) reported third quarter 2012 operating earnings of $1.02 per
share, surpassing the Zacks Consensus Estimate by 10.8%. Reported
results, however, were 9.7% lower than the year-ago level of
$1.13 per share. Operating earnings in the quarter were $21.9
million, down 9.1% year over year.
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Lower underwriting results at Casualty induced lower operating
income in the quarter.
Third quarter 2012 operating earnings include favorable
development on casualty prior years' reserves of 36 cents,
favorable development on property prior years' reserves of 6
cents, favorable development on surety prior years' reserves of 9
cents, and the negative effect of 13 cents due to the impact of
Including realized investment gains, net of tax, of $3.6 million
or 17 cents per share, RLI Corp. reported net income of $25.5
million or $1.19 per share compared with $24.0 million or $1.12
per share in third quarter 2011. Net income in the year-ago
quarter included realized investment loss, net of tax, of $0.1
million or 1 cent per share.
Net premiums earned in the quarter were $149.9 million, up 2.3%
year over year, attributable to improvements at Casualty and
Underwriting income for RLI Corp. was $18.5 million, down nearly
14% year over year. An increase in Surety underwriting income and
lower loss at Property was more than offset by lower income from
Investment income declined 10.9% year over year to $14.2 million.
Revenue in the quarter under review totaled $169.6 million,
improving 4.5% from $162.3 million in the prior-year quarter,
attributable to higher premiums earned and augmentation in net
realized investment gains. Revenue comfortably surpassed the
Zacks Consensus Estimate by 2.4%.
Total expenses during third quarter 2012 escalated 5.4% year over
year to $135.0 million. The increase was primarily driven by
higher loss and settlement expense, higher other insurance
expense and corporate expense.
The combined ratio in the reported quarter deteriorated 240 basis
points year over year to 87.7%. Higher combined ratio at Casualty
partially offset the lower Surety and Property combined ratio.
The total return of RLI Corp.'s investment portfolio for the
quarter was 3.0% with the bond portfolio edging up 2.6%, while
the equity portfolio yielded a return of 4.5%.
RLI Corp. exited the quarter with cash and cash equivalents of
$113.5 million, up 8% from 2011 end level.
Long-term debt remained at par with the 2011-end level of $100
RLI Corp.'s book value stood at $42.15 per share as of September
30, 2012, up 12.5% from $37.46 as of December 31, 2011. The
company recorded a 12.8% return on equity, with a 20.6% return on
a comprehensive basis. The return on equity was 16.6% and 14.7%
on a comprehensive basis in the prior year. Statutory surplus
increased 12.9% over 2011-end to $801.2 million at quarter ended
September 30, 2012.
In the third quarter, RLI Corp. paid a dividend of 32 cents per
share, representing the 145th consecutive quarterly dividend
Effects of Adoption of Accounting Standard
Due to the adoption of deferred acquisition cost (DAC) guidance,
deferred policy acquisition costs augmented by $0.3 million,
which reduced net earnings by 1 cent.
For the nine months, policy acquisition costs recognized elevated
$3.8 million, which decreased net earnings by 12 cents per share.
The Travelers Companies Inc.
), which competes with RLI Corp., reported earnings of $2.22 per
share in the third quarter of 2012, lagging the Zacks Consensus
Estimate of $1.61. Results surged 181% from 79 cents earned in
the year-ago quarter
Lower catastrophe losses and sturdy underwriting results fueled
Total revenue in the quarter under review was $6.5 billion,
increasing 2 year over year, driven by the increase in premiums
earned and net investment income. Revenue surpassed the Zacks
Consensus Estimate of $6.3 billion.
With the improving pricing scenario in the insurance market
supported by RLI Corp.'s strong infrastructure, we expect the
company to perform well in the coming quarters. It also has a
favorable loss reserve ratio when compared with the previous year
along with strengthening statutory reserve. Solid underwriting
results coupled with investment results aided the company to
improve book value.
RLI Corp. scores strongly with the rating agencies and remains
focused on returning value to its shareholders through
incremental dividends and share buybacks.
However, continued low interest rate environment keeps us on the
We retain our Neutral recommendation on RLI Corp. The
quantitative Zacks #3 Rank (short-term Hold rating) for the
company indicates no clear directional pressure on the stock over
the near term.