RLI Reports Second Quarter 2019 Results

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.

 

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