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RLI Reports Third Quarter 2020 Results

·10-min read

RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2020 net earnings of $42.4 million ($0.93 per share), compared to $32.3 million ($0.71 per share) for the third quarter of 2019. Operating earnings(1) for the third quarter of 2020 were $19.0 million ($0.42 per share), compared to $25.9 million ($0.57 per share) for the same period in 2019.

Third Quarter

Year to Date

Earnings Per Diluted Share

2020

2019

2020

2019

Net earnings

$

0.93

$

0.71

$

1.62

$

3.06

Operating earnings (1)

$

0.42

$

0.57

$

1.84

$

1.94

(1)

See discussion below: Non-GAAP and Performance Measures.

Highlights for the quarter included:

  • Underwriting income(1) of $1.2 million on a combined ratio(1) of 99.5.

  • 9% increase in gross premiums written.

  • Net favorable development in prior years’ loss reserves, resulting in a $24.8 million net increase in underwriting income.

  • Losses from Hurricanes Hanna, Isaias, Laura and Sally, resulting in a $33.2 million net decrease in underwriting income.

  • Book value per share of $24.40, an increase of 13% (inclusive of dividends) from year-end 2019.

"We’ve faced a number of challenges in 2020, including an active hurricane season, which impacted our third quarter results," said RLI Corp. Chairman & CEO Jonathan E. Michael. "Despite an increase in our combined ratio due to natural catastrophes, we achieved underwriting profitability and grew book value. In particular, our casualty and surety product segments delivered strong results, which drove operating earnings to $0.42 per share. Our financial performance is a testament to RLI’s long-term sustainability, which enables us to be there for customers in their times of need. As always, I want to thank all our associates for their proactive service to our customers during the quarter and throughout the year."

Underwriting Income

RLI achieved $1.2 million of underwriting income in the third quarter of 2020 on a 99.5 combined ratio, compared to $13.7 million on a 93.5 combined ratio in 2019. Results for both years include net favorable development in prior years’ loss reserves, which totaled $24.8 million and $12.1 million for 2020 and 2019, respectively.

The following table highlights underwriting income and combined ratios by segment for the third quarter.

Underwriting Income(1)

Combined Ratio(1)

(in millions)

2020

2019

2020

2019

Casualty

$

14.0

$

2.4

Casualty

90.2

98.3

Property

(19.9

)

6.2

Property

144.0

85.0

Surety

7.1

5.1

Surety

74.8

82.4

Total

$

1.2

$

13.7

Total

99.5

93.5

(1)

See discussion below: Non-GAAP and Performance Measures.

Other Income

Net investment income for the quarter decreased 5.6% to $16.5 million, compared to the same period in 2019. The investment portfolio’s total return was 2.2% for the quarter and 4.2% for the nine months ended September 30, 2020.

RLI’s comprehensive earnings were $51.9 million for the quarter ($1.14 per share), compared to $47.7 million ($1.05 per share) for the same quarter in 2019. In addition to net earnings, comprehensive earnings (loss) included after-tax unrealized gains/(losses) from the fixed income portfolio.

Equity in earnings of unconsolidated investees was $8.7 million for the quarter, compared to $4.0 million from the same period last year. For the third quarter of 2020, $6.2 million of the equity in earnings of unconsolidated investees related to Maui Jim, Inc., a producer of premium sunglasses, and $3.3 related to Prime Holdings Insurance Services, Inc., a specialty insurance company. For the third quarter of 2019, equity in earnings of unconsolidated investees from Maui Jim and Prime was $2.8 million and $1.2 million, respectively.

Dividends Paid in the Third Quarter of 2020

On September 18, 2020, the company paid a regular quarterly dividend of $0.24 per share, the same amount as the prior quarter. RLI’s cumulative dividends total more than $532 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 further 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 2020 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

On July 16, 2020, RLI was named as one of the insurance industry’s top performing companies by Ward Group for the 30th 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 22, 2020, 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/cdqjdegu.

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, 2019.

About RLI

RLI Corp. (NYSE: RLI) is a specialty insurer serving 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 AM Best Company. RLI has paid and increased regular dividends for 45 consecutive years and delivered underwriting profits for 24 consecutive years. To learn more about RLI, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

Operating Earnings Per Share

2020

2019

2020

2019

3rd Qtr

3rd Qtr

9 Mos.

9 Mos.

Operating Earnings Per Share(1)

$

0.42

$

0.57

$

1.84

$

1.94

Specific items included in operating earnings per share:(2) (3)

Net favorable development in casualty prior years' reserves

$

0.34

$

0.19

$

0.78

$

0.68

Net favorable development in property prior years' reserves

$

0.01

$

0.02

$

0.05

$

0.02

Net favorable development in surety prior years' reserves

$

0.05

$

-

$

0.16

$

0.12

Net incurred losses related to:

Hurricanes Hanna, Isaias, Laura and Sally

$

(0.58

)

$

-

$

(0.58

)

$

-

2020 storms and civil unrest

$

-

$

-

$

(0.10

)

$

-

COVID-19

$

(0.06

)

$

-

$

(0.22

)

$

-

2019 and prior catastrophe events

$

0.04

$

(0.04

)

$

0.05

$

(0.12

)

(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

2020 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

SUMMARIZED INCOME STATEMENT DATA:

2020

2019

% Change

2020

2019

% Change

Net premiums earned

$

216,630

$

211,255

2.5

%

$

640,946

$

623,485

2.8

%

Net investment income

16,543

17,532

(5.6

)

%

51,238

51,095

0.3

%

Net realized gains

1,512

3,211

(52.9

)

%

14,555

17,043

(14.6

)

%

Net unrealized gains (losses) on equity securities

28,126

4,906

NM

(27,564

)

47,214

NM

Consolidated revenue

$

262,811

$

236,904

10.9

%

$

679,175

$

738,837

(8.1

)

%

Loss and settlement expenses

127,596

108,990

17.1

%

339,819

307,206

10.6

%

Policy acquisition costs

71,032

71,552

(0.7

)

%

213,436

214,586

(0.5

)

%

Insurance operating expenses

16,850

16,982

(0.8

)

%

45,137

50,597

(10.8

)

%

Interest expense on debt

1,901

1,861

2.1

%

5,701

5,583

2.1

%

General corporate expenses

2,668

2,583

3.3

%

6,417

9,142

(29.8

)

%

Total expenses

$

220,047

$

201,968

9.0

%

$

610,510

$

587,114

4.0

%

Equity in earnings of unconsolidated investees

8,745

4,011

118.0

%

18,359

17,793

3.2

%

Earnings before income taxes

$

51,509

$

38,947

32.3

%

$

87,024

$

169,516

(48.7

)

%

Income tax expense

9,122

6,623

37.7

%

13,738

31,252

(56.0

)

%

Net earnings

$

42,387

$

32,324

31.1

%

$

73,286

$

138,264

(47.0

)

%

Other comprehensive earnings, net of tax

9,550

15,341

(37.7

)

%

50,090

72,506

(30.9

)

%

Comprehensive earnings

$

51,937

$

47,665

9.0

%

$

123,376

$

210,770

(41.5

)

%

Operating earnings(1):

Net earnings

$

42,387

$

32,324

31.1

%

$

73,286

$

138,264

(47.0

)

%

Less:

Realized gains

(1,512

)

(3,211

)

(52.9

)

%

(14,555

)

(17,043

)

(14.6

)

%

Income tax on realized gains

318

674

(52.8

)

%

3,057

3,579

(14.6

)

%

Unrealized (gains) losses on equity securities

(28,126

)

(4,906

)

NM

27,564

(47,214

)

NM

Income tax on unrealized gains (losses) on equity securities

5,905

1,031

NM

(5,789

)

9,915

NM

Operating earnings

$

18,972

$

25,912

(26.8

)

%

$

83,563

$

87,501

(4.5

)

%

Return on Equity:

Net earnings (trailing four quarters)

12.5

%

13.0

%

Comprehensive earnings (trailing four quarters)

16.9

%

21.8

%

Per Share Data:

Diluted:

Weighted average shares outstanding (in 000's)

45,426

45,349

45,339

45,192

Net earnings per share

$

0.93

$

0.71

31.0

%

$

1.62

$

3.06

(47.1

)

%

Less:

Realized gains

(0.03

)

(0.07

)

(57.1

)

%

(0.32

)

(0.38

)

(15.8

)

%

Income tax on realized gains

0.01

0.01

0.0

%

0.07

0.08

(12.5

)

%

Unrealized (gains) losses on equity securities

(0.62

)

(0.10

)

NM

0.60

(1.04

)

NM

Income tax on unrealized gains (losses) on equity securities

0.13

0.02

NM

(0.13

)

0.22

NM

EPS from operations(1)

$

0.42

$

0.57

(26.3

)

%

$

1.84

$

1.94

(5.2

)

%

Comprehensive earnings per share

$

1.14

$

1.05

8.6

%

$

2.72

$

4.66

(41.6

)

%

Cash dividends per share - ordinary

$

0.24

$

0.23

4.3

%

$

0.71

$

0.68

4.4

%

Net Cash Flow provided by Operations

$

79,471

$

81,415

(2.4

)

%

$

163,244

$

186,762

(12.6

)

%

(1)

See discussion above: Non-GAAP and Performance Measures.

NM = Not Meaningful

RLI CORP

2020 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

September 30,

December 31,

2020

2019

% Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income, at fair value

$

2,159,795

$

1,983,086

8.9

%

(amortized cost - $2,030,979 at 9/30/20)

(amortized cost - $1,915,278 at 12/31/19)

Equity securities, at fair value

455,956

460,630

(1.0

)

%

(cost - $280,337 at 9/30/20)

(cost - $262,131 at 12/31/19)

Other invested assets

59,988

70,441

(14.8

)

%

Cash and cash equivalents

70,589

46,203

52.8

%

Total investments and cash

$

2,746,328

$

2,560,360

7.3

%

Premiums and reinsurance balances receivable

159,427

160,369

(0.6

)

%

Ceded unearned premiums

102,902

93,656

9.9

%

Reinsurance balances recoverable on unpaid losses

399,960

384,517

4.0

%

Deferred policy acquisition costs

89,818

85,044

5.6

%

Property and equipment

52,113

53,121

(1.9

)

%

Investment in unconsolidated investees

128,154

103,836

23.4

%

Goodwill and intangibles

53,821

54,127

(0.6

)

%

Other assets

59,978

50,691

18.3

%

Total assets

$

3,792,501

$

3,545,721

7.0

%

Unpaid losses and settlement expenses

$

1,686,876

$

1,574,352

7.1

%

Unearned premiums

570,754

540,213

5.7

%

Reinsurance balances payable

31,646

25,691

23.2

%

Funds held

79,774

83,358

(4.3

)

%

Income taxes - deferred

66,008

56,727

16.4

%

Bonds payable, long-term debt

149,442

149,302

0.1

%

Accrued expenses

46,516

66,626

(30.2

)

%

Other liabilities

62,145

54,064

14.9

%

Total liabilities

$

2,693,161

$

2,550,333

5.6

%

Shareholders' equity

1,099,340

995,388

10.4

%

Total liabilities & shareholders' equity

$

3,792,501

$

3,545,721

7.0

%

OTHER DATA:

Common shares outstanding (in 000's)

45,055

44,869

Book value per share

$

24.40

$

22.18

10.0

%

Closing stock price per share

$

83.73

$

90.02

(7.0

)

%

Statutory surplus

$

1,047,043

$

1,029,671

1.7

%

RLI CORP

2020 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

2020

Gross premiums written

$

204,008

$

68,535

$

30,320

$

302,863

Net premiums written

157,330

48,895

28,823

235,048

Net premiums earned

143,002

45,380

28,248

216,630

Net loss & settlement expenses

78,076

54.6

%

46,874

103.3

%

2,646

9.4

%

127,596

58.9

%

Net operating expenses

50,933

35.6

%

18,457

40.7

%

18,492

65.4

%

87,882

40.6

%

Underwriting income (loss) (1)

$

13,993

90.2

%

$

(19,951

)

144.0

%

$

7,110

74.8

%

$

1,152

99.5

%

2019

Gross premiums written

$

183,420

$

63,406

$

30,163

$

276,989

Net premiums written

144,478

47,585

28,649

220,712

Net premiums earned

140,423

41,476

29,356

211,255

Net loss & settlement expenses

86,587

61.7

%

17,404

42.0

%

4,999

17.0

%

108,990

51.6

%

Net operating expenses

51,466

36.6

%

17,870

43.0

%

19,198

65.4

%

88,534

41.9

%

Underwriting income (loss) (1)

$

2,370

98.3

%

$

6,202

85.0

%

$

5,159

82.4

%

$

13,731

93.5

%

Nine Months Ended September 30,

GAAP

GAAP

GAAP

GAAP

Casualty

Ratios

Property

Ratios

Surety

Ratios

Total

Ratios

2020

Gross premiums written

$

553,291

$

194,542

$

88,015

$

835,848

Net premiums written

436,621

141,885

83,735

662,241

Net premiums earned

421,637

135,115

84,194

640,946

Net loss & settlement expenses

249,992

59.3

%

84,395

62.5

%

5,432

6.5

%

339,819

53.0

%

Net operating expenses

149,242

35.4

%

54,596

40.4

%

54,735

65.0

%

258,573

40.4

%

Underwriting income (loss) (1)

$

22,403

94.7

%

$

(3,876

)

102.9

%

$

24,027

71.5

%

$

42,554

93.4

%

2019

Gross premiums written

$

524,650

$

176,787

$

89,735

$

791,172

Net premiums written

423,016

134,018

85,439

642,473

Net premiums earned

415,667

120,194

87,624

623,485

Net loss & settlement expenses

247,162

59.5

%

52,934

44.0

%

7,110

8.1

%

307,206

49.3

%

Net operating expenses

153,853

37.0

%

53,248

44.3

%

58,082

66.3

%

265,183

42.5

%

Underwriting income (loss) (1)

$

14,652

96.5

%

$

14,012

88.3

%

$

22,432

74.4

%

$

51,096

91.8

%

(1)

See discussion above: Non-GAAP and Performance Measures.

Tag: Earnings Release

View source version on businesswire.com: https://www.businesswire.com/news/home/20201021005842/en/

Contacts

Media Contact
Aaron Diefenthaler
Vice President, Chief Investment Officer & Treasurer
309-693-5846
Aaron.Diefenthaler@rlicorp.com