Q3 2021 Rli Corp Earnings Call
Good day and welcome to the RLI third.
Earnings teleconference.
Call is being recorded.
It is now my pleasure to turn the conference over to Mr. Aaron Taylor, Sir please begin.
Thank you Chelsea good morning, and welcome to <unk> third quarter earnings call for 2021, joining us today are Jon Michael Chairman and CEO Craig.
Clay <unk>, President and Chief operating Officer, and Todd Bryant, Chief Financial Officer.
As usual Todd will kick things off by walking through the financials, Craig will follow with additional comments on current market conditions and our product portfolio. We'll then open the call to questions and Jon will close with some final thoughts Todd.
Thank you Sharon and good morning, everyone.
Yesterday, we reported third quarter operating earnings of 65 cents per share.
Quarter's results were negatively impacted by Hurricanes, most notably hurricane either.
But solid underwriting results, excluding catastrophes as well as favorable favorable benefits from prior year's loss reserve.
Positively impacted earnings.
All in we experienced 18% topline growth and posted a $94 six combined ratio for the quarter year to date, our combined ratio stands at 88 nine.
From investments income advanced 8% in the quarter as continued strong operating cash.
Flow $116 million in the quarter and $280 million for the year have been additive to our invested asset base earnings for Maui, Jim and Prime were up 3% in the quarter and while not core continued to be a benefit to earnings.
Realized gains were relatively flat in the quarter, while changes in unrealized.
Gains and losses on equity securities were impacted by varying amounts of market volatility on a quarterly and year to date basis.
As mentioned in prior calls large movements in equity prices in comparable periods could have a significant impact on net earnings which you can see in both the quarterly and year to date comparisons to 2020.
Aggregate underwriting and investment results push book value per share to $27 63.
Up 13% from year end inclusive of dividends.
Craig will talk more about premium in a minute, but at a high level all three segments experienced growth as we continue to take advantage of favorable market conditions in most areas.
<unk> of our business.
From an underwriting income perspective. This quarter's combined ratio was 94 six compared to $99 five a year ago. Both periods were impacted by elevated hurricane losses hurricane losses in the quarter within our pre announced range and totaled $34 million net of reinsurance 30.
$33 million of that is from our property segment and $1 million impacted casualty, where a number of our packaged policies are reported net.
Net of bonus related impacts the events totaled $28 9 million or <unk> 50 per share net of tax and added 11 points to the quarter's combined ratio from a prior year's reserve.
All three segments experienced favorable development casualty led the way with 26 million of favorable loss emergence spread across the majority of product lines.
Moving to expenses, our quarterly expense ratio decreased by two seven points to 37 nine as did general corporate expenses.
The declines are due in part to reductions in certain bonus measures, but are also reflective of the increase in net earned premium and improved leverage on certain expenses.
Turning to investments it was a flat total return quarter with income offsetting modest price declines in the portfolio.
Overall market yields remained subdued.
<unk> <unk>, but we have seen a little uplift recently as 10 year yields inch back towards the highs we saw in late March.
Operating cash flow remains the primary support for growth and investment income, which turned positive in the quarter.
There've been a few shifts there have been few shifts and the allocation over the course of the year, but our strategy continues to focus on putting.
Adding money to work in nearly all environments.
Apart from the capital markets exposure investing earnings were up slightly from the comparable period in 2020, with Maui, Jim and Prime contributing $5 4 million and $4 4 million respectively.
All in all a very good quarter and strong first nine months of the year.
And with that I will turn the call over to Craig.
And before I start on the <unk>.
Sorry to ask Chelsea, maybe if she would go back and maybe read the forward looking statements that I think we.
We've got to do at the beginning.
Okay.
I didn't do any forward look Craig so as long as you don't either we're going to be okay.
I will make my comments, assuming that those have been applied in red.
Sure.
Thank you Aaron and Todd and good morning, everyone as Todd mentioned, a very good quarter in light of hurricane either.
Smaller catastrophes that impacted our customers and our result.
After factoring in these events, we were still able to report a sub 95 combined ratio for the quarter and more than 10 points of underwriting profit year to date.
At the same time, we are growing our portfolio through rate and exposure reporting $8, 18% topline growth for the quarter and 21% year to date, we continue to see.
Rate increases across most of the portfolio. Although there is some tapering in spots.
We are maintaining a good flow of business that meets our discerning appetite.
The business. We are underwriting is generally stickier with higher renewal retention and new business hit ratios, we are monitoring impacts from the supply chain and.
Storage is as well as drive inflation.
Our talented underwriting and claim teams are working diligently to mitigate any resulting increase in loss costs by identifying risk sharing information across our businesses adequately pricing the tailored coverage, we provide and taking advantage of any market disruption.
Now to some more specific comments at the segment level.
In casualty, we reported an 86 combined ratio for the quarter and 84 year to date.
We were able to achieve an overall casualty rate increase of 9% for the quarter, which fueled a good portion of our 14% growth in this segment.
Growth was widespread across.
Labor some major products in our portfolio and much of the rate continues to be driven by excess liability products, particularly commercial and management liability coverages.
Our transportation business continues to bounce back with increased bookings and public auto but are still challenged by driver shortages overall wheel base.
<unk> continued to be up but rate increases are more moderate in size.
Despite the overall growth in the transportation space, we still find the trucking class to be increasingly competitive as topline and rates decreased for the quarter.
Claim counts continued to climb to previous levels and more jury trials are being scheduled.
We will remain vigilant for social inflation and work to mitigate it through our investment in superior talent training and Triaging of claims.
In property, we reported a combined ratio of 127 for the quarter and 105 year to date, the excess and surplus lines when product is the driver of the unprofitable results.
Hurricane.
Main item was one of the most intense and damaging hurricanes to strike the United States in recorded history.
From day, one we have had our teams on the ground assessing losses, and helping our customers get back into business.
About 90% of our claims reported have been in the state of Louisiana as the New Orleans Metro area is one.
Peak zones for wind exposure.
The event, along with general market conditions, and expected inflation has kept cap rates up double digits for the eighth consecutive quarter.
Overall top line growth was 32% for the property segment in the quarter driven by exposures and a 7% segment rate increase all.
Products in this segment realized growth.
And surety we reported a 75 combined ratio for the quarter all three of our major products. In this segment have grown profitably overall topline grew 10% in the quarter. Despite economic challenges both the commercial contract surety markets remain very competitive.
We are back.
Visiting producers in person and continue to invest in capabilities that make it easy to do business and help our producers grow with us.
There are more construction opportunities in the market and we are supporting our contractors as they win this business.
We will continue to expand our writings with existing clients and producers and invest in technology.
<unk>, where it is a differentiator.
We had a quiet quarter on the claim front. Despite the added risks from supply chain and labor issues.
Overall, another profitable quarter with solid growth, our underwriting experts of rates participate where disruption in market pricing permit us to flex our underwriting prowess at rates that are commensurate.
With the risk.
As always we are alert to the uncertainty associated with inflation and supply chain disruption. We will continue to do what we do best focus on the basics.
We will diligently underwrite quality accounts assess evolving exposures require adequate valuation have ensured proper.
Zurich and walk away from Underpriced business.
We are good stewards of our capital, but also of our insured risk and reputation I want to thank our RLI associates for delivering great results and value to all of our stakeholders and for helping our customers, especially in times of need.
I would now like to open it up.
<unk>.
Thank you, Sir and before we get started with the Q&A session. Please 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.
Cause actual results to differ materially please.
Please refer to the risk factors described in the Companys various SEC filings, including in the annual report on Form 10-K as supplemented in the Form 10-Q for the quarterly period, ending June 32021, which should be reviewed carefully.
The company has filed a form 8-K with BC.
The Securities and Exchange Commission that contains the press release announcing second quarter results.
<unk> management May make reference during the call to operating earnings and earnings per share from operations, which are non G. A a P measures of financial results.
Rli's operating earnings and earnings per share from operations consist of net earnings after the elimination.
Of after tax realized gains or losses, and after tax unrealized gains or losses on equity securities.
Management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to other companies as definitions of operating earnings.
The question and answer session will begin now.
At this time, if you are using a speakerphone. Please pick up the headset before pressing any numbers should you have a question. Please press star one on your telephone if you wish to withdraw your question you may do so by pressing star Cube.
Questions will be taken in the order. They are received please standby for your first question.
<unk>, our first question will come from Colin Johnson.
Hey, good morning, Thanks for taking my question.
It looks like a relatively large quarter over quarter jump in earnings.
<unk> holdings. This quarter is there anything in particular that drove that acceleration.
Colin This is Todd.
I would say not outside of just continued revenue growth I mean, they've grown quite a bit.
And just like us with our growth that youre seeing more being realized through.
Earned premium through revenue so outside of that.
No there really isn't anything.
Okay. Thanks, that's helpful and then.
As you kind of continue to grow the balance sheet leverage ratios have gradually declined.
Not that leverage I think is a huge consideration or part of the story here, but as we approach the 2023 maturity of the $150 million senior notes.
I'm just curious could.
How are you all thinking about your capital structure going forward.
Yeah, John it's Todd.
Certainly you're right from a leverage standpoint.
Low from that perspective, because we have grown capital.
As much as we have so it's something we talk about we tended to be conservative there there is certainly.
You sure have room.
To increase the leverage and something we still are you talking about and we will look look too.
Make some decisions as we move through to 2023.
Great. Thank you those are my questions.
Certainly as Neal.
Our next question comes from Jeff Schmitt.
Hi, good morning.
Could you discuss how much of your growth in the casualty book is coming from E&S lines.
I guess that would mainly be general liability and excess liability.
But are you seeing standard writers.
I think more business into that market or what are you seeing there.
Well, Jeff this is Greg.
Yes, the business is growing at about the pace.
But the rest of our casualty portfolio is growing maybe a little faster, but not a lot faster.
All the products in our specialty products even.
And though they arent, maybe not E&S products there.
Less regulated than other products so.
But the formal definition DNS I guess, that's growing about the same pace casualty, probably a little less at a little slower pace than the property business there.
Dirty rates, absolutely continue to climb at a little bit faster rate than that.
Casualty rates so.
Our underwriters have taken to try and take advantage of that.
No.
So.
Yes, Okay, and then just looking at the acquisition expense ratio. If you go back I think it was.
34% historically 30.
<unk> percent last year year to date.
32%.
Is that really just kind of a changing business mix, that's driving that I mean, how should we think about that run rate going forward is 30 to the right level.
Well some of it has changed in the mix you are right about that.
If you think in terms of if our.
Divisional.
Side of the houses and the home office to but Thats not on the acquisition is half of our overall operation operating expenses and a lot of that is people as you can imagine.
So we're going to leverage leverage people a bit better should.
33, as we continue to grow earned premium you have seen that a bit I think if you look at the totality of the expense ratio, we were down a couple points full year, which I think is a better way of looking at it.
From a full year basis last year Youre seeing some improvement.
Roughly another point this year. So there are some things that we can leverage.
A bit better, but you are right, it's reflective of a bit of a mix of products as well.
Where the opportunity is.
Right right. Okay. Thank you.
Thank you.
Our next question will come from Meyer Shields.
Thanks.
The construction and surety side.
We have a combination of a worker shortage and rising materials inflation does that have any impact for surety losses.
Meyer this is Craig.
Potentially yes.
Honestly at any delay.
<unk>.
And the consumer.
Construction of the project.
Ken Cogs at least.
The principal.
To put the principal and claim however, we typically have opportunity to work our way out of that the other thing that that offsets that it's also very difficult to find a replacement contra.
Contractor.
To do the work so a lot of times I just want to continue with the contracts that they had it's just a matter of a little bit of delay.
There is some understanding I think of the fact that there is a labor shortage I think a lot of them want the construction to be done.
Correctly.
Well done.
Any way so they would rather us finish the project with <unk>.
Skilled workers as Covid unskilled workers, so theres a lot of working things out like that and a lot of the contracts do have.
Ways to pass on the extra costs associated with completing the projects. So the increased cost of materials a lot of times it's passed on.
<unk>.
To the person that.
Paying for the project.
I think if you look too.
We're probably a little bit elevated it again, if you go back and look from an underlying standpoint over the past year and a half or so from a loss booking ratio.
On the surety side.
So I think that uncertainty.
What do you call it Covid last year and some of the things Craig was referring to this year.
There is recognition of that.
Okay perfect that's what I was.
Looking for.
And then I think Craig in your comments you mentioned.
I guess.
A shortage.
Those are drivers in transportation and they really are assessing how good drivers are now compared to lets say 2019, so more apples to apples excluding COVID-19.
How much shorter they are is it would you say how much how much more of a shortage.
Yes.
Really driver quality in other words.
The group overall drivers I think worse than they were together.
I don't think we are probably in a good position to be able to assess.
The public automobiles, the buses and the trucks that we insure.
That doesn't mean that the general population is evolving I did see an article the other day of outlet and 18 year olds behind the wheel of a big truck.
That's the target market for us.
So, but I certainly would expect given the shortage overall and the fact that theres fewer people wanting.
To go back to work.
Sure.
For various reasons.
And people choosing to retire a little earlier than maybe they would just because of the lifestyle choices has created certainly more risk on the road I would say in regards to large vehicles.
Okay, perfect Thats, what I need.
Yes.
Thank you.
Our next question will come from Scott <unk>.
Hi, good morning.
Just wanted to first touch on the property premium growth, which pretty significant you talked about your rate increases are pretty good 7% or so but just wondering if you could touch more on the opportunity.
And there just.
By counter geography, you see that growth continuing into 2022 or you think this is more short term.
And then also is there is there any kind of change in mix in terms of more or less cat exposed property.
Business written recently just any.
Any detail there would be helpful.
Scott This is Craig.
I mean, we're seeing growth across the portfolio with double digit growth rates. So.
I mean, we are seeing probably more opportunity in the on our E&S side of the house and particularly on the hurricane side in the southeast where the where you.
Youre seeing a catastrophes hit as well as.
Theres been inflationary.
Impact that I think everybody is starting to realize its costing more to.
Replace these buildings.
Particularly in the southeast us, where it's being built but we're not seeing as much like on the quake side of the house.
You see we are getting rate on a quick set of assets certainly of trails, what we're getting on the hurricane side.
What people are familiar with and they remember that we've had big hurricanes. So it's easier to get the rate on that side I would expect that.
We're going to continue to see rate.
And probably some both exposure and rate growth.
I mean look.
But we are seeing growth just to be clear and our Hawaii homeowners book is still growing at double digit rates. I mean, there is some hurricane exposure there, but most of that is buyer exposure on the island.
<unk>.
In our marine businesses within that group, two and it's maybe not as cat exposed as our.
Our E&S business, although it is cat exposed, but not as cat exposure.
So I think we're expecting to see continued growth across the property portfolio.
Because of the effect.
Sure and so the <unk>.
Southeast Hurricane is that something that you're you feel like there is a little more opportunity.
Alright, given where rates are or is that just something you don't want to take on the cat exposure or just doing it at kind of a measured pace.
Yes, Scott I mean, if we could get if we can grow at adequate premiums, which we think currently where we.
Are there, but if we can continue to get rate and continue to get rate adequate through there obviously.
The non evolving given.
Given the cost of reconstruction down there so that the bar has gone up down there in regards to price, but Fortunately, we've been able to get more price certainly we think thats, an opportunity and when I say southeast probably I mean, the opportunity is more non Florida down there right now than it is in Florida, but I mean.
So thats a room in Florida, if we'd like to grow.
The rates.
Allow us to.
Okay. That's helpful.
And then Craig you mentioned in your comments some tapering of rates in a few areas is there any specific lines that you could call out on that.
And is there any specific lines that are.
Holding up better than you thought.
Yes, I mean, most of the excess casualty stuff, which I mentioned would have been like commercial excess in the E&S space, which is a lot of excess of contractors by the way and then our D&O business, our management liability business the rates at least for this quarter seem to hold up more than I thought they were going.
We have Paul.
And the wheels based business as you're starting to see a little.
I mean, it's still increases, but we're getting double digit increases in there now.
Mid single digit increases, so, that's where really where I've seen it fall off some of the other places where we write which is smaller casualty business with lower limits.
<unk>.
Start putting up that much they were going up three four maybe 5% and maybe they're a point or so lower than that right now.
So that's what we're talking about in regards to moderation.
Okay.
Yeah, and then lastly, I was wondering Todd you mentioned.
A little bit.
Never incremental yield potential I mean, obviously thats.
10 year Treasury is going up a little bit it's not where it was two three years ago, but.
What is your new money yield out what are you seeing in the marketplace versus existing portfolio yield.
What's the what's the spread on that I don't know if you have that handy yes.
Yes, Scott.
It's Aaron.
And the low in the low <unk>.
Versus upper twos for what in the portfolio today.
Okay. So still.
So a ways to go right to narrow the gap.
So.
Okay, we'd like to close to close the gap with Horizon continued.
Ryzen yields we'll take that trade as we've mentioned before in.
In terms of.
Bond prices going down, but being able to invest at higher rates.
Is that the underwriters to keep throwing operating cash flow.
Erin and away for the portfolio that's been a help that's been a big help.
Alright, Thanks, a lot.
Thank you. Thank you.
Thank you. Our next question comes from Jamie Inglis.
Okay.
Hey, good morning folks.
I've got a question.
About your.
Thoughts and views about.
What changes have you ever done.
Thank you very much.
What is rois deal about climate change impact on your book of business and what would be what does that let you to do over the last three or four five years and what do you think it will lead you to do going forward.
Capex for an undrawn lines of business geography.
Okay.
So title Aventine wait wait for that question, but.
No I mean, our policy, obviously, our policies and renewable every year, obviously, we're very watchful of the impact of climate change I mean, it's very difficult for us to measure the impact. Fortunately we are in a situation, where we get to reprice, our our accounts.
Every year.
I'm not a scientist so I can't really comment on that.
Quantify the impact, but certainly we are watchful.
And if.
<unk>.
We continue to have severe hurricanes and storms and events.
As a result of climate change I mean, obviously, that's got to be factored.
So what it cost to ensure those.
Location.
Okay.
Thanks, that's all I had.
Yes.
There are no further questions I would like to turn the conference back to Mr. John Michael.
Okay.
And thank you what a great business.
We are in.
Well too.
Help our customers.
Get back in business from these.
So.
The hurricanes and other <unk>.
Tassler fees like this and.
Still.
Are able to post a.
A very satisfactory quarter.
Mid Ninety's combined ratio, we had excellent growth during the quarter.
And.
An excellent beat of the analyst's expectations. So.
With that we will talk to you again.
Next quarter some of this will end.
We will leave it at that thank you all for joining.
Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing 188.
0311.
Yes, Thank you with an IV number of nine.
4611. This concludes our conference for today. Thank you all for participating and have a nice day all parties may now disconnect.
[music].
One.
Yes.
[music].
Yeah.
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[music].
Good day and welcome to the RLI third quarter earnings teleconference.
This call is being recorded.
It is now my pleasure to turn the conference over to Mr. Aaron If you could tailor Sir please begin.
Thank you Chelsea good morning, and.
<unk> third quarter earnings call for 2021, joining us today are Jon Michael Chairman and CEO, Craig Kliethermes, President and Chief operating Officer, and Todd Bryant Chief Financial Officer.
As usual Todd will kick things off by walking through the financials, Craig will follow with additional comments on current market conditions.
Welcome.
Portfolio.
We will then open the call to questions and Jon will close with some final thoughts Todd.
Thanks, Sharon and good morning, everyone.
Yesterday, we reported third quarter operating earnings of 65 per share.
The quarter's results were negatively impacted by Hurricanes, most notably hurricane.
And our.
With solid underwriting results, excluding catastrophes as well as favorable favorable benefits from prior year's loss reserves.
Positively impacted earnings.
All in we experienced 18% topline growth and posted a $94 six combined ratio for the quarter year to date, our combined ratio.
Nightstands It 88 nine.
From investment income advanced 8% in the quarter as continued strong operating cash flow $116 million in the quarter and $280 million for the year have been additive to our invested asset base earnings from Maui, Jim and Prime were up 3% in the quarter and while not core.
Youll still continue to be a benefit to earnings.
Realized gains were relatively flat in the quarter, while changes in unrealized gains and losses on equity securities were impacted by varying amounts of market volatility on a quarterly and year to date basis.
As mentioned in prior calls large movements in equity prices in comparable periods.
<unk> did have a significant impact on net earnings, which you can see in both the quarterly and year to date comparisons to 2020.
Aggregate underwriting and investment results push book value per share to $27 63.
Up 13% from year end inclusive of dividends.
Craig will talk more about premium in a minute.
Sure at a high level all three segments experienced growth as we continue to take advantage of favorable market conditions in most areas of our business.
From an underwriting income perspective. This quarter's combined ratio was 94 six compared to $99 five a year ago, both periods were impacted by elevated hurricane losses.
But hurricane losses in the quarter within our pre announced range and totaled $34 million net of reinsurance.
$33 million of that is from our property segment and $1 million impacted casualty, where a number of our packaged policies are reported net.
Net of bonus related impacts the events totaled $28 9 million or 50.
<unk> 50 per share net of tax and added 11 points to the quarter's combined ratio from.
<unk> from our prior year's reserve perspective, all three segments experienced favorable development casualty led the way with 26 million of favorable loss emergence spread across the majority of product lines.
Moving to expenses our quarterly.
<unk> expense ratio decreased by two seven points to 37 nine as did general corporate expenses.
Clines are due in part to reductions in certain bonus measures, but are also reflective of the increase in net earned premium and improved leverage on certain expenses.
Turning to investments it was a flat total return.
Quarter with income offsetting modest price declines in the portfolio overall.
Overall market yields remained subdued, but we've seen a little uplift recently as 10 year yields inch back toward the highs we saw in late March.
Operating cash flow remains the primary support for growth and investment income, which turned positive in the call.
<unk> there've been a few shifts there have been few shifts and the allocation over the course of the year, but our strategy continues to focus on putting money to work in nearly all environments.
Apart from the capital markets exposure investing earnings were up slightly from the comparable period in 2020, with Maui, Jim and prime contributing $5 4 million and $4.
$4 million respectively.
All in all a very good quarter and strong first nine months of the year.
With that I'll turn the call over to Craig.
And before I start I'm going to try to ask Chelsea, maybe if she would go back and maybe read the forward looking statements that I think we.
More to do at the beginning.
Okay.
I I didn't do a forward look Craig so as long as you don't either we're going to be okay.
My comments, assuming that those have been applied in red.
Thank you Erin and Todd and good morning, everyone.
As Todd mentioned, a very good quarter in light of hurricane either.
Smaller catastrophes that impacted our customers and our result.
After factoring in these events, we were still able to report a sub 95 combined ratio for the quarter and more than 10 points of underwriting profit year to date.
At the same time, we are growing our portfolio.
One through rate and exposure reporting $8, 18% topline growth for the quarter and 21% year to date, we continue to see rate increases across most of the portfolio. Although there is some tapering in spots.
We are maintaining a good flow of business that meets our discerning appetite.
The business we.
<unk> is generally stickier with higher renewal retention and new business hit ratios, we are monitoring impacts from the supply chain and labor shortages as well as derived inflation.
Our talented underwriting and claim teams are working diligently to mitigate any resulting increase in loss costs by identifying risk sharing.
<unk> information across our businesses adequately pricing with tailored coverage, we provide and taking advantage of any market disruption.
Now to some more specific comments at the segment level.
In casualty, we reported an 86 combined ratio for the quarter and 84 year to date we've.
We were able to achieve an overall.
We're under a rate increase of 9% for the quarter, which fueled a good portion of our 14% growth in this segment.
Growth was widespread across all major products in our portfolio and much of the rate continues to be driven by excess liability products, particularly commercial and management liability coverages.
Our transportation business.
<unk> continues to bounce back with increased bookings and public auto but is still challenged by driver shortages overall wheels based rates continue to be up but rate increases are more moderate in size.
Despite the overall growth in the transportation space, we still find the trucking class to be increasingly competitive as topics.
Caroline and rates decreased for the quarter.
Claim counts continued to climb to previous levels and more jury trials are being scheduled.
We will remain vigilant for social inflation and work to mitigate it through our investment in superior talent training and Triaging of claims.
In property we reported.
The combined ratio of 127 for the quarter and 105 year to date, the excess and surplus lines. When product is the driver of the unprofitable results Hurricane Ida was one of the most intense and damaging hurricanes to strike the United States in recorded history.
From day, one we have had our teams on the ground assessing losses and helping.
Our customers get back into business.
About 90% of our claims reported to have been in the state of Louisiana as the New Orleans Metro area is one of our peak zones for wind exposure.
The event, along with general market conditions, and expected inflation has kept cap rates up double digits for the eighth consecutive quarter.
Overall top line growth was 32% for the property segment in the quarter driven by exposures and a 7% segment rate increase all products in this segment realized growth.
And surety we reported a 75 combined ratio for the quarter all three of our major products. In this segment have grown profitably overall topline.
Grew 10% in the quarter, despite economic challenges both the commercial contract surety markets remain very competitive.
We're back visiting producers in person and continue to invest in capabilities that make it easy to do business and help our producers grow with us.
There are more construction opportunities in the market and.
We are supporting our contractors as they witness business we.
We will continue to expand our writings with existing clients of producers and invest in technology, where it is a differentiator.
We had a quiet quarter on the claims front. Despite the added risks from supply chain and labor issues.
Overall, another profitable quarter with solid.
Topline our underwriting experts are ready to participate where disruption in market pricing permit us to flex our underwriting prowess at rates that are commensurate with the risk.
As always we are alert to the uncertainty associated with inflation and supply chain disruption. We will continue to do what we do best focus on.
<unk> growth.
We will diligently underwrite quality accounts assess evolving exposures require adequate valuation of insured property and walk away from underpriced business.
We are good stewards of our capital, but also of our insured risk and reputation.
I want to thank our ROI associates.
The base of delivering great results and value to all of our stakeholders and for helping our customers, especially in times of need.
I would now like to open it up for questions.
Thank you, Sir and before we get started with the Q&A session. Please 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.
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 Companys various SEC filings, including in the annual report on Form 10-K as supplemented in the form.
<unk> for the quarterly period, ending June 30 of 2021, which should be reviewed carefully.
The company has filed a form 8-K with the Securities and Exchange Commission that contains the press release announcing second quarter results.
<unk> management May make reference during the call to operating earnings and earnings per share from operations, which are.
<unk> Kenji AAP measures of financial results.
Rli's operating earnings and earnings per share from operations consist of net earnings after the elimination of after tax realized gains or losses, and after tax unrealized gains or losses on equity securities.
Management believes these measures are useful in gauging core operating performance.
Just reporting periods, but may not be comparable to other companies as definitions of operating earnings.
The question and answer session will begin now at this time.
You are using a speakerphone, please pick up the headset before pressing any numbers.
If you have a question. Please press star one on your telephone if you wish to withdraw your question.
Zach Rami do so by pressing star Q.
Questions will be taken in the order. They RBC. Please standby for your first question.
Our first question will come from Colin Johnson.
Hey, good morning, Thanks for taking my question.
<unk> you had a relatively large quarter over quarter jump in earnings of <unk> Holdings. This quarter is there anything in particular that drove that acceleration.
Colin This is Todd I would say not outside of just continued revenue growth I mean, they've grown quite a bit.
And.
It looks like us with our growth that youre seeing more being realized through.
Earned premium through revenue so outside of that growth no there really isn't anything.
Okay. Thanks, that's helpful and then.
As you kind of continue to grow the balance sheet leverage ratios of gradually.
And just.
Not that leverage I think is a huge consideration or part of the story here, but as we approach the 2023 maturity of the $150 million senior notes.
I'm just curious could you share how you're thinking about your capital structure going forward.
Yeah, Colin it's Todd.
<unk>.
Certainly something you're right from a leverage standpoint.
Low from that perspective, because we have grown capital.
As much as we have so it's something we talk about we've tended to be conservative. There. There is certainly is room.
To increase the leverage and something we still have been talking about and we will look.
Look look too.
Make some decisions as we move through 2023.
Great. Thank you those are my questions.
Thank you.
Our next question comes from Jeff Schmitt.
Hi, good morning.
Could you just.
Discuss how much of your growth in the casualty book is coming from E&S lines.
I guess that would mainly be general liability excess liability.
Are you seeing standard writers for keeping more business into that market or what are you seeing there.
Well, Jeff this is Craig.
The business is growing at about the pace.
The rest of our casualty portfolio is growing maybe a little faster, but not a lot faster.
All the products in there or specialty products, even though they aren't maybe not DNS products there.
Less regulated than other products so.
But the formula.
Well definition.
Yes, I guess, that's growing about the same pace casualty, probably a little less at a little slower pace than the property business there.
30 rates, obviously continue to climb at a little bit faster rate than the casualty rates. So.
Our underwriters are taking to try and take advantage of that.
Sure.
Yeah.
So.
Yes, Okay, and then just looking at the acquisition expense ratio. If you go back I think it was.
34% historically, 33% last year year to date, it's 32%.
Is that really just kind of a changing business mix.
What's driving that I mean, how should we think about that run rate going forward is 30 to the right level.
Well some of it has changed in the mix you are right about that if you think in terms of if our.
Divisional.
Side of the houses and home office too.
The acquisition is half of.
Overall operation operating expenses and a lot of that is people as you can imagine.
So we're going to leverage leverage people a bit better should.
As we continue to grow earned premium you have seen that a bit I think if you look in the totality.
The expense ratio we were down.
But thats helpful points full year, which I think is a better way of looking at it.
From a full year basis last year Youre seeing some improvement in the rough.
Another point this year. So there are some things that we can leverage a bit better but you are right its reflective of a bit of a mix of products as well and that's where the opportunity.
Okay.
Right right. Okay. Thank you.
Thank you.
Our next question will come from Meyer Shields.
On the construction surety side, if we have a combination of a worker shortage.
And rising materials inflation.
The impact for surety losses.
Meyer this is Craig.
Potentially yes.
Any delay.
And the construction of the project.
Ken Cogs.
Yes.
The principal or the.
Sure.
Does that have to.
Put the principal and claim however, they typically have opportunity to work our way out of that the other thing that.
The offset to that it's also very difficult to find a replacement con.
Contractor to do the work so a lot of times I just want to continue with the contracts that they had it's just a matter of a little bit of delay.
Uh huh.
There is some understanding I think of the fact that there is a labor shortage I think a lot of them want the construction to be done.
Correctly, well done as opposed to doing a shot anyway. So they would rather us finish the project.
Skilled workers as opposed to unskilled workers, so theres a.
Working things out like that and a lot of the contracts do have.
As to pass on the extra costs associated with completing the projects. So the increased cost of materials a lot of times it's passed on.
The person that.
Paying for the project.
I think if you look too.
We're probably a little bit elevated again, if you go back and look from an underlying standpoint over the past year and a half or so from a loss booking ratio.
On the surety side, so I think that uncertainty.
What do you call it Covid last year and some of the things Craig was referring to this year.
<unk>.
Recognition of that.
Okay perfect that's what I was.
I'm looking for.
And then I think Craig in your comments you mentioned.
Uh huh.
Yes.
These are drivers in transportation isn't really a assessing how good drivers are now compared to lets say 2019, so more apples.
Apple excluding COVID-19.
How much shorter they are is it would you say how much how much more of a shortage.
Really drivers quality in other words.
<unk>.
Yes.
<unk> overall drivers I think worse than they were together.
I don't think we are probably in a good position to be able to assess.
There is a general population of drivers I mean, obviously, we're going to continue to be very picky. I mean, we're looking for professional drivers to get into the to the public automobiles. The buses and the trucks that we ensure that doesn't mean that the general population is evolving I did see an article the other day about let an 18 year olds behind the wheel of a big truck.
That's the target market for us.
So I certainly would expect given the shortage overall and the fact that theres fewer people wanting.
To go back to work for various reasons.
And people choosing to retire a little earlier than maybe they would just because a lifestyle.
Choices has created certainly more risk on the road I would say in regards to large vehicles.
Okay, perfect Thats, what I need.
Alright, thank you.
Our next question will come from Scott <unk>.
Yeah.
Hi, good morning.
Just wanted to first touch on the property premium growth, which are you know pretty significant you talked about your rate increases are pretty good 7% or so but just wondering if you could touch more on the opportunity you're seeing there just.
By counter geography, you see that growth continuing to 2022, you think this is more short term.
<unk>.
And then also is there is there any kind of change in mix in terms of more or less cat exposed property.
Our business written recently, just any detail there would be helpful.
Scott This is Craig.
I mean, we're seeing growth across the portfolio with double digit.
Growth rates. So I mean, we are seeing probably more opportunity in the E&S side of the house and particularly on the hurricane side in the southeast where the where.
Are you seeing the catastrophes hit as well as theirs.
Inflationary.
Impact.
I think everybody is starting to realize its costing more to.
To replace these buildings.
Particularly in the South East, where it's being built but we're not seeing as much like on the quake side of the house I mean, we are getting rate on a quick set of Asquith certainly of trails, what we're getting on the hurricane side, that's what people are familiar with and they remember.
Big Hurricanes, so it's easier to get the rate on that side I would expect that we're going to continue to seek rate.
And probably some both exposure and rate growth.
And Hurricane book.
But we are seeing growth just to be clear and our Hawaii homeowners book is still growing at double digit rates I mean, there is some hurricane.
Akane exposure there, but most of that has higher exposure on the island.
Islands.
In our marine businesses within that group, two and it's maybe not as cat exposed as our E&S business, although it is cat exposed, but not as cat exposure.
So I think we're expecting to see continued.
Growth across the property portfolio.
Because of the effect Tonight.
Sure and so.
Southeast Hurricane is that something that you're you feel like there is a little more opportunity than normal given where rates are or is that just something you don't want to take on the cat exposure or just doing it at kind of a measured pace.
Yes, Scott I mean, if we could get if we can grow at adequate premiums, which we think currently where we are there, but if we can continue to get rate and continue to get rate adequate through there and obviously thats evolving given.
Given the cost of reconstruction down there so that the bar has gone up down there in regards to price.
But fortunately, we've been able to get more price certainly we think that's an opportunity and when I say southeast probably I mean, the opportunity is more non Florida down there right now than it is in Florida, but I mean, we have room in Florida, if we'd like to grow.
If the rates.
Allow us to.
Okay. That's helpful.
Helpful.
And then Craig you mentioned in your comments on tapering of rates in a few areas is there any specific lines that you could call out on that.
And is there any specific lines that are holding up better than you thought.
Yes, I mean, most of the excess casualty stuff, which I mentioned would have been like a commercial.
Excess in the E&S space, which is a lot of excess of contractors by the way and then our D&O business, our management liability business the rates at least for this quarter seemed to hold up more than I thought they were going to start to fall.
And the wheels based business as Youre, starting to see a little.
I mean, it's still increases, but we're getting double.
Digit increases and Theyre now in the.
Mid single digit increases, so, that's where really where I've seen it fall off some of the other places and where are we right, which is smaller casualty business with lower limits. The rates never went up that much they were going up three four maybe 5%.
And maybe they're a point or so lower than that right now.
So that's what we're talking about in regards to moderation.
Okay.
And then lastly, I was.
Wondering Todd you mentioned.
A little bit of incremental yield potential I mean, obviously thats.
10 year Treasury is going up a little bit, it's not where it was two or three years ago, but.
What is your new money yield out what are you seeing in the marketplace versus existing portfolio yield.
What's the what's the spread on I don't know if you have that handy.
Yes, Scott, it's Erin we're probably in the low and the low <unk>.
Versus upper twos for what in the portfolio today.
Today.
Okay. So still store so are we.
He has to go right to narrow the gap.
So.
Okay, we'd like to close to close the gap with Horizon continued rising yields we'll take that trade as we've mentioned before.
In terms of.
Bond prices going down, but being able to invest.
At at higher rate.
Is that the underwriters to keep throwing operating cash flow.
Erin and away for the portfolio that's been a help.
They keep doing that alright, thanks, a lot.
Thank you. Thank you.
Thank you. Our next question comes from Jamie.
English.
Hey, good morning folks.
Craig I mean, I've got a question about your thoughts.
Thoughts and views about.
Climate change is something everyone's been talking about what is rois deal about climate change impact on your book of business and what would be what does that let you.
You to do over the last 345 years and what do you think it will lead you to do going forward.
I think from an Android.
Lines of business geography, you really ever.
So I've been die wafer that question, but.
No I mean, our policy is obviously our policies of renewable every year, obviously, we're very watchful.
Watchful of the impact of climate change I mean, it's very difficult for us to measure the impact Fortunately, we are in a situation where.
We get to reprice, our our accounts.
Every year.
And.
I'm not a scientist so I can't really comment on that.
Quantify the impact, but certainly we are watchful.
<unk>.
And if if.
We continue to have severe hurricanes and storms and events as a result of climate change I mean honestly thats got to be factored into what it cost to ensure those.
Location.
Okay.
That's all I had.
Yeah.
There are no further questions I would like to turn the conference back to Mr. John Michael.
Thank you what a great business.
We are in we're able to.
Help our <unk>.
Mers.
Get back in business from these.
The hurricanes and other catastrophes like this.
And yet still.
But post day.
Very satisfactory quarter.
Mid Ninety's combined.
The ratio, we had excellent growth during the quarter.
And.
An excellent beat of the analyst's expectations. So.
With that we will talk to you again next quarter. Some of this will end.
We'll leave it at that thank.
You all for joining.
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Trading and have a nice day all parties may now disconnect.