Rli Corp Q3 FY2024 Earnings Call

Good morning, and welcome to the RLI Corp's Third Quarter Earnings Teleconference. 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 and 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 third 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 8-K contains a reconciliation between operating earnings and net earnings. The Form 8-K 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, Mr. Aaron Diefenthaler. Please go ahead.

Thank you, everyone. Thank you for joining RLI's third quarter earnings call for 2024. Joining us are Craig Kliethermes, President and CEO; Jen Klobnak, Chief Operating Officer; Todd Bryant, Chief Financial Officer. Today's agenda will include Craig opening up the call with some high-level remarks. Todd will add detail on our financial results for the quarter. Jen will offer some additional commentary on market conditions in our product portfolio. The operator will then open the line for questions, and Craig will close with some final thoughts. Craig?

Well, thank you, Aaron, and good morning, everyone. I want to start by acknowledging the devastating hurricanes that occurred over the last several months and the impact they have had on our customers, business partners, and team members. We continue to extend our heartfelt support to all who were affected by these destructive and life-threatening events. RLI is committed to doing our part to restore our customers' livelihoods. Our purpose is to protect people and organizations from life's uncertainties to help them explore, create, build, and thrive. Our financial strength and stability empower us to help individuals and businesses diversify and sustain risks that they can't manage on their own. It also enables us to deliver consistent returns for our shareholders. I will let Todd and Jen go into more detail on the financials, the market in general, the opportunities we see and the impact that these storms had on our financials. All things considered, we were pleased with the opportunities to grow profitably during the quarter and lean into the disruptions in the marketplace where we have expertise. I'll now turn it over to Todd for his comments.

Thanks, Craig. Good morning, everyone. Yesterday, we reported third quarter operating earnings of $1.31 per share; positive underwriting performance and a 15% rise in investment income contributed to the increase in operating earnings on a comparative basis. Our combined ratio was 89.6% for the quarter and now stands at 83.3% on a year-to-date basis. Top line growth continued in the quarter, with gross premiums advancing 13%. Jen will offer some additional details on premium growth, which remains very balanced across our product segments. As referenced in our pre-announcement on October 7, results were affected by storm activity in the quarter, most acutely Hurricanes Helene and Beryl. On a GAAP basis, net earnings of $2.06 per share compared to $0.29 per share in Q3 of 2023. Last year's results were heavily influenced by the Hawaii wildfire losses and an equity market that was in retreat over the quarter. Underwriting income in Q3 2024 was primarily driven by continued growth in earned premium, lower current year catastrophe losses, and favorable prior year development. In combination, this resulted in an improved combined ratio of 89.6% compared to 98.7% in 2023. The losses recorded from Hurricanes Helene and Beryl totaled $37 million, $35 million of that affected the Property segment, while $2 million was tied to the packaged policies in the casualty segment. In non-Hurricanes, we recorded $2 million of other storm losses in the quarter. Although we are largely focused on Q3 results in our discussion today, I do want to take a moment to outline a range of loss estimates for Hurricane Milton, which made landfall in Florida on October 9. This was a very large storm, and our estimates are subject to change. We currently estimate that pretax losses from Hurricane Milton, net of any reinsurance benefits, will be between $45 million and $55 million. We will reflect a final loss estimate in our fourth quarter financials, but would not expect to publish any narrowing or adjustment to this range between now and our fourth quarter earnings release unless our claim estimates change materially. Turning to segment level results. As mentioned, growth in gross premium was very balanced in the quarter, and our underwriters continue to find top line opportunities. Casualty has been growing at a double-digit pace this year, and Q3 came in at plus 16%. The bottom line for Casualty benefited from $9 million of favorable prior year loss development. Of note, we continue to monitor wheel-based and other excess liability exposures, where we believe it is prudent to reflect an extended pattern for loss of merchants. Considering similar uncertainty on wheel-based or liability exposures in the current accident year, our casualty booking ratio was up slightly, weighing on the underlying loss ratio. On an overall basis, Casualty remains profitable for the 98.8% combined ratio for the quarter. Surety growth remained robust with a 90% increase in gross premium in the third quarter alongside $3.1 million of favorable prior-year loss development. This resulted in an 8.5 point benefit to Surety's loss ratio, which was partially offset by an increase in the expense ratio. Acquisition costs have moved higher, influenced in part by the mix of business as well as our continued investments in people and technology to support Surety's growth. Away from the discussion on catastrophes, the Property segment continued to grow and was up 10% in the quarter. By product, Marine and Hawaii homeowners are outpacing moderating growth in E&S property. Overall, we reduced prior year reserves by $4.4 million associated with marine in contrast to some strengthening in Q3 of 2023. Additionally, prior year storm losses were adjusted favorably by $3.3 million. Underlying results per property were very comparable to last year, and the segment's 77% combined ratio for the quarter again highlighted the influence of growth in earned premium. Operating cash flow was strong in the quarter at $219 million and helped to support continued purchase activity in the investment portfolio, where yields averaged 4.9%. Opportunities remain available to add high-quality bonds that are accretive to book yield, and our approach has remained fairly consistent. The portfolio's average duration extended slightly to 4.8 years as we have been focused on intermediate maturities. Total return for the quarter was 4.8%, with significant contribution from bonds as rates decline and from stocks due to the market's continued upswing. Beyond the core portfolio, our investment in Prime contributed investment earnings of $1.2 million in Q3. Putting it all together, comprehensive earnings were $3.79 per share and put the book value per share to $38.17, an increase of 26% from year-end 2023, inclusive of dividends. For 2024, we are pleased with the results for three quarters. And now I'll turn the call over to Jen.

Thank you, Todd. Let me provide some more color by segments. As Todd mentioned, the Casualty segment grew by 16%. Growth was widespread coming from almost all of our products. Our Casualty Brokerage group, which writes primary general liability and excess liability coverage, grew by 8%. Submissions were up 15% as we continue to stay in front of producers and ask for business. Some competitors have experienced adverse loss development and are restricting their appetite, giving us a chance to see more opportunities. At the same time, there continue to be new MGAs and carriers entering that market. As Todd mentioned, we are seeing claims taking longer to resolve, a trend that we have incorporated into our loss development factors. In addition, our dedicated claim examiners work closely with our underwriters and actuaries, making adjustments as needed, so we can remain a consistent participant in the market. Our transportation division grew by 15%. This area remains a target for legal system abuse. This has caused some competitors to rethink their strategies, which supported a 20% increase in our solutions. We are focused on risk selection and maintaining adequate rates. We have walked away from accounts that became underpriced and achieved an 11% rate increase on the business we retained. Investments in new products, including moving and storage and a VNS offering, are starting to pay off as we provide a new alternative to our producers. We remain cautious, but see a lot of opportunity in this market. The personal umbrella grew 36%, including a 16% rate increase, which is supported by a nationwide rate approval effective in the third quarter. We actively monitor rate adequacy given the growth in this book. We continue to win new business as underlying carriers focus on homeowners or auto issues, creating opportunities for our stand-alone product. Our dedicated claim team is providing regular feedback to our underwriters and actuaries, helping our product leaders optimize the growth in this book. The only area of the casualty segment that is contracting is our Executive Products group, which focuses on Directors & Officers service insurance and other management liability coverages. Our book is about one-third public company insurance, which is the most competitive space. We are focused on growing in the private company business. Rates were down 4% in the quarter, while we pick and choose which accounts we can give on REIT and which accounts to walk away from. It appears the market is getting a bit more stable in this space, so new business is difficult to win. Overall, casualty rate change was a 9% increase, which matches the rate change from last quarter. On a combined ratio of 98.8%, this is a notable increase from last quarter's third quarter. We have the system in place with strong collaboration between our underwriting, claims, and analytical support teams to continuously optimize our approach as the market evolves. The Surety segment premium grew by 9%. Contract Surety led the way with 25% growth due to the lift from the elevated cost of materials as well as winning new business. Commercial and transactional surety grew at a slower pace as competition remains fierce. We continue to be selective as inflation and economic conditions are creating a disparity in individual companies' financial strength. Our focus for this segment is marketing and educating producers on our appetite. The combined ratio for Surety of 78.8% reflects our underwriting discipline and the lack of any large loss activity in the quarter. Finally, the property segment grew by 10%. I'll start with Hawaii homeowners. Last year's third quarter was heavily influenced by the Lahaina wildfire loss. We are happy to report that over 90% of our reported loss has been paid to our insurance. Claim resolution is the core of our business. Due to our proactive claim handling, customer service-oriented underwriting and with select competitors pulling back, we continue to see growth in this book as evidenced by the 22% increase in premiums this quarter. Rate increases totaled 4% for the quarter with more rate approvals becoming effective in the fourth quarter. Marine also grew by 21% in the third quarter. We are very responsive and identify opportunities through conversations with our brokers. In addition, we continue to add rate to the book. This quarter, we achieved a 5% rate increase. We see a lot of opportunities in the gravitation of business to the wholesale market. Our E&S Property Group grew by 5% in the quarter. The increase in rates and premium over the last year is earning through and giving us the foundation to resolve hurricane and other claims while producing an underwriting profit. It's been an active hurricane season, starting with Hurricane Beryl's landfall in early July and continuing through early October when Hurricane Milton arrives in Florida. Throughout the season, we remain diligent in the basis, capturing exposure at a very granular level, maintaining policy terms and conditions, and staying prepared to mobilize our claims staff immediately following an event. We continue to have a physical claims presence in Florida to assist our insurers as they need us. Our boots-on-the-ground approach supports our ability to quantify the extent of damage and inform our loss estimate in a timely manner, as demonstrated by our Milton estimate provided today, less than two weeks after the event. In terms of market conditions, the property market has been softening from a peak prior to the most recent events. In the third quarter, hurricane rates were down 8% with overall E&S property rate change flat. It's too early for most carriers and MGAs to react to the three sizable hurricanes this year. What we are focused on is staying available to call new business, providing timely feedback to our producers, trying to retain our renewals, and continuing to resolve claims as quickly and fairly as possible. Our exposure has decreased over the last year as competition became more aggressive in the market. If that competition recedes, we have some room to take advantage of any changes in the market. This quarter showcased our ability to execute. Over the last few years, we've invested in the RLI community with additional staff, training, and tools to improve processes. We have also spent significant time and resources investing in producer relationships and technology, particularly technology that enhances ease of use as well as enabling our claims staff to resolve claims more effectively. These investments are resulting in profitable growth. This quarter, we grew premium by 13% and produced an 89.6% combined ratio. We have three quarters behind this and we're sitting on an 83% combined ratio for the year. We're doing what we can to finish strong. With that, I will turn the call over to the moderator to open it up to questions.

And our first question comes from Bill Carcache from Wolfe Research. Your line is open. Please go ahead.

Thank you. Good morning and thank you for taking my questions. Craig, I wanted to follow up on your comment about wanting to lean into the disruptions in the marketplace, where you see the greatest opportunities. Perhaps could you discuss the most attractive opportunities for incremental profitability across your business lines that you see currently?

Sure, Bill. Thanks. I mean, obviously, the way our business is set up with narrow and deep expertise in both underwriting and claims, we have to be prepared to lean in when there is opportunity and some disruption. We've been seeing that in our personal umbrella space for probably the last several years. Jen mentioned transportation. Obviously, we're always prepared to lean in. We've been in that business for 40 years with people that only underwrite transportation and only handle transportation-related claims. Our marine business continues to see opportunities, particularly on the inland side. Jen mentioned Hawaii homeowners. We remain steadfast in our commitment to that market. Obviously, we'd like to continue to get rate increases over time, so we can continue to remain competitive in that market, but a lot of people are working backwards there. And obviously, we're kind of in a wait-and-see mode around our E&S property. We saw a huge opportunity over the last two or three years. We'll see what happens as a result of these three fairly sizable collective hurricanes that we had this year. Always prepared to lean into Surety and obviously, our commercial access business as well. So I mean, we see a fair amount of opportunity in our portfolio. The beauty of our very diversified portfolio is we have some products where there is opportunity and in other products where we have to pull back. Our model has always allowed our underwriters to do the right thing in all markets, so they can lean in. They have proven track record of success over time which gives us the confidence to let them lean into markets where there is an opportunity and it's pretty much self-regulating in regards to them pulling back in regards to where the market is a little too competitive and the underwriting profit is not available to us.

Great. Thanks, Craig, that's helpful. Separately, it would be great to hear any observations on the trajectory of pricing versus loss cost inflation trends you're seeing and any changes you anticipate in the aftermath of the hurricanes?

Yes, this is Jen. Concerning property, loss trends have increased slightly due to rising material costs and the litigation environment, especially with significant claims involving public adjusters. We have been actively increasing our rates, which have risen by nearly 200% over the past two years. We believe our portfolio is priced too low, and we see an opportunity to stabilize the market following these large events. This stabilization may prevent further deterioration in rates and terms, encouraging a more diligent approach to coverage and pricing to account for losses. While it is still early to draw conclusions as these events are still unfolding, I hope for a positive change in the market. On the casualty side, our rate changes are aligning with the loss trends, and we benefit from a strong connection between underwriters, claims, and analytical support. Everyone is aware of our current position, allowing for a consistent push on rates in relation to profitability for each account. This is a key advantage in our casualty operations.

Thanks Jen. That's helpful. If I could squeeze in one final sort of higher-level question for the broader team. So we saw another quarter of favorable development across your casualty, property and surety segments. And I think the market fully appreciates that your underwriting is exceptional, but could you take us inside the business and perhaps give a bit more perspective on what's driving that kind of consistency at a time when social inflation has been pervasive and reserve adequacy remains a concern for many of your competitors?

Well, I mean, I'll try and maybe Todd can join in here. But I mean, we obviously have always taken a long-term view of loss cost trends of, I'll say, a prudent view of risk that's factored into all of our estimates our starting booking ratios. We try to look at a reasonable range and try to be prudent and booked the initial loss ratio in maybe the higher end of that range, but certainly within the range. But to factor in the risks that are out there, particularly right now, you have legal system abuse. We invest heavily in our claims department and the communication between our claims department and our actuaries, which gives us real-time feedback of what the actuaries are seeing. Sometimes actuaries get caught up in just data and we get the claim perspective on what might be driving that data. Obviously, our client people sharing them with our underwriters as well, which helps give them information to either pull back or lean into a market. And we've had the same approach around here for much longer than I've ever been here. I mean, at least 30 years it's been the same approach. We've not changed our approach. I'm not going to say we've always had favorable development. If you go back way far like in the last, really, really soft market in the early 2000s, late 1990s, we had adverse development as well, but just not as much as the rest of the industry and not as much as our peers. And I think, I would say that speaks to kind of our overall long-term approach to thinking about things and risk-based approach thinking about things.

I'll add just a couple of other things if I can. I think part of it is our risk appetite with regard to small to middle market insurers that we target, generally speaking, in most of our businesses. We don't put out excessive limits to those insurers. So you have maybe less of a target for some of this legal system of abuse that goes on. And then it comes down to hard work. So when it comes to underwriting, you're going through the submission, and you're underwriting. You're actually paying attention to where that insurer is in terms of venues, what their work is covering what their work is and not what they don't do. They might get kind of slotted in there. In claims, we're doing investigation early in that claim line. We are strategizing around knowing that the plaintiff attorney has a playbook and we know that we can counteract that playbook by getting the investigation early, staying ahead of public adjusters as an example, offering up a reasonable settlement at the proper time and trying to be in that contact with our insurers to resolve those claims. So it's really about kind of being diligent going deep into our processes, whereas underwriting our clients and also our risk appetite, so that we're not as much of a target and when those cases do come up, where they look a little here, and we know how to address that and try to resolve the claim prior to getting kind of out of control.

I would like to add that we tend to be a bit slow in recognizing good news. We are extending our reporting in some auto and excess liability areas, where we have observed slightly higher emergence, although not to the extent seen by others. Thus, we believe it is prudent to remain cautious. Consequently, you will notice that favorable development on the casualty side is somewhat lower compared to the third quarter of last year. In the third quarter of last year, there were some fluctuations, but the process remained consistent. We experienced significant favorable results in the EPG during that time, roughly $9 million, which largely explains the difference. We maintain a consistent approach from quarter to quarter. We are cautious about where we establish initial booking ratios, which may mean we are a bit slower to adjust. This historical caution has contributed to some of the consistency you have observed.

I want to emphasize that we are committed to providing information to our underwriters. Given our business model, and with our underwriters focused on underwriting profit, they are attentive and willing to adjust their perspectives to achieve growth in underwriting profit. As Jen pointed out, we do manage our limits effectively. We are not a large limit carrier and generally avoid high-limit insurance, while also managing our jurisdictions efficiently. Our underwriters do a commendable job of managing our exposure to the legal system. However, we recognize we are not completely protected. Our approach focuses on mitigation, supported by our underwriters who possess the necessary information, alongside our skilled claims team who strive to secure the best outcomes for the company. They perform well in this regard.

Thank you. That was really helpful. I appreciate the detailed response.

The next question comes from Michael Phillips from Oppenheimer. Michael, your line is open. Please go ahead.

Thank you. Good morning. I'd like to follow up on your recent comments about the extended reporting patterns in the Casualty. In light of previous discussions regarding the need to monitor the tail, can you clarify if your remarks about the extended reporting patterns refer specifically to late reporting from older accident years, or are you also seeing a trend in more recent accident years that has prompted some caution?

I would say yes, it's a combination of both. We discussed the reporting patterns you mentioned, such as extending the tail. Some of our business in excess liability, particularly in the East, tends to have a longer tail, which means it can take longer to reach a final resolution, whether due to COVID or post-COVID factors. There are multiple elements at play, as Jen mentioned. It generally takes a bit more time for those claims to settle, which can extend the duration.

Yes. I would add that I'm not certain we've observed a longer actual reporting pattern in our data. We need to exclude some of the COVID-related figures because they skewed the numbers. However, it does seem that the time required to reach a final resolution for claims has increased. People sometimes wait for a big payout, which affects the resolution process, depending on how aggressively the plaintiff's attorney is pursuing the case. This can take time. That's why we're attempting to account for this in our loss development patterns.

Okay. Thank you. I guess, specifically on your commercial excess book, can you say what you're seeing there for current kind of severity trends there and maybe how that compares to what you thought just a few years ago?

In our excess liability book, we are predominantly focused on the construction sector, which includes various project-based businesses as well as practice policies that ensure contractors for their ongoing work throughout the year. This book contains a significant amount of construction-related content, including incidents of bodily injury that may occur on construction sites. However, in terms of trends, we aren't noticing significant changes in that area. The more noteworthy trend we've observed pertains to auto coverage rather than traditional excess liability coverages.

Okay. Thank you very much.

The next question comes from Gregory Peters from Raymond James. Gregory, your line is open. Please go ahead.

Good morning, everyone. So I just, I guess, building on the last answer. Just you mentioned construction. And I guess this is to step back, I'm interested in the areas of growth and your general liability and transportation lines because there can be a lot of different types of business that are included in there, and I think you're pretty specific. In construction, are you focused on GC or are you getting involved in subcontractors? Are you geographically focused? Can you give us some color there? And then pivot to the transportation book. I assume you're not writing taxi cabs or limos, but maybe if you could give us some color on what you're getting involved with on transportation as well.

Sure. This is Jen. In construction, we have a diverse portfolio, with nearly one-third dedicated to this sector. Our surety focus is on public construction, while our insurance side targets private construction. We operate in all regions, but each behaves differently regarding investment areas. For instance, our current activities in Illinois are limited. Our E&S businesses primarily work with general contractors, whereas our admitted businesses generally collaborate with subcontractors. The coverage we offer varies based on the insurer type, the region, and the specific project, making it challenging to discuss our overall performance. However, I can say that we anticipate a slowdown in the construction industry, though both public and private sectors remain robust. Recently, private investment has dipped due to financing issues. Despite this, we maintain a reliable market presence, allowing us to grow while some competitors have wavered. Moving on to transportation, we concentrate on several areas, including a truck group, a public segment with various bus types, and a commercial specialty auto division, which does not cover taxis or limousines. We excel in specific classes like ambulances and construction fleets, though we have a wide array of classes in this portfolio. Recently, we have also invested in the moving and storage business, and we offer some E&S options, especially in light of the recent market instability, which may lead certain accounts to seek E&S solutions. This overview covers both segments, and I'm open to any further questions you may have.

Well, actually, that's great detail. Thank you. I also wanted to pivot my second follow-up question relates to another comment you made, Jen. You talked about investments in technology. It's such a big comment that includes a lot of information, but we'd very rarely get any details on what's actually going inside of those investments. You talked about how these investments are generating, help you generating growth opportunities. Maybe you can give us the 30-second pitch on what you're investing in and why it's able to deliver growth opportunities for you?

Sure. It's challenging to provide a specific answer regarding RLI as it varies across each business unit, but I can share some examples. In our personal umbrella suites, which have experienced significant growth, we've made substantial investments in the front line. The process for filling out applications has been improved by optimizing the order of questions and minimizing the number of questions asked, resulting in a more user-friendly system similar to those commonly used in other industries. Additionally, we've worked to ensure policies move through our systems with minimal manual intervention. In our contractors' application, we revamped the process based on feedback from our producers to enhance user experience and streamline operations with new technology. In our marine division, we've simplified the policy issuance process by easing the workload on underwriters, allowing them to concentrate more on marketing and underwriting rather than follow-ups needed for servicing the business. Overall, RLI is committed to continuous improvement by reassessing processes to enhance efficiency and ensure the right people are in the right roles when needed.

Got it. Thanks for the detail and the examples.

The next question comes from Meyer Shields from KBW. Meyer, your line is open. Please go ahead.

Hi. This is Gene on for Meyer. Thanks for taking my question. Just have follow-up questions on the casualty segments. You talked about a lot of favorable reserve development. I was just curious about the accident year loss ratio on the casualty segment. Just pick up on kind of like sequentially in year-over-year. I'm just wondering, is it just a prudence on you have baked in the loss stakes. Any color you can provide there will be great.

Thank you. This is Todd. We believe it is prudent from that standpoint. When comparing the current accident year for casualty quarter-to-quarter, it's up 1.5 to 2 points, partly due to some increases in the loss booking ratio we made for the second half of the year. This adjustment applies to the entire calendar year. So, if you consider the third quarter, it's retroactive to the first part of the year, which means you will see a slight spike in that quarter. A lot of this aligns with the real base standpoint we've discussed, and we think it's a prudent approach that will impact us. If you examine the fourth quarter of last year, looking at the full year 2023, these increases bring us in line with where we ended the year regarding the underlying loss ratio for Casualty. So, there's nothing alarming there. I believe our approach to reserving for the current accident year remains cautious.

Got it. Thank you. Also I have a follow-up specifically on commercial auto. Like given competitors know that wasn’t a severity trend. Can you please provide some colors of what you're seeing in your book?

So it's the very trends in our commercial auto book because competitors are seeing some severity. I mean we do see some severity as well. I think I'm not sure everybody else does business, but when you look at our commercial auto business, the one thing that I would point to that we've added over the last few years is our internal loss control resources, where our underwriting really listens to people, who contact our potential insurers or our renewals before the renewal takes place to say, what are you doing with your business in terms of training drivers, maintaining your vehicles, all the things that it takes to run a safe operation. And so our underwriters have that input as they renew. And some of the things that you learned in that process point to potential severity. You can see where you're not investing in training of your drivers, for example, that's a terrible story in front of a jury when you have a claimant that's injured in front of you. So I think the quality of the insurer can be evaluated through that process. And then it just comes down to pushing our key freezers have to get up timing. So we know what the losses are if we're pricing the business. And then our team, our underwriting team is focused on getting rate because they know that the severity is up. It also comes down to risk selection though, too. We don't have top line goals here at RLI in any of our business units. I think it's particularly important in our auto division where, yes, rates are up. So people saying, I can grow. This is great. I can grow my top line, but we've actually gotten off of several of our largest accounts because they don't make sense anymore. Somebody is going to undercut us with the rate or they're just not a quality insurer anymore. So we're walking away from that premium because that's the right thing to do because we think that that severity could happen for those accounts. So I can't speak to what competitors are doing, but that gives us some insight into what we're doing.

I have been in this business for about 39 years, and it’s the only place I've worked where the underwriter tells the claims team to expedite payments if necessary. As Jen mentioned, they use this approach to price accounts and assess risk. They need to know if a claim is likely to be significant so they can consider that during account renewals and offer a fair price for the product. Therefore, our underwriters insist that our claims team processes payments as quickly as possible.

Got it. Very helpful. Thank you.

The next question comes from Andrew Anderson from Jefferies. Andrew your line is open. Please go ahead.

Hi. Good morning. Maybe on the casualty rate, I think, you called out 9%, which was consistent quarter-over-quarter. But I thought I heard you say that rate change is keeping up with loss trend, I would have thought 9% would be ahead of that. Could you kind of help us think through that?

Well, explaining how we do loss trend here. We look at a lot of industry results to highlight loss trend here, and then we compare it to our book. Now that we don't have the best data in the industry, some of our divisions are a very niche product, where we have only our data. It doesn't really compare the industry. So when we look at our own severity and our loss trend and our results, it tends to be a little lower in reality than this the numbers that we select to say, hey, loss term is probably going to be this. So the 9% is keeping up with our actual experience. When we talk about loss trend and we talk to our underwriters, we probably talk like we reflect also industry results.

Okay. And then maybe just curious what you're expecting to see in the reinsurance market at 1/1, whether it would be pricing or perhaps changes to premium retention. Maybe any early views you may have?

The reinsurance market is currently quite dynamic. We are actively engaged in discussions with our reinsurers, so it's still too early to provide definitive insights. Reinsurers made significant adjustments earlier this season, particularly concerning casualty, but that seems to have stabilized somewhat. In terms of property, the whole industry might experience some relief. However, given recent events, any stability remains uncertain. Regarding retention, reinsurers are unlikely to make concessions, meaning our position remains unchanged. Overall, I would describe the market as stable for our January 1 renewals.

Okay. And maybe just two more questions on the investment portfolio. As you think about the growth in casualty is outpacing property right now and duration has kind of ticked up the last couple of years. Would you be surprised to see that go above five as we kind of enter 2025?

Well, I think what we're focused on right now is to maintain durability of the income profile, and that's why you've seen the duration tick up a bit throughout this last year. There will be some point in time where cash is not offering the returns that we've seen lately. And so us terming out that maturity profile is an important part of our near-term strategy. To the extent can we get all the way to five or above five, we've been there in the past. So that's not unusual for us based on balance sheet and the strength of our capital base. We certainly have been near that level, but we're not that far away from it now at 4.8 years. So that's a nuanced difference, I'll call it, and not necessarily driven by quarter-to-quarter growth in casualty necessarily.

Yes. And last one, have you shared how much of the investment portfolio is floating rate?

We have a small amount of floating rate exposure. It's around 4% of the fixed income portfolio and largely comprised of senior secured bank loans, that's the bulk of that exposure, a smaller amount in the CLO space, and then a few structured products that have a floating rate coupon to them.

Thank you.

The next question comes from Scott Heleniak from RBC. Scott, your line is open. Please go ahead.

Yes, thanks. Good morning. I wanted to discuss the property combined ratios, which were very impressive at 77.2% despite the losses from Helene and Beryl. I understand there was some benefit from reserve releases, but was there anything else that contributed to this, such as non-cat weather or reduced fire losses?

Yes, I believe there is significant revenue growth, particularly with the win premium we're writing. This growth contributes to covering various expenses, including hurricane and attritional losses. Therefore, the expansion of that portfolio is essentially what is driving the results.

And the rate we've seen over the past few years is linked to the growth in exposure within the longer REIT segment.

Right. Okay. And just on the Milton loss of $45 million to $55 million, can you just talk a little bit about your Florida exposure in terms of how close to the coast you're writing, I assume a fair amount of these losses would probably be marine. But any other color you can give on that forecast and just how you're thinking about the Florida market in general after this?

Sure. This is Jen. So when you look at our Florida exposure, as you may have heard earlier this year, we had actually been decreasing our exposure for a couple of reasons. One was the market was getting more competitive, particularly MGAs trying to take advantage of that nice pricing that we had, but they were cutting into a little bit, both the pricing in terms of commissions. So we start to walk away from a handful of accounts. And so our exposure, if you look at the Florida region and you count of policy limits, for example, we were down about 20% from the end of last year, which set us up for this wind season was a little bit less exposure than we had last year. If you look at where we're right, we write a lot of coastal exposure because we are in an E&S wind market. We do cover commercial buildings. So we don't do the homeowners, which you see a lot in the news. If you look at the Milton event itself, it's a lot of wins, which is what we're trying to cover. So that's a traditional event that we would expect to have and expect to respond to. The event itself was not very large. It did hit some commercial, but it hit a lot of residential areas too, when you get away from that long built key area. So within the local area of landfall, there was a lot of commercial buildings with it and is spread out a lot of residential actually picked up. So I'm expecting probably the residential loss to be larger than the commercial loans. Again, it's very early to say what is that market going to be like. We are committed to the Florida Hurricane market. We've collected a lot of premium over the years, so we are ready to stand and pay losses when those happen. You can't get premiums unless you pay losses. So we are ready to continue in that market. Our processes are mature with our underwriters, claims, actuarial support, et cetera. So we all are ready to respond to what that market brings, but it's too early to say what will happen with rates or in terms of conditions after the event. Again, I'm hoping that it stabilizes, and that would be a great scenario for us. It's very adequate pricing as we speak. So we'd like to stay where we're at.

Okay, great. That's really helpful detail. Thanks.

If there are no further questions, I will now turn the conference over to Mr. Craig Kliethermes for some closing remarks.

Well, thanks to everyone who joined us today. The financial results we reported yesterday reflect our organizational resiliency. Consistent profitability and top-line growth are a testament to our diversified specialty product portfolio, our deep underwriting claim expertise in our chosen markets and a willingness to prudently lean into disruption, where we understand the exposures and the market environment. Consistency also comes as a result of maintaining underwriting discipline, when the market is too soft and a willingness to prune unprofitable business when necessary. Our disciplined commitment to make the best long-term decisions for our customers and our shareholders has served us well and differentiates our ownership culture. I am proud of our associate owners' efforts this quarter and particularly our outreach to our customers in need during these recent natural catastrophes. RLI is committed to being different because being different continues to work. Look forward to visiting with you all next quarter. Thank you.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so on the RLI 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.