RLI Corp. (RLI) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Annual RLI Shareholders Meeting. I'm John 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 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 vary materially, including the ongoing impact of the novel coronavirus COVID-19 global pandemic. For a more comprehensive list of these factors and the text of our forward-looking statement disclaimer, please refer to our SEC filings, including our 2020 Form 10-K and annual report. All of this information should be reviewed carefully. I'd like to begin the meeting by welcoming all of our RLI leadership team members and associates throughout the country, listening to our webcast. Thanks for your efforts. We were able to deliver strong results again in 2020. I'm grateful for your continued commitment to the company and appreciate your joining. Today's meeting will be held virtually due to ongoing public health concerns related to COVID-19 and to support the health and well-being of our shareholders and other meeting participants. Our thoughts continue to be with all who have been impacted by the pandemic, especially our shareholders, customers and employees. By all accounts, 2020 was an extraordinary year. We could not have predicted the unprecedented challenges at the world insurance industry in our business would face from the wide-ranging impact of the pandemic. I'm incredibly proud of our associates unyielding dedication to our customers over the past year. Amid tremendous uncertainty and change, the entire RLI team stepped up and worked together to keep tower business and our customers moving forward. As a result of their efforts, we were able to successfully navigate a high dynamic and challenging environment and achieve outstanding results. 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; Craig Kliethermes; 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 interest of ROI and its shareholders. Also joining us today is 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 in advance of the meeting. The formal meeting will be conducted first, after which RLI Corp., President and COO, Craig Kliethermes, will make a few remarks about our operations. And after Craig's presentation, we'll be available to answer your question. Jeff Fick, our Corporate Secretary, has reported to me, the required notice of meeting was mailed on time, a certified list of shareholders is also available for review on the meeting portal for attendees who have 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 8, 2021. 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 the meeting. Mr. Fick will report the voting results. We have 95% 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 3 proposals to be acted upon today. Proposal 1 is the election of 12 directors of the company. Proposal 2 is a nonbinding advisory vote to approve the compensation of the company's named executive officers. And Proposal 3 is the ratification and 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 12 nominees. With respect to proposal #2, the nonbinding advisory vote to approve the compensation of the company's named executive officers, also known as Say on Pay, as described in the 2021 proxy statement. The proposal received approval of 96% of votes cast. And with respect to proposal #3, the ratification of Deloitte & Touche LLP as independent registered public accounting firm of the company for fiscal 2021, the proposal received approval of a majority of the votes cast.

Thank you, Mr. Fick. Based on the report of the inspector of election, each person nominated for election as a Director has been elected to serve as Director until the 2022 annual meeting. The nonbinding advisory vote on the compensation of the company's named executive officers, also known as Say on Pay, as described in the 2021 proxy statement, the proposal received approval of 96% of the votes cast. The Audit Committee's selection of Deloitte & Touche LLP as independent registered public accounting firm for fiscal 2021 has been ratified. These actions will be recorded as stated in the minutes of this meeting. This concludes the formal meeting. I declare the meeting adjourned. Now I'd like to turn it over to our President and COO, Craig Kliethermes who will bring you up-to-date on RLI's progress. Craig?

Thank you, John. Good afternoon, everyone. On behalf of all our associate owners at RLI, thank you for joining us today. In the face of many extraordinary events over the past year, I'm pleased to share that RLI delivered strong results. Amid the COVID-19 pandemic and a highly active year of natural catastrophes, our associates [indiscernible] to the needs of our policyholders with professionalism and unparalleled service. Despite the impact of catastrophe losses and the economic slowdown from the pandemic, our underwriting performance was strong. We attained profitability while growing our business. We also advanced many strategic initiatives that will further differentiate RLI in the markets we serve and position our company for future growth. Our talented associates continue to be the driving force behind our success. They have persevered and risen to the occasion over the past year, even as their work routines and personal lives were heavily disrupted by the pandemic. I believe this is a testament to the strength of RLI's ownership culture. As a result of our associates' efforts, we achieved outstanding financial results. Highlights of our accomplishments during the year follow: operating earnings for the year were $118 million or $2.59 per share. We reported a combined ratio of 92, which marked [indiscernible] consecutive year of underwriting profit. Gross premiums written grew 7% to $1.1 billion in 2020, which was largely driven by rate increases across most of our product portfolio. Investment [indiscernible] 1.4%, primarily due to a low interest rate environment, which suppressed reinvestment rates. However, on a total return basis, our investment portfolio performed well and was up 7.5%. Shareholders' equity grew 14% to $1.1 billion at year-end. We delivered value and returns to our shareholders through regular quarterly dividends and a $1 per share special [indiscernible]. In fact, 2020 marked the 45th consecutive year that RLI has increased regular dividends. Overall, our solid underwriting performance and outstanding customer service distinguished us during the year. We will continue to make strategic investments in our business and remain competitive in the markets we serve by understanding customer needs, providing stable coverage with a consistent appetite, nurturing existing distribution partnerships, selectively adding new risks and relationships and continuously optimizing our service standards. I want to thank all of our associates once again for their hard work [indiscernible] 2020. Turning to the first quarter of 2021. We're off to a strong start to the year. [indiscernible] the impact of an active winter storm season, we achieved profitability and continue to find growth opportunities across our portfolio. Operating earnings for the quarter were $39.6 million or $0.87 per share, up from $0.66 per share a year ago. We achieved underwriting income of $29.9 million, resulting in an 86.9% combined ratio. Gross premiums written were up 20% in the quarter or 10% when adjusting for the return of premium to transportation customers impacted by the pandemic in 2020. Premium volume was up over last year in all 3 of our product segments and primarily driven by rate increases and expanded distribution. Investment income was down 7.6% in the quarter, but our investment portfolio posted a [indiscernible] total return for the quarter. Overall, very solid underwriting results. The sub-90 combined ratio we achieved is a testament to our well-diversified portfolio of specialty products and the consistency of our disciplined underwriting approach. We never forget that the true measure of our success lies in 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 [indiscernible] consecutive years and beaten the industry average combined ratio by 13 points over the last decade. We paid and consistently increased regular dividends in each of the last 45 years. Over the past 10 years, we've delivered a 10-year annualized total return of 21% to shareholders, a return has outpaced that of the S&P 500 and S&P 500 Property & Casualty Insurance Index. We will work to continue creating consistent value for our shareholders through the thoughtful management of our product portfolio, careful [indiscernible] niche markets, distribution, partners and customers, the quality and character of our people and the strength of our balance sheet. Looking forward, we are optimistic about the future. RLI is well positioned for continued growth and success. Our businesses are competitive and agile. Our associates, our owners and their actions are aligned with the interest of our customers and shareholders. These attributes will allow us to continue differentiating RLI in the markets we serve and delivering value to our shareholders. I look forward to working with [indiscernible] ahead to prove once again that difference works. I will now turn it back over to John.

Thank you, everyone, for joining us today. We'll 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 will be able to submit questions. [Operator Instructions] And we do have a question. The question is, what's your exit strategy for Maui Jim and when? And I'll take that one. We have enjoyed a I guess, 25-year history with our ownership in Maui Jim. And that investment for [indiscernible] I would call it, nothing short of wildly successful. And we continue to enjoy that investment. We have had queries on selling our shares. But each time that we have those, they fall short of our expectations as to what [indiscernible] if we were to ever exit that asset. So the answer is we really do not have an exit strategy per se, but we do entertain queries when they come. Well, Craig, it appears there are no other questions submitted. Thank you for your time today and your investment in RLI. This concludes our meeting.