Post on 31-Dec-2015
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September 7, 2007
Emerson Cammack Lecture Series
Insurance – what is it?
“Insurance . . . its cringe factor ranks right up there with such joys as filling out
your income tax return. Or balancing your checkbook when the bank says you’re $500 overdrawn. Or perhaps
shopping for your own cemetery plot.”
“Insurance allows individuals or organizations to exchange the risk of a large loss for the certainty of smaller periodic payments, known
as premiums. The exchange (or transfer) of risk is laid out in a legal
contract called the insurance policy, which spells out the
coverage, compensation, and/or other benefits.”
Source: Insurance Information Institute
5
Commercial insurance
• Most commonly used organizational risk management tool
• Worldwide, insurance premiums exceed $3 trillion ($1 trillion in the US)
• More than 2 million US workers are employed in the insurance industry (2.1% of the overall workforce)– 100 billion in payroll– 13 billion in state taxes
Source: Insurance Information Institute
History
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A history lesson (albeit brief) . . .
• Marine insurance in the late middle ages– Merchants / bankers
concerned with loss due to piracy and storms
– Bankers provided guarantees against loss; merchants paid the bankers in exchange for protection
• Fire insurance– Evolved after great
London fire of 1666– First US insurance
company started by Ben Franklin in 1752
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RLI’s Rich History
• 1961 – founded a contact lens insurance agency, Replacement Lens Inc.
• 1965 – private holding company formed and acquired United Founders, Ins. Co. (formerly Main Mutual)
• 1969 – private holding company renamed RLI Corp.
• 1971 – RLI common stock first traded on NASDAQ
• 1975 – became Peoria's first Employee Stock Ownership Company
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RLI’s Rich History
• 1977 – began underwriting specialty commercial property and casualty coverages
• 1987 - RLI common stock moved to NYSE; opened commercial casualty division
• 1992 – established surety division
• 1997 – opened transportation division
• 2005 – opened marine division
What’s the score?
The premium dollar (industry)
53¢Claims
32¢Underwriting Expense /
Commissions10¢
Claims Expense
5¢Profit
The premium dollar (RLI YE
2006)
38¢Claims
25¢Underwriting Expense /
Commissions10¢
Claims Expense
27¢Profit
95
100
105
110
115
120
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
P&C Industry Combined Ratio
2001 = 115.7
2002 = 107.2
2003F = 103.2*
2003:Q1 Actual = 99.5
Combined Ratios
1970s: 100.3
1980s: 109.2
1990s: 107.7
2000s: 111.0
Sources: A.M. Best; III
RLI Historical Combined Ratio
95
100
105
110
115
120
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
90.489.1 90.188.4 95.8 95.8 92.4 93.1
RLI
Products
Primary Commercial Products
Automobile
Property
UmbrellaWorkers’
Compensation
Marine(Inland / Ocean)
General Liability
xSurety
Home
Auto
Dwelling Fire
Umbrella Boat
MotorcycleRV
Primary Personal Products
Property25%
Casualty65%
Surety10%
RLI Q1 2007 Product SummaryVision UW Method
Underwriter 85.1%
eCommerce 14.9%
Geographical Spread
Major Product GroupsSegmentation
California 18.6% New York 16.4%Florida 14.7%Texas 7.7%
Strategy Key Producers % of GWP by Company
Mt. Hawley Ins. Co. 54.8%RLI Ins. Co. 43.3%RLI Indemnity Co. 1.9%
As a leading provider of specialized insurance and financial services, RLI is focused on building and managing a portfolio of innovative products and solutions that meet and surpass the expectations of our shareholders.
General Liability 27.5%Surety 10.4%E&S Property (less DIC) 9.6%Personal Umbrella 8.2%Transportation 7.8%DIC 7.4%
MillionsCRC Ins. Services 15.1Swett & Crawford 6.3Program Brokerage 5.8Colemont Ins. 5.5Marsh & McLennan 4.8
•Grow core business by expanding geographic coverage and UW capacity
•Leverage information technology to increase productivity and reduce expense ratio
•Grow underwriting profits while improving risk management techniques
Executive Products 6.2%Commercial Umbrella 5.4%Marine 5.1%Programs 4.2%Hawaii Homeowners 1.9%eXS 1.2%
% of GWP by Product Group
Insurance product distribution
20
Direct Distribution
Insurance Company
Insured
21
Independent (Retail) Agent
Insurance Company
Insured
Insurance Company
Insurance Company
Retail Agent
22
Wholesale Agent
Insurance Company
Insured
Insurance Company
Insurance Company
Retail Agent
Wholesale Agent
Roles and careers
24
The transaction . . .
• Primary roles– Agent– Underwriter– Underwriting Assistant– Claims Representative– Risk Control
Representative– Actuary
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Commercial Lines Underwriting . . .
• Overall underwriting process– Gather information– Evaluate information– Identify appropriate program terms/conditions– Implement program– Monitor program and take additional action if appropriate
• In addition to insurance applications . . . – Financial status of applicant– Character / reputation of applicant– Past losses incurred by applicant– Other sources of data
My personal journey . . .
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From broadcast journalism . . .
• Bowling Green State University ‘94– B.S. in Journalism
• Westfield Group– Trainee– Marketing Manager in Bowling Green and Cleveland– Corporate Instructor– Underwriting Practices Manager
• Selective Insurance Group– Agency Management Specialist
• RLI– Assistant Vice President, Home Office Underwriting