PEORIA, Ill.--(BUSINESS WIRE)--
RLI Corp. (NYSE: RLI) – RLI Corp. reported first quarter 2012 operating
earnings of $20.6 million ($0.96 per share), compared to $24.8 million
($1.17 per share) for the first quarter of 2011.
* First quarter 2011 results were revised to reflect the retrospective
adoption of a new accounting standard for policy acquisition costs.
Highlights for the quarter included:
“We ended last year on a strong note, delivering our 16th
consecutive year of underwriting profit, and are pleased to be off to a
solid start in the first quarter by posting a respectable 89.1 combined
ratio,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “In addition
to growth from our acquisition of Contractors Bonding and Insurance
Company, we recognized organic growth across each of our segments.”
“The insurance market is showing signs of moderate pricing improvement,
which is encouraging as we look to continue delivering positive
underwriting results. From a product, talent and capital perspective, we
are well-positioned to benefit from improved market conditions,” said
RLI achieved $14.9 million of underwriting income in the first quarter
of 2012 on an 89.1 combined ratio, compared to $20.9 million of
underwriting income on an 82.0 combined ratio in the same quarter for
2011. Results for 2012 include $7.8 million in favorable development in
prior years’ loss reserves, compared to $10.5 million in favorable
development in prior years’ loss reserves in 2011. In addition, results
for 2012 include increased current accident year loss ratios on contract
surety and select casualty lines, as well as increased policy
acquisition costs. The increase in policy acquisition costs is due to
expansion efforts, the expense for which is accelerated under the
recently adopted accounting standard. See page 3 for further discussion.
The following table highlights annual underwriting income and combined
ratios by segment:
For the quarter, RLI’s investment income declined 6.2% to $15.3 million,
as low interest rates continue to keep reinvestment yields depressed.
The investment portfolio’s total return was 2.4% for the quarter. The
bond portfolio gained 1.0% in the quarter, and the equity portfolio’s
return was 7.6%.
Comprehensive earnings, which include after-tax unrealized gains/losses
from the investment portfolio, were $38.8 million for the quarter ($1.80
per share) compared to $33.0 million ($1.55 per share) for the same
quarter in 2011. Realized investment gains, net of tax, of $7.4 million
in the quarter reflect security sales, which favored a slight reduction
in equity exposure and an increase in overall fixed income credit
During the quarter, equity in earnings of unconsolidated investee was
$2.9 million compared to $2.6 million from the same period last year.
These results are related to Maui Jim, Inc., a producer of premium
Dividend paid in the first quarter 2012
On March 20, 2012, the company paid a dividend of $0.30 per share, its
143rd consecutive quarterly dividend paid to shareholders.
RLI’s cumulative dividends, including this recent payment, total more
than $350 million paid over the last five years.
Recently adopted accounting standard
As previously disclosed in RLI’s Annual Report on Form 10-K for the year
ended December 31, 2011, accounting guidance for deferred acquisition
costs incurred by insurance entities changed in 2012 under ASU 2010-26,
Financial Services – Insurance (Topic 944) Accounting for Costs
Associated with Acquiring or Renewing Insurance Contracts.
We adopted this new accounting standard, effective January 1, 2012, on a
retrospective basis. Our adoption of the new standard resulted in a
$40.3 million reduction of deferred policy acquisition costs asset and a
$26.2 million decrease to consolidated shareholders’ equity, net of a
$14.1 million deferred income tax benefit at December 31, 2011. The
adjustment to shareholders’ equity resulted in a reduction in book value
of $1.24 per share based on the number of shares outstanding at January
The new standard affects the timing of the recognition of policy
acquisition costs. Costs associated with unsuccessful efforts or costs
that cannot be tied directly to a successful policy acquisition are
treated as period costs and expensed as incurred, as opposed to being
deferred and amortized as the premium is earned. In periods of
expansion, the new standard will result in an acceleration of expense
recognition. In periods of contraction, the inverse will occur.
Comparative period information for the first quarter of 2011 has been
revised to reflect changes resulting from our retrospective adoption of
the new accounting standard. The first quarter of 2011 was a period
where premium and business were contracting. As a result, the
application of the new standard resulted in a $1.9 million decrease in
policy acquisition costs recognized in the revised first quarter of 2011
and a corresponding 1.6 point reduction to our revised combined ratio.
The revised net earnings increased by $0.06 per share. In contrast, the
impact of applying the new standard to the first quarter of 2012
resulted in an increase of approximately $1.6 million in policy
acquisition costs recognized, which decreased net earnings by $0.05 per
share. The increase in expense was due largely to costs associated with
CBIC but was also impacted by investments in expansion of other
products. Going forward, the impact of this new standard will vary based
on expansion or contraction, as well as changes in business mix.
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
At 10 a.m. central time (CT) tomorrow, April 19, 2012, 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 www.rlicorp.com.
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, 2011.
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 and RLI Indemnity Company – are
rated A+ “Superior” by A.M. Best Company and A+ “Strong” by Standard &
Poor’s. Contractors Bonding and Insurance Company is rated A “Excellent”
by A.M. Best Company.
For additional information, contact Aaron Jacoby, Vice President,
Corporate Development at 309-693-5880 or at firstname.lastname@example.org
or visit our website at www.rlicorp.com.
Supplemental disclosure regarding the earnings impact of specific items:
SUMMARIZED INCOME STATEMENT DATA:
SUMMARIZED BALANCE SHEET DATA:
(1) Revised due to the retrospective adoption of a new
accounting standard for policy acquisition costs.
Three Months Ended March 31,
RLI Corp.Aaron Jacoby, (309) 693-5880Aaron.Jacoby@rlicorp.comwww.rlicorp.com
Source: RLI Corp.