RLI Reports Second Quarter Earnings

RLI Corp. (NYSE: RLI) – RLI Corp. reported second quarter 2008 net earnings of $38.7 million ($1.77 per share). For the six months ended June 30, 2008, net earnings were $64.1 million ($2.91 per share).         Second Quarter Earnings Per Diluted Share   2008   2007 Net earnings $1.77   $2.04 Operating earnings   $1.53   $1.64 Highlights for the quarter included: Operating earnings of $33.4 million ($1.53 per share). Combined ratio of 78.0. Book value per share of $34.72. Net operating cash flow of $38.5 million. Favorable development from prior years’ loss reserves of $17.4 million pretax ($0.52 per share), net of bonus and profit-sharing related expenses. Midwest flood property losses of $2.2 million pretax ($0.06 per share). "We are pleased with our second quarter results. Our results demonstrate the positive influence of our commitment to underwriting discipline especially in the face of today’s soft market,” said RLI Corp. President & CEO Jonathan E. Michael. "We continue to optimistically look to the future as we build capabilities through our profit-driven, underwriting-focused business model.” Operating earnings for the first six months of 2008 were $56.4 million ($2.56 per share) versus $69.6 million ($2.83 per share) for the comparable period last year. Please refer to the table on Page 2 of this release for the quarterly and year-to-date impact of specific items. Second quarter underwriting results RLI achieved $29.1 million of underwriting income in the second quarter of 2008 on a 78.0 combined ratio, compared to $39.1 million of underwriting income on a 71.6 combined ratio in the same quarter for 2007.               Underwriting Income   Second Quarter     Second Quarter (in millions)     2008   2007 Combined Ratio   2008   2007 Casualty $15.5   $25.3 Casualty 80.2   71.2 Property 9.5 8.8 Property 74.0 74.6 Surety       4.1   5.0 Surety   76.2   66.9 Total       $29.1   $39.1 Total   78.0   71.6 RLI reported year-to-date underwriting income of $43.8 million representing an 83.6 combined ratio versus the $64.7 million underwriting income representing a 76.5 combined ratio for the same period last year. Other income For the quarter, investment income grew 2.8% to $19.6 million. For the six month period ended June 30, 2008, investment income was $38.9 million, up 2.1% over the same period last year. The investment portfolio’s total return for the quarter was -0.5%; the bond portfolio was -0.2% and the equity portfolio was -1.9%. Through six months, the investment portfolio’s total return was -0.6% with the bond portfolio returning 1.4% and equities returning -8.9%. Our investment returns continue to outpace the leading market indices including the U.S. Lehman Aggregate, 1.1% return year to date, and the S&P 500, -11.9% return year to date. Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $13.3 million for the quarter ($0.61 per share) versus $34.9 million ($1.43 per share) over the same period in 2007. Year-to-date comprehensive earnings were $19.9 million, or $0.91 per share, compared to $68.0 million ($2.77 per share) for the same period last year. Supplemental disclosure regarding the earnings impact of specific items   Operating Earnings Per Share 2008   2007 2nd Qtr   6 mos. 2nd Qtr   6 mos. Operating Earnings Per Share $ 1.53 $ 2.56 $ 1.64 $ 2.83   Specific items included in operating earnings per share: (1) (2) -- Gain from favorable casualty prior years' reserve development $ 0.44 $ 0.44 $ 0.46 $ 0.79 -- Gain from favorable property prior years' reserve development $ 0.05 $ 0.05 $ 0.03 $ 0.03 -- Gain from favorable surety prior years' reserve development $ 0.03 $ 0.03 $ 0.04 $ 0.04   (1) Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses. (2) Favorable developments reflect revisions for previously estimated losses. Other news During the quarter, the company announced the creation of a new product division, RLI Fidelity. The group will focus on financial fidelity and commercial crime insurance products, and will be located in New York City. In the second quarter of 2008, we repurchased 318,000 of our shares at an average cost of $49.96 ($15.9 million). As of June 30, 2008, we have $40.1 million of remaining capacity from the $200 million repurchase program approved in 2007. The company paid a second quarter cash dividend of $0.25 per share on July 15, 2008. The dividend is a two-cent, or 9% increase over the prior quarter’s dividend. RLI’s cumulative dividends, including this recent payment, are more than $166 million paid in 128 consecutive quarterly dividends. The company’s dividend yield would be 2.2%, based on the $1.00 annualized dividend and today’s closing stock price of $44.64. At 10 a.m. CDT tomorrow, July 16, 2008, RLI management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion through the Internet at RLI’s website, www.rlicorp.com. Underwriting income, operating earnings, earnings per share (EPS) from operations and other per share items are non-GAAP financial measures, and we believe that investors’ understanding of RLI’s core operating performance is enhanced by our disclosure of these financial measures. Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting losses and settlement expenses, policy acquisition costs, and insurance operating expenses from net premium earned. Operating earnings and EPS from operations consist of our net earnings reduced by net realized investment gains and taxes related to net realized gains. Our definitions of these items may not be comparable to the definitions used by other companies. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. All earnings per share data are calculated using fully diluted shares. Combined ratio refers to a GAAP combined ratio. S&P 500 returns provided by Standard and Poor’s. U.S. Lehman Aggregate returns provided by Lehman Brothers. 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, 2007. RLI, a specialty insurance company, offers a diversified portfolio of property and casualty coverages and surety bonds serving "niche" or underserved markets. RLI operates in all 50 states from office locations across the country. The company's talented associates have delivered underwriting profits in 27 of the last 31 years, including the last 12. RLI's insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company and RLI Indemnity Company – are rated A+ "Superior" by A.M. Best Company and A+ "Strong" by Standard & Poor's. For additional information, contact Treasurer John Robison at (309) 693-5846 or at john.robison@rlicorp.com or visit our website at www.rlicorp.com. RLI CORP. 2008 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts)               Three Months Ended June 30, Six Months Ended June 30, 2008 2007 % Change 2008 2007 % Change SUMMARIZED INCOME STATEMENT DATA: Net premiums earned $ 132,295 $ 137,488 -3.8 % $ 268,260 $ 275,465 -2.6 % Net investment income 19,605 19,077 2.8 % 38,863 38,067 2.1 % Net realized investment gains 8,075   14,967   -46.0 % 11,816   19,592   -39.7 % Consolidated revenue 159,975 171,532 -6.7 % 318,939 333,124 -4.3 %   Loss and settlement expenses 54,765 51,572 6.2 % 124,030 114,632 8.2 % Policy acquisition costs 38,551 36,827 4.7 % 80,297 76,591 4.8 % Other insurance expenses 9,840 9,988 -1.5 % 20,130 19,544 3.0 % Interest expense on debt 1,718 1,545 11.2 % 3,545 3,055 16.0 % General corporate expenses 1,920   2,163   -11.2 % 4,024   4,040   -0.4 % Total expenses 106,794 102,095 4.6 % 232,026 217,862 6.5 %   Equity in earnings of unconsolidated investees 3,940   4,410   -10.7 % 6,169   5,723   7.8 %   Earnings before income taxes 57,121 73,847 -22.6 % 93,082 120,985 -23.1 % Income tax expense 18,471   23,994   -23.0 % 28,973   38,615   -25.0 % Net Earnings $ 38,650   $ 49,853   -22.5 % $ 64,109   $ 82,370   -22.2 %   Other comprehensive loss, net of tax (25,339 ) (14,952 ) -69.5 % (44,165 ) (14,352 ) -207.7 %   Comprehensive earnings $ 13,311   $ 34,901   -61.9 % $ 19,944   $ 68,018   -70.7 %     Operating Earnings:(1)   Net Earnings $ 38,650 $ 49,853 -22.5 % $ 64,109 $ 82,370 -22.2 %   Less: Realized investment gains, net of tax 5,248   9,729   -46.1 % 7,680   12,735   -39.7 %   Operating earnings $ 33,402   $ 40,124   -16.8 % $ 56,429   $ 69,635   -19.0 %   Return on Equity: Net earnings (trailing four quarters) 20.4 % 22.8 % Comprehensive earnings (trailing four quarters) 15.3 % 25.5 %   Per Share Data   Diluted: Weighted average shares outstanding (in 000's) 21,808 24,446 22,036 24,562   EPS from operations (1) $ 1.53 $ 1.64 -6.7 % $ 2.56 $ 2.83 -9.5 % Realized gains, net of tax 0.24   0.40   -40.0 % 0.35   0.52   -32.7 % Net earnings per share $ 1.77   $ 2.04   -13.2 % $ 2.91   $ 3.35   -13.1 %   Comprehensive earnings per share $ 0.61   $ 1.43   -57.3 % $ 0.91   $ 2.77   -67.1 %   Cash dividends per share $ 0.25 $ 0.22 13.6 % $ 0.48 $ 0.42 14.3 %     Net Cash Flow from Operations $ 38,483 $ 63,737 -39.6 % $ 86,568 $ 89,047 -2.8 %     (1) See discussion of use of non-GAAP financial measures on page 3. RLI CORP. 2008 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts)         June 30, December 31, 2008 2007 % Change SUMMARIZED BALANCE SHEET DATA: Fixed income and short-term investments $ 1,456,327 $ 1,446,097 0.7 % (amortized cost - $1,463,539 at 6/30/08) (amortized cost - $1,437,463 at 12/31/07) Equity securities 307,105 359,513 -14.6 % (cost - $214,765 at 6/30/08) (cost - $216,465 at 12/31/07) Preferred stock 41,555 34,167 21.6 % (cost - $48,257 at 6/30/08) (cost - $39,133 at 12/31/07)       Total investments 1,804,987 1,839,777 -1.9 %   Premiums and reinsurance balances receivable 99,066 105,937 -6.5 % Ceded unearned premiums 64,979 71,021 -8.5 % Reinsurance recoverable on unpaid losses 428,463 417,250 2.7 % Deferred acquisition costs 80,395 78,882 1.9 % Property and equipment 22,706 20,050 13.2 % Investment in unconsolidated investee 44,399 38,162 16.3 % Goodwill 26,214 26,214 - Other assets 33,157 29,230 13.4 % Total assets $ 2,604,366 $ 2,626,523 -0.8 %   Unpaid losses and settlement expenses $ 1,235,904 $ 1,192,178 3.7 % Unearned premiums 343,662 355,522 -3.3 % Reinsurance balances payable 36,291 38,273 -5.2 % Short-term debt 25,869 27,975 -7.5 % Long-term debt - bonds payable 100,000 100,000 - Income taxes - deferred 4,502 25,042 -82.0 % Accrued expenses 29,520 39,303 -24.9 % Other liabilities 87,516 73,808 18.6 % Total liabilities 1,863,264 1,852,101 0.6 % Shareholders' equity 741,102 774,422 -4.3 % Total liabilities & shareholders' equity $ 2,604,366 $ 2,626,523 -0.8 %   OTHER DATA   Common shares outstanding (in 000's) 21,348 22,155   Book Value per share $ 34.72 $ 34.95 -0.7 % Closing stock price per share $ 49.47 $ 56.79 -12.9 %   Statutory Surplus $ 702,188 $ 752,004 -6.6 % RLI CORP. 2008 FINANCIAL HIGHLIGHTS UNDERWRITING SEGMENT DATA (Unaudited) (Dollars in thousands, except per share amounts)                     Three Months Ended June 30, GAAP GAAP GAAP GAAP Casualty Ratios Property Ratios Surety Ratios Total Ratios 2008   Gross premiums written $ 107,274 $ 57,780 $ 19,968 $ 185,022 Net premiums written 79,260 43,547 18,747 141,554 Net premiums earned 78,566 36,707 17,022 132,295 Net loss & settlement expenses 39,024 49.7 % 13,874 37.8 % 1,867 11.0 % 54,765 41.4 % Net operating expenses 23,998 30.5 % 13,303 36.2 % 11,090 65.2 % 48,391 36.6 % Underwriting income $ 15,544 80.2 % $ 9,530 74.0 % $ 4,065 76.2 % $ 29,139 78.0 %     2007   Gross premiums written $ 127,250 $ 66,256 $ 18,585 $ 212,091 Net premiums written 91,112 48,352 17,341 156,805 Net premiums earned 87,784 34,486 15,218 137,488 Net loss & settlement expenses 36,701 41.8 % 14,399 41.8 % 472 3.1 % 51,572 37.5 % Net operating expenses 25,815 29.4 % 11,296 32.8 % 9,704 63.8 % 46,815 34.1 % Underwriting income $ 25,268 71.2 % $ 8,791 74.6 % $ 5,042 66.9 % $ 39,101 71.6 % Six Months Ended June 30,                   GAAP GAAP GAAP GAAP Casualty Ratios Property Ratios Surety Ratios Total Ratios 2008   Gross premiums written $ 208,290 $ 99,773 $ 37,982 $ 346,045 Net premiums written 155,153 71,724 35,566 262,443 Net premiums earned 160,566 74,493 33,201 268,260 Net loss & settlement expenses 96,122 59.9 % 23,380 31.4 % 4,528 13.6 % 124,030 46.2 % Net operating expenses 49,535 30.9 % 29,204 39.2 % 21,688 65.3 % 100,427 37.4 % Underwriting income $ 14,909 90.8 % $ 21,909 70.6 % $ 6,985 78.9 % $ 43,803 83.6 %     2007   Gross premiums written $ 238,607 $ 108,408 $ 36,392 $ 383,407 Net premiums written 170,806 71,492 34,007 276,305 Net premiums earned 175,799 69,095 30,571 275,465 Net loss & settlement expenses 79,483 45.2 % 31,949 46.2 % 3,200 10.5 % 114,632 41.6 % Net operating expenses 52,431 29.8 % 24,406 35.3 % 19,298 63.1 % 96,135 34.9 % Underwriting income $ 43,885 75.0 % $ 12,740 81.5 % $ 8,073 73.6 % $ 64,698 76.5 %