RLI (RLI) 28 Jan 212020 Q4 Earnings call transcript

Good morning, and welcome, ladies and gentlemen to RLI Corp.'s Fourth Quarter Earnings Teleconference.

As a reminder, we will open the conference for a question-and-answer after the presentation. [Operator Instructions] 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.

As always, 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 company's various SEC filings, including in the Annual Report on Form 10-K as supplemented and the Form 10-Q for the quarterly period ended December 31, 2020, which should be reviewed carefully. a contains with fourth the filed Exchange Securities quarter has that Commission press company Form the X-K and results. The release announcing operating share may and results. non-GAAP management make during financial call RLI's reference measures of earnings operations from to per which are the earnings earnings or on earnings operating losses unrealized or losses net and securities. per elimination of operations consist share after-tax RLI's the from after-tax equity earnings of and after realized gains gains performances earnings. operations, reporting are other useful in may management be periods, RLI's these not core but believes measures companies' gauging definitions across comparable to of operating The operating earnings. contains Form X-K reconciliation earnings and between net X-K and Form the available on company's website The release www.rlicorp.com. press at are I conference President, to will Investment Vice turn RLI's over the Mr. Officer now Chief and Treasurer, Aaron Diefenthaler. sir. ahead, Please go

thanks our Good us joining call. Madison. fourth earnings you, on Thank morning, quarter for

and opening have usual and begin and Todd we As going Jon? CFO. Michael, comments. with COO; Jon to Craig President is Jon Bryant, some Kliethermes, CEO; Chairman

moving of for efforts. XX our shareholders more $XX importantly year change And outstanding persevered forward. for tremendous business That Aaron In earnings Thank on but and profit you, the remiss close ratio. I combined to a mention possible RLI would and respects, keep if to are combined many out move associates These to the our who XXXX, talented that be without final XX have million ready the to call didn’t we I our customers and welcome to XXXX. XXXX. of X%. results their much billion last achieved been the many results. during premiums consecutive is business entire overcame and I'm proud of more underwriting than to of to we returning could Gross after RLI. marks GAAP up for through delivered be XXth year. the months were equity There grew proud work $X.X strong not challenges hard XX team during our uncertainty to

Craig end my at to this and want move and congratulate from the announced we December, Craig at end provide get And glad beginning questions we call. As to I'll performance and Congratulations leading be the usual, be details RLI on some to the will success. now, a confidence the CEO end year-end assuming a quarter of will our I financial year XXXX. Craig. In of and over And retire proven of I take Craig. your to plan at you'll ability the executive to in moment have Todd more who on that before fourth I answer Craig at achieve will role and Todd of is highlights. the his or complete it to turn continue to

written rebound combined net everyone. up Overall, to share. from of results. to XX% distribution. earlier operating our Thanks, Pricing was the muted the rate catastrophe driven quarter's We products quarter and modestly, of continued earnings reflects the Craig ratio momentum posted more while line per overall, with a posted was declined Jon, compared casualty line to casualty portfolio elevated as and property perspective, year fourth to benefits top a returns per top respectively. drove XX% increases ratio. individual value prior and will result Congratulations gross X% good $X.XX products underwriting Last talk as and year's on in reported but offset the earnings quarter loss expanded improving year we current which an X%, losses, well as were by fourth and night, at conditions year, morning, favorable well. ago. and and reserves market were of XX.X The growth dividends, by in for in we influence about $XX.XX. combined growth, a up while on the surety From minute, XX Craig largely Investment investment adverse XX.X growth year. inclusive quarter, premiums an a year achieved XX% and share unrealized pandemic's end posting comprehensive book strong continued in the income trends of in number

X.X Our declined ratio as reserve benefits X.X to XX.X loss points posted quarter. of in hurricane losses offset points the

in pre-tax date, year and quarter resulted less million another where totaled the for actual have to prior To of $XX $XX million. approximately we in million in property, segment, million COVID-XX-related addition payment, recorded $XX discussed maintained within been from heightened losses million $X.X financial-related losses experience. products on what we review indemnity majority for exposure the in losses, million the reserve million largely additions This $X surety. last totaled ratios amounts benefits net all Over we In to where releases, paid million catastrophe casualty closed the certain segment, on reserves in as products current losses, casualty. year's than for and in for deem $X claims claims reserve casualty elevated have By and recording favorable COVID-XX posted were without submitted. continue $X to we $XX,XXX loss investigate the quarters $X.X Offsetting few XX% Year-to-date, pandemic-related of in received booking established COVID-related. exist. but surety

to Moving expenses.

combined and quarter, equity to the X.X aided growth down amounts earned Our ratio modestly growth, X.X was the ratio well lower plans, significantly all Relative revenue, expense year, year-to-date reduction in however, would and points by XX.X. at during under return as was value I on of plans incentive that incentive improved metrics deferral targeted on as decline expense moved down a last compared basis, various last to the to The quarterly ratio this quarter. however, XX.X, that began ratio, pandemic. as last year. points operating fourth below book drive initiatives remained expense our higher note, onset

those for our efficiency and gains related doing business. customer savings, of of quarter, while to ease increasing areas experience and particularly opportunity As in mentioned we evaluate last technology, continue expense to investment

were of to lost Capital the Public in markets the year. X.X% quarter Turning made months the last of returns investments. ground equities responsible quarter's in robust for return. with most two up the

put result bonds positive in However, risk-free higher rates. even a with

was to the reach investment in pressure cash results as significant the in to rate in work, remains being stem risk The well to income environment. return as It up the for current portfolio to seasonality quarter. tide. operating normal assets. was earnings lower equity, under in of high-quality the contributor share to putting total influenced some not While mark-to-market preference Outside letting the by keep on a growth of certain income increase for loan flow to invested securities. from shareholders' our is money majority make core rates, but investee down portfolio, Jim were adjustments Maui live fixed our is

equity, investment very earnings For combined XXXX, revenue All our mentioned, of billion Jon a Prime, performance earnings advance, consecutive the solid XX.X was as represents and the year in are quarter operating investee profit. year. paying continued of XXth and $X.X special current of all, form in XXXX, our needs, they increasing which, in resulted in for reporting marked income December. In the in generation year or of dividend decade. our shareholders over excess we which XXth our dividends, With we call returned have billion $X last capital over the the quarterly turn that, of in to was consecutive Craig. with in dividends solid to our ended ratio We Once growth shareholders underwriting shareholders' $X.X over experiencing. returned and with again, dividend. to an in And good reflective to special I'll year

Jon and everyone. you, Thank Todd, good morning, and

we increasing appeared some in an with XXth grew to XX overall, but that are of growth. success. discipline, terms and line A advantage of some We our of products parts positioned with top see diverse ahead combined faced shifting still of we rates consecutive of challenges uneven well favor reported underwriting We to Given great presented. retrenchment all fees the top our are ratio confident tightening. underwriting portfolio on with and the take are of Large XXXX, be X%. and proud opportunities in market by year our profit quarter line competitors, XX% our

little a respectively. Growth the line ratio, by XX top underwriting X%. quarter Now businesses been I'd for up the achieve has saw were quarter ended and more to we leading result our year XX an segment, very We a to and widespread the the combined able good casualty go and the segment like for the across year X% into In growth excess fairly with liability detail way. segment. our with

see to focus on the opportunities umbrella personal excess continue in our We and businesses commercial first we layer. where both

Our group increases. but clip a at products is good also mostly rate needed from growing relatively executive

for the the this tough up storms year most Property believe and limit remains the XX% officers profit a outpacing still loss of Obviously, competitive casualty did and expectations were across the an grew market directors XX% and a for and as name loss where we a in hardening professionals where insureds make transportation year-to-date. and making medium-sized up net rates the the premium rate is and decline in year. struggling. with excess Our position Overall, XX% And achieved liability product the In year-to-date, for for segment are for and for XX% lines, the about our business small the quarter a in We in result, this very the dozen cost liability segment in with is in landfall We The XX% achievable segment, realized which, U.S. and but up revenue primary year. in in inflation. are half auto is contractors. businesses quarter increases double-digit the which the us, package property, segment. market a the liability, and in end quarter year. XX% the target XX% we we up underwriting quarter rates broadly, quarter still for

XX% led wind and year-to-date and and were Our XX%, catastrophe-focused rates quake respectively. up the businesses way

Lloyd's, continues Marine rates quarter business at and with X% find to the from for up disruption year-to-date. Our opportunities

profitably. the year also to able but segment at year-to-date. down did Our us. We quarter outperform Surety continues XX for X%. ratio continues The combined top X% grow line and were most XX up grow Homeowners book Hawaii this the the competitive the remains quarter end to for to an

underwriters segment great we done staying headwinds great from some fallout both our results. the have disciplined our producers competition surety a has produce intense job the manage in and with markets risk to and serve, the faced, Given pandemic of and the this working of

beneficial my market optimistic favor. on balance will serve and believe powder eventually stories a quarter keeping good of economic and young. been stress me the has happened year. grandmother management was XXXX, I the from to up she that us anecdotes When great customers tell dry will everything used and the financial good we I remember reminds are Missouri. a well growing resulting in it We I our strong about would this sheets poor Overall, in pandemic. as that very focus when Our tell think about over has rural with swing during uncertainty me

all XX spread of first the to on with grandmother the a years the Spanish my polio her Like at but was to Depression. and we it have of she year. first the age During me It grew unimaginable in flu, now War, quarter lived time, Great earth, will seems century been World up persevere. The we resilient the who have like and also lived XX, the past

are time. good extraordinary sizing ownership last serve adding we rewards empowering narrow changed delivered market business on our we is and our today, our underwriting profit products, out culture, years adapted, get building many and on our on business are reinforcing catastrophe we conditions. about of overcome underwriting has has talent every diverse where and are going. and year. are To a who to disciplined is our company surety feel paid but its results What hiring deep based structure over real that and through still out them many over not champions focus have compensation customers we where the underwriting profit existence of where We XX Our challenges

and us focus will look to to around customers, adapt outward, value We to the our deliver continue shareholders. our on change

willingness different RLI for the its worked We head to thank being being face want I because XXXX all our are RLI and on. stakeholders. associates of has to owner for challenges contribution different comfortable and their

it has work turn the people because it up company success Thank questions. quality And rich open here. history of I'll the moderator Our of of you. to to who back a for

with Johnson Please Cullen from comes question first Our Instructions] Securities. [Operator go Riley B. ahead.

from Cullen B. Hey this for is Riley taking Securities. my Thanks Johnson question.

that driving just be? at kind and First, we're ratio, am accident specifically curious I maybe well of the quarter doing in looking just that in the might and loss is who sustainable Casualty pretty how

probably the year year it's current the Cullen, comparatively. question. little of this I than basis, occur did fourth Yeah, And did pronounced bit that We a it's a quarter more of year-to-date accident in products. couple of a on have adverse quarter in on a run a year think not good off last

a makes use it. year it I think as at on to so of that a mix, more bit -- there. And part that's pronounced you even hate basis, I but full look But

mix think is I to casualty a year loss on our ratio lower improving little current too. bit and some the the side on products accident

a I the point there, think changes probably about actuaries pronounced it's but and loss ratio we a in from have standpoint not real there. the made

all And XXXX, I at those a think are all as inputs trend they're being from from go in. standpoint. a factored things we standpoint, I as certainly, into rate think move loss we looking forward,

Great. expense We was a missed higher main for in but kind I the bit That's just of then and segment, that? in kind apologies of ratio earlier And if quarter. the there driver looking a at helpful. the little the was call, this -- surety were

No. Largely, comp. incentive-related it the was

comprehensive -- look in just I a value and for proxy that. kind take of at It was a book it's from considerably quarter. earnings, think if up you fourth the growth

the noticeable it's comparatively. expense increased ratio points earned on basis, to going a at probably across surety probably there. being bit three it's board, an premium be more less around net incentive incremental base But property, look comp you and when the So on

for but expense to very the the in third -- they similar quarter. would think think ratio I were it been that, have I where

Great, that. you. thank needed I

thanks. Okay,

can Jeffrey ahead. go next right, go we question Schmitt our All ahead take Please and from William with Blair.

morning. Hi, good

up you that we at about talked And You've continue the more, a perspective. the above could greater of by bit? with that casualty where point moves market's business where, or lot rates mean, guess, there a kind to sort a dynamic? a Are new more we I going guess, coming stand a a do how some I maybe of I write level on growth a offsets more repositioning, lot that really past little and in move been from this premium pricing to in amount see rate bit you quarter. is

that's more regards grow, to reform -- We coming I in things going in and Jeff, they to Craig. policy for like in more makes strict. particularly we're opportunities we're policy see but like this continue is competitive us that, seeing particularly becoming the competitors, our obviously, conditions is mean, in our to market Obviously, to always are looking us to direction. Not market necessarily more do regards then. ours, the competitive. which

of same stay I rates have You they that lines know, the I last continue talked about those to continue in earlier. mean, about at pace product they couple the quarters.

certainly some had a side say maybe to but So broad a liabilities, think of headwinds, it maybe rate that going we get than on I'm rate increases, able fairly think X% We're still but property in in momentum marketplace small we the it's past. as very there. primary And any those customer some accounts, areas, to small competitive isn't some X%. X%, still increase, -- it's I haven't the we not little see moderate, I more in seen little to still a -- seen falloff bit the

to think about we could exposures -- The they're pay our where of shrinking. feel really some the more, customers we feel about are the holding up and number grant that frankly, we of and have, good so have, we good retentions at can't we're But basis, So the the us. opportunity well, insureds I afford exposure that.

you're that tougher you I lower I just And in growth, conditions terms on -- offering you're on a focused on -- the guess limits, of widespread and how more Or there. is widespread touched more it Okay. mean, if the accounts? premium how less. much wondering is I'm headwind presumably, that charging sense

headwind of is type premium on what growth? So that

of year. frankly, seen last get got the us space, in whether businesses, limits, last close to same still same got been D&O you a not that some particularly the the you just We've capacity is actually, substantial those in could get the able by actually that market and premium Well, cut cut half premium or the year. for or they've competitors, for but in amount, and the seeing they're they still

exposure. So as premium, a much I a a you an that right? the get You got good see don't story. headwind. half it's story, as necessarily Actually, great opportunity. That's That's but

So I don't a it see as headwind.

there's more the We still like think I shorter limits. opportunities.

that in limits in us were million would this than more $XX that there not we they in gives So that to play needed When opportunity we would bigger play spot. out these never chunks, before. actually, play

that creates fives So us, for they're tens, think. opportunity I more that even now interested in or

Okay.

on take we've they're in just the with year Is just I some saw casualty, loss lower say And one into that seeing? account Okay. that does guess. cost. X% last you're what range because And we of mean I in line the of the one heard competitors this activity to seeing for pandemic? X% court it

Yeah. great It's a question.

So trends. we at long-term I mean, look

X% using would time, you with probably longer So a at the I is write, when think which at typically I look industry, least think are that's by period toward businesses average, we small within casualty the -- to niches mean, of we what say product. on X% more I we in trends range, that over

excess -- to we're the in the we're that. getting rates rates, certainly, so are And

a bit I do So we think good about feel a that. pause. seen you've of

COVID claims. new claim in -- on and across you even for portfolio, claims both additional seen reductions our certainly new count open You've the open count when

but double-digit a of catered it's population, that once lot because an people that's up bounce back auto personal a take the homes. and disproportionately you the is of older their -- write insurance. to even just product We like lot quickly more them do If of activity picks to expect a very across more out, affected products. this and most that And liability I and older a reduction, of up umbrella leaving population umbrella is the not really personal probably it's

activity we up. pick -- do expect I back So that to

Thank that's you. Okay, great.

Carletti take go question next from Okay, ahead and we'll Please go Matt ahead. JMP. our with

I Okay, thanks. back. Good to morning. circle wanted Craig,

casualty made you comment about it's you think were talking the commercial I auto, still about a saying when struggling. market

Or XX% volume is going that's think and an call it? that? we much of think should XX% result to kind you quoted you not how much for is a come they year. that from Are that probably do that that you of things the And downturn the to through reopen? the quarter about you of underwriting bit? think do as Or volume risk think Can the unpack assessing about are far How How that reductions? little and down go? to more I of it, we in forces we may gone, you How of the guys there's pandemic basis? through kind market volume are? write back

I'm Okay. slow. Matt,

So there. questions you of asked a lot

have no, have -- small a But sure and business. mean, gone the the reduction I actually not the in insureds Actually, number I'm with only retentions still I over So out we've of seen is question. date small of last quarter basis. A think exposure good. year our to a pretty most reduction -- our of last held the over

all and do ambulances now charter is right? tough. about on other mean, we help I I business, We our is met So some we auto. of easy. the that. these and mean, I getting They're specialty not I some right? these mean getting with these struggling. and So customers, of trucking guys nobody good that's transportation it buses, some it's not feel not are do

back far an business population, need of maybe For there, is are? caters a little habits and vaccination, we a some build and to large number older expect hard feel feel to also to more but miles I to even So to to back. a right, bus change, business, along going going kind but which they are maybe the obviously bit, to How a of you're a because for slowed in we people want driven habits people, that time, with charter bit, we do to you're of off and comfortable, safe, that going safe. need if people getting bus they're think still little get come

build take business, to So we're time hopeful. that's back that going but to

the faster. trucking come back I will think business

to Our auto to going commercial I is specialty back come is faster think, business already, starting and come back.

mixed. But there, is also in bus of by and school the sort it way, So the -- write stuff. public public too in buses we -- really the

charter not to it's clear. buses, just just So be

will to back That's come more and So online, of parents what think school schools hoping the are news. see I start back come schools lot a buses when -- which I more on for.

you're see going transportation it public I of segments think in spends. come So to that back

That’s really color Thank and the you for congrats. helpful.

Thanks Matt.

question Shields can KBW. with we Meyer right, take from and go All next ahead our go ahead. Please

you. Thank

could Okay. past work? sorry. talked was risk expectations, significantly lay you exposure you. guess recovery both increasing one And second And of the exposed the your to of the the Thank -- question. of, is half in an hoping terms construction. you've out I'm the about in hopefully, in maybe year. book economic remote to On I I significant

or you mean? what you are that in of is I assume don't construction, that you -- context Meyer, mean

No, -- that's commercial that to going to much -- be necessary I just how whether I'm going there's just is of less understand forward? construction trying

we a There's have a customers. mix actually okay. good clear, so construction just -- a Oh, mean, mix. of to good I there's broad be

those. In roads I or roads certain mean, not of -- areas, like we bridges. high -- Some some it's track but That's and focus don't So we roads although homes. will we on to thing surety only do equipment. do residential. right? work do areas, rises, we work, also custom like that will will But bridges, like do don't do don't one but we'll bridges, kind we do exterior in commercial and and we on -- we the any -- But other do, interior it's really construction not

sustain seen sustain far to been so I enough contractors business. to have what is had we've able work our So and their work mean, and

haven't they of this in we good. to year, feel the think are exposures to talked impacted the economic depends going past. is is But be as is, -- now, as seeing, on like And about to the nearly So What be to are get public is And lot going refilled? Obviously, we of they what they're though, that that it of go-forward rebalancing those the as question downturn. far space. depth have they're really been right they're pipeline, I their conservative anywhere policies customers, going for than we queue the the a what auditable. estimating a the are of lot to a little more in close

they those I we'll that. you'll able So bringing premium. numbers through But year. our see to see benefit overcome more us if next audit end actually be may our -- numbers in actually will think but But numbers come revenues, that through of the some over you up --

like work moving we're sites, -- of about typically certainly, that But remote stronger equipment. or contractor And hurt that commercial good we past are a work have that's there. then And their our I claims actually isn't on contractors. homes. in of we sites where the bond think I focus feel I a do I hurt like you only ours on a a as And like very And where going home geo have for don't work, bonded. is residential other a mean, said, surety, in Most perspective. someone I job thing. out someone lot lot stuff to custom far seen staff stuff. of Most from construction was pretty rare of as home.

So it's really impacted. not

think don't of which of may think resulting more activity we'll there's result, lot home, see. work I new increased less I unless -- build at right, space, from to see a we demand

Okay.

it the very or that Switching was through for of releases? down way reserve a coming Are -- aren't mix? those of that there claims the any severity that Is little casualty frequency bit. just -- is So we're breaking thorough.

mean, Yes, it's mix. a Todd. I it's I think

going the a that, that we you If terms see on to times about So in think -- It's standpoint, we're on come side little loss/cost recent decent actuarial recognize and don't I accident before, and and longer-term years, probably amounts Craig's Then to it, to think a little of GL of it's taking more through. slower XXXX to talked heavier CUP that, that right? the trend, the it's on to to years. we a some there, that that's mean multiple XXXX more year. approach at and from the be can both, transportations. I this XXXX extent favorable

about there. the liability of is some now if of exited a it, think we the dollars this I too, years two and we're only products $X professional, and million two ago, post million two that. look it. at But you medical years healthcare was There of couple

theme there's I a to it. So don't know,

accident of expectations more the loss/cost mean, and XXXX. years that below year, post And recent were of were professional, million ago, heavier decent X transportations and XX Just think to years dollars multiple XX some that trends on exited is healthcare a million two couple it. of was, I -- to the that But GL this there more the I two two the you if just it and too, there. now, years medical a the in. think favorable liability about not I than products, look think it's only that's, little I that both been It's built have probably mean, years. some will amounts there. I comp On at we

there's I don't know, So it. theme to the

in. that I cost I last Just, mean, the curves that were think have expectations built just below been

you. fantastic. Okay, that's Thank

question ahead. our go with Casey next take we'll Point. Okay, from Please Alexander Compass

for renewals of you and empirically upwards in wondering, just out real about hearing taking morning market. there insurance we've D&O good availability was of a and thank increases on XXX% been premium question. Hi, my I D&O the shortage

just what course, has the toward that toward just color some business? types I'm your But your And growing market in And and loss-driven. obviously, you that of temper of is What's your are wondering become. business what's -- that increases do? terms hard how temper posture so retaining around those rate

Casey, appreciate the Sure, question. I

obviously, to and we any many mean, is, right? take But your where in I to fairly the still the what increase context are So underprice we XXX%. cast seeing we rate us hopefully rate we're has feel point give products too like there. don't didn't can be significant going of market So increases, starting by

where through think only of another we the this is can products rest and to quota it's relative support really a place arrangement. share the limits company. bigger one where -- get out I also of we the capacity And reinsurance put

I think this product a our lot exposures to the to growing is see always rate. of huge still where rate. So in this comes We'd relatively like stable. getting keeping -- growing we're that gives growth while getting of grow business us from in rate. product most a we're interest opportunity this But This in interested products

I and XX%, to close they over a XX% got think I rate last year, they think increase. grew

should focus that. So we on think we

All Thank you. That's right, great. my only question.

Thank you.

Okay, Mr. turn if there conference questions, Michael. to back the are will I no further Jon now

Bowl. XXXX. is I'm for all attending. we're glad you looking forward colleague Today, wearing he's Craig Patrick Super socks. My into Thank to Mahomes

the talk to quarter. next all you you Thanks. and at of end thank we'll the So

day. parties This do replay may you Thank and XXXXXXX. you you so to participating X-XXX-XXX-XXXX a conference an of for and nice Ladies this for disconnect. if ID dialing now the today. All may have our number gentlemen, access with by all wish call, concludes for