Exhibit 99.1
NEWS RELEASE | | 
|
RLI Corp.
9025 N. Lindbergh Dr. ½ Peoria, IL 61615-1499
Phone: 309-692-1000 ½ Fax: 309-692-1068
www.rlicorp.com
FOR IMMEDIATE RELEASE | | CONTACT: Aaron Jacoby |
| | (309) 693-5880 |
| | Aaron_Jacoby@rlicorp.com |
| | www.rlicorp.com |
RLI second quarter earnings set records
PEORIA, ILLINOIS, July 19, 2005 – RLI Corp. (NYSE: RLI) – RLI Corp. second quarter net earnings of $34.4 million ($1.31 per diluted share) were 87% higher than the $18.4 million ($0.71 per diluted share) the company reported in the same quarter last year. Through June 30, net earnings grew 80%, to $63.7 million ($2.43 per share) versus $35.3 million ($1.35 per share). All net earnings results set both quarterly and mid-year records.
Quarterly operating earnings of $31.5 million ($1.20 per share) were 84% better than last year’s $17.1 million ($0.66 per share) result. Through six months, operating earnings rose 81%, to $58.9 million ($2.25 per share) from $32.5 million ($1.25 per share). Both mid-year net and operating earnings set records.
The quarter and mid-year results include certain favorable developments from prior year loss reserves. During the quarter, positive development on prior accident year casualty loss reserves resulted in additional pretax underwriting earnings of $16.1 million, or $0.40 per share. Mid-year results also include positive first quarter development on prior accident year casualty loss reserves, which added earnings of $9.1 million, or $0.23 per share. Additionally, as third quarter 2004 Southeast U.S. hurricane losses did not develop as expected, first quarter 2005 results were improved by $3.8 million ($2.8 million in casualty and $1.0 million in property), or $0.10 per share. These developments include bonus-related accruals which affected other insurance and general corporate expenses.
Since year end, shareholders’ equity grew 9%, to $676.8 million; book value per share was $26.57, up 8%; assets rose by 5%, to $2.6 billion.
Profitable underwriting continues in all segments
RLI reported a second quarter underwriting profit of $29.6 million on a 76.1 net GAAP combined ratio versus the $11.8 million gain on a 90.7 combined ratio for the same period last year. Casualty recorded a 74.1 combined ratio. The property segment registered a 74.2 combined ratio. The surety segment recorded a 93.5 combined ratio.
Net premiums earned were down 3% in the quarter, to $123.7 million. Consolidated revenue of $142.7 million and gross premiums written of $199.4 million were both flat for the quarter.
RLI reported year-to-date underwriting profit of $56.0 million on a 77.4 net GAAP combined ratio versus the $22.6 million gain on a 91.1 combined ratio for the same period last year. Casualty recorded a 77.3 combined ratio. The property segment recorded a 68.0 combined ratio. The surety segment recorded a 94.0 combined ratio.
Net premiums earned were down 2% in the six months ended June 30, 2005, to $247.7 million. Consolidated revenue of $284.4 million was up slightly over last year and gross premiums written of $365.5 were off 4%.
“Softening insurance markets require underwriters to be more selective,” said RLI Corp. President & CEO Jonathan E. Michael. “Our experienced underwriters selected the best opportunities and, where prudent, exercised restraint, which delivered profitable results in every business segment.
“The casualty segment continues to perform well. The quarter’s positive reserve development stems from casualty business written between 2002 through 2004. This business is developing better than expected and we are adjusting our reserves to reflect that positive experience. Although casualty premium production is relatively flat in 2005, we believe the business will continue to be profitable as pricing has remained relatively stable.
“Property premiums are reduced due to a softening pricing environment. This segment continues to deliver solid profitability. Our surety segment again showed marked progress, due to new business and continued underwriting improvements,” said Michael.
—more—
Other income
Investment income for the second quarter reached $14.7 million, a 10% increase over last year due to continued positive operating cash flows. For the six month period ended June 30, 2005, investment income was $29.3 million, up 14% over last year. We anticipate a slowing growth rate in our investment income as we continue to increase our allocation to tax-exempt securities. These securities offer lower pre-tax yields, but are anticipated to remain attractive on an after-tax basis.
Due to a strong performance by the company’s bond portfolio, the consolidated investment portfolio’s total return for the quarter was 2.9%. The bond portfolio’s return was 3.1% and the equity portfolio’s return was 2.2%. For the six month period, the portfolio’s total return was 2.3% based on a bond portfolio return of 2.6% and an equity portfolio return of 1.3%.
Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $48.1 million for the quarter, or $1.83 per share. Year-to-date comprehensive earnings were $59.8 million, or $2.28 per share.
During the quarter, equity in earnings of unconsolidated investees of $4.5 million included $3.9 million related to Maui Jim. The second quarter of 2004 showed income of $1.8 million related exclusively to Maui Jim; the growth in the current quarter was driven by higher seasonal sales and continued strong operating performance.
Other RLI news
On July 10, Hurricane Dennis struck the Gulf Coast. Based on projections by the company’s catastrophe management systems and actual claim activity to date, the company does not expect its losses to be significant. Customers who have suffered a loss should immediately notify their insurance agent of the claim and have it reported to RLI, or they can contact RLI directly by phone (800-444-0406), fax (309-692-6796) or by email at new_claim@rlicorp.com. Customers should be prepared to provide their policy number and as much information as possible regarding damage to their property.
On July 15, the company surpassed $100 million in paid dividends. The $0.16 per share dividend – 14% higher than the prior dividend – brought RLI’s cumulative cash payments to shareholders to more than $104 million through 116 consecutive dividends. Over the last five years, the company’s quarterly dividend has grown by an average of 16.4% per year and 11.9% per year over the past decade. Mergent’s Dividend Achievers currently ranks RLI 171st among 11,000 public companies for 10-year average dividend growth rate.
During the second quarter, A. M. Best Company reaffirmed the financial strength rating of A+ (Superior) of RLI Insurance Company, Mt. Hawley Insurance Company and RLI Indemnity Company. All of these ratings have a stable outlook. Standard & Poor’s continues to rate RLI’s insurance subsidiaries as A+ (Strong).
At 3:15 p.m. CDT today, July 19, RLI management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion through the Internet at RLI’s website, www.rlicorp.com.
Except for historical information, this news release may include forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) which are subject to certain risk factors that could cause actual results to differ materially. Various risk factors that could affect future results are listed in the company’s filings with the Securities and Exchange Commission, including the Form 10-K for the year ended December 31, 2004.
RLI, a specialty insurance company celebrating its 40th anniversary in 2005, offers a diversified portfolio of property and casualty coverages and surety bonds serving “niche” or underserved markets. RLI operates in all 50 states from 18 office locations. The company’s talented associates have delivered underwriting profits in 24 of the last 28 years, including the last nine.
For additional information, contact RLI Vice President, Corporate Development Aaron Jacoby at (309) 693-5880 or at aaron_jacoby@rlicorp.com.or visit our website at www.rlicorp.com.
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RLI CORP.
2005 FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2005 | | 2004 | | % Change | | 2005 | | 2004 | | % Change | |
SUMMARIZED INCOME STATEMENT DATA: | | | | | | | | | | | | | |
Net premiums earned | | $ | 123,674 | | $ | 126,876 | | -2.5 | % | $ | 247,714 | | $ | 252,774 | | -2.0 | % |
Net investment income | | 14,666 | | 13,362 | | 9.8 | % | 29,278 | | 25,677 | | 14.0 | % |
Net realized investment gains | | 4,389 | | 1,887 | | 132.6 | % | 7,373 | | 4,323 | | 70.6 | % |
Consolidated revenue | | 142,729 | | 142,125 | | 0.4 | % | 284,365 | | 282,774 | | 0.6 | % |
| | | | | | | | | | | | | |
Loss and settlement expenses | | 49,323 | | 73,554 | | -32.9 | % | 105,842 | | 148,785 | | -28.9 | % |
Policy acquisition costs | | 35,572 | | 34,030 | | 4.5 | % | 67,436 | | 66,825 | | 0.9 | % |
Other insurance expenses | | 9,176 | | 7,513 | | 22.1 | % | 18,434 | | 14,565 | | 26.6 | % |
Interest expense on debt | | 1,854 | | 1,666 | | 11.3 | % | 3,664 | | 3,406 | | 7.6 | % |
General corporate expenses | | 1,710 | | 1,164 | | 46.9 | % | 3,614 | | 2,449 | | 47.6 | % |
Total expenses | | 97,635 | | 117,927 | | -17.2 | % | 198,990 | | 236,030 | | -15.7 | % |
| | | | | | | | | | | | | |
Equity in earnings of unconsolidated investees | | 4,515 | | 1,838 | | 145.6 | % | 5,774 | | 3,072 | | 88.0 | % |
| | | | | | | | | | | | | |
Earnings before income taxes | | 49,609 | | 26,036 | | 90.5 | % | 91,149 | | 49,816 | | 83.0 | % |
Income tax expense | | 15,214 | | 7,669 | | 98.4 | % | 27,447 | | 14,506 | | 89.2 | % |
Net Earnings | | $ | 34,395 | | $ | 18,367 | | 87.3 | % | $ | 63,702 | | $ | 35,310 | | 80.4 | % |
Other comprehensive earnings (loss), net of tax | | 13,659 | | (21,981 | ) | 162.1 | % | (3,858 | ) | (14,394 | ) | 73.2 | % |
Comprehensive earnings (loss) | | $ | 48,054 | | $ | (3,614 | ) | 1429.7 | % | $ | 59,844 | | $ | 20,916 | | 186.1 | % |
| | | | | | | | | | | | | |
Operating Earnings:(1) | | | | | | | | | | | | | |
Net Earnings | | $ | 34,395 | | $ | 18,367 | | 87.3 | % | $ | 63,702 | | $ | 35,310 | | 80.4 | % |
Less: Realized investment gains, net of tax | | 2,852 | | 1,227 | | 132.4 | % | 4,792 | | 2,810 | | 70.5 | % |
Operating earnings | | $ | 31,543 | | $ | 17,140 | | 84.0 | % | $ | 58,910 | | $ | 32,500 | | 81.3 | % |
| | | | | | | | | | | | | |
Return on Equity: | | | | | | | | | | | | | |
Net earnings (trailing four quarters) | | | | | | | | 16.4 | % | 14.0 | % | | |
Comprehensive earnings (trailing four quarters) | | | | | | | | 19.5 | % | 12.6 | % | | |
| | | | | | | | | | | | | |
Per Share Data | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | |
Weighted average shares outstanding (in 000's) | | 26,275 | | 26,035 | | | | 26,244 | | 26,076 | | | |
| | | | | | | | | | | | | |
EPS from operations (1) | | $ | 1.20 | | $ | 0.66 | | 81.8 | % | $ | 2.25 | | $ | 1.25 | | 80.0 | % |
Realized gains, net of tax | | 0.11 | | 0.05 | | 120.0 | % | 0.18 | | 0.10 | | 80.0 | % |
Net earnings per share | | $ | 1.31 | | $ | 0.71 | | 84.5 | % | $ | 2.43 | | $ | 1.35 | | 80.0 | % |
Comprehensive earnings (loss) per share | | $ | 1.83 | | $ | (0.14 | ) | 1407.1 | % | $ | 2.28 | | $ | 0.80 | | 185.0 | % |
Cash dividends per share | | $ | 0.16 | | $ | 0.13 | | 23.1 | % | $ | 0.30 | | $ | 0.24 | | 25.0 | % |
(1) Net operating earnings and EPS from operations consist of our net earnings reduced by after-tax realized investment gains/losses. This measure is useful in gauging our core operating performance across reporting periods, but may not be comparable to the definition of operating earnings used by all companies.
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| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2005 | | 2004 | | % Change | | 2005 | | 2004 | | % Change | |
Total Gross Revenues | | | | | | | | | | | | | |
Gross premiums written | | $ | 199,410 | | 199,643 | | -0.1 | % | $ | 365,545 | | 382,555 | | -4.4 | % |
Net investment income | | 14,666 | | 13,362 | | 9.8 | % | 29,278 | | 25,677 | | 14.0 | % |
Net realized investment gains | | 4,389 | | 1,887 | | 132.6 | % | 7,373 | | 4,323 | | 70.6 | % |
Total | | $ | 218,465 | | $ | 214,892 | | 1.7 | % | $ | 402,196 | | $ | 412,555 | | -2.5 | % |
| | | | | | | | | | | | | |
Net Cash Flow from Operations | | $ | 47,331 | | $ | 64,028 | | -26.1 | % | $ | 78,346 | | $ | 97,045 | | -19.3 | % |
| | June 30, | | December 31, | | | |
| | 2005 | | 2004 | | % Change | |
SUMMARIZED BALANCE SHEET DATA: | | | | | | | |
Fixed income and short-term investments | | $ | 1,298,316 | | $ | 1,253,843 | | 3.5 | % |
(amortized cost - $1,280,917 at 6/30/05) | | | | | | | |
(amortized cost - $1,237,361 at 12/31/04) | | | | | | | |
Equity securities | | 316,092 | | 315,875 | | 0.1 | % |
(cost - $176,531 at 6/31/05) | | | | | | | |
(cost - $169,479 at 12/31/04) | | | | | | | |
Total investments | | 1,614,408 | | 1,569,718 | | 2.8 | % |
| | | | | | | |
Premiums and reinsurance balances receivable | | 140,387 | | 146,667 | | -4.3 | % |
Ceded unearned premiums | | 101,637 | | 101,446 | | 0.2 | % |
Reinsurance recoverable on unpaid losses | | 535,668 | | 464,180 | | 15.4 | % |
Deferred acquisition costs | | 68,661 | | 67,146 | | 2.3 | % |
Property and equipment | | 19,746 | | 18,335 | | 7.7 | % |
Investment in unconsolidated investees | | 49,250 | | 43,398 | | 13.5 | % |
Goodwill | | 26,214 | | 26,214 | | 0.0 | % |
Other assets | | 30,702 | | 31,671 | | -3.1 | % |
Total assets | | $ | 2,586,673 | | $ | 2,468,775 | | 4.8 | % |
| | | | | | | |
Unpaid losses and settlement expenses | | 1,217,565 | | 1,132,599 | | 7.5 | % |
Unearned premiums | | 366,564 | | 367,205 | | -0.2 | % |
Reinsurance balances payable | | 84,601 | | 78,062 | | 8.4 | % |
Short-term debt | | 36,824 | | 46,839 | | -21.4 | % |
Long-term debt - bonds payable | | 100,000 | | 100,000 | | 0.0 | % |
Income taxes - deferred | | 38,309 | | 38,966 | | -1.7 | % |
Other liabilities | | 66,045 | | 81,443 | | -18.9 | % |
Total liabilities | | 1,909,908 | | 1,845,114 | | 3.5 | % |
Shareholders' equity | | 676,765 | | 623,661 | | 8.5 | % |
Total liabilities & shareholders' equity | | $ | 2,586,673 | | $ | 2,468,775 | | 4.8 | % |
| | | | | | | |
Common shares outstanding (in 000's) | | 25,468 | | 25,316 | | | |
| | | | | | | |
Book Value per share | | $ | 26.57 | | $ | 24.64 | | 7.8 | % |
Closing stock price per share | | $ | 44.60 | | $ | 41.57 | | 7.3 | % |
| | | | | | | |
Statutory Surplus | | $ | 663,784 | | $ | 605,967 | | 9.5 | % |
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UNDERWRITING SEGMENT DATA
(in thousands)
| | Property | | GAAP
Ratios | | Surety | | GAAP
Ratios | | Casualty | | GAAP
Ratios | | Total | | GAAP
Ratios | |
Three Months Ended June 30,
2005 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Gross premium written | | $ | 49,129 | | | | $ | 16,833 | | | | $ | 133,448 | | | | $ | 199,410 | | | |
Net premium written | | 27,904 | | | | 15,329 | | | | 92,861 | | | | 136,094 | | | |
Net premium earned | | 20,913 | | | | 12,537 | | | | 90,224 | | | | 123,674 | | | |
Net loss & settlement expenses | | 6,774 | | 32.4 | % | 3,946 | | 31.5 | % | 38,603 | | 42.8 | % | 49,323 | | 39.9 | % |
Net operating expenses | | 8,749 | | 41.8 | % | 7,779 | | 62.0 | % | 28,220 | | 31.3 | % | 44,748 | | 36.2 | % |
Underwriting income(loss) | | $ | 5,390 | | 74.2 | % | $ | 812 | | 93.5 | % | $ | 23,401 | | 74.1 | % | $ | 29,603 | | 76.1 | % |
| | | | | | | | | | | | | | | | | |
2004 | | | | | | | | | | | | | | | | | |
Gross premium written | | $ | 52,321 | | | | $ | 15,033 | | | | $ | 132,289 | | | | $ | 199,643 | | | |
Net premium written | | 28,285 | | | | 14,115 | | | | 96,001 | | | | 138,401 | | | |
Net premium earned | | 24,125 | | | | 11,986 | | | | 90,765 | | | | 126,876 | | | |
Net loss & settlement expenses | | 6,529 | | 27.1 | % | 4,629 | | 38.6 | % | 62,396 | | 68.7 | % | 73,554 | | 58.0 | % |
Net operating expenses | | 9,412 | | 39.0 | % | 7,458 | | 62.2 | % | 24,673 | | 27.2 | % | 41,543 | | 32.7 | % |
Underwriting income(loss) | | $ | 8,184 | | 66.1 | % | $ | (101 | ) | 100.8 | % | $ | 3,696 | | 95.9 | % | $ | 11,779 | | 90.7 | % |
UNDERWRITING SEGMENT DATA
(in thousands)
| | Property | | GAAP
Ratios | | Surety | | GAAP
Ratios | | Casualty | | GAAP
Ratios | | Total | | GAAP
Ratios | |
Six Months Ended June 30,
2005 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Gross premium written | | $ | 80,648 | | | | $ | 30,605 | | | | $ | 254,292 | | | | $ | 365,545 | | | |
Net premium written | | 43,045 | | | | 28,107 | | | | 175,730 | | | | 246,882 | | | |
Net premium earned | | 42,046 | | | | 24,837 | | | | 180,831 | | | | 247,714 | | | |
Net loss & settlement expenses | | 13,055 | | 31.0 | % | 7,978 | | 32.1 | % | 84,809 | | 46.9 | % | 105,842 | | 42.7 | % |
Net operating expenses | | 15,540 | | 37.0 | % | 15,363 | | 61.9 | % | 54,967 | | 30.4 | % | 85,870 | | 34.7 | % |
Underwriting income(loss) | | $ | 13,451 | | 68.0 | % | $ | 1,496 | | 94.0 | % | $ | 41,055 | | 77.3 | % | $ | 56,002 | | 77.4 | % |
| | | | | | | | | | | | | | | | | |
2004 | | | | | | | | | | | | | | | | | |
Gross premium written | | $ | 102,140 | | | | $ | 27,955 | | | | $ | 252,460 | | | | $ | 382,555 | | | |
Net premium written | | 52,532 | | | | 25,849 | | | | 183,186 | | | | 261,567 | | | |
Net premium earned | | 49,507 | | | | 23,415 | | | | 179,852 | | | | 252,774 | | | |
Net loss & settlement expenses | | 14,700 | | 29.7 | % | 9,049 | | 38.6 | % | 125,036 | | 69.5 | % | 148,785 | | 58.9 | % |
Net operating expenses | | 18,678 | | 37.7 | % | 14,493 | | 61.9 | % | 48,219 | | 26.8 | % | 81,390 | | 32.2 | % |
Underwriting income(loss) | | $ | 16,129 | | 67.4 | % | $ | (127 | ) | 100.5 | % | $ | 6,597 | | 96.3 | % | $ | 22,599 | | 91.1 | % |
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