RLI Corp. (RLI)
Q3 2007 Earnings Call
October 17, 2007 11:00 am ET
Executives
John Robison - RLI Treasurer
Jonathan Michael - President and CEO
Joseph Dondanville - Senior Vice President and Chief Financial Officer
Michael J. Stone - President, COO, RLI & Mt. Hawley Insurance Companies
Analysts
Bijan Moazami - Friedman, Billings, Ramsey & Co.
Charles B. Gates - Credit Suisse
Douglas Mewhirter - Ferris, Baker, Watts
Meyer Shields - Stifel Nicolaus & Company, Inc.
Michael Grasher - Piper Jaffray
Ron Bobbin - Capital Returns
Thomas Cholnoky - Goldman Sachs
Kenneth Billingsley - Signal Hill Capital Group LLC
Operator
Good morning and welcome ladies and gentlemen to the RLI Corp third quarter earnings teleconference call. At this time we would like to inform you that this conference is being recorded and that all participants are in 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 you, 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 10K which should be reviewed carefully.
The company has filed a form 8K 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 operating earnings and earnings per share from operations consist of net earnings after the elimination of after tax realized investments, gains or losses. RLI’s management believes that this measure is useful in gauging core operating performance across reporting periods. They may not be comparable to other companies’ definitions of operating earnings. The form 8K contains reconciliations between operating earnings and net earnings.
The form 8K and press release are available at the company’s website at www. Rlicorp.com. Again, at the request of the company we will open the conference up for questions and answers following the presentation. I will now turn the conference over to RLI’s treasurer Mr. John Robison. Please go ahead sir.
John Robison
Thank you, good morning to everyone. Welcome to the RLI earnings teleconference for the third quarter of 2007. Joining me for today’s call are John Michael, President and CEO of RLI Corp., Joe Dondanville, Senior Vice President and Chief Financial Officer and Mike Stone, President and Chief Operating Officer of RLI Insurance Company.
We will conduct this call as we have in past quarters. I will give a brief review of the financial highlights and then Mike Stone will talk about the quarter’s operations. We’ll then open the call up for questions and John Michael will finish up with some closing comments.
I’m pleased to report record third quarter operating earnings of $59.1 million or $2.46 per share. The combined ratio for the third quarter was 50.6. Included in the results this quarter was favorable loss development on prior year’s reserves of $48.5 million or $1.31 per share. The company periodically reviews its loss reserves estimates and underlying actuarial reserving methodologies in order to assess their accuracy and suitability and to benchmark its reserving practices against industry best practices.
As disclosed in last quarters 10Q and our 2006 10K annual report the company has performed in the current quarter a more detailed round up analysis of the actuarial estimation risks associated with each of its products and segments including consultation with external consultants and assessment of industry information.
Our analysis revealed that the company’s quarterly actuarial reserve estimates over recent historical periods have shown a downward trend as a result of moderating loss trend environment, improvements in policy terms and conditions and a favorable underlying exposure mix that occurred during the hard market period from 2001 through 2004. The impact was most evident in our casualty and surety segments. Based on these factors and analysis including the current consideration of such underlying trends in the actuarial estimates, the result is $48.5 million pretax favorable development on prior year’s loss reserves net of bonus and profit share in related expenses.
Whilst reserve estimates are subject to a high degree of variability, due to the inherent uncertainty of ultimate settlement values, periodic adjustments to these settlements may occur as the actual emergence of losses reveals itself over time. The company believes its enhanced loss reserving processes reflect industry best practices and its methodologies continue to result in an appropriate best estimate of necessary reserve levels.
Turning to investments. Investment income grew 11.6% to $20.4 million this quarter. There were no significant changes to asset allocation from the previous quarter. Our fixed income portfolio has a duration of approximately 4.5 years and maintains a AAA overall quality rating. Our equity investment in Maui Jim contributed $2 millio9n of pretax income for the quarter. I’m pleased to report an update on the CMC litigation this quarter. We reached a (inaudible) with another bank. This settlement was within our expectations and the remaining exposure on litigation is approximately 17% of the original bond penalty.
Turning to our share repurchase program. During the quarter we repurchased 547,100 shares of RLI stock at an average cost of $58.52 or $32 million.
For the operations highlight, I will now turn the call over to Mike Stone. Mike.
Mike Stone
Thanks John. Good morning everyone, another excellent quarter. Our discipline underwriters produced superior results in a difficult environment. We’re an underwriting company, we expect to thrive not just survive in this market as well as our own markets.
The market is soft, casualty rates down 12-15%, property rates off 15-20%. However we are coming off a very robust pricing in prior years, still nice margins though they are now under some pressure. Our model rewards profits, our underwriters will continue to select risks on the basis of profitability opportunity and not on volume because we don’t have any volume targets here. While gross premium is down you would expect, especially a company with significant ENS presence, to be off in this kind of marketplace.
I’ll talk a little bit about the segments. In the casualty, I'll talk about a few products here. Our general liability product, our primary liability exposures which have been our growth engine in the recent past, gross written premiums are off 8% for the year and 9% for the quarter with rates off 11% in the year and 13% for the quarter. Still producing solidly profitable results. We would expect this area to stabilize in the coming quarters but it has been under pressure for the last couple of quarters.
Our executive products group, D&O and E&O gross written premiums off 16% year-to-date, 25% for the quarter and rates under pressure at 14% down for the year and 15% down for the quarter. Much more competition here. And you’ll see that we will give up share where rates don’t allow adequate returns.
Our personal umbrella product, the bright lights in this marketplace are standalone personal umbrella. Post written premiums are up 5% and we also had a rate increase of about 4%. It continues to grow this product as we foster our relationship with the big IBA, the big trade association for agents and provide umbrella for other companies who don’t have this expertise. We will expect to see this product continue to grow in coming quarters.
Transportation, our truck and bus operation, post written premiums are off 16% for the year and 25% for the quarter. Rates down 5% on the quarter, 3% year-to-date. Again we are sacrificing share here as this market softens significantly. We also expect this marketplace to be the first to firm, the earliest to firm as it’s a fairly short tail for a casualty line.
Overall casualty, markets are tough. We’ll remain disciplined as we continue to select on the basis of profit and we’ll look for new opportunities as they come forward.
On the property segment, gross written premiums off 14% for the quarter 11% for the year. Talk about the CAT business first. Price levels off 30% from 1/1 where roughly reached their peak. Wind peaked a little bit earlier in probably September of last year and year-over-year when renewals were off about 25% on a rate basis. Earthquake peaked around January 1st and year-over-year rate levels are basically flat because we are not yet to the peak. The pricing has stabilized over the last couple of months and probably because we’re in the hurricane season, given however it has been a benign hurricane season I don’t expect rates to recover to prior levels any time to soon.
Our EMS fire business rates off about 15%, gross written premium off 30%. Remember that we underwrote our habitational business that was providing a number of losses in prior quarters and that’s driven our gross written premium down but it’s also driven our loss activity down.
We lost RLI RE, a facultative property operation in the third quarter. We’re up and running and expect production to accelerate in the fourth quarter.
Our marine business continuing to build this out. Gross written premium up 40% in the quarter. We’ve written about $30 million plus year-to-date. They’re executing on their business plan. We’re expecting this to be a profitable $75-100 million worth of gross written premium business in the next few years.
Surety. Goods Stores gross written premiums up 6% for the year. Our energy, miscellaneous and commercial products continue to grow nicely. Our contract business lags but we’ve added underwriters during 07 and expect to begin growing this in the coming quarters. Surety combined ratio 33 in the quarter, 60 year-to-date. I would say very significant improvement from just a couple of years ago.
Overall, a tough marketplace. All products where disciplined underwriters will find new opportunities, new products and find ways to continue to outperform in our current businesses. That’s basically our commentary on the market. Back to you John.
John Robison
Thank you Mike. We will now open the call up to 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 Bijan Moazami.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
Good morning everyone. A number of questions. When you say 12-15% rate decline on casualty is that new or renewal business?
Mike Stone
That’s on renewal business but we don’t see much better rate activity on new business.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
Are you concerned that (inaudible) wants to expand their market share in the US because obviously as the reinsurance capacity will become more available do you believe that there is going to be more rating pressure going forward?
Mike Stone
Its Mike Stone again. Obviously they were a competitor to begin with now they are tied with a partner of ours and I think that’s just another signal that the market’s anything but firm right now. You know they paid a fairly rich price for this asset so we’ll see.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
Mike finally, are you seeing any kind of totally irrational behaviour? Is there any of your products lines that’s just not having the appropriate rates of return at this point?
Mike Stone
Bijan I think that some of the property businesses is getting pretty difficult and we still think we’re making a profit in all of our products but certainly the property segment seems to be dropping quickly.
Transportation is also fairly difficult. Again I think that these are two that will firm back up quickly as people recognize that where their pricing their product.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
Is there anything in particular that happened in the quarter that led to the prices dropping so much more now as compared to the quarter (inaudible)?
Mike Stone
Bijan it’s been a decline, a decay over the last number of quarters. It seemed to be accelerated a bit last quarter and it didn’t improve this quarter.
Bijan Moazami - Friedman, Billings, Ramsey & Co.
Thank you so much Mike.
Operator
And taking the next question from Charlie Gates with Credit Suisse.
Charles B. Gates - Credit Suisse
Hi, good morning. What do you think contributed Mike to the acceleration that you witnessed in this competition in the last two quarters?
Mike Stone
Well Charlie again I mean there’s an awful lot of capacity out there, an awful lot of capital and there hasn’t been a major event in a while. People have come off fairly profitable years in the casualty lines so maybe that’s some of the tort environment improving but overall I believe it’s a capital issue. There’s an awful lot of capital chasing return.
Charles B. Gates - Credit Suisse
My second question, maybe I misheard you but I thought you said that during the period transportation pricing was down only 5%. Did I get that right? And to what extent does that show a diminution in competition?
Mike Stone
Charlie, you did get that right. That’s our renewal rate decrease. Also, our gross written premium was off 20% plus. So we’re pricing off market share and the market is off significantly more than 5%. Every large renewal that we have, something gin excess of $100,000 is under very significant pressure in the transportation arena.
Charles B. Gates - Credit Suisse
I believe (inaudible) ratings only rose on a net basis 0.1%. To what extent does that reflect increased competition and to what extent do you have an issue there with a slowing realistic construction market?
Mike Stone
We were off, we were up just about a percent in the quarter, but really a lot of that was our contract business was off more than that so certainly as there is a slowing construction market place you will see a diminution on writings on the contract segment. Our other segments were up fairly nice year-to-date, so we would expect to see our small transactional license and permit bond business and also our account-driven business to grow and our energy business has grown nicely year-to-date. So, it’s a really a function of in the contract segment. We’re going to be careful. We’ve been through that before and we’re going to be slow to move quickly on the contract side.
Charles B. Gates - Credit Suisse
To what extent do you witness a change in the players writing excess and surplus client coverage? And what I mean by that is to what extent do you see the standard market companies coming to this market? To what extent do you see the new Bermudians?
Jonathan Michael
This is John, Charlie. The standardized company, that’s probably the biggest reason anecdotally (ph. Circle science) business is eroding is that the standard lines companies are moving down into that territory and making more of that business lot business and standard alliance business.
The new Bermuda capital certainly is getting their share of business. There’s no question about that. That’s happening as well. The other thing that is happening that Mike did not talk about is that carriers look at their, and I’m not talking about RLI, but I’m talking about in general, markets look at their forecasts and underwriters are looking to make bonus and that sort of thing and so what typically happens ion the fourth quarter of the year is they get more aggressive in pricing the business in order to try to achieve their premium forecasts.
We don’t do that, but others do. And we’re seeing some of that too.
Charles B. Gates - Credit Suisse
My final question at this time; if you guys were to go back in history, what period in time would this current market environment be similar to?
Jonathan Michael
I think I’ll let Mike answer that; he’s a little older than I am.
Mike Stone
I’m old but I’m wise. I think that we’re, we’ve reached probably the nadir of the marketplace in about ’99-’00. So we’re not there. I’d say we’re probably around 2002 as we started to move up, we started to move down, but we’re still in a fairly good market.
Charles B. Gates - Credit Suisse
Thank you.
Operator
And moving on to our next question from Doug Mewhirter from Ferris, Baker, Watts.
Doug Mewhirter - Ferris, Baker, Watts
Hi, good morning. A question about your reserve adjustment; did you make any of the adjustments to anything written in the current accident year as well as prior accident years? And also if you could provide any detail at all about what the main accident years the adjustments came out of.
Joe Dondanville
Doug, this is Joe Dondanville. Primarily the reserve releases came out of the 2004, 2005 and 2006 years. We did have some increase in losses in 2007, which is more up trending of price-driven and we have some reserve strengthening in the years of 2001 and prior. So, net there was some movement through all of it, but the true releases were ’04, ’05 and ’06.
Doug Mewhirter - Ferris, Baker, Watts
Ok, just to make sure I heard you correctly. You said that there is actually some reserve increases for 2007 written business?
Joe Dondanville
Well, in looking at where the loss pick for 2007, they were increased slightly. So by picking that up in the third quarter for the first two quarters effect had an impact on moving a little bit up, but that certainly was not even significant compared to the
activities compared to ’04, ’05 and ’06.
Doug Mewhirter - Ferris, Baker, Watts
Ok. Thanks for that. And I had a question about your premium retention. I know that it has gone up. How much of that is just the changing business mix, where you would write more in lines that you would naturally assume is risk and how much of it is general interest company-wide to retain more premiums, because of your capital positions or what have you?
Joe Dondanville
Doug, I would say it’s about half of each. Certainly lines like general liability where we are holding our ground a little bit is a high-retained line, surety is a highly retained line where we saw growth and then some of the big decline areas on our EPG is a high area for reinsurance for us.
Doug Mewhirter - Ferris, Baker, Watts
Ok, thanks a lot. That’s all my questions.
Operator
And the next question comes from Meyer Shields from Stifel Nicolaus.
Meyer Shields - Stifel Nicolaus & Company
Thanks. Good morning everybody. To start off with the surety reserve release, is there any way to find how much of that was changed methodology and how much of that was the CMC settlement?
Unidentified Company representative
Actually, you’re description is probably incorrect on both. The CMC, we’re settled out at about the reserves that we had. So there was no significant impact on CMC in the quarter and it’s really kind of incorporating the trends. There was no change in methodology in what we’re doing; it’s relying, putting more reliance on the trends that we’ve seen.
Meyer Shields - Stifel Nicolaus & Company
Ok, and does the same accident year split that you talked about for (inaudible)?
Unidentified Company representative
Yes, I believe there is still that concentration in the four, five and six years for surety.
Meyer Shields - Stifel Nicolaus & Company
Ok, if I can turn to transportation, I guess, what are the implications of the fact that Munich is apparently not interested in Midlands transportation book? Is that a factor at all in your strategy?
Mike Stone
It’s Mike Stone. I don’t think so. Munich has been a fairly significant competitor in transportation business for the last year or so. So they’ve been in it. We’ve competed with them. We like the transportation business, so we’ll stay. It will just be, if it’s not Munich it’s someone else, so we’ll find our spots.
Meyer Shields - Stifel Nicolaus & Company
That’s helpful. I guess, with the recent changes in the housing market and all the sub-prime issues, have you seen any infliction points at all, I’m asking I guess both with regard to surety and with regard to property loss comp?
Mike Stone
It’s Mike Stone. Not really. We haven’t seen any impact there.
Meyer Shields - Stifel Nicolaus & Company
Ok, and I guess the last question; Maui Jim earnings were down on a year-to-year basis. Is there anything going on there that we should know about?
Mike Stone
Yeah, the big impact on the cause of the change is in the 2006 number Maui Jim had a sale of a discontinued operation, which there was a $1 million gain recognized and that is not repeated in the third quarter, so there is a special item in 2006.
Meyer Shields - Stifel Nicolaus & Company
Would you use this quarter as a decent basis for projection?
Mike Stone
Yes.
Meyer Shields - Stifel Nicolaus & Company
Ok, thanks so much.
Mike Stone
And I say yes on a somewhat seasonable basis.
Meyer Shields - Stifel Nicolaus & Company
Right, I understand.
Operator
Moving on to Mr. Mike Grasher with Piper Jaffray.
Mike Grasher - Piper Jaffray
Good morning gentlemen. Just Mike and John; a question around capital position. You laid out a scenario where there is excess capital in the market place net. What about your own position and how would you go about raising that capital position with a risk to capital? What would be your target ratio? Could we expect some acquisition? More share repurchase, dividend? If we look back, acquisition probably isn’t the way you’ve tended to go, it’s been more building of book and going from there. But has you attitude changed to that? Maybe you could give us some commentary around that.
Jonathan Michael
We continue to, you know as you’ve stated, Mike, we continue to grow our capital relative to the amount of business that we’re writing. At the same time we are looking for opportunities, both potential acquisition opportunities, hiring people, lift-outs of teams of people, the RLI RE is an example of that. And we’ll continue to look for ways to utilize our capital. In the meantime, I’m we will continue with our buyback and once that buyback is completed we’ll have to reassess where we are and then go from there. But in terms of target, we’re obviously below our target and we are over-capitalized. We’d like to get it to someplace around one to one. But we’re going to continue to look at all of those things in the future and it’s a good problem to have that we continue to make a lot of earning and are far outstripping our ability to grow. So, we’ll continue to look at that.
Mike Grasher - Piper Jaffray
Ok, and just a follow-up, you made a statement about lifting out the teams or bring teams on, that would seem to me to imply new or differentiated product. What areas might you be looking at? I don’t necessarily think you have any holes that you’re looking to fill but certainly opportunities that look intriguing out in the market place to you now?
Jonathan Michael
I don’t want to say which areas of business, but I will say they will be specialty, niche areas. That’s what we’re good at. We’re not going to be all things to all people. And those are the things we’re looking for. We look at ourselves where we’re good at and where we have hole and we go from there. But we won’t be in the standard lines markets any time soon, that’s for sure.
Mike Grasher - Piper Jaffray
Thank you and congratulations on the quarter.
Operator
And moving on to Ron Bobbin with Capital Returns.
Ron Bobbin - Capital Returns
Hi. Congrats on another great quarter. Underwriting is really impressive and also great discipline on limiting the top line where it’s not meant to be. I had a question; I think it’s a follow-up to Charlie’s question. In the transportation area, you mentioned rates were down 5% on your renewal this quarter but your volumes were up 25%. I was wondering whether a particular large account or something that, I recognize no one wants a 5% decline, but the 25 was obviously a pretty significant drop in writings for the quarter. Was it just an ordinary situation of competition pulling business or was there something concentrated there? Thanks.
Mike Stone
We’re off 16% for the year. Again, we lost a number of renewals in the quarter and any renewal that comes up with sizeable premium in six figures is under quite a bit of pressure. We’re very disciplined in that business. The margins in that business are top so we will let that business go and expect it will be back in a couple years.
Ron Bobbin - Capital Returns
Ok, I guess another question. Thanks for that. I was just curious; does Munich provide you any reinsurance? Are they under any of your programs?
Mike Stone
They’re our largest re-insurer.
Ron Bobbin - Capital Returns
Oh, and do you have any sort of differing view about they increasing insurance initiatives in growing, I would think that you would, given an availability of reinsurance, you would surely consider (inaudible) provider, or am I wrong?
Michael Stone
That's hard to say. I think maybe, really, the first reaction might be that, but the reality is all the reinsurers are competing with us, so you can go, you look at those Bermuda reinsurers and they're all competing with us, and we seek out their capacity for some of our covers as well. If we took that attitude we wouldn't place reinsurance.
Ron Bobbin - Capital Returns
So.
Michael Stone
Probably no change, we'll have a talk with Munich about it, but probably no change.
Ron Bobbin - Capital Returns
Thanks a lot, and continued good luck and success.
Unidentified Company Representative
Thank you.
Operator
Moving on to our next question from Tom Cholnoky with Goldman Sachs.
Thomas Cholnoky - Goldman Sachs
Good morning. I guess I have a question that may or may not be related to RLI, but in your commentary I was focusing on your obviously commentary on rates and decline in rates, and I guess one of the things that I struggle with in looking at either you or other companies in the industry is that in an environment where rates are going down double digit, why aren't we seeing accident year loss ratios reflect what are double digit declines? I mean, put simplistically, if lost cost trends are essentially flat, and you've got 10 or 15% less rate, it would imply that your loss ratio picks probably should go up by 10%, and I'm not picking on RLI by any means, but I'm just thinking in general, what is wrong with my view of where a margin should be in a declining rate environment?
Joe Dondanville
This is Joe Dondanville. I think part of the phenomenon that you're seeing today is that as loss costs are relatively stable, our emergence of losses, of what we expect the losses to be, have been more favorable than what we've expected, so that has offset some of that price decline that you're seeing, and so when we're looking at our overall reserves and booking ratios, that has had a more favorable impact historically then the price declines, and I think for us as I mentioned we are seeing a little bit higher loss picks going forward in 2007 and I would assume other companies are going to run in to that same phenomenon.
Michael Stone
Yea Tom, our estimated loss ratios for the current accent year begin with when we're looking at that formula, they begin with what's the price change, what price change are we seeing across the book, and that's the starting point, but then you have to bring in, as Joe said, the emergence from prior year's development to the extent that that's been positive it more or less has offset some of that.
Thomas Cholnoky - Goldman Sachs
So, when you get to a point where you don't have any more favorable development, let's say, you’ve come to a point where your reserves are at adequate levels, at that point one would expect either yourselves or other companies in the industry, if they're true to what's going on with pricing, to see much more significant increases and loss ratio picks. Is that fair?
Michael Stone
That's fair.
Thomas Cholnoky - Goldman Sachs
Ok, alright, that's great. Thank you.
Operator
Moving on to Kenneth Billingsley, with Signal Hill.
Kenneth Billingsley - Signal Hill Capital Group LLC
Good morning. This is kind of taking Tom's question in a little bit different direction. He commented that rates are down pretty significantly, but it looks like the core loss ratio is still improving. From a reserve standpoint, what changes were made? For example, are you booking more to your own experience then industry experience, as compared to prior quarters?
Joe Dondanville
Again, this is Joe. Yes, that's part of the factor, but we did have an increase in the current accent year during the quarter, so, but that still might be masked by the large decreases for prior years.
Kenneth Billingsley - Signal Hill Capital Group LLC
And what I'm looking is the core adjusting out the reserve adjustment of the whole compared to prior year’s loss ratios backing out reserve releases. It still looks like quarter over quarter you're still having improvements.
Joe Dondanville
I think it's mixed again. Are you looking at, it depends on which segment you're looking at. Are you looking at overall?
Kenneth Billingsley - Signal Hill Capital Group LLC
Blended right now.
Joe Dondanville
I think if you look at the property results for example you'll see significant improvement in the property results, quarter over quarter.
Kenneth Billingsley - Signal Hill Capital Group LLC
And what drove the change to focus more on your own experience over industry experience, and can you give me an idea of how much of the waiting changed?
Joe Dondanville
We can’t really give you what the waiting change is, but if you look at our trend of favorable development over the last several quarters, at this point we’ve incorporated more of that into our reserve analysis, as more of a continuing trend as opposed to an anomaly.
Kenneth Billingsley - Signal Hill Capital Group LLC
Great. Great quarter. Thank you.
Operator
We'll take a follow-up question from Charlie Gates.
Charles B. Gates - Credit Suisse
Hi. My first question. I think one of you said that 17% of the commercial money center bond exposure remained. The initial commercial center bond exposure remained. Could you tell us what that number is, or what the initial number was?
Michael Stone
Yea Charlie, it's Mike Stone. We had roughly $15 million worth of bond penalty, and it depends on how you look at this, and I think there's about $7 million left. I don't know if that answers 17% or not, but thereabouts. When you look at that out of pockets, that's roughly a little bit less than half of that, so there's about 7 million left, roughly, out of pockets, I mean, excuse me, bond penalty. We would expect it to be immaterial, going forward. We will, we expect to resolve this in the coming quarters, hopefully by year-end, but I'm not sending any signals to anybody, but it's really going to be a non-event.
Charles B. Gates - Credit Suisse
Do you mean the future exposure is specific to that is probably a non-event?
Michael Stone
The future exposures related to that is a non-event.
Charles B. Gates - Credit Suisse
Ok, there was my first question. My second question. If you were an analyst, following multi-line insurance companies, and you were trying to ascertain to what extent those companies were growing their exposure in excess and surplus lines, today, how would you do that?
Michael Stone
Right Charlie, I'm glad I'm not an analyst. I think I'd talk to the managements of those companies, and that's how I would do it.
Charles B. Gates - Credit Suisse
I think some of those managements would say oh, we don't even know how to spell excess and surplus lines. Thank you.
Joe Dondanville
Charlie, for our company we write a lot of it on a non-admitted basis in our Maui Jim company, but when you see the standard lines going down there's no differentiation with an admitted business in the types of surplus lines they would still record with the other more typical standard lines that they write, so it is something that you'd have to ask and drill down through management questions.
Charles B. Gates - Credit Suisse
Is the specific area, if you re to step back, and you’re to say, what area of our business is the worst. Is that basically commercial auto liability? Because you were saying transportation, and I translated that into commercial auto liability.
Unidentified Company Representative
Charlie, that's a little different. Our transportation business consists of trucks and basically that's fleet business, for hire, by and large, and busses, that is public transportation. We have a small segment of what we commonly refer to as commercial auto which is basically private, small, five, to 25 units of a particular business, but by and large our business is large fleets, trucks, over the road, and buses.
Charles B. Gates - Credit Suisse
But on statutory basis, if an analyst was to look and say, a multi-line insurance company writing these risks, that would show up in commercial auto liability and commercial auto physical damage?
Unidentified Company Representative
Yes, that's correct, Yes Charlie.
Charles B. Gates - Credit Suisse
Thank you Guys. A nice conference call. Thank you.
Operator
The next question comes from Meyer Shields, with Stifel Nicolaus
Meyer Shields - Stifel Nicolaus
Thanks, just a few nit-picky questions, if I can. Is there any reason that short-term debt went up in the quarter?
Joe Dondanville
We like the carry trait that we have with the short-term debt that we have right now, and it's attractive to us.
Meyer Shields - Stifel Nicolaus
Ok. Was there anything unusual in the tax rate? It came in a little lower than I would have thought.
Joseph Dondanville
Yea, we had some benefits that came through in the quarter related to some items that were outstanding with the settlement of our tax audit from last year.
Meyer Shields - Stifel Nicolaus
Ok, and I don't know if this is the right way of doing it, but when we look at the general expenses and the ratio of total revenues, that went up a little bit from 1.3 % to 2.1. Is there anything unusual in terms of that?
Michael Stone
There are two things, Part of it is because of the terrific quarter, bonus compensation went up, and part of that goes through that line item, part of it, and then second we had a one time charitable contribution increase of $1million for the quarter.
Meyer Shields - Stifel Nicolaus
Ok, that's it for me. Thanks so much.
Operator
We'll take our next question from Mike Grasher, Piper Jaffray
Mike Grasher - Piper Jaffray
Thanks for taking my follow-up. Just a question for Mike. You were commenting earlier on the market, and what it resembled in terms of history. Just wondering if the capital that's out there today is it more responsible today then previous stock markets, if so, then could this soft part of the cycle be more elongated cycle, and one that maybe isn't as severe as previous cycles. Or, alternatively, is it simply too early to really tell.
Michael Stone
Mike, we've been telling ourselves that, the industry has, that we're better, we have better data, better governance, and we also got a heck of a lot more capital, so I don't think the cycle's dead. What will the (trough) be less severe, shorter, I think it's too early to tell.
Mike Grasher - Piper Jaffray
Ok, thanks for your comment.
Operator
If there are no further questions, I will now turn the conference back to Mr. Jonathan Michael.
Jonathan Michael
Thank you all for all of your questions, it's always good to talk to you after the quarter. The quarter was obviously impacted in a positive way by the reserve release, but even without that reserve release the quarter was an excellent underwriting result. I'll let you do the math, but if you look period over period, and compare the quarter versus what all the analyst estimates were, you'll see that the result was very, very good indeed, and all segments, across all segments, they performed well. Mike said we are an underwriting company first and foremost. His presentation mostly dealt with that. We are different. We seek to produce an underwriting profit first, and we deliver. In this soft market we'll continue to grow when and where it makes sense to grow, where we're seeing pressure and ridiculous rate reductions, we'll pull back. We are mining for opportunities. We talked about that. RLI RE, was one of those, that operation is up and running and it has now produced some business, and we hope to continue to build our platform for the future.
Through all of this we're going to continue to be disciplined underwriters, that's one thing that you can rest assured, with RLI we’ll have discipline in RLI. Thanks for listening and we'll talk to you again next quarter.
Operator
(Operator Instructions)
This concludes our conference for today. Thank you for participating and have a nice day. All parties my now disconnect.
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