All right, great. Last, and certainly not least, of day one within the P&C insurance lineup, we have RLI Corp. Great, we have their presentation up. We're actually going to stay in this room for any Q&A at the end because this is the last presentation. We have Mike Stone, who is President and Chief Operating Officer of the company. He's been there over 20 years, been in the industry for much longer than that, so he's a true P&C veteran. He can probably go back several cycles and give you the good, the bad, the ugly, et cetera. Let me hand it off to him for the prepared remarks. RLI, I don't cover them officially, but this is one of the highest quality companies you'll find in P&C insurance.
The valuation says that, the ROE over time says that, and I think you'll see that through this presentation. Mike.
Thank you, Greg. Thank you. Good afternoon, who's still left here, right? Okay. Standing between you and a drink. What I learned about coming to New York every once in a while is those drinks don't come cheap. I can tell you a story about my $29 martini. I had to get out of town quickly after that. I'm not too sure I've gotten paid back for that quite yet. Appreciate your introduction, Greg, and I'm sure here before too long you will be following us. I think I'll try to run this. Okay, here's our strategy statement. It's really simple. We're an underwriting company. I think if you've listened to presentations today by others in the P&C business, many people talk about being underwriting companies, but I think when you look at our results, you'll see that we really are.
We believe in an underwriting profit, and that is writing the business under 100 combined ratio every year. Everything we do is driven around writing our business at an underwriting profit. We're a specialty company, which means our products are specialty. We're in niche markets. We're all specialty. We're all domestic, so we know our space. We're not global. We think we understand the U.S. marketplace, the legal system, the markets, the distribution, and we understand it deeply. All our business is underwritten by our underwriters. I think you'll see that we talk about growing, and we do believe that you have to grow over time, but we're not driven by growth. Our underwriters are compensated, their incentive compensation is based solely on underwriting profit. If you look at our market information, you'll see that we're A+ rated by AM Best.
We do pay a dividend. We increase it every year. Our share price, at least yesterday, was higher than this. Our 20-year annual shareholder return is a very nice 14.5%. Here's our product portfolio, a very diversified product portfolio for a company our size. Again, we believe in product niches, and we believe in growing those products where the market allows us to make an underwriting profit and the economics work for us. Certain times in the cycle, it doesn't work for certain products. Certain times in the cycle, it works for products. We're always trying to maximize those products that the market provides us better returns, that the economics work better, that we can make outsized returns, and outperform the market. We look at both casualty property and surety products. In our casualty businesses, it's a little bit north of 50% of our book.
It's the business that's also growing the most right now, where we're seeing better rates, better opportunities, and where we've added some products over the past couple of years. In our property business, that's heavily influenced by the surplus lines. That's ENS products, which is excess and surplus lines property, and earthquake, which is also a surplus lines product. Basically, California commercial earthquake. A much smaller percentage today of our business than it was five years ago, and a much smaller portion of our business than it was 10 years ago. We've been in that business since the beginning, and we're experts at that, and it's produced very good returns. You'll also see that over the past few years, we've added 22% of our gross written premium from new products.
As the market softens, our organic business will slow down and even shrink, and then we're looking even harder for new niches where we can build a presence in the marketplace. We've been able to successfully do that. Last year, we added medical malpractice business, surplus lines medical malpractice, through our Rockridge underwriting. The year before, we acquired CBIC, or Contractors Bonding and Insurance Company, which provides surety bonds and package policies for contractors, mostly in the Northwest and West Coast. Again, these segments will shrink or expand depending on where we are in the marketplace, where we are in the cycle. Locations, I think I said we're domestic, and you'll see where that star is right in the middle of, I don't know if it's the universe, but at least in the middle of the U.S. That's our headquarters in Peoria, Illinois.
We have offices in most major metropolitan areas in the U.S. A lot of small offices, a lot of small surety offices or other offices. We have a nice presence here in the city, and we have a large presence in Chicago, Atlanta, and on the West Coast, certainly in the robust surplus line states. We have a nice little place in Hawaii. I think, was it Bank of Hawaii was up here right before us, so we do a little business out there. Talk a little bit about our model, which is what we think really drives our outperformance. Again, I said we're an underwriting company. We have experienced entrepreneurial underwriters. We talk about being narrow and deep. They're narrow, product-focused, and with deep expertise in a particular product.
We'll have industry experts with 20-plus years of experience running our products, and they focus solely on that product. They run a national business, and they're located wherever they prefer to be located, so in Chicago, New York, Hartford, Atlanta, and on the West Coast. We have a diversified product mix, which again, we believe provides better returns over time, where we can build certain products at certain times and shrink when the marketplace doesn't allow us the kind of returns that we think are required to take the risk that we're taking. Obviously, diversification does reduce our overall risk, so long as we're diversifying with appropriate products. We have an ownership culture. I think in that future slide will show that insiders own 11% of the company. Our compensation, again, driven by underwriting profit. We grow by design.
I'm sure people don't stand up here and say they grow by lack of design, but what we're really trying to convey here is we find talent, so individuals, groups of individuals, that can bring a new product to our company and grow business from scratch. We add extensions to our products in our organic products. For example, our primary liability business, in the last few years, we've gotten into environmental liability. We've got into writing primary liability for REITs. Again, extending that expertise along that product continuum. We'll do acquisitions. Our acquisitions tend to be smaller, tend to be monoline, like our medical malpractice business last year, and Contractors Bonding and Insurance Company, which was basically a surety company that had a package policy for contractors, which fit well with our surety business.
I think some people will stand up here and tell you that the cycle's dead or dying. We happen to believe that there's still an insurance market cycle. There are hard markets and soft markets and some in between. We believe that it's important that you manage that cycle. An awful lot of the money in the property casualty industry is made during a hard pricing environment, and then the industry tends to give it back. We tend to give it back, try not to give it back. If so, we give it back slowly. You gotta make the money when the market is firm and the prices are enabling you to get a return. During a market that's softer, we invest in our people and in our processes and in trying to add product.
When the market's firmer, our empowered underwriters that are at the transaction level doing deals every day, are empowered to move forward and move forward quickly. We try to be patient as we tend to grow our capacity to somewhere $1 billion in the not-too-distant future. Again, we believe in the cycle. It might be a bit muted with interest rates where they are today, but it still exists. Over time, managing the cycle more effectively than our competition will enable us to outperform. How we measure our success or lack thereof. If you look at our combined ratio, 17 consecutive years under 100. I just happen to have been with the company for 17 years. That's, I'm sure, a mere coincidence. Book value growth. We've compounded our book value over the last 10 years by 14%, an enviable record.
We've averaged 15% ROE over the last 10 years, again, outperforming the industry substantially. We believe in capital management. One of the things I believe that happens in our business is we create excess capital, and managements decide to put that excess capital to work at less than optimum opportunities. We try to manage it to a point where if we have excess capital, that we're returning it to our shareholders, as opposed to returning it to our policyholders through writing business at combined ratios well north of 100. That's effectively returning that capital to your policyholders when they've basically already got the benefit of their bargain through payment of premium and us taking the risk. We've increased our dividend for 37 consecutive years, and we've returned nearly $600 million to our shareholders over the last five years.
We've had nearly $400 million of reserve releases over the last five years as the business that we've written has been significantly better than we anticipated when we first decided on loss picks and how good that business was going to be. Again, good capital management. We believe in book value growth. That's what distinguishes good insurance companies. That's what people are willing to pay for, and reserve consistency. You can see this is the 17 straight years of a combined ratio under 100, and we've also beaten the industry combined ratio by 16 combined ratio points. 16 combined ratio points year-over-year. That doesn't paint such a great picture of our industry, but it does paint a pretty good picture of us. Book value growth, as I talked about it a little bit before, the book value growth is what we think distinguishes good insurance companies.
That's what people are paying for, is our book value growth over time, and we've achieved a 14% combined compound growth in our book value and I said before, it returned almost $600 million to our shareholders via buybacks and dividends during the past five years. Just kind of feel like I'm on the clock. I see that clock going down. Don't know if I'm in the penalty box or what. Dividend growth. As you'll see, we've increased our dividends for 37 straight years and had a 14% growth rate over the last 10 years. You'll see we've paid special dividends in the last three years of $7 in 2010, $5 in 2011, and $5 in 2012. Again, returning excess capital to our shareholders through regular and special dividends. Our investment strategy, again, conservative approach to investing that will create value and support our ability to underwrite.
Underwriting is first and foremost. The investment supports that strategy, and our good underwriting performance enables us to be a little bit riskier on the investment side than most companies, as we have some 20% of our investment portfolio invested in equities. High-quality bond portfolio, dividend yield of 2.9, and like I said, an emphasis on consistency. You may know that we own 40% of Maui Jim Sunglasses. You may ask yourself why. Well, first off, it's been a great investment. Secondly, it's really a link to our past, RLI's replacement lens insurance. We started off as a monoline contact lens insurance company and have morphed into a premier specialty company. What remained of our contact lens insurance company, we merged in 1996 into Maui Jim Sunglasses, and we now own 40%, carried at $56 million.
$9 million of income recognized in 2012, and we received $18.5 million in dividends the last five years. Significant excess value not recognized on the balance sheet. Total shareholder return. At the end of the day, that's what it's about. This certainly validates our story. If you look at our 20-year return, as I indicated earlier, at 14.5%, which significantly outperforms the S&P 500 and the S&P Property Casualty Index. Just to reiterate our competitive advantages, what makes us go, what enables us to outperform, but to the extent that I've talked about, our capital strength, certainly our underwriting expertise. As I said before, we're narrow and deep in our underwriting products.
Our people are focused on a particular product and applying that expertise on a day-to-day basis with our broker producers. We have an ownership mentality with aligned compensation, both at the underwriting level, at senior management level, and we're an ESOP company, so everybody in the company is an owner. We have diverse product and distribution, so we're not wedded to any distribution channel. A bit of our business is written through the wholesale channel, some through specialty brokers, some through retailers and independent agents. We're really driven by a particular product and what's the most appropriate distribution channel to apply to that particular product, where it'll enable us to outperform the industry. We leverage our infrastructure to support existing and new product growth, so we're always looking for new products that we can leverage across that expense base.
How do we find a product that we can add to the system infrastructure that we have, add to the expertise that we have in our corporate home office? We've built an enviable reputation with our customers. We're a go-to market for our products. We can provide quick responses to their needs and are quick to say no if it's something that we can't undertake, which brokers like. A track record that attracts opportunity. We're a great place for underwriters, underwriting leaders that are trapped in a large company, a large property casualty company, and don't get the kind of recognition for what they're doing, for what they're accomplishing, aren't compensated in a way that they feel they should, or that we'd be able to compensate them, and where they can be empowered and continue to exercise their trade, which is by and large underwriting.
We bring them to RLI and allow them to underwrite and give them a piece of the underwriting profit. I think that's the end. I still have 9.5 minutes to go. Oh, no. 9.01.
All right. Nine minutes, we own the room after that if we go longer. Q&A, you okay with that? Mike?
Yeah, I'm ready.
You go to Q&A?
Yeah.
You good with that?
Absolutely.
All right. I guess we have mics since it's a massive room. Any questions, throw your hands in the air. I've got several as well, but there we go. Look at this. All right.
You mentioned managing the cycle, you didn't mention where you think we are in that cycle and where you think it's going.
That's a good question. Yeah, I think we're at a stage where the market is coming out of the soft market that we've experienced over the last four or five years. I think last year we started seeing some firming in pricing. It's hardly a hard market, so it's not consistent. Certainly the casualty side, we're starting to see improving pricing, order of magnitude 5% roughly, depending on the product, obviously, and depending on the geography, certainly firmer in some places rather than others. I'd say it's a little fragile, and so when you talk to the line underwriters, they're not feeling like it's a great pricing environment today. It's better than what it was a year ago, better than what it was two years ago, but it's certainly nothing like it was in 2002, 2003, 2004. It's moving up, which is a good thing.
It's certainly not accelerating at a rapid pace. Like I said, it's better than what it was, but I'd say we're starting to move up. Typically, there's a catalyst that will drive it even further. Those catalysts are not really something that we're looking forward to.
Are you aggressively writing business as a result of the current pricing, or are you not writing any business because it's just not hard enough for you?
No, we're growing. We're growing in our casualty segment. I think we're up about 10% in the first quarter. We're writing more business. We're seeing more opportunities. It's not something where we're doubling. We're not seeing a doubling of our submissions. We're not seeing that we're not able to quote twice as much business as we quoted last year. We're writing more business, and we're getting a little bit more rate.
Thanks.
Can you talk about the special dividend a little bit and what prompted it, what prompted the special dividends the last three years, why you may not make it a permanent dividend, and do you hint towards another special dividend, or do you let it be a total surprise?
No hints. I think when we paid our second special dividend in 2011, I think one of our concerns was people are going to view it as a trend, and that's not what we're trying to do. It's really trying to manage our capital effectively. Assume you have excess capital, which we have had in the last three years, and we still have excess capital based on normal calculations. As we go through the thought process of what to do with that excess capital, there's really three or four alternatives, right? Number one is you could sit on it. Number two is you could give it back to your policyholders by writing underpriced business. You could buy back shares. You could pay a special dividend.
As we go through that calculation, the last three years, we've had excess capital, and we decided the best way to do it was through a special dividend. We'll go through that process again sometime in the third quarter and make some decisions on what we're going to do. Our first objective is to utilize that capital by finding opportunities that will allow us to apply that capital and make an outsized return as we have on our other businesses. We're not going to do something just for the sake of using that capital. That goes back to management, when they have too much capital, have a tendency to do something stupid. We're going to try not to do anything too stupid.
Within the industry, some underwriters seem to succeed based on the science of underwriting, technology, and the like, and others seem to be more art-minded. You seem to be the latter, based on preliminary understanding of what you described very much about the people. Can you talk about how you institutionalize the art amongst your people and keep that going over the long term?
That's an interesting question. That's an interesting observation. I can assure you I'm an intuitive guy myself. I think as we progress, as we develop as an organization, that there is more science applied. We do kneel down at the altar of the underwriter, okay? That's a fact. We think that which is what enables us to differentiate ourselves and to outperform. Having deep, experienced industry expert underwriters out in the field at the transaction level, making deals every day, enables us to outperform. We arm them with technology. We arm them with back office support, actuarial support. Obviously, our business is less actuarial driven than private passenger auto, workers' compensation, you can think of. The businesses that we are in tend to be more selection driven, market priced.
What we try to do is find these top guys, surround them with other underwriters in various locations who learn from that individual, who are directed by that individual, mentored by that individual, and over time, build up successors. As we've had leaders, product leaders retire, we've replaced them from the inside. We've built up a good cadre of second-level underwriting leaders that will, we think, move us forward into the future. In addition, we will continue to develop the science part of that business because that will become more important over time. We're working hard on that, too.
A question on just Berkshire Hathaway. They're making moves into the specialty market through the lift out of the Lexington people. How do you think about this? Will this impact your company in time?
It's an interesting question. I had about eight one-on-ones today. Every one asked the same question.
It's a good question.
Group think.
Yeah.
It's one of those things that's just like talking about John Charman, right? It's kind of top of the mind right now. I'm sure Ajit isn't somewhere in Stamford wondering what RLI is going to do next, but he should. No, it's interesting because of their track record. It's interesting because of where they came from. It's interesting because they say they want to be big in commercial insurance over time. It's also a pivot, if you will, for the National Indemnity, Berkshire, whatever they're calling themselves today because it's going to be much more transactional. They're going to have to operationalize, which they haven't really done much in the past, right? He runs that from, what, 10 or 15 people. They're going to have to have much more infrastructure. It's going to take them time to build that up.
We certainly think they're fully capable of doing it. They've done it at Lexington. It's not Lexington 2.0, as Vijay calls it. It's really Lexington 3.0 because Ironshore really that started up, what, 4 or 5 years ago, where the guys running that are really the former bosses of the people that are at Lexington 3.0. We've experienced that. We've managed that. Ironshore has a nice company, sizable company, but it certainly hasn't taken all the business and sucked all the air out of the industry, and this won't either. There's plenty of business out there. It's interesting.
No, yeah. Any other questions? I got one more I'll throw in, if not. Okay. You've seen Markel buy Alterra. You've seen Alleghany buy Transatlantic. Any interest in the reinsurance space, or any interest in broadening the footprint? Because I sort of put you all in the same bucket, which are pretty well-run companies, and they seem to be stretching a little differently than in the past, especially Markel, quite frankly.
Yeah. We have a small reinsurance footprint right now. It's really an opportunistic play. It's never going to be big the way we're doing it, nor do we want it to be. We've looked at Bermuda. We've looked at opportunities there over the last 10 years. We've looked in London. Every time we look, first off, Bermuda, we trade at 1.8 times book or something like that. Those guys are lucky if they trade at one times book. If it's a better mousetrap, it doesn't look like it's been played out in the marketplace. Our concern about London and Lloyd's is that they seem to be more affiliated to that franchise than to the company they actually work for. It's a culture thing. We don't like that culture. Nothing wrong with it. It's a great specialty marketplace. We just don't think it's the right place for us.
We think there's still plenty of opportunity domestically for a company our size, a lot of products that we aren't in, a lot of growth within the products that we are in. We think we've got a great franchise. We've got great people, and we think we can continue to build a successful company focusing on what we know. Doesn't mean never. It just means right now we think we're focused on the right thing.
Okay, great. Well, let's end it there. Drinks at the Bull & Bear for those who want to continue. Thanks to Mike, and thanks to RLI for coming and the clients who stuck it out for the last presentation of the day.
Yeah. Thanks, everybody. Yeah