RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2023 net earnings of $13.5 million ($0.29 per share), compared to $439.9 million ($9.61 per share) for the third quarter of 2022, which included $437.7 million from the sale of RLI’s investment in Maui Jim, Inc.
Operating earnings(1)(2) for the third quarter of 2023 were $28.3 million ($0.61 per share), compared to $23.0 million ($0.50 per share) for the same period in 2022.
Third Quarter | Year to Date | |||||||||||
Earnings Per Diluted Share | 2023 | 2022 | 2023 | 2022 | ||||||||
Net earnings | $ | 0.29 | $ | 9.61 | $ | 4.12 | $ | 10.61 | ||||
Operating earnings (1) (2) | $ | 0.61 | $ | 0.50 | $ | 3.40 | $ | 3.15 | ||||
(1) | See discussion below: Non-GAAP and Performance Measures. |
(2) | Equity in earnings of Maui Jim and the related taxes were excluded from operating earnings per share in 2022 due to the sale of RLI’s investment in Maui Jim in the third quarter of 2022. |
Highlights for the quarter included:
- Underwriting income(1) of $4.2 million on a combined ratio(1) of 98.7.
- 11% increase in gross premiums written.
- 50% increase in net investment income.
- Favorable development in prior years’ loss reserves, resulting in a $19.8 million net increase in underwriting income.
- Losses from Hawaiian wildfires, resulting in a $58.2 million net decrease in underwriting income.
- Book value per share of $28.47, an increase of 13% (inclusive of dividends) from year-end 2022.
“We have been working diligently to help our policyholders recover from the devastating Hawaiian wildfires that occurred in the quarter,” said RLI Corp. President & CEO Craig Kliethermes. “This event contributed 17 points to our combined ratio. Despite this impact, our diversified portfolio delivered underwriting profitability and an 11% increase in gross premiums written. Growth in investment income supported $0.61 per share of operating income, while book value per share increased to $28.47. Recent catastrophes reinforce RLI’s purpose to protect and serve policyholders in times of need. I would like to thank our associate owners, and especially our claim and Hawaii-based teams, for providing unparalleled service to our insureds and agents.”
Underwriting Income
RLI achieved $4.2 million of underwriting income in the third quarter of 2023 on a 98.7 combined ratio, compared to $8.8 million on a 97.0 combined ratio in 2022.
Results for both years include favorable development in prior years’ loss reserves, which resulted in a $19.8 million and $29.0 million net increase to underwriting income for 2023 and 2022, respectively. The favorable development in 2023 was offset by a $58.2 million net reduction to underwriting income for Hawaiian wildfire losses, compared to $34.8 million of hurricane losses in 2022.
The following table highlights underwriting income and combined ratios by segment for the third quarter.
Underwriting Income (Loss)(1) | Combined Ratio(1) | |||||||||||||
(in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||
Casualty | $ | 18.7 | $ | 11.3 | Casualty | 90.1 | 93.7 | |||||||
Property | (20.7 | ) | (8.3 | ) | Property | 121.8 | 110.3 | |||||||
Surety | 6.2 | 5.8 | Surety | 81.7 | 81.4 | |||||||||
Total | $ | 4.2 | $ | 8.8 | Total | 98.7 | 97.0 | |||||||
| (1) | See discussion below: Non-GAAP and Performance Measures. |
Other Income
Net investment income for the quarter increased 50.3% to $32.0 million, compared to the same period in 2022. The investment portfolio’s total return was -1.7% for the quarter and 2.2% for the nine months ended September 30, 2023.
RLI’s comprehensive loss was $43.3 million for the quarter (-$0.94 per share), compared to comprehensive earnings of $358.6 million ($7.84 per share) for the same quarter in 2022. In addition to net earnings, comprehensive loss included after-tax unrealized losses from the fixed income portfolio, due to rising interest rates. Comprehensive earnings for 2022 were elevated from the sale of RLI’s investment in Maui Jim.
Dividends Paid in Third Quarter of 2023
On September 20, 2023, the company paid a regular quarterly dividend of $0.27 per share, the same amount as the prior quarter. RLI’s cumulative dividends total more than $764 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 operating earnings per share (EPS) consist of our GAAP net earnings adjusted by net realized gains/(losses), net unrealized gains/(losses) on equity securities and taxes related thereto. Additionally, equity in earnings of Maui Jim and the related taxes were excluded from operating earnings and operating EPS for 2022 due to the sale of RLI’s investment in the third quarter of 2022. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and operating EPS. A reconciliation of the operating earnings and operating EPS to the comparable GAAP financial measures is included in the 2023 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, October 24, 2023, RLI management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion at https://events.q4inc.com/attendee/461007055.
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, 2022.
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 48 consecutive years and delivered underwriting profits for 27 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in millions, except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Favorable development in casualty prior years' reserves | $ | 22.1 | $ | 28.2 | $ | 67.0 | $ | 72.9 | ||||||||
Favorable (unfavorable) development in property prior years' reserves | $ | (1.9 | ) | $ | 3.3 | $ | 14.3 | $ | 20.8 | |||||||
Favorable development in surety prior years' reserves | $ | 0.8 | $ | 1.8 | $ | 8.2 | $ | 9.3 | ||||||||
Net incurred losses related to: | ||||||||||||||||
2023 storms | $ | (5.0 | ) | $ | — | $ | (27.0 | ) | $ | — | ||||||
Hawaiian wildfires | $ | (51.6 | ) | $ | — | $ | (51.6 | ) | $ | — | ||||||
2022 and prior events | $ | 1.4 | $ | (40.0 | ) | $ | 4.5 | $ | (45.0 | ) | ||||||
Reinstatement premium from Hawaiian wildfires | $ | (14.4 | ) | $ | — | $ | (14.4 | ) | $ | — | ||||||
Operating Earnings Per Share | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Operating Earnings Per Share(1) (2) | $ | 0.61 | $ | 0.50 | $ | 3.40 | $ | 3.15 | ||||||||
Specific items included in operating earnings per share:(3) (4) | ||||||||||||||||
Net favorable development in casualty prior years' reserves | $ | 0.33 | $ | 0.44 | $ | 1.00 | $ | 1.11 | ||||||||
Net favorable (unfavorable) development in property prior years' reserves | $ | (0.04 | ) | $ | 0.04 | $ | 0.20 | $ | 0.31 | |||||||
Net favorable development in surety prior years' reserves | $ | 0.01 | $ | 0.02 | $ | 0.12 | $ | 0.13 | ||||||||
Net incurred losses related to: | ||||||||||||||||
2023 storms | $ | (0.07 | ) | $ | — | $ | (0.40 | ) | $ | — | ||||||
Hawaiian wildfires (incurred loss and reinstatement premium) | $ | (0.97 | ) | $ | — | $ | (0.97 | ) | $ | — | ||||||
2022 and prior events | $ | 0.02 | $ | (0.60 | ) | $ | 0.06 | $ | (0.68 | ) | ||||||
| (1) | See discussion above: Non-GAAP and Performance Measures. |
| (2) | Equity in earnings of Maui Jim and the related taxes were excluded from operating earnings per share in 2022 due to the sale of RLI’s investment in Maui Jim in the third quarter of 2022. |
(3) | Includes incentive and profit sharing-related impacts which affected policy acquisition, insurance operating and general corporate expenses. |
(4) | Reserve development reflects changes from previously estimated losses. |
RLI CORP 2023 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts) | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
SUMMARIZED INCOME STATEMENT DATA: | 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||
Net premiums earned | $ | 318,409 | $ | 291,468 | 9.2 | % | $ | 948,412 | $ | 843,430 | 12.4 | % | |||||||||||||
Net investment income | 31,963 | 21,270 | 50.3 | % | 87,835 | 57,625 | 52.4 | % | |||||||||||||||||
Net realized gains | 6,558 | 573,170 | (98.9 | ) | % | ||||||||||||||||||||
