Investor Presentation

Transcription

1 Investor Presentation 2 nd Quarter, 2014

2 Agenda INTRODUCTION STRATEGY FINANCIAL RESULTS THE FUTURE 2

3 INTRODUCTION 1

4 Strategy RLI will continue to: Be a premier specialty underwriting company that achieves long-term industry leading combined ratios and book value growth. Remain a destination for talented, entrepreneurial underwriters with narrow & deep expertise. Seek out difficult markets while maintaining a highly diverse product portfolio. Emphasize profit maximization and enhance our ability to grow over the long term, with a focus on organic opportunities and acquisitions that preserve the unique culture that has made RLI successful. 4

5 Select Market Information RLI has a rich history as a publicly traded company and consistently creates value for its shareholders Ticker / Exchange RLI / NYSE Share Price (06/30/14) $45.78 Annual Dividend / Yield $0.72 / 1.6% Market Cap Annual Gross Premium (Trailing 4 qtr.) $1.97 billion $855 million A.M. Best Rating A+ Employees Year Annual Shareholder Return 17.4% 5

6 The RLI Story RLI has a rich 50 year history as a leading specialty P&C insurer. Founded contact lenses insurance agency, Replacement Lens Inc. Began underwriting specialty P&C coverages Continued expanding product offerings Licensed in all 50 states Acquired Contractors Bonding and Insurance Co. Increased dividends for 38 th consecutive year RLI common stock first traded on NASDAQ Paid 1 st dividend Merged contact lens division with Hester Enterprises, maker of Maui Jim Sunglasses Received upgraded A.M. Best rating to A+ (Superior) Acquired Rockbridge Underwriting 6

7 Diversified Product Portfolio Continued start-ups and niche acquisitions have driven our growth and diversification. NEW PRODUCTS* $227 Million 26% ANNUAL GROSS PREMIUM $855 Million *Products new to RLI portfolio in previous 5 years 7

8 Diversified Product Portfolio Product diversification has fueled our growth & financial success CASUALTY (55%) SURETY (13%) PROPERTY (32%) Trailing 4 Quarters Gross Written Premium 8

9 SURETY PROPERTY CASUALTY Product Distribution Our strong customer relationships extend across a diverse distribution network Retail agent / broker Wholesale Broker General agency Reinsurance broker General liability Commercial & personal umbrella Transportation Executive products Professional services Commercial package Commercial property Marine Personal Lines Reinsurance Miscellaneous Energy Commercial Contract 9

10 RLI Locations Our offices are located in close proximity to our customers HAWAII 10

11 STRATEGY 2

12 RLI s Business Model RLI is a domestic, specialty insurance company that does its own underwriting Underwriting company We hire experienced, entrepreneurial underwriters We focus on difficult markets that require unique expertise Ownership culture and compensation Underwriter compensation tied directly to underwriting profit Diversified insurance product portfolio Our products are run as stand-alone businesses Diversification reduces corporate risk Growth by design Organic product growth Talent acquisition & start-ups Acquisitions 12

13 Gross Premium ($ millions) Market Cycle Management RLI s strong people, products & processes allow us to effectively manage through any kind of market Invest in new people, products & processes in all markets Empower underwriters to capitalize to the fullest during hard markets and pull back when necessary during soft markets Enforce strict underwriting discipline throughout Hard Market Maximize financial strength & flexibility 13

14 FINANCIAL RESULTS 3

15 Measurements Of Our Success Combined Ratio 18 consecutive years < consecutive years < margin (points) by which we beat the industry Book Value Growth 13% compound annual growth rate over last 10 years Return on Equity 15% average ROE over last 10 years Capital Management 38 consecutive years we have increased our dividend $600 million amount returned to shareholders in last 5 years Reserve Consistency $397 million reserve releases in last 5 years As of year-end

16 Underwriting Profit RLI has achieved 18 straight years of a combined ratio below 100, and has beaten the industry ratio by an average of 16 points* 100 *Statutory Basis 16

17 $ Millions Book Value Growth RLI has achieved 15% compound growth in its book value since 2002 and has returned over $600 million to shareholders via buybacks and dividends since Cumulative Share Repurchase Cumulative Dividend Reported Book Value 17

18 Return on Equity RLI has achieved 15% return on equity over the past 10 years Net Earnings/Average Equity 18

19 Dividend Growth* RLI has a distinguished track record of success: 38 straight years of dividend increases and a 13% growth rate over the last 10 years Special Dividends* $3.50/share Dec 2010 $2.50/share Dec 2011 $2.50/share Dec 2012 $1.50/share Dec 2013 *all adjusted for 2-for-1 stock split in January Run Rate 19

20 Investment Portfolio Investing for the long term: A diversified, highly-rated bond portfolio complemented by diverse selection of value and dividend-oriented stocks. Target Asset Allocation $2.02 Billion Investment Portfolio 80% BONDS 20% EQUITIES Bonds: AA quality; 4.8 duration EQUITIES 21.6% AGENCY 0.5% CASH 2.3% Portfolio Allocation CORPORATE 28.7% GOVERNMENT 2.0% Equities: Large-Cap, Blue-Chip; Dividend yield of 2.8% Emphasis on consistency and low turnover, not market timing MUNICIPAL 25.9% ABS/CMBS 5.7% MORTGAGE BACKED 13.3% 20

21 Maui Jim Sunglasses A unique private-equity legacy investment from RLI s contact lens insurance business An industry leader in the high-end global sunglass market RLI owns 40%; carried at $59.2 million $12.1 million of income recognized trailing 4 quarters $27.7 million of dividends since 2010 Significant excess value not recognized on the balance sheet Long-term exit candidate 21

22 Total Shareholder Return Shareholder returns validate the RLI story $2,000 $1,000 $500 $200 $100 S&P S&P P&C RLI* 500* Index* 1 year 25.2% 24.4% 16.5% 5 year 24.7% 18.8% 18.1% 10 year 14.9% 7.8% 5.6% 20 year 17.4% 9.8% 8.6% Q14 *Returns as of 2 nd Qtr

23 THE FUTURE 4

24 Value Creation Opportunities RLI is pursuing multiple initiatives designed to create value regardless of how the market evolves Start-ups via talent acquisition Traditional growth via hiring the best underwriters into the RLI model Acquisitions of niche P&C companies Capitalize on market opportunities in niche spaces Reduced reliance on reinsurance Long term goal to retain more of the attractive risks we write Process improvement Investing in technology to drive efficiency and leverage the platform Cycle management Maximizing margins throughout the cycle 24

25 Competitive Advantages RLI will capitalize on its competitive advantages to drive profitable growth Capital strength Underwriting expertise Ownership mentality & aligned compensation Product and distribution diversification Leveragable infrastructure to support existing and new product growth A reputation for excellence among customers built over many years A track record that attracts opportunity nothing succeeds like success 25

26 EXHIBITS

27 Selected Financial Data (amounts in millions) Operating Results 2Q Gross premiums written $ Consolidated revenue $ Net earnings $ Comprehensive earnings (loss) $ (3.2) Financial Condition 2Q Total investments $2, , , , , , , , , , , ,333.4 Total assets $2, , , , , , , , , , , ,113.6 Unpaid losses and settlement expenses $1, , , , , , , , , , , Total debt $ Total shareholders equity $ Statutory surplus $

28 Selected Financial Data (amounts in thousands, except per share data) Share Information 2Q Net earnings per share: Diluted Comprehensive earning (losses) per share: Diluted Cash dividends declared per share: Ordinary $ $ (0.07) $ Special Book value per share $ Closing stock price $ Stock split 200% Weighted average shares outstanding: Diluted Common shares outstanding 43,669 43,514 43,160 42,869 42,482 43,461 43,696 48,170 51,142 52,648 52,187 51,693 43,024 42,982 42,525 42,324 41,929 42,529 42,949 44,310 48,546 51,103 50,632 50,331 Other Financial Information Net premiums written (T4Q) to statutory surplus 2Q % 78% 87% 77% 66% 60% 76% 72% 74% 72% 84% 87% GAAP combined ratio *all share info adjusted for Jan for-1 stock split 28