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Second Quarter
Earnings Per Diluted Share 2009 2008
Operating earnings $1.32 $1.53
Net earnings $1.57 $1.77
Highlights for the quarter included:
-- Operating earnings of $28.7 million ($1.32 per share).
-- Combined ratio of 79.5.
-- Book value per share of $35.32, an increase of 7.1% from year end 2008.
-- Net operating cash flow of $57.6 million.
-- $16.4 million ($0.49 per share) pretax favorable development in prior years' loss reserves, net of effects on bonus and profit sharing-related expenses.
"The results of the second quarter show that we effectively managed challenging market and economic conditions," said RLI Corp. President & CEO Jonathan E. Michael, "Our underwriting skill, financial discipline and new product initiatives position us to achieve growth as market conditions improve."
Second quarter underwriting results
RLI achieved $25.1 million of underwriting income in the second quarter of 2009 on a 79.5 combined ratio, compared to $29.1 million of underwriting income on a 78.0 combined ratio in the same quarter for 2008.
Underwriting Income Second Quarter Second Quarter (in millions) 2009 2008 Combined Ratio 2009 2008 Casualty $14.0 $15.5 Casualty 79.1 80.2 Property 9.2 9.5 Property 76.1 74.0 Surety 1.9 4.1 Surety 88.8 76.2 Total $25.1 $29.1 Total 79.5 78.0
RLI reported year-to-date underwriting income of $40.3 million representing an 83.7 combined ratio through June 30, 2009, versus $43.8 million of underwriting income representing an 83.6 combined ratio for the same period last year.
Other income
For the quarter, investment income was $16.5 million compared to $19.6 million in 2008. For the six month period ended June 30, 2009, investment income was $34.2 million versus $38.9 million for the same period in 2008. The investment portfolio's total return for the quarter was 3.6%; the bond portfolio was 2.4% and the equity portfolio was 14.1%. Through six months, the investment portfolio's total return was 3.1% with the bond portfolio returning 4.5% and equities returning -2.2%. Current asset allocation strategies have focused on limiting the impact of volatility in the equity markets, while placing a higher portfolio allocation to short-term investments.
Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $56.9 million for the quarter ($2.62 per share) versus $13.3 million ($0.61 per share) over the same period in 2008. Year-to-date comprehensive earnings were $58.7 million ($2.70 per share), compared to $19.9 million ($0.91 per share) for the same period last year.
During the quarter, equity in earnings of unconsolidated investee was $2.7 million compared to $3.9 million from the same period last year. For the six month period, earnings were $4.1 million versus $6.2 million in 2008. These results are related to Maui Jim, Inc., a producer of premium sunglasses, which is being affected by the economic slowdown and the ensuing effect on consumer discretionary spending.
Other news
The company paid a second quarter cash dividend of $0.27 per share on July 15, 2009. The dividend is a one-cent increase over the prior quarter's dividend. RLI has paid and increased dividends in each of the last 34 years. The company's dividend yield would be 2.4%, based on the $1.08 annualized dividend and today's closing stock price of $45.31.
During the quarter, the company's A+ rating by A.M. Best was reaffirmed by the industry rating agency. In its release, A.M. Best attributed RLI's rating to "superior capitalization, outstanding long-term operating profitability and financial flexibility." Best also cited RLI's "strict underwriting discipline and rate adequacy" as the driving forces behind its "excellent history."
On July 6, 2009, RLI was named to Ward's 50(R) Top P&C Performers group for the 19th consecutive year. RLI is one of only five property and casualty insurers, from over 3,100 companies, to be recognized every year since the group's inception in 1991. Ward's noted, "In general, the Ward's 50 companies demonstrate the ability to grow their business profitably in changing market conditions."
At 10 a.m. CDT tomorrow, July 21, 2009, 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 RLI's website, www.rlicorp.com.
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.
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, 2008.
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. The company's talented associates have delivered underwriting profits in 28 of the last 32 years, including the last 13. 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.
For additional information, contact John Robison, Treasurer at (309) 693-5846 or at John.Robison@rlicorp.com or visit our website at www.rlicorp.com.
Operating Earnings Per Share
2009 2008
2nd Qtr 6 mos. 2nd Qtr 6 mos.
Operating Earnings Per Share $ 1.32 $ 2.35 $ 1.53 $ 2.56
Specific items included in operating earnings per share: (1)
(2)
-- Gain from casualty prior years' reserve development $ 0.53 $ 0.82 $ 0.44 $ 0.44
-- Gain/(loss) from property prior years' reserve development $ (0.06 ) $ (0.16 ) $ 0.05 $ 0.05
-- Gain/(loss) from surety prior years' reserve development $ (0.01 ) $ (0.01 ) $ 0.03 $ 0.03
-- Gain from 2008 hurricane reserve development $ 0.03 $ 0.04 $ - $ -
(1) Includes bonus and profit sharing-related impacts which affected
other insurance and general corporate expenses.
(2) Reserve developments reflect revisions for previously estimated
losses.
RLI CORP.
2009 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2009 2008 % Change 2009 2008 % Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned $ 122,492 $ 132,295 -7.4 % $ 248,174 $ 268,260 -7.5 %
Net investment income 16,496 19,605 -15.9 % 34,199 38,863 -12.0 %
Net realized investment gains (losses) 5,754 8,075 -28.7 % (27,774 ) 11,816
Consolidated revenue 144,742 159,975 -9.5 % 254,599 318,939 -20.2 %
Loss and settlement expenses 48,780 54,765 -10.9 % 110,001 124,030 -11.3 %
Policy acquisition costs 38,556 38,551 0.0 % 79,569 80,297 -0.9 %
Other insurance expenses 10,072 9,840 2.4 % 18,334 20,130 -8.9 %
Interest expense on debt 1,513 1,718 -11.9 % 3,025 3,545 -14.7 %
General corporate expenses 2,042 1,920 6.4 % 3,670 4,024 -8.8 %
Total expenses 100,963 106,794 -5.5 % 214,599 232,026 -7.5 %
Equity in earnings of
unconsolidated investee 2,724 3,940 -30.9 % 4,122 6,169 -33.2 %
Earnings before income taxes 46,503 57,121 -18.6 % 44,122 93,082 -52.6 %
Income tax expense 12,423 18,471 -32.7 % 11,858 28,973 -59.1 %
Net Earnings $ 34,080 $ 38,650 -11.8 % $ 32,264 $ 64,109 -49.7 %
Other comprehensive earnings (loss), net of tax 22,810 (25,339 ) 26,388 (44,165 )
Comprehensive earnings $ 56,890 $ 13,311 327.4 % $ 58,652 $ 19,944 194.1 %
Operating Earnings:(1)
Net Earnings $ 34,080 $ 38,650 -11.8 % $ 32,264 $ 64,109 -49.7 %
Less: Realized investment gains (losses), net of tax 5,416 5,248 3.2 % (18,853 ) 7,680
Operating earnings $ 28,664 $ 33,402 -14.2 % $ 51,117 $ 56,429 -9.4 %
Return on Equity:
Net earnings (trailing four quarters) 6.4 % 20.4 %
Comprehensive earnings (trailing four quarters) 5.1 % 15.3 %
Per Share Data
Diluted:
Weighted average shares outstanding (in 000's) 21,721 21,808 21,744 22,036
EPS from operations (1) $ 1.32 $ 1.53 -13.7 % $ 2.35 $ 2.56 -8.2 %
Realized gains (losses), net of tax 0.25 0.24 4.2 % (0.87 ) 0.35
Net earnings per share $ 1.57 $ 1.77 -11.3 % $ 1.48 $ 2.91 -49.1 %
Comprehensive earnings per share $ 2.62 $ 0.61 329.5 % $ 2.70 $ 0.91 196.7 %
Cash dividends per share $ 0.27 $ 0.25 8.0 % $ 0.53 $ 0.48 10.4 %
Net Cash Flow from Operations $ 57,639 $ 38,483 49.8 % $ 61,600 $ 86,568 -28.8 %
(1) See discussion of non-GAAP financial measures on page 2.
RLI CORP.
2009 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
June 30, December 31,
2009 2008 % Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income $ 1,363,652 $ 1,274,056 7.0 %
(amortized cost - $1,351,887 at 6/30/09)
(amortized cost - $1,286,779 at 12/31/08)
Equity securities 216,538 286,790 -24.5 %
(cost - $165,029 at 6/30/09)
(cost - $251,283 at 12/31/08)
Short-term investments 176,693 97,982 80.3 %
Total investments 1,756,883 1,658,828 5.9 %
Premiums and reinsurance balances receivable 92,008 92,149 -0.2 %
Ceded unearned premiums 66,724 65,977 1.1 %
Reinsurance recoverable on unpaid losses 356,977 350,284 1.9 %
Deferred acquisition costs 79,174 78,520 0.8 %
Property and equipment 20,174 21,565 -6.5 %
Income taxes - deferred - 24,141 -100.0 %
Investment in unconsolidated investee 43,206 38,697 11.7 %
Goodwill 26,214 26,214 -
Other assets 41,325 63,026 -34.4 %
Total assets $ 2,482,685 $ 2,419,401 2.6 %
Unpaid losses and settlement expenses $ 1,174,293 $ 1,159,311 1.3 %
Unearned premiums 334,507 335,170 -0.2 %
Reinsurance balances payable 24,431 30,224 -19.2 %
Long-term debt - bonds payable 100,000 100,000 -
Income taxes - deferred 1,822 - -
Accrued expenses 26,470 32,894 -19.5 %
Other liabilities 57,560 53,648 7.3 %
Total liabilities 1,719,083 1,711,247 0.5 %
Shareholders' equity 763,602 708,154 7.8 %
Total liabilities & shareholders' equity $ 2,482,685 $ 2,419,401 2.6 %
OTHER DATA
Common shares outstanding (in 000's) 21,619 21,474
Book Value per share $ 35.32 $ 32.98 7.1 %
Closing stock price per share $ 44.80 $ 61.16 -26.7 %
Statutory Surplus $ 697,948 $ 678,041 2.9 %
RLI CORP.
2009 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
2009
Gross premiums written $ 91,724 $ 64,777 $ 22,370 $ 178,871
Net premiums written 66,152 49,735 17,980 133,867
Net premiums earned 67,282 38,373 16,837 122,492
Net loss & settlement expenses 30,068 44.7 % 15,041 39.2 % 3,671 21.8 % 48,780 39.8 %
Net operating expenses 23,167 34.4 % 14,175 36.9 % 11,286 67.0 % 48,628 39.7 %
Underwriting income $ 14,047 79.1 % $ 9,157 76.1 % $ 1,880 88.8 % $ 25,084 79.5 %
2008
Gross premiums written $ 107,274 $ 57,780 $ 19,968 $ 185,022
Net premiums written 79,260 43,547 18,747 141,554
Net premiums earned 78,566 36,707 17,022 132,295
Net loss & settlement expenses 39,024 49.7 % 13,874 37.8 % 1,867 11.0 % 54,765 41.4 %
Net operating expenses 23,998 30.5 % 13,303 36.2 % 11,090 65.2 % 48,391 36.6 %
Underwriting income $ 15,544 80.2 % $ 9,530 74.0 % $ 4,065 76.2 % $ 29,139 78.0 %
Six Months Ended June 30,
GAAP GAAP GAAP GAAP
Casualty Ratios Property Ratios Surety Ratios Total Ratios
2009
Gross premiums written $ 171,596 $ 112,782 $ 42,930 $ 327,308
Net premiums written 127,458 84,283 35,023 246,764
Net premiums earned 137,972 75,565 34,637 248,174
Net loss & settlement expenses 72,475 52.5 % 30,390 40.2 % 7,136 20.6 % 110,001 44.3 %
Net operating expenses 45,447 32.9 % 29,818 39.5 % 22,638 65.4 % 97,903 39.4 %
Underwriting income $ 20,050 85.4 % $ 15,357 79.7 % $ 4,863 86.0 % $ 40,270 83.7 %
2008
Gross premiums written $ 208,290 $ 99,773 $ 37,982 $ 346,045
Net premiums written 155,153 71,724 35,566 262,443
Net premiums earned 160,566 74,493 33,201 268,260
Net loss & settlement expenses 96,122 59.9 % 23,380 31.4 % 4,528 13.6 % 124,030 46.2 %
Net operating expenses 49,535 30.9 % 29,204 39.2 % 21,688 65.3 % 100,427 37.4 %
Underwriting income $ 14,909 90.8 % $ 21,909 70.6 % $ 6,985 78.9 % $ 43,803 83.6 %
SOURCE: RLI Corp.
RLI Corp. John Robison (309) 693-5846 John.Robison@rlicorp.com www.rlicorp.com
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