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

Investor Presentation 2 nd Quarter, 2014

Agenda 1 2 3 4 FINANCIAL INTRODUCTION STRATEGY THE FUTURE RESULTS 2

INTRODUCTION 1

Strategy RLI will continue to: Be a premier specialty underwriting company that achieves long-term industry leading combined ratios and book value growth. Remain a destination for talented, entrepreneurial underwriters with ‘narrow & deep’ expertise. Seek out difficult markets while maintaining a highly diverse product portfolio. 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. 4

Select Market Information RLI has a rich history as a publicly traded company and consistently creates value for its shareholders 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% 5

The RLI Story RLI has a rich 50 year history as a leading specialty P&C insurer. Acquired Contractors Bonding and Increased Founded contact lenses Began underwriting specialty Insurance Co. dividends for 38 th insurance agency, P&C coverages consecutive year Replacement Lens Inc. Continued expanding product offerings Licensed in all 50 states 61 71 77 96 04 11 12 13 RLI common stock Paid 1 st Merged contact lens division Received upgraded Acquired Rockbridge first traded on NASDAQ dividend with Hester Enterprises, A.M. Best rating to Underwriting maker of Maui Jim Sunglasses A+ (Superior) 6

Diversified Product Portfolio Continued start-ups and niche acquisitions have driven our growth and diversification. NEW PRODUCTS* ANNUAL GROSS PREMIUM $227 Million – 26% $855 Million * Products new to RLI portfolio in previous 5 years 7

Diversified Product Portfolio Product diversification has fueled our growth & financial success CASUALTY (55%) PROPERTY (32%) SURETY (13%) Trailing 4 Quarters Gross Written Premium 8

Product Distribution Our strong customer relationships extend across a diverse distribution network Reinsurance broker Retail agent / broker Wholesale Broker General agency General liability Commercial & personal umbrella CASUALTY Transportation Executive products Professional services Commercial package PROPERTY Commercial property Marine Personal Lines Reinsurance Miscellaneous SURETY Energy Commercial Contract 9

RLI Locations Our offices are located in close proximity to our customers HAWAII 10

STRATEGY 2

RLI’ s Business Model RLI is a domestic, specialty insurance company that does its own underwriting Ownership culture and Underwriting company compensation  We hire experienced,  Underwriter compensation tied entrepreneurial underwriters directly to underwriting profit  We focus on difficult markets that require unique expertise Diversified insurance Growth by design product portfolio  Organic product growth  Our products are run as  Talent acquisition & start-ups stand-alone businesses  Acquisitions  Diversification reduces corporate risk 12

Market Cycle Management RLI’s strong people, products & processes allow us to effectively manage through any kind of market  Invest in new people, products & processes in all markets Gross Premium ($ millions)  Empower underwriters to capitalize to the fullest during hard markets and pull back when necessary during soft markets  Enforce strict underwriting Hard Market discipline throughout  Maximize financial strength & flexibility 13

FINANCIAL RESULTS 3

Measurements Of Our Success  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 As of year-end 2013 15

Underwriting Profit 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 * Statutory Basis 16

Book Value Growth 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 17

Return on Equity RLI has achieved 15% return on equity over the past 10 years Net Earnings/Average Equity 18

Dividend Growth* RLI has a distinguished track record of success: 38 straight years of dividend increases and a 13% growth rate over the last 10 years 0.72 0.67 0.63 0.60 0.58 Special Dividends* 0.54 0.50 $3.50/share Dec 2010 0.44 $2.50/share Dec 2011 0.38 $2.50/share Dec 2012 $1.50/share Dec 2013 0.32 0.26 *all adjusted for 2-for-1 stock 0.20 split in January 2014. 0.18 0.16 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Run Rate 19

Investment Portfolio Investing for the long term: A diversified, highly-rated bond portfolio complemented by diverse selection of value and dividend-oriented stocks. Target Asset Allocation $2.02 Billion Investment Portfolio AGENCY 80% 0.5% BONDS EQUITIES 21.6% CORPORATE 28.7% 20% EQUITIES CASH Portfolio 2.3% Allocation GOVERNMENT  Bonds: AA quality; 4.8 duration 2.0%  Equities: Large-Cap, Blue-Chip; MORTGAGE MUNICIPAL Dividend yield of 2.8% BACKED 25.9% 13.3% ABS/CMBS  Emphasis on consistency and 5.7% low turnover, not market timing 20

Maui Jim Sunglasses A unique private- equity legacy investment from RLI’s contact lens insurance business  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 21

Total Shareholder Return Shareholder returns validate the RLI story $2,000 $1,000 $500 500 S&P S&P P&C RLI* 500* Index* $200 1 year 25.2% 24.4% 16.5% 5 year 24.7% 18.8% 18.1% 10 year 14.9% 7.8% 5.6% $100 20 year 17.4% 9.8% 8.6% 50 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 2Q14 *Returns as of 2 nd Qtr 2014 22

THE FUTURE 4

Value Creation Opportunities RLI is pursuing multiple initiatives designed to create value regardless of how the market evolves 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 24

Competitive Advantages RLI will capitalize on its competitive advantages to drive profitable growth  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 ’ 25

EXHIBITS

Selected Financial Data (amounts in millions) Operating Results 2Q14 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Gross premiums $461.6 843.2 784.8 702.1 636.3 631.2 681.2 739.3 799.0 756.0 752.6 742.5 written 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 $102.4 119.1 129.2 147.9 146.8 154.7 (3.2) 164.9 156.0 80.6 80.5 96.4 earnings (loss) 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 $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 settlement expenses 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’ $919.4 829.0 796.4 792.6 769.2 809.3 686.6 754.2 737.8 675.3 609.4 540.7 equity 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 27