130 0 Kommentare RLI Reports Fourth Quarter and Year-End 2020 Results

RLI Corp. (NYSE: RLI) – RLI Corp. reported fourth quarter 2020 net earnings of $83.8 million ($1.84 per share), compared to $53.4 million ($1.18 per share) for the fourth quarter of 2019. Operating earnings⁽¹⁾ for the fourth quarter of 2020 were $34.0 million ($0.75 per share), compared to $28.6 million ($0.63 per share) for the same period in 2019.

Fourth Quarter

Year to Date

Earnings Per Diluted Share

2020

2019

2020

2019

Net earnings

1.84

1.18

3.46

4.23

Operating earnings ⁽¹⁾

0.75

0.63

2.59

2.57

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

Highlights for the quarter included:

Underwriting income⁽¹⁾ of $27.0 million on a combined ratio⁽¹⁾ of 88.0.
10% increase in gross premiums written.
Net favorable development in prior years’ loss reserves, resulting in a $24.7 million net increase in underwriting income.
Special dividend of $1.00 per share, representing $45.1 million returned to shareholders.

Highlights for the year included:

Underwriting income⁽¹⁾ of $69.6 million on a combined ratio⁽¹⁾ of 92.0.
7% increase in gross premiums written.
Net favorable development in prior years’ loss reserves, resulting in a $84.0 million net increase in underwriting income.
25^th consecutive year of underwriting profit⁽¹⁾.
Book value per share of $25.16, an increase of 22% (inclusive of dividends) from year-end 2019.

“Despite the many uncertainties RLI faced in 2020, we achieved strong results, provided superior service to our customers and delivered value to our shareholders,” said RLI Corp. Chairman and CEO Jonathan E. Michael. “We posted a 92 combined ratio for the year, inclusive of 5 points of hurricane activity, which marked our 25^th consecutive year of underwriting profit. During the fourth quarter, we achieved profitability in all product segments including property, which experienced headwinds from an active catastrophe season. Our strong underwriting performance, combined with investment income, resulted in $2.59 per share of operating income.”

“We believe the successful execution of our strategy is validated by growth in book value, which was up 22% in 2020. This achievement allowed us to share the rewards of our success with shareholders through a $1 per share special dividend. We will continue to position RLI for long-term growth through sustained financial strength, underwriting discipline and customer focus. I want to thank our talented associates for their outstanding efforts over the past year. Their willingness to adapt and readily take on the challenges of 2020 speaks to the resilience and strength of our team and culture.”

Underwriting Income

RLI achieved $27.0 million of underwriting income in the fourth quarter of 2020 on a 88.0 combined ratio, compared to $16.5 million on a 92.4 combined ratio in 2019.

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For the year, RLI achieved $69.6 million of underwriting income on a 92.0 combined ratio, compared to $67.6 million on a 91.9 combined ratio in 2019. Results for both years include net favorable development in prior years’ loss reserves, which totaled $84.0 million and $62.8 million for 2020 and 2019, respectively. The favorable development in 2020 was partially offset by a $45.1 million net reduction to underwriting income from hurricane losses.

The following table highlights underwriting income and combined ratios by segment for the year.

Underwriting Income (Loss)⁽¹⁾						Combined Ratio⁽¹⁾
(in millions)	2020			2019			2020		2019
Casualty	$	44.4		$	20.6	Casualty		92.2		96.3
Property		(3.2	)		18.2	Property		101.7		88.9
Surety		28.4			28.8	Surety		74.8		75.3
Total	$	69.6		$	67.6	Total		92.0		91.9

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

Other Income

Net investment income for the quarter decreased 6.3% to $16.7 million, compared to the same period in 2019. For the year ended December 31, 2020, net investment income was $67.9 million, compared to $68.9 million for the same period in 2019. The investment portfolio’s total return was 3.2% for the quarter and 7.5% for the year.

RLI’s comprehensive earnings were $89.9 million for the quarter ($1.97 per share), compared to $47.9 million ($1.06 per share) for the same quarter in 2019. Full-year comprehensive earnings were $213.3 million ($4.70 per share), compared to $258.7 million ($5.72 per share) in 2019. In addition to net earnings, comprehensive earnings (loss) included after-tax unrealized gains/(losses) from the fixed income portfolio.

Equity in earnings of Maui Jim, Inc., a producer of premium sunglasses, was $(1.1) million for the quarter, influenced by seasonal sales results. Equity in earnings of Prime Holdings Insurance Services, Inc., a specialty insurance company, was $3.1 million. Comparatively, for the fourth quarter of 2019, equity in earnings of unconsolidated investees from Maui Jim and Prime was $0.7 million and $2.5 million, respectively. For the year ended December 31, 2020, equity in earnings of unconsolidated investees was $10.4 million from Maui Jim and $10.8 million from Prime, compared to $13.6 million and $7.4 million, respectively, for the prior year. During the quarter, RLI received a $4.7 million dividend from Prime, which resulted in a tax benefit on dividends received from affiliates of $0.5 million ($0.01 per share).

Special and Regular Dividends

On December 18, 2020, the company paid a special cash dividend of $1.00 per share and a regular quarterly dividend of $0.24 per share for a combined total of $56.0 million. RLI has paid dividends for 178 consecutive quarters and increased regular dividends in each of the last 45 years. Over the last 10 years, the company has returned nearly $1.14 billion to shareholders and the regular quarterly dividend has grown an average of 5.2% per year.

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 further 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 2020 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

During the fourth quarter, the company’s A+ (Superior) financial strength rating was affirmed by AM Best Company for the company’s insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company and Contractors Bonding and Insurance Company.

At 10 a.m. central standard time (CST) tomorrow, January 28, 2021, 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/2scgys4w.

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, 2019.

About RLI

RLI Corp. (NYSE: RLI) is a specialty insurer serving 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 AM Best Company. RLI has paid and increased regular dividends for 45 consecutive years and delivered underwriting profits for 25 consecutive years. To learn more about RLI, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

	Operating Earnings Per Share
	2020			2019			2020			2019
	4th Qtr			4th Qtr			12 Mos.			12 Mos.
Operating Earnings Per Share⁽¹⁾	$	0.75		$	0.63		$	2.59		$	2.57

Specific items included in operating earnings per share:^{(2) (3)}
Net favorable development in casualty prior years' reserves	$	0.40		$	0.30		$	1.15		$	0.98
Net favorable (unfavorable) development in property prior years' reserves	$	-		$	(0.03	)	$	0.05		$	(0.01	)
Net favorable development in surety prior years' reserves	$	0.02		$	-		$	0.19		$	0.11
Net incurred losses related to:
2020 Hurricanes	$	(0.21	)	$	-		$	(0.78	)	$	-
2020 storms and civil unrest	$	-		$	-		$	(0.10	)	$	-
COVID-19	$	(0.05	)	$	-		$	(0.27	)	$	-
2019 and prior catastrophe events	$	-		$	(0.01	)	$	0.05		$	(0.12	)
Gain from tax benefit applicable to equity method dividends⁽⁴⁾	$	0.01		$	0.04		$	0.01		$	0.04

(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.
(4)		As required under the accounting standard for income taxes, the gain reflects the tax benefit of applying the lower tax rate applicable to dividends received from an affiliate (10.8% in 2020 and 7.4% in 2019) as compared to the corporate capital gains tax rate (21%) on which tax estimates were based.

RLI CORP 2020 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts)

	Three Months Ended December 31,										Year Ended December 31,
SUMMARIZED INCOME STATEMENT DATA:		2020			2019		% Change					2020				2019			% Change
Net premiums earned	$	224,801		$	215,626			4.3		%	$	865,747			$	839,111				3.2		%
Net investment income		16,655			17,775			(6.3	)	%		67,893				68,870				(1.4	)	%
Net realized gains		3,330			477		NM					17,885				17,520				2.1		%
Net unrealized gains on equity securities		59,665			30,876			93.2		%		32,101				78,090				(58.9	)	%
Consolidated revenue	$	304,451		$	264,754			15.0		%	$	983,626			$	1,003,591				(2.0	)	%
Loss and settlement expenses		103,065			106,210			(3.0	)	%		442,884				413,416				7.1		%
Policy acquisition costs		73,002			74,111			(1.5	)	%		286,438				288,697				(0.8	)	%
Insurance operating expenses		21,691			18,833			15.2		%		66,828				69,430				(3.7	)	%
Interest expense on debt		1,902			2,005			(5.1	)	%		7,603				7,588				0.2		%
General corporate expenses		3,848			3,544			8.6		%		10,265				12,686				(19.1	)	%
Total expenses	$	203,508		$	204,703			(0.6	)	%	$	814,018			$	791,817				2.8		%
Equity in earnings of unconsolidated investees		1,874			3,167			(40.8	)	%		20,233				20,960				(3.5	)	%
Earnings before income taxes	$	102,817		$	63,218			62.6		%	$	189,841			$	232,734				(18.4	)	%
Income tax expense		19,012			9,840			93.2		%		32,750				41,092				(20.3	)	%
Net earnings	$	83,805		$	53,378			57.0		%	$	157,091			$	191,642				(18.0	)	%

Other comprehensive earnings (loss), net of tax		6,129			(5,461	)	NM					56,219				67,045				(16.1	)	%
Comprehensive earnings	$	89,934		$	47,917			87.7		%	$	213,310			$	258,687				(17.5	)	%

Operating earnings⁽¹⁾:
Net earnings	$	83,805		$	53,378			57.0		%	$	157,091			$	191,642				(18.0	)	%
Less:
Realized gains		(3,330	)		(477	)	NM					(17,885	)			(17,520	)			2.1		%
Income tax on realized gains		699			100		NM					3,756				3,679				2.1		%
Unrealized gains on equity securities		(59,665	)		(30,876	)		93.2		%		(32,101	)			(78,090	)			(58.9	)	%
Income tax on unrealized gains on equity securities		12,531			6,484			93.3		%		6,741				16,399				(58.9	)	%
Operating earnings	$	34,040		$	28,609			19.0		%	$	117,602			$	116,110				1.3		%

Return on Equity:
Net earnings											15.1			%		20.6		%
Comprehensive earnings											20.5			%	27.8			%

Per Share Data:
Diluted:
Weighted average shares outstanding (in 000's)		45,565			45,409							45,376				45,257

Net earnings per share	$	1.84		$	1.18			55.9		%	$	3.46			$	4.23				(18.2	)	%
Less:
Realized gains		(0.07	)		(0.01	)	NM					(0.39	)			(0.38	)			2.6		%
Income tax on realized gains		0.02			-		NM					0.08				0.08				0.0		%
Unrealized gains on equity securities		(1.32	)		(0.68	)		94.1		%		(0.71	)			(1.72	)			(58.7	)	%
Income tax on unrealized gains on equity securities		0.28			0.14			100.0		%		0.15				0.36				(58.3	)	%
EPS from operations⁽¹⁾	$	0.75		$	0.63			19.0		%	$	2.59			$	2.57				0.8		%

Comprehensive earnings per share	$	1.97		$	1.06			85.8		%	$	4.70			$	5.72				(17.8	)	%

Cash dividends per share - ordinary	$	0.24		$	0.23			4.3		%	$	0.95			$	0.91				4.4		%
Cash dividends per share - special	$	1.00		$	1.00			0.0		%	$	1.00			$	1.00				0.0		%

Net Cash Flow provided by Operations	$	100,015		$	90,155			10.9		%	$	263,259			$	276,917				(4.9	)	%

(1) See discussion above: Non-GAAP and Performance Measures.
NM = Not Meaningful

RLI CORP 2020 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts)

	December 31,		December 31,
		2020		2019	% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income, at fair value	$	2,196,626	$	1,983,086		10.8		%
(amortized cost - $2,061,467 at 12/31/20)
(amortized cost - $1,915,278 at 12/31/19)
Equity securities, at fair value		524,006		460,630		13.8		%
(cost - $293,190 at 12/31/20)
(cost - $262,131 at 12/31/19)
Other invested assets		54,232		70,441		(23.0	)	%
Cash and cash equivalents		62,217		46,203		34.7		%
Total investments and cash	$	2,837,081	$	2,560,360		10.8		%

Premiums and reinsurance balances receivable		174,628		160,369		8.9		%
Ceded unearned premiums		113,488		93,656		21.2		%
Reinsurance balances recoverable on unpaid losses		443,729		384,517		15.4		%
Deferred policy acquisition costs		88,425		85,044		4.0		%
Property and equipment		51,406		53,121		(3.2	)	%
Investment in unconsolidated investees		128,382		103,836		23.6		%
Goodwill and intangibles		53,719		54,127		(0.8	)	%
Other assets		47,627		50,691		(6.0	)	%
Total assets	$	3,938,485	$	3,545,721		11.1		%

Unpaid losses and settlement expenses	$	1,750,049	$	1,574,352		11.2		%
Unearned premiums		586,386		540,213		8.5		%
Reinsurance balances payable		42,265		25,691		64.5		%
Funds held		81,747		83,358		(1.9	)	%
Income taxes - deferred		80,235		56,727		41.4		%
Bonds payable, long-term debt		149,489		149,302		0.1		%
Accrued expenses		75,925		66,626		14.0		%
Other liabilities		36,411		54,064		(32.7	)	%
Total liabilities	$	2,802,507	$	2,550,333		9.9		%
Shareholders' equity		1,135,978		995,388		14.1		%
Total liabilities & shareholders' equity	$	3,938,485	$	3,545,721		11.1		%

OTHER DATA:
Common shares outstanding (in 000's)		45,143		44,869

Book value per share	$	25.16	$	22.18		13.4		%
Closing stock price per share	$	104.15	$	90.02		15.7		%

Statutory surplus	$	1,121,592	$	1,029,671		8.9		%

RLI CORP 2020 FINANCIAL HIGHLIGHTS UNDERWRITING SEGMENT DATA (Unaudited) (Dollars in thousands, except per share amounts)

Three Months Ended December 31,
			GAAP						GAAP					GAAP					GAAP
	Casualty		Ratios			Property			Ratios			Surety		Ratios			Total		Ratios
2020

Gross premiums written	$	196,118				$	74,227					$	30,239				$	300,584
Net premiums written		146,623					54,718						28,506					229,847
Net premiums earned		147,884					48,605						28,312					224,801
Net loss & settlement expenses		72,107		48.8	%		26,961			55.5	%		3,997		14.1	%		103,065		45.8	%
Net operating expenses		53,753		36.3	%		20,950			43.1	%		19,990		70.6	%		94,693		42.2	%
Underwriting income (loss)⁽¹⁾	$	22,024		85.1	%	$	694			98.6	%	$	4,325		84.7	%	$	27,043		88.0	%

2019

Gross premiums written	$	179,542				$	64,638					$	29,650				$	273,830
Net premiums written		141,963					47,956						27,945					217,864
Net premiums earned		142,791					43,828						29,007					215,626
Net loss & settlement expenses		82,994		58.1	%		20,680			47.2	%		2,536		8.7	%		106,210		49.3	%
Net operating expenses		53,848		37.7	%		19,017			43.4	%		20,079		69.3	%		92,944		43.1	%
Underwriting income (loss)⁽¹⁾	$	5,949		95.8	%	$	4,131			90.6	%	$	6,392		78.0	%	$	16,472		92.4	%

Twelve Months Ended December 31,
			GAAP						GAAP					GAAP					GAAP
	Casualty		Ratios			Property			Ratios			Surety		Ratios			Total		Ratios
2020

Gross premiums written	$	749,409				$	268,769					$	118,254				$	1,136,432
Net premiums written		583,244					196,603						112,241					892,088
Net premiums earned		569,521					183,720						112,506					865,747
Net loss & settlement expenses		322,099		56.6	%		111,356			60.6	%		9,429		8.4	%		442,884		51.2	%
Net operating expenses		202,995		35.6	%		75,546			41.1	%		74,725		66.4	%		353,266		40.8	%
Underwriting income (loss)⁽¹⁾	$	44,427		92.2	%	$	(3,182	)		101.7	%	$	28,352		74.8	%	$	69,597		92.0	%

2019

Gross premiums written	$	704,192				$	241,425					$	119,385				$	1,065,002
Net premiums written		564,979					181,974						113,384					860,337
Net premiums earned		558,458					164,022						116,631					839,111
Net loss & settlement expenses		330,156		59.1	%		73,614			44.9	%		9,646		8.3	%		413,416		49.3	%
Net operating expenses		207,701		37.2	%		72,265			44.0	%		78,161		67.0	%		358,127		42.6	%
Underwriting income (loss)⁽¹⁾	$	20,601		96.3	%	$	18,143			88.9	%	$	28,824		75.3	%	$	67,568		91.9	%


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