RLI Reports Third Quarter Results

By Benzinga Staff
August 30, 2011 2:49 PM

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

RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2011 operating earnings of $26.2 million ($1.23 per share), compared to $25.0 million ($1.19 per share) for the same period in 2010. For the nine months ended September 30, 2011, operating earnings were $90.6 million ($4.25 per share) compared to $77.2 million ($3.64 per share) for the same period in 2010.


	Third Quarter
Earnings Per Diluted Share	2011	2010
Operating earnings	$1.23	$1.19
Net earnings	$1.22	$1.33

Highlights for the quarter included:

Combined ratio of 83.1.
Underwriting income of $24.7 million.
17% growth in gross premiums written, including 9% growth driven by RLI's recent acquisition of Contractors Bonding and Insurance Company (CBIC).
Book value per share of $41.16, an increase of 9% from year end 2010.
$28.0 million pretax favorable development in prior years' loss reserves, net of effects on bonus and profit sharing-related expenses.
$5.9 million pretax loss on Hurricane Irene, net of effects on bonus and profit sharing-related expenses.
Return on equity for the trailing four quarters was 16.5%.

“This quarter's results continue to reflect our underwriting discipline in challenging market conditions,” said RLI Corp. Chairman and CEO Jonathan E. Michael. “Our ability to deliver superior underwriting results is particularly important given a persistently low interest rate environment. Growth in premium was driven by the acquisition of CBIC in the second quarter and by newer product initiatives.”

“We benefit greatly from having a well-rounded, diversified product portfolio. Our strong financial track record is the result of a well-honed strategy executed by some of the most talented underwriters and associates in the industry. Their dedication to outstanding customer service and profitable growth is the foundation of our ongoing success,” said Michael.

Third quarter underwriting results

RLI achieved $24.7 million of underwriting income in the third quarter of 2011 on an 83.1 combined ratio, compared to $21.7 million of underwriting income on an 83.1 combined ratio in the same quarter for 2010.

Underwriting Income (Loss)

Third Quarter

(in millions)

2011

2010

Combined Ratio

2011

2010

Casualty

$23.8

$8.9

Casualty

60.7

84.5

Property

(1.9

)

5.3

Property

103.2

89.4

Surety

2.8

7.5

Surety

89.2

63.6

Total

$24.7

$21.7

Total

83.1

83.1

RLI reported year-to-date underwriting income of $89.5 million representing a 77.2 combined ratio through September 30, 2011, versus $65.2 million of underwriting income representing an 82.2 combined ratio for the same period last year.

Other income

In the third quarter, investment income was $16.0 million compared to $16.8 million for the same period in 2010. The decline in investment income was a result of lower reinvestment rates. For the nine-month period ended September 30, 2011, investment income was $47.4 million versus $50.1 million for the same period in 2010. The investment portfolio's total return for the quarter was flat; the bond portfolio return was 2.4% and the equity portfolio return was -10.0%. Through nine months, the investment portfolio's total return was 3.7% with the bond portfolio returning 5.5% and equities returning -4.5%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $11.7 million for the quarter ($0.55 per share) versus $58.4 million ($2.77 per share) over the comparable period in 2010. Year-to-date comprehensive earnings were $93.6 million ($4.39 per share), compared to $115.2 million ($5.42 per share) for the same period last year.

During the quarter, equity in earnings of Maui Jim, Inc. was $0.7 million compared to $1.6 million from the same period last year. For the nine-month period, earnings were $7.2 million versus $7.3 million in 2010.

Other news

On August 18, 2011, the RLI Corp. board of directors declared a third quarter regular cash dividend of $0.30 per share, paid on September 20, 2011. RLI has paid dividends for 141 consecutive quarters and increased dividends in each of the last 36 years. The Company's dividend yield would be 1.77%, based on the $1.20 annualized dividend and yesterday's closing stock price of $67.78.

During the quarter, RLI repurchased 64,856 shares at an average cost of $59.24 per share ($3.8 million). As of September 30, 2011, $87.5 million of capacity remains for stock repurchases in the stock purchase program announced on May 6, 2010.

At 10 a.m. CDT tomorrow, October 19, 2011, 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 RLI's website, www.rlicorp.com.

Gross premiums written, underwriting income, operating earnings, earnings per share (EPS) from operations and other per share items are non-GAAP financial measures, and we believe that investors' understanding of RLI's core operating performance is enhanced by our disclosure of these financial measures. Gross premiums written is the component of net premiums earned that measures insurance business produced before the impact of ceding reinsurance premiums, but without respect to when those premiums will be recognized as actual revenue. Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting losses and settlement expenses, policy acquisition costs, and insurance operating expenses from net premium earned. Operating earnings and EPS from operations consist of our net earnings adjusted by net realized investment gains/(losses) and taxes related to net realized gains/(losses). Our definitions of these items may not be comparable to the definitions used by other companies. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. All earnings per share data are calculated using fully diluted shares. Combined ratio refers to a GAAP combined ratio.

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, 2010.

For additional information, contact Aaron Jacoby, Vice President, Corporate Development at 309-693-5880 or at aaron.jacoby@rlicorp.com or visit our website at www.rlicorp.com.


Supplemental disclosure regarding the earnings impact of specific items

		Operating Earnings Per Share
		2011			2010		2011			2010
		3rd Qtr			3rd Qtr		9 Mos.			9 Mos.
Operating Earnings Per Share		$	1.23		$	1.19	$	4.25		$	3.64

Specific items included in operating earnings per share: (1) (2)
•	Favorable development on casualty prior years' reserves	$	0.83		$	0.52	$	1.96		$	1.14
•	Favorable development on property prior years' reserves	$	0.01		$	0.01	$	0.32		$	-
•	Favorable development on surety prior years' reserves	$	0.01		$	0.09	$	0.20		$	0.26
•	2011 spring storms (3)	$	-		$	-	$	(0.36	)	$	-
•	Hurricane Irene	$	(0.18	)	$	-	$	(0.18	)	$	-

(1)	Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.
(2)	Reserve development reflects revisions for previously estimated losses.
(3)	From a comparative standpoint, nine-month 2010 results included $0.10 per share in losses from Midwest and Southeast storms.



RLI CORP.
2011 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)


	Three Months Ended September 30,							Nine Months Ended September 30,
	2011			2010		% Change		2011			2010			% Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned	$	146,552		$	128,334	14.2	%	$	393,429		$	366,356		7.4	%
Net investment income		15,954			16,762	-4.8	%		47,437			50,127		-5.4	%
Net realized investment gains (losses)		(177	)		4,527				14,345			15,281		-6.1	%
Consolidated revenue		162,329			149,623	8.5	%		455,211			431,764		5.4	%

Loss and settlement expenses		64,802			55,823	16.1	%		142,036			155,152		-8.5	%
Policy acquisition costs		46,712			40,624	15.0	%		129,813			118,804		9.3	%
Other insurance expenses		10,302			10,161	1.4	%		32,047			27,158		18.0	%
Interest expense on debt		1,513			1,512	0.1	%		4,537			4,537		0.0	%
General corporate expenses		1,594			2,148	-25.8	%		5,563			5,406		2.9	%
Total expenses		124,923			110,268	13.3	%		313,996			311,057		0.9	%

Equity in earnings of
unconsolidated investee		713			1,648	-56.7	%		7,215			7,327		-1.5	%

Earnings before income taxes		38,119			41,003	-7.0	%		148,430			128,034		15.9	%
Income tax expense		12,062			13,038	-7.5	%		48,531			40,854		18.8	%
Net earnings	$	26,057		$	27,965	-6.8	%	$	99,899		$	87,180		14.6	%

Other comprehensive earnings (loss), net of tax		(14,331	)		30,476				(6,323	)		27,986

Comprehensive earnings	$	11,726		$	58,441	-79.9	%	$	93,576		$	115,166		-18.7	%


Operating earnings:(1)

Net earnings	$	26,057		$	27,965	-6.8	%	$	99,899		$	87,180		14.6	%

Less: Realized investment gains (losses), net of tax		(116	)		2,942				9,324			9,932		-6.1	%

Operating earnings	$	26,173		$	25,023	4.6	%	$	90,575		$	77,248		17.3	%

Return on Equity:
Net earnings (trailing four quarters)									16.5	%		13.8	%
Comprehensive earnings (trailing four quarters)									14.6	%		16.9	%

Per Share Data

Diluted:
Weighted average shares outstanding (in 000's)		21,335			21,090				21,324			21,233

EPS from operations (1)	$	1.23		$	1.19	3.4	%	$	4.25		$	3.64		16.8	%
Realized gains (losses), net of tax		(0.01	)		0.14				0.43			0.47		-8.5	%
Net earnings per share	$	1.22		$	1.33	-8.3	%	$	4.68		$	4.11		13.9	%

Comprehensive earnings per share	$	0.55		$	2.77	-80.1	%	$	4.39		$	5.42		-19.0	%

Cash dividends per share	$	0.30		$	0.29	3.4	%	$	0.89		$	0.86		3.5	%


Net Cash Flow provided by Operations	$	32,056		$	52,408	-38.8	%	$	115,922		$	87,867		31.9	%


(1) See discussion of non-GAAP financial measures on page 2.


RLI CORP.
2011 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)


	September 30,		December 31,
	2011		2010		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income	$	1,530,195	$	1,441,337	6.2	%
(amortized cost - $1,473,660 at 9/30/11)
(amortized cost - $1,403,140 at 12/31/10)
Equity securities		331,301		321,897	2.9	%
(cost - $251,077 at 9/30/11)
(cost - $213,069 at 12/31/10)
Short-term investments		155,970		39,787	292.0	%
Total investments		2,017,466		1,803,021	11.9	%

Premiums and reinsurance balances receivable		119,771		107,391	11.5	%
Ceded unearned premiums		59,298		62,631	-5.3	%
Reinsurance recoverable on unpaid losses		341,986		354,163	-3.4	%
Deferred acquisition costs/VOBA*		95,365		74,435	28.1	%
Property and equipment		19,502		18,370	6.2	%
Investment in unconsolidated investee		51,258		43,358	18.2	%
Goodwill and intangibles		60,733		26,214	131.7	%
Other assets		28,984		25,009	15.9	%
Total assets	$	2,794,363	$	2,514,592	11.1	%

Unpaid losses and settlement expenses	$	1,179,993	$	1,173,943	0.5	%
Unearned premiums		361,591		301,537	19.9	%
Reinsurance balances payable		22,687		23,851	-4.9	%
Funds held		109,592		32,072	241.7	%
Long-term debt - bonds payable		100,000		100,000	-
Income taxes - deferred		31,917		33,930	-5.9	%
Accrued expenses		55,165		42,436	30.0	%
Other liabilities		65,933		15,447	326.8	%
Total liabilities		1,926,878		1,723,216	11.8	%
Shareholders' equity		867,485		791,376	9.6	%
Total liabilities & shareholders' equity	$	2,794,363	$	2,514,592	11.1	%

*Includes asset for value of business acquired (VOBA) in CBIC acquisition

OTHER DATA

Common shares outstanding (in 000's)		21,077		20,965

Book value per share	$	41.16	$	37.75	9.0	%
Closing stock price per share	$	63.58	$	52.57	20.9	%
Cash dividends per share - ordinary (annualized)	$	1.19	$	1.15	3.5	%
Cash dividends per share - special	$	-	$	7.00	-100.0	%

Statutory Surplus	$	780,480	$	732,379	6.6	%


RLI CORP.
2011 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
	2011

Gross premiums written		$	87,921			$	64,849				$	31,252			$	184,022
Net premiums written			65,133				49,921					29,520				144,574
Net premiums earned			60,626				59,226					26,700				146,552
Net loss & settlement expenses			14,819	24.4	%		43,435		73.3	%		6,548	24.5	%		64,802	44.2	%
Net operating expenses			22,013	36.3	%		17,717		29.9	%		17,284	64.7	%		57,014	38.9	%
Underwriting income (loss)		$	23,794	60.7	%	$	(1,926	)	103.2	%	$	2,868	89.2	%	$	24,736	83.1	%


	2010

Gross premiums written		$	79,887			$	53,930				$	23,589			$	157,406
Net premiums written			56,224				40,545					22,135				118,904
Net premiums earned			57,684				50,167					20,483				128,334
Net loss & settlement expenses			27,962	48.5	%		27,804		55.4	%		57	0.3	%		55,823	43.5	%
Net operating expenses			20,745	36.0	%		17,075		34.0	%		12,965	63.3	%		50,785	39.6	%
Underwriting income		$	8,977	84.5	%	$	5,288		89.4	%	$	7,461	63.6	%	$	21,726	83.1	%


Nine Months Ended September 30,
				GAAP					GAAP				GAAP				GAAP
		Casualty		Ratios		Property			Ratios		Surety		Ratios		Total		Ratios
	2011

Gross premiums written		$	239,083			$	218,555				$	80,203			$	537,841
Net premiums written			176,744				174,899					75,626				427,269
Net premiums earned			173,937				148,015					71,477				393,429
Net loss & settlement expenses			53,709	30.9	%		80,499		54.4	%		7,828	11.0	%		142,036	36.1	%
Net operating expenses			64,840	37.3	%		50,894		34.4	%		46,126	64.5	%		161,860	41.1	%
Underwriting income		$	55,388	68.2	%	$	16,622		88.8	%	$	17,523	75.5	%	$	89,533	77.2	%


	2010

Gross premiums written		$	235,134			$	188,071				$	66,473			$	489,678
Net premiums written			169,859				145,510					62,104				377,473
Net premiums earned			175,690				132,133					58,533				366,356
Net loss & settlement expenses			91,576	52.1	%		62,091		47.0	%		1,485	2.5	%		155,152	42.4	%
Net operating expenses			60,929	34.7	%		47,373		35.9	%		37,660	64.3	%		145,962	39.8	%
Underwriting income		$	23,185	86.8	%	$	22,669		82.9	%	$	19,388	66.8	%	$	65,242	82.2	%