Q4 2021 Rli Corp Earnings Call
Both the earnings teleconference.
Speaker 1: Earnings Telecom.
After managements prepared remarks, well open the conference up for questions and answers.
Speaker 1: After management's prepared remarks, we'll open the conference up for questions and answers.
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.
Speaker 2: 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.
Speaker 2: As always, these forward looking statements are subject to certain factors and uncertainties which could cause actual results to differ materially.
As always these forward looking statements are subject to such factors and uncertainties, which could cause actual results to differ materially.
Please refer to the rest of that is described in the company's various SEC filings, including in the annual report on Form 10-K as supplemented in forms 10-Q, all of which should be reviewed carefully.
Speaker 2: Please refer to the risk factors described in the company's various SEC filings, including in the annual report on Form 10-K , as supplemented in Forms 10-Q, all of which should be reviewed carefully.
Speaker 2: The company has filed a Form 8K with the Securities and Exchange Commission that contains the press release announcing fourth quarter results.
The company has filed a form 8-K with the Securities and Exchange Commission that contains the press release announcing fourth quarter results.
During the cool RLI management may refer to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results.
Speaker 2: During the call, RLI management may refer to operating earnings and earnings per share from operations which are non-GAAP measures of financial results.
Alright light operating earnings and earnings Busha 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.
Speaker 2: RLIs 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 security.
All my life management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to other companies' definitions of operating earnings.
Speaker 2: RLI's management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to other companies' definitions of operating earnings.
The form 8-K contains a reconciliation between operating earnings and net earnings.
Speaker 2: The Form 8K contains a reconciliation between operating earnings and net earnings.
Form 8-K press release are available at the company's website useful.
Speaker 2: The Form 8-K and press release are available at the company's regified use, or eight people of 80 doars are Li D but may not be comparable to other companies DEEs. I will now turn the askance over to our Li price pres, investment Officer and Treasurer. Neither our D area, Please go ahead. Form a, K and press release are available at the comp. These reges.
Okay.
But may not be comparable to other companies.
Now I'll turn the conference over to all my life.
Sydney Officer Treasurer at R&D for dollar. Please go ahead.
Press release for April and based on your body.
Okay.
Thank you Leah and.
Speaker 3: Thank you, Lydia. Good morning, and welcome to RLI's final earnings call for 2021. Joining us today are Craig Klee Thurman, President and CEO , Jen Klobnock, Chief Operating Officer, Todd Bryant, Chief Financial Officer, and John Michael, Chairman.
Good morning, and welcome to Rli's final earnings call for 2021.
Joining us today are quite critically firm as president and CEO Jenny club.
Chief Operating Officer, Todd Bryant, Chief Financial Officer, and Jon Michael Chairman.
Todd will lead us off with relevant financial highlights Craig and Jim will follow with additional comments on our product portfolio.
Speaker 3: Todd will lead us off with relevant financial highlights. Craig and Jen will follow with additional comments on our product portfolio and the current market environment. We will then open the call to questions, and John will close with some final thoughts. Todd? Thanks, Aaron. Good morning, everyone.
And the current market environment. We will then open the call to questions and Jon will close with some final thoughts Todd Thanks, Darren and good morning, everyone.
Yesterday, we reported fourth quarter operating earnings of $1 26 per share the quarter's results reflect very low weather related losses in our property segment.
Speaker 3: Yesterday, we reported fourth quarter operating earnings of $1.26 per share. The quarter's results reflect very low weather-related losses in our property segment, modestly improved underlying loss ratios in our casualty and surety segments, and continued favorable benefits from prior year's loss ratios.
Modestly improved underlying loss ratios in our casualty and surety segments.
<unk> favorable benefits from prior year's loss reserves all in we posted a combined ratio of 87 for the quarter and experienced continued growth in top line, which was up 12% and core.
Speaker 3: All in, we posted a combined ratio of 80.7 for the quarter and experienced continued growth in top line, which was up 12% in the quarter. On a four-year basis, we posted an 86.8 combined ratio and grew premium 19%.
<unk> on a full year basis, we posted an 86 eight combined ratio grew premium 19%.
Investment income advanced seven 7% in the quarter and closed the year up one 4%.
Speaker 3: Investment income advanced 7.7% in the quarter and close of the year up 1.4%.
Continued strong operating cash flow 100, $104 million in the quarter and $385 million for the year have been additive to our invested asset base.
Speaker 3: Continued strong operating cash flow, $104 million in the quarter, and $385 million for the year have been additive to our invested assets.
Realized gains were $12 million in the quarter, while changes in unrealized gains and losses on equity securities totaled $36 million as the market rallied further to close the year as.
Speaker 3: Realized gains were $12 million in the quarter, while changes in unrealized gains and losses on equity securities totaled $36 million as the market rallied further to close the year. As mentioned on prior calls, large movements in equity prices between periods can have a significant impact on net earnings, which you can see in the comparative quarterly and year-to-date results.
As mentioned on prior calls large movements in equity prices between periods can have a significant impact on net earnings which you can see in the comparative quarterly and year to date results.
The combination of solid underwriting and investment results pushed book value per share to $27 14 up 20% from year end 2020 inclusive of dividends.
Speaker 3: The combination of solid underwriting investment results pushed book value per share to $27.14, up 20% from year-end 2020, inclusive of dividends.
Craig and Jim will talk more about premium in a minute.
Speaker 3: Craig and Jim will talk more about premium in a minute. But at a high level, all three segments experience growth as we continue to benefit from favorable market conditions in most areas of our board.
At a high level all three segments experienced growth as we continued to benefit from favorable market conditions in most areas of our business.
Underwriting income perspective, the quarter's combined ratio as I mentioned was <unk> 87, compared to 88, a year ago, our loss ratio declined six six points due largely to benign catastrophe activity during the fourth quarter of 2021.
From a prior year's reserve perspective, both fourth quarters benefited from a similar amount of favorable development.
<unk> posted $26 million of favorable loss emergence across the majority of product lines and over multiple accident years, while surety posted $3 million in favorable emergence given the short tail nature of surety. The majority of favorable emergence was on the 2020 accident year.
Moving to expenses compared to last year, our quarterly expense ratio decreased <unk> seven points to 41 five.
This was however elevated from our trends through the first three quarters of 2021.
The upward movement is largely reflective of increased performance and incentive related amounts.
As discussed before are driven by combined ratio operating return on equity and growth in book value.
On a full year basis, our expense ratio declined 0.5 points to 43 reflective of improved leverage on our expense base as net premiums earned grows.
Turning to investments, we realized one 5% total return for the quarter and four 7% on the year.
Robust equity returns more than offset price declines in fixed income, which fell on a move higher in market yields throughout the year.
We remain content to keep putting significant levels of operating cash flow to work.
Strategy that helped turn the investment income side in the quarter.
Apart from capital markets exposure invested earnings were up considerably from the comparable period in 2020, with Maui, Jim and Prime contributing $3, one and $5 3 million respectively. On a combined basis invest D earnings totaled $37 million for the full year as.
And as we've talked about before well not core to our operations continued to be a benefit to earnings.
All in all a very good quarter and strong finish to the year and with that I'll turn the call over to Craig.
Greg Thank you Todd and good morning, everyone, great quarter to finish a very good year.
O I team delivered once again for all of our stakeholders as Todd mentioned, we achieved an 81 combined ratio for the quarter and an 87% for the year. This marks our 26th consecutive year of underwriting profitability.
The consistent results and value that we've delivered to our shareholders is directly correlated to our customer focus hallmark underwriting discipline and ownership culture.
With this in mind, we delivered 12% top line growth for the quarter and 19% for the year.
The quarterly growth, we reported is more representative of the underlying momentum when taking into account the rebound of our public transportation business. This year.
Growth in underwriting profitability were realized across all segments and all major products in our portfolio.
Recent catastrophe activity rising labor material and social inflation as well as rising reinsurance costs should provide continued pressure on rate wells going forward.
We believe this is a market we can thrive in as rates are still moving up Broadway, but requires good underwriting selection to differentiate and truly understand the risk reward equation.
We think that the strong collaboration between our underwriters claims and analytical team's results and some advantage in our favor.
I will now introduce Gen club not a 20 year veteran of ROI and our Chief operating officer, who will provide more detail on our segment results.
Thank you Craig and good morning, everybody.
Starting with casualty, we produced some 87 combined ratio most of the products. In this segment contributed to our top line growth of 9% for the quarter rates were up 6%. Overall this is slightly lower than last quarter and is primarily driven by our executive products group, which is our D&O portfolio.
Their rates are still up double digits, but the increases are more moderate than a significant times in the last couple of years.
In fact, nearly all casualty products is still achieving positive rate in the mid single digit range.
Premium growth was most notable in our personal umbrella excess liability and transportation lines personal umbrella continues to benefit from marketing and technology investments, we've made as well as annual filed rate increases.
Our excess liability product focuses on the construction space, which continues to experience project delays throughout the pandemic. We are benefiting from competitors continuing to provide lower limits, but in the past which creates opportunities for us to participate.
Transportation grew 10%, including a 6% rate change we continue to see the exposure returning in the public space at school buses and charter buses come back into service transfer.
Transportation claims are also increasing but they have not returned to 2019 level. This is a trend we're watching closely.
The casualty portfolio is performing really well overall, we achieved 16% growth for the year on an 85 combined ratio.
On January 1st we renewed reinsurance treaties that support much of this portfolio.
We saw mid single digit rate increases and we characterize the reinsurance market and Russia.
Turning to property.
Segment drove the difference in our results due to the lack of catastrophe losses in the fourth quarter of 2021 compared to the prior fourth quarter.
The segment produced a 69 combined ratio and grew by 23%.
Rates were up 7% for the quarter.
The market in this segment continues to be challenged by losses, which we believe will support continued rate increases.
<unk> selling shorter minutes than in the past, which creates room for us to participate on the insurance sector.
E&S property premium grew by 34% in the quarter.
We realized increased rates witnessed rising business building valuation and saw reduced capacity from our MGA and carrier competitors.
All of these changes improve our opportunity in this space.
All products in this segment saw an increase in submission this quarter and for the full year all of the products also contributed to the 29% growth in premiums for the year.
To support property growth, we purchased $100 million of additional can't test the reinsurance limit effective January 1st.
The reinsurance treaty structures are largely the same as prior years, although we did see mid single digit risk adjusted rate increases on the renewal.
We have made active use of reinsurance in the last couple of years. So we expected to see these cost increases.
Finally, surety produce a very positive quarterly result, with a 71 combined ratio.
Premiums grew 7% with all products contributing.
The small miscellaneous business is very competitive as other sureties or decreasing rates and increasing their commission.
Our focus on service and technology has helped us win and retain business.
The larger commercial business grew organically the result of strong producer relationships and consistent appetite.
For contract surety labor shortages and material delays are lengthening projects and reducing the near term needs for bonds to support new projects.
Here premium grew by 3% in the quarter.
After recognizing some loss activity earlier this year strong fourth quarter resulted in a really good 80 combined ratio for the year for this segment.
Overall, very strong underwriting performance for the year and I want to thank our underwriting claims and support teams for their outstanding effort.
And now I'll turn the call back over to Craig.
Thank you Jen and I want to thank all of our associates for delivering differentiating results once again.
Our portfolio of products is in good order and our specialty footprint is broad we are ready and willing to continue growing profitability, where disruption and opportunities exist.
I want to close by recognizing Jonathan Michael Who's very special to our organization. John retired at the end of 2021. These results represent his last quarter at the helm and are also emblematic of his track record of success. During his 21 year tenure as CEO .
John has provided exemplary leadership to ROI to our industry and our community I would like to recognize just a few milestones during his tenure.
Roy produced an underwriting profit and every year. He was CEO and reported underwriting profits in 81, Adam is 84 quarters as our leader, which is a remarkable 964 batting average this.
This has translated into total shareholder return over his tenure of over 2100% or approximately 16% annually, which far exceeds any comparable benchmarks.
I know John would agree that good consistent results don't come without having great teammates with common goals shared values and an ownership mindset.
I want to thank John for his stewardship of our culture and leading our evolution from a contact lens insurance company into one of the most unique and successful companies in the specialty property and casualty insurance industry.
Time changes, but some things remain constant job built upon approved and involved what our founder Jerry Stephens created.
As we move forward, we will continue to hold true to what differentiates and makes RLI special while adapting to changing market and customer needs to remain competitive.
Our commitment to providing great service and building relationships with our customers, while maintaining our underwriting discipline will not change and we will never be complacent or satisfied with the status quo.
Rest assured we will continue to evolve our company, while staying true to the thing that makes us differ because being differ works.
Thank you John and thank you everyone for joining us this morning, I'll now turn it over to the moderator to open up for questions.
Thank you.
<unk> and answer session will begin at this time.
Using a speakerphone please pick up the handset before pressing any numbers should you have a question. Please press star one on your telephone if you wish to withdraw your question. Please press star two.
Question will be taken in the or does that interest rate. Please standby for your first question.
Okay.
Last question today comes from Colin Johnson of B Riley Securities. Your line is open.
Hey, Thanks, good morning, Thanks for taking my questions.
It sounds like rate increases were highest in property, but still mid single digit in casualty and surety.
Would you expect property to kind of continue to be the leader here at least in the near term.
So Collin this is John I think the beginning of your question the call off of it I'm, assuming you're talking about growth by segment and premium.
Just to clarify.
Good question.
Sure sure Yeah. So.
With rate increases in property kind of being the highest but still solid and casualty surety. You know do you expect that trend to kind of persist in the near term.
Colin This is James I would say that a lot of it will depend on how everyone reacts to the January one reinsurance renewals, obviously a lot of people.
Placed their renewable January 1st and then I'm sure. There was a lot of change in what people purchase and how much. They paid so my expectation would be that property will continue to have some support because I know obviously, we came in a little bit more than you would expect their meals did as well on the casualty side you know.
That market seems to be a little more reasonable, but yet the reinsurers are charging more for especially auto excess coverages. So there should be some support there as well.
So we'll see how it plays out.
Okay, great. Thanks, that's helpful and then.
Looking at the surety segment was a strong quarter of underwriting could you talk about maybe just what drove loss expense or perhaps the lack thereof. This quarter.
Colin it's it's Todd.
Really if you look at and I talked a bit about it.
And Youll see really from a prior year reserve perspective, there was some added benefit there.
I think we had three quarters this year, where it was favorable we had one that was unfavorable.
But often it's the more recent views the actuaries have taken a look at things. So I don't think theres really anything outside of that.
But I would say as of note.
Okay. Thanks, that's helpful. Those are all my questions.
Okay.
Our next question today comes from Meyer Shields of <unk>. Please go ahead.
Thanks. My first question is actually also uncertain I just want to make sure that there's no adjustments to prior quarters in the surety loss ratio when we take out the reserve movements.
It's really reserve release driven.
Okay, and then we prior year prior quarter.
Prior year correct.
Okay perfect.
I was hoping to get a sense of what you're expecting for ceding commissions on the reinsurance you buy for casualty.
Okay.
Yeah.
So our carefully.
Reinsurance that we purchased is generally on the excess of loss basis and so.
When you look at the rates that we're paying in 2022 relative to 2021, and we have a few treaties and play that renewed on January one and I would say the rate change there was between 5% to 10%.
Because they cover a lot of different products. The actual amount that will pay will vary depending on mix change, though depending on which product within casualty grow or shrink.
That that that cost is going to vary.
Okay, that's perfect and if I can throw one more in.
Yes.
All right.
I guess I am curious about the accident years contributing to the casualty.
Reserve releases.
Marriage, Todd It really was pretty widespread I mean, if I look at if we looked at <unk>, it's really 17% to 20.
You had a decent amount from APG similar years, so it's pretty widespread but I would say the more recent.
Probably four years had the larger amount.
Okay perfect. Thank you very much.
As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Our next question today comes from Mark Dwelle, RBC capital markets. Your line is open.
Yeah good morning.
One other questions we've been getting a lot from investors relates to inflation could you talk about which lines of business you are most exposed to inflationary pressures on.
Sure Mark this is Jim so looking in the property segment.
Material costs have some inflation and that varies quite a bit so depending on the individual material youre looking for in a construction project you know.
Some of them up earlier in 2021 and come back down others seem to be spiking more towards the end of the year. So it's a varied impact depending on the actual project.
But obviously the cost of materials and properties is up a bit and we see that both in the building valuation component of redoing the upfront underwriting as well as we're doing claims handling.
I would say on the on the life and the casualty book.
Obviously, the council ideal medical inflation, but if you look at other types of inflation. The construction projects we work on so the.
The revenues that we're looking at too based on premium on our App.
We've got labor issues that on payroll can be up to which can be a basis for premium.
As you're looking at.
Auto sometimes it takes longer to repair things on that so we have some business interruption both from a rental car standpoint of rental vehicles standpoint, as well as business interruption back on the property side as we're trying to replace.
Well location that was impacted so it's somewhat widespread but it varies as to the impact in the different places then and it's definitely moving so we're watching those trends we don't necessarily see.
Numerical impact in our reserve and data.
So a little bit more of a story at this point from the claim department, but it is something we're watching and we'll continue to monitor in 2022.
Thank you.
Good thorough answer.
Second question I have is it's a little bit of a numbers question.
When I look at the the the other income line the Maui, Jim and Prime when you look at the two individual pieces, the $3 1 million and $5 three it doesn't it adds up to more than the $7 6 million of overall reported other income what was the other piece.
Yes, there is a little bit on the tax credit side there.
A real large number but it does have a little bit of an impact.
Okay.
Alright, and then the last question I had was.
Just in terms of exposure to cyber and cyber liability in general that's something you guys are specifically, writing and could you talk about what you're seeing both from a loss standpoint, as well as from a pricing standpoint.
Sure Mark this is Jim so.
We we do write cyber we had a portfolio that targeted large account fiber within our executive products group, our D&O portfolio.
We wrote that business for a few years and earlier this year, we decided to exit that line. So we're actually in runoff at this point.
So youll see a little bit of impact on that through 2022 was not a large portfolio.
But we are running off that turn into bulk. We also write for small professional some cyber coverage, though it's part of our package approach to architects Engineers for example, and other miscellaneous professionals, where we offered property liability auto et cetera, we do offer a small bit of cyber as well these are targeting small.
Our insurance and smaller accounts smaller limits non target hopefully in the cyber space and so we ask a fair amount of questions about folks as to how they try to control that exposure and we provide services to them.
Again, that's a fairly small piece of the overall portfolio, but that is an exposure that we do provide.
Right.
What kind of limits are you normally right and particularly on the large I imagine it's like a million dollar limits on the small even that much.
On the large larger account the stuff that's in runoff over the limits on those just in general.
So we did right towards the end of <unk> 5 million or limits I mean, we got up to 10 before we started this.
Segment, but now we were down to five at the end. So we have a handful of policies that will run off over the next year.
This is Greg if you recall I think on previous calls <unk> talked about we heavily reinsured that portfolio I think we reinsure like 85% of that exposure is in run off so.
You know.
It's relatively small to the overall size.
I appreciate the color on it thanks, that's all my questions.
Thanks Mark.
Thank you as a reminder, if you'd like to ask a question today. It still followed by one on your telephone keypad.
Okay.
We have no questions in the queue at this time, so I'll hand back to Mr. Jonathan Michael for some closing remarks.
Thank you and excellent quarter and year and thank you for those comments.
We've got a great team here at ROI.
It has great strength I have every confidence in their ability to continue and to deliver even more positive results in the future.
Thank you all for.
Attending today's conference and we will talk to you next quarter.
Yes.
Thanks.
Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing 1866813940 history with an IP of 859639. This concludes our conference for today. Thank you for participating and have a nice day.
All parties may now disconnect.
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