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RLI Reports Second Quarter 2019 Results

PEORIA, Ill.--(BUSINESS WIRE)--

RLI Corp. (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. (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.

 

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