RLI Reports Third Quarter 2019 Results

RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2019 net earnings of $32.3 million ($0.71 per share), compared to $39.4 million ($0.88 per share) for the third quarter of 2018. Operating earnings⁽¹⁾ for the third quarter of 2019 were $25.9 million ($0.57 per share) compared to $20.8 million ($0.46 per share) for the same period in 2018.

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter

 

Year to Date

Earnings Per Diluted Share

2019

 

2018

 

2019

 

2018

Net earnings

$

 

0.71

 

$

 

0.88

 

$

 

3.06

 

$

 

1.90

Operating earnings ⁽¹⁾

$

 

0.57

 

$

 

0.46

 

$

 

1.94

 

$

 

1.66

⁽¹⁾ See discussion below: Non-GAAP and Performance Measures.

Highlights for the quarter included:

• Underwriting income⁽¹⁾ of $13.7 million, resulting in a combined ratio⁽¹⁾ of 93.5.
• 16% increase in gross premiums written and 7% increase in investment income.
• Favorable development in prior years’ loss reserves, resulting in a $12.1 million net increase in underwriting income.
• Book value per share of $22.30, an increase of 27% from year-end 2018, inclusive of dividends.

“We are pleased with our sound financial results and continued top line growth during the quarter,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “We achieved a 93.5 combined ratio overall, with contributions from each major product segment. Throughout 2019, we have been focused on using capital generated from our businesses to selectively expand our existing footprint. Quarterly operating earnings of $0.57 per share, in addition to positive investment returns, generated strong book value growth of 27% from year-end 2018. We remain well positioned to take advantage of favorable market conditions, while providing exceptional service to our customers and delivering value to our shareholders.”

Underwriting Income

RLI achieved $13.7 million of underwriting income in the third quarter of 2019 on a 93.5 combined ratio, compared to $7.8 million on a 96.1 combined ratio in 2018. Results for both years include favorable development in prior years’ loss reserves which totaled $12.1 million and $9.7 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		$		2.4		$		(1.9	)		Casualty		98.3		101.5
Property				6.2				2.6			Property		85.0		93.3
Surety				5.1				7.1			Surety		82.4		76.4
Total		$		13.7		$		7.8			Total		93.5		96.1

⁽¹⁾ See discussion below: Non-GAAP and Performance Measures.

Other Income

RLI’s net investment income for the quarter increased 7.5% to $17.5 million, compared to the same period in 2018. The investment portfolio’s total return was 1.9% for the quarter and 9.6% for the year.

Comprehensive earnings were $47.7 million for the quarter ($1.05 per share) compared to $31.7 million ($0.70 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 $4.0 million for the quarter compared to $3.6 million from the same period last year. These results are related to Maui Jim, Inc. ($2.8 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($1.2 million), a specialty insurance company. For the third quarter of 2018, equity in earnings of unconsolidated investees from Maui Jim and Prime was $2.6 million and $1.0 million, respectively.

Dividends Paid in the Third Quarter of 2019

On September 20, 2019, the company paid a regular quarterly dividend of $0.23 per share, the same amount as the prior quarter. RLI’s cumulative dividends total more than $606 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

On July 16, 2019, RLI was named as one of the insurance industry’s top performing companies by Ward Group for the 29th consecutive year. RLI is one of only two property-casualty insurers to be recognized as a Ward’s 50 Top P&C Performer every year since the list’s inception in 1991.

At 10 a.m. central daylight time (CDT) tomorrow, October 17, 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/vy5j5zy8.

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
				3rd Qtr					3rd Qtr					9 Mos.					9 Mos.
Operating Earnings Per Share(1)				$		0.57			$		0.46			$		1.94			$		1.66
Specific items included in operating earnings per share:(2) (3)
• Favorable development in casualty prior years' reserves				$		0.19			$		0.11			$		0.68			$		0.36
• Favorable development in property prior years' reserves				$		0.02			$		0.01			$		0.02			$		0.07
• Favorable development in surety prior years' reserves				$		-			$		0.03			$		0.12			$		0.16
•Catastrophe impact
• 2019 storms				$		(0.04	)		$		-			$		(0.12	)		$		-
• 2018 and prior events				$		-			$		(0.09	)		$		-			$		(0.24	)

⁽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 September 30,														Nine Months Ended September 30,
SUMMARIZED INCOME STATEMENT DATA:				2019					2018			% Change						2019						2018				% Change
Net premiums earned		$		211,255			$		200,815			5.2		%		$		623,485				$		587,364				6.1		%
Net investment income				17,532					16,314			7.5		%				51,095						45,123				13.2		%
Net realized gains				3,211					18,647			(82.8	)	%				17,043						47,900				(64.4	)	%
Net unrealized gains (losses) on equity securities				4,906					4,848			1.2		%				47,214						(34,535	)			-
Consolidated revenue		$		236,904			$		240,624			(1.5	)	%		$		738,837				$		645,852				14.4		%
Loss and settlement expenses		$		108,990			$		110,231			(1.1	)	%		$		307,206				$		304,305				1.0		%
Policy acquisition costs				71,552					68,414			4.6		%				214,586						201,473				6.5		%
Insurance operating expenses				16,982					14,408			17.9		%				50,597						42,191				19.9		%
Interest expense on debt				1,861					1,862			(0.1	)	%				5,583						5,576				0.1		%
General corporate expenses				2,583					2,947			(12.4	)	%				9,142						7,871				16.1		%
Total expenses		$		201,968			$		197,862			2.1		%		$		587,114				$		561,416				4.6		%
Equity in earnings of unconsolidated investees				4,011					3,587			11.8		%				17,793						15,853				12.2		%
Earnings before income taxes		$		38,947			$		46,349			(16.0	)	%		$		169,516				$		100,289				69.0		%
Income tax expense				6,623					6,977			(5.1	)	%				31,252						15,450				102.3		%
Net earnings		$		32,324			$		39,372			(17.9	)	%		$		138,264				$		84,839				63.0		%
Other comprehensive earnings (loss), net of tax				15,341					(7,696	)		-						72,506						(41,769	)			-
Comprehensive earnings		$		47,665			$		31,676			50.5		%		$		210,770				$		43,070				389.4		%
Operating earnings(1):
Net earnings		$		32,324			$		39,372			(17.9	)	%		$		138,264				$		84,839				63.0		%
Less:
Realized gains				(3,211	)				(18,647	)		(82.8	)	%				(17,043	)					(47,900	)			(64.4	)	%
Income tax on realized gains				674					3,916			(82.8	)	%				3,579						10,059				(64.4	)	%
Unrealized (gains) losses on equity securities				(4,906	)				(4,848	)		1.2		%				(47,214	)					34,535				-
Income tax on unrealized gains (losses) on equity securities				1,031					1,018			1.3		%				9,915						(7,252	)			-
Operating earnings		$		25,912			$		20,811			24.5		%		$		87,501				$		74,281				17.8		%
Return on Equity:
Net earnings (trailing four quarters)																		13.0		%				16.6		%
Comprehensive earnings (trailing four quarters)																		21.8		%				12.2		%
Per Share Data:
Diluted:
Weighted average shares outstanding (in 000's)				45,349					44,940									45,192						44,760
Net earnings per share		$		0.71			$		0.88			(19.3	)	%		$		3.06				$		1.90				61.1		%
Less:
Realized gains				(0.07	)				(0.42	)		(83.3	)	%				(0.38	)					(1.07	)			(64.5	)	%
Income tax on realized gains				0.01					0.09			(88.9	)	%				0.08						0.22				(63.6	)	%
Unrealized (gains) losses on equity securities				(0.10	)				(0.11	)		(9.1	)	%				(1.04	)					0.77				-
Income tax on unrealized gains (losses) on equity securities				0.02					0.02			-		%				0.22						(0.16	)			-
EPS from operations(1)		$		0.57			$		0.46			23.9		%		$		1.94				$		1.66				16.9		%
Comprehensive earnings per share		$		1.05			$		0.70			50.0		%		$		4.66				$		0.96				385.4		%
Cash dividends per share - ordinary		$		0.23			$		0.22			4.5		%		$		0.68				$		0.65				4.6		%
Net Cash Flow provided by Operations		$		81,415			$		63,369			28.5		%		$		186,762				$		163,369				14.3		%

⁽¹⁾ See discussion above: Non-GAAP and Performance Measures.

RLI CORP
2019 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
		September 30,			December 31,
		2019			2018			% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income, at fair value		$	1,957,025		$	1,760,515		11.2	%
(amortized cost - $1,881,963 at 9/30/19)
(amortized cost - $1,776,465 at 12/31/18)
Equity securities, at fair value			428,297			340,483		25.8	%
(cost - $260,883 at 9/30/19)
(cost - $220,373 at 12/31/18)
Other invested assets			59,577			51,542		15.6	%
Cash and cash equivalents			69,582			41,690		66.9	%
Total investments and cash		$	2,514,481		$	2,194,230		14.6	%
Premiums and reinsurance balances receivable			157,111			152,576		3.0	%
Ceded unearned premiums			88,174			71,174		23.9	%
Reinsurance balances recoverable on unpaid losses			382,030			364,999		4.7	%
Deferred policy acquisition costs			86,523			84,934		1.9	%
Property and equipment			52,626			54,692		(3.8)	%
Investment in unconsolidated investees			113,528			94,967		19.5	%
Goodwill and intangibles			54,228			54,534		(0.6)	%
Other assets			56,363			32,959		71.0	%
Total assets		$	3,505,064		$	3,105,065		12.9	%
Unpaid losses and settlement expenses		$	1,557,358		$	1,461,348		6.6	%
Unearned premiums			532,493			496,505		7.2	%
Reinsurance balances payable			25,690			22,591		13.7	%
Funds held			78,161			72,309		8.1	%
Income taxes - deferred			55,910			24,238		130.7	%
Bonds payable, long-term debt			149,255			149,115		0.1	%
Accrued expenses			47,952			45,124		6.3	%
Other liabilities			58,625			26,993		117.2	%
Total liabilities		$	2,505,444		$	2,298,223		9.0	%
Shareholders' equity			999,620			806,842		23.9	%
Total liabilities & shareholders' equity		$	3,505,064		$	3,105,065		12.9	%
OTHER DATA:
Common shares outstanding (in 000's)			44,832			44,504
Book value per share		$	22.30		$	18.13		23.0	%
Closing stock price per share		$	92.91		$	68.99		34.7	%
Statutory surplus		$	1,021,283		$	829,775		23.1	%

RLI CORP
2019 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
2019
Gross premiums written		$	183,420					$	63,406					$	30,163					$	276,989
Net premiums written			144,478						47,585						28,649						220,712
Net premiums earned			140,423						41,476						29,356						211,255
Net loss & settlement expenses			86,587		61.7	%			17,404		42.0	%			4,999		17.0	%			108,990		51.6	%
Net operating expenses			51,466		36.6	%			17,870		43.0	%			19,198		65.4	%			88,534		41.9	%
Underwriting income (loss) (1)		$	2,370		98.3	%		$	6,202		85.0	%		$	5,159		82.4	%		$	13,731		93.5	%
2018
Gross premiums written		$	157,553					$	50,933					$	30,648					$	239,134
Net premiums written			131,611						39,606						29,353						200,570
Net premiums earned			131,605						39,067						30,143						200,815
Net loss & settlement expenses			85,992		65.3	%			20,144		51.6	%			4,095		13.6	%			110,231		54.9	%
Net operating expenses			47,587		36.2	%			16,302		41.7	%			18,933		62.8	%			82,822		41.2	%
Underwriting income (loss) (1)		$	(1,974)		101.5	%		$	2,621		93.3	%		$	7,115		76.4	%		$	7,762		96.1	%
Nine Months Ended September 30,
					GAAP						GAAP						GAAP						GAAP
			Casualty		Ratios				Property		Ratios				Surety		Ratios				Total		Ratios
2019
Gross premiums written		$	524,650					$	176,787					$	89,735					$	791,172
Net premiums written			423,016						134,018						85,439						642,473
Net premiums earned			415,667						120,194						87,624						623,485
Net loss & settlement expenses			247,162		59.5	%			52,934		44.0	%			7,110		8.1	%			307,206		49.3	%
Net operating expenses			153,853		37.0	%			53,248		44.3	%			58,082		66.3	%			265,183		42.5	%
Underwriting income (loss) (1)		$	14,652		96.5	%		$	14,012		88.3	%		$	22,432		74.4	%		$	51,096		91.8	%
2018
Gross premiums written		$	476,529					$	155,095					$	94,189					$	725,813
Net premiums written			399,562						120,891						90,294						610,747
Net premiums earned			387,068						111,439						88,857						587,364
Net loss & settlement expenses			246,391		63.7	%			50,393		45.2	%			7,521		8.5	%			304,305		51.8	%
Net operating expenses			138,236		35.7	%			48,896		43.9	%			56,532		63.6	%			243,664		41.5	%
Underwriting income (loss) (1)		$	2,441		99.4	%		$	12,150		89.1	%		$	24,804		72.1	%		$	39,395		93.3	%

⁽¹⁾ See discussion above: Non-GAAP and Performance Measures.

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