EX-99.1 2 a08-26121_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 

NEWS RELEASE

 

RLI Corp.

 

9025 N. Lindbergh Drive | Peoria, IL 61615-1431

 

 

P: 309-692-1000 | F: 309-692-1068 | www.rlicorp.com

 

FOR IMMEDIATE RELEASE

CONTACT: John Robison

 

(309) 693-5846

 

John.Robison@rlicorp.com

 

www.rlicorp.com

 

RLI reports third quarter earnings

 

PEORIA, ILLINOIS, October 14, 2008 – RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2008 operating earnings of $24.3 million ($1.12 per share), versus $59.1 million ($2.46 per share) for the comparable period last year. For the nine months ended September 30, 2008, operating earnings were $80.8 million ($3.69 per share), compared to $128.7 million ($5.28 per share) for the same period last year.

 

 

 

Third Quarter

 

Earnings Per Diluted Share

 

2008

 

2007

 

Operating earnings

 

$

1.12

 

$

2.46

 

Net earnings

 

$

0.40

 

$

2.56

 

 

Highlights for the quarter included:

·                  Combined ratio of 88.3.

·                  Book value per share of $33.57.

·                  Net operating cash flow of $40.2 million.

·                  Favorable development from prior years’ loss reserves of $21.9 million pretax ($0.66 per share), net of bonus and profit-sharing related expenses.

·                  Net losses from both Hurricanes Gustav and Ike of approximately $21.2 million pretax ($0.64 per share), net of bonus and profit-sharing related expenses.

·                  Net losses on invested securities of $24.2 million pretax, primarily from impaired securities in the financial sector.

 

“RLI is in a strong position in spite of the ongoing financial market turmoil,” said RLI President & CEO Jonathan E. Michael. “In these unstable times, our customers seek assurance in terms of financial stability. RLI’s solid balance sheet is the encouragement they’re looking for.

 

“Our financial base remains rock solid. To our policyholders, that means our ability to pay claims is secure. To our producers, that means we are ready for the growth opportunities that today’s instability creates. And to our shareholders, that means we can remain committed to prioritizing profitable results over market share.”

 

Please refer to the table on Page 2 of this release for the quarterly and year-to-date impact of specific items, and Page 3 for a discussion of the use of non-GAAP financial measures.

 

Third quarter underwriting results

 

RLI achieved $15.2 million of underwriting income in the third quarter of 2008 on an 88.3 combined ratio, compared to $66.4 million of underwriting income on a 50.6 combined ratio in the same quarter for 2007.

 

Underwriting Income

 

Third Quarter

 

(in millions)

 

2008

 

2007

 

Casualty

 

$

18.5

 

$

47.5

 

Property

 

(11.0

)

$

8.2

 

Surety

 

7.7

 

$

10.7

 

Total

 

$

15.2

 

$

66.4

 

 

 

 

Third Quarter

 

Combined Ratio

 

2008

 

2007

 

Casualty

 

75.9

 

43.5

 

Property

 

130.4

 

76.0

 

Surety

 

55.8

 

32.8

 

Total

 

88.3

 

50.6

 

 

— more —

 

DIFFERENT WORKS

 


 

RLI reported year-to-date underwriting income of $59.0 million representing an 85.2 combined ratio versus the $131.1 million underwriting income representing a 68.0 combined ratio for the same period last year.

 

Other income

 

For the quarter, investment income was $19.8 million, 2.9% less than the same period last year due to a declining interest rate enviroment. For the nine month period ended September 30, 2008, investment income was $58.7 million, up 0.4% over the same period last year.

 

The investment portfolio’s total return for the quarter was -2.1%; the bond portfolio was -0.7% and the equity portfolio was
 -8.3%. Through nine months, the investment portfolio’s total return was -2.7% with the bond portfolio returning 0.7% and equities returning -16.4%. Our investment returns compare favorably to the leading market indices, including the U.S. Lehman Aggregate, 0.6% return year to date, and the S&P 500, -19.3% return year to date.

 

RLI recorded $24.2 million of realized losses on the investment portfolio during the quarter, primarily from impaired securities in the financial sector.  The majority of our realized losses relate to our preferred stock portfolio which was heavily weighted in the financial sector.

 

Equity in earnings of unconsolidated investee, Maui Jim, Inc. (Maui Jim), declined by 88%, to $0.2 million. During the quarter, Maui Jim was affected by the increasing value of the dollar, resulting in currency losses which negatively impacted earnings. Also during the quarter, we received a $4.0 million dividend from Maui Jim, which resulted in a $1.1 million after-tax gain ($0.05 per share).

 

Supplemental disclosure regarding the earnings impact of specific items

 

 

 

Operating Earnings Per Share

 

 

 

2008

 

2007

 

 

 

3rd Qtr

 

9 mos.

 

3rd Qtr

 

9 mos.

 

Operating Earnings Per Share

 

$

1.12

 

$

3.69

 

$

2.46

 

$

5.28

 

 

 

 

 

 

 

 

 

 

 

Specific items included in operating earnings per share: (1) (2)

 

 

 

 

 

 

 

 

 

·   Gain from casualty prior years’ reserve development

 

$

0.52

 

$

0.95

 

$

1.14

 

$

1.96

 

·   Gain (Loss) from property prior years’ reserve development

 

—

 

$

0.06

 

$

(0.04

)

$

(0.01

)

·   Gain from surety prior years’ reserve development

 

$

0.14

 

$

0.16

 

$

0.21

 

$

0.23

 

·   Loss from 2008 hurricanes

 

$

(0.64

)

$

(0.63

)

—

 

—

 

·   Gain from change in tax rate applicable to the Maui Jim
dividend (3)

 

$

0.05

 

$

0.05

 

—

 

—

 

 

(1)               Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.

(2)               Favorable developments reflect revisions for previously estimated losses.

(3)               As required under Statement of Financial Accounting Standards 109, “Accounting for Income Taxes,” the gain reflects the tax benefit of applying the lower tax rate applicable to affiliated dividends (7%) as compared to the corporate capital gains tax rate (35%) on which previous tax estimates were based.

 

2


 

Other news

 

During the quarter, the company was named as one of the insurance industry’s top performing companies by the Ward’s Top 50 list. RLI is one of only five property and casualty insurers to have been recognized for excellence among 3,000 property and casualty insurers for 18 straight years - since the list’s inception.

 

In the third quarter of 2008, we repurchased 42,600 of our shares at an average cost of $54.26 ($2.3 million). As of September 30, 2008, we have $37.8 million of remaining capacity from the $200 million repurchase program approved in 2007. Late in the quarter, the company temporarily suspended the repurchase program in response to the developing financial market turmoil.

 

The company will pay a third quarter cash dividend of $0.25 per share on October 15, 2008. RLI’s cumulative dividends, including this recent payment, are more than $172 million paid in 129 consecutive quarterly dividends. The company’s dividend yield would be 1.9%, based on the $1.00 annualized dividend and today’s closing stock price of $52.68.

 

At 10 a.m. CDT tomorrow, October 15, 2008, 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 their related taxes. 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.

 

S&P 500 returns provided by Standard and Poor’s. U.S. Lehman Aggregate returns provided by Barclays Capital Inc.

 

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, 2007.

 

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 27 of the last 31 years, including the last 12. 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 Treasurer John Robison at (309) 693-5846 or at john.robison@rlicorp.com or visit our website at www.rlicorp.com.

 

3


 

RLI CORP.

2008 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2008

 

2007

 

% Change

 

2008

 

2007

 

% Change

 

SUMMARIZED INCOME STATEMENT DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$

130,850

 

$

134,111

 

-2.4

%

$

399,110

 

$

409,576

 

-2.6

%

Net investment income

 

19,844

 

20,433

 

-2.9

%

58,707

 

58,500

 

0.4

%

Net realized investment gains (losses)

 

(24,212

)

3,822

 

 

 

(12,396

) 

23,414

 

 

 

Consolidated revenue

 

126,482

 

158,366

 

-20.1

%

445,421

 

491,490

 

-9.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and settlement expenses

 

66,013

 

16,977

 

288.8

%

190,043

 

131,609

 

44.4

%

Policy acquisition costs

 

41,424

 

38,685

 

7.1

%

121,721

 

115,276

 

5.6

%

Other insurance expenses

 

8,216

 

12,082

 

-32.0

%

28,346

 

31,626

 

-10.4

%

Interest expense on debt

 

1,646

 

1,913

 

-14.0

%

5,191

 

4,968

 

4.5

%

General corporate expenses

 

1,735

 

3,401

 

-49.0

%

5,759

 

7,441

 

-22.6

%

Total expenses

 

119,034

 

73,058

 

62.9

%

351,060

 

290,920

 

20.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated investee

 

248

 

2,047

 

-87.9

%

6,417

 

7,770

 

-17.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

7,696

 

87,355

 

-91.2

%

100,778

 

208,340

 

-51.6

%

Income tax expense

 

(890

)

25,816

 

 

 

28,083

 

64,431

 

-56.4

%

Net Earnings

 

$

8,586

 

$

61,539

 

-86.0

%

$

72,695

 

$

143,909

 

-49.5

%

Other comprehensive earnings (loss), net of tax

 

(24,109

)

9,861

 

 

 

(68,274

)

(4,491

)

-1420.2

%

Comprehensive earnings

 

$

(15,523

)

$

71,400

 

 

 

$

4,421

 

$

139,418

 

-96.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings

 

$

8,586

 

$

61,539

 

-86.0

%

$

72,695

 

$

143,909

 

-49.5

%

Less: Realized investment gains (losses) , net of tax

 

(15,737

)

2,484

 

 

 

(8,057

)

15,219

 

 

 

Operating earnings

 

$

24,323

 

$

59,055

 

-58.8

%

$

80,752

 

$

128,690

 

-37.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (trailing four quarters)

 

 

 

 

 

 

 

13.8

%

26.0

%

 

 

Comprehensive earnings (trailing four quarters)

 

 

 

 

 

 

 

4.1

%

26.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (in 000’s)

 

21,678

 

24,029

 

 

 

21,893

 

24,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPS from operations (1)

 

$

1.12

 

$

2.46

 

-54.5

%

$

3.69

 

$

5.28

 

-30.1

%

Realized gains (losses), net of tax

 

(0.72

)

0.10

 

 

 

(0.37

)

0.63

 

 

 

Net earnings per share

 

$

0.40

 

$

2.56

 

-84.4

%

$

3.32

 

$

5.91

 

-43.8

%

Comprehensive earnings (loss) per share

 

$

(0.72

)

$

2.97

 

 

 

$

0.20

 

$

5.72

 

-96.5

%

Cash dividends per share

 

$

0.25

 

$

0.22

 

13.6

%

$

0.73

 

$

0.64

 

14.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Flow from Operations

 

$

40,164

 

$

22,181

 

81.1

%

$

126,732

 

$

111,228

 

13.9

%

 

(1)  See discussion of use of non-GAAP financial measures on page 3.

 

4


 

RLI CORP.

2008 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

September 30,

 

December 31,

 

 

 

 

 

2008

 

2007

 

% Change

 

SUMMARIZED BALANCE SHEET DATA:

 

 

 

 

 

 

 

Fixed income and short-term investments

 

$

1,407,652

 

$

1,446,097

 

-2.7

%

(amortized cost - $1,439,776 at 9/30/08)

 

 

 

 

 

 

 

(amortized cost - $1,437,463 at 12/31/07)

 

 

 

 

 

 

 

Equity securities

 

334,634

 

359,513

 

-6.9

%

(cost - $261,301 at 9/30/08)

 

 

 

 

 

 

 

(cost - $216,465 at 12/31/07)

 

 

 

 

 

 

 

Preferred stock

 

16,749

 

34,167

 

-51.0

%

(cost - $16,747 at 9/30/08)

 

 

 

 

 

 

 

(cost - $39,133 at 12/31/07)

 

 

 

 

 

 

 

Total investments

 

1,759,035

 

1,839,777

 

-4.4

%

 

 

 

 

 

 

 

 

Premiums and reinsurance balances receivable

 

93,795

 

105,937

 

-11.5

%

Ceded unearned premiums

 

64,522

 

71,021

 

-9.2

%

Reinsurance recoverable on unpaid losses

 

374,279

 

417,250

 

-10.3

%

Deferred acquisition costs

 

82,546

 

78,882

 

4.6

%

Property and equipment

 

21,947

 

20,050

 

9.5

%

Income taxes - deferred

 

10,225

 

—

 

—

 

Investment in unconsolidated investee

 

40,558

 

38,162

 

6.3

%

Goodwill

 

26,214

 

26,214

 

—

 

Other assets

 

34,406

 

29,230

 

17.7

%

Total assets

 

$

2,507,527

 

$

2,626,523

 

-4.5

%

 

 

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

$

1,190,507

 

$

1,192,178

 

-0.1

%

Unearned premiums

 

344,425

 

355,522

 

-3.1

%

Reinsurance balances payable

 

29,209

 

38,273

 

-23.7

%

Short-term debt

 

—

 

27,975

 

-100.0

%

Long-term debt - bonds payable

 

100,000

 

100,000

 

—

 

Income taxes - deferred

 

—

 

25,042

 

-100.0

%

Accrued expenses

 

32,371

 

39,303

 

-17.6

%

Other liabilities

 

92,157

 

73,808

 

24.9

%

Total liabilities

 

1,788,669

 

1,852,101

 

-3.4

%

Shareholders’ equity

 

718,858

 

774,422

 

-7.2

%

Total liabilities & shareholders’ equity

 

$

2,507,527

 

$

2,626,523

 

-4.5

%

 

 

 

 

 

 

 

 

OTHER DATA

 

 

 

 

 

 

 

Common shares outstanding (in 000’s)

 

21,414

 

22,155

 

 

 

Book Value per share

 

$

33.57

 

$

34.95

 

-3.9

%

Closing stock price per share

 

$

62.09

 

$

56.79

 

9.3

%

Statutory Surplus

 

$

699,048

 

$

752,004

 

-7.0

%

 

5


 

RLI CORP.

2008 FINANCIAL HIGHLIGHTS

UNDERWRITING SEGMENT DATA

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

Three Months Ended September 30,

 

Casualty

 

Ratios

 

Property

 

Ratios

 

Surety

 

Ratios

 

Total

 

Ratios

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

99,570

 

 

 

$

51,599

 

 

 

$

21,728

 

 

 

$

172,897

 

 

 

Net premiums written

 

73,371

 

 

 

38,334

 

 

 

20,363

 

 

 

132,068

 

 

 

Net premiums earned

 

76,993

 

 

 

36,376

 

 

 

17,481

 

 

 

130,850

 

 

 

Net loss & settlement expenses

 

34,121

 

44.3

%

33,395

 

91.8

%

(1,503

)

-8.6

%

66,013

 

50.4

%

Net operating expenses

 

24,335

 

31.6

%

14,040

 

38.6

%

11,265

 

64.4

%

49,640

 

37.9

%

Underwriting income (loss)

 

$

18,537

 

75.9

%

$

(11,059

)

130.4

%

$

7,719

 

55.8

%

$

15,197

 

88.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

114,279

 

 

 

$

55,551

 

 

 

$

18,488

 

 

 

$

188,318

 

 

 

Net premiums written

 

84,406

 

 

 

39,173

 

 

 

17,323

 

 

 

140,902

 

 

 

Net premiums earned

 

84,252

 

 

 

34,013

 

 

 

15,846

 

 

 

134,111

 

 

 

Net loss & settlement expenses

 

8,618

 

10.2

%

13,373

 

39.3

%

(5,014

)

-31.6

%

16,977

 

12.7

%

Net operating expenses

 

28,079

 

33.3

%

12,482

 

36.7

%

10,206

 

64.4

%

50,767

 

37.9

%

Underwriting income

 

$

47,555

 

43.5

%

$

8,158

 

76.0

%

$

10,654

 

32.8

%

$

66,367

 

50.6

%

 

 

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

Nine Months Ended September 30,

 

Casualty

 

Ratios

 

Property

 

Ratios

 

Surety

 

Ratios

 

Total

 

Ratios

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

307,860

 

 

 

$

151,372

 

 

 

$

59,710

 

 

 

$

518,942

 

 

 

Net premiums written

 

228,524

 

 

 

110,058

 

 

 

55,929

 

 

 

394,511

 

 

 

Net premiums earned

 

237,559

 

 

 

110,869

 

 

 

50,682

 

 

 

399,110

 

 

 

Net loss & settlement expenses

 

130,243

 

54.8

%

56,775

 

51.2

%

3,025

 

6.0

%

190,043

 

47.6

%

Net operating expenses

 

73,870

 

31.1

%

43,244

 

39.0

%

32,953

 

65.0

%

150,067

 

37.6

%

Underwriting income

 

$

33,446

 

85.9

%

$

10,850

 

90.2

%

$

14,704

 

71.0

%

$

59,000

 

85.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

352,886

 

 

 

$

163,959

 

 

 

$

54,880

 

 

 

$

571,725

 

 

 

Net premiums written

 

255,212

 

 

 

110,665

 

 

 

51,330

 

 

 

417,207

 

 

 

Net premiums earned

 

260,051

 

 

 

103,108

 

 

 

46,417

 

 

 

409,576

 

 

 

Net loss & settlement expenses

 

88,101

 

33.9

%

45,322

 

44.0

%

(1,814

)

-3.9

%

131,609

 

32.1

%

Net operating expenses

 

80,510

 

31.0

%

36,888

 

35.8

%

29,504

 

63.6

%

146,902

 

35.9

%

Underwriting income

 

$

91,440

 

64.9

%

$

20,898

 

79.8

%

$

18,727

 

59.7

%

$

131,065

 

68.0

%

 

6