RLI Corp. (NYSE: RLI) – RLI Corp. reported second quarter 2017 net earnings of $26.2 million ($0.59 per share), compared to $29.1 million ($0.65 per share) for the second quarter of 2016. Operating earnings for the second quarter of 2017 were $27.1 million ($0.61 per share) compared to $27.3 million ($0.61 per share) for the same period in 2016.

       
    Second Quarter   Year to Date
Earnings Per Diluted Share   2017   2016   2017   2016
Net earnings $ 0.59 $ 0.65 $ 1.03 $ 1.36
Operating earnings (1)   $ 0.61   $ 0.61   $ 1.04   $ 1.16
 
(1) See discussion below of non-GAAP and performance measures.
 

Highlights for the quarter included:

  • Underwriting income of $19.7 million, resulting in a combined ratio of 89.3.
  • 4% decline in gross premiums written.
  • Favorable development in prior years’ loss reserves resulting in a $12.8 million net increase in underwriting income.
  • Book value per share of $19.93, an increase of more than 8% from year end 2016, inclusive of dividends.

“We are pleased to report a strong 89 combined ratio and continued book value growth, as each of our segments were profitable in the second quarter,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Overall premium was down versus last year, due largely to re-underwriting efforts on auto-related exposures, as well as certain product exits. Despite these impacts, premium production continues to benefit from strong performance within the casualty segment. As we head into the second half of the year, our underwriters remain focused on maintaining their underwriting discipline in the face of continued competitive pressures.”

Underwriting Income

RLI achieved $19.7 million of underwriting income in the second quarter of 2017 on an 89.3 combined ratio, compared to $26.0 million of underwriting income on an 85.5 combined ratio in the same quarter for 2016. Results for both years include favorable development in prior years’ loss reserves which totaled $12.8 million and $14.7 million for the second quarter of 2017 and 2016, respectively.

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

           
Underwriting Income (1) Second Quarter Combined Ratio (1) Second Quarter
(in millions)     2017     2016     2017   2016
Casualty $ 8.6 $ 11.2 Casualty 92.8 90.1
Property 2.9 7.2 Property 91.7 80.9
Surety     8.2     7.6 Surety   73.1   74.5
Total   $ 19.7   $ 26.0 Total   89.3   85.5
 
(1) See discussion below of non-GAAP and performance measures.
 

Other Income

RLI’s net investment income for the quarter increased 1.5% to $13.2 million, compared to the same period in 2016. For the six-month period ended June 30, 2017, investment income was $26.2 million versus $26.4 million for the same period in 2016. The investment portfolio’s total return was 1.8% for the quarter. The bond portfolio’s return was 1.7% in the quarter, while the equity portfolio’s return was 1.8%. Through six months, the investment portfolio’s total return was 3.6% with the bond portfolio returning 3.0% and equities returning 5.9%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $36.8 million for the quarter ($0.83 per share) compared to $48.1 million ($1.08 per share) for the same quarter in 2016.

Equity in earnings of unconsolidated investees was $6.8 million for the quarter compared to $5.2 million from the same period last year. These results are related to Maui Jim, Inc. ($6.2 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.6 million), a specialty E&S insurance company. For the second quarter of 2016, equity in earnings of unconsolidated investees from Maui Jim and Prime was $5.0 million and $0.2 million, respectively. For the six-month period ended June 30, 2017, equity in earnings of unconsolidated investees was $11.7 million versus $8.9 million in 2016.

Dividends Paid in the Second Quarter 2017

On June 20, 2017, the company paid an ordinary dividend of $0.21 per share, a $0.01 increase over the prior quarter. RLI’s cumulative dividends, including this recent payment, total more than $632 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, July 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/2mzcz3hw.

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 42 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 2017 2016
2nd Qtr 2nd Qtr6 Mos. 6 Mos.
Operating Earnings Per Share (1) $ 0.61 $ 0.61 $ 1.04 $ 1.16
 
Specific items included in operating earnings per share: (2) (3)
-- Favorable development in casualty prior years' reserves $ 0.13 $ 0.15 $ 0.08 $ 0.32
-- Favorable development in property prior years' reserves $ 0.01 $ 0.04 $ 0.04 $ 0.03
-- Favorable development in surety prior years' reserves $ 0.04 $ 0.03 $ 0.12 $ 0.04
-- Catastrophe impact
▪ 2017 storms $ (0.04 ) $ - $ (0.04 ) $ -
▪ 2016 and prior events $ 0.01 $ (0.06 ) $ 0.01 $ (0.06 )
 
(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 June 30, Six Months Ended June 30,
2017 2016 % Change 2017 2016 % Change

SUMMARIZED INCOME STATEMENT DATA:

Net premiums earned $ 184,331 $ 180,226 2.3 % $ 367,616 $ 357,144 2.9 %
Net investment income 13,238 13,048 1.5 % 26,243 26,418 (0.7 ) %
Net realized gains (losses)     (1,359 )     2,710   -       (735 )   14,110   -    
Consolidated revenue $ 196,210 $ 195,984 0.1 % $ 393,124 $ 397,672 (1.1 ) %
 
Loss and settlement expenses $ 90,347 $ 80,277 12.5 % $ 183,737 $ 161,448 13.8 %
Policy acquisition costs 60,695 60,521 0.3 % 124,198 122,764 1.2 %
Insurance operating expenses 13,546 13,412 1.0 % 26,881 25,612 5.0 %
Interest expense on debt 1,857 1,856 0.1 % 3,713 3,713 0.0 %
General corporate expenses     2,535       2,768   (8.4 ) %   5,860     5,143   13.9   %
Total expenses $ 168,980 $ 158,834 6.4 % $ 344,389 $ 318,680 8.1 %
 

Equity in earnings of

unconsolidated investees     6,806       5,191   31.1   %   11,744     8,942   31.3   %
 
Earnings before income taxes $ 34,036 $ 42,341 (19.6 ) % $ 60,479 $ 87,934 (31.2 ) %
Income tax expense     7,828       13,264   (41.0 ) %   14,443     27,464   (47.4 ) %
Net earnings $   26,208   $   29,077   (9.9 ) % $ 46,036   $ 60,470   (23.9 ) %
 
Other comprehensive earnings, net of tax     10,599       19,066   (44.4 ) %   22,368     40,829   (45.2 ) %
 
Comprehensive earnings $   36,807   $   48,143   (23.5 ) % $ 68,404   $ 101,299   (32.5 ) %
 
Operating earnings: (1)
 
Net earnings $ 26,208 $ 29,077 (9.9 ) % $ 46,036 $ 60,470 (23.9 ) %
Less: Realized (gains) losses 1,359 (2,710 ) - 735 (14,110 ) -
Income tax on realized gains (losses)     (477 )     949   -       (257 )   4,939   -    
Operating earnings $   27,090   $   27,316   (0.8 ) % $ 46,514   $ 51,299   (9.3 ) %
 
Return on Equity:
Net earnings (trailing four quarters)   11.5   %   14.9   %
Comprehensive earnings (trailing four quarters)   9.2   %   17.9   %
 
Per Share Data:
 

Diluted:

Weighted average shares outstanding (in 000's) 44,519 44,423 44,517 44,381
 
Net earnings per share $ 0.59 $ 0.65 (9.2 ) % $ 1.03 $ 1.36 (24.3 ) %
Less: Realized (gains) losses 0.03 (0.06 ) - 0.02 (0.31 ) -
Income tax on realized gains (losses)     (0.01 )     0.02   -       (0.01 )   0.11   -    
EPS from operations (1) $   0.61   $   0.61   0.0   % $ 1.04   $ 1.16   (10.3 ) %
 
Comprehensive earnings per share $   0.83   $   1.08   (23.1 ) % $ 1.54   $ 2.28   (32.5 ) %
 
Cash dividends per share $ $ 0.21 $ $ 0.20 5.0 % $ 0.41 $ 0.39 5.1 %
 
Net Cash Flow provided by Operations $   63,305   $   48,305   31.1   % $ 74,570   $ 69,571   7.2   %
 
 
(1) See discussion above of non-GAAP and performance measures.
     
RLI CORP.
2017 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
June 30, December 31,
2017 2016 % Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income $ 1,651,657 $ 1,605,209 2.9 %
(amortized cost - $1,621,451 at 6/30/17)
(amortized cost - $1,596,227 at 12/31/16)
Equity securities 387,802 369,219 5.0 %
(cost - $193,052 at 6/30/17)
(cost - $187,573 at 12/31/16)
Other invested assets 25,310 24,115 5.0 %
Cash and cash equivalents 39,412 23,284 69.3   %
Total investments and cash $ 2,104,181 $ 2,021,827 4.1 %
 
Premiums and reinsurance balances receivable 133,171 126,387 5.4 %
Ceded unearned premiums 52,654 52,173 0.9 %
Reinsurance balances recoverable on unpaid losses 280,568 288,224 (2.7 ) %
Deferred policy acquisition costs 76,276 73,147 4.3 %
Property and equipment 56,547 54,606 3.6 %
Investment in unconsolidated investees 84,032 72,240 16.3 %
Goodwill and intangibles 60,582 64,371 (5.9 ) %
Other assets 33,571 24,658 36.1   %
Total assets $ 2,881,582 $ 2,777,633 3.7   %
 
Unpaid losses and settlement expenses $ 1,183,185 $ 1,139,337 3.8 %
Unearned premiums 436,477 433,777 0.6 %
Reinsurance balances payable 22,216 17,928 23.9 %
Funds held 75,152 72,742 3.3 %
Income taxes - deferred 79,868 64,494 23.8 %
Bonds payable, long-term debt 148,835 148,741 0.1 %
Accrued expenses 35,130 51,992 (32.4 ) %
Other liabilities 22,985 25,050 (8.2 ) %
Total liabilities $ 2,003,848 $ 1,954,061 2.5 %
Shareholders' equity 877,734 823,572 6.6   %
Total liabilities & shareholders' equity $ 2,881,582 $ 2,777,633 3.7   %
 
 

OTHER DATA:

 
Common shares outstanding (in 000's) 44,050 43,945
 
Book value per share $ 19.93 $ 18.74 6.4 %
Closing stock price per share $ 54.62 $ 63.13 (13.5 ) %
Cash dividends per share - ordinary (annualized) $ 0.83 $ 0.79 5.1 %
Cash dividends per share - special $ - $ 2.00
 
Statutory surplus $ 904,033 $ 859,976 5.1 %
               
RLI CORP.
2017 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  

2017

 
Gross premiums written $ 160,024 $ 50,099 $ 30,815 $ 240,938
Net premiums written 136,041 38,810 29,246 204,097
Net premiums earned 119,259 34,485 30,587 184,331
Net loss & settlement expenses 70,807 59.4 % 15,680 45.5 % 3,860 12.6 % 90,347 49.0 %
Net operating expenses 39,804 33.4 % 15,942 46.2 % 18,495 60.5 % 74,241 40.3 %
Underwriting income (1) $ 8,648 92.8 % $ 2,863 91.7 % $ 8,232 73.1 % $ 19,743 89.3 %
 

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 (1) $ 11,125 90.1 % $ 7,245 80.9 % $ 7,646 74.5 % $ 26,016 85.5 %
 

Six Months Ended June 30,

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

2017

 
Gross premiums written $ 286,858 $ 87,178 $ 61,778 $ 435,814
Net premiums written 243,232 67,809 58,794 369,835
Net premiums earned 236,243 70,290 61,083 367,616
Net loss & settlement expenses 153,208 64.9 % 26,013 37.0 % 4,516 7.4 % 183,737 50.0 %
Net operating expenses 81,268 34.4 % 32,610 46.4 % 37,201 60.9 % 151,079 41.1 %
Underwriting income (1) $ 1,767 99.3 % $ 11,667 83.4 % $ 19,366 68.3 % $ 32,800 91.1 %
 

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 (1) $ 20,231 90.8 % $ 13,443 82.5 % $ 13,646 77.2 % $ 47,320 86.7 %
 
(1) See discussion above of non-GAAP and performance measures.