Q1 2021 Rli Corp Earnings Call
Good day.
And welcome good day, and welcome ladies and gentlemen to the RLI Corp, first quarter earnings teleconference.
As a reminder, we will open at the conference for your questions and answers after the presentation.
Before we get started let me remind everyone that change 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 a quarterly period ending March 31st two that interest, which we should be reflected carefully.
The company is harder for them to an H with the Securities and Exchange Commission that contains the press release announcing first quarter results.
Our light management May make may make reference during the call to operating earnings and earnings per share from operations. What's your non G. A P P.
Measured for.
Financial results.
Our lives.
Operations earnings and earnings per share from operations consist of net earnings after the elimination of Astra tax realized gains or losses, and after tax unrealized gains or losses on equity securities.
Oh I management believes these measures are useful in gauging core operations performance across reporting periods and may not be comparable to <unk>.
To other companies definitions of operating earnings.
The form 8-K contains a reconciliation between operations earnings and net earnings the form 8-K and press release are available at the company's website at Www Dot RLI C. O R. P. Dot com I will now turn the conference over to Rli's, Vice President Chief investment.
Sir and treasurer.
Mr. Eder decent dollar. Please go ahead sir.
Thanks, Casey good morning, and welcome to <unk> first quarter earnings call for 2021, joining us today are Jon Michael Chairman and CEO.
Alright, Craig Kliethermes, President and Chief operating Officer, and Todd Bryant, Chief Financial Officer.
As usual Todd will start off with financial details on the quarter, Greg will follow with some color on the product portfolio and market conditions. We can then open the call to questions and Jon will close with some final thoughts for Todd.
Thanks, Erin and good morning, everyone.
Yesterday, we reported first quarter operating earnings of 87 cents per share. The quarters result reflects elevated winter storm losses.
Which were more than offset by favorable benefits on prior year's loss reserves as well as improved current year casualty results.
We achieved 20% topline growth for 10% growth when adjusting the comparable quarter last year for premium returned to transportation insurers as.
As a reminder, at the onset of the pandemic, we helped our public auto insurers by adjusting or returning premium which resulted in a $23 million decrease in our transportation business we.
We believe adding the premium back when comparing to last year provides a more accurate view on premium growth in the quarter.
In total we posted the $86 nine combined ratio investment income was down 7.6% reflective of the decline in reinvestment rates during 2020.
Unrealized gains on the equity portfolio, where in Stark contrast to unrealized losses experienced during the same period last year and serve to bolster net earnings this quarter.
Additionally, invest the earnings advanced nicely to start the year, which accrued to net earnings.
Craig will talk more about market conditions in a minute, but from a high level all three segments experienced growth.
Pretty led the way up 31% as rates and market disruption continued to support growth.
Reported casualty growth was plus 19% compared to last year, but as previously mentioned, we want to call out the comparative benefit from the $23 million public auto premium adjustment in the first quarter of last year adjusting last year's result for this amount casualty growth was fairly modest as was sureties.
From an underwriting perspective, this quarter's combined ratio of $86 nine compared to 92.0 a year ago.
Our loss ratio declined five six points to 45.9, despite a seven point impact from winter storm, Yuri one of our largest winter or spring storm events experienced.
Of the 16 million in net storm losses 15 million was in the property segment and 1 million was in the casualty segment related to property exposure in certain package coverages.
Verbal reserve development was up notably compared to last year and was widespread across most products. As a reminder, in the first quarter of last year uncertainty around COVID-19 influenced our approach. The indications we were seeing in prior years reserves as well as specific Covid reserves, we established on the current accident.
A year in the first quarter of 2020, we recorded 5 million in Covid specific reserves 2 million of property and 3 million in casualty.
On an underlying basis, if you exclude prior year reserve benefits catastrophes in the aforementioned reserves established for Covid, our loss ratio is down in 2020 one.
The casualty segment is influencing this result, and its underlying loss ratio was down about three points from the same period last year, an improved and improving mix and modest reductions in lost booking ratios similar to what we discussed on our fourth quarter call have driven the improvement.
From an overall Covid perspective total reserves are largely unchanged from year end.
Moving to expenses, our quarterly expense ratio increased half a point to 41. In addition general corporate expense was up 1.6 million. These.
These increases are driven by amounts accrued for performance related incentive plans the combination of significantly higher operating and net earnings given the relative equity portfolio performance plus an improved combined ratio drove these metrics higher.
Excluding incentive amounts other operating expenses were flat.
Turning to investments risk <expletive>ets continue to lead with positive returns in the quarter from both public equities and high yield credit.
Traditional investment grade bonds couldn't overcome higher yields and price declines offset the positive return from other <expletive>ets all in our portfolio posted a 0.2% return for the first quarter and we are more than happy to trade a modest price decline in bonds for the opportunity to put operating cash flow to work that.
Rates.
Outside of the core portfolio invest he earnings were also a contributor in the quarter with Maui, Jim and prime each adding $3 7 million to the quarter's results Prime continues to benefit from profitable growth in Maui, Jim has rebounded nicely from a more difficult period in mid 2020.
All in a very good quarter and solid start to the year and with that I'll turn the call over to correct.
Thanks, Erin and Todd and good morning, everyone.
Todd mentioned, we're off to a running start to the year reporting an 87 combined ratio and 10% underlying growth in gross written premium.
Very solid underwriting results, despite the impact of winter storm Yuri.
The sub 90 combined ratio, we achieved is a testament to our well diversified portfolio of specialty products and the consistency of our disciplined underwriting approach.
Topline growth was realized across all segments and in most of our products.
I read achievement this quarter carried a lower beta for hires were not quite as high but the lows were not as low I would say that a little too early to say, whether the rates are plateauing and the most urban markets, but we continue to achieve rate increases at or above long term loss cost across the majority of our portfolio.
Our underwriting diet is well balanced and our pallet remains refined as the competition is broadly moving toward acceptable rate levels in our chosen market.
The most disruptive spaces for us remain catastrophe exposed property excess casualty executive products commercial auto liability and marine.
Now onto some segment specific comments.
In casualty, we reported an outstanding 83 combined ratio and grew gross premiums, 19%, 4% adjusted for transportation.
As you may recall, the comparable quarter last year required a significant premium adjustment for inactive vehicles and our transportation product line.
Also of note our casualty segment is a significantly significant exposure to the construction industry and although this industry never completely shut down we have observed some slowdown due to uncertainty related to both for pandemic and resulting supply chain issues.
We were still able to achieve 8% rate increase in this segment overall, well count Retentions are holding well for.
For casualty segment was led on the topline by a personal excess liability executive products transportation businesses, which rebounded nicely.
Underwriting profitability was led by our primary liability personal excess liability transportation professional services liability and small package businesses is.
As mentioned earlier, we did see some moderating of rate increases for a public directors and officers product with the rate increases were more widespread across the dozen or so products within our executive products portfolio.
This business, along with transportation and commercial excess liability, we're still able to achieve double digit rate increases for the quarter.
Property segment's top line grew 31% on a small underlying losses as a result of the widespread winter storm Yuri.
We achieved 10% rate for the segment overall, we continue to observe opportunities across all products in this segment.
For our catastrophe businesses grew premium and rate at a double digit pace. The size of the rate increases was a little off its peak of the last couple of quarters, but still above acceptable levels to <expletive>ume the risk.
Earthquake still seems a little more competitive than when mainly the result of demand versus excess supply.
Since significant earthquakes occur infrequently and cover just sell them required for financing prices above a certain threshold or decline in property owners elect to self insure.
We have room to grow our catastrophe exposures at the market continues to cooperate.
Our marine business also continues to see profitable opportunities to grow because of the disruption at Lloyd's and elsewhere.
Submissions continued to increase significantly and we experienced top line growth of more than 25% on a very good underwriting results.
I don't want to move on without giving a big mahalo to our Hawaii homeowners business, which continues to grow at a double digit pace and produces great results for our company.
And surety we grew topline five per cent and achieved a 79 combined ratio another great underwriting result, and hopefully some signs that the market is finally, starting to come back to us.
Larger losses have hit the industry, causing competitors retrenchment and reinsurance capacity seems to be tightening for the first time in many years.
We will continue to capitalize on the disruption we are starting to observe.
Most of our growth this quarter came from our commercial account driven business, which saw book new business opportunities as well as expansion with existing accounts all products in this segment were profitable.
We will continue to focus on building relationships consistent underwriting servicing our distribution partners and customers and investing in technology to make it easier for our customers to work with us.
Overall, a solid start to 2021 we remain well positioned for the future and will focus on what we do well adapt to our environment stay true to what makes us different and execute well.
We create our own opportunities with our investment in people service technology, and we will take advantage of new opportunities when our competitors retrench and market disruption occurs.
We are constantly looking for ways to provide profitable solutions to meet the needs of our customers and distribution partners.
<unk> is what we do it.
It is what owners do.
Our success can be attributed directly to the quality of the <expletive>ociate owners, we hire and the service they provide and the relationships that they build with our customers our differentiated approach delivered again this quarter.
And I'll turn it back to the moderator to open it up for questions.
Thank you Sir.
Yes.
The question from search.
A question and answer session will begin at this time, if youre using a speakerphone. Please pick up the headset before pressing any numbers. So do you have a question. Please press star one on your telephone keypad. If you wish to withdraw your question. Please press star two your.
Your question will be taken in the order of which they've already received please standby for the first question.
And we will take our first question from Randy Binner. Please go ahead Sir.
Yes.
Hi, Good morning, Thanks, I had a couple quantification questions I guess the first is on.
The commentary around adding Bakken transportation book premiums.
I apologize if I missed it but it was there was there a quantification of that so we can get a more normalized.
Growth rate and casually.
Randy This is Todd there there was its $23 million, if you look to the adding that back to where the negative premium we produced in the first quarter of last year for transportation was $23 million.
Okay and for.
For one compared to <unk> 20.
Correct, Yeah add add that amount back to where we ended either in transportation or really in casualty in total.
If you add that back the last year, then that'll get get to that 10% overall growth versus 'twenty.
Got it and then for.
On net.
Craig's comment that your rate increase was lower beta.
Yeah, I guess, what did you did you provide actually a number.
We have an absolute number of what the.
Blended or overall rate increase was.
Well I am sure we disclosed last quarter whats the rate increase was by segment in the quarter. So I mean, I am happy to say I mean, I guess last quarter for casualty overall, I think we had 11% in the quarter I think I said, we had 8% this quarter I mean, I wouldn't get too caught up because theres, obviously relatively small or medium sized players so and we're not.
Not necessarily a bellwether for the whole industry. So that's why I wanted to caution against them and we have a little bit of volatility as numbers bounce around so I'm not sure that's a trend or not on the property side, we reported 10% rate increase this quarter and I believe for sort of 11% last quarter. So I mean, you could say.
It's down, but it's one point I don't know.
It could be with zinc.
And I think that some of the data earlier this earnings season was.
Maybe past peak, but but kind of too early to tell but it's still very good rate versus loss cost trend and I guess, if you could just expand a little bit on what made it lower beta I think that'd be helpful.
Sure I mean, I did talk a little bit in the casualty segment.
For example, the public D&O business I mean, it sounds like its third straight year of double digit rate increases that I won't say soften that's too strong word I mean, we still got double digit rate increases they just werent quite as the size that they were before so that when they weighted the average you know it takes down the overall average for that business, but we did get more widespread rate increases in the executive products.
Group like within.
Cyber some of the private D&O EPL Oi, that's in there that those rates actually increase that didn't quite offset the public D&O.
It's not a decrease but less of an increase.
So theres an area.
You know for transportation was relatively flat.
And so that was probably the biggest driver in.
In the casualty part of that and then other property I think I mean, some of the cat business again was getting was off about this I think the third straight year roughly that we are getting double digit increases for the increases aren't quite as large but there is still double digit increases in both wind and quake.
So that brought that opt out.
Got it got it okay I'll leave it there thank you.
Thanks Randy.
Thank you and we will take our next question from Derek can.
Okay.
Good morning, Thanks for taking my question a couple of quick ones. How are you thinking about the short term loss trends during the unprecedented economic recovery and on a related note.
For monitoring actual claims.
What are some of the data points from metrics that you look to to Kenneth determine whether the impressive topline growth that you've had and sustainable.
Yeah. This is Todd I'll I'll start out I mean as far as your first part of the question there on on a short term trends I guess I would just in how we consider as I would just say we don't.
You know on the actuarial side of it and Craig can certainly comment further but on the actuarial view the reserving view and we talk about this often we are taking a longer term loss cost trend.
Trend approach because I think we talked about it last year too whether with frequency down or whatever it may be.
We discount that I mean, I think we we think it's prudent to take a long term loss cost trend approach and to the extent that the.
The rate that we're getting is above long term loss cost trend you would expect to see some modest benefit.
And in the loss ratio that but we really discount those those shorter term trends.
Well I guess.
On top of that and as Todd said those those are longer term trend at least the way we book things.
Certainly the way, we've always approached things and we continue to approach us and I think I made a comment that we believe our rate was in excess of the long term trends that we see both in the property and casualty business.
As far as long term growth or intermediate term growth I mean, we ensure the economy, if the economy reboots and Theres a lot of good signs that it's coming back.
You know I think that's a positive sign as the pie gets bigger and there's more opportunities to ensure so you don't end up fighting with each other over stuff because there's so much I think theres some opportunity just with existing clients as the exposure basis start to increase we've had several of our clients become more cautious and reserved in regards to their estimates.
I kind of inferred that from one of my comments about the construction industry, but we're definitely seeing a much more caution around their estimates of revenue because of the pandemic and those are auditable policies for the most part so if they end up with the economy comes in better we'll end up getting some audit premium that may not come until.
Next year, but.
We will realize that audit premiums. So that's a that's a very positive.
Obviously, if there's an infrastructure bill I think it will help get them a third of our businesses in the construction industry.
We don't do a lot of roads and bridges.
Across the whole portfolio, but we do a lot of other public construction, so that could be helpful and any disruption in the market. We obviously continue to monitor disruption any tightening of.
Capacity tightening of the reinsurance capacity, especially amongst our competitors or I'll say less disciplined underwriters that mix that gives us an opportunity as the rates come to our <unk>.
Festival levels to see more opportunities. So I mean, we look at submission flow, which continues to be good but it's not I mean, it's not up everywhere.
But but but we do see good submission flow very good retention of our accounts.
It's something we're watching and if we retain accounts who have lowered their exposure base and then obviously the economy comes back there's going to be opportunity for growth with existing clients, which we liked the best because those are clients. We already know typically produce positive results for for us and value us.
That's very helpful and my second question is you had some large reserve releases in the casualty segment, what what accident years drove that.
Derek it's taught it it's it's fairly widespread I mean, I think you'll look you know 17 to 20.
You're going to have some a little bit earlier than that in spots.
But you know it.
18 to 20 on several some 17, so it's fairly widespread G. L was the it was a product that was was fairly fairly large in the quarter. It was probably more 17 18 transportation was larger small commercials larger pump was larger on a relative basis it was pretty widespread.
Okay. Thank you for all the answers.
I think there.
Thank you.
A reminder, if he would like to ask a question. Please press star one now.
We'll take our next question from Mark Dwelle. Please go ahead Sir.
Yes, good morning, I'm glad to see RLI continues to set a high standard you're the first insurance company to ever use the word mahalo earnings call. So kudos.
Kudos kudos for that.
[laughter] under my questions.
The first one is just a numbers question.
Maybe I have you been asked this before but in your press release at the top of the press release, you say catastrophe losses were 30 year reserve releases were $31 million and then on the table down below if you sum all of them by lines of totals up to $37 million, what what's the difference between those.
Mark It's Todd if you look at it in that table was it was a new addition, although those would have been in our Q you would have the similar type thing.
We're showing the net.
And the bullet right. It's the net increase total increased underwriting income. So there will be expense impact those types of things that will will offset the total released so we're trying to give you. Both pictures. One is a pure you know EPS. If you will net underwriting impact and then the table.
<unk> breaks out the share loss impact.
Got it that makes sense, okay, because you reconcile that in the past that there's been aspects to it.
Just kind of clear isolates the loss ratio impact.
From the total for EPS impact effectively yeah, yeah, something we have done and you know we broken those out in the Q, but theres been some request to have this broken out in the release and so we added that table.
Got it okay. Thank you.
The second question that I had really just I.
I guess it relates to maybe from other comments.
Operating comments.
I think it's correct, whether it's unclear whether pricing has peaked or is near peak or whatever I guess for question I would like to ask is are you seeing any change in competitive behavior are there people that seem to be moving from I'm going to say more price first and growth second.
<unk> to maybe a more a broader interest in in growth maybe more competitive quotes fewer changes in terms and conditions what have you.
You kind of drill down on to maybe some of the competitive dynamics.
Yeah, Mark this is Craig I mean, it's very difficult for us to see through to I mean honestly, we have much deeper knowledge of our own business than our competitors. So.
And it is harder for us because in every one of our business.
For our diversification, but almost every one of our businesses like what's their top five competitors are different so.
I mean, all I can say is there is still there is still some capacity for M. G. As we don't do really that business, but.
We still see from time to time people, giving dependent mga's, which we still that confounds us a bit in this marketplace.
But I mean, obviously, we'd rather better on their own on people on experienced talent.
Alan.
Hum.
From a terms and conditions standpoint, I mean, we are seeing some I think I'll say some hardening in the property side, we're not really seeing a catalyst side, but we've always felt like we've had the tightest terms on the casualty side and the market anyway. So.
People are coming a little bit closer to our standards in regards to that.
But certainly on property, we're seeing some stuff deductibles going up many minimum premium going up people insisting on HCV versus replacement cost.
Coinsurance requirements I mean, a general acceptance from the brokers that we're going to get better valuations on the properties that we write which I mean that I mean that bleeds into maybe something you were talking about is where you actually get acceptance from brokers to get more information Thats a good sign right I mean normally they take the path of least resistance so asking for that.
Most puts you on the list over there as you know.
Last resort.
Let me go on to you unless if I cant find placements elsewhere.
So I don't know I don't know if I've answered your question effectively but certainly seeing movement from.
Folks people that also get burned or whatever don't have good results. They always tightened, but it's a little different by every product line I mean, I don't I'm not going to say, we have people that are super aggressive anymore and most diverse places thats good.
I mean, we always like competing with responsible competition I mean, I I mean, we invite responsible competition. So we're losing accounts for somewhere in the likes of certain cl<expletive> of business better than us and we'll price it better they probably understand it better than us know how to handle things better so.
We'd rather focus on other things we understand we know.
We think we can deliver.
Mutual beneficiary relationship.
So again, hopefully I answered your question.
I said that.
That covers it quite quite thoroughly that's that's all my questions Michael.
Mahalo.
Thank you and we will take our next question from Matt <unk>.
Hey, good morning.
I hope if you could just peel back the onion, a little bit on the the winter storm losses.
It was a modest number for for obviously, a very big industry event, but just just curious if there's lessons learned from even just kind of I <expletive>ume a lot of thats, Texas, but even kind of geography within Texas.
Or if anything COVID-19 related might've exacerbated that losses I'm thinking there is you know kind of empty properties that it takes a little longer to find out the pipes for other things like that.
Yeah.
The most interesting thing I found out as you know in Texas. They don't have shut off valves as many of them in buildings as we do you know where we live.
No.
I think that was it.
If there was anything COVID-19 related that we had challenges with I mean, we've dealt with hurricane since Covid. We've done an exceptional job for claim people have been willing to get out and service our customers and get them back and going we did the same thing here I think the biggest challenges. It was widespread right in a hurricane even in her game, which is more broad than something than a tornado.
You know the area somewhat contained this cover multiple state six or seven states I believe it was a little more challenging and it varied a lot by cl<expletive> of business and you know, but we did find that shut off valves were not as.
As prevalent in Texas they are in other places.
So interesting things we take for granted.
Yeah, Yeah, So Matt just one other to Craig's point right that was very widespread I mean, what to me is interesting is really outside of Uri.
We didn't have any other winter winter storm losses. So property was really had a great quarter kind of X X here from that standpoint, yeah, no good point.
Great well, thank you for the color and nice quarter best of luck on for it. Thanks.
Thanks, Matt Thanks, Matt.
And we currently have no further questions. So I'll be turning the conference back over to you.
Jonathan Michael.
Okay.
Thank you very satisfying start for the year premiums.
We're up.
We're getting rate.
Sub 87 combined ratio.
We produced 87 per share operating earnings.
That's a significant beat over consists consensus estimates.
And.
I'll just use the words, thank you and we'll talk to you.
Next quarter.
All right.
Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing 188820.
031112, with I D of 9180 to Tuesday right. This concludes today's teleconference. Thank you for for participating have a wonderful day all parties may now disconnect.
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Yes.
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