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, |
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| 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. | ||||||||||||||||||||||||
