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RLI Reports Third Quarter 2016 Results

Mittwoch, 19.10.2016 22:00



PEORIA, Ill. --(BUSINESS WIRE)--

RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2016 net earnings of $22.3 million ($0.50 per share), compared to $35.9 million ($0.81 per share) for the third quarter of 2015. Operating earnings for the third quarter of 2016 were $16.2 million ($0.37 per share) compared to $31.0 million ($0.70 per share) for the same period in 2015.

       
    Third Quarter   Year to Date
Earnings Per Diluted Share   2016   2015   2016   2015
Net earnings $ 0.50 $ 0.81 $ 1.86 $ 2.35
Operating earnings (1)   $ 0.37   $ 0.70   $ 1.52   $ 1.98
 
(1) See discussion below of non-GAAP and performance measures.
 

Highlights for the quarter included:

  • Underwriting income of $10.6 million, resulting in a combined ratio of 94.2.
  • 3% growth in gross premiums written and 2% growth in net premiums written.
  • $1.4 million net decrease in underwriting income resulting from unfavorable development in prior years’ loss reserves.
  • Book value per share of $21.01, an increase of 14% from year end 2015, inclusive of dividends.

“While our third quarter results were not as strong as previous quarters, RLI remains on a long-term path of fundamentally strong and sustainable earnings,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “For the only time in over a decade, we experienced unfavorable development on prior years’ reserves in the quarter. However, after the first three quarters of the year, our combined ratio sits at a respectable 89 and book value per share is up 14% year to date. We remain confident in our team’s underwriting discipline and will continue to focus on selectively pursuing growth opportunities.”

Underwriting Income

RLI achieved $10.6 million of underwriting income in the third quarter of 2016 on a 94.2 combined ratio, compared to $33.6 million of underwriting income on an 81.3 combined ratio in the same quarter for 2015. Results for the nine-month period ended September 30, 2016 include $1.4 million in unfavorable development in prior years’ loss reserves, compared to $15.8 million in favorable development in prior years’ loss reserves for the comparable period in 2015.

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

         
Underwriting Income (1) Third Quarter Combined Ratio (1) Third Quarter
(in millions)     2016     2015     2016   2015
Casualty $ 0.3 $ 13.7 Casualty 99.8 87.0
Property 0.5 9.2 Property 98.7 79.4
Surety     9.8     10.7 Surety   67.5   63.8
Total   $ 10.6   $ 33.6 Total   94.2   81.3
 
(1) See discussion below of non-GAAP and performance measures.
 

Other Income

RLI’s net investment income for the quarter fell 3.3% to $13.5 million, compared to the same period in 2015. For the nine-month period ended September 30, 2016, investment income was $39.9 million versus $40.9 million for the same period in 2015. The investment portfolio’s total return was 0.8% for the quarter. The bond portfolio’s return was 0.6% in the quarter, while the equity portfolio’s return was 1.4%. Through nine months, the investment portfolio’s total return was 6.9% with the bond portfolio returning 5.7% and equities returning 11.9%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $15.3 million for the quarter ($0.34 per share) compared to $19.8 million ($0.45 per share) for the same quarter in 2015. Year-to-date comprehensive earnings were $116.6 million ($2.63 per share), compared to $55.0 million ($1.25 per share) for the same period last year.

Equity in earnings of unconsolidated investees was $1.9 million for the quarter compared to $0.7 million from the same period last year. These results are related to Maui Jim, Inc. ($1.6 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.3 million), a specialty E&S insurance company. For the third quarter of 2015, equity in earnings of unconsolidated investees from Maui Jim and Prime was $0.5 million and $0.2 million, respectively. For the nine-month period ended September 30, 2016, equity in earnings of unconsolidated investees was $10.8 million versus $11.0 million in 2015.

Dividend Paid in the Third Quarter 2016

On September 19, 2016, the company paid an ordinary dividend of $0.20 per share, the same amount as the prior quarter. RLI’s cumulative dividends, including this recent payment, total more than $643 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 allows 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 from operations (EPS) consist of our GAAP net earnings adjusted by the net realized gains/(losses) 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 2016 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 to help users of their financial information to better understand company performance.

Other News

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

On July 13, 2016, RLI was named as one of the insurance industry’s top performing companies by Ward Group for the 26th consecutive year. RLI is one of only three 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 20, 2016, 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://edge.media-server.com/m/p/up6uctdm.

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, 2015.

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 increased dividends for 41 consecutive years and delivered underwriting profits for 20 consecutive years. To learn more about RLI and its 50-year history of financial strength, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

         

 

Operating Earnings Per Share

2016 2015 2016 2015
3rd Qtr 3rd Qtr 9 Mos. 9 Mos.
Operating Earnings Per Share (1) $ 0.37 $ 0.70 $ 1.52 $ 1.98
 
Specific items included in operating earnings per share: (2) (3)
-- Favorable (unfavorable) development in casualty prior years' reserves $ (0.05 ) $ 0.16 $ 0.26 $ 0.58
-- Favorable (unfavorable) development in property prior years' reserves $ (0.03 ) $ 0.01 $ - $ 0.05
-- Favorable development in surety prior years' reserves $ 0.05 $ 0.05 $ 0.09 $ 0.13
-- Catastrophe impact
2016 storms $ (0.05 ) $ - $ (0.10 ) $ -
2015 and prior events $ 0.01 $ (0.03 ) $ - $ (0.11 )
 
(1) See discussion above of non-GAAP and performance measures.
(2) Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.
(3) Reserve development reflects changes from previously estimated losses.
       
RLI CORP.
2016 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 % Change 2016 2015 % Change

SUMMARIZED INCOME STATEMENT DATA:

Net premiums earned $ 183,595 $ 179,448 2.3 % $ 540,739 $ 520,790 3.8 %
Net investment income 13,504 13,964 (3.3 ) % 39,922 40,890 (2.4 ) %
Net realized gains   9,252     7,534   22.8   %   23,362   25,622   (8.8 ) %
Consolidated revenue $ 206,351 $ 200,946 2.7 % $ 604,023 $ 587,302 2.8 %
 
Loss and settlement expenses $ 97,892 $ 73,051 34.0 % $ 259,340 $ 218,461 18.7 %
Policy acquisition costs 61,761 60,505 2.1 % 184,525 178,965 3.1 %
Insurance operating expenses 13,338 12,299 8.4 % 38,950 37,297 4.4 %
Interest expense on debt 1,857 1,857 0.0 % 5,570 5,570 0.0 %
General corporate expenses   2,242     1,958   14.5   %   7,385   6,950   6.3   %
Total expenses $ 177,090 $ 149,670 18.3 % $ 495,770 $ 447,243 10.9 %
 

Equity in earnings of unconsolidated investees

  1,881     661   184.6   %   10,823   11,041   (2.0 ) %
 
Earnings before income taxes $ 31,142 $ 51,937 (40.0 ) % $ 119,076 $ 151,100 (21.2 ) %
Income tax expense   8,879     16,029   (44.6 ) %   36,343   47,409   (23.3 ) %
Net earnings $ 22,263   $ 35,908   (38.0 ) % $ 82,733 $ 103,691   (20.2 ) %
 
Other comprehensive earnings (loss), net of tax   (6,931 )   (16,136 ) (57.0 ) %   33,898   (48,663 ) -    
 
Comprehensive earnings $ 15,332   $ 19,772   (22.5 ) % $ 116,631 $ 55,028   111.9   %
 
Operating earnings: (1)
 
Net earnings $ 22,263 $ 35,908 (38.0 ) % $ 82,733 $ 103,691 (20.2 ) %
Less: Realized gains, net of tax   6,015     4,898   22.8   %   15,186   16,655   (8.8 ) %
Operating earnings $ 16,248   $ 31,010   (47.6 ) % $ 67,547 $ 87,036   (22.4 ) %
 
Return on Equity:
Net earnings (trailing four quarters) 13.2 % 16.1   %
Comprehensive earnings (trailing four quarters) 17.2 % 11.7   %
 
Per Share Data
 

Diluted:

Weighted average shares outstanding (in 000's) 44,492 44,153 44,416 44,031
 
Net earnings per share $ 0.50 $ 0.81 (38.3 ) % $ 1.86 $ 2.35 (20.9 ) %
Less: Realized gains, net of tax   0.13     0.11   18.2   %   0.34   0.37   (8.1 ) %
EPS from operations (1) $ 0.37   $ 0.70   (47.1 ) % $ 1.52 $ 1.98   (23.2 ) %
 
Comprehensive earnings per share $ 0.34   $ 0.45   (24.4 ) % $ 2.63 $ 1.25   110.4   %
 
Cash dividends per share $ $0.20 $ 0.19 5.3 % $ 0.59 $ 0.56 5.4 %
 
Net Cash Flow provided by Operations $ 53,429   $ 50,246   6.3   % $ 123,000 $ 121,367   1.3   %
 
 
(1) See discussion above of non-GAAP and performance measures.
     
RLI CORP.
2016 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
September 30, December 31,
2016 2015 % Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income $ 1,687,605 $ 1,538,110 9.7 %
(amortized cost - $1,624,868 at 9/30/16)
(amortized cost - $1,518,156 at 12/31/15)
Equity securities 382,282 375,424 1.8 %
(cost - $200,595 at 9/30/16)
(cost - $202,437 at 12/31/15)
Other invested assets 24,502 20,666 18.6 %
Cash and cash equivalents 22,362 17,343 28.9   %
Total investments and cash $ 2,116,751 $ 1,951,543 8.5 %
 
Premiums and reinsurance balances receivable 136,214 143,662 (5.2 ) %
Ceded unearned premiums 54,014 52,833 2.2 %
Reinsurance balances recoverable on unpaid losses 292,943 297,844 (1.6 ) %
Deferred policy acquisition costs 75,805 69,829 8.6 %
Property and equipment 53,643 47,102 13.9 %
Investment in unconsolidated investees 82,276 70,784 16.2 %
Goodwill and intangibles 64,578 71,294 (9.4 ) %
Other assets 37,310 30,574 22.0   %
Total assets $ 2,913,534 $ 2,735,465 6.5   %
 
Unpaid losses and settlement expenses $ 1,150,938 $ 1,103,785 4.3 %
Unearned premiums 449,051 422,094 6.4 %
Reinsurance balances payable 17,425 37,556 (53.6 ) %
Funds held 77,902 54,254 43.6 %
Income taxes - deferred 85,152 63,993 33.1 %
Bonds payable, long-term debt 148,694 148,554 0.1 %
Accrued expenses 40,029 55,742 (28.2 ) %
Other liabilities 21,929 26,018 (15.7 ) %
Total liabilities $ 1,991,120 $ 1,911,996 4.1 %
Shareholders' equity 922,414 823,469 12.0   %
Total liabilities & shareholders' equity $ 2,913,534 $ 2,735,465 6.5   %
 
 

OTHER DATA

 
Common shares outstanding (in 000's) 43,907 43,544
 
Book value per share $ 21.01 $ 18.91 11.1 %
Closing stock price per share $ 68.36 $ 61.75 10.7 %
Cash dividends per share - ordinary (annualized) $ 0.79 $ 0.75 5.3 %
Cash dividends per share - special $ - $ 2.00 (100.0 ) %
 
Statutory Surplus $ 932,868 $ 865,268 7.8 %
               
RLI CORP.
2016 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

2016

 
Gross premiums written $ 141,078 $ 48,334 $ 32,181 $ 221,593
Net premiums written 116,246 39,323 29,978 185,547
Net premiums earned 115,619 37,532 30,444 183,595
Net loss & settlement expenses 75,912 65.7 % 20,425 54.4 % 1,555 5.1 % 97,892 53.3 %
Net operating expenses 39,448 34.1 % 16,639 44.3 % 19,012 62.4 % 75,099 40.9 %
Underwriting income (1) $ 259 99.8 % $ 468 98.7 % $ 9,877 67.5 % $ 10,604 94.2 %
 

2015

 
Gross premiums written $ 128,804 $ 52,697 $ 32,840 $ 214,341
Net premiums written 107,580 42,492 31,464 181,536
Net premiums earned 105,160 44,685 29,603 179,448
Net loss & settlement expenses 54,274 51.6 % 17,861 40.0 % 916 3.1 % 73,051 40.7 %
Net operating expenses 37,235 35.4 % 17,608 39.4 % 17,961 60.7 % 72,804 40.6 %
Underwriting income (1) $ 13,651 87.0 % $ 9,216 79.4 % $ 10,726 63.8 % $ 33,593 81.3 %
 

Nine Months Ended September 30,

GAAP GAAP GAAP GAAP
Casualty Ratios Property Ratios Surety Ratios Total Ratios

2016

 
Gross premiums written $ 426,257 $ 145,814 $ 96,434 $ 668,505
Net premiums written 358,241 117,017 91,258 566,516
Net premiums earned 336,572 114,011 90,156 540,739
Net loss & settlement expenses 199,270 59.2 % 49,686 43.6 % 10,384 11.5 % 259,340 48.0 %
Net operating expenses 116,812 34.7 % 50,414 44.2 % 56,249 62.4 % 223,475 41.3 %
Underwriting income (1) $ 20,490 93.9 % $ 13,911 87.8 % $ 23,523 73.9 % $ 57,924 89.3 %
 

2015

 
Gross premiums written $ 393,596 $ 165,635 $ 93,776 $ 653,007
Net premiums written 330,532 133,375 89,550 553,457
Net premiums earned 305,842 128,084 86,864 520,790
Net loss & settlement expenses 159,220 52.1 % 52,314 40.8 % 6,927 8.0 % 218,461 41.9 %
Net operating expenses 108,498 35.5 % 53,550 41.8 % 54,214 62.4 % 216,262 41.5 %
Underwriting income (1) $ 38,124 87.6 % $ 22,220 82.6 % $ 25,723 70.4 % $ 86,067 83.4 %
 
(1) See discussion above of non-GAAP and performance measures.

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