Good afternoon, everyone. I'd like to call the meeting to order. I'm Liam McGee, Chairman, President, and Chief Executive Officer of The Hartford. Rick Costello, the company's Corporate Secretary, will act as secretary of the meeting. I will preside. Greg Denman, a representative of Broadridge, will act as inspector of the election. He's already taken his inspector's oath and has reported that we do have a quorum. The annual meeting of the shareholders of The Hartford Financial Services Group is now convened. Thank you all for being here. This afternoon, you will consider and vote on the three proposals listed in the proxy statement. After which, I'll provide a brief update on The Hartford. We'll open the floor to your questions.
Each shareholder should have received a program that includes an agenda and rules of procedure for this meeting. We'll conduct the meeting according to the agenda and those rules. Before we begin, I'd very much like to introduce the members of the company's board of directors, each of whom is standing for election at this annual meeting. Will our nominees please stand when I call their names? Robert B. Allardyce III, Trevor Fetter, Paul G. Kirk Jr., Kathryn A. Mikells, Michael G. Morris, Thomas A. Renyi, Charles B. Strauss, H. Patrick Swygert, and myself, Liam E. McGee. Thank you. I would say to our board, The Hartford team and I appreciate your expertise, guidance, and your wisdom. Thank you. I'd also like to acknowledge the members of The Hartford's executive leadership team who are here today as well.
We also have representatives from Deloitte & Touche, the company's independent auditor. We'll move to the formal part of the meeting and consider and vote on the proposals included in the proxy statement. After I read each proposal, shareholders or shareholder representatives who wish to address an item should raise their hands. Microphones will be brought to you. I'd ask that before speaking, please identify yourself as a shareholder or shareholder representative, and please state your name. As set forth in the proxy statement, there are three items to be acted upon at this meeting. We have not received advance notice of any other matters to be considered as required under the company's bylaws. No other matters will be considered. The first matter is to vote on each of the nine director candidates introduced earlier. Background information on each director candidate was provided in the proxy statement.
The company has not received advance notice of any other nominations as required by our bylaws. No other nominees will be considered. Are there any questions regarding the nominees for election as directors? The second matter to be considered is the ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending December 31st, 2012. Are there any shareholder comments or questions regarding this matter? The third matter to be considered is a management proposal to approve, on a non-binding advisory basis, the compensation of the named executive officers as disclosed in the proxy statement. Are there any shareholder comments or questions regarding this matter? I now declare the polls open for voting. Any shareholder who has already voted need not vote again unless you want to change the vote represented on your proxy.
If any shareholder wants to vote by ballot and has not already received one, please raise your hand and a ballot will be brought to you. Is there anyone that would like a ballot? If you are voting by ballot now, please mark your choices and then fold and return it to one of the assistants in the aisle. As all shareholders have had an opportunity to vote, I now declare the polls closed and ask the Inspector of Elections to provide the results of the shareholder voting.
The Inspector of Election has tabulated the votes cast, and based on that preliminary report, I declare as follows. First, each of the nine persons nominated for election as a director has been approved by at least 90% of the votes cast, not including abstentions. Therefore, all those nominated have been elected directors of the company. Second, the ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending December 31st, 2012, has been approved by more than 96% of the votes cast, not including abstentions, and is therefore ratified. Third, management's proposal to approve, on a non-binding advisory basis, the compensation of the named executive officers as disclosed in the proxy statement, has been approved by more than 96% of the votes cast, not including abstentions. Accordingly, this proposal has been approved.
Thank you. This concludes the business portion of the meeting. I'll now spend the next few minutes talking to you about The Hartford And how we're transforming the company to win in the marketplace and achieve greater shareholder value over time. Since I'll be making some statements that should be considered forward-looking and discussing certain non-GAAP financial measures, please do note the information on this slide. In a little over two years, The Hartford has come a long way on its journey of transformation to a growth-oriented company that delivers consistently superior returns and greater shareholder value. So far, we've advanced The Hartford to a position of strength, stability, and directional clarity. To achieve this, we've made major improvements in our foundational capability by strengthening the balance sheet, enhancing financial flexibility, and establishing enterprise risk management practices.
We've also sold non-core businesses to focus on profitably growing our core businesses, and we're becoming a simpler and more efficient company, which resulted in run rate cost savings of $150 million last year. The Hartford also strengthens its management team with best-in-class internal and external talent. The company, as you know, reported strong financial results for the first quarter of 2012. Our first quarter core earnings rose 7% to $612 million. Core earnings per diluted share rose 11% to $1.25, and book value per diluted common share was up 12% compared to the first quarter of 2011. In the quarter, P&C Commercial continued to benefit from strong renewal pricing trends, which averaged 7% in small commercial and middle market. In consumer markets, new business written rose 31%, and in mutual funds, assets under management and sales increased from prior year-end levels.
In mid-2011, we began a rigorous evaluation of The Hartford strategy and portfolio of businesses. After completing this analysis, we set the company on a new path in March to improve our fundamental performance so that we can deliver greater value for shareholders. We will operate The Hartford with a sharper focus, concentrating our attention and resources on property and casualty, group benefits, and the mutual funds businesses. We selected these go-forward businesses because they meet all three of the following important criteria. They have distinct and competitive market position on which we can invest for future profitable growth. They have strong capital generating ability. Finally, they provide to The Hartford much lower sensitivity to capital markets. We will invest in and grow these businesses and build on our core strengths in insurance underwriting, claims service, and in distribution so that we can achieve sustained profitable growth.
We will allocate capital to businesses that take insurance risk, property, casualty, mortality, and morbidity, and reduce the allocation of capital to businesses that take market risk. I do want to underscore the strength of our go-forward businesses. Our property and casualty group benefits and mutual funds businesses have historically demonstrated strong returns on equity and strong capital generation. We expect them to achieve a combined 12%-13% ROE this year, and obviously, we're working hard to improve this return in the years ahead. These distinctive businesses also generate rather than consume capital and are less sensitive to capital markets. A perfect example is The Hartford small commercial business, a longstanding market leader with good opportunities for continued profitable growth, particularly as the U.S. economy and small business formation recover.
We continue to be a preferred company for small businesses and their owners because of our long record of creating innovative, efficient, and easy-to-use solutions that protect the financial security of these customers. In our middle market business, we're diversifying our products as well as increasing profit margins through pricing actions, especially in the workers' compensation line. In group benefits, we have a strong franchise with a top-tier market position and strong sales and distribution capabilities. We like the long-term prospects of this business and are confident the initiatives underway in sales, pricing, underwriting, and claims, along with some lift from an improving economy, will strengthen our profit margins. In consumer markets, we've made great progress enhancing margins by increasing prices and reducing expenses. As these margins improve, consumer markets will increasingly grow the top line by strengthening the retention of existing customers and attracting new business.
Our award-winning customer service has a lot to do with this. Last month, J.D. Power and Associates ranked The Hartford the highest in customer satisfaction among auto insurance companies, a tribute to our teammates and how hard they work on behalf of customers each and every day. In mutual funds, The Hartford has greatly improved its competitive position through its unique relationship with Wellington Management. This business produces strong returns and is well-positioned to generate good growth. We're moving quickly to leverage our expanded relationship with Wellington, one of the world's most respected institutional money managers. All of these go-forward businesses are focused on their 2012 initiatives to grow and to increase margins, and they will become even stronger as we execute on our plans. As part of our sharper focus, we also announced that we will sell the company's individual life, retirement plans, and Woodbury Financial Services businesses.
The sales process for these businesses is going well, each one has generated strong interest. We expect to have a competitive auction process leading to definitive agreements sometime later this year. The proceeds from these sales will give us additional financial flexibility that over time we will use for capital management actions and some debt reduction. We'll also consider options for reducing risk in the runoff businesses or reinvesting in our go-forward businesses. Another key part of our plan was to place the individual annuity segment into runoff. Last December, as you know, we formed a division to reduce the size, risk, volatility, and capital consumption of our life runoff businesses, and over time, to release capital.
While our ultimate goal is to isolate or separate the risks of the annuity block from our go-forward businesses, the management team is currently concentrating on transactional and operational opportunities for individual blocks of this business. This spring, we also refinanced our high-interest Allianz debt on much more favorable interest rate terms and repurchased all of Allianz's outstanding warrants. The refinancing strengthens our balance sheet by reducing long-term interest costs, and the warrant repurchase eliminates a material source of potential future shareholder dilution. Taken together, all of these actions will position The Hartford to achieve over time higher returns on equity, reduced sensitivity to capital markets, a lower cost of capital, and increased financial flexibility. As well as change our financial profile into that of a quality property and casualty company with leading group benefits and mutual fund businesses.
We aspire to be the first choice of businesses and consumers seeking intelligent and innovative insurance solutions that provide the right protection so that they can live with confidence and focus on achieving their goals. Recent recognition of The Hartford goes to the heart of our company and our brand, which stands above all for stability and integrity. The Ethisphere Institute named The Hartford one of the world's most ethical companies for the fifth year in a row, Newsweek Magazine ranked The Hartford number 12 on its 2011 Green Ranking, ahead of all other financial services firms in the U.S. I offer my sincere thanks to our more than 24,000 teammates for their hard work and dedication and their many contributions to shareholders, customers, partners, communities, and importantly, to one another.
While clearly a lot of work remains, we are optimistic and excited about our prospects for continued profitable growth. We are determined to become a great company with superior financial performance and shareholder returns. Thank you very much for your attention. I'd now like to open the floor for general questions. As a reminder, if you have a question, please raise your hand and we'll bring a microphone to you. Also, I'd ask you to please state your name and identify yourself as a shareholder or a shareholder representative. Now it's my pleasure to take your questions. Yes, sir.
My name is Murray Zinman. First of all, I want to congratulate you and your team for quite a job. I'm a stockbroker, and I know what you guys have been through, you people have been through. It's commendable that things have turned around.
Thank you.
I know that looking at the price of your stock, which is roughly $19, and your book value is somewhere around $45, one would think that you may be vulnerable to a takeover because to me, and I'm sure to other people that understand that your stock is very undervalued. I just wonder if you might comment on that.
Thank you for the question, sir, and for the kind remark. First of all, we are as dissatisfied as I'm sure you are with our stock price, whether it's the value itself or its relationship to its book value. That's precisely why management and the board beginning in mid last year, July to be precise, said that the status quo was not going to get us the kind of stock price and sustained more consistent financial performance in an acceptable period of time. That's why we undertook a very rigorous review of the company, and it culminated in the announcements that we made on March 21st. We believe with great passion that the businesses that we have are capable of the three things I talked about. They will win in the marketplace. We will invest in them to continue to win and grow.
Second of all, they generate capital. The businesses that historically have consumed capital, which has been one of the challenges probably in the stock price, will be sold. We will work our individual annuity book down over time, which is also capital consumptive. Finally, we want to lower the capital market sensitivity of the firm, which I do think contributes to some of the volatility and perhaps some of the discount, the book that you alluded to. We're not unique. Most financial services companies are pressured in their share price relative to book value. I think you'd agree, the board and the management team, I think, have taken decisive actions really to address that. In terms of your speculation about what might happen, our job is to create increased shareholder value and consistent performance, and that's what we're really focused on. Yes, please.
Good morning, Mr. Chairman. My name is Mark Simon. I'm a representative of the United Brotherhood of Carpenters retirement funds. We hold approximately 370,000 shares of Hartford Financial stock. We are committed long-term owners.
Thank you.
I want to ask you about premium fraud, particularly as it relates to workers' compensation. As you pointed out earlier, the company is in this line of business. One of the companies is St. Paul, I believe.
Say that again, sir.
You have a subsidiary called St. Paul Fire and Marine Insurance, I believe, that writes workers' compensation insurance.
I'm not familiar with that. Do we, Alan? We do. Okay. Thank you. I was checking with our general counsel.
There's an epidemic in the construction industry today consisting of utilization of labor brokers by contractors. Basically, the individuals who do the work and get injured are not classified as employees of the contractor. Frequently, the labor brokers do not have policies in place in the states where the jobs are. I will tell you that a majority of construction in the South is done this way. Just reflecting this problem, the California Department of Insurance just recently fined a contractor who understated his payroll by $3.5 million. I want to raise with you this issue of what happens when a company in this line of business undertakes annual audits of contractors they maintain policy with. Are contractors sharing this information about broker payrolls with them?
Obviously, sir, I can't comment on what an employer may or may not be doing. What I can comment on is The Hartford has a leading workers' compensation business, which we're very proud of, and I think we abide by all laws, whether they be labor laws or any other laws or regulations, and we adhere to them. Thank you for your statement and your question. Any other questions? Yes, sir.
Bruce Workington. I am a shareholder. I believe that The Hartford is doing a reasonably good job when it comes to employing veterans. We can do better. Our military is comprised of some of the best people we have in this country. They're a very intelligent and well-rounded people. Rather than utilizing H-1B visas to employ foreign workers, why not invest in training programs for veterans to take these jobs? Even if it took six months to a year for the training, the long-term benefits to The Hartford would be significant.
Well, both on a personal level and The Hartford itself, couldn't agree more with the importance of hiring veterans. As you know, The Hartford has been recognized as one of the leaders in this. Many companies now are emulating some of the things The Hartford, I'm proud to say, has been doing for years. It will continue to be a priority for me and for our company. As there are qualified available veterans, you can make sure that we'll make every effort to see if there's an opportunity for them at The Hartford. Any other questions? Well, seeing no other questions, I would just say thank you. Thank you for being here, taking time to be here. We appreciate your interest and support of The Hartford. Travel safely. Thank you