1. September 7, 2007 Emerson Cammack Lecture Series

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. 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. 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. 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. 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) 53¢ Claims 32¢ Underwriting Expense / Commissions 10¢ Claims Expense 5¢ Profit

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

13. 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

14. RLI Historical Combined Ratio 90.489.190.188.495.8 92.493.1 RLI

15. Products

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

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

18. RLI Q1 2007 Product Summary Vision UW Method Underwriter 85.1% eCommerce 14.9% Geographical Spread Major Product GroupsSegmentation California 18.6% New York 16.4% Florida 14.7% Texas 7.7% Strategy Key Producers % of GWP by Company Mt. Hawley Ins. Co. 54.8% RLI Ins. Co. 43.3% RLI Indemnity Co. 1.9% 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. 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 expanding geographic coverage and UW capacity Leverage information technology to increase productivity and reduce expense ratio Grow underwriting profits while improving risk 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

19. Insurance product distribution

20. 20 Direct Distribution

21. 21 Independent (Retail) Agent

22. 22 Wholesale Agent

23. Roles and careers

24. 24 The transaction... Primary roles –Agent –Underwriter –Underwriting Assistant –Claims Representative –Risk Control Representative –Actuary

25. 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. 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