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RLI saves on reinsurance as Q2 profits rise

RLI was yet another beneficiary of the buyers' reinsurance market during the second quarter, as the US specialty insurer was able to obtain significant cost savings on its reinsurance spend.

Speaking on the company's Q2 earnings call, executive vice president of operations Craig Kliethermes said that the firm had secured risk-adjusted rate decreases of 15-20 percent on three separate reinsurance treaties bought during the quarter to cover its marine, directors' and officers' and earthquake difference in conditions books of business.

Kliethermes added that RLI was also able to buy down its retention on its marine business.

However, he said that the company was increasingly concerned about rate reductions spilling over into the primary market, adding that RLI would continue to push for rate increases for as long as possible even if competitors seem to be willing to give in.

Second quarter operating earnings were up 5.1 percent to $28.9mn, or $0.66 a share, just ahead of analysts' consensus forecasts of $0.61 a share.

The insurer reported a 10.8 percent uplift in book value per share to $21.37.

Meanwhile, RLI reported a 3.2 percent increase in gross written premiums (GWP) to $264.2mn for the quarter compared to the prior-year period.

This was primarily fuelled by the firm's casualty business, where GWP climbed by 7.1 percent to $132.3mn - representing just over half of total premiums for the period.

In contrast, GWP for property and surety lines was roughly flat year-on-year, driven by pricing and competitive pressures stemming from benign loss trends and cheaper capital sources.

Catastrophe losses arising from spring storms during the quarter totalled $6.8mn, or 4.0 points on the combined ratio - down from the $8.8mn or 5.7 point impact in Q2 2013.

In spite of this, lower reserve releases meant RLI's combined ratio deteriorated year-on-year, rising 0.8 percentage points to 84.2 percent.

The firm's underwriting performance benefited from $22.3mn or 13.2 points of favourable prior-year development in Q2 2014, in contrast to the $24.6mn or 15.9 points of reserve releases in Q2 2013.

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