Ladies and gentlemen, please take your seats. Please make sure your personal electronic devices are turned off. Our meeting is about to begin. Ladies and gentlemen, welcome to MetLife 2012 Asia Investor Day. Please welcome MetLife's Vice President of Investor Relations, John McCallion.
What I expect. Good job. Good afternoon. Thanks for joining us on our 2012 Asia Investor Day. We are delighted to have a chance to talk to you about our Asia region. Before I do that, a couple housekeeping items. This is a succinctly written safe harbor statement, which says that there will be some forward-looking statements made today, and they could all turn out to be wrong. We've also listed all the risk factors that could cause all those statements to be wrong, and you can see those also in our filings with the SEC. We have our non-GAAP measures, which we commonly use to measure the company and explain the results. You can see reconciliations of the historical data to the most directly comparable GAAP measures. They're in the appendix and also on our investor relation website, which is a portion of our metlife.com website. Okay.
All right. Before I invite Chris up to give a brief overview, let me just run through the agenda for the day. Bill Hogan and his team will give a run overview of the Japan operations. We'll take a 10-minute break. I'll ask Jong Kim and Bob Pei to come up. They'll discuss our Korea and China operations, respectively. Toby Brown, our CFO of Asia, will wrap up the day and presentation. We'll take another quick 10-minute break. We'll come back. We'll have one Q&A at the end, to go through and give you a chance to ask some questions of our presenters. As you know, Chris Townsend just joined us in the beginning of August. Prior to that, he spent 21 years at Chartis. Half of that time he was in the Asia Pacific region.
Most recently was the Chief Executive Officer of Asia Pacific for Chartis. It's my pleasure to introduce our President of Asia, Chris Townsend.
Thank you, John, and good afternoon. Let me first of all add my personal welcome for all of you from Tokyo. For those of you who have traveled a great distance, thank you. We really do appreciate it. Before I pass over to the team, my job really is just to spend a few minutes talking broadly about Asia and explaining how this part of the world fits into the overall enterprise strategy that Steven shared with you at Investor Day back in May. As you will note very soon, a number of the slides I am going to use are identical to the ones Steven used. That is no coincidence. It is intentional, because I want to reiterate the fact that I am not looking to make wholesale changes to the business.
I am looking to execute on the agreed company strategy, which has already been hopefully clearly articulated through to you. Although I have only been with MetLife for six weeks now, I would suggest that whilst I have been doing my own due diligence and been on a listening tour for most of that time, I really do believe that we are coming into this from a position of strength and with a great platform to further grow our business profitably in the region. My goal is to make sure we are executing on that agreed company strategy and to continue all the good work, particularly in Japan, we have done in integrating the Alico business to MetLife from AIG through to MetLife. Let me first discuss with you our company strategy. The first point to note is the circle in the middle here.
We are one MetLife, a truly global company, moving very much towards a global mindset. Clearly that is going to take some time because we have been a significant U.S.-centric organization for many years. I believe we are moving in that direction quickly and with great purpose. This global mindset really is the reason we broke the company down into the three parts a while ago. That is obviously the Americas, EMEA, and the part which I am proud to now steward, that being Asia. The final foundational principle that Steven discussed was the need really for us to leverage our global scale. There has to be a fundamental benefit of being big. We need to make it truly matter to all of our constituents, be they our shareholders, our customers, our employees, and of course, our distribution partners.
It is really about making sure that we create and maintain value. With those fundamental principles as a backdrop, let me just walk around the four individual strategic pillars to make sure you understand how it hangs together and how it resonates with us here in Asia. The first, obviously top left-hand corner there is to refocus the U.S. business. I think Bill and his team have been very clear with you in terms of how we are achieving that balance between profitable returns and growth. They have already made some great progress in that work. The second one, top right-hand corner, building the global employee benefits business. Maria Morris is leveraging all of the great talent and expertise we have in the U.S. business to bring that to a number of the larger global insurance markets in which we operate.
I think they've had some good wins to their credit. I look forward to being a very helpful partner to Maria Morris in that ambition on behalf of Asia. Michel Khalaf discussed our emerging market strategy, not only for his business in EMEA, but on behalf of the entire organization. I would just like to add my support to that I think we've got wonderful opportunities in the emerging markets in this part of the world, obviously, China being front and center of that, but also in a number of the other markets, which we'll talk a bit about later, where we don't currently have an operation. Finally, we talked about driving customer centricity and creating a global brand, and you're going to hear a lot more about this from Bill with regards to Japan and Jong for Korea.
I really believe that this is very much one of the keys to success in this part of the world. Turning to the next slide, let me just try to articulate some of the macro changes we're seeing within the region. First and foremost, we're continually seeing governments shifting a lot of the social welfare burden onto individuals. We're seeing an aging population, which are more and more in need of health solutions. Obviously, a growing middle class in emerging markets, and again, China is front and center of that, which needs protection products. The good thing for us about all three of those broad dynamics are that it plays into our current capabilities and our skill set that we have in the region, and all can create value for us longer term.
Our strategy to take advantage of those developing opportunities really is to grow our accident health solutions in the region and to really leverage our multi-channel distribution network, which as a newcomer coming into the organization, I really believe is a strength of ours and something which sets us apart from our peers. In terms of the numbers, just to give you a quick snapshot of the business we have today. Overall for Asia, you see we have operating revenue of nigh on $9 billion, but more importantly, nearly $900 million of operating earnings. In Japan, we're the number 2 foreign life insurer and number 2 in accident health products. We're the number 1 foreign life insurer in Korea, and we continue to have a presence in China, which again, is a key emerging market for us.
Let me just call out the two most important markets for us in the region, that being Japan and Korea. Both, as you will appreciate, are mature markets, and we manage them accordingly and appropriately. Japan, it's the second-largest market for MetLife after the U.S., and we've got strong growth in some high-margin products despite the challenging environment, and we look at Japan very much as a cornerstone or a launchpad for us for the rest of our Asia strategy. Bill is obviously going to talk more about that very shortly. If we turn to Korea, it's our fourth biggest market in the world, and we're using a diverse distribution platform there centered around a strong career agency force, which has been the backbone of our business there for a couple of decades.
If you look at Korea, obviously, the aging population does create a significant opportunity for us in the Accident & Health product. Since we've launched those, we've had some very good success in those products, and Jong Kim will talk you through those and over more detail to explain how they're working. We discussed the emerging markets in Asia. We are a top five insurance player in both direct marketing and bank insurance in China. You'll see from the footnote there, that's 2011 data. Having spent most of last week there, I'm pleased to tell you that the actual numbers since that and for the first part of 2012 show us in a much better light. What we're doing is working well in China.
We're also expanding the agency model into more Chinese provinces and more cities, and Bob Pei will explain how we're taking advantage of the opportunities in China. Also, as you probably know, there are a number of high-growth markets throughout Southeast Asia. Steven Kandarian indicated to you at the Investor Day that we are looking to enter some of those markets where appropriate, either organically or inorganically. Just to make sure we manage your expectations, we're not going to talk about those in our prepared remarks. We'll obviously respond to any questions you have in the Q&A session later on. Let me just try to pull this together for you in terms of the key takeaways is what really we want you to note for our business in Asia.
First and foremost, Asia is a key market for MetLife, representing roughly 20% of the company's earnings in 2011. Clearly is intended to be a very strong contributor through to the 2016 goals and aspirations that have been outlined to you. As you see, we've got a growing market share in the mature markets of Japan and Korea. More importantly, we're doing this very much through a disciplined approach focused on the bottom line and achieving the appropriate risk-adjusted reward. You'll always see us trade volume for value. Finally, we will continue to pursue organic and inorganic opportunities in the emerging markets. With that as an intro, let me introduce Bill Hogan, who will talk you through the Japan story. Bill?
Thank you, Chris Townsend. The opportunity here in Japan for meaningful future growth under the combined strengths of Alico in Japan and MetLife. We are uniquely positioned in the industry with a broad product lineup and a long history of working with our four major distribution channels. Developing four distribution channels of the size and scale that we have has not been easy and has required significant investments, lots of patience, and managing channel conflict. Many of our competitors are just working through these issues today. While a multi-distribution platform allows us access to a broad customer base, a broad product portfolio allows us to best serve the total customer needs, and also to not be tied or compelled to grow products that have become less profitable or more risky. We can effectively be selective in what products we choose to sell over the longer term.
While the Japan life market is mature, our position in the market still leaves us a lot of opportunity for growth above the market. As I will show you shortly, we've developed an impressive track record of success, remembering that this was achieved while taking on two very substantial projects over the last year and a half, our separation from AIG and our conversion of our company from a branch to a subsidiary. These projects, the conversion is completed as of May 31st, and we're on track to finish our separation from AIG as of October. When these two are complete, this will give us a great opportunity to really focus truly on growing our business and driving towards the future. We are focused on creating value for our customers and our shareholders.
Over the next hour, the Japan team will go through the details of the initiatives underlying our three key performance drivers, growth, value, and the multiplier. Profitable growth is coming from leveraging our multiple distribution platform to broaden our customer reach and from our existing customers through our cross-selling efforts. Value is driven by improving our distribution sales productivity, improving our operating efficiency, and enhancing our investment capabilities, which not only will improve our NII, but also help us diversify our investment portfolio further. The multiplier, which comes from a greater focus on the customer becoming a trusted brand, leading to persistency improvements and greater brand preference. These are in the multiplier category because improvements in these areas will impact our ability to grow more quickly and increase our value by retaining customers longer and acquiring customers more easily. These are the drivers that will create long-term shareholder value.
As I will show you, our strategy and initiatives are well-aligned to deliver on these results. As I said before, we've developed a solid track record of execution while outperforming the market. All the metrics are showing strong improvement versus prior year, but let me highlight just a few of those. The AMP line, which we commonly call sales in our press release, up 31% in the first half of 2012 versus 2011. Earnings are up an incredible 50%, but adjusted for a number of unusual items, are still up a very strong 28%. Two important reasons for this earnings growth are highlighted in the last two measures, persistency improvements up 124%, and due to tight expense management and repositioning of our DM business, which are the primary drivers of an improvement of our expense ratio of almost 200 basis points.
These numbers are a compelling demonstration of our work in Japan to date. The team is looking forward to sharing more details on the initiatives behind the success and our plans for the future. With that, I'd like to introduce Sachin Shah, who's our Chief Operating Officer in Japan.
Thank you, Bill. Good afternoon. It is also pleasing for me to see a lot of familiar faces in the audience and to have you here in Tokyo to listen to our story, so welcome. I want to begin by sharing four key messages. The first few are important repeats of what Bill said, and then the last couple, important to set up the rest of my presentation. First and foremost, macro trends are driving several very attractive, profitable growth opportunities. Second, our multi-channel, advice-based distribution footprint and broad solutions portfolio uniquely positions us to continue to profitably capture these growth opportunities. We will spend a little bit of time on that shortly. Third, we have started this journey and have a demonstrated track record of profitable growth and market share expansion.
Fourth, which I will address in the second half of my presentation, we are further enhancing our multi-distribution, advice-based capabilities to accelerate profitable growth. We are focused on four things in particular. Advisor productivity. We have had good success here, and we see that continuing. The second, expanding channel capacity. We see opportunity to grow capacity of each of our distribution channels, and I will spend a little bit of time on that for each channel. The third is uniquely leveraging and combining distribution capabilities to provide Japanese consumers more ways to access MetLife Alico Japan. Fourth, improving distribution margin with better expense management and continuing to manage product mix. Let us get started. Now, I know it has been a long week for all of you, and you have had a lot of slides on Japan. Here is the good news.
We are going to give you the abbreviated version of the Japanese market. It is right here. It is a mature market, but we see significant opportunities for continued profitable growth, driven by four factors. The first and foremost, the continued strain in social healthcare and pension systems are driving Japanese consumers to seek private insurance solutions for their healthcare and retirement needs. The second, demographic and socioeconomic factors in Japan are changing consumer behaviors, and consumers want multi-channel access and service. The third, consumers are becoming more selective. They want, and they seek trusted guidance, and you will see that when Yagai-san presents later today. Fourth, sort of the combination of all of these, there are significant unmet consumer needs in what is the world's number two largest life insurance market.
There are attractive growth opportunities for those insurance companies who deliver value-added advice, provide multi-channel access and service, and have a diverse portfolio of solutions to meet consumers' changing needs. We have that unique platform. We have a long history of multi-channel distribution. We have deep knowledge on how to successfully manage and grow multi-solution, multi-distribution. As you may know, the majority of the industry has historically been mono-distribution and/or mono-product. Adding the word multi as a competitive advantage is not easy, and it is ultimately about having, growing, and retaining the right people. We have those people. Through our face-to-face distribution channel, we have professional and highly productive career agents and independent agents. They offer a full suite of solutions, life, accident health, annuities, using a consultative approach to satisfy the needs of consumers who are predominantly families and small to medium-sized enterprises.
Through Bancassurance, we access wealthier retirees and pre-retirees who are seeking retirement savings, asset transfer, and healthcare solutions through bank branches. Direct marketing, one of our most unique capabilities, accesses a broad spectrum of customers through TV historically, and now through our fast-growing online capabilities. These consumers are much more comfortable in a self-service or tele-assisted sales and service model. Another unique aspect of our direct marketing business is our sponsors. This group of sponsors includes many of the leading credit card and catalog companies in Japan. As I mentioned, one of our unique abilities is to take these channels and combine them and leverage them in ways that provide Japanese consumers more ways to access us.
For example, in our direct marketing call centers, our telemarketers ask prospect customers who are usually calling in due to a TV commercial or a web ad if they are interested in meeting with one of our agents face to face. Almost 20% of our prospect customers choose this option. This not only improves customer satisfaction, we see significantly higher closing rates and significantly higher average premiums from these customers. This is not new for us. We have many examples like this, each one perhaps too small to talk about individually here today, but the sum of the parts leads to steady, profitable growth opportunities for us. We believe the sales and service model gives us an unmatched competitive advantage in Japan. We have built a track record of profitably gaining market share, and we have strong momentum that we believe will continue into the future.
As you probably know, this is a low growth market, and we are growing profitably by capturing share. Growth is broad-based, which we will talk about shortly, across all channels and all product lines. The mix of business has been and continues to be very healthy, weighted towards profitable protection products and foreign currency products. Importantly, persistency is improving, as Bill shared with you. As we focus on growing our existing relationships while we continue acquiring new ones. This has been an an important shift, where we now focus on revenue growth, not just ANP. The combination of MetLife and Alico provides us a strong foundation in Japan. We believe no other insurance company in Japan has the same level and scale of multiple advice-based distribution channels, broad solutions portfolios that can meet customers' access and changing needs.
This diversity of distribution and solutions allows us to remain disciplined and focused on profitable growth, particularly when economic and competitive environments are turbulent. We do not have to chase business to grow our business. MetLife added strong balance sheets and risk management capabilities, which have further strengthened our foundation. Importantly, MetLife also added attractive brand assets of being number one in the U.S., Snoopy, and the blimp. This is a point worth expanding on. Snoopy, as some of you may know, is the second most recognized cartoon character in Japan, behind only Mickey Mouse. Not a bad start, and we got there without having to do any advertising. Our blimp, which some of you may have seen that is flying around, is also a unique asset. No other company in Japan, whether it is insurance or other industries, has a blimp as part of its branding strategy.
Yagai-san will share with you later the success these brand assets are having for us. Let me underscore perhaps the most important point on this slide. We have a strong culture of execution. Once we set direction, our people know how to execute very well. As we pursue building these capabilities, we have not for a moment lost sight of the fact that this is a people business. We serve people with people. Accordingly, we are upskilling and adding to our exceptional team to ensure that execution excellence continues. I think you see that we have brought together the best of MetLife and Alico, creating a strong foundation for continued profitable growth in Japan. Our strategy, as Bill outlined, is very simple. That is what makes it so compelling, so exciting, and the execution path relatively clear.
Bill shared how we think about our business from a performance point of view: growth, value, and multiplier. We are organizing ourselves and our efforts in Japan along these lines. Specifically, we have 4 strategies. The first, distribution growth, growing the number of ways that we give customers to access us and focusing on improving advisor productivity. The second, value growth. Value growth through innovative products that continue to meet changing consumer needs, and value growth through margin expansion. The third, customer centricity, something we believe is a real multiplier. In a country with very high service standards, we unfortunately are part of an industry that has consistently underperformed, and we see opportunity to differentiate and take a lead. The fourth, brand enhancement. Brand, in essence, is the sum of all of these.
Particularly important in Japan and in this region, where brand, as Yagai-san will show you, is a key driver of consumer purchase decisions. In the second half of my presentation, I will discuss distribution growth. Kitamura-san will speak to you about how we are growing margin by driving value growth. Yagai-san will close out the Japan portion of our presentation today by discussing how customer centricity and brand enhancement provide a multiplier effect to both growth and value as Bill outlined. Let us shift gears to distribution growth. I will apologize up front for saying this again, you are going to hear it a few more times. We are a leading company in all four distribution channels. We have over 5,000 prominent professional career agents nationwide. We have more than 10,000 strong independent agencies nationwide.
Our partnerships with Japan's leading banks gives us access to almost 90% of the bank deposit assets in Japan. We are a leader and pioneer in direct marketing. Bill Hogan used the words channel conflict. I will tell you, that is the first time those words have been used in our business. It does not exist. We do not think about it, we go to market in a multi way. The pie chart on the right shows that our total premium income is well-diversified and, in our view, balanced in terms of distribution mix. This is very important. As I mentioned earlier, a key aspect of how we achieve profitable growth is ensuring we manage both channel and product mix in channel almost on a real-time basis. We do not need to chase business to grow. Let me talk a bit more about our face-to-face channels.
We are a leading player in terms of productivity in face-to-face distribution, and with our more profitable product mix, we probably rank even higher on a profitability basis. We do this by focusing heavily on quality recruiting, continuous training, dedicated wholesaling, and sales support uniquely aligned to each channel's specific requirements. This drives industry-leading activity ratio, policy productivity, and cross-selling. Let me reiterate by saying our key advantage here is our people. We have some of the best people in the business who know our business and who know distribution in Japan very well. We don't plan to just coast on our strengths. We are continuing to invest in face-to-face distribution to drive both growth and profitability. We have four main levers. The first, we were an early entrant in the fast-growing broker general agency segment of the independent agency channel.
The broker general agencies are mostly registered over-the-counter shops, typically with over 50 sales reps. I believe some of you in your past visits have had a chance to go to these types of shops. Our early entry into this segment allowed us to develop strong relationships with our BGA partners, giving us inside access to their expansion plans. Second, our unique independent agency federation is significantly more productive than the industry average and provides a steady year-over-year growth. This strategic partnership also provides us with unique insights into emerging consumer, competitive, and marketplace changes, allowing us to essentially stay ahead of the competition. Third, while we expand channel capacity in both independent and career, we continue to focus on improving advisor productivity and cross-sell. This is a particular emphasis for us in our career agency system.
You'll also hear more from Kitamura-san on how our product capabilities allow us to enhance our cross-selling efforts. Fourth, we see opportunities to improve distribution margins with better expense management and continued focus on profitable product mix. The chart on the right shows that 70% of the ANP from our face-to-face distribution channel comes from what we call pure protection products. Keep in mind that face-to-face distribution represents somewhere between 60%-70% of our total company ANP, so this is a significant contributor for us. You might ask, what is pure protection? Pure protection is Accident & Health, level premium term, level premium whole life. It does not include single premium whole life. It does not include annuities or other retirement products. These are more profitable products and make up 70% of our face-to-face distribution.
That trend of an 11% CAGR over the period is significantly faster than the market over the same period, and we expect the trend to continue. Let's shift gears now to the bank business. I am sure you've heard a lot about the bank business over the last few days. For us, bancassurance is about a focus on quality of the institution, quality of our relationships, and the quality of the business we sell to the institution's customers. We are not about maximizing the number of bank partnerships. Our focus is on building high-quality distribution models and partnerships with the country's leading financial institutions, giving us access today to a wealthier customer segment. Specifically, we focus on the top 100 financial institutions with sizable deposits. Our value proposition is competitive multi-currency products and uniquely tailored Accident & Health products and a multilayer wholesaling and training model.
Our target customer today is a wealthier retiree or pre-retiree, typically representing the top 5%-10% of the bank consumer pyramid. In essence, only that customer that shows up to the bank branch. By focusing on the top banks and the wealthier customer base, the productivity of our partner banks is among the best in the industry. This is also driven by our focus and goal of diversifying production across these relationships, both in terms of overall growth and volume by bank. Let me make an important point here about people and relationships. We've been in this business since it was first deregulated in 2002. Essentially, the same senior leadership that launched the business runs the business today. They've been through several cycles. They understand the bank business well. They've developed strong relationships that we believe we can leverage.
In fact, our senior most leader in this channel, not only has he been with us since the beginning of the launch, he himself brings over 35 years of banking industry experience in Japan. He understands how banks think. We feel very good about where our bancassurance business is positioned today. Let's talk about growth in banks. The industry is certainly focused on growth in bancassurance. We are focused on profitable growth. Much of the recent bancassurance industry growth has come from single premium JPY whole life products, and most of the major domestic and foreign competitors have jumped in to bancassurance looking for ANP growth. With lower interest rates and this increased competition, margins have been coming down for everyone. We have and will remain focused on foreign currency products where there are better margins and less competitors.
Foreign currency products represent 70%-80% of our bancassurance ANP. In addition, we are a leader in Accident & Health distribution through banks. While this is a relatively new segment, deregulated a few years ago, it is growing at double digits for us and for the industry. Looking forward, with the recent full deregulation now in place, we see a growing protection opportunity through banks. This opportunity includes both the wealthier customer base, but perhaps even more importantly, now gives us access or opportunity to access the bank's small to medium-sized enterprises and their middle-market customer base. The 95% that nobody accesses today. Realizing this opportunity will require a unique combination of capabilities, both in terms of broader solutions, but equally importantly, advice-based models and direct marketing capabilities. It is simply not efficient to reach the middle-market bank customer through bank branches using the current distribution model.
We believe that we are uniquely positioned to capture this growing protection opportunity and are seeing some good traction here. Let's now move to the direct marketing business. We pioneered direct marketing in the Japanese life insurance industry. We remain a leader. Our long history in direct marketing provides us with a strong foundation of capabilities, including large, high-quality sponsor base with some of the leading credit card and catalog companies in Japan, best-in-class telemarketing capabilities, which are critical to the success of a DM operation, both insourced and outsourced. A source of leads for our face-to-face channels, which allows us to essentially create markets for our agents, a critical element of our distributor value proposition. As the chart on the right shows, our DM business predominantly sells more profitable Accident & Health products and almost exclusively what we would call pure protection.
Over time, this has created a very profitable and persistent block of customers for us. Combined with our continued product innovation, responding to medical advances in the marketplace, and our customer relationship marketing efforts, we see opportunities for more growth here. As Bill Hogan mentioned, over the last 18 months, we have been repositioning our direct marketing business to respond to changes in the external environment and capture the next wave of growth. The repositioning is focused on three things: improving marketing efficiency by better managing the media that we use. Second, shifting to higher growth segments like the internet and online aggregators. Third, improving distribution margins by better managing expenses. As the chart on the right shows, the repositioning has gone very well. Our business is growing, profitability is higher, and overall marketing efficiency is improving.
As you'll hear in a few moments from Yagai-s an, we have also changed the tone and image of our TV commercials to support our brand enhancement efforts in Japan. Let me wrap up by repeating what I said at the beginning. When we look at Japan, we see a profitable growth business, not just a mature market. The market has very attractive growth segments that allow us to grow market share profitably, and we are uniquely positioned to capture these opportunities. We are continuing to increase face-to-face distribution capacity and productivity while we sell a more profitable product mix. We have high-quality bank relationships that we're leveraging to begin to capture the growing protection opportunity through banks. Our direct marketing repositioning has gone very well. We're seeing improved efficiency, improved profitability, and continued growth in that channel.
With that, I'd like to introduce Kitamura-s an, who will now present on how we are expanding margins to drive value growth.
Thank you, Sachin, and good afternoon, everyone. Welcome to Tokyo. As Sachin just walked you through growth in sales, now I'm going to explain you how we achieve growth in value. Here is what I'm going to cover. First of all, broad product portfolio that meets our customer needs. Second, well-diversified and balanced product and investment portfolio. Third, emphasis on lower capital intensity and higher margin products. Fourth, leveraging global investment capability. Finally, continued product innovation. Let me first remind you of our competitive advantage, which is a broad suite of attractive products. Customer needs are varied depending on life stage, income, and asset level, and family situation. In many cases, it's hard to provide solutions to the customer with only one product line. Our broad product portfolio helps our agents to deliver needs-based consultative selling.
Having broad suite of products also helps us in diversifying business risk and profit sources. We have a well-diversified product mix as shown in this chart. More importantly, our product mix is significantly weighted to our higher margin protection products. Left-hand side chart shows the MetLife Japan statutory in-force premium for the first half of 2012. As you can see, 45% of our premium income is life insurance premium. 35% of life premium is from single premium, reflecting a recent sales increase in single premium whole life in bank insurance business. Similarly, right-hand side chart shows our operating income for the first half of 2012. As you can see, 30% of our profit is from Accident & Health, so-called A&H.
We have been promoting consultative needs-based selling for a long time, currently 60%-65% of our developed premium whole life sales is coming also with the A&H. This is what we call a multiplier effect approach that not only satisfies our customers and delivers growth in sales, but at the same time helps us grow the value. We are focused on growth in value through five distinct levers. First of all, to manage profitability in lower interest environment, we are repricing some of our products, while continuing to maintain optimal product mix and enhancing our investment yield. Second, we are leveraging MetLife's global investment capability to diversify assets across currencies and asset classes to better manage market volatility. Third, we are growing value by continued focus on product innovation. Last week, we just launched two new products that are very attractive to the market.
Fourth, we are leveraging our sizable in-force customer base to cross-sell and upsell our products and riders. Last but not least, we are managing expenses and driving operational efficiency in line with corporate efforts. We have seen minimal impact from lower interest rates due to our diversified product portfolio. Let me remind you that business return on our total new business achieve our target. As you can see on the slide, lower interest rates have impacted profitability of single premium life products the most. Single premium whole life represents only less than 10% of our AEP sales, we are repricing those products over the next six months to get back to the targeted return of each of the products. The biggest sales impact due to the lower interest rates is in fixed annuity.
This is an industry-wide impact thus we have seen a proportional impact on our sales. Investment capability is MetLife's strength at a global level, the Japan business is utilizing it to grow value. Right-hand side chart shows how our asset portfolio is diversified in terms of currencies. I think this is very unique compared to our peers in Japan because we have U.S. dollar assets more than Japanese yen assets. This is a strong evidence that we are the leading provider of foreign currency products where there is no asset risk to us as far as asset match to liability. Left-hand side shows some of the examples that we are doing to enhance investment yield. As you can see, we are taking a lot of measures such as swap bonds and private placements. We are seeing a positive impact from those initiatives.
Our relentless focus on cross-selling is a key driver of delivering growth in value. We are using higher standards in measuring our cross-sell effort, which is number of policies and not number of riders per customer. Currently, one policyholder owns 1.6 MetLife policies. This number has been increasing over the period in which we cross-sold over 130,000 policies to the existing customers. If we count policies and the riders together, one customer has 1.6 policies and 2.9 riders. That said, we believe there's an opportunity to drive even more cross-selling by leveraging our needs-based selling, our consultative sales approach, and also our broad product portfolio. As Sachin mentioned earlier, we are promoting regeneration initiatives to our existing customers using the DM capabilities. Also, product development is key.
When we develop a new product, we design the product so that the product can be easily cross-sold and up-sold to the existing customers. Cultural product innovation is our DNA. We have a long history of product innovation, actually, we are well-known as a product innovator. We have developed over 20 industry-first products in our history. With innovative products, we have created new markets such as foreign currency insurance markets, sub-standard markets, and high-end A&H markets. In those new markets, we can enjoy very highly profitable sales as a first-mover advantage before the entrance of our competitors. Actually, we are still the market leader in those markets, even though competitors already joined in the market. We think product innovation is critical, and I think our capability in product development is one of our competitive advantages.
This slide shows our recent product innovation in A&H area, where medical and healthcare technology is advancing and the government policy towards controlling medical expense is tightening. Last week, we just launched cancer rider for sub-standard market. This is also the industry-first product that offers cancer diagnosis benefits to the sub-standard consumer. We also launched last week the original single premium whole life product. We expand our foreign currency product offering. As such, we will remain to be a product innovator and a market creator going forward. Let me wrap up with a few key messages on how we are delivering growth in value. We have broad base of attractive products that meet the customer lifetime needs through our unique multi-distribution platform. We are maintaining diversified and balanced product mix, overweight towards higher margin and protection product. Also, we are diversifying investment portfolio.
We are heavily focused on lower capital and high return protection product, especially A&H. We are leveraging MetLife global investment capability and continuing product innovation. With that, I'm going to hand it over to Yagai-s an.
Thank you, Kitamura-san. Good afternoon, everybody. On my part, I would like to talk about how we are building capabilities to multiply both growth and value that Bill, Sachin, and Kitamura-san have talked about. This multiplier effect is driven by improvements in persistency, increased focus on customer centricity, and brand strengthening. The foundation for achieving this result is to develop a deep understanding of consumer. I would like to begin by showing a short video of consumer interview that we have conducted. The interviewees don't know who is conducting this research, we can hear their neutral perspective on insurance industry.
僕が今どういう状況でっていうのは多分把握してないので、正直言っちゃうと、今の営業担当の人には腹割って話すことってあまりないので。
外国の方って、結構何年か単位で辞めちゃうんですよね。「私がこの人と契約したのにな」とか。
わかりやすいっていうことと、多様に人間性があるっていうか、人間味があるっていうか、そういう保険だったら入りたいと思いますね。
定期的に連絡くれるっていうのがいいですね。契約取れちゃったら連絡くれないっていう人もいるんですよ。そういうのじゃなくて、「どうですか？」とか、そんなのでいいので連絡くれると嬉しいですね。信頼できます。はい。
その人が勧めてくれるなら、絶対もう条件に信じて「お任せしよう」ってなると思うので、すごい出会えたら本当に嬉しいと思います。
いつでも相談できる、親身になってくれる。
信頼のできる。
心強い。
プロフェッショナル。
今までにないサービスを提供してくれる。
自分の家族のような保険会社さんに会いたいです。
I hope you could read the English script. As you saw, a growing number of consumers have anxiety on the future sustainability of the public pension and healthcare system, feel strong need to defend themselves by purchasing private life insurance. They also see a lot of barriers or difficulties in the services insurance companies are now offering. In general, consumers are not satisfied with the services being provided by insurance companies and are seeking a new kind of insurance company. The fact from industry data that 70% of policyholders are considering changing their current policy is amazing. This is a great opportunity, also a frightening threat for all the insurance companies. A company that succeeds to break down the barrier and provide trusted guidance that truly meets consumers' expectations will win in the market and can grow its share.
We believe we are building the capabilities to be that carrier. As more consumers are starting to take proactive action at the purchase consideration stage, brand is becoming even more important. If there is only room for two brands in consumers' mind at this stage, it is indispensable for us to be in the one of these brands. Over the past two years, we have begun to build capabilities for improving customer experience through post-sales follow-up and brand enhancement. I also want to share with you several additional initiatives we have implemented to break down barriers that consumers face when doing business with insurers. Let me share more details with you in the next three slides. In order to strengthen the ties with our policyholders, we have initiated several initiatives that have helped us to significantly improve our persistency rate.
First, for those customers who missed to pay the monthly premium, in order to avoid the policy to be lapsed, we have developed an agency notification system. This enables our agents to call consumer customers in a timely manner to remind them of their pending payment. This discipline is now strictly executed throughout our face-to-face organization. Second, since credit card payment helps avoid customers to miss the fulfillment of premium payments, we are promoting a larger usage of credit card. Our results show that credit card payment provides far low lapse rate compared to the bank transfer. Third, orphan policy management, which is a long-standing issue in the industry. As you can imagine, leaving customers alone without taking any follow-up or care is one of the key pain points customers face, those customers tend to have worse persistency rates.
By leveraging our DM outbound capability, we have established a dedicated team who makes calls to these orphan customers, and we respond to the customers' various access needs by connecting them to the channel of their choice. Finally, we have also begun to further emphasize persistency-related measures in our sales incentive system. Together, these efforts have contributed positively to our persistency ratio, and we have already achieved an impressive 260 basis point improvement over the last three years. We are also seeing further improvements in 2012. As Bill mentioned, we are almost released from integration and local subsidization activities, which require significant resources. Now we want to shift our focus and strengthen our response to the customers. We have studied various voice of customers and found similar issues that our industry have. Most of these issues are also common in U.S., which we can fully leverage our global capability.
Through this study, we have identified further opportunities to improve our customer satisfaction and persistency. We are especially focusing on three areas: new business process, post-sales relationship management, and benefit payment processes. In the new business area, we believe a cumbersome process and complicated forms are the issues to be tackled. We are streamlining these processes, simplifying the forms to improve non-valid application rate. In post-sales relationship management, together with strengthening our communication to customers, we will seek for the enhancement of self-service capability. In the benefit payment, we have started an initiative to streamline and simplify claims processing by creating a more agile organizational structure, making the process for claims inspection more effective, and simplifying claims documents. As you have seen, these are industry issues, and currently, no insurance company is fully meeting customers' expectation standards.
We are working on breaking down these barriers for our customers and aim to differentiate us from others to become a carrier of choice, a company that is easy to do business with. MetLife has provided powerful brand assets to Japan, which are Snoopy and the blimp. Though Snoopy was born in U.S., Japan is the largest market for Snoopy-related goods sales. This fact shows how much Japanese love Snoopy. Also, our blimp, Snoopy J, is the only blimp flying over Japan. Since we started to fly our blimp in November 2010, it has been well accepted by Japanese consumers. Already 18% of consumers are recognizing our blimp, and many of them are following us on Japanese Twitter site. I hope many of you have enjoyed watching our blimp flying above this hotel today.
Building on these powerful brand assets, we have implemented several brand ad campaign since our rebranding in April 2011. Through TV and web media, we have broadcasted commercial films featuring the blimp and Peanuts characters, and it has helped us to improve the awareness of our rebranded name, MetLife Alico, significantly. In August of this year, we have launched our Facebook site, and it is already attracting lots of fans, thanks to Peanuts characters and the blimp. This is our first step to the social media space, and we believe we can further expand our presence in the web community. Over the past two years, we have been focusing our advertising efforts on driving brand awareness, letting more customers get to know us. In addition to this effort, we are now also focusing on communicating our brand value proposition, a trusted guidance with caring and professional manner.
Now I would like to show our new TV commercial film, which we plan to launch later this week. Please enjoy a sneak preview. As you have seen in the commercial, we are utilizing Lucy to be a spokesperson for customer needs, and we show that we understand the customer issues and are trying to solve them. Now let me wrap up summarizing my key messages. We know customers are not satisfied with current insurance industry services and want a new kind of insurance company. We want to get ahead of our competitors. We have already built several impressive capabilities to improve our persistency rate and are further strengthening our customer-centricity activities by becoming a company that is easier to do business with and by strengthening our brand even further.
These efforts are creating a multiplier effect on both growth and value by not only contributing to our new sales, but also improving our cost efficiency and persistency. We believe we are defining the insurance company of the future. Thank you very much. Let me now re-introduce Bill Hogan to wrap up Japan part. Thank you very much.
Focus is critical to success. As you've heard, there are three things that we're focused on here. Number one, profitable, disciplined growth through better leverage of our in-force customer base and new customer access through our broad distribution network. We're able to do business the way our customers want us to do business. Second, value, driven by improved distribution, productivity, and operational efficiency. Third, the multiplier, multiplied by solid persistency and a strong brand that comes from a company that's focused on the customer. Growth, value, multiplier, a path leading to market leadership in Japan. With that, let's take a 10-minute break, we'll come back and talk about Korea and China. Thank you.
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Ladies and gentlemen, please take your seats. Please make sure your personal electronic devices are turned off. Our meeting is about to resume. Ladies and gentlemen, once again, John McCallion
Thank you. Christopher Giovanni, we're just waiting on you. All right, I think we got everybody back in just about. Okay, the second half of our presentation, then we'll have another 10-minute break, and then we will have some Q&A. I'd like to introduce our Chief Executive Officer of MetLife Korea, Jong Kim.
Thank you, John. Good afternoon. Konnichiwa. I am very pleased to be here to present to you on Korean operations, and thank you for coming back. Today's theme for MetLife Korea is that we are building value through discipline. It applies to all distribution businesses we are engaged in today. I will give you an example about how we built our career agency channel to bring value to Korean operations. We built our professional career agency channel back in 1998. We are one of the first life insurance companies to introduce the concept of professionalism and financial planning. It has been 14 years since we started this effort to lead the market with a professional career agent. Now MetLife differentiates itself from other companies with the most productive agents in the market.
Our ability to bring up agent productivity enhances our company's profit margin and our value proposition, which attracts the agents to MetLife. This has been our discipline when building our career agency. Today this channel is the key volume and value creator for Korean operations. In addition to strong career agency, we launched the independent general agent channel in year 2008. We diversified our own distribution mix and regained greater access to different segments of customers. I talk about our fast-growing GA, General Agency, and new Accident & Health initiative later in this presentation. Before going there, let's first take a look at the market trends in Korea and how MetLife's strategic focus will address these trends. Korean society is rapidly aging. This is driving the need for retirement solutions.
Recognizing this trend and catering to customers' needs, we are the first company to introduce variable universal life product in Korean market the year 2003. This year, following the regulation changes, we are one of the first insurer in the market to introduce an individual retirement product. This new type of IRP product will be used to serve our customers with retirement planning. On top of that, IRP product is expected to play a lead-generating role for our agents to upsell our savings and protection health products. Career agency channel is the biggest channel in Korea. It now stands to represent over 50% of total sales in Korea. Market had a very slow growth since 2008, thus resulting in higher market competition among the big career agency channel players.
Statistics from Korea Life Insurance Association show the total number of career agents in market dropped by 15% from year 2008 to 2010. At this point, I want to stress out that MetLife significantly grew our agency force since 2008. As a way to differentiate ourselves from competitors in this competitive market, we have started to invest professional consulting and the needs-based sales skills of our career agents since the high-quality professional career agency is believed to be one of our core strengths. The total market growth is slow, the independent general agency channel has continued to grow fast for the past two years. It's now the second-largest channel in the market. MetLife expanded into general agency, leveraging proven capabilities and expertise derived from our successful career agency channel. One of the trends in aging Korea is the increasing demand for A&H products.
MetLife has launched A&H Sales Growth Initiative, and I'll talk about that later in this presentation. Korea is expected to become a super-aged society by year 2026. The definition of super-aged society is that over 20% of population are 65 years and older. One out of five is 65 years and older in 14 years away. I may be counted one, if I'm lucky. With a rapidly increasing dependent population, individuals now understand the public cannot rely only on government pension. They will have to provide for their own retirement, and this will drive market growth in areas such as retirement solution and protection coverage. Based on survey conducted by MetLife Korea last summer, the biggest concern about consumers about their post-retirement period were observed to be health and income concerns.
Following the regulation change in July this year that allowed career agents to distribute individual pension products, MetLife has just started to penetrate into individual pension markets with our professional agents, and we are one of the first companies in Korea to serve customers with individual pension needs. I would also like to share our efforts to improve our business value by talking about some of the key initiatives we've taken recently. One of our main aims is to enhance productivity of our sales force, leveraging technology. Early this year, MetLife launched a mobile office system, MOS, for our agents, which enabled automatic financial planning and illustration, customer management, and sales activity management. How has such a change impacted our agents in ways of serving our customers? We'll watch a video in two minutes to see how technology differentiates our agents from others in the market.
We have also changed our agent compensation plan to better align incentives with policy persistency. With our new compensation plan highlighting the importance of persistency, agents are expected to pay greater attention to manage their customers in the longer term. Product profitability is another key driver to improve the operations overall margin. In a competitive market, we have always maintained product discipline to secure our desired level of margin and have not chased the market share by selling low margin, unprofitable products. As mentioned earlier, the CA channel is the biggest channel in the market with over 50% of market share. It is CA channel that is the core of our MetLife business. To illustrate, over 80% of total new sales came from CA channel last year. MetLife's CA channel successfully distinguished itself from the market by outperforming the market over the last three years.
While the market showed almost no growth, our CA channel's new sales grew over 23% per year in this time. This growth came from both growth in number of professional career agents and an improvement in productivity. The number of professional agents grew by over 15% from 2009 to year 2011. As of end of 2011, MetLife had the largest professional CA force in Korean market. In first half of this year, sales of CA channel has slowed down due to competitive pressure in the market. A number of our competitors are investing to build up their own professional agency channel and often MetLife's agents become recruiting targets. We've lost some agents to competitors, and we are putting efforts to retain top performers against attractive recruiting packages competitors are offering to our agents.
As another indication to show the high productivity of our sales force, this year, we have the highest percentage of MDRT, Million Dollar Round Table qualifiers out of total agents. Our continued focus will be to further improve agent productivity. This is how we are responding to challenges with efforts to retain productive agents with the value proposition we offer to our agents as a primary core agency-focused player in market. As mentioned on the previous slide, MetLife's core agents' high quality is behind this dramatic sales growth. This can be supported with the following evidence. Number one, agent productivity. Number two, the percentage of MDRT qualifiers. In terms of agent productivity for full year 2011, MetLife had the highest productivity in the market.
Based on the monthly new regular premium earned per agent, which is the productivity measure in Korea, MetLife's agent productivity was 16% higher than the average of top five life insurers focusing on core agency channel business. Our agent quality is also proven with the number of Million Dollar Round Table qualifiers. One out of four MetLife agents is qualified for MDRT membership this year. This is the highest level in the industry, which is 10% points higher than the top five core agency channel players. In a competitive market, agent recruiting and sales force size growing gets tougher and tougher, we have to focus on improving agent productivity and operational efficiency to maximize shareholder and customer value. As mentioned, MetLife launched a new system called the Mobile Office System in January this year.
This platform is designed to support agent sales activity, automate the financial planning illustration, and customer management. Since the launch of the platform, technology support to the lead generation has been increased, and over 70% of our sales force use this technology-based system in their sales. Next year, we plan to introduce automated mobile service system for our customers. As you know, Korea has the highest high-speed wireless internet penetration rate. All users, including agents, customers, are keeping demand for technology support every year in our business. I will now show you a video to see how technology differentiates the agents using it from the agents who doesn't. Yeah, I hope you enjoyed the video. They are real agents who are working in MetLife Korea today. The male character in the video, Jim.
Mr. Jim decided to join his 4,000 colleagues to use this MOS system to make his sales activity easier to do . I would like to shift the gear to explain our general agency business. GA has been the fastest growing channel in the market for the past few years. MetLife has strategically focused to grow our GA channel as a way to drive new sales growth and to diversify our discipline channel mix. Our GA channel's growth was four times faster than the market growth speed over the past few years. Market grew by CAGR little bit less than 20%, which is very strong growth, MetLife grew by 86% in CAGR.
Growth was mainly driven by our effort to increase the number of GA partners and our proven capabilities, such as innovative products and advanced training programs from CA channel were used to attract GA partners to be MetLife advocates. Along with increasing the number of GA partners, the share of general agency channel in MetLife has increased from only 6% in 2009 to 14% in 2011 in terms of new sales. While growing GA business, MetLife has not traded off the business profitability for volume growth. MetLife has selectively partnered with large but disciplined GAs only, and carefully monitored the quality of business that GAs produce. Also, all products distributed through general agencies complied with our internal process guidelines. I am really excited about this slide to explain our success with the A&H Growth Initiative. Some of you may remember from the Investor Day held three years ago.
At the time, MetLife Korea shared its plan to grow A&H sales. After one year of preparation, in September last year, we launched an A&H Growth Initiative called A&H Everything. This innovative whole life cancer product was launched the first time in the market. The product was developed and leveraged MetLife Japan's expertise in A&H business. From a product perspective, A&H products are a focus of MetLife, and in Korea, we have been very successful over the previous year. As you can see from the chart, monthly stand-alone A&H product sales after the launch in September jumped up by over 500% compared to prior sales. Not only the focus goes to growth of standalone A&H product sales, but we also provide comprehensive A&H riders attached to whole life products to offer a full range of A&H coverage to our customers. This is my last slide.
I would like to leave you with a few key messages about our business in Korea. Since I last spoke at the Asia Investor Day in 2010, we have been successful in growing and diversifying our business, and as a result, have experienced sustainable, profitable growth. As you can see, we continue to be at the forefront of the industry and are leader in innovation. We built the premier career agency in Korea and continue to invest in this channel to ensure its continued success. Now, we are building the premier general agency business and have demonstrated significant growth over the last few years. We continue to innovate in terms of new products such as individual retirement products and whole life cancer A&H products to capture new market opportunities and better serve our customers.
My pleasure to share the story of Korea, and with that, I now hand over to my colleague, Bob Pei. Thank you very much.
Thanks, Jong. Ladies and gentlemen, good afternoon. Allow me to use the next 20 minutes to talk to you about China. Before we go into the presentation slide, let me give you just a few facts of the China insurance market. China is the fifth largest life insurance market in the world, yet the insurance penetration is pretty low. Life insurance as a percentage of GDP is only 2.3%. The market is pretty competitive. Right now, we have 62 life insurers, of which 25 are foreign, operating in this market. MetLife, coming to China in 2004 as a 50/50 joint venture from a greenfield. This is about a little bit over eight years ago. Since then, our focus has been building a strong franchise for the future. I am happy to report that in 2012, we still maintain a very strong sales growth.
Our sales growth in terms of AEP is 33% compared to last year in the same period for the first half of 2012. Historically, we follow a very defined strategy to grow. Our strategic guidance in terms of geographic expansion, including selecting province and a city where we need to make sure our distribution strengths can be leveraged. We establish a hub in the capital city of that province, we build spoke city around it to capture that market. Building a strong distribution strength is a key to a young company like us. In the past eight years, we have established a strong multi-distribution capability to include agency, bank insurance, and direct marketing. Each of our channels has a unique set of factors to differentiate us from the rest of the competitors.
Also, all our distribution channels have a very disciplined marketing strategy where we do not compete with all customer segments. We only compete with the customer segments where our value can be appreciated by our consumer, and that they appreciate also professional service we provide. Lastly, we have a very strong working relationship with our JV partners. They provide strong support and the guidance in local market in terms of regulatory support and in terms of banking relationship support. They allow us to use our insurance expertise to manage the company. JV relationship is another key factor success in China. Now, I would like to talk a little bit about market trends, our strategic guidance, and how do we build long-term value for MetLife in China. Over the last decade, China has had very high growth rates.
Prior to year 2010, the growth rate of life insurance company itself has always been double digits. Most insurance companies be able to achieve strong sales in the past. However, towards the end of 2010, the insurance market growth has reduced. In fact, China life insurance GWP, gross written premium, grew 6.8% from 2010 to 2011, which is still quite strong growth compared to the mature market. There are two reasons for this slowdown. The first one is overall economic slowdown. The second reason is both bank and insurance regulators has increased regulation and compliance requirements to prevent mis-selling and to ensure the customer receives the good value for whatever they purchase. Further increased regulation has resulted decreased sales for the industry It has been benefit to MetLife because we have very disciplined sales practice. We focus on customer needs, we operate professional distributions.
We have been able to continue our strong top-line growth in this new environment. I would also like to add, we still see quite strong growth in Tier 2 and Tier 3 cities as they mature and become more insurance awareness. I also would like to talk about the fact that foreign players' market share in China is quite small. It's around 3.8% of GWP. It's really kind of misleading because most of the foreign insurers, they operate in a larger city in China, plus they do not operate as long as the domestic players. In Tier 1 cities, where the insurance penetration is high and the foreign market share is also high. For example, Beijing and Shanghai foreign participation or market share is about 13%-14%. MetLife is well positioned in those Tier 1 cities. We continue to evaluate the new province and the new cities.
Our focus in 2012 is to optimize the existing province and the city we entered. We need to make sure our established distribution strength can continue to build in that city. Finally, the employee benefit is emerging as the company develop and mature. Giving MetLife a global strength in this area, we see this a good fit for China. In this year, we're going to launch group medical product to enhance our existing group product portfolio. We can have a full suite of products to offer to our corporate customers. The strong 29% PFO growth is driven by three factors. Geographic expansion. That's a complicated area I will talk about in later part of this presentation. Improved productivity. In those three years, we are not only building the new city and new province. We also optimize our distribution in existing cities.
This include enter more telemarketing and bank insurance relationship, achieving number one productivity in agency and the telemarketing productivity. Also, we become the leading provider for foreign banks. Two JV mergers. Historically, we operate two JVs in China. Sino-US MetLife in Beijing and the United MetLife based in Shanghai. In April 2011, we merged these two joint ventures. This is first life insurance company merge in China life insurance history. With the successful merge of the two JV, we'd be able to leverage the relationship of both JV in both telemarketing and bank insurance. We also be able to leverage the talent in both organizations to form a one organization. We gain increase and better efficiency in delivering service to our customers. Our JV combined market share at end of 2009, in terms of GWP, among 35 life insurer, we rank number six.
By the end of 2011, we'd be able to advance that position to number two at end of 2011. Geographic expansion. Prior to 2004, there's nothing. Between 2004 and 2009, remember, we firstly established our operation in Beijing. We use Shanghai to develop Yangtze Delta. They use Guangzhou to develop Pearl Delta. Those three economic zones, the city in that zone virtually are better developed, and that's where the wealth is. We also established Chongqing because Chongqing is being identified as a base for China Western development. We use Beijing, Shanghai, Guangzhou, and Chongqing as a four regional hubs for our expansion. Why four regional hubs? Firstly, despite all Chinese, they all speak Mandarin. Each province has its own dialect and it has its own culture, like Europe.
Second, given the China massive size and the population, we believe organizing this way, we are more effective. Give you one example. Each province has a massive population. You all know a province next to Hong Kong called Guangdong. Guangdong has a 105 million population, which is more than 82 of Germany. You can see in 2010, we advanced our city to 19, 2011, to 24. With that expansion, we use our four hubs and more of matured operation to provide distribution support and to fund new provincial expansion. We further leverage the established distribution centers in the four hubs to duplicate them into the new city and the new province we established. We are now in 10 province, 24 city, and that means we can access to 37% of the China life insurance market. Allow me to talk a little bit about our business overall.
It is important to know that we have a very balanced and diversified business. From channel perspective, our telemarketing is 58%, our bank is 30%, agency 10%. The fact that telemarketing and the bank has more advanced because in each time we obtain a license in a province. We can call the whole province through telemarketing. Each time when we get a city, we can leverage our national relationship with existing bank relationship to quickly build up the scale of the bank channel in that city. Also, financially, TM and the bank has shorter break-even period. As the market develops and our operation becomes more mature, we enter agency and the group. This channel also benefits from the hub and spoke model we established. We can use the talent, use their people from the existing hub to support their growth.
Looking at a business across the city in terms of Tier 1, 2, and 3. Clearly, Tier 1 city has bigger part because we are operating there longest, and also those markets have higher insurance penetration and with much higher foreign company participation. We believe as we mature, the Tier 2 and Tier 3 city will be more balanced. We are market leader in direct marketing. As of the end of last year, we have 3,500 telemarketers operating in eight major cities in China. Business value, 46% is sponsor-based credit card calls and 51% proprietary calls. As of last year end, our telemarketing productivity ranks number one. It's twice of the industry average. Also, our telemarketing AMP ranked number one among all 25 foreign JVs and it ranks number two nationwide. Our proprietary call is based on effective lead generation and the upselling skills.
Currently, we have 12 million leads, and we also build up a capacity to generate leads at 400,000 per month. Our bank channel is differentiated in a number of ways. We focus on foreign bank wealth management segments. In 2012 first half, we are leading provider of the bank segment. We have 30% market share. We also ranked number three in terms of FYP new business among all foreign players in China. The reason why we can become a leader due to we provide a very unique account management and wholesaler insurance consulting model. This also includes the e-solution for our banking partner to help them to penetrate the affluent customer base, who are more financially sophisticated and who value professional support and innovate product we offered. We duplicate the same foreign bank model to the selective national bank wealth management segment and their private bank sectors.
We have a track record for product innovation. Last year, we were selected as one of three insurance providers for the insurance regulator to develop retirement products, and we launched our products at the end of last year. Highly productive agency force. Currently, there are 2.5 million agents operating in China. Their productivity is pretty low. They rely on relationship selling, and the agent of the quality varies. Our model is different. We have very high selection criteria. We focus on quality recruitment and productivity. As a result, our agents are able to access to more affluent segment of the market, and their average productivity is about two to three times of the industry average. Right now, we have around 1,600 agents operating with us. We further differentiate in terms of the way we conduct business through the e-solution. You all saw the Korean MOS system.
Then modify that into Chinese version. They use that on an iPad-based needs analysis and self-registration, and is available to all our agents. Last, this is my last page. I'd like to give you some takeaways. The first is that we continue to maintain strong growth and CFO growth and will continue to exceed market growth. This is due to we have a balanced, diversified channel, and we really do have a very good true distribution expertise across all channels. Second point is we will continue to expand, but we need to balance the new territory versus optimizing existing cities. We also need to maintain discipline in selecting cities and provinces to make sure whenever we go, we can be successful there. That concludes my presentation. I'd like to turn this over to Toby Brown, our CFO.
Thank you for your time.
Thank you, Bob. Good afternoon, everyone. Before I start, I thought I'd take this opportunity just to, before jumping into the numbers, remind you of some of the themes that you've heard already this afternoon. I'm sure you've already written them down on your notepad. MetLife has a growing financial position in Asia, and we'll talk about that in a minute. We've got clear strategies which focus not only on growth but also on value creation. We're already executing on several programs to protect and expand our margins, and we see more opportunity here going forward, and I'll show you some examples of that. We're also seeing enhanced financial benefits from what has been described to you earlier as multipliers. We call our multipliers customer centricity and the value of our brand.
I'll finish up my presentation later by showing you our strong and stable capital position across Asia, which positions us very well to take advantage of all the opportunities you've heard about already. Let's look at some numbers. As I mentioned to you, I want to share with you an outline of the growing financial position MetLife has in Asia. As Chris mentioned right at the outset of the day, about one-fifth of MetLife's global operating earnings already come from Asia. The first half of 2012, as you can see here from some of our key metrics, has been very good. Our operating earnings after tax are up 45% year-over-year to $572 million. Sales, which we measure on an AMP basis, are up 13% to $1.78 billion.
Our revenues on a U.S. GAAP PFO basis are up 7% to $4.6 billion. We've grown those revenues whilst at the same time managing to reduce our expense ratio by over 200 basis points. You'll see here as well on this page, our key solvency position for our key market of Japan. As you heard from Bill Hogan and the rest of the Japan team, we've successfully completed this year the very complicated conversion from a branch to a subsidiary. We've managed to do that successfully and still maintain a very strong solvency margin ratio, as you can see. More importantly, we've also managed to repatriate over $1.5 billion of capital back to the United States. Let's walk through some of these metrics in a little more detail now.
You can see on this slide a little bit more information about our operating earnings growth. Clearly, 45% growth is a tremendous achievement. As you would expect, there's some items in there which we believe are one time in nature, and therefore we've adjusted for them on this page. 2011, as you'll recall, included the tragic events here in Japan, the earthquake and tsunami. We incurred some additional costs and claims, which we've adjusted for here. Also, in the first half of 2012, we've had higher than expected variable investment income, which we don't think will repeat on an ongoing basis, we've also adjusted for that. Even adjusting for these items, our growth is still 26% year-over-year. What's driving this growth? It's driven by a number of things. It's driven by the strength of our underlying businesses.
You've heard some of that already from my fellow presenters this afternoon. You'll also see in my next slide that it's driven by increased efficiency in our sales processes and in our operations, increased investment performance, and our continued focus on our in-force portfolio and our customers. Let's take a look now at one of our leading indicators of future value creation, our sales. As you'll recall from the first page, our sales are up 13% year-over-year. You've heard from all of the previous presenters, a lot of information about our sales, I'm not going to go into too much more detail here other than to tell you two things. All of our distribution channels have been performing well this year. Secondly, MetLife has clear and disciplined pricing, which is applied consistently across all of our markets.
This ensures that we're not only growing sales, but growing value. Let me show you another cut of sales, which will maybe highlight that a little clearer. You've heard many times already today about the strength of our distribution and our superior experience of managing multiple channels and leveraging our expertise between the channels. You've also heard that we're very used to managing multiple and complementary product lines and using innovative cross-selling to sell between them. These factors, coupled with our pricing philosophy, mean that we have a disciplined but innovative platform. This means that our sales growth is balanced and driving future value creation. This is highlighted for me when I look at the first half numbers by seeing this increased growth in protection sales.
As you would expect in a low rate environment, which we're seeing at the moment, I'd be much more concerned if I was seeing a high growth in interest-sensitive products versus protection products. We also manage our in-force product portfolio to maximize value, and I want to highlight for you now some of the financial benefits we're seeing from that. You've heard many times already today some consistent themes around customer centricity and brand. I want to try and show for you with this page what this means for us financially and why we really believe in these strategic priorities. A strong brand which draws customers to us clearly supports our sales efforts. A great customer experience will also increase our draw, but for us, it also means three other really critical things.
Higher client retention, higher portfolio persistency with more opportunities to upsell and cross-sell, and higher and more stable revenues, and higher and more stable earnings. The important message for you to take from this slide is that sales growth is good, but sales growth alone is not good enough. You have to keep the client. Our value multiplier versus the competition, we believe, is going to be driven not only by our ability to have great products and great distribution, but our ability to draw customers to us, keep them for longer, even through family generations. We're already seeing this play out in the numbers on this page. You can see on the left-hand side, our statutory renewal premium, which is a good indicator for us of how that's playing out. We look forward to this trend continuing.
Let me change topics now and talk to you a little bit about our asset portfolio and how we're leveraging some of MetLife's global capabilities to enhance our margins here. This chart shows for you our general account portfolio in Asia. It's large. It's over $92 billion. I want to highlight for you a couple of important items, which you can see on the right-hand side. Our investment income is up 25% year-over-year. That's driven by three things primarily. As you've heard about and as you've seen, we've got strong business growth. Secondly, as I just mentioned to you a moment ago, we're also benefiting from higher client persistency. Thirdly, and importantly, we're benefiting from some investment margin enhancement strategies, which we've been implementing in Asia, supported by MetLife's global investment capabilities.
Other thing I'll just mention briefly on this page is, you can see the investment portfolio gains and losses there. Small uptick over our usual run rate there is entirely related to us reducing our TEPCO bond position since last year. As a backdrop to what's going on in investments, we all know that it's a very challenging economic environment, and we'd all like it to be better. We're not letting that hamper us against our strategy to drive increased value creation. We continue to be focused on leveraging MetLife's global investment capabilities, especially as you heard earlier for the Japan portfolio, which was a legacy Alico portfolio. Using MetLife's capabilities, we've managed to protect and enhance our investment margins through using, for example, MetLife's global sourcing discipline and expertise, in particular for privately placed assets and diversified corporates.
We've been able to do this without any compromise of our proven discipline risk management principles, focused on asset strategies tailored to match liabilities. We've talked already about how we make sure that our sales are the right kind of sales, how we're focused on our portfolio and our customers to drive extra value, and how we're using MetLife's global investment expertise to increase our investment margins. Let's look now at how we're improving operating efficiency too. In the Investor Day that MetLife held earlier this year, I think you will have all heard Steven Kandarian talk about ROE expansion opportunity and also outline the importance of leveraging Global Scale and Operational Simplicity to support that.
Here in Asia, we're focused on this area every day, and we're seeing increased operating efficiency with 140 basis points improvement year-over-year, adjusted for the impact of the earthquake expenses last year on this slide. This is driven by some of the things that we've already talked about earlier, like increasing the efficiency of our sales process. You saw the direct marketing example mentioned during the Japan presentation. We're also focusing on making sure that our businesses are as efficient as possible. Through the Global Scale and Simplicity Initiative of MetLife, we're making sure that we perform the right things in the right place globally for the right cost.
Let's talk now a little bit about our capital position, which I mentioned to you at the beginning, is strong and stable, and we think we're well positioned to capitalize on the investment opportunities we have within our existing businesses and elsewhere. Japan and Korea are shown on the page here, our two largest markets. We're well positioned, as you can see, versus our peer group, and more importantly for us, versus what we believe our current needs are from a risk management and regulatory perspective. In particular for Japan, I want to remind you again that we've managed to maintain this strong capital position whilst completing the conversion of our business from a branch to a subsidiary and returning over $1.5 billion of capital. Let's look at a few more details about Japan's solvency margin now.
Clearly, the biggest sensitivity in Japan we have in relation to our solvency margin is the interest rate movement. This chart shows you the sensitivity of our solvency margin to interest rate changes of up to 200 basis points along the curve for each of the major currencies we hold in Japan. As you heard earlier, we have a pretty unique balance sheet here with a large amount of not only JPY, but also U.S. dollar and AUD assets. For U.S. dollar rates, which is the green line on this picture here, you can see that a 200 basis point increase would mean that our solvency margin would decline, but it would still be well in excess of 700%. Likewise for JPY.
If rates were to spike the JPY by 200 basis points, which is the blue line on the chart, we would still comfortably be above 600%, and we believe in a much stronger position than many of our peers. AUD, as you can see, has very little impact for us. Clearly, all these interest rate movements are a little bit counter-economic, as rate increases are generally good for us economically because, as I mentioned earlier, we have very disciplined pricing, and we're very focused on our ALM principles. Similarly, for FX movements, we have very little sensitivity. Even on this pretty wide spectrum, which is ±25%, we have very little sensitivity to FX movements between U.S. dollar and JPY. I talked about a lot of different topics there.
Let me wrap up now for you the key finance messages and the reasons why we have a growing financial position in Asia. Firstly, we still have opportunities for further efficiencies as part of the global scale and simplicity initiatives of MetLife. We have sales growth, which, as we've shown you, is good growth because of our disciplined pricing and focus on cross-selling. We're leveraging MetLife's global investment expertise to maximize returns while staying true to our risk and ALM philosophy. We're focused on operational efficiency at the business level, and we're benefiting from this already in the first half of 2012. We're well positioned and secure from a capital perspective, and our legal repositioning in Japan has increased our capital efficiency and will lead to greater capital deployment possibilities going forward.
With that, this is the last page between you and a short break and then questions. On behalf of the team, I want to thank you for your patience this afternoon, listening to all of our presentations. Before we take that break, I want to take a couple of minutes now to remind you of some of the key messages you've heard today and some of the reasons why we're all so excited about the future of MetLife in Asia. Asia is already a core and growing contributor to MetLife's global earnings. We believe we have a unique balance of mature, developing and emerging markets, and as you've heard this afternoon, we've got growth opportunities in them all. We're maintaining our profitability discipline despite the macro headwinds around us.
We believe that our business initiatives capitalize on the key market trends and opportunities, and more importantly, I think you've seen today that we've got the right platforms, people, and skills to execute on. Finally, as you've heard, we believe there is still further value enhancement opportunity from our continued focus on our key business fundamentals. Profitable sales, a focus on our clients to ensure they stay with us for longer, operational efficiency, and leveraging our global investment and risk management capabilities. Thank you for your attention. I think you now have the pleasure of a five-minute break. Thank you.
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If you did not go hold me like you did, like you did, like you did.
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Ladies and gentlemen, please take your seats. Our meeting is about to resume.
All right.
Want to go with that one?
We're going to try to get started. I know you have a lot of questions, and I want to give you all the time you need to ask them. Let's go. Raise your hand. I'll call on you. Wait for the mic. Please give me your name and your firm, and stand up if you can. Thanks. We'll start with Why don't we go here? Jeff Schuman . I respect his courage after this morning.
Yes. Thank you. Jeff Schuman from KBW. Thank you for defying the normal Milwaukee convention and allowing me to ask a question. I wanted to first get a clarification from slide number 38. I don't know if you could put the slide up. I thought I heard Kitamura-san say something about single premium life being 35%, but I wasn't sure if that was 35% of life premiums or 35% of total premiums. That's the first question.
35% of life premiums.
35% of life premiums.
Right.
Okay. There was acknowledgment later, of course, that single premium is highly sensitive to low rates and that you would be repricing. Is there some way to give us a sense of how underwater or under-earning the current products are and how big of an issue that is?
We've got several products that are single premium products that are all impacted by the lower interest rates. The returns on economic capital, which is our measure of profitability, are down 5%+ in terms of most of those products. Those are our priorities for repricing.
Was the ROE down 500 basis points or what was it?
Right, exactly.
Okay.
Yeah.
Thank you.
Go to Tom. Tom in the back.
Thanks. Thomas Gallagher, Credit Suisse. I just had a question on slide 87, just in terms of the subsidiary conversion in Japan, where you repatriated $1.6 billion. Can you comment why you did the conversion? Question number one, how did that actually free up capital? I would assume that would consume capital, not free up capital. The third question is, were there any tax implications when you did that?
Why we did that, a couple reasons. One is a deeper commitment to the market and our working with the local regulators. They were really keen on us doing that, and I think in terms of our customers wanting to deal with and be responsive to a local insurance company was certainly an important factor. In addition, there were some issues with the IRS in the U.S. in terms of a branch versus a subsidiary that we had an agreement with the IRS that basically said that we would work to convert the company from a branch to a subsidiary, which eliminated any of their concerns. That was the second major reason for doing that. That was something that was inherited from the AIG days. That's the answer to the first question, I think.
Yeah. The other two were why weren't there any tax consequences and how did it actually end up freeing up capital?
Yeah. In terms of how did it actually end up freeing up capital, the situation was that this was a one-time opportunity as we moved from a branch to a subsidiary to actually repatriate some of the capital from the branch to the home office as opposed to it going into the new subsidiary. Basically, when it moves to the subsidiary, the clock starts over again in terms of your retained earnings start off at zero. You only can dividend up your retained earnings. As a matter of fact, given the way we had to structure the new company, we set up the new company first. It got two months of new business in it, which actually created a loss in the company, creating a retained earnings negative situation that's going to take a year or two to actually become positive again.
We wanted to basically pre-dividend some of the surplus that we had available in the branch as reflection of the fact that we wouldn't be able to do any dividend after the subsidiary is set up for the next year.
Yeah, that's good.
In relation to tax, there was a tax reform bill passed immediately prior to us completing the conversion. Excuse me. This allowed us to tax-defer the transaction, so there is no tax consequences.
Will that be owed in the future then? How substantial might that be?
The tax basis was basically just transferred, so there was no implications at all in terms of taxes going forward. They'd be the same as if we'd stayed with a branch, effectively.
Thanks. Yeah. Why don't we go over here, Christopher Giovanni?
Thanks. Christopher Giovanni, Goldman Sachs. I guess first question, back in May, you guys kind of alluded to international A&H as being one of the big drivers for ROE expansion. Yet there weren't any slides kind of talking about ROE for the Asian operations. Can you talk some, whether it's overall operations, whether it's product level, how we should be thinking about returns for this business? I have one follow-up.
Maybe I'll just start. We elected, let's see, almost two years ago, right, to stop showing ROEs by segment. There's a number of reasons for that that we've gone through with you. We're not going to go through ROEs by segment. What we can talk about, and which is a leading indicator for ROE expansion, would be just new business returns. I think we've touched on that today, and you could add some color there.
Yeah. New business returns for Japan, if you look at them, and it's the company as a whole, and also look at them in terms of by channel, our four major distribution channels all are in excess of 15%. Our target is 15%, and they're all in excess of 15% today. Obviously, within that, there are some products that may be a little bit below. As we talked about, the single premium products are a little bit below. As a consequence of that, in total, we still have a portfolio that's yielding over 15%.
Okay. This may be insignificant, but I believe when you completed the sale of the joint venture to Mitsui Sumitomo, you guys are still reinsuring a portion of the VA business that was written through 2011. Just curious, one, if that's true. Two, if it is, how should we be thinking about whether it's the capital behind that business or hedging strategy to reduce some of the liability?
We did reinsure for a period of time the business of the JV. That's a closed block now at this point in time. We still have the in-force business that we had reinsured. That'll be with us at least 10 years, and maybe for the lifetime of the annuity product. We're hedging that in the same methods that we hedge our domestic business with the same team. The results are not reported as part of the Asia segment. They're reported separately.
Thanks for offering. Thank you.
In the back, Mark.
Mark McKinney, Evercore. A question about persistency. Obviously, you've had some nice increases in that. I think 260 basis points according to slide 48. It's been a nice tailwind to growth. I'm just curious, where do you see persistency going? It's 87%-88%. You look at some of your competitors that are in the 90s. Do you see it going kind of into the 90s, or the product difference is kind of an obstacle to that?
Our products, we're exceeding our pricing margins. Let me start there in terms of our assumptions. We're actually doing better than our pricing assumptions in terms of lapse performance. Our channels do, in general, probably are in a situation where you'll see a little more lapses than maybe some of our competitors. Direct marketing is certainly one channel where just naturally, there's some more lapses in that channel. I'm not sure we'll get to the same level because we've got a different mix of business, and that's okay because that's how we price the product. I do expect this year to pick up probably another 50 to 70 basis points as we had talked about in our, I think it was fourth quarter analyst call. The expectations within that range. I still anticipate us being on track to do that.
We're looking at what 2013 is right now. I think there's still some more upside, but it's probably not at quite the same level because it's changing the mix a bit there.
Thank you.
Right here, in front. Michelle.
Michelle Giordano with BofA-Merrill. My question is for Chris. Chris, I was wondering if you could share with us what some of your personal goals are for the next three years now that you're here at Met, and what you see as the biggest challenges in attaining those goals.
Sure. Well, I think the first part of what I do is pull together two leadership teams, the majority of which you see in front of you here today. We've put together the Japan business and old Asia Pac business into one leadership group, which will drive the strategy going forward. We hope to have that pretty much in place by the end of the year. That's from a leadership perspective. In terms of where I'm going to focus my time, I think the key goal overall, and probably the way to think about this, is that we've got a very strong base already in terms of our existing business. My focus will be making sure that those businesses continue to add great value to the organization overall.
I'll be spending a lot more time focusing in terms of trying to grow the business where we're not already. We'll be looking at opportunities in other parts of the Southeast Asia region.
The biggest challenge is hitting those goals?
It's actually quite a nice challenge. I really think in terms of the existing business, the biggest challenge really is prioritizing the opportunities. You've got a wealth of opportunities which are being articulated to you today, and we just got to make sure we're very organized and we're lined up in terms of prioritization to make sure we execute on those. We've got a pretty good history of execution. I think Bill did a nice job of talking to that today in terms of the subsidization plus the integration work. We're proven in terms of execution. It's just we've got so many things to go after. It's a case of making sure we're clear with that.
I think the other two challenges would be, one in China, just working out the whole China conundrum in terms of how we really grow our business and make sure we get the right balance between profit and growth in that market. Secondly, looking at the broader Southeast Asia region. You all know that the prices are fairly lofty in terms of inorganic growth there, it's just working on how we enter those markets.
Go ahead, right in the middle here. Ed?
Thank you. Edward Spehar from BofA Merrill. A couple questions. First, could you give us some sense of what the ratio is between FSA-based earnings and GAAP earnings in Japan? Second, if we look at the Asia earnings, it's about $1.1 billion. You took this $1.6 billion dividend or capital return, and part of that was pre-funding, I guess you're saying, next year's dividend. Should we assume that $800 million a year is kind of a normal amount that you can distribute, or 75% roughly, or so of GAAP earnings?
Let me answer the first part of the question first. Our FSA earnings, basically they reset when we change from a branch to the new subsidiary. Our dividend capacity, as Bill mentioned, for the first couple of years is restricted whilst that level of earnings starts to accumulate. There are some statutory restrictions that we have to satisfy first as part of regular Japanese company law. Once those things are passed, we expect our statutory earnings, our FSA-based earnings to be approximately half of the U.S. GAAP earnings. I think that's a good proxy for the run rate. Of those statutory earnings, we'll probably be dividending, subject to any changes in solvency requirements or risk profile, about 80% of those FSA-based earnings up to the parent.
What that means in terms of proportion of GAAP earnings, if you do the math, it's about 40%, 40%-50%.
I guess I recall from when the deal was completed with Alico, the Japan business was going to be more of a free cash flow story in funding some of the other regions. Has that changed? Because 40% is a lower number, I think, than
No, that hasn't changed. I think the guidance that MetLife's given overall is that for our whole enterprise, we expect the range of distributable earnings versus GAAP earnings to be in the range, that kind of range.
Don't forget we're growing here as well.
Thank you.
In the back. Right there, Suneet.
Thanks. I guess I had a question about slide 88, the solvency margin.
Can you announce your name?
Oh, sorry. Suneet Kamath from UBS.
You're on webcast. We're on webcast.
Yeah. Sorry. Slide 88, I just want to make sure I understand how to interpret those lines. I guess the bullet point says the solvency margin would be 600 to 700 if Japan interest rates rise. What if you had a combination of the Japan rates rising 200 basis points, as well as the U.S. rate? I think those lines are I'm wondering if they're independent of one another.
Yeah. These are independent stresses. I had the discussion at a break with someone else as well. In the unlikely scenario that all these things move exactly the same time, the result on the SMR is slightly more than additive. One of the things that obviously you can't get an idea of with this kind of static picture is the actions that we take around that ourselves to adjust for rates as we saw rates moving up. The impact would be more than additive of that, but that obviously doesn't take into account any management actions we would be taking. The other thing I would mention here that's important is you heard a lot of discussion today about how we've been repositioning our investment portfolio in Japan over the last couple of years.
Because of that, we keep a relatively higher proportion of available-for-sale securities than probably some of our peer group. Now that a lot of our portfolio repositioning has been completed, we'll be rebalancing our portfolio away from AFS into the BMR classification here in Japan. That will reduce these sensitivities, the volatility of these sensitivities as well.
Just to put some numbers around it, when you say additive, where would that put that range if we did see 200 basis points in both the U.S. and Japan? What would the solvency margin range be, would you expect? Assuming no management action.
If everything moved at the same time on the same day, we'd probably be pretty close to the minimum solvency requirement, somewhere between 200%-300%.
Right. We're talking about a major shift in a one-day time period that allows us not to make management actions, which clearly is a very unlikely type of scenario. The reality of it is an increase is going to start causing us to make some shifts, as Toby's talking about, that will respond effectively and really make the solvency margin much more favorable.
Right. It's a primary shift to move from AFS to held-to-maturity, or what are some of the other actions that you were talking about?
That would be the primary one. We may lengthen duration again. It depends on the yield curve, the steepness of the yield curve, et cetera. There are several other actions. We could relook at financial reinsurance, which we use some of that as well. That would be an option to consider.
Is the, sorry, last one, just the held-to-maturity, the move to held-to-maturity, is that completely at your discretion, or are there certain things that you have to sort of achieve before you can do that?
We can shift to this BMR category on a local statutory basis. We'd have to sell the assets and rebuy them.
Got it. Okay, thanks.
Let's go right here in the middle. Steven Schwartz.
This one. There you go. We'll get Sean now.
Hi, I'm Steven Schwartz from Raymond James. I do want to follow up one more time on the statutory question. Is the issue here that following the conversion, that your unassigned surplus was reset to zero?
The retained earnings was reset to zero, basically.
That's a cap on how much. Your retained earnings is a cap on how much you can?
That would be a general rule in Japan, yeah.
Okay. Good. I want to ask about, and maybe Tsutsui-san will want to talk about this. Let's call it Snoopy capture. I mean, remember from the original deal that Snoopy is widely used here. I'm wondering about MetLife capturing Snoopy as you did back in the day in the U.S., how that's going.
Snoopy?
Yeah. Maybe you could expand on the question a little bit more.
Snoopy is widely used here. Is that correct?
We have exclusive rights to Snoopy in Japan for financial insurance companies.
MetLife has a global license with Peanuts for the Peanuts characters, and Snoopy in particular, in the financial services category, of which obviously Japan falls into. We are the exclusive licensor of Snoopy and Peanuts in Japan in financial services.
It's similar to the U.S. situation.
Okay. Are you seeing less use of Snoopy from other types of companies since you've been here?
We don't know of other companies that are using Snoopy to the level we are outside of financial services here. I think as Yagai-san said, in general, there is a fairly significant affinity to the Peanuts, and goods sales here are the highest goods sales of any country in the world for Peanuts goods. In that sense, there's already a consumer affinity with Snoopy and the Peanuts characters.
We got feedback from someone saying they can't hear you. Can you speak into the microphone?
Hold on.
Get a microphone first.
Give him the mic.
Same webcast.
I take the advertising, MetLife is the only company now using Snoopy Peanuts characters in the TV commercial field for the web advertising. There are in different industry who are using Snoopy for their promotion, but not in a TV advertising level.
Right there. Sean.
Thank you. Sean Dargan from Macquarie. Just returning to the topic of ROE. I appreciate you don't want to talk about segment ROEs. New business in all four channels is being put on the books.
In excess of 15%. Is it fair to think that negative spread is impacting the in-force book, but that it's somewhat less than that?
I don't believe we're in a situation where we have negative spreads. We've certainly positioned the portfolio to have some very tight asset liability management. The business that's on the book is profitable business, and has not been influenced very much at all by the change in the interest rate.
Okay.
Again, particularly since we did purchase accounting back when we acquired the company. There only would be changes in assets, and we changed the asset portfolio as well since then. We're pretty tight there, and we really don't have much of a deterioration at all in the profitability. Clearly, the surplus gets reinvested lower. As that rolls off, the maturities roll off there, and that impacts our profitability. That's really the only thing.
Thank you.
Right here. Eric?
Thank you, John. Eric Berg from RBC Capital Markets. I come away with the impression that you favor your businesses here, really across Asia, the protection products over the savings products. At least that's my impression for now, and that is interest rate related. Why is that? After all, interest rates are what they are. Presumably, you can price products today to reflect today's low level of interest rates. You've talked about how your pricing with 15% returns and that you're capitalizing on that global investment capability. Why are the retirement products, per se, a problem right now?
I don't think we'd say they're a problem. I think the protection products have higher margins and are better to sell. We're certainly selling savings products where we can, and we're selling a fair amount of those in all of Asia. If we had a choice, would we sell a dollar of AMP in protection or a dollar of AMP in savings? We'd sell a dollar of AMP in protection. It's much more profitable business to us.
In the back. Small.
Thank you. David Small, JPMorgan. On page 42, you talked about investing in $ and swapping into AUD. Could you just tell us, is that how you hedge that? Is that forwards or is that cross-currency swaps? What's your strategy? Do you also buy $ denominated assets for the backing JPY liability?
I'll let Chuck go into the details, we just started that program of the swapped assets. Today, our $ assets only back $ liabilities in our surplus account. We are not using $ assets to back the JPY liability. Chuck, do you want to go through a little bit of how we're thinking about managing the hedging there?
On the growing Australian fixed income portfolio, our plan is to use full currency swap, match swap to take U.S. $ assets and put those into AUD assets. If the yield works for us and we think it's important to be able to diversify in that market, have a more diversified portfolio, we think tapping into our U.S. capabilities and swapping into AUD will be profitable relative to the liabilities and useful in terms of risk management. Your other question was whether we have $ exposure. We have a total FX position of around $7.5 billion. Most of that is U.S. $. About half of that is hedged. Half of that is left unhedged. The hedges are basically short-term currency forwards. Three months mostly, some six months. Overall, we're comfortable with that position.
It's a strategy we've been employing for a number of years prior to MetLife becoming involved in the company. We think it gives us a balance of helping hedge our U.S. $ surplus back to the parent. It gives us yield enhancement, we think with the hedges in place, we're properly managing our capital.
I should have introduced Charles Scully, who is the Chief Investment Officer for Asia.
Yes, I've been here about a year. I came from MetLife. I was running the structured finance portfolio back in the U.S. prior to coming here to Asia. One of our goals here is to, as we've talked about, is integrate the global U.S. investment capabilities, which I'm familiar with from my prior experiences, to help us sort of leverage the citizens' experience here in Asia.
Sorry, just as a quick follow-up. Plenty of competitors talk about an opportunity to increase the new money yield in Japan by buying U.S. dollar assets and swapping into JPY. Have you looked at that, and is that an opportunity to offset some of the interest rate pressures that you alluded to earlier?
I think, as I said, we have a fairly sizable position on. It's something that we could do right now. We're not planning on doing more. I think we're more focused on some of the other yield-enhancing strategies we're employing using private placements, expanding commercial mortgages, expanding our efforts in AUD. For now, I think we're comfortable with the position we have. It may change.
Any more questions? All right. Oh, all right. Honey.
Honey Park from Viking Global. Could you maybe comment on how your solvency ratio looked under the new economic capital rules that may be coming in a couple of years?
Which market?
Japan.
So-
Go for Korea as well.
You have a minute.
In Japan, there's been a lot of talk about moving to a Solvency II style solvency regime. We haven't seen enough data yet to run any clear scenarios on that, so I can't really give you a clear indication other than, I think you've seen from what we've shown you already today, the strength of our capital position, how we manage risk, how we manage ALM. I don't think we would have, based on the work we've done in Europe with Solvency II already, I don't think we would see any deterioration of our position versus our peer group. In relation to Korea, there's probably a more imminent change. There are some changes happening already in Korea. We're making some adjustments to the way that we have to reserve. We have modeled that out in Korea.
It reduces our solvency margin ratio, as it would for the whole industry. There's some strengthening of requirements for some of the types of variable products we hold. I think on the current draft guidance, our solvency margin ratio in Korea would be about 300%.
Maybe time for one or two more questions. Okay. Oh, one more. All right. Last question. Ryan.
Thanks. Ryan Krueger with Dowling. I just wanted to follow up on the BMR reclassification potential. Is there any limit on how much of the portfolio you think you could transfer to BMR? Would the sale and buyback of the asset, would doing that cause any type of accounting gains or impact on future earnings, or can you do that with no impact?
Yeah. I think, in short, the reason that we would want to wait till interest rates rose some is so we create capital gains and reduce net investment income in the short term. There are a wide variety of rules that apply to this BMR account, and it requires certain tight asset management. It's a certain percentage of reserves. The restrictions that apply are certainly not limiting in terms of our ability to effectively, substantially increase our BMR position and reduce further the risk of a rate rise.
Okay. Is it fair to say that given the impact of the sale and buyback of the assets, that in the near term, it would be more of a focus on new business assets?
That's exactly right. Yeah.
Thank you.
Okay, great. Well, thank you very much for joining us today. If you have any follow-up questions, obviously, don't hesitate to contact our investor relations department here at MetLife. Thank you.