Investor Presentation 2 nd Quarter, 2014 Agenda 1 2 3 4 - - PowerPoint PPT Presentation

Investor Presentation

2nd Quarter, 2014

2

Agenda

STRATEGY

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THE FUTURE

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INTRODUCTION FINANCIAL RESULTS

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INTRODUCTION 1

Strategy

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RLI will continue to:

Emphasize profit maximization and enhance our ability to grow over the long term, with a focus on organic opportunities and acquisitions that preserve the unique culture that has made RLI successful. Seek out difficult markets while maintaining a highly diverse product portfolio. Remain a destination for talented, entrepreneurial underwriters with ‘narrow & deep’ expertise. Be a premier specialty underwriting company that achieves long-term industry leading combined ratios and book value growth.

Select Market Information

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Ticker / Exchange RLI / NYSE Share Price (06/30/14) $45.78 Annual Dividend / Yield $0.72 / 1.6% Market Cap $1.97 billion Annual Gross Premium (Trailing 4 qtr.) $855 million A.M. Best Rating A+ Employees 885 20 Year Annual Shareholder Return 17.4%

RLI has a rich history as a publicly traded company and consistently creates value for its shareholders

The RLI Story

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61 77 71 96 04 11

Founded contact lenses insurance agency, Replacement Lens Inc. RLI common stock first traded on NASDAQ Acquired Contractors Bonding and Insurance Co. Merged contact lens division with Hester Enterprises, maker of Maui Jim Sunglasses Received upgraded A.M. Best rating to A+ (Superior)

RLI has a rich 50 year history as a leading specialty P&C insurer.

Began underwriting specialty P&C coverages Continued expanding product

• fferings

Licensed in all 50 states Paid 1st dividend

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Acquired Rockbridge Underwriting

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Increased dividends for 38th consecutive year

Continued start-ups and niche acquisitions have driven our growth and diversification.

Diversified Product Portfolio

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ANNUAL GROSS PREMIUM

$855 Million

NEW PRODUCTS*

$227 Million – 26%

*Products new to RLI portfolio in previous 5 years

Diversified Product Portfolio

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Product diversification has fueled our growth & financial success

Trailing 4 Quarters Gross Written Premium CASUALTY (55%) PROPERTY (32%) SURETY (13%)

Product Distribution

9 General liability Commercial & personal umbrella Transportation Executive products Professional services Commercial package

Our strong customer relationships extend across a diverse distribution network

Commercial property Marine Personal Lines Reinsurance Miscellaneous Energy Commercial Contract

CASUALTY PROPERTY SURETY

Retail agent / broker Wholesale Broker General agency Reinsurance broker

RLI Locations

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Our offices are located in close proximity to our customers

HAWAII

STRATEGY 2

RLI’s Business Model

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Underwriting company

• We hire experienced,

entrepreneurial underwriters

• We focus on difficult markets

that require unique expertise

Diversified insurance product portfolio

• Our products are run as

stand-alone businesses

• Diversification reduces

corporate risk

Ownership culture and compensation

• Underwriter compensation tied

directly to underwriting profit

Growth by design

• Organic product growth
• Talent acquisition & start-ups
• Acquisitions

RLI is a domestic, specialty insurance company that does its own underwriting

Hard Market

Market Cycle Management

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• Invest in new people, products

& processes in all markets

• Empower underwriters to

capitalize to the fullest during hard markets and pull back when necessary during soft markets

• Enforce strict underwriting

discipline throughout

• Maximize financial strength &

flexibility

RLI’s strong people, products & processes allow us to effectively manage through any kind of market

Gross Premium ($ millions)

FINANCIAL RESULTS 3

• Combined Ratio

18 – consecutive years < 100 9 – consecutive years < 90 16 – margin (points) by which we beat the industry

• Book Value Growth

13% – compound annual growth rate over last 10 years

• Return on Equity

15% – average ROE over last 10 years

• Capital Management

38 – consecutive years we have increased our dividend $600 million– amount returned to shareholders in last 5 years

• Reserve Consistency

$397 million – reserve releases in last 5 years

Measurements Of Our Success

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As of year-end 2013

Underwriting Profit

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*Statutory Basis

RLI has achieved 18 straight years of a combined ratio below 100, and has beaten the industry ratio by an average of 16 points*

100

Book Value Growth

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RLI has achieved 15% compound growth in its book value since 2002 and has returned over $600 million to shareholders via buybacks and dividends since 2009.

Cumulative Share Repurchase Cumulative Dividend Reported Book Value $ Millions

Return on Equity

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RLI has achieved 15% return on equity over the past 10 years

Net Earnings/Average Equity

0.16 0.18 0.20 0.26 0.32 0.38 0.44 0.50 0.54 0.58 0.60 0.63 0.67 0.72

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Run Rate

Dividend Growth*

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Special Dividends*

$3.50/share Dec 2010 $2.50/share Dec 2011 $2.50/share Dec 2012 $1.50/share Dec 2013 *all adjusted for 2-for-1 stock split in January 2014.

RLI has a distinguished track record of success: 38 straight years of dividend increases and a 13% growth rate over the last 10 years

Investment Portfolio

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Investing for the long term: A diversified, highly-rated bond portfolio complemented by diverse selection of value and dividend-oriented stocks. $2.02 Billion Investment Portfolio

80%

BONDS

20%

EQUITIES

Target Asset Allocation

EQUITIES 21.6% AGENCY 0.5% CORPORATE 28.7% GOVERNMENT 2.0% MORTGAGE BACKED 13.3% ABS/CMBS 5.7% MUNICIPAL 25.9% CASH 2.3%

Portfolio Allocation

• Bonds: AA quality; 4.8 duration
• Equities: Large-Cap, Blue-Chip;

Dividend yield of 2.8%

• Emphasis on consistency and

low turnover, not market timing

Maui Jim Sunglasses

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• An industry leader in the high-end global sunglass market
• RLI owns 40%; carried at $59.2 million
• $12.1 million of income recognized trailing 4 quarters
• $27.7 million of dividends since 2010
• Significant excess value not recognized on the balance sheet
• Long-term exit candidate

A unique private-equity legacy investment from RLI’s contact lens insurance business

Total Shareholder Return

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Shareholder returns validate the RLI story

*Returns as of 2nd Qtr 2014

50 500 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 2Q14 $500 $1,000 $2,000 $200 $100

S&P S&P P&C RLI* 500* Index* 1 year 25.2% 24.4% 16.5% 5 year 24.7% 18.8% 18.1% 10 year 14.9% 7.8% 5.6% 20 year 17.4% 9.8% 8.6%

THE FUTURE 4

Value Creation Opportunities

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Start-ups via talent acquisition

• Traditional growth via hiring the best underwriters into the RLI model

Acquisitions of niche P&C companies

• Capitalize on market opportunities in niche spaces

Reduced reliance on reinsurance

• Long term goal to retain more of the attractive risks we write

Process improvement

• Investing in technology to drive efficiency and leverage the platform

Cycle management

• Maximizing margins throughout the cycle

RLI is pursuing multiple initiatives designed to create value regardless of how the market evolves

Competitive Advantages

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• Capital strength
• Underwriting expertise
• Ownership mentality & aligned compensation
• Product and distribution diversification
• Leveragable infrastructure to support existing and new product growth
• A reputation for excellence among customers built over many years
• A track record that attracts opportunity – ‘nothing succeeds like success’

RLI will capitalize on its competitive advantages to drive profitable growth

EXHIBITS

Selected Financial Data

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(amounts in millions) Operating Results 2Q14 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Gross premiums written $461.6 843.2 784.8 702.1 636.3 631.2 681.2 739.3 799.0 756.0 752.6 742.5 Consolidated revenue $374.2 705.6 660.8 619.2 583.4 546.6 561.0 652.3 632.7 569.3 578.8 519.9 Net earnings $64.7 126.3 103.3 126.6 128.2 92.4 77.3 174.3 133.6 103.8 72.2 70.0 Comprehensive earnings (loss) $102.4 119.1 129.2 147.9 146.8 154.7 (3.2) 164.9 156.0 80.6 80.5 96.4 Financial Condition 2Q14 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Total investments $2,017.5 1,922.1 1,840.9 1,900.3.0 1,803.0 1,852.5 1,658.8 1,839.8 1,828.2 1,697.8 1,569.7 1,333.4 Total assets $2,909.0 2,740.3 2,644.6 2,654.8 2,480.4 2,503.3 2,386.2 2,595.4 2,742.6 2,708.8 2,446.8 2,113.6 Unpaid losses and settlement expenses $1,127.1 1,129.4 1,158.5 1,150.7 1,173.9 1,146.5 1,159.3 1,192.2 1,318.8 1,331.9 1,132.6 903.4 Total debt $149.6 149.6 100.0 100.0 100.0 100.0 100.0 128.0 100.0 115.5 146.8 147.6 Total shareholders’ equity $919.4 829.0 796.4 792.6 769.2 809.3 686.6 754.2 737.8 675.3 609.4 540.7 Statutory surplus $903.0 859.2 684.1 710.2 732.4 784.2 678.0 752.0 749.9 690.5 606.0 546.6

Selected Financial Data

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(amounts in thousands, except per share data)

*all share info adjusted for Jan 2014 2-for-1 stock split

Share Information 2Q14 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Net earnings per share: Diluted $1.48 2.90 2.39 2.95 3.02 2.13 1.77 3.62 2.61 1.97 1.38 1.35 Comprehensive earning (losses) per share: Diluted $2.34 2.74 2.99 3.45 3.46 3.56 (0.07) 3.42 3.05 1.53 1.54 1.86 Cash dividends declared per share: Ordinary $0.35 0.67 0.63 0.60 0.58 0.54 0.50 0.44 0.38 0.32 0.26 0.20 Special 1.50 2.50 2.50 3.50 Book value per share $21.37 19.29 18.73 18.73 18.34 19.03 15.99 17.02 15.20 13.21 12.04 10.74 Closing stock price $45.78 48.69 32.33 36.43 26.29 26.63 30.58 28.40 28.21 24.94 20.79 18.73 Stock split 200% Weighted average shares outstanding: Diluted 43,669 43,514 43,160 42,869 42,482 43,461 43,696 48,170 51,142 52,648 52,187 51,693 Common shares

• utstanding

43,024 42,982 42,525 42,324 41,929 42,529 42,949 44,310 48,546 51,103 50,632 50,331 Other Financial Information 2Q14 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Net premiums written (T4Q) to statutory surplus 76% 78% 87% 77% 66% 60% 76% 72% 74% 72% 84% 87% GAAP combined ratio 85.1 83.1 89.0 79.6 80.4 82.8 84.6 71.9 84.5 87.0 92.4 92.4