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RLI Reports 2015 Fourth Quarter and Year-End Results

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January 25, 2016 4:00 PM EST

PEORIA, Ill.--(BUSINESS WIRE)-- RLI Corp. (NYSE: RLI) -- RLI Corp. reported fourth quarter 2015 operating earnings of $24.6 million ($0.56 per share), compared to $31.3 million ($0.71 per share) for the fourth quarter of 2014. For the year ended December 31, 2015, operating earnings were $111.7 million ($2.53 per share) compared to $114.5 million ($2.61 per share) for the 2014 fiscal year.

      Fourth Quarter     Full Year
Earnings Per Diluted Share     2015   2014     2015   2014
Operating earnings (1)     $0.56   $0.71     $2.53   $2.61
Net earnings     $0.76   $0.85     $3.12   $3.09
 

(1) See discussion below of non-GAAP financial measures.

 

Highlights for the quarter included:

  • Underwriting income of $22.5 million, resulting in a combined ratio of 87.4.
  • 3% growth in gross premiums written and 5% growth in net premiums written.
  • $7.7 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.
  • Special dividend of $2.00 per share, representing $87.1 million returned to shareholders.

Highlights for the year included:

  • Underwriting income of $108.6 million, resulting in a combined ratio of 84.5.
  • $60.6 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.
  • 20th consecutive year of a combined ratio below 100.
  • Book value per share of $18.91 at year end, an increase of 10% over 2014, inclusive of dividends.

“I am proud to report another strong quarter that continues to balance excellent underwriting results with growth in difficult market conditions,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “An 84.5 combined ratio for the year is an outstanding result to achieve and I’d like to congratulate and thank all RLI underwriters and employees for delivering again for our fellow shareholders.” He continued, “RLI has achieved 20 consecutive years with a combined ratio below 100 and 11 straight years below 90. This enviable track record is made possible by our relentless focus on underwriting discipline, our ownership culture and most importantly, our commitment to meeting customers’ needs with a diverse set of niche insurance products.”

Underwriting Income

RLI achieved $22.5 million of underwriting income in the fourth quarter of 2015 on an 87.4 combined ratio, compared to $27.5 million of underwriting income on an 84.7 combined ratio in the same quarter for 2014.

For the year, RLI achieved $108.6 million of underwriting income on an 84.5 combined ratio, compared to $107.0 million of underwriting income on an 84.5 combined ratio in 2014. Results for both years include favorable development in prior years’ loss reserves which totaled $60.6 million and $62.0 million for 2015 and 2014, respectively.

The following table highlights annual underwriting income and combined ratios by segment.

       
Underwriting Income (1)       Combined Ratio      
(in millions)     2015   2014       2015   2014
Casualty $46.3 $45.9 Casualty 88.8 88.0
Property 29.0 32.9 Property 83.1 83.4
Surety     33.3   28.2 Surety     71.5   73.8
Total     $108.6   $107.0 Total     84.5   84.5
 
(1) See discussion below of non-GAAP financial measures.
 

Other Income

RLI’s net investment income for the quarter fell 0.7% to $13.8 million, compared to the same period in 2014. For the year ended December 31, 2015, investment income was $54.6 million versus $55.6 million for the 2014 fiscal year. The investment portfolio’s total return was 1.4% for the quarter. The bond portfolio’s return was 0.4% in the quarter, while the equity portfolio’s return was 5.5%. For the year ended December 31, 2015, the investment portfolio’s total return was 1.5% with the bond portfolio returning 2.5% and equities returning -2.6%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $34.9 million for the quarter ($0.79 per share) compared to $47.5 million ($1.08 per share) for the same quarter in 2014. Full-year comprehensive earnings were $89.9 million ($2.04 per share), compared to $170.8 million ($3.90 per share) in 2014.

Equity in earnings of unconsolidated investees was -$0.1 million for the quarter compared to $0.1 million from the same period last year. These results are related to Maui Jim, Inc. (-$0.2 million, which reflects seasonal sales results), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.1 million), a specialty E&S insurance company. For the year ended December 31, 2015, equity in earnings of unconsolidated investees from Maui Jim and Prime was $9.9 million and $1.0 million, respectively, compared to $12.0 million and $0.3 million in 2014 from Maui Jim and Prime, respectively.

Special and Regular Dividends

On December 22, 2015, RLI paid a special cash dividend of $2.00 per share and a regular quarterly dividend of $0.19 per share, totaling $95.4 million and resulting in a tax benefit of $2.5 million ($0.06 per share) as dividends to the ESOP are fully deductible. RLI has paid dividends for 158 consecutive quarters and increased regular dividends in each of the last 40 years. Over the last 10 years, the company’s regular quarterly dividend has grown an average of 8.4% per year.

Non-GAAP Measures

Underwriting income, operating earnings, earnings per share (EPS) from operations and other per share items are non-GAAP financial measures, and we believe that investors’ understanding of RLI’s core operating performance is enhanced by our disclosure of these financial measures. Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting losses and settlement expenses, policy acquisition costs and insurance operating expenses from net premium earned.

Operating earnings and EPS from operations consist of our net earnings adjusted by net realized investment gains/(losses) and taxes related to net realized gains/(losses). Our definitions of these items may not be comparable to the definitions used by other companies. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. All earnings per share data are calculated using fully diluted shares. Combined ratio refers to a GAAP combined ratio.

Other News

At 10 a.m. central standard time (CST) tomorrow, January 26, 2016, RLI management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion through the Internet at http://edge.media-server.com/m/p/wqwrkuxo.

Except for historical information, this news release may include forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) including, without limitation, statements reflecting our current expectations about the future performance of our company or our business segments or about future market conditions. These statements are subject to certain risk factors that could cause actual results to differ materially. Various risk factors that could affect future results are listed in the company's filings with the Securities and Exchange Commission; including the Form 10-K Annual Report for the year ended December 31, 2014.

RLI Corp. (NYSE: RLI) is a specialty insurer serving diverse, niche property, casualty and surety markets. The company provides deep underwriting expertise and superior service to commercial and personal lines customers nationwide. RLI’s products are offered through its insurance subsidiaries RLI Insurance Company, Mt. Hawley Insurance Company and Contractors Bonding and Insurance Company. All of RLI’s subsidiaries are rated A+ “Superior” by A.M. Best Company, a distinction held by fewer than 10 percent of property and casualty insurance companies in the U.S. RLI has increased dividends for 40 consecutive years and delivered underwriting profits for 20 consecutive years. To learn more about RLI and its 50-year history of financial strength, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

 
    Operating Earnings Per Share
2015     2014     2015     2014

4th Qtr

4th Qtr

12 Mos.

12 Mos.

Operating Earnings Per Share $ 0.56 $ 0.71 $ 2.53 $ 2.61
 
Specific items included in operating earnings per share: (1) (2)
·Favorable development in casualty prior years' reserves $ 0.06 $ 0.14 $ 0.63 $ 0.72
·Favorable development in property prior years' reserves $ 0.02 $ 0.01 $ 0.07 $ 0.02
·Favorable development in surety prior years' reserves $ 0.02 $ 0.01 $ 0.16 $ 0.16
·Catastrophe impact
·2015 storms $ (0.02 ) $ - $ (0.15 ) $ -
·2014 and prior events $ 0.01 $ 0.02 $ 0.03 $ (0.07 )
·Gain from tax benefit of special dividend to ESOP (3) $ 0.06 $ 0.08 $ 0.06 $ 0.08
·Gain from change in tax rate applicable to Maui Jim (4) $ - $ 0.04 $ - $ 0.04
(1)   Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.
(2) Reserve development reflects changes from previously estimated losses.
(3) Dividends paid in an ESOP on employer securities are fully deductible from taxable income and result in a 35% tax benefit.
(4)

As required under the accounting standard for income taxes, the gain reflects the tax benefit of applying the lower tax rate applicable to dividends received from an affiliate (7%) as compared to the corporate capital gains tax rate (35%) on which tax estimates were based.

 

RLI CORP.
2015 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
               
 
Three Months Ended December 31, Twelve Months Ended December 31,
2015 2014 % Change 2015 2014 % Change

SUMMARIZED INCOME STATEMENT DATA:

Net premiums earned $ 179,371 $ 179,892 -0.3 % $ 700,161 $ 687,375 1.9 %
Net investment income 13,754 13,844 -0.7 % 54,644 55,608 -1.7 %
Net realized gains   14,207     9,542 48.9 %   39,829     32,182   23.8 %
Consolidated revenue 207,332 203,278 2.0 % 794,634 775,165 2.5 %
 
Loss and settlement expenses 80,584 76,229 5.7 % 299,045 296,609 0.8 %
Policy acquisition costs 62,113 60,896 2.0 % 241,078 229,283 5.1 %
Other insurance expenses 14,183 15,277 -7.2 % 51,480 54,464 -5.5 %
Interest expense on debt 1,856 1,856 0.0 % 7,426 7,438 -0.2 %
General corporate expenses   2,887     2,675 7.9 %   9,837     10,222   -3.8 %
Total expenses 161,623 156,933 3.0 % 608,866 598,016 1.8 %
 
Equity in earnings (loss) of
unconsolidated investees   (127 )   134 -     10,914     12,338   -11.5 %
 
Earnings before income taxes 45,582 46,479 -1.9 % 196,682 189,487 3.8 %
Income tax expense   11,729     8,982 30.6 %   59,138     54,042   9.4 %
Net earnings $ 33,853   $ 37,497 -9.7 % $ 137,544   $ 135,445   1.5 %
 
Other comprehensive earnings (loss), net of tax   1,054     10,038 -89.5 %   (47,609 )   35,356   -  
 
Comprehensive earnings $ 34,907   $ 47,535 -26.6 % $ 89,935   $ 170,801   -47.3 %
 
 
Operating earnings:(1)
 
Net earnings $ 33,853 $ 37,497 -9.7 % $ 137,544 $ 135,445 1.5 %
 
Less: Realized gains, net of tax   9,235     6,203 48.9 %   25,890     20,919   23.8 %
 
Operating earnings $ 24,618   $ 31,294 -21.3 % $ 111,654   $ 114,526   -2.5 %
 
Return on Equity:
Net earnings (trailing four quarters)   16.1 %   15.4 %
Comprehensive earnings (trailing four quarters)   10.5 %   19.4 %
 
Per Share Data
 

Diluted:

Weighted average shares outstanding (in 000's) 44,335 43,937 44,131 43,819
 
EPS from operations (1) $ 0.56 $ 0.71 -21.1 % $ 2.53 $ 2.61 -3.1 %
Realized gains, net of tax   0.20     0.14 42.9 %   0.59     0.48   22.9 %
Net earnings per share $ 0.76   $ 0.85 -10.6 % $ 3.12   $ 3.09   1.0 %
 
Comprehensive earnings per share $ 0.79   $ 1.08 -26.9 % $ 2.04   $ 3.90   -47.7 %
 
Cash dividends per share - ordinary $ 0.19 $ 0.18 5.6 % $ 0.75 $ 0.71 5.6 %
Cash dividends per share - special $ 2.00 $ 3.00 -33.3 % $ 2.00 $ 3.00 -33.3 %
 
Net Cash Flow provided by Operations $ 31,219   $ 37,191 -16.1 % $ 152,586   $ 123,085   24.0 %
 
(1) See discussion above of non-GAAP financial measures.
 
RLI CORP.
2015 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
           
 
December 31, December 31,
2015 2014 % Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income $ 1,538,110 $ 1,495,087 2.9 %
(amortized cost - $1,518,156 at 12/31/15)
(amortized cost - $1,448,204 at 12/31/14)
Equity securities 375,424 410,642 -8.6 %
(cost - $202,437 at 12/31/15)
(cost - $193,535 at 12/31/14)
Other invested assets 20,666 11,597 78.2 %
Cash and cash equivalents   17,343   46,959 -63.1 %
Total investments and cash 1,951,543 1,964,285 -0.6 %
 
Premiums and reinsurance balances receivable 143,662 154,573 -7.1 %
Ceded unearned premiums 52,833 53,961 -2.1 %
Reinsurance recoverable on unpaid losses 297,844 335,106 -11.1 %
Deferred acquisition costs 69,829 65,123 7.2 %
Property and equipment 47,102 42,549 10.7 %
Investment in unconsolidated investees 70,784 60,046 17.9 %
Goodwill and intangibles 71,294 72,695 -1.9 %
Other assets   31,688   27,204 16.5 %
Total assets $ 2,736,579 $ 2,775,542 -1.4 %
 
Unpaid losses and settlement expenses 1,103,785 1,121,040 -1.5 %
Unearned premiums 422,094 401,412 5.2 %
Reinsurance balances payable 37,556 38,013 -1.2 %
Funds held 54,254 51,481 5.4 %
Income taxes - deferred 63,993 82,285 -22.2 %
Bonds payable, long term debt 149,668 149,625 0.0 %
Accrued expenses 55,742 63,148 -11.7 %
Other liabilities   26,018   23,476 10.8 %
Total liabilities 1,913,110 1,930,480 -0.9 %
Shareholders' equity   823,469   845,062 -2.6 %
Total liabilities & shareholders' equity $ 2,736,579 $ 2,775,542 -1.4 %
 
 
 

OTHER DATA

 
Common shares outstanding (in 000's) 43,544 43,103
 
Book value per share $ 18.91 $ 19.61 -3.6 %
Closing stock price per share $ 61.75 $ 49.40 25.0 %
Cash dividends per share - ordinary $ 0.75 $ 0.71 5.6 %
Cash dividends per share - special $ 2.00 $ 3.00 -33.3 %
 
Statutory Surplus $ 865,268 $ 849,297 1.9 %
 
RLI CORP.
2015 FINANCIAL HIGHLIGHTS
UNDERWRITING SEGMENT DATA
(Unaudited)
(Dollars in thousands, except per share amounts)
 

Three Months Ended December 31,

        GAAP     GAAP     GAAP     GAAP
Casualty Ratios Property Ratios Surety Ratios Total Ratios

2015

 
Gross premiums written $ 126,074 $ 42,735 $ 31,770 $ 200,579
Net premiums written 104,877 33,284 30,353 168,514
Net premiums earned 106,406 42,840 30,125 179,371
Net loss & settlement expenses 59,194 55.6 % 17,537 40.9 % 3,853 12.8 % 80,584 44.9 %
Net operating expenses   39,073 36.7 %   18,498 43.2 %   18,725 62.2 %   76,296 42.5 %
Underwriting income $ 8,139 92.3 % $ 6,805 84.1 % $ 7,547 75.0 % $ 22,491 87.4 %
 
 

2014

 
Gross premiums written $ 118,819 $ 45,958 $ 29,681 $ 194,458
Net premiums written 96,619 35,418 28,084 160,121
Net premiums earned 100,587 51,524 27,781 179,892
Net loss & settlement expenses 53,823 53.5 % 17,971 34.9 % 4,435 16.0 % 76,229 42.4 %
Net operating expenses   37,154 36.9 %   20,104 39.0 %   18,915 68.1 %   76,173 42.3 %
Underwriting income $ 9,610 90.4 % $ 13,449 73.9 % $ 4,431 84.1 % $ 27,490 84.7 %
 
 
 
 
 

Twelve Months Ended December 31,

GAAP GAAP GAAP GAAP
Casualty Ratios Property Ratios Surety Ratios Total Ratios

2015

 
Gross premiums written $ 519,670 $ 208,370 $ 125,546 $ 853,586
Net premiums written 435,409 166,659 119,903 721,971
Net premiums earned 412,248 170,924 116,989 700,161
Net loss & settlement expenses 218,414 53.0 % 69,851 40.9 % 10,780 9.2 % 299,045 42.7 %
Net operating expenses   147,571 35.8 %   72,048 42.2 %   72,939 62.3 %   292,558 41.8 %
Underwriting income $ 46,263 88.8 % $ 29,025 83.1 % $ 33,270 71.5 % $ 108,558 84.5 %
 
 

2014

 
Gross premiums written $ 482,846 $ 262,457 $ 118,545 $ 863,848
Net premiums written 395,853 195,580 111,719 703,152
Net premiums earned 382,105 197,776 107,494 687,375
Net loss & settlement expenses 199,133 52.1 % 89,589 45.3 % 7,887 7.3 % 296,609 43.2 %
Net operating expenses   137,031 35.9 %   75,269 38.1 %   71,447 66.5 %   283,747 41.3 %
Underwriting income $ 45,941 88.0 % $ 32,918 83.4 % $ 28,160 73.8 % $ 107,019 84.5 %
 

Media Contact
RLI Corp.
Aaron Jacoby, Vice President, Corporate Development
309-693-5880
[email protected]

Source: RLI Corp.


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