RLI Corp's (RLI) CEO Jon Michael on Q3 2016 Results - Earnings Call Transcript

| About: RLI Corp (RLI)

RLI Corp. (NYSE:RLI)

Q3 2016 Results Earnings Conference Call

October 20, 2016, 11:00 am ET

Executives

Aaron Jacoby - Vice President of Corporate Development

Tom Brown - Chief Financial Officer, Vice President

Craig Kliethermes - President & Chief Operating Officer of RLI Insurance Company

Jon Michael - Chairman of the Board, President, Chief Executive Officer

Analysts

Randy Binner - FBR

Arash Soleimani - KBW

Ken Billingsley - Compass Point

Jeff Schmidt - William Blair

Scott Heleniak - RBC Capital Markets

Ron Bobman - Capital Returns

Ian Gutterman - Balyasny Asset Management

Matt Carletti - JMP Securities

Kyle Kavanaugh - Palisade Capital

Operator

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 in 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 the 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' definitions 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.com.

I will now turn the conference over to RLI's Vice President, Corporate Development, Mr. Aaron Jacoby. Please go ahead, sir.

Aaron Jacoby

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 Jon Michael, Chairman and CEO, Craig Kliethermes, President and Chief Operating Officer and Tom Brown, Vice President and Chief Financial Officer.

I am going to turn the call over to Tom first to give some brief opening comments on the quarter's financial results. Then Craig will talk about operations and market conditions. Next, we will open the call to questions and Jon will finish up with some closing comments.

Before turn the call over to Tom, I would 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 have updated the earnings release on our website to reflect this.

Tom?

Tom Brown

Thanks Aaron and good morning. We reported operating earnings of $0.37 per share for the quarter. Results were impacted by a 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 year's 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. It 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 highly diverse product portfolio. Craig will have more to say on this in a moment.

Turning to the topline. 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. And 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 are 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 from Maui Jim and Prime, we had equity in 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.

And with that, I will turn the call over to Craig.

Craig Kliethermes

Thanks Tom. Good morning everyone. As Tom mentioned, we were able to grow topline 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 but 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 of 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 in class business within our specialty commercial auto unit that has contributed significantly to the adverse development. True to our model, underwriting profit first, we are curtailing our writing in the problem jurisdiction in class and taking every opportunity 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 are down 12% with an 88 combined ratio. Adjusting for the exit from certain property reinsurance businesses, we are down 4% for the year. Most of this decrease is a result of continued rate reductions in the cat exposed products and the reunderwriting 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 have 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 am confident that is exactly what we will continue to do.

Thank you and I will turn it back to Aaron.

Aaron Jacoby

Thanks Craig. We can now open the call up for questions.

Question-and-Answer Session

Operator

Thank you, Sir. The question-and-answer session will begin at this time. [Operator Instructions]. And our first question comes from Randy Binner with FBR.

Randy Binner

Hi. Thanks. Good morning everyone. I wanted to focus in on the adverse development and you have provided some good detail on the opening comments there but the transportation book has been growing. So 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 any kind of color you can give us, whether it's a function of frequency or severity of claims within the book? Any color you can give us? Obviously, the big question folks are going to have is, is this kind of a one-time isolated thing that you guys are going to really kind of snuff out? Or is this something that could be more kind of endemic in the commercial auto area you have been growing.

Craig Kliethermes

Randy, this is Craig Kliethermes. The area that that we saw the adverse experiences in is more specifically New York and its emergency transport vehicles. It has been part of our portfolio for last four or five years. It's not really been part of the recent growth as much it did grow and if you go back to growth and 2013, 2014, 2015, it did grow a little bit there. It's been more stable. We have been a little more cautious there recently suspecting something might be up, but we saw little more activity this quarter than normal. New York is notoriously slow to develop even for primary low attaching business and I think that were seeing that as we speak. We are very carefully looking at that book. We are curtailing our any new writings and looking very closely at our renewals in that space. So you can expect we are taking sufficient action in that area to address the problem.

Randy Binner

So these are like ambulettes that transport people from place-to-place? Is this New York metro? Or is it the whole state?

Craig Kliethermes

It's mostly in the metro area. That's where most of the business is, but we do write it statewide. We write it countrywide frankly. We have not had seen the same activity across the country, I might say. It's just been localized.

Randy Binner

So is it a severity issue driven by trial bar activity? Or is it something else?

Craig Kliethermes

Well, I don't think I can comment on the drivers quite yet but I think certainly for the quarter, we had identified as an increased number of large claims probably, frankly about twice what our normal activity would be for a quarter. And now twice for us is a fairly small number of claims. So you have to take that with a grain of salt. But that can move the dial a little bit given the size of our book of businesses.

Randy Binner

And then on the personal umbrella, you had said you had concentration of severe losses? So is that like normal kind of fluctuation you expect to see? Or was there some commonality to that concentration?

Craig Kliethermes

It was similar in regards to severity. The activity was, I will say, maybe close to two times normal activity in the quarter for what we call large claims of over $500,000. And it looks like, at least for the quarter, it was mostly in the area of elderly drivers is what drove most of that.

Randy Binner

Okay. Understood. Thank you. I will drop in the queue. Thank you very much.

Craig Kliethermes

Thanks.

Operator

And we will take our next question from Arash Soleimani with KBW.

Arash Soleimani

Well, thanks. Just hopping onto Randy's question. So is this something where we should expect the initial accident year loss picks to be higher going forward based on what you are seeing?

Craig Kliethermes

Arash, this is Craig Kliethermes. I would say, not necessarily in this product line. What I would remind you that although the development was adverse for the quarter, the actual our estimate of loss ratio was still below where we originally book the accident years for that business. So we have been taking the reserves down some as we thought that the activity with lighter than has materialized this quarter. So actually just moving it back up a little closer to where we originally booked it. So we still believe that this is possible. When we have look at a little longer four or five year period of time it really isn't having a significant impact on where we currently view of business. And as I mentioned, I think in my written comments that we are still trying to grow this business. We still think this driving an underwriting profit.

Arash Soleimani

I am sorry, which accident? You mentioned the accident years the adverse came from?

Tom Brown

Arash, this is Tom Brown. For transportation, it's the more recent accident years 2013 through 2015 and PUP is mostly just the prior action year 2015.

Arash Soleimani

Sorry. It was 2013 to 2015, you said, for transport?

Tom Brown

Transportation, yes, was 2013 through 2015 and then PUP is almost entirely the 2015 accident year.

Arash Soleimani

Okay. And what was the comment? I heard you said something about elderly drivers. Was that within the transportation? Which element of the transportation book had the issue with elderly drivers?

Craig Kliethermes

I am sorry. I should have clarified. It was within our personal umbrella book. So that was personal umbrella, that specific comment. We don't have a lot of elderly drivers driving trucks.

Arash Soleimani

Okay. And then the other thing I wanted to touch on besides 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?

Tom Brown

Arash, it's a good point. This is Tom Brown. Yes, it came in at about 28.5% versus a little over 30% prior year. And it's really the mix. The underwriting is going to be more at the statutory rate of 35%, but the investment income is lower, more in the 20% to 24% range. So it's mix with the lower $10.6 million of underwriting in this period versus $33 million in the third quarter of last year, you get that mix and slight increase improvement in the effective rate.

Arash Soleimani

Okay. That makes sense. Thank you.

Tom Brown

You are welcome.

Operator

We will take our next question from Ken Billingsley with Compass Point.

Ken Billingsley

Good morning. One of the questions I wanted to ask was on the expense ratio Specifically, property expense ratio rose more than we have seen in prior periods. Why is that trending that way, given higher accident year loss picks and the reserve additions that we have seen?

Tom Brown

Ken, it's Tom. The expense ratio isn't going to be affected by the loss picks. I just want to clarify your question. You are speaking to the expense ratio?

Ken Billingsley

I am speaking to the expense ratio. But generally, when we have seen companies have higher losses, maybe there's a profit sharing in there and that would reduce it. But it looked like the loss or the expense ratio actually went up year-over-year higher than what we had seen trending for the prior quarters.

Tom Brown

Yes. That could have a nominal effect but it's really our fixed expense base for that property book has been largely maintained, as you have seen on the past calls but as the topline 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 and since that's gone away, the mix is going to increase the expense component of the ratio. So again, yes, the way we incent people, pay our product people, has an impact because it is based on the combined ratio. So that does have some of the effect. But the two main drivers are the fixed cost and then the extra crop.

Ken Billingsley

So obviously, there was a little bit of mix but also the shrinking business overall?

Tom Brown

On the base.

Ken Billingsley

Okay. And then on the surety side, I know you gave a little bit of color here, but this is the first time we have seen premiums down both on a gross and net basis. Last time we had seen it in either one was back in second quarter 2014. Can you just maybe elaborate little bit more on some of the changes? I know you mentioned competition as being one factor there, but can you talk about expectations in there? Because it's a profitable business, I can't imagine the competition is going to go away.

Craig Kliethermes

Ken, this is Craig Kliethermes. No, the competition is not going away. We have our surety people in here just yesterday and talked about strategies and things like that. So I don't think they foresee it's going away either. They continue to see a fairly soft market. Reinsurers are willing to bear a big portion of the risk for some of these primary companies backing them, which obviously makes it even more difficult and I think we are 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 with our smaller bonds, but the larger stuff, particularly in the commercial and the energy surety space are very, very difficult. Standards are lowering everyday in regards to either increased commission and then lowering the bar in regards to indemnification and we refuse to do that. We are just not going to do that. So I can't tell you what's going to happen in the future, but certainly we think it's a very difficult market.

Tom Brown

Ken, this is 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.

Ken Billingsley

Okay. Your talked about reinsurers taking on a little bit larger risk allowing to make some primary companies to step into a marketplace where 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?

Craig Kliethermes

We use reinsurers extensively in surety to make sure we have enough capacity for the larger risk. We have 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. So we are gross line underwriters. We want to make money for ourselves and obviously hopefully it makes money for the reinsurers too but we utilize reinsurance to get to the capacity we need. But I don't think that's a long-term play for us is to try to use dumb capital to do dumb things.

Ken Billingsley

All right. Last question just before I turn over to the next person. Its' just on the investment portfolio side. Just the lower investment yield in general for a reinvestment standpoint, but my calculated portfolio yield for the quarter was higher. Was there any kind of shift or change? I guess we will 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?

Craig Kliethermes

Ken, we are looking at a book yield that has, I think, declined a bit from the prior year. But we have had a bias towards higher quality assets in these past nine months. We moved a little more to the treasuries towards the end of 2015 and then mortgage-backed in the 2016. So yes and the other thing is the book value is up for the entire portfolio for the year as well, about $100 million.

Ken Billingsley

Sure. But I am 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 will follow up after the call.

Craig Kliethermes

All right. That would be good.

Ken Billingsley

All right. Thank you.

Operator

[Operator Instructions]. We will take our next question from Jeff Schmidt with William Blair.

Jeff Schmidt

Good morning everyone.

Craig Kliethermes

Good morning.

Jeff Schmidt

The core casualty loss ratio looks to be up about 100 basis points after being flat to down over the last two quarters and it doesn't sound like commercial auto is necessarily driving that. Can you maybe speak to that? Is it being more broadly felt across lines?

Craig Kliethermes

Jeff, this is Craig Kliethermes. We have seen, I don't think our numbers, necessarily, I think the current year is up over prior year. So it's closer to flat, maybe even slightly down. So I don't know, it obviously depends on 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.

Jeff Schmidt

Okay. Other companies have talked about it. Are you seeing any change on the litigation front at all? Any more aggressive tactics being used?

Craig Kliethermes

Well, Jeff, this is Craig. All the information I have mostly is anecdotal from our claims department and so I don't want to speak to facts and it certainly isn't to the stuff that we have seen on our underlying data yet. I think everybody knows traffic fatalities are up. I think that has been broadly reported in the Wall Street Journal and other places which obviously relates to more incidents and more potential or more claims. I think certainly from our claim department, they monitor fairly closely and talk about verdicts are up, not necessarily for us, but across the board there are some fairly large verdicts out there, which does by the way emboldened plaintiffs attorneys to increase the amount of their demands. And maybe they will at least express a willingness to walk through the courthouse doors and that inevitably will have an impact, I think. If that's really the case of what's happening, if that can be proven out, is that overtime they will probably increase settlements. If that's the case, it will affect people broadly and hopefully will create an opportunity for more rate. But I don't think it speaks well to social inflation over time if that pans out. But right now all of that evidence is anecdotal and piecemeal and I have not seen it in our aggregated data. Although are watching and monitoring it closely and if we see it, we will react appropriately.

Jeff Schmidt

Okay. Thank you. That's helpful.

Operator

We will take our next question from Scott Heleniak with RBC Capital Markets.

Scott Heleniak

Yes. Good morning. Just wondering if you could talk a little bit about rates on the casualty side. Are you guys able to get any more rate in Q3 versus Q2? And then 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?

Craig Kliethermes

Scott, this is Craig. For third quarter, I will say, across the board, we have not seen more rate in the third quarter than we did in second quarter, okay. It's balanced around plus or minus 2% in most products, the exception being a couple, the wheels based business which, I think I mentioned, we are 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 is a lot of pain there. It continues to be mid single digit rate increases. I can assure you we are pushing for even more, as much as the market will bear. And in our RV space, I guess that will be one place that we did tick up because this is an admitted regulated product line and we were able to get some increases approved in certain larger jurisdictions. It took a little longer than some others. So that rate increase is starting to kick in. And that's a little closer to high single-digit rate increases. So we expect, based on this activity, we are going to push probably even harder in that space, but across the rest of casualty, I would say, rates are fairly flat both quarter-over-quarter and year-to-date plus or minus. And property, we are facing the same thing we have faced in the past, particularly in cat exposed business. The rates are down anywhere from 10% to 15%.

Scott Heleniak

Okay. That's helpful. And then so the growth you are seeing in the other parts of casualty, can you remind us some of the specific there? And so there's no real change in appetite in those lines where you are seeing? I think you mentioned good returns in those. So could you just refresh us your thinking on those?

Craig Kliethermes

Yes. And just to re-emphasize, 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 are going to address but our broad appetite for transportation business, we are still looking to find ways to grow that. But across other casualty businesses, I think I mentioned our excess liability business within the surplus line space, we are still seeing good opportunities there and still growing, I think, close to double digits, maybe not quite double digits for the year and we are also seeing a fair amount growth in the package business that I mentioned. CBIC is about $40 million, $50 million business of property and casualty packages mostly in the West Coast. We continue to see more growth there. We are trying to expand into other states. We are trying to offer some of classes. It's been very profitable for us. It was very profitable before we bought it. It continues to be very profitable. And then we also, I think I have 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 are offering both packages. And we have still been able to grow it at pretty much a double-digit pace and loss ratio has still been very good. But 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. So that does put a little pressure on the bottom or on the expense ratio side of things. But the loss ratio is still very good in those products.

Scott Heleniak

All right. That's fair. And then 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, but?

Craig Kliethermes

Yes. You are right. It is very early on. You are only days really removed from the event. So any estimate at this time will be obviously pretty preliminary in nature. But as we have looked at it and we do have good handle on where our exposures are. We really believe that net impact is somewhere certainly not more than Sandy back in 2012, which was up $13 million net. But again, I would clarify that it's very early.

Scott Heleniak

All right. That's all I had. Thanks.

Operator

We will now take a question from Ron Bobman with Capital Returns.

Ron Bobman

Hi. I had two auto questions, commercial auto questions. The first one is 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 marketing 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 let-up insight. Is that fair?

Craig Kliethermes

This is Craig. I would say that we continue to see that. We continue to see opportunity there. We continue to see that we are able to get rate increase. They are, obviously, within different jurisdictions and within different sub segments of that business. I would say, it's still quite competitive in the truck arena, but in the other areas public, specialty, commercial auto, maybe it's a mini hard market, I don't know. The rates aren't going up double-digit yet. So I wouldn't quite say it's a hard market. But certainly wherever we get some rate to offset, there is these underlying trends that are impacting us certainly to offset a little more than normal and certainly better than flat.

Ron Bobman

Okay. Thanks for those specifics. And then I had a question about the New York emergency transport. Is that a program? If so, how long have you been on it? And do you handle all the claims? Thanks.

Craig Kliethermes

Not a program and we handle all the claims.

Ron Bobman

Okay.

Craig Kliethermes

Well, we have been growing it over, I would 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. That was the problem area out there. But the emergency medical is still performing well. Now we have also seen in the emergency medical transport. So we are going to take some more action in that space.

Ron Bobman

Thanks again for the details. Best of luck, gentlemen.

Craig Kliethermes

Thank you.

Operator

[Operator Instructions]. We will go next to Ian Gutterman with Balyasny Asset Management.

Ian Gutterman

Hi. Thank you. So I also want to follow-up on some of the reserve questions. So first, I thought maybe to frame it a little bit, typically in a quarter in the casualty book, you would be releasing $10 million plus. Is the right way to think about it that the $4 million 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 am overestimating the adverse?

Craig Kliethermes

Ian, this is Craig Kliethermes again. I mean certainly we have variation in our development by product every quarter, okay. There are small adverse and sometimes large favorables or we that large adverse before, but these two are two of our bigger product lines. And although we had favorable development almost across the board in most of our other casualty products, these two are fairly sizable. So they offset the favorable development that we have in another product lines.

Ian Gutterman

Okay. I guess I was wondering, so 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?

Craig Kliethermes

Ian, I think it's very difficult to read from quarter-to-quarter.

Ian Gutterman

Okay.

Craig Kliethermes

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.

Ian Gutterman

I understand.

Craig Kliethermes

And 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. But these two product lines were a little bit of an outlier this quarter.

Ian Gutterman

Got it. And then 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 talked about when their personal auto book that their reserve edition was not just this quarter, but that they have revised up their picks for the first half. Was there anything like that that this is sort of a multi-period catch-up? Or is this really something that just emerged in this quarter?

Craig Kliethermes

Well, as Tom said, there was an impact across a couple of accident years. But as far as triggering event or just complete catch-up, I would say no. Although anytime you see something unusual, at least the way we react to things, we see something unusual, you look for all causes. So you are going to take a deep dive looking at a lot of different things. But I wouldn't attribute this to a catch-up or anything.

Ian Gutterman

Okay. And were you starting to see deterioration on this over the past few quarters that it was small and not enough to make you think it was something to be too concerned about? Or did this kind of catch you by surprise this quarter that this was kind of the first time you noticed this?

Craig Kliethermes

Again, I would reemphasize, the results are fairly volatile. So what you might say in retrospect, look like a trend, it certainly wasn't anywhere near the size of this. So if there was small adverse, we wouldn't necessarily react to small adverse numbers given some of the volatility. So we are taking a deep dive and we will look at it and I can assure you, we are on top of it.

Ian Gutterman

Got it. And can I just clarify just as far as the emergency vehicles, I wasn't clear. Was this sort of typical auto type incidents, meaning the vehicles had crashes? Or was it like the people being taking care of by the paramedics were mistreated and it's more of a medical liability issue?

Craig Kliethermes

No. These are just typical auto accidents but they happen to involve emergency medical. As you can imagine, some times there were patient in there and some times there weren't. But this is not a liability, other than of course you are liable for anybody that might be a passenger in your vehicle, but this isn't there was any medical liability or anything like that.

Ian Gutterman

That's what I was wondering, okay. Okay. And the medical liability issue from last quarter then, there was nothing new on that front?

Craig Kliethermes

No. Again yes, you are 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 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. So that was, I think, in the third quarter here.

Ian Gutterman

Got it. That's all I had. Thank you so much.

Operator

We will now take our next question from Matt Carletti with JMP Securities.

Matt Carletti

Hi. Thanks. Good morning. I think most of my topics have been covered. Just if I could squeeze one last one in, just a 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 kind of the trends they are seeing in their business?

Jon Michael

It's Jon. Yes. Maui Jim continues to perform well. They have had an uptick in advertising and it's a very high quality product. So they are performing as expected, I would say across, from our standpoint.

Matt Carletti

Okay. And then I know the other kind of part of that line is a bit smaller, but is there anything of note with kind of how the relationship with Prime is evolving?

Jon Michael

It's good. Our relationship with Prime is very good.

Matt Carletti

Okay. Great. Thanks for the answers.

Operator

We will now take our question from Ken Billingsley with Compass Point.

Ken Billingsley

Thank you. Just I wanted to follow up. If I understand the reserve answers you have given, it seems that they are isolated in nature. The personal umbrella is not an overlying trend. The auto was on a geographic focus. So 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?

Craig Kliethermes

No. Our view on capital is looking forward, Ken, how much capital we are going to need and like I have said in the past, if we don't believe we have opportunities to use that capital, we will give it back to the shareholders. So no change in that view.

Ken Billingsley

Very good. Thank you.

Operator

[Operator Instructions]. We will now take a question from Kyle Kavanaugh with Palisade Capital.

Kyle Kavanaugh

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?

Craig Kliethermes

Kyle, this is Craig Kliethermes. The book of business for emergency medical transport in the New York are is about $5 million to $5.5 million. So it's a small portion of the total. Transportation is even smaller portion of RLI. But it is definitely underperforming.

Kyle Kavanaugh

Okay. And then just a question on reserving mechanics. Is it all actuarial formula based? Or is there any kind of subjective part of it? And when you are reserving for, like, you know, if this business continues to experience these trends, to put in that kind of buffer?

Craig Kliethermes

Kyle, this is Craig. So you are asking me to comment on the actuarial process, certainly there is some mechanical processes, there is five or six different methods. But 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 final recommended ultimate loss ratio.

Kyle Kavanaugh

Okay. Got you. And 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.

Craig Kliethermes

Well, Kyle, it is about $4 million loss to RLI. It was mostly contained to our marine and our RV business and there was a lot of flooding that went on there and we don't normally cover flood. But for those particular product lines, which is more like equipment or automobiles and I think you will see this other places, the biggest loss is, I think, in the flooding will be automobile or mobile vehicles or equipment because they usually cover water related loss to those.

Kyle Kavanaugh

Okay. All right. Thank you.

Operator

And as there are no further questions, I will now turn the conference back to Mr. Jonathan Michael.

Jon Michael

Thank you. That 3% growth in premium year-to-date and 89 combined ratio, that's very good by industry-standard. We think we have been in the business of beating the industry for many, many years and we think we will continue to do that. But 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. But they can happen and it did happen. And 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 will talk to you again next quarter.

Operator

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-888-203-1112 with an ID number of 5773623. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.

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