rli-Current Folio-10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2016

☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-09463

RLI Corp.

(Exact name of registrant as specified in its charter)


Illinois		37-0889946
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

9025 North Lindbergh Drive, Peoria, IL		61615
(Address of principal executive offices)		(Zip Code)

(309) 692-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of July 12, 2016, the number of shares outstanding of the registrant’s Common Stock was 43,794,937.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

RLI Corp. and Subsidiaries

Condensed Consolidated Statements of Earnings and Comprehensive Earnings

(Unaudited)



	For the Three-Month Periods
	Ended June 30,
(in thousands, except per share data)	2016		2015

Net premiums earned	$	180,226	$	172,339
Net investment income		13,048		13,431
Net realized gains		2,710		4,802
Consolidated revenue	$	195,984	$	190,572
Losses and settlement expenses		80,277		64,549
Policy acquisition costs		60,521		59,487
Insurance operating expenses		13,412		13,467
Interest expense on debt		1,856		1,857
General corporate expenses		2,768		2,748
Total expenses	$	158,834	$	142,108
Equity in earnings of unconsolidated investees		5,191		6,186
Earnings before income taxes	$	42,341	$	54,650
Income tax expense		13,264		17,465
Net earnings	$	29,077	$	37,185

Other comprehensive earnings (loss), net of tax		19,066		(24,932)
Comprehensive earnings	$	48,143	$	12,253

Earnings per share:
Basic:

Basic net earnings per share	$	0.67	$	0.86
Basic comprehensive earnings per share	$	1.10	$	0.28

Diluted:

Diluted net earnings per share	$	0.65	$	0.84
Diluted comprehensive earnings per share	$	1.08	$	0.28

Weighted average number of common shares outstanding
Basic		43,721		43,210
Diluted		44,423		44,019

Cash dividends paid per common share	$	0.20	$	0.19

See accompanying notes to the unaudited condensed consolidated interim financial statements.

RLI Corp. and Subsidiaries

Condensed Consolidated Statements of Earnings and Comprehensive Earnings

(Unaudited)



	For the Six-Month Periods
	Ended June 30,
(in thousands, except per share data)	2016		2015

Net premiums earned	$	357,144	$	341,342
Net investment income		26,418		26,926
Net realized gains		14,110		18,088
Consolidated revenue	$	397,672	$	386,356
Losses and settlement expenses		161,448		145,410
Policy acquisition costs		122,764		118,460
Insurance operating expenses		25,612		24,998
Interest expense on debt		3,713		3,713
General corporate expenses		5,143		4,992
Total expenses	$	318,680	$	297,573
Equity in earnings of unconsolidated investees		8,942		10,380
Earnings before income taxes	$	87,934	$	99,163
Income tax expense		27,464		31,380
Net earnings	$	60,470	$	67,783

Other comprehensive earnings (loss), net of tax		40,829		(32,527)
Comprehensive earnings	$	101,299	$	35,256

Earnings per share:
Basic:

Basic net earnings per share	$	1.39	$	1.57
Basic comprehensive earnings per share	$	2.32	$	0.82

Diluted:

Diluted net earnings per share	$	1.36	$	1.54
Diluted comprehensive earnings per share	$	2.28	$	0.80

Weighted average number of common shares outstanding
Basic		43,659		43,176
Diluted		44,381		44,008

Cash dividends paid per common share	$	0.39	$	0.37

See accompanying notes to the unaudited condensed consolidated interim financial statements.

RLI Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



	June 30,		December 31,
(in thousands, except share data)	2016		2015

ASSETS
Investments
Fixed income
Available-for-sale, at fair value (amortized cost - $1,564,819 at 6/30/16 and $1,518,156 at12/31/15)	$	1,631,953	$	1,538,110
Equity securities available-for-sale, at fair value (cost - $210,622 at 6/30/16 and $202,437 at 12/31/15)		398,825		375,424
Short-term investments, at cost which approximates fair value		13,491		6,262
Other invested assets		24,891		20,666
Cash		29,639		11,081
Total investments and cash	$	2,098,799	$	1,951,543
Accrued investment income		14,303		14,878
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $15,609 at 6/30/16 and $14,898 at 12/31/15		148,894		143,662
Ceded unearned premium		52,536		52,833
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $11,096 at 6/30/16 and $11,885 at 12/31/15		289,856		297,844
Deferred policy acquisition costs		75,416		69,829
Property and equipment, at cost, net of accumulated depreciation of $41,054 at 6/30/16 and $38,447 at 12/31/15		52,605		47,102
Investment in unconsolidated investees		80,144		70,784
Goodwill and intangibles		64,785		71,294
Other assets		14,875		15,696
TOTAL ASSETS	$	2,892,213	$	2,735,465

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Unpaid losses and settlement expenses	$	1,123,472	$	1,103,785
Unearned premiums		445,620		422,094
Reinsurance balances payable		17,679		37,556
Funds held		72,558		54,254
Income taxes-deferred		86,930		63,993
Bonds payable, long-term debt		148,648		148,554
Accrued expenses		39,352		55,742
Other liabilities		44,420		26,018
TOTAL LIABILITIES	$	1,978,679	$	1,911,996

Shareholders’ Equity
Common stock ($1 par value, 100,000,000 shares authorized)
(66,704,751 shares issued, 43,774,537 shares outstanding at 6/30/16)
(66,474,342 shares issued, 43,544,128 shares outstanding at 12/31/15)	$	66,705	$	66,474
Paid-in capital		226,913		221,345
Accumulated other comprehensive earnings		164,603		123,774
Retained earnings		848,312		804,875
Deferred compensation		10,467		10,647
Less: Treasury shares at cost
(22,930,214 shares at 6/30/16 and 12/31/15)		(403,466)		(403,646)
TOTAL SHAREHOLDERS’ EQUITY	$	913,534	$	823,469
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,892,213	$	2,735,465

See accompanying notes to the unaudited condensed consolidated interim financial statements.

RLI Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	For the Six-Month Periods
	Ended June 30,
(in thousands)	2016		2015

Net cash provided by operating activities	$	69,571	$	71,121
Cash Flows from Investing Activities
Investments purchased	$	(296,684)	$	(393,382)
Investments sold		195,185		250,602
Investments called or matured		58,517		81,680
Net change in short-term investments		12,627		3,866
Net property and equipment purchased		(8,574)		(3,289)
Investment in equity method investee		-		(1,711)
Acquisition of agency		(850)		-
Net cash used in investing activities	$	(39,779)	$	(62,234)

Cash Flows from Financing Activities
Cash dividends paid	$	(17,033)	$	(15,978)
Stock plan share issuance		807		1,779
Excess tax benefit from exercise of stock options		4,992		1,779
Net cash used in financing activities	$	(11,234)	$	(12,420)

Net increase (decrease) in cash	$	18,558	$	(3,533)
Cash at the beginning of the period	$	11,081	$	30,620
Cash at June 30	$	29,639	$	27,087

See accompanying notes to the unaudited condensed consolidated interim financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PRESENTATION

The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with our 2015 Annual Report on Form 10-K. Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at June 30, 2016 and the results of operations of RLI Corp. and subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year.

The preparation of the unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated interim financial statements and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ significantly from these estimates.

B. ADOPTED ACCOUNTING STANDARDS

ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs

This ASU was issued to simplify the presentation of debt issuance costs by requiring them to be presented in the balance sheet as a direct deduction from the carrying amount of the related recognized debt liability, consistent with debt discounts. We adopted ASU 2015-03 on January 1, 2016 on a retrospective basis. Our adoption of the new standard resulted in a $1.1 million decrease to long-term debt and other assets at December 31, 2015.

C. PROSPECTIVE ACCOUNTING STANDARDS

ASU 2015-09, Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts

This ASU was issued to enhance disclosures about an entity’s insurance liabilities, including the nature, amount, timing and uncertainty of cash flows related to those liabilities. The new guidance requires the following information related to unpaid claims and claim adjustment expenses be disclosed using an appropriate level of disaggregation so as not to obscure useful information:

Net incurred and paid claims development information by accident year for the number of years for which claims incurred typically remain outstanding, but need not exceed 10 years;

A reconciliation of incurred and paid claims development information to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses, with separate disclosure of reinsurance recoverable on unpaid claims for each period presented in the statement of financial position;

For each accident year presented, the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses;

For each accident year presented, quantitative information about claim frequency accompanied by a qualitative description of methodologies used for determining claim frequency information; and

For all claims, the average annual percentage payout of incurred claims by age.

This ASU is effective for annual reporting periods beginning after December 15, 2015 and for interim periods beginning after December 15, 2016. Early adoption is permitted. We have not early-adopted this ASU and while disclosures will be increased, we do not believe adoption will have a material effect on our financial statements.

ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

This ASU was issued to improve the recognition and measurement of financial instruments. The new guidance makes targeted improvements to GAAP as follows:

Requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;

Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment;

Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet;

Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;

Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments;

Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and

Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

This ASU is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is only permitted for provision (e) above. Upon adoption, a cumulative-effect adjustment to the balance sheet will be made as of the beginning of the fiscal year of adoption. We have not yet completed the analysis of how adopting this ASU will affect our financial statements.

ASU 2016-02, Leases (Topic 842)

ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows.

This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. We have not yet completed the analysis of how adopting this ASU will affect our financial statements.

ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

ASU 2016-09 was issued to simplify the accounting for share-based payment awards. The guidance requires that, prospectively, all tax effects related to share-based payments be made through the income statement at the time of settlement as opposed to excess tax benefits being recognized in additional paid-in-capital under the current guidance. The ASU also removes the requirement to delay recognition of a tax benefit until it reduces current taxes payable. This change is required to be applied on a modified retrospective basis, with a cumulative-effect adjustment to opening retained earnings. Additionally, all tax related cash flows resulting from share-based payments are to be reported as operating activities on the statement of cash flows, a change from the current requirement to present tax benefits as an inflow from financing activities and an outflow from operating activities. Finally, entities will be allowed to withhold an amount up to the employees’ maximum individual tax rate (as opposed to the minimum statutory tax rate) in the relevant jurisdiction without resulting in liability classification of the award. The change in withholding requirements will be applied on a modified retrospective approach.

This ASU is effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is permitted with any adjustments reflected as of the beginning of the fiscal year of adoption. We have not yet completed the analysis of how adopting this ASU will affect our financial statements.

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)

ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial instruments. Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred. The update will require a financial asset measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses. However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale securities is similar under current GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down.

This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. Upon adoption, the update will be applied using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period presented. We have not yet completed the analysis of how adopting this ASU will affect our financial statements.

D. INTANGIBLE ASSETS

In accordance with GAAP guidelines, the amortization of goodwill and indefinite-lived intangible assets is not permitted. Goodwill and indefinite-lived intangible assets remain on the balance sheet and are tested for impairment on an annual basis, or earlier if there is reason to suspect that their values may have been diminished or impaired. Goodwill and intangible assets totaled $64.8 million and $71.3 million at June 30, 2016 and December 31, 2015, respectively, as detailed in the following table.


Goodwill and Intangible Assets
(in thousands)			June 30,		December 31,
Reporting Unit			2016		2015
Goodwill
	Energy surety	$	25,706	$	25,706
	Miscellaneous and contract surety		15,110		15,110
	P&C package business		5,246		5,246
	Medical professional liability *		5,208		12,434
Total goodwill		$	51,270	$	58,496

Intangibles
	State insurance licenses	$	7,500	$	7,500
	Definite-lived intangibles, net of accumulated amortization of $5,132 at 6/30/16 and $4,678 at 12/31/15		6,015		5,298
Total intangibles		$	13,515	$	12,798

Total goodwill and intangibles		$	64,785	$	71,294

* The June 30, 2016 medical professional liability goodwill balance reflects a $7.2 million non-cash impairment charge recorded in the second quarter of 2016.

All definite-lived intangible assets are amortized against future operating results based on their estimated useful lives. Amortization of intangible assets was $0.2 million for the second quarter of 2016 and $0.5 million for the six-month period ended June 30, 2016, compared to $0.2 million for the second quarter of 2015 and $0.4 million for the six-month period ended June 30, 2015. Definite-lived intangibles increased during 2016 as a result of the asset acquisition from an insurance agency. Separately identifiable assets of the agency totaled $1.2 million and related primarily to acquired software, trade name and agency relationships.

The following represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the unaudited condensed consolidated interim financial statements.


	For the Three-Month Period					For the Three-Month Period
	Ended June 30, 2016					Ended June 30, 2015
	Income		Shares	Per Share		Income		Shares	Per Share
(in thousands, except per share data)	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount

Basic EPS
Income available to common shareholders	$	29,077	43,721	$	0.67	$	37,185	43,210	$	0.86
Effect of Dilutive Securities
Stock options		-	702				-	809

Diluted EPS
Income available to common shareholders	$	29,077	44,423	$	0.65	$	37,185	44,019	$	0.84

	For the Six-Month Period					For the Six-Month Period
	Ended June 30, 2016					Ended June 30, 2015
	Income		Shares	Per Share		Income		Shares	Per Share
(in thousands, except per share data)	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount

Basic EPS
Income available to common shareholders	$	60,470	43,659	$	1.39	$	67,783	43,176	$	1.57
Effect of Dilutive Securities
Stock options		-	722				-	832

Diluted EPS
Income available to common shareholders	$	60,470	44,381	$	1.36	$	67,783	44,008	$	1.54

F. COMPREHENSIVE EARNINGS

Our comprehensive earnings include net earnings plus unrealized gains/losses on our available-for-sale investment securities, net of tax. In reporting comprehensive earnings on a net basis in the statement of earnings, we used the federal statutory tax rate of 35 percent.

Unrealized gains, net of tax, for the first six months of 2016 were $40.8 million, compared to unrealized losses, net of tax, of $32.5 million during the same period last year. Unrealized gains in the first six months of 2016 were primarily due to a decline in interest rates, increasing the value of the fixed income portfolio, and were aided by positive pricing movements for equity securities. In 2015, unrealized losses were the result of rising interest rates and an underperforming equity market.

The following table illustrates the changes in the balance of each component of accumulated other comprehensive earnings for each period presented in the unaudited condensed consolidated interim financial statements.


(in thousands)	For the Three-Month Periods				For the Six-Month Periods
	Ended June 30,				Ended June 30,
Unrealized Gains/Losses on Available-for-Sale Securities	2016		2015		2016		2015

Beginning balance	$	145,537	$	163,788	$	123,774	$	171,383
Other comprehensive earnings before reclassifications		25,561		(21,760)		54,731		(20,764)
Amounts reclassified from accumulated other comprehensive earnings		(6,495)		(3,172)		(13,902)		(11,763)
Net current-period other comprehensive earnings (loss)	$	19,066	$	(24,932)	$	40,829	$	(32,527)
Ending balance	$	164,603	$	138,856	$	164,603	$	138,856

The sale or other-than-temporary impairment of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive earnings to current period net earnings. The effects of reclassifications out of accumulated other comprehensive earnings by the respective line items of net earnings are presented in the following table.


	Amount Reclassified from Accumulated Other
(in thousands)	Comprehensive Earnings
	For the Three-Month				For the Six-Month
Component of Accumulated	Periods Ended June 30,				Periods Ended June 30,				Affected line item in the
Other Comprehensive Earnings	2016		2015		2016		2015		Statement of Earnings

Unrealized gains and losses on available-for-sale securities	$	9,992	$	4,880	$	21,388	$	18,097	Net realized investment gains
		-		-		-		-	Other-than-temporary impairment (OTTI) losses on investments
	$	9,992	$	4,880	$	21,388	$	18,097	Earnings before income taxes
		(3,497)		(1,708)		(7,486)		(6,334)	Income tax expense
	$	6,495	$	3,172	$	13,902	$	11,763	Net earnings

2. INVESTMENTS

Our investments are primarily composed of fixed income debt securities and common stock equity securities. As disclosed in our 2015 Annual Report on Form 10-K, we present all of our investments as available-for-sale, which are carried at fair value. When available, we obtain quoted market prices to determine fair value for our investments. If a quoted market price is not available, fair value is estimated using a secondary pricing source or using quoted market prices of similar securities. We have no investment securities for which fair value is determined using Level 3 inputs as defined in note 3 to the unaudited condensed consolidated interim financial statements, “Fair Value Measurements.”

Available-for-Sale Securities

The amortized cost and fair value of available-for-sale securities at June 30, 2016 and December 31, 2015 were as follows:


Available-for-sale
(in thousands)
	June 30, 2016
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	81,483	$	2,115	$	-	$	83,598
U.S. agency		12,616		860		-		13,476
Non-U.S. govt. & agency		8,999		400		(122)		9,277
Agency MBS		275,770		10,200		(214)		285,756
ABS/CMBS*		98,591		2,491		(184)		100,898
Corporate		561,246		20,961		(6,248)		575,959
Municipal		526,114		36,884		(9)		562,989
Total Fixed Income	$	1,564,819	$	73,911	$	(6,777)	$	1,631,953

Equity	$	210,622	$	188,611	$	(408)	$	398,825


Available-for-sale
(in thousands)
	December 31, 2015
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	43,597	$	58	$	(112)	$	43,543
U.S. agency		15,481		306		(47)		15,740
Non-U.S. govt. & agency		5,035		-		(557)		4,478
Agency MBS		250,060		6,451		(1,619)		254,892
ABS/CMBS*		91,559		995		(606)		91,948
Corporate		523,351		8,565		(14,807)		517,109
Municipal		589,073		21,375		(48)		610,400
Total Fixed Income	$	1,518,156	$	37,750	$	(17,796)	$	1,538,110

Equity	$	202,437	$	174,443	$	(1,456)	$	375,424

*Non-agency asset-backed and commercial mortgage-backed

The following table presents the amortized cost and fair value of available-for-sale debt securities by contractual maturity dates as of June 30, 2016:


	June 30, 2016
Available-for-sale	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	25,024	$	25,134
Due after one year through five years		330,491		337,640
Due after five years through 10 years		537,974		565,733
Due after 10 years		296,969		316,792
Mtge/ABS/CMBS*		374,361		386,654
Total available-for-sale	$	1,564,819	$	1,631,953

*Mortgage-backed, asset-backed and commercial mortgage-backed

Unrealized Losses

We conduct and document periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other-than-temporary. The following tables are used as part of our impairment analysis and illustrate the total value of securities that were in an unrealized loss position as of June 30, 2016 and December 31, 2015. The tables segregate the securities based on type, noting the fair value, cost (or amortized cost) and unrealized loss on each category of investment as well as in total. The tables further classify the securities based on the length of time they have been in an unrealized loss position. As of June 30, 2016 unrealized losses, as shown in the following tables, were 0.3 percent of total invested assets. Unrealized losses decreased in 2016, due largely to interest rates declines during the first half of the year, which increased the fair value of securities held in the fixed income portfolio.


	June 30, 2016						December 31, 2015
(in thousands)	< 12 Mos.		12 Mos. & Greater		Total		< 12 Mos.		12 Mos. & Greater		Total

U.S. Government
Fair value	$	—	$	—	$	—	$	36,000	$	—	$	36,000
Cost or amortized cost		—		—		—		36,112		—		36,112
Unrealized Loss	$	—	$	—	$	—	$	(112)	$	—	$	(112)

U.S. Agency
Fair value	$	—	$	—	$	—	$	8,070	$	—	$	8,070
Cost or amortized cost		—		—		—		8,117		—		8,117
Unrealized Loss	$	—	$	—	$	—	$	(47)	$	—	$	(47)

Non-U.S. government
Fair value	$	—	$	3,925	$	3,925	$	4,478	$	—	$	4,478
Cost or amortized cost		—		4,047		4,047		5,035		—		5,035
Unrealized Loss	$	—	$	(122)	$	(122)	$	(557)	$	—	$	(557)


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Part I - Financial Information			3

	Item 1.	Financial Statements	3

		Condensed Consolidated Statements of Earnings and Comprehensive Earnings For the Three-Month Periods Ended June 30, 2016 and 2015 (unaudited)	3

		Condensed Consolidated Statements of Earnings and Comprehensive Earnings For the Six-Month Periods Ended June 30, 2016 and 2015 (unaudited)	4

		Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015	5

		Condensed Consolidated Statements of Cash Flows For the Six-Month Periods Ended June 30, 2016 and 2015 (unaudited)	6

		Notes to unaudited condensed consolidated interim financial statements	7

	Item 2.	Management’s discussion and analysis of financial condition and results of operations	22

	Item 3.	Quantitative and qualitative disclosures about market risk	35

	Item 4.	Controls and procedures	35

Part II - Other Information			35

	Item 1.	Legal proceedings	35

	Item 1a.	Risk factors	35

	Item 2.	Unregistered sales of equity securities and use of proceeds	35

	Item 3.	Defaults upon senior securities	36

	Item 4.	Mine safety disclosures	36

	Item 5.	Other information	36

	Item 6.	Exhibits	36

Signatures			37