Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Feb. 10, 2016 | Jun. 30, 2015 | |
Document and Entity Information | |||
Entity Registrant Name | RLI CORP | ||
Entity Central Index Key | 84,246 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 1,942,913,293 | ||
Entity Common Stock, Shares Outstanding | 43,578,108 | ||
Document Fiscal Year Focus | 2,015 | ||
Document Fiscal Period Focus | FY |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
Fixed income: | ||
Available-for-sale, at fair value (amortized cost - $1,518,156 in 2015 and $1,448,204 in 2014) | $ 1,538,110 | $ 1,495,087 |
Equity securities available-for-sale, at fair value (cost - $202,437 in 2015 and $193,535 in 2014) | 375,424 | 410,642 |
Short-term investments, at cost which approximates fair value | 6,262 | 16,339 |
Other invested assets | 20,666 | 11,597 |
Cash | 11,081 | 30,620 |
Total investments and cash | 1,951,543 | 1,964,285 |
Accrued investment income | 14,878 | 14,629 |
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $14,898 in 2015 and $14,245 in 2014 | 143,662 | 154,573 |
Ceded unearned premium | 52,833 | 53,961 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $11,885 in 2015 and $13,049 in 2014 | 297,844 | 335,106 |
Deferred policy acquisition costs, net | 69,829 | 65,123 |
Property and equipment, at cost, net of accumulated depreciation of $38,447 in 2015 and $34,365 in 2014 | 47,102 | 42,549 |
Investment in unconsolidated investees | 70,784 | 60,046 |
Goodwill and intangibles | 71,294 | 72,695 |
Other assets | 16,810 | 12,575 |
TOTAL ASSETS | 2,736,579 | 2,775,542 |
Liabilities: | ||
Unpaid losses and settlement expenses | 1,103,785 | 1,121,040 |
Unearned premiums | 422,094 | 401,412 |
Reinsurance balances payable | 37,556 | 38,013 |
Funds held | 54,254 | 51,481 |
Income taxes - deferred | 63,993 | 82,285 |
Bonds payable, long-term debt | 149,668 | 149,625 |
Accrued expenses | 55,742 | 63,148 |
Other liabilities | 26,018 | 23,476 |
TOTAL LIABILITIES | 1,913,110 | 1,930,480 |
Shareholders' Equity | ||
Common stock ($1 par value, authorized 100,000,000 shares, issued 66,474,342 shares in 2015 and 66,032,929 shares in 2014, and outstanding 43,544,128 shares in 2015 and 43,102,715 shares in 2014) | 66,474 | 66,033 |
Paid-in capital | 221,345 | 213,737 |
Accumulated other comprehensive earnings | 123,774 | 171,383 |
Retained earnings | 804,875 | 786,908 |
Deferred compensation | 10,647 | 13,769 |
Treasury stock, at cost (22,930,214 shares in 2015 and 2014) | (403,646) | (406,768) |
TOTAL SHAREHOLDERS’ EQUITY | 823,469 | 845,062 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ 2,736,579 | $ 2,775,542 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
Condensed Consolidated Balance Sheets | ||
Available-for-sale, amortized cost | $ 1,518,156 | $ 1,448,204 |
Equity securities available-for-sale, cost | 202,437 | 193,535 |
Premiums and reinsurance balances receivable, allowances for uncollectible amounts | 14,898 | 14,245 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, allowances for uncollectible amounts | 11,885 | 13,049 |
Property and equipment, accumulated depreciation | $ 38,447 | $ 34,365 |
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) | 66,474,342 | 66,032,929 |
Common stock, shares outstanding (in shares) | 43,544,128 | 43,102,715 |
Treasury stock, shares (in shares) | 22,930,214 | 22,930,214 |
Consolidated Statements of Earn
Consolidated Statements of Earnings and Comprehensive Earnings - USD ($) shares in Thousands, $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Condensed Consolidated Statements of Earnings and Comprehensive Earnings | |||
Net premiums earned | $ 700,161 | $ 687,375 | $ 630,802 |
Net investment income | 54,644 | 55,608 | 52,763 |
Net realized gains | 39,829 | 32,182 | 22,036 |
Consolidated revenue | 794,634 | 775,165 | 705,601 |
Losses and settlement expenses | 299,045 | 296,609 | 259,801 |
Policy acquisition costs | 241,078 | 229,283 | 210,651 |
Insurance operating expenses | 51,480 | 54,464 | 53,557 |
Interest expense on debt | 7,426 | 7,438 | 8,095 |
General corporate expenses | 9,837 | 10,222 | 8,746 |
Total expenses | 608,866 | 598,016 | 540,850 |
Equity in earnings of unconsolidated investees | 10,914 | 12,338 | 10,915 |
Earnings before income taxes | 196,682 | 189,487 | 175,666 |
Income tax expense: | |||
Current | 52,104 | 48,596 | 43,346 |
Deferred | 7,034 | 5,446 | 6,065 |
Total tax expense | 59,138 | 54,042 | 49,411 |
Net earnings | 137,544 | 135,445 | 126,255 |
Other comprehensive earnings (loss), net of tax | (47,609) | 35,356 | (7,143) |
Comprehensive earnings | $ 89,935 | $ 170,801 | $ 119,112 |
Basic: | |||
Net earnings per share (in dollars per share) | $ 3.18 | $ 3.15 | $ 2.95 |
Comprehensive earnings per share (in dollars per share) | 2.08 | 3.97 | 2.79 |
Diluted: | |||
Net earnings per share (in dollars per share) | 3.12 | 3.09 | 2.90 |
Comprehensive earnings per share (in dollars per share) | $ 2.04 | $ 3.90 | $ 2.74 |
Weighted average number of common shares outstanding | |||
Basic (in shares) | 43,299 | 43,020 | 42,744 |
Diluted (in shares) | 44,131 | 43,819 | 43,514 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands | Common Stock | Paid-in Capital | Accumulated Other Comprehensive Earnings (Loss) | Retained Earnings | Deferred Compensation | Treasury Stock at Cost | Total |
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2012 | $ 65,455 | $ 202,535 | $ 143,170 | $ 778,202 | $ 11,106 | $ (404,105) | $ 796,363 |
Balance (in shares) at Dec. 31, 2012 | 42,525,248 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Net earnings | 126,255 | 126,255 | |||||
Other comprehensive earnings (loss), net of tax | (7,143) | (7,143) | |||||
Deferred compensation under Rabbi trust plans | 456 | (456) | |||||
Stock option excess tax benefit | 6,310 | 6,310 | |||||
Exercise of stock options | $ 458 | (140) | 318 | ||||
Exercise of stock options (in shares) | 457,176 | ||||||
Dividends paid ($2.75, $3.71 and $2.17 per share during 2015, 2014 and 2013, respectively) | (93,137) | (93,137) | |||||
Stockholders' Equity Attributable to Parent, Ending Balance at Dec. 31, 2013 | $ 65,913 | 208,705 | 136,027 | 811,320 | 11,562 | (404,561) | 828,966 |
Balance (in shares) at Dec. 31, 2013 | 42,982,424 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Net earnings | 135,445 | 135,445 | |||||
Other comprehensive earnings (loss), net of tax | 35,356 | 35,356 | |||||
Deferred compensation under Rabbi trust plans | 2,207 | (2,207) | |||||
Stock option excess tax benefit | 1,766 | 1,766 | |||||
Exercise of stock options | $ 120 | 3,266 | 3,386 | ||||
Exercise of stock options (in shares) | 120,291 | ||||||
Dividends paid ($2.75, $3.71 and $2.17 per share during 2015, 2014 and 2013, respectively) | (159,857) | (159,857) | |||||
Stockholders' Equity Attributable to Parent, Ending Balance at Dec. 31, 2014 | $ 66,033 | 213,737 | 171,383 | 786,908 | 13,769 | (406,768) | 845,062 |
Balance (in shares) at Dec. 31, 2014 | 43,102,715 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Net earnings | 137,544 | 137,544 | |||||
Other comprehensive earnings (loss), net of tax | (47,609) | (47,609) | |||||
Deferred compensation under Rabbi trust plans | (3,122) | 3,122 | |||||
Stock option excess tax benefit | 11,413 | 11,413 | |||||
Exercise of stock options | $ 441 | (3,805) | (3,364) | ||||
Exercise of stock options (in shares) | 441,413 | ||||||
Dividends paid ($2.75, $3.71 and $2.17 per share during 2015, 2014 and 2013, respectively) | (119,577) | (119,577) | |||||
Stockholders' Equity Attributable to Parent, Ending Balance at Dec. 31, 2015 | $ 66,474 | $ 221,345 | $ 123,774 | $ 804,875 | $ 10,647 | $ (403,646) | $ 823,469 |
Balance (in shares) at Dec. 31, 2015 | 43,544,128 |
Consolidated Statements of Sha6
Consolidated Statements of Shareholders' Equity (Parenthetical) - $ / shares | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Consolidated Statements of Shareholders' Equity | |||
Cash dividends paid per common share (in dollars per share) | $ 2.75 | $ 3.71 | $ 2.17 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Cash flows from operating activities: | |||
Net earnings | $ 137,544 | $ 135,445 | $ 126,255 |
Adjustments to reconcile net earnings to net cash provided by operating activities | |||
Net realized gains | (39,829) | (32,182) | (22,036) |
Depreciation | 5,406 | 4,557 | 3,765 |
Other items, net | 15,006 | 10,818 | 13,104 |
Change in: | |||
Accrued investment income | (249) | 1,081 | (1,307) |
Premiums and reinsurance balances receivable (net of direct write-offs and commutations) | 10,911 | (2,064) | (13,154) |
Reinsurance balances payable | (457) | (9,321) | 3,375 |
Funds held | 2,773 | (10,175) | 5,023 |
Ceded unearned premium | 1,128 | 6,446 | 12,785 |
Reinsurance balances recoverable on unpaid losses | 37,262 | 19,818 | 4,960 |
Deferred policy acquisition costs | (4,706) | (3,615) | (9,164) |
Accrued expenses | (7,406) | 3,552 | 9,663 |
Unpaid losses and settlement expenses | (17,255) | (8,393) | (29,050) |
Unearned premiums | 20,682 | 9,331 | 22,735 |
Income taxes | |||
Current | 7,069 | (155) | 5,966 |
Deferred | 7,034 | 5,446 | 6,065 |
Stock option excess tax benefit | (11,413) | (1,766) | (6,310) |
Changes in investment in unconsolidated investees: | |||
Undistributed earnings | (10,914) | (12,338) | (10,915) |
Dividends received | 6,600 | 13,200 | |
Net proceeds from trading portfolio activity | 6 | ||
Net cash provided by operating activities | 152,586 | 123,085 | 134,966 |
Purchase of: | |||
Fixed income, available-for-sale | (665,422) | (470,210) | (545,899) |
Equity securities, available-for-sale | (39,905) | (18,088) | (31,010) |
Property and equipment | (10,035) | (7,121) | (17,531) |
Investment in equity method investee | (1,711) | (5,301) | |
Other | (4,642) | (5,534) | |
Proceeds from sale of: | |||
Fixed income, held-to-maturity | 654 | ||
Fixed income, available-for-sale | 436,680 | 342,308 | 173,694 |
Equity securities, available-for-sale | 53,110 | 72,869 | 73,982 |
Short-term investments, net | 6,637 | 11,401 | 7,230 |
Property and equipment | 76 | 276 | 1,492 |
Subsidiary (RLI Indemnity Company) | 7,500 | ||
Other | 135 | 400 | |
Proceeds from call or maturity of: | |||
Fixed income, held-to-maturity | 11,090 | ||
Fixed income, available-for-sale | 156,980 | 101,517 | 224,620 |
Net cash provided by (used in) investing activities | (60,597) | 22,771 | (101,932) |
Cash Flows from financing activities | |||
Stock option excess tax benefit | 11,413 | 1,766 | 6,310 |
Proceeds from stock option exercises | (3,364) | 3,386 | 318 |
Proceeds from issuance of senior notes | 149,571 | ||
Payment on senior notes | (99,504) | ||
Debt issue costs paid | (1,437) | ||
Cash dividends paid | (119,577) | (159,857) | (93,137) |
Net cash used in financing activities | (111,528) | (154,705) | (37,879) |
Net decrease in cash | (19,539) | (8,849) | (4,845) |
Cash at the beginning of year | 30,620 | 39,469 | 44,314 |
Cash at end of year | $ 11,081 | $ 30,620 | $ 39,469 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2015 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. DESCRIPTION OF BUSINESS We underwrite selected property and casualty insurance coverages. We conduct operations principally through three insurance companies. These companies are organized in a vertical structure beneath RLI Corp. with RLI Insurance Company (RLI Ins.) as the first-level, or principal, insurance subsidiary. RLI Ins. writes multiple lines of insurance on an admitted basis in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. Mt. Hawley Insurance Company, a subsidiary of RLI Ins., writes surplus lines insurance in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. Contractors Bonding and Insurance Company (CBIC), a subsidiary of RLI Ins., writes multiple lines of insurance on an admitted basis in all 50 states and the District of Columbia. In 2015, we sold RLI Indemnity Company (RIC), a former subsidiary of Mt. Hawley, as a “shell.” This transaction was essentially the sale of insurance licenses. All business and cash flows from the former subsidiary remain within the RLI Insurance Group. See note 13 for more information on the sale of RIC. B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The accompanying consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (GAAP), which differ in some respects from those followed in reports to insurance regulatory authorities. The consolidated financial statements include the accounts of our holding company and our subsidiaries. All significant intercompany balances and transactions have been eliminated. C. ADOPTED ACCOUNTING STANDARDS As no effective Accounting Standards Updates (ASUs) impact our financial statements, there are no new adopted accounting standards to report. D. PROSPECTIVE ACCOUNTING STANDARDS ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs This ASU was issued to simplify the presentation of debt issuance costs by requiring them to be presented on the balance sheet as a direct deduction from the carrying amount of the related recognized debt liability, consistent with debt discounts. This ASU is effective for annual and interim reporting periods beginning after December 15, 2015. Early adoption is permitted. We have not early-adopted this ASU and do not believe adoption will have a material effect on our financial statements. ASU 2015-09, Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts This ASU was issued to enhance disclosures about an entity’s insurance liabilities, including the nature, amount, timing and uncertainty of cash flows related to those liabilities. The new guidance requires the following information related to unpaid claims and claim adjustment expenses be disclosed using an appropriate level of disaggregation so as not to obscure useful information: a. Net incurred and paid claims development information by accident year for the number of years for which claims incurred typically remain outstanding, but need not exceed 10 years; b. A reconciliation of incurred and paid claims development information to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses, with separate disclosure of reinsurance recoverable on unpaid claims for each period presented in the statement of financial position; c. For each accident year presented, the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses; d. For each accident year presented, quantitative information about claim frequency accompanied by a qualitative description of methodologies used for determining claim frequency information; and e. For all claims, the average annual percentage payout of incurred claims by age. This ASU is effective for annual reporting periods beginning after December 15, 2015 and for interim periods beginning after December 15, 2016. Early adoption is permitted. We have not early adopted this ASU and while disclosures will be increased, we do not believe adoption will have a material effect on our financial statements. ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities This ASU was issued to improve the recognition and measurement of financial instruments. The new guidance makes targeted improvements to GAAP as follows: a. Requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; b. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; c. Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; d. Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; e. Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; f. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and g. Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is only permitted for provision (e) above. Upon adoption, a cumulative-effect adjustment to the balance sheet will be made as of the beginning of the fiscal year of adoption. We have not yet completed the analysis of how adopting this ASU will affect our financial statements. ASU 2016-02, Leases (Topic 842) ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. We have not yet completed the analysis of how adopting this ASU will affect our financial statements. See note 10 for more information on our current lease expenses and obligations. E. INVESTMENTS: We classify our investments in all debt and equity securities into one of three categories: available-for-sale, held-to-maturity or trading. AVAILABLE-FOR-SALE SECURITIES Debt and equity securities not included as held-to-maturity or trading are classified as available-for-sale and reported at fair value. Unrealized gains and losses on these securities are excluded from net earnings but are recorded as a separate component of comprehensive earnings and shareholders’ equity, net of deferred income taxes. All of our debt and equity securities are classified as available-for-sale. HELD-TO-MATURITY SECURITIES Debt securities that we have the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Except for declines that are other-than-temporary, changes in the fair value of these securities are not reflected in the financial statements. During 2014, we sold our remaining debt security classified as held-to-maturity. TRADING SECURITIES Debt and equity securities purchased for short-term resale are classified as trading securities. These securities are reported at fair value with unrealized gains and losses included in earnings. During 2013, we sold our remaining debt securities classified as trading. For the years ended December 31, 2015, 2014 and 2013, no securities were transferred from held-to-maturity to available-for-sale or trading. OTHER THAN TEMPORARY IMPAIRMENT We regularly evaluate our fixed income and equity securities using both quantitative and qualitative criteria to determine impairment losses for other-than-temporary declines in the fair value of the investments. The following are the key factors for determining if a security is other-than-temporarily impaired: · The length of time and the extent to which the fair value has been less than cost, · The probability of significant adverse changes to the cash flows on a fixed income investment, · The occurrence of a discrete credit event resulting in the issuer defaulting on a material obligation, the issuer seeking protection from creditors under the bankruptcy laws, the issuer proposing a voluntary reorganization under which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value, · The probability that we will recover the entire amortized cost basis of our fixed income securities prior to maturity or · For our equity securities, our expectation of recovery to cost within a reasonable period of time. Quantitative criteria considered during this process include, but are not limited to: the degree and duration of current fair value as compared to the cost (amortized, in certain cases) of the security, degree and duration of the security’s fair value being below cost and, for fixed maturities, whether the issuer is in compliance with terms and covenants of the security. Qualitative criteria include the credit quality, current economic conditions, the anticipated speed of cost recovery, the financial health of and specific prospects for the issuer, as well as our absence of intent to sell or requirement to sell fixed income securities prior to maturity. In addition, we consider price declines of securities in our other-than-temporary impairment (OTTI) analysis, where such price declines provide evidence of declining credit quality, and we distinguish between price changes caused by credit deterioration, as opposed to rising interest rates. See note 2 for further discussion of OTTI. Interest on fixed maturities and short-term investments is credited to earnings on an accrual basis. Premiums and discounts are amortized or accreted over the lives of the related fixed maturities. Dividends on equity securities are credited to earnings on the ex-dividend date. Realized gains and losses on disposition of investments are based on specific identification of the investments sold on the settlement date. F . CASH, SHORT-TERM INVESTMENTS AND OTHER INVESTED ASSETS Cash consists of uninvested balances in bank accounts. Short-term investments consist of investments with original maturities of 90 days or less, primarily AAA-rated prime and government money market funds. Short-term investments are carried at cost. We have not experienced losses on these instruments. Other invested assets includes an investment in two low income housing tax credit partnerships, carried at amortized cost, membership in the Federal Home Loan Bank of Chicago, carried at cost, and an investment in a real estate fund, carried at cost. Due to the nature of cash, short-term investments and other invested assets, their carrying amounts approximate fair value. G. REINSURANCE Ceded unearned premiums and reinsurance balances recoverable on paid and unpaid losses and settlement expenses are reported separately as assets, instead of being netted with the related liabilities, since reinsurance does not relieve us of our legal liability to our policyholders. We continuously monitor the financial condition of our reinsurers. As part of our monitoring efforts, we review their annual financial statements, quarterly disclosures and Securities and Exchange Commission (SEC) filings for those reinsurers that are publicly traded. We also review insurance industry developments that may impact the financial condition of our reinsurers. We analyze the credit risk associated with our reinsurance balances recoverable by monitoring the A.M. Best and Standard & Poor’s (S&P) ratings of our reinsurers. In addition, we subject our reinsurance recoverables to detailed recoverable tests, including one based on average default by S&P rating. Based upon our review and testing, our policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverable amounts from reinsurers. This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provision for reinsurance balances that we may be unable to recover. H. POLICY ACQUISITION COSTS We defer commissions, premium taxes and certain other costs that are incrementally or directly related to the successful acquisition of new or renewal insurance contracts. Acquisition-related costs may be deemed ineligible for deferral when they are based on contingent or performance criteria beyond the basic acquisition of the insurance contract or when efforts to obtain or renew the insurance contract are unsuccessful. All eligible costs are capitalized and charged to expense in proportion to premium revenue recognized. The method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value. This would also give effect to the premiums to be earned and anticipated losses and settlement expenses, as well as certain other costs expected to be incurred as the premiums are earned. Judgments as to the ultimate recoverability of such deferred costs are reviewed on a segment basis and are highly dependent upon estimated future loss costs associated with the premiums written. This deferral methodology applies to both gross and ceded premiums and acquisition costs. I. PROPERTY AND EQUIPMENT Property and equipment are presented at cost less accumulated depreciation and are depreciated on a straight-line basis for financial statement purposes over periods ranging from 3 to 10 years for equipment and up to 30 years for buildings and improvements. J. INVESTMENT IN UNCONSOLIDATED INVESTEES We maintain a 40 percent interest in the earnings of Maui Jim, Inc. (Maui Jim), a manufacturer of high-quality sunglasses, which is accounted for by the equity method. We also maintain a similar minority representation on their board of directors. Maui Jim’s chief executive officer owns a controlling majority of the outstanding shares of Maui Jim. We carry this investment at the holding company, RLI Corp., level as it is not core to our insurance operations. Our investment in Maui Jim was $62.7 million in 2015 and $54.3 million in 2014. In 2015, we recorded $9.9 million in investee earnings for Maui Jim, compared to $12.0 million in 2014 and $10.9 million in 2013. Maui Jim recorded net income of $23.7 million in 2015, $30.7 million in 2014 and $26.1 million in 2013. Additional summarized financial information for Maui Jim for 2015 and 2014 is outlined in the following table: (in millions) 2015 2014 Total assets $ $ Total liabilities Total equity Approximately $52.0 million of undistributed earnings from Maui Jim are included in our retained earnings as of December 31, 2015. In 2014 and 2013, we received dividends of $6.6 million and $13.2 million, respectively, from Maui Jim. No dividends were received in 2015. On February 5, 2014, we invested $5.3 million for a 20 percent equity ownership interest in Prime Holdings Insurance Services, Inc. (Prime). On March 4, 2015, we invested an additional $1.7 million, increasing our total equity ownership to 27 percent. Prime writes business through two Illinois domiciled insurance carriers, Prime Insurance Company, an excess and surplus lines company, and Prime Property and Casualty Insurance Inc., an admitted insurance company. Our investment in Prime was $8.1 million at December 31, 2015 and $5.7 million at December 31, 2014. In 2015, we recorded $1.0 million in investee earnings for Prime, compared to $0.3 million in 2014. Additionally, we entered into a 25 percent quota share reinsurance treaty with Prime, effective January 1, 2014, which contributed $11.3 million of gross premiums written and $10.9 million of net premiums earned during 2015, compared to $10.2 million of gross premiums written and $5.3 million of net premiums earned during 2014. We perform annual impairment reviews of our investments in our unconsolidated investees, which take into consideration current valuation and operating results. Based upon the most recent reviews, the assets were not impaired. K. 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 intangibles totaled $71.3 million at December 31, 2015 as detailed in the following table. Goodwill and Intangible Assets (in thousands) Reporting Unit 2015 2014 Goodwill Energy surety $ $ Miscellaneous and contract surety P&C package business Medical professional liability Total goodwill $ $ Intangibles State insurance licenses* $ $ Definite lived intangibles Total intangibles $ $ Total goodwill and intangibles $ $ *Decrease from 2014 is due to the sale of RIC, which included $0.5 million of state licenses carried as an indefinite-lived intangible asset. See note 13 for further discussion on the sale of RIC. Annual impairment testing was performed on each of these goodwill and indefinite-lived intangible assets during 2015. Based upon these reviews, none of the assets were impaired. In addition, as of December 31, 2015, there were no triggering events that occurred that would suggest an updated review was necessary. However, as a result of premium declines, the margin of fair value over carrying value on our medical professional liability goodwill is smaller than in previous years. We continue to monitor the performance of the medical professional liability reporting unit and will reexamine our valuation should results change from expectations or other triggering events occur. In the fourth quarter of 2014, a triggering event occurred when a fair value amount for state insurance licenses was obtained from a merger and acquisition broker with expertise in providing valuations for fully-licensed P&C shell companies. The carrying cost of CBIC’s licenses exceeded the fair value and resulted in a $1.3 million impairment included as a net realized loss in the 2014 consolidated statement of earnings. The definite-lived intangible assets are amortized against future operating results based on their estimated useful lives. Amortization of intangible assets was $0.9 million, $0.9 million and $1.2 million for 2015, 2014 and 2013, respectively. L. UNPAID LOSSES AND SETTLEMENT EXPENSES The liability for unpaid losses and settlement expenses represents estimates of amounts needed to pay reported and unreported claims and related expenses. The estimates are based on certain actuarial and other assumptions related to the ultimate cost to settle such claims. Such assumptions are subject to occasional changes due to evolving economic, social and political conditions. All estimates are periodically reviewed and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments are reflected in the results of operations in the period in which they are determined. Due to the inherent uncertainty in estimating reserves for losses and settlement expenses, there can be no assurance that the ultimate liability will not exceed recorded amounts. If actual liabilities do exceed recorded amounts, there will be an adverse effect. Furthermore, we may determine that recorded reserves are more than adequate to cover expected losses, which would lead to a reduction in our reserves. M. INSURANCE REVENUE RECOGNITION Insurance premiums are recognized ratably over the term of the contracts, net of ceded reinsurance. Unearned premiums are calculated on a monthly pro rata basis. N. INCOME TAXES We file a consolidated federal income tax return. Federal income taxes are accounted for using the asset and liability method under which deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, operating losses and tax credit carry forwards. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some of the deferred tax assets will not be realized. We consider uncertainties in income taxes and recognize those in our financial statements as required. As it relates to uncertainties in income taxes, our unrecognized tax benefits, including interest and penalty accruals, are not considered material to the consolidated financial statements. Also, no tax uncertainties are expected to result in significant increases or decreases to unrecognized tax benefits within the next 12-month period. Penalties and interest related to income tax uncertainties, should they occur, would be included in income tax expense in the period in which they are incurred. As an insurance company, we are subject to minimal state income tax liabilities. On a state basis, since the majority of our income is from insurance operations, we pay premium taxes in lieu of state income taxes. Premium taxes are a component of policy acquisition costs and calculated as a percentage of gross premiums written. O. 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 these items 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 these items. The following represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the consolidated financial statements. Weighted Average Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount For the year ended December 31, 2015 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ For the year ended December 31, 2014 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ For the year ended December 31, 2013 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ P . COMPREHENSIVE EARNINGS Our comprehensive earnings include net earnings plus unrealized gains/losses on our available-for-sale investment securities, net of tax. In reporting the components of comprehensive earnings on a net basis in the statement of earnings, we used a 35 percent tax rate. Other comprehensive income (loss), as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax expense (benefit) of $(25.3) million, $19.0 million and $(3.8) million for 2015, 2014 and 2013, respectively. The following table illustrates the changes in the balance of each component of accumulated other comprehensive earnings for each period presented in the consolidated financial statements. Unrealized Gains/Losses on Available-for-Sale Securities For the Year Ended December 31, (in thousands) 2015 2014 2013 Beginning balance $ $ $ Other comprehensive earnings before reclassifications Amounts reclassified from accumulated other comprehensive earnings Net current-period other comprehensive earnings (loss) $ $ $ Ending balance $ $ $ The sale or other-than-temporary impairment of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive earnings to current period net earnings. The effects of reclassifications out of accumulated other comprehensive earnings by the respective line items of net earnings are presented in the following table. Amount Reclassified from Accumulated Other Comprehensive Earnings (in thousands) Component of Accumulated For the Year Ended December 31, Affected line item in the Other Comprehensive Earnings 2015 2014 2013 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ $ $ Net realized investment gains — — — Other-than-temporary impairment (OTTI) losses on investments $ $ $ Earnings before income taxes Income tax expense $ $ $ Net earnings Q . FAIR VALUE DISCLOSURES 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. 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. Financial assets are classified based upon the lowest level of significant input that is used to determine fair value. 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, Agencies, Government and Municipal securities are deemed Level 2. Mortgage-backed Securities (MBS)/Collateralized Mortgage Obligations (CMO) 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, pre-payment assumptions and to incorporate collateral performance. To evaluate CMO 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/CMO and ABS with corroborated, observable inputs are classified as Level 2. All of our MBS/CMO and ABS are deemed Level 2. For all of our fixed income securities classified as Level 2, 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. In some cases, we obtain prices from securities brokers and compare them to the prices provided by our pricing services. In our comparisons, if discrepancies are found, we compare our prices to actual reported trade data for like securities. No changes to the fair values supplied by our pricing services have occurred as a result of our reviews. Based on these assessments, we have determined that the fair values of our Level 2 securities provided by our pricing services are reasonable. Common Stock: For common stock securities, we receive prices from a nationally recognized pricing service. All of our common stock holdings are deemed Level 1 as exchange traded equities have readily observable price levels (fair value based on quoted market prices). As such, we have determined that the fair values of our Level 1 securities provided by our pricing service are reasonable. Due to the relatively short-term nature of cash, short-term investments, accounts receivable and accounts payable, their carrying amounts are reasonable estimates of fair value. The fair value of our long-term debt is discussed further in note 4. R. STOCK-BASED COMPENSATION We expense the estimated fair value of employee stock options and similar awards. Guidance requires entities to measure compensation cost for awards of equity instruments to employees based on the grant-date fair value of those awards and recognize compensation expense over the service period that the awards are expected to vest. We calculate the tax effects of share-based compensation under the alternative transition method as permitted by GAAP guidance. The alternative transition method includes simplified methods to determine the impact on the additional paid-in capital pool and consolidated statements of cash flows of the tax effects of employee share-based compensation awards. See note 8 for further discussion and related disclosures regarding stock options. S. RISKS AND UNCERTAINTIES: Certain risks and uncertainties are inherent to our day-to-day operations and to the process of preparing our consolidated financial statements. The more significa |
INVESTMENTS
INVESTMENTS | 12 Months Ended |
Dec. 31, 2015 | |
INVESTMENTS | |
INVESTMENTS | 2. INVESTMENTS A summary of net investment income is as follows: NET INVESTMENT INCOME (in thousands) 2015 2014 2013 Interest on fixed income securities $ $ $ Dividends on equity securities Interest on cash and short-term investments Gross investment income $ $ $ Less investment expenses Net investment income $ $ $ Pretax net realized investment gains (losses) and net changes in unrealized gains (losses) on investments for the years ended December 31 are summarized as follows: REALIZED/UNREALIZED GAINS (in thousands) 2015 2014 2013 Net realized gains (losses): Fixed income: Available-for-sale $ $ $ Held-to-maturity — Equity securities Sale of subsidiary (RLI Indemnity Company)* — — Other Total $ $ $ Net changes in unrealized gains (losses) on investments: Fixed income: Available-for-sale $ $ $ Equity securities Investment in unconsolidated investees Total $ $ $ Net realized gains (losses) and changes in unrealized gains (losses) on investments $ $ $ *See note 13 for further discussion on the sale of RLI Indemnity Company. During 2015, we recorded $ 39.8 million in net realized gains, along with a change in net unrealized losses of $ 72.9 million. The majority of our net realized gains were due to sales of equity securities while the change in unrealized gains was due to increased credit spreads in the corporate fixed income sector as well as price declines in the equity portfolio. For 2015, the net realized gains (losses) and changes in unrealized gains (losses) on investments totaled $ (33.1) million. The following is a summary of the disposition of fixed income securities and equities for the years ended December 31, with separate presentations for sales and calls/maturities. Net SALES Proceeds Gross Realized Realized (in thousands) From Sales Gains Losses Gain (Loss) 2015 Available-for-sale $ $ $ $ Held-to-maturity — — — — Trading — — — — Equities 2014 Available-for-sale $ $ $ $ Held-to-maturity — Trading — — — — Equities 2013 Available-for-sale $ $ $ $ Held-to-maturity — — — — Trading — — — — Equities Net CALLS/MATURITIES Gross Realized Realized (in thousands) Proceeds Gains Losses Gain (Loss) 2015 Available-for-sale $ $ $ $ Held-to-maturity — — — — Trading — — — — 2014 Available-for-sale $ $ $ $ Held-to-maturity — — — — Trading — — — — 2013 Available-for-sale $ $ $ $ Held-to-maturity — Trading — — — FAIR VALUE MEASUREMENTS Assets measured at fair value on a recurring basis as of December 31, 2015, are summarized below: Significant Quoted in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Available-for-sale securities: U.S. government $ — $ $ — $ U.S. agency — — Non-U.S. govt. & agency — — Agency MBS — — ABS/CMBS* — — Corporate — — Municipal — — Equity — — Total available-for-sale securities $ $ $ — $ *Non-agency asset-backed & commercial mortgage-backed Assets measured at fair value on a recurring basis as of December 31, 2014, are summarized below: Significant Quoted in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Available-for-sale securities: U.S. government $ — $ $ — $ U.S. agency — — Non-U.S. govt. & agency — — Agency MBS — — ABS/CMBS* — — Corporate — — Municipal — — Equity — — Total available-for-sale securities $ $ $ — $ *Non-agency asset-backed & commercial mortgage-backed As noted in the previous tables, we did not have any assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2015 and 2014. Additionally, there were no securities transferred in or out of levels 1 or 2 during 2015 or 2014. The amortized cost and estimated fair value of fixed income securities at December 31, 2015, by contractual maturity, are shown as follows: (in thousands) Amortized Cost Fair Value Available-for-sale Due in one year or less $ $ Due after one year through five years Due after five years through 10 years Due after 10 years Mtge/ABS/CMBS* Total available-for-sale $ $ * Mortgage-backed, asset-backed & commercial mortgage-backed Expected maturities may differ from contractual maturities due to call provisions on some existing securities. At December 31, 2015, the net unrealized appreciation of available-for-sale fixed income and equity securities totaled $192.9 million pretax. At December 31, 2014, the net unrealized appreciation of available-for-sale fixed maturities and equity securities totaled $264.0 million pretax. In addition, the following table is a schedule of amortized costs and estimated fair values of investments in fixed income and equity securities as of December 31, 2015 and 2014: 2015 Amortized Gross Unrealized (in thousands) Cost Fair Value Gains Losses Available-for-sale: U.S. government $ $ $ $ U.S. agency Non-U.S. govt. & agency — Agency MBS ABS/CMBS* Corporate Municipal Total fixed income $ $ $ $ Equity securities Total available-for-sale $ $ $ $ Held-to-maturity $ — $ — $ — $ — Trading** $ — $ — $ — $ — Total $ $ $ $ * Non-agency asset-backed & commercial mortgage-backed ** Trading securities are carried at fair value with unrealized gains (losses) included in earnings 2014 Amortized Gross Unrealized (in thousands) Cost Fair Value Gains Losses Available-for-sale: U.S. government $ $ $ $ U.S. agency — Non-U.S. govt. & agency — Agency MBS ABS/CMBS* Corporate Municipal Total fixed income $ $ $ $ Equity securities Total available-for-sale $ $ $ $ Held-to-maturity $ — $ — $ — $ — Trading** $ — $ — $ — $ — Total $ $ $ $ * Non-agency asset-backed & commercial mortgage-backed ** Trading securities are carried at fair value with unrealized gains (losses) included in earnings Mortgage-Backed, Commercial Mortgage-Backed and Asset-Backed Securities Gross unrealized losses in the collateralized securities bond portfolio increased to $2.2 million in 2015 as spreads widened during the year. All of our collateralized securities carry the highest credit rating by one or more major rating agencies and continue to pay according to contractual terms. For all fixed income securities at a loss at December 31, 2015, we believe it is probable that we will receive all contractual payments in the form of principal and interest. In addition, we are not required to, nor do we intend to sell these investments prior to recovering the entire amortized cost basis of each security, which may be at maturity. We do not consider these investments to be other-than-temporarily impaired at December 31, 2015. Corporate Bonds Gross unrealized losses in the corporate bond portfolio increased to $14.8 million in 2015 from $4.2 million at the end of 2014 as credit spreads widened during the year. While these unrealized losses are not due to credit-specific defaults, the energy and materials sectors continue to experience higher risk premiums due to declines in commodity prices. The corporate bond portfolio has an overall rating of BBB+. Municipal Bonds As of December 31, 2015, municipal bonds totaled $610.4 million with gross unrealized losses of less than $0.1 million. As of December 31, 2015, approximately 47 percent of the municipal fixed income securities in the investment portfolio were general obligations of state and local governments and the remaining 53 percent were revenue based. Ninety-two percent of our municipal fixed income securities were rated AA or better while 99 percent were rated A or better. Equity Securities Our equity portfolio consists of common stocks and exchange traded funds (ETF). Gross unrealized losses in the equity portfolio increased $0.5 million to $1.5 million in 2015. Given our intent to hold and expectation of recovery to cost within a reasonable period of time, we do not consider any of our equities to be other-than-temporarily impaired. Impairment Analysis Under current accounting standards, an OTTI write-down of debt securities, where fair value is below amortized cost, is triggered by circumstances where (1) an entity has the intent to sell a security, (2) it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis or (3) the entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than not the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the difference between the security’s amortized cost and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income. Part of our evaluation of whether particular securities are other-than-temporarily impaired involves assessing whether we have both the intent and ability to continue to hold equity securities in an unrealized loss position. For fixed income securities, we consider our intent to sell a security (which is determined on a security-by-security basis) and whether it is more likely than not we will be required to sell the security before the recovery of our amortized cost basis. Significant changes in these factors could result in a charge to net earnings for impairment losses. Impairment losses result in a reduction of the underlying investment’s cost basis. The following table is also used as part of our impairment analysis and displays the total value of securities that were in an unrealized loss position as of December 31, 2015, and December 31, 2014. The table segregates 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 table further classifies the securities based on the length of time they have been in an unrealized loss position. December 31, 2015 December 31, 2014 12 Mos. 12 Mos. & (in thousands) < 12 Mos. & Greater Total < 12 Mos. Greater Total U.S. Government Fair value $ $ — $ $ $ — $ Cost or amortized cost — — Unrealized Loss $ $ — $ $ $ — $ U.S. Agency Fair value $ $ — $ $ — $ — $ — Cost or amortized cost — — — — Unrealized Loss $ $ — $ $ — $ — $ — Non-U.S. Government Fair value $ $ — $ $ — $ — $ — Cost or amortized cost — — — — Unrealized Loss $ $ — $ $ — $ — $ — Agency MBS Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ ABS/CMBS* Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Corporate Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Municipal Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Subtotal, fixed income Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Equity securities Fair value $ $ — $ $ $ — $ Cost or amortized cost — — Unrealized Loss $ $ — $ $ $ — $ Total Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ *Non-agency asset-backed & commercial mortgage-backed As of December 31, 2015, we held six equity securities that were in unrealized loss positions. The total unrealized loss on these securities was $1.5 million. In considering both the significance and duration of the unrealized loss position, we have no equity securities in an unrealized loss position of greater than 20 percent for more than six consecutive months. The fixed income portfolio contained 472 securities in an unrealized loss position as of December 31, 2015. Of these 472 securities, 44 have been in an unrealized loss position for 12 consecutive months or longer and represent $5.4 million in unrealized losses. All fixed income securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. Credit-related impairments on fixed income securities that we do not plan to sell, and for which we are not more likely than not to be required to sell, are recognized in net earnings. Any non-credit related impairment is recognized in comprehensive earnings. Based on our analysis, our fixed income portfolio is of a 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. There were no OTTI losses recognized in other comprehensive earnings in the periods presented. Key factors that we consider in the evaluation of credit quality include: · Changes in technology that may impair the earnings potential of the investment, · The discontinuance of a segment of business that may affect future earnings potential, · Reduction or elimination of dividends, · Specific concerns related to the issuer’s industry or geographic area of operation, · Significant or recurring operating losses, poor cash flows and/or deteriorating liquidity ratios and · Downgrades in credit quality by a major rating agency. Based on our analysis, we concluded that the securities in an unrealized loss position were not other-than-temporarily impaired at December 31, 2015 and 2014. We did not recognize any impairment losses during 2015, 2014 or 2013. As required by law, certain fixed maturity investments amounting to $25.4 million at December 31, 2015, were on deposit with either regulatory authorities or banks. Other Invested Assets Other invested assets shown on the balance sheet as of December 31, 2015 include investments in low income housing tax credit (LIHTC) partnerships, membership stock in the Federal Home Loan Bank of Chicago (FHLBC) and an investment in a real estate fund. During 2015, we recorded an additional $5.0 million interest in a low income housing tax credit partnership. Our LIHTC interests had a balance of $14.0 million at December 31, 2015 compared to $9.8 million at December 31, 2014 and recognized a total tax benefit of $1.1 million during 2015 compared to $0.2 million during 2014. During the fourth quarter of 2015 we invested $5.0 million in a real estate fund. Our investment in FHLBC stock totaled $1.6 million at the end of 2015 compared to $1.8 million at the end of the prior year. |
POLICY ACQUISITION COSTS
POLICY ACQUISITION COSTS | 12 Months Ended |
Dec. 31, 2015 | |
POLICY ACQUISITION COSTS | |
POLICY ACQUISITION COSTS | 3. POLICY ACQUISITION COSTS Policy acquisition costs deferred and amortized to income for the years ended December 31 are summarized as follows: (in thousands) 2015 2014 2013 Deferred policy acquisition costs (DAC), beginning of year $ $ $ Deferred: Direct commissions $ $ $ Premium taxes Ceding commissions Net deferred $ $ $ Amortized DAC/VOBA*, end of year $ $ $ Policy acquisition costs: Amortized to expense - DAC $ $ $ Amortized to expense - VOBA — Period costs: Ceding commission - contingent Other underwriting expenses Total policy acquisition costs $ $ $ * Includes asset for value of business acquired (VOBA) in CBIC acquisition, which was fully amortized at the end of 2014. |
DEBT
DEBT | 12 Months Ended |
Dec. 31, 2015 | |
DEBT | |
DEBT | 4. DEBT As of December 31, 2015, outstanding debt balances totaled $ 149.7 million, net of unamortized discount, all of which were our long-term senior notes. On October 2, 2013, we completed a public debt offering, issuing $150.0 million in senior notes maturing September 15, 2023, and paying interest semi-annually at the rate of 4.875 percent. The notes were issued at a discount resulting in proceeds, net of discount and commission, of $148.6 million. The amount of the discount is being charged to income over the life of the debt on an effective-yield basis. On December 12, 2013, a portion of the proceeds were used to redeem the $100.0 million in senior notes that were to mature on January 15, 2014, and the remaining proceeds were made available for general corporate purposes. The estimated fair value for the senior note is $158.7 million. The fair value of our long-term debt is estimated based on the limited observable prices that reflect thinly traded securities. In 2015, 2014 and 2013, we incurred interest expense on our senior notes in the amounts of $7.4 million, $7.4 million and $8.1 million, respectively. The average rate on debt in 2015, 2014 and 2013 was 4.91 percent, 4.91 percent and 5.71 percent, respectively. We maintain a revolving line of credit with JP Morgan Chase Bank N.A., which permits us to borrow up to an aggregate principal amount of $40.0 million. This facility was entered into during the second quarter of 2014 and replaced the previous $25.0 million facility which expired on May 31, 2014. Under certain conditions, the line may be increased up to an aggregate principal amount of $65.0 million. This facility has a four -year term that expires on May 28, 2018. As of and during the years ended December 31, 2015, 2014 and 201 3, no amounts were outstanding on these facilities. |
REINSURANCE
REINSURANCE | 12 Months Ended |
Dec. 31, 2015 | |
REINSURANCE | |
REINSURANCE | 5. REINSURANCE In the ordinary course of business, the insurance subsidiaries assume and cede premiums and selected insured risks with other insurance companies, known as reinsurance. A large portion of the reinsurance is put into effect under contracts known as treaties and, in some instances, by negotiation on each individual risk (known as facultative reinsurance). In addition, there are several types of treaties including quota share, excess of loss and catastrophe reinsurance contracts that protect against losses over stipulated amounts arising from any one occurrence or event. The arrangements allow us to pursue greater diversification of business and serve to limit the maximum net loss to a single event, such as a catastrophe. Through the quantification of exposed policy limits in each region and the extensive use of computer-assisted modeling techniques, we monitor the concentration of risks exposed to catastrophic events. Through the purchase of reinsurance, we also generally limit our net loss on any individual risk to a maximum of $3.0 million, although retentions can range from $1.0 million to $11.0 million. Premiums written and earned along with losses and settlement expenses incurred for the years ended December 31 are summarized as follows: (in thousands) 2015 2014 2013 WRITTEN Direct $ $ $ Reinsurance assumed Reinsurance ceded Net $ $ $ EARNED Direct $ $ $ Reinsurance assumed Reinsurance ceded Net $ $ $ LOSSES AND SETTLEMENT EXPENSES INCURRED Direct $ $ $ Reinsurance assumed Reinsurance ceded Net $ $ $ The assumed business is made up of short-tail property, casualty, catastrophe and multi-peril crop and hail reinsurance. The majority of this assumed reinsurance is proportional and a large portion of the assumed incurred losses can be attributed to crop-related reinsurance and specialty property treaties. As noted in previous filings, our portion of assumed crop reinsurance was reduced for 2015 and will end with the 2015 crop year due to the acquisition of the cedant. Losses for each crop season are ultimately determined and paid subsequent to December 31 of the crop year reinsured. At December 31, 2015, we had prepaid reinsurance premiums and recoverables on paid and unpaid losses and settlement expenses totaling $332.9 million. More than 96 percent of our reinsurance recoverables are due from companies with financial strength ratings of “A” or better by A.M. Best and S&P rating services. The following table displays net reinsurance balances recoverable, after consideration of collateral, from our top 10 reinsurers as of December 31, 2015. These reinsurers all have financial strength ratings of “A” or better by A.M. Best and Standard and Poor’s ratings services. Also shown are the amounts of written premium ceded to these reinsurers during the calendar year 2015. Net Reinsurer Ceded A.M. Best S & P Exposure as of Percent of Premiums Percent of (dollars in thousands) Rating Rating 12/31/2015 Total Written Total Munich Re / HSB A+, Superior AA-, Very Strong $ % $ % Endurance Re A, Excellent A, Strong % % Swiss Re / Westport Ins. Corp. A+, Superior AA-, Very Strong % % Aspen UK Ltd. A, Excellent A, Strong % % Transatlantic Re A, Excellent A+, Strong % % Berkley Insurance Co. A+, Superior A+, Strong % % Scor Reinsurance Co. A, Excellent AA-, Very Strong % % Allied World Re - US A, Excellent A, Strong % % Axis Re A+, Superior A+, Strong % % General Re A++, Superior AA+, Very Strong % % All other reinsurers* % % Total ceded exposure $ % $ % * All other reinsurance balances recoverable, when considered by individual reinsurer, are less than 2 percent of shareholders’ equity. Ceded unearned premiums and reinsurance balances recoverable on paid losses and settlement expenses are reported separately as an asset, rather than being netted with the related liability, since reinsurance does not relieve us of our liability to policyholders. Such balances are subject to the credit risk associated with the individual reinsurer. We continually monitor the financial condition of our reinsurers and actively follow up on any past due or disputed amounts. As part of our monitoring efforts, we review their annual financial statements and SEC filings for those reinsurers that are publicly traded. We also review insurance industry developments that may impact the financial condition of our reinsurers. We analyze the credit risk associated with our reinsurance balances recoverable by monitoring the A.M. Best and S&P ratings of our reinsurers. In addition, we subject our reinsurance recoverables to detailed recoverability tests, including a segment based analysis using the average default rating percentage by S&P rating, which assists us in assessing the sufficiency of the existing allowance. Additionally, we perform an in-depth reinsurer financial condition analysis prior to the renewal of our reinsurance placements. Our policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverable amounts from reinsurers. This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provision for reinsurance balances that we may be unable to recover. Once regulatory action (such as receivership, finding of insolvency, order of conservation or order of liquidation) is taken against a reinsurer, the paid and unpaid recoverable for the reinsurer are specifically identified and written off through the use of our allowance for estimated unrecoverable amounts from reinsurers. When we write-off such a balance, it is done in full. We then re-evaluate the remaining allowance and determine whether the balance is sufficient as detailed above and if needed, an additional allowance is recognized and income charged. The amounts of allowances for uncollectible amounts on paid and unpaid recoverables were $14.0 million and $11.9 million, respectively, at December 31, 2015. At December 31, 2014, the amounts were $13.3 million and $13.1 million, respectively. We have no receivables with a due date that extends beyond one year that are not included in our allowance for uncollectible amounts. |
HISTORICAL LOSS AND LAE DEVELOP
HISTORICAL LOSS AND LAE DEVELOPMENT | 12 Months Ended |
Dec. 31, 2015 | |
HISTORICAL LOSS AND LAE DEVELOPMENT | |
HISTORICAL LOSS AND LAE DEVELOPMENT | 6. HISTORICAL LOSS AND LAE DEVELOPMENT The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the years 2015, 2014 and 2013. (in thousands) 2015 2014 2013 Unpaid losses and LAE at beginning of year: Gross $ $ $ Ceded Net $ $ $ Increase (decrease) in incurred losses and LAE: Current accident year $ $ $ Prior accident years Total incurred $ $ $ Loss and LAE payments for claims incurred: Current accident year $ $ $ Prior accident year Total paid $ $ $ Net unpaid losses and LAE at end of year $ $ $ Unpaid losses and LAE at end of year: Gross $ $ $ Ceded Net $ $ $ The differences from our initial reserve estimates emerged as changes in our ultimate loss expectations as we performed our reserve analysis process. The recognition of the changes in initial reserve estimates occurred over time as claims were reported, initial case reserves were established, initial reserves were reviewed in light of additional information and ultimate payments were made on the collective set of claims incurred as of that evaluation date. The new information on the ultimate settlement value of claims is continually updated until all claims in a defined set are settled. As a small specialty insurer with a diversified product portfolio, our experience will ordinarily exhibit fluctuations from period to period. While we attempt to identify and react to systematic changes in the loss environment, we also must consider the volume of experience directly available to us and interpret any particular period’s indications with a realistic technical understanding of the reliability of those observations. The following table summarizes our prior accident years’ loss reserve development by segment for 2015, 2014 and 2013: (FAVORABLE)/UNFAVORABLE RESERVE DEVELOPMENT BY SEGMENT (in thousands) 2015 2014 2013 Casualty $ $ $ Property Surety Total $ $ $ A discussion of significant components of reserve development for the three most recent calendar years follows: 2015. We experienced favorable emergence relative to prior years’ reserve estimates in all of our segments during 2015. Development from the casualty segment totaled $45.7 million with the largest amounts coming from accident years 2010 through 2014. We continue to experience emergence that is generally better than previously estimated, but to a lesser degree in 2015 than in the previous two years. Frequency and severity trends have been favorable relative to initial estimates and we believe this is largely due to risk selection by our underwriters, which has been effective in offsetting loss cost trends and a competitive pricing environment. Our general liability product was the largest single contributor to this favorable development at $14.7 million. Although the habitational classes within this product produced adverse development, it was more than offset by favorable development from the construction classes. The second largest contributor was our commercial umbrella product at $10.7 million and we also had a favorable contribution of $5.4 million from our transportation product. In addition, our P&C package product had $6.6 million of favorable development. One business unit, the professional services product, experienced adverse development totaling $3.2 million in 2015. In addition, the casualty runoff business experienced $5.4 million of adverse development, with a large portion attributable to the 1983 accident year. For the third year in a row, our marine product was the predominant driver of the favorable development in the property segment, accounting for $9.2 million of the $11.8 million total favorable development for the segment. The accident years making the largest contributions were 2010 through 2014. The inland marine and cargo coverages were responsible for the majority of the favorable loss experience. Our assumed property products contributed $4.9 million of favorable development with the majority of that coming from loss reductions on previous hurricanes and storms. Development on direct property products business was also favorable overall. Our recreational vehicle product experienced $1.3 million of adverse development, mostly due to auto physical damage coverages. The surety segment experienced $7.9 million of favorable development. The majority of the favorable development came from the 2014 accident year, which served to offset the unfavorable development from accident years 2010 and 2013. Commercial, contract and energy surety contributed favorable development of $4.0 million, $2.2 million and $2.0 million, respectively. Miscellaneous surety experience adverse development totaling $0.3 million. 2014. We experienced favorable emergence relative to prior years’ reserve estimates in all our segments during 2014. The casualty segment contributed $52.8 million in favorable development. Accident years 2012 and 2013 contributed significantly to the favorable development, with accident years 2007 to 2011 also continuing to develop favorably. The favorable development in 2014 was smaller than 2013. This was predominantly caused by favorable frequency and severity trends that continued to be better than our long-term expectations. In addition, we believe this to be the result of our underwriters’ risk selection, which has mostly offset price declines and loss cost inflation. Nearly all of our casualty products contributed to the favorable development, but this was particularly true for our general liability product. The general liability product contributed $28.1 million to our favorable development with all coverages contributing to the favorable development in 2014. P&C package products were the second largest contributor with $9.4 million in favorable development mostly from accident years 2011, 2012 and 2013. Personal and commercial umbrella were favorable by $0.8 million and $4.4 million, respectively. Run-off business had favorable development of $0.9 million due mostly to favorable development in the discontinued restaurant-bar-tavern business. The marine product was the primary driver of the favorable development in the property segment. Marine contributed $5.8 million of the $1.1 million total favorable property development. Accident years 2012 and 2013 contributed to the marine products’ favorable development. Assumed property and crop were unfavorable by $4.0 million and $1.2 million, respectively. The unfavorable assumed property development was primarily attributable to 2012 spring storms on a treaty, covering mostly Texas homeowners, which was cancelled in early 2013. The surety segment experienced favorable development of $10.9 million. The majority of the favorable development was from accident year 2013. Contract and commercial surety products were the main contributors with favorable development of $4.6 million and $4.3 million, respectively. Energy surety had favorable development of $1.2 million and miscellaneous surety had favorable development of $0.9 million. 2013. We experienced favorable emergence relative to prior years’ reserve estimate in all our segments during 2013. The casualty segment contributed $61.8 million in favorable development. Accident year 2012 contributed significantly to the favorable development, with accident years 2008 to 2011 also continuing to develop favorably. The favorable development in 2013 was larger than 2012 and reflects the continuing favorable frequency and severity trends. In addition, the risk selection by our underwriters continued to provide results better than estimated in our reserving process. The general liability product contributed $28.5 million to our favorable development with all coverages, including habitational contributing to the favorable development in 2013. Executive products were the second largest contributor with $8.9 million in favorable development mostly from accident year 2011. Personal and commercial umbrella were favorable by $7.5 million and $6.5 million respectively. P&C package products were favorable by $8.1 million. Our run-off program business was favorable by $2.0 million mostly from the discontinued restaurant-bar-tavern business. Transportation and miscellaneous professional liability were the only products unfavorable at $3.5 million and $0.5 million, respectively. The marine product was the primary driver of the favorable development in the property segment. Marine contributed $5.9 million of the $7.3 million total favorable property development. Accident year 2009 to 2012 contributed to the marine products’ favorable development. The marine protection & indemnity and liability coverages accounted for the majority of the favorable development. Other direct property products contributed $3.5 million favorable development offsetting the unfavorable development of $1.4 million in the assumed property. The surety segment experienced favorable development of $3.4 million. The majority of the favorable development was from accident year 2012, which offset the unfavorable development from accident years 2009 to 2011. The adverse development coincided with the economic environment in those years. The majority of the adverse development was from the contract and miscellaneous surety products. Though accident year 2012 was favorable for all of surety combined, energy surety was unfavorable in accident year 2012. ENVIRONMENTAL, ASBESTOS AND MASS TORT EXPOSURES We are subject to environmental site cleanup, asbestos removal and mass tort claims and exposures through our commercial umbrella, general liability and discontinued assumed casualty reinsurance lines of business. The majority of the exposure is in the excess layers of our commercial umbrella and assumed reinsurance books of business. The following table represents paid and unpaid environmental, asbestos and mass tort claims data (including incurred but not reported losses) as of December 31, 2015, 2014 and 2013: (in thousands) 2015 2014 2013 LOSS AND LAE PAYMENTS (CUMULATIVE) Gross $ $ $ Ceded Net $ $ $ UNPAID LOSSES AND LAE AT END OF YEAR Gross $ $ $ Ceded Net $ $ $ Our environmental, asbestos and mass tort exposure is limited, relative to other insurers, as a result of entering the affected liability lines after the insurance industry had already recognized environmental and asbestos exposure as a problem and adopted appropriate coverage exclusions. The majority of our reserves are associated with products that went into runoff at least two decades ago. Some are for assumed reinsurance, some are for excess liability business and some followed from the acquisition of Underwriters Indemnity Company in 1999. Calendar year 2015 was fairly active in aggregate, with inception-to-date incurred losses increasing on a gross and net basis. The most significant change was an increase in the case reserves for a 1983 claim. The claim is reserved at the policy limit, with a gross increase of $2.5 million and a net increase of $2.4 million. While our environmental exposure is limited, the ultimate liability for this exposure is difficult to assess because of the extensive and complicated litigation involved in the settlement of claims and evolving legislation on issues such as joint and several liability, retroactive liability and standards of cleanup. Additionally, we participate primarily in the excess layers of coverage, where accurate estimates of ultimate loss are more difficult to derive than for primary coverage. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2015 | |
INCOME TAXES | |
INCOME TAXES | 7. INCOME TAXES The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are summarized as follows: (in thousands) 2015 2014 Deferred tax assets: Tax discounting of unpaid losses and settlement expenses $ $ Unearned premium offset Deferred compensation Stock option expense Other Deferred tax assets before allowance $ $ Less valuation allowance — — Total deferred tax assets $ $ Deferred tax liabilities: Net unrealized appreciation of securities $ $ Deferred policy acquisition costs Book/tax depreciation Intangible assets from CBIC acquisition Undistributed earnings of unconsolidated investees Other Total deferred tax liabilities $ $ Net deferred tax liability $ $ Income tax expense attributable to income from operations for the years ended December 31, 2015, 2014 and 2013 , differed from the amounts computed by applying the U.S. federal tax rate of 35 percent to pretax income from continuing operations as demonstrated in the following table: (in thousands) 2015 2014 2013 Provision for income taxes at the statutory federal tax rates $ $ $ Increase (reduction) in taxes resulting from: Dividends received deduction ESOP dividends paid deduction Tax-exempt interest income Unconsolidated investee dividends — Other items, net Total $ $ $ Our effective tax rates were 30.1 percent, 28.5 percent and 28.1 percent for 2015, 2014 and 2013, respectively. Effective rates are dependent upon components of pretax earnings and the related tax effects. The effective rate was higher in 2015 due largely to reduced tax benefits associated with dividends paid to our Employee Stock Ownership Plan (ESOP) and received from our unconsolidated investees. Dividends paid to our ESOP result in a tax deduction. Dividends paid to the ESOP in 2015, 2014 and 2013 resulted in tax benefits of $3.4 million, $4.5 million and $2.5 million, respectively. These tax benefits reduced the effective tax rate for 2015, 2014 and 2013 by 1.7 percent, 2.4 percent and 1.4 percent, respectively. Our net earnings include equity in earnings of unconsolidated investees, Maui Jim and Prime. The investees do not have a policy or pattern of paying dividends. As a result, we record a deferred tax liability on the earnings at the corporate capital gains rate of 35 percent. In the fourth quarters of 2014 and 2013, we received a $6.6 million and $13.2 million dividend from Maui Jim, respectively. No dividend was received from any unconsolidated investee in 2015. In accordance with GAAP guidelines on income taxes, we recognized a $1.8 million and $3.7 million tax benefit for 2014 and 2013, respectively. The tax benefit is generated from applying the lower tax rate applicable to affiliated dividends ( 7 percent), as compared to the corporate capital gains rate on which the deferred tax liabilities were based. Standing alone the dividend resulted in a 1.0 percent and 2.1 percent reduction to the 2014 and 2013 effective tax rates, respectively. In determining the appropriate tax rate to apply, we anticipate recovering our investments through means other than the receipt of dividends, such as a sale. We have recorded our deferred tax assets and liabilities using the statutory federal tax rate of 35 percent. We believe it is more likely than not that all deferred tax assets will be recovered given the carry back availability as well as the results of future operations, which will generate sufficient taxable income to realize the deferred tax asset. In addition, we believe when these deferred items reverse in future years, our taxable income will be taxed at an effective rate of 35 percent. Federal and state income taxes paid in 2015, 2014 and 2013, amounted to $44.2 million, $48.5 million and $36.8 million, respectively. During 2013, the Internal Revenue Service (IRS) completed an examination of the income tax returns for the years 2010 and 2011, which produced no material change to net earnings. Tax years 2012 through 2015 remain open and are subject to examination or re-examination. |
EMPLOYEE BENEFITS
EMPLOYEE BENEFITS | 12 Months Ended |
Dec. 31, 2015 | |
EMPLOYEE BENEFITS | |
EMPLOYEE BENEFITS | 8. EMPLOYEE BENEFITS EMPLOYEE STOCK OWNERSHIP, 401(K) AND BONUS AND INCENTIVE PLANS We maintain ESOP, 401(k) and bonus and incentive plans covering executives, managers and associates. Funding of these plans is primarily dependent upon reaching predetermined levels of operating return on equity, combined ratio and Market Value Potential (MVP). MVP is a compensation model that measures components of comprehensive earnings against a minimum required return on our capital. Bonuses are earned as we generate earnings in excess of this required return. While some management incentive plans may be affected somewhat by other performance factors, the larger influence of corporate performance ensures that the interests of our executives, managers and associates correspond with those of our shareholders. Our 401(k) plan allows voluntary contributions by employees and permits ESOP diversification transfers for employees meeting certain age and service requirements. We provide a basic 401(k) contribution of 3 percent of eligible compensation. Participants are 100 percent vested in both voluntary and basic contributions. Additionally, an annual discretionary profit-sharing contribution may be made to the ESOP and 401(k), subject to the achievement of certain overall financial goals and board approval. Profit-sharing contributions vest after three years of plan service. Our ESOP and 401(k) cover all employees meeting eligibility requirements. ESOP and 401(k) profit-sharing contributions are determined annually by our board of directors and are expensed in the year earned. ESOP and 401(k)-related expenses (basic and profit-sharing) were $11.6 million, $14.1 million and $12.4 million, for 2015, 2014 and 2013, respectively. During 2015, the ESOP purchased 178,492 shares of RLI stock on the open market at an average price of $49.98 ( $8.9 million) relating to the contribution for plan year 2014. Shares held by the ESOP as of December 31, 2015, totaled 3,580,786 and are treated as outstanding in computing our earnings per share. During 2014, the ESOP purchased 178,987 shares of RLI stock on the open market at an average price of $44.43 ( $7.9 million) relating to the contribution for plan year 2013. During 2013, the ESOP purchased 140,484 shares of RLI stock on the open market at an average price of $35.03 ( $4.9 million) relating to the contribution for plan year 2012. The above mentioned ESOP purchases relate only to our annual contributions to the plan and do not include amounts or shares resulting from the reinvestment of dividends. Annual bonuses are awarded to executives, managers and associates through our incentive plans, provided certain financial and operational goals are met. Annual expenses for these incentive plans totaled $20.4 million, $23.1 million and $23.2 million for 2015, 2014 and 2013, respectively. DEFERRED COMPENSATION We maintain “rabbi trusts” for deferred compensation plans for directors, key employees and executive officers through which our shares are purchased. GAAP guidelines prescribe an accounting treatment whereby the employer stock in the plan is classified and accounted for as equity, in a manner consistent with the accounting for treasury stock. In 2015, the trusts purchased 9,348 shares of our common stock on the open market at an average price of $53.15 ( $0.5 million). In 2014, the trusts purchased 9,920 shares of our common stock on the open market at an average price of $44.40 ( $0.4 million). In 2013, the trusts purchased 13,922 shares of our common stock on the open market at an average price of $38.33 ( $0.5 million). At December 31, 2015, the trusts’ assets were valued at $38.5 million. STOCK OPTIONS AND STOCK PLANS 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 (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). The omnibus plan was replaced in 2010. During the second quarter of 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 have granted 2,878,000 stock options under the 2010 LTIP, including 53,500 in 2015. The 2010 LTIP was replaced in the second quarter of 2015. During the second quarter of 2015, our shareholders approved the 2015 RLI Corp. Long-Term Incentive Plan (2015 LTIP), which provides for equity-based compensation and replaced the 2010 LTIP. In conjunction with the adoption of the 2015 LTIP, effective May 7, 2015, options were no longer granted under the 2010 LTIP. Awards under the 2015 LTIP may be in the form of restricted stock, stock options (non-qualified only), stock appreciation rights, performance units as well as other stock-based awards. Eligibility under the 2015 LTIP is limited to employees and directors of the company or any affiliate. The granting of awards under the 2015 LTIP is solely at the discretion of the board of directors. The maximum number of shares of common stock available for distribution under the 2015 LTIP is 4,000,000 shares (subject to adjustment for changes in our capitalization and other events). In 2015, we granted 510,000 stock options under the 2015 LTIP. 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. In most instances, 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. Shares issued may be less than the number of shares actually exercised, as our plan allows net settlement to cover the option exercise price and taxes due upon option exercise. Shares netted are valued at the closing stock price at the time of option exercise. In these instances, the actual number of shares issued will be less than the options exercised and can result in a decrease to shareholders’ equity. Specifically, when options are exercised with significant intrinsic value (i.e. market value in excess of exercise price) and the exercise is facilitated via net settlement, amounts withheld for taxes result in a decrease in shareholders’ equity. During 2015, the aggregate intrinsic value of options exercised was $32.1 million. During 2013, the aggregate intrinsic value of options exercised was $22.4 million. A majority of these options were exercised via net settlement with taxes withheld at the statutory minimum rate. As shown in the consolidated statements of shareholders’ equity, the exercise of options in 2015 and 2013 resulted in a decrease to paid-in-capital, as the taxes withheld pursuant to net settlement exceeded amounts paid in for options that were exercised using cash. This was not the case in 2014 as the intrinsic value of the options exercised was not as significant ( $ 6 .2 million ). Therefore, the exercise of options in 2014 resulted in an increase to paid-in-capital. In addition to settlement of the exercise, shareholders’ equity is impacted by corporate tax deductions allowed as a result of option exercises. The amount of the deduction is largely driven by the level of intrinsic value associated with exercises during the period. This tax benefit offsets our current tax liability and is recorded as an increase to paid-in-capital. As shown in the consolidated statements of shareholders’ equity, the increase to paid-in-capital from this tax benefit is larger in periods when options are exercised with significant intrinsic value, as happened in 2015 and 2013. On November 12, 2015 , the board of directors declared a $2.00 per share special cash dividend to be paid on December 22, 2015 , to shareholders of record at the close of business on November 30, 2015. To preserve the intrinsic value of the options, the board also approved, pursuant to the terms of our various stock option plans, a proportional adjustment to the exercise price (equivalent to the special dividend) for all outstanding non-qualified options. This adjustment did not result in any incremental compensation expense as the aggregate fair value, aggregate intrinsic value and the ratio of the exercise price to the market price were approximately equal immediately before and after the adjustment. Similarly, on November 13, 2014 , the board of directors declared a $3.00 per share special cash dividend to be paid on December 22, 2014, to shareholders of record at the close of business on November 28, 2014. On November 14, 2013, the board of directors declared a $1.50 per share special cash dividend to be paid on December 20, 2013, to shareholders of record at the close of business on November 29, 2013 . The exercise price adjustment made for the 2015 special dividend was also made for the 2014 and 2013 special dividends and did not result in any incremental compensation expense. Additionally, the board approved a proportional adjustment to the exercise price and the number of shares covered by each award for all outstanding ISOs in 2014 and 2013. Most ( 99 percent) of the outstanding options at the time of the adjustments were non-qualified and no incremental compensation expense was recognized as a result of the adjustments. No adjustments were made to ISOs in 2015 as all ISOs had been exercised before the special dividend occurred. The following tables summarize option activity in 2015, 2014 and 2013: Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2015 $ Options granted $ Special dividend* — $ — Options exercised $ $ Options canceled/forfeited $ Outstanding options at December 31, 2015 $ $ Exercisable options at December 31, 2015 $ $ Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2014 $ Options granted $ Special dividend* $ Options exercised $ $ Options canceled/forfeited $ Outstanding options at December 31, 2014 $ $ Exercisable options at December 31, 2014 $ $ Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2013 $ Options granted $ Special dividend* $ Options exercised $ $ Options canceled/forfeited $ Outstanding options at December 31, 2013 $ $ Exercisable options at December 31, 2013 $ $ * An adjustment was made to the exercise price and number of ISOs outstanding for the special cash dividends paid during December 2014 and 2013. “Special dividend” represents the incremental ISOs issued as a result of these adjustments. No adjustments were made to ISOs in 2015 as all ISOs had been exercised before the special dividend occurred. 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. In 2015, 563,500 options were granted with an average exercise price of $49.01 and an average fair value of $9.25 . Of these grants, 412,000 were granted at the board meeting in May with a calculated fair value of $8.94 . We recognized $4.1 million of expense during 2015 related to options vesting. Since options granted under our plan are non-qualified, we recorded a deferred tax benefit of $1.4 million related to this compensation expense. Total unrecognized compensation expense relating to outstanding and unvested options was $5.7 million, which will be recognized over the remainder of the vesting period. In 2014, 512,000 options were granted with an average exercise price of $40.46 and an average fair value of $7.89 . Of these grants, 369,500 were granted at the board meeting in May with a calculated fair value of $7.71 . We recognized $3.9 million of expense during 2014 related to options vesting. Since options granted under our plan are non-qualified, we recorded a deferred tax benefit of $1.4 million related to this compensation expense. Total unrecognized compensation expense relating to outstanding and unvested options was $4.8 million, which will be recognized over the remainder of the vesting period. In 2013, 632,700 options were granted with an average exercise price of $35.67 and an average fair value of $6.88 . Of these grants, 472,700 were granted at the board meeting in May with a calculated fair value of $6.47 . We recognized $3.8 million of expense during 2013 related to options vesting. Since options granted under our plan are non-qualified, we recorded a deferred tax benefit of $1.3 million related to this compensation expense. Total unrecognized compensation expense relating to outstanding and unvested options was $4.5 million, which will be recognized over the remainder of the vesting period. The fair value of options were estimated using a Black-Scholes based option pricing model with the following weighted-average grant-date assumptions and weighted average fair values as of December 31: 2015 2014 2013 Weighted-average fair value of grants $ $ $ Risk-free interest rates % % % Dividend yield % % % Expected volatility % % % Expected option life years years years The risk-free rate was determined based on U.S. treasury yields that most closely approximated the option’s expected life. The dividend yield was calculated based on the average annualized dividends paid during the most recent five -year period, exclusive of special dividends. In 2015 and 2014, the expected volatility was calculated based on the median of the rolling volatilities for the expected life of the options. In 2013, expected volatility was calculated based on the mean reversion of RLI’s stock. 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. In 2014 and 2013, each director received $10,000 worth of restricted common shares as part of annual director compensation. The shares were issued from the 2010 LTIP during the first quarter of each year. The shares were directly owned by each director on the date of issuance and included a one -year restriction on the sale or transfer of such shares. In the first quarter of 2014, we issued a total of 2,097 restricted shares and recognized $0.1 million of compensation expense. In the first quarter of 2013, we issued a total of 2,320 restricted shares and recognized $0.1 million of compensation expense. This restricted share program was terminated in 2014. |
STATUTORY INFORMATION AND DIVID
STATUTORY INFORMATION AND DIVIDEND RESTRICTIONS | 12 Months Ended |
Dec. 31, 2015 | |
STATUTORY INFORMATION AND DIVIDEND RESTRICTIONS | |
STATUTORY INFORMATION AND DIVIDEND RESTRICTIONS | 9. STATUTORY INFORMATION AND DIVIDEND RESTRICTIONS The statutory financial statements of our three insurance companies are presented on the basis of accounting practices prescribed or permitted by the Illinois Department of Insurance, which has adopted the NAIC statutory accounting principles as the basis of its statutory accounting principles. We do not use any permitted statutory accounting principles that differ from NAIC prescribed statutory accounting principles. In converting from statutory to GAAP, typical adjustments include deferral of policy acquisition costs, the inclusion of statutory non-admitted assets and the inclusion of net unrealized holding gains or losses in shareholders’ equity relating to fixed maturities. The NAIC has RBC requirements for insurance companies to calculate and report information under a risk-based formula, which measures statutory capital and surplus needs based upon a regulatory definition of risk relative to the company’s balance sheet and mix of products. As of December 31, 2015, each of our insurance subsidiaries had an RBC amount in excess of the authorized control level RBC, as defined by the NAIC. RLI Insurance Company (RLI Ins.), our principal insurance company subsidiary, had an authorized control level RBC of $123.6 million, $118.4 million and $90.6 million as of December 31, 2015, 2014 and 2013, respectively, compared to actual statutory capital and surplus of $865.3 million, $849.3 million and $859.2 million, respectively, for these same periods. Year-end statutory surplus for 2015 presented in the table below includes $117.5 million of RLI stock (cost basis of $64.6 million) held by Mt. Hawley Insurance Company, compared to $86.1 million and $64.0 million in 2014 and 2013, respectively. The Securities Valuation Office provides specific guidance for valuing this investment, which is eliminated in our GAAP consolidated financial statements. The following table includes selected information for our insurance subsidiaries for the year ending and as of December 31: (in thousands) 2015 2014 2013 Consolidated net income, statutory basis $ $ $ Consolidated surplus, statutory basis $ $ $ As discussed in note 1.A., our insurance subsidiaries are organized in a vertical structure with RLI Ins. as the first-level, or principal, insurance subsidiary of RLI Corp. At the holding company (RLI Corp.) level, we rely largely on dividends from our insurance company subsidiaries to meet our obligations for paying principal and interest on outstanding debt, corporate expenses and dividends to RLI Corp. shareholders. As discussed further below, dividend payments to RLI Corp. from our principal insurance subsidiary are restricted by state insurance laws as to the amount that may be paid without prior approval of the insurance regulatory authorities of Illinois. As a result, we may not be able to receive dividends from such subsidiary at times and in amounts necessary to pay desired dividends to RLI Corp. shareholders. On a GAAP basis, as of December 31, 2015, our holding company had $ 823.5 million in equity. This includes amounts related to the equity of our insurance subsidiaries, which is subject to regulatory restrictions under state insurance laws. The unrestricted portion of holding company net assets is comprised primarily of investments and cash, including $45.2 million in liquid assets , which approximates annual holding company expenditures . Unrestricted funds at the holding company are available to fund debt interest, general corporate obligations and dividend payments to our shareholders. If necessary, the holding company also has other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include a revolving line of credit, as well as issuances of common stock and debt. Ordinary dividends, which may be paid by our principal insurance subsidiary without prior regulatory approval, are subject to certain limitations based upon statutory income, surplus and earned surplus. The maximum ordinary dividend distribution from our principal insurance subsidiary in a rolling 12-month period is limited by Illinois law to the greater of 10 percent of RLI Ins. policyholder surplus, as of December 31 of the preceding year, or the net income of RLI Ins. for the 12-month period ending December 31 of the preceding year. Ordinary dividends are further restricted by the requirement that they be paid from earned surplus. In 2015, 2014 and 2013, our principal insurance subsidiary paid ordinary dividends totaling $125.0 million, $185.0 million and $40.0 million, respectively, to RLI Corp. Any dividend distribution in excess of the ordinary dividend limits is deemed extraordinary and requires prior approval from the Illinois Department of Insurance. No extraordinary dividends were paid in 2015, 2014 or 2013. As of December 31, 2015, $58.2 million of the net assets of our principal insurance subsidiary are not restricted and could be distributed to RLI Corp. as ordinary dividends. Because the limitations are based upon a rolling 12-month period, the presence, amount and impact of these restrictions vary over time. |
COMMITMENTS AND CONTINGENT LIAB
COMMITMENTS AND CONTINGENT LIABILITIES | 12 Months Ended |
Dec. 31, 2015 | |
COMMITMENTS AND CONTINGENT LIABILITIES | |
COMMITMENTS AND CONTINGENT LIABILITIES | 10. COMMITMENTS AND CONTINGENT LIABILITIES We are party to numerous claims, losses and litigation matters that arise in the normal course of our business. Many of such claims, losses or litigation matters involve claims under policies that we underwrite as an insurer. We believe that the resolution of these claims and losses will not have a material adverse effect on our financial condition, results of operations or cash flows. We are also involved in various other legal proceedings and litigation unrelated to our insurance business that arise in the ordinary course of business operations. Management believes that any liabilities that may arise as a result of these legal matters will not have a material adverse effect on our financial condition or results of operations. We have operating lease obligations for regional office facilities. These leases expire in various years through 2034. Expenses associated with these leases totaled $6.1 million in 2015, $5.8 million in 2014 and $5.7 million in 2013. Minimum future rental payments under non-cancellable leases are as follows: (in thousands) 2016 $ 2017 2018 2019 2020 2021-2034 Total minimum future rental payments $ |
OPERATING SEGMENT INFORMATION
OPERATING SEGMENT INFORMATION | 12 Months Ended |
Dec. 31, 2015 | |
OPERATING SEGMENT INFORMATION | |
OPERATING SEGMENT INFORMATION | 11. OPERATING SEGMENT INFORMATION The segments of our insurance operations include casualty, property and surety. The casualty portion of our business consists largely of commercial umbrella, personal umbrella, general liability, transportation, package business, executive products, medical professional liability and other specialty coverages, such as our professional liability for design professionals. We also offer fidelity and crime coverage for commercial insureds and select financial institutions. The casualty business is subject to the risk of estimating losses and related loss reserves because the ultimate settlement of a casualty claim may take several years to fully develop. The casualty segment is also subject to inflation risk and may be affected by evolving legislation and court decisions that define the extent of coverage and the amount of compensation due for injuries or losses. Our property segment is comprised primarily of commercial fire, earthquake, difference in conditions, marine, facultative and treaty reinsurance, including crop, and select personal lines policies, including recreational vehicle insurance and Hawaii homeowners coverages. Property insurance and reinsurance results are subject to the variability introduced by perils such as earthquakes, fires and hurricanes. Our major catastrophe exposure is to losses caused by earthquakes, primarily on the West Coast. Our second largest catastrophe exposure is to losses caused by wind storms to commercial properties throughout the Gulf and East Coast, as well as to homes we insure in Hawaii. We limit our net aggregate exposure to a catastrophic event by minimizing the total policy limits written in a particular region, purchasing reinsurance and through extensive use of computer-assisted modeling techniques. These techniques provide estimates that help us carefully manage the concentration of risks exposed to catastrophic events. Our assumed multi-peril crop and hail treaty reinsurance business covers revenue shortfalls or production losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects and disease. Significant aggregation of these losses is mitigated by the Federal Government reinsurance program that provides stop loss protection inuring to our benefit. As noted in previous filings, our portion of assumed crop reinsurance was reduced for 2015 and will expire at the end of the 2015 crop year due to the acquisition of the cedant. Additionally, we discontinued offering facultative reinsurance at the end of the third quarter of 2015 as a result of challenging market conditions. Our facultative reinsurance operations generated $3.5 million, $5.9 million and $9.1 million of gross written premium in 2015, 2014 and 2013, respectively. The surety segment specializes in writing small-to-large commercial and contract surety coverages, as well as those for the energy, petrochemical and refining industries. We also offer miscellaneous bonds including license and permit, notary and court bonds. Often, our surety coverages involve a statutory requirement for bonds. While these bonds typically maintain a relatively low loss ratio, losses may fluctuate due to adverse economic conditions affecting the financial viability of our insureds. The contract surety product guarantees the construction work of a commercial contractor for a specific project. Generally, losses occur due to the deterioration of a contractor’s financial condition. This line has historically produced marginally higher loss ratios than other surety lines during economic downturns. Net investment income is the by-product of the interest and dividend income streams from our investments in fixed income and equity securities. Interest and general corporate expenses include the cost of debt and other director and shareholder relations costs incurred for the benefit of the corporation, but not attributable to the operations of our insurance segments. Investee earnings represent our share in Maui Jim and Prime earnings. We own 40 percent of Maui Jim, a privately held company which operates in the sunglass and optical goods industries, and 27 percent of Prime, a privately-held insurance company which specializes in hard-to-place risks in the excess and surplus market and has recently expanded into certain coverages in the admitted market. Our investment in Maui Jim, which is carried at the holding company, is unrelated to our core insurance operations. The following table summarizes our segment data based on the internal structure and reporting of information as it is used by management. The net earnings of each segment are before taxes and include revenues (if applicable), direct product or segment costs (such as commissions and claims costs), as well as allocated support costs from various support departments. While depreciation and amortization charges have been included in these measures via our expense allocation system, the related assets are not allocated for management use and, therefore, are not included in this schedule. REVENUES (in thousands) 2015 2014 2013 Casualty $ $ $ Property Surety Net premiums earned $ $ $ Net investment income Net realized gains Total $ $ $ INSURANCE EXPENSES (in thousands) 2015 2014 2013 Loss and settlement expenses: Casualty $ $ $ Property Surety Total net loss and settlement expenses $ $ $ Policy acquisition costs: Casualty $ $ $ Property Surety Total policy acquisition costs $ $ $ Other insurance expenses: Casualty $ $ $ Property Surety Total other insurance expenses $ $ $ Total $ $ $ NET EARNINGS (LOSSES) (in thousands) 2015 2014 2013 Casualty $ $ $ Property Surety Net underwriting income $ $ $ Net investment income Net realized gains General corporate expense and interest on debt Equity in earnings of unconsolidated investees Total earnings before incomes taxes $ $ $ Income taxes $ $ $ Total $ $ $ The following table further summarizes revenues by major product type within each segment: NET PREMIUMS EARNED Year ended December 31, (in thousands) 2015 2014 2013 CASUALTY Commercial and personal umbrella $ $ $ General liability Professional services Commercial transportation P&C package business Executive products Medical professional liability Other casualty Total $ $ $ PROPERTY Commercial property $ $ $ Marine Specialty personal Property reinsurance Crop reinsurance Other property Total $ $ $ SURETY Miscellaneous $ $ $ Commercial Contract Energy Total $ $ $ Grand total $ $ $ |
UNAUDITED INTERIM FINANCIAL INF
UNAUDITED INTERIM FINANCIAL INFORMATION | 12 Months Ended |
Dec. 31, 2015 | |
UNAUDITED INTERIM FINANCIAL INFORMATION | |
UNAUDITED INTERIM FINANCIAL INFORMATION | 12. UNAUDITED INTERIM FINANCIAL INFORMATION Select unaudited quarterly information is as follows: (in thousands, except per share data) First Second Third Fourth Year 2015 Net premiums earned $ $ $ $ $ Net investment income Net realized gains Earnings before income taxes Net earnings Basic earnings per share(1) $ $ $ $ $ Diluted earnings per share(1) $ $ $ $ $ 2014 Net premiums earned $ $ $ $ $ Net investment income Net realized gains Earnings before income taxes Net earnings Basic earnings per share(1) $ $ $ $ $ Diluted earnings per share(1) $ $ $ $ $ (1) Since the weighted-average shares for the quarters are calculated independently of the weighted-average shares for the year, quarterly earnings per share may not total to annual earnings per share. |
ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS AND DISPOSITIONS | 12 Months Ended |
Dec. 31, 2015 | |
ACQUISITIONS | |
ACQUISITIONS AND DISPOSITIONS | 13. ACQUISITIONS AND DISPOSITIONS On November 3, 2015, RLI Corp completed the sale of its subsidiary RLI Indemnity Company (RIC) to Clear Blue Financial Holdings, LLC for net sale proceeds of $7.5 million that were primarily generated from the transfer of insurance licenses. RIC was sold as a “shell,” with all business and cash flows from the company being retained by RLI Insurance Group. At the time of the sale, RIC had minimal assets and written premium and was transferring all premium and loss cash flows to RLI Ins. through a 100 percent quota share reinsurance agreement. RLI Ins. will continue to reinsure all RIC bond and insurance liabilities that existed at the date of sale, adjust claims and service the remaining in-force polices and bonds until they terminate or are moved into RLI Ins. On February 5, 2014, we invested $5.3 million for a 20 percent equity ownership interest in Prime Holdings Insurance Services, Inc. (Prime). On March 4, 2015 , we invested an additional $1.7 million, increasing our total equity ownership to 27 percent. Prime writes business through two Illinois domiciled insurance carriers, Prime Insurance Company, an excess and surplus lines company, and Prime Property and Casualty Insurance Inc., an admitted insurance company. The investment in Prime is reflected on our balance sheet as an investment in unconsolidated investee. Our investment in Prime was $8.1 million at December 31, 2015 and $5.7 million at December 31, 2014. Under the equity method of accounting we recognize our proportionate share of Prime’s income as equity in earnings of unconsolidated investees. Our share of Prime’s earnings amounted to $1.0 million during 2015, compared to $0.3 million during 2014. |
SCHEDULE I-SUMMARY OF INVESTMEN
SCHEDULE I-SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | 12 Months Ended |
Dec. 31, 2015 | |
SCHEDULE I-SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
SCHEDULE I-SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | RLI CORP. AND SUBSIDIARIES SCHEDULE I—SUMMARY OF INVESTMENTS—OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 2015 Column A Column B Column C Column D Amount at (in thousands) which shown in Type of Investment Cost (1) Fair Value the balance sheet Fixed maturities: Bonds: Available-for-sale U.S. Government $ $ $ U.S. Agency Non-U.S. Government & Agency Agency MBS ABS/CMBS* Corporate Municipal Total available-for-sale $ $ $ Held-to-maturity $ — $ — $ — Trading — — — Total fixed maturities $ $ $ Equity securities, available-for-sale Common stock Ind Misc & all other $ $ $ ETFs (Ind/misc) Total equity securities $ $ $ Cash & short-term investments $ $ $ Other invested assets Total investments and cash $ $ $ * Non-agency asset-backed & commercial mortgage-backed Note: See notes 1E and 2 of Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 103 of this report. (1) Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts. |
SCHEDULE II-CONDENSED FINANCIAL
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) | 12 Months Ended |
Dec. 31, 2015 | |
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) | |
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) | RLI CORP. AND SUBSIDIARIES SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED BALANCE SHEETS December 31, (in thousands, except share data) 2015 2014 ASSETS Cash $ $ Short-term investments, at cost which approximates fair value Accounts receivable, affiliates — Investments in subsidiaries Investments in unconsolidated investee Fixed income: Available-for-sale, at fair value (amortized cost - $45,178 in 2015 and $46,226 in 2014) Property and equipment, at cost, net of accumulated depreciation of $765 in 2015 and $528 in 2014 Income taxes receivable - current Deferred debt costs Other assets Total assets $ $ LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Accounts payable, affiliates $ $ — Income taxes - deferred Bonds payable, long-term debt Interest payable, long-term debt Other liabilities Total liabilities $ $ Shareholders’ equity: Common stock ( $1 par value, authorized 100,000,000 shares, issued 66,474,342 shares in 2015 and 66,032,929 shares in 2014, and outstanding 43,544,128 shares in 2015 and 43,102,715 shares in 2014) $ $ Paid in capital Accumulated other comprehensive earnings, net of tax Retained earnings Deferred compensation Treasury shares at cost ( 22,930,214 shares in 2015 and 2014) Total shareholders’ equity $ $ Total liabilities and shareholders’ equity $ $ See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 103 of this report. RLI CORP. AND SUBSIDIARIES SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)—(continued) CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS Years ended December 31, (in thousands) 2015 2014 2013 Net investment income $ $ $ Net realized gains (losses) Equity in earnings of unconsolidated investee Selling, general and administrative expenses Interest expense on debt Loss before income taxes $ $ $ Income tax benefit Net earnings (loss) before equity in net earnings of subsidiaries $ $ $ Equity in net earnings of subsidiaries Net earnings $ $ $ Other comprehensive income (loss), net of tax Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period $ $ $ Less: reclassification adjustment for gains included in net earnings — Other comprehensive income (loss) - parent only $ $ $ Equity in other comprehensive earnings (loss) of subsidiaries/investees Other comprehensive earnings (loss) $ $ $ Comprehensive earnings $ $ $ See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 103 of this report. RLI CORP. AND SUBSIDIARIES SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)—(continued) CONDENSED STATEMENTS OF CASH FLOWS Years ended December 31, (in thousands) 2015 2014 2013 Cash flows from operating activities Earnings before equity in net earnings of subsidiaries $ $ $ Adjustments to reconcile net losses to net cash provided by (used in) operating activities: Net realized (gains) losses Depreciation Other items, net Change in: Affiliate balances receivable/payable Federal income taxes Stock option excess tax benefit Changes in investment in unconsolidated investee: Undistributed earnings Dividends received — Net cash provided by (used in) operating activities $ $ $ Cash flows from investing activities Purchase of: Fixed income, available-for-sale $ $ $ Short-term investments, net — — Property and equipment — — Sale of: Fixed income, available-for-sale — — Short-term investments, net — Call or maturity of: Fixed income, available-for-sale Cash dividends received-subsidiaries Net cash provided by investing activities $ $ $ Cash flows from financing activities Stock option excess tax benefit $ $ $ Proceeds from stock option exercises Proceeds from issuance of senior notes — — Payment on senior notes — — Debt issue costs paid — — Cash dividends paid Net cash used in financing activities $ $ $ Net (decrease) increase in cash $ $ $ Cash at beginning of year Cash at end of year $ $ $ Interest paid on outstanding debt amounted to $7.3 million, $7.0 million and $8.4 million for 2015, 2014 and 2013, respectively. See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 103 of this report. |
SCHEDULE III-SUPPLEMENTARY INSU
SCHEDULE III-SUPPLEMENTARY INSURANCE INFORMATION | 12 Months Ended |
Dec. 31, 2015 | |
SCHEDULE III-SUPPLEMENTARY INSURANCE INFORMATION | |
SCHEDULE III-SUPPLEMENTARY INSURANCE INFORMATION | RLI CORP. AND SUBSIDIARIES SCHEDULE III—SUPPLEMENTARY INSURANCE INFORMATION As of and for the years ended December 31, 2015, 2014 and 2013 Incurred losses Deferred policy Unpaid losses Unearned Net and settlement (in thousands) acquisition and settlement premiums, premiums expenses Segment costs expenses, gross gross earned current year Year ended December 31, 2015 Casualty segment $ $ $ $ $ Property segment Surety segment RLI Insurance Group $ $ $ $ $ Year ended December 31, 2014 Casualty segment $ $ $ $ $ Property segment Surety segment RLI Insurance Group $ $ $ $ $ Year ended December 31, 2013 Casualty segment $ $ $ $ $ Property segment Surety segment RLI Insurance Group $ $ $ $ $ NOTE 1: Investment income is not allocated to the segments, therefore net investment income has not been provided. See the accompanying report of independent registered public accounting firm on page 103 of this report. RLI CORP. AND SUBSIDIARIES SCHEDULE III—SUPPLEMENTARY INSURANCE INFORMATION (continued) As of and for the years ended December 31, 2015, 2014 and 2013 Incurred losses and settlement Policy Other Net (in thousands) expenses acquisition operating premiums Segment prior year costs expenses written Year ended December 31, 2015 Casualty segment $ $ $ $ Property segment Surety segment RLI Insurance Group $ $ $ $ Year ended December 31, 2014 Casualty segment $ $ $ $ Property segment Surety segment RLI Insurance Group $ $ $ $ Year ended December 31, 2013 Casualty segment $ $ $ $ Property segment Surety segment RLI Insurance Group $ $ $ $ See the accompanying report of independent registered public accounting firm on page 103 of this report. |
SCHEDULE IV-REINSURANCE
SCHEDULE IV-REINSURANCE | 12 Months Ended |
Dec. 31, 2015 | |
SCHEDULE IV-REINSURANCE | |
SCHEDULE IV-REINSURANCE | RLI CORP. AND SUBSIDIARIES SCHEDULE IV—REINSURANCE Years ended December 31, 2015, 2014 and 2013 Percentage Ceded to Assumed of amount (in thousands) Direct other from other Net assumed Segment amount companies companies amount to net 2015 Casualty $ $ $ $ % Property % Surety % RLI Insurance Group premiums earned $ $ $ $ % 2014 Casualty $ $ $ $ % Property % Surety % RLI Insurance Group premiums earned $ $ $ $ % 2013 Casualty $ $ $ $ % Property % Surety % RLI Insurance Group premiums earned $ $ $ $ % See the accompanying report of independent registered public accounting firm on page 103 of this report. |
SCHEDULE V-VALUATION AND QUALIF
SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS | 12 Months Ended |
Dec. 31, 2015 | |
SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS | |
SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS | RLI CORP. AND SUBSIDIARIES SCHEDULE V—VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2015, 2014 and 2013 Balance Amounts Amounts Balance at beginning charged recovered at end of (in thousands) of period to expense (written off) period 2015 Allowance for uncollectible reinsurance $ $ — $ $ 2014 Allowance for uncollectible reinsurance $ $ — $ — $ 2013 Allowance for uncollectible reinsurance $ $ — $ — $ See the accompanying report of independent registered public accounting firm on page 103 of this report. |
SCHEDULE VI-SUPPLEMENTARY INFOR
SCHEDULE VI-SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS | 12 Months Ended |
Dec. 31, 2015 | |
SCHEDULE VI-SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS | |
SCHEDULE VI-SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS | RLI CORP. AND SUBSIDIARIES SCHEDULE VI—SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS Years ended December 31, 2015, 2014 and 2013 (in thousands) Deferred policy Claims and Unearned Net Net Affiliation with acquisition claim adjustment premiums, premiums investment Registrant (1) costs expense reserves gross earned income 2015 $ $ $ $ $ 2014 $ $ $ $ $ 2013 $ $ $ $ $ Claims and claim adjustment expenses incurred related to: Amortization Paid claims and Net Current Prior of deferred claim adjustment premiums year year acquisition costs expenses written 2015 $ $ $ $ $ 2014 $ $ $ $ $ 2013 $ $ $ $ $ (1) Consolidated property-casualty insurance operations. See the accompanying report of independent registered public accounting firm on page 103 of this report. |
SUMMARY OF SIGNIFICANT ACCOUN27
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
DESCRIPTION OF BUSINESS | A. DESCRIPTION OF BUSINESS We underwrite selected property and casualty insurance coverages. We conduct operations principally through three insurance companies. These companies are organized in a vertical structure beneath RLI Corp. with RLI Insurance Company (RLI Ins.) as the first-level, or principal, insurance subsidiary. RLI Ins. writes multiple lines of insurance on an admitted basis in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. Mt. Hawley Insurance Company, a subsidiary of RLI Ins., writes surplus lines insurance in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. Contractors Bonding and Insurance Company (CBIC), a subsidiary of RLI Ins., writes multiple lines of insurance on an admitted basis in all 50 states and the District of Columbia. In 2015, we sold RLI Indemnity Company (RIC), a former subsidiary of Mt. Hawley, as a “shell.” This transaction was essentially the sale of insurance licenses. All business and cash flows from the former subsidiary remain within the RLI Insurance Group. See note 13 for more information on the sale of RIC. |
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION | B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The accompanying consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (GAAP), which differ in some respects from those followed in reports to insurance regulatory authorities. The consolidated financial statements include the accounts of our holding company and our subsidiaries. All significant intercompany balances and transactions have been eliminated. |
ADOPTED ACCOUNTING STANDARDS | C. ADOPTED ACCOUNTING STANDARDS As no effective Accounting Standards Updates (ASUs) impact our financial statements, there are no new adopted accounting standards to report. |
PROSPECTIVE ACCOUNTING STANDARDS | D. PROSPECTIVE ACCOUNTING STANDARDS ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs This ASU was issued to simplify the presentation of debt issuance costs by requiring them to be presented on the balance sheet as a direct deduction from the carrying amount of the related recognized debt liability, consistent with debt discounts. This ASU is effective for annual and interim reporting periods beginning after December 15, 2015. Early adoption is permitted. We have not early-adopted this ASU and do not believe adoption will have a material effect on our financial statements. ASU 2015-09, Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts This ASU was issued to enhance disclosures about an entity’s insurance liabilities, including the nature, amount, timing and uncertainty of cash flows related to those liabilities. The new guidance requires the following information related to unpaid claims and claim adjustment expenses be disclosed using an appropriate level of disaggregation so as not to obscure useful information: a. Net incurred and paid claims development information by accident year for the number of years for which claims incurred typically remain outstanding, but need not exceed 10 years; b. A reconciliation of incurred and paid claims development information to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses, with separate disclosure of reinsurance recoverable on unpaid claims for each period presented in the statement of financial position; c. For each accident year presented, the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses; d. For each accident year presented, quantitative information about claim frequency accompanied by a qualitative description of methodologies used for determining claim frequency information; and e. For all claims, the average annual percentage payout of incurred claims by age. This ASU is effective for annual reporting periods beginning after December 15, 2015 and for interim periods beginning after December 15, 2016. Early adoption is permitted. We have not early adopted this ASU and while disclosures will be increased, we do not believe adoption will have a material effect on our financial statements. ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities This ASU was issued to improve the recognition and measurement of financial instruments. The new guidance makes targeted improvements to GAAP as follows: a. Requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; b. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; c. Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; d. Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; e. Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; f. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and g. Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is only permitted for provision (e) above. Upon adoption, a cumulative-effect adjustment to the balance sheet will be made as of the beginning of the fiscal year of adoption. We have not yet completed the analysis of how adopting this ASU will affect our financial statements. ASU 2016-02, Leases (Topic 842) ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. We have not yet completed the analysis of how adopting this ASU will affect our financial statements. See note 10 for more information on our current lease expenses and obligations. |
INVESTMENTS | E. INVESTMENTS: We classify our investments in all debt and equity securities into one of three categories: available-for-sale, held-to-maturity or trading. AVAILABLE-FOR-SALE SECURITIES Debt and equity securities not included as held-to-maturity or trading are classified as available-for-sale and reported at fair value. Unrealized gains and losses on these securities are excluded from net earnings but are recorded as a separate component of comprehensive earnings and shareholders’ equity, net of deferred income taxes. All of our debt and equity securities are classified as available-for-sale. HELD-TO-MATURITY SECURITIES Debt securities that we have the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Except for declines that are other-than-temporary, changes in the fair value of these securities are not reflected in the financial statements. During 2014, we sold our remaining debt security classified as held-to-maturity. TRADING SECURITIES Debt and equity securities purchased for short-term resale are classified as trading securities. These securities are reported at fair value with unrealized gains and losses included in earnings. During 2013, we sold our remaining debt securities classified as trading. For the years ended December 31, 2015, 2014 and 2013, no securities were transferred from held-to-maturity to available-for-sale or trading. OTHER THAN TEMPORARY IMPAIRMENT We regularly evaluate our fixed income and equity securities using both quantitative and qualitative criteria to determine impairment losses for other-than-temporary declines in the fair value of the investments. The following are the key factors for determining if a security is other-than-temporarily impaired: · The length of time and the extent to which the fair value has been less than cost, · The probability of significant adverse changes to the cash flows on a fixed income investment, · The occurrence of a discrete credit event resulting in the issuer defaulting on a material obligation, the issuer seeking protection from creditors under the bankruptcy laws, the issuer proposing a voluntary reorganization under which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value, · The probability that we will recover the entire amortized cost basis of our fixed income securities prior to maturity or · For our equity securities, our expectation of recovery to cost within a reasonable period of time. Quantitative criteria considered during this process include, but are not limited to: the degree and duration of current fair value as compared to the cost (amortized, in certain cases) of the security, degree and duration of the security’s fair value being below cost and, for fixed maturities, whether the issuer is in compliance with terms and covenants of the security. Qualitative criteria include the credit quality, current economic conditions, the anticipated speed of cost recovery, the financial health of and specific prospects for the issuer, as well as our absence of intent to sell or requirement to sell fixed income securities prior to maturity. In addition, we consider price declines of securities in our other-than-temporary impairment (OTTI) analysis, where such price declines provide evidence of declining credit quality, and we distinguish between price changes caused by credit deterioration, as opposed to rising interest rates. See note 2 for further discussion of OTTI. Interest on fixed maturities and short-term investments is credited to earnings on an accrual basis. Premiums and discounts are amortized or accreted over the lives of the related fixed maturities. Dividends on equity securities are credited to earnings on the ex-dividend date. Realized gains and losses on disposition of investments are based on specific identification of the investments sold on the settlement date. |
CASH AND SHORT-TERM INVESTMENTS | F. CASH, SHORT-TERM INVESTMENTS AND OTHER INVESTED ASSETS Cash consists of uninvested balances in bank accounts. Short-term investments consist of investments with original maturities of 90 days or less, primarily AAA-rated prime and government money market funds. Short-term investments are carried at cost. We have not experienced losses on these instruments. Other invested assets includes an investment in two low income housing tax credit partnerships, carried at amortized cost, membership in the Federal Home Loan Bank of Chicago, carried at cost, and an investment in a real estate fund, carried at cost. Due to the nature of cash, short-term investments and other invested assets, their carrying amounts approximate fair value. |
REINSURANCE | G. REINSURANCE Ceded unearned premiums and reinsurance balances recoverable on paid and unpaid losses and settlement expenses are reported separately as assets, instead of being netted with the related liabilities, since reinsurance does not relieve us of our legal liability to our policyholders. We continuously monitor the financial condition of our reinsurers. As part of our monitoring efforts, we review their annual financial statements, quarterly disclosures and Securities and Exchange Commission (SEC) filings for those reinsurers that are publicly traded. We also review insurance industry developments that may impact the financial condition of our reinsurers. We analyze the credit risk associated with our reinsurance balances recoverable by monitoring the A.M. Best and Standard & Poor’s (S&P) ratings of our reinsurers. In addition, we subject our reinsurance recoverables to detailed recoverable tests, including one based on average default by S&P rating. Based upon our review and testing, our policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverable amounts from reinsurers. This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provision for reinsurance balances that we may be unable to recover. |
POLICY ACQUISITION COSTS | H. POLICY ACQUISITION COSTS We defer commissions, premium taxes and certain other costs that are incrementally or directly related to the successful acquisition of new or renewal insurance contracts. Acquisition-related costs may be deemed ineligible for deferral when they are based on contingent or performance criteria beyond the basic acquisition of the insurance contract or when efforts to obtain or renew the insurance contract are unsuccessful. All eligible costs are capitalized and charged to expense in proportion to premium revenue recognized. The method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value. This would also give effect to the premiums to be earned and anticipated losses and settlement expenses, as well as certain other costs expected to be incurred as the premiums are earned. Judgments as to the ultimate recoverability of such deferred costs are reviewed on a segment basis and are highly dependent upon estimated future loss costs associated with the premiums written. This deferral methodology applies to both gross and ceded premiums and acquisition costs. |
PROPERTY AND EQUIPMENT | I. PROPERTY AND EQUIPMENT Property and equipment are presented at cost less accumulated depreciation and are depreciated on a straight-line basis for financial statement purposes over periods ranging from 3 to 10 years for equipment and up to 30 years for buildings and improvements. |
INVESTMENT IN UNCONSOLIDATED INVESTEES | J. INVESTMENT IN UNCONSOLIDATED INVESTEES We maintain a 40 percent interest in the earnings of Maui Jim, Inc. (Maui Jim), a manufacturer of high-quality sunglasses, which is accounted for by the equity method. We also maintain a similar minority representation on their board of directors. Maui Jim’s chief executive officer owns a controlling majority of the outstanding shares of Maui Jim. We carry this investment at the holding company, RLI Corp., level as it is not core to our insurance operations. Our investment in Maui Jim was $62.7 million in 2015 and $54.3 million in 2014. In 2015, we recorded $9.9 million in investee earnings for Maui Jim, compared to $12.0 million in 2014 and $10.9 million in 2013. Maui Jim recorded net income of $23.7 million in 2015, $30.7 million in 2014 and $26.1 million in 2013. Additional summarized financial information for Maui Jim for 2015 and 2014 is outlined in the following table: (in millions) 2015 2014 Total assets $ $ Total liabilities Total equity Approximately $52.0 million of undistributed earnings from Maui Jim are included in our retained earnings as of December 31, 2015. In 2014 and 2013, we received dividends of $6.6 million and $13.2 million, respectively, from Maui Jim. No dividends were received in 2015. On February 5, 2014, we invested $5.3 million for a 20 percent equity ownership interest in Prime Holdings Insurance Services, Inc. (Prime). On March 4, 2015, we invested an additional $1.7 million, increasing our total equity ownership to 27 percent. Prime writes business through two Illinois domiciled insurance carriers, Prime Insurance Company, an excess and surplus lines company, and Prime Property and Casualty Insurance Inc., an admitted insurance company. Our investment in Prime was $8.1 million at December 31, 2015 and $5.7 million at December 31, 2014. In 2015, we recorded $1.0 million in investee earnings for Prime, compared to $0.3 million in 2014. Additionally, we entered into a 25 percent quota share reinsurance treaty with Prime, effective January 1, 2014, which contributed $11.3 million of gross premiums written and $10.9 million of net premiums earned during 2015, compared to $10.2 million of gross premiums written and $5.3 million of net premiums earned during 2014. We perform annual impairment reviews of our investments in our unconsolidated investees, which take into consideration current valuation and operating results. Based upon the most recent reviews, the assets were not impaired. |
INTANGIBLE ASSETS | K. 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 intangibles totaled $71.3 million at December 31, 2015 as detailed in the following table. Goodwill and Intangible Assets (in thousands) Reporting Unit 2015 2014 Goodwill Energy surety $ $ Miscellaneous and contract surety P&C package business Medical professional liability Total goodwill $ $ Intangibles State insurance licenses* $ $ Definite lived intangibles Total intangibles $ $ Total goodwill and intangibles $ $ *Decrease from 2014 is due to the sale of RIC, which included $0.5 million of state licenses carried as an indefinite-lived intangible asset. See note 13 for further discussion on the sale of RIC. Annual impairment testing was performed on each of these goodwill and indefinite-lived intangible assets during 2015. Based upon these reviews, none of the assets were impaired. In addition, as of December 31, 2015, there were no triggering events that occurred that would suggest an updated review was necessary. However, as a result of premium declines, the margin of fair value over carrying value on our medical professional liability goodwill is smaller than in previous years. We continue to monitor the performance of the medical professional liability reporting unit and will reexamine our valuation should results change from expectations or other triggering events occur. In the fourth quarter of 2014, a triggering event occurred when a fair value amount for state insurance licenses was obtained from a merger and acquisition broker with expertise in providing valuations for fully-licensed P&C shell companies. The carrying cost of CBIC’s licenses exceeded the fair value and resulted in a $1.3 million impairment included as a net realized loss in the 2014 consolidated statement of earnings. The definite-lived intangible assets are amortized against future operating results based on their estimated useful lives. Amortization of intangible assets was $0.9 million, $0.9 million and $1.2 million for 2015, 2014 and 2013, respectively. |
UNPAID LOSSES AND SETTLEMENT EXPENSES | L. UNPAID LOSSES AND SETTLEMENT EXPENSES The liability for unpaid losses and settlement expenses represents estimates of amounts needed to pay reported and unreported claims and related expenses. The estimates are based on certain actuarial and other assumptions related to the ultimate cost to settle such claims. Such assumptions are subject to occasional changes due to evolving economic, social and political conditions. All estimates are periodically reviewed and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments are reflected in the results of operations in the period in which they are determined. Due to the inherent uncertainty in estimating reserves for losses and settlement expenses, there can be no assurance that the ultimate liability will not exceed recorded amounts. If actual liabilities do exceed recorded amounts, there will be an adverse effect. Furthermore, we may determine that recorded reserves are more than adequate to cover expected losses, which would lead to a reduction in our reserves. |
INSURANCE REVENUE RECOGNITION | M. INSURANCE REVENUE RECOGNITION Insurance premiums are recognized ratably over the term of the contracts, net of ceded reinsurance. Unearned premiums are calculated on a monthly pro rata basis. |
INCOME TAXES | N. INCOME TAXES We file a consolidated federal income tax return. Federal income taxes are accounted for using the asset and liability method under which deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, operating losses and tax credit carry forwards. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some of the deferred tax assets will not be realized. We consider uncertainties in income taxes and recognize those in our financial statements as required. As it relates to uncertainties in income taxes, our unrecognized tax benefits, including interest and penalty accruals, are not considered material to the consolidated financial statements. Also, no tax uncertainties are expected to result in significant increases or decreases to unrecognized tax benefits within the next 12-month period. Penalties and interest related to income tax uncertainties, should they occur, would be included in income tax expense in the period in which they are incurred. As an insurance company, we are subject to minimal state income tax liabilities. On a state basis, since the majority of our income is from insurance operations, we pay premium taxes in lieu of state income taxes. Premium taxes are a component of policy acquisition costs and calculated as a percentage of gross premiums written. |
EARNINGS PER SHARE | O. 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 these items 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 these items. The following represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the consolidated financial statements. Weighted Average Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount For the year ended December 31, 2015 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ For the year ended December 31, 2014 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ For the year ended December 31, 2013 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ |
COMPREHENSIVE EARNINGS | P. COMPREHENSIVE EARNINGS Our comprehensive earnings include net earnings plus unrealized gains/losses on our available-for-sale investment securities, net of tax. In reporting the components of comprehensive earnings on a net basis in the statement of earnings, we used a 35 percent tax rate. Other comprehensive income (loss), as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax expense (benefit) of $(25.3) million, $19.0 million and $(3.8) million for 2015, 2014 and 2013, respectively. The following table illustrates the changes in the balance of each component of accumulated other comprehensive earnings for each period presented in the consolidated financial statements. Unrealized Gains/Losses on Available-for-Sale Securities For the Year Ended December 31, (in thousands) 2015 2014 2013 Beginning balance $ $ $ Other comprehensive earnings before reclassifications Amounts reclassified from accumulated other comprehensive earnings Net current-period other comprehensive earnings (loss) $ $ $ Ending balance $ $ $ The sale or other-than-temporary impairment of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive earnings to current period net earnings. The effects of reclassifications out of accumulated other comprehensive earnings by the respective line items of net earnings are presented in the following table. Amount Reclassified from Accumulated Other Comprehensive Earnings (in thousands) Component of Accumulated For the Year Ended December 31, Affected line item in the Other Comprehensive Earnings 2015 2014 2013 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ $ $ Net realized investment gains — — — Other-than-temporary impairment (OTTI) losses on investments $ $ $ Earnings before income taxes Income tax expense $ $ $ Net earnings |
FAIR VALUE DISCLOSURES | Q. FAIR VALUE DISCLOSURES 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. 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. Financial assets are classified based upon the lowest level of significant input that is used to determine fair value. 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, Agencies, Government and Municipal securities are deemed Level 2. Mortgage-backed Securities (MBS)/Collateralized Mortgage Obligations (CMO) 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, pre-payment assumptions and to incorporate collateral performance. To evaluate CMO 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/CMO and ABS with corroborated, observable inputs are classified as Level 2. All of our MBS/CMO and ABS are deemed Level 2. For all of our fixed income securities classified as Level 2, 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. In some cases, we obtain prices from securities brokers and compare them to the prices provided by our pricing services. In our comparisons, if discrepancies are found, we compare our prices to actual reported trade data for like securities. No changes to the fair values supplied by our pricing services have occurred as a result of our reviews. Based on these assessments, we have determined that the fair values of our Level 2 securities provided by our pricing services are reasonable. Common Stock: For common stock securities, we receive prices from a nationally recognized pricing service. All of our common stock holdings are deemed Level 1 as exchange traded equities have readily observable price levels (fair value based on quoted market prices). As such, we have determined that the fair values of our Level 1 securities provided by our pricing service are reasonable. Due to the relatively short-term nature of cash, short-term investments, accounts receivable and accounts payable, their carrying amounts are reasonable estimates of fair value. The fair value of our long-term debt is discussed further in note 4. |
STOCK-BASED COMPENSATION | R. STOCK-BASED COMPENSATION We expense the estimated fair value of employee stock options and similar awards. Guidance requires entities to measure compensation cost for awards of equity instruments to employees based on the grant-date fair value of those awards and recognize compensation expense over the service period that the awards are expected to vest. We calculate the tax effects of share-based compensation under the alternative transition method as permitted by GAAP guidance. The alternative transition method includes simplified methods to determine the impact on the additional paid-in capital pool and consolidated statements of cash flows of the tax effects of employee share-based compensation awards. See note 8 for further discussion and related disclosures regarding stock options. |
RISKS AND UNCERTAINTIES | S. RISKS AND UNCERTAINTIES: Certain risks and uncertainties are inherent to our day-to-day operations and to the process of preparing our consolidated financial statements. The more significant risks and uncertainties, as well as our attempt to mitigate, quantify and minimize such risks, are presented below and throughout the notes to the consolidated financial statements. Catastrophe Exposures Our insurance coverages include exposure to catastrophic events. We monitor all catastrophe exposures by quantifying our exposed policy limits in each region and by using computer-assisted modeling techniques. Additionally, we limit our risk to such catastrophes through restraining the total policy limits written in each region and by purchasing reinsurance. Our major catastrophe exposure is to losses caused by earthquakes, primarily on the West Coast. In 2015, for this coverage, we had protection of $300 million in excess of $25 million first-dollar retention for earthquakes in California and $325 million in excess of a $25 million first-dollar retention for earthquakes outside of California. These amounts are subject to certain co-participations by us on losses in excess of the $25 million retentions. Our second largest catastrophe exposure is to losses caused by wind storms to commercial properties throughout the Gulf and East Coasts, as well as to homes we insure in Hawaii. In 2015, these coverages were supported by $225 million in excess of a $25 million first-dollar retention in traditional catastrophe reinsurance protection, subject to certain co-participations by us in the excess layers. In addition, we have incidental exposure to international catastrophic events. Our catastrophe reinsurance treaty renewed on January 1, 2016. We purchased the same limits over the same first-dollar retention amounts outlined above, subject to certain retentions by us in the excess layers. We actively manage our catastrophe program to keep our net retention in line with risk tolerances and to optimize the risk/return trade off. Environmental Exposures We are subject to environmental claims and exposures primarily through our commercial umbrella, general liability and discontinued assumed casualty reinsurance lines of business. Although exposure to environmental claims exists in these lines of business, we seek to mitigate or control the extent of this exposure on the vast majority of this business through the following methods: (1) our policies include pollution exclusions that have been continually updated to further strengthen them, (2) our policies primarily cover moderate hazard risks and (3) we began writing this business after the insurance industry became aware of the potential pollution liability exposure and implemented changes to limit its exposure to this hazard. In 2009, as an extension of our excess and surplus lines general liability product, we expanded our offerings into low to moderate environmental liability exposures for small contractors and asbestos and mold remediation specialists. The business unit also provides limited coverage for individually underwritten underground storage tanks. We attempted to mitigate the overall exposure by focusing on smaller risks with low to moderate exposures. A large portion of this business is also offered on a claims-made basis with relatively low limits. We avoid risks that have large-scale exposures including petrochemical, chemical, mining, manufacturers and other risks that might be exposed to superfund sites. This business is covered under our casualty ceded reinsurance treaties. Since 2009, we have written a total of $16.9 million of premium from this product extension with $3.9 million written in 2015. We made loss and settlement expense payments on environmental liability claims and have loss and settlement expense reserves for others. We include this historical environmental loss experience with the remaining loss experience in the applicable line of business to project ultimate incurred losses and settlement expenses as well as related incurred but not reported (IBNR) loss and settlement expense reserves. Although historical experience on environmental claims may not accurately reflect future environmental exposures, we used this experience to record loss and settlement expense reserves in the exposed lines of business. See further discussion of environmental exposures in note 6. Reinsurance Reinsurance does not discharge us from our primary liability to policyholders, and to the extent that a reinsurer is unable to meet its obligations, we would be liable. We continuously monitor the financial condition of prospective and existing reinsurers. As a result, we purchase reinsurance from a number of financially strong reinsurers. We provide an allowance for reinsurance balances deemed uncollectible. See further discussion of reinsurance exposures in note 5. Investment Risk Our investment portfolio is subject to market, credit and interest rate risks. The equity portfolio will fluctuate with movements in the overall stock market. While the equity portfolio has been constructed to have lower downside risk than the market, the portfolio is positively correlated with movements in domestic stocks. The bond portfolio is affected by interest rate changes and movement in credit spreads. We attempt to mitigate our interest rate and credit risks by constructing a well-diversified portfolio with high-quality securities with varied maturities. Downturns in the financial markets could have a negative effect on our portfolio. However, we attempt to manage this risk through asset allocation, duration and security selection. Liquidity Risk Liquidity is essential to our business and a key component of our concept of asset-liability matching. Our liquidity may be impaired by an inability to collect premium receivable or reinsurance recoverable balances in a timely manner, an inability to sell assets or redeem our investments, an inability to access funds from our insurance subsidiaries, unforeseen outflows of cash or large claim payments or an inability to access debt or equity capital markets. This situation may arise due to circumstances that we may be unable to control, such as a general market disruption, an operational problem that affects third parties or us, or even by the perception among market participants that we, or other market participants, are experiencing greater liquidity risk. Our credit ratings are important to our liquidity. A reduction in our credit ratings could adversely affect our liquidity and competitive position, by increasing our borrowing costs or limiting our access to the capital markets. Financial Statements The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. The most significant of these amounts is the liability for unpaid losses and settlement expenses. Other estimates include investment valuation and OTTIs, the collectability of reinsurance balances, recoverability of deferred tax assets and deferred policy acquisition costs. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Although recorded estimates are supported by actuarial computations and other supportive data, the estimates are ultimately based on our expectations of future events. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods. External Factors Our insurance subsidiaries are highly regulated by the state in which they are incorporated and by the states in which they do business. Such regulations, among other things, limit the amount of dividends, impose restrictions on the amount and types of investments and regulate rates insurers may charge for various coverages. We are also subject to insolvency and guaranty fund assessments for various programs designed to ensure policyholder indemnification. We generally accrue an assessment during the period in which it becomes probable that a liability has been incurred from an insolvency and the amount of the related assessment can be reasonably estimated. The National Association of Insurance Commissioners (NAIC) has developed Property/Casualty Risk-Based Capital (RBC) standards that relate an insurer’s reported statutory surplus to the risks inherent in its overall operations. The RBC formula uses the statutory annual statement to calculate the minimum indicated capital level to support asset (investment and credit) risk and underwriting (loss reserves, premiums written and unearned premium) risk. The NAIC model law calls for various levels of regulatory action based on the magnitude of an indicated RBC capital deficiency, if any. We regularly monitor our subsidiaries’ internal capital requirements and the NAIC’s RBC developments. As of December 31, 2015, we determined that our capital levels are well in excess of the minimum capital requirements for all RBC action levels and that our capital levels are sufficient to support the level of risk inherent in our operations. See note 9 for further discussion of statutory information and related insurance regulatory restrictions. In addition, ratings are a critical factor in establishing the competitive position of insurance companies. Our insurance companies are rated by A.M. Best, S&P and Moody’s. Their ratings reflect their opinions of an insurance company’s and an insurance holding company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders. |
SUMMARY OF SIGNIFICANT ACCOUN28
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of summarized financial information of Maui Jim | (in millions) 2015 2014 Total assets $ $ Total liabilities Total equity |
Schedule of goodwill and intangible assets | Goodwill and Intangible Assets (in thousands) Reporting Unit 2015 2014 Goodwill Energy surety $ $ Miscellaneous and contract surety P&C package business Medical professional liability Total goodwill $ $ Intangibles State insurance licenses* $ $ Definite lived intangibles Total intangibles $ $ Total goodwill and intangibles $ $ |
Schedule of reconciliation of numerator and denominator of the basic and diluted earnings per share computations | Weighted Average Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount For the year ended December 31, 2015 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ For the year ended December 31, 2014 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ For the year ended December 31, 2013 Basic EPS Income available to common shareholders $ $ Stock options — Diluted EPS Income available to common shareholders and assumed conversions $ $ |
Schedule of changes in the balance of each component of accumulated other comprehensive earnings | Unrealized Gains/Losses on Available-for-Sale Securities For the Year Ended December 31, (in thousands) 2015 2014 2013 Beginning balance $ $ $ Other comprehensive earnings before reclassifications Amounts reclassified from accumulated other comprehensive earnings Net current-period other comprehensive earnings (loss) $ $ $ Ending balance $ $ $ |
Schedule of effects of reclassifications out of accumulated other comprehensive earnings | Amount Reclassified from Accumulated Other Comprehensive Earnings (in thousands) Component of Accumulated For the Year Ended December 31, Affected line item in the Other Comprehensive Earnings 2015 2014 2013 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ $ $ Net realized investment gains — — — Other-than-temporary impairment (OTTI) losses on investments $ $ $ Earnings before income taxes Income tax expense $ $ $ Net earnings |
INVESTMENTS (Tables)
INVESTMENTS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
INVESTMENTS | |
Schedule of net investment income | NET INVESTMENT INCOME (in thousands) 2015 2014 2013 Interest on fixed income securities $ $ $ Dividends on equity securities Interest on cash and short-term investments Gross investment income $ $ $ Less investment expenses Net investment income $ $ $ |
Schedule of pretax net realized investment gains (losses) and net changes in unrealized gains (losses) on investments | REALIZED/UNREALIZED GAINS (in thousands) 2015 2014 2013 Net realized gains (losses): Fixed income: Available-for-sale $ $ $ Held-to-maturity — Equity securities Sale of subsidiary (RLI Indemnity Company)* — — Other Total $ $ $ Net changes in unrealized gains (losses) on investments: Fixed income: Available-for-sale $ $ $ Equity securities Investment in unconsolidated investees Total $ $ $ Net realized gains (losses) and changes in unrealized gains (losses) on investments $ $ $ |
Schedule of disposition of fixed maturities and equities | Net SALES Proceeds Gross Realized Realized (in thousands) From Sales Gains Losses Gain (Loss) 2015 Available-for-sale $ $ $ $ Held-to-maturity — — — — Trading — — — — Equities 2014 Available-for-sale $ $ $ $ Held-to-maturity — Trading — — — — Equities 2013 Available-for-sale $ $ $ $ Held-to-maturity — — — — Trading — — — — Equities Net CALLS/MATURITIES Gross Realized Realized (in thousands) Proceeds Gains Losses Gain (Loss) 2015 Available-for-sale $ $ $ $ Held-to-maturity — — — — Trading — — — — 2014 Available-for-sale $ $ $ $ Held-to-maturity — — — — Trading — — — — 2013 Available-for-sale $ $ $ $ Held-to-maturity — Trading — — — |
Schedule of assets measured at fair value on recurring basis | Assets measured at fair value on a recurring basis as of December 31, 2015, are summarized below: Significant Quoted in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Available-for-sale securities: U.S. government $ — $ $ — $ U.S. agency — — Non-U.S. govt. & agency — — Agency MBS — — ABS/CMBS* — — Corporate — — Municipal — — Equity — — Total available-for-sale securities $ $ $ — $ *Non-agency asset-backed & commercial mortgage-backed Assets measured at fair value on a recurring basis as of December 31, 2014, are summarized below: Significant Quoted in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Available-for-sale securities: U.S. government $ — $ $ — $ U.S. agency — — Non-U.S. govt. & agency — — Agency MBS — — ABS/CMBS* — — Corporate — — Municipal — — Equity — — Total available-for-sale securities $ $ $ — $ *Non-agency asset-backed & commercial mortgage-backed |
Schedule of contractual maturity of securities | The amortized cost and estimated fair value of fixed income securities at December 31, 2015, by contractual maturity, are shown as follows: (in thousands) Amortized Cost Fair Value Available-for-sale Due in one year or less $ $ Due after one year through five years Due after five years through 10 years Due after 10 years Mtge/ABS/CMBS* Total available-for-sale $ $ * Mortgage-backed, asset-backed & commercial mortgage-backed |
Schedule of amortized costs and estimated fair values of investments in fixed income and equity securities | 2015 Amortized Gross Unrealized (in thousands) Cost Fair Value Gains Losses Available-for-sale: U.S. government $ $ $ $ U.S. agency Non-U.S. govt. & agency — Agency MBS ABS/CMBS* Corporate Municipal Total fixed income $ $ $ $ Equity securities Total available-for-sale $ $ $ $ Held-to-maturity $ — $ — $ — $ — Trading** $ — $ — $ — $ — Total $ $ $ $ * Non-agency asset-backed & commercial mortgage-backed ** Trading securities are carried at fair value with unrealized gains (losses) included in earnings 2014 Amortized Gross Unrealized (in thousands) Cost Fair Value Gains Losses Available-for-sale: U.S. government $ $ $ $ U.S. agency — Non-U.S. govt. & agency — Agency MBS ABS/CMBS* Corporate Municipal Total fixed income $ $ $ $ Equity securities Total available-for-sale $ $ $ $ Held-to-maturity $ — $ — $ — $ — Trading** $ — $ — $ — $ — Total $ $ $ $ * Non-agency asset-backed & commercial mortgage-backed ** Trading securities are carried at fair value with unrealized gains (losses) included in earnings |
Schedule of securities in an unrealized loss position segregated by type and length of time in an unrealized loss position | December 31, 2015 December 31, 2014 12 Mos. 12 Mos. & (in thousands) < 12 Mos. & Greater Total < 12 Mos. Greater Total U.S. Government Fair value $ $ — $ $ $ — $ Cost or amortized cost — — Unrealized Loss $ $ — $ $ $ — $ U.S. Agency Fair value $ $ — $ $ — $ — $ — Cost or amortized cost — — — — Unrealized Loss $ $ — $ $ — $ — $ — Non-U.S. Government Fair value $ $ — $ $ — $ — $ — Cost or amortized cost — — — — Unrealized Loss $ $ — $ $ — $ — $ — Agency MBS Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ ABS/CMBS* Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Corporate Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Municipal Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Subtotal, fixed income Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ Equity securities Fair value $ $ — $ $ $ — $ Cost or amortized cost — — Unrealized Loss $ $ — $ $ $ — $ Total Fair value $ $ $ $ $ $ Cost or amortized cost Unrealized Loss $ $ $ $ $ $ *Non-agency asset-backed & commercial mortgage-backed |
POLICY ACQUISITION COSTS (Table
POLICY ACQUISITION COSTS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
POLICY ACQUISITION COSTS | |
Schedule of policy acquisition costs deferred and amortized to income | (in thousands) 2015 2014 2013 Deferred policy acquisition costs (DAC), beginning of year $ $ $ Deferred: Direct commissions $ $ $ Premium taxes Ceding commissions Net deferred $ $ $ Amortized DAC/VOBA*, end of year $ $ $ Policy acquisition costs: Amortized to expense - DAC $ $ $ Amortized to expense - VOBA — Period costs: Ceding commission - contingent Other underwriting expenses Total policy acquisition costs $ $ $ * Includes asset for value of business acquired (VOBA) in CBIC acquisition, which was fully amortized at the end of 2014. |
REINSURANCE (Tables)
REINSURANCE (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
REINSURANCE | |
Schedule of premiums written and earned along with losses and settlement expenses incurred | (in thousands) 2015 2014 2013 WRITTEN Direct $ $ $ Reinsurance assumed Reinsurance ceded Net $ $ $ EARNED Direct $ $ $ Reinsurance assumed Reinsurance ceded Net $ $ $ LOSSES AND SETTLEMENT EXPENSES INCURRED Direct $ $ $ Reinsurance assumed Reinsurance ceded Net $ $ $ |
Schedule of net reinsurance balances recoverable, after consideration of collateral, from top 10 reinsurers | Net Reinsurer Ceded A.M. Best S & P Exposure as of Percent of Premiums Percent of (dollars in thousands) Rating Rating 12/31/2015 Total Written Total Munich Re / HSB A+, Superior AA-, Very Strong $ % $ % Endurance Re A, Excellent A, Strong % % Swiss Re / Westport Ins. Corp. A+, Superior AA-, Very Strong % % Aspen UK Ltd. A, Excellent A, Strong % % Transatlantic Re A, Excellent A+, Strong % % Berkley Insurance Co. A+, Superior A+, Strong % % Scor Reinsurance Co. A, Excellent AA-, Very Strong % % Allied World Re - US A, Excellent A, Strong % % Axis Re A+, Superior A+, Strong % % General Re A++, Superior AA+, Very Strong % % All other reinsurers* % % Total ceded exposure $ % $ % * All other reinsurance balances recoverable, when considered by individual reinsurer, are less than 2 percent of shareholders’ equity. |
HISTORICAL LOSS AND LAE DEVEL32
HISTORICAL LOSS AND LAE DEVELOPMENT (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
HISTORICAL LOSS AND LAE DEVELOPMENT | |
Schedule of reconciliation of unpaid losses and settlement expenses (LAE) | (in thousands) 2015 2014 2013 Unpaid losses and LAE at beginning of year: Gross $ $ $ Ceded Net $ $ $ Increase (decrease) in incurred losses and LAE: Current accident year $ $ $ Prior accident years Total incurred $ $ $ Loss and LAE payments for claims incurred: Current accident year $ $ $ Prior accident year Total paid $ $ $ Net unpaid losses and LAE at end of year $ $ $ Unpaid losses and LAE at end of year: Gross $ $ $ Ceded Net $ $ $ |
Schedule of prior accident years' loss reserve development by segment | (FAVORABLE)/UNFAVORABLE RESERVE DEVELOPMENT BY SEGMENT (in thousands) 2015 2014 2013 Casualty $ $ $ Property Surety Total $ $ $ |
Schedule of paid and unpaid environmental, asbestos and mass tort claims data (including incurred but not reported losses) | (in thousands) 2015 2014 2013 LOSS AND LAE PAYMENTS (CUMULATIVE) Gross $ $ $ Ceded Net $ $ $ UNPAID LOSSES AND LAE AT END OF YEAR Gross $ $ $ Ceded Net $ $ $ |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
INCOME TAXES | |
Schedule of deferred tax assets and deferred tax liabilities | (in thousands) 2015 2014 Deferred tax assets: Tax discounting of unpaid losses and settlement expenses $ $ Unearned premium offset Deferred compensation Stock option expense Other Deferred tax assets before allowance $ $ Less valuation allowance — — Total deferred tax assets $ $ Deferred tax liabilities: Net unrealized appreciation of securities $ $ Deferred policy acquisition costs Book/tax depreciation Intangible assets from CBIC acquisition Undistributed earnings of unconsolidated investees Other Total deferred tax liabilities $ $ Net deferred tax liability $ $ |
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 | (in thousands) 2015 2014 2013 Provision for income taxes at the statutory federal tax rates $ $ $ Increase (reduction) in taxes resulting from: Dividends received deduction ESOP dividends paid deduction Tax-exempt interest income Unconsolidated investee dividends — Other items, net Total $ $ $ |
EMPLOYEE BENEFITS (Tables)
EMPLOYEE BENEFITS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
EMPLOYEE BENEFITS | |
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, 2015 $ Options granted $ Special dividend* — $ — Options exercised $ $ Options canceled/forfeited $ Outstanding options at December 31, 2015 $ $ Exercisable options at December 31, 2015 $ $ Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2014 $ Options granted $ Special dividend* $ Options exercised $ $ Options canceled/forfeited $ Outstanding options at December 31, 2014 $ $ Exercisable options at December 31, 2014 $ $ Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2013 $ Options granted $ Special dividend* $ Options exercised $ $ Options canceled/forfeited $ Outstanding options at December 31, 2013 $ $ Exercisable options at December 31, 2013 $ $ * An adjustment was made to the exercise price and number of ISOs outstanding for the special cash dividends paid during December 2014 and 2013. “Special dividend” represents the incremental ISOs issued as a result of these adjustments. No adjustments were made to ISOs in 2015 as all ISOs had been exercised before the special dividend occurred. |
Schedule of stock option assumptions for fair value estimate | 2015 2014 2013 Weighted-average fair value of grants $ $ $ Risk-free interest rates % % % Dividend yield % % % Expected volatility % % % Expected option life years years years |
STATUTORY INFORMATION AND DIV35
STATUTORY INFORMATION AND DIVIDEND RESTRICTIONS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
STATUTORY INFORMATION AND DIVIDEND RESTRICTIONS | |
Schedule of selected information for insurance subsidiaries | (in thousands) 2015 2014 2013 Consolidated net income, statutory basis $ $ $ Consolidated surplus, statutory basis $ $ $ |
COMMITMENTS AND CONTINGENT LI36
COMMITMENTS AND CONTINGENT LIABILITIES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
COMMITMENTS AND CONTINGENT LIABILITIES | |
Schedule of minimum future rental payments under noncancellable leases | (in thousands) 2016 $ 2017 2018 2019 2020 2021-2034 Total minimum future rental payments $ |
OPERATING SEGMENT INFORMATION (
OPERATING SEGMENT INFORMATION (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
OPERATING SEGMENT INFORMATION | |
Schedule of revenues and net earnings by segment | REVENUES (in thousands) 2015 2014 2013 Casualty $ $ $ Property Surety Net premiums earned $ $ $ Net investment income Net realized gains Total $ $ $ INSURANCE EXPENSES (in thousands) 2015 2014 2013 Loss and settlement expenses: Casualty $ $ $ Property Surety Total net loss and settlement expenses $ $ $ Policy acquisition costs: Casualty $ $ $ Property Surety Total policy acquisition costs $ $ $ Other insurance expenses: Casualty $ $ $ Property Surety Total other insurance expenses $ $ $ Total $ $ $ NET EARNINGS (LOSSES) (in thousands) 2015 2014 2013 Casualty $ $ $ Property Surety Net underwriting income $ $ $ Net investment income Net realized gains General corporate expense and interest on debt Equity in earnings of unconsolidated investees Total earnings before incomes taxes $ $ $ Income taxes $ $ $ Total $ $ $ |
Schedule of net premiums earned by major product type | NET PREMIUMS EARNED Year ended December 31, (in thousands) 2015 2014 2013 CASUALTY Commercial and personal umbrella $ $ $ General liability Professional services Commercial transportation P&C package business Executive products Medical professional liability Other casualty Total $ $ $ PROPERTY Commercial property $ $ $ Marine Specialty personal Property reinsurance Crop reinsurance Other property Total $ $ $ SURETY Miscellaneous $ $ $ Commercial Contract Energy Total $ $ $ Grand total $ $ $ |
SUMMARY OF SIGNIFICANT ACCOUN38
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Description of Business (Details) | 12 Months Ended |
Dec. 31, 2015statecompany | |
DESCRIPTION OF BUSINESS | |
Number of insurance companies through which the entity conducts operations | company | 3 |
RLI Ins. | |
DESCRIPTION OF BUSINESS | |
Number of states in which entity operates | 50 |
Mt. Hawley Insurance Company | |
DESCRIPTION OF BUSINESS | |
Number of states in which entity operates | 50 |
Contractors Bonding and Insurance Company | |
DESCRIPTION OF BUSINESS | |
Number of states in which entity operates | 50 |
SUMMARY OF SIGNIFICANT ACCOUN39
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investments (Details) | Dec. 31, 2015USD ($)category | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) |
INVESTMENTS | |||
Number of categories for debt and equity securities | category | 3 | ||
Available for sale securities | |||
INVESTMENTS | |||
Amount of securities transferred from held-to-maturity | $ | $ 0 | $ 0 | $ 0 |
SUMMARY OF SIGNIFICANT ACCOUN40
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property and Equipment (Details) | 12 Months Ended |
Dec. 31, 2015 | |
Equipment | Minimum | |
PROPERTY AND EQUIPMENT | |
Useful life | 3 years |
Equipment | Maximum | |
PROPERTY AND EQUIPMENT | |
Useful life | 10 years |
Buildings and improvements | Maximum | |
PROPERTY AND EQUIPMENT | |
Useful life | 30 years |
SUMMARY OF SIGNIFICANT ACCOUN41
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investment in Unconsolidated Investees (Details) $ in Thousands | Mar. 04, 2015USD ($) | Feb. 05, 2014USD ($) | Dec. 31, 2015USD ($)item | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) |
INVESTMENT IN UNCONSOLIDATED INVESTEES: | |||||
Investment amount | $ 70,784 | $ 60,046 | |||
Investee earnings recorded in income | 10,914 | 12,338 | $ 10,915 | ||
Amount of investment | 1,711 | 5,301 | |||
Reinsurance assumed | 34,456 | 76,581 | 73,053 | ||
Net premiums earned | $ 700,161 | 687,375 | 630,802 | ||
Additional summarized financial information for investee | |||||
Dividends received | 6,600 | 13,200 | |||
Maui Jim Inc. | |||||
INVESTMENT IN UNCONSOLIDATED INVESTEES: | |||||
Interest in investee (as a percent) | 40.00% | ||||
Investment amount | $ 62,700 | 54,300 | |||
Investee earnings recorded in income | 9,900 | 12,000 | 10,900 | ||
Total investee net income | $ 23,700 | 30,700 | 26,100 | ||
Equity ownership interest (as a percent) | 40.00% | ||||
Additional summarized financial information for investee | |||||
Total assets | $ 223,400 | 219,800 | |||
Total liabilities | 90,000 | 107,600 | |||
Total equity | 133,400 | 112,200 | |||
Undistributed earnings included in retained earnings | 52,000 | ||||
Dividends received | $ 0 | 6,600 | $ 13,200 | ||
Prime Holdings Insurance Services, Inc. (Prime) | |||||
INVESTMENT IN UNCONSOLIDATED INVESTEES: | |||||
Interest in investee (as a percent) | 27.00% | 20.00% | 27.00% | ||
Investment amount | $ 8,100 | 5,700 | |||
Investee earnings recorded in income | $ 1,000 | $ 300 | |||
Amount of investment | $ 1,700 | $ 5,300 | |||
Number of insurance carriers Company writes through | item | 2 | ||||
Equity ownership interest (as a percent) | 27.00% | 20.00% | 27.00% | ||
Percentage of quota share reinsurance treaty, effective January 1, 2014 | 25.00% | ||||
Reinsurance assumed | $ 11,300 | $ 10,200 | |||
Net premiums earned | $ 10,900 | $ 5,300 |
SUMMARY OF SIGNIFICANT ACCOUN42
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Intangible Assets (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Goodwill and Intangible Assets | |||
Goodwill | $ 58,496 | $ 58,496 | |
Indefinite-Lived Intangible Assets (Excluding Goodwill) | 7,500 | 8,009 | |
Definite-lived intangible assets, net of amortization | 5,298 | 6,190 | |
Intangible Assets, Net (Excluding Goodwill), Total | 12,798 | 14,199 | |
Goodwill and intangibles | 71,294 | 72,695 | |
Amortization of intangible assets | 900 | 900 | $ 1,200 |
Contractors Bonding and Insurance Company | |||
Goodwill and Intangible Assets | |||
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill) | 1,300 | ||
RIC | |||
Goodwill and Intangible Assets | |||
Indefinite-lived Intangible Assets, Written off Related to Sale of Business Unit | 500 | ||
Energy Surety | |||
Goodwill and Intangible Assets | |||
Goodwill | 25,706 | 25,706 | |
Miscellaneous and Contract Surety | |||
Goodwill and Intangible Assets | |||
Goodwill | 15,110 | 15,110 | |
P&C package business | |||
Goodwill and Intangible Assets | |||
Goodwill | 5,246 | 5,246 | |
Medical professional liability | |||
Goodwill and Intangible Assets | |||
Goodwill | $ 12,434 | $ 12,434 |
SUMMARY OF SIGNIFICANT ACCOUN43
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Basic EPS, Income (Numerator) | |||||||||||
Income available to common shareholders | $ 33,853 | $ 35,908 | $ 37,185 | $ 30,598 | $ 37,497 | $ 33,254 | $ 35,725 | $ 28,969 | $ 137,544 | $ 135,445 | $ 126,255 |
Diluted EPS, Income (Numerator) | |||||||||||
Income available to common shareholders | $ 137,544 | $ 135,445 | $ 126,255 | ||||||||
Basic EPS, Weighted Average Shares (Denominator) | |||||||||||
Number of shares outstanding | 43,299 | 43,020 | 42,744 | ||||||||
Effect of Dilutive Securities, Shares (Denominator) | |||||||||||
Stock options (in shares) | 832 | 799 | 770 | ||||||||
Diluted EPS, Weighted Average Shares (Denominator) | |||||||||||
Number of shares outstanding | 44,131 | 43,819 | 43,514 | ||||||||
Basic EPS, Per Share Amount | |||||||||||
Basic net earnings per share (in dollars per share) | $ 0.78 | $ 0.83 | $ 0.86 | $ 0.71 | $ 0.87 | $ 0.77 | $ 0.83 | $ 0.67 | $ 3.18 | $ 3.15 | $ 2.95 |
Diluted EPS, Per Share Amount | |||||||||||
Diluted earnings per share (in dollars per share) | $ 0.76 | $ 0.81 | $ 0.84 | $ 0.70 | $ 0.85 | $ 0.76 | $ 0.82 | $ 0.66 | $ 3.12 | $ 3.09 | $ 2.90 |
COMPREHENSIVE EARNINGS | |||||||||||
Tax rate used (as a percent) | 35.00% | 35.00% | 35.00% | ||||||||
Other comprehensive income (loss), tax | $ (25,300) | $ 19,000 | $ (3,800) |
SUMMARY OF SIGNIFICANT ACCOUN44
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Changes in Accumulated Other Comprehensive Earnings (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Changes in the balance of each component of accumulated other comprehensive earnings | |||
Beginning balance | $ 171,383 | ||
Net current-period other comprehensive earnings (loss) | (47,609) | $ 35,356 | $ (7,143) |
Ending balance | 123,774 | 171,383 | |
Unrealized Gains and Losses on Available-for-Sale Securities | |||
Changes in the balance of each component of accumulated other comprehensive earnings | |||
Beginning balance | 171,383 | 136,027 | 143,170 |
Other comprehensive earnings before reclassifications | (26,199) | 57,081 | 7,723 |
Amounts reclassified from accumulated other comprehensive earnings | (21,410) | (21,725) | (14,866) |
Net current-period other comprehensive earnings (loss) | (47,609) | 35,356 | (7,143) |
Ending balance | $ 123,774 | $ 171,383 | $ 136,027 |
SUMMARY OF SIGNIFICANT ACCOUN45
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Reclassifications in Accumulated Other Comprehensive Earnings (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Amount Reclassified from Accumulated Other Comprehensive Earnings | |||||||||||
Net realized gains | $ 39,829 | $ 32,182 | $ 22,036 | ||||||||
Earnings before income taxes | $ 45,582 | $ 51,937 | $ 54,650 | $ 44,513 | $ 46,479 | $ 48,594 | $ 52,423 | $ 41,991 | 196,682 | 189,487 | 175,666 |
Income tax expense | (59,138) | (54,042) | (49,411) | ||||||||
Net earnings | $ 33,853 | $ 35,908 | $ 37,185 | $ 30,598 | $ 37,497 | $ 33,254 | $ 35,725 | $ 28,969 | 137,544 | 135,445 | 126,255 |
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 | 32,939 | 33,423 | 22,871 | ||||||||
Earnings before income taxes | 32,939 | 33,423 | 22,871 | ||||||||
Income tax expense | (11,529) | (11,698) | (8,005) | ||||||||
Net earnings | $ 21,410 | $ 21,725 | $ 14,866 |
SUMMARY OF SIGNIFICANT ACCOUN46
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Catastrophe Exposures (Details) $ in Millions | 12 Months Ended |
Dec. 31, 2015USD ($) | |
California earthquake | |
Catastrophe Exposures | |
Catastrophe reinsurance | $ 300 |
First-dollar retention | 25 |
Non-California earthquake | |
Catastrophe Exposures | |
Catastrophe reinsurance | 325 |
First-dollar retention | 25 |
Other perils | |
Catastrophe Exposures | |
Catastrophe reinsurance | 225 |
First-dollar retention | $ 25 |
SUMMARY OF SIGNIFICANT ACCOUN47
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Environmental Exposures (Details) - USD ($) $ in Thousands | 12 Months Ended | 84 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2015 | |
Environmental Exposures | ||||
Premiums written | $ 721,971 | $ 703,152 | $ 666,322 | |
Casualty segment | Environmental liability exposures | ||||
Environmental Exposures | ||||
Premiums written | $ 3,900 | $ 16,900 |
INVESTMENTS - Net Investment In
INVESTMENTS - Net Investment Income (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Net investment income | |||||||||||
Gross investment income | $ 59,482 | $ 60,726 | $ 57,758 | ||||||||
Less investment expenses | (4,838) | (5,118) | (4,995) | ||||||||
Net Investment Income | $ 13,754 | $ 13,964 | $ 13,431 | $ 13,495 | $ 13,844 | $ 14,200 | $ 13,982 | $ 13,582 | 54,644 | 55,608 | 52,763 |
Debt securities | |||||||||||
Net investment income | |||||||||||
Gross investment income | 48,064 | 48,757 | 45,870 | ||||||||
Equity securities | |||||||||||
Net investment income | |||||||||||
Gross investment income | 11,407 | 11,962 | 11,865 | ||||||||
Cash and Short-term Investments | |||||||||||
Net investment income | |||||||||||
Gross investment income | $ 11 | $ 7 | $ 23 |
INVESTMENTS - Realized and Unre
INVESTMENTS - Realized and Unrealized Gains (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
INVESTMENTS | |||||||||||
Net realized gains (losses), excluding OTTI | $ 39,829 | $ 32,182 | $ 22,036 | ||||||||
Realized Gain (Loss) on Marketable Securities, Cost Method Investments and Other Investments, Total | $ 14,207 | $ 7,534 | $ 4,802 | $ 13,286 | $ 9,542 | $ 5,708 | $ 10,431 | $ 6,501 | 39,829 | 32,182 | 22,036 |
Net changes in unrealized gains (losses) on investments: | (72,935) | 54,393 | (10,973) | ||||||||
Net realized gains (losses) and changes in unrealized gains (losses) on investments | (33,106) | 86,575 | 11,063 | ||||||||
Disposal Group, Not Discontinued Operation, Gain (Loss) on Disposal | 6,698 | ||||||||||
Debt securities | Available for sale securities | |||||||||||
INVESTMENTS | |||||||||||
Net realized gains (losses), excluding OTTI | 10,832 | 3,955 | 1,338 | ||||||||
Net changes in unrealized gains (losses) on investments: | (26,929) | 37,880 | (75,228) | ||||||||
Debt securities | Held-to-maturity Securities | |||||||||||
INVESTMENTS | |||||||||||
Net realized gains (losses), excluding OTTI | 4 | 9 | |||||||||
Equity securities | |||||||||||
INVESTMENTS | |||||||||||
Net realized gains (losses), excluding OTTI | 22,107 | 29,468 | 21,533 | ||||||||
Net changes in unrealized gains (losses) on investments: | (44,120) | 17,300 | 64,305 | ||||||||
Other | |||||||||||
INVESTMENTS | |||||||||||
Net realized gains (losses), excluding OTTI | 192 | (1,245) | (844) | ||||||||
Equity Method Investments [Member] | |||||||||||
INVESTMENTS | |||||||||||
Net changes in unrealized gains (losses) on investments: | $ (1,886) | $ (787) | $ (50) |
INVESTMENTS - Disposition of Fi
INVESTMENTS - Disposition of Fixed Securities and Equities (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Debt securities | Available for sale securities | SALES | |||
Summary of the disposition of fixed maturities and equities | |||
Proceeds From Sales | $ 436,680 | $ 342,308 | $ 173,694 |
Gross Realized Gains | 14,691 | 7,208 | 3,561 |
Gross Realized Losses | (4,067) | (3,664) | (2,597) |
Marketable Securities, Realized Gain (Loss), Excluding Other than Temporary Impairments, Total | 10,624 | 3,544 | 964 |
Debt securities | Available for sale securities | CALLS/MATURITIES | |||
Summary of the disposition of fixed maturities and equities | |||
Proceeds From Sales | 156,980 | 101,517 | 224,620 |
Gross Realized Gains | 217 | 414 | 379 |
Gross Realized Losses | (9) | (3) | (5) |
Marketable Securities, Realized Gain (Loss), Excluding Other than Temporary Impairments, Total | 208 | 411 | 374 |
Debt securities | Held-to-maturity Securities | SALES | |||
Summary of the disposition of fixed maturities and equities | |||
Proceeds From Sales | 654 | ||
Gross Realized Gains | 4 | ||
Marketable Securities, Realized Gain (Loss), Excluding Other than Temporary Impairments, Total | 4 | ||
Debt securities | Held-to-maturity Securities | CALLS/MATURITIES | |||
Summary of the disposition of fixed maturities and equities | |||
Proceeds From Sales | 11,090 | ||
Gross Realized Gains | 9 | ||
Marketable Securities, Realized Gain (Loss), Excluding Other than Temporary Impairments, Total | 9 | ||
Debt securities | Trading | CALLS/MATURITIES | |||
Summary of the disposition of fixed maturities and equities | |||
Proceeds From Sales | 1 | ||
Equity securities | SALES | |||
Summary of the disposition of fixed maturities and equities | |||
Proceeds From Sales | 53,110 | 72,869 | 73,982 |
Gross Realized Gains | 25,985 | 29,794 | 21,542 |
Gross Realized Losses | (3,878) | (326) | (9) |
Marketable Securities, Realized Gain (Loss), Excluding Other than Temporary Impairments, Total | $ 22,107 | $ 29,468 | $ 21,533 |
INVESTMENTS - Assets Measured A
INVESTMENTS - Assets Measured At Fair Value (Details) - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
Assets measured at Fair Value | ||
Available-for-sale securities | $ 1,913,534 | $ 1,905,729 |
Transfers in (out of) level 1 | 0 | 0 |
Transfers in (out of) level 2 | 0 | 0 |
U.S. government | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 43,543 | 33,788 |
U.S. Agency | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 15,740 | 6,747 |
Non-U.S. govt. & agency | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 4,478 | 10,665 |
Agency MBS | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 254,892 | 264,468 |
ABS/CMBS | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 91,948 | 135,304 |
Corporate | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 517,109 | 562,690 |
Municipal | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 610,400 | 481,425 |
Equity securities | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 375,424 | 410,642 |
Fair value measured on recurring basis | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 1,913,534 | 1,905,729 |
Fair value measured on recurring basis | U.S. government | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 43,543 | 33,788 |
Fair value measured on recurring basis | U.S. Agency | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 15,740 | 6,747 |
Fair value measured on recurring basis | Non-U.S. govt. & agency | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 4,478 | 10,665 |
Fair value measured on recurring basis | Agency MBS | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 254,892 | 264,468 |
Fair value measured on recurring basis | ABS/CMBS | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 91,948 | 135,304 |
Fair value measured on recurring basis | Corporate | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 517,109 | 562,690 |
Fair value measured on recurring basis | Municipal | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 610,400 | 481,425 |
Fair value measured on recurring basis | Equity securities | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 375,424 | 410,642 |
Fair value measured on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 375,424 | 410,642 |
Fair value measured on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Equity securities | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 375,424 | 410,642 |
Fair value measured on recurring basis | Significant Other Observable Inputs (Level 2) | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 1,538,110 | 1,495,087 |
Fair value measured on recurring basis | Significant Other Observable Inputs (Level 2) | U.S. government | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 43,543 | 33,788 |
Fair value measured on recurring basis | Significant Other Observable Inputs (Level 2) | U.S. Agency | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 15,740 | 6,747 |
Fair value measured on recurring basis | Significant Other Observable Inputs (Level 2) | Non-U.S. govt. & agency | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 4,478 | 10,665 |
Fair value measured on recurring basis | Significant Other Observable Inputs (Level 2) | Agency MBS | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 254,892 | 264,468 |
Fair value measured on recurring basis | Significant Other Observable Inputs (Level 2) | ABS/CMBS | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 91,948 | 135,304 |
Fair value measured on recurring basis | Significant Other Observable Inputs (Level 2) | Corporate | ||
Assets measured at Fair Value | ||
Available-for-sale securities | 517,109 | 562,690 |
Fair value measured on recurring basis | Significant Other Observable Inputs (Level 2) | Municipal | ||
Assets measured at Fair Value | ||
Available-for-sale securities | $ 610,400 | $ 481,425 |
INVESTMENTS - Fixed Income Secu
INVESTMENTS - Fixed Income Securities By Contractual Maturity (Details) - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
Amortized cost of available-for-sale debt securities by contractual maturity | ||
Due in one year or less | $ 9,529 | |
Due after one year through five years | 275,198 | |
Due after five years through 10 years | 565,477 | |
Due after 10 years | 326,333 | |
Total amoritzed cost | 1,518,156 | $ 1,448,204 |
Fair value of available-for-sale debt securities by contractual maturity | ||
Due in one year or less | 9,643 | |
Due after one year through five years | 276,100 | |
Due after five years through 10 years | 572,675 | |
Due after 10 years | 332,852 | |
Total fair value | 1,538,110 | 1,495,087 |
Net unrealized appreciation of available-for-sale fixed maturities and equity securities | 192,900 | $ 264,000 |
Mtge/ABS/CMBS | ||
Amortized cost of available-for-sale debt securities by contractual maturity | ||
Total amoritzed cost | 341,619 | |
Fair value of available-for-sale debt securities by contractual maturity | ||
Total fair value | $ 346,840 |
INVESTMENTS - Investments In Fi
INVESTMENTS - Investments In Fixed Income Securities (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Available-for-sale | ||
Amortized Cost | $ 1,720,593 | $ 1,641,739 |
Fair Value | 1,913,534 | 1,905,729 |
Gross Unrealized Gains | 212,193 | 271,109 |
Gross Unrealized Losses | (19,252) | (7,119) |
Total fixed income and equity securities | ||
Amortized Cost | 1,720,593 | 1,641,739 |
Fair Value | 1,913,534 | 1,905,729 |
Gross Unrealized Gains | 212,193 | 271,109 |
Gross Unrealized Losses | (19,252) | (7,119) |
U.S. government | ||
Available-for-sale | ||
Amortized Cost | 43,597 | 33,668 |
Fair Value | 43,543 | 33,788 |
Gross Unrealized Gains | 58 | 131 |
Gross Unrealized Losses | (112) | (11) |
U.S. Agency | ||
Available-for-sale | ||
Amortized Cost | 15,481 | 6,385 |
Fair Value | 15,740 | 6,747 |
Gross Unrealized Gains | 306 | 362 |
Gross Unrealized Losses | (47) | |
Non-U.S. govt. & agency | ||
Available-for-sale | ||
Amortized Cost | 5,035 | 9,862 |
Fair Value | 4,478 | 10,665 |
Gross Unrealized Gains | 803 | |
Gross Unrealized Losses | (557) | |
Mtge/ABS/CMO | ||
Available-for-sale | ||
Gross Unrealized Losses | 2,200 | |
Agency MBS | ||
Available-for-sale | ||
Amortized Cost | 250,060 | 256,443 |
Fair Value | 254,892 | 264,468 |
Gross Unrealized Gains | 6,451 | 9,401 |
Gross Unrealized Losses | (1,619) | (1,376) |
ABS/CMBS | ||
Available-for-sale | ||
Amortized Cost | 91,559 | 133,894 |
Fair Value | 91,948 | 135,304 |
Gross Unrealized Gains | 995 | 1,821 |
Gross Unrealized Losses | (606) | (411) |
Corporate | ||
Available-for-sale | ||
Amortized Cost | 523,351 | 543,183 |
Fair Value | 517,109 | 562,690 |
Gross Unrealized Gains | 8,565 | 23,697 |
Gross Unrealized Losses | (14,807) | (4,190) |
Municipal | ||
Available-for-sale | ||
Amortized Cost | 589,073 | 464,769 |
Fair Value | 610,400 | 481,425 |
Gross Unrealized Gains | 21,375 | 16,789 |
Gross Unrealized Losses | $ (48) | (133) |
General obligations to state and local governments Percentage | 47.00% | |
Revenue based obligations percentage | 53.00% | |
Percentage of securities of portfolio rated as AA or better | 92.00% | |
Percentage of securities of portfolio rated as A or better | 99.00% | |
Debt securities | ||
Available-for-sale | ||
Amortized Cost | $ 1,518,156 | 1,448,204 |
Fair Value | 1,538,110 | 1,495,087 |
Gross Unrealized Gains | 37,750 | 53,004 |
Gross Unrealized Losses | (17,796) | (6,121) |
Equity securities | ||
Available-for-sale | ||
Amortized Cost | 202,437 | 193,535 |
Fair Value | 375,424 | 410,642 |
Gross Unrealized Gains | 174,443 | 218,105 |
Gross Unrealized Losses | (1,456) | $ (998) |
(Increase) decrease in Gross Unrealized Losses | $ (500) |
INVESTMENTS - Types of Debt and
INVESTMENTS - Types of Debt and Equity Securities (Details) - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
Fair value | ||
Less than 12 months | $ 500,405 | $ 227,874 |
12 Months and Greater | 44,476 | 106,657 |
Total Fair value | 544,881 | 334,531 |
Cost or amortized Cost | ||
Less than 12 months | 514,250 | 233,338 |
12 months and greater | 49,883 | 108,312 |
Total Cost or Amortized Cost | 564,133 | 341,650 |
Unrealized Loss | ||
Less than 12 months | (13,845) | (5,464) |
12 Months and Greater | (5,407) | (1,655) |
Total Unrealized Loss | (19,252) | (7,119) |
Debt securities | ||
Fair value | ||
Less than 12 months | 483,929 | 217,037 |
12 Months and Greater | 44,476 | 106,657 |
Total Fair value | 528,405 | 323,694 |
Cost or amortized Cost | ||
Less than 12 months | 496,318 | 221,503 |
12 months and greater | 49,883 | 108,312 |
Total Cost or Amortized Cost | 546,201 | 329,815 |
Unrealized Loss | ||
Less than 12 months | (12,389) | (4,466) |
12 Months and Greater | (5,407) | (1,655) |
Total Unrealized Loss | (17,796) | (6,121) |
U.S. government | ||
Fair value | ||
Less than 12 months | 36,000 | 4,416 |
Total Fair value | 36,000 | 4,416 |
Cost or amortized Cost | ||
Less than 12 months | 36,112 | 4,427 |
Total Cost or Amortized Cost | 36,112 | 4,427 |
Unrealized Loss | ||
Less than 12 months | (112) | (11) |
Total Unrealized Loss | (112) | (11) |
U.S. Agency | ||
Fair value | ||
Less than 12 months | 8,070 | |
Total Fair value | 8,070 | |
Cost or amortized Cost | ||
Less than 12 months | 8,117 | |
Total Cost or Amortized Cost | 8,117 | |
Unrealized Loss | ||
Less than 12 months | (47) | |
Total Unrealized Loss | (47) | |
Non-U.S. govt. & agency | ||
Fair value | ||
Less than 12 months | 4,478 | |
Total Fair value | 4,478 | |
Cost or amortized Cost | ||
Less than 12 months | 5,035 | |
Total Cost or Amortized Cost | 5,035 | |
Unrealized Loss | ||
Less than 12 months | (557) | |
Total Unrealized Loss | (557) | |
Agency MBS | ||
Fair value | ||
Less than 12 months | 100,424 | 12,840 |
12 Months and Greater | 18,520 | 61,534 |
Total Fair value | 118,944 | 74,374 |
Cost or amortized Cost | ||
Less than 12 months | 101,473 | 12,947 |
12 months and greater | 19,090 | 62,803 |
Total Cost or Amortized Cost | 120,563 | 75,750 |
Unrealized Loss | ||
Less than 12 months | (1,049) | (107) |
12 Months and Greater | (570) | (1,269) |
Total Unrealized Loss | (1,619) | (1,376) |
ABS/CMBS | ||
Fair value | ||
Less than 12 months | 51,091 | 63,782 |
12 Months and Greater | 8,364 | 11,616 |
Total Fair value | 59,455 | 75,398 |
Cost or amortized Cost | ||
Less than 12 months | 51,562 | 64,084 |
12 months and greater | 8,499 | 11,725 |
Total Cost or Amortized Cost | 60,061 | 75,809 |
Unrealized Loss | ||
Less than 12 months | (471) | (302) |
12 Months and Greater | (135) | (109) |
Total Unrealized Loss | (606) | (411) |
Corporate | ||
Fair value | ||
Less than 12 months | 275,404 | 123,617 |
12 Months and Greater | 15,174 | 14,488 |
Total Fair value | 290,578 | 138,105 |
Cost or amortized Cost | ||
Less than 12 months | 285,515 | 127,634 |
12 months and greater | 19,870 | 14,661 |
Total Cost or Amortized Cost | 305,385 | 142,295 |
Unrealized Loss | ||
Less than 12 months | (10,111) | (4,017) |
12 Months and Greater | (4,696) | (173) |
Total Unrealized Loss | (14,807) | (4,190) |
Municipal | ||
Fair value | ||
Less than 12 months | 8,462 | 12,382 |
12 Months and Greater | 2,418 | 19,019 |
Total Fair value | 10,880 | 31,401 |
Cost or amortized Cost | ||
Less than 12 months | 8,504 | 12,411 |
12 months and greater | 2,424 | 19,123 |
Total Cost or Amortized Cost | 10,928 | 31,534 |
Unrealized Loss | ||
Less than 12 months | (42) | (29) |
12 Months and Greater | (6) | (104) |
Total Unrealized Loss | (48) | (133) |
Equity securities | ||
Fair value | ||
Less than 12 months | 16,476 | 10,837 |
Total Fair value | 16,476 | 10,837 |
Cost or amortized Cost | ||
Less than 12 months | 17,932 | 11,835 |
Total Cost or Amortized Cost | 17,932 | 11,835 |
Unrealized Loss | ||
Less than 12 months | (1,456) | (998) |
Total Unrealized Loss | $ (1,456) | $ (998) |
INVESTMENTS - Portfolio Analysi
INVESTMENTS - Portfolio Analysis (Details) $ in Thousands | 12 Months Ended | |
Dec. 31, 2015USD ($)positionsecurity | Dec. 31, 2014USD ($) | |
Securities in unrealized loss positions | ||
Total unrealized loss | $ 19,252 | $ 7,119 |
Unrealized losses for 12 consecutive months or longer | 5,407 | $ 1,655 |
Fixed maturities and short-term investments on deposit with either regulatory authorities or banks | $ 25,400 | |
Debt securities | ||
Securities in unrealized loss positions | ||
Number of unrealized loss positions | position | 472 | |
Number of securities in unrealized loss positions for 12 months or longer | security | 44 | |
Maximum period for securities with unrealized losses greater than 20 percent | 12 months | |
Unrealized losses for 12 consecutive months or longer | $ 5,400 | |
Common Stock | ||
Securities in unrealized loss positions | ||
Number of unrealized loss positions | security | 6 | |
Number of securities in unrealized loss positions of greater than 20 percent | security | 0 | |
Maximum period for securities with unrealized losses greater than 20 percent | 6 months | |
Common Stock | Maximum | ||
Securities in unrealized loss positions | ||
Maximum percentage of unrealized loss to portfolio for more than six consecutive months | 20.00% |
INVESTMENTS - Other Invested As
INVESTMENTS - Other Invested Assets (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Other invested assets | ||
Investment in low income housing tax credit partnership | $ 5,000 | |
Other Investments | 20,666 | $ 11,597 |
Total tax benefit on investments in housing tax credit partnership | 1,100 | 200 |
Investment in FHLBC | 1,600 | 1,800 |
Investment in Real Estate Fund | ||
Other invested assets | ||
Other Investments | 5,000 | |
Investment In Low Income Housing Tax Credit Partnership Net Of Amortization Member | ||
Other invested assets | ||
Other Investments | $ 14,000 | $ 9,800 |
POLICY ACQUISITION COSTS (Detai
POLICY ACQUISITION COSTS (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Policy acquisition costs deferred and amortized to income | |||
Deferred policy acquisition costs (DAC), beginning of year | $ 65,123 | $ 61,508 | $ 52,344 |
Deferred: | |||
Direct commissions | 146,507 | 142,887 | 134,770 |
Premium taxes | 11,087 | 10,727 | 10,442 |
Ceding commissions | (17,403) | (20,483) | (20,186) |
Net deferred | 140,191 | 133,131 | 125,026 |
Amortized | 135,485 | 129,516 | 115,862 |
DAC/VOBA*, end of year | 69,829 | 65,123 | 61,508 |
Policy acquisition costs: | |||
Amortized to expense - DAC | 135,485 | 129,346 | 115,442 |
Amortized to expense - VOBA | 170 | 420 | |
Period costs: | |||
Ceding commission - contingent | (1,834) | (1,956) | (2,126) |
Other underwriting expenses | 107,427 | 101,723 | 96,915 |
Total policy acquisition costs | $ 241,078 | $ 229,283 | $ 210,651 |
DEBT (Details)
DEBT (Details) - USD ($) $ in Thousands | Dec. 12, 2013 | Oct. 02, 2013 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | May. 31, 2014 |
Debt | ||||||
Outstanding long-term senior notes | $ 149,668 | $ 149,625 | ||||
Interest expense incurred on outstanding debt | $ 7,426 | $ 7,438 | $ 8,095 | |||
Senior Notes | ||||||
Debt | ||||||
Average interest rate on debt (as a percent) | 4.91% | 4.91% | 5.71% | |||
Senior notes maturing September 15, 2023 | ||||||
Debt | ||||||
Issue of senior notes by public debt offering | $ 150,000 | |||||
Stated interest rate, payable semi-annually (as a percent) | 4.875% | |||||
Proceeds from issuance of debt, net of discount and commission | $ 148,600 | |||||
Estimated fair value of senior notes | $ 158,700 | |||||
Senior notes maturing January 15, 2014 | ||||||
Debt | ||||||
Amount of principle redeemed | $ 100,000 | |||||
Line of credit | ||||||
Debt | ||||||
Borrowing capacity under revolving line of credit facility | 40,000 | $ 25,000 | ||||
Maximum borrowing capacity conditional expansion | $ 65,000 | |||||
Term of facility | 4 years | |||||
Amount outstanding on this facility | $ 0 | $ 0 | $ 0 |
REINSURANCE - Summary of Premiu
REINSURANCE - Summary of Premiums and Losses (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Reinsurance | |||
Maximum amount beyond which net loss on any individual risk is limited through the purchase of reinsurance | $ 3,000 | ||
WRITTEN | |||
Direct | 819,130 | $ 787,267 | $ 770,142 |
Reinsurance assumed | 34,456 | 76,581 | 73,053 |
Reinsurance ceded | (131,615) | (160,696) | (176,873) |
Net | 721,971 | 703,152 | 666,322 |
EARNED | |||
Direct | 797,180 | 781,640 | 741,569 |
Reinsurance assumed | 35,724 | 72,878 | 78,891 |
Reinsurance ceded | (132,743) | (167,143) | (189,658) |
Net amount | 700,161 | 687,375 | 630,802 |
LOSSES AND SETTLEMENT EXPENSES INCURRED | |||
Direct | 307,445 | 315,226 | 279,358 |
Reinsurance assumed | 23,184 | 61,923 | 72,508 |
Reinsurance ceded | (31,584) | (80,540) | (92,065) |
Net | 299,045 | $ 296,609 | $ 259,801 |
Maximum | |||
Reinsurance | |||
Reinsurance retentions | 11,000 | ||
Minimum | |||
Reinsurance | |||
Reinsurance retentions | $ 1,000 |
REINSURANCE - Summary of Reinsu
REINSURANCE - Summary of Reinsurers (Details) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015USD ($)item | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) | |
Net reinsurance balances recoverable | |||
Prepaid reinsurance premiums and recoverables on paid and unpaid losses and settlement expenses | $ 332,900 | ||
Percentage of reinsurance recoverables due from companies with financial strength ratings of "A" or better by A.M. Best and S&P rating services | 96.00% | ||
Number of top reinsurers | item | 10 | ||
Reinsurer Exposure | $ 332,910 | ||
Ceded Premium Written | $ 131,615 | $ 160,696 | $ 176,873 |
Percent of Total Ceded Premium Written | 100.00% | ||
Reinsurance balances recoverable as a percentage of shareholder's equity, threshold for disclosure | 2.00% | ||
Amount of allowance for uncollectible amounts on paid recoverables | $ 14,000 | 13,300 | |
Reinsurance balances recoverable on unpaid losses and settlement expenses, allowances for uncollectible amounts | $ 11,900 | $ 13,100 | |
Threshold period for including reinsurance receivables in the allowance for uncollectible amounts | 1 year | ||
Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 100.00% | ||
Munich Re / HSB | A.M. Best Rating, A+, Superior | S&P Rating, AA-, Very Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 58,169 | ||
Ceded Premium Written | $ 20,273 | ||
Percent of Total Ceded Premium Written | 15.40% | ||
Munich Re / HSB | A.M. Best Rating, A+, Superior | S&P Rating, AA-, Very Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 17.50% | ||
Endurance Re | A.M. Best Rating, A, Excellent | S&P Rating, A, Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 47,987 | ||
Ceded Premium Written | $ 9,828 | ||
Percent of Total Ceded Premium Written | 7.50% | ||
Endurance Re | A.M. Best Rating, A, Excellent | S&P Rating, A, Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 14.40% | ||
Swiss Re /Westport Ins. Corp. | A.M. Best Rating, A+, Superior | S&P Rating, AA-, Very Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 33,162 | ||
Ceded Premium Written | $ 12,953 | ||
Percent of Total Ceded Premium Written | 9.80% | ||
Swiss Re /Westport Ins. Corp. | A.M. Best Rating, A+, Superior | S&P Rating, AA-, Very Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 10.00% | ||
Aspen UK Ltd. | A.M. Best Rating, A, Excellent | S&P Rating, A, Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 28,754 | ||
Ceded Premium Written | $ 5,618 | ||
Percent of Total Ceded Premium Written | 4.30% | ||
Aspen UK Ltd. | A.M. Best Rating, A, Excellent | S&P Rating, A, Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 8.60% | ||
Transatlantic Re | A.M. Best Rating, A, Excellent | S&P Rating, A+, Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 22,447 | ||
Ceded Premium Written | $ 7,404 | ||
Percent of Total Ceded Premium Written | 5.60% | ||
Transatlantic Re | A.M. Best Rating, A, Excellent | S&P Rating, A+, Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 6.70% | ||
Berkley Insurance Co. | A.M. Best Rating, A+, Superior | S&P Rating, A+, Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 20,974 | ||
Ceded Premium Written | $ 4,848 | ||
Percent of Total Ceded Premium Written | 3.70% | ||
Berkley Insurance Co. | A.M. Best Rating, A+, Superior | S&P Rating, A+, Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 6.30% | ||
Scor Reinsurance Co. | A.M. Best Rating, A, Excellent | S&P Rating, AA-, Very Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 13,265 | ||
Ceded Premium Written | $ 8,242 | ||
Percent of Total Ceded Premium Written | 6.30% | ||
Scor Reinsurance Co. | A.M. Best Rating, A, Excellent | S&P Rating, AA-, Very Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 4.00% | ||
Allied World Re - US | A.M. Best Rating, A, Excellent | S&P Rating, A, Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 13,165 | ||
Ceded Premium Written | $ 2,544 | ||
Percent of Total Ceded Premium Written | 1.90% | ||
Allied World Re - US | A.M. Best Rating, A, Excellent | S&P Rating, A, Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 4.00% | ||
Axis Re | A.M. Best Rating, A+, Superior | S&P Rating, A+, Strong | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 11,552 | ||
Ceded Premium Written | $ 4,235 | ||
Percent of Total Ceded Premium Written | 3.20% | ||
Axis Re | A.M. Best Rating, A+, Superior | S&P Rating, A+, Strong | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 3.50% | ||
General Re Member | AM Best, A++ Rating [Member] | Standard & Poor's, AA+ Rating [Member] | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 11,337 | ||
Ceded Premium Written | $ 2,702 | ||
Percent of Total Ceded Premium Written | 2.10% | ||
General Re Member | AM Best, A++ Rating [Member] | Standard & Poor's, AA+ Rating [Member] | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 3.40% | ||
All other reinsurers | |||
Net reinsurance balances recoverable | |||
Reinsurer Exposure | $ 72,098 | ||
Ceded Premium Written | $ 52,968 | ||
Percent of Total Ceded Premium Written | 40.20% | ||
All other reinsurers | Reinsurer Concentration Risk [Member] | Reinsurance Recoverable [Member] | |||
Net reinsurance balances recoverable | |||
Percent of Total Net Reinsurer Exposure | 21.60% |
HISTORICAL LOSS AND LAE DEVEL61
HISTORICAL LOSS AND LAE DEVELOPMENT - Unpaid Losses and Settlement Expenses (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Unpaid losses and LAE at beginning of year: | |||
Gross | $ 1,121,040 | $ 1,129,433 | $ 1,158,483 |
Ceded | (335,106) | (354,924) | (359,884) |
Net | 785,934 | 774,509 | 798,599 |
Increase (decrease) in incurred losses and LAE: | |||
Current accident year | 364,472 | 361,451 | 332,282 |
Prior accident years | (65,427) | (64,842) | (72,481) |
Total incurred | 299,045 | 296,609 | 259,801 |
Loss and LAE payments for claims incurred: | |||
Current accident year | (71,853) | (65,308) | (57,537) |
Prior accident year | (207,185) | (219,876) | (226,354) |
Total paid | (279,038) | (285,184) | (283,891) |
Net unpaid losses and LAE at end of year | 785,934 | 774,509 | 798,599 |
Unpaid losses and LAE at end of year: | |||
Gross | 1,103,785 | 1,121,040 | 1,129,433 |
Ceded | (297,844) | (335,106) | (354,924) |
Net | $ 805,941 | $ 785,934 | $ 774,509 |
HISTORICAL LOSS AND LAE DEVEL62
HISTORICAL LOSS AND LAE DEVELOPMENT - Reserve Development (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | $ (65,427) | $ (64,842) | $ (72,481) |
Casualty segment | |||
(Favorable)/unfavorable reserve development | |||
Number of years | 2 years | ||
(Favorable)/unfavorable reserve development | $ (45,654) | (52,825) | (61,805) |
Casualty segment | Personal umbrella | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (800) | (7,500) | |
Casualty segment | Commercial transportation | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (5,400) | 3,500 | |
Casualty segment | Executive products | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (8,900) | ||
Casualty segment | General liability | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (14,700) | (28,100) | (28,500) |
Casualty segment | Runoff casualty business | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | 5,400 | (900) | (2,000) |
Casualty segment | Commercial property | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (10,700) | (4,400) | (6,500) |
Casualty segment | Miscellaneous Professional Liability Member | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | 500 | ||
Casualty segment | P&C Package | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (6,600) | (9,400) | (8,100) |
Casualty segment | Professional services | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | 3,200 | ||
Property segment | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (11,848) | (1,123) | (7,273) |
Property segment | Recreational Vehicle | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | 1,300 | ||
Property segment | Marine | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (9,200) | (5,800) | (5,900) |
Property segment | Other direct property products | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (3,500) | ||
Property segment | Assumed property | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (4,900) | 4,000 | 1,400 |
Property segment | Crop Member | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | 1,200 | ||
Surety segment | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (7,925) | (10,894) | $ (3,403) |
Surety segment | Contract surety product | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (2,200) | (4,600) | |
Surety segment | Energy surety product | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (2,000) | (1,200) | |
Surety segment | Commercial surety product | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | (4,000) | (4,300) | |
Surety segment | Miscellaneous Surety Product | |||
(Favorable)/unfavorable reserve development | |||
(Favorable)/unfavorable reserve development | $ 300 | $ (900) |
HISTORICAL LOSS AND LAE DEVEL63
HISTORICAL LOSS AND LAE DEVELOPMENT - Environmental, Asbestos and Mass Tort Exposures (Details) - USD ($) $ in Thousands | 12 Months Ended | |||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
ENVIRONMENTAL, ASBESTOS AND MASS TORT EXPOSURES | ||||
Current accident year | $ 364,472 | $ 361,451 | $ 332,282 | |
Unpaid losses and LAE at end of year: | ||||
Gross | 1,103,785 | 1,121,040 | 1,129,433 | $ 1,158,483 |
Ceded | (297,844) | (335,106) | (354,924) | (359,884) |
Net | 805,941 | 785,934 | 774,509 | $ 798,599 |
Environmental, Asbestos and Mass Tort Claims | ||||
Loss and LAE payments (cumulative) | ||||
Gross | 119,632 | 112,819 | 105,559 | |
Ceded | (62,463) | (59,376) | (57,976) | |
Net | 57,169 | 53,443 | 47,583 | |
Unpaid losses and LAE at end of year: | ||||
Gross | 41,062 | 39,064 | 48,507 | |
Ceded | (12,559) | (11,879) | (15,043) | |
Net | $ 28,503 | $ 27,185 | $ 33,464 | |
Minimum period for which product lines related to majority of reserves have been in runoff | 20 years | |||
1983 AEMT Claim | ||||
Unpaid losses and LAE at end of year: | ||||
Gross increase in loss | $ 2,500 | |||
Net increase in loss | $ 2,400 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Deferred tax assets: | |||
Tax discounting of claim reserves | $ 17,866 | $ 19,609 | |
Unearned premium offset | 25,848 | 24,322 | |
Deferred compensation | 6,231 | 6,143 | |
Stock option expense | 4,482 | 5,046 | |
Other | 657 | 453 | |
Deferred tax assets before allowance | 55,084 | 55,573 | |
Total deferred tax assets | 55,084 | 55,573 | |
Deferred tax liabilities: | |||
Net unrealized appreciation of securities | 67,740 | 92,562 | |
Deferred policy acquisition costs | 24,440 | 22,793 | |
Book/tax depreciation | 4,613 | 3,610 | |
Intangible assets from CBIC acquisition | 3,392 | 3,594 | |
Undistributed earnings of unconsolidated investees | 17,888 | 14,728 | |
Other | 1,004 | 571 | |
Total deferred tax liabilities | 119,077 | 137,858 | |
Net deferred tax liability | $ (63,993) | $ (82,285) | |
U.S. federal tax rate (as a percent) | 35.00% | 35.00% | 35.00% |
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% | $ 68,839 | $ 66,320 | $ 61,483 |
Increase (reduction) in taxes resulting from: | |||
Dividends received deduction | (2,278) | (2,390) | (2,490) |
ESOP dividends paid deduction | (3,377) | (4,473) | (2,532) |
Tax-exempt interest income | (4,214) | (4,118) | (3,758) |
Unconsolidated investee dividends | (1,848) | (3,696) | |
Other items, net | 168 | 551 | 404 |
Total tax expense | $ 59,138 | $ 54,042 | $ 49,411 |
Effective tax rates (as a percent) | 30.10% | 28.50% | 28.10% |
Effective rate reduction due to dividends paid to ESOP (as a percent) | 1.70% | 2.40% | 1.40% |
Capital gains rate (as a percent) | 35.00% | ||
Dividend received | $ 6,600 | $ 13,200 | |
Lower tax rate (as a percent) | 7.00% | 7.00% | |
Effective rate reduction due to dividend received (as a percent) | 1.00% | 2.10% | |
Expected effective tax rate when deferred items reverse in future years (as a percent) | 35.00% | ||
Federal and state income taxes paid | $ 44,200 | $ 48,500 | $ 36,800 |
EMPLOYEE BENEFITS - Stock Owner
EMPLOYEE BENEFITS - Stock Ownership and Incentive Plans (Details) - USD ($) $ / shares in Units, $ in Millions | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Employee Stock Ownership, 401(K) And Deferred Compensation Plan | |||
Annual expenses for incentive plans | $ 20.4 | $ 23.1 | $ 23.2 |
ESOP and 401(k) Plans | |||
Employee Stock Ownership, 401(K) And Deferred Compensation Plan | |||
Vesting period of profit sharing contributions | 3 years | ||
Expenses recognized | $ 11.6 | $ 14.1 | $ 12.4 |
Employee Stock Ownership Plan (ESOP) | |||
Employee Stock Ownership, 401(K) And Deferred Compensation Plan | |||
Shares purchased under defined contribution plan | 178,492 | 178,987 | 140,484 |
Average price of shares purchased (in dollars per share) | $ 49.98 | $ 44.43 | $ 35.03 |
Aggregate price of shares purchased | $ 8.9 | $ 7.9 | $ 4.9 |
Shares held by the ESOP | 3,580,786 | ||
Employee 401(k) Plans | |||
Employee Stock Ownership, 401(K) And Deferred Compensation Plan | |||
Employer contribution as a percent of eligible compensation | 3.00% | ||
Vesting percentage in basic and voluntary contributions | 100.00% | ||
Deferred compensation plan | |||
Employee Stock Ownership, 401(K) And Deferred Compensation Plan | |||
Shares purchased under defined contribution plan | 9,348 | 9,920 | 13,922 |
Average price of shares purchased (in dollars per share) | $ 53.15 | $ 44.40 | $ 38.33 |
Aggregate price of shares purchased | $ 0.5 | $ 0.4 | $ 0.5 |
Assets held under trust | $ 38.5 |
EMPLOYEE BENEFITS - Stock Optio
EMPLOYEE BENEFITS - Stock Options and Stock Plans (Details) - USD ($) | Dec. 22, 2015 | Nov. 12, 2015 | Dec. 22, 2014 | Nov. 13, 2014 | Dec. 20, 2013 | Nov. 14, 2013 | May. 31, 2015 | May. 31, 2014 | May. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | May. 06, 2015 | Dec. 31, 2015 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | May. 06, 2015 | May. 05, 2010 | May. 07, 2015 |
Stock options and stock plans | |||||||||||||||||||
Dividend paid (in dollars per share) | $ 2.75 | $ 3.71 | $ 2.17 | ||||||||||||||||
Nonqualified options as percentage of options outstanding | 99.00% | 99.00% | |||||||||||||||||
Weighted Number of Options Outstanding | |||||||||||||||||||
Outstanding options at the beginning of the period (in shares) | 2,595,084 | 2,945,204 | 2,892,717 | 2,892,717 | 2,595,084 | 2,945,204 | |||||||||||||
Options granted (in shares) | 412,000 | 369,500 | 472,700 | 563,500 | 512,000 | 632,700 | |||||||||||||
Special dividend (in shares) | 415 | 272 | |||||||||||||||||
Options exercised (in shares) | (865,957) | (214,042) | (935,692) | ||||||||||||||||
Options canceled/forfeited (in shares) | (8,040) | (740) | (47,400) | ||||||||||||||||
Outstanding options at the end of the period (in shares) | 2,582,220 | 2,582,220 | 2,892,717 | 2,595,084 | |||||||||||||||
Exercisable options at the end of the period (in shares) | 899,680 | 899,680 | 1,238,257 | 934,544 | |||||||||||||||
Weighted Average Exercise Price | |||||||||||||||||||
Outstanding options at the beginning of the period (in dollars per share) | $ 26.04 | $ 22.22 | $ 26.65 | $ 26.65 | $ 26.04 | $ 22.22 | |||||||||||||
Options granted (in dollars per share) | 49.01 | 40.46 | 35.67 | ||||||||||||||||
Special dividend (in dollars per share) | 16.72 | 16.38 | |||||||||||||||||
Options exercised (in dollars per share) | 19.23 | 18.93 | 17.40 | ||||||||||||||||
Options canceled/forfeited (in dollars per share) | 32.12 | 13.51 | 24.86 | ||||||||||||||||
Outstanding options at the end of the period (in dollars per share) | $ 32.42 | 32.42 | 26.65 | 26.04 | |||||||||||||||
Exercisable options at the end of the period (in dollars per share) | $ 23.60 | $ 23.60 | $ 20.02 | $ 20.36 | |||||||||||||||
Weighted Average Remaining Contractual Life | |||||||||||||||||||
Weighted-average remaining contractual term of options outstanding | 5 years 3 months 26 days | 5 years 2 months 5 days | 5 years 6 months 22 days | ||||||||||||||||
Weighted-average remaining contractual term of exercisable options | 3 years 11 months 23 days | 3 years 11 months 9 days | 4 years 3 months 11 days | ||||||||||||||||
Aggregate Intrinsic Value | |||||||||||||||||||
Options exercised (in dollars) | $ 32,135,000 | $ 6,164,000 | $ 22,422,000 | ||||||||||||||||
Outstanding options at the end of the period (in dollars) | $ 75,725,000 | 75,725,000 | 65,809,000 | 58,790,000 | |||||||||||||||
Exercisable options at the end of the period (in dollars) | 34,327,000 | $ 34,327,000 | $ 36,385,000 | $ 26,474,000 | |||||||||||||||
Weighted-average fair value of options granted (in dollars per share) | $ 8.94 | $ 7.71 | $ 6.47 | $ 9.25 | $ 7.89 | $ 6.88 | |||||||||||||
Stock-based compensation expenses (in dollars) | $ 4,100,000 | $ 3,900,000 | $ 3,800,000 | ||||||||||||||||
Income tax benefit from stock-based compensation (in dollars) | 1,400,000 | 1,400,000 | 1,300,000 | ||||||||||||||||
Unrecognized stock-based compensation expense (in dollars) | $ 5,700,000 | $ 5,700,000 | $ 4,800,000 | $ 4,500,000 | |||||||||||||||
Weighted average grant date assumptions and weighted average fair value | |||||||||||||||||||
Weighted-average fair value of grants (in dollars per share) | $ 8.94 | $ 7.71 | $ 6.47 | $ 9.25 | $ 7.89 | $ 6.88 | |||||||||||||
Risk-free interest rates (as a percent) | 1.54% | 1.70% | 0.87% | ||||||||||||||||
Dividend yield (as a percent) | 1.81% | 1.94% | 2.00% | ||||||||||||||||
Expected volatility (as a percent) | 22.91% | 23.17% | 25.40% | ||||||||||||||||
Expected option life | 5 years 2 months 16 days | 5 years 2 months 9 days | 5 years 3 months 4 days | ||||||||||||||||
Period for which annualized dividends is considered to calculate dividend yield | 5 years | ||||||||||||||||||
Special Cash Dividends Member | |||||||||||||||||||
Stock options and stock plans | |||||||||||||||||||
Dividend declared (in dollars per share) | $ 2 | $ 3 | $ 1.50 | ||||||||||||||||
Dividend paid (in dollars per share) | $ 2 | $ 3 | $ 1.50 | ||||||||||||||||
RLI Corp. Long-Term Incentive Plan (LTIP) and Omnibus Stock Plan | |||||||||||||||||||
Stock options and stock plans | |||||||||||||||||||
Award vesting period | 5 years | ||||||||||||||||||
Age and period of service of the participant to be eligible for retirement | 75 years | ||||||||||||||||||
Omnibus Stock Plan | |||||||||||||||||||
Stock options and stock plans | |||||||||||||||||||
Shares authorized for grant | 3,000,000 | ||||||||||||||||||
Stock options granted to date (in shares) | 2,458,059 | ||||||||||||||||||
RLI Corp. Long-Term Incentive Plan (2010 LTIP) | |||||||||||||||||||
Stock options and stock plans | |||||||||||||||||||
Shares authorized for grant | 4,000,000 | ||||||||||||||||||
Stock options granted to date (in shares) | 2,878,000 | ||||||||||||||||||
Weighted Number of Options Outstanding | |||||||||||||||||||
Options granted (in shares) | 53,500 | ||||||||||||||||||
RLI Corp. Long-Term Incentive Plan (2015 LITP) | |||||||||||||||||||
Stock options and stock plans | |||||||||||||||||||
Shares authorized for grant | 4,000,000 | 4,000,000 | |||||||||||||||||
Weighted Number of Options Outstanding | |||||||||||||||||||
Options granted (in shares) | 510,000 | ||||||||||||||||||
Outside Directors' Stock Option Plan (the director's plan) | |||||||||||||||||||
Aggregate Intrinsic Value | |||||||||||||||||||
Stock-based compensation expenses (in dollars) | $ 100,000 | $ 100,000 | |||||||||||||||||
Weighted average grant date assumptions and weighted average fair value | |||||||||||||||||||
Restricted shares issued per recipient (in dollars) | $ 10,000 | $ 10,000 | |||||||||||||||||
Restricted shares issued | 2,097 | 2,320 | |||||||||||||||||
Restriction period | 1 year |
STATUTORY INFORMATION AND DIV67
STATUTORY INFORMATION AND DIVIDEND RESTRICTIONS (Details) $ in Thousands | 12 Months Ended | |||
Dec. 31, 2015USD ($)company | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) | Dec. 31, 2012USD ($) | |
Statutory information and dividend restrictions | ||||
Number of insurance companies | company | 3 | |||
Equity | $ 823,469 | $ 845,062 | $ 828,966 | $ 796,363 |
Remaining unrestricted equity, liquid assets | 45,200 | |||
RLI Ins. | ||||
Statutory information and dividend restrictions | ||||
Authorized control level RBC | 123,600 | 118,400 | 90,600 | |
Selected information for insurance subsidiaries | ||||
Consolidated surplus, statutory basis | $ 865,300 | 849,300 | 859,200 | |
Dividend restriction as percentage of policyholder surplus | 10.00% | |||
Payments of Ordinary Dividends | $ 125,000 | 185,000 | 40,000 | |
Extraordinary dividend paid after seeking and receiving approval from the Illinois regulatory authorities | 0 | 0 | 0 | |
Non restricted net assets | 58,200 | |||
Mt. Hawley Insurance Company | ||||
Statutory information and dividend restrictions | ||||
Cost basis of RLI stock held by the subsidiary | 64,600 | |||
Insurance subsidiaries | ||||
Selected information for insurance subsidiaries | ||||
Consolidated net income, statutory basis | 178,502 | 176,664 | 122,550 | |
Consolidated surplus, statutory basis | 865,268 | 849,297 | 859,221 | |
Common Stock | Mt. Hawley Insurance Company | ||||
Selected information for insurance subsidiaries | ||||
Consolidated surplus, statutory basis | $ 117,500 | $ 86,100 | $ 64,000 |
COMMITMENTS AND CONTINGENT LI68
COMMITMENTS AND CONTINGENT LIABILITIES (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
COMMITMENTS AND CONTINGENT LIABILITIES | |||
Expense associated with operating leases | $ 6,100 | $ 5,800 | $ 5,700 |
Minimum future rental payments under noncancellable leases | |||
2,016 | 4,487 | ||
2,017 | 3,940 | ||
2,018 | 3,132 | ||
2,019 | 2,472 | ||
2,020 | 2,370 | ||
2021-2034 | 5,267 | ||
Total minimum future rental payments | $ 21,668 |
OPERATING SEGMENT INFORMATION -
OPERATING SEGMENT INFORMATION - Summary of Segments (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Mar. 04, 2015 | Feb. 05, 2014 | |
REVENUES | |||||||||||||
Net premiums earned | $ 179,371 | $ 179,448 | $ 172,339 | $ 169,003 | $ 179,892 | $ 177,747 | $ 168,604 | $ 161,132 | $ 700,161 | $ 687,375 | $ 630,802 | ||
Net investment income | 13,754 | 13,964 | 13,431 | 13,495 | 13,844 | 14,200 | 13,982 | 13,582 | 54,644 | 55,608 | 52,763 | ||
Net realized gains | 14,207 | 7,534 | 4,802 | 13,286 | 9,542 | 5,708 | 10,431 | 6,501 | 39,829 | 32,182 | 22,036 | ||
Consolidated revenue | 794,634 | 775,165 | 705,601 | ||||||||||
INSURANCE EXPENSES | |||||||||||||
Loss and settlement expenses | 299,045 | 296,609 | 259,801 | ||||||||||
Policy acquisition costs | 241,078 | 229,283 | 210,651 | ||||||||||
Other insurance expenses | 51,480 | 54,464 | 53,557 | ||||||||||
Insurance expenses | 591,603 | 580,356 | 524,009 | ||||||||||
NET EARNINGS (LOSSES) | |||||||||||||
Net underwriting income | 108,558 | 107,019 | 106,793 | ||||||||||
Net investment income | 13,754 | 13,964 | 13,431 | 13,495 | 13,844 | 14,200 | 13,982 | 13,582 | 54,644 | 55,608 | 52,763 | ||
Net realized gains | 14,207 | 7,534 | 4,802 | 13,286 | 9,542 | 5,708 | 10,431 | 6,501 | 39,829 | 32,182 | 22,036 | ||
General corporate expense and interest on debt | (17,263) | (17,660) | (16,841) | ||||||||||
Equity in earnings of unconsolidated investees | 10,914 | 12,338 | 10,915 | ||||||||||
Earnings before income taxes | 45,582 | 51,937 | 54,650 | 44,513 | 46,479 | 48,594 | 52,423 | 41,991 | 196,682 | 189,487 | 175,666 | ||
Income tax expense | 59,138 | 54,042 | 49,411 | ||||||||||
Net earnings | $ 33,853 | $ 35,908 | $ 37,185 | $ 30,598 | $ 37,497 | $ 33,254 | $ 35,725 | $ 28,969 | 137,544 | 135,445 | 126,255 | ||
Facultative Reinsurance | |||||||||||||
Segment reporting information | |||||||||||||
Premiums Written, Gross | $ 3,500 | 5,900 | 9,100 | ||||||||||
Maui Jim Inc. | |||||||||||||
Segment reporting information | |||||||||||||
Ownership percentage | 40.00% | 40.00% | |||||||||||
NET EARNINGS (LOSSES) | |||||||||||||
Equity in earnings of unconsolidated investees | $ 9,900 | 12,000 | 10,900 | ||||||||||
Prime Holdings Insurance Services, Inc. (Prime) | |||||||||||||
Segment reporting information | |||||||||||||
Ownership percentage | 27.00% | 27.00% | 27.00% | 20.00% | |||||||||
NET EARNINGS (LOSSES) | |||||||||||||
Equity in earnings of unconsolidated investees | $ 1,000 | 300 | |||||||||||
Casualty segment | |||||||||||||
REVENUES | |||||||||||||
Net premiums earned | 412,248 | 382,105 | 324,022 | ||||||||||
INSURANCE EXPENSES | |||||||||||||
Loss and settlement expenses | 218,414 | 199,133 | 148,860 | ||||||||||
Policy acquisition costs | 119,529 | 108,747 | 93,463 | ||||||||||
Other insurance expenses | 28,042 | 28,284 | 26,107 | ||||||||||
NET EARNINGS (LOSSES) | |||||||||||||
Net underwriting income | 46,263 | 45,941 | 55,592 | ||||||||||
Property segment | |||||||||||||
REVENUES | |||||||||||||
Net premiums earned | 170,924 | 197,776 | 200,141 | ||||||||||
INSURANCE EXPENSES | |||||||||||||
Loss and settlement expenses | 69,851 | 89,589 | 96,271 | ||||||||||
Policy acquisition costs | 57,214 | 58,646 | 58,650 | ||||||||||
Other insurance expenses | 14,834 | 16,623 | 17,616 | ||||||||||
NET EARNINGS (LOSSES) | |||||||||||||
Net underwriting income | 29,025 | 32,918 | 27,604 | ||||||||||
Surety segment | |||||||||||||
REVENUES | |||||||||||||
Net premiums earned | 116,989 | 107,494 | 106,639 | ||||||||||
INSURANCE EXPENSES | |||||||||||||
Loss and settlement expenses | 10,780 | 7,887 | 14,670 | ||||||||||
Policy acquisition costs | 64,335 | 61,890 | 58,538 | ||||||||||
Other insurance expenses | 8,604 | 9,557 | 9,834 | ||||||||||
NET EARNINGS (LOSSES) | |||||||||||||
Net underwriting income | $ 33,270 | $ 28,160 | $ 23,597 |
OPERATING SEGMENT INFORMATION70
OPERATING SEGMENT INFORMATION - Revenue by Product (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Revenue by major product | |||||||||||
Net premiums earned | $ 179,371 | $ 179,448 | $ 172,339 | $ 169,003 | $ 179,892 | $ 177,747 | $ 168,604 | $ 161,132 | $ 700,161 | $ 687,375 | $ 630,802 |
Casualty segment | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 412,248 | 382,105 | 324,022 | ||||||||
Casualty segment | Commercial and personal umbrella | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 104,598 | 100,420 | 85,532 | ||||||||
Casualty segment | General liability | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 81,213 | 80,820 | 81,427 | ||||||||
Casualty segment | Professional services | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 71,034 | 58,327 | 42,063 | ||||||||
Casualty segment | Commercial transportation | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 65,564 | 58,911 | 50,287 | ||||||||
Casualty segment | P&C package business | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 40,410 | 35,371 | 30,603 | ||||||||
Casualty segment | Executive products | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 17,892 | 18,915 | 19,123 | ||||||||
Casualty segment | Medical professional liability | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 12,292 | 15,943 | 8,626 | ||||||||
Casualty segment | Other casualty | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 19,245 | 13,398 | 6,361 | ||||||||
Property segment | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 170,924 | 197,776 | 200,141 | ||||||||
Property segment | Commercial property | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 75,749 | 80,719 | 76,939 | ||||||||
Property segment | Marine | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 47,016 | 49,235 | 57,122 | ||||||||
Property segment | Specialty Personal | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 26,395 | 26,627 | 16,308 | ||||||||
Property segment | Property reinsurance | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 12,330 | 12,756 | 15,770 | ||||||||
Property segment | Crop reinsurance | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 9,358 | 28,293 | 31,421 | ||||||||
Property segment | Other property | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 76 | 146 | 2,581 | ||||||||
Surety segment | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 116,989 | 107,494 | 106,639 | ||||||||
Surety segment | Miscellaneous | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 42,372 | 39,026 | 38,131 | ||||||||
Surety segment | Commercial | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 29,529 | 25,778 | 23,133 | ||||||||
Surety segment | Contract | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | 28,269 | 26,592 | 27,176 | ||||||||
Surety segment | Energy Surety | |||||||||||
Revenue by major product | |||||||||||
Net premiums earned | $ 16,819 | $ 16,098 | $ 18,199 |
UNAUDITED INTERIM FINANCIAL I71
UNAUDITED INTERIM FINANCIAL INFORMATION (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
UNAUDITED INTERIM FINANCIAL INFORMATION | |||||||||||
Net premiums earned | $ 179,371 | $ 179,448 | $ 172,339 | $ 169,003 | $ 179,892 | $ 177,747 | $ 168,604 | $ 161,132 | $ 700,161 | $ 687,375 | $ 630,802 |
Net investment income | 13,754 | 13,964 | 13,431 | 13,495 | 13,844 | 14,200 | 13,982 | 13,582 | 54,644 | 55,608 | 52,763 |
Net realized gains (losses) | 14,207 | 7,534 | 4,802 | 13,286 | 9,542 | 5,708 | 10,431 | 6,501 | 39,829 | 32,182 | 22,036 |
Earnings before income taxes | 45,582 | 51,937 | 54,650 | 44,513 | 46,479 | 48,594 | 52,423 | 41,991 | 196,682 | 189,487 | 175,666 |
Net earnings | $ 33,853 | $ 35,908 | $ 37,185 | $ 30,598 | $ 37,497 | $ 33,254 | $ 35,725 | $ 28,969 | $ 137,544 | $ 135,445 | $ 126,255 |
Basic earnings per share (in dollars per share) | $ 0.78 | $ 0.83 | $ 0.86 | $ 0.71 | $ 0.87 | $ 0.77 | $ 0.83 | $ 0.67 | $ 3.18 | $ 3.15 | $ 2.95 |
Diluted earnings per share (in dollars per share) | $ 0.76 | $ 0.81 | $ 0.84 | $ 0.70 | $ 0.85 | $ 0.76 | $ 0.82 | $ 0.66 | $ 3.12 | $ 3.09 | $ 2.90 |
ACQUISITIONS AND DISPOSITIONS (
ACQUISITIONS AND DISPOSITIONS (Details) - USD ($) $ in Thousands | Mar. 04, 2015 | Feb. 05, 2014 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 |
Business acquisition | ||||||
Amount of investment | $ 1,711 | $ 5,301 | ||||
Equity in earnings of unconsolidated investees | 10,914 | 12,338 | $ 10,915 | |||
Reinsurance assumed | 34,456 | 76,581 | $ 73,053 | |||
Equity Method Investments | $ 60,046 | 70,784 | 60,046 | |||
Proceeds from Divestiture of Interest in Consolidated Subsidiaries | 7,500 | |||||
Prime Holdings Insurance Services, Inc. (Prime) | ||||||
Business acquisition | ||||||
Amount of investment | $ 1,700 | $ 5,300 | ||||
Equity ownership interest (as a percent) | 27.00% | 20.00% | ||||
Equity in earnings of unconsolidated investees | 300 | 1,000 | ||||
Equity Method Investments | $ 5,700 | $ 8,100 | $ 5,700 | |||
RIC | ||||||
Business acquisition | ||||||
Percentage of quota share reinsurance treaty, effective January 1, 2014 | 100.00% | |||||
Proceeds from Divestiture of Interest in Consolidated Subsidiaries | $ 7,500 |
SCHEDULE I-SUMMARY OF INVESTM73
SCHEDULE I-SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES (Details) $ in Thousands | Dec. 31, 2015USD ($) |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | $ 1,758,602 |
Fair Value | 1,951,543 |
Amount at which shown in the balance sheet | 1,951,543 |
Debt securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 1,518,156 |
Fair Value | 1,538,110 |
Amount at which shown in the balance sheet | 1,538,110 |
Debt securities | Available for sale securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 1,518,156 |
Fair Value | 1,538,110 |
Amount at which shown in the balance sheet | 1,538,110 |
U.S. government | Available for sale securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 43,597 |
Fair Value | 43,543 |
Amount at which shown in the balance sheet | 43,543 |
U.S. Agency | Available for sale securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 15,481 |
Fair Value | 15,740 |
Amount at which shown in the balance sheet | 15,740 |
Non-U.S. govt. & agency | Available for sale securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 5,035 |
Fair Value | 4,478 |
Amount at which shown in the balance sheet | 4,478 |
Agency MBS | Available for sale securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 250,060 |
Fair Value | 254,892 |
Amount at which shown in the balance sheet | 254,892 |
ABS/CMBS | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 91,559 |
Fair Value | 91,948 |
Amount at which shown in the balance sheet | 91,948 |
Corporate | Available for sale securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 523,351 |
Fair Value | 517,109 |
Amount at which shown in the balance sheet | 517,109 |
Municipal | Available for sale securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 589,073 |
Fair Value | 610,400 |
Amount at which shown in the balance sheet | 610,400 |
Equity securities | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 202,437 |
Fair Value | 375,424 |
Amount at which shown in the balance sheet | 375,424 |
Ind Misc & all other | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 131,231 |
Fair Value | 265,221 |
Amount at which shown in the balance sheet | 265,221 |
ETFs (Ind/misc) | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 71,206 |
Fair Value | 110,203 |
Amount at which shown in the balance sheet | 110,203 |
Cash and Short-term Investments | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 17,343 |
Fair Value | 17,343 |
Amount at which shown in the balance sheet | 17,343 |
Other Invested Assets | |
SCHEDULE I - SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES | |
Cost | 20,666 |
Fair Value | 20,666 |
Amount at which shown in the balance sheet | $ 20,666 |
SCHEDULE II-CONDENSED FINANCI74
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - Balance Sheets (Details) - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
ASSETS | ||||
Cash | $ 11,081 | $ 30,620 | $ 39,469 | $ 44,314 |
Short-term investments, at cost which approximates fair value | 6,262 | 16,339 | ||
Investments in unconsolidated investee, at equity value | 70,784 | 60,046 | ||
Fixed income: | ||||
Available-for-sale, at fair value (amortized cost - $45,178 in 2015 and $46,226 in 2014) | 1,538,110 | 1,495,087 | ||
Property and equipment, at cost, net of accumulated depreciation of $765 in 2015 and $528 in 2014 | 47,102 | 42,549 | ||
TOTAL ASSETS | 2,736,579 | 2,775,542 | ||
Liabilities: | ||||
Bonds payable, long-term debt | 149,668 | 149,625 | ||
TOTAL LIABILITIES | 1,913,110 | 1,930,480 | ||
Shareholders' Equity | ||||
Common stock ($1 par value, authorized 100,000,000 shares, issued 66,474,342 shares in 2015 and 66,032,929 shares in 2014, and outstanding 43,544,128 shares in 2015 and 43,102,715 shares in 2014) | 66,474 | 66,033 | ||
Paid-in capital | 221,345 | 213,737 | ||
Accumulated other comprehensive earnings | 123,774 | 171,383 | ||
Retained earnings | 804,875 | 786,908 | ||
Deferred compensation | 10,647 | 13,769 | ||
Treasury shares at cost (22,930,214 shares in 2015 and 2014) | (403,646) | (406,768) | ||
TOTAL SHAREHOLDERS’ EQUITY | 823,469 | 845,062 | 828,966 | 796,363 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 2,736,579 | 2,775,542 | ||
PARENT COMPANY | ||||
ASSETS | ||||
Cash | 178 | 374 | $ 181 | $ 14,023 |
Short-term investments, at cost which approximates fair value | 86 | 177 | ||
Accounts receivable, affiliates | 3,803 | |||
Investments in subsidiaries, at equity value | 881,950 | 903,738 | ||
Investments in unconsolidated investee, at equity value | 62,650 | 54,316 | ||
Fixed income: | ||||
Available-for-sale, at fair value (amortized cost - $45,178 in 2015 and $46,226 in 2014) | 44,889 | 46,136 | ||
Property and equipment, at cost, net of accumulated depreciation of $765 in 2015 and $528 in 2014 | 2,971 | 3,208 | ||
Income taxes receivable - current | 1,195 | 463 | ||
Deferred debt costs | 1,114 | 1,258 | ||
Other assets | 608 | 681 | ||
TOTAL ASSETS | 995,641 | 1,014,154 | ||
Liabilities: | ||||
Accounts payable, affiliates | 408 | |||
Income taxes payable--deferred | 19,254 | 16,372 | ||
Bonds payable, long-term debt | 149,668 | 149,625 | ||
Interest payable, long-term debt | 2,153 | 2,153 | ||
Other liabilities | 689 | 942 | ||
TOTAL LIABILITIES | 172,172 | 169,092 | ||
Shareholders' Equity | ||||
Common stock ($1 par value, authorized 100,000,000 shares, issued 66,474,342 shares in 2015 and 66,032,929 shares in 2014, and outstanding 43,544,128 shares in 2015 and 43,102,715 shares in 2014) | 66,474 | 66,033 | ||
Paid-in capital | 221,345 | 213,737 | ||
Accumulated other comprehensive earnings | 123,774 | 171,383 | ||
Retained earnings | 804,875 | 786,908 | ||
Deferred compensation | 10,647 | 13,769 | ||
Treasury shares at cost (22,930,214 shares in 2015 and 2014) | (403,646) | (406,768) | ||
TOTAL SHAREHOLDERS’ EQUITY | 823,469 | 845,062 | ||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ 995,641 | $ 1,014,154 |
SCHEDULE II-CONDENSED FINANCI75
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - Balance Sheets (Parenthietical) (Details) - USD ($) $ / shares in Units, $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
CONDENSED BALANCE SHEETS (Parenthetical) | ||
Available-for-sale, amortized cost | $ 1,518,156 | $ 1,448,204 |
Property and equipment, accumulated depreciation | $ 38,447 | $ 34,365 |
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) | 66,474,342 | 66,032,929 |
Common stock, shares outstanding (in shares) | 43,544,128 | 43,102,715 |
Treasury stock, shares (in shares) | 22,930,214 | 22,930,214 |
PARENT COMPANY | ||
CONDENSED BALANCE SHEETS (Parenthetical) | ||
Available-for-sale, amortized cost | $ 45,178 | $ 46,226 |
Property and equipment, accumulated depreciation | $ 765 | $ 528 |
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) | 66,474,342 | 66,032,929 |
Common stock, shares outstanding (in shares) | 43,544,128 | 43,102,715 |
Treasury stock, shares (in shares) | 22,930,214 | 22,930,214 |
SCHEDULE II-CONDENSED FINANCI76
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - Statements of Earnings and Comprehensive Earnings (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS | |||||||||||
Net investment income | $ 13,754 | $ 13,964 | $ 13,431 | $ 13,495 | $ 13,844 | $ 14,200 | $ 13,982 | $ 13,582 | $ 54,644 | $ 55,608 | $ 52,763 |
Net realized gains (losses) | 14,207 | 7,534 | 4,802 | 13,286 | 9,542 | 5,708 | 10,431 | 6,501 | 39,829 | 32,182 | 22,036 |
Equity in earnings of unconsolidated investees | 10,914 | 12,338 | 10,915 | ||||||||
Interest expense on debt | (7,426) | (7,438) | (8,095) | ||||||||
Loss before income taxes | 45,582 | 51,937 | 54,650 | 44,513 | 46,479 | 48,594 | 52,423 | 41,991 | 196,682 | 189,487 | 175,666 |
Income tax benefit | 59,138 | 54,042 | 49,411 | ||||||||
Net earnings | $ 33,853 | $ 35,908 | $ 37,185 | $ 30,598 | $ 37,497 | $ 33,254 | $ 35,725 | $ 28,969 | 137,544 | 135,445 | 126,255 |
Unrealized gains (losses) on securities: | |||||||||||
Other comprehensive earnings (loss), net of tax | (47,609) | 35,356 | (7,143) | ||||||||
Comprehensive earnings | 89,935 | 170,801 | 119,112 | ||||||||
PARENT COMPANY | |||||||||||
CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS | |||||||||||
Net investment income | 810 | 663 | 652 | ||||||||
Net realized gains (losses) | 139 | 271 | (850) | ||||||||
Equity in earnings of unconsolidated investees | 9,893 | 12,009 | 10,915 | ||||||||
Selling, general and administrative expenses | (9,837) | (10,222) | (8,746) | ||||||||
Interest expense on debt | (7,426) | (7,438) | (8,095) | ||||||||
Loss before income taxes | (6,421) | (4,717) | (6,124) | ||||||||
Income tax benefit | (5,499) | (7,959) | (11,946) | ||||||||
Net earnings (loss) before equity in net earnings of subsidiaries | (922) | 3,242 | 5,822 | ||||||||
Equity in net earnings of subsidiaries | 138,466 | 132,203 | 120,433 | ||||||||
Net earnings | 137,544 | 135,445 | 126,255 | ||||||||
Unrealized gains (losses) on securities: | |||||||||||
Unrealized holding gains (losses) arising during the period | (40) | 372 | (665) | ||||||||
Less: reclassification adjustment for losses (gains) included in net earnings | (90) | (176) | |||||||||
Other Comprehensive Income (Loss), Net of Tax, Total | (130) | 196 | (665) | ||||||||
Equity in other comprehensive earnings (loss) of subsidiaries/investees | (47,479) | 35,160 | (6,478) | ||||||||
Other comprehensive earnings (loss), net of tax | (47,609) | 35,356 | (7,143) | ||||||||
Comprehensive earnings | $ 89,935 | $ 170,801 | $ 119,112 |
SCHEDULE II-CONDENSED FINANCI77
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - Statements of Cash Flows (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Adjustments to reconcile net losses to net cash provided by (used in) operating activities: | |||||||||||
Net realized (gains) losses | $ (14,207) | $ (7,534) | $ (4,802) | $ (13,286) | $ (9,542) | $ (5,708) | $ (10,431) | $ (6,501) | $ (39,829) | $ (32,182) | $ (22,036) |
Depreciation | 5,406 | 4,557 | 3,765 | ||||||||
Other items, net | 15,006 | 10,818 | 13,104 | ||||||||
Change in: | |||||||||||
Stock option excess tax benefit | (11,413) | (1,766) | (6,310) | ||||||||
Changes in investment in unconsolidated investees: | |||||||||||
Undistributed earnings | (10,914) | (12,338) | (10,915) | ||||||||
Dividends received | 6,600 | 13,200 | |||||||||
Net cash provided by operating activities | 152,586 | 123,085 | 134,966 | ||||||||
Purchase of: | |||||||||||
Fixed income, available-for-sale | (665,422) | (470,210) | (545,899) | ||||||||
Property and equipment | (10,035) | (7,121) | (17,531) | ||||||||
Sale of: | |||||||||||
Fixed income, available-for-sale | 436,680 | 342,308 | 173,694 | ||||||||
Short-term investments, net | 6,637 | 11,401 | 7,230 | ||||||||
Property and equipment | 76 | 276 | 1,492 | ||||||||
Call or maturity of: | |||||||||||
Fixed income, available-for-sale | 156,980 | 101,517 | 224,620 | ||||||||
Net cash provided by (used in) investing activities | (60,597) | 22,771 | (101,932) | ||||||||
Cash flows from financing activities | |||||||||||
Excess tax benefit from exercise of stock options | 11,413 | 1,766 | 6,310 | ||||||||
Stock plan share issuance | (3,364) | 3,386 | 318 | ||||||||
Proceeds from issuance of senior notes | 149,571 | ||||||||||
Payment on senior notes | (99,504) | ||||||||||
Debt issue costs paid | (1,437) | ||||||||||
Net cash used in financing activities | (111,528) | (154,705) | (37,879) | ||||||||
Net (decrease) increase in cash | (19,539) | (8,849) | (4,845) | ||||||||
Cash at the beginning of year | 30,620 | 39,469 | 30,620 | 39,469 | 44,314 | ||||||
Cash at end of year | 11,081 | 30,620 | 11,081 | 30,620 | 39,469 | ||||||
PARENT COMPANY | |||||||||||
Cash flows from operating activities | |||||||||||
Earnings (loss) before equity in net earnings of subsidiaries | (922) | 3,242 | 5,822 | ||||||||
Adjustments to reconcile net losses to net cash provided by (used in) operating activities: | |||||||||||
Net realized (gains) losses | (139) | (271) | 850 | ||||||||
Depreciation | 237 | 238 | 90 | ||||||||
Other items, net | 530 | 737 | (1,789) | ||||||||
Change in: | |||||||||||
Affiliate balances receivable/payable | 4,211 | (1,453) | 1,349 | ||||||||
Federal income taxes | 14,227 | 3,982 | 5,288 | ||||||||
Stock option excess tax benefit | (11,413) | (1,766) | (6,310) | ||||||||
Changes in investment in unconsolidated investees: | |||||||||||
Undistributed earnings | (9,893) | (12,009) | (10,915) | ||||||||
Dividends received | 6,600 | 13,200 | |||||||||
Net cash provided by operating activities | (3,162) | (700) | 7,585 | ||||||||
Purchase of: | |||||||||||
Fixed income, available-for-sale | (16,031) | (30,850) | (99,982) | ||||||||
Short-term investments, net | (12,963) | ||||||||||
Property and equipment | (2,827) | ||||||||||
Sale of: | |||||||||||
Fixed income, available-for-sale | 7,048 | ||||||||||
Short-term investments, net | 91 | 13,217 | |||||||||
Call or maturity of: | |||||||||||
Fixed income, available-for-sale | 9,507 | 3,235 | 101,000 | ||||||||
Cash dividends received-subsidiaries | 125,000 | 185,000 | 40,000 | ||||||||
Net cash provided by (used in) investing activities | 125,615 | 170,602 | 25,228 | ||||||||
Cash flows from financing activities | |||||||||||
Excess tax benefit from exercise of stock options | 11,413 | 1,766 | 6,310 | ||||||||
Stock plan share issuance | (3,364) | 3,386 | 318 | ||||||||
Proceeds from issuance of senior notes | 149,571 | ||||||||||
Payment on senior notes | (99,504) | ||||||||||
Debt issue costs paid | (1,437) | ||||||||||
Cash dividends paid | (130,698) | (174,861) | (101,913) | ||||||||
Net cash used in financing activities | (122,649) | (169,709) | (46,655) | ||||||||
Net (decrease) increase in cash | (196) | 193 | (13,842) | ||||||||
Cash at the beginning of year | $ 374 | $ 181 | 374 | 181 | 14,023 | ||||||
Cash at end of year | $ 178 | $ 374 | 178 | 374 | 181 | ||||||
Interest paid on outstanding debt | $ 7,300 | $ 7,000 | $ 8,400 |
SCHEDULE III-SUPPLEMENTARY IN78
SCHEDULE III-SUPPLEMENTARY INSURANCE INFORMATION (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Supplementary insurance information | |||
Deferred policy acquisition costs | $ 69,829 | $ 65,123 | $ 61,508 |
Unpaid losses and settlement expenses, gross | 1,103,785 | 1,121,040 | 1,129,433 |
Unearned premiums, gross | 422,094 | 401,412 | 392,081 |
Net premiums earned | 700,161 | 687,375 | 630,802 |
Incurred losses and settlement expenses | |||
Current accident year | 364,472 | 361,451 | 332,282 |
Prior accident years | (65,427) | (64,842) | (72,481) |
Policy acquisition costs | 241,078 | 229,283 | 210,651 |
Other operating expenses | 51,480 | 54,464 | 53,557 |
Net premiums written | 721,971 | 703,152 | 666,322 |
Casualty segment | |||
Supplementary insurance information | |||
Deferred policy acquisition costs | 35,464 | 31,334 | 28,553 |
Unpaid losses and settlement expenses, gross | 993,717 | 964,699 | 947,677 |
Unearned premiums, gross | 260,227 | 237,117 | 228,907 |
Net premiums earned | 412,248 | 382,105 | 324,022 |
Incurred losses and settlement expenses | |||
Current accident year | 264,068 | 251,958 | 210,665 |
Prior accident years | (45,654) | (52,825) | (61,805) |
Policy acquisition costs | 119,529 | 108,747 | 93,463 |
Other operating expenses | 28,042 | 28,284 | 26,107 |
Net premiums written | 435,409 | 395,853 | 362,459 |
Property segment | |||
Supplementary insurance information | |||
Deferred policy acquisition costs | 13,332 | 13,827 | 14,275 |
Unpaid losses and settlement expenses, gross | 77,584 | 120,858 | 146,122 |
Unearned premiums, gross | 88,808 | 94,092 | 97,116 |
Net premiums earned | 170,924 | 197,776 | 200,141 |
Incurred losses and settlement expenses | |||
Current accident year | 81,699 | 90,712 | 103,544 |
Prior accident years | (11,848) | (1,123) | (7,273) |
Policy acquisition costs | 57,214 | 58,646 | 58,650 |
Other operating expenses | 14,834 | 16,623 | 17,616 |
Net premiums written | 166,659 | 195,580 | 196,467 |
Surety segment | |||
Supplementary insurance information | |||
Deferred policy acquisition costs | 21,033 | 19,962 | 18,680 |
Unpaid losses and settlement expenses, gross | 32,484 | 35,483 | 35,634 |
Unearned premiums, gross | 73,059 | 70,203 | 66,058 |
Net premiums earned | 116,989 | 107,494 | 106,639 |
Incurred losses and settlement expenses | |||
Current accident year | 18,705 | 18,781 | 18,073 |
Prior accident years | (7,925) | (10,894) | (3,403) |
Policy acquisition costs | 64,335 | 61,890 | 58,538 |
Other operating expenses | 8,604 | 9,557 | 9,834 |
Net premiums written | $ 119,903 | $ 111,719 | $ 107,396 |
SCHEDULE IV-REINSURANCE (Detail
SCHEDULE IV-REINSURANCE (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
RLI Insurance Group Premiums earned | |||
Direct amount | $ 797,180 | $ 781,640 | $ 741,569 |
Ceded to other companies | 132,743 | 167,143 | 189,658 |
Assumed from other companies | 35,724 | 72,878 | 78,891 |
Net amount | $ 700,161 | $ 687,375 | $ 630,802 |
Percentage of amount assumed to net | 5.10% | 10.60% | 12.50% |
Casualty segment | |||
RLI Insurance Group Premiums earned | |||
Direct amount | $ 484,435 | $ 466,821 | $ 425,105 |
Ceded to other companies | 84,311 | 92,532 | 103,696 |
Assumed from other companies | 12,124 | 7,816 | 2,613 |
Net amount | $ 412,248 | $ 382,105 | $ 324,022 |
Percentage of amount assumed to net | 2.90% | 2.00% | 0.80% |
Property segment | |||
RLI Insurance Group Premiums earned | |||
Direct amount | $ 190,678 | $ 200,709 | $ 203,424 |
Ceded to other companies | 42,731 | 67,705 | 79,320 |
Assumed from other companies | 22,977 | 64,772 | 76,037 |
Net amount | $ 170,924 | $ 197,776 | $ 200,141 |
Percentage of amount assumed to net | 13.40% | 32.80% | 38.00% |
Surety segment | |||
RLI Insurance Group Premiums earned | |||
Direct amount | $ 122,067 | $ 114,110 | $ 113,040 |
Ceded to other companies | 5,701 | 6,906 | 6,642 |
Assumed from other companies | 623 | 290 | 241 |
Net amount | $ 116,989 | $ 107,494 | $ 106,639 |
Percentage of amount assumed to net | 0.50% | 0.30% | 0.20% |
SCHEDULE V-VALUATION AND QUAL80
SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS (Details) - Allowance for uncollectible reinsurance - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Allowance for uncollectible reinsurance | |||
Balance at beginning of period | $ 26,404 | $ 26,404 | $ 26,404 |
Amounts recovered (written off) | (493) | ||
Balance at end of period | $ 25,911 | $ 26,404 | $ 26,404 |
SCHEDULE VI-SUPPLEMENTARY INF81
SCHEDULE VI-SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Claims and claim adjustment expenses incurred related to: | |||
Current accident year | $ 364,472 | $ 361,451 | $ 332,282 |
Prior accident years | (65,427) | (64,842) | (72,481) |
Amortization of deferred acquisition costs | 241,078 | 229,283 | 210,651 |
Consolidated property-casualty insurance operations | |||
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS | |||
Deferred policy acquisition costs | 69,829 | 65,123 | 61,508 |
Claims and claim adjustment expense reserves | 1,103,785 | 1,121,040 | 1,129,433 |
Unearned premiums, gross | 422,094 | 401,412 | 392,081 |
Net premiums earned | 700,161 | 687,375 | 630,802 |
Net investment income | 54,644 | 55,608 | 52,763 |
Claims and claim adjustment expenses incurred related to: | |||
Current accident year | 364,472 | 361,451 | 332,282 |
Prior accident years | (65,427) | (64,842) | (72,481) |
Amortization of deferred acquisition costs | 241,078 | 229,283 | 210,651 |
Paid claims and claims adjustment expenses | 279,038 | 285,184 | 283,891 |
Net premiums written | $ 721,971 | $ 703,152 | $ 666,322 |