Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Oct. 13, 2017 | |
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, 2017 | |
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 | 44,059,831 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 |
Consolidated Statements of Earn
Consolidated Statements of Earnings and Comprehensive Earnings - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Condensed Consolidated Statements of Earnings and Comprehensive Earnings | ||||
Net premiums earned | $ 182,025 | $ 183,595 | $ 549,641 | $ 540,739 |
Net investment income | 14,187 | 13,504 | 40,430 | 39,922 |
Net realized gains | 35 | 9,347 | 1,390 | 23,457 |
Other-than-temporary-impairment (OTTI) losses on investments | (95) | (2,090) | (95) | |
Consolidated revenue | 196,247 | 206,351 | 589,371 | 604,023 |
Losses and settlement expenses | 123,190 | 97,892 | 306,927 | 259,340 |
Policy acquisition costs | 62,066 | 61,761 | 186,264 | 184,525 |
Insurance operating expenses | 11,701 | 13,338 | 38,582 | 38,950 |
Interest expense on debt | 1,856 | 1,857 | 5,569 | 5,570 |
General corporate expenses | 1,956 | 2,242 | 7,816 | 7,385 |
Total expenses | 200,769 | 177,090 | 545,158 | 495,770 |
Equity in earnings of unconsolidated investees | 3,660 | 1,881 | 15,404 | 10,823 |
Earnings (loss) before income taxes | (862) | 31,142 | 59,617 | 119,076 |
Income tax expense: | ||||
Total tax expense (benefit) | (2,596) | 8,879 | 11,847 | 36,343 |
Net earnings | 1,734 | 22,263 | 47,770 | 82,733 |
Other comprehensive earnings (loss), net of tax | 8,444 | (6,931) | 30,812 | 33,898 |
Comprehensive earnings | $ 10,178 | $ 15,332 | $ 78,582 | $ 116,631 |
Basic: | ||||
Net earnings per share (in dollars per share) | $ 0.04 | $ 0.51 | $ 1.09 | $ 1.89 |
Comprehensive earnings per share (in dollars per share) | 0.23 | 0.35 | 1.79 | 2.67 |
Diluted: | ||||
Net earnings per share (in dollars per share) | 0.04 | 0.50 | 1.07 | 1.86 |
Comprehensive earnings per share (in dollars per share) | $ 0.23 | $ 0.34 | $ 1.77 | $ 2.63 |
Weighted average number of common shares outstanding | ||||
Basic (in shares) | 44,058 | 43,843 | 44,008 | 43,721 |
Diluted (in shares) | 44,515 | 44,492 | 44,517 | 44,416 |
Cash dividends paid per common share | $ 0.21 | $ 0.20 | $ 0.62 | $ 0.59 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Fixed income: | ||
Available-for-sale, at fair value (amortized cost - $1,680,321 at 9/30/17 and $1,596,227 at 12/31/16) | $ 1,713,558 | $ 1,605,209 |
Equity securities available-for-sale, at fair value (cost - $189,212 at 9/30/17 and $187,573 at 12/31/16 | 393,213 | 369,219 |
Short-term investments, at cost which approximates fair value | 11,925 | 5,015 |
Other invested assets | 25,998 | 24,115 |
Cash | 26,877 | 18,269 |
Total investments and cash | 2,171,571 | 2,021,827 |
Accrued investment income | 15,161 | 14,593 |
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $16,543 at 9/30/17 and $15,981 at 12/31/16 | 127,388 | 126,387 |
Ceded unearned premium | 54,186 | 52,173 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $10,066 at 9/30/17 and $10,699 at 12/31/16 | 291,074 | 288,224 |
Deferred policy acquisition costs | 77,782 | 73,147 |
Property and equipment, at cost, net of accumulated depreciation of $45,927 at 9/30/17 and $41,999 at 12/31/16 | 55,770 | 54,606 |
Investment in unconsolidated investees | 88,374 | 72,240 |
Goodwill and intangibles | 59,427 | 64,371 |
Other assets | 15,787 | 10,065 |
TOTAL ASSETS | 2,956,520 | 2,777,633 |
Liabilities: | ||
Unpaid losses and settlement expenses | 1,253,729 | 1,139,337 |
Unearned premiums | 443,110 | 433,777 |
Reinsurance balances payable | 21,006 | 17,928 |
Funds held | 75,294 | 72,742 |
Income taxes - deferred | 84,982 | 64,494 |
Bonds payable, long-term debt | 148,881 | 148,741 |
Accrued expenses | 35,682 | 51,992 |
Other liabilities | 14,680 | 25,050 |
TOTAL LIABILITIES | 2,077,364 | 1,954,061 |
Shareholders' Equity | ||
Common stock ($1 par value, authorized 100,000,000 shares, issued 66,990,045 shares at 9/30/17 and 66,874,911 shares at 12/31/16, and outstanding 44,059,831 shares at 9/30/17 and 43,944,697 shares at 12/31/16) | 66,990 | 66,875 |
Paid-in capital | 233,954 | 229,779 |
Accumulated other comprehensive earnings | 153,422 | 122,610 |
Retained earnings | 817,789 | 797,307 |
Deferred compensation | 7,666 | 11,496 |
Less: Treasury shares at cost (22,930,214 shares at 9/30/17 and 12/31/16) | (400,665) | (404,495) |
TOTAL SHAREHOLDERS’ EQUITY | 879,156 | 823,572 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ 2,956,520 | $ 2,777,633 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Condensed Consolidated Balance Sheets | ||
Available-for-sale, amortized cost | $ 1,680,321 | $ 1,596,227 |
Equity securities available-for-sale, cost | 189,212 | 187,573 |
Premiums and reinsurance balances receivable, allowances for uncollectible amounts | 16,543 | 15,981 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, allowances for uncollectible amounts | 10,066 | 10,699 |
Property and equipment, accumulated depreciation | $ 45,927 | $ 41,999 |
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) | 66,990,045 | 66,874,911 |
Common stock, shares outstanding (in shares) | 44,059,831 | 43,944,697 |
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, 2017 | Sep. 30, 2016 | |
Condensed Consolidated Statements of Cash Flows | ||
Net Cash Provided by Operating Activities | $ 145,933 | $ 123,000 |
Net Cash Provided by (Used in) Investing Activities [Abstract] | ||
Investments purchased | (335,361) | (434,505) |
Investments sold | 131,605 | 243,506 |
Investments called or matured | 103,193 | 102,752 |
Net change in short-term investments | (6,910) | (1,476) |
Net property and equipment purchased | (7,262) | (11,852) |
Net proceeds from sale of agency | 408 | |
Acquisition of agency | (850) | |
Net Cash Used in Investing Activities, Total | (114,327) | (102,425) |
Net Cash Provided by (Used in) Financing Activities [Abstract] | ||
Cash dividends paid | (27,288) | (25,811) |
Proceeds from stock option exercises | 4,290 | (357) |
Excess tax benefit from exercise of stock options | 8,482 | |
Net Cash Used in Financing Activities, Total | (22,998) | (17,686) |
Net increase in cash | 8,608 | 2,889 |
Cash at the beginning of the period | 18,269 | 11,081 |
Cash at the end of the period | $ 26,877 | $ 13,970 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2017 | |
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 2016 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, 2017 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. Certain reclassifications were made to 2016 to conform to the classifications used in the current 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 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 previous 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 previous 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. We adopted ASU 2016-09 on January 1, 2017. The guidance’s primary impact on our financial statements relates to the provision concerning the recognition of tax effects through the income statement in 2017 and forward. Excess tax benefits of $3.7 million were recognized in the first nine months of 2017 as a reduction to income tax expense rather than as an increase to additional paid-in-capital. The future impact to our income statement will vary depending upon the level of intrinsic value associated with option exercises in a particular period. Additionally, the changes in cash flow presentation resulted in $3.7 million more operating cash flows and $3.7 million less financing cash flows for the nine month period ended September 30, 2017 than would have been recognized under the previous guidance. We have historically estimated the number of forfeitures as part of our option valuation process and will continue to do so under the new guidance. As no aspect of the guidance that requires retrospective adoption impacted the Company, no prior period adjustments were made. ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ASU 2017-04 was issued to simplify the subsequent measurement of goodwill. This update changes the impairment test by requiring an entity to compare the fair value of a reporting unit with its carrying amount as opposed to comparing the carrying amount of goodwill with its implied fair value. We adopted ASU 2017-04 during the second quarter of 2017 to coincide with the annual testing of our energy surety, small commercial and miscellaneous and contract surety reporting units. As most of RLI’s assets and liabilities associated with a reporting unit are measured at fair value, the impact of measuring the impairment at the reporting unit level rather than at the goodwill asset level was believed to be minimal. C. PROSPECTIVE ACCOUNTING STANDARDS 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. The primary impact this guidance will have on our financial statements relates to the provision requiring the recognition of changes in the fair value of equity securities through the income statement rather than through other comprehensive income. The impact to our income statement will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market. 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 currently have approximately $30 million of undiscounted future lease liabilities that would have to be added to the balance sheet with a corresponding right-of-use asset if the guidance were applicable on September 30, 2017. We do not expect that there will be a materially different annual rental expense upon adoption. 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 do not have any assets measured at amortized cost that would be impacted by this update. Additionally, as our fixed income portfolio is weighted towards higher rated bonds (82.8 percent rated A or better at September 30, 2017), we do not expect that credit loss on our available-for-sale debt securities will be material. 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 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 $59.4 million and $64.4 million at September 30, 2017 and December 31, 2016, respectively, as detailed in the following table. Goodwill and Intangible Assets (in thousands) September 30, December 31, Reporting Unit 2017 2016 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Medical professional liability * 3,595 5,208 Total goodwill $ 49,657 $ 51,270 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $4,061 at 9/30/17 and $5,546 at 12/31/16 2,270 5,601 Total intangibles $ 9,770 $ 13,101 Total goodwill and intangibles $ 59,427 $ 64,371 * The medical professional liability goodwill balance reflects a cumulative non-cash impairment charge of $8.8 million and $7.2 million as of September 30, 2017 and December 31, 2016, respectively. 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 2017 and $0.6 million for the nine-month period ended September 30, 2017, compared to $0.2 million for the third quarter of 2016 and $0.7 million for the nine-month period ended September 30, 2016. Additionally, the asset sale of an agency in the third quarter of 2017 resulted in a $1.0 million reduction to definite-lived intangibles. Annual impairment testing was performed on our energy surety goodwill, miscellaneous and contract surety goodwill, small commercial goodwill and state insurance license indefinite-lived intangible asset during the second quarter of 2017. Based upon these reviews, none of the assets were impaired. In addition, as of September 30, 2017, there were no triggering events that would suggest an updated review was necessary on the above mentioned goodwill and intangible assets. As previously disclosed for our medical professional liability reporting unit, rate and volume declines coupled with 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 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, resulting in a $7.2 million non-cash impairment charge. Further adverse loss experience triggered the need to test the medical professional liability reporting unit during the second quarter of 2017, resulting in an additional $3.4 million non-cash impairment charge. A fair value for the medical professional liability reporting unit’s agency relationships, carried as a definite-lived intangible, was determined by using a discounted cash flow valuation. The carrying value exceeded the fair value, resulting in a $1.8 million non-cash impairment charge. Similar to in 2016, a fair value for the medical professional liability reporting unit’s goodwill was determined by using a weighted average of a market approach and discounted cash flow valuation. The carrying value exceeded the fair value, resulting in a $1.6 million non-cash impairment charge. All impairment charges were recorded as net realized losses in the respective period’s consolidated statement of earnings. There have been no additional triggering events subsequent to the second quarter 2017 impairment. 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, 2017 Ended September 30, 2016 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 $ 1,734 44,058 $ 0.04 $ 22,263 43,843 $ 0.51 Effect of Dilutive Securities Stock options - 457 - 649 Diluted EPS Income available to common shareholders $ 1,734 44,515 $ 0.04 $ 22,263 44,492 $ 0.50 For the Nine-Month Period For the Nine-Month Period Ended September 30, 2017 Ended September 30, 2016 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 $ 47,770 44,008 $ 1.09 $ 82,733 43,721 $ 1.89 Effect of Dilutive Securities Stock options - 509 - 695 Diluted EPS Income available to common shareholders $ 47,770 44,517 $ 1.07 $ 82,733 44,416 $ 1.86 F. COMPREHENSIVE EARNINGS Our comprehensive earnings include net earnings plus unrealized gains and 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 2017 were $30.8 million, compared to $33.9 million during the same period last year. Unrealized gains in the first nine months of 2017 were attributable to tightening credit spreads which increased the fair value of securities held in the fixed income portfolio, as well as positive equity market returns. In 2016, unrealized gains were primarily the result of declining interest rates. 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 2017 2016 2017 2016 Beginning balance $ 144,978 $ 164,603 $ 122,610 $ 123,774 Other comprehensive earnings before reclassifications 9,141 (572) 33,066 54,159 Amounts reclassified from accumulated other comprehensive earnings (697) (6,359) (2,254) (20,261) Net current-period other comprehensive earnings $ 8,444 $ (6,931) $ 30,812 $ 33,898 Ending balance $ 153,422 $ 157,672 $ 153,422 $ 157,672 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 2017 2016 2017 2016 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 1,073 $ 9,878 $ 5,558 $ 31,266 Net realized gains - (95) (2,090) (95) Other-than-temporary impairment (OTTI) losses on investments $ 1,073 $ 9,783 $ 3,468 $ 31,171 Earnings before income taxes (376) (3,424) (1,214) (10,910) Income tax expense $ 697 $ 6,359 $ 2,254 $ 20,261 Net earnings |
INVESTMENTS
INVESTMENTS | 9 Months Ended |
Sep. 30, 2017 | |
INVESTMENTS | |
INVESTMENTS | 2. INVESTMENTS Our investments are primarily composed of fixed income debt securities and common stock equity securities. As disclosed in our 2016 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, 2017 and December 31, 2016 were as follows: Available-for-sale (in thousands) September 30, 2017 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 88,660 $ 159 $ (374) $ 88,445 U.S. agency 13,482 350 (86) 13,746 Non-U.S. govt. & agency 9,497 185 (46) 9,636 Agency MBS 330,257 4,254 (2,953) 331,558 ABS/CMBS* 74,589 616 (216) 74,989 Corporate 532,893 14,496 (2,034) 545,355 Municipal 630,943 20,238 (1,352) 649,829 Total Fixed Income $ 1,680,321 $ 40,298 $ (7,061) $ 1,713,558 Equity $ 189,212 $ 205,693 $ (1,692) $ 393,213 *Non-agency asset-backed and commercial mortgage-backed Available-for-sale (in thousands) December 31, 2016 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 77,054 $ 88 $ (579) $ 76,563 U.S. agency 5,473 340 - 5,813 Non-U.S. govt. & agency 9,517 2 (368) 9,151 Agency MBS 283,002 4,635 (3,568) 284,069 ABS/CMBS* 93,791 676 (557) 93,910 Corporate 503,041 10,996 (5,670) 508,367 Municipal 624,349 9,575 (6,588) 627,336 Total Fixed Income $ 1,596,227 $ 26,312 $ (17,330) $ 1,605,209 Equity $ 187,573 $ 182,912 $ (1,266) $ 369,219 *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, 2017: September 30, 2017 Available-for-sale Amortized Fair (in thousands) Cost Value Due in one year or less $ 21,240 $ 20,984 Due after one year through five years 339,233 346,408 Due after five years through 10 years 571,384 586,385 Due after 10 years 343,618 353,234 Mtge/ABS/CMBS* 404,846 406,547 Total available-for-sale $ 1,680,321 $ 1,713,558 *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, 2017 and December 31, 2016. 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, 2017 unrealized losses, as shown in the following tables, were 0.4 percent of total invested assets. Unrealized losses decreased through the first nine months of 2017, as interest rates declined slightly from the end of 2016, which increased the fair value of securities held in the fixed income portfolio. September 30, 2017 December 31, 2016 (in thousands) < 12 Mos. 12 Mos. & Total < 12 Mos. 12 Mos. & Total U.S. Government Fair value $ 54,686 $ 3,008 $ 57,694 $ 48,500 $ — $ 48,500 Cost or amortized cost 55,028 3,040 58,068 49,079 — 49,079 Unrealized Loss $ (342) $ (32) $ (374) $ (579) $ — $ (579) U.S. Agency Fair value $ 7,921 $ — $ 7,921 $ — $ — $ — Cost or amortized cost 8,007 — 8,007 — — — Unrealized Loss $ (86) $ — $ (86) $ — $ — $ — Non-U.S. government Fair value $ 1,973 $ 1,865 $ 3,838 $ 7,647 $ — $ 7,647 Cost or amortized cost 1,988 1,896 3,884 8,015 — 8,015 Unrealized Loss $ (15) $ (31) $ (46) $ (368) $ — $ (368) Agency MBS Fair value $ 156,908 $ 56,025 $ 212,933 $ 175,858 $ 5,737 $ 181,595 Cost or amortized cost 158,567 57,319 215,886 179,238 5,925 185,163 Unrealized Loss $ (1,659) $ (1,294) $ (2,953) $ (3,380) $ (188) $ (3,568) ABS/CMBS* Fair value $ 22,971 $ 15,577 $ 38,548 $ 48,907 $ 5,272 $ 54,179 Cost or amortized cost 23,032 15,732 38,764 49,372 5,364 54,736 Unrealized Loss $ (61) $ (155) $ (216) $ (465) $ (92) $ (557) Corporate Fair value $ 58,328 $ 24,028 $ 82,356 $ 144,353 $ 15,535 $ 159,888 Cost or amortized cost 58,881 25,509 84,390 146,979 18,579 165,558 Unrealized Loss $ (553) $ (1,481) $ (2,034) $ (2,626) $ (3,044) $ (5,670) Municipal Fair value $ 61,840 $ 54,964 $ 116,804 $ 250,930 $ — $ 250,930 Cost or amortized cost 62,387 55,769 118,156 257,518 — 257,518 Unrealized Loss $ (547) $ (805) $ (1,352) $ (6,588) $ — $ (6,588) Subtotal, fixed income Fair value $ 364,627 $ 155,467 $ 520,094 $ 676,195 $ 26,544 $ 702,739 Cost or amortized cost 367,890 159,265 527,155 690,201 29,868 720,069 Unrealized Loss $ (3,263) $ (3,798) $ (7,061) $ (14,006) $ (3,324) $ (17,330) Equity securities Fair value $ 8,696 $ 4,506 $ 13,202 $ 7,438 $ 1,973 $ 9,411 Cost or amortized cost 9,716 5,178 14,894 8,029 2,648 10,677 Unrealized Loss $ (1,020) $ (672) $ (1,692) $ (591) $ (675) $ (1,266) Total Fair value $ 373,323 $ 159,973 $ 533,296 $ 683,633 $ 28,517 $ 712,150 Cost or amortized cost 377,606 164,443 542,049 698,230 32,516 730,746 Unrealized Loss $ (4,283) $ (4,470) $ (8,753) $ (14,597) $ (3,999) $ (18,596) * 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, 2017 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 $ 483,555 $ 478,024 $ (5,531) % 2 BBB Baa 27,896 27,669 (227) % 3 BB Ba 5,693 5,639 (54) % 4 B B 7,945 7,171 (774) % 5 CCC or lower Caa or lower 2,066 1,591 (475) % 6 — — — — Total $ 527,155 $ 520,094 $ (7,061) % Evaluating Investments for OTTI The fixed income portfolio contained 288 securities in an unrealized loss position as of September 30, 2017. The $7.1 million in associated unrealized losses for these 288 securities represents 0.4 percent of the fixed income portfolio’s cost basis. Of these 288 securities, 89 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 first nine months of 2017, we recognized $2.1 million in other-than-temporary impairment (OTTI) charges in earnings on two fixed income securities that we no longer had the intent to hold. Comparatively, we recognized $0.1 million in OTTI losses in earnings on a fixed income security that we no longer had the intent to hold in same period in 2016. There were no OTTI losses recognized in other comprehensive earnings on the fixed income portfolio for the periods presented. As of September 30, 2017, we held six common stock securities that were in an unrealized loss position. The unrealized loss on these securities was $1.7 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. Two equity securities have 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, an investment in a real estate fund, carried at cost, and an investment in a business development company (BDC), carried at fair value. 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 $16.0 million at September 30, 2017, compared to $17.5 million at December 31, 2016 and recognized a total tax benefit of $0.6 million during the third quarter of 2017 compared to $0.4 million during the third quarter of 2016. For the nine-month periods ended September 30, 2017 and 2016, our LIHTC interests recognized a total benefit of $1.9 million and $1.2 million, respectively. Our investment in FHLBC stock totaled $1.0 million at September 30, 2017, compared to $1.6 million at December 31, 2016. As of September 30, 2017, $9.6 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility that ownership of FHLBC stock provides. No assets were pledged as collateral as of December 31, 2016. As of and during the nine month period ending September 30, 2017, there were no outstanding borrowings with the FHLBC. Our investment in the real estate fund was carried at $3.1 million which approximated fair value at September 30, 2017, compared to a carrying value of $5.0 million which approximated fair value at December 31, 2016. During 2017, we made an investment in a BDC which had a fair value of $6.0 million at September 30, 2017. The investment in the BDC is restricted from being transferred until after a qualified IPO unless prior consent is provided by the BDC. Our unfunded commitments related to this investment totaled $19.1 million at September 30, 2017. Additionally, we had a $15.0 million unfunded commitment related to an investment in a global credit fund at September 30, 2017. Cash and Short-term Investments Cash consists of uninvested balances in bank accounts. We had a cash balance of $26.9 million at September 30, 2017, compared to $18.3 million at the end of 2016. Short-term investments of $11.9 million and $5.0 million at September 30, 2017 and December 31, 2016, respectively, are carried at cost, which approximates fair value. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Sep. 30, 2017 | |
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. The investment in the BDC is measured using the investment’s net asset value per share and is not categorized within the fair value hierarchy. 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, 2017 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 $ — $ 88,445 $ — $ 88,445 U.S. agency — 13,746 — 13,746 Non-U.S. govt. & agency — 9,636 — 9,636 Agency MBS — 331,558 — 331,558 ABS/CMBS* — 74,989 — 74,989 Corporate — 545,355 — 545,355 Municipal — 649,829 — 649,829 Equity 393,213 — — 393,213 Total available-for-sale securities $ 393,213 $ 1,713,558 $ — $ 2,106,771 As of December 31, 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 $ — $ 76,563 $ — $ 76,563 U.S. agency — 5,813 — 5,813 Non-U.S. govt. & agency — 9,151 — 9,151 Agency MBS — 284,069 — 284,069 ABS/CMBS* — 93,910 — 93,910 Corporate — 508,367 — 508,367 Municipal — 627,336 — 627,336 Equity 369,219 — — 369,219 Total available-for-sale securities $ 369,219 $ 1,605,209 $ — $ 1,974,428 * 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, 2017. |
HISTORICAL LOSS AND LAE DEVELOP
HISTORICAL LOSS AND LAE DEVELOPMENT | 9 Months Ended |
Sep. 30, 2017 | |
HISTORICAL LOSS AND LAE DEVELOPMENT | |
HISTORICAL LOSS AND LAE DEVELOPMENT | 4. HISTORICAL LOSS AND LAE DEVELOPMENT The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the first nine months of 2017 and 2016. For the Nine-Month Periods Ended September 30, (in thousands) 2017 2016 Unpaid losses and LAE at beginning of year Gross $ 1,139,337 $ 1,103,785 Ceded (288,224) (297,844) Net $ 851,113 $ 805,941 Increase (decrease) in incurred losses and LAE Current accident year $ 343,535 $ 288,749 Prior accident years (36,608) (29,410) Total incurred $ 306,927 $ 259,339 Loss and LAE payments for claims incurred Current accident year $ (37,333) $ (36,972) Prior accident year (158,052) (170,313) Total paid $ (195,385) $ (207,285) Net unpaid losses and LAE at September 30, $ 962,655 $ 857,995 Unpaid losses and LAE at September 30, Gross $ 1,253,729 $ 1,150,938 Ceded (291,074) (292,943) Net $ 962,655 $ 857,995 As disclosed in the 2016 Annual Report on Form 10-K, our actuaries have historically performed a ground up reserve study of the expected value of unpaid losses and LAE using multiple standard actuarial methodologies three times a year. As a result of efficiency improvements in our reserving process, our actuaries began performing ground up reserve studies on a quarterly basis during the first quarter of 2017. We continue to perform an emergence analysis on a quarterly basis to determine if further adjustments are necessary. We then review all of the various estimates of ultimate loss by accident year and determine the appropriateness of the reserve balance as we have done in the past. |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2017 | |
INCOME TAXES | |
INCOME TAXES | 5. INCOME TAXES Catastrophic losses incurred in the third quarter of 2017 resulted in a pretax loss and a 301.2 percent effective tax rate, compared to an effective tax rate of 28.5 percent in the third quarter of 2016. Our effective tax rate for the nine-month period ended September 30, 2017 was 19.9 percent, compared to and 30.5 percent for the same periods in 2016. Effective rates are dependent upon components of pretax earnings and the related tax effects. The pretax loss in the third quarter of 2017 and the significantly lower pretax earnings in the first nine months of 2017 caused the tax favored adjustments to have a larger impact than they did in their respective periods for 2016. Additionally, the adoption of FASB ASU 2016-09 reduced the tax rate in 2017 by requiring the excess tax benefit on share-based compensation to run through income tax expense. Prior to the adoption of FASB ASU 2016-09, excess tax benefits on share-based compensation were recorded directly to shareholders’ equity and had no impact on the effective tax rate. Income tax expense attributable to income from operations for the three and nine-month periods ended September 30, 2017 and 2016 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, 2017 2016 2017 2016 (in thousands) Amount % Amount % Amount % Amount % Provision for income taxes at the statutory rate of 35% $ (302) % $ 10,900 % $ 20,866 % $ 41,677 % Increase (reduction) in taxes resulting from: Excess tax benefit on share-based compensation (477) % — % (3,711) % — % Tax exempt interest income (1,187) % (1,020) % (3,525) % (3,149) % Dividends received deduction (553) % (626) % (1,488) % (1,676) % ESOP dividends paid deduction (240) % (238) % (724) % (714) % Other items, net 163 % (137) % 429 % 205 % Total tax expense (benefit) $ (2,596) % $ 8,879 % $ 11,847 % $ 36,343 % |
STOCK BASED COMPENSATION
STOCK BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2017 | |
STOCK BASED COMPENSATION | |
STOCK BASED COMPENSATION | 6. 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, restricted stock units, 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 1,408,825 awards under the 2015 LTIP, including 458,075 thus far in 2017. Stock Options 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, 2017 and 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, 2017 2,207,110 $ Options granted 442,625 $ 56.97 Options exercised (174,890) $ 25.27 $ 5,655 Options canceled/forfeited (41,600) $ 48.30 Outstanding options at September 30, 2017 2,433,245 $ 44.82 4.84 $ 33,290 Exercisable options at September 30, 2017 1,157,785 $ 36.30 3.26 $ 25,078 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 2,582,220 $ Options granted 410,250 $ 64.15 Options exercised (638,675) $ 23.67 $ 27,704 Options canceled/forfeited (8,940) $ 41.90 Outstanding options at September 30, 2016 2,344,855 $ 40.32 5.12 $ 65,748 Exercisable options at September 30, 2016 939,785 $ 31.10 3.58 $ 35,016 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 2017, 442,625 stock options were granted with a weighted average exercise price of $56.97 and a weighted average fair value of $7.95. We recognized $1.0 million of expense in the third quarter of 2017 and $3.0 million in the first nine months of 2017 related to options vesting. Since options granted under our 2010 LTIP and 2015 LTIP are non-qualified, we recorded a tax benefit of $0.3 million in the third quarter of 2017 and $1.1 million in the first nine months of 2017 related to this compensation expense. Total unrecognized compensation expense relating to outstanding and unvested options was $6.3 million, which will be recognized over the remainder of the vesting period. Comparatively, we recognized $1.0 million of expense in the third quarter of 2016 and $3.2 million in the first nine months of 2016. 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. 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: 2017 2016 Weighted-average fair value of grants $ 7.95 $ Risk-free interest rates % % Dividend yield % % Expected volatility % % Expected option life 5.05 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 for 2017 was determined based on the average annualized quarterly dividends paid during the most recent five-year period and incorporated a consideration for special dividends paid in recent history. The dividend yield in 2016 and prior was determined based on the average annualized quarterly dividends paid during the most recent five-year period, exclusive of considerations for special dividends. 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. Restricted Stock Units In addition to stock options, restricted stock units (RSUs) were granted for the first time in May 2017. RSUs have a grant date value equal to the closing stock price of the Company’s stock on the dates the shares are granted. Generally, these units have a three-year cliff vesting. When participants become retirement eligible, defined by the plan as those individuals whose age and years of service equals 75, the units become fully vested. In addition, the RSUs have dividend participation which accrues and is settled in additional shares with all granted stock units at the end of the three-year period. As of September 30, 2017, 15,450 RSUs have been granted and 15,375 remain outstanding. The weighted average grant date fair value was $56.71. We recognized $0.1 million of expense on these units in the third quarter of 2017 and $0.3 million in the first nine months of 2017. Total unrecognized compensation expense relating to outstanding and unvested RSUs was $0.5 million, which will be recognized over the remainder of the three-year vesting period. |
OPERATING SEGMENT INFORMATION
OPERATING SEGMENT INFORMATION | 9 Months Ended |
Sep. 30, 2017 | |
OPERATING SEGMENT INFORMATION | |
OPERATING SEGMENT INFORMATION | 7. 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) 2017 2016 2017 2016 Casualty $ 118,393 $ 115,619 $ 354,636 $ 336,572 Property 33,559 37,532 103,849 114,011 Surety 30,073 30,444 91,156 90,156 Net premiums earned $ 182,025 $ 183,595 $ 549,641 $ 540,739 Net investment income 14,187 13,504 40,430 39,922 Net realized gains (losses) 35 9,252 (700) 23,362 Total consolidated revenue $ 196,247 $ 206,351 $ 589,371 $ 604,023 NET EARNINGS (in thousands) 2017 2016 2017 2016 Casualty $ 3,554 $ 259 $ 5,321 $ 20,490 Property (27,519) 468 (15,852) 13,911 Surety 9,033 9,877 28,399 23,523 Net underwriting income (loss) $ (14,932) $ 10,604 $ 17,868 $ 57,924 Net investment income 14,187 13,504 40,430 39,922 Net realized gains (losses) 35 9,252 (700) 23,362 General corporate expense and interest on debt (3,812) (4,099) (13,385) (12,955) Equity in earnings of unconsolidated investees 3,660 1,881 15,404 10,823 Total earnings (loss) before income taxes $ (862) $ 31,142 $ 59,617 $ 119,076 Income tax expense (benefit) (2,596) 8,879 11,847 36,343 Total net earnings $ 1,734 $ 22,263 $ 47,770 $ 82,733 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) 2017 2016 2017 2016 Casualty Commercial and personal umbrella $ 28,848 $ 27,844 $ 86,286 $ 82,510 General liability 22,138 21,563 66,572 63,735 Commercial transportation 18,047 21,557 59,543 60,037 Professional services 19,584 19,318 58,826 56,748 Small commercial 12,419 11,706 36,471 33,973 Executive products 4,439 4,716 13,289 14,126 Medical professional liability 4,169 4,512 12,725 12,509 Other casualty 8,749 4,403 20,924 12,934 Total $ 118,393 $ 115,619 $ 354,636 $ 336,572 Property Commercial property $ 15,600 $ 16,819 $ 47,191 $ 51,528 Marine 13,112 11,964 37,005 36,070 Specialty personal 4,844 6,186 16,370 18,731 Property reinsurance (62) 2,544 3,200 7,925 Crop reinsurance (11) 19 (6) (243) Other property 76 - 89 - Total $ 33,559 $ 37,532 $ 103,849 $ 114,011 Surety Miscellaneous $ 11,780 $ 11,714 $ 35,491 $ 34,304 Contract 7,130 7,221 21,361 22,030 Commercial 6,861 6,906 20,942 20,332 Energy 4,302 4,603 13,362 13,490 Total $ 30,073 $ 30,444 $ 91,156 $ 90,156 Grand Total $ 182,025 $ 183,595 $ 549,641 $ 540,739 |
SUMMARY OF SIGNIFICANT ACCOUN13
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
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 2016 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, 2017 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. Certain reclassifications were made to 2016 to conform to the classifications used in the current 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 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 previous 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 previous 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. We adopted ASU 2016-09 on January 1, 2017. The guidance’s primary impact on our financial statements relates to the provision concerning the recognition of tax effects through the income statement in 2017 and forward. Excess tax benefits of $3.7 million were recognized in the first nine months of 2017 as a reduction to income tax expense rather than as an increase to additional paid-in-capital. The future impact to our income statement will vary depending upon the level of intrinsic value associated with option exercises in a particular period. Additionally, the changes in cash flow presentation resulted in $3.7 million more operating cash flows and $3.7 million less financing cash flows for the nine month period ended September 30, 2017 than would have been recognized under the previous guidance. We have historically estimated the number of forfeitures as part of our option valuation process and will continue to do so under the new guidance. As no aspect of the guidance that requires retrospective adoption impacted the Company, no prior period adjustments were made. ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ASU 2017-04 was issued to simplify the subsequent measurement of goodwill. This update changes the impairment test by requiring an entity to compare the fair value of a reporting unit with its carrying amount as opposed to comparing the carrying amount of goodwill with its implied fair value. We adopted ASU 2017-04 during the second quarter of 2017 to coincide with the annual testing of our energy surety, small commercial and miscellaneous and contract surety reporting units. As most of RLI’s assets and liabilities associated with a reporting unit are measured at fair value, the impact of measuring the impairment at the reporting unit level rather than at the goodwill asset level was believed to be minimal. |
PROSPECTIVE ACCOUNTING STANDARDS | C. PROSPECTIVE ACCOUNTING STANDARDS 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. The primary impact this guidance will have on our financial statements relates to the provision requiring the recognition of changes in the fair value of equity securities through the income statement rather than through other comprehensive income. The impact to our income statement will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market. 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 currently have approximately $30 million of undiscounted future lease liabilities that would have to be added to the balance sheet with a corresponding right-of-use asset if the guidance were applicable on September 30, 2017. We do not expect that there will be a materially different annual rental expense upon adoption. 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 do not have any assets measured at amortized cost that would be impacted by this update. Additionally, as our fixed income portfolio is weighted towards higher rated bonds (82.8 percent rated A or better at September 30, 2017), we do not expect that credit loss on our available-for-sale debt securities will be material. 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 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 $59.4 million and $64.4 million at September 30, 2017 and December 31, 2016, respectively, as detailed in the following table. Goodwill and Intangible Assets (in thousands) September 30, December 31, Reporting Unit 2017 2016 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Medical professional liability * 3,595 5,208 Total goodwill $ 49,657 $ 51,270 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $4,061 at 9/30/17 and $5,546 at 12/31/16 2,270 5,601 Total intangibles $ 9,770 $ 13,101 Total goodwill and intangibles $ 59,427 $ 64,371 * The medical professional liability goodwill balance reflects a cumulative non-cash impairment charge of $8.8 million and $7.2 million as of September 30, 2017 and December 31, 2016, respectively. 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 2017 and $0.6 million for the nine-month period ended September 30, 2017, compared to $0.2 million for the third quarter of 2016 and $0.7 million for the nine-month period ended September 30, 2016. Additionally, the asset sale of an agency in the third quarter of 2017 resulted in a $1.0 million reduction to definite-lived intangibles. Annual impairment testing was performed on our energy surety goodwill, miscellaneous and contract surety goodwill, small commercial goodwill and state insurance license indefinite-lived intangible asset during the second quarter of 2017. Based upon these reviews, none of the assets were impaired. In addition, as of September 30, 2017, there were no triggering events that would suggest an updated review was necessary on the above mentioned goodwill and intangible assets. As previously disclosed for our medical professional liability reporting unit, rate and volume declines coupled with 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 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, resulting in a $7.2 million non-cash impairment charge. Further adverse loss experience triggered the need to test the medical professional liability reporting unit during the second quarter of 2017, resulting in an additional $3.4 million non-cash impairment charge. A fair value for the medical professional liability reporting unit’s agency relationships, carried as a definite-lived intangible, was determined by using a discounted cash flow valuation. The carrying value exceeded the fair value, resulting in a $1.8 million non-cash impairment charge. Similar to in 2016, a fair value for the medical professional liability reporting unit’s goodwill was determined by using a weighted average of a market approach and discounted cash flow valuation. The carrying value exceeded the fair value, resulting in a $1.6 million non-cash impairment charge. All impairment charges were recorded as net realized losses in the respective period’s consolidated statement of earnings. There have been no additional triggering events subsequent to the second quarter 2017 impairment. |
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, 2017 Ended September 30, 2016 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 $ 1,734 44,058 $ 0.04 $ 22,263 43,843 $ 0.51 Effect of Dilutive Securities Stock options - 457 - 649 Diluted EPS Income available to common shareholders $ 1,734 44,515 $ 0.04 $ 22,263 44,492 $ 0.50 For the Nine-Month Period For the Nine-Month Period Ended September 30, 2017 Ended September 30, 2016 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 $ 47,770 44,008 $ 1.09 $ 82,733 43,721 $ 1.89 Effect of Dilutive Securities Stock options - 509 - 695 Diluted EPS Income available to common shareholders $ 47,770 44,517 $ 1.07 $ 82,733 44,416 $ 1.86 |
COMPREHENSIVE EARNINGS | F. COMPREHENSIVE EARNINGS Our comprehensive earnings include net earnings plus unrealized gains and 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 2017 were $30.8 million, compared to $33.9 million during the same period last year. Unrealized gains in the first nine months of 2017 were attributable to tightening credit spreads which increased the fair value of securities held in the fixed income portfolio, as well as positive equity market returns. In 2016, unrealized gains were primarily the result of declining interest rates. 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 2017 2016 2017 2016 Beginning balance $ 144,978 $ 164,603 $ 122,610 $ 123,774 Other comprehensive earnings before reclassifications 9,141 (572) 33,066 54,159 Amounts reclassified from accumulated other comprehensive earnings (697) (6,359) (2,254) (20,261) Net current-period other comprehensive earnings $ 8,444 $ (6,931) $ 30,812 $ 33,898 Ending balance $ 153,422 $ 157,672 $ 153,422 $ 157,672 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 2017 2016 2017 2016 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 1,073 $ 9,878 $ 5,558 $ 31,266 Net realized gains - (95) (2,090) (95) Other-than-temporary impairment (OTTI) losses on investments $ 1,073 $ 9,783 $ 3,468 $ 31,171 Earnings before income taxes (376) (3,424) (1,214) (10,910) Income tax expense $ 697 $ 6,359 $ 2,254 $ 20,261 Net earnings |
SUMMARY OF SIGNIFICANT ACCOUN14
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of goodwill and intangible assets | Goodwill and Intangible Assets (in thousands) September 30, December 31, Reporting Unit 2017 2016 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Medical professional liability * 3,595 5,208 Total goodwill $ 49,657 $ 51,270 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $4,061 at 9/30/17 and $5,546 at 12/31/16 2,270 5,601 Total intangibles $ 9,770 $ 13,101 Total goodwill and intangibles $ 59,427 $ 64,371 * The medical professional liability goodwill balance reflects a cumulative non-cash impairment charge of $8.8 million and $7.2 million as of September 30, 2017 and December 31, 2016, respectively. |
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, 2017 Ended September 30, 2016 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 $ 1,734 44,058 $ 0.04 $ 22,263 43,843 $ 0.51 Effect of Dilutive Securities Stock options - 457 - 649 Diluted EPS Income available to common shareholders $ 1,734 44,515 $ 0.04 $ 22,263 44,492 $ 0.50 For the Nine-Month Period For the Nine-Month Period Ended September 30, 2017 Ended September 30, 2016 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 $ 47,770 44,008 $ 1.09 $ 82,733 43,721 $ 1.89 Effect of Dilutive Securities Stock options - 509 - 695 Diluted EPS Income available to common shareholders $ 47,770 44,517 $ 1.07 $ 82,733 44,416 $ 1.86 |
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 2017 2016 2017 2016 Beginning balance $ 144,978 $ 164,603 $ 122,610 $ 123,774 Other comprehensive earnings before reclassifications 9,141 (572) 33,066 54,159 Amounts reclassified from accumulated other comprehensive earnings (697) (6,359) (2,254) (20,261) Net current-period other comprehensive earnings $ 8,444 $ (6,931) $ 30,812 $ 33,898 Ending balance $ 153,422 $ 157,672 $ 153,422 $ 157,672 |
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 2017 2016 2017 2016 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 1,073 $ 9,878 $ 5,558 $ 31,266 Net realized gains - (95) (2,090) (95) Other-than-temporary impairment (OTTI) losses on investments $ 1,073 $ 9,783 $ 3,468 $ 31,171 Earnings before income taxes (376) (3,424) (1,214) (10,910) Income tax expense $ 697 $ 6,359 $ 2,254 $ 20,261 Net earnings |
INVESTMENTS (Tables)
INVESTMENTS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Schedule of securities in an unrealized loss position segregated by type and length of time in an unrealized loss position | September 30, 2017 December 31, 2016 (in thousands) < 12 Mos. 12 Mos. & Total < 12 Mos. 12 Mos. & Total U.S. Government Fair value $ 54,686 $ 3,008 $ 57,694 $ 48,500 $ — $ 48,500 Cost or amortized cost 55,028 3,040 58,068 49,079 — 49,079 Unrealized Loss $ (342) $ (32) $ (374) $ (579) $ — $ (579) U.S. Agency Fair value $ 7,921 $ — $ 7,921 $ — $ — $ — Cost or amortized cost 8,007 — 8,007 — — — Unrealized Loss $ (86) $ — $ (86) $ — $ — $ — Non-U.S. government Fair value $ 1,973 $ 1,865 $ 3,838 $ 7,647 $ — $ 7,647 Cost or amortized cost 1,988 1,896 3,884 8,015 — 8,015 Unrealized Loss $ (15) $ (31) $ (46) $ (368) $ — $ (368) Agency MBS Fair value $ 156,908 $ 56,025 $ 212,933 $ 175,858 $ 5,737 $ 181,595 Cost or amortized cost 158,567 57,319 215,886 179,238 5,925 185,163 Unrealized Loss $ (1,659) $ (1,294) $ (2,953) $ (3,380) $ (188) $ (3,568) ABS/CMBS* Fair value $ 22,971 $ 15,577 $ 38,548 $ 48,907 $ 5,272 $ 54,179 Cost or amortized cost 23,032 15,732 38,764 49,372 5,364 54,736 Unrealized Loss $ (61) $ (155) $ (216) $ (465) $ (92) $ (557) Corporate Fair value $ 58,328 $ 24,028 $ 82,356 $ 144,353 $ 15,535 $ 159,888 Cost or amortized cost 58,881 25,509 84,390 146,979 18,579 165,558 Unrealized Loss $ (553) $ (1,481) $ (2,034) $ (2,626) $ (3,044) $ (5,670) Municipal Fair value $ 61,840 $ 54,964 $ 116,804 $ 250,930 $ — $ 250,930 Cost or amortized cost 62,387 55,769 118,156 257,518 — 257,518 Unrealized Loss $ (547) $ (805) $ (1,352) $ (6,588) $ — $ (6,588) Subtotal, fixed income Fair value $ 364,627 $ 155,467 $ 520,094 $ 676,195 $ 26,544 $ 702,739 Cost or amortized cost 367,890 159,265 527,155 690,201 29,868 720,069 Unrealized Loss $ (3,263) $ (3,798) $ (7,061) $ (14,006) $ (3,324) $ (17,330) Equity securities Fair value $ 8,696 $ 4,506 $ 13,202 $ 7,438 $ 1,973 $ 9,411 Cost or amortized cost 9,716 5,178 14,894 8,029 2,648 10,677 Unrealized Loss $ (1,020) $ (672) $ (1,692) $ (591) $ (675) $ (1,266) Total Fair value $ 373,323 $ 159,973 $ 533,296 $ 683,633 $ 28,517 $ 712,150 Cost or amortized cost 377,606 164,443 542,049 698,230 32,516 730,746 Unrealized Loss $ (4,283) $ (4,470) $ (8,753) $ (14,597) $ (3,999) $ (18,596) * 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 $ 483,555 $ 478,024 $ (5,531) % 2 BBB Baa 27,896 27,669 (227) % 3 BB Ba 5,693 5,639 (54) % 4 B B 7,945 7,171 (774) % 5 CCC or lower Caa or lower 2,066 1,591 (475) % 6 — — — — Total $ 527,155 $ 520,094 $ (7,061) % |
Available for sale securities | |
Schedule of amortized cost and fair value of available-for-sale securities | Available-for-sale (in thousands) September 30, 2017 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 88,660 $ 159 $ (374) $ 88,445 U.S. agency 13,482 350 (86) 13,746 Non-U.S. govt. & agency 9,497 185 (46) 9,636 Agency MBS 330,257 4,254 (2,953) 331,558 ABS/CMBS* 74,589 616 (216) 74,989 Corporate 532,893 14,496 (2,034) 545,355 Municipal 630,943 20,238 (1,352) 649,829 Total Fixed Income $ 1,680,321 $ 40,298 $ (7,061) $ 1,713,558 Equity $ 189,212 $ 205,693 $ (1,692) $ 393,213 *Non-agency asset-backed and commercial mortgage-backed Available-for-sale (in thousands) December 31, 2016 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 77,054 $ 88 $ (579) $ 76,563 U.S. agency 5,473 340 - 5,813 Non-U.S. govt. & agency 9,517 2 (368) 9,151 Agency MBS 283,002 4,635 (3,568) 284,069 ABS/CMBS* 93,791 676 (557) 93,910 Corporate 503,041 10,996 (5,670) 508,367 Municipal 624,349 9,575 (6,588) 627,336 Total Fixed Income $ 1,596,227 $ 26,312 $ (17,330) $ 1,605,209 Equity $ 187,573 $ 182,912 $ (1,266) $ 369,219 *Non-agency asset-backed and commercial mortgage-backed |
Schedule of contractual maturity of securities | September 30, 2017 Available-for-sale Amortized Fair (in thousands) Cost Value Due in one year or less $ 21,240 $ 20,984 Due after one year through five years 339,233 346,408 Due after five years through 10 years 571,384 586,385 Due after 10 years 343,618 353,234 Mtge/ABS/CMBS* 404,846 406,547 Total available-for-sale $ 1,680,321 $ 1,713,558 *Mortgage-backed, asset-backed and commercial mortgage-backed |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
FAIR VALUE MEASUREMENTS | |
Schedule of assets measured at fair value on recurring basis | As of September 30, 2017 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 $ — $ 88,445 $ — $ 88,445 U.S. agency — 13,746 — 13,746 Non-U.S. govt. & agency — 9,636 — 9,636 Agency MBS — 331,558 — 331,558 ABS/CMBS* — 74,989 — 74,989 Corporate — 545,355 — 545,355 Municipal — 649,829 — 649,829 Equity 393,213 — — 393,213 Total available-for-sale securities $ 393,213 $ 1,713,558 $ — $ 2,106,771 As of December 31, 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 $ — $ 76,563 $ — $ 76,563 U.S. agency — 5,813 — 5,813 Non-U.S. govt. & agency — 9,151 — 9,151 Agency MBS — 284,069 — 284,069 ABS/CMBS* — 93,910 — 93,910 Corporate — 508,367 — 508,367 Municipal — 627,336 — 627,336 Equity 369,219 — — 369,219 Total available-for-sale securities $ 369,219 $ 1,605,209 $ — $ 1,974,428 * Non-agency asset-backed and commercial mortgage-backed |
HISTORICAL LOSS AND LAE DEVEL17
HISTORICAL LOSS AND LAE DEVELOPMENT (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
HISTORICAL LOSS AND LAE DEVELOPMENT | |
Schedule of reconciliation of unpaid losses and settlement expenses (LAE) | For the Nine-Month Periods Ended September 30, (in thousands) 2017 2016 Unpaid losses and LAE at beginning of year Gross $ 1,139,337 $ 1,103,785 Ceded (288,224) (297,844) Net $ 851,113 $ 805,941 Increase (decrease) in incurred losses and LAE Current accident year $ 343,535 $ 288,749 Prior accident years (36,608) (29,410) Total incurred $ 306,927 $ 259,339 Loss and LAE payments for claims incurred Current accident year $ (37,333) $ (36,972) Prior accident year (158,052) (170,313) Total paid $ (195,385) $ (207,285) Net unpaid losses and LAE at September 30, $ 962,655 $ 857,995 Unpaid losses and LAE at September 30, Gross $ 1,253,729 $ 1,150,938 Ceded (291,074) (292,943) Net $ 962,655 $ 857,995 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
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, 2017 2016 2017 2016 (in thousands) Amount % Amount % Amount % Amount % Provision for income taxes at the statutory rate of 35% $ (302) % $ 10,900 % $ 20,866 % $ 41,677 % Increase (reduction) in taxes resulting from: Excess tax benefit on share-based compensation (477) % — % (3,711) % — % Tax exempt interest income (1,187) % (1,020) % (3,525) % (3,149) % Dividends received deduction (553) % (626) % (1,488) % (1,676) % ESOP dividends paid deduction (240) % (238) % (724) % (714) % Other items, net 163 % (137) % 429 % 205 % Total tax expense (benefit) $ (2,596) % $ 8,879 % $ 11,847 % $ 36,343 % |
STOCK BASED COMPENSATION (Table
STOCK BASED COMPENSATION (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
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, 2017 2,207,110 $ Options granted 442,625 $ 56.97 Options exercised (174,890) $ 25.27 $ 5,655 Options canceled/forfeited (41,600) $ 48.30 Outstanding options at September 30, 2017 2,433,245 $ 44.82 4.84 $ 33,290 Exercisable options at September 30, 2017 1,157,785 $ 36.30 3.26 $ 25,078 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 2,582,220 $ Options granted 410,250 $ 64.15 Options exercised (638,675) $ 23.67 $ 27,704 Options canceled/forfeited (8,940) $ 41.90 Outstanding options at September 30, 2016 2,344,855 $ 40.32 5.12 $ 65,748 Exercisable options at September 30, 2016 939,785 $ 31.10 3.58 $ 35,016 |
Schedule of stock option assumptions for fair value estimate | 2017 2016 Weighted-average fair value of grants $ 7.95 $ Risk-free interest rates % % Dividend yield % % Expected volatility % % Expected option life 5.05 years years |
OPERATING SEGMENT INFORMATION (
OPERATING SEGMENT INFORMATION (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
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) 2017 2016 2017 2016 Casualty $ 118,393 $ 115,619 $ 354,636 $ 336,572 Property 33,559 37,532 103,849 114,011 Surety 30,073 30,444 91,156 90,156 Net premiums earned $ 182,025 $ 183,595 $ 549,641 $ 540,739 Net investment income 14,187 13,504 40,430 39,922 Net realized gains (losses) 35 9,252 (700) 23,362 Total consolidated revenue $ 196,247 $ 206,351 $ 589,371 $ 604,023 NET EARNINGS (in thousands) 2017 2016 2017 2016 Casualty $ 3,554 $ 259 $ 5,321 $ 20,490 Property (27,519) 468 (15,852) 13,911 Surety 9,033 9,877 28,399 23,523 Net underwriting income (loss) $ (14,932) $ 10,604 $ 17,868 $ 57,924 Net investment income 14,187 13,504 40,430 39,922 Net realized gains (losses) 35 9,252 (700) 23,362 General corporate expense and interest on debt (3,812) (4,099) (13,385) (12,955) Equity in earnings of unconsolidated investees 3,660 1,881 15,404 10,823 Total earnings (loss) before income taxes $ (862) $ 31,142 $ 59,617 $ 119,076 Income tax expense (benefit) (2,596) 8,879 11,847 36,343 Total net earnings $ 1,734 $ 22,263 $ 47,770 $ 82,733 |
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) 2017 2016 2017 2016 Casualty Commercial and personal umbrella $ 28,848 $ 27,844 $ 86,286 $ 82,510 General liability 22,138 21,563 66,572 63,735 Commercial transportation 18,047 21,557 59,543 60,037 Professional services 19,584 19,318 58,826 56,748 Small commercial 12,419 11,706 36,471 33,973 Executive products 4,439 4,716 13,289 14,126 Medical professional liability 4,169 4,512 12,725 12,509 Other casualty 8,749 4,403 20,924 12,934 Total $ 118,393 $ 115,619 $ 354,636 $ 336,572 Property Commercial property $ 15,600 $ 16,819 $ 47,191 $ 51,528 Marine 13,112 11,964 37,005 36,070 Specialty personal 4,844 6,186 16,370 18,731 Property reinsurance (62) 2,544 3,200 7,925 Crop reinsurance (11) 19 (6) (243) Other property 76 - 89 - Total $ 33,559 $ 37,532 $ 103,849 $ 114,011 Surety Miscellaneous $ 11,780 $ 11,714 $ 35,491 $ 34,304 Contract 7,130 7,221 21,361 22,030 Commercial 6,861 6,906 20,942 20,332 Energy 4,302 4,603 13,362 13,490 Total $ 30,073 $ 30,444 $ 91,156 $ 90,156 Grand Total $ 182,025 $ 183,595 $ 549,641 $ 540,739 |
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, 2017 | Jun. 30, 2017 | Sep. 30, 2016 | Jun. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
ADOPTED ACCOUNTING STANDARDS | |||||||
Net Cash Provided by Operating Activities | $ 145,933 | $ 123,000 | |||||
Net Cash Used in Financing Activities | (22,998) | (17,686) | |||||
ExpectedValueOfAssetAndLiabilityAdditionFromAdoptionOfASU2016-02 | $ 30,000 | $ 30,000 | |||||
PercentageOfFixedIncomePortfolioRatedAOrBetter | 82.80% | 82.80% | |||||
Goodwill | $ 49,657 | $ 49,657 | $ 51,270 | ||||
State insurance licenses | 7,500 | 7,500 | 7,500 | ||||
Definite-lived intangibles, net of accumulated amortization of $4,061 at 9/30/17 and $5,546 at 12/31/16 | 2,270 | 2,270 | 5,601 | ||||
Total intangibles | 9,770 | 9,770 | 13,101 | ||||
Goodwill and intangibles | 59,427 | 59,427 | 64,371 | ||||
Accumulated amortization of definite-lived intangibles | 4,061 | 4,061 | 5,546 | ||||
Amortization of intangible assets | 200 | $ 200 | 600 | 700 | |||
Finite-Lived Intangible Assets Disposed Of | 1,000 | ||||||
Basic EPS, Income (Numerator) | |||||||
Income available to common shareholders | 1,734 | 22,263 | 47,770 | 82,733 | |||
Diluted EPS, Income (Numerator) | |||||||
Income available to common shareholders | $ 1,734 | $ 22,263 | $ 47,770 | $ 82,733 | |||
Basic EPS, Weighted Average Shares (Denominator) | |||||||
Number of shares outstanding | 44,058 | 43,843 | 44,008 | 43,721 | |||
Effect of Dilutive Securities, Shares (Denominator) | |||||||
Stock options (in shares) | 457 | 649 | 509 | 695 | |||
Diluted EPS, Weighted Average Shares (Denominator) | |||||||
Number of shares outstanding | 44,515 | 44,492 | 44,517 | 44,416 | |||
Basic EPS, Per Share Amount | |||||||
Basic net earnings per share (in dollars per share) | $ 0.04 | $ 0.51 | $ 1.09 | $ 1.89 | |||
Diluted EPS, Per Share Amount | |||||||
Diluted earnings per share (in dollars per share) | $ 0.04 | $ 0.50 | $ 1.07 | $ 1.86 | |||
Accounting Standards Update 2016-09 | |||||||
ADOPTED ACCOUNTING STANDARDS | |||||||
Reduction to income tax expense | $ 3,700 | ||||||
Net Cash Provided by Operating Activities | 3,700 | ||||||
Net Cash Used in Financing Activities | (3,700) | ||||||
Prior period adjustment | 0 | ||||||
Energy Surety | |||||||
ADOPTED ACCOUNTING STANDARDS | |||||||
Goodwill | $ 25,706 | 25,706 | 25,706 | ||||
Miscellaneous and Contract Surety | |||||||
ADOPTED ACCOUNTING STANDARDS | |||||||
Goodwill | 15,110 | 15,110 | 15,110 | ||||
Small commercial | |||||||
ADOPTED ACCOUNTING STANDARDS | |||||||
Goodwill | 5,246 | 5,246 | 5,246 | ||||
Medical professional liability | |||||||
ADOPTED ACCOUNTING STANDARDS | |||||||
Goodwill | 3,595 | 3,595 | 5,208 | ||||
Goodwill and Intangible Asset Impairment | $ 3,400 | ||||||
Goodwill, Impairment Loss | 1,600 | $ 7,200 | |||||
Goodwill, Impaired, Accumulated Impairment Loss | $ 8,800 | $ 8,800 | $ 7,200 | ||||
Impairment of Intangible Assets, Finite-lived | $ 1,800 |
SUMMARY OF SIGNIFICANT ACCOUN22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Changes in Accumulated Other Comprehensive Earnings (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
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 | $ 122,610 | |||
Net current-period other comprehensive earnings (loss) | $ 8,444 | $ (6,931) | 30,812 | $ 33,898 |
Ending balance | 153,422 | 153,422 | ||
Unrealized Gains and Losses on Available-for-Sale Securities | ||||
Changes in the balance of each component of accumulated other comprehensive earnings | ||||
Beginning balance | 144,978 | 164,603 | 122,610 | 123,774 |
Other comprehensive earnings before reclassifications | 9,141 | (572) | 33,066 | 54,159 |
Amounts reclassified from accumulated other comprehensive earnings | (697) | (6,359) | (2,254) | (20,261) |
Net current-period other comprehensive earnings (loss) | 8,444 | (6,931) | 30,812 | 33,898 |
Ending balance | $ 153,422 | $ 157,672 | $ 153,422 | $ 157,672 |
SUMMARY OF SIGNIFICANT ACCOUN23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Effects of Reclassifications Out of Accumulated Other Comprehensive Earnings (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Amount Reclassified from Accumulated Other Comprehensive Earnings | ||||
Net realized gains | $ 35 | $ 9,347 | $ 1,390 | $ 23,457 |
Earnings (loss) before income taxes | (862) | 31,142 | 59,617 | 119,076 |
Income tax expense | 2,596 | (8,879) | (11,847) | (36,343) |
Net earnings | 1,734 | 22,263 | 47,770 | 82,733 |
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 | 1,073 | 9,878 | 5,558 | 31,266 |
Other-than-temporary impairment (OTTI) losses on investments | (95) | (2,090) | (95) | |
Earnings (loss) before income taxes | 1,073 | 9,783 | 3,468 | 31,171 |
Income tax expense | (376) | (3,424) | (1,214) | (10,910) |
Net earnings | $ 697 | $ 6,359 | $ 2,254 | $ 20,261 |
INVESTMENTS - Amortized Cost an
INVESTMENTS - Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 | |
Amortized Cost | |||
Due in one year or less | $ 21,240 | ||
Due after one year through five years | 339,233 | ||
Due after five years through 10 years | 571,384 | ||
Due after 10 years | 343,618 | ||
Mtge/ABS/CMBS | [1] | 404,846 | |
Total amortized cost | 1,680,321 | $ 1,596,227 | |
Fair Value | |||
Due in one year or less | 20,984 | ||
Due after one year through five years | 346,408 | ||
Due after five years through 10 years | 586,385 | ||
Due after 10 years | 353,234 | ||
Mtge/ABS/CMBS | [1] | 406,547 | |
Total fair value | 1,713,558 | 1,605,209 | |
Fair value measured on recurring basis | |||
Available-for-sale | |||
Fair Value | 2,106,771 | 1,974,428 | |
Fair value measured on recurring basis | Significant Unobservable Inputs (Level 3) | |||
INVESTMENTS | |||
Total assets at fair value | 0 | ||
Debt securities | |||
Available-for-sale | |||
Amortized Cost | 1,680,321 | 1,596,227 | |
Gross Unrealized Gains | 40,298 | 26,312 | |
Gross Unrealized Losses | (7,061) | (17,330) | |
Fair Value | 1,713,558 | 1,605,209 | |
U.S. government | |||
Available-for-sale | |||
Amortized Cost | 88,660 | 77,054 | |
Gross Unrealized Gains | 159 | 88 | |
Gross Unrealized Losses | (374) | (579) | |
Fair Value | 88,445 | 76,563 | |
U.S. Agency | |||
Available-for-sale | |||
Amortized Cost | 13,482 | 5,473 | |
Gross Unrealized Gains | 350 | 340 | |
Gross Unrealized Losses | (86) | ||
Fair Value | 13,746 | 5,813 | |
Non-U.S. govt. & agency | |||
Available-for-sale | |||
Amortized Cost | 9,497 | 9,517 | |
Gross Unrealized Gains | 185 | 2 | |
Gross Unrealized Losses | (46) | (368) | |
Fair Value | 9,636 | 9,151 | |
Mortgage-backed | |||
Available-for-sale | |||
Amortized Cost | 330,257 | 283,002 | |
Gross Unrealized Gains | 4,254 | 4,635 | |
Gross Unrealized Losses | (2,953) | (3,568) | |
Fair Value | 331,558 | 284,069 | |
ABS/CMBS | |||
Available-for-sale | |||
Amortized Cost | [2] | 74,589 | 93,791 |
Gross Unrealized Gains | [2] | 616 | 676 |
Gross Unrealized Losses | [2] | (216) | (557) |
Fair Value | [2] | 74,989 | 93,910 |
Corporate Debt | |||
Available-for-sale | |||
Amortized Cost | 532,893 | 503,041 | |
Gross Unrealized Gains | 14,496 | 10,996 | |
Gross Unrealized Losses | (2,034) | (5,670) | |
Fair Value | 545,355 | 508,367 | |
Municipal | |||
Available-for-sale | |||
Amortized Cost | 630,943 | 624,349 | |
Gross Unrealized Gains | 20,238 | 9,575 | |
Gross Unrealized Losses | (1,352) | (6,588) | |
Fair Value | 649,829 | 627,336 | |
Equity securities | |||
Available-for-sale | |||
Amortized Cost | 189,212 | 187,573 | |
Gross Unrealized Gains | 205,693 | 182,912 | |
Gross Unrealized Losses | (1,692) | (1,266) | |
Fair Value | $ 393,213 | $ 369,219 | |
[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, 2017 | Dec. 31, 2016 | |
Investment positions with unrealized losses | |||
Unrealized losses relative to total invested assets (as a percent) | 0.40% | ||
Fair value | |||
Less than 12 months | $ 373,323 | $ 683,633 | |
12 Months and Greater | 159,973 | 28,517 | |
Total Fair value | 533,296 | 712,150 | |
Cost or amortized Cost | |||
Less than 12 months | 377,606 | 698,230 | |
12 months and greater | 164,443 | 32,516 | |
Total Cost or Amortized Cost | 542,049 | 730,746 | |
Unrealized Loss | |||
Less than 12 months | (4,283) | (14,597) | |
12 Months and Greater | (4,470) | (3,999) | |
Total Unrealized Loss | (8,753) | (18,596) | |
Debt securities | |||
Fair value | |||
Less than 12 months | 364,627 | 676,195 | |
12 Months and Greater | 155,467 | 26,544 | |
Total Fair value | 520,094 | 702,739 | |
Cost or amortized Cost | |||
Less than 12 months | 367,890 | 690,201 | |
12 months and greater | 159,265 | 29,868 | |
Total Cost or Amortized Cost | 527,155 | 720,069 | |
Unrealized Loss | |||
Less than 12 months | (3,263) | (14,006) | |
12 Months and Greater | (3,798) | (3,324) | |
Total Unrealized Loss | $ (7,061) | (17,330) | |
Percent to Total | 100.00% | ||
Debt securities | NAIC Rating 1 | AAA/AA/A | Aaa/Aa/A | |||
Fair value | |||
Total Fair value | $ 478,024 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 483,555 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (5,531) | ||
Percent to Total | 78.30% | ||
Debt securities | NAIC Rating 2 | BBB | Baa | |||
Fair value | |||
Total Fair value | $ 27,669 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 27,896 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (227) | ||
Percent to Total | 3.20% | ||
Debt securities | NAIC Rating 3 | BB | Ba | |||
Fair value | |||
Total Fair value | $ 5,639 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 5,693 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (54) | ||
Percent to Total | 0.80% | ||
Debt securities | NAIC Rating 4 | B | |||
Fair value | |||
Total Fair value | $ 7,171 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 7,945 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (774) | ||
Percent to Total | 11.00% | ||
Debt securities | NAIC Rating 5 | CCC or lower | |||
Fair value | |||
Total Fair value | $ 1,591 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 2,066 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (475) | ||
Percent to Total | 6.70% | ||
U.S. government | |||
Fair value | |||
Less than 12 months | $ 54,686 | 48,500 | |
12 Months and Greater | 3,008 | ||
Total Fair value | 57,694 | 48,500 | |
Cost or amortized Cost | |||
Less than 12 months | 55,028 | 49,079 | |
12 months and greater | 3,040 | ||
Total Cost or Amortized Cost | 58,068 | 49,079 | |
Unrealized Loss | |||
Less than 12 months | (342) | (579) | |
12 Months and Greater | (32) | ||
Total Unrealized Loss | (374) | (579) | |
U.S. Agency | |||
Fair value | |||
Less than 12 months | 7,921 | ||
Total Fair value | 7,921 | ||
Cost or amortized Cost | |||
Less than 12 months | 8,007 | ||
Total Cost or Amortized Cost | 8,007 | ||
Unrealized Loss | |||
Less than 12 months | (86) | ||
Total Unrealized Loss | (86) | ||
Non-U.S. govt. & agency | |||
Fair value | |||
Less than 12 months | 1,973 | 7,647 | |
12 Months and Greater | 1,865 | ||
Total Fair value | 3,838 | 7,647 | |
Cost or amortized Cost | |||
Less than 12 months | 1,988 | 8,015 | |
12 months and greater | 1,896 | ||
Total Cost or Amortized Cost | 3,884 | 8,015 | |
Unrealized Loss | |||
Less than 12 months | (15) | (368) | |
12 Months and Greater | (31) | ||
Total Unrealized Loss | (46) | (368) | |
Mortgage-backed | |||
Fair value | |||
Less than 12 months | 156,908 | 175,858 | |
12 Months and Greater | 56,025 | 5,737 | |
Total Fair value | 212,933 | 181,595 | |
Cost or amortized Cost | |||
Less than 12 months | 158,567 | 179,238 | |
12 months and greater | 57,319 | 5,925 | |
Total Cost or Amortized Cost | 215,886 | 185,163 | |
Unrealized Loss | |||
Less than 12 months | (1,659) | (3,380) | |
12 Months and Greater | (1,294) | (188) | |
Total Unrealized Loss | (2,953) | (3,568) | |
ABS/CMBS | |||
Fair value | |||
Less than 12 months | [1] | 22,971 | 48,907 |
12 Months and Greater | [1] | 15,577 | 5,272 |
Total Fair value | [1] | 38,548 | 54,179 |
Cost or amortized Cost | |||
Less than 12 months | [1] | 23,032 | 49,372 |
12 months and greater | [1] | 15,732 | 5,364 |
Total Cost or Amortized Cost | [1] | 38,764 | 54,736 |
Unrealized Loss | |||
Less than 12 months | [1] | (61) | (465) |
12 Months and Greater | [1] | (155) | (92) |
Total Unrealized Loss | [1] | (216) | (557) |
Corporate Debt | |||
Fair value | |||
Less than 12 months | 58,328 | 144,353 | |
12 Months and Greater | 24,028 | 15,535 | |
Total Fair value | 82,356 | 159,888 | |
Cost or amortized Cost | |||
Less than 12 months | 58,881 | 146,979 | |
12 months and greater | 25,509 | 18,579 | |
Total Cost or Amortized Cost | 84,390 | 165,558 | |
Unrealized Loss | |||
Less than 12 months | (553) | (2,626) | |
12 Months and Greater | (1,481) | (3,044) | |
Total Unrealized Loss | (2,034) | (5,670) | |
Municipal | |||
Fair value | |||
Less than 12 months | 61,840 | 250,930 | |
12 Months and Greater | 54,964 | ||
Total Fair value | 116,804 | 250,930 | |
Cost or amortized Cost | |||
Less than 12 months | 62,387 | 257,518 | |
12 months and greater | 55,769 | ||
Total Cost or Amortized Cost | 118,156 | 257,518 | |
Unrealized Loss | |||
Less than 12 months | (547) | (6,588) | |
12 Months and Greater | (805) | ||
Total Unrealized Loss | (1,352) | (6,588) | |
Equity securities | |||
Fair value | |||
Less than 12 months | 8,696 | 7,438 | |
12 Months and Greater | 4,506 | 1,973 | |
Total Fair value | 13,202 | 9,411 | |
Cost or amortized Cost | |||
Less than 12 months | 9,716 | 8,029 | |
12 months and greater | 5,178 | 2,648 | |
Total Cost or Amortized Cost | 14,894 | 10,677 | |
Unrealized Loss | |||
Less than 12 months | (1,020) | (591) | |
12 Months and Greater | (672) | (675) | |
Total Unrealized Loss | $ (1,692) | $ (1,266) | |
[1] | Non-agency asset-backed and commercial mortgage-backed |
INVESTMENTS Debt Securities and
INVESTMENTS Debt Securities and Common Stock (Details) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016USD ($)security | Sep. 30, 2017USD ($)securityposition | Sep. 30, 2016USD ($)security | Dec. 31, 2016USD ($) | |
Securities in unrealized loss positions | ||||
Unrealized Loss | $ 8,753,000 | $ 18,596,000 | ||
Other-than-temporary impairment (OTTI) losses | $ 95,000 | $ 2,090,000 | $ 95,000 | |
Debt securities | ||||
Securities in unrealized loss positions | ||||
Number of unrealized loss positions | position | 288 | |||
Number of securities in unrealized loss positions for 12 months or longer | security | 89 | |||
Unrealized losses as percentage of fixed income portfolio cost basis | 0.40% | |||
Number of securities with OTTI losses recognized in earnings | security | 1 | 2 | 1 | |
Other than Temporary Impairment Losses recognized in earnings | $ 2,100,000 | $ 100,000 | ||
Other than Temporary Impairment Losses recognized in other comprehensive earnings | $ 0 | $ 0 | ||
Common stock security | ||||
Securities in unrealized loss positions | ||||
Number of unrealized loss positions | position | 6 | |||
Number of securities in unrealized loss positions for 12 months or longer | security | 2 | |||
Unrealized Loss | $ 1,700,000 | |||
Other-than-temporary impairment (OTTI) losses | $ 0 |
INVESTMENTS Debt and Short-term
INVESTMENTS Debt and Short-term Investments (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2017USD ($)item | Sep. 30, 2016USD ($) | Sep. 30, 2017USD ($)item | Sep. 30, 2016USD ($) | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | |
Other invested assets | ||||||
Other investments | $ 25,998 | $ 25,998 | $ 24,115 | |||
Total tax benefit on investments in housing tax credit partnership | 600 | $ 400 | 1,900 | $ 1,200 | ||
Investment in FHLBC | 1,000 | 1,000 | 1,600 | |||
Federal Home Loan Bank Borrowings, Fair Value Disclosure | 0 | 0 | ||||
Cash and Short-term Investments | ||||||
Cash | 26,877 | $ 13,970 | 26,877 | $ 13,970 | 18,269 | $ 11,081 |
Short-term investments, at cost which approximates fair value | $ 11,925 | $ 11,925 | 5,015 | |||
Investment In Low Income Housing Tax Credit Partnership Net Of Amortization Member | ||||||
Other invested assets | ||||||
Number of investments in low income housing tax credit partnerships | item | 3 | 3 | ||||
Other investments | $ 16,000 | $ 16,000 | 17,500 | |||
Investment in Federal Home Loan Bank Stock [Member] | ||||||
Other invested assets | ||||||
Available-for-sale Securities Pledged as Collateral | 9,600 | 9,600 | 0 | |||
Investment in Real Estate Fund | ||||||
Other invested assets | ||||||
Other investments | 3,100 | 3,100 | 5,000 | |||
Other investments fair value | 3,100 | 3,100 | $ 5,000 | |||
Investment in BDC | ||||||
Other invested assets | ||||||
Other investments fair value | 6,000 | 6,000 | ||||
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share, Unfunded Commitments | 19,100 | 19,100 | ||||
Investment In Global Credit Fund | ||||||
Other invested assets | ||||||
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share, Unfunded Commitments | $ 15,000 | $ 15,000 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 | |
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 | 2,106,771 | $ 1,974,428 | |
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 | 393,213 | 369,219 | |
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 | 1,713,558 | 1,605,209 | |
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 | 88,445 | 76,563 | |
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 | 88,445 | 76,563 | |
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 | 13,746 | 5,813 | |
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 | 13,746 | 5,813 | |
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 | 9,636 | 9,151 | |
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 | 9,636 | 9,151 | |
Mortgage-backed | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 331,558 | 284,069 | |
Mortgage-backed | 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 | 331,558 | 284,069 | |
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] | 74,989 | 93,910 |
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] | 74,989 | 93,910 |
Corporate Bond Securities [Member] | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 545,355 | 508,367 | |
Corporate Bond Securities [Member] | 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 | 545,355 | 508,367 | |
Municipal | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities | 649,829 | 627,336 | |
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 | 649,829 | 627,336 | |
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 | 393,213 | 369,219 | |
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 | $ 393,213 | $ 369,219 | |
[1] | Non-agency asset-backed and commercial mortgage-backed |
HISTORICAL LOSS AND LAE DEVEL29
HISTORICAL LOSS AND LAE DEVELOPMENT - Unpaid Losses and Settlement Expenses (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Unpaid losses and LAE at beginning of year: | ||
Gross | $ 1,139,337 | $ 1,103,785 |
Ceded | (288,224) | (297,844) |
Net | 851,113 | 805,941 |
Increase (decrease) in incurred losses and LAE: | ||
Current accident year | 343,535 | 288,749 |
Prior accident years | (36,608) | (29,410) |
Total incurred | 306,927 | 259,339 |
Loss and LAE payments for claims incurred: | ||
Current accident year | (37,333) | (36,972) |
Prior accident year | (158,052) | (170,313) |
Total paid | (195,385) | (207,285) |
Net | 962,655 | 857,995 |
Unpaid losses and LAE at September 30, | ||
Gross | 1,253,729 | 1,150,938 |
Ceded | (291,074) | (292,943) |
Net | $ 962,655 | $ 857,995 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
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% | $ (302) | $ 10,900 | $ 20,866 | $ 41,677 |
Excess tax benefit on share-based compensation | (477) | (3,711) | ||
Tax-exempt interest income | (1,187) | (1,020) | (3,525) | (3,149) |
Dividends received deduction | (553) | (626) | (1,488) | (1,676) |
ESOP dividends paid deduction | (240) | (238) | (724) | (714) |
Other items, net | 163 | (137) | 429 | 205 |
Total tax expense (benefit) | $ (2,596) | $ 8,879 | $ 11,847 | $ 36,343 |
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% |
Excess tax benefit on share-based compensation | 55.30% | 0.00% | (6.20%) | 0.00% |
Effective rate reduction due to tax exempt interest income (as a percent) | 137.70% | (3.20%) | (5.90%) | (2.60%) |
Effective rate reduction due to dividend received (as a percent) | 64.20% | (2.00%) | (2.50%) | (1.40%) |
Effective rate reduction due to dividend paid to ESOP (as a percent) | 27.90% | (0.80%) | (1.20%) | (0.60%) |
Effective rate reduction due to other items, net (as a percent) | (18.90%) | (0.50%) | 0.70% | 0.10% |
Effective Income Tax Rate Reconciliation, Percent, Total | 301.20% | 28.50% | 19.90% | 30.50% |
STOCK BASED COMPENSATION (Detai
STOCK BASED COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | 9 Months Ended | 29 Months Ended | 60 Months Ended | |||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | May 06, 2015 | May 05, 2010 | |
Weighted Number of Options Outstanding | ||||||||
Outstanding options at the beginning of the period (in shares) | 2,207,110 | 2,582,220 | ||||||
Options granted (in shares) | 442,625 | 410,250 | ||||||
Options exercised (in shares) | (174,890) | (638,675) | ||||||
Options canceled/forfeited (in shares) | (41,600) | (8,940) | ||||||
Outstanding options at the end of the period (in shares) | 2,433,245 | 2,344,855 | 2,433,245 | 2,433,245 | 2,344,855 | 2,433,245 | ||
Exercisable options at the end of the period (in shares) | 1,157,785 | 939,785 | 1,157,785 | 1,157,785 | 939,785 | 1,157,785 | ||
Weighted Average Exercise Price | ||||||||
Outstanding options at the beginning of the period (in dollars per share) | $ 40.90 | $ 32.42 | ||||||
Options granted (in dollars per share) | 56.97 | 64.15 | ||||||
Options exercised (in dollars per share) | 25.27 | 23.67 | ||||||
Options canceled/forfeited (in dollars per share) | 48.30 | 41.90 | ||||||
Outstanding options at the end of the period (in dollars per share) | $ 44.82 | $ 40.32 | $ 44.82 | 44.82 | 40.32 | $ 44.82 | ||
Exercisable options at the end of the period (in dollars per share) | $ 36.30 | $ 31.10 | $ 36.30 | $ 36.30 | $ 31.10 | $ 36.30 | ||
Weighted Average Remaining Contractual Life | ||||||||
Weighted-average remaining contractual term of options outstanding | 4 years 10 months 2 days | 5 years 1 month 13 days | ||||||
Weighted-average remaining contractual term of exercisable options | 3 years 3 months 4 days | 3 years 6 months 29 days | ||||||
Aggregate Intrinsic Value | ||||||||
Options exercised (in dollars) | $ 5,655 | $ 27,704 | ||||||
Outstanding options at the end of the period (in dollars) | $ 33,290 | $ 65,748 | $ 33,290 | 33,290 | 65,748 | $ 33,290 | ||
Exercisable options at the end of the period (in dollars) | 25,078 | 35,016 | 25,078 | $ 25,078 | $ 35,016 | 25,078 | ||
Weighted-average fair value of grants (in dollars per share) | $ 7.95 | $ 11.47 | ||||||
Stock-based compensation expenses (in dollars) | 1,000 | 1,000 | $ 3,000 | $ 3,200 | ||||
Income tax benefit from stock-based compensation (in dollars) | 300 | $ 400 | 1,100 | $ 1,100 | ||||
Unrecognized stock-based compensation expense (in dollars) | 6,300 | 6,300 | $ 6,300 | 6,300 | ||||
Weighted average grant date assumptions and weighted average fair value | ||||||||
Weighted-average fair value of grants (in dollars per share) | $ 7.95 | $ 11.47 | ||||||
Risk-free interest rates (as a percent) | 1.89% | 1.21% | ||||||
Dividend yield (as a percent) | 3.60% | 1.61% | ||||||
Expected volatility (as a percent) | 22.95% | 23.06% | ||||||
Expected option life | 5 years 18 days | 5 years 15 days | ||||||
Period for which annualized dividends is considered to calculate dividend yield | 5 years | |||||||
Restricted Stock Units (RSUs) [Member] | ||||||||
Share-based Compensation Arrangement by Share-based Payment Award | ||||||||
Award vesting period | 3 years | |||||||
Age and period of service of the participant to be eligible for retirement | 75 years | |||||||
Aggregate Intrinsic Value | ||||||||
Stock-based compensation expenses (in dollars) | 100 | $ 300 | ||||||
Unrecognized stock-based compensation expense (in dollars) | $ 500 | $ 500 | $ 500 | $ 500 | ||||
Weighted average grant date assumptions and weighted average fair value | ||||||||
RSUs Granted | 15,450 | |||||||
RSUs Outstanding | 15,375 | 15,375 | 15,375 | 15,375 | ||||
Weighted average grant date fair value of RSUs | $ 56.71 | |||||||
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 | 4,000,000 | ||||
Weighted Number of Options Outstanding | ||||||||
Options granted (in shares) | 458,075 | 1,408,825 |
OPERATING SEGMENT INFORMATION -
OPERATING SEGMENT INFORMATION - Reconciliation of Segment Totals to Total Earnings (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
REVENUES | ||||
Net premiums earned | $ 182,025 | $ 183,595 | $ 549,641 | $ 540,739 |
Net investment income | 14,187 | 13,504 | 40,430 | 39,922 |
Net realized gains (losses) | 35 | 9,252 | (700) | 23,362 |
Consolidated revenue | 196,247 | 206,351 | 589,371 | 604,023 |
NET EARNINGS | ||||
Net underwriting income | (14,932) | 10,604 | 17,868 | 57,924 |
Net investment income | 14,187 | 13,504 | 40,430 | 39,922 |
Net realized gains (losses) | 35 | 9,252 | (700) | 23,362 |
General corporate expense and interest on debt | (3,812) | (4,099) | (13,385) | (12,955) |
Equity in earnings of unconsolidated investees | 3,660 | 1,881 | 15,404 | 10,823 |
Earnings (loss) before income taxes | (862) | 31,142 | 59,617 | 119,076 |
Income tax expense | (2,596) | 8,879 | 11,847 | 36,343 |
Net earnings | 1,734 | 22,263 | 47,770 | 82,733 |
Casualty segment | ||||
REVENUES | ||||
Net premiums earned | 118,393 | 115,619 | 354,636 | 336,572 |
NET EARNINGS | ||||
Net underwriting income | 3,554 | 259 | 5,321 | 20,490 |
Property segment | ||||
REVENUES | ||||
Net premiums earned | 33,559 | 37,532 | 103,849 | 114,011 |
NET EARNINGS | ||||
Net underwriting income | (27,519) | 468 | (15,852) | 13,911 |
Surety segment | ||||
REVENUES | ||||
Net premiums earned | 30,073 | 30,444 | 91,156 | 90,156 |
NET EARNINGS | ||||
Net underwriting income | $ 9,033 | $ 9,877 | $ 28,399 | $ 23,523 |
OPERATING SEGMENT INFORMATION33
OPERATING SEGMENT INFORMATION - Major Products (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Revenue by major product | ||||
Net premiums earned | $ 182,025 | $ 183,595 | $ 549,641 | $ 540,739 |
Casualty segment | ||||
Revenue by major product | ||||
Net premiums earned | 118,393 | 115,619 | 354,636 | 336,572 |
Casualty segment | Commercial and personal umbrella | ||||
Revenue by major product | ||||
Net premiums earned | 28,848 | 27,844 | 86,286 | 82,510 |
Casualty segment | General liability | ||||
Revenue by major product | ||||
Net premiums earned | 22,138 | 21,563 | 66,572 | 63,735 |
Casualty segment | Transportation | ||||
Revenue by major product | ||||
Net premiums earned | 18,047 | 21,557 | 59,543 | 60,037 |
Casualty segment | Professional services | ||||
Revenue by major product | ||||
Net premiums earned | 19,584 | 19,318 | 58,826 | 56,748 |
Casualty segment | Small commercial | ||||
Revenue by major product | ||||
Net premiums earned | 12,419 | 11,706 | 36,471 | 33,973 |
Casualty segment | Executive products | ||||
Revenue by major product | ||||
Net premiums earned | 4,439 | 4,716 | 13,289 | 14,126 |
Casualty segment | Medical professional liability | ||||
Revenue by major product | ||||
Net premiums earned | 4,169 | 4,512 | 12,725 | 12,509 |
Casualty segment | Other casualty | ||||
Revenue by major product | ||||
Net premiums earned | 8,749 | 4,403 | 20,924 | 12,934 |
Property segment | ||||
Revenue by major product | ||||
Net premiums earned | 33,559 | 37,532 | 103,849 | 114,011 |
Property segment | Commercial | ||||
Revenue by major product | ||||
Net premiums earned | 15,600 | 16,819 | 47,191 | 51,528 |
Property segment | Marine | ||||
Revenue by major product | ||||
Net premiums earned | 13,112 | 11,964 | 37,005 | 36,070 |
Property segment | Specialty Personal | ||||
Revenue by major product | ||||
Net premiums earned | 4,844 | 6,186 | 16,370 | 18,731 |
Property segment | Property reinsurance | ||||
Revenue by major product | ||||
Net premiums earned | 2,544 | 3,200 | 7,925 | |
Net premiums earned | (62) | |||
Property segment | Crop reinsurance business | ||||
Revenue by major product | ||||
Net premiums earned | 19 | |||
Net premiums earned | (11) | (6) | (243) | |
Property segment | Other property | ||||
Revenue by major product | ||||
Net premiums earned | 76 | 89 | ||
Surety segment | ||||
Revenue by major product | ||||
Net premiums earned | 30,073 | 30,444 | 91,156 | 90,156 |
Surety segment | Miscellaneous | ||||
Revenue by major product | ||||
Net premiums earned | 11,780 | 11,714 | 35,491 | 34,304 |
Surety segment | Contract | ||||
Revenue by major product | ||||
Net premiums earned | 7,130 | 7,221 | 21,361 | 22,030 |
Surety segment | Commercial surety product | ||||
Revenue by major product | ||||
Net premiums earned | 6,861 | 6,906 | 20,942 | 20,332 |
Surety segment | Energy Surety | ||||
Revenue by major product | ||||
Net premiums earned | $ 4,302 | $ 4,603 | $ 13,362 | $ 13,490 |