UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 12, 2022, the number of shares outstanding of the registrant’s Common Stock was
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
RLI Corp. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(Unaudited)
For the Three Months | For the Nine Months | |||||||||||
Ended September 30, | Ended September 30, | |||||||||||
(in thousands, except per share data) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net premiums earned | $ | | $ | | $ | | $ | | ||||
Net investment income | | | | | ||||||||
Net realized gains | | | | | ||||||||
Net unrealized gains (losses) on equity securities | ( | ( | ( | | ||||||||
Consolidated revenue | $ | | $ | | $ | | $ | | ||||
Losses and settlement expenses | | | | | ||||||||
Policy acquisition costs | | | | | ||||||||
Insurance operating expenses | | | | | ||||||||
Interest expense on debt | | | | | ||||||||
General corporate expenses | | | | | ||||||||
Total expenses | $ | | $ | | $ | | $ | | ||||
Equity in earnings (loss) of unconsolidated investees | ( | | | | ||||||||
Earnings before income taxes | $ | | $ | | $ | | $ | | ||||
Income tax expense | | | | | ||||||||
Net earnings | $ | | $ | | $ | | $ | | ||||
| ||||||||||||
Other comprehensive earnings (loss), net of tax | ( | ( | ( | ( | ||||||||
Comprehensive earnings | $ | | $ | | $ | | $ | | ||||
| ||||||||||||
Basic net earnings per share | $ | | $ | | $ | | $ | | ||||
Diluted net earnings per share | $ | | $ | | $ | | $ | | ||||
| ||||||||||||
Weighted average number of common shares outstanding: | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | |
See accompanying notes to the unaudited condensed consolidated interim financial statements.
3
RLI Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, | December 31, | |||||
(in thousands, except share and per share data) |
| 2022 |
| 2021 | ||
ASSETS | ||||||
Investments and cash: | ||||||
Fixed income: | ||||||
Available-for-sale, at fair value | $ | | $ | | ||
(amortized cost of $ | ||||||
(amortized cost of $ | ||||||
Equity securities, at fair value (cost - $ | | | ||||
Other invested assets | | | ||||
Cash | | | ||||
Total investments and cash | $ | | $ | | ||
Accrued investment income | | | ||||
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $ | | | ||||
Ceded unearned premium | | | ||||
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $ | | | ||||
Deferred policy acquisition costs | | | ||||
Property and equipment, at cost, net of accumulated depreciation of $ | | | ||||
Investment in unconsolidated investees | | | ||||
Goodwill and intangibles | | | ||||
Income taxes-deferred | | — | ||||
Other assets | | | ||||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Liabilities | ||||||
Unpaid losses and settlement expenses | $ | | $ | | ||
Unearned premiums | | | ||||
Reinsurance balances payable | | | ||||
Funds held | | | ||||
Income taxes-current | | | ||||
Income taxes-deferred | — | | ||||
Current portion of long-term debt | | — | ||||
Long-term debt | | | ||||
Accrued expenses | | | ||||
Other liabilities | | | ||||
TOTAL LIABILITIES | $ | | $ | | ||
| ||||||
Shareholders’ Equity | ||||||
Common stock ($ | ||||||
(Shares authorized - | ||||||
( | ||||||
( | $ | | $ | | ||
Paid-in capital | | | ||||
Accumulated other comprehensive earnings (loss) | ( | | ||||
Retained earnings | | | ||||
Deferred compensation | | | ||||
Less: Treasury shares, at cost ( | ( | ( | ||||
TOTAL SHAREHOLDERS’ EQUITY | $ | | $ | | ||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | | $ | |
See accompanying notes to the unaudited condensed consolidated interim financial statements.
4
RLI Corp. and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
|
|
|
| Accumulated |
|
|
| |||||||||||||||||
Other | ||||||||||||||||||||||||
Total | Comprehensive | Treasury | ||||||||||||||||||||||
Common | Shareholders’ | Common | Paid-in | Earnings | Retained | Deferred | Shares | |||||||||||||||||
(in thousands, except share and per share data) |
| Shares |
| Equity |
| Stock |
| Capital |
| (Loss) |
| Earnings |
| Compensation |
| at Cost | ||||||||
Balance, January 1, 2021 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — | ( | — | — | ( | — | — | — | |||||||||||||||
Deferred compensation |
| — | — | — | — | — | — | ( | | |||||||||||||||
Share-based compensation |
| | | — | | — | — | — | — | |||||||||||||||
Dividends and dividend equivalents ($ |
| — | ( | — | — | — | ( | — | — | |||||||||||||||
Balance, March 31, 2021 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — | | — | — | | — | — | — | |||||||||||||||
Deferred compensation |
| — | — | — | — | — | — | | ( | |||||||||||||||
Share-based compensation |
| | | | | — | — | — | — | |||||||||||||||
Dividends and dividend equivalents ($ |
| — | ( | — | — | — | ( | — | — | |||||||||||||||
Balance, June 30, 2021 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — | ( | — | — | ( | — | — | — | |||||||||||||||
Deferred compensation |
| — | — | — | — | — | — | | ( | |||||||||||||||
Share-based compensation |
| | | — | | — | — | — | — | |||||||||||||||
Dividends and dividend equivalents ($ |
| — | ( | — | — | — | ( | — | — | |||||||||||||||
Balance, September 30, 2021 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Total | Comprehensive | Treasury | ||||||||||||||||||||||
Common | Shareholders’ | Common | Paid-in | Earnings | Retained | Deferred | Shares | |||||||||||||||||
(in thousands, except share and per share data) | Shares | Equity | Stock | Capital | (Loss) | Earnings | Compensation | at Cost | ||||||||||||||||
Balance, January 1, 2022 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — | ( | — | — | ( | — | — | — | |||||||||||||||
Deferred compensation |
| — | — | — | — | — | — | ( | | |||||||||||||||
Share-based compensation |
| | | — | | — | — | — | — | |||||||||||||||
Dividends and dividend equivalents ($ |
| — | ( | — | — | — | ( | — | — | |||||||||||||||
Balance, March 31, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | ( | — | — | — | ( | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — | ( | — | — | ( | — | — | — | |||||||||||||||
Deferred compensation |
| — | — | — | — | — | — | | ( | |||||||||||||||
Share-based compensation |
| | | | | — | — | — | — | |||||||||||||||
Dividends and dividend equivalents ($ |
| — | ( | — | — | — | ( | — | — | |||||||||||||||
Balance, June 30, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — | ( | — | — | ( | — | — | — | |||||||||||||||
Deferred compensation |
| — | — | — | — | — | — | | ( | |||||||||||||||
Share-based compensation |
| | | — | | — | — | — | — | |||||||||||||||
Dividends and dividend equivalents ($ |
| — | ( | — | — | — | ( | — | — | |||||||||||||||
Balance, September 30, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | ( |
See accompanying notes to the unaudited condensed consolidated interim financial statements.
5
RLI Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months | ||||||
Ended September 30, | ||||||
(in thousands) |
| 2022 |
| 2021 | ||
Net cash provided by operating activities | $ | | $ | | ||
Cash Flows from Investing Activities | ||||||
Purchase of: | ||||||
Fixed income securities, available-for-sale | $ | ( | $ | ( | ||
Equity securities | ( | ( | ||||
Property and equipment | ( | ( | ||||
Other | ( | ( | ||||
Proceeds from sale of: | ||||||
Fixed income securities, available-for-sale | | | ||||
Equity securities | | | ||||
Equity method investments | | — | ||||
Other | | | ||||
Proceeds from call or maturity of: | ||||||
Fixed income securities, available-for-sale | | | ||||
Net cash provided by (used in) investing activities | $ | | $ | ( | ||
Cash Flows from Financing Activities | ||||||
Cash dividends paid | $ | ( | $ | ( | ||
Proceeds from stock option exercises | | | ||||
Net cash used in financing activities | $ | ( | $ | ( | ||
Net increase in cash | $ | | $ | | ||
Cash at the beginning of the period | | | ||||
Cash at September 30, | $ | | $ | |
See accompanying notes to the unaudited condensed consolidated interim financial statements.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
A. BASIS OF PRESENTATION
The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with our 2021 Annual Report on Form 10-K. Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at September 30, 2022 and the results of operations of RLI Corp. (the Company) and subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year. Certain reclassifications were made to 2021 to conform to the classifications used in the current year.
The preparation of the unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated interim financial statements and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ significantly from these estimates.
B. ADOPTED ACCOUNTING STANDARDS
No new accounting standards applicable in 2022 materially impact our financial statements.
C. PROSPECTIVE ACCOUNTING STANDARDS
There are no prospective accounting standards which would have a material impact on our financial statements as of September 30, 2022.
D. REINSURANCE
Ceded unearned premiums and reinsurance balances recoverable on unpaid losses and settlement expenses are reported separately as an asset, rather than being netted with the related liability, since reinsurance does not relieve the Company of our liability to policyholders. Such balances are subject to the credit risk associated with the individual reinsurer. We continually monitor the financial condition of our reinsurers and actively follow up on any past due or disputed amounts. As part of our monitoring efforts, we review reinsurers’ annual financial statements and Securities and Exchange Commission filings for those that are publicly traded. We also review insurance industry developments that may impact the financial condition of our reinsurers. We analyze the credit risk associated with our reinsurance balances recoverable by monitoring the AM Best and Standard & Poor’s (S&P) ratings of our reinsurers. In addition, we subject our reinsurance recoverables to detailed recoverability tests, including a segment-based analysis using the average default rating percentage by S&P rating, which assists the Company in assessing the sufficiency of its allowance. Additionally, we perform an in-depth reinsurer financial condition analysis prior to the renewal of each of our reinsurance placements.
Our policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverable amounts from reinsurers. This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provision for reinsurance balances that we may be unable to recover. Once regulatory action (such as receivership, finding of insolvency, order of conservation or order of liquidation) is taken against a reinsurer, the paid and unpaid recoverable for the reinsurer are specifically identified and written off through use of our allowance for estimated unrecoverable amounts from reinsurers. When we write-off such a balance, it is done in full. We then re-evaluate the overall allowance and determine whether the balance is sufficient and, if needed, an additional allowance is recognized.
The allowances for uncollectible amounts on paid and unpaid reinsurance recoverables were $
7
were applied to the allowances in the first nine months of 2022 and less than $
E. INTANGIBLE ASSETS
The composition of goodwill and intangible assets at September 30, 2022 and December 31, 2021 is detailed in the following table:
September 30, | December 31, | |||||
(in thousands) |
| 2022 |
| 2021 | ||
Goodwill | ||||||
Surety | $ | | $ | | ||
Casualty | | | ||||
Total goodwill | $ | | $ | | ||
Intangibles | ||||||
Indefinite-lived intangibles - state insurance licenses | | | ||||
Total goodwill and intangibles | $ | | $ | |
Annual impairment assessments were performed on our goodwill and state insurance license indefinite-lived intangible asset during the second quarter of 2022. Based upon these reviews,
F. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock or common stock equivalents were exercised or converted into common stock. When inclusion of these items increases the earnings per share or reduces the loss per share, the effect on earnings is anti-dilutive. Under these circumstances, the diluted net earnings or net loss per share is computed excluding these items. The following represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the unaudited condensed consolidated interim financial statements:
For the Three Months | For the Three Months | |||||||||||||||||
Ended September 30, 2022 | Ended September 30, 2021 | |||||||||||||||||
Income | Shares | Per Share | Income | Shares | Per Share | |||||||||||||
(in thousands, except per share data) |
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount | ||||||
Basic EPS | ||||||||||||||||||
Earnings available to common shareholders | $ | |
| | $ | | $ | |
| | $ | | ||||||
Effect of Dilutive Securities | ||||||||||||||||||
Stock options and restricted stock units | — |
| | — |
| | ||||||||||||
Diluted EPS | ||||||||||||||||||
Earnings available to common shareholders | $ | |
| | $ | | $ | |
| | $ | | ||||||
Anti-dilutive securities excluded from diluted EPS | | | ||||||||||||||||
For the Nine Months | For the Nine Months | |||||||||||||||||
Ended September 30, 2022 | Ended September 30, 2021 | |||||||||||||||||
Income | Shares | Per Share | Income | Shares | Per Share | |||||||||||||
(in thousands, except per share data) |
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount | ||||||
Basic EPS | ||||||||||||||||||
Earnings available to common shareholders | $ | |
| | $ | | $ | |
| | $ | | ||||||
Effect of Dilutive Securities |