RLI Reports Second Quarter 2019 Results

Jul 17, 2019 04:05 pm

PEORIA, Ill. --

RLI Corp. (NYSE: RLI) – RLI Corp. reported second quarter 2019 net earnings of $40.5 million ($0.89 per share), compared to $33.3 million ($0.74 per share) for the second quarter of 2018. Operating earnings⁽¹⁾ for the second quarter of 2019 were $29.7 million ($0.66 per share) compared to $26.7 million ($0.60 per share) for the same period in 2018.

	Second Quarter				Year to Date
Earnings Per Diluted Share	2019		2018		2019		2018
Net earnings	$	0.89	$	0.74	$	2.35	$	1.01
Operating earnings ⁽¹⁾	$	0.66	$	0.60	$	1.37	$	1.19
(1) See discussion below: Non-GAAP and Performance Measures.

Highlights for the quarter included:

Underwriting income⁽¹⁾ of $14.9 million, resulting in a combined ratio⁽¹⁾ of 92.8.
5% increase in gross premiums written and 17% increase in investment income.
Favorable development in prior years’ loss reserves resulting in a $17.8 million net increase in underwriting income.
Book value per share of $21.43, an increase of 21% from year-end 2018, inclusive of dividends.

“We produced solid earnings, continued organic growth and strong book value growth in the second quarter,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Gross premium grew 5% in the quarter, driven by our casualty and property segments. Underwriting income was strong in our casualty and surety segments, while our property segment was impacted by $4 million in spring storm activity. Investment income was up over last year as we continue to invest operating cash flow. Declining interest rates and favorable equity market conditions also contributed to book value growth, which is up 21% year to date. Our product portfolio remains healthy and we continue to focus on providing superior service to our customers while advancing profitable growth initiatives.”

Underwriting Income

RLI achieved $14.9 million of underwriting income in the second quarter of 2019 on a 92.8 combined ratio, compared to $14.1 million on a 92.8 combined ratio in 2018. Results for both years include favorable development in prior years’ loss reserves which totaled $17.8 million and $12.4 million for 2019 and 2018, respectively.

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

Underwriting Income (loss)⁽¹⁾						Combined Ratio⁽¹⁾
(in millions)	2019			2018			2019	2018
Casualty	$	6.9		$	2.9	Casualty	95.0	97.8
Property		(0.4	)		3.6	Property	101.1	90.2
Surety		8.4			7.6	Surety	71.2	74.3
Total	$	14.9		$	14.1	Total	92.8	92.8
(1) See discussion below: Non-GAAP and Performance Measures.

Other Income

RLI’s net investment income for the quarter increased 16.6% to $17.0 million, compared to the same period in 2018. The investment portfolio’s total return was 2.9% for the quarter and 7.6% for the year.

Comprehensive earnings were $68.3 million for the quarter ($1.51 per share) compared to $25.6 million ($0.57 per share) for the same quarter in 2018. In addition to net earnings, comprehensive earnings included after-tax unrealized gains/losses from the fixed income portfolio.

Equity in earnings of unconsolidated investees was $8.5 million for the quarter compared to $7.1 million from the same period last year. These results are related to Maui Jim, Inc. ($6.5 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($2.0 million), a specialty insurance company. For the second quarter of 2018, equity in earnings of unconsolidated investees from Maui Jim and Prime was $6.6 million and $0.5 million, respectively.

Dividends Paid in the Second Quarter of 2019

On June 20, 2019, the company paid a regular quarterly dividend of $0.23 per share, a $0.01 increase over the prior quarter. RLI’s cumulative dividends total more than $603 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), net unrealized gains/(losses) on equity securities 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 2019 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 and is calculated as the sum of loss and settlement expenses, policy acquisition costs and insurance operating expenses, divided by net premiums earned, which are all GAAP measures.

Other News

At 10 a.m. central daylight time (CDT) tomorrow, July 18, 2019, 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 https://edge.media-server.com/mmc/p/7nzwpmfn.

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, 2018.

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 44 consecutive years and delivered underwriting profits for 23 consecutive years. To learn more about RLI, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

	Operating Earnings Per Share
		2019			2018			2019			2018
		2nd Qtr			2nd Qtr			6 Mos.			6 Mos.
Operating Earnings Per Share⁽¹⁾		$	0.66		$	0.60		$	1.37		$	1.19

Specific items included in operating earnings per share:^{(2) (3)}
• Favorable development in casualty prior years' reserves		$	0.26		$	0.12		$	0.47		$	0.24
• Favorable (unfavorable) development in property prior years' reserves		$	(0.01	)	$	0.05		$	0.01		$	0.06
• Favorable development in surety prior years' reserves		$	0.06		$	0.05		$	0.12		$	0.14
• Catastrophe impact
▪ 2019 storms		$	(0.06	)	$	-		$	(0.07	)	$	-
▪ 2018 and prior events		$	-		$	(0.12	)	$	-		$	(0.15	)

(1) See discussion above: Non-GAAP and Performance Measures. (2) Includes incentive and profit sharing-related impacts which affected policy acquisition, insurance operating and general corporate expenses. (3) Reserve development reflects changes from previously estimated losses.

RLI CORP 2019 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
SUMMARIZED INCOME STATEMENT DATA:	2019		2018		% Change		2019			2018			% Change
Net premiums earned	$	207,541	$	196,522	5.6	%	$	412,230		$	386,549		6.6	%
Net investment income		16,998		14,577	16.6	%		33,563			28,809		16.5	%
Net realized gains		4,764		20,849	(77.1)	%		13,832			29,253		(52.7)	%
Net unrealized gains (losses) on equity securities		8,810		(12,611)	-			42,308			(39,383)		-
Consolidated revenue	$	238,113	$	219,337	8.6	%	$	501,933		$	405,228		23.9	%

Loss and settlement expenses	$	103,919	$	101,653	2.2	%	$	198,216		$	194,074		2.1	%
Policy acquisition costs		71,742		66,325	8.2	%		143,034			133,059		7.5	%
Insurance operating expenses		16,948		14,398	17.7	%		33,615			27,783		21.0	%
Interest expense on debt		1,861		1,858	0.2	%		3,722			3,714		0.2	%
General corporate expenses		3,283		2,641	24.3	%		6,559			4,924		33.2	%
Total expenses	$	197,753	$	186,875	5.8	%	$	385,146		$	363,554		5.9	%

Equity in earnings of unconsolidated investees		8,468		7,100	19.3	%		13,782			12,266		12.4	%
Earnings before income taxes	$	48,828	$	39,562	23.4	%	$	130,569		$	53,940		142.1	%
Income tax expense		8,361		6,311	32.5	%		24,629			8,473		190.7	%
Net earnings	$	40,467	$	33,251	21.7	%	$	105,940		$	45,467		133.0	%

Other comprehensive earnings (loss), net of tax		27,864		(7,675)	-			57,165			(34,073)		-
Comprehensive earnings	$	68,331	$	25,576	167.2	%	$	163,105		$	11,394		-

Operating earnings⁽¹⁾:

Net earnings	$	40,467	$	33,251	21.7	%	$	105,940		$	45,467		133.0	%
Less:
Realized gains		(4,764)		(20,849)	(77.1)	%		(13,832)			(29,253)		(52.7)	%
Income tax on realized gains		1,001		4,378	(77.1)	%		2,905			6,143		(52.7)	%
Unrealized (gains) losses on equity securities		(8,810)		12,611	-			(42,308)			39,383		-
Income tax on unrealized gains (losses) on equity securities		1,849		(2,648)	-			8,884			(8,270)		-
Operating earnings	$	29,743	$	26,743	11.2	%	$	61,589		$	53,470		15.2	%

Return on Equity:
Net earnings (trailing four quarters)								14.2	%		12.2	%
Comprehensive earnings (trailing four quarters)								20.7	%		9.7	%

Per Share Data:
Diluted:
Weighted average shares outstanding (in 000's)		45,219		44,742				45,056			44,853

Net earnings per share	$	0.89	$	0.74	20.3	%	$	2.35		$	1.01		132.7	%
Less:
Realized gains		(0.10)		(0.46)	(78.3)	%		(0.30)			(0.65)		(53.8)	%
Income tax on realized gains		0.02		0.10	(80.0)	%		0.06			0.14		(57.1)	%
Unrealized (gains) losses on equity securities		(0.19)		0.28	-			(0.94)			0.88		-
Income tax on unrealized gains (losses) on equity securities		0.04		(0.06)	-			0.20			(0.19)		-
EPS from operations⁽¹⁾	$	0.66	$	0.60	10.0	%	$	1.37		$	1.19		15.1	%

Comprehensive earnings per share	$	1.51	$	0.57	164.9	%	$	3.62		$	0.25		-

Cash dividends per share - ordinary	$	0.23	$	$0.22	4.5	%	$	0.45		$	0.43		4.7	%

Net Cash Flow provided by Operations	$	74,560	$	84,607	(11.9)	%	$	105,347		$	100,000		5.3	%

(1) See discussion above: Non-GAAP and Performance Measures.

RLI CORP 2019 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts)

	June 30,		December 31,
	2019		2018		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income	$	1,865,613	$	1,760,515	6.0	%
(amortized cost - $1,809,429 at 6/30/19)
(amortized cost - $1,776,465 at 12/31/18)
Equity securities		421,801		340,483	23.9	%
(cost - $259,177 at 6/30/19)
(cost - $220,373 at 12/31/18)
Other invested assets		55,196		51,542	7.1	%
Cash and cash equivalents		72,187		41,690	73.2	%
Total investments and cash	$	2,414,797	$	2,194,230	10.1	%

Premiums and reinsurance balances receivable		158,559		152,576	3.9	%
Ceded unearned premiums		78,957		71,174	10.9	%
Reinsurance balances recoverable on unpaid losses		362,310		364,999	(0.7)	%
Deferred policy acquisition costs		85,952		84,934	1.2	%
Property and equipment		53,580		54,692	(2.0)	%
Investment in unconsolidated investees		108,977		94,967	14.8	%
Goodwill and intangibles		54,330		54,534	(0.4)	%
Other assets		57,647		32,959	74.9	%
Total assets	$	3,375,109	$	3,105,065	8.7	%

Unpaid losses and settlement expenses	$	1,506,279	$	1,461,348	3.1	%
Unearned premiums		513,819		496,505	3.5	%
Reinsurance balances payable		21,227		22,591	(6.0)	%
Funds held		76,331		72,309	5.6	%
Income taxes - deferred		50,487		24,238	108.3	%
Bonds payable, long-term debt		149,208		149,115	0.1	%
Accrued expenses		41,046		45,124	(9.0)	%
Other liabilities		56,764		26,993	110.3	%
Total liabilities	$	2,415,161	$	2,298,223	5.1	%
Shareholders' equity		959,948		806,842	19.0	%
Total liabilities & shareholders' equity	$	3,375,109	$	3,105,065	8.7	%


OTHER DATA:

Common shares outstanding (in 000's)		44,787		44,504

Book value per share	$	21.43	$	18.13	18.2	%
Closing stock price per share	$	85.71	$	68.99	24.2	%

Statutory surplus	$	984,857	$	829,775	18.7	%

RLI CORP 2019 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
2019

Gross premiums written	$	189,123			$	64,360				$	29,788			$	283,271
Net premiums written		153,636				49,111					28,343				231,090
Net premiums earned		138,344				39,972					29,225				207,541
Net loss & settlement expenses		80,121	57.9	%		22,597		56.5	%		1,201	4.1	%		103,919	50.1	%
Net operating expenses		51,284	37.1	%		17,811		44.6	%		19,595	67.1	%		88,690	42.7	%
Underwriting income (loss) ⁽¹⁾	$	6,939	95.0	%	$	(436	)	101.1	%	$	8,429	71.2	%	$	14,932	92.8	%

2018

Gross premiums written	$	178,521			$	58,255				$	33,039			$	269,815
Net premiums written		149,635				45,395					31,701				226,731
Net premiums earned		129,613				37,190					29,719				196,522
Net loss & settlement expenses		81,430	62.8	%		17,149		46.1	%		3,074	10.3	%		101,653	51.7	%
Net operating expenses		45,329	35.0	%		16,394		44.1	%		19,000	64.0	%		80,723	41.1	%
Underwriting income (loss) ⁽¹⁾	$	2,854	97.8	%	$	3,647		90.2	%	$	7,645	74.3	%	$	14,146	92.8	%

Six Months Ended June 30,
			GAAP					GAAP				GAAP				GAAP
		Casualty	Ratios			Property		Ratios			Surety	Ratios			Total	Ratios
2019

Gross premiums written	$	341,230			$	113,381				$	59,572			$	514,183
Net premiums written		278,538				86,433					56,790				421,761
Net premiums earned		275,244				78,718					58,268				412,230
Net loss & settlement expenses		160,575	58.3	%		35,530		45.1	%		2,111	3.6	%		198,216	48.1	%
Net operating expenses		102,387	37.2	%		35,378		45.0	%		38,884	66.8	%		176,649	42.8	%
Underwriting income (loss) ⁽¹⁾	$	12,282	95.5	%	$	7,810		90.1	%	$	17,273	70.4	%	$	37,365	90.9	%

2018

Gross premiums written	$	318,976			$	104,162				$	63,541			$	486,679
Net premiums written		267,951				81,285					60,941				410,177
Net premiums earned		255,463				72,372					58,714				386,549
Net loss & settlement expenses		160,399	62.8	%		30,249		41.8	%		3,426	5.8	%		194,074	50.2	%
Net operating expenses		90,649	35.5	%		32,594		45.0	%		37,599	64.0	%		160,842	41.6	%
Underwriting income (loss) ⁽¹⁾	$	4,415	98.3	%	$	9,529		86.8	%	$	17,689	69.8	%	$	31,633	91.8	%

(1) See discussion above: Non-GAAP and Performance Measures.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190717005632/en/

Aaron Jacoby
Vice President, Corporate Development
309-693-5880
[email protected]

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RLI Reports Second Quarter 2019 Results