RLI Corp.

Good morning and welcome to the RLI Co-op's second quarter earnings teleconference. After management's prepared remarks, we will open the conference up for questions and answers. 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. 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 Forms 10-Q, all of which should be reviewed carefully. The company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing second quarter results. During the call, RLI management may refer 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. RLI's management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to other companies' definitions of operating earnings. The Form 8K contains a reconciliation between operating earnings and net earnings. The Form 8K and press release are available on the company's website at www.rlicorp.com. I will now turn the conference over to RLI's Chief Investment Officer and Treasurer, Mr. Aaron DeFensala. Please go ahead.

Thank you, and good morning. Welcome to RLI's second quarter earnings call for 2022. Joining us today are Craig Cleath-Hermes, President and CEO, Jen Klobnoch, Chief Operating Officer, Todd Bryant, Chief Financial Officer, and John Michael, Chairman. Today's agenda should be familiar as Todd will start off with financial results for the quarter ended June 30th. Craig and Jen will follow, offering high-level comments on current market, the current market environment, and details on our product segments. We will then take your questions, and Craig will close with some final thoughts. Todd? Thanks, Aaron. Good morning, everyone.

Yesterday we reported second quarter operating earnings of $1.49 per share as strong underwriting results and growth and investment income led the way. Underwriting income benefited from limited spring storm activity and generally lower property losses and improved underlying loss ratio in our casualty segment, continued favorable development on prior year's loss reserves in all three segments, and a lower expense ratio. All in, we posted a combined ratio of 80.2 for the quarter and experienced continued growth in top line, which was up 17%. Investment income advanced 11% as reinvestment rates continued to move higher and operating cash flow remained strong and supportive of additional investments in the portfolio. Realized gains were $13 million in the quarter, while unrealized losses on equity securities were $101 million. As mentioned on prior calls, large movements in equity prices between periods can have a significant impact on net earnings, which you can see in the comparative quarterly results. Craig and Jim will talk more about premium in a minute, but at a high level, all three segments experience growth as we continue to benefit from favorable market conditions in most areas of our business. From an underwriting income perspective, the quarterly combined ratio of 80.2 was 80.2 compared to 84.8 a year ago. Our loss ratio declined 2.7 points, largely due to low property losses during the quarter. Spring storm losses were 3 million in the quarter, with 2.5 million impacting property and a half million in casualty. This compares to 8 million for the same period last year, with 7 million in property and 1 million in casualty. From a prior year's reserves perspective, all three segments experienced favorable emergence during the quarter. Casualty experienced $17 million in favorable development with notable contributions from general liability, design and miscellaneous professional liability, and transportation. Property posted $4 million in favorable emergence with the largest benefit from our marine business. In surety, contract and commercial were responsible for the bulk of that segment's $3 million in positive development during the quarter. On a comparative basis, you may recall that surety was adverse $3 million during the same period last year as we strengthened reserves on the energy portion of our commercial business. Moving to expenses, compared to last year, our quarterly expense ratio decreased by 1.9 points to 38.5. This result is on par with the first quarter and continued to reflect improved leverage on our expense base as net premiums earned continued to grow. Certain incentive-related amounts that are influenced by growth in book value were also down. On the asset side of the balance sheet, it has been a difficult six-month period for investments as stocks and bonds were correlated to the downside through the second quarter. Total return performance came in at minus 6.1% during the quarter and minus 10% on a year-to-date basis. The vast majority of this decline is in unrealized gains and losses, and we have historically utilized a low turnover approach in the fixed income and held many securities to maturity. Purchase activity remains focused on high quality investment grade bonds with new money yields in the mid to high 3% range. As we have discussed in the past, price changes in the fixed income portfolio are included in comprehensive earnings, which turn in a quarterly loss of $99.8 million or $2.20 per share. This results in a decline in book value per share of 8% during the quarter adjusted for dividends. Book value ended the quarter at $23.02 per share, down 13% from year end, again, adjusted for dividends. For our unconsolidated investees, total earnings decreased $2.3 million compared to last year, with Maui Gym contributing $8.5 million and Prime offering $3.6 million. As a reminder, in the first quarter, we discussed an agreement to sell our minority stake in Maui Gym outlining anticipated after-tax proceeds of approximately $500 million. Final proceeds will be subject to certain adjustments at closing, which we expect to occur in the second half of the year. All in all, an excellent operating quarter and strong first half of the year. And with that, I'll turn the call over to Craig.