RLI CORP - FORM 8-K - EX-99.1

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8-K - 8-K - RLI CORP	a16-2815_18k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

RLI REPORTS 2015 FOURTH QUARTER AND YEAR-END RESULTS

PEORIA, ILLINOIS, January 25, 2016 — RLI Corp. (NYSE: RLI) — RLI Corp. reported fourth quarter 2015 operating earnings of $24.6 million ($0.56 per share), compared to $31.3 million ($0.71 per share) for the fourth quarter of 2014. For the year ended December 31, 2015, operating earnings were $111.7 million ($2.53 per share) compared to $114.5 million ($2.61 per share) for the 2014 fiscal year.

	Fourth Quarter		Full Year
Earnings Per Diluted Share	2015	2014	2015	2014
Operating earnings (1)	$0.56	$0.71	$2.53	$2.61
Net earnings	$0.76	$0.85	$3.12	$3.09

(1) See discussion below of non-GAAP financial measures.

Highlights for the quarter included:

· Underwriting income of $22.5 million, resulting in a combined ratio of 87.4.

· 3% growth in gross premiums written and 5% growth in net premiums written.

· $7.7 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.

· Special dividend of $2.00 per share, representing $87.1 million returned to shareholders.

Highlights for the year included:

· Underwriting income of $108.6 million, resulting in a combined ratio of 84.5.

· $60.6 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.

· 20th consecutive year of a combined ratio below 100.

· Book value per share of $18.91 at year end, an increase of 10% over 2014, inclusive of dividends.

“I am proud to report another strong quarter that continues to balance excellent underwriting results with growth in difficult market conditions,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “An 84.5 combined ratio for the year is an outstanding result to achieve and I’d like to congratulate and thank all RLI underwriters and employees for delivering again for our fellow shareholders.” He continued, “RLI has achieved 20 consecutive years with a combined ratio below 100 and 11 straight years below 90. This enviable track record is made possible by our relentless focus on underwriting discipline, our ownership culture and most importantly, our commitment to meeting customers’ needs with a diverse set of niche insurance products.”

Underwriting Income

RLI achieved $22.5 million of underwriting income in the fourth quarter of 2015 on an 87.4 combined ratio, compared to $27.5 million of underwriting income on an 84.7 combined ratio in the same quarter for 2014.

For the year, RLI achieved $108.6 million of underwriting income on an 84.5 combined ratio, compared to $107.0 million of underwriting income on an 84.5 combined ratio in 2014. Results for both years include favorable development in prior years’ loss reserves which totaled $60.6 million and $62.0 million for 2015 and 2014, respectively.

—more—

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

Underwriting Income (1)
(in millions)	2015		2014
Casualty	$	46.3	$	45.9
Property	29.0		32.9
Surety	33.3		28.2
Total	$	108.6	$	107.0

Combined Ratio	2015	2014
Casualty	88.8	88.0
Property	83.1	83.4
Surety	71.5	73.8
Total	84.5	84.5

(1) See discussion below of non-GAAP financial measures.

Other Income

RLI’s net investment income for the quarter fell 0.7% to $13.8 million, compared to the same period in 2014. For the year ended December 31, 2015, investment income was $54.6 million versus $55.6 million for the 2014 fiscal year. The investment portfolio’s total return was 1.4% for the quarter. The bond portfolio’s return was 0.4% in the quarter, while the equity portfolio’s return was 5.5%. For the year ended December 31, 2015, the investment portfolio’s total return was 1.5% with the bond portfolio returning 2.5% and equities returning -2.6%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $34.9 million for the quarter ($0.79 per share) compared to $47.5 million ($1.08 per share) for the same quarter in 2014. Full-year comprehensive earnings were $89.9 million ($2.04 per share), compared to $170.8 million ($3.90 per share) in 2014.

Equity in earnings of unconsolidated investees was -$0.1 million for the quarter compared to $0.1 million from the same period last year. These results are related to Maui Jim, Inc. (-$0.2 million, which reflects seasonal sales results), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.1 million), a specialty E&S insurance company. For the year ended December 31, 2015, equity in earnings of unconsolidated investees from Maui Jim and Prime was $9.9 million and $1.0 million, respectively, compared to $12.0 million and $0.3 million in 2014 from Maui Jim and Prime, respectively.

Special and Regular Dividends

On December 22, 2015, RLI paid a special cash dividend of $2.00 per share and a regular quarterly dividend of $0.19 per share, totaling $95.4 million and resulting in a tax benefit of $2.5 million ($0.06 per share) as dividends to the ESOP are fully deductible. RLI has paid dividends for 158 consecutive quarters and increased regular dividends in each of the last 40 years. Over the last 10 years, the company’s regular quarterly dividend has grown an average of 8.4% per year.

Non-GAAP Measures

Underwriting income, operating earnings, earnings per share (EPS) from operations and other per share items are non-GAAP financial measures, and we believe that investors’ understanding of RLI’s core operating performance is enhanced by our disclosure of these financial measures. Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting losses and settlement expenses, policy acquisition costs and insurance operating expenses from net premium earned.

Operating earnings and EPS from operations consist of our net earnings adjusted by net realized investment gains/(losses) and taxes related to net realized gains/(losses). Our definitions of these items may not be comparable to the definitions used by other companies. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. All earnings per share data are calculated using fully diluted shares. Combined ratio refers to a GAAP combined ratio.

Other News

At 10 a.m. central daylight time (CDT) tomorrow, January 26, 2016, 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 http://edge.media-server.com/m/p/wqwrkuxo.

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, 2014.

RLI Corp. (NYSE: RLI) is a specialty insurer serving diverse, 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 subsidiaries are rated A+ “Superior” by A.M. Best Company, a distinction held by fewer than 10 percent of property and casualty insurance companies in the U.S. RLI has increased dividends for 40 consecutive years and delivered underwriting profits for 20 consecutive years. To learn more about RLI and its 50-year history of financial strength, visit www.rlicorp.com.

Media Contact

Aaron Jacoby, Vice President, Corporate Development
309-693-5880
Aaron.Jacoby@rlicorp.com

Supplemental disclosure regarding the earnings impact of specific items:

	Operating Earnings Per Share
	2015			2014		2015			2014
	4th Qtr			4th Qtr		12 Mos.			12 Mos.
Operating Earnings Per Share	$	0.56		$	0.71	$	2.53		$	2.61

Specific items included in operating earnings per share: (1) (2)
· Favorable development in casualty prior years’ reserves	$	0.06		$	0.14	$	0.63		$	0.72
· Favorable development in property prior years’ reserves	$	0.02		$	0.01	$	0.07		$	0.02
· Favorable development in surety prior years’ reserves	$	0.02		$	0.01	$	0.16		$	0.16
· Catastrophe impact
· 2015 storms	$	(0.02	)	$	—	$	(0.15	)	$	—
· 2014 and prior events	$	0.01		$	0.02	$	0.03		$	(0.07	)
· Gain from tax benefit of special dividend to ESOP (3)	$	0.06		$	0.08	$	0.06		$	0.08
· Gain from change in tax rate applicable to Maui Jim (4)	$	—		$	0.04	$	—		$	0.04

(1) Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.

(2) Reserve development reflects changes from previously estimated losses.

(3) Dividends paid in an ESOP on employer securities are fully deductible from taxable income and result in a 35% tax benefit.

(4) As required under the accounting standard for income taxes, the gain reflects the tax benefit of applying the lower tax rate applicable to dividends received from an affiliate (7%) as compared to the corporate capital gains tax rate (35%) on which tax estimates were based.

RLI CORP.

2015 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended December 31,							Twelve Months Ended December 31,
	2015			2014		% Change		2015			2014			% Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned	$	179,371		$	179,892	-0.3	%	$	700,161		$	687,375		1.9	%
Net investment income	13,754			13,844		-0.7	%	54,644			55,608			-1.7	%
Net realized gains	14,207			9,542		48.9	%	39,829			32,182			23.8	%
Consolidated revenue	207,332			203,278		2.0	%	794,634			775,165			2.5	%

Loss and settlement expenses	80,584			76,229		5.7	%	299,045			296,609			0.8	%
Policy acquisition costs	62,113			60,896		2.0	%	241,078			229,283			5.1	%
Other insurance expenses	14,183			15,277		-7.2	%	51,480			54,464			-5.5	%
Interest expense on debt	1,856			1,856		0.0	%	7,426			7,438			-0.2	%
General corporate expenses	2,887			2,675		7.9	%	9,837			10,222			-3.8	%
Total expenses	161,623			156,933		3.0	%	608,866			598,016			1.8	%

Equity in earnings (loss) of unconsolidated investees	(127		)	134		—		10,914			12,338			-11.5	%

Earnings before income taxes	45,582			46,479		-1.9	%	196,682			189,487			3.8	%
Income tax expense	11,729			8,982		30.6	%	59,138			54,042			9.4	%
Net earnings	$	33,853		$	37,497	-9.7	%	$	137,544		$	135,445		1.5	%

Other comprehensive earnings (loss), net of tax	1,054			10,038		-89.5	%	(47,609		)	35,356			—
Comprehensive earnings	$	34,907		$	47,535	-26.6	%	$	89,935		$	170,801		-47.3	%

Operating earnings:(1)
Net earnings	$	33,853		$	37,497	-9.7	%	$	137,544		$	135,445		1.5	%
Less: Realized gains, net of tax	9,235			6,203		48.9	%	25,890			20,919			23.8	%
Operating earnings	$	24,618		$	31,294	-21.3	%	$	111,654		$	114,526		-2.5	%

Return on Equity:
Net earnings (trailing four quarters)								16.1		%	15.4		%
Comprehensive earnings (trailing four quarters)								10.5		%	19.4		%

Per Share Data

Diluted:
Weighted average shares outstanding (in 000’s)	44,335			43,937				44,131			43,819

EPS from operations (1)	$	0.56		$	0.71	-21.1	%	$	2.53		$	2.61		-3.1	%
Realized gains, net of tax	0.20			0.14		42.9	%	0.59			0.48			22.9	%
Net earnings per share	$	0.76		$	0.85	-10.6	%	$	3.12		$	3.09		1.0	%

Comprehensive earnings per share	$	0.79		$	1.08	-26.9	%	$	2.04		$	3.90		-47.7	%

Cash dividends per share - ordinary	$	0.19		$	0.18	5.6	%	$	0.75		$	0.71		5.6	%
Cash dividends per share - special	$	2.00		$	3.00	-33.3	%	$	2.00		$	3.00		-33.3	%

Net Cash Flow provided by Operations	$	31,219		$	37,191	-16.1	%	$	152,586		$	123,085		24.0	%

(1) See discussion above of non-GAAP financial measures.

RLI CORP.

2015 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

	December 31,		December 31,
	2015		2014		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income	$	1,538,110	$	1,495,087	2.9	%
(amortized cost - $1,518,156 at 12/31/15)
(amortized cost - $1,448,204 at 12/31/14)
Equity securities	375,424		410,642		-8.6	%
(cost - $202,437 at 12/31/15)
(cost - $193,535 at 12/31/14)
Other invested assets	20,666		11,597		78.2	%
Cash and cash equivalents	17,343		46,959		-63.1	%
Total investments and cash	1,951,543		1,964,285		-0.6	%

Premiums and reinsurance balances receivable	143,662		154,573		-7.1	%
Ceded unearned premiums	52,833		53,961		-2.1	%
Reinsurance recoverable on unpaid losses	297,844		335,106		-11.1	%
Deferred acquisition costs	69,829		65,123		7.2	%
Property and equipment	47,102		42,549		10.7	%
Investment in unconsolidated investees	70,784		60,046		17.9	%
Goodwill and intangibles	71,294		72,695		-1.9	%
Other assets	31,688		27,204		16.5	%
Total assets	$	2,736,579	$	2,775,542	-1.4	%

Unpaid losses and settlement expenses	1,103,785		1,121,040		-1.5	%
Unearned premiums	422,094		401,412		5.2	%
Reinsurance balances payable	37,556		38,013		-1.2	%
Funds held	54,254		51,481		5.4	%
Income taxes - deferred	63,993		82,285		-22.2	%
Bonds payable, long term debt	149,668		149,625		0.0	%
Accrued expenses	55,742		63,148		-11.7	%
Other liabilities	26,018		23,476		10.8	%
Total liabilities	1,913,110		1,930,480		-0.9	%
Shareholders’ equity	823,469		845,062		-2.6	%
Total liabilities & shareholders’ equity	$	2,736,579	$	2,775,542	-1.4	%

OTHER DATA
Common shares outstanding (in 000’s)	43,544		43,103

Book value per share	$	18.91	$	19.61	-3.6	%
Closing stock price per share	$	61.75	$	49.40	25.0	%
Cash dividends per share - ordinary	$	0.75	$	0.71	5.6	%
Cash dividends per share - special	$	2.00	$	3.00	-33.3	%

Statutory Surplus	$	865,268	$	849,297	1.9	%

RLI CORP.

2015 FINANCIAL HIGHLIGHTS

UNDERWRITING SEGMENT DATA

(Unaudited)

(Dollars in thousands, except per share amounts)

Three Months Ended December 31,

			GAAP				GAAP				GAAP				GAAP
	Casualty		Ratios		Property		Ratios		Surety		Ratios		Total		Ratios
2015

Gross premiums written	$	126,074			$	42,735			$	31,770			$	200,579
Net premiums written	104,877				33,284				30,353				168,514
Net premiums earned	106,406				42,840				30,125				179,371
Net loss & settlement expenses	59,194		55.6	%	17,537		40.9	%	3,853		12.8	%	80,584		44.9	%
Net operating expenses	39,073		36.7	%	18,498		43.2	%	18,725		62.2	%	76,296		42.5	%
Underwriting income	$	8,139	92.3	%	$	6,805	84.1	%	$	7,547	75.0	%	$	22,491	87.4	%

2014

Gross premiums written	$	118,819			$	45,958			$	29,681			$	194,458
Net premiums written	96,619				35,418				28,084				160,121
Net premiums earned	100,587				51,524				27,781				179,892
Net loss & settlement expenses	53,823		53.5	%	17,971		34.9	%	4,435		16.0	%	76,229		42.4	%
Net operating expenses	37,154		36.9	%	20,104		39.0	%	18,915		68.1	%	76,173		42.3	%
Underwriting income	$	9,610	90.4	%	$	13,449	73.9	%	$	4,431	84.1	%	$	27,490	84.7	%

Twelve Months Ended December 31,

			GAAP				GAAP				GAAP				GAAP
	Casualty		Ratios		Property		Ratios		Surety		Ratios		Total		Ratios
2015

Gross premiums written	$	519,670			$	208,370			$	125,546			$	853,586
Net premiums written	435,409				166,659				119,903				721,971
Net premiums earned	412,248				170,924				116,989				700,161
Net loss & settlement expenses	218,414		53.0	%	69,851		40.9	%	10,780		9.2	%	299,045		42.7	%
Net operating expenses	147,571		35.8	%	72,048		42.2	%	72,939		62.3	%	292,558		41.8	%
Underwriting income	$	46,263	88.8	%	$	29,025	83.1	%	$	33,270	71.5	%	$	108,558	84.5	%

2014

Gross premiums written	$	482,846			$	262,457			$	118,545			$	863,848
Net premiums written	395,853				195,580				111,719				703,152
Net premiums earned	382,105				197,776				107,494				687,375
Net loss & settlement expenses	199,133		52.1	%	89,589		45.3	%	7,887		7.3	%	296,609		43.2	%
Net operating expenses	137,031		35.9	%	75,269		38.1	%	71,447		66.5	%	283,747		41.3	%
Underwriting income	$	45,941	88.0	%	$	32,918	83.4	%	$	28,160	73.8	%	$	107,019	84.5	%

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