RLI Reports Second Quarter 2019 Results

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PEORIA, Ill.--(BUSINESS WIRE)-- RLI Corp. (NYSE: RLI) – RLI Corp. reported second quarter 2019 net earnings of $40.5 million ($0.89 per share), compared to $33.3 million ($0.74 per share) for the second quarter of 2018. Operating earnings(1) for the second quarter of 2019 were $29.7 million ($0.66 per share) compared to $26.7 million ($0.60 per share) for the same period in 2018.   Second Quarter   Year to Date Earnings Per Diluted Share 2019   2018   2019   2018 Net earnings $ 0.89   $ 0.74   $ 2.35   $ 1.01 Operating earnings (1) $ 0.66   $ 0.60   $ 1.37   $ 1.19 (1) See discussion below: Non-GAAP and Performance Measures. Highlights for the quarter included: Underwriting income(1) of $14.9 million, resulting in a combined ratio(1) of 92.8. 5% increase in gross premiums written and 17% increase in investment income. Favorable development in prior years’ loss reserves resulting in a $17.8 million net increase in underwriting income. Book value per share of $21.43, an increase of 21% from year-end 2018, inclusive of dividends. “We produced solid earnings, continued organic growth and strong book value growth in the second quarter,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Gross premium grew 5% in the quarter, driven by our casualty and property segments. Underwriting income was strong in our casualty and surety segments, while our property segment was impacted by $4 million in spring storm activity. Investment income was up over last year as we continue to invest operating cash flow. Declining interest rates and favorable equity market conditions also contributed to book value growth, which is up 21% year to date. Our product portfolio remains healthy and we continue to focus on providing superior service to our customers while advancing profitable growth initiatives.” Underwriting Income RLI achieved $14.9 million of underwriting income in the second quarter of 2019 on a 92.8 combined ratio, compared to $14.1 million on a 92.8 combined ratio in 2018. Results for both years include favorable development in prior years’ loss reserves which totaled $17.8 million and $12.4 million for 2019 and 2018, respectively. The following table highlights underwriting income and combined ratios by segment. Underwriting Income (loss)(1)   Combined Ratio(1) (in millions)   2019   2018       2019   2018 Casualty   $   6.9     $   2.9   Casualty   95.0   97.8 Property     (0.4 )     3.6   Property   101.1   90.2 Surety     8.4       7.6   Surety   71.2   74.3 Total   $   14.9     $   14.1   Total   92.8   92.8 (1) See discussion below: Non-GAAP and Performance Measures. Other Income RLI’s net investment income for the quarter increased 16.6% to $17.0 million, compared to the same period in 2018. The investment portfolio’s total return was 2.9% for the quarter and 7.6% for the year. Comprehensive earnings were $68.3 million for the quarter ($1.51 per share) compared to $25.6 million ($0.57 per share) for the same quarter in 2018. In addition to net earnings, comprehensive earnings included after-tax unrealized gains/losses from the fixed income portfolio. Equity in earnings of unconsolidated investees was $8.5 million for the quarter compared to $7.1 million from the same period last year. These results are related to Maui Jim, Inc. ($6.5 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($2.0 million), a specialty insurance company. For the second quarter of 2018, equity in earnings of unconsolidated investees from Maui Jim and Prime was $6.6 million and $0.5 million, respectively. Dividends Paid in the Second Quarter of 2019 On June 20, 2019, the company paid a regular quarterly dividend of $0.23 per share, a $0.01 increase over the prior quarter. RLI’s cumulative dividends total more than $603 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 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 2019 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 At 10 a.m. central daylight time (CDT) tomorrow, July 18, 2019, 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 https://edge.media-server.com/mmc/p/7nzwpmfn. 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, 2018. 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 paid and increased regular dividends for 44 consecutive years and delivered underwriting profits for 23 consecutive years. To learn more about RLI, visit www.rlicorp.com. Supplemental disclosure regarding the earnings impact of specific items:   Operating Earnings Per Share     2019   2018   2019   2018     2nd Qtr   2nd Qtr   6 Mos.   6 Mos. Operating Earnings Per Share(1) $   0.66   $   0.60   $   1.37   $   1.19     Specific items included in operating earnings per share:(2) (3) • Favorable development in casualty prior years' reserves $   0.26   $   0.12   $   0.47   $   0.24   • Favorable (unfavorable) development in property prior years' reserves $   (0.01 ) $   0.05   $   0.01   $   0.06   • Favorable development in surety prior years' reserves $   0.06   $   0.05   $   0.12   $   0.14   • Catastrophe impact ▪ 2019 storms $   (0.06 ) $   -   $   (0.07 ) $   -   ▪ 2018 and prior events $   -   $   (0.12 ) $   -   $   (0.15 )   (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 2019 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts) Three Months Ended June 30,   Six Months Ended June 30, SUMMARIZED INCOME STATEMENT DATA: 2019   2018   % Change   2019     2018     % Change Net premiums earned $ 207,541 $ 196,522 5.6 % $ 412,230 $ 386,549 6.6 % Net investment income 16,998 14,577 16.6 % 33,563 28,809 16.5 % Net realized gains 4,764 20,849 (77.1) % 13,832 29,253 (52.7) % Net unrealized gains (losses) on equity securities 8,810 (12,611) - 42,308 (39,383) - Consolidated revenue $ 238,113 $ 219,337 8.6 % $ 501,933 $ 405,228 23.9 %   Loss and settlement expenses $ 103,919 $ 101,653 2.2 % $ 198,216 $ 194,074 2.1 % Policy acquisition costs 71,742 66,325 8.2 % 143,034 133,059 7.5 % Insurance operating expenses 16,948 14,398 17.7 % 33,615 27,783 21.0 % Interest expense on debt 1,861 1,858 0.2 % 3,722 3,714 0.2 % General corporate expenses 3,283 2,641 24.3 % 6,559 4,924 33.2 % Total expenses $ 197,753 $ 186,875 5.8 % $ 385,146 $ 363,554 5.9 %   Equity in earnings of unconsolidated investees 8,468 7,100 19.3 % 13,782 12,266 12.4 % Earnings before income taxes $ 48,828 $ 39,562 23.4 % $ 130,569 $ 53,940 142.1 % Income tax expense 8,361 6,311 32.5 % 24,629 8,473 190.7 % Net earnings $ 40,467 $ 33,251 21.7 % $ 105,940 $ 45,467 133.0 %   Other comprehensive earnings (loss), net of tax 27,864 (7,675) - 57,165 (34,073) - Comprehensive earnings $ 68,331 $ 25,576 167.2 % $ 163,105 $ 11,394 -   Operating earnings(1):   Net earnings $ 40,467 $ 33,251 21.7 % $ 105,940 $ 45,467 133.0 % Less: Realized gains (4,764) (20,849) (77.1) % (13,832) (29,253) (52.7) % Income tax on realized gains 1,001 4,378 (77.1) % 2,905 6,143 (52.7) % Unrealized (gains) losses on equity securities (8,810) 12,611 - (42,308) 39,383 - Income tax on unrealized gains (losses) on equity securities 1,849 (2,648) - 8,884 (8,270) - Operating earnings $ 29,743 $ 26,743 11.2 % $ 61,589 $ 53,470 15.2 %   Return on Equity: Net earnings (trailing four quarters) 14.2 % 12.2 % Comprehensive earnings (trailing four quarters) 20.7 % 9.7 %   Per Share Data: Diluted: Weighted average shares outstanding (in 000's) 45,219 44,742 45,056 44,853   Net earnings per share $ 0.89 $ 0.74 20.3 % $ 2.35 $ 1.01 132.7 % Less: Realized gains (0.10) (0.46) (78.3) % (0.30) (0.65) (53.8) % Income tax on realized gains 0.02 0.10 (80.0) % 0.06 0.14 (57.1) % Unrealized (gains) losses on equity securities (0.19) 0.28 - (0.94) 0.88 - Income tax on unrealized gains (losses) on equity securities 0.04 (0.06) - 0.20 (0.19) - EPS from operations(1) $ 0.66 $ 0.60 10.0 % $ 1.37 $ 1.19 15.1 %   Comprehensive earnings per share $ 1.51 $ 0.57 164.9 % $ 3.62 $ 0.25 -   Cash dividends per share - ordinary $ 0.23 $ $0.22 4.5 % $ 0.45 $ 0.43 4.7 %   Net Cash Flow provided by Operations $ 74,560 $ 84,607 (11.9) % $ 105,347 $ 100,000 5.3 %   (1) See discussion above: Non-GAAP and Performance Measures. RLI CORP 2019 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts) June 30,   December 31,       2019   2018   % Change SUMMARIZED BALANCE SHEET DATA: Fixed income $ 1,865,613 $ 1,760,515 6.0 % (amortized cost - $1,809,429 at 6/30/19) (amortized cost - $1,776,465 at 12/31/18) Equity securities 421,801 340,483 23.9 % (cost - $259,177 at 6/30/19) (cost - $220,373 at 12/31/18) Other invested assets 55,196 51,542 7.1 % Cash and cash equivalents 72,187 41,690 73.2 % Total investments and cash $ 2,414,797 $ 2,194,230 10.1 %   Premiums and reinsurance balances receivable 158,559 152,576 3.9 % Ceded unearned premiums 78,957 71,174 10.9 % Reinsurance balances recoverable on unpaid losses 362,310 364,999 (0.7) % Deferred policy acquisition costs 85,952 84,934 1.2 % Property and equipment 53,580 54,692 (2.0) % Investment in unconsolidated investees 108,977 94,967 14.8 % Goodwill and intangibles 54,330 54,534 (0.4) % Other assets 57,647 32,959 74.9 % Total assets $ 3,375,109 $ 3,105,065 8.7 %   Unpaid losses and settlement expenses $ 1,506,279 $ 1,461,348 3.1 % Unearned premiums 513,819 496,505 3.5 % Reinsurance balances payable 21,227 22,591 (6.0) % Funds held 76,331 72,309 5.6 % Income taxes - deferred 50,487 24,238 108.3 % Bonds payable, long-term debt 149,208 149,115 0.1 % Accrued expenses 41,046 45,124 (9.0) % Other liabilities 56,764 26,993 110.3 % Total liabilities $ 2,415,161 $ 2,298,223 5.1 % Shareholders' equity 959,948 806,842 19.0 % Total liabilities & shareholders' equity $ 3,375,109 $ 3,105,065 8.7 %     OTHER DATA:   Common shares outstanding (in 000's) 44,787 44,504   Book value per share $ 21.43 $ 18.13 18.2 % Closing stock price per share $ 85.71 $ 68.99 24.2 %   Statutory surplus $ 984,857 $ 829,775 18.7 % RLI CORP 2019 FINANCIAL HIGHLIGHTS UNDERWRITING SEGMENT DATA (Unaudited) (Dollars in thousands, except per share amounts) Three Months Ended June 30, GAAP GAAP GAAP GAAP Casualty Ratios Property Ratios Surety Ratios Total Ratios 2019   Gross premiums written $   189,123 $   64,360   $   29,788 $   283,271 Net premiums written 153,636 49,111   28,343 231,090 Net premiums earned 138,344 39,972   29,225 207,541 Net loss & settlement expenses 80,121 57.9 % 22,597   56.5 % 1,201 4.1 % 103,919 50.1 % Net operating expenses 51,284 37.1 % 17,811   44.6 % 19,595 67.1 % 88,690 42.7 % Underwriting income (loss) (1) $   6,939 95.0 % $   (436 ) 101.1 % $   8,429 71.2 % $   14,932 92.8 %   2018   Gross premiums written $   178,521 $   58,255   $   33,039 $   269,815 Net premiums written 149,635 45,395   31,701 226,731 Net premiums earned 129,613 37,190   29,719 196,522 Net loss & settlement expenses 81,430 62.8 % 17,149   46.1 % 3,074 10.3 % 101,653 51.7 % Net operating expenses 45,329 35.0 % 16,394   44.1 % 19,000 64.0 % 80,723 41.1 % Underwriting income (loss) (1) $   2,854 97.8 % $   3,647   90.2 % $   7,645 74.3 % $   14,146 92.8 %   Six Months Ended June 30, GAAP GAAP GAAP GAAP Casualty Ratios Property Ratios Surety Ratios Total Ratios 2019   Gross premiums written $   341,230 $   113,381   $   59,572 $   514,183 Net premiums written 278,538 86,433   56,790 421,761 Net premiums earned 275,244 78,718   58,268 412,230 Net loss & settlement expenses 160,575 58.3 % 35,530   45.1 % 2,111 3.6 % 198,216 48.1 % Net operating expenses 102,387 37.2 % 35,378   45.0 % 38,884 66.8 % 176,649 42.8 % Underwriting income (loss) (1) $   12,282 95.5 % $   7,810   90.1 % $   17,273 70.4 % $   37,365 90.9 %   2018   Gross premiums written $   318,976 $   104,162   $   63,541 $   486,679 Net premiums written 267,951 81,285   60,941 410,177 Net premiums earned 255,463 72,372   58,714 386,549 Net loss & settlement expenses 160,399 62.8 % 30,249   41.8 % 3,426 5.8 % 194,074 50.2 % Net operating expenses 90,649 35.5 % 32,594   45.0 % 37,599 64.0 % 160,842 41.6 % Underwriting income (loss) (1) $   4,415 98.3 % $   9,529   86.8 % $   17,689 69.8 % $   31,633 91.8 %   (1) See discussion above: Non-GAAP and Performance Measures.   View source version on businesswire.com: https://www.businesswire.com/news/home/20190717005632/en/ Aaron Jacoby Vice President, Corporate Development 309-693-5880 Aaron.Jacoby@rlicorp.com Source: RLI Corp.

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