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 posts solid third quarter results
PEORIA, ILLINOIS, October 18, 2005 — RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter net earnings of $25.3 million ($0.96 per diluted share), compared to $8.3 million ($0.32 per diluted share) reported in the same quarter last year. Through September 30, net earnings were $89.0 million ($3.39 per share) versus $43.6 million ($1.67 per share) last year. Highlights for the third quarter include:
• Operating income of $20.7 million ($0.78 per share) compared to $5.1 million ($0.20 per share) last year.
• Combined ratio of 89.5 across all segments.
• Losses from Hurricanes Katrina and Rita of $17.0 million pretax ($0.42 per share).
• Hurricane losses in the third quarter of 2004 of $17.3 million pretax ($0.43 per share) from four Southeastern U.S. hurricanes.
• Favorable loss development from prior years’ casualty loss reserves of $16.9 million pretax ($0.42 per share).
Both the hurricane losses and the favorable loss development include bonus-related impacts which affected other insurance and general corporate expenses.
“We are pleased to report solid results for the quarter. Losses from Hurricanes Katrina and Rita are within our previous loss estimate for Katrina alone,” said RLI Corp. President & CEO Jonathan E. Michael. “It may be too soon to predict the impact of the hurricanes on future rates, but we expect January reinsurance renewal pricing to increase, which should ultimately filter down to primary rates.
“The quarter’s positive reserve development stems from casualty business written in 2003 and 2004. These adjustments reflect that this business is continuing to develop better than expected.”
Year-to-date results improve by 112%
Operating income through September 30 was $79.6 million ($3.03 per share) versus $37.6 million ($1.44 per share) last year. Year-to-date results factor in:
• Losses from Hurricanes Katrina and Rita of $17.0 million pretax ($0.42 per share).
• Favorable development of $3.8 million pretax ($0.10 per share) from four Southeastern U.S. hurricanes that occurred in the third quarter of 2004. Hurricane losses from the same four hurricanes were $17.3 million pretax ($0.43 per share) in the year-to-date period ended September 30, 2004.
• Favorable loss development from prior years’ casualty loss reserves of $42.1 million pretax ($1.04 per share).
Since year end, shareholders’ equity grew 10.0%, to $686.1 million; book value per share was $26.91, up 9%; assets rose by 8%, to $2.7 billion.
Successful underwriting results
RLI reported third quarter underwriting income of $13.3 million representing an 89.5 net GAAP combined ratio versus the $7.1 million loss representing a 105.6 combined ratio for the same period last year. The quarter’s hurricanes negatively affected the combined ratio by 13.7 points while the quarter’s favorable loss reserve development positively affected the combined ratio by 13.5 points. Casualty recorded a 78.9 combined ratio, the property segment registered a 127.4 combined ratio, and the surety segment recorded a 93.8 combined ratio for the quarter.
— more —
Net premiums earned were down 1% quarter over quarter, to $126.1 million. Consolidated revenue of $149.2 million and gross premiums written of $192.0 million were both up slightly for the quarter compared to the third quarter of 2004.
RLI reported year-to-date underwriting income of $69.3 million representing an 81.5 net GAAP combined ratio versus the $15.5 million underwriting income representing a 96.0 combined ratio for the same period last year. Casualty recorded a 77.9 combined ratio, the property segment recorded an 89.3 combined ratio, and the surety segment recorded a 93.9 combined ratio for the nine months ended September 30, 2005.
Net premiums earned were down 2% in the nine months ended September 30, to $373.8 million. Consolidated revenue of $433.5 million was up slightly over last year and gross premiums written of $557.6 million were 3% lower.
“Casualty premiums are off slightly for the quarter and year as we’re seeing increased competition in our program business,” said Michael. “But we believe the segment will continue to be profitable as the pricing environment remains favorable. Property production is up markedly in the quarter, as our new marine business gathers momentum and commercial property production has improved. We welcome this sign of growth in a traditionally profitable segment. Our surety segment has now expanded for the sixth consecutive quarter and this quarter’s underwriting performance was particularly strong,” said Michael.
Other income
Investment income for the third quarter reached $15.9 million, a 16% increase over the third quarter of last year due to continued positive operating cash flows. For the nine month period ended September 30, investment income was $45.1 million, up 15% over the same period last year.
The consolidated investment portfolio’s total return for the quarter was 0.4%. The bond portfolio lost 0.3% and the equity portfolio’s return was 2.8%. For the nine month period, the portfolio’s total return was 2.7% based on a bond portfolio return of 2.4% and an equity portfolio return of 4.2%.
Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $13.2 million for the quarter, or $0.50 per share. Year-to-date comprehensive earnings were $73.0 million, or $2.78 per share.
During the quarter, equity in earnings of unconsolidated investees of $2.6 million included $1.9 million related to Maui Jim. The third quarter of 2004 showed income of $1.3 million related exclusively to Maui Jim. Year to date, equity in earnings of unconsolidated investees of $8.4 million included $6.8 million related to Maui Jim compared to $4.4 million related exclusively to Maui Jim in the same period last year. Higher seasonal sales and continued strong operating performance drove the growth in the current quarter and year to date periods versus the comparable periods of 2004.
Other RLI news
During the quarter, Moody’s Investors Service upgraded its senior debt rating for RLI Corp. to Baa2 as well as the insurance financial strength ratings for RLI’s insurance subsidiaries to A2. The outlook for the ratings is stable.
In addition, for the 15th consecutive year, RLI was also named to the Ward’s 50, a respected benchmark of the industry’s top performing insurance companies. The analysis recognizes companies that have excelled in balancing safety, consistency and performance for a five-year period, then benchmarks their performance with the industry overall.
At 3:15 p.m. CDT today, October 18, 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.
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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 September 30, | | Nine Months Ended September 30, | |
| | 2005 | | 2004 | | % Change | | 2005 | | 2004 | | % Change | |
SUMMARIZED INCOME STATEMENT DATA: | | | | | | | | | | | | | |
Net premiums earned | | $ | 126,129 | | $ | 128,018 | | -1.5 | % | $ | 373,843 | | $ | 380,792 | | -1.8 | % |
Net investment income | | 15,855 | | 13,654 | | 16.1 | % | 45,133 | | 39,331 | | 14.8 | % |
Net realized investment gains | | 7,194 | | 4,903 | | 46.7 | % | 14,567 | | 9,226 | | 57.9 | % |
Consolidated revenue | | 149,178 | | 146,575 | | 1.8 | % | 433,543 | | 429,349 | | 1.0 | % |
| | | | | | | | | | | | | |
Loss and settlement expenses | | 69,835 | | 95,578 | | -26.9 | % | 175,677 | | 244,363 | | -28.1 | % |
Policy acquisition costs | | 34,835 | | 32,771 | | 6.3 | % | 102,271 | | 99,596 | | 2.7 | % |
Other insurance expenses | | 8,196 | | 6,797 | | 20.6 | % | 26,630 | | 21,362 | | 24.7 | % |
Interest expense on debt | | 1,753 | | 1,722 | | 1.8 | % | 5,417 | | 5,128 | | 5.6 | % |
General corporate expenses | | 1,496 | | 1,074 | | 39.3 | % | 5,110 | | 3,523 | | 45.0 | % |
Total expenses | | 116,115 | | 137,942 | | -15.8 | % | 315,105 | | 373,972 | | -15.7 | % |
| | | | | | | | | | | | | |
Equity in earnings of unconsolidated investees | | 2,617 | | 1,294 | | 102.2 | % | 8,391 | | 4,366 | | 92.2 | % |
| | | | | | | | | | | | | |
Earnings before income taxes | | 35,680 | | 9,927 | | 259.4 | % | 126,829 | | 59,743 | | 112.3 | % |
Income tax expense | | 10,353 | | 1,670 | | 519.9 | % | 37,800 | | 16,176 | | 133.7 | % |
Net Earnings | | $ | 25,327 | | $ | 8,257 | | 206.7 | % | $ | 89,029 | | $ | 43,567 | | 104.3 | % |
Other comprehensive earnings (loss), net of tax | | (12,130 | ) | 13,088 | | -192.7 | % | (15,988 | ) | (1,306 | ) | -1124.2 | % |
Comprehensive earnings (loss) | | $ | 13,197 | | $ | 21,345 | | -38.2 | % | $ | 73,041 | | $ | 42,261 | | 72.8 | % |
| | | | | | | | | | | | | |
Operating Earnings:(1) | | | | | | | | | | | | | |
Net Earnings | | $ | 25,327 | | $ | 8,257 | | 206.7 | % | $ | 89,029 | | $ | 43,567 | | 104.3 | % |
Less: Realized investment gains, net of tax | | 4,677 | | 3,187 | | 46.8 | % | 9,469 | | 5,997 | | 57.9 | % |
Operating earnings | | $ | 20,650 | | $ | 5,070 | | 307.3 | % | $ | 79,560 | | $ | 37,570 | | 111.8 | % |
| | | | | | | | | | | | | |
Return on Equity: | | | | | | | | | | | | | |
Net earnings (trailing four quarters) | | | | | | | | 18.5 | % | 10.6 | % | | |
Comprehensive earnings (trailing four quarters) | | | | | | | | 17.5 | % | 12.9 | % | | |
| | | | | | | | | | | | | |
Per Share Data | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | |
Weighted average shares outstanding (in 000’s) | | 26,346 | | 26,064 | | | | 26,278 | | 26,072 | | | |
| | | | | | | | | | | | | |
EPS from operations (1) | | $ | 0.78 | | $ | 0.20 | | 290.0 | % | $ | 3.03 | | $ | 1.44 | | 110.4 | % |
Realized gains, net of tax | | 0.18 | | 0.12 | | 50.0 | % | 0.36 | | 0.23 | | 56.5 | % |
Net earnings per share | | $ | 0.96 | | $ | 0.32 | | 200.0 | % | $ | 3.39 | | $ | 1.67 | | 103.0 | % |
Comprehensive earnings (loss) per share | | $ | 0.50 | | $ | 0.82 | | -39.0 | % | $ | 2.78 | | $ | 1.62 | | 71.6 | % |
Cash dividends per share | | $ | 0.16 | | $ | 0.13 | | 23.1 | % | $ | 0.46 | | $ | 0.37 | | 24.3 | % |
(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 September 30, | | Nine Months Ended September 30, | |
| | 2005 | | 2004 | | % Change | | 2005 | | 2004 | | % Change | |
Total Gross Revenues | | | | | | | | | | | | | |
Gross premiums written | | $ | 192,023 | | 191,538 | | 0.3 | % | $ | 557,568 | | 574,093 | | -2.9 | % |
Net investment income | | 15,855 | | 13,654 | | 16.1 | % | 45,133 | | 39,331 | | 14.8 | % |
Net realized investment gains | | 7,194 | | 4,903 | | 46.7 | % | 14,567 | | 9,226 | | 57.9 | % |
Total | | $ | 215,072 | | $ | 210,095 | | 2.4 | % | $ | 617,268 | | $ | 622,650 | | -0.9 | % |
| | | | | | | | | | | | | |
Net Cash Flow from Operations | | $ | 69,271 | | $ | 78,272 | | -11.5 | % | $ | 147,617 | | $ | 175,317 | | -15.8 | % |
| | September 30, | | December 31, | | | | | | | | | |
| | 2005 | | 2004 | | % Change | | | | | | | |
SUMMARIZED BALANCE SHEET DATA: | | | | | | | | | | | | | |
Fixed income and short-term investments | | $ | 1,343,171 | | $ | 1,253,843 | | 7.1 | % | | | | | | |
(amortized cost - $1,344,370 at 9/30/05) | | | | | | | | | | | | | |
(amortized cost - $1,237,361 at 12/31/04) | | | | | | | | | | | | | |
Equity securities | | 328,945 | | 315,875 | | 4.1 | % | | | | | | |
(cost - $189,810 at 9/30/05) | | | | | | | | | | | | | |
(cost - $169,479 at 12/31/04) | | | | | | | | | | | | | |
Total investments | | 1,672,116 | | 1,569,718 | | 6.5 | % | | | | | | |
| | | | | | | | | | | | | |
Premiums and reinsurance balances receivable | | 118,025 | | 146,667 | | -19.5 | % | | | | | | |
Ceded unearned premiums | | 106,015 | | 101,446 | | 4.5 | % | | | | | | |
Reinsurance recoverable on unpaid losses | | 570,348 | | 464,180 | | 22.9 | % | | | | | | |
Deferred acquisition costs | | 69,771 | | 67,146 | | 3.9 | % | | | | | | |
Property and equipment | | 19,846 | | 18,335 | | 8.2 | % | | | | | | |
Investment in unconsolidated investees | | 51,879 | | 43,398 | | 19.5 | % | | | | | | |
Goodwill | | 26,214 | | 26,214 | | 0.0 | % | | | | | | |
Other assets | | 35,792 | | 31,671 | | 13.0 | % | | | | | | |
Total assets | | $ | 2,670,006 | | $ | 2,468,775 | | 8.2 | % | | | | | | |
| | | | | | | | | | | | | |
Unpaid losses and settlement expenses | | 1,286,057 | | 1,132,599 | | 13.5 | % | | | | | | |
Unearned premiums | | 373,998 | | 367,205 | | 1.8 | % | | | | | | |
Reinsurance balances payable | | 91,328 | | 78,062 | | 17.0 | % | | | | | | |
Short-term debt | | 21,120 | | 46,839 | | -54.9 | % | | | | | | |
Long-term debt - bonds payable | | 100,000 | | 100,000 | | 0.0 | % | | | | | | |
Income taxes - deferred | | 22,853 | | 38,966 | | -41.4 | % | | | | | | |
Other liabilities | | 88,567 | | 81,443 | | 8.7 | % | | | | | | |
Total liabilities | | 1,983,923 | | 1,845,114 | | 7.5 | % | | | | | | |
Shareholders’ equity | | 686,083 | | 623,661 | | 10.0 | % | | | | | | |
Total liabilities & shareholders’ equity | | $ | 2,670,006 | | $ | 2,468,775 | | 8.2 | % | | | | | | |
| | | | | | | | | | | | | |
Common shares outstanding (in 000’s) | | 25,500 | | 25,316 | | | | | | | | | |
Book Value per share | | $ | 26.91 | | $ | 24.64 | | 9.2 | % | | | | | | |
Closing stock price per share | | $ | 46.26 | | $ | 41.57 | | 11.3 | % | | | | | | |
Statutory Surplus | | $ | 685,415 | | $ | 605,967 | | 13.1 | % | | | | | | |
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UNDERWRITING SEGMENT DATA
(in thousands)
| | | | GAAP | | | | GAAP | | | | GAAP | | | | GAAP | |
| | Property | | Ratios | | Surety | | Ratios | | Casualty | | Ratios | | Total | | Ratios | |
| | | | | | | | | | | | | | | | | |
Three Months Ended September 30, | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Gross premium written | | $ | 45,643 | | | | $ | 17,057 | | | | $ | 129,323 | | | | $ | 192,023 | | | |
Net premium written | | 27,565 | | | | 15,554 | | | | 86,067 | | | | 129,186 | | | |
Net premium earned | | 23,614 | | | | 12,987 | | | | 89,528 | | | | 126,129 | | | |
Net loss & settlement expenses | | 21,971 | | 93.0 | % | 4,117 | | 31.7 | % | 43,747 | | 48.9 | % | 69,835 | | 55.4 | % |
Net operating expenses | | 8,118 | | 34.4 | % | 8,066 | | 62.1 | % | 26,847 | | 30.0 | % | 43,031 | | 34.1 | % |
Underwriting income(loss) | | $ | (6,475 | ) | 127.4 | % | $ | 804 | | 93.8 | % | $ | 18,934 | | 78.9 | % | $ | 13,263 | | 89.5 | % |
| | | | | | | | | | | | | | | | | |
2004 | | | | | | | | | | | | | | | | | |
Gross premium written | | $ | 39,857 | | | | $ | 14,921 | | | | $ | 136,760 | | | | $ | 191,538 | | | |
Net premium written | | 20,861 | | | | 13,269 | | | | 94,609 | | | | 128,739 | | | |
Net premium earned | | 23,951 | | | | 12,188 | | | | 91,879 | | | | 128,018 | | | |
Net loss & settlement expenses | | 21,911 | | 91.5 | % | 4,874 | | 40.0 | % | 68,793 | | 74.9 | % | 95,578 | | 74.7 | % |
Net operating expenses | | 8,243 | | 34.4 | % | 7,275 | | 59.7 | % | 24,050 | | 26.2 | % | 39,568 | | 30.9 | % |
Underwriting income(loss) | | $ | (6,203 | ) | 125.9 | % | $ | 39 | | 99.7 | % | $ | (964 | ) | 101.1 | % | $ | (7,128 | ) | 105.6 | % |
UNDERWRITING SEGMENT DATA
(in thousands)
| | | | GAAP | | | | GAAP | | | | GAAP | | | | GAAP | |
| | Property | | Ratios | | Surety | | Ratios | | Casualty | | Ratios | | Total | | Ratios | |
Nine Months Ended September 30, | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Gross premium written | | $ | 126,291 | | | | $ | 47,662 | | | | $ | 383,615 | | | | $ | 557,568 | | | |
Net premium written | | 70,610 | | | | 43,661 | | | | 261,797 | | | | 376,068 | | | |
Net premium earned | | 65,660 | | | | 37,824 | | | | 270,359 | | | | 373,843 | | | |
Net loss & settlement expenses | | 35,026 | | 53.3 | % | 12,095 | | 32.0 | % | 128,556 | | 47.6 | % | 175,677 | | 47.0 | % |
Net operating expenses | | 23,658 | | 36.0 | % | 23,429 | | 61.9 | % | 81,814 | | 30.3 | % | 128,901 | | 34.5 | % |
Underwriting income(loss) | | $ | 6,976 | | 89.3 | % | $ | 2,300 | | 93.9 | % | $ | 59,989 | | 77.9 | % | $ | 69,265 | | 81.5 | % |
| | | | | | | | | | | | | | | | | |
2004 | | | | | | | | | | | | | | | | | |
Gross premium written | | $ | 141,997 | | | | $ | 42,876 | | | | $ | 389,220 | | | | $ | 574,093 | | �� | |
Net premium written | | 73,393 | | | | 39,118 | | | | 277,795 | | | | 390,306 | | | |
Net premium earned | | 73,458 | | | | 35,603 | | | | 271,731 | | | | 380,792 | | | |
Net loss & settlement expenses | | 36,611 | | 49.8 | % | 13,923 | | 39.1 | % | 193,829 | | 71.3 | % | 244,363 | | 64.2 | % |
Net operating expenses | | 26,921 | | 36.6 | % | 21,768 | | 61.1 | % | 72,269 | | 26.6 | % | 120,958 | | 31.8 | % |
Underwriting income(loss) | | $ | 9,926 | | 86.4 | % | $ | (88 | ) | 100.2 | % | $ | 5,633 | | 97.9 | % | $ | 15,471 | | 96.0 | % |
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