RLI Corp. (NYSE:RLI) – RLI Corp. reported third quarter 2022 net earnings of $439.9 million ($9.61 per share), compared to net earnings of $29.2 million ($0.64 per share) for the third quarter of 2021. Operating earnings⁽¹⁾ for the third quarter of 2022 were $23.0 million ($0.50 per share), compared to $25.6 million ($0.56 per share) for the same period in 2021.

	Third Quarter				Year to Date
Earnings Per Diluted Share	2022		2021		2022		2021
Net earnings	$	9.61	$	0.64	$	10.61	$	4.03
Operating earnings ^{(1) (2)}	$	0.50	$	0.56	$	3.15	$	2.27

(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 due to the sale of RLI's investment in Maui Jim. Prior period amounts have been restated to reflect the adjustment.

Highlights for the quarter included:

Underwriting income⁽¹⁾ of $8.8 million on a combined ratio⁽¹⁾ of 97.0.
13% increase in gross premiums written.
19% increase in net investment income.
Net earnings include $437.7 million ($9.56 per diluted share) related to the sale of Maui Jim, Inc.
Favorable development in prior years' loss reserves, resulting in a $29.0 million net increase in underwriting income.
Losses from third quarter hurricanes, resulting in a $34.8 million net decrease in underwriting income.
Book value per share of $30.72, an increase of 16% (inclusive of dividends) from year-end 2021.

"After a fairly quiet start to the storm season, Hurricane Ian had an impact on our third quarter results," said RLI Corp. President & CEO Craig Kliethermes. "Our thoughts are with all who have been affected by Ian, and I want to acknowledge the outstanding work our associates are doing to help our policyholders recover. Despite the sizable catastrophe losses related to this event, RLI produced an underwriting profit during the quarter. We also experienced continued growth across all three product segments. It is our financial strength that allows us to fulfill our promise to help restore our customers' businesses and livelihoods following catastrophic events, and we remain focused on delivering on this commitment."

Underwriting Income

RLI achieved $8.8 million of underwriting income in the third quarter of 2022 on a 97.0 combined ratio, compared to $13.7 million on a 94.6 combined ratio in 2021.

Results for the third quarter of both years include favorable development in prior years' loss reserves, which resulted in a $29.0 million and $25.1 million net increase to underwriting income for 2022 and 2021, respectively. The favorable development in 2022 was offset by a $34.8 million net reduction to underwriting income for hurricane losses, compared to $29.8 million of hurricane and storm losses in 2021.

The following table highlights underwriting income and combined ratios by segment.

Underwriting Income (Loss)⁽¹⁾							Combined Ratio⁽¹⁾
(in millions)	2022			2021				2022	2021
Casualty	$	11.3		$	22.9		Casualty	93.7	85.9
Property		(8.3	)		(16.5	)	Property	110.3	127.2
Surety		5.8			7.3		Surety	81.4	75.3
Total	$	8.8		$	13.7		Total	97.0	94.6

(1)

See discussion below: Non-GAAP and Performance Measures.

Other Income

Net investment income for the quarter increased 19.2% to $21.3 million, compared to the same period in 2021. The investment portfolio's total return was -3.4% for the quarter and -13.5% for the nine months ended September 30, 2022.

RLI's comprehensive earnings was $358.6 million for the quarter ($7.84 per share), compared to $17.0 million ($0.37 per share) for the same quarter in 2021. In addition to net earnings, comprehensive earnings included after-tax unrealized losses from the fixed income portfolio, due to rising interest rates.

Equity in earnings (loss) of Maui Jim, Inc. (Maui Jim), a producer of premium sunglasses, was -$18.0 million for the quarter, primarily due to transaction related expenses from the sale of the company. Equity in earnings of Prime Holdings Insurance Services, Inc. (Prime), a specialty insurance company, was $2.9 million. Comparatively, for the third quarter of 2021, equity in earnings of unconsolidated investees from Maui Jim and Prime was $5.4 million and $4.4 million, respectively.

Dividends Paid in Third Quarter of 2022

On September 20, 2022, the company paid a regular quarterly dividend of $0.26 per share, the same amount as the prior quarter. RLI's cumulative dividends total more than $513 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 due to the sale of RLI's investment. Operating earnings and operating EPS for prior periods have been restated to reflect the equity in earnings of Maui Jim adjustment. 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 2022 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

As previously announced, RLI completed the sale of its minority interest in Maui Jim. RLI's pre-tax proceeds from the sale was $686.6 million, and remains subject to customary post-closing working capital and other adjustments. The impact of the sale on RLI's financial statements was a $437.7 million increase to net earnings.

At 10 a.m. central daylight time (CDT) tomorrow, October 20, 2022, 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/974954525.

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, 2021.

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 47 consecutive years and delivered underwriting profits for 26 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)	2022			2021			2022			2021
Favorable development in casualty prior years' reserves	$	28.2		$	26.4		$	72.9		$	83.8
Favorable development in property prior years' reserves	$	3.3		$	0.5		$	20.8		$	8.4
Favorable development in surety prior years' reserves	$	1.8		$	2.5		$	9.3		$	2.6

Net incurred losses related to:
2022 storms	$	—		$	—		$	(5.0	)	$	—
2022 hurricanes	$	(40.0	)	$	—		$	(40.0	)	$	—
2021 and prior events	$	—		$	(34.9	)	$	—		$	(56.9	)

	Operating Earnings Per Share
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Operating Earnings Per Share^{(1) (2)}	$	0.50		$	0.56		$	3.15		$	2.27

Specific items included in operating earnings per share:^{(3) (4)}
Net favorable development in casualty prior years' reserves	$	0.44		$	0.40		$	1.11		$	1.30
Net favorable development in property prior years' reserves	$	0.04		$	—		$	0.31		$	0.09
Net favorable development in surety prior years' reserves	$	0.02		$	0.03		$	0.13		$	0.01

Net incurred losses related to:
2022 storms	$	—		$	—		$	(0.08	)	$	—
2022 hurricanes	$	(0.60	)	$	—		$	(0.60	)	$	—
2021 and prior events	$	—		$	(0.51	)	$	—		$	(0.84	)

(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 due to the sale of RLI's investment in Maui Jim. Prior period amounts have been restated to reflect the adjustment.
(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 2022 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts)

	Three Months Ended September 30,									Nine Months Ended September 30,
SUMMARIZED INCOME STATEMENT DATA:	2022			2021			% Change			2022				2021				% Change
Net premiums earned	$	291,468		$	253,389		15.0		%	$	843,430			$	722,984			16.7		%
Net investment income		21,270			17,844		19.2		%		57,625				50,929			13.1		%
Net realized gains		573,170			1,829		NM				591,562				52,442			NM
Net unrealized gains (losses) on equity securities		(26,414	)		(2,592	)	NM				(155,218	)			29,526			NM
Consolidated revenue	$	859,494		$	270,470		NM			$	1,337,399			$	855,881			56.3		%
Loss and settlement expenses		165,089			143,656		14.9		%		388,527				355,574			9.3		%
Policy acquisition costs		96,977			80,449		20.5		%		271,879				232,674			16.8		%
Insurance operating expenses		20,606			15,560		32.4		%		58,794				54,504			7.9		%
Interest expense on debt		2,013			1,906		5.6		%		6,034				5,711			5.7		%
General corporate expenses		2,755			2,505		10.0		%		8,553				9,533			(10.3	)	%
Total expenses	$	287,440		$	244,076		17.8		%	$	733,787			$	657,996			11.5		%
Equity in earnings (loss) of unconsolidated investees		(17,352	)		9,043		NM				3,061				29,407			(89.6	)	%
Earnings before income taxes	$	554,702		$	35,437		NM			$	606,673			$	227,292			166.9		%
Income tax expense		114,809			6,194		NM				121,096				43,222			180.2		%
Net earnings⁽³⁾	$	439,893		$	29,243		NM			$	485,577			$	184,070			163.8		%

Other comprehensive earnings (loss), net of tax		(81,248	)		(12,240	)	NM				(294,392	)			(41,810	)		NM
Comprehensive earnings	$	358,645		$	17,003		NM			$	191,185			$	142,260			NM

Operating earnings⁽¹⁾:
Net earnings⁽³⁾	$	439,893		$	29,243		NM			$	485,577			$	184,070			163.8		%
Less:
Net realized gains		(573,170	)		(1,829	)	NM				(591,562	)			(52,442	)		NM
Income tax on realized gains		121,199			385		NM				125,061				11,013			NM
Net unrealized (gains) losses on equity securities		26,414			2,592		NM				155,218				(29,526	)		NM
Income tax on unrealized gains (losses) on equity securities		(5,547	)		(544	)	NM				(32,596	)			6,200			NM
Equity in (earnings) loss of Maui Jim		17,993			(5,376	)	NM				3,121				(19,691	)		NM
Income tax on equity in earnings (loss) of Maui Jim		(3,779	)		1,129		NM				(655	)			4,135			NM
Operating earnings⁽²⁾	$	23,004		$	25,600		(10.1	)	%	$	144,164			$	103,759			38.9		%

Return on Equity:
Net earnings (trailing four quarters)											47.8		%		22.8		%
Comprehensive earnings (trailing four quarters)											22.2		%		19.7		%

Per Share Data:
Diluted:
Weighted average shares outstanding (in 000's)		45,775			45,689						45,775				45,714

Net earnings per share⁽²⁾	$	9.61		$	0.64		NM			$	10.61			$	4.03			163.3		%
Less:
Net realized gains		(12.53	)		(0.04	)	NM				(12.93	)			(1.15	)		NM
Income tax on realized gains		2.65			0.01		NM				2.73				0.24			NM
Net unrealized (gains) losses on equity securities		0.58			0.05		NM				3.39				(0.65	)		NM
Income tax on unrealized gains (losses) on equity securities		(0.12	)		(0.01	)	NM				(0.71	)			0.14			NM
Equity in (earnings) loss of Maui Jim		0.39			(0.11	)	NM				0.07				(0.43	)		NM
Income tax on equity in earnings (loss) of Maui Jim		(0.08	)		0.02		NM				(0.01	)			0.09			NM
Operating earnings per share⁽¹⁾⁽²⁾	$	0.50		$	0.56		(10.7	)	%	$	3.15			$	2.27			38.8		%

Comprehensive earnings per share	$	7.84		$	0.37		NM			$	4.18			$	3.11			34.4		%

Cash dividends per share - ordinary	$	0.26		$	0.25		4.0		%	$	0.77			$	0.74			4.1		%

Net Cash Flow provided by Operations	$	112,241		$	115,932		(3.2	)	%	$	282,886			$	280,441			0.9		%

(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 and operating earnings per share due to the sale of RLI's investment in Maui Jim. Prior period amounts have been restated to reflect the adjustment.
(3)		Net earnings include $437.7 million related to the sale of Maui Jim, which was completed in the third quarter of 2022.

NM = Not Meaningful

RLI CORP 2022 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts)

	September 30,		December 31,
	2022		2021		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income, at fair value	$	2,452,039	$	2,409,887	1.7		%
(amortized cost - $2,753,631 at 9/30/22)
(amortized cost - $2,346,267 at 12/31/21)
Equity securities, at fair value		462,988		613,776	(24.6	)	%
(cost - $327,964 at 9/30/22)
(cost - $324,501 at 12/31/21)
Other invested assets		48,837		50,501	(3.3	)	%
Cash and cash equivalents		723,511		88,804	NM
Total investments and cash	$	3,687,375	$	3,162,968	16.6		%

Premiums and reinsurance balances receivable		201,781		167,279	20.6		%
Ceded unearned premiums		137,346		130,916	4.9		%
Reinsurance balances recoverable on unpaid losses		770,858		608,086	26.8		%
Deferred policy acquisition costs		128,979		103,553	24.6		%
Property and equipment		50,385		52,161	(3.4	)	%
Investment in unconsolidated investees		58,105		171,311	(66.1	)	%
Goodwill and intangibles		53,562		53,562	0.0		%
Income taxes - deferred		51,791		—	NM
Other assets		71,483		58,466	22.3		%
Total assets	$	5,211,665	$	4,508,302	15.6		%

Unpaid losses and settlement expenses	$	2,322,737	$	2,043,555	13.7		%
Unearned premiums		786,485		680,444	15.6		%
Reinsurance balances payable		50,349		42,851	17.5		%
Funds held		100,547		89,773	12.0		%
Income taxes - current		132,446		3,092	NM
Income taxes - deferred		—		83,509	(100.0	)	%
Current portion of long-term debt		149,816		—	NM
Long-term debt		50,000		199,676	(75.0	)	%
Accrued expenses		81,066		98,274	(17.5	)	%
Other liabilities		144,226		37,767	NM
Total liabilities	$	3,817,672	$	3,278,941	16.4		%
Shareholders' equity		1,393,993		1,229,361	13.4		%
Total liabilities & shareholders' equity	$	5,211,665	$	4,508,302	15.6		%

OTHER DATA:
Common shares outstanding (in 000's)		45,378		45,289

Book value per share	$	30.72	$	27.14	13.2		%
Closing stock price per share	$	102.38	$	112.10	(8.7	)	%

Statutory surplus	$	1,195,898	$	1,240,649	(3.6	)	%

RLI CORP 2022 FINANCIAL HIGHLIGHTS UNDERWRITING SEGMENT DATA (Unaudited) (Dollars in thousands, except per share amounts)

Three Months Ended September 30,
			GAAP					GAAP				GAAP				GAAP
	Casualty		Ratios		Property			Ratios		Surety		Ratios		Total		Ratios
2022

Gross premiums written	$	240,366			$	126,083				$	37,301			$	403,750
Net premiums written		192,615				90,961					35,256				318,832
Net premiums earned		179,615				80,844					31,009				291,468
Net loss & settlement expenses		100,714	56.1	%		59,347		73.4	%		5,028	16.2	%		165,089	56.6	%
Net operating expenses		67,572	37.6	%		29,805		36.9	%		20,206	65.2	%		117,583	40.4	%
Underwriting income (loss)⁽¹⁾	$	11,329	93.7	%	$	(8,308	)	110.3	%	$	5,775	81.4	%	$	8,796	97.0	%

2021

Gross premiums written	$	232,796			$	90,148				$	33,302			$	356,246
Net premiums written		178,586				68,444					31,623				278,653
Net premiums earned		162,852				60,886					29,651				253,389
Net loss & settlement expenses		84,139	51.7	%		55,695		91.5	%		3,822	12.9	%		143,656	56.7	%
Net operating expenses		55,764	34.2	%		21,749		35.7	%		18,496	62.4	%		96,009	37.9	%
Underwriting income (loss)⁽¹⁾	$	22,949	85.9	%	$	(16,558	)	127.2	%	$	7,333	75.3	%	$	13,724	94.6	%

Nine Months Ended September 30,
			GAAP					GAAP				GAAP				GAAP
	Casualty		Ratios		Property			Ratios		Surety		Ratios		Total		Ratios
2022

Gross premiums written	$	704,502			$	371,529				$	105,667			$	1,181,698
Net premiums written		569,475				273,312					100,254				943,041
Net premiums earned		528,494				222,974					91,962				843,430
Net loss & settlement expenses		278,813	52.8	%		100,187		44.9	%		9,527	10.4	%		388,527	46.1	%
Net operating expenses		189,263	35.8	%		82,514		37.0	%		58,896	64.0	%		330,673	39.2	%
Underwriting income (loss)⁽¹⁾	$	60,418	88.6	%	$	40,273		81.9	%	$	23,539	74.4	%	$	124,230	85.3	%

2021

Gross premiums written	$	658,021			$	256,596				$	95,508			$	1,010,125
Net premiums written		510,913				194,373					90,842				796,128
Net premiums earned		467,817				168,393					86,774				722,984
Net loss & settlement expenses		228,807	48.9	%		111,643		66.3	%		15,124	17.4	%		355,574	49.2	%
Net operating expenses		164,756	35.2	%		65,434		38.9	%		56,988	65.7	%		287,178	39.7	%
Underwriting income (loss)⁽¹⁾	$	74,254	84.1	%	$	(8,684	)	105.2	%	$	14,662	83.1	%	$	80,232	88.9	%

(1)

See discussion above: Non-GAAP and Performance Measures.

Category: Earnings Release

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