Be joined by Mark Grier today, who is Vice Chairman of Prudential Financial. Mark's been with Pru since 1995, first serving as CFO and now as Vice Chairman. In his current role, Mark is responsible for, it's a very long list. I should probably have a list of what he's not responsible for. That would be a little bit quicker, I'm not even going to go through the list. Look at his bio. Through his oversight, Mark and his team have taken several steps over the last couple of years to manage Prudential through a difficult macro environment, and I'm sure we'll get into some of those actions over the course of the presentation. Mark, it is my pleasure to bring you up to the podium.
Thank you. Mostly, by the way, I've been successful at promoting myself by hiring other people to do jobs that then report to me. I keep moving up as a result of piling them in underneath. That's why that list is as long as it is. I hope it's good news for you that I'm not going to recite a bunch of things that are otherwise out there in disclosures or conversations about earnings and more tactical stuff. I want to talk more about what Prudential is all about, how we think about things, and how we got where we are, and what's important to us. I'm going to talk about business aspects of those kinds of themes. Again, I'm not going to go through earnings disclosures and some of the business metrics that typically are part of an earnings presentation.
It'll be more of a business type presentation. Let me start with the forward-looking statement disclosure, and then into one of the major themes. I guess if there's a headline over us, it's that we're a pretty good story around thoughtful strategies and quality execution and ultimately monetization and realization of the result of building good business fundamentals. We play the long game, I'm going to make some specific references in a few minutes to some aspects of playing the long game and things that are coming true for us that have reflected work over a number of years, and in some cases, even, by the way, decades. We play the long game in an environment that is sort of defined by what this arrow looks like. We have a clear purpose. Our mission is to provide financial security.
We have commercial objectives, ROE, earnings growth, balance sheet metrics, credit ratings, statutory financials, and the business metrics are all part of fulfilling that mission. By the way, if we don't achieve our commercial targets, we don't get a chance to fulfill the rest of our mission and do what we're doing around providing financial security. This starts with a strong sense of what we're all about that filters into commercial objectives, but the commercial objectives don't define us. It's that theme of financial security that defines Prudential. Financial strength is a cornerstone. We ask our clients to accept promises from us that may extend 70 years. We're writing life insurance on babies today who may live 100 years.
Financial strength is a given for us, validated by transparent, effective regulation, credit ratings, disclosures, the realization of cash in our businesses to help convince you as investors and clients that all this really works the right way. Financial strength is a given in delivering that mission around financial security. Strong core businesses, I mentioned the theme of strategy execution and business fundamentals that are monetized. We pay a lot attention to the real drivers of business success, sales and flows and margins and expenses, and the matching of channels and products. There's a whole overlay on business fundamentals that gets us to connect strategy and execution with monetization. When we talk about strong core businesses, that's something that we pay a lot attention to, and we don't just define strong core businesses around an earnings metric or a capital metric.
We define it around the real guts of the things that make us successful in our markets. Finally, at the end of the arrow, we produce differentiated results. We have since we went public, focused primarily on return on equity as sort of the key differentiating metric for us, and we do today produce an ROE that is distinctive relative to most of the companies that you would consider to be our peers, and it's at the end of the arrow because it's the result of all the things that happen in that chain that I talked about. It's not the cause, it's the effect. I want to move on to elaborate a little bit on some of the drivers of success and some of the things behind the way I just talked about linking strategy and execution and results.
Going down the left side, you've got a portrayal of some of the drivers that we're most heavily focused on. Maybe to word it a little bit differently, we pay a lot of attention as executives in the company to talent, culture, and execution. The key theme there is that we pay attention to the way those things flow together to get things done and produce results and advance the cause. Talent in a silo, culture in a silo, and execution in a silo are not nearly as compelling a story as an integrated picture of talent, culture, and execution driving business results and ultimately monetization. This hasn't always been true.
I would say there were a lot of years when we viewed talent as a talent exercise, and we viewed culture as sort of what you write on the side of the coffee cups about how you want people to behave. We viewed execution as focused on that ROE target. We find ourselves now in a much richer environment around the way those things connect. There's a powerful story about the talent side and the culture side and the execution side, and again, feeding results that are more robust than just the ROE achievement, but the real substance of the business, actually fulfilling the mission of providing financial security and earning attractive commercial results. That left-hand side, fleshed out the way I just fleshed it out, is probably for us, as a management team, the center point.
That's how we think about what we need to be doing, connecting those dots across those different dimensions in the context of the strategies that we've established. In the middle, you see the key elements of what I would define based on the way I've been talking about it as the key commercial objectives. I'd highlight the bottom two. One is our sustainable earnings power ROE, which we're defining as 12%-13%, down a bit from 13%-14% a few years ago. The 13%-14% target was set right after the financial crisis, when we thought it was important to put a stake in the ground around our earnings power in the environment that at that time was being called the new normal. That range was lowered as a result of the chronic erosion of yields with low interest rates.
Still, at 12%-13%, we are distinctive among our peers. We still focus on ROE as a very important commercial objective for us, and we do deliver in terms of a differentiated ROE. The bottom point refers to the generation of cash. We have been talking about cash flow generation since we went public. I remember back in 2001, in the early days of Prudential, after we demutualized, which isn't a word, by the way, after we went public, we were targeting at that time 50% cash flow generation from operating earnings, and that cash flow generation target has moved up until we recently increased it from 60%-65%. This is an over time concept, quarter to quarter, sometimes year to year, things bounce around a bit. There's some statutory complexity to the realization of cash and the distribution of cash.
There's some moving parts in this, but the gist of our objective is 65% over time. Again, that's been increasing through our life as a public company. That's an important part of a commercial objective. I also mentioned a few minutes ago, it's an important part of validation. If cash really is coming out of this thing, then something's probably working right. We view the visibility of cash as an important indication of how things are going in terms of what's happening in the core businesses that may be complicated and not necessarily particularly transparent. Key elements on this slide, commercial objectives on the right, some of the essential things about how we get there portrayed on the left. I mentioned that we're delivering. These are three financial performance metrics showing five-year time period from 2012-2017.
In terms of earnings growth, 11% growth in EPS over that time. In terms of return on equity, a 200 basis point increase from 11.8%-13.9%. Growth in adjusted book value per share of 9%. This kind of summarizes the monetization of the business fundamentals that have resulted from what we've done in strategy and execution, and it's a pretty good story. When the inflation rate is 1% or 2%, 11% growth in earnings is a pretty good piece of it. By the way, if you're thinking in the back of your mind what's going on in this company that makes this kind of thing happen, we got a particularly strong lift from pension risk transfer deals that we did in the early part of that five-year timeframe.
There was a discrete move from 2012 to 2013 in earnings and ROE as a result of a couple of the big pension risk transfer deals that we did. There's one particularly big piece, and I'll come back to that, one particularly big piece that moved the needle. Otherwise, we generally grow in our businesses, and so that's reflected in these high-level metrics about how we're doing. If you've been following us even casually for very long, you hear us comment often on our mix of businesses. We talk about business mix from a number of different directions. We talk about the risk profile and how risks complement one another. We talk about business models. We talk about geography. We talk about which side of the business proposition we're on, protection, retirement, or investments. We cut it geographically.
We come at this business mix thing a lot of different ways. This slide shows you our business mix in two different dimensions. On the left, you see the businesses, and the way they're represented here is characterized by a risk summary on the outside. On the top right part of the circle, we start with insurance risk. The things we do in international insurance are almost entirely insurance risk related, very heavy mortality risk in those businesses. Then as you move around the circle, going from 1 o'clock up to 11 o'clock, we migrate from more insurance risk to more market risk. You go through asset management, where the level of fees depends on assets under management, which fluctuate with markets, as well as depending on some independent investing activities. Then ultimately, to variable annuities, which have a lot of market risk content.
We like the story. We like the mix of risks across insurance risks. By the way, that includes mortality at 1 o'clock, and then down at six and seven o'clock, longevity risk in the retirement business. Then market risk, which includes equity market risk, interest rate risk, credit risk, and the various other FX risks, for example, that would be in there. It's a good story in terms of diversification, in terms of the way risk connects to business strategy and business results, and the risk dimensions that drive the things we do in our businesses. Taking mortality risk, for example, is in Japan, a very high-value risk that drives attractive commercial results. We have a business system that's really good at originating that high-value risk.
There's a direct connection between the attraction of the risk and the business system that's out there, either originating the risk in the case of mortality risk in Japan, or mitigating the risk in the case of market risk in variable annuities. Again, we talk about this business mix story from a lot of different directions, important ones, especially when things get interesting like they have over the past few weeks, relates to this portrayal of risk. On the right, you see where our book value is deployed. This is the size of the businesses according to book value capital. You see international insurance as the largest slice of the pie. U.S. Individual Solutions includes variable annuities, well, variable annuities, annuity business, and individual life. Then U.S. Workplace Solutions includes group life and retirement.
The final slice up there is our asset management business, now known as PGIM. That's a portrayal of where the capital sits on a book value basis. On the left, you see a portrayal based on sort of a qualitative directional view of the kind of risk that's most important in executing within the business, but also influencing financial results. I want to move down to some comments on the things that have been going on in the individual businesses. I'm not going to hit a highlight on every single bar graph that's on this page. Let me start with Workplace Solutions. What I want to highlight there is pension risk transfer. I mentioned earlier that we play the long game.
We gave the first presentation to our board of directors about pension risk transfer in 2006. We didn't do our first deal until seven years later. Now it's 2018. This business is contributing meaningfully, strategically important, and important to the mission. It took us a long time to build the capability, which we built as a dedicated capability, and ultimately to penetrate the market and do the first really big deal, which we did with General Motors. There is an important element of the overlay of how we think about things and how we execute, how patient we've been in this case, waiting for those deals to come true. The result of that is, as you see, in retirement, very substantial growth in asset values, 8% annually, up to about $430 billion. I would just comment briefly on group insurance.
There's been a bit of a cycle there. We had some challenges around profitability and underwriting and client mix. We worked hard on re-underwriting, re-pricing, changing the mix of clients. What actually happened in between those lines that look sort of flat was we went down and back up. Now we're in a more stable spot and beginning to move forward, but it hasn't been flat like this over five years. It's been moving around, again, now to the point where it is starting to grow and we're seeing results that we're pretty pleased with. Moving to the top right, U.S. Individual Solutions. What I want to highlight there is variable annuity. The headline is that we have a very investor-friendly variable annuity business.
If you fall out of your chair and wonder what in the world I'm talking about, I'm not surprised because these things are all over the place out there. The fact is that our VA business generates a high return and generates a substantial cash flow, roughly over time on par with our 65% of operating earnings target for the total company. Again, to the point about the long game, decisions that we made in 2004 and 2005 have had an impact on where we are today in the VA business. Part of that, by the way, is that when we set up captive insurance companies to manage some of this risk, we never arbitraged or compromised reserve levels, capital levels, or quality of assets.
As we have reconfigured and recaptured our living benefit captive, we were never in a hole around some of the big issues that others have had to deal with as they recaptured living benefit subsidiaries. Again, this is a decision that was made in 2004. Since then, by the way, we've been in a process of continuous improvement around modeling and understanding the liability, around hedging technology, doing some things on the accounting side to dampen volatility and also increase transparency. There's been a constant process since 2004, 2005, 2006 in the variable annuity business. Again, when we're talking about our outcome, this wasn't something we woke up last July and did.
This is the result of taking that long view and making this work over time and getting to the point where today we can say we have an investor-friendly variable annuity business that we like quite a lot. Good outcome there. Moving to the bottom left, let me make a couple of comments on investment management. First of all, in terms of unaffiliated third-party assets under management, we went above $600 billion at the end of last year. We are among the 10 largest asset managers in the world, and we're executing extraordinarily well. We are realizing the benefits now of investments that have been made over the past four or five years in distribution and capability. More importantly, I think we're realizing the benefits of the quality and consistency of execution in that business.
Right now in our PGIM business, 93% of the assets under management are exceeding benchmark performance levels over five years. It's around 90% if you look at over three years. You're mostly in the asset management business. If you could have one thing in your pocket when you go to call on a client, you'd like to be able to say that most of our assets outperform their benchmark. It comes down to that, but there's a lot of execution behind it. As I said, there also are impacts from new initiatives in both distribution and product. Very good story there. International is one of our real genuine flagship success stories. Again, to make the point about the long game, it goes back about 30 years.
The things that we have been building for 30 years are fundamental strengths that are helping us continue to perform in a very challenging market in Japan. I mentioned earlier that we're good at originating mortality risk. We are. We're also good at selling U.S. dollar-denominated products. In this environment, the combination of those two things gives us a competitive advantage in the market. It's not because we woke up last July and said, "Let's do some of this stuff." It's because for 30 years, we've been building that differentiated distribution capability. Now in a tough market, we can continue to perform because of our ability to sell high-margin protection products and because of our ability to sell U.S. dollar-denominated products.
Extending these stories, these points about PRT, about variable annuities, about investment management, and about Japan to a longer context is, I think, an important part of embellishing those themes of strategy, execution, and results because we see this unfolding for us purposefully over time in a number of areas that we've chosen to pay a lot of attention to, been thoughtful about developing strategies, and are now realizing the benefits of what happened to us as we developed those strategies. I want to take a minute to talk about U.S. business strategic focus. I want to give you a couple headlines over this. We have, like a lot of companies, a lot of individual clients underneath institutional businesses. By that I mean in group insurance, we insure a whole lot of individuals, but we do it through the employer.
In retirement, we touch a lot of individual plan participants, but we do it through the employer. The cliche view of this opportunity, meaning the vague connection that we have to those underlying individuals, is to think about cross-selling in quotes. People will launch initiatives that say, "Okay, they already do business with Prudential because they're in our group life program. Let's mail some stuff to them." People have tried that forever. If you come to conferences like this, you've heard for years, people stand up like I'm standing up and say, "We've got 20 million people out there, and we're going to take advantage of that." For the most part, those efforts have gone nowhere. What this slide highlights is a different approach to that underlying retail opportunity that's embedded in our institutional businesses.
The key point is that we have a value proposition to employers around the benefit to them of financial wellness on the part of their workforce. Employees who are more financially secure are more productive, less likely to go out on disability, more likely to be retirement ready, so they're not clogging up the talent chain. There are tangible benefits to employers of pursuing a financial wellness initiative with their employees. That's where it starts. We go from there to access employees. We access them in two ways. One is highlighted here, a program we call Pathways. Pathways puts an agent in front of, or an advisor in front of employees, but not in selling mode, in educational mode around protection, savings, retirement income, and investments. It goes from there. We also have a digital platform that provides access.
You see a note in that Pathways box that the early returns on this program are very positive. Although we've just started, we've already got more than 300 employers participating in this. Underneath that base, there are about 3 million employees. This is a way to build the opportunity in what has so far not been an addressable market for us. This is mostly middle market, mass market, that has not been an addressable market for us, and to do it in a way that we're very optimistic about in terms of realizing the results. I would add that another payoff is coming to us as we're winning business at the employer level because of our wellness package.
We've recently won a couple of big group life contracts, names of companies that I'm not going to disclose but that you would readily recognize, who have told us, "You weren't the lowest price, but we're giving you the business because of the wellness program." They want to do that for their employees. It doesn't cost them, by the way. This initiative as the centerpiece of recent reorganization, investments in product design and systems, and the marketing initiative is a pretty big deal for us. I'm excited about it. I like the opportunity. I like the prospects. The qualitative goal is that this will move the needle in terms of domestic growth over the next 5 years. I don't think there's any reason not to believe that.
There's a lot of good stuff going on here, and it's hanging on that quality value proposition to the employer. It's not hanging on the thin premise of we can cross-sell because they know who we are. A lot more substance and a lot of good stuff. We like this one. We talked about it on Investor Day in some detail, including a panel made up of the business leaders who are actually out there implementing. I mentioned financial strength. You hear this from us all the time, but just directionally, two things. We're getting stronger. Leverage is coming down. That's the left-hand side of this graph. We're distributing a lot of cash to shareholders. You see on the right-hand side, dividends, we recently raised our dividend by 20% more, and share buybacks, which we also recently increased by 20%.
We're distributing to shareholders almost all of that, roughly 65% of free cash that comes out of our businesses. Good story here, and this is where our priorities are evident. It's really important for us to have visibility around cash, and it's really important for us to be consistent in distribution. That's what's going on. Again, another part of the message is we're also getting stronger. Leverage is coming down. The next slide is designed to get at the completeness of what we're all about. I highlighted earlier that commercial metrics are part of the story. It's table stakes if you want to stay in business. It's also important to exceed your commercial objectives and create more rather than less shareholder value. This slide gets at other dimensions of us, our diversity, our emphasis on sustainability.
We're one of the largest impact investors in the world with a portfolio of almost $600 million in impact investments. This is more of the intangibles but also tangibles that reflect the more complete view of what Prudential is all about. Coming back to that starting point in the arrow, that's the purpose and the mission, and how that's fulfilled across other dimensions besides just the tangible sale of products that provide financial security. This is a summary. If it's a true summary and I go through it'll be completely repetitive, I won't. I've got about six and a half minutes or so left for questions, I will stop here. Before I move to questions, let me restate again the basic points around thoughtful strategies, quality execution, and monetizing results, and some of the elements of consistency and staying power over time.
I'll stop there, and I'll take questions about anything that's on your mind. Yeah.
You touched, obviously, on the pension risk transfer market. Do you think the opportunity is better for you in the next sort of 12-18 months given what's going on with one of your competitors in the space or equal?
Well, market conditions are attractive. Generally, when we're asked on our earnings call about the outlook for pension risk transfer, Stephen Pelletier, who's head of the U.S., says that the pipeline is strong. On the last call, he said the pipeline is very strong. He used two verys. You couldn't see it on the phone, but he was also smiling. The increase in rates, which reduces the value of the liability that's being bought out, the increase in rates and the fact that asset values have generally performed well, has overall positively impacted funding status. I think generically, that's likely to be a more important driver than competitive circumstances. I would emphasize, though, that decisions to de-risk pension plans are totally idiosyncratic.
Every company has its own issues around funding status, volatility, the mix of business they're in versus the size of the plan, and also maybe the CFO or CEO outlook for interest rates. If rates go up a little and everybody thinks they're going to keep going up, they may not want to do deals. If they think they're hitting the peak and making a good call on rates, then maybe they will. I would say generically, that the environment is conducive.
Just to follow up on that.
Are you actually allowed to ask questions? I thought you were the host.
I can ask.
All right.
I can ask generic, specific questions. You obviously have been a big player here. What are the factors other than price that come into winning new business here? It's not just price. What else are you guys doing to essentially gain share?
I take back the fact that I implied criticism of the fact that you're asking the question. That's perfect. I like it. Thanks. Let me start off with a headline. Our sales force would tell you anecdotally that we're not the lowest price on about half the business we win in PRT. There are other things in the mix, and let me hit a couple of high spots here. There is tremendous operational complexity to the execution of the deal. Just think, for example, when we did the General Motors deal for $25 billion, we had to value $25 billion in assets, and we had to move them into our systems, and we had to book them on our books. Beyond that, you've got all the underwriting dimensions of what goes on on the liability side.
Beyond the execution event, there is ongoing operational complexity in administering the payment of the pension obligations. The day we did the General Motors transaction, we were responsible for sending payments to 115,000 individuals every month. The operating platform that gets it right, that has a call center that actually answers the phone and answers questions, that makes the pension payment on time in the right amount, is an enormously important and sensitive issue to plan sponsors. They really don't want the ball dropped between the glitz and glam of the financial headlines and what's on the ground in terms of making payments. The only halfway joke that I make about this is that these are retirees who have a lot of spare time, and if you make a mistake in making payments, somebody's going to hear about it.
It might be the CEO of General Motors, or it might be the CEO of Prudential, but this is something that is going to be noticed. The ability to deliver on the execution event and then the ability to deliver with respect to ongoing service and distribution of pension payments are both extremely important elements in this. We did a deal with one very large client, and there was skepticism in the ranks. Not everybody was happy with Prudential assuming this pension obligation. One of the plan participants called our call center, and he couldn't have been happier with the service he got. His question was answered. Well, first of all, the phone was answered on time, and his question was answered, and he was well treated. Turned out that he was the father of the CFO of the company.
Think about how that could have gone differently, but it didn't. He said to his son, "I get it. I didn't like this when you did it, but now it's fine." That kind of says it all. There is a lot in this that goes beyond the headlines that look so interesting. It's actually in the guts of it, even more interesting, but hard and complicated. Again, thanks for that question. I appreciate it.
We got time for one more question, about a minute left, if anyone's got a short one. Yep.
You talked about operationally what can go wrong in a pension risk transfer. What about from the financial standpoint? Do you target certain type of employers? How do you price the product on the pension risk transfer business side?
All right. The basic pricing platform is pure Corporate Finance. If you look at what you're learning in Corporate Finance 101, it's a projection of cash flows. It's got two sides. Then we model how those cash flows might vary. By the way, the biggest sensitivity is asset mix. It's how much is in there in things like hedge funds or real estate or private equity. We construct essentially an efficient frontier that shows the right return given the asset mix and given the liability risk. By the way, we can shock liabilities. These are pension payments, so we're shocking for longer lives. We can introduce into this model something like a cure for cancer, or we can introduce into the model something like a cure for Alzheimer's.
We know how things are going to move with those kind of events. We shock it, we look at the required return on capital given risk, it's literally a pure risk-return trade-off. We price it with some daylight above its real economic cost of capital, we back it with real cash economic capital. In our case, it doesn't end there. We have to put it through a statutory screen, we have to put it through a GAAP accounting screen. The foundation, the real platform is hard economics and literally, as I said, pure corporate finance. It's a risk return picture. I think that's it. Thank you all very much. I appreciate your interest.