Thank you all. Good morning. If I could ask everyone to silence their phones, we'd greatly appreciate it. I am Chris Giovanni, Corporate Treasurer, Head of Investor Relations for Lincoln Financial. On behalf of all of us, welcome to our 2019 conference for investors, analysts, and bankers. Let me start by thanking those in the room and others that have joined us on the webcast for your participation today. We appreciate you taking the time to learn more about the company and the strategies we have in place to create long-term value for our shareholders. For a quick look at the agenda, which you can find in the front of your booklets, Dennis Glass will lead things off. We will move to presentations on the businesses with Will Fuller, Dick Mucci, and Randy Freitag.
After Q&A and a short break, Jamie Ohl, Will Fuller, Ellen Cooper will present. Lastly, Randy will come up and conclude with a financial overview, with a long Q&A at the end. We do have two question and answer sessions over the course of the day. As always, we'd ask if you please wait for the microphone, identify yourself and your firm, limit yourself to one question and one follow-up, we'll re-queue at the end if you have additional questions. After the Q&A session, we will be holding lunch, where breakfast was on the other side of the hallway, for those that can stay. A lot of our other leadership team is here in the room and throughout the day, we'd ask you to please engage with them over the course of lunch and during the breaks.
Lastly, just want to turn your attention to our cautionary language statements, which you can find in the booklets. As you can see, we will be making forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially. We describe these risks and uncertainties in the disclosures that you can find in the appendix, as well as in our most recent Forms 10-K and 10-Q. These forward-looking statements are made only as of today, we undertake no obligation to update or revise them to reflect events or circumstances that occur after this date. Today's presentation also contain non-GAAP measures, where appropriate, we have included in the appendix to your booklets reconciliations of these non-GAAP measures to their most directly comparable GAAP measures, together with explanatory notes describing how we measure these and the reasons that we do.
Now, at this time, we will get started with our President and Chief Executive Officer, Dennis Glass.
Thank you, Chris. Good morning, everybody. Let me add my welcome as well. Thank you for joining us today, both in the room and on the webcast. We genuinely appreciate the fact that you take the time to learn more about Lincoln, our strategies, our accomplishments, and appreciate you being here. Therefore, we put a lot of effort into these presentations to make the day as productive as possible for every person in the room. Again, thank you. We've worked hard to make it a good day. We're going to cover performance, strategy, and answer questions throughout the day. Let me start by saying that Lincoln has demonstrated a decade of strong results, which have been durable, differentiated, diversified, and dependable. Let's start the day by looking at our 10-year track record.
As you can see on this slide, for the last 10 years, we've compounded our earnings per share growth by 11%. When you look at the shape of the earnings, we've done that without a lot of volatility. While we're growing earnings at that 11% compound growth rate, we've managed to expand our ROE by 620 basis points. Excellent results. Happily, the performance has been reflected in our share price, which outperformed the industry in each of the three, five, and 10-year periods shown here. Great operating results, great ROE expansion, and that's translated into excellent results for our shareholders. I have to say, when I show these 10-year histories, sometimes investors and one in particular, I don't know if I see him in the room, says, "Dennis, I'm really not interested in your grandfather's company.
10 years ago was your grandfather's company." When we look at a decade of performance. To some extent, of course, I agreed with that. Today is all about where are we today, what are the economics and the capital markets of today, and how are we positioned to move the company forward over the next 10 years. Coming back to this period, it does cover a variety of economic and capital market headwinds and tailwinds. As we all know, 2008 to 2018, there was quite a lot of activity in that, including the Great Recession. What we've demonstrated with these consistent results is an ability to overcome headwinds and take advantage of the tailwinds to produce these good results. There is something to learn from the 10 years of results that we have shown here.
Again, investors should take comfort that we have seen a lot and demonstrated an ability to succeed in many different circumstances. Today's themes revolve around the strength of our four businesses. I like to think of them as each of having successful franchises or being a successful franchise, supported by our strong investment portfolio and balance sheet, and strategic actions that management has taken, which will continue to drive our future performance. We are content. Our consistent strategy positions us to continue our success and positive momentum. Let me give you a brief recap. You've heard us talk about our strategy. Where do we compete? Attractive and growing segments of the annuities, retirement, life, and Group Protection markets. Each of these businesses is at scale for its target market, and each has large and growing distribution and broad and expanding product portfolios.
We marry those franchises and the activities within the franchises and the businesses with industry-leading risk management. I think one example of that is our economic hedge program, where we are recognized by third parties for having one of the most effective hedge program in the industry. Added to things like that, we have rigorous expense management, efficient capital allocation. Again, our strategy, which is very consistent, has been consistent for the last 10 years, has worked for the last decade, and we believe it will work for decades to come. Within the broad overview of what we do and where we participate and what we add to that in the form of management actions, each and every one of our businesses are contributing. We don't have any bad businesses. Dick, Jamie, Randy will expand on the strategy within each of these.
Quick highlight from my perspective on each of them. In the annuity business, of course, over the last 24 months, we've expanded the segments of the market that we participate in, which has driven significantly our cash flows and our sales. In RPS, which is outperforming the industry as well, we have a differentiated high-touch, high-tech model, and we're adding new products in that business. The life business is an industry leader in scale and product breadth. Group, particularly with the acquisition of Liberty, is a leader in each market that it participates in. These are solid franchises, all of which are well-positioned for profitable growth. On top of building each businesses, we have taken other strategic actions to further build the aggregate franchise, driving us towards creating additional long-term value for our shareholders. What are some of these important strategic actions?
We've tilted our new business sales towards products without long-term guarantees. Now 77% of what we sell is not a long-term guarantee product. We still like long-term guarantee products, and we're still going to sell them, but we like to tilt towards less of a percentage of our sales being in the long-term guarantee category. Importantly, we've increased the percentage of our earnings from insurance risks with the Liberty acquisition. Now we are close to 30% of our earnings being driven by insurance risk profits, close to our target of 30%. Again, we actively direct capital to the highest and best uses, balancing investment in growth and returning capital to our shareholders, as well as opportunistic buybacks, such as our recent reinsurance transaction. In total, if you look back to 2010, we've actually repurchased 42% of our outstanding shares in that period of time.
Continuing on what strategic actions we're taking, several years ago, we launched a digital initiative to enhance the customer experience and reduce cost. More digital companies like Airbnb, Amazon, Uber are setting consumer expectations that have to be met by other industries, Lincoln included, and the insurance industry. You can't any longer just compete against your traditional insurers and from a customer service standpoint. Our digital initiative is focused on dramatically improving the customer experience. We've already introduced industry-leading digital activities. Importantly, at the same time, we're driving significant run rate savings over the next several years. We've discussed and talked about the magnitude of that several times. We're going to try to move into the business units, but let me just touch on interest rates for a little bit.
A lot of the pre-work that I saw coming from the sell side talked about interest rates impact, and we'll touch on that. Let me just say and come back to this point of we've seen a lot and we've done a lot. Low interest rates are not new. We've seen that in the decade where we achieved 11% earnings per share growth. There's not any one silver bullet or solution to lower interest rates, but there are levers, and we have taken the appropriate actions over time to combat interest rates when they're at lower levels. What does that include? Repricing and pivoting our product portfolios to achieve the necessary return on capital, initiating expense savings to replace the earnings lost by spread compression because of lower interest rates.
If you come back to our digital program, when we set an expense saving number, it was exactly that, replacing the lost income from lower interest rates that we expected to see because of lower interest rates. Other actions include, and Ellen will highlight this later, we have found opportunities in the investment portfolio to boost yield, focusing on high credit quality, but less liquid securities. We've been there, we've reacted to it, we have levers to react to it again, and we will. I am not concerned about low interest rates. We're concerned about low interest rates, but we're not concerned that we don't have levers to respond to them.
Staying with low interest rates and earnings again, or earnings in general, as you can see here, we're confident that we can still achieve our 8%-10% earnings growth targets as we look out over the next number of years. Why do I have confidence in that? Our businesses are growing. We have meaningful expense savings flowing into our earnings from both the Liberty integration and our digital initiatives. We are not over-reliant on the ebb and flow of capital markets, and we plan to consistently execute on our share repurchase programs. We don't share internal financial forecasts, although obviously we do them. I will tell you that our internal financial forecasts, which we have an excellent track record of accomplishing, are consistent with this 8%-10% adjusted operating per share growth target that we show on this slide.
We're consistently in that 8%-10% rate, and our financial forecasts tell us that we can continue to achieve it. As we've incorporated, this is important to the ebb and flow of equity markets and interest rates, as we've incorporated the higher equity markets and lower interest rates into our forecasts, what we're seeing is actually better total earnings as fees on assets under management outpaced loss earnings from lower interest rates. For all these reasons, we are confident we can continue to meet our expectations and execute towards these earnings per share growth rates. I'm optimistic about the future, not in the sense that we're going to wake up with permanent tailwinds, but that we have the strategy, management, and resources to grab opportunities as we've had in the past and overcome challenges as we have in the past.
To state it again, we will continue to build value for our shareholders. With that, let me turn it over to the team that will make it happen, starting with Will Fuller. Thank you very much.
Thank you, Dennis. Good morning, everyone. I am pleased to continue our day and kicking the business unit sections off with a discussion around a capability that Lincoln made a conscious decision over a decade ago to make very strategic in a way in which we want to differentiate and compete in the marketplace. That is building a powerful distribution franchise. At Lincoln, we run distribution as a business. It is a competitive advantage, and it's essential to achieving the financial forecast that Dennis just referred to. That earnings growth of 8%-10%, half of that growth are future earnings that are developed from the new business that we sell today. That's how we win. Half of that contribution, that's how important it is for us to have that consistent market presence, the ability to sell similar amounts year in, year out, throughout a market cycle.
It's why it's important we have that broad product portfolio so that we can make adjustments as we need to, given the preferences of consumers and advisors, that they can shift from time to time. It's why we have the distribution franchises that we have at Lincoln. Our foundation of how we run distribution as a business is very strong, and there's some points here at the bottom of the slide that are proof points to its strength. 800 wholesalers and growing. Those 800 wholesalers are experienced wholesalers with long track records in our industry and at Lincoln. They work directly with and access a very large base of advisors, over 90,000. These advisors collectively are serving millions of consumers in America.
We operate with an expanded product portfolio, expanded from when we were together at the last IRD, and that product portfolio has yielded even more broad shelf space. You see it in Lincoln's ability to expand our distribution and create new channels. We have meaningful new channels of distribution for the company that adds to that growth trajectory. Then we've shown you time and time again that when called upon, when necessary, we have an ability to pivot. Now, our partners value our approach to distribution. Our model is aligned with their model. We have a work site franchise, we have a wholesale franchise, and we have a retail franchise. They value our broad product portfolio. Put yourself in their shoes.
Would you rather work with one company that has a broad suite of the most relevant life products, a broad suite of the most relevant annuity products, a broad suite of the most relevant retirement plan products, one company, or would you rather access multiple companies to put those pieces together? They tell us they would prefer having a meaningful high-quality relationship. They value the national breadth of our sales force. Because we're committed to having a consistent market presence, because we're committed to consistently selling year in, year out in our businesses, we're willing to invest long term to have a national scale of a sales force, and ones that can work in local markets, a physical presence in local markets. It's actually quite unique in our business. They value that we're channelized. There's not just one business model in the marketplace. There's different channels.
Wirehouses operate very differently than banks, which operate very differently than independent broker-dealers. They serve their markets differently. They, in some cases, might even have different consumer cohorts that they're targeting. We channelize, we align to the way that they do business. Our wholesalers, our bank wholesalers, get immersed in the bank channel. They understand how the bank channel operates. Our wirehouse wholesalers do the same for wirehouse. They appreciate that we're channelized. They can count on Lincoln to have the operations, the service, the technology to support the business they're selling today, but also the care for the policyholders who are their clients of the business that was sold in the past. They know that we're here for the long haul. We're one of the few companies that consistently put all these pieces together, that talk about putting all these pieces together to be successful.
Next is LFD is a career destination for talent in our industry. We offer multiple career paths to a distribution professional. They can come and work inside of a business that's integrated across sales, marketing, competitive intelligence, analytics, digital tools and applications, all focused as a team working to achieve those new business plans and achieving them within the product pricing allowable. What this leads to is a very experienced company of distribution talent. I want to talk about experience in two ways. First, we just look at our sales force. On average, our sales force has a decade of experience. That is continuity. That is continuity in a territory. That is continuity working with the advisors in that territory. It also demonstrates strong retention. This is the place that our wholesalers want to be. Why might that be the case?
A wholesaler who makes their career generating new business year after year values working for a company that's committed to that product category, that's committed to selling through a cycle. It is well known by our sales force, and it's also well known by the best distribution talent in the industry, that Lincoln doesn't enter and exit product sales like others in the industry has. It's why it's also why LFD is where experienced wholesalers in the industry want to be. How can I say that? Let me give you a proof point. In the last two years, we've expanded our sales force 14%. That's 60 wholesalers, 60 new positions that we've hired. When you take that cohort of new hires, those 60 wholesalers, on average, they have 16 years of industry experience. Our sales force is experienced.
When we want to go out and attract salespeople, not only can we attract them, we attract the best, most experienced. These wholesalers are known in their territories. They're well regarded by their advisors. For this reason is why we believe this is where experienced wholesalers want to anchor their career, and it's a career destination. We direct our wholesalers to independent distribution. We believe in independent distribution because this is where the majority of sales in our products are. We also believe in distribution because you can direct that sales force to a large group of advisors. Not just a small or captive group, but a very large group. You can work with those advisors. You can work with the underlying clients that they serve. They have clients of very different demographics and needs, different parts of their life, different transitions.
We have the ability to work with them with our broader product portfolio. We have the ability to distribute multiple products through them. We have the ability, because it's a broad advisor base, to make those pivots as we need to. As there's shifts in consumer advisor preferences, we can make those shifts. If we need to make those shifts, we can make those shifts. Here I just remind you of our very successful life and annuity pivots that we executed in the past decade. Culminates in Dennis's point that 77% of our sales are now guaranteed. Culminates in the point that I can say that there's not a single product at Lincoln that has a disproportionate share of our sales. We also manage distribution effectively in different market conditions. I think that's one thing experience brings.
When I look at our sales leadership team of LFD, I'm talking about sales leaders that have 20 to 30 years of experience. They've seen a lot of different market conditions. They've seen a lot of different product evolution. These are just two examples. I'll use the annuity business for both. First is how do we manage a sales force in varying market conditions? There's three points on the graph to the left. First is when industry sales declined in annuities, what did we do? We reduced the size of our sales force. Reduced the size of our sales force to support what we expected to be some period of time of lower sales volumes. As industry sales rebounded and we reignited our sales growth beyond industry, we were successfully able to ramp up that sales force very quickly.
The third point is as we enter new channels, and we needed to stand up whole sales teams, like entering the Allstate channel, for instance, where we have had no experience in the property casualty channel before. We were able to assemble a full team before launch. Just some examples of how we manage the sales force day to day. The next is an example of how we activate distribution. I'm going to use the example of our most recent indexed VA product. Over the course of the last 10 years, we've invested time and resources to develop a very sophisticated advisor analytics database. This database tells us a lot about the advisors that we call on. What does it tell us? It tell us which advisors are selling the products that we manufacture. Which products are they actually selling? How much are they selling?
What licenses do they have so we know if they actually are able to sell. One of the great frustrations of a wholesaler is spending time on an advisor only to learn after spending much time that the advisor isn't even able to offer the product to begin with. We know a lot about the advisors. We provide this data to our wholesalers in real time on their iPad apps, how they manage their territory. Not only are they getting analytics about their sales and their activities and their close ratios, they're getting data about advisors in their market that are doing business with other companies. It allows them to know more about their market. We knew when we launched the indexed VA, we knew there were 20,000 advisors selling indexed VA in the marketplace. We knew who they were, and we knew how to reach them.
We could prioritize where we went to get shelf space to the distributors that had larger concentration of advisors. We were to prioritize our marketing communication efforts, our launch efforts, our sales efforts. The end result is a great combination of product innovation and distribution execution, which is the most successful product launch in Lincoln's history, $1.4 billion of sales, a few thousand advisors, more shelf space to add, more advisors to acquire, and we can do that not just in indexed VA, but we can do that in many of our other products. Just an example of how when you're committed to distribution for a long period of time, you can invest in capabilities that support it. We are well-positioned to continue our sales momentum. What we are seeing is that our success is not isolated. Our success is broad-based. It's broad-based.
It's double-digit growth across all of our major channels. If you dug in deep into each channel, you would find the same story of broad-based growth at the distributor level. What you're going to hear from the business units today are themes that are driving this growth. I'll just sum them up. One is expanded shelf space. We came through a period of regulatory uncertainty at about the time of our last IRD, where higher quality companies were a net winner in protecting their shelf space and adding to it. Then we've extended that advantage by our introduction of new products and capabilities across life, annuity, and retirement. Expanded shelf space is a theme across throughout. We've added new distribution partners, an example of which would be PNC Bank.
Even in places where we've had established presence for years, we're able to find distribution relationships that we could add to our focus list. We've increased our sales force, as I've shared with you, and with that is coming the ability to support growth as well as productivity growth. Lastly, at the bottom of the slide, we're entering established channels for the insurance industry where Lincoln did not have a presence. We're entering some of these channels and being able to compete and take share on our term. What this is doing is just adding to our growth. I'm giving you two examples. The first is the IMO channel for annuity distribution. This is one of the largest distribution channels for fixed indexed annuities. We entered it last year for the first time with a couple partnerships.
That strategy has generated a half a billion dollars of sales to our business. It's off to a good start. Lastly is Allstate, our first entry to the property-casualty channel. We introduced Lincoln to the Allstate advisors in January, assembled the sales team, and expect this also to add incrementally to sales this year. We don't just stop with channels that are established where we go and take share. We also are looking at potential future channels for future partners that could create share longer term. I categorize these as really longer-term opportunities that are new to the insurance industry, and they're important to focus on today, not because in and of themselves they're large, but that there's significant potential for sales that could be generated in the future. It's an investment today for the potential opportunity of sales in tomorrow.
First is the RIA channel. This has been a channel we've been investing in since 2015. Why? What do we like about it? Well, it's a fast-growing channel of advisors. It predominantly serves an ultra-high net worth consumer segment, which is not necessarily the consumer segment that is dominant for annuities. Annuities has a tendency to serve clients with 75,000 to 250,000 of income. This is a consumer segment with a little bit of higher wealth. This channel historically does not offer insurance products. RIAs are fee-based advisors, which means to have a presence in this channel, you have to have a product portfolio that pays zero commissions and no compensation. Brian Kroll and his team launched a full suite of variable annuity and fixed annuities that are fee-based annuities, no commissions, and we've assembled a dedicated field force, and we're making some good headway, as you see here.
A couple hundred million dollars of sales in 2018, this success has continued into 2019. Still early days, but contributing to sales, an example that Lincoln's going to build for the future. Second is the term insurance in the digital aggregator space. This is our way of reaching millennials that we don't necessarily or do-it-yourselfers that we don't necessarily reach through our traditional independent agent distribution. We have some initial partnerships. We've developed some really interesting solutions. You'll hear Randy talk about it as TermAccel, and you'll see, again, while still early days, sales are ramping up. Another trend we're paying very close attention to is the developing robo-advisor segment. Understand that robo-advisors predominantly are focused on low-cost saving, low-cost investing. The tools don't move into things like retirement income planning or financial planning.
If they were to do so, we're exploring firms that if they were to do so, then the insurance products, the retirement income products that we have would be a nice fit. Just an example that at Lincoln, not only are we busy working at achieving the sales plans and the sales growth that we have today, we're also looking at planting seeds for growth that we have tomorrow. I started off with we have powerful distributions. Let me close it and bring it home. What does it mean? Takeaways. We attract the best talent. Our model and approach to distribution is the one valued by our partners. It's why it yields us some of the best and broadest shelf space in the industry. We have access to those 90,000 of the most productive advisors in the industry.
We can develop new channels of distribution, whether it's entering channels that exist or creating new channels for the company. When called upon and when needed, we have the ability to pivot. We've demonstrated this time and again that we don't just participate in these, we lead in these areas. Today you're going to hear from our business unit leaders that in each of our businesses, we have room to grow, we have multiple ways to win. The investment in distribution enables that growth and allows us to achieve those new business forecasts that make a significant contribution to the earnings growth that we're all as a management team aiming to achieve. Thank you. With that, I'd like to invite Dick Mucci to discuss our group business. Thank you.
Thank you, Will. Good morning, everyone. It's great to be with you this morning to share our group protection story. It's a very good story. We're very excited about our future. I want to leave with you some key messages this morning. My overall message is that group protection is a market-leading and powerful franchise positioned to drive profitable growth. There are three themes that I will explore with you further during my presentation that supports this overall message. First, the Liberty acquisition is going extremely well. We're exceeding our financial objectives and realizing the competitive advantages that we anticipated. Second, we're building on those competitive advantages and driving top-line growth by acquiring new customers, cross-selling into our expanded book of business, and pursuing the employee paid market.
Third, we expect further improvement in our margin and margin expansion driven primarily by expense efficiency, but also incremental pricing leverage as we enhance the capabilities and services we provide our customers. When we look at our long-term earnings growth profile, we believe our earnings growth drivers will enable us to grow our earnings 7%-9%. There are some important aspects of this that are worth noting. First, in the group protection, our earnings growth is almost exclusively driven by organic factors. The capital markets really do not influence or impact our earnings growth. Equity values do not directly impact our business, and investment returns on our reserves, primarily LTD, have minimal influence. The organic earnings trajectory is a function of really two factors. One is the top-line growth, which is both sales and persistency, and margin expansion.
Expense efficiency, effective claims management, disciplined pricing are the fundamental factors that support margin expansion. In summary, our earnings growth is a function of our premium growth while prudently managing expenses and sustaining favorable loss ratios. In addition, we believe there's some significant upside in the near term on the 7%-9% growth given current claims and expense trends. As I mentioned, we're very pleased with the financial results of our Liberty integration. I want to highlight some of our success on this slide. First, our repricing effort is going extremely well. We've been able to reprice $1.4 billion of premium renewed. That has yielded renewal persistency better than expectations, very favorable. Also, most importantly, a very good margin pickup. We have $400 million to go on this first tranche of renewals, and we feel that we'll have continued success.
When we announced the transaction, we said it would take 2 three-year pricing cycles to achieve our repricing objectives. We now believe that 1 cycle will be sufficient. Our persistency is outperforming. Last year, our persistency on the acquired block was 3 to 4 percentage points better than our expectation. That and some additional sales pre-closing has led to our current annualized premium run rate of over $4 billion. It's much higher than our initial outlook. We're doing well with expense takeout. Our expense synergy target was $100 million pre-tax. We now believe that we'll be able to achieve that target this year, at the end of this year, in 2019, a full year ahead of schedule. We expect additional upside of up to $25 million in 2020.
When you combine these factors together, we're very pleased in terms of our ability to improve our profit margin at a faster rate than we originally anticipated. In fact, last year, we achieved 5.5% margin, well into our 5%-7% target range and well ahead of our initial expectations when we announced the transaction. When we look at top-line growth, we expect to grow our premium 5%-7% annually in the long term. We believe that growth will be incremental to the industry growth. We believe that we can achieve that incremental growth based on 3 major strategies or what we call strategic imperatives. We're a market leader in disability and leave management. We're not going to relinquish that lead. We're going to continue to fortify our position.
Second, with our expanded book of business, expanded market reach, we plan to effectively sell and serve employers of all sizes. Third, we will pursue the profitable and fast-growing employee paid market. In reference to the first strategic imperative, our leadership in disability and leave management, an important component of that is our claims management function. We have tremendous scale in our claims management function. We have probably 1 of the largest disability and leave management organizations in the industry. That claims function is geographically dispersed. It's supported by robust technology like claimant portals where claimants can receive information and also provide self-service to them and also support employer needs for information. Our scale also provides a very large database, and we continue to enhance our analytics to get the most out of that database and the data we have. Our claims organization also includes a proprietary clinical model.
This is a group of physicians, nurses, rehab counselors who provide expertise and insight to our claims management. This function is also supported by our analytics that assigns claims to the right person at the right time. We continue to enhance our leave management service and capabilities. This is really resonating with our customers. We've had good growth in the number of employees covered by our leave programs, hitting 3 million employees at the end of last year. You can see the combination of these factors really provide superior value to employers, great service, and supporting their need to sustain workforce productivity by our industry-leading top quartile performance in returning employees to productive work. We're also helping employees navigate the complex and fast-changing world of leave management, both at the federal and state level, including emerging paid family leave programs.
The Liberty acquisition has expanded our market reach. On this slide, I'd like to describe the size and scope of our distribution channel, distribution relationships, as well as the breadth of our employer market coverage. Our distribution channel is made up of a large number of sales reps and account management staff. Both of those areas have been augmented by our acquisition. In fact, our account management staff is just about double what it was pre-acquisition. The reason for that is that we're in the larger case business now, which requires a higher touch service model. This staff is supported by specialized practice areas, one of which supports the employee paid market and cross-selling.
Another supports broker development, again, with statistics and data that helps target opportunities to expand our brokerage relationships, as well as a specialized area to provide really high touch intense service to our largest customers. We value our distribution partnerships. According to our surveys, they value their relationships with us. We do business with over 7,000 benefit brokers and consultants. About 25% of our sales are sourced through three major national firms, Mercer, Aon, and Willis Towers Watson. They tend to focus on the large case market. We have another cadre of about 350 producers that give us about 50% of our sales. They're highly productive in both sales and in-force premium, and we have very good penetration in the book of business, more than 20%.
We also have, as you can see in the pie chart in the lower left of the slide, a very good coverage of the employer market from the smallest companies to the largest corporations in America. A combination of our channel, our distribution channel, our distribution relationships, and our market breadth, we feel that we can drive very good growth in our sales. We believe in the near term that we can achieve 7%-9% annual growth and growth in all size markets, but in particular, the highest growth in the large case market, where we're catching up to the pre-acquisition sales levels. When we executed the acquisition, we expanded our book of business. Currently, we serve over 35,000 employers who employ more than 10 million employees. This is obviously a tremendous source for additional business and sales.
One of the ways we do that is through cross-selling additional lines of coverage to these employer customers. I have 3 examples here. One is selling more group life insurance to the large case market to come up to the cross-selling levels we see in the small, mid-sized markets. Second is to pursue cross-selling of dental to the small case market, where employers value the packaging of benefits for convenience and simplicity. We recently revamped our entire suite of accident and critical illness voluntary products, and we believe there's opportunity to sell those, cross-sell those across the entire customer base. These 3 examples alone indicate an additional $700 million of premium. We see more of our business coming from our existing customer base.
We've seen that in the last few years, and our target is to, in the near term, to achieve 40% or more of our sales coming from the existing customer base. Now, cross-selling is one key contributor, but another contributor is our employee paid marketing programs, where we're looking to increase the participation of employees in these programs, not only the numbers of employees, but also their average size purchase. Let me dig a little deeper on this concept of the employee paid market. It's both new business and selling to our existing customers, new customers as well as selling to our existing customers. We define employee paid market as employee purchase insurance at the work site where the employee pays some or all the premium. Our industry uses terms like work site or voluntary to describe this market. It really covers the full gamut of products.
The top five lead off with term life insurance. That's the largest segment. Dental, short-term disability, accident, and critical illness, that rounds out the top five. There's several other products that fall into this market category. The industry has seen this employee paid business grow faster than employer paid. There's several factors for that. One is that there is a need. Most employees don't have a lot of emergency funding or finances to support unexpected life events. Also, there's a greater awareness of risk among employees of the impact of unexpected health events. I believe that the turmoil we've seen in the medical world, the medical insurance world, has affected employees in terms of a greater awareness of the risk they have. Another factor is most employees don't have financial planners and insurance agents.
The only time they think about purchasing an insurance protection is at the work site. They like purchasing insurance at the work site. They appreciate the employer endorsement. They appreciate the convenience of purchasing insurance and payroll deduction. Employers also like sponsoring these programs. They can provide a valuable benefit to their employees and not have to pay the whole cost. In some cases, pay another cost. This is driving strong growth in the industry. We also see it at Lincoln. The employee paid market is growing faster than employer paid. We actually anticipate that market for us to grow in the low double digits in the near term. We believe that will be incremental to industry growth, and we think we can achieve that because of the expanded market reach we have and expanded book of business.
We also believe and observe that this business is more profitable than employer paid. In fact, our targeted profit margins are about one-third greater from the employee paid versus the employer paid. The way we're going to pursue this market really is in three major areas of strategies. First, we're going to continue to update and modernize our portfolio and suite of products and add to that suite of products as well. Second, we're going to continue to enhance our ability to reach the customer, reach the end employee, improve our consumer marketing, to educate them about the needs they have, educate them about the products we sell that can meet those needs and mitigate the risks, to provide decision support that really guides their purchase decisions. Most of this support to the end consumer will be done digitally in a virtual environment.
The third area is to continue to make the fulfillment process, the actual purchase, easier, faster, simpler. Core to that is the whole enrollment function, again, with a heavy dose of technology. This is not just our technology. What's important for us is to be able to interface with technology that the employer provides or their broker, or in many cases, a third-party benefit administrator that is bringing technology to the worksite to help support human resource management and benefit administration. I'm going to shift gears from our top line growth prospects to our view of profitability and our ability to sustain attractive margins and margin expansion going forward. First, I'd like to talk about our plans for creating operating efficiency, which is a key driver in the short term in terms of margin expansion.
Certainly, we've had success with the expense synergies of our acquisition. We were able to take out $75 million of run rate expenses by the end of last year from the combined pro forma of the two companies. That's about 2% reduction in expense rates. Going forward in the near term, we expect another $80 million of cost takeout. That includes some additional remaining portion of the expense synergies that we expect from the Liberty transaction, but also an incremental $30 million of expense savings due to other efficiency initiatives. That's another 2% reduction in expense ratios. With that reduction, expense ratios will be approaching the quartile cost structure of the industry. There's some major areas of focus to drive that. First, of course, continuing to be successful in integrating our transaction, our acquisition of Liberty and get those expense synergies that we talked about.
Second, as we grow premium to be prudent in how we manage fixed costs and create additional expense ratio leverage by controlling those costs. Third is to recognize that we are investing heavily in process and technology. To drive the enhanced customer experience, which helps certainly drive the top line, but also creates operating efficiency for us. This includes capitalizing on the Enterprise digital efforts, and we see that as an opportunity to leverage Enterprise's expertise, the functions and initiatives that are going across in all our businesses. This is a very exciting area for us in terms of investment and return. Finally, I think another way to look at this too as an opportunity is that with the expanded marketplace we have with dealing with employers of all sizes, we are revamping our service models.
We want to be able to speak to the unique needs of employers that vary by size and other characteristics as well, including the customization that large customers require. We want to do that in a more economic way. We're looking at that as improving our operating efficiency so it's a win-win. Improve the results for the end consumer, the customer, the employer, as well as improve our operating efficiency. Those are the key drivers that we look at improving our expense ratios. When we look ahead and think about achieving attractive profit margins and sustaining margin improvement and standing up to any adverse changes in the external environment, my first point is that we're starting in a good place. The marketplace is rational.
That rationality is supported by the fact that the industry is growing at a solid rate, and that takes some pressure off of the competitors to not necessarily aggressively grab market share. That rationality is also supported by the recent consolidation of the industry, especially with some large players like ourselves. That's added additional stability with fewer larger players in the marketplace. We at Lincoln believe that we're very well positioned to continue to improve our margins, even with less than favorable changes in the economic and competitive environment. There's several factors that lead to that confidence. One is that we have scaled up our business with the acquisition. We're very diverse in our business and have great diversification around products and markets. Second, we've already built in some claim experience normalization into our business plans, and we're anticipating some of that.
Third, with the investments in enhancing the customer experience, we believe that we'll be developing some enhanced pricing power based on that ability to serve our customers more effectively than our competition. We also, as I mentioned in the previous slide, in the near term, much of our margin improvement is operating efficiency. That's much more in our control than relying on claim experience trends or marketplace pricing. We also look at our disability claims management expertise, which I talked about earlier, as an important lever in managing profit and risk. My final point, with the growth of the employee paid market, the more profitable employee paid market, that gives us an additional hedge on our profit improvement plans. We're confident that we'll continue to expand our margins well into our 5%-7% target range and approach the top end of that range in the near term.
In closing, let me reiterate some key themes. First, the Liberty transaction is going extremely well. We're exceeding our financial objectives. We're realizing the competitive advantages as we anticipated when we announced the transaction. We are building on those competitive advantages and driving top-line growth. I'm very bullish about our ability to drive top-line growth. We are confident in our ability to achieve attractive margins and sustain margin expansion. In summary, our Group Protection business is positioned for sustainable, profitable growth. Thank you for your attention this morning, and I'd like to turn it now to Randy Freitag, who will give you an update on our life insurance business. Randy?
Thank you. We are going to end up the morning presentations with a discussion about the business of life, specifically how we have built, maintained, and grown an industry-leading life insurance franchise. We're going to do that by focusing on three topics. First, we will talk about how by marrying a very broad and competitive product portfolio with an equally broad distribution system we have and can continue to grow. Second, I'll talk about how by leveraging profitable growth, scale, and a disciplined approach to management, we have navigated through a period that has not been without headwinds. Lastly, I'll talk briefly about where we will go for growth in the future. At Lincoln, we have built a life insurance business that has the potential to grow 4%-6% over the longer term, with almost all of that growth being driven organically.
It's really pretty simple profit model when you think about it for a business that at its core can be somewhat complex. The key in this business, the absolute key, is selling a significant amount of profitable new business. If either side of that equation lags, either the amount of business you sell or the profitability of that business, growth becomes more difficult. Not impossible, but more difficult. One of the very favorable aspects about the life business, and I think something that's underappreciated, is the persistent and long-term nature of the profit stream. It's very comforting that when we wake up on January 1st of any given calendar year, we know that roughly 95% of last year's earnings are coming back. It really makes the math pretty simple.
This much earnings is leaving, how much do we need to add, can we sell enough business at our profit targets to meet that goal? It's really pretty simple math. Additionally, as a large player, as you would expect, we expect to continue to drive expense efficiencies into the life business. While spread compression has declined from where it was a few years ago and will continue to decline going forward, we can use more expense synergies driven by things like digital in the near term to offset any amount of elevated spread compression. That is our growth potential in the life business. In the life business, we compete against a broad group of high-quality public companies. In the last 5 years has actually been a period with a significant amount of change.
We've actually seen a number of our top competitors leave the business for one reason or the other. We've seen many of our other competitors struggle to grow. In fact, only one company has successfully grown its sales. One public company has successfully grown its sales over the last 5 years, and that's us. How have we done that? Three things I'd say. Distribution, product, and innovation. It's about those three things working together. I'll focus today on product and distribution. We could have the best distribution system in the country, and if we had an uncompetitive product portfolio, we'd have weak sales. We could have the most competitive product portfolio, and if we had weak distribution, we would likely have weak sales. It's when you bring the strength of that distribution together with the strength of that portfolio that the magic happens.
That magic being the differential performance we have shown over an extended period of time. How does it happen? It starts with a broad suite of products that both meet our profit targets and meet ever-changing consumer demands. Yes, those things are changing all of the time. We match up this broad suite of products with access to these incredible advisors spread out across the country. In fact, 65,000 advisors will sell a Lincoln product over any given 2-year period. You know what? It's not a static 65,000. It's an ever-changing set of advisors who is getting married up with the products we are featuring. That's the job of our 250 wholesalers. They go out and they marry advisors with the products Lincoln is featuring. Products that both meet consumer demands and our return targets.
Over the last few years, there have been a number of items, topics of interest we can call them, in the life business. Since this is life insurance, let's start with mortality. I think we've been very clear that if you look at any given quarter, our mortality results can vary quite a bit, driven primarily by seasonality. If you pull out to a longer period of time, such as a calendar year, what you see is a very tight correlation between our mortality results and our annual expectations. Morbidity became very topical last year. We spent a lot of time talking about MoneyGuard and why MoneyGuard is different. How actually the majority of the benefits are paid out of the death benefit. How given when it was priced, all the assumptions reflected all the knowledge that companies had earned over the years.
All of those things which let us have the ability to show you about the significant amount of sufficiency that exists inside of MoneyGuard's reserves, even under multiple significant stress scenarios. Reinsurance costs have been very topical. We have not been immune. Reinsurance costs have increased. Started roughly five years ago. We have not been immune from it, as I mentioned. We have embedded in our results that you see today higher reinsurance costs. We also have embedded in our future expectations an assumption that they will continue to increase. Spread compression, it was bigger five years ago. It still exists today. It'll continue to decline as we go forward. We continue to proactively, whether it's the managing expenses, are working with Ellen's team to find investments that fit the life liability profile. We continue to manage through this particular item.
As a large player, as a scale player, you might expect, I expect that we focus on managing expenses, and we have done that in spades. In fact, over the last five years, we have grown our expenses at one-third the rate of our revenues, bringing our ratio down from over 8% to under 7% in a single five-year period. How have we done this? No big surprises. We've implemented modern business practices, if you want to call them that. Things like outsourcing when there's a lower cost option, things like changing procurement policies, travel policies. We've centralized business functions. We've married that with investments in technology and data which are yielding significant expense savings. Whether that's lowering the cost of underwriting or designing products, we've done it all. We've continued to drive those expenses out of the operation of the life business.
We have managed through a period over the last five years that has had a fair amount of headwinds. Every business, I don't care what it is, has some headwinds that it's facing at some point in time. We tend to focus a lot in the life business on these two, which have been very real. Spread compression and reinsurance costs. I've mentioned them both. In fact, if you look over the last five years, those two items have represented a $250 million headwind. As I mentioned, every business has to think about things that are going against it. No good management team just stops there. They try to figure out how they can overcome. That's exactly what we've done.
By combining profitable sales growth, a focus on expenses, by looking at all of those things, by managing our business, we have more than overcome those $250 million of headwinds. We're at the point today where we have a margin in our life business well above those of our peers. We're not done. We are not done focused on managing expenses. We are not done growing revenues. The playbook will probably be similar going forward. We're going to continue making investments in technology which are going to continue to yield expense efficiencies. Whether that's things like lowering the time it takes to reprice a product, I expect to lower that by 50%. That allowing us to significantly ramp up the number of products we can price in any given year.
Whether it's continuing to use automation and data to drive down the cost of underwriting, interjecting more automation, more data into this process over the next few years, we expect to drive down the cost per application by 15%. No, we are not done driving our expense ratio even lower. While expenses are very important, it's been a key component of how we have overcome headwinds, what's equally important is growth. We will not grow earnings if we don't grow. How are we going to grow looking forward? Two big pockets I will talk about today. The first is two areas of the business where we are a dominant player today. Those being the hybrid market and the variable universal life market. The number one player Lincoln is in both of those markets. Those happen to be markets that are growing faster than the industry.
Our job is to grow with those markets while protecting that market share. These happen to both be products with very complex, tightly linked value chains, something we specialize in. Beyond those markets, there are places where we don't sell much business today, and we can look in the future for growth. One being the small face term market. We sell a lot of term insurance, but most of it, if you look at it, is well over a million dollars. It's term insurance that's sold as part of a complex financial plan. We're relatively small when it comes to term insurance once you get down to that half million and below level. Well, by introducing automation, introducing a product like TermExcel, which is a product where 60% of the policies issued will be issued through an automated underwriting process.
That's a product where the communication, both from the app submission to the delivery of the policy, is all electronic. By introducing products like that, we expect to significantly grow our sale of small face term. That is about a $1 billion marketplace. Additionally, indexed universal life. We've been a relatively small participant in this large, fast-growing market, about a 2% market share. We came out with new products earlier this year, and I expect to significantly change that dynamic, growing our market share from 2% to something more in line with our overall share of the life marketplace. When you add all that up, we see $150 million-$200 million of incremental growth opportunities. That is the business of life. It's about distribution strength, product strength, disciplined financial management, and investing in attractive markets drive future growth. That is the business of life. It's pretty simple.
I think we are now going to go to Q&A. We're going to invite up the presenters from this morning. Chris is going to drive this. We're just going to set up the living room here quickly.
We're going to do a Q&A session here. Again, we'll have an hour at the end of the day as well. We ask if you try and limit your questions to the presentations from this morning. Again, one question, one follow-up, and then we'll get to everyone else. If we could start first here with Tom, and then we'll go to Ryan.
Tom Gallagher, Evercore. A couple questions for Will. You mentioned that 55% of your variable annuity sales have living benefit guarantees. Can you talk about the 45% that don't? What types of products are those? Can you describe those in a little more detail? What type of return profile do those have? About the same from an ROE standpoint, much better. Then final question for you, Will. Can you also comment on the SEC Regulation Best Interest standard that just came out? What you see that impact being for you?
Great, happy to. We'll get into more of the annuity discussion in the later morning session. The variable annuities that do not carry a living benefit would be ones like the index variable annuity that I talked about in my distribution presentation. It would be variable annuities where there's not an election for living benefit, which would mean that one's interested in having tax deferral or perhaps maybe will add the living benefit rider at a future date. That would be our core product, core choice, Choice Plus rather, and American Legacy. It could also be the Investor Advantage, which is an investment-only variable annuity, which is really more of a pure tax-deferred vehicle with no living benefit associated with it. It could be someone that's exercising our i4Life at point of purchase.
All of those products we gear towards the returns that we talk about with you all the time in the mid-teens. Interest rates have the greatest, and this may be embedded somewhere in your question, Tom, but interest rates have the greatest impact on living benefit returns. We actually see very attractive returns on our non-guaranteed and on our indexed VA that don't react in the same way as living benefits do as the rates move up or down. In terms of the best interest, we're very, very pleased as a company that the SEC voted and passed Regulation Best Interest. We were supportive all along that the SEC take the lead here. The model of regulation that the SEC put forth really did hit on all of the major linking points that we made in the DOL. In fact, Dennis even met with the chairman.
They said, "Well, what don't you like about it?" Dennis says, "Well, we like most of it." We're very pleased. In particular, what were some of the points that the SEC had? The SEC doesn't have a private right of action as the primary enforcement mechanism. It's SEC and FINRA. That's a good idea. A second good idea is there's a difference between whether you're an investment advisor or you're operating in a brokerage relationship. That difference is really important to give consumers of all sizes choice. It doesn't discriminate between commissions or fees. It believes that both can be right, as an example. It specifically mentions that you can't just offer the low-cost option. You've got to look through the benefits of the cost to serve the client's best interest.
Interestingly, in their regulation, there was talk about the need to take into consideration longevity risk and lifetime income when making recommendations in the client's best interest. There's a lot in there for the industry to like. It's a very strong regulation for consumers. It is a strong best interest standard, and the SEC was the right agency to take the lead on it. Still pretty early days, 700 pages of regulation, we're still, as an industry, working through it. From what we can tell, very positive.
Ryan Krueger.
Thanks. Ryan Krueger, KBW. First one for Randy on the individual life 4%-6% growth target. I think you mentioned that there's some near-term headwinds when it comes to the higher reinsurance costs and spread compressions. Can you give us a sense of the magnitude of those?
As I mentioned, the spread compression, which was much bigger 5 years ago, has probably been cut in about half. Over the next few years, I'd expect spread compression to average 2%-3% for the life business, and it will continue to decline over those years. That's the magnitude of that. I think we're over halfway on the reinsurance side. We have not talked about this as we've brought the higher costs of reinsurance into our earnings stream. We've just done things to overcome it. It hasn't been an issue from a growth standpoint in the past, and I expect it'll be the same going forward. I feel like we're over halfway, it'll depend on how negotiations and arbitrations, et cetera, go. That's about that.
I think the $250 million of headwinds we've faced over the last 5 years will be smaller in the next 5 years, significantly.
For Dick Mucci on, I think you said you can get towards the high end of the 5%-7% margin target. Did you say that that did assume some normalization in claims? I guess, does that suggest if you don't see that, you could potentially exceed that target in the near term?
That's correct. We have put in some normalization claims. I would say probably it's at the modest to medium level. If that doesn't materialize, there could be a little bit more upside.
Suneet, right behind Ryan.
Thanks, Chris. Suneet Kamath from Citi. Starting with Dick again on the group business. You had some commentary about pricing power going forward, and it seems like industry results have been pretty strong across the board. I'm just curious, how confident are you in achieving that? What's sort of the magnitude and then what's behind it?
Well, I think our confidence, I would say that it's not a slam dunk. There's a couple of things to point out here. First, what's happening in the industry, the competition has really shifted to service and capabilities, especially in the larger players. The idea of trying to grab market share with pricing changes, so forth, that's really not the way the industry and competitors are looking at it. Those companies that really invest in improving those competitive features around service and capabilities are the ones who are going to win. We believe that by our heavy investment in service capabilities, technology, process, will give us an edge in terms of selling business, retaining business, and be able to retain business at a higher price.
Like I said, it's not a slam dunk, but we anticipate that given our investment, if we execute well on that investment, we think we'll have some edge.
Okay. My follow-up also on Group is, I think you'd said about 40% of your sales should come from existing relationships going forward. Is the idea there that you are adding coverage to firms that don't have it, or are you expecting to replace existing product providers?
Well, that's actually a combination of both. When you add additional line of coverage for the small or mid-size market, it's really adding a coverage they don't have today. For the larger employers, you're probably replacing somebody. A lot of the voluntary products like accident and critical illness, those are virgin sales that their employees don't have those products in their portfolio. Those will be new sales as well. Well, that's how I would describe that. It's a combination of some replacement of existing coverage and also adding some new coverages that employees don't have.
Thanks.
We can go to Erik Bass in the aisle. Eric.
Thank you. Erik Bass with Autonomous. Another question for Dick. You had commented on the employee-paid policies being about a third more profitable. Can you just describe a little bit more why that's the case, and do you think that's sustainable over time, given that a lot of insurers have identified that as a key growth area?
Well, first thing I would say is it's been present in the industry for a long time. The reason that I believe that's the case is that the employee-paid purchase is less price sensitive. The availability of benefits, the ability to educate employees about the need, the fulfillment process, the convenience, those are bigger factors around shopping for the best price versus shopping for the best price. There is a threshold. The price has to be reasonable, or the employee's not going to purchase at all. It's less shopping a price more around providing the benefits and providing capabilities to enroll those effectively and so forth. The other factor is that nothing's done unless you go through the employer, and the heavy negotiation for pricing is in the employer-paid segment of the insurance program because that affects the employee's pocketbook.
That is more heavily negotiated than employee-paid coverage. I think those are the two factors, and they're related.
Just to follow up, as you think about pricing a case, how do you differentiate? I think you probably have a better idea of what you're getting on the employer side and making an assumption about what penetration would be on the employee-paid side. How does that factor into the pricing?
You want to make sure you can get a decent participation on employee paid side so you don't have anti-selection of risk. It's part of the underwriting process to understand the potential for selling the employee paid coverage. For example, life insurance is a little easier because the frequency of people buying up life insurance is much higher. The voluntary product, like accident and critical illness, is not so much. You have to be a little bit careful in terms of managing the participation levels and make sure you have a good spread of risk. Does that answer your question?
Yes, thanks.
Perfect. If we could come up front to Elyse.
Thanks. Elyse Greenspan, Wells Fargo. My first question, if we look at your long-term, your EPS growth target, the 8%-10%, as we think about maybe perhaps similar transactions to the reinsurance deal you entered into with Athene, can you just give us a sense of what might be in the pipeline, where thoughts are there? If there was a transaction, would that be something you're thinking about being additive to the EPS growth target?
In our normal financial planning, we don't take into consideration any not organic action. We never had the Athene transaction in any financial plan. Our financial plans on the 8%-10% we're talking about is based simply on expanding the franchise, expense efficiencies, integration
of Liberty and the things that have been mentioned this morning, will be mentioned this afternoon. On top of that, we'll continue to look for opportunities for additional growth. My team and I will be sitting down after this meeting because we want to replace some of the earnings that lower interest rates are going to take from the financial plan, even though we get more fees on assets under management. We'll continue to look at Athene-type transactions. To put that into context, both sides have to work, what people are willing to buy, at what internal rates of return, and where our share price is at a moment in time. That's not always in sync such that you can just repetitively do these transactions.
Again, the 8%-10% is all organic, and we'll continue to try to find additional activities to build on top of the 8%-10%.
Okay, thanks. My second question back to you. During your section, you pointed to some new distribution, IMO channel, and then also with Allstate. Can you just give us a sense, in your longer-term projections, expansion and the potential from those two initiatives? Are there other carriers like an Allstate where you guys are potentially pursuing additional distribution arrangements?
Yes. Allstate specifically is a new partnership where we're able to distribute our variable and our fixed product. We've messaged that we expect that to be incremental to our sales by 5% this year. We view it as a meaningful new business opportunity that's incremental sales because it's a new channel that we've not participated in. It's being driven by a dedicated team, so it's not taking focus away from our other teams. IMO channel will fall into the same dynamic. It's a new channel for us. It's being focused on by a dedicated sales team, so not taking away attention and focus. It's about 10%-15% of our total fixed sales. It's a fixed-only distribution channel. We do that with two partners today. Should we add another partner or two, you of course, would see that 10%-15% be higher.
These two combined are meaningful incremental growth channels for us. The other one I mentioned, which is of similar size to Allstate, maybe a little bit larger now given the success, is adding a new product like indexed VA to our already existing distribution through broker-dealers. It's the same sales force, it's the same partner, it's meaningfully expansion of our shelf space.
All right. Thanks. If we could go right behind Elyse to Josh.
Thank you. Josh Shanker from Deutsche Bank. Question for Dick. You mentioned and put on the slide your large bevy of medical professionals who you have employed. To what extent do you think that's differentiated from your competitors? To what extent, if you hired more medical professionals, could you continue to bring down claims costs at the expense of higher operating costs per se?
Well, we think the clinical model is differentiated in a couple of respects. One, the physicians we have are independent contractors. They have other practices. Many of them are involved as professors in medical schools. They run a full range of different types of specialties, and with national coverage. I think the quality of the physician staff is very high. Also, we believe that our ability to assign these medical professionals, I mentioned the use of analytics to the right claims at the right point in time, is an important factor. In fact, part of our integration work was pretty interesting. We combined the experience of both companies, 800,000 claims we looked at, and we actually made some changes that we were applying physicians to claims, and it really wasn't that impactful to resolve. There are other places where we wanted to do more of that.
I think it's more about striking the right balance between applying the medical advice at the right point, and just more is not necessarily better. I think what we found was that there are cases where it really wasn't adding much value, and other places where it would add a lot of value. For example, psychiatric problems, the intervention by a physician, especially in working with the treating physician of the claimant can have an impact, versus more limited disabilities due to a short-term impact of an operation or even a cardiovascular event. There are differences. This adding more resources is not necessarily going to drive down claim costs. It's how you use them and to what extent.
To what extent are there better outcomes? Do you have a history of knowing what the outcomes were before the clinical overlay was put on top versus the outcome since, that you know that this has created 50 basis points or 100 basis points of margin or whatnot?
Yes. Well, one of the interesting aspects of the integration is the company used clinical resources differently. To a great extent, Lincoln pre-acquisition was not as robust in terms of using clinical resources. Liberty was more, and in fact, that was one of their calling cards in terms of the large case market. We're actually able to compare cohorts of claims that had different types of utilization of medical professionals, and we could compare the results and outcomes. This is a work in progress. We'll continue with the very large database we have to refine how we utilize clinical professionals and other functions of our claim management area. That's the advantage of having a lot of data to look at.
Thank you.
Take one last question for the morning and we'll come back. Humphrey, in the aisle there.
Humphrey Lee from Dowling & Partners. Also questions for Dick. Looking at your kind of growth outlook from the different segments within Group Protection, it looks like you're more bullish about the larger case market. That seems to be a little bit different from many of your competitors talk about as they kind of shift towards the lower case. I was just wondering if you can talk about your experience and what you're seeing in the different market segments and what drove the more bullish outlook on the larger case market?
Well, the first point I would make is we're growing all size segments. In the long term, we don't necessarily see more growth in large case versus small case business. In the short term, we do. The reason is that as part of the disruption from the acquisition, we saw the biggest impact in the larger cases, the larger national brokers, more dislocation with those, especially those who were used to doing business with Liberty. The near term higher growth in the large case market is really a catch up to the sales levels we were seeing before the acquisition. Over the long term, at this point, we expect comparable growth from all segments.
Okay. In terms of the recovery rates that you show in your slides, we've heard from many of the industry players talk about recoveries continue to be very good. Looking at the chart that you showed, it seems there's a little bit of a dip from your competitors. Do you feel like the good recovery story is kind of starting to tail off, or is this just more the-
Well, from the information we have, yes, recoveries have deteriorated some. Well, that was the top quartile, though, more than the median. Remember, this is both an incidence and recovery story. It's not just recoveries that's driving the favorable industry experience. Both those are in play. I wouldn't read too much into it in terms of the bottom line loss ratio experience. The information does show for some deterioration in recovery rates the last few years. I wouldn't see that as a turning point, if you will, at this point.
Great. We're going to take a 10, 15 minute break, again, we'll have plenty of time at the end for more questions. Thank you.
Ladies and gentlemen, please take your seats. Our program is about to resume. Ladies and gentlemen, please take your seats. Our program is about to resume. Ladies and gentlemen, please welcome back to the stage, Christopher Giovanni.
Thank you. I will keep this very brief. Let me bring up next Jamie Ohl to talk through Retirement Plan Services.
Thank you, Chris.
Thank you, Chris. Good morning, everyone. Today, I'm excited to share with you the insight into how our strategy in Retirement Plan Services is delivering success and driving profitable growth for the business and for Lincoln. The retirement business is a growth industry that continues to evolve and is only going to become more important to Americans. That creates a significant opportunity for future growth for Lincoln. I will focus today on the major themes differentiating our retirement business that allow us to capitalize on that opportunity. First, our high-touch, high-tech model creates a competitive advantage in our target markets, positioning us to continue outperforming the industry. Second, how leveraging the distribution power of Lincoln and capitalizing on product innovation to meet customer and market demands is driving both top-line opportunities and bottom-line growth.
Finally, how we continue to drive in-force optimization and execute on expense efficiencies to offset spread compression and improve pricing competitiveness. Our targeted strategy is built on these differentiators, and through focused execution, we have and continue to drive profitable growth for Lincoln. Before getting into the detail of each of these points, let's start with the key drivers of earnings growth for the retirement business. We expect new business first-year sales to drive 5%-7% of growth. This is partially offset by the net activity of our in-force block of business at a rate of 1%-3%. At the same time, margin and expense improvement contribute an additional 1%-3%. Adding equity market growth of 3%-5% and the abatement of spread compression in the out years nets organic growth rate for the retirement business in the long term of 8%-10%.
Let me add a little more color about how we achieve this growth rate. We begin by leveraging a combined high-touch, high-tech model that appeals to a diverse population across five generations that are saving for and living in retirement today and into the future. While the retirement industry is adding more and more digital capabilities for participants, employers, and advisors, our data shows that the best outcomes are achieved combining a personalized digital experience with face-to-face service. Contrary to popular belief, a recent Lincoln survey showed that millennials don't just want digital. They want a personal service that is key to our high-touch model, even more so than Gen Xers and baby boomers. At Lincoln, we have invested and continue to invest in both digital capabilities and face-to-face service.
Today, we have over 150 retirement consultants and relationship managers across the country working with individuals and employers to increase access to retirement plans, increase the number of people saving for retirement, as well as increase the amount people are saving for retirement. At the same time, we are leveraging technology to deliver an omni-channel experience. That means we're meeting customers when, where, and how they want to engage with us. With the tools like Click To Meet, chatbots, and voice bots, combined with our mobile and phone teams, we can effectively scale our high-touch model to meet with more individuals and drive better outcomes for our customers. Let me give you a couple of quick examples of how our model delivers better outcomes. First, 60% who use our new quick enroll feature rolled out last year save at a rate of at least 6%.
That's 50% higher than those who do not use this feature. Second, the savings rate for participants who engage in a combination of our high-touch and high-tech model save 50% more than their counterparts. We are also using a comprehensive wellness solution to drive positive outcomes for our customers. Financial wellness is about giving participants the tools and the confidence to make smarter decisions in every aspect of their financial lives. From everyday budgeting to goal setting and prioritization, we recognize that people want to understand and improve their current financial state. WellnessPATH adds a powerful digital tool to our existing comprehensive wellness offering, we launched this late last year. While it's still early, we are very encouraged about the initial results. It leverages the high-touch, personalized model we have in place today and augments it with integrated digital capabilities.
The power of our model, a differentiator for Lincoln in the retirement marketplace, is driving higher overall asset growth across our target markets, with a growth rate for Lincoln of 10%, compared with an industry growth rate in our target markets of 8%. We see that growth coming from each of our target markets. These are the markets that are the fastest-growing and the most profitable within a growth industry retirement. We compete in all tax codes within the target markets, 401, 403, 457, 401, we are growing faster in each and every one of those segments, not just in the aggregate. Our brand and our model resonate with our customers, with employers, and with advisors. Lincoln is the number three provider in healthcare and a top 10 provider in both small 401 and the government markets.
In addition to asset growth, the power of Lincoln's retirement business is reflected in our ability to both grow and retain business. Let's start with sales. Nearly 90% of our sales are in our target markets. Once we make that first sale, then we get more participants enrolled and saving at a higher rate. That's demonstrated by 17% growth in recurring deposits over the past five years. Finally, it's also about being easy to do business with for these employers and a proven ability to retain that business. That's reflected in a 420 basis point improvement in plan sponsor termination rates over the past five years. A key driver in both retaining and winning business is distribution, a common theme you've heard today.
We're able to compete with the largest players in the industry by leveraging the broader capabilities of Lincoln, including distribution, which, as you heard both Dennis and Will say, is a key differentiator for Lincoln Financial. The size and quality of our distribution team are critical to our success. As the market has moved to more of a consultative sale, we have successfully grown our sales team by 33%, and more importantly, we have seen an increase in productivity of 45%. Given the depth and breadth of Lincoln's distribution, we have the ability to attract business across five segments within our target markets, which opens up a significant opportunity for future growth and gives us access to a majority of the market.
As we continue to expand both our capabilities and our distribution, we see a balanced mix of sales by size within our target markets, a clear indication that our model is resonating with more plans across tax codes, plan sizes, and geography. You can see this all comes together in our top-line sales. 2018 was a record sales year, nearly double 2013. Our sales success is not just limited to one market. As you can see, each and every segment that we play in, we are up significantly over the industry. Now, let me shift to one of the key drivers of future sales growth: product innovation. We continue to create and deliver products that meet the ever-changing needs of the market. Today, I will focus on two recent product successes for the retirement business. The first is a product we launched late last year called YourPath.
It is a proprietary alternative to target date funds. YourPath has the potential to drive significant future sales growth based on the overwhelming positive market response. 89% of our proposals today are going out with YourPath models included. Our YourPath models are qualified default investment alternatives, or as you all know, more familiar, QDIAs, and they combine both retirement age and customizable solutions. With more than half of the industry deposits going to target date funds annually, we recognize the need to provide an alternative that is both flexible and can be customized at both the employer and the employee level. Participants can choose their level of risk. Employers get flexible investment management styles and stable value to protect against volatility. Lincoln derives additional revenue from YourPath. This is a win for participants, a win for employers, and a win for Lincoln.
The second product success is an expansion of our stable value. At the beginning of the presentation, you heard me speak about the importance of serving multiple generations with different needs. There is a significant need to address the capital preservation needs of Baby Boomers as they are moving into retirement. We continue to meet that need by offering our stable value as part of our core retirement solution, and now we offer it as a standalone investment on other record-keeping platforms. This gives participants outside of Lincoln's retirement plans access to our stable value. It provides a capital preservation solution to a broader segment of the retirement market exactly when they need it. Our investment-only stable value solution leverages our distribution and strategic partner relationships. As a result, we've been able to scale up quickly in this market, where we currently have more than 600 contracts in place.
As we again successfully meet a market need at the right time with the right product, our stable value investment-only solution has proven to be a profitable strategy that is accretive to earnings and ROA. I have spent most of my time today talking about the drivers of top-line growth. Let me take a few minutes to address another critical component of our success, taking profitable actions. We do that in two ways. First, we have a strong focus on managing our expenses, then leveraging technology and the digital initiatives to make sure we're more efficient. Expense management is a combination of re-engineering our processes to streamline operations and leveraging technology to increase the scalability of our business, while at the same time providing a better customer experience.
This is driving a significant reduction in our cost per participant, which improved on average 2% per year over the last three years, and we expect to see an even greater expense efficiency of 3%-5% in the near term. Second, we continue to work on the profitability of our in-force block to offset spread compression. Spread compression is our primary headwind. We have taken numerous actions to manage the impact, including, first, driving new business to lower guaranteed minimum interest rate products. Second, restricting flows to higher interest rates crediting products. Third, repricing existing business, which includes adjustments to fees, crediting rates, and services offered. All of these actions work to lower our crediting rates, reduce risk, and ultimately improve profitability going forward.
Everything that we have discussed today, our high touch, high tech model, the power of Lincoln's distribution, product innovation, and successfully managing expenses and our in-force block comprise the management actions that are driving success across leading growth indicators for the Retirement business. These include growth in deposits. We have seen an 8% annual growth rate in deposits over the last five years. Lower withdrawal rates. In addition to the lower plan sponsor terminations, we have seen a total reduction of 160 basis points in total withdrawals. Finally, and most importantly, net flows. $4.2 billion in total net flows over the past five years. I hope today gave you insight into what differentiates Lincoln's Retirement business and how execution of our focus strategy is driving our success. We are leveraging our high touch, high tech model, the distribution power of Lincoln, product innovation, in-force optimization, and disciplined expense management.
I am confident that Lincoln's Retirement business is well-positioned to take advantage of the opportunity going forward. We are the right company in the right industry at the right time to help Americans achieve the retirement they envision. Thank you very much. With that, I would like to transition to Will Fuller to talk about the Annuity business.
Thank you. Great job. Thank you. Glad to be back and glad to be here to talk about the Annuity business. This is a terrific business, and it's been a terrific business for Lincoln for a very long time. Well, what qualifies as a terrific business, right? Well, in my opinion, what qualifies for a terrific business is one that has a target market that is very large and growing larger. That's one component. Where the consumers in that market want and need your product or service. A terrific business is one where your product and service is different, it's unique from others that might aim to serve that market. Maybe even perhaps where there's a barrier to entry, certain business model requirement or certain expertise to serve the market. Terrific business can generate compelling financial results.
It can do where you can win in that market on your terms. The reason we say this is a terrific business at Lincoln is because we can say all of these things about our Annuity franchise. We think that just simply based on our fundamentals as a business, that it continues to be an underappreciated and undervalued business. Let's start with earnings forecast and what we expect going forward. What's different about this slide from when I was here at the last IRD is the 6%-8% earnings growth target that we have. What's driving that is the bar all the way to the left, which is our new business increases. Our higher sales is driving a 200 basis point growth to the organic growth rate.
Our strategy to participate in more markets is leading and contributing to us being back to our Excuse me, this is a different slide. This is a life insurance earnings growth slide. Can we check to make sure we're on this right presentation? I just noticed some odd looks on faces. Yeah.
Not your fault. We want to see if you do better than Randy.
What Randy just showed you 4% to 6%. What I'm going to show you is we can do much better. This is where you want to kind of cue the Jeopardy! music. That we've all been reintroduced to If we're unable to get the slide going.
There we go.
We got it? Okay. Thank you. Jess, thank you. Let's rewind this, and let's start with our earnings forecast. This is now 6% to 8% target. What's driving that difference, of course, is what I was sharing with you earlier, is our higher sales have led to 200 basis point improvement to the organic earnings rate from last time I was with you. You see that reflected in our higher levels of new business. The rest of the bars to the right represent how we run the business. We expect people to use their benefits, and we have steady outflow rates in the middle part of this range that reflect them doing just that. We plan each year, every single year, in our financial planning process and in our forecasting to add to earnings growth with expense efficiencies and adding to our margin.
Lastly, here, we reflect our baseline equity market growth rate, and we tightly manage spread compression. This is a very compelling, and I would note, achievable future expectation of growth. Supporting this expectation is the first point I made about a terrific market and what constitutes a terrific market. In the annuity business, we focus on consumers 55 and over. We focus on those consumers that are near retirement, in retirement, and we focus on the consumers that have saved and accumulated assets for retirement. This is the largest and fastest-growing age cohort of any of the other age cohorts. Not only is it large, it's the fastest-growing. Beyond that, most of the investable assets in the hands of consumers in America, 75%, are in the hands of these consumers that we're focused on serving. More people and the most money.
This is a very attractive market. The U.S. consumer retirement market has to be one of the most attractive markets in the world. Our industry has a differentiated value proposition. Consumer protection in three ways: protected lifetime income for the consumer, downside protection for the consumer, principal protection for the consumer. This is protection that resonates with consumers. They have a need for it, and they value it. We have been actively engaged in the U.S. annuity business for decades. We've managed this business from day one to a formula of success. This is a winning formula that directs how we compete and how we create value. This morning, I talked about the left-hand side, the virtues, the combination, the power of that broad product portfolio, investing in distribution, and consistent presence in the cycle.
What consistent presence in the cycle for annuities means, it means that we're able to sell similar amounts of annuities year in, year out, which diversifies our risk across market cycles. Beyond the merits of the benefits this has to our distribution partners that rely on our products and services and like our consistent market presence. This combination on the left here is a powerful way and a proven way to compete and to win. On the right is the formula for how we create value, how we think about product manufacturing, how we think about risk management. I'm going to start at the top and work down. We've always taken a disciplined approach to product design and to product pricing. You saw the discipline in our approach when we declined to participate in the VA living benefit arms race that led up to the financial crisis.
You saw it in our move to increase rider fees on multiple occasions post-crisis. You saw it again in our design changes that required investment restrictions. A long track record of being disciplined with product design and product pricing. We've also been prudent in our assumption setting from the beginning. Over the past decade, our minimal unlocking impacts demonstrate our judgment on assumptions has been sound. In a bit, I'm going to walk you through why we do not expect material impact from the upcoming VA statutory changes. The last bar here is always ensuring hedge readiness before a single dollar of sales. Without question, this has been an outstanding hedge program over the years. This is our winning formula. We're one of the few companies to put these pieces together consistently, and this is how we run the business every single day.
It's what leads to and has created that high quality book of business we enjoy, and as we add high quality new business to that book over time. We've also delivered on our commitment to grow and return to positive net flows. You already know that our sales have increased significantly since we made the decision to broaden our participation in market segments and add some distribution. What I'm showing you here on the right is our range in market share over the last decade in fixed annuities and in variable annuities. You'll see from the lower end to the upper end. What you'll see is from these decisions, from our execution of our plan, we have increased our market share in fixed and in variable while improving our new business profitability over this period of time.
Looking forward, because of our actions in our fixed annuity product portfolio and distribution, in our variable annuity product portfolio and distribution, we have room to grow from here, and we have more ways to win in our markets than we've had before. To put a number to the upper end of this range, the upper end of this market share range on fixed and variable would be a combined of $17 billion of annual sales and higher, which is more than sufficient for us to accomplish that new business contribution that I showed you earlier. More than sufficient. This slide illustrates, when you put all those pieces together, what are the compelling financial results that we've enjoyed off of our high quality book of business.
You see, no matter how you slice it, results that are compelling, strong, and consistent, whether it's our earnings growth with very limited volatility over the course of last decade, or 22% ROEs, 20% when you include VA hedge performance. While these are always impressive, it's even more so when you consider how we capitalize our business, holding capital above a CTE 98 level for our variable annuities. Over the same time period, on the bottom right, our return on account values has grown significantly, up 32 basis points. These results are another proof point to this being a terrific business and a business that's managed very well at Lincoln. Now I'm going to show you why it's a high quality book of business too, from a risk management perspective.
Over the years, we've been responsive to illustrating for you key aspects of our book of business and risk management. Where we can, illustrate it in a way that allows you to compare us to peers, which is our intention for the next three slides. This slide tells you what we've told you before, which is our net amount of risk is far below our peers, and it always has been. Similarly striking are our historical unlocking impacts. I want you to consider this. Over this time period, we've reported $5 billion of operating earnings, and we've only had $37 million of unlocking impacts. These are two proof points to a high quality book of business. The top net amount at risk validates our strategy of disciplined product pricing and design and consistently selling through the market.
The unlocking validates our prudent assumption setting from the beginning. A hot topic in the industry right now are the VA statutory assumption changes that are upcoming. I said earlier, we don't expect material changes from installing these changes, and this slide explains why. It's because we have assumed all along that our policyholders would hold onto their annuities, that this would be a long-term buy and hold investment, that they would hold onto their annuities, so we set our lapse in mortality assumptions accordingly. On the other side of the slide, we also assumed from the beginning that policyholders buying an annuity with an income benefit would use it. You see in our assumption grading up to 100% utilization. Bottom line, we are already aligned to the VA statutory assumption changes.
Two years ago, at the 2017 IRD, Randy showed you an analysis of our VA embedded book of business using a present value of cash flow methods. We showed two scenarios. We showed a baseline scenario with a modest separate account return of 5%. We showed a stress scenario. What were the assumptions of stress scenario? It was a 30% decline in the equity market, a corresponding 100% decline in interest rates. This is simply an update of that analysis from the fourth quarter of 2016 to the first quarter of 2019. What you see is that in both scenarios, under this analysis, our book has increased in value, 18% in the baseline, even 5% in the stress scenario. Extremely profitable in our base, profitable in our stress.
Over that period of time, adding a high quality vintage of new business has added to this value. Once again, let me reiterate, we are already aligned with the VA assumption changes. We do not expect any material impacts. This is another example that when you compare Lincoln to peers, we come out on top. What have I shared with you today? I've shared with you that we focus on a target market that is the largest demographic consumer cohort in America, that's growing fast, that holds the most amount of investable assets in their hand. That's where we focus day in, day out with our products and our services. I share with you, we have more ways to win. We have more room to grow. That our book of business has generated compelling financial results. I've highlighted where our risk management is sound.
I've noted some places that we compare very favorably to peers. What I want to show is just highlight another comparable to an industry. Our annuity business is simply an asset manager with a protection overlay. That protection overlay requires risk management, and we manage this risk well. In this slide, there are a few compelling characteristics of our business relative to traditional asset managers that demonstrate we have strong fundamentals. There are a number of ways to look at this. Dennis talked about durable, dependable, differentiated. I'd pick three. First, net flows. Lincoln has average positive flows, positive net flows over this period of time, over this decade, whereas traditional asset managers have experienced outflows. Another way to look at it is asset retention. We have customers that buy our products for the protection. They intend to hold them for the long term.
You see that in a very low, steady outflow rate, high single digits. We have a far more persistent book of business than a traditional asset manager. In fact, it is why asset managers have worked for decades and sought out to have their funds available inside of our NAVA product. Because that investment is more persistent than when it's outside of a VA product. Third, clearly an outperforming fee structure. The graph here just kind of speaks for itself. We've been able to increase our fees over this period of time, while asset managers have faced fee compression. Yet, when you take the track record of Lincoln that I just talked about, you take these fundamentals and you just compare the valuations, it's at odds.
Lincoln valuation at 7 times, well, less than 7 times, while a traditional asset manager in negative net flows being at 10 times. Let me close on a positive note. This is a terrific business. We have a stronger franchise today. We've got room to grow. We've got multiple ways to win. We deliver durable and dependable financial results. We've managed this business the right way from the beginning with a winning formula of success. We operate this business today to the same winning formula of success. We'll operate this business tomorrow to the same winning formula for success. We're helping more and more Americans live in their retirement with protection and security. This is a terrific business, and it's one that we hope will be appreciated and valued accordingly. Now I'd like to turn it over to Ellen to talk about and discuss our investment portfolio.
Thank you.
Good morning, everybody. I am here today to provide an overview of the general account investment portfolio. As you all know, market conditions are always changing. I'm here to talk to you today about Lincoln's unique investment approach and how it allows us to deliver strong results in steady and also in shifting markets. There are three themes that I'm going to touch on today. First are the compelling benefits of our multi-manager framework. Second is that we have multiple investment strategies that are working for us to deliver strong new money yield. Third is that diligent portfolio construction, robust risk management, which includes proactively de-risking over the last few years, allows us the flexibility in many market environments. You've heard from our four businesses this morning, and you've heard from them and know that we work very closely with them.
One of the overall investment objectives as we partner with them is that we are looking at all times at the trade-off of generating sufficient yield while also balancing the trade-off of risk. We do not take excess credit risk. We do not take duration risk. Our investment philosophy is really predicated on three pillars. The first is ALM, asset liability management, is a hallmark of what we do at Lincoln. We manage ALM at the line of business level and also, of course, in aggregate. We also have effective portfolio construction, built on diversification and stress testing. That really establishes the structure of our investment and risk objectives. The third point that I want to make is around our unrelenting focus on risk management. Here we have what we refer to as the multiple lines of defense approach.
What do we mean? This starts with our external managers. Our external managers provide views, research, analysis, and insights to us. We bring those back. We have an internal experienced team of investment and risk professionals, they synthesize the information, they aggregate it, and they ultimately determine what the appropriate course of action is. This is a powerful model, a key competitive advantage, we view it as a cornerstone for our unique approach. As I mentioned previously, our multi-manager framework is a powerful operational model. The process with our managers is high touch and it's collaborative. We are partnering with them and many of our managers, we are interacting with multiple times a day. As for the structure of how we operate with them, Lincoln starts first of all, with developing our broad investment strategy, of course, within our own risk objectives.
We also build the framework for portfolio construction, both across asset classes as well as within asset classes. We monitor, we manage, and we aggregate the overall risks. Then we go out and we select the best managers. Our managers, subject to our risk and our ALM constraints, will choose the best securities to meet our overall objectives. The effectiveness of this model is demonstrated in three ways. First, we have increased flexibility to enhance our sourcing by adding managers. For example, we now have 16 specialized asset managers. That's up from six a few years ago. This is enabling us to grow and expand into asset classes we like. In a number of cases, our managers are sourcing directly and therefore there is little overlap from one manager to the next. Directly sourced assets are spanning corporates, mortgages, and structured.
Next, our managers provide views day-to-day as they monitor the portfolio, but also as they look for and evaluate new money opportunities. We effectively utilize the extensive research teams, the market insights, the outlooks, their advanced analytics and tools. Again, importantly, managers often have different points of view. We get multiple perspectives, our team is able to bring that all together, synthesize it, and ultimately drive to the appropriate decision and course of action. Finally, another added benefit is capturing the trend of lower investment management fees. Since 2013, as we have been adding and expanding managers, we also have been reducing our overall investment fees. As a matter of fact, we've reduced them 50% from about five years ago. Worth mentioning that our investment fees are considerably lower than the average of our peers as well.
As I mentioned on the previous slide, the increased sourcing from proactively expanding managers is a key contributor to our strong fixed income new money spread. We have achieved 180 basis points on average over the 10-year treasury over the last five years. Close to half of that we attribute to investing in less liquid strategies. We are achieving attractive illiquidity premium, and that is without taking on additional credit risk. We have ample room to continue to grow these strategies. I'm going to touch on the strategies in a moment. First, I am excited to show you the trend as you look at our new money purchase mix, and that we have been increasing our allocation into less liquid securities.
If you look at the middle chart and you look at the trend from 2013 to 2017, which is the left-hand bar, and you look at less liquid securities and compare them to 2018, what you can see is that we have increased our new money purchase mix into less liquid securities by 6% versus the previous years. We are doing this, if you look over to the right, we are not moving down in credit quality. We see value in diversified and less liquid strategies. Let's drill into them. I'm going to touch on the three asset classes where we are seeing good relative value. I want to highlight for you what we're doing, what we like, and what we are not doing, and that we continue to position the portfolio more defensively as the cycle extends. The first is mortgage loans.
We continue to add value in our disciplined CML strategy. We're adding about 35 to 45 basis points over comparable corporates. Here, different from the other asset classes, we have an internal team, an internal experience team, that has an excellent track record through multiple credit cycles. We've been increasing our new money allocation with a continued focus on portfolio construction and high quality. 2018 originations had an average LTV of 54% and a debt service coverage ratio of 2.1 times. Additionally, we've been diversifying within property types and leaning into two property types that I'll cover quickly. The first is the industrial sector, and here we are primarily originating in major distribution hubs and multi-family properties that are fully stabilized with a consistent history of durable income generation.
What we are not doing, we are avoiding higher-risk loans that are exposed to project completion risk and/or structure. At this point in the cycle, we have no exposure to construction, bridge, and mezzanine financing. The next asset class I want to cover are privates. Private corporate debt is an asset class that we have been investing in for decades. We continue to achieve attractive spreads here of 35 to 45 basis points over comparable public corporates, and we participate in syndicated and directly sourced privates with covenants that provide downside protection. We are playing defense as offense. We are increasing new money purchases into sectors that have proven to be robust through past cycle turns, such as project finance. We are reducing our purchases in more cyclical sectors, such as energy. Structured.
Within structured, we are seeing good relative value in CLOs, where we have been achieving 55 to 65 basis points over comparable public corporates. Within CLOs, we are focused on diversification. Diversification across CLO managers, issuers, and issues. In addition, we are only investing in NAIC-1s that have historically had no principal losses. Also, there is even more credit enhancement today than in previous cycles. What are we not doing in CLOs? We don't invest in triple B and lower tranches, as our stress testing demonstrates that subordinated structure may not provide adequate downside protection. The fixed income portfolio yield decline. We've talked about strong fixed-income new money yields. We all know that we continue to manage through the low-yield environment. Although rates are down from earlier this year, we do expect our portfolio yield decline to continue to moderate.
As we look back to 2012 through 2018, we had two significant headwinds contributing to the decline. The first are the yields on runoff, and the second is the lower new money rate. On average, the fixed income portfolio yield declined minus 13 basis points per year. As we look forward to 2019 to 2021, and assuming a 4% new money rate, the expected decline would be minus seven basis points. That is about a 50% reduction in the portfolio yield decline, and you heard each of our lines of business refer to achieving that modest decline in the next couple of years. Looking further out to 2022 and beyond, that portfolio yield declines further. Two points to note. First, the 4% new money yield is for illustrative purposes only. This is not a forward view.
The second is that we are benefiting from the lower projected runoff yields. I also want to mention that this, as you all know, is solely a fixed-income investment portfolio projection. We also have and will continue to take product crediting rate actions to further mitigate spread compression. In summary, assuming a 4% new money yield, our portfolio yield decline continues to moderate. Another important investment strategy that has been adding incremental net investment income to the portfolio in variable investment income is our alternatives portfolio. Here we have delivered strong results with an annualized return of 10% since 2013 while shifting and diversifying the mix. On shifting the mix, we've talked to you at prior Investor Days about reducing our overall hedge fund exposure and pivoting into private equity. Today, our hedge fund exposure is down to 12%. On diversifying the mix.
As you can see on the left, the portfolio is well diversified by strategy, and as you can see on the right, it's well diversified by industry. Additionally, we have 1,800 underlying investments in the private equity portfolio. Similar to the fixed income classes, we also have been playing defense as offense. For example, we have been adding infrastructure investments with good downside protection. Bottom line, our strategy shifts, our disciplined portfolio construction, and bottom-up risk analysis have helped us build a portfolio that has delivered strong results. We feel very good about our total investment portfolio. It is well diversified across asset class, industry, and issuer. As the credit cycle extends, we have continued to make proactive shifts to the mix to further diversify and to decrease our exposure to more cyclical sectors.
For example, we have increased our portfolio diversification as we have grown our mortgage loan exposure by 5%. As we mentioned earlier, into loans that are high quality with low LTVs. Within corporates, we have decreased our overall exposure to more cyclical sectors such as energy. On the right, we illustrate for you that we have maintained a high-quality mix with an average credit quality of A- and a 4% BIG below investment-grade exposure. That's down more than 100 basis points over the last five years. I also want to touch on a prominent topic in the credit markets, and that is BBBs. There's a healthy debate in the market on BBBs, with some that are concerned about BBB ratings downgrade risk heading into the next cycle, especially for issuers that have increased leverage from M&A transactions.
Over the last several years, we have been more defensively positioning the portfolio, shifting up in quality within BBBs. Of the 43% of our rated assets that are BBB, 9% are privates that have covenant protection that enable debt holders to enforce remedies if breached by borrowers. Of the 34% of public corporates, here we are showing you the split by BBB plus, BBB, and BBB minus. 6% are BBB minus. To break this down even further, within the 6%, 5% out of the 6% have positive or stable outlooks. We therefore isolate 1% of our rated assets where we have BBB minus holdings with a negative outlook, and within that universe, one-third mature within the next five years. Additionally, our risk management framework and stress testing drive our position sizing. Within the total portfolio of the top 100 issuers, none are BBB minus or lower rated.
Our average public BBB minus position size is less than five basis points of invested assets. In summary, as you know, historically, BBB minus-rated holdings have had a higher probability of downgrade risk to BIG versus BBB plus and BBB. We have demonstrated that we believe our BBB holdings are not at all at risk from a systemic wave of downgrades. We have been diligent in our portfolio construction, as we discussed up front, managing risk through multiple manager views, regular stress testing, and proactive de-risking. I now want to step back and spend a few minutes talking about our proactive de-risking. We have been proactively de-risking now while maintaining flexibility to capitalize on opportunities in the future when market conditions shift. A few points worth noting.
The first, we have proactively sold close to $4 billion over the last few years, reducing exposures that we believe have a greater risk of deterioration in a credit cycle. With these actions, we have avoided some potential defaults as well as incremental BIG exposure. In fact, we've lowered our overall BIG exposure by 130 basis points to 4.1%. Additionally, as we have emphasized the importance of portfolio diversification and position sizing, we've increased our issuer count by 27%, and we have lowered our top 50 issuer concentration. Increasing the number of issuers in the portfolio is increasing diversification, and it's lowering overall name-specific risk. Simply put, our portfolio has never been in better shape. While we are aware that we may be late in the cycle, we haven't managed solely from a defensive position, but also to create opportunity for offense.
When you combine these portfolio actions with the initiatives I've discussed to expand our manager platform, we believe we have the flexibility to not only manage to prepare for the next downturn, but also to be positioned to potentially add risk and take advantage of higher yields when that opportunity occurs. In conclusion, the investment portfolio remains in great shape. We are achieving strong new money yields. We are playing defense as offense, and we believe we are well-positioned to continue to deliver strong results. Now I'd like to welcome our Chief Financial Officer, Randy Freitag, back to the stage for a financial overview.
Thank you. Thank you, Ellen. We are going to wrap up today's official presentations with a discussion about financial performance. Or what I like to call the verdict. All day long, you have been listening to the evidence. Whether that was Dennis talking about management actions and execution driving the achievement of strategic objectives. Whether it was Will talking about how distribution differentiates us and how he continues to add to this high-quality annuity business. Whether it was Dick talking about the scale and competitive advantages we now have in the group business. Myself talking about how we manage the life business, how we're positioned to grow in that business. Jamie talking about how our retirement model positions us for growth. Ellen just talking about how we are playing both offense and defense in our investment portfolio. All of that is the evidence.
It is the input that ultimately creates what I am going to talk about now. That is financial performance or the verdict, if you will. I'm going to do that by focusing on three particular areas. First, I'm going to talk about the durability and dependability of our financial results and how those financial results have differentiated in a very positive way from our peers. Second, I'm going to talk about how we have prudently, with a discipline focused on both allocating capital to new business to derive growth, while at the same time returning capital to shareholders. I'll end up by talking about the strength of our balance sheet and how we test that balance sheet to ensure that we are positioned for whatever comes our way. 6.8 and 0.9 for dramatic effect. Let me repeat that, 6.8 and 0.9.
That is our valuation as a multiple of earnings and book value. Based on the evidence that you heard today and what I'm about to talk to you about, I believe that it significantly undervalues Lincoln. How do you create durable and dependable financial performance? It has to start with the top line. It has to start with revenue growth. I can tell you over shorter periods of time, a company can grow EPS without revenue growth. If you want to grow earnings over an extended period of time, both backward and forward, you have to have revenue growth. It is the engine that drives the growing ability to deploy capital. It is the engine that drives opportunity that attracts talent to Lincoln. That is exactly what we have done.
Whether over a decade, whether over five years, whether over three years, we have consistently and steadily grown revenue growth. We have other tools that allow us to take that revenue growth, that 5%-6% revenue growth, and turn it into something much more beautiful on the bottom line. The first is expense management. Can we continuously and relentlessly drive down the cost of doing business? Yes, we have, and yes, we can. From 10 years ago, when $0.17 of every dollar of revenue that we generated went to the cost of running our business to today, when we have driven that down to under $0.12 of every dollar. A 30% reduction in the cost of doing business. That is a relentless and disciplined focus on expense management, and I expect it to continue going forward. The other big tool we have is capital deployment, share buybacks.
Here again, while at the same time investing in growth, which as I said, is important to that top line, you have to have it. While at the same time, we have continuously bought back our stock, driven our share count down every single year. When you take mid-single digit top-line growth, when you layer in expenses that are being driven down every single year, when you take down your share count like we have, you end up with what you see on this page. You end up with EPS growth of 11%-12% over an extended period of time. That is durable and dependable financial performance, and on its own, it looks tremendous. If everybody else grew 15%, then it wouldn't be so good, would it? Well, how do we look in that regard? It's not moving. There we go.
How do we look in that regard? How do we look on a relative basis? Sometimes I feel like I should just sort of drop the mic and walk off the stage because this page really tells it all, doesn't it? What do I have to add? EPS, peers, over five years, 6%. Lincoln, 11, nearly two times our peers. The quality of that operating income, Lincoln, $0.92 of every dollar dropping to the bottom line as net income. Nearly 20 points ahead of the peer group over that same period. That's the facts about income. How have we done it? How have we created that strong net income profile? It's all the things we talk about all the time, things you heard about today. It's a hedge program that is the best there is. Through whatever economic environment faces us, it has performed.
It is tiny annual impact, I should say microscopic annual impacts from the assumption-setting process, and it is tremendous performance out of the credit portfolio. That's how we've done it. Equally important when it comes to valuing a life insurance company to earnings, I think, is the balance sheet and the return you can earn on that balance sheet. How have we done there? Book value per share growth, once again, 4% for the peers, 8% for Lincoln. Our worst year exceeds the average peer company. Return on equity, 13.5% last year. Growth in that return on equity, once again, outpacing the peer companies. That is tremendous absolute performance. That is tremendous relative performance. That is performance significantly at odds with that valuation. Let's shift our focus and talk about capital deployment. I talked to you about the importance of growing the top line.
You only grow the top line if you invest in new business. In 2018, we did that to the tune of $1.1 billion. A vitally important investment in our future. We also believe in returning capital to shareholders. In 2018, once again, we returned another $1.1 billion. A total of $2.2 billion of deployed capital split evenly between investing in our business and returning capital to shareholders through buybacks and dividends. As we look forward, I would expect that capital generation to continue to grow, and that will be supportive of growth. I wanted to show you a sensitivity about how new business growth can impact near-term capital deployment. Our two most capital-sensitive businesses are life and annuity business, and if you elevated their sales instantly 10%, that's about $175 million of capital deployment that we would have to do.
Of course, it's those exact sales that will drive future capital generation, that will drive future deployment. How have we done in deploying our capital? Have we been appropriately aggressive in buying back our stock? Dennis mentioned it. 42% of our shares over what is about an eight-and-a-half-year period. $5.5 billion, 5% per year. Each and every year, we have been driving the share count of Lincoln's down. We also believe in dividends, though. At the same time, we have grown our dividend at an accelerated rate, 38% over this period, including an increase of 12% as we entered 2019. I'll remind you that our expectation is that we will deploy between $850 million-$950 million in any given year. If you asked me to define our share buyback program, I would define it like this.
It is about the continual, steady, and growing return of capital with the ability to take advantage of opportunities when we see dislocations in the share price, and we can marry that with capacity. You saw that most recently last year when we reinsured out a book of business, deployed those proceeds into incremental share buybacks. You saw that in 2016 and 2013 when you saw our share price go down and we elevated share buybacks. You saw that in 2011 when we brought down life sales, elevated share buybacks, continual return of capital, supported by incremental purchases when we believe it's made sense, and it's yielded a tremendous result. You see a lower price at those times that we stepped in. Nobody's perfect on this stuff, but it's an enviable and attractive track record.
Me personally, we don't build a balance sheet, we don't build a financial strength by guessing when the economy is going to turn. That would be kind of a foolish way to think about financial strength. Nobody knows when the economy is going to return or turn. You only know in retrospect. What do we do? We maintain a balance sheet that is strong enough for whenever that happens. How do you think about strength, financial strength? Let's start with capital. Two places we hold capital, the holding company and the life company. The holding company, my opinion, the biggest change coming out of financial crisis, how we operate our holding company. 2008, we ran it with short-term leverage, $600 million. Today, we have nearly $500 million of capital just sitting there. It's like a security blanket just hanging around up there for a rainy day.
The most important change is that $1.1 billion change in the capitalization of Lincoln. The life companies. We've grown, our capital's grown. It's nearly doubled to almost $10 billion. That capital per dollar of risk, what we know as the RBC ratio, it's grown also 445% above our long-term target. That's the capitalization of Lincoln, very strong today. How about some of the key items of potential risk on the balance sheet? Below investment grade assets. 33% below where they were in 2008. How about goodwill? It looks like a nightmare. How many times I had to answer questions about goodwill back in 2009 and 2010. Look, we have one-third the amount of goodwill as a percentage of our equity as we did back in 2008. One-third. How about a key assumption embedded in our balance sheet? The long-term interest rate assumption.
I don't know what this will ultimately be, but I do know that we're 150 basis points lower than we were in 2008. That's a pretty enviable position. Leverage, we're below our long-term target with a very favorable maturity profile. I think we have nothing over $300 million for the next few years. From just a business focus standpoint, we are four businesses today, highly focused at scale. You've heard it all day. While it was kind of cool back in 2008 to think of ourself as media moguls, I could talk about an international conglomerate with our U.K. business. We had that ever glamorous asset management business. The reality is that none of those businesses maintained what we believe you need to be successful. They were not scale operations, not like what we have today, four businesses operating at scale.
That's the strength of the balance sheet. That's the strength of Lincoln. To make sure about the strength of that balance sheet, we regularly test it. One thing, I think this is a best practice coming out of the financial crisis. We had always tested our balance sheet, but it's much more rigorous and there's much more discipline to it today. We have three goals that we endeavor when we go about stress testing. First, we want to be able to maintain our ratings. Second, we want to avoid having to issue equity. Third, we want to be able to preserve our shareholder dividend. As we've studied this over the years, we find that there are two stresses that we primarily need to think about. One is a recession scenario, the other is a stagflation scenario. Deep drop in the equity markets during that recession scenario, 40%.
A little less in the stagflation scenario, 30%. Interest rates go down 1% in the recession scenario, way up in the stagflation scenario. Significant credit event, one in 100 sort of credit event. How do we achieve those objectives during that kind of stress? It's all the things I talked about before. It's our holding company cash. It's the strength of our life company capitalization. It's the ability of our businesses to continue to generate cash and capital. It's about the risk profile of the investment portfolio. It's about the quality of our hedge program. It's all of those things that come together to create the outcome we seek. You've seen this chart a number of times today. This is how you bring it all together. This is the sum total of all of the business line growth charts, 8%-10%. Dennis mentioned it in his presentation.
How do we get it? Half of it comes organically. I've talked ad nauseam about the importance of organic growth, it's half of our long-term target. More business coming in than going out, very important to driving long-term growth. We've talked about it all day, we expect to continue to drive expense savings into our business. It's part of the budgeting process. It's part of how we think. 17% to under 12%, that's how we think. It's a relatively modest component when you add them together from the capital markets. With the ability, while spread compression is a little higher today, to get additional expense savings from things like the digital investments we've made. It's about consistently returning capital to shareholders. Our expectation, 2%-3%.
I'll remind you, that was about 5% a year over the last eight and a half years, as I discussed a little earlier. We've done better than that, but I believe what we've laid out for you today is how we can grow going forward at an 8%-10% rate. That really wraps it up. I think the evidence is irrefutable. We deserve a valuation in excess of 6.8 and 0.9. I think the evidence is clear. I hope it showed up in the verdict in this financial performance. With that, I'm going to bring my colleagues up on stage, and we are going to go to the final Q&A. Perfect. While we're getting set up, I just want to thank all the people involved in pulling this conference and Investor Day together. A lot of people involved inside Lincoln.
Especially want to thank my investor relations team for all the hard work. With that, we can start maybe over the side with Alex. Alex, if you give us just one more minute just to make sure we're all teed up. Do we have one more than we need?
I think so, yeah.
No, Dick's coming.
Oh, Dick. In case there are a few more group questions for you.
[Foreign language] No mas.
Alex, I'm like a little kid. My legs don't reach the floor.
Do you want some heels?
Hi, it's Alex Scott from Goldman Sachs. First question I had was really, I just want to clarify that I understand that some of the disclosure you provided in annuities on economic value. I guess in particular, the contract cash flows, should I think about that as just the present value of the inflows and outflows, sort of completely separate from the reserves that you've set aside for that product? If I'm interpreting that right, and there is that much economic value when I think about the reserve set aside and all of those cash flows that are coming in. You make a compelling case about the valuation. Is there something more you could do to unlock that value in the absence of the market just deciding to re-rate the stock higher?
Yes, the analysis that I showed would not include reserves. It also wouldn't include any of the expectations for new business. It's simply a point in time present value of the cash flow that we would have and the expected claims in the future that we would have. Not what you would consider a full economic value. What was your second part of your question, Alex?
On the strategic side that you could do to unlock that value. I know you've already done some of that in annuities. Are there other avenues where you could look to unlock that economic value?
We'll continue to look at everything, Alex, that could create value for the shareholders. This is frustrating. Obviously, you've heard the frustration come from Randy and Will about our low valuation. Let me just say, as a strategic objective, we're looking at every avenue to either improve investors' understanding of the facts around and the results around the annuity business. Other ways that we might change the balance of things such that it improves the valuation. Nothing specific other than the objective of continuing to respond to that question.
Okay. Maybe if I could do one more of you all. I'd be interested in your take on the SECURE Act and any implications that'll have for the distribution of product between group and individual. Do you think it'll shift that over time? How impactful do you think it'll actually be?
I'll start. We've been a proponent of the SECURE Act from the beginning. It does a couple of things. It expands the access to retirement plans and in-plan annuities, and also makes it easier for employers to set up multiple employer plans. That does two things for Lincoln in terms of opportunity. First, because we're in the retirement plan business, we're in the small and mid-large space, which is where we expect to see the greatest adoption of retirement plans going forward as a part of the SECURE Act. Secondly, I think is to your question specifically, because we're a leader in the annuity business, that creates a significant opportunity because it overcomes the biggest hurdle today to offer in-plan annuities and retirement plans, and that is providing the safe harbor that employers need to add that into plans.
It creates a tremendous opportunity both in plans and out of plans as they move into retirement.
Just down, two down. Andrew?
Hey, Andrew Kligerman, Credit Suisse. Two questions. First, just a quick one for Ellen. With this multi-manager strategy, could you tell us what your average fee is overall on your investment portfolio?
It's not something that we have disclosed publicly. What I can tell you is that will give you some indication are two things, both that I reiterated that I talked about in the presentation. The first is that we've reduced our investment management fees by 50% over the last five years.
Got it.
The second is that we're marginally lower than our peers. That marginally lower is in the tune of, relative to average of peers, it's about 40% lower than the average of the peers. You can effectively back into that, and you can get a sense.
Do you have any sense of what the average for the peers is? All right. Andrew-
If I can find it, you can find it. How about that?
All right, we're done with that.
It's embarrassingly inexpensive for us.
Yes.
We just don't want to reveal it because of the asset managers.
Got it. Another one that I'm struggling with a bit. I took a look at the Bank of America conference presentation in February, your indications of spread compression for retirement RPS were 6%-8%. Now the only compression is 0%-2%. I looked at life insurance, and you were thinking 2%-4%, and now the indication is 0%-2%. Interest rates have come down since February by, I want to guess, 50 basis points. I don't know, maybe Ellen's working some magic over there, or what's changed in the last few months with these different spread outlooks?
I'll take the life. Just remind you, I mentioned it when I was going through the life, this was the longer-term view, that in the near term, spread compression was still a little elevated. In the case of the life business, I thought we had the capacity to achieve additional expense savings through things like the digital investments we've made. It continues to trend down. 2%-4% was just over the next three years. This was more of over the next three to five years.
Correct.
What we tried to do within each of the waterfalls is give you a sense of the long-term potential within the businesses. Underneath in the box, we talked about some near-term considerations in the businesses that you highlighted are the two that face the most amount of spread compression. In the near term, those would be slightly above the long-term numbers that we provided.
Managing the expenses is one of the key areas in this investment segment that's helping you lower the spread?
I talked about two big levers. They're not the only two. There's other things we do. We all manage our other things like investment expenses, like fees we can get from our asset management partners. There are other things we do. Obviously, expenses have been a big component of how we have offset this. As a reminder, I probably have already said it a couple of times, $0.17 of every dollar to under $0.12 of every dollar. I mean, that's a big contributor to earnings growth. Additionally, the ability to allocate capital to buy back stock, which in that 8%-10% chart was a 2%-3% component versus the 5% we've been doing each and every year for the last over eight years.
Nothing on yields has changed then in the last few months. It's other factors. I'll take it at another point.
Yeah. Andrew, just the 8%-10% that Randy had up and I showed earlier this morning, there's nothing other than the current level of equity markets and our growth assumptions, the current yield curve. There's the existing expense management plans we have in place. Take digital, for example. I will tell you, there is a name behind every dollar of digital expense reduction. It's in the budgets, and people are paid to get there. The 8%-10% is very consistent with our internal financial forecast and updated to reflect a little better equity market than we had expected when we did the final plans and had it approved by the board and lower yield curve. Everything else is just what we're talking about this morning. We don't have to create some new program to get to that 8%-10%.
Try and hit people that have not asked a question yet. John at the end there, then back to Jay.
John Barnidge, Sandler O'Neill. I'm going to ask a question on Group Protection. As you're trying to go more into the voluntary market, what are you doing to make sure that the benefits being offered isn't on page two but on page one of the forms?
I don't quite understand the question about page one versus page two.
Well, a lot of employees may not value the things that are on page two or three of the benefits, and page one is the predominant form that they would look at.
Well, I really don't understand the page that you're referring to. Are you referring to some type of a benefit summary?
The summary of products offered.
Oh, okay.
Aflac has previously talked about how it's important to get to page one because those are the products that an employer most values for their employees.
Right. I really don't have a good answer for that. How does the employer value? Lisa, can you help me with this?
Yeah.
About the employer.
I'm happy to. You can find me at HR. Interesting question, because we do a few things with the remits digitally, and we also do the home mailers. Thank you. We do home mailers. We haven't tracked from what happens from page one to page two to page three. What we do, though, we do put in categories what we think is most important. Interestingly, RPS and Group Protection are number 1 and number 2 when we send out our mailers, because we believe that that's what our employees and their families, by the way, are looking to have access to and understand more. Hopefully, did that help?
It did, thanks.
Okay, great.
My follow-up question. Where yields have gone and with the annual assumption review coming up, how does that change the calculus with which you approach that? Thank you.
I don't know that it changes it. It's just all part of the calculus. I say this every time we get an annual assumption question. I'm not going to front-run the process. There are lots of people at Lincoln who are doing the work, which will ultimately determine where we end up. A couple of factoids, and they're not determinative of any answer. The 10-year Treasury is actually higher today than it was the last time we lowered the assumption. On the other hand, rates haven't increased as much as our assumption would have assumed when we last set it. I think you have things on both sides of the equation. I'm sure the teams will come back with a fair recommendation in terms of what we should do. We've already come down 150 basis points. I don't sit here feeling bad about where we are today.
Who knows what the ultimate 10-year Treasury is going to be? I think at 375, we're somewhere in a reasonable range. We'll see what the analysis says for this year.
Randy, let's just remind everyone what's the sensitivity to a change.
I think we had on the sheet, it's awfully specific. It was $160 million for 50 basis points. Should have put a decimal point on that or something.
It's not. You don't want to have to do it.
No, it's not.
Not the end of the world.
It's not too different from the first three times we lowered it 50 basis points.
Thank you.
Jay Gelb in the back, do you have a question?
Thanks. Jay Gelb from Barclays. We'll get to Jay Cohen next. First on the share buyback, Randy, in terms of the range of $850 million-$950 million in a typical year, it seems as if the pace of the buyback was around $200 million quarterly, and given the current pace of the dividend with the potential for growth there, Lincoln would be more like in the $1.1 billion range annually, which would imply around 55%-60% of annual operating earnings. I'm just wondering if you might have some conservatism built into your range.
Look, we don't put explicit conservatism in any range we provide to you. I can tell you that over the last eight years, we have regularly outperformed that guidance. There is not explicit conservatism in the range we provided you. Jay, I think I had a chart where when I showed our deployed capital in 2018, it had total buybacks of, what was it? $810 million, I believe. $160 million of that was labeled opportunistic. That's the net impact of being out of the market to fund the Liberty acquisition and being in the market in an additional way when we reinsured out the annuity business. That left a baseline last year of roughly $650 million. There is not explicit conservatism. We have outperformed in the past as the environment has continued to be very favorable.
Yeah, I feel good about the $850 million-$950 million range we've talked to you about.
All right. Last time we had this meeting, I was at Lincoln Financial Field, and I believe the Eagles won the Super Bowl that year. I was just wondering if you feel it's a foregone conclusion if the Eagles are going to do it again, so you have it here in New York.
I love the Eagles personally, and I go to most of the games. I grew up in Minnesota, so I'll go for either the Eagles or the Vikings.
Jay.
Thanks, Jay Cohen, BofA Merrill. A question for Will. Will, you talked about adding wholesalers recently. Can you talk about the relationship when you add the wholesalers, what that means for sales? Are you getting the same kind of bang for your buck that you would have historically as you grow that wholesaling force?
Yeah, I had a data point on the slide that would show
I think it was 30% wholesaler productivity increases since 2016. That would have simply been demonstrative of our wholesalers becoming more productive. How we think about it is we add wholesalers into territories that we believe are under-penetrated, where if someone's covering a territory and you add a wholesaler into it, that two wholesalers will do more business than if you kept one wholesaler there. That's how we think about it. We do a lot of analysis, a lot of experience to determine that. The second point I would make is that much of our wholesaler expansion has been to enter channels where we haven't had a presence in before. Think 15 people for Allstate, five or 10 people for the IMO channel. That's not going to be taken away.
That's purely going to be incremental productivity lift because Lincoln didn't have a presence there before we filled out the team. Hope that helps. I'll make one comment, that we've also been able to expand our sales force because we've expanded the product portfolio and shelf space. To make sure that you get the same type of high-quality coverage, we've needed more wholesalers because we simply have more opportunities to do business. I'd say those are the three points that drive our sales force sizing.
Perfect. Tom?
Question on VA reform. The table, I think, in Will's presentation showed you had conservatism in both policyholder utilization assumption and lapse assumptions relative to what the new standard's going to be. What does that practically mean for you? I assume that means it would be positive from a capital or from a cash flow standpoint under the new regime. Can you comment on what that will mean?
The one other assumption would be lower mortality. We've always assumed that those folks that would buy an annuity would have a view of their mortality that would be lower than traditional life insurance, for instance. I think the better way to answer this question is simply to say that the upcoming changes are coming more back to where we are. We're not sharing anything other than we don't expect any material impacts because the assumption changes are coming more towards where we are. We have confidence in our assumptions. We've done a lot of work with Towers, who was the consulting firm that helped drive the industry's view of these statutory changes.
We had done work with them prior to that on predictive analytics on our assumptions as we were able to get deeper into them to see the differences in whether it's a qualified or non-qualified account, differences in gender and age. We believe, based upon our analysis, that this is simply the standards moving more back in alignment with where we've always been.
As a reminder, how we capitalize our business is the greater of CTE98 and a minimum percentage of our liabilities. That's ultimately what drives the amount of capital. The statutory needs can come in under that. We expect no impact from VA capital reform. I think it's reflective of how we've managed this business over a long period of time. Regardless of what's come along, we've managed through it with really no impact.
Randy, just to address some of the final points you were making about the valuation and how cheap you view it. When you look at variable annuity peers, sadly, your valuation looks actually pretty good. I think one of the main concerns out there is that FASB reform could materially negatively impact both book value and earnings specifically related to the variable annuity business. Is there any work that you guys have done at this point which could shed some light on that, whether it's relative, whether it's in absolute terms?
Well, there are about 20 people that would throw darts at me if I said we hadn't done any work, right? We've got a lot of people doing a tremendous amount of work, but we don't have an answer yet, unfortunately. We continue to work with both our internal experts, with our auditors, and with the FASB to make sure we understand the exact way that this thing should be implemented. I think there's, for instance, a question around benefits like a return of premium of death benefit, whether they should be fair valued or whether the immateriality of the benefit means that they should still be covered under insurance accounting. Those sorts of things can have an impact on ultimately what the answer turns out to be. We don't know all of the details yet.
We're rapidly working to get there, but it's a lot of work, and I can't give you a timeline. I understand, and I empathize, and I appreciate what you've expressed. I think all I can go back is what I said before, which is we've managed this business very economically. We have a high-quality hedge program, and I feel good about how we've performed through change going backwards. I come into this with a confidence, but I don't know what the answer is yet.
If I could just sneak one more in back on life reinsurance. From I guess what we've heard, it sounded like that was kind of a thing of the past, that there's been a rate being pushed through by the reinsurers, and it was a question of do you recapture or do you pay the higher rate? Is that still ongoing? Has that been an annual process? Where do we stand on whether you're more likely to pay the higher rate or look to recapture?
Yeah, I think I said that it feels like we're more than halfway. If I just look at the number of reinsurers that we've reached resolutions, it would indicate that we're more than halfway. We're not done. I think we have good insights into who will likely come to us in the future. Like I said, we're more than halfway, and I feel just like we've managed through what we've already experienced, which has been a mixture of recaptures and rate increases, arbitrations. Arbitrations where we won, arbitrations where we lost. All sorts of outcomes. I think we'll probably have a mixture of outcomes going forward, but I feel comfortable that we can manage through whatever is left.
When we talking about meaningful adjustments to rate double digits, or is this something less than that, more manageable?
I can't get into that. I noted 2 things that added up to $250 million. Spread compression and rate increases. I wouldn't have put reinsurance rate increases up there if it wasn't a not insignificant component of that $250 million. It's been a big item. I just feel like we have successfully managed through it, and I feel like we're over halfway, and I feel comfortable that we can manage through whatever is left.
Tom, I'd like to come back to your comment about some of our competitors who have lower multiples, and not that you're saying 100% of that has to do with the VA business vis-a-vis Lincoln. When you get thrown into companies that were subsidiaries that are now standalone public companies, it's a big difference. They've got tons of extra money that has to be spent on branding. They have tons of extra money that has to be spent or cost being taken out to get to scale. I would also point out that I think what we've been trying to reinforce all day long is that every one of our businesses is in a very strong position to grow competitively, and the balance sheet is so much stronger today than it was back in 2008.
When you stand back and look at us holistically, and compare our multiple to other companies' multiples, I think you got to look at the whole franchise and the significance of all of the things that we're talking about today, rather than just, and I know you're not doing this, but rather than just say, "Well, they're in the VA business, and they got a lower multiple." Help us with that, all you sell side analysts. Differentiate our franchise. Another thing is we don't have any closed blocks of business that take 5% or 7% of earnings off the top that first you have to replace in order just to begin to grow the business. That's it. No closed blocks of business, U.S.-based, strong franchises, strong balance sheet, and excellent results. Suneet?
Thanks, Chris. Suneet Kamath from Citi. I did want to bring it back to VA for a second, if I could. Alex had asked a question about the cash flows and the economic value, I think you had said that that just reflects kind of the cash flows off the business, what are the resources that are backing that block in terms of capital and reserves?
Well, the primary way you capitalize a variable annuity with guarantee block of business is with a hedge program. That hedge program, it's vast, it's deep. There are a tremendous amount of hedge assets sitting there that we've purchased over the years that if things like interest rates drop, they will go up in value. If equity markets drop, they will go up in value. It's a very economically focused, strong hedge program. That is the primary way we capitalize an annuity business. Those are the only assets that have the ability to respond to changes in the economic environment. Completely separate from that, if you were 100% effective there, if you assumed you could be 100% effective, theoretically, you wouldn't need additional capital. We do hold additional capital.
As I mentioned, we hold the greater of CTE98, which is a calculation, and we have a minimum floor, which is a percentage of our liabilities, a percentage which I will not reveal to you. The floor is actually controlling right now, as my annuity partners will remind me from time to time. That's how we capitalize the business. The first thing you need to do in this business is have a very robust hedge program.
In terms of the nominal value of those resources, that's not something you're willing to provide?
I don't know what you mean by nominal value.
Like the capital and the reserves.
The actual market value of our hedge assets is relatively low right now. If rates drop tomorrow or equity markets drop tomorrow, they will balloon in value. I just think from a market value standpoint, it's relatively modest right now. In terms of the notional amount, there's a tremendous amount of very complex hedge assets That Carrie Hobbs and his team trade each and every day to support the variable annuity program.
Okay. My second question is, I think last week Prudential was talking about their wellness initiative, and they talked about holding seminars with some of their group insurance clients and their retirement clients to make them aware of all the tools that they offer, that they have available. Is that something that you guys are thinking about doing or have thought about doing in the past?
It is. Yes. I shared with you the wellness program, which is an entire program that includes face-to-face service seminars. We've been doing that in retirement forever. We just launched last year the tool that brings it all together. It's an incredible program now. We've got a number of clients in the retirement business, then Dick and I, late last year, partnered together and we're piloting and rolling this out to the combined clients that we have. That gives us access long-term to do wellness with potentially 12 million worksite customers.
Yeah. I mentioned that one of the avenues to pursue and enhance our employee paid business is to more effectively market to consumers. We see wellness type tools and concepts helping us do that. As Jamie pointed out, given the lessons that she's learned in the RPS business, we're applying it to piloting programs with employers to distribute a wellness tool that they can use with their employee base and observe what happens to the buying behaviors of employees with that type of tool available. I put that into the category of being more effective in consumer marketing.
Very much in its infancy and not any part really of the 8%-10% growth we've talked about over the next few years.
Randy, you're absolutely correct. We're not talking about the potential impact of us getting into the in-plan protected lifetime income product. That's huge for the industry. It's going to take a little while to develop. As Jamie pointed out, we're a logical entrant into that because we're in the retirement business and we're in the annuity business. That's a growth potential that could help. This whole area of worksite marketing, we're exploring it. I think that's another opportunity on top of the ones that are in the 8%-10% that could mature over time. We wouldn't talk about something like that today because we're not far enough along in our planning for it. It is on the list of to-do over the course of the near term. Of course, we've got to get the Secure Act through the Senate. I think that'll happen.
Yeah, there's a lot of things. We try to tie everything that we say in a meeting like this into the expectation of 8%-10%. Obviously, there's things that we're thinking about that could make impact beyond the 8%-10%, but we're not in a position to add it in, if you will, at this stage because it's in early stages, but there are opportunities.
Thanks.
Ryan in front of Suneet.
Thanks. Ryan Krueger, KBW. Following up on the FASB changes, when do you think Lincoln may be in position to disclose the potential impact to the market? Related to that, what are you hearing in terms of if there could be a potential delay?
I think it's partly dependent upon if FASB ultimately does defer it a year. What I hear from my peers is most companies probably could get there by the time they relate out, but most of them feel uncomfortable that they'd have the appropriate controls in place at that moment in time. I think there's a strong effort. A lot of my peers seem to have a lot of confidence that it's going to get deferred a year. I haven't spent too much time focused on that. I think if it does get deferred a year, it would be sometime next year when we could really guide you, start to give you guidance, I think.
Thanks. Then for Ellen, where are you seeing new money rates currently after the drop in interest rates? Is it close to 4% still?
Another question where we don't typically disclose intra-quarter where we're investing. If you take what we showed you, which is that on average, we're investing at about 180 over, recognize also that spreads have been a little wider in the last quarter and also the curve has been steeper. Those things we're definitely benefiting from. It'll give you some indication of where we're investing right now. In our next quarterly earnings, we'll make sure that we absolutely disclose to you exactly where we are.
Thank you.
Let me just come back to this question, the FASB question. It's a great question. Everybody in the room ought to be thinking about any changes that happen in the environment that could affect a company's financial statements. I think, Randy, we still think this is predominantly non-economic in its implementation. It could optically be a problem. What I think are the things that the industries have worked through already, that would have been a big problem that we've overcome. All the state regulations around Guaranteed universal life and triple X reserving and captives, and the one that we were talking about today, the VA captive stuff. We work our way through all that stuff. There always seems to be something.
I can remember 5 or 6 years ago, Randy getting queried on, well, if it changes the AXXX into this, how much is this going to cost? Something's always going on. I come back to what we started with today is we have the wherewithal, the experience to deal with these issues, and these are sound businesses, sound franchises. Yes, there are going to be risks, regulatory, accounting. The DOL, as an example. That was a pretty franchise-iffy issue the way it came out of at least it would have taken a while to overcome that the way it came out of the DOL. Now we're in a perfect position. Yeah, there's always things to worry about.
I keep coming back to the soundness of our franchises, the strength of our balance sheet, the fact that we've experienced just all of these kinds of concerns before, and we've worked our way through it.
Erik?
Thank you. Erik Bass with Autonomous. Will, I was just hoping you could talk a little bit more about the interest rate sensitivity of the annuities business. Realize on your slide you show almost no impact from spread compression. Should we be thinking about any impacts in terms of hedging costs, returns on new business, or even just sales as rates are lower and maybe the yields are less appealing?
Yeah, absolutely. We've been experiencing all year rates edging down, right? We spend and focus our product pricing on that particular issue. We are able to reflect really at any point in time in our fixed indexed annuity and indexed variable annuity where interest rates are, because we manage crediting rates, have the ability to manage crediting rates weekly. We've been reflecting for some time where interest rates have trended. Our sales have remained quite strong from the 1st quarter through the 2nd quarter. In variable annuities, interest rates drive the cost of the guaranteed living benefit. We began to take actions on variable annuity income levels. We're planning to take additional action, as you would expect us to. The way I think about it is modulating. As interest rates improved, we modulated the value of the income to the consumer upward.
As interest rates move in the other direction, the door swings both ways, we'll modulate the benefit to the consumer in the other direction. We have the ability to do that with more frequency today than we were able to do in 2016 and 2012 when interest rates moved lower. This is the point about, I think Dennis and Randy made it, that we're smarter, we're stronger, more agile today. I think we've never been in a better position to reflect product pricing given what's happening in the market. Again, already doing it in fixed and indexed, having plans to take additional actions, having had to take some on variable annuities. Our sales momentum has continued, and flows have remained strong even while we've been taking those early actions.
Again, remember to the extent I think you're driving at, Erik, do we have to increase the prices? What's going to happen to volume? Yep, get it. The increased prices is going to affect volume at some level. We did that with the life business, dropped our sales by $200 million year-over-year to reprice the products, and we bought our shares back. Again, how that works out depends on a lot of different things. Even if there's a slowdown, there's a lever that we've used in the past to mitigate the effect.
Another point to add to this is our sales momentum has benefited from greater flexibility in rates. Keep in mind, 57% of our sales in the first quarter was from new products and new distribution. I'd say the largest driver of our sales momentum has been participating in more market segments, more so than the benefits of higher interest rates and flexibility that we've been able to pass through in some of the products that we renew.
Josh?
Randy, if I try, Josh Shanker from Deutsche Bank. Randy, if I try and re-engineer this chart, demonstrate a willingness to accelerate buybacks opportunistically on my own and try and figure out, instead of the Y-axis being when you bought back more stock, what was happening fundamentally. Is it relative P/E? Is it absolute P/E? Is it relative P/E, absolute P/E? What triggers for you that it is the time to accelerate buybacks opportunistically? As such, right now, given everything you've said today, to repeat the same thing, why isn't today that moment, given that you're so concerned about your valuation that you should be accelerating the buyback opportunistically?
There's no one trigger, Josh. It's not something that you leave work on Friday, and you show back up on Monday, and you suddenly know.
It's typically things that persist for an extended period of time. If you look at that chart, which you've obviously been doing, we've tended to be every couple of years on average. We've taken a discrete action. That's not an indication of when the next one will be. It's something we think about all of the time, and it's about marrying opportunity with capacity. That's something we think about all the time. We continue that analysis. I can't tell you when it would be or what the magic trigger would be, but it is a very strong focus. From the results you see on the chart, you can see it's worked over time.
To the extent that a limiting factor is the availability of capital.
I guess you have to marry two things together, right? You have to feel it's opportunistic to do it at that moment, and you have to have the capital. The December action should be viewed as one-off, I guess? You wouldn't try and harvest more capital spontaneously.
Well, the December reinsurance treaty created capacity, which we then put to use. We don't endeavor to hold a significant amount of excess capital on our balance sheet. That's never been our goal. It's not like we just sit there with some huge pool of capital. We are always looking for ways to both tweak on the edge or do bigger things like in the case of the fourth quarter reinsure off book of business. Those are all things that we are thinking about all of the time.
Good luck.
Well, I would say we have a pretty consistent, we've done the right thing for the shareholders consistently. We've picked the places to put our money on a consistent basis and have had good success, and that's what's driving this 11% compound earnings per share growth rate. The digital initiative, as an example. We decided three years ago to do that. It was predicated on the fact, as I said earlier today, that we knew that we were going to lose $150 million from investment spreads based on all the information that you just saw from Ellen. We came up with a response to it, and it's going to help our shareholders dramatically. We did the Athene transaction that's going to help our shareholders dramatically.
It's just constantly paying attention to what the opportunity is and looking down the road to see what actions management can take to build on the franchise value that we have in each of the businesses.
Okay.
Humphrey Lee from Dowling & Partners. My first question is related to kind of the expense management and at the same time, the investments that you've highlighted. I think a couple years back, you've highlighted the digital initiatives and how you spend to drive the efficiency. Do you feel like you have reached a point that your expense save is reached to the point that can pay for any kind of new investments that you have to put into the business? Should we anticipate there's still going to be an ongoing drag from digital investments going forward?
Well, specifically that particular program this year was about the break-even year, the amount of investments about equaled the number of benefits. Next year will be a net benefit, and we'll continue to grow to our ultimate level of $90 million-$150 million of net savings. This year was neutral. Are there other things we may think about in the future that involve an investment for future benefits? Yeah, I'm sure there could be. There's nothing outside of what we have already indicated, which is the Digital Program, which will continue to grow its benefits looking forward, any integration savings that Dick and his team are getting from the Liberty acquisition. I think as a number of us mentioned, the very nature of our budgeting process drives expense efficiencies into our bottom-line results.
Yeah. I was not referring to the old program, just some of the incremental investments that you're doing. It sounds like they're self-funded by some of the expense efficiency that you're getting.
Humphrey, we're a big company, there are investments being made all over the company at different levels outside of just the Digital Program. I can tell you that every investment of any size that is made is governed by some CBA, right? Are we going to get benefits that justify that investment?
my second question is, the past couple Investor Days, you put up a kind of disclosure on how the low interest rate will affect the sub-reserves for SGUL. Should we think about that sensitivity is still relatively unchanged?
Yeah, I don't think there's any tonal difference from where we've been. The thing we've always had to pay attention to is the sub-tests, 8C and 8D. We've always been relatively close, but passed those tests and that answer has not changed.
Additional questions? Okay, seeing none, I think we've exhausted it. Thank you all for attending and for those on the webcast as well, thank you for joining and we're available at any point for follow-up questions, and hope many of you will stay for lunch. Thanks. Thank you very much