Emerson Cammack Lecture Series

1. Emerson Cammack Lecture Series September 7, 2007

2. Insurance – what is it?

3. “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.”

4. “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

6. 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

9. 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

10. What’s the score?

11. The premium dollar (industry) 32¢ Underwriting Expense / Commissions 10¢ Claims Expense 53¢ Claims 5¢ Profit

12. The premium dollar (RLI YE 2006) 25¢ Underwriting Expense / Commissions 10¢ Claims Expense 38¢ Claims 27¢ Profit

13. P&C Industry Combined Ratio Combined Ratios 1970s: 100.3 1980s: 109.2 1990s: 107.7 2000s: 111.0 2001 = 115.7 2002 = 107.2 2003F = 103.2* 2003:Q1 Actual = 99.5 Sources: A.M. Best; III

14. RLI Historical Combined Ratio RLI 89.1 90.4 88.4 90.1 95.8 95.8 92.4 93.1

15. Products

16. Primary Commercial Products Property Marine (Inland / Ocean) General Liability Surety Automobile Umbrella Workers’ Compensation x

17. Primary Personal Products Home Dwelling Fire Umbrella Boat Motorcycle RV Auto

18. Strategy Key Producers % of GWP by Company RLI Q1 2007 Product Summary UW Method Vision Geographical Spread 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. California 18.6% New York 16.4% Florida 14.7% Texas 7.7% Underwriter 85.1% eCommerce 14.9% Segmentation Major Product Groups % of GWP by Product Group General Liability 27.5% Surety 10.4% E&S Property (less DIC) 9.6% Personal Umbrella 8.2% Transportation 7.8% DIC 7.4% Executive Products 6.2% Commercial Umbrella 5.4% Marine 5.1% Programs 4.2% Hawaii Homeowners 1.9% eXS 1.2% • 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 Mt. Hawley Ins. Co. 54.8% RLI Ins. Co. 43.3% RLI Indemnity Co. 1.9% Millions CRC Ins. Services 15.1 Swett & Crawford 6.3 Program Brokerage 5.8 Colemont Ins. 5.5 Marsh & McLennan 4.8

19. Insurance product distribution

20. Direct Distribution

21. Independent (Retail) Agent

22. Wholesale Agent

23. Roles and careers

24. 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

26. 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