RLI Corp. Price & Performance (RLI)

The Form eight ks contains a reconciliation between operating earnings and net earnings The Form eight ks and press release are available at the company's website at www.rlicorp.com. I will now turn the conference over to RLI's Chief Investment Officer and Treasurer, [indiscernible] Please go ahead. Thank you, Adam, and good morning, Let's start again. Thank you, Adam. And good morning, everyone. Welcome to RLI's first quarter earnings call of twenty twenty five. We'll be following our typical agenda today with opening remarks from Craig Kleithermes, President and CEO followed by a summary of the financial results from Todd Bryant, Chief Financial Officer and an update on the insurance market landscape our product portfolio from Jen Klobnoch, our Chief operating officer. After prepared commentary, the operator will queue up any questions and Craig will close with some final observations. Craig? Thank you, Aaron, and good morning, everyone. I'm pleased to report that we began our sixty first year in business with continued growth in book value and top line premiums while reporting a combined ratio of 82%. A very good start something to build on as we move through 2025. RLI is a unique franchise built on a foundation of customer service, ownership, and talented people who value making a difference.

Our narrow and deep underwriting and claim expertise combined with a very diverse portfolio of specialty products give our underwriters the license to lean into disrupted markets underwrite with discipline select risk discerningly and take remedial action in underpriced or underperforming markets if needed. We have a healthy balance sheet that enables us to navigate and thrive through periods of market disruption. As respected coaches often advise their teams, act like you've been here before. In our case, we have. Whether it was the soft market years at the turn of this millennium, the financial stress and credit crunch of 02/2008, or the economic supply chain and contract uncertainty we faced during the COVID pandemic. RLI continued to grow profitably while delivering exceptional service to our customers. The insurance industry has now faced with the rising challenges of legal system abuse, trade disruption, and economic uncertainty. We have owners. Who are empowered to execute and confidently manage through whatever the market presents. As Todd and Jen will go into in a minute, we remain focused on opportunities where we have the expertise to differentiate ourselves and the market supports adequate returns. It is never easy and there's always room for improvement.

What sets RLI apart is that, you know, our ownership culture there is no place to hide. We tackle our challenges with a sense of urgency and try to keep them from becoming outsized. And we are committed to pushing ourselves by raising the bar in pursuit of excellence continuously building on our strengths. We are playing the long game. I will let Todd and Jen share more detail on the financials and the market in general. Todd? You're up? Thanks, Craig. Good morning, everyone. Last evening, our first quarter release reflected operating earnings of $0.92 per share supported by solid underwriting performance and a 12% increase in investment income. As a reminder, per share data reflects the two for-one stock split that was due to shareholders at the end of twenty twenty four and payable in January.

Underwriting income benefited from continued growth in earned premium and favorable prior year's reserve development across all three segments.

The total combined ratio of 82.3 was up from last year's 78.5 on lower levels of favorable prior year's reserve releases and a slight increase in the underlying combined ratio. Although top line growth was mixed across segments, total gross premiums written increased 5% when compared to last year. On a GAAP basis, the first quarter net earnings totaled $0.68 per share versus $1.39 Q1 twenty twenty four. This comparison is heavily influenced by the relative price performance of equity securities between periods and saw $45,000,000 of unrealized equity gains of last year turn to $42,000,000 of unrealized losses this quarter.

The property segment experienced a 6% decline in gross premium due largely to rate decreases in E and S property which were modestly offset by continued growth in marine and Hawaii homeowners. Jim will have some additional color on sub segment market conditions. Contributing to property's bottom line was 17,600,000.0 of favorable prior year's reserve development largely attributable to marine, E and S fire and Hawaii homeowners offering a 13 loss ratio benefit. Storm losses and catastrophe events totaled $12,000,000 which was comparable to last year. Losses from the California wildfires account for about half of that total. This quarter's catastrophe losses are almost entirely captured in this with very little attributable to package business and casualty. While property loss ratio declined modestly, the expense ratio increased two points driven by changes in our reinsurance compared to Q1 twenty twenty four and a higher amount of acquisition related expenses. That influenced the comparison between periods. All in, property had a great start to the year, with a 57 combined ratio. For the casualty segment, we posted a 99 combined ratio for Q1 and remain cautious regarding wheel space businesses [indiscernible] and auto exposure in the personal umbrella. Something we discussed at length during the fourth quarter call.

Although growth continues, the gross premium with gross premium up 14% over last year our measured reserve approach influenced the level of overall favorable development in the segment. Which totaled $5,100,000 during Q1. Compared to $18,100,000 last year.

General liability, commercial excess and sub segments within professional liability were the strongest contributors to favorable prior year's experience. Now this was partially offset by an increase in our wheels business reserves I referenced previously. We continue to approach more challenged coverages with rate increases, and underwriting action to address casualty's current loss environment. Securities gross premium was relatively flat to last year, and the first quarter combined ratio came in at 68.5 below the 80.9 combined ratio in 2024. Underwriting profitability benefited from $8,300,000 favorable development which had a significant influence on the loss ratio. As a reminder, we recorded $2,000,000 of reinsurance reinstatement premiums last year, which weighed on the net earned premium in the comparable period. Operating cash flow for Q1 totaled 103,000,000 up $33,000,000 from last year. And giving us a basis for portfolio activity that remains accretive. Although treasury rates moderated during the quarter, fixed income purchases averaged 5.1% or 120 basis points above our book yield. Recent market volatility has not dampened focus on putting money to work in investment grade fixed income, but the strength of our balance sheet allows us to also consider risk assets as valuations improve. Bond price improvements through March 31 enough to overcome the decline in equities resulting in a positive 1.3% total return for the entire portfolio.

Away from our traditional invested assets, our invested earnings turned positive again totaling $3,000,000 in the quarter as prime results were more stable than in the fourth quarter. Incorporating comprehensive earnings of $1.01 per share, and adjusting for dividends book value per share increased 6% from year end 2024. Additionally, we announced an increase in our ordinary quarterly dividend to $0.15 per share our fiftieth year of paying and increasing dividends. All in, we are very pleased with the start to the year And with that, I'll turn the call over to Jim.

Thank you, Tom. Had an excellent start to the year with 5% growth and an 82 combined ratio for the first quarter. Increased competition in several areas of our portfolio has led to slower top line growth. However, our underwriting team continued to explore where competitors are pulling back and we have found opportunities in the business they leave behind. We are being more selective on providing auto coverage as we have seen continued increased severity across our auto portfolio. Our property insurance segments performed very well in the quarter. We have a manageable loss Let me provide more detail by segment. Casualty segment premiums grew 14% which included a positive 9% rate change overall. Auto liability coverages provided within this segment achieved a 17% rate increase. Growth was once again driven by personal umbrella, where premium grew by 34% which included a 15% rate increase in the quarter. The rate increase was down slightly from last quarter, as some of last year's higher rate filings have worked their way through the book. We do have additional approved rate filings effective midyear that will help us continue to address loss cost trends. Due to the loss severity we have seen in this book, are making several changes beyond rate For example, we raised required underlying coverage limits in several geographic areas.

We are also working with our producer partners to slow growth in problematic areas we continue to focus on underwriting profitability. The E and S casualty brokerage group grew premium by 25%, includes 18% growth in primary general liability business, and 32% growth in excess liability. Rate increases are in the mid to upper single digits We do have a long track record of underwriting profitability in the construction industry, Based on that starting point, our rate change may not be comparable to what other carriers disclose. There are admitted and not admitted markets who are pulling back in this business. Submissions have increased almost 20% for these ones, doing a good job of collaborating internally and offering an excess quote support a primary liability opportunity. And have been successful in binding more construction business in all regions of the country. The top line for other category products was fairly flat. Actions we are taking on auto are impacting our package businesses with rate increases staying ahead of loss trends. Our transportation division grew by 6% while achieving a 15% overall rate increase. Our executive products group achieved a 3% increase in premium due to our producer outreach. Even though rates continue to decrease by 4% in the quarter.

And finally, we exited a couple of captive relationships reduced premium by 6,000,000 in the first quarter. The market for casualty business varies significantly by product. While we are seeing carrier competitors increasing rates for most coverages, introducing some exclusions or exiting certain classes or geographies, we still see new markets and MGAs in particular who are willing to write business at lower rates with broader coverage. We rely on our local specialty underwriting team stay abreast of their producers' needs and to continuously remind them of our risk appetite. We are ready to take their calls and provide a quick quote or quick decline so they can move on. Based on our underwriters' efforts and deep relationships, we are well positioned take advantage of opportunities for long term profitable growth in the casualty segment. The property segment's premium declined by 6% while producing a 57 combined ratio. Our marine and Hawaii homeowners businesses continue to find opportunities for growth. Marine premium was up 10% with a three positive 3% rate change. The marine market is challenging, but our underwriters have developed the ability to sift through a growing number of submissions to find the opportunities that make sense. Submissions were up 10% for the quarter, with growth driven primarily by inland marine.

Hawaii homeowners premium grew by 37%, which includes a positive 18% rate increase. We continue to benefit from our competitors pulling back in this market after the Hawaii wildfires. More recently, we are seeing a change in appetite with some markets reentering this space to varying degrees. 14% in the quarter. The property insurance market is known for large catastrophes and short memories. And the current market conditions reflect this. Competitors, particularly MGAs who are compensated on top line growth are very aggressive in the Florida wind market. They have increased line capacity and expanded terms and conditions while slashing rates. Continue to refine our underwriting guidelines to provide our underwriters the flexibility to compete on the best accounts. Although we saw a 14% decrease in CAT win rates in the quarter, we believe this business is still very well priced. The earthquake market is also challenging given the increasing tendency of insurers to take this risk net. Our rates were down 6% in the quarter on the earthquake business. New business is hard to win in the E and S property space, but we are continuing to stay in front of our producers and letting them know we are consistent, long term, reliable market for their customers.

As I mentioned, the property segment performed well with a 57 combined ratio despite a heavy quarter of catastrophe losses for the industry. Will continue to look for areas to grow in the segment despite the increased competition. Matured segment's premium was down 1% in the quarter, while posting a 69 combined ratio. Bottom line improvement was due to benign loss activity in the quarter this year, compared to one large commercial energy loss posted in the first quarter last year. The top line was challenged because contract surety premium decreased by 10%. As this businesses business focuses on public construction projects, we saw a slowdown in bid activity for larger multiyear projects influenced by tariff uncertainty. Our bond count actually increased which means we're still seeing plenty of opportunity on smaller, quick turning jobs. Which is our target appetite. Our commercial and transactional businesses were able to grow due to some new regional bonding requirements and our continued marketing efforts. Overall, we're very pleased with this quarter's results. And in quarter of elevated catastrophe loss activity for the industry, and continued auto severity, we were able to post an 82 combined ratio are continuously improving our portfolio while focusing on bottom line results.

Our underwriting teams are navigating increasingly difficult market conditions by regularly interacting with our producers in person to address their needs. By working with our claim and analytical teams, to incorporate the trends and feedback they're hearing to ensure we continue to maintain discipline, and write profitable business where available. This is what we do. And now I'll turn the call over to the moderator to open it up for questions. Thank you.

Question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. And the first question comes from Bill Kakash from Wolfe Research. Bill, your line is open. Please go ahead.

Thank you. Good morning. Craig, following up on your comments around having managed the business through many business cycles, if uncertainty caused by tariff policy were to push The U. S. Economy into recession, could you give a little bit of insight into the ROI playbook? What would you adjust? What stays the same? Where would you expect to see greater opportunities? Any color would be helpful.

Thanks, Bill. Yeah. I mean, we've also managed our way through recessions in the past as well. I mean, we big advantage we have obviously is a very diversified portfolio of products. So some are more impacted than others by recession We do have a significant presence and percentage of our portfolio in the construction space. So obviously, if construction slows significantly, it it would put some pressure on us. Although, I would say construction is a big segment for most specialty companies. I'm not sure our it would be outsized pressure on us, but certainly there would be pressure on exposure basis because sales and revenues would be going of our underlying insurance, which would drive prices down or premiums down anyway. [indiscernible] that but also decreased activity also slows claims as well. So from a profitability standpoint, I I don't know the we've managed our way through these before. I'd expect we would manage our way through them again. But certainly, that would create pressure on exposures. It's not limited to construction and beyond the auto side as well, transportation side, things like that. So the insurance industry ensures the economy. So the way the economy goes is the way we go.

I guess the offsetting that is if the end result [indiscernible] of you know, I guess, the uncertainty that's being created today by tariff policy if it would increase, you know, building more at home, investing more at home in America, since we are exclusively in The US. We would also be proportion, I guess, benefactor of that as well.

So obviously, more building in The US would create more opportunity for us. So [indiscernible] much what I would have to offer there.

And and that inclusive of, you know, the impact of tariffs on loss cost inflation trends overall in that [indiscernible] probably a help to us. It would probably offset some of the inflationary things that are going on right now. However, from a legal system of view standpoint, that's a little more isolated from materials and labor inflation. That needs to be addressed in a different [indiscernible] seen in Florida. You most recently saw in Georgia, although the impact been felt yet. You're seeing, I think, in Louisiana, they're trying to do that as well. I think that that is what will help most mute the inflationary pressures on casualty business.

That's really helpful. Thank you. And then separately, Jen, following up on your commentary around seeing MGAs willing to more aggressive aggressively underwrite business at lower rates with broader coverages. Are you viewing this as a bit of a harbinger of undisciplined market behavior that could lead to more widespread challenges for the industry? Down the road. And ultimately something that could potentially present some more opportunities for for your business?

Yeah. So Bill, we're very used to MGAs in our space. We we deal with them every single year. I think it's more irritable in property because they're they're affecting the market so aggressively, and it was such a great market that was going on. So to have them go so aggressively after the business is really putting a dent in what's available there. But but we do experience MGA on the Cali and property side on a regular basis every year. Our business model is, you know, we're a very consistent market, very strong financially, so we're there for our producers and our insurers over time. They know what we offer. We stay in front of them. We have a pretty consistent risk appetite. We do tweak it over time, but because of our results, we're able to stay consistent and not make drastic moves from a pricing or a terms and conditions standpoint.

So So what happens is an MGA comes in, they start taking our business, They tend to blow up over time and cash it takes little longer. Property, sometimes you see that a little faster. So then after they blow up, the the producer ends up shifting that business back to us because they know we're still here. That's why sometimes our top line is not as consistent, and and does, you know, it can actually be reduced in some market conditions. But, again, we're focused on the bottom line and the consistency in being there for our producer and insurers. And so that's kinda how the the macro cycle plays out for us based on our business model.

I guess I would just add to that. You know, we've seen beyond NGAs as well, you've seen some unrated carriers that have come back into the market. Particularly in Florida. You've seen volumes come back much more aggressively or I will say as aggressively as they were before. You know, as a as as someone sitting a little bit removed from from this and getting the reports on the ground. I mean, it's a bit disheartening how quickly the discontent rises in the insurance marketplace. The market is full of people that seem to be too smart for their own good. And many were the same people that created the contraction and the lost capacity and withdrew from the market because they lost their capacity from their reinsurers just a couple of years ago. They also were screaming that the sky is going to fall, and Milton was he thought Milton was gonna hit possibly Tampa last year. And and that just happens to be the same market that's doing what I would say is dumb things right now. So the lack of discipline is a bit disheartening for those companies that are a little more disciplined. I would say.

That's very helpful.

Thank you so much for taking my questions.

Thank you, Bill.

The next question comes from Michael Phillips from Oppenheimer. Michael, please go ahead. Your line is open.

Thank you. Good morning. You've talked you mentioned a little bit this quarter and certainly last quarter you expanded on the personal umbrella. Auto book frequency flat, severity up. Cautious view on that. Can you just kind of maybe hit that again? And if I assume frequency is still down. We've heard that before from others. But just remind us if that's still the case. And what does severity look like in your personal umbrella book today? Well, if I look at First Umbrella, you know, we've been experiencing severity for a few years increased severity, I'll say, for a few years now. And it's it's not subsiding. I think from our standpoint, we are trying to address this in in various ways. One is the obvious which is rate. And we continue to regularly go back to each state with the filed product. So we have to go to each state and ask for a rate increase. We work through that process on at least an annual basis, but if we can if we need it, and we and we can, we go and and try to get it even within a year that's what we're in the process of doing again.

We've got you know, our annual filing that's been approved in most states. Effective midyear. And so we start with rates. We also look at trends within what claims are we getting. We'll driving the claims. That's where we've made some other changes As I referenced, the, increase in attachment. We see certain venues as being more problematic, and so we're working with our producer partners to not get as much new business in those venues. Looking more at the quality of the underlying insured, you know, do they have prior or or other issues or larger exposures that we're not as comfortable with and slowing down ensuring those new business opportunities in those particular venues. So that feedback loop between [indiscernible] our analytical folks, and underwriting is critical in informing our marketing teams on where we wanna target growth and where we wanna pull back. So we continue to do that From a claim standpoint, we ramped up our our staffing. And if anybody knows any excellent personal umbrella claim examiner, so we can specialize by product. We'd be happy talk to them. But we have hired a few folks and are ramping them up to train them in how we do claim handling, which is to thoroughly investigate the claims and make sure that we are paying what we owe.

But also addressing the shenanigans that the plaintiff's attorneys put forth in the the various claims that are are presented to us. So it's a a number of factors that we work on with First Umbrella to stay ahead of us. We have a regular conversations almost daily. Between those different groups to make sure that we're addressing things that come up as they do.

So I I guess I would just add that just to be clear that those conversations are going on between the underwriters that manage that business and the claim people that are dedicated to that business. I mean, we participate from time to time, and we get reports out on what's going on. But we're not driving that behavior. That'd be driven from the ground up. These people own these products. They get paid based on the underwriting profit that's delivered in these products. So they have a keen interest in trying to make sure that this product remains profitable. Been one we've been in for a long time.

Thirty five, years. And it's one that's been a very profitable product. For us. But but certainly, we have seen an increase in loss cost inflation. And so I do think [indiscernible] point on the attachment points is that the attachment points come with, you know, the higher the attachment point, usually there's a credit associated with the attachment point. But a side benefit of having a higher attachment point is you have more skin in the game from your underlying claim examiners. When we're saying that about Personal Umbrella for us, obviously, that's a different company because our a stand alone personal umbrella. So this is having other people that are writing the underlying coverage as They're claiming damage having a lot more skin in the game in regards to outcomes when they have a bigger limit exposed than smaller limit exposed. So we think there's some additional benefits to that. And I also would note on the new businesses, we have grown a lot over the last several years in this business. And we've seen great opportunity. We've leaned into this opportunity. We also know that in this business, particularly, there is a a new business penalty associated with leaning in.

We know that our new business have a higher loss ratio than our renewal business. So if we were to slow new business growth we will probably get a benefit from that over time as as those accounts season as those insurance season. I might add, Todd, one more thing that's [indiscernible] with that. I think if we talk about the cautious approach, on the personal umbrella side of the auto side in general, and Jim talked about the the 17% rate that we're getting on the auto side if you compare, I think in terms of caution, where we started last year, and you look at where casualty's underlying loss ratio is about one point points higher than what we started last year, that That increase is largely auto related. So we've increased our auto related loss booking ratio even while we're getting this rate increase and have been getting the rate increase now for for a little bit. So that's that's that goes to bit of that caution as well.

Yep. Okay. Thank you. Thanks for all that detail.

I guess, what are you done with or with I mean, would you classify you're in with the transportation books, nonrenewable large accounts?

Well, the job was never done. I would say as as we look at renewals, you know, we're constantly looking at that lost experience. So with transportation, it's a benefit that they do have losses, you could say, because we do rate based on loss experience. The key there is understanding if those loss reserves are real. So as we get new business in and we are looking at reserves from other carriers, we tend to be cautious and and maybe pessimistic about if those reserves are accurate or enough. So as we price up that new business, you know, we try to understand what those claims that are already on the books look like to see what what that premium should be going forward. On our own business, you know, we try to get our reserves up as quickly as possible so that we can properly rate our renewal. And, also, if those you know, insurance or shopping coverage that our competitors see the real cost that that could be coming with that insurance. So you know, we evaluate annually then each of our insureds. The added benefit we have is we have in house walk control where we have people who physically go out and visit our insurers and and kick them higher, so to speak.

So they do understand, like, what kind of maintenance are those insureds doing, what kind of training, how they hiring their drivers, all those things that would indicate is this a a an account that really values doing business well and trying to be safe and avoid losses. And and if they do, we wanna really be fairly aggressive to maintain those insurers. And if they don't, then we have to either charge for it or know, work with them to try to make sure that you know, we're aligned in our view of of the exposure there. So we're never done. Having said that, you know, we still have some large accounts on the book that we believe in and are supporting. But that rate that rate change reflects we think we need make sure that our portfolio is still making the underwriting profit at the end of the day.

Okay. Thank you. Last one, if I could. I guess, any change in your philosophy of viewing the opportunities in California residential homeowners?

California residential? Residential. Oh, residential. Sorry. So, you know Yeah. We have long, long, and we we still go back to the Northridge earthquake. Which is the last time we got an underwriting loss. At that time, we insured individuals. We had residential earthquake coverage And dealing with individuals, and dealing with the claim handling process so that nobody thinks their house is perfect. We gotta an endless list of things to tweak so that claim handling process is extended, and it's problematic. And I think our long memory is kind of skew our view of of personalized business. Now we do obviously support personal lines in Hawaii. That's a little different case because we have local folks who work very closely with insurers, and those aren't necessarily high value. Dwellings. I think the California market the wildfires is largest disruptive piece is the high value homeowners. And again, those tend to be difficult claims to to a a good resolution on. So don't have a different view. I think we're still hesitant to get into that. We we like to lean towards the commercial space.

Okay. Thank you, Jen. Appreciate it.

The next question comes from Gregory Peters of Raymond James.

Good morning, everyone.

Think in the prepared comments, you noted that there was some downward rate pressure on earthquake. I was wondering if you could go back and just give us some more color behind that. And also, can you talk about the reinsurance costs on Quake? Or is that coming down commensurate with any rate pressure you're seeing?

Sorry. I [indiscernible] but it is, you know, in the other regions for the coverage is is possible as well. But I would say in California, it's fairly competitive. We have both carriers and MGAs that compete in that space. And because there hasn't been a loss in one time of knock on wood, You know, people see that premium to come extend as being free premium. Right? I don't know that everyone appreciates the downside, particularly the MGA I don't think they appreciate the downside risk on that. The issue with California relates a bit to overall economic conditions where we can we're ensuring small businesses who have felt pressure from a number of rising costs. From employees to supplies to, you know, inventory gas, everything that they do. And so is another cost to them, this insurance, and it has been going up over time. And when the loss doesn't happen, they think, well, maybe I should just take that net or buy less or increase my deductible to the point where I don't have to pay as much. And all of those factors have caused that marketplace to to be more competitive because you know, more people are taking that risk net and so then there's less of a pot to fight over from the standpoint of the the remaining carriers and MGAs.

So those are the market dynamics that we're dealing with. Our underwriters are trying to stay ahead of it by getting you know, communicating early on renewals, trying to put our best foot forward. And work with our producers to to get that business in if we can use this though, it's very difficult. And what else makes it difficult is is the words. I would say, you know, all of these cases, words matter. We're producing a policy that delineates what we're gonna cover. And for us, we actually consider that there could be a loss. And so when we look at the words, we wanna be clear on definitions so that people know what covered, what's not covered. We do have some sub limits, deductible, things of that nature. It seems like other carriers and MGAs, they're a little looser with the words. Again, they maybe they appreciate the fact that a claim will happen. But when the claim happens, the only thing that matters is the words. And we believe that having certainty in our wording and understanding what it says is going to help when a claim happens. The resolution of that claim. And understanding what our downside exposure actually is So all that being said, I think your original question was about rate decreases, and I would say given those market conditions, that that's that's probably where the market's gonna be for a while.

Oh, let me also ask about rein Also, Yeah. Right.

I was gonna circle back on the reinsurance. The earthquake coverage is part of our overall catastrophe treaty. So we don't really I mean, there are separate rates but, we look at it as a as a full know, whole purchase. I would say, I don't know the Earth Space rates. I mean, they kinda fluctuate based on what our exposure is and our exposure has been coming down a bit over the last couple of years. So we are paying less for that coverage at this point in time. A bit less. I don't know if it's commensurate with rate decreases on the primary side. I'd say you know, those are those are to some extent disconnected because we do have the benefit of the wind and other perils within our cat treaty. Got it.

Thanks for the detail. The other question I had just in your comments Jen, you talked about the inland marine market. So I mean, inland marine is a broad category. Can get more specific about what you're doing in the inland marine market? And where the opportunities are?

Yeah. So inland marine, we've grown that book for the last six or seven years very profitably, and we have a a larger team than we used to, so that's part of it, is we've got better coverage around the country. So, again, we focus on hiring talent locally that knows that area, knows producers in that area. To produce that business. So having a larger team is one item. In addition to that, you know, I would say the construction market, the construction industry has been healthy. And a lot of marine coverage will do touch that space. From builders risk to contractors equipment, to you know, motor truck cargo, lot of physical damage, all these coverages that we provide there are related to some extent to construction as well as other industry. And because of our local presence, we've been able to take advantage of those items. We've also partnered a lot more of the cool sailors in that space tend to get, I'll say, interesting rates And so we our phone lines are open. We like to entertain those things and talk to our producers about uniqueness of some of the things that come in and see if we can help them provide some coverage.

So we put out a lot of quotes and see what what is on that.

Got it. Thanks for the answers.

Thanks, Greg. Next question. Next question comes from Meyer Shields from KBW. Meyer, your line is open. Please go ahead.

Great. Thanks so much. Two quick questions. On transportation, if I can. First, when you talk about nonrenewing some of the larger accounts, is that like a definite decision by RLI to nonrenew? Or is it that you come in with a price increase and maybe terms and conditions that your, insureds aren't willing to accept?

It's both. That's what you provided a good answer there, Mara.

I'd say some some of those larger accounts have know, lost experience that we don't think is acceptable anymore. And so we go ahead and [indiscernible] In other cases, you know, we think that they need an increase, and so they start shopping and they find somebody who's willing to do it for a lot less. So all kinds of scenarios happen. Okay.

No. That's helpful. Maybe I should be on the other side of this phone. The second question, and I guess this is mostly for Todd. If you look at the the reserve triangle, in the 10 k, so transportation has had some accident years where ultimate losses are down 20 to 40%. From the initial estimates. And I'm wondering when you do the reserve strengthening that you mentioned at this quarter, it to get to sort of expected losses? Or does the reserving now incorporate same sort of cushion that we've seen in past years?

Well, I I think you get we're factoring all that in there. I mean, it if you look let's say, if you just look quarter over quarter comparison to last year, I think transportation was was a little bit positive last year.

Mhmm. Not so much this year. But, you know, you you have you may have I think 2023 was a year on on transportation this quarter. That that has some adverse to it. So I think there is a measured approach to looking at all of that, factoring all of it in. And probably a a more recent because we've talked about we tend to try and jump on things that are that are having a of a challenge.

And and that's what that's what we're doing. So no no difference in that approach.

Okay. That's perfect. Thank you so much.

Thanks, Brian.

The next question comes from Casey Alexander from Compass Point. Casey, your line is open. Please go ahead.

Yes. Two real quick questions. One is, you know, the the tariff situation feels like it could cause a slowdown in you know, port activity and delivery and receipt of goods coming in and out of ports, would that impact any of your transportation coverage And then secondly, in construction, do you worry that large increase in construction materials cost could slow down that construction market and impact your construction underwriting.

That's a good question. So, I would say you know, the tariff situation is is kind of a replay of the COVID we had a few years ago. So we've just practiced what's gonna happen here in terms of economic slowdown and, you know, reduced shipping. I'd say in the first quarter, we did see some signs of increased shipping, I think, trying to get ahead of what was rumored to be a tariff situation. So we did see some increased shipping in our marine and our transportation division. That's where we see that mostly And now we haven't necessarily seen the slowdown, but we anticipate it could. And, again, that's where we would see most of the impact would be miles driven for trucks to deliver those items. Or marine. We have a small cargo look in there where we are you know, receiving things or shipping things elsewhere. From a construction standpoint, again, it reminds me of COVID. Where you had increased construction costs, which we build into know, the bidding process and how we quote business. A lot of our policies, particularly like in our cash and brokerage division, we can audit that premium at the end to see what does that construction project actually cost.

So know, we already have all that in place. And that's how we do it normally. And and it would just you know, incorporate these issues. Feeling is from our underwriters is that this time, the cost is gonna be the issue. Last time, we had a scarcity issue as well. I'm not really thinking there'll be scarcity this time, except things are gonna cost a lot more And so we'll build in again. We're used to construction delays. Because of the time it takes to ship or know, getting your your supplies lined up from a cost standpoint. So we're we're pretty much used to this, and I think we'll just do it you know, execute like we did during during COVID. [indiscernible] Casey, it's Craig. So I'll just add to what Jim said. So, I mean, I certainly it's gonna create bidding uncertainty for smaller contractors You know, they're they're more reluctant to bid on a project know, if they don't know what their costs are. In this case, the only difference is is, you know, we're talking about multipliers or multiples of it's not just a shortage of supply and then maybe they can get it for paying a little bit more.

Where supply and demand finally meet. I mean, this is a multiplier effect. So until this thing settles down, it could create some pressure on especially smaller, I'd say, contractors who are a little more to bid on something because if they've locked in the price of what materials are you know, what's gonna cost to build something and then it goes up significantly. Mean, it could slow things down. I think in the long term, obviously, if there were tariffs that drive increased costs, I mean, one, we're always on top of valuations. And making sure and this is one thing that Jen was talking about. Is maybe some of these less disciplined markets in They don't care as much about valuations. They're willing to work off last year's submissions, things like that. We always look at valuations, whether it be the value of property the value of the goods being moved, It's important to have great care of that because when you're offering business income coverage, you need to understand that if those costs are rising, it also increases premiums. So we actually get more premium from that increase. And if if costs rise, the value of things rise, then that means, like, when you're offering a bond, a certain amount either to build or to move [indiscernible] That that goes much higher, which means the premium goes.

A lot higher. So we're gonna benefit You you lose on the loss side, you do, but you also benefit on the premium side. So over the long term, I think we view that as a growth neutral thing. But certainly, in the short term, it can create uncertainty that could slow things down. And again, I would lean on the diversity of our portfolio that we have some products that are going to be more impacted than others. And I think the others will be much more stable. So I think overall, we feel like we we've been here before. We could get through this again regardless of what happens.

Yeah. Well and and I appreciate that I'm I'm thinking as much from the standpoint that that a significant increase in construction costs could cancel a lot of construction programs. Which would reduce the volume opportunity that you might have. One other question is you know, there's been a a real loss of of property capacity in California, and and many people have suggested that it's similar to where Florida was a few years ago before Florida had some legislative changes that improved the profitability of the market, but it was while there were that capacity was out of the market, that you guys took advantage to build a really significant and profitable property book Florida. Do you see any similarities to California? And are sharpening your pencils at all on that market?

Well, we certainly are looking at opportunities in California. Is Craig. But I I would say there there's a much different environment in California than there was in Florida, even prior to tort reform in Florida. I mean, it was a much more inviting place to do business you know, as as a publicly traded company who has to figure out ways to make money over time, I would say Florida was much more inviting in regards to capitalism than perhaps Florida. Well, I don't an answer. California. I'm sorry. I I would add to that. You know, just an example that is a rate filing. So even in some of our cashless businesses where we have to file rate, know, to get a rate change in Florida. It's a process, but they are relatively easy to work with. For California, we've experienced difficulties and delays in in getting that rate that we need to stay in that marketplace. That's just one example, but it it is a more difficult place to work, and we don't see the we're not as optimistic that it will become a better place to to navigate.

Alright. Thank you.

Next question is from Andrew Anderson from Jefferies. Andrew, your line is open. Please go ahead.

Hey, good morning. Just looking at the property segment session ratio, it seemed to be up a couple of points year over year. Not sure if there was a change in reinsurance or business mix change, but should we think of a higher session ratio for full year year over year?

This is Todd. Yeah. I think it's you look compared to quarters, it is a a couple points. I think if you look across the year, we can have some variances in how much FAC has been used. We did add a second and third event coverage.

Last year. That we wouldn't have in the comparable period. But if you look over the last two to three years, it it still been in that 72 to 73 range. So that we would think that's still still pretty reasonable in the first quarter of last year. Would have would have been the one that was was a little bit higher.

Okay.

And then just within casualty, some large cap peers are talking about some good opportunities within small in the middle market. I think you provide a small commercial breakout at least in the quarterly filings. It has grew 10% last year. Are you seeing kind of good opportunities within segment of the market? And could you just give us some color on what that small commercial segment is?

Sure. This is Jen. So our small commercial operation really targets the other coverages for our architect and engineers and other miscellaneous professionals where we lead with a professional liability coverage, but then we offer flat auto excess types of coverages. In addition, we have a program that targets small contractors, and we offer them know, general liability and then some other coverages for their businesses. So those are two main markets in that space. I would say we do see plenty of opportunities there The issue has been that we've offered auto coverage in the past that has been challenging. It's similar to the results we've seen within transportation and personal umbrella. Wanna be sure that we're being selective in what we're offering and what types of insurers we're offering that coverage to. We've been increasing rates in that book as well for the auto coverages. And we've been reducing coverage where we can. So example, where there's a required US, UI m limit in a particular state, as much as we're gonna offer. We're not gonna manage our other auto coverage limits. So we're being a little bit careful in that space on certain coverages. But we do appreciate the middle market business and are targeting to ensure more of those types of insurance over time.

Thanks. And maybe quickly just on investment income, it was down a little bit quarter over quarter and maybe it looks like last year that was kind of in 1Q maybe that's more of an issue, but I guess are you thinking of yield expansion from here on out for the rest of the year?

Andrew, this is Aaron. You know, we're always trying to be as accretive as we possibly can can be. Cognizant of the risk profile of of the asset side of the balance sheet. And, you know, if you you go back to the fourth quarter, we didn't return a fair amount of capital to shareholders in the form of our special dividend. Maybe that was a little bit of a headwind rolling into the new year. Still are finding very adequate high quality opportunities to fix things on it. Not that to put money to work above our book yield, a fair amount above our book yield, frankly. And we feel pretty good about that. But changing the makeup of the portfolio in terms of overall credit risk or duration is probably not a near term change that we're Thank you.

If there are no further questions, I'll now turn the conference over to Mr. Craigley Thermos for some closing remarks. Well, thank you all for joining today, and appreciate all your questions and your interest in our company. A solid quarter to begin our sixty first year. Our uncommon underwriting discipline and diversified portfolio of specialty products has translated into consistent financial outcomes over time and allows us to serve as a stable and consistent market for our customers. I would like to thank all of our RLI associate owners for their contributions to our shared success. Encourage them to keep being different. Because being different works. Thank you all again for participating today, and we'll visit again next quarter.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so on the homepage at www.rLIcorp.com. This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.