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Form 8-K RLI CORP For: Jan 26

January 26, 2015 4:50 PM EST

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): January 26, 2015

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 January 26, 2015, RLI Corp. announced its results of operations for the fourth quarter and year ended December 31, 2014.� 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 January 26, 2015 (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:� January 26, 2015

By:

/s/ Daniel O. Kennedy

Daniel O. Kennedy

Vice President and General Counsel

3



EXHIBIT INDEX

Exhibit�No.

Exhibit

99.1

Press Release dated January 26, 2015 (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

GRAPHIC


NEWS RELEASE

9025 N. Lindbergh Drive� |� Peoria,�IL 61615-1431

RLI Corp.

P: 309-692-1000� |� F: 309-692-1068� |� www.rlicorp.com

FOR IMMEDIATE RELEASE

CONTACT: Aaron Jacoby

(309) 693-5880

[email protected]

www.rlicorp.com

RLI Reports 2014 Fourth Quarter and Year-End Results

PEORIA,�ILLINOIS, January�26, 2015 � RLI Corp. (NYSE: RLI) � RLI Corp. reported fourth quarter 2014 operating earnings of $31.3 million ($0.71 per share), compared to $31.5 million ($0.72 per share) for the fourth quarter of 2013. For the year ended December�31, 2014, operating earnings were $114.5 million ($2.61 per share) compared to $111.9 million ($2.57 per share) for the 2013 fiscal year.

Fourth�Quarter

Full�Year

Earnings�Per�Diluted�Share�

2014

2013

2014

2013

Operating earnings (1)

$

0.71

$

0.72

$

2.61

$

2.57

Net earnings

$

0.85

$

0.77

$

3.09

$

2.90


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

Highlights for the quarter included:

����������������� 1% growth in gross premiums written and 5% growth in net premiums written.

����������������� Underwriting income of $27.5 million, resulting in a combined ratio of 84.7.

����������������� $11.5 million net increase in underwriting income resulting from favorable development in prior years� loss reserves.

����������������� Special dividend of $3.00 per share, representing $129.3 million returned to shareholders.

Highlights for the year included:

����������������� 2% growth in gross premiums written and 6% growth in net premiums written.

����������������� Underwriting income of $107.0 million, resulting in a combined ratio of 84.5.

����������������� $62.0 million net increase in underwriting income resulting from favorable development in prior years� loss reserves.

����������������� 19th�consecutive year of a combined ratio below 100.

����������������� Book value per share of $19.61 at year end, an increase of 21% over 2013, inclusive of dividends.

�By remaining true to our disciplined underwriting strategy, we were able to deliver solid results this quarter,� said RLI Corp. Chairman�& CEO Jonathan E. Michael. �Despite experiencing increased competition in many of our products, we achieved top line growth and an 84.7 combined ratio.�

�2014 was another profitable year for our company and marked our 10th�consecutive year of achieving a combined ratio below 90 and 19th�consecutive year below 100,� said Michael. �During the year, we continued to focus on meeting the needs of our customers, managing our business with discipline, identifying new growth opportunities and delivering value to our shareholders. I congratulate all RLI professionals for accomplishing these objectives and positioning our company for growth.�

Underwriting income

RLI achieved $27.5 million of underwriting income in the fourth quarter of 2014 on an 84.7 combined ratio, compared to $29.6 million of underwriting income on an 82.4 combined ratio in the same quarter for 2013.

For the year, RLI achieved $107.0 million of underwriting income on an 84.5 combined ratio, compared to $106.8 million of underwriting income on an 83.1 combined ratio in 2013. Results for both years include favorable development in prior years� loss reserves, which totaled $62.0 million and $70.0 million for 2014 and 2013, respectively.

�more�

GRAPHIC



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

Underwriting�Income�(1)

(in�millions)

2014

2013

Casualty

$

45.9

$

55.6

Property

32.9

27.6

Surety

28.2

23.6

Total

$

107.0

$

106.8

Combined�Ratio

2014

2013

Casualty

88.0

82.8

Property

83.4

86.2

Surety

73.8

77.9

Total

84.5

83.1


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

Other income

RLI�s net investment income for the quarter increased 3.1% to $13.8 million, compared to the same period in 2013. For the year ended December�31, 2014, investment income was $55.6 million versus $52.8 million for the 2013 fiscal year. The increase was primarily due to a larger invested asset base for most of the year. The investment portfolio�s total return was 2.2% for the quarter. The bond portfolio returned 1.2% in the quarter, and the equity portfolio�s return was 6.1%. For the year ended December�31, 2014, the investment portfolio�s total return was 8.3% with the bond portfolio returning 6.5% and equities returning 14.7%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $47.5 million for the quarter ($1.08 per share) compared to $44.6 million ($1.02 per share) for the same quarter in 2013. Full-year comprehensive earnings were $170.8 million ($3.90 per share), compared to $119.1 million ($2.74 per share) in 2013.

Equity in earnings of unconsolidated investees was $0.1 million for the quarter compared to $0.2 million from the same period last year. Results for the current quarter 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, 2014, equity in earnings of unconsolidated investees was $12.0 million and $0.3 million for Maui Jim and Prime, respectively, versus $10.9 million for Maui Jim in 2013. Prior year figures reflect only Maui Jim results, as our equity investment in Prime occurred in the first quarter of 2014. During the quarter, RLI received a $6.6 million dividend from Maui Jim, which resulted in a tax benefit on dividends received from affiliates of $1.8 million ($0.04 per share).

Special and regular dividends

On December�22, 2014, RLI paid a special cash dividend of $3.00 per share and a regular quarterly dividend of $0.18 per share, totaling $137.1 million and resulting in a tax benefit of $3.6 million ($0.08 per share) as dividends to the ESOP are fully deductible. RLI has paid dividends for 154 consecutive quarters and increased regular dividends in each of the last 39 years. Over the last 10 years, the company�s regular quarterly dividend has grown an average of 9.9% 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 time (CT) tomorrow, January�27, 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/g8g5a7dy.

2



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, 2013.

RLI, a specialty insurance company, offers a diversified portfolio of property and casualty coverages and surety bonds serving niche or underserved markets. RLI operates in all 50 states from office locations across the country. RLI�s insurance subsidiaries � RLI Insurance Company, Mt. Hawley Insurance Company, RLI Indemnity Company and Contractors Bonding and Insurance Company � are rated A+ �Superior� by�A.M. Best Company.

For additional information, contact Aaron Jacoby, Vice President, Corporate Development at 309-693-5880 or at [email protected] or visit our website at www.rlicorp.com.

3



Supplemental disclosure regarding the earnings impact of specific items:

Operating�Earnings�Per�Share

2014

2013

2014

2013

4th�Qtr

4th�Qtr

12�Mos.

12�Mos.

Operating Earnings Per Share

$

0.71

$

0.72

$

2.61

$

2.57

Specific items included in operating earnings per share: (1)�(2)

Favorable development in casualty prior years� reserves

$

0.14

$

0.19

$

0.72

$

0.87

Favorable development in property prior years� reserves

$

0.01

$

0.02

$

0.02

$

0.07

Favorable development in surety prior years� reserves

$

0.01

$

0.02

$

0.16

$

0.08

Catastrophe impact

2014 events

$

$

$

(0.09

)

$

2013 and prior events

$

0.02

$

$

0.02

$

(0.10

)

Gain from tax benefit of special dividend to ESOP (3)

$

0.08

$

0.04

$

0.08

$

0.04

Gain from change in tax rate applicable to Maui Jim (4)

$

0.04

$

0.08

$

0.04

$

0.08


(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.

4



RLI CORP.

2014 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

Three�Months�Ended�December�31,

Twelve�Months�Ended�December�31,

2014

2013

%�Change

2014

2013

%�Change

SUMMARIZED INCOME STATEMENT DATA:

Net premiums earned

$

179,892

$

168,396

6.8

%

$

687,375

$

630,802

9.0

%

Net investment income

13,844

13,432

3.1

%

55,608

52,763

5.4

%

Net realized investment gains

9,542

3,611

164.2

%

32,182

22,036

46.0

%

Consolidated revenue

203,278

185,439

9.6

%

775,165

705,601

9.9

%

Loss and settlement expenses

76,229

68,500

11.3

%

296,609

259,801

14.2

%

Policy acquisition costs

60,896

54,637

11.5

%

229,283

210,651

8.8

%

Other insurance expenses

15,277

15,641

-2.3

%

54,464

53,557

1.7

%

Interest expense on debt

1,856

3,557

-47.8

%

7,438

8,095

-8.1

%

General corporate expenses

2,675

2,511

6.5

%

10,222

8,746

16.9

%

Total expenses

156,933

144,846

8.3

%

598,016

540,850

10.6

%

Equity in earnings of unconsolidated investees

134

219

-38.8

%

12,338

10,915

13.0

%

Earnings before income taxes

46,479

40,812

13.9

%

189,487

175,666

7.9

%

Income tax expense

8,982

6,953

29.2

%

54,042

49,411

9.4

%

Net earnings

$

37,497

$

33,859

10.7

%

$

135,445

$

126,255

7.3

%

Other comprehensive earnings (loss), net of tax

10,038

10,731

-6.5

%

35,356

(7,143

)

Comprehensive earnings

$

47,535

$

44,590

6.6

%

$

170,801

$

119,112

43.4

%

Operating earnings:(1)

Net earnings

$

37,497

$

33,859

10.7

%

$

135,445

$

126,255

7.3

%

Less: Realized investment gains, net of tax

6,203

2,346

164.4

%

20,919

14,323

46.1

%

Operating earnings

$

31,294

$

31,513

-0.7

%

$

114,526

$

111,932

2.3

%

Return on Equity:

Net earnings (trailing four quarters)

15.4

%

15.3

%

Comprehensive earnings (trailing four quarters)

19.4

%

14.4

%

Per Share Data

Diluted:

Weighted average shares outstanding (in 000�s)

43,937

43,753

43,819

43,514

EPS from operations (1)

$

0.71

$

0.72

-1.4

%

$

2.61

$

2.57

1.6

%

Realized gains, net of tax

0.14

0.05

180.0

%

0.48

0.33

45.5

%

Net earnings per share

$

0.85

$

0.77

10.4

%

$

3.09

$

2.90

6.6

%

Comprehensive earnings per share

$

1.08

$

1.02

5.9

%

$

3.90

$

2.74

42.3

%

Cash dividends per share - ordinary

$

0.18

$

0.17

5.9

%

$

0.71

$

0.67

6.0

%

Cash dividends per share - special

$

3.00

$

1.50

100.0

%

$

3.00

$

1.50

100.0

%

Net Cash Flow provided by Operations

$

37,191

$

53,230

-30.1

%

$

123,085

$

134,966

-8.8

%


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

5



RLI CORP.

2014 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

December�31,

December�31,

2014

2013

%�Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income

$

1,495,087

$

1,440,703

3.8

%

(amortized cost - $1,448,204 at 12/31/14)

(amortized cost - $1,431,700 at 12/31/13)

Equity securities

410,642

418,654

-1.9

%

(cost - $193,535 at 12/31/14)

(cost - $218,848 at 12/31/13)

Other invested assets

11,597

Cash and cash equivalents

46,959

62,701

-25.1

%

Total investments and cash

1,964,285

1,922,058

2.2

%

Premiums and reinsurance balances receivable

154,573

152,509

1.4

%

Ceded unearned premiums

53,961

60,407

-10.7

%

Reinsurance recoverable on unpaid losses

335,106

354,924

-5.6

%

Deferred acquisition costs

65,123

61,508

5.9

%

Property and equipment

42,549

40,261

5.7

%

Investment in unconsolidated investees

60,046

49,793

20.6

%

Goodwill and intangibles

72,695

74,876

-2.9

%

Other assets

27,204

23,974

13.5

%

Total assets

$

2,775,542

$

2,740,310

1.3

%

Unpaid losses and settlement expenses

1,121,040

1,129,433

-0.7

%

Unearned premiums

401,412

392,081

2.4

%

Reinsurance balances payable

38,013

47,334

-19.7

%

Funds held

51,481

61,656

-16.5

%

Bonds payable, long term debt

149,625

149,582

0.0

%

Income taxes - deferred

82,285

57,801

42.4

%

Accrued expenses

63,148

59,596

6.0

%

Other liabilities

23,476

13,861

69.4

%

Total liabilities

1,930,480

1,911,344

1.0

%

Shareholders� equity

845,062

828,966

1.9

%

Total liabilities�& shareholders� equity

$

2,775,542

$

2,740,310

1.3

%

OTHER DATA

Common shares outstanding (in 000�s)

43,103

42,982

Book value per share

$

19.61

$

19.29

1.7

%

Closing stock price per share

$

49.40

$

48.69

1.5

%

Cash dividends per share - ordinary

$

0.71

$

0.67

6.0

%

Cash dividends per share - special

$

3.00

$

1.50

100.0

%

Statutory Surplus

$

849,297

$

859,221

-1.2

%

6



RLI CORP.

2014 FINANCIAL HIGHLIGHTS

UNDERWRITING SEGMENT DATA

(Unaudited)

(Dollars in thousands, except per share amounts)

GAAP

GAAP

GAAP

GAAP

Three�Months�Ended�December�31,

Casualty

Ratios

Property

Ratios

Surety

Ratios

Total

Ratios

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

%

2013

Gross premiums written

$

113,774

$

50,533

$

27,390

$

191,697

Net premiums written

89,299

37,975

25,752

153,026

Net premiums earned

88,715

52,836

26,845

168,396

Net loss�& settlement expenses

39,748

44.8

%

25,507

48.3

%

3,245

12.1

%

68,500

40.7

%

Net operating expenses

32,892

37.1

%

19,339

36.6

%

18,047

67.2

%

70,278

41.7

%

Underwriting income

$

16,075

81.9

%

$

7,990

84.9

%

$

5,553

79.3

%

$

29,618

82.4

%

GAAP

GAAP

GAAP

GAAP

Twelve�Months�Ended�December�31,

Casualty

Ratios

Property

Ratios

Surety

Ratios

Total

Ratios

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

%

2013

Gross premiums written

$

456,953

$

272,723

$

113,519

$

843,195

Net premiums written

362,459

196,467

107,396

666,322

Net premiums earned

324,022

200,141

106,639

630,802

Net loss�& settlement expenses

148,860

45.9

%

96,271

48.1

%

14,670

13.8

%

259,801

41.2

%

Net operating expenses

119,570

36.9

%

76,266

38.1

%

68,372

64.1

%

264,208

41.9

%

Underwriting income

$

55,592

82.8

%

$

27,604

86.2

%

$

23,597

77.9

%

$

106,793

83.1

%

7




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