrinsic value. There will be products and there will be individual risks that sit inside of products at one and 2A that are not accretive to our intrinsic value. Underneath of all of this, as you might imagine, there's a lot of work and a lot of detail that goes in. I can assure you of this, regardless of where something sits in this picture, we are focused on the top of the pyramid of the hierarchy of goals that Peter has described, and that will guide the actions of the commercial insurance business.
On the next page here, this starts to give you a flavor of how we're doing in the progress toward our promised six-point improvement of the adjusted accident year loss ratio. Let me talk about the left-hand side of the page first. It's largely what you've already heard from us when we did our third quarter earnings release. What do I want to remind you about? We started the year at a 66 loss ratio. We've declined that loss ratio by 2.1 points through the first nine months of 2016. I'm pleased that you can see tangibly that this was not a back-end loaded plan, that we've been moving forward with this aggressively since the very beginning.
What I want you to be able to see in this picture is you can see that we made really good progress in casualty through our exits, through our reinsurance, and through our risk selection. We've also, as I showed you on the preceding slide, that mix of business is a real, not just casualty driven mix of business. The overall mix of business significantly improved, and that's been the single biggest driver of why our loss ratio has improved. In the third quarter, I did have a piece that went against me, which is this program's deterioration. That program deterioration, as we disclosed in our third quarter earnings call, was about one point on the loss ratio. Absent that, you would have really liked the level of progress that you were seeing coming through what our performance was.
By the way, I don't get any absent that. Peter doesn't give me any chance to say absent that. You won't give me a chance to say absent that. I get it, but I just want to make sure that you can understand that I have the opportunity between now and the fourth quarter of 2017 to deal with the piece that was wind in my face in the third quarter of last year, which was the programs business. If you look at what we're planning on doing to improve the adjusted accident year loss ratio from the third quarter of 2016 through the exit run rate fourth quarter of 2017, I want to shed a little bit more light for you. Here we go.
With respect to the impact of earned versus written premium, this is basically the message I gave to you on the preceding page. Look closely at the preceding page. The top bar is earned premium. The bottom bar is written premium. That written premium will eventually, I can't do anything about it will happen in due time, but it earns in. When it earns in, I will receive the benefit of that in improvement in the adjusted accident year loss ratio. We expect with the work we've already done, that between now and the fourth quarter of 2017, the work that's already been achieved delivers 2 more points of improvement to the adjusted accident year loss ratio. Really important point. The next point that I want to make for you, moving over 1 bit, is about Ascot, NSM and Fairfax and the UGC transaction.
Net, net, by the fourth quarter of 2017 exit run rate, those transactions broadly wash one another out. Okay? There's no net significant effect of the benefit from UGC or the adverse effect of taking business that had an attractive adjusted accident year loss ratio like Ascot, like NSM, like Fairfax out of the portfolio. This gives me the opportunity to highlight again a really, really, really important point. We sold Ascot, NSM and Fairfax, yet the effect on the adjusted accident year loss ratio is not favorable. It's not helping me by selling those three entities. We didn't not sell them because it was going to make my adjusted accident year loss ratio not look good. We focused on Peter's hierarchy of goals, and at the top of his hierarchy of goals is will this be accretive to AIG?
The answer to that question is the sale of Ascot, NSM and Fairfax will ultimately be accretive to AIG. It was the right business move, therefore we did it even though it won't help me to achieve the thing I'm here trying to talk to you about how I'm going to achieve, which is my adjusted accident year loss ratio. We don't get mesmerized by any 1 little metric. We're focused on the ultimate prize, which is improving intrinsic value, and still we'll deliver 6 points of improvement, by the way. If I move over a little bit further, you can see I've got 2 points of improvement that I need to be able to deliver for you between now and the end of 2017 in the form of exits, growth and risk selection.
I'm going to quickly comment for you about the exits and say, listen, we already announced the things we're exiting. Some of it just has to come to its exit date, then it will be done. I feel if you say, "Hey, how's your level of confidence about that?" 100%. Okay? It just has to hit its exit date, contractual exit date. With respect to growth, I'm going to hold on that for a moment because on the next slide, I'm going to talk about it. Then I'm going to just bring you to risk selection. What I want you to know about risk selection is this.
I have the fourth quarter of 2016 and the first quarter of 2017 that I really have not had the opportunity for this commercial team to get after because remember, we only announced our plan on January 26th of 2016. We have not had the opportunity to get after the full first quarter of business. Remember that in Europe, if you weren't familiar with this already, in Europe, the heaviest renewal period is the very important January 1st renewal period. There's a lot of runway, a lot of opportunity for us, and using the exact same tools that we've used in risk selections that have driven the improvements that you saw on the preceding page, we're confident that we will deliver the remainder of what we need to deliver through risk selection. Moving on to the next page.
This picture starts to really give you a view of what you're going to start to see when Sid gives you the modularity. Here's what I want you to know. At the top of the page, you're seeing Liability and Financial Lines. At the bottom of the page, you're seeing Property and Special Risks. The size of these boxes matters. The size of these boxes is presented on the basis of relative capital consumption for the new business we're writing. Okay? If you want to get an idea of how much capital we're consuming for each of the elements of the business, here you go.
What's really important for you here is we presented on the basis of net capital consumption, the reason that we do is because, again, at the hierarchy of Peter's goals, you've got to get to intrinsic value, you'll never get to intrinsic value unless you understand how much capital you're consuming for each and every part of the business that you're writing. That's what you'll start to get a chance to understand better when we share with you modularity. I'm going to share with you now the different actions we're taking inside of this portfolio. Jen, give me a click. Parts of this business, we have the intention to grow, you can see where we're growing. I mentioned to you on the preceding slide, some of the way we'll get there is through growing. Well, here you go.
We're growing in parts of financial lines, mergers and acquisitions in the cyberspace. We're growing in the international space within primary casualty. Within property, the highly engineered property risks, where we're able to use the AIG capabilities to help clients reduce the likelihood of a loss in the first place is a big part of the picture. Then over in special risks, we continue to see growth opportunities in credit lines. On the other hand, we are reducing the amount of capital and the amount of business that we're writing in some other areas. Within property, the excess in surplus lines property space. I'd love for market conditions to be better and to be able to grow there. We have a leadership position there, but we can't achieve an attractive rate of return there today in today's market conditions. So it's shrinking.
You're seeing the same thing from us in U.S. excess casualty, environmental. You're also seeing that in parts of our special risks, including, of course, programs and the aerospace business. Again, aerospace, we love it. We're very capable in it, but it's highly competitive, we will hold our space, but we're not going to deploy significant amount of capital if we can't get an appropriate return. Moving on. I think the end of this page basically just shows you in the other elements where we're kind of sideways, we'll just be opportunistic. If we see good plays in good parts of the market or in specific products, we'll take advantage of it. Otherwise, for the most part, we're just going to be opportunistic.
Then the last comment on this page is, as you can see, we've disposed of Ascot and NSM, both of those will be no longer consuming capital when we get out of those two agreements. Moving on to the next page. I think this will start to give you a little bit of a sense of what's really happening inside of the two big modules that we've got from a product perspective. Let me share with you what we're doing with liabilities and financial lines. I'm really proud of this picture. You can see that we have 13 points of improvement in the adjusted accident year loss ratio between 2011 and the first nine months of 2016. This is just for liabilities and financial lines by itself. This is really happening by our risk selection and improvement to the mix of business.
That's the primary driver here. Let me show you what's happening with respect to rate, you can see that in the U.S. and Canada, we are in fact also getting help from rate with respect to our casualty business. I think this is a very important element of showing you the story of the change in mix of business. The bottom left-hand side of this page shows you how in 2011, 60% of the premium volume that we wrote in this space was coming from the U.S. and Canada casualty book. Here we are in the first nine months of 2016, only 36% coming from that space. Very consistent with what Sid described for you in the way our reserve risk is also changing, also a very important part of how we're managing our organization on the basis of value over volume.
The other message I think on that bottom left-hand side is just look at the relative growth of our most valuable line of business, which is financial lines, which now represents 45% of the liability and financial lines portfolio when it began in 2011 at 27% of the portfolio. It's growing while we've been continuing to manage the rest of the portfolio down. On the right-hand side of the page, this gives you a sense, again, of what Sid mentioned of how we're managing our limit profile. What you're seeing here is we're actually writing less aggregate limits in the excess casualty space from 2011 through the first nine months of 2016. You can really get a dramatic sense of how that's happening. The other thing you can get a sense of is how are our attachment points working.
What you can see is on a relative basis, we've got higher attachment points today than we had back in 2011. Just less of the aggregate limits and focused on making sure that we're controlling the attachment points. I think that's a very good story in liabilities and financial lines, and it's really been part of the success story of how we've achieved the improvements in the adjusted action year loss ratio. Let me transition you to property here for a moment. Properties have very different and more interesting story in some respects. I guess they're both interesting stories. Well, at least to me, they're very interesting stories. Here's the message I want you to see in property. First, look at that green line. Look at what happened between 2011 and 2012.
What you can see there is the pricing power that we can have following natural catastrophes. In 2011, you had the Japan earthquake, you had three earthquakes in New Zealand, and you had the Thai floods. Following those natural catastrophe events, we had pricing power. By the way, we used it exactly as you would expected that we would do. What happened since then? From 2012 through the first nine months of 2013, that pricing power has been eroded away. We've had a period of sustained, not real significant natural catastrophe losses, and it is a very competitive market space, and that's what you're seeing. Right? On the top right-hand side, when you see the rate change, I think there's a really important message there. Rates have gone against us by 13 points since the end of 2013 in the AIG portfolio.
By the way, I think the AIG portfolio is probably somewhat better than what I suspect is the broad market. 13 points of deterioration, -2 + -5 + -6 is -13 points. Rates are down 13 points. How much of that did we give up since the end of 2013 in our adjusted action year loss ratio? The answer is, we've actually only had deterioration of four points in the loss ratio. How can that be? The answer is on the bottom left-hand side of the page. On the bottom left-hand side of the page, we have been relentless in controlling the mix of business. The mix of business has been a really big story for us.
The two parts of the business that are very difficult in this space are the shared and layered excess and surplus lines business, which is the yellow bar at the bottom of the page on the left-hand side. By the way, Ascot plays effectively in that space. In 2011, a combination of Ascot and shared and layered was 60% of the portfolio of our property business. Today, it's 26%. Oh, by the way, reminding you, we sold Ascot, so I can assure you it's lower in 2017 than it is today. What you're seeing is despite very significant headwinds in the property space, we've done, I think, a remarkable job of managing the mix of business to be able to control the overall profile of the book.
On the bottom right-hand side, it gets out of something I once in a while, I read and I scratch my head wondering what it is that I read sometimes from some of you. I love you, but I just wonder, so I wanted to clarify this a little bit. What I wanted to show is how we're doing in terms of how we manage the natural catastrophe risk. By the way, a great way to lower your loss ratio is just take business that has a lot of nat cat risk. Your loss ratio will be fabulous. What are we really doing? This picture here shows you that although we grew premiums from 2011 through 2015 by 50%, our average annual loss expectation came down by 20%. Our probable maximum loss in the event of a one in 250-year natural catastrophe event, down by 21%.
If you take the ratio of our average annual losses to premiums, which is the piece right above that light blue bar, it used to be for every dollar premium, $0.35 went to natural catastrophes. In 2015, that was down to $0.23. What I can tell you is we're in the process of our 1/1 renewal, and our 1/1 renewal will result in the ratio of AAL to net premium written being under 20 for 2017. We're actively managing down the natural catastrophe exposure, not letting it go up, and continuing to really be aggressive in managing the mix of business. If I move on, I'll close out here and then of course, be happy to take your questions. Really what I want to say to you is, I think we are really well-positioned for the future.
I'm very excited about the work that we've been doing to create a sustainable competitive advantage in this business. I think we've done a great job of improving the optimization of the commercial insurance portfolio. I think we've created a compelling value proposition. If you talk to the brokers, there's a couple insurers that they can put at the top of the pack, and then generally they'd say, "And then there's the rest." We're one of those ones that they put at the top of the pack. Compelling value proposition. We've done a really good job of implementing and producing much better pricing tools that have helped us to change this mix of business. We're focused not necessarily just on bringing the risk from a client to us, but we just want to help the client manage the risk overall.
By the way, if the risk never comes to the AIG balance sheet, but we get paid for helping them to manage the risk to a better overall answer, that's a great answer for AIG, too. We absolutely have not lost track of the importance of the talent inside of our organization. One of the key things that we're doing is we're reshaping the way that talent comes to work every day. We're reshaping what we're asking them to do. We're reshaping how much of their time they spend doing back office administrative tasks rather than being out in front of our client and using their brain to think about how can I actually drive the bend the loss curve for my client in a way that will be more meaningful. I'm going to pause there for a moment.
We've got 10 minutes for questions from you. Josh, I'd be happy to take your question.
Thank you. Oh, you're going to hold it? Okay. Thanks. In terms of on January 26th, there was a big announcement about rethink and strategy. You were giving your proposition about how we're going to get down to a 60% loss ratio. Give me 4Q16 and 1Q17. We even haven't had a full year to remix our business. If the process really began with 2Q16, most of those changes are going to show up in net premium written, not net premium earned yet. You showed a lot of improvement in 2Q16 on the net premium earned loss ratio, which I'm always having a hard time balancing. Was January 26th a watershed moment, or wasn't it? When I look at on page 31, I see that the casualties and financial lines business was very much remixed in 2016.
We shouldn't be feeling that in the numbers yet then because that would be on the net premium written side as opposed to net premium earned side. The question is like as you say this is all happening, is there some big remix that's going to happen in the next six months? Was there a big remix that happened in the previous six months?
Yeah.
How do I balance-
Got you.
What's net premium earned, net premium written, and whatnot?
Very clear. First of all-
I forgot to tell you to introduce yourselves first. This is Joshua Shanker from Deutsche Bank. Thank you, Josh, and we welcome all your questions.
Awesome. Hey, Josh, great question. How's that? What I would say is, listen, the very first thing I want you to know is this didn't begin on January 26th. As a matter of fact, what I hope that those pictures that I just showed you about change in mix of business show, it's actually been underway for a long time. That said, yeah, we have made far more significant changes here, made some very tough decisions at the beginning of 2016. I think you can see both happening. Number one, what happened in earned premium in the first quarter of 2016 and the second quarter of 2016, it's far more influenced by what we wrote last year than it is by what we wrote this year. It's actually part of what gives me confidence in the ongoing ability to show you improvements.
What you can see, and it's undeniable and you can see it, is the premium volume has in fact come down by 17% on a written basis this year. That tells you even if you were making significant mix change last year, something you're doing this year has turbocharged that effort. I think that's really the main message I'd leave for you. I would tell you I'm really proud of the efforts that this team has taken over a much longer period of time. This was a great opportunity for me to share with you what a great job the team's been doing over a much longer period of time. Unfortunately, we can't hurry and earn that stuff.
I really think what you will see is a combination of the efforts we took previously earning in and the efforts that we've put in place this year beginning to take root later this year and early next year. Yes, Jay.
Thank you. Jay Cohen, Bank of America, Merrill Lynch. Rob, we're measuring you from the outside largely on the loss ratio improvement. The business mix change that's undergoing at the company also changes the capital needs. From an ROE standpoint, I'm assuming that that's changing maybe more dramatically than the loss ratio. I know we're not getting all the disclosure yet, but I'm wondering if you can shed some light on that topic.
Yeah. Listen, it's why I keep bringing everyone back to Peter's hierarchy of goals. I mean, the ultimate driver for us is return on equity and intrinsic value. Absolutely, we are making trade-offs every day where you look at that and say, "My goodness, I thought you would've done something differently when I just look at the loss ratio." Yet, what I can tell you is with confidence, we're confident we're doing the right thing. I think that's why I love to be able to show you, for example, the Ascot sale as a great simple example of that. The Ascot sale, rest assured, the loss ratio of Ascot on an adjusted action year loss ratio basis looks good.
On a return on equity basis, when I think about the CAT load and I think about the expenses and I think about the capital consumption. Well, that's a much more important master for me. What I can say for you is wherever you see us making moves that aren't immediately seeming to you like, you know what? They're simply following this path of loss ratio improvement is the master. I want you to know, listen, it's the master in the context of we promised you we were going to deliver that for you. The most important thing for me, and I'm even willing to give up pieces of that to make sure that I'm really delivering value for you in the first place.
What I hope that the slide that we shared with you today did was give you a sense of, one, about how much capital is consumed by component, and two, whether we think we're going to consume more or less capital in each one of those spaces. I will tell you this, that this team behind the scenes is spending a ton of time on making sure that we have a very thorough understanding of capital consumption. I'll tell you this, I'll put the AIG commercial leadership team up against the commercial leadership team of any competitor in terms of their knowledge of how much capital do I consume and what does every move that I make mean to return on equity, and they're every day making those smart trade-offs that exactly you would expect us to make.
Simplistically, we've given you a metric to follow, which is let's get you to a better loss ratio. What you should expect from us is we continue to up the game in terms of giving a more complex and more interesting metric for you to follow into the future. I'll let Peter and Sid be the ones to do that.
Question?
Ryan Tunis, Credit Suisse. Looking at, I guess kind of what's on the come next year, it looks like we're down to the risk selection aspects in terms of getting the loss ratio closer to 60%. I guess when we think about risk selection, given how competitive the environment is, it's difficult, I think, for some of us to see loss ratio improvement coming without loss of premium. I guess if you could just talk a little bit about the range of outcomes in terms of net written premium growth for next year. Also, I guess the extent to which an increasingly competitive pricing environment could potentially still be an obstacle toward getting to that 60%.
Yep. Thanks for your question, Ryan. Listen, there's a couple ways that I want you to think about this. The first thing I would say to you is, many people have said since the very beginning, how are they going to be able to do this? They've told everybody exactly what play they're going to run, and oh, by the way, the wind is in their face because rates are against them. The first point I would make for you is it has been far easier for us to make the shift in mix of business because it's a competitive market environment. What you should be very interested in is who's picking up the business that we're letting go of. We let go of $2.6 billion worth of business in products at 2B and 3, rest assured, it went somewhere.
What's fabulous is that our clients were not upset with us, right? Why were they not upset with us? Because the rate environment allowed them to be able to find another place to place that business and still retain their valuable relationship with AIG. We worked with them and said, "Hey, look, we love you as a client, but you think you're doing us a favor by giving us all of your premium, when in reality, we have 10 lines we'd be better off with eight." We still have eight lines of business. We love that. The client's more valuable to us, they had no problem being able to place it somewhere else because of the market headwinds associated with that rate environment. That's the first observation I'd make. So many people thought that would be a disadvantage for us.
I'd actually argue to some extent it's been an advantage for us. It'd be much harder if rates were going up and we were getting a client and saying, "We can't write that business for you." When they went to go place the business somewhere else, they had a hard time being able to place it somewhere else. That would be sort of one item. The second thing is I've given a bit of information already about what you can expect in premiums for us in 2017. We do expect the premium volumes, including the effect of the sales of Ascot, of NSM, and of the international operations to Fairfax. We do believe, including all of that premium volumes next year will be down approximately $1 billion, with the largest component of that coming from the sales of those three operations.
Yeah, we still see opportunities where there's places for us to grow. We're growing double-digits in some really attractive places. For example, large limits property where we can use our engineering capability to drive a different answer. We're seeing great opportunities in cyber and M&A and parts of financial lines that provides us with help notwithstanding an environment where otherwise rates have been against us.
Chuck Sebaski at BMO. If I take your pathway to loss of ratio improvement in 2017 and say you hit the 60%, a big component of that 6% seems to be the reinsurance transactions, you also have the built-in UGC. If I look past 2017, those will both seem to potentially be headwinds. If I go, you get to 60% at 4Q 2017, looking into 2018, is there a risk of an unwind from either the Swiss Re reinsurance or the runoff of the UGC benefit as those accident years wind down.
Yeah. First of all, Chuck, thanks for the question. I was hoping someone would ask about that. The first observation that I would make for you is with respect to UGC. The sale of UGC puts us in a position to be able to do other reinsurance transactions, other insurance transactions in the MI marketplace. We're working all the time with Doug, trying to figure out where's the smartest place and the smartest way for AIG to take MI risk exposure. Sometimes that will be inside of commercial in the form of reinsurance, sometimes it won't be, depending on market conditions, instead we'll be better off taking it in our investment portfolio. What I can assure you of is that that's a decision that we're making at the top of the house, thinking about where the smartest place to do it for AIG.
What I can assure you also is that we do see opportunities in that space, and we're seeing opportunities in that space every day. That's one observation I would make. Your other question, Swiss Re, yeah, I'm sorry, Swiss Re being a two-year deal. Listen, with the improvements that we've made to the loss ratio in our liabilities and financial lines portfolio, hey, listen, I very well may want to keep that portfolio for myself at the end of 2017. I think, if you take a look at that, I'll make this observation for you, and I've said this on our earnings calls. The bigger headwind for me is actually in our shorter tail lines and in the property space than it has been in liabilities.
Quite frankly, I like the portfolio that we're building in the liabilities and financial line space and have no qualms at all if I end up holding that risk net. I have to be very careful of time. We're going to have more Q&A later. I know Liz was about to tell me that. I have to hand over the floor to my wonderful colleague, Mr. Hogan. Kevin, the floor is yours.
Thank you. Thank you.
Well, thanks, Rob, and good morning, ladies and gentlemen. I'm absolutely delighted to provide you an update on today's consumer business at AIG. We don't often get a chance to talk about this business in too much detail. What I'd like to demonstrate is that it is a unique and powerful franchise that is supported by many of the skills and capabilities across all of AIG. In the last couple of years, we have done a lot of work on this portfolio and we have narrowed our focus on those places where we are best positioned to win. We are well on the path of being our clients' most valued insurer. Today's consumer franchise is very different than the one you may have been familiar with from two years ago, let alone five years ago.
Despite the sculpting that we have undertaken, we still have an enormous franchise. I'd like to share just a little bit of insight into the relevance that the consumer business has in people's lives. Through our 500,000 distribution partners all over the world, we help people make some of the most important decisions they're ever going to make about their future, about how they're going to plan for retirement. A great example of that is our VALIC Financial Advisors, 1,200 professional men and women that work with school districts across the U.S., trying to help them understand what their options are for voluntary savings programs for retirement.
They go a step further and actually sit down in the cafeteria with the teachers and explain to them what their options are, understand what their needs are, and help them make the right decisions for their individual circumstances. In addition, our award-winning claims operation and our customer care centers help people respond to some of life's most difficult moments. Sometimes the onset of a dreaded disease, sometimes the loss of a loved one, sometimes recovery from absolute calamity. An example, this year in April, at the Kumamoto earthquake in Japan, our team were able to get permission to send out drones very early on behind the security area so we could identify which of our customers' properties were damaged the most and prioritize paying those claims first.
Our claims adjusters were sitting in Tokyo looking at the damage on screens and determining how to move forward on those properties before anyone could even reach them. As a result of that, I'm very proud to say that four weeks after the event happened, we had already paid over 65% of our claims, and many of our peers had paid less than 50% of theirs, and we were recognized in the industry for it. That's something that has resonated with clients and with distribution partners in Japan. These are ways we are truly being our clients' most valued insurer. In the consumer business, our client means two things. It can mean the end policyholder, but in many cases, because distribution is the lifeblood of the consumer business, our distribution partners are also very important clients. We have some great partners. Peter talked about trust.
Trust is very important in the consumer business, and trust is manifest in two ways. It's manifest in our brand, which is still very strong and leading in many places, but also the partners that we work with. In just a little glimpse, we work with 28 of the 30 broker-dealers in the U.S., top broker-dealers. In 16 of those, we're in a leading position as a product provider with them. In our warranty business, we work with seven of the top 10 global retailers on an exclusive basis, supporting their business and their brands in after-market sales. In our travel business, we work with 30 commercial airlines as their sole provider.
A great example of the trust that we have is a new partnership we just launched in South Africa with one of the world's greatest brands, Virgin, where we are relaunching an insurance platform with them that is designed to meet the modern needs of their brand. Today's consumer business is a different franchise than you've heard before. What I'd like to do is I'd like to walk through each of the five modules of the consumer portfolio as we will be reporting next year and explain what we've changed in each of them, update you on what they are, and demonstrate to you two important things.
The first, across the consumer portfolios, we're in a strong position to deliver on our targets as part of the January 26th plan, and when the modules are reported, demonstrate that we are already returning excess of our cost of capital. The second is to demonstrate that we are extremely well-positioned for the future. Let's take a look at the portfolio. Today's consumer business is five scale modules, but on the page, you'll only see four. I'd like to explain that so there's no confusion. As Sid presented, our modules have sort of product alignment components, and they have geographic alignment components. The Japan module will be an extraction of some of what's in personal insurance and commercial insurance in the numbers that you've seen today.
Of the four businesses on the left side of Sid's exhibit, this here portrays those portfolios on the basis of an allocation of what we believe is an estimate of our internal capital that will be reported as part of the modules. The largest allocation of our business is to the largest consumer market in the world, the U.S. The individual retirement, group retirement, and life modules are primarily U.S.-focused businesses. What's important about our businesses and consumer is that as a result of the sculpting we've undertaken in the last few years, all of our businesses are in a position of scale and are leaders in their markets. We describe scale, which is very relevant to the consumer business, as being in the top five providers in the market segments that we're focusing on. Individual retirement is a great example of that.
In the U.S., we are in the top five provider positions of all three of the major products, variable annuities, indexed annuities, and fixed annuities. There is no other one carrier that is in the top five in more than one of those categories. Across our portfolios in the first six months of this year, because we're in the top five of the three major products, we in fact were the largest provider of annuities in the U.S. We don't target market share as a strategy. This is a reflection of the opportunities that we had in the first half and also our distribution presence through our 165,000 independent distributors in the U.S. Our focus is on value over volume, but scale is important in the consumer businesses. In group retirement, we also have a very strong position.
You may not know it, VALIC issued the first 403 plan to an educational institution 54 years ago, VALIC is very strong in its target markets. In terms of assets under management, VALIC is number 2 in the kindergarten through 12th grade space. It is number 3 in the upper education space, it is number 4 in healthcare. A very strong position in a business that is expected to continue to grow. In our life insurance business, we've done a lot of work in the last couple of years, both on the distribution side and the product side. Once again, we have entered in the term business, which we are focusing on, the top 5 position. In the first six months of this year, we were the fourth largest provider of term insurance in the U.S.
This is the first time that we've been in the top 5 scale position since 2007. The consumer businesses are scale businesses in market leadership positions in all of the markets that we're in today. Now, personal insurance is the last component of the consumer business we'll talk about, it in of itself is composed of five businesses. Let's turn to personal insurance. There are two components of the personal insurance business. There's the individual retail business and there's the group business to B2B activities that we undertake. The group part is the largest part of personal insurance. As you can see on the right exhibit here, personal accident is our largest product. Across the whole personal insurance portfolio, personal accident is our largest product. We have a different product mix than many of our peers.
Our personal insurance business is very heavy in Japan and also multinational programs that leverage the great infrastructure that Rob's team has in place. We've long been a leader in this particular segment. In the warranty business, we are the largest provider of aftermarket services in the U.S. As I mentioned, we work in the warranty business with 7 of the top global retail brands and 5 of the top 10 electronics product manufacturers. We have a unique capability in warranty, which is for those electronics manufacturers that do these massive global product launches, we can follow them. We can actually manage a program and aftermarket services in more than 20 countries around the world and launch simultaneously with their big product launches. In travel insurance, our Travel Guard platform is also a leader in its market.
As I indicated, it works with over 30 commercial airlines around the world. Many of those relationships built off of the commercial relationships we have through the aerospace business. In terms of the world's leading brands, we work with six of the most famous airlines in the world. Now, in the individual business, primarily this is focused the retail side in Japan, which we will talk about quite a bit more, and in Asia. We also have in the U.S. our very special high net worth business, the Private Client Group, which warrants a little bit of a deep dive in and of itself. In these businesses, we actually have complementary relationships with our commercial brothers and sisters in a variety of ways.
The Private Client Group business, many of our customers are in fact the most important decision makers and our key stakeholders, like the clients that we insure or the producers that we work with. One of the key aspects and differentiators for our PCG integrated solutions is the availability, for example, of kidnap and ransom or cyber insurance, which leverage the capabilities that we've built in commercial. In terms of our multinational programs in warranty and travel, many of our warranty clients are actually product manufacturers that we have relationships with on the commercial side. I've already mentioned about the airlines. The personal insurance portfolio also has very important financial differentiation benefits for AIG. This business is short tail. It generates stable, predictable cash flows, and as a result, generally attracts lower capital than other lines of business. It generally also has lower reserve volatility.
Over the last few years, we have demonstrated modest positive PYD. It has very little exposure to capital markets. Finally, because of our product mix, heavy on personal accident, not as heavy on automobile, we find ourselves historically less subject to insurance market pricing cycles. The personal insurance business is a very important complement to our activities and also an important contributor to AIG. Let's turn to the activities in personal insurance. We've done more work in personal insurance in the last two years than any part of the consumer portfolio. We are well on track to achieve our objectives through two different mechanisms. First, we have focused on our geography. There's a lot of territories around the world where we had sub-scale operations that were perhaps vestiges of former AIG activities.
We wanted to focus on the places, the 15 markets that are the most important growth opportunities where we are well positioned to win. We have already taken actions to move us down the path towards these targets, and we have every confidence we're going to reach them. Up until now, we've announced divestments in 18 territories, including the most recent Fairfax partnership. We have also withdrawn entirely from writing personal insurance new business in 19 territories. In another eight territories, we have stopped writing individual new business as we focus on originating multinational programs. That's 42 territories that we are already in the process of no longer participating in the individual personal insurance or personal insurance business.
In terms of our underwriting focus, we have invested a lot in improved data, in analytics, in tools, many of them leveraging from the work that Science has done with commercial, and the results are beginning to demonstrate in our portfolios. Now, we've exited a lot of territories, I think it's important to note that the entirety of the territories we're in the process of removing ourselves from represent less than 10% of the net written premium of the personal insurance business as from when we began. The underwriting income is going to improve as a result of exiting those territories because the collective underwriting result from those territories was a loss. That's because mostly these were sub-scale operations with very difficult expense profiles.
The end result of all of this, you can see on the right side, is that we're starting to see the impact of these changes in the portfolio, underwriting selection, territory selection. Because these are short tail portfolios, the impact can be felt relatively quickly. We do have a target, I'm happy to confirm, our target for the personal insurance business on a medium-term basis is a 92%-94% combined after we achieve the legal merger status in Japan. I draw your attention to the fact that our product mix is different, and we expect it to continue to be different, with the focus on personal accidents and personal property more so than automobile. As a result, our loss ratios may be a little bit lower, and our expense ratio is a little bit higher than some of our peers.
That's why I would encourage you to focus on the combined ratio. Across personal insurance, we are well down the track for our transformation, and we have quite a few success stories in those places that we're now able to focus the 15 most important markets in the world. Let's look at one of those, which is the U.S. and our Private Client Group business. There's a lot of new entrants into the high net worth space. I think everyone knows that. Our focus in the high net worth space has been at the very high end, the ultra high net worth space with extremely differentiated services in terms of our pre-loss inspections, our post-loss recovery, and our specialty focus on unique coverages, large underwriting capacity and high limits.
Representative of that segment, we have a 40% share of the Forbes 400 as part of our client base. We know that we insure 200 of the top 400 art collections according to ARTnews magazines. Our focus is in a slightly different segment than where some of the other companies have been. In the last few years, we have been investing a great deal in the Private Client Group business. We have been investing in upgrading our analytics and our data. We have worked with our Science partners to develop new models in terms of the producers, where our producers are most efficient, producing the most effective business for us. We've increased dramatically our underwriting capacity.
We have bulked up in underwriting, we've improved our turnaround times, and we continue to invest in further modern platforms that we plan on introducing starting later this year and upgrading further next year. The results in Private Client Group tend to speak for themselves. In the upper right exhibit, you can see our net written premium has grown 45% since 2012. The yellow line represents our growth rate. Whilst our portfolio is growing, the pace of our new business growth is also increasing. On the lower right side of the exhibit, you can see that this is quality business. Our retention ratio is 96%-98%. We're still investing in our Private Client Group business. A short while ago, we introduced another market first, which was a controlled multinational program for wealthy individuals that have homes and properties in more than one location.
We did some research, and we identified the 12 countries where it was most likely that our U.S.-based high net worth customers would have their properties. We can use the commercial multinational infrastructure to provide a single contract solution, but then also underlying service capabilities. This is a market first, and we've had great response from our producers and from our customers with respect to the convenience that this represents. We're very pleased with the performance in our Private Client Group business, and this is an enormous market. Just keep in mind that of all of the specialty carriers, the premium probably adds up to around $8 billion. The estimates are that the high net worth market in the U.S. is a $30 billion market. There is plenty of upside with respect to this business.
We're in a very strong position to build off our success in the United States, not only with our multinational proposition, but in other markets around the world. We've launched a partnership in the U.K. with Azur, a small technology company and an MGA that allows us to focus on the U.K. and the European market. Also, I just point out that Japan, which is one of our very strong presences, is the second largest high net worth market in the world. Let's talk a little bit about Japan. I have spent a big part of my career in Japan.
I was first there in 1989, and in various capacities of my roles at AIG as the head of the accidents and health business, as the head of the direct marketing business, or for a few years when I was the Chief Operating Officer of AIG's foreign property casualty business back when it was known as AIU, Japan has been an important focus of mine, and we've long had a leading presence in the property casualty business in Japan. Since we entered in 1946, we have a history of innovation and of distribution channel development, and we have built a great successful franchise on the back of that.
When we acquired Fuji Fire and Marine a couple of years ago, the reason we acquired Fuji Fire and Marine was because of its property casualty profile, because the portfolio it had represented scale, which could lead us to efficiency, and because its distribution footprint was different than AIU's. AIU's was more focused in the urban areas, and Fuji's was a broader geographical spread. We saw a great opportunity to combine the underwriting expertise of our AIU organization with the scale of the Fuji organization. When we acquired Fuji Fire and Marine, it had a life insurance subsidiary, Fuji Life. We did our diligence, and we worked on ensuring that that life insurance business moved forward.
A couple of years ago, when we looked across the consumer portfolios and put them through the lenses of where are we well-positioned to be a scale business, where are we likely to be in that top five, and where do we have a unique sort of differentiating presence, and then what are the financial returns on that business, we realized that Fuji Life, as a capital consumer and very small in its market, was not something that fit with the rest of our vision for leading positions in the consumer portfolio. That is among the reasons why we felt that a different owner would be in a better position to invest in this business. It certainly has a growth opportunity. It has been a source of growth for us in Japan.
Our primary focus is on the opportunity we have to continue differentiating ourselves in the P&C business in Japan. I wanted to clear up any questions around the rationale behind the Fuji Life sale, our commitment to Japan. Japan is still a place where we have great success, and we believe it will continue. Our portfolio in Japan is different than other companies. We have never competed head-to-head with the big Japanese three. We have always been focused on niches outside of them, outside of the keiretsu groups, which are very difficult to break through those relationships. A focus of us in Japan has been our small and medium enterprise marketplace. For 44 years, we've had a partnership with an organization called Hojinkai. The Hojinkai is the Small Business Owners Taxpayers Association. It is a very powerful lobby group in Japan on behalf of SME owners.
An important part of their membership proposition is us. We are the only property casualty company endorsed as part of the relationship with the Hojinkai, and we use that in a three-party marketing approach to their members. For 40 years, our underwriters have specialized in understanding the needs of SMEs and developing products and services that meet those needs. For 40 years, we've been educating distributors on how to understand those needs and how to represent our products to their customers. We have a tremendous position in the SME segment. There are 1.5 million small and medium enterprises in Japan, and it's actually a strong part of the economy. It's the one part of the economy that's anticipated to grow under Prime Minister Abe's new economic plan.
Building off that strength that we have in SME, that's created a lot of leads for us, and we've built an individual automobile and homeowners business on the side of that associated with the owners of those businesses. We also have a very strong position in individual business in areas we've innovated. Since the 1960s, we were the first to introduce outbound travel insurance with simplified issuance, and we are still a 29% market share player in the travel business in Japan. We have a joint venture with Japan Travel Bureau, the largest travel agency in Japan. In addition, in the student sub-segment, we have a very strong position. We work with between 30%-60% of the parent-teacher associations in Japan, and it's a very profitable line of business. Most of our business is focused on personal accidents as the leading line.
In addition, our SMEs sometimes grow up and they have manufacturing overseas. We can leverage the AIG multinational capability to serve them. In addition, outside of the keiretsu groups, many of the large companies in Japan are enhancing their corporate governance and their risk management. That's creating opportunities for us to originate multinational programs in Japan for their overseas exposures. Our underwriting professionalism has been a hallmark in Japan for many years. Representative of that in our two lead lines, personal accidents and fire insurance, our loss ratio is at least 10 points lower than the three major Japanese companies. Let's turn to Fuji Fire & Marine and the work that we're doing. Our loss ratios are world-class in Japan. The performance issue that we have is our expense ratio.
We know that because when we bought Fuji Fire & Marine, we recognized we were going to be running two infrastructures. We recognized that we have an opportunity to build a third company that will be a more modern, nimble, agile enterprise and continue to leverage our unique position in Japan in competing in specific niches. We had a lot of work to do with Fuji Fire & Marine, upgrading its underwriting, enhancing its distribution management, and improving its administrative platform. We've done it. The results speak for themselves. If you look at the upper right, since we acquired Fuji Fire & Marine, we brought down the loss ratio in its two biggest lines by around 10 points. In the lower right side of the exhibit, we brought the headcount and the concomitant expense down around 25%.
The merger date is not holding us back from working on the portfolios and delivering BAU results. In addition to that, the work that we're doing in preparing for this new company, Saizentan , the most cutting edge, is already benefiting the businesses that we have. We have introduced a new front-end system called AIG Connext that is currently serving 160,000 distribution partners across the portfolios in Japan, and 25,000 of those actually use it as their agency management tool each and every day. Whilst completing the merger, we're continuing down the path and much of the IT work is done. We've done over 750,000 UAT matrices so far.
We fully expect that early next year we're going to achieve pre-merger status. Once we get that agreement with the authorities there to achieve pre-merger status, we can announce the date by which the legal merger will actually occur. Essentially we're building a third company. The two other companies that we have will be absorbed into that. That's where we'll see further efficiencies from the investments that we are making. Japan business is already performing now. It will continue to improve as we continue to move down our track of simplification. That wraps up personal insurance and Japan. Let's talk about the next three modules, all focused in the United States, which I don't have to remind you, is the largest and fastest-growing consumer market in the world.
As I mentioned, all of our businesses in the U.S. are in the top five of the areas in which they choose to compete. You can see that the distribution across our premiums and deposits in the first three quarters of this year is quite even across our products, including retail mutual funds, which is a business that we've built off of the back of our administration platform supporting the separate accounts for variable annuities. What's made it possible to have this differentiated position in the U.S., where we're able to be in the top five in all of the major products? A couple of things. First of all, the skills that we have in fixed annuities and variable annuities are what allowed us to build the index annuities business. I didn't mention it, but we were not even present significantly in the index business in 2012.
We've achieved that top five position just in the last couple of years, building off of the skills that we have in place and our distribution strategy. We made a huge change in the distribution strategy a couple of years ago when we separated the legal entities from distribution, collapsed the legal entities, gaining great capital efficiencies, and bringing all of our networks together. We have a single wholesale organization serving the banks, broker-dealers, BGAs, IMOs, et cetera. That allows us great independence in terms of which products we mobilize when. Right? We focus on value over volume. Ultimately, that means that we can't be reliant on supporting a particular distribution channel. That's why we made the decisions of exiting our relationship, of divesting our relationship with the Advisor Group. Right? Part of that was in preparation for full independence.
We want to focus on independent distribution. That's what we're good at, we understand that this allows us the choice of when to mobilize which products and focus on our role as a manufacturer. We also made the decision in our life business to wind down our career agency because this multiple wholesale capability that we put in place allowed us true strategic relationships with our partners. As example, there are many broker-dealers that used to just represent our variable annuity product that now represent our VA product, our fixed annuity product, our index product, and our life insurance products. This is the real secret, if you will, to our ability to continue to perform in the U.S. We have huge distribution, 165,000 independent agents, we are able to leverage our wholesale skills into the success in our individual retirement business.
We're very well prepared to respond to change in the regulatory environment like the DOL. We are focused on understanding the needs of our distributors and with the broad product range that we have, being able to respond to their needs. Now, some of our products are very sophisticated products, variable annuities in particular. I'd like to just share with you our whole risk management philosophy, because our risk management strategy has four components, we believe that this is unique and differentiated as well in terms of our position in the industry. The bottom of the pyramid is our portfolio selection. Our business portfolio itself is part of our risk management strategy.
The broad product range that we're in, our ability to mobilize the product according to customer needs or economic returns, the ability to exercise our discipline, such as when we were the first company in August to reprice our variable annuity and reduce our roll-up rate. It's allowed by our channel independence. Next, in terms of our capital structure. We have a very strong capital position. If you just compare our exposure in terms of the percentage of VA assets as a part of our equity, it's less than half of the position our peers. So we have a smaller VA book, and we have a lot of room to grow. Product design is another area we've been on the leading edge in this particular space.
We are the only provider where we've linked our GMWB fees to the VIX index, which allows us to fund our hedging costs when they increase and also share with the customer the benefit when they decrease. Only one in the market. Then our separate accounts. We require a certain percentage into fixed allocation and the rest into volatility control provisions. 91% of our GMWB exposure is represented by these de-risk benefits. Another example of our product design is in variable annuities. This is product and process. We are able to reprice all 1,200 of our in-force products once a week. That means that our very close relationship between investments and distribution and product can sit down and assess where the opportunities are, what asset availabilities are, and we're able to reflect that in our crediting rates almost immediately.
That's one of the reasons why we've been the leading provider of fixed annuities through banks for 18 years in a row. It's part of our risk management strategy as well as part of our go-to-market strategy. Then finally, in terms of hedging, we focus on hedging all hedgeable risks. Since the end of 2014, we have closed our final open position. We are even fully hedged for interest rate risk. Our risk management strategy is very disciplined, and it is part of our entire business management philosophy. Now, let's turn to group retirement. Group retirement builds off of our individual retirement skills, but it's a different business. Around 50% of the premiums and deposits in a year come from recurring contributions. We know right off the bat what that cash flow is going to be.
In addition, I mentioned the strong position that we're in and the great value of VALIC Financial Advisors. In the last couple of years, we have been investing heavily in this business. We have introduced a series of digital tools that paired with our advisors are really creating a different plan sponsor experience and customer experience. During the pilots, we actually saw an enhanced enrollment activity in the areas that we were piloting, as well as increased contributions. Ultimately, that's going to lead to increased assets under management, which both the plan sponsors and we benefit from. This is the first of 3 phases of digital investments that we're making, but we're already out there. We're already seeing results.
We already know of plans that we have been told we would have lost, probably would have lost this year, if not for the investments that we're making. In addition, we're winning new business, and we're being told it's because of these modern tools that we're putting in place. VALIC has long been a leader in this business. We know this business very well. The complement of our distribution relationships at a very deep level with the school districts and with the teachers, paired with these powerful tools to increase their education, to increase the enrollment and contributions, we think is positioning us very well for the future. Just one indication, in the planned sponsor awards that just came out this week, we secured 45 best-in-class awards, including for some of our education services, our plan services, and importantly, technology.
This digital wave is ultimately going to be something that will help us serve the next generation of our consumers. Unlike the 401 market, which is expected to shrink, the most recent Cerulli report suggests that the 403 market is actually expected to continue to grow, and we're in a strong position in this growth market. Life insurance. In life, we have been doing a lot of work in the last couple of years, and we continue to work on and trying to improve the performance of the back book. Part of that is the reinsurance transactions, but a lot of it are investments we're making in replatforming our administration, in repositioning our distribution, and in repricing our portfolios. I mentioned the fact that we made the decision to exit Financial Network. Actually, that was empowered by the new wholesale distribution channels that we've built.
Even though we wound down our career distribution earlier this year, our new business has continued to grow, which is representative of the success and our focus in the independent distribution channel. We fully repriced our leading term products earlier in the year, and we've had good success from that. Also, we fully repriced our universal life portfolio following the change in the interest rate environment, and we're targeting our margins on that portfolio. As you can see on the right side of the exhibit, in the last 12 months, we have 60% of our new business is term, and less than that in terms of the universal life. We're focusing on products that do not have long-term interest rate guarantees.
Our investments have also allowed us to dramatically improve our automation and underwriting, take out operating expense, and also introduce innovative practices such as reflective underwriting and soon, non-invasive underwriting practices. As I mentioned, we've returned to the top five position in the term business, and quietly, we have assumed the number one position in writing term via direct marketing in the U.S. in the first six months of this year. Those skills are extremely important strategically because the same skills that support that will support our digital efforts, our digital partnerships, and our digital relationships with the emerging Generation Y and Millennial customers. We're repairing our portfolio, we're delivering the product suite that we're interested in, and we're building for tomorrow. We're reshaping our new business to be focused on economic returns.
In summary, I hope that I've been able to demonstrate that consumer today represents five scale businesses made up of market-leading positions that are different and unique than our peers. That we are on our path, and we've taken many of the actions already necessary to achieve our efficiency targets, and we will demonstrate a return excess of our cost of capital in 2017 with a balanced portfolio at scale, which we define as being in the top five position with risk management at the core of our philosophy across the portfolio. And we're different than our peers. This is not the same old consumer business. This is a business that is positioned for today and positioned for tomorrow. Thank you. I'm happy now to take a few questions. I think we have about 10 minutes to do so.
I think we can start up over here.
Amit Kumar, Macquarie Capital. Just one question, going back to slide 36, which talked about the different segments. Your rank is 26 in personal lines in U.S. I'm wondering, does it make sense for you to look at personal lines companies in U.S. as consolidation targets to ramp up that piece? Or are you more okay with staying in, I guess, the non-U.S. markets? Maybe just talk about that.
Sure. In the United States, we are, in the Property and Casualty space, very focused on three businesses. Our AIG Private Client Group business, which is not a common retail business. We focus on integrated solutions. Our leading line of business is property in the form of the homeowners, the collections coverages, antique vehicles, art collections, and we do provide automobile for the vehicles of the family members in service, et cetera, but it's a very small part of our portfolio. We have multinational origination capability in our Travel Guard and warranty programs, as well as a strong position with warranty in the U.S. When we look at the lenses as to which businesses to participate in, we want to be a market leader, and we want to achieve our targeted returns.
As we look at other segments in the U.S., we'll continue to evaluate opportunities, but right now we are focused on those areas we can be a market leader with the appropriate returns, and we're comfortable with the space that we're in.
Thanks.
Thanks. Tom Gallagher, Evercore ISI. A related question, Kevin, on personal insurance. If you disaggregate it, do you make most of your money from personal accident? You describe that as a very attractive business. If so, are you actually making money on auto when you look at both Japan and the U.S.? Another related question is, if you're not making much profits from auto, does it make sense to consider divesting those businesses?
Okay, thanks. Personal accident is a very important business, and it is profitable, reliable, and sustainable. Very short tail, relatively low capital, high return business, and it's been one of the real differentiators for AIG for many years. I ran the A&H business from 1998 to 2003, and at that time already, AIG had leading positions. Our philosophy is we don't necessarily believe in lost leaders. Our property portfolio is also an extremely well-positioned portfolio. Automobile, where we choose to ride it, and Japan is our largest auto portfolio, it also needs to achieve our target hurdles. Whilst there's a lot of reasons why personal accident is a more stable line of business, less subject to market cycles, we expect all of our businesses to perform.
In many places around the world, the one differentiator in terms of calendar year profit will be the stage of development or the stage of growth of a business. In the early stages of some of our businesses, obviously, we haven't caught up to the infrastructure that we need to grow into. That would be the one thing that tends to dilute our results. We have no interest in further changing the shape of the portfolio, and I think we'll be able to demonstrate once we start the modular reporting next year in a little bit more detail where that performance is coming from.
do you see coming from-
No.
I get what you're saying.
No.
one-
Each line of business contributes its fair share. Some products have higher margins than others, but we don't believe in loss leaders. Sure.
Kai Pan with Morgan Stanley. On AIG Japan, what's your current ROE for that business? Relative to your 10% operating portfolio ROE target in 2017, will it contribute to that given that integration will be behind in 2017? Thanks.
Well, we're not going to be reporting modules until later, we're not going to comment on the ROE. What I will say is that we have achieved great improvements in the underwriting results in Fuji Fire and Marine, we've maintained our underwriting contribution in AIU at the same time. Our loss ratios are already market leading, our product mix is the attractive product mix that we desire to have. Our expense efficiencies are not where they need to be, we know that, we knew that when we acquired Fuji Fire and Marine, we're getting better. We're taking expense out, we're leveling the platform. We are investing quite a bit in this final stage leading to the merger. I think shortly after the merger, we'll see the final aspect of the benefits emerge.
The most important benefits of the merger are not just the GOE reductions they're the enhanced product capabilities, the enhanced distribution service capabilities, our improved speed to market. These are the reasons that we're investing in the merger, not purely the expense. We have one back here. We have a lot.
Valuable microphone. Mike Nannizzi from Goldman Sachs. Question, Kevin, you mentioned that you've been culling a lot as far as geographies are concerned within personal insurance, that it's about 10% of written premiums and that those areas are not profitable. Is there a way to sort of think about what your profitability looks like in the regions that you plan on staying in?
All of the countries that we've stayed in, the 15 countries, we have attractive positions, and there's a fair balance across the personal insurance portfolio in most of our territories. The larger operations clearly contribute more, which are the U.S. and Japan. We've just come off of a full upgrade of, say, our business in Korea, which is one of our larger businesses, where we've completely digitized the platform there. We're enjoying both a strong new business growth, but also solid earnings in that portfolio. Most of the businesses that we have left are at the target returns that we're looking for or above. The few exceptions of that will be the places where we're truly investing in developing a new market.
Those are a very small percentage, and we'll balance our new business investments with the returns that we're making across the portfolio. We fully expect that personal insurance across the board will be demonstrating the returns that we expect and that you expect.
Maybe just to follow up on the Japan piece with the sale of Fuji Life, does that slow the sort of progress of the integration, the legal integration, that you've sort of contemplated in Japan? When should we start seeing the sort of expense benefit once that sort of transaction is complete and we can start looking forward to what the economics should look like post that closure and completion?
Yeah. There are some interdependencies of Fuji Life with the platforms of the rest of AIG in Japan, but not significant. We do not expect any impact on the path of the merger as a result of the divestment of Fuji Life. The merger, the work that we're doing, as I said, we feel like we've done the bulk of the IT work. We're going through a lot of integration testing now. It is a process that has to pass a high standard because the regulator in Japan is rightly focused on customers and customer protection. When we start bringing our two sets of products, basically we have products and rates filed for two different companies that are going to be renewing into a third set of products and rates. Clearly there's a lot of focus on how we're going to handle that process.
We are ready to go. We are in discussion with various stakeholders on a constant basis. As I said, we believe that in the first half of next year, we will achieve this status, which is then when we can actually state publicly what the merger date will be. I'm looking forward to so that we can answer the question and then talk about the path going up there. Thank you.
Jay Gelb from Barclays. With the Republicans in control of the administration and Congress, what does that mean for AIG if the Department of Labor fiduciary standard rules get delayed, watered down, or scrapped? What's your perspective on that?
I don't think we comment on sort of hypotheticals or conjectures. We are fully prepared to respond to whatever the regulatory environment is. We do it differently in our individual retirement and group retirement business. In individual retirement, our position is determined by the distribution partners that we work with. In preparation for the DOL, we have had a very close partnership in understanding what their needs are, and we're positioned to be able to serve those needs. In the group retirement business, obviously we control the whole value chain, so we have to determine from front to end. We have never thought of the DOL as something to comply with, but rather what we've thought through is assuming its implementation, how can we come out of this in a position to continue to be a leader in the market?
To the extent that there are changes in what the regulatory infrastructure may be or the approach or the interest rate environment, et cetera, we're in a great position to be able to respond. We're not in the business of predicting the future. We're in the business of being prepared for multiple futures. That, in and of itself, is one of the important values of our approach to not just the retirement business, but the whole of the consumer portfolio.
Thank you. On a separate topic, I'm no expert on Japan personal auto market. Can you just give us a little perspective? Is that a good business? Is it getting better or worse from a margin standpoint? What's the growth potential? Thanks.
The Japan automobile market is a highly regulated market. The rates are essentially determined by an organization. There's an opportunity to differentiate rates within that. One of the characteristics of the Japan marketplace is that whilst it's a tough environment, it's a fair environment. There's an even playing field. Our strategy has been to not focus on how to compete with the big three Japanese carriers. We focus in those specific niches that I talked about, where we have the ability to leverage more careful selection. Just a small example of that is after we acquired Fuji Fire and Marine, part of our underwriting rehabilitation was non-renewing 29,000 fleets that just didn't make our underwriting standard. It's probably more regulated than many markets around the world.
In the last couple of years, there has been an environment, I guess as various factors have impacted how much people drive with respect to the accident frequency and severity. We've seen frequency down a little, severity up a little, but nothing unusual. It's not our primary focus for growth, Jay. Our primary focus for growth is the integrated solutions we provide to our SME customers, the specific niches we serve, and the multinational and commercial account space. Okay, I think that's it.
We'd like to take a 20-minute break right now and welcome you back at 11:05 A.M. We're very close to that. You'll get a chance to hear and learn more about our legacy business or portfolio. Thank you. Before we begin, I just want to take a quick second to say that our next two speakers actually work particularly close together because Legacy and investments, and investments actually with all our businesses, is very tightly correlated. I think you'll enjoy hearing from both of them. Legacy is extremely important as we execute on our strategy. Charlie Shamieh, he's the CEO of Legacy, has been with us for quite a long time. Without any further ado, I'd like for you to hear from him. Thank you.
Thank you. Thank you, Liz, and good morning, everyone. In this morning's update, I would like to talk about what we've done, what we're working on, and about our people, the talent behind the AIG Legacy segment. This slide shows what we've achieved against our target release of $9 billion by year-end 2017. It's a very simple message. We're more than two-thirds of the way there at halftime. Over 80% of the liquidity to parent generated by Legacy has come from asset sales, both sales to The Street and the securitization and sale of admitted assets to AIG's insurance companies. An additional $1.1 billion, or just under 20% of the total liquidity, came from our life reinsurance transaction. That transaction covered over $5 billion of U.S. stat reserves and closed with a highly rated global reinsurer counterparty in the third quarter of 2016.
The co-insurance leg of that transaction covered a Legacy whole life block with favorable mortality experience, but large redundant reserve requirements. We structured the transaction to allow AIG to keep the favorable mortality economics of that block, but to release excess reserves and capital tied to the Legacy insurance book. Although we're pleased with what we've done with the transactions completed to date, they have been focused on what I would call the lower hanging fruit. I want to focus next on what we've been working on. This slide gives you a graphical representation of the AIG Legacy segment, which had estimated GAAP capital of about 23% of AIG's capital, excluding AOCI and DTA at the end of 2015. The left-hand side depicts our Legacy assets, and the right-hand side our Legacy insurance books.
Legacy assets are broken into 3 distinct pieces, life settlements, high yielding Legacy assets, and the remainder. Our strategy here is really straightforward. We intend to maximize liquidity to parent and minimize book value impairments while sourcing for our insurance companies attractive assets for their portfolios. Where the asset is under AIG's sole control, we expect to achieve this through a combination of sales to the street and securitizations and sales to the insurance companies. Where the asset is not under AIG sole control, AIG has fewer options. That is because we may, for example, have fiduciary duty obligations to the JV partners of our Legacy real estate book. On the right-hand side, we divide the Legacy insurance books into the top right-hand rectangle, depicting largely discontinued product lines, policy forms, and distribution channels that AIG has exited. The bottom right rectangle depicts the Gains Harvesting Portfolios.
Those books are in loss recognition under GAAP. The Gains Harvesting Portfolios include structured settlements, terminal funding annuities, and single premium immediate annuities issued before April 2012, for which AIG harvested the capital gains of some of the assets backing those liabilities in 2012 and reinvested those assets in lower yielding securities. The economics of these books were unchanged by the harvesting, but their go forward return on equity has been lowered by these actions. For the insurance books, the green, securing the interests of our policy holders and insureds is paramount. AIG has considered and continues to evaluate numerous options for the insurance books and the life settlements portfolio since the Legacy segment was announced. For example, since the Legacy segment was announced, we have signed 49 non-disclosure agreements with reinsurers, financial buyers, strategic buyers, foreign investors, and alternative asset managers.
Our legacy portfolio is well-categorized, and we've developed tailored and distinct strategies for each of the key components of that book. In every case, we evaluate our options against the benchmark of what I will generically call active runoff. The best example of active runoff is in this slide. It shows you the results of our actions on our standalone excess workers' compensation book. This is one of our longest tailed runoff insurance books, and in the fourth quarter of 2010, AIG strengthened its undiscounted reserve for this book by $825 million. In 2011, we reinsured this book to our affiliate runoff property casualty reinsurer, Eaglestone Reinsurance Company. In 2012, we acquired veteran runoff talent that has successfully and actively managed this book since then. Prior to joining AIG, that team had successfully managed one of the largest runoff books in the U.S. commercial property casualty industry.
Successfully defeating over $11 billion of liabilities to the satisfaction of the domestic regulators that oversaw that runoff. The strategies deployed by this team since joining AIG have included assumed reinsurer commutations, direct settlements and policy buybacks, and strategic repatriation of third-party administered claims. The result of that strategy has been a significant acceleration in the paydown of our liabilities, as you see in this chart, and hence of the statutory capital needed to support those liabilities with no adverse aggregate PYD over that period. When thinking about the more challenging legacy insurance books, the four key principles that we adhere to are, first and foremost, how do we ensure that we keep the promises we made to our insureds and policyholders? Which reinsurers and capital providers have sufficient scale and financial strength and share our commitment to those insureds?
How do we balance the natural desire to release capital tied to lower return on equity books to our shareholders against the possibility of book value impairments given the ROE expectations of potential reinsurers or financial buyers? Finally, how can we continue to leverage the unique skill set of our runoff teams for the benefit of all of our stakeholders? These are our challenges. Using the same depiction I shared with you earlier, turning to the green, as you can see, the size, $49 billion of GAAP liabilities, long duration, 12 years, and heterogeneous composition of the liabilities of our runoff insurance books means that simple third-party reinsurance solutions, such as the one that we closed in the third quarter, which had the effect of shrinking that green by about 10%-15%.
Those solutions will not always be feasible, and AIG needs to consider all options available to it that adhere to our four key guiding principles. Turning to the yellow, our life settlements portfolio with nearly $15 billion of net death benefits, is the largest portfolio of life settlement assets in the U.S. Net assets were $1.8 billion at the start of the year, but have since been written down through impairments of carrying value, totaling approximately $300 million in the first nine months from the usual monitoring and impairment testing that we do on the over 4,400 policies that we own. The policies written down in this process were written down to their fair market value.
AIG has been running off this portfolio since 2012. Following the announcement of our agreed terms of settlement with our servicer in the first quarter of 2016, we have been evaluating servicing transition, sale, and run-off alternatives. Turning to the blue, we have monetized approximately 35% of Legacy net assets in the first nine months of 2016. Our run rate going forward will necessarily be slower since AIG does not have sole control of some of the remaining assets. Where AIG does have sole control, we will continue to seek the best opportunities to sell those assets to the street or, where appropriate, securitize and sell the assets to our insurance companies as the assets become unencumbered. I was asked to share with you what I remind the massive team at AIG that we have supporting the Legacy portfolio as we execute on our strategy.
That includes the teams I borrow from both Rob and Kevin, their legal and regulatory teams, the actuarial, the investments, the reinsurance, finance, audit, risk, technology, human resource teams, and of course, my own core team, Doug, Frank, Lee, June, Song Won, Olivia, and Navanita, and Craig, and Cathy. What I say to them is, "Let's make AIG Legacy small again." Let's keep the promises we made to our policy holders and insureds and put that at the forefront of everything we do in Legacy. Let's be realistic. Reducing risk and releasing capital trapped in these low-yielding books can come with book value impairments. Finally, let's build capabilities that will be of lasting value to our shareholders and clients. Thank you.
Thank you, Charlie. Good morning. When I started thinking about my comments today, a few weeks ago, I mapped out in my mind a slide that I thought all of you would be interested in hearing about. That slide included key investment challenges in a world of return-free risk. Yes, that's right, return-free risk. Many of the people probably in this room have their salespeople trying to tell me that those assets actually offer risk-free return, but that's for a different conversation. On that slide, there were four themes that I was thinking about, that our investment teams were focused on. Anemic global growth, persistent and seemingly intractable low inflation, disinflation, possibly deflation. Constrained government spending and fiscal austerity, and a capital market that was dominated by the policy actions of central banks.
Needless to say, that slide that I mapped out in my head a number of weeks ago is not contained in this presentation. Today, the markets are now focused on U.S. growth, a reflation trade, the risks of increased government spending, and the eventual end of central bank direct influence on capital market pricing. What does that all mean to us? Absolutely nothing. The markets are volatile. Dealing with volatility in the investment teams is the norm, not the unusual situation. Look what we were thinking about in February, January and February of this year. We were worried about China causing a global recession. It impacted the decisions of the U.S. Central Bank, Janet Yellen, to actually change course of monetary policy. Being the chief investment officer and having an investment team, there's nothing unusual about these things. The markets are volatile.
What does that mean to how we think about managing the assets and the investments for our policyholders and our shareholders? I like to think about the problem in the asset liability management problem of the enterprise this way. There's the in-force book of business, which should be relatively boring. If we do it right at inception, it's all about tweaking. Doing things right at the beginning, building your house properly, minimizes the maintenance you need to do ongoing. Where most of the effort occurs is making sure you do it right at inception. The critical role of the investment team is to actually make sure they communicate and relay the market information to the teams of Rob and Kevin, who are pricing new contracts every day. That's where the essence of the asset liability management problem starts and ends.
Everything else thereafter is tweaking. I have over $300 billion of insurance assets, continuing insurance assets, that all gets tweaked. All of the real activity occurs at the pricing and the inception of a new contract. When people ask me what I do for a living, I tell people quite simply, "I'm a personal shopper." The nice thing about being the personal shopper for others is I get to use their credit card. Thank you, Rob, thank you, Kevin, for your credit card, because it's really fun to shop with other people's money. What does that really mean? That means that my team needs to really understand what are the preferences, what are the tastes, what are the products that Rob and Kevin are trying to build every day, and what are the ingredients that are needed to build those products.
I need to convey what are the prices of those components so that Rob and Kevin can react. As the various supply and demand and price of those various components change, they can respond naturally to those situations. Importantly, there are going to be short-term supply and demand imbalances, which I need to reflect to them as being short-term, which will only lead to temporary changes in pricing of contracts. I also need to identify long-term trends where those things may be persistent shortages, and that requires close cooperation with Rob and Kevin to say, "Wait a second. We need to do a product redesign here." There's just something fundamental that requires us to change the way we're pricing something because there will be a permanent change to one of the critical ingredients to our product set. I'd like to give a few examples of that.
There's two good examples that occurred earlier this year. First example is in Rob's business. Rob was looking to do a quota share reinsurance transaction, what was unique about that quota share reinsurance transaction is the reinsurer required it to be done on a funds withheld basis, that reinsurer wanted a guaranteed rate of investment on the funds withheld account. Fine. We understand the nature of that liability. My investment team understands the nature of the liability. We understand what the representative portfolio would be to satisfy the liability profile of that underlying contract. One of the unique challenges was we don't get all the premium day one. The premium associated with that comes along the way. While I'm guaranteeing a rate of return for the entire life of this reinsurance contract, I don't have the premiums.
My team and I needed to figure out how are we going to address that? How are we going to be locking in the guaranteed rate of investment that we're giving to Rob's reinsurance client customer? How am I going to do that? We had to develop a strategy, a unique strategy that we hadn't done before. I had to reflect the appropriate economics of that to Rob so he could go and complete the negotiation of the terms of the reinsurance contract, reflecting the cost of that investment, and close the deal. Kevin mentioned in his discussion the fact that he has dynamic weekly pricing of fixed annuities.
The reason it's dynamic weekly pricing of fixed annuities is because my investment team provides him with the updates of the dynamic pricing that goes on on a weekly basis so that Kevin and his team can respond and make appropriate price adjustments. As I said earlier this year, when folks were panicked about what was going to happen to China, Treasury market rallied substantially in late January, first weeks of February. Interestingly, what happened is credit spreads widened materially, and they actually widened more than the Treasury market declined. We looked, and our investment team examined, could we actually make an adjustment to the pricing of our fixed annuities? It's not just about the price at the time, but it's also about the availability of the supply of the underlying instrument. Sure, prices move every day.
The question is, can you actually transact at those prices in the size and scale that we're doing things at AIG? That was a unique opportunity where we actually saw an opportunity to actually buy in size financial assets that would help Kevin replicate his fixed annuity, be more aggressive on the pricing, and gain business in that period. I think that gives a sense of really the essence of what the investment team does on a daily basis. There's a number of messages on this slide, I really want to focus on the core strengths: diversification, long-term liquidity, scale, and expertise in credit real estate structured finance. I joined AIG a little over a year ago.
Naturally, when you're new, you want to assess your capabilities and your strengths, you want to get an inside view, and you want to seek an outside view, perception of what people think our strengths are, so we can see where the asymmetries are. Because as I like to say, all interesting things occur where there's asymmetric views. One of the interesting things that came out of that conversation was people suggested, "There's a lot of things that you do that lots of external managers could do just as well. Probably in the scale that you're doing them, you could probably do it at a very low cost," maybe even a lower cost than what we do them at.
I considered that hypothesis, I went down the road of exploring, really, what could I do with outside managers to manage many of these asset classes, public credit, private credit, commercial real estate, residential real estate, all of those, I explored what the cost could be. I discovered, yeah, the costs were fairly comparable to what we were doing. While all of those asset managers had just as good asset class specific expertise, what they didn't understand is that we just don't buy assets on the basis of the value of the assets.
We have a far more complex challenge managing the assets of AIG than just looking at the relative value of each of those different asset classes because we are managing those assets to bespoke liabilities in multiple jurisdictions, subject to multiple regulatory capital regimes for which, yes, as Peter will say, we all need our true north to be focused on the relationships between risk and return. That's necessary. In addition, we need to certainly understand the GAAP, the tax, and the statutory regulatory accounting treatment of where we put those assets against what liability, what the regulatory capital treatment is, and what the returns will be. Yes, there are plenty of asset managers in the world that can do a fantastic job outside of AIG who understand those asset classes as well as we do.
The challenge is what they don't understand is the bespoke liabilities that we manage and all the other things that go on in making efficient investment decisions for an insurance company. I'd like to make note. Last night you would have seen there was a release. We had a press release related to the sale of our International Finance Center in Seoul, Korea. That transaction is the largest real estate transaction that has been done in the world to date in 2016, That was done by our internal global real estate team led by Doug Timmons. That transaction was incredibly complex. It involved the sale of three high-rise office towers, a retail mall, and a 5-star Conrad hotel.
That gives you a sense of the capabilities of the team, I just wanted to take the opportunity to congratulate the team for an incredible transaction that was executed on behalf of AIG shareholders. Turning to this page, this slide I love. The reason I love it is we have lots of long-term liabilities, when you have lots of long-term liabilities, what you want to do is take advantage of those long-term liabilities. To do that, what you want to do is monetize the liquidity. You want to basically be able to take advantage of assets that are less liquid and have a liquidity get compensated for the fact that you have long-term liquidity that others don't. The challenge with that is there are lots of assets that do that for you, they don't satisfy the risk characteristics of the liabilities as we offer.
Great, I can go buy some residential whole loans, unfortunately, the duration of a residential whole loan is three years, four years, five years. My life companies need 10, 15, 20-year liabilities. On the one hand, I've got all this great long-term liquidity, but unfortunately, it comes with lots of interest rate and other types of risks. If I try to monetize the liquidity that I get, I don't get the right duration. What this slide shows is how we get to use those less liquid assets, use our capabilities, and also use something that I love, which is having transparency and control.
For a guy who's in a fixed income business his entire career, you'll understand the nature of thinking, because when you're in a business where you basically have incredible downside with very little upside, you realize the people who manage fixed income portfolios are cynical, skeptical, and don't trust anybody. I love having the ability to have the teams working for me, controlling the assets so that I can understand exactly what they do. Asset management, while it's quantitative, is also a human effort. Having the person look to me in my eyes and tell me what he's done is a very important risk management tool.
What this allows me to do is it basically allows me to monetize liquidity and create the custom cash flows that are needed for the life company, which needs long duration cash flows insensitive to prepayments, and create assets that take the prepayment risk and some of the credit risk and give it to Rob's business, where he doesn't have a lot of financial market risk exposures on his liabilities. There's pieces that we just don't need. We sell them out in the capital markets, and as a result, we have control, we have our expertise, we have customization of our assets and liabilities, and we've monetized our liquidity. Right now, our team is working on executing a transaction just like that. Now, there was a question earlier about the impact of the UGC transaction.
Our position in residential real estate and residential real estate lending, it was limited, and it was limited because much of our capital was tied up in two assets that were very sensitive to residential real estate. One, we owned UGC. It was $180 billion of mortgage exposure there in those entities. How much more capital could I put at risk? In addition, we had a unique position in non-agency mortgage-backed securities, a fantastic trade that has generated substantial returns on earnings in our net NII for both of our businesses, but that's also beginning to amortize down. Our sale of UGC is leading to an amortization of those exposures over time. Our natural amortization of our non-agency mortgage-backed securities portfolio is gradually freeing up capital to begin to deploy in the residential mortgage backed space.
As we speak now, the team is working on a number of transactions to gradually increase the scale of the activity that we're doing in a number of ways. In residential mortgage loans, managing the securitization that I discussed in the previous slide. There are great opportunities to do reinsurance, both with the GSEs, capital efficiently, and with the PMI industry itself. Because with the implementation of the regulation of PMIERs, they become a very capital-constrained organization, and they're going to seek reinsurance solutions over time. As our quota share reinsurance with UGC winds down, we have numerous opportunities to be able to replace that. I just want to make a few comments about our initiatives with respect to external managers. We're always going to use external managers.
We don't have the expertise in every asset class, you have to understand how we're going to use those external managers. Those external managers are going to be used to complete the investment stack for asset classes that we're doing in small size relative to our core portfolio. Where we need those investment opportunities, where they just not scale. When we're running a portfolio of a particular asset class in small size, we just don't have sufficient scale to hire the best and the brightest to do that for us. That's where we seek the opportunity to use third party. We will always be using, despite the fact that you've heard about our hedge fund redemptions, that's just a vehicle. Remember, hedge funds is just a vehicle. The way I think about the external managers is not the vehicle.
I think about what skills they have, what asset classes they're giving me, what transparency they're giving me because again, I'm a cynical, skeptical fixed income trader. That is really the essence of what we're doing with respect to our external managers. To conclude, I just make a few points. The first, I would say despite the recent movements in interest rates this week, let's be honest, we're still operating in a very low interest rate environment. Yeah, you've seen rates move 50, 75 basis points. It's still a very low rate environment. Importantly, it's still a very uncertain rate environment. Additionally, I would say this environment, because of the volatility, demands very close coordination between investments and the teams in the businesses to be effective in product pricing and product design.
We need to continue to focus our resources on core strengths in asset classes, use external managers to fill the gaps. We have a number of initiatives to continue to monetize our long-term liquidity that our liabilities afford and to redeploy capital and other assets as we continue to sculpt the company. With that, I'd like to turn it back to Peter for Q&A, I would make one comment. I did notice a heavy bias to all of the questions coming from the right. I don't know whether that's a subliminal trend or whether that's a more permanent trend, what we will try to do is we will try to give an opportunity to the left to express their views. Thank you.
Have everybody up here for our Q&A session right now. We're going to grab a few chairs. Peter is going to direct the questions from all around the room. We welcome them all.
Well, I hope you found the comments today helpful in giving you a sense of why I am so excited about the prospects for this company. The teams that we've assembled to share with you what they're doing is part of the leadership of this company. I'm happy to say that we have the rest of the executive leadership team here in the front row. I'd like them to stand up and just be acknowledged because I want to give you a sense that next time we have an event like this, we'll have a few more voices to give you other dimensions of what we're doing because we couldn't fit in everything in the constraints of your busy days. Otherwise, you would have been here until nightfall. Peter Zaffino, our most recent addition as our General Counsel. Roshan Navagamuwa, our Chief Information Officer.
Jeffrey Hurd, my Chief Operating Officer. Alessa Quane, my Chief Risk Officer. Martha Gallo, our auditor. Thank you very much for the huge contribution all of you have made to make these guys look smarter than they really are. I hope that you see that as we start to narrow the focus on what we really do well as a company, it's easier to interpret why we're doing what we're doing and the pace at which we're doing it. This is a very, very big company. Even though we've sold over 100 companies over the last few years, some of which have a market cap that rival our own.
When you sort of build expectations over the pace at which we reshape this, we feel as a team that we have an obligation to make changes that respect our commitment to be our clients' most valued insurer. They expect us to be there not just for one year, not just for five years, but in many cases for decades to come. We make large long-term promises. We are committing to certain countries and markets where regulators expect us to be there over the long term. They don't want to see us take shortcuts to building a valuable franchise that contributes in a unique way to helping our clients, wherever they may be, deal with the many uncertainties that we all face. Whether it's the exciting opportunities of artificial intelligence and how it's transforming industry after industry, including our own.
the parallel threat of cyber intrusion and what we need to spend to strengthen our own defenses, but also advise our clients how they can strengthen theirs and combine it with our capacity to be the largest provider of cyber insurance. There's opportunities in AI, there's threats from cyber. There's wonderful opportunities that come from the needs of the demographic trends leading to retirements that we are incredibly well positioned to meet. These are difficult challenges. There's no amount of money that an ordinary person can save to deal with longevity risk, even though some people talk about, what's your number? There is no number because it's an uncertainty that can only be dealt with mutualization across many lives.
We have the sophisticated risk management that comes from scale. Scale does matter to invest in the technology, in the talent to be able to help clients, large and small, deal with the complexity of risk in a way that's compliant with a complex regulatory framework, regulated by over 200 regulators around the world, each with their own framework for thinking about risk. There's enormous synergies that come from managing that as a portfolio with a very liquid holding company, with contingent capital that can be contributed to subsidiaries as and when needed, as opposed to trapped, depressing overall returns. Whether it's regulatory issues, tax, these are all strong reasons why we are configured the way we are as we slowly sculpt to a more focused, more efficient company that can deliver world-beating returns consistently through time.
While we have a humble objective to be our client's most valued insurer, one client at a time, as you've heard from Rob and Kevin, the kind of clients we have, the number of them, the diversity of them means that if we succeed in that humble mission of earning the trust of each and every one of our clients, collectively, there's no doubt in my mind we will be the most valued insurance company in the world. That's a consequence of doing it one client at a time, earning their trust and keeping that trust. Let's go to Q&A. Yes.
Maybe in addition to some left-right balance, we can get some gender balance. Thank you. Donna Halverstadt from Morgan Stanley. I have a question for Rob, and it is on cyber insurance, which is a new financial line for you. Can you just talk in a little bit more detail about what types of things you're actually covering, and more importantly, how you think about pricing and managing those risk exposures? Thank you.
Before I hand it over, Rob, I just want to mention this is not new for us. We actually started doing cyber about 15 years ago, which is one of the reasons why we're a leader, because we have a lot of claims experience. However, it's such a fast-changing area, you have to question the validity of what we learned 15 years ago to what we're learning every day. With that, I'll hand it to Rob.
Thanks. One of the things I think many people lose track of is the fact that even before we were providing cyber insurance as a standalone cover, we and most other insurers were providing cover for cyber included inside of the other coverages that we offer. One of the things we've tried to do is take a more direct, more explicit view, making sure that we were walking into the cyber coverage we were offering with our eyes wide open. As Peter said, we've been offering this kind of coverage since the 1990s, that's given us the ability over time to develop a level of expertise and a level of knowledge about how we think about those risks. Most recently, we've put out a standalone cyber policy known as CyberEdge PC. You can read about that a little bit on our website.
In that cyber cover, we're also covering for differences in condition. It's a drop-down cover or an excess cover that's providing for difference in condition when your underlying policy does not respond. We're also focusing on what kinds of physical damage and bodily injury and business interruption can occur out of the result of cyber. We're very thoughtful about the way we think about our aggregation of our cyber risk exposure. We're very thoughtful about the way we think about what kind of limits we deploy, and we're very selective when we think about what types of industries that we're aggressively going after in the cyber space.
I'm particularly proud that the leader of this strategically important business, Tracie Grella, is a woman.
Pardon me. Meyer Shields, KBW. A question, I think, for Sid. I appreciate the intellectual background you've given in terms of the reduced reserve risk. Empirically, we're still seeing sporadic reserve charges. Maybe a pithy way of framing the question is why isn't there a cookie jar for the sort of issues that we saw in the third quarter in the programs business? More broadly, I was hoping you could connect your comments to near-term expectations for reserve development in the aggregate.
I'll start with that because I am absolutely committed to the process of financial reporting that has the highest possible integrity and process driven, not outcome driven. The use of even the term cookie jar, tongue in cheek, makes light of something which I think is a serious issue with enormous repercussions in terms of the legal and other liabilities faced by anybody providing financial reports. We look at the history of reserving in this industry and in this company, and we'll do everything we possibly can to make sure that the process has integrity, independence, challenge, whatever the outcome. However inconvenient that outcome may be to a nice, smooth narrative. Certainly, my life would be a lot easier if there was a cookie jar. With that, I'm going to hand over to-
Sure. Thank you, Peter.
my colleague.
Great question, Meyer Shields. I think as I said, we're always committed to being very transparent and open with you guys. I'll start with the programs item first, and then I'll tackle the broader question. With respect to programs, I think Peter Hancock's words on valuing the process and ensuring you have a process that has integrity really is what I would describe the programs process is. We reviewed the entire portfolio of programs in the second quarter of last year, so we did our DDR. At that time, we did not see any adverse development or emergence. At that time, it wasn't re-reviewed in the fourth quarter. When we looked at it this year, we noticed an AvE, and we did a deep dive, and that was jointly-
Actual versus expected.
Sorry, apologies. Actual versus expected. For the non-actuaries in the room, I was raised in captivity. Rob Schimek and I jointly led a deep dive there, and we said, "Let's look at this. Let's look at the data. Let's understand what this means from an underwriting perspective, and let's respect the process and come to the right outcome." The truth, 100% on programs, was programs, as we talked about, is a niche segment. There's not a lot of overlap with the rest of the portfolio. We found specific developments in specific programs where we reacted immediately and took action on the underwriting side. We felt there was no justification to reallocate reserves from another pot to programs. While inconvenient, as Peter Hancock said, I view that as an example of the process working.
If I try and step back, I'll just head off your narrow question at the pass. We obviously don't provide any sort of guidance on narrow reserve questions. We'll follow the process and inform you each quarter as we do the work. Really, the reason I wanted to lay that groundwork, as you put it, in an intellectual sense, was to help you guys understand better our big-picture thinking on reserves. If someone narrowly says, "Let's look at the last 15 years of history at AIG, and just why isn't that going to be the next 15 years of history at AIG?" I opened with the point on the business mix. I didn't just want to give you little anecdotes.
I tried to compile it as best as we could into the consolidated set of actions that I think Rob and his team have done a very good job in executing. I think there's no company more than AIG, where if you look at the time period I highlighted, that there has been more dramatic action taken on the business mix, the capital allocation, the limit profile, the claims process. That business mix, when you combine to my next point, which is around uncertainty. Clearly there is uncertainty by the three archetypes I shared with you, which are casualty, financial lines, property, but much broader as we keep diving down into specific sub-segments. Our changes in the business mix and underwriting in the portfolio dramatically, when you look at that uncertainty profile, reduce the reserve risk.
I'm a believer when you look at the industry, that if you look at those curves on uncertainty, for any company who plays in the lines that we play in, property, casualty, financial lines, there's risk. There cannot be return without risk. We feel we're being vigilant with how we manage that risk. We think the team is on track in doing its job on the underwriting side. We remain committed to the reserving process. Hopefully, that helps.
Paul Newsome from Sandler O'Neill + Partners. It looks like, and please tell me if I'm wrong, you're a few billion dollars ahead of the plan on the $25 billion. I should knock on wood, I guess. How closely should we tie that to stock repurchases? If you are ahead of your plan on raising the capital, should we, in our models, think about you basically keeping pace, or does that sort of not have anything to do with each other in the short term?
For that, I would just refer you back to my hierarchy of goals. Where capital return was a means to an end and at the bottom of the pyramid, not at the top. We will do what is enhancing to intrinsic value, that's dependent on a lot of variables. For sure, that chart demonstrates that we have a lot of flexibility. We've made specific commitments on capital return at the early part of this year, we're well ahead of schedule on that. I think that this company has benefited greatly from having flexibility in the timing and way in which we execute, that we would not want to provide guidance on at this stage. We want to maximize value for you, our shareholders. Jay.
Thank you. Two questions. One related to comments by Charlie. When you talked about balancing the hit to book value from disposing of legacy assets, do you also consider the stock price? In other words, you might take a hit to book value, but the stock is telling you there could be a bigger hit to book value. That's question number 1. Secondly, I believe one of your board members made the suggestion of disposing of the entire Japanese business. How do you view that potential strategy?
I will take those two parts. The level of the stock price certainly does come into our thinking. There's some latency in terms of capital extraction, then redeployment and stock buyback. It's not an easy trade to do precisely because of the constraints. Absolutely, as long as we think we can obtain our shares below intrinsic value, that is an added incentive to free up capital. Regarding what your perception is of particular board members' views on Japan, I would urge you to listen very carefully to the transcripts, and I believe from my careful reading, it refers to Fuji Life.
Hi, I have Elyse Greenspan with Wells Fargo. I have two questions. First, just going back to the commercial lines business a little bit. The industry is now potentially dealing with the prospect of higher inflation. As you guys think about the target for 2017, how are you thinking through that? Do you contemplate if the industry does see higher inflation, pushes for more price, and when they're able to get that price versus when we might see inflation starting to come through in terms of higher claims costs? Just any thoughts there would be great.
Elyse, thanks. I'll say that the number 1 thing I'm always trying to do is, again, think about this in the context of working with my partner, Doug, and trying to understand what's this going to mean to the total return that we're going to generate, remembering that we make our money two ways. It's the investment income and it's the underwriting results, and the combination of that is what ultimately matters to us. The truth of the matter is, I worry about inflation in two places, as you pointed out. One, as it relates to the claims cost, and two, as it relates to the underwriting decisions that we're making on a day-to-day basis. Overall, I think for us, it's way too early for us to be able to make a judgment about what we think the inflation rate's going to be.
I'd say we have our eyes turned to both those two angles.
I'd throw in a third variable, which Sid referenced in his earlier remarks, which is tort temperature. I think that given the nature of our business and our in force, our sensitivity to forward assumptions on tort temperature is quite substantial.
Okay, great. One just on the capital outlook. Following up on the earlier question, you guys laid out in that slide, you have funding sources well in excess of the about $10 billion left on the capital plan of the $25 billion you haven't identified yet. How do you think about M&A as we realize that there is a delta between those numbers and just how you view transactions AIG might consider in terms of acquiring?
Well, we look at organic growth opportunities and investment in our business through a rigorous lens of, is it advancing our goal to be our client's most valued insurer? Is it yielding a return on capital that exceeds our cost over a reasonable timeframe? We apply the same thinking to potential acquisitions. We also recognize the execution risk that comes with acquisitions, we look at them very skeptically, we do have the wherewithal to both meet our capital return targets that we've announced and potentially make acquisitions. There's nothing on the horizon that I look at that is screaming out to be bought at the right price. I think that our long-term future certainly has potential acquisitions, I think through the lens of rigorous hurdle rates and skepticism on execution risk. Yes.
Jay Gelb from Barclays. The return on equity target normalized of 10% in 2017. That's a normalized number, not an operating number. In the first nine months of 2016, the normalized return on equity was 8.3%, but operating was 6.0. My question is, will operating be at normalized in 2017?
I think this is a question for Sid, and I think that as we go to the new modular reporting, and in particular, the separation of the operating portfolio from the legacy portfolio will remove some of the ambiguity that your question reveals. I think the important statistic in terms of return on equity for valuation is the normalized return on equity on the operating portfolio, which is different than what you're looking at historically in terms of operating ROE. We're dealing with some outdated income classifications in that definition. It's got some legacy in there as well as new business. As we look at the earnings multiple that we think will drive valuation, that's all about the operating portfolio.
In terms of book value that you anchor your valuation on, that's how we can liquidate that legacy portfolio without too much of impairment to the book value. The statistic that you mentioned is a melding of those two. Except for the 8.3, which I think shows the combination of legacy and operating. Sid, you can explain that much clearer than I can.
Yeah. No, absolutely. Great question, Jay. Think of it in two pieces summing up to a total. The first part, as I said, the operating portfolio that Peter referenced, and for 2017, we think the target for that is roughly 10% on the operating portfolio. The next piece is legacy, which is Charlie's world over there. There we've set out that we think that on a normalized basis, that's about 3%-5%. If you add those two pieces, you have what I would call the AIG consolidated. There we've shared historically in our presentation in January and still hold by that, roughly a target of 9% when you add up all those three pieces. Now, I think what you're referring to adds another layer of it. Why do we normalize? Well, we have lots of items that have significant volatility, particularly in mark-to-market.
One item to note is that as Charlie has set forth his goal of making legacy small, a lot of that goes away. All of that over time is to say, we think that AIG's operating portfolio ROE and then an as-reported ROE for the company converge as legacy shrinks and a lot of that volatility moves. The biggest driver in the numbers you reference, if you link to my comments, is that nine months to date, legacy has a negative 2% estimated return on equity. Hopefully that helps.
Thank you. Kai Pan with Morgan Stanley. I guess left, right, depending on your perspective. We're sitting on the left-hand side. My question is that if looking at 2018 and beyond, what's your aspiration? Where do you want to bring AIG to?
That's a big question. I think that we see 2018 as a point at which we will have demonstrated to our stakeholders our ability to build critical mass around our areas of focus, improve our financial returns to a comfortable margin above our cost of capital. Demonstrate through a track record a sustainability of earnings that gives our team greater flexibility to invest in longer-term projects. We have certainly put a lot of our exciting longer-term projects to a tougher test in the recent past to make sure that we hit our goals. We have been investing in the core technology that gives us a scalable platform beyond 2018 to grow without our unit costs going up commensurately.
I'd say that 2018 and beyond, we'll have a modernized technology platform which we've been investing in heavily where cloud is going to represent a meaningful % of our infrastructure as opposed to the relatively modest component that it is today. A lot of automation in a lot of parts of the business flow. A better integration across our lines of business and organized around client needs and better client segmentation than we've ever had before. I think that you will see an agility with which we're able to shift capital between customer segments and geographies that comes from tighter coordination of the management of the company to deal with the inevitable volatility where we don't know what the market's going to look like in 2018 in terms of rates for the asset side or rates on the liability side.
We need to build in the ability to adapt continually to whatever we may find. If we keep our true north, what will not change is the need by our clients for risk expertise and financial strength. The way in which we deliver that will certainly change because of the technology, because of the nature of market volatility. The trusting relationships we have with both commercial and consumer clients and our distribution partners, they go back decades. They're not going to go away. We just need to continue to invest in them and remain relevant to the risks that people care about in 2018 and beyond.
Vaibhav Vish, Citadel Investment Group. Kevin talked about there being a meaningful cost-saving opportunity in Japan eventually, that there's going to be some upfront investment required as a result of the merger. My question is, heading into 2017, how significantly does that equation shift in your favor with investments rolling off and expense saves sort of coming through?
The timing of the bulk of the expenses associated with the work relative to the merger, as indicated, much of the work has been done. It depends on the actual merger dates, and that is subject to achieving this pre-merger status, right? I can't talk about a specific date until we've gotten that understanding with the stakeholders there. We believe that we've done everything that we need to and are doing everything that we need to. In the process before pre-merger, as I mentioned, we're running these two companies, then we need to solicit the renewals for the first batch of policies on the third company. At that final stage, when we are going through the first 12 months of renewal cycle, there will be a modest increase in the costs. At the same time as we'll carry the ongoing costs for integration activities.
It's after that 12-month period that we'll see the most important level of the savings. The biggest difference, though, is not going to be the operating cost. I mentioned 750,000 test matrices we've been through. We have around 600 people working on various IT and related projects and all of that. That work will fall away fairly quickly once we get through the actual beginning of the renewal solicitations.
I think this is a helpful place to talk about 2018 and beyond in a simple case study. We could have taken a shortcut and just merged Fuji book onto AIU book. Aging infrastructure onto aging infrastructure as a band-aid solution to do a quick fix. Instead, we built a third company that fits for purpose for the long term and migrated them both to that. It's a bit more expensive, takes a bit more time, but we think that's the way to win, is to build a winning platform to last. That's what we've chosen in that particular case. Yes.
Scott Frost from State Street Global Advisors. I wanted to talk about your capital return plan, just to make sure I understand. In prior slides, I think you had a slug of debt issuance contemplated $3 billion to $5 billion. I think that was when you were contemplating a partial spin of UGC instead of a sale. Am I correct in saying that's no longer there? If so, if it's related to the UGC sale or the disposition of that asset, could you perfect that knowledge? If it's not, is there some other reason it's not there? I might have a follow-up.
Great. Thanks, Scott. Good question. Yeah, you'll note that in the slide it wasn't included. That's essentially that as we continue on our capital management plans, our leverage naturally inches up. We've had very solid capital return to date. Obviously, we've had a lot of favorable outcomes with respect to divestitures, strategic divestitures that we've closed. At this point in time, we likely have completed the vast bulk of our debt issuance this year. That said, we obviously evaluate it as markets change, and we have a pretty active track record with respect to liability management as well. We're constantly looking to optimize the debt and capital structure.
Okay, thank you. It's fair to say that, do you expect the leverage to rise to the low 20s organically rather than, as you said, entering into a primary market trade? Is that a fair statement?
Yes, that's a fair statement. I think we are still holding to the leverage ranges that we've provided you before.
Charles Sebaski at BMO. I have a question about Attune and your move into this small commercial and the technology-enabled platform. I guess, kind of two parts. What do you see that as an opportunity set longer term in that segment? Why did you think partnering was the right move? I guess if I think about small commercial, AIG, the skill sets, the last couple of years move into technology and Science would have been in your wheelhouse as opposed to the partners with Hamilton and Two Sigma.
Let me take that because this is something I've been very excited about. We, from the beginning of creating Science five years ago, recognized that with the scope and scale of AIG, even if we had a heavy recruitment of scientists year in, year out, there'd still be a lot of fertile territory. We've recruited over 150 scientists over the last five years. Many of them have migrated from the Science team into major operating decision-making roles like Madhu Tadikonda, who's our Chief Underwriting Officer in commercial. Science has been a catalyst for a change in the fundamental decision making of the company to be more evidence-based, and that's a great thing. Even the Science team recognized is that their resources are limited.
We've partnered with many universities, and in fact, three Nobel Prize winners have been partners of ours in a consistent way over three years and provided a lot of horsepower to help really make some breakthroughs. Two Sigma is a really interesting company. It's an asset manager, yes, but they've got over 600 engineers. They've applied artificial intelligence and novel data sourcing techniques to stock selection in the equity asset management business and over 15 years have developed a tremendous track record. In conversations with their founders, it's become clear that many of the same concepts can be applied to better risk selection and also data gathering about small businesses to reduce the frictions in what is today still a very inefficient and highly fragmented market.
As we looked at growth opportunities, we thought this was a way to accelerate, and I don't think they would have chosen us as a partner if it hadn't been for a combination of the work that we've done over the last five years to become more data-driven in our management practices and our thinking. Also, obviously, the long-standing reputation of AIG in this market. I think this is a great marriage of capabilities and acknowledges that despite our scale, we don't have all the answers. We need to maintain humility in the face of great opportunities and always recognize that there's always somebody smarter than us out there, and if we work together in shared objectives, I'd rather have a small piece of a winning platform than have something which is 100% ours, but an also-ran.
This is a big market, big opportunity, $80 billion of premium, no dominant player. I think it's a wide-open space for disruption, and I think we're really well-positioned to do it. We've got one more question. Who hasn't asked a question already? I want to make sure that somebody hasn't felt they've been listened to. You've got it.
Thanks. Thomas Gallagher, Evercore ISI. Peter, do you think the election results are a game changer for non-bank SIFI regulation and what it means for you? That's my first question. Then just coming back to the funding sources an extra $2 billion-$7 billion there. How do we think about that exactly? I don't know if I fully captured that. Is that something that you think is more theoretical at this point, or you expect everything to close, you're actually going to have access to that cash in 2017, or something that's more likely to be deployed in 2018?
First I would say that on the election it's way too early to say. I think that there's a lot of uncertainties. I'll reassert what I've always said about SIFI, which is that to date, our designation as a SIFI has not inhibited us pursuing our true north of maximizing intrinsic value, returning capital, and optimizing our business in a way that makes sense. There's a modest cost, which we've mentioned in the past, for complying with SIFI regulation over and above what we are already investing in controls. I think we have done more than any of the bank and non-bank SIFIs to de-risk this company and the facts speak for themselves, and we have data in the appendix here that demonstrates those ratios relative to others.
If there's a change in the composition of the FSOC that may change the way the relative importance of SIFI designation is in the eyes of those policymakers. For us, it just simply isn't a binding constraint on our capital returns and our objectives, we don't spend too much time worrying about it. We focus very much on our true north of managing our capital prudently, being compliant with whatever regime we have. Even if that designation changes, we still have the Financial Stability Board and G-SIFI to worry about, and 200 other regulators, state and foreign jurisdictions that we work in. We've got a multidimensional regulatory landscape we have to navigate. I just don't think that that worries me.
On the second part of your question, we certainly think that we have line of sight on more proceeds than we would need to hit our target. No question about it. As you can imagine, and as I think Charlie's presentation demonstrated, there's a lot of complexity in the legacy book. This company saved those of you who were investing in us from the very beginning of our re-IPO, billions and billions of dollars by not taking shortcuts. Whether it was selling UGC for $25 million, which is what Wilbur Ross offered for it in 2010, and we netted about $4.2 for it this summer when you add the proceeds to the reinsurance and the tax attributes. Whether it's ILFC, which we couldn't give away, where we netted over $8 billion.
We're very thoughtful about disposition of legacy assets at a timescale and taking advantage of market circumstances to maximize the long-term value for shareholders. We like the fact that we've got plenty of flexibility there, and we'll use that flexibility wisely to maximize value to you, our shareholders. With that note, I would just like to thank you so much for your attention. I know there's lots of competing demands for your time. We think this company is worth paying attention to. It has unique characteristics, which I think is going to lead to leadership in this industry. Thank you very much