News Column

RLI Reports Second Quarter 2014 Results

July 16, 2014

PEORIA, Ill.--(BUSINESS WIRE)-- RLI Corp. (NYSE: RLI) – RLI Corp. reported second quarter 2014 operating earnings of $28.9 million ($0.66 per share), compared to $27.5 million ($0.63 per share) for the second quarter of 2013. For the six months ended June 30, 2014, operating earnings were $53.7 million ($1.23 per share) compared to $49.9 million ($1.15 per share) for the same period in 2013.

  Second Quarter
Earnings Per Diluted Share2014 2013
Operating earnings (1) $0.66$0.63
Net earnings $0.82$0.69
(1)See discussion below of non-GAAP financial measures.
 


Highlights for the quarter included:

  • Combined ratio of 84.2, resulting in underwriting income of $26.6 million.
  • 3% growth in gross premiums written and 4% growth in net premiums written.
  • $22.3 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.
  • $6.8 million net decrease in underwriting income resulting from 2014 spring storms.
  • Investment income of $14.0 million, up 9% from the same period last year.
  • Book value per share of $21.37, an increase of 11% from year end 2013.

    “We are pleased to report solid results for the quarter, including an 84.2 combined ratio, and 11% growth in book value per share for the year,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Our strong performance and book value growth were driven by consistent underwriting results across all of our segments and positive returns in the investment portfolio.”

    “We continuously look for ways to enhance the product offerings and service we provide to our customers. Our company is well-positioned to take advantage of opportunities that add value for our customers and align with our business,” said Michael.

    Underwriting income

    RLI achieved $26.6 million of underwriting income in the second quarter of 2014 on an 84.2 combined ratio, compared to $25.6 million of underwriting income on an 83.4 combined ratio in the same quarter for 2013. Results for 2014 include $22.3 million in favorable development in prior years’ loss reserves, compared to $24.6 million in favorable development in prior years’ loss reserves in 2013. Partially offsetting the favorable results in both periods were spring storm losses of $6.8 million in 2014 and $8.8 million in 2013.

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

                                   
    Underwriting Income (1)   Second Quarter Combined Ratio   Second Quarter
    (in millions)     2014   2013       2014   2013
    Casualty $16.5   $14.6 Casualty 82.5   81.3
    Property 2.3 2.2 Property 95.3 95.6
    Surety       7.8   8.8 Surety     69.3   67.2
    Total       $26.6   $25.6 Total     84.2   83.4
     
    (1) See discussion below of non-GAAP financial measures.
     


    RLI reported year-to-date underwriting income of $49.1 million representing an 85.1 combined ratio through June 30, 2014, versus $45.4 million of underwriting income representing an 84.8 combined ratio for the same period last year.

    Other income

    RLI’s net investment income for the quarter increased 8.8% to $14.0 million, compared to the same period in 2013. For the six-month period ended June 30, 2014, investment income was $27.6 million versus $25.7 million for the same period in 2013. The investment portfolio’s total return was 3.0% for the quarter. The bond portfolio’s return was 2.3% in the quarter, while the equity portfolio gained 5.4%. Through six months, the investment portfolio’s total return was 5.8% with the bond portfolio returning 4.7% and equities returning 9.3%.

    Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $55.7 million ($1.27 per share) for the quarter compared to -$3.6 million (-$0.08 per share) for the same quarter in 2013. Year-to-date comprehensive earnings were $102.4 million ($2.34 per share), compared to $38.8 million ($0.90 per share) for the same period last year.

    During the quarter, equity in earnings of unconsolidated investees was $5.9 million compared to $4.6 million from the same period last year. Results for the current year are related to Maui Jim, Inc. ($5.7 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.2 million), a specialty E&S insurance company. For the six-month period ended June 30, 2014, equity in earnings of unconsolidated investees was $9.3 million versus $8.1 million in 2013. Prior year figures reflect only Maui Jim results, as our equity investment in Prime occurred in the first quarter of 2014.

    Dividend paid in the second quarter 2014

    On June 20, 2014, the Company paid a dividend of $0.18 per share, a $0.01 increase over the prior quarter. RLI has paid dividends for 152 consecutive quarters and increased dividends in each of the last 39 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 RLI insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company, RLI Indemnity Company and Contractors Bonding and Insurance Company. CBIC’s inclusion as a member of the RLI Group rating recognizes the strategic importance of the company and its successful integration into the RLI Group.

    At 10 a.m. central time (CT) tomorrow, July 17, 2014, 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://www.media-server.com/m/p/koyd4qb9.

    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 aaron.jacoby@rlicorp.com or visit our website at www.rlicorp.com.

    Supplemental disclosure regarding the earnings impact of specific items:

                 
    Operating Earnings Per Share
    2014 2013 2014 2013
    2nd Qtr2nd Qtr6 Mos.6 Mos.
    Operating Earnings Per Share $0.66 $ 0.63 $1.23 $ 1.15
     
    Specific items included in operating earnings per share: (1) (2)
    --- Favorable development in casualty prior years' reserves $0.30 $ 0.27 $0.43 $ 0.42
    --- Favorable (unfavorable) development in property prior years' reserves $(0.01) $ 0.01 $0.01 $ 0.01
    --- Favorable development in surety prior years' reserves $0.05 $ 0.06 $0.09 $ 0.07
    --- Catastrophe impact
    --- 2014 spring storms $(0.10) $ - $(0.10) $ -
    --- 2013 and prior events $(0.01) $ (0.11 ) $- $ (0.11 )
    (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.
    2014 FINANCIAL HIGHLIGHTS
    (Unaudited)
    (Dollars in thousands, except per share amounts)
     
    Three Months Ended June 30,Six Months Ended June 30,
    20142013% Change20142013% Change

    SUMMARIZED INCOME STATEMENT DATA:

    Net premiums earned $ 168,604 $ 154,553 9.1 % $ 329,736 $ 298,704 10.4 %
    Net investment income 13,982 12,847 8.8 % 27,564 25,733 7.1 %
    Net realized investment gains   10,431   3,742   178.8 %   16,932     7,426   128.0 %
    Consolidated revenue 193,017 171,142 12.8 % 374,232 331,863 12.8 %
     
    Loss and settlement expenses 73,345 65,607 11.8 % 144,361 127,055 13.6 %
    Policy acquisition costs 55,156 51,502 7.1 % 110,207 101,838 8.2 %
    Other insurance expenses 13,534 11,885 13.9 % 26,067 24,454 6.6 %
    Interest expense on debt 1,874 1,513 23.9 % 3,725 3,025 23.1 %
    General corporate expenses   2,549   1,692   50.7 %   4,747     4,078   16.4 %
    Total expenses 146,458 132,199 10.8 % 289,107 260,450 11.0 %
     
    Equity in earnings of
    unconsolidated investees   5,864   4,633   26.6 %   9,289     8,132   14.2 %
     
    Earnings before income taxes 52,423 43,576 20.3 % 94,414 79,545 18.7 %
    Income tax expense   16,698   13,674   22.1 %   29,720     24,796   19.9 %
    Net earnings $ 35,725 $ 29,902   19.5 % $ 64,694   $ 54,749   18.2 %
     
    Other comprehensive earnings (loss), net of tax   19,934   (33,481 ) -     37,671     (15,928 ) -  
     
    Comprehensive earnings (loss) $ 55,659 $ (3,579 ) -   $ 102,365   $ 38,821   163.7 %
     
     
    Operating earnings: (1)
    Net earnings $ 35,725 $ 29,902 19.5 % $ 64,694 $ 54,749 18.2 %

    Less: Realized investment gains, net of tax

      6,780   2,432   178.8 %   11,005     4,827   128.0 %
    Operating earnings $ 28,945 $ 27,470   5.4 % $ 53,689   $ 49,922   7.5 %
     
    Return on Equity:
    Net earnings (trailing four quarters)   15.8 %   12.5 %
    Comprehensive earnings (trailing four quarters)   21.3 %   11.7 %
     
    Per Share Data
     

    Diluted:

    Weighted average shares outstanding (in 000's) 43,688 43,341 43,669 43,268
     
    EPS from operations (1) $ 0.66 $ 0.63 4.8 % $ 1.23 $ 1.15 7.0 %
    Realized gains, net of tax   0.16   0.06   166.7 %   0.25     0.12   108.3 %
    Net earnings per share $ 0.82 $ 0.69   18.8 % $ 1.48   $ 1.27   16.5 %
     
    Comprehensive earnings (loss) per share $ 1.27 $ (0.08 ) -   $ 2.34   $ 0.90   160.0 %
    Cash dividends per share $ 0.18 $ 0.17 5.9 % $ 0.35 $ 0.33 6.1 %
     
    Net Cash Flow provided by Operations $ 40,535 $ 33,109   22.4 % $ 38,528   $ 26,781   43.9 %
     
    (1) See discussion above of non-GAAP financial measures.
     
    RLI CORP.
    2014 FINANCIAL HIGHLIGHTS
    (Unaudited)
    (Dollars in thousands, except per share amounts)
         
    June 30,December 31,
    20142013% Change  

    SUMMARIZED BALANCE SHEET DATA:

    Fixed income $ 1,535,272 $ 1,440,703 6.6 %
    (amortized cost - $1,486,276 at 6/30/14)
    (amortized cost - $1,431,700 at 12/31/13)
    Equity securities 436,462 418,654 4.3 %
    (cost - $218,797 at 6/30/14)
    (cost - $218,848 at 12/31/13)
    Cash and cash equivalents   45,723   62,701 -27.1 %
    Total investments and cash 2,017,457 1,922,058 5.0 %
     
    Premiums and reinsurance balances receivable 203,499 152,509 33.4 %
    Ceded unearned premiums 72,396 60,407 19.8 %
    Reinsurance recoverable on unpaid losses 339,104 354,924 -4.5 %
    Deferred acquisition costs 68,190 61,508 10.9 %
    Property and equipment 42,935 40,261 6.6 %
    Investment in unconsolidated investees 64,487 49,793 29.5 %
    Goodwill and intangibles 74,407 74,876 -0.6 %
    Other assets   26,521   23,974 10.6 %
    Total assets $ 2,908,996 $ 2,740,310 6.2 %
     
    Unpaid losses and settlement expenses 1,127,073 1,129,433 -0.2 %
    Unearned premiums 444,453 392,081 13.4 %
    Reinsurance balances payable 62,402 47,334 31.8 %
    Funds held 59,398 61,656 -3.7 %
    Long-term debt - bonds payable 149,604 149,582 0.0 %
    Income taxes - deferred 81,963 57,801 41.8 %
    Accrued expenses 40,199 59,596 -32.5 %
    Other liabilities   24,509   13,861 76.8 %
    Total liabilities 1,989,601 1,911,344 4.1 %
    Shareholders' equity   919,395   828,966 10.9 %
    Total liabilities & shareholders' equity $ 2,908,996 $ 2,740,310 6.2 %
     

    OTHER DATA

     
    Common shares outstanding (in 000's) 43,024 42,982
     
    Book value per share $ 21.37 $ 19.29 10.8 %
    Closing stock price per share $ 45.78 $ 48.69 -6.0 %
    Cash dividends per share - ordinary (annualized) $ 0.71 $ 0.67 6.0 %
    Cash dividends per share - special $ - $ 1.50 -
     
    Statutory Surplus $ 903,013 $ 859,221 5.1 %
     
    RLI CORP.
    2014 FINANCIAL HIGHLIGHTS
    UNDERWRITING SEGMENT DATA
    (Unaudited)
    (Dollars in thousands, except per share amounts)
                       

    Three Months Ended June 30,

    GAAPGAAPGAAPGAAP
    CasualtyRatiosPropertyRatiosSuretyRatiosTotalRatios

    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 %
     

    2013

     
    Gross premiums written $ 123,486 $ 102,454 $ 30,100 $ 256,040
    Net premiums written 99,247 71,937 28,765 199,949
    Net premiums earned 78,372 49,619 26,562 154,553
    Net loss & settlement expenses 35,530 45.3 % 28,911 58.3 % 1,166 4.4 % 65,607 42.4 %
    Net operating expenses     28,228 36.0%     18,486 37.3%     16,673 62.8%     63,387 41.0%
    Underwriting income $ 14,614 81.3 % $ 2,222 95.6 % $ 8,723 67.2 % $ 25,559 83.4 %
     
     

    Six Months Ended June 30,

    GAAPGAAPGAAPGAAP
    CasualtyRatiosPropertyRatiosSuretyRatiosTotalRatios

    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 %
     

    2013

     
    Gross premiums written $ 226,937 $ 166,474 $ 56,421 $ 449,832
    Net premiums written 181,744 117,529 53,642 352,915
    Net premiums earned 151,341 94,600 52,763 298,704
    Net loss & settlement expenses 76,825 50.8 % 44,045 46.6 % 6,185 11.7 % 127,055 42.5 %
    Net operating expenses     55,798 36.9%     37,409 39.5%     33,085 62.7%     126,292 42.3%
    Underwriting income $ 18,718 87.7 % $ 13,146 86.1 % $ 13,493 74.4 % $ 45,357 84.8 %
     





    RLI Corp.

    Aaron Jacoby

    (309) 693-5880

    Aaron.Jacoby@rlicorp.com

    www.rlicorp.com

    Source: RLI Corp.


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