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RLI Reports Second Quarter 2015 Results

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July 20, 2015 4:00 PM EDT

PEORIA, Ill.--(BUSINESS WIRE)-- RLI Corp. (NYSE: RLI) -- RLI Corp. reported second quarter 2015 operating earnings of $34.1 million ($0.77 per share), compared to $28.9 million ($0.66 per share) for the second quarter of 2014. For the six months ended June 30, 2015, operating earnings were $56.0 million ($1.27 per share) compared to $53.7 million ($1.23 per share) for the same period in 2014.

    Second Quarter
Earnings Per Diluted Share   2015   2014
Operating earnings (1)   $0.77   $0.66
Net earnings   $0.84   $0.82
 
(1) See discussion below of non-GAAP financial measures.
 

Highlights for the quarter included:

  • Combined ratio of 79.8, resulting in underwriting income of $34.8 million.
  • 6% decrease in gross premiums written, which reflects the impact of a previously announced exit from crop reinsurance.
  • $30.1 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.
  • $6.3 million net decrease in underwriting income resulting from 2015 storms.
  • Book value per share of $20.07, an increase of 2% from year end 2014.

“We’re proud to report excellent second quarter results,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “We achieved a 79.8 combined ratio for the quarter, despite a continually challenging environment. While premium volume was affected by the non-renewal of our crop reinsurance business, the strength of our product portfolio is reflected in our results. Excluding the impact of crop, overall gross premiums written were up 7%. Both the casualty and surety segments produced a strong combination of growth and underwriting profit. Our property segment remained challenged, with premium down 9%, excluding crop, due to catastrophe exposed businesses experiencing significant competitive pressure.”

“Overall market conditions remain relatively flat,” said Michael. “However, our underwriters are adept at navigating such conditions and we expect they will continue successfully identifying opportunities to support and grow our business while maintaining underwriting discipline.”

Underwriting Income

RLI achieved $34.8 million of underwriting income in the second quarter of 2015 on a 79.8 combined ratio, compared to $26.6 million of underwriting income on an 84.2 combined ratio in the same quarter for 2014. Results for 2015 include $30.1 million in favorable development in prior years’ loss reserves, compared to $22.3 million in favorable development in prior years’ loss reserves in 2014.

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

         
Underwriting Income (1)   Second Quarter Combined Ratio   Second Quarter
(in millions)   2015   2014     2015   2014
Casualty $19.2   $16.5 Casualty 81.1   82.5
Property 4.8 2.3 Property 88.3 95.3
Surety   10.8   7.8 Surety   62.9   69.3
Total   $34.8   $26.6 Total   79.8   84.2
     
(1) See discussion below of non-GAAP financial measures.
 

Other Income

RLI’s net investment income for the quarter fell 3.9% to $13.4 million, compared to the same period in 2014. For the six-month period ended June 30, 2015, investment income was $26.9 million versus $27.6 million for the same period in 2014. The investment portfolio’s total return was -0.8% for the quarter. The bond portfolio’s return was -1.0% in the quarter, while the equity portfolio’s return was -0.5%. Through six months, the investment portfolio’s total return was 0.1% with the bond portfolio returning 0.7% and equities returning -2.5%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $12.3 million for the quarter ($0.28 per share) compared to $55.7 million ($1.27 per share) for the same quarter in 2014.

Equity in earnings of unconsolidated investees was $6.2 million for the quarter compared to $5.9 million from the same period last year. These results are related to Maui Jim, Inc. ($5.9 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.3 million), a specialty E&S insurance company. For the second quarter of 2014, equity in earnings of unconsolidated investees from Maui Jim and Prime was $5.7 million and $0.2 million, respectively. For the six-month period ended June 30, 2015, equity in earnings of unconsolidated investees was $10.4 million versus $9.3 million in 2014.

Dividend Paid in the Second Quarter 2015

On June 19, 2015, the company paid an ordinary dividend of $0.19 per share, a $0.01 increase over the prior quarter. RLI’s cumulative dividends, including this recent payment, total more than $691 million paid over the last five years.

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

During the second quarter, the Company’s A+ “Superior” financial strength rating was affirmed by A.M. Best for the following insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company and Contractors Bonding and Insurance Company. RLI Indemnity Company’s ratings remain under review due to the pending regulatory approval of its sale and removal from the RLI Group.

At 10 a.m. central daylight time (CDT) tomorrow, July 21, 2015, 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/gkrkf2xo.

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 (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, RLI Indemnity Company and Contractors Bonding and Insurance Company. RLI has increased dividends for 40 consecutive years and delivered underwriting profits for 19 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

2nd Qtr

2nd Qtr

6 Mos.

6 Mos.

Operating Earnings Per Share $ 0.77 $ 0.66 $ 1.27 $ 1.23
 
Specific items included in operating earnings per share: (1) (2)

• Favorable development in casualty prior years' reserves

$ 0.29 $ 0.30 $ 0.40 $ 0.43

• Favorable (unfavorable) development in property prior years' reserves

$ 0.04 $ (0.01 ) $ 0.04 $ 0.01

• Favorable development in surety prior years' reserves

$ 0.09 $ 0.05 $ 0.08 $ 0.09

• Catastrophe impact

· 2015 storms

$ (0.09 ) $ - $ (0.09 ) $ -

· 2014 and prior events

$ 0.02

 

$ (0.11 ) $ 0.02 $ (0.10 )
 

(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.

 
RLI CORP.
2015 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
               
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 % Change 2015 2014 % Change

SUMMARIZED INCOME STATEMENT DATA:

Net premiums earned $ 172,339 $ 168,604 2.2 % $ 341,342 $ 329,736 3.5 %
Net investment income 13,431 13,982 -3.9 % 26,926 27,564 -2.3 %
Net realized investment gains   4,802     10,431 -54.0 %   18,088     16,932   6.8 %

Consolidated revenue

$ 190,572 193,017 -1.3 % 386,356 374,232 3.2 %
 
Loss and settlement expenses $ 64,549 73,345 -12.0 % 145,410 144,361 0.7 %
Policy acquisition costs 59,487 55,156 7.9 % 118,460 110,207 7.5 %
Insurance operating expenses 13,467 13,534 -0.5 % 24,998 26,067 -4.1 %
Interest expense on debt 1,857 1,874 -0.9 % 3,713 3,725 -0.3 %
General corporate expenses   2,748     2,549 7.8 %   4,992     4,747   5.2 %
Total expenses $ 142,108 146,458 -3.0 % 297,573 289,107 2.9 %
 
Equity in earnings of
unconsolidated investees   6,186     5,864 5.5 %   10,380     9,289   11.7 %
 
Earnings before income taxes $ 54,650 52,423 4.2 % 99,163 94,414 5.0 %
Income tax expense   17,465     16,698 4.6 %   31,380     29,720   5.6 %
Net earnings $ 37,185   $ 35,725 4.1 % $ 67,783   $ 64,694   4.8 %
 
Other comprehensive earnings (loss), net of tax   (24,932 )   19,934 -     (32,527 )   37,671   -  
 
Comprehensive earnings $ 12,253   $ 55,659 -78.0 % $ 35,256   $ 102,365   -65.6 %
 
Operating earnings: (1)
 
Net earnings $ 37,185 $ 35,725 4.1 % $ 67,783 $ 64,694 4.8 %
 
Less: Realized investment gains, net of tax   3,122     6,780 -54.0 %   11,757     11,005   6.8 %
 
Operating earnings $ 34,063   $ 28,945 17.7 % $ 56,026   $ 53,689   4.4 %
 
Return on Equity:
Net earnings (trailing four quarters)   15.6 %   15.8 %
Comprehensive earnings (trailing four quarters)   11.7 %   21.3 %
 
Per Share Data
 

Diluted:

Weighted average shares outstanding (in 000's) 44,019 43,688 44,008 43,669
 
EPS from operations (1) $ 0.77 $ 0.66 16.7 % $ 1.27 $ 1.23 3.3 %
Realized gains, net of tax   0.07     0.16 -56.3 %   0.27     0.25   8.0 %
Net earnings per share $ 0.84   $ 0.82 2.4 % $ 1.54   $ 1.48   4.1 %
 
Comprehensive earnings per share $ 0.28   $ 1.27 -78.0 % $ 0.80   $ 2.34   -65.8 %
 
Cash dividends per share $ 0.19 $ 0.18 5.6 % $ 0.37 $ 0.35 5.7 %
 
Net Cash Flow provided by Operations $ 47,714   $ 40,535 17.7 % $ 71,121   $ 38,528   84.6 %
 
(1) See discussion above of non-GAAP financial measures.
 
RLI CORP.
2015 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
       
June 30, December 31,
2015 2014 % Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income $ 1,537,365 $ 1,495,087 2.8 %
(amortized cost - $1,515,002 at 6/30/15)
(amortized cost - $1,448,204 at 12/31/14)
Equity securities 391,152 410,642 -4.7 %
(cost - $198,607 at 6/30/15)
(cost - $193,535 at 12/31/14)
Other invested assets 11,069 11,597 -4.6 %
Cash and cash equivalents   37,256   46,959 -20.7 %
Total investments and cash $ 1,976,842 $ 1,964,285 0.6 %
 
Premiums and reinsurance balances receivable 174,584 154,573 12.9 %
Ceded unearned premiums 52,603 53,961 -2.5 %
Reinsurance balances recoverable on unpaid losses 328,030 335,106 -2.1 %
Deferred policy acquisition costs 71,575 65,123 9.9 %
Property and equipment 43,407 42,549 2.0 %
Investment in unconsolidated investees 71,179 60,046 18.5 %
Goodwill and intangibles 72,249 72,695 -0.6 %
Other assets   24,716   27,204 -9.1 %
Total assets $ 2,815,185 $ 2,775,542 1.4 %
 
Unpaid losses and settlement expenses $ 1,142,596 $ 1,121,040 1.9 %
Unearned premiums 430,632 401,412 7.3 %
Reinsurance balances payable 36,915 38,013 -2.9 %
Funds held 54,055 51,481 5.0 %
Income taxes - deferred 68,462 82,285 -16.8 %
Bonds payable, long-term debt 149,647 149,625 0.0 %
Accrued expenses 40,303 63,148 -36.2 %
Other liabilities   24,677   23,476 5.1 %
Total liabilities $ 1,947,287 $ 1,930,480 0.9 %
Shareholders' equity   867,898   845,062 2.7 %
Total liabilities & shareholders' equity $ 2,815,185 $ 2,775,542 1.4 %
 

OTHER DATA

 
Common shares outstanding (in 000's) 43,233 43,103
 
Book value per share $ 20.07 $ 19.61 2.3 %
Closing stock price per share $ 51.39 $ 49.40 4.0 %
Cash dividends per share - ordinary (annualized) $ 0.75 $ 0.71 5.6 %
Cash dividends per share - special $ - $ 3.00 -
 
Statutory Surplus $ 878,143 $ 849,297 3.4 %
 
RLI CORP.
2015 FINANCIAL HIGHLIGHTS
UNDERWRITING SEGMENT DATA
(Unaudited)
(Dollars in thousands, except per share amounts)
                 

Three Months Ended June 30,

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

2015

 
Gross premiums written $ 150,885 $ 64,842 $ 32,372 $ 248,099
Net premiums written 127,085 52,440 31,079 210,604
Net premiums earned 101,914 41,281 29,144 172,339
Net loss & settlement expenses 46,313 45.4 % 18,427 44.6 % (191 ) -0.7 % 64,549 37.5 %
Net operating expenses   36,400 35.7 %   18,026 43.7 %   18,528   63.6 %   72,954 42.3 %
Underwriting income $ 19,201 81.1 % $ 4,828 88.3 % $ 10,807 62.9 % $ 34,836 79.8 %
 

2014

 
Gross premiums written $ 132,283 $ 101,735 $ 30,152 $ 264,170
Net premiums written 109,376 71,766 27,386 208,528
Net premiums earned 94,360 48,791 25,453 168,604
Net loss & settlement expenses 44,863 47.5 % 28,272 57.9 % 210 0.8 % 73,345 43.5 %
Net operating expenses   33,030 35.0 %   18,226 37.4 %   17,434   68.5 %   68,690 40.7 %
Underwriting income $ 16,467 82.5 % $ 2,293 95.3 % $ 7,809 69.3 % $ 26,569 84.2 %
 

Six Months Ended June 30,

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

2015

 
Gross premiums written $ 264,792 $ 112,938 $ 60,936 $ 438,666
Net premiums written 222,952 90,883 58,086 371,921
Net premiums earned 200,682 83,399 57,261 341,342
Net loss & settlement expenses 104,946 52.3 % 34,453 41.3 % 6,011 10.5 % 145,410 42.6 %
Net operating expenses   71,263 35.5 %   35,942 43.1 %   36,253   63.3 %   143,458 42.0 %
Underwriting income $ 24,473 87.8 % $ 13,004 84.4 % $ 14,997 73.8 % $ 52,474 84.6 %
 

2014

 
Gross premiums written $ 244,238 $ 159,888 $ 57,442 $ 461,568
Net premiums written 201,024 115,425 53,670 370,119
Net premiums earned 185,337 92,109 52,290 329,736
Net loss & settlement expenses 97,482 52.6 % 43,670 47.4 % 3,209 6.1 % 144,361 43.8 %
Net operating expenses   65,310 35.2 %   36,468 39.6 %   34,496   66.0 %   136,274 41.3 %
Underwriting income $ 22,545 87.8 % $ 11,971 87.0 % $ 14,585 72.1 % $ 49,101 85.1 %
 

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

Source: RLI Corp.


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