10-K: RLI Corp. Reports Record Gross Premiums and 29th Consecutive Year of Underwriting Profitability in 2024

RLI Corp. announces record gross premiums written and continued underwriting profitability for the year ended December 31, 2024, driven by growth in property and casualty segments and positive equity market returns.

Summary

• RLI Corp. achieved record gross premiums written of over $2 billion and its 29th consecutive year of underwriting profitability in 2024.
• Net earnings for 2024 increased to $346 million, up from $305 million in 2023.
• Net premiums earned increased by 18 percent, primarily driven by growth in the property and casualty segments.
• The combined ratio was 86.2 in 2024, compared to 86.6 in 2023.
• Underwriting income was $211 million in 2024, compared to $173 million in 2023.
• Net investment income increased by 18 percent to $142.3 million, due to higher reinvestment rates and a larger average asset base.
• The company effected a two-for-one stock split on January 15, 2025.
• The company's financial strength ratings remain strong, with affirmations from AM Best (A+), Standard & Poor's (A), and Moody's (A2).

Sentiment

Score: 8

Explanation: The document presents a positive outlook with record gross premiums written and continued underwriting profitability. While acknowledging challenges such as catastrophe losses and increasing auto loss severity, the overall tone is optimistic and confident in the company's ability to navigate the market.

Positives

• Record gross premiums written indicate strong business growth.
• Continued underwriting profitability demonstrates effective risk management.
• Increased net earnings reflect improved financial performance.
• Growth in net premiums earned shows expansion in key business segments.
• Strong combined ratio indicates efficient underwriting operations.
• Increased net investment income contributes to overall profitability.
• Affirmation of financial strength ratings provides confidence in the company's stability.
• The company has paid dividends for 194 consecutive quarters and increased quarterly dividends in each of the last 49 years.

Negatives

• The loss ratio increased to 48.4 in 2024 from 46.7 in 2023, reflecting higher net retained catastrophe losses and strengthening of current accident year casualty reserves.
• Underwriting results for 2024 included $76 million of pretax losses from Hurricanes Beryl, Helene and Milton, as well as $30 million of other storm losses.

Risks

• Cyclical changes in the insurance industry could cause the price of the company's securities to be volatile.
• A significant percentage of premium revenues are sold through a few brokers and carrier partners, and a loss of business provided by any of them could adversely affect the company.
• The business is concentrated in several key states, and a change in the business in one of those states could disproportionately affect the company's financial condition or results of operations.
• The company competes with a large number of companies in the insurance industry, and their actions could ultimately impact the company's overall results.
• A downgrade in the company's ratings from AM Best, Standard & Poor's or Moody's could negatively affect the business.
• The company is subject to extensive governmental regulation, which may adversely affect the ability to achieve business objectives.
• Loss reserves are based on estimates and may be inadequate to cover actual insured losses, which would negatively impact profitability.
• Catastrophic losses are unpredictable and could cause the company to suffer material financial losses.
• Changing climate and weather conditions may adversely affect the company's financial condition or profitability.
• If the company cannot obtain adequate reinsurance protection for the risks it has underwritten or at prices it deems acceptable, it may be exposed to greater losses from these risks or it may reduce the amount of business it underwrites, which would reduce revenues.
• Reinsurers may not pay on losses in a timely fashion, or at all, which may increase costs and have an adverse effect on the business.
• Adverse changes in the economy could lower the demand for insurance products and could have an adverse effect on the revenue and profitability of operations.
• Access to capital and market liquidity may adversely affect the ability to take advantage of business opportunities as they arise.
• The company is an insurance holding company and therefore may not be able to receive adequate or timely dividends from its insurance subsidiaries.
• The company may not be able to, or might not choose to, continue paying dividends on its common stock.
• Investment results and, therefore, financial condition may be impacted by changes in the business, financial condition or operating results of the entities in which the company invests, as well as changes in interest rates, government monetary policies, general economic conditions, liquidity and overall market conditions.
• Success will depend on the ability to maintain and enhance effective operating procedures and manage risks on an enterprise-wide basis.
• The company may not be able to effectively start up or integrate new product opportunities.
• The company may be unable to attract and retain qualified key employees.
• The company relies on third-party vendors for a number of key components of its business.
• Any significant interruption in the operation of facilities, systems and business functions could adversely affect financial condition and results of operations.
• Technology breaches or failures, including but not limited to cyber security incidents, could disrupt operations, result in the loss of critical and confidential information and expose the company to additional liabilities, which could adversely impact reputation and results of operations.
• If the company is unable to keep pace with the technological advancements in the insurance industry, its ability to compete effectively could be impaired.
• Epidemics, pandemics and public health outbreaks could adversely affect the business, including revenues, profitability, results of operations and/or cash flows, in a manner and to a degree that could be material.
• The company may suffer losses from litigation, which could materially and adversely affect financial condition and business operations.
• Anti-takeover provisions affecting the company could prevent or delay a change of control that is beneficial.

Future Outlook

The company anticipates continued investment income growth due to a stable interest rate environment and a larger invested asset base, but notes that investment income growth may be limited if yields decline dramatically. The company also expects to continue paying quarterly cash dividends, although the amount and continuation of such dividends are not guaranteed.

Management Comments

• The goal of our business model has always been to underwrite for profit and our underwriters are incentivized to walk away from underpriced risks.
• We utilize our in-house loss control team to encourage our commercial auto insureds to follow safe practices, work with producers to balance growth and exit classes of business or individual accounts that are driving loss severity.
• We have a strong feedback loop between our underwriting, claim and analytical teams that address new or prevailing topics, like legal system abuse.
• Overall, we remain optimistic about the potential underlying profitability of our product portfolio.
• Our investments in technology and specialized underwriting staff should put us in a position to take advantage of opportunities as we move forward.

Industry Context

The report acknowledges the competitive nature of the specialty insurance market and notes that the company faces competition from larger, more diversified financial services companies. The report also mentions the increasing severity of auto losses, a trend impacting the broader insurance industry.

Comparison to Industry Standards

• The company's combined ratio of 86.2 is significantly better than the P&C industry combined ratio of 98.3 estimated by Conning for 2024.
• RLI's statutory net premiums written to surplus ratio was 0.90 to 1, well below the NAIC guideline of 3 to 1.
• The company's financial strength ratings from AM Best (A+), Standard & Poor's (A), and Moody's (A2) are superior compared to many other insurance companies.

Corporate Governance

Legal Proceedings

• The company is party to a variety of litigation matters throughout the year.

Related Party Transactions

• The company maintains a quota share reinsurance treaty with Prime Insurance Company and Prime Property and Casualty Insurance Inc., the two insurance subsidiaries of Prime Holdings Insurance Services, Inc. (Prime).

Stakeholder Impact

• Shareholders benefit from increased net earnings and continued dividend payments.
• Policyholders are protected by the company's strong financial condition and ability to pay claims.
• Employees benefit from competitive compensation and profit-sharing programs.
• The company's operations contribute to the economic well-being of the communities in which it operates.

Next Steps

• The company will continue to monitor the severity of auto losses and pursue rate increases where justified.
• The company will continue to invest in infrastructure to support long-term growth in the surety segment.
• The company will continue to monitor economic conditions, its capital position, the insurance market and relative value in the capital markets to determine its tactical asset allocation.

Key Dates

Keywords

insurance, underwriting, premiums, reinsurance, casualty, property, surety, investment, financial results, combined ratio, loss ratio, financial strength, dividends