Q2 2022 Rli Corp Earnings Call

Speaker 1: last year with 7 million in property and 1 million in cash. From a prior years, reserves perspective, all three segments experience favorable emergence during the quarter. Calculate experience 17 million in favorable development with notable contributions from general liability, design and miscellaneous professional liability, and transportation. Property posted 4 million in favorable emergence with the largest benefit from our marine business. Insurance contracting commercial were responsible for the bulk of that segments, 3 million in positive development during the quarter. On a comparative basis, you may recall that surety was adverse 3 million during the same period last year as we strengthen reserves on the energy portion of our commercial business. Moving to expenses compared to last year, our quarterly expense ratio decreased by 1.9 points to 38.5. This resulted in a tar with the first quarter and continued to reflect and improve leverage on our expense base, as that premiums earned continued to grow. Certain incentive related amounts that are influenced by growth and both value were also down. On the asset side of the balance sheet, it has been a difficult six month period for investments as stocks and bonds were correlated to the downside through the second quarter. Our return performance came in at 9.6.1% during the quarter and minus 10% on a year-to-date basis. The vast majority of this decline is unrealized gains and losses and we have historically utilized a low turnover approach in the fixed income and held many securities to maturity.

Speaker 1: Purchase activity remains focused on high quality, investment grade bonds with new money yields in the mid to high 3% range. As we have discussed in the past, price changes in the fixed income portfolio are included in comprehensive earnings, which turn in a quarterly loss of $99.8 million, or $2.20 per share.

Speaker 1: This resulted in a decline in book value per share of 8% during the quarter adjusted for dividends. Book value in the quarter at $23.02 per share down 13% from year in again adjusted for dividends. Book value in the quarter at $13.03 per share down 13% from year in again adjusted for dividends. Book value in the quarter at $13.03 per share

Speaker 1: For unconsolidated investees, total earnings decreased 2.3 million compared to last year with Maui Gym contributing 8.5 million and prime offering 3.6 million.

Speaker 1: As a reminder, in the first quarter, we discussed an agreement to sell our minority stake in Maui Gym, outlining anticipated after tax proceeds of approximately 500 million. Final proceeds will be subject to certain adjustments at closing, which we expect to occur in the second half of the year. All in all, an excellent operating quarter and strong first half of the year. And with that, I'll turn them call over to Kerray. And with that, I'll turn them call over to Kerray.

Speaker 2: Thank you, Aaron and Todd, and good morning, everyone.

Speaker 2: As Todd mentioned, we're off to a very good first half of the year. We're very pleased with the growth coming from a mix of rate, exposure-based increases, and new business.

Speaker 2: We finish the corner with top line growth of 17% on an 80 combined ratio. The mid-year report card looks pretty good with growth up 19% in a combined ratio that starts with a 7. But we know that the hard work is never done.

Speaker 2: We have realized growth and underlying profitability across all major product groups in our portfolio.

Speaker 2: Our narrow and deep underwriting teams are still uncovering opportunities in the markets where we compete.

Speaker 2: We have observed some market disruption in several of our niches.

Speaker 2: At the same time, the markets we serve continue to see new entrants who are confident in their underwriting pro-ess.

Speaker 2: Our diversified portfolio of specialty products and conservative approach to underwriting and risk management provides us some protection, but not immunity against market, inflation and recessionary pressures.

Speaker 2: We have navigated market uncertainty before and have confidence that our talented associates can adapt and thrive in all environments we may face.

Speaker 2: Our underlying teams will remain focused on providing consistent and disciplined risk management solutions for our policy holders while capitalizing on opportunities to serve new customers. In next review, April 27th, 15. The update of the toes is going to be by setting a SENiving certificate to ausge specialAmerica and pilot biosission. customers.

Speaker 3: With that, I'll turn it over to Jen to offer up some more color by segment. Thank you, Craig. Property segments produced a 65 combined ratio with 48% premium growth. Attractive market conditions drove an 80% positive rate to change the course. Products with a segment contributed to the profit and growth experience. The headline continues to be the hard market conditions within the Southeast property market. Admitted markets are absent and the enough competitors to remain.

Speaker 3: continue to offer lower limits than historical levels. Several markets announced a renewed focus in this area, but we have not encountered any activity to date.

Speaker 3: We achieved the 24% rate increase on hurricane exposure this quarter, while continuing to tighten our terms and conditions, and risk-filection criteria. It racially responsibilities at the end of Valentine's Day.

Speaker 3: With the growth in exposure this year, we purchased $150 million of additional all-peril catastrophe reinsurance limit effective May 1st.

Speaker 3: This brings our total tower for hurricane risk to 625 million, access to 25 million coverage.

Speaker 3: The additional reinsurance ensures our exposure aligns with our net risk tolerance.

Speaker 3: With our underwriting changes in certain geographies and classes, the growth in our exposures slowed toward the end of the quarter as we worked to optimize the use of our new capacity.

Speaker 3: We have been hiring to support the growth in all property product groups including ENS Property, Marine, and Hawaii homeowners. Our new team members have found additional growth opportunities which has made a positive impact on our expense ratio.

Speaker 3: In all areas, we are mindful of increased valuations to ensure we are collecting adequate premiums for the exposure.

Speaker 3: Our terms and conditions are customized to incentivize the insured to disclose appropriate valuation.

Speaker 3: From a catastrophe perspective, it has been a quiet first half relative to last year. They are entering the second half of the year in a position of strength and expect to meet any new challenges with the same hallmark discipline we have maintained through previous market cycles. Thank you. Thank you. Thank you. Thank you.

Speaker 3: Surety produces 73 combined ratio with 13% top line brints.

Speaker 3: The growth was driven by our commercial surety group, where we have expanded staff and are attracting new business and relationships.

Speaker 3: In contract surety, we continue to see construction projects cost more because of labor and materials.

Speaker 3: Project pipeline for our contractors is still healthy as there is a backlog of public works projects.

Speaker 3: There have been turmoil in both commercial and contractuality in the industry.

Speaker 3: with several competitors experiencing increased loss activity and underwriter turnover. We're closely monitoring the financial health of our principles as we navigate the changing economic conditions.

Speaker 3: Casually produced an 88 combined ratio with 5% growth and premium. The change was positive 5% for the segment.

Speaker 3: The slow down growth and rate was driven by executive product group.

Speaker 3: We call that last year, we began exiting cyber and reps and warm given turns lines.

Speaker 3: In addition, we are seeing a starkly different competitive environment for this product group. After several years of significant rate increases, brokers are pushing for rate decreases and expanded limits as well as terms and conditions. Primarily on public company, Director's and Office of Coverage.

Speaker 3: We have also lost several larger premium accounts that we participated on, opportunityously, starting the heart market.

Speaker 3: The change in production for this line demonstrates our discipline approach to underwing.

Speaker 3: Most of the remaining products in the casualty segments demonstrated growth. Transportation for an increased 13%.

Speaker 3: Much of this is due to a 9% rate change and the rebounding exposures in our public auto book.

Speaker 3: As I've mentioned in previous quarters, competition in this market has heightened, especially in the truck and public products.

Speaker 3: Public accounts in particular are not being marketed as much. The new business is hard to combine.

Speaker 3: Competitors in the transportation space seem to have a very short memory regarding lost potential in wheeled-based business.

Speaker 3: Our ENS excess liability product also grew 7%, including 9% rate change, which we believe continues to outpace loss trends.

Speaker 3: Personal umbrella is also worth noting with 21% growth in premium, as we continue to invest in product updates designed to enhance the customer's experience.

Speaker 3: Overall, the casually segment is in good shape and we continue to see opportunities for profitable growth.

Speaker 3: I'll turn the call back over to Craig for final comments.

Speaker 2: Thanks, Jen. A very good quarter and great first half of the year. We will remain vigilant and highly adaptive to the market and economic pressures ahead.

Speaker 2: Disruption and uncertainty create opportunities for those who do not waver from their proven discerning approach.

Speaker 2: RLI is powered by employee owners who are knowledgeable, disciplined and empowered.

Speaker 2: to solve the challenges they face.

Speaker 2: We are a great home for folks who are customer focused and flourishing a strong ownership culture that aligns shareless interest with share financial rewards.

Speaker 2: I want to thank all of our associate owners for their good care of our customers. For their good care of our customers.

Speaker 2: and for delivering differentiating underwriting results to our shareholders.

Speaker 2: being different has delivered again.

Speaker 2: With that, I will turn it back to the operator dope.

Speaker 1: Let's say that first off. I wonder if we could revisit this issue about inflation as it relates to reserve development. I should say right up front, I'm not worried about your reserve development. What I'm trying to understand is what do you really mean by looking at longer term loss trends? I mean, the inflation we've seen the last year or so is dramatically higher than it was five years ago, ten years ago, whatever. What do you really mean when you're talking about longer term loss trends? How does that mean? This is Todd. The reference there is specific casually. I'll talk a bit more about that. Maybe I wasn't clear. On the property insurance side, the shorter tail, but that's going to manifest itself rather quickly. We talked about first quarter of last year when we had the Texas freeze. That we did include an expected and actual higher amount of reserves at the beginning knowing that there was inflation in those dollars to get the work done length of time, just increase the cost of the lumber, etc. We're looking at not just inflation, but everything that will go into loss trends. If we're taking a longer term view on loss cost trends, it's going to include inflation or anything else. In the current time, our axiories would say they're not seeing that yet.