RLI buys $100mn of additional cat reinsurance at 1.1 to support property growth

RLI bought $100mn of additional catastrophe reinsurance limit at its 1 January renewal to support growth in its E&S property book as it also revealed on its fourth quarter earnings call that it has exited large account cyber written as part of its D&O portfolio.

On the US specialty insurer’s call with analysts this morning, recently appointed COO Jen Klobnak said that the company grew E&S property premiums by 34 percent in the fourth quarter as its overall property segment expanded by 23 percent, with rate increases of 7 percent on average.

She highlighted shorter limits being sold by competitors which is creating room for RLI to participate on property towers, and said rate increases are expected to continue in a segment challenged by losses.

Commenting specifically on the E&S property market, she added: “We realized increased rates, witnessed rising building valuations and saw reduced capacity from our MGA and carrier competitors. All of these changes improve our opportunity in this space.”

That had led to increased submission volumes in the quarter and for the full year 2021.

“To support property growth, we purchased $100mn of additional catastrophe reinsurance effective 1 January. The reinsurance treaty structures are largely the same as prior years, although we did see mid-single-digit, risk-adjusted rate increases on the renewals,” said Klobnak.

She added that the cost increases were expected because RLI had made active use of the cover in the last couple of years.

“We realized increased rates, witnessed rising building valuations and saw reduced capacity from our MGA and carrier competitors. All of these changes improve our opportunity in this space”

RLI COO Jen Klobnak on the opportunity the insurer is seeing in E&S property

RLI’s expiring cat cover included a $375mn xs $25mn traditional cat reinsurance tower as well as a $500mn xs $25mn protection for California quake, and a $525mn xs $25mn treaty for quake outside of California.

In casualty, RLI said that the segment grew 9 percent in the quarter with rates up 6 percent overall – representing a slight deceleration compared to Q3 2021, driven by its D&O portfolio.

Klobnak said the book is still seeing double-digit increases and that nearly all casualty products are delivering positive rates in the mid-single-digit range.

She added that in casualty the carrier is also benefiting from competitors providing lower limits.

Transportation grew 10 percent including a 6 percent rate increase, with exposure returning in the public space as school buses and charter buses come back into service. While transportation claims are increasing they have not returned to 2019 levels.

RLI typically buys casualty reinsurance on an excess of loss basis and said it saw rate increases of between 5 and 10 percent on treaties renewing at 1 January.

Klobnak took over as COO as part of a management reshuffle as Craig Kliethermes was appointed president and CEO effective at the start of this year to coincide with the retirement of Jonathan Michael.

The earnings call this morning came after RLI reported a strong fourth quarter earnings beat that included a 7.3 points combined ratio improvement to 80.7 percent.

On the call, Kliethermes said he expects pricing momentum in the sector to continue in 2022.

“Recent catastrophe activity, rising labor, material and social inflation as well as rising reinsurance costs should provide continued pressure on rate levels going forward.

“We believe this is a market we can thrive in as rates are still moving up broadly, but requires good underwriting selection to differentiate and truly understand the risk-reward equation,” he commented.

Large account cyber exit

Meanwhile, Klobnak also revealed that the insurer has exited a portfolio that targeted large account cyber within its executive products group as part of its D&O book.

“We wrote that business for a few years and earlier this year we decided to exit that line so we’re actually in run-off at this point,” she commented.

The executive added that the portfolio was small and would have minimal impact. The insurer had been putting up limits of up to $5mn by the time it decided to exit.

RLI also writes cyber coverage as part of a package approach to segments of its small professional book.