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Form 8-K RLI CORP For: Apr 20

April 20, 2016 5:10 PM EDT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 20, 2016

 

 

RLI Corp.

(Exact name of registrant as specified in its charter)

 

Illinois

 

001-09463

 

37-0889946

(State or other jurisdiction

 

(Commission

 

(IRS Employer

of incorporation)

 

File Number)

 

Identification No.)

 

9025 North Lindbergh Drive, Peoria, IL

 

61615

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (309) 692-1000

 

Not applicable

 

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02 Results of Operations and Financial Condition.

 

On April 20, 2016, RLI Corp. announced its results of operations for the first quarter of 2016.  Furnished as Exhibit 99.1 and incorporated herein by reference is the press release issued by RLI Corp.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release dated April 20, 2016 (this Exhibit is furnished pursuant to Item 2.02 hereof and should not be deemed to be “filed” under the Securities Exchange Act of 1934).

 

2



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

RLI CORP.

 

 

Date: April 20, 2016

By:

/s/ Daniel O. Kennedy

 

Daniel O. Kennedy

 

Vice President and General Counsel

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Exhibit

 

 

 

99.1

 

Press Release dated April 20, 2016 (this Exhibit is furnished pursuant to Item 2.02 hereof and should not be deemed to be “filed” under the Securities Exchange Act of 1934).

 

4


Exhibit 99.1

 

 

RLI REPORTS FIRST QUARTER 2016 RESULTS

 

PEORIA, ILLINOIS, April 20, 2016 — RLI Corp. (NYSE: RLI) — RLI Corp. reported first quarter 2016 operating earnings of $24.0 million ($0.54 per share), compared to $22.0 million ($0.50 per share) for the first quarter of 2015.

 

 

 

First Quarter

 

Earnings Per Diluted Share

 

2016

 

2015

 

Operating earnings (1)

 

$

0.54

 

$

0.50

 

Net earnings

 

$

0.71

 

$

0.70

 

 


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

 

Highlights for the quarter included:

 

·                  Underwriting income of $21.3 million, resulting in a combined ratio of 88.0.

·                  3% growth in gross and net premiums written.

·                  $10.9 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.

·                  Book value per share of $19.97, an increase of 6% from year end 2015.

 

“We are off to a solid start to the year,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Key metrics this quarter include an 88 combined ratio and book value per share growth of 6%. Overall market conditions continue to be challenging, but relatively stable. Despite such an environment, we achieved 3% top line growth. Both our casualty and surety segments continued recent momentum, growing 9% and 7%, respectively. Property was down 13% and continues to be hampered by particularly competitive conditions.” He continued, “For the remainder of 2016, our team remains focused on serving our customers and growing our product portfolio by continuing to attract underwriting talent, while maintaining our focus on underwriting discipline.”

 

Underwriting Income

 

RLI achieved $21.3 million of underwriting income in the first quarter of 2016 on an 88.0 combined ratio, compared to $17.6 million of underwriting income on an 89.5 combined ratio in the same quarter for 2015. Results for 2016 include $10.9 million in favorable development in prior years’ loss reserves, compared to $7.0 million in favorable development in prior years’ loss reserves in 2015.

 

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

 

Underwriting Income (1)

 

First Quarter

 

(in millions)

 

2016

 

2015

 

Casualty

 

$

9.1

 

$

5.2

 

Property

 

6.2

 

8.2

 

Surety

 

6.0

 

4.2

 

Total

 

$

21.3

 

$

17.6

 

 

 

 

First Quarter

 

Combined Ratio

 

2016

 

2015

 

Casualty

 

91.6

 

94.7

 

Property

 

84.0

 

80.6

 

Surety

 

79.8

 

85.1

 

Total

 

88.0

 

89.5

 

 


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

 

—more—

 

 



 

Other Income

 

RLI’s net investment income for the quarter fell 0.9% to $13.4 million, compared to the same period in 2015. The investment portfolio’s total return was 3.2% for the quarter. The bond portfolio gained 2.6% in the quarter, while the equity portfolio’s return was 5.7%.

 

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $53.2 million for the quarter ($1.20 per share) compared to $23.0 million ($0.52 per share) for the same quarter in 2015.

 

Equity in earnings of unconsolidated investees was $3.8 million for the quarter compared to $4.2 million from the same period last year. These results are related to Maui Jim, Inc. ($3.3 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.5 million), a specialty E&S insurance company. For the first quarter of 2015, equity in earnings of unconsolidated investees from Maui Jim and Prime was $3.7 million and $0.5 million, respectively.

 

Dividend Paid in the First Quarter 2016

 

On March 18, 2016, the company paid an ordinary dividend of $0.19 per share, the same amount as the prior quarter. RLI’s cumulative dividends, including this recent payment, total more than $638 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

 

At 10 a.m. central daylight time (CDT) tomorrow, April 21, 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/44d84mrv.

 

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, 2015.

 

2



 

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.

 

Media Contact

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

 

3



 

Supplemental disclosure regarding the earnings impact of specific items:

 

 

 

Operating Earnings Per Share

 

 

 

2016

 

2015

 

 

 

1st Qtr

 

1st Qtr

 

Operating Earnings Per Share (1)

 

$

0.54

 

$

0.50

 

 

 

 

 

 

 

Specific items included in operating earnings per share: (2) (3)

 

 

 

 

 

·   Favorable development in casualty prior years’ reserves

 

$

0.16

 

$

0.11

 

·   Unfavorable development in surety prior years’ reserves

 

$

 

$

(0.01

)

 


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

(2)  Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.

(3)  Reserve development reflects changes from previously estimated losses.

 

4



 

RLI CORP.

2016 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

2015

 

% Change

 

SUMMARIZED INCOME STATEMENT DATA:

 

 

 

 

 

 

 

Net premiums earned

 

$

176,918

 

$

169,003

 

4.7

%

Net investment income

 

13,370

 

13,495

 

-0.9

%

Net realized investment gains

 

11,400

 

13,286

 

-14.2

%

Consolidated revenue

 

$

201,688

 

$

195,784

 

3.0

%

 

 

 

 

 

 

 

 

Loss and settlement expenses

 

$

81,171

 

$

80,861

 

0.4

%

Policy acquisition costs

 

62,243

 

58,973

 

5.5

%

Other insurance expenses

 

12,200

 

11,531

 

5.8

%

Interest expense on debt

 

1,857

 

1,856

 

0.1

%

General corporate expenses

 

2,375

 

2,244

 

5.8

%

Total expenses

 

$

159,846

 

$

155,465

 

2.8

%

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated investees

 

3,751

 

4,194

 

-10.6

%

 

 

 

 

 

 

 

 

Earnings before income taxes

 

$

45,593

 

$

44,513

 

2.4

%

Income tax expense

 

14,200

 

13,915

 

2.0

%

Net earnings

 

$

31,393

 

$

30,598

 

2.6

%

 

 

 

 

 

 

 

 

Other comprehensive earnings (loss), net of tax

 

21,763

 

(7,595

)

 

 

 

 

 

 

 

 

 

Comprehensive earnings

 

$

53,156

 

$

23,003

 

131.1

%

 

 

 

 

 

 

 

 

Operating earnings: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

31,393

 

$

30,598

 

2.6

%

 

 

 

 

 

 

 

 

Less: Realized investment gains, net of tax

 

7,410

 

8,635

 

-14.2

%

 

 

 

 

 

 

 

 

Operating earnings

 

$

23,983

 

$

21,963

 

9.2

%

 

 

 

 

 

 

 

 

Return on Equity:

 

 

 

 

 

 

 

Net earnings (trailing four quarters)

 

16.1

%

15.5

%

 

 

Comprehensive earnings (trailing four quarters)

 

13.9

%

16.6

%

 

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

Weighted average shares outstanding (in 000’s)

 

44,361

 

43,992

 

 

 

 

 

 

 

 

 

 

 

EPS from operations (1) 

 

$

0.54

 

$

0.50

 

8.0

%

Realized gains, net of tax

 

0.17

 

0.20

 

-15.0

%

Net earnings per share

 

$

0.71

 

$

0.70

 

1.4

%

 

 

 

 

 

 

 

 

Comprehensive earnings per share

 

$

1.20

 

$

0.52

 

130.8

%

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

0.19

 

$

0.18

 

5.6

%

 

 

 

 

 

 

 

 

Net Cash Flow provided by Operations

 

$

21,266

 

$

23,407

 

-9.1

%

 


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

 

5



 

RLI CORP.

2016 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

March 31,

 

December 31,

 

 

 

 

 

2016

 

2015

 

% Change

 

SUMMARIZED BALANCE SHEET DATA:

 

 

 

 

 

 

 

Fixed income

 

$

1,556,968

 

$

1,538,110

 

1.2

%

(amortized cost - $1,512,806 at 3/31/16)

 

 

 

 

 

 

 

(amortized cost - $1,518,156 at 12/31/15)

 

 

 

 

 

 

 

Equity securities

 

389,551

 

375,424

 

3.8

%

(cost - $207,302 at 3/31/16)

 

 

 

 

 

 

 

(cost - $202,437 at 12/31/15)

 

 

 

 

 

 

 

Other invested assets

 

25,279

 

20,666

 

22.3

%

Cash and cash equivalents

 

33,974

 

17,343

 

95.9

%

Total investments and cash

 

$

2,005,772

 

1,951,543

 

2.8

%

 

 

 

 

 

 

 

 

Premiums and reinsurance balances receivable

 

115,183

 

143,662

 

-19.8

%

Ceded unearned premiums

 

49,164

 

52,833

 

-6.9

%

Reinsurance recoverable on unpaid losses

 

297,240

 

297,844

 

-0.2

%

Deferred acquisition costs

 

69,489

 

69,829

 

-0.5

%

Property and equipment

 

49,658

 

47,102

 

5.4

%

Investment in unconsolidated investees

 

74,548

 

70,784

 

5.3

%

Goodwill and intangibles

 

72,232

 

71,294

 

1.3

%

Other assets

 

26,568

 

30,574

 

-13.1

%

Total assets

 

$

2,759,854

 

$

2,735,465

 

0.9

%

 

 

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

1,121,363

 

1,103,785

 

1.6

%

Unearned premiums

 

407,606

 

422,094

 

-3.4

%

Reinsurance balances payable

 

15,588

 

37,556

 

-58.5

%

Funds held

 

54,094

 

54,254

 

-0.3

%

Income taxes - deferred

 

76,186

 

63,993

 

19.1

%

Bonds payable, long term debt

 

148,601

 

148,554

 

0.0

%

Accrued expenses

 

33,558

 

55,742

 

-39.8

%

Other liabilities

 

30,664

 

26,018

 

17.9

%

Total liabilities

 

1,887,660

 

1,911,996

 

-1.3

%

Shareholders’ equity

 

872,194

 

823,469

 

5.9

%

Total liabilities & shareholders’ equity

 

$

2,759,854

 

$

2,735,465

 

0.9

%

 

 

 

 

 

 

 

 

OTHER DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding (in 000’s)

 

43,672

 

43,544

 

 

 

 

 

 

 

 

 

 

 

Book value per share

 

$

19.97

 

$

18.91

 

5.6

%

Closing stock price per share

 

$

66.86

 

$

61.75

 

8.3

%

Cash dividends per share - ordinary (annualized)

 

$

0.76

 

$

0.75

 

1.3

%

Cash dividends per share - special

 

$

 

$

2.00

 

-100.0

%

 

 

 

 

 

 

 

 

Statutory Surplus

 

$

897,749

 

$

865,268

 

3.8

%

 

6



 

RLI CORP.

2016 FINANCIAL HIGHLIGHTS

UNDERWRITING SEGMENT DATA

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

Three Months Ended March 31,

 

Casualty

 

Ratios

 

Property

 

Ratios

 

Surety

 

Ratios

 

Total

 

Ratios

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

124,051

 

 

 

$

41,645

 

 

 

$

30,553

 

 

 

$

196,249

 

 

 

Net premiums written

 

104,217

 

 

 

32,886

 

 

 

28,997

 

 

 

166,100

 

 

 

Net premiums earned

 

108,593

 

 

 

38,685

 

 

 

29,640

 

 

 

176,918

 

 

 

Net loss & settlement expenses

 

60,749

 

55.9

%

15,212

 

39.3

%

5,210

 

17.6

%

81,171

 

45.9

%

Net operating expenses

 

38,738

 

35.7

%

17,275

 

44.7

%

18,430

 

62.2

%

74,443

 

42.1

%

Underwriting income

 

$

9,106

 

91.6

%

$

6,198

 

84.0

%

$

6,000

 

79.8

%

$

21,304

 

88.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

113,907

 

 

 

$

48,096

 

 

 

$

28,564

 

 

 

$

190,567

 

 

 

Net premiums written

 

95,867

 

 

 

38,443

 

 

 

27,007

 

 

 

161,317

 

 

 

Net premiums earned

 

98,768

 

 

 

42,118

 

 

 

28,117

 

 

 

169,003

 

 

 

Net loss & settlement expenses

 

58,633

 

59.4

%

16,026

 

38.1

%

6,202

 

22.1

%

80,861

 

47.8

%

Net operating expenses

 

34,863

 

35.3

%

17,916

 

42.5

%

17,725

 

63.0

%

70,504

 

41.7

%

Underwriting income

 

$

5,272

 

94.7

%

$

8,176

 

80.6

%

$

4,190

 

85.1

%

$

17,638

 

89.5

%

 

7




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