Q3 2022 Rli Corp Earnings Call
I will close with some final thoughts Todd.
Thanks, Darren and good morning, everyone.
Yesterday, we reported third quarter operating earnings of <unk> 50 per share.
Which were negatively impacted by losses from Hurricane Dorian.
Apart from Ian underwriting results on a current year remains strong and benefits from prior year's reserve releases were accretive to earnings.
All in we experienced 13% topline growth.
And posted a combined ratio of 97 for the quarter <unk>.
Combined with a very strong first half of the year our year to date combined ratio was 85 three.
Investment income advanced 19% in the quarter.
Reinvestment rates continue to move higher.
And operating cash flow remained strong and supportive of incremental investments in the portfolio.
I'll talk more about Maui, Jim in a minute the net realized gains of $573 million for the quarter reflect the sale of this minority investment.
From a net unrealized loss perspective equity securities declined $26 million during the quarter as market volatility continue.
Craig and Jim will give you give some color on the market landscape in a minute, but at a high level all three segments experienced growth as we continued to benefit from favorable conditions in most areas of our business.
From an underwriting income perspective, the quarters combined ratio was 97% compared to $94 six a year ago.
<unk> periods were impacted by elevated hurricane losses.
Hurricane Ian losses in the quarter or within our pre announced range and totaled $40 million net of reinsurance.
$33 million of that is from our property segment and $7 million impacted casualty for a number of our packaged policies are reporting.
Net of bonus related impacts the event totaled $34 8 million or <unk> 60 per share net of tax and added 12 points to the quarter's combined ratio.
From a loss perspective, all three segments experienced favorable prior year's reserve development.
Casualty experienced $28 million and favorable development.
With notable contributions from general liability commercial excess executive products small commercial and miscellaneous professional liability.
Property posted $3 million favorable emergence with the largest benefit from our marine business.
<unk> commercial and miscellaneous were responsible for the bulk of that segment's 2 million and positive development during the quarter.
Moving to expenses compared to last year, our quarterly expense ratio increased two five points to 44.
This result was impacted by an increased bonus and incentive related accruals on a year to date basis, our expense ratio was $39 two.
Turning to investments total return performance was minus three 4% during the quarter and minus 13, 5% on a year to date basis.
Balanced portfolios continued to be challenged by the current environment.
Both stocks and bonds trading lower in price.
As we discussed in our second quarter call. The majority of these declines remain unrealized.
Without the need to sell significant portions of the portfolio.
Strong operating cash flow and an increase in fixed income yields are offered and welcome the opportunity to purchase high quality assets.
Underpin investment income today, new money yields are achievable in the four 5% range without having the need to reach down to the credits that spec.
Spectrum more for longer maturities.
Moving to other investments, we recorded an $18 million loss in the quarter from our equity and earnings of Maui Jim.
This result was driven largely by transaction related expenses incurred by Maui, Jim from the company's sale.
As previously previously announced.
We received $686 $6 million in exchange for our shares and Maui genome.
Final proceeds remains subject to customary post closing working capital and other adjustments, which could modestly increase this amount.
Prior to sale, our carrying value of Maui, Jim was $108 4 million inclusive of the quarter's loss.
Our net earnings.
With realized gain loss in the quarter.
Taxes and other sale related amounts.
$437 $7 million or $9 56 per share from the sale of this minority investment.
Lastly book value per share was $30 72 to end the quarter up 16% from year end inclusive of dividends and was heavily influenced by the realized gain on Maui Jim.
Obviously this transaction generated a significant amount of capital as always are.
Our first preference is to deploy capital in support of our business, which we have been doing.
We regularly evaluate our capital position relative to the opportunities we see as we look forward.
This is the time of year, we have historically evaluated and the excess capital position and we expect to follow the same approach in the fourth quarter of this year.
All in all a very good quarter and strong first nine months of the year and with that I'll turn the call over to Craig.
Thank you Todd and Aaron and good morning, everyone. Good quarter, all things considered.
First and foremost our hearts are with their policyholders and their families who have been affected by hurricane Ian.
Our talented <unk> team is on the ground and helping them as I speak.
We never lose sight of our purpose or a promise to pay for covered fortuitous losses in exchange for a fair premium.
This is our time to fulfill our obligations and health insurance recover and restore their businesses as quickly as possible.
This is what we're focused on delivering.
Stepping up and paying for what we owe helps customers regain their livelihood and eliminate needless involvement of public adjusters litigation costs and Reputational damage frequently cast upon our industry perception event.
We are doing our part to help our customers to help the rest of the industry is focused on the same.
Despite this very large event, we were able to report an underwriting profit in the quarter.
A testament to our diverse product portfolio at both the business unit level and overall for.
For the product experience profitability challenges, we could typically Kevin several other uncorrelated products that are performing well to counterbalance the underperforming one.
This quarter, our E&S casualty executive products, and surety, where some of our largest contributors in helping us maintain underwriting profitability.
At the same time, we were able to grow across all segments, which resulted in total growth of 13% for the quarter, a 17% year to date.
All segments remain profitable year to date.
We continue to see opportunities to grow what we know profitably.
Industry losses from <unk> may lead to an even harder catastrophe exposed property market with tight capacity going forward.
This may spillover into some casualty lines are strong balance sheet high performing businesses and broad portfolio of specialty products positions us well to take advantage of any disruption that may occur.
I'll now turn it over to Jen for some color by segment.
Thanks, Craig I'll start with the property segment.
<unk> grew 40% in the property segment, including 8% positive rate change this quarter.
<unk> is led by E&S property, which is also the largest contributor to our catastrophe portfolio in terms of premium and exposure.
Akane rates were up 25% in the quarter and we continue to push on terms and conditions such as deductible.
To offer some perspective, we target achieving rate increases on hurricane business in 2018.
Since January one 2019, the cumulative rate increase on our Hurricane book is 110% and new business pricing is higher than revenue.
Additionally, we have been steadily improving terms and conditions.
Currently we can write as much business as a reminder, while we manage exposure growth by continuing to focus on our geographical spread of risk and providing lower limits on new business than on renewal accounts.
The majority of our Hurricane Ian loss occurred in the E&S property Division the loss estimate accounts for inflation and potential litigation and is based on observations and discussions with our insurers and our producers through site visits over the last couple of weeks.
We have been able to visit most of the sites with larger limits exposed and have advanced money to help with mitigation to respond to our insurance immediately.
The storm made landfall in one of the industry's peak catastrophes zone, which is also one of our highest exposed geographies.
Despite the estimated in loss the E&S property division by itself still posted an underwriting profit through the first nine months of 2022.
It should be noted that due to the storm there are non cancellation rules in place in Florida through the end of November .
Our underwriters have leaned into the Florida property market opportunity this year and recognize that directive terms will likely improve given the posturing of the reinsurance market.
Our property reinsurance coverage comes up for renewal at one one and we are expecting some rate increase at <unk>.
Manage our business to ensure we can entertain new opportunities with our producer partners through all cycles.
We will adjust our appetite based on the availability and cost of capacity and are prepared and willing to walk away from business if the market becomes irrational.
We have additional businesses in this segment that are achieving profitability and worth mentioning.
The Marine Division grew 25%, while producing an underwriting profit we've been obtaining notable rate increases for four years in the third quarter rates increased 6%.
Seeing more opportunities by expanding our team and staying in front of our brokers.
That same customer service spills over into our Hawaii homeowners book, where we grew by 17%.
We celebrated our 2050 years, serving the Hawaii homeowners market appreciation event in Honolulu for over 160 of our partner agencies in September .
Our local Hawaii presence and underwriting and claims service continues to translate into positive results for us and for our customers.
Although the property segment reported a 110 combined ratio in the quarter. It was an improvement from last year's third quarter and the segment is on pace to outperform last year's results with an excellent 82 combined ratio year to date.
Turning to our surety segment premium was up 12% in the quarter with all products contributing.
We continue to see the impact of inflation on project value, which drive some of the growth in our contract surety premium.
We have added to staff in this segment and are seeing more opportunities to cross marketing initiatives.
We continue to monitor this segment closely given ongoing shortages in the construction labor market, increasing interest rates that can impact project funding and timing and overall economic conditions.
Although this market continues to be highly competitive which is an 81 combined ratio and we will continue to selectively find opportunities in surety.
Finally casualty premiums grew 3% in the quarter led by E&S General liability, which was up 25%.
This construction focused business is trailing competitive, especially in the northeast with several carriers offer broader terms and conditions.
Our growth has been driven by opportunities outside of the northeast.
Our transportation group experienced 10% growth in the quarter, which was driven by the public auto product, which continues to see more buses in service compared to last year's third quarter.
Both the public auto and specialty commercial auto markets are stable and we're able to find opportunities to obtain appropriate terms and conditions.
The truck portion of our transportation book is still very competitive with multiple sources of new capacity and have emerged in the last 18 months.
Finally, our personal umbrella product has grown 19% in the quarter as we continue to strengthen relationships with all of our distribution channels.
We are watching growth closely gives us severity trends and the lag in state insurance department rate approvals.
We work with our producers to navigate the opportunities in states, where it takes longer to adjust our pricing terms and conditions.
Accounts receivables growth was offset by our executive products group for the exit from cyber and transactional liability has almost run its course.
We are also experiencing strong headwinds from brokers on public D&O inside of the business, where they have obtained access to more than a dozen new markets, including many engine over the last 12 months.
We have adjusted our underwriting in this changing market, resulting in a 3% rate decrease for the corner moving to another layer within reinsurance tower for some accounts and even walking away from accounts when the terms become unsustainable.
Excluding the impact from this business unit the casualty segments premium would have grown 10% in the quarter.
Overall casualty segment rates increased 3% for the quarter our.
The casualty loss ratio was elevated as hurricane Ian losses in our general binding Authority book are included in this segment.
The disruption in this space is allowing us to implement some notable changes we continue to raise rates and tightened terms and conditions for all coverages for GBA products as we work towards underwriting profitability.
Overall, the casualty segment finished with a 93 seven combined ratio for the quarter.
And now I'll turn the call back over to Craig for some further comments.
Thank you Jim.
We continued to benefit from very good underlying results for our company. We are poised to take advantage of tighter capacity in a harder market.
We believe there will be a flight to quality affecting relationships ranging from reinsurers distribution partners ensured and underwriters, we have the financial strength reputation and underwriting expertise to benefit from any resulting market displacement.
ROI is a great home for future employee owners, who share our values or discipline accountability and ownership.
I would be remiss, if I didn't mention the large gain on the sale of Belgium. This quarter now he has been a great investment for our company and we will continue to remember the deep shared history of our two companies mahalo to the entire Maui Jim team.
I also want to thank all of our associate owners for delivering again this quarter.
Responsiveness following two catastrophic events as we're reputations are earned or forfeited.
While we cant stop natural catastrophes from occurring as owners, we realized that if we continue to take care of our customers, we will take care of our future.
Thank you now I'll turn it back to the moderator, who will open up for questions.
Okay.
Thank you. The question answer session will begin at this time.
Using a speaker 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. Please press star two.
Your question will be taken in the order that you received please standby for your first question.
Okay.
First question comes from Mark <unk> of Jpmorgan. Please go ahead. Your line is open.
Hey, Thanks, so macro linear JMP good morning.
Couple of questions one John you Keith.
Good morning.
First on the accident your loss ratio.
I wanted to follow up on Jim's comments, there I think you mentioned that.
There was some impact from hurricane Ian losses, as well as one other item I didn't catch.
It looks like it went up if we look at kind of <unk>.
Nine months versus six months run rate two to three points is.
If we were to strip that out would it be relatively unchanged kind of sticking at that 64. So that was all in the first half.
Hey, Matt it's Todd.
Take that I think the bigger driver is what youre seeing from a casualty.
The catastrophe impact that's really what's driving it you can get a little bit of movement between quarters.
And I would look more to the year to date on that.
And I think we're at 65.
From a casualty underlying which is about one point better than what we were last year, So I really would.
Kind of focus on the year to date when you take a look at that you can get a little bit of movement between between quarters, but the large impacts as that as those cat losses.
Okay, Great. That's helpful. And then just one other one if I could.
Net investment income.
Took a nice step up in the quarter.
Yes.
Is that largely kind of just rates, earning in related and therefore, largely sustainable or was there any kind of one time, there that might have given us a lot of benefit this quarter that we shouldnt repeat going forward.
Hey, Matt.
Erin Thanks for the question, Yes, it's really just us putting money to work pretty consistently operating cash flow last year was very strong.
And we've seen investment income off now going back over the last four quarters on a comparative basis. So it's really both the combination of new money yields being up pretty consistently here in 2022 plus.
Larger amounts of cash flow just being put to work really in fixed income.
More so than anywhere else.
Great well. Thank you for the thank you for the color I appreciate it.
Thanks, Matt.
Thank you very much for your question. Our next question comes from Greg Peters Raymond James. Please go ahead.
Hey, good morning, this is actually sit on for Greg.
Just looking at the southeast property market.
The current state of it in the outlook for reinsurance pricing and tightened capacity, possibly could.
Could you guys just give updated outlook for growth in the property.
Business, there and if theres been any change on the outlook for that business.
So this is Jim.
The southeast property market and in particular, Florida remains.
A very open space in your business. There is a lack of capacity and I think we're going to see more of that as we move towards online and through the reinsurance renewal process out of a number of MDA is in that space that are currently looking to negotiate there and the capacity for next year and I think are going to struggle through that process.
The season of meeting with reinsurers. So we've been to a number of meetings have been doing some travelling and the reinsurance market is looking to.
Take some action here from a rate standpoint, and also a push on other terms and conditions such as retention. So I think some markets will struggle to get the coverage they need to really.
Stay in that state, particularly on an admitted basis I think the fact that we focus on that area on a non admitted basis really helps us react to what we like what we need in that market.
So for us.
We would like to continue growing but it will depend on the terms and conditions, we can secure from our reinsurance partners.
As we approach them R.
Our main focus is that we do things differently than other markets. We control our own claims we take a lot of care with underwriting understanding what the exposure is so our pitches to have them give us their capacity versus other people, we hope that they buy that bitch.
Because we would like to continue to take advantage of this market I think you can see from our results in 2022 that despite we had a lot of growth we had a large event, but we were still able to make an underwriting profit year to date.
This division so I would like to continue doing that but it will be dependent on what we can obtain youre on one one that's still in process. So you have to be determined.
Okay got it thank you.
Yeah.
Thank you very much for your question Greg. Our next question comes from Mark Dwelle RBC capital markets. Please go ahead. Your line is open.
Yes, good morning, a couple of questions.
First with respect to your talk.
In pretty good detail about.
How the property market has tightened up and so forth and I think thats pretty well as expected and understood is there any signs yet.
As to whether any of the <unk> losses, and resulting hardening of the reinsurance market is spreading over to casualty lines at all or is it maybe too soon to tell.
Hey, Mark This is John I think it's too soon to tell.
As we listened to the reinsurers talk about what they want to accomplish they would like it to spillover.
We don't know that Thats going to happen, we will have to see from a primary standpoint, I think the issues that have been going on for years in terms of loss loss trends frequency severity et cetera are kind of just continuing in that market. So nothing bleeding over that we can see from Ian at this point in time.
Okay.
Second question.
Kind of staying in that same general vein on casualty you had commented in terms of the D&O market that some of the pricing there.
It had been softening and mentioned some new markets.
Can you give any just maybe additional color on what you think is may be causing that market to soften I guess I would've thought D&O is kind of a textbook example of a social inflation type market that would be depressed in a period where.
Markets are have been negative.
Adverse economic conditions, but.
Seemingly that's not the case from a pricing standpoint.
Sure Mark I think the issue here is we had three years of very significant rate increases all over 20% in the market and so a lot of people.
Saw that and thought well, maybe I should get in and get some of that rate and so we have had people enter the other part of it is just the number of deals available. If you think about how many ipos are not occurring these days that used to be there or less.
Deals to get answer Theres, a little bit less.
Less less insurance being procured and so everybody is fighting for those accounts. So I think the combination of those factors is causing the market to soften.
And so that's what we're seeing.
Okay. That's helpful. Thank you.
I guess my my third question.
Todd Todd I guess alluded to the.
Disposition or the utilization of the Maui, Jim proceeds a little bit in his prepared remarks, so I'm not real optimistic I'm going to get a lot more insight.
But the one question I wanted to ask is you and your board consider.
Dividends special dividends or any other potential use are you thinking about that from a net income perspective, our comprehensive income perspective, or an operating earnings perspective.
This is Todd Mark I think we think about all of those right I mean, I think youre looking at all factors you're looking forward on what you think growth might be youre going to consider what.
While the reinsurance market maybe lives so.
We do take a rating agency view of some of this some of that gap based some of that stat base, we have internal models.
But we do ourselves so it's really an all in view.
All of those aspects.
Maybe if I ask it differently.
If somebody is thinking that they are.
There was a nearly $10 gain on Maui, Jim and accordingly, there would be a $10 special dividend associated with that that would probably be too expensive of a way to think about it right in view of.
The way comprehensive income and operating income has behaved.
Yes, Mark just described.
But very much like Todd said, we're going to look at all the opportunities in front of US obviously, our preference is to put our capital to use you've seen we've grown a bit.
And we're going to have to do all of that as Todd talked about the model and if you look at all of that and then look forward to see what we think the market opt.
The opportunities are going to be out there and then we'll have to make a decision. So.
Hopefully that's helpful. Okay.
I took my best shot.
Yes.
I'll take my best shot I've been trying this for three quarters now.
Equal success in all three.
Yes.
Through the color.
Thanks Mark.
Thank you very much for your question Mark. Our next question comes from Meyer Shields at Keybanc keeping W. Please go ahead.
Alright.
Perfect. Thanks.
I want to go back to the casualty segment I completely understand that because todd's comments about looking at year to date numbers.
This increase in the year to date from call. It 64 in the first half to 65 now I was hoping you could talk us through what's changing the company view.
Okay.
I don't think our view is changing.
Sure I mean, I think from an underlying from a core loss ratio standpoint, we don't have a different view.
Again, I mentioned, a little bit of noise, you may get between quarters I don't want to go down a rabbit hole on unallocated loss adjustment expense maybe.
<unk> between current and prior years, but.
It really is our view has not changed so from a 60.
A point higher than what you saw.
Through the second quarter. It is but the underlying view has not changed on our part.
Okay. That's helpful.
To go into the Rab at all but I think what you're saying.
Same question, though if I can on the expense ratio for casualty that seems high.
And that surprised me given both the cat losses and the underlying was hoping you could explain if anything unusual going on there.
Nothing unusual.
Did I Miss it crosses across all segments.
We did have a onetime bonus that was related that I mentioned that there was some impact there.
Related to the transaction Youre seeing that through policy acquisition I E. The original expense some home office expense.
So nothing unusual as mix changes I guess I will mention the mix changes a little bit.
Some of our small commercial.
Personal umbrella a few of those products as they grow they may have.
Marginally higher commission rate.
With that account for maybe.
Half a point or less on the expense ratio.
It could but nothing material at all.
Okay fantastic. Thank you so much.
Okay.
Thank you very much for your question.
At this time there are no further questions I will now turn the conference over to Mr. Craig Kliethermes.
Some closing remarks.
Well. Thank you. Thank you all for joining us.
Good quarter overall I want to thank the entire ROI ownership team.
Hope, we can finish strong and we'll see you next year I guess.
Thank you.
Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing 18668139403 with an IV patzke off eight four <unk> 95. This concludes our conference for today. Thank you all for participating and have a nice day all parties.
You may now disconnect.
Okay.
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