RLI CORP - FORM 8-K - EX-99.1

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8-K - 8-K - RLI CORP	a14-17283_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: Aaron Jacoby
		(309) 693-5880
		Aaron.Jacoby@rlicorp.com
		www.rlicorp.com

RLI Reports Second Quarter 2014 Results

PEORIA, ILLINOIS, July 16, 2014 — RLI Corp. (NYSE: RLI) — RLI Corp. reported second quarter 2014 operating earnings of $28.9 million ($0.66 per share), compared to $27.5 million ($0.63 per share) for the second quarter of 2013. For the six months ended June 30, 2014, operating earnings were $53.7 million ($1.23 per share) compared to $49.9 million ($1.15 per share) for the same period in 2013.

	Second Quarter
Earnings Per Diluted Share	2014		2013
Operating earnings (1)	$	0.66	$	0.63
Net earnings	$	0.82	$	0.69

(1) See discussion below of non-GAAP financial measures.

Highlights for the quarter included:

· Combined ratio of 84.2, resulting in underwriting income of $26.6 million.

· 3% growth in gross premiums written and 4% growth in net premiums written.

· $22.3 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.

· $6.8 million net decrease in underwriting income resulting from 2014 spring storms.

· Investment income of $14.0 million, up 9% from the same period last year.

· Book value per share of $21.37, an increase of 11% from year end 2013.

“We are pleased to report solid results for the quarter, including an 84.2 combined ratio, and 11% growth in book value per share for the year,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “Our strong performance and book value growth were driven by consistent underwriting results across all of our segments and positive returns in the investment portfolio.”

“We continuously look for ways to enhance the product offerings and service we provide to our customers. Our company is well-positioned to take advantage of opportunities that add value for our customers and align with our business,” said Michael.

Underwriting income

RLI achieved $26.6 million of underwriting income in the second quarter of 2014 on an 84.2 combined ratio, compared to $25.6 million of underwriting income on an 83.4 combined ratio in the same quarter for 2013. Results for 2014 include $22.3 million in favorable development in prior years’ loss reserves, compared to $24.6 million in favorable development in prior years’ loss reserves in 2013. Partially offsetting the favorable results in both periods were spring storm losses of $6.8 million in 2014 and $8.8 million in 2013.

The following table highlights underwriting income and combined ratios by segment.

Underwriting Income (1)	Second Quarter
(in millions)	2014		2013
Casualty	$	16.5	$	14.6
Property	2.3		2.2
Surety	7.8		8.8
Total	$	26.6	$	25.6

	Second Quarter
Combined Ratio	2014	2013
Casualty	82.5	81.3
Property	95.3	95.6
Surety	69.3	67.2
Total	84.2	83.4

(1) See discussion below of non-GAAP financial measures.

—more—

RLI reported year-to-date underwriting income of $49.1 million representing an 85.1 combined ratio through June 30, 2014, versus $45.4 million of underwriting income representing an 84.8 combined ratio for the same period last year.

Other income

RLI’s net investment income for the quarter increased 8.8% to $14.0 million, compared to the same period in 2013. For the six-month period ended June 30, 2014, investment income was $27.6 million versus $25.7 million for the same period in 2013. The investment portfolio’s total return was 3.0% for the quarter. The bond portfolio’s return was 2.3% in the quarter, while the equity portfolio gained 5.4%. Through six months, the investment portfolio’s total return was 5.8% with the bond portfolio returning 4.7% and equities returning 9.3%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $55.7 million ($1.27 per share) for the quarter compared to -$3.6 million (-$0.08 per share) for the same quarter in 2013. Year-to-date comprehensive earnings were $102.4 million ($2.34 per share), compared to $38.8 million ($0.90 per share) for the same period last year.

During the quarter, equity in earnings of unconsolidated investees was $5.9 million compared to $4.6 million from the same period last year. Results for the current year are related to Maui Jim, Inc. ($5.7 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.2 million), a specialty E&S insurance company. For the six-month period ended June 30, 2014, equity in earnings of unconsolidated investees was $9.3 million versus $8.1 million in 2013. Prior year figures reflect only Maui Jim results, as our equity investment in Prime occurred in the first quarter of 2014.

Dividend paid in the second quarter 2014

On June 20, 2014, the Company paid a dividend of $0.18 per share, a $0.01 increase over the prior quarter. RLI has paid dividends for 152 consecutive quarters and increased dividends in each of the last 39 years.

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

During the second quarter, the Company’s A+ “Superior” financial strength rating was affirmed by A.M. Best for the following RLI insurance subsidiaries — RLI Insurance Company, Mt. Hawley Insurance Company, RLI Indemnity Company and Contractors Bonding and Insurance Company. CBIC’s inclusion as a member of the RLI Group rating recognizes the strategic importance of the company and its successful integration into the RLI Group.

At 10 a.m. central time (CT) tomorrow, July 17, 2014, 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://www.media-server.com/m/p/koyd4qb9.

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
	2nd Qtr			2nd Qtr			6 Mos.			6 Mos.
Operating Earnings Per Share	$	0.66		$	0.63		$	1.23		$	1.15

Specific items included in operating earnings per share: (1) (2)
· Favorable development in casualty prior years’ reserves	$	0.30		$	0.27		$	0.43		$	0.42
· Favorable (unfavorable) development in property prior years’ reserves	$	(0.01	)	$	0.01		$	0.01		$	0.01
· Favorable development in surety prior years’ reserves	$	0.05		$	0.06		$	0.09		$	0.07
· Catastrophe impact
· 2014 spring storms	$	(0.10	)	$	—		$	(0.10	)	$	—
· 2013 and prior events	$	(0.01	)	$	(0.11	)	$	—		$	(0.11	)

(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.

RLI CORP.

2014 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended June 30,							Six Months Ended June 30,
	2014		2013			% Change		2014			2013			% Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned	$	168,604	$	154,553		9.1	%	$	329,736		$	298,704		10.4	%
Net investment income	13,982		12,847			8.8	%	27,564			25,733			7.1	%
Net realized investment gains	10,431		3,742			178.8	%	16,932			7,426			128.0	%
Consolidated revenue	193,017		171,142			12.8	%	374,232			331,863			12.8	%

Loss and settlement expenses	73,345		65,607			11.8	%	144,361			127,055			13.6	%
Policy acquisition costs	55,156		51,502			7.1	%	110,207			101,838			8.2	%
Other insurance expenses	13,534		11,885			13.9	%	26,067			24,454			6.6	%
Interest expense on debt	1,874		1,513			23.9	%	3,725			3,025			23.1	%
General corporate expenses	2,549		1,692			50.7	%	4,747			4,078			16.4	%
Total expenses	146,458		132,199			10.8	%	289,107			260,450			11.0	%

Equity in earnings of unconsolidated investees	5,864		4,633			26.6	%	9,289			8,132			14.2	%

Earnings before income taxes	52,423		43,576			20.3	%	94,414			79,545			18.7	%
Income tax expense	16,698		13,674			22.1	%	29,720			24,796			19.9	%
Net earnings	$	35,725	$	29,902		19.5	%	$	64,694		$	54,749		18.2	%

Other comprehensive earnings (loss), net of tax	19,934		(33,481		)	—		37,671			(15,928		)	—

Comprehensive earnings (loss)	$	55,659	$	(3,579	)	—		$	102,365		$	38,821		163.7	%

Operating earnings: (1)

Net earnings	$	35,725	$	29,902		19.5	%	$	64,694		$	54,749		18.2	%

Less: Realized investment gains, net of tax	6,780		2,432			178.8	%	11,005			4,827			128.0	%

Operating earnings	$	28,945	$	27,470		5.4	%	$	53,689		$	49,922		7.5	%

Return on Equity:
Net earnings (trailing four quarters)								15.8		%	12.5		%
Comprehensive earnings (trailing four quarters)								21.3		%	11.7		%

Per Share Data

Diluted:
Weighted average shares outstanding (in 000’s)	43,688		43,341					43,669			43,268

EPS from operations (1)	$	0.66	$	0.63		4.8	%	$	1.23		$	1.15		7.0	%
Realized gains, net of tax	0.16		0.06			166.7	%	0.25			0.12			108.3	%
Net earnings per share	$	0.82	$	0.69		18.8	%	$	1.48		$	1.27		16.5	%

Comprehensive earnings (loss) per share	$	1.27	$	(0.08	)	—		$	2.34		$	0.90		160.0	%

Cash dividends per share	$	0.18	$	0.17		5.9	%	$	0.35		$	0.33		6.1	%

Net Cash Flow provided by Operations	$	40,535	$	33,109		22.4	%	$	38,528		$	26,781		43.9	%

(1) See discussion above of non-GAAP financial measures.

RLI CORP.

2014 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

	June 30,		December 31,
	2014		2013		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income	$	1,535,272	$	1,440,703	6.6	%
(amortized cost - $1,486,276 at 6/30/14)
(amortized cost - $1,431,700 at 12/31/13)
Equity securities	436,462		418,654		4.3	%
(cost - $218,797 at 6/30/14)
(cost - $218,848 at 12/31/13)
Cash and cash equivalents	45,723		62,701		-27.1	%
Total investments and cash	2,017,457		1,922,058		5.0	%

Premiums and reinsurance balances receivable	203,499		152,509		33.4	%
Ceded unearned premiums	72,396		60,407		19.8	%
Reinsurance recoverable on unpaid losses	339,104		354,924		-4.5	%
Deferred acquisition costs	68,190		61,508		10.9	%
Property and equipment	42,935		40,261		6.6	%
Investment in unconsolidated investees	64,487		49,793		29.5	%
Goodwill and intangibles	74,407		74,876		-0.6	%
Other assets	26,521		23,974		10.6	%
Total assets	$	2,908,996	$	2,740,310	6.2	%

Unpaid losses and settlement expenses	1,127,073		1,129,433		-0.2	%
Unearned premiums	444,453		392,081		13.4	%
Reinsurance balances payable	62,402		47,334		31.8	%
Funds held	59,398		61,656		-3.7	%
Long-term debt - bonds payable	149,604		149,582		0.0	%
Income taxes - deferred	81,963		57,801		41.8	%
Accrued expenses	40,199		59,596		-32.5	%
Other liabilities	24,509		13,861		76.8	%
Total liabilities	1,989,601		1,911,344		4.1	%
Shareholders’ equity	919,395		828,966		10.9	%
Total liabilities & shareholders’ equity	$	2,908,996	$	2,740,310	6.2	%

OTHER DATA

Common shares outstanding (in 000’s)	43,024		42,982

Book value per share	$	21.37	$	19.29	10.8	%
Closing stock price per share	$	45.78	$	48.69	-6.0	%
Cash dividends per share - ordinary (annualized)	$	0.71	$	0.67	6.0	%
Cash dividends per share - special	$	—	$	1.50	—

Statutory Surplus	$	903,013	$	859,221	5.1	%

RLI CORP.

2014 FINANCIAL HIGHLIGHTS

UNDERWRITING SEGMENT DATA

(Unaudited)

(Dollars in thousands, except per share amounts)

			GAAP				GAAP				GAAP				GAAP
Three Months Ended June 30,	Casualty		Ratios		Property		Ratios		Surety		Ratios		Total		Ratios
2014

Gross premiums written	$	132,283			$	101,735			$	30,152			$	264,170
Net premiums written	109,376				71,766				27,386				208,528
Net premiums earned	94,360				48,791				25,453				168,604
Net loss & settlement expenses	44,863		47.5	%	28,272		57.9	%	210		0.8	%	73,345		43.5	%
Net operating expenses	33,030		35.0	%	18,226		37.4	%	17,434		68.5	%	68,690		40.7	%
Underwriting income	$	16,467	82.5	%	$	2,293	95.3	%	$	7,809	69.3	%	$	26,569	84.2	%

2013

Gross premiums written	$	123,486			$	102,454			$	30,100			$	256,040
Net premiums written	99,247				71,937				28,765				199,949
Net premiums earned	78,372				49,619				26,562				154,553
Net loss & settlement expenses	35,530		45.3	%	28,911		58.3	%	1,166		4.4	%	65,607		42.4	%
Net operating expenses	28,228		36.0	%	18,486		37.3	%	16,673		62.8	%	63,387		41.0	%
Underwriting income	$	14,614	81.3	%	$	2,222	95.6	%	$	8,723	67.2	%	$	25,559	83.4	%

			GAAP				GAAP				GAAP				GAAP
Six Months Ended June 30,	Casualty		Ratios		Property		Ratios		Surety		Ratios		Total		Ratios
2014

Gross premiums written	$	244,238			$	159,888			$	57,442			$	461,568
Net premiums written	201,024				115,425				53,670				370,119
Net premiums earned	185,337				92,109				52,290				329,736
Net loss & settlement expenses	97,482		52.6	%	43,670		47.4	%	3,209		6.1	%	144,361		43.8	%
Net operating expenses	65,310		35.2	%	36,468		39.6	%	34,496		66.0	%	136,274		41.3	%
Underwriting income	$	22,545	87.8	%	$	11,971	87.0	%	$	14,585	72.1	%	$	49,101	85.1	%

2013

Gross premiums written	$	226,937			$	166,474			$	56,421			$	449,832
Net premiums written	181,744				117,529				53,642				352,915
Net premiums earned	151,341				94,600				52,763				298,704
Net loss & settlement expenses	76,825		50.8	%	44,045		46.6	%	6,185		11.7	%	127,055		42.5	%
Net operating expenses	55,798		36.9	%	37,409		39.5	%	33,085		62.7	%	126,292		42.3	%
Underwriting income	$	18,718	87.7	%	$	13,146	86.1	%	$	13,493	74.4	%	$	45,357	84.8	%

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