Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Oct. 12, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | RLI CORP | |
Entity Central Index Key | 84,246 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 43,906,953 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q3 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Earnings and Comprehensive Earnings - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Condensed Consolidated Statements of Earnings and Comprehensive Earnings | ||||
Net premiums earned | $ 183,595 | $ 179,448 | $ 540,739 | $ 520,790 |
Net investment income | 13,504 | 13,964 | 39,922 | 40,890 |
Net realized gains | 9,347 | 7,534 | 23,457 | 25,622 |
Other-than-temporary impairment (OTTI) losses on investments | (95) | (95) | ||
Consolidated revenue | 206,351 | 200,946 | 604,023 | 587,302 |
Losses and settlement expenses | 97,892 | 73,051 | 259,340 | 218,461 |
Policy acquisition costs | 61,761 | 60,505 | 184,525 | 178,965 |
Insurance operating expenses | 13,338 | 12,299 | 38,950 | 37,297 |
Interest expense on debt | 1,857 | 1,857 | 5,570 | 5,570 |
General corporate expenses | 2,242 | 1,958 | 7,385 | 6,950 |
Total expenses | 177,090 | 149,670 | 495,770 | 447,243 |
Equity in earnings of unconsolidated investees | 1,881 | 661 | 10,823 | 11,041 |
Earnings before income taxes | 31,142 | 51,937 | 119,076 | 151,100 |
Income tax expense | 8,879 | 16,029 | 36,343 | 47,409 |
Net earnings | 22,263 | 35,908 | 82,733 | 103,691 |
Other comprehensive earnings (loss), net of tax | (6,931) | (16,136) | 33,898 | (48,663) |
Comprehensive earnings | $ 15,332 | $ 19,772 | $ 116,631 | $ 55,028 |
Basic: | ||||
Net earnings per share (in dollars per share) | $ 0.51 | $ 0.83 | $ 1.89 | $ 2.40 |
Comprehensive earnings per share (in dollars per share) | 0.35 | 0.46 | 2.67 | 1.27 |
Diluted: | ||||
Net earnings per share (in dollars per share) | 0.50 | 0.81 | 1.86 | 2.35 |
Comprehensive earnings per share (in dollars per share) | $ 0.34 | $ 0.45 | $ 2.63 | $ 1.25 |
Weighted average number of common shares outstanding | ||||
Basic (in shares) | 43,843 | 43,342 | 43,721 | 43,232 |
Diluted (in shares) | 44,492 | 44,153 | 44,416 | 44,031 |
Cash dividends paid per common share (in dollars per share) | $ 0.20 | $ 0.19 | $ 0.59 | $ 0.56 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
Fixed income: | ||
Available-for-sale, at fair value (amortized cost - $1,624,868 at 9/30/16 and $1,518,156 at 12/31/15) | $ 1,687,605 | $ 1,538,110 |
Equity securities available-for-sale, at fair value (cost - $200,595 at 9/30/16 and $202,437 at 12/31/15) | 382,282 | 375,424 |
Short-term investments, at cost which approximates fair value | 8,392 | 6,262 |
Other invested assets | 24,502 | 20,666 |
Cash | 13,970 | 11,081 |
Total investments and cash | 2,116,751 | 1,951,543 |
Accrued investment income | 13,311 | 14,878 |
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $15,739 at 9/30/16 and $14,898 at 12/31/15 | 136,214 | 143,662 |
Ceded unearned premium | 54,014 | 52,833 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $10,956 at 9/30/16 and $11,885 at 12/31/15 | 292,943 | 297,844 |
Deferred policy acquisition costs | 75,805 | 69,829 |
Property and equipment, at cost, net of accumulated depreciation of $43,011 at 9/30/16 and $38,447 at 12/31/15 | 53,643 | 47,102 |
Investment in unconsolidated investees | 82,276 | 70,784 |
Goodwill and intangibles | 64,578 | 71,294 |
Other assets | 23,999 | 15,696 |
TOTAL ASSETS | 2,913,534 | 2,735,465 |
Liabilities: | ||
Unpaid losses and settlement expenses | 1,150,938 | 1,103,785 |
Unearned premiums | 449,051 | 422,094 |
Reinsurance balances payable | 17,425 | 37,556 |
Funds held | 77,902 | 54,254 |
Income taxes - deferred | 85,152 | 63,993 |
Bonds payable, long-term debt | 148,694 | 148,554 |
Accrued expenses | 40,029 | 55,742 |
Other liabilities | 21,929 | 26,018 |
TOTAL LIABILITIES | 1,991,120 | 1,911,996 |
Shareholders' Equity | ||
Common stock ($1 par value, 100,000,000 shares authorized) (66,837,167 shares issued, 43,906,953 shares outstanding at 9/30/16) (66,474,342 shares issued, 43,544,128 shares outstanding at 12/31/15) | 66,837 | 66,474 |
Paid-in capital | 229,107 | 221,345 |
Accumulated other comprehensive earnings | 157,672 | 123,774 |
Retained earnings | 861,797 | 804,875 |
Deferred compensation | 10,395 | 10,647 |
Less: Treasury shares at cost (22,930,214 shares at 9/30/16 and 12/31/15) | (403,394) | (403,646) |
TOTAL SHAREHOLDERS’ EQUITY | 922,414 | 823,469 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ 2,913,534 | $ 2,735,465 |
Condensed Consolidated Balance4
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
Condensed Consolidated Balance Sheets | ||
Available-for-sale, amortized cost | $ 1,624,868 | $ 1,518,156 |
Equity securities available-for-sale, cost | 200,595 | 202,437 |
Premiums and reinsurance balances receivable, allowances for uncollectible amounts | 15,739 | 14,898 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, allowances for uncollectible amounts | 10,956 | 11,885 |
Property and equipment, accumulated depreciation | $ 43,011 | $ 38,447 |
Common stock, par value (in dollars per share) | $ 1 | $ 1 |
Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, shares issued (in shares) | 66,837,167 | 66,474,342 |
Common stock, shares outstanding (in shares) | 43,906,953 | 43,544,128 |
Treasury stock, shares (in shares) | 22,930,214 | 22,930,214 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Condensed Consolidated Statements of Cash Flows | ||
Net cash provided by operating activities | $ 123,000 | $ 121,367 |
Cash Flows from Investing Activities | ||
Investments purchased | (434,505) | (540,159) |
Investments sold | 243,506 | 349,411 |
Investments called or matured | 102,752 | 135,750 |
Net change in short-term investments | (1,476) | (43,745) |
Net property and equipment purchased | (11,852) | (6,405) |
Investment in equity method investee | (1,711) | |
Acquisition of agency | (850) | |
Net cash used in investing activities | (102,425) | (106,859) |
Cash Flows from Financing Activities | ||
Cash dividends paid | (25,811) | (24,221) |
Stock plan share issuance | (357) | 39 |
Excess tax benefit from exercise of stock options | 8,482 | 7,242 |
Net cash used in financing activities | (17,686) | (16,940) |
Net increase (decrease) in cash | 2,889 | (2,432) |
Cash at the beginning of the period | 11,081 | 30,620 |
Cash at the end of the period | $ 13,970 | $ 28,188 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2016 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 September 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: a. 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; b. 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; c. 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; d. For each accident year presented, quantitative information about claim frequency accompanied by a qualitative description of methodologies used for determining claim frequency information; and e. 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: a. 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; b. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; c. 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; d. Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; e. 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; f. 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 g. 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. The primary impact this guidance will have on our financial statements relates to the provision concerning the recognition of tax effects through the income statement. The impact to our income statement will vary depending upon the level of intrinsic value associated with option exercises in a particular period. 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. ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ASU 2016-15 was issued to reduce the diversity in practice of how certain cash receipts and payments, for which current guidance is silent, are classified in the statement of cash flows. The update addresses eight specific issues, including contingent consideration payments made after a business combination, distributions received from equity method investees and the classification of cash receipts and payments that have aspects of more than one class of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. Upon adoption, the update will be applied using the retrospective transition method. We have not yet completed the analysis of how adopting this ASU will affect our financial statements, but do not expect a material impact on our statement of cash flows. 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 $64.6 million and $71.3 million at September 30, 2016 and December 31, 2015, respectively, as detailed in the following table. Goodwill and Intangible Assets (in thousands) September 30, December 31, Reporting Unit 2016 2015 Goodwill Energy surety $ $ Miscellaneous and contract surety P&C package business Medical professional liability * Total goodwill $ $ Intangibles State insurance licenses $ $ Definite-lived intangibles, net of accumulated amortization of $5,339 at 9/30/16 and $4,678 at 12/31/15 Total intangibles $ $ Total goodwill and intangibles $ $ * The September 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 third quarter of 2016 and $0.7 million for the nine-month period ended September 30, 2016, compared to $0.2 million for the third quarter of 2015 and $0.7 million for the nine-month period ended September 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. Annual impairment testing was performed on our energy surety goodwill, miscellaneous and contract surety goodwill, P&C package business goodwill and state insurance license indefinite-lived intangible asset during the second quarter of 2016. Based upon these reviews, none of the assets were impaired. In addition, as of September 30, 2016, there were no triggering events that occurred on the above mentioned goodwill and intangible assets that would suggest an updated review was necessary. As disclosed in previous SEC filings, premium declines have decreased the fair value of our medical professional liability business in recent periods. Continuing rate and volume declines coupled with recent adverse loss experience resulted in a triggering event during the second quarter of 2016. A fair value was determined by using a weighted average of a market approach valuation and income approach (or discounted cash flow method) valuation. It was determined that the carrying cost of our medical professional liability goodwill exceeded the fair value. As a result, we recorded a $7.2 million non-cash impairment charge included as a net realized loss in the consolidated statement of earnings for the nine-month period ending September 30, 2016. There have been no additional triggering events subsequent to the second quarter 2016 impairment. As an additional consequence of the premium declines and adverse loss experience, the remaining portion of the contingent earn-out agreement associated with our acquisition of this medical professional liability business was eliminated, resulting in a $1.5 million reduction to expenses for the nine-month period ending September 30, 2016. E. EARNINGS PER SHARE Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock or common stock equivalents were exercised or converted into common stock. When inclusion of common stock equivalents increases the earnings per share or reduces the loss per share, the effect on earnings is anti-dilutive. Under these circumstances, the diluted net earnings or net loss per share is computed excluding the common stock equivalents. 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 September 30, 2016 Ended September 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 $ $ $ $ Effect of Dilutive Securities Stock options - - Diluted EPS Income available to common shareholders $ $ $ $ For the Nine-Month Period For the Nine-Month Period Ended September 30, 2016 Ended September 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 $ $ $ $ Effect of Dilutive Securities Stock options - - Diluted EPS Income available to common shareholders $ $ $ $ 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 nine months of 2016 were $33.9 million, compared to unrealized losses, net of tax, of $48.7 million during the same period last year. Unrealized gains in the first nine 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 Nine-Month Periods Ended September 30, Ended September 30, Unrealized Gains/Losses on Available-for-Sale Securities 2016 2015 2016 2015 Beginning balance $ $ $ $ Other comprehensive earnings before reclassifications Amounts reclassified from accumulated other comprehensive earnings Net current-period other comprehensive earnings (loss) $ $ $ $ Ending balance $ $ $ $ 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 Nine-Month Component of Accumulated Periods Ended September 30, Periods Ended September 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 $ $ $ $ Net realized gains - - Other-than-temporary impairment (OTTI) losses on investments $ $ $ $ Earnings before income taxes Income tax expense $ $ $ $ Net earnings |
INVESTMENTS
INVESTMENTS | 9 Months Ended |
Sep. 30, 2016 | |
INVESTMENTS | |
INVESTMENTS | 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 September 30, 2016 and December 31, 2015 were as follows: Available-for-sale (in thousands) September 30, 2016 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ $ $ $ U.S. agency - Non-U.S. govt. & agency Agency MBS ABS/CMBS* Corporate Municipal Total Fixed Income $ $ $ $ Equity $ $ $ $ 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 $ $ $ $ U.S. agency Non-U.S. govt. & agency - Agency MBS ABS/CMBS* Corporate Municipal Total Fixed Income $ $ $ $ Equity $ $ $ $ *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 September 30, 2016: September 30, 2016 Available-for-sale Amortized Fair (in thousands) Cost Value Due in one year or less $ $ Due after one year through five years Due after five years through 10 years Due after 10 years Mtge/ABS/CMBS* Total available-for-sale $ $ *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 September 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 September 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 from the end of 2015, which increased the fair value of securities held in the fixed income portfolio. September 30, 2016 December 31, 2015 (in thousands) < 12 Mos. 12 Mos. & Total < 12 Mos. 12 Mos. & Total U.S. Government Fair value $ $ — $ $ $ — $ Cost or amortized cost — — Unrealized Loss $ $ — $ $ $ — $ U.S. Agency Fair value $ — $ — $ — $ $ — $ Cost or amortized cost — — — — Unrealized Loss $ — $ — $ — $ $ — $ Non-U.S. government Fair value $ $ — $ $ $ — $ Cost or amortized cost — — Unrealized Loss $ $ — $ $ $ — $ Agency MBS Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ ABS/CMBS* Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Corporate Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Municipal Fair value $ $ — $ $ $ $ Cost or amortized cost — Unrealized Loss $ $ — $ $ $ $ Subtotal, fixed income Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Equity securities Fair value $ $ $ $ $ — $ Cost or amortized cost — Unrealized Loss $ $ $ $ $ — $ Total Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ * Non-agency asset-backed and commercial mortgage-backed The following table shows the composition of the fixed income securities in unrealized loss positions at September 30, 2016 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings. The vast majority of the securities are rated by S&P and/or Moody’s. Equivalent Equivalent (dollars in thousands) NAIC S&P Moody’s Amortized Unrealized Percent Rating Rating Rating Cost Fair Value Loss to Total 1 AAA/AA/A Aaa/Aa/A $ $ $ % 2 BBB Baa % 3 BB Ba % 4 B B % 5 CCC or lower Caa or lower % 6 — — — — Total $ $ $ % Evaluating Investments for OTTI The fixed income portfolio contained 130 securities in an unrealized loss position as of September 30, 2016. The $5.4 million in associated unrealized losses for these 130 securities represents 0.3 percent of the fixed income portfolio’s cost basis. Of these 130 securities, 58 have been in an unrealized loss position for 12 consecutive months or longer. All fixed income securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. Any credit-related impairment related to fixed income securities we do not plan to sell and for which we are not more likely than not to be required to sell is recognized in net earnings, with the non-credit related impairment recognized in comprehensive earnings. Based on our analysis, our fixed income portfolio is of high credit quality and we believe we will recover the amortized cost basis of our fixed income securities. We continually monitor the credit quality of our fixed income investments to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest. In the third quarter of 2016, we recognized $0.1 million in other-than-temporary impairment (OTTI) charges in earnings on a fixed income security that we no longer had the intent to hold. Comparatively, we did not recognize any OTTI losses in earnings on the fixed income portfolio in 2015. There were no OTTI losses recognized in other comprehensive earnings on the fixed income portfolio for the periods presented. As of September 30, 2016, we held three common stock securities that were in an unrealized loss position. The unrealized loss on these securities was $0.9 million. Based on our analysis, we believe each security will recover in a reasonable period of time and we have the intent and ability to hold them until recovery. One equity security has been in an unrealized loss position for 12 consecutive months or longer. There were no OTTI losses recognized in the periods presented on the equity portfolio. Other Invested Assets Other invested assets include investments in three low income housing tax credit partnerships (LIHTC), carried at amortized cost, membership in the Federal Home Loan Bank of Chicago (FHLBC), carried at cost, and an investment in a real estate fund, carried at cost. Due to the nature of the LIHTC and our membership in the FHLBC, their carrying amounts approximate fair value. Our LIHTC interests had a balance of $17.9 million at September 30, 2016, compared to $14.0 million at December 31, 2015 and recognized a total tax benefit of $0.4 million during the third quarter of 2016 compared to $0.3 million during the third quarter of 2015. For the nine-month periods ended September 30, 2016 and 2015, our LIHTC interests recognized a total tax benefit of $1.2 and $0.8, respectively. Our investment in FHLBC stock totaled $1.6 million at September 30, 2016 and December 31, 2015. Our investment in the real estate fund was carried at $5.0 million and had a fair value of $5.1 million at September 30, 2016, compared to a carrying value of $5.0 million, which approximated fair value, at December 31, 2015. Cash and Short-term Investments Cash consists of uninvested balances in bank accounts. We had a cash balance of $14.0 million at the end of the third quarter of 2016, compared to $11.1 million at the end of 2015. Short-term investments of $8.4 million and $6.3 million at September 30, 2016 and December 31, 2015, respectively, are carried at cost, which approximates fair value. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Sep. 30, 2016 | |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | 3. FAIR VALUE MEASUREMENTS Assets and Liabilities Recorded at Fair Value on a Recurring Basis Fair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transaction between market participants on the measurement date. We determined the fair value of certain financial instruments based on their underlying characteristics and relevant transactions in the marketplace. GAAP guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance also describes three levels of inputs that may be used to measure fair value. Financial assets are classified based upon the lowest level of significant input that is used to determine fair value. The following are the levels of the fair value hierarchy and a brief description of the type of valuation inputs that are used to establish each level: Pricing Level 1 is applied to valuations based on readily available, unadjusted quoted prices in active markets for identical assets. Pricing Level 2 is applied to valuations based upon quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets; or valuations based on models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data. Pricing Level 3 is applied to valuations that are derived from techniques in which one or more of the significant inputs are unobservable. As a part of management’s process to determine fair value, we utilize widely recognized, third-party pricing sources to determine our fair values. We have obtained an understanding of the third-party pricing sources’ valuation methodologies and inputs. The following is a description of the valuation techniques used for financial assets that are measured at fair value, including the general classification of such assets pursuant to the fair value hierarchy. Corporate, Agencies, Government and Municipal Bonds: The pricing vendor employs a multi-dimensional model which uses standard inputs including (listed in approximate order of priority for use) benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers and other reference data. The pricing vendor also monitors market indicators, as well as industry and economic events. All bonds valued using these techniques are classified as Level 2. All corporate, agency, government and municipal securities were deemed Level 2. Mortgage-backed Securities (MBS)/Commercial Mortgage-backed Securities (CMBS) and Asset-backed Securities (ABS): The pricing vendor evaluation methodology includes principally interest rate movements and new issue data. Evaluation of the tranches (non-volatile, volatile or credit sensitivity) is based on the pricing vendors’ interpretation of accepted modeling and pricing conventions. This information is then used to determine the cash flows for each tranche, benchmark yields, prepayment assumptions and to incorporate collateral performance. To evaluate MBS and CMBS volatility, an option adjusted spread model is used in combination with models that simulate interest rate paths to determine market price information. This process allows the pricing vendor to obtain evaluations of a broad universe of securities in a way that reflects changes in yield curve, index rates, implied volatility, mortgage rates and recent trade activity. MBS/CMBS and ABS with corroborated, observable inputs are classified as Level 2. All of our MBS/CMBS and ABS are deemed Level 2. Common Stock: Exchange traded equities have readily observable price levels and are classified as Level 1 (fair value based on quoted market prices). All of our common stock holdings are deemed Level 1. For the Level 2 securities, as described above, we periodically conduct a review to assess the reasonableness of the fair values provided by our pricing services. Our review consists of a two pronged approach. First, we compare prices provided by our pricing services to those provided by an additional source. Second, we obtain prices from securities brokers and compare them to the prices provided by our pricing services. In both comparisons, when discrepancies are found, we compare our prices to actual reported trade data for like securities. Based on this assessment, we determined that the fair values of our Level 2 securities provided by our pricing services are reasonable. For common stock, we receive prices from a nationally recognized pricing service. Prices are based on observable inputs in an active market and are therefore disclosed as Level 1. Based on this assessment, we determined that the fair values of our Level 1 securities provided by our pricing service are reasonable. Due to the relatively short-term nature of cash, short-term investments, accounts receivable and accounts payable, their carrying amounts are reasonable estimates of fair value. Assets measured at fair value in the accompanying unaudited condensed consolidated interim financial statements on a recurring basis are summarized below: As of September 30, 2016 Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Available-for-sale securities U.S. government $ — $ $ — $ U.S. agency — — Non-U.S. govt. & agency — — Agency MBS — — ABS/CMBS* — — Corporate — — Municipal — — Equity — — Total available-for-sale securities $ $ $ — $ As of December 31, 2015 Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Available-for-sale securities U.S. government $ — $ $ — $ U.S. agency — — Non-U.S. govt. & agency — — Agency MBS — — ABS/CMBS* — — Corporate — — Municipal — — Equity — — Total available-for-sale securities $ $ $ — $ * Non-agency asset-backed and commercial mortgage-backed As noted in the above table, we did not have any assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period. Additionally, there were no securities transferred in or out of levels 1 or 2 during the nine-month period ended September 30, 2016. |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2016 | |
INCOME TAXES | |
INCOME TAXES | 4. INCOME TAXES Our effective tax rate for the three and nine-month periods ended September 30, 2016 was 28.5 percent and 30.5 percent, respectively, compared to 30.9 percent and 31.4 percent, respectively, for the same periods in 2015. Effective rates are dependent upon components of pretax earnings and the related tax effects. The effective rate was slightly lower for the three and nine-month periods ended September 30, 2016. While the dollar amount of tax favored adjustments were similar year over year, they were slightly larger on a percentage basis due to lower levels of pre-tax earnings. Income tax expense attributable to income from operations for the three and nine-month periods ended September 30, 2016 and 2015 differed from the amounts computed by applying the U.S. federal tax rate of 35 percent to pretax income as a result of the following: For the Three-Month Periods Ended September 30, For the Nine-Month Periods Ended September 30, 2016 2015 2016 2015 (in thousands) Amount % Amount % Amount % Amount % Provision for income taxes at the statutory rate of 35% $ % $ % $ % $ % Increase (reduction) in taxes resulting from: Tax exempt interest income % % % % Dividends received deduction % % % % ESOP dividends paid deduction % % % % Other items, net % % % % Total tax expense $ % $ % $ % $ % |
STOCK BASED COMPENSATION
STOCK BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2016 | |
STOCK BASED COMPENSATION | |
STOCK BASED COMPENSATION | 5. STOCK BASED COMPENSATION Our RLI Corp. Omnibus Stock Plan (omnibus plan) was in place from 2005 to 2010. The omnibus plan provided for equity-based compensation, including stock options, up to a maximum of 3,000,000 shares of common stock (subject to adjustment for changes in our capitalization and other events). Between 2005 and 2010, we granted 2,458,059 stock options under this plan, including incentive stock options (ISOs), which were adjusted as part of the special dividends paid in 2014 and prior years. The omnibus plan was replaced in 2010. In 2010, our shareholders approved the RLI Corp. Long-Term Incentive Plan (2010 LTIP), which provides for equity-based compensation and replaced the omnibus plan. In conjunction with the adoption of the 2010 LTIP, effective May 6, 2010, options were no longer granted under the omnibus plan. The 2010 LTIP provided for equity-based compensation, including stock options, up to a maximum of 4,000,000 shares of common stock (subject to adjustment for changes in our capitalization and other events). Between 2010 and 2015, we granted 2,878,000 stock options under the 2010 LTIP. The 2010 LTIP was replaced in 2015. In 2015, our shareholders approved the 2015 RLI Corp. Long-Term Incentive Plan (2015 LTIP), which provides for equity-based compensation and replaced the 2010 LTIP. In conjunction with the adoption of the 2015 LTIP, effective May 7, 2015, options were no longer granted under the 2010 LTIP. Awards under the 2015 LTIP may be in the form of restricted stock, stock options (non-qualified only), stock appreciation rights, performance units as well as other stock-based awards. Eligibility under the 2015 LTIP is limited to employees and directors of the company or any affiliate. The granting of awards under the 2015 LTIP is solely at the discretion of the board of directors. The maximum number of shares of common stock available for distribution under the 2015 LTIP is 4,000,000 shares (subject to adjustment for changes in our capitalization and other events). Since 2015, we have granted 920,250 stock options under the 2015 LTIP, including 410,250 thus far in 2016. Under the 2015 LTIP, as under the 2010 LTIP and omnibus plan, we grant stock options for shares with an exercise price equal to the fair market value of the shares at the date of grant (subject to adjustments for changes in our capitalization, special dividends and other events as set forth in such plans). Options generally vest and become exercisable ratably over a five-year period and expire eight years after grant. For most participants, the requisite service period and vesting period will be the same. For participants who are retirement eligible, defined by the plan as those individuals whose age and years of service equals 75, the requisite service period is deemed to be met and options are immediately expensed on the date of grant. For participants who will become retirement eligible during the vesting period, the requisite service period over which expense is recognized is the period between the grant date and the attainment of retirement eligibility. Shares issued upon option exercise are newly issued shares. The following tables summarize option activity for the periods ended September 30, 2016 and 2015: Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2016 $ Options granted $ Options exercised $ $ Options canceled/forfeited $ Outstanding options at September 30, 2016 $ $ Exercisable options at September 30, 2016 $ $ Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2015 $ Options granted $ Options exercised $ $ Options canceled/forfeited $ Outstanding options at September 30, 2015 $ $ Exercisable options at September 30, 2015 $ $ The majority of our stock options are granted annually at our regular board meeting in May. In addition, options are approved at the May meeting for quarterly grants to certain retirement eligible employees. Since stock option grants to retirement eligible employees are fully expensed when issued, the approach allows for a more even expense distribution throughout the year. Thus far in 2016, 410,250 stock options were granted with a weighted average exercise price of $64.15 and a weighted average fair value of $11.47. We recognized $1.0 million of expense in the third quarter of 2016 and $3.2 million in the first nine months of 2016 related to options vesting. Since options granted under our 2010 LTIP and 2015 LTIP are non-qualified, we recorded a tax benefit of $0.4 million in the third quarter of 2016 and $1.1 million in the first nine months of 2016 related to this compensation expense. Total unrecognized compensation expense relating to outstanding and unvested options was $7.1 million, which will be recognized over the remainder of the vesting period. Comparatively, we recognized $1.1 million of expense in the third quarter of 2015 and $3.0 million of expense in the first nine months of 2015. We recorded a tax benefit of $0.4 million in the third quarter of 2015 and $1.1 million in the first nine months of 2015 related to this compensation expense. The fair value of options was estimated using a Black-Scholes based option pricing model with the following weighted average grant-date assumptions and weighted average fair values as of September 30: 2016 2015 Weighted-average fair value of grants $ $ Risk-free interest rates % % Dividend yield % % Expected volatility % % Expected option life years years The risk-free rate was determined based on U.S. treasury yields that most closely approximated the option’s expected life. The dividend yield was calculated based on the average annualized ordinary dividends paid during the most recent five-year period. It excluded the special dividends paid in the fourth quarters of 2015 and prior years. The expected volatility was calculated based on the median of the rolling volatilities for the expected life of the options. The expected option life was determined based on historical exercise behavior and the assumption that all outstanding options will be exercised at the midpoint of the current date and remaining contractual term, adjusted for the demographics of the current year’s grant. |
OPERATING SEGMENT INFORMATION
OPERATING SEGMENT INFORMATION | 9 Months Ended |
Sep. 30, 2016 | |
OPERATING SEGMENT INFORMATION | |
OPERATING SEGMENT INFORMATION | 6. OPERATING SEGMENT INFORMATION Selected information by operating segment is presented in the table below. Additionally, the table reconciles segment totals to total earnings and total revenues. For the Three-Month Periods For the Nine-Month Periods REVENUES Ended September 30, Ended September 30, (in thousands) 2016 2015 2016 2015 Casualty $ $ $ $ Property Surety Net premiums earned $ $ $ $ Net investment income Net realized gains Total consolidated revenue $ $ $ $ NET EARNINGS (in thousands) 2016 2015 2016 2015 Casualty $ $ $ $ Property Surety Net underwriting income $ $ $ $ Net investment income Net realized gains General corporate expense and interest on debt Equity in earnings of unconsolidated investees Total earnings before income taxes $ $ $ $ Income tax expense Total net earnings $ $ $ $ The following table further summarizes revenues by major product type within each operating segment: For the Three-Month Periods For the Nine-Month Periods NET PREMIUMS EARNED Ended September 30, Ended September 30, (in thousands) 2016 2015 2016 2015 Casualty Commercial and personal umbrella $ $ $ $ General liability Commercial transportation Professional services P&C package business Executive products Medical professional liability Other casualty Total $ $ $ $ Property Commercial property $ $ $ $ Marine Specialty personal Property reinsurance Crop reinsurance Other property - - Total $ $ $ $ Surety Miscellaneous $ $ $ $ Commercial Contract Energy Total $ $ $ $ Grand Total $ $ $ $ |
ACQUISITION
ACQUISITION | 9 Months Ended |
Sep. 30, 2016 | |
ACQUISITION | |
ACQUISITION | 7. ACQUISITION On February 29, 2016, we acquired the assets of Associations Liability Insurance Agency, Inc. for $1.2 million, which includes $0.9 million of cash paid at acquisition and $0.3 million associated with the present value of a contingent earn-out agreement. The earn-out is subject to the achievement of certain targets and may be adjusted in future periods based on actual performance achieved. Separately identifiable assets of the agency totaling $1.2 million and relating to acquired software, trade name and agency relationships were recognized. On March 4, 2015 we invested an additional $1.7 million in Prime Holdings Insurance Services, Inc. (Prime), increasing our total equity ownership to 27 percent. Prime writes business through two Illinois domiciled insurance carriers, Prime Insurance Company, an excess and surplus lines company, and Prime Property and Casualty Insurance Inc., an admitted insurance company. The investment in Prime is reflected on our balance sheet as an investment in unconsolidated investee. Under the equity method of accounting we recognize our proportionate share of Prime’s income as equity in earnings of unconsolidated investees. Our share of Prime’s earnings amounted to $0.3 million in the third quarter of 2016 and $0.9 million in the first nine months of 2016. Comparatively, our share of Prime’s earnings amounted to $0.2 million in the third quarter of 2015 and $0.9 million in the first nine months of 2015. |
SUMMARY OF SIGNIFICANT ACCOUN13
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2016 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
BASIS OF PRESENTATION | 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 September 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. |
ADOPTED ACCOUNTING STANDARDS | 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. |
PROSPECTIVE ACCOUNTING STANDARDS | 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: a. 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; b. 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; c. 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; d. For each accident year presented, quantitative information about claim frequency accompanied by a qualitative description of methodologies used for determining claim frequency information; and e. 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: a. 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; b. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; c. 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; d. Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; e. 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; f. 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 g. 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. The primary impact this guidance will have on our financial statements relates to the provision concerning the recognition of tax effects through the income statement. The impact to our income statement will vary depending upon the level of intrinsic value associated with option exercises in a particular period. 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. ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ASU 2016-15 was issued to reduce the diversity in practice of how certain cash receipts and payments, for which current guidance is silent, are classified in the statement of cash flows. The update addresses eight specific issues, including contingent consideration payments made after a business combination, distributions received from equity method investees and the classification of cash receipts and payments that have aspects of more than one class of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. Upon adoption, the update will be applied using the retrospective transition method. We have not yet completed the analysis of how adopting this ASU will affect our financial statements, but do not expect a material impact on our statement of cash flows. |
INTANGIBLE ASSETS | 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 $64.6 million and $71.3 million at September 30, 2016 and December 31, 2015, respectively, as detailed in the following table. Goodwill and Intangible Assets (in thousands) September 30, December 31, Reporting Unit 2016 2015 Goodwill Energy surety $ $ Miscellaneous and contract surety P&C package business Medical professional liability * Total goodwill $ $ Intangibles State insurance licenses $ $ Definite-lived intangibles, net of accumulated amortization of $5,339 at 9/30/16 and $4,678 at 12/31/15 Total intangibles $ $ Total goodwill and intangibles $ $ * The September 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 third quarter of 2016 and $0.7 million for the nine-month period ended September 30, 2016, compared to $0.2 million for the third quarter of 2015 and $0.7 million for the nine-month period ended September 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. Annual impairment testing was performed on our energy surety goodwill, miscellaneous and contract surety goodwill, P&C package business goodwill and state insurance license indefinite-lived intangible asset during the second quarter of 2016. Based upon these reviews, none of the assets were impaired. In addition, as of September 30, 2016, there were no triggering events that occurred on the above mentioned goodwill and intangible assets that would suggest an updated review was necessary. As disclosed in previous SEC filings, premium declines have decreased the fair value of our medical professional liability business in recent periods. Continuing rate and volume declines coupled with recent adverse loss experience resulted in a triggering event during the second quarter of 2016. A fair value was determined by using a weighted average of a market approach valuation and income approach (or discounted cash flow method) valuation. It was determined that the carrying cost of our medical professional liability goodwill exceeded the fair value. As a result, we recorded a $7.2 million non-cash impairment charge included as a net realized loss in the consolidated statement of earnings for the nine-month period ending September 30, 2016. There have been no additional triggering events subsequent to the second quarter 2016 impairment. As an additional consequence of the premium declines and adverse loss experience, the remaining portion of the contingent earn-out agreement associated with our acquisition of this medical professional liability business was eliminated, resulting in a $1.5 million reduction to expenses for the nine-month period ending September 30, 2016. |
EARNINGS PER SHARE | E. EARNINGS PER SHARE Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock or common stock equivalents were exercised or converted into common stock. When inclusion of common stock equivalents increases the earnings per share or reduces the loss per share, the effect on earnings is anti-dilutive. Under these circumstances, the diluted net earnings or net loss per share is computed excluding the common stock equivalents. 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 September 30, 2016 Ended September 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 $ $ $ $ Effect of Dilutive Securities Stock options - - Diluted EPS Income available to common shareholders $ $ $ $ For the Nine-Month Period For the Nine-Month Period Ended September 30, 2016 Ended September 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 $ $ $ $ Effect of Dilutive Securities Stock options - - Diluted EPS Income available to common shareholders $ $ $ $ |
COMPREHENSIVE EARNINGS | 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 nine months of 2016 were $33.9 million, compared to unrealized losses, net of tax, of $48.7 million during the same period last year. Unrealized gains in the first nine 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 Nine-Month Periods Ended September 30, Ended September 30, Unrealized Gains/Losses on Available-for-Sale Securities 2016 2015 2016 2015 Beginning balance $ $ $ $ Other comprehensive earnings before reclassifications Amounts reclassified from accumulated other comprehensive earnings Net current-period other comprehensive earnings (loss) $ $ $ $ Ending balance $ $ $ $ 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 Nine-Month Component of Accumulated Periods Ended September 30, Periods Ended September 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 $ $ $ $ Net realized gains - - Other-than-temporary impairment (OTTI) losses on investments $ $ $ $ Earnings before income taxes Income tax expense $ $ $ $ Net earnings |
SUMMARY OF SIGNIFICANT ACCOUN14
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of goodwill and intangible assets | Goodwill and Intangible Assets (in thousands) September 30, December 31, Reporting Unit 2016 2015 Goodwill Energy surety $ $ Miscellaneous and contract surety P&C package business Medical professional liability * Total goodwill $ $ Intangibles State insurance licenses $ $ Definite-lived intangibles, net of accumulated amortization of $5,339 at 9/30/16 and $4,678 at 12/31/15 Total intangibles $ $ Total goodwill and intangibles $ $ * The September 30, 2016 medical professional liability goodwill balance reflects a $7.2 million non-cash impairment charge recorded in the second quarter of 2016. |
Schedule of reconciliation of numerator and denominator of the basic and diluted earnings per share computations | For the Three-Month Period For the Three-Month Period Ended September 30, 2016 Ended September 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 $ $ $ $ Effect of Dilutive Securities Stock options - - Diluted EPS Income available to common shareholders $ $ $ $ For the Nine-Month Period For the Nine-Month Period Ended September 30, 2016 Ended September 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 $ $ $ $ Effect of Dilutive Securities Stock options - - Diluted EPS Income available to common shareholders $ $ $ $ |
Schedule of changes in the balance of each component of accumulated other comprehensive earnings | (in thousands) For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, Unrealized Gains/Losses on Available-for-Sale Securities 2016 2015 2016 2015 Beginning balance $ $ $ $ Other comprehensive earnings before reclassifications Amounts reclassified from accumulated other comprehensive earnings Net current-period other comprehensive earnings (loss) $ $ $ $ Ending balance $ $ $ $ |
Schedule of effects of reclassifications out of accumulated other comprehensive earnings | Amount Reclassified from Accumulated Other (in thousands) Comprehensive Earnings For the Three-Month For the Nine-Month Component of Accumulated Periods Ended September 30, Periods Ended September 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 $ $ $ $ Net realized gains - - Other-than-temporary impairment (OTTI) losses on investments $ $ $ $ Earnings before income taxes Income tax expense $ $ $ $ Net earnings |
INVESTMENTS (Tables)
INVESTMENTS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Schedule of securities in an unrealized loss position segregated by type and length of time in an unrealized loss position | September 30, 2016 December 31, 2015 (in thousands) < 12 Mos. 12 Mos. & Total < 12 Mos. 12 Mos. & Total U.S. Government Fair value $ $ — $ $ $ — $ Cost or amortized cost — — Unrealized Loss $ $ — $ $ $ — $ U.S. Agency Fair value $ — $ — $ — $ $ — $ Cost or amortized cost — — — — Unrealized Loss $ — $ — $ — $ $ — $ Non-U.S. government Fair value $ $ — $ $ $ — $ Cost or amortized cost — — Unrealized Loss $ $ — $ $ $ — $ Agency MBS Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ ABS/CMBS* Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Corporate Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Municipal Fair value $ $ — $ $ $ $ Cost or amortized cost — Unrealized Loss $ $ — $ $ $ $ Subtotal, fixed income Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Equity securities Fair value $ $ $ $ $ — $ Cost or amortized cost — Unrealized Loss $ $ $ $ $ — $ Total Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ * Non-agency asset-backed and commercial mortgage-backed |
Schedule of credit quality indicators for investments in unrealized loss positions | Equivalent Equivalent (dollars in thousands) NAIC S&P Moody’s Amortized Unrealized Percent Rating Rating Rating Cost Fair Value Loss to Total 1 AAA/AA/A Aaa/Aa/A $ $ $ % 2 BBB Baa % 3 BB Ba % 4 B B % 5 CCC or lower Caa or lower % 6 — — — — Total $ $ $ % |
Available for sale securities | |
Schedule of amortized cost and fair value of available-for-sale securities | Available-for-sale (in thousands) September 30, 2016 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ $ $ $ U.S. agency - Non-U.S. govt. & agency Agency MBS ABS/CMBS* Corporate Municipal Total Fixed Income $ $ $ $ Equity $ $ $ $ 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 $ $ $ $ U.S. agency Non-U.S. govt. & agency - Agency MBS ABS/CMBS* Corporate Municipal Total Fixed Income $ $ $ $ Equity $ $ $ $ *Non-agency asset-backed and commercial mortgage-backed |
Schedule of contractual maturity of securities | September 30, 2016 Available-for-sale Amortized Fair (in thousands) Cost Value Due in one year or less $ $ Due after one year through five years Due after five years through 10 years Due after 10 years Mtge/ABS/CMBS* Total available-for-sale $ $ *Mortgage-backed, asset-backed and commercial mortgage-backed |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
FAIR VALUE MEASUREMENTS | |
Schedule of assets measured at fair value on recurring basis | As of September 30, 2016 Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Available-for-sale securities U.S. government $ — $ $ — $ U.S. agency — — Non-U.S. govt. & agency — — Agency MBS — — ABS/CMBS* — — Corporate — — Municipal — — Equity — — Total available-for-sale securities $ $ $ — $ As of December 31, 2015 Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Available-for-sale securities U.S. government $ — $ $ — $ U.S. agency — — Non-U.S. govt. & agency — — Agency MBS — — ABS/CMBS* — — Corporate — — Municipal — — Equity — — Total available-for-sale securities $ $ $ — $ * Non-agency asset-backed and commercial mortgage-backed |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
INCOME TAXES | |
Schedule of reconciliation of income tax expense attributable to income from operations with amounts computed by applying the U.S. federal tax rate to pretax income from continuing operations | For the Three-Month Periods Ended September 30, For the Nine-Month Periods Ended September 30, 2016 2015 2016 2015 (in thousands) Amount % Amount % Amount % Amount % Provision for income taxes at the statutory rate of 35% $ % $ % $ % $ % Increase (reduction) in taxes resulting from: Tax exempt interest income % % % % Dividends received deduction % % % % ESOP dividends paid deduction % % % % Other items, net % % % % Total tax expense $ % $ % $ % $ % |
STOCK BASED COMPENSATION (Table
STOCK BASED COMPENSATION (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
STOCK BASED COMPENSATION | |
Schedule of stock option activity | Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2016 $ Options granted $ Options exercised $ $ Options canceled/forfeited $ Outstanding options at September 30, 2016 $ $ Exercisable options at September 30, 2016 $ $ Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2015 $ Options granted $ Options exercised $ $ Options canceled/forfeited $ Outstanding options at September 30, 2015 $ $ Exercisable options at September 30, 2015 $ $ |
Schedule of stock option assumptions for fair value estimate | 2016 2015 Weighted-average fair value of grants $ $ Risk-free interest rates % % Dividend yield % % Expected volatility % % Expected option life years years |
OPERATING SEGMENT INFORMATION (
OPERATING SEGMENT INFORMATION (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
OPERATING SEGMENT INFORMATION | |
Schedule of revenues and net earnings by segment | For the Three-Month Periods For the Nine-Month Periods REVENUES Ended September 30, Ended September 30, (in thousands) 2016 2015 2016 2015 Casualty $ $ $ $ Property Surety Net premiums earned $ $ $ $ Net investment income Net realized gains Total consolidated revenue $ $ $ $ NET EARNINGS (in thousands) 2016 2015 2016 2015 Casualty $ $ $ $ Property Surety Net underwriting income $ $ $ $ Net investment income Net realized gains General corporate expense and interest on debt Equity in earnings of unconsolidated investees Total earnings before income taxes $ $ $ $ Income tax expense Total net earnings $ $ $ $ |
Schedule of net premiums earned by major product type | For the Three-Month Periods For the Nine-Month Periods NET PREMIUMS EARNED Ended September 30, Ended September 30, (in thousands) 2016 2015 2016 2015 Casualty Commercial and personal umbrella $ $ $ $ General liability Commercial transportation Professional services P&C package business Executive products Medical professional liability Other casualty Total $ $ $ $ Property Commercial property $ $ $ $ Marine Specialty personal Property reinsurance Crop reinsurance Other property - - Total $ $ $ $ Surety Miscellaneous $ $ $ $ Commercial Contract Energy Total $ $ $ $ Grand Total $ $ $ $ |
SUMMARY OF SIGNIFICANT ACCOUN20
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Standards (Details) - USD ($) $ in Millions | 9 Months Ended | 12 Months Ended |
Sep. 30, 2016 | Dec. 31, 2015 | |
Maximum period of disclosure under ASU 2015-09 | 10 years | |
Accounting Standards Update 2015-03 | Restatement Adjustment | ||
New accounting pronouncement or change in accounting principle effect of change in other assets and long term debt | $ 1.1 |
SUMMARY OF SIGNIFICANT ACCOUN21
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Intangible Assets and EPS (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | |||||
Sep. 30, 2016 | Jun. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | ||
INTANGIBLE ASSETS | |||||||
Goodwill | $ 51,270 | $ 51,270 | $ 58,496 | ||||
Definite-lived intangibles, net of accumulated amortization of $5,339 at 9/30/16 and $4,678 at 12/31/15 | 5,808 | 5,808 | 5,298 | ||||
Total intangibles | 13,308 | 13,308 | 12,798 | ||||
Goodwill and intangibles | 64,578 | 64,578 | 71,294 | ||||
Accumulated amortization of definite-lived intangibles | 5,339 | 5,339 | 4,678 | ||||
Amortization of intangible assets | 200 | $ 200 | 700 | $ 700 | |||
Finite-lived Intangible Assets Acquired | 1,200 | ||||||
Basic EPS, Income (Numerator) | |||||||
Income available to common shareholders | 22,263 | 35,908 | 82,733 | 103,691 | |||
Diluted EPS, Income (Numerator) | |||||||
Income available to common shareholders | $ 22,263 | $ 35,908 | $ 82,733 | $ 103,691 | |||
Basic EPS, Weighted Average Shares (Denominator) | |||||||
Number of shares outstanding | 43,843 | 43,342 | 43,721 | 43,232 | |||
Effect of Dilutive Securities, Shares (Denominator) | |||||||
Stock options (in shares) | 649 | 811 | 695 | 799 | |||
Diluted EPS, Weighted Average Shares (Denominator) | |||||||
Number of shares outstanding | 44,492 | 44,153 | 44,416 | 44,031 | |||
Basic EPS, Per Share Amount | |||||||
Basic net earnings per share (in dollars per share) | $ 0.51 | $ 0.83 | $ 1.89 | $ 2.40 | |||
Diluted EPS, Per Share Amount | |||||||
Diluted earnings per share (in dollars per share) | $ 0.50 | $ 0.81 | $ 1.86 | $ 2.35 | |||
Contractors Bonding and Insurance Company | |||||||
INTANGIBLE ASSETS | |||||||
State insurance licenses | $ 7,500 | $ 7,500 | 7,500 | ||||
Energy Surety | |||||||
INTANGIBLE ASSETS | |||||||
Goodwill | 25,706 | 25,706 | 25,706 | ||||
Miscellaneous and Contract Surety | |||||||
INTANGIBLE ASSETS | |||||||
Goodwill | 15,110 | 15,110 | 15,110 | ||||
P&C package business | |||||||
INTANGIBLE ASSETS | |||||||
Goodwill | 5,246 | 5,246 | 5,246 | ||||
Medical professional liability | |||||||
INTANGIBLE ASSETS | |||||||
Goodwill | [1] | 5,208 | 5,208 | $ 12,434 | |||
Goodwill, Impairment Loss | $ 7,200 | ||||||
Goodwill, Impaired, Accumulated Impairment Loss | $ 7,200 | 7,200 | |||||
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability | $ 1,500 | ||||||
[1] | The September 30, 2016 medical professional liability goodwill balance reflects a $7.2 million non-cash impairment charge recorded in the second quarter of 2016. |
SUMMARY OF SIGNIFICANT ACCOUN22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unrealized Gains and Losses (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Changes in the balance of each component of accumulated other comprehensive earnings | ||||
Tax rate used (as a percent) | 35.00% | 35.00% | 35.00% | 35.00% |
Changes in the balance of each component of accumulated other comprehensive earnings | ||||
Beginning balance | $ 123,774 | |||
Net current-period other comprehensive earnings (loss) | $ (6,931) | $ (16,136) | 33,898 | $ (48,663) |
Ending balance | 157,672 | 157,672 | ||
Unrealized Gains and Losses on Available-for-Sale Securities | ||||
Changes in the balance of each component of accumulated other comprehensive earnings | ||||
Beginning balance | 164,603 | 138,856 | 123,774 | 171,383 |
Other comprehensive earnings before reclassifications | (572) | (11,257) | 54,159 | (32,020) |
Amounts reclassified from accumulated other comprehensive earnings | (6,359) | (4,879) | (20,261) | (16,643) |
Net current-period other comprehensive earnings (loss) | (6,931) | (16,136) | 33,898 | (48,663) |
Ending balance | $ 157,672 | $ 122,720 | $ 157,672 | $ 122,720 |
SUMMARY OF SIGNIFICANT ACCOUN23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reclassification (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2016 | Jun. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Amount Reclassified from Accumulated Other Comprehensive Earnings | |||||
Net realized gains | $ 9,347 | $ 7,534 | $ 23,457 | $ 25,622 | |
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net | 95 | 95 | |||
Earnings before income taxes | 31,142 | 51,937 | 119,076 | 151,100 | |
Income tax expense | (8,879) | (16,029) | (36,343) | (47,409) | |
Net earnings | $ 22,263 | 35,908 | 82,733 | 103,691 | |
Reclassifications out of accumulated other comprehensive earnings | Unrealized Gains and Losses on Available-for-Sale Securities | |||||
Amount Reclassified from Accumulated Other Comprehensive Earnings | |||||
Net realized gains | $ 9,878 | 7,507 | 31,266 | 25,604 | |
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net | 95 | 95 | |||
Earnings before income taxes | 9,783 | 7,507 | 31,171 | 25,604 | |
Income tax expense | (3,424) | (2,628) | (10,910) | (8,961) | |
Net earnings | $ 6,359 | $ 4,879 | $ 20,261 | $ 16,643 |
INVESTMENTS (Details)
INVESTMENTS (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 | |
Amortized Cost | |||
Due in one year or less | $ 29,101 | ||
Due after one year through five years | 357,543 | ||
Due after five years through 10 years | 544,117 | ||
Due after 10 years | 275,190 | ||
Mtge/ABS/CMBS | [1] | 418,917 | |
Total amortized cost | 1,624,868 | $ 1,518,156 | |
Fair Value | |||
Due in one year or less | 29,173 | ||
Due after one year through five years | 365,930 | ||
Due after five years through 10 years | 571,544 | ||
Due after 10 years | 290,637 | ||
Mtge/ABS/CMBS | [1] | 430,321 | |
Total fair value | 1,687,605 | 1,538,110 | |
Fair value measured on recurring basis | |||
Available-for-sale | |||
Fair Value | 2,069,887 | 1,913,534 | |
Fair value measured on recurring basis | Significant Unobservable Inputs (Level 3) | |||
INVESTMENTS | |||
Total assets at fair value | 0 | ||
Debt securities | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | 1,624,868 | 1,518,156 | |
Gross Unrealized Gains | 68,148 | 37,750 | |
Gross Unrealized Losses | (5,411) | (17,796) | |
Fair Value | 1,687,605 | 1,538,110 | |
U.S. government | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | 82,796 | 43,597 | |
Gross Unrealized Gains | 1,523 | 58 | |
Gross Unrealized Losses | (6) | (112) | |
Fair Value | 84,313 | 43,543 | |
U.S. Agency | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | 11,493 | 15,481 | |
Gross Unrealized Gains | 807 | 306 | |
Gross Unrealized Losses | (47) | ||
Fair Value | 12,300 | 15,740 | |
Non-U.S. govt. & agency | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | 6,037 | 5,035 | |
Gross Unrealized Gains | 153 | ||
Gross Unrealized Losses | (190) | (557) | |
Fair Value | 6,000 | 4,478 | |
Agency MBS | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | 302,761 | 250,060 | |
Gross Unrealized Gains | 9,603 | 6,451 | |
Gross Unrealized Losses | (279) | (1,619) | |
Fair Value | 312,085 | 254,892 | |
ABS/CMBS | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | [2] | 116,156 | 91,559 |
Gross Unrealized Gains | [2] | 2,322 | 995 |
Gross Unrealized Losses | [2] | (242) | (606) |
Fair Value | [2] | 118,236 | 91,948 |
Corporate | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | 563,045 | 523,351 | |
Gross Unrealized Gains | 22,093 | 8,565 | |
Gross Unrealized Losses | (4,464) | (14,807) | |
Fair Value | 580,674 | 517,109 | |
Municipal | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | 542,580 | 589,073 | |
Gross Unrealized Gains | 31,647 | 21,375 | |
Gross Unrealized Losses | (230) | (48) | |
Fair Value | 573,997 | 610,400 | |
Equity securities | |||
Available-for-sale | |||
Available-for-sale Securities, Amortized Cost Basis, Total | 200,595 | 202,437 | |
Gross Unrealized Gains | 182,616 | 174,443 | |
Gross Unrealized Losses | (929) | (1,456) | |
Fair Value | $ 382,282 | $ 375,424 | |
[1] | Mortgage-backed, asset-backed and commercial mortgage-backed | ||
[2] | Non-agency asset-backed and commercial mortgage-backed |
INVESTMENTS Unrealized Losses (
INVESTMENTS Unrealized Losses (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 | |
Investment positions with unrealized losses | |||
Unrealized losses relative to total invested assets (as a percent) | 0.30% | ||
Fair value | |||
Less than 12 months | $ 138,365 | $ 500,405 | |
12 Months and Greater | 41,858 | 44,476 | |
Total Fair value | 180,223 | 544,881 | |
Cost or amortized Cost | |||
Less than 12 months | 139,703 | 514,250 | |
12 months and greater | 46,860 | 49,883 | |
Total Cost or Amortized Cost | 186,563 | 564,133 | |
Unrealized Loss | |||
Less than 12 months | (1,338) | (13,845) | |
12 Months and Greater | (5,002) | (5,407) | |
Total Unrealized Loss | (6,340) | (19,252) | |
Debt securities | |||
Fair value | |||
Less than 12 months | 134,294 | 483,929 | |
12 Months and Greater | 39,633 | 44,476 | |
Total Fair value | 173,927 | 528,405 | |
Cost or amortized Cost | |||
Less than 12 months | 135,126 | 496,318 | |
12 months and greater | 44,212 | 49,883 | |
Total Cost or Amortized Cost | 179,338 | 546,201 | |
Unrealized Loss | |||
Less than 12 months | (832) | (12,389) | |
12 Months and Greater | (4,579) | (5,407) | |
Total Unrealized Loss | $ (5,411) | (17,796) | |
Percent to Total | 100.00% | ||
Debt securities | NAIC Rating 1 | AAA/AA/A | Aaa/Aa/A | |||
Fair value | |||
Total Fair value | $ 142,648 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 143,545 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (897) | ||
Percent to Total | 16.60% | ||
Debt securities | NAIC Rating 2 | BBB | Baa | |||
Fair value | |||
Total Fair value | $ 11,499 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 11,779 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (280) | ||
Percent to Total | 5.20% | ||
Debt securities | NAIC Rating 3 | BB | Ba | |||
Fair value | |||
Total Fair value | $ 1,719 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 1,796 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (77) | ||
Percent to Total | 1.40% | ||
Debt securities | NAIC Rating 4 | B | |||
Fair value | |||
Total Fair value | $ 14,594 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 17,186 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (2,592) | ||
Percent to Total | 47.90% | ||
Debt securities | NAIC Rating 5 | CCC or lower | |||
Fair value | |||
Total Fair value | $ 3,467 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 5,032 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (1,565) | ||
Percent to Total | 28.90% | ||
U.S. government | |||
Fair value | |||
Less than 12 months | $ 2,021 | 36,000 | |
Total Fair value | 2,021 | 36,000 | |
Cost or amortized Cost | |||
Less than 12 months | 2,027 | 36,112 | |
Total Cost or Amortized Cost | 2,027 | 36,112 | |
Unrealized Loss | |||
Less than 12 months | (6) | (112) | |
Total Unrealized Loss | (6) | (112) | |
U.S. Agency | |||
Fair value | |||
Less than 12 months | 8,070 | ||
Total Fair value | 8,070 | ||
Cost or amortized Cost | |||
Less than 12 months | 8,117 | ||
Total Cost or Amortized Cost | 8,117 | ||
Unrealized Loss | |||
Less than 12 months | (47) | ||
Total Unrealized Loss | (47) | ||
Non-U.S. govt. & agency | |||
Fair value | |||
Less than 12 months | 3,849 | 4,478 | |
Total Fair value | 3,849 | 4,478 | |
Cost or amortized Cost | |||
Less than 12 months | 4,039 | 5,035 | |
Total Cost or Amortized Cost | 4,039 | 5,035 | |
Unrealized Loss | |||
Less than 12 months | (190) | (557) | |
Total Unrealized Loss | (190) | (557) | |
Agency MBS | |||
Fair value | |||
Less than 12 months | 42,710 | 100,424 | |
12 Months and Greater | 9,028 | 18,520 | |
Total Fair value | 51,738 | 118,944 | |
Cost or amortized Cost | |||
Less than 12 months | 42,789 | 101,473 | |
12 months and greater | 9,228 | 19,090 | |
Total Cost or Amortized Cost | 52,017 | 120,563 | |
Unrealized Loss | |||
Less than 12 months | (79) | (1,049) | |
12 Months and Greater | (200) | (570) | |
Total Unrealized Loss | (279) | (1,619) | |
ABS/CMBS | |||
Fair value | |||
Less than 12 months | [1] | 31,680 | 51,091 |
12 Months and Greater | [1] | 6,540 | 8,364 |
Total Fair value | [1] | 38,220 | 59,455 |
Cost or amortized Cost | |||
Less than 12 months | [1] | 31,848 | 51,562 |
12 months and greater | [1] | 6,614 | 8,499 |
Total Cost or Amortized Cost | [1] | 38,462 | 60,061 |
Unrealized Loss | |||
Less than 12 months | [1] | (168) | (471) |
12 Months and Greater | [1] | (74) | (135) |
Total Unrealized Loss | [1] | (242) | (606) |
Corporate | |||
Fair value | |||
Less than 12 months | 23,768 | 275,404 | |
12 Months and Greater | 24,065 | 15,174 | |
Total Fair value | 47,833 | 290,578 | |
Cost or amortized Cost | |||
Less than 12 months | 23,927 | 285,515 | |
12 months and greater | 28,370 | 19,870 | |
Total Cost or Amortized Cost | 52,297 | 305,385 | |
Unrealized Loss | |||
Less than 12 months | (159) | (10,111) | |
12 Months and Greater | (4,305) | (4,696) | |
Total Unrealized Loss | (4,464) | (14,807) | |
Municipal | |||
Fair value | |||
Less than 12 months | 30,266 | 8,462 | |
12 Months and Greater | 2,418 | ||
Total Fair value | 30,266 | 10,880 | |
Cost or amortized Cost | |||
Less than 12 months | 30,496 | 8,504 | |
12 months and greater | 2,424 | ||
Total Cost or Amortized Cost | 30,496 | 10,928 | |
Unrealized Loss | |||
Less than 12 months | (230) | (42) | |
12 Months and Greater | (6) | ||
Total Unrealized Loss | (230) | (48) | |
Equity securities | |||
Fair value | |||
Less than 12 months | 4,071 | 16,476 | |
12 Months and Greater | 2,225 | ||
Total Fair value | 6,296 | 16,476 | |
Cost or amortized Cost | |||
Less than 12 months | 4,577 | 17,932 | |
12 months and greater | 2,648 | ||
Total Cost or Amortized Cost | 7,225 | 17,932 | |
Unrealized Loss | |||
Less than 12 months | (506) | (1,456) | |
12 Months and Greater | (423) | ||
Total Unrealized Loss | $ (929) | $ (1,456) | |
[1] | Non-agency asset-backed and commercial mortgage-backed |
INVESTMENTS Debt Securities and
INVESTMENTS Debt Securities and Common Stock (Details) | 9 Months Ended | ||
Sep. 30, 2016USD ($)securityposition | Sep. 30, 2015USD ($) | Dec. 31, 2015USD ($) | |
Securities in unrealized loss positions | |||
Unrealized Loss | $ 6,340,000 | $ 19,252,000 | |
Debt securities | |||
Securities in unrealized loss positions | |||
Number of unrealized loss positions | position | 130 | ||
Number of securities in unrealized loss positions for 12 months or longer | security | 58 | ||
Unrealized Loss | $ 5,400,000 | ||
Unrealized losses as percentage of fixed income portfolio cost basis | 0.30% | ||
Other than Temporary Impairment Losses recognized in earnings | $ 100,000 | $ 0 | |
Other than Temporary Impairment Losses recognized in other comprehensive earnings | $ 0 | 0 | |
Common Stock | |||
Securities in unrealized loss positions | |||
Number of unrealized loss positions | position | 3 | ||
Number of securities in unrealized loss positions for 12 months or longer | security | 1 | ||
Unrealized Loss | $ 900,000 | ||
Other-than-temporary impairment (OTTI) losses | $ 0 | $ 0 |
INVESTMENTS Debt and Short-term
INVESTMENTS Debt and Short-term Investments (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2016USD ($)item | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($)item | Sep. 30, 2015USD ($) | Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($) | |
Other invested assets | ||||||
Other investments | $ 24,502 | $ 24,502 | $ 20,666 | |||
Total tax benefit on investments in housing tax credit partnership | 400 | $ 300 | 1,200 | $ 800 | ||
Investment in FHLBC | 1,600 | 1,600 | 1,600 | |||
Cash and Short-term Investments | ||||||
Cash | 13,970 | $ 28,188 | 13,970 | $ 28,188 | 11,081 | $ 30,620 |
Short-term investments, at cost which approximates fair value | $ 8,392 | $ 8,392 | 6,262 | |||
Investment In Low Income Housing Tax Credit Partnership Net Of Amortization | ||||||
Other invested assets | ||||||
Number of investments in low income housing tax credit partnerships | item | 3 | 3 | ||||
Other investments | $ 17,900 | $ 17,900 | 14,000 | |||
Investment in Real Estate Fund | ||||||
Other invested assets | ||||||
Other investments | 5,000 | 5,000 | 5,000 | |||
Other investments fair value | $ 5,100 | $ 5,100 | $ 5,000 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Transfers in (out of) level 1 | $ 0 | ||
Transfers in (out of) level 2 | 0 | ||
Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 2,069,887 | $ 1,913,534 | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 382,282 | 375,424 | |
Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 1,687,605 | 1,538,110 | |
U.S. government | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 84,313 | 43,543 | |
U.S. government | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 84,313 | 43,543 | |
U.S. Agency | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 12,300 | 15,740 | |
U.S. Agency | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 12,300 | 15,740 | |
Non-U.S. govt. & agency | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 6,000 | 4,478 | |
Non-U.S. govt. & agency | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 6,000 | 4,478 | |
Agency MBS | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 312,085 | 254,892 | |
Agency MBS | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 312,085 | 254,892 | |
ABS/CMBS | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | [1] | 118,236 | 91,948 |
ABS/CMBS | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | [1] | 118,236 | 91,948 |
Corporate. | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 580,674 | 517,109 | |
Corporate. | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 580,674 | 517,109 | |
Municipal | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 573,997 | 610,400 | |
Municipal | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 573,997 | 610,400 | |
Equity securities | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 382,282 | 375,424 | |
Equity securities | Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | $ 382,282 | $ 375,424 | |
[1] | Non-agency asset-backed and commercial mortgage-backed |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Reconciliation of income tax expense reported to amount computed by applying the U.S. federal tax rate | ||||
Provision for income taxes at the statutory rate of 35% | $ 10,900 | $ 18,178 | $ 41,677 | $ 52,885 |
Tax-exempt interest income | (1,020) | (1,082) | (3,149) | (3,098) |
Dividends received deduction | (626) | (603) | (1,676) | (1,715) |
ESOP dividends paid deduction | (238) | (234) | (714) | (693) |
Other items, net | (137) | (230) | 205 | 30 |
Total tax expense | $ 8,879 | $ 16,029 | $ 36,343 | $ 47,409 |
Reconciliation of income tax expense rate to the U.S. federal tax rate | ||||
U.S. federal tax rate (as a percent) | 35.00% | 35.00% | 35.00% | 35.00% |
Effective rate reduction due to tax exempt interest income (as a percent) | (3.20%) | (2.10%) | (2.60%) | (2.00%) |
Effective rate reduction due to dividend received (as a percent) | (2.00%) | (1.20%) | (1.40%) | (1.10%) |
Effective rate reduction due to dividend paid to ESOP (as a percent) | (0.80%) | (0.40%) | (0.60%) | (0.50%) |
Effective rate reduction due to other items, net (as a percent) | (0.50%) | (0.40%) | 0.10% | (0.00%) |
Effective tax rates (as a percent) | 28.50% | 30.90% | 30.50% | 31.40% |
STOCK BASED COMPENSATION (Detai
STOCK BASED COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | 17 Months Ended | 60 Months Ended | |||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | May 06, 2015 | May 05, 2010 | |
Weighted Number of Options Outstanding | |||||||
Outstanding options at the beginning of the period (in shares) | 2,582,220 | 2,892,717 | |||||
Options granted (in shares) | 410,250 | 517,000 | |||||
Options exercised (in shares) | (638,675) | (511,187) | |||||
Options canceled/forfeited (in shares) | (8,940) | (4,560) | |||||
Outstanding options at the end of the period (in shares) | 2,344,855 | 2,893,970 | 2,344,855 | 2,893,970 | 2,344,855 | ||
Exercisable options at the end of the period (in shares) | 939,785 | 1,197,470 | 939,785 | 1,197,470 | 939,785 | ||
Weighted Average Exercise Price | |||||||
Outstanding options at the beginning of the period (in dollars per share) | $ 32.42 | $ 26.65 | |||||
Options granted (in dollars per share) | 64.15 | 50.09 | |||||
Options exercised (in dollars per share) | 23.67 | 18.27 | |||||
Options canceled/forfeited (in dollars per share) | 41.90 | 31.87 | |||||
Outstanding options at the end of the period (in dollars per share) | $ 40.32 | $ 32.31 | 40.32 | 32.31 | $ 40.32 | ||
Exercisable options at the end of the period (in dollars per share) | $ 31.10 | $ 23.89 | $ 31.10 | $ 23.89 | $ 31.10 | ||
Weighted Average Remaining Contractual Life | |||||||
Weighted-average remaining contractual term of options outstanding | 5 years 1 month 13 days | 5 years 3 months 15 days | |||||
Weighted-average remaining contractual term of exercisable options | 3 years 6 months 29 days | 4 years 4 days | |||||
Aggregate Intrinsic Value | |||||||
Options exercised (in dollars) | $ 27,704 | $ 17,845 | |||||
Outstanding options at the end of the period (in dollars) | $ 65,748 | $ 61,522 | 65,748 | 61,522 | $ 65,748 | ||
Exercisable options at the end of the period (in dollars) | 35,016 | 35,497 | $ 35,016 | $ 35,497 | 35,016 | ||
Weighted-average fair value of grants (in dollars per share) | $ 11.47 | $ 9.04 | |||||
Stock-based compensation expenses (in dollars) | 1,000 | 1,100 | $ 3,200 | $ 3,000 | |||
Income tax benefit from stock-based compensation (in dollars) | 400 | $ 400 | 1,100 | $ 1,100 | |||
Unrecognized stock-based compensation expense (in dollars) | $ 7,100 | $ 7,100 | $ 7,100 | ||||
Weighted average grant date assumptions and weighted average fair value | |||||||
Weighted-average fair value of grants (in dollars per share) | $ 11.47 | $ 9.04 | |||||
Risk-free interest rates (as a percent) | 1.21% | 1.53% | |||||
Dividend yield (as a percent) | 1.61% | 1.81% | |||||
Expected volatility (as a percent) | 23.06% | 22.89% | |||||
Expected option life | 5 years 15 days | 5 years 2 months 16 days | |||||
Period for which annualized dividends is considered to calculate dividend yield | 5 years | ||||||
RLI Corp. Long-Term Incentive Plan (LTIP) and Omnibus Stock Plan | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Award vesting period | 5 years | ||||||
Term of options | 8 years | ||||||
Age and period of service of the participant to be eligible for retirement | 75 years | ||||||
Omnibus Stock Plan | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Shares authorized for grant | 3,000,000 | ||||||
Weighted Number of Options Outstanding | |||||||
Options granted (in shares) | 2,458,059 | ||||||
RLI Corp. Long-Term Incentive Plan (2010 LTIP) | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Shares authorized for grant | 4,000,000 | ||||||
Weighted Number of Options Outstanding | |||||||
Options granted (in shares) | 2,878,000 | ||||||
RLI Corp. Long-Term Incentive Plan (2015 LITP) | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Shares authorized for grant | 4,000,000 | 4,000,000 | 4,000,000 | ||||
Weighted Number of Options Outstanding | |||||||
Options granted (in shares) | 410,250 | 920,250 |
OPERATING SEGMENT INFORMATION31
OPERATING SEGMENT INFORMATION (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
REVENUES | ||||
Net premiums earned | $ 183,595 | $ 179,448 | $ 540,739 | $ 520,790 |
Net investment income | 13,504 | 13,964 | 39,922 | 40,890 |
Net realized gains | 9,252 | 7,534 | 23,362 | 25,622 |
Consolidated revenue | 206,351 | 200,946 | 604,023 | 587,302 |
NET EARNINGS (LOSSES) | ||||
Net underwriting income | 10,604 | 33,593 | 57,924 | 86,067 |
Net investment income | 13,504 | 13,964 | 39,922 | 40,890 |
Net realized gains | 9,252 | 7,534 | 23,362 | 25,622 |
General corporate expense and interest on debt | (4,099) | (3,815) | (12,955) | (12,520) |
Equity in earnings of unconsolidated investees | 1,881 | 661 | 10,823 | 11,041 |
Earnings before income taxes | 31,142 | 51,937 | 119,076 | 151,100 |
Income tax expense | 8,879 | 16,029 | 36,343 | 47,409 |
Net earnings | 22,263 | 35,908 | 82,733 | 103,691 |
Casualty segment | ||||
REVENUES | ||||
Net premiums earned | 115,619 | 105,160 | 336,572 | 305,842 |
NET EARNINGS (LOSSES) | ||||
Net underwriting income | 259 | 13,651 | 20,490 | 38,124 |
Property segment | ||||
REVENUES | ||||
Net premiums earned | 37,532 | 44,685 | 114,011 | 128,084 |
NET EARNINGS (LOSSES) | ||||
Net underwriting income | 468 | 9,216 | 13,911 | 22,220 |
Surety segment | ||||
REVENUES | ||||
Net premiums earned | 30,444 | 29,603 | 90,156 | 86,864 |
NET EARNINGS (LOSSES) | ||||
Net underwriting income | $ 9,877 | $ 10,726 | $ 23,523 | $ 25,723 |
OPERATING SEGMENT INFORMATION M
OPERATING SEGMENT INFORMATION Major Products (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Revenue by major product | ||||
Net premiums earned | $ 183,595 | $ 179,448 | $ 540,739 | $ 520,790 |
Casualty segment | ||||
Revenue by major product | ||||
Net premiums earned | 115,619 | 105,160 | 336,572 | 305,842 |
Casualty segment | Commercial and personal umbrella | ||||
Revenue by major product | ||||
Net premiums earned | 27,844 | 26,500 | 82,510 | 77,809 |
Casualty segment | General liability | ||||
Revenue by major product | ||||
Net premiums earned | 20,821 | 20,146 | 61,573 | 60,725 |
Casualty segment | Commercial transportation | ||||
Revenue by major product | ||||
Net premiums earned | 21,557 | 17,464 | 60,037 | 47,262 |
Casualty segment | Professional services | ||||
Revenue by major product | ||||
Net premiums earned | 19,318 | 18,140 | 56,748 | 52,861 |
Casualty segment | P&C package business | ||||
Revenue by major product | ||||
Net premiums earned | 11,706 | 10,257 | 33,973 | 29,815 |
Casualty segment | Executive products | ||||
Revenue by major product | ||||
Net premiums earned | 4,716 | 4,459 | 14,126 | 13,745 |
Casualty segment | Medical professional liability | ||||
Revenue by major product | ||||
Net premiums earned | 4,512 | 3,032 | 12,509 | 9,168 |
Casualty segment | Other casualty | ||||
Revenue by major product | ||||
Net premiums earned | 5,145 | 5,162 | 15,096 | 14,457 |
Property segment | ||||
Revenue by major product | ||||
Net premiums earned | 37,532 | 44,685 | 114,011 | 128,084 |
Property segment | Commercial property | ||||
Revenue by major product | ||||
Net premiums earned | 16,819 | 18,546 | 51,528 | 57,498 |
Property segment | Marine | ||||
Revenue by major product | ||||
Net premiums earned | 11,964 | 12,029 | 36,070 | 34,930 |
Property segment | Specialty Personal | ||||
Revenue by major product | ||||
Net premiums earned | 6,186 | 6,535 | 18,731 | 19,982 |
Property segment | Property reinsurance | ||||
Revenue by major product | ||||
Net premiums earned | 2,544 | 3,029 | 7,925 | 9,388 |
Property segment | Crop reinsurance | ||||
Revenue by major product | ||||
Net premiums earned | 19 | 4,523 | 6,210 | |
Net premiums earned | (243) | |||
Property segment | Other property | ||||
Revenue by major product | ||||
Net premiums earned | 23 | 76 | ||
Surety segment | ||||
Revenue by major product | ||||
Net premiums earned | 30,444 | 29,603 | 90,156 | 86,864 |
Surety segment | Miscellaneous | ||||
Revenue by major product | ||||
Net premiums earned | 11,714 | 10,659 | 34,304 | 31,316 |
Surety segment | Commercial surety product | ||||
Revenue by major product | ||||
Net premiums earned | 7,221 | 7,546 | 22,030 | 22,039 |
Surety segment | Contract | ||||
Revenue by major product | ||||
Net premiums earned | 6,906 | 7,472 | 20,332 | 21,091 |
Surety segment | Energy Surety | ||||
Revenue by major product | ||||
Net premiums earned | $ 4,603 | $ 3,926 | $ 13,490 | $ 12,418 |
ACQUISITION (Details)
ACQUISITION (Details) $ in Thousands | Feb. 29, 2016USD ($) | Mar. 04, 2015USD ($)item | Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) |
Business acquisition | ||||||
Finite-lived Intangible Assets Acquired | $ 1,200 | |||||
Amount of investment | $ 1,711 | |||||
Equity in earnings of unconsolidated investees | $ 1,881 | $ 661 | 10,823 | 11,041 | ||
Cash consideration for purchase of agency | 850 | |||||
Associations Liability Insurance Agency | ||||||
Business acquisition | ||||||
Finite-lived Intangible Assets Acquired | $ 1,200 | |||||
Total business acquisition consideration | 1,200 | |||||
Cash consideration for purchase of agency | 900 | |||||
Present value of an earn-out agreement to be paid in future years | $ 300 | |||||
Prime Holdings Insurance Services, Inc. (Prime) | ||||||
Business acquisition | ||||||
Amount of investment | $ 1,700 | |||||
Equity ownership interest (as a percent) | 27.00% | |||||
Equity in earnings of unconsolidated investees | $ 300 | $ 200 | $ 900 | $ 900 | ||
Number of insurance subsidiaries | item | 2 |