Hello, good morning, everyone, and thank you for joining us. We're here with MetLife's CFO, John McCallion. And this is a generalist conference, so we're going to focus a lot on MetLife's strategy today. First question for John, could you please start by discussing your New Frontier strategy and provide a brief overview of Met's different business segments and geographic mix? And please touch on the growth rates of Met's businesses and their strategic advantages.
All right, well, thanks for having me here, Wilma. It's great to be here. And probably the best way to start with our who we are as MetLife is we're a well-diversified multinational insurance company. About 60% of our earnings come from the U.S., another 40% comes from outside the U.S. Our second largest country is Japan. And we're well-diversified across geography, risk, product, et cetera. We've been on a journey. We just finished our last five-year strategy and just had an investor day in December. They announced our new five-year strategy called the New Frontier. And over the last five years, we've really been centered around three principles: around focus, simplify, and differentiate. And during that time, we've been really relentlessly focused on execution. That has been really a big aspect while also driving more attractive returns.
And so over that time, we had an ROE that's a range of 12%-14% when we started Next Horizon. Under New Frontier, which is the name of our next five-year strategy, our ROE targets are 15%-17%. And so that has been a function of how we've shifted our business mix over time. We see some strong trends that are supportive of our strategy. Think about kind of the demographic shifts you see globally: aging population, higher interest rates. We're seeing the convergence of asset management and insurance being a strong trend. And I'm sure we'll touch on that a little bit later and how we fit into that. And then lastly, just higher interest rates in general, which are supporting the demand for, broadly speaking, the fixed-oriented products that we see. And then lastly, one of our largest businesses is Group Benefits in the U.S.
We're the largest group benefits, non-health group benefits provider in the United States, about three times the size of our next competitor. And again, similarly speaking, employers are seeking opportunities to grow their offerings to their employees, driving their employee value proposition. And we think we're well-positioned for that. So maybe I'll stop there. I'm sure there's other questions that could probably answer some of the things you just mentioned.
Sure. I think you touched on some of the targets, but they're very strong from the recent investor day. ROE 15%-17% versus the prior 13%-15%, and then double-digit EPS growth. Could you talk about what gives you the confidence, or a little bit more about what gives you the confidence that you can achieve those targets?
Yeah, and maybe another thing to touch on is this is a recurring revenue model. So in any one year, obviously, sales are important, and we want to grow our sales. But it is, and maybe some of the attractiveness of this convergence of asset management and life insurance, there's a concept of permanent capital. There's a concept of these are illiquid contracts and liabilities that insurers allow you to kind of manage through cycles. So there's a strong recurring revenue and cash flow aspect to our business. All of those things give us confidence in some of the targets that we have, coupled with the shifts that we've made over the last several years in terms of business mix and how we operate the firm. So what gives us, so talk about the ROE for a second.
As I said, large shift in the range, our target range for ROE over the five-year period, going from 12%-14% at the beginning of Next Horizon to our next strategy of 15%-17% being the target. I'd say the primary drivers of that are probably three things. One, we measure our new business mix using a concept called value of new businesses. It's basically finding the present value of your distributable cash flows and your products, and the IRRs on those products and those new sales have been kind of high- teen for the last several years, and in this business, it takes time for that new business to find its way into your enterprise returns, but the fact that we've been doing it for the last five-ish years, you're starting to see that manifest itself in our overall enterprise business model.
Second is we do have a runoff block of business. That runoff block of business most likely has an ROE in the high single digits. So as that continues to run off and we are growing our other high-returning businesses, that mix shift is helping our returns. And then the third thing is we've been relentlessly focused on our unit costs. When we started this journey probably a decade ago, we've seen our unit cost drop 200 basis points. We now have set as part of our Next Horizon, sorry, our New Frontier strategy, another 100 basis point decline in unit costs over the next five years. And that has been a combination of just no stone goes unturned, coupled with the introduction of technology, process re-engineering, and other factors, and really growth. It's a growth metric for us, right?
We think we can grow revenues faster than we can grow expenses and drive and leverage our scale to really be a scale advantage. So those are some of the things. One other thing I'd highlight, in New Frontier, we added an additional external metric of our EPS growth. And that wasn't in our last five-year strategy. And it's a function of probably the things I just talked about. But it does take time to shift this business mix. And we've seen that shift. And I'd say the trends that we're seeing across the board in all of our key businesses, going back to the points I made earlier, those are the things that give us the confidence in our new set of metrics.
Great. Thank you for that answer. Met is number one in group benefits in the U.S. with 16% market share and 25% share with national accounts. Even with Met's level of scale, the group business is guided to grow at 4%-7% versus 3% for the market. What are some of the ways that Met can extend its leadership in group benefits?
Yeah, so again, group benefits, non-health benefits for employers. We see a few things occurring from a trend perspective. First, 60% of employers are looking to add product to this platform, again, to improve their employee value proposition. We're seeing consolidation in broker. This is a broker-led business, intermediary business. And we have some of the strongest relationships with the biggest brokers who are beneficiaries of consolidation. And then third thing I'd highlight is we're trying, I'd say, investing significantly to engage the end employee and consumer. Technology will be a key aspect to that value proposition. And so growing the employee participation rates is going to be critical. As I said before, we're about three times the size of our next competitor. We've actually increased our growth targets in this business.
We look at it as the higher end of the employer set, so call that 5,000 and above. We refer to that as National Accounts. We are with 90% plus of the top 100 companies and 80% plus of the top 500 Fortune 500 companies, and our view is that we can grow product there with those existing relationships. As we move into down market, we think we can grow. It's a little more fragmented of a market, so call that 5,000 and below. We can grow our employer relationships or employee customers, employer customers, as well as add product, and then the third piece to why we think we can grow GDP plus is we believe that it's still an underpenetrated employee participation rate, so we can grow that significantly. Consumers are still underinsured. Financial wellness is a key aspect of the employer value proposition.
So we bring product to that concept. And we think across the board on all those things, we've been able to grow our target for growth rates in this business to 4%-7%, which, again, we'd point out is a GDP plus type story.
Great. Some very good stats in there. Please discuss growth trends for MetLife's third-party asset management business, MetLife Investment Management, or MIM.
Yeah, so one of the other trends that we see is this convergence of asset management and insurance. We've been investing in our insurance balance sheet for 150 plus years. So we are a seasoned investor. About 10 years ago, we moved to manage third-party money. So right now, we have about 600 billion of assets under management. About 180 of that, give or take, is third-party assets. Our clients are other insurance companies, corporate and public pensions, sovereign wealth funds, et cetera. We also do some sub-advisory. We're broken down into kind of three broad verticals. We have a public fixed income total return offering. We have a private credit and asset offering. And we have a real estate offering. Just to give some stats, in our investor day slides, you'll see we're the number one infrastructure debt manager in the world.
We are the largest real estate manager in the world based on P&I's ranking. So a number of strong statistics that support our go-to-market strategy. And the tailwinds, as we talked about, are very powerful here, right? Particularly on the lending side. Higher rates make these fixed-oriented products more attractive. And we're seeing that. And we think that trend will continue to be supportive. Obviously, demographic shifts, things like that as well. So we're a top 25 institutional asset manager today. And we have an aspiration to grow that to about a trillion of assets under management. And recently, we just signed a deal to acquire PineBridge, about 100 billion of assets under management. We think that will close sometime in the second half of this year. Very complementary in its nature in terms of what it adds to our capabilities today.
Overall, we think organic growth will be obviously our core way of growing, but complemented by some inorganic activity.
Okay, thank you. What are the largest drivers of growth in Met's core retirement business? How do you see Chariot Re assisting with Met's goals of expanding liability origination? And what is the intended scope of the business? And is everything still on track for a 1H25 launch of Chariot Re?
Yeah. So one of the, we came up with four trends in New Frontier. Obviously, the employee benefit growth trend. So that obviously supports our market-leading employee benefits business. We talked about a retirement trend across the globe. And we have two areas where that is important for us. In the U.S., that's our institutional retirement business. And then in Japan, we have a retail retirement business as well. And we can talk a little bit about just the trends we're seeing there. In the U.S. market, some of the things you may have heard, there's a trend around pension risk transfer. So corporate firms transferring those liabilities and the management of those pension liabilities to insurance companies. And that generally has been supported by the fact that they are over 100% funded on average.
That's a three trillion plus market that we expect over time will continue to transfer from the corporates to the life insurance segment. There's also a trend in the U.K. that's similar, smaller in terms of its size. It's probably more like a trillion and a half in terms of size. But again, that's even more overfunded. So that gives you the backdrop for why this will continue. And we see a lot of opportunity in this collective space. We have a series of other, I'll call it annuity-type products in this segment, structured settlements. We've seen an increase in settlements that have been coming through. We're the number one player in that space. We have started to introduce ourselves as in U.K.-funded reinsurance. So it's a way for us to add capital to that pension market in the U.K.
And then we're also exploring providing capital in the retail space through a reinsurance arrangement. So being a capital provider, not necessarily adding distribution directly, but being a capital provider to those direct issuers of annuities. So broad, diversified way of going to market. And then, as I said, in Japan, there's a retail annuity story there. It's a country that is going through change as we speak. For the first time in quite some time, you've started to see inflation there. 50% of their assets are in cash. So that will no longer be a good place to hold money. It's also from a regulatory country perspective, they're changing the mindset around investing. So more and more of the younger generation is starting to think this way versus maybe older generations.
So, we see kind of a strong inertia for that cash to shift towards other investment-type products, which we believe will be a participant in. So, strong trends there. And then you mentioned Chariot Re. As a result of these strong trends across the board, we generate capital every year that we can put to work. And up to now, our view is we've had sufficient capital to meet the demands of the external environment. But with higher interest rates, we believe, and some of the other things I just mentioned, the demand for these products is growing. Chariot Re gives us a vehicle to go and add third-party capital to augment our own capital to drive growth. So, to meet the higher demand in these products. And ultimately, that also ends up being an asset management mandate for our asset management business.
Okay, excellent. Thank you. And could you discuss your strategies for penetration and growth in international markets such as Mexico, Brazil, China, and India?
Yeah, so there's four trends. We talked about employee benefits, the retirement trend, convergence of asset management, and our ability to drive growth there in our business mix, and then the fourth one we talked about was high growth international markets, and we highlighted four: Mexico, Brazil, India, and China. Mexico, we are the number one life insurer in Latin America, and that includes Mexico. That is our primary anchor within Latin America in terms of size, brand, et cetera, and what we've seen there is awareness of insurance, insurance-type products, and I'd say increased awareness of our brand. Given that we're the largest life insurance company, we paid out the most claims in Latin America, and that has resulted in kind of, I'd say, an increasing shift in our brand. The total segment of Latin America has more than doubled over the last five years in terms of earnings.
It's close to being, it's on its way to being a billion-dollar segment. It's about 900. It was, call it a little over 400 pre-COVID. So that's a high-growth market for us, anchored by Mexico. And then I'd say supported by high growth in Chile and Brazil. And particularly in Brazil, what we've seen in the trend there is there's been a shift to the digital banks there. So there's been a high-growth trajectory in those banks over the last few years. We have built a technology that seamlessly integrates with those digital banks. So we're riding that digital bank wave there. And I think over the last four years, we've been the fastest-growing life insurance company in the market. Relative to traditional banks that have been growing in the, call it high single digits, these have had an over 100% CAGR over the last few years.
If I shift then to India, over the last five years, we've grown our ownership percentage from high 20s to just close to 50%, just under that. We are in partnership with Punjab National Bank. It has about 10,000 branches, over 100,000 customers that we have access to, and we have a lot of opportunity to drive penetration within that partnership, so we're in the JV with them, and it's been a tremendous relationship. Also, the environment has become so much more constructive over the last five-plus years, so we're very excited about what that has to bring ahead of us, and then lastly is China, you mentioned. Obviously, China has gone through a number of different things. We have a JV there with a 50/50 JV partner in China, who's been a great partner for us.
It's been an entity that actually, despite all of the challenges that they've gone through as a country, COVID and things like that, we have over the last almost a decade gotten a dividend every year from them. So it's a self-supported growth from a growth perspective. It has its sufficient capital. And it pays us a dividend. So again, we look at that more as a long-term option for us as we go forward, given just the size of that market, what it could be. But obviously, it's going through its different challenges today.
Great. And could you talk a little bit about cost savings? MetLife appears to be managing expenses well despite the inflationary environment. Could you just talk about how you plan to decrease the direct expense ratio over the next several years?
Yeah, and that's been an important metric for us. Really been a cultural shift for us from, we call it efficiency mindset, where we all take responsibility thinking about how we operate this firm. It's, like I said, starting in 2015, our expense ratio was probably 14.3%. We brought that down over the last 10 years to 200 basis points. And we think, and we have another 100 basis points that's projected as part of New Frontier the next five years. We think of it as a growth metric because what we're trying to do is we want to grow our revenues faster than expenses. We also want to free up capacity. Over the last five years, while we've been able to maintain our expense ratio, we've grown our discretionary spend.
So, shift from, call it, ongoing cost to more discretionary cost that we can reinvest in the business to drive growth. And it's been a real powerful tool for us, particularly as you think about our group benefits business and what's needed there. That's a business that's very capital-light in the sense of insurance capital, but investment-heavy in terms of what's required from a technology investment perspective. And we've been able to reinvest over the last five years to position us where now the environment for that has changed a lot. So again, just that efficiency mindset has enabled us to just drive that discretionary spend, build investment in technology that can help engage our customer in a different way. And we're seeing those things become more and more important over the last several years.
Great. And another new piece of guidance you launched at the Investor Day was distributable cash flow of $25 billion in 2024 to 2029. Could you just talk about the factors that allow you to generate such high levels of distributable cash flow?
Yeah, we think, as we think about our superior value proposition around strong growth, attractive returns, and all weather. And when we think of all weather, we want to be able to perform well in a variety of economic environments. And we believe that we have not only strong growth, but we have good, strong free cash flow along with that growth. It's been a function of us shifting our business mix. It's been a function of us with our efficiency mindset and driving down unit costs. And going back to my earlier comment, this really is a recurring revenue model. It's a recurring cash flow model. It's a resilient model that allows for sustainable free cash flow growth. And that's a function of us growing our earnings over time. We have that confidence in our growth rates. And we believe cash flow will follow.
Is MetLife interested in completing a more transformative M&A deal? I'm just going to put a number on that, maybe $1 billion+ of capital. The holding company liquid assets of $5.1 billion are pretty strong versus the target buffer of $3-$4 billion. Maybe just talk about that as a possibility.
Yeah, look, from an inorganic perspective, we think we have differentiated capabilities there. It's part of our business development to be out. We see a lot of things come our way. We get asked a lot when there are processes underway. Where we think about when we're outward-facing and we're kind of on the business development side, the two areas we spend the most time on is group benefits. Given our just unique leadership position there, are there any capabilities that we can add? They'll probably be much smaller in size just given our size is so big right now. And then, as I mentioned before, our asset management business. Those are the two businesses where we would spend the most time out from a business development perspective. Look, I think our philosophy has been pretty consistent for quite some time.
This needs to be strategically fit well within our current strategy, cultural fit, and financially accretive. So we wouldn't rule anything out, but I think we're going to be very disciplined in our way of operating. We think of this as being complementary to our organic growth. We don't need inorganic, but we will look for opportunities to leverage inorganic to complement the organic growth opportunities and continue to drive a differentiated value proposition.
Are there any updates regarding possible de-risking solutions for MetLife Holdings? What can we expect to see that may help build capital or reduce risk? Could reinsurance be a factor there?
Right, so we have a large runoff segment. We call it MetLife Holdings. And as I said earlier, it's one of the areas that will continue to run down naturally. We've used a 4%-6% type guide as to how that would run off. And what's in there today is, we have about $40 billion of, I'll call it traditional life, very profitable, simple life products that you would all probably recognize. About half of that has what they call living benefit riders, and half is pretty plain vanilla. And then the third is we have a long-term care runoff block.
And this has been something that has been occurring in this industry for the last over five years, maybe 10 years now, where there's been this concept of new entrants identifying blocks of business that are in runoff and looking to acquire them, consider that their core business, and the seller being those being non-core to their strategy. So that's been a healthy thing for the industry, and it's been taking some time, but it's been occurring. We've seen some activity of late. As I said earlier, this business is probably a high single-digit ROE business for us today. So we are an excellent operator of this business. We don't feel any burning platform to have to transact, but we want to be opportunistic. And it really requires an engagement concept, constantly talking with third parties. Typically, they occur, like you said, in a reinsurance form.
So you don't really sell the business. You just reinsure and move the risk to another provider. And that enters into a new contract. So you need this to be a win-win. It becomes a long-lasting partnership. So you need time to make sure that you customize this to what's your needs and what the acquiring entity's needs are as well. And I'd say activity continues. We've seen in long-term care, there's been a number of transactions of late that have been positively received. So we saw another transaction maybe last week between Equitable and RGA, again, positively received. So again, and both sides are finding win-win propositions. So I think the market remains healthy. We would transact if it is, I'd say, valuation accretive is the way I'd put it in our view. That could be from a price perspective. It could be from a risk perspective.
It could be from a variety of different ways, but we're going to be really disciplined on how we think about that. We did a transaction about two years ago where we reinsured $19 billion of liabilities and received a very strong price for that, and I believe the acquirer were able to leverage that in a great way for themselves as well. That took probably two years of discussions in different forms and fashions to get to the right answer, so these things take time. It's important for us to be engaging with our third parties out there, but there's no burning platform that we have to do anything, but even if we don't do anything, we find that it makes us even better internal operators for that business.
I think you've been very patient and thoughtful about the de-risking, and that will most likely work to your advantage. Last question for you. What are you most excited about into 2025 and beyond?
Yeah, I think, as I said, probably just to summarize some of the things I've already said is there's a great set of trends that are supportive of all of our key businesses. We have a diversified set of market-leading businesses in large profit pools, and we have competitive advantages there. And we've taken a lot of time, and this is a business that takes time to shift. It's like a battleship, right? Because sales, any new sales is just a component of prior sales, right? And it takes a long time for that. That's the challenge. The good news is that drives a recurring revenue model. But you have to be really disciplined on how you do that. And I think we've seen not only us, but the industry for that matter has done a great job in kind of their new approach to the businesses that they're writing.
We see a bright future ahead of us. Very excited.
Thank you very much, John, and to MetLife and we'll see you all in the breakout, hopefully. All right, thank you.