Morning. Morning. Pleasure to have you here. My name is Mike Angelini, and I've been here before, as you know. It's my recurring pleasure to welcome you to the annual meeting of the shareholders of The Hanover Insurance Group. I am Chairman of the Board of Directors and will lead the formal part of this meeting and following these formalities, which hopefully will be unexceptional, I'll introduce Fred Eppinger to you, and Fred will make a presentation, and he and I will be available to answer any questions you have. We're transmitting the audio portion of this meeting and also Fred's slides through our webcast, which is posted on our website for the benefit of interested listeners and in particular for our employees at other locations. All of that being said, I call the meeting to order.
All of the directors of the company are here, along with a number of the officers of the company, and we're pleased to have them all. In addition to Fred and to me, the other directors who are present are Richard Booth, Kevin Condron, Neil Finnegan, David Dattels, Wendell Knox, Bob Murray, Joe Ramrath, and T. Taggart. In addition to the directors who are presently on the board, we are particularly pleased to welcome Karen Francis, who is a nominee for director. Gentlemen and ladies, would you all please stand and be recognized? The company's transfer agent is Computershare, and Computershare has delivered an affidavit of mailing establishing that notice of this meeting has been duly given. A copy of that notice of the meeting and an affidavit of mailing is going to be filed with the minutes of this meeting.
All shareholders of record at the close of business on March 25, 2014, have been and are entitled to vote at this meeting. Somewhere here, representatives of Computershare are present. They have been appointed as inspectors of elections. The inspectors have told me that the company has received valid proxies representing a majority of the outstanding shares, and so we have a quorum. There are seven items before us for consideration and voting and for discussion if anyone wishes to have it. They are as follows, and I'll read them. First, the election of directors. Richard Booth, David Dattels, Wendell Knox have each been nominated to serve for three-year terms as directors. Karen Francis and I have each been nominated to serve for a two-year term, and Bob Murray has been nominated to serve for a one-year term.
Second before us is the approval of The Hanover Insurance Group 2014 Long-Term Incentive Plan. Third is the approval of Chaucer Share Incentive Plan. Fourth is approval of a 2014 Employee Stock Purchase Plan, about which we are particularly excited. Fifth is approval of a 2014 Executive Short-Term Incentive Compensation Plan. Sixth is consideration of an advisory vote on executive compensation, the so-called say on pay matter. Finally is the approval of the ratification of the appointment of PricewaterhouseCoopers as our independent registered public accounting firm. I would entertain a motion for approval of all of these. Mr. Condron, I've heard you're going to make that motion. Moved. Is it seconded? Seconded. Let's see what we need. We are opening the floor for discussion on these proposals. If there's any discussion on these proposals, I'm available. Fred's available.
Representatives of PricewaterhouseCoopers are here with respect to the matter of their appointment. If there are any questions on these proposals, let me know. I see no hands, we will move on. If any of you who are present have not yet voted or wish to change your vote, we have ballots available. Would anyone care to do so, care to exercise the right to vote? There being no discussion and not seeing any request for ballots, the polls are open. If any of you have ballots you wish to place. Not seeing anyone who wishing to do so, we will rely on what I have already been told, which is that the nominees for election to the board have been elected. As one of those nominees, thank you.
All other matters have been approved by a majority of the shareholders, I don't believe there are any other matters to come before this meeting. Are there any matters which anyone wishes me to address or wish to have addressed? That being the case, the formal portion of this meeting is adjourned. Moving on to other matters. This is the 11th time that I have had the privilege of introducing That's not the appropriate word. I'm telling you that Fred Eppinger is going to be addressing us. I have been a director of this company for a long time, and my most significant contribution as a director was leading the search for our CEO and persuading Fred Eppinger to join this company. Every time I introduce Fred, I am reminded of the extraordinary impact he has had here on Hanover and of Hanover's enormous impact as a company.
Many of you here I know are employees, this is a company which remarkably, I think distinctively, recognizes that it has four important constituencies, and I've said this before. Of course, foremost are our shareholders. This company respects that, and its progress brings value to its shareholders. Its agents and customers are also one of our constituencies, and we have, particularly through our partner agency, ambitions, a remarkable job in dealing with our customers and also with our agents. We are responsive to the needs of people who, in the end, need our insurance and respect that. We also, I think, have a remarkable relationship with our employees. For those of you who are here today, I want to thank you for participating in this great company.
I sat with Oksana last night at dinner, I said to her, "If you use one word to describe our competitive advantage, Oksana, what would it be?" Her answer didn't surprise me. She said, "Our people." All of us on the board, and I say this to you as employees, respect the fact that that is a distinctive advantage to this company and that we appreciate your participation. Finally, another distinction of this company is its relationship to its communities. I know of no company in the United States which is more responsive and responsible for leadership in its community. That is not just Fred's leadership or the officers' leadership or the board's leadership.
It's a leadership exercised every day by our employees who understand that we play an important role in making the places where we live a better place and respecting the rights and responsibilities and opportunities of people who are not as advantaged as we are. I thank you all for that. In particular, I thank Fred for exercising leadership that reminds us of those four constituencies and our responsibilities. With that, Fred Eppinger.
Good morning. Every year, we take a little bit of stock in where we are as an institution at this event, we give a little bit of an overview of 2013 and a little bit of a discussion of what we're planning for 2014. This year in particular is an interesting year for us, I think in a lot of ways. It was a little bit of a watershed year for us. Much of our investments matured. We made so many advances across our organization, and we have so much momentum right now as an institution. It's good to reflect on where we are. Now, we have more to do. As an institution, our goals are very clear, and we know we must continue to be focused on improving and getting better and becoming distinctive.
The other thing I would say about my presentation today, on June 12th of this year, we are going to have a more detailed conversation with our investors that we will spend some time in detail with our senior management team on our businesses. I'll be brief as I always am at this meeting, but we'll have a time very shortly here where we'll have a really interesting dialogue about the company and where we are. That will just be around the corner. With that, let me just make sure that I leave you with some thoughts. We have started this journey 11 years ago. It has been about creating something distinctive, something special, something lasting. Where we are as a company, I leave us with four thoughts as we go through the day. We are in a very strong position right now.
A lot of the items that we've worked on, whether it's the balanced book of business, whether it's the strength of our offerings in each of our business areas, if you think about the position we have with our partner agents, all of the pieces of our strategy are coming together. We find ourselves in an interesting time, and I'm going to talk about it. The economy is clearly better, but it's a period of interesting disruption. We've had seven or eight of our competitors go through a lot of turmoil this year, which has created a number of opportunities for us because of that strength.
I think about 2013 in that context, where it was a great step forward because we were able to capitalize on a number of opportunities, not the least of which was the talent we continued to assemble in some of these areas that make us a distinctive company. As I look forward, we all know what our agenda is. We have momentum with our partners, but there's more work to be done, particularly in some of the newer businesses or geographies. There's more work to be done on pricing and some of our mix work. There's more work to be done as we grow into ourselves, if you will.
We've done 12 or so transactions since 2009, and so our profile is different as a company, and we're maturing as a company, but there's a little bit more work to be done as we do that, as we mature those operating models. Lastly, this notion of volatility. What's interesting about our company, if you look at the last three years, we've grown. We've been one of the leading growers in our whole industry. At the same time, we've shrunk $400 million, or would have shrunk $400 million by the end of this year in some of our legacy businesses. The purpose there was to reduce some of the volatility of our business by getting rid of some of the micro concentrations that were outsized.
What's interesting, I don't think people know that or notice that because we did it pretty thoughtfully through a number of transactions and partnerships with competitors that we've been able to move that business. We've both grown and improved our portfolio. At the same time, we reduced that volatility. We have a little bit more work to be done. It'll pretty much wrap up in the next two, three quarters, but we've achieved a lot, but we have more to go for 2014. That's what I'm going to walk through a little bit about this today. For those that don't know us as well, particularly remotely, that are listening to this, I always like to just take a step back about the company. We have, for the first time in our history, reached $5 billion of gross premium, across the footprint.
We have now pretty broad-based mix of business that's really a third personal, third commercial, third specialty. We are lucky to, since this meeting last year, our stock has appreciated another 20% since the last time we were together, and we're fortunate that we have momentum to continue, and our market cap's about $2.6 billion. If you look at our footprint as a company, again, for those that don't know us as well, we ended 2013 with about $4 billion domestically, about 4,300 employees, and very importantly, 41 local offices. I'm going to talk a little bit about the investment we've made over the last five or six years to have one of the best footprints in the country. Then, internationally, we are now about $1.4 billion, out of our Lloyd's syndicate. We have 800 employees and about eight offices.
We are now squarely a national player with an international reach, one of the most significant companies in our space, with opportunities in a lot of the competitive areas we now participate. A very different profile, if you will, than the $1.7 billion and 70% in four states and 70% personal lines that we were in 2005. The company has presented itself in a broad way and has created some opportunities. Because I don't use this chart enough, I thought that I would make sure that people are reminded what this is all about. From the beginning, it's very simple: to build a world-class institution that can sustain returns through the cycle, that gives us an opportunity for this 163-year-old company to last 163 years more, because of our distinctiveness and our capability to be consistent in the way we return money to our shareholders through the cycle.
That has been about building a distinctive portfolio and working hard in better categories and in better areas to build a balanced portfolio in distinctive areas and have differentiated positions in each of our businesses. At the heart of that strategy is a partnership strategy with the best agents in the country where we can get preferred shelf space and align incentives. Supporting it all is financial strength that allows us to invest and make a difference consistently day in and day out to add value through innovative products and services delivered through great professionals. Again, this strategy really hasn't changed. What I said earlier is true, though. In a lot of ways, we've reached critical mass in a lot of these businesses. Our improvement is broad-based now.
If you look at the first quarter where we had one of the worst winter weather experiences really in the last 50 years or so, we did very well financially, because we're balanced now. We're not so beholden to small geographies or property. We're able to have a diversity of earnings. Again, that has been our direction. If you look at a specific update for 2013, again, as I said, there's a few things that I want to touch on, both financially and the balance of the book as we go forward. Let's just look at some of the financials since the last time we were together. I like the shape of these charts. Both from a growth perspective and an earnings perspective, we had another good year, and we had a good first quarter.
If you look at our premium written, we've had consistent growth, and in the first quarter, we were able to grow another 9%. More importantly than that, our earnings power of the company, our ex earnings power, has gone up pretty significantly, and in the first quarter, it went up 15%. Again, stepping forward, even with some difficult weather, moving forward on our focus. Both book value has also continued to grow in parallel with that, obviously. Also, we keep waiting for spreads to change, but they seem to go the opposite direction. Our book value continues to grow as well as our capital base. Good. A good step forward this year and continue to make progress.
As far as our thoughts and our work with our shareholders, because of some work on our balance sheet, which we refinanced and did some things with some older debt, because of our performance, we were able to return about $138 million to shareholders. On the dividend side, we were able to, once again, increase our dividend and our return. As you think about what we try to do is obviously we try to invest in profitable growth. We're also thoughtful about making sure that we give back to our shareholders capital in an appropriate way, particularly when there is excess. As far as financial progress, just again, 2013 was a good step forward because of this. If you look at the earnings power, virtually every business we have improved.
Chaucer was flat, it was at a very high level of performance, we increased our earnings power about $100 million domestically, it's pretty much across the board. We have some challenges in commercial auto that we've improved, we need to do more. Essentially, we're getting at the portfolio pretty effectively across the entire place. As far as the growth, yes, we've grown significantly vis-à-vis the regionals and the nationals and the specialty companies. We've also continued to improve our accident year. As you know from our guidance, this will improve another couple of points this year. We're trying to keep getting better. At the same time, we're positioning ourselves for growth. One of the most important things we've done, and I think we all appreciate it, I think that the market is starting to appreciate what we've built.
We have probably one of the handful of best distributions in the country. We have 2,000 of the best agents in the country, more importantly, we have aligned hundreds and hundreds of people and putting them close to the market, creating an operating model which is very close to our distributors, is very hard to duplicate. Tens of millions of dollars it would take somebody to build this. What we now have is over, I think, 1,800 professionals distributed in the offices, 300 in the specialty areas alone, close to these 2,000 agents with a very efficient technology-based operating model where we're very efficient on our renewals. We're very efficient on ability to have remote people. What's happening now is we're taking advantage of disruption very quickly because we have folks close to the action.
As I said, there's probably only two or three national distribution networks that reach these agents like ours. Frankly, we're the one that's growing the fastest because of where we are and find ourselves with the breadth of our products. This distribution has come into its own in the last couple of years because of the talent we have distributed across the system. As far as the balance we took, you talk about in the Book of Business, that also made a nice step forward this year. Our property and casualty is now 50/50 domestically, which was an important objective of ours to make sure that the volatility from some of the property concentrations went down. Our state concentration continues to shrink, that will continue because of the growth we have in the broad-based network, not just in our older core states.
Our portfolio, what you see is a very balanced growth portfolio now. In every business, we have a growth opportunity, and that portfolio will stay with this kind of mix. Good improvement in 2013 and a step in the right direction. This notion that each of our businesses is pretty distinctive. We've invested a lot to try to both add value and create something a little different. We're not the biggest insurance company in the world, but what we've tried to do is create in each of these businesses something that is special, that's value added, that agents truly appreciate and can both sell but also can retain business through these businesses.
Each of them has a little bit of, especially I'll touch a little bit on a couple of them because I think, again, we've made good progress here. In business insurance, both in small commercial and in middle market, we're pretty unique, right? In small commercial, we're one of the fastest, if not the fastest growing company in small commercial in the country. What we have done under $50,000 is very unique, particularly $25,000-$50,000. The stuff that isn't just straight through automated. We have all the automation, we have all the platforms, and the centralized renewals, et cetera. What we do very well is we're one of the only companies that distribute new business underwriting $25-$50.
We've built an operating model to be able to effectively underwrite some of the best business in the country that needs seven hours of underwriting, not seven days. Our ability to do that efficiently and quickly is unprecedented. We really compete with regional companies with none of the investments or capabilities that we have. Our ability in small commercial, part of this growth is because we've built something quite unique, which shows up, for instance, in our tech, our small tech business growth. That model is unique and very helpful to our agents and will really propel a lot of growth in the future. In our middle market now, we've worked hard in a business that can some ways be very cyclical to try to build something distinctive. Now we're up to 84% of that business, which I call industry solution oriented.
It's things like technology or social services or manufacturing. What we're trying to do is be smarter and better about solutions in middle market. What you've seen is a changing mix and a very attractive mix. This business for agents is very interesting. You've seen our new business growth in both of those businesses just constantly increase over the last six quarters as our capabilities have grown. An interesting business that is quite distinctive now. On specialty, we reached $700 million this year, what's interesting about our specialty business, again, it is the only business, significant specialty business in the U.S. that gives direct access to specialists and retail agents exclusively. We don't do wholesale business. We do virtually nothing with the largest brokers.
This is about an operating model that allows retail agents to specialize in areas where they can be distinctive and maximize their economics by going direct to us. Right. Very few people would have invested the money to do this. We've now set this up in a way that gives, again, a good agent that is skilled, that is investing in certain areas, a way to really partner with somebody in a distinctive way. The other thing that's very interesting that's going on here is a lot of specialty agents are being bought by our franchise partners, things like surety agents. As they do, they become part of the family, and we're able to do a better job matching up. That business is maturing. It has continued margin improvement priorities as we go forward, but in a very good place.
Personal Lines, which there's been a lot of dialogue in the industry about this business. As you know, we have invested a lot in the 70%, targeting the 70% of the people that want value, that have a full account approach, that really think about ensuring their life. We've been very, very effective with the Hanover Platinum launch, and we're up to about 76%-77% account business now, which will be all our new business' accounts. Doesn't mean that we don't take on some monoline business, but really what we built here is something quite unique for the value-seeking consumer. For me, what's interesting is what you're seeing now is nice take-up and growth in virtually every one of our partner agents through this product. Again, more to come here, more work to be done.
The other side of Personal Lines is the finishing of the shrinking and the thinning out. That'll be behind us. You'll see us start growing in this business toward the tail end of the year. I feel very good about what we've done with this book of business. Again, each of the businesses is a little bit different and well-positioned. On the Chaucer side, obviously, this has been something that has brought a lot of capabilities to our institution. We've had, partly because we've been fortunate with weather and other things, but it's been a tremendous success financially as well.
Even more importantly, the distinctiveness of this portfolio around these specialty areas is a great add to the company, both our domestic agents, where we feel this is going to be additional opportunity over the long haul, but also our partner agents that are London-based or broadly based. This set of skills has made us a very distinctive player, and you've seen the financial results. The other thing that has happened, given the disruption in the marketplace this year, we've been able to, in the last 15-18 months, bring in two or three teams in critical areas to really build bench and breadth as the consolidation in voids and some of the other disruption occurs. Well-positioned with a nice outlook for us in a difficult time. The partner strategy.
While the businesses have all made progress, at the heart and soul of this company, as everybody knows, is our partner strategy. The notion of having giving franchise value, appointing fewer agents, giving breadth of product, aligning incentives, and having real preferred shelf space with the best. We started this strategy when we were in 2005, 2006. We had $300 million with the 2,000 best agents in this country. We now have $4 billion. What we've been able to do is build preferred shelf space by giving them a broad product portfolio of value, creating franchise value, creating this network where they have real adults and professionals with authority that can respond quickly, locally.
As you all know, we've invested tremendously in the tools that help an agent improve their economics, understand their business better, figure out how to consolidate markets, how to really address some of the real issues that they face every day in a consolidating market, particularly if they're acquirers. The combination of all these has allowed us to make a step function improvement. Not only is most of our business now, what I would say is with the most sophisticated agents, the growing agents, the agents that are winning in the marketplace, we have $4 billion with our top 1,000.
Our view is very simple, that we have 2,000 partners, we don't really need to grow that, and that we could double the company easily with our 2,000 partners because of the momentum and because of the attractiveness they see this value proposition brings to their business. Again, we're in a good place, more to go, more work to do, but tremendous progress that sets it up. What I want to do quickly, we've made some progress as a company. What I want to do is just bring some context. This is a very interesting time in our industry. It's almost a tale of two cities. In some ways, this is a very attractive year. If you talk to our independent agents, finally, the economy came back a little bit, they grew a little bit, felt a little bit better.
In the same token, there's a lot of stress in the system. You saw seven or eight companies have tremendous problems, and that's counterintuitive because you say, well, the economy's back and pricing's good. What's happening? I want to talk a little bit about that because it will continue to happen. There will continue to be disrupted competitors. There will continue to be opportunity because of this disruption. It's a very different, it's what I would call it's an earnings-based turn versus a capacity or event-based turn that we're used to in the industry. Let me just talk a little bit about where we are and how we are trying to position ourselves. We just went, as a society, we went through one of the worst economies in our lifetime. In our industry, it was by far the worst.
The Great Depression, the P&C industry only shrunk two years. Commercial shrunk four years during this last recession, unprecedented, including some Personal Lines growth, three years of shrinkage. That created a fundamental change. It created a lot of inward-focused companies. It created a lot of stress, both for our agents and for a lot of institutions. It created a lot of shrinkage of personnel and lack of support because it was a tremendous impact on our industry. It's not hard in hindsight to understand why, right? Because typically, the turns in P&C are not related to the economy. This time, because both construction and employment was affected so much, it devastated premiums, particularly workers' comp premiums.
If you look at what happened in housing starts, right, as an example, again, our industry is big tied in a lot of ways to construction in one form or another, whether it's surety or you go look across our business and we touch this. Things are better. Things are a lot better, but they're nowhere near where they were. When people say, well, the economy's better, we're getting some organic growth, that is absolutely true. For our industry, there's a lot of lines of business that are nowhere back to where they were. That the support of these industries because of the level of, in fact, you look at the 2013 and 2014 estimates, they're nowhere close to where we were in 2004, 2005, 2006. That plays out in a lot of things. Auto sale.
It plays out in a lot of areas where things are better, but not necessarily all the way back. If you look at workers' comp, which is really the biggest thing that happened to our industry because of triple things, right? Well, actually four. The soft market pricing, on top of that, unemployment and then underemployment, because again, we all know the payrolls, when you go from working in a professional job to working in retail goes down. Then, of course, exposure for us goes from manufacturing and things like this to services, which has a lot less. Workers' comp literally was decreased by 30%, which is the biggest line in our business. The implication on that was tremendous across our whole system and created a quiet stress, particularly in the small companies and the small agents. Yes, it is back.
There's no question we're better, but we're not all the way back. Again, we talk about a good year, but there's still stress remaining in the system. When you look at the pros and cons of what's happening, there's no question the economy's a little bit better. There's no question that for a lot of primary companies, reinsurance costs are better because of the excess capacity there. There are so many things that are still in the system that companies need to react to, particularly weak companies. What you're seeing between reserve releases, we all know we've been through a long soft market, and those companies that are in trouble tend to get in trouble because of their balance sheet being stressed, not just their current business being stressed. What you're seeing is the redundancy in the industry has gone down, there's no question.
There's also a couple of other things that I want to mention. The weather, the yields, stress in a couple of lines. I won't spend a lot of time on this, but for those of you that have bought a new car and you realize that you can watch TV, a movie, get on the internet, and do all that while you're driving 70 miles an hour, it's an interesting concept that I think society is wrestling with. The reality is distracted driving is having some impact on what's going on, particularly in commercial auto. The severity is up materially. Some of that's probably self-inflicted because of rate decreases in commercial auto, but clearly, both comp and auto have some stress in the system, across the system, that some companies that were overextended in those lines got killed, got really hurt.
They just got overextended in some tough categories, and they didn't have the balance sheet to make up for it. There's some things going on. Let me just touch on a couple of these that I think are important. One is weather, and we've talked about this before, but it is critical because a big portion of our business, about $110 billion of the $500 billion market, is in small regional companies, $1 billion and less, that typically are in two states, 80% in two states or less. What has happened in weather? Well, we've had a profound change. Whether you believe it's manmade or not, I don't know. What has happened is we've seen a tripling of weather-related losses in the last couple of decades. If you believe this decade, it's jumped again.
Maybe it's just an aberration and will go down, it's clear that for 20 years it was a tripling. The more important point is that the nature of weather has changed. Instead of worried about Andrew, which we all are still worried about, the big hurricane, what has happened is what I call kitty cats. Tremendous amount of hailstorms, intense rainstorms, fires. What you're seeing is intense local storms. If you were too concentrated in a certain ZIP code, you can have a lot of outsized events. Right? Just think of how intense some of the Oklahoma things are. The problem again is not just that. The other problem is they're everywhere. Those are points of every intense storm, okay, last year. It isn't like, okay, we'll stay out of Kansas, right?
This is profound because it changes your perspective on the business and the volatility across the system. Why is this important? Because companies are still working through this. They're getting enough price in their product. They're thinking about this micro concentration. Again, if you have most of your business in two states, you can do some things with reinsurance, but most of these storms are not about reinsurance because they're not big enough on their own to get to reinsurance. They really have very little to do with reinsurance. It is really about primary companies' strength, diversity, and spread. Again, this is working through the system, and it will adjust, it creates an enormous amount of opportunity for the better, bigger companies that have spread for the consistency of what they'll be able to deliver as far as capacity.
Again, it's an interesting thing, again, there's people that think it's just going to come back down. There's nothing in the numbers that tell me that's true. It feels like this is something that has to be addressed and be thought through. The second thing is yields. Again, this is something that people understand, but it's hard to understand why you're not seeing more impact. I'm going to try to explain why this year is one of the most important years for our industry is reacting to this trend, even though this trend started, what, four or five years ago now. We all are, we all know this, but we as an insurance company is all we do is we take in premium and we invest in bonds. We're one big bond. We have $billions of bond. Why does that matter?
Your return on your investment portfolio allows, obviously, for pricing to be less because it's part of the earnings power of the company. What has happened is that the ability to earn money on your investments has dropped in an unprecedented way. In our lifetime, we have never seen anything like this, where the investment portfolios, particularly on things of mid to short-term durations, have gone down. Why is that important? If you are a workers' comp writer and you make a certain amount of money, you write a 95 combined ratio, and you lose 1% on your investment portfolio. It's a Tuesday, and you're writing 95 combined ratio workers' comp, and on a Wednesday, you lose 1% of your investment portfolio. You now have to write it an 88 combined ratio to make exactly the same money you did the day before at 95.
That means you need seven points of rate, even if there's no inflation, no losses, none of that. We're just talking about yields. People say, "Fred, I haven't seen that through the system." We're starting to see it now. Why didn't people react? The issue is that yield reduction doesn't happen overnight, because people think it's going to come back, because you don't change your whole portfolio. What's fascinating about this trend and why people are seeing people struggle with it today, and companies have problems with it today, is because it's reached its peak. What this is the investment income decay over the last four years. As those yields have stayed down, it has the biggest impact this year.
The problem also, now that we're four years, it's more permanent, because to get back, you can't just reinvest everything all at once. It's going to take you four years to get back. The reality is that the reason why you're seeing some stressed companies, some people react on pricing now, is because it's taken a long time, and it's worked through the system. All of these stresses, while the economy's better and we're getting some pricing, leads us to believe that we're going to continue to see some struggling, some disruption, some people doing things. When you look at the results of both the combined ratio of the industry, where it was good because weather was pretty good in 2013, it's bounced back up in 2014, and the forecast has bounced back up.
What you're seeing is weight, particularly in the mid to smaller accounts, sustain a little. There's a lot of pundits that would say it's going to go this way or that way, but there's a lot of reason for this to continue. It's important, I think, for us to stay focused on this because, again, the good companies, the companies that sustain, are going to stay ahead of some of this inflation that's going to occur and constantly occur. Again, interesting time. Hard to explain all of this sometimes, given the fact that the economy's better. What we will see potentially is more stable and rate over inflation continuing. Interesting thing. For us, what does this all say as far as our journey for 2014 and how we bring it all together and keep getting better?
I think it's pretty straightforward for us. We believe that there are three things we're focusing on and that we have good traction. We saw some progress in the first quarter, and we will see more. It's really about three things. It's about this financial performance and strength. Obviously, we've been getting pricing. We're doing some really interesting growth in the better margin business. You're seeing what we're doing on expenses because of the businesses maturing that are coming into the system. Some really good work going there. As far as our portfolio, what's interesting in every one of the places we're focused, we're seeing really nice traction, both in new business and in growth. A lot of agents explicitly choosing to shift share to us.
Again, early, but we feel pretty good about that position, which leads to the third one, which is really penetrating our partner agents so that we can say in each of their locations and in the businesses they specialize, instead of being really strong in one business and not another, or one location and not another, to make sure that we have that consistency of penetration and alignment with our best partners. Each of those, we've got a lot of things going on and a lot of work, but we feel pretty good about it.
As I step back as a shareholder and as an employee of this institution, what I get excited about is that no matter what the environment, no matter what the disruption, we have so many levers at our disposal to continue to create shareholder value, to grow the company, to improve the company. We're set up in a way that whether it's pricing or it's what we're doing with exposure management, or it's what we're doing with our portfolio or what we're doing at Chaucer, right now, we're well positioned to both hit our goals, but to more importantly, set us up for what we're all about, which is sustained returns through the cycle, to be able to have a balance in the portfolio, to grow where we should grow, and to make sure that we're leveraging the things that we have.
I close with these four points. I really believe as an institution that we have got in a really good place at a really interesting time. There's a lot going on. There's a lot of interesting disruption. We've built the capabilities to be able to participate in a very positive way. While the economy's improving this disruption, we'll be able to be there. We've already seen two or three situations where we've been able to take advantage of some disruption and change our competitive position in a state or in a line or in a business. I think that will continue. I also say that while 2013 was a step forward, it really set up the next two years, right? Both 2014 and 2015 are important for us to continue that momentum because we're not where we need to be.
We are talking about another two-point improvement this year and continuing improvement into 2015, and that's important because we're still not where we want to be as far as our overall goals. As I look forward, I think it's pretty straightforward. We're going to continue to enhance our capabilities and deliver more for our partner agents. We're going to continue to have financial strength and flexibility because of that financial strength, and we're going to continue to be able to create value for our shareholders, which will in turn create our opportunity to invest in ourselves. Again, I think all told, we're in a very good place as a company. I want to echo what Michael said, particularly to our agents and to our employees. Our company is a little interesting, right? There's companies that are eight, 10 times our size.
The reason we win is because our folks are a little bit more focused, they're a little bit more bought in, they're a little bit more entrepreneurial, they're a little bit more part of building something special, and our agents are more aligned. Together, I think we have a situation where we will be able to take advantage of any kind of disruption or any kind of market improvement and improve the company. Okay. With that, I just want to say thank you very, very much for your time and attention, and I hope next year that we can have another improvement to talk about. Thanks. Appreciate it. Well, thank you all for coming. We are adjourned, and we'll see you again.