RLI Corp.

Good morning and welcome, ladies and gentlemen, to the RLI Corp. Second Quarter Earnings Teleconference. As a reminder, we will open the conference up for questions and answers after the presentation. Before we get started, let me remind everyone that through the course of the teleconference, RLI management may make comments that reflect their intentions, beliefs, and expectations for the future. As always, these forward-looking statements are subject to certain factors and uncertainties which could cause actual results to differ materially including the ongoing impact of the novel coronavirus COVID-19 global pandemic. Please refer to the risk factors described in the company's various SEC filings including in the annual report on Form 10-K as supplemented in the Form 10-Q for the quarterly period ended March 31, 2020 which should be reviewed carefully. The company has filed a form 8K with the Securities and Exchange Commission that contained the press release announcing second quarter results. RLI management may make reference during the call to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results. RLI's operating earnings and earnings per share from operations consist of net earnings after the elimination of After-tax realized gains or losses and after-tax unrealized gains or losses on equity securities. Our allies management believes these measures are useful in engaging core operating performances across the reporting periods, but may not be comparable to other companies' definition of operating earnings. The Form 8K contains a reconciliation between operating earnings and net earnings. The form 8K and press release are available at the company's website at www.rlicorp.com. I will now turn the conference over to RLI's Vice President, Chief Investment Officer and Treasurer, Mr. Aaron Diefenthaler. Please go ahead, sir. Good morning.

On behalf of management, welcome to RLI's second quarter earnings call. We hope you're all staying safe in this new normal and appreciate you listening in. Joining me are John Michael, Chairman and CEO. Craig Kliethermes, President and Chief Operating Officer, and Todd Bryant, Chief Financial Officer. Todd will first offer some additional financial details from the quarter and hopefully answer some of your common questions. Then Craig will break down market dynamics and the current climate. At the close of prepared remarks, we'll open the call to questions, and John will close with some final thoughts. Todd?

Thanks, Aaron. Good morning, everyone. Last night we reported second quarter operating earnings of 77 cents per share. We experienced 1% of top line growth while posting an 88.4 combined ratio. Investment income was relatively flat in the quarter while unrealized gains on the portfolio reversed the first quarter's trend and positively impacted net earnings and book value. Book value per share ended the quarter at $23.39, up 8% for the year inclusive of dividends. Craig will talk more about our products and market conditions in a minute, but from a top line standpoint, the 1% growth in gross premiums written was driven largely by rate increases and expanded distribution. As you would expect, premium from some products was down in the quarter, given the impact of the economic slowdown and shelter in place orders brought on the pandemic. Most notably, transportation premium declined down 12 million in the quarter and 33 million on a year-to-date basis. Excluding transportation, gross premiums written was up 6% in the quarter and 11% year-to-date. While overall premium growth was down from prior quarters trends, top line results were better than our initial expectations as the quarter began. From an underwriting perspective, we posted a second quarter combined ratio of 88.4. Our loss ratio was 48.5 and included 6 million Thank you for joining us today. We also recorded $6 million in storm and civil unrest-related losses in the second quarter. Offsetting these additions, we posted approximately $22 million in net benefits from prior year's reserve releases, with casualty adding $19 million and surety adding $3 million. Moving to expenses, compared to last year, our expense ratio declined 2.8 points to 39.9. During this time of uncertainty, We have taken targeted actions to eliminate or defer expenses. Among other things, actions taken include a slowdown in hiring, position consolidations, select merit reductions or eliminations, travel curtailment and option grant deferral. We continue to evaluate areas of opportunity for efficiency gains and expense savings. Having said that, similar to last quarter, the majority of the decline in expenses continues to be driven by reduced levels of amounts earned Thank you for joining us today. Coming off the early stages of stabilization in late March, capital markets made a significant rebound in the second quarter. As outlined in our press release, total return for the three months was 6.6%, driven by meaningful results from both fixed income and equities. The portfolio is now in positive territory for the year and wants to get a contributor to book value growth since December. Our liquidity profile has proven durable, and our operating cash flow returned to form in the second quarter, allowing us to put money to work in high quality investment grade bonds. Investment income was flat on the quarter as influenced by a larger average cash balance and lower overall yields. Obviously, the outlook on the economy remains less than certain, but we will continue to focus on investing for the long term while maintaining a sound balance sheet. Outside of the core portfolio, our share of earnings in Maui Gym was down over 50%, while earnings from Prime were up modestly in the quarter. As John discussed in the first quarter call, Maui Gym results are significantly affected by the retail and economic environment. With much of the retail sector shut down during the quarter, Maui Gym results were negatively impacted. Certainly the length of any downturn may impact the results of these investees, particularly any lasting impact on the retail sector as it relates to Maui Gym. Overall, a good quarter in an environment that remains challenging and somewhat uncertain. And with that, I'll turn the call over to Craig.