Company Quick10K Filing
RLI
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 45 $3,877
10-Q 2019-10-24 Quarter: 2019-09-30
10-Q 2019-07-25 Quarter: 2019-06-30
10-Q 2019-04-24 Quarter: 2019-03-31
10-K 2019-02-22 Annual: 2018-12-31
10-Q 2018-10-24 Quarter: 2018-09-30
10-Q 2018-07-20 Quarter: 2018-06-30
10-Q 2018-04-25 Quarter: 2018-03-31
10-K 2018-02-23 Annual: 2017-12-31
10-Q 2017-10-25 Quarter: 2017-09-30
10-Q 2017-07-26 Quarter: 2017-06-30
10-Q 2017-04-27 Quarter: 2017-03-31
10-K 2017-02-24 Annual: 2016-12-31
10-Q 2016-10-24 Quarter: 2016-09-30
10-Q 2016-07-25 Quarter: 2016-06-30
10-Q 2016-04-25 Quarter: 2016-03-31
10-K 2016-02-26 Annual: 2015-12-31
10-Q 2015-10-23 Quarter: 2015-09-30
10-Q 2015-07-24 Quarter: 2015-06-30
10-Q 2015-04-24 Quarter: 2015-03-31
10-K 2015-02-26 Annual: 2014-12-31
10-Q 2014-10-27 Quarter: 2014-09-30
10-Q 2014-07-28 Quarter: 2014-06-30
10-Q 2014-04-28 Quarter: 2014-03-31
10-K 2014-02-27 Annual: 2013-12-31
10-Q 2013-10-28 Quarter: 2013-09-30
10-Q 2013-07-29 Quarter: 2013-06-30
10-Q 2013-04-29 Quarter: 2013-03-31
10-Q 2012-07-30 Quarter: 2012-06-30
10-Q 2012-04-30 Quarter: 2012-03-31
10-K 2012-02-28 Annual: 2012-01-31
10-Q 2011-10-31 Quarter: 2011-09-30
10-Q 2011-08-05 Quarter: 2011-06-30
10-Q 2011-04-28 Quarter: 2011-03-31
10-K 2011-02-25 Annual: 2010-12-31
10-Q 2010-10-26 Quarter: 2010-09-30
10-Q 2010-07-28 Quarter: 2010-06-30
10-Q 2010-04-26 Quarter: 2010-03-31
10-K 2010-02-24 Annual: 2009-12-31
8-K 2019-11-13 Other Events, Exhibits
8-K 2019-08-21 Accountant, Exhibits
8-K 2019-08-14 Other Events, Exhibits
8-K 2019-07-18 Regulation FD, Exhibits
8-K 2019-07-17 Earnings, Exhibits
8-K 2019-06-10 Officers
8-K 2019-05-02 Shareholder Vote, Other Events, Exhibits
8-K 2019-05-02 Officers, Exhibits
8-K 2019-04-18 Regulation FD, Exhibits
8-K 2019-04-17 Earnings, Exhibits
8-K 2019-02-07 Other Events, Exhibits
8-K 2019-01-24 Regulation FD, Exhibits
8-K 2019-01-23 Earnings, Exhibits
8-K 2018-11-08 Other Events, Exhibits
8-K 2018-11-08 Code of Ethics
8-K 2018-10-18 Regulation FD, Exhibits
8-K 2018-10-17 Earnings, Exhibits
8-K 2018-08-15 Other Events, Exhibits
8-K 2018-08-15 Other Events, Exhibits
8-K 2018-08-14 Officers, Exhibits
8-K 2018-07-19 Regulation FD, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-05-24 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-03 Shareholder Vote, Other Events, Exhibits
8-K 2018-05-03 Shareholder Vote, Other Events, Exhibits
8-K 2018-04-19 Regulation FD, Exhibits
8-K 2018-04-18 Earnings, Exhibits
8-K 2018-02-08 Other Events, Exhibits
8-K 2018-01-25 Regulation FD, Exhibits
8-K 2018-01-24 Earnings, Exhibits
RLI 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 3. Defaults Upon Senior Securities - Not Applicable. Item 4.Mine Safety Disclosures - Not Applicable. Item 5.Other Information - Not Applicable.
EX-31.1 rli-20190930ex31100f390.htm
EX-31.2 rli-20190930ex31244accf.htm
EX-32.1 rli-20190930ex32170e6e4.htm
EX-32.2 rli-20190930ex322c8147c.htm

RLI Earnings 2019-09-30

RLI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
AXS 5,046 25,870 20,304 3,877 0 152 241 3,952 0% 16.4 1%
MTG 5,036 6,056 2,020 1,160 0 659 880 5,643 0% 6.4 11%
RDN 4,834 6,592 2,809 1,421 1,318 620 849 4,755 93% 5.6 9%
ESNT 4,820 3,540 836 791 0 509 606 5,020 0% 8.3 14%
SIGI 4,547 8,576 6,516 2,715 0 241 322 5,164 0% 16.1 3%
AGO 4,405 13,581 6,859 949 0 445 607 5,444 0% 9.0 3%
RLI 3,877 3,375 2,415 915 0 125 144 4,001 0% 27.7 4%
ESGR 3,689 18,225 13,262 2,012 0 491 572 3,662 0% 6.4 3%
WTM 3,433 3,752 744 767 75 178 236 3,513 10% 14.9 5%
MCY 3,399 5,717 3,949 2,896 1,993 196 278 3,158 69% 11.4 3%

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Table of Contents

13

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 September 30, 2019

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 October 14, 2019, the number of shares outstanding of the registrant’s Common Stock was 44,836,488.

Table of Contents

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 Nine-Month Periods Ended September 30, 2019 and 2018 (unaudited)

3

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited)

4

Condensed Consolidated Statements of Shareholders’ Equity For the Three and Nine-Month Periods Ended September 30, 2019 and 2018 (unaudited)

5

Condensed Consolidated Statements of Cash Flows For the Nine-Month Periods Ended September 30, 2019 and 2018 (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

36

Item 4.

Controls and procedures

36

Part II - Other Information

36

Item 1.

Legal proceedings

36

Item 1a.

Risk factors

36

Item 2.

Unregistered sales of equity securities and use of proceeds

36

Item 3.

Defaults upon senior securities

36

Item 4.

Mine safety disclosures

36

Item 5.

Other information

36

Item 6.

Exhibits

37

Signatures

38

2

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-Month Periods

For the Nine-Month Periods

Ended September 30,

Ended September 30,

(in thousands, except per share data)

2019

2018

2019

2018

Net premiums earned

   

$

211,255

    

$

200,815

$

623,485

$

587,364

Net investment income

 

17,532

 

16,314

 

51,095

 

45,123

Net realized gains

 

3,211

 

18,808

 

17,043

 

48,117

Other-than-temporary impairment (OTTI) losses on investments

-

(161)

-

(217)

Net unrealized gains (losses) on equity securities

4,906

4,848

47,214

(34,535)

Consolidated revenue

$

236,904

$

240,624

$

738,837

$

645,852

Losses and settlement expenses

 

108,990

 

110,231

 

307,206

 

304,305

Policy acquisition costs

 

71,552

 

68,414

 

214,586

 

201,473

Insurance operating expenses

 

16,982

 

14,408

 

50,597

 

42,191

Interest expense on debt

 

1,861

 

1,862

 

5,583

 

5,576

General corporate expenses

 

2,583

 

2,947

 

9,142

 

7,871

Total expenses

$

201,968

$

197,862

$

587,114

$

561,416

Equity in earnings of unconsolidated investees

 

4,011

 

3,587

 

17,793

 

15,853

Earnings before income taxes

$

38,947

$

46,349

$

169,516

$

100,289

Income tax expense

 

6,623

 

6,977

 

31,252

 

15,450

Net earnings

 

$

32,324

 

$

39,372

$

138,264

$

84,839

Other comprehensive earnings (loss), net of tax

 

15,341

 

(7,696)

 

72,506

 

(41,769)

Comprehensive earnings

 

$

47,665

 

$

31,676

$

210,770

$

43,070

Earnings per share:

Basic:

Basic net earnings per share

 

$

0.72

 

$

0.89

$

3.09

$

1.91

Basic comprehensive earnings per share

 

$

1.06

 

$

0.71

$

4.72

$

0.97

Diluted:

Diluted net earnings per share

 

$

0.71

 

$

0.88

$

3.06

$

1.90

Diluted comprehensive earnings per share

 

$

1.05

 

$

0.70

$

4.66

$

0.96

Weighted average number of common shares outstanding:

Basic

 

44,823

 

44,400

 

44,689

 

44,311

Diluted

 

45,349

 

44,940

 

45,192

 

44,760

Cash dividends paid per common share

 

$

0.23

 

$

0.22

$

0.68

$

0.65

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

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RLI Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

September 30,

December 31,

(in thousands, except share data)

    

2019

    

2018

ASSETS

   

   

Investments and cash:

Fixed income:

Available-for-sale, at fair value (amortized cost - $1,881,963 at 9/30/19 and $1,776,465 at 12/31/18)

 

$

1,957,025

 

$

1,760,515

Equity securities, at fair value (cost - $260,883 at 9/30/19 and $220,373 at 12/31/18)

 

428,297

 

340,483

Short-term investments, at cost which approximates fair value

 

5,534

 

11,550

Other invested assets

59,577

51,542

Cash

 

64,048

 

30,140

Total investments and cash

$

2,514,481

$

2,194,230

Accrued investment income

 

14,547

 

14,033

Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $16,860 at 9/30/19 and $16,967 at 12/31/18

 

157,111

 

152,576

Ceded unearned premium

 

88,174

 

71,174

Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $9,764 at 9/30/19 and $9,793 at 12/31/18

 

382,030

 

364,999

Deferred policy acquisition costs

 

86,523

 

84,934

Property and equipment, at cost, net of accumulated depreciation of $60,299 at 9/30/19 and $54,275 at 12/31/18

 

52,626

 

54,692

Investment in unconsolidated investees

 

113,528

 

94,967

Goodwill and intangibles

 

54,228

 

54,534

Other assets

 

41,816

 

18,926

TOTAL ASSETS

 

$

3,505,064

 

$

3,105,065

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities

Unpaid losses and settlement expenses

 

$

1,557,358

 

$

1,461,348

Unearned premiums

 

532,493

 

496,505

Reinsurance balances payable

 

25,690

 

22,591

Funds held

 

78,161

 

72,309

Income taxes-deferred

 

55,910

 

24,238

Bonds payable, long-term debt

 

149,255

 

149,115

Accrued expenses

 

47,952

 

45,124

Other liabilities

 

58,625

 

26,993

TOTAL LIABILITIES

 

$

2,505,444

 

$

2,298,223

Shareholders’ Equity

Common stock ($0.01 par value, 100,000,000 shares authorized)

(67,762,302 shares issued, 44,832,088 shares outstanding at 9/30/19)

(67,434,257 shares issued, 44,504,043 shares outstanding at 12/31/18)

$

678

$

674

Paid-in capital

 

318,092

 

305,660

Accumulated other comprehensive earnings (loss)

 

57,934

 

(14,572)

Retained earnings

 

1,015,915

 

908,079

Deferred compensation

 

7,788

 

8,354

Less: Treasury shares at cost

(22,930,214 shares at 9/30/19 and 12/31/18)

 

(400,787)

 

(401,353)

TOTAL SHAREHOLDERS’ EQUITY

$

999,620

$

806,842

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,505,064

 

$

3,105,065

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

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RLI Corp. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

   

   

   

   

   

Accumulated

   

   

   

 

Total

Other

Common

Shareholders’

Common

Paid-in

Comprehensive

Retained

Deferred

Treasury

(in thousands, except share and per share data)

Shares

Equity

Stock

Capital

Earnings (Loss)

Earnings

Compensation

Shares at Cost

Balance, January 1, 2018

 

44,148,355

$

853,598

$

67,079

$

233,077

$

157,919

$

788,522

$

8,640

$

(401,639)

Cumulative-effect adjustment from ASU 2016-01 and 2018-02

86

(138,494)

138,580

Net earnings

 

12,216

12,216

Other comprehensive earnings (loss), net of tax

 

 

(26,398)

 

 

 

(26,398)

 

 

 

Deferred compensation

 

 

 

 

 

 

 

(584)

 

584

Share-based compensation

 

104,771

 

2,721

 

104

 

2,617

 

 

 

 

Dividends and dividend equivalents ($0.21 per share)

 

 

(9,290)

 

 

 

 

(9,290)

 

 

Balance, March 31, 2018

 

44,253,126

$

832,933

$

67,183

$

235,694

$

(6,973)

$

930,028

$

8,056

$

(401,055)

Par value conversion from $1.00 per share to $0.01 per share

(66,513)

66,513

Net earnings

 

33,251

33,251

Other comprehensive earnings (loss), net of tax

 

 

(7,675)

 

 

 

(7,675)

 

 

 

Deferred compensation

 

 

 

 

 

 

 

(120)

 

120

Share-based compensation

 

86,813

 

1,041

 

3

 

1,038

 

 

 

 

Dividends and dividend equivalents ($0.22 per share)

 

 

(9,753)

 

 

 

 

(9,753)

 

 

Balance, June 30, 2018

 

44,339,939

$

849,797

$

673

$

303,245

$

(14,648)

$

953,526

$

7,936

$

(400,935)

Net earnings

 

39,372

39,372

Other comprehensive earnings (loss), net of tax

 

 

(7,696)

 

 

 

(7,696)

 

 

 

Deferred compensation

 

 

 

 

 

 

 

(171)

 

171

Share-based compensation

 

144,715

 

155

 

1

 

154

 

 

 

 

Dividends and dividend equivalents ($0.22 per share)

 

 

(9,772)

 

 

 

 

(9,772)

 

 

Balance, September 30, 2018

 

44,484,654

$

871,856

$

674

$

303,399

$

(22,344)

$

983,126

$

7,765

$

(400,764)

   

   

   

   

   

Accumulated

   

   

   

Total

Other

 

Common

Shareholders’

Common

Paid-in

Comprehensive

Retained

Deferred

Treasury

 

(in thousands, except share and per share data)

Shares

Equity

Stock

Capital

Earnings (Loss)

Earnings

Compensation

Shares at Cost

 

Balance, January 1, 2019

 

44,504,043

$

806,842

$

674

$

305,660

$

(14,572)

$

908,079

$

8,354

$

(401,353)

Net earnings

 

65,473

65,473

Other comprehensive earnings (loss), net of tax

 

 

29,301

 

 

 

29,301

 

 

 

Deferred compensation

 

 

 

 

 

 

 

(1,039)

 

1,039

Share-based compensation

 

50,213

 

2,892

 

1

 

2,891

 

 

 

 

Dividends and dividend equivalents ($0.22 per share)

 

 

(9,803)

 

 

 

 

(9,803)

 

 

Balance, March 31, 2019

 

44,554,256

$

894,705

$

675

$

308,551

$

14,729

$

963,749

$

7,315

$

(400,314)

Net earnings

 

40,467

40,467

Other comprehensive earnings (loss), net of tax

 

 

27,864

 

 

 

27,864

 

 

 

Deferred compensation

 

 

 

 

 

 

 

215

 

(215)

Share-based compensation

 

232,941

 

7,217

 

2

 

7,215

 

 

 

 

Dividends and dividend equivalents ($0.23 per share)

 

 

(10,305)

 

 

 

 

(10,305)

 

 

Balance, June 30, 2019

 

44,787,197

$

959,948

$

677

$

315,766

$

42,593

$

993,911

$

7,530

$

(400,529)

Net earnings

 

32,324

32,324

Other comprehensive earnings (loss), net of tax

 

 

15,341

 

 

 

15,341

 

 

 

Deferred compensation

 

 

 

 

 

 

 

258

 

(258)

Share-based compensation

 

44,891

 

2,327

 

1

 

2,326

 

 

 

 

Dividends and dividend equivalents ($0.23 per share)

 

 

(10,320)

 

 

 

 

(10,320)

 

 

Balance, September 30, 2019

 

44,832,088

$

999,620

$

678

$

318,092

$

57,934

$

1,015,915

$

7,788

$

(400,787)

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

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RLI Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the Nine-Month Periods

Ended September 30,

(in thousands)

2019

2018

Net cash provided by operating activities

    

$

186,762

    

$

163,369

Cash Flows from Investing Activities

Investments purchased

$

(466,039)

$

(636,859)

Investments sold

 

222,893

 

444,637

Investments called or matured

 

106,241

 

102,244

Net change in short-term investments

 

6,016

 

(8,546)

Net property and equipment purchased

 

(4,056)

 

(4,838)

Other

83

89

Net cash used in investing activities

 

$

(134,862)

 

$

(103,273)

Cash Flows from Financing Activities

Cash dividends paid

 

$

(30,428)

 

$

(28,815)

Proceeds from stock option exercises

 

12,436

 

3,917

Net cash used in financing activities

 

$

(17,992)

 

$

(24,898)

Net increase in cash

$

33,908

$

35,198

Cash at the beginning of the period

$

30,140

$

24,271

Cash at September 30

 

$

64,048

 

$

59,469

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. DESCRIPTION OF BUSINESS

RLI Corp. (the Company) is an insurance holding company that was organized in 1965. As reported in previous SEC filings, RLI Corp. changed its state of incorporation from the State of Illinois to the State of Delaware on May 4, 2018 (the Reincorporation). The Reincorporation was effected by merging RLI Corp., an Illinois corporation (RLI Illinois) into RLI Corp., a Delaware corporation (RLI Delaware). Each outstanding share of RLI Illinois common stock, which had a par value of $1.00 per share, was automatically converted into one outstanding share of RLI Delaware common stock, with a par value of $0.01 per share. In order to reflect the new par value of common stock on the balance sheet, a $66.5 million reclassification from common stock to paid-in-capital was made during the second quarter of 2018. For more information on the Reincorporation, see RLI Corp.’s Form 8-K filed on May 7, 2018.

B. 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 of 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 2018 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, 2019 and the results of operations of RLI Corp. 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 2018 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.

C. ADOPTED ACCOUNTING STANDARDS

ASU 2016-02, Leases (Topic 842)

ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under previous guidance for lessees, leases were only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, were met. This update requires the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability are expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability is recognized separately from the amortization of the right-of-use asset in the statement of earnings and the repayment of the principal portion of the lease liability is classified as a financing activity while the interest component is included in the operating section of the statement of cash flows.

We adopted ASU 2016-02, ASU 2018-10 Codification Improvements to Topic 842: Leases and ASU 2018-11 Leases (Topic 842): Targeted Improvements on January 1, 2019. We applied the standards using the alternative transition method provided by ASU 2018-11 under which leases were recognized at the date of adoption and a cumulative-effect adjustment to the opening balance of retained earnings would have been recognized in the period of adoption. As the standard did not have an impact on our net earnings, no adjustment to the opening balance of retained earnings was required. As of September 30, 2019, $23.6 million of right-of-use assets and $25.8 million of lease liabilities were included in the other assets and other liabilities line items of the balance sheet, respectively, as a result of the adoption of this update. We implemented controls for the adoption of the standard and the ongoing monitoring of the right-of-use asset and lease liability, but they did not materially affect our internal control over financial reporting.

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ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

Under previous guidance, the amortization period for callable debt securities held at a premium was generally the contractual life of the instrument. However, if an entity had a large number of similar loans, it could consider estimates of future principal prepayments. For those who chose not to incorporate an estimate of future prepayments, ASU 2017-08 shortens the amortization period for premium on debt securities to the earliest call date, rather than the maturity date, to align the amortization method with how the securities are quoted, priced and traded. After the earliest call date, if the call option is not exercised, the entity shall reset the effective yield using the payment terms of the debt security. Any excess of the amortized cost basis over the amount payable will be amortized to the next call date or to maturity if there are no other call dates. The method of accounting for a discount does not change and will continue to be amortized over the life of the bond.

We adopted ASU 2017-08 on January 1, 2019 using a modified-retrospective approach. As we had been incorporating estimates of future principal prepayments when calculating the effective yield for bonds carrying a premium under the old guidance, the adoption of this update did not have a material impact on our financial statements.

ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting

ASU 2018-07 was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. We adopted ASU 2018-07 on January 1, 2019. Our long-term incentive plan limits the awards of share-based payments to employees and directors of the Company. As our share-based compensation expense to nonemployee directors was $0.5 million in the first nine months of 2019, the standard did not have a material impact on our financial statements.

D. PROSPECTIVE ACCOUNTING STANDARDS

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial instruments. Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred. The update will require a financial asset measured at amortized cost, including reinsurance balances recoverable, to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net earnings. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses. However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale securities is similar under current GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down.

This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. Upon adoption, the update will be applied using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This update will have the most impact on our available-for-sale fixed income portfolio and reinsurance balances recoverable. However, as our fixed income portfolio is weighted towards higher rated bonds (84.5 percent rated A or better at September 30, 2019) and we purchase reinsurance from financially strong reinsurers for which we already have an allowance for uncollectible reinsurance amounts, we do not expect that the effect of adoption will be material.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

ASU 2018-13 modifies the disclosure requirements for assets and liabilities measured at fair value. The requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements have all been removed. However, the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period must be disclosed along with the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (or other quantitative information if it is more

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reasonable). Finally, for investments measured at net asset value, the requirements have been modified so that the timing of liquidation and the date when restrictions from redemption might lapse are only disclosed if the investee has communicated the timing to the entity or announced the timing publicly.

This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. As the amendments are only disclosure related and we do not currently have any assets or liabilities that are measured based on Level 3 inputs, our financial statements will not be materially impacted by this update.

ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

ASU 2018-15 requires a customer in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Relevant implementation costs in the development stage are capitalized, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. Capitalized costs are expensed over the term of the hosting arrangement. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. This update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating how the adoption of this ASU will affect our financial statements.

E. INTANGIBLE ASSETS

Goodwill and intangible assets totaled $54.2 million and $54.5 million at September 30, 2019 and December 31, 2018, respectively, as detailed in the following table:

Goodwill and Intangible Assets

September 30,

December 31,

(in thousands)

2019

2018

Goodwill

Energy surety

$

25,706

$

25,706

Miscellaneous and contract surety

15,110

15,110

Small commercial

5,246

5,246

Total goodwill

$

46,062

$

46,062

Intangibles

State insurance licenses

$

7,500

$

7,500

Definite-lived intangibles, net of accumulated amortization of $3,368 at 9/30/19 and $3,062 at 12/31/18

666

972

Total intangibles

$

8,166

$

8,472