RLI Corp. Q2 Earnings Meet Estimates, Up Y/Y on Revenue Rise

Zacks

RLI Corporation (RLI) posted operating earnings of 66 cents per share in the second quarter of 2014, in line with the Zacks Consensus Estimate. Earnings improved 4.8% year over year.  

The improvement came on the back of top-line growth driven by higher premiums and investment income.

Second-quarter operating earnings per share include the favorable impact of a 20-cent increase in the Casualty segment’s prior years' reserves and a 5-cent improvement in the Surety segment’s prior years' reserves. Also included are the unfavorable impact of 1 cent in the Property segment’s prior-year reserves and a catastrophe impact of 11 cents.
 

Including realized investment gains, net of tax of 16 cents per share, RLI Corp. reported net income of 82 cents per share, up 18.8% year over year.  The prior-year quarter net income included realized investment gains, net of tax, of 25 cents per share.

Operational Performance

Revenues in the quarter under review totaled $183 million, improving almost 10% year over year, driven by 9.1% higher net premiums earned and 8.8% increase in net investment income. However, reported revenues marginally missed the Zacks Consensus Estimate of $184 million.

Total expense increased 10.8% year over year to $146.5 million. Higher loss and settlement expense, policy acquisition cost, insurance expenses prompted the increase.

Underwriting income for RLI Corp. was $26.6 million in the quarter, up 3.9% year over year.

The combined ratio deteriorated 80 basis points (bps) to 84.2% due to higher combined ratio at Casualty and Surety.

RLI Corp.’s total return from the investment portfolio was 3.0% during the reported quarter. The bond portfolio returned 2.3%, while the equity portfolio yielded a return of 5.4%.

Financial Update

RLI Corp. exited the quarter with total investments and cash of $2.01 billion, up 5% from 2013 end.

Long-term debt was $149.6 million at the quarter end, flat with the 2013-end level.

RLI Corp.’s book value was $21.37 per share as of Jun 30, 2014, up 10.8% from Dec 31, 2013.

The company has recorded a return on equity of 15.8% along with a 21.3% return on a comprehensive basis compared with a return on equity of 12.5%, with 11.7% on a comprehensive basis, in the prior year quarter. Statutory surplus increased 5.1% over 2013 end to $903 million as of Jun 30, 2014.

Cash from operations improved 22.4% year over year to $40.5 million in the quarter.

Dividend Update

On Jun 20, 2014, RLI Corp. paid a quarterly cash dividend of 18 cents per share. The payout represented a 5.9% sequential increase.

Our Take

Apart from posting healthy earnings, RLI Corp. continues to deliver robust underwriting income. Given the improving pricing scenario in the insurance market and widened product lines, we expect RLI Corp. to perform well in the upcoming quarters. It also remains focused on expanding its product portfolio. The company also focuses on leveraging its expertise in niche markets as well.

Further, the company’s focus upon returning value to shareholders, through regular and special dividends, helps it retain investor confidence as well as attract investors.

Zacks Rank

RLI Corp. currently carries a Zacks Rank #3 (Hold). Some better-ranked insurers that carry a Zacks Rank #2 (Buy) are ACE Limited (ACE), The Travelers Companies, Inc. (TRV) and CNO Financial Group, Inc. (CNO). All these companies are slated to release their second-quarter earnings in the upcoming week.
 

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