RLI Reports Third Quarter 2013 Results

RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2013 operating earnings of $30.5 million ($1.40 per share), compared to $21.9 million ($1.02 per share) for the third quarter of 2012. For the nine months ended September 30, 2013, operating earnings were $80.4 million ($3.71 per share) compared to $67.7 million ($3.15 per share) for the same period in 2012.
    Third Quarter
Earnings Per Diluted Share   2013   2012
Operating earnings (1)   $1.40   $1.02
Net earnings   $1.73   $1.19
   
(1) See discussion of non-GAAP financial measures on page 2.

Highlights for the quarter included:
  • 3% growth in gross premiums written and 7% growth in net premiums written.
  • Underwriting income of $31.8 million, resulting in a combined ratio of 80.5.
  • $19.7 million net increase in underwriting income resulting from favorable development on prior years’ loss reserves.
  • Net operating cash flow of $55.0 million.
  • Book value per share of $39.85, an increase of 6% from year end 2012.

“Our strong performance in the quarter demonstrates the effectiveness of our underwriting discipline,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “As in recent quarters, our casualty segment drove growth as we continued to benefit from higher rates and newer product initiatives.”

“We have delivered solid results thus far this year, achieving 8% growth in gross premiums written and 11% growth in net premiums written while attaining an outstanding 83 combined ratio. Looking toward the fourth quarter, we remain focused on continuing the momentum by pursuing attractive niche markets where our underwriters’ expertise can create greater value for our customers,” said Michael.

Underwriting income

RLI achieved $31.8 million of underwriting income in the third quarter of 2013 on an 80.5 combined ratio, compared to $18.5 million of underwriting income on an 87.7 combined ratio in the same quarter for 2012.
                                     
Underwriting Income (Loss)   Third Quarter Combined Ratio   Third Quarter
(in millions)   2013   2012         2013   2012
Casualty       $ 20.8   $ 10.8 Casualty   75.3   84.2
Property 6.5 (0.3 ) Property 87.7 100.6
Surety             4.5     8.0   Surety       83.2   70.3
Total           $ 31.8   $ 18.5   Total       80.5   87.7

Results for 2013 include a benign catastrophe season, improved current year results on our casualty segment, as well as $19.7 million in favorable development on prior years’ loss reserves. On a comparative basis, results for 2012 included $18.1 million in favorable development on prior years’ loss reserves.

RLI reported year-to-date underwriting income of $77.2 million representing an 83.3 combined ratio for the nine months ended September 30, 2013, versus $55.1 million of underwriting income representing an 87.1 combined ratio for the same period last year.

Other income

RLI’s net investment income for the quarter declined 4.4% to $13.6 million, compared to the same period in 2012. For the nine-month period ended September 30, 2013, investment income was $39.3 million versus $44.3 million for the same period in 2012. The investment portfolio’s total return was 1.3% for the quarter. The bond portfolio returned 0.9% in the quarter, and the equity portfolio’s return was 3.0%. Through nine months, the investment portfolio’s total return was 2.0% with the bond portfolio returning -1.8% and equities returning 17.7%. The decline in the bond portfolio was primarily due to an increase in interest rates.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $35.7 million for the quarter ($1.64 per share) compared to $46.5 million ($2.16 per share) for the same quarter in 2012. Year-to-date comprehensive earnings were $74.5 million ($3.44 per share), compared to $116.0 million ($5.39 per share) for the same period last year.

During the quarter, equity in earnings of unconsolidated investee was $2.6 million compared to $1.9 million from the same period last year. These results are related to Maui Jim, Inc., a producer of premium sunglasses. For the nine-month period, equity in earnings of unconsolidated investee was $10.7 million versus $8.9 million in 2012.

Dividend paid in the third quarter 2013

On September 20, 2013, the Company paid a dividend of $0.34 per share, the same amount as the prior quarter. RLI has paid dividends for 149 consecutive quarters and increased dividends in each of the last 38 years.

Debt issuance

On September 25, 2013, RLI entered into an underwriting agreement to issue $150,000,000 of senior unsecured notes. On October 2, 2013, the public offering was completed with funds received and notes issued bearing a coupon rate of 4.875% and maturity date of September 15, 2023. RLI will use a portion of the proceeds received from this offering to repay its $100,000,000 of senior notes outstanding, which mature in January 2014, with remaining net proceeds available for general corporate purposes. Further information about the notes offering is available at www.rlicorp.com.

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

At 10 a.m. central time (CT) tomorrow, October 17, 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 http://www.media-server.com/m/p/mq6p56vs.

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
3rd Qtr 3rd Qtr 9 Mos. 9 Mos.
Operating Earnings Per Share $ 1.40 $ 1.02 $ 3.71 $ 3.15
 
Specific items included in operating earnings per share: (1) (2)

· Favorable development on casualty prior years' reserves
$ 0.51 $ 0.36 $ 1.36 $ 1.01

· Favorable development on property prior years' reserves
$ 0.07 $ 0.06 $ 0.09 $ 0.24

· Favorable (unfavorable) development on surety prior years' reserves
$ (0.01 ) $ 0.09 $ 0.13 $ 0.26

· Catastrophe impact

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

· 2012 and prior spring storms
$ - $ (0.03 ) $ (0.01 ) $ (0.42 )

· 2012 and prior hurricanes
$ 0.02 $ (0.10 ) $ 0.07 $ (0.04 )
 

(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 September 30, Nine Months Ended September 30,
2013 2012 % Change 2013 2012 % Change

SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned $ 163,702 $ 149,943 9.2 % $ 462,406 $ 428,807 7.8 %
Net investment income 13,598 14,221 -4.4 % 39,331 44,340 -11.3 %
Net realized investment gains   10,999     5,481 100.7 %   18,425     16,233   13.5 %
Consolidated revenue 188,299 169,645 11.0 % 520,162 489,380 6.3 %
 
Loss and settlement expenses 64,246 70,598 -9.0 % 191,301 193,486 -1.1 %
Policy acquisition costs 54,176 49,262 10.0 % 156,014 145,632 7.1 %
Other insurance expenses 13,462 11,553 16.5 % 37,916 34,595 9.6 %
Interest expense on debt 1,513 1,512 0.1 % 4,538 4,537 0.0 %
General corporate expenses   2,157     2,099 2.8 %   6,235     5,901   5.7 %
Total expenses 135,554 135,024 0.4 % 396,004 384,151 3.1 %
 

Equity in earnings of unconsolidated investee
  2,564     1,859 37.9 %   10,696     8,928   19.8 %
 
Earnings before income taxes 55,309 36,480 51.6 % 134,854 114,157 18.1 %
Income tax expense   17,662     11,017 60.3 %   42,458     35,908   18.2 %
Net earnings $ 37,647   $ 25,463 47.8 % $ 92,396   $ 78,249   18.1 %
 
Other comprehensive earnings (loss), net of tax   (1,946 )   21,047 -     (17,874 )   37,713   -  
 
Comprehensive earnings $ 35,701   $ 46,510 -23.2 % $ 74,522   $ 115,962   -35.7 %
 
 
Operating earnings: (1)
 
Net earnings $ 37,647 $ 25,463 47.8 % $ 92,396 $ 78,249 18.1 %
 
Less: Realized investment gains, net of tax   7,150     3,562 100.7 %   11,977     10,551   13.5 %
- -
Operating earnings $ 30,497   $ 21,901 39.2 % $ 80,419   $ 67,698   18.8 %
 
Return on Equity:
Net earnings (trailing four quarters)   14.0 %   12.8 %
Comprehensive earnings (trailing four quarters)   10.4 %   20.6 %
 
Per Share Data
 

Diluted:
Weighted average shares outstanding (in 000's) 21,773 21,486 21,665 21,519
 
EPS from operations (1) $ 1.40 $ 1.02 37.3 % $ 3.71 $ 3.15 17.8 %
Realized gains, net of tax   0.33     0.17 94.1 %   0.55     0.49   12.2 %
Net earnings per share $ 1.73   $ 1.19 45.4 % $ 4.26   $ 3.64   17.0 %
 
Comprehensive earnings per share $ 1.64   $ 2.16 -24.1 % $ 3.44   $ 5.39   -36.2 %
 
Cash dividends per share $ 0.34 $ 0.32 6.3 % $ 1.00 $ 0.94 6.4 %
 
 
Net Cash Flow provided by Operations $ 54,955   $ 45,207 21.6 % $ 81,736   $ 13,154   521.4 %
 
 
(1) See discussion of non-GAAP financial measures on page 2.
 
 
 
RLI CORP.
2013 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
     
 
September 30, December 31,
2013 2012 % Change

SUMMARIZED BALANCE SHEET DATA:
Fixed income $ 1,379,663 $ 1,390,317 -0.8 %
(amortized cost - $1,360,594 at 9/30/13)
(amortized cost - $1,306,084 at 12/31/12)
Equity securities 392,156 375,788 4.4 %
(cost - $218,656 at 9/30/13)
(cost - $240,287 at 12/31/12)
Cash and cash equivalents   110,392   74,776 47.6 %
Total investments and cash 1,882,211 1,840,881 2.2 %
 
Bond issuance - proceeds receivable 148,596 - -
Premiums and reinsurance balances receivable 157,213 139,355 12.8 %
Ceded unearned premiums 69,842 73,192 -4.6 %
Reinsurance recoverable on unpaid losses 360,194 359,884 0.1 %
Deferred acquisition costs 63,215 52,344 20.8 %
Property and equipment 36,007 27,987 28.7 %
Investment in unconsolidated investee 62,506 52,128 19.9 %
Goodwill and intangibles 75,140 76,113 -1.3 %
Other assets   31,713   22,748 39.4 %
Total assets $ 2,886,637 $ 2,644,632 9.2 %
 
Unpaid losses and settlement expenses 1,135,698 1,158,483 -2.0 %
Unearned premiums 416,886 369,346 12.9 %
Reinsurance balances payable 44,530 43,959 1.3 %
Funds held 64,047 56,633 13.1 %
Debt, notes payable due 2014 100,000 100,000 -
Debt, notes payable due 2023 150,000 - -
Income taxes - deferred 54,337 55,566 -2.2 %
Accrued expenses 49,108 49,933 -1.7 %
Other liabilities   17,453   14,349 21.6 %
Total liabilities 2,032,059 1,848,269 9.9 %
Shareholders' equity   854,578   796,363 7.3 %
Total liabilities & shareholders' equity $ 2,886,637 $ 2,644,632 9.2 %
 
 
 

OTHER DATA
 
Common shares outstanding (in 000's) 21,447 21,263
 
Book value per share $ 39.85 $ 37.45 6.4 %
Closing stock price per share $ 87.42 $ 64.66 35.2 %
Cash dividends per share - ordinary (annualized) $ 1.34 $ 1.26 6.3 %
Cash dividends per share - special $ - $ 5.00 -
 
Statutory Surplus $ 809,152 $ 684,072 18.3 %
 
 
 
RLI CORP.
2013 FINANCIAL HIGHLIGHTS
UNDERWRITING SEGMENT DATA
(Unaudited)
(Dollars in thousands, except per share amounts)
               
 
Three Months Ended September 30,
GAAP GAAP GAAP GAAP
Casualty Ratios Property Ratios Surety Ratios Total Ratios

2013
 
Gross premiums written $ 116,242 $ 55,716 $ 29,708 $ 201,666
Net premiums written 91,416 40,963 28,002 160,381
Net premiums earned 83,966 52,705 27,031 163,702
Net loss & settlement expenses 32,287 38.5 % 26,719 50.7 % 5,240 19.4 % 64,246 39.2 %
Net operating expenses   30,880 36.8 %   19,518   37.0 %   17,240 63.8 %   67,638 41.3 %
Underwriting income $ 20,799 75.3 % $ 6,468 87.7 % $ 4,551 83.2 % $ 31,818 80.5 %
 
 

2012
 
Gross premiums written $ 99,970 $ 65,321 $ 30,591 $ 195,882
Net premiums written 72,597 49,052 28,880 150,529
Net premiums earned 68,194 54,741 27,008 149,943
Net loss & settlement expenses 32,297 47.4 % 35,905 65.6 % 2,396 8.9 % 70,598 47.1 %
Net operating expenses   25,091 36.8 %   19,146   35.0 %   16,578 61.4 %   60,815 40.6 %
Underwriting income (loss) $ 10,806 84.2 % $ (310 ) 100.6 % $ 8,034 70.3 % $ 18,530 87.7 %
 
 
 
 
Nine Months Ended September 30,
GAAP GAAP GAAP GAAP
Casualty Ratios Property Ratios Surety Ratios Total Ratios

2013
 
Gross premiums written $ 343,179 $ 222,190 $ 86,129 $ 651,498
Net premiums written 273,160 158,492 81,644 513,296
Net premiums earned 235,307 147,305 79,794 462,406
Net loss & settlement expenses 109,112 46.4 % 70,764 48.0 % 11,425 14.3 % 191,301 41.4 %
Net operating expenses   86,678 36.8 %   56,927   38.6 %   50,325 63.1 %   193,930 41.9 %
Underwriting income $ 39,517 83.2 % $ 19,614 86.6 % $ 18,044 77.4 % $ 77,175 83.3 %
 
 

2012
 
Gross premiums written $ 288,652 $ 226,382 $ 86,750 $ 601,784
Net premiums written 212,225 167,062 81,213 460,500
Net premiums earned 197,409 151,581 79,817 428,807
Net loss & settlement expenses 102,094 51.7 % 84,358 55.7 % 7,034 8.8 % 193,486 45.1 %
Net operating expenses   72,906 36.9 %   55,906   36.9 %   51,415 64.4 %   180,227 42.0 %
Underwriting income $ 22,409 88.6 % $ 11,317 92.6 % $ 21,368 73.2 % $ 55,094 87.1 %

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