NU Online News Service, Jan. 26, 3:03 p.m. EST
Peoria, Ill.-based specialty insurer RLI Corp. says fourth-quarter net income dropped 17.5 percent primarily on the increase in loss and settlement expenses and policy-acquisition costs.
Speaking during a conference call with financial analysts, Michael Stone, president and chief operating officer of RLI's principal-insurance subsidiaries, called the results "a superior underwriting quarter and year, a testament to our underwriting expertise and discipline and a business model that rewards underwriting profit."
For the 2011 fourth quarter, RLI reported net income of $29 million, a drop of $6 million from the same period in 2010. Earnings per share stood at $1.35, down 31 cents a share, but beat-out analysts' estimates by 24 cents a share. Revenues rose 8 percent, or $12 million, to $163 million.
Turning to the full year, net income increased 6 percent, or $7 million, to $120 million for 2011. Earnings per share rose 29 cents to $5.58 a share. Revenues were up 6 percent, or $36 million, to $619 million.
RLI says fourth-quarter underwriting income was $27 million and its combined ratio was 81.5 compared to underwriting income of $30 million and a combined ratio of 76.3 for 2010.
Full-year underwriting income was $116 million with a combined ratio of 78.4, compared to 2010 underwriting income of $95 million and combined ratio of 80.7.
The underwriting results were helped by $11 million in reserve release in the fourth quarter and $92 million in reserve releases for the year.
On the expense side, RLI says loss and settlement expense rose 26 percent, or $12 million, to $58 million in the quarter. For the year, expense was down less than 1 percent, or $1 million, to $200 million. Policy-acquisition costs rose 22 percent, or $9 million, to $48 million in the quarter and increased 12 percent, or $20 million, to $178 million on the year.
Other insurance expenses also rose 7 percent, or $839,000, in the quarter to $12 million and were up 15 percent, or $6 million, to $44 million for the year.
Stone says insurance rates are moving in a positive direction and are "fairly flat," but increases are uneven depending on such factors as geography and model changes.
Stone says standard carriers remain competitive players in the specialty-market lines, and they have not suffered enough pain in losses to pull back from the marketplace.
Of the casualty business, Stone says the industry is still not seeing much underwriting discipline. However, rates are flat, which is an improvement over years past.
"I don't think rates stay in stasis; they move in one direction or another," he says.
Stone adds, "I think we are at an inflection point. We think we need 10 to 20 percent rate increases to get to the margins we think we ought to be on an across-the-board basis in casualty."
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