Tony Falcone Presentation - 9-7-07

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September 7, 2007

Emerson Cammack Lecture Series



Insurance – what is it?



“Insurance . . . its cringe factor ranks rightup there with such joys as filling out

your income tax return. Or balancingyour checkbook when the bank saysyou‟re $500 overdrawn. Or perhaps

shopping for your own cemetery plot.”



“Insurance allows individuals or

organizations to exchange the risk of alarge loss for the certainty of smaller

periodic payments, known as premiums.

The exchange (or transfer) of risk is laidout in a legal contract called the

insurance policy, which spells out thecoverage, 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 trillionin the US)

• More than 2 million US workers are employed in theinsurance industry (2.1% of the overall workforce)

– 100 billion in payroll

– 13 billion in state taxes

Source: Insurance Information Institute



History



A history lesson (albeit brief) . . .

• Marine insurance in thelate middle ages – Merchants / bankers

concerned with loss due topiracy and storms

– Bankers providedguarantees against loss;merchants paid the bankersin exchange for protection

• Fire insurance – Evolved after great Londonfire of 1666

– First US insurance companystarted by Ben Franklin in1752



RLI‟s Rich History

• 1961 – founded a contact lens insuranceagency, Replacement Lens Inc.

• 1965 – private holding company formed andacquired United Founders, Ins. Co.(formerly Main Mutual)

• 1969 – private holding company renamedRLI Corp.

• 1971 – RLI common stock first traded onNASDAQ

• 1975 – became Peoria's first EmployeeStock Ownership Company

http://www.nasdaq.com/

http://www.allaboutvision.com/whatsnew/contacts.htm



RLI‟s Rich History

• 1977 – began underwriting specialtycommercial 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

http://investors.rlicorp.com/ratings.cfm



What’s the score?



The premiumdollar (industry)

53¢Claims

32¢

Underwriting Expense /Commissions 10¢Claims Expense

5¢Profit



The premiumdollar (RLI YE

2006)

38¢Claims

25¢

Underwriting Expense /Commissions 10¢Claims Expense

27¢Profit



95

100

105

110

115

120

7 0

7 1

7 2

7 3

7 4

7 5

7 6

7 7

7 8

7 9

8 0

8 1

8 2

8 3

8 4

8 5

8 6

8 7

8 8

8 9

9 0

9 1

9 2

9 3

9 4

9 5

9 6

9 7

9 8

9 9

0 0

0 1

0 2

0 3

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

7 0

7 1

7 2

7 3

7 4

7 5

7 6

7 7

7 8

7 9

8 0

8 1

8 2

8 3

8 4

8 5

8 6

8 7

8 8

8 9

9 0

9 1

9 2

9 3

9 4

9 5

9 6

9 7

9 8

9 9

0 0

0 1

0 2

0 3

90.489.1 90.188.4 95.8 95.8 92.4 93.1

RLI



Products



Primary Commercial Products

Automobile

Property

Umbrella

Workers’

Compensatio

n

Marine

(Inland /Ocean)

GeneralLiability

x

Surety



Home

Auto

Dwelling Fire

Umbrella Boat

Motorcycle

RV

Primary Personal Products



Property

25%

Casualty

65%

Surety

10%

RLI Q1 2007 Product Summary

Vision UW Method

Underwriter 85.1%

eCommerce 14.9%

Geographical Spread

Major Product Groups Segmentation

California 18.6%

New York 16.4%Florida 14.7%

Texas 7.7%

Strategy Key Producers % of GWP byCompany

Mt. Hawley Ins. Co. 54.8%

RLI Ins. Co. 43.3%

RLI Indemnity Co. 1.9%

As a leading provider of specialized insurance andfinancial services, RLI is focused on building and

managing a portfolio of innovative products andsolutions that meet and surpass the expectations ofour 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%

Millions

CRC Ins. Services 15.1

Swett & Crawford 6.3

Program Brokerage 5.8

Colemont Ins. 5.5

Marsh & McLennan 4.8

•Grow core business by expandinggeographic coverage and UW capacity

•Leverage information technology toincrease productivity and reduce expenseratio

•Grow underwriting profits while improvingrisk 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





Direct Distribution

Insurance

Company

Insured



Independent (Retail) Agent

Insurance

Company

Insured

Insurance

Company

Insurance

Company

Retail Agent



Wholesale Agent

Insurance

Company

Insured

Insurance

Company

Insurance

Company

Retail Agent

Wholesale Agent



Roles and careers



The transaction . . .

• Primary roles – Agent

– Underwriter

– Underwriting Assistant

– Claims Representative

– Risk Control Representative

– Actuary



25

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 . . .



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

Documents

Tony Falcone Presentation - 9-7-07