RLI Corp. Earnings Shrink

After the markets closed on July 20, 2009, RLI Corp. (RLI) came out with second quarter 2009 earnings. Results were unfavorably affected by the decline in premiums written, coupled with lower underwriting income.

Core earnings shrank to $1.32 per share from $1.53 in the prior-year period. Underwriting income was $25.1 million on an 79.5% combined ratio in 2Q09 compared to underwriting income of $29.1 million on an 78.0% combined ratio in the year-ago quarter.

Gross premiums written decreased 3.3% year-over-year to $178.9 million. Net premiums written were $133.9 million, down 1.2% from the prior year quarter, primarily driven by a decrease in casualty writings. The combined ratio (the percentage of premiums an insurer has to pay out in claims and expenses) for 2Q09 slightly improved to 79.5% from 78.0% reported in the prior-year period. During the quarter, the equity in earnings of unconsolidated investee Maui Jim totaled $2.7 million, compared to $3.9 million in the year-ago period.

On July 15, 2009, RLI Corp. paid a quarterly cash dividend of $0.27 per share. The dividend has been increased by $0.01 over the prior quarter’s dividend. RLI has paid and increased dividends in each of the last 34 years.

During the quarter, RLI Corp.'s A+ rating by A.M. Best was reaffirmed by the rating agency. In its release, A.M. Best attributed the company’s rating to "superior capitalization, outstanding long-term operating profitability and financial flexibility." A.M. Best also cited RLI’s "strict underwriting discipline and rate adequacy" as the driving forces behind its "excellent history." RLI Corp. was also included in Ward's 50 Top Performers list.

Though RLI has faced a decrease in investment income as well as underwriting income, we expect the company to maintain its underwriting discipline, which will bode well going forward as the market stabilizes though restricting premium growth for the near term. Thus we recommend a Hold on the shares.

Read the full analyst report on RLI