RLI Corp. (RLI)

RLI 
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RLI Corp. (RLI)

Q2 2014 Results Earnings Conference Call

July 17, 2014 11:00 AM ET

Executives

Aaron Jacoby - VP Corporate Development

Jon Michael - Chairman and CEO

Mike Stone - President and COO

Tom Brown - Vice President and CFO

Craig Kliethermes - EVP, Operations

Analysts

Presentation

Operator

Good morning, and welcome, ladies and gentlemen to the RLI Corporation’s Second Quarter Earnings Teleconference. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation.

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 risk factors which could cause actual results to differ materially. These risk factors are listed in the company’s various SEC filings including in the Annual Form 10-K which should be reviewed carefully. The company has filed a Form 8-K with the Securities & Exchange Commission that contains the press release announcing second quarter results.

RLI management may make reference during the call to operating earnings and earnings per share from operations which are non-GAAP measures of financial results. RLI’s operating earnings and earnings per share from operations consist of net earnings after the elimination of after-tax realized investment gains or losses. RLI’s management believes this measure is useful in gauging core operating performances across reporting periods, but may not be comparable to other companies’ definitions of operating earnings. The Form 8-K contains reconciliation between operating earnings and net earnings. The Form 8-K and press release are available at the company’s website at www.rlicorp.com.

I will now turn the conference over to RLI’s Vice President, Corporate Development, Mr. Aaron Jacoby. Please go ahead, sir.

Aaron Jacoby

Thank you. Good morning to everyone. Welcome to the RLI earnings call for the second quarter of 2014. Joining me on today's call are Jon Michael, Chairman and CEO; Mike Stone, President and Chief Operating Officer; Tom Brown, Vice President and Chief Financial Officer; and Craig Kliethermes, Executive Vice President, Operations.

I'm going to turn the call over to Tom, first to get some brief opening comments on the quarter's financial results. Then, Mike and Craig will talk about operations and market conditions. Next, we'll open the call for questions and Jon will finish up with some closing comments. Tom?

Tom Brown

Thanks Aaron. Good morning thanks for joining us today. We are pleased to announce another solid earnings quarter on the strength of both underwriting and investment results.

Starting with our most important metric, we posted an 84 combined ratio in the quarter, which is consistent with what we achieved in the second quarter last year.

Profits were strong across each segment with Casualty at 83, Property at 95, and Surety at 69 combined ratio. Reserve releases benefited both the casualty and surety segments. Property had a $6.8 million of spring storm related losses lower than last year's second quarter, but in line with our expectations given the weather events during the quarter. Ultimately this quarter was a testament to our underwriting discipline.

On the premium side, gross premium was up 3% and net premium was up 4%, our casualty products continue to offer the best relative growth opportunities of function of both market conditions and recent initiatives.

Property and surety were roughly flat in the quarter, which we consider a good result in light of continued challenging competitive conditions that Mike and Craig will elaborate on.

Turning to investments, there were several positive trends in the quarter including the 8.8% growth in investment income for second consecutive quarter of such growth. In addition, both the fixed income and equity portfolios turned in positive total returns enabling a combined portfolio total return of 3% for the quarter and 5.8% year-to-date.

Not to be left out Maui Jim also had an excellent results in the quarter contributing $5.7 million of investee earnings up 24% from last year. Ultimately the combination of underwriting and investment results drove operating earnings per share of $0.66 up 5% from last year and book value per share growth of 4.9% in the quarter bringing year-to-date book value growth to 11%.

I’ll now turn over the discussion to Mike Stone. Mike?

Mike Stone

Thanks Tom. I am going to talk a little bit about the insurance market and what we’re seeing. First another outstanding underwriting quarter with an 84 combined ratio. Gross written premium up 3%, net up 4%, you might think more the same boring, but I assure you this doesn’t result with our hard work skillful underwriting and superior claim handling. The market, it’s tough out there but we continue to find new opportunities and have been able to effectively manage our renewal books. Casualty to combined ratio with gross written premium up 7% in the quarter or 8% year-to-date still some good pockets of opportunity. Our GL or general liability it’s our primary liability surplus lines of book was up 2% as we are still getting a better rate in some sub parts and are benefiting from increased construction activity. Transportation is up 5% gross written premium as we continue to see more opportunities due to the exit by a number of our competitors late last year.

In our Professional Services Group, products basically are architects and engineers, gross written premium up about 15% as we build out our footprint in this space and I might add that we eked out a small underwriting profit this quarter.

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