RLI Corp. (RLI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the RLI Corp. Annual Meeting. I would like to hand the conference over to your speaker today, Mr. Jonathan Michael, RLI Chairman and CEO. Sir, please go ahead.

Thank you. Good morning, everyone, and welcome to the 55th Annual RLI Shareholders Meeting. I'm Jon Michael, Chairman and CEO, and it's my pleasure to welcome all of you to the RLI Corp. Annual Meeting and Proceedings. Thank you for your interest and attendance. Before we start, let me first discuss our company disclosure -- disclaimer. During this annual shareholders meeting, we may make comments that reflect our intentions, beliefs and expectations for the future of RLI. As with any forward-looking statements, these comments are subject to certain risk factors, which could cause our actual results to differ materially, including the ongoing impact of the novel coronavirus COVID-19 global pandemic. For a more comprehensive list of these factors and text of our forward-looking statement disclaimer, please refer to our various SEC filings, including our 2019 Form 10-K and annual report and the first quarter 2020 quarterly report on Form 10-Q, which includes a supplemental risk factor related to the COVID-19 pandemic. All this information should be reviewed carefully. I'd like to begin the meeting by welcoming all RLI leadership team members and associates throughout the country, listening to our broadcast. Thanks to Europe -- your efforts, we were able to deliver outstanding results again in 2019. I'm grateful for your continued commitment to RLI and appreciate you joining today. Today, we're hosting our first ever virtual RLI Annual Shareholders Meeting in order to maintain social distance and continued our part to help flatten the curve. Our hearts are with those who've been affected by the COVID-19 pandemic crisis. These are challenging times for everyone, but it's important to note that throughout our company's history, RLI has weathered many economic downturns and natural disasters. Over time, we've demonstrated that our business is resilient. We take the long-term view and remain optimistic about our future. We're confident because we have solid -- a solid balance sheet, a talented team of associates, strong customer relationships and the resolve to get through this and emerge stronger on the other side. I'd like to thank our customers, distribution partners and associates, their dedication and resilience through these uncertain times has been inspiring. At this time, I'd like to call the meeting to order. First, I'd like to introduce the members of our Board, all of whom have joined today's meeting. Kaj Ahlmann; Mike Angelina; John Baily; Calvin Butler; Dave Duclos; Susan Fleming; Jordan Graham; Bob Restrepo; Debbie Roberts; and Mike Stone. I'm proud to serve with such an experienced and dedicated group of directors who are committed to representing the best interests of RLI and you, our shareholders. Also joining us today are Lindsay Hammerer, representing KPMG, our external independent auditor for fiscal year 2019; and Blake Stewart, representing Deloitte, our external independent auditor for the fiscal year 2020. The business agenda for the meeting is described in the notice and proxy statement related to the meeting, copies of which were distributed to all shareholders in advance of the meeting. The formal meeting will be conducted first, after which our President and COO, Craig Kliethermes, will make a few remarks about RLI's operation. After Craig's presentation, we'll be available to answer your questions. Jeff Fick, our Corporate Secretary, has reported to me the required notice of the meeting was mailed on time. A certified list of shareholders is also available for review on the meeting portal for attendees who entered their 16-digit control number in the web portal prior to joining the meeting. As noted in the proxy statement previously provided to all shareholders of record, the record date for voting at this meeting was March 9, 2020. Todd Bryant, our CFO, will serve as inspector of the election. And his report, along with the proxies, will be filed with the minutes of this meeting. Mr. Fick will report the voting results. We have 90% of the outstanding shares represented here today in person or by proxy and therefore, a quorum is present, and we may conduct the meeting. As indicated in the proxy, there are 4 proposals to be acted upon today. Proposal 1 is the election of the 11 directors of the company. Proposal 2, an amendment to the company's amended and restated certificate of incorporation, increasing the number of authorized shares of common stock. Proposal 3, a nonbinding advisory vote regarding approving the executive compensation of the named executive officers in the company's proxy statement. And proposal 4, ratification of selection of Deloitte & Touche, LLP as the company's independent registered public accounting firm. Each of these proposals is more fully described in the proxy statement, and each is recommended by the Board of Directors. Will Mr. Fick, please present the results of the voting?

Mr. Chairman, the voting results are as follows: with respect to proposal #1, the election of directors, a majority of the votes cast have been voted for the election of each of the 11 nominees. With respect to proposal #2, the amendment to the company's amended and restated certificate of incorporation, increasing the number of authorized shares of common stock as described in the 2020 proxy statement. The proposal received approval of a majority of outstanding shares. With respect to proposal #3, the nonbinding advisory vote on the compensation of the company's named executive Officers, also known as Say-on-Pay, as described in the 2020 proxy statement. The proposal received approval of a majority of the votes cast. And with respect to proposal #4, the approval of the ratification of Deloitte & Touche LLP as independent registered public accounting firm of the company for fiscal year 2020. The proposal received approval of a majority of the votes cast.

Thank you, Mr. Fick. Based on the report of the inspector of the election, each person nominated for election as a director has been elected to serve as a director until the 2021 Annual Meeting. The amendment to the company's amended and restated certificate of incorporation, increasing the number of authorized shares of common stock, has been approved. The nonbinding advisory vote on the compensation of the company's named executive officers, Say-on-Pay, as described in the 2020 proxy statement, the proposal received approval of a majority of the votes cast. And finally, the Audit Committee's selection of Deloitte & Touche LLP as independent registered public accounting firm for fiscal year 2020 has been ratified. These actions will be recorded as stated in the minutes of the meeting. This concludes the formal meeting. I declare this meeting adjourned. Now I'd like to turn it over to RLI President and Chief Operating Officer, Craig Kliethermes, who will bring you up-to-date on the company's progress.

Thank you, Jon, and good day, everyone. On behalf of all of our associate owners at RLI, thank you for joining us today. Through the efforts of our talented team and the support of our distribution partners, I'm pleased to share that 2019 was a strong year for our company. RLI performed well with favorable market conditions, a strong economy, heightened demand for insurance and an improving rate environment, supporting premium growth. Natural catastrophe and storm activity in the United States was benign compared to the extraordinary activity experienced over the past 2 years, resulting in moderate catastrophe losses for RLI during the year. Overall, the P&C industry continued to be dynamic with markets, competitors and products evolving rapidly. Market disruption created by carriers refining their underwriting appetite or exiting markets and select business classes created new growth opportunities for RLI. As a premier specialty insurer with a consistent risk appetite, we were able to readily capitalize on these opportunities. Highlights of our accomplishments during the year follow: operating earnings for the year were $116 million or $2.57 per share. We achieved our 24th consecutive year of underwriting profit, posting a 91.9% combined ratio. We celebrated an important growth milestone, achieving $1 billion in gross premiums written for the first time in our company's history. Gross premiums written were up 8% in 2019, fueled by widespread growth across our diverse property, casualty and surety product portfolio. Investment income increased 11%, outpacing prior years, primarily due to a larger asset base. Shareholders' equity grew 23% to $995 million at year-end. We delivered value and returns to our shareholders through regular quarterly dividends and a $1 per share special dividend. Throughout the year, our RLI associates delivered specialized products, unmatched expertise and differentiated service to our customers. We also advanced our strategic priorities, fortified our service standards and invested in many areas of our business to improve the customer experience and sharpen our competitive edge. I want to thank all of our associates once again on their performance in 2019. The first quarter of 2020 started off strong, but the positive momentum we experienced early in the quarter was quickly replaced with uncertainty due to the COVID-19 pandemic and resulting economic shutdown. As Jon mentioned earlier, our thoughts continue to be with all who have been impacted, especially our partners and customers. RLI responded to the crisis by quickly taking action to protect our associates, while continuing to deliver the highest service and support possible for our customers. Since mid-March, our entire team has been working from home with very little impact to our business operations or our ability to serve customers and distribution partners. We are in a good position to maintain our remote business opportunities for as long as necessary. However, we have already started developing return-to-work plans that will allow us to safely welcome our associates back into our offices when it is appropriate to do so. Taking these unexpected circumstances into consideration, we had a solid start to the year in the first quarter. Operating earnings for the quarter were $29.8 million or $0.66 per share, down from $0.71 per share a year ago. We achieved underwriting income of $17.2 million, resulting in a 92 combined ratio. Gross premiums written were up 6% in the quarter, driven largely by our property and casualty segments, which were up 16% and 5%, respectively. Investment income increased 7% in the quarter, but market volatility in the second half of the quarter negatively impacted net earnings and book value. Overall, our diversified portfolio of products, underwriting discipline, exceptional customer service and financial strength distinguished our company amid rapidly changing market dynamics during the quarter. We recognize that the true measure of success is our ability to generate long-term growth for our shareholders and consistently deliver value for all stakeholders we serve. A brief review of our track record reinforces the value of investing in RLI. We've delivered profitable underwriting results for 24 consecutive years and beaten the industry average combined ratio by 14 points over the last decade. We've paid and consistently increased regular dividends in each of the last 44 years. And over the past 10 years, we've delivered a 10-year annualized total return of 20% to shareholders, a return that has significantly outpaced that of the S&P 500 and the S&P 500 Property and Casualty Insurance Index. We remain steadfast in our focus on delivering exceptional value to you, our shareholders, through the thoughtful design of our diversified product portfolio, the careful selection of niche markets, distribution partners and customers, the quality and character of our people and the strength of our balance sheet. Despite the uncertainties that lie ahead, we believe that RLI continues to be well positioned for long-term success. Our unique business model is resilient and agile. In the year ahead, we will be prudent and purposeful to carefully manage our business through the current climate. We will focus on the things within our control and provide stable coverage with a consistent appetite, nurture our existing partnerships, selectively add new risk products and relationships, continuously optimize our service standards, evolve our business to meet the changing needs of the customers and markets we serve, and cultivate our unique ownership culture to maintain shared accountability and strong alignment of associate owner and shareholder interests. Thank you for your confidence and continued investment in RLI. We will strive to prove once again that different works. I will now turn it back over to Jon for some closing remarks.

Thank you, Craig. I pray that all of you and your families are healthy and continue to be healthy. We will remain a good steward of your investment and look forward to once again seeing you all. And thank you to everyone for joining us today. We will now take your questions. Questions can be submitted in the designated field in the online meeting portal. As a reminder, only shareholders who provided their 16-digit control number prior to joining the meeting today, we'll be able to submit questions. If we are unable to answer any questions due to timing constraints, we will provide responses to questions pertinent to meeting matters on our website. Now we will pause for a moment to allow time for questions to be submitted. Okay. Having seen no questions submitted, I want to thank you for your time and your investment in RLI. We look forward to updating you each quarter and speaking to you next year. Thank you all.

Ladies and gentlemen, thank you for participating in the conference. You may now disconnect.