Please stand by. Good morning and welcome, ladies and gentlemen, to the RLI Corp third quarter earnings teleconference. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. Before we get started, let me remind everyone that through the course of the teleconference, RLI management may make comments that reflect their intentions, beliefs, and expectations for the future. As always, these forward-looking statements are subject to certain risk factors which could cause actual results to differ materially. These risk factors are listed in the company's various SEC filings, including the annual Form 10-K, which should be reviewed carefully.
The company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing third quarter results. RLI management may make reference during the call to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results. RLI's operating earnings and earnings per share from operations consist of net earnings after the elimination of after-tax realized investment gains or losses. RLI's management believes this measure is useful in gauging core operating performance across reporting periods but may not be comparable to other companies' definition of operating earnings. The Form 8-K contains reconciliation between operating earnings and net earnings. The Form 8-K and press release are available at the company's website at www.rlicorp, C-O-R-P, .com. I will now turn the conference over to RLI's Vice President of Corporate Development, Mr. Aaron Diefenthaler. Please go ahead, sir.
Thank you. Good morning to everyone. Welcome to the RLI earnings call for the third quarter of 2016. Joining me on today's call are John Michael, Chairman and CEO, Craig Kliethermes, President and Chief Operating Officer, and Tom Brown, Vice President and Chief Financial Officer. I'm going to turn the call over to Tom first to give some brief opening comments on the quarter's financial results. Craig will talk about operations and market conditions. Next, we'll open the call to questions, John will finish up with some closing comments. Before I turn the call over to Tom, I'd like to point out a minor correction to our earnings release, which isn't material, but still worth clarifying. In the first paragraph of the underwriting income section, the $1.4 million figure refers to development in the third quarter, not the nine-month period.
We've updated the earnings release on our website to reflect this. Tom?
Thanks, Aaron. Good morning. We reported operating earnings of $0.37 per share for the quarter. Results were impacted by higher than normal 94 combined ratio. While respectable, this does not meet RLI's high expectations. For the nine months ended September 30, 2016, the combined ratio was 89.3. Maximizing underwriting profit remains a primary focus. Broken down by segment, casualty came in at 99.8, property at 98.7, while surety continued to perform well at a 67.5 combined ratio. Unlike prior quarters, we experienced unfavorable loss development on prior years of $1.4 million, a first in over 10 years. The casualty segment incurred approximately $4 million of unfavorable prior year's development. This result was driven largely by transportation and personal umbrella and served to offset otherwise favorable development across most other casualty lines, including general liability.
The property segment experienced approximately $1.5 million of unfavorable prior year's development, was also impacted by storm activity. Q3 storms, largely flooding in Louisiana, added $4 million in losses or approximately 11 points to the segment's combined ratio. Surety, on the other hand, continued to experience favorable loss activity with nearly $4 million in favorable prior year's reserve development during the quarter across all product lines. Despite the inherent potential for quarter-to-quarter variability in both reserve releases and storm activity, RLI's business model continues to benefit from a highly diverse product portfolio. Craig will have more to say on this in a moment. Turning to the top line, gross written premium grew 3% in the quarter. Casualty led the way with 10% growth, while property declined 8%, due in part to our exit of crop and facultative reinsurance.
Surety was down slightly at 2%, but remains up 3% on a year-to-date basis. Investment income declined 3.3% in the third quarter of 2016 compared to the prior year quarter, as we're investing new money below the average yield on existing positions. The investment portfolio continued to post strong total returns of 0.8% for the quarter and 6.9% through nine months. Declining interest rates and positive equity market conditions continue to drive positive total return performance. With regard to our minority investments for Maui Jim and Prime, we had equity and earnings of $1.6 million and $0.3 million, respectively. In summary, our focus remains on underwriting profit and growing book value, which has grown an impressive 14%, inclusive of dividends, through the nine months ended September 30, 2016. With that, I'll turn the call over to Craig.
Thanks, Tom. Good morning, everyone. As Tom mentioned, we were able to grow top line for the quarter at about 3% while reporting a 94 combined ratio. Although our underwriting margins were below the exceptional standard we have set for ourselves, we were still able to report another quarter of underwriting profit and a year-to-date combined ratio of 89%. Our premiums have grown at 5% for the year after adjusting for the exit from certain property reinsurance businesses. The associates at RLI work hard every day to maximize the underwriting profit we deliver to our shareholders. This quarter was no different. Our experienced underwriting and claim teams continue to report this as one of the most difficult, prolonged soft markets they have encountered. Their experience and their excellence are the differentiators that will continue to distinguish us through all parts of the cycle.
Let me provide more detail by segment. In casualty, we grew 10% for the quarter with a combined ratio slightly under 100. For the year to date, we have grown this segment 8% with a combined ratio at 94. We continue to see growth in our surplus lines casualty business driven from our excess liability business and a combination of several new products we have added in this space. These products are performing well. We also continue to see double-digit growth from our investment in commercial package businesses. This is a result of offering to meet the property and casualty insurance needs of small to medium-sized professionals, as well as expansion of the CBIC business we bought in 2011. It is important for us to reach scale in these products in order to leverage our investment and drive good margins in this business.
As Tom mentioned earlier, we did see some adverse development in our transportation product this quarter. Although adverse for the quarter, we still believe there is underwriting margin in this business, and we continue to grow it. We have grown 24% for the quarter and 17% year to date. We have also realized mid-single-digit rate increases in this business throughout the year. We have identified an underperforming geography and class of business within our specialty commercial auto unit that has contributed significantly to the adverse development. True to our motto, underwriting profit first, we are curtailing our writing in the problem jurisdiction and class and taking every opportunity to get more rate. Our personal umbrella business also experienced some adverse development this quarter but remains profitable, and we continue to invest in ways to grow it.
We are carefully studying loss cost inflation and claim practices where we have experienced adverse development, but we have yet to see any significant trend in our actuarial studies. The prior year development we have identified for the quarter can largely be attributed to an unusual increase in the number of severe losses, which can move the dial when dealing with the relatively small niches of specialty businesses. We will closely monitor underlying trends and take swift action where needed to remain profitable. Our property segment was down 8% for the quarter, while reporting a 99 combined ratio inclusive of catastrophe losses. Net of the catastrophe losses, the segment posted an 88 combined. For the year, we're down 12% with an 88 combined ratio. Adjusting for the exit from certain property reinsurance businesses, we're down 4% for the year.
Most of this decrease is the result of continued rate reductions in the cat exposed products and the re-underwriting of our recreational vehicle business. The RV business was also adversely impacted this quarter from the Louisiana flood with an unusual concentration of loss at one service facility. The marine business also suffered losses arising from the Louisiana flood and some small adverse loss development on prior years. Our largest business in this segment, our E&S property division, weathered the quarter with a sub 70 combined ratio despite the continued challenging rate environment. Premium for our surety segment was down 2% for the quarter, but still remains up 3% year to date. Our underwriting margins for the quarter and year to date are very good. Our premiums were down for the quarter as a result of some larger bonds being exonerated as well as increased competition.
We are still seeing double-digit growth in our transactional miscellaneous surety business, while larger risks with bigger aggregates are increasingly difficult. This is a very good business for us. We will continue to protect our underwriting profit through a combination of a consistent appetite, selective pruning, and growing those products and accounts that allow us appropriate margins for the risks we bear. Overall, we are still finding some growth opportunities, and the underwriting results for the quarter and the year remain very profitable. The bar is and will remain high at RLI. The difference between RLI and the industry in which we compete is that a 94 combined ratio is a disappointment to us. Although I've been reminded that even Itzhak Perlman plays an off note on occasion, that provides no solace to the RLI associates and shareholders who have come to expect exceptional performance.
We ask every RLI associate to come to work every day, apply their narrow and deep expertise, identify and address areas of improvement, and maximize the underwriting profit we can deliver to shareholders. I'm confident that is exactly what we will continue to do. Thank you. I'll turn it back to Aaron.
Thanks, Craig. We can now open the call up for questions.
Thank you, sir. The question and answer session will begin at this time. If you're using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star one on your telephone. If you wish to withdraw your question, please press star two. Your question will be taken in the order that it is received. Please stand by for your first question. Our first question comes from Randy Binner with FBR.
Hey, thanks. Good morning, everyone. I wanted to focus in on the adverse development. You provided some good detail on the opening comments there. The transportation book's been growing, just kind of curious if this particular region and class of business has been part of that recent growth, what accident years this development was associated with, and then any kind of color you can give us, whether it's a function of frequency or severity of claims?
Sure
within the book.
Yep.
Obviously, the big question folks are going to have is: Is this a one-time isolated thing that you guys are going to really snuff out, or is this something that could be more endemic in the commercial auto area you've been growing?
Randy, this is Craig Kliethermes. The area that we saw the adverse experience in is more specifically New York and its emergency transport vehicles. It has been part of our portfolio for the last four or five years. It's not really been part of the recent growth as much. It did grow. If you go back to growth in 2013, 2014, 2015, it did grow a little bit there. It's been more stable. We've been a little more cautious there recently, suspecting something might be up. We saw a little more activity this quarter than normal. New York is notoriously slow to develop, even for primary low attaching business. I think we're seeing that as we speak. We are very carefully looking at that book. We're curtailing any new writings and looking very closely at our renewals in that space.
You can expect we're taking sufficient action in that area to address the problem.
These are like ambulettes that transport people from place to place. Is this New York Metro or is it the whole state?
It's mostly in the Metro area.
Yeah.
That's where most of the business is. We do ride statewide. We ride it countrywide, frankly.
Okay.
We have not seen the same activity across the country, I might say. Just it's been localized.
Is it a severity issue driven by trial bar activity, or is it something else?
Well, I don't think I can comment on the drivers quite yet, but I think certainly for the quarter, we would identify it as an increased number of large claims. Frankly, about twice what our normal activity would be for a quarter. Twice for us is a fairly small number of claims, so you have to take that with a grain of salt. That can move the dial a little bit given the size of our book of businesses.
On the personal umbrella, what was the nature of the you said you had concentration of severe losses. Is that like normal kind of fluctuation you expect to see, or was there some commonality to that concentration?
It was similar in regards to severity. The activity was, I'll say, maybe close to two times normal activity in a quarter for what we call large claims over 500,000. It looks like, at least for the quarter, it was mostly in the area of elderly drivers, is what drove most of that.
Okay. Understood. Thank you. I'll drop in the queue. Thank you very much.
Thanks.
We'll take our next question from Arash Soleimani with KBW.
Thanks. Just hopping onto Randy's question. Is this something where we should expect the initial accident year loss picks to be higher going forward based on what you're seeing?
Arash, this is Craig Kliethermes. I would say not necessarily in this product line. What I would remind you, although the development was adverse for the quarter, our estimate of the loss ratio is still below where we originally booked the accident years for that business. We've been taking those reserves down some as we thought that the activity was lighter than has materialized this quarter. We're actually just moving it back up a little closer to where we originally booked it. We still believe the business is profitable. When we look at a longer four or five-year period of time, it really isn't having a significant impact on where we currently view the business. As I mentioned, I think in my written comments, is that we're still trying to grow this business. We still think this is driving an underwriting profit.
Which accident did you mention the accident years the adverse came from?
Arash, it's Tom Brown. Yeah. For transportation, it's the more recent accident years 2013 through 2015, and PUP is mostly just the prior accident year 2015.
Sorry, it was 2013 to 2015 you said for transportation?
Transportation, yes, was 2013 through 2015. PUP is almost entirely the 2015 accident year.
Okay. You said something about elderly drivers. Was that within the transportation? Which element of the transportation book had the issue with elderly drivers?
I'm sorry. I should have clarified. It was within our personal umbrella book.
Okay
Personal umbrella specific comment.
Okay.
We don't have a lot of elderly drivers driving trucks.
Okay. The other thing I wanted to touch on beside the development, in terms of the tax rate, that was better than I was at least looking for this quarter. I was just wondering if there was anything unusual there.
Yeah, Arash. Good points. Tom Brown. Yeah, it came in about 28.5% versus a little over 30% prior year. It's really the mix. The underwriting is going to be at more the statutory rate of 35%, but the investment income is lower, more in the 20%-24% range. It's mixed with the lower $10.6 million of underwriting income this period versus $33 million in the third quarter of last year. You get that mix and slight increase or improvement in the effective rate.
Okay. That makes sense. Thank you.
You're welcome.
We'll take our next question from Ken Billingsley with Compass Point.
Good morning. One of the questions I want to ask was on the expense ratio, specifically property expense ratio rose more than we've seen in prior periods. Why is that trending that way given higher accident year loss picks than the reserve additions that we've seen?
Hey, Ken, it's Tom. The expense ratio, is it going to be affected by the loss picks? That'd be the loss ratio. I just want to clarify your question. You're speaking to the expense ratio?
I am speaking to the expense ratio, Generally, when we've seen companies have higher losses, maybe there's a profit sharing in there, and that would reduce it. It looked like the loss of the expense ratio actually went up year-over-year, higher than what we had seen trending for the prior quarters.
Yes. That could have a nominal effect, Our fixed expense base for that property book has been largely maintained, as we've said on past calls. If the top line has declined, the expense ratio is going to increase. Also, the exit of crop, although the impact has been diminishing, it had a very low acquisition cost to that. Since that's gone away, the mix is going to increase the expense component of the ratio. Again, yes, the way we incent people, pay our product people, has an impact because it's based on the combined ratio. That does have some of the effect. I'd say the two main drivers are the fixed cost and then the exit crop.
Obviously, there was a little bit of mix, Also the shrinking business overall on the base.
Yes.
Okay. Then on the surety side, I know you gave a little bit of color here, This is the first time we've seen premiums down both on a gross and net basis. Last time we've seen it in either one was back in second quarter 2014. Can you just maybe elaborate a little bit more on some of the changes? I know you mentioned competition as being one factor there, Can you talk about expectations in there? It's a profitable business. I can't imagine that competition's going to go away.
Ken, this is Craig Kliethermes. Competition's not going away. We've had our surety people in here just yesterday, I think, and talked about strategy and things like that. I don't think they foresee it's going away either. They continue to see a fairly soft market, reinsurers willing to bear a big portion of the risk for some of these primary companies backing them, which obviously makes it even more difficult. I think we're going to continue to look at our portfolio, and if we have an opportunity to grow it, I think I mentioned we are growing our transactional business. Those are smaller bonds. The larger stuff, particularly in the commercial and energy surety space, are very difficult. Standards are lowering every day in regards to either increased commission, lowering the bar in regards to indemnification, and we refuse to do that.
We're just not going to do that. I can't tell you what's going to happen in the future, but certainly we think it's a very difficult market.
Ken, it's Tom Brown. I would just add that we did have a reinstatement premium in our surety book that was part of that as well during the quarter.
Okay. You talked about reinsurers taking on a little bit larger risk and allowing some of these primary companies to step into a marketplace that maybe they don't have as much experience. What is your thoughts on using reinsurance there, given your relationships with accounts to at least maintain market share?
Well, we use reinsurers extensively in surety to make sure we have enough capacity for the larger risks. We've never believed in lowering our underwriting standard just because we have some capital behind us. That's temporary capital, by the way, because they could very easily pull that capital as soon as bad things happen. We're gross line underwriters. We want to make money for ourselves, and obviously, hopefully, it makes money for the reinsurers too. We utilize reinsurance to get to the capacity we need. I don't think that's a long-term play for us, is to try to use dumb capital to do dumb things.
All right. Last question before I turn it over to the next person is just on the investment portfolio side. Just lower investment yield in general for a reinvestment standpoint. My calculated portfolio yield for the quarter was higher. Was there any kind of shift or change? I guess we'll get some more color when the Q comes out, but can you talk about anything that might be driving the higher calculated portfolio yield this quarter?
Ken, we're looking at our book yield has, I think, declined a bit from the prior year. We have had a bias towards higher quality assets in the past nine months. We've moved a little more to the Treasuries towards the end of 2015 and then mortgage backs in the first half of 2016. The other thing is the book value is up for the entire portfolio for the year as well, about $100 million.
Sure. I'm just looking at calculating invested assets versus reported return for the quarter. I know it's more of a simple calculation, but just trying to use that as a comparison from period to period. It looks like it actually rose. I'll follow up after the call.
All right. That'd be good.
All right. Thank you.
Once again, to ask a question, it's star one. We'll take our next question from Jeff Schmitt with William Blair.
Good morning, everyone.
Morning.
The core casualty loss ratio looks to be up about 100 basis points after being sort of flat to down over the last two quarters. It doesn't sound like commercial auto is necessarily driving that. Can you maybe speak to that as it being more broadly felt across lines?
Jeff, this is Craig Kliethermes. I don't think our numbers necessarily think the current accident year is up over prior years, it's closer to flat to even maybe even slightly down. I don't know. It obviously depends on, I think, where you allocate some of the development and things like that, but I don't know that we see that. Frankly, our current year, from a reserve perspective, has been coming in favorably.
Okay. Other companies have talked about it. Are you seeing any change on the litigation front at all, any more aggressive tactics being used?
Well, Jeff, this is Craig. All the information I have mostly is anecdotal from our claim department, I don't want to speak to facts, it certainly isn't to the stuff that we've seen in our underlying data yet. I think everybody knows traffic fatalities are up. I think that's been broadly reported in The Wall Street Journal and other places, which obviously leads to more incidents and more potential or more claims. I think certainly from our claim department, they monitor it fairly closely and talk about verdicts are up, not necessarily for us, but across the board, there's some fairly large verdicts out there, which does, by the way, embolden plaintiff attorneys to increase the amount of their demands, and maybe they at least express a willingness to walk through the courthouse doors. That inevitably will have an impact.
I think if that's really the case, what's happening, if that could be proven out, is that over time, that will probably increase settlements. If that's the case, it will affect people broadly, and it hopefully will create an opportunity for more rate. I don't think it speaks well to social inflation over time if that pans out. Right now, all that evidence is anecdotal and piecemeal, and I have not seen it in our aggregated data, although we're watching and monitoring it closely, and if we see it, we will react appropriately.
Okay. Thank you. That's helpful.
We'll take our next question from Scott Heleniak with RBC Capital Markets.
Yes, good morning. Just wonder if you could talk a little bit about rates. On the casualty side, you guys able to get any more rate in Q3 versus Q2? Also just the transportation and personal umbrella rates. Can you talk about where those are now and where you expect to take those maybe in 2017?
Sure. Scott, this is Craig again. For third quarter, I'll say across the board, we've not seen more rate in third quarter than we did in second quarter, okay? It's kind of bounced around this ±2% in most products. The exception being a couple. The wheels-based business, which I think I mentioned, we're already getting increases in the transportation space all across the board, trucks, public, and commercial auto. Mostly in the public and commercial auto space. There's a lot of pain there. It continues to be mid-single digit rate increases.
I can assure you we're pushing for even more, as much as the market will bear. In our RV space, I guess that would be one place that we did pick up because it's an admitted regulated product line, and we were able to get some increases approved in certain larger jurisdictions. Took a little longer than some others. That rate increase is starting to kick in, and that's a little closer to high single digit rate increases. We expect based on this activity, we're going to push probably even harder in that space. Across the rest of casualty, I'd say rates are fairly flat, both quarter-over-quarter and year to date, plus or minus. Property, we're facing the same things we've faced in the past, particularly in cat exposed business. The rates are down anywhere from 10%-15%.
Okay. That's helpful. The growth you're seeing in the other parts of casualty, can you remind us some of the specifics there? There's no real change in appetite in those lines where you're seeing, I think you mentioned the good returns in those. Could you just refresh us your thinking on those?
Yeah. Just to reemphasize, we haven't changed our appetite in transportation or personal umbrella either, okay? We still have an appetite. We did find a small subset of our business that we're going to address, but our broad appetite for transportation business is still, we're still looking to find ways to grow that. Across other casualty businesses, I think I mentioned our excess liability business within the surplus lines space. We're still seeing good opportunities there, and still growing at, I'll say, close to double digits, maybe not quite double digits for the year. We're also seeing a fair amount of growth in the package business that I mentioned, which is CBIC is about a $40 million-$50 million business of property and casualty packages, mostly on the West Coast. We continue to see more growth there. We're trying to expand into other states.
We're trying to offer some other classes. It's been very profitable for us. It was very profitable before we bought it, continues to be very profitable. We also, I think I've mentioned in the past that we are offering property and casualty packages to our professional liability clients, small-to-medium professional liability clients. It started with architects and engineers, but it's expanded to miscellaneous tech professionals, and frankly, any non-medical professional right now we're offering those packages. We've still been able to grow at pretty much a double-digit pace, and loss ratio's still been very good. We have to get scale there. It's quite an investment to build a package system and have that capability, and that's something a little bit new for us. That does put a little pressure on the expense ratio side of things.
The loss ratio is still very good in those products.
All right. That's fair. Last one, do you have any comment at all on Hurricane Matthew, some of your exposure or anything you can share there? I know it's early on.
No, you're right. It is very early on. We're only 12 days really removed from the event. Any estimates at this time would be obviously very preliminary in nature. As we've looked at it, and we do have a good handle on where all our exposures are, we really believe the net impact is somewhere, certainly not more than Sandy back in 2012, which was about $13 million net.
Okay.
I'd qualify that it's very early.
All right. That's all I have. Thanks.
We'll now take a question from Ron Bobman with Capital Returns.
Hi, I had two auto questions, commercial auto questions. The first one's sort of general. It sounds like from answering, I think, the last questions that, I guess putting sort of the New York matter aside, that the sort of hard market in commercial auto and the competitive environment really hasn't seen any change. It's still a market struggling, and that rates are going up with no sort of letup in sight. Is that fair?
This is Craig. I would say that we continue to see that. We continue to see opportunity there, and we continue to are able to get rate increase. I think there are obviously within different jurisdictions and within different subsegments of that business, I would say it's still quite competitive in the truck arena. In the other areas, public, specialty, commercial autos, maybe it's a mini hard market, I don't know. The rates aren't going up double digit yet, I wouldn't quite say it's a hard market. Certainly we're able to get some rate to offset if there is these underlying trends that are impacting us, certainly to offset a little more than normal and certainly better than flat.
Okay. Thanks for the specifics. I had a question about the New York sort of emergency transport. Is that a program? If so, how long have you been on it, and do you handle all the claims? Thanks.
Not a program, we handle all the claims.
Okay.
We've been on it. Well, we've been growing it over, I'll say, the last six or seven years. It's really been flat since, I want to say 2014, maybe mid-2015. We started to slow down some of that growth. First it was in the non-emergency medical. We had looked at that. That was a problem area for us there, the emergency medical was still performing well. We've also seen it in the emergency medical transport, we're going to take some more action in that space.
Thanks again for the details. Best of luck, gentlemen.
Thank you.
Once again, it's star one to ask a question. We'll go next to Ian Gutterman with Balyasny Asset Management.
Hi, thank you. I also want to follow up on some of the reserve questions. First, I thought maybe to frame it a little bit, typically in a quarter, in the casualty book, you'd be releasing $10+ million. Is the right way to think about it that the $4 million in additions to casualty was that there was $15 million of adverse development between the transport and the umbrella, or was the sort of typical reserve releases smaller, and I'm overestimating the adverse?
Ian, it's Craig Kliethermes again. Certainly, we have variation in our development by product every quarter, okay? There are small adverse and sometimes large favorables, or we've had large adverse before. These two are two of our bigger product lines.
Right.
Although we've had favorable development almost across the board in most of our other casualty products, these two are fairly sizable. They offset the favorable development that we'd have in other product lines.
Okay. I guess I was wondering, there's not a sort of broad-based slowdown in general releases. It's more that it was just these two lines offset the normal releases. Is that fair?
Ian, I think it's very difficult to read from quarter to quarter.
Okay.
We try not to manage the company quarter by quarter. I can show you the results from quarter to quarter can be a little volatile from a reserve standpoint. We write a lot of little niches. Okay?
Understood.
Within those niches, a little bit of movement can have an amplifying effect both directions. We do have the benefit of being diversified, so overall, it tends to be very favorable. These two product lines were a little bit of an outlier this quarter.
Got it. Just to clarify one other thing on those two lines, once you identified a problem, was there sort of a catch-up? Meaning, I don't know if you listened to the Travelers call earlier, but they talk about in their personal auto book that their reserve addition was not just this quarter, but that they revised up their picks for the first half. Was there anything like that this is sort of a multi-period catch-up, or is this really something that just emerged in this quarter?
As Tom said, there was an impact across a couple accident years. As far as a triggering event or a complete catch-up, I would say no. Although, anytime you see something unusual, at least the way we react to things, you see something unusual, you look for all causes. You're going to take a deep dive into looking at a lot of different things. I wouldn't attribute this to a catch-up or anything.
Okay. Were you starting to see deterioration on this over the past few quarters, but it was small and not enough to make you think it was something to be too concerned about? Or did this catch you by surprise this quarter, that this is the first time you noticed this?
Again, I'd re-emphasize that results are fairly volatile.
Okay.
What you might say in retrospect looked like a trend, it certainly wasn't of anywhere near the size of this. If there was small adverse, we wouldn't necessarily react to small adverse numbers given the-
Sure
Given some of the volatility. We're taking a deep dive, and we'll look at it, and I can assure you we're on top of it.
Got it. Can I just clarify, just as far as the emergency vehicles, I wasn't clear, was this typical auto type incidents, meaning the vehicles had crashes? Or was it the people in being taken care of by the paramedics-
No
were mistreated and it's more of a medical liability issue?
No, these were just typical auto accidents, they happened to involve emergency medical.
Okay.
You can imagine, sometimes there were patients in there, and sometimes there weren't.
Okay.
This is not a liability other than, of course, you're liable for anybody that might be a passenger in your vehicle, this isn't that there was any medical liability or anything like that. This was just.
That's why I was wondering. Okay.
accidents that occur.
Okay. The medical liability issue from last quarter, then there was nothing new on that front?
No. Again, yes, you're referring to the medical impairment that we took last year on the acquisition of Rockbridge. It has really, I think, continued fairly consistent with what we would've expected. There was some unfavorable principally related to the 2014 accident year, and really specifically to one account that was one of the triggering events in the impairment analysis. That was, I think, expected in the third quarter here.
Got it. I think that's all I had. Thank you so much.
We'll now take our next question from Matthew Carletti with JMP Securities.
Hey, thanks. Good morning. I think most of my talk has been covered. Just if I could squeeze one last one in. Just question on Maui Jim. Seasonality aside, I know the back half of the year is a little slower. Could you just give a quick update on the trends they're seeing in their business?
Yes, John. Maui Jim continues to perform well. They've had an uptick in advertising and it's a very high-quality product. They're performing as expected, I would say, for us from our standpoint.
Okay. I know the other part of that line is a bit smaller, but is there anything of note with how the relationship with Prime is evolving?
It's good. Our relationship with Prime is very good.
Okay, great. Thanks for the answers.
We'll now take our question from Ken Billingsley with Compass Point.
Thank you. I wanted to follow up. If I understand the reserve answers you've given, it seems that they're isolated in nature. The personal umbrella is not an overlaying trend. The auto was on a geographic focus. With that in mind, I want to ask the special dividend question. You guys have paid one since 2010. Does the impact in this quarter change your view on capital and expectations over the next year and a half that would at least take that off the table?
No, our view on capital is looking forward, Ken, and how much capital we're going to need. Like I've said in the past, if we don't believe we have opportunities to use that capital, we'll give it back to the shareholders. No change in that view.
Very good. Thank you.
Once again, ladies and gentlemen, it is star one to ask a question. We'll now take a question from Kyle Kavanaugh with Palisade Capital.
Yes. Hi. Is it possible to size the New York metro area, the premium size, relative to the overall portfolio or just the transportation segment at all?
Kyle Kavanaugh, this is Craig Kliethermes. The book of business for emergency medical transport in the New York area is about $5 million-$5.5 million. It's a small portion of the total of transportation. It's an even smaller portion of RLI, it is definitely underperforming.
Okay. Just a question on reserving mechanics. Is it all actuarial formula based, or is there any kind of subjective part of it when you're reserving for if this business continues to experience these trends, to put in that kind of buffer?
Kyle, this is Craig. You're asking me a comment on the actuarial process? Certainly, there's mechanical processes. There's five or six different methods. As with any actuarial methodology, there is some judgment, some expertise that we would count on in our actuarial department to deciding on weights between methods and things like that to come up with a final recommended ultimate loss ratio.
Okay. Got you. Just one with regard to the storms in Louisiana, what did you say about reserves related to that? I think you mentioned it, but I missed it.
Well, Kyle, I think it's about a $4 million loss to RLI. It was mostly contained to our marine and our RV business, there was a lot of flooding that went on there. We don't normally cover flood, for those particular product lines, which is more like equipment or automobiles, I think you'll see this in other places, the biggest losses, I think in the flooding will be automobiles or mobile vehicles or equipment, because usually you cover water related loss to those.
Okay. All right. Thank you.
If there are no further questions, I will now turn the conference back to Mr. Jonathan Michael.
Thank you. We've had 3% growth in premium year to date, an 89 combined ratio. That's very good by industry standards. We think we've been in the business of beating the industry for many years, we think we'll continue to do that. We are in the business of smoothing our customers' loss events. As such, our earnings can be lumpy. It doesn't happen very often, once in 10 years. It can happen, and it did happen. Our diversified portfolio of products helps us to manage our way through that and to not be lumpy or to not have too many lumpy earnings quarters, but we did. We remain very positive on our product portfolio, our underwriting discipline, and our direction. I want to thank you for listening, and we'll talk to you again next quarter.
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