RLI - Earnings call transcript Q2 2019

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Operator

Good morning, and welcome, ladies and gentlemen to the RLI Corp., Second Quarter Earnings Teleconference. Today's conference is being recorded. At the request of the company we'll 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 risk factors, which could cause actual results to differ materially.

listed Annual company's which Report reviewed are including SEC should factors carefully. the in on risk in various the filings, be These Form XX-K, Exchange X-K has second announcing the a company results. contains Form The Securities press filed quarter and Commission release that the with

earnings earnings measures earnings may management net of equity or after-tax consist RLI's earnings and and financial share of during from from operations, of to operating the securities. unrealized results. the RLI share call which per realized operations and reference losses on earnings gains make elimination per after are non-GAAP operating losses or gains after-tax

management but website operating Form and X-K RLI's at core periods, may gauging not earnings in contains reconciliation be the available earnings. company's The between other are net X-K these www.rlicorp.com. of Form believes operating earnings. comparable The useful definitions press reporting operating performance and are across to at release measures company's

to Aaron will RLI's I conference Corporate Please ahead, Jacoby. Development, now sir. President, Vice go turn the over Mr.

Aaron Jacoby

to Good of quarter earnings RLI for call you. to the everyone. second Thank the XXXX. Welcome morning

Joining President Chief Officer. Officer; me Chairman Todd Jon are Chief and and Vice and Bryant, President Operating Craig CEO; on Financial call and today's Kliethermes, Michael,

call Todd Jon. Before operations Craig the quarter's to to Jon? turn and going to talk market call I to over financial the up to hand about the discuss results and conditions, we're

Jonathan Michael

for career planned for smooth welcome once was who the and spans Tom when Tom's was instrumental Aaron. years including stepped say served Thanks, Brown, And Todd and XXXX first our actually job call capacity to ill to Tom as plus has transition that as Todd analyst I'd since years, subbed perform. He successor, like CFO. great PWC. XX in couldn't did for to ensuring Tom, Bryant. Tom a to our to his of I just XX June in want down nearly Tom a CFO, us. XX. thanks

VP and Arthur Welcome, is Andersen. of since CPCU. Finance of from MacMurray XXXX in RLI a He's College graduate and XXXX. and Controller CPA been a joined Todd a Todd. Todd's

Todd Bryant

good and Jon morning. Thanks,

start and the I a also company professional wish Before Tom moment contributions to development the quarter's another results, as to few Brown want Tom my take for years. to We he over and into I best past his the transitions certainly retirement. thank financial

portfolio to value is up operating earnings $X.XX, coupled XX% Moving result. reported earnings the quarter per quarter value than book income year. those investment inclusive operating to night, higher up investment the dividends, last drove the quarter, X% Year-to-date share, underwriting per Both And second returns we last and in book share same contributed strong with of of XX%. quarter.

in topline Starting with was quarter. up the gross written premium the X%

segment casualty continued a Absent we've to casualty us of more within a have XXXX. -- several exited seen not XX% but face market organic been exposure and which market before, we've its our effect growth As drove ratio. in while surety in to property segments certain about growth, now. give product a a discussed a in conditions for changes, be products these the the we've seeing talk been this will hampered products our pace combined challenging headwind growth our consistent that year Craig with reduced of quarters minute. conditions last Multiple its we and bit certainly would will premium

million majority million ratio expenses that quarter. developed quarter XX.X. posted which was last compared The $XX increased aided of loss A development year. at ratio a we a of within the stand the are several favorably $XX On favorable prior basis, second net combined perspective, products results underwriting by we There highlighting. years worth of reserve moving pieces in an were From totaled XX.X. year-to-date to

posted a million million casualty consecutive result casualty favorable. perspective, casualty years segment note, Of quarter posted included posted surety favorable the From $X for development, third of and prior -- a reserve of while while $XX experience transportation. favorable

development posted marine period same the property, benefits to on was adverse year. last reserve compared in For reserve modestly

for which both segment our catastrophe higher about strong however, growth book losses losses this rules. benefit. benefited mostly $X In marine product on notably portfolio. have compensation and year, lower fire year, our property the results because ratio most the half solid million produced based The storms points of of expense we was first offset from drives diverse basis the the overall value, financial in non-GAAP elevated in this an performance, On and higher by our quarter underwriting within X.X performance total,

Turning was out been I shift, that income dividend the quarter occurred to do a XX% quarter that to had point the investment in income particular of quarter. the need up event. historically timing second investments, Absent up have payment timing XX%. in been this third would

path be growth. interest will and of increases Inevitably, portfolio to income the the follow replicate. difficult investment rates Mid-teen for trend will

For base now, continues operating driven consistently cash grow our by strong to flow. asset invested

X.X% equity Said shareholders which million dividends. Our $XX and and return paying way, a $XXX operating had than for up six portfolio to XX% returns per adjusting to investment after $XX.XX, paid. for we've now drove year-end is share after of billion X.X% in combination investment another for income in quarter, $X.X of the the total months higher million dividends book portfolio added value year. The

halfway financial are and mark strong. on excellent the year, position, investment are the we results At underwriting for

value Our book underwriters growth growth and are is significant. driving organic

turn to over that, With the I'll Craig. call

Craig Kliethermes

also to professional and Dietrich Tom I didn't brought home company. member to our wanted Thanks, Congrats, get golf the Todd to service and our to annual the division runs out Aaron to in be his business. away his partner Cleanx and who streamers party it's job your time product. our Jacoby, of congratulations gold Paul recent him stewardship back buckets and Mount Holly wouldn't remiss tournament. who services and you if Great thank I now deserved. guest provide on put shout one more to the for well promotion, to I

As felt diverse widely good pruning in X% about line pretty for the ratio. Meanwhile, Todd we most more of growth of the seasoned did We especially products. a some was mentioned, topline XX products a continues ratio feel in with portfolio bottom our year. earlier in and mix came and the portfolio at to combined across deliver up newer quarter continues Growth the XX with healthy our year-to-date. of be to combined on light

significantly result retrenched or exited performance. have underwriting competitors a of poor as Some

habitational, But and marine. the dislocation access was an of have liability, seen distress automobile years starting As signs across management, growing you transportation, recall, several first niches, including back. liability, we some market liability several

pulse changes certain displacement has business. that and the people occurring to and in us of markets. a geographies on products footprint limited chosen Sometimes of classes keep helps RLI is a close our are broad that

in This a our when confidence As well-respected very risks underwriter and particularly of you are balance oxygen adequately is select the specialty have priced. business. that is me to your quality for true sheet told once, your disruption underwriters

to have both. are We fortunate

get me into results. some Let segment

excluding portfolio our segment's was up of X% most health profit relative this Underwriting we strong broadly in for of quarter casualty to the topline and XX%, growth the casualty undertook casualty segment ratio. across topline year. XX The stage at portfolio. the up is our experienced being is overall cycle. Our the over beginning of The be a repositioning and would the reported combined

seems be levels, were growing excess the behind and Casualty particularly in management quarter, up transportation prices liability, liability, in X% to some momentum and there the the rate businesses.

for quarter. Our and rate XX% transportation the posted an underwriting some challenges increase past in profit which recent business, had achieved a

underpriced Our business remain that us. underwriters commercial cautious still tell is lot that unattractive to market and auto a us of the contains

but continue monitor We business. confident becoming loss to results we're this in costs in more closely our

for marketed new rates or rate refined opportunities underwriters felt levels and improving to stays appetites. we're palette. that Speaking stable has to as meet redefining casualty market where long consistent view opportunity seeing be being the been market. we raising responding broadly casualty an to most away. capital at This pain as business entire the unsophisticated Overall, The segment, rationally seems for more as presents on either our

and XX% scale up disruption The loss at from reporting topline and improved inland economy. are in they their both side the ocean marine submissions our been year-to-date. in an the basis small Inland, E&S the X% about and is exposure quarter. underwriting as on flat. while property to marine improve while expense the opportunity to was Hawaii growing structure. products, grow on The For Lloyds flow we from We're a has our Overall rates increase up unit by driven marine property, seeing growth coming pretty predominantly were for homeowners'

falter the their exceptional continues from from Homeowners the claim Hawaii benefit earned on goodwill service islands. At provided competitors same retrench seeing from to efforts poor and last coverage we marketing service in year's are the increased the we disputes and time, provided after to customers catastrophes.

saw small amount the Overall Our still with catastrophe down was of some wind business increases stable business the market. quarter remains available growth. catastrophe modern fairly wind the pricing in for while earthquake

products. only We one-off the losses. did Outside across and major had this convective we underwriting building realizing losses a post moderate hail in spread despite normal disappointing equipment segment quarter storm three loss of for all tornado losses several

additional addition, and some had costs reinsurance has earlier protection the the the pro-risk impact. cap year higher purchased In in

previous XXXX are Our loss holding. XXXX and of estimates catastrophes

remain to a lot of is giving second the us continue market discipline We looks. and

segment. our most competitive remains Surety

was a our premium. was half in for quarter. miscellaneous premium of decrease relationship responsible exited product written gross Our the down surety that for XX% We in the

believe on our bottom-line decision the versus management We market and focus share. risk speaks the was to prudent

in focusing most growing on managing careers, Our underwriters our at existing believe risk. and this customers, point with best downside our cycle, smaller this is is market their capital and human in accounts, spent competitive relationships the that the

more demand, the challenges less for growing, the competition. XX the is profitable, this which on increase segment top-line, combined regulation remains economy and we ratio can quarter. facing are very this offsetting seeing Despite but reporting are we a The

risks appetite partnerships nurture a stable selectively to with new and on and great continue will delivering We service market adding our consistent by existing relationships. being

Our deals. where underwriters sense, understand primary is duty their do makes analyze just to take risks, and not it job

results date nice and quarter a good Overall, year. to this

we portfolio gives focus. Our reach, diversified of and businesses broad but relatively narrow large a deep specialty have us

good have on a a number We vast a playing field. across niches read of

specialist with have been opportunities talented doing we that. Our the arise. execute, success confidence of long give And records when to us just track

and into changes. Our our advantages great level size and as performance we culture visibility market have product

sureness. necessary. identify they before and precision more with too willingness a We act pencils to down, and us have put get our problems corral big, to allow and So, when

has at the discipline It and works. work has our offer to this always all my empowered day that to underwriting ownership RLI associates, to to RLI better. difference Our who come culture. committed making been a each appreciation difference and been want I

I'll open turn up it for questions. back who'll to Aaron

Aaron Jacoby

we some now Operator, Craig. can take questions. Thanks

Operator

Randy from The with time. [Operator Binner come sir. you, Our Thank begin question-and-answer question this at first will session B. Riley. Instructions] will

Randy Binner

morning, Hey, market. seeing bit think property casualty couple Craig. wider Good I thanks. that dislocation in little first the I number I some line. have one And in your the for commentary heard is And of and maybe -- you're I a a off think, listed you there a

there always out lines I you product But in like that have the what's pretty been dislocation feeling wider in about all the are you across market. that So, realistic right am there's hearing market?

Craig Kliethermes

we've I is Randy, what this mean, Craig. is quarter-over-quarter. seen

any We increases. rate up. haven't They haven't let seen

those So, at stayed either rate few increased. either of flat of accelerated. increase increased have actually And they've has the least or a or

across that even increase think our that able was to As transportation book. more I we we I was think achieve, one accelerated mentioned, transportation -- XX% a was were rate I

it and to as seeing on I more we're I call. in the referred think We're liability seeing also which management Directors D&O, momentum Officers, some

momentum As some in personal. and well, an I both liability, think excess Marine and commercial

Randy Binner

case? still E&S I and this And calls earlier buy. to that. ability think, Is in last opportunity seeing flow for good E&S? then late been in Thanks year, year, you Is still in changed? on the that submissions particular, has that that flow for better and your has Are

Craig Kliethermes

We are E&S. our mean, -- I are E&S, up in submissions

I'm I Can me? and question asked down think didn't you hear we quarter, this a maybe sorry. were bit. last little talk it

Randy Binner

distraction - please go in a I had Yes. I Sorry, ahead. the can.

Craig Kliethermes

and the on certain re-underwriting were see, fire say submission to well greater as book and we mean, I'll seeing increases E&S this doing segments because that. E&S We've has I we been we asked flow. continue other more areas. been a just I even some underplayed single-digit little in in question think maybe some Property was side quarter submission the in casually of flat. our So, flow flow last

submission that's other think flatness to I the up the So, some part contributing of flows what's even areas. but of more in the there,

there So, slightly to I underplayed or certain is are may as are say we single down, but not not Board, either I'd flow certainly digits. re-underwriting It whatever E&S up. going the it's I'm flow say think the might up be company maybe be the overall but because up. across in we're products, submissions a in but whether

Randy Binner

one I'll I'll Okay, more. do try this.

kind So, is a the market that happening. happens of it property trade when casualty shifts, there's pain which

If peg some are baseball it? seeing put more come a kind pricing, we like have inning surely wise, the would seeing in or we're reserve discipline could to that of issues, some game? you you the where are game, in on there's where folks Meaning but where process, baseball we in we're

Craig Kliethermes

widely I guess, the I felt, say think more Well, but certainly across I board. pain not would the is

most is the problems. which on I I fairly pain think responding mentioned, at the where being and I That's the I pricing good rationally, think is think addressing greatest. as are where least people aggressive a sign they're

like to inflation. have feels of of lost in Rubicon rates it being that the us, just for cross think just cost started maybe excess I

at least assume. the cost inflations we lost So

So that. certainly, about good to starting feel

I'd the improved. market. we're we're beginning the So, not better say But hopeful it's it's hopefully, it of the hard, and maybe, to of called hard prepared

Randy Binner

fair just working with great my I'll Tom. And you. It's been I'll Okay, congrats enough. to add

So, thanks.

Operator

we'll KBW. with Next Campbell Christopher hear from

Christopher Campbell

morning. quarter. Yes, on Congrats hi. Good the

Jonathan Michael

you, Thank Chris.

Christopher Campbell

is like way you how exposure? we're guys that surety of and property, seeing that break of a growth like like the there could that down versus between rates Is -- growth? casualty much Like

Jonathan Michael

of were about much could that's I believe mean, I casualty, think try. X% the the how exit. grew I for casualty, I I talked rates net we about up

there's you things gotten could talked growing it it. and the same we were we've rate because about, a on there So as lot and pruned of added mix of going call but there I guess in that's we're things mostly, that time, organically. At we've rid

think brush that's kind broad it I So, very like difficult. very to that. a of It's difficult

or rates I mean, X% up X% are overall. property

coming new it although in So, point time the be time. overall whether in that. long, rest opportunities, our of think two-thirds good from we a or been products, business we've from And coming about I of is feel is is this our organic, most long growth -- exposure, at growth organic for

Christopher Campbell

happening color that exposure? I’m sure. all get we Can there? Is what's

Jonathan Michael

it Well, guess. I well shrinkage, -- surety exposure half

number -- not rate. that there. good to accounts mean, So, It's we're certainly off. the reverse actually not I we're losing there's these opting of that get a

will accounts. account. don't typically collateral, credit And soon So, profile has either get the on we're frankly, ask move because actually as that the collateral And we we're changed collateral, asking you the for as for these they if the account. broker happy move the

mean, reduction, not some I most select exposure that of reductions guess decrease aren't rate around to So, I going a rates and is moved as because there, there typically small be lot surety within and in is sub-products much.

Christopher Campbell

forward liability you side. Like the the two a got little deeper quarter. like did commercial just of the are umbrella for rates general you bit Okay, and on what like dive then know the your see rates. What thinking in for and like lines you umbrella? saying and I'm it -- those then quarter

Jonathan Michael

commercial increases. mid-single trying I'm also was was digit umbrella JL -- increases. -- I mid-single is and it digit Well, mean,

Craig Kliethermes

mostly that's E&S And casualty.

Jonathan Michael

appetite opportunities our because I the things often, the to grow typically seeing mean, of is we're us to more in coming marketplace. consistent

past. seeing the new opportunities the business new priced, we're are opportunities we're in that seen much So, we've typically the than seeing business better

attracted historically to So, us. that business we've of new more been to than been has able write

the of happy Now increase, mean, that's board. insured they increase. XXX% as getting that But well some a paying that's It not I not in XX% increase need mentioned, still with significant a true you might we they're certainly but businesses, see across markets, lot still the is be underpriced. sometimes. I

increase, account to we're to think but presented to doubled needs going it that us not be with we XX% when write So, account. is an

lot that opportunities So, of whatever board. are but across business that an is of better the seeing most pretty really opportunity And growth, priced. -- a that in the that's new exposure, much we're is

Christopher Campbell

just had should earn guess, coming it yields. down, the how as we Okay, these mentioned are that think Todd I then the rates makes yields sense. like new portfolio? money that think lower just into just lower And quickly I

Todd Bryant

you time. X.X. mean, the it income think yield mean, I of duration, book takes Yeah, certainly in fixed Todd, on is terms about I I This our our if think is

wasn't different then certainly putting quite we're you go the December that of much bit it and end back, at So, of works. money a

slower. mean, I I think it's So,

Christopher Campbell

new what money like yields And fixed are on income, right now, your blended?

Todd Bryant

About X.X.

Christopher Campbell

Okay.

Okay, book so yield? they're above the still

Todd Bryant

Yeah, yes.

Christopher Campbell

Okay, so there be that. shouldn't

Okay.

Todd Bryant

Slight.

Christopher Campbell

there guys down driving guess Or going and Okay, quality? higher, overall shifts credit I is in that happening what's like you any like yields or guess or up, I credit going that? is it is -- risk-free just as are overall, there -- are well. in

Jonathan Michael

really is The quality A credit minus. double remaining

seeing there. shift So, significant not a we're

think of much. little it. the change duration a A of in bit lengthening, little I would bit not of be again, but part

Christopher Campbell

got one, small, profits And last X.X one were kind mean, Okay, year-over-year. not dollar, just mean, then I but of I it. million times huge a up like like

So, despite quota like as to we to decline, their expect, the share, produce contribution I starts lower share guess should in? driving like and this what's to quota earn

Jonathan Michael

In you that earnings, of it? investee terms are of talking owners, the about the piece

Christopher Campbell

yes. Correct,

Jonathan Michael

up Okay, terms yeah, more growth that. our seeing that is by had you and all the drives is in ownership Their driven we're on certainly of And this what year, really last that's when Prime revenue. -- XX% the that XX% of if think range. profits unchanged, are

so, into you coming to just seeing And that investee really more earnings. of

But quite of really up. year a pretty bit is them. quarter accelerated it's share certainly going second and last was year has from quarter low it So, our for a last earnings their

Christopher Campbell

of for in answers. third the Best all thanks Well, the right. quarter. Okay, luck

Jonathan Michael

Chris. Thanks,

Operator

We’ll William with Blair. from Schmidt Jeff now hear

Jeffrey Schmidt

recent I direct what for why I quite it be you expand a you ‘XX. to could activity around and grow book, drilling this seismic guys, there, which that would more. California outlook in your guess, everyone. with has of Hi, good that was you looks markets million about morning, stayed But there are premiums Question flat? the guess see What's on bit was it Earthquake it looking been XX

Craig Kliethermes

Sure, Jeff, Craig. this is

So, starting positive of last Since the to buy more if seen or have momentum I we and year, that then that off, maybe flattened really not the you cat you’ve we decision increases to of slight, either more were any in in to slightly back you to, were -- kind when end made the things starting see rates take and we're cover, flat space. if growing market.

So, for some we thinking materialized cat those opportunities, not we it growth that opportunities might more bought cover use yet. in actually growth have

stayed flat, The going pricing it's not the and X, from not flow mean, on pretty earthquake significant competition has seen certainly Maybe that. there but not really activity I going that's I you're because down, mean, really an it's subsequently of was there submission referencing. really July out up.

some again. re-quotes the requests seen they the have customer and as buy chooses not We for as soon to prices see

So, fight is as rate unfortunately. demand, need up out to a more we low, take that's with there is bunch relatively a of competitors. opposed And what knife

Jeffrey Schmidt

were and there repositioning? is on growth the XX%. been capital But -- the can provide changes you or he more repositioning, about would for talking things any organic said And have or XX% those color Okay. detailed you

Jonathan Michael

the just Well, share. we Prime quota trust had and estate real I business our of a that investment first earlier announced a healthcare quarter call, that also in mean, exited, and that reminder that the downsizing we year business

starting felt exit. underperforming year. rehabilitate about we was after plus that left things was have risk done We smaller avenue those believe $XX the management. top some could That would we that line, businesses group, items on best the a other we good our obviously, the intentional in part, three thought was that hole million If So left it. in we about,

us So, so focused in we're how towel say I is the difference throw if to, to on others in. know need we willing we that and make stay we can that that's think the of the to things money

Jeffrey Schmidt

you. helpful. that's Thank Okay,

Operator

Now with Capital Instructions] [Operator from Mark Dwelle we’ll Markets. RBC hear

Mark Dwelle

you'd questions coming by E&S that opportunities. And curious new classic it's that there risks enough risks in a standard standard just writers are few the business have the these covered question opportunity? appetite, Many being had come already. been But rejected morning, are about these are good I seeing I places Yeah, market from over guys. now about else's somebody my of was guess some was and that your

Craig Kliethermes

competition I the that their Mark, I a side, I bit lot the we flow competition either submission, increased people E&S a submission But of still think both. midmarkets. from still think of changing little we're on mean, seeing it's we is see see appetite.

existing it cases, customers, within class, could in competitors, a appetite, So, of within be spaces. be a a class, exiting could these geography totally are could it niche a or It be business. a their existing changing certain segment the some

the broad And to our footprint think picked different opportunity. things. we've of a see I opportunity and lot kind gives where us And of that's up seeing

Jonathan Michael

this -- be Michael. to So, is

for coming So, personal Marine, executive in Hawaii, opportunities to liability or in from products be We're And mentioned. products. management umbrella, clear, seeing in sure. umbrella, it's Craig transportation, commercial as

there we're of or seeing market there So, advantage areas we are a can take either opportunities where disruption are that of. lot

Mark Dwelle

helpful. That's Okay.

the Hawaii Just business? new is plus Or actual new most of it business? quick as Hawaii, growth is rate on it

Craig Kliethermes

is were this the mostly then it's new island. had challenges mean, on with before, fires well, volcano some opportunities. people wind business I some some and I the And as last storms think there year. I Mark, Craig, mentioned

those And disputes was I over think I been good some what what we on by think some coverage retrenchment some covered, of people press. covered. got gotten some wasn't There's people.

customers talking those people helping We help quick and them the on the island very pay in claims. had identify live the customers, we're advance to helping volcano, property of to

some producers. So, not customers just I us the press, think that good with that but with the gave

Mark Dwelle

that corn do from geography, things? or question. some you know hearing thanks. think be seeing would one that that then but business? given heard thought might one last And what anymore, don't things us, fair, entirely I be you but your the the in And for you're mean, I country ag what might would Okay, this people not you I some have

Jonathan Michael

time as of tall you year, can this the that. tell at While it's to supposed I be corns not the as

Mark Dwelle

that way. figured to had it out I

Jonathan Michael

could off the think we of as all hold could they as still if our long freezes, -- the harvest. say I

know pretty around doing good we they what So, they're got farmers, here.

So…

Mark Dwelle

All much, Thanks right. very I guys. appreciate that.

Jonathan Michael

Thanks.

Operator

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

Jonathan Michael

you noted we transportation liability disruption much Craig say rates that And pricing all. considerably. and the excess in in. Thank I'll up. that participate are is markets management just liability up generally there

We are positioned to of well advantage take full this.

are underwriters Overall were disciplined right and our Our experienced privilege X%. up their to pick spots.

If beginning do you ignore up premiums the XX%. remain premium year, ability the the at we did of in our were confident We our to deliver.

Thank you for we'll to attending next and and your you questions talk quarter.

Operator

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

RLI (RLI) 18 Jul 192019 Q2 Earnings call transcript