Good morning everyone, and thank you. Welcome to the 2019 MetLife Investor Day. Thank you for joining us at our landmark headquarters in New York, the MetLife building. We appreciate your interest in our company. I'm really pleased to host this meeting in our auditorium here at 200 Park Avenue. This room represents a communications nerve center for MetLife. We host business unit town halls here, global town halls here. We've hosted board meetings in this room. Our annual shareholders meeting is hosted in this room. Each quarter, we actually host our quarterly earnings call in this room. It really makes sense to have this meeting here in this room. If you're here, the materials for the day are at your seat. If you're joining us online, you'll find the materials at metlife.com in the investor relations tab on the website.
We will be making some forward-looking statements and discussing non-GAAP financial information. At the back of the materials, you'll find cautionary language and reconciliations. I suggest you review those at your leisure. I've cleared that for our General Counsel, Steve. You got it all good. All right. Let me just take a moment to give you a sense of what to expect today. We have a packed program with senior executives from around the world, illustrating the depth of our global talent. We have folks joining us from Hong Kong, Tokyo, Singapore, Dublin, Buenos Aires, Mexico City. Steven Goulart and myself, we came from New Jersey. We're going to start the day today with Michel Khalaf, our President and CEO, and he's going to provide an overview of our Next Horizon strategy.
After Michel, we're going to conduct a series of deep dives on several of our larger business units. We're going to conclude the formal presentations today with a quick summary of the outlook materials we released last night. Before I go any further, I'd like to recognize somebody who is not with us today. Longtime Analyst and former MetLife employee, John Nadel, who passed away suddenly last week. We're going to miss him as a great analyst and a great friend, and especially today, we're going to miss his insightful questions. Toward that end, we do have two Q&A sessions today, and as everyone knows, one Q, one question, one follow-up, please. After the second Q&A session, Michel will come back to the stage with some closing remarks. We have a parting gift for everyone, and we will have bagged lunches available for you to take away.
We have a powerful story today to tell you, enjoy. Before I leave this stage, I'm going to queue up a video. Roll tape.
[Presentation]
Good morning, everyone. I don't know if you noticed the expert narration on this video. At least I thought it was until I showed it to my kids, and their reaction was, "Dad, stick to your day job." My day job, it's really great to see so many of you here this morning. This is my first Investor Day as CEO. I think for the first time in a while, we have a chance to focus on what's now and what's next for MetLife, and I'm confident that we have a great story to share with you.
I wanted to start with purpose, because throughout my 30-year career in the industry, I've always held the belief and the conviction that taking care of our customers, meeting their needs and their expectations, building long-lasting relationships with them, is a sure ticket to creating long-term, sustainable shareholder value. We believe that our purpose will inspire our people, will motivate them to deliver for our customers and to create value for our shareholders. It's a virtuous circle. It will drive higher levels of performance, and it will build a more confident future for all. Today, we're going to talk about strategy. I wanted to give you a sense of why we call our strategy Next Horizon. We recognize that we live in a fast-changing world, where customer expectations are increasing. We must always be ready to respond to those expectations.
We cannot and do not assume that this industry will not be disrupted. It may very well be. We believe that we have a right to be the disruptors, given our standing in this industry. As we look at how do we create value over the next five years, we've also thought through about what type of moves we need to make now so that we position MetLife for decades of future success. That's what Next Horizon means to us. Let's talk about our strategy. When you leave here today, I'm hoping that what you will take with you are a few points. First, we feel good about our starting point. We think that we are starting from a position whose risks have come down and whose returns have gone up.
Second, we will drive our Next Horizon strategy. We will create value by focusing on three pillars. Focus. Every decision we make will aim to deploy capital to its best possible use. Simplify. Every action we take will aim to simplify MetLife and improve our customer's experience. Differentiate. Every investment we make will aim to drive our competitive advantage in the marketplace. Thirdly, we believe we have a great set of globally diversified, market-leading, and complementary businesses that are going to generate cash today and tomorrow. Our commitments going forward are that we will deliver a 12%-14% ROE. We will deliver strong free cash flow of $20 billion over the next five years, maintaining our free cash flow ratio of 65%-75%.
We will create positive operating leverage by driving efficiencies in the company to create a $1 billion-plus to fund incremental investments, mostly in technology and innovation, over the next five years. These are our commitments. Let's talk more about the strategy. Let me tell you that MetLife is a very different company to the one I joined back in 2010. As a matter of fact, I would argue that MetLife is a very different company compared to the one just from three years ago. The biggest change is to the profile of our liabilities. We are less market sensitive and less capital intensive. We've also taken steps to reduce the risk of our asset portfolio and continue to improve our liquidity. The combined effect of these actions is a more resilient company across economic cycles. Just as important, we've improved MetLife's financial performance.
If you look at the bottom of this slide, you can see that since 2016, we've returned $15.7 billion in dividends and buybacks, we've improved our ROE by 500 basis points, and we have delivered 25% growth in our EPS. Any one of these outcomes alone would be impressive, but combined, they speak to a company with a resilient balance sheet and strong core operations. The commitments we're making to you today and going forward will continue this trajectory and are anchored in this improved performance. Let's talk a little bit about why do we feel that we're starting from a position of strength, and how are we improving our risk profile? I think to fully appreciate our transformation, we should look at these two trends side by side.
On the left I referenced the 500 basis point improvement in our ROE, let's keep in mind that this improvement is against the backdrop of low interest rates. Our ROE sits now over 1,000 points above the risk-free rate, this would be meaningless if our risk profile was increasing. As a matter of fact, as you see on the right-hand side of the chart, the opposite is happening. Our cost of equity is coming down, as reflected in our beta. I can assure you that going forward, we're going to continue to deploy capital where risk-adjusted returns are attractive, that's a key pillar of our Next Horizon strategy. This slide further underscores the improvement in our risk profile and how we are revamping this risk profile here at MetLife.
On the left, you see the dramatic decline in our U.S. variable annuity balances since the end of 2015, obviously, the spin-off of our retail business had a major role to play in that. This means we have less equity market risk, we have less interest rate risk, we have less policy behavior risk. On the right-hand side, you can see that we have nearly doubled the earnings from our market leading group benefits business. This is a protection-oriented business. It has a low cost of equity, it's a business that we can reprice every couple of years. It's a business that we like, it's a business that we're focused on growing. We fully expect both trends to continue.
Our VA balances will continue to decline as the MetLife Holdings block runs off, group benefits will become an even more meaningful contributor to our overall earnings as we continue to focus and grow that business. This shift in business mix is not limited to these two lines alone. A matter of fact, if you look at this next slide, you will see that the shift in business mix is really happening across the company. If you look at our year-to-date earnings for 2019, adjusted earnings, two-thirds of those earnings are coming from protection-oriented and fee-based businesses, a third is coming from spread businesses. This picture is even more impressive if you look at new business as measured by value of new business.
As you know, we have adopted value of new business, which is the present value of future distributable profits from new business as a key measure for us in terms of how we deploy capital to support new business. You can see here that over 85% of our value of new business comes from protection-oriented and fee-based businesses, and only 15% from spread businesses. Now we are shifting our business mix, but we are also driving VNB growth. I think this makes the picture that I showed you earlier even the more powerful. MetLife’s leadership is focused on growing value by deploying higher amounts of capital at higher IRRs and lower paybacks. You can see here the impressive 45% increase in our VNB from 2016 to 2018. Look, let us isolate the impact of tax reform. That might be something on your minds. Tax reform has contributed to this.
Even if you isolate the impact of tax reform, that growth is over 30%, which is still very impressive. We have added $2 billion in embedded value to the firm in 2018. The most important drivers for this VNB growth are volume growth, mix shift, and expense discipline. Managing to VNB imposes a discipline on how we price and how we design new products at MetLife. Since the beginning of this year, I have visited all of our major markets. As a matter of fact, I have visited several more than once, and many other markets around the world. I can tell you that the Accelerating Value initiative that we launched back in 2014 has now become an integral part of how we run our business in every corner of MetLife. This is how we run our business.
We take a value lens in terms of how we price new products and how we view the contribution of new products to our business. We think it is a powerful tool, and we will continue to invest capital wisely going forward. Let me now turn to our three strategic pillars of focus, simplify, and differentiate. They frame how we will create value and think of those pillars as the blueprint for how we will run the company going forward. On every decision, we will ask ourselves, does it support our focus on value creation? Does the decision support our focus on value creation? Does the decision help us simplify MetLife and improve the customer experience? Does any investment that we make help us differentiate and drive our competitive advantage in the marketplace? We recognize that consistent execution is absolutely essential, and this is how we will execute at MetLife.
I am going to expand now on these three pillars in my next slides. We believe that cash at the core, cash remains the true measure of the economics of the life insurance business. At the heart of focus is our commitment to generate strong and sustainable free cash flow. Our capital management philosophy remains unchanged. We continue to be committed to it. Capital is precious. We are extremely disciplined in deploying capital to the highest value opportunities and use. This philosophy extends to all uses of capital, whether we are talking about capital that supports our in-force, whether we are talking about capital to fund organic growth, whether we are talking about M&A opportunities that we might consider that would have to fit our strategy and be accretive. We are also committed to maintaining a buffer of $3 billion-$4 billion.
Think of it as a buffer that can protect us in case of economic turbulence. Excess capital, above and beyond, belongs to our shareholders, and we will return it in the form of common dividends and share repurchases. This philosophy translates into three commitments. Maintaining a free cash flow of 65%-75%. This in turn allows us to maintain a buffer of $3 billion-$4 billion and to generate around $20 billion in free cash flow over the next five years. Those are our commitments going forward. The bottom line here is that the power of our business to produce significant free cash flow on a sustainable basis is one of the most compelling signs of our transformation. Let me step aside from the slide for a minute.
When we talk about focus, we also have to touch on our portfolio and how we think about rationalizing the portfolio. Following the Alico acquisition, MetLife had a presence in 66 markets around the globe. We are now in 44. That is one third less. Our philosophy and approach, which we continue to be committed to, is to continue to look at our portfolio from the lens of strategic fit to our Next Horizon strategy. For markets that are not meeting or exceeding our minimum risk-adjusted hurdle rate, whether we see a path for them achieving that in the near future. Failing that, all options are on the table. Our recent decision to exit Hong Kong is a case in point. This is our approach, our philosophy, as we continue to look at our portfolio. Let me move to simplify.
At the heart of simplify is the notion of operating efficiency or operational efficiency. Our Unit Cost Initiative, as you know, will conclude in 2020 and is now projected to deliver $900 million in margin expansion. That's $100 million over what we had initially committed to. I like to tell my team that the plan is to beat the plan, and I'm pleased that in this instance, we are beating the plan as far as our UCI initiative is concerned. Going forward, we intend to move away from these serial expense programs that are complicated to explain and in some instances, also difficult to administer.
The way we're going to do that is we're going to focus on adopting an efficiency mindset in the company, which means that we will maintain the margin that we have created from our Unit Cost Initiative, and we will continue to drive efficiencies in the company. We will hold to the 12.3% direct expense ratio that we will have in 2020, while creating additional capacity to fund over $1 billion in incremental technology and innovation investments to accelerate our growth. We believe that an essential part of becoming a simpler company is becoming a company that is easier for our customers to do business with. I think we've made progress in this area, but the bar keeps rising, and we understand that we need to keep up with customer expectations going forward.
We believe that continuing to simplify our business and driving efficiency will help us accomplish that. Let me touch on differentiate, our third pillar. Really think of differentiate as the aspects of our business that are difficult, maybe in some instances, impossible for our competitors to replicate. If I start with brand, at the core, our product is a promise. We've been delivering on our promises for over 150 years, and that's allowed us to build long-lasting relationships and trust with our clients, with our customers. This is a major advantage. I spend a lot of time with our customers. It's one of the aspects of the job that I enjoy the most, almost as much as spending time with our investors. Almost. I can tell you that our customers do not refer to MetLife as a product manufacturer.
They view us as much more than that. They view us as a real partner, as a thought leader. They view us as a partner that can come to them and help them navigate an increasingly more challenging landscape in terms of how they meet the needs of their employees, how they keep their employees engaged and productive. This affords us a lot of leverage with our customers. When we come to them with an idea, when we come to them with a product or with a solution, it's much easier for us to convince our customers to adopt those products and solutions than it is for others in the industry. Next, I'd like to focus on talent. I've worked in 10 different markets on four continents in my career, and I've competed against the biggest life insurance companies there are out there.
Talent is important. I can say with confidence that here at MetLife, we have one of the best leadership teams in the industry. Talent is not only about attracting, retaining, and developing our people. One of our differentiation is that we are able to deploy or redeploy talent, match that talent against the biggest opportunities that we see in the company. This morning, you'll hear from some of our leaders at MetLife. For example, Graham Cox. Graham has had a highly successful 24-year career with the company. He's held a number of leadership positions here at MetLife. I'd like to think that he cut his teeth running the Europe business for me in EMEA, when I first took on the EMEA role back in 2011. More recently, he was in charge of investment risk for MetLife, and now he's running our Retirement and Income Solutions business. Kishore Ponnavolu.
Kishore joined MetLife back in 2011 to head our strategy group. He went on to lead our auto and home business, and last year, he relocated to Hong Kong to lead our Asia business, which is the second biggest region in MetLife. Rebecca Tadikonda, who replaced Kishore as head of strategy. Rebecca was the architect behind the Accelerating Value initiative, and she has recently moved to Singapore to take on a role running our strategic growth markets in Asia. You'll hear later about the importance of continuing to grow the non-Japan component of our Asia business, and Rebecca is leading the charge on that. Those are examples of how we leverage our talent here at MetLife and how this is a major differentiator for us.
I doubt you'll go to any presentation from any company where the notion of technology and innovation is not prominent in terms of the discussion and appears on the slides. Let me tell you what's different for us here at MetLife. One, we believe that it's important to continue to build a culture here that fosters and encourages innovation, experimentation, encourages our people to challenge the status quo, to find new ways of doing things, and to do those things in an agile manner. I believe we're making progress, and it's something that we continue to be committed to here going forward. Being able to innovate and challenge the status quo is an integral component in our ability to meet our customer expectations going forward.
On the technology front, we believe in what we call a high-tech, high-touch approach, meaning we want to be able to interact with customers in whichever manner they wish to interact with us. Our approach is not limited to building capabilities internally. We're able to do that, and you'll see examples today in terms of capabilities that we built that we believe will be disruptive, especially in the group channel. We'll also have the ability to partner through our broad relationships with many venture capital funds that give us access to most of what's happening in the FinTech community and the startup community. Then we also have the ability to acquire if needed, if we think that there's a capability where it makes sense for us to acquire.
You'd get also another example today, a company that we've recently acquired that I think will help us continue to drive growth and bring a new capability to our customers in the group channel. We have the ability to do any one of those or to follow any one of these strategies. We believe that continuing to make progress in technology. Look, we are not claiming that we are where we need to be. What we can say is that we are making progress. We've been making significant investments in this area so far, and we're going to continue to make those investments going forward. Last but not least, scale. Scale In our industry does matter. You see already the consolidation that's happening in parts of the business.
A lot of that is driven by the fact that companies realize that they have to invest to maintain and strengthen their competitive advantage. If they're not able to do so, then they are going to lose that advantage. We have scale, and that's an important differentiator. Scale also extends to our investments area, where we have very strong underwriting capabilities, exceptional private asset origination capabilities. That is very helpful for us in terms of fueling some of our businesses. You'll hear more about that from Graham and Steven Goulart later this morning. Then we have scale when it comes to distribution and relationships as well. This is important because it allows us to make shifts in product. I showed you earlier the significant shifts that we've made in terms of our product mix.
We're able to do that in Japan, for example, because of the strength and the scale of our distribution and the breadth of our relationship. Having the right set of competitive advantages, in our view, is as important as having the right strategy. We're going to continue to drive those advantages going forward. Now let me touch on our portfolio, and which was the third area in our strategy. We believe that we have a great set of complementary businesses here at MetLife. If I start with a macro overview, our footprint covers 80% of the world's GWP, gross written premium. 90 of the Fortune 100 companies are our clients. We have over 100 million customers. We have a mix of mature and emerging markets, and we have leading positions in many of the world's biggest markets, U.S., Japan, parts of LatAm, parts of EMEA.
I think more importantly, or as importantly, is the fact that we're very well positioned to capture value from some of the socioeconomic trends that we see. In the U.S., we see a shift from employer to employee-paid and voluntary products. In Japan, where you have an aging society, which is putting pressure on the social safety net. We see growth in the middle class in LatAm, and we see rising insurance penetration in parts of the Middle East. This portfolio allows us to take advantage of those trends. Now, I probably said the word cash more than any other word this morning, and I'm not apologizing for that. What really excites me about our portfolio is we have a complementary set of businesses that are going to deliver strong and sustainable free cash flow now and into the future.
If we look at our portfolio from the perspective of, call them three buckets, if you like. Those are examples of businesses that belong to those buckets. We have businesses like MetLife Holdings, RIS, and Japan. Those are very well-established, stable businesses in mature markets that are an important source of cash for the company today. I call those businesses cash today, and those businesses represent 50% of MetLife's free cash flow. The next set of businesses are growth drivers in markets where we have the number 1 position. That's true for group, that's true for Mexico, that's true for Chile. Those are businesses that we like to call them cash today and cash tomorrow. Those are important sources of cash today. You can see 30% contribution to MetLife's free cash flow. Those are businesses where VNB is growing at a 40% clip.
Not only are these businesses generating cash today, they have the power to generate cash tomorrow as well, and significant cash at that. Last but not least, we are well-positioned in what we call secular growth markets. Those are markets that are seeing economic growth and where most of the industry growth is going to come from going forward. We like to call this bucket cash tomorrow, but don't think of tomorrow as too far off. If you think about how we're positioned in many of those markets, in China, for example, we're the second most profitable foreign company in that market. China is growing at an impressive pace for us. In Bangladesh, which is the fastest growing economy in Asia, 160 million people, we're the number 1 player and the only foreign player in that market.
In Turkey, we're now the number three player, again, in a highly under-penetrated market when it comes to insurance. These markets have a high ROE, 18%+, and collectively have generated a quarter of a billion dollars in cash flow over the last three years. These are markets that are already contributing and whose contribution is expected to accelerate going forward. This is how we think about our portfolio. We think about it from a cash generation lens, and we feel comfortable and confident that we have the portfolio that's going to generate cash today and tomorrow. In terms of takeaway and to close, I just want you to know that the leadership team here at MetLife has a powerful vision of where we want to take the company. When we look at our Next Horizon, what do we see?
We see a simpler and more focused company with a great set of businesses that generate strong free cash flow. With that, I thank you, and I'm going to turn it over to Ramy Tadros, the head of our U.S. business. Ramy?
Thank you, Michel, and good morning, everyone. Thank you again for joining us here at MetLife. This is an exciting time to be at MetLife as we embark on our Next Horizon strategy, and as Michel said, doing that from a real position of strength. We're going to cover two of our U.S. businesses this morning. First, I'm going to talk about our Group Benefits business, and joining me on the podium will be my colleagues, Esther Lee and Todd Katz for that portion of the presentation. Next, I'm going to talk about RIS, and joining me for that is Graham Cox, who you've heard about earlier from Michel, for that portion of the presentation. Let's get started. With respect to Group Benefits, there are four key messages I'd like to leave you with. First, we're a market leader in a highly attractive industry.
Many of you are familiar with the important characteristics of the Group Benefits business, which makes it one of the most attractive, if not the most attractive business in the U.S. life insurance industry today. It's a capital light business with high cash flow generation. It's a short tail business where experience emerges quickly, allowing us to reprice the product as needed. What is not always appreciated about this business is that the basis of competition in this marketplace extends beyond price. That's a really good attribute. Don't get me wrong, price is important, but it's not just about price. This attribute of the market gives us plenty of opportunities to differentiate in this marketplace, and you'll hear about those in this presentation. We are the market leader here. We have a market share that's twice that of our next commercial competitor.
Despite being the market leader, we have a track record of delivering top line growth that has outpaced the market and very solid bottom line results. The second takeaway is that we are positioned to win in a rapidly evolving marketplace. There are clear trends which have shaped and will continue shaping the market going forwards. These trends play to our advantages and our competitive advantages and our strengths. These competitive advantages include our brand, our trusted brand with employers and employees. Our scale, allowing us to invest in technology capabilities in this business and be positioned as both high tech and high touch for our customers. Our product portfolio, where we offer the widest product portfolio in this industry. Finally, the strength of our distribution. We've been in this business for 100 years. Our relationships with our customers and our distributors are vast and deep.
Third, talk a bit about the economic cycle. We recognize that the favorable economic cycle in recent years has given some tailwinds to our results. That is certainly true. Having said that, we have a product portfolio that positions us well to be resilient in the event of a downturn, and we'll talk a bit more about that in a few minutes. Finally, we're not resting on our laurels. I would say we're just getting started. We have a great franchise, and we have a set of targeted strategies that will leverage our competitive advantages and allow us to continue delivering on a very strong track record here.
Before I describe that track record, I'd like to spend a few minutes and set the table for you with respect to the profile of our business today, and talk to you in a bit more detail with respect to the trends that I've just mentioned. Turning to our mix of business. What you see here on the first pie chart is the distribution of our business by product. Think of it as our in-force business by product. Group Life is the single largest product category that we have. We're a market leader here with over a 20% market share. A few observations on disability. Disability is arguably the product which is most sensitive to a macroeconomic downturn, especially a rise in unemployment. For us, this makes up 12% of our PFOs and a similar percentage of our earnings.
What's also important here with respect to disability is that we have a book of business where we can reprice 45% of that book every year. Think 90% of that book gets repriced over a two year period. In addition to that, we have a very strong track record of securing price increases at renewals when these are warranted. Taken in combination, if you look at all of these factors, we think the effect of any downturn on our book of business would be short-lived. The second two pie charts here show the makeup of the business by market segment. The key takeaway here is, while our in-force business, if you look at our PFO distribution, is weighted towards national accounts Think employers with 5,000 or more employees. A very different picture emerges when you look at our mix by sales.
In fact, more than half of our sales are coming from employers, from mid-size and small-size employers. This is deliberate. It's a choice. We're diversifying growth by growing down-market. Todd will describe to you our strategy for each one of those market segments shortly. I will now turn to the market trends. We regularly conduct an in-depth market study of this marketplace, our annual benefit trends study. The study gives us deep and proprietary insights into what's going on, trends with the channel, trends with the employer, trends with the employee. It gives us proprietary insights that have informed our strategy over time, and also positioned us as a thought leader and a partner to our customers and distributors here. What are these trends saying?
First, for employers, benefits are a means to attract and retain talent and to achieve better business outcomes, such as reducing absenteeism and increasing productivity. Talent-oriented employers think long and hard about this. When they think about their insurance partner, they think a lot more about the product and the price. They think about a lever that allows them to engage with their employees, improve that productivity, and attract and retain that talent. This is not just a product in the minds of that employer. Employees are increasingly in the driver's seat. Their needs are evolving, and they are seeking a wider range of benefits from their employers. We'll share a bit more detail later with respect to the growth in our voluntary benefit book, but the headline here is that we're seeing a 30% PFO growth year-on-year in our voluntary business.
We expect this trend to continue, and we expect to continue taking a leadership role here. Third, I'm going to talk a bit about the ecosystem. The ecosystem that surrounds benefit is changing very, very rapidly. The channel is consolidating. Brokers and consultants, large brokers and consultants, national brokers and consultants are growing both organically as well as through acquisitions. These are our best relationships and trading partners. As their books of business grow, we will grow with them. Benefit administrators are increasingly an important part in the placement decisions of benefits. Insurers with tight connectivity and technology connectivity with these benefit administrators have a competitive edge. We've realized this five, six years ago, and we've been investing here for years. Employers care a lot about the data security of their employees. Here again, we've been investing for years.
Let me pause here and just to put two important pieces of the puzzle for you as we think about the prospects of this business. First are our competitive advantages that I've talked about, including the distribution relationships and the scale that we have. Second are the changing dynamics in that work site. Think about the employer and the employee dynamics and the desire to add more and more solutions and products to that workplace. This combination offers really interesting growth opportunities for us. We are constantly looking for additional solutions and products that work in that work site, that deliver value in that work site, and bring our distribution scale and strength to those solutions. You will hear later about three such examples that we've done in the last few months, and we have a strong pipeline of additional opportunities. Finally, a word on M&A here.
We've seen a number of M&A transactions in this industry over the last few years. This is not surprising. Given the attractiveness of this sector and the importance of scale, we expect this trend to continue. If you haven't realized that already, we have scale, and we are in this business. We don't need to do a deal. Having said that, if we are the acquirer, we would do it at a valuation that makes sense to us and is accretive to our shareholders. If we're not the acquirer, the market data tells us that we win a disproportionate amount of the business, which invariably moves as a result of these M&A activities. I will now turn to our track record. As I mentioned, we're the number one in this industry with a 16% market share.
If you look at our top line, we've actually been able to grow our top line faster than the market. How can we do that? By protecting our core and maintaining industry-leading persistency, by taking share, by growing in voluntary, and also growing down market with those mid and small-size employers. We've done so responsibly. The power of scale, which Michel alluded to, becomes apparent when you look at our expense ratios here. We have been investing and will continue to invest over $100 million a year in new technology here. This is incremental technology investments. High touch, high tech. We've done that while absorbing those numbers in our run rate and driving that expense ratio down over time. That is the power of scale.
As we continue to grow revenue faster than expenses, drive further efficiencies in this business, we expect to expand our margin and enhance our price competitiveness. Last but not least is the bottom line. The performance of this business from a bottom-line perspective has been even more impressive. It's driven by strong business fundamentals, good growth, strong underwriting performance, shift to voluntary, expense, and pricing discipline. I cannot overemphasize the point on pricing discipline here. Good and sound risk management is ingrained in how we run this business. Spoken like a true former chief risk officer. We are highly disciplined. We have not and will not chase top line here. If the numbers don't add up, we have the discipline to walk away. No doubt, you'll see that our performance has been helped by the favorable macroeconomic environment as well as tax reform.
Those have certainly contributed to those numbers over those periods that you're looking at. If turning to our underwriting ratios, you see our Group Life mortality ratio has stayed within a very tight range over the last few years. The year-to-date number is favorable compared to our midpoint. Our non-medical loss ratio has trended down over this time period. That's been helped again by that favorable economic environment, business mix shift, think voluntary, think more down market, as well as business improvements. With that, I'm going to turn the stage to my colleague, Todd Katz, who's going to talk about our business strategies by market. Todd?
Thank you, Ramy. Good morning, everyone. It's great to be here with you. I've had the pleasure of being part of MetLife's Group Benefits business for the last 30 years, running it for the better part of the last decade. As Ramy said, we've done a lot over that time. What I plan to do in the next little while is share with you how we plan to grow this business in the future. First what I wanted to do is give you a little bit of insight on some of the learnings that have informed how we run this business today and how we'll run it in the future. I think it picks up on points that both Michel and Ramy made. First, we believe growth needs to be driven by competitive advantage.
In this business, carriers that invest to drive distinct competitive advantage have a right to grow and can grow both the top and the bottom line. We also believe that you need to continue to invest. You heard that in Ramy's talk, and that investment, for the most part, needs to be in technology aimed at improving customer experience and driving efficiency. That's something absolutely we plan to continue to do. Finally, expertise, talent, brand, reputation matter a lot. In this industry, we believe there's a difference in the way carriers run their businesses, and that very much is perceived in the market in the way that they choose to place their business with. Lastly, what I want to share is the way you manage the business does make a difference. We're one of the few carriers who play in all markets.
You saw the slide, large customers, medium, small. We know that to win in those markets, you need to apply different strategies based on what's going on with your customers, your distributors, and certainly your competition. Our market heads have full end-to-end accountability for growth and profitability, and they're responsible for figuring out how to take all of MetLife and align that around what needs to happen for us to win in that market. Let's talk about growth. I think Ramy laid this out. Our growth plan is quite deliberate. It starts with maximizing our core, that's our National Accounts business, growing in segments where we play today, but are somewhat under-penetrated in regional and small. I'm going to dive very deep on Voluntary today, and I really want to give you a sense why we believe there is no carrier in the industry better positioned to leverage the Voluntary opportunity than us. Finally, we'll end with a discussion on some new products, which we think are critical to continue to build that advantage and meet the diverse needs of our clients.
Let's start with National Accounts. You've heard this story before. It's a $52 billion market. We're the market leader, 28% share. However, a relatively slow growth market. We've been growing at 5%, so well ahead of the market growth. How do we do that? What is our secret sauce to differentiate in this market, grow faster than the competition as the market leader, and do that in a responsible way to also grow the bottom line?
First, it absolutely starts with customers. We organize our business, our entire organization around our customers and what they need to deliver. Our average customer in this market has been with us for 22 years. We know them quite well. Our persistency and satisfaction levels are in the high 90s, and over 75% of our growth in this segment comes from those clients. We also add about 100 new clients a year, and those clients become the opportunity for future growth as they continue to be satisfied with the value proposition that we deliver. Finally, we're constantly looking at the market to identify new opportunities. For example, a few years back, we identified the public sector as a segment where our value proposition resonated quite well, but yet we were under-penetrated.
We've really seen significant growth in the public sector since then and done that quite profitably. The latest area where we're focused on is now healthcare. The healthcare segment is one of the fastest-growing segments in the industry. We have recently developed some new capabilities that we think will allow us to grow fast in that market. Bottom line, we know this business better than anybody else. This is our core franchise. We believe we will continue to grow it responsibly by differentiating in the market and delivering significant value. Now let's pivot to regional market. A little bit different story in regional market. It's also a large market, $52 billion in premiums. That's employers with 100 to 5,000 employees. We're the number three carrier in this market with about 7% share. Now we've been growing at about 5% to 6%.
When we look at our business plan, we believe that by delivering on a few strategies, we can take that growth rate up to north of 8%. Let's go through what they are. First, this market is really dominated by brokers or controlled by brokers. The brokers are really important, and we've developed some advanced analytics to help us really understand how brokers operate and, most importantly, which brokers align best with our value prop. Just a headline on our value prop is we need to be price competitive, but we want to win on dimensions that go well beyond price. We've also found, interestingly, that those brokers tend to compete themselves based on similar dimensions. They're more consultative, and they also have been the fastest growers, either organically or through the consolidation that Ramy talked about.
Once we understand the brokers that matter most, then we deploy our organization around those brokers to put us in a position to win in a differentiated way. That can be things like the way we assign our sales and service teams. It could be the service delivery model for their clients. It's certainly very much about our strategic approach to growth with them. That means sitting down with them as a partner and figuring out how collectively we can create more value for our mutual clients and, as a result, grow together with them. If you think about our business as a whole, the top 20 firms are the broker of record on over half of our business, and our business with those firms is growing at around 9%. The point here is that this strategy is working.
The second piece in this market is about Voluntary Benefits. I'm going to come back to that later, but the headline message is three out of four clients in this market do not offer Voluntary Benefits today. Big opportunity for growth out into the future. Let's pivot now to small business. We believe in small business, we also have a significant opportunity for growth. It's a $20 billion market, far more fragmented. We are number eight with about 4% share. Now we've had significant strength with our dental product in small business. It's more than half of our premiums. We were able to take the scale of our network and our claim process and leverage that to have a very competitive offering down market. We believe our future in small business is about taking our whole portfolio, including Voluntary Benefits, and bringing that down market.
That's about a different operating model. We are pleased to say that we are in pilot with our new end-to-end quote-to-claim digital operating model. We've talked to you about that in the past. We will be deploying it fully next year, and it'll put us in a position to do three things. One, deliver a much better customer experience. Think about that. Quotes go from days to minutes. Put us in a position to take all of our voluntary products down to 10 employees, and to do that in a simple, more efficient way that allows us to have lower costs and ultimately more value for all of our stakeholders. What I'd like to do now is show you a quick video to make it real and give you a sense of what this platform and operating model is all about. Let's run the video.
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Feedback in the market from our brokers has been fantastic, and we're very excited to roll this out next year and really do expect it to be a key driver of, not only growth, but some disruption in this market. What I'd like to do now is pivot to Voluntary Benefits. What I'm going to do is share with you some new information on our Voluntary Benefits business and then give you a sense of how we expect to win. First, I think you all know the story. If every investor meeting for a group carrier you go to, I'm sure they talk about Voluntary Benefits. I see a few heads nodding. As do we. We believe, though, there isn't anyone in the industry who's got as compelling a value proposition as we do.
As the chart shows, we've been growing this business by north of 30% a year. It'll be pretty close to a billion-dollar business by next year. What I'd like to do, though, is give you a little bit of a sense of how we look at Voluntary Benefits and how it relates to our full business. You can see from a financial perspective that $13,721, that's our group benefits premium and fees that you'd see in our financials through the first three quarters of 2019, and that's growing at about 5%. We've been, in our outlook calls, talking about a 4%-6% growth rate, and we're kind of right in the middle. What we did, though, is we parsed out in that whole block how much of that business is employee-paid.
Think our full portfolio, group life, dental, disability, and of course, our Voluntary products. You see that's a little less than 40% of our business, about $5.4 billion, and that's growing faster than the market, around 9%. In fact, materially faster than the market. It's important to note that those products are designed to enable customers to elect in the benefits that are most important to them. They have high customer value, low risk characteristics, and strong returns. If we click one step deeper, we get to what we're defining as Voluntary. By the way, we're very deliberate about this. These are our accident and health products, our legal products, and some of the new products I'll talk about in a minute. These products meet very unique customer needs, have strong risk characteristics, and we believe based on market trends, are ripe to continue to grow.
We also believe our opportunity for growth continues to be large. As I mentioned earlier in regional market, and this applies across all of our business, only 25% of employers offer these products, and on our current portfolio, the take-up rates are under 15%. The point here is with the right focus and leveraging the market trends and our competitive strengths, we plan to make this a much bigger business. Let's dive just a little bit deeper and explain to you why. First, you guys know the story about our business. Michel and Ramy both hit on it, 90-plus of the Fortune 100, 83% of the Fortune 500, 20 million-plus customers in our portfolio, the broker relationships, et cetera. The ecosystem of customers, brokers, and channels is already built. We have the opportunity to take these capabilities and introduce them into relationships that are already strong.
Second, we have more products than anyone else in the industry. We think that's important because it allows us to be consultative with clients. If you only offer one or two products, you're going to go in and talk about those one or two products. When you offer a dozen-plus products, you can be customer-centric, and that puts us in a position to be more consultative and to grow in a different way. Third, we understand employees better than anyone else in the industry. Esther will give you a sense in a few minutes about how we engage employees throughout the year to position them best to make good decisions during the enrollment process. We do over 2,000 campaigns with our customers every year around education and enrollment to help people better understand the value of their benefits.
We also have over 1,000 clients with 7 million employees eligible for our financial education seminars. We've been doing this for 20 years. They allow individuals to get valuable insights on their needs, and in many ways allow them to think about how their benefit programs can help them with those needs. We've also rolled out some digital capabilities related to that in the last year. Finally, as both Ramy and Michel mentioned, our operating model is all about the customer. Could be high tech, where we're delivering digital solutions to meet their needs in the way that they want to, or having them connect with what we believe are the best account managers and service people in the industry who come to work every day with a caring perspective and really focused on that purpose that Michel shared earlier today. Finally, brand matters.
Our brand goes beyond just having a great benefits brand, which we do. 150 years in this business, even post-exit of our U.S. retail business, we have the best consumer brand in this industry. We think when you add these things up, there isn't a carrier in the industry better positioned to leverage the voluntary opportunity. With that, I'm now going to turn it over to Esther Lee, who will give you a little sense more of how we engage employees around voluntary benefits. Esther?
Got it. Great. Thank you, Todd. Unlike Todd, I have only been at this company about five years, but given the focus that this company has on the customer, the opportunity to drive these customer-focused approaches to really make business impact and drive competitive advantage is really so much a part of what we do here. As it pertains to group benefits, when you think about that shift that employers are making of the responsibility of benefits to the employee, really to voluntary, it's really important that we engage that employee, that end customer, the person that ultimately has to decide, the person that has to want to sign up for voluntary benefits. In order to win in voluntary, we need to really deploy a customer-focused approach.
I will say we're using a customer-focused approach across many businesses across the globe. You're going to hear a little bit later, Rebecca Tadikonda talk about our approach in China. In U.S. Group Voluntary, what I will say is we've really leveraged this practice to drive true competitive advantage. Let me show you a little bit more about this. What is this customer-focused approach? Well, it starts with having deep insights about our employees. Who are they? What do they care about? We need to understand how do we position our offerings to these employees in a way that matters to them. Finally, how do we engage in the enrollment process in a way that really is motivating to these employees?
When it comes to deep insights about who these employees are and what they care about, we've done a lot of our own proprietary research. You've heard Ramy talk about the Employee Benefit Trend Study and how we actually use that to understand the dynamics of the evolving employee benefits landscape. We also use the study to dive deep into insights about perceptions and attitudes of our employees as it relates to work, the workplace, life, benefits, and the combination thereof. That provides really important perspective as we think about engaging these employees. We've also done quite a robust quantitative segmentation study of employees, and we also call them consumers, really across 12,000 employees, 15 industries, to understand these discrete segments and how they get comprised in an industry or even in a company in order to really tailor our engagement to these segments.
In terms of relevant positionings, we've actually tested a lot of different alternative positionings for our various products, and we've gotten input from over 4,000 employees to really understand what's the best way to talk about our offerings in a way that matters to them and their needs. Finally, we've learned a lot about how to engage in the enrollment process. I will tell you, it is not enough to send out the email, it's employee enrollment time, benefit time, send out some product information, expect good results on the other end. We need to do more than that. When we think about employee or customer engagement, we need to start with communications that drives awareness and maybe piques some interest.
We need to have the right tools to give people an understanding of what it is we're selling them, what it is we offer them. We need to make the actual sign-up process easy and even gratifying. Through all that, we need to be people-centric, not product-centric. We need to use human language, not boring insurance speak. We need to make sure that the process itself feels engaging. We're using design and storytelling as opposed to a lot of heavy text type of communications. Today, we have a toolkit of probably over 70, I would say 70+ different assets that employers can actually use to help enroll their employees. What I'd like you to think about is you're sitting at your desk, the email comes through, it's time to enroll in benefits.
That may not be the most exciting email you get of the week, I would like to say that there are some things that we have provided in terms of the engagement in that process that I think if you were to actually experience those, might make you feel a little bit different about the process. I'm going to show you two videos that explain a couple of our benefits and the value of those to the employees. If you can roll the next two videos, please.
A lot of people depend on me. Just knowing that I am covered with life insurance is big to me. Well, I had some. My husband didn't have any then. A baby changes everything. My son made me honestly look at the world differently. Even though I might not like to talk about death or any of that other stuff, that was the first time that my husband and I actually had a conversation about it. If I know something and it's benefiting me, I want to make sure that you know about it.
We have health insurance.
Yeah, health insurance, dental, vision. Don't work at a job that I would imagine I would get a disability from. I work at a desk. To me, it's not a risk. Well, I kickbox, I run.
Until this conversation, I thought you had to be hurt at work for disability.
Like a pipe fell on your head in your office.
Getting a policy like that, I think, is really empowering. There is something there to take care of you.
I guarantee we're going to talk about this all night.
That's so true that people actually think disability means you have to get hurt at work. I know you guys don't because you follow this industry, but it's really quite true. This customer-focused approach really has helped us win with employees, and this is in relation to enrollment rates and also perceptions. On the enrollment rate side, if we take people that have gone through the optimal enrollment conditions and we compare that to people that are exposed to the more basic enrollment conditions, we see up to a five and even 10x enrollment rate. That's quite dramatic, and it varies obviously by different types of Voluntary Benefits. From the perception side, we've tested materials, the old materials that were put forth in the basic enrollment conditions, and then separately tested a separate group of employees with the more optimal enrollment condition materials.
What we found is a significant lift in things like interested in enrolling, understands benefits. One of my favorites, 32% lift in the value of benefits, and my actual favorite is +35% lift in better opinion of MetLife. We're also seeing better opinion of the employer. Those are all incredibly important. When you look at this data, I want you to think about the fact that this is incremental upside built into the business as we look to seeing more and more employers really embracing these more optimal enrollment conditions. My last point about customer focus is that it's not just about acquiring customers, it's also about maintaining the relationship after people sign up. What's critically important today is that we have to have a really great digital self-servicing experience. We all know that customer expectations in digital experiences doesn't start with insurance.
It starts with your best experience that you have online, and that's where we need to set our bar. What we've created is a very intuitive, integrated customer experience with all of your benefit information in one place, these really great aggregated views, no longer needing to dig around. We're able to track claims with a FedEx type capability, which is very easy and something that we've gotten a lot of positive feedback on. It's designed for mobile because that's how people like to engage today. We're going to be also launching, actually, we're rolling out two-way text servicing capabilities, starting with our disability product. You can do things like update a claims record or maybe indicate your start date back to work just through a very simple text exchange. Today we have over 10 million.
We actually have probably closer to 11 million registered users. That number is growing every day. I'd like to turn the stage back to Todd, who's going to talk a little bit about some new voluntary opportunities. Thank you.
Thank you, Esther. By now, we've hit on three key points. Ramy talked to you about the performance of the business, which has been strong. Hopefully, we've given you a sense of what our competitive advantages are, including the way we connect with individuals. Hopefully, a real good sense of the fact that we've built a scalable platform for growth. That gives us the opportunity to build on that. We regularly scan the market to identify where are the places where customer need is in line where we can differentiate and create value. In the last couple of months, we've announced three market entrances that I'm going to just talk about briefly. First, we're entering the health savings account business. This business is growing rapidly with the expansion of high deductible health plans.
We think it aligns really well with our voluntary benefits business. Our competitive advantages include our investment capability, which we think can add value to all stakeholders. We're using WEX Health as our partner. WEX powers eight of the 20 top HSA providers, and we're integrating the HSA experience for employees across everything else that we do. We believe we've got a good opportunity to take share in a smart way in this business. Second, we're very excited about pet insurance, one of the more rapidly growing products in the industry. The data tells us that about two-thirds of Americans have a pet, so that's about this half of the room. It's an $18 billion industry, veterinary care, yet only 2% of people are buying pet insurance.
We think the existing channels in place are not serving the market well and believe employee benefits is a optimal place for people to get their pet insurance. In fact, we've been offering a competitor product on our platform in sort of a passive way and have $30 million in premiums without really doing much. We decided to acquire PetFirst, a leading pet insurer, so that we could bring an industrial strength, high-quality product to market, and we're very excited to have the PetFirst people as part of our team. That deal should close in the first quarter. Lastly, our group legal business has been a fantastic business with us. In fact, it's our highest satisfaction product of anything that we do. Yet, 57% of Americans don't have a will.
When we did research out there, the short answer is just about everybody thinks they should have a will, but they don't because it's really hard to get a will. You've got to visit a lawyer a couple times, you've got documents and a notary, and you got to make decisions and the like, and so getting a will is not that easy. We recognized this, and through our innovation process, went out and identified Willing, who has created a capability that allows an individual to get a will in not months, but in about 15 minutes. We've got a quick video to show you what that looks like. We're very excited obviously about Willing and, similar to PetFirst, we thought an acquisition here was the right move to bring this to market.
The real point in all three of these is not so much HSA or pet or wills, it's really about a platform that we believe we can expand over time and deliver consistent value on things that matter to customers, which will allow us to differentiate and will ultimately drive responsible growth of our group benefits business. With that, I'm going to turn it back over to Ramy Tadros to wrap up.
Thank you, Todd. Come back to our key takeaways for the group benefits business. I hope you walked away from this presentation with those three main points. We're a clear leader in a very highly attractive industry with business profile and a business mix that positions us to be resilient across cycles, and we are positioned to continue outgrowing this market. I'm going to shift to talking about RIS. With respect to RIS, there are four key messages I'd like to leave with you this morning. First, we're a leading institutional retirement player. Many of you may associate RIS with pension risk transfer or PRT business, but there's a lot more to RIS. In addition to PRT, we're a market leader in stable value, in capital markets, as well as our Life and Income Funding Solutions business, which includes products such as COLI/BOLI and structured settlements.
Where we play, we're a market leader in these spaces. We're a diversified business operating across a number of markets that I've just mentioned, and we have distinct competitive advantages where we choose to play. These include the size and the strength of our balance sheet, our differentiated investment capabilities, which Steve will talk about, as well as our decades long institutional relationships with our distributors. Third, despite the challenging rate environment, this business has delivered $1.3 billion of earnings over the last 12 months with a cash flow generation ratio of 75% cash and a very attractive return on allocated equity of 21%. The last point, and perhaps the final takeaway that I want to leave you with is the most nuanced, but also the most important. It's about our pricing discipline in this business combined with our business model.
We are highly disciplined in how we deploy capital here. Every dollar of capital that we deploy needs to clear our risk-adjusted hurdles that we look at on multiple lenses. Those hurdles align with the enterprise targets which Michel has outlined. We duration match all of our new business. That's the discipline. Some of you may be thinking, I often hear this discipline story from insurers, but how do I know it's credible? What I could tell you is that management philosophy and discipline are a necessary but not sufficient condition to success here. This is where the business model comes in. We are an institutional retirement business with low fixed distribution costs. That means we can afford to be disciplined.
We also operate across a number of different markets. When the competitive dynamics in any one of these markets get too aggressive, we can be nimble, pull out our capital, and redeploy it elsewhere. Simply put, when we look at this business, we seek the cheapest cost of funds. If we don't like the returns or the pricing, we don't deploy the capital. With that, I'm going to turn it over to Graham Cox, who's going to walk us through this business in more detail. Graham?
Thanks very much, Ramy. Good morning, everyone. It's a real pleasure to be here today. As Michel told you, I've been around the MetLife block a few times, had several different roles here, and I'm very excited to be running the RIS business. Very excited about that. It's a business that requires keen financial discipline. It requires a focus on risk, and I love that about this role. There's a lot of power in the RIS business. We're positioned very well to compete effectively in the marketplace and to drive results for shareholders. I'm looking forward to taking you through that today. I'm going to start by pulling back the covers a little bit on the components that make up RIS. All right. Our Retirement and Income Solutions business has four key business drivers, and you can see them on the slide. The first is our pensions business.
You probably are most familiar with this business. You know it as our PRT business or pension risk transfer. Here we're taking defined benefit pension obligations from plan sponsors. This is primarily a spread-based business for us, although we do derive some of our profits from our underwriting results or mortality experience. We were the number 2 player in the pensions business in 2018 based on sales. We focus on the retired life segment of this market. We focus there because we like the risk better there. It's got shorter duration liabilities that we can better match, and there's no behavior risk. The second key component of our business is the stable value business. Here we're providing stable value wrap solutions to defined contribution plans. This is primarily a fee-based business for us. As a result, it requires less capital.
We were the number 1 player in the stable value marketplace in 2018. That's looking across our general account, separate account, and synthetic products combined. We have a competitive suite of products across the full stable value marketplace. Third, our Life and Income Funding Solutions business. We like to call this LIFS because everything needs an acronym here at MetLife. The first component of that, there's several different components to LIFS. The first is our structured settlements business. We also have corporate-owned life insurance within LIFS and our institutional income annuities business. You can see that spread is a driver of earnings for all of these products, but COLI in particular drives a lot of its earnings from mortality experience or underwriting margins. We're obviously a strong player across all of the businesses that make up Life and Income Funding Solutions.
The fourth key component to RIS is the capital markets business. Here we're issuing funding agreements. This is a spread-based business for us. We have a long-standing, very well-established, and sound program in place for managing our capital markets products. There's several businesses that we're not in, so you don't see them on the slide here. Right? As you all well know, we exited the retail retirement space, and we're not a defined contribution plan record keeper. That's very deliberate. We focus where we have competitive advantage, where we like the risk, and where we can win in the marketplace. This diverse slate of businesses in RIS gives us access to different markets and different sources of funds, and that diversification is key. Why is it so important?
Well, it allows us to shift capital from one business to another business based on where we see the best opportunities. We can do that within RIS. We can also do that across the enterprise as a whole, and that helps us deploy our capital against the best, most attractive opportunities at any given point in time. By being disciplined and selective, we can capitalize on the diversification within RIS. Disciplined and selective. Now let's talk a little bit more about the diversification in RIS. The chart on this page shows you how the liabilities within RIS break down across the businesses. We're nicely diversified. There's a pretty even split across the four key business components. As I said before, PRT is probably the most familiar to you, but the largest component of the liabilities is actually our Stable Value business.
I want to call out COLI, or Corporate-Owned Life Insurance, which is in that LIFS segment, and Stable Value because they're particularly nice diversifiers for us. COLI has underwriting margins, and it's a net mortality risk business. Most of our other businesses in RIS have net longevity risk, so nice diversification. Stable Value is a fee-based business with lower capital as a result, and it's not impacted by a low-rate environment. COLI and Stable Value, in particular, nice diversifiers. You're probably asking, how has this great set of businesses been performing? Well, you can see that on the other side of the page. $1.3 billion of adjusted earnings, a 21% ROE, and 75% cash flow generation. That's at the high end of our enterprise target range. All right. We've got four large, successful businesses within RIS.
They're successful because we have competitive advantage, and we've been able to sustain that competitive advantage over time. How do we do that? Well, we've got a large balance sheet. We're financially strong. We've got strong ratings, and we've got long-standing, deep distribution relationships. All of those elements get us to the table, and they position us well in the marketplace. What really drives our ability to create value and compete effectively are scale and efficiency and our differentiated investment capabilities. First, scale and efficiency. Sure, scale and efficiency help us develop effective administrative capabilities, and they help us manage our business in a cost-effective way. We've got a large block of business. More important, our institutional distribution model has low fixed distribution costs.
Those low fixed distribution costs allow us to deploy capital nimbly across the businesses within RIS, where we see the best value at any given point in time. We're not stuck chasing price in a market that's very competitive. We can deploy that capital in another place within RIS or not deploy that capital at all. We've got that flexibility. For example, if at some point in the future, the PRT business becomes extremely price competitive, we don't have to chase returns and chase volumes in that business to cover a bunch of fixed high distribution costs. We can take that capital and deploy it someplace else, and we can make that decision in real time. Next on this page, differentiated investment capabilities are another key factor for us.
I'll talk about this a little bit more later. We're able to source private assets with strong yields and risks that we understand really, really well. All right. That lets us compete effectively in the marketplace. It gives us an attractive price. It lets us drive great value for MetLife and for shareholders. All right. The elephant in the room, perhaps. Sure, 2019 has thrown some challenges at RIS when it comes to the rate environment, flat or inverted curve and low long rates. Despite that, we're positioned well. We've performed very nicely. I already showed you the performance. That's been in a tough, challenging environment. The strong results that we're able to generate, even in an environment like this one, are the result of three key management practices: strong credit underwriting, robust asset liability management, and well-defined risk appetite.
I'll cover each of those in turn. First, with our strong credit underwriting. We've got very sticky liabilities within RIS. They're a great match for our private assets. You'll hear a little bit more about our private asset origination capabilities from Steve. We've got strong capabilities in that space. We carefully underwrite each and every one of the assets that we put on our books, just like we underwrite each and every one of our liabilities. We have a very strong track record over time. That underwriting has proven itself with low losses over an extended period of time, including through the financial crisis. Second, robust asset liability management or ALM. We have a long-standing, rigorous ALM program in place across the enterprise, including for RIS. RIS obviously has a mix of different businesses and a mix of different liabilities.
Our program adapts to that. For example, in our in-force annuity and life business, our spread-based businesses, we tend to have longer duration liabilities. We're keenly focused on ALM there. We still, of course, have some reinvestment risk. We've seen some spread compression from the low long rates. Our in-force capital markets business is a little different. That's shorter duration liabilities. It turns over more quickly. There we've seen some spread compression, too. From a very different set of factors, that's been driven by the shape of the yield curve and by tight credit spreads. Despite that challenging environment, we've performed very well. We stand to benefit from improvements in the environment. If rates go up, if spreads widen, when the yield curve returns to a more normal shape, we're positioned nicely to improve. Last on this page, a well-defined risk appetite.
We have well-defined risk appetites for all of our key risks, mortality risk, longevity risk, credit risk, market risk, all well-defined. We have a strong independent risk function that keeps a careful watch over the business units like RIS. When you put all of this together, it means that we can really drive value and control the risk in our in-force block of business. It gives us confidence in the new business that we put on the books when we grow. Now I'm going to pivot and talk a little bit about new business and growth. For new business, we're focused on disciplined pricing and responsible growth. That's really important, I'm going to say that again. We're focused on disciplined pricing and responsible growth. The chart on this page shows you our new business returns over the last 12 months.
You've seen charts like this from us before, so it should be familiar to you, but I'm going to take you through it anyway. Each rectangle on this chart represents one of the products within RIS across the four business components that I described earlier. The height of that rectangle represents the return on the product, and the width of the rectangle represents the capital deployed against that product. You can see from this chart that all of our products are exceeding their hurdle rates. In fact, 80% of the capital that we've deployed, that's the green on the chart, has been deployed at returns at least four percentage points, four points above our target hurdle rate. Also, the new business that we've written has an average payback period of five years.
All of these metrics demonstrate that we take pricing discipline very seriously, and we're managing to stringent return requirements. We also stress our new business returns, and our new business returns are very resilient to market stresses. We look at this every time we price a product. Even if rates drop 100 basis points the day after we write a new piece of business, and rates stay low, our products exceed their hurdle rates. That is not an accident. That happens because we're very deliberate in where we focus. We focus and target business that we can duration match. When we get the assets in the door, we invest those assets with a tight match against those new business liabilities. It is not an accident. We're also always on the lookout for attractive opportunities within our business, and we don't have to look very far.
We like large deals, for example. Large deals provide us an opportunity to take advantage of our competitive differentiators, the size of our balance sheet, our financial strength, our substantial risk appetite, just to name a few. Those large deals also give us good information for underwriting purposes, and they're very attractive for us. We see fewer competitors, typically, on large opportunities. We're also focused on opportunities within under-penetrated segments within RIS. A good example of that is our structured settlement business. Not all structured settlement business is created equal. There's different components within that business, and those different components, we may be more or less competitive, they may be more or less well developed. We're focused there to find attractive subcomponents of that business and drive growth at attractive rates of return.
If we take a step back now and look at RIS overall, we see a strong pipeline of opportunities, new business opportunities, heading into 2020. For PRT specifically, because I know you're interested in PRT, we've booked over $2.3 billion worth of sales in the fourth quarter of this year, and we see a nice pipeline heading into next year. By taking a disciplined approach, we're able to grow responsibly, and it put attractive returning new business on our books. I'm going to wrap up now and leave you with a few key takeaways. First, we've got a great set of diversified businesses within RIS. We play where we have competitive advantage, where we like the risk, and where we can win. Our market positions prove that.
We take advantage of the diversification that we have within RIS to be able to deploy capital intelligently and in real time against the best opportunities. We have robust risk and return management practices in place that drive value on our in-force block of business, and we have strict pricing, underwriting, and return requirements that really make sure our new business is attractive as well. All of this combines to make RIS a very powerful business. We're well positioned in the marketplace, and we're positioned to continue to deliver great results for shareholders. Our past performance proves that. $1.3 billion worth of earnings, a 21% ROE, and 75% free cash flow over the last 12 months. Thank you very much for your time and your engagement today. I appreciate it. I'm going to turn things back to John Hall.
Thank you very much, Graham. Thank you to all the other presenters that we've had so far this morning. That's a lot of stuff. We're going to take a 10-minute break now, and I'll call us back to order in a few minutes for the first Q&A session of the day. Thanks very much. Everybody, if we could start to get settled. We're going to host our first Q&A session of the day. There'll be another one with the second track of presentations. I'd just ask a couple of things. One, we talked about one question, one follow-up. Also, we're going to talk about the outlook materials that we released last night in the second track. If you can, try to keep the questions to the presentations and the subject matters that we just discussed, but I understand. That's it.
Let's see what we got. Elyse. Another rule of the road, just identify yourself, who you are and where you're from. Thank you.
Thanks, John. Elyse Wells Fargo. My first question kind of relates to group and then also overall. It seems like that's an area where you guys have been doing some smaller deals of late. Can you just talk about the broader pipeline of transactions that you're seeing in the market, in the group benefits space? If we look on slide 21, you guys did spend time going over the dispersion of the business. If there was some deals that would potentially add more disability to the mix, would those be some type of things that you're looking at or you would potentially consider there?
Maybe I'll start and then I can turn it over to Ramy and Todd to provide more color. I think we've seen more consolidation in the industry over the last few years. We think that some of that is driven by the fact that this is a space that requires significant investments. For companies where it's not a significant component or a core business, then you see some companies divesting their business. Whether this trend will continue or not, it's hard to tell or to predict. Our view is, as we mentioned earlier, that we have scale, so it's not like we have to do something. We look at everything that comes to market. What it comes down to is it a fit and a point in time? Is it a strategic fit? Are the valuations right for us?
We look for deals that are accretive. We look at also how we deploy capital against other potential uses of capital. That's the lens that we use. At the same time, I think we've given some examples of how we continue to grow our group business by entering into adjacencies or new product sets that we think make sense based on what we hear from our customers. That's really the approach that we've been taking so far, and I think we'll persist with that.
I would say just with respect to the specifics here, clearly the group space provides a number of opportunities which are a good strategic fit for us. This is a big business for us that we're looking to grow. At this point, we would not necessarily rule out any kind of transaction based on that business mix. You can be successful in any of these products over time if you underwrite the business appropriately, and especially in acquisition, if you're underwriting the reserves and the claim practices and the pricing appropriately. We would not rule out any kind of potential M&A deal based specifically on the business mix of a potential target here. Todd, if you want to add to that.
You'd need to price it in, obviously. If you feel, for example, that you mentioned disability, Elyse, right? Obviously, disability is one of the businesses that have benefited from a strong economy. You'd have to factor in how potentially a business like that might perform in a downturn. That all goes into sort of your valuation of a business. We wouldn't rule it out just because it's predominantly disability, but we would value it based on our sort of outlook of how this business would perform going forward.
Okay.
Does that answer your question?
Yeah.
Let's go to the other side of the room. Tom?
Thomas Gallagher, Evercore. Just had a question on slide 11, the value of new business. I look at between 2017, 2018, nearly doubled. It looks like most of that's coming from A&H and fee. Your sales clearly weren't up that much. Can you talk about what? That seems like a very large increase. What drove that increase in value new business?
Yeah. About a third of that is tax reform, and two-thirds is a combination of business mix shift, volume growth, and expense discipline. Obviously, the UCI initiative is helping on that front as well. It's those three areas.
I would just add, Tom. Just go back to the comments around the Accelerating Value initiative back in 2014. This became a very important metric across the firm. You look at we're looking at value, we're growing value. Every general manager is targeted with how they grow value, not just because not every sale is created equal in insurance, as we know. I think that the focus on that has been very powerful. I think as Michel said, the value of expense savings is the present value of those things can really add up.
Just my follow-up is, your dental business, I guess is the majority of your non-medical health, has improved significantly from an underwriting standpoint over the last few years. Most of the competitors there, or some of the competitors are not traditional life insurers. Can you talk about what's going on in that business, whether you would expect to sustain or improve those margins and what the overall environment's like?
Sure.
Go on.
Yeah. The dental business, it's an inflationary product. Inflation's been relatively low, so growth for the industry has been relatively low too. We compete on a couple dimensions. We've got a network of over 100,000 access points. We have strong relationships and strong financial arrangements with our dental providers and a very efficient operating model. That puts us in a position to not only deliver good value in terms of the employer, but also a good experience for employees. It is a product that we've been able to win across all markets because we've been able to take that scale that we have up market and bring it down market, and create good value there. It is a competitive business. I'll be very clear about that.
We aim to win when the client not only is looking for just a competitive price, but is also looking for the right experience and a carrier that's invested in the business for the long term.
Alex.
Hi, this is Alex Scott, Goldman Sachs. The first question I had was on the cash flow. When I look at the capital deployed into new business at $3.8 and the cash flow that you're dividending up to the whole co, $65-$75, if I add those two things together, I think we're looking at numbers that are well in excess of your earnings, actually. I would just be interested to understand what's the dynamic that's allowing for that? How sustainable will that be?
Yeah, don't forget we have some blocks of business running off, right? We have capital releases that are being reinvested as well. I think you have to consider that, and MetLife Holdings is 20% of our business worldwide. We have other blocks that effectively are in runoff, but they're in other segments within our firm. That's probably the main reconciling item.
Okay. Then the follow-up question I had was, in the RIS business, it was really interesting to hear on the liability side. I guess, a big part of our focus is also on the asset side and some of the dynamics there with spread compression, and I think you guys have talked about some of the derivatives that have been used in that segment in the past as well. I'd just be interested to hear about what's keeping ROA stable from here. We've kind of had a dropping for a while, and there seems to be some stability. I'd just be interested in color there.
I just want to make sure, you're talking about spreads, yeah?
Correct. Yes.
I'll touch on that. It's in the outlook as well, but I'll try to hit it here quickly, and then we can touch more on it later. I think I'll revert back to my comments on the third quarter call. We have seen after a number of years of spread compression here, we have seen, I would say, some bottoming happening in the RIS spreads. I think we're seeing that over the next few quarters, hence where we put the range in the outlook. That's a function of what we project to be the forward curve, using the forward curve, I should say. Where LIBOR is going, what the shape of the curve looks like. Based on those factors, we are starting to see a bottoming.
What we've said is that in the third quarter, that's a pretty decent run rate for the next several quarters. I think it's shape of curve. There was some disruption in the repo market that seemed to have it's settling down a little bit, still there. I think those things combined are starting to level out, I should say.
Thank you.
I would just add, I think later on in terms of assets, you'll hear a little bit more in the next section from Steve Goulart as well.
Let's go to the back row with Steven, please.
Thanks, John. Steven Gavios, Jennison Associates. Michel, I'm looking at page 17, and I was sort of surprised to see that the VNB growth of the middle group was higher than the VNB growth of the third group. Obviously, that was retrospective. Can you give us some sense for what your thoughts are on what the prospective VNB growth for those two groups might look like?
Yeah, I think both, obviously, the growth was 35% for what we call sort of longer-term plays and 40% for the more established growth businesses. I think both categories are going to continue to grow VNB at a healthy rate. Whether that 5% difference is maintained or not, we'll have to see. I think the key is that we continue to see growth opportunities in terms of on the value creation front in Group, in LATAM, and we clearly see opportunities also in the sort of longer-term markets. Those markets are also, we have to acknowledge that those are high-risk, high-return markets in the sense that from time to time, you are going to see some turbulence there. We recently saw some in Turkey, for example. In the long run, we think that the VNB growth there is going to continue to be quite healthy.
I would just add, Steven, just again, over that time period that's being shown, our expense initiative has been taking effect, too. Again, you're getting the present value of those unit cost saves come through, and that has been a part of that growth story over time as well.
Erik, please. Second row up here.
Thank you. Erik Bass with Autonomous Research. I just had a question on competition in the group space, and particularly for competitors that may not have your advantages in terms of scale. Are you seeing any kind of irrational behavior as they're also looking to grow and gain market share?
Let me just give you a bit of perspective, then Todd, you can talk about some of the specifics. We sometimes do see that, right? It is a highly competitive market, as people describe it, when you smell the premium, it's very tempting to go after it, right? You do see some of those dynamics, but you see them playing out in certain products, but not all products, you also have to put the context of the purchaser and the employer in perspective. Some of those employers understand a broader value proposition and understand a value cut is only going to require a price increase later on. Situate that in the context of the market.
The other thing I would say with respect to that is that if you make a mistake in this business and you're overly aggressive, you see it within a year or two. Right? This is not a business where competitors can afford to be wishful in their thinking and sustain that over longer periods of time. Todd, do you want to add more to the?
No, I think margins in the business have been good. The market is generally rational. On any given deal, you can see somebody get a little bit out of whack, but they kind of get hurt pretty quickly if they're not able to renew that business. I think the long-term trends here is if you're able to price with discipline, which I think the industry generally is pretty good at, it can be a good industry. Then if you can differentiate with real competitive advantage, you have the opportunity to outperform others.
Thanks. I think you talked about for the Voluntary Benefits, a penetration rate of about 10%-13% currently. How has that trended over time, and how many of your employers are allowing you to set, what I think you called optimal conditions?
Yeah. The good news is it's trending up. It's a pretty wide variety. What we aim to do with our clients is every year to go back and have a discussion with them about how their plan is performing relative to benchmarks. Very interested in benchmarks. Could be industry, could be geography. Then really reinforcing the power of why are you offering these programs. When we do that, we have a really good track record of moving toward optimal conditions. It takes time to do that, but our view is over time, those numbers are going to continuously move up.
Okay. Jay Gelb?
Thank you. Jay Gelb from Barclays. My first question was on the roughly $20 billion free cash flow target over the next five years. Michel, is that one of those targets you're looking to exceed as well?
Well, Jay, let's start with the 20, and we'll see how it goes.
All right. My follow-up on that one is, how do you expect that to become evident over time? Would it be ratably over the next five years, or would that be back-end loaded?
I don't think we're saying back-end loaded. I think it'll emerge gradually over the next five years. That's how I would describe it.
Think of it, I think Michel referenced in his opening remarks that this is a function of our 65 to 75 and maintaining that over the five years, and just think about some growth rate that gets you that. There's a gradual growth and sustainable free cash flow.
All right. That's helpful. My second question. Michel, you already touched on the potential to dispose of geographies that don't meet MetLife's risk-adjusted hurdle rate, and that all options would be on the table. Is there anything specific you'd like to-
To add to on that topic with regard to EMEA, given some of the press reports?
No, as you know, we don't comment on rumors and press reports. It's been our policy throughout, it'll continue to be our policy. What I will tell you is EMEA is an important source of earnings and cash for the enterprise. We have good prospects there. We're not going to cover EMEA today simply because, in four and a half hours, we're covering 90% of our portfolio in terms of earnings. Don't read anything into that.
Okay. This is going to be our last question of the first Q&A. Humphrey, the pressure is on you. Keep your hand up.
All right, I will try to do that. Humphrey Lee from Dowling & Partners. My first question is a follow-up to Erik's question earlier about the voluntary opportunities. How should we think about, I guess, the potential in terms of from a PFO perspective or market perspective, if you were to able to achieve some of the enrollment rate from the basic to optimal? Is there any kind of sensitivity for us to think about the potential for Met?
I can't give you a specific sensitivity on that, but I'll give you just a couple things to think about. One is, you saw the numbers. We grew from 18 to 19 at 37% in that category. Now, as the base gets bigger, it's reasonable to believe that that growth rate will get a little bit smaller. The net premium growth that we saw from 18 to 19, we would expect that to continue. It's a combination of things, right? It's the adding new clients, it's adding new products, and it's driving up the enrollment rates, and all three of those combined together have enabled us to have good growth that we think will continue.
Got it. Shifting gear, my second question is related to RIS. Thank you for providing the disclosure on the liabilities within the RIS segment. How should we think about, I guess, the earnings mix for those products? Would they be proportional to the liabilities, or is there something nuanced that kind of would shift the scale?
Yep, sure. The earnings mix, we're very happy with the earnings mix. It's not directly proportional to the liability mix. There's different characteristics of the different products in play there. Some of them require a little more capital or a little less capital, but the earnings are well-diversified, and we're comfortable with that mix. I also want to call out that it's not all of our business, as I mentioned, is spread-based business. We've got about $200 million in the $1.3 billion over the last 12 months that's coming from those fee-based earnings and mortality or underwriting-based earnings. We've got a mix not only across the businesses, but a mix of earnings across the different drivers of earnings as well.
Thanks.
Great. Thank you very much. We're going to take a transition now, and I'm going to bring up our Chief Investment Officer, Steve Goulart.
Thanks, John. Good morning, everyone. Let's get started with the second half of Investor Day. As John said, I'm Steve Goulart, Chief Investment Officer for MetLife and President of MetLife Investment Management. It may surprise you, I'm here to talk about investments. Investments is a key competitive advantage for MetLife. This is because of our global footprint, our high level of asset diversification, and our strong private asset origination capabilities. It's enabled by an investment process that relies on disciplined asset liability management, thorough in-depth underwriting, and robust risk management. The results have been strong and consistent investment performance. When we think about the economic outlook, we're all trying to predict the next slowdown. When we think about the U.S., the outlook is still very solid, we continue to monitor risks globally. What I know is we have an investment process that works.
It has led us to early repositioning of the portfolio. The portfolio today is well-positioned, but we will continue to manage it proactively based on our outlook. Finally, our third-party asset management business represents a strong growth opportunity over the long term, both for MetLife and for our institutional clients. Let's dive in. We manage the general account and third-party assets under management through MetLife Investment Management, as we affectionately refer to MIM. Today, MIM manages almost $600 billion across three primary areas, public fixed income, privates and alternatives, and real estate and agriculture. Of course, the MetLife general account represents the bulk of these assets, $456 billion. We've been managing the general account for over 150 years, and we rely on the same disciplined asset liability management, in-depth underwriting, and risk management. This is really fundamental to our culture and to our process.
This is the same expertise that in 2012, allowed us to launch MetLife Investment Management. Today, it manages $140 billion of institutional third-party client assets, and I'll talk more about that later as well. Our motto in managing the general account is think global, act local. What I mean by that is because of our footprint, we have the ability to source attractive assets wherever they may be globally and be able to position them where they fit best in MetLife's portfolios. As you can see, the general account is highly diversified by asset class and geography. Our largest asset allocations are in public and private credit, government and agencies, and mortgage loans and structured products. Let me give you a little bit of a regional highlights for this as well. I'll start with the U.S.
You can see the U.S. is $300 billion or roughly two-thirds of the general account. The U.S. benefits from high diversification because of highly developed capital markets in the United States, as well as the high allocation of private assets. In fact, in the U.S., private assets account for 38% of the general account. Switching to Asia, our second largest portfolio, Japan is almost 90% of the Asia portfolio. But what's important about that is that roughly 60% of the assets are in non-yen assets, mostly U.S. dollar, followed closely by Australian dollar. This reflects our very successful foreign currency insurance business, which draws on our global investment capabilities. In Latin America, the portfolio is concentrated in Chile and Mexico. Chile is roughly half of the portfolio. It's well diversified and has a longer duration profile because it backs our successful annuity business.
We've been diversifying it through a market-leading local real estate origination business. Mexico is also well diversified with a greater emphasis on liquidity, given the local portfolio needs there. EMEA has a higher allocation to sovereign debt. This is mostly because of local currency and regulatory constraints, but we continue to add private assets to diversify it and increase its yield as much as possible. Private assets are a critical competitive advantage for us. Nearly 30% of the general account is in private assets, and that's up from less than 25% at year-end 2015, which when you consider the size of our portfolio, I think is a meaningful shift. Let me talk about some of those assets now. When I talk about private assets, I mean private corporate debt and infrastructure debt, commercial agriculture, and residential loans.
On commercial mortgage loans, we are the largest U.S. life insurance company lender. They offer us attractive risk-adjusted total returns, provide strong structural protection with flexible terms and rate structures. That means it fits very well across our ALM needs. They also are a strong portfolio diversifier because they have low correlation to most of our other assets that we invest in. Switching to corporate debt and infrastructure debt on the private side as well. Here we get to structure these deals directly usually, and are able to structure terms and covenants and financial protections that work to our advantage as well. We have a market-leading position here and very strong relationships with issuers, with bankers, and with sponsors in the business. That's allowed us to maintain value in what has become a more competitive market.
The sum of all this you can see, our origination year-to-date has been $29 billion of private assets, $22 billion of which have gone directly into the general account. I'd summarize. Our origination platforms are proprietary, they have significant scale, and they represent a strong critical competitive advantage for us. Let me also talk about our alternatives platform. We have a well-established platform here. Our private equity portfolio is $7.2 billion today. That might sound large in absolute terms, but when you put it in the context of our portfolio, it's less than 2% of the general account. It is also well diversified. It's diversified across strategies, things like U.S. LBOs, global LBOs, regional LBOs, special situations, venture capital. It's also well diversified by manager. There are more than 170 managers in the portfolio, and no manager accounts for more than 4% of the total.
It's also diversified by funds. The largest fund exposure is less than 2% of the portfolio. Private equity is also a good asset for us from an asset liability perspective. It's an attractive fit for long-term liabilities, and it also helps us grow our surplus. You can see here the return profile as well. It's been very attractive for us for the last several years. What's also important about those returns is that they've been achieved with lower volatility than we would by investing directly in the public equity markets. When I think of the outlook, we expect our allocation to continue to private equity and expect our allocation to be fairly constant over the near term. The result of all of this has been consistent investment performance.
Here we look at net investment income, you can see it's been fairly stable over this time period, despite the low interest rate environment that we continue to battle. Also, I point out variable investment income has been probably not so variable in a tight range of $900 to $1 billion over the same time period. On the right, we're showing you a graph of our roll-off and reinvestment gap. We talk about this constantly, what it graphs is our new money yield versus our roll-off rate on the assets. As we said on our third quarter call, unfortunately, while this gap is narrowing, it still exists. At the third quarter, it was 54 basis points. When we look ahead, we continue to see a gap that probably will be in the range of 25 to 100 basis points.
This varies quarter by quarter because there's always going to be a different mix of assets rolling off within the portfolio and also within our different regions. The question you might ask though is, when will that reinvestment rate equal or exceed the roll-off rate on the portfolio? That's something that we look at continually. It's called the breakeven to us, the way we analyze it is by looking at assuming a constant yield curve, assuming constant credit spreads, what would the 10-year Treasury have to be in that regard? Today, our analysis would say that we would need to see a sustained 10-year Treasury yield in the 3%-3.25% range. You can see we're still away off, that's why we continue to see this gap existing for the near term.
Here we're looking at loss history over time, you can see the strong track record that we have in investment performance has also been supported by the low level of losses in the portfolio. Very low average annual impairment rates across a range of our assets. I'd also add something that's not on here is our history in private assets. It has been very strong as well. In fact, better than most comparable public benchmarks. In times of distress in private assets, particularly in the corporate asset sector, we get fees and make-wholes and coupon increases. When we aggregate what we receive there, those actually have outweighed the losses that we've seen in our private portfolio. Another reason why we want to continue increasing our allocation to private assets.
You can see from the final point on the page, our cumulative after-tax impairments have been 1.2% of average general account assets over this time period. I would point out that's half the rate of our life insurance company peer group. How do we do it? It really comes down to that culture of strong underwriting, deep fundamental analysis, and strong risk management. In investments, we also believe that we have to uphold our commitment to meet all of the obligations we make to our customers. This underwriting and credit review that I've talked about is a discipline that will see us well through the next slowdown as well as probably any other market scenario. We constantly evaluate risks in the portfolio.
What happened this time is we took a step back and realized market conditions had changed, and what was really different was the limited liquidity that exists in the market today compared to prior times. In 2018, we saw warning signs and decided we needed to reduce risk in credit sectors and names that had a higher level of downgrade or default risk. Topical asset classes we continue to watch include things like below investment-grade credit, bank loans, and CLOs. I'd like to point out here what we've actually done over the time period. You can see below investment-grade credit has been reduced by almost $3 billion, from 4.6% to 3.2%. Next to that in syndicated bank loans, we've decreased that portfolio by about $700 million over the same time period from 1.4% to 1% of the general account.
Most importantly is changing the mix of the portfolio itself. You can see we've increased investment-grade bank loans to 22% and decreased single Bs to 24%. Another category that we focus on heavily is our exposure to low BBB assets because these, of course, contain fallen angel risk. When we look at our total portfolio, today low BBBs make up about 4% of the total general account. However, the important thing to know is that 45% of that exposure is in private assets or private placements. We're very comfortable with that risk. Finally, I'd mention collateralized loan obligations, CLOs. Our exposure today is about $7.7 billion. Of that, 86% is in AAA and AA-rated tranches. Not surprisingly, we exercise the same discipline for that portfolio.
We underwrite the managers, we focus on experienced managers that we are confident can manage through a range of different market cycles, and we also analyze the underlying loan collateral in all the transactions that we do. We understand the collateral, and we understand how managers are managing through that based on different market cycles. All of this investment experience and capabilities, along with our assessment of the market opportunity at the time, caused us to launch MetLife Investment Management in 2012. Initially, we were focused on private assets and real estate. In 2017, we acquired Logan Circle Partners, and as I've said several times since then, that allowed us to really jumpstart the public fixed income business. Today, MIM manages $140 billion of third-party institutional client assets.
I'm very pleased to show you here what was the lead print ad in that combined print and digital campaign. We see strong opportunities for MetLife Investment Management. As I said, today, it manages $140 billion of assets under management. We pride ourselves in a track record of strong risk-adjusted returns for our clients worldwide. That's an integral part of our client value proposition. We also have the opportunity to continue growing the business globally. In fact, our footprint has grown substantially this year. A third of our new business has come from international clients, and today 12% of the total assets under management are from international clients as well. Our growth prospects continue to be very strong in this business.
As part of our Next Horizon effort, we recently completed a five-year strategic plan. Over that time period, we believe we'll be able to double third-party assets under management in the business, and continue to grow the business such that the earnings, combined with fees from the general account, will equal 5% of MetLife's overall earnings. The opportunities are great. While we have an aggressive organic growth plan, we'll continue to look opportunistically at smaller acquisitions, lift outs, that would make sense for us. I think you all know us very well. We are very disciplined when it comes to acquisitions. They have to fit strategically, they have to fit culturally, and most importantly, they have to fit financially as well. I hope you understand why I started my presentation with a statement. Investments is a key competitive advantage of MetLife.
Our global diversification, our private asset origination, and a consistent, disciplined investment process really enables the consistent investment performance that we see. The portfolio is well-positioned today, but as I said, we will be prepared for whatever market conditions we see. Finally, MetLife Investment Management represents a strong long-term growth opportunity to drive value for MetLife, as well as our institutional clients. Thank you for your time, and let me introduce Kishore Ponnavolu, president of our Asia region.
Thank you very much, Steve. Good morning. At the MetLife Investor Day in Tokyo last year, we gave you a detailed update on all our businesses. Today, I'm going to walk you through the progress we've made and the key areas of focus going forward. My colleague, Rebecca Tadikonda, is going to join me on stage, and she's going to talk about the exciting developments in our China business. I'm going to start. MetLife is very well-positioned in a very attractive market. If you think about the insurance opportunity in Asia, gross written premiums are $1 trillion. By the way, the markets where we're in today, excluding Hong Kong, account for 90% of that. What's driving this? Both economics as well as demographics. Rising middle class, aging population, and a significant protection gap.
If you think about MetLife's advantages, we have a strong footprint in pretty much most major markets in Asia. We have a wide and diverse set of products to meet a range of customer needs across these markets. By the way, we have an amazing distribution strength. Secondly, Michel mentioned it, John mentioned it. The accelerating value has had a lot of impact in Asia. As part of that initiative, we took a number of product, mix, and distribution actions. These actions are now translating to a strong performance in assets under management, earnings, and cash. We will spend a little bit of time going through that. Finally, we are building on this success and differentiating our strategies at the market level to drive value and growth. Rebecca and I will go through a couple of businesses in more detail later in the presentation.
When you think of MetLife Asia, it is natural you think of MetLife Japan. We are strong in Japan, but there is more to our MetLife story. If you look at the adjusted earnings to your right, you will see that Japan accounts for three quarters. That is great. We have a large in-force in Japan that is a source of stable earnings and cash. However, a core tenet of our strategy is also to grow rest of Asia in a significant way. If you look at value of new business, rest of Asia drives almost half. This is almost an even split, despite Japan having a very strong year in 2018. You see the power of sales in rest of Asia, both in terms of size and value coming through. China, along with a few other markets, will drive this shift to rest of Asia.
Rebecca will speak more about this opportunity in China. Let us talk about our track record. To your left, you see the assets under management growing nicely at 12% in 2018 and 12% year-to-date 2019. This is exceeding our guidance of asset growth at high single digits. Let us talk about adjusted earnings. We spent a fair amount of time at the MetLife Asia Investor Day in Tokyo talking about our Accelerating Value initiative. For those that were not there, we embarked on a multi-year initiative starting 2014, as Michel mentioned. This had a short-term impact in 2017. This repositioning has helped us come through that. We have a positive momentum coming through in 2018, and we are in line with the high single-digit guidance of 2019. Shifting to dividends, the impact of AV is coming through cash as well.
Dividends to earnings ratio improved from 48% in 2016 to 58% in 2018. We are on track with the guidance for 2019. Let us talk about some of our terrific businesses and our focus. Michel talked about focus on businesses in secular growth markets. We have three of them on this slide, China, India, Bangladesh. Let me cover off Japan and China at a high level because, I am going to go through Japan and Rebecca is going to cover China in a little bit more detail. The story of Japan is a story of earnings and cash while pursuing targeted opportunities, growth opportunities in Retirement and Income Solutions and health. The story in China is VNB growth, powered by growth in agency and market-leading customer solutions. Let us talk about India. India would not have made this list a few years ago. What has changed?
What's not changed, let me cover that off, is a large population with low insurance penetration. That hasn't changed. However, the regulatory environment in India is maturing and is much more supportive of insurance industry profitability and growth. That's a key factor. It's very important. The second thing is we have a joint venture with Punjab National Bank, the second largest bank in India, with 11,000 branches and 100 million customers. We've been working with PNB for a good part of the last 18 months, very closely with that management team to come up with ways where we can expand coverage to more number of branches across this country and to drive deeper penetration within these branches in key areas. That has been very successful and we're very encouraged with the results that are coming through.
Today I can stand in front of you and say we have a distribution advantage in India. We have a clear distribution advantage in India, that is very powerful. Shifting to Bangladesh. Bangladesh has 156 million people. It has one of the youngest population in the world, the fastest growing economy, as Michel mentioned, at almost 8%. It also has a growing middle class and an emerging mass affluent segment. This creates a very strong prospect for growth in insurance. Met is ranked number one, the only multinational in Bangladesh, we've been there since Bangladesh's independence, this creates a strong platform for recognition. I want to give you an anecdote about this. I land in Dhaka the first time at 12:00 A.M. I get to the immigration official at around 1:30 A.M.
I was tired, he was tired, he was prepared with a long list of questions. The second question was, "Where do you work?" I said, "MetLife." I could have been his long lost cousin. He had a great conversation with me and sent me along. I had an amazing experience with the taxi driver, with the car driver. By the way, the person at the front desk at the hotel said the same thing. When I went to the business business, I told the GM, "Do we have 100% market share?" He said he's working on it. Smart guy. That is an amazing platform. I want to bring you back into one thing. We've been in Bangladesh for a long time. We've been in Japan for a long time. 40 years, 45 years, 45 years plus in both.
We've been in India and China for 15 years or less. Just give us a little bit more time in these markets, with the right execution, we can do an amazing job. Not asking for 30 more years, just a little bit more time. Switching to specifics in Japan. When you think of Japan, you see a large market, number three in the world, you see a mature market. You see high degree of penetration. It's what you see. That's true at the top. However, there are specific opportunities that are emerging. Number one, a third of Japan's population is over 64 years old. When people live longer, the retirement gap comes to the forefront. When people live longer, they also need medical attention. Gaps in coverage, combined with increasing prospects of co-pays, creates a big opportunity for us insurers.
In addition, there are trillions, I think the rough number is $7 trillion, sitting in bank deposits in Japan, earning zero to very little returns. This could be deployed to create value while providing protection through insurance. Combined with these three, the market does present attractive opportunities for insurers to pursue. How is MetLife positioned in Japan? We're number 6 in terms of size. We have scale. We have nine million-plus policies. We have 10,000 associates in Japan, including our career agency channel. By the way, leveraging our scale, combined with our focus on efficiency, we're top quartile in terms of efficiency. Our expense ratios are some of the best in the industry. We also have a strong distribution network. We have a scale in our distribution network. We have over 100, I would say 120, bank relationships in the market, some of which are nationwide.
We have almost 300 large agencies and thousands of smaller agencies. If you look at the data on the left-hand side, we're also very diversified. What does diversification get us? As you know, there has been some fluctuations in some of the channels in Japan recently. Overall diversification helps us navigate through those. What else does this channel competency or advantage get us? It helps us manage through change. I want to bring you back to accelerating value, and we had a good discussion about this in Tokyo last year. The amount of change that that business went through because of that initiative was significant. Our partners stuck with us through and through and came out along with us, and that is a terrific asset to have in that business. Finally, covering off product capabilities. We have deep product capabilities in both health and retirement.
Our history of market-leading products and solutions is well recognized in the marketplace. Let's talk about health. We have 45 years of expertise and experience in health products. The amount of insight and data that we have in regards to medical cannot be replicated by competitors. By the way, we've pushed innovation quite a bit. If I actually stood here and gave you the list of awards, I'd probably keep you till the evening. Let's talk about two. We were the first in Japan to introduce whole of life medical products. By the way, most recently, we had the simplified issue with no waiting period. These are constant and we'll continue to push the market in terms of innovation. Same thing with retirement. We do have very strong capabilities on the FX side.
In fact, we were one of the earliest carriers to introduce FX products to Japan. Our advantages, both in ALM as well as procuring private assets, are clear in terms of our benefits in Japan. How will Met continue to drive solid earnings and cash? Three elements to the strategy. One, drive continuous operational improvement. I mentioned a couple of times before that we're top quartile in efficiency. I think we've done a good job, and some of you have actually recognized us for that. Thank you. Now, there's more that could be done. Where we've spent a lot of time was on driving efficiency within groups, within departments, part of process. Now what we're doing is taking a look at end-to-end process redesign. We're doing this in view of two things, not just expenses. What we want to do is continue to improve our customer experience.
It enables us to drive customer experience while driving efficiency in the marketplace. It's a win-win for everyone. The second pillar is to optimize our portfolio to manage risk and capital. This is something we've been doing. By the way, we've been in a low rate environment in Japan for a long time. In regards to managing this, we've got a number of levers at our disposal. Some of this could be financial, some of these could be operational, some of this could be behavioral. What we're doing is sharpening the focus on these, given the current context. Finally, we're going to leverage our distribution strength and scale and strength of our relationship to focus on speed to market. We will also co-create products with our channels and tailor these products, both our customers and channel needs.
By doing all these, in combination of the strengths that we outlined in terms of deep product expertise and the distribution strength in Japan, we want to power forward in driving earnings and cash moving forward. Now, I would like to bring on Rebecca Tadikonda to the stage to talk about China.
Thank you, Kishore. Good morning, everyone. When I was packing my bag in Singapore to come here, I thought that the best way I could represent our China business and our team in China and our agents in China was to wear a superhero cape. With that, let me tell you a bit about our business in China. I'd like to tell you about our growth model and some context on the market. I think it's well known that China presents a tremendous growth opportunity for insurance companies. It's also often the case that it presents a lot of challenges for people to win in this market.
Before the time I spent in Asia and in China with MetLife, I was a partner at Bain & Company, and I worked for many large global financial services institutions that had many challenges actually growing a successful business in China. How are we different? How is MetLife overcoming these challenges? There's really three things I'd highlight for you today. The first is our joint venture relationship with our partner is very strong, and that's not always the case. We have an aligned vision for how to drive the long-term growth of our business in China. Secondly, it's a huge market, but we have found the sweet spot. We found a sweet spot, and we've developed deep capabilities to win in that part of the market. The third thing is the team that I mentioned, and there's a couple elements of this team.
They are not only deep experts in China, they move fast, and they work incredibly effectively as part of a global organization, pulling the best of MetLife into China and deploying it so that we can win. That's why we are overcoming challenges that take others down. A bit more about our business. Our footprint is in 11 provinces in 26 cities, which gives us access to about 560 million people. Huge market. In terms of our distribution position in this big market, you can see we're about half career agency, and our market position there, we are ranked the number 3 of the foreign-owned life insurers in China. You can also see we have a big telemarketing business, and there we're number 2. From a product portfolio perspective, we are a leader in protection products. You've heard that around the world.
What that means for us in China is that we are higher profit than most of the competitors we're up against. If you rank us by profits and $, we're the second-largest foreign-owned life insurer in China. The other addition that this focus gives us is that we are able to self-fund very high levels of growth of our business in China. We don't have to pull capital in. In fact, starting in 2016, we've actually started to dividend profits out of China, and we've been growing that dividend every year. I'd like to tell you a little bit more about how we make this work. I said we've found a sweet spot in the market, we've built capabilities. I think of it really as two sides.
The first side is customer insight-driven solutions, primarily around health and other protection needs, and I'll come back and tell you a little bit more about that. Secondly, you've heard these words before, high touch, high tech professional agency. That's how we get these solutions into the hands of our customers. Esther shared with you the approach that we take, and you'll see this across many of our businesses to really understand the customer opportunity and develop differentiated solutions to meet the needs of those customers. We did the same in China. We started by taking a scan of the entire opportunity, the entire customers that were out there in China, who were they and what was the opportunity, and we saw a segment that we really felt we had a right to win, and that was affluent, globally minded Chinese consumers.
Many of you know that Chinese consumers can be very attracted to global brands. We thought this was a good place to position. They weren't purely focused on price, but they would pay more for high-quality offerings. A brand like MetLife was very well-respected in the segment. That's our focus. We made sure that we really understood the needs, the concerns, how these customers buy. What we found was that while their everyday health needs were well in hand, that a critical illness, cancer, heart disease, these things could financially and emotionally devastate even an affluent customer and their family. We decided this is where we had to play. We have capabilities to win here.
We combined comprehensive critical illness coverages, but we married that to really engage with these customers with value-added services to help them manage their whole health journey. That's from preventing critical illnesses, none of us want one, to diagnosis, to treatment, and to staying well. One example I'll give you is we have a second opinion service that would allow, let's say, a woman in China who's facing cancer to tap into the best experts in her form of cancer here in the city. That doctor, that oncologist, would collaborate with her oncologist back in China to make sure she got the right treatment plan and the right care. That's how we're really standing apart. The industry has taken notice. We've won many awards for our innovative solutions, and not just the solutions themselves, but we're recognized as a thought leader in China.
That's really our customer-driven solution capability with a pipeline of these solutions that come out over time because China's a fast-moving market. Moving on to the other half. That was the first half. The other half, we need to get these solutions in the hands of our customers, and we do it through a highly professional agency. Before I get into MetLife more deeply here, I wanted to give you a bit of context on China. Today in China, given the stage of the market development, you see that agency accounts for about 70% of the new sales. It is the dominant channel. It's also the highest margin channel. It is a good place to play. How are we different? What are we doing? Our track record here, I think, is pretty impressive.
From 2014-2016, we doubled the size of our agency. We really started to put some focus on this channel. 2019, we did it again. As we look to Michel's Next Horizon, we will do it again. 30,000 agents is our goal by 2024. We are also doing this by having top-tier productivity. This isn't just hiring a bunch of people who are not going to succeed. We bring them in, and we've achieved top-tier productivity in the industry. As we double and double, we will continue to keep these levels of productivity. How do we do all these? How do our superheroes in China do all of this? There's four areas of focus that we have. First is around acquiring customers with this needs-based conversation and then bringing them the solutions that see at scale with these tools.
In addition to that, we applied the safe conduct more research again to really the customer we are building when we find opportunities to reach out, understand how their needs are so our customers can meet all of their needs quite easily. That's it. Customer-driven solutions. I think one other thing I'd like to leave you with, in case that's not enough, one other thing I'd like to leave you with as we wrap up on China is we are very encouraged about the opening up of China in terms of the regulatory outlook, the ability for foreign players to really grow in China. We believe that presents more opportunities for us to continue to expand our footprint into new provinces. Great business, lots of opportunities for the future. Thank you very much. Kishore.
Oh. I don't know. Oh, I'm sorry. I thought it took me back to the start of the presentation. You guys would be stuck with me for another 30 minutes as I do the loop. To summarize, we have a strong position. That's what I started with. We're going to start with that strength. All the actions that we took, and it was a little painful, and I went back through the transcripts of some of our earnings calls, and some of you asked some tough questions with regards to Asia. But you see that coming through now. Our focus is on execution. You will see that ongoing execution come through as well. We will be differentiating our actions because Asia is a diverse set of markets, and that requires individual attention.
If we execute well at the market level, you will see that continued performance in assets under management, earnings, and cash growth. With that, I will turn this over to my friend, Oscar Schmidt.
Thank you, Kishore. Good morning, everybody.
Good morning.
I hope you're enjoying this as I am. I'm really thrilled. I have the honor to be here today to talk about our Latin America business, particularly our footprint, our strategies, and our growth story. I'm Oscar Schmidt. I've been leading businesses for MetLife in Latin America for 25 years now, and another 10 years in the industry before that. Don't ask me to add up these numbers because I'm going to lose my smile if I do. It's a lot of time. It's a lot of time in the business, in the industry. I'm going to give you an overview of the overall, the region, first, and then I'm going to invite our Country Manager in Mexico, Sofía Belmar, and she's going to double click on Mexico in particular.
Mexico is our largest and best performing business in Latin America, perfect to have Sofía here with us. Let's get started. Sofía and me will convey these messages across the presentation. I will start saying what those messages are. Okay? I hope at the end we are all convinced that at least these were the ideas that you would use when building our strategy. Number one, we're the largest life insurer in Latin America, measured in gross written premium. This is important to us, and you will see during the presentation why is that, but it's a consequence of having a significant presence in few relevant markets. Scale really matters to us. Number one, scale. Number two, if you have scale, you really need great products, right? Great products and volume make a home run. Our products in Latin America are fantastic.
You will hear that, but think about us mostly using protection products, underwriting margin products. I'll double click on that. You have scale, you have products. That should drive growth, that should drive healthy growth. We have been delivering growth across Latin America. It's true that we have been facing currency and regulatory challenges. Despite that, we have been delivering growth. You will see that during the presentation. When you think about where that scale, where those great products are, where growth is happening, we focus on few very large businesses, right? Essentially Mexico and Chile. Those are our two large home runs, I would say, in Latin America. Then I'm going to talk about Brazil. Brazil is not big today, but it's, as Michel was talking about during this presentation, it's in that list of businesses for the future.
It's growing at a pace that will become relevant down the road. I'm going to talk about Mexico, Chile, and Brazil. Okay, let's move on. I said scale really matters. A good way to show you where scale is to show you our footprint in terms of where earnings come from. You can see here that there are two large businesses in Latin America that are Mexico, the blue, and Chile, the green. Let me start saying that these two markets are within the four largest countries in MetLife globally, overall. Out of the four largest countries for MetLife globally, two are in Latin America. That tells you something about how significant we are in those two markets. We are the largest life insurance company in Mexico. We are the market leader. We have 21% market share there. This is an incredibly successful franchise.
Sofía will talk about that. In Chile is an interesting market because we have two businesses there. We have a life insurance company that is the number 1 player. It's with 15% market share. On top of that, we have a pension company, an AFP ProVida. We are also the number 1 player with a 26% market share. Two large businesses in Latin America, both are leading their markets. In Chile, we have two leaders, two leading companies. I will talk about Brazil. You see this yellow slice that is small. There are 4 geographies there. The important thing that inside that, we have Brazil.
I'm going to double click on Brazil, because while starting from a low base, it's growing at a pace, at a rate, and we're investing there in a way that is going to become relevant in the future and get to the scale that we said is super important. Scale, very relevant market. I said once you have scale, then you need great products. I'm going to talk about our top line here in the left-hand side, measured in terms of our products, right? In the right-hand side, the distribution. Why these two things together make our story successful? Because you really need to have great products, but then you have to have the ability to channel those products into different segments, into different geographies. Let's start talking about products.
If you see, we have 69%, almost 70% of our business driven by protection type of products, plus another 9% fee. These two categories, for us, are very healthy products from a shareholder point of view. Think about the protection products. I'm talking about underwriting margins products with very little exposure to interest rates. We're talking about life insurance. We're talking about Accident and Health. Obviously, for us, having great products from a shareholder point of view is super important. On top of that, these are great products for our customers. Think about Latin America and the vast emerging middle classes looking for this type of protection. Great products for our shareholder, also for our customers. The other 22% is all SPIAs in the Chilean market, the Single Premium Immediate Annuity in the Chilean market. Great products in the left-hand side.
I think when I was listening to Michel talking about how do we deploy capital, the discipline, where do we put our cash in terms of new business, this is exactly what he meant. In the right-hand side, we talk about the distribution. Why it's important? When you have great products, then you have to be able to place those products in the relevant markets. You see here how diversified our distribution is. You have there agency 40%. This is a retail channel that allows us to position our products in middle classes and also in lower middle classes. Sofía will speak to that during her presentation for Mexico. We also have bancassurance, which is another retail channel. You also have here the group benefits business, mostly brokers. That is an institutional corporate channel. Right here, we're talking about employers paying for their employees' benefits.
We have worksite, which is sort of a blend. Worksite is a mix between corporate, the first sale, and retail, the second sale. Very well-diversified distribution, great products. It's a good formula. Okay. We said that to grow, you need to have this critical mass scale. You need great products and you need distribution. Let's talk about growth now. Here, we're showing you in the upper part of the chart, reported earnings growth, and in the lower part, in constant dollars. As I said in the beginning of my presentation, we grow, but we face currency headwinds. Here you can clearly see the impact of a strong dollar across the region in LatAm earnings. In Latin America, we have been growing in a solid way our earnings. As I said, challenged by currency. It's mostly driven by these very large businesses in Mexico and Chile.
It's not only about the earnings that we have been delivering. Cash has been very important. Our dividend ratio has been above 80%. This is important because imagine that we are investing in our business, investing in new things, but at the same time, we're returning cash to our holding companies. I said in the beginning that we have great products. Obviously, the evidence is that our return on equity for the overall region is above 18%. That speaks about our product margins. As I said, think about Latin America as high single digits growth region in constant dollars, but facing regulatory challenges. That's in a way, how to capture our growth. Now, I said it's a growth region. How are we going to sustain that growth down the road? Let me talk about strategy.
I'm going to cover obviously the markets that we consider relevant, Mexico, Chile, and Brazil. Mexico, I'm not going to talk about because Sofía will cover it. I want to refer to Chile and Brazil. Let's cover Chile first. We all heard and read in the last few weeks about Chile going through social tension, right? We saw Chileans protesting, particularly middle-class Chileans, protesting across the country. I have to say, that was a surprise. It was unexpected. Chile is rightfully considered the more robust economy in Latin America. We weren't expecting that. It was a surprise. I have to say that when we think about the consequences for this, we look at how capital markets react. If you think about the way local Chilean capital markets reacted, given the circumstances, the reaction was really mild.
That tells you something about the underlying strength of the economy, but I think it also tells you something about how resilient the Chilean economy and the country itself is. We like Chile. It has been a great market for us during all these years, but obviously, we're closely monitoring how the situation evolves, particularly when it comes to potential pension reform, which is one of the topics that the government is focusing, is targeting. Let's talk about the business in Chile. How to think about it? We have some businesses that are large and well-established and are growing at solid mid-single digits. Two examples, one is ProVida itself, and another one is our SPIA business on the insurance company side. Those two businesses are growing at solid mid-single digits.
On top of that, we have other businesses that are growing faster, and we're investing, and that brings the overall country to the high single-digits core business growth. Essentially, an example of these other businesses that are growing faster is the bancassurance business in our insurance company, our employee benefits business, and at the same time, the agency. We talk about agency across the region as a core business for us. Our agency is also adding significant growth there. I want to say a couple of things about our Chile talent. Our teams in Chile are both in ProVida and in the insurance company. We have great talent, we have great people, and actually, they were particularly strong in jumping in terms of all the global capabilities that MetLife can provide. I was thinking about Rebecca and all the China things that we're doing together.
The Chile team has not only been using those capabilities, they have been adding. For example, they were very active in creating digital recruitment and selection tools for our agents, also in helping us to create programs to increase product persistency through digital engagement. Very creative, very good team. We like Chile. We like the country. It's a strong economy. We're closely monitoring how the situation unfolds. Let me talk about Brazil for a minute. Look, you saw it. It's small today, right? During the years, people have been asking us, "You guys are very significant in Latin America, in very relevant markets, but not in Brazil. Why?" Our answer has been very consistent. We will grow in Brazil when the right time comes. The time is now. You may say, what changed?
What makes you feel like the time to expand our Brazil business is now? It's a couple of things. Number one, Brazil life insurance industry has been a bank-dominated one. You know that, for many years. The interesting observation is that in recent years, non-bank related insurers are growing faster than bank related insurers, right? There's a change. There's something happening there. The other reason is specific for us. We have a set of strategies that are allowing us to grow in Brazil at a higher growth rate. Let me tell you what those strategies are. There are three things that we're doing there. Number one, we do have a very strong employee benefits group franchise there. It's already established, and we have a living position in Brazil, and we are capturing a lot of the value.
When I was hearing Todd, we're capturing a lot of the value and the expertise that we bring from the U.S. group business into Brazil, particularly in terms of global accounts, large accounts, global brokers. Not only that, we're also expanding in the mid-market, and we're expanding in the SMEs as well. Great franchise on employee benefits. We're growing. Second, bancassurance. We have a number of very strong relationships in the bancassurance space in Brazil that are allowing us to position our products, our marketing skills, our direct marketing capabilities, and that is growing very fast as well. The third one is agency. It's interesting because agency is sort of a new business for Brazil. It is the fastest-growing segment in the Brazil life insurance market today.
Our agency that we created not too many years ago is growing very fast, is growing at highest rate within peers. It's very productive. While still small, it's growing fast, it's very productive, and it's very connected with our China one in terms of the professional kind of agents we're attracting, the talent we're attracting, and particularly the productivity. Overall, Brazil, small today, growing fast. Hopefully, it will capture scale down the road, and in that map that we saw, one day it will become as large as Chile and Mexico are. With that, I have the honor to introduce you to the CEO of the largest life insurance company market, my colleague, Sofía Belmar.
Thank you very much, Oscar, for such a great introduction. I'm Sofía. I have been with MetLife for nine years. I joined as chief marketing officer. I am an actuary, and I am the country manager since 2015. As Oscar has mentioned, Mexico is a very attractive market, and this is based on three very important aspects. Demographics, the penetration of insurance in the market, and our leading position there. Regarding demographics, there are more than 100 million Mexicans with a growing middle class and a young population in general. Regarding the insurance industry penetration, it represents 2.1% of the GDP. That compared with other countries in Latin where MetLife has presence, is below them. It's also a great opportunity. In our leading position in life and health, we have 21% of the market share, as Oscar has already mentioned.
This leading position not only has to be with premiums, it has to be also with distribution. We're the leaders in Worksite government business. We also have a great group, a business presence in both government and private. We started to build our footprint in agency five years ago, where now that business represents 12% of our PFOs. Besides this, Mexico delivers in excess of $1 million in dividends over the past three years. Said that, and the fact that I just mentioned, it's very important to focus our strategy in two main pillars. First is to continue driving and building value around our Worksite government business. Second, to take the opportunity to grow the private sector due to the low penetration that this sector has. This will be done through two strategies that I will go through in the next slides.
Regarding Worksite government business. Worksite is a unique business. It's a business model that has been our main pillar during the last 2 decades, and it consists in a face-to-face sale to low, mid-income segment population. Why do we have maintained this competitive advantage during the years? First of all, because we have the capacity of having a nationwide presence where our agents, I just want you to imagine, they may have to travel from 4 to 6 hours to reach an isolated community, maybe a rural school, and to perform face-to-face sales to government employees of low, mid incomes, such as teachers, janitors, policemen, nurses, doctors, or whatever they do. The model consists in a first and second sale. The first sale is done to the government entity in order to get 2 very important levers of the business. First, the access.
Imagine the agents walking through the corridors of a hospital or maybe in the headquarters of the policemen. The access is extremely important. Once that we have the access, we also get, through the agreement, the access to the payroll. The premiums are deducted from the payroll of the employee and then transferred to MetLife. This collection mechanism allows us to have a very high persistency, over 90% of persistency. The other important aspect of the value proposition is the product itself. The product is a universal life platform with a basic death benefit, but the product has 21 riders, such as accidental death, funeral expenses, critical disease, hospital cash, et cetera. Imagine in this type of population, this may be the only product that is a comprehensive protection program that these people may have access to in their life.
Besides that, the product can be extendable to their family. For example, if you are single when you acquire the product and then you get married a couple of years ago, you can extend the protection to your partner. Just to give you an idea on how important the cross and upsell during the different lifetime events of this product is, on average, we have eight riders per customer. Distribution is a very important aspect of this business model. Our distribution is done through agents, but they are developed and hired by what we call Promotorias. It's an independent agency that has a footprint in over 200 cities nationwide. They not only perform commercial activities, they also do some operational activities that allow us to maintain a huge part of our cost variable in this business model.
Looking forward, we have an opportunity building digital capabilities in order to anticipate our customer needs and to perform our sales and cross-sell and upsell activities in a way that we can be at the right moment and even anticipate our customer needs and increase the loyalty, and also to have anti-attrition practices. This is about our government business, if we go on private, where, as I mentioned, penetration is very, very low, we have a huge opportunity on exporting this model that I just explained and that we are very successful in government to private, and also to the low, mid-income segment. That's our first of two opportunities. Here, what we have done, is that we run a test, a very disciplined test, to see if the value proposition that we have in government was accepted in the private sector and with very good news.
It was. Nowadays, we have more than 300 contracts with companies in place of the first sale, it's running in a very successful way. What we will do there, it is to scale the B2B capabilities in order to continue expanding this test and to build a 100% distribution dedicated to build this model. Also in private, where we already built the agency, which is focused in the affluent market, we have the opportunity to continue expanding the already built agency. As I already mentioned in the prior slide, our growth in agency is above the market. The agency represents currently 12% of our PFOs, and we are growing at an 18%, which is above our competitors.
Just here to say that we have competitors that have been in the market for 50 years or more, some of them, but they have two disadvantages compared with us. First of all is that they have an aging sales force. On average, according to the National Insurance Association in Mexico, the average age of agents is 54 years. The other important aspect is that they are levered mainly in interest rate-dependent products, such as endowments. The value proposition that we built for this agency, it's also a Universal Life platform that also has riders. We started this business model back in 2015, and we have the opportunity to broaden our nationwide presence and to continue enhancing our value proposition.
Said that, I think that Mexico has a great opportunity to continue building on these two important pillars of the business, strengthening our government work site and tackling the opportunity that the private market brings to us. Said that, I will get back to Oscar for the key takeaways. Thank you.
Thank you very much. Thank you very much, Sofía. As I said in the beginning, the core ideas are scale really matters to us. We really build scale in few relevant markets, two existing ones, Mexico and Chile, Brazil coming as the next one. As Sofía explained, the great story in Mexico is about fantastic margins in the government business and diversified strong distribution. Moving that experience from the government segment into the private sector is adding growth. That's an example of leveraging something that you do very well in one market to another market. That's a good example. Also, if you think about Brazil, bringing expertise from places like China in our agency or the U.S., that's pretty much the story in Latin America about getting to the scale we want with great products and strong and diversified distribution.
We are well-positioned to protect our franchise, to continue growing it, but to add new businesses that allow us to grow faster down the road. With that, I'm going to pass it back to John Hall. I think we have a break again? Good.
Thank you very much, Oscar. It's been quite a morning so far, but we need a break. We're going to take 10 minutes. We'll be back, we'll resume with John McCallion. Thank you.
Am I on? All right. If we all take our seats, we'll keep rolling here. All right, thanks. I guess it's still morning. Good morning, everyone. It's great to see everyone. We've had a great day so far, I was saying to Tom, I think his son pitches, he's a starter, I'm the closer. Tom said, "We'll see about that." Thank you for the confidence there. I'm going to start with MetLife Holdings, then I'll touch on the outlook, then we'll wrap up with a Q&A for the day. Just to remind some folks here, MetLife Holdings began to report into me May 1st. As a result of that, I've had some time to meet with the team really, quite honestly, spend a little more time understanding this segment.
I would say there's probably some underappreciation as to the value that this segment brings to our firm. I think in a punchline is that this is a large and stable, well-seasoned in-force business. It has a diverse set of liabilities, over five million policies with different performance measures, risks, drivers, within it has a number of natural offsets. The heart of what we do is obviously to meet our customer needs, deliver on our policyholder obligations, but it's also focused on optimizing value. We look for opportunities to reduce risk and volatility to appropriately accelerate the release of capital and reserves in this segment. The result of all this becomes that this has a steady improving risk profile is a reliable and steady source of cash and earnings over time.
It has a balanced product profile, a healthy mix of protection, as well as market risk-based products. It's importantly not overly concentrated in any one product. Actually, one of the things, just thinking about underappreciate, right? The life block, you see here it's about 50% of our total liabilities. The vast majority of that is participating life. Again, I know you all know this is where we share the risks profile with the policyholder, the risk in returns. Over 20% of our liabilities are in annuities without living benefits. The last point I would make here, over 90% of this portfolio is within our New York state-domiciled insurance entity, where in aggregate, our reserve adequacy testing has shown healthy margins. I would just say today, that remains the case even at today's rates.
Ultimately, this reflects the long history that we've had in disciplined and robust asset liability management. A diverse set of liabilities comes with a diverse set of performance drivers. There's a healthy spread of risks across this portfolio where they're not all expected to move in the same direction. I think the simplest way, there's a lot of numbers and detail here, which I know you appreciate, but just to summarize, this portfolio provides diversification benefits and natural offsets. We have mortality offsets. If you think the life portfolio and the annuities and long-term care. We have a high percentage of protection products with modest market risk exposure. And we have an even distribution of earnings between savings and protection. Now, we're not just putting this business into some kind of passive runoff. It's quite the opposite.
We are focused on meeting our customer obligations, our policyholder obligations, servicing the customer in a better way. We're also proactively managing the in-force to optimize value. We have value levers, and we've been acting on them. We have contractual value levers. You see this in some of the rate increases we've gotten on long-term care. Just as a reminder, in 2017, we got a 7% increase on $750 million of premium. 2018, that was 4%, and year-to-date this year, we're at 4% again. On a present value basis, that's a $1 billion of value. We have operational, which I'll show you an example of shortly, and this obviously sits very well with one of the pillars that Michel talked about to simplify. We're focused on streamlining the delivery service to our customers, looking at our internal processes, and evaluating outsourcing.
In this business, outsourcing can be a valuable tool because you move fixed cost to variable costs. Behavioral. That can simply just be informing or communicating better to the customer what are their options. And we find that as a result of that, people act differently and ultimately can change the risk profile that we have in this business. Lastly, and not least, is financial. That you could think of obviously our asset liability management, leveraging derivatives for hedging, reinsurance. We are actively exploring from an external perspective how to think about this business. I would say that overall, we've seen capacity around third-party opportunities to accelerate appropriately the release of capital and reserves. The capacity has increased. However, I would say interest rates have become a headwind.
I'd say there's still a bid-ask spread, but what I tell we talk about within the leadership team in holdings is this isn't something that you can just act on very quickly. You need to do work. The important thing that we've emphasized internally is that do the work, make sure we think about it from an external perspective, and be prepared and opportunistic. As I said, here's one example, continued expense management. This shows the progress that we've made managing our expenses in this segment. We've moved total expense ratio down significantly since 2017, driven by those operational initiatives that I touched on earlier, and obviously, right-sizing the segment post the spin-off of a portion of our retail business.
We expect to continue to do that over time, although I would say the pace of improvement would slow, and if anything, might even just get to a point where we just maintain. I'd say our opportunity now going forward is to maintain this ratio, and we think we have the levers to do that. Second thing I would just highlight as an example is the steady improvement that we've had in the risk profile of this business. Here's an example. You saw earlier, Michel showed a slide, which was much more dramatic. That was because included in his first bar was the VAs with the entire retail segment. This is just the VAs post-spin-off, so within MetLife Holdings and starting when the formation of MetLife Holdings was in the beginning of 2016.
Even with the exclusion of that business, you've seen some steady progress that shows that the risk profile in these remaining VA balances continues to improve. What would you say is a key takeaway? One, on an absolute basis, we've seen a steady decline, and two, there's an increasingly more balanced risk profile between those VAs with living benefits and those without. When you combine a diverse set of liabilities and performance drivers with natural offsets, with proactive management and an improving risk profile, you start to get some favorable results. We've had strong consistent GAAP earnings now for 2 years above $1 billion. We expect to be above $1 billion again for 2019. By the way, just to let the cat out of the bag, we will be there again for 2020.
As you saw in our outlook call, we said $1 billion to $1.1 billion is our range for 2020. We've had double-digit ROE during those years. Consistent with the focus in our Next Horizon strategy, this business delivers strong free cash flow, near or above 100% during the last 2 years or 3 years. I've said this before in investor meetings, if you take the cash that this segment delivers, it's 1%-2% EPS accretive, if you think of it just fully used for share repurchases. Overall, this business represents the ability to deliver strong earnings in cash now. Another way to think about it's a runoff business that's EPS accretive. MLH has delivered over $1 billion for the last 3 years. We see that going forward to be the case for 2020. Why is this?
Why do we consider this to be a large and stable in-force business? One, it's got a diverse set of liabilities and performance drivers and a number of natural offsets. We believe we can still proactively manage this business to deliver and to improve the risk profile. As a result of all this, we think this is a steady flow of free cash flow to the holding company over time. Now I'll quickly shift to the outlook call, which you all saw last night and had a chance to absorb and put into your models. Couple key messages before we jump in. I think as you heard throughout today, we're very excited about the opportunities that we have here at MetLife. To focus, to simplify, to differentiate as part of the Next Horizon strategy. We're confident that we can grow profitably leveraging our significant competitive advantages.
Here you can see the point. Our year-to-date results demonstrate this for 2019. We've had a very strong 2019. Last year, we introduced an ROE target of 12%-14%. That was effectively an increase on a prior target. At the time, rates were expected to rise, Fed was moving to a more normal rate environment. Since that time, interest rates have dropped, and you can see from our appendix, we are assuming the 10-year stays below 2% for the next three years. Despite that, we are maintaining our 12%-14% ROE guidance. I would say there are two things driving that. One, given the mix of business that we now have and the competitive advantages that we've talked about today, we think we can still drive business growth in this environment.
Two, it's our execution on our expense initiative and the progress we've made, and we're committing to make in 2020. As you heard, we plan to exceed our original commitment. Similarly, with a focus on less capital-intensive, shorter payback periods, we're able to deliver and generate strong free cash flow. As such, we're maintaining our two-year free cash flow ratio of 65%-75% on average for a two-year period, so that's 2020 to 2021. This target still holds with the 10-year Treasury between 1.5% and 4.5%. The last thing I would just highlight here, we've utilized this free cash flow to maintain a strong dividend and to deliver robust share repurchases over the last several years. As you heard earlier, nearly $16 billion has been returned to shareholders over the last three years. Excess capital belongs to the shareholders.
At MetLife, we have a disciplined approach to deploying capital, and we're building a track record for returning excess capital to shareholders. This remains a top priority. Let me talk a little bit about the highlights of the outlook slides that you saw and you've had a chance to absorb over the last 12 or so hours. In terms of macro assumptions, as you heard earlier, we continue to see a strong U.S. economy, solid growth in the U.S., and we assume always about a 5% growth on the S&P. However, interest rates remain low and the U.S. dollar remains strong, so both headwinds. Moving to near-term targets, maintaining our ROE and free cash flow guidance as I just talked about, despite the headwinds and interest rates. You heard from Steve, private equity returns have been robust and strong.
As a result, we're actually raising our variable investment income guidance to $900 million-$1.1 billion. Our corporate and other adjusted loss is $650 million-$750 million for the year. Just as a reminder, recall, fourth quarter of 2019 will be the last quarter that we have the Unit Cost Initiative one-time costs being incurred. Those will be eliminated in 2020 on. The effective tax rate of 20%-22%. I would just say, it's interesting, most importantly, that's all been embedded in the information that we provide in the next several pages within the businesses. It's mainly a mix shift, more earnings in the U.S. versus the rest of the businesses. At the bottom, key sensitivities. You can see this relative to our base case.
We use the forward curve as of September 30th for our base case. Then we show some sensitivities. The punchline here is the adjusted earnings remain relatively modestly impacted from a drop in rates to a 1% across the board. I'll start now with the U.S. segments, group benefits. As you heard earlier from Ramy and Todd, very strong year-to-date results, up 20%, benefiting from a strong economy, volume growth, and certainly outperforming, or I should say at least at the low end of the range of our underwriting ratios for the year. We've seen very positive momentum across those market segments. You heard earlier, national, regional, and small. Also, the Voluntary product growth and opportunity that we have, that's helped us maintain a strong outlook in terms of top-line growth of 4%-6%.
As I move to the underwriting ratios, look, we've had very favorable performance year to date. We expect full-year ranges for 2020 to remain the same. Therefore, we're effectively reverting to a mean when we think about margins in that case. No material changes to sensitivities on this page. If I move to Retirement and Income Solutions or RIS. As Graham talked about in his presentation, $1.3 billion of adjusted earnings over the trailing 12 months, very strong year, albeit down 2%. This is a function of we've had strong business performance, strong variable investment income. We have seen spread compression over the years, and I'll come back to that in a minute. Liability exposures stay at 2%-4% growth in our near-term outlook.
This is spread across our general account spread business, as well as the fee-based business in our separate account stable value synthetic GIC business, as Graham discussed earlier. All right, let me talk about spreads. I answered Alex's question too, but I'll just reiterate. I said in the third quarter call that we have started to see a bottom, near maybe is the word I used at the time. This range reflects that. We thought the third quarter spread was a decent run rate for the next several quarters. We've applied a range around that, and that's what we've shown here. The last thing I'd highlight here is our sensitivities to LIBOR have flipped from a negative when up 10 basis points to a positive when down 10 basis points. It was from a positive, negative, it was the opposite last year.
We try to make it really confusing for you to figure out sensitivities. The reality is that's just where LIBOR has come now and where our caps and our floors are relative to in the money. That's just a function of that. That sensitivity holds well within a 50 basis point range, plus or minus. On property and casualty, over the last 12 months, they've had a $323 million of earnings. From a baseline earnings perspective, that's down 9%. As you've been hearing, we've had favorable catastrophe losses. That's been more than offset by some of the deterioration in the underlying auto results. That's been discussed certainly most recently on the third quarter call. As we look forward, adjusted PFO growth of approximately 1%-3% in 2020, moving higher to 4%-6% in the outer years.
Last thing I would just say, combined ratios remain consistent with the guidance that we gave in the prior year. Asia. For Asia, as you heard from Kishore, we've benefited very much from the accelerated value initiative, and you can see that in the results. However, when you look at the baseline-adjusted earnings, I would just be mindful, this is a trailing 12 months, so it includes the fourth quarter of 2018, which was unusually low. As you think about your modeling, I would think about some kind of normalized approach to that. We expect strong AUM and earnings to continue. We do see pressure in sales, and this is something we've highlighted on the earnings calls, particularly in Japan and our foreign currency denominated products. We see that continuing into the early part or early half, I'd say, of 2020.
Certainly, as interest rates remain low in the U.S., that's put pressure on our Japan foreign denominated sales. However, again, I would just point you back to we expect to maintain strong growth in AUM and earnings. In Latin America, baseline-adjusted earnings for LATAM over the past four quarters is $575 million. As we discussed, we've seen strong results on a constant currency basis. Now, I would also highlight here, we've also seen strong results in 2019 as a result of the encaje returns in Chile, say outperformance has occurred. We would normalize for that, and as a result, the growth rate for 2020 is mid-single digits on a constant currency basis, reverting back to historical growth rates in the outer years. For EMEA's actually outperformed on a constant currency basis this past year, certainly relative to our guidance, although FX remains a headwind here.
I turn to near-term guidance, on a constant currency basis, top line growth of mid to high single digits, adjusted earnings of mid-single digit growth, and dividends to the holding company remain strong. Finally, turning to MetLife Holdings. As I mentioned in the last presentation, earnings guidance for 2020 is $1 billion to $1.1 billion, so maintaining above a billion dollars for the fourth consecutive year. Premiums, Fees, and Other Revenues are expected to decline at a clip of 5%, which they have been doing, and that should continue, and that would be the commensurate runoff of the business. The only last thing I'd highlight, sensitivities are modestly down. There's two reasons for that. One is the shift or kind of the improving risk profile that I showed you earlier, particularly in the variable annuity space.
Second, as equity markets have risen over the last several years, to be honest, it's pushed contracts further out of the money. Let me summarize. We've had a very strong 2019 on the heels of a very strong 2018. We're maintaining our ROE and free cash flow guidance despite the interest rate headwinds that we discussed earlier. This is a testament to the mix of business that we have with this great set of businesses. Across the enterprise, we're focused on cash generation. We're simplifying the business to drive efficiencies, to fund growth, and to improve the customer experience. We're continuing to differentiate through an attractive set of businesses with significant competitive advantages. All this will benefit our customers, our people, and yes, our shareholders. With that, let's turn to John to kick off the Q&A.
We're going to kick off Q&A.
Yeah.
If we could have the presenters from the last panel up. Appreciate that.
Many people.
Fabulous. Same rules apply. One question, one follow-up. We're going to try to hit the folks who didn't have a question in the first session. Just as a point of order, we were looking to end at 12:30 P.M., but if we still have questions to clear that take us past that, as long as you guys want to stick around, we will continue to answer questions for a little bit longer. Suneet in the back row there. In the second to back row.
Thanks, John. Suneet Kamath from Citi. I guess for John, on the caps and floors that you mentioned, the interest rate derivatives. Can you give us some help in terms of how you're benefiting from that in terms of a quantification? Are there any years over the next 5 years of your plan where we should expect to see either a material drop-off or-
Sure
maturity of those derivatives?
Yeah. I'll start. Maybe I'll ask Steven Goulart to jump in, too. First, my reference to cap and floors was obviously just around RIS at that time. I'll come back to kind of holistic view to your point. Just going back to RIS, we were benefiting a lot from caps when a year ago, I think LIBOR was maybe at 240. Right? Now as LIBOR has come down, we've lost that income, but now we're starting to gain income from floors. We're pretty dynamic around these things. As we've said before, many different venues. We buy insurance when it's cheap. We've done that, and that's the case here. In terms of quantification or thinking about the benefits that we're getting from derivatives. I'll try that, right?
Yes.
One, I would just say it's integral to our entire asset liability management process, and that's why we show that sensitivity in totality, because whether we use derivatives or hard assets, they're interchangeable in a way, but maybe Steve, you can give some commentary just on derivatives alone.
Sure. We've tried figuring out better ways to quantify it for you. What we've done is actually look at kind of the whole portfolio of derivative hedging that impacts adjusted earnings, which are swaps, caps, floors, and FX too, and think about what impacts adjusted earnings. Then run it through interest rate sensitivities. Today, of course, that's delivering several hundred million dollars of pre-tax adjusted earnings. When we run it through sensitivity analysis with the current portfolio, down 100 basis points, essentially we're looking at anywhere between sort of $600 million and $800 million a year in pre-tax adjusted earnings protection, if you will, well into the next decade. Conversely, again, just showing the robustness of the portfolio, we also look at what happens in up 100 basis points.
Even there, we're still looking at several hundred million dollars a year of pre-tax adjusted earnings protection, again, well into the next decade. I think the program works like it's supposed to work. It really is an integral part of our asset liability management program. The key to remember also though, is it's not static. That's why I emphasize the portfolio today. It is dynamic. It is part of our overall process. Given where we are today, the program is working like we want it to work.
Yeah. I would just add to Steve, I think just on today's rates, it's always dangerous to kind of do this up front here, but I think we're pretty safe. I think it's around $500 million to $600 million of today's rates is what we're. When you say several hundred million.
Yes.
That, over more than 10 years from now, I think it gets down maybe $100 million, $150 million from that. It's pretty steady and resilient for over a decade.
My follow-up is on holdings. Just in terms of the different blocks in there, are you hearing any interest across those blocks? If you were to execute, do we need to think about a covariance benefit offset or something like that.
Yeah.
In your thinking?
That's great. Good. Yeah. We have to look at those things, too, when we think about the change and what anything would look like without. We consider all those things. In terms of interest, I think there are players that are developing specialties, is the way I'd say it. I think there's interest in every block. Price becomes the gating factor, I think, on what people are willing. I think this has become now a business, this kind of book consolidator. There's a number of players, and a lot of private equity players that are starting to try to build scale there.
Over there, John, please. Thank you.
John Barnidge, Sandler O'Neill. My question's on the international business. The unrest in Chile seems more transitory, whereas the unrest in Hong Kong seems somewhat permanent in nature. Are you expecting your corporate clients to maybe relocate their businesses to other countries in Asia? As a result, which countries do you think your operations would benefit most from?
You want to tackle that? You want me to do it?
Please.
As you know, we won't have a business in Hong Kong following the divestiture. It's hard to tell. Hong Kong is an important financial hub in Asia. Hard to tell what the sort of long-term impact from what's happening there will be. Singapore has been mentioned as potentially another sort of a potential beneficiary from what's happening in Hong Kong. We don't have a business in Singapore in terms of, we have people in Hong Kong.
We don't have a business there. Hard to tell, but I wouldn't write Hong Kong off just yet. I think it's important to wait and see how things play out there.
Thanks for the answer.
Sure.
Okay. Ryan?
Thanks. Ryan Krueger, KBW. John, you didn't mention the New York domicile as a material issue for reinsurance transactions in Holdings. I guess, has something changed or should we still think about that as a real impediment to doing reinsurance there?
Yeah. I don't know if I would raise it as an issue. I think obviously they have certain requirements that may differ from other states that we have to take into account, as does the counterparty. It creates, I would say, a little more of a hurdle from getting a price cleared, and for buyers to kind of see how it could work for them as well, to be honest. It puts more of the constraint, I think, on the buyer than it is for us. It's like anything. We work through it. That's our largest insurance entity we have, and I think we are just working through all aspects of it. I don't see anything as a hurdle per se. Probably the biggest hurdle, as I said earlier, is really price.
Got it. Then on the investment management business externally, I think you mentioned you thought that could get to 5% of earnings in 5 years. I think that's in the corporate segment now, so should we expect improving, I guess, corporate losses over time as that business starts to generate more profitability?
It's not 5% of third party. Go ahead.
Right. Just to clarify, what I said is in 5 years, I said 5% of MetLife's earnings, including fees on the general account.
Yeah.
At that point in time, the third-party institutional business will be more than half of the total of those earnings as well. It will continue to grow.
All right. Thanks.
Ian, please.
Thank you. Ian Rod, Bank of America. I wanted to go back to the $20 billion free cash flow generation over the next five years to get a sense of the resiliency of it. First, does this factor in your base case scenario where you're sub 2% over the next several years? Secondly, on slide 17, you talked about a lot of your free cash flow generation coming from some of your more interest rate sensitive businesses, so Japan, Retirement, and Holdings. In theory, how sensitive should we think about these cash flows if interest rates go to a more stressed scenario?
Answer to your first question is yes. We're not assuming some major recovery in interest rates, as you commented, it assumes actually 10 years below 2% for the next three years, quite honestly, we see rates staying that way for some time. That has been contemplated in the free cash flow guidance as well. In terms of sensitivities, I guess what I would say is we believe we can stay within, for the next two years, 65%-75% free cash flow ratio between a 10-year of 1.5%-4.5%. I think that's probably, at this point, where we'd stop. Look, we think that can continue, but right now we give two-year guidance, that's how we kind of work through it.
Ultimately, we've done enough work to see that even in this low-rate environment, we have enough resiliency to get to that $20 billion over five years. In terms of interest rate sensitivity, I think the business mix continues to shift. You saw that on Michel's slide in the beginning. That's part of the reason why we have confidence is that this is not a static portfolio. We've seen a mix shift over time. We're continuing to see it. I think you saw it in the various presentations where we're driving growth and value in less capital-intensive businesses with shorter payback periods. I think all of those things give us the comfort to achieve what we referenced earlier.
Got it. Just on maintaining that range, it sounds like when you think of sources and uses of capital, what gives you confidence that you'd be able to maintain that is really just the runoff of the in-force, essentially, even if we have a.
Yeah
1.5% treasury.
I say the new business we're writing. If you look at the new business we're writing relative to in-force, it's materially different.
Right.
On average, it is much less capital-intensive and has a much shorter payback period in terms of cash flow and higher returns. You saw that, I think, in a variety of different ways. We tried to slice it a number of different ways to try to articulate that point.
Got it. Thank you.
Yep.
Jimmy?
Hi. Jimmy Bhullar, JP Morgan. I had a question first on your expense ratio. I think obviously it's improved over time, but it seems like you're messaging that beyond next year it'll stay stable around 12.3%. I'd assume that there's some natural leverage in the business, but is it being offset by just ongoing spending to enhance your platform, or what are your expectations and comments on the expense ratio?
Yeah, there's natural operating leverage. I think what we're trying to articulate now is our intention is to build capacity in terms of our efficiency mindset, as Michel said earlier. Our minimum objective is to maintain that expense ratio. To continue to build capacity for discretionary investment around technology and innovation. That's the $1 billion over a five-year period. We want to maintain margins, and we want to grow investment to accelerate growth. At the same time, it's not the rosiest outlook in terms of interest rate scenarios, right? When you think about the base case. If things became more challenging, that discretionary or that capacity that we build over time can be used to maintain margins as well. I'd say that it's possible for that to go lower than 12.3%, but we're at a minimum keeping it around 12.3%.
On M&A, you've done small deals here and there, just the pet insurance deal recently. Can you talk about where you'd have interest in maybe adding to your platform, either by product and/or by geography?
I think, you go back to sort of what we discussed earlier in terms of some of our core businesses, especially our growth businesses. If we find there are opportunities that are a strategic fit in terms of helping accelerate revenue growth, for example, we would certainly consider those. Having said that, any M&A deal would have to be accretive. We measure it also, it has to clear our minimum hurdle rates, and we measure it against other uses of capital, especially share repurchases. That's sort of how we think about M&A deals. If we think it makes sense to accelerate revenue growth in certain businesses that we like, we would consider it.
Just lastly, on changes in accounting for long-duration contracts, assuming you don't have anything to report, how much are you through where you have an idea inside the company on how it's going to affect you, or are you in pretty sort of preliminary stages?
Very preliminary.
Thank you.
Tom. Let me see if Tom has his hand up. Thank you.
Thanks. Thomas Gallagher, Evercore. John, just to follow up on MetLife Holdings, should we be thinking about those opportunities you were talking about from a reinsurance standpoint being multiple modest-sized deals or one big deal, potentially that could include multiple counterparties?
I would say it'd be very difficult to do one big deal. First of all, I think the trend is that there's capacity in this block acquirers space where people are building expertise. As you saw, one of the things we have in Holdings is a very diversified mix. I think it's going to be hard and quite honestly, we're an expert, right? We're an expert in managing that book. I would say that the most likely scenario would be kind of a piecemeal approach, again, if there was a clearing price that made sense.
Should we think about that as potential ammunition to do deals to free up capital if something attractive came along? Should we think about the way you're approaching this more further tail risk reduction, like would long-term care be a strategic priority of divesting that?
I'll take it, and then you can add on if you want. I don't know, we don't look at things, I think, as like doing this to do something else. I think we look at things from going back to the earlier points, just in a fairly simple way, being very disciplined and relentless around how we manage our capital, how we think about the highest and best use of that capital. I don't know if I would kind of be so narrow in my thinking that way. It goes to continuing to improve our risk profile over time. We're not going to do something at any price. We would be thoughtful around that and consider a number of factors that would go into maybe doing a deal on LTC, for example.
I know it's a pretty generic answer, but I don't know if I have there's no playbook that says it's this narrow, I guess is my point. I don't know if you want to add.
The only thing I would add is we wouldn't do also a deal just to fund another deal. I think we would sort of stick to our discipline in terms of does it make sense from a strategy perspective if we're trying to de-risk. We certainly wouldn't do a deal at a valuation that we wouldn't be comfortable with just because we want to generate funds to do another deal.
Yeah, I think just to add, at least in today's environment, certainly doing something in Holdings that can fund share repurchase is a pretty good deal. Yeah.
Makes sense. Just one final one for Steve, if I could. When you showed the default rates, I think from 2008 or 2009-
2008 forward.
Right. Forward. It showed CLOs were only, I think, four basis points a year, and your bond portfolio was like four times that. Recognizing both are low, but just seeing how low the actual impairments on the CLO portfolio is, why not ease underwriting standards a little bit? If-
You're getting that level of output.
Don't get any big ideas.
Have Tom sit in those risk meetings with us.
Yeah.
How should we think about that?
Tom, that's actually a fair question, though, because we ask ourselves that, and we always want to make sure that we're comfortable with what we're originating. I think we'll continue to explore origination opportunities. Again, we are going to stick to our underwriting discipline. We want to make sure we are comfortable with that. Over time, we'll continue to look at alternatives. They have to make sense and fit into that discipline, though.
Okay. I see Jay's hand over here.
Thanks. Jay Gelb from Barclays. As we're thinking about 2020, for the return on equity range of 12%-14%, is it reasonable to expect, given the rate environment and some of the other headwinds like FX, that will probably be at the low end of that range in 2020?
Yeah. Just thinking directionally, we are in this rate environment. I'll use near term. At this rate environment, I'd say it puts pressure us getting to the high end of the range. We think over time that even in this rate environment, that we have an opportunity to expand that ROE, given the shift in mix that we have, our discipline and our approach to the efficiency mindset in driving capacity to fund additional growth. Again, I'm not giving you guidance. I would just say directionally speaking, that's probably fair, is that we're in the lower half. Right.
Right. Okay. The buyback expectation around that, how should we-
I take your buybacks, and I always average them.
Well.
That's the perfect answer, Tom.
We're not going to give buyback expectations.
Okay.
Yeah.
Maura. Down the end. Just keep the mic going there, Jay. Thanks.
Thanks. Maura Farley, BlackRock. My first question just pertains to the corporate credit portfolio, the private originations that were highlighted. Can you help us understand a little bit about what the underlying companies look there? Do those tend to be smaller companies, middle market, investment grade, et cetera? Just additional color would be helpful.
Sure. I think you'd probably expect, given the size of the portfolio, it's a pretty broad group of companies. Obviously, they're all private or generally all private, but they do range in size, and they range across industries as well. That's part of how we've been continuing to increase our origination, is to understand different sectors, different markets, and be able to increase our originations that way. Can you repeat the first part of your question? I think there was another piece that I wanted to address.
Just trying to understand if we should think about a smaller average company size.
The overall rating is investment grade for the portfolio. It would tend to be a little bit lower than our public corporate bond portfolio. Still, on average, it'd still be investment grade, but in the BBB category.
Thanks very much. My second question is just wondering if you can remind us how you're thinking through target leverage and target credit ratings.
Yeah. We're at, I'd say, a little above 28% today on a Moody's leverage ratio. I'd say our objective is to stay roughly around that, give or take. I would say ultimately below 30% would be kind of the target we're at. Our objective is to maintain our rating standings.
Thank you.
Alex Scott.
Hi, it's Alex Scott, Goldman Sachs. First question I had was just one more on Holdings. When I think about breaking apart the business, you talked about the diversification which benefits you. I would think if you break pieces of it apart, it might hurt. What kind of diversification benefit do you get? Are there other friction costs we should think about? Things like complex financing and other things.
Well, I think the simplest answer is just to answer the first one, we do get diversification benefit. Now, MetLife Holdings is a component of Metropolitan Life Insurance Company. It's not its own legal entity. Yeah, we get diversification benefits. As I said earlier, it's a factor when we start to think about those businesses. Like I said before, we're pretty efficient from a capital and an expense perspective here. A hedging perspective, our ability to hedge and the expertise that we have and we've developed over time, those aren't for free. You kind of build that capability up. It's hard to replicate our entire situation and take that whole book over. Yes, ultimately, as we do pieces, we have to think about what that may mean to the overall diversification or situation within that entire legal entity.
My follow-up was just on maybe a regulatory update in LATAM. I know there's been talks of potential pension reform in Chile and then maybe in Mexico. Just some of the, I think, events that have happened around the government employees and some of the contracts there that you guys have talked about in the past.
Let me start with Chile. As we said, we observed during the recent weeks all the social situation, and the government reacted to that. The Chilean government is putting a number of initiatives trying to respond to what the Chileans are demanding. Pensions is one element in that agenda. It's much broader than pensions.
What's happening now, the government introduced a number of changes that are happening quite fast, I say, to improve Chileans' benefits with government subsidies, government funding. That's unrelated to our business, unrelated to the AFP business, right? That's separate. On a separate track, the government is putting a more strategic discussion together around other changes that are more structural to the AFP system, like for example, increasing employers' contribution to increase pensions over time. As part of the discussion, what is the role of AFPs? That is going to take more time, and we are obviously paying attention to those debates. We're engaged with our colleagues in the industry and the government trying to be as close as possible to see where it can end up going. The other question you raised is related to Mexico. Let me say something before Sofía can help us.
In December 2018 outlook call, I anticipated that we were facing what the new government of Mexico called the Austerity Law or the austerity measures, if you remember. We said, "Look, this can impact our businesses in the government segment." To Sofía's credit, her team dealt with the government, negotiated, and remembered that here, the government is our client, how to implement that, how to execute on that. I think we mitigated the impact. I don't know, Sofía?
Yeah. There were very specific group contracts that are already reflected in our results and didn't have a significant impact on our earnings.
Thank you.
All right. Looks like we're going to end the day with Humphrey. Last question.
That's two in a row, isn't it?
I know. Make it good.
I'll try. Humphrey Lee from Dowling & Partners. Just a follow-up question on the $1 billion capacity that John kind of elaborated earlier. Should we think about it as, since you're maintaining the expense ratio for the enterprise, but you're trying to extract capacity, where would be some of the segments that you'll be able to extract capacity and then spending? I would assume maybe MetLife Holdings be one of the area that you extract capacity and then subsidizing like maybe for group. Is that the way that we should think about it?
Yeah, I think really it's across the board and really looking, and I think you heard the commentary earlier, I think it was Kishore who talked about really looking at the end-to-end process and getting to a customer-focused approach here so that we can improve customer experience and drive our unit cost down. We think we have opportunity, but we want to continue to build the capacity to drive investments for more efficiencies, to drive investments to fund growth, and ultimately improve customer experience. I don't know if it's just Holdings. I think it's across the board. We have an opportunity. We're a big, diverse multinational.
We've made a lot of progress on our processes and technology. We still have some opportunities here, I think we think it's just very important for us, particularly as we think about what needs to be done to drive this Next Horizon strategy.
You mentioned the capacity will provide you opportunities to play offense and defense. When things are good, you do it for more investment. Things are bad, could defend margin. How should we think about what would trigger the decision to play offense or defense?
Yeah, I think it's actually macroeconomic headwinds would probably be one of the keys, right? If we saw a stress environment, this could be a lever to help us kind of manage through that in a short period of time. I think ultimately, our main objective is we want to build capacity to fund growth and to fund investment. At the same time, if we need to, we can use that capacity to manage through different situations. It goes back to, I think, one of our objectives is to perform well in a variety of macroeconomic environments. This is a tool to allow us to do that.
Got it. Thanks.
Thank you. Well, that'll close the Q&A session. We'll turn things to Michel.
Great. I have to leave. It's okay. I want to thank, I won't be long because I know we're running over. I just wanted to thank all of you for being here this morning and for your engagement as well. I mentioned at the beginning, that we're excited to tell you what's now and what's next for MetLife and to talk about our businesses. We feel that we have a good story to tell, and I hope we did that story justice here this morning. We also believe that we have a good strategy, the right strategy for MetLife. Equally important is our ability to deliver on that strategy. I can tell you with confidence that our management team here, our leadership team, is fully aligned, fully energized, and fully focused on delivering and on executing.
In the spirit of the holidays, I hope that part of what you will write after this meeting includes these three comments here. Again, this is how we view our Next Horizon, simpler and more focused, great set of businesses with a strong free cash flow. With that, I'd like to wish all of you a happy holiday season. We look forward to seeing you again in the new year. Thank you.
Thank you.