Company News »

RLI Reports 2014 Fourth Quarter and Year-End Results

Business Wire
Share on StockTwits
Published on

RLI Corp. (NYSE:RLI) – RLI Corp. reported fourth quarter 2014 operating earnings of $31.3 million ($0.71 per share), compared to $31.5 million ($0.72 per share) for the fourth quarter of 2013. For the year ended December 31, 2014, operating earnings were $114.5 million ($2.61 per share) compared to $111.9 million ($2.57 per share) for the 2013 fiscal year.

Fourth Quarter Full Year
Earnings Per Diluted Share 2014 2013 2014 2013
Operating earnings (1) $0.71 $0.72 $2.61 $2.57
Net earnings $0.85 $0.77 $3.09 $2.90
(1) See discussion below of non-GAAP financial measures.

Highlights for the quarter included:

  • 1% growth in gross premiums written and 5% growth in net premiums written.
  • Underwriting income of $27.5 million, resulting in a combined ratio of 84.7.
  • $11.5 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.
  • Special dividend of $3.00 per share, representing $129.3 million returned to shareholders.

Highlights for the year included:

  • 2% growth in gross premiums written and 6% growth in net premiums written.
  • Underwriting income of $107.0 million, resulting in a combined ratio of 84.5.
  • $62.0 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.
  • 19th consecutive year of a combined ratio below 100.
  • Book value per share of $19.61 at year end, an increase of 21% over 2013, inclusive of dividends.

“By remaining true to our disciplined underwriting strategy, we were able to deliver solid results this quarter,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Despite experiencing increased competition in many of our products, we achieved top line growth and an 84.7 combined ratio.”

“2014 was another profitable year for our company and marked our 10th consecutive year of achieving a combined ratio below 90 and 19th consecutive year below 100,” said Michael. “During the year, we continued to focus on meeting the needs of our customers, managing our business with discipline, identifying new growth opportunities and delivering value to our shareholders. I congratulate all RLI professionals for accomplishing these objectives and positioning our company for growth.”

Underwriting income

RLI achieved $27.5 million of underwriting income in the fourth quarter of 2014 on an 84.7 combined ratio, compared to $29.6 million of underwriting income on an 82.4 combined ratio in the same quarter for 2013.

For the year, RLI achieved $107.0 million of underwriting income on an 84.5 combined ratio, compared to $106.8 million of underwriting income on an 83.1 combined ratio in 2013. Results for both years include favorable development in prior years’ loss reserves, which totaled $62.0 million and $70.0 million for 2014 and 2013, respectively.

The following table highlights annual underwriting income and combined ratios by segment:

Underwriting Income (1)
(in millions) 2014 2013 Combined Ratio 2014 2013
Casualty $45.9 $55.6 Casualty 88.0 82.8
Property 32.9 27.6 Property 83.4 86.2
Surety 28.2 23.6 Surety 73.8 77.9
Total $107.0 $106.8 Total 84.5 83.1
(1) See discussion below of non-GAAP financial measures.

Other income

RLI’s net investment income for the quarter increased 3.1% to $13.8 million, compared to the same period in 2013. For the year ended December 31, 2014, investment income was $55.6 million versus $52.8 million for the 2013 fiscal year. The increase was primarily due to a larger invested asset base for most of the year. The investment portfolio’s total return was 2.2% for the quarter. The bond portfolio returned 1.2% in the quarter, and the equity portfolio’s return was 6.1%. For the year ended December 31, 2014, the investment portfolio’s total return was 8.3% with the bond portfolio returning 6.5% and equities returning 14.7%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $47.5 million for the quarter ($1.08 per share) compared to $44.6 million ($1.02 per share) for the same quarter in 2013. Full-year comprehensive earnings were $170.8 million ($3.90 per share), compared to $119.1 million ($2.74 per share) in 2013.

Equity in earnings of unconsolidated investees was $0.1 million for the quarter compared to $0.2 million from the same period last year. Results for the current quarter are related to Maui Jim, Inc. ($0.2 million, which reflects seasonal sales results), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($-0.1 million), a specialty E&S insurance company. For the year ended December 31, 2014, equity in earnings of unconsolidated investees was $12.0 million and $0.3 million for Maui Jim and Prime, respectively, versus $10.9 million for Maui Jim in 2013. Prior year figures reflect only Maui Jim results, as our equity investment in Prime occurred in the first quarter of 2014. During the quarter, RLI received a $6.6 million dividend from Maui Jim, which resulted in a tax benefit on dividends received from affiliates of $1.8 million ($0.04 per share).

Special and regular dividends

On December 22, 2014, RLI paid a special cash dividend of $3.00 per share and a regular quarterly dividend of $0.18 per share, totaling $137.1 million and resulting in a tax benefit of $3.6 million ($0.08 per share) as dividends to the ESOP are fully deductible. RLI has paid dividends for 154 consecutive quarters and increased regular dividends in each of the last 39 years. Over the last 10 years, the company’s regular quarterly dividend has grown an average of 9.9% per year.

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, January 27, 2015, 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://edge.media-server.com/m/p/g8g5a7dy.

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, 2013.

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
2014 2013 2014 2013

4th Qtr

4th Qtr

12 Mos.

12 Mos.

Operating Earnings Per Share $ 0.71 $ 0.72 $ 2.61 $ 2.57
Specific items included in operating earnings per share: (1) (2)

–Favorable development in casualty prior years’ reserves

$ 0.14 $ 0.19 $ 0.72 $ 0.87

–Favorable development in property prior years’ reserves

$ 0.01 $ 0.02 $ 0.02 $ 0.07

–Favorable development in surety prior years’ reserves

$ 0.01 $ 0.02 $ 0.16 $ 0.08

–Catastrophe impact

–2014 events

$ - $ $ (0.09 ) $

–2013 and prior events

$ 0.02 $ $ 0.02 $ (0.10 )

–Gain from tax benefit of special dividend to ESOP (3)

$ 0.08 $ 0.04 $ 0.08 $ 0.04

–Gain from change in tax rate applicable to Maui Jim (4)

$ 0.04 $ 0.08 $ 0.04 $ 0.08
(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.
(3) Dividends paid in an ESOP on employer securities are fully deductible from taxable income and result in a 35% tax benefit.
(4) As required under the accounting standard for income taxes, the gain reflects the tax benefit of applying the lower tax rate applicable to dividends received from an affiliate (7%) as compared to the corporate capital gains tax rate (35%) on which tax estimates were based.
RLI CORP.
2014 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended December 31, Twelve Months Ended December 31,
2014 2013 % Change 2014 2013 % Change

SUMMARIZED INCOME STATEMENT DATA:

Net premiums earned $ 179,892 $ 168,396 6.8% $ 687,375 $ 630,802 9.0%
Net investment income 13,844 13,432 3.1% 55,608 52,763 5.4%
Net realized investment gains 9,542 3,611 164.2% 32,182 22,036 46.0%
Consolidated revenue 203,278 185,439 9.6% 775,165 705,601 9.9%
Loss and settlement expenses 76,229 68,500 11.3% 296,609 259,801 14.2%
Policy acquisition costs 60,896 54,637 11.5% 229,283 210,651 8.8%
Other insurance expenses 15,277 15,641 -2.3% 54,464 53,557 1.7%
Interest expense on debt 1,856 3,557 -47.8% 7,438 8,095 -8.1%
General corporate expenses 2,675 2,511 6.5% 10,222 8,746 16.9%
Total expenses 156,933 144,846 8.3% 598,016 540,850 10.6%
Equity in earnings of
unconsolidated investees 134 219 -38.8% 12,338 10,915 13.0%
Earnings before income taxes 46,479 40,812 13.9% 189,487 175,666 7.9%
Income tax expense 8,982 6,953 29.2% 54,042 49,411 9.4%
Net earnings $ 37,497 $ 33,859 10.7% $ 135,445 $ 126,255 7.3%
Other comprehensive earnings (loss), net of tax 10,038 10,731 -6.5% 35,356 (7,143)
Comprehensive earnings $ 47,535 $ 44,590 6.6% $ 170,801 $ 119,112 43.4%
Operating earnings:(1)
Net earnings $ 37,497 $ 33,859 10.7% $ 135,445 $ 126,255 7.3%
Less: Realized investment gains, net of tax 6,203 2,346 164.4% 20,919 14,323 46.1%
Operating earnings $ 31,294 $ 31,513 -0.7% $ 114,526 $ 111,932 2.3%
Return on Equity:
Net earnings (trailing four quarters) 15.4% 15.3%
Comprehensive earnings (trailing four quarters) 19.4% 14.4%
Per Share Data

Diluted:

Weighted average shares outstanding (in 000’s) 43,937 43,753 43,819 43,514
EPS from operations (1) $ 0.71 $ 0.72 -1.4% $ 2.61 $ 2.57 1.6%
Realized gains, net of tax 0.14 0.05 180.0% 0.48 0.33 45.5%
Net earnings per share $ 0.85 $ 0.77 10.4% $ 3.09 $ 2.90 6.6%
Comprehensive earnings per share $ 1.08 $ 1.02 5.9% $ 3.90 $ 2.74 42.3%
Cash dividends per share – ordinary $ 0.18 $ 0.17 5.9% $ 0.71 $ 0.67 6.0%
Cash dividends per share – special $ 3.00 $ 1.50 100.0% $ 3.00 $ 1.50 100.0%
Net Cash Flow provided by Operations $ 37,191 $ 53,230 -30.1% $ 123,085 $ 134,966 -8.8%
(1) See discussion above of non-GAAP financial measures.
RLI CORP.
2014 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
December 31, December 31,
2014 2013 % Change

SUMMARIZED BALANCE SHEET DATA:

Fixed income $ 1,495,087 $ 1,440,703 3.8%
(amortized cost – $1,448,204 at 12/31/14)
(amortized cost – $1,431,700 at 12/31/13)
Equity securities 410,642 418,654 -1.9%
(cost – $193,535 at 12/31/14)
(cost – $218,848 at 12/31/13)
Other invested assets 11,597
Cash and cash equivalents 46,959 62,701 -25.1%
Total investments and cash 1,964,285 1,922,058 2.2%
Premiums and reinsurance balances receivable 154,573 152,509 1.4%
Ceded unearned premiums 53,961 60,407 -10.7%
Reinsurance recoverable on unpaid losses 335,106 354,924 -5.6%
Deferred acquisition costs 65,123 61,508 5.9%
Property and equipment 42,549 40,261 5.7%
Investment in unconsolidated investees 60,046 49,793 20.6%
Goodwill and intangibles 72,695 74,876 -2.9%
Other assets 27,204 23,974 13.5%
Total assets $ 2,775,542 $ 2,740,310 1.3%
Unpaid losses and settlement expenses 1,121,040 1,129,433 -0.7%
Unearned premiums 401,412 392,081 2.4%
Reinsurance balances payable 38,013 47,334 -19.7%
Funds held 51,481 61,656 -16.5%
Bonds payable, long term debt 149,625 149,582 0.0%
Income taxes – deferred 82,285 57,801 42.4%
Accrued expenses 63,148 59,596 6.0%
Other liabilities 23,476 13,861 69.4%
Total liabilities 1,930,480 1,911,344 1.0%
Shareholders’ equity 845,062 828,966 1.9%
Total liabilities & shareholders’ equity $ 2,775,542 $ 2,740,310 1.3%

OTHER DATA

Common shares outstanding (in 000’s) 43,103 42,982
Book value per share $ 19.61 $ 19.29 1.7%
Closing stock price per share $ 49.40 $ 48.69 1.5%
Cash dividends per share – ordinary $ 0.71 $ 0.67 6.0%
Cash dividends per share – special $ 3.00 $ 1.50 100.0%
Statutory Surplus $ 849,297 $ 859,221 -1.2%
RLI CORP.
2014 FINANCIAL HIGHLIGHTS
UNDERWRITING SEGMENT DATA
(Unaudited)
(Dollars in thousands, except per share amounts)

Three Months Ended December 31,

GAAP GAAP GAAP GAAP
Casualty Ratios Property Ratios Surety Ratios Total Ratios

2014

Gross premiums written $ 118,819 $ 45,958 $ 29,681 $ 194,458
Net premiums written 96,619 35,418 28,084 160,121
Net premiums earned 100,587 51,524 27,781 179,892
Net loss & settlement expenses 53,823 53.5% 17,971 34.9% 4,435 16.0% 76,229 42.4%
Net operating expenses 37,154 36.9% 20,104 39.0% 18,915 68.1% 76,173 42.3%
Underwriting income $ 9,610 90.4% $ 13,449 73.9% $ 4,431 84.1% $ 27,490 84.7%

2013

Gross premiums written $ 113,774 $ 50,533 $ 27,390 $ 191,697
Net premiums written 89,299 37,975 25,752 153,026
Net premiums earned 88,715 52,836 26,845 168,396
Net loss & settlement expenses 39,748 44.8% 25,507 48.3% 3,245 12.1% 68,500 40.7%
Net operating expenses 32,892 37.1% 19,339 36.6% 18,047 67.2% 70,278 41.7%
Underwriting income $ 16,075 81.9% $ 7,990 84.9% $ 5,553 79.3% $ 29,618 82.4%

Twelve Months Ended December 31,

GAAP GAAP GAAP GAAP
Casualty Ratios Property Ratios Surety Ratios Total Ratios

2014

Gross premiums written $ 482,846 $ 262,457 $ 118,545 $ 863,848
Net premiums written 395,853 195,580 111,719 703,152
Net premiums earned 382,105 197,776 107,494 687,375
Net loss & settlement expenses 199,133 52.1% 89,589 45.3% 7,887 7.3% 296,609 43.2%
Net operating expenses 137,031 35.9% 75,269 38.1% 71,447 66.5% 283,747 41.3%
Underwriting income $ 45,941 88.0% $ 32,918 83.4% $ 28,160 73.8% $ 107,019 84.5%

2013

Gross premiums written $ 456,953 $ 272,723 $ 113,519 $ 843,195
Net premiums written 362,459 196,467 107,396 666,322
Net premiums earned 324,022 200,141 106,639 630,802
Net loss & settlement expenses 148,860 45.9% 96,271 48.1% 14,670 13.8% 259,801 41.2%
Net operating expenses 119,570 36.9% 76,266 38.1% 68,372 64.1% 264,208 41.9%
Underwriting income $ 55,592 82.8% $ 27,604 86.2% $ 23,597 77.9% $ 106,793 83.1%

Share on StockTwits