RLI Reports Third Quarter 2017 Results

Business Wire

PEORIA, Ill.--(BUSINESS WIRE)-- RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2017 net earnings of $1.7 million ($0.04 per share), compared to $22.3 million ($0.50 per share) for the third quarter of 2016. Operating earnings⁽¹⁾ for the third quarter of 2017 were $1.7 million ($0.04 per share) compared to $16.2 million ($0.37 per share) for the same period in 2016.


	Third Quarter				Year to Date
Earnings Per Diluted Share	2017		2016		2017		2016
Net earnings	$	0.04	$	0.50	$	1.07	$	1.86
Operating earnings (1)	$	0.04	$	0.37	$	1.08	$	1.52

(1) See discussion below of non-GAAP and performance measures.

Highlights for the quarter included:

Underwriting loss of $14.9 million, resulting in a combined ratio of 108.2.
1% decline in gross premiums written, while investment income increased 5%.
Losses from hurricanes resulting in a $31.7 million net decrease to underwriting income.
Favorable development in prior years’ loss reserves resulting in a $14.9 million net increase in underwriting income.
Book value per share of $19.95, an increase of more than 9% from year end 2016, inclusive of dividends.

“Our third quarter results reflect the impact of a very active hurricane season, which contributed 17 points to the overall 108 combined ratio,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Despite this impact, our casualty and surety segments delivered strong results, with combined ratios of 97 and 70, respectively. We also managed to earn 4 cents of operating income, due to our conservative approach to risk management, the strength of our diversified product portfolio and contributions from investments. Overall premium was relatively flat in the quarter supported by modest growth in our casualty segment. Surety segment premium declined due to continued competitive market conditions and our property segment was adversely impacted by previously discussed product exits.”

“After many years of benign hurricane activity, recent events have solidified both our purpose and commitment to serving our policyholders in times of need. I would like to thank all RLI associates, and in particular our claim team, for providing timely and unparalleled service to our agents, brokers and insureds.”

Underwriting Income

RLI had $14.9 million of underwriting loss in the third quarter of 2017 on a 108.2 combined ratio, compared to $10.6 million of underwriting income on a 94.2 combined ratio in the same quarter for 2016. The third quarter of 2017 was impacted by hurricane losses with a $31.7 million net decrease in underwriting income due to Hurricanes Harvey, Irma and Maria. Results for the three-month period ended September 30, 2017 include $14.9 million in favorable development in prior years’ loss reserves, compared to $1.4 million in unfavorable development in the prior years’ loss reserves for the comparable period in 2016.

The following table highlights underwriting income and combined ratios by segment.


Underwriting Income (1)	Third Quarter					Combined Ratio (1)	Third Quarter
(in millions)		2017			2016		2017	2016
Casualty	$	3.6		$	0.3	Casualty	97.0	99.8
Property		(27.5	)		0.5	Property	182.0	98.7
Surety		9.0			9.8	Surety	69.9	67.5
Total	$	(14.9	)	$	10.6	Total	108.2	94.2

(1) See discussion below of non-GAAP and performance measures.

Other Income

RLI’s net investment income for the quarter increased 5.1% to $14.2 million, compared to the same period in 2016. For the nine-month period ended September 30, 2017, investment income was $40.4 million versus $39.9 million for the same period in 2016. The investment portfolio’s total return was 1.4% for the quarter. The bond portfolio’s return was 1.0% in the quarter, while the equity portfolio’s return was 3.4%. Through nine months, the investment portfolio’s total return was 5.1% with the bond portfolio returning 4.0% and equities returning 9.5%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $10.2 million for the quarter ($0.23 per share) compared to $15.3 million ($0.34 per share) for the same quarter in 2016.

Equity in earnings of unconsolidated investees was $3.7 million for the quarter compared to $1.9 million from the same period last year. These results are related to Maui Jim, Inc. ($3.1 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.6 million), a specialty E&S insurance company. For the third quarter of 2016, equity in earnings of unconsolidated investees from Maui Jim and Prime was $1.6 million and $0.3 million, respectively. For the nine-month period ended September 30, 2017, equity in earnings of unconsolidated investees was $15.4 million versus $10.8 million in 2016.

Dividends Paid in the Third Quarter 2017

On September 20, 2017, the company paid an ordinary dividend of $0.21 per share, the same amount as the prior quarter. RLI’s cumulative dividends total more than $635 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) 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 2017 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 to help users of their financial information to better understand company performance.

Other News

During the third quarter, the Company’s A+ (Superior) financial strength rating was affirmed by A.M. Best Company for the Company’s insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company and Contractors Bonding and Insurance Company.

On July 19, 2017, RLI was named as one of the insurance industry’s top performing companies by Ward Group for the 27^th consecutive year. RLI is one of only two property casualty insurers to be recognized as a Ward’s 50^® Top P&C Performer every year since the list’s inception in 1991.

At 10 a.m. central daylight time (CDT) tomorrow, October 19, 2017, 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/m6/p/u6oeonxn.

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, 2016.

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 42 consecutive years and delivered underwriting profits for 21 consecutive years. To learn more about RLI, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

	Operating Earnings Per Share
		2017			2016			2017			2016
		3rd Qtr			3rd Qtr			9 Mos.			9 Mos.
Operating Earnings Per Share (1)		$	0.04		$	0.37		$	1.08		$	1.52

Specific items included in operating earnings per share: (2) (3)
• Favorable (unfavorable) development in casualty prior years' reserves		$	0.15		$	(0.05	)	$	0.23		$	0.26
• Favorable (unfavorable) development in property prior years' reserves		$	0.02		$	(0.03	)	$	0.06		$	-
• Favorable development in surety prior years' reserves		$	0.04		$	0.05		$	0.16		$	0.09
• Catastrophe impact
▪ Hurricanes Harvey, Irma and Maria		$	(0.46	)		-			(0.46	)		-
▪ 2017 spring storms		$	-		$	-		$	(0.04	)	$	-
▪ 2016 and prior events		$	0.01		$	(0.04	)	$	0.02		$	(0.10	)

(1) See discussion above of non-GAAP and performance measures.
(2) Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.
(3) Reserve development reflects changes from previously estimated losses.


RLI CORP.
2017 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)

	Three Months Ended September 30,									Nine Months Ended September 30,
	2017			2016			% Change			2017				2016				% Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned	$	182,025		$	183,595		(0.9	)	%	$	549,641			$	540,739			1.6		%
Net investment income		14,187			13,504		5.1		%		40,430				39,922			1.3		%
Net realized gains (losses)		35			9,252		(99.6	)	%		(700	)			23,362			-
Consolidated revenue	$	196,247		$	206,351		(4.9	)	%	$	589,371			$	604,023			(2.4	)	%

Loss and settlement expenses	$	123,190		$	97,892		25.8		%	$	306,927			$	259,340			18.3		%
Policy acquisition costs		62,066			61,761		0.5		%		186,264				184,525			0.9		%
Insurance operating expenses		11,701			13,338		(12.3	)	%		38,582				38,950			(0.9	)	%
Interest expense on debt		1,856			1,857		(0.1	)	%		5,569				5,570			(0.0	)	%
General corporate expenses		1,956			2,242		(12.8	)	%		7,816				7,385			5.8		%
Total expenses	$	200,769		$	177,090		13.4		%	$	545,158			$	495,770			10.0		%

Equity in earnings of
unconsolidated investees		3,660			1,881		94.6		%		15,404				10,823			42.3		%

Earnings (loss) before income taxes	$	(862	)	$	31,142		-			$	59,617			$	119,076			(49.9	)	%
Income tax expense (benefit)		(2,596	)		8,879		-				11,847				36,343			(67.4	)	%
Net earnings	$	1,734		$	22,263		(92.2	)	%	$	47,770			$	82,733			(42.3	)	%

Other comprehensive earnings (loss), net of tax		8,444			(6,931	)	-				30,812				33,898			(9.1	)	%

Comprehensive earnings	$	10,178		$	15,332		(33.6	)	%	$	78,582			$	116,631			(32.6	)	%

Operating earnings: (1)

Net earnings	$	1,734		$	22,263		(92.2	)	%	$	47,770			$	82,733			(42.3	)	%
Less: Realized (gains) losses		(35	)		(9,252	)	(99.6	)	%		700				(23,362	)		-
Income tax on realized gains (losses)		12			3,237		(99.6	)	%		(245	)			8,176			-
Operating earnings	$	1,711		$	16,248		(89.5	)	%	$	48,225			$	67,547			(28.6	)	%

Return on Equity:
Net earnings (trailing four quarters)											9.2		%		13.2		%
Comprehensive earnings (trailing four quarters)											8.7		%		17.2		%

Per Share Data:

Diluted:
Weighted average shares outstanding (in 000's)		44,515			44,492						44,517				44,416

Net earnings per share	$	0.04		$	0.50		(92.0	)	%	$	1.07			$	1.86			(42.5	)	%
Less: Realized (gains) losses		-			(0.21	)	-				0.02				(0.52	)		-
Income tax on realized gains (losses)		-			0.08		-				(0.01	)			0.18			-
EPS from operations (1)	$	0.04		$	0.37		(89.2	)	%	$	1.08			$	1.52			(28.9	)	%

Comprehensive earnings per share	$	0.23		$	0.34		(32.4	)	%	$	1.77			$	2.63			(32.7	)	%

Cash dividends per share	$	$0.21		$	$0.20		5.0		%	$	0.62			$	0.59			5.1		%

Net Cash Flow provided by Operations	$	71,363		$	53,429		33.6		%	$	145,933			$	123,000			18.6		%

(1) See discussion above of non-GAAP and performance measures.

RLI CORP.
2017 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)


	September 30,		December 31,
	2017		2016		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income	$	1,713,558	$	1,605,209	6.7		%
(amortized cost - $1,680,321 at 9/30/17)
(amortized cost - $1,596,227 at 12/31/16)
Equity securities		393,213		369,219	6.5		%
(cost - $189,212 at 9/30/17)
(cost - $187,573 at 12/31/16)
Other invested assets		25,998		24,115	7.8		%
Cash and cash equivalents		38,802		23,284	66.6		%
Total investments and cash	$	2,171,571	$	2,021,827	7.4		%

Premiums and reinsurance balances receivable		127,388		126,387	0.8		%
Ceded unearned premiums		54,186		52,173	3.9		%
Reinsurance balances recoverable on unpaid losses		291,074		288,224	1.0		%
Deferred policy acquisition costs		77,782		73,147	6.3		%
Property and equipment		55,770		54,606	2.1		%
Investment in unconsolidated investees		88,374		72,240	22.3		%
Goodwill and intangibles		59,427		64,371	(7.7	)	%
Other assets		30,948		24,658	25.5		%
Total assets	$	2,956,520	$	2,777,633	6.4		%

Unpaid losses and settlement expenses	$	1,253,729	$	1,139,337	10.0		%
Unearned premiums		443,110		433,777	2.2		%
Reinsurance balances payable		21,006		17,928	17.2		%
Funds held		75,294		72,742	3.5		%
Income taxes - deferred		84,982		64,494	31.8		%
Bonds payable, long-term debt		148,881		148,741	0.1		%
Accrued expenses		35,682		51,992	(31.4	)	%
Other liabilities		14,680		25,050	(41.4	)	%
Total liabilities	$	2,077,364	$	1,954,061	6.3		%
Shareholders' equity		879,156		823,572	6.7		%
Total liabilities & shareholders' equity	$	2,956,520	$	2,777,633	6.4		%


OTHER DATA:

Common shares outstanding (in 000's)		44,060		43,945

Book value per share	$	19.95	$	18.74	6.5		%
Closing stock price per share	$	57.36	$	63.13	(9.1	)	%
Cash dividends per share - ordinary (annualized)	$	0.83	$	0.79	5.1		%
Cash dividends per share - special	$	-	$	2.00	-

Statutory surplus	$	900,972	$	859,976	4.8		%

RLI CORP.
2017 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
2017

Gross premiums written	$	145,016			$	44,613				$	30,804			$	220,433
Net premiums written		122,421				35,207					29,499				187,127
Net premiums earned		118,393				33,559					30,073				182,025
Net loss & settlement expenses		73,895	62.4	%		46,037		137.2	%		3,258	10.8	%		123,190		67.7	%
Net operating expenses		40,944	34.6	%		15,041		44.8	%		17,782	59.1	%		73,767		40.5	%
Underwriting income (loss) (1)	$	3,554	97.0	%	$	(27,519	)	182.0	%	$	9,033	69.9	%	$	(14,932	)	108.2	%

2016

Gross premiums written	$	141,078			$	48,334				$	32,181			$	221,593
Net premiums written		116,246				39,323					29,978				185,547
Net premiums earned		115,619				37,532					30,444				183,595
Net loss & settlement expenses		75,912	65.7	%		20,425		54.4	%		1,555	5.1	%		97,892		53.3	%
Net operating expenses		39,448	34.1	%		16,639		44.3	%		19,012	62.4	%		75,099		40.9	%
Underwriting income (loss) (1)	$	259	99.8	%	$	468		98.7	%	$	9,877	67.5	%	$	10,604		94.2	%

Nine Months Ended September 30,
			GAAP					GAAP				GAAP					GAAP
		Casualty	Ratios			Property		Ratios			Surety	Ratios			Total		Ratios
2017

Gross premiums written	$	431,874			$	131,791				$	92,582			$	656,247
Net premiums written		365,653				103,016					88,293				556,962
Net premiums earned		354,636				103,849					91,156				549,641
Net loss & settlement expenses		227,103	64.0	%		72,050		69.4	%		7,774	8.5	%		306,927		55.8	%
Net operating expenses		122,212	34.5	%		47,651		45.9	%		54,983	60.3	%		224,846		40.9	%
Underwriting income (loss) (1)	$	5,321	98.5	%	$	(15,852	)	115.3	%	$	28,399	68.8	%	$	17,868		96.7	%

2016

Gross premiums written	$	426,257			$	145,814				$	96,434			$	668,505
Net premiums written		358,241				117,017					91,258				566,516
Net premiums earned		336,572				114,011					90,156				540,739
Net loss & settlement expenses		199,270	59.2	%		49,686		43.6	%		10,384	11.5	%		259,340		48.0	%
Net operating expenses		116,812	34.7	%		50,414		44.2	%		56,249	62.4	%		223,475		41.3	%
Underwriting income (loss) (1)	$	20,490	93.9	%	$	13,911		87.8	%	$	23,523	73.9	%	$	57,924		89.3	%

(1) See discussion above of non-GAAP and performance measures.