Good morning, everyone. Welcome to our 2014 Investor Day. For those joining on the web, the presentation materials can be found on metlife.com under a link on the investor relations page. This is our cautionary statement. I am not going to read it, but I will point out that we will be making forward-looking statements today and discussing non-GAAP financial information. The safe harbor statement contained in the appendix covers the forward-looking statements made here today. Forward-looking statements include our near and long-term outlooks and any other statements providing information about future periods. As the statement notes, actual results might differ materially from projected results. For discussion of the factors that could cause actual results to differ, please see the risk factors in our 10-K, 10-Q, and other reports filed with the SEC.
The explanatory note on non-GAAP financial information in the appendix includes how we calculate non-GAAP financial measures and the reasons we believe this information is useful. Reconciliations to the most directly comparable GAAP measures are also included in the appendix. What I would like to do now is provide a brief overview for what you should expect today. We are going to begin with a strategic update from Steve Kandarian, Chairman, President, and CEO. We will move to a discussion of our growth outlook in the Americas with presentations from Bill Wheeler, President of the Americas, Todd Katz, who runs our Group, Voluntary & Worksite Benefits business, and Oscar Schmidt, who runs our Latin America business. At the end of the Americas section, we will have a Q&A session followed by a short break.
When we return, we will hear from Chris Townsend, President of Asia, and Michel Khalaf, President of EMEA. They will discuss the growth outlooks for those regions. We will close with a presentation from Maria Morris, who runs our Global Employee Benefits business. We will end the day with a Q&A session and closing remarks from Steve. Lunch will be available afterward. Our plan today is to provide further detail on our capital-efficient growth strategies and build on the information we provided you on our December outlook call. We anticipate that you will have a lot of questions, but I am going to enforce the one question and one follow-up rule. We want to be fair to everyone here that they will get their questions asked and hopefully answered. Please respect the one question, one follow-up rule.
With that, I would like to turn it over to Steve Kandarian. Steve?
Good morning, everyone. Thank you for coming today. Remember, we focused on our balance sheet and our risk profile primarily. Today's presentation is a shift from that. It's really much more of a conversation about the income statement portion of our financials, about our growth prospects, our earnings prospects. You'll be hearing from the presence of our businesses in. We unveiled this in May of 2012. These are the four cornerstones that we refer to. I think most of you have seen this slide before, but I think it's just a good reminder in terms of where we're headed as a company. We formulated this strategy back in 2011, late 2011 through 2012, and rolled it out in May to the investment community. It's basically a five-year plan through 2016. You can see the four cornerstones, refocus the U.S. business.
That really was right-sizing the risk in that business. Building the Global Employee Benefits business, really leveraging our scale post-Alico and taking our strong group business expertise and taking it globally. Growing emerging markets, because the Alico transaction 2010 put us into a number of strong growth markets with growing middle classes and very low penetration rates in insurance. Driving toward customer centricity in a global brand. Again, leveraging our brand globally, as well as really shifting the focus of the company to be much more customer centric and finding ways to better serve customers and sell insurance to them in ways that they really want to purchase insurance. We feel if we can get this right, it's a real competitive advantage for us. Let me talk about some of these specific commitments that really come out of the strategy.
There's four things here I'd like to go through with you. Shifting from the market sensitive to protection products to improve our risk profile. Again, we talked a lot more about that this year as well. Growing emerging markets to 20% of our overall operating earnings. When we began this strategy work, about 14% of our operating earnings came from emerging markets. Our goal is to hit 20% or higher by the year 2016. We also talk a lot about achieving $1 billion in cost saves by 2016, and increasing our return on equity to the range of 12%-14%, and driving down at the same time the cost of equity capital. Because essentially, how our stock price reacts in the marketplace depends a lot upon our return on equity, our returns, as well as our risk profile and our cost of equity capital.
Getting that return on equity to be higher than the cost of equity capital really is a major focus of ours. The next few slides will provide more details on each of these four commitments. The first commitment we talked about, this is just indicative. There's two products here. Variable annuities, which peaked out for us in terms of sales. In the year 2011 at just over $28 billion. It was down last year to $10.6 billion, maybe down a little bit more this year. I want to make sure that everyone understands that we are not moving away from the annuity business. We think the retirement space is a great opportunity for us.
It's going to be a growing part of the marketplace going forward as more and more people from the baby boom generation go into retirement and need ways to take their nest egg and translate it into income for life. We are committed to that business. We wanted to right-size that business and get the product design to be appropriate in terms of levels of risk. I would anticipate this business starting in 2015 will actually start to grow again. On the right-hand side here, you see the Group, Voluntary & Worksite Benefits business. This is a low capital intensity business. It is something that we really are focusing on growing rapidly. You can see the growth trajectory here from 2011 to 2013. The gray part of the bar, I should mention, in 2012 was one large sale to TRICARE.
If you take that one large sale out, you see a nice progression in terms of our growth in that segment. Moving on to operating earnings from emerging markets. You can see the 11% compound annual growth rate of that segment of our business from EMEA, Latin America in particular. Let me just mention a few things about this segment. It is a business that we, as I mentioned before, want to grow from 14% to roughly 20% of our earnings by 2016. We said we'd do that both by organic growth and also by acquisition. We did make a significant acquisition last year called Provida. It's a pension plan administration business in Chile.
Just to remind you about how that business works, our fees are derived not from assets under management, which could be volatile based upon valuations of stock prices in the marketplace, but rather from flows from employees as they pay into the system. It's really a flow business. If employment is strong in Chile, this business should see good growth in the years to come. We paid $2 billion for that business, and it helps us get toward our 20% goal of operating earnings from emerging markets. In fact, we anticipate by this year, end of this year, when the acquisition takes full effect for a full year, our emerging markets earnings will be about 17% of total earnings for the company. Halfway to our 20% goal that we set for 2016.
Southeast Asia is the area of focus for us in terms of finding ways into that marketplace. There have been some acquisition opportunities, but it's a very heated market still. A lot of companies want to expand in Southeast Asia. I think most of you who have been following us for years know that we're very disciplined buyers of businesses. We're not going to overpay for a business just because we want to be someplace strategically. We have made bids on certain businesses, but it's been a very frothy market, and we have not won any of those bids. We'll remain disciplined in terms of acquisitions, but we've done some things without having to make an acquisition. For example, in Vietnam, we have a joint venture with BIDV Bank, the second largest bank in Vietnam.
In Malaysia, we have a joint venture with AmBank, fifth largest bank in that marketplace. In Myanmar, we have a representative office. We're one of nine large foreign insurers that were given representative office licenses last year, and we anticipate doing business in 2016. Malaysia should throw off some earnings to us relatively soon. The other two markets clearly are longer-term plays for us, but they're important flags to plant for the future. Let me talk about the $1 billion in gross expense saves. We're on track to achieve those saves. Approximately $400 million of the billion we will reinvest into the business, much of it into technology and into our operations to become a more efficient company and a more customer-centric company. I'll just give you a few examples of how we're reinvesting into the company with these saves. One is called The Wall.
It's a technology that brings together over 60 different technology platforms that are disparate across our company from years of both acquisitions and organic growth in different marketplaces. Enables people in our call centers, for example, to see on one screen all the activity of a customer who calls in who may have multiple products with us. This has led to higher first call resolutions already, about 10% higher, and also reduced call times by about 15%. I think that's really just the beginning of the efficiencies from these kinds of efforts in terms of bringing technology to bear to help our colleagues better serve our customers. We're also upgrading and redesigning our claims processing areas. Early stage on that, but we think there's a lot of money to be saved if we get that in a much better place using automation.
Again, it was a very manual process historically. We are reinvesting some of this billion dollars into automation to enable us to become not only more efficient from a cost perspective, but also again, provide a much better customer experience. As shareholders, this is an important slide, as all of you know. Operating earnings up nicely over the last few years. Just as a footnote, 2011 was restated to make it comparable to the other two years, 2012 and 2013, when there were DAC adjustments. On the left-hand side, we're really talking about their return on equity. Back to that model of return on equity needs to be higher than cost of capital to get a valuation above book value. We've been driving toward getting higher ROEs for our business.
At the bottom of the left-hand side of the chart, you can see 11.9% ROE last year. First quarter, we're 11.4% of this year. The other side of the slide is just as important, which is the cost of equity capital for MetLife. Again, the marketplace will look at our business mix, and if it feels that the business mix is taking too much risk, that cost of equity capital is going to be higher because shareholders will say, "I need a higher return to reflect the volatility potentially of the business." You can see in the light blue bar there on the right-hand side, our one-year beta has come down nicely 31 basis points between 2012, when we began the strategy, and May of this year, 2014.
That's come down even more rapidly than the overall peer group that we compare ourselves to in the life segment. Again, driving down cost of equity capital with our business mix and our strategy and driving up our return on equity. Over time, we think they'll really drive up our valuation in the marketplace. Certainly, we've seen that the last couple of years. Capital management, another favorite topic of many people. As you know, we've increased our dividend twice. We had a $0.74 per share dividend a couple of years ago. We increased it to $1.10 per year. We went from an annual dividend to a quarterly dividend, trying to be a little more shareholder-friendly. We increased the dividend again recently to $1.40 a share.
Paying out about 25% of our operating earnings, we thought that was a good number to come into in terms of a ratio. If we are regulated by the Federal Reserve as a non-bank SIFI, one of the rules the Fed has, it's just a rule of thumb, is 30% of net income being kind of a max for a payout for dividends. We were mindful of that when we decided on the dividend level. The first bullet point, I've already talked a little bit about this, Provida. A low capital intensity business, fee-based, not market dependent in terms of stock market levels and so on. A nice balance in terms of risk profile compared to some other businesses we have which have more market sensitivity. Again, we're not getting away from market-sensitive businesses, interest rate, equity-related businesses such as the annuity business.
It's more of a portfolio view and making sure that overall there's the right balance in terms of those risks we're taking. We have very little exposure to fee-related businesses right now at MetLife, so we thought this was a good balance for us. Finally, the big news that just came out yesterday, we have decided to announce and have a share buyback program of up to $1 billion. It'll operate under an existing $1.3 billion authorization that's already outstanding. Really, the issue here was, because a lot of you heard us talk about this over the years, the last three or four years, we've always said that excess capital belongs to our shareholders. On the other hand, we have this looming designation as a non-bank SIFI, potentially, that still is outstanding.
We have potentially Federal Reserve regulation of our business, including capital rules, potentially liquidity rules and leverage ratios. As of now, those rules have not been written. Our thought was, several years ago when we began this thought process, that we'd know at least from a draft perspective what those rules would look like. We thought we'd know that in the year 2013. Then we thought we'd know it this year, 2014. The most recent pronouncements from the Fed is that draft rules are unlikely to be forthcoming until at least early 2015. In the meantime, as you saw on previous slides, our earnings have been increasing.
As you may recall, when we acquired Alico in November of 2010, one of the financing mechanisms to make that acquisition was to issue convertible securities, $3 billion of which would convert year by year, $1 billion each year in the years 2012, 2013, and 2014. Another billion dollars, the final billion-dollar conversion, will occur in October of this year. Our thought was to defease roughly that billion-dollar of conversion from the Alico financing that we did back in 2010.
Between the delay in terms of hearing about the rules, the accumulation of our capital, the conversion of the securities this year in October, we thought the right balance in terms of making sure we had adequate capital, which right now we don't know what adequate capital means because the Fed hasn't drafted the rules on the one hand, and not having too much capital accumulate from our earnings over the last several years on the other hand, the right balance was to announce a billion-dollar share repurchase. We will be opportunistic about buying back into those shares in the marketplace. Okay, key takeaways. Strong progress toward achieving our 2016 goals. We continue to execute on our strategy to create shareholder value. We have a very diversified business mix, which we'll hear more about from the business leaders, and we're managing capital despite the regulatory uncertainty.
Again, the bottom line I think really is how do we drive up ROE? How do we drive down the cost of equity capital? That's our focus. With that, I will turn it over to the President of the Americas, my colleague, Bill Wheeler.
Good morning, everyone. Morning. Nice to see all of you. You heard in Steve's speech that one of our major commitments is to shift the balance of our business more towards protection products. That's what a lot of the Americas presentation will be this morning. Todd Katz, in a moment, is going to explain about how he's accelerating growth in our group business. He's going to be followed by Oscar Schmidt, who will talk about how he's expanding our business in Latin America. Before Todd and Oscar come up here, I'm going to touch base on a couple of our other businesses, Corporate Benefit Funding, or CBF, then our retail business. Then I'm also going to talk a little bit about U.S.
Direct, which is a new initiative or relatively new initiative, we've been working on it a few years, which is a new channel, protection products. We're starting to have some success there. Let me talk a little bit about CBF first. CBF is actually a collection of different products which have very similar liability characteristics. The products here include capital markets investment products, structured settlements, institutional income annuities, stable value funds, COLI, and of course, pension closeouts. CBF earned $1.3 billion of operating earnings in 2013, and you can see from the chart it's had nice, steady growth over the past couple of years. The margins in CBF are influenced by a number of things. Two key factors are shape of the yield curve, which has been favorable, and also the performance of alternative asset classes, which has also been good.
That's what's been driving a lot of their earnings improvement. Corporate Benefit Funding, though, is asset intensive. It's a spread business. Because of that, it's also capital intensive. I think, however, we have managed it very carefully over the past couple of years, and therefore, I think also very successfully. Most of this business grows pretty slowly, so there's not a lot of capital strain. The one exception to that, of course, is pension closeouts. We estimate that the overall opportunity for pension closeouts is approximately $800 billion in private pension plans. Obviously, the opportunity to convert all those and close out that business is going to happen over a long period of time, in excess of a decade probably. There's going to be a lot of business coming our way, and we're already starting to see it.
The growth in pension plan closeouts has increased. I'm not just talking about jumbo deals, but regular size deals. The volume has increased over the past couple of years. Couple reasons for that. Obviously, the stock market rally has helped improve funding levels of pension plans, and interest rates are still low, but they're obviously off their bottom, and I think that's made it easier to do a pension closeout. In 2013, the total pension closeout market was $3.8 billion, and we captured 45% of that business in 2013, which was a good year for us. We're always a big player, but that was a big year for us. There were also no jumbo deals in 2013, and we don't expect any jumbo deals in 2014 either.
The key to the business for pension closeouts is very strong analytics around what's the mortality experience likely to be in that block, okay? What's the return you're going to get on a variety of different assets which are funding that pension liability, and of course, being very disciplined about the return on capital you need. These liabilities are going to be with you for a while. You've got to make sure you price this deal right. Closeouts, in particular, and CBF in general, could possibly have an impact on changing capital rules. It's hard to know how that will play out. One interesting thing you should always keep in mind is several of our major competitors in this business will also be affected by those same changing capital rules. Turning to our retail business.
I could stand up here and give you a big presentation about all the different things that have been going on in our retail business. It is a transformation. I think so far so good, but we are still in the middle of a transformation. You can see from the chart we've had very strong earnings growth here over the last three years. A lot of that driven by strong equity markets, but also by a number of other things, and that includes reducing expenses. Our cost reductions have come down about $150 million by the end of 2013. We expect that number will be over $200 million by the end of this year, and that's obviously contributed to the growth in the bottom line. The second important thing is we've taken a lot of important steps to de-risk our product portfolio here.
For instance, we've exited our UL with lifetime guarantees. We've exited that business. We've also significantly reduced the guarantees on our variable annuities, and volumes have come down to a more, I think, appropriate level. Because of that, we're going to be consuming less capital going forward as this business marches on. Finally, we've been taking steps to enhance the productivity of our financial advisors. That's important because that's going to improve distribution margins over time. Overall, we've taken a lot of important steps, which we think will make retail successful in the future in terms of earnings growth and capital efficiency. Okay. Now I'd like to take a minute to talk about a new initiative for MetLife, U.S. Direct. We haven't discussed this previously, mainly because it just hasn't been that material. It is, however, interesting, and we're beginning to have some success.
Let me start by saying, I think most of you have heard about the uninsured or underinsured middle market in this country. It is actually a huge white space market, which most insurance companies haven't had much success penetrating. We think that this is a huge opportunity for MetLife, that we have the capabilities, and we are building more capabilities to be successful in this segment of the market. Not just selling life insurance, but a whole portfolio of protection products, as I'm going to show you in a minute. We are selling today insurance products through all the channels listed on this slide to the middle market. Now some of these marketing capabilities we've had for a long time at MetLife, others we've had to go out and acquire talent and develop the capability.
I would say that these capabilities are not just being used for the direct business. I'll give you an example. In our auto insurance that we sell at the work site, which we're very successful at, by the way, historically, we used to send out direct mail to employees with the offer. We've shifted that now. We've built out a very successful digital marketing team, and we are now spending most of our group auto marketing budget on digital ads and have moved away from direct mail. It is much more effective and much more cost-efficient. It's a very good story. These are the products that we are now selling to the middle market, and you can see it's a lot more than just life insurance. Some of these products we have pulled from work site marketing.
For instance, Hyatt Legal Plans has been a long-time successful voluntary benefit for the group space, we think it has applicability in the direct market as well. Most of these products were designed specifically for the direct market, in terms of their pricing, in terms of the level of underwriting we expect to do. All of these products have very attractive margins. The key is making sure that we can achieve the cost of customer acquisition that we assumed in product pricing. I will tell you that it's early, okay, in terms of this initiative, but we are already hitting our target acquisition costs for our direct life products today. That took about one year to do in terms of getting it up to a meaningful amount of volume and also making sure the channel is working correctly. Good progress here.
Most of our life insurance products that are sold directly, by the way, are sold through what we call direct response TV spots. We're beginning to work in some digital advertising as well, which seems to be very complementary. If you don't mind, if you'll indulge me, I'd like to show you one of our direct life TV spots.
My name is Marlon. I married my beautiful wife, Lisa, in 2000. We have two kids. Just a couple of years ago, I decided to start shopping for insurance, and I thought, I need to do something so that they're okay in case something happens to me.
You have peace of mind. It came more to light because we have children.
Just knowing that if something happens to me, I know that they will be taken care of.
I know that God forbid, if he got sick or if there was some type of accident, I would be able to live and take care of my daughter and take care of my stepson and give them the future that he would want.
Life insurance is just something that you should have.
MetLife makes it easier than ever to get affordable life insurance. Call today and apply right over the phone. You can visit the MetLife Information Center at your local Walmart to get started.
This spot was for simplified issue terms. There's modest underwriting, and that underwriting can be done over the phone very quickly, or it can be done on a website. The message of the commercial obviously is sort of unexpected mortality need or unexpected mortality event and therefore, cash needed to support a family. Keep in mind that the average face amount that we're selling for simplified issue terms so far this year is about $30,000. That means that's not a customer or a product that an agent is ever going to sell. We have to reach these kinds of customers through the direct channel and do it efficiently. Another product that we're kind of excited about is something called MetLife Defender. MetLife Defender protects against identity theft and other online threats to your personal information. We're just rolling out this product now.
We're just initiating the marketing campaign. I have a video which we're going to be putting up on the Defender website in a few weeks, and I thought I'd give you a sense of what's going on.
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Using sophisticated technology, MetLife Defender proactively searches and protects your personal information, including your Social Security number, medical records, and credit card information, stopping threats before they occur. Whatever the threat, MetLife Defender remains vigilant and always on guard. For a free 30-day trial and to learn more, visit metlifedefender.com.
We believe MetLife Defender is the best identity theft protection product that you can buy in the marketplace today. We developed this product with a cybersecurity company whose other clients include various agencies of the federal. This product is preventative, okay? By that I mean there's patented technology which will scan the internet continuously, looking for your personal data that you've given them. Again, that includes things like your Social Security number, your bank account numbers, your credit card numbers. If it finds this information on the internet, and oh, by the way, you'd be surprised how many Social Security numbers are out on the internet today, personal information, it will have that information removed. Another key thing about Defender is what's kind of cool is if you buy the family plan, it will also monitor your child's social media sites.
For example, if somebody over the age of 18 tries to contact your kid on Facebook, you'll get an alert, which is nice. We will sell this product direct to consumer. We've signed up 40 sponsors already where we will be offering the product to their customers. We've also reached agreement with a number of group customers where we'll start offering this as a voluntary benefit. We've actually already just commenced a pilot with a major wirehouse where we're going to offer Defender to their customer base through their advisors. When this product came out in beta test, I think I was customer number three after the two product managers who were running it. I can tell you, honestly, this is something you should all own, okay?
You should, after this meeting today, go back to your office, and for those of you on the web, you can do it if you can multitask. You should buy the product. Call Ed. If you ask him very nicely, he will give you the friends and family discount. Okay? It's not that expensive, though. Okay. Enough of the sales pitch. What does direct business mean in terms of financial impact near term? Well, this little chart shows you our sales by quarter for the last four quarters of insurance products through the direct channel. Still relatively small numbers, but it's got a nice trend. We're projecting that total sales will be $130 million this year, we expect it to grow from there. We're also forecasting that we will have a $40 million after-tax loss in this initiative, there's two reasons why that number is a little high.
Number one is obviously we're investing in terms of building out capabilities and new products and developing sales channels. The other is just accounting. The cost of acquisition or the acquisition accounting here, it's not easy to capitalize it when it's a direct sale relative to, I would say, a traditional sale of insurance with a commission. Because of that, when you have stronger sales, which we are this year, you'll have more losses in the current period. That's a good thing. Okay, my last slide. We talked a little bit about the upside in Corporate Benefit Funding with regard to the pension closeouts on top of what's already a nice, steady business. Our retail business, which is a big business for MetLife, is obviously going through a lot of change.
I think we're on the road to beginning to grow that business successfully in the future in a much more capital-efficient way. Direct, in the long run, I think it's going to be a very important business for MetLife. Right now, it's a bit of an investment spend. Todd, again, Todd Katz is going to come up here and talk about Group, where we're the market share leader in terms of how we're going to expand in the voluntary worksite area. Oscar Schmidt, the head of our Latin American business, where we're also the market share leader, will talk about how we're growing that. Overall, I see the Americas comfortably in a mid-single-digits growth rate, and you can see I don't think it's that difficult for us to get there.
With that, I'd like to turn the stage over to my partner, Todd Katz, the head of our Group business. Todd.
Thank you, Bill. Good morning. As Bill and Steve both talked about earlier the Group, Voluntary & Worksite Benefits business is a key part of our company's strategy to shift toward more protection-oriented, less capital-intensive products. Today, I'm going to give you a quick review of our business strategy. I'll give you a little bit of a sense of our outlook as we're going forward. Right up front, I do know that some have asked questions about our more recent underwriting results, and I'm going to talk about those in a few slides. I want to share now that we're very confident in the fundamentals of this business. Even with the more recent volatility, this business is producing very strong returns. There we go.
This first slide will give you a review of our strategies, where we see opportunities and challenges, and also some view of our long-term outlook. From a strategies perspective, we have four key strategies. We plan to stay strong with our large market customers, and we believe we have an opportunity to grow there. We expect to expand in the middle market, and I'll give you a sense of how we intend to do that. We're accelerating growth in our Group P&C business, and we're investing to become a bigger player in Voluntary Worksite. I have a slide on each of these, and I'll take you through exactly what we're going to do. From an opportunities perspective, we see the ongoing shift from employer paid to employee paid voluntary benefits, a big opportunity for us for growth.
We also think the emergence of private exchanges will help accelerate that growth and enable us to leverage some of the core strengths that are embedded in our overall value proposition, our brand, our product breadth, and our ability to deliver for both employers and employees. This will help us not only in the large market, where we're strong today, but will also help us accelerate growth in that middle market. From a challenges perspective, it's very hard to tell what actually will happen with the Affordable Care Act going forward. Our view, though, is under most scenarios, our strategy to get closer to employers and certainly closer to consumers, both in terms of how they buy products and how they're serviced, will help us mitigate most of the scenarios that could bring up concern. From a pricing perspective, the group business certainly has aggressive pricing.
However, as I will talk about in a few minutes, we've actually seen some of the irrationality in this market move away, and we've seen pricing firm up a bit, which is good for the industry and certainly good for us. Finally, this is a payroll-based business. Certainly any slowdown in wage growth or jobs growth could impact growth of the industry and certainly us too. From an outlook perspective, we plan to grow this business faster than the market. We plan to do that by continuing to win where we're strong today, expanding into new markets with new capabilities, and managing our risk very carefully. We plan to grow earnings faster than premiums through our disciplined pricing strategy by leveraging our scale and also by shifting our mix to higher margin products.
I'll take you through how we're going to do that in a few slides. What I'd like to do now is just give you a little sense of the dimensions of our business. I'm going to do this through the lens of premium and fees, earnings, and sales. I'm going to give you a product view first, then I'll give you a little bit of a look on how that works by customer size. This slide shows 2013 premium and fees and earnings. You can see premium and fees were $16.4 billion. As Bill talked about, the largest in the industry in the U.S.
Our largest product category is Group Life, where we offer a wide array of Group Life solutions for our customers, employer paid term, voluntary term for employees and their families, our Group Universal Life product, our Group Variable Universal Life product, and a new term product for retirees. Over half of our Group Life business is employee paid, and that's important because that's the fastest growing segment of Group Life. Non-medical health includes dental, disability, long-term care, AD&D, and our new suite of Accident and Health products, which includes critical illness, cancer, personal accident, and hospital indemnity. About 60% of non-medical health is dental, about 20% is disability, and long-term care is about 12%. Finally, our Group P&C business is our personal lines auto and home business that Bill talked about a few minutes ago.
We believe we have competitive strength in that business and significant opportunity for growth. I'll tell you more about that in a minute. Finally, from an earnings perspective, what you see there is the mix of earnings in 2013 was slightly more tilted toward non-medical health and P&C, that's almost entirely driven by underperformance in underwriting in group life. I'll get to that in a moment. This slide gives you a sense of sales by product category. What you see our largest product category for sales is non-medical health, where in 2013, we had over $500 million in sales in dental. I'll remind you that dental is a product where we believe we have competitive strength and also very high returns.
Also in non-medical health is all of our new Accident & Health sales, which while small today, we think will be a big opportunity for growth out into the future. From a group P&C perspective, we saw a 30% increase in sales from 2013 as compared to 2012. We expect our group P&C sales to continue to grow into 2014, doing that with a very steady, strong new business loss ratio. My final pie chart slide shows you a breakdown of the same premium and fees and sales, but by market size. This is important because it gets at our strategy to grow faster in the middle market. What you see here is in the large market, which for us is employers with more than 5,000 employees, we're clearly the market leader, in fact, that's 81% of our market.
The middle market, which we define as 100 to 5,000, and the small market, which we define as employers with less than 100 employees, combined make up about 19% of our premium in fees. When you look to the other chart, you see a very different view from a sales perspective, in fact, a much more balanced view where over half of our sales in 2013 came with middle market and small employers. The real point is the strategy I'm going to talk about in a few moments in the middle market isn't a new strategy for us. It's one that's working quite well, and it's one that we have been executing on for a few years and think we have significant opportunity for more profitable growth going forward. Let's shift for a minute now and talk about industry performance from a competitive perspective.
This slide shows our group insurance business and the group insurance business of eight of our publicly traded competitors. What it shows is the compound annual growth rate from 2010 to 2013 of premium and fees on the top and earnings on the bottom. A few observations. First, from a premium and fees perspective, this group grew just under 2% from 2010 to 2013. I'd say that's a fairly good proxy for the industry as a whole. Still a relatively slow growth period for the industry from 2010 to 2013. From an earnings perspective, earnings were up, as the slide notes, about a half a percent. That's important because if you look at prior years, especially during the financial crisis, we saw significant margin deterioration in the group segment. Many competitors were out pricing business very aggressively, they saw their margins shrink.
By the way, as the slide shows, you've got a couple carriers that are still doing that. More generally, industry margins have recovered. That's an indication of pricing firming up, which is a positive for the industry and certainly a positive for us. MetLife is in the blue. You see our top line grew at about 3%. Our bottom line grew between 4% and 5%, so pretty steady. Again, I'll remind you, that's off of a 2013 endpoint, which was a little bit depressed from an underwriting perspective. If in fact we saw a more normal year in 2013, we would have seen an even higher earnings growth rate for our business. Just one more minute on underwriting before I leave this slide, just to be clear on what actually happened in 2013.
In our group life segment, we saw an uptick, a significant uptick in the volume of low face amount life policies, primarily for retirees. The good news is that uptick has completely subsided in 2014, and now retiree volumes of claims are very consistent with historical averages. However, in the first quarter of 2014, we also shared adverse life experience, for a very different reason. We saw some volatility in the number of large claims in our group life business, that will happen from time to time. The key here is that we're very confident in the fundamentals of the business. We're managing this business very carefully, and we'll continue to price this business with discipline. This business produces strong earnings on both a GAAP basis and on a stat basis.
If you think about stat earnings, that's probably the best proxy for cash generation for our business. What this slide illustrates is the ratio between stat and GAAP for 2013 for our ongoing businesses that we're looking to grow. It excludes our closed block of long-term care business. What you see there is the ratio is pretty steady, right around 90%. A good generator of stat cash for the group business. Now let me spend a few minutes on our strategies. I have a slide on each of our four strategies. Our first strategy is to protect and grow our large market franchise. You can see as the slide shows, we have about 30% share in the large market. If you look at the next three largest carriers combined, they're at about 25% share with no carrier with more than 10% share.
Our operating model in the large market is all about delivering a differentiated experience to the most sophisticated buyers in the country that get that understanding and meeting their needs with flexible solutions. It's a model that's very difficult to replicate, it's a model that we've been driving for a number of years. As strong as we are, though, in this market, we still have significant opportunity to grow. A few moments ago, I took you through a list of our 20 products. Our average customer in this market offers three products, either employer-paid or voluntary. We think in time, expanding relationships with these customers who already embrace our value proposition really are value buyers will give us great opportunity for continued growth in the large market. We also have an opportunity to expand into a new segment of the large market, that's the public sector.
We studied the public sector very carefully in 2013 and identified a couple trends that were very positive for us. First, there were some clear gaps in our competitive value in the public sector. We've made some investments to close those gaps and feel we have a very competitive offering today. What we also identified is segments of the public sector that purchase benefits in ways very similar to the way large corporates purchase benefit and fit very nicely with our value prop. Public sector market is about a $10 billion market in the U.S. for the benefit businesses that we're in. We think we can add about $2 million-$400 million in incremental premiums and fees over the next couple of years. Our second strategy is to invest to become a bigger player in the middle market.
Same pie chart, but a little bit different picture for us. You see we have about 6% share in the middle market. You see there is a market leader in the middle market with 20% share. By the way, that's a single product carrier. That carrier aside, us and four other carriers each roughly have about 5% share in what I would consider a very crowded market. It's important to note, as I showed you earlier, we're already succeeding. We believe we have an industry-leading offering for dental today and have had very solid growth with our dental product in the middle market. More recently, though, we've taken our full suite of voluntary benefits and packaged them with advanced enrollment capabilities and seamless administration to offer what we're calling our integrated benefits solution.
We're having very good success bringing that offering to employers in this market with a value proposition that's all about ease of use, making it easy for the broker, the employer, and the employee to have a great experience with us across a broad spectrum of products. We expect in time that strategy will propel additional growth in this market. We've also looked very carefully at the broker landscape. If we look at our business, over 90 do all of their business under 5,000 lives, and not all brokers are the same. We've identified the brokers that have a value prop to their clients that's more than just, I'm going to go out and check price. Their value prop aligns very well with our value prop.
It's about understanding what their benefit needs are and selecting carriers that they can trust, but also can offer wide opportunities on the product side, a strong brand, and the right service experience. Finally, we think exchanges will be the place where there'll be incremental growth in the mid-market. We've already signed up with 11 different private exchanges. We have five more that we're onboarding this year, and we really have a solid pipeline of exchanges for the next couple of years to come. Our thinking here is as employers focus on their medical plans, whether on an exchange or off an exchange, they're going to want to look at the opportunity to surround that medical offering with a wide array of voluntary products to go with that medical program. We're one of a few carriers that actually can deliver on that promise.
Our third strategy is to expand our group property and casualty business. We are the market leader in this category. We have about 40% of the share of group auto and home that is purchased at work. However, less than 5% of people in this country actually buy their auto and home at the worksite. Even though we are the market leader, there is a big growth opportunity. As the slide shows, we have seen about 6% growth in net written premium over the last two years, which is a good number in this industry, and we have done that with loss ratios that have stayed right around 90%-91% from a combined ratio perspective. The key for us is, how do we grow this business? Let me give you some numbers to think about.
We have 22 million people who are eligible to buy Group P&C from our plan sponsors today. About one in three who pick up the phone to call us, buy. That is a nice closing ratio. Yet we only have about 1 million or about 5% participation on group auto and home. Bill talked about this a few minutes ago. We are really ramping up our game on marketing in this business. It is not just mail. It is a big focus on digital, online ads. It is a big focus on mobile applications, really connecting with customers in many ways to drive up awareness, which will drive up inquiries, which will drive up growth.
If you think about this business, if you do this right and have the right risk fundamentals, we will bring on nice growth with the right policyholders in the right geographies at the right price. Our fourth and final strategy is to expand involuntary worksite. This slide gives you a little bit different view of the numbers, same numbers that I talked about earlier. You see our market share in group life disability and dental, around 14%, group P&C, around 40%. Industry leader in both, but hopefully my message is clear, significant opportunity to grow in both. The 3rd category of other voluntary and worksite products. This is what I talked about before, accident, critical illness, cancer, hospital indemnity. It is a $15 billion market in the U.S., and we are just scratching the surface with about $200 million in premium and fees.
We think our brand, our ability to combine these products with our full suite of products, and our ability to make it very easy for people to purchase these at work, will propel our growth in this new category in the years to come. I will now close with where I began. We expect long-term growth in this business to be faster than the market. We expect to be able to do that because first off, we will continue to win where we are winning today, large companies. Secondly, we will be able to expand in new markets. I gave you two examples, in the middle market and in the public sector. Third, we will be able to bring new capabilities that allow us to win in different ways, and that is very much about voluntary.
We also believe we can grow earnings at the same time faster than our premiums and fees. We can do that because we will continue to price this business with discipline, we'll leverage our scale, and we'll shift our mix toward higher margin businesses. That'll generate strong returns for the company and also strong cash. With that, I will now turn things over to my partner, the Head of Latin America, Oscar Schmidt.
Good morning, everyone.
Morning.
I'll be discussing with you this morning our key growth strategies in Latin America. As Steve's saying, Latin America is a key component of our emerging markets story. I think you will have fun. You'll see in my first slide, you can see that I'm going to be presenting essentially four strategies. Three are regional and one is country-centric. The regional ones are to grow our direct marketing franchise across the region, to grow our retail business or face-to-face agency business consumer across the region, and our group business, our employee benefits. Those are the regional strategies. The fourth one is country-centric, and it's essentially the acquisition of Provida, that as you know, was closed a year ago in Chile. Here in this slide, you can see in the right-hand side, those strategies and significant opportunities that we have.
I want to refer later on in the presentation, you can also see that we are presenting some challenges that we have in the region, essentially three. The first one is currency. The most relevant currencies we have are the Mexican and the Chilean peso. Those were very stable recently, we think it's manageable risk. Also, tax reform in Chile. There's the new Bachelet government introduced a proposed tax reform in the Congress that is going through, that's going to increase corporate tax rate from 20% to 25% over a four-year term. That's very likely, and we're evaluating all the impacts as the project progresses in country. The third one is essentially regulatory changes across the region, and the most significant one is the introduction of Solvency II in Mexico.
The point is, it increases our cost essentially through stronger governance that we have to implement. We are roughly, our estimate is that our market, our industry across the region is going to grow at a low double-digit rate. We see in the short term, our top and our bottom line growing essentially at that same rate. In the long term, we see our bottom line growth rate being higher than revenue because today we're investing in growing organically. As those investments mature, we see improvements in our bottom line growth rate. In the next slide, the point here is essentially to make it clear how well diversified we are, both in terms of product and distribution. As you know, diversification is very important, not only to reduce risk, but also to find different ways to drive organic growth.
You can see that we have various product families beyond life, while retail face-to-face agencies, our prevailing channel, we also have a strong direct and group distribution channels presence in the region. In the next slide, I keep talking about diversification, you can see both top line, premiums and fee, as well as earnings, how well diversified we are. Please pay attention to the earnings pie. There are a couple of things there. Of course, retail agency, face-to-face as we call it, is very significant. You can also see there the Provida numbers. We are using here 2014 projections because we wanted to fully reflect Provida. As you know, in 2013, Provida only impacted the last quarter because that's where we closed the transaction. We're using 2014 projections fully reflecting Provida on an annual basis.
As you can see, it's very significant for us. I also want to call your attention to the Mexico public business. That's the institutional group, Mexico public business. As you know, when we acquired Hidalgo in Mexico, the government company back in 2002, that business was very relevant. Our assumption back then was that through bidding processes, either margins or the business was going to be under pressure because of the market. It demonstrated to be much better than our original assumptions, lasting, in terms of persistency and good margins, longer than we thought. Now, we have been observing in the recent years that both margins and competitiveness of the business have been declining. The good point, as you can see here, it's not that relevant anymore in terms of our sources of earnings in the region.
We are very happy about that because we think it's reaching sort of a floor. The other thing I want to call your attention to is what we call pension there. It's essentially a run-off annuity block in Argentina. The other, what we call other, is essentially surplus notes that we have in Mexico. It's something that we have been doing to manage capital more efficiently. When those surplus notes mature, we'll certainly repatriate the money back to Mother Met. I'm saying there are three components there that are not going to grow at a 10%. The other, the pension, and the Mexico public. Those are the components that we have in the region that are not really driving significant growth, but the others are. That's essentially what I'm going to refer to during the presentation.
Here you can see our presence in Latin America. I don't know how many people really realize this, but we're very significant in Latin America, where, as Bill said, we are the market leader in Latin, the life insurance market leader by growth, rate, and premium, obviously statutory numbers, which is publicly available. You can see here our significance. Some of our colleagues are multinational companies in the list. Global companies operate in Latin America. I would say two of them are. The rest are essentially very significant country operators, mostly Mexican or Brazilian. This just tells you how significant we are down there. If we were to consider our GAAP revenues in 2014, Latin America revenues, we should be considered a Fortune 500 company on our own right, which is very telling in terms of the size of our franchise down there.
Elaborating on the same point, you can see here our footprint, and this is very interesting. Noting essentially Mexico, you can see there we're the market leader, 30% market share in life insurance in a very large country. We have not operated in property and casualty. We have 15% market share overall just with our presence in life. Mexico earns for us around $400 million earnings, excluding corporate overhead. Just to clarify, all my numbers are going to exclude corporate overhead. Our estimate is Latin America, we have around $100 million of charges for corporate overhead in 2014. That's our estimate. All these earnings numbers I'm going to show you are before that. Mexico makes $400 million.
The next country you can see is Chile, where we are not only the largest life insurance company, but also through the acquisition of Provida, we are the largest pension company. AFP, as called locally. Very high market share. Around 15% in life, around 28 in pension. In Chile, we make, in insurance, around $100 million earnings. As you all heard, through the information about the acquisition of Provida makes around $200 million earnings. That makes Chile like $300 million. Chile and Mexico together represent around 85% of Latam earnings. Argentina is next in terms of size. What we have in Argentina is essentially a direct marketing that is growing. It's a very effective franchise that we essentially inherited through the Alico acquisition. The rest is an annuity block, immediate annuity block, that is on a run-off model.
In Brazil, we have a great base business for Group Employee Benefits, particularly our dental business is growing very effectively there, as well as our direct marketing. Then finally, Colombia and Uruguay are small, but with a very high growth rates, both. Actually, interesting, Uruguay is a very small market, but we have 33% market share there. That's what you want in a small place, to have very high penetration. Those two markets are going to continue adding growth. In this slide, I referred to you in my first slide that we have sort of key regional growth strategy, and I referred to three, if you remember. One is retail agency, the other is direct marketing, and the other is Group Employee Benefits. What we are showing you here is how we tie our growth strategies with demographic trends there.
You can see clearly that we have a response for every major demographic trend. For example, what's happening in Latin America, after many years of very healthy economic growth in most of the countries, there's a growing mass affluent class. Old middle class is moving into more affluent. The answer to that is agency, because agency is economically viable in the upper side of middle class. Now it's also happening that millions of individuals are moving to low class to middle class and starting to consume and to live differently, and that includes attitude towards life insurance, of course. Our answer to that is direct marketing. Because on the consumer side, it's very difficult to make agency to be economically viable in the true mid-market. Our response to that is direct marketing.
Also Provida, because as you will see in a minute, Provida's presence is essentially driven by mid, low market. Finally, in terms of the corporate business, it's not just about people moving to middle class, it's about mid-size companies expanding and growing. When those companies start to compete for talent, they have to introduce benefits packages. That's where we are moving from being a major player in the jumbo company to the mid-market in employee benefits. That's our strategy, and Maria Morris will speak to that because it's a global strategy as well. In the next slide, I will start to talk about our key growth strategies, the first one being face-to-face agency or retail, as we call it. Retail in Latin America earns approximately $350 million. That's our estimate. That's roughly 40% of our regional earnings.
Inside that number, the largest component is our Mexico worksite marketing franchise. That makes $250 million per year. Let me explain a little bit about our Mexico worksite marketing business. That's the older component of our Hidalgo acquisition going back in 2004. Remember, when we acquired this company, there were two cylinders. One is a consumer retail business, this one. The other one was a group institutional business, the one I just referred to in my prior slide that has been shrinking as we expected. This business was the real reason to buy Hidalgo back in 2002, and it has been proving to be very effective. Not only we were able to retain it, but also to grow it organically. It has been showing a very good growth. Actually, our estimate that it will continue growing at a 10% per year, this business. Why?
Why is it so good? Remember, there are two elements for this business that make it unique. Number one, we inherited from Hidalgo, I would say independent agency channel that is driven by general agents that have been distributing this product in that government employee segment for many years, even before we acquired Hidalgo. They stayed with us for these 12 years. Not only they are staying with us, they are becoming more professional. We have been investing and making them be more profitable, more effective in terms of penetrating their segment. This is a very valuable asset for us, retaining that distribution channel. The second reason, we also inherited from the Mexico government through this acquisition, all these payroll slots, all these rights to charge premiums to government employee salaries. Believe me, it's not too easy to obtain those slots in Mexico.
These two things are making this business to be very effective. Also in terms of future growth, what do we do in such a large block of business? We continue introducing new products to cross-sell, essentially, the existing customer base that is very high. Very big customer base, including new riders like accidental supplemental medical or funeral. Also we are increasing face amounts for the basic life coverage. At the same time, there's also more people joining the workforce. Finally, we continue increasing penetration. We already have a very high penetration in the segment, but we continue increasing it. A very effective channel makes our sales continue growing. Finally, through the payroll slots scheme, very good persistency. Product persistency in this channel is very good. Remember that the segment is not mid-market, it's really low mid-market.
These are very low average premium policies sold to Mexico government employees in a very low segment. That's our best franchise in Latin America, I would say. I said $350 million earnings per agency, $250 million worksite marketing. The other $100 million, part of retail, is essentially other agencies. Of course, that excludes Provida. Provida is not included in this number. As you will hear in a minute, Provida is also sort of an agency. It's a fully dedicated pension type of agency, but it's agency at the end. It's not included here. The other $100 million agency, our estimate is going to continue growing at 20% per year. It's essentially driven by captive agencies that we're expanding in terms of size. Mostly Chile, Colombia, and Mexico, but in the private sector.
Now it's agency in the private sector, very different in Mexico from the one I just referred to. For some examples, how are we expanding that business to support this 20% growth? In Chile, we are expanding the size of our agency from 930 agents to 1,200 by 2016, expanding the size of the channel. In Colombia, we're doubling the size for 350 to 700. It's essentially investing in increasing the size of the channel. This is essentially our retail agency business. Let me talk about Provida now. As we know, Provida is a recent acquisition we just made late last year, closed late last year. We paid $2 billion for it. It's the largest pension company in the entire region. It's the largest pension company in LatAm with more than $45 billion in assets under management.
It's not only large for the size of Chile, depends how you measure, it's 28, 30 or more than 30% market share using different metrics, but it's also the largest in the region. Provida is expected to earn around $200 million this year. Now, is it going to grow? That's the question, right? We acquired it because we see growth opportunity, and there are a number of reasons for that. Number one, let me clarify, how do we make money? Because Steve referred to it already. Being a pension business, asset management is a significant component. We don't charge our fees on assets under management. The way the system is designed, we make our fees, our revenues on flow, on people's salaries. People contribute on a monthly basis on their salaries, around 11.5% of their salaries to their pension company, in our case, Provida.
That's how we make our money. Growth in the economy is very important. While Chile has been growing significantly, we continue seeing around a 5% GDP growth in Chile and very low unemployment. We think, particularly with the Bachelet government, the focus will be to benefit particularly low segments. That's very important because you will see in a minute what segment Provida is focused on, and we are focused on essentially low mass markets. We see more salary increases in the low salary segment in Chile than in the upper, because there are caps. AFPs don't charge above a certain maximum salary. That doesn't happen in the low salary. We see actually that we'll benefit from that. The average salary growth at the bottom of the pyramid is going to be higher than the average in the economy, and that's where we are.
That is an opportunity. That drives contributions because that's how we make our money. We see aging population in Chile is producing more people reaching retirement age, and that helps in two sides. People can retire through program withdrawal plans that AFPs offer. We're offering that through Provida. The other alternative is immediate annuities. Those are the two options. We are the market leader for immediate annuities in our insurance company in Chile. We benefit both sides from this trend. Aging people, more and more people retiring every year. Remember, we have a specialized sales force in Provida. We can always capture voluntary contributions as well, not just the mandatory that I referred to. We think we're well positioned.
I wanted to show you some, I want to say it's a good surprise for us because when you buy a company, you have a strategy, you go ahead in executing on it, but you never know how fast results are going to come through. This is very good because we're already experiencing good results. You see this, what is the most relevant metric to understand how are you doing in an AFP in Chile? Because you make your money on people's salaries, there's something that is salary pool, or some people call it salary mass, which is the total salaries that you have in your customer base. How many customers are contributing what salaries? That's your base, right? Every month, what you do is yourself are essentially attracting new customers from the market, and the question is, what salaries are those customers providing?
The question is, of course, how many clients are leaving your company to go somewhere else? That's attrition. The net is very significant because that measures your performance. See, BBVA, the former owner of Provida, has been experiencing in the former quarters, and if you continue looking back, they have been experiencing a negative trend for a few years before we acquired the company. You can see here the quarters before our transaction got closed. See what happened immediately after we closed the company. In the fourth quarter, the first quarter that we had with the company, it got pretty much zero, right? We managed to stop the net negative. In the first quarter this year, we moved to a significant positive, and numbers are looking even better in the second quarter, which is a fantastic trend. How significant is that number?
The number of the first quarter, if you project it, just a quarter represents around 1% Fee growth for Provida and another 1%, roughly, in earnings. That number is very important. That's one way to grow the company organically. That's very good. Why it happened so quickly? Well, as you know, we focus essentially on a few things organically in Provida, and we have been doing it very quickly after the acquisition, actually planning for integration. It's agent productivity that is very important because at the end of the day, it's an agency. Customer retention, that's another important piece through better customer service. Finally, rebranding. We rebranded the company. It's amazing that these three things together, even in an early stage, are producing very good results. This is a good trend, and we see the trend keep going.
Finally, I just want to say, in this page, you can see a segmented value proposition that we have in Provida. We're showing you 1.8 million active contributors, which are customers paying their fees every month. We segmented our strategy in prime market, middle market, and mass market. As you can see there, while we have a significant presence in all the segments, we're mostly focused in the mass market. As I said before, we see a big opportunity there because Bachelet, it's a socialist government there, is trying to increase minimum salaries and benefit people in the low segments. That's going to benefit Provida mostly because that's what segment we are. We have 780 agents deployed across the country. We immediately increased the number of branches as we bought the company.
We moved from 57 to 81. We're the largest company in terms of branch network. Sura, for example, the Colombian company that acquired ING, has 34 branches. Habitat, the local company, 31. Cuprum Principal, 29. Very important for us, particularly in our segment, is to have broad coverage. Just to give you an idea, 89% of Chileans have a Provida branch within 20 miles of their homes. 97% for them within 35 miles. We're essentially trying to cover all the territory. Now, let me move to the second regional growth strategy, which is direct marketing. Bill referred to it in the U.S. Well, that's an America strategy, and that's a global strategy as well for us. Direct marketing earns approximately $45 million in earnings. It's growing at a 50%, roughly.
As you can see, it's coming from a relatively low base, but it's the initiative that is growing faster, and we're investing in supporting that growth. We have 10 million customers today. We have a very broad product portfolio, whether it's accident and health, assistances, life, obviously, but also property and casualty. We have been introducing property and casualty products in Latin America starting last year. We continue adding more and more countries. How do we do it? We essentially operate through what we call sponsors. Sponsors can be financial institutions, banks. For example, Citibank, real examples, Itaú, Brazil, or BancoEstado in Chile. We have many banks or retailers, like Falabella or Cencosud or Liverpool or Olímpica in Colombia or even Walmart in Chile.
Normally, our growth in direct marketing comes from acquiring new sponsors, that's very important, but also by taking more value out of existing sponsors. We're leveraging our experience regionally growing the D2C business. The last growth opportunity is growing our employee benefits business. Maria Morris is going to cover this globally later in the morning, but we have a strong position in the region. It earns approximately $60 million earnings. Most relevant presence for employee benefits, while we operate in all the countries, is Mexico, Brazil, and Chile. We tackle essentially the emerging middle size segment, which is middle company through midsize brokers. We are also growing very nicely leveraging our global network that Maria is going to refer to, which is leveraging our presence in the employee benefits business in the U.S., offering solutions to their subsidiaries, in this case, in Latin America.
Very significant strategy there. As you can see there, this is a good business that we see growth in the high teens. Very high growth for this business. High teens growth, that's what we see going forward. I also want to refer, finally, how effective are we in terms of managing capital. You can see here that our payout ratio for dividends to GAAP earnings in the last three years has been very high, but also very consistent. We pay a very high proportion of our earnings as dividends to Mother Met. That means that we need little capital to retain to support the business, despite the fact that we're growing very fast. That means that we have very effective products in terms of use of capital.
We anticipate that these numbers do not include Provida because as you remember, Provida essentially starts in 2014. We see Provida following the same path that we experienced in the rest of the business before that. I think this shows you how attractive our products, our business is in Latin America. Takeaways. Number one, I think we have a powerful growth story in Latin America. We have been growing at a 20% CAGR in the last 10 years, some of which was organic, some of which was inorganic. 20% growth. You may think, Mexico is a significant component. How was that? Mexico was growing at a 12.5% during the same term, 10 years. There was no significant acquisition in Mexico, so it was strictly an organic play.
You can see here that we have very high margin, very simple product. The source of margins in Latin America are in this order. Number one, underwriting margins. Number two, fees, and remember Provida is a large fee business. Number three, spread. That makes essentially our business very effective in terms of capital. I think we have significant competitive advantages in the two major blocks that we have in the region. One is in Mexico, the Wealth Management business, I referred to it. It's a great business. The second large block is the recent Provida acquisition, and we're confident that in both businesses, we're able to support that growth rate. We are confident we can maintain our prior track and keep building on our capabilities. With that, I will turn to Ed.
Okay, we're going to have a slight modification and take a break before Q&A, if that's possible. Is that possible with the webcast? I think we can do that. Let's take a break for 10 minutes, and then we'll come back for Q&A, and we'll get everyone set up on stage. Okay, if we could all find our way back to our seats, we'd like to begin the first Q&A session. What I'm going to ask is the presenters from the morning to all come up on stage. Again, one question, one follow-up. If you would please state your name and the name of your firm, and wait for the microphone. We're ready to begin. John?
Thank you, Ed. Wow. Thank you, Ed. John Nadel from Sterne Agee. A question, I guess, just to start for Steve, with the authorization, not the authorization, but the buyback announced this morning. Can you give us a sense for the dialogue that transpired back and forth with various regulators around that?
We did not have conversations with regulators. If you think about our status currently, we are not regulated by the Federal Reserve. We're not designated as a SIFI. We're regulated by the states, and certainly under state capital rules, we have a lot of excess capital. There were no conversations directly with regulators outside, any regulator for that matter. We certainly were mindful of potential designation as a non-bank SIFI and with capital rules that are uncertain from the Federal Reserve, potentially. We're really looking at a couple things, the delay in the capital rules, the convert that will occur in October of this year of $1 billion from the Alico financing, and just the accumulation of earnings over the last several years, we've had strong earnings.
Our feeling was this was sort of the right balance in terms of the announcement we just made.
No, it can't.
No.
No.
I thought we had one and then one more. I guess my second question would be for Bill, just thinking about the closeout market and the opportunities there. You mentioned an expectation that we'd see no jumbo deals, at least in calendar 2014. Just wanted to get a sense for how you guys are thinking about that, especially the jumbo market, with respect to a lack of clarity around what the capital rules might look like. If you applied something more severe, it maybe even went as far as a Basel III type of framework, how much of an impact might that have on the way you think about pricing an individual large deal?
Well, I guess the way to think about this is any jumbo deal becomes a large capital commitment. It's like doing an acquisition. I think we would price the deal under current parameters, which today we look at. There's sort of a couple ways to think about it. There's economic capital, which is what we think the risk profile of the deal is, and there's stat capital, which is actually higher, okay, than what we think the economic capital charge would be. Because statutory is fairly punitive when it comes to assets and in terms of thinking about default rates on bonds and stuff like that. Finally, there would be some kind of bank capital ratio. The difference between a bank capital ratio and stat, depending on which bank capital, which Basel you want to pick, it's a little bit higher. It's not that much higher.
There were a couple jumbo deals that were done a couple years ago, obviously, when we bid on those deals and when we priced them, we didn't just say, "I just got to hit my statutory capital return, and if I do that, I'm going to be fine." We built in some kind of a cushion for what a bank capital charge might be, really not knowing what it'll be. Thinking at the end of the day that if it follows more of an economic capital model, it might be pretty good. I guess the philosophy if another big jumbo came down before we had any clarity, which could easily happen, I would say we're obviously going to participate and compete for that business.
I think we're going to have to make sure that we price it in a way that we'll be comfortable with, even if the capital rules are a little tougher. I guess that's the philosophy. Now, remember, part of the reason I feel okay about that is I think my competitors for that jumbo deal are in the same boat I am and probably should be looking at it the same way.
It's in the back. Tom?
Thanks. Thomas Gallagher, Credit Suisse. A question for Oscar. The low double-digit growth that you expect to get in Latin America, can you talk about how Provida and Mexico, the growth expectations there? Because I think you had mentioned some headwinds with respect to Mexico in terms of some businesses and runoff. Can you compare the growth rates expected in two of your biggest businesses to the overall?
Right. As I said, we have a few blocks that are either on a runoff. Very clearly, the institutional government business in Mexico, that it's not in a runoff, but it's just declining in terms of margins and size. If you think about that business a few years ago, it was very significant proportion of Latin America earnings. It has been declining. As I said, it's sort of a 5% of regional earnings, and we don't think it's going to continue declining mass. We got to a point where we think that's where as far as it will go. Most of the businesses that we have are on a growth mode, whether it's the Worksite Marketing block in Mexico or the Provida recent acquisition. Those two particularly reflect the average of the region, which is low double-digit.
We have other blocks that are growing faster. I said direct is growing at a 50%, employee benefits is growing at a high double-digit. If you make the whole math, that's where we go to the average. The high growths are compensating the blocks that are not growing or declining to get the average that I referred to.
Did you say in your comments that the organic growth right now at Provida is trending at around 1% organic per quarter, so the implication would be mid-single-digit organic growth? How do you see that progressing? Is that number right, and how do you see that progressing?
Right. No, that's a good question. Let's talk about Provida overall has several sources of growth. One is growth in salaries in the economy, because that's essentially how we make our money. Number of workers in the economy and real salary appreciation in the economy as well. The other number that I referred to is how we're doing commercially in terms of attracting new clients or losing clients. That's a different source of growth. I said that in the first quarter of 2014, we have a very good surprise, and that quarter showed a contribution to organic growth of 1%. That, I would say, is separate from the organic growth that I referred to. You never know how you're going to do during the course of the year.
It's a good surprise that we started with a positive contribution from the market dynamics to our overall organic growth. It's one component, not the leading one.
I would say, Tom, rule of thumb, we expect Provida to grow 10% in terms of earnings growth a year. If you add up how the different ways we can grow.
If I could just ask one final question for either Bill or Todd. Can you comment on for the group business, I know, Todd, you had referenced recent results have been more choppy, but the returns are still quite good from an ROE standpoint. Should we interpret that to mean that you may not expect margins to get back to where they were, but the returns will still be good? Or is that not the right interpretation of that comment?
Yeah. You can definitely interpret it to mean that current margins producing current returns are quite strong, above cost of capital. We expect to see margin expansion in this business consistent with the numbers that I talked about, and it's going to jump around, though, a little bit from quarter to quarter. Right now, we're still lower than historical levels and where we ultimately think we can be.
Thanks.
Let's go over this side. Steven?
Thanks. It's Steven Schwartz, Raymond James. For Bill, maybe you can put on your former CFO hat.
Where is he?
Something I don't understand. Could you compare the U.K. pension risk transfer business to the U.S. pension risk transfer business? It's my understanding that the U.K. was probably not as successful as you thought, you eventually exited.
The U.K. was what, I'm sorry?
Probably not as successful as you thought it might be, and you exited the business. What's the difference between the two countries?
Boy, you're not kidding in terms of the difference between the two markets. We went into the U.K. pension close-out business, all the same sorts of macro trends that we're seeing in the U.S. Companies moving away from that kind of a benefit, wanting to close it out, lots of activity, and a number of competitors. What happened is the regulatory environment went a little haywire. I mean, to be polite about it. In terms of the pension regulator in the U.K. just decided that they needed to add more and more and more capital. Literally almost tripling the capital requirements from when we first initiated that business. We don't think that that's appropriate. We don't think that when we do our economic capital calculations that makes any sense. That doesn't matter. Okay? Therefore, we exited. We announced that transaction and closed it.
We had to take a haircut to close it. In the U.S., I guess you could always say, "Gee, that could happen here, too." Sure, it could. I don't think it will, and I don't see any trends that will make it happen. Again, we don't know what the Federal Reserve is going to do, but I think that their decisions about capital levels will ultimately be fact-based. Ergo, I think what economic capital calculations are will have an impact on that. I think that the U.S. market, the capital requirements are still grounded into what the real risks of the block really are.
Last week, Pru, big opportunity they talked about was liability-driven investing. Obviously, they have separate asset management capabilities. You undoubtedly have capabilities, but you don't have a separate operation. Can you talk about that market? Is that a market where Met can play?
Yeah. Can you do that question one more time? I couldn't hear it very well.
The question had to do with liability-driven investing and whether that is a market in which Met can play. It's something you didn't mention.
I'm not sure what you mean by what do you mean exactly by liability-driven?
It would be a pension risk transfer type of deal, but rather than actually doing a closeout, a buy-in or something like that.
Oh
It's actually the matching of the ALM tech.
Oh, you do a buy-in, if you will. Robin Leonard, who runs our Corporate Benefit Funding, boy, this is a good setup question, Robin. We just did our first buy-in transaction, I think that's the second one that's been done in the U.S. What you're seeing, therefore, is that some people, instead of actually doing an actual close-out, which is a complicated deal, requires a lot of work, have just sort of tried to defease their pension liabilities by changing how they invest and using some of our products to do that. I think now we have done the biggest buy-in, right, to date. The deal we just announced. I think you're going to see more of that. Economically, it's not all that different than a close-out. Obviously, we don't do administration.
In terms of the length of the liability that we're creating and therefore, the product we're putting into the pension plan, the economics are similar.
Thank you.
We can go to the back of the room. Jimmy?
Hi. Jimmy Bhullar, JP Morgan. Just a question for Steve first. On your goal of 20% of earnings from emerging markets by 2016, do you feel you can get there organically, or are you assuming any acquisitions in there? Then related to that, for Oscar and Bill, most of your Latin American business is built through acquisition, whether it's Hidalgo, Provida, and how is the environment for M&A in Latin America in terms of availability for properties, competition, and your appetite there?
We said that we were starting at about 14% of our overall operating earnings coming out of emerging markets. Our goal was to hit 20% or more by the year 2016. With organic growth and the Provida acquisition, we think we'll be around 17%, halfway between those two numbers this year, 2014. Could we get there purely on organic growth? My guess is we'll need an acquisition to hit the 20% number. Part of it is that the rest of the marketplace has grown a little bit more rapidly than we anticipated. A strong earnings growth coming out of the United States. I think that it probably would take an acquisition as well as the organic growth to get the 20 number.
We are looking in those markets aggressively, and while we'll remain disciplined, we certainly are opportunistic about acquisition opportunities.
The second question about Latin American.
You know that I said we have been growing at 20%. Part of it was organic, part of it was inorganic. I think the inorganic side, it's all about the discipline you have. Let me give you an example. We succeeded in buying Provida at the right price at the right time. Starting 2006, I think we went seven times.
Right
We went through full-blown due diligence process, we never got the deal done because the price was not the right one or the terms. You got to have that discipline until you get the right property. Now, today, we're positioned to grow organically and to pull value out of the Provida acquisition, the rest of the business. Now, would you do M&A if you get the right property. For example, Brazil is always an interesting place, but things are too expensive there. It's about being disciplined, having the patience, but I would say right now, we're totally focused on organic.
Okay. I think Christopher Giovanni.
Thanks. Christopher Giovanni, Goldman Sachs. Question for Steve around the buyback. If we think about the current share price, it's about 25% above the threshold appreciation price for the ESUs. When those convert in October with a billion-dollar authorization, at least it looks like on a share count basis, you won't fully be able to offset that dilution. I guess when I think about the full $1.3 billion that you have remaining to fully offset that share count dilution.
You're right, Chris. The math would work so that $1 billion of share buybacks at prices at or near where we are today wouldn't fully defease the convert because of the cap on the conversion price. We took that into account. We still thought $1 billion was the right number in terms of the size of the buyback.
Okay. Question for Bill Wheeler. It seems like you and a lot of the competitors talk about a strong pipeline in the jumbo market. Also, a long lead time in terms of 12, 18, 24 months in terms of closing some of these deals. I guess given that commentary, why would you expect we'd see two consecutive years of not seeing a jumbo transaction get done?
Well, it's all driven by the treasurer or the HR director or the CFO of any particular company deciding to close their deal out. Needless to say, given our position in the marketplace, everybody comes and talks to us about what's going on. Just hypothetically, if we wanted to price our deal and wanted to close that deal now, why wouldn't we do it? What would you think it would cost us with some crude numbers? We have a really good feel for, I would say, the level of activity and thinking going on in the market. Part of the reason I'm confident about that we probably aren't going to see a jumbo this year is they would've told us by now. There would've been a process in place because just to bid the deal and therefore sign the deal is pretty much minimum 6 months, okay?
It's complicated. If somebody were going to get something done by year-end 2014, now's the time. Because we are in the flow of what's the activity, we kind of know there doesn't seem to be one that's going to go. I think this is all, and we've speculated a lot about how fast or slow the jumbos will come. I'm pretty confident they're going to come because of the nature of the companies that are talking to us today, okay? This is a big transaction for these companies. Sometimes they're going to have to top off the plan given where interest rates are today, and that's kind of a gulp for a lot of them. Even if the plan's pretty well funded, just given where interest rates are to really close it out, you'd still have to come up with some money.
I think that gives people pause in terms of today's environment. Doesn't mean some of them won't do it, but they're thinking hard about it first. Maybe thinking, "Gee, if I just wait a little longer, it'll only get better.
Let's come back to this side. Suneet?
Thanks, Ed. Suneet Kamath from UBS. Question for Steve on regulatory. I guess a lot of us would've thought by now FSOC would've either designated you or not designated you as a non-bank SIFI. Any sense as to why we've not heard anything in that regard?
We've been in the process for a number of months, we're in phase 3 currently, which is the final of the 3 phases. We don't know when they'll make their final decision. They haven't provided us any sort of insight into the timing. They've asked for a lot of information from us. We continually provide that information as requested. I really can't give you much clarity in terms of when they're going to close the process in terms of information flows and then make their decision. It really is in their hands, they don't provide any signals to us on that.
Okay. Just as a follow-up, last week Pru went through a lot of detail in terms of the conversations you're having with the Fed on capital rules. Given that you have not yet been designated, are you involved in those discussions on capital rules? Can you give us a sense, if you are, how those discussions have been going?
We've had conversations in Washington with regulators at the Fed, with others in Washington, policymakers. We've spent a lot of time trying to just educate people in Washington about the differences between an insurance business model and a banking business model because obviously the banks have been regulated out of Washington, but insurance companies have been regulated at the state level. There's a learning curve that people at the Fed and elsewhere in the administration in Washington are on currently. We spent a lot of time with them trying to provide that kind of analysis and insights for them. I think there is some traction in terms of their understanding of the differences between the two different business models, banks versus insurance companies.
Thanks.
Okay, I'm going to this side of the room. Jay?
Thank you. Jay Gelb from Barclays. Steve, when you outlined the 12%-14% long-term return on equity target, there was an embedded share buyback expectation in there, $8 billion gross, $5 billion net after the issuance or the conversion of the equity units. Can you update us on your thoughts in terms of the ability to achieve that?
The 12%-14% ROE assumed $8 billion of gross share buybacks, $5 billion after the converts. That added about 100 basis points roughly if we did all those buybacks. We've said before that all else being equal and if we did no share buybacks, 12-14 would become 11-13. I think that's a good rule of thumb in terms of the impact of share buybacks. Obviously we've announced now that we'll do up to $1 billion of share buybacks opportunistically.
At the risk of being accused of you guys giving an inch and me asking for a mile, how should we think about buybacks going forward? It's great that you've started this process even in light of not having a full view on the regulatory process and what the rules will be. Should we see this as a one-time opportunity to buy back stock or should we now expect this going forward?
When we get through this program of $1 billion, we will kind of regather internally, look at the landscape, what's happened since we've made this announcement. Have there been any further actions in terms of our designation or not as a SIFI? What's occurred in terms of any draft rules coming out of the Federal Reserve around capital? At that point in time, we'll reassess the situation.
Come back to this side. Seth?
Hi. Thank you. Seth Weiss, Bank of America Merrill Lynch. My question is for Bill Wheeler on the U.S. Direct program. Just thinking about the earnings emergence over the next few years, you commented about the economic and accounting mismatch in terms of the punitive nature of acquisition accounting there. That $40 million loss in 2014, as we think about it in 2015, 2016, does that reverse, or does that grow as we're still in the early stages of growth of this program here? How is that contemplated in the low single-digit earnings growth targets for the broader U.S. retail?
The answer is we're not sure yet because we don't know, for instance, a product like Defender, right? Will that just be a nice product and do okay, or will that be a big hit? We just don't know yet, right? If it's a big hit, it's going to drive an increasing loss. If it's only so-so, well, I think you're going to see losses taper off and profits emerge pretty quickly. In terms of overall earnings targets because of this phenomenon, we're not sure how to factor it in yet. I think, as we're chewing through ideas about how to communicate that to you, I think we're just going to have to start segmenting out this business carefully so you can kind of see how MetLife is performing with and without it.
If it gets big enough where the losses are really material for the discussion, right now they're running basically $0.01 a quarter. We got to make sure that we provide some transparency because the returns here are attractive.
Eric?
Thank you. Eric Berg from the Royal Bank of Canada. My question is to Steve. You've talked about how you're in conversations with officials in Washington about capital and what direction capital requirements, broadly speaking, may take. What about the definition of earnings? In particular, we've seen a proliferation in the definition of earnings. It seems that every company in the sector has its own definition. Operating earnings, net earnings, adjusted earnings, ongoing operating earnings. The list goes on and on. My question, do you have a sense at this point for whether there will be an ongoing acceptance or tolerance for that? Or whether you're going to have to just report net income to the regulators and end it there?
Eric, we don't know. We haven't had any feedback from the Fed on that issue. As I mentioned earlier during my presentation, the dividend payout ratio that we have currently with the $1.40 dividend is roughly 25% of operating earnings. The Fed's basic standard for the banks is no more than 30% of net income, which is a different number. Between operating earnings and net income for an insurance company, if you're in certain segments of the marketplace, you're going to use a lot of derivatives, and those have movements on your income statement only in one direction in some cases. You'll get a lot of volatility even though there's an offset someplace else in your balance sheet. It doesn't flow through the income statement. Only half of it does. You get this volatility that's not economic.
Our hope is they'll understand that difference, and they'll look at the true earnings power of the business and the cash flow generation of the business and look at operating earnings. We don't know how they'll ultimately come out on that issue.
Go to this Erik.
Thank you. Erik Bass with Citigroup. I was just hoping you could comment a little bit more on the exchange opportunity and when you see that moving the needle in terms of overall sales. How important do you think having dental is as a door opener or for success on the exchanges?
Sure. When we think about exchange, I just want to be clear, there's public exchanges and private exchanges. I'm really talking about private exchanges. The public exchanges are much more familiar to most and what you see being talked about in the news. From the private exchange perspective, we're seeing the number of exchanges grow rather rapidly. Many technology firms, brokers, and other plan administrators are out there building out exchanges. Interest by employers in exchanges is also growing. However, adoption is relatively slow. We think that in time, it will grow, especially as companies need to really look closely at what they're doing with their medical business. Exchanges give them a very nice avenue to move to more of a defined contribution approach and offer a broader suite of products. We absolutely think we will see growth, but right now it's fairly modest.
In terms of dental, yeah, dental is a very strong business for us for a couple of reasons. If you think about our product portfolio, it's one of the more high-touch businesses. Every individual, and if you look at the family level, they're typically submitting two, three, four claims a year. Our ability to give them a really good experience in dental creates tighter connectivity. We also think we have competitive strength because of our network and our operating model. We're able to create good value for our customers and have seen a lot of growth with other products through existing dental customers.
There was a very patient hand in the back, which I can't see your face. Let's There we go.
Joanne Smith, Scotia Capital. This question is for Steve. The regulatory developments last week with Sullivan being appointed as an advisor to the Fed, as well as the Collins Act being passed in the Senate. Can you comment on that and just give us your thoughts based on where regulatory developments are going?
Sure. Under Dodd-Frank, there are two competing provisions, Section 171, the original Collins amendment, and Section 165. 165 gave flexibility to the Fed to regulate non-bank SIFIs based upon the industry that they engaged in business. The Collins amendment was somewhat contradictory to that and suggested that bank rules should apply to non-bank SIFIs. That was the interpretation of the Fed that the Collins amendment of Section 171 trumped 165. It's a debate about whether that is the right reading of the act or not, but the Fed's been kind of dug into that position. Susan Collins herself has testified back in March before a Senate committee gathering that she never meant for her amendment to apply to the insurance industry.
She really wanted that to apply to shadow banking businesses that occurred before the crisis and different kinds of industries that kind of escaped federal regulation to some extent because they weren't technically bank holding companies. Notwithstanding her testimony, the Fed stayed on their position of, "No, we're required to use bank rules," which in this case, based upon their interpretation, that amendment meant Basel III rules for potentially non-bank insurers that are SIFIs. She put forward an amendment to her amendment, There already was a bill out there that combined with her bill, The language got to the point where she was comfortable putting her name on it. Senator Sherrod Brown out of Ohio, who's a Democrat, Mike Johanns, Republican from Nebraska, and then Susan Collins, the original person who named and put forward the amendment back in 2010 under Dodd-Frank.
The three of them got together one bill. There was a mirror bill in the House, that is important, the exact same language. That is very important this time in our history in Congress. The Senate bill went through under something called unanimous consent. It means that no one objected to the bill as it stood. It was a bipartisan, non-controversial clarification of the Collins Amendment, the original Collins Amendment. The Fed, by the way, if it really did not like what Susan Collins was doing in this case, would have phoned in their objection to key members of the Senate and say, 'Please do not agree to unanimous consent.' Presumably, they were on board for that. They have said publicly that they do not feel like they should apply bank rules to insurance company, but feel compelled to by the law.
Under unanimous consent, the bill went through last week. There is a mirror bill in the House that needs to pass in some format. There is something called suspension of the rules in the House side, a little different than the Senate side, requires two-thirds vote. The hope is that we can get that suspension of rules process to be utilized for this amendment. If that were to be the case, you would have the bill come out of Congress, and it would be on the president's desk to sign. Presumably, if it goes through on two-thirds vote of the House and a unanimous of the Senate, we would think that the White House would advise the president to sign the bill. Again, bipartisan, non-controversial, basically a technical fix to a very complicated law, Dodd-Frank. That is the state of play.
We have one of the three pieces done so far, the Senate piece. I should caution you that even if this goes all the way through and gets signed into law, all that says to the Fed is, you do not have to use bank rules if you are regulating a non-bank SIFI that is an insurance company. You can tailor the rules appropriately to the industry. It does not mean the rules are going to be harsh or not harsh or anything else. They could still come up with draft rules that we would find reasonable or come up with draft rules that maybe we would not find as reasonable.
Okay. We are going to have to break now. Not a break. Break the Q&A. We will come back for another Q&A at the end. We are going to go right into a presentation on Asia from the President of that business, Chris Townsend. If you could all stay in your seats, give us a second to get off the stage, and we will get going.
Thank you, Ed, and good morning. It's a pleasure to be here with you today. In the time we've got allocated for Asia, what I intend to do is to give you a brief overview of our Asia business, to recap on some of the points we made in the December outlook call, and then to give a slightly deeper dive into some of our key operations. Most of the focus will be on Japan, but I'll also touch on Korea, on China, a bit on Southeast Asia. I would also caution you that we do have a much more intense session in Tokyo in September, where we'll be going into these themes in a lot more detail. I look forward to seeing some of you there. Let's get going.
In terms of a recap from December, overall Asia's business is made up of nine markets. We've been or had a presence in the region for about 60 years, and we have a fairly clear four-point strategy, which is articulated on the left hand of the slide here. The four points really are, first and foremost, to secure maximum earnings from our scale businesses in Japan and Korea, I beg your pardon. Secondly, to build a growth platform for our businesses in China and in India. Third is to ensure a good contribution from the remaining businesses, which we call designated markets. Fourth is to find a route into the high margin, high growth markets of Southeast Asia, and to do that in an economically disciplined fashion. In the middle there you see we're exploiting a number of opportunities, such as product and distribution diversification.
We're also investing in a number of new capabilities, be they digital, be it data analytics or be it innovation, and we're also proactively overcoming a number of challenges. We believe that going forwards, our revenues will outpace the market growth as shown on the right-hand side of the slide here, and also that our expenses will grow at 50% or less than our revenue growth. Asia overall, we offer a very broad range of products and a good distribution mix and have pretty good balance across the business. You'll see in terms of the pie chart on the left-hand side there, that 50% of our sales come from the less capital intensive products. We're well-placed to exploit the growth opportunities in the region, be they driven by the demographic, the social, or the economic drivers across the region.
The life business, particularly in the Japanese market, is a slightly lower margin business, and we're not expecting expansion of the margin in that business. I would say that it's a very key gateway product for us in terms of packaging ratio with our other higher margin protection products. It's a very key product for us to have on the shelf. The distribution mix is very well diversified. Just to call out a few of the points there. We have over 140 bank relationships around the region. We have a very good direct platform, particularly in the markets of China and Japan. From an agency reach, it's fairly extensive. We have 50,000 career agents in the region. They sell only MetLife products. We have about 100,000 independent agent relationships right across the nine markets in which we operate.
The agency, the career agency business is a consultative life planner type model, which is characterized by high levels of productivity. A good example of that would be in Korea, where we have the highest proportion of Million Dollar Round Table membership of any other company in that market. The independent agency business is characterized by a very strong value proposition. Overall, we believe that this diversification we have of both product and distribution gives our customers great choice. It gives them products that they can use for every stage of their life cycle. It allows them a channel they can access us by of their choice. It's a good competitive differentiator for us. We believe that our competitors would find a similar model hard and costly to replicate.
If you look at our financial results, overall Asia in 2013 has been a meaningful contributor to the enterprise. On a US GAAP basis, our revenues are $10.3 billion and our earnings at $1.2 billion. The strength we have in protection products flows through both on the revenue side and the earnings side. We see, if you look at the numbers, almost 50% comes from A&H products. On the earnings side, 54%. It's a very key product for us. We see good capabilities on the retirement products, especially in Japan where some of the aging demographics there, plus very high levels of disposable income bodes very well for us, particularly in products such as the fixed annuity space.
It's worth noting a couple of key points in terms of the relationship here, particularly on the retirement sector, you see a slightly uneven relationship between the revenue and the earnings. That's really down to the accounting basis. Under US GAAP, the revenues look disproportionate to earnings given that only the fees count towards revenues. We're not counting all of the revenue in that business. Secondly, on the life side, there's a slightly disproportionate mix there between revenue and earnings in terms of we have very high revenue products. There's 3 key points there as to why that doesn't flow through to earnings. The first is purchase GAAP accounting, the second is some of the DAC changes in 2011. The third is the relatively high new business drain in 2013.
If we look at the financial contribution here, you can see Japan and Korea make up the bulk of both the earnings and the revenue in the business. We have growing businesses in India, China, together with businesses in Australia, Hong Kong, South Asia. Now Malaysia as well. The strong earnings in 2013, however, needs to be adjusted by a couple of noteworthy items. You see outlined there the baseline operating earnings, which is probably a more realistic view of our baseline earnings going forwards. Japan is well diversified by product, by currency, by distribution. The Korea business is a very solid earnings contributor.
We're taking some of those capabilities and deploying them to the rest of the business in the region, so that going forward, by 2016, we expect that the rest of Asia will make up approximately 5%-10% of our earnings. Of that, 60% will be from the emerging markets in the region. It's noteworthy to say that on a US GAAP basis in 2014, India is making a profit, and on a US GAAP basis in 2015, China, we predict, will make a profit. To reiterate the comment we made in the December outlook call, we expect that a successful execution of this strategy across the region will result in high single to low double-digit earnings growth from that 2013 baseline on a constant currency basis. Now, let's look at Japan. As you know, very mature market, relatively modest growth.
Don't forget it is the world's second largest life market, so it has real scale in terms of the size of the market overall. Given our strong market position, we really believe we have very good growth opportunities in that market. These growth opportunities really are driven by a lot of the economic change we're seeing by Abenomics, but also some of the demographic and social changes we're seeing in that country. For instance, if you look at the aging population in Japan, it's driving real strain in terms of the government balance sheet to provide for all of the future healthcare and retirement needs of the citizens of Japan. We're seeing this lead to much more interest in standalone medical and private sector products that the government simply won't be able to afford going forwards.
A good example of that is, if you think that through, it's estimated that by 2025, Social Security spending will need to increase by 35% to give all of the needs in terms of the retirement and health. The way we're seeing that play out is, a good example of that would be what we've seen recently in terms of some change of the copay. For instance, the 70-74-year-old cohort, they recently, in April of this year, increased the copay from 10%-20%. That might be a good indicator of what will happen going forwards. Overall, we're seeing this rising requirement for out-of-pocket expenses driving an increased need for private sector products. The demographic and social changes we're seeing are also presenting us with opportunities in interesting subsegments.
If you think about the high household wealth in Japan, there's also a very high mix of foreign currency assets compared to other similar countries, and that drives great opportunities for the affluent senior market. On the social side, we're seeing changes in buying behavior, where clients very much want a hybrid or omni-channel approach. For example, with our online capability, 10% of the people that come on and look at the capabilities there request a meeting with our agents. Of those, 40% convert into applying for a product. Having that broad range of distribution capabilities is a real strength. We believe that these macro changes in the market, together with a disciplined approach to the life business, good execution, and improved persistency, will drive the excess growth we highlighted earlier of about 300-400 basis points over and above the market.
In terms of distribution in Japan, I've mentioned before multiple scale distribution, which provides customers with real choice and us with a competitive advantage. We're a leader in productivity, best exemplified by our career agency channel. That's really focused on the mid or the mass market. That group overall accounts for 47% of the households in Japan, but 61% of the wealth. It's a relatively underserved market because other financial institutions tend to focus much more on the wealthier retirees segment of the market. The productivity in this career agency business at the moment stands at $8,600 per agent per month, which we believe is about 60% higher than a number of our domestic competitors who have a much more traditional agency model. We've also been focused very much on increasing the productivity of those agents. Since 2010, productivity has increased by 13%.
We've also got much better numbers in terms of rookie retention and much lower numbers in terms of veteran attrition. That's really working in terms of the efficacy of that channel. The independent agency channel is characterized by a federation model. A federation model, it's basically a membership model. It's been around for about 20 years for our business there. Effectively, a number of the smaller independent agents gather together into this federation, and it's very good for us in terms of brand loyalty and also sharing of best practices. It's a much more productive agency force, given that the membership is made up of about 50% of all of the agents we trade with in Japan, but they have 17% share of channel. It's a much higher productivity than the rest of the independent agents in the business.
This sort of consultative agency platform that we have in Japan allows us great access in terms of packaging or cross-sell. In our career agency business, about 70% of the products we sell are packaged. It's a very high productivity ratio for us across the board. The face-to-face capability is complemented by a very strong bank capability. In Japan, we have over 100 bank relationships, which hold over 50% of all of the savings assets in Japan. We also have a very strong direct platform, which is not only a meaningful contributor to us in terms of the third sector products, but also, as I said earlier, provides us very good lead generation. On the product side, very diversified, very good mix, but a significant focus on the protection products.
The standalone medical and standalone cancer market has shown very good growth over the last three years, 3% and 8% respectively. We're very well positioned to take advantage of that given the fact that we're the number 2 standalone medical provider in that country. This is especially the case for cancer, where market penetration rates are below 40%. If you think about that in context of life and medical overall, life's at 90%, medical is about 70%, and cancer is about 40%. There's really good opportunity in that cancer segment of the market. In retirement, we're a leader in the bank foreign currency and the foreign currency level premium market. You should note that those 2030 numbers there do include $70 million of excess surrender fees, which we've called out to you a number of times on various calls. Please take that into consideration.
On the group side, we're number one by new business policy count. This really is enabled by our strong capability in the face-to-face channel, the focus there really is on the small to medium enterprise segment of the market, which we can get to with those 4,500 agents that we have. We have a proud history of innovation in Japan. Over the 40 years we've been in that market, or the Alico business has been in that market. This is best exemplified by the GuardX product, which we launched in August of last year. It's a highly differentiated offering, we've sold over 100,000 individual products since that launch. Finally, on a packaging basis, this distribution mix gives us the ability to cross-sell both at the time of sale and also at a later date.
Overall, 35% of our clients in Japan buy two or more products from us, we believe that's a higher ratio than some of our key competitors. Finally on Japan, we're really well-placed in terms of our market position and our differentiated products, particularly in the growth markets of health, cancer, and the lucrative foreign currency segment of the market. We expect that some of the growth there will be moderated by the yen life business, please, again, bear in mind that's a great gateway product for us in terms of cross-sell for the protection products. There's four key points which will further enhance our growth or our business in Japan. The first is persistency. Persistency has improved 380 basis points over the last three years, we believe there's more to come there.
The persistency we're seeing is better or at where we expected in our pricing model. Any improvement in persistency will drop both straight to the bottom line and also be accretive to us on a revenue basis. We have a reducing expense ratio. We've improved it significantly since 2010. Again, we believe some of the things we've got in play will allow us to further reduce that expense ratio. We've taken some of the savings from that improving expense ratio and invested them into new technology which will improve our customer experience. That investment will continue through 2015 and probably into early 2016, that will provide further efficiency for our business as and when some of those capabilities come on stream.
Finally, we're going to rebrand in Japan to a pure MetLife brand in July of this year, which will help us to take advantage of a lot of our global brand offering and help us in our ambition to be seen as a trusted consultative partner. Let me move on now to a couple of other markets. First of all, Korea. We've been in Korea for 25 years. We just literally earlier this month celebrated our 25th birthday there. The mainstay of our business in Korea really has been our Korea agency channel, which has very high levels of productivity. As I mentioned earlier, we have 815 MDRT or Million Dollar Round Table members in Korea, which is a higher proportion to our total number of agents than any other company in the market. The market is evolving, though.
We've seen banca ssurance and independent agency channel grow rapidly over the last couple of years. We've sort of expected some of these changes. As you can see from the chart on the left there, 40% of our business now comes from the independent agency channel, which is up from 12% two years ago. Very strong growth in that channel. Our value proposition there is built around three key things. One is very good account relationship management, which is tentacular in its nature in terms of the way we interact with the independent agents. Second, it's about best-in-class training. We've just launched our Snoopy online campus, which is a training curriculum going through a range of different products. Third, it's about an effective but certainly not highest compensation model that we deploy into that segment.
We've not followed the market into bank assurance due to the channel economics, but we stand ready to do so should those economics improve and we can bring some of our regional and global capabilities to bear into that channel. Overall, as you know, Korea is a super aging society, and the growth in that market going forwards will come in the retirement and also the health space. We again have anticipated some of those changes. We've put a lot of work into developing our A&H capabilities, which we've imported through from Japan. Our business now, 20% of the sales of that business comes from A&H, which is double what it was four years ago. That's really been enabled by the capabilities we've got in the Korea agency space.
Turning to China, a massive, significant emerging market opportunity, but one in which the foreign companies have a total market share of 5%. Our proposition here is about developing a value growth platform over the long term as opposed to volume expansion. On a China GAAP basis, we're the number 2 profitable market of all foreign joint venture companies in China, and there's 28 in total. On the same basis, we're 10th of all companies in China, and there's 70 companies in China overall. We're very comfortable in terms of the efficiency of our business in China as it stands at the moment. We've prioritized our physical footprint there. We're now in 24 cities across 10 provinces, and that gives us access to 50% of the total GDP of China.
We were also just recently the first foreign joint venture company to secure a license in the Shanghai Free Trade Zone, which may well provide further opportunities in the future. Our secret sauce, if you will, in China really is our direct, our telemarketing business. We're number 2 in that market, number 2 only to a very large domestic carrier. We have 3,500 telemarket sales agents around the country, and they have very high levels of productivity. As you'll see, overall, we have 75% of the business we sell in China is protection-oriented, so much lower in terms of capital intensity. We have a modest agency business there, which is primarily focused on the Tier 1 cities.
Our bank assurance offering there is differentiated that we don't try to go head to head with the key domestic competitors, but we're much more focused on the foreign branches and the high net worth segment. It's a differentiated bank assurance approach. Briefly on Southeast Asia. Steve touched on a number of these points earlier. We do want to get into this area of the market. It's the fourth of our key strategies, but it is, as Steve mentioned, a fairly frothy market from an acquisition perspective. We've been successful in 2013 in getting a foothold into the region through Malaysia. We closed the transaction on the 30th of April. That gives us a good physical footprint across the country, broad distribution, and it also gives us oversight of a takaful or Islamic insurance company.
With time, we can share the best practices from there to other Muslim markets both in the region and perhaps further afield. In Vietnam, we've completed our joint venture agreement with BIDV there, and we expect to commence trading in the second half of 2014. Let me just briefly discuss the capital distribution for Asia. As you can see from the chart here, a very substantial distribution in 2012, which was driven by the subsidization of our Japanese branch into a locally incorporated subsidiary. What that did, basically, it meant that we reset our retained earnings to zero, and going forward, our dividend capacity would be constrained, but it allowed us to effectively dividend up three years worth of dividends in a single year and that $1.6 billion number.
Effectively, we got more cash out, and what that did to the overall economics of the Alico acquisition is to change it from approximately 10 times earnings to approximately 9 times earnings overall. 2011, you can see, was fairly minimal in terms of distributions. If you take Japan out of the equation there, we effectively dividended up 60% of our US GAAP earnings. On 2013, you can see it zero, first of all, because of Japan, but also we had to fund growth in both China and Australia, which we did from within. 2014, we will look to fund between $250 million-$300 million of acquisition and growth activity, predominantly in Malaysia and Vietnam, and we'll also commence dividends from Japan. We expect the Japan number to be about $220 million in 2014, which is below what you would expect as a normal level.
Over time, we expect the Japan dividends to grow to be up to 50% of our US GAAP earnings. In conclusion for Asia, the business is strong with sustainable earnings base going forward and is a good contributor to the enterprise overall. We're successful in terms of the way we look at the region. We've taken talent from some of the region and put it into Southeast Asia. We've taken technology from the enterprise and put it into Japan, and we've taken A&H capabilities from Japan and put it around the rest of the region. We're playing well as a region and with the rest of the global enterprise in terms of that One MetLife ambition.
We're differentiated in terms of our broad product offering. We're differentiated in terms of our broad distribution. We believe that collectively, those capabilities will enable us to take advantage of the opportunities in Japan and outpace the growth around the rest of the region. Overall, Asia is the world's fastest growing insurance market. We believe we're very well placed there to take advantage of the opportunities and to create long-term shareholder value in that market. With that, let me pass across to my colleague, Michel Khalaf, who's the President of EMEA.
Thank you, Chris, and good morning. Great to see everyone. Similar to Chris, I'm going to start with a brief overview of our business in EMEA, talk about the strategies that we deploy. I'm going to move on to discuss in more detail the opportunity that we see in emerging markets in EMEA, and close with some comments around expense growth and capital distribution. Getting started. MetLife has a unique geographic footprint in EMEA with a mix of developed and emerging markets. In Western Europe, we focus on niche segments that allow us to generate attractive returns. On the other hand, in Central Eastern Europe and the Middle East, in the emerging part of the region, we have leading positions as measured by gross written life premiums, and our sources of earnings are well diversified.
If you look at our key strategies on the left of the slide, very much aligned to MetLife's overall enterprise strategy. If you think in terms of the four cornerstones, refocusing the business for us in EMEA means continuing to drive growth in protection oriented products and continuing to focus on driving expense and capital efficiencies. Emerging market growth is an important component of our strategy. I'll talk more about that in my presentation. Leveraging global relationships to drive growth in employee benefits, that's another important component of our growth story in EMEA. You'll hear more about that from Maria Morris later on. Last but not least, continuing to invest in building our brand and in customer centricity are key enablers to our growth in the region.
In terms of opportunities, a growing middle class and low levels of insurance penetration market present attractive opportunities for well-positioned insurers. Diversification, whether geographic, product, or channel gives us an important competitive advantage. It's an area that we focus on in the region. We believe it enables us to have a strong, balanced book of business that is profitable and cash generative. On the challenges front, inherent with doing business in emerging markets is an evolving regulatory environment as well as political instability and uncertainty. Recent examples of that are the pension reform in Poland last year, which is having a significant impact on our earnings this year. Also the situation in Russia and Ukraine, which is having an impact on our sales in the first quarter of this year. We believe that diversification is an important factor in mitigating some of these risks.
Our business model has the flexibility to allow us to adjust expense levels to offset short-term deviations in sales and hence protect our profitability. In terms of our long term outlook, consistent with what we communicated during our December investor call, given our niche strategy in developed markets and our strong position in emerging markets, we believe that we can outgrow these markets. We look for the region to generate between 10% and 12% growth in operating premium fees and other revenues. At the same time, our expectation is that expense growth will be roughly 50% of our top line growth. I touched on diversification. The next two slides will give you a better sense of how we are diversified in EMEA.
As you see on the left hand side, from a product perspective, we have a healthy mix of retail and group business, and the majority of our portfolio is in protection oriented products. You see here A&H at close to 20% of our portfolio. We believe that A&H is very well suited to many of the markets that we operate in EMEA, so expect that component to grow over time. On the right hand side, you see our sales by distribution channel. You will see that bank assurance at 36% is our main distribution channel in EMEA. The picture would have been quite different had I been showing you this pie chart five, six years ago, and this speaks to the growth that we've seen in the bank assurance channel in the last few years.
We have over 150 relationships with banks and financial institutions in EMEA, and we're considered an important player in this space, especially in emerging markets. Face-to-face distribution, so independent agency and MetLife agency is another important channel for us. In many instances, when we entered new markets decades ago, to establish a beachhead in those markets, we used agency. Agency has grown over the years. We have 7,000 agents in EMEA, and in some markets, it's still the leading channel for us in EMEA. Then I'll just point out to you, direct to consumer or the direct channel, which accounts for about 10% of new sales currently, but this is a fast-growing channel. Again, here, expect its contribution to our new business to increase over time.
Another aspect of diversification in terms of earnings and currencies, I just point out here that we are showing our 2014 estimates to account for the impact of the pension reform in Poland. We think that this gives you a better sense of Poland's weight or contribution to our earnings in EMEA. Having said that, Poland is still our leading contributor in the region with 18% of earnings, followed by the Gulf and Russia. I'd like to also point out here that we have six markets that contribute between 6% and 7% of our earnings in the region, and some of these are high growth markets. Think about Turkey, for example. Expect Turkey's contribution and other markets' contribution to continue to grow in time. On the right-hand side of the slide, you also see that we have a good mix in terms of currencies.
Our primary exposure is to the euro. That's followed by the Polish zloty. 15% of our business is in U.S. dollars. We have exposure to the ruble, to the Turkish lira, and some other currencies in Central Europe. This diversified currency mix, we feel, mitigates the risk of currency fluctuations. Hence, we do not hedge our earnings for such fluctuations. Okay. Let me talk a little bit about our competitive positioning in the region. This slide compares our market share in emerging and developed markets to some of our global competitors. As you'd expect in developed markets where we deploy a niche strategy, we have a modest market share compared to our competitors.
On the other hand, emerging markets, which currently contribute over 80% of our earnings in EMEA, we have leading positions, and this reflects our strong presence and capabilities in these markets, and we believe provides us with a solid foundation for growth. Steve commented earlier on the importance of emerging markets in terms of it being a pillar of our growth strategy for the company, and EMEA has an important role to play in that. Before discussing our strategy for growth, I thought I'd set the scene with a couple of slides. Starting with this. This is a commonly used S-curve. It helps depict the pattern of growth for the industry in emerging markets. I used a similar slide a couple of years ago, but in a broader context. We were talking at the time about emerging markets globally.
I'm using this in an EMEA context this time around. This shows that sustained economic development, as measured by growth in GDP per capita, leads to an increase in insurance penetration. Initially, this increase lags behind economic development. There appears to be an inflection point, and here, this inflection point is somewhere around the $20,000-$25,000 mark in terms of GDP per capita, where the trajectory of growth tends to accelerate, and that's depicted in the wave on this slide. We've plotted our portfolio of businesses of countries on this slide. As you can see, we have many countries that appear to be nearing this inflection point. In other words, we are positioned in many markets that appear to be attractive from a growth perspective going forward.
Not only are we well-positioned in attractive growth markets, but some of these markets already make a meaningful contribution to our earnings. This is a chart that we created. The x-axis shows our market share in terms of earnings, while the y-axis depicts our view of the current and future attractiveness of a market as measured by its current profit pool or the expected growth in profits over time. For example, you see here that France is high on this chart. That's because of the fact that France is a developed market. You have a sizable profit pool there. Russia is also high on this chart. Russia is a very small life market. It's a fast-growing one. Both of these markets are high on this chart. The size of the bubble indicates the earnings contribution in U.S. dollar terms.
What you see here is that we have significant contributions in EMEA from emerging markets. We are well-positioned in terms of markets that are attractive, and many of these markets already make meaningful contributions to our earnings today. Since most of the countries that we have, most of the businesses that we have in EMEA came to MetLife through the Alico acquisition, I thought it would be worthwhile for me to share with you how these businesses, especially our key markets, have performed since the Alico acquisition. Starting with the Gulf. By the way, we have a very unique model in the Gulf, which is a Gulf shared services model out of the UAE. We provide backroom services to the other Gulf countries, to Qatar, Oman, Bahrain, and Kuwait out of the UAE.
We see here that despite the fact that we have a very significant market share in the Gulf, we continue to outgrow the market. Again, this speaks to our product and distribution capabilities in that part of the world. Poland is our largest market, as you saw earlier, in EMEA, in terms of its earnings contribution. We rank fifth in that market, 6% market share. We outgrew the market again, 10% growth over the period. What I would emphasize here is that while we look to grow faster than the market, I would not describe our approach or our strategy as a market share driven one. We are in terms of the segments of the market that we play in and that's because we're always focused on protecting our profitability. I'll give you an example.
In Poland, where over the last few years, we've seen a proliferation of short-term investment-type products, one, two, three-year endowments. Those are mainly insurance wrappers around deposits. There was a tax loophole in Turkey, banks were very interested in these types of products, and they generated significant business. We did not feel that this type of business was sustainable. We were not also happy with the returns on this business. We sat that out, and I think our approach has been vindicated by the fact that in the last 12, 18 months the authorities have rolled back some of those tax incentives, and we've seen a sharp decline in this type of business in that market. Turning to two of our fastest-growing markets in EMEA, Russia and Turkey. We see that in Russia we've had strong growth of 25% since the Alico acquisition.
This growth is lower than the overall market growth, and that's mainly because several major banks in Russia set up their own captive companies, and those companies have captured a significant share of the bancassurance market. However, going forward, we believe that we will continue to capture around 25% of the non-captive bancassurance market, and we will continue to grow our other distribution channels, in particular agency and the direct channel. Another growth market for us is Turkey. In Turkey I would just remind you that in 2011 we acquired a company there, DenizEmeklilik. That came with a 15-year exclusive distribution agreement with DenizBank, one of the leading private banks in Turkey. We've seen fast growth of our business in Turkey. That was a transformative acquisition in terms of our standing in that market.
We've seen fast growth. In many respects the growth that we've seen exceeded the assumptions that we have made in the deal to acquire the company there. We've also managed to diversify our sources of business in Turkey. When we first acquired this company, A&H was a small component of the business. Now it's a significant component, and as a matter of fact, Turkey is our leader in all of EMEA in terms of new A&H business. Again, those are four key markets for us. They've all performed strongly since the Alico acquisition, and we expect this trend to continue going forward. I've talked about our large and diverse footprint in EMEA, but we also have a long history in the region.
This is important because in many respects it's very difficult, costly, maybe even impossible for any new competitor to replicate the standing that we have in the region. I'll go back to Poland, for example. We were the first insurer, foreign insurer to be granted a license in that country in 1991. We have over 5 million customers in Poland, and we rank third, and we have ranked third consistently in terms of our profitability in that market. Going back to the comment I made earlier about our selectiveness in terms of the market segments that we play in. In the Middle East, we've been in parts of the Middle East for over 50 years, in the UAE, for example. Again, talking about barriers to entry. We entered the UAE as a branch 52 years ago. Our presence in that market has been grandfathered as a branch.
The rules have changed over time. The UAE currently does not grant new licenses. If it did, the maximum percentage of foreign ownership is 25% and the company would have to be listed. Again, this is an example of barriers to entry that have been created over time and that we are immune to. Lebanon is another example where we've been in that market for over 60 years and throughout market leaders. We're also known for our employee benefits capabilities in the Middle East, and we are a leading provider of employee benefits in that region. Longstanding footprint, experienced management teams as well, means that we have a unique foundation for growth in EMEA. Now let me turn to some of the key drivers of our growth in the region. Starting with expanding bancassurance.
Here we see some favorable macro trends, especially in terms of new regulation, Basel III and Solvency II, that are leading banks to move away from manufacturing insurance products and into looking at fee-based income, generating fee-based income through distribution agreements with reputable, with leading insurance companies. We believe we're quite well-positioned to take advantage of these trends. One, because of our geographic footprint, which matches well with regional and international banks. Two, because of our proven product manufacturing capabilities in EMEA. Three, because we can bring to bear capabilities that other insurance cannot necessarily bring, such as our direct-to-consumer capabilities to help bank maximize the benefit of a relationship. Last but not least, our ability to seamlessly integrate with the banks from a technology perspective to provide a customer-friendly experience when it comes to the sales process.
Important advantages that can help us continue to drive growth in this channel. It currently accounts for over one-third of our new business in the region. Direct to consumer is another growth channel for us, an important growth channel for us. Here, we've built up significant expertise in Western Europe, France and Spain in particular. The regulatory environment is more challenging in Western Europe. We are transferring a lot of that expertise, that know-how, from Western Europe into emerging markets such as Poland, Russia, the UAE, and Turkey. That's helping us accelerate the growth of this channel in those markets.
This is evident by the fact that this channel has grown by an average of over 40% in the last two years. I showed you earlier, it currently accounts for about 10% of new business. We think that will go up to about 15% by 2016. Growth in these channels will be fueled by protection products. We're starting from a good base. Over 75% of our business in EMEA is already in protection-oriented products, and we continue to be focused on that. GEB, again, is a focus area for us. You'll hear more about that from Maria, but we've had good traction there in the last couple of years, and I mentioned A&H earlier. Lastly, we continue to invest in building our brand in the region, the MetLife brand.
We had initially co-branded. We had initially selected a MetLife Alico brand in many parts of the region to transfer Alico's brand equity to MetLife. We are now moving to a MetLife-only brand in all of our key markets this year, and we will be investing over the next several years in making sure that the MetLife brand is much better recognized in our part of the world. Customer centricity is another important initiative for us in EMEA and the company as a whole. We've had some good initiatives that we launched in Poland over the last couple of years, providing good successes in terms of improvements in the Net Promoter Scores across a number of touch points. We are rolling out these initiatives to the rest of EMEA this year and beyond.
The other thing I would say on the customer centricity front is that this initiative has been extremely well embraced by our associates in the region. It is truly now very well embedded in every aspect and the manner in which we do business in the region. Let me touch a little bit about expenses. Why we will continue to invest in our growth in EMEA. We expect expense growth to be slower than the top line, around 50% of the top line growth. We expect to see improvements in margins as more of our countries, more of our businesses reach scale. I mentioned this earlier, we also have the ability and the flexibility to manage expenses in the event of a short-term deviation in sales, which helps us protect our profitability.
We also have an extensive multi-year restructuring project to branch several countries into our Irish insurance company. This is in anticipation of Solvency II. We've successfully completed the first phase of this exercise in 2013 with the branching of all of our Western European entities into Ireland. We are now moving to the next phase of this initiative, which involves branching several of our Central and Eastern European entities into Ireland. What this allows us to do is this allows us to avoid having to build out Solvency II capabilities such as risk management capabilities and reporting capabilities in every one of our businesses, in every one of our countries. We can build those capabilities out centrally, which will drive expense efficiency.
In terms of capital distribution, with 75% of our sales in EMEA in protection-oriented products, we have solid cash generation capabilities. We need a modest retention of our capital to fund our growth. Longer term, we expect our payout ratio to be over 50% of GAAP operating earnings. However, as the chart shows, in the last three years, the average has been closer to 75%, and that's due to capital management action. Over the near term, so over the next two to three years, thanks to the restructuring initiative that I just mentioned earlier, we expect the payout ratio to be in the neighborhood of what you see on this slide, so well over the 50% mark that I mentioned earlier. Okay. In closing, what I'd like to leave you with is that overall, we've made solid progress vis-a-vis our 2016 objectives.
Certainly since the Alico acquisition, we've seen strong performance in all of our key markets. Despite some of the near-term headwinds in 2014, we remain confident of our long-term outlook. I know I mentioned diversification several times today. I'll make no apologies for that. This is a very important focus area for us and an important competitive advantage for our region. I think the key thing is that we are well-positioned in attractive growth markets in EMEA. We will need modest retention of capital to continue to fund our growth. This is our EMEA story. With that, I would like to ask Maria Morris to come to the stage. Thank you very much.
Good morning, everyone. I'm pleased to be with you to share an update on our growth of the employee benefits business outside the United States. Each of my colleagues have talked about the role of employee benefits in their growth plans. What I'd like to do is talk about how we're doing that across the globe. As you may recall, Global Employee Benefits was formed as the first horizontal business unit. We're really charged with accelerating the growth outside the U.S. of our group life, health, pensions, and credit life businesses. We share P&L responsibility and strategic growth goals with our regional counterparts. This business is embedded in the statutory ledgers of our countries. It's rolled up in the quarterly financial statement segments. We really are looking to accelerate growth in two ways.
The first is we're working with our regions to actually share best practices across various countries. You can see that our focus countries here are in dark blue. They're a combination of both emerging and developed markets across the three regions. Here we're looking to proliferate best practices around distribution, pricing and underwriting, product, operations, and technology. While we have capabilities in 45 markets, the reason that we're focused on these 11 is because they're the major contributor to our business today, and they have the biggest growth opportunities for the future. We're also very importantly leveraging our global relationships, that premier large case franchise that Todd talked about earlier, to expand with our multinational corporations, both from a product perspective and a country perspective.
Obviously, this is enabling us to scale in our local markets much more quickly, but just as importantly, the capabilities that we're building out on behalf of multinational corporations in these local markets often create competitive advantage for the local companies in those local markets as well. It's an important growth strategy in that way. As we do this, as we accelerate the growth of this business, as Todd talked about, this is a high ROE, low capital intensive business, so it enables us to increase our risk diversification of the company. Now, when we actually announced this strategy in 2012 and formed Global Employee Benefits, we told you that in the early years of our strategy, we'd focus on really accelerating profitable top-line growth and making some of those investments I just talked about on the last slide.
I'm really pleased to tell you that we're right on track, both from a top and bottom line perspective in terms of our expectations. Here I'm showing you life and health sales growth, a very healthy 24% growth over the last couple of years. The life and health business is over half of the employee benefits business when we started in 2011, growing very quickly. We're also growing our top-line revenue well during this period, and earnings are starting to also manifest as we expected. Now, part of that growth obviously is the growth to our multinational corporations. You can see our multinational sales growth of 39%, which is really just getting started if you think about this being a 24-month sales cycle, but we're really pleased with these results. Here we're selling different types of products to multinational companies.
As an example, offering local benefit solutions in the markets that they do business outside of their home market. We're also selling pooling contracts where they can pool their risks across over 110 countries in our multinational solutions network and expatriate benefits to the ex-pat of U.S.-based corporations in over 145 countries. Now, as we're doing that, as we're accelerating this top-line growth, we're very focused on disciplined pricing and underwriting, and we're delivering this business across the entire employee benefits portfolio with new business ROIs in excess of 20%, and our portfolio is generating pre-tax margins of 12-plus %. Now I want to spend a minute on 2013. Here you see our sales by product, as my colleagues have also shown you. I've shown you the traditional employee benefits business.
You can see the multinational and local, which is a combination of group life, health, and pensions. I've also separated out the group credit business similar to my colleagues. Couple things to point out here. First of all, $1 billion of sales coming from employee benefits outside the U.S. You couple that with the $1.3 billion of sales that Todd went through in the U.S. That's $2.3 billion of group sales across the corporation, which is very good. The billion dollars of sales also represents close to 20% of the total sales that we're doing outside the United States. You can see our multinational strategy really starting to work with 18% of our sales in 2013 coming from those multinational employers. The reason I separated credit out, Michel talked a little bit about this.
Credit is really an entry-level product, often sold in the bancassurance space, primarily in our emerging markets, and that represented about 28% of our sales in 2013. If we talk a little bit more about sales, more from a regional perspective, Latin America is generating about a third of our sales. That's really fueled about 70% of the contributions coming from a combination of Mexico and Brazil. You heard Oscar talk about this. Very strong opportunities and growth in our private corporate segment of Mexico and in Brazil. Brazil is a very fast-growing market for us as well. The EMEA region contributed about 39% of our sales. Again, really good growth, as Michel talked about across the region, but we had about 25% of our sales coming out of the Gulf and the Middle East, as he discussed.
In Asia, a smaller region for us, about 26% of our sales. But there, on average, about 60% of those sales are coming out of Australia, and we have small but growing businesses in places like Japan and China. If you move over to premium fees and other revenues, a $3.3 billion business. Here, Latin America, again because of that government business in Mexico, actually is 46% of our total PFOs, EMEA 39%, and Asia 13%. A couple things to mention here. This is this block of business that I talked about having that 12%+ pre-tax margin. Also because we have adopted APB 23 outside the United States, I should just mention that the tax rate for this business is lower than the overall tax rate for MetLife. Going forward, we have a number of opportunities.
We're going to obviously continue to accelerate this life and health business that I've shown you, continue to really capitalize on the needs of these multinational corporations, and grow through our multinational business. We're doing that in a couple of ways. First, similar to what Michel talked about, we really have niche strategies in our developed markets. I'll take you through that in a minute. We continue to grow and invest in emerging markets while we innovate and diversify our product set. Specifically, I want to give you a little bit of an update on our credit portfolio. Our outlook going forward is that we're going to continue to build on the momentum we've had over the last couple of years, and we plan to deliver double-digit sales, revenue, and operating earnings growth between now and 2016.
I wanted to start with our life and health strategy. You can see our robust double-digit top-line growth here. I would say a couple of things about this. First of all, we've had a very strong start to 2014 in sales, that coupled with the revenues we're getting from a very large Australian superannuation case that we wrote right at the end of last year, gives us comfort that we will be hitting these operating growth rates of 17%-20%. I want to spend a minute on some of the drivers. We've been investing in these areas and continue to drive growth for the future. The first is something Oscar talked about, which is that employers are looking to benefits to attract and retain employees. Health insurance is second only to salary in terms of people's interest in joining corporations in attracting employees.
We're expanding our health and wellness offerings. What you may not know is we're a large health insurer outside the U.S., operating in 20 markets, we're doing a number of things here across plan design, wellness offerings, reporting. While doing that, we're also focused on our network and claim management, which is enabling us to offer competitive products but also lower the loss ratios of this business going forward. The second thing is also really important. We are the largest life insurer in the United States, we're actually leveraging the power of MetLife's balance sheet in a number of ways. One of the things we're doing is looking at our reinsurance abilities, our risk management capabilities, and our ability to really think through risks in a much more holistic way than in any one country or region.
By doing that, we're actually able to offer new products and services, expanded cover limits, expanded capacity in a number of markets that would not have had them had we not had the power of MetLife's balance sheet. We're also continuing to invest in technology, as was talked about earlier. I'd give you one example. We are actually rolling out a customer relationship management platform. We already have rolled it out in 14 countries over the last 12 months. We'll be in 20 by the end of the year. One of the things that does for us is it enables us to connect our global, regional, and local salespeople and really be able to capitalize on multinational opportunities when they arise. It's also very important technology for our local salespeople to increase their productivity.
I wanted to spend a minute on how our niche strategies are going in growing and developed markets. Here I'm showing you our life and health sales between 2011 and 2013. A very healthy 84% growth rate. That's actually fueled by our three focus markets, which are the U.K., Japan, and Australia. Frankly, we have niche strategies, very flexible strategies in each of these markets, they're all different. We talked a little bit with Chris about the Japan market. Here we're very strong in the SME, small medium enterprise space. One of the ways that we're expanding there is we're putting employee benefit specialists into that great agency force that he talked about earlier. We'll expand quickly in the SME space while we look into going upmarket into the multinational space for the future.
In our U.K. market, it's one of the best examples of us leveraging the power of our balance sheet. We've been growing quickly there as we've just gotten into the multinational space in the last two years. We're growing with organizations like large financial institutions that were looking for higher cover limits and better terms and conditions in their life cover. We've been able to offer life cover and terms and conditions that are actually much more competitive than anybody else, local and multinational companies, in the U.K. marketplace. In terms of Australia, as we've continued to build there, that market stabilized, and we have very strong large case underwriting capability through our U.S. franchise.
We've been able to leverage that, our risk management capabilities, and we're writing profitable business in that superannuation segment of Australia while we continue to expand in the corporate business in Australia as well. We'll continue to focus here. We're also putting money into getting more efficient through our operational processes across the markets. You'll continue to see here strong double-digit revenue and earnings growth going forward. Moving now to growing in our emerging markets, you see a very healthy 21% growth rate off of a strong base. Our emerging markets right now represent about half of our business, and it's growing very healthily. Again, more our focus markets, you can see they're growing at 26.5%. We're doing a number of things here. I talked about a little of them earlier, but in terms of diversifying distribution, I'll give you a couple of examples.
The emerging markets have strong bank assurance business, so in our credit portfolio, we're diversifying beyond banks into auto financiers and other distributors, and we're seeing very good success in places like Russia. Our voluntary and worksite business, which Oscar talked a little bit about earlier, we're piloting a lot of different techniques here across Latin America and in Poland because we do believe that over time, as employers want to offer very competitive benefit packages, that the voluntary and worksite space is going to be critical for us in the U.S. as well as around the globe. In terms of investing in operations and technology, we're doing some exciting stuff in Asia. We alluded to it a little bit with Chris. One of the things we're doing is a new mobile sales tool that will enable us to sell small and medium enterprise business through the agency in China.
The reason we started with China is because the digital capabilities are quite strong there, and we're just getting that business started, so we're piloting there and plan to proliferate that to other markets around the globe. We continue to innovate in the product set. As an example, in our credit portfolio, we're expanding our credit offerings to be able to add more value across the life stage that people have as they buy these products. Here, continue to watch for double-digit growth, sales, revenue, and earnings going forward. I wanted to spend a minute on how we're doing with broadening and deepening our multinational relationships. Here you see that 39% growth rate that I alluded to earlier, and we're quite pleased with these results. It's early days, but we've already begun to see the benefit of leveraging our large U.S. corporate relationships.
We have very close partnerships with the U.S. sales team, and what we've been doing is proactively meeting with our large customers and talking about where they're growing around the globe and what their needs are, and it's really paying off in these early days. We're also doing something similar to what Todd talked about, which is partnering with our global broker partners. Here they are actually at the global level, looking to add more value to help build their local businesses as well. Our strategies are very well aligned, and here we're starting to see that we're writing and retaining more business in key markets with these global brokers. We continue to invest in our multinational solutions network. Here it's really been about reporting. Large employers want to know how their businesses are doing around the globe.
We're actually investing in data and analytics, especially around their healthcare coverages globally. Here we're able to roll up reporting for them across the jurisdictions that they do business in. We're pleased with these results, and I wanted to share just one example of how this is actually working. Here I'm showing you one of our large clients. It's been a U.S. client since 1931. It's a Fortune 100 company, 100,000+ employees across 60 countries. In 2010, we had them in U.S. and Egypt and Greece, three countries. We covered about a third of their employees, and you saw we brought in about $15 million of premium from that client. Starting in late 2011, as we started to work with them on their strategic priorities, where they were going to grow, where did their benefit offerings fit into their future growth?
You can see that within this short time period, we've actually doubled the business with this client. We're now covering over 70% of their employees across 24 countries. This is the power of what we've been doing on the multinational side. You couple that with all the ways that we're sharing best practices and building out capabilities in our local markets, that's what's really fueling the growth for the future here. Our key takeaways, we're very pleased that we will be able to deliver double-digit sales, PFO, and earnings growth going forward. We'll continue to focus on accelerating this life and health business, growing through our multinational business, and as a result of that, we're going to be improving MetLife's risk profile with this high ROE business and continuing to deliver customer and shareholder value. Thank you very much.
We're going to take a quick break. If you could try to keep it as close to five minutes as possible, that would be great, and then we'll have a final Q&A session. Thank you. If we could all find our seats, we'd like to begin the final Q&A session. In addition to the three presenters that you just heard, we also have John Hele, our CFO, up on stage. Just so you know that you can ask financial questions as well. I'm going to try to start with people who did not ask questions the first session, and then we'll work our way to those who have already asked some questions. There I see John Hall's smiling face in the back.
Thanks very much. Thanks very much, Ed. John Hall with Wells Fargo. Chris, in your presentation, one of the slides showed capital distributions out of Japan, and it had a 0 in 2013, and you sort of indicated that it's going to be going up over time. I guess this is for you as well as for John. What are your thoughts about employing other mechanisms such as perhaps debt or reinsurance to accelerate the cash coming out of Japan?
The number I alluded to, I think, for 2014 was $220 million out of Japan, and we will grow to up to 50% of US GAAP earnings going forwards. The key to us there, I guess, is to make sure we protect the stack capital. One of the methods we've been doing that recently is to increase our BMR, our bond match reserves percentage. We're moving that towards 50%. It's in the low 40s at the moment. That will help us, but obviously, there's a trade-off there in terms of the assets that you look after, whether you buy and hold or buy and manage. Steven Goulart would definitely want to buy and manage, so there's a trade-off there in terms of that equation. To your point about reinsurance, absolutely, we're looking at it. We're looking at that and a range of other capital management solutions.
May I just add on reinsurance. If you do a surplus relief, you're just present environment getting cash today, but I'm paying a price for it tomorrow. I think you always have to balance the cost of the reinsurance and how much you need the cash today versus tomorrow. If you do true risk transfer reinsurance, then you're giving up profits. I think it's always a trade-off. We seek to have a good balance. We're in a unique situation right now with Japan because we got the large dividend in the past, and we have to have retained earnings build up over time before we get back to it again. I think you always want to find a good balance.
Thank you.
Ryan?
Thanks. Ryan Krueger with KBW. Can you talk about the competitive environment for Japan A&H? It seems like other companies have discussed that as being more competitive over the last few years. Interested in your thoughts there.
The A&H or the third sector environment has definitely got more competitive with more players participating in that market, the number I guess I'd draw your attention to is when we look at the standalone medical market overall, the A&H market's grown about 3% CAGR for the last three years and the cancer at about 8%. We expect that trend to continue going forwards. The cancer market definitely is underpenetrated at 40%. We believe that for our own offering, you know A&H is a big part of our business there. First of all, the breadth of product and the breadth of distribution helps to set us apart in terms of customers being able to access us through any of the channels they choose and that full sort of lifecycle capability.
We're seeing the market grow overall because of the pressure on the Social Security system and more will have to go into the private sector and standalone medical care. We're also seeing a dynamic in terms of market share change between domestic players and some of the foreign players. This is particularly in the term medical riders which attach to the local companies' yen-based life products. As those come up, a fair proportion of those are moving across to standalone medical protection, which gives growth into that part of the market overall. We're the number 2 standalone medical provider. It's for those reasons, really, we believe we can outpace the market growth. Two other things we're doing there
One is to launch a range of new third sector products, which will come before the end of the year. That's a highly segmented approach. You've got different offerings for those customers which are price sensitive, different offerings for those customers who are coverage sensitive. The final piece is about technology. I alluded to a range of technology solutions we're investing in, which help the ease of access and the customer experience overall, we think that will help to set us apart in that market.
Thanks. Then one on China. You've been there for a while now. Seems like a very challenging market for foreign companies to compete in. What's the longer term outlook there?
We've been there for 10 years. We just celebrated our 10th birthday this April. I specifically referenced the China GAAP numbers. Probably the way to think about China GAAP is the same as US GAAP pre the DAC changes in 2011. You can defer more of the commission amount. On a China GAAP basis last year, we made $67 million. It's a 50/50 joint venture, we have half of that. Going forwards, we expect, as I said, it's going to break even on a US GAAP basis in 2015. It's just a drag in terms of when those China GAAP earnings come into US GAAP earnings. The secret there is to make sure you've got a good differentiated proposition because we'll lose if we go head to head with the domestic competitors. That's why particularly we reference the telemarketing capability.
What we're doing there before the end of the year will be to launch a range of digital capabilities similar to what Bill had referenced in the U.S. market, which will further bolster and differentiate us in that telemarketing space.
Yaron?
Thank you. Yaron Kinar with Deutsche Bank. I have a couple of questions, one for Maria, one for Michel. Maria, you had talked a lot about sales growth, top line growth. Seems like a lot of that is focused on the multinationals, large players, which probably have some bargaining power and also require significant infrastructure. Can you talk a little bit about the trends in margins as you see that earnings growth?
Sure. First what I would say is, the margins outside the United States are slightly higher than in the U.S. They're very strong in the U.S. They're slightly higher outside the U.S. Both the multinational corporations as well as the local corporations in a lot of these emerging markets were building out the infrastructure in order to be able to go up market into multinationals. We've been able to maintain our margins and our pricing discipline in those places. The pre-tax operating margin that I talked about, that 12%, is actually quite good, and we see that both up and down the market. Usually multinationals are buying from us on a local basis.
I mentioned earlier that we talk to the multinationals about what their needs are, but more than half of our sales in 2014 are coming from local contracts, which enables us to write with the traditional margins that are in those marketplaces. Over time, our plan is to continue to scale, get our investments down, get our expense ratios more in line with the expense ratios of a scaled business. If over time we're in a position where multinationals are asking for us to be more competitive, we'll have larger businesses to be able to do that.
Would it be fair to expect the 12% margin to remain stable or maybe improve?
I think basically we're talking about maintaining that. We're growing fast, and to maintain a 12% margin, we're quite pleased with. As you know, this is a very low capital intensive business, so the returns, very high ROE business for us.
Okay. For Michel. Two of the sales growth markets you mentioned, Russia and Turkey, seem to be undergoing some turmoil. Do you see those as temporary setbacks, or do you see maybe longer term challenges that you would have to adjust for as you think about your growth opportunities there?
Yeah. We did see in the first quarter a drop in sales growth in Russia. That's predominantly due to the economic slowdown there. Now we continue to operate on a BAU basis, and we continue to see opportunities in that market. We're hopeful that this is a short-term phenomenon and that in the long run, we can resume growth rates similar to what I showed you earlier. Turkey, as a matter of fact, was a very pleasant surprise in the first quarter. We had very strong growth in that market. There has been somewhat of a slowdown in the economy there, also a tightening in the credit market. The diversification in our sales mix, especially our focus on A&H, has helped us mitigate that and generate good growth in the first quarter. We're hopeful that this will continue as well.
There's a question up front. Peter?
Hi, Peter Deloitte with Deloitte Investments. Question for John. Could we get an update on the MCV valuation of the annuity block, VA block that you presented at the last Investor Day?
Sure. A year ago, I presented the Market Consistent Value of our variable annuity U.S. business. It was just over $4 billion. In a Market Consistent world of how you value this, you use a risk-free rate and you take all the separate accounts, project them out at the risk-free rate, and bring all the money back, the cash flows back at the risk-free rate. That valuation a year ago was at the end of March 2013, and the 10-year Treasury was about 2%. Our latest valuation we've done at the end of the first quarter of this year, the 10-year Treasury was about 2.75%, 2.76%. The value now is $10 billion.
Fantastic. Quite an improvement. Maybe a follow-up question. You also, at the last Investor Day, provided some guidance on the low rate scenario indefinitely. Relative to that, I think you talked about roughly $3 billion in DAC charges in three to five years if rates stayed flat. Maybe you can talk about if there's been any changes since that guidance in the last Investor Day, and also, if rates stay flat, the achievability of the 12%-14% ROE.
Right. That was interest rates at year-end 2013. The 10-year Treasury is 1.76% at the end of the year. On that, we projected straight out, all the sensitivities still stay. That's actually a drop from where we are now. If it went down and you stayed forever level at that rate, then all those numbers still are updated. Where we are right now, we haven't changed any of our core long-term mean reversion assumptions. We're very comfortable where we are. It's been a little slower than we had thought for the year so far this year in terms of the 10-year Treasury going up. The economy seems to be churning along slowly here, I think over the long term, our mean reversion rates, what we have out in the long term, we're still sticking with.
Rates-
There's no changes.
Given rates are above that 1.6%, are you saying that it's much less likely that you would need to take that charge in a flat rate environment from 2.5% going forward?
Where we are today in our current forecast, we don't believe we need to take any charge.
Oh, thank you.
Tom, in the back.
Thanks, Ed. Another question for John, just on longer term free cash flow. Just looking at the building blocks of what you all have laid out for group benefits, free cash flow looks to be about 80%. LATAM, I think it's 70%. Asia and EMEA trending towards 50% over the longer term. Where do you see for the whole company if you look out longer term? The reason I ask is I think the implication is if you only get to around 50%, that would imply the rest of the U.S. would be well below 50%. Presumably since you're trying to really optimize that business mix within the U.S., it should be getting a lot better. If you can, I guess, just address longer term, where is the whole company going?
Sure. The numbers we gave this morning show the dividend capacity from those businesses coming up to the holding company. When the money comes up to the holding company, we have holding company expenses, and we have debt that we service at the holding company. That nets it down. When we talk about net cash flow, we deduct those holding company expenses and that interest on debt. When we speak, the 35% I spoke about for this year and 45%-55% for 2015 and 2016 is all the dividends coming up from the subsidiaries, less holding company expenses, less interest on debt, and less any capital we may need for growth around the whole world. We truly have a net number there across the board.
That's the difference between the higher percentages you see in the presentations earlier and the net number that we communicate to you for the whole company.
45-55 by 2015, 2016. Where do you think the picture goes longer term, just especially given what you're doing within the U.S. business with some of the more capital intensive products now being de-emphasized?
Well, there's a balance because we are planning to grow businesses across the board. The direct business does use some capital as it grows in the short term. We've seen that in Latin America. If you keep growing it a lot, although it's a fast payback in two or three years in direct, you're going to have some capital needs as you grow. Pension closeouts do take some capital. As we are planning on growing our businesses, there will be some growth needed. The 45-55 we think is sort of a good range for a good growing company that we have. Way out past 2016, 2017, 2018, 2019, 2020, that's pretty far off into the future. I think we'll stick with what we got.
Put another way, 55 probably is as good as it gets when you think about sustainable.
We think a range of 45-55 is a good operating range for the type of growth that we've indicated for the long term for this company.
Thanks.
Chris?
Thanks. John, I guess just update on sort of timing of that free cash flow. You mentioned the implied 10-year you guys had in your model at the end of this year was close to 3.4%. How should we think about the 35% that you've laid out for this year versus that 45%-55%? Is there any potential change just given where interest rates are today?
Yeah. We'll have to see where we end up the year. We had assumed rates going up this year, which is a bit of a negative in terms of dividend capacity for the next year in the statutory world. Interest rates went up quite a bit last year, and so it depresses net income. It impacts our dividend capacity for the following year. If rates don't go up quite as much, we may have some more capacity for next year. That's why we give a range of 45%-55%, so you've got a range within how interest rates move.
Okay. Just two other quick updates on capital. Any updated thoughts around the onshoring of the captive in terms of the RBC impact there? The second, obviously, you made the announcement this morning around the share repurchases. In the past, I think you've said you hadn't wanted to sort of tinker with the capital structure, thinking about hybrids and all until you had rules. Is that still the case or is that changing as well, just given some of the clarity we've gotten recently?
A year ago, we announced that we were going to move our Verbanotti captive, which was offshore or onshore, and merge them all together into our operating U.S. companies, and also merge three non-New York companies together. That process is well underway. It's a very big project, as you can imagine, and we've been doing many calculations to try to do CARVM reserves, which are stochastic on stochastic, and modeling all this. The lights are dimming out when the actuaries do the runs at night on this. So far, based on the current economic environment, the guidance we gave a year ago still stands. We expect the combined RBC of our U.S. companies, post-merger, when the VAs are all brought inside, to be above 400%.
Our project is on track for the fourth quarter of this year to execute all those mergers together in terms of these companies. The second question was? Sorry.
Capital structure.
Oh, capital structure. Yeah. We don't know what the rules will be in terms of the amount of capital we may need or even how it might even be measured by the Federal Reserve. Let alone what they may do for us in terms of the types of structures we would need in terms of tier 1, tier 2. My personal working assumption is the Fed will want to have capital definitions like they have with other banking institutions, tier 1, tier 2 type structures. That's a working assumption. They've never said anything to us exactly on this. We have to wait and see what the rules will be. We have a very good capital position today in how we stand with our statutory world as well as with our rating agencies.
Any sort of major restructuring we would need to do to meet any new definitions, we will wait to see what the rules say.
Stephen.
Thanks, Ed. One for Maria. You mentioned it was kind of a one-off health business. Could you touch on that? That was news to me. Are you group major medical? What are you doing overseas in health?
Yeah. We're in 20 countries around the globe. We span from full kind of end-to-end major medical businesses like you think of here in the U.S. and places like Mexico and the Gulf, to more supplemental medical that surrounds the social schemes of the different emerging markets. We offer everything from traditional medical benefits, wraparound medical benefits, some of the hospital cash and other types of accident and health sold on a group chassis. We also have dental in a couple markets. Specifically, Brazil is our biggest dental market outside the U.S. Disability or income protection markets. We just launched income protection in the U.K., as an example. All of those are considered part of our health businesses in those 20 countries.
Okay. One for Michel. Could you provide an update on the Poland nationalization of the fixed income businesses of the pensions and what kind of headwind that is?
Yeah. That pension reform was enacted last year. It went into effect in February of this year. All pension companies had to transfer roughly 51% of their assets, all the government bonds, back to the Social Security system. That was done. Now we're in a period where participants in the system have to decide whether they want to continue to have their ongoing contributions deposited with the pension companies or go directly to the Social Security system. If they want to continue with the pension companies, they have to opt in. Otherwise, the default option is that they go to the Social Security. During our December outlook, we had advised that we expected an impact of between $25 million and $30 million in 2014 to earnings as a result of this. That's where we are on this.
Okay. If somebody opts into the private pension companies, they're going to be 100% equities in their account then?
Yes, they would be 100%. We're allowed to invest in some non-government fixed income instruments. Obviously, the universe for those is limited. For the most part, it's an equity fund, yes.
Okay. Thank you.
Well, if there are no further questions, I'm going to ask Steve to come up to make some closing remarks.
Thanks, Ed. Just to sum up the day. We came to you a couple of years ago and outlined our strategy in 2012 for the years up to 2016. Today, we've tried to update you on where we stood in that strategy. I think it's working very well. We're executing well upon it. I think given the uncertainty around capital rules, that strategy is more relevant than ever as we think about balancing our risk profile as a company. We're in a number of different markets. We're very diversified, both geographically as well as by product. A lot of the fastest-growing parts of our company have good risk profiles in terms of capital intensity and so on. We feel very good about the portfolio of businesses that we have. Finally, we're very committed to creating shareholder value.
You've heard that throughout our presentations today. We've increased our dividend, as you are well aware. We announced the share buyback program. I can assure you that all of us are very focused on driving up our return on equity and driving down our cost of equity capital to the greatest extent possible. With that, I want to just thank all of you for spending time with us this morning, and have a good rest of the day. Thank you so much.