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RLI Corp (NYSE:RLI)
Q1 2020 Earnings Call
Apr 22, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome, ladies and gentlemen to the RLI Corp First Quarter Earnings Teleconference. [Operator Instructions]

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 factors and uncertainties which could cause actual results to differ materially, including the ongoing impact of the novel coronavirus, COVID-19 global pandemic. Please refer to the risk factors described in the Company's various SEC filings, including our Annual Report on Form 10-K and the Form 8-K filed by the Company yesterday with a supplemental risk factor related to the COVID-19 pandemic, all of which should be reviewed carefully. The Form 8-K filed yesterday also contains the press release announcing the first 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 gains or losses and after-tax unrealized gains or losses on equity securities. RLI's management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to another companies' definitions of operating earnings. The Form 8-K contains a 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 Chairman and CEO, Mr. Jonathan Michael. Please go ahead, sir.

Jonathan E. Michael -- Chairman and Chief Executive Officer

Thank you and good morning everyone. We hope that you and your families and colleagues are all safe and well. Before we discuss the quarter today, I'd like to take a brief moment to acknowledge the current environment. We recognize these are challenging times for everyone as the global pandemic has had a profound impact on the economy and many peoples' lives. Our hearts go out to all of those who lost loved ones and those that continue to suffer due to the illness.

As an employee-owned company the well-being of our entire RLI family, our customers, business partners and associates is our highest priority. We responded to the crisis by quickly taking action to protect our associates while continuing to deliver the highest service and support possible for our customers.

Nearly all of our employees are working from home and we are in a good position to maintain our remote business operations for as long as necessary. Our entire team is doing an outstanding job despite the imperfect circumstances.

Throughout this transition we benefited from robust business continuity plans we had in place and the investments we've made over time in our technology infrastructure. This has enabled a relatively smooth shift to remote work model, allowing us to protect our team members while maintaining business operations and strong customer support.

Amid rapidly changing dynamics, we're continuing to evaluate all aspects of our operations on a daily basis and making necessary adjustments to carefully manage our business through the current climate. I'll end by taking a moment to thank all of our associates who are going above and beyond every day to help our customers address the many challenges that they're facing. I'm very proud of our team and what they've achieved in the first quarter.

I'll now turn it over to Aaron Diefenthaler.

Aaron P. Diefenthaler -- Vice President, Chief Investment Officer and Treasurer

Thanks for your thoughts, Jon. While much has changed in the last six weeks, the structure of our first quarter earnings call for 2020 will be largely the same as in prior quarters. Apart from Jon, we are joined by Craig Kliethermes, President and Chief Operating Officer and Todd Bryant, Chief Financial Officer. Todd will first give some comments on the quarter's financial results, next, Craig will give some segment color and discuss market conditions, we will then open the call to questions and Jon will close with some final thoughts. Todd?

Todd W. Bryant -- Vice President, Chief Financial Officer

Thanks, Aaron. Good morning everyone. Last night we reported first quarter operating earnings of $0.66 per share. We experienced 6% of top line growth while posting a 92 combined ratio. Investment income advanced 7% in the quarter while unrealized losses on the portfolio negatively impacted net earnings and book value. Book value per share ended the quarter at $20.38, down 7% for the year, inclusive of dividends.

Craig will talk more about our products and market conditions in a minute, but from a top line standpoint as mentioned, gross premiums written was up 6% in the quarter. A majority of products in our diversified portfolio experienced growth. There was, however, some overhang, approximately $3 million, from last year's announced product exits and premium writings on our transportation book were down significantly which Craig will discuss further. Both of these negative effects are within our casualty segment, which still ended the quarter up 5% while property was up 16% and surety was up slightly.

From an underwriting perspective we posted a first quarter combined ratio of 92. Our loss ratio at 51.5% continued to benefit from favorable reserve development. From a reserve perspective, net of expenses, prior year's benefits were $13 million for the quarter. While down from last year's $17 million benefit, all three segments developed favorably with casualty adding $7 million and property and surety each at $3 million. For more recent years and with the uncertainty of the current environment, we continue to remain cautious in our approach to reserving.

Moving to expenses, our expense ratio declined 2.5 points to 40.5%. As discussed on prior calls, amounts earned under our bonus and incentive plans are driven by various performance metrics. These metrics, which include book value growth were down during the quarter and resulted in lower amounts achieved. The decline in amounts accrued under bonus and incentive programs account for the majority of decrease in our expense ratio as well as the bulk of the decrease in general corporate expenses.

Turning to investments, obviously capital market's volatility in the second half of the quarter was the most significant influence on the decline in book value from year-end. While price declines in the bond portfolio were roughly offset by income for a flat total return on the quarter, public equities and other invested assets were down just over 20% from 12/31.

We have always taken a long-term view on investing and believe consistent investment income is an important component of operating earnings. Should treasury yields remain low and credit spreads normalize from current wide levels, reinvestment rates will likely be at lower levels. As with many aspects of the world we live in, there is a fair amount of uncertainty for capital markets as we look forward. Outside of the core portfolio, our share of earnings in Maui Jim and Prime continued to post positive results, but were off modestly in the quarter. Maui Jim results were down reflective of current retail and economic environment. The results for Prime were modestly higher due to growth in both revenue and net operating profits. Certainly the length of any downturn will impact the results of these investees, particularly any lasting impact on the retail sector as it relates to Maui Jim.

Lastly, I will note that we replaced our revolving credit facility at the end of the quarter, as our existing agreement was set to expire in May. We upsized our borrowing ability modestly to $60 million and under certain conditions the facility can be increased to $120 million. In addition to this arrangement, we have borrowing capability via our membership in Federal Home Loan Bank System. There were no amounts outstanding on any of these facilities at the end of the quarter. We have also performed a number of stress tests on our cash flows and believe we have adequate liquidity to meet anticipated needs.

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

Craig W. Kliethermes -- President and Chief Operating Officer

Thank you, Jon and Todd. Good morning, everyone. All things considered, we are pretty happy with the quarter. We enjoyed 6% top line growth and a 92 combined ratio ending the quarter in an environment filled with many more uncertainties than the one we entered. The RLI ship enjoyed a steady breeze and full sails for the first 2.5 months of the year. Premium was continuing to grow at a double-digit pace in products we know and where we have enjoyed the most underwriting success. By the middle of March, the market was becalmed as a result of COVID-19. We believe this new environment will differentiate those that have been disciplined risk takers and prudent risk managers. I'm going to provide some commentary for each of our major segments, some words on the impact of the economic shutdown resulting from COVID-19 and then, I'll offer some closing remarks and open it back up for questions.

The casualty segment grew the top line 5% and reported 101 combined ratio for the quarter. We realized growth across all of our major product lines except transportation. Because a large number of our passenger transportation customers are unable to effectively operate under the shelter-in-place orders, we allowed our customers to suspend coverage for all vehicles they were not using and return premium to them. This resulted in a $23 million negative adjustment to written premium in the quarter. Despite this significant headwind, we were still able to grow casualty and overall submission flow continued to be up across most of the segment. Rate levels continued to accelerate, up 11% driven by our management liability, excess liability and wheels-based products. Given the uncertainty involved in the last couple of weeks in the quarter we thoughtfully examined our current accident year loss ratios and reserve position for the segment and adjusted accordingly.

The property segment grew the top line 16% while reporting a 78 combined ratio. Submission counts were up double-digit for all major products in the segment and all underlying products reported an underwriting profit. Rates in this segment were up 8% led by catastrophe wind business but also bolstered by improved earthquake and marine pricing.

For the quarter, our surety segment reported a 69 combined ratio with very small amount of growth on the top line. The contract in small miscellaneous businesses grew moderately for the quarter and underwriting profits were earned by all products. The surety space continues to be a very tough one to grow. The competitive environment, decline in commodity prices and consolidation within some industries all put pressure on the top line. The temporary closure of many government agencies who are the obligee for many bonds only adds to the current challenge. We have sacrificed top line over recent years in order to upgrade the overall credit quality of the principles that we support. We believe this will serve us well as we move forward.

Onto the impacts of the virus and the resulting economic shutdown. First and foremost, as Jon mentioned earlier, RLI is fully operational. RLI owner associates are all working from home with very little impact in our ability to serve our customers and distribution partners. We have been fair and flexible with our customers in regard to modifying exposures and resulting premiums mid-term. We have deepened relationships by reaching out to our distribution partners and customers to check in and offer help where possible. Our emphasis on personal relationships and responsive service are paying off and our culture of ownership has fostered a fleet of associates who are willing to step into the breach, solve problems and volunteer to take on the next challenge. As owners, we are focused on doing the right thing that leads to success in the long term.

We believe there will be revenue consequences as a result of the economic shutdown. The timing and amount of the impact will be dependent on the economic recovery. It is too early to quantify the rate of any revenue deceleration. For RLI, the lines that will be significantly impacted will be those products supporting the passenger transportation, non-essential and international cargo haulers and the energy sectors of our economy, which will be felt by about 15% to 20% of our portfolio. Many other underlying industries will be affected over time as exposure bases are tied to revenue, payroll, values insured and construction projects or other obligations undertaken. On a more positive note, we have several product lines that may see little to no impact including our personal lines products, management liability products and property businesses.

In regard to the heightened loss exposure, we do not offer events or travel cancellation, trade credit or pandemic related coverages. We have received approximately 500 claim notices to-date across multiple insurance products with about 95% of them being business interruption related. We believe that any exposure arising out of the spread of COVID-19 and resulting shutdown will take significant time to reveal and resolve itself. RLI's more notable exposures are in the financial related product lines like management liability and surety. For some perspective, the 2007 through 2008 financial crisis had no material impact on RLI's underwriting performance but we recognize the impact of this economic shutdown will be different.

Our claim department has always been a differentiator for our Company. The claim examiner conducts an investigation of each claim, including taking into account the loss details and any documentation provided by the insured, the nature of the claim as well as any other relevant and available loss details. Every claim is individually analyzed in conjunction with the insurance product purchased by the insured and is then handled in accordance with the appropriate claim handling laws and regulations that apply. RLI will standby and fulfill its obligation to pay claims we owe, but it will take more time to assess and quantify any amount.

The insurance industry is a key contributor and provides important protection to the engines of our economy. The revival of insurance industry operating with contract certainty is necessary for the economy to restart and function normally and efficiently. Through governmental overreach and an opportunistic plaintiff bar, we are bearing witness to another attempt to retroactively rewrite and impose coverage into policies that don't provide it. This poses a visible threat to the insurance industry and will impact the cost and availability of insurance going forward. No industry should be asked to accept the transfer of risk on to its balance sheet without the opportunity to consider, price, underwrite or risk manage the exposure.

Our diversified portfolio of products, underwriting process, financial strength and resiliency will continue to lead the way and distinguish RLI. In conclusion, we had a good solid start to the year with a 92 combined ratio on 6% top line growth. I want to leave you with a 20-year-old quote from our Founder, Jerry Stephens. The RLI ship is a steady vessel. It's built for the long haul. It can weather the storms because the crew knows how to adjust the sails to avoid the roughest weather. And even if the weather gets bad and the waves crash onto the deck, there is no port in the world that we can't reach. I'm very proud to work with such a dedicated and committed RLI crew. We will navigate this storm. Thank you.

I will now have the moderator to open up for questions.

Questions and Answers:

Operator

[Operator Instructions] And it looks like our first question comes from the line of Randy Binner with B. Riley.

Randy Binner -- B. Riley -- Analyst

Thank you. Good morning. So I just had a couple. The first is just related to COVID. We saw some other commercial lines writers take charges, they're relatively small kind of directly related to the crisis. Have you put up any reserves related to COVID yet?

Todd W. Bryant -- Vice President, Chief Financial Officer

Hey, Randy. It's Todd. Craig -- I mean we have a bid on the -- just given the sheer number of the claims, Craig talked about the claims team is in the process of individually analyzing all those. But we have not put up any indemnity estimate in the quarter. But just given the sheer number of the claims, we did put some -- put up $5 million in the quarter for the cost of investigating and defending or adjusting those claims.

The other thing I think and we talked about this on prior calls, just from an uncertainty standpoint that doesn't influence our loss picks in reserve position as it relates to both current and prior year. So we could see a bit of a lower emergence on prior losses accident years than we expected in the first quarter, but I mean the shutdowns late in the quarter impacting access to courts and access to medical services that did add a little bit of additional uncertainty from our perspective and we thought about things. And so we did not recognize all the indicated net reserve benefit on prior years. It's not something we put a number on but certainly that uncertainty did influence the selections and considerations there.

Randy Binner -- B. Riley -- Analyst

Okay. And then on surety, could you review kind of the nature of the energy surety exposure and then kind of dimension -- you mentioned some of kind of the financial related exposures within surety. But anything would be [Phonetic] helpful for me and some others just to have a review of particularly with energy. I know we've discussed this back, I think it was in 2016. Just kind of the nature of where you're exposed within kind of the energy production chain.

Craig W. Kliethermes -- President and Chief Operating Officer

Sure. This is -- Randy this is Craig Kliethermes. So energy as a proportion of our total surety book is less than 15%, just to kind of frame it. And we do basically provide bonds for plugging an amendment of oil wells both onshore and offshore. We do -- we have been focused -- and actually it has been a shrinking part of our portfolio over the last couple of years, because we have continued to focus on only the best operators in the Gulf as well as onshore.

So we think that the quality overall of ours are the best in class that are operating in the Gulf and onshore. But if there was a case where that company or a person -- the principal that we bonded ended up in bankruptcy could not fulfill its obligation to plug or abandon or to plug the well and the successor organization that bought them or purchased their assets was not going to actually put that into activation who was actually going to use the well, then we would be asked to do the work or to pay somebody to do the work to plug that well. Doesn't happen very often but it could happen.

Randy Binner -- B. Riley -- Analyst

It didn't happen a lot through back in 2016, correct?

Craig W. Kliethermes -- President and Chief Operating Officer

We don't have a lot of losses in that space. So the loss ratio is relatively low. But it's a high severity line. [Speech Overlap]

Randy Binner -- B. Riley -- Analyst

Thank you.

Craig W. Kliethermes -- President and Chief Operating Officer

Sorry.

Randy Binner -- B. Riley -- Analyst

And then just on the -- staying within surety just the nature of the financial exposures, is that -- in the opening script, I think you mentioned some professional indemnity. Is that within surety or were you referring more to just kind of a general credit exposure to folks who bought the policy?

Craig W. Kliethermes -- President and Chief Operating Officer

I don't want to confuse. I think I said, management liability which is like D&O and those types of risks. So that was a separate product line for us.

Randy Binner -- B. Riley -- Analyst

That's within casualty.

Craig W. Kliethermes -- President and Chief Operating Officer

Yes. I'm sorry. What was the question again, Randy?

Randy Binner -- B. Riley -- Analyst

No, I misheard you. I apologize. I thought you were [Speech Overlap]

Craig W. Kliethermes -- President and Chief Operating Officer

Okay.

Randy Binner -- B. Riley -- Analyst

Within the context of surety. But you were referring to in the context of normal casualty, so I'm good. Thanks for the answers.

Craig W. Kliethermes -- President and Chief Operating Officer

Yeah, the only thing I'd add to surety, just to be clear, it's really a two trigger type scenario, right? You have to have someone that doesn't have the financial wherewithal to be able to perform their obligation and then either they do not perform that obligation or the successor organization doesn't perform it, that goes for most of surety. And don't forget, we have personal identification against a lot of these principles so we can go after their assets when we have collateral as well. So --

Randy Binner -- B. Riley -- Analyst

All right. Thanks.

Operator

Moving on from JMP, we have Matt Carletti.

Matt Carletti -- JMP Securities -- Analyst

Hey. Thanks. Good morning.

Jonathan E. Michael -- Chairman and Chief Executive Officer

Good morning.

Todd W. Bryant -- Vice President, Chief Financial Officer

Good morning.

Matt Carletti -- JMP Securities -- Analyst

Just hoping -- was hoping I can follow up on, I heard the comments on commercial auto, I think they were largely more on the revenue side. Can you give us any sense of what you're seeing on the loss side, both frequency and severity? I know only part of the first quarter, maybe March you might see it, but if you saw anything there, what changed and maybe what you see in April?

Craig W. Kliethermes -- President and Chief Operating Officer

Sure, Matt. This is Craig. So just remember we have three parts to our transportation business. One is the public transportation, which is the one I talked about where we returned $23 million worth of premium because most of those are chartered buses, school buses, transit buses, limos that are laid up, they are not really operating. So, when you think of laid up, laid up means to us as they've been taken off the policy and there is no liability coverage. So therefore, they should be entitled to some return of premium because they're basically cancelling part of their policy.

We also insure the trucking industry and actually from a trucking standpoint, we've actually seen miles driven increase at least in the short term, there has been an increase in delivery of goods, particularly consumables. So the miles driven may actually be up for some of our trucking operations. Obviously you probably heard congestion is down, the average speed of trucks is higher. So they can actually deliver more goods faster, but that that also potentially might lead to more severity. I mean we have not observed that yet, but obviously you could have a more severe act, of course they have to hit something. So there's not as many cars on the road to hit.

So -- I mean I think it kind of cuts both ways in regards to transportation. I think we would suspect that the speed of traffic is up. So that's a downside maybe, severity could possibly be up, but certainly the congestion is down and you have more experienced drivers on the road. I should also add that the truckers are typically experienced drivers who do it for a profession and with fewer people to hit, passenger vehicles, you have less accidents. So we certainly seen the number of losses drop, the claims count drop significantly. But again remember, on the public transportation side, we also have exposures that have dropped significantly. So I think they cut both ways.

Matt Carletti -- JMP Securities -- Analyst

Okay, great. And then I just wanted to shift, you mentioned the 500 claims. It's unlike most all of them be high. Is there any color you can give us on, I don't know if it varies across kind of all of RLI's policies where BI comes into play or if there's some rule of thumb?But are there government action, virus exclusions, is it more of the standard, direct physical damage language that is the defense. I'm just curious kind of how you guys have gone about it over the years.

Craig W. Kliethermes -- President and Chief Operating Officer

So -- Matt, this is Craig. So first of all, all those policies, I mean I've read a few BI policies in the last couple of weeks, just to let you know. It's been a while and I am a CPCU as well. So it's probably 30 years since I actually had to read an insurance policy, but I read a few business interruption policies or property policies that every policy that I've seen -- I can guarantee you that that's 100% of all that we've authored, but certainly I've looked at all of our major policies and everyone has a trigger that basically says that there has to be direct physical loss of or damage to property. In some cases, or actually more than some, in the vast, vast majority of our policies, particularly the ones in the admitted space, I mean we have a specific virus or communicable disease exclusion. But that's not on every policy, but certainly the vast, vast majority contain those exclusions. [Indecipherable]

Matt Carletti -- JMP Securities -- Analyst

No, that's helpful. That's very helpful. And the last question and I'll be done. Just any observations on kind of the pricing momentum or pricing cycle either in March or into April, just as kind of all the time hit. I know it's early, but just curious if you've observed anything and pricing kind of kept momentum or things have cooled off a little bit?

Craig W. Kliethermes -- President and Chief Operating Officer

Yeah, yeah, I mean I had that conversation with our product leaders over the last week or so. And I think they feel that at least so far the pricing momentum has stayed about the same. So there are some exceptions. So I think that certainly in some of these places like I'll say public auto where people are not -- or public transportation or passenger transportation businesses, I mean they are hardly operational. So I think there's going to be some pressure there or some that may not continue at the same pace as it has in the past on the public transportation side. But I would say broadly across the rest of our portfolio and in our other wheels-based businesses, we continue to expect it.

And as I said before, depending on -- I mean depending on -- I mean, certainly there's a lot of uncertainty out there. And uncertainty doesn't usually bode well for the consumer, unfortunately, in regards to risk. Companies are going to want to factor that risk into the pricing of the products.

Matt Carletti -- JMP Securities -- Analyst

Yeah. Well thank you for the answers and best of luck going forward.

Craig W. Kliethermes -- President and Chief Operating Officer

Thank you, Matt

Jonathan E. Michael -- Chairman and Chief Executive Officer

Thank you.

Operator

Moving on we have Jeff Schmitt with William Blair.

Jeff Schmitt -- William Blair -- Analyst

Hi, good morning, everyone. Could you discuss how Maui Jim results are looking, and what your outlook is there, just given this slowdown? And I mean, it's still operational I presume, but what's your sense there?

Jonathan E. Michael -- Chairman and Chief Executive Officer

Jeff, it's Jon Michael here. Yeah, Maui Jim has impacted. Obviously there -- largely -- their outlets are largely retail. We do have a Maui Jim direct and Amazon operation. So they are impacted from the economic slowdown. There is no question about it and they were impacted in the first quarter from the economic slowdown. So Maui Jim is a very strong company. They've got liquidity. I think they are able to withstand the slow down, but, yeah, they will be impacted. It's yet to be seen how much that will impact our results, but they have taken steps already through the slowdown.

Jeff Schmitt -- William Blair -- Analyst

Is there potential even for losses there, I mean, you think in the second quarter or is it not that bad?

Jonathan E. Michael -- Chairman and Chief Executive Officer

Well that's yet to be seen, but yeah, I think that they potentially could have some losses. And until markets begin to open up back up again they're going to be, they're going to be -- they are going to struggle a bit through the summer. This is where -- if you think about it, this is when Maui Jim makes a lot of their sales, and it's pretty seasonal going through spring and summer. So --

Jeff Schmitt -- William Blair -- Analyst

Right. And then I was interested to hear, you'd mentioned you didn't think management liability is going to be impacted. Some other insurers have thought that could even be one of the key areas where it could be impacted and I am surprised you had said that. What is the makeup or what class of the business, why do you think that won't be impacted here?

Jonathan E. Michael -- Chairman and Chief Executive Officer

When you say won't be impacted or will be impacted. I mean I actually believe that will be impacted. I think that was in my opening remarks [Indecipherable] remarks. But -- I mean, we view that as a -- I mean, management liability has several different product lines. There is public D&O in there, there is Side A coverage, there's employment practices liability coverage, some cyber coverage, fiduciary coverage. I mean, we saw the same thing back when the financial crisis of 2008 occurred. It turned out to be a blip for us, but I do think there'll be a heightened number of claims made under those -- trying to make under those coverages. Now we write excess in a lot of cases. So they're going to take a while to, even if they do materialize to get to our layers. So I have to take those into consideration.

Meanwhile, as we talked about before, I mean one of the places we are continuing to see pricing momentum and I think we're going to see even more after this, is in the management liability space. So it was already getting close to 50% rate increases. So I think you're going to see rate increases even accelerate there.

Now, from a risk management standpoint, I would also just add that, I mean, this is also when we heavily reinsure. So we're for any policies written after 01/01 [Phonetic] basically we only take about 22.5% of the exposure on those claims. So --

Jeff Schmitt -- William Blair -- Analyst

Got it, OK. Thank you.

Operator

Moving on, our next question will come from Meyer Shields with KBW.

Meyer Shields -- KBW -- Analyst

Thanks. If I go back to the BI question for a little bit, I think Craig distinguished between the physical loss -- I'm sorry the direct physical damage figure between the bidded [Phonetic] and E&S policy. Would that distinction also apply in terms of the prevalence of the virus exclusion? Is that likely to be less present on E&S paper?

Craig W. Kliethermes -- President and Chief Operating Officer

Meyer, it's Craig. You're asking me would the terminology no direct or requiring direct physical loss of or damage to property being also being a standard wording in the E&S policy. Is that the question?

Meyer Shields -- KBW -- Analyst

No, I'm asking about the viral -- the virus exclusion, in other words, could that be less common on E&S paper than on a bidded paper.

Craig W. Kliethermes -- President and Chief Operating Officer

That's correct. I mean it's not very commonplace in the excess and surplus lines space. That is not uniformly true. And I would say we have E&S policies with virus exclusions on them. A significant portion of the number of policies have them on them, but it's not universally true. It really depends on the competitive marketplace and a lot of people in that space do not have specific virus exclusions on their policy.

Meyer Shields -- KBW -- Analyst

Okay, that's helpful. Is there any way of sort of comparing the 500 or so business interruption claims to what the normal flow would be?

Jonathan E. Michael -- Chairman and Chief Executive Officer

Well, I can tell you that claim counts are actually still down for the year despite the influx of those 500 claims that I talked about. So that would be down extraordinarily amount more without them in total. Certainly, as the flow of business interruption claims is -- I mean, it's not a number that we would never have 500 in a year, I don't think, unless it was an extremely catastrophic year from like a hurricane standpoint.

Meyer Shields -- KBW -- Analyst

Okay, understood. And then I know this is tiny. It's like 1% of the book, but can you give us a sense to what sectors you insure in workers' comp?

Craig W. Kliethermes -- President and Chief Operating Officer

Yes. So this is basically the only real places we do workers' comp is on office professionals and specifically architects and engineers is really 99% of our exposures. And as far as we know those clients are actually still working and working much like us, just working from home.

Meyer Shields -- KBW -- Analyst

Okay. But they're not the group that's likely to have presumption of getting sick at work?

Craig W. Kliethermes -- President and Chief Operating Officer

Not based on the broad things where we've tried to focus on the first responders. We don't do any workers' comp in the first responder space.

Meyer Shields -- KBW -- Analyst

Okay. Perfect. Thank you so much.

Operator

Next question will come from Mark Dwelle with RBC Capital Markets.

Mark Dwelle -- RBC Capital Markets -- Analyst

Yeah, good morning. Couple of additional questions. You mentioned about the $23 million of return premium related to some portions of the transportation book. Can you just walk through like which accounting lines are impacted? That's -- is that all earned premium, is that written and earned, are there any expense offsets? Just -- I'm trying to just understand all the lines that are impacted when you do something like this.

Todd W. Bryant -- Vice President, Chief Financial Officer

Mark, it's Todd. That is written. So no minuscule impact on the earnings standpoint. I mean, we certainly would have -- you have commission related to that, but again it's purely written from that standpoint. So unearned premium is really the impact there. So I think -- and to think of it in terms of from a cash flow standpoint, those are -- a lot of those are instalment base. So from a pure cash standpoint, I think the actual cash return is closer to $6 million. In some instances, I think it's being left credit on account because they do anticipate, as Craig mentioned, returning the business.

Craig W. Kliethermes -- President and Chief Operating Officer

I'll also add that we're going to have -- there'll be return commissions on that and there will be -- we will have losses on that business either. It's a very small market exposure --production exposure.

Mark Dwelle -- RBC Capital Markets -- Analyst

So that really doesn't ultimately impact sort of the combined ratio in the quarter. It's just in terms of the growth rate in premiums, all else equal, would have been a little bit better have you not made this choice.

Craig W. Kliethermes -- President and Chief Operating Officer

Yeah, I think that's correct. I mean, I think if you would have -- if you were to pull this out casualty it would have been up closer to 20% and overall, more in that 15% range.

Mark Dwelle -- RBC Capital Markets -- Analyst

Got it. Thank you. The second question that I had goes back to one of the early questions related to the plug and abandon on the surety book. Are there -- what are the typical kind of limits that you write on that business? I'm sure there is not one size fits all but there's probably like a normal on a Max, maybe something like that. If you can share that.

Craig W. Kliethermes -- President and Chief Operating Officer

Well, it's -- this is Craig. I mean there is a quite diverse group of bond amounts there, there is many of them that are very small amounts, $2 million and then there is, I mean there are a few that are a little larger. When you say -- I mean, I don't know if you are talking about an individual bond or bonding capacity for an entire account, I mean that would vary because the individual bonds would be -- I mean, it could be $10 million, as big as $10 million, $15 million, $25 million, but range from $500,000 to that size.

Jonathan E. Michael -- Chairman and Chief Executive Officer

The exposure side would ultimately be account driven more so than and somebody is not going to pick the numbers and say [Indecipherable] necessarily. I mean, so if you think about -- so you have of this two examples if you had five wells you were drilling, four of them have a lot of capacity left in the ground and one does not, the four that have a lot of capacity are very marketable and somebody might very well want to buy those. If they choose to buy them and let's say they don't even want to continue to or they want to chock down the well, they own the well, that's their responsibility.

We don't have to go plug that well until they decide to use it. That's their -- the new owner's responsibility. So as long as there's buyers in the market for these wells that are active and that's part of our underwriting, we don't just underwrite the financial wherewithal of the operator, we also underwrite the assets in the ground to make sure there is real assets there so that you're very, very unlikely to be on wells that are at the end of their useful life. [Speech Overlap] So that's why we've kept our number of claims down significantly. We just need to.

Mark Dwelle -- RBC Capital Markets -- Analyst

And then one other question, I mean you people have been very diligent in highlighting lines that could be exposed. Are there lines that you're writing that are getting benefit from the fact that everybody is staying home and nobody is doing anything? I mean I know there's certain E&S coverages that you right liability for bars and restaurants or things like that that I would assume that those are getting very favorable experience.

Craig W. Kliethermes -- President and Chief Operating Officer

It's Craig. I mean we don't do a ton of bars and restaurants, so we do some, but not a ton. We certainly aren't doing the ones with the big chefs or anything like that. But -- I mean, we write personal umbrella, which is -- it is both in auto and homeowners liability exposure. Again, you could say there's maybe less personal driving on the road. Although there are more pedestrians and bikers on the road. There are also more people at home, which can create a potential risk at home or in your house as well from a liability standpoint. But that's one that may benefit. But we can't -- we could not quantify that. Certainly, I think I talked to the commercial auto side of things, we think that's probably beneficiary -- beneficial to us.

Again, even though it may not be beneficial, we would expect as the exposures drop and premium drops, so would the loss propensity drop. So I don't know other than the products I mentioned, I am not sure I believe that we think that we've -- that the things are fairly proportional.

Mark Dwelle -- RBC Capital Markets -- Analyst

Okay, thanks very much. Those are all my questions.

Operator

And then moving on, the next question will come from Ron Bobman with Capital Returns.

Ron Bobman -- Capital Returns -- Analyst

Good morning.

Jonathan E. Michael -- Chairman and Chief Executive Officer

Good morning.

Ron Bobman -- Capital Returns -- Analyst

I had a couple of questions. I was wondering, of late if you've noticed any change in the buying to quote ratio sort of the success in converting quotes to buyings, curious to know about sort of competitive behavior having an impact on your success there. Particularly in medical [Phonetic] and commercial property.

Craig W. Kliethermes -- President and Chief Operating Officer

I don't think we've noticed anything or anything that stands out in regards to the buying to quote. And certainly the number -- the amount of new business that is being shopped is decreasing, we believe, at least that's we've seen at least in April, at the beginning of April. Probably -- so submission -- submissions are down a little bit, but I think that's because people aren't shopping new business, which I think will also increase retention for the business you already have.

So I think you're going to see an increase in retention and maybe a drop off of new business is what you'd see across not just RLI, but I think the industry, I'm guessing based on what we're seeing. Producers just aren't as productive and I don't want to -- they don't have that face to face meeting with people. It's a lot harder to move accounts.

Ron Bobman -- Capital Returns -- Analyst

Got you. In the well plugging surety bond book when there is a transaction and the well changes hands does the bond obligation continue or does it see sort of coincident with the change in ownership?

Craig W. Kliethermes -- President and Chief Operating Officer

The only time that I would -- I mean, we would have to actually opt into that. So they'd actually have to elect -- I mean, basically the bond is exonerated at that point in time. And then we may want if they would like us as their surety, we may very well continue, but that's our option and their option. It's the contract to cease effectively.

Ron Bobman -- Capital Returns -- Analyst

Okay. And then do you have reinsurance on that book?

Craig W. Kliethermes -- President and Chief Operating Officer

Yes.

Ron Bobman -- Capital Returns -- Analyst

[Indecipherable] could you clear that?

Craig W. Kliethermes -- President and Chief Operating Officer

Well we buy a by $75 million tower. So $2 million retention, first dollar retention and some co-participation alongside.

Ron Bobman -- Capital Returns -- Analyst

Okay. And then my last question was, you mentioned D&O sessions and relatively small amount that you keep. I think about 22% as of 01/ 01 this year. And are you having the mindset to consider increasing your retention prior to the next renewal day and you can even do that if you wanted to?

Craig W. Kliethermes -- President and Chief Operating Officer

You can certainly. There is that opportunity. I think we actually have reduced our retention from where we were a year ago. I think we were more in the 35% if you go back a year and we elected to reduce that, looking at all things, looking at the total limit that we obtained from that standpoint from an exposure. So there is a lot that goes into that consideration.

Jonathan E. Michael -- Chairman and Chief Executive Officer

[Indecipherable] a lot of things that factor in, as I mentioned before I mean rates are increasing dramatically right now. So you'd be seating almost all that rate increase to a reinsurer. So, I mean we're going to strike the right balance. We're going to look at that, we obviously are going to continue to buy reinsurance whether the retention changes. I don't think they're actively pursuing to raise or lower our retention. We'll see what happens in the marketplace.

Ron Bobman -- Capital Returns -- Analyst

Okay, thanks a lot, Jon.

Operator

Moving on, the next question comes from Jamie Inglis with Philo Smith.

Jamie Inglis -- Philo Smith -- Analyst

Good morning, guys.

Jonathan E. Michael -- Chairman and Chief Executive Officer

Good morning.

Jamie Inglis -- Philo Smith -- Analyst

I'm trying to get a sense of where the business might go in the end, meaning right now we have a positive rate environment, but I never [Indecipherable] undoubtedly we're going to have some kind of a question -- we don't know but clearly some kind of an economic impact as a result of staying at home, sort of, etc. If there is one way to get us [Indecipherable] what that means to your business, meaning if TNT [Phonetic] is down X% what might happen to your top line, admittedly sort of net premium issue and not an own premium issue immediately. Is there any way to get a sense of how that shapes out?

Jonathan E. Michael -- Chairman and Chief Executive Officer

I think it is very difficult to begin to estimate that at this point. I mean certainly we have -- and we've talked about that before, a third or so of our business is economically sensitive from a construction standpoint to the construction industry. But at this point, it's just -- it's too early to make that type of estimation.

Jamie Inglis -- Philo Smith -- Analyst

Okay, that's good. Rest of my question already asked. Thank you.

Jonathan E. Michael -- Chairman and Chief Executive Officer

Operator?

Operator

Yes, sir. Apologies. It appears that at this time there is no further questions. I would like to turn the floor back to Mr. Jonathan Michael.

Jonathan E. Michael -- Chairman and Chief Executive Officer

Thank you for joining us this morning. Once again our hearts go out to those who have suffered most illness or the death of the loved one. Our prayers go to all the first responders who put themselves in the harm's way, some of whom have made the ultimate sacrifice, our thoughts are with those who have suffered financially, including our customers.

For our industry the real and the potential threat is that regulators and politicians are attempting to retroactively impose coverage on policies that did not provide coverage and insurers did not underwrite for that coverage nor charge a premium for that coverage. Plaintiff attorneys will attempt to force the issue as well. In the end only the lawyers win.

My view is the only solution to this is a federal one similar to what happened after 9/11. Our industry needs to help the government shape that solution so that if and when this happens again there is a fund and backstop for uninsurable pandemics.

Lastly, thanks to all the RLI associates who continue to underwrite process premium and pay claims and all the things we do daily to support our customers and other stakeholders, sincere thank you.Thanks again for listening. Stay safe and stay healthy.

Operator

Ladies and gentlemen, that concludes our call. If you wish to access the replay for this call, you may do so by pressing -- by dialing 1-888-203-1112 with the ID of 2039591. And this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.

Duration: 51 minutes

Call participants:

Jonathan E. Michael -- Chairman and Chief Executive Officer

Aaron P. Diefenthaler -- Vice President, Chief Investment Officer and Treasurer

Todd W. Bryant -- Vice President, Chief Financial Officer

Craig W. Kliethermes -- President and Chief Operating Officer

Randy Binner -- B. Riley -- Analyst

Matt Carletti -- JMP Securities -- Analyst

Jeff Schmitt -- William Blair -- Analyst

Meyer Shields -- KBW -- Analyst

Mark Dwelle -- RBC Capital Markets -- Analyst

Ron Bobman -- Capital Returns -- Analyst

Jamie Inglis -- Philo Smith -- Analyst

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