Q3 2024 RLI Corp Earnings Call
Good morning, and welcome to the RLI Corp, third quarter earnings teleconference. After management's prepared remarks, we will 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.
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 supplemented in forms 10-Q, all of which should be reviewed carefully.
<unk> has filed a form 8-K with the Securities and Exchange Commission that contains the press release announcing third quarter results.
The cool RLI management may refer to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results.
<unk> 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 unrealized 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 the form 8-K and press release are available at the company's website at Www Dot <unk> Dot com.
Speaker Change: I'll now turn the conference over to Rli's, Chief Investment Officer, and Treasurer, Mr. Eric <unk>. Please go ahead.
Eric <unk>: Thank you Adam Good morning, everyone. Thank you for joining <unk> third quarter earnings call for 2024.
Speaker Change: Joining us are frankly permits president and CEO, John <unk>, Chief operating officer.
Eric <unk>: Todd Bryant Chief Financial Officer.
Eric <unk>: Today's agenda will include Craig opening up the call with some high level remarks.
Eric <unk>: Todd will add detail on our financial results for the quarter General offer some additional commentary on market conditions and our product portfolio.
Eric <unk>: The operator will then open the line for questions and Craig will close with some final thoughts Greg.
Craig: Well, thank you Aaron and good morning, everyone.
Craig: I wanted to start by acknowledging the devastating hurricanes that occurred over the last several months and the impact they have had on our customers business partners and team members.
We continue to extend our heartfelt support to all who are affected by these destructive and life threatening events.
Craig: Roy is committed to doing our part to store our customers livelihoods.
Craig: Our purpose is to protect people and organizations from lifestyle uncertainties to help them explore create build and thrive our financial strength and stability empower us to help individuals and businesses diversify and sustained risks that they can't manage on their own.
Craig: It also enables us to deliver consistent returns for our shareholders.
Craig: Shareholders.
Speaker Change: I'll, let Todd and Jen go into more detail on the financials the market in general the opportunities, we see and the impact that these storms had on our financials.
Speaker Change: All things considered we were pleased with the opportunities to grow profitably during the quarter and lean into the disruptions in the marketplace, where we have expertise.
Now I'll turn it over to Todd for his comments, thanks, Greg Good morning, everyone.
Todd Bryant: Yesterday, we reported third quarter operating earnings of $1 31 per share.
Todd Bryant: Positive underwriting performance.
Todd Bryant: 15% rise in investment income contributing to the increase in operating earnings on a comparative basis.
Todd Bryant: Our combined ratio was $89 six for the quarter and now stands at 83, three on a year to date basis.
Todd Bryant: Top line growth continued in the quarter with gross premiums advancing 13%.
<unk> will offer some additional details on premium growth, which remained very balanced across our product segments as.
Todd Bryant: As referenced in our pre announcement on October seven.
Todd Bryant: <unk> were affected by storm activity in the quarter over quarter, most acutely hurricanes, our lean and barrel.
Todd Bryant: On a GAAP basis net earnings of $2 six per share compares to 29 per share in Q3 of 2023.
Todd Bryant: Last year's results were heavily influenced by the Hawaii wildfire losses.
Todd Bryant: Equity market that was inventory over the quarter.
Todd Bryant: Underwriting income in Q3, 2024 was primarily driven by continued growth in earned premium.
Todd Bryant: Lower current year catastrophe losses and favorable prior year development.
Todd Bryant: In combination this resulted in an improved combined ratio of 89 six.
Todd Bryant: Fair to $98 seven in 2023.
Todd Bryant: Losses recorded from Hurricanes to leased barrel totaled 37 million $35 million of that effect of the property segment, while 2 million was tied the packaged policies in our casualty segment.
Todd Bryant: Non hurricanes, we recorded $2 million of other storm losses in the quarter.
Todd Bryant: Although we are largely focused on Q3 results in our discussion today.
Todd Bryant: We wanted to take a moment to outline the range of loss estimates for Hurricane, Michael which made landfall in Florida on October nine this was a very large storm.
Todd Bryant: And that's our subject to change.
We currently estimate the pre tax losses from Hurricane Milton net of any reinsurance benefits will be between 45 and $55 million.
Todd Bryant: We will reflect a final loss estimate in our fourth quarter financials, but would not expect to publish a narrowing or adjustment to this range between now and our fourth quarter earnings release.
Todd Bryant: Unless our claim estimates changed materially.
Todd Bryant: Turning to segment level results as mentioned growth in gross premium was very balanced in the quarter and our underwriters continue to find topline opportunities.
Todd Bryant: Casualty has been growing at double digit pace. This year and Q3 came in at plus 16%.
Todd Bryant: The bottom line for casualty benefited from $9 billion of favorable prior year loss development.
We continue to monitor wheel base and other excess liability exposures, while we believe it is prudent to reflect an extended pattern for loss emergence.
Todd Bryant: Considering similar uncertainty on wheels based liability exposures in the current accident year, our casualty book booking ratio was up slightly weighing on the underlying loss ratio on.
Todd Bryant: On an overall basis casualty remains profitable for the $98 eight combined ratio for the quarter.
Todd Bryant: Charity growth remained robust at night at a 9% increase in gross premiums in the third quarter alongside $3 1 million of favorable prior year loss development.
Todd Bryant: This resulted in an eight five point benefit with surety loss ratio, which was partially offset by an increase in the expense ratio.
Todd Bryant: Acquisition costs have moved higher influenced in part by mix of business as well as our continued investments in people and technology to support <unk> growth.
Todd Bryant: Away from the discussion on catastrophes, the property segment continued to grow.
Todd Bryant: And was up 10% in the quarter.
Byproduct marine in Hawaii homeowners are outpacing moderating growth in E&S property.
Overall, we reduced prior year reserves by $4 4 million associated with Marine in contrast to some strengthening in Q3 of 2023.
Todd Bryant: Additionally, prior year storm losses were adjusted favorably by $3 3 million.
Todd Bryant: Underlying results per property were very comparable to last year and the segment 77 combined ratio for the quarter again highlighted the influence of growth in earned premium.
Todd Bryant: Operating cash flow was strong in the quarter at $219 million and helped to support continued purchase activity in the investment portfolio.
Todd Bryant: Yields averaged four 9%.
Todd Bryant: Opportunities remain available to add high quality bonds that were accretive to book yield and our approach has remained fairly consistent.
Todd Bryant: Portfolio's average duration has extended slightly to $4 four eight years as we focus on intermediate maturities.
Todd Bryant: Total return for the quarter was four 8% with significant contributions from bonds as rates decline and from stocks due to the market's continued upswing.
Todd Bryant: On the core portfolio, our investment in prime contribute to invest the earnings of $1 2 million in Q3.
Todd Bryant: Putting it altogether comprehensive earnings were $3 79 per share and book value per share to $38 17.
Todd Bryant: An increase of 26% from year end 2023 inclusive of dividends.
Todd Bryant: 2024, we are pleased with the results through three quarters and now I'll turn the call over to Jim Jen. Thank you Todd.
Jim Jen: Let me provide some more color by segment.
Jim Jen: As Todd mentioned, our casualty segment grew by 16%.
Jim Jen: Growth was widespread coming from almost all of our products.
Jim Jen: Casualty brokerage group, which Ryan's primary general liability and excess liability coverage grew by 8% submissions are up 15% and they continue to stay in front of producers and ask for business.
Some competitors have experienced adverse loss development, and Turkey and an appetite.
Jim Jen: That's a chance to see more opportunity at the same time, we're continuing to be new LNG carriers entering that market.
Speaker Change: As Todd mentioned, we are seeing clients taking longer results a trend that we have incorporated into our loss development factors.
Speaker Change: Our dedicated claims handlers work closely with our underwriters actuaries.
So we can remain a consistent participant in the market.
Speaker Change: Our transportation Division grew by 15%.
This area remains a target for legal system.
Speaker Change: This has caused some competitors to rethink their strategy, which supported a 20% increase in our solutions.
We are focused on risk selection and maintaining adequate rates.
Speaker Change: Walked away from accounts that became underpriced and achieved an 11% rate increase in the business we retain.
That sense of new products, including moving and storage and amenity offerings are starting to pay off and we provide a new alternative to our producers.
We remain cautious, but see a lot of opportunity in this market.
Speaker Change: Personal umbrella grew 36%, including a 16% rate increase.
Speaker Change: Supported by a nationwide rate approval effective in the third quarter.
Speaker Change: We actively monitor rate adequacy given the growth in this book, we continue to win new business and underlying carriers focus on home monitor auto issue, creating opportunities for our standalone products are.
Speaker Change: Our dedicated team is providing regular feedback to our underwriters and actuaries have been our product is optimized.
Speaker Change: Okay.
Speaker Change: The only area of the casualty segment that is contracted with our executive products group, which focuses on directors and officers insurance and other management liability coverages.
Speaker Change: Our book is about one third public company issue, which is the most competitive space.
Speaker Change: Our focus on growing the private company business.
Speaker Change: Rates were down 4% in the quarter, while we pick and choose which accounts, we can give on rates and which accounts to walk away from it.
Speaker Change: It appears the market is getting a bit more statement in this space. So new business is difficult to win.
Speaker Change: Overall casualty rate change was 9% increase which matches the rate change from last quarter on that.
Speaker Change: <unk> ratio of $98 eight is a notable increase from last quarter's third quarter, we have the system in place with strong collaboration between our underwriting claims and analytical support team to continuously optimize our approach as the market evolves.
Speaker Change: The surety segment premiums grew by 9% contract surety led the way with 25% growth due to the lift from the elevated cost of materials as well as winning new business.
Speaker Change: Commercial and transactional surety grew at a small piece of competition remains fierce.
Speaker Change: We continue to be selective as inflation and economic conditions are creating a disparity in individual companies financial strength.
Speaker Change: Our focus for the segment is marketing and educating producers on our appetite.
Speaker Change: Find ratio for surety of $78 eight reflects our underwriting discipline and the lack of any large loss activity in the quarter.
Speaker Change: Finally in our property segment grew by 10% I'll start with Hawaii homeowners last year's third quarter was heavily influenced by the line of wildfire loss.
Speaker Change: We are happy to report that over 90% of our reported loss has been paid to our insurance claim resolution at the core of our business different proactive claims handling customer service oriented underwriting and with select competitors pulling back we continue to see growth in this book.
Speaker Change: Evidenced by the 22% increase in premiums this quarter.
Speaker Change: Rate increased two 4% for the quarter with more rate approvals.
Speaker Change: Second in the fourth quarter.
Speaker Change: Marine also grew by 21% in the third quarter.
Speaker Change: We are very responsive and identify opportunities to conversations with our brokers.
Speaker Change: Additionally, we continue to add weights in the book this quarter, we achieved a 5% rate increase we see a lot of opportunity in the gravitation of business to the wholesale market.
Speaker Change: Our E&S property group grew by 5% in the quarter.
The increase in rates and premium over the last year is earning through and giving us the foundation to resolve hurricanes and other claim while producing an underwriting profit.
Speaker Change: It's been an active hurricane season, starting with hurricane barrels landfall in early July and continued into early October hurricane looking horizon.
Speaker Change: Throughout the season, and we remain diligent in the basin, capturing our exposure at a very granular level, maintaining policy terms and conditions.
Speaker Change: <unk> prepared to mobilize our claims staff immediately following the event.
Speaker Change: We continue to have a physical claim presence in Florida to assist our insurers as they need us.
Speaker Change: Just on the ground approach supports our ability to quantify the extent of damage and inform our loss estimate on timely basis as demonstrated by our Norton estimate provided today less than two weeks after the event.
Speaker Change: In terms of Martin market conditions, the property market has been softening from a peak prior to the most recent events.
Speaker Change: In the third quarter hurricane rates were down 8%.
Speaker Change: Overall, E&S property rates changed flat.
Speaker Change: It's too early for most carriers MTA has to react to the three sizable hurricanes this year.
Speaker Change: We're focused on is being available to quote new business, providing timely feedback to our producers trying to we cannot renewables and continuing to resolve claims quickly and fairly as possible.
Speaker Change: Our exposure has decreased over the last year as competition became more aggressive in the market.
Speaker Change: Is that competition and fees, we have some room to take advantage of any changes in the market.
Speaker Change: This quarter showcased our ability to execute.
Speaker Change: Over the last few years, we've invested in the <unk> community with additional staff training and tools to improve processes.
Speaker Change: We have also been significant time and resources investing and producer relationships and technology, particularly technology that enhances ease of use as well as enabling our claim staff to resolve claims more effectively.
Speaker Change: These investments are resulting in profitable growth.
Speaker Change: This quarter, we grew premium by 13% and produced an $89 six combined ratio, we have three quarters behind us. So we're sitting on an 83 combined ratio for the year.
Speaker Change: I didn't know if I can finish strong.
Speaker Change: With that I will turn the call over to the moderator to open it up for questions. Thank you.
Speaker Change: Thank you the question and answer session will begin at this time.
Speaker Change: People are using a speakerphone please pick up the handset before pressing any numbers should you have a question. Please press star followed by one on your telephone keypad. If you wish to withdraw your question. Please press star followed by two.
Speaker Change: <unk> should be taken in the order that they are received.
Speaker Change: And our first question comes from Bill <unk> from Wolfe Research.
Speaker Change: Your line is open. Please go ahead.
Thank you good morning, and thank you for taking my questions. Craig I wanted to follow up on your comment about wanting to lean into the disruptions in the marketplace, where you see the greatest opportunities.
Speaker Change: Perhaps could you discuss the most attractive opportunities for incremental profitability across your business lines that you see currently.
Craig: Sure Bill Thanks.
Craig: I mean, obviously the way our business is set up with.
Craig: Narrow and deep expertise in both underwriting and claims.
Craig: We have to be prepared to lean in when there is opportunity and some disruption.
Craig: We've been seeing that in our personal umbrella space for probably the last several years.
Craig: Jen mentioned transportation, obviously, we're always prepared to lead them, we've been in that business for 40 years with.
Craig: People that only underwrite transportation only handle transportation related claims our marine business continues to see opportunities, particularly on the inland side of the house.
Speaker Change: Ken mentioned, Hawaii homeowners.
We remain steadfast in our commitment to that market.
Speaker Change: Obviously, we'd like to continue to get rate increases over time. So we can continue to remain competitive in that market, but a lot of people are working backwards there.
Speaker Change:
Speaker Change: And obviously, we're kind of in a wait and see.
Speaker Change: I would rather E&S property, we saw a huge opportunity over the last two years or three years, we leaned in heavily into that opportunity, we'll see what happens as a result of this.
Speaker Change: <unk> three fairly sizable collective hurricanes.
Speaker Change: That we that we had this year.
Speaker Change: Always prepared to lean into surety.
Speaker Change: Obviously commercial access business as well so when we see a fair amount of opportunity in our portfolio. The beauty of our very diverse portfolio is.
Speaker Change: <unk>.
Speaker Change: We have some products that there is opportunity other products, where we have to pull back.
Speaker Change: And our model has always allowed our underwriters to do the right thing in all markets. So they can lean and they've proven track record of success.
Speaker Change: Over time, which gives us the confidence to let them lead into markets, where there is opportunity and it's pretty much self regulating in regards.
Speaker Change: To them pulling back in regards to where the market is a little too competitive and under a profit is not available to us.
Speaker Change: Okay.
Speaker Change: Thanks, Craig that's helpful separately, it would be great to hear any observations on the trajectory of pricing versus loss cost inflation trends that you're seeing and any changes you anticipate in the aftermath of the hurricanes.
Speaker Change: Yes. This is John so regarding properties I think if you look at obviously loss trends up a little bit even for property given material cost.
Speaker Change: Somewhat litigation environment around when there's significant claims to be handled in the public adjusters and whatnot.
<unk> been pushing rate a lot of our rates are up about 200% over labs.
Speaker Change: Five years more money over the last two years, we're up probably almost 200% and so you know we've already taken a significant amount of rate, we think our portfolio very well priced I think the opportunity here at a minimum is that with these large events. It will stabilize the markets instead of the market's starting to deteriorate.
Speaker Change: With regard to both rates as well as some terms and conditions on hoping that this will provide a foundation for people to say, okay. We want to do that but let's make sure that we are being diligent around what coverage, we want to provide and the charging of rates to cover those losses. When we have so I think property.
Speaker Change: It's again too early to say because these events are just unfolding yet.
Speaker Change: But I'm, hoping that the impact of the market on the casualty side I would say.
Rate changes keeping up with loss trend and the benefit we have is that with the connection between.
Speaker Change: Between underwriters claims and some analytical support.
Speaker Change: The other is nowhere where act and so they know to continue to push that rate and kind of where they are with regard to profitability.
Speaker Change: So that they can on each account as they look at it they know kind of where they need to be so.
Speaker Change: So thats kind of the advantage on the casualty side.
Speaker Change: Thanks, John that's helpful. If I could squeeze in one final sort of higher level question for the broader team.
We saw another quarter of favorable development across your casualty.
Speaker Change: Casualty property and surety segments, and I think the market fully appreciates that you're underwriting is exceptional but could you take us inside the business and perhaps give a bit more perspective on what's driving that kind of consistency at a time, where social inflation has been pervasive and reserve adequacy remains a concern for many of your competitors.
Speaker Change: Well I mean, I'll try and maybe Todd can join in here, but I mean, I I mean, we obviously have always taken a long term view of loss cost trends of I'll say, a prudent view of risk.
Speaker Change: Factored into all of our estimates.
Speaker Change: Our starting booking ratios, we try to look at a reasonable range and tried to be prudent and both the initial loss ratio in the maybe the higher end of that range, but certainly within the range but.
Speaker Change: Factoring in the risks that are out there, particularly right now you have.
Speaker Change: Single serve to reduce we invest heavily in our claim department and the communication between our claim department and the actuaries, which gives us real time feedback of what the actuaries Youre seeing sometimes you know actually I still get caught up in the data.
Speaker Change: And we get the claim perspective of what might be driving that data.
Speaker Change: So thank you for sharing that with our underwriters as well, which helps give them information to either pull back or lean into a market.
Speaker Change: And we'd have the same approach around here for a much longer than I've ever been here I mean at least 30 years. It's been the same approach we've not changed our approach.
Speaker Change: Im not going to say, we've always had favorable development. If you could go back wafer or like in the last really really soft market in the early.
Speaker Change: 2000.
Late 19 nineties.
Speaker Change: Adverse development as well, but just not as much as the rest of the industry is not as much as our peers and I think I would say that speaks to kind of our overall long term approach to thinking about things at risk based approach to thinking about things I wanted to take a couple of other things that they can I think part of it as a risk appetite with regard to small to middle market.
Speaker Change: Curious that we target generally speaking in most of our businesses, we don't put out excess of limits to the insurance segment.
Speaker Change: It'd be less of a target for some of the legal system abuse that goes on and then it comes down to hardware accelerated comes to underwriting you know you're going through the submission in your underwriting you're actually paying attention to where that ensure it is in terms of venues what their work is covering what their work is in that what they don't do that might get kind of slot. It in there.
Speaker Change: Claims were getting investigation early in that clean line, we are strategizing around knowing that the plaintiffs attorney has a playbook.
Speaker Change: And we know that we can counteract that playbook by getting investigation early staying ahead of public adjusters as an example.
Speaker Change: No.
Speaker Change: Reasonable settlement at the proper time, and trying to be and that contact with our insurance take to resolve those claims. So it's really about kind of being diligent in going deep into our processes, whether it's underwriting or claims and also our risk appetite. So that we're not as much of a target and win those cases do come up where they look a little here, we know how to address that.
Speaker Change: To resolve the claim prior to getting kind of out of control.
Speaker Change: The only thing I would add I think Jim talked about it in her opening as well.
Speaker Change: And Craig spoke to just a moment ago, where we are we tend to be a little bit slow we believe in recognizing good news, we are extending the reporting patterns and some of the auto and excess liability areas, where we have seen a bit higher emergence.
Maybe not to the level of others, but we haven't seen a few things there. So we believe it is prudent to.
Speaker Change: To be a bit cautious there so you do see that.
Speaker Change: A little bit lower favorable development on the casualty side.
Speaker Change: Third to third quarter of last year, the third quarter of last year this moves around a bit the processes consistent.
But we had significant favorable on <unk> third quarter of last year, it was about $9 million.
Speaker Change: That accounts for a lot of the difference here quarter to quarter, we take a consistent approach, we are cautious or prudent and where we set the initial booking ratio. We believe we may be a bit slower.
Speaker Change: To move off of that.
Speaker Change: So that I think helps.
Speaker Change: Historically with.
Speaker Change: With some of the consistency.
Speaker Change: Okay.
Speaker Change: And I guess I would add one more thing as I say I think were adamant of getting information in the hands of our underwriters.
And because of our business model because our underwriters are focused on underwriting profit they listen for one thing maybe their ego, it's a bit in check.
Speaker Change: In regards to those conversations.
Speaker Change: They're wanting to try to continue to grow underwriting profit.
Speaker Change: And I think Jen mentioned some in there.
Age our limits, we don't we're not a big limit Terrier, we don't put out really big limits, we avoid a deep pocket insurance for the most part manage our jurisdictions.
Speaker Change: And our guys.
Speaker Change: Do a pretty good job of overall managing our exposure to.
I will say this the legal system abuse, but however, we are not immune.
Speaker Change: Can do is mitigate.
Speaker Change: These are both through our underwriters, who have the information and exceptional client people, who tried to get the best outcomes for the company that can do a pretty good job.
Speaker Change: Thank you that was really helpful. I appreciate the detailed response.
Speaker Change: The next question comes from Michael Phillips from Oppenheimer. Michael Your line is open. Please go ahead.
Michael Phillips: Thank you and good morning, maybe a little bit more on.
Michael Phillips: So kind of you actually just made a couple of comments on the extended reporting patterns in the casualty I guess I want to ask on that with the backdrop of some prior quarters, where you've talked about having to monitor the tail. So when you talk about the extent of reporting things are you talking specifically sort of late reporting from.
Michael Phillips: Older accident years or is it more recent.
Michael Phillips: Accident years, where you're being a little more cautious there. Thank you.
Speaker Change: I would say yes.
Speaker Change: Little bit of a little bit of both from that standpoint, and when we talk kind of.
Speaker Change: We're reporting patterns that you mentioned or extending the tail. That's the same I mean were just some of the business, but excess liability that would be right.
Speaker Change: In our east that can have a longer tail to it slower.
Speaker Change: To get to this analysis from that standpoint.
Speaker Change: Whether it was COVID-19 or post COVID-19.
Speaker Change: Whether you see that of course being a bit slow.
Lots of things that on the wheel space, Jim talked about some of that.
Speaker Change: Just.
Speaker Change: We go a little bit slower on how long it may take for those those claims to settle.
Speaker Change: So that can influence yes, so I would just add that I think that I'm not sure that we have seen in our data that the actual reporting patterns longer I mean, you got to wipe out some of the COVID-19 stuff because that messed up some of the numbers, but certainly the development. The time it takes to get final resolution of claims.
That's that's that takes longer.
Speaker Change: People.
Speaker Change: Hanging out waiting for a jackpot, sometimes and.
Speaker Change: We're trying to get claim resolution.
Speaker Change: It depends how hard the plaintiffs' attorneys pushing.
It can be it can take a while so that's why we're trying to reflect that in our loss development patterns.
Speaker Change: Okay. Thank you.
Speaker Change: I guess, specifically on your commercial excess book can you say, what you're seeing there for current kind of severity trends there and maybe how that compares to what you thought just a few years ago.
Now if this is all about we're focused a lot on construction, where you are in a project a lot of it is project business with some of them are practice policies, where you're insuring the contractor for all of the work that they do throughout the year. So there's a mix within that book, but a lot of it is construction related.
Speaker Change: So you do have some barley injury, where someone gets hurt on the construction site.
I would say in terms of trends, we're not seeing a lot of change in that trend and the trend different things that we've seen in our focus more about auto than it is about like your traditional exercise OE coverages.
Okay. Thank you very much.
Speaker Change: The next question comes from Gregory Pizza from Raymond James.
Speaker Change: Your line is open. Please go ahead.
Good morning, everyone.
Speaker Change: So.
Speaker Change: Just I guess building.
Speaker Change: Building on the last answer.
Speaker Change: Just.
Speaker Change: You mentioned construction.
Speaker Change: And I guess this is.
Speaker Change: To step back I'm interested in the areas of growth in your general liability and transportation.
Speaker Change: Mines because.
Speaker Change: There can be a lot of different types of business that are included in there and I think you are pretty specific and construction are you.
You focused on GC or are you getting involved its subcontractors are you geographically focus.
Speaker Change: Focus can you give us some color there and then pivot to the transportation book.
Speaker Change: I assume you're not writing taxi cabs or limos, but maybe you could give us some color on what you're getting involved with on transportation as well.
Speaker Change: Sure. This is John so on the construction side, we have actually a very diverse portfolio of construction businesses. So I would say a little probably a little bit less than a third of our entire portfolio is focused on construction.
Speaker Change: In the surety basically focused on public construction on the insurance side of the house, we focus more on private construction led all regions of the country, but each region kind of acts differently in terms of.
Speaker Change: Areas of investment.
Speaker Change: You know a lot of areas on the coast are being invested in I'd say, the great state of Illinois, where we're sitting today not so much investment.
Speaker Change: If you look at our E&S businesses, we tend to focus on general contractor. If you look at our admitted businesses. We tend to focus on sub contractors. So those are the general guidelines the general landscape of our construction box you can see me.
Depending on the type of insured in the region and the type of project, we tend to focus on what type of coverage more comfortable providing.
Speaker Change: So it's a very diverse book, which makes it hard to talk about globally in terms of how it's doing but if I was to say something as well the way I would say overall, we keep.
Speaker Change: Waiting for construction to slow.
Speaker Change: And as an industry and I would say, particularly on the public side and the Napa privatized.
Speaker Change: Pretty healthy the private side has been has a lower investment rate lately.
Speaker Change: She is with them.
Speaker Change: Financing and things of that nature.
Speaker Change: It's been a little slower.
Speaker Change: Although again, we continue to be a consistent.
Speaker Change: Markets that are producers can use whereas some of our competitors have been in and out. So that's allowed us to continue to grow despite maybe underlying market being a little slow on the private fund.
Speaker Change: And then transitioning over to transportation, we do focus on some major buckets. So we can have a truck largely truck.
We have a public group, which includes a lot of different forms of buses and we have our commercial specialty auto which is kind of a hodgepodge of classes. Although it does not include does not include taxes just to be clear.
Speaker Change: And there's very little if no limit exposure there as well.
Speaker Change: Really.
Speaker Change: A few classes that we tend to be good as such as ambulances or construction fleet things of that nature.
Speaker Change: But there's a lot of different classes within that book more recently, we invested in a focus on moving and storage business and also we provide a little bit of Indiana.
Speaker Change: Availability as well given that market has gone through a lot of turmoil and I think we'll continue to and so there might be some accounts that move naturally towards the interface and so we have an answer for that as well.
Speaker Change: So that kind of lays out I think both of those books, but I'm happy to answer any other questions on this.
Speaker Change: Well actually that's great detail. Thank you.
Speaker Change: I also wanted to pivot my second follow up question relates to another comment you made John you talked about investments in technology et cetera, it's such a.
Speaker Change: Big comment that includes a lot of information, but we very rarely get any details on what's actually going inside of those investments you talked about how these investments are generating help you generating growth opportunities.
Speaker Change: Maybe you can give us the 32nd pitch on what you're investing in and why it's able to deliver a growth opportunities for you.
Speaker Change: Sure so.
Speaker Change: Like every question about our alliance hard to answer because it's specific to each business unit given us all get again will give you a couple of examples here.
Speaker Change: So in our first umbrella themes, which has had a lot of growth we've done a lot of investing in the front. The frontline magazine will be application that they ensure it goes through there to fill it out the order of the question. So some of it's technology. Some are in the process or the questions that we have to ask every single question. We eliminate a few and then we provide.
Speaker Change: That is very user friendly and similar to what you see in other industries that you might use on a personal basis. So theres been a lot of investment there and then for that policy to kind of go through our system without being touched too many fronts.
Speaker Change: If you look at other places we have a contractors application similarly, where we have redone the application process and got input from our producers to say how do you actually use our system and then we can figure the system using newer technology that supports a better experience so that again will be cash.
Speaker Change: For that business.
At the level, we need to upfront and how that flows through our system without again too many touches.
Speaker Change: I'll give you one more which is the in our Marine Division, where we are there's.
Speaker Change: There's a lot of steps to actually issuing a policy and we have basically taken work off of the underwriters desk.
It helps us policy issued more quickly so that would be under I can focus more on marketing underwriting versus all the follow up that is required to actually service that business. So it's basically an emphasis here at ROI for continuous improvement and to take time.
Speaker Change: On your inbox.
Speaker Change: To actually step back and look at processes and see how we can make them better faster.
Speaker Change: So that we can have the right people doing the right jobs when you look at.
Speaker Change: Got it thanks for the detail on the examples.
Speaker Change: Yeah.
Speaker Change: The next question comes from Meyer Shields from <unk>. Your line is open. Please go ahead.
Speaker Change: Right.
Speaker Change: Hi, This is gino from there. Thank you for taking my question.
Speaker Change: Stan for follow up questions on the casualty segment.
Speaker Change: You talked a lot about.
Speaker Change: I was just curious about the accident year.
Speaker Change: Loss ratio on casualty segment.
You just take our bond kind of like six ensure between year over year.
Speaker Change: I'm just wondering is it just good prudent Tom you have baked in.
Speaker Change: And the loss picks.
Speaker Change: Any color you can provide would be great.
Speaker Change: Yeah.
Yes. Thank you. This is Todd it is we believe.
Speaker Change: Prudent from that standpoint, if you do the compare to the current accident year on casualty quarter to quarter is up 152 points with some second half increases that we made in.
Speaker Change: <unk> booking ratio that is done for the entirety of the calendar year.
Speaker Change: So the accident years. So if you think about it if you do it in the third quarter. This retro to the first part of the year, So youll see a little bit more of a spike in the quarter and some of it really is kind of what we've been talking about from a real estate standpoint.
Speaker Change: We believe prudent there.
Speaker Change: And that will have an influence if you go to the fourth quarter of last if you look at full year 2023 were actually about with this increase are about on par with where we ended the year from an underlying loss ratio on casualty. So nothing alarming there I think certainly being prudent in our <unk>.
Speaker Change: Roche to preserving the current accident year.
Speaker Change: Got it.
Speaker Change: <unk>.
Speaker Change: Because I have a follow up on the specifics beyond.
Speaker Change: Commercial auto.
Speaker Change: Given competitors know Tonight worsening severity trend.
Speaker Change: Can you provide some color where you're seeing your book.
The severity trends in our commercial auto book because competitors are seeing some severity.
We do see some severity as well I think I'm not sure how everybody else does business lines. So when you look at our commercial auto business.
Speaker Change: One thing that I would point to that we've added over the last few years as our internal loss control resources, where our underwriting really listens to people to contact our potential insurance or a renewal before the renewal takes place to say.
Speaker Change: What are you doing with your business in terms of training drivers.
Speaker Change: Maintaining their vehicles.
Speaker Change: The things that it takes to run a safe.
Speaker Change: And operation.
Speaker Change: Alright, I said that input as they renew and some of the things that you learned in that process to potential severity.
Speaker Change: You can see whereas if you're not investing in training and your drivers for example, that's a terrible story in front of a jury when you have a claim events.
Engineering in front of me, so I think the quality of the insurer can be evaluated through that process.
Speaker Change: And then it just comes down to Cushing.
Speaker Change: Our key freezers have to get a timely that we know what the losses are repricing the business and then Archie.
Speaker Change: Our underwriting team is focused on getting rate because they know that the severity is up it also comes down to risk selection. There too we don't have topline goals here at ROI of any of our business units I think it's particularly important in our auto division where we.
Speaker Change: Yes rates are up some people, saying I can grow this is great I can grow my top line.
Speaker Change: Actually gotten off of several of our largest accounts because they don't make sense anymore somebody's going to undercut us with the right or.
Speaker Change: They're just not a quality insured anymore. So we're walking away from that premium because that's the right thing to do.
Speaker Change: Because we think that the severity could happens in those accounts so.
Speaker Change: I can't speak to what competitors are doing but that gives you some insight into what rhythm.
Speaker Change: All I would offer is I've been in this business for about 38 39 years since the only place I've ever worked for the underwriter is telling the claim people would get the money needs to go as soon as possible.
Speaker Change: <unk> pointed out they use that business the price the account and to try to factor in risk and they want to know if the claim is going to be.
Speaker Change: A bad loss, they want to be able to factor that in as they renew the account and offer a fair price.
Speaker Change: For the product so.
Speaker Change: Our underwriters demand.
Speaker Change: Our claim people get money up as quickly as possible.
Speaker Change: Got it very helpful. Thank you.
Speaker Change: The next question comes from Andrew <unk> from Jefferies. Andrew Your line is open. Please go ahead.
Andrew: Hey, good morning, maybe on the casualty rate I think you called out, 9%, which was consistent quarter over quarter.
Speaker Change: I thought I heard you say that rate change is keeping up with loss trend I would've thought 9% would be ahead of that could you kind of help us think through that.
Speaker Change: Well, it's funny, we've been loss trend again, we've looked at we've looked at a lot of industry results too.
Speaker Change: Loss trend here and then compare it to our both now and then we don't have the best data in the industry some of our.
Speaker Change: Physicians are very niche products, where we have only.
Speaker Change: And it doesn't really compare to the industry. So when we look at our own severity in our loss trend in our results it tends to be a little lower in reality than it is the numbers that we selected for any loss trend is probably going to be then so the 9% is keeping up with our actual experience and when we talk about loss trend and we talk to our underwriters.
We probably.
Speaker Change: Like weekly reflect also industry results.
Speaker Change: Okay.
Okay.
Speaker Change: And then maybe just curious what do you expect to see in the reinsurance market at one one whether it be pricing or perhaps changes to premium retention, maybe any early views. If you may have.
Well its a fluid market the reinsurance right now we have we're in discussions with our reinsurers as we speak.
Speaker Change: It's a little early to say there was a lot of positioning by the reinsurance earlier. This season with regard to casually I think that's quieted down a little bit I think property it looks like we might be willing.
Speaker Change: And as you might get a little bit of relief there, but with these events may be that will be more stable would be my guess I think when it comes to retentions reinsurance noncompliance on retention. So I think we are where we are.
Speaker Change: So I was I would characterize the market probably a stable with regard to our 100 analysts.
Speaker Change: Yeah.
Speaker Change: Okay, and maybe just two more questions on the investment portfolio.
Speaker Change: You think about.
Speaker Change: The growth in casualty is outpacing property right now and duration has kind of ticked up the last couple of years would you be surprised to see that go above 5% as we kind of enter 2025.
Speaker Change: Well I think what we're focused on right now is to maintain durability of the income profile and that's why you've seen the duration tick up a bit throughout this last year there'll be some point in time, where cash is not offering the returns that we've seen lately and so us terming out that Ms.
Speaker Change: Charity profile is an important part of our near term strategy.
Speaker Change: To the extent can we get all the way to five or above 5%.
Speaker Change: We've been there in the past so that's not unusual for us based on balance sheet.
And the strength of our capital base.
Speaker Change: We certainly have been near that level, but we're not that far away from it now at $4 eight years.
Speaker Change: So that's a nuanced difference I'll call call, it and not necessarily driven by quarter.
Speaker Change: Quarter to quarter growth in casualty necessarily.
And last one have you shared how much of the.
Speaker Change: Investment portfolio was floating rate.
Speaker Change: Got it.
Yes, we have a small amount of floating rate exposure, it's around 4% of the fixed income portfolio.
Speaker Change: And largely comprised of.
Speaker Change: Senior secured bank loans.
Speaker Change: That's the bulk of that exposure a smaller amount in the CLO space.
Speaker Change: And then a few structure products that have a floating rate.
Speaker Change: Coupons to them.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: The next question comes from Scott <unk> from RBC.
Speaker Change: Please go ahead.
Speaker Change: Yes, thanks, good morning, just.
Speaker Change: Wanted to touch on the property combined ratios was really really good 77 point too despite the lean and barrel losses, you had in there I know you had a little bit of benefit from reserve releases, but anything else in there.
Speaker Change: The benefit like non cat weather lower fire losses or anything in there.
Speaker Change: That kind of drove that you cannot come to mind.
Speaker Change: Yeah, I think there is significant growth on the revenue side.
Speaker Change: In total or the wind premium we are writing.
Speaker Change: The result of that there's there's a lot there to cover whether it's the hurricane losses or Attritional losses. So I think the growth on that portfolio is really what's what's driving and the rate that we've gotten over the last year, sorry interest exposure growth in Britain and longer yes.
Speaker Change: Right Okay.
Speaker Change: And just on the Milton loss of $40 $45 million to $55 million.
Speaker Change: Can you just.
Speaker Change: Just talk a little bit about your Florida exposure in terms of how close to the coast Youre, writing, we assume a fair amount of these losses would probably be marine but any other color you can give on.
Speaker Change: That forecast and just how youre thinking about the Florida market in general after this.
Speaker Change: Sure. This is Jim so when you look at our Florida exposure.
Speaker Change: As you may have heard earlier this year, we had actually been decreasing our exposure for a couple of reasons. One was the market was getting more competitive, particularly MGA is trying to take advantage of that lease pricing that we had that they were cutting into.
Speaker Change: Both the pricing and terms and conditions so.
Speaker Change: Sorry to walk away from a handful of accounts and so our exposure. If you look in the Florida region and use kind of policy limits. For example, we were down about 20% from the end of last year.
Speaker Change: Set us up for this wind season, I was a little bit less exposure than we had last year.
Speaker Change: If you look at where we write we don't write a lot of calypso exposure because we are in our E&S wind market. We do cover commercial building. So we don't do the homeowners, which you see a lot in the news.
Speaker Change: If you look at the event itself. It has a lot of wind, which is what we're trying to cover so thats a traditional event that we would expect it to have an expect to respond to.
Speaker Change: The event itself was not very large it gives you some commercial have been hit a lot of residential areas too when you get away from the longboat key areas within.
Speaker Change: The local.
Speaker Change: Theory of landfall in the block of commercial represented its spread out a lot of residential actually picked up unexpected probably the residential lots to be larger and the commercial loans.
Speaker Change: Again, it's very early to say what does that market become if you like we are committed to the Florida Hurricane market. We've collected a lot of premium over the years. So we are ready to scan and pay them off when those happen you can't get premiums unless you pay losses that we are ready to continue on the market and our practices are.
Speaker Change: Sure.
Speaker Change: Our underwriters claims actuarial support et cetera. So.
Speaker Change: The elevated system to one that marketplace, but it is too early to say what will happen with rates or terms and conditions. After be found again I'm, hoping that it stabilizes and that would be a great scenario for us it is asbury.
Speaker Change: Adequate pricing as we speak so we'd like to stay where we're at.
Speaker Change: Okay, Great that's really helpful detail. Thanks.
That's a reminder that that's star one on your telephone keypad.
Speaker Change: As a reminder, that star one on your telephone keypad.
Unknown Executive: If there are no further questions, I want to turn the conference over to you, Mr. Krike Lee Thamis, for some closing remarks.
Speaker Change: If there are no further questions I will now turn the conference over to Mr correctly, Thomas for some closing remarks.
Krike Lee Thamis: Well, thanks to everyone who joined us today. The financial results reported yesterday reflect our organizational resiliency. Consistent profitability and top line growth are a testament to our diversified specialty product portfolio. Our deep underwriting and claim expertise and our chosen markets and a willingness to prudently lean into disruption. Where we understand the exposures and the market environment. Consistency also comes as a result in maintaining underlying discipline when the market is too soft and a willingness to prune and proper business when necessary. Our discipline commitment to make the best long-term decisions for our customers and our shareholders has served us well and differentiates our ownership culture.
Well, thanks to everyone, who joined US today, the financial results, we reported yesterday reflect our organizational resiliency consistent profitability and top line growth are a testament to our diversified specialty product portfolio.
Speaker Change: Our deep underwriting and claim expertise in our chosen markets and a willingness to prudently leading into disruption.
We understand the exposures and the market environment.
Speaker Change: Consistency also comes as a result of maintaining underwriting discipline when the market is too soft and a willingness to prune unprofitable business when necessary.
Speaker Change: Our disciplined commitment to make the best long term decisions for our customers and our shareholders has served us well and differentiates our ownership culture.
Unknown Executive: I'm proud of our social donors' efforts this quarter, and particularly our outreach to our customers in need during these recent natural catastrophes. RLI is committed to being different because being different continues to work.
Speaker Change: I am proud of our associate owners efforts this quarter and particularly our outreach to our customers in need during these recent natural catastrophes.
Speaker Change: <unk> is committed to being different because being different continues to work look forward to visiting with you all next quarter. Thank you.
Unknown Executive: Look forward to visiting with you all next quarter. Thank you.
Unknown Executive: Ladies and gentlemen, if you wish to access the replay for the school, you may do so on the RLI homepage at www.rLICorp.com.
Speaker Change: Ladies and gentlemen, if you wish to access the replay for this call you may do so on the unrealized homepage at Www Dot <unk> Dot com.
Unknown Executive: This concludes our conference with today. Thank you all for participating, and have a nice day. We'll parties may now disconnect.
Speaker Change: Concludes our conference for today. Thank you all for participating and have a nice day all parties may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].