RLI CORP - FORM 8-K - EX-99.1

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8-K - 8-K - RLI CORP	a10-19552_18k.htm

Exhibit 99.1

	NEWS RELEASE

		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 18, 2010 — RLI Corp. (NYSE: RLI) — RLI Corp. reported third quarter 2010 operating earnings of $25.0 million ($1.19 per share) compared to $25.8 million ($1.18 per share) for the same period in 2009. For the nine months ended September 30, 2010, operating earnings were $77.2 million ($3.64 per share) versus $76.9 million ($3.53 per share) for the same period in 2009.

	Third Quarter
Earnings Per Diluted Share	2010		2009
Operating earnings	$	1.19	$	1.18
Net earnings	$	1.33	$	1.42

Highlights for the quarter included:

· Operating earnings of $25.0 million ($1.19 per share).

· Underwriting income of $21.7 million.

· Combined ratio of 83.1.

· Book value per share of $43.54, an increase of 11.2% from year end 2009.

· Net operating cash flow of $52.4 million.

· $20.3 million ($0.62 per share) pretax favorable development in prior years’ loss reserves, net of effects on bonus and profit sharing-related expenses.

· Return on equity for the trailing four quarters was 13.8%.

“We posted solid financial results in the third quarter, despite the continued effects of the soft insurance market and the weak economy,” said RLI Corp. President & CEO Jonathan E. Michael. “Our conservative approach to business during the recent financial crisis and economic downturn has served us well.”

“Crop and other assumed property reinsurance supported growth in our Property business. Our Surety group continues to perform well given current economic conditions. Casualty business remained soft, especially for our general liability and transportation product lines. Favorable development in prior years’ loss reserves has positively influenced results for all segments this year,” said Michael.

“Diversification of our products and segments continues to be a focus, as we seek to identify new niche opportunities,” said Michael. “Underwriting profits remain our priority, as evidenced by our excellent combined ratios.”

Third quarter underwriting results

RLI achieved $21.7 million of underwriting income in the third quarter of 2010 on an 83.1 combined ratio, compared to $23.0 million of underwriting income on an 81.3 combined ratio in the same quarter for 2009.

Underwriting Income	Third Quarter
(in millions)	2010		2009
Casualty	$	8.9	$	17.4
Property	5.3		3.9
Surety	7.5		1.7
Total	$	21.7	$	23.0

	Third Quarter
Combined Ratio	2010	2009
Casualty	84.5	73.2
Property	89.4	90.2
Surety	63.6	90.6
Total	83.1	81.3

— more –

RLI reported year-to-date underwriting income of $65.2 million, representing an 82.2 combined ratio versus the $63.2 million underwriting income representing an 82.9 combined ratio for the same period last year.

Other income

For the quarter, investment income was $16.8 million compared to $16.3 million for the same period in 2009. For the nine-month period ended September 30, 2010, investment income was $50.1 million versus $50.5 million over the comparable period in 2009. The investment portfolio’s total return for the quarter was 3.9%; the bond portfolio return was 2.5% and the equity portfolio return was 11.4%. Through nine months, the investment portfolio’s total return was 6.8% with the bond portfolio returning 7.3% and equities returning 4.3%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $58.4 million for the quarter ($2.77 per share) compared to $68.0 million ($3.12 per share) over the same period in 2009. Year-to-date comprehensive earnings were $115.2 million ($5.42 per share), compared to $126.6 million ($5.82 per share) for the same period last year.

During the quarter, equity in earnings of unconsolidated investee was $1.6 million compared to $1.1 million from the same period last year. For the nine-month period, earnings were $7.3 million versus $5.2 million in 2009.

Other news

The Company paid a third quarter cash dividend of $0.29 per share on October 15, 2010. RLI has paid dividends for 137 consecutive quarters and increased dividends in each of the last 35 years. The Company’s dividend yield would be 1.9%, based on the $1.16 annualized dividend and today’s closing stock price of $59.61.

In the second quarter of 2010, the board of directors approved a $100 million share repurchase program. A total of 35,475 shares were repurchased at an average cost of $56.39 per share ($2.0 million) in the third quarter. At the end of the quarter, $94.1 million of capacity remained for stock repurchases.

At 10 a.m. CDT tomorrow, October 19, 2010, 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 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, 2009.

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 29 of the last 33 years, including the last 14. 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 John Robison, Treasurer, Chief Investment Officer 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
	2010		2009			2010		2009
	3rd Qtr		3rd Qtr			9 Mos.		9 Mos.
Operating Earnings Per Share	$	1.19	$	1.18		$	3.64	$	3.53

Specific items included in operating earnings per share: (1) (2)
· Gain from casualty prior years’ reserve development	$	0.52	$	0.51		$	1.14	$	1.34
· Gain/(loss) from property prior years’ reserve development	$	0.01	$	(0.06	)	$	—	$	(0.18	)
· Gain/(loss) from surety prior years’ reserve development	$	0.09	$	—		$	0.26	$	(0.01	)

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

(2) Reserve development reflect revisions for previously estimated losses.

RLI CORP.

2010 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010		2009		% Change		2010			2009			% Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned	$	128,334	$	122,736	4.6	%	$	366,356		$	370,910		-1.2	%
Net investment income	16,762		16,295		2.9	%	50,127			50,494			-0.7	%
Net realized investment gains (losses)	4,527		6,985		-35.2	%	15,281			(20,789		)
Consolidated revenue	149,623		146,016		2.5	%	431,764			400,615			7.8	%

Loss and settlement expenses	55,823		47,677		17.1	%	155,152			157,678			-1.6	%
Policy acquisition costs	40,624		41,627		-2.4	%	118,804			121,196			-2.0	%
Other insurance expenses	10,161		10,480		-3.0	%	27,158			28,814			-5.7	%
Interest expense on debt	1,512		1,512		0.0	%	4,537			4,537			0.0	%
General corporate expenses	2,148		2,177		-1.3	%	5,406			5,847			-7.5	%
Total expenses	110,268		103,473		6.6	%	311,057			318,072			-2.2	%

Equity in earnings of unconsolidated investee	1,648		1,120		47.1	%	7,327			5,242			39.8	%

Earnings before income taxes	41,003		43,663		-6.1	%	128,034			87,785			45.8	%
Income tax expense	13,038		12,644		3.1	%	40,854			24,502			66.7	%
Net earnings	$	27,965	$	31,019	-9.8	%	$	87,180		$	63,283		37.8	%
Other comprehensive earnings, net of tax	30,476		36,969		-17.6	%	27,986			63,357			-55.8	%
Comprehensive earnings	$	58,441	$	67,988	-14.0	%	$	115,166		$	126,640		-9.1	%

Operating earnings:(1)
Net earnings	$	27,965	$	31,019	-9.8	%	$	87,180		$	63,283		37.8	%
Less: Realized investment gains (losses), net of tax	2,942		5,250		-44.0	%	9,932			(13,603		)
Operating earnings	$	25,023	$	25,769	-2.9	%	$	77,248		$	76,886		0.5	%

Return on Equity:
Net earnings (trailing four quarters)							13.8		%	9.3		%
Comprehensive earnings (trailing four quarters)							16.9		%	16.1		%

Per Share Data

Diluted:
Weighted average shares outstanding (in 000’s)	21,090		21,769				21,233			21,760

EPS from operations (1)	$	1.19	$	1.18	0.8	%	$	3.64		$	3.53		3.1	%
Realized gains (losses), net of tax	0.14		0.24		-41.7	%	0.47			(0.62		)
Net earnings per share	$	1.33	$	1.42	-6.3	%	$	4.11		$	2.91		41.2	%
Comprehensive earnings per share	$	2.77	$	3.12	-11.2	%	$	5.42		$	5.82		-6.9	%
Cash dividends per share	$	0.29	$	0.27	7.4	%	$	0.86		$	0.80		7.5	%

Net Cash Flow provided by Operations	$	52,408	$	46,845	11.9	%	$	87,867		$	108,445		-19.0	%

(1) See discussion of non-GAAP financial measures on page 2.

RLI CORP.

2010 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

	September 30,		December 31,
	2010		2009		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income	$	1,543,769	$	1,485,347	3.9	%
(amortized cost - $1,466,506 at 9/30/10)
(amortized cost - $1,452,084 at 12/31/09)
Equity securities	301,594		262,693		14.8	%
(cost - $217,014 at 9/30/10)
(cost - $177,681 at 12/31/09)
Short-term investments	133,018		104,462		27.3	%
Total investments	1,978,381		1,852,502		6.8	%

Premiums and reinsurance balances receivable	99,703		83,961		18.7	%
Ceded unearned premiums	61,037		65,379		-6.6	%
Reinsurance recoverable on unpaid losses	337,304		336,392		0.3	%
Deferred acquisition costs	77,766		75,880		2.5	%
Property and equipment	18,097		19,110		-5.3	%
Investment in unconsolidated investee	51,154		44,286		15.5	%
Goodwill	26,214		26,214		—
Other assets	23,919		34,929		-31.5	%
Total assets	$	2,673,575	$	2,538,653	5.3	%

Unpaid losses and settlement expenses	$	1,170,246	$	1,146,460	2.1	%
Unearned premiums	319,301		312,527		2.2	%
Reinsurance balances payable	22,432		22,431		0.0	%
Long-term debt - bonds payable	100,000		100,000		—
Income taxes - deferred	41,277		24,299		69.9	%
Accrued expenses	32,912		41,835		-21.3	%
Other liabilities	75,234		58,851		27.8	%
Total liabilities	1,761,402		1,706,403		3.2	%
Shareholders’ equity	912,173		832,250		9.6	%
Total liabilities & shareholders’ equity	$	2,673,575	$	2,538,653	5.3	%

OTHER DATA

Common shares outstanding (in 000’s)	20,948		21,265
Book value per share	$	43.54	$	39.14	11.2	%
Closing stock price per share	$	56.62	$	53.25	6.3	%
Cash dividends per share (annualized)	$	1.15	$	1.08	6.5	%
Statutory Surplus	$	814,214	$	784,161	3.8	%

RLI CORP.

2010 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
2010

Gross premiums written	$	78,789			$	53,930			$	24,687				$	157,406
Net premiums written	56,061				40,545				22,298					118,904
Net premiums earned	57,491				50,167				20,676					128,334
Net loss & settlement expenses	28,222		49.1	%	27,804		55.4	%	(203		)	-1.0	%	55,823		43.5	%
Net operating expenses	20,363		35.4	%	17,075		34.0	%	13,347			64.6	%	50,785		39.6	%
Underwriting income	$	8,906	84.5	%	$	5,288	89.4	%	$	7,532		63.6	%	$	21,726	83.1	%

2009

Gross premiums written	$	83,337			$	51,177			$	25,406				$	159,920
Net premiums written	59,274				38,018				21,874					119,166
Net premiums earned	64,794				39,829				18,113					122,736
Net loss & settlement expenses	24,243		37.4	%	19,379		48.7	%	4,055			22.4	%	47,677		38.8	%
Net operating expenses	23,221		35.8	%	16,536		41.5	%	12,350			68.2	%	52,107		42.5	%
Underwriting income	$	17,330	73.2	%	$	3,914	90.2	%	$	1,708		90.6	%	$	22,952	81.3	%

Nine Months Ended September 30,

			GAAP				GAAP				GAAP				GAAP
	Casualty		Ratios		Property		Ratios		Surety		Ratios		Total		Ratios
2010

Gross premiums written	$	231,917			$	188,071			$	69,690			$	489,678
Net premiums written	169,378				145,510				62,585				377,473
Net premiums earned	174,934				132,133				59,289				366,356
Net loss & settlement expenses	91,377		52.2	%	62,091		47.0	%	1,684		2.8	%	155,152		42.4	%
Net operating expenses	59,866		34.2	%	47,373		35.9	%	38,723		65.3	%	145,962		39.8	%
Underwriting income	$	23,691	86.4	%	$	22,669	82.9	%	$	18,882	68.1	%	$	65,242	82.2	%

2009

Gross premiums written	$	254,933			$	163,959			$	68,336			$	487,228
Net premiums written	186,732				122,301				56,897				365,930
Net premiums earned	202,766				115,394				52,750				370,910
Net loss & settlement expenses	96,718		47.7	%	49,769		43.1	%	11,191		21.2	%	157,678		42.5	%
Net operating expenses	68,668		33.9	%	46,354		40.2	%	34,988		66.3	%	150,010		40.4	%
Underwriting income	$	37,380	81.6	%	$	19,271	83.3	%	$	6,571	87.5	%	$	63,222	82.9	%

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