Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RLI Corp (RLI, Financial) reported second quarter operating earnings of $1.72 per share, reflecting solid underwriting performance.
- The combined ratio improved to 81.5, with a notable 18% increase in net investment income.
- Casualty segment experienced double-digit growth for the second consecutive quarter, benefiting from favorable prior year's loss development.
- Surety segment achieved mid-10s growth and maintained underwriting profit despite a competitive market.
- Property segment posted a 60 combined ratio, led by a 20% growth in the Marine division and a 27% increase in Hawaii homeowners premium.
Negative Points
- Storm losses totaled $16 million for the quarter, impacting the property and casualty segments.
- Operating cash flow was down slightly due to larger tax payments and the timing of several large claims.
- E&S property growth is slowing, with rates flattening and increased competition from MGAs.
- The equity portfolio posted only $3.6 million of unrealized gains compared to $25 million a year ago.
- Transportation segment faced mixed results, with increased severities driven by legal system abuse affecting the industry.
Q & A Highlights
Q: Can you provide more comments on the competition you're seeing across your three segments, specifically in the E&S property?
A: In the Property segment, particularly in cat exposure, the biggest competition is coming from MGAs, some backed by [Luis], who are aggressive due to the quiet season last year. They are providing larger limits and expanding coverage definitions. We prefer to hold firm on coverage terms. In Hawaii, competitors have pulled back post-wildfire, and in transportation, some have changed their appetite, giving us more business opportunities. Competition varies across our diverse portfolio, and we empower our underwriters to navigate their specific markets.
Q: Have you seen any changes in severity trends in the casualty book since you made adjustments?
A: We have increased our loss trends over the last couple of years, recognizing higher severity in the industry, especially in auto coverages. Our actual experience tends to be better than our estimates. We rely on our own and industry experience, as well as insights from reinsurance brokers. Our diligent risk selection and claim handling practices help address these trends.
Q: Do you expect the casualty segment to keep seeing rate momentum and perhaps accelerate in the second half?
A: Umbrella is driving the current rate increase, and we have more approvals in the pipeline. We underwrite at an individual level, aiming to achieve overall rate to address loss trends and claim experience. While we hope for continued rate increases, competition makes it challenging to predict.
Q: Can you talk about any movements in casualty reserves, particularly on more recent accident years?
A: Our actuarial approach hasn't changed. We are extending the tail a bit in areas like transportation. Development is spread out across years, with no significant changes in any given year. Our approach remains consistent.
Q: Can you update us on the profitability of the umbrella book and what you're doing differently to achieve better results?
A: We've been in the personal umbrella business since the mid to late '80s and have leaned into growing this book in recent years due to market turmoil. We use extensive data to monitor trends and adjust rates by state and insured type. Our loss activity has been stable, and we continuously tweak our approach. For example, we've increased the underlying auto liability limit in California to address industry severity trends.
Q: What is driving the significant growth in the surety segment?
A: In the contract space, we focus on public construction, which has been active with elevated construction costs supporting premium. Our energetic team actively markets and builds relationships with producers. In the commercial side, we've developed expertise in renewable energy and continue to invest in relationships, driving growth.
Q: How much of your increased marketing efforts have already panned out, and is there more opportunity going forward?
A: We've been very active in the first half of the year, meeting with producers and holding educational gatherings. This creates momentum, and as long as we continue to invest in relationships, organic growth is possible. We plan to stay mobile and in front of our producers in the second half of the year.
Q: Can you give us a sense of regional differences in terms of social inflation or lawsuit abuse in the casualty segment?
A: Each state is unique. California is challenging, requiring careful risk selection and claim handling. Florida's reforms have been helpful, though it's early to quantify the impact. Louisiana is trying to be more business-friendly but hasn't fully succeeded. We adjust our underwriting appetite and practices based on state-specific dynamics and legal environments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
