The following is selected financial data of RLI Corp. and Subsidiaries for the 5 years ended December 31, 2013.
(4) On December 1, 2010, the RLI Corp. Board of Directors declared a special cash dividend of $3.50 per share. The dividend was paid on December 29, 2010, to shareholders of record as of December 16, 2010, and totaled $146.7 million. On November 17, 2011, the Board declared a special cash dividend of $2.50 per share. The dividend was paid on December 20,
We classify our investments in debt and equity securities into one of three categories. Held-to-maturity securities are carried at amortized cost. Available-for-sale securities are carried at fair value with unrealized gains/losses recorded as a component of comprehensive earnings and shareholders’ equity, net of deferred income taxes. During 2013, we sold our remaining debt securities classified as trading.
· The probability of significant adverse changes to the cash flows on a fixed income investment,
Our underwriting income and combined ratios are displayed in the following tables. Solid underwriting results for each of our segments were bolstered by favorable development on prior accident years’ loss reserves in each of the last three years. The property segment experienced reduced levels of catastrophe losses in 2013, following more significant activity in 2012 and 2011. In addition, improved current accident year results benefited the 2013 casualty segment combined ratio by over three points. The following tables and narrative provide a more detailed look at individual segment performance over the last three years.
The following table further summarizes revenues (net premiums earned) by major coverage type within each segment:
Goodwill resulting from acquisitions completed prior to 2011 totaled $26.2 million and is attributable to our surety segment. Goodwill and intangible assets resulting from the CBIC acquisition in April 2011 totaled $32.5 million. The CBIC-related assets include goodwill attributable to our casualty and surety segments of $5.3 million and $15.1 million, respectively, and an indefinite-lived intangible asset in the amount of $8.8 million. Annual impairment testing was performed on each of these goodwill and indefinite-lived intangible assets in the second quarter of 2013. Based upon these reviews, none of the assets were impaired. In addition, as of December 31, 2013, there were no triggering events that occurred that would suggest an updated review was necessary. Definite-lived intangible assets related to the CBIC acquisition totaled $3.3 million, net of amortization, as of December 31, 2013.
During 2013, we recorded $22.0 million in net realized gains along with a change in unrealized losses of $10.9 million. The majority of our net realized gains were due to sales of equity securities while the change in unrealized losses was due to decreases in the fixed income portfolio. For 2013, the net realized investment gains and changes in unrealized gains (losses) on investments totaled $11.1 million.
The surety segment experienced $7.3 million of favorable development with nearly all of it coming from accident
The property segment experienced $18.5 million of favorable development in 2011. Of this amount, $8.5 million came from the marine product in accident years 2008 through 2010. The longer-tailed hull, protection & indemnity and liability coverages were responsible for most of the total. The difference in conditions product was also a contributor in 2011 with $7.0 million of favorable development that was primarily the result of the favorable final resolution of a claim arising from the 1994 Northridge earthquake. Other products having favorable development were assumed crop, assumed facultative reinsurance and homeowners.
Our effective tax rates were 28.1 percent, 27.6 percent and 31.0 percent for 2013, 2012 and 2011, respectively. Effective rates are dependent upon components of pretax earnings and the related tax effects. The effective rate for 2013 was higher than 2012 due to an increase in underwriting income notwithstanding an increase in tax-exempt income and dividends qualifying for preferential tax treatment, specifically as noted below from Maui Jim.
*An adjustment was made to the exercise price and number of ISO options outstanding for the special cash dividends paid during December 2013, 2012, and 2011. “Special dividend” represents the incremental options issued as a result of the this adjustment.
The management of RLI Corp. and Subsidiaries is responsible for the preparation and for the integrity and objectivity of the accompanying financial statements and other financial information in this report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include amounts that are based on management’s estimates and judgments.