EX-99.1 2 a09-3890_1ex99d1.htm EX-99.1

Exhibit 99.1

 

GRAPHIC

 

 

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 fourth quarter, year-end results

 

PEORIA, ILLINOIS, January 26, 2009 — RLI Corp. (NYSE: RLI) – RLI Corp. reported fourth quarter 2008 operating earnings of $28.3 million ($1.30 per share), versus $28.3 million ($1.22 per share) for the comparable period last year. For the year ended December 31, 2008, operating earnings were $109.1 million ($4.99 per share), compared to $157.0 million ($6.52 per share) for the fiscal year 2007.

 

 

 

Fourth Quarter

 

Full Year

 

Earnings Per Diluted Share

 

2008

 

2007

 

2008

 

2007

 

Operating earnings

 

$

1.30

 

$

1.22

 

$

4.99

 

$

6.52

 

Net earnings

 

$

0.28

 

$

1.38

 

$

3.60

 

$

7.30

 

 

Highlights for the quarter included:

 

·                  Operating earnings of $28.3 million ($1.30 per share).

·                  Combined ratio of 81.5.

·                  Net operating cash flow of $34.6 million.

·                  $10.2 million pretax favorable development in prior years’ loss reserves, net of effects on bonus and profit sharing-related expenses.

·                  Net realized losses on investment securities of $34.3 million pretax, primarily from other-than-temporary impairment charges.

·                  Increased quarterly dividend 4%, to $0.26 per share.

 

Highlights for 2008 included:

 

·                  Operating earnings of $109.1 million ($4.99 per share).

·                  Combined ratio of 84.2.

·                  Net operating cash flow of $161.3 million.

·                  $49.7 million pretax favorable development in prior years’ loss reserves, net of effects on bonus and profit sharing-related expenses.

·                  Net losses from both Hurricanes Gustav and Ike of approximately $21.2 million pretax, net of effects on bonus and profit sharing-related expenses.

·                  Net realized losses on investment securities of $46.7 million pretax, primarily from other-than-temporary impairment charges.

·                  Return to shareholders of $69.3 million, through dividends and stock repurchases.

 

“Our company produced another solid operating result in a year of unprecedented financial turmoil,” said RLI Corp. President & CEO Jonathan E. Michael. “All three business segments were profitable. Our balance sheet remains strong and we are well positioned to capitalize on future marketplace opportunities.”

 

Underwriting income for 13th straight year

 

For the quarter, RLI recorded underwriting income of $24.1 million on an 81.5 combined ratio versus underwriting income of $24.7 million on an 81.7 combined ratio in the fourth quarter of 2007. For the year, RLI achieved $83.1 million of underwriting income on an 84.2 combined ratio, compared to $155.8 million of underwriting income on a 71.4 combined ratio in 2007.

 

— more —

 

GRAPHIC

 


 

“Our 84.2 combined ratio marks the 13th consecutive year of underwriting income,” said Michael. “We have always believed this is the most important metric to measure RLI’s success.” The following table highlights annual underwriting income and combined ratios by segment:

 

Underwriting Income

 

 

 

 

 

(in millions)

 

2008

 

2007

 

Casualty

 

$

46.5

 

$

101.9

 

Property

 

15.8

 

30.6

 

Surety

 

20.8

 

23.3

 

Total

 

$

83.1

 

$

155.8

 

 

Combined Ratio

 

2008

 

2007

 

Casualty

 

85.2

 

70.3

 

Property

 

89.3

 

77.9

 

Surety

 

69.7

 

62.8

 

Total

 

84.2

 

71.4

 

 

Other income

 

Investment income for the quarter totaled $20.3 million, a 0.6% decrease from the fourth quarter of last year. For the year, investment income grew 0.1% to $79.0 million.

 

For the quarter, the investment portfolio’s total return was -1.7% based on a bond portfolio return of 1.8% and an equity portfolio return of -17.5%. The investment portfolio’s total return for 2008 was -4.4% based on a bond portfolio return of 2.5% and an equity portfolio return of -31.1%.

 

Comprehensive loss, which includes after-tax unrealized gains/losses from the investment portfolio, was $6.3 million for the fourth quarter ($0.29 per share) versus earnings of $27.0 million ($1.16 per share) for the same period last year. For the year, comprehensive loss totaled $1.9 million ($0.09 per share) compared to earnings of $166.4 million ($6.91 per share) in 2007.

 

RLI recorded $34.3 million of realized losses on the investment portfolio during the quarter, primarily from a high yield municipal bond fund and securities in the financial sector that were other-than-temporarily impaired.

 

During the quarter, equity in loss of unconsolidated investee was $1.6 million compared to $0.5 million from the same period last year. For the year, equity in earnings of unconsolidated investee was $4.8 million, versus $7.3 million in 2007.  These results are related to Maui Jim, Inc., a producer of premium sunglasses, which was affected by foreign currency losses, the slowdown in economic conditions and the ensuing effect on consumer discretionary spending. For the year, we received a $4.0 million dividend from Maui Jim, which resulted in a $1.1 million after-tax gain ($0.05 per share).

 

Shareholders benefit from capital management

 

For the year, RLI repurchased 917,200 shares at an average cost of $52.23 per share ($47.9 million). In light of market volatility in the second half of 2008, RLI suspended the repurchase program in the third quarter. As a result, no shares were repurchased during the fourth quarter. As of December 31, 2008, the company has $37.8 million of remaining capacity from the $200 million repurchase program approved in 2007. The company has no immediate plans to renew the repurchase program.

 

The company paid a fourth quarter cash dividend of $0.26 per share on January 15, 2009, which reflected a $0.01 increase over the prior quarter. 2008 marked the 33rd consecutive year that RLI has increased dividends. Dividends for the year increased 13.8% to $0.99 per share. In 2008, RLI declared a total of $21.4 million in dividends to shareholders. Over the last five years, the company’s quarterly dividend has grown by an average of 18.9%, and by an average of 15.1% over the last 10 years.

 

At 10 a.m. CST tomorrow, January 27, 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

 

2


 

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, 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 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 Treasurer John Robison at (309) 693-5846 or at john.robison@rlicorp.com or visit our website at www.rlicorp.com.

 

Supplemental disclosure regarding the earnings impact of specific items:

 

 

 

Operating Earnings Per Share

 

 

 

2008

 

2007

 

 

 

4th Qtr

 

12 mos.

 

4th Qtr

 

12 mos.

 

Operating Earnings Per Share

 

$

1.30

 

$

4.99

 

$

1.22

 

$

6.52

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

· Gain from casualty prior years’ reserve development

 

$

0.28

 

$

1.23

 

$

0.13

 

$

2.10

 

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

 

(0.06

)

(0.01

)

$

0.03

 

$

0.02

 

· Gain from surety prior years’ reserve development

 

$

0.08

 

$

0.25

 

$

0.04

 

$

0.27

 

· Gain from development from 2004 and 2005 hurricanes

 

—

 

—

 

$

0.01

 

$

0.02

 

· Loss from 2008 hurricanes

 

—

 

(0.63

)

—

 

—

 

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

 

—

 

$

0.05

 

—

 

—

 

 

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

(2)   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.

 

3


 

RLI CORP.

2008 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

 

2008

 

2007

 

% Change

 

2008

 

2007

 

% Change

 

SUMMARIZED INCOME STATEMENT DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$

129,654

 

$

134,902

 

-3.9

%

$

528,764

 

$

544,478

 

-2.9

%

Net investment income

 

20,279

 

20,401

 

-0.6

%

78,986

 

78,901

 

0.1

%

Net realized investment gains (losses)

 

(34,342

)

5,552

 

 

 

(46,738

)

28,966

 

 

 

Consolidated revenue

 

115,591

 

160,855

 

-28.1

%

561,012

 

652,345

 

-14.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and settlement expenses

 

57,131

 

59,259

 

-3.6

%

247,174

 

190,868

 

29.5

%

Policy acquisition costs

 

41,599

 

40,334

 

3.1

%

163,320

 

155,610

 

5.0

%

Other insurance expenses

 

6,861

 

10,609

 

-35.3

%

35,207

 

42,235

 

-16.6

%

Interest expense on debt

 

1,513

 

2,029

 

-25.4

%

6,704

 

6,997

 

-4.2

%

General corporate expenses

 

1,094

 

2,033

 

-46.2

%

6,853

 

9,474

 

-27.7

%

Total expenses

 

108,198

 

114,264

 

-5.3

%

459,258

 

405,184

 

13.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings (loss) of unconsolidated investee

 

(1,573

)

(455

)

-245.7

%

4,844

 

7,315

 

-33.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

5,820

 

46,136

 

-87.4

%

106,598

 

254,476

 

-58.1

%

Income tax expense (benefit)

 

(161

)

14,178

 

 

 

27,922

 

78,609

 

-64.5

%

Net Earnings

 

$

5,981

 

$

31,958

 

-81.3

%

$

78,676

 

$

175,867

 

-55.3

%

Other comprehensive loss, net of tax

 

(12,297

)

(4,953

)

-148.3

%

(80,571

)

(9,444

)

-753.1

%

Comprehensive earnings (loss)

 

$

(6,316

)

$

27,005

 

 

 

$

(1,895

)

$

166,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings

 

$

5,981

 

$

31,958

 

-81.3

%

$

78,676

 

$

175,867

 

-55.3

%

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

 

(22,323

)

3,609

 

 

 

(30,380

)

18,828

 

 

 

Operating earnings

 

$

28,304

 

$

28,349

 

-0.2

%

$

109,056

 

$

157,039

 

-30.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (trailing four quarters)

 

 

 

 

 

 

 

10.7

%

22.5

%

 

 

Comprehensive earnings (trailing four quarters)

 

 

 

 

 

 

 

-0.3

%

21.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (in 000’s)

 

21,706

 

23,182

 

 

 

21,848

 

24,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPS from operations (1)

 

$

1.30

 

$

1.22

 

6.6

%

$

4.99

 

$

6.52

 

-23.5

%

Realized gains (losses), net of tax

 

(1.02

)

0.16

 

 

 

(1.39

)

0.78

 

 

 

Net earnings per share

 

$

0.28

 

$

1.38

 

-79.7

%

$

3.60

 

$

7.30

 

-50.7

%

Comprehensive earnings (loss) per share

 

$

(0.29

)

$

1.16

 

 

 

$

(0.09

)

$

6.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

0.26

 

$

0.23

 

13.0

%

$

0.99

 

$

0.87

 

13.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Flow from Operations

 

$

34,602

 

$

15,795

 

119.1

%

$

161,334

 

$

127,023

 

27.0

%

 

(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)

 

 

 

December 31,

 

December 31,

 

 

 

 

 

2008

 

2007

 

% Change

 

SUMMARIZED BALANCE SHEET DATA:

 

 

 

 

 

 

 

Fixed income and short-term investments

 

$

1,372,038

 

$

1,446,097

 

-5.1

%

(amortized cost - $1,384,993 at 12/31/08)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Equity securities

 

274,909

 

359,513

 

-23.5

%

(cost - $239,822 at 12/31/08)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Preferred stock

 

11,881

 

34,167

 

-65.2

%

(cost - $11,461 at 12/31/08)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Total investments

 

1,658,828

 

1,839,777

 

-9.8

%

 

 

 

 

 

 

 

 

Premiums and reinsurance balances receivable

 

92,149

 

105,937

 

-13.0

%

Ceded unearned premiums

 

65,977

 

71,021

 

-7.1

%

Reinsurance recoverable on unpaid losses

 

350,284

 

417,250

 

-16.0

%

Deferred acquisition costs

 

78,520

 

78,882

 

-0.5

%

Property and equipment

 

21,565

 

20,050

 

7.6

%

Income taxes - deferred

 

24,141

 

—

 

—

 

Investment in unconsolidated investee

 

38,697

 

38,162

 

1.4

%

Goodwill

 

26,214

 

26,214

 

—

 

Other assets

 

63,026

 

29,230

 

115.6

%

Total assets

 

$

2,419,401

 

$

2,626,523

 

-7.9

%

 

 

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

$

1,159,311

 

$

1,192,178

 

-2.8

%

Unearned premiums

 

335,170

 

355,522

 

-5.7

%

Reinsurance balances payable

 

30,224

 

38,273

 

-21.0

%

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

 

32,894

 

39,303

 

-16.3

%

Other liabilities

 

53,648

 

73,808

 

-27.3

%

Total liabilities

 

1,711,247

 

1,852,101

 

-7.6

%

Shareholders’ equity

 

708,154

 

774,422

 

-8.6

%

Total liabilities & shareholders’ equity

 

$

2,419,401

 

$

2,626,523

 

-7.9

%

 

 

 

 

 

 

 

 

OTHER DATA

 

 

 

 

 

 

 

Common shares outstanding (in 000’s)

 

21,474

 

22,155

 

 

 

Book Value per share

 

$

32.98

 

$

34.95

 

-5.6

%

Closing stock price per share

 

$

61.16

 

$

56.79

 

7.7

%

Statutory Surplus

 

$

679,079

 

$

752,004

 

-9.7

%

 

5


 

RLI CORP.

2008 FINANCIAL HIGHLIGHTS

UNDERWRITING SEGMENT DATA

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

Three Months Ended December 31,

 

Casualty

 

Ratios

 

Property

 

Ratios

 

Surety

 

Ratios

 

Total

 

Ratios

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

95,477

 

 

 

$

49,422

 

 

 

$

17,328

 

 

 

$

162,227

 

 

 

Net premiums written

 

67,418

 

 

 

36,031

 

 

 

15,496

 

 

 

118,945

 

 

 

Net premiums earned

 

75,922

 

 

 

35,994

 

 

 

17,738

 

 

 

129,654

 

 

 

Net loss & settlement expenses

 

39,637

 

52.2

%

17,217

 

47.8

%

277

 

1.6

%

57,131

 

44.1

%

Net operating expenses

 

23,224

 

30.6

%

13,814

 

38.4

%

11,422

 

64.4

%

48,460

 

37.4

%

Underwriting income

 

$

13,061

 

82.8

%

$

4,963

 

86.2

%

$

6,039

 

66.0

%

$

24,063

 

81.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

109,705

 

 

 

$

42,082

 

 

 

$

15,822

 

 

 

$

167,609

 

 

 

Net premiums written

 

80,189

 

 

 

26,754

 

 

 

14,613

 

 

 

121,556

 

 

 

Net premiums earned

 

83,351

 

 

 

35,259

 

 

 

16,292

 

 

 

134,902

 

 

 

Net loss & settlement expenses

 

47,854

 

57.4

%

10,382

 

29.4

%

1,023

 

6.3

%

59,259

 

43.9

%

Net operating expenses

 

25,074

 

30.1

%

15,206

 

43.1

%

10,663

 

65.4

%

50,943

 

37.8

%

Underwriting income

 

$

10,423

 

87.5

%

$

9,671

 

72.5

%

$

4,606

 

71.7

%

$

24,700

 

81.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

 

 

GAAP

 

Twelve Months Ended December 31,

 

Casualty

 

Ratios

 

Property

 

Ratios

 

Surety

 

Ratios

 

Total

 

Ratios

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

403,337

 

 

 

$

200,794

 

 

 

$

77,038

 

 

 

$

681,169

 

 

 

Net premiums written

 

295,942

 

 

 

146,089

 

 

 

71,425

 

 

 

513,456

 

 

 

Net premiums earned

 

313,481

 

 

 

146,863

 

 

 

68,420

 

 

 

528,764

 

 

 

Net loss & settlement expenses

 

169,880

 

54.2

%

73,992

 

50.4

%

3,302

 

4.8

%

247,174

 

46.7

%

Net operating expenses

 

97,094

 

31.0

%

57,058

 

38.9

%

44,375

 

64.9

%

198,527

 

37.5

%

Underwriting income

 

$

46,507

 

85.2

%

$

15,813

 

89.3

%

$

20,743

 

69.7

%

$

83,063

 

84.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

462,591

 

 

 

$

206,041

 

 

 

$

70,702

 

 

 

$

739,334

 

 

 

Net premiums written

 

335,401

 

 

 

137,419

 

 

 

65,943

 

 

 

538,763

 

 

 

Net premiums earned

 

343,402

 

 

 

138,367

 

 

 

62,709

 

 

 

544,478

 

 

 

Net loss & settlement expenses

 

135,955

 

39.6

%

55,704

 

40.3

%

(791

)

-1.3

%

190,868

 

35.1

%

Net operating expenses

 

105,584

 

30.7

%

52,094

 

37.6

%

40,167

 

64.1

%

197,845

 

36.3

%

Underwriting income

 

$

101,863

 

70.3

%

$

30,569

 

77.9

%

$

23,333

 

62.8

%

$

155,765

 

71.4

%

 

6