RLI Reports First Quarter 2022 Results

RLI Corp. (NYSE: RLI) – RLI Corp. reported first quarter 2022 net earnings of $47.9 million ($1.05 per share), compared to $73.0 million ($1.60 per share) for the first quarter of 2021. Operating earnings⁽¹⁾ for the first quarter of 2022 were $65.5 million ($1.43 per share), compared to $39.6 million ($0.87 per share) for the same period in 2021.

 

First Quarter

 

Earnings Per Diluted Share

 

2022

 

 

2021

 

Net earnings

 

$

1.05

 

 

$

1.60

 

Operating earnings ⁽¹⁾

 

$

1.43

 

 

$

0.87

 

 

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

 

Highlights for the quarter included:

• Underwriting income⁽¹⁾ of $59.5 million on a combined ratio⁽¹⁾ of 77.9.
• 22% increase in gross premiums written.
• 9% increase in net investment income.
• Favorable development in prior years’ loss reserves, resulting in a $39.6 million net increase in underwriting income.
• Book value per share of $25.45, a decrease of 5% (inclusive of dividends) from year-end 2021.

“We started the year with positive momentum, achieving a 22% increase in gross premiums written and an excellent 78 combined ratio,” said RLI Corp. President & CEO Craig Kliethermes. “All three product segments were solid contributors in the quarter, as market conditions continue to be favorable. Strong underwriting and investment income produced operating earnings of $1.43 per share. However, these positive earnings were offset by negative portfolio returns in the quarter, resulting in a decline in book value of 5%, inclusive of dividends.”

“We believe serving our customers through tailored products, superior service and financial stability is critically important in all markets. Our exceptional underwriting discipline delivered again this quarter and I want to thank our associates for a remarkable start to the year.”

Underwriting Income

RLI achieved $59.5 million of underwriting income in the first quarter of 2022 on a 77.9 combined ratio, compared to $29.9 million on an 86.9 combined ratio in 2021.

Results for both years include favorable development in prior years’ loss reserves, which resulted in a $39.6 million and $31.4 million net increase to underwriting income for 2022 and 2021, respectively.

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

Underwriting Income (Loss)(1)										Combined Ratio(1)
(in millions)		2022				2021						2022				2021
Casualty		$	27.6			$	24.9			Casualty			83.9				83.3
Property			22.5				(1.0	)		Property			66.7				101.9
Surety			9.4				6.0			Surety			68.8				78.5
Total		$	59.5			$	29.9			Total			77.9				86.9
(1) See discussion below: Non-GAAP and Performance Measures.

Other Income

Net investment income for the quarter increased 8.9% to $17.9 million, compared to the same period in 2021. The investment portfolio’s total return was -4.7% for the quarter.

RLI’s comprehensive loss was $67.7 million for the quarter (-$1.48 per share), compared to $28.3 million ($0.62 per share) of comprehensive earnings for the same quarter in 2021. In addition to net earnings, comprehensive loss included after-tax unrealized losses from the fixed income portfolio, due to rising interest rates.

Equity in earnings of Maui Jim, Inc. (Maui Jim), a producer of premium sunglasses, was $6.4 million for the quarter. Equity in earnings of Prime Holdings Insurance Services, Inc. (Prime), a specialty insurance company, was $2.8 million. Comparatively, for the first quarter of 2021, equity in earnings of unconsolidated investees from Maui Jim and Prime was $3.7 million and $3.7 million, respectively.

Dividends Paid in First Quarter of 2022

On March 18, 2022, the company paid a regular quarterly dividend of $0.25 per share, the same amount as the prior quarter. RLI’s cumulative dividends total more than $508 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 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 2022 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 March 14, 2022, RLI Corp. announced that it has agreed to sell its minority interest in Maui Jim, Inc. RLI’s net after-tax purchase price proceeds from the sale will be approximately $500 million, with the final proceeds to be determined at closing, based on adjustments to the purchase price for working capital and other items.

“A successful completion of the sale will result in capital generated to RLI’s benefit,” said RLI Corp. President & CEO Craig Kliethermes. “As always, our top priority is to ensure we have adequate capital to support our business. However, we have demonstrated discipline in returning capital to shareholders if it exceeds our near-term needs.”

For additional information, please refer to the Form 8-K filed on March 14, 2022 by RLI Corp.

At 10 a.m. central daylight time (CDT) tomorrow, April 21, 2022, RLI management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion at https://events.q4inc.com/attendee/906207740.

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, 2021.

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 46 consecutive years and delivered underwriting profits for 26 consecutive years. To learn more about RLI, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

		Reserve Development and Catastrophe Losses, Net of Reinsurance
		Three Months Ended March 31,
(Dollars in millions, except per share amounts)		2022				2021
Favorable development in casualty prior years' reserves		$	27.8			$	28.2
Favorable development in property prior years' reserves		$	13.2			$	6.1
Favorable development in surety prior years' reserves		$	4.5			$	2.8
Net incurred losses related to:
2022 storms		$	(2.0	)		$	-
2021 and prior events		$	-			$	(16.0	)
		Operating Earnings Per Share
		Three Months Ended March 31,
		2022				2021
Operating Earnings Per Share(1)		$	1.43			$	0.87
Specific items included in operating earnings per share:(2) (3)
Net favorable development in casualty prior years' reserves		$	0.41			$	0.44
Net favorable development in property prior years' reserves		$	0.21			$	0.08
Net favorable development in surety prior years' reserves		$	0.06			$	0.03
Net incurred losses related to:
2022 storms		$	(0.03	)		$	-
2021 and prior events		$	-			$	(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
2022 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
		Three Months Ended March 31,
SUMMARIZED INCOME STATEMENT DATA:			2022					2021				% Change
Net premiums earned		$	269,152				$	228,595					17.7		%
Net investment income			17,883					16,424					8.9		%
Net realized gains			5,588					14,150					(60.5	)	%
Net unrealized gains (losses) on equity securities			(27,810	)				28,162				NM
Consolidated revenue		$	264,813				$	287,331					(7.8	)	%
Loss and settlement expenses			105,524					104,892					0.6		%
Policy acquisition costs			85,287					74,990					13.7		%
Insurance operating expenses			18,863					18,796					0.4		%
Interest expense on debt			2,010					1,901					5.7		%
General corporate expenses			3,363					3,342					0.6		%
Total expenses		$	215,047				$	203,921					5.5		%
Equity in earnings of unconsolidated investees			8,759					6,424					36.3		%
Earnings before income taxes		$	58,525				$	89,834					(34.9	)	%
Income tax expense			10,602					16,822					(37.0	)	%
Net earnings		$	47,923				$	73,012					(34.4	)	%
Other comprehensive earnings (loss), net of tax			(115,581	)				(44,747	)				158.3		%
Comprehensive earnings (loss)		$	(67,658	)			$	28,265				NM
Operating earnings(1):
Net earnings		$	47,923				$	73,012					(34.4	)	%
Less:
Realized gains			(5,588	)				(14,150	)				(60.5	)	%
Income tax on realized gains			1,173					2,972					(60.5	)	%
Unrealized (gains) losses on equity securities			27,810					(28,162	)			NM
Income tax on unrealized gains (losses) on equity securities			(5,840	)				5,914				NM
Operating earnings		$	65,478				$	39,586					65.4		%
Return on Equity:
Net earnings		21.1			%			27.2		%
Comprehensive earnings		10.3			%			29.5		%
Per Share Data:
Diluted:
Weighted average shares outstanding (in 000's)			45,714					45,674
Net earnings per share		$	1.05				$	1.60					(34.4	)	%
Less:
Realized gains			(0.12	)				(0.31	)				(61.3	)	%
Income tax on realized gains			0.03					0.07					(57.1	)	%
Unrealized (gains) losses on equity securities			0.60					(0.62	)			NM
Income tax on unrealized gains (losses) on equity securities			(0.13	)				0.13				NM
EPS from operations(1)		$	1.43				$	0.87					64.4		%
Comprehensive earnings per share		$	(1.48	)			$	0.62				NM
Cash dividends per share - ordinary		$	0.25				$	0.24					4.2		%
Net Cash Flow provided by Operations		$	39,014				$	60,287					(35.3	)	%
(1) See discussion above: Non-GAAP and Performance Measures.
NM = Not Meaningful

RLI CORP
2022 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
		March 31,				December 31,
			2022				2021			% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income, at fair value		$	2,292,378			$	2,409,887				(4.9	)	%
(amortized cost - $2,374,256 at 3/31/22)
(amortized cost - $2,346,267 at 12/31/21)
Equity securities, at fair value			608,180				613,776				(0.9	)	%
(cost - $347,354 at 3/31/22)
(cost - $324,501 at 12/31/21)
Other invested assets			52,406				50,501				3.8		%
Cash and cash equivalents			72,148				88,804				(18.8	)	%
Total investments and cash		$	3,025,112			$	3,162,968				(4.4	)	%
Premiums and reinsurance balances receivable			170,501				167,279				1.9		%
Ceded unearned premiums			126,311				130,916				(3.5	)	%
Reinsurance balances recoverable on unpaid losses			631,445				608,086				3.8		%
Deferred policy acquisition costs			112,004				103,553				8.2		%
Property and equipment			52,124				52,161				(0.1	)	%
Investment in unconsolidated investees			179,351				171,311				4.7		%
Goodwill and intangibles			53,562				53,562				0.0		%
Other assets			57,225				58,466				(2.1	)	%
Total assets		$	4,407,635			$	4,508,302				(2.2	)	%
Unpaid losses and settlement expenses		$	2,081,712			$	2,043,555				1.9		%
Unearned premiums			696,577				680,444				2.4		%
Reinsurance balances payable			26,264				42,851				(38.7	)	%
Funds held			89,735				89,773				(0.0	)	%
Income taxes - deferred			47,412				83,509				(43.2	)	%
Long-term debt			199,723				199,676				0.0		%
Accrued expenses			57,101				98,274				(41.9	)	%
Other liabilities			55,689				40,859				36.3		%
Total liabilities		$	3,254,213			$	3,278,941				(0.8	)	%
Shareholders' equity			1,153,422				1,229,361				(6.2	)	%
Total liabilities & shareholders' equity		$	4,407,635			$	4,508,302				(2.2	)	%
OTHER DATA:
Common shares outstanding (in 000's)			45,316				45,289
Book value per share		$	25.45			$	27.14				(6.2	)	%
Closing stock price per share		$	110.63			$	112.10				(1.3	)	%
Statutory surplus		$	1,261,620			$	1,240,649				1.7		%

RLI CORP
2022 FINANCIAL HIGHLIGHTS
UNDERWRITING SEGMENT DATA
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended March 31,
						GAAP									GAAP									GAAP									GAAP
		Casualty				Ratios					Property				Ratios					Surety				Ratios					Total				Ratios
2022
Gross premiums written		$	215,821								$	109,598								$	33,740								$	359,159
Net premiums written			175,613									81,995									32,282									289,890
Net premiums earned			171,756									67,440									29,956									269,152
Net loss & settlement expenses			83,849				48.8		%			20,363				30.2		%			1,312				4.4		%			105,524				39.2		%
Net operating expenses			60,260				35.1		%			24,601				36.5		%			19,289				64.4		%			104,150				38.7		%
Underwriting income (loss)(1)		$	27,647				83.9		%		$	22,476				66.7		%		$	9,355				68.8		%		$	59,478				77.9		%
2021
Gross premiums written		$	188,896								$	74,537								$	31,462								$	294,895
Net premiums written			148,891									55,986									30,112									234,989
Net premiums earned			148,770									51,642									28,183									228,595
Net loss & settlement expenses			70,247				47.2		%			31,637				61.3		%			3,008				10.7		%			104,892				45.9		%
Net operating expenses			53,656				36.1		%			21,010				40.6		%			19,120				67.8		%			93,786				41.0		%
Underwriting income (loss)(1)		$	24,867				83.3		%		$	(1,005	)			101.9		%		$	6,055				78.5		%		$	29,917				86.9		%
(1) See discussion above: Non-GAAP and Performance Measures.

Category: Earnings Release

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