RLI Reports Second Quarter 2016 Results

PEORIA, Ill.--()--RLI Corp. (NYSE: RLI) -- RLI Corp. reported second quarter 2016 operating earnings of $27.3 million ($0.61 per share), compared to $34.1 million ($0.77 per share) for the second quarter of 2015. For the six months ended June 30, 2016, operating earnings were $51.3 million ($1.16 per share) compared to $56.0 million ($1.27 per share) for the same period in 2015.

    Second Quarter
Earnings Per Diluted Share   2016   2015
Operating earnings (1)   $0.61   $0.77
Net earnings   $0.65   $0.84
 
(1) See discussion below of non-GAAP financial measures.

Highlights for the quarter included:

  • Underwriting income of $26.0 million, resulting in a combined ratio of 85.5.
  • 1% growth in gross premiums written and 2% growth in net premiums written.
  • $14.7 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.
  • Book value per share of $20.87, an increase of 12% from year end 2015, inclusive of dividends.

“Our underwriters produced another quarter of excellent results,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “An 85.5 combined ratio in a competitive market environment is a testament to our disciplined underwriting. Overall premium growth was modest, but remains particularly strong in our casualty segment, which was up 7% in the quarter, as well as our Surety segment, where premium was up 4%. Property premium declined as we continue to respond to a challenging market with underwriting selectivity.” He continued, “We are also pleased to report continued strong book value growth, driven by a combination of world-class underwriting and a long-term, consistent approach to investing.”

Underwriting Income

RLI achieved $26.0 million of underwriting income in the second quarter of 2016 on an 85.5 combined ratio, compared to $34.8 million of underwriting income on a 79.8 combined ratio in the same quarter for 2015. Results for 2016 include $14.7 million in favorable development in prior years’ loss reserves, compared to $30.1 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)   Second Quarter Combined Ratio   Second Quarter
(in millions)       2016   2015       2016   2015
Casualty   $11.2   $19.2 Casualty 90.1   81.1
Property 7.2 4.8 Property 80.9 88.3
Surety       7.6   10.8 Surety     74.5   62.9
Total       $26.0   $34.8 Total     85.5   79.8
 
(1) See discussion below of non-GAAP financial measures.

Other Income

RLI’s net investment income for the quarter fell 2.9% to $13.0 million, compared to the same period in 2015. For the six-month period ended June 30, 2016, investment income was $26.4 million versus $26.9 million for the same period in 2015. The investment portfolio’s total return was 2.8% for the quarter. The bond portfolio’s return was 2.4% in the quarter, while the equity portfolio’s return was 4.4%. Through six months, the investment portfolio’s total return was 6.1% with the bond portfolio returning 5.0% and equities returning 10.4%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $48.1 million for the quarter ($1.08 per share) compared to $12.3 million ($0.28 per share) for the same quarter in 2015.

Equity in earnings of unconsolidated investees was $5.2 million for the quarter compared to $6.2 million from the same period last year. These results are related to Maui Jim, Inc. ($5.0 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.2 million), a specialty E&S insurance company. For the second quarter of 2015, equity in earnings of unconsolidated investees from Maui Jim and Prime was $5.9 million and $0.3 million, respectively. For the six-month period ended June 30, 2016, equity in earnings of unconsolidated investees was $8.9 million versus $10.4 million in 2015.

Net realized gains for the quarter included a $7.2 million realized loss from goodwill impairment. This non-cash goodwill impairment charge was related to RLI’s medical professional liability unit, which was acquired in 2012. As disclosed in previous SEC filings, the fair value of this business has declined in recent periods. Continued premium declines, coupled with adverse loss experience in the most recent quarter, resulted in the impairment charge.

Dividend Paid in the Second Quarter 2016

On June 20, 2016, the company paid an ordinary dividend of $0.20 per share, a $0.01 increase over the prior quarter. RLI’s cumulative dividends, including this recent payment, total more than $641 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 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, July 20, 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/cy3gdenk.

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.

About RLI

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. RLI has increased dividends for 41 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
2016 2015 2016 2015

2nd Qtr

2nd Qtr

6 Mos.

6 Mos.

Operating Earnings Per Share (1) $ 0.61 $ 0.77 $ 1.16 $ 1.27
 
Specific items included in operating earnings per share: (2) (3)

Favorable development in casualty prior years' reserves $ 0.15 $ 0.29 $ 0.32 $ 0.40

Favorable development in property prior years' reserves $ 0.04 $ 0.04 $ 0.03 $ 0.04

Favorable development in surety prior years' reserves $ 0.03 $ 0.09 $ 0.04 $ 0.08

Catastrophe impact

·

2016 storms $ (0.05 ) $ - $ (0.05 ) $ -
· 2015 and prior events $ (0.01 ) # $ (0.07 ) $ (0.01 ) $ (0.07 )
(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.
RLI CORP.
2016 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
           
Three Months Ended June 30, Six Months Ended June 30,
2016 2015 % Change 2016 2015 % Change

SUMMARIZED INCOME STATEMENT DATA:

Net premiums earned $ 180,226 $ 172,339 4.6 % $ 357,144 $ 341,342 4.6 %
Net investment income 13,048 13,431 -2.9 % 26,418 26,926 -1.9 %
Net realized gains   2,710   4,802   -43.6 %   14,110     18,088   -22.0 %
Consolidated revenue $ 195,984 $ 190,572 2.8 % 397,672 386,356 2.9 %
 
Loss and settlement expenses $ 80,277 $ 64,549 24.4 % 161,448 145,410 11.0 %
Policy acquisition costs 60,521 59,487 1.7 % 122,764 118,460 3.6 %
Insurance operating expenses 13,412 13,467 -0.4 % 25,612 24,998 2.5 %
Interest expense on debt 1,856 1,857 -0.1 % 3,713 3,713 0.0 %
General corporate expenses   2,768   2,748   0.7 %   5,143     4,992   3.0 %
Total expenses $ 158,834 $ 142,108 11.8 % 318,680 297,573 7.1 %
 
Equity in earnings of
unconsolidated investees   5,191   6,186   -16.1 %   8,942     10,380   -13.9 %
 
Earnings before income taxes $ 42,341 $ 54,650 -22.5 % 87,934 99,163 -11.3 %
Income tax expense   13,264   17,465   -24.1 %   27,464     31,380   -12.5 %
Net earnings $ 29,077 $ 37,185   -21.8 % $ 60,470   $ 67,783   -10.8 %
 
Other comprehensive earnings (loss), net of tax   19,066   (24,932 ) -     40,829     (32,527 ) -  
Comprehensive earnings $ 48,143 $ 12,253   292.9 % $ 101,299   $ 35,256   187.3 %
 
 
Operating earnings: (1)
 
Net earnings $ 29,077 $ 37,185 -21.8 % $ 60,470 $ 67,783 -10.8 %
Less: Realized gains, net of tax   1,761   3,122   -43.6 %   9,171     11,757   -22.0 %
Operating earnings $ 27,316 $ 34,063   -19.8 % $ 51,299   $ 56,026   -8.4 %
 
Return on Equity:
Net earnings (trailing four quarters)   14.9 %   15.6 %
Comprehensive earnings (trailing four quarters)   17.9 %   11.7 %
 
Per Share Data
 

Diluted:

Weighted average shares outstanding (in 000's) 44,423 44,019 44,381 44,008
 
EPS from operations (1) $ 0.61 $ 0.77 -20.8 % $ 1.16 $ 1.27 -8.7 %
Realized gains, net of tax   0.04   0.07   -42.9 %   0.20     0.27   -25.9 %
Net earnings per share $ 0.65 $ 0.84   -22.6 % $ 1.36   $ 1.54   -11.7 %
 
Comprehensive earnings per share $ 1.08 $ 0.28   285.7 % $ 2.28   $ 0.80   185.0 %
 
Cash dividends per share $ 0.20 $ 0.19 5.3 % $ 0.39 $ 0.37 5.4 %
 
 
Net Cash Flow provided by Operations $ 48,305 $ 47,714   1.2 % $ 69,571   $ 71,121   -2.2 %
 

(1)

  See discussion above of non-GAAP financial measures.
RLI CORP.
2016 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
     
 
June 30, December 31,
2016 2015 % Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income $ 1,631,953 $ 1,538,110 6.1 %
(amortized cost - $1,564,819 at 6/30/16)
(amortized cost - $1,518,156 at 12/31/15)
Equity securities 398,825 375,424 6.2 %
(cost - $210,622 at 6/30/16)
(cost - $202,437 at 12/31/15)
Other invested assets 24,891 20,666 20.4 %
Cash and cash equivalents   43,130   17,343 148.7 %
Total investments and cash $ 2,098,799 1,951,543 7.5 %
 
Premiums and reinsurance balances receivable 148,894 143,662 3.6 %
Ceded unearned premiums 52,536 52,833 -0.6 %
Reinsurance balances recoverable on unpaid losses 289,856 297,844 -2.7 %
Deferred policy acquisition costs 75,416 69,829 8.0 %
Property and equipment 52,605 47,102 11.7 %
Investment in unconsolidated investees 80,144 70,784 13.2 %
Goodwill and intangibles 64,785 71,294 -9.1 %
Other assets   29,178   30,574 -4.6 %
Total assets $ 2,892,213 $ 2,735,465 5.7 %
 
Unpaid losses and settlement expenses $ 1,123,472 1,103,785 1.8 %
Unearned premiums 445,620 422,094 5.6 %
Reinsurance balances payable 17,679 37,556 -52.9 %
Funds held 72,558 54,254 33.7 %
Income taxes - deferred 86,930 63,993 35.8 %
Bonds payable, long-term debt 148,648 148,554 0.1 %
Accrued expenses 39,352 55,742 -29.4 %
Other liabilities   44,420   26,018 70.7 %
Total liabilities $ 1,978,679 1,911,996 3.5 %
Shareholders' equity   913,534   823,469 10.9 %
Total liabilities & shareholders' equity $ 2,892,213 $ 2,735,465 5.7 %
 
 

OTHER DATA

 
Common shares outstanding (in 000's) 43,775 43,544
 
Book value per share $ 20.87 $ 18.91 10.4 %
Closing stock price per share $ 68.78 $ 61.75 11.4 %
Cash dividends per share - ordinary (annualized) $ 0.79 $ 0.75 5.3 %
Cash dividends per share - special $ - $ 2.00 -100.0 %
 
Statutory Surplus $ 924,005 $ 865,268 6.8 %
RLI CORP.
2016 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

2016

 
Gross premiums written $ 161,128 $ 55,835 $ 33,700 $ 250,663
Net premiums written 137,778 44,808 32,283 214,869
Net premiums earned 112,360 37,794 30,072 180,226
Net loss & settlement expenses 62,609 55.7 % 14,049 37.2 % 3,619 12.0 % 80,277 44.5 %
Net operating expenses   38,626 34.4 %   16,500 43.7 %   18,807   62.5 %   73,933 41.0 %
Underwriting income $ 11,125 90.1 % $ 7,245 80.9 % $ 7,646 74.5 % $ 26,016 85.5 %
 
 

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 %
 
 

Six Months Ended June 30,

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

2016

 
Gross premiums written $ 285,179 $ 97,480 $ 64,253 $ 446,912
Net premiums written 241,995 77,694 61,280 380,969
Net premiums earned 220,953 76,479 59,712 357,144
Net loss & settlement expenses 123,358 55.8 % 29,261 38.3 % 8,829 14.8 % 161,448 45.2 %
Net operating expenses   77,364 35.0 %   33,775 44.2 %   37,237   62.4 %   148,376 41.5 %
Underwriting income $ 20,231 90.8 % $ 13,443 82.5 % $ 13,646 77.2 % $ 47,320 86.7 %
 
 

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 %

Contacts

RLI Corp.
Aaron Jacoby, Vice President, Corporate Development
309-693-5880
Aaron.Jacoby@rlicorp.com

Release Summary

RLI Corp. reported second quarter 2016 operating earnings of $27.3 million ($0.61 per share), compared to $34.1 million ($0.77 per share) for the second quarter of 2015.

Contacts

RLI Corp.
Aaron Jacoby, Vice President, Corporate Development
309-693-5880
Aaron.Jacoby@rlicorp.com