Great-West Lifeco Inc
TSX:GWO
Earnings Call Analysis
Q4-2023 Analysis
Great-West Lifeco Inc
The company wrapped up the year with a robust final quarter, delivering record base earnings and EPS, underscoring the success of its strategic focus and execution. Wealth and retirement businesses emerged as strong points, contributing $30 billion in positive net flows. Particularly noteworthy was Empower’s performance, surpassing the $1 billion mark in Canadian based earnings, reflecting effective portfolio repositioning and capital efficiency improvements.
The fourth quarter closed with base earnings of $3.7 billion and a base EPS of $3.94, each marking an 11% increase over the prior year. Return on Equity (ROE) inched up close to a full point, attaining 17%, while the book value per share also saw an uptick. The completion of the Putnam Investments sale exemplified strategic asset realignment, while in Canada, acquisitions bolstered their wealth assets to over $100 billion, positioning Canada Life for further growth.
Empower's strategic moves, including the disposal of individual life insurance and the enhancement of the retirement scale through acquisitions, reflect a conscientious effort to position the business for long-term sustainable growth. These strategic acquisitions, coupled with continual organic growth, have raised Empower's industry standing to the second-largest workplace retirement plan provider in the U.S.
In Canada, the company saw a significant 22% increase in Group Life and Health premiums, spurred by new partnerships and organic growth, reinforcing its leading position in the Canadian market. Group Retirement and individual wealth also witnessed considerable growth. While CSM declined due to amortization and insurance experience, it's not deemed a key growth metric, aligning the focus on customer value with disciplined pricing.
The Capital and Risk Solutions business continued to provide diversification benefits and boosted short-term earnings by 25% over the prior year. Additionally, European markets maintained solid growth with top and bottom line advancements and strategic transactions expected to bolster earnings in Europe over the medium term.
The company sets a confident stance entering 2024, forecasting a 15% to 20% growth in base earnings, predicated on healthy equity markets and stable interest rates. With significant demand in the sales pipeline, the company believes it's well-positioned to sustain organic growth across both Workplace and Personal Wealth sectors.
Financial health indicators such as book value per share and leverage ratio presented positive results, with an 8% increase in EPS over Q4 of the previous year. This rise was fueled by adept performance across multiple segments, with an expectation to realize remaining synergies from the Prudential business integration by the second quarter of 2024.
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Thank you for standing by. This is the conference operator. Welcome to the Great-West Lifeco Fourth Quarter 2023 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Paul Mahon, President and CEO of Great-West Lifeco. Please go ahead.
Thanks, Ariel. Good afternoon, and welcome to Great-West Lifeco's Fourth Quarter and Year-end 2023 Conference Call.
Joining me on today's call is Garry MacNicholas, Executive Vice President and Chief Financial Officer; And also joining us on the call and available to answer your questions are Jeff Macoun, President and COO Canada; Arshil Jamal, President and Group Head, Strategy, Investments, Reinsurance and Corporate Development; Raman Srivastava, Executive Vice President and Global Chief Investment Officer; David Harney, President and COO, Europe; and Ed Murphy, President and CEO of Empower.
I've asked David Harney and Ed Murphy to deliver part of our formal presentation to highlight significant milestones in their segments.
I'll now draw your attention to our cautionary notes regarding forward-looking information and non-GAAP financial measures and ratios on Slide 2. These cautionary notes apply to the information we will discuss during the call today.
Please turn to Slide 4. Building on our strong earnings trajectory through 2023, we delivered excellent results this quarter. We're thrilled to close the year with record base earnings in the fourth quarter and back-to-back quarters with record base EPS. Our focused strategy supported by disciplined execution and trusted brands continues to deliver strong performance against our value creation agenda, including our medium-term financial objectives. We have strong momentum across our value drivers.
Of note, our wealth and retirement businesses remain a point of particular strength, together generating $30 billion in positive net flows this year. At Empower, we crossed the $1 billion Canadian based earnings mark, exceeding the objective we set at the beginning of 2023. The actions we have taken to reposition the portfolio and enhance capital efficiency are supporting both our near-term and long-term growth.
On January 1, we completed the sale of Putnam Investments to Franklin Templeton. This combination furthers our strategy of building strategic partnerships with best-in-class asset managers to support our customers and clients. The transaction was executed on attractive terms, and Garry will share more on this out later in the presentation.
In Europe, we closed to new business for our subscale onshore wealth business and reinsured a large block of annuity business to improve capital efficiency. David Harney will take you through these actions and provide a strategic update on Europe following my comments.
Please turn to Slide 5. Our fourth quarter results closed an outstanding year across Lifeco. Base earnings of $3.7 billion, and base EPS of $3.94, both increased 11% over the prior year. Base ROE increased to 17%, up nearly a full percentage point over the prior year, and book value per share also increased. Our capital position remains strong with a solid and stable LICAT ratio. Our leverage ratio decreased to 30% following the repayment of $100 million in short-term U.S. dollar debt related to the Prudential acquisition and repayment of a EUR 500 million bond.
Please turn to Slide 6. Our repositioned portfolio continues to support strong performance against our medium-term financial objectives. We delivered at or above these objectives on a 1- and 5-year basis. Base EPS growth of 11% exceeded our target range of 8% to 10% over both time periods. Base ROE of 17%, and a dividend payout ratio of 53% in 2023 were within our target ranges. Please note that we've shown a 2-year average base ROE of 16% in the 5-year column as there are no applicable IFRS 17 figures for the prior years. Our focus on disciplined capital allocation across our 3 value drivers leaves us well positioned for continued strong growth.
Please turn to Slide 7. We have seen tremendous performance in our Empower business. Over the next few months, we'll take the final steps in the integration of Prudential's retirement business. So it's a good time to take a closer look at how we've repositioned our U.S. business for growth today and into the future. In 2018, Lifeco had 3 distinct businesses in the U.S. While each business had strong teams and capabilities, they were subscale. One of our core Lifeco strategies has been to build scale businesses with strong organic growth potential. This drove our decision to increase focus on the anticipated consolidation of the U.S. retirement market.
Over the last 5 years, we've undertaken multiple transactions to position Empower with the scale and capabilities to drive long-term sustainable growth for Lifeco. An early step was the divestiture of our individual life insurance and annuity business in 2019, bringing up capital and sharpening our focus on Empower growth. The acquisition of the retirement businesses of MassMutual and Prudential significantly expanded Empower's retirement scale and capabilities. Together, these acquisitions, along with Empower's market-leading organic growth, have positioned us as the second largest workplace retirement plan provider in the United States. And the 2020 addition of Personal Capital introduced new capabilities that supported the launch of Empower Personal Wealth. This business extends Empower's reach from the workplace to where it now has the potential to serve the wealth management needs of millions of Americans while in plan after rollover or through direct-to-consumer relationships outside Empower.
The recent sale of Putnam has unlocked value, established a strong partnership with the combined Putnam Franklin organization and provides an even sharper focus on Empower's next phase of growth. There's a lot of excitement about the future to Empower, and Ed will provide an update later in the presentation.
Please turn to Slide 8. In Canada, we made great progress against our strategic objectives in Workplace and Wealth this quarter. Group Life and Health premiums were up 22% year-over-year due to the addition of the public service health care plan as well as strong organic growth in our existing book. These results reflect our leading position in the Group Life and Health market in Canada. In Group Retirement, we saw solid growth over the last year due to net inflows and the impact of positive equity markets. We remain focused on strategies to enable capital-light growth, including continued improvement in plan member rollover asset retention. In individual wealth, the completed acquisitions of Investment Planning Counsel and Value Partners increased individual wealth assets to over $100 billion at year-end. These additions establish Canada Life as a leading nonbank wealth manager in Canada and position our business for stronger growth and performance going forward. In Insurance and annuities, our CSM declined year-over-year largely due to amortization and insurance experience. As we previously noted, we continue to approach nonparticipating insurance with a focus on customer value, balanced with pricing discipline, and we do not consider CSM to be a key growth metric.
Please turn to Slide 9. Our Capital and Risk Solutions business continues to play a complementary role and create value for the portfolio. Our Reinsurance business provides diversification benefits and continues to be a source of steady stable returns and cash generation. Earnings on short-term business increased 25% over the prior year, reflecting growth in the structured business. Please note that this business is accounted for on the PAA basis, which does not impact CSM.
In addition, while the market for longevity reinsurance remains very competitive, we completed a new longevity reinsurance transaction agreement, covering GBP 1 billion of pension liabilities with an insurance company in the U.K.
Capital and Risk Solutions continues to see solid new business momentum, and we'll maintain discipline as we leverage our strong capabilities to support existing client relationships and identify value-creating opportunities to grow in new markets.
And with that, I'll now turn the call over to David Harney to provide an update on Europe. David?
Thank you, Paul. Please turn to Slide 11. Our businesses in Europe maintained positive momentum in the quarter with solid top line and bottom line growth. Group insurance premiums, wealth and retirement assets and CSM had year-over-year growth in the mid-teens. This performance reflects strong market positions for our different product lines and the stable nature of financial necessities like group benefits, annuities and retirement savings. Group Benefits and Retirement savings also continued to be supported by strong employment and wage inflation in our 3 markets. In Workplace, we saw strong organic growth again in Group Life and Health in both the U.K. and Ireland. We are one of the leading providers of group risk benefits in the U.K. and the market leader in Ireland. Irish pension sales were also strong, where again, we are the market leader. We achieved good growth in wealth, which is reflected in positive net inflows for the quarter and throughout the year. We expect this solid performance to be further strengthened as we continue to build out our wealth strategy in Ireland under the Unio brand and through our joint venture with Allied Irish Bank. Within Insurance and Risk Solutions, we see continued strong individual annuity sales in the U.K., supported by higher interest rates and we have improved our competitive position in the bulk annuity market. These sales, in addition to a gain from reinsuring an existing block of U.K. annuities helps drive CSM growth of 17% year-over-year.
Please turn to Slide 12, Europe actions to enhance returns. Our broad product offering in the strongly growing Irish economy and targeted product offerings in the U.K. and Germany make our businesses in Europe well placed for sustainable long-term growth. We have taken numerous actions during 2023, which will further strengthen our European businesses. In the fourth quarter, we took several deliberate actions, which we believe will position us for enhanced capital return and earnings growth. We completed the sale of a portfolio of Irish Life policies from our previous distribution agreement with Allied Irish Bank to AIB Life. This adds scale to the joint venture and accelerates its time to profitability.
In the U.K., we announced the closure of our onshore wealth business to new business where we lacked a meaningful presence. We have taken cost actions across our markets to improve our cost profile and we completed an external reinsurance placement of a block of annuity business in the U.K., consistent with our focus on cash generation and improving capital returns. These actions followed earlier announcements in 2023, including the sale of our onshore U.K. individual protection business, where again, we did not have the scale to compete. The combination of our advisory businesses in Ireland and the launch of our new wealth brand, Unio. Unio is performing strongly, and sales have increased 20% year-over-year. We also launched our joint venture, AIB Life, successfully replacing our prior distribution agreement with Allied Irish Bank. AIB Life is also performing very well and have already reached the same level of sales as our prior distribution agreement. These actions alongside the quarter 4 actions are expected to enhance earnings in Europe over the medium term. I'll now turn the call over to Ed Murphy to discuss the Empower results.
Thank you, David, and good afternoon, everyone. Please turn to Slide 14. We delivered a strong quarter at Empower with positive cash flows and strong organic growth across both Workplace and Personal Wealth. This continues an extended period of growth that has been our hallmark since the launch of Empower. In Workplace Solutions, we continue to earn new business, capitalizing on our market position with a differentiated offer in the retirement services space. Defined contribution plan assets were up 17% year-over-year to $1.5 trillion. This reflects positive cash flows and the benefits of higher markets, both in quarter and for the full year. Participants grew 3% year-over-year with organic growth at 4%, partially offset by expected attrition from the Prudential book.
In our core market, I should note, and these are plans under $75 million, we had a record year with sales exceeding $10 billion. A key ingredient to our continued success in the Workplace is our ability to create effective partnerships between Empower and the Financial Advisory Community. Last week, a key trade publication PLANADVISER published survey results showing Empower has achieved top rankings in more than half of the survey categories, including value for price, online tools, analytics, quality and service. Empower Personal Wealth saw a strong organic growth. This was the first year of operations as a combined business as we brought personal capital in the existing Empower retail business together and we couldn't be more pleased with the performance. Assets under administration was up 31% year-over-year, and sales were 13% higher. We've been the beneficiary of both strong net inflows and positive markets. Ours is a challenger brand, and we continue to develop this business and are extremely excited about the prospects moving forward.
We are making terrific progress with the integration of Prudential. Our team is highly skilled in this area as we work towards completing the integration program. Our team brings a deep commitment to both delivering quality and achieving our synergy goals. The retention levels of the Prudential business remain above original expectations. This includes assets, participants and revenue retention. We have achieved run rate cost synergies of USD 80 million at the end of 2023, with 2/3 of the remaining USD 100 million of cost synergies expected to benefit 2024. Please turn to Slide 15. As Paul articulated, we've been on a deliberate strategy to focus efforts on building a scaled, profitable presence in the U.S. Retirement and Wealth Management markets. I wanted to provide you an overview of how our businesses have delivered and a view of how our combined momentum into the future. The bolstering of our Empower franchise with 3 acquisitions has given us both scale in terms of overall market share as well as enhanced capabilities to deliver market-leading growth. Since 2014, we've migrated 48,000 plans and 6.7 million participants with a balance to the Empower platform from 10 legacy systems. In addition, thanks to the Personal Capital acquisition, 18 million planned participants now have access to an improved digital experience. This work has led to a doubling of assets and participants since 2020. Driving material scale benefits and strengthening Empower's position as the second-largest retirement services provider in the United States. Today, we serve the needs of 18.5 million individuals and administer more than $1.5 trillion in assets. The U.S. retirement market continues to be fragmented with subscale players. We believe the market will continue to consolidate and that Empower is well positioned to take advantage of a consolidation as a key player at scale and with a track record of strong execution in this space.
Please turn to Slide 16. Our scale has contributed to delivering organic net flows in our defined contribution business that have averaged 4% annually. In the context of an industry that's experiencing net outflows, we are taking market share from competitors. Empower is committed to the Retirement Services market. Our investments in technology and added capabilities demonstrate our commitment, one that is recognized by both customers and intermediaries alike. We believe this is a critically important factor in our continued growth. On the Personal Wealth side, following the acquisition of Personal Capital in 2020 and with continued focus and investments since then, net flows have grown strongly, averaging 21% annually while wealth clients are up 268% or a CAGR of 54% over the 3-year period. This impressive performance is a testament to Empower's personal wealth offering of a powerful and unique digital experience, coupled with human advice.
As we move into 2024, we are pleased with our market position and look to capitalize on the investments we've made over the last few years.
Please turn to Slide 17. With this combination of increased scale and growth, base earnings have grown by 4x in 3 years and base ROE has doubled. This includes the remaining synergies we expect to deliver in 2024 from the Prudential transaction. The capital deployed in recent years to drive this growth is paying off in the earnings and ROE growth. Further, the U.S. segment has funded approximately 50% of total acquisition price of Personal Capital, MassMutual and Prudential Financial, included associated financing. Putnam proceeds are included it's 2/3. This is further demonstration of the strong capital allocation decisions Paul shared with you earlier in the presentation.
I'm truly excited for what the future holds as we continue to build the Empower franchise and long-term sustainable growth in the U.S.
I'll now turn the call over to Gary to review the financial results.
Thank you, Ed. Please turn to Slide 19. EPS of $1.04 was up 8% from Q4 2022 driven by strong performance across the segment with Canada, the U.S. and CRS, all showing double-digit increases year-over-year. As shown by the top 2 roads in the chart on the right, this balanced performance across segments was a continuation of what we saw in Q3 and in fact, it has been a consistent theme in our results throughout 2023. Quarter-over-quarter, base earnings increase was up 2%, primarily a result of more favorable insurance experience and higher net fee and spread income, partially offset by expenses, credit impacts and a higher marginal tax rate. In Canada, base earnings of $301 million were up 16% year-over-year, driven by strong group disability results and higher investment earnings, partially offset by higher drug claims and expenses as well as a higher tax rate this year. In the U.S., base earnings of $261 million were up $46 million year-over-year or 21%, benefiting from markets and continued strong organic growth at Empower. On the revenue side, there was growth in asset-based fee income from the higher average equity markets and increases in other participant transaction-based fee income based on growth and volume. On the expense side, results now reflect the full mass mutual synergies, and we are on track to deliver the remaining targeted synergies on the Prudential business in Q2 2024. Base earnings were impacted this quarter by our commercial mortgage credit impairment, which somewhat dampened what was otherwise continuing strong growth. In Europe, base earnings were down 17% year-over-year. Improvements in insurance experience, higher surplus income and benefits from currency were more than offset by lower trading gains than we saw last year. Q4 2022 benefited from significant trading gains as accumulated spread assets were allocated to in-force business, whereas this quarter, newly sourced spread assets were deployed against another strong quarter of individual and bulk annuity sales. This new business contributes to CSM growth in Europe, which David noted earlier. However, unlike trading gains, the CSM growth is amortized into earnings over time rather than being reported as a gain in quarter.
The Capital and Risk Solutions segment, CRS, had another strong quarter with base earnings up 30% year-over-year. We continue to see strong organic business growth, particularly in the structured reinsurance portfolio, contributing to the earnings uplift. In addition, there were favorable claims development on the previous year's P&C catastrophe events partially offset by unfavorable U.S. life reinsurance mortality experience. Turning to net earnings. Overall net EPS from continuing operations was $0.80 per share. The GAAP to base earnings is primarily due to market-related experience. Net EPS was up 55% from last year, driven by higher base earnings and a lower impact from market-related items, and I'll cover market-related on the next slide. So turning to Slide 20. This table shows the reconciliation from base to net earnings. Net earnings from continuing operations were $743 million and within the excluded items, there were 2 areas that drove most of the result. The first is market experience relative to expectations. As noted on our Q2 and Q3 2023 earnings calls, these are typically items that we would expect to oscillate around zero over longer periods, although they will vary quarter-to-quarter. We have added disclosure into our materials this quarter so that the impacts can be tracked more readily over time and by subcategory, public equity, real estate and interest rates. For the 2 years on an IFRS 17 basis, the overall net impact has actually been positive with the benefit from higher interest rates being only partly offset by the related pressure that higher rates have had on real estate valuations. This quarter, the negative market experience was primarily driven by decreases in interest rates in Canada and the U.K. and lower real estate valuations in our Canada and U.K. property portfolios. These impacts were partially offset by higher-than-expected returns on our public and private equity portfolio that are primarily in the Canada segment. I would highlight that although the decrease in interest rates was a drag on net earnings, the overall impact of interest rates on our LICAT ratio was positive. The impact to net earnings and on our LICAT ratio are in line with our expectations and driven by conscious decisions in our ALM approach and accounting policy choices as we moved into IFRS 17 and 9.
The second area relates to deliberate actions we took within the quarter to reposition our businesses in Europe, as outlined by David earlier, with the impacts arising in both management actions and business transformation costs. The net impact from the Europe actions was a positive $78 million, supported by the gain on sale of an in-force book of policies from Irish Life into the joint venture with AIB Life, which helps bring the joint venture more rapidly to scale. This helped to offset restructuring and other costs.
In addition, an external reinsurance transaction for a block of in-force U.K. annuities was completed on attractive terms. However, similar to new business gains, the gain on the transaction goes into CSM and will come into earnings over time. The remaining items excluded from base relate primarily to the amortization of acquisition-related finite life intangibles, which we expect to persist over the medium term.
Turning to Slide 21. In the top rows or the drivers of earnings table, you can see expected insurance earnings of $743 million, up 6% year-over-year due to business growth, particularly in short duration renewable contracts like group insurance and the structured reinsurance portfolio in CRS. The overall insurance result of $854 million was up 27% year-over-year, and these are pretax numbers just as a reminder, driven by favorable insurance experience this quarter.
There were strong morbidity gains in Canada and the U.K. and favorable claims development in P&C, partly offset by continuing unfavorable mortality experience within the U.S. life reinsurance portfolio. The net investment result of $212 million was down 20% year-over-year. This was mainly driven by lower trading activity impacts in Europe which as mentioned earlier, had recorded large gains in the prior year and a more normal quarter this time and an increase in credit charges. These were partially offset by the benefit of higher interest rates on surplus earnings that we've seen throughout the year. Net fee and spread income related to our noninsurance businesses were up 17% year-over-year, supported by higher equity markets. Most of this result is driven by Empower.
As noted earlier, we benefited from asset-based and transaction-based fee streams for this business while also benefiting from the realization of acquisition-related synergies. Non-directly attributable and other expenses were up 8% relative to the prior year due to business growth and higher variable compensation expenses related to the stock strong performance of the GWO stock price. The effective tax rate this quarter was 16% on base shareholder earnings, reflecting the jurisdictional mix of earnings, including the growing U.S. contribution and a very limited impact of onetime tax items.
Overall, we achieved record base earnings of $971 million, a reflection of continued strong results across all the segments.
Turning to Slide 22. The book value, LICAT ratio, return on equity and financial leverage numbers are shown on an IFRS 17 basis. The Q4 2023 book value per share of $24.26 was up 4% year-over-year and 1% from last quarter driven by the growth in retained earnings. It is also worth highlighting that our book value per share has steadily grown since the move to IFRS 17 and is now only 2% below to $24.71 level pre-transition. The LICAT ratio of 128% was the same as the prior quarter and down slightly from the prior year. As noted on our Q3 2023 call, the closing of the Investment Planning Counsel transaction in Q4 2023 was expected to reduce the ratio by about 3 points. However, this impact was largely offset by the capital savings from the external reinsurance as part of the repositioning [indiscernible] balance sheet.
Strong base earnings have continued to support ROE with a result of 16.6% this quarter, which is well in the upper half of our medium-term objective, 16% to 17%. Financial leverage reduced to 30% on the growth in equity and the payment of USD 100 million to fully pay down the short-term debt facility that had funded part of the Prudential transaction. If we turn to Slide 23, there are a couple of factors I'd like to call out that will have an impact on 2024 earnings. The first is the Putnam transaction, which closed on January 1, [Technical Difficulty] the transaction resulted in a modest gain, which will be recorded in the Q1 2024 results. The proceeds from the disposition along with the remaining assets will remain part of the U.S. segment business along with Empower. The impact on base earnings for Empower is expected to be approximately CAD 75 million after tax, coming primarily from the expected return on the Franklin Templeton shares, which will support regulatory capital. Bear in mind, these shares will be mark-to-market each quarter, so this will add some volatility to the net earnings result. And the second I'd like to point out is the introduction of the OECD global minimum tax in 2024. Given our current mix of business, the additional taxes are expected to have an approximate 3% impact on base earnings, all else being equal, with about 2/3 of the impact of rising in Capital and Risk Solutions at about 1/3 of the impact in the Europe segment. It is not expected to impact Canada or the U.S. and taken together, these 2 matters are expected to have only a modest impact and would not influence our business plans or our growth objectives.
And with that, I'll turn the call back to Paul for closing.
Thanks, Gary. Please turn to Slide 25. This quarter also marks a leadership transition as we welcome Jon Nielsen as Chief Financial Officer, Fabrice Morin, President and Chief Operating Officer, Canada; and David Harney with expanded responsibilities for our Capital and Risk Solutions segment in addition to his current role leading our European segment. I'd like to personally thank Garry MacNicholas, Jeff Macoun and Arshil Jamal for their dedicated contribution to our company's success over their respective careers, each spanning multiple decades.
Looking ahead, we remain focused on delivering growth and strong shareholder returns across our 3 value drivers, particularly in Workplace and Wealth. We are pleased to introduce the base earnings growth objective for Empower of 15% to 20% for 2024. This will be supported by unlocking value from the Prudential integration and continued strong organic growth at Empower Personal Wealth. To echo Ed's remarks, we are very excited about our prospects in the U.S. Retirement and Wealth markets. To close out, our formal comments, we are reconfirming our medium-term objectives and are pleased to announce that our Board has approved a dividend increase of 7% for a quarterly dividend of $0.555 per share. And with that, I will ask Ariel to please open the line for questions.
[Operator Instructions] Our first question comes from Gabriel Dechaine of National Bank Financial.
Just wanted to talk first about the Europe segment. And just to confirm, that Reinsurance transaction is already done and it's in the CSM and future earnings is the impact, correct?
That is correct, Gabe.
Then more broadly, you listed a bunch of actions you've taken to improve performance in the segment in your slides to say, medium term. Can you -- can you give me any -- I'm thinking that means 2, 3 years down the road, we'll see the uplift, maybe sooner. Can you give me any specifics number -- specific numbers like if there's a -- you've combined some businesses amongst other things? And what kind of cost saves you're expecting about these actions or anything else, the numbers are really...
Gabe, let me just position it at a high level, and then I'll turn that over to David Harney. So if you think about what we've been doing in the U.S., it was all about [Technical Difficulty] back in areas so we could focus in areas where we had what we believe the scale and strategic advantage to have a winning hand. And that's frankly the actions that David has been taking, working with the U.K. and other teams there. And ultimately, it's also been looking to optimize our capital structure because the strength of any of our businesses is not just about earnings growth, it's also about cash generation. So those are the 2 drivers of the decisions. And I'll let David provide a little bit of color, David?
Yes. So I suppose, maybe to give some guidance. Like overall, the contribution of Europe will feed into base earnings and CSM. And if you look at our sort of aggregate results for 2023, like our performance on base earnings and CSM would have been in line with expectations. Like overall in Europe, we're pretty happy with the macro position. We have a very broad position in Ireland. That economy is performing strongly, and we've targeted product positions then into U.K. and Germany, and we're happy with those. . But as Paul said then, like we're focused on having meaningful positions in all of our product lines and then we are focused on cash generation as well. So I think these combination of actions that I outlined, that will continue the top line growth that we're seeing in Europe, which will lead to a better feed through to the bottom line and to the cash generation. So I think if you take our [ arduous ] earnings position overall of 2023, you'll see thought on that or we expect growth on that into 2024 and then beyond that.
Yes. And another way to think about it, Gabe, is that we've pulled back in a few areas that and we've kind of doubled down on businesses where we believe there's strong growth. And so with sort of less capital exposed as we were going to be able to drive this off of the same sort of base, we'll have the same similar growth to what we've seen through 2023 going forward.
Now moving to Empower. The full year organic earnings growth rate, I'm not quite sure what it was, but Q4 was about 18% and upper end of that 15% to 20% target range you outlined this time a year ago. We're looking in the year ahead. You've got the synergies that you expect to fully realize. Do you expect a similar year of growth from Empower that you delivered this year?
So I'll turn it to [ David ] I'll make a couple of comments at a high level and then I'll turn it over to Ed to add some color. As you recall last year, we had deployed significant capital, and we did want to provide some insight into our expectations and we set out an expectation of 15% to 20% growth in base earnings. And the reality that we grew base earnings by 21% in the year. So we kind of outperformed the top end of that expectation. As we move into 2024, we're setting the same expectation, that same corridor of 15% to 20%. And obviously, that's taking into account healthy equity markets and stable interest rate environment. But the reality is the engine is working. Like if you really think about what this is, this is not just a roll-up where we're accounting for synergies. We are driving organic growth. It's organic growth, as Ed said, growing our defined contribution recordkeeping business at a rate of 4% offset a market that's shrinking and then driving a very high rate of retail growth.
Ed, do you want to add some more color to that?
I think Ed's there. Ed, you might be on mute I wonder. Ed, are you on mute?
Yes. I'm off now. No, I would concur with Paul's remarks. I mean we see a lot of demand on the sales side. The pipeline is very significant. So I think in terms of organic growth, we're very, very well positioned in both segments, both Workplace and Personal Wealth. And then as you referenced, we've got the synergies that are playing through, and we're really seeing strong expense discipline across the business. So I think you're going to continue to see strong operating leverage in the business, and we're comfortable with the way we're positioned right now.
Ed, I was just going to say, it also be fair to say that we're -- the Wealth business is proving its way, and this is early innings in the Wealth business. So we're in the early stages of growing that business. So we're going to have to continue to work that and -- but as you can see, there's been a real growth coming out of that.
While we've talked about the organic side, I think -- is Ed going to add to that or ?
I was just going to comment on the personal wealth side that we're still building out capabilities. We're still investing. And you could see the results very, very strong year, and we're off to a very good start this year. So that's still very much an investment business. We added over 500 people in the business in 2023. We have over 1,000 advisers. We're going to continue to invest and grow. We see tremendous demand there. . And then did you have a question on the acquisition side?
Yes, yes. You read my mind. You got a 30% leverage ratio at the top of the house. The Putnam proceeds were stuffed into the piggy bank of the U.S. subsidiary. And I got to ask the obvious M&A question. I'm sure your appetite is wetted. I'm just wondering are you seeing opportunities pick up?
That is great. I love your description there. Ed, I'll start off and then you can weigh in. I think you're right. We like where the leverage ratio is now. So we're sort of back into our target kind of operating range. I wouldn't say we stuffed those proceeds quite into the piggy bank. We're still holding a significant position that we think is very attractive in Franklin Templeton in the combined Putnam Franklin Templeton business. But the reality is we are reestablishing what you might refer to as firepower. And we absolutely believe that the U.S. market is one of the areas where we see the potential for deploying more capital and I think in Ed's comments, you talked about the market continues to be -- there's some subscale competitors, and so Ed, maybe you can just talk about how you think about it.
Now I will say the team there, and we kind of joke about it a bit, but it's no joke. They've delivered 3 significant acquisitions. So we might want to give them a month of rest or something. But at the same time, it's also -- it's -- one of the things I'd like to speak to is the muscle we have built. And it's really, Ed and his team have built to execute successfully on acquisitions. So why don't you speak to that, Ed, maybe and a bit about the attractiveness of the market. And I know you won't name names, but just the relative attractiveness of going to market.
Thanks, Paul. So just in terms of the talent side of it, I'll just make a quick statement there. When we bought the JPMorgan business back in 2014, 2015, with that transaction came tremendous domain expertise. And so a lot of that talent, and then, of course, we've added talent from the subsequent transactions that remained with us. So we've got really strong expertise around M&A. These are really complex transactions to, and complex systems to integrate, but we have a really good team that is highly motivated and incredibly effective in doing it. And so I'm confident that we can rise to the challenge as we go forward.
And then to Paul's point, the market is so fractured. There's so many subscale players. And I think our strategy is to be opportunistic. We're probably the only strategic buyer in the space in the defined contribution space. And so we're going to really get a good look at anything and everything that comes to market. And we'll make that assessment and we'll make that determination whether it makes sense for us. Is the timing right? Does it add talent? Does it add capabilities? Does it add scale in a way that benefits the business. And then the only other comment I would make is, again, we're very much focused on the task at hand with Personal Wealth, but I see tremendous opportunities to grow that business inorganically as well whether it's on the product side or on the distribution side. So it's really sort of both lines of business that we'll continue to evaluate inorganic opportunities as we move forward.
Our next question comes from Doug Young of Desjardin Capital Markets.
Just, David, back to yourself on Europe, and I see the restructuring that you have laid out. I guess I'm more curious about the plans for Germany because I do believe it's a broker distributed kind of seg fund type of business. You can correct me if I'm wrong. I'm not sure you have scale. I'm just trying to understand the strategy there. Are you investing more streamlining? And what's really the opportunity in that market for Great-West?
Yes, I'd say in Germany, like we've small market share, but it's a very big market, so actually reasonable scale, like we have 600,000 customers. And that's across the pension savings product there and the protection products. So we're very happy with that. Like we've invested quite a lot in Germany over the last few years just on the systems development. So we have a very good platform there. . That's sort of reflected in the service scores that we guess you're right. Our business there is through the broker market. There's an annual independent survey there every year. And we've been either top or in the top 3 and that for the last 10 years. So like we're pretty confident about our position there. It is something we'll be thinking a bit about more this year just on what are the growth opportunities there and what's the best way forward on it. But we have a very good platform or foundation in Germany.
Yes, Doug, it's Paul. I think as we look at it, we started off, I'd call it as a challenger brand, kind of a funny expression though, because Canada -- the country Canada is very favorably viewed in through German -- the German nation's eyes. They love Canada. And I think that's really served us very well as a brand as we've grown. But to David's point, it's kind of a focused strategy, as you said, and we think about diversification. So is the diversification of their channels as the diversification of different products because you don't want to sort of be too concentrated. But having said that, if you narrowly define the market as the broker -- pension distribution, we actually have a pretty meaningful share, we matter. And that's why we sort of show up as a 1 or a 2 when brokers are assessing who are the best providers in the market.
And Paul, what's the return, or David, what's the return you get on that business? Is that in line with your target. You can quantify that, it would be great. What's the opportunity?
Our returns there are good [indiscernible] in line with targets. So I say, we have to scale, like we've been there for 20 years with 600,000 customers. So we have to scale already to earn [indiscernible] in Germany that we're delivering on those.
You see in the supplemental, like we actually gave the breakdown of the earnings by [indiscernible]. So you'll see a continued strong contribution from Germany there.
Great. Then just maybe on Empower, and I guess the base earnings growth and whatnot, but I think the base ROE is 11.6%. What -- I guess, a question for you, Ed or Paul, what should that be? And how long does it get -- does it take to get there?
So I'll start off, and Garry might want to kick in to the table or whatever here. He's nearby. But we deployed a lot of capital. So now, as Ed said, we've broadly, if you think about the proceeds reinvested sort of paying its way, and so if -- once we've applied the [ true ] synergies and our sort of anticipated growth objectives for next year, we're going to be pushing, Garry, into.
Yes, we well up in [ 13, 14 ] range, I would think hopefully.
13-14. And then if you sort of think of another year, it will be back -- it will be in line with -- so give it a year or 2 and it will be in line with our overall medium-term objective for ROE. And that was really the play. The play was you deploy the capital, but if all we deployed it in was a roll-up strategy, it's not the same as deploying it into a strategy in a business that has underlying organic growth in the core and then the significant extension growth through retail. So we've seen a significant move in ROE over a short period of time, and you'll continue to see that ROE moving with some pace over the next couple of years. So it's a business really. If you think about it's capital signature that should be a reasonably high ROE business.
And then just lastly on the investment side, you had an impairment on your U.S. office exposure in the commercial mortgage book. All your U.S. office exposure is in the mortgage. It's not investment properties, which I guess comes with a bit of a different dynamic. Can you talk a bit about just, and I'm isolating for just the U.S. office book, but talk about the LTV, the average maturity of the book? And what -- how much have you provisioned for that for that book already? And do you foresee any further headwinds, obviously, extremely topical today.
Sure. I'm going to defer that one right over to Raman. Raman?
So I guess maybe I'll take the second part of that first. In terms of the headwinds, I think one of the major headwinds, not just for office, but in general, has been rates, as Garry alluded to earlier. So one of the things we are seeing is a stabilization in rates, which I think will be helpful. I think the higher rental yield that we're seeing, given the move in rates thus far will be helpful. On your specific question with respect to office, I think the headwinds do still exist in office. We did take a write-down, as you mentioned in Q4. I'd say it was a bit unique, a bit more idiosyncratic this particular one versus the general book that we have in U.S. office. It was our -- one of our largest loans. It was sort of a unique situation. I'm not saying we couldn't have more, but we wouldn't expect any sort of future impacts to be as large on an individual basis as this particular one. So as you'll note in the appendix, the LTVs, while they've crept up a little bit, we're still below 70%. LTV on our U.S. office loan book. We have good debt service coverage. And we've known this before, but the maturity profile extends out. So we do have some benefit of maturing loans over the course of the next 3 or 4 years. So it's not all concentrated in this year or next year. So I think there's some headwinds. We like our position. I think we have good LTV in DSCR. And this was a bit of an idiosyncratic event not reflective of the overall portfolio in Q4.
But as you said, you could -- we could still see a bit of action into next year, but we wouldn't see the type of impact we saw this past quarter, we wouldn't expect that.
Are there significant provisions already for allowances backing that book? Or was this one of the first kind of built. I don't know if you can quantify that?
I'll let Garry speak to that, but there's no provision we specifically set up for that. You would set up a provision at the moment in time when you actually -- you knew the harm was there. Like in other words, it was happening and you're in negotiations with your counterparty. But other than that, Garry?
Yes. I mean the -- I mean we've taken the impairment on this one. I think there's very little in the way of provision. I think on our expected credit loss model that the numbers are immaterial on the IFRS 9. So it's -- we just don't have a lot that's in this category.
Our next question comes from Meny Grauman of Scotiabank.
Just another question on Europe, just following up in terms of the actions you've taken to enhance returns. Do you expect to take any more actions in the coming quarters, this quarter or in the coming quarters? Or is, to the best of your knowledge, is all done?
Meny, as a matter of fact, one of the things we were very focused on was doing a deep dive on the portfolio. It's something that David led over the last year. We were looking at opportunities to really strengthen that part of the business. We took the actions we did. There was sort of the -- setting ourselves up for expense, some expense reductions, some disposition as we said, are stepping away from a business and obviously the disposition of the AIB business, for example. But do you see anything else on the horizon, David?
No. Like the 2 products where we didn't have a meaningful position. We've taken action this year. So Paul talked about giving [indiscernible] so I'm able to get some time off as well now. That's sure.
And then just looking ahead, you offered up a growth objective of 15% to 20% for Empower in 2024. But for the European business, what would that be for 2024?
Yes. So we're not providing guidance on that as you -- if you think about the actions we took in Europe, we're really in the process of reshaping that portfolio. So it's kind of managed growth. We're really thinking of managed growth across our portfolios in Canada. As you know, we're really focused on investing in the highest growth opportunities. We see that in the Wealth space. So to a large extent, we see those businesses continuing to drive forward kind of on a momentum basis that they've had. But with discipline on making sure that we are kind of doubling down in the areas where we see the highest growth. And so at this stage, we'll provide that overall 8% to 10% overall guidance supported by the strong Empower growth and supported by other businesses that we fundamentally believe in that create value for us. And the value is not just -- I always remind our team, if you've got a business that's delivering 5% growth, but 80% or 90% cash generation. It feeds a lot of cash into the system, allowing us to think about reinvesting in higher growth areas. So we like businesses that have -- that maybe aren't into that high double-digit growth that deliver cash because you can create a lot of shareholder value by leveraging cash into growth opportunities.
Our next question comes from Tom MacKinnon of BMO Capital.
And just to start saying, congratulations to Garry on an excellent career at Canada Life and all the best going forward. And to you, Arshil, as well. Question with respect to the $75 million you show on Slide 23 on the Franklin Templeton shares. I assume this is the assumed increase in the value of your 4.9% ownership in Franklin stock.
So I think that 75, correct me if I'm wrong. Does that -- this is not equity accounted for, you just assuming the value of your 4.9% ownership is going to grow at an 8% per annum rate going forward? And if it doesn't, you're going to pick up that difference in net earnings. Is that correct?
Yes. So I'll let Garry -- I'll let Garry shape what the actual component parts of that broadly 8% is? And then sort of what's the -- how does it play out if we fall short or for that matter if we outperform, because markets have done -- doing quite well. So there's both sides of that.
So Garry, over to you.
Tom, you got basically -- you're on the right track. We're treating it the same as we treat our other non-fixed income investments. And for that, we actually use a basket rate across the different asset classes and across the different geographies. So we just use a rate between 8% and 9% for the whole lot. So Franklin will be treated in with that same mix. So as you said, it would be 8 or actually just a little bit north of that. Would remind though, that includes a dividend yield that I think is around 4%, these haven't booked this week, but it's in that sort of 4% range.
So there's a dividend yield on it, and then there's going to be some growth on top of that through the year. And then any mark-to-market we'll just go through each quarter. And just a reminder, the mark-to-market doesn't impact [indiscernible] it's in the U.S. and it will have a very limited impact on RBC.
A question for David, then with respect to Europe, two things here. We're seeing some pretty good net fee and spread income. I think the -- we're up like over 30% year-over-year. We almost doubled, 30% '23 versus 2022, and we almost doubled year-over-year in the quarter. I'm not sure if it's bump-up in assets that's driving that. If you can just give what is driving that and sustainability of that?
And then if you can talk to the sustainability of your good track record you've had at least over the last 2 quarters in experience gains, insurance experience gains, which I believe are largely in your group businesses there. So if you elaborate on those two things, please.
So over to you, David.
First of all, on the insurance, so insurance experience has been good again this quarter. That's mostly on the group risk business in the U.K. So that's what's feeding through into that. And the fee income -- I let Garry sort of follow up on a bit. We're seeing good top line growth and then there's been good growth in markets this year. So that would feed into some of the fee income.
But I think the other driver of fee income, David, is net flows. I mean the one thing that's featured in our European business is, I think you were sharing this with another group earlier, was consistent quarter after quarter, after quarter positive net flows, and it's been a really strong performance. Do you want to comment on that?
Yes, on Slide 11 shows the 4 different business categories. So there's the group risk book and the insurance and annuity book, so they're both growing. But the Wealth and Asset Management and the Workplace Retirement savings like they have been in net inflow for each of the 4 quarters over 2023. So I think those net inflows combined with the market growth is fading through into fee income growth.
Garry, did you want to add to that?
Yes. Just also in this line, it's not all about the asset-based fees. There is -- we have international pooling [ they're entire ] on our group side. So there is pooling income. I think that income has been quite strong this year. This is the only other thing I'd add...
And then on the Canadian side, I think what we've seen is the -- if you're looking at the short-term earnings that you -- earnings from short-term insurance contracts, that number seems to be, if I looked at as a percentage of the Group Life and Health book, it's down around -- it's looking at it's like around 5% to 5.5% of that book and it traditionally has been over 6%. Is there something different that happened of late?
Garry, do you have thoughts on that one?
Yes. Just I'd have to dig in, and we can have a follow-up on it. But we have added a lot to the size of the book with the federal plan, and yet you're not going to be seeing an earnings contribution from that at this early date. So I think that's -- because that's really a big push to the bottom of that, where you wouldn't have seen the income rise. That's the first one that comes top of mind. I'm not sure if that would explain the full change. That certainly...
[Technical Difficulty] if the earnings contribution from that plan right away? If you add it to the premium, you're not getting any earnings on it, despite the fact that you booked it as premium?
Tom, it's Jeff. It is profitable on a longer-term basis. It's -- and we've priced it that way. And as you know, it's really increased the top line. It's taken our in-force from I believe that's around $12 billion to overall, we've grown that book from $12.1 million to about [ $14.8 billion ] but it is profitable and it will help us with scale on a longer-term basis and our entire book. So it is -- it will be profitable sort of starting in the fourth, fifth year.
There's a fair bit of build-out in implementation in the early phases. It's a contract where we'll hold that for over 10 years. Is that 12-year?
Yes, at least 10 to 12 years, Tom. So we expect that to be quite a long-term contract.
And then the final thing is the insurance experience gains in Canada, probably long-term disability related? How sustainable are the -- we've had great momentum in the last 2 quarters in this. How sustainable is this? Any comments there?
Well, I'll start off by saying something really nice about Jeff, because I do believe this, but he's actually carried on from previous leaders of Canadian operations, and group used to run group. That business is run with a lot of discipline. That discipline about pricing, discipline about claims management. For sure, we've had our moments where you get a little bit challenged with an economic environment. But the reality is what you're seeing is the discipline of staying on top of pricing and staying on top of claims. Jeff, do you want to speak to that?
Yes. Thanks for calling that out, Tom. I mean, most recently, certainly in quarter, we've had low incidents and we've had higher terminations. And -- but as we've outlined on these calls, we're very, very active on our pricing on this book, whether it be small, medium or large. So this has been a hallmark of our success in terms of where we've looked at this business. We're very selective when we go after business, and we're very careful on looking at retaining business. So certainly, we've had a number of quarters in a row where we've had strong support. But we're always looking hard at the pricing and our selection.
Yes. One other thing I might add, and we don't speak to it that much, but disability claims management services, which is not just about paying claims, it's about helping people get back to productive work. It is still fundamental. And I would say, while I think all carriers kind of do that today, we would have been one of the earlier adopters of that. It's one of the things actually we ported over to the U.K., that the U.K. introduced into their income protection book. And employers want that and employees want that. They want that opportunity to get back to a productive lifestyle. So I think if you can couple discipline with -- in pricing and claims management, including that those disability management services, it's a real win-win.
I was just going to add, Tom. And our disability business is a fair bit different than our competitors, where to Paul's point, we have regional disability management offices all across Canada. So when we are trying and are successful in rehabbing people back to the market, it's done on a regional basis. So this has been a significant hallmark of our success in our disability management.
Our next question comes from Nigel D'Souza of Veritas Investment Research.
I wanted to touch on expected investment earnings this quarter and decline quarter-over-quarter. Just trying to get a better understanding of what drives that? How much of that line is being driven by fixed income versus your non-fixed income assets and how rate sensitive is that, the run rate for [indiscernible] earnings?
Thanks, Nigel. I'm going to turn that one to Garry. Garry?
Yes, sure. If I look at the last couple of quarters, Q2 was 80, Q3 was 83. This quarter was a little bit down. I think that's really just a little bit of noise in there. A lot of what you're getting in here is you get the credit provision release, you got the excess of what we've assumed on NFI returns over fixed income, and that hasn't really moved much. It moved down a little bit because it said at the start of the quarter. And it's -- and so the rates have come up in Q3. So that was a little bit down. But I would think given the current environment that something in that 75-80 range is what I'd be putting in. It might move around a little bit, and some noise quarter-to-quarter. In this environment, it's probably in that 80 range.
And just one clarification. I think you mentioned credit provision release. Is that in investment earnings? Or is that through credit experience?
That is -- that comes through as an unwind of the discount rate on liabilities because the assets are earning more discount rate on the liabilities because they've got an allowance for credit and the asset returns. So the answer is just earning more than the liability unwind rate and that, so that gap comes through.
And then just a minor follow-up on the office exposure. The LTVs that you disclosed is little bit below 70%. Is that based on appraisals at fiscal year-end? And any color on the LTV of the loan that did cause a negative credit experience this quarter? What was that -- what was the sitting at prior to realizing that credit loss?
I missed the latter part of what you said there, but I'll let Raman go. He may have caught that.
Yes. So I think the general answer to your first part of the question there, the LTVs are regularly updated based on the latest financials we get, the latest appraisals we get. So that say, the reason you've seen it creep up over the quarters as, as we reevaluate the properties, you see basically property values coming down and LTV is creeping up.
The particular one we -- this one, it did move because of the decline in the office valuation. So we don't give too many details on the particular loan itself, but I will say the LTV moved higher given the decline in the valuation of the property.
I guess what I'm really getting at here is, are you seeing a disconnect between the appraisal value and what it can transact that and the realized market values. So any comment on how big that gap is? Because that's really where the loss experience has come through. There's a disconnect there.
No, I don't think we're a disconnect. I mean, again, these are regularly updated appraisals and valuations and so that's what's being reflected in the LTVs.
Our next question comes from Paul Holden of CIBC.
First question, the bigger picture question. You've talked a lot about capital optimization on this call and, I guess, over the last couple of years. Is there much more to do as you kind of look about -- look across the broad portfolio of assets and liabilities you hold? Or you're pretty much near the end of that story?
I'll start, and maybe I'll let Garry add a bit of color, Paul. It's a good question. I don't think you ever get to end of game on that. And part of the reason why is because we've been -- it's not just about optimizing the capital structure back in your liabilities, it's actually reshaping your portfolio. So if you think about the actions we took in the U.K., we're moving away from certain types of businesses that had a certain capital requirement behind them. Similarly, if you think about in the U.S. where you move away from individual and insurance and annuity liabilities, and we're growing in a more capital-light space. So as we shift the portfolio, then you're sort of a tandem act or sometimes a follow-on act is to think about optimizing capital.
And then the other aspect of that would be as we've applied different asset classes as solutions, and in particular, the team did a lot of very good work as we transition through IFRS 17 to capital optimize in the context of the shift from IFRS 4 to 9 and 17. So you get all those moving parts. So as we continue to take action in our businesses, we will find opportunities to optimize capital. I think there's no doubt about that. And as we continue to source more higher risk return-based assets, then we'll be applying those through optimization as well. Anything you'd add, Garry or Raman?
Yes, just on the one of the strategies we're using, this goes back to the optimization around IFRS 17. We've had now a full year to observe. And obviously, we have the comparative periods, but this is our call, this was the live here. And I'd just say that I think at a high level, our ALM choices have worked out the way we expected them to. Our capital and net earnings volatility balanced out, and we kept the LICAT ratio at a very good level and very stable through the year. So at that level and I'd just reiterate what you said, Paul, that has to be constantly looked at in terms of the book of business to make sure you're maintaining that stability.
And maybe Raman might talk to the asset classes like public and private equity or some of those examples?
Yes, I'd say just to pick up on your comment there in terms of, we did see some stability from the private markets, both equity and credit, especially in '22 when you saw a lot of volatility in the public markets. Some of the stability came through in our earnings from the private markets. And I think just as we continue to evaluate the opportunities as a continuous process. So as the markets move and as opportunity shift will continue to shift, and that's worthwhile so far, we imagine it will continue to work well.
Yes. And on that asset side, the transaction we did a stake in Northleaf, the transaction we did to take a stake Sagard. The latest transaction to combine Putnam with Franklin and to establish a partnership there, gives us an asset sourcing capability that, again, we can think about optimization with a different pool of assets. Again, that's well matched relative to our risk return expectations.
And a follow-on to that, is it reasonable to expect that you find those ways to continue to optimize capital in the assets over time that, that could give you a path to an even higher ROE target, again, over time, but.
Yes. I would say, yes, that is our goal. Our goal as a management group is to -- is to be thinking about the types of businesses we want to be in, the right assets and optimization. And our goal is to not just grow earnings. It is to think about a higher ROE and ultimately a higher ROE target.
You haven't talked too much about Capital Risk Solutions on this call, a lot of that business is now on short-term insurance contracts, which obviously reprice more frequently. So maybe give us a little bit of an update on recent repricing margin expectations and also a view on sort of outlook on sales potential across the different product lines there, just to give us a flavor of what we might expect in 2024 from CRS?
So Paul, I'm glad you asked the question because it's Arshil's last call where he'll be taking those questions. And I know I want -- he gets an opportunity to speak to this because it's something he's super passionate about or has been and something he's really helped to build.
So Arshil, over to you.
Thanks, Paul. So you have observed sort of a small shift in the mix of our reinsurance business results. So at the beginning of last year, we were pretty much 50-50 between short-term business and the longer-term business that feeds through risk adjustment and CSM. And then certainly, the opportunities in the marketplace over the last 18 to 24 months have really been much more on the structured side, not only in the U.S., where we continue to grow and deploy capacity, particularly on the health insurance side and on the fixed indexed annuity side, but we've also seen a number of transactions in Europe around the mass lapse and then we've expanded into Asia Pacific and South Korea and into Israel. So we've seen really good growth in that short term as we continue to build in the U.S. and then expand that capability into new markets in Europe and into Asia. . On the longer-term businesses, I'd be still optimistic over the medium term, but in this environment, particularly on the longevity side, we've just been, I think, a little bit more cautious than our peers about updating our long-term view on mortality improvements post COVID. So we're just being a little bit more cautious, both in our reserving and in our pricing.
But even there, at the end of the year, we did close a longevity swaps transaction in the U.K. that has added a little bit to CSM and a little bit more to the risk adjustment. So I think we will see some rebound in the contribution for some of those longer-term businesses. But again, we'll be very, very disciplined. We really like the position that we're in both in the U.S. and in those other markets, and we really think we can continue to drive growth in reinsurance, but in line with the overall company's risk appetite in line with the growth that we're seeing in the other businesses. So we've had a great run in reinsurance, and I know it will continue, but maybe at a slightly lower rate than we've seen over the last 2 or 3 years, but still a terrific market opportunity.
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Mahon for any closing remarks.
Thank you, Ariel. Well, I'd like to thank everyone who's joined us on the call today and thank the analysts for their questions. I'll just reiterate that we remain confident in our business trajectory. I was glad that we were able to engage all of our leaders around the globe and participating today. And I have to tell you, we're very excited for the year ahead as we deliver for all stakeholders.
And with that, I'll say that we look forward to reconnecting with you in May when we present our Q1 results, and have a great rest of your day. Take care.
This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.