AGM 2015

May 19, 2015

Slides

Thank you all for being here, and good morning to all of you, ladies and gentlemen. My name is Mike Angelini. It is my pleasure to be the chairman of the board of directors of this great company and to welcome you to our annual meeting. Fred Eppinger is here, and you will hear from him a bit later in the program. There are two parts to this program, as there are every year. A formal part at which we conduct some necessary business for our company, and then a presentation by Fred, who will talk about this company's great accomplishments and more significantly, what lies ahead. I should mention that we are transmitting this meeting, the audio portion of this meeting, and the slides in Fred's presentation through a webcast posted on our website for the benefit of interested listeners, and I know that other Hanover employees at other locations are listening to this, and I welcome them as well. I call this meeting to order. I'm going to introduce most of the members of our board of directors in a minute, but before doing so, I want to say to all of you, and I recognize that most of the shareholders in this room are employees of this company. I want to say to you on behalf of the entire board of directors, how honored and proud we are to be directors of this company. From a distance of our governance especially, this is an extraordinary company, and we owe its success not just to Fred's tremendous leadership, but to all of you who work here and devote yourselves to our pursuit. We are proud to observe, as directors, that while this company is certainly responsive to its shareholders, and its recent successes reflect attention to that responsibility, it is also responsive to its other constituencies. Including its clients and customers, its employees, its communities. Hanover's dedication to all of its constituencies distinguishes it as well as its success distinguishes it. It is a pleasure and honor for all of us to serve as directors of this company. Thank you. I'm going to introduce most, but not all of the directors. When I complete announcing their names, I'll ask them to stand and be recognized. They are Richard Booth, Kevin Condron, Neil Finnegan, Karen Francis, Dan Henry, Wendell Knox, Joe Ramrath, and T. Taggart. Ladies and gentlemen, would you please stand and be recognized? Now, there is one director I have not mentioned, and that is on purpose, and he is Bob Myron, who is here today. You would not guess it from the way he looks, but Bob has reached the mandatory retirement age for a director of this company and is completing today 19 years of service as a director of Hanover. Bob has been an exemplary director of this company, has seen us through some difficult and, more recently, better times. He has served on all three of the board's committees as a member of the nominating governance committee, most recently, as chair of our compensation committee and perhaps most significantly, for many years, as chair of our audit committee. Bob's service as chair of the audit committee occurred at a time that some of you in this room will remember in the early part of this century when this company, I'll call it the pre-Eppinger stage, had some difficult times. Through all of that, Bob exhibited tremendous leadership and advice as a director of this company, and his role as a member of the audit committee, was extraordinarily important for our success. He was one of those directors who served on the search committee, and as a member of that search committee, was influential, if not instrumental, in hiring Fred Eppinger to come here. Bob has brought with him as a director a broad experience as an executive. He worked for many years for Gillette, was in charge of Gillette's operations as head of Braun in Europe, then was president and chief executive officer of New England Business Service, from which he retired. In addition to serving as a director of Hanover, Bob has served as a director of several other public companies and continues to do so, including LoJack, Delhaize, which operates the Hannaford Supermarkets, IDEXX, which is a leading veterinary supply company, and Tupperware Brands. Let me take this opportunity to say, on behalf of the balance of the board and of the company, thank you very much to Bob. Bob, would you stand and be recognized? Thank you. The company's transfer agent, Computershare, has delivered an affidavit of mailing, which establishes that notice of this meeting was duly and properly given. A copy of the notice of the meeting and that affidavit will be filed with the minutes of this meeting. All shareholders of record as of the close of business on March 24, 2015, are entitled to vote at this meeting and many have. Representatives from Computershare are here today. They've been appointed as inspectors of election. The inspectors have informed us that the company has received valid proxies from shareholders representing a majority of the outstanding shares, we have a quorum present. There are three items proposed by the board for consideration, for discussion, and for voting, they are as follows. First, the election of directors. Kevin Condron, Joseph Ramrath, Cynthia Egan and P. Taggart have each been nominated to serve for a three-year term as directors, Neil Finnegan has been nominated to serve for a one-year term. The second item is consideration of an advisory vote on executive compensation, the so-called say on pay. The final item is the ratification of the appointment of PricewaterhouseCoopers as the independent registered public accounting firm of the company for 2015. I will entertain a motion with respect to all of these proposals. Thank you, Mr. Knox, well done. Representatives of PricewaterhouseCoopers are in attendance at today's meeting. They are available for questions if there are any during the discussion period. The floor is now open for discussion, if there is any, by shareholders of these three proposals. Following that discussion or the absence of it, as it turns out, we will distribute the ballots to any shareholders who are present who wish to vote in person. If you are a shareholder, if you have any question regarding any of these three proposals, raise your hand and we will direct you to a microphone. We would ask you to please state your name, indicate or confirm that you are a shareholder or a proxy before asking your question. If you have any questions, please confine them to these three proposals. We will have opportunity later for any questions regarding other matters involving the company. Are there any questions? Okay. In the absence of any questions, the polls are now open for receipt of ballot. If you wish to vote or if you have voted and you wish to change your vote, let us know, raise your hand, and we will provide you with a ballot. That being the case, polls are once open, now closed, and the time for voting has passed. We will operate then on the basis of votes which were cast prior to this meeting. I have been informed that based upon the counting of those votes, all of the nominees for election to the board have been duly elected and the other matters under consideration have been approved. Sitting with the board of directors is our now elected newest director. Let me introduce her to you. Her name is Cynthia Egan. We are very pleased to welcome Cynthia to our board. She is an experienced executive with broad experience in business. Most recently, served as the President of the Retirement Plan Services for T. Rowe Price. Has other broad business experience, which is very helpful to the board. She sits as a member of the board of directors of Unum Corporation, which also has a facility here in Worcester, which is good, and a very important company and a neighbor of ours. In addition to that, serves as a director of Envestnet. Cynthia, we welcome you to the board. Please stand and be recognized. With that, the formal part of the meeting has now successfully ended. Thank you for that. It is my great pleasure to introduce you to our President and Chief Executive Officer, Brad Muehlberg. Thank you, Michael. Let me echo my comments to what Michael said about Robert Myron. I really do appreciate everything you've done for this company and for me personally. It's been a great privilege to have the chance to work with you over the last few years. I kind of like the gig, so it's nice that you voted for me at the beginning. As we do every year, we try to take a step back and give an update at the shareholders' meeting of how this year went and look a little bit forward and talk about the priorities as we go forward with the company. Obviously, we've had quarterly calls, et cetera, with a lot of the numbers. I try to use this period to kind of take a little bit of a step back, a little bit higher view, and briefly go through what we see as our progress, in what we have called our journey over the last 12 years. I'm going to leave you with three points. If I was to characterize 2014, I think I would use the notion of progress and momentum. What you see now really across our business has been very good momentum in almost virtually all our businesses. Not only have we grown, but we've improved. I'm going to talk a little bit about that improvement and that repositioning of the company. There's three or four points I want to leave you with. One, I think we are right now in a position that I would call resilient. We have built a distinctive position in the marketplace. It's well-regarded, and much more stable and resilient, something we can build from and really grow the company. As I look at 2014 specifically, what you see is very good improvement and something that more and more people are talking about now as we have built probably the best connections with the best agents in the country, which will really position us well for the long haul. As we look at tremendous opportunity, I would tell you that a lot of us believe that the market economy is slowing a little bit, that our industry has some challenges and disruption. We've seen a lot of excess capacity in reinsurance, and there'll be a lot of folks that either don't grow at all or go backwards. Matter of fact, if you look at analyst forecasts for the 2015, there's very few companies in the top 20 that truly increase earnings. When we look at that, we think opportunity. We have projected another year of good earnings increase and a lot of momentum in virtually all our businesses. We feel like we're in a good position if we stay focused and continue to move forward. With that, let me just take a quick snapshot for those that don't know the company as well, perhaps kind of in one place to put everything together. We are a 162-year-old company, one of the oldest companies at the New York Stock Exchange. We're now $3 billion in market cap. We reached $5.5 billion in gross premium this year, which was very nicely balanced between personal, commercial, and specialty. We're highly rated by all the rating agencies, and we've been very fortunate this year to be upgraded again by S&P. We feel we're positioned to be well-positioned to do more with the other rating agencies as well. In total, a good broad-based company with some real scale now. If you look about where we are, that $5.5 billion is $4 billion in the U.S. We have about 4,200 employees in the U.S., 4,300 employees in the U.S., and 41 offices. We have eight central locations. We have a lot of distributed employees in the U.S. and a lot of bulk. Internationally, we have $1.5 billion, eight offices across the world with about 800 employees. Of course, we announced the sale of the motor business, which will take that down about $300 million roughly and fewer employees. We'll still have a significant percentage of our portfolio. We like to say that we are a national company now that acts locally and knows our local market, but has a global reach. We're a pretty significant company with a broad-based platform. Very different for those of you that have been here at the start. A good broad-based company with lots of prospects. For those of you that have seen me present in the last 12 years, you've noticed that I've used this page occasionally. I think there has not been a presentation that I've given in 12 years that I haven't. This is what this institution is about. The vision of this company is to create a distinctive long-term position in the industry to create a world-class company that can consistently perform as a top quartile player through the cycle. That is all about setting up the portfolio, the skills, the approach to the market that let us sustain returns. Obviously, where we started from, there was a lot of work to do. It was going to take some time. That strategy really has three components that we talk about every day. This notion of franchise value and developing partnerships with the best agents in the country, preferred shelf space. By supporting that with great product, value-added product to the best areas of the industry that are distinctively positioned and delivered for great professionals that have authority to do it. We do that every day, and we try to do it better every day. This strategy has become something quite special. People describe it a couple of ways, right? We talk about it best of both, the technology, the talent, the breadth of the national companies with a local insight, touch, and knowledge of the regional companies. I like to think about it like the Procter & Gamble of this industry. Tailored product for the various segments that we understand, but with preferred shelf space. Much like when you walk down that detergent aisle and you see 22 different products tailored for those segments in the preferred space in your grocery. That's kind of what we've tried to do every day. That's what drives us every day, and it's created a lot of change as we've tried to build a portfolio and a position to do that. If you look at the eras of our company, this 12 years, the first five years was really about financial stability. We had some portfolio work to do to get rid of some broker-dealers, a life company, a lot of the runoff businesses, as well as invest in a P&C company that had underperformed and shrunk for about nine of the previous 10 years. In 2010 to 2013, sometimes controversially, we decided to take a step forward during a pretty tough economic time in the country and invest dramatically to improve the portfolio, to make it more distinctive, to be more balanced, to be more geographically spread, to have more scale, and we did roughly 12 transactions. We also grew organically in a lot of places. Built something that we believe is more resilient, more distinctive, more well-placed, so that the best agents in the country wanted to give preferred shelf space to this company. The last two or three years, really, it's about execution. Delivering that value proposition, maturing those businesses, creating the distinctive returns that we know we can, and every day, getting a little bit better. That's kind of been the journey. How has this gone and where have we been in the last two or three years? If you look at the strategic updates of where we are, 2014, whether it's the organization, the margins, the growth, the network that we've built across the country, the data, the insight that we've gained, we've made progress on all of them. While we're proud of the financial improvement in the last two or three years, it's really the underpinnings that give us confidence in our future. In 2015, we think there's more to go. You've seen our outlook and our forecast for our earnings to be about twice what our revenue growth is this year, we're right on track in the first quarter, and we believe that's very doable because what's happening is we're leveraging all the investments that we've made. Our position is such that we believe that we can continue to grow in the immediate future. Pretty good set up. I want to go through some statistics to kind of make it a little real. Again, for those that think about us over these phases will remember us that we were about 70% personal lines, we were 70% in four states, and we were 70% property. What that is volatile. In today's world and all what we call kitty cats with a lot of weather and disruption, that is a very volatile portfolio. That has changed dramatically. We ended this year with about $5 billion of revenue. First time in our history to cross the $5 billion mark in revenue. We're now 42% specialty. That was 4% when we started in 2004. The mix, that portfolio, it's not only doubled, the portfolio is dramatically different. Our ability to solve agents' problems in a broad base, to be able to be 20% of our partners' business is more real today than ever before. That balance is quite important. What you've noticed since 2010, when we started investing, we've essentially doubled our earnings power of the company. Again, we're not all the way where we need to be. We make mistakes. The reality is that we have a portfolio and the ability now to continue to improve our financial position and stability. Again, a dramatic change, and 2014 was a nice step forward. Nice to reach the $5 billion market revenue. It's nice that we have the $3 billion market cap of criteria that we've reached, too. If you look at the underlying trends, we talk about ex-cat earnings. For those of you that follow the industry, you know that catastrophe weather jumps all over the place for everybody. We try to say, "What's underneath that? What's the earnings power?" What you've seen is we picked up about $100 million of earnings power this year in our business. We grew our earnings power about 18% and our revenue about 6%. That, again, is the leverage of the investment and the position of these maturing businesses. As far as our combined ratio, we remember that 2013 was a great weather year, right? From a cat point of view, it was a couple points less. That came back more normal this year, and we still earned more money. Again, a good progress this year. If you look underneath it, again, the reason we feel good about this is that it's broad based. Chaucer was outstanding the last two years, and it stayed outstanding, but both personal and commercial made great steps forward. If you followed our earnings calls, both pricing increases and the retention have both increased, and our ability to continue to improve is kind of locked for the next few quarters. If you look at the word resiliency that I use, the issue in our business is that we are a reflection of society in a little bit as far as the risks of society. Obviously the world has become more volatile. We've seen it in weather. We saw it in the last six, eight, 10 quarters in weather. We've seen it in political unrest. One of the things about being a property and casualty company is having the breadth and skill and insight to be able to handle that. The more narrow you are, the smaller you are, the less skilled you are, the less ability you have to do your job. Now, what we do is we take care of somebody when something horrible happens. It doesn't always happen in a nice period of the economy or at the nice period of the business environment. Our ability to have strength and diversity is really important. In the last two or three years, we've made an enormous step forward, not only just growing our balance sheet and our earnings power, but looking at what we call micro concentrations. We had one of the legacies of this company growing up in a couple of states, is we had a lot of zip codes which had way too much share. In the last three years, while we've grown, we've also exited $400 million worth of business in zip codes around the country, mostly Northeast, that was overly concentrated. We did it thoughtfully by selling books of business to other companies or doing deals with other companies around parts of our business, like monoline property. In the end, what we have is a much more balanced and strong position. I think what happened in the first quarter is a great testament to that. First quarter, for those of you that live in the Northeast, we didn't see the first floor windows of our houses until about March. We know how brutal it was. This company has a lot of share in Massachusetts. We have 10% commercial share in Maine, which also got hit fairly badly. Five years ago, that would have created a real hole for this company to dig out of. Now we had one of the top five earnings per share quarters we've ever had in the first quarter with all that work. The difference is dramatic because of the diversification and the balance of the portfolio that the company now has. Again, we're not where we need to be. We're continuing to improve. This is a great step forward this year as far as demonstrating our ability to do this. If you look at the balance sheet, which is for those in our industry, something we love to talk about. For people out for the industry, they could care less. The reality is on every dimension, we're stronger. Our liquidity is fantastic. Our leverage rate in the mid to low 20s is very good, and each of our rating agencies say we have excess capital to their models. Again, what does that do? That allows us to continue to grow. It allows us to continue to invest. It gives confidence in our clients and our agents that this is a company they can deal with. We are fortunate enough to be upgraded again by S&P. The journey for us has been a lot about confidence, building confidence in the investor community, building confidence with our clients, and that has continued nicely. We are one of the strongest companies in the industry now. It's a big change and makes us feel good about the future. If you look at growth, and again, for many in our industry, growth is a dirty word. There's been a lot of examples of people that have grown poorly and taken a step backwards. While we've made some mistakes and we've had some issues we needed to fix, if you look at the pattern from about 2005 when we started stabilizing, this company has outgrown the regional companies, the national companies, the specialty companies by a pretty significant margin. We've done that through a lot of different ways, transactions organically, thoughtful geographic expansion. What's most important is that our accident year results, which is once you take out the reserve releases and movement, has improved every year we've done it. While again, it's not all the way where we need it to be, it needs to improve more, there's a lot of examples of people that have tried to grow and go the opposite way. The thoughtfulness that the team has really demonstrated and the insight that our underwriting capabilities have demonstrated is the ability to improve the company, which is ultimately what we were trying to do. That's because of our distribution strategy and because of the way we did it. These statistics are what I think gives us confidence as we look forward into the continuing improvement of the business and the focus on the right dimensions. Now let me take a step back. One of the unique things about us is our distribution strategy. We talk a lot about it. We talk about our value proposition, et cetera. What I felt was important, and we've done it in a couple of forms, I want to make sure that we convey what we mean by our distribution strategy and what we mean by franchise value because one of the distinctive features of our company is we probably have more insight into the independent agent channel than any other company. We clearly have kind of more information at the local level with a lot of our agents than anyone else. I want to go through why. Where are we? How do we think about it, and what does that do for us? Just briefly, we have a value proposition, we call it the Hanover Promise, that we've created the best agents in the country. We say to them three things, that we will provide more product innovation than any other company you partner with. We will look for industry solutions, particularly in small-middle market and small accounts. We will create solutions that are tailored to those customers, and it will be for the independent agent. Second thing we always say is that we will have fewer partners than anybody else. Most of our national competitors will have 25,000+ agent partners. We have 2,000. Our selectivity will always be greater. We will always give you something that others don't have, in other words. Then third, we are going to have more distributed talent that is closer to you, that has authority, and more operating models and tools for you to act quickly, build share, and shift share than anybody else. That is really what the promise is. As an agent, what they do is they think about that as, oh, this is a little bit of advantage. Not everybody in the local market has Hanover. Obviously, not everybody can sell the specialty or the industry solutions that Hanover provides, and nobody has so many people that I can reach out and touch and move quickly if I have an opportunity, which is tremendously valuable in a period of disruption. That promise is what it is about. The market itself for us that we deal with is a $300 billion market. Those that know the P&C market know the market is $500 billion-$600 billion. The P&C industry that is the independent agent is $300 billion. $300 billion. It has 35,000 agents. It is spread pretty evenly between personal lines, small commercial, middle market, and large. We don't typically play in the large business. We play in the other businesses. That business is distributed between these 35,000 agents, all different. Some winners, some losers, some can sell value, some can't. Some grow, some shrink. What this company has done is done more research on this channel than anybody in the industry. We know who the winners are, the losers, who is growing, who is not, who has the good business, who has the bad business, who fits us, who doesn't. This is an industry that is both consolidating, which is interesting. Lots of you see the press every day. Lots and lots of consolidations. Hundreds of consolidations. Interesting enough, there are also hundreds of new agents that enter the business, particularly in coastal areas. Roughly the same amount of agents exist today than they did five years ago. The concentration in business has grown, but the number of agents has kind of remained the same. What is interesting is that this is a dynamic business, and the economics of running an agency has changed. How they make money, how many markets they want to partner with, how do they sell value. What is happening over and over again is, particularly in the segments we deal with, they care more and more about servicing a client in a distinctive way and retaining it for a long period of time. The notion of retention, the notion of acquiring and retention. That market is what we focus on, that $300 million. What we have done is we have picked 2,200 agents that represent $120 billion of that market. Much fewer than the 35,000, but pretty good market coverage, $120 billion. That $120 billion, you can see how it mixes all the businesses is spread between large, small, middle, and personal lines. What we've done in each segment is picked those agents we believe are going to be good partners with us, and we do it at the local market level. Every single local market, we assess who could be partners because we got to make sure we don't have too many because we want to give franchise value. It differs in every single location. In some of the rural areas, we have great small relationships. In some of the large areas, we have small relationships because of their skill or their distinctiveness or where they're positioned in the market. Every local market has that, and you can see the 2,200. They represent 2,800 locations. What that means is what we call planning locations. They have multiple locations, more than this, whether I have one or two people. Locations where they will sit there and say, "This is what we're doing. This is what we're growing. This is the skill set we have. This is the capabilities we have." That together, Hanover and them can understand how to match the resources, where the opportunity is, where you invest, where you can help them win. What's fascinating, because our agents are growing at twice the industry average, and they're consolidating at twice the industry average, the number of locations is growing dramatically. If I showed you this chart just six months ago, it was 2,600 locations. What's happening is these are the folks that are winning, they're growing, they're developing, and they have great market coverage. What that has done, that commitment by us, this franchise value, this notion of distinctive product, this notion of good people, has made us grow dramatically. In 2004, this group of the top 1,000 agents that we picked, we had $400 million with. We now have $4 billion with. Our presence with the best agents in the country has changed dramatically. In the old days, we probably weren't good enough to have this kind of share with the best agents. We now do. We are now good enough to be a preferred partner. The other thing that's interesting about that statistic is that we're still only probably 5% share, and we have leading competitors that are maybe three times that, four times that. Our goal of, say, 20% share with each of them gives us tremendous amount of headroom and growth opportunity. While it's great in that it's aligned incentives, they have a lot of profit sharing. We're on the same kind of path together, which gives you comfort. The headroom is amazing. Beyond the top 1,000, the other 1,200, we have lots of headroom. We're just getting started. We got a lot of momentum. We got a lot of opportunity with those to go further across the country. As you know, we have lots of geographies where we're relatively new, where we're just getting started in a lot of ways. Again, this is what is at the core of what we are as a company, this notion of local market insight, partnerships, relationships that allow us to get access to the better business because of our capabilities to underwrite, but also because of the partnership and the access. Again, this is at the heart of where we are and why we feel good. The other part of our business that is equally important is the ability to provide distinctive offerings, great product. In each of our businesses, we've developed a very distinctive value proposition, and unique offering that we feel good about. I'm going to take a second in each of them because, again, we talk about this occasionally, but when you step back now, we are incredibly well-positioned in most of our businesses to give something unique to our market. If you look at our core commercial business, which is now $1.4 billion, about split equally between small and middle. Both are pretty interesting, right? Our small commercial, people talk about it as the broadest solution for independent agents. Why do they say that? We not only can do the point of sale, the commodity-like business like the national players, we can do the non-point of sale. Some people call it CPP account-oriented business that's $25,000-$50,000, needs a little bit of underwriting. We can do those better than anybody else combined. That CPP business, we're the only company in the industry that has remote new business underwriters in small commercial, the only one. We're the only company that can service specialty business, CPP oriented, point of sale oriented business in our service center, only one. Our ability to match up with an agent, serve the entire small commercial market and do it efficiently is quite unique, and that's a $70 billion market for us. That business has grown dramatically. It's doubled in the last five years and will continue to do well. The other business, our middle market, you'll hear us talk about the small-middle market because it's really the low end of middle market that we do most of our business. That business is really about industry solutions. About 85% of our business now in middle market is segmented in some way around things like tech or social services or private schools. We try to be able to give an agent a solution around an industry. We do a lot of manufacturing, probably one of our fastest growing businesses. This combination of tending to do more value added at the smaller end of the business creates really interesting opportunities for us. What you're seeing is pricing is solid and retention is solid. You're not only growing, you're keeping the business. We feel very optimistic that this business has lots of opportunity to leverage all the investments we've made and continue to grow. If you look at specialties, now an $800 million business, as I said, in U.S., the charts are on top of this. We had about $17 million in specialty when we started the journey. Now what we have is a significant portfolio of specialty businesses that is geared to the kind of business that our agents have. Unlike our competitors, we go direct to the retail agent. Most of our competitors will go through wholesalers in this. What we see is because our agents tend to be the more sophisticated growing agents, they're growing the skills themselves to do the business themselves rather than go through a wholesaler. What we do is for those agents that are building capabilities in these categories, we're able to match up direct. That's helpful for their economics and their ability to deliver better service to their clients. This business is continuing to grow really on the back of our middle market and small commercial positions because what's happening is we're getting to know those agents broadly in commercial and getting fed more and more of the specialty businesses. Again, we feel good about this business. It continues to mature. These are all very young businesses at some level. What we see is every day we're growing into these businesses' infrastructure and capabilities. The last domestic business is personal lines, and we've talked in various forums. We're very excited about this business. We believe we've created something very unique in the market, probably the best offering for value-added accounts called Platinum. In the independent agency system, that's a $90 billion market. About $76 billion of the agency personal lines is value added. Our end-to-end solution that includes servicing as well as the products and the coverage is geared to the middle market. Not quite Chubb, but really the middle market offering for people that have things to protect. It's about the full account, umbrella, casualty, home, and the property pieces. Again, this business for us is a billion four, and over the last two or three years, this is the business we had to shrink some of the legacy positions the most. You saw us retrench because of some of the sales we did and some of the exits we did, and now it's growing again. We are pretty much in the 85% retention level with solid pricing. Again, another business that we're pretty excited about. About 80% of our business now is full accounts. The retention continues to grow off that because it's a more value-added approach to the market. Exciting business. You will see more announcements about this. We're investing every day. We just entered Georgia with Platinum, and there's more to come on this one. As far as our Lloyd's presence, we are very proud of our affiliation and Lloyd's being part of our team. It's a fantastic specialty business, really about global specialties, if you think about it that way, the political risk and energy and marine and aviation. This is a business that brings a lot of distinct underwriting capabilities to the company. About 50% of their business is done in U.S. dollars. A lot of the business is originated in U.S. and with U.S. brokers. Again, that $4 billion with our partner agents is really supplemented by this because of the independent agents that have purchased agents in London and the larger agents that have consolidated and become a presence, if you will, at Lloyd's. We feel great about it. It's been a wonderful and helpful earnings. We brought this at the earning call. We don't expect a lot of growth in the next year or so as that market becomes a little bit more turbulent. We are very excited about the long term and continuing to grow this business and invest. We've been fortunate since they became part of the group, I think we've gone from about $1.1 billion to $1.5 billion. Our ability to find opportunities and teams to supplement and add to their capability has been pretty successful, and we believe it will be for the long haul, too. Each of the businesses are interesting, right? What I get excited about our position is that it's not just we're hot in one market, or we have a good momentum because of a cycle in pricing. This is really about a company that has tried to position itself in its businesses pretty well and is working with its partners every day to be more important and better positioned. I think each of the businesses are poised to continue to take advantage of that. I land on the last strategic piece that I've kind of inferred. We have spent probably more money on building a national network of capabilities than anything else in the last 12 years. I would argue that we're one of the 3 best national networks of talented, distributed talent in the U.S. Our ability to actually get to the best agents with the best people in the most efficient way is tremendous. We now have of our 44,300 people in the U.S., 1,800 people in the field, including or adding 300 more that are specially distributed. That ratio is much higher than our competitors as far as number of people distributed, and in essence, embedded in these agent partners. To me, that is one of the most difficult things for somebody to copy. It's something that has taken an extreme amount of time, but I guess most importantly, it allows us to have more local insight. Our local market planning, our planning with agents individually is really at the heart and soul of our ability to continue to invest and target opportunities together with a lot of insight. Again, where many of our competitors have gone the opposite way and consolidated and spent less on this, our view is that this will give us an advantage for many years to come. We're very pleased. I would say, if you look around and all the employees that are in the room, everybody that's been here, the talent level of the institution right now has never been higher. That is the heart and soul of a good P&C company. It's the only company in the world where the person at the checkout counter sets the price. Every day, we have hundreds of underwriters decide what to charge, and every day, we have thousands of adjusters that decide what to settle. This is about talent and execution, and it's hard to put us against anybody right now. We right now have lots of momentum because of the talent we have assembled and distributed. Finally, to our shareholders, we have invested a lot in the last 12 years, and sometimes it was well received, sometimes it wasn't. We always try to be thoughtful. During our journey, because we had to dispose some assets, we were thoughtful about how we contributed both earnings back to shareholders and as we disposed assets back to shareholders. In the last, since 2005, we have distributed back to shareholders $1 billion. Not only have we grown the business, invested in the business, doubled the business, we've also given $1 billion back to shareholders. That was 70% of our market cap in 2005 when we started the return of capital to shareholders. Every year, we try to be thoughtful about dividends. We try to be thoughtful about returning capital. While we are growing and we think that when there's opportunity to invest in our business, we put the capital to work, we're also thoughtful. The share price appreciation, the last piece of this, is over the journey we've been able, we've been fortunate enough, and not every timeframe has been perfect, and we've made mistakes along the way. In our journey, we've returned twice the S&P has returned and twice what the 35 top P&C companies have returned. The balance that we've had so far has been pretty good, and we've been lucky and fortunate in some of our improvements. The bigger point to our shareholders is that, as Mike initially said earlier, we're thoughtful about our constituents. While we want to grow our business and we want to grow well, we will also be thoughtful always about returning capital to shareholders in a thoughtful way over time. It's always a decision that says, is this long-term value or short-term value? Sometimes it's hard to see. As I look back at this chart in 2010 to 2012, while maybe it wasn't as well received and maybe we've had some issues, those are the assets that have allowed us to continue to create value. We try to be thoughtful and balanced, and we will continue to do that as we grow the business profitably. I close with really four points. First, I would say that the market will not be easy. It will probably be quiet. In other words, what we're seeing is rate increases are going down, in some cases reversing for people. We've been fortunate enough not to see that yet. It is being difficult. The economy's growth is going down. What you're going to see is very little growth in our industry and maybe some turbulence because of the excess capacity. I would also say that because of our value proposition, our financial strength, the depth of our partnerships, we see great opportunity. 2014 was a nice step forward to improvement and kind of moving towards our ultimate return goals and our ultimate position in the marketplace. We think over the next 12 to 24 months, there's more opportunity to come. We just have to be thoughtful about leveraging our capabilities and do it carefully. I think that our ability to both grow earnings and return value to shareholders is in front of us. Again, I thank everybody, so many of the employees that are here, I thank all the hard work. I also want to thank our shareholders for their patience at times and their partnership at times to help us kind of position the company, I think, in a good way for a very turbulent time, but a time of great opportunity. Thank you very much