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RLI RLI

Participants
Aaron Diefenthaler Vice President, Chief Investment Officer and Treasurer
Jon Michael Chairman and Chief Executive Officer
Todd Bryant Vice President and Chief Financial Officer
Craig Kliethermes President and Chief Operating Officer
Jeff Schmitt William Blair
Meyer Shields KBW
Mark Dwelle RBC Capital Markets
Jamie Inglis Philo Smith
Call transcript
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Operator

Good morning ladies and gentlemen, welcome to the RLI Corp's Second Quarter Earnings Teleconference.

As a reminder, we will open the conference up for questions and answers after the presentation.

Before we get started, let me remind everyone that through the course of the teleconference, RLI management may make comments that reflect their intentions, beliefs and expectations for the future.

As always, these forward-looking statements are subject to certain factors and uncertainties, which could cause actual results to differ materially. Please refer to the risk factors described in the company's various SEC filings, including the annual report on Form 10-K as supplemented in the Form 10-Q for the quarterly period ended June 30, 2021, which should be reviewed carefully. a contains with second the filed Exchange Securities quarter has that Commission, press company Form the X-K and results. The release announcing operating share may and results. non-GAAP management make during financial call RLI reference measures of earnings operations for to per which are the earnings earnings or on earnings operating losses unrealized or losses net and securities. per elimination of operations consist share after-tax RLI's the from after-tax equity earnings of and after realized gains gains performance earnings. operating reporting are other useful in may management be periods RLI’s these not core but believes measures companies' gauging definitions across comparable to of operating The between earnings. net contains Form X-K a operating earnings reconciliation and Form The press at available the are company's X-K at and website www.rlicorp.com. release turn I Vice over Chief the RLI's Mr. to conference will Investment now President, Treasurer, Officer and Diefenthaler. Aaron sir. ahead, go Please

Aaron Diefenthaler

everyone second Good to welcome XXXX. for Travis. quarter call you, RLI’s Thank morning, earnings and

running Chairman structure current today Operating Chief Officer. and President us Jon market Joining today's June commentary for are our portfolio. XX. for conditions CEO, will call the Pretty Craig Kliethermes, add Chief on product Craig and and Todd some the quarter Todd down Financial standard financial ended Bryant, and results Officer Michael, with

final call will close some We and thoughts, Jon Todd? the questions with will then to open

Todd Bryant

posted reported second in, we per experienced Thanks, Aaron. morning, year XX.X year's reserves. All operating by ratio. prior an loss and everyone. combined Yesterday, results favorable earnings XX% of supplemented Good line $X.XX reflect profit quarter we share underwriting current positive benefits growth from top

strong from Additionally, business our Maui Jim by core and Prime. complemented quarter was a

as the rebalanced X supported growth leaving base. invested cash change in our quarter, a in equity operating has securities. equity of down we unrealized Realized quarter flow position, XXX asset modestly was million gains R&S income elevated the investment gains for million modest While on in year-to-date,

about prices and results but to to you and value periods earnings, push in lead Aggregate equity underwriting able and experienced per share both comparable XX% As writings have see impact up growth. significant contributing. net investment XX% high can We're XXXX. in XX% minute, quarterly growth. conditions to market year-to-date level, talk inclusive and can comparisons with a year-end, which up on continued all to dividends. gross $XX.XX disruption a large in movements way support you know, the book a rates of as the more improved major product Casualty market all three Property segments from lines from

grew income premium year to compared an XX.X was quarters business XX.X XX% nicely as was From and ratio surety, For ago. a the perspective, our underwriting up quarter. contract transactional the in combined

Storm segment development ratios. property commercial the reserves the we loss X.X ratio the Surety, X to to the year loss quarter favorably million casualty overall our declined basis enhancing impacting business. experienced of X totaled points million XXXX and adverse not the XX.X. and reported strengthened Our quarter reserves segment. further casualty as property On develop an both the for in on loss losses X energy however, portion prior years million booked continued the incurred in surety with accident but

accident basis, XXXX current decline. was ratio that casualty for to X an casualty exclude X On improve. our COVID-related if down your front, loss loss points. our loss underlying of for reserve the year's on Lastly, impacts catastrophes, and prior in points about ratio benefits you continued account

in to X With specific that few and the calls respect ratios points the modest ratio mix booking discussed in however, similar results. to loss Excluding year-end. down have loss positive amounts are COVID what unchanged reductions reserves, improving the and largely last driven we from was still

-- and plans. last largely and X.X expenses in the amounts incentive driven for XX.X. increase to expense quarter, to Moving value flat. continued our growth operating technology accrued are by ratio The general quarterly combination were drove Apart performance-related elevated improved to amounts a metrics relatively higher. these of other significantly in expenses expenses, increase higher investments from and ratio and book the increased Similar corporate related combined operating incentive earnings

turn return balance components million contributed we markets positive X.X of results to quarter with to significant portfolio benefiting pulling the returns was over side all, as compared for invested. had in our and capital asset direction, both sheet, Prime declined Higher quarter work and have with major have alongside same the lower X.X% XX.X Jim a the the All investment an from from income. yields respectively, the fixed to nearly macroeconomic come to and Treasury money reinvestment Apart strong the to rates, in the On from bond million all to equities Craig. curve of from invest down highs strong just investment were the environments we the cash fully half over total the Maui income, of improving robust call growing Despite which the XXXX. is of continue markets invested flow the helped in year. I'll return earlier assets. accruing and a benefit flatten saw yields, the put earnings in Total in exposure, and operating to good the very quarter. the A was And of X% lower year. that, environment. first stay portfolio

Craig Kliethermes

rising were an economy everyone. mentioned, as growth across result every on rates ratio. and in and very Thank in with good on quarter a increased our combined our widespread flow and growth submission business, levels. pleased almost you, the our renewal business A We're an product Todd marketplace. good improving of XX Aaron seeing higher XX% retention position portfolio outstanding and rate new Todd, We results very top with and line as morning,

claims watchful slowed to we back of social levels they during long-term pandemic, inflation. begun climbing previous of and the of remain frequency have Although impact the

but an rebuilding also to of the We is which rising also related we impact building length still the costs. continued sustain more rate the entered and of prove recent get more last could in on industry the interruption This challenging recognize think opportunity like will unique to broadly overall, of is as with We the and We hurricane industry cost associated the keep there rising levels material inflation rate business the increase labor more catastrophes exposures eye as likely season, underperforming, possibility building factors levels cost these of will drive inflation, pandemic, anticipate momentum. rising weather and the risk number collapse. uncertain associated must severe the current claims. that a with and

permits the needed, benefit value. shareholder us margins, shrinking maintain private discipline to diversification. conditions We or navigate if adequacy position have growing for to underwriting were underwriting rate necessary This pushing market all of and our

X% top-line XX combined benefited above ratio development. reported In an casualty, are the Rates and as as grew or we from still year-to-date. at XX% and significant favorable Now for we've some costs X% package Rates are more quarter, achieve detail reserve by segment. up overall, for we in where growth achieved in loss we small significantly casualty in excess relatively primary major all markets auto our products profit liabilities, compete. remain across and in portfolio. liability flat fierce. niches several where and and auto even underwriting products business select We remains competition Rates

continuing reduced property still up want recognition In commenting XX% and and achieve have it's the combined XX% win X% our at the for online plus are for rate the growth XX% changes still still growth for in quarter are about realizing to the from space in products our earned contractors, an properties contained public very our the but our Champlain transportation X% high associations also be or unit year wind we up of our in the but segment reporting our continue auto customers last way XX% The reported quarter of those without and target and producers from condo year-to-date. back of of ratio, for reinsurance tragic positive to any when the faster event. pace do move and and the don't of the And the in up Overall, on line we We I excluding year-to-date and this architects the for a grew exposure plus during of XX% premium goodwill year rates top-line with well in flattening, families are we XXX-year was all changes level on collapse recovery segment and Florida, we're coming catastrophe Surfside, at board. of XX% in multi-unit year-to-date. major pandemic. the PMLs the businesses. was as with while with all tower buses protection. area benefited We rises impacted. to not in property, do write quarter this a profits. top quicker XX engineers Casualty underwriting across thoughts recent lead were with

our and number sector the We protection tightening filings our improve our in market. growth business. surety, to of management combined reinsurance will contractors the ratio. bankruptcy large an related responsible underwriting XX% against minimal at a appear to Although segment and We to part our as this XX surety building loss of of chosen losses. guidelines line profit achieve this do able an risk continue were reported elevated the a maintain we by our in top environment we in energy maintenance despite commercial significant time, for result, and risk posture those In exposures underwriting

also decades. partners benefited who mutually two discipline from over have our our underwriting and We value for have strong relationship

in Our underwrite underwriting the profit team remains to disciplined and continues core space.

credit highest collateral, principles, by tightened for our on delayed quality and protection work rate commissioning more further principal. targeting any insisted and the raise standards have structured levels lowered tolerances We restrictive the

excellent a are half very an profitable year. Our markets and an the commercial miscellaneous nice with Overall, contract year-to-date and growing remain quarter surety first XX ratio. of combined and

week their the talented collaborative owners our underwriting even producers culture once the all that products enable to recently welcomed and to a of and to community, makes stable our them and last us underwriting strong the and delivered work They hard We diversified associate over to for consistent back of returns appetite strong this the provide throughout forward our portfolio year. shareholders. foster to disciplined close last continuing want offices and I to thank have to of niche ROI our Our learning all and again. customers better. quarter look work difference team

Now questions. I'll call to turn it back to moderator open the the for

Operator

will first [indiscernible]. Our sir. time. comes The this you, [Operator at Instructions] session begin question question-and-answer Thank from

Unidentified Analyst

this flip looking the we unfavorable and Just at development reserves saw surety, quarter. to

some quarter. just little was was it a mentioned into the some if energy change in But you policies. more wondering provide color and IBNR you think could I the

Todd Bryant

on talk reserves the Certainly XXXX the actuaries that opener, strengthened We in seeded both look a there's really accident about that our and from did We standpoint, as year. things. the energy took direct side, at my there. influence

elevated is bankruptcy. There's an some of it So of possibly elevated level there. there risk

to look all as think there. we I do that time, action so we at And some the similar what took we

I -- XXXX in was had the time to fourth adverse back I sorry we think I'm casualty go if in think most quarter surety recent you development segment. probably the the of segment.

happen it's had So but -- before. certainly we that doesn't very not often

Unidentified Analyst

kind great. prior Thanks. in looking relative And Jim the pretty just Okay, of results to then Maui to strong COVID. past results even quarter are

maybe to kind just out stood if something demand there's initiatives you drove possibly sales that that of all growth some curious in or So that new anything there, pent-up quarter. or else some the

Jon Michael

for Jim back. demand comparable Their during through The the and management way reduced team come of time that Jim those sales operating pandemic, rebounded their expenses Collin. Maui operating to lot Michael, the have They very were nicely. during fairly at that XXXX nicely. not Maui expenses the a has managed levels, Jon

think We to come we're And like some I so, through. like those and travel expenses of of the to saw improvement margin marketing. expect back some that seeing fully and and come

with I those that. pleased their just really things level to But they've were pent-up think it's to example, the mind. back managing But they way don't XXXX. what able we're at demand, come do maybe. I through to know the been about For

Operator

Jeff from Our comes next Blair. question Schmitt, William

Jeff Schmitt

background. mentioned you averaged up for some up, they more. But, inflation Maybe quarter, Not rates guess years. inflation deceleration. been in surprising now couple moves still moving casualty year. And last a to X%. reopen were maybe that I I X% believe I they've social courts the CPI as of see compounding last XX% mean,

at some that levels? put rates all? for maybe some upward provides support current mentioned on could that pressure rates? that You Or seeing Are potentially at you

Craig Kliethermes

Jeff, the Craig. you obviously, mentioned, are this every year. things just Well, is compound

But mean, were has loss staying -- at the ahead, So think loss at I cost inflation. niches, to comments X% in I my industry going is our I target, up in too. good come least a mean, year, I job mean, done cost another or X% with next aimed deflation

margin. at or of to the So to we That's stay have rate same to at that, our perspective continue least stay -- get to ahead so

Jeff Schmitt

much CPI on just inflation like -- are seeing, inflation, costs but How medical of you for instead

Craig Kliethermes

think actually I trend. X% have say, in that of exposure mean, trends know any down in level. the X% loss at casualty that let's talked net don't I past cost it broken using we I to of that's we've

you we need x current do are So your otherwise, going that to loss you would kind know, ratios increase, going to that, as have and rate of start your up.

Jeff Schmitt

then, the of a in lot book the Could Right, past, I back [indiscernible] rate what you've you economy right. is mentioned type and growth? picks And construction. book exposure You're that seeing as in think up? discuss of

Craig Kliethermes

to not I up right lot are as then, growth were slow jobs, of much you work their now. as places were in still up. certainly these the seeing think, backlog has Yes, that select or picked down And mean, picking were didn't sure. I anymore. ordered were them of contractors It mean, working, there during a many might pandemic. guys some we really that

So I typically and is contractors. like we say competition, We like There's feel smaller still middle space. of in write and type still lot still pretty strong. That's market mean, demand write, of we we would a the contractors competitive artists though. the a

there's to So difficult that in a like because rate there. increase not very achieve more double-digit that's competition market it's just

Operator

question from next comes Shields, KBW. Our Meyer

Meyer Shields

in for large sort is a buildings terms I looks you inside? it mean us sense just maintenance this different I how in how on things Florida, guess the Craig. widespread I know of the is give don't Can under of of

Craig Kliethermes

think the I underwriting And a But good also do aside a improvements, high-rise -- a do look guidelines. any run funds to set inspections, aside, buildings. don't they that on to we insist mentioned situation, write don't typically We for nobody wants of don't have pay repairs, you into obviously I need where lot similar but question. have through capital repairs. set for That's some at we they buildings because these of our money we'll may

be you If that Nobody you it club, to pay any to And always how it's I done. belong for works. of see kind to stressor, guess. needs wants a but

write really of buildings So that lot we really story don't know we I that a or in that typically like, any don't specifically -- area. and I comment on buildings write two could focus three

So I very would helpful. don't think be

Meyer Shields

on or driving transportation, that people so underwriting impacting I'm No, helpful. trying side, Okay. I mean, year the that's a we're to figure that's out was for whether looking forward, vehicles fact claim Within that been these the had frequently.

Craig Kliethermes

It's transportation, our unit Well, three that so business in space, in was realized significantly. yes, pieces. down, for the most really down base was definitely was part auto, exposure so which public frequency is but

I premium, in XX% XX% think our we point of one premiums. maybe at back almost time, of our gave

at all. driving weren't they So

kept trucking, really, frequency and So driving that if haul it didn't Relative actually, know drivers mean, adjusted the we long to stop, down much. goods. the kept you base, relate to I exposure really don't the base. exposure -- Trucks, trucking was I space, our delivering

the maybe reduction were because saw slight on we less people you road. a So

were that little faster, too. a driving people offsetting Although

to think which then, overall job. the a of emergency lot one point contractors we A frequency of the from write other down point the especially are vehicles or to of from other only those our more driving lot write like are And of really So, their than job B, times was probably to medical allowed used. going I base A because that lot we autos, frequently from ambulances, constantly or the a probably congestion. that

the auto than even But because write down We in overall more but it's frequency the would certainly and lot don't I probably similar auto. it personal more pronounced auto. a So say than was was based back frequency But, it's would of exposure to base. to say going levels previous the not will anticipate back trend, I it’s get there. on to relative back. to I continue bounce probably

Meyer Shields

issue that one else then when Todd, was pretty last basis. jump at Okay, Or recoverables, sequential on guess the perfect. I reinsurance something Was it driving we as a surety for about? is And that a it question. talking big well? we're look

Craig Kliethermes

I are certainly a we large seeing that's of Meyer Yes, growth. think mean, part it. I

you seeded the big just of from had if some reserve But side going normal a growth part will, a IBNR, and definitely you're to surety standpoint. So get that.

Operator

from Our Markets. next Mark RBC Capital comes Dwelle, question

Mark Dwelle

sure They mentioned to Could renewal but saying. my on couple just got policies right several elaborate on with you others. you being retention took of that for questions, I'm page you bit, renew -- just make Craig, a had proportion were I to rates a the little to higher? on want that existing you're what referring I of you, the

Craig Kliethermes

correct. correct. is That's That

that both that I points past. me to tell average up, want been I still and attribute I is from through provide out did are mean, go particularly year-to-date control a provide to people retention customers I'll willing you exceptional have If can of they to service are going who more rates the quarter color, I and in we I'm level on or to reaching all people that mean, where our our you our the an site. on the producers, lost say think job, to the we -- to couple pandemic.

it harder a anyway. new a now. building write shop reached Our still the has producers. good pandemic, during wasn't for very Business to that dividends each paid numbers, that producer harder the the We in some producer basically to for during things cell much not shopped been harder. fact fairness, I relationships a has think at underwriters business that. shop know distance to is other's that have because pandemic business that business here it phone was was out them the Or relationships and like Still with

to more industry up people that. relationships those said, try traveling I But of from the I once one our and retention. being start bit and get have build expect markets, overall, we be be for of a able because should products, mean, the of steel a every change, little -- almost to that would property that and beneficiary bit rates retention business of incumbent may every So away most across higher little been that but a

Mark Dwelle

you signs definitely of any beyond behaviors see, helpful. seeing any Are fairly given That's in was more aggressive normally day? robust when you what

Craig Kliethermes

mean, while space. at the would of entering probably product a depending new times, it always the say it experience lesson, in your to mean, and broader places longer There's broader form casualty to depending a depends find markets it that money come then are a takes time I over take our in that loss and with same. the overall, and we exiting and their learn manifest I losing with same mean, entrance it But on But some than forms same about is or line, on others, least forms or rates on you I up line. lower you lot end takes I for rates the happen. does niches, in time and

I constantly of new competitor, else that a that lot get times they them we of smarter they're that burned, markets make long-term see So they're a sometimes come will a and lot it too. everybody in think they and than exit

So portfolio. a across I more comment I seen our don't entire necessarily was less going that cry, think any we've or to

I of big think potential being from because there market up become had. one think share the was be guess, probably in little that's point probably the mean, I the I reason. And far I more new downturn had feeding general, we as of how surety people time a part more cautious and a many in we and used the economic as made a a about it years last while recently, have the for I in markets five think that doubled more XX to there over people frenzy then pandemic reserved, little markets

Mark Dwelle

be question this any the That's could common seeing have One own some is been to of that lately? depth helpful particular color, last terrorism, appreciate you exposed exposure things a news the knowledge. that. in sort liability, that just coverage my Is that cyber to? of and of we've you Do cyber

Craig Kliethermes

don't of Yes, I've call, I it. previous cyber Mark. mean, we I a -- talked in write I and little about bit think we mean, before a

figure in under business. you of substantially, think We've worry how the I you're it's saying, larger think exposures, exposure aggregation account, really the the management our about, I and that downsized of liability do since biggest was our because what arms manage we and our It's aggregate your protect we and lot just can't believe, is difficult how your that you like what event. get sheet out, kind balance of exposure a of people around mass very from to that business.

Operator

comes from Jamie Smith. question Our Philo next Inglis,

Jamie Inglis

questions. have Nice I quarter. got two

going the I things right of First, we're the paid it courts Do seen that any been any seems see casualty change or stories opening. is sort me to mean, kind in to are do might last tell whether to it incurred there's In early too you And you maybe now, in change. of happen? to to how area. changes? for environment year. be must or have of thinking we're when Have anything

Craig Kliethermes

niches. Yes, will Jamie, relatively very of a or a this is niches Craig. small I mean, player, the lot obviously, small a but in we're in big not player we're be

for So look the it's anything was closed we've to but determine. it think we point and agree we and that sometimes I would data most was, out at it's would for part, that Certainly, significantly. difficult the system the court seen just to to of don't outside lot decide those have court than have only our them. involved decided, we ever a even go X% to an claims court, we don't realized attorney be of less claims. of litigate But probably don't most hopefully

to seen during have that claims settle significant to people amount. wanted they because were opportunities court to haven't money didn’t to leverage it we or to they before So take time that they want There take wait didn't out it were going enough long to [indiscernible]. a the

to front the whatever. to a or to jury a up roll with cash the fair settlement dice take opposed try get as to willing they're So

the think which we seen I courts So I we've that I mean, were any mean, changes. closed. that. certainly inflation, social we material saw some don't pandemic, prevalent the before believe was of before

last don't during year, would and tamed the half that. know have year that that's still alive I and a think anything if happened I well,

that loss XX trends trends, fact down But last inflationary in want that take didn't over a react to and cautious we to come react determined. we're only cost happened like year expecting months to that's view more what's don't think back frequency to long-term. why we probably think was made long-term worse view, it That's I lot the up. yet to think, be I the because I more a

Just don't because severity bit pandemic, that trends have may thought flattened were over a the zero. I we think little now the

Jamie Inglis

Great.

Okay, online good. And with you had guys time. research have over area, property great to start the

So in a way, frequency what just changes, seems this -- mean, in is is variability the somewhat of get an the we believe change unfair we're severity question, given happening climate. are. in sense a got you've things, I may in what change but people those thoughts about world I'm trying of to or in that this your may

thought you to in. you we the sort of a changes appear quick going environment you on history setting give based how us process? Of forward be were can your anticipate So, of what, lessons reserves? Do any

Todd Bryant

Todd. Jamie, this is

shorter those -- year. just mean, from They were I from are think talk let's standpoint. underwriting every an term. obviously, I new,

So you on from you annually decisions can an write make perspective. to want underwriting determine you what

standpoint, at certainly more the things, talked beyond that what impact that looking recently know make be? from modeling and from the influence but order, from can in have a goods there a PML influence development aspect pretty from you models we're So inflation short We cost know, and an there's a if overall to Craig So, you're determinations concentration. will an just going risk use you would of also of of looking I that. standpoint, in standpoint, of things. loss, the

changes to going all you're those at that. look think things, I can So from of make you

a climate view term modeling when or from see on changes think shorter that. run the longer some I a you all you term can perspective, take you'll side,

all that's and make that helps standpoint. from you influencing So decisions some

Jon Michael

And process looking backwards. goes, all sort that's of reserving

So it property impact labor and and impact would on increased an construction. cost reserving. reserving The on be of materials has no really in

now this think the in people rising particularly their when I of that right labor. building capacity, environment up and estimate with in claims cost our they materials for factor with come

when assume Take It's to up with quarter. it. replace and we hurricane, I this Same, I stuff. if going bet we like probably would next So fix a we the an year, have bet. come that to will building estimate, more cost to which

Jamie Inglis

Okay.

takeaway to So doing I continue tweak not process, fundamentally, the of sort any different. the is, you're guess you but

Okay, that's Thanks. had. all going forward. I Good luck

Operator

KBW. next comes Our from Meyer question Shields,

Meyer Shields

you the basis? I up, in on the just year-over-year segments expense XX change walk us through have if could one a quick ratio follow

Todd Bryant

Yes, is this the is you bit. Q Meyer. I if at in little a It in talk we'll influenced Todd, mean, this I expenses. overall about part and by that think corporate the look

of talked I -- expect may incentive. overall about You influence the the

and With their combined be being retirement would there down from but everyone versus standpoint. that that expect corporate ratio losses overall up might you are that up a influence to expenses

Yes. the So than really that's beyond that. more of influence from increase the what you see would

Meyer Shields

reserve whatever charge. that from outweighed seems And be the offset would have Okay. to

Todd Bryant

Right.

Operator

There the Mr. Jonathan back will now turn Michael. conference questions. I are further no to

Jon Michael

did all a We for us. good you Thank quarter, have joining very satisfying.

look you. continuing thank combined, of below just next XX% you like to to forward customers talking we are through premiums for our pandemic beyond. gross Just quarter. Thank during up to all I the to the XX. And quarter, our help and associates

Operator

a call, Ladies this now concludes conference today. you parties X-XXX-XXX-XXXX with This you the gentlemen, if Have and all by you nice our replay do participating. access may number wish disconnect. dialing All for an for for day. of to Thank so ID XXXXXXX. may