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

7

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

8

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 . . .

27

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