RLI Reports Second Quarter 2013 Results

RLI Corp. (NYSE: RLI) – RLI Corp. reported second quarter 2013 operating earnings of $27.5 million ($1.27 per share), compared to $25.2 million ($1.17 per share) for the second quarter of 2012. For the six months ended June 30, 2013, operating earnings were $49.9 million ($2.31 per share) compared to $45.8 million ($2.13 per share) for the same period in 2012.
        Second Quarter
Earnings Per Diluted Share       2013       2012
Operating earnings (1)       $1.27       $1.17
Net earnings       $1.38       $1.15
(1) See discussion of non-GAAP financial measures on page 2.
 

Highlights for the quarter included:
  • 11% growth in gross premiums written and 15% growth in net premiums written.
  • Underwriting income of $25.6 million, resulting in a combined ratio of 83.4.
  • $24.6 million net increase in underwriting income resulting from favorable development on prior years’ loss reserves.
  • $8.8 million net decrease in underwriting income resulting from 2013 spring storms.
  • Book value per share of $38.64, an increase of 3.2% from year end 2012.

“Our underwriters delivered excellent results, as evidenced by the 83 combined ratio and 11% growth in gross premiums written this quarter,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Premium production continues to benefit from improved market conditions and newer product initiatives, particularly within our casualty segment.”

“Our performance during the quarter showcases RLI’s underwriting-focused business model and well-diversified product portfolio, which enable the agile pursuit of new underwriting opportunities and the consistent delivery of superior results,” said Michael.

Underwriting income

RLI achieved $25.6 million of underwriting income in the second quarter of 2013 on an 83.4 combined ratio, compared to $21.6 million of underwriting income on an 84.7 combined ratio in the same quarter for 2012.
                                               
Underwriting Income (Loss)     Second Quarter Combined Ratio         Second Quarter
(in millions)     2013     2012             2013     2012
Casualty $14.6     $11.0 Casualty 81.3     83.2
Property 2.2 (0.3 ) Property 95.6 100.6
Surety       8.8     10.9   Surety         67.2     58.2
Total       $25.6     $21.6   Total         83.4     84.7
 

Results for 2013 include $24.6 million in favorable development in prior years’ loss reserves, compared to $26.5 million in favorable development in prior years’ loss reserves in 2012. Partially offsetting the favorable results in both periods were spring storm losses of $8.8 million in 2013 and $12.0 million in 2012.

RLI reported year-to-date underwriting income of $45.4 million representing an 84.8 combined ratio through June 30, 2013, versus $36.6 million of underwriting income representing an 86.9 combined ratio for the same period last year.

Other income

RLI’s net investment income for the quarter declined 13.3% to $12.8 million, compared to the same period in 2012. For the six-month period ended June 30, 2013, investment income was $25.7 million versus $30.1 million for the same period in 2012. The investment portfolio’s total return was -1.8% for the quarter. The bond portfolio’s return was -2.9% in the quarter, which was largely due to an increase in interest rates, while the equity portfolio gained 2.4%. Through six months, the investment portfolio’s total return was 0.7% with the bond portfolio returning -2.7% and equities returning 14.3%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were -$3.6 million (-$0.17 per share) for the quarter compared to $30.6 million ($1.42 per share) for the same quarter in 2012. Year-to-date comprehensive earnings were $38.8 million ($1.79 per share), compared to $69.5 million ($3.23 per share) for the same period last year.

During the quarter, equity in earnings of unconsolidated investee was $4.6 million compared to $4.1 million from the same period last year. These results are related to Maui Jim, Inc., a producer of premium sunglasses. For the six-month period ended June 30, 2013, equity in earnings of unconsolidated investee was $8.1 million versus $7.1 million in 2012.

Dividend paid in the second quarter 2013

On June 20, 2013, the company paid a dividend of $0.34 per share, its 148 th consecutive quarterly dividend paid to shareholders. This dividend represents a $0.02 increase over the prior quarter, marking the 38 th consecutive year that RLI has increased its dividend.

Non-GAAP measures

Underwriting income, operating earnings, earnings per share (EPS) from operations and other per share items are non-GAAP financial measures, and we believe that investors’ understanding of RLI’s core operating performance is enhanced by our disclosure of these financial measures. Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting losses and settlement expenses, policy acquisition costs, and insurance operating expenses from net premium earned. Operating earnings and EPS from operations consist of our net earnings adjusted by net realized investment gains/(losses) and taxes related to net realized gains/(losses). Our definitions of these items may not be comparable to the definitions used by other companies. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. All earnings per share data are calculated using fully diluted shares. Combined ratio refers to a GAAP combined ratio.

Other news

During the second quarter, the Company’s A+ “Superior” financial strength rating was affirmed by A.M. Best for the following RLI insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company, RLI Indemnity Company and Contractors Bonding and Insurance Company.

At 10 a.m. central time (CT) tomorrow, July 18, 2013, 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 www.media-server.com/m/p/e95efvm5.

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, 2012.

RLI, a specialty insurance company, offers a diversified portfolio of property and casualty coverages and surety bonds serving niche or underserved markets. RLI operates in all 50 states from office locations across the country. RLI’s insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company, RLI Indemnity Company and Contractors Bonding and Insurance Company – are rated A+ “Superior” by A.M. Best Company.

For additional information, contact Aaron Jacoby, Vice President, Corporate Development at 309-693-5880 or at aaron.jacoby@rlicorp.com or visit our website at www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:
   
Operating Earnings Per Share
2013   2012   2013   2012
2nd Qtr 2nd Qtr 6 Mos. 6 Mos.
Operating Earnings Per Share $ 1.27 $ 1.17 $ 2.31 $ 2.13
 
Specific items included in operating earnings per share: (1) (2)

• Favorable development on casualty prior years' reserves
$ 0.55 $ 0.47 $ 0.85 $ 0.65

• Favorable development on property prior years' reserves
$ 0.02 $ 0.11 $ 0.02 $ 0.18

• Favorable development on surety prior years' reserves
$ 0.13 $ 0.22 $ 0.14 $ 0.17

• Catastrophe impact

 

• 2013 spring storms
$ (0.26 ) $ - $ (0.26 ) $ -

 

• 2012 and prior spring storms
$ - $ (0.39 ) $ (0.01 ) $ (0.39 )

 

• 2012 and prior hurricanes
$ 0.04 $ 0.03 $ 0.05 $ 0.06
 
(1) Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.
 
(2) Reserve development reflects changes from previously estimated losses.
 
 
RLI CORP.
2013 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
                 
 
Three Months Ended June 30, Six Months Ended June 30,
2013 2012 % Change 2013 2012 % Change

SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned $ 154,553 $ 141,584 9.2 % $ 298,704 $ 278,864 7.1 %
Net investment income 12,847 14,826 -13.3 % 25,733 30,119 -14.6 %
Net realized investment gains (losses)   3,742     (664 ) -     7,426     10,752   -30.9 %
Consolidated revenue 171,142 155,746 9.9 % 331,863 319,735 3.8 %
 
Loss and settlement expenses 65,607 61,005 7.5 % 127,055 122,888 3.4 %
Policy acquisition costs 51,502 48,173 6.9 % 101,838 96,370 5.7 %
Other insurance expenses 11,885 10,783 10.2 % 24,454 23,042 6.1 %
Interest expense on debt 1,513 1,525 -0.8 % 3,025 3,025 0.0 %
General corporate expenses   1,692     1,815   -6.8 %   4,078     3,802   7.3 %
Total expenses 132,199 123,301 7.2 % 260,450 249,127 4.5 %
 
Equity in earnings of
unconsolidated investee   4,633     4,123   12.4 %   8,132     7,069   15.0 %
 
Earnings before income taxes 43,576 36,568 19.2 % 79,545 77,677 2.4 %
Income tax expense   13,674     11,820   15.7 %   24,796     24,891   -0.4 %
Net earnings $ 29,902   $ 24,748   20.8 % $ 54,749   $ 52,786   3.7 %
 
Other comprehensive earnings (loss), net of tax   (33,481 )   5,890   -     (15,928 )   16,666   -  
 
Comprehensive earnings (loss) $ (3,579 ) $ 30,638   -   $ 38,821   $ 69,452   -44.1 %
 
 
Operating earnings: (1)
 
Net earnings $ 29,902 $ 24,748 20.8 % $ 54,749 $ 52,786 3.7 %
 
Less: Realized investment gains (losses), net of tax   2,432     (431 ) -     4,827     6,989   -30.9 %
- -
Operating earnings $ 27,470   $ 25,179   9.1 % $ 49,922   $ 45,797   9.0 %
 
Return on Equity:
Net earnings (trailing four quarters)   12.5 %   12.8 %
Comprehensive earnings (trailing four quarters)   11.7 %   16.4 %
 
Per Share Data
 

Diluted:
Weighted average shares outstanding (in 000's) 21,670 21,514 21,634 21,521
 
EPS from operations (1) $ 1.27 $ 1.17 8.5 % $ 2.31 $ 2.13 8.5 %
Realized gains (losses), net of tax   0.11     (0.02 ) -     0.22     0.32   -31.3 %
Net earnings per share $ 1.38   $ 1.15   20.0 % $ 2.53   $ 2.45   3.3 %
 
Comprehensive earnings (loss) per share $ (0.17 ) $ 1.42   -   $ 1.79   $ 3.23   -44.6 %
 
Cash dividends per share $ 0.34 $ 0.32 6.3 % $ 0.66 $ 0.62 6.5 %
 
 
Net Cash Flow provided by (used in) Operations $ 33,109   $ (28,806 ) -   $ 26,781   $ (32,053 ) -  
 
 
(1) See discussion of non-GAAP financial measures on page 2.
 
 
RLI CORP.
2013 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
             
 
June 30, December 31,
2013 2012 % Change

SUMMARIZED BALANCE SHEET DATA:
Fixed income $ 1,400,161 $ 1,390,317 0.7 %
(amortized cost - $1,381,425 at 6/30/13)
(amortized cost - $1,306,084 at 12/31/12)
Equity securities 416,814 375,788 10.9 %
(cost - $240,066 at 6/30/13)
(cost - $240,287 at 12/31/12)
Cash and cash equivalents   23,573   74,776 -68.5 %
Total investments and cash 1,840,548 1,840,881 0.0 %
 
Premiums and reinsurance balances receivable 159,297 139,355 14.3 %
Ceded unearned premiums 79,493 73,192 8.6 %
Reinsurance recoverable on unpaid losses 339,132 359,884 -5.8 %
Deferred acquisition costs 62,007 52,344 18.5 %
Property and equipment 34,491 27,987 23.2 %
Investment in unconsolidated investee 60,004 52,128 15.1 %
Goodwill and intangibles 75,463 76,113 -0.9 %
Other assets   25,240   22,748 11.0 %
Total assets $ 2,675,675 $ 2,644,632 1.2 %
 
Unpaid losses and settlement expenses 1,111,491 1,158,483 -4.1 %
Unearned premiums 429,858 369,346 16.4 %
Reinsurance balances payable 41,232 43,959 -6.2 %
Funds held 57,759 56,633 2.0 %
Debt - notes payable 100,000 100,000 0.0 %
Income taxes - deferred 51,586 55,566 -7.2 %
Accrued expenses 34,895 49,933 -30.1 %
Other liabilities   24,217   14,349 68.8 %
Total liabilities 1,851,038 1,848,269 0.1 %
Shareholders' equity   824,637   796,363 3.6 %
Total liabilities & shareholders' equity $ 2,675,675 $ 2,644,632 1.2 %
 
 
 

OTHER DATA
 
Common shares outstanding (in 000's) 21,341 21,263
 
Book value per share $ 38.64 $ 37.45 3.2 %
Closing stock price per share $ 76.41 $ 64.66 18.2 %
Cash dividends per share - ordinary (annualized) $ 1.34 $ 1.26 6.3 %
Cash dividends per share - special $ - $ 5.00 -
 
Statutory Surplus $ 772,492 $ 684,072 12.9 %
 
 
RLI CORP.
2013 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

2013
 
Gross premiums written $ 123,486 $ 102,454 $ 30,100 $ 256,040
Net premiums written 99,247 71,937 28,765 199,949
Net premiums earned 78,372 49,619 26,562 154,553
Net loss & settlement expenses 35,530 45.3 % 28,911 58.3 % 1,166 4.4 % 65,607 42.4 %
Net operating expenses   28,228 36.0 %   18,486   37.3 %   16,673   62.8 %   63,387 41.0 %
Underwriting income $ 14,614 81.3 % $ 2,222 95.6 % $ 8,723 67.2 % $ 25,559 83.4 %
 
 

2012
 
Gross premiums written $ 104,314 $ 97,209 $ 28,361 $ 229,884
Net premiums written 76,764 70,341 26,308 173,413
Net premiums earned 65,705 49,848 26,031 141,584
Net loss & settlement expenses 30,928 47.1 % 32,387 65.0 % (2,310 ) -8.9 % 61,005 43.1 %
Net operating expenses   23,726 36.1 %   17,751   35.6 %   17,479   67.1 %   58,956 41.6 %
Underwriting income (loss) $ 11,051 83.2 % $ (290 ) 100.6 % $ 10,862 58.2 % $ 21,623 84.7 %
 
 
 
 

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

2013
 
Gross premiums written $ 226,937 $ 166,474 $ 56,421 $ 449,832
Net premiums written 181,744 117,529 53,642 352,915
Net premiums earned 151,341 94,600 52,763 298,704
Net loss & settlement expenses 76,825 50.8 % 44,045 46.6 % 6,185 11.7 % 127,055 42.5 %
Net operating expenses   55,798 36.9 %   37,409   39.5 %   33,085   62.7 %   126,292 42.3 %
Underwriting income $ 18,718 87.7 % $ 13,146 86.1 % $ 13,493 74.4 % $ 45,357 84.8 %
 
 

2012
 
Gross premiums written $ 188,682 $ 161,061 $ 56,159 $ 405,902
Net premiums written 139,628 118,010 52,333 309,971
Net premiums earned 129,215 96,840 52,809 278,864
Net loss & settlement expenses 69,797 54.0 % 48,453 50.0 % 4,638 8.9 % 122,888 44.1 %
Net operating expenses   47,815 37.0 %   36,760   37.9 %   34,837   66.0 %   119,412 42.8 %
Underwriting income $ 11,603 91.0 % $ 11,627 87.9 % $ 13,334 74.9 % $ 36,564 86.9 %
 

Copyright Business Wire 2010

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