RLI Corp’s (RLI) fourth quarter earnings of $1.17 per share were well ahead of the Zacks Consensus Estimate of 97 cents. Results reflected improved underwriting results and favorable reserve development from the prior year’s loss reserves. The company had earned $1.30 per share in the year-ago quarter.
Including the impact of realized investment gains and losses, the company reported a net income of $30.6 million or $1.41 per share, compared to $6.0 million or 28 cents per share in the year-ago quarter. For fiscal 2009, the company reported a net income of $93.8 million or $4.32 per share compared to net income of $78.7 million or $3.60 per share in 2008.
RLI’s gross premiums written were $144 million, down 11.3% year-over-year. Net premiums written were $104 million, down 12.6% from the prior-year quarter, primarily driven by a decrease in casualty writings but partially offset by an increase in the Surety segment writings. A 23.4% increase in the Surety Property segment’s net premiums written was more than offset by a 19.5% decline in the Casualty segment and a 15.1% decrease in the Property segment’s premiums written.
RLI’s combined ratio for the quarter slightly improved to 80.6% from 81.5% reported in the prior-year period. Results reflected $11.9 million of pretax favorable reserve development from the prior year’s loss reserves.
As a result, the company’s loss ratio improved to 37.8% in the quarter from 44.1% reported in the prior-year period. The favorable development came from its Casualty and Surety books of business, which offset the unfavorable development in its Property books.
Equity in loss of unconsolidated investee Maui Jim, a producer of premium sunglasses, totaled $0.2 million, compared to a loss of $1.6 million in the year-ago period.
Investment income decreased 16.7% year-over-year to $16.9 million. The investment portfolio’s total return for the quarter was 1.3%, with the bond portfolio generating 0.3% return and the equity portfolio returning 7.5%. However, the company has experienced net realized gains on investment securities of $8.0 million pretax compared to a loss of $34.3 million in the year-ago quarter.
Book value was $39.14 per share at Dec 31, 2009, up 18.7% from $32.98 at year end 2008. For the trailing four quarters, the company recorded a 12.2% return on equity, with 20.3% return on a comprehensive basis. This compares to 10.7% return on equity, with a negative return of 0.3% on a comprehensive basis in the prior-year quarter. Statutory surplus also increased 15.7% year-over-year to $784.2 million.
During the reported quarter, RLI spent $19.8 million to repurchase 386,084 of its shares at an average cost of $51.22. As of Dec 31, 2009, the company had $18 million of capacity remaining from the $200 million repurchase program approved in 2007.
RLI has also increased its quarterly dividend by 4% to 28 cents per share. The dividend was paid on Jan 15, 2010, to shareholders of record as of Dec 31, 2009.
While premium writings remained curtailed, reflecting the continued soft environment in the Casualty segment, we expect the company’s underwriting discipline to bode well as the market stabilizes under restrictive premium growth for the near term.
In addition, we expect the company’s expansion drive, its strong local branch office network and new product launches to increase its earnings going forward.
Shares of RLI have increased 66 cents or 1.3% to $52.03 in Tuesday’s trading.
Read the full analyst report on “RLI”
Zacks Investment Research
