Michael Angelini - Chair of the Board of Directors
Frederick Eppinger - President and Chief Executive Officer
The Hanover Insurance Group, Inc. (THG) Annual Meeting of Shareholders May 15, 2012 9:00 AM ET
Good morning to all of you. Thank you for coming. It’s a pleasure to welcome you to the Annual Meeting of the Hanover Insurance Group. My name is Mike Angelini, I am very pleased to be the Chair of our Board of Directors, and I look forward to conducting the formal part of this meeting. The meeting is really in two parts. There is some business that we need to conduct and we will conduct, and following the transaction of that business I will introduce Fred Eppinger, who is known to some of you. And Fred will talk to us about the state of the company and our excitement about the prospects of the company.
We are transmitting the audio portion of this meeting and Fred’s slides that are going to be presented are also being transmitted through our website. So for those of you who are joining us not in person, I also welcome you. And at this time I call the meeting to order. All of the Directors of the company including me and Fred are here today and I would like to read their names and following that ask them all at once to stand and be recognized.
In alphabetical order, they are Jack Brennan, Kevin Condron, Neal Finnegan, David Gallitano, Wendell Knox, Rob Murray, Joe Ramrath, and Tee Taggart. Would you all please stand and be recognized?
So have from Computershare, an affidavit, which says that the notice of this meeting has been duly given and in accordance with the requirements, a copy of the notice of the meeting and that affidavit that will be filed with our minutes. All shareholders of this company as of the close of business on March 22, 2012 are entitled to vote at this meeting and most already have. Computershare representatives are here today and we have appointed them as inspectors of this election and of the elections that we are going to have. And they have received, they tell us, valid proxies representing a majority of the outstanding shares issued as of the close of business on March 22, 2012 and therefore quorum is present.
There are four items for consideration all of which are set forth in the notice of the annual meeting and proxy statement which you have all received. The first item is the election of Directors. Fred Eppinger, Joe Ramrath and Tee Taggart have each been nominated to serve additional three-year term. The second item of business is the approval of certain changes to the company's long-term -- 2006 long-term incentive plan, comply with Section 162(M) of the Internal Revenue Code. That’s laid out in detail in the proxy statement.
The third is the consideration of an advisory vote on executive compensation. And finally, we will ask you to vote on the ratification of the Board’s appointment of PricewaterhouseCoopers as the company's independent registered public accounting firm for 2012, and I should mention in that regard that representatives of PricewaterhouseCoopers are here and in attendance and available for questions during the discussion period. So Director Knox, would you please make a motion for approval of these four motions. Thank you very much.
So we are not going to proceed to any discussion that anyone present will like to have with respect to anyone of these four motions. Following that discussion or in the absence of any discussion, those of you who have not voted and who wish to vote, will ask to be recognized and we will be happy to distribute a ballot to you. Or if you have voted and wish to change your vote, we can furnish you a ballot and you can have the opportunity of changing your vote and voting. So is there any discussion? All right, in the absence of discussion, is there anyone here who wishes to have a ballot? Either to vote for the first time or to change his or her vote. I wish all my court appearances were this passive.
All right. Well, there being no additional ballots, the polls are closed and I can inform you that based on the votes that have already been submitted, that the nominees for election to the Board of Directors have been elected. The shareholders you have and their fellow shareholders have approved the changes to the 2006 long-term incentive plan. The shareholders have approved the advisory vote on executive compensation. My understanding is that approximately 96% of more of the votes have been cast in favor of that vote, of that motion. And that PricewaterhouseCoopers has been ratified as the company's independent registered public accounting firm for the next year for 2012.
So having accomplished all that, is there anything else that should come before this meeting? Different kind of donuts next year, anything of that nature? All right, nothing else. Well, then the formal part of this meeting is adjourned and we will proceed to hear from Fred. But before I do so, on behalf of the Board and recognizing that a number of employees are here today, let me just say that as directors of this company we have extraordinary confidence in the strategy and mission of this company and in your ability to carry that out successfully. We recognize that for a number of reasons, most beyond our control, last year was a difficult year for this company and for other insurance companies. But we also recognize that we are very well poised for the future here. And we are, as a board, committed to the strategy of this company as we know you are. We are committed to its leadership, their service. We are entirely and fully enthusiastic for the prospects of the future. So thank you all for what you have done for this company, for what you will do for it, what we know will be delivery of great prospects for Hanover.
It has been now nearly nine years since we were able to convince Fred Eppinger to come here. Fred have variously described those nine years as a journey and indeed it has been an exciting journey for all of us who have been here for that time, even for part of the time. The journey last year was capped by our successful acquisition of Chaucer, making us -- moving this company from a regional property and casualty company to a national and now international property and casualty company. And it has been exciting to observe the passage of the journey. We look forward to its future. I have the pleasure to introduce Fred Eppinger. Fred?
Thanks, Michael. Good morning. Obviously a lot has happened since the last time we were together in a shareholder meeting. Not the least of which is that we turned 160 years old and we had the opportunity to ring the bell of the New York Stock Exchange. It’s one of the 35 or 36 oldest companies on the New York Stock Exchange. Quite an honor for us as an institution to be able to survive and thrive for that long. And I think today's discussion is all about setting up the next 160. Most of us won't see the whole 160. But I think that’s what it’s about.
You know this last year has been an eventful year. Not only did we have Chaucer, we reached $4 billion for the first time. We established ourselves in our international network and our national network was established. Most of our specialty businesses got their sea legs and nearly started to contribute the institution. We added 300 people domestically and almost 800 people across the world. And so our institution made a significant step forward.
But I can't talk about last year without talking about weather. It was the worst weather year in the 160 years of this institution. And we were fortunate enough to make money which was a testament to our strategy in diversifying our portfolio. But it clearly put significant stress on the system and all our pieces. And I am so proud and thankful of the great work the claims people did. Our quality scores never varied. We actually went up, which is an extraordinary statement to what we do for a living which is to take care of people when some horrible happens. And across the country that happened a lot last year.
So with that let me just leave with you some thoughts that we are going to talk about today. Net-net this is an amazing, I echo Michael’s points, it is a great time for us right now. We are at the point where we can capitalize on all the hard work over the last eight or so years. Our portfolio and position is as good as it has ever been, and the market changes are letting us really capitalize on the disruption. So there is no question that it’s a period of great opportunity. The issue for us is that we are very a different company then we had been seven years ago.
Now we have totally changed the portfolio, we have changed capabilities, we have changed our breadth. And across the board we are most distinctive, we are more established, we are more highly regarded. And so that portfolio sets us up to deliver what we want, which is our goal. You know our vision has been the same, to build a world-class company. Our goal has been the same. To invest in a portfolio, in a breadth of capabilities that allow us to provide distinctive returns to our shareholders through the cycle. That’s what will allow us the thriving growth for the next 160 years. And we have worked very hard to build that portfolio so that we are sustainable.
Seven-eight years ago we could have a good year if the weather was good. In the future we will have a good year because we are good. And because we are balanced and we are distinctive. And so we have set ourselves up for that in the future. And what I would tell you is that the market opportunity, you know as hard as we work to get to this point at this moment, in a lot of ways we got here in time. History tells us that the share shifts and the have and have not separated, right now, at the turn. Few years before, few years after. So our opportunity to really reposition the company is in front of us because of all that’s happening. We have all seen it. It’s all coming, at some places slowly and some places quickly, but is happening.
So our goal together as a company over the next two years, is to really take the company to the next level. We worked hard to get us to this point so that we can go to the next step and have it all come together for us. And that’s what I want to talk a little bit about. Where we are in that journey, what we have accomplished, what we have to accomplish. And again, some is obvious, some may not be so obvious. Because most of you haven’t seen this picture before, I thought I would introduce it.
This institution is a vision-based institution. Everyday what we think about is creating this world-class company. Every single employee thinks about this. And what has happened is both our strategic focus and our goals are also clear. And because we have worked on building this distinctive portfolio, improving our underwriting and pricing capabilities, building our bench strength, positioning ourselves as the best agents in the country, creating financial strength for stability in the long haul. We have the opportunity now to reach a goal. Which is this long-standing, distinctive performance through the cycle. And that’s where we are. This is the goal. This is what we focused on from the beginning. This is something you do overnight, it’s something that you do over time but we are now positioned to capitalize on all the hard work we have done.
So if you think about us, the metrics in our industry that most people talk about is ROE. This whole chart is a very public company in our space. What we saw at the beginning of the decade is that our institution was one of the worst companies in this space. One of the three worst. So at the beginning of this decade we started a little bit in the hole. And what has obviously happened in the last five years is we have moved significantly. We probably have moved on a relative basis more than any company, public company in this space. And we have gone from not so good to average.
The challenge for us today is all the hard work and all the investments, is how do we go to where we want to be. To be top quartile, to be one of the best. Now what we will see in some of the information, is in the last couple of years our performance on a relative basis is better than the industry on average. But it is still sort of what the best companies can do. And why is that important? Well, the best companies is where the growth is, it’s where the opportunity is, it is where the future is. And so for us, this journey is as just important as next phase is important as the last phases.
So that’s where we find ourselves. That’s the challenge ahead. That’s where we are. Now, if I look at it a little differently. For those of you that have been around. If they think it’s important we kind of forget sometimes the different phases. We all know what the beginning was like those that were here. What it was about was to stabilize the company, in some ways to save the company. We changed the portfolio, we became a P&C company from a life company. We changed the portfolio and the balance sheet so that we could be here for more time.
And that’s really what it was about. It was about fixing it. It was about stabilizing it. It was about making sure we had the capital to do something. Quickly we transitioned, very quickly, into building underwriting pricing claims expertise and being good. Because it wasn’t good enough to just survive, we had to have the capabilities. And so all our energy was in upgrading our product set, core product set. Getting underwriting, our pricing, our talent that have been decayed. This is a company that had trunk ten out of 11 for the previous years in the P&C business.
And so it was important for us to build the capabilities. And we have continued that today. But it was a big part of it. What you saw however when we got our upgrades in ’08 and ’09, is we invested. We invested in a very significant way. And the point has been, as we all know, was to diversify and increase the quality of the portfolio so we could sustain returns. We were very property centric. We were very personal lines centric, we were in low quality lines of business. Once we got the upgrades in the capital, we went for it. And so the hard work of what's been going on since ’08 and ’09 really was this improvement of our portfolio across the company. And that’s in all our lines. Whether it’s our account focusing personal lines or it’s our new operating model in commercial lines, every single business made that step forward and then we added specialty in some of the geographic diversification.
Where we are today is in a position to capitalize on all of that. We have our portfolio, it is a broad portfolio, it is a portfolio we can live with. It is a portfolio that we can deliver to the best agents of this country and improve our results. We don’t need to do six or seven more acquisitions in the next two years. And a big sigh of relief to so many our employees. But we are at a place where it’s now time for us to deliver and capitalize on the opportunities that agents are presenting us with. With the people and the talent we have.
So this journey has reached a point where we set out at the beginning to reach. In the beginning we talked about a ten-year vision and this is really where we are. We are right there with the opportunity to be one of the finest companies in this country. And so that’s where we find ourselves. Now ’11, we can't go beyond ’11, we got to (inaudible). It was tremendously difficult. Our company, when we said we had a weather year, we had a weather year. It was the worst in the 160 years. It was ten points of combined ratio. $362 million of cats that over twice what we normally have, and if you add the non-cat weather which was 7 points more than we normally have, 7 points on top of this. It was by far the biggest drain that we have ever had as a company.
And so again what's interesting about that is we did make money. We wouldn’t have made money two years ago, three years ago, four years ago, because we didn’t have the diversification in our portfolio, but we did make money. And the other thing that is good about this is you see that we outperform the industry. So while it was difficult, we decayed by 4.5 points because of the weather. Our differential between the industry was consistent and grew a little bit. And if you look at the non-cat weather which is something that I really watch, is that what you see is even with the non-cat weather being so high, we were flat. Which means our underlying quality of our business got materially better. So that in a normal weather year our margins will increase.
So both of those things, as challenging as it was, demonstrate some progress as an institution across our business, which is good. And if you look at the pieces of our progress, we grew industry-leading growth for the company the last two years. We reached, we are over $4 billion, we are on our way somewhere between $4.5 billion and $5 billion by the end of the year. So lots of momentum in our business. If you look at our ex-cat earnings after our investment in 2009, we have continually built up and our run rate so far this year is over $500 million. Again, it would be the most we have ever had in the next cat earnings. So the trend there is good.
If you look at the book value. Our book value is the highest it’s been in the 160 years. A little help from spreads but we have continued to build our book value every year and our shareholder equity is also the highest it’s been. And that is good because on top of the shareholder equity buildup we have done both some share buybacks but we have also increased our dividend, which we feel very good about because since we got stable and we started to grow and improve, we have been able to increase our dividend and will continue to do so likely, as we improve the company.
So on a lot of dimensions, the strength of the company and the resilience of the company is as good as it’s ever been. But the reason why we are so excited about the future as you all know, is the quality of the portfolio and the value proposition of this institution with the best agents in the country. So if you look at the reason we are so confident in our ability to go to the next level of performance, is that if you look at three dimensions. The quality and mix of our business, the positioning of our businesses, the distinctiveness of the strategy with those businesses, and then the value proposition and what it’s doing to us with the best agents. All three of those were showing more improvement then anybody in the space, then any other competitor.
So if you look at the first one, and I will do a little bit of history, we all know that our industry is bad. Over 30 years the average return is somewhere between 6% and 7% return. And what you see is a quarter of the companies make all the money though most companies significantly underperform, significantly underperform. And part of it is the quality of the portfolio. So what we did is we looked at ten years of experience by line of business. And what you see is about 20% of the business is in lines of business that reach cost to capital over a decade. 80% plus don’t. And what's fascinating within that, you can imagine and the ones that don’t, most companies don’t. And the ones that do, some companies do.
Now it’s not enough to just be in good lines of business. There are people that are bad in good lines of business and they are good people. But the mix is a big indicator in our business. And what you see is the industry that underperforms has about 18% in attractive lines. The best companies, the world class companies, the companies that earn this top quartile return, have 44% of their business in the better segments. So, again, it’s not enough by itself but it’s hard to have the opposite be true. That you have to be only in bad lines of business and not perform.
If you put us in this context of the top 40 companies in the industry, our mix was the worst. So when we started, 12% of our business was in the more attractive segments. The worse company in the top 40. So while we could touch a break on good weather, the reality is in any ten-year period if we performed like the industry we would get killed. And so it was important as part of our journey to change that. And what you have seen is we are now at 40% and our run rate is right at what the best companies are, 45% plus of the quality of our new business, and the mix. Again, not enough, but a very big difference when you think about the ability to sustain the kind of growth and earnings that we are talking about.
So that mix is a big deal. Now, the second piece is just as big. Which is this balance, this quality balance if you will, of personal, commercial and specialty, are you good at it? Right. It’s one thing to have this balanced portfolio but are you good at underwriting. And, again, if you go back to that chart of the second phase, the investments we have made in claims, and pricing, and underwriting, and MIS, have paid off. So since about ’06, we have outperformed the industry materially on loss ratio and LAE. So pre this we were below and now we are better, five or so points. And if you look at that, it’s consistent and in almost every line of business we are better than the industry now in the last five years.
And so what you see is improvement. Now it’s true in surety where we still have some work on contract, it is true in commercial. But we are getting better in all the lines of business and we are building distinctives. Very important. So our mix is better and our ability to deliver that mix is better. Which sets up the future. The other point I would say, is this notion of the distinctiveness of our businesses. And this year was a big year for us. We all know how much hard work went into, for instance changing the operating model in small and commercial. Good example.
So if you look at our core commercial lines. In small commercial we started under $200 million and in small, we’re in this year close to $600 million with a very distinctive operating model. Where we have local adults that can be responsive because of our automation investments. What you see is our ability to help agents consolidate their markets to us. What you see is an ability to add value in that $25,000 to $50,000 because of our operating model and excellent automation for that, this fall. So we have a very distinctive position in small commercial. We’re probably the fastest growing player in small commercial right now.
That also continues into middle market where we have very industry solutions that we have built. Where others can only do that over $250,000, we have done that $200,000. So we have a very distinctive portfolio there. In personal lines, probably the most exciting that’s going to happen this fall is our launch of [Plato], where we have built in value propositions for account oriented customers that want value added. Very distinctive, very unique. And again that is a very different way to play that business then everybody else is playing, and has positioned ourselves for nice steady profitable growth.
And then in U.S. specialty we now have a broad portfolio of about $700 million of specialty that goes directly to retail agents. Small face value, very distinctive operating model that gets us their mature specialty business and gets our partners to give us preferred shelf space. So in each of our businesses we have built a very interesting distinct position that is now relatively mature and ready to go forward. Now let me pause on the international specialty, which is our Chaucer acquisition. Which is one of the most exciting things that happened this year. And if you think about why we did it, this was not only the ability to get a wonderful set of underwriting capabilities. It gave us breadth and scale, it’s about $1 billion. But it’s also in categories of underwriting expertise that are being very helpful for our partner agent strategy both here and in London.
And what it brings is a team with a great track record. And what you have seen in the last three quarters, it’s worked out beautifully so far. And I think where all would say that we are even more pleased that we expected on the quality, the collaboration, the way the consolidation has gone or the integration has gone. And the future looks tremendous for us as far as what the opportunity is. So very big thing. And what's fascinating about it, a lot of people talk to us about why and whatever. What you have seen in the industry, you saw three transactions after ours. All at a more premium than ours, on a relative basis, interesting.
Because it’s becoming a very interesting market for certain things. Like aviation and energy and a couple of other specialty areas. It’s becoming the place where the best companies are participating in these categories. And we are a leader there now. One of the handful of leaders in the areas where we are in. So it’s positioned us very nicely as one of the better companies in the industry. And I believe over time it’s going to just continue to pay dividends with our partner agents. And that’s because of this focus. Unlike some other Lloyd’s companies it wasn’t really a reinsurance company, it was a specialty company. And so we are really focused on about 13 categories where the synergy is extraordinary for us, to make sure that we take those capabilities and extend. Like alternative energy, categories like that.
So again, it’s an exciting thing for us. It takes this company again up to the next level of breadth and capability. It fits what we are trying to do with the best agents and partners in the world. And it allows us to kind of go forward with that portfolio, if you will. That is quite distinctive. So, again, a exciting step for the company.
And then finally, and really at the heart of who we are as a company, is our value proposition to our agents. On top of all this innovation and product breadth we have created a very distinct value proposition. We were the first in the industry to talk about limited distribution. Now many people are starting to talk about it. It’s value of giving distinctive products to the best. To limit distribution and then create and operating model where local adults have authority to react quickly and investing behind them. Well, that’s gotten traction. And it’s getting traction with the best players. We all know how much difference there is today between the growth we have had with the biggest and best agents in the country to what we used to have. Many of these folks didn’t know us seven years ago, that we are now their lead market.
And so that transition, because of that value proposition, is extraordinary. So if you look at the data, not only have we grown from $2 billion to $4 billion, our share with the best segments has doubled. So we have doubled and we have doubled with the best agents. And so our importance and penetration with the folks that we are investing and growing and consolidating, has never been better. And if you take this down one level and you look underneath. If you look at say the top 100 agents under the brokers, the industry grew minus 2% in the last two years, we grew 50%. If you look at another category which is [raking] best practice agents, which is a subset that were investing themselves and getting better. Again, industry grew 2% with them and we grew 14%.
So in every category you look, of our, in the best agents in this country, the share is being shifted to us. They are giving us preferred shelf space. They are shifting their business to us. Which is what we have really wanted to do. Right. Because without preferred shelf space, there was a lot of danger we would be and also them. And so what has happened is that shift has occurred, it is occurring with greater momentum today than ever before.
So all three dimensions gives us a stake. You step back and you say we are in a really good position, if we can execute. And so let’s just talk about the market a little bit. Because the issue for us is, is that it’s not a dormant market. It is a changing market. And are we prepared with our new capabilities and our scale, to capitalize on it. And so if you look at the industry dynamics, it is a very stressful time for a lot of carriers. Really unprecedented. All the things coming together at once. Not only do you have this soft market which has been about seven years of pricing decreases until this last couple of quarters. So we have had seven years of decreasing pricing and decreasing margins in the business.
You add to that this economy that is so difficult, and in our business it’s a double whammy. Because our business has a lot to do with the construction and contractors and workers comp is an enormous part. And you see that under-employment, workers comp is down 30% since its peak revenue. This is the first time in the history of the industry that we have had three years of decreasing premium. So it is an incredibly difficulty, unprecedented time of change. You add to that the weather. The notion of yields going down. And people say what do you mean by yields. Well, our business is one big balance sheet and we have lots of investments.
You all know from your savings accounts what's happed to short-term interest rates. They are at the lowest they have ever been. While a one percentage decrease yield for a insurance company has big implications. Let me give you an example. You are a reinsurer and you had to have a 95 combined ratio to get to a 12% of return. When interest rates go down 1% you now have to have an 88% combined ratio to get that 12%. Now it’s less in personal lines, more in commercial lines, but again that stress rips through the system. So people if they don’t get rate increases, they go backwards. And when you add that to this notion of this extra focus on capital availability, whether it’s Solvency 2 or the RMS models of the rating agencies, everybody’s focus is on do you have enough capital.
So here you have an environment where you are a small company, if you had really bad weather, you have had all kinds of losses, you can't get the rates. You got to turn your business so you had expense drain and everybody is looking at your rating. And so what has happened is a lot of people are starting to shrink. A lot of small companies are repricing. We have seen across the board pricing in many of our competitors. They don’t have the ability to do it. They have had to reduce their headcount dramatically.
So what you have seen is the biggest decrease in headcount in our industry in all the last three years. What does that do? It takes away local people that can actually address changes. So when you do across the board price increase and you have nobody local to help an agent get through it, what happens? Your best business leaves. And so what you have seen is a turn and a mix change which we are perfectly positioned to take advantage of, with local experts.
They cherry pick the business, help get the business move that the agency had saved. And so the opportunity for us is significant given this disruption. Now what has happened to the market? We have had about ten points decay over the last five years in combined ratio. And what that has resulted in finally is the need for rate. And so what you are seeing across the board in the fourth quarter and now a gaining momentum around rate with this combination of yields and weather and soft market. But as I said, the biggest issues is most folks have to shrink. Because that their reinsurance costs are far outweighing what they can make on the price increases. And so they have to save capital.
So we have seen this turmoil. So you take this context and say, okay, here we are as a company. We built this portfolio, we’ve got some breadth, we got some financial strength, we had some challenges, but why is this a good thing for us. Well, if you look at it, what's happening because of our product portfolio and capabilities, like the industry we are getting price increases. And right now across our entire footprint. Here and in London, 95%, 96% of our business is getting rate increases. So essentially across the board, we are getting rate increases and they are going up.
What's fascinating and different from us to our competitors is our retention is going up at the same time. So you have a quality of new business that’s increasing. You have a pricing that’s increasing. And you have a retention that’s increasing, which gives us leverage on the expense ratio as well. So the building to capitalize on this is right in front of us. Now we have to execute and we have to focus on each business. And we got to make sure that there isn’t business that is inappropriate for us to have. That we can't make money.
So if you take this and you say what's our next 18 to 24 months like. Why is it kind of, for me, the most exciting part of the journey so far? Is that we have so many levers that we can go to the next level with now. We have so much talent, we have so much breadth, we have so much momentum and a positive attitude in our institution that our ability to go into this market is wonderful. And so if you look at each of these levers whether it’s our ability to get pricing or do a little bit of refining in our underwriting, what we are doing in all our businesses. We mentioned at Investor Day there is probably about $200 million of business that we have shared or restructured that were underpriced in certain territories or lines of business etcetera.
But we are also having tremendous growth with the higher margin businesses in the right agencies, in the right geographies. And what's happening is even with a little bit of working on underwriting our pricing we are growing just about everywhere at a relatively rapid pace. And then finally, all of these investments we have made, small commercial expansion, geographically which was a big deal this year. We really get that finished. For the specialty businesses, whether it’s healthcare or (inaudible) or it’s what we have done in commercial surety or what are doing in not for profit, or ML, all of those businesses now have some scale. They have momentum. And so what happens is the leverage of investments is getting behind us. Even our building investment, which we are now in the process of rolling out, is that last big capital investment for the company we started out ten years ago, started with our general ledger upgrade. It’s now kind of finishing with our final big piece which is the filling investments. So, so much of that leverage is coming through the system and positions us for a wonderful future.
So let me just close with five points. There is no question it’s a challenging time. We cannot forget that this is a difficult business, it’s a humbling business. You can do everything right and have a large loss. But if you stay focused on execution and moving forward and getting better, there is a real opportunity for us. And we believe that the disruption is creating wonderful opportunity. And as history holds, what ends up happening during this kind of turmoil is that better companies grow and the worst companies shrink. And the benefit really goes to those that are well positioned. And what I keep thinking about ’10 and ’11, and again you know I would say that the winners right the history books. But when we look back in two years, it’s difficult as the last couple of years have been. These have been watershed years for us. The geographic expansion, the talent that has come in to this institution, the underlying capabilities we have built is amazing.
And so when you look at where we are right now, there is a lot of leverage in the system. Our ability to compete has never been better. And the people like the middle market underwriting skills that we have, the clean skills, the cat (inaudible) skills across the board, we are well positioned for whatever the world throws at us. Which give us a really interesting opportunity. And putting Chaucer into that, again, this is one of those things that was a little bit of a game changer for us. The ability that a company with that track record wanted to be part of our family, and that they are that committed to making us better together, is an extraordinary advantage for us. And that’s why things have gone so well. And they will continue to go well.
Our ability to be this scale of a company, with this kind of breadth and capability is a big deal. And so what we need to do is stay focused. The next 12-18 months is all about execution. It’s about us doing what we said we were going to do. But we have done that for eight years. So it’s really just a continuation. What's different about the next two years, it will be more visible to the outside world. Because so much of what we have done is the hard work you do in insurance of building skills, of building capabilities, of building capabilities to go the best agents in the world and ask for their best business. That just doesn’t come because you ask. It becomes because you have the skills and capabilities to solve their problems. And that’s where we find ourselves today.
So in this 160th year and a year of unprecedented weather and everything else, I echo what Michael said. We are appreciate of the all the effort. This has been one of the hardest years as far as effort. You know the integration. We had integrations going on of about three or four companies. We had expansion everywhere. We had responding to our customers because of the extraordinary weather events that we had. We had more large events last year than the entire 80s. It was extraordinary. And knowing that we had 600% of the normal weather related losses. Last time I checked, I think that where our headquarters are. So on every dimension, the employees stepped up. But it’s why we are so confident in the next three years, why we are so confident.
So again thank you so much. It’s a pleasure and honor to have this position. And again thank you very very much.
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