speaker present, you know that he comes with a lot of passion and enthusiasm for his business. We've got Fred Eppinger, who is CEO of Hanover. Fred joined the company as CEO in 2003, so a bit more than a decade, and this company looks vastly different than it did then, and it continues to change. To talk about that development and where the company's going, let me turn it over to Fred.
Well, afternoon, everybody. What I'd like to do is give you a little overview of the company, talk about where we are and what we're doing. This has been a pretty big year for us. We've made a lot of improvements, and frankly, I think, where our future is going to be became a lot clearer, and a lot more exciting in the last 12 months. Let me kind of take us through a little bit of who we are, for those of you that don't know the company at all. It is our call, it's THG, it's a New York Stock Exchange company. We happen to be one of the 40 oldest companies on the New York Stock Exchange. We're 162 years, a little bit of trivia. We are about a $2.5 billion market cap.
We crossed $5 billion for the first time this year in a gross written premium. It's a broad-based book of business split with personal, commercial, and specialty. If you look at a little bit about where our footprint is and our people, we have about $1.4 billion out of the country, about 800 folks, eight offices. It's really a Lloyd's platform. We're one of the largest individual syndicates at Lloyd's. Domestically, we have about $4 billion of premium, about 4,300 employees, and frankly, one of the finest retail networks in the country with 41 offices that really reach out to 2,000 of the best agents in the country. It is a pretty broad institution. Again, those that have seen me in the last 10 and a half years, you've seen a version of this chart. This company is pretty straightforward.
We set out to build a top quartile company, a company that could sustain top quartile returns through the cycle. We do that in a couple of ways. One is this focus on innovation and products that add value. We are very focused in every category we are in creating specialty business and flow business that is distinctive and adds value. We do that with partner agents. We are one of the smallest networks of agents in the country for our premium. We are very much in building franchise value and more exclusivity and aligning incentives through that. We have spent a lot of money on our retail distribution and distributed underwriting. We invest a lot in technology. We're very efficient. We have all the straight-through everybody else does.
We also spend a lot of money so that we can have remote professionals close to our distribution that allows us to take advantage of disruption and move quickly. It's a pretty straightforward story. The company was a little different. I've been here 10 years. We were quite troubled 10 years ago. We were in the life business, variable annuity business. A lot of those businesses I exited. We were also an interesting personal lines-oriented P&C company. We were about $1.7 billion. We were about 70% personal lines and 70% in four states. A big portion of what we did in the first part of the journey was fix it, make us make more money, get the portfolio right. The most exciting part of the journey has been really since 2010. We got another set of upgrades in 2009.
We were able to change our portfolio because, again, what we're trying to do is have a portfolio that can sustain top quartile returns. Our portfolio that we had before was good when the weather was good. It wasn't a terrific portfolio. If you look at the best insurance companies in the country, the top quartile, the top five or six guys, what they do is a couple of things. Yes, they execute, they also have a portfolio that's more attractive, both by states and lines. They're in more businesses that have higher returns. You got to execute also. You can't just have a portfolio. We had the worst portfolio in the top 30 companies in the country. Now we have a portfolio that is as good as the best three or four.
We have a very different portfolio of high-margin business, better spread geographically, and enough robustness to it so that we can really matter to the best agents in the country. Where we are now in our journey, though, is why it's pretty exciting. Most of that work's behind us. This is the first 12 months that we weren't integrating an acquisition or doing something significant in our portfolio. This has been about really leveraging that new portfolio and executing with our partner agents, since you saw a significant leverage of our earnings this year, and you will continue to see that over the next two or three years as we are able to leverage that strategic position with our agents and with the better portfolio, as well as grow and capitalize on the disruption that we all see right now that's going on in the marketplace.
We're in a great position to continue to grow earnings in a very, very significant way over the next two or three years. If you look at our strategy this year, as I said, it was a very good year. We finished a lot of things off as far as talent, and businesses really settled in and matured nicely. We also were able to, like many other people in the industry, get a really good handle on pricing and being able to really make some strong strides on pricing. We also finished a lot of what I would say the work of getting rid of some of the volatility in our book. One of the Achilles heels of the company was that we were so concentrated in some states.
We had what I call micro concentrations with all this intense weather we've had in the industry over the last five years that created volatility. We have exited roughly $350 million, often property-oriented business, personal lines-oriented business in many cases, that created micro concentrations that we have now eliminated. With the growth of the business, plus the elimination, our portfolio is in a really good place. It's a good year and a good year on earnings as well. The numbers. From a growth point of view, even though this year we exited about $200 million worth of business in that work I told you about, we still grew pretty nicely. Our book value grew, and our equity grew. More importantly, you can see the growth in our earnings power, our ex-CAT earnings growth.
Like everybody else, we made a lot more money this year because the weather was better. More importantly, we had a significant increase in our ex-CAT earnings, and that is going to continue. We talked about that because, again, all the levers are now in place to both sustain rate, to have retention increase, and to be able to improve our mix because we have a much better portfolio and terrific momentum in every business. Virtually every single business we had improved margins and grew this year. It is a really nice place to be as a company as far as our position with our agents. Let me go to the results. Again, as I said, like everyone, this was a pretty good year. We improved a lot because of the weather.
Of course, Sandy was the year before, which is in a place where we have quite a bit of business. Our underlying, we made about $100 million more in our domestic businesses. As I said, in each of our businesses, you saw a nice improvement in the underlying earnings power, and I'm going to go through a little bit. This is an eye chart. I don't want to make a lot of points. Again, going back to our goals, we're not all the way there. We still need to improve more to be at the returns we want. Where we are now is we pretty much consistently outperform the regionals, and we're getting to the point, particularly if you take out reserve releases, our accident years are right at the nationals. We have more to go.
We have more improvement we have in the system, and then we can make it happen, and we need to. Another unique thing about our business is that we have changed the mix dramatically and became a very balanced company over the last few years. What I have here from 2008 to now at the end of 2013, what you see is a personal lines-oriented company with some commercial becoming essentially a well-balanced specialty commercial personal lines company that is now broad geographically, no longer concentrated in a few states. Also important is this property casualty mixed, which again reflects the improvement of the underlying type of businesses we're in. As I say, if you look at our portfolio and compared it by line and state, we have a very attractive mix.
Now it's about execution and leveraging our strategy to make sure we get the most margin. What's more important actually than just playing mix is do you have distinctive positions? In each of our businesses, if you look at where we find ourselves, our strategy, our focus, we're in a great place. Our count-oriented approach to personal lines, the way we do industry solutions in our commercial core flow business, our specialty business that goes directly to retail bypasses the wholesaler with our partners. Each of those businesses are quite distinctive in their own right and allow us to think about sustained earnings and growth. If I start with business insurance, we're about $1.2 billion, about half small, half middle. Again, we have a very interesting approach to that business.
We have a distributed team and a really good network of underwriters close to the action. What that brings to us is, yes, and efficiently, we have renewals in small that are centralized, and we have all the straight through. We are the only company of the major small commercial writers that have distributed new business underwriters close to the action. What does that do? Well, the most profitable part of small commercial is 25,000-50,000, the non-commodity pay. Our ability to react quickly to get the best business, to help an agent understand their book and move their mature business to us is unprecedented.
Our operating model to both know the agents better than anybody else and to have the expertise in the product set to be able to do 50 and under really well is in a great position for the company right now. Add to that we are much more industry oriented, we do a lot more around industry solutions. For instance, we have one of the fastest growing tech businesses in the industry in the small. With this distributed underwriting and our product set, we're able to over-serve that business. Again, we have a very good small commercial presence. That business has gone from about $200 million in the last three years to $633 million. We believe as agents consolidate their markets and buy other agencies, that's going to be an enormous growth engine for us. The second business there is our middle market business.
Again, little different philosophy. We tend to like Schmiddle, what I call Schmiddle, the low end of middle, under 200,000, and it's very much around solutions, industry solutions. Why is that important? Well, in today's world, with the ability to put together data and do things a little bit more insightful, the ability to go and solve a problem for an industry is very powerful. An agent's hit rate is better, their close rate is better, their retention is better. An enormous part of our middle market is not generic. 84% of it is industry solutions. We line up with our agency partners and proactively do that business, go after that business.
We also, in their installed business, we have a technique called pipelining, where we help them with the business they already have to move it to us so they can tailor the coverages to that industry more effectively. Again, our ability to add value is pretty distinctive right now, and both of these businesses are set up well to grow for us as we go forward. Our U.S. specialty business, again, was an important part of what we were trying to do to have some high margin business, but also to be relevant to the best agents. What you're seeing is a lot of retail agents are consolidating, they're becoming more sophisticated, and what they want to do is do more themselves and bypass wholesalers and have skills that they can add value directly in some of these areas.
What we've done is created a portfolio of specialty businesses that are relevant to the best agents in the country. Again, fitting in our philosophy, they tend to be smaller face value businesses. We have built a $700 million specialty business, again, growing very nicely in some very high margin areas. Let me take one as an example, which is Hanover Specialty Industrial. It's essentially, an HPR business, highly protected risk business for manufacturers, where we can go in and engineer their risk, help them with what their coverages are, bundle an environmental cover that we do through our third-party broker, and solve a value, provide a value-added solution to a small manufacturer. That business is great for agents as a value added. They are able to sell lots of value. The retention is extraordinary.
We've built a very high margin business that is now in the $50 million range. We have a number of these specialty businesses, again, targeted our franchise partners, value added, and enables us to be very relevant to the better agents. Personal lines. Again, personal lines, we've done a lot of work. We feel very strongly that there is a very attractive segment of value added in personal lines. We've spent a lot of time and attention and money to create the right demographics, the right product set for full accounts of people, like in this room, that have things, that where umbrella and home and auto together is important. We have a product called Platinum that we've introduced that allows agents to sell value and to create accounts from their installed base. We are very attractive.
If you look at, most of our agents have personal lines. Most of their business has been with them for a long time, and it's account-oriented, but it's underserved. It's not one company often. It doesn't have a full umbrella. It doesn't have the complement of the coverages connected. What we're able to do is go in, help them bring those together, and sell value. Again, this is a business we've worked hard to get to a nice, strong position, and I feel very good about this going forward because more and more people are going to need this to efficiently serve the account market. A good, nice little business for us going forward. Chaucer, which is really our Lloyd's platform. Again, it's a specialty business. They don't have a lot of reinsurance. It's mostly specialty in things like marine, aviation, energy.
About 50% of it is denominated in dollars. We've been able to, since we acquired it, add some teams and really build some bench strength in some of the areas, like casualty and a little bit in energy and marine. We feel great about this business. It's had a long track record, and we've had lots of success in 2012 and 2013 since we bought it. It's also, again, Lloyd's, in our view, is a consolidating business as well, that the small syndicates are getting squeezed out and that the largest syndicates that lead really are in the driver's seat. That's what we've seen in January. That's what we can continue to see, and we feel really good about our strategic position.
In addition, we are able to, a lot of business, there's quite a business of Lloyd's business that originates from the U.S. in our partner agents. We've been able to slowly but surely connect, make a direct linkage between our partner agents and our Lloyd's platform. We have probably $40 million, $50 million we did this year of really good specialty business that originates in the U.S., and we've become our own cover holder, if you will. Again, more opportunity to be able to serve the best agents with a value add. Okay. Let me just step back from the product stuff and say, just talk a little bit about the partner strategy. In a lot of ways, you can think of us as the P&G of the insurance space. We know our distribution probably better than any other company.
It's all about preferred shelf space with the right products and making sure that you have alignment of incentives. That's really what we're trying to do. If you look at the value proposition that we present to the best agents in the country, it's this notion of broad products that add value. We can be very relevant to you. We can write a pretty significant percentage of your business, and we can give you offensive weapons because not only do we add value, we have franchise value. Instead of many of my competitors that have 20,000, 30,000 agents and they appoint every agent, we appoint very few agents. You're going to have something that other people don't have. Within some of our specialties, we're even more selective. We give very small number of people access.
Again, you get something, you get a franchise value with our appointment. What we have is local professionals that are close to you, that can act quickly, that can take advantage of opportunity. If there's a disruption in the marketplace, they have the ability and the authority to act. Finally, we've built a ton of tools to help agents improve their economics, thinking about profiling their business, thinking about how to bypass a wholesaler and come to us directly in retail. That creates a linkage and an alignment that not only helps us grow, it protects us, right? Because we have essentially most of our business with our partners. If you look at the numbers, we have $4 billion of our business with 1,000 partners. What does that do?
Not only have we doubled with some of the best agents in the country, we have tremendous alignment because we have so much business with each of them. We have profit-sharing arrangements, of course, and retention arrangements. That together we can deliver value and manage profitability quite nicely. The other great thing about this is that if you look at that $4 billion, that's terrific, but we're still only about 4% share. The headroom with these partners is enormous for us. As they see other opportunities, those opportunities come to us first. Again, I feel pretty good about the progress we've made. As a company, we did a lot of work to get to this point. We're not all the way there.
As I said, top quartile, we're still 3.5 points away from where we need to be to be at the kind of returns I want to sustain. We did a good step forward this year. We're going to make another nice step forward next year. Why are we so confident in this leverage showing up? Well, on every dimension, we're in a great place. Pricing, a lot of people in the industry get pricing, but remember, we have small face value. We have value-added products. Our ability to give price over inflation is much better than folks that play large accounts or go to the broker business or do nondescript commodity flow through business. Our ability to get rate. What you've seen is us get rate and have great retention in most of our spots.
If you look at the work we've done, for instance, on re-underwriting the business, not only have we got rate, we've gotten off of some business and got rid of kind of some concentrations. At the same time, we've been growing new business with our partners, and our retention has sustained. Even in personal lines where we've sold books of business, if you look at the non-books of business that we sold, even with all the rate we've done, we're getting terrific retention and improving mix, actually. Again, our view is because we have so much insight about our distributors, their business, the price sensitivity of their business, we can put together the predictive modelings and all the stuff that everybody has in our industry that thinks it's so great.
We can put that together with more local market insights than everybody else to really understand price sensitivity and make sure that we get the right price at the right time from the right folks. Again, we feel like this is a good thing and will enable us to sustain our momentum. As you go forward in 2014, the priorities aren't that different. We have a little bit more work to do in some of the underwriting. We have about $80 million we're going to get off of in particularly personal lines property in New England. We have some deals with other carriers where I'm going to sell some of the property and continue to reduce our concentration. We've got a lot of work on pricing that we've continued. January was, as I said in our call, January is right on track for all of that.
We also have a lot of growth opportunities right now that's going on with our partner agents that we're executing against in small commercial and in a couple of other businesses in particular. In general, our mix is getting better, right? Just our broad mix of business to the higher margins. We're growing the higher margin businesses. What you're seeing is that we have leverage in price, we have leverage in mix, we have leverage in growth. It's pretty clear cut right now. As far as our philosophy with shareholders and capital, the other thing, we try to be thoughtful. This has been quite a journey. We've doubled the business in the last five years. We've changed the business dramatically over the last 10 years.
We were the worst-performing company in the segment at the beginning of the decade, so we had a lot of work to do. One of our philosophies is we fix the company and invest in the company and build the balance sheet. We've always been thoughtful about returning money to shareholders, too. Every step along the way, both through share buybacks and through dividends, as we've grown the earnings power of the company, and we've been able to do some things with the balance sheet and the portfolio to free up capital. We've been thoughtful. Clearly, we believe we can have continued growth and opportunities in high-margin business. That's where a lot of our capital will go. We will always be thoughtful going forward about the way we return money to capital to shareholders. I think that this philosophy will not change.
If you look at the so what from everything I said today, and I'd be happy to answer questions, how do I think about the company? Well, there's no question we're still getting better. We're still building. This has been a watershed year for us because I think people can see what we've done now. It's clear. The strength of our relationships with agents are clear now. The portfolio strength is clearer now. The ability to improve profitability is clearer now. I think one of the theses is that we're a really good company that a lot of people don't know, or they were waiting to get to this point. You know that our valuation is still really on a relative basis, we're undervalued.
Not only did we have a good year this year with people started, I think, thinking about our stock as a good investment, and we went up quite a bit. There's still a lot more to do, and there's still a lot more opportunity. I think it's because of the opportunity we have to grow the earnings of the business. I think that we have a great story as an institution, and we just have to continue to execute. That's all I really had. As I said, as a company, we feel like we're in the mode of executing. I would also tell you that we're in that part of the cycle, where there's a lot of have and have-not activity. What do I mean by that? The weaker companies are really having problems. We all know names, and we can talk about it.
What's fascinating, this is the part of the cycle where there's a little bit of a flight to quality. You have the right kind of conversations. You add that to the fact that pricing in the industry for a lot of new business is as good as it's been in quite a while. The combination of being the person that people are coming to and an environment where price is pretty good, and there's a lot of disruption in the marketplace, in my view, creates an opportunity for the next couple of years for good companies to both continue margin increase, but also to see some growth. I think that's where we are for the better companies right now. It's an interesting time. Okay. With that, if there's any questions, I'd be happy to answer any questions.
I've got a couple. I guess one question is, this company has been in, I don't know if I call it turnaround or building mode.
Yeah.
You've done a lot of work, and you're just about where you need to be.
Yeah.
The skills then that the company needs to now grow this platform as opposed to the challenges you had before-
Yeah.
Do you have the right people in place for it?
What's fascinating, again, people say, "Well, Fred, why didn't it just happen like this?" In our business, there's a lot of stories of people when they call it turnaround. All they really mean by that is they get rid of the bad stuff and keep the good stuff. The problem with our company is we didn't have enough of the good stuff that was sustainable. It was too focused on weather. We had to build these businesses. Again, in our business, you want to do it the hard way. You can go to the brokers and do large accounts and go to wholesalers and then get killed because it's so cyclical and price sensitive. We've done it the hard way by building the infrastructure, the operating models, the technology, and most importantly, the people. We have 5,200 people. 4,400 have come since I started.
We have the finest executive team in the industry. We have the most depth of talent of anybody our size. From day one, we've been building this company to take advantage of what's happening in the industry and be top quartile. One of the interesting things is that I probably spend 35% of my time on talent acquisition, on talent development, and getting really good people. Again, if you think about what we do for a living, it's small face value, it's distributed, it's execution, it's oriented to operational excellence. I feel great about it, but it's been why our expense ratio has been so high. I mean, people say, well, I remember three years ago, I had quarters where my expense ratio was higher than my loss ratio. That's crazy.
Not if you're building a great business, not if you're investing in the right way, not if you're not taking loss risk. If you take an expense risk, you never get in trouble. That's because we built a team, and we over-invested. When we had some of these small businesses, I have senior people that were running businesses that for better competitors, that were four times the size of the business they run here. It is one of our strengths and why I think we can grow right now without a lot of people increases, without a lot of leverage, because we have invested in the resources to do what we're doing. It's a nice place to be actually right now.
The other question I had was your personalized business. I guess the business you focus on insulates you to some extent.
Yeah
From the 15%, 15-minute type business. It feels as if the larger, bigger companies over time do have an advantage.
Yeah
Given their size and scale and maybe where this business is going. How do you combat that over time?
Yeah. Again, I've been at McKinsey for 16 years. I've done a lot of research on this particular point. The statistics are not what people think. There is a price-sensitive segment of the business. There's no question. The reality is that most direct platforms have failed to be able to cost-effectively reach accounts. Most haven't penetrated umbrella, most haven't penetrated home. Most can't handle the gaps in liability coverage. So what you see is actually a pretty significant stability in account business. I'd go a step further. What's fascinating, there's about $65 billion of account business with subscale regional companies that agents have had for a long time.
For us, not only do we think there's an opportunity in the stable business, in account business, we think there's a growth opportunity because we'll be able to take that business from the regional companies that can't service it as well. They don't have the ability around self-service, 24-hour service, et cetera. Most of those companies are geographically concentrated, so they are going to have more volatility from the weather that we're experiencing. I'm actually pretty bullish on it. There's others that go the other way. They say, "Well, we should think about monoline auto." Okay. That's not, in my view, where the most attractive segments are. We are not Chubb, and we are not what ACE is doing at the higher end. But anybody that doesn't live out of a car needs umbrella.
It doesn't matter if you use technology or not. It's not about age, it's not about technology. The reality is the issues in the U.S. are not about property damage in personal lines. It's about casualty, liability coverage, uninsured motorists, being sued because you have a passenger in your car. Again, that requires you to put together an account. We're very bullish, and all our research says that there's a wonderful business here. It is the most profitable segment for most of the companies, even the companies that say they want direct. If you look at that business, the independent agent, the good independent agent serves it well, serves it efficiently, keeps it. A lot of those are business owners that they have on the business side as well. We're bullish on it. It's not easy.
A lot of investment we're making because you got to serve it efficiently. This whole notion of 24-hour, and remote, and self-service is a big deal. We've spent a ton of money on it, and we think it's an exciting opportunity. Again, at the very least, it's a nice profitable business that's going to be stable for us. I'm getting more bullish every day as other people go the other way to create this opportunity. There's been some disruption in that industry, as you know, in the last few weeks. Our ability to actually growth that's coming from that is pretty significant, I think, as we tail into next year. It's interesting.
Great. Unfortunately, that's all the time we have. Join me in thanking Fred.