I'll just introduce myself. I'm Mark Finkelstein, Head of Investor Relations, and I'd like to welcome everybody to today's Financial Strength Symposium, those of you here in person as well as on the webcam. We're thrilled you're here, and we have a good agenda for the day. Before getting started, if you look in your materials, there are some important disclosures. Today's presentation includes forward-looking statements. It is possible that actual results may differ materially from the predictions we make today. In addition, this presentation includes references to non-GAAP measures. The slide deck includes a reconciliation of such measures to the comparable GAAP measures and information about factors that could cause actual results to differ materially from those in the forward-looking statements. You will also find in your materials an agenda after I get through these. A couple broader points on the agenda.
We'll start the day with an executive overview by our CFO, Rob Falzon. He will cover high-level commentary along with a discussion on regulation. Rob's Q&A will be in the final session, joining Scott Sleyster and Ken Tanji. That's a variance from what you see in your agenda materials. We will have a discussion. We'll get to the phone. We will have a discussion on our U.S. Businesses led by Stephen Pelletier, our Head of U.S. Businesses. We will also do a deeper dive into our asset management business, PGIM, and we will have our first Q&A on the U.S. Businesses. Charles Lowrey, our Head of International Businesses, will present, followed by a Q&A.
Finally, in the financial portion of the program, Scott Sleyster, our Chief Investment Officer, will give a presentation on our investment portfolio and strategies, and that will be followed by Ken Tanji, our Treasurer, who will cover several financial topics of interest. A couple of logistical items. We will have a break after the U.S. Businesses Q&A, and we expect to conclude at between 5:00 P.M. and 5:30 P.M., where we will have refreshments to follow. If we can just ask a favor that if you have your phones, if you could please just put them on mute, that would be great. With that, I will hand it over to Rob.
Thank you, Mark. Good afternoon, and welcome. This is like SRO here. Very impressive. Thank you for your interest in Prudential and for being here today. As Mark indicated, we have a comprehensive set of presentations that are scheduled for this afternoon. We hope that through these presentations, you come away with the following impressions: consistency of strategy and of execution against that strategy, high quality of business mix, confidence and ability to evolve businesses to capture long-term growth opportunities, results that enhance financial strength and create value for investors, and conviction that talent and culture are strategic, critical to innovation and execution, and the major source of the sustainability of performance.
Before I get into the slides, I'd like to kick off the afternoon by sharing some thoughts around mission and purpose and around talent and culture, which we believe comprise the foundation of our business model and our strategy and everything else that we're going to talk about this afternoon. I'm going to keep this very high level, and the presentations this afternoon will get a little bit more granular. Prudential's mission has been remarkably consistent since our inception over 140 years ago, and that mission is quite simple. We make promises, and we keep promises. These promises improve the quality of lives of our customers by assuming risks that are better managed by a sophisticated institution with the law of large numbers than by less sophisticated organizations or by individuals with a sample size of one.
These risks include biometric risks, things like longevity and mortality, and market risks, the volatility of outcomes that's introduced by timing and market access constraints. The needs for protection against these risks, particularly in the longevity and retirement space, are growing as governments and employers increasingly shift such risks onto the shoulders of individuals. These are risks that are not naturally suited for these individuals to assume themselves, nor are they well-suited to other financial services companies with business models that are based on aggregation. The consequences make what we do, creating predictable outcomes for individuals and families even more relevant and important in a societal sense and position us better than other sectors of financial services to play a large role because it's no longer simply about aggregation.
It's about helping to protect the financial well-being of individuals and their families by removing risks associated with the volatility in mortality, longevity, and mortality outcomes for them as individuals. Given the long-tailed nature of many of our promises, counterparty risk is a critical concern, sometimes even a fiduciary one. Our financial strength, brand, and track record are core competencies in this business model. When we execute that model effectively, we preserve and enhance the quality of life for our customers and for those that depend on them. When we execute it well, we earn a commercially attractive return and an opportunity to grow. It's that simple.
By execution, we mean achieving high customer satisfaction, delivering strong business fundamental results in each of our businesses, achieving success in innovation like our pension risk transfer, as well as our distribution capabilities in Japan, achieving consistently good outcomes in M&A, meeting or exceeding the financial targets that we set for ourselves, all while maintaining quality control and a balanced set of risks. Our ability to execute well was driven by our focus on talent and by our culture of teamwork, collaboration, and diversity. Our CEO, John, likes to describe this culture as low ego, no drama, high impact. The combination of talent and culture under the umbrella of mission and purpose drive our ability to innovate, execute, and deliver differentiated returns. To some, these sound like soft skills.
In reality, these are the hard things to get right. Because they're hard, they become the basis of a sustainable competitive advantage. This provides a good segue onto our next slide. Clarity of mission creates clarity of strategy. Our ability to execute against strategy has produced a complementary mix of businesses that are high quality and have competitive advantages, driving strong returns and cash flows. Since taking the company public, we have focused on just three things: life, retirement, and asset management, individually and in combination with each other, in the U.S., in Japan, and in select number of other markets. This mix of businesses fits with market needs. It fits with our skills, our brand, and our financial strength. It fits with our mission and purpose.
This focus enables us to achieve outcomes not otherwise possible because we concentrate our time, our talent, and our capital on what we do best. By way of example, since going public, we've divested about $8 billion worth of businesses. Over that same period of time, we've reinvested in $14 billion of businesses aligned with those three core areas of focus. Our focus also enables us to hold each of our businesses to high performance standards. We can manage the risk of these businesses efficiently and effectively. That discipline served us well during the financial crisis. We were in a position to buy businesses from those that needed to sell.
We were able to hire talent, particularly in asset management, that came to appreciate the benefits of a strong platform. We continued to invest in innovation, including our PRT capabilities, even though the payoff from those investments didn't occur until very late in 2012. As a result, we didn't just weather the storm. We came out a much stronger company. We've never looked back. Today, we have a collection of businesses that fit well together and have strong market positions. We are a top U.S. life insurer. We're one of the five largest insurers in Japan, a business that was grown organically beginning over 30 years ago through innovation and distribution.
We are a top 10 retirement player. An innovator in pension risk transfer, we rank among the top 10 global asset manager, a business largely built through investments in people and capabilities, not high multiple acquisitions. Producing superior financial strength and investor value creation requires matching our discipline around strategy with a similar discipline around a set of financial priorities that are both complementary and competing. Each of these priorities needs to be appropriately balanced. We don't focus on any one absent considering the impact on the other two. They work in harmony with each other. Ken will speak to this in much greater detail. For now, I'll just provide a couple of highlights. At the top left of the slide here is growth in ROE, more specifically, growth in an ROE that's above our cost of capital and superior to our peers.
Moving to the right is cash generation and deployment. We look to manage our free cash flow to further enhance investor value and to create flexibility and optionality through financial strength. The last component of this balancing act is volatility and risk. Our business mix is our first line of defense against volatility and drives a risk profile that we believe is well-balanced between market and insurance risks. We are well capitalized, ensuring our ability to withstand both cyclical and extreme market stresses. We have also taken significant actions to reduce sources of complexity and excess volatility in our reported financial results. We believe that getting this balancing act right creates value and also produces financial strength, which is core to our value proposition to customers, to investors, and to our employees.
The next several slides are designed to provide proof points that we are succeeding at producing superior financial strength and investor value creation by matching our discipline around strategy with a similar discipline around balancing these financial priorities. We've produced a superior financial performance as evidenced by earnings per share growth of about 9% per annum over the last five years. It's also evidenced in a superior ROE that is in excess of our cost of capital. Recall that we set, then in 2013, achieved our 13%-14% objective. In our guidance call last year, we moderated that objective to 12%-13% to reflect a sustained low interest rate environment, and to a lesser extent, our elevated level of spending on initiatives. Looking ahead, we expect to continue to generate superior growth and returns driven by our business mix and the competitive positioning of these businesses.
The gradual realization of the benefits from our investments in customer, product, and distribution initiatives that cut across our institutional, employee, and individual platforms, and continued capital redeployment. We expect to navigate market headwinds and to continue investing in long-term growth initiatives and to maintain a balanced risk profile. We've also generated book value per share growth adjusted for dividends of 10% per annum over the same period. Ken will spend more time on this, but we believe that this is a key metric in measuring value creation. In 2015, we provided guidance that we expected future free cash flow generation to be about 60% of after-tax AOI on average over time. Recall that we view this as a managed outcome.
That reflects balancing reinvesting in the organic growth of our businesses that are producing superior ROEs with other forms of capital redeployment that meet our return hurdles and add value to investors. Over the past five years, nearly $12 billion of capital was returned to shareholders or deployed in M&A, representing about 55% of cumulative AOI over that period of time. We also improved our financial strength, including reducing debt by $6 billion over this period. Share repurchases have been used to supplement our dividend return to shareholders, and we expect share repurchases to be more variable, primarily reflecting the availability of alternative capital deployment opportunities. It's worth spending a moment on how we think about the risk management dimension of financial strength. We've always contended that our business mix drives a balanced risk profile that is, in fact, our first line of defense against risk.
On the left, you see our mix of businesses represented by their relative contribution to earnings and indicating their primary source of risk. Our mix of businesses and the risks that underlie these businesses is by design. We look through the businesses to a view of the underlying risks, similar to what is shown on the right. As can be seen, we are roughly balanced between insurance and market risks. Again, Ken will spend more time on this topic later in the afternoon. We believe that the results shown on these last several slides support our view that we are succeeding at producing superior financial strength and investor value creation by matching a discipline around strategy with a similar discipline around balancing our financial priorities, growth in ROE, cash generation and deployment, and volatility and risk.
It was probably unrealistic for me to think that I could get off this stage without talking about regulation. I will do that. First, effective transparent regulation is important, and it is good for the industry, and it is good for us. Customers build confidence in us as counterparties, as an industry by virtue of that regulation. We believe that with good regulation, our relative strength becomes more transparent. Incidentally, we all contribute to something called a guarantee fund, so we have a mutual vested interest in making sure that we all are well-regulated and solvent. Having said this, we have a few core beliefs that guide our advocacy work with state, federal, international, and global regulators. First, insurance accounting and company disclosure should evolve in a way that increases the transparency between the underlying economics of our businesses and reported financial results.
Standard setters should be careful to avoid simply substituting one source of noneconomic volatility and noise for another, and they should consider the use and reliance on accounting results by regulators. A simple accounting approach designed solely to increase transparency may have unintended consequences when used as a basis for regulatory constructs. Second, regulatory constructs should similarly line up with economics, recognizing all the sources of strength that exist in the financial presentation of insurers. Such constructs should avoid simplistic yet highly volatile, asymmetric, and procyclical concepts like market-consistent valuation. Third, group supervision was clearly a hole in the regulatory fabric pre the financial crisis for our industry. Patching this hole was best done by leveraging the existing insurance regulatory infrastructure and constructs. This is a relatively new concept in the U.S. and globally, and developing a framework for group supervision should be done evolutionary.
For us, however, this is not new. We have GAAP, statutory, and economic lenses by which we look at risk on a legal entity basis and across the entire enterprise on a consolidated basis. Fourth, insurers are not systemic. Insurers, both large and small, may, however, participate in activities which can become systemic when measured across or viewed across markets and market participants. A more informed approach to systemic risk identification and management would be to look beyond companies and to activities. We continue to engage constructively with regulators and believe that by and large, they are being thoughtful and deliberate in their approaches. That doesn't mean there haven't been bumps in the road, but so far, we continue to be encouraged by the direction and the tone across most fronts.
Some of our more significant challenges have been with the global initiatives sponsored by the IAIS, which has been heavily influenced intellectually by European constituents whose views on solvency regulation are driving significant changes to their insurance business models, ones that are now very different than what we have here in the U.S. To date, the combined efforts of the Treasury, the Fed, and the NAIC seem to be keeping this in check. We have always maintained that we are not systemic and do not merit either the SIFI or the GSI designation. We continue to work toward a path to de-designation and are encouraged by the direction and tone that have been set by the new administration on this front.
We've repeatedly emphasized that we are a well-capitalized and financially strong company, and that we would expect this to be evident under any reasonable regulatory regime that develops either here or abroad. Our mission and purpose are clear to us. We strive for consistency in strategy and execution. Our choice and quality of businesses reflects this. Our talent and culture drive innovation and execution, which in turn produce superior performance. Financial strength is core to our performance and part of our valuation proposition to both customers, investors, and employees. As we see it, given our mission and the needs of the market, the opportunities for us to continue to grow and prosper are very promising. Thank you, and I'll now turn it back over to Mark.
Thank you, Rob. We will now move into the U.S. businesses portion of the program. I will invite Stephen Pelletier, the head of U.S. businesses. Steve will cover our U.S. businesses at an overall level.
Thank you very much, Mark. Good afternoon, everyone. I appreciate this opportunity to speak to you about Prudential's U.S. businesses, our strong business performance, the growth opportunities that we see before us, and what we're doing in order to realize those opportunities. Our U.S. business portfolio includes our asset management business or PGIM, our retirement and group insurance businesses, and our individual life and individual annuities businesses. This business mix has been carefully designed over time, and it's distinctive in terms of the suite of income, protection, and investment solutions that it enables us to offer to the clients we serve, be they institutions, employers, or individuals. Together, our businesses generate high quality earnings from a diversified set of revenue sources, fees, spread, and underwriting.
This mix of earnings and risk exposures in the ways that Rob mentioned, some businesses that focus on longevity risk, others on mortality risk, businesses with more or less sensitivity to market factors like equity market outcomes. This mix significantly contributes to the sustainability of our earnings performance across cycles and across market cycles. Our businesses, at the same time, are not immune to headwinds. To name a few of them, first, low interest rates. We still face headwinds from this as we experience spread compression in various parts of our business array. However, even the modest pickup in rates over the past 6 months has significantly eased pressure on product pricing and has enabled us to achieve more robust returns on the new business that we write. Like others in our industry, various of our businesses are experiencing fee compression.
In our asset management business, as you'll hear about from David Hunt, we face the secular trend of a shift from active to passive investment strategies, particularly in the equity space. The nature of certain blocks of business is that they run off. This is particularly true in pension risk transfer and in our individual life business, and that runoff requires robust sales in order to be offset. The regulatory environment is still uncertain. Rob mentioned various aspects of it. I'd focus on the Department of Labor fiduciary rule. Now, I want to emphasize right up front, we are all ready to go and in full compliance with the parts of the rule that go into effect later on this week. We're very well positioned for January 1st, 2018, where absent any changes, the bulk of the rule's operational requirements are expected to go into effect.
Now, as we previously stated, really for a couple of years now, we fully support the intent of ensuring a robust and workable standard of care for financial advisors that ensures that the best interests of their clients are being met. We look forward to the outcome from the review process that's currently underway, We'd be supportive if what emerges is a revised and clarified rule that articulates that robust standard of care, but does so in a way that is consistently and readily enforceable by our regulators. Despite these headwinds, our strong business fundamentals bode well for our continued business performance.
There continues to be a very robust pension risk transfer pipeline, Our market leadership in this space puts us in a very strong position to compete effectively for the opportunities that we deem is within our sweet spot, We remain very bullish on the long term opportunity here. We continue to deliver very strong asset management third party flows. As you'll hear from David, 2016 marked the 14th consecutive year of positive flows from institutional investors and the 12th consecutive year of positive flows from retail investors. That's a track record of marketplace success that is highly enviable in the context of the asset management industry. You'll hear more from David about our ability to grow the business even in the face of those secular headwinds that I mentioned earlier.
Sales in our annuities business are increasingly of a diverse suite of products that enable us to advance a wider range of solutions into the marketplace but also enable us to diversify our own risk exposures. We continue to experience a very high persistency in our group insurance and in our full service retirement businesses. Sales in our individual life business trend above industry average, and they are very much in alignment with the targeted mix of sales that we seek to achieve. Strong fundamentals are further demonstrated here by this five-year picture of annual growth in assets under management, account values, and in force premiums virtually across the board. Positive net flows have been a key contributor to solid growth in asset management AUM and retirement account values, as you see here.
Group insurance is one business on this slide where revenue growth over this time period has been constrained by our efforts to raise the profitability standards, the bottom line profitability standards of our entire book of business. What you don't see on this slide is that in the past two years, as that turnaround phase of the group insurance business has been completed, in the last couple of years, we have been able to grow revenues through a strengthened value proposition that we're advancing into the marketplace. In individual life insurance, we've seen solid growth in insurance revenues, a significant portion of which are a result of our acquisition of The Hartford's individual life business in 2013. We're pursuing growth opportunities in the institutional, employer, and individual markets that we serve. Our asset management business, PGIM, serves the world's largest, most sophisticated, and most demanding institutional investors.
David will cover PGIM in a few minutes, I won't spend too much time here in terms of what he's focused on for growth, but general themes include a focus on broadening the suite of investment capabilities we offer, expanding our global footprint, and building out our long-standing multi-manager model, and investing in our talent, infrastructure, and distribution capabilities. Our retirement and group insurance businesses cover the employer market. In retirement, we have a leadership position across the board in the markets in which we've chosen to compete, including pension risk transfer, stable value, and full service defined contribution. Our broad and differentiated capabilities are driving growth opportunities. The funded PRT market, as I mentioned, is poised for growth as the funded status of plans improve, and we're uniquely positioned to leverage our proven execution strength and capital capacity to see growth here.
We also see continued longevity reinsurance opportunities. Our full service business sees opportunities and a trend toward aggregation of large groups of individuals. For example, through multi-employer plans, which are starting to grow in acceptance in the marketplace. In group insurance, we're pleased with the success that we've achieved in deepening our value proposition. We've seen steady earnings improvements from 2012 to 2016, we're focused on driving organizational and process efficiencies that simultaneously make us more cost effective and improve the client experience. We see opportunities for growth through continuing to enhance our core products and competencies, expanding the market segments we serve, and investing in enhanced underwriting tools and predictive analytics to improve our own risk selection and enhance returns.
Together, the retirement full service and group insurance businesses are deepening employer relationships and relationships with employees of those corporate clients, deepening relationships with those employees as individuals and not just as plan participants through the worksite financial wellness offering that we're building. Our life insurance and annuities businesses serve individual retail customers through advisory channels, our own, as well as that of third-party distributors. Regarding annuities, we remain completely committed to this market. Research indicates that to an increasing extent, a secure retirement income is the number one financial need of American households, and that ranges well beyond the baby boomer generation. Annuities are instrumental to helping us meet that need.
We have a well-managed risk profile and strong expected cash flows in the business, reflecting both the risk management restructuring that we effected last year, as well as the multi-year efforts to diversify our risk profile in terms of the sales that we're advancing into the market. We see opportunities for growth through expanding our reach by helping deliver financial wellness solutions to individual employees, as I mentioned earlier, of the worksite customers of our retirement and group insurance businesses. Through continuing to expand the suite of solutions we offer to include more simplified, streamlined products and outcome-oriented solutions. Regarding life insurance, our strong sales reflect our broad product mix and our multi-channel distribution strength.
We believe having a captive distribution channel is a competitive advantage, and we integrate that channel effectively into all aspects of what we do in Prudential, and we've expanded our captive distribution by 8% since 2013. We remain very pleased with our decision to acquire The Hartford business in 2013. This acquisition helped us to drive growth through expanded distribution, obtain a solid and complementary in-force block, and gain scale in terms of distribution and underwriting, as well as attractive expense synergies. We see future growth potential from continuing to invest in alternative forms of underwriting and distribution, and like our annuities business, helping to deliver financial wellness solutions to individual employees of the worksite customers of our group and retirement businesses.
To pursue these opportunities, we've been making strategic investments in our businesses, and we're focused on building foundational capabilities, such as a comprehensive set of tools around education, counseling, and solutions for individuals on worksite platforms through that financial wellness offering. Simplified products, outcome-oriented solutions that are easy to understand and that meet our customers' needs as those needs evolve over their lifetime. Of particular importance are our efforts around enhanced distribution and advisory capabilities that enable us to deliver solutions on the terms of our customers choosing and in the ways that they prefer, but also in ways that are highly scalable for us. To a growing extent, that means through technology-enabled channels and an improved customer experience virtually across the board. Now, building these capabilities has required investment on our part.
However, a substantial portion of new initiative spending is funded by efficiency gains across our businesses through rigorous expense management in our established business platforms. We believe these investments will pay off in the form of long-term business growth. Could I get the slide advance, please? There we go. Okay. In fact, these investments are already paying off, already generating tangible benefits as we seek to engage these workplace customers as individuals. One example of this is our Prudential Pathways program, an important and differentiating aspect of the financial wellness offering that we're building and advancing into the marketplace. Through this program, which we launched only in 2015, some of our Prudential advisors are able to deliver financial planning and financial education seminars to employees of our group and retirement clients.
This not only benefits the individuals who participate in these seminars but also strengthens the value proposition that we offer to employers. This program is a tangible proof point of the momentum we're building with respect to our financial wellness platform, it's already proving to make a difference for us in the market. As I mentioned, Pathways was only launched in 2015, already it's been adopted by nearly 250 employers, representing three million employees. We know that a number of our recent case wins in group insurance have been attributable to this part of our value proposition and that we've been able to win that business at attractive pricing. The program also strengthens our standing as a talent destination in the advisor marketplace.
Top-quality financial advisors are coming to us because of the reach and impact that they see they can have through this program as part of the Prudential team. Additions to the program in 2017 include digital education, employment transition seminars, and executive services. In closing, I've spoken today about a few different things. I've spoken about, as Rob did, how our mix of businesses creates an attractive financial risk profile. That's something we've spoken about before. I've also shared how each of our businesses is valuable in its own right and seize growth opportunities in its established distribution channels.
At the same time, if there's anything different about what I've said to you today, it's an increased emphasis that we're engineering on having our businesses reflect more than the sum of their parts and looking at connecting our capabilities across our businesses in ways that advance compelling and innovative value propositions into the marketplace. We believe that our ability to do so is highly differentiated. No other company has a range of capabilities that we have. This is true in terms of the combination of markets that we serve: institutions, employers, and individuals. It's true in terms of the strength of each of our businesses that serve those markets. They're all market leaders in their space. The range of solutions that we offer, again, focused on our capabilities around protection, retirement income, and investments. It's also true in terms of our customer engagement model.
We serve, at the end of the day, over 20 million individuals in the U.S. Most of those individuals come to us via the work site. In seeking to take the capabilities that reside in our retail businesses and connect them to the millions of people who come to us via the work site, we feel that there's a very compelling opportunity to do so to the benefit both of those individuals and their employers. Probably one of the greatest advantages we have in pursuing this opportunity, believe it or not, is something that Rob mentioned earlier, our cultural attributes. A strategy like this requires high degrees of collaboration across our businesses. Collaboration is nothing new at Prudential.
Our global market leadership and pension risk transfer is directly attributable to collaboration between the retirement business and PGIM but also to collaboration across all aspects of Prudential, including several of our corporate partners and functions. We believe that our ability to drive this type of growth is highly distinctive, and I greatly appreciate your interest and engagement. With that, I think I'll hand it back over to Mark to set up a deeper dive into the investment management business with David Hunt. Thanks.
Thank you, Steve. We will now turn to David Hunt, president of our asset management business, PGIM. As Steve had highlighted, asset management has been an area where we have a number of product and distribution related growth initiatives. It's also an area with evolving industry dynamics. David will cover these topics and others in a deeper look at our asset management business.
Well, ladies and gentlemen, good afternoon, and let me also thank you for all of you taking your valuable time and spending it with Prudential today. I do want to talk about PGIM, the global investment management business of Prudential, both because, as you'll hear, I absolutely love the investment businesses, but I also think that the story I want to tell you is very consistent, in some ways, a very good case study of the themes that you heard from Rob and Steve about strategic consistency, about execution, and about collaboration across a wide range of businesses. I thought what I would do in telling that story today is effectively divide my comments into four pieces. I first just want to level set in terms of what the business actually looks like and some of the key characteristics.
I want to give you a little bit of a performance report on the fundamentals of the business for a couple of minutes. I do want to turn to the investments that we've been making. We're about three years into a five-year strategic plan. We have earmarked important investments that we've been making, and I want to show you where those have been going and give you some early reads as to where they're paying off. I do want to conclude by talking about all of the ways that PGIM is interconnected strategically with the rest of the Prudential family, and I think that's an extremely important and powerful part of the story. First, just a little bit around the actual characteristics of the business. The PGIM business as it is today was set up by John Strangfeld about 20 years ago.
To be honest, it has been very consistent in its strategic direction since then. There have only been four leaders of the business in that time, and we've all had a very consistent view of the desire to continue to build out the third-party capabilities, to expand out the range and diversification of the products, and to run the business increasingly on a global size and scale. I just want to show you a little bit about where that's gotten to today, and then I'll cover some of our aspirations going forward. First of all, in terms of the business today, you can see that we're well diversified by asset classes. Unlike many other asset managers that you may be familiar with, we aren't just a public securities firm. In fact, as most insurance companies have, we have deep roots in private markets.
While 40% of my fees do come from the public fixed income business, you can see about a quarter of them come from equities. We have a big real estate business, which is 17% of my fees. Importantly, our two private businesses, which are a private placement business and a commercial mortgage business, make up the rest of the asset classes. When we did our strategic plan, we looked at a series of markets around the world in determining where we thought the growth was going to come from. We currently have about 50% of our fees are coming from areas that we believe will be high growth.
The most important piece of this is real assets, our real estate business, but also our alternatives capability and our infrastructure lending capability, which all fit into that bucket, is about $630 million of my $2.2 billion in fees. You can see we have a very large private credit business. We have a large business in liability and outcome-oriented investing, which I'm going to talk more about in the strategy section. We also have a big quant business as we believe that technology will play a larger and larger role in how assets are being managed, and we're investing very much in new strategies and capabilities around quant investing. The evolution of our third-party client business has continued apace. It continues to grow nicely in a disciplined way, but also somewhat faster than our affiliated business.
You can see here the balance of business in terms of about close to 50% of this now is institutional. You've got about a third of it is retail, and about 20% of the fees that come into PGIM are from the general account. I like to highlight that because as I travel the industry, I find sometimes that people think that the general account is a larger proportion of our business than it is. Currently, it's about 20% of our fees. The third-party client base here in the U.S. is really the blue chip who's who of the pension world, whether they be corporate or public. It's also a wide range of the larger, sophisticated institutions. We also serve now almost half of the top 300 pension funds around the world.
We serve most of the major sovereign wealth funds above a certain size and many central banks around the world. This is a business that really is about serving the world's most sophisticated investors. The business is global. Our clients, if they've told us anything very clearly, they have told us that they want a set of strategic partners who can think and manage and provide product on a global basis. I really do not have CIO discussions where they ask me about what do I think the best opportunities are in South Asia, or where do we think the credit markets are here in the U.S. They want us to bring a perspective on the global economy, on the interconnections of that, and where we see relative value around the world. We have been growing our global footprint quite rapidly. Currently, we have 30 offices.
We're in 16 countries around the world. Our major centers clearly are headquarters in Newark, but also in London, in Tokyo, and in Singapore. One of the things that we found as we were growing out our global footprint is that we increasingly needed a single name around the world that could actually stand for all of our investment capabilities. Many of you may be aware, but really until we launched the PGIM name, which is now about 18 months ago, there wasn't really a brand name for our investment businesses. We did market ourselves as the underlying managers, but with the advent of PGIM as a single name that we could use everywhere in the world, we were able to really brand, in our clients' minds, and importantly, I think as well, in many of the industry's minds, all of this trillion-dollar capability around one single name.
The messaging that's been going out from the brand has been very much as a fundamental active long-term manager. In addition to the umbrella brand, many of our managers have also decided to adopt it. You may have noticed that we now have our fixed income business as PGIM Fixed Income, our real estate equity business is PGIM Real Estate, our commercial mortgage business is PGIM Real Estate Finance, and then just in April of this year, our retail arm rebranded to PGIM Investments. We're slowly building the coherence around that brand. Currently, we're the ninth largest asset manager in the world, and I think that that has been getting increased knowledge and recognition. Some of the things that perhaps are not as well known are on the right-hand side of the page here.
If you actually take all of our real estate equity and you include the real estate debt that we do, we're the largest global real estate firm in the world. We are also, at this point, the number one foreign manager of institutional assets in Japan. In a world where all of a sudden the asset management world has sort of just now discovered debt, and private debt in particular, like many insurance companies, we've been doing this for many, many years, and we are a top 10 private debt fund manager, which is also where we do a lot of our big infrastructure lending as well. We really do believe we have a position of strength in the major growth areas around the world.
We continue to manage ourselves in what we call our multi-manager basis. We do think this is the secret sauce to how we're able to achieve outperformance. Each of our businesses is organized around an asset class. We don't have businesses that compete with each other, but we do believe that we have deep expertise because of this focus. We actually have a culture and an organization that is built around real estate, that's built around fundamental equities, that's built around quant. We believe those environments are very different. We also believe that great investors don't want to work for a Fortune 500 company. We want to keep our businesses with a small feel of an investment partnership, and that's really what we have here. None of our businesses are more than 700 people.
If you went to a senior management meeting there, you would feel as if you were part of a real investment partnership there. Part of the secret for me is to keep that small feeling while investing as a trillion-dollar global asset manager in the big things that we need to do, like technology. Let me turn to the fundamentals for just a minute over the last couple of years. Every business has its own virtuous cycle. This is ours. It starts with very strong investment performance. At the end of the day, our clients hire us as an active manager to beat their benchmarks and to add value to their portfolios. If we aren't delivering on that, we aren't delivering. That is absolutely at the top of the pyramid. If we do that well, that drives client flows, and that's been very successful for us.
That does drive earnings, which allows us then to continue to invest back in the business. We're very aware that this virtuous cycle can go into reverse quite quickly if we don't keep up the core engine of investment performance, which is why I stress that so much. Investment performance has been very strong. I think that this is really very much an outcome of the business model that I just described, which has this deep focus on an asset class. Three years, five years, 10 years, this is net of fees, 78 in three and five, and 88% of our assets have beat their benchmark. We can absolutely say to our clients that we are delivering alpha into their portfolios at a very strong rate. On the retail side, 68% of our mutual funds are ranked either 4 or 5 star.
Our retail business is very much built on taking institutional quality strategies and then packaging them for the retail world. We don't have retail-only strategies. We're taking sophisticated strategies and making them available to the retail world. It's that investment performance which has allowed us to have the very strong record that Steve referred to a moment ago. We have now had 14 consecutive years of positive institutional flows and 12 consecutive years of positive flows on the retail side. It's interesting to note that at different points in time, the makeup of those flows have been very different. If you go back to six and seven, a lot of that was actually equity flows. We went through a period of time where a lot of it was also real estate. More recently, absolutely the largest piece of this has been from our global public fixed income businesses.
We've actually had more outflows on our equity side. It's by dint of the fact that we have such a diversified range of businesses, that we have strategies that will work in most economic environments, which has allowed this kind of performance right through a full economic cycle. Those flows, together with the kinder market appreciation that we have had, have allowed us to grow our earnings very smartly. Overall, you can see here our earnings, which have grown at about 8% a year. Importantly, the dark blue here, which is our core earnings, so that's just the asset management fee piece, has grown at 12% a year. The others, the light blue, is more the transaction fees and some of the other lumpier pieces of asset management, and we've actually been trying to minimize that.
We would say that the quality of earnings has actually gone up because more of it is of the predictable nature that just comes off the fee base of our assets. Importantly, investments have been a big theme today that you've heard both Steve and Rob talk about, and here's the investments and how we've paid for it in PGIM. If we go back to 2010, we had a margin of 26%. During the subsequent five years, we have been driving substantial operating leverage from the business. Most of this has been because we've been generating assets that have come into strategies we already have. The marginal margin on raising a $1 in Japan to come back into our investment grade strategy that we already run is very high. We have really been able to drive our operating leverage.
What we've done is we've taken that, and we've invested it back in the investment businesses. 230 basis points of that growth we've been using to fund our future, and I'm going to talk about where that's gone in a moment. Then we've returned some to shareholders in the form of a higher margin. Over time, we would expect that these levels of investment, now that we've been making them, will begin to come down, and you will, of course, begin to see then the margin over a full cycle begin to gradually rise. That's, I think, an important piece of it. This has been self-funded within this by our operating leverage to date. You can see the numbers are very significant over this period of time. We've actually have 400 more people over this period of time than we did.
We have 32 new strategies on the institutional side, all of this during a time when we've had $110 billion. That's the size of many asset management firms. $110 billion come in net flows. I mentioned spending. Where has that been going? Let me talk about some of the themes in terms of where we've been putting money to work. Many of you will have seen our little strategy house before, our mission is on the top there. We have selected the words carefully. We really want to be widely regarded as a premier, not the largest, a premier active global investment manager. Importantly, we want to be with it across a broad range of public and private assets. All of those words we did pick out very intentionally.
The foundation you can see is investment returns that I've talked about, then we have four pillars. We have the globalization of the business. We have broadening our solutions capability. We have diversifying, particularly the range of vehicles that we're using around the world, we've been selectively adding and acquiring new investment capabilities. I'll tell you where we are on each of those four. In terms of globalization, I would say the biggest investment that we've made is to build our distribution. We now have a full sales force that is focused on the CIOs around the world. They're based in Singapore, in Tokyo, in Newark, and in London. They're covering about 200 of the leading institutions, we really have been moving up the amount of money that we've been managing for clients overseas. You can see the numbers here.
In 2010, 11% of our assets were managed for non-U.S. clients. That number is now 27%, a big change in driving that. Solutions we identified early in our strategic planning process is something that clients really wanted us to move to, outcomes. There we have been investing quite significantly, both in our target date funds, in our LDI capabilities, and we now have about $140 billion that's managed in an outcome-oriented framework, and that's up from $82 in 2010. The range of vehicles is quite significant. UCITS from last year was probably our biggest new launch. UCITS are basically the European mutual fund vehicle. We have found that the range of new vehicles is really allowing us to capture assets quickly.
In fact, in the U.S., 35% of the flows we got now into mutual funds are from products that we've just launched in the last five years. This whole idea that you needed to wait a long time after seeding a product is no longer really true if you've got a compelling story behind it. Last, I'll talk a little bit about new capabilities. We have been building out new capabilities with reasonable success. Our preferred method to do this is organic.
We've found that if we can take people that we know well and kind of are of our culture, combine that with a few people from the outside and seed a new fund or capability, that leads to the best solution, and we think relatively low execution risk, and that was true for our global fundamental equity funds, for the big push we make in agricultural lending, to the new global portfolio strategist team that we have within QMA, and that's been the preferred model. That said, we have also been willing to consider acquisitions of businesses where they really fill a need and when they can be bolted onto our multi-manager model effectively. We've bought two businesses, one a global macro fund in fixed income, and then more recently last year, we bought the Deutsche Bank business in conjunction with our partner in India.
We continue to evaluate those capabilities very actively. If you stand back and you said, all right, you've got the 230 basis points of margin that we've been putting in, what have you got for it? The answer across these four themes is over the last three years, over $50 billion of flows. More than $50 billion of flows have come in that would not have come in if we had not made these investments. We would say that, one, this is somewhat ahead of our projections. Two, this is headed for, if the trends continue as they have, to be an extremely attractive return on investment for our shareholders. Now we enter into this with our eyes wide open.
There are a lot of headwinds to the asset management business. I do want to just acknowledge what some of those are and talk about some of the ways that we're mitigating the risk. Steve mentioned the rise of passive investing. This has clearly occurred in the U.S. equity space. We're starting to see it spread a little bit globally in equities. We're also beginning to see the small signs of it come into fixed income. I would say that the vast majority of the strategies we offer are not really subject to passive. You can't really do that in real estate. Private credit has no real way to go passive. Where we are exposed is actually round about 10% of our AUM, which is really in U.S. style box strategies.
When we looked hard at what we wanted to do in the index space, we decided we didn't want to play as a passive player a couple of years ago. I must say, we look back on that decision, and we feel good about it at this point. It's low margin. Rather deliciously, the most low cost has been the most highly competitive part of the market over the last couple of years. What we have done is we've focused our new strategies on high active share and on quant. Both of those areas work well with a big core that can be passive. We actually think for many of our clients, having a core satellite portfolio with our high active share in it is a very good outcome for them. Fee pressure, we absolutely see fee pressure across the asset management business.
It's been particularly true in U.S. retail, particularly true in equities. For us, though, because of the range of different strategies we have, you can actually see that our fee yield right across the businesses has not changed. We're still right about 22 basis points, and have been for quite a number of years. That has been because we've been able to launch higher fee products and raise money in them at the same rate that we have seen fees come down on the retail side. Those are probably the two biggest pieces that I would want to highlight, but we feel good about the ways we've been able to mitigate those risks.
Let me just finish then with a couple of thoughts on the interconnectivity of the businesses, because I think that is an important theme for today, and it's been an important theme for PGIM. First of all, PGIM creates value for the broader Prudential family in some important ways. First, clearly just on the financial side, this is a business that's growing reasonably fast. It clearly has high margins. It's a very low user of capital, so the ROEs are very attractive. Also, these fees come in and are immediately kind of turned into cash, so the cash moves up quite quickly, up through the dividends. From a financial point of view, it's very attractive. I would say that's a narrow definition of the advantages.
Very importantly, we manage the vast majority of the assets for the general account, and we do that with an ability to bring those private asset classes to bear, which is highly unusual and unique. We are able to generate real net interest margin for Scott and the CIO team by the way that we manage that investment. As you hear Steve talk about the other U.S. businesses, PGIM is involved in almost all of the strategic initiatives. What we're doing with pension risk transfer is obviously a core collective effort between ourselves and retirement. We're providing the investment expertise and engine and managing the money behind that. When we hear about the new versions of annuities that we're launching, PGIM is the group that's doing a lot of the security selection and the thinking behind the risk management for that.
When you hear about the new approaches that we have to offering a variety of insurance products, we're doing the kind of investment thinking that's sitting behind that. The benefits and the touch points I think are really important. From a PGIM point of view, we are hugely fortunate to be part of the Prudential family. First of all, we have a long-term owner that believes in the future of the business, and you've seen the investments that Prudential has been willing to make in the long-term growth of the business. That is increasingly rare in the industry, and we don't take it for granted at all. It's really an important part of what our clients want to hear from us. Secondly, we obviously have a great anchor client in the general account.
We also have real access to the balance sheet and to seed capital for a lot of the new products that we want to have. This long-term nature of how Prudential thinks about its businesses is invaluable to how we manage the business overall. I hope that gives you a little bit of a sense of how interconnected these businesses are with others. Why don't with that I stop, and then we can take broadly questions on the U.S. businesses overall.
Thank you, David. We are now going to move to our Q&A covering the U.S. businesses. Please wait for the mic as this is being webcast, and please announce your name and your firm. I'll open it up
Okay. As there are no questions. There is one. All right.
I was saving it for the end because it's such a strange question. I'm just curious, in terms of overall macro risk, especially insurance and the annuity businesses, which have historically hedged themselves, with population growth, you mentioned 140 years, Prudential has largely grown with the population. I wonder if you ever take into account the potentialities of, and I'm sure you do, but I'm just curious how you model it, how you look at it, of declines in the population. That could both come from demographics. Japan is anticipated to shrink. Europe is leveling. Third-world countries are increasing. America's still increasing. Not just in terms of demographics we can easily see, but some things we can't see, black swan events associated with climate change, things like that. Just curious how that enters into your projections.
Sure. I can address that. We actually place kind of multi-directional stresses on our business. By multi-directional, I mean that we look at our longevity businesses through the possible lens of discontinuous changes in increased lifespan. We also look at our mortality-based businesses through some of the lenses that you're speaking about in terms of mortality overall in the population. I'd also speak in our group insurance business, for example. We look at geographical concentration of risk, given the fact that when you underwrite a given company's people, you're looking at the potential for geographic concentration. We believe we're very distinctive in the group space in our having the discipline to do that.
I would say that we place, again, the headline point is that we place stress testing on all aspects of our businesses, and we do it in multiple directions, not just around mortality and longevity, but also around different types of equity and capital market outcomes.
We can touch on that as well in the international section, where Japan obviously has some demographic trends that are occurring. After the next session, we'll make sure we pick that up. Question over there.
Joel Gross, ICMA Retirement Corporation. I'd appreciate it if you could address the pension risk transfer market. How much of a normalized expectation do you have of the amount of business that you book each year? Also, of the business that you've already booked, how much normal runoff might you have every year from the accounts that you've previously booked?
Sure. Thanks. The runoff that we see in pension risk transfers, as I mentioned in my comments, we recognize that that's kind of part and parcel of the landscape of that business. The minute you book a transaction, it starts to run off. That runoff is about $3 billion a year on the funded side and $1 billion a year on the pure longevity reinsurance side. Our long-term outcome is for us to be able to write business that much more than replaces that outcome. Now, I will say, the nature of the business is that it won't happen evenly by quarters. In some circumstances, it might not happen evenly by years. We still think that the pipeline and the underlying drivers of growth potential in that space are very, very strong.
It's a small percentage of overall corporate pension plan liabilities that have so far pursued this solution, and so we think the opportunities are very strong. These plans are really no longer part of an employer's war for talent and efforts to attract talent. Most of these plans have been closed to new participants for a long time. Corporate treasurers tend to look at them purely through the lens of a liability to be managed. We think that we see the funded status of plans improving, and we see PBGC premiums ever increasing. The desire of corporate treasurers and CFOs to address this risk, especially as they display heightened awareness of longevity risk, is very high.
As I said in my comments, we remain very bullish on this opportunity because of the underlying circumstances we see for growth in the market and because of the capabilities that we're able to bring to bear.
In terms of the deals that you're looking at in your pipeline, is there still opportunities there for some of the larger multibillion-dollar takeovers that you've had in the past? Is it more of a middle range kind of opportunities that you're looking at?
We compete across the spectrum. Our primary area of focus, however, is in larger plans. We feel that that's an area where we get very deep census data on the employees, and that enables us to employ our underwriting skills. We receive assets in kind rather than simply cash, so that enables us to utilize the asset management skills that David and his colleagues bring to bear. For all those reasons, especially our proven track record of high confidence of closing and closing effectively, and our ability to serve large numbers of individuals, we've invested a lot in our service platforms. It's kind of a part of the pension risk transfer that a lot of marketplace observers are unaware of.
Thousands of people come to us in one day, and you have to have the scalable service platforms that can provide the right type of client experience in that regard. For all those reasons, we feel more advantaged in the large case segment. The small case segment tends to be more about price, but that's not to say that we don't compete across, but we definitely seek and do over-punch our weight in the large case segment.
Just one final question about this topic. Has the performance of the plans that you've booked met your expectations in terms of revenues and earnings?
The performance of the plans we've booked have outperformed the assumptions on which we underwrote the business. We have consistently posted reserve gains greater than our expectations in the business.
Thank you very much.
There's a question at the
Mark Cohen from Guggenheim Partners. As the PRT industry start to become more competitive by other life insurance competitors out there, could you talk about the risk profile? I know Prudential focuses on active retirees versus current employee as the competitive nature changes. A follow-up, could you talk about the longevity risk factors, both on a NAIC RBC factor base or even on Prudential's own economic capital-based modeling, given the NAIC changes or prospective rules in terms of longevity risk charges?
Sure. I'll address your question in a couple of ways. First of all, in regard to longevity factors, as I said before, we place considerable stress in terms of our financial models for this business, both in terms of capital allocation and in terms of our pricing. I would also say that just in terms of our baseline assumptions, we assume continuous improvement in longevity in the business we underwrite. We're quite solid in that regard. The first part of your question was addressing what exac-
Active retirees versus-
Yeah. We definitely see a pickup in terms of some plans or some plan sponsor looking to incorporate active employees. We call them, wonderful term the industry has for them, deferred lives. I don't feel like a deferred life myself, but go figure. We definitely see a pickup in plan sponsors looking to include deferred lives in what they seek to do. That more has to do with what their objectives are. Increasingly, some plan sponsors are looking to entirely close out the plan. That's what is leading, I think, to more deferred life transactions being in the marketplace. We definitely do see varying degrees of appetite among competitors for deferred lives.
Some of the newer entrants to the business, as you might expect, feel that they need to be willing to accept that business to a greater extent than others, than we might, for example, in order to make an effective entry into the market. We take onboard some deferred lives, but we do so on a very measured and conservative basis. Basically, we do so within the overall constraint that we're not looking to change the overall demographics of our in-force block of business really at all. The average age of the retirees, average age of the participants in the plans that have been transferred to us is 75. That's up a few years from what it was a few years ago as those individuals have grown older.
In that period of time, in those past few years, we've taken on a, like I say, a very modest and measured number of retirees, but we've done so without really changing the age demographics of our in-force block at all.
Any other questions on the U.S. businesses? Okay. We will take a break, 15-minute break. Good job. Very nice.
Ladies and gentlemen, please take your seats.
All right. All righty. I think we're going to resume with our international part of the program. I will introduce Charlie Lowrey, Head of our International Businesses.
Thank you, Mark. First of all, I just have to say I am extremely upset in that there was not Red Bull that was served before the previous set of presentations. Therefore, I'm not quite sure, Mark, what you're trying to say about the latter presentations that are out there. Just had to get that off my chest. Thank you. One other thing, I will try not to use acronyms during the presentation. The one I may slip into is PII, which stands for Prudential International Insurance. That's the International Businesses. Forgive me if I say PII occasionally. Let me begin with four key messages. The first is that PII or the International Businesses continues to enjoy sustained growth in the underlying business metrics. We'll talk about some of those during the presentation.
While it delivers both strong returns and generates capital back to the parent. The second is you'll hear us talk a lot about execution during the presentation, especially execution of the business model and the competitive advantage that we think that business model affords us in the countries in which we choose to operate. The third is obviously Japan remains our biggest market, and we believe there are ways in which we can continue to grow in Japan. During the question and answer, we'll talk about the aging demographic question that was asked. Finally, we are selective, very selective about the countries in which we choose to operate, but we are focusing on higher growth regions and hope to reduce Japan's percentage of international earnings over time. Let me talk a little bit about some of the challenges and the opportunities that exist.
First of all, obviously, there are low interest rates, which have forced us to reprice or discontinue product as we look to protect margin, and we're very aggressive about doing so. Second of all, there have been a variety of regulatory changes that have occurred just in the first quarter alone. In Japan, there was a standard discount rate change, and in Korea there was a tax law change, and we had to deal with those. There's increased competition in some countries for some products, as an example, the U.S. dollar product in the banc assurance market in Japan. On the other hand, challenges bring opportunities, and you saw during the Great Recession we were able to acquire some companies like Star or Edison or the life business of The Hartford here in the U.S.
Most recently, we made very careful acquisitions in Chile and Brazil and also increased our interest in our JV in India, and we'll talk more about that later. We also continue to expand distribution and create product for new needs for, let's say, aging populations in Japan, Korea, and Taiwan. While facing some headwinds, the combination of what we think of as our superior distribution model along with diverse product offerings together with exposure to growth markets, should enable us to produce steady and prudent growth over time. This business has been able to generate consistently high ROEs. You hear that little ring in the background. Am I still on? Good. Whenever we say high ROEs, that ring comes into play. There has been a modest decline in recent years, and that's due to the weakening of the yen and the lower interest rates.
You can't eliminate the downside from the depreciation of the yen, but we can smooth the currency effect of that through hedging, which we do on a rolling three-year basis. We also can mitigate some of the effect of lower interest rates by product and business mix changes and repricings. As I said earlier, we are extremely aggressive in terms of doing that. We don't hesitate to either reprice or to stop selling certain products if they don't meet our hurdle rate. We do a lot to protect our margin and feel comfortable in saying this business will continue to generate mid to high teen returns for the next several years. Now, the effect of interest rates on ROE will be manageable with a marginal degradation for the next few years. I mentioned before about the strong momentum of our underlying business metrics.
Examples of this would be sales or productivity, life planner growth, or as importantly, the quality of the life planners, which then leads to high retention and very high persistency of policies of our business. Our focus on these business fundamentals has led to strong earnings growth over longer term horizons. The dual headwinds of FX and lower interest rates have essentially flattened AOI in the past few years, as you can see. Again, the underlying performance of the business metrics have been growing, and that's what we look for. One of the fundamental metrics to growth is LP count. On the left-hand side of the page, LP count, you can see, has consistently been growing each year. The growth isn't meteoric.
In fact, the growth has about a 2% CAGR over the last 5 years, reflecting growth in Japan and Brazil, offset to a certain extent by declines in Korea and Taiwan as we've intentionally increased validation requirements. That's exactly what we've said for the past few years, namely that the LP count in total is likely to grow by about 2%-3% over the long term. Given the growth in the underlying fundamentals of the business, it shouldn't be surprising that on a constant currency basis, we've seen modest core growth in AOI, as you can see on the right-hand side of the page. Interest rates do affect the bottom line, but given our business mix and the focus on mortality and expense margin, they affect us less. Let me speak for a minute about the overall strategy of the international business.
The focus is on our fundamentals, and our fundamentals are the foundation of our strategy. We think of our strategy as a stool with 4 legs. The first leg of the stool is the expansion of distribution in a variety of ways. You can think about third-party distribution in terms of either bank assurance or group insurance. The second leg is product development. This isn't just product development for its own sake, but it's really solving the needs of our clients, thinking about outcomes to meet customer needs. The third leg is digital data and mobile. Meeting customer needs faster and better at a time and a place of their choosing or by a medium of their choosing is absolutely becoming table stakes, and we need to meet these changing consumer demands.
In addition, using data analysis to predict customer behavior or to mitigate risk is moving quickly from being a competitive advantage to being a competitive reality. The final leg of the stool is M&A, and as we said earlier, we are extraordinarily selective and careful when we do this. Going deeper into countries in which we already choose to operate and entering a handful of additional countries where we think there may be growth opportunities. If these are the 4 legs of the stool, the center of the stool or the seat has to be execution, and preferably flawless execution. We are big believers in focusing on what you have and on doing it right. We focus on customer needs, product profitability, and business mix to find the right approach that will continue to lead to high quality and profitable growth. Let's look at Japan. Sorry.
Let's look at the business mix for a moment. Quite simply, we focus on meeting customer needs, we focus on selling profitable product. We also focus on selling the right type of product, ones that deliver consistency of return over time, that would mean protection products. As you can see from this chart, we primarily sell protection-oriented product. If you look in the right part of the page, the right-hand bar, you see a fixed annuity product. That product we reprice every two weeks, and the vast majority of the product also has market value adjustments to it. The purpose of this slide is to demonstrate a point I made earlier in the presentation. Much of the income that we derive from the international businesses comes from mortality and expense margin, not from spread margin.
Now let us look at Japan and how we manage the product portfolio over time. On the left-hand side, you see as interest rates have declined in Japan, we shifted to U.S. dollar product sales. In 2016, over half of our sales, 54%, were U.S. dollar product. This is logical since we've sold U.S. dollar product for a long time in Japan, our distribution in all our channels has been trained to sell foreign currency product, which has been a real advantage as Japanese interest rates have continued to decline. On the right-hand side, you see an increasing amount of recurring premium product, leading to a reduction in the amount of single premium product that we have sold. In fact, we've reduced it by almost half in five years.
Again, remember that almost all the single premium product we still sell is the fixed annuity product that's repriced twice a month. While still small relative to our business in Japan, we are having success in some of our high growth markets, such as Brazil and Chile. The LifePlanner model has adapted well in Brazil, as you see on the left-hand side of the page. Here you see an increase in the in-force amount despite a slowdown in the economy. The LifePlanner count continues to grow well, with productivity, persistency, and retention rivaling those of our LifePlanner operation in Japan. In Chile, we became the number 1 AFP or pension provider in terms of AUM in the fourth quarter, with exceptionally strong investment performance and the lowest fees among the top 4 providers.
We will continue to invest in high growth markets, going deeper into existing markets and selectively entering new markets. You saw examples of both these activities last year. We went deeper into Brazil through the acquisition of Itaú's group insurance business and increased our exposure in India by raising our interest in our Indian joint venture from 24% to 49%. You also saw us enter Chile, which was a new market for us to capitalize on the pension market opportunity. In summary, we believe that our strategy is simple and it's clear, based on a differentiated distribution model and a very focused business strategy. We see our international business as having very steady growth prospects and a highly stable source of earnings and cash flow, which will further benefit recent investments we made last year.
We'll continue to execute on this strategy to the best of our ability. With that, we're happy to take questions.
Why don't we start with this gentleman here? You can sort of fill out the international side of that question.
Sure. The question is: what do we do in countries with aging demographics, if I have that correctly? Let's just take Japan as an example. The demographic shift is real. In 2010, you had 128 million people. That is decreasing quite rapidly. By 2060, you could have 100 million people at this point with a birth rate of 1.4 per couple. Well below the 2.1 that you need just to break even. There are a couple of things that we're doing. The first is you see we've changed our product mix slightly. We're offering some retirement products and some inheritance products.
In 2015, there was a change in the inheritance tax law, what we did is put all our life planners and life plan consultants through what we called Inheritance University in order to teach them about the issues and get in front of this. As it turns out, one of the best products to sell is just a good old-fashioned whole life product. We've taken advantage of that and sold a great deal of product. We're thinking about how to change the business mix. In addition, I would say that as with the demographics of Korea, especially Korea and Japan, our life planners, the first cohort we hired, are getting older. In Japan, if you think many of the life planners were 25-30 when we hired them, and we've been in business 30 years, they're now 55-60.
They are marketing to their original clients, and they are able to sell many products to them as they go through their own life cycle. We think there are very interesting business opportunities that will develop from an older demographic, and we are changing the business mix or, I should say, augmenting the business mix to be able to serve our customers as they get older.
Any other questions?
Thank you. Joel Gross from ICMA Retirement Corporation. I'd appreciate if you could comment about some markets that some of your competitors, U.S. competitors, have entered and been around for a while, China and now Vietnam is a growing market. Is there any opportunity for Prudential in those markets?
We are in China. We have a joint venture with the only private company that has done a joint venture in the insurance business called Fosun. We also have an investment management business there with a company called Everbright. We're there. We probably would not enter Vietnam at this point, but we are looking at a handful of other countries. You can think of those as essentially planting some seeds, right? We are stewards, and we all feel this way. We are stewards for the decisions that have made by those who've come before us. Our legacy will be the prudence of the decisions we make for those that come after us. That's how we look at the business, and that's why Prudential is 140 years old.
We are very careful about the decisions we make so that those that come after us will be the beneficiary of those decisions.
Okay. Thank you.
Hi, this is Brad Cantwell from EPS Settlements Group. Your entry into Chile, through the acquisition of Habitat, you said you're the number 1 provider of mandatory pensions. Can you describe what that is? It sounds obviously like a very positive business to be in, assuming it's mandatory. Are there other markets that have opportunities similar to Chile?
If you look, the market that has probably done this best is Australia with the superannuation funds, where they put an even larger portion of their pensions or their salaries into pensions, they have about $2 trillion worth of what they call superannuation funds. Other countries have tried to emulate that, Chile is one of them. In Chile, you take 10%, if you work for an employer, 10% comes off the top. It goes into one of these funds, it is managed by one of a number of different pension fund managers in a series of very controlled accounts, if you will, investment accounts. It is a good business. It's a good business for the customers, it's a good business to be in because, for us, it provides very steady cash flow going forward. We like the business very much.
Yep.
We can see who drank Red Bull.
Thanks. Mark Cohen from Guggenheim Partners. Could you talk about the Japanese regulator and their views on the first sector U.S. dollar denominated product? What's their views in terms of the policyholder taking on the FX risk if they're taking on that U.S. dollar denominated policy? My second question is, knowing that your international focus is in Asia, could you talk about opportunities in Europe, specifically with Solvency II and, I guess, the egregious risk profile of longevity risk? Are there opportunities in the PRT market in the U.K., specifically, and other European countries?
Well, I probably wouldn't use egregious and opportunity in the same sentence. Let me deal first with the FSA in Japan. The Japanese consumer is phenomenally conservative, right? They have almost no equity exposure, and when they invest, they invest a little bit in credit, not a lot, because there isn't a lot of credit, so they end up in bank deposits. They end up with JGBs. The exposure is phenomenally low. The FSA's view is that if they take some exposure in terms of currency risk That's okay because their risk profile itself is extraordinarily low. That's the first answer. In terms of Europe, there were a couple of questions. What do we think about Europe as a market, I think, and then what do we think about longevity risk? Is that-
Solvency II risk factors on longevity risk, given that you're not under Solvency II metric, maybe there would be opportunities, even though other European insurers may have higher risk profiles.
Europe has four of the top 10 life insurance markets, they're very mature markets. They're dominated by Europeans that have been there forever. It's very tough for an American firm to come in and meet their hurdle rate. We are not big in Europe, and we will not be big in Europe going forward. That's not one of the markets. We look at Asia, we look at Latin America, we look at other markets. We won't be big in Asia. In terms of the longevity risk that we take on through PRT, it is done entirely. We are not licensed there. I'm looking at Rob, I think that's correct. We're not licensed there, we do reinsurance from the U.S. taking on books of business over there.
Any other questions? Perfect.
Thank you so much. Yep.
We will now move to the finance portion of the program, and I will introduce Scott Sleyster, Chief Investment Officer.
Okay, good afternoon. I have a handful of topics that I'd like to cover with you today. I think it's always useful to start off with the guiding principles on how we construct our portfolio. I want to do that first. I want to spend a little bit of time on the asset profile and the quality of the portfolio. I'll do a little bit of a drill down on real estate and alternatives because quite frankly, those are the two areas when I get questions, what they tend to be about these days given where we are in the credit cycle. Third, I want to talk a little bit about all the benefits we get from being associated with a world-class asset manager like PGIM. I think they're really significant and they're worth pointing out.
Finally, it's always kind of hard to measure the success of managing a buy and manage, buy and hold type portfolio and how is your investment performance doing. I want to share with you one metric that we've used to assess our performance over the last credit cycle. With that, let me jump into these four key principles that relate to our portfolio construction. It all starts with a really fundamental understanding of the liabilities that we're hedging. We're not at all in the total return or 60/40 kind of a portfolio. We're largely a bond portfolio that's specifically constructed to hedge a liability. The way that we make this work at Prudential is that teams in my organization, ALM, Asset Liability Management or the Chief Investment Office, we're organized around the business units that we support.
We're co-located with a lot of those teams. A couple of people on there will actually sit with the actuaries and the product development and the finance people in the business. They're sort of at the table, if you will, when they're analyzing the existing block of business, and in particular, when they're looking at new blocks of business. Once we understand the liability, we want to take the interest rate risk out as much as we can. One of the reasons we haven't felt as much pain as you might have expected from the decline in interest rate risk is because we were very liability driven and we took almost as much of that risk out as we could. Once we have that lined up, then we focus on credit risk, and we really get at that through broad diversification across a lot of asset classes.
Finally, we really benefit from the PGIM organization when it comes down to security selection, underwriting, and the occasional rebalancing in the portfolio for defensive reasons. Those are the four principles. Let me jump into them a little bit more. I would say when you put all those together, what you're going to see is that we have a well-matched portfolio and we have a high quality portfolio. On the liability driven investing side, I already talked about the co-location of my team members with the business. They actually sit on the product design and pricing committees. One of the things I'll really tell you that matters a lot is that when you see somebody that's struggling with a block of business and buying assets to hedge it's probably because they weren't there at the table when that liability was being created.
By having my folks at the table, we know the assumptions are hedgeable. We know what we're going to be able to buy to hedge that liability. Honestly, that takes most of the problem off of the table that a lot of CIOs have to deal with. Once we have that in place, our job really is simply to help those businesses deliver the ROE, the pricing expectations that they had for the product over its full life cycle. That, if you will, is our investment objective. Second, we really are by definition probably the most classic of liability driven investors. That is what we do. We look at those products. Their liabilities, and we look to construct that portfolio. Honestly, I think that's why we've been so strong in the PRT business.
When we sit down with the CFOs and treasurers that have those liabilities, we're really talking their language. We chop our portfolio up into about 150 segments. You see a big number there, $300 or $400 billion in there, but we chop it up into individual segments. For each one of those segments, we look at the interest rate sensitivity of that liability around seven or eight key rate duration buckets, and then we line up asset sensitivities to match that up as well as we can. Within the investable horizon, which is out to 30 years in the U.S., we're in fact very tight. In Japan, sometimes we can even get out to 40 years, and we really lock down our interest rate for that. We have some liability exposures that run beyond that. We have some surplus.
For the core liabilities that we have, we really lock down those interest rates, and we try and take as much of that out as we can. Quite frankly, we think taking a bet on interest rates a systemic type risk. We don't think we have any special insight, we really try and push that out of the business. I've got a chart here with three bars in it. This is actually for Prudential ex the Closed Block, PFI ex the Closed Block. This is the interest rate sensitivity. We don't have the actual metrics in there. We view that as proprietary. You can see we're extremely well matched in the short bucket. We're extremely well matched in the middle bucket, and we're well within our corridors in the long bucket. By the way, those corridors aren't set by my group.
Those corridors are set by risk management, and they're tied into our risk appetite and our risk-adjusted capital framework. I have to live in those. You probably noticed that we're a little short on the assets versus the liabilities at the long end. That's mostly due to Japan. We've been reluctant to go out 30 or 40 years in a really low-rate environment, we've been more often going to 20. Another factor in there is we have selectively used some U.S. dollar assets swapped into JPY, and generally the assets that we want to buy, privates and other things, are only going out to about 10 years. Okay. Let me give you a snapshot of the portfolio. I've got two visuals here. The $379 billion is PFI ex the Closed Block. Let me start with the pie chart.
From a quality perspective, you see the light green there. Fully 33% of the portfolio is risk-free securities in Japan and the U.S. That's primarily JGBs but also a fair number of U.S. Treasuries and agency securities. Post-Dodd-Frank, we've had to own more agencies and government securities to post as collateral. Let me kind of work my way around. One of the things you should notice there, if you look to what we would call the risk assets of the portfolio, we're only about 7% or 8% at any given time in high yield and non-coupon investments. We're pretty modest, I think, versus our peers. Quite frankly, those assets really line up, if you will, against our really long duration assets and part of our surplus. The core of the portfolio is the dark and light blue.
About 40% of the portfolio is what you would think of as a traditional bond portfolio. The light blue is our private placement component of Prudential. That's actually a pretty significant percentage of our fixed income. We really like that, and I'll talk about that just a little bit more. Also, we have mortgages in there, typically between 10% and 12%. If you then go over to the right side of the screen, there's two elements of the visual. If you go into the top line, it's by credit rating or the rating profile, and you'll notice that as you get out into single A and triple B, that light blue bar, the component of private placements gets bigger as you go out that curve. Part of that is privates tend to be smaller companies.
The more deliberate part of that is that's where we really get these good covenants against those loans, and we really like having a big component of our triple B securities in bonds where we get covenants, whereas when we're in the public market, you kind of get a money default, and that's about it. If you go down to the bottom of the chart, we've actually combined public and privates. I think the visual just shows that we're well diversified across the Barclays Aggregate buckets. I would make two observations there. The first bar is financials. The Barclays Aggregate is about 31% financials. You'll see we're slightly under 20. I think that's clearly deliberate. We think at a time where Prudential was feeling pressure in the markets and in our portfolio that other financials would be doing that as well, we want to be significantly underweight.
In energy, we're about 7%. The industry, the Barclays Aggregate's about nine. In communications, I think we're about 3% or 4%. We're about 40% lighter than the aggregates. Okay. I put this visual up just to give you a sense for the stability of the portfolio over time and also really to counter some of the questions. Honestly, I don't get from this audience so much, but I tend to get from regulators is that they're convinced that there's a big reach for yield going on in the insurance sector or here for that matter. That's sort of the tone of the question that you get. What I've given you here is three bars, 2006, 2011, and 2016. Let me start at the bottom of the chart.
The areas that you might think of as traditional riskier assets would be the below investment grade or high yield bonds, plus the non-coupon assets. The non-coupon assets are really steady. They were three, then two, then three. The reason they're back up to three is we've had really terrific performance the last couple of years, but that's not a big component of the portfolio, and I don't think you'd really expect it to be a big component of the portfolio given that it's not going to hedge the interest rate risk and the liability very well. The second thing I hope you notice is that the high yield was 6% ahead of the last financial crisis, and today we're down at 4%. I just don't think there's any evidence from an asset mix perspective that we've been reaching for yield in this portfolio.
The mortgages have been very steady. The dark blue, the corporate credit, has been very steady. The one thing that should jump off the page is that that bright green section has gotten larger. Why is that? Well, that was heavily driven by the acquisitions from distressed players of Star and Edison. In Japan, those are big Japanese businesses. A lot of JGBs were in those portfolios. They actually had very attractive relative yields when we purchased them if they were older holdings compared to where rates are today. We really didn't want to sell out of those portfolios. The balancing metric in here is the gray section. Following the financial crisis, we brought down structured credit.
We let a fair amount of that run off, but also there's not a lot of structured credit available in Japan, and there's not a big need for floating rate assets to support PRT or a lot of our Japanese liabilities. That is in fact what's really run off in the asset mix. Let me talk a little bit about below investment grade, and I think this is where you're going to start to get a little bit more of that flavor around the benefits from PGIM and its private origination. When we go below investment grade, this is obviously the area that you're expected to have the most significant credit challenges whenever the next cycle comes along. I want you to notice two things on this chart. First of all, it's very much skewed to NAIC III or BB bonds.
We're not buying single Bs in a big level, and we're not buying CCCs. The other thing you should notice is for this sector, our high yield sector of the bond portfolio, almost 40% of our assets are in the private placement category. I can assure you, while on occasion you may seen some limited covenants in an investment-grade private placement loan, I can assure you for a below investment-grade private placement loan, it is going to have a complete and robust set of covenants. Again, while we do invest in high yield, we take risk. We think we're taking it very prudently. Let me talk a little bit more broadly about private placements on this slide. Why do we think being able to invest in private corporates and private mortgages is so helpful to us and why it's a competitive advantage?
I would say first and foremost, if I didn't have access to this private origination channel or channels that PGIM runs for us, my only other choice would be to double down in big public names. That's really what you have to do. By 144A, you can expand a little, but you're strictly restricted at that point to public markets, and ultimately, when you have a big portfolio, you end up doubling down. This first and foremost gives us diversification. Second, we actually collect a nice illiquidity premium for private mortgages and corporates. The line chart here, the green line is where the average pricing indication for private single A securities is, versus where the Barclays Aggregate for a public industrial A is. Our rule of thumb is that we typically expect to pick up a quarter to three-eighths of spread.
Sometimes we get as much as 50 basis points for buying a private placement. That's really largely due to the illiquidity premium. I'd like to share one more anecdote with you here about the benefit of privates. Look, these are bond portfolios, so when we go through a tough period in the economy, we're going to experience defaults in these private placements just like we would in a corporate loan. In fact, our incidence of default is really right on top of public bonds. What's different about privates is because we have covenants, we can protect additional debt going on. We can get in and work with the company to help them work through problems. There's less chance of sort of a really bad spiral type outcome.
Our recovery rate is almost two times in the private market what it is in the public market, and that produces really terrific returns for the asset class. Let me talk a little bit about mortgages. As I said, they're about 11% of the portfolio. We have a very high-quality portfolio, and I think you'll see it's structured defensively here. Let me start with the sector mix bar charts. First of all, you're going to see that the sector that we're most underweight versus the ACLI peers that we have shown in green is in retail and in office. We tend to find those the most risky and most competitive other than hotels, which is a much smaller sector of the market. You can see we're substantially underweight in those sectors. When you're underweight somewhere, you have to be overweight somewhere else.
What you'll notice is that multifamily and apartments and industrial properties, and then you'll see the other category is almost two times the industry. The biggest category in other for us is senior living. What you see is by sector, the portfolio has been constructed very defensively. At the aggregate level, the loan-to-value is about 55%, the debt service coverage is 2.4 times, and the portion of the portfolio that you would consider the riskiest, so that with an LTV over 70 or a debt service coverage at 1.2 or less is less than 2% of the portfolio. Some of that may have migrated there, but also some of that may be when we're allowing a customer to do some remodeling or taking one part of an apartment and remodeling it, and then, of course, the coverages go down.
Over on the right side of the chart, I just spiked out retail. I wanted to point out that the debt service coverage for retail is right on top of the portfolio average at 2.4 times, but the loan-to-value is actually one of our lowest sectors at 50%. Let me use that as a bridge to our overall real estate exposure. We see that as about 4.5% of the portfolio. If you look to the section on the right, we actually spike out the mortgage portfolio into subcategories. What you see there is that our biggest exposure is in dominant malls and in grocery-anchored malls. When you look to the areas where you think you might have the biggest, call it the Amazon-related challenges, would be in the regional malls and in the community center type, small strip type malls.
That's about 30% of our portfolio. It's very well diversified. We actually feel quite good about this profile. In addition to that, within the public bond portfolio, it's over 90% investment grade and really high-quality names. That's about 1.8% of the portfolio. We have about $9 billion in CMBS. Some of those properties trade. It's not always that easy to characterize what's retail. What we've done is from our survey, we think we're about a third of that portfolio is related to retail. We included $3 billion there. What I would tell you is that essentially 100% of that exposure is in the AAA tranches, just a little bit of AA. We're right at the top of those capital structures. We're very well protected at this point. This is all CMBS, essentially CMBS 2.0. We feel very good about that portfolio.
If you went back and looked at our performance that PGIM delivered on the CMBS portfolio during the financial crisis, it was arguably the best in the industry. We did really well. Equity real estate, we have very little. Okay. I thought I should talk a little bit about the non-coupon portfolio. We have about $9.3 billion, or call it 3% of the portfolio in what we call non-coupon assets. The pie chart there shows you that it's broken up among public and private equity, hedge funds, and real estate directly owned or real estate funds. The public equity is really all in Japan. It's really a high dividend stock purchase program that they've been running for a very long time. That has its mission as really just collecting a dividend stream.
For the rest of the asset classes, the private equity and hedge fund portfolios are constructed through third-party managers with specialist teams in my group. In the case of the real estate, either directly owned in a separate account or in a fund, essentially all of that is with David Hunt's group, the real estate group. We think they've done a terrific job for us. Over on the right, there's a series of bars. The black line, consistently in each of the last five years. What probably really jumps off the page to you is how much taller the bars got in 2013 and beyond. The reason for that is my team had put in a multi-year program where we were going to build out our private equity portfolio over five to seven years.
We were only a couple of years into that when those first big pension risk transfer transactions came down the pipe. Most of those funds were really overweight private equity funds, and they wanted to lighten up. We fortunately had the capability to go in through PGIM and through my team and underwrite those funds and actually accelerate our purchase. The reason it was going to take us 5 or 7 years is we had certain managers and we wanted vintage diversification and manager diversification, and these funds only open up every so often. What we had with the PRT transactions is the opportunity to go in and select 150 funds across vintages going back as much as 10 or 11 years.
We were able to diversify by vintage, by region, by type, and we were actually able to ramp up the purchases by quite a few years. If you look at how equity markets have performed, it ended up being quite fortunate looking in the rearview mirror. What I'd like to do here is to try and give you a sense. It's really very hard to know how you're doing in a buy and manage portfolio, which is largely what we do when we're primarily focused on hedging interest rate risk and buying a high-quality portfolio. How do you tell how you're really doing? I can't compare myself to an active manager. The gentleman who runs our biggest public core portfolio for David Hunt's group typically has a turnover of about 100% a year.
Just to give you a sense, in our buy and manage portfolio, our turnover is about 5% or 6%. You can't really benchmark yourself to that. This is a metric we like to look at. During the last credit cycle, which I think most of the people in the room would say was pretty severe, we call it the Great Recession, we have pricing expectations for defaults that we build into our pricing, if you will, every year. They work their way into our insurance reserves. We only lost 82%, or put it another way, we exceeded our credit loss expectations by 18%. During the second worst recession in the last 100 years. In my view, that's security selection and underwriting benefit that we get from the strength of the PGIM organization. Now look, we're 8 years into this cycle.
We don't know when it's going to end. We don't know how severely it'll end. The good news is we're only at about 32% so far this cycle. A lot of that was energy. With the passage of time, quite frankly, that percent might actually go down for a while before we hit the end of the cycle because, in essence, the blue bar goes up, if you will, every year. Maybe the last thing I'll do is simply to comment a little bit about PGIM one more time. I think you heard some of the benefits already. I think the biggest strategic advantage we get from PGIM is access to those private corporates and private mortgages.
The reason that's not just unique to just a couple of companies around the globe because we have about 15 regional offices around the world for the Prudential Capital, the corporate team, and I think we have more offices than that on the commercial mortgage team. We have one in Japan. We have one in Europe. We actually have a private lending office now in Australia. That is just, in fact, truly unique. I also think we get a really strong benefit from the public bond managers that we have as well. They've been investing for us forever, so they know our needs really well. When they run these third-party mandates, they're managing against a benchmark and they have to be on top of every credit every day and know exactly what's going on.
I actually think we have the best of both worlds by having them be significant third-party benchmark driven total return managers in addition to understanding very well what we do, what needs to be done for the general account. I think you heard it already so I won't beat the drum too hard. When we go in and close one of these pension risk transfer deals, it's not uncommon for David's group and my group probably not to be in the first meeting, but we might be in the second meeting because what these plans want to do is be able to ship their assets over as part of the premium payment rather than have to go sell them, pay a bid offer, deliver cash, and know that we're going to price in a bid offer.
I think that gives us a really big competitive advantage because we can look at their funds, their public bonds, their mortgages, their privates. We're extremely well suited for that and I think that's another reason we're so competitive in the jumbo market. The last thing I would say is just we benefit from longevity. I've been at Prudential 30 years this month. The average managing director over in the PGIM organization has been there 25 years. Why don't I think I'll quit there.
Thank you, Scott. I will now invite Ken Tanji, our Treasurer, to the stage.
Okay, great. What a great turnout. I was talking to a few people during the break and early on and some of you mentioned that you're glad to be here because you missed it a year ago. You didn't miss it a year ago. We actually went to a sequence of every other year, reflective of the fact that our story's consistent and we have a lot of other ways of communicating. Maybe we had some pent-up demand because the turnout is by far greater than we've had before and it just so happens it's in a year where the venue got smaller. Thank you for getting through the rain and coming through in this small setting. Maybe the Red Bull will help compensate for some of that. I'm last up and I'm going to try to bring this together through a financial lens.
I'm going to start with the first slide that is a slide you saw in Rob's presentation, and I'm going to use what we call the balancing act as a bit of a roadmap of how we think about balancing these priorities. As Rob mentioned, we believe creation of value and financial strength is achieved by balancing priorities that are both complementary and at times competing. We don't focus on any one priority without thinking about the consequences to the others. We balance these priorities to make them in harmony with one another. In terms of growth in ROE, we expect to achieve growth with an ROE that is above our cost of equity and superior to our peers. Our growth is organically driven by our business mix and the competitive position of those businesses.
This is enhanced through capital deployment in M&A and share repurchases which are enabled by the strong and stable free cash flow. Our ROE target is derived from a bottoms-up business by business view of the company. We believe it is a sustainable return that is a result of our mix of businesses and their profitability without the use of financial engineering or excessive risk-taking. We're going to move over to the right and talk about cash generation and deployment. We expect our businesses to generate strong and stable free cash flow that will enable us the flexibility to pursue the organic growth, the ability to redeploy cash and capital into attractive M&A, as well as super organic opportunities like the pension risk transfer that you heard about.
Our free cash flow also enables us to comfortably service our debt and return capital to shareholders through a sustainable and growing dividend and a program of regular share repurchases. We believe we've demonstrated a track record of being a good steward of our capital with balanced execution across these priorities. The last component at the bottom of this balancing act is volatility and risk. Increasing risk, either business risk or financial risk, can, in the short term, enhance certain metrics like growth in ROE. An increase in risk may be less apparent in more favorable portions of the business cycle, such as ones we may be seeing now, but can come back with vengeance in down markets. Overexposure to market sensitive businesses or high leverage can lead to volatile financial results and negatively impact valuation.
Our business mix is the first line of defense in risk management according to managed volatility, and we try to keep well-balanced between market and insurance risks. Prudential is well capitalized and has a robust capital protection framework and stress testing capabilities, which measure our ability to withstand both cyclical and extreme market stresses. We've taken significant actions to reduce complexity and volatility in our reported results, and I'll go through that in a bit more detail. We also have a strong risk management culture, and we're naturally conservative with a commitment to financial strength. We believe that getting this balancing act right creates value and financial strength and is core to all of our constituents. I'll now go a little bit further into each one of these areas.
I'm going to start with growth in ROE and first reiterate a couple of points that Rob made earlier. We have a complementary mix of businesses that are competitively well positioned and together have produced an average annual growth in earnings per share of 9% over the last five years. Similarly, book value per share, plus dividends grew at an average annual rate of 10% over the same period. While at the same time generating a superior ROE that is above our cost of capital. Back in 2010, we set the objective to achieve an ROE of 13%-14% by 2013, and that objective was accomplished and maintained. In our guidance call last year, we moderated that objective to 12%-13% to reflect the sustained low interest rate environment.
If you look back even further, our earnings per share is about 70% greater than our peak earnings prior to the financial crisis, and our book value per share has increased 85%, even after distributing dividends of over $15 per share. These results were driven by a combination of factors, including strong organic growth, particularly in our asset management business, which you saw, and annuities, and the super organic growth such as pension risk transfer. It began with GM and Verizon deals and now has continued with a regular flow of transactions since then. Also contributing to the growth was the successful integration of the Star Life and Edison Life businesses in Japan that we acquired from AIG, and the life insurance business in the U.S., which we acquired from Hartford.
We've done other more modest investments in acquisitions, including the Afore joint venture in Chile, which we've also discussed. We also benefited from some market tailwinds, and during this period, primarily from equity markets, which increased our assets under management and fees and also enhanced the non-coupon investment portfolio that Scott described. The combined result of these drivers generated both growth and strong returns and overcame headwinds, and those headwinds were sustained low interest rates and increased costs for enhanced regulatory supervision and expenditures to invest in the growth initiatives that we've described. Looking ahead, we continue to expect to generate superior growth in returns, which will be driven by fundamentally our business mix and the competitive positioning and profitability of these businesses, including the benefits from all the investments in growth that span our company.
We'll continue capital deployment that is aligned with both our strategic and financial discipline. We also expect to navigate continued market headwinds while continuing to invest in the longer term growth initiatives while maintaining a balanced risk profile. I want to talk a little bit more about headwinds and interest rates. Since the crisis, we've been in a sustained period of low rates. While rates are currently above the lowest levels of this period, they continue to be low by historical standards, which puts pressure on investment income and ROE. Having said that, the impact to earnings growth is moderating and may dissipate. We try to show that here in these graphs that over the last few years, the yield on new investments has been significantly below our book yield on our investment portfolio.
This is a simple way to illustrate the impact of low rates, and we think it's a useful headline metric to see how low rates reduce the investment portfolio yield over time and are a drag on earnings growth in ROE. This drag will continue to moderate as the yield on new investments, that yellow line, converge with the portfolio yield, both in the U.S. and in Japan. This projected trend would lessen the headwind on earnings growth caused by the low rates, and these level of yields are consistent with the moderated ROE target that we've articulated of 12%-13%. I'm going to shift over to the second set of priorities of cash generation and deployment. In 2015, we provided guidance that we expected our free cash flow will be approximately 60% of after-tax AOI on average over time.
As Rob mentioned earlier, this is a managed outcome that reflects the retention of capital to grow organically at attractive returns, balanced with the generation of free cash flow that is available to enhance our financial strength, pursue M&A and jumbo PRT, and to return to shareholders through dividends and a regular program of share repurchases. Over the last five years, nearly $12 billion of capital was returned to shareholders or deployed in M&A, which represents approximately 55% of our cumulative adjusted operating income. We also improved our financial strength considerably, including a reduction in debt and leverage ratios over this period, which I'll cover in more detail later. You also see in the box that dividends per share have grown at an average annual rate of 14%. This is very consistent with our philosophy of a sustainable dividend that grows along with earnings.
At the end of the year, most recently, our board increased our quarterly dividend by 7% or $0.05 per share to $0.75 per quarter. In addition to dividends, regular share repurchases have occurred and we'd expect to continue to occur, but may be more variable depending upon, one, the availability of attractive capital deployment opportunities. An example of that occurred in 2012 and 2013, where we reduced our share repurchases to fund the Hartford Life acquisition and did not repurchase the full $1 billion authorized by the board in those years. Share repurchase activity may also vary with periodic opportunities to release capital. For another example, in 2016, last year, we generated significant excess capital from the cumulative gains of our JPY hedge program and the restructuring of variable annuities business.
These, and the normal capital generated from our businesses, allowed us to fund the $700 million of acquisitions, primarily again, our 40 joint venture in Chile, and increase our share repurchase program to $2 billion. For 2017, the current year, our board has authorized $1.25 billion in share repurchases, we've completed about 25% of that in the first quarter of this year. This slide looks at capital redeployment from our international businesses. As we discussed earlier, our operations in Japan is very profitable. We're frequently asked about our ability to repatriate capital from our international operations, in particular from Japan.
Since 2012, we have redeployed capital from our international businesses that's approximately 60% of international's after-tax AOI, that excludes capital that was generated from our JPY equity hedges, it also excludes the capital we used to partially fund the Star and Edison acquisitions. We have three primary mechanisms to redeploy capital from our Japan operation. Our Japan companies may repay debt back to the holding company that was used to partially fund the acquisitions of those in Japan. They can lend to affiliates, our companies in Japan may lend to the holding company, PFI or other affiliates, according to regulation, pay dividends, they've done so regularly over recent times. We expect to continue distributions consistent with these historic levels using these and other available means. Shifting to the topic of financial strength. This is a look at our equity and debt.
You can see on this slide, we have supported the growth of our businesses with increases in capital while also strengthening our capital structure through increased equity and reduced debt. We are currently operating below our financial leverage ratio target of 25% and our total leverage ratio target of 40%, which provides us with flexibility. You can also see over on the right that junior subordinated debt, or what we call hybrid debt, is a key component of our capital structure. Hybrid debt receives equity credit from certain rating agencies due to its subordinated credit terms and position. We target hybrid debt to be 15% or less of our capital, it's currently 13%, so we are close to our target capital mix.
Hybrid debt is an efficient way to fund a limited portion of our capital, it plays an important role in our capital structure. While the majority of our hybrid debt was issued prior to being designated a non-bank SIFI, our hybrid debt does qualify as Tier 2 capital under Federal Reserve standards, we have a regulatory call provision. We have the option to call our hybrid debt at par if the following three conditions occur. 1, a group capital standard is imposed by regulators. Rob just mentioned there's a lot of activity underway to develop a group capital standard, but currently one does not exist. There must be a change in law or regulation regarding that group capital standard, the hybrid debt must lose its Tier 2 treatment or equivalent treatment because of the change.
Absent these three conditions, the par regulatory call of our hybrids may not be triggered. Therefore, a regulatory call is not allowable if our SIFI designation is simply removed. I went through this because this has been an area of interest, and we hope you find this clarification helpful. Here's a look at cash and the sources of liquidity at our holding company. As of March 31st, we had $4 billion of what we call highly liquid assets, essentially cash and government securities, and it's well above our minimum target of $1.3 billion. We also have substantial sources of additional holding company liquidity, including our $1.5 billion innovative 10-year contingent capital facility that we put place in 2013. We have $4 billion from our bank credit facility.
It's a five-year credit facility that we renewed a couple of years ago in 2015. It's provided by 21 high-quality banks. I think all of which are here in the audience today. We also have indicated $2 billion of potential capacity from an intercompany liquidity account where we consolidate cash across our company and commercial paper. It's important to note we don't count on commercial paper in times of stress, but it is a source that we regularly use for short-term funding. We continue to hold substantial cash balances and maintain access to robust sources of liquidity. Turning to the topic of risk profile. Our business mix, as I mentioned before, is our first line of risk management. Our retirement asset management and insurance businesses drives that balanced risk profile.
On the left, you see our mix of business represented by their relative contribution to earnings. As you travel kind of clockwise around that circle, businesses move from primarily insurance-related risks to primarily market-related risks. We also think about managing the composition of our businesses by looking at the composition of underlying risk, similar to what's shown here on the right. Risks depicted here are measured by our internal risk-adjusted capital framework and excludes the benefit of diversification. We presented it this way because we require our businesses to price on the basis of their separate risk profile before any benefit from diversification that comes across the company. You can also see that we're roughly balanced between insurance and market-related risks. Market risks are reasonably balanced between interest rate, credit, and the combination of equity and real estate risk.
Our interest rate risk is relatively modest. You heard from Scott, we have a strong asset liability matching discipline, and we manage interest rate very tightly in the investable horizon. Our insurance risks include longevity, mortality, and policyholder behavior risks. In the next slide, I want to take a closer look at mortality versus longevity risks. Again, we manage our business to maintain a complementary balance between mortality and longevity risk. In doing so, we earn returns on their separate risk profile, yet the exposures to changes in life expectancy have some offsetting characteristics. We do not expect that mortality and longevity risks, however, will fully offset. They are highly complementary. Again, we don't reflect this in our pricing. Each of our longevity and mortality-based businesses price on the basis of their own risk profile.
The graphic on the left side shows our gross exposure to changes in life expectancy, both up and down, between our mortality-based businesses and our longevity-based businesses. The exposure to changes in life expectancy are largely balanced. The graphic on the right shows our actual offsetting results between longevity and mortality experience. The blue line is our mortality experience. You'll notice that it goes up and down and tends to have seasonality that occurs in the first quarter. The green line represents our longevity experience. It's asymmetric with respect to the mortality experience. It's not a perfect offset, but it confirms the complementary nature of the businesses. The lighter dot that goes across is the net result. It's positive in almost all periods except when we have seasonality dips in the first quarter.
It shows a net contribution to earnings above what we would expect to earn from each business separately. Okay. Also in the topic of volatility and risk, we've updated a slide and analysis here that we've shown a number of years now going back. We think this is a good way to illustrate the economic sensitivity of our variable annuity business to various stresses. This analysis shows the future cash flows using baseline assumptions and then also assumptions that have varying levels of market stress and policyholder behavior changes. It does not reflect the earnings on or the release of any of our existing statutory reserves and capital that total $11 billion. We believe our variable annuity business is attractive, well-managed, and high returning.
With the maturing of experience and the restructuring of the business, we believe the volatility of these businesses has been reduced, and we earned attractive returns on this existing book. Given the size of the book relative to new sales, as well as reduced volatility, the businesses generate significant free cash flow. The results of this sensitivity analysis have not changed materially since we presented it a few years ago. On the far left, you can see the baseline scenario. The assumptions for this are provided in the appendix of your material. With these baseline assumptions, the present value of future cash flows, net of any claims or expenses, is approximately $18 billion. You see to the right a range of scenarios for both positive and negative market conditions or lower lapse rates.
The assumptions of each of these scenarios are in the rows below the bar graphs. In each scenario, the business is expected to generate strong future cash flows ranging from $27 billion in good markets or $3 billion with the combined impact of negative and lower lapses. You'll note that with our baseline scenario, the impact of lower lapses is positive. That's because we're retaining more profitable policies. In contrast, under negative markets, lower lapses have a modestly negative impact due to the retention of less profitable policies. We believe this continues to illustrate that even under very adverse markets, the cash flow profile of this business is attractive and resilient. The restructuring of our variable annuity business, which we completed last year, provides an efficient and less volatile platform and better reflects the economics of the business over the long term. Okay.
This page is also a reminder, we've shown it a few times, that several years ago we put in place our capital protection framework. Though our businesses have grown, the core objectives of this framework have remained the same. The framework is designed to provide the ability to withstand a range of stresses, including very severe or tail market stresses, and remain competitively capitalized. We hold capital and reserves to double-A standards, which ensures that we remain solvent in the event of very severe market stress. The objective of our framework is not only to remain solvent, but be sufficiently capitalized in order to remain competitive and able to write new business. The shocks of the tail stress are shown on the left. I won't go through all of them, but I'd highlight one that may be non-intuitive, which is the JPY appreciating to about 70.
While a stronger JPY is good for us in the long term, our JPY equity hedge program would require near-term liquidity funding related to settlements of hedges. Over on the right, you see the tools we have available to maintain a competitive capital position, including existing on-balance sheet excess capital capacity, macro hedges, our bank credit facilities, the $4 billion that we have in the U.S. and our new $1 billion facility in Japan, as well as $4 billion available under our Federal Home Loan Bank facility. We also have, at the bottom, contingent capital sources, which includes our $1.5 billion Five Corners Trust or PCAPS facility. We regularly update this framework and run very severe deterministic stresses. We add tools if needed to ensure our financial strength remains strong and competitive and our operating companies are well-positioned under varying degrees of stress. Okay.
On the last slide, coming down the home stretch here, is a few things on complexity and volatility. We manage our businesses with the financial discipline to ensure that we have a well-balanced risk profile and generate attractive risk-adjusted returns. We're able to withstand a broad range of insurance and market-related stresses. We also recognize the economics of our businesses need to be clearly and consistently demonstrated in our reported financial results. Frankly, complex GAAP accounting and regulations sometimes make this a challenge. Over the last several years, we've taken actions to reduce complexity in our GAAP earnings volatility while preserving sound risk management, regulatory compliance, and accounting standards. In 2014, we restructured our Closed Block and simplified the presentation of our consolidated financial results beginning in 2015.
In 2015, we implemented our foreign currency division structure in Japan, which substantially mitigated the significant volatility in our reported GAAP net income that resulted from an entirely non-economic FX remeasurement accounting. We also anticipate more stability of our variable annuity results due to the maturing of the policyholder experience and the restructuring associated with the recapture of our captive insurers last year. These actions combined addressed 80% of the historical breakage that we have seen between our GAAP net income and after-tax AOI. In addition, we've reduced duration management swaps by over 60%, and we've implemented hedge accounting where permissible. We expect these and other actions that we've taken will result in clearer and more consistent representation of our business performance in our reported financial results. All right.
now just to real briefly wrap up, we believe in a balanced approach to growth in ROE, cash generation and deployment, volatility and risk, which when combined with a consistent mission, business mix, risk profile and execution, results in financial strength and creation of value. This last slide sums up the key messages that I hope you take away with you. With that, thank you for your time. I think now Rob will join us we'll do a little brief Q&A, we'll also be available in the reception that follows. Thank you.
Okay, we are in the final Q&A session. Robert Falzon has joined, I see we have a question. I see we have two questions.
Joel Gross, ICMA Retirement Corporation. Both Ken and Scott, I'm curious having had to live with the SIFI designation over the past couple of years, how has that influenced your decisions in terms of investments and capital liquidity management, if any?
Sure. I'll go and then Scott can chime in. from a capital liquidity standpoint, as we've said, we thought we've demonstrated we've been well capitalized and well managed and well governed and all of our approaches have remained very consistent. in terms of our basic approach to things, no change at all. We have took it seriously and spent a lot of time demonstrating that with all of our regulators and including putting substantial documentation in place that supports that. from an overall change of how we manage things, no change at all.
Yeah, I think my answer, Joel, will be pretty similar. We originally had two discovery reviews that were sort of directly targeted to my group and then two exams last year. Good news is I don't have any exams directly focusing on my group this year. That's probably why I have a smile on my face. I don't think it's really changed our portfolio construction at all. I think we've had to have some pretty extensive discussions because constructing an insurance portfolio and what we do is in fact quite different from what occurs at a bank. I think that took a long time. I just echo Ken's point. I think where we really have made changes in some areas that I think were warranted, really related to documenting process. We've made some improvements, I think, on our model risk framework.
As far as the actual portfolio construction of what we do, I think they really saw the logic in the approach that we've taken.
Thank you.
Scott.
Hi, Scott Frost, State Street Global Advisors. I had a series of questions about the private placement portfolio, if I could. You talked about liquidity premiums being a quarter to three eighths. I'm assuming that's a blended range. Could you maybe break down single A's versus triple B's versus high yield and maybe how that's changed over the last five years?
I don't think I can actually do that on the fly given that I'm the customer.
Of course.
I will tell you that I started my career in the private placement group and actually was co-head of the credit training program, but I think that was in 1990. I think it was out of the '80s, but it was the '90s. What I can tell you, it actually varies deal by deal. I'm not even sure looking at it by credit rating. I think you'd have to actually take it down by sector and where appetite is in the market. We've seen it in the investment grade. I would say it bounces or averages three eighths but 18 to 50 is what you see, and it kind of depends on the deal. In the below investment grade, it's actually bigger than that as you might expect, but it depends on the nature of the deal. I'm not sure.
I actually don't think using averages there would be particularly helpful.
Has it changed over the last five years or is it pretty steady?
I guess what I would say is that it follows a cycle, right? It was really fat coming out of the financial crisis. We actually took a lot of market share. One of the things, I'll detour a little bit to give you a little bit of background on it. Pre-financial crisis when the market was hot you could take out a private placement, get somebody like Pru or maybe a Met to anchor it, then if it was a syndicated deal, you'd get a lot of investors in. Sometimes people taking a million or 5 million, and you'd end up with a syndicate of about 15 investors or something. Obviously the people coming in last would kind of pull the spreads down and the pricing down. At the end of a cycle, spreads are narrower.
What happened during the financial crisis is that a lot of borrowers, a lot of treasurers and CFOs found that when they needed to negotiate a change in their private placement, it was a company like Prudential with regional offices and a workout group that could sit down with them and say, "Hey, look, your company's kind of healthy, but you probably need to pick some of your interest rate." They could sit down with us and have a sophisticated conversation. When they got down to some of those small circle size, those 5 million, 1 million, 2 million guys, December 10th people were gone for the year. They had a problem in managing through. We've actually taken substantial market share following the financial crisis.
That's kind of a long answer, but I would say when markets are hot, and a lot of people are coming in, spreads get narrow. When times get tough, spreads blow out, a more complex deal is likely to have a wider differential.
That's what I'm trying to maybe get a little bit more flavor for. Maybe in terms of, you could talk about your hit rate and maybe your channel concentration, your top five providers, how much of the portfolio they provide. Do you take down whole deals? What percentage is that? By rating strata maybe, or some idea to give us an idea of how much more you're taking of this.
I'll tell you what.
Sounds like your Fed exam, actually.
I can take copies. That's fine if you want to provide.
Tell you what, let me answer kind of briefly on a couple of points, then I think if you want to do something separate with the channel, that can be discussed with Mark. Actually, about 70% of our business year to date has been directly originated. That means borrowers that we've lent to in the past have come back to us, and that's actually, this year, I think more true in Europe than it is in the U.S. For those transactions, on the preponderance of those, we're going to take the whole deal down unless it's really a jumbo deal, then we may in fact call one of our insurance company brethren, and bring them into the deal. You get a little bit of that club dealing that goes on on both the mortgage, in the private side.
It's the relationships that we have, the direct origination where we're going to do the whole deal and you're kind of referring to the widely syndicated market, and we do participate in that.
Right.
It's not our core.
Right. The defensibility of the niche is that you have a direct line without a counterparty in a lot of the deals. That's the reason you're not seeing a lot of crowding with. When we see a scramble for assets, we just wonder why. Is it a defensible share? Is that the right way to read what you're saying?
Yeah. I'd reiterate the first point I made. CFOs and treasurers have memories. CIOs have memories. When you go through a financial crisis and you find out who's there and who's not, you remember. We were there, and we picked up market share on both the mortgage side and the private side, and people remember that.
Great. Thanks.
Any other questions? Scott?
I have more.
We'll make you an honorary Fed examiner today.
Oh, joy. All right. On the page where you talk about your VAs, how should I read the lapse line there? You're saying that just the lapse rate goes down by 20%. How should we think about the extension? How long do you expect the policyholder normally to hold onto the policy and then under these scenarios, the moneyness is dear to him, so he doesn't lapse, he doesn't turn in his policy like you would think. How should we look at that?
Yeah, actually two years ago, we spent a fair amount of time on that. Because we did make a change in 2014 in our lapse assumptions where we looked and it was done with a lot of research, including a lot of data analytics, where we look at not just the in-the-moneyness of the policy but the level of interest rates, in any given scenario. As policies become more in the money and interest rates go lower and there are less alternative products to invest in, we would expect that lapse rates would go extremely low. That's what we call our dynamic lapse function. Again, we put that in place back in, I think 2014. It's not as simple. Our baseline assumption is kind of lapses as you see them today.
As interest rates go low and policies go in the money, the lapse rate goes extremely low.
It's a parallel shift in the curve essentially with that assumption.
Okay. If I look at the PV of the cash flows, am I to look at this as distributable cash flow? What does that number kind of mean to me as a capital provider?
Just very simply, it does not include, again, the existing reserves today or capital. It just simply as fees are earned in the early time, those are valued and then as claims emerge offset by hedge results, those are valued at the time they occur. It's just a very straight simple value of the cash flows. It's not predicated on retaining capital or earnings return on that capital over time.
Okay. Also, thank you for the comments on the hybrids. That was very helpful. Appreciate it.
Okay.
Clarifying that.
Yeah. You're welcome. Any other questions? Nope.
You're taking them. It's a rare opportunity.
Very different question. You guys are very active in the PRT space. You've spent, I think every speaker has mentioned it one way or the other. You talked about taking in more defers. That would be actives and terminated vesteds. People no longer working at the company. They might be 40, 45 years old, perhaps even younger. They could get to retirement. They could marry somebody who's 30. They could live to 100. That's huge tail risk. How do you match your investments to your liabilities? I think you guys have lived this because the lore is you still have pensioners from the Cleveland Public Library from the 1920s.
Librarians never die.
I'm just curious how you do that as it grows, especially from a low interest rate environment.
Yeah. I'll take a first stab at it, and Ken, you can jump in. First, we actually think about and participate in the marketplace on a fairly selective basis. Part of that is we actually look at, in the business that we choose to pursue, what the concentration of deferreds would be, and importantly, within that, understanding if we've got deferreds, what does that do to the age cohort on average that we're underwriting. Our discipline around that has caused us to maintain an average age cohort on the book today. I think Steve provided the number. I think it's 75 years old as of today. Used to be 72, but the book is aging, the cohort has aged along with it. We're actually very sensitive to the tail risk that is associated with the deferred.
Now, having said that, what I would say is, even within the population of 70-year-olds, 70, 75-year-olds, you have tail risk that can come about as a result of people living a lot longer and/or marriage succession rights or things like that. We are very conservative in how we underwrite that. In our best estimate that you'll see on our books and liability, we actually don't simply deal with the current life expectancy. We'll actually take that out, assuming there's going to be continued improvement in life expectancy and longevity. In the way in which we hold capital, we actually assume a more extreme outcome from the standpoint of improvements in mortality to the point where the way in which we like to describe the scenario that represents the way in which we hold capital is it's effectively the same as assuming there's a tomorrow cure for cancer.
That over the next 5 years, that's rapidly implemented across hospitals. In the next 10 years, that it's 50% reduction in cancer across all types of cancer. That's how we hold capital. Now, I will say that when you look at an average age cohort in the 75 versus a cohort of 45, the impact of that is going to be measured in years for a 45-year-old. The reality is it's going to be measured in months for a 75-year-old, because at that age, if you don't die of cancer, you're going to be dying of something else, for better or for worse. That's one of the reasons we find that the concentration and discipline around managing age cohort to be particularly important as we enter into that longevity business. I don't know, Ken, if you want to add anything to that?
No, the only thing I'd add is, yeah, we are very cautious on that risk. We do measure it, and so to the extent that we do take those type of risks, it gets a much higher capital treatment. Due to the uncertainty, it would require a higher return as well. We set our capital standards and our return standards relative to the risk that we're writing.
Any other questions? Okay, I will invite Phil Waldeck, President of Retirement, to the stage.
Thank you, everyone. I'll be quick. I'm going to make one pile on the deferreds. 95% of our block is retirees. When you look at our new business, we're going to maintain that weighting. This is a very small slice of our exposure. In terms of this afternoon, really appreciate your weathering an afternoon, whether it's the external weather, whether it's in the rain, whether it's the heat inside here. It's been a great discussion. It starts with understanding the businesses, and when you think about our business mix, it not only gives us opportunities for growth, but that's central to our risk management. We're very deliberate about what businesses we're in and how those businesses combined create a greater platform, both in terms of risk management and growth. Ultimately, it is a balancing act, as Ken described.
A balancing act that includes growth and return on equity, but also cash generation and deployment, and risk management and control of our volatility. The real art is getting the balancing act correct between those three. What we appreciate particularly, though, is your engagement, your partnership. Together, we've made an impact that I'm proud of, and I think it's an impact that really is impacting the financial security of millions of individuals, and that's what we plan to build on. Let's pause for now. We have a reception as well as some reception and cooler air. See you upstairs, two floors up. 57 is the room. Think 57th Street. Thank you.