Don't cover on the non-life side. I think just two this year. Almost every year, we've had Hanover Group. The story has been just a fascinating one to watch and listen to. We're very pleased to have Jack Roche from Hanover as our next presenter. Jack was appointed as CEO just a little more than three months ago. He's new in that seat, but he's been a senior leader at this company since 2006, and Jack and a group of folks really helped lead a dramatic change at the company over the last decade. Jack's done that in a number of different roles and capacities. We're very much looking forward to hearing his comments. Jack?
Thank you. All right, yeah. Indeed, batting cleanup. I know it's standing room only, so hopefully you can get fit in if you don't have a seat yet. I am appreciative, Jay, of the invite and the opportunity to update you. For those of you that know us, give you a quick update on the company, as well as those that aren't as familiar, maybe get you a little bit more enticed about why we might be a good investment opportunity. What I'd love to cover over the next 20, 25 minutes, and then open it up to some questions, is to kind of share with you why we think we've been on a journey, really over the last decade, to turn Hanover Insurance, which was a regional, more generic insurance company, into a premier property casualty company in the U.S., along with international opportunity in Chaucer.
Last year about this time, we came together in New York to kind of refresh the strategy, and talk about where we take it from here. Because the last decade was really about taking this kind of regional generic property casualty company and turning into something more distinctive and obviously more profitable, more investable. That was a pretty ambitious goal. We didn't have a terrific starting point. What most of us saw when we joined the company was that there was so much going on in the industry that was going to create this potential opportunity for a mid-size company that could increasingly put themselves in a position to have some distinctive capabilities, but have the courage to limit its distribution to agents that truly sell value and that would respond to a franchise value that is increasingly dissipating from our business.
We have over the 31 years that I've been in the business, the way in which business is done has transformed quite a bit. The unintended consequence of that is the business has become a lot less personal, a lot less intimate. The irony from our perspective is that as the distribution system consolidates, many of the better agents in the country are looking for a different trading relationship than they can find in the current environment.
Again, those of us that accumulated here 10 years ago, were passionate about saying if we could take this kind of medium-sized company and start building up a set of capabilities that were increasingly more relevant to the better agents in the business, then narrow the focus of that distribution to both help us operationally, but also from a franchise standpoint, create a different type of feel at a time when we knew the better agents were going to be yearning for that type of company. When we were down here 1 year ago talking about that, we set out kind of how we were going to take it to the next level. What parts of the business were we ready to grow? How were we going to try to outpace the growth of the industry, but do that profitably?
We all know that is the challenge in our industry. What I'd love to do is be able to convey to you through some updates, the confidence I have that all the hard work we did over the last 10 years is now starting to show through in the financial performance. For a while there, we were a good story, but there was some hesitation about whether the new geographic footprint that we moved forward in, the new capabilities, whether they were really going to translate into the top quartile performance that we were targeting. You look at where we are today, on a net written premium basis, we crossed the $5 billion mark, and it's pretty well spread over our personal lines business, which represents roughly half the states in the country.
Our core commercial, which includes small commercial and middle market, that is more of a national footprint today. Our domestic specialty business, which is roughly $1.1 billion in direct written premium across the U.S., then Chaucer, which is another $1 billion of our portfolio. Compared to what this looked like 10 years ago, it's a pretty dramatically different story, right? More diversified, certainly more distinctive in terms of its offering, and roughly twice the size than when we started on this journey. We think we increasingly are presenting our investors with a real opportunity and a value proposition. We think we will be able to leverage the strength of our agency relationships and the capabilities that we built to grow into the footprint and into the agency plant that we have today.
Yes, we'll add some agents on the margin, but most of our growth will come from the agents that we've worked so hard to create a position with and taking that to the next level. I'll share with you kind of a distinctive approach that we have to be able to get inside the agent's books of business and understand what it is we're targeting, how we're going to build this portfolio together. Connected to that, obviously, is our new and improved specialty capabilities that further strengthen our overall proposition to agents. As agents get bigger and get stronger, they, in fact, are trying to get more specialized.
They're trying to sell past the Rotary Club, and they need not only some expertise and some specialized capabilities themselves, but they need to hook themselves to companies that have an impressive product offering but don't offer it to every agent in the country. That increasingly is the challenge. We want to drive execution using some of the improved analytic tools. I think one of the dirty little secrets of this company is that we've improved the inner disciplines and the overall business regimen within the company. We're most known for our distribution approach. We're most known for the field force that we've created. Increasingly, people are starting to appreciate that in this complicated world where you have multivariate pricing and you have all kinds of specialization going on, that much of that is a double-edged sword.
What you really need inside of a company is the skills and capabilities that help you leverage all those new tools and capabilities and actually generate above-average margins by pulling that all together. Obviously, a big part of our growth for investors is to not only drive improved book value, but through our more consistent and more impressive financial trajectory, drive our valuation up. Last but not least, connected to all this is that we have continued to assemble some of the best talent in the industry that has primarily come from our more sophisticated and better competitors. You can imagine that we kind of are the United Nations of insurance professionals today. We don't have any faction that dominates this culture in this company.
This is truly our best effort of pulling people from the better environments that have some skills that can help us build this company. Frankly, we're tired of protecting the annuity or trying to protect the annuity and had some entrepreneurial spirit. They respect the risk of our business, but they're anxious to help build the company and grow. When we came down last year, part of our investor day presentation was to kind of get to the so what. Was to say, yes, we've got a more impressive suite of products. We've got great talent. We've developed some great agency followership. What are you going to do that really helps you stand out from a financial standpoint? We made some aspirational targets, but a commitment towards being a top quartile performer.
We suggested that if we do our job correctly over the five-year period, we should be able to generate 11%-12% operating ROEs. That was before we're united with the tax reform opportunities. We put out some targets for book value per share growth, for earnings per share. We also talked about growth. Frankly, our growth aspirations got a little attention because people know that growth is a challenge in our business.
They said, "Well, that's great if you could grow 7%-9% but tell us how you're going to do that and hit that ROE target." We've increasingly been sharing with people not only the how and what's underneath the hood here and how we're going to grow this business properly, but we've also reinforced the fact that growth is a means to the end. It is not the goal. Frankly, with all the investments that we've made in new geographies and new businesses, we need to generate, and we should generate above average growth, above industry growth. Whether that's 7%-9%, whether that's 6%-7%, all that depends on us looking across all the levers that we have to ultimately deliver the ROEs that you expect.
Obviously, as 2017 comes to a close and tax reform became a reality, we realized that this was not only a significant tailwind for our industry, but specifically for us. Not too unlike the company presenting before you, we are a relatively high taxpayer within our peer group, and even with Chaucer Overseas, we bring north of 80% of that income into the U.S. and pay taxes, and our effective tax rate was north of 33%. As tax reform came through, we not only dealt with the balance sheet implications of that, but we started to get excited about what that can mean for our earnings going into 2018. The grand debate for all of us is how sustainable is it? What's going to happen with all the stakeholders that are going to be looking to be benefited from that?
We've certainly had some employees say, "What's in it for me?" I know we've had a few investor calls and saying, "How's that going to inure to the shareholders?" We have opportunities within even the community, people reaching out and saying, "Now that you guys are more profitable, does that mean you're going to be more generous? At the end of the day, there's some consumers out there now that are obviously getting provoked with some dialogue around why wouldn't that turn into a more competitive environment. As you would expect, we are being very disciplined and working through that and saying, we do believe, at least for 2018, this is a significant tailwind for us.
We're not only committed to hitting the targets that we set out for ourselves this year but setting up some processes inside of our company that allow us, as those earnings start to come through, think about not only the capital management opportunities, the investment opportunities, and the other ways in which we could deploy that capital. Our commitment is that it will be substantially inuring to the shareholders. We believe, and time will tell, that there is some sustainability to that it's not a one-time thing, but some of that has to do with your business complexion and really a lot of individual characteristics of your company. Again, reaching back to a year ago when we talked about at our investor day what our growth plans were, we set out a path.
We set out a path to get a significant amount of our growth that would come from taking advantage of the investments we've made over the last half a decade in particular. The new geographies, the new businesses, the more specialized capabilities. As those territories and businesses mature, we have built a rigorous financial process and capital allocation process that ensures that we're growing the right geographies, the right businesses, the right way, so that that growth can lead to our profit. We also talked about how we could look inside of our specialty capabilities and take some of that to the next level. Because the reality is that we have a relatively low risk profile in a lot of those specialized capabilities. We had to.
Early in our journey, we didn't have the earnings stream to support the kind of earnings volatility that might come from some of the larger companies. As our earnings stream improves, and as we mature in some of those businesses, there's clearly opportunities above our current risk appetite that are real profit opportunities, and properly managed can fall well within our earnings volatility parameters. Eight months ago, we hired Bryan Salvatore from a competitor. He was responsible for the U.S. specialty business for one of our larger competitors, and he has spent the last eight months looking across that portfolio, validating some of our assessment, and coming to his own conclusions in some areas. But for the most part, coming away with a really positive feeling about where we are with that billion-dollar plus U.S. domestic business. He's also got a few ideas about where we go next.
He spent time with all of our specialty leaders going through what he called a Specialty 2021 Strategy of where would we go next, what are the investments, what are the range of outcomes in those sectors from some of our key competitors, what are the obligations that come with those new ventures. That fits nicely into a lot of the rigorous work we had done previously on our core businesses and our Chaucer business. It was kind of the last piece of the puzzle that needed to come in so that we could legitimately have our specialty business be part of our profitable growth. Last but not least, and this is the most careful part of our strategy, is that we believe that things are changing now at a different pace in our industry, and that we can increasingly focus on some innovation.
I'll talk to you a little bit about that in terms of where we're focused in a very disciplined way. Part of our opportunity is to find some new operating models, new growth opportunities that can be accretive in a relatively short period of time. What makes us really different? For those of you that are less familiar with it, what I would tell you is that most of the best product makers in our business over-distribute. Many of our competitors that have a limited distribution and a more intimate distribution strategy lack a lot of specialized capability. That's increasingly a challenge because what the better agents are looking to do is to specialize and to get into more niche-y areas. They'd love to have the franchise value, but they got to have a product to sell.
We think we blend those two dimensions nicely. One of the biggest evidences of the progress we've made in our distribution is that we're the only U.S. company that has built so much trust with the agents they do business with that they engage with us in a consultative product that we reference as Agency Insights that allows us to see their current portfolio in a way that no one else can see and help them better portfolio manage their own agency. We have this process both in personal lines and commercial lines where we reassemble their data. We actually complement some of the data that's in their agency management systems because the agency management systems were built for transactional excellence. They were not built for portfolio management.
We had some very clever people that started six, seven years ago in building these views and these tools that allowed us to frankly go back to our agents and say, "Here's how you can reassemble some of your portfolio. You've got split accounts. You've got monoline accounts. You've got too much business spread out in your small commercial portfolios." A bunch of strategic views that complement the actual core capabilities that we bring to the market every day. Imagine having kind of the MarshBerry of distribution combined with a true, more distinctive underwriting company, all coming to you together saying, "We really want to partner with you and see what you're trying to accomplish and how we can advance your proposition, not just ours." The authenticity of that has really played through in the last several years.
We often encourage our existing investors to reach out and talk to big, medium, and small agents and ask them, "What do you think about Hanover? How are they different than everyone else?" Consistently, when people do that on our behalf or on their own behalf, what they hear is that there is a material difference in the way in which we engage strategically with our agents. Increasingly, what that gives us is the transparency and the opportunity to target where we can grow our business together. Last but not least, in our business, if you're going after the business, that it's a local proposition. You can't try to get the best business from five states away, but you got to have an effective operating model that allows you to be local but be economical.
Moving along, our quest in the distribution is not only to take this legitimacy that we've built but take it to the next level. What we put forth is that we have significant market share in some states. We have less significant market shares in some of our newer geographies. We are pushing ourselves to establish relevance with every agency partner. We have a rigorous process that we go through, and we have significant headroom in our current distribution to take this franchise to the next level. We laid this out in our investor day proposition. To go along with that, we now have not only a $1 billion-plus U.S. domestic specialty business participating in that franchise in the U.S., but we also have a $1 billion Chaucer international business.
While they've been going through a different market cycle and they've had some challenges related to that, they're one of the best syndicates in London. When you think of our quest to drive towards having one of the best quality brands in the business, Chaucer fits into that nicely. The business synergies are limited, and time will tell whether we can create more synergies, but the intellectual capital synergies, the opportunity to share strategies and thoughts across the portfolio, since over half of their business emanates from the U.S., is increasingly helpful to our company. On the innovation front, we are making enormous progress. Dick Lavey, who now runs our agency markets business, spent over a year completely focused on trying to dissect what's going on in the InsurTech space, all the different operating models, and we don't have time to go through this all today.
What I would tell you is that we have some 20 pilots already underway in the new profit pool, new operating model category. What I think you're going to see happen is that people are going to leverage some of the great software and platform work that's being done, leveraging some of the enablers that surround us, but figuring out where those niche-y areas where we can transform how business is done to both improve the customer experience but also make the business much more efficient. Fundamental to that is you have to be able to rewrite the economics of the business. You can't get caught up in compensation the way it is today. We're approaching really progressive agents and saying, "There's a sector of the business that we think we can redefine how that's done from both an underwriting standpoint and an interface with the customer.
You need to be explicit about what your EBITDA goals are. We need to be explicit about what our ROI goals are, then everything else has to be rewritten." Once you follow that discipline and you have a real partner that's willing to go down that path and not argue over the last nickel, you can start to really make some progress on at least envisioning how the business is going to be different in the future. The most immediate areas are in that micro small commercial space, but more on a niche basis as opposed to a general basis. I think people that are going out there and trying to use search engine optimization as a way to acquire the best customers, it's a fool's paradise.
I think us getting to our better agents who are programmatic and thinking about how they can get the relatively small customers that are either professional services or something that has some real expertise needs and some product needs, and figuring out a whole new way to deliver that in a more economical way are likely the winners over the next three to five years in terms of really making some headway. Inside of our company, we're making great progress in leveraging data and analytics and technology. We're going to try to work towards trying to create some more transparency for folks around how we're doing that. The one thing that we're balanced in is that data analytics predictive modeling is a double-edged sword.
I think the more and more people are studying this are realizing that just because you have a predictive model or just because you have a lot of data scientists doesn't mean you're advantaged. It means that you have the opportunity to take that new capability and leverage it into what profit pools are you pursuing? How is that all going to come together? To me, that's where we're spending the vast majority of our time, is not getting caught up in some of the false precision that has been over the last decade, but being really focused on what needs to be underwritten, what really can be replaced by some automation and what can't. How do we streamline that entire process? Last but not least, we're spending a lot of time related to the first bucket on how do we drive a different customer experience.
What is indisputable in our business is that the next generation is not going to ring up an agent and ask him for a quote. That's not how the world's going to work. We've increasingly been able to get some of the best agents to start kind of going along with the investments on how do we create and not be afraid of a digitalized approach into the business that leverages a trusted advisor at the right time.
At the end of the day, we think our story is different in that we're going to be able to grow and generate sustainable top quartile returns, and that we think we will do that by, while we've improved the loss performance of our business, we're at a stage where the maturation of our business is going to be more about expense leverage than it will about further loss ratio improvement. That means some businesses are going to improve, others are going to slip back a little bit. In aggregate, you will see us make most of our financial improvement through growing into our current capabilities. In 2017, we think we took a meaningful step forward, somewhat masked by the catastrophes, but at the end of the day, we grew our business, we improved our profitability, and most of our key metrics delivered in 2017.
What we're most excited about is the flow businesses as small commercial and personal lines now make up over $2.3 billion of our business, generating north of cost of capital returns and grew over 7% last year. I would also add some of our best performing specialty capabilities also had upper single-digit growth. We're committed to demonstrating significant earnings improvement. We believe over the next several quarters, if we can build on the last two years and show that all this hard work we've done puts us in a top quartile performance and we can grow thoughtfully, we will distinguish ourselves because it's hard in our business. We can find a lot of people with impressive loss ratios. You can find some people that are growth. Finding people that can do both is the ultimate challenge.
Along the way of rebuilding this company, one of the other important things we did is install a new and improved culture of financial management. That comes in all four forms here. I won't go through this in detail, but I think you saw we're committed to a stronger approach to our balance sheet and our reserves. We're much more transparent and thoughtful about capital management. That will be particularly important this year with the opportunities that are coming forward with tax reform. In general, inside of our company, what I would tell you is that we have a bunch of people who are committed to driving ourselves to that sustainable top quartile performance, and they're willing to look inside their expense base and really better differentiate what's important versus what's nice to have.
We have a laundry list of things that we'd like to do next, investments we need to make and things that would be important to our future. Some of those that we can invest in via or fund from our growth. But some of it's going to have to come from looking into our current set of resources and capabilities and making some tough choices. Last year, what we've shown is that without disrupting our progressive culture at all, we could do that. We took a pretty significant expense action, and we were very precise about what we were trying to accomplish and how we went about it. I can tell you that the people within our company came out stronger because of it, and they realized that this is all about trying to take this company to the next level.
I'll end with kind of what I believe is our quest. Our quest is that we're trying to become that agency carrier of choice, not in an exclusive way, because we're working with some of the best agents in the country. We want to be agency carrier of choice in the sectors that we participate in. That means that we increasingly have to have more specialized capabilities, and those specialized capabilities, they transcend all the way into our personal lines and small commercial businesses. We are not a commodity player. We're not set up to be a commodity player. We stress test every one of our businesses to show us why you're different, why you're going to be able to create sustainable above average returns, and that we drive into our capital allocation process back in Worcester.
The enablers that we have down below that's driving this strategy is about modernizing and making the business more sophisticated. We've got plenty of smart people from the better companies. We just have to keep strengthening the core of our capabilities to drive towards that vision that we've created for the company. With that, I'll ask you if any of that stirs any questions.
Hi. Thanks for sharing your vision with us. I have a three-part question related to InsurTech.
What excites you the most about InsurTech and how it relates to Hanover? Where do you see the industry in 2021 in regards to InsurTech?
What's the tipping point that gets us from the first or second inning that we're in now to the seventh, eighth, ninth inning?
Yeah, that'll be tricky, I think Dick, myself, and others have spent a lot of time with a number of the InsurTech firms, as has other companies. I think we've tried to look at them as where they can become our platform and an extension of us. Are open to a white label type of approach. Many of them have, almost all of them have admitted that their customer acquisition strategies are deficient. Now there's some of them that are more affinity-based, or they have a different way of attaching themselves. Even then, they would argue that today the independent agents still get the vast majority of the quality customers.
They're more and more inclined to be open-minded to how do we create a different customer experience and how do we strip some of the unnecessary kind of questions and ways at which we do business? They obviously have an open mind to all of that. To direct to your question, we piloted with some specific InsurTech firms that, A, understand our distribution approach and see that as something that's advantageous. We're committed towards doing this in a more laser-focused way. I believe that it'll be somewhat like the car industry when Hyundai got in and said, GM and others just said, "Ah, you guys can work on the Go take the $7,000 cars.
We don't really care about that anyway." Once they got in and they started to get some traction and they had their chassis up and running, then they start moving upstream and trying to figure out where the real opportunity is. It's coming. We have some time, and this is what we spend time talking to our agents about. If you just do the Heisman and you pretend like this isn't coming, you're living in a fool's paradise. If you start to, in a targeted way, embrace that, we can be the disruptors because there's I could underwrite the entire small commercial sector, $80, $90, $100 billion at a 65%-70% loss ratio. I wouldn't have to ask any questions.
If you think about it that way and say, if you were able to really limit where is underwriting really matter, how do we rearrange what questions we ask, how we ask them, how we engage the customer, and at least for the short term, take advantage of the agency's brand in their community as opposed to you trying to do it through some search engine optimization. Wouldn't that be a better short-term model? We're also participating with digital agents, right? As long as they have a contract and they have a license, it's not up to us to decide whether they have brick and mortar or whether they're doing things over the internet. That's getting some traction. People are starting to figure out how we can work with digitalized agents to accelerate that experience.
Long story short is, I think it's going to come to that. I don't know what it's in 2021, but I guarantee you by 2030, this business is going to look dramatically different. There'll be a place for agents in much of the business, but they won't look the same. We want to be going down a path where we're part of the action and we're learning and we're figuring it out, as opposed to over-investing and getting it wrong and not being able to see the future or putting our heads in the sand.
Just one quick one. Do you have a question? I'm sorry. Go ahead.
For the Chaucer business, for the Lloyd's syndicate, does that require letters of credit for reinsurance purposes, or is that taken care of through other parts?
Well, it's a pretty sophisticated model that's backed by the Lloyd's system itself, there's a variety of different ways that we source that capital or reinforce that credit capital. You might have seen we recently did a sidecar to supplement our more traditional retrocession reinsurance. The answer is yes and no, and it varies across the entire portfolio.