Aaron Diefenthaler
RLIAbout Aaron Diefenthaler
Aaron P. Diefenthaler, 51, is RLI’s Chief Investment Officer & Treasurer (since 2012) and will become Chief Financial Officer effective January 1, 2026. He holds a B.S. in Finance from Indiana University, an MBA from DePaul University, and the CFA designation; prior roles included leadership positions at Asset Allocation & Management LLC, SS&C Technologies, and Northern Trust . RLI’s shareholder value creation during his tenure includes 29 consecutive years of underwriting profit in 2024 with an 86.2 combined ratio, operating ROE of 18.9%, five‑year book value growth ranked 2/12 vs peers, and a five‑year annualized TSR of 16.6% .
Past Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| Asset Allocation & Management LLC | Leadership roles | Not disclosed | Investment strategy and portfolio leadership prior to joining RLI |
| SS&C Technologies | Leadership roles | Not disclosed | Led investment/technology-related functions; experience informing finance and systems oversight |
| Northern Trust | Leadership roles | Not disclosed | Institutional investment/treasury experience applicable to insurer asset-liability management |
External Roles
- Not disclosed
Fixed Compensation
| Component | 2024 | Notes |
|---|---|---|
| Base salary | $366,096 | CIO & Treasurer |
| CFO-designate base salary (effective 1/1/2026) | $400,000 | With up to 15 hours personal use of fractionally-owned aircraft at Board-set rate in 2026 |
| Perquisites | Included within “All Other Compensation” ($70,577) for ESOP, 401(k), executive physical, travel accident coverage; no personal aircraft usage disclosed for 2024 | Company contributes 8.7% ESOP and 5.7% 401(k) discretionary plus 3% safe harbor in 2024 |
Performance Compensation
RLI uses two plans for Diefenthaler in 2024: MIP (annual) and UPP (product underwriting profit-sharing). From 2026 as CFO, he will migrate to the MVP Program (with a preliminary award equal to 1% of MVP) with a 2026 transition to the greater of MVP or current-plan payouts .
- 2024 MIP framework (max 100% of base): 40% MVP, 20% Operating ROE, 20% Combined Ratio, 20% Annual Objectives .
- 2024 actual corporate performance: MVP $241.854m; Operating ROE 18.9%; Combined Ratio 86.2; Annual Objectives 95% achievement .
| Metric (MIP) | Weight | Target (100% payout) | Actual 2024 | Payout % of base |
|---|---|---|---|---|
| Operating ROE | 20% | 16% | 18.9% | 20.0% |
| Market Value Potential (MVP) | 40% | $100m | $241.854m | 40.0% |
| Combined Ratio | 20% | 85% | 86.2 | 18.4% |
| Annual Objectives (scorecard) | 20% | 100% | 95% | 19.0% |
| Total MIP Payout % | — | — | — | 97.4% (of base) |
| MIP Bonus ($) | — | — | — | $357,945 |
UPP (Underwriter Profit Program) – Diefenthaler oversees two products and earns 2% of underwriting profit over multi‑year payout schedules (4–10 years by product), with partial annual payments and investment rate applied to unpaid balances (3.761% in 2024). 2024 award totaled $229,835 ($3,757 current-year; $223,743 prior-years) .
| UPP Component | Underwriting Profit Base | Award % | Cumulative Eligible Award | 2024 Payout |
|---|---|---|---|---|
| 2024 underwriting year | $385,267 | 2% | $7,705 | $3,757 |
| Prior underwriting years | $59,082,352 | 2% | $1,181,647 | $223,743 (incl. $2,335 investment income) |
| Total 2024 UPP | — | — | — | $229,835 |
Long‑term equity incentives (options) – 2024 grant: 14,000 options (exercise price $71.58), grant-date fair value $218,470; options vest 20% per year over five years and expire in eight years; accelerated vesting on death, disability, or retirement .
| 2024 Equity Grant | Grant date | Options (#) | Exercise price | Fair value |
|---|---|---|---|---|
| Stock Options | 05/02/2024 | 14,000 | $71.58 | $218,470 |
2024 compensation mix summary (reported):
- Salary: $366,096; Non‑equity incentives: $587,780 (MIP + UPP); Option awards (grant-date fair value): $218,470; All other: $70,577; Total: $1,242,923 .
Equity Ownership & Alignment
| Element | Detail |
|---|---|
| Beneficial ownership | 176,087 shares; <1% of outstanding |
| ESOP allocated shares | 9,503 shares |
| Deferred Compensation (rabbi trust) – company shares | 3,045 shares credited to account |
| Options (exercisable within 60 days of 3/17/2025) | 97,400 shares |
| Options outstanding (selected grants) | 2018–2024 option tranches; e.g., 18,000 (2018), 15,000 (2019), 20,000/5,000 (2020), 9,600/6,400 (2021), 15,200/22,800 (2022), 3,000/12,000 (2023), 14,000 (2024) with strike prices disclosed; 20%/yr vesting; 8‑yr expiry |
| 2024 option exercises | 22,000 shares; value realized $1,363,340 |
| Ownership guidelines | Executives must hold multiples of salary: CIO 2x; CFO 3x; all NEOs met guidelines as of 12/31/2024; must retain net shares until met |
| Hedging/pledging | Hedging and pledging prohibited for directors and executive officers; no 10b5‑1 plans entered in 2024 |
Employment Terms
| Topic | Terms |
|---|---|
| Current/Incoming roles | CIO & Treasurer since 2012; appointed CFO effective 1/1/2026 |
| Employment contract | None of the NEOs have employment contracts |
| Compensation plans (2026) | MVP Program participant at 1% of MVP; 2026 transition to greater of MVP or (MIP + UPP) per current plans |
| Severance & Post‑termination economics (as of 12/31/2024) | If departure other than death/disability/retirement: $649,856 (MIP/UPP), $0 LTIP; Death/Disability/Retirement: $649,856 (MIP/UPP) + $3,177,281 LTIP = $3,827,137; Change in Control: same totals as death/disability/retirement |
| Equity vesting | Options vest 20%/yr over 5 years; accelerate on death, disability or retirement; 8‑year expiration |
| Clawbacks/forfeiture | Dodd‑Frank compliant recoupment for restatements; forfeiture of outstanding annual/long‑term awards for cause; MVP bonus bank forfeitable if negative MVP or if leaving RLI other than death/disability/retirement; post‑employment payouts subject to covenants (non‑solicit, confidentiality) |
| Non‑compete / non‑solicit | Non‑solicit referenced via clawback/forfeiture conditions (customer and employee non‑solicitation); explicit non‑compete not disclosed |
| Deferred compensation | 2024 deferral: $87,808; year‑end balance $472,098 |
| Trading policy | Insider trading policy enforces windows; prohibits hedging/pledging; no Rule 10b5‑1 plans entered in 2024 |
Compensation Structure Analysis
- Shift toward MVP as CFO: From 2026, Diefenthaler’s variable pay will hinge on company‑level economic profit (MVP), with 80% of preliminary MVP awards paid via a long‑term at‑risk “bonus bank” subject to multi‑year payout and forfeiture if future MVP turns negative. This increases long‑term alignment and retention via unpaid bank balances while adding downside risk vs current MIP/UPP structure .
- 2024 pay-for-performance: MIP paid 97.4% of base (reflecting strong ROE/MVP and sub‑target combined ratio), and UPP added $229.8k from product underwriting profitability; total non‑equity incentives $587.8k signals high linkage to underwriting and enterprise value creation .
- Equity mix: Stock options (not RSUs/PSUs) remain primary LTI, vesting over 5 years with 8‑year terms; options align upside with TSR but can elevate exercise‑driven selling during windows; no hedging/pledging mitigates misalignment risk .
- Governance and shareholder feedback: Say‑on‑Pay support exceeded 97% in 2024; peer benchmarking active; clawback aligned to SEC rules with additional covenant‑based recoupment .
Performance & Track Record
- Corporate results highlighting execution under current regime: 2024 combined ratio 86.2 (29th consecutive underwriting profit year), operating ROE 18.9%, MVP $241.9m, five‑year book value growth rank 2/12, five‑year TSR 16.6% annualized .
- Investment and capital stewardship context (relevant to CIO tenure): Fixed income 78% (79% A or better), equity 18%; disciplined catastrophe reinsurance and risk tolerances; ratings A+/A/A2 affirmed .
Risk Indicators & Red Flags
- No hedging/pledging; anti‑pledge policy reduces collateral risk; no 10b5‑1 adoption in 2024 reduces programmatic selling signals .
- No employment contract; severance/change‑in‑control economics are formulaic via plan terms rather than guaranteed multiples; acceleration limited to plan‑defined triggers (death/disability/retirement; change in control consistent with plan outcomes) .
- Related party transactions: None involving Diefenthaler disclosed; company‑wide related party 2024 SS&C software arrangement reviewed and reaffirmed (no executive involvement), immaterial to alignment here .
Investment Implications
- Alignment: Anti‑hedge/pledge policy, ownership guidelines (CFO 3x salary), long‑dated option vesting and MVP bonus bank create strong multi‑year alignment and retention; as incoming CFO, his variable pay will be tied to enterprise MVP, reinforcing capital discipline and book value compounding .
- Selling pressure: 5‑year option vesting and 8‑year terms imply periodic exercise windows, but absence of hedging/pledging and historical 10b5‑1 usage (none in 2024) suggests limited structural pressure; monitor Form 4s around vesting/exercise cycles post‑2026 .
- Execution risk: Transition to CFO begins 1/1/2026; 2026 comp transition ensures continuity (greater of MVP or current plans), lowering near‑term retention risk; longer term, casualty severity (e.g., commercial auto) and reinsurance pricing cyclicality remain operating variables affecting MVP and bonus bank realization .