RLI Corp. (NYSE: RLI) – RLI Corp. reported first quarter 2017 net earnings of $19.8 million ($0.45 per share), compared to $31.4 million ($0.71 per share) for the first quarter of 2016. Operating earnings for the first quarter of 2017 were $19.4 million ($0.44 per share) compared to $24.0 million ($0.54 per share) for the same period in 2016.

   
    First Quarter
Earnings Per Diluted Share   2017   2016
Net earnings $ 0.45 $ 0.71
Operating earnings (1)   $ 0.44   $ 0.54
 
(1) See discussion below of non-GAAP and performance measures.
 

Highlights for the quarter included:

  • Underwriting income of $13.1 million, resulting in a combined ratio of 92.9.
  • 1% decline in gross premiums written.
  • Favorable development in prior years’ loss reserves resulting in a $4.7 million net increase in underwriting income.
  • Book value per share of $19.28, an increase of 4% from year end 2016, inclusive of dividends.

“Although our casualty segment posted a 106 combined ratio, primarily due to some lingering effects from elevated commercial auto loss experience, our property and surety segments delivered outstanding results with combined ratios of 76 and 64, respectively,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “From a premium perspective, our casualty and surety segments posted modest top-line growth, which is a testament to our ability to meet customer needs and capitalize on newer products within our portfolio. Our property segment’s premium, however, continued to trend downward due to soft market conditions and previously announced reductions in select, smaller products. We remain confident that our underwriting discipline, claim expertise and superior service will continue to differentiate RLI in the markets we serve.”

Underwriting Income

RLI achieved $13.1 million of underwriting income in the first quarter of 2017 on a 92.9 combined ratio, compared to $21.3 million of underwriting income on an 88.0 combined ratio in the same quarter for 2016. Results for both years include favorable development in prior years’ loss reserves which totaled $4.7 million and $10.9 million for the first quarter of 2017 and 2016, respectively.

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

           
Underwriting Income (1) First Quarter Combined Ratio (1) First Quarter
(in millions)   2017   2016     2017   2016
Casualty $ (6.8) $ 9.1 Casualty 105.8 91.6
Property 8.8 6.2 Property 75.5 84.0
Surety     11.1     6.0 Surety   63.5   79.8
Total   $ 13.1   $ 21.3 Total   92.9   88.0
 
(1) See discussion below of non-GAAP and performance measures.
 

Other Income

RLI’s net investment income for the quarter fell 2.7% to $13.0 million, compared to the same period in 2016. The investment portfolio’s total return was 1.8% for the quarter. The bond portfolio’s return was 1.3% in the quarter, while the equity portfolio’s return was 4.1%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $31.6 million for the quarter ($0.71 per share) compared to $53.2 million ($1.20 per share) for the same quarter in 2016.

Equity in earnings of unconsolidated investees was $4.9 million for the quarter compared to $3.8 million from the same period last year. These results are related to Maui Jim, Inc. ($4.3 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.6 million), a specialty E&S insurance company. For the first quarter of 2016, equity in earnings of unconsolidated investees from Maui Jim and Prime was $3.3 million and $0.5 million, respectively.

Dividends Paid in the First Quarter 2017

On March 20, 2017, the company paid an ordinary dividend of $0.20 per share, the same amount as the prior quarter. RLI’s cumulative dividends, including this recent payment, total more than $630 million paid over the last five years.

Non-GAAP and Performance Measures

Management has included certain non-generally accepted accounting principles (“non-GAAP”) financial measures in presenting the Company’s results. Management believes that these non-GAAP measures better explain the Company’s results of operations and allow for a more complete understanding of the underlying trends in the Company’s business. These measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles (“GAAP”). In addition, our definitions of these items may not be comparable to the definitions used by other companies.

Operating earnings and earnings per share (EPS) from operations consist of our GAAP net earnings adjusted by the net realized gains/(losses) and taxes related thereto. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. A reconciliation of the operating earnings and EPS from operations to the comparable GAAP financial measures is included in the 2017 financial highlights below.

Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting loss and settlement expenses, policy acquisition costs and insurance operating expenses from net premium earned, which are all GAAP financial measures. The combined ratio, which is derived from components of underwriting income, is a performance measure commonly used by property and casualty insurance companies to help users of their financial information to better understand company performance.

Other News

At 10 a.m. central daylight time (CDT) tomorrow, April 20, 2017, 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/e45non7z.

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, 2016.

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 insurance subsidiaries are rated A+ (Superior) by A.M. Best Company. RLI has paid and increased regular dividends for 41 consecutive years and delivered underwriting profits for 21 consecutive years. To learn more about RLI, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

     
Operating Earnings Per Share
2017 2016
1st Qtr 1st Qtr
Operating Earnings Per Share (1) $ 0.44 $ 0.54
 
Specific items included in operating earnings per share: (2) (3)

▪

Favorable (unfavorable) development in casualty prior years' reserves $ (0.05) $ 0.16

▪

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

▪

Favorable development in surety prior years' reserves $ 0.09 $ -
 
(1) See discussion above of non-GAAP and performance 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.
2017 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended March 31,
2017 2016 % Change

SUMMARIZED INCOME STATEMENT DATA:

Net premiums earned $ 183,285 $ 176,918 3.6 %
Net investment income 13,005 13,370 (2.7) %
Net realized gains   624   11,400 (94.5) %
Consolidated revenue $ 196,914 $ 201,688 (2.4) %
 
Loss and settlement expenses $ 93,390 $ 81,171 15.1 %
Policy acquisition costs 63,503 62,243 2.0 %
Insurance operating expenses 13,335 12,200 9.3 %
Interest expense on debt 1,856 1,857 (0.1) %
General corporate expenses   3,325   2,375 40.0 %
Total expenses $ 175,409 $ 159,846 9.7 %
 
Equity in earnings of
unconsolidated investees   4,938   3,751 31.6 %
 
Earnings before income taxes $ 26,443 $ 45,593 (42.0) %
Income tax expense   6,615   14,200 (53.4) %
Net earnings $ 19,828 $ 31,393 (36.8) %
 
Other comprehensive earnings, net of tax   11,769   21,763 (45.9) %
 
Comprehensive earnings $ 31,597 $ 53,156 (40.6) %
 
Operating earnings: (1)
 
Net earnings $ 19,828 $ 31,393 (36.8) %
Less: Realized gains (624) (11,400) (94.5) %
Income tax on realized gains   219   3,990 (94.5) %
Operating earnings $ 19,423 $ 23,983 (19.0) %
 
Return on Equity:
Net earnings (trailing four quarters)   11.8 %   16.1 %
Comprehensive earnings (trailing four quarters)   10.5 %   13.9 %
 
Per Share Data:
 

Diluted:

Weighted average shares outstanding (in 000's) 44,502 44,361
 
Net earnings per share $ 0.45 $ 0.71 (36.6) %
Less: Realized gains (0.01) (0.26) (96.2) %
Income tax on realized gains   -   0.09 (100.0) %
EPS from operations (1) $ 0.44 $ 0.54 (18.5) %
 
Comprehensive earnings per share $ 0.71 $ 1.20 (40.8) %
 
Cash dividends per share $ 0.20 $ 0.19 5.3 %
 
Net Cash Flow provided by Operations $ 11,265 $ 21,266 (47.0) %
 
 
(1) See discussion above of non-GAAP and performance measures.
     
RLI CORP.
2017 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
March 31, December 31,
2017 2016 % Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income $ 1,590,399 $ 1,605,209 (0.9) %
(amortized cost - $1,572,909 at 3/31/17)
(amortized cost - $1,596,227 at 12/31/16)
Equity securities 383,929 369,219 4.0 %
(cost - $192,340 at 3/31/17)
(cost - $187,573 at 12/31/16)
Other invested assets 47,823 24,115 98.3 %
Cash and cash equivalents 41,146 23,284 76.7 %
Total investments and cash $ 2,063,297 $ 2,021,827 2.1 %
 
Premiums and reinsurance balances receivable 121,863 126,387 (3.6) %
Ceded unearned premiums 48,804 52,173 (6.5) %
Reinsurance balances recoverable on unpaid losses 271,346 288,224 (5.9) %
Deferred policy acquisition costs 71,995 73,147 (1.6) %
Property and equipment 56,173 54,606 2.9 %
Investment in unconsolidated investees 76,833 72,240 6.4 %
Goodwill and intangibles 64,165 64,371 (0.3) %
Other assets 26,666 24,658 8.1 %
Total assets $ 2,801,142 $ 2,777,633 0.8 %
 
Unpaid losses and settlement expenses $ 1,152,027 $ 1,139,337 1.1 %
Unearned premiums 412,862 433,777 (4.8) %
Reinsurance balances payable 16,612 17,928 (7.3) %
Funds held 74,138 72,742 1.9 %
Income taxes - deferred 72,192 64,494 11.9 %
Bonds payable, long-term debt 148,788 148,741 0.0 %
Accrued expenses 27,791 51,992 (46.5) %
Other liabilities 48,857 25,050 95.0 %
Total liabilities $ 1,953,267 $ 1,954,061 (0.0) %
Shareholders' equity 847,875 823,572 3.0 %
Total liabilities & shareholders' equity $ 2,801,142 $ 2,777,633 0.8 %
 
 

OTHER DATA:

 
Common shares outstanding (in 000's) 43,970 43,945
 
Book value per share $ 19.28 $ 18.74 2.9 %
Closing stock price per share $ 60.02 $ 63.13 (4.9) %
Cash dividends per share - ordinary (annualized) $ 0.80 $ 0.79 1.3 %
Cash dividends per share - special $ - $ 2.00
 
Statutory Surplus $ 897,251 $ 859,976 4.3 %
               
RLI CORP.
2017 FINANCIAL HIGHLIGHTS
UNDERWRITING SEGMENT DATA
(Unaudited)
(Dollars in thousands, except per share amounts)
 

Three Months Ended March 31,

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

2017

 
Gross premiums written $ 126,834 $ 37,079 $ 30,963 $ 194,876
Net premiums written 107,191 28,999 29,548 165,738
Net premiums earned 116,984 35,805 30,496 183,285
Net loss & settlement expenses 82,401 70.4 % 10,333 28.9 % 656 2.2 % 93,390 51.0 %
Net operating expenses 41,464 35.4 % 16,668 46.6 % 18,706 61.3 % 76,838 41.9 %
Underwriting income (loss) (1) $ (6,881) 105.8 % $ 8,804 75.5 % $ 11,134 63.5 % $ 13,057 92.9 %
 

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 (loss) (1) $ 9,106 91.6 % $ 6,198 84.0 % $ 6,000 79.8 % $ 21,304 88.0 %
 
(1) See discussion above of non-GAAP and performance measures.