RLI Reports Third Quarter 2013 Results

RLI Reports Third Quarter 2013 Results

PEORIA, Ill.--(BUSINESS WIRE)-- RLI Corp. (NYS: RLI) - RLI Corp. reported third quarter 2013 operating earnings of $30.5 million ($1.40 per share), compared to $21.9 million ($1.02 per share) for the third quarter of 2012. For the nine months ended September 30, 2013, operating earnings were $80.4 million ($3.71 per share) compared to $67.7 million ($3.15 per share) for the same period in 2012.

  Third Quarter
Earnings Per Diluted Share 2013 2012
Operating earnings (1) $1.40 $1.02
Net earnings $1.73 $1.19
(1) See discussion of non-GAAP financial measures on page 2.

Highlights for the quarter included:

  • 3% growth in gross premiums written and 7% growth in net premiums written.
  • Underwriting income of $31.8 million, resulting in a combined ratio of 80.5.
  • $19.7 million net increase in underwriting income resulting from favorable development on prior years' loss reserves.
  • Net operating cash flow of $55.0 million.
  • Book value per share of $39.85, an increase of 6% from year end 2012.

"Our strong performance in the quarter demonstrates the effectiveness of our underwriting discipline," said RLI Corp. Chairman & CEO Jonathan E. Michael. "As in recent quarters, our casualty segment drove growth as we continued to benefit from higher rates and newer product initiatives."

"We have delivered solid results thus far this year, achieving 8% growth in gross premiums written and 11% growth in net premiums written while attaining an outstanding 83 combined ratio. Looking toward the fourth quarter, we remain focused on continuing the momentum by pursuing attractive niche markets where our underwriters' expertise can create greater value for our customers," said Michael.

Underwriting income

RLI achieved $31.8 million of underwriting income in the third quarter of 2013 on an 80.5 combined ratio, compared to $18.5 million of underwriting income on an 87.7 combined ratio in the same quarter for 2012.

Underwriting Income (Loss) Third QuarterCombined Ratio Third Quarter
(in millions) 2013 2012    2013 2012
Casualty   $20.8 $10.8Casualty 75.3 84.2
Surety      4.5  8.0 Surety   83.2 70.3
Total     $31.8 $18.5 Total   80.5 87.7

Results for 2013 include a benign catastrophe season, improved current year results on our casualty segment, as well as $19.7 million in favorable development on prior years' loss reserves. On a comparative basis, results for 2012 included $18.1 million in favorable development on prior years' loss reserves.

RLI reported year-to-date underwriting income of $77.2 million representing an 83.3 combined ratio for the nine months ended September 30, 2013, versus $55.1 million of underwriting income representing an 87.1 combined ratio for the same period last year.

Other income

RLI's net investment income for the quarter declined 4.4% to $13.6 million, compared to the same period in 2012. For the nine-month period ended September 30, 2013, investment income was $39.3 million versus $44.3 million for the same period in 2012. The investment portfolio's total return was 1.3% for the quarter. The bond portfolio returned 0.9% in the quarter, and the equity portfolio's return was 3.0%. Through nine months, the investment portfolio's total return was 2.0% with the bond portfolio returning -1.8% and equities returning 17.7%. The decline in the bond portfolio was primarily due to an increase in interest rates.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $35.7 million for the quarter ($1.64 per share) compared to $46.5 million ($2.16 per share) for the same quarter in 2012. Year-to-date comprehensive earnings were $74.5 million ($3.44 per share), compared to $116.0 million ($5.39 per share) for the same period last year.

During the quarter, equity in earnings of unconsolidated investee was $2.6 million compared to $1.9 million from the same period last year. These results are related to Maui Jim, Inc., a producer of premium sunglasses. For the nine-month period, equity in earnings of unconsolidated investee was $10.7 million versus $8.9 million in 2012.

Dividend paid in the third quarter 2013

On September 20, 2013, the Company paid a dividend of $0.34 per share, the same amount as the prior quarter. RLI has paid dividends for 149 consecutive quarters and increased dividends in each of the last 38 years.

Debt issuance

On September 25, 2013, RLI entered into an underwriting agreement to issue $150,000,000 of senior unsecured notes. On October 2, 2013, the public offering was completed with funds received and notes issued bearing a coupon rate of 4.875% and maturity date of September 15, 2023. RLI will use a portion of the proceeds received from this offering to repay its $100,000,000 of senior notes outstanding, which mature in January 2014, with remaining net proceeds available for general corporate purposes. Further information about the notes offering is available at www.rlicorp.com.

Non-GAAP measures

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. 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.

Other news

At 10 a.m. central time (CT) tomorrow, October 17, 2013, 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://www.media-server.com/m/p/mq6p56vs.

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, 2012.

RLI, a specialty insurance company, offers a diversified portfolio of property and casualty coverages and surety bonds serving niche or underserved markets. RLI operates in all 50 states from office locations across the country. RLI's insurance subsidiaries - RLI Insurance Company, Mt. Hawley Insurance Company, RLI Indemnity Company and Contractors Bonding and Insurance Company - are rated A+ "Superior" by A.M. Best Company.

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
2013 2012 20132012
3rd Qtr3rd Qtr9 Mos.9 Mos.
Operating Earnings Per Share$1.40$1.02$3.71$3.15
Specific items included in operating earnings per share: (1) (2)

· Favorable development on casualty prior years' reserves


· Favorable development on property prior years' reserves


· Favorable (unfavorable) development on surety prior years' reserves


· Catastrophe impact

· 2013 spring storms


· 2012 and prior spring storms


· 2012 and prior hurricanes


(1) Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.

(2) Reserve development reflects changes from previously estimated losses.
(Dollars in thousands, except per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
20132012% Change20132012% Change


Net premiums earned$163,702$149,9439.2%$462,406$428,8077.8%
Net investment income13,59814,221-4.4%39,33144,340-11.3%
Net realized investment gains 10,999  5,481100.7% 18,425  16,233 13.5%
Consolidated revenue188,299169,64511.0%520,162489,3806.3%
Loss and settlement expenses64,24670,598-9.0%191,301193,486-1.1%
Policy acquisition costs54,17649,26210.0%156,014145,6327.1%
Other insurance expenses13,46211,55316.5%37,91634,5959.6%
Interest expense on debt1,5131,5120.1%4,5384,5370.0%
General corporate expenses 2,157  2,0992.8% 6,235  5,901 5.7%
Total expenses135,554135,0240.4%396,004384,1513.1%

Equity in earnings of unconsolidated investee

 2,564  1,85937.9% 10,696  8,928 19.8%
Earnings before income taxes55,30936,48051.6%134,854114,15718.1%
Income tax expense 17,662  11,01760.3% 42,458  35,908 18.2%
Net earnings$37,647 $25,46347.8%$92,396 $78,249 18.1%
Other comprehensive earnings (loss), net of tax (1,946) 21,047-  (17,874) 37,713 - 
Comprehensive earnings$35,701 $46,510-23.2%$74,522 $115,962 -35.7%
Operating earnings: (1)
Net earnings$37,647$25,46347.8%$92,396$78,24918.1%
Less: Realized investment gains, net of tax 7,150  3,562100.7% 11,977  10,551 13.5%
Operating earnings$30,497 $21,90139.2%$80,419 $67,698 18.8%
Return on Equity:
Net earnings (trailing four quarters) 14.0% 12.8%
Comprehensive earnings (trailing four quarters) 10.4% 20.6%
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