RLI : Reports Second Quarter 2021 Results

RLI Corp. (NYSE: RLI) – RLI Corp. reported second quarter 2021 net earnings of $81.8 million ($1.79 per share), compared to $92.2 million ($2.04 per share) for the second quarter of 2020. Operating earnings⁽¹⁾ for the second quarter of 2021 were $49.9 million ($1.09 per share), compared to $34.8 million ($0.77 per share) for the same period in 2020.

	Second Quarter								Year to Date
Earnings Per Diluted Share	2021				2020				2021				2020
Net earnings	$	1.79			$	2.04			$	3.39			$	0.68
Operating earnings (1)	$	1.09			$	0.77			$	1.96			$	1.43

(1) See discussion below: Non-GAAP and Performance Measures.

Highlights for the quarter included:

• Underwriting income⁽¹⁾ of $36.6 million on a combined ratio⁽¹⁾ of 84.8.
• 25% increase in gross premiums written.
• Favorable development in prior years’ loss reserves, resulting in a $27.5 million net increase in underwriting income.
• Book value per share of $27.46, an increase of 11% (inclusive of dividends) from year-end 2020.

“We are pleased to report excellent second quarter financial results,” said RLI Corp. Chairman and CEO Jonathan E. Michael. “All three product segments contributed to our strong performance in the quarter. We achieved an 85 combined ratio and 25% growth in gross written premiums. Favorable market conditions and the continued economic recovery enabled our disciplined underwriters to find more niche opportunities that match our risk appetite. Our capital base continues to grow, supported by our insurance operations and investment returns, and book value per share has increased 11% year to date.”

“During the quarter, we also announced an increase in ordinary dividends for the 46th consecutive year. We are proud of this track record and I want to thank our talented associates for their hard work and continued dedication to our customers. We recently welcomed many of our team members back to our offices and appreciate their perseverance over the past 18 months.”

Underwriting Income

RLI achieved $36.6 million of underwriting income in the second quarter of 2021 on an 84.8 combined ratio, compared to $24.2 million on an 88.4 combined ratio in 2020.

Results for both years include net favorable development in prior years’ loss reserves, which totaled $27.5 million and $21.6 million for 2021 and 2020, respectively.

The following table highlights underwriting income and combined ratios by segment.

Underwriting Income(1)										Combined Ratio(1)
(in millions)		2021				2020						2021				2020
Casualty		$	26.4			$	9.7			Casualty			83.1				92.8
Property			8.9				6.2			Property			84.1				86.4
Surety			1.3				8.3			Surety			95.6				70.6
Total		$	36.6			$	24.2			Total			84.8				88.4

(1) See discussion below: Non-GAAP and Performance Measures.

Other Income

Net investment income for the quarter decreased 1.5% to $16.7 million, compared to the same period in 2020. The investment portfolio’s total return was 2.8% for the quarter and 3.0% for the six months ended June 30, 2021.

RLI’s comprehensive earnings were $97.0 million for the quarter ($2.12 per share), compared to $145.7 million ($3.22 per share) for the same quarter in 2020. In addition to net earnings, comprehensive earnings (loss) included after-tax unrealized gains/(losses) from the fixed income portfolio.

Equity in earnings of Maui Jim, Inc., a producer of premium sunglasses, was $10.6 million for the quarter. Equity in earnings of Prime Holdings Insurance Services, Inc., a specialty insurance company, was $3.6 million. Comparatively, for the second quarter of 2020, equity in earnings of unconsolidated investees from Maui Jim and Prime was $2.6 million and $2.5 million, respectively.

Dividends Paid in the Second Quarter of 2021

On June 18, 2021, the company paid a regular quarterly dividend of $0.25 per share, a $0.01 increase over the prior quarter. RLI’s cumulative dividends total nearly $500 million paid over the last five years.

Non-GAAP and Performance Measures

Management has included certain non-generally accepted accounting principles (non-GAAP) financial measures in presenting the company’s results. Management believes that these non-GAAP measures further explain the company’s results of operations and allow for a more complete understanding of the underlying trends in the company’s business. These measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles (GAAP). In addition, our definitions of these items may not be comparable to the definitions used by other companies.

Operating earnings and earnings per share (EPS) from operations consist of our GAAP net earnings adjusted by the net realized gains/(losses), net unrealized gains/(losses) on equity securities and taxes related thereto. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. A reconciliation of the operating earnings and EPS from operations to the comparable GAAP financial measures is included in the 2021 financial highlights below.

Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting loss and settlement expenses, policy acquisition costs and insurance operating expenses from net premium earned, which are all GAAP financial measures. The combined ratio, which is derived from components of underwriting income, is a performance measure commonly used by property and casualty insurance companies and is calculated as the sum of loss and settlement expenses, policy acquisition costs and insurance operating expenses, divided by net premiums earned, which are all GAAP measures.

Other News

At 10 a.m. central daylight time (CDT) tomorrow, July 22, 2021, RLI management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion through the Internet at https://edge.media-server.com/mmc/p/ged4yftt.

Except for historical information, this news release may include forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) including, without limitation, statements reflecting our current expectations about the future performance of our company or our business segments or about future market conditions. These statements are subject to certain risk factors that could cause actual results to differ materially. Various risk factors that could affect future results are listed in the company's filings with the Securities and Exchange Commission, including the Form 10-K Annual Report for the year ended December 31, 2020.

About RLI

RLI Corp. (NYSE: RLI) is a specialty insurer serving niche property, casualty and surety markets. The company provides deep underwriting expertise and superior service to commercial and personal lines customers nationwide. RLI’s products are offered through its insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company and Contractors Bonding and Insurance Company. All of RLI’s insurance subsidiaries are rated A+ (Superior) by AM Best Company. RLI has paid and increased regular dividends for 46 consecutive years and delivered underwriting profits for 25 consecutive years. To learn more about RLI, visit www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

		Reserve Development and Catastrophe Losses,
		Net of Reinsurance
		Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands, except per share amounts)		2021				2020				2021				2020
Favorable development in casualty prior years' reserves		$	29.2			$	21.1			$	57.5			$	27.5
Favorable development in property prior years' reserves		$	3.8			$	0.7			$	9.9			$	5.5
Favorable (unfavorable) development in surety prior years' reserves		$	(2.7	)		$	3.8			$	0.1			$	7.8
Net incurred losses related to:
2021 storms		$	(8.0	)		$	-			$	(24.0	)		$	-
2020 and prior events(4)		$	2.1			$	(11.5	)		$	2.1			$	(17.1	)
		Operating Earnings Per Share
		Three Months Ended June 30,								Six Months Ended June 30,
		2021				2020				2021				2020
Operating Earnings Per Share(1)		$	1.09			$	0.77			$	1.96			$	1.43
Specific items included in operating earnings per share:(2) (3)
Net favorable development in casualty prior years' reserves		$	0.46			$	0.32			$	0.88			$	0.44
Net favorable development in property prior years' reserves		$	0.05			$	-			$	0.13			$	0.05
Net favorable (unfavorable) development in surety prior years' reserves		$	(0.06	)		$	0.06			$	(0.02	)		$	0.12
Net incurred losses related to:
2021 storms		$	(0.12	)		$	-			$	(0.35	)		$	-
2020 and prior events(4)		$	0.03			$	(0.18	)		$	0.03			$	(0.26	)

(1) See discussion above: Non-GAAP and Performance Measures.
(2) Includes incentive and profit sharing-related impacts which affected policy acquisition, insurance operating and general corporate expenses.
(3) Reserve development reflects changes from previously estimated losses.
(4) Includes COVID-19 reserves established in 2020.

RLI CORP
2021 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)

		Three Months Ended June 30,													Six Months Ended June 30,
SUMMARIZED INCOME STATEMENT DATA:			2021				2020			% Change						2021					2020				% Change
Net premiums earned		$	241,000			$	208,734				15.5		%		$	469,595				$	424,316					10.7		%
Net investment income			16,661				16,917				(1.5	)	%			33,085					34,695					(4.6	)	%
Net realized gains (losses)			36,463				(2,109	)		NM						50,613					13,043				NM
Net unrealized gains (losses) on equity securities			3,956				74,705				(94.7	)	%			32,118					(55,690	)			NM
Consolidated revenue		$	298,080			$	298,247				(0.1	)	%		$	585,411				$	416,364					40.6		%
Loss and settlement expenses			107,026				101,202				5.8		%			211,918					212,223					(0.1	)	%
Policy acquisition costs			77,235				69,463				11.2		%			152,225					142,404					6.9		%
Insurance operating expenses			20,148				13,906				44.9		%			38,944					28,287					37.7		%
Interest expense on debt			1,904				1,903				0.1		%			3,805					3,800					0.1		%
General corporate expenses			3,686				1,994				84.9		%			7,028					3,749					87.5		%
Total expenses		$	209,999			$	188,468				11.4		%		$	413,920				$	390,463					6.0		%
Equity in earnings of unconsolidated investees			13,940				5,100				173.3		%			20,364					9,614					111.8		%
Earnings before income taxes		$	102,021			$	114,879				(11.2	)	%		$	191,855				$	35,515				NM
Income tax expense			20,206				22,713				(11.0	)	%			37,028					4,616				NM
Net earnings		$	81,815			$	92,166				(11.2	)	%		$	154,827				$	30,899				NM
Other comprehensive earnings (loss), net of tax			15,177				53,571				(71.7	)	%			(29,570	)				40,540				NM
Comprehensive earnings		$	96,992			$	145,737				(33.4	)	%		$	125,257				$	71,439					75.3		%
Operating earnings(1):
Net earnings		$	81,815			$	92,166				(11.2	)	%		$	154,827				$	30,899				NM
Less:
Realized (gains) losses			(36,463	)			2,109			NM						(50,613	)				(13,043	)			NM
Income tax on realized gains (losses)			7,656				(443	)		NM						10,628					2,739				NM
Unrealized (gains) losses on equity securities			(3,956	)			(74,705	)			(94.7	)	%			(32,118	)				55,690				NM
Income tax on unrealized gains (losses) on equity securities			831				15,688				(94.7	)	%			6,745					(11,695	)			NM
Operating earnings		$	49,883			$	34,815				43.3		%		$	89,469				$	64,590					38.5		%
Return on Equity:
Net earnings (trailing four quarters)															24.7			%			11.8		%
Comprehensive earnings (trailing four quarters)															23.5			%			17.0		%
Per Share Data:
Diluted:
Weighted average shares outstanding (in 000's)			45,715				45,274									45,703					45,311
Net earnings per share		$	1.79			$	2.04				(12.3	)	%		$	3.39				$	0.68				NM
Less:
Realized (gains) losses			(0.80	)			0.05			NM						(1.11	)				(0.29	)			NM
Income tax on realized gains (losses)			0.17				(0.01	)		NM						0.23					0.06				NM
Unrealized (gains) losses on equity securities			(0.09	)			(1.66	)			(94.6	)	%			(0.70	)				1.24				NM
Income tax on unrealized gains (losses) on equity securities			0.02				0.35				(94.3	)	%			0.15					(0.26	)			NM
EPS from operations(1)		$	1.09			$	0.77				41.6		%		$	1.96				$	1.43					37.1		%
Comprehensive earnings per share		$	2.12			$	3.22				(34.2	)	%		$	2.74				$	1.58					73.4		%
Cash dividends per share - ordinary		$	0.25			$	0.24				4.2		%		$	0.49				$	0.47					4.3		%
Net Cash Flow provided by Operations		$	104,222			$	89,540				16.4		%		$	164,509				$	83,773					96.4		%

(1) See discussion above: Non-GAAP and Performance Measures.

NM = Not Meaningful

RLI CORP
2021 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)

		June 30,				December 31,
			2021				2020			% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income, at fair value		$	2,319,244			$	2,196,626				5.6		%
(amortized cost - $2,219,502 at 6/30/21)
(amortized cost - $2,061,467 at 12/31/20)
Equity securities, at fair value			566,870				524,006				8.2		%
(cost - $308,374 at 6/30/21)
(cost - $293,190 at 12/31/20)
Other invested assets			52,849				54,232				(2.6	)	%
Cash and cash equivalents			95,457				62,217				53.4		%
Total investments and cash		$	3,034,420			$	2,837,081				7.0		%
Premiums and reinsurance balances receivable			177,237				174,628				1.5		%
Ceded unearned premiums			120,116				113,488				5.8		%
Reinsurance balances recoverable on unpaid losses			545,085				443,729				22.8		%
Deferred policy acquisition costs			99,898				88,425				13.0		%
Property and equipment			50,925				51,406				(0.9	)	%
Investment in unconsolidated investees			148,561				128,382				15.7		%
Goodwill and intangibles			53,582				53,719				(0.3	)	%
Other assets			50,806				47,627				6.7		%
Total assets		$	4,280,630			$	3,938,485				8.7		%
Unpaid losses and settlement expenses		$	1,917,609			$	1,750,049				9.6		%
Unearned premiums			640,895				586,386				9.3		%
Reinsurance balances payable			34,946				42,265				(17.3	)	%
Funds held			89,474				81,747				9.5		%
Income taxes - deferred			82,110				80,235				2.3		%
Bonds payable, long-term debt			149,582				149,489				0.1		%
Accrued expenses			60,849				75,925				(19.9	)	%
Other liabilities			63,362				36,411				74.0		%
Total liabilities		$	3,038,827			$	2,802,507				8.4		%
Shareholders' equity			1,241,803				1,135,978				9.3		%
Total liabilities & shareholders' equity		$	4,280,630			$	3,938,485				8.7		%
OTHER DATA:
Common shares outstanding (in 000's)			45,223				45,143
Book value per share		$	27.46			$	25.16				9.1		%
Closing stock price per share		$	104.59			$	104.15				0.4		%
Statutory surplus		$	1,227,879			$	1,121,592				9.5		%

RLI CORP
2021 FINANCIAL HIGHLIGHTS
UNDERWRITING SEGMENT DATA
(Unaudited)
(Dollars in thousands, except per share amounts)

Three Months Ended June 30,
						GAAP									GAAP									GAAP									GAAP
		Casualty				Ratios					Property				Ratios					Surety				Ratios					Total				Ratios
2021
Gross premiums written		$	236,329								$	91,911								$	30,744								$	358,984
Net premiums written			183,436									69,943									29,107									282,486
Net premiums earned			156,195									55,865									28,940									241,000
Net loss & settlement expenses			74,421				47.6		%			24,311				43.5		%			8,294				28.7		%			107,026				44.4		%
Net operating expenses			55,336				35.5		%			22,675				40.6		%			19,372				66.9		%			97,383				40.4		%
Underwriting income(1)		$	26,438				83.1		%		$	8,879				84.1		%		$	1,274				95.6		%		$	36,591				84.8		%
2020
Gross premiums written		$	190,047								$	69,286								$	27,820								$	287,153
Net premiums written			152,114									51,563									26,413									230,090
Net premiums earned			135,215									45,387									28,132									208,734
Net loss & settlement expenses			77,651				57.4		%			21,550				47.5		%			2,001				7.1		%			101,202				48.5		%
Net operating expenses			47,831				35.4		%			17,670				38.9		%			17,868				63.5		%			83,369				39.9		%
Underwriting income(1)		$	9,733				92.8		%		$	6,167				86.4		%		$	8,263				70.6		%		$	24,163				88.4		%
Six Months Ended June 30,
						GAAP									GAAP									GAAP									GAAP
		Casualty				Ratios					Property				Ratios					Surety				Ratios					Total				Ratios
2021
Gross premiums written		$	425,225								$	166,448								$	62,206								$	653,879
Net premiums written			332,327									125,929									59,219									517,475
Net premiums earned			304,965									107,507									57,123									469,595
Net loss & settlement expenses			144,668				47.4		%			55,948				52.0		%			11,302				19.8		%			211,918				45.1		%
Net operating expenses			108,992				35.8		%			43,685				40.7		%			38,492				67.4		%			191,169				40.7		%
Underwriting income(1)		$	51,305				83.2		%		$	7,874				92.7		%		$	7,329				87.2		%		$	66,508				85.8		%
2020
Gross premiums written		$	349,283								$	126,007								$	57,695								$	532,985
Net premiums written			279,291									92,990									54,912									427,193
Net premiums earned			278,635									89,735									55,946									424,316
Net loss & settlement expenses			171,916				61.7		%			37,521				41.8		%			2,786				5.0		%			212,223				50.0		%
Net operating expenses			98,309				35.3		%			36,139				40.3		%			36,243				64.8		%			170,691				40.2		%
Underwriting income(1)		$	8,410				97.0		%		$	16,075				82.1		%		$	16,917				69.8		%		$	41,402				90.2		%

(1) See discussion above: Non-GAAP and Performance Measures.

Category: Earnings Release

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