10-Q 1 rli-10q_20220630.htm 10-Q rli-10q_20220630.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2022

 

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:    001-09463

 

RLI Corp.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

37-0889946

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

9025 North Lindbergh Drive, PeoriaIL

 

61615

(Address of principal executive offices)

 

(Zip Code)

 

(309) 692-1000

(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

Common Stock $0.01 par value

RLI

New York Stock Exchange

 

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.   Yes     No

 

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).   Yes     No

 

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.

 

 

 

 

 

 

 

Large accelerated filer 

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    No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

As of July 14, 2022, the number of shares outstanding of the registrant’s Common Stock was 45,368,804.

 

 

 


 

 

Table of Contents

 

 

 

 

Page

 

 

 

 

Part I - Financial Information

3

 

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

 

 

Condensed Consolidated Statements of Earnings and Comprehensive Earnings for the Three and Six-Month Periods Ended June 30, 2022 and 2021 (unaudited)

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (unaudited)

4

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six-Month Periods Ended June 30, 2022 and 2021 (unaudited)

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2022 and 2021 (unaudited)

6

 

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Interim Financial Statements

7

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34

 

 

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

 

Part II - Other Information

35

 

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

 

 

Item 1a.

Risk Factors

35

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

 

 

Item 3.

Defaults upon Senior Securities

35

 

 

 

 

 

Item 4.

Mine Safety Disclosures

35

 

 

 

 

 

Item 5.

Other Information

35

 

 

 

 

 

Item 6.

Exhibits

35

 

 

 

 

Signatures

 

36

 


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 Six Months

 

 

 

Ended June 30,

 

 

Ended June 30,

 

(in thousands, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net premiums earned

 

$

282,810

 

 

$

241,000

 

 

$

551,962

 

 

$

469,595

 

Net investment income

 

 

18,472

 

 

 

16,661

 

 

 

36,355

 

 

 

33,085

 

Net realized gains

 

 

12,804

 

 

 

36,463

 

 

 

18,392

 

 

 

50,613

 

Net unrealized gains (losses) on equity securities

 

 

(100,994

)

 

 

3,956

 

 

 

(128,804

)

 

 

32,118

 

Consolidated revenue

 

$

213,092

 

 

$

298,080

 

 

$

477,905

 

 

$

585,411

 

Losses and settlement expenses

 

 

117,914

 

 

 

107,026

 

 

 

223,438

 

 

 

211,918

 

Policy acquisition costs

 

 

89,615

 

 

 

77,235

 

 

 

174,902

 

 

 

152,225

 

Insurance operating expenses

 

 

19,325

 

 

 

20,148

 

 

 

38,188

 

 

 

38,944

 

Interest expense on debt

 

 

2,011

 

 

 

1,904

 

 

 

4,021

 

 

 

3,805

 

General corporate expenses

 

 

2,435

 

 

 

3,686

 

 

 

5,798

 

 

 

7,028

 

Total expenses

 

$

231,300

 

 

$

209,999

 

 

$

446,347

 

 

$

413,920

 

Equity in earnings of unconsolidated investees

 

 

11,654

 

 

 

13,940

 

 

 

20,413

 

 

 

20,364

 

Earnings (loss) before income taxes

 

$

(6,554

)

 

$

102,021

 

 

$

51,971

 

 

$

191,855

 

Income tax expense (benefit)

 

 

(4,315

)

 

 

20,206

 

 

 

6,287

 

 

 

37,028

 

Net earnings (loss)

 

$

(2,239

)

 

$

81,815

 

 

$

45,684

 

 

$

154,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive earnings (loss), net of tax

 

 

(97,563

)

 

 

15,177

 

 

 

(213,144

)

 

 

(29,570

)

Comprehensive earnings (loss)

 

$

(99,802

)

 

$

96,992

 

 

$

(167,460

)

 

$

125,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings (loss) per share

 

$

(0.05

)

 

$

1.81

 

 

$

1.01

 

 

$

3.43

 

Diluted net earnings (loss) per share

 

$

(0.05

)

 

$

1.79

 

 

$

1.00

 

 

$

3.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

45,354

 

 

 

45,226

 

 

 

45,330

 

 

 

45,202

 

Diluted

 

 

45,354

 

 

 

45,715

 

 

 

45,748

 

 

 

45,703

 

 

See accompanying notes to the unaudited condensed consolidated interim financial statements.

3


Table of Contents

 

RLI Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

June 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

 

$

2,280,909

 

 

$

2,409,887

 

(amortized cost of $2,480,480 and allowance for credit losses of $292 at 6/30/22)

 

 

 

 

 

 

 

 

(amortized cost of $2,346,267 and allowance for credit losses of $441 at 12/31/21)

 

 

 

 

 

 

 

 

Equity securities, at fair value (cost - $327,246 at 6/30/22 and $324,501 at 12/31/21)

 

 

487,995

 

 

 

613,776

 

Other invested assets

 

 

51,018

 

 

 

50,501

 

Cash

 

 

113,044

 

 

 

88,804

 

Total investments and cash

 

$

2,932,966

 

 

$

3,162,968

 

Accrued investment income

 

 

18,465

 

 

 

17,505

 

Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $18,193 at 6/30/22 and $18,067 at 12/31/21

 

 

191,391

 

 

 

167,279

 

Ceded unearned premium

 

 

132,417

 

 

 

130,916

 

Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $10,949 at 6/30/22 and $11,188 at 12/31/21

 

 

666,730

 

 

 

608,086

 

Deferred policy acquisition costs

 

 

123,055

 

 

 

103,553

 

Property and equipment, at cost, net of accumulated depreciation of $71,680 at 6/30/22 and $75,236 at 12/31/21

 

 

50,955

 

 

 

52,161

 

Investment in unconsolidated investees

 

 

187,310

 

 

 

171,311

 

Goodwill and intangibles

 

 

53,562

 

 

 

53,562

 

Other assets

 

 

44,912

 

 

 

40,961

 

TOTAL ASSETS

 

$

4,401,763

 

 

$

4,508,302

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

$

2,150,519

 

 

$

2,043,555

 

Unearned premiums

 

 

754,192

 

 

 

680,444

 

Reinsurance balances payable

 

 

39,291

 

 

 

42,851

 

Funds held

 

 

101,983

 

 

 

89,773

 

Income taxes-deferred

 

 

2,389

 

 

 

83,509

 

Bonds payable, long-term debt

 

 

199,769

 

 

 

199,676

 

Accrued expenses

 

 

68,052

 

 

 

98,274

 

Other liabilities

 

 

41,380

 

 

 

40,859

 

TOTAL LIABILITIES

 

$

3,357,575

 

 

$

3,278,941

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common stock ($0.01 par value)

 

 

 

 

 

 

 

 

(Shares authorized - 200,000,000)

 

 

 

 

 

 

 

 

(68,299,018 shares issued, 45,368,804 shares outstanding at 6/30/22)

 

 

 

 

 

 

 

 

(68,219,551 shares issued, 45,289,337 shares outstanding at 12/31/21)

 

$

683

 

 

$

682

 

Paid-in capital

 

 

349,161

 

 

 

343,742

 

Accumulated other comprehensive earnings (loss)

 

 

(163,318

)

 

 

49,826

 

Retained earnings

 

 

1,250,661

 

 

 

1,228,110

 

Deferred compensation

 

 

8,945

 

 

 

9,642

 

Less: Treasury shares, at cost (22,930,214 shares at 6/30/22 and 12/31/21)

 

 

(401,944

)

 

 

(402,641

)

TOTAL SHAREHOLDERS’ EQUITY

 

$

1,044,188

 

 

$

1,229,361

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

4,401,763

 

 

$

4,508,302

 

 

See accompanying notes to the unaudited condensed consolidated interim financial statements.

4


Table of Contents

 

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

 

 

45,142,580

 

 

$

1,135,978

 

 

$

681

 

 

$

335,365

 

 

$

108,714

 

 

$

1,084,217

 

 

$

8,292

 

 

$

(401,291

)

Net earnings (loss)

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

(44,747

)

 

 

 

 

 

 

 

 

(44,747

)

 

 

 

 

 

 

 

 

 

Deferred compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(366

)

 

 

366

 

Share-based compensation

 

 

60,858

 

 

 

1,392

 

 

 

 

 

 

1,392

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and dividend equivalents ($0.24 per share)

 

 

 

 

 

(10,849

)

 

 

 

 

 

 

 

 

 

 

 

(10,849

)

 

 

 

 

 

 

Balance, March 31, 2021

 

 

45,203,438

 

 

$

1,154,786

 

 

$

681

 

 

$

336,757

 

 

$

63,967

 

 

$

1,146,380

 

 

$

7,926

 

 

$

(400,925

)

Net earnings (loss)

 

 

 

 

 

81,815

 

 

 

 

 

 

 

 

 

 

 

 

81,815

 

 

 

 

 

 

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

15,177

 

 

 

 

 

 

 

 

 

15,177

 

 

 

 

 

 

 

 

 

 

Deferred compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

325

 

 

 

(325

)

Share-based compensation

 

 

19,905

 

 

 

1,343

 

 

 

1

 

 

 

1,342

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and dividend equivalents ($0.25 per share)

 

 

 

 

 

(11,318

)

 

 

 

 

 

 

 

 

 

 

 

(11,318

)

 

 

 

 

 

 

Balance, June 30, 2021

 

 

45,223,343

 

 

$

1,241,803

 

 

$

682

 

 

$

338,099

 

 

$

79,144

 

 

$

1,216,877

 

 

$

8,251

 

 

$

(401,250

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

45,289,337

 

 

$

1,229,361

 

 

$

682

 

 

$

343,742

 

 

$

49,826

 

 

$

1,228,110

 

 

$

9,642

 

 

$

(402,641

)

Net earnings (loss)

 

 

 

 

 

47,923

 

 

 

 

 

 

 

 

 

 

 

 

47,923

 

 

 

 

 

 

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

(115,581

)

 

 

 

 

 

 

 

 

(115,581

)

 

 

 

 

 

 

 

 

 

Deferred compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(973

)

 

 

973

 

Share-based compensation

 

 

26,605

 

 

 

3,049

 

 

 

 

 

 

3,049

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and dividend equivalents ($0.25 per share)

 

 

 

 

 

(11,330

)

 

 

 

 

 

 

 

 

 

 

 

(11,330

)

 

 

 

 

 

 

Balance, March 31, 2022

 

 

45,315,942

 

 

$

1,153,422

 

 

$

682

 

 

$

346,791

 

 

$

(65,755

)