RLI reports in-line earnings and updates risk factors for Covid-19

RLI reported in-line operating profits and a net loss for the first quarter driven by market volatility as it also revealed in an SEC filing that it is updating risk factors affecting its business to reflect the potential impact of Covid-19.

The Peoria, Illinois-based specialty carrier reported operating earnings of $29.8mn, or $0.66 a share, that were just down on the $31.8mn, or $0.71 a share generated in Q1 2019.

At $0.66 a share the performance was just ahead of consensus analyst forecasts of $0.64 a share.

Underwriting profits of $17.2mn were down on the $22.4mn in the prior-year period, as reserve releases fell back from $16.6mn to $12.9mn.

The combined ratio for the quarter was 92.0 percent, up from 89.0 percent in Q1 2019.

The combined ratio in casualty deteriorated from 96.1 percent to 100.9 percent but improved in property from 78.7 percent to 77.7 percent and in surety from 69.5 percent to 68.9 percent.

There was a net loss of $61.3mn, compared with a net profit of $65.5mn in the prior-year period, that contributed to a decrease in book value per share of 7 percent to $20.38, including the impact of dividend payouts.

There were net unrealised losses on equity securities of $130.4mn, compared with unrealised gains of $33.5mn in Q1 2019.

The carrier’s comprehensive loss, which also includes mark-to-market movements on its fixed income portfolio, was $74.3mn and reversed comprehensive earnings of $94.8mn reported in the prior-year period.

Commenting on the quarter, RLI chairman and CEO Jonathan Michael said: “While stress in the capital markets drove a net loss and a decline in book value in the first quarter, we achieved growth in gross premiums written across all product segments and an underwriting profit.

“Our underwriting results are a testament to our talented team, hallmark discipline and service-oriented culture. We will continue to maintain focus on serving all of our stakeholders while navigating the current climate.”

He also highlighted the uncertainties faced as a result of the Covid-19 pandemic.

Stark Covid-19 warning

In its SEC filing RLI said it had updated risk factors to include the Covid outbreak.

“Epidemics, pandemics, and public health outbreaks, including the ongoing Covid-19 pandemic, could further adversely affect our business, including revenues, profitability, results of operations, and/or cash flows, in a manner and to a degree that cannot be predicted but could be material,” said the company.

The addition to the “Other Events” section of its 10-K said that Covid-19 had directly and indirectly adversely affected the company and will likely continue to do so for an uncertain period of time.

Impacts include reduced demand for insurance as a result of the economic environment, reduced cash flows from policyholders delaying premium payments, increased costs of operations due to remote working environments, and increased claims, losses, litigation and related expenses.

The filing also highlighted the risk associated with legislative, regulatory and judicial responses to Covid-19.

These included actions prohibiting RLI from cancelling insurance policies in accordance with policy terms, requiring the carrier to cover losses when policies did not provide coverage, or excluded coverage, and ordering it to refund premium.

RLI warned that policyholder losses from Covid-19 related claims could be greater than the insurer’s reserves for those losses.

Meanwhile, volatility in the financial markets could continue to reduce the fair market value of invested assets held by the company, at the same time as the decline in interest rates could reduce future investment results.