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Lack of scale, profitability leads insurer to park RV program

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Lack of scale, profitability leads insurer to park RV program

Four years after it opportunistically launched a recreational vehicle insurance program, RLI Corp. confirmed Jan. 26 that it is exiting the market.

"We began nonrenewing our RV business, which has struggled to find any level of profitability over the last four years," RLI President and COO Craig Kliethermes said during a conference call. He later added that RLI also was challenged in bringing the business to scale.

Kliethermes' comments were consistent with the explanation provided by RLI Insurance Co. in its notice of withdrawal to Georgia regulators.

RLI indicated in the filing that it would immediately discontinue writing RV business, and its withdrawal would be complete in one year as the company intended to submit nonrenewal notices to its policyholders.

RLI offered the program through Recreation Insurance Specialists LLC, a firm that also maintains agency appointments with a roster of carriers that includes units of Progressive Corp., National General Holdings Corp., American Family Mutual Insurance Co. SI, American Modern Insurance Group Inc., and Farmers Insurance Group of Cos.

Kliethermes said the same environmental factors that have been pressuring industrywide auto insurance profitability may have negatively impacted RLI's RV business.

"We threw the kitchen sink at trying to fix it over the last three or four years," he explained. Kliethermes downplayed the notion that an elevated level of catastrophe losses in 2016 from disasters such as the Louisiana floods contributed to the decision to exit.

RLI includes the results of the RV business in its property segment. The company reported in its Sept. 30, 2016, Form 10-Q that property premiums declined 4% during the first nine months of the year, excluding the impact of exits from the crop and facultative reinsurance businesses. Premiums from the RV business fell $2.6 million, or 23%, to an unspecified amount during that period as the company engaged in reunderwriting efforts. They had fallen 16% in 2015 to $13.4 million, according to RLI's most recent Form 10-K.

A Kansas rate filing submitted in April 2016 contained more specifics regarding the size and scope of the RLI RV business on a national basis. For the accident year ended Sept. 30, 2015, RLI reported that the program generated earned liability and physical damage premiums of $1.6 million and $12.6 million, respectively. Coverage of conventional motorhomes, travel trailers and so-called fifth-wheel RVs accounted for most of the company's business volume in the product line.

The RV business, in turn, appears to constitute the vast majority of the direct premiums written reported by RLI's U.S. P&C units in the private auto lines of their statutory statements. S&P Global Market Intelligence calculates that the RLI P&C group's private auto combined ratio increased to 144.1% in 2015 from 134.3% in 2014, with the net loss ratio rising to 95.3% from 86.5%.

RLI had high hopes for the business when it announced the formal launch of the product in December 2012.

"The RV insurance market has great potential for growth," said then-RLI President and COO Michael Stone. He added that the company looked forward to establishing "a strong presence in this new market."

RLI told Georgia regulators in a September 2012 filing that the program had previously been offered by Companion Property and Casualty Insurance Co., then a unit of BC&BS of South Carolina. Due to management changes, RLI said of Companion, "they no longer want to offer this program." RLI said it would offer replacement policies for existing Companion policies as they expired, but it would not assume the in-force book of business. (Enstar Group Ltd. acquired Companion in January 2015, and the company is now known as Sussex Insurance Co.)

RLI also exited another part of its property business during the fourth quarter of 2016 as it confirmed an earlier published report that it sold renewal rights to its assumed specialty catastrophe business to an unnamed third party, which was reported to have been Navigators Group Inc.

Kliethermes said both actions, while "difficult," offered evidence of RLI's willingness to "cull the underperforming products" in the name of underwriting profitability.