RLI Reports Second Quarter Earnings

Business Wire,  July 15, 2008  

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PEORIA, Ill. -- 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).

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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.

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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

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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.