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RLI Corp. Reports Operating Results (10-Q)

July 30, 2012 | About:
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10qk

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RLI Corp. (RLI) filed Quarterly Report for the period ended 2012-06-30.

Rli Corp. has a market cap of $1.37 billion; its shares were traded at around $64.1 with a P/E ratio of 13.7 and P/S ratio of 2.2. The dividend yield of Rli Corp. stocks is 2%. Rli Corp. had an annual average earning growth of 15.2% over the past 10 years.
This is the annual revenues and earnings per share of RLI over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of RLI.


Highlight of Business Operations:

Net after-tax earnings for the first six months of 2012 totaled $52.8 million, $2.45 per diluted share, compared to $72.7 million, $3.41 per diluted share for the same period in 2011. Both periods benefited from underwriting income that was bolstered by favorable reserve development. In 2012, favorable development on prior years’ loss and hurricane reserves resulted in additional pretax earnings of $37.9 million. Favorable development on prior year marine reserves also resulted in a $1.2 million reduction in reinsurance reinstatement premiums. Partially offsetting the favorable development was $13.7 million in spring storm losses. From a comparative standpoint, results for 2011 included $60.6 million of favorable development on prior years’ loss reserves, which was partially offset by $13.0 million in spring storm losses and $1.0 million in reserves that were established for the losses associated with the Japan earthquake and tsunami, primarily on marine coverages. Bonus and profit sharing-related expenses associated with these specific items totaled $3.1 million in 2012 and $5.4 million in 2011. These performance-related expenses affected policy acquisition, insurance operating and general corporate expenses. Bonuses earned by executives, managers and associates are predominately influenced by corporate performance (operating earnings and return on capital).

launches as well as growth in some of our mature products. The property reinsurance program contributed $19.7 million in gross premiums written in the period, up 19%, or $3.1 million, from the same period last year. We also saw growth in our crop reinsurance product, due primarily to an additional reinsurance contract with Producers’ Agriculture Insurance Company. Crop business increased 10% from the same period last year to $32.8 million in gross premiums written for the year. However, on a net basis, crop business decreased by $8.1 million, or 27%, as share in the existing agreement decreased from a 6% share to a 4% share, and the additional reinsurance contract was a joint venture that has us retroceding 67% of the premiums and losses to another reinsurance partner. One of our more mature products, marine, also grew in the first six months of 2012. Gross premiums written for our marine division totaled $32.3 million for the first six months of 2012, an increase of $1.5 million, or 5%, from the same period in 2011 with moderate rate increases and a continued focus on profitability. The growth in marine is due to an increase in inland marine coverages where loss trends are more favorable. Offsetting this growth slightly, gross premiums written for our fire product decreased by $2.2 million, or 5%, from the same period in 2011 as a result of efforts to manage the Group’s exposure in wind-prone areas.

Underwriting income for the segment was $11.6 million for the first six months of 2012, compared to $17.5 million for the same period in 2011. Results for 2012 reflected $7.7 million of favorable development on prior years’ loss and hurricane reserves, primarily on marine, fire and property reinsurance coverages. This included reserves established for claims associated with Hurricane Irene and 2011 spring storms. In addition for the first six months of 2012, we had $1.3 million of favorable development on prior year crop business. Final settlement of the 2011 crop treaty year will occur in the fourth quarter of 2012. Favorable development on prior year marine reserves also resulted in a $1.2 million reduction in reinsurance reinstatement premiums. Offsetting these favorable items, results for 2012 included $13.7 million in reserves established for spring storm losses, concentrated in our fire product. From a comparative standpoint, results for 2011 reflected $12.3 million of favorable development on prior years’ loss reserves, primarily on marine and DIC coverages (favorable settlement of a final claim for the Northridge earthquake), and $1.4 million of favorable development on prior year crop business (reduced by a $0.7 million increase in relating profit commission). Offsetting those slightly was a $2.7 million increase in 2005 and 2008 hurricane reserves, $1.0 million in reserves established for losses associated with the Japan earthquake and tsunami (primarily on marine coverages), and $13.0 million for spring storm losses, concentrated in our fire product but also impacting our marine and facultative reinsurance products as well.

Net after-tax earnings for the second quarter of 2012 totaled $24.7 million, $1.15 per diluted share, compared to $45.0 million, $2.11 per diluted share, for the same period in 2011. In the second quarter of 2012, favorable development on prior years’ loss reserves resulted in additional pretax earnings of $30.2 million. Partially offsetting the current year favorable development was $13.7 million in spring storm losses. Comparatively, in the second quarter of 2011, favorable development on prior years’ loss reserves resulted in additional pretax earnings of $48.4 million, partially offset by $13.0 million in spring storm losses. Bonus and profit sharing-related expenses related to the favorable development on prior years’ reserves totaled $2.1 million in 2012 and $4.2 million in 2011. These performance-related expenses affected policy acquisition, insurance operating and general corporate expenses. Bonuses earned by executives, managers and associates are predominately influenced by corporate performance (operating earnings and return on capital).

Underwriting loss for the segment was $0.3 million for the second quarter of 2012, compared to income of $7.4 million for the same period in 2011. Results for 2012 included $13.7 million of spring storm losses, which were partially offset by $6.4 million of net favorable development on prior years’ loss and hurricane reserves. The bulk of that was favorable development on marine business ($5.9 million). In addition, we had $0.3 million of favorable development on prior year crop business. Final settlement of the 2011 treaty year will occur in the fourth quarter of 2012. From a comparative standpoint, underwriting results for 2011 included $13.0 million of storm losses and a $2.7 million increase in 2005 and 2008 hurricane reserves, which were partially offset by $4.2 million of net favorable development on prior years’ loss reserves, a $6.7 million favorable settlement associated with the final claim for the Northridge earthquake, and $0.4 million of favorable development on prior year crop business (which was reduced by a $0.2 million increase in relating profit commissions). Of the above net favorable development on prior years’ loss reserves, $6.1 million was favorable development on marine (primarily 2008-2009 accident years).

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