Release Date: January 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RLI Corp (RLI, Financial) reported its 29th consecutive year of underwriting profit, showcasing strong financial consistency.
- The company achieved a 12% growth in net written premium and a 22% growth in underwriting profits for the year.
- Operating earnings for the fourth quarter were $0.41 per share, supported by positive underwriting performance and a 19% rise in investment income.
- The casualty segment saw an 18% growth in premiums during the fourth quarter, driven by a 10% rate change in auto coverages.
- RLI Corp (RLI) declared a special dividend of $2 per share, reflecting its strong capital management strategy and consistent financial performance.
Negative Points
- The combined ratio for the fourth quarter was 94.4, influenced by hurricane losses and additions to current accident year casualty reserves.
- The property segment experienced a 3% decline in gross premiums for the quarter, primarily due to increased competition and rate softening in the E&S property market.
- RLI Corp (RLI) recorded a loss of $12.5 million from its investment in Prime due to reserve strengthening on prior accident years.
- The transportation and personal umbrella segments faced challenges with increased auto severity, prompting reserve additions to the current accident year.
- The equity portfolio underperformed the general market, partly due to a value-oriented portion of the allocation.
Q & A Highlights
Q: Can you provide a breakdown of the casualty reserves for the current accident year addition? Was it more driven by transportation or personal umbrella?
A: Todd Bryant, CFO: The addition was fairly evenly split between transportation and personal umbrella, with about half attributed to each.
Q: Regarding the transportation segment, what severity trends are you observing?
A: Todd Bryant, CFO: We are assuming a loss trend of 10 to 11 points for auto-related exposures. This quarter's reserve addition was about three times the amount added in the fourth quarter of last year.
Q: What is the strategic view on your investment in Prime? Will you maintain your current stake?
A: Craig Kliethermes, CEO: We currently own about 25% of Prime and have reduced our participation in the quota share. We view it as a positive investment and will continue to evaluate our position.
Q: With the 22% rate increase in personal umbrella due to loss severity, are there changes in your limit profile?
A: Jennifer Klobnak, COO: Our limit profile has not changed significantly. We primarily offer a $1 million limit, with some higher limits available. We continue to underwrite carefully and monitor the book closely.
Q: How do you approach capital returns, particularly regarding special dividends?
A: Craig Kliethermes, CEO: We evaluate capital returns based on our financial position, AM Best benchmarks, and growth opportunities. Our approach remains consistent, focusing on maintaining an A+ rating and supporting growth.
Q: How do you view the current competitive environment in the property segment, and how does it affect your strategy?
A: Jennifer Klobnak, COO: The E&S property market is competitive, with some competitors offering larger limits. We focus on maintaining policy terms and conditions and are willing to walk away from underpriced business.
Q: What are your thoughts on the potential impact of California wildfires on your business?
A: Craig Kliethermes, CEO: We have minimal exposure to residential homeowners in California. While the wildfires may create opportunities in the E&S space, our focus remains on commercial lines.
Q: Can you elaborate on the adverse development in the surety segment this quarter?
A: Todd Bryant, CFO: The adverse development was about $1 million in our contract book, primarily from the 2021 and 2022 accident years. It is not indicative of a broader trend.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
