Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Oct. 12, 2018 | |
Document and Entity Information | ||
Entity Registrant Name | RLI CORP | |
Entity Central Index Key | 84,246 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Common Stock, Shares Outstanding | 44,484,654 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q3 |
Consolidated Statements of Earn
Consolidated Statements of Earnings and Comprehensive Earnings - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Condensed Consolidated Statements of Earnings and Comprehensive Earnings | ||||
Net premiums earned | $ 200,815 | $ 182,025 | $ 587,364 | $ 549,641 |
Net investment income | 16,314 | 14,187 | 45,123 | 40,430 |
Net realized gains | 18,808 | 35 | 48,117 | 1,390 |
Other-than-temporary-impairment (OTTI) losses on investments | (161) | (217) | (2,090) | |
Net unrealized gains (losses) on equity securities | 4,848 | (34,535) | ||
Consolidated revenue | 240,624 | 196,247 | 645,852 | 589,371 |
Losses and settlement expenses | 110,231 | 123,190 | 304,305 | 306,927 |
Policy acquisition costs | 68,414 | 62,066 | 201,473 | 186,264 |
Insurance operating expenses | 14,408 | 11,701 | 42,191 | 38,582 |
Interest expense on debt | 1,862 | 1,856 | 5,576 | 5,569 |
General corporate expenses | 2,947 | 1,956 | 7,871 | 7,816 |
Total expenses | 197,862 | 200,769 | 561,416 | 545,158 |
Equity in earnings of unconsolidated investees | 3,587 | 3,660 | 15,853 | 15,404 |
Earnings (loss) before income taxes | 46,349 | (862) | 100,289 | 59,617 |
Income tax expense: | ||||
Income tax expense (benefit) | 6,977 | (2,596) | 15,450 | 11,847 |
Net earnings | 39,372 | 1,734 | 84,839 | 47,770 |
Other comprehensive earnings (loss), net of tax | (7,696) | 8,444 | (41,769) | 30,812 |
Comprehensive earnings | $ 31,676 | $ 10,178 | $ 43,070 | $ 78,582 |
Basic: | ||||
Net earnings per share (in dollars per share) | $ 0.89 | $ 0.04 | $ 1.91 | $ 1.09 |
Comprehensive earnings per share (in dollars per share) | 0.71 | 0.23 | 0.97 | 1.79 |
Diluted: | ||||
Net earnings per share (in dollars per share) | 0.88 | 0.04 | 1.90 | 1.07 |
Comprehensive earnings per share (in dollars per share) | $ 0.70 | $ 0.23 | $ 0.96 | $ 1.77 |
Weighted average number of common shares outstanding | ||||
Basic (in shares) | 44,400 | 44,058 | 44,311 | 44,008 |
Diluted (in shares) | 44,940 | 44,515 | 44,760 | 44,517 |
Cash dividends paid per common share | $ 0.22 | $ 0.21 | $ 0.65 | $ 0.62 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Fixed income: | ||
Available-for-sale, at fair value (amortized cost - $1,745,648 at 9/30/18 and $1,646,411 at 12/31/17) | $ 1,719,617 | $ 1,672,239 |
Equity securities, at fair value (cost - $210,119 at 9/30/18 and $182,002 at 12/31/17) | 394,375 | 400,492 |
Short-term investments, at cost which approximates fair value | 18,526 | 9,980 |
Other invested assets | 38,777 | 33,808 |
Cash | 59,469 | 24,271 |
Total investments and cash | 2,230,764 | 2,140,790 |
Accrued investment income | 14,417 | 15,166 |
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $17,076 at 9/30/18 and $16,935 at12/31/17 | 138,480 | 134,351 |
Ceded unearned premium | 66,400 | 57,928 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $9,827 at 9/30/18 and $10,014 at 12/31/17 | 320,027 | 301,991 |
Deferred policy acquisition costs | 84,232 | 77,716 |
Property and equipment, at cost, net of accumulated depreciation of $52,418 at 9/30/18 and $47,676 at 12/31/17 | 55,469 | 55,849 |
Investment in unconsolidated investees | 95,007 | 90,067 |
Goodwill and intangibles | 54,626 | 59,302 |
Other assets | 14,100 | 14,084 |
TOTAL ASSETS | 3,073,522 | 2,947,244 |
Liabilities: | ||
Unpaid losses and settlement expenses | 1,377,111 | 1,271,503 |
Unearned premiums | 483,305 | 451,449 |
Reinsurance balances payable | 18,396 | 21,624 |
Funds held | 73,304 | 74,560 |
Income taxes - deferred | 38,260 | 53,768 |
Bonds payable, long-term debt | 149,068 | 148,928 |
Accrued expenses | 45,420 | 52,848 |
Other liabilities | 16,802 | 18,966 |
TOTAL LIABILITIES | 2,201,666 | 2,093,646 |
Shareholders' Equity | ||
Common stock ($0.01 par value at 9/30/18 and $1.00 par value at 12/31/17, authorized 100,000,000 shares, issued 67,418,868 shares at 9/30/18 and 67,078,569 shares at 12/31/17, and outstanding 44,484,654 shares at 9/30/18 and 44,148,355 shares at 12/31/17) | 674 | 67,079 |
Paid-in capital | 303,399 | 233,077 |
Accumulated other comprehensive earnings | (22,344) | 157,919 |
Retained earnings | 983,126 | 788,522 |
Deferred compensation | 7,765 | 8,640 |
Less: Treasury shares at cost (22,930,214 shares at 9/30/18 and 12/31/17) | (400,764) | (401,639) |
TOTAL SHAREHOLDERS’ EQUITY | 871,856 | 853,598 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ 3,073,522 | $ 2,947,244 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Condensed Consolidated Balance Sheets | ||
Available-for-sale, amortized cost | $ 1,745,648 | $ 1,646,411 |
Equity securities, cost | 210,119 | 182,002 |
Premiums and reinsurance balances receivable, allowances for uncollectible amounts | 17,076 | 16,935 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, allowances for uncollectible amounts | 9,827 | 10,014 |
Property and equipment, accumulated depreciation | $ 52,418 | $ 47,676 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 1 |
Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, shares issued (in shares) | 67,414,868 | 67,078,569 |
Common stock, shares outstanding (in shares) | 44,484,654 | 44,148,355 |
Treasury stock, shares (in shares) | 22,930,214 | 22,930,214 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Condensed Consolidated Statements of Cash Flows | ||
Net Cash Provided by Operating Activities | $ 163,369 | $ 145,933 |
Net Cash Provided by (Used in) Investing Activities [Abstract] | ||
Investments purchased | (636,859) | (335,361) |
Investments sold | 444,637 | 131,605 |
Investments called or matured | 102,244 | 103,193 |
Net change in short-term investments | (8,546) | (6,910) |
Net property and equipment purchased | (4,838) | (7,262) |
Proceeds from (used in) other investing activities | 89 | 408 |
Net Cash Used in Investing Activities, Total | (103,273) | (114,327) |
Net Cash Provided by (Used in) Financing Activities [Abstract] | ||
Cash dividends paid | (28,815) | (27,288) |
Proceeds from stock option exercises | 3,917 | 4,290 |
Net Cash Used in Financing Activities, Total | (24,898) | (22,998) |
Net increase in cash | 35,198 | 8,608 |
Cash at the beginning of the period | 24,271 | 18,269 |
Cash at the end of the period | $ 59,469 | $ 26,877 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2018 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. DESCRIPTION OF BUSINESS RLI Corp. (the “Company”) is an insurance holding company that was organized in 1965. On May 4, 2018, RLI Corp. changed its state of incorporation from the State of Illinois to the State of Delaware (the “Reincorporation”). The Reincorporation was effected by merging RLI Corp., an Illinois corporation (“RLI Illinois”) into RLI Corp., a Delaware corporation (“RLI Delaware”). The separate corporate existence of RLI Illinois ceased and RLI Delaware continues in existence as the surviving corporation and possesses all rights, privileges, powers and franchises of RLI Illinois. The Reincorporation did not result in any change in the name, business, management, fiscal year, location of the principal executive offices, assets or liabilities of the Company. Each outstanding share of RLI Illinois common stock, which had a par value of $1.00 per share, was automatically converted into one outstanding share of RLI Delaware common stock, with a par value of $0.01 per share. In order to reflect the new par value of common stock on the balance sheet, a $66.6 million reclassification from common stock to paid-in-capital was made during the second quarter. For more information on the Reincorporation, see RLI Corp.’s Form 8-K filed on May 7, 2018. B. BASIS OF PRESENTATION The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with our 2017 Annual Report on Form 10-K. Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at September 30, 2018 and the results of operations of RLI Corp. and subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year. Certain reclassifications were made to 2017 to conform to the classifications used in the current year. The preparation of the unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated interim financial statements and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ significantly from these estimates. C. ADOPTED ACCOUNTING STANDARDS ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ASU 2014-09 was issued to clarify and remove inconsistencies within revenue recognition requirements. The core principle of the update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the transaction price for a contract is allocated among separately identifiable performance obligations and a portion of the transaction price is recognized as revenue when the associated performance obligation has been completed or transferred to the customer. All contracts and fulfillment activities within the scope of Topic 944, Financial Services – Insurance, investment income, investment related gains and losses and equity in earnings of unconsolidated investees are outside the scope of this ASU. We adopted ASU 2014-09 on January 1, 2018. However, nearly all (over 99 percent) of our consolidated revenue is scoped out and therefore exempt from the guidance contained within this ASU. For the remaining portion, the revenue recognition policy we utilize aligns with the new guidance and there were no changes to the way we recognize revenue. Although the recognition of earnings from equity method investees is out of scope from the update, the recognition of revenue by our equity method investees would be subject to the new guidance if the revenue streams are within this update’s scope. Any impact on revenues would affect the net income of each of the equity method investees, upon which we calculate our portion of earnings to recognize. Our equity method investees are private companies and this guidance becomes effective for private companies in periods beginning after December 15, 2018. As a result, their earnings and our portion of those earnings are not impacted in 2018. We expect that revenue generated by both of our equity method investees will either be outside the scope of this update or largely unaffected by the changes. ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities This ASU was issued to improve the recognition and measurement of financial instruments. The new guidance makes targeted improvements to GAAP as follows: a. Requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net earnings; b. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; c. Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; d. Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; e. Requires an entity to present separately in other comprehensive earnings the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; f. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and g. Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. We adopted ASU 2016-01 on January 1, 2018. A cumulative-effect adjustment to the balance sheet was made as of the beginning of the year, which moved $142.2 million of net unrealized gains and losses on equity securities from accumulated other comprehensive earnings to retained earnings. During the first nine months of 2018, we recognized $34.5 million of unrealized losses on equity securities within net earnings and $7.3 million of income tax benefit. This compares to $14.6 million of unrealized gains on equity securities, net of tax, that was recognized through other comprehensive earnings for the comparable period in 2017. The future impact to our net earnings will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market. ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ASU 2016-15 was issued to reduce the diversity in practice of how certain cash receipts and payments, for which current guidance is silent, are classified in the statement of cash flows. The update addresses eight specific issues, including contingent consideration payments made after a business combination, distributions received from equity method investees and the classification of cash receipts and payments that have aspects of more than one class of cash flows. We adopted ASU 2016-15 on January 1, 2018. The adoption did not have a material impact on our statement of cash flows. ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ASU 2018-02 was issued as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) on December 22, 2017. Accounting guidance required deferred tax items to be revalued based on the new tax laws (the most significant of which reduced the corporate tax rate to 21 percent from 35 percent) with the change included in income from continuing operations. Since other comprehensive income was not affected by the revaluation of the deferred tax items, the net accumulated other comprehensive income (AOCI) balance was reflective of the historic 35 percent tax rate instead of the newly enacted rate, a difference that is referred to as a stranded tax effect. This ASU allows for the option to reclassify the stranded tax effects resulting from the implementation of the TCJA out of AOCI and into retained earnings. ASU 2018-02 does not replace the guidance requiring changes from the enactment of other tax laws or rates to be included within income from continuing operations and is applicable only to changes from the TCJA. We adopted ASU 2018-02 during the first quarter of 2018. A current period adjustment was made to the balance sheet, which moved $3.7 million of stranded tax effects on the unrealized balances of our fixed income securities and equity method investees from accumulated other comprehensive earnings to retained earnings. The entire unrealized balance on equity securities was reclassified from AOCI into retained earnings from the adoption of ASU 2016-01 on January 1, 2018 and was therefore unaffected by this ASU. As there was no impact to net earnings and the balance sheet effect is limited to a reclassification within the equity section, there was not a material impact on our financial statements. D. PROSPECTIVE ACCOUNTING STANDARDS ASU 2016-02, Leases (Topic 842) ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. ASU 2018-10, Codification Improvements to Topic 842, Leases was issued to clarify certain aspects of ASU 2016-02 and the two updates will be adopted concurrently. ASU 2016-02 requires leases to be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach upon adoption. However, ASU 2018-11, Leases (Topic 842): Targeted Improvements provides an alternative transition method by which leases are recognized at the date of adoption and a cumulative-effective adjustment to the opening balance of retained earnings is recognized in the period of adoption. We plan to adopt using this alternative. Approximately $33 million of undiscounted future lease liabilities would have to be discounted to present value and added to our balance sheet with a corresponding right-of-use asset if the guidance were applicable on September 30, 2018. We do not have any financing leases, but we do have approximately $7 million of annual operating lease expenses. We do not expect that there will be a materially different annual rental expense upon adoption. ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial instruments. Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred. The update will require a financial asset measured at amortized cost, including reinsurance balances recoverable, to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net earnings. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses. However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale securities is similar under current GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. Upon adoption, the update will be applied using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period presented. This update will have the most impact on our available-for-sale fixed income portfolio and reinsurance balances recoverable. However, as our fixed income portfolio is weighted towards higher rated bonds (82.8 percent rated A or better at September 30, 2018), we purchase reinsurance from financially strong reinsurers and we already have an allowance for uncollectible reinsurance amounts, we do not expect that the effect of adoption will be material. ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities Under current practices, the amortization period for callable debt securities held at a premium is generally the contractual life of the instrument. However, if an entity has a large number of similar loans, it may consider estimates of future principal prepayments. For those who choose to not incorporate an estimate of future prepayments, ASU 2017-08 shortens the amortization period for premium on debt securities to the earliest call date, rather than the maturity date, to align the amortization method with how the securities are quoted, priced and traded. After the earliest call date, if the call option is not exercised, the entity shall reset the effective yield using the payment terms of the debt security. Any excess of the amortized cost basis over the amount payable will be amortized to the next call date or to maturity if there are no other call dates. The method of accounting for a discount does not change and will continue to be amortized over the life of the bond. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The update will be applied using a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. As we currently incorporate estimates of future principal prepayments when calculating the effective yield for bonds carrying a premium, we do not expect the adoption of this update to have a material impact on our financial statements. ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ASU 2018-07 was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Our long term incentive plan limits the awards of share-based payments to employees and directors of the Company or any affiliate. The share-based compensation expense to nonemployee directors was $0.2 million in the first nine months of 2018. Costs associated with such payments are not expected to materially increase and we do not expect this update to have a material impact on our financial statements. ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement ASU 2018-13 modifies the disclosure requirements for assets and liabilities measured at fair value. The requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements have all been removed. However, the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period must be disclosed along with the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (or other quantitative information if it is more reasonable). Finally, for investments measured at net asset value, the requirements have been modified so that the timing of liquidation and the date when restrictions from redemption might lapse are only disclosed if the investee has communicated the timing to the entity or announced the timing publicly. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. As the amendments are only disclosure related and we do not currently have any assets or liabilities that are measured based on Level 3 inputs, our financial statements will not be materially impacted by this update. ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract ASU 2018-15 requires a customer in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Relevant implementation costs in the development stage are capitalized, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. Capitalized costs are expensed over the term of the hosting arrangement. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. This update can either be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. We have not yet completed the analysis of how adopting this ASU will affect our financial statements. E. INTANGIBLE ASSETS Goodwill and intangible assets totaled $54.6 million and $59.3 million at September 30, 2018 and December 31, 2017, respectively, as detailed in the following table. Goodwill and Intangible Assets September 30, December 31, (in thousands) 2018 2017 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Medical professional liability * - 3,595 Total goodwill $ 46,062 $ 49,657 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $2,929 at 9/30/18 and $5,678 at 12/31/17 1,064 2,145 Total intangibles $ 8,564 $ 9,645 Total goodwill and intangibles $ 54,626 $ 59,302 * The medical professional liability goodwill balance reflects a cumulative non-cash impairment charge of $12.4 million and $8.8 million as of September 30, 2018 and December 31, 2017, respectively. All definite-lived intangible assets are amortized against future operating results based on their estimated useful lives. Amortization of intangible assets was $0.1 million for the third quarter of 2018 and $0.3 million for the nine-month period ended September 30, 2018, compared to $0.2 million for the third quarter of 2017 and $0.6 million for the nine-month period ended September 30, 2017. Annual impairment testing was performed on our energy surety goodwill, miscellaneous and contract surety goodwill, small commercial goodwill and state insurance license indefinite-lived intangible asset during the second quarter of 2018. Based upon these reviews, none of the assets were impaired. In addition, as of September 30, 2018, there were no triggering events that would suggest an updated review was necessary on the above mentioned goodwill and intangible assets. As previously disclosed, adverse loss experience triggered the need to test the medical professional liability reporting unit during the first quarter of 2018 and the second quarter of 2017. The testing resulted in a $4.4 million non-cash impairment charge in 2018 and a $3.4 million non-cash impairment charge in 2017. In each instance, a fair value for the medical professional liability reporting unit’s agency relationships, carried as a definite-lived intangible, was determined by using a discounted cash flow valuation. In 2018, the carrying value exceeded the fair value, resulting in a $0.8 million non-cash impairment charge. In 2017, the resulting non-cash impairment charge on definite-lived intangibles was $1.8 million. A fair value for the medical professional liability reporting unit’s goodwill was determined by using a weighted average of a market approach and discounted cash flow valuation. The carrying value exceeded the fair value in each year, resulting in a $3.6 million non-cash impairment charge in the first quarter of 2018 and a $1.6 million non-cash impairment charge during the second quarter of 2017. Subsequent to the first quarter 2018 impairment, the medical professional liability reporting unit had no remaining goodwill or intangible assets. All impairment charges were recorded as net realized losses in the respective period’s consolidated statement of earnings. F. EARNINGS PER SHARE Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock or common stock equivalents were exercised or converted into common stock. When inclusion of common stock equivalents increases the earnings per share or reduces the loss per share, the effect on earnings is anti-dilutive. Under these circumstances, the diluted net earnings or net loss per share is computed excluding the common stock equivalents. The following represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the unaudited condensed consolidated interim financial statements. For the Three-Month Period For the Three-Month Period Ended September 30, 2018 Ended September 30, 2017 Income Shares Per Share Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS Income available to common shareholders $ 39,372 44,400 $ 0.89 $ 1,734 44,058 $ 0.04 Effect of Dilutive Securities Stock options - 540 - 457 Diluted EPS Income available to common shareholders $ 39,372 44,940 $ 0.88 $ 1,734 44,515 $ 0.04 For the Nine-Month Period For the Nine-Month Period Ended September 30, 2018 Ended September 30, 2017 Income Shares Per Share Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS Income available to common shareholders $ 84,839 44,311 $ 1.91 $ 47,770 44,008 $ 1.09 Effect of Dilutive Securities Stock options - 449 - 509 Diluted EPS Income available to common shareholders $ 84,839 44,760 $ 1.90 $ 47,770 44,517 $ 1.07 G. COMPREHENSIVE EARNINGS Our comprehensive earnings include net earnings plus after-tax unrealized gains and losses on our fixed income portfolio in 2018. In 2017, after-tax unrealized gains and losses on our equity portfolio were also included. With the adoption of ASU 2016-01 on January 1, 2018, we began recognizing unrealized gains and losses on the equity portfolio through net income. See note 1.C to the unaudited condensed consolidated interim financial statements for more information. In reporting comprehensive earnings on a net basis in the statement of earnings, we used the federal statutory tax rate of 21 percent in 2018 and 35 percent in 2017. Unrealized losses, net of tax, on the fixed income portfolio for the first nine months of 2018 were $41.8 million, compared to $30.8 million of unrealized gains, net of tax, on the fixed income and equity portfolios during the same period last year. Unrealized losses in the first nine months of 2018 were attributable to rising interest rates, which decreased the fair value of securities held in the fixed income portfolio. In 2017, unrealized gains were primarily the result of tightening credit spreads which increased the fair value of fixed income securities, though positive pricing movements in equity securities also contributed. The following table illustrates the changes in the balance of each component of accumulated other comprehensive earnings for each period presented in the unaudited condensed consolidated interim financial statements. The 2017 activity and balances include the net unrealized gain and loss activity on both fixed income and equity securities, while the 2018 activity and ending balance reflect only the net unrealized gain and loss activity on fixed income securities due to the aforementioned adoption of ASU 2016-01. (in thousands) For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, Unrealized Gains/Losses on Available-for-Sale Securities 2018 2017 2018 2017 Beginning balance $ (14,648) $ 144,978 $ 157,919 $ 122,610 Cumulative effect adjustment of ASU 2016-01 - - (142,219) - Adjusted beginning balance $ (14,648) $ 144,978 $ 15,700 $ 122,610 Other comprehensive earnings before reclassifications (7,034) 9,141 (41,829) 33,066 Amounts reclassified from accumulated other comprehensive earnings (662) (697) 60 (2,254) Net current-period other comprehensive earnings (loss) $ (7,696) $ 8,444 $ (41,769) $ 30,812 Reclassification of stranded tax effect per ASU 2018-02 - - 3,725 - Ending balance $ (22,344) $ 153,422 $ (22,344) $ 153,422 The sale or other-than-temporary impairment of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive earnings to current period net earnings. The effects of reclassifications out of accumulated other comprehensive earnings by the respective line items of net earnings are presented in the following table. As previously mentioned, 2018 activity is reflective of activity on fixed income securities classified as available-for-sale, while 2017 also includes activity from the equity portfolio. Amount Reclassified from Accumulated Other (in thousands) Comprehensive Earnings For the Three-Month For the Nine-Month Component of Accumulated Periods Ended September 30, Periods Ended September 30, Affected line item in the Other Comprehensive Earnings 2018 2017 2018 2017 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 999 $ 1,073 $ 141 $ 5,558 Net realized gains (losses) (161) - (217) (2,090) Other-than-temporary impairment (OTTI) losses on investments $ 838 $ 1,073 $ (76) $ 3,468 Earnings (loss) before income taxes (176) (376) 16 (1,214) Income tax expense (benefit) $ 662 $ 697 $ (60) $ 2,254 Net earnings (loss) |
INVESTMENTS
INVESTMENTS | 9 Months Ended |
Sep. 30, 2018 | |
INVESTMENTS | |
INVESTMENTS | 2. INVESTMENTS Our investments are primarily composed of fixed income debt securities and common stock equity securities. We carry our equity securities at fair value and categorize all of our debt securities as available-for-sale, which are carried at fair value. When available, we obtain quoted market prices to determine fair value for our investments. If a quoted market price is not available, fair value is estimated using a secondary pricing source or using quoted market prices of similar securities. We have no investment securities for which fair value is determined using Level 3 inputs as defined in note 3 to the unaudited condensed consolidated interim financial statements, “Fair Value Measurements.” Fixed Income Securities - Available-for-Sale The amortized cost and fair value of available-for-sale securities at September 30, 2018 and December 31, 2017 were as follows: Available-for-sale (in thousands) September 30, 2018 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 177,339 $ 8 $ (3,560) $ 173,787 U.S. agency 30,647 111 (855) 29,903 Non-U.S. govt. & agency 8,178 - (271) 7,907 Agency MBS 415,476 1,299 (14,749) 402,026 ABS/CMBS* 120,737 113 (1,283) 119,567 Corporate 675,731 2,862 (11,901) 666,692 Municipal 317,540 4,727 (2,532) 319,735 Total Fixed Income $ 1,745,648 $ 9,120 $ (35,151) $ 1,719,617 Available-for-sale (in thousands) December 31, 2017 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 92,561 $ 23 $ (895) $ 91,689 U.S. agency 18,541 347 (110) 18,778 Non-U.S. govt. & agency 7,501 143 (56) 7,588 Agency MBS 329,129 3,420 (4,078) 328,471 ABS/CMBS* 70,405 436 (315) 70,526 Corporate 508,128 12,575 (1,681) 519,022 Municipal 620,146 17,272 (1,253) 636,165 Total Fixed Income $ 1,646,411 $ 34,216 $ (8,388) $ 1,672,239 *Non-agency asset-backed and commercial mortgage-backed The following table presents the amortized cost and fair value of available-for-sale debt securities by contractual maturity dates as of September 30, 2018: September 30, 2018 Available-for-sale Amortized Fair (in thousands) Cost Value Due in one year or less $ 41,952 $ 42,115 Due after one year through five years 379,636 378,403 Due after five years through 10 years 611,198 602,738 Due after 10 years 176,649 174,768 Mtge/ABS/CMBS* 536,213 521,593 Total available-for-sale $ 1,745,648 $ 1,719,617 *Mortgage-backed, asset-backed and commercial mortgage-backed Unrealized Losses on Fixed Income Securities We conduct and document periodic reviews of all fixed income securities with unrealized losses to evaluate whether the impairment is other-than-temporary. The following tables are used as part of our impairment analysis and illustrate the total value of fixed income securities that were in an unrealized loss position as of September 30, 2018 and December 31, 2017. The tables segregate the securities based on type, noting the fair value, cost (or amortized cost) and unrealized loss on each category of investment as well as in total. The tables further classify the securities based on the length of time they have been in an unrealized loss position. As of September 30, 2018, unrealized losses on fixed income securities, as shown in the following tables, were 1.6 percent of total invested assets. Unrealized losses increased through the first nine months of 2018, as interest rates increased from the end of 2017, which decreased the fair value of securities held in the fixed income portfolio. September 30, 2018 December 31, 2017 (in thousands) < 12 Mos. 12 Mos. & Total < 12 Mos. 12 Mos. & Total U.S. Government Fair value $ 72,347 $ 99,558 $ 171,905 $ 58,009 $ 30,888 $ 88,897 Cost or amortized cost 72,981 102,484 175,465 58,443 31,349 89,792 Unrealized Loss $ (634) $ (2,926) $ (3,560) $ (434) $ (461) $ (895) U.S. Agency Fair value $ 17,408 $ 10,384 $ 27,792 $ 10,917 $ — $ 10,917 Cost or amortized cost 17,622 11,025 28,647 11,027 — 11,027 Unrealized Loss $ (214) $ (641) $ (855) $ (110) $ — $ (110) Non-U.S. government Fair value $ 6,214 $ 1,693 $ 7,907 $ — $ 1,840 $ 1,840 Cost or amortized cost 6,280 1,898 8,178 — 1,896 1,896 Unrealized Loss $ (66) $ (205) $ (271) $ — $ (56) $ (56) Agency MBS Fair value $ 152,341 $ 206,541 $ 358,882 $ 122,130 $ 111,306 $ 233,436 Cost or amortized cost 155,615 218,016 373,631 123,559 113,955 237,514 Unrealized Loss $ (3,274) $ (11,475) $ (14,749) $ (1,429) $ (2,649) $ (4,078) ABS/CMBS* Fair value $ 82,967 $ 28,580 $ 111,547 $ 23,406 $ 21,587 $ 44,993 Cost or amortized cost 83,647 29,183 112,830 23,491 21,817 45,308 Unrealized Loss $ (680) $ (603) $ (1,283) $ (85) $ (230) $ (315) Corporate Fair value $ 387,421 $ 84,835 $ 472,256 $ 86,946 $ 28,600 $ 115,546 Cost or amortized cost 395,327 88,830 484,157 87,736 29,491 117,227 Unrealized Loss $ (7,906) $ (3,995) $ (11,901) $ (790) $ (891) $ (1,681) Municipal Fair value $ 56,839 $ 43,287 $ 100,126 $ 71,059 $ 60,049 $ 131,108 Cost or amortized cost 57,586 45,072 102,658 71,534 60,827 132,361 Unrealized Loss $ (747) $ (1,785) $ (2,532) $ (475) $ (778) $ (1,253) Total fixed income Fair value $ 775,537 $ 474,878 $ 1,250,415 $ 372,467 $ 254,270 $ 626,737 Cost or amortized cost 789,058 496,508 1,285,566 375,790 259,335 635,125 Unrealized Loss $ (13,521) $ (21,630) $ (35,151) $ (3,323) $ (5,065) $ (8,388) * Non-agency asset-backed and commercial mortgage-backed The following table shows the composition of the fixed income securities in unrealized loss positions at September 30, 2018 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings. The vast majority of the securities are rated by S&P and/or Moody’s. Equivalent Equivalent (dollars in thousands) NAIC S&P Moody’s Amortized Unrealized Percent Rating Rating Rating Cost Fair Value Loss to Total 1 AAA/AA/A Aaa/Aa/A $ 1,103,857 $ 1,074,126 $ (29,731) % 2 BBB Baa 136,227 131,948 (4,279) % 3 BB Ba 29,221 28,491 (730) % 4 B B 14,712 14,386 (326) % 5 CCC Caa 1,549 1,464 (85) % 6 CC or lower Ca or lower - - - - % Total $ 1,285,566 $ 1,250,415 $ (35,151) % Evaluating Fixed Income Securities for OTTI The fixed income portfolio contained 676 securities in an unrealized loss position as of September 30, 2018. The $35.2 million in associated unrealized losses for these 676 securities represents 2.0 percent of the fixed income portfolio’s cost basis. Of these 676 securities, 244 have been in an unrealized loss position for 12 consecutive months or longer. All fixed income securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. Any credit-related impairment related to fixed income securities we do not plan to sell and for which we are not more likely than not to be required to sell is recognized in net earnings, with the non-credit related impairment recognized in comprehensive earnings. Based on our analysis, our fixed income portfolio is of high credit quality and we believe we will recover the amortized cost basis of our fixed income securities. We continually monitor the credit quality of our fixed income investments to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest. In the first nine months of 2018, we recognized $0.2 million in other-than-temporary impairment (OTTI) charges in earnings on two fixed income securities. We no longer had the intent to hold one of the securities and a credit loss was taken on a second fixed income security that we do intend to hold. Comparatively, we recognized $2.1 million in OTTI losses in earnings on two fixed income securities that we no longer had the intent to hold in the same period in 2017. There were no OTTI losses recognized in other comprehensive earnings on the fixed income portfolio for the periods presented. Unrealized Gains and Losses on Equity Securities During the third quarter of 2018, net unrealized gains (losses) on equity securities included an unrealized gain of $22.8 million on securities held as of September 30, 2018. Net unrealized gains on equity securities for the first nine months of 2018 included an unrealized gain of $18.2 million on securities held as of September 30, 2018. Other Invested Assets We had $38.8 million of other invested assets at September 30, 2018, compared to $33.8 million at the end of 2017. Other invested assets include investments in low income housing tax credit partnerships (LIHTC), membership in the Federal Home Loan Bank of Chicago (FHLBC) and investments in private funds. Our LIHTC investments are carried at amortized cost and our investment in FHLBC stock is carried at cost. Due to the nature of the LIHTC and our membership in the FHLBC, their carrying amounts approximate fair value. The private funds are carried at fair value, using each investment’s net asset value. Our LIHTC interests had a balance of $14.0 million at September 30, 2018, compared to $15.5 million at December 31, 2017 and recognized a total tax benefit of $0.6 million during the third quarter of 2018, the same period as the prior year. For the nine-month periods ended September 30, 2018 and 2017, our LIHTC interests recognized a total benefit of $1.7 million and $1.9 million, respectively. Our unfunded commitment for our LIHTC investments totaled $2.0 million at September 30, 2018 and will be paid out in installments through 2025. As of September 30, 2018, $16.3 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility that ownership of FHLBC stock provides. As of and during the nine month period ending September 30, 2018, there were no outstanding borrowings with the FHLBC. We had $25.2 million of unfunded commitments related to our investments in private funds at September 30, 2018. Additionally, our interest in these investments is generally restricted from being transferred or otherwise redeemed without prior consent by the respective entities. An IPO would allow for the transfer of interest in some situations, while the timed dissolution of the partnership would trigger redemption in others. Cash and Short-term Investments Cash consists of uninvested balances in bank accounts. We had a cash balance of $59.5 million at September 30, 2018, compared to $24.3 million at the end of 2017. As of September 30, 2018, we had $18.5 million of short-term investments that were carried at cost and approximated fair value, compared to $10.0 million at December 31, 2017. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Sep. 30, 2018 | |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | 3. FAIR VALUE MEASUREMENTS Assets and Liabilities Recorded at Fair Value on a Recurring Basis Fair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transaction between market participants on the measurement date. We determined the fair value of certain financial instruments based on their underlying characteristics and relevant transactions in the marketplace. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial assets are classified based upon the lowest level of significant input that is used to determine fair value. The following are the levels of the fair value hierarchy and a brief description of the type of valuation inputs that are used to establish each level: Pricing Level 1 is applied to valuations based on readily available, unadjusted quoted prices in active markets for identical assets. Pricing Level 2 is applied to valuations based upon quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets; or valuations based on models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data. Pricing Level 3 is applied to valuations that are derived from techniques in which one or more of the significant inputs are unobservable. As a part of management’s process to determine fair value, we utilize widely recognized, third-party pricing sources to determine our fair values. We have obtained an understanding of the third-party pricing sources’ valuation methodologies and inputs. The following is a description of the valuation techniques used for financial assets that are measured at fair value, including the general classification of such assets pursuant to the fair value hierarchy. Corporate, Agencies, Government and Municipal Bonds: The pricing vendor employs a multi-dimensional model which uses standard inputs including (listed in approximate order of priority for use) benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers and other reference data. The pricing vendor also monitors market indicators, as well as industry and economic events. All bonds valued using these techniques are classified as Level 2. All corporate, agency, government and municipal securities were deemed Level 2. Mortgage-backed Securities (MBS)/Commercial Mortgage-backed Securities (CMBS) and Asset-backed Securities (ABS): The pricing vendor evaluation methodology includes principally interest rate movements and new issue data. Evaluation of the tranches (non-volatile, volatile or credit sensitivity) is based on the pricing vendors’ interpretation of accepted modeling and pricing conventions. This information is then used to determine the cash flows for each tranche, benchmark yields, prepayment assumptions and to incorporate collateral performance. To evaluate MBS and CMBS volatility, an option adjusted spread model is used in combination with models that simulate interest rate paths to determine market price information. This process allows the pricing vendor to obtain evaluations of a broad universe of securities in a way that reflects changes in yield curve, index rates, implied volatility, mortgage rates and recent trade activity. MBS/CMBS and ABS with corroborated, observable inputs are classified as Level 2. All of our MBS/CMBS and ABS are deemed Level 2. Common Stock: All but one of our common stock holdings are traded on an exchange. Exchange traded equities have readily observable price levels and are classified as Level 1 (fair value based on quoted market prices). Pricing for the equity security not traded on an exchange is provided by a third-party pricing source and is classified as Level 2. For the Level 2 securities, both fixed income and equity as described above, we periodically conduct a review to assess the reasonableness of the fair values provided by our pricing services. Our review consists of a two pronged approach. First, we compare prices provided by our pricing services to those provided by an additional source. Second, we obtain prices from securities brokers and compare them to the prices provided by our pricing services. In both comparisons, when discrepancies are found, we compare our prices to actual reported trade data for like securities. Based on this assessment, we determined that the fair values of our Level 2 securities provided by our pricing services are reasonable. For our exchange traded common stock, we receive prices from a nationally recognized pricing service. Prices are based on observable inputs in an active market and are therefore disclosed as Level 1. Based on this assessment, we determined that the fair values of our Level 1 securities provided by our pricing service are reasonable. Our investments in private funds, classified as other invested assets, are carried at fair value and are measured using each investment’s net asset value, but are not categorized within the fair value hierarchy. Due to the relatively short-term nature of cash, short-term investments, accounts receivable and accounts payable, their carrying amounts are reasonable estimates of fair value. Assets measured at fair value in the accompanying unaudited condensed consolidated interim financial statements on a recurring basis are summarized below: As of September 30, 2018 Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Fixed income securities - available-for-sale U.S. government $ — $ 173,787 $ — $ 173,787 U.S. agency — 29,903 — 29,903 Non-U.S. govt. & agency — 7,907 — 7,907 Agency MBS — 402,026 — 402,026 ABS/CMBS* — 119,567 — 119,567 Corporate — 666,692 — 666,692 Municipal — 319,735 — 319,735 Total fixed income securities - available-for-sale $ — $ 1,719,617 $ — $ 1,719,617 Equity securities 393,882 493 — 394,375 Total $ 393,882 $ 1,720,110 $ — $ 2,113,992 As of December 31, 2017 Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Fixed income securities - available-for-sale U.S. government $ — $ 91,689 $ — $ 91,689 U.S. agency — 18,778 — 18,778 Non-U.S. govt. & agency — 7,588 — 7,588 Agency MBS — 328,471 — 328,471 ABS/CMBS* — 70,526 — 70,526 Corporate — 519,022 — 519,022 Municipal — 636,165 — 636,165 Total fixed income securities - available-for-sale $ — $ 1,672,239 $ — $ 1,672,239 Equity securities 400,492 — — 400,492 Total $ 400,492 $ 1,672,239 $ — $ 2,072,731 * Non-agency asset-backed and commercial mortgage-backed As noted in the above table, we did not have any assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period. Additionally, there were no securities transferred in or out of levels 1 or 2 during the nine-month period ended September 30, 2018. |
HISTORICAL LOSS AND LAE DEVELOP
HISTORICAL LOSS AND LAE DEVELOPMENT | 9 Months Ended |
Sep. 30, 2018 | |
HISTORICAL LOSS AND LAE DEVELOPMENT | |
HISTORICAL LOSS AND LAE DEVELOPMENT | 4. HISTORICAL LOSS AND LAE DEVELOPMENT The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the first nine months of 2018 and 2017. For the Nine-Month Periods Ended September 30, (in thousands) 2018 2017 Unpaid losses and LAE at beginning of year Gross $ 1,271,503 $ 1,139,337 Ceded (301,991) (288,224) Net $ 969,512 $ 851,113 Increase (decrease) in incurred losses and LAE Current accident year $ 342,807 $ 343,535 Prior accident years (38,502) (36,608) Total incurred $ 304,305 $ 306,927 Loss and LAE payments for claims incurred Current accident year $ (45,008) $ (37,333) Prior accident year (171,725) (158,052) Total paid $ (216,733) $ (195,385) Net unpaid losses and LAE at September 30, $ 1,057,084 $ 962,655 Unpaid losses and LAE at September 30, Gross $ 1,377,111 $ 1,253,729 Ceded (320,027) (291,074) Net $ 1,057,084 $ 962,655 For the first nine months of 2018, incurred losses and LAE included $38.5 million of favorable development on prior years’ loss reserves. The majority of products experienced modest amounts of favorable development on prior accident years, with notable contributions from commercial and personal umbrella, general liability, marine and surety. Executive products, transportation and medical professional liability were exceptions, experiencing adverse development. For the first nine months of 2017, incurred losses and LAE included $36.6 million of favorable development on prior years’ loss reserves. Commercial umbrella, general liability, surety and marine were drivers of the favorable development, while adverse experience in transportation and medical professional liability partially offset the result. |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2018 | |
INCOME TAXES | |
INCOME TAXES | 5. INCOME TAXES Our effective tax rate for the three and nine-month periods ended September 30, 2018 was 15.1 percent and 15.4 percent. Catastrophic losses incurred in the third quarter of 2017 resulted in a pretax loss and a 301.2 percent effective tax rate for the third quarter and a 19.9 percent effective rate for the nine-month period ended September 30, 2017. The Tax Cuts and Jobs Act of 2017 (TCJA) lowered the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018, which accounts for the majority of the decrease in effective tax rate for the nine-month period over the prior year. Effective rates are also dependent upon components of pretax earnings and the related tax effects. Tax favored investment activity was lower in 2018, which resulted in a lower spread between the corporate rate and effective rate when compared to 2017. There have been no changes to the provisional amounts that we recorded in the fourth quarter of 2017 associated with the TCJA, as guidance has not yet been finalized by the Internal Revenue Service. Accounting for the tax effects of the enactment of the TCJA will be completed in the fourth quarter of 2018. Income tax expense attributable to income from operations for the three and nine-month periods ended September 30, 2018 and 2017 differed from the amounts computed by applying the U.S. federal tax rate of 21 percent and 35 percent, respectively, to pretax income by the items detailed in the below table. In interim periods, income taxes are adjusted to reflect the effective tax rate we anticipate for the year, with adjustments flowing through the other items line. For the Three-Month Periods Ended September 30, For the Nine-Month Periods Ended September 30, 2018 2017 2018 2017 (in thousands) Amount % Amount % Amount % Amount % Provision for income taxes at the statutory rate of 21% in 2018 and 35% in 2017 $ 9,733 % $ (302) % $ 21,061 % $ 20,866 % Increase (reduction) in taxes resulting from: Excess tax benefit on share-based compensation (2,273) % (477) % (4,340) % (3,711) % Tax exempt interest income (375) % (1,187) % (1,460) % (3,525) % Dividends received deduction (150) % (553) % (516) % (1,488) % ESOP dividends paid deduction (139) % (240) % (423) % (724) % Other items, net 181 % 163 % 1,128 % 429 % Total tax expense (benefit) $ 6,977 % $ (2,596) % $ 15,450 % $ 11,847 % |
STOCK BASED COMPENSATION
STOCK BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2018 | |
STOCK BASED COMPENSATION | |
STOCK BASED COMPENSATION | 6. STOCK BASED COMPENSATION Our RLI Corp. Omnibus Stock Plan (omnibus plan) was in place from 2005 to 2010. The omnibus plan provided for equity-based compensation, including stock options, up to a maximum of 3,000,000 shares of common stock (subject to adjustment for changes in our capitalization and other events). Between 2005 and 2010, we granted 2,458,059 stock options under this plan, including incentive stock options (ISOs), which were adjusted as part of the special dividends paid in 2014 and prior years. The omnibus plan was replaced in 2010. In 2010, our shareholders approved the RLI Corp. Long-Term Incentive Plan (2010 LTIP), which provides for equity-based compensation and replaced the omnibus plan. In conjunction with the adoption of the 2010 LTIP, effective May 6, 2010, options were no longer granted under the omnibus plan. The 2010 LTIP provided for equity-based compensation, including stock options, up to a maximum of 4,000,000 shares of common stock (subject to adjustment for changes in our capitalization and other events). Between 2010 and 2015, we granted 2,878,000 stock options under the 2010 LTIP. The 2010 LTIP was replaced in 2015. In 2015, our shareholders approved the 2015 RLI Corp. Long-Term Incentive Plan (2015 LTIP), which provides for equity-based compensation and replaced the 2010 LTIP. In conjunction with the adoption of the 2015 LTIP, effective May 7, 2015, options were no longer granted under the 2010 LTIP. Awards under the 2015 LTIP may be in the form of restricted stock, restricted stock units, stock options (non-qualified only), stock appreciation rights, performance units as well as other stock-based awards. Eligibility under the 2015 LTIP is limited to employees and directors of the company or any affiliate. The granting of awards under the 2015 LTIP is solely at the discretion of the board of directors. The maximum number of shares of common stock available for distribution under the 2015 LTIP is 4,000,000 shares (subject to adjustment for changes in our capitalization and other events). Since 2015, we have granted 1,872,880 awards under the 2015 LTIP, including 424,305 thus far in 2018. Stock Options Under the 2015 LTIP, as under the 2010 LTIP and omnibus plan, we grant stock options for shares with an exercise price equal to the fair market value of the shares at the date of grant (subject to adjustments for changes in our capitalization, special dividends and other events as set forth in such plans). Options generally vest and become exercisable ratably over a five-year period and expire eight years after grant. For most participants, the requisite service period and vesting period will be the same. For participants who are retirement eligible, defined by the plan as those individuals whose age and years of service equals 75, the requisite service period is deemed to be met and options are immediately expensed on the date of grant. For participants who will become retirement eligible during the vesting period, the requisite service period over which expense is recognized is the period between the grant date and the attainment of retirement eligibility. Shares issued upon option exercise are newly issued shares. The following tables summarize option activity for the periods ended September 30, 2018 and 2017: Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2018 2,257,015 $ 46.80 Options granted 401,250 $ 64.31 Options exercised (685,810) $ 36.72 $ 23,603 Options canceled/forfeited (15,600) $ 61.44 Outstanding options at September 30, 2018 1,956,855 $ 53.81 5.50 $ 48,476 Exercisable options at September 30, 2018 678,905 $ 45.60 4.03 $ 22,388 Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2017 2,207,110 $ 40.90 Options granted 442,625 $ 56.97 Options exercised (174,890) $ 25.27 $ 5,655 Options canceled/forfeited (41,600) $ 48.30 Outstanding options at September 30, 2017 2,433,245 $ 44.82 4.84 $ 33,290 Exercisable options at September 30, 2017 1,157,785 $ 36.30 3.26 $ 25,078 The majority of our stock options are granted annually at our regular board meeting in May. In addition, options are approved at the May meeting for quarterly grants to certain retirement eligible employees. Since stock option grants to retirement eligible employees are fully expensed when issued, the approach allows for a more even expense distribution throughout the year. Thus far in 2018, 401,250 stock options were granted with a weighted average exercise price of $64.31 and a weighted average fair value of $10.38. We recognized $1.2 million of expense in the third quarter of 2018 and $3.4 million in the first nine months of 2018 related to options vesting. Since options granted under our 2010 LTIP and 2015 LTIP are non-qualified, we recorded a tax benefit of $0.2 million in the third quarter of 2018 and $0.7 million in the first nine months of 2018 related to this compensation expense. Total unrecognized compensation expense relating to outstanding and unvested options was $6.2 million, which will be recognized over the remainder of the vesting period. Comparatively, we recognized $1.0 million of expense in the third quarter of 2017 and $3.0 million in the first nine months of 2017. We recorded a tax benefit of $0.3 million in the third quarter of 2017 and $1.1 million in the first nine months of 2017 related to this compensation expense. The fair value of options was estimated using a Black-Scholes based option pricing model with the following weighted average grant-date assumptions and weighted average fair values as of September 30: 2018 2017 Weighted-average fair value of grants $ 10.38 $ Risk-free interest rates % % Dividend yield % % Expected volatility % % Expected option life 5.06 years years The risk-free rate was determined based on U.S. treasury yields that most closely approximated the option’s expected life. The dividend yield was determined based on the average annualized quarterly dividends paid during the most recent five-year period and incorporated a consideration for special dividends paid in recent history. The expected volatility was calculated based on the median of the rolling volatilities for the expected life of the options. The expected option life was determined based on historical exercise behavior and the assumption that all outstanding options will be exercised at the midpoint of the current date and remaining contractual term, adjusted for the demographics of the current year’s grant. Restricted Stock Units In addition to stock options, restricted stock units (RSUs) are granted with a value equal to the closing stock price of the Company’s stock on the dates the shares are granted. Generally, these units have a three-year cliff vesting. When participants terminate employment with the Company after having met the definition of retirement under the 2015 LTIP, defined as those individuals whose age and years of service equals 75, the RSUs will become fully vested. In addition, the RSUs have dividend participation which accrues and is settled in additional shares with all granted stock units at the end of the three-year period. As of September 30, 2018, 30,075 RSUs have been granted to employees under the 2015 LTIP, including 14,625 during 2018, and 29,325 remain outstanding. We recognized $0.2 million of expense on these units in the third quarter of 2018 and $0.4 million in the first nine months of 2018. Total unrecognized compensation expense relating to outstanding and unvested RSUs was $0.9 million, which will be recognized over the remainder of the vesting period. Comparatively, we recognized $0.1 million of expense in the third quarter of 2017 and $0.3 million in the first nine months of 2017 related to this compensation expense. In 2018, each outside director received restricted stock units with a fair market value of $50,000 on the date of grant as part of annual director compensation. A total of 8,430 restricted stock units were granted from the 2015 LTIP and vest one year from the date of grant. We recognized $0.1 million of compensation expense on these units in the third quarter of 2018 and $0.2 million in the first nine months of 2018. Total unrecognized compensation expense relating to outstanding and unvested director RSUs was $0.3 million, which will be recognized over the remainder of the vesting period. |
OPERATING SEGMENT INFORMATION
OPERATING SEGMENT INFORMATION | 9 Months Ended |
Sep. 30, 2018 | |
OPERATING SEGMENT INFORMATION | |
OPERATING SEGMENT INFORMATION | 7. OPERATING SEGMENT INFORMATION Selected information by operating segment is presented in the table below. Additionally, the table reconciles segment totals to total earnings and total revenues. For the Three-Month Periods For the Nine-Month Periods REVENUES Ended September 30, Ended September 30, (in thousands) 2018 2017 2018 2017 Casualty $ 131,605 $ 118,393 $ 387,068 $ 354,636 Property 39,067 33,559 111,439 103,849 Surety 30,143 30,073 88,857 91,156 Net premiums earned $ 200,815 $ 182,025 $ 587,364 $ 549,641 Net investment income 16,314 14,187 45,123 40,430 Net realized gains (losses) 18,647 35 47,900 (700) Net unrealized gains (losses) on equity securities 4,848 - (34,535) - Total consolidated revenue $ 240,624 $ 196,247 $ 645,852 $ 589,371 NET EARNINGS (in thousands) 2018 2017 2018 2017 Casualty $ (1,974) $ 3,554 $ 2,441 $ 5,321 Property 2,621 (27,519) 12,150 (15,852) Surety 7,115 9,033 24,804 28,399 Net underwriting income $ 7,762 $ (14,932) $ 39,395 $ 17,868 Net investment income 16,314 14,187 45,123 40,430 Net realized gains (losses) 18,647 35 47,900 (700) Net unrealized gains (losses) on equity securities 4,848 - (34,535) - General corporate expense and interest on debt (4,809) (3,812) (13,447) (13,385) Equity in earnings of unconsolidated investees 3,587 3,660 15,853 15,404 Total earnings (loss) before income taxes $ 46,349 $ (862) $ 100,289 $ 59,617 Income tax expense (benefit) 6,977 (2,596) 15,450 11,847 Total net earnings $ 39,372 $ 1,734 $ 84,839 $ 47,770 The following table further summarizes revenues by major product type within each operating segment: For the Three-Month Periods For the Nine-Month Periods NET PREMIUMS EARNED Ended September 30, Ended September 30, (in thousands) 2018 2017 2018 2017 Casualty Commercial and personal umbrella $ 31,244 $ 28,848 $ 91,845 $ 86,286 General liability 22,485 22,138 68,988 66,572 Commercial transportation 20,747 18,047 60,570 59,543 Professional services 19,890 19,584 59,559 58,826 Small commercial 12,883 12,419 38,674 36,471 Executive products 5,352 4,439 15,548 13,289 Medical professional liability 3,988 4,169 12,822 12,725 Other casualty 15,016 8,749 39,062 20,924 Total $ 131,605 $ 118,393 $ 387,068 $ 354,636 Property Commercial property $ 18,489 $ 15,600 $ 53,296 $ 47,191 Marine 16,068 13,112 44,866 37,005 Specialty personal 4,228 4,844 12,499 16,370 Property reinsurance 13 (62) 39 3,200 Other property 269 65 739 83 Total $ 39,067 $ 33,559 $ 111,439 $ 103,849 Surety Miscellaneous $ 11,822 $ 11,780 $ 35,183 $ 35,491 Contract 7,474 7,130 20,832 21,361 Commercial 6,863 6,861 20,337 20,942 Energy 3,984 4,302 12,505 13,362 Total $ 30,143 $ 30,073 $ 88,857 $ 91,156 Grand Total $ 200,815 $ 182,025 $ 587,364 $ 549,641 |
COMMITMENTS AND CONTINGENT LIAB
COMMITMENTS AND CONTINGENT LIABILITIES | 9 Months Ended |
Sep. 30, 2018 | |
COMMITMENTS AND CONTINGENT LIABILITIES | |
COMMITMENTS AND CONTINGENT LIABILITIES | 8. CONTINGENT LIABILITIES Carriage Hill Associates Coverage Dispute As reported in the Company’s Form 10-Q filed for the second quarter of 2018, Carriage Hill Associates of Charleston, LLC and certain other plaintiffs (collectively, “Plaintiffs”) filed a complaint in the Court of Common Pleas (the “Court”) for the Ninth Judicial Circuit of Berkeley County, South Carolina in December 2010 against Mt. Hawley Insurance Company (“Mt. Hawley”), a subsidiary of our principal subsidiary, RLI Insurance Company, relating to a coverage dispute. The complaint seeks, among other things, compensatory damages, punitive damages and attorneys’ fees. On May 25, 2018, the Court issued an Order finding in favor of Plaintiffs (the “Order”). The Court held that Mt. Hawley was responsible for compensatory damages relating to the alleged breach of duty to defend, breach of duty to indemnify and breach of duty of good faith totaling $21.7 million. The Court further held that Plaintiffs are entitled to attorneys’ fees and costs and that punitive damages are appropriate, with a hearing to be conducted at a later date to determine the amount of attorney fees and costs, and punitive damages. Mt. Hawley vigorously contested all the claims against it in this matter and filed certain post-trial motions seeking to, among other things, withdraw and vacate the Order. As the result of Court-recommended mediation between the parties, all of the claims in this matter among all parties have been settled on a confidential basis for an amount that did not have a material impact on the Company’s financial statements. Upon payment of the agreed-upon settlement amount, it is expected that the Order will be vacated and the matter will be dismissed with prejudice. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2018 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | 9. SUBSEQUENT EVENTS In early October 2018, Hurricane Michael made landfall in Florida as a Category 4 storm and traveled through the southeastern states. It is too early to estimate the amount of losses that will be incurred from this event and the impact will be reflected in our fourth quarter 2018 results. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
DESCRIPTION OF BUSINESS | A. DESCRIPTION OF BUSINESS RLI Corp. (the “Company”) is an insurance holding company that was organized in 1965. On May 4, 2018, RLI Corp. changed its state of incorporation from the State of Illinois to the State of Delaware (the “Reincorporation”). The Reincorporation was effected by merging RLI Corp., an Illinois corporation (“RLI Illinois”) into RLI Corp., a Delaware corporation (“RLI Delaware”). The separate corporate existence of RLI Illinois ceased and RLI Delaware continues in existence as the surviving corporation and possesses all rights, privileges, powers and franchises of RLI Illinois. The Reincorporation did not result in any change in the name, business, management, fiscal year, location of the principal executive offices, assets or liabilities of the Company. Each outstanding share of RLI Illinois common stock, which had a par value of $1.00 per share, was automatically converted into one outstanding share of RLI Delaware common stock, with a par value of $0.01 per share. In order to reflect the new par value of common stock on the balance sheet, a $66.6 million reclassification from common stock to paid-in-capital was made during the second quarter. For more information on the Reincorporation, see RLI Corp.’s Form 8-K filed on May 7, 2018. |
BASIS OF PRESENTATION | B. BASIS OF PRESENTATION The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with our 2017 Annual Report on Form 10-K. Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at September 30, 2018 and the results of operations of RLI Corp. and subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year. Certain reclassifications were made to 2017 to conform to the classifications used in the current year. The preparation of the unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated interim financial statements and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ significantly from these estimates. |
ADOPTED ACCOUNTING STANDARDS | C. ADOPTED ACCOUNTING STANDARDS ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ASU 2014-09 was issued to clarify and remove inconsistencies within revenue recognition requirements. The core principle of the update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the transaction price for a contract is allocated among separately identifiable performance obligations and a portion of the transaction price is recognized as revenue when the associated performance obligation has been completed or transferred to the customer. All contracts and fulfillment activities within the scope of Topic 944, Financial Services – Insurance, investment income, investment related gains and losses and equity in earnings of unconsolidated investees are outside the scope of this ASU. We adopted ASU 2014-09 on January 1, 2018. However, nearly all (over 99 percent) of our consolidated revenue is scoped out and therefore exempt from the guidance contained within this ASU. For the remaining portion, the revenue recognition policy we utilize aligns with the new guidance and there were no changes to the way we recognize revenue. Although the recognition of earnings from equity method investees is out of scope from the update, the recognition of revenue by our equity method investees would be subject to the new guidance if the revenue streams are within this update’s scope. Any impact on revenues would affect the net income of each of the equity method investees, upon which we calculate our portion of earnings to recognize. Our equity method investees are private companies and this guidance becomes effective for private companies in periods beginning after December 15, 2018. As a result, their earnings and our portion of those earnings are not impacted in 2018. We expect that revenue generated by both of our equity method investees will either be outside the scope of this update or largely unaffected by the changes. ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities This ASU was issued to improve the recognition and measurement of financial instruments. The new guidance makes targeted improvements to GAAP as follows: a. Requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net earnings; b. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; c. Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; d. Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; e. Requires an entity to present separately in other comprehensive earnings the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; f. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and g. Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. We adopted ASU 2016-01 on January 1, 2018. A cumulative-effect adjustment to the balance sheet was made as of the beginning of the year, which moved $142.2 million of net unrealized gains and losses on equity securities from accumulated other comprehensive earnings to retained earnings. During the first nine months of 2018, we recognized $34.5 million of unrealized losses on equity securities within net earnings and $7.3 million of income tax benefit. This compares to $14.6 million of unrealized gains on equity securities, net of tax, that was recognized through other comprehensive earnings for the comparable period in 2017. The future impact to our net earnings will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market. ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ASU 2016-15 was issued to reduce the diversity in practice of how certain cash receipts and payments, for which current guidance is silent, are classified in the statement of cash flows. The update addresses eight specific issues, including contingent consideration payments made after a business combination, distributions received from equity method investees and the classification of cash receipts and payments that have aspects of more than one class of cash flows. We adopted ASU 2016-15 on January 1, 2018. The adoption did not have a material impact on our statement of cash flows. ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ASU 2018-02 was issued as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) on December 22, 2017. Accounting guidance required deferred tax items to be revalued based on the new tax laws (the most significant of which reduced the corporate tax rate to 21 percent from 35 percent) with the change included in income from continuing operations. Since other comprehensive income was not affected by the revaluation of the deferred tax items, the net accumulated other comprehensive income (AOCI) balance was reflective of the historic 35 percent tax rate instead of the newly enacted rate, a difference that is referred to as a stranded tax effect. This ASU allows for the option to reclassify the stranded tax effects resulting from the implementation of the TCJA out of AOCI and into retained earnings. ASU 2018-02 does not replace the guidance requiring changes from the enactment of other tax laws or rates to be included within income from continuing operations and is applicable only to changes from the TCJA. We adopted ASU 2018-02 during the first quarter of 2018. A current period adjustment was made to the balance sheet, which moved $3.7 million of stranded tax effects on the unrealized balances of our fixed income securities and equity method investees from accumulated other comprehensive earnings to retained earnings. The entire unrealized balance on equity securities was reclassified from AOCI into retained earnings from the adoption of ASU 2016-01 on January 1, 2018 and was therefore unaffected by this ASU. As there was no impact to net earnings and the balance sheet effect is limited to a reclassification within the equity section, there was not a material impact on our financial statements. |
PROSPECTIVE ACCOUNTING STANDARDS | D. PROSPECTIVE ACCOUNTING STANDARDS ASU 2016-02, Leases (Topic 842) ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. ASU 2018-10, Codification Improvements to Topic 842, Leases was issued to clarify certain aspects of ASU 2016-02 and the two updates will be adopted concurrently. ASU 2016-02 requires leases to be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach upon adoption. However, ASU 2018-11, Leases (Topic 842): Targeted Improvements provides an alternative transition method by which leases are recognized at the date of adoption and a cumulative-effective adjustment to the opening balance of retained earnings is recognized in the period of adoption. We plan to adopt using this alternative. Approximately $33 million of undiscounted future lease liabilities would have to be discounted to present value and added to our balance sheet with a corresponding right-of-use asset if the guidance were applicable on September 30, 2018. We do not have any financing leases, but we do have approximately $7 million of annual operating lease expenses. We do not expect that there will be a materially different annual rental expense upon adoption. ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial instruments. Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred. The update will require a financial asset measured at amortized cost, including reinsurance balances recoverable, to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net earnings. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses. However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale securities is similar under current GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. Upon adoption, the update will be applied using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period presented. This update will have the most impact on our available-for-sale fixed income portfolio and reinsurance balances recoverable. However, as our fixed income portfolio is weighted towards higher rated bonds (82.8 percent rated A or better at September 30, 2018), we purchase reinsurance from financially strong reinsurers and we already have an allowance for uncollectible reinsurance amounts, we do not expect that the effect of adoption will be material. ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities Under current practices, the amortization period for callable debt securities held at a premium is generally the contractual life of the instrument. However, if an entity has a large number of similar loans, it may consider estimates of future principal prepayments. For those who choose to not incorporate an estimate of future prepayments, ASU 2017-08 shortens the amortization period for premium on debt securities to the earliest call date, rather than the maturity date, to align the amortization method with how the securities are quoted, priced and traded. After the earliest call date, if the call option is not exercised, the entity shall reset the effective yield using the payment terms of the debt security. Any excess of the amortized cost basis over the amount payable will be amortized to the next call date or to maturity if there are no other call dates. The method of accounting for a discount does not change and will continue to be amortized over the life of the bond. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The update will be applied using a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. As we currently incorporate estimates of future principal prepayments when calculating the effective yield for bonds carrying a premium, we do not expect the adoption of this update to have a material impact on our financial statements. ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ASU 2018-07 was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Our long term incentive plan limits the awards of share-based payments to employees and directors of the Company or any affiliate. The share-based compensation expense to nonemployee directors was $0.2 million in the first nine months of 2018. Costs associated with such payments are not expected to materially increase and we do not expect this update to have a material impact on our financial statements. ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement ASU 2018-13 modifies the disclosure requirements for assets and liabilities measured at fair value. The requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements have all been removed. However, the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period must be disclosed along with the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (or other quantitative information if it is more reasonable). Finally, for investments measured at net asset value, the requirements have been modified so that the timing of liquidation and the date when restrictions from redemption might lapse are only disclosed if the investee has communicated the timing to the entity or announced the timing publicly. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. As the amendments are only disclosure related and we do not currently have any assets or liabilities that are measured based on Level 3 inputs, our financial statements will not be materially impacted by this update. ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract ASU 2018-15 requires a customer in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Relevant implementation costs in the development stage are capitalized, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. Capitalized costs are expensed over the term of the hosting arrangement. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. This update can either be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. We have not yet completed the analysis of how adopting this ASU will affect our financial statements. |
INTANGIBLE ASSETS | E. INTANGIBLE ASSETS Goodwill and intangible assets totaled $54.6 million and $59.3 million at September 30, 2018 and December 31, 2017, respectively, as detailed in the following table. Goodwill and Intangible Assets September 30, December 31, (in thousands) 2018 2017 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Medical professional liability * - 3,595 Total goodwill $ 46,062 $ 49,657 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $2,929 at 9/30/18 and $5,678 at 12/31/17 1,064 2,145 Total intangibles $ 8,564 $ 9,645 Total goodwill and intangibles $ 54,626 $ 59,302 * The medical professional liability goodwill balance reflects a cumulative non-cash impairment charge of $12.4 million and $8.8 million as of September 30, 2018 and December 31, 2017, respectively. All definite-lived intangible assets are amortized against future operating results based on their estimated useful lives. Amortization of intangible assets was $0.1 million for the third quarter of 2018 and $0.3 million for the nine-month period ended September 30, 2018, compared to $0.2 million for the third quarter of 2017 and $0.6 million for the nine-month period ended September 30, 2017. Annual impairment testing was performed on our energy surety goodwill, miscellaneous and contract surety goodwill, small commercial goodwill and state insurance license indefinite-lived intangible asset during the second quarter of 2018. Based upon these reviews, none of the assets were impaired. In addition, as of September 30, 2018, there were no triggering events that would suggest an updated review was necessary on the above mentioned goodwill and intangible assets. As previously disclosed, adverse loss experience triggered the need to test the medical professional liability reporting unit during the first quarter of 2018 and the second quarter of 2017. The testing resulted in a $4.4 million non-cash impairment charge in 2018 and a $3.4 million non-cash impairment charge in 2017. In each instance, a fair value for the medical professional liability reporting unit’s agency relationships, carried as a definite-lived intangible, was determined by using a discounted cash flow valuation. In 2018, the carrying value exceeded the fair value, resulting in a $0.8 million non-cash impairment charge. In 2017, the resulting non-cash impairment charge on definite-lived intangibles was $1.8 million. A fair value for the medical professional liability reporting unit’s goodwill was determined by using a weighted average of a market approach and discounted cash flow valuation. The carrying value exceeded the fair value in each year, resulting in a $3.6 million non-cash impairment charge in the first quarter of 2018 and a $1.6 million non-cash impairment charge during the second quarter of 2017. Subsequent to the first quarter 2018 impairment, the medical professional liability reporting unit had no remaining goodwill or intangible assets. All impairment charges were recorded as net realized losses in the respective period’s consolidated statement of earnings. |
EARNINGS PER SHARE | F. EARNINGS PER SHARE Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock or common stock equivalents were exercised or converted into common stock. When inclusion of common stock equivalents increases the earnings per share or reduces the loss per share, the effect on earnings is anti-dilutive. Under these circumstances, the diluted net earnings or net loss per share is computed excluding the common stock equivalents. The following represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the unaudited condensed consolidated interim financial statements. For the Three-Month Period For the Three-Month Period Ended September 30, 2018 Ended September 30, 2017 Income Shares Per Share Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS Income available to common shareholders $ 39,372 44,400 $ 0.89 $ 1,734 44,058 $ 0.04 Effect of Dilutive Securities Stock options - 540 - 457 Diluted EPS Income available to common shareholders $ 39,372 44,940 $ 0.88 $ 1,734 44,515 $ 0.04 For the Nine-Month Period For the Nine-Month Period Ended September 30, 2018 Ended September 30, 2017 Income Shares Per Share Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS Income available to common shareholders $ 84,839 44,311 $ 1.91 $ 47,770 44,008 $ 1.09 Effect of Dilutive Securities Stock options - 449 - 509 Diluted EPS Income available to common shareholders $ 84,839 44,760 $ 1.90 $ 47,770 44,517 $ 1.07 |
COMPREHENSIVE EARNINGS | G. COMPREHENSIVE EARNINGS Our comprehensive earnings include net earnings plus after-tax unrealized gains and losses on our fixed income portfolio in 2018. In 2017, after-tax unrealized gains and losses on our equity portfolio were also included. With the adoption of ASU 2016-01 on January 1, 2018, we began recognizing unrealized gains and losses on the equity portfolio through net income. See note 1.C to the unaudited condensed consolidated interim financial statements for more information. In reporting comprehensive earnings on a net basis in the statement of earnings, we used the federal statutory tax rate of 21 percent in 2018 and 35 percent in 2017. Unrealized losses, net of tax, on the fixed income portfolio for the first nine months of 2018 were $41.8 million, compared to $30.8 million of unrealized gains, net of tax, on the fixed income and equity portfolios during the same period last year. Unrealized losses in the first nine months of 2018 were attributable to rising interest rates, which decreased the fair value of securities held in the fixed income portfolio. In 2017, unrealized gains were primarily the result of tightening credit spreads which increased the fair value of fixed income securities, though positive pricing movements in equity securities also contributed. The following table illustrates the changes in the balance of each component of accumulated other comprehensive earnings for each period presented in the unaudited condensed consolidated interim financial statements. The 2017 activity and balances include the net unrealized gain and loss activity on both fixed income and equity securities, while the 2018 activity and ending balance reflect only the net unrealized gain and loss activity on fixed income securities due to the aforementioned adoption of ASU 2016-01. (in thousands) For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, Unrealized Gains/Losses on Available-for-Sale Securities 2018 2017 2018 2017 Beginning balance $ (14,648) $ 144,978 $ 157,919 $ 122,610 Cumulative effect adjustment of ASU 2016-01 - - (142,219) - Adjusted beginning balance $ (14,648) $ 144,978 $ 15,700 $ 122,610 Other comprehensive earnings before reclassifications (7,034) 9,141 (41,829) 33,066 Amounts reclassified from accumulated other comprehensive earnings (662) (697) 60 (2,254) Net current-period other comprehensive earnings (loss) $ (7,696) $ 8,444 $ (41,769) $ 30,812 Reclassification of stranded tax effect per ASU 2018-02 - - 3,725 - Ending balance $ (22,344) $ 153,422 $ (22,344) $ 153,422 The sale or other-than-temporary impairment of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive earnings to current period net earnings. The effects of reclassifications out of accumulated other comprehensive earnings by the respective line items of net earnings are presented in the following table. As previously mentioned, 2018 activity is reflective of activity on fixed income securities classified as available-for-sale, while 2017 also includes activity from the equity portfolio. Amount Reclassified from Accumulated Other (in thousands) Comprehensive Earnings For the Three-Month For the Nine-Month Component of Accumulated Periods Ended September 30, Periods Ended September 30, Affected line item in the Other Comprehensive Earnings 2018 2017 2018 2017 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 999 $ 1,073 $ 141 $ 5,558 Net realized gains (losses) (161) - (217) (2,090) Other-than-temporary impairment (OTTI) losses on investments $ 838 $ 1,073 $ (76) $ 3,468 Earnings (loss) before income taxes (176) (376) 16 (1,214) Income tax expense (benefit) $ 662 $ 697 $ (60) $ 2,254 Net earnings (loss) |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of goodwill and intangible assets | Goodwill and Intangible Assets September 30, December 31, (in thousands) 2018 2017 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Medical professional liability * - 3,595 Total goodwill $ 46,062 $ 49,657 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $2,929 at 9/30/18 and $5,678 at 12/31/17 1,064 2,145 Total intangibles $ 8,564 $ 9,645 Total goodwill and intangibles $ 54,626 $ 59,302 * The medical professional liability goodwill balance reflects a cumulative non-cash impairment charge of $12.4 million and $8.8 million as of September 30, 2018 and December 31, 2017, respectively. |
Schedule of reconciliation of numerator and denominator of the basic and diluted earnings per share computations | For the Three-Month Period For the Three-Month Period Ended September 30, 2018 Ended September 30, 2017 Income Shares Per Share Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS Income available to common shareholders $ 39,372 44,400 $ 0.89 $ 1,734 44,058 $ 0.04 Effect of Dilutive Securities Stock options - 540 - 457 Diluted EPS Income available to common shareholders $ 39,372 44,940 $ 0.88 $ 1,734 44,515 $ 0.04 For the Nine-Month Period For the Nine-Month Period Ended September 30, 2018 Ended September 30, 2017 Income Shares Per Share Income Shares Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS Income available to common shareholders $ 84,839 44,311 $ 1.91 $ 47,770 44,008 $ 1.09 Effect of Dilutive Securities Stock options - 449 - 509 Diluted EPS Income available to common shareholders $ 84,839 44,760 $ 1.90 $ 47,770 44,517 $ 1.07 |
Schedule of changes in the balance of each component of accumulated other comprehensive earnings | (in thousands) For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, Unrealized Gains/Losses on Available-for-Sale Securities 2018 2017 2018 2017 Beginning balance $ (14,648) $ 144,978 $ 157,919 $ 122,610 Cumulative effect adjustment of ASU 2016-01 - - (142,219) - Adjusted beginning balance $ (14,648) $ 144,978 $ 15,700 $ 122,610 Other comprehensive earnings before reclassifications (7,034) 9,141 (41,829) 33,066 Amounts reclassified from accumulated other comprehensive earnings (662) (697) 60 (2,254) Net current-period other comprehensive earnings (loss) $ (7,696) $ 8,444 $ (41,769) $ 30,812 Reclassification of stranded tax effect per ASU 2018-02 - - 3,725 - Ending balance $ (22,344) $ 153,422 $ (22,344) $ 153,422 |
Schedule of effects of reclassifications out of accumulated other comprehensive earnings | Amount Reclassified from Accumulated Other (in thousands) Comprehensive Earnings For the Three-Month For the Nine-Month Component of Accumulated Periods Ended September 30, Periods Ended September 30, Affected line item in the Other Comprehensive Earnings 2018 2017 2018 2017 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 999 $ 1,073 $ 141 $ 5,558 Net realized gains (losses) (161) - (217) (2,090) Other-than-temporary impairment (OTTI) losses on investments $ 838 $ 1,073 $ (76) $ 3,468 Earnings (loss) before income taxes (176) (376) 16 (1,214) Income tax expense (benefit) $ 662 $ 697 $ (60) $ 2,254 Net earnings (loss) |
INVESTMENTS (Tables)
INVESTMENTS (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Schedule of amortized cost and fair value of available-for-sale securities | Available-for-sale (in thousands) September 30, 2018 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 177,339 $ 8 $ (3,560) $ 173,787 U.S. agency 30,647 111 (855) 29,903 Non-U.S. govt. & agency 8,178 - (271) 7,907 Agency MBS 415,476 1,299 (14,749) 402,026 ABS/CMBS* 120,737 113 (1,283) 119,567 Corporate 675,731 2,862 (11,901) 666,692 Municipal 317,540 4,727 (2,532) 319,735 Total Fixed Income $ 1,745,648 $ 9,120 $ (35,151) $ 1,719,617 Available-for-sale (in thousands) December 31, 2017 Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 92,561 $ 23 $ (895) $ 91,689 U.S. agency 18,541 347 (110) 18,778 Non-U.S. govt. & agency 7,501 143 (56) 7,588 Agency MBS 329,129 3,420 (4,078) 328,471 ABS/CMBS* 70,405 436 (315) 70,526 Corporate 508,128 12,575 (1,681) 519,022 Municipal 620,146 17,272 (1,253) 636,165 Total Fixed Income $ 1,646,411 $ 34,216 $ (8,388) $ 1,672,239 *Non-agency asset-backed and commercial mortgage-backed |
Schedule of securities in an unrealized loss position segregated by type and length of time in an unrealized loss position | September 30, 2018 December 31, 2017 (in thousands) < 12 Mos. 12 Mos. & Total < 12 Mos. 12 Mos. & Total U.S. Government Fair value $ 72,347 $ 99,558 $ 171,905 $ 58,009 $ 30,888 $ 88,897 Cost or amortized cost 72,981 102,484 175,465 58,443 31,349 89,792 Unrealized Loss $ (634) $ (2,926) $ (3,560) $ (434) $ (461) $ (895) U.S. Agency Fair value $ 17,408 $ 10,384 $ 27,792 $ 10,917 $ — $ 10,917 Cost or amortized cost 17,622 11,025 28,647 11,027 — 11,027 Unrealized Loss $ (214) $ (641) $ (855) $ (110) $ — $ (110) Non-U.S. government Fair value $ 6,214 $ 1,693 $ 7,907 $ — $ 1,840 $ 1,840 Cost or amortized cost 6,280 1,898 8,178 — 1,896 1,896 Unrealized Loss $ (66) $ (205) $ (271) $ — $ (56) $ (56) Agency MBS Fair value $ 152,341 $ 206,541 $ 358,882 $ 122,130 $ 111,306 $ 233,436 Cost or amortized cost 155,615 218,016 373,631 123,559 113,955 237,514 Unrealized Loss $ (3,274) $ (11,475) $ (14,749) $ (1,429) $ (2,649) $ (4,078) ABS/CMBS* Fair value $ 82,967 $ 28,580 $ 111,547 $ 23,406 $ 21,587 $ 44,993 Cost or amortized cost 83,647 29,183 112,830 23,491 21,817 45,308 Unrealized Loss $ (680) $ (603) $ (1,283) $ (85) $ (230) $ (315) Corporate Fair value $ 387,421 $ 84,835 $ 472,256 $ 86,946 $ 28,600 $ 115,546 Cost or amortized cost 395,327 88,830 484,157 87,736 29,491 117,227 Unrealized Loss $ (7,906) $ (3,995) $ (11,901) $ (790) $ (891) $ (1,681) Municipal Fair value $ 56,839 $ 43,287 $ 100,126 $ 71,059 $ 60,049 $ 131,108 Cost or amortized cost 57,586 45,072 102,658 71,534 60,827 132,361 Unrealized Loss $ (747) $ (1,785) $ (2,532) $ (475) $ (778) $ (1,253) Total fixed income Fair value $ 775,537 $ 474,878 $ 1,250,415 $ 372,467 $ 254,270 $ 626,737 Cost or amortized cost 789,058 496,508 1,285,566 375,790 259,335 635,125 Unrealized Loss $ (13,521) $ (21,630) $ (35,151) $ (3,323) $ (5,065) $ (8,388) * Non-agency asset-backed and commercial mortgage-backed |
Schedule of credit quality indicators for investments in unrealized loss positions | Equivalent Equivalent (dollars in thousands) NAIC S&P Moody’s Amortized Unrealized Percent Rating Rating Rating Cost Fair Value Loss to Total 1 AAA/AA/A Aaa/Aa/A $ 1,103,857 $ 1,074,126 $ (29,731) % 2 BBB Baa 136,227 131,948 (4,279) % 3 BB Ba 29,221 28,491 (730) % 4 B B 14,712 14,386 (326) % 5 CCC Caa 1,549 1,464 (85) % 6 CC or lower Ca or lower - - - - % Total $ 1,285,566 $ 1,250,415 $ (35,151) % |
Available for sale securities | |
Schedule of contractual maturity of securities | September 30, 2018 Available-for-sale Amortized Fair (in thousands) Cost Value Due in one year or less $ 41,952 $ 42,115 Due after one year through five years 379,636 378,403 Due after five years through 10 years 611,198 602,738 Due after 10 years 176,649 174,768 Mtge/ABS/CMBS* 536,213 521,593 Total available-for-sale $ 1,745,648 $ 1,719,617 *Mortgage-backed, asset-backed and commercial mortgage-backed |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
FAIR VALUE MEASUREMENTS | |
Schedule of assets measured at fair value on recurring basis | As of September 30, 2018 Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Fixed income securities - available-for-sale U.S. government $ — $ 173,787 $ — $ 173,787 U.S. agency — 29,903 — 29,903 Non-U.S. govt. & agency — 7,907 — 7,907 Agency MBS — 402,026 — 402,026 ABS/CMBS* — 119,567 — 119,567 Corporate — 666,692 — 666,692 Municipal — 319,735 — 319,735 Total fixed income securities - available-for-sale $ — $ 1,719,617 $ — $ 1,719,617 Equity securities 393,882 493 — 394,375 Total $ 393,882 $ 1,720,110 $ — $ 2,113,992 As of December 31, 2017 Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs (in thousands) (Level 1) (Level 2) (Level 3) Total Fixed income securities - available-for-sale U.S. government $ — $ 91,689 $ — $ 91,689 U.S. agency — 18,778 — 18,778 Non-U.S. govt. & agency — 7,588 — 7,588 Agency MBS — 328,471 — 328,471 ABS/CMBS* — 70,526 — 70,526 Corporate — 519,022 — 519,022 Municipal — 636,165 — 636,165 Total fixed income securities - available-for-sale $ — $ 1,672,239 $ — $ 1,672,239 Equity securities 400,492 — — 400,492 Total $ 400,492 $ 1,672,239 $ — $ 2,072,731 * Non-agency asset-backed and commercial mortgage-backed |
HISTORICAL LOSS AND LAE DEVEL_2
HISTORICAL LOSS AND LAE DEVELOPMENT (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
HISTORICAL LOSS AND LAE DEVELOPMENT | |
Schedule of reconciliation of unpaid losses and settlement expenses (LAE) | For the Nine-Month Periods Ended September 30, (in thousands) 2018 2017 Unpaid losses and LAE at beginning of year Gross $ 1,271,503 $ 1,139,337 Ceded (301,991) (288,224) Net $ 969,512 $ 851,113 Increase (decrease) in incurred losses and LAE Current accident year $ 342,807 $ 343,535 Prior accident years (38,502) (36,608) Total incurred $ 304,305 $ 306,927 Loss and LAE payments for claims incurred Current accident year $ (45,008) $ (37,333) Prior accident year (171,725) (158,052) Total paid $ (216,733) $ (195,385) Net unpaid losses and LAE at September 30, $ 1,057,084 $ 962,655 Unpaid losses and LAE at September 30, Gross $ 1,377,111 $ 1,253,729 Ceded (320,027) (291,074) Net $ 1,057,084 $ 962,655 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
INCOME TAXES | |
Schedule of reconciliation of income tax expense attributable to income from operations with amounts computed by applying the U.S. federal tax rate to pretax income from continuing operations | For the Three-Month Periods Ended September 30, For the Nine-Month Periods Ended September 30, 2018 2017 2018 2017 (in thousands) Amount % Amount % Amount % Amount % Provision for income taxes at the statutory rate of 21% in 2018 and 35% in 2017 $ 9,733 % $ (302) % $ 21,061 % $ 20,866 % Increase (reduction) in taxes resulting from: Excess tax benefit on share-based compensation (2,273) % (477) % (4,340) % (3,711) % Tax exempt interest income (375) % (1,187) % (1,460) % (3,525) % Dividends received deduction (150) % (553) % (516) % (1,488) % ESOP dividends paid deduction (139) % (240) % (423) % (724) % Other items, net 181 % 163 % 1,128 % 429 % Total tax expense (benefit) $ 6,977 % $ (2,596) % $ 15,450 % $ 11,847 % |
STOCK BASED COMPENSATION (Table
STOCK BASED COMPENSATION (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
STOCK BASED COMPENSATION | |
Schedule of stock option activity | Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2018 2,257,015 $ 46.80 Options granted 401,250 $ 64.31 Options exercised (685,810) $ 36.72 $ 23,603 Options canceled/forfeited (15,600) $ 61.44 Outstanding options at September 30, 2018 1,956,855 $ 53.81 5.50 $ 48,476 Exercisable options at September 30, 2018 678,905 $ 45.60 4.03 $ 22,388 Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2017 2,207,110 $ 40.90 Options granted 442,625 $ 56.97 Options exercised (174,890) $ 25.27 $ 5,655 Options canceled/forfeited (41,600) $ 48.30 Outstanding options at September 30, 2017 2,433,245 $ 44.82 4.84 $ 33,290 Exercisable options at September 30, 2017 1,157,785 $ 36.30 3.26 $ 25,078 |
Schedule of stock option assumptions for fair value estimate | 2018 2017 Weighted-average fair value of grants $ 10.38 $ Risk-free interest rates % % Dividend yield % % Expected volatility % % Expected option life 5.06 years years |
OPERATING SEGMENT INFORMATION (
OPERATING SEGMENT INFORMATION (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
OPERATING SEGMENT INFORMATION | |
Schedule of revenues and net earnings by segment | For the Three-Month Periods For the Nine-Month Periods REVENUES Ended September 30, Ended September 30, (in thousands) 2018 2017 2018 2017 Casualty $ 131,605 $ 118,393 $ 387,068 $ 354,636 Property 39,067 33,559 111,439 103,849 Surety 30,143 30,073 88,857 91,156 Net premiums earned $ 200,815 $ 182,025 $ 587,364 $ 549,641 Net investment income 16,314 14,187 45,123 40,430 Net realized gains (losses) 18,647 35 47,900 (700) Net unrealized gains (losses) on equity securities 4,848 - (34,535) - Total consolidated revenue $ 240,624 $ 196,247 $ 645,852 $ 589,371 NET EARNINGS (in thousands) 2018 2017 2018 2017 Casualty $ (1,974) $ 3,554 $ 2,441 $ 5,321 Property 2,621 (27,519) 12,150 (15,852) Surety 7,115 9,033 24,804 28,399 Net underwriting income $ 7,762 $ (14,932) $ 39,395 $ 17,868 Net investment income 16,314 14,187 45,123 40,430 Net realized gains (losses) 18,647 35 47,900 (700) Net unrealized gains (losses) on equity securities 4,848 - (34,535) - General corporate expense and interest on debt (4,809) (3,812) (13,447) (13,385) Equity in earnings of unconsolidated investees 3,587 3,660 15,853 15,404 Total earnings (loss) before income taxes $ 46,349 $ (862) $ 100,289 $ 59,617 Income tax expense (benefit) 6,977 (2,596) 15,450 11,847 Total net earnings $ 39,372 $ 1,734 $ 84,839 $ 47,770 |
Schedule of net premiums earned by major product type | For the Three-Month Periods For the Nine-Month Periods NET PREMIUMS EARNED Ended September 30, Ended September 30, (in thousands) 2018 2017 2018 2017 Casualty Commercial and personal umbrella $ 31,244 $ 28,848 $ 91,845 $ 86,286 General liability 22,485 22,138 68,988 66,572 Commercial transportation 20,747 18,047 60,570 59,543 Professional services 19,890 19,584 59,559 58,826 Small commercial 12,883 12,419 38,674 36,471 Executive products 5,352 4,439 15,548 13,289 Medical professional liability 3,988 4,169 12,822 12,725 Other casualty 15,016 8,749 39,062 20,924 Total $ 131,605 $ 118,393 $ 387,068 $ 354,636 Property Commercial property $ 18,489 $ 15,600 $ 53,296 $ 47,191 Marine 16,068 13,112 44,866 37,005 Specialty personal 4,228 4,844 12,499 16,370 Property reinsurance 13 (62) 39 3,200 Other property 269 65 739 83 Total $ 39,067 $ 33,559 $ 111,439 $ 103,849 Surety Miscellaneous $ 11,822 $ 11,780 $ 35,183 $ 35,491 Contract 7,474 7,130 20,832 21,361 Commercial 6,863 6,861 20,337 20,942 Energy 3,984 4,302 12,505 13,362 Total $ 30,143 $ 30,073 $ 88,857 $ 91,156 Grand Total $ 200,815 $ 182,025 $ 587,364 $ 549,641 |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Description of Business (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | ||
Jun. 30, 2018 | Sep. 30, 2018 | Dec. 31, 2017 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Common Stock, Par or Stated Value Per Share | $ 0.01 | $ 1 | |
Reclassification From Common Stock | $ 66.6 | ||
Reclassification Into Paid In Capital | $ 66.6 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Accounting Standards (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | Mar. 31, 2018 | Jan. 01, 2018 | |
Accumulated other comprehensive earnings | $ (22,344) | $ (22,344) | $ 157,919 | ||||
Retained earnings | 983,126 | 983,126 | 788,522 | ||||
Net unrealized gains (losses) on equity securities | 4,848 | (34,535) | |||||
Expected Value Of Asset And Liability Addition From Adoption Of ASU 2016-02 | $ 33,000 | $ 33,000 | |||||
Expense associated with operating leases | $ 7,000 | ||||||
Percentage Of Fixed Income Portfolio Rated A Or Better | 82.80% | 82.80% | |||||
Tax rate used (as a percent) | 21.00% | 35.00% | 21.00% | 35.00% | |||
Allocated Share-based Compensation Expense | $ 1,200 | $ 1,000 | $ 3,400 | $ 3,000 | |||
Accounting Standards Update 2014-09 | |||||||
Percent of Revenue Out of Scope of ASU 2014-09 | 99.00% | ||||||
Accounting Standards Update 2016-01 | |||||||
Accumulated other comprehensive earnings | $ (142,200) | ||||||
Retained earnings | $ 142,200 | ||||||
Net unrealized gains (losses) on equity securities | $ (34,500) | ||||||
Unrealized Gain (Loss) Net Of Tax On Equity Securities Recognized in Other Comprehensive Income | 14,600 | ||||||
Reduction to income tax expense | $ 7,300 | ||||||
Accounting Standards Update 2018-02 | |||||||
Accumulated other comprehensive earnings | $ 3,700 | ||||||
Retained earnings | $ (3,700) | ||||||
Tax rate used (as a percent) | 21.00% | 35.00% | |||||
Restricted Stock Units (RSUs) [Member] | |||||||
Allocated Share-based Compensation Expense | 200 | $ 100 | $ 400 | $ 300 | |||
Outside director | Restricted Stock Units (RSUs) [Member] | |||||||
Allocated Share-based Compensation Expense | $ 100 | $ 200 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Intangible Assets and EPS (Details) - USD ($) $ / shares in Units, shares in Thousands | 3 Months Ended | 9 Months Ended | ||||||
Sep. 30, 2018 | Jun. 30, 2018 | Mar. 31, 2018 | Sep. 30, 2017 | Jun. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Business Acquisition [Line Items] | ||||||||
Goodwill | $ 46,062,000 | $ 46,062,000 | $ 49,657,000 | |||||
State insurance licenses | 7,500,000 | 7,500,000 | 7,500,000 | |||||
Definite-lived intangibles, net of accumulated amortization of $2,929 at 9/30/18 and $5,678 at 12/31/17 | 1,064,000 | 1,064,000 | 2,145,000 | |||||
Total intangibles | 8,564,000 | 8,564,000 | 9,645,000 | |||||
Goodwill and intangibles | 54,626,000 | 54,626,000 | 59,302,000 | |||||
Accumulated amortization of definite-lived intangibles | 2,929,000 | 2,929,000 | 5,678,000 | |||||
Amortization of intangible assets | 100,000 | $ 200,000 | 300,000 | $ 600,000 | ||||
Basic EPS, Income (Numerator) | ||||||||
Income available to common shareholders | 39,372,000 | 1,734,000 | 84,839,000 | 47,770,000 | ||||
Diluted EPS, Income (Numerator) | ||||||||
Income available to common shareholders | $ 39,372,000 | $ 1,734,000 | $ 84,839,000 | $ 47,770,000 | ||||
Basic EPS, Weighted Average Shares (Denominator) | ||||||||
Number of shares outstanding | 44,400 | 44,058 | 44,311 | 44,008 | ||||
Effect of Dilutive Securities, Shares (Denominator) | ||||||||
Stock options (in shares) | 540 | 457 | 449 | 509 | ||||
Diluted EPS, Weighted Average Shares (Denominator) | ||||||||
Number of shares outstanding | 44,940 | 44,515 | 44,760 | 44,517 | ||||
Basic EPS, Per Share Amount | ||||||||
Basic net earnings per share (in dollars per share) | $ 0.89 | $ 0.04 | $ 1.91 | $ 1.09 | ||||
Diluted EPS, Per Share Amount | ||||||||
Diluted earnings per share (in dollars per share) | $ 0.88 | $ 0.04 | $ 1.90 | $ 1.07 | ||||
Contractors Bonding and Insurance Company | ||||||||
Business Acquisition [Line Items] | ||||||||
Impairment of indefinite-lived intangible assets | $ 0 | |||||||
Energy Surety | ||||||||
Business Acquisition [Line Items] | ||||||||
Goodwill | $ 25,706,000 | $ 25,706,000 | 25,706,000 | |||||
Goodwill, Impairment Loss | 0 | |||||||
Miscellaneous and Contract Surety | ||||||||
Business Acquisition [Line Items] | ||||||||
Goodwill | 15,110,000 | 15,110,000 | 15,110,000 | |||||
Goodwill, Impairment Loss | 0 | |||||||
Small commercial | ||||||||
Business Acquisition [Line Items] | ||||||||
Goodwill | 5,246,000 | 5,246,000 | 5,246,000 | |||||
Goodwill, Impairment Loss | 0 | |||||||
Medical professional liability | ||||||||
Business Acquisition [Line Items] | ||||||||
Goodwill | 0 | $ 0 | $ 0 | 0 | 3,595,000 | |||
Goodwill and Intangible Asset Impairment | 4,400,000 | $ 3,400,000 | ||||||
Goodwill, Impairment Loss | 3,600,000 | 1,600,000 | ||||||
Goodwill, Impaired, Accumulated Impairment Loss | $ 12,400,000 | $ 12,400,000 | $ 8,800,000 | |||||
Impairment of Intangible Assets, Finite-lived | $ 800,000 | $ 1,800,000 |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Changes in Accumulated Other Comprehensive Earnings (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
COMPREHENSIVE EARNINGS | |||||
Tax rate used (as a percent) | 21.00% | 35.00% | 21.00% | 35.00% | |
Changes in the balance of each component of accumulated other comprehensive earnings | |||||
Beginning balance | $ 157,919 | ||||
Net current-period other comprehensive earnings (loss) | $ (7,696) | $ 8,444 | (41,769) | $ 30,812 | |
Ending balance | (22,344) | (22,344) | $ 157,919 | ||
Reclassification Adjustment Out of Accumulated Other Comprehensive Income Abstract | |||||
Net realized gains | 18,808 | 35 | 48,117 | 1,390 | |
Other-than-temporary-impairment (OTTI) losses on investments | (161) | (217) | (2,090) | ||
Earnings (loss) before income taxes | 46,349 | (862) | 100,289 | 59,617 | |
Income tax expense | (6,977) | 2,596 | (15,450) | (11,847) | |
Net earnings | 39,372 | 1,734 | 84,839 | 47,770 | |
Unrealized Gains and Losses on Available-for-Sale Securities | |||||
Changes in the balance of each component of accumulated other comprehensive earnings | |||||
Beginning balance | (14,648) | 144,978 | 157,919 | 122,610 | 122,610 |
Cumulative effect adjustment of ASU 2016-01 | (142,219) | (142,219) | |||
Accumulated Other Comprehensive Income Loss Net Of Tax Adjusted Balance | (14,648) | 144,978 | 15,700 | 122,610 | 122,610 |
Other comprehensive earnings before reclassifications | (7,034) | 9,141 | (41,829) | 33,066 | |
Amounts reclassified from accumulated other comprehensive earnings | (662) | (697) | 60 | (2,254) | |
Net current-period other comprehensive earnings (loss) | (7,696) | 8,444 | (41,769) | 30,812 | |
Tax Cuts And Jobs Act Of 2017 Reclassification From Aoci To Retained Earnings Tax Effect | 3,725 | ||||
Ending balance | (22,344) | 153,422 | (22,344) | 153,422 | $ 157,919 |
Reclassifications out of accumulated other comprehensive earnings | Unrealized Gains and Losses on Available-for-Sale Securities | |||||
Reclassification Adjustment Out of Accumulated Other Comprehensive Income Abstract | |||||
Net realized gains | 999 | 1,073 | 141 | 5,558 | |
Other-than-temporary-impairment (OTTI) losses on investments | (161) | (217) | (2,090) | ||
Earnings (loss) before income taxes | 838 | 1,073 | (76) | 3,468 | |
Income tax expense | (176) | (376) | 16 | (1,214) | |
Net earnings | $ 662 | $ 697 | $ (60) | $ 2,254 |
INVESTMENTS - Amortized Cost an
INVESTMENTS - Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 | |
Available-for-sale | |||
Total amortized cost | $ 1,745,648 | $ 1,646,411 | |
Available-for-sale Securities, Debt Securities | 1,719,617 | 1,672,239 | |
Amortized Cost | |||
Due in one year or less | 41,952 | ||
Due after one year through five years | 379,636 | ||
Due after five years through 10 years | 611,198 | ||
Due after 10 years | 176,649 | ||
Mtge/ABS/CMBS | [1] | 536,213 | |
Total amortized cost | 1,745,648 | 1,646,411 | |
Fair Value | |||
Due in one year or less | 42,115 | ||
Due after one year through five years | 378,403 | ||
Due after five years through 10 years | 602,738 | ||
Due after 10 years | 174,768 | ||
Mtge/ABS/CMBS | [1] | 521,593 | |
Total fair value | 1,719,617 | 1,672,239 | |
Fair value measured on recurring basis | |||
Available-for-sale | |||
Available-for-sale Securities, Debt Securities | 1,719,617 | 1,672,239 | |
Fair Value | |||
Total fair value | 1,719,617 | 1,672,239 | |
Fair value measured on recurring basis | Significant Unobservable Inputs (Level 3) | |||
INVESTMENTS | |||
Total assets at fair value | 0 | ||
Debt securities | |||
Available-for-sale | |||
Total amortized cost | 1,745,648 | 1,646,411 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 9,120 | 34,216 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 35,151 | 8,388 | |
Available-for-sale Securities, Debt Securities | 1,719,617 | 1,672,239 | |
Amortized Cost | |||
Total amortized cost | 1,745,648 | 1,646,411 | |
Fair Value | |||
Total fair value | 1,719,617 | 1,672,239 | |
U.S. government | |||
Available-for-sale | |||
Total amortized cost | 177,339 | 92,561 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 8 | 23 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 3,560 | 895 | |
Available-for-sale Securities, Debt Securities | 173,787 | 91,689 | |
Amortized Cost | |||
Total amortized cost | 177,339 | 92,561 | |
Fair Value | |||
Total fair value | 173,787 | 91,689 | |
U.S. Agency | |||
Available-for-sale | |||
Total amortized cost | 30,647 | 18,541 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 111 | 347 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 855 | 110 | |
Available-for-sale Securities, Debt Securities | 29,903 | 18,778 | |
Amortized Cost | |||
Total amortized cost | 30,647 | 18,541 | |
Fair Value | |||
Total fair value | 29,903 | 18,778 | |
Non-U.S. govt. & agency | |||
Available-for-sale | |||
Total amortized cost | 8,178 | 7,501 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 143 | ||
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 271 | 56 | |
Available-for-sale Securities, Debt Securities | 7,907 | 7,588 | |
Amortized Cost | |||
Total amortized cost | 8,178 | 7,501 | |
Fair Value | |||
Total fair value | 7,907 | 7,588 | |
Mortgage-backed | |||
Available-for-sale | |||
Total amortized cost | 415,476 | 329,129 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 1,299 | 3,420 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 14,749 | 4,078 | |
Available-for-sale Securities, Debt Securities | 402,026 | 328,471 | |
Amortized Cost | |||
Total amortized cost | 415,476 | 329,129 | |
Fair Value | |||
Total fair value | 402,026 | 328,471 | |
ABS/CMBS | |||
Available-for-sale | |||
Total amortized cost | [2] | 120,737 | 70,405 |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | [2] | 113 | 436 |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | [2] | 1,283 | 315 |
Available-for-sale Securities, Debt Securities | [2] | 119,567 | 70,526 |
Amortized Cost | |||
Total amortized cost | [2] | 120,737 | 70,405 |
Fair Value | |||
Total fair value | [2] | 119,567 | 70,526 |
Corporate Debt | |||
Available-for-sale | |||
Total amortized cost | 675,731 | 508,128 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 2,862 | 12,575 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 11,901 | 1,681 | |
Available-for-sale Securities, Debt Securities | 666,692 | 519,022 | |
Amortized Cost | |||
Total amortized cost | 675,731 | 508,128 | |
Fair Value | |||
Total fair value | 666,692 | 519,022 | |
Municipal | |||
Available-for-sale | |||
Total amortized cost | 317,540 | 620,146 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 4,727 | 17,272 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 2,532 | 1,253 | |
Available-for-sale Securities, Debt Securities | 319,735 | 636,165 | |
Amortized Cost | |||
Total amortized cost | 317,540 | 620,146 | |
Fair Value | |||
Total fair value | $ 319,735 | $ 636,165 | |
[1] | Mortgage-backed, asset-backed and commercial mortgage-backed | ||
[2] | Non-agency asset-backed and commercial mortgage-backed |
INVESTMENTS - Unrealized Losses
INVESTMENTS - Unrealized Losses (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 | |
Investment positions with unrealized losses | |||
Unrealized losses relative to total invested assets (as a percent) | 1.60% | ||
Debt securities | |||
Fair value | |||
Less than 12 months | $ 775,537 | $ 372,467 | |
12 months and greater | 474,878 | 254,270 | |
Total Fair Value | 1,250,415 | 626,737 | |
Cost or amortized Cost | |||
Less than 12 months | 789,058 | 375,790 | |
12 months and greater | 496,508 | 259,335 | |
Total Cost or Amortized Cost | 1,285,566 | 635,125 | |
Unrealized Loss | |||
Less than 12 months | 13,521 | 3,323 | |
12 months and greater | 21,630 | 5,065 | |
Total Unrealized Loss | $ 35,151 | 8,388 | |
Percent to Total | 100.00% | ||
Debt securities | NAIC Rating 1 | AAA/AA/A | Aaa/Aa/A | |||
Fair value | |||
Total Fair Value | $ 1,074,126 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 1,103,857 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ 29,731 | ||
Percent to Total | 84.60% | ||
Debt securities | NAIC Rating 2 | BBB | Baa | |||
Fair value | |||
Total Fair Value | $ 131,948 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 136,227 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ 4,279 | ||
Percent to Total | 12.20% | ||
Debt securities | NAIC Rating 3 | BB | Ba | |||
Fair value | |||
Total Fair Value | $ 28,491 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 29,221 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ 730 | ||
Percent to Total | 2.10% | ||
Debt securities | NAIC Rating 4 | B | B | |||
Fair value | |||
Total Fair Value | $ 14,386 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 14,712 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ 326 | ||
Percent to Total | 0.90% | ||
Debt securities | NAIC Rating 5 | CCC | Caa | |||
Fair value | |||
Total Fair Value | $ 1,464 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 1,549 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ 85 | ||
Percent to Total | 0.20% | ||
U.S. government | |||
Fair value | |||
Less than 12 months | $ 72,347 | 58,009 | |
12 months and greater | 99,558 | 30,888 | |
Total Fair Value | 171,905 | 88,897 | |
Cost or amortized Cost | |||
Less than 12 months | 72,981 | 58,443 | |
12 months and greater | 102,484 | 31,349 | |
Total Cost or Amortized Cost | 175,465 | 89,792 | |
Unrealized Loss | |||
Less than 12 months | 634 | 434 | |
12 months and greater | 2,926 | 461 | |
Total Unrealized Loss | 3,560 | 895 | |
U.S. Agency | |||
Fair value | |||
Less than 12 months | 17,408 | 10,917 | |
12 months and greater | 10,384 | ||
Total Fair Value | 27,792 | 10,917 | |
Cost or amortized Cost | |||
Less than 12 months | 17,622 | 11,027 | |
12 months and greater | 11,025 | ||
Total Cost or Amortized Cost | 28,647 | 11,027 | |
Unrealized Loss | |||
Less than 12 months | 214 | 110 | |
12 months and greater | 641 | ||
Total Unrealized Loss | 855 | 110 | |
Non-U.S. govt. & agency | |||
Fair value | |||
Less than 12 months | 6,214 | ||
12 months and greater | 1,693 | 1,840 | |
Total Fair Value | 7,907 | 1,840 | |
Cost or amortized Cost | |||
Less than 12 months | 6,280 | ||
12 months and greater | 1,898 | 1,896 | |
Total Cost or Amortized Cost | 8,178 | 1,896 | |
Unrealized Loss | |||
Less than 12 months | 66 | ||
12 months and greater | 205 | 56 | |
Total Unrealized Loss | 271 | 56 | |
Mortgage-backed | |||
Fair value | |||
Less than 12 months | 152,341 | 122,130 | |
12 months and greater | 206,541 | 111,306 | |
Total Fair Value | 358,882 | 233,436 | |
Cost or amortized Cost | |||
Less than 12 months | 155,615 | 123,559 | |
12 months and greater | 218,016 | 113,955 | |
Total Cost or Amortized Cost | 373,631 | 237,514 | |
Unrealized Loss | |||
Less than 12 months | 3,274 | 1,429 | |
12 months and greater | 11,475 | 2,649 | |
Total Unrealized Loss | 14,749 | 4,078 | |
ABS/CMBS | |||
Fair value | |||
Less than 12 months | [1] | 82,967 | 23,406 |
12 months and greater | [1] | 28,580 | 21,587 |
Total Fair Value | [1] | 111,547 | 44,993 |
Cost or amortized Cost | |||
Less than 12 months | [1] | 83,647 | 23,491 |
12 months and greater | [1] | 29,183 | 21,817 |
Total Cost or Amortized Cost | [1] | 112,830 | 45,308 |
Unrealized Loss | |||
Less than 12 months | [1] | 680 | 85 |
12 months and greater | [1] | 603 | 230 |
Total Unrealized Loss | [1] | 1,283 | 315 |
Corporate Debt | |||
Fair value | |||
Less than 12 months | 387,421 | 86,946 | |
12 months and greater | 84,835 | 28,600 | |
Total Fair Value | 472,256 | 115,546 | |
Cost or amortized Cost | |||
Less than 12 months | 395,327 | 87,736 | |
12 months and greater | 88,830 | 29,491 | |
Total Cost or Amortized Cost | 484,157 | 117,227 | |
Unrealized Loss | |||
Less than 12 months | 7,906 | 790 | |
12 months and greater | 3,995 | 891 | |
Total Unrealized Loss | 11,901 | 1,681 | |
Municipal | |||
Fair value | |||
Less than 12 months | 56,839 | 71,059 | |
12 months and greater | 43,287 | 60,049 | |
Total Fair Value | 100,126 | 131,108 | |
Cost or amortized Cost | |||
Less than 12 months | 57,586 | 71,534 | |
12 months and greater | 45,072 | 60,827 | |
Total Cost or Amortized Cost | 102,658 | 132,361 | |
Unrealized Loss | |||
Less than 12 months | 747 | 475 | |
12 months and greater | 1,785 | 778 | |
Total Unrealized Loss | $ 2,532 | $ 1,253 | |
[1] | Non-agency asset-backed and commercial mortgage-backed |
INVESTMENTS Debt Securities and
INVESTMENTS Debt Securities and Common Stock (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2018USD ($)securityposition | Sep. 30, 2018USD ($)securityposition | Sep. 30, 2017USD ($)security | |
Securities in unrealized loss positions | |||
Other-than-temporary impairment (OTTI) losses | $ 161 | $ 217 | $ 2,090 |
Equity Securities, FV-NI, Unrealized Gain (Loss) | $ 4,848 | $ (34,535) | |
Debt securities | |||
Securities in unrealized loss positions | |||
Number of unrealized loss positions | position | 676 | 676 | |
Number of securities in unrealized loss positions for 12 months or longer | security | 244 | 244 | |
Unrealized losses as percentage of fixed income portfolio cost basis | 2.00% | 2.00% | |
Number of securities with OTTI losses recognized in earnings | security | 2 | 2 | 2 |
Number of securities with OTTI losses recognized in earnings due to lack of intent to hold | security | 1 | 1 | |
Number of securities with OTTI losses recognized in earnings due to credit losses | security | 1 | 1 | |
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Recognized in Earnings | $ 200 | $ 2,100 | |
Other than Temporary Impairment Losses recognized in other comprehensive earnings | 0 | $ 0 | |
Equity securities | |||
Securities in unrealized loss positions | |||
Equity Securities, FV-NI, Unrealized Gain (Loss) | $ 22,800 | $ 18,200 |
INVESTMENTS Debt and Short-term
INVESTMENTS Debt and Short-term Investments (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Other invested assets | |||||
Other investments | $ 38,777 | $ 38,777 | $ 33,808 | ||
Investments pledged as collateral | $ 16,300 | $ 16,300 | |||
Investment in Federal Home Loan Bank Stock | us-gaap:AssetPledgedAsCollateralMember | us-gaap:AssetPledgedAsCollateralMember | |||
Federal Home Loan Bank Borrowings, Fair Value Disclosure | $ 0 | $ 0 | |||
Cash and Short-term Investments | |||||
Cash | 59,469 | 59,469 | 24,271 | ||
Short-term investments, at cost which approximates fair value | 18,526 | 18,526 | 9,980 | ||
Investment In Low Income Housing Tax Credit Partnership Net Of Amortization Member | |||||
Other invested assets | |||||
Other investments | 14,000 | 14,000 | $ 15,500 | ||
Total tax benefit on investments in housing tax credit partnership | 600 | $ 600 | 1,700 | $ 1,900 | |
Qualified Affordable Housing Project Investments, Commitment | 2,000 | 2,000 | |||
Investment in Private Funds [Member] | |||||
Other invested assets | |||||
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share, Unfunded Commitments | $ 25,200 | $ 25,200 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) $ in Thousands | Sep. 30, 2018USD ($)security | Dec. 31, 2017USD ($) | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | $ 1,719,617 | $ 1,672,239 | |
Equity securities | 394,375 | 400,492 | |
Transfers in (out of) level 1 | 0 | ||
Transfers in (out of) level 2 | 0 | ||
Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 1,719,617 | 1,672,239 | |
Equity securities | 394,375 | 400,492 | |
Marketable Securities | 2,113,992 | 2,072,731 | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Equity securities | 393,882 | 400,492 | |
Marketable Securities | 393,882 | 400,492 | |
Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 1,719,617 | 1,672,239 | |
Equity securities | 493 | ||
Marketable Securities | 1,720,110 | 1,672,239 | |
U.S. government | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 173,787 | 91,689 | |
U.S. government | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 173,787 | 91,689 | |
U.S. Agency | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 29,903 | 18,778 | |
U.S. Agency | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 29,903 | 18,778 | |
Non-U.S. govt. & agency | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 7,907 | 7,588 | |
Non-U.S. govt. & agency | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 7,907 | 7,588 | |
Mortgage-backed | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 402,026 | 328,471 | |
Mortgage-backed | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 402,026 | 328,471 | |
ABS/CMBS | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | [1] | 119,567 | 70,526 |
ABS/CMBS | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | [1] | 119,567 | 70,526 |
Corporate Bond Securities | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 666,692 | 519,022 | |
Corporate Bond Securities | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 666,692 | 519,022 | |
Municipal | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | 319,735 | 636,165 | |
Municipal | Significant Other Observable Inputs (Level 2) | Fair value measured on recurring basis | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | $ 319,735 | $ 636,165 | |
Equity securities | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Number of securities classified as Level 2 in the fair value hierarchy | security | 1 | ||
[1] | Non-agency asset-backed and commercial mortgage-backed |
HISTORICAL LOSS AND LAE DEVEL_3
HISTORICAL LOSS AND LAE DEVELOPMENT - Unpaid Losses and Settlement Expenses (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Unpaid losses and LAE at beginning of year: | ||
Gross | $ 1,271,503 | $ 1,139,337 |
Ceded | (301,991) | (288,224) |
Net | 969,512 | 851,113 |
Increase (decrease) in incurred losses and LAE: | ||
Current accident year | 342,807 | 343,535 |
Prior accident years | (38,502) | (36,608) |
Total incurred | 304,305 | 306,927 |
Loss and LAE payments for claims incurred: | ||
Current accident year | (45,008) | (37,333) |
Prior accident year | (171,725) | (158,052) |
Total paid | (216,733) | (195,385) |
Net | 1,057,084 | 962,655 |
Unpaid losses and LAE at year end | ||
Gross | 1,377,111 | 1,253,729 |
Ceded | (320,027) | (291,074) |
Net | $ 1,057,084 | $ 962,655 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Reconciliation of income tax expense reported to amount computed by applying the U.S. federal tax rate | ||||
Provision for income taxes at the statutory rate of 21% in 2018 and 35% in 2017 | $ 9,733 | $ (302) | $ 21,061 | $ 20,866 |
Excess tax benefit on share-based compensation | (2,273) | (477) | (4,340) | (3,711) |
Tax-exempt interest income | (375) | (1,187) | (1,460) | (3,525) |
Dividends received deduction | (150) | (553) | (516) | (1,488) |
ESOP dividends paid deduction | (139) | (240) | (423) | (724) |
Other items, net | 181 | 163 | 1,128 | 429 |
Income tax expense (benefit) | $ 6,977 | $ (2,596) | $ 15,450 | $ 11,847 |
Reconciliation of income tax expense rate to the U.S. federal tax rate | ||||
U.S. federal tax rate (as a percent) | 21.00% | 35.00% | 21.00% | 35.00% |
Excess tax benefit on share-based compensation | (4.90%) | 55.30% | (4.30%) | (6.20%) |
Effective rate reduction due to tax exempt interest income (as a percent) | (0.80%) | 137.70% | (1.50%) | (5.90%) |
Effective rate reduction due to dividend received (as a percent) | (0.30%) | 64.20% | (0.50%) | (2.50%) |
Effective rate reduction due to dividend paid to ESOP (as a percent) | (0.30%) | 27.90% | (0.40%) | (1.20%) |
Effective rate reduction due to other items, net (as a percent) | 0.40% | (18.90%) | 1.10% | 0.70% |
Effective Income Tax Rate Reconciliation, Percent, Total | 15.10% | 301.20% | 15.40% | 19.90% |
STOCK BASED COMPENSATION (Detai
STOCK BASED COMPENSATION (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 41 Months Ended | 60 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | May 06, 2015 | May 05, 2010 | |
Weighted Number of Options Outstanding | |||||||
Outstanding options at the beginning of the period (in shares) | 2,257,015 | 2,207,110 | |||||
Options granted (in shares) | 401,250 | 442,625 | |||||
Options exercised (in shares) | (685,810) | (174,890) | |||||
Options canceled/forfeited (in shares) | (15,600) | (41,600) | |||||
Outstanding options at the end of the period (in shares) | 1,956,855 | 2,433,245 | 1,956,855 | 2,433,245 | 1,956,855 | ||
Exercisable options at the end of the period (in shares) | 678,905 | 1,157,785 | 678,905 | 1,157,785 | 678,905 | ||
Weighted Average Exercise Price | |||||||
Outstanding options at the beginning of the period (in dollars per share) | $ 46.80 | $ 40.90 | |||||
Options granted (in dollars per share) | 64.31 | 56.97 | |||||
Options exercised (in dollars per share) | 36.72 | 25.27 | |||||
Options canceled/forfeited (in dollars per share) | 61.44 | 48.30 | |||||
Outstanding options at the end of the period (in dollars per share) | $ 53.81 | $ 44.82 | 53.81 | 44.82 | $ 53.81 | ||
Exercisable options at the end of the period (in dollars per share) | $ 45.60 | $ 36.30 | $ 45.60 | $ 36.30 | $ 45.60 | ||
Weighted Average Remaining Contractual Life | |||||||
Weighted-average remaining contractual term of options outstanding | 5 years 6 months | 4 years 10 months 2 days | |||||
Weighted-average remaining contractual term of exercisable options | 4 years 11 days | 3 years 3 months 4 days | |||||
Aggregate Intrinsic Value | |||||||
Options exercised (in dollars) | $ 23,603,000 | $ 5,655,000 | |||||
Outstanding options at the end of the period (in dollars) | $ 48,476,000 | $ 33,290,000 | 48,476,000 | 33,290,000 | $ 48,476,000 | ||
Exercisable options at the end of the period (in dollars) | 22,388,000 | 25,078,000 | $ 22,388,000 | $ 25,078,000 | 22,388,000 | ||
Weighted-average fair value of grants (in dollars per share) | $ 10.38 | $ 7.95 | |||||
Stock-based compensation expenses (in dollars) | 1,200,000 | 1,000,000 | $ 3,400,000 | $ 3,000,000 | |||
Income tax benefit from stock-based compensation (in dollars) | 200,000 | 300,000 | 700,000 | $ 1,100,000 | |||
Unrecognized stock-based compensation expense (in dollars) | 6,200,000 | $ 6,200,000 | 6,200,000 | ||||
Weighted average grant date assumptions and weighted average fair value | |||||||
Weighted-average fair value of grants (in dollars per share) | $ 10.38 | $ 7.95 | |||||
Risk-free interest rates (as a percent) | 2.69% | 1.89% | |||||
Dividend yield (as a percent) | 3.15% | 3.60% | |||||
Expected volatility (as a percent) | 22.88% | 22.95% | |||||
Expected option life | 5 years 22 days | 5 years 18 days | |||||
Restricted Stock Units (RSUs) [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Award vesting period | 3 years | ||||||
Age and period of service of the participant to be eligible for retirement | 75 years | ||||||
Aggregate Intrinsic Value | |||||||
Stock-based compensation expenses (in dollars) | 200,000 | $ 100,000 | $ 400,000 | $ 300,000 | |||
Unrecognized stock-based compensation expense (in dollars) | $ 900,000 | $ 900,000 | $ 900,000 | ||||
Weighted average grant date assumptions and weighted average fair value | |||||||
RSUs Granted | 14,625 | 30,075 | |||||
RSUs Outstanding | 29,325 | 29,325 | 29,325 | ||||
Outside director | Restricted Stock Units (RSUs) [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Award vesting period | 1 year | ||||||
Aggregate Intrinsic Value | |||||||
Stock-based compensation expenses (in dollars) | $ 100,000 | $ 200,000 | |||||
Unrecognized stock-based compensation expense (in dollars) | $ 300,000 | $ 300,000 | $ 300,000 | ||||
Weighted average grant date assumptions and weighted average fair value | |||||||
RSUs Granted | 8,430 | ||||||
Grant date fair value of RSUs | $ 50,000 | ||||||
RLI Corp. Long-Term Incentive Plan (LTIP) and Omnibus Stock Plan | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Award vesting period | 5 years | ||||||
Term of options | 8 years | ||||||
Age and period of service of the participant to be eligible for retirement | 75 years | ||||||
Omnibus Stock Plan | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Shares authorized for grant | 3,000,000 | ||||||
Weighted Number of Options Outstanding | |||||||
Options granted (in shares) | 2,458,059 | ||||||
RLI Corp. Long-Term Incentive Plan (2010 LTIP) | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Shares authorized for grant | 4,000,000 | ||||||
Weighted Number of Options Outstanding | |||||||
Options granted (in shares) | 2,878,000 | ||||||
RLI Corp. Long-Term Incentive Plan (2015 LTIP) | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Shares authorized for grant | 4,000,000 | 4,000,000 | 4,000,000 | ||||
Weighted Number of Options Outstanding | |||||||
Options granted (in shares) | 424,305 | 1,872,880 |
OPERATING SEGMENT INFORMATION -
OPERATING SEGMENT INFORMATION - Reconciliation of Segment Totals to Total Earnings (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
REVENUES | ||||
Net premiums earned | $ 200,815 | $ 182,025 | $ 587,364 | $ 549,641 |
Net investment income | 16,314 | 14,187 | 45,123 | 40,430 |
Net realized gains (losses) | 18,647 | 35 | 47,900 | (700) |
Net unrealized gains (losses) on equity securities | 4,848 | (34,535) | ||
Consolidated revenue | 240,624 | 196,247 | 645,852 | 589,371 |
NET EARNINGS | ||||
Net underwriting income | 7,762 | (14,932) | 39,395 | 17,868 |
Net investment income | 16,314 | 14,187 | 45,123 | 40,430 |
Net realized gains | 18,647 | 35 | 47,900 | (700) |
Net unrealized gains (losses) on equity securities | 4,848 | (34,535) | ||
General corporate expense and interest on debt | (4,809) | (3,812) | (13,447) | (13,385) |
Equity in earnings of unconsolidated investees | 3,587 | 3,660 | 15,853 | 15,404 |
Earnings (loss) before income taxes | 46,349 | (862) | 100,289 | 59,617 |
Income tax expense | 6,977 | (2,596) | 15,450 | 11,847 |
Net earnings | 39,372 | 1,734 | 84,839 | 47,770 |
Casualty segment | ||||
REVENUES | ||||
Net premiums earned | 131,605 | 118,393 | 387,068 | 354,636 |
NET EARNINGS | ||||
Net underwriting income | (1,974) | 3,554 | 2,441 | 5,321 |
Property segment | ||||
REVENUES | ||||
Net premiums earned | 39,067 | 33,559 | 111,439 | 103,849 |
NET EARNINGS | ||||
Net underwriting income | 2,621 | (27,519) | 12,150 | (15,852) |
Surety segment | ||||
REVENUES | ||||
Net premiums earned | 30,143 | 30,073 | 88,857 | 91,156 |
NET EARNINGS | ||||
Net underwriting income | $ 7,115 | $ 9,033 | $ 24,804 | $ 28,399 |
OPERATING SEGMENT INFORMATION_2
OPERATING SEGMENT INFORMATION - Major Products (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Revenue by major product | ||||
Net premiums earned | $ 200,815 | $ 182,025 | $ 587,364 | $ 549,641 |
Casualty segment | ||||
Revenue by major product | ||||
Net premiums earned | 131,605 | 118,393 | 387,068 | 354,636 |
Casualty segment | Commercial and personal umbrella | ||||
Revenue by major product | ||||
Net premiums earned | 31,244 | 28,848 | 91,845 | 86,286 |
Casualty segment | General liability | ||||
Revenue by major product | ||||
Net premiums earned | 22,485 | 22,138 | 68,988 | 66,572 |
Casualty segment | Transportation | ||||
Revenue by major product | ||||
Net premiums earned | 20,747 | 18,047 | 60,570 | 59,543 |
Casualty segment | Professional services | ||||
Revenue by major product | ||||
Net premiums earned | 19,890 | 19,584 | 59,559 | 58,826 |
Casualty segment | Small commercial | ||||
Revenue by major product | ||||
Net premiums earned | 12,883 | 12,419 | 38,674 | 36,471 |
Casualty segment | Executive products | ||||
Revenue by major product | ||||
Net premiums earned | 5,352 | 4,439 | 15,548 | 13,289 |
Casualty segment | Medical professional liability | ||||
Revenue by major product | ||||
Net premiums earned | 3,988 | 4,169 | 12,822 | 12,725 |
Casualty segment | Other casualty | ||||
Revenue by major product | ||||
Net premiums earned | 15,016 | 8,749 | 39,062 | 20,924 |
Property segment | ||||
Revenue by major product | ||||
Net premiums earned | 39,067 | 33,559 | 111,439 | 103,849 |
Property segment | Commercial | ||||
Revenue by major product | ||||
Net premiums earned | 18,489 | 15,600 | 53,296 | 47,191 |
Property segment | Marine | ||||
Revenue by major product | ||||
Net premiums earned | 16,068 | 13,112 | 44,866 | 37,005 |
Property segment | Specialty Personal | ||||
Revenue by major product | ||||
Net premiums earned | 4,228 | 4,844 | 12,499 | 16,370 |
Property segment | Property reinsurance | ||||
Revenue by major product | ||||
Net premiums earned | 13 | 39 | 3,200 | |
Net premiums earned | (62) | |||
Property segment | Other property | ||||
Revenue by major product | ||||
Net premiums earned | 269 | 65 | 739 | 83 |
Surety segment | ||||
Revenue by major product | ||||
Net premiums earned | 30,143 | 30,073 | 88,857 | 91,156 |
Surety segment | Miscellaneous | ||||
Revenue by major product | ||||
Net premiums earned | 11,822 | 11,780 | 35,183 | 35,491 |
Surety segment | Contract | ||||
Revenue by major product | ||||
Net premiums earned | 7,474 | 7,130 | 20,832 | 21,361 |
Surety segment | Commercial surety product | ||||
Revenue by major product | ||||
Net premiums earned | 6,863 | 6,861 | 20,337 | 20,942 |
Surety segment | Energy Surety | ||||
Revenue by major product | ||||
Net premiums earned | $ 3,984 | $ 4,302 | $ 12,505 | $ 13,362 |
COMMITMENTS AND CONTINGENT LI_2
COMMITMENTS AND CONTINGENT LIABILITIES (Details) $ in Millions | May 25, 2018USD ($) |
Loss Contingency, Information about Litigation Matters [Abstract] | |
Loss Contingency, Damages Sought, Value | $ 21.7 |