Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2019 | Jul. 12, 2019 | |
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Jun. 30, 2019 | |
Entity File Number | 001-09463 | |
Entity Registrant Name | RLI Corp | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 37-0889946 | |
Entity Address, Address Line One | 9025 North Lindbergh Drive | |
Entity Address, City or Town | Peoria | |
Entity Address, State or Province | IL | |
Entity Address, Postal Zip Code | 61615 | |
City Area Code | 309 | |
Local Phone Number | 692-1000 | |
Title of 12(b) Security | Common Stock $0.01 par value | |
Trading Symbol | RLI | |
Security Exchange Name | NYSE | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 44,787,197 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Entity Central Index Key | 0000084246 | |
Amendment Flag | false |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Earnings and Comprehensive Earnings - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Net premiums earned | $ 207,541 | $ 196,522 | $ 412,230 | $ 386,549 |
Net investment income | 16,998 | 14,577 | 33,563 | 28,809 |
Net realized gains | 4,764 | 20,849 | 13,832 | 29,309 |
Other-than-temporary-impairment (OTTI) losses on investments | (56) | |||
Net unrealized gains (losses) on equity securities | 8,810 | (12,611) | 42,308 | (39,383) |
Consolidated revenue | 238,113 | 219,337 | 501,933 | 405,228 |
Losses and settlement expenses | 103,919 | 101,653 | 198,216 | 194,074 |
Policy acquisition costs | 71,742 | 66,325 | 143,034 | 133,059 |
Insurance operating expenses | 16,948 | 14,398 | 33,615 | 27,783 |
Interest expense on debt | 1,861 | 1,858 | 3,722 | 3,714 |
General corporate expenses | 3,283 | 2,641 | 6,559 | 4,924 |
Total expenses | 197,753 | 186,875 | 385,146 | 363,554 |
Equity in earnings of unconsolidated investees | 8,468 | 7,100 | 13,782 | 12,266 |
Earnings before income taxes | 48,828 | 39,562 | 130,569 | 53,940 |
Income tax expense: | ||||
Income tax expense | 8,361 | 6,311 | 24,629 | 8,473 |
Net earnings | 40,467 | 33,251 | 105,940 | 45,467 |
Other comprehensive earnings (loss), net of tax | 27,864 | (7,675) | 57,165 | (34,073) |
Comprehensive earnings | $ 68,331 | $ 25,576 | $ 163,105 | $ 11,394 |
Basic: | ||||
Net earnings per share (in dollars per share) | $ 0.91 | $ 0.75 | $ 2.37 | $ 1.03 |
Comprehensive earnings per share (in dollars per share) | 1.53 | 0.58 | 3.66 | 0.26 |
Diluted: | ||||
Net earnings per share (in dollars per share) | 0.89 | 0.74 | 2.35 | 1.01 |
Comprehensive earnings per share (in dollars per share) | $ 1.51 | $ 0.57 | $ 3.62 | $ 0.25 |
Weighted average number of common shares outstanding | ||||
Basic (in shares) | 44,704 | 44,310 | 44,620 | 44,266 |
Diluted (in shares) | 45,219 | 44,742 | 45,056 | 44,853 |
Cash dividends paid per common share | $ 0.23 | $ 0.22 | $ 0.45 | $ 0.43 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
Fixed income: | ||
Available-for-sale, at fair value (amortized cost - $1,809,429 at 6/30/19 and $1,776,465 at 12/31/18) | $ 1,865,613 | $ 1,760,515 |
Equity securities, at fair value (cost - $259,177 at 6/30/19 and $220,373 at 12/31/18) | 421,801 | 340,483 |
Other invested assets | 55,196 | 51,542 |
Cash | 24,834 | 30,140 |
Total investments and cash | 2,414,797 | 2,194,230 |
Accrued investment income | 14,597 | 14,033 |
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $16,829 at 6/30/19 and $16,967 at 12/31/18 | 158,559 | 152,576 |
Ceded unearned premium | 78,957 | 71,174 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $9,792 at 6/30/19 and $9,793 at 12/31/18 | 362,310 | 364,999 |
Deferred policy acquisition costs | 85,952 | 84,934 |
Property and equipment, at cost, net of accumulated depreciation of $58,330 at 6/30/19 and $54,275 at 12/31/18 | 53,580 | 54,692 |
Investment in unconsolidated investees | 108,977 | 94,967 |
Goodwill and intangibles | 54,330 | 54,534 |
Other assets | 43,050 | 18,926 |
TOTAL ASSETS | 3,375,109 | 3,105,065 |
Liabilities: | ||
Unpaid losses and settlement expenses | 1,506,279 | 1,461,348 |
Unearned premiums | 513,819 | 496,505 |
Reinsurance balances payable | 21,227 | 22,591 |
Funds held | 76,331 | 72,309 |
Income taxes - deferred | 50,487 | 24,238 |
Bonds payable, long-term debt | 149,208 | 149,115 |
Accrued expenses | 41,046 | 45,124 |
Other liabilities | 56,764 | 26,993 |
TOTAL LIABILITIES | 2,415,161 | 2,298,223 |
Shareholders' Equity | ||
Common stock ($0.01 par value, 100,000,000 shares authorized; 67,717,411 shares issued, 44,787,197 shares outstanding at 6/30/19; 67,434,257 shares issued, 44,504,043 shares outstanding at 12/31/18) | 677 | 674 |
Paid-in capital | 315,766 | 305,660 |
Accumulated other comprehensive earnings | 42,593 | (14,572) |
Retained earnings | 993,911 | 908,079 |
Deferred compensation | 7,530 | 8,354 |
Less: Treasury shares at cost (22,930,214 shares at 6/30/19 and 12/31/18) | (400,529) | (401,353) |
TOTAL SHAREHOLDERS' EQUITY | 959,948 | 806,842 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 3,375,109 | $ 3,105,065 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
Available-for-sale, amortized cost | $ 1,809,429 | $ 1,776,465 |
Equity securities, cost | 259,177 | 220,373 |
Premiums and reinsurance balances receivable, allowances for uncollectible amounts | 16,829 | 16,967 |
Reinsurance balances recoverable on unpaid losses and settlement expenses, allowances for uncollectible amounts | 9,792 | 9,793 |
Property and equipment, accumulated depreciation | $ 58,330 | $ 54,275 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, shares issued (in shares) | 67,717,411 | 67,434,257 |
Common stock, shares outstanding (in shares) | 44,787,197 | 44,504,043 |
Treasury stock, shares (in shares) | 22,930,214 | 22,930,214 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands | Common stock | Paid-in Capital | Accumulated Other Comprehensive Earnings (Loss) | Retained Earnings | Deferred Compensation | Treasury Stock at Cost | Total |
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2017 | $ 67,079 | $ 233,077 | $ 157,919 | $ 788,522 | $ 8,640 | $ (401,639) | $ 853,598 |
Balance (in shares) at Dec. 31, 2017 | 44,148,355 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Net earnings | 12,216 | 12,216 | |||||
Other comprehensive earnings (loss), net of tax | (26,398) | (26,398) | |||||
Deferred compensation under Rabbi trust plans | (584) | 584 | |||||
Share-based compensation | $ 104 | 2,617 | 2,721 | ||||
Share-based compensation (in shares) | 104,771 | ||||||
Dividends and dividend equivalents | (9,290) | (9,290) | |||||
Stockholders' Equity Attributable to Parent, Ending Balance at Mar. 31, 2018 | $ 67,183 | 235,694 | (6,973) | 930,028 | 8,056 | (401,055) | 832,933 |
Balance (in shares) at Mar. 31, 2018 | 44,253,126 | ||||||
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2017 | $ 67,079 | 233,077 | 157,919 | 788,522 | 8,640 | (401,639) | 853,598 |
Balance (in shares) at Dec. 31, 2017 | 44,148,355 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Net earnings | 45,467 | ||||||
Other comprehensive earnings (loss), net of tax | (34,073) | ||||||
Stockholders' Equity Attributable to Parent, Ending Balance at Jun. 30, 2018 | $ 673 | 303,245 | (14,648) | 953,526 | 7,936 | (400,935) | 849,797 |
Balance (in shares) at Jun. 30, 2018 | 44,339,939 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Cumulative-effect adjustment from ASU 2016-01 and 2018-02 | (138,494) | 138,580 | 86 | ||||
Stockholders' Equity Attributable to Parent, Beginning Balance at Mar. 31, 2018 | $ 67,183 | 235,694 | (6,973) | 930,028 | 8,056 | (401,055) | 832,933 |
Balance (in shares) at Mar. 31, 2018 | 44,253,126 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Par value conversion from $1.00 per share to $0.01 per share | $ (66,513) | 66,513 | |||||
Net earnings | 33,251 | 33,251 | |||||
Other comprehensive earnings (loss), net of tax | (7,675) | (7,675) | |||||
Deferred compensation under Rabbi trust plans | (120) | 120 | |||||
Share-based compensation | $ 3 | 1,038 | 1,041 | ||||
Share-based compensation (in shares) | 86,813 | ||||||
Dividends and dividend equivalents | (9,753) | (9,753) | |||||
Stockholders' Equity Attributable to Parent, Ending Balance at Jun. 30, 2018 | $ 673 | 303,245 | (14,648) | 953,526 | 7,936 | (400,935) | 849,797 |
Balance (in shares) at Jun. 30, 2018 | 44,339,939 | ||||||
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2018 | $ 674 | 305,660 | (14,572) | 908,079 | 8,354 | (401,353) | 806,842 |
Balance (in shares) at Dec. 31, 2018 | 44,504,043 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Net earnings | 65,473 | 65,473 | |||||
Other comprehensive earnings (loss), net of tax | 29,301 | 29,301 | |||||
Deferred compensation under Rabbi trust plans | (1,039) | 1,039 | |||||
Share-based compensation | $ 1 | 2,891 | 2,892 | ||||
Share-based compensation (in shares) | 50,213 | ||||||
Dividends and dividend equivalents | (9,803) | (9,803) | |||||
Stockholders' Equity Attributable to Parent, Ending Balance at Mar. 31, 2019 | $ 675 | 308,551 | 14,729 | 963,749 | 7,315 | (400,314) | 894,705 |
Balance (in shares) at Mar. 31, 2019 | 44,554,256 | ||||||
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2018 | $ 674 | 305,660 | (14,572) | 908,079 | 8,354 | (401,353) | 806,842 |
Balance (in shares) at Dec. 31, 2018 | 44,504,043 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Net earnings | 105,940 | ||||||
Other comprehensive earnings (loss), net of tax | 57,165 | ||||||
Stockholders' Equity Attributable to Parent, Ending Balance at Jun. 30, 2019 | $ 677 | 315,766 | 42,593 | 993,911 | 7,530 | (400,529) | 959,948 |
Balance (in shares) at Jun. 30, 2019 | 44,787,197 | ||||||
Stockholders' Equity Attributable to Parent, Beginning Balance at Mar. 31, 2019 | $ 675 | 308,551 | 14,729 | 963,749 | 7,315 | (400,314) | 894,705 |
Balance (in shares) at Mar. 31, 2019 | 44,554,256 | ||||||
Increase (Decrease) in Shareholders' Equity | |||||||
Net earnings | 40,467 | 40,467 | |||||
Other comprehensive earnings (loss), net of tax | 27,864 | 27,864 | |||||
Deferred compensation under Rabbi trust plans | 215 | (215) | |||||
Share-based compensation | $ 2 | 7,215 | 7,217 | ||||
Share-based compensation (in shares) | 232,941 | ||||||
Dividends and dividend equivalents | (10,305) | (10,305) | |||||
Stockholders' Equity Attributable to Parent, Ending Balance at Jun. 30, 2019 | $ 677 | $ 315,766 | $ 42,593 | $ 993,911 | $ 7,530 | $ (400,529) | $ 959,948 |
Balance (in shares) at Jun. 30, 2019 | 44,787,197 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Shareholders' Equity (Parenthetical) - $ / shares | 3 Months Ended | 6 Months Ended | |||||||
Jun. 30, 2019 | Mar. 31, 2019 | Jun. 30, 2018 | Mar. 31, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | May 04, 2018 | Dec. 31, 2017 | |
Cash dividends paid per common share | $ 0.23 | $ 0.22 | $ 0.22 | $ 0.21 | $ 0.45 | $ 0.43 | |||
Common stock, par value (in dollars per share) | $ 0.01 | $ 1 | $ 0.01 | $ 0.01 | $ 0.01 | $ 1 |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Net cash provided by operating activities | $ 105,347 | $ 100,000 |
Cash Flows from Investing Activities | ||
Investments purchased | (281,315) | (431,061) |
Investments sold | 167,300 | 282,276 |
Investments called or matured | 52,113 | 67,493 |
Net change in short-term investments | (35,803) | 9,980 |
Net property and equipment purchased | (3,004) | (3,638) |
Other | 55 | 62 |
Net cash used in investing activities | (100,654) | (74,888) |
Cash Flows from Financing Activities | ||
Cash dividends paid | (20,092) | (19,043) |
Proceeds from stock option exercises | 10,093 | 3,762 |
Net cash used in financing activities | (9,999) | (15,281) |
Net increase (decrease) in cash | (5,306) | 9,831 |
Cash at the beginning of the period | 30,140 | 24,271 |
Cash at the end of the period | $ 24,834 | $ 34,102 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2019 | |
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. As reported in previous SEC filings, RLI Corp. changed its state of incorporation from the State of Illinois to the State of Delaware on May 4, 2018 (the Reincorporation). The Reincorporation was effected by merging RLI Corp., an Illinois corporation (RLI Illinois) into RLI Corp., a Delaware corporation (RLI Delaware). 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 $66.5 million reclassification from common stock to paid-in-capital was made during the second quarter of 2018. 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 2018 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 June 30, 2019 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 2018 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 2016-02, Leases (Topic 842) ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under previous guidance for lessees, leases were only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, were met. This update requires 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 are 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 is recognized separately from the amortization of the right-of-use asset in the statement of earnings and the repayment of the principal portion of the lease liability is classified as a financing activity while the interest component is included in the operating section of the statement of cash flows. We adopted ASU 2016-02, ASU 2018-10 Codification Improvements to Topic 842: Leases Leases (Topic 842): Targeted Improvements ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities Under previous guidance, the amortization period for callable debt securities held at a premium was generally the contractual life of the instrument. However, if an entity had a large number of similar loans, it could consider estimates of future principal prepayments. For those who chose not to 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. We adopted ASU 2017-08 on January 1, 2019 using a modified-retrospective approach. As we had been incorporating estimates of future principal prepayments when calculating the effective yield for bonds carrying a premium under the old guidance, the adoption of this update did not 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 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. We adopted ASU 2018-07 on January 1, 2019. Our long-term incentive plan limits the awards of share-based payments to employees and directors of the Company. As our share-based compensation expense to nonemployee directors was $0.3 million in the first six months of 2019, the standard did not have a material impact on our financial statements. D. PROSPECTIVE ACCOUNTING STANDARDS ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments 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 in which the guidance is effective. 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 (83.0 percent rated A or better at June 30, 2019) and we purchase reinsurance from financially strong reinsurers for which we already have an allowance for uncollectible reinsurance amounts, we do not expect that the effect of adoption will be material. 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 be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating how the adoption of this ASU will affect our financial statements. E. INTANGIBLE ASSETS Goodwill and intangible assets totaled $54.3 million and $54.5 million at June 30, 2019 and December 31, 2018, respectively, as detailed in the following table: Goodwill and Intangible Assets June 30, December 31, (in thousands) 2019 2018 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Total goodwill $ 46,062 $ 46,062 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $3,266 at 6/30/19 and $3,062 at 12/31/18 768 972 Total intangibles $ 8,268 $ 8,472 Total goodwill and intangibles $ 54,330 $ 54,534 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 second quarter of 2019 and $0.2 million for the six-month period ended June 30, 2019, the same as for the comparable periods in 2018. Annual impairment assessment 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 2019. Based upon these reviews, none of the assets were impaired. In addition, as of June 30, 2019, there were no triggering events that would suggest an updated review was necessary on the above-mentioned goodwill and intangible assets. Adverse loss experience triggered the need to test the medical professional liability reporting unit during the first quarter of 2018, which resulted in a $4.4 million non-cash impairment charge. 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. The carrying value exceeded the fair value, resulting in a $0.8 million non-cash impairment charge. 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, resulting in a $3.6 million non-cash impairment charge. 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 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 June 30, 2019 Ended June 30, 2018 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 $ 40,467 44,704 $ 0.91 $ 33,251 44,310 $ 0.75 Effect of Dilutive Securities Stock options - 515 - 432 Diluted EPS Income available to common shareholders $ 40,467 45,219 $ 0.89 $ 33,251 44,742 $ 0.74 For the Six-Month Period For the Six-Month Period Ended June 30, 2019 Ended June 30, 2018 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 $ 105,940 44,620 $ 2.37 $ 45,467 44,266 $ 1.03 Effect of Dilutive Securities Stock options - 436 - 587 Diluted EPS Income available to common shareholders $ 105,940 45,056 $ 2.35 $ 45,467 44,853 $ 1.01 G. COMPREHENSIVE EARNINGS Our comprehensive earnings include net earnings plus after-tax unrealized gains and losses on our fixed income portfolio. In reporting other comprehensive earnings on a net basis in the statement of earnings, we used the federal statutory tax rate of 21 percent. Unrealized gains, net of tax, on the fixed income portfolio for the first six months of 2019 were $57.2 million, compared to $34.1 million of unrealized losses, net of tax, during the same period last year. Unrealized gains in the first six months of 2019 were attributable to declining interest rates, which increased the fair value of securities held in the fixed income portfolio. In contrast, rising interest rates decreased the fair value of securities held in the fixed income portfolio in the first six months of 2018. 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: (in thousands) For the Three-Month Periods For the Six-Month Periods Ended June 30, Ended June 30, Unrealized Gains/Losses on Available-for-Sale Securities 2019 2018 2019 2018 Beginning balance $ 14,729 $ (6,973) $ (14,572) $ 157,919 Cumulative effect adjustment of ASU 2016-01 - - - (142,219) Adjusted beginning balance $ 14,729 $ (6,973) $ (14,572) $ 15,700 Other comprehensive earnings before reclassifications 28,388 (8,385) 58,183 (34,795) Amounts reclassified from accumulated other comprehensive earnings (524) 710 (1,018) 722 Net current-period other comprehensive earnings (loss) $ 27,864 $ (7,675) $ 57,165 $ (34,073) Reclassification of stranded tax effect per ASU 2018-02 - - - 3,725 Ending balance $ 42,593 $ (14,648) $ 42,593 $ (14,648) In 2018, the adoption of accounting standards resulted in adjustments to accumulated other comprehensive earnings. ASU 2016-01 required equity investments to be measured at fair value with changes in fair value recognized in net earnings. A cumulative-effect adjustment was made as of the beginning of 2018, which moved $142.2 million of net unrealized gains and losses on equity securities from accumulated other comprehensive earnings to retained earnings. ASU 2018-02 addressed issues arising from the enactment of the Tax Cuts and Jobs Act of 2017. Accounting guidance required deferred tax items to be revalued based on the new tax laws with the changes included in net earnings. Since other comprehensive earnings was not affected by the revaluation of the deferred tax items, the accumulated other comprehensive earnings balance was reflective of the historic tax rate instead of the newly enacted rate, which created a stranded tax effect. ASU 2018-02 allowed for the reclassification of our $3.7 million stranded tax effect out of accumulated other comprehensive earnings into retained earnings. 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: Amount Reclassified from Accumulated Other (in thousands) Comprehensive Earnings For the Three-Month For the Six-Month Component of Accumulated Periods Ended June 30, Periods Ended June 30, Affected line item in the Other Comprehensive Earnings 2019 2018 2019 2018 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 664 $ (899) $ 1,289 $ (858) Net realized gains (losses) - - - (56) Other-than-temporary impairment (OTTI) losses on investments $ 664 $ (899) $ 1,289 $ (914) Earnings before income taxes (140) 189 (271) 192 Income tax benefit (expense) $ 524 $ (710) $ 1,018 $ (722) Net earnings (loss) |
INVESTMENTS
INVESTMENTS | 6 Months Ended |
Jun. 30, 2019 | |
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 June 30, 2019 and December 31, 2018 were as follows: Available-for-sale June 30, 2019 (in thousands) Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 194,712 $ 6,774 $ (101) $ 201,385 U.S. agency 29,708 1,987 - 31,695 Non-U.S. govt. & agency 9,249 192 (329) 9,112 Agency MBS 402,993 6,603 (1,400) 408,196 ABS/CMBS* 149,583 2,440 (147) 151,876 Corporate 701,358 27,072 (1,632) 726,798 Municipal 321,826 14,750 (25) 336,551 Total Fixed Income $ 1,809,429 $ 59,818 $ (3,634) $ 1,865,613 Available-for-sale December 31, 2018 (in thousands) Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 199,982 $ 1,232 $ (985) $ 200,229 U.S. agency 31,716 403 (215) 31,904 Non-U.S. govt. & agency 8,170 - (531) 7,639 Agency MBS 402,992 1,709 (9,448) 395,253 ABS/CMBS* 137,224 375 (876) 136,723 Corporate 681,909 2,894 (16,124) 668,679 Municipal 314,472 6,926 (1,310) 320,088 Total Fixed Income $ 1,776,465 $ 13,539 $ (29,489) $ 1,760,515 *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 June 30, 2019: June 30, 2019 Available-for-sale Amortized Fair (in thousands) Cost Value Due in one year or less $ 51,149 $ 51,233 Due after one year through five years 400,628 410,544 Due after five years through 10 years 615,648 643,270 Due after 10 years 189,428 200,494 Mtge/ABS/CMBS* 552,576 560,072 Total available-for-sale $ 1,809,429 $ 1,865,613 *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 June 30, 2019 and December 31, 2018. The tables segregate the securities based on type, noting the fair value, 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 June 30, 2019, unrealized losses on fixed income securities, as shown in the following tables, were 0.2 percent of total invested assets. Unrealized losses decreased through the first six months of 2019, as interest rates decreased from the end of 2018, increasing the fair value of securities held in the fixed income portfolio. June 30, 2019 December 31, 2018 (in thousands) < 12 Mos. 12 Mos. & Total < 12 Mos. 12 Mos. & Total U.S. government Fair value $ — $ 23,525 $ 23,525 $ 7,249 $ 76,073 $ 83,322 Amortized cost — 23,626 23,626 7,270 77,037 84,307 Unrealized Loss $ — $ (101) $ (101) $ (21) $ (964) $ (985) U.S. agency Fair value $ — $ — $ — $ — $ 8,843 $ 8,843 Amortized cost — — — — 9,058 9,058 Unrealized Loss $ — $ — $ — $ — $ (215) $ (215) Non-U.S. government Fair value $ — $ 3,625 $ 3,625 $ 5,432 $ 2,207 $ 7,639 Amortized cost — 3,954 3,954 5,571 2,599 8,170 Unrealized Loss $ — $ (329) $ (329) $ (139) $ (392) $ (531) Agency MBS Fair value $ 1 $ 129,203 $ 129,204 $ 25,345 $ 261,325 $ 286,670 Amortized cost 1 130,603 130,604 25,486 270,632 296,118 Unrealized Loss $ — $ (1,400) $ (1,400) $ (141) $ (9,307) $ (9,448) ABS/CMBS* Fair value $ 16,755 $ 11,628 $ 28,383 $ 46,918 $ 32,137 $ 79,055 Amortized cost 16,823 11,707 28,530 47,146 32,785 79,931 Unrealized Loss $ (68) $ (79) $ (147) $ (228) $ (648) $ (876) Corporate Fair value $ 44,618 $ 32,689 $ 77,307 $ 306,177 $ 147,751 $ 453,928 Amortized cost 45,578 33,361 78,939 315,428 154,624 470,052 Unrealized Loss $ (960) $ (672) $ (1,632) $ (9,251) $ (6,873) $ (16,124) Municipal Fair value $ — $ 8,146 $ 8,146 $ 6,036 $ 55,681 $ 61,717 Amortized cost — 8,171 8,171 6,052 56,975 63,027 Unrealized Loss $ — $ (25) $ (25) $ (16) $ (1,294) $ (1,310) Total fixed income Fair value $ 61,374 $ 208,816 $ 270,190 $ 397,157 $ 584,017 $ 981,174 Amortized cost 62,402 211,422 273,824 406,953 603,710 1,010,663 Unrealized Loss $ (1,028) $ (2,606) $ (3,634) $ (9,796) $ (19,693) $ (29,489) * Non-agency asset-backed and commercial mortgage-backed The following table shows the composition of the fixed income securities in unrealized loss positions at June 30, 2019 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 $ 203,150 $ 201,403 $ (1,747) 48.1 % 2 BBB Baa 21,914 21,213 (701) 19.3 % 3 BB Ba 22,336 21,950 (386) 10.6 % 4 B B 24,877 24,148 (729) 20.1 % 5 CCC Caa 1,547 1,476 (71) 2.0 % 6 CC or lower Ca or lower - - - - % Total $ 273,824 $ 270,190 $ (3,634) 100.0 % Evaluating Fixed Income Securities for OTTI The fixed income portfolio contained 279 securities in an unrealized loss position as of June 30, 2019. The $3.6 million in associated unrealized losses represents 0.2 percent of the fixed income portfolio’s cost basis. Of these 279 securities, 122 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 on 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. We did not recognize any other-than-temporary impairment (OTTI) losses in earnings on the fixed income portfolio in the first six months of 2019. Comparatively, we recognized $0.1 million in OTTI losses in earnings on one fixed income security that we no longer had the intent to hold in the same period in 2018. 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 Unrealized gains recognized on equity securities still held as of June 30, 2019 were $12.9 million during the second quarter and $54.8 million during the first half of 2019. Comparatively, unrealized gains recognized on equity securities still held as of June 30, 2018 were $9.1 million during the second quarter, while unrealized losses were $4.8 million during the first half of 2018. Other Invested Assets We had $55.2 million of other invested assets at June 30, 2019, compared to $51.5 million at the end of 2018. 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 $19.4 million at June 30, 2019, compared to $20.3 million at December 31, 2018 and recognized a total tax benefit of $0.6 million during the second quarter of 2019, the same as the prior year. For the six-month periods ended June 30, 2019 and 2018, our LIHTC interests recognized a total benefit of $1.2 million and $1.1 million, respectively. Our unfunded commitment for our LIHTC investments totaled $7.1 million at June 30, 2019 and will be paid out in installments through 2035. As of June 30, 2019, $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 six month period ending June 30, 2019, there were no outstanding borrowings with the FHLBC. We had $12.4 million of unfunded commitments related to our investments in private funds at June 30, 2019. 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 $24.8 million at June 30, 2019, compared to $30.1 million at the end of 2018. As of June 30, 2019, we had $47.4 million of short-term investments that were carried at cost and approximated fair value, compared to $11.6 million at December 31, 2018. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 6 Months Ended |
Jun. 30, 2019 | |
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. 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. Financial assets are classified based upon the lowest level of significant input that is used to determine fair value. Pricing Level 1 Pricing Level 2 Pricing Level 3 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: Mortgage-backed Securities (MBS)/Commercial Mortgage-backed Securities (CMBS) and Asset-backed Securities (ABS): For all of our fixed income securities classified as Level 2, 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. In some cases, we obtain prices from securities brokers and compare them to the prices provided by our pricing services. In both comparisons, if discrepancies are found, we compare our prices to actual reported trade data for like securities. No changes to the fair values supplied by our pricing services have occurred as a result of our reviews. Based on these assessments, we have determined that the fair values of our Level 2 securities provided by our pricing services are reasonable. Common Stock: 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. Our investments in private funds, classified as other invested assets, are measured using the investment’s net asset value per share and are not categorized within the fair value hierarchy. Assets measured at fair value in the accompanying unaudited condensed consolidated interim financial statements on a recurring basis are summarized below: As of June 30, 2019 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 $ — $ 201,385 $ — $ 201,385 U.S. agency — 31,695 — 31,695 Non-U.S. govt. & agency — 9,112 — 9,112 Agency MBS — 408,196 — 408,196 ABS/CMBS* — 151,876 — 151,876 Corporate — 726,798 — 726,798 Municipal — 336,551 — 336,551 Total fixed income securities - available-for-sale $ — $ 1,865,613 $ — $ 1,865,613 Equity securities 421,298 503 — 421,801 Total $ 421,298 $ 1,866,116 $ — $ 2,287,414 As of December 31, 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 $ — $ 200,229 $ — $ 200,229 U.S. agency — 31,904 — 31,904 Non-U.S. govt. & agency — 7,639 — 7,639 Agency MBS — 395,253 — 395,253 ABS/CMBS* — 136,723 — 136,723 Corporate — 668,679 — 668,679 Municipal — 320,088 — 320,088 Total fixed income securities - available-for-sale $ — $ 1,760,515 $ — $ 1,760,515 Equity securities 339,985 498 — 340,483 Total $ 339,985 $ 1,761,013 $ — $ 2,100,998 * 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 six-month period ended June 30, 2019. |
HISTORICAL LOSS AND LAE DEVELOP
HISTORICAL LOSS AND LAE DEVELOPMENT | 6 Months Ended |
Jun. 30, 2019 | |
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 six months of 2019 and 2018: For the Six-Month Periods Ended June 30, (in thousands) 2019 2018 Unpaid losses and LAE at beginning of year Gross $ 1,461,348 $ 1,271,503 Ceded (364,999) (301,991) Net $ 1,096,349 $ 969,512 Increase (decrease) in incurred losses and LAE Current accident year $ 239,053 $ 222,121 Prior accident years (40,837) (28,047) Total incurred $ 198,216 $ 194,074 Loss and LAE payments for claims incurred Current accident year $ (23,624) $ (16,805) Prior accident years (126,972) (118,650) Total paid $ (150,596) $ (135,455) Net unpaid losses and LAE at June 30 $ 1,143,969 $ 1,028,131 Unpaid losses and LAE at June 30 Gross $ 1,506,279 $ 1,343,248 Ceded (362,310) (315,117) Net $ 1,143,969 $ 1,028,131 For the first six months of 2019, incurred losses and LAE included $40.8 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 transportation, general liability, commercial excess and personal umbrella, professional services and surety. Executive products was the exception and experienced adverse development. For the first six months of 2018, incurred losses and LAE included $28.0 million of favorable development on prior years’ loss reserves. Commercial excess and personal umbrella, general liability, marine and surety were drivers of the favorable development. Executive products, transportation and medical professional liability experienced adverse development. |
INCOME TAXES
INCOME TAXES | 6 Months Ended |
Jun. 30, 2019 | |
INCOME TAXES | 5. INCOME TAXES Our effective tax rate for the three and six-month periods ended June 30, 2019 was 17.1 percent and 18.9 percent, respectively, compared to 16.0 percent and 15.7 percent, respectively, for the same periods in 2018. Effective rates are dependent upon components of pretax earnings and the related tax effects. The effective rate was higher for the first six months of 2019 due largely to higher levels of pre-tax earnings, which caused the tax-favored adjustments to be smaller on a percentage basis in 2019 compared to the prior year. Income tax expense attributable to income from operations for the three and six-month periods ended June 30, 2019 and 2018 differed from the amounts computed by applying the U.S. federal tax rate of 21 percent 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 June 30, For the Six-Month Periods Ended June 30, 2019 2018 2019 2018 (in thousands) Amount % Amount % Amount % Amount % Provision for income taxes at the statutory rate of 21% $ 10,254 21.0 % $ 8,308 21.0 % $ 27,419 21.0 % $ 11,327 21.0 % Increase (reduction) in taxes resulting from: Excess tax benefit on share-based compensation (2,191) (4.5) % (924) (2.3) % (2,932) (2.3) % (2,067) (3.9) % Tax exempt interest income (309) (0.6) % (504) (1.3) % (654) (0.5) % (1,085) (2.0) % Dividends received deduction (214) (0.4) % (169) (0.4) % (417) (0.3) % (366) (0.7) % ESOP dividends paid deduction (140) (0.3) % (145) (0.4) % (277) (0.2) % (284) (0.5) % Other items, net 961 1.9 % (255) (0.6) % 1,490 1.2 % 948 1.8 % Total tax expense $ 8,361 17.1 % $ 6,311 16.0 % $ 24,629 18.9 % $ 8,473 15.7 % |
STOCK BASED COMPENSATION
STOCK BASED COMPENSATION | 6 Months Ended |
Jun. 30, 2019 | |
STOCK BASED COMPENSATION | 6. STOCK BASED COMPENSATION Our RLI Corp. Long-Term Incentive Plan (2010 LTIP) was in place from 2010 to 2015. 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 the plan’s approval in 2015, we have granted 2,217,710 awards under the 2015 LTIP, including 314,080 thus far in 2019. Stock Options Under the 2015 LTIP, as under the 2010 LTIP, 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 June 30, 2019 and 2018: Weighted Weighted Average Aggregate Number of Average Remaining Intrinsic Options Exercise Contractual Value Outstanding Price Life (in 000’s) Outstanding options at January 1, 2019 1,964,880 $ 54.24 Options granted 292,150 $ 80.36 Options exercised (414,470) $ 44.70 $ 14,941 Options canceled/forfeited (33,600) $ 57.61 Outstanding options at June 30, 2019 1,808,960 $ 60.59 5.57 $ 45,448 Exercisable options at June 30, 2019 672,110 $ 52.17 4.21 $ 22,544 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 367,500 $ 63.27 Options exercised (337,000) $ 31.60 $ 11,151 Options canceled/forfeited (5,200) $ 62.04 Outstanding options at June 30, 2018 2,282,315 $ 51.66 5.34 $ 33,224 Exercisable options at June 30, 2018 996,265 $ 44.04 3.89 $ 22,089 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 2019, 292,150 stock options were granted with a weighted average exercise price of $80.36 and a weighted average fair value of $13.33 . We recognized $1.4 million of expense in the second quarter of 2019 and $2.4 million in the first six months of 2019 related to options vesting. Since options granted under our 2015 LTIP are non-qualified, we recorded a tax benefit of $0.3 million in the second quarter of 2019 and $0.5 million in the first six months of 2019 related to this compensation expense. Total unrecognized compensation expense relating to outstanding and unvested options was $6.7 million, which will be recognized over the remainder of the vesting period. Comparatively, we recognized $1.3 million of compensation expense in the second quarter of 2018 and $2.3 million in the first six months of 2018. We recorded a tax benefit of $0.3 million in the second quarter of 2018 and $0.5 million in the first six months of 2018 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 June 30: 2019 2018 Weighted-average fair value of grants $ 13.33 $ 10.20 Risk-free interest rates 2.42 % 2.69 % Dividend yield 2.69 % 3.15 % Expected volatility 22.71 % 22.88 % Expected option life 4.96 years 5.06 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 units 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 accrue as additional units and are settled with granted stock units at the end of the vesting period. As of June 30, 2019, 45,350 RSUs have been granted to employees under the 2015 LTIP, including 15,275 in 2019, and 44,431 remain outstanding. We recognized $0.2 million of expense on these units in the second quarter of 2019 and $0.3 million in the first six months of 2019. Total unrecognized compensation expense relating to outstanding and unvested RSUs was $1.5 million, which will be recognized over the remainder of the vesting period. Comparatively, we recognized $0.1 million of expense in the second quarter of 2018 and $0.2 million in the first six months of 2018. In 2018 and 2019, each outside director received RSUs with a fair market value of $50,000 on the date of grant as part of annual director compensation. Director RSUs vest one year from the date of grant. As of June 30, 2019, 15,085 restricted stock units have been granted to directors under the 2015 LTIP, including 6,655 in 2019, and 7,402 remain outstanding. We recognized $0.2 million of compensation expense on these units in the second quarter of 2019 and $0.3 million in the first six months of 2019. Total unrecognized compensation expense relating to outstanding and unvested director RSUs was $0.4 million, which will be recognized over the remainder of the vesting period. Comparatively, we recognized $0.1 million of compensation expense for the three and six-month periods ended June 30, 2018. |
OPERATING SEGMENT INFORMATION
OPERATING SEGMENT INFORMATION | 6 Months Ended |
Jun. 30, 2019 | |
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 Six-Month Periods REVENUES Ended June 30, Ended June 30, (in thousands) 2019 2018 2019 2018 Casualty $ 138,344 $ 129,613 $ 275,244 $ 255,463 Property 39,972 37,190 78,718 72,372 Surety 29,225 29,719 58,268 58,714 Net premiums earned $ 207,541 $ 196,522 $ 412,230 $ 386,549 Net investment income 16,998 14,577 33,563 28,809 Net realized gains 4,764 20,849 13,832 29,253 Net unrealized gains (losses) on equity securities 8,810 (12,611) 42,308 (39,383) Total consolidated revenue $ 238,113 $ 219,337 $ 501,933 $ 405,228 NET EARNINGS (in thousands) 2019 2018 2019 2018 Casualty $ 6,939 $ 2,854 $ 12,282 $ 4,415 Property (436) 3,647 7,810 9,529 Surety 8,429 7,645 17,273 17,689 Net underwriting income $ 14,932 $ 14,146 $ 37,365 $ 31,633 Net investment income 16,998 14,577 33,563 28,809 Net realized gains 4,764 20,849 13,832 29,253 Net unrealized gains (losses) on equity securities 8,810 (12,611) 42,308 (39,383) General corporate expense and interest on debt (5,144) (4,499) (10,281) (8,638) Equity in earnings of unconsolidated investees 8,468 7,100 13,782 12,266 Total earnings before income taxes $ 48,828 $ 39,562 $ 130,569 $ 53,940 Income tax expense 8,361 6,311 24,629 8,473 Total net earnings $ 40,467 $ 33,251 $ 105,940 $ 45,467 The following table further summarizes revenues by major product type within each operating segment: For the Three-Month Periods For the Six-Month Periods NET PREMIUMS EARNED Ended June 30, Ended June 30, (in thousands) 2019 2018 2019 2018 Casualty Commercial excess and personal umbrella $ 34,340 $ 30,649 $ 66,621 $ 60,601 General liability 25,347 23,338 49,235 46,503 Commercial transportation 20,508 20,648 40,912 39,823 Professional services 19,275 19,846 39,574 39,669 Small commercial 13,315 12,901 26,503 25,791 Executive products 6,381 5,144 12,450 10,196 Other casualty 19,178 17,087 39,949 32,880 Total $ 138,344 $ 129,613 $ 275,244 $ 255,463 Property Marine $ 18,579 $ 14,941 $ 35,600 $ 28,798 Commercial property 16,275 17,856 33,150 34,807 Specialty personal 4,792 4,129 9,376 8,271 Other property 326 264 592 496 Total $ 39,972 $ 37,190 $ 78,718 $ 72,372 Surety Miscellaneous $ 11,280 $ 11,719 $ 22,882 $ 23,361 Commercial 7,077 6,761 13,811 13,474 Contract 6,970 7,012 13,599 13,358 Energy 3,898 4,227 7,976 8,521 Total $ 29,225 $ 29,719 $ 58,268 $ 58,714 Grand Total $ 207,541 $ 196,522 $ 412,230 $ 386,549 |
LEASES
LEASES | 6 Months Ended |
Jun. 30, 2019 | |
LEASES | 8. LEASES We adopted ASU 2016-02, Leases on January 1, 2019, which resulted in the recognition of operating leases on the balance sheet in 2019 and forward. See note 1c for more information on the adoption of the ASU. Right-of-use assets are included in the other assets line item and lease liabilities are included in the other liabilities line item of the consolidated balance sheet. We determine if a contract contains a lease at inception and recognize operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments at the commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Lease agreements may include options to extend or terminate. The options are exercised at our discretion and are included in operating lease liabilities if it is reasonably certain the option will be exercised. Lease agreements have lease and non-lease components, which are accounted for as a single lease component. Lease expense is recognized on a straight-line basis over the lease term. The Company’s operating lease obligations are for branch office facilities. Our leases have remaining lease terms of 1 to 16 years. Expenses associated with leases totaled $6.9 million in 2018, $6.8 million in 2017 and $6.4 million in 2016. The components of lease expense and other lease information as of and during the three and six-month period ended June 30, 2019 are as follows: For the Three-Month Period For the Six-Month Period (in thousands) Ended June 30, 2019 Ended June 30, 2019 Operating lease cost $ 1,445 $ 2,927 Cash paid for amounts included in measurement of lease liabilities Operating cash flows from operating leases $ 1,402 $ 2,797 Right-of-use assets obtained in exchange for new operating lease liabilities $ 231 $ 951 Reduction to right-of-use assets resulting from reduction to lease liabilities $ 1,279 $ 1,279 (in thousands) June 30, 2019 Operating lease right-of-use assets $ 24,449 Operating lease liabilities $ 26,640 Weighted-average remaining lease term - operating leases 5.13 years Weighted-average discount rate - operating leases 2.33 % Future minimum lease payments under non-cancellable leases as of June 30, 2019 and December 31, 2018 were as follows: (in thousands) June 30, 2019 December 31, 2018 2019 $ 2,915 $ 5,911 2020 5,914 6,019 2021 5,819 5,924 2022 5,753 5,884 2023 4,297 4,459 Thereafter 3,700 3,968 Total future minimum lease payments $ 28,398 $ 32,165 Less imputed interest (1,758) N/A Total operating lease liability $ 26,640 N/A |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2019 | |
DESCRIPTION OF BUSINESS | A. DESCRIPTION OF BUSINESS RLI Corp. (the Company) is an insurance holding company that was organized in 1965. As reported in previous SEC filings, RLI Corp. changed its state of incorporation from the State of Illinois to the State of Delaware on May 4, 2018 (the Reincorporation). The Reincorporation was effected by merging RLI Corp., an Illinois corporation (RLI Illinois) into RLI Corp., a Delaware corporation (RLI Delaware). 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 $66.5 million reclassification from common stock to paid-in-capital was made during the second quarter of 2018. 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 2018 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 June 30, 2019 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 2018 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 2016-02, Leases (Topic 842) ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under previous guidance for lessees, leases were only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, were met. This update requires 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 are 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 is recognized separately from the amortization of the right-of-use asset in the statement of earnings and the repayment of the principal portion of the lease liability is classified as a financing activity while the interest component is included in the operating section of the statement of cash flows. We adopted ASU 2016-02, ASU 2018-10 Codification Improvements to Topic 842: Leases Leases (Topic 842): Targeted Improvements ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities Under previous guidance, the amortization period for callable debt securities held at a premium was generally the contractual life of the instrument. However, if an entity had a large number of similar loans, it could consider estimates of future principal prepayments. For those who chose not to 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. We adopted ASU 2017-08 on January 1, 2019 using a modified-retrospective approach. As we had been incorporating estimates of future principal prepayments when calculating the effective yield for bonds carrying a premium under the old guidance, the adoption of this update did not 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 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. We adopted ASU 2018-07 on January 1, 2019. Our long-term incentive plan limits the awards of share-based payments to employees and directors of the Company. As our share-based compensation expense to nonemployee directors was $0.3 million in the first six months of 2019, the standard did not have a material impact on our financial statements. |
PROSPECTIVE ACCOUNTING STANDARDS | D. PROSPECTIVE ACCOUNTING STANDARDS ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments 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 in which the guidance is effective. 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 (83.0 percent rated A or better at June 30, 2019) and we purchase reinsurance from financially strong reinsurers for which we already have an allowance for uncollectible reinsurance amounts, we do not expect that the effect of adoption will be material. 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 be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating how the adoption of this ASU will affect our financial statements. |
INTANGIBLE ASSETS | E. INTANGIBLE ASSETS Goodwill and intangible assets totaled $54.3 million and $54.5 million at June 30, 2019 and December 31, 2018, respectively, as detailed in the following table: Goodwill and Intangible Assets June 30, December 31, (in thousands) 2019 2018 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Total goodwill $ 46,062 $ 46,062 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $3,266 at 6/30/19 and $3,062 at 12/31/18 768 972 Total intangibles $ 8,268 $ 8,472 Total goodwill and intangibles $ 54,330 $ 54,534 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 second quarter of 2019 and $0.2 million for the six-month period ended June 30, 2019, the same as for the comparable periods in 2018. Annual impairment assessment 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 2019. Based upon these reviews, none of the assets were impaired. In addition, as of June 30, 2019, there were no triggering events that would suggest an updated review was necessary on the above-mentioned goodwill and intangible assets. Adverse loss experience triggered the need to test the medical professional liability reporting unit during the first quarter of 2018, which resulted in a $4.4 million non-cash impairment charge. 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. The carrying value exceeded the fair value, resulting in a $0.8 million non-cash impairment charge. 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, resulting in a $3.6 million non-cash impairment charge. 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 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 June 30, 2019 Ended June 30, 2018 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 $ 40,467 44,704 $ 0.91 $ 33,251 44,310 $ 0.75 Effect of Dilutive Securities Stock options - 515 - 432 Diluted EPS Income available to common shareholders $ 40,467 45,219 $ 0.89 $ 33,251 44,742 $ 0.74 For the Six-Month Period For the Six-Month Period Ended June 30, 2019 Ended June 30, 2018 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 $ 105,940 44,620 $ 2.37 $ 45,467 44,266 $ 1.03 Effect of Dilutive Securities Stock options - 436 - 587 Diluted EPS Income available to common shareholders $ 105,940 45,056 $ 2.35 $ 45,467 44,853 $ 1.01 |
COMPREHENSIVE EARNINGS | G. COMPREHENSIVE EARNINGS Our comprehensive earnings include net earnings plus after-tax unrealized gains and losses on our fixed income portfolio. In reporting other comprehensive earnings on a net basis in the statement of earnings, we used the federal statutory tax rate of 21 percent. Unrealized gains, net of tax, on the fixed income portfolio for the first six months of 2019 were $57.2 million, compared to $34.1 million of unrealized losses, net of tax, during the same period last year. Unrealized gains in the first six months of 2019 were attributable to declining interest rates, which increased the fair value of securities held in the fixed income portfolio. In contrast, rising interest rates decreased the fair value of securities held in the fixed income portfolio in the first six months of 2018. 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: (in thousands) For the Three-Month Periods For the Six-Month Periods Ended June 30, Ended June 30, Unrealized Gains/Losses on Available-for-Sale Securities 2019 2018 2019 2018 Beginning balance $ 14,729 $ (6,973) $ (14,572) $ 157,919 Cumulative effect adjustment of ASU 2016-01 - - - (142,219) Adjusted beginning balance $ 14,729 $ (6,973) $ (14,572) $ 15,700 Other comprehensive earnings before reclassifications 28,388 (8,385) 58,183 (34,795) Amounts reclassified from accumulated other comprehensive earnings (524) 710 (1,018) 722 Net current-period other comprehensive earnings (loss) $ 27,864 $ (7,675) $ 57,165 $ (34,073) Reclassification of stranded tax effect per ASU 2018-02 - - - 3,725 Ending balance $ 42,593 $ (14,648) $ 42,593 $ (14,648) In 2018, the adoption of accounting standards resulted in adjustments to accumulated other comprehensive earnings. ASU 2016-01 required equity investments to be measured at fair value with changes in fair value recognized in net earnings. A cumulative-effect adjustment was made as of the beginning of 2018, which moved $142.2 million of net unrealized gains and losses on equity securities from accumulated other comprehensive earnings to retained earnings. ASU 2018-02 addressed issues arising from the enactment of the Tax Cuts and Jobs Act of 2017. Accounting guidance required deferred tax items to be revalued based on the new tax laws with the changes included in net earnings. Since other comprehensive earnings was not affected by the revaluation of the deferred tax items, the accumulated other comprehensive earnings balance was reflective of the historic tax rate instead of the newly enacted rate, which created a stranded tax effect. ASU 2018-02 allowed for the reclassification of our $3.7 million stranded tax effect out of accumulated other comprehensive earnings into retained earnings. 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: Amount Reclassified from Accumulated Other (in thousands) Comprehensive Earnings For the Three-Month For the Six-Month Component of Accumulated Periods Ended June 30, Periods Ended June 30, Affected line item in the Other Comprehensive Earnings 2019 2018 2019 2018 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 664 $ (899) $ 1,289 $ (858) Net realized gains (losses) - - - (56) Other-than-temporary impairment (OTTI) losses on investments $ 664 $ (899) $ 1,289 $ (914) Earnings before income taxes (140) 189 (271) 192 Income tax benefit (expense) $ 524 $ (710) $ 1,018 $ (722) Net earnings (loss) |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of goodwill and intangible assets | Goodwill and Intangible Assets June 30, December 31, (in thousands) 2019 2018 Goodwill Energy surety $ 25,706 $ 25,706 Miscellaneous and contract surety 15,110 15,110 Small commercial 5,246 5,246 Total goodwill $ 46,062 $ 46,062 Intangibles State insurance licenses $ 7,500 $ 7,500 Definite-lived intangibles, net of accumulated amortization of $3,266 at 6/30/19 and $3,062 at 12/31/18 768 972 Total intangibles $ 8,268 $ 8,472 Total goodwill and intangibles $ 54,330 $ 54,534 |
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 June 30, 2019 Ended June 30, 2018 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 $ 40,467 44,704 $ 0.91 $ 33,251 44,310 $ 0.75 Effect of Dilutive Securities Stock options - 515 - 432 Diluted EPS Income available to common shareholders $ 40,467 45,219 $ 0.89 $ 33,251 44,742 $ 0.74 For the Six-Month Period For the Six-Month Period Ended June 30, 2019 Ended June 30, 2018 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 $ 105,940 44,620 $ 2.37 $ 45,467 44,266 $ 1.03 Effect of Dilutive Securities Stock options - 436 - 587 Diluted EPS Income available to common shareholders $ 105,940 45,056 $ 2.35 $ 45,467 44,853 $ 1.01 |
Schedule of changes in the balance of each component of accumulated other comprehensive earnings | (in thousands) For the Three-Month Periods For the Six-Month Periods Ended June 30, Ended June 30, Unrealized Gains/Losses on Available-for-Sale Securities 2019 2018 2019 2018 Beginning balance $ 14,729 $ (6,973) $ (14,572) $ 157,919 Cumulative effect adjustment of ASU 2016-01 - - - (142,219) Adjusted beginning balance $ 14,729 $ (6,973) $ (14,572) $ 15,700 Other comprehensive earnings before reclassifications 28,388 (8,385) 58,183 (34,795) Amounts reclassified from accumulated other comprehensive earnings (524) 710 (1,018) 722 Net current-period other comprehensive earnings (loss) $ 27,864 $ (7,675) $ 57,165 $ (34,073) Reclassification of stranded tax effect per ASU 2018-02 - - - 3,725 Ending balance $ 42,593 $ (14,648) $ 42,593 $ (14,648) |
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 Six-Month Component of Accumulated Periods Ended June 30, Periods Ended June 30, Affected line item in the Other Comprehensive Earnings 2019 2018 2019 2018 Statement of Earnings Unrealized gains and losses on available-for-sale securities $ 664 $ (899) $ 1,289 $ (858) Net realized gains (losses) - - - (56) Other-than-temporary impairment (OTTI) losses on investments $ 664 $ (899) $ 1,289 $ (914) Earnings before income taxes (140) 189 (271) 192 Income tax benefit (expense) $ 524 $ (710) $ 1,018 $ (722) Net earnings (loss) |
INVESTMENTS (Tables)
INVESTMENTS (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of amortized cost and fair value of available-for-sale securities | Available-for-sale June 30, 2019 (in thousands) Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 194,712 $ 6,774 $ (101) $ 201,385 U.S. agency 29,708 1,987 - 31,695 Non-U.S. govt. & agency 9,249 192 (329) 9,112 Agency MBS 402,993 6,603 (1,400) 408,196 ABS/CMBS* 149,583 2,440 (147) 151,876 Corporate 701,358 27,072 (1,632) 726,798 Municipal 321,826 14,750 (25) 336,551 Total Fixed Income $ 1,809,429 $ 59,818 $ (3,634) $ 1,865,613 Available-for-sale December 31, 2018 (in thousands) Cost or Gross Gross Amortized Unrealized Unrealized Fair Asset Class Cost Gains Losses Value U.S. government $ 199,982 $ 1,232 $ (985) $ 200,229 U.S. agency 31,716 403 (215) 31,904 Non-U.S. govt. & agency 8,170 - (531) 7,639 Agency MBS 402,992 1,709 (9,448) 395,253 ABS/CMBS* 137,224 375 (876) 136,723 Corporate 681,909 2,894 (16,124) 668,679 Municipal 314,472 6,926 (1,310) 320,088 Total Fixed Income $ 1,776,465 $ 13,539 $ (29,489) $ 1,760,515 *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 | June 30, 2019 December 31, 2018 (in thousands) < 12 Mos. 12 Mos. & Total < 12 Mos. 12 Mos. & Total U.S. government Fair value $ — $ 23,525 $ 23,525 $ 7,249 $ 76,073 $ 83,322 Amortized cost — 23,626 23,626 7,270 77,037 84,307 Unrealized Loss $ — $ (101) $ (101) $ (21) $ (964) $ (985) U.S. agency Fair value $ — $ — $ — $ — $ 8,843 $ 8,843 Amortized cost — — — — 9,058 9,058 Unrealized Loss $ — $ — $ — $ — $ (215) $ (215) Non-U.S. government Fair value $ — $ 3,625 $ 3,625 $ 5,432 $ 2,207 $ 7,639 Amortized cost — 3,954 3,954 5,571 2,599 8,170 Unrealized Loss $ — $ (329) $ (329) $ (139) $ (392) $ (531) Agency MBS Fair value $ 1 $ 129,203 $ 129,204 $ 25,345 $ 261,325 $ 286,670 Amortized cost 1 130,603 130,604 25,486 270,632 296,118 Unrealized Loss $ — $ (1,400) $ (1,400) $ (141) $ (9,307) $ (9,448) ABS/CMBS* Fair value $ 16,755 $ 11,628 $ 28,383 $ 46,918 $ 32,137 $ 79,055 Amortized cost 16,823 11,707 28,530 47,146 32,785 79,931 Unrealized Loss $ (68) $ (79) $ (147) $ (228) $ (648) $ (876) Corporate Fair value $ 44,618 $ 32,689 $ 77,307 $ 306,177 $ 147,751 $ 453,928 Amortized cost 45,578 33,361 78,939 315,428 154,624 470,052 Unrealized Loss $ (960) $ (672) $ (1,632) $ (9,251) $ (6,873) $ (16,124) Municipal Fair value $ — $ 8,146 $ 8,146 $ 6,036 $ 55,681 $ 61,717 Amortized cost — 8,171 8,171 6,052 56,975 63,027 Unrealized Loss $ — $ (25) $ (25) $ (16) $ (1,294) $ (1,310) Total fixed income Fair value $ 61,374 $ 208,816 $ 270,190 $ 397,157 $ 584,017 $ 981,174 Amortized cost 62,402 211,422 273,824 406,953 603,710 1,010,663 Unrealized Loss $ (1,028) $ (2,606) $ (3,634) $ (9,796) $ (19,693) $ (29,489) * 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 $ 203,150 $ 201,403 $ (1,747) 48.1 % 2 BBB Baa 21,914 21,213 (701) 19.3 % 3 BB Ba 22,336 21,950 (386) 10.6 % 4 B B 24,877 24,148 (729) 20.1 % 5 CCC Caa 1,547 1,476 (71) 2.0 % 6 CC or lower Ca or lower - - - - % Total $ 273,824 $ 270,190 $ (3,634) 100.0 % |
Available for sale securities | |
Schedule of contractual maturity of securities | June 30, 2019 Available-for-sale Amortized Fair (in thousands) Cost Value Due in one year or less $ 51,149 $ 51,233 Due after one year through five years 400,628 410,544 Due after five years through 10 years 615,648 643,270 Due after 10 years 189,428 200,494 Mtge/ABS/CMBS* 552,576 560,072 Total available-for-sale $ 1,809,429 $ 1,865,613 *Mortgage-backed, asset-backed and commercial mortgage-backed |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of assets measured at fair value on recurring basis | As of June 30, 2019 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 $ — $ 201,385 $ — $ 201,385 U.S. agency — 31,695 — 31,695 Non-U.S. govt. & agency — 9,112 — 9,112 Agency MBS — 408,196 — 408,196 ABS/CMBS* — 151,876 — 151,876 Corporate — 726,798 — 726,798 Municipal — 336,551 — 336,551 Total fixed income securities - available-for-sale $ — $ 1,865,613 $ — $ 1,865,613 Equity securities 421,298 503 — 421,801 Total $ 421,298 $ 1,866,116 $ — $ 2,287,414 As of December 31, 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 $ — $ 200,229 $ — $ 200,229 U.S. agency — 31,904 — 31,904 Non-U.S. govt. & agency — 7,639 — 7,639 Agency MBS — 395,253 — 395,253 ABS/CMBS* — 136,723 — 136,723 Corporate — 668,679 — 668,679 Municipal — 320,088 — 320,088 Total fixed income securities - available-for-sale $ — $ 1,760,515 $ — $ 1,760,515 Equity securities 339,985 498 — 340,483 Total $ 339,985 $ 1,761,013 $ — $ 2,100,998 * Non-agency asset-backed and commercial mortgage-backed |
HISTORICAL LOSS AND LAE DEVEL_2
HISTORICAL LOSS AND LAE DEVELOPMENT (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of reconciliation of unpaid losses and settlement expenses (LAE) | For the Six-Month Periods Ended June 30, (in thousands) 2019 2018 Unpaid losses and LAE at beginning of year Gross $ 1,461,348 $ 1,271,503 Ceded (364,999) (301,991) Net $ 1,096,349 $ 969,512 Increase (decrease) in incurred losses and LAE Current accident year $ 239,053 $ 222,121 Prior accident years (40,837) (28,047) Total incurred $ 198,216 $ 194,074 Loss and LAE payments for claims incurred Current accident year $ (23,624) $ (16,805) Prior accident years (126,972) (118,650) Total paid $ (150,596) $ (135,455) Net unpaid losses and LAE at June 30 $ 1,143,969 $ 1,028,131 Unpaid losses and LAE at June 30 Gross $ 1,506,279 $ 1,343,248 Ceded (362,310) (315,117) Net $ 1,143,969 $ 1,028,131 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
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 June 30, For the Six-Month Periods Ended June 30, 2019 2018 2019 2018 (in thousands) Amount % Amount % Amount % Amount % Provision for income taxes at the statutory rate of 21% $ 10,254 21.0 % $ 8,308 21.0 % $ 27,419 21.0 % $ 11,327 21.0 % Increase (reduction) in taxes resulting from: Excess tax benefit on share-based compensation (2,191) (4.5) % (924) (2.3) % (2,932) (2.3) % (2,067) (3.9) % Tax exempt interest income (309) (0.6) % (504) (1.3) % (654) (0.5) % (1,085) (2.0) % Dividends received deduction (214) (0.4) % (169) (0.4) % (417) (0.3) % (366) (0.7) % ESOP dividends paid deduction (140) (0.3) % (145) (0.4) % (277) (0.2) % (284) (0.5) % Other items, net 961 1.9 % (255) (0.6) % 1,490 1.2 % 948 1.8 % Total tax expense $ 8,361 17.1 % $ 6,311 16.0 % $ 24,629 18.9 % $ 8,473 15.7 % |
STOCK BASED COMPENSATION (Table
STOCK BASED COMPENSATION (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
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, 2019 1,964,880 $ 54.24 Options granted 292,150 $ 80.36 Options exercised (414,470) $ 44.70 $ 14,941 Options canceled/forfeited (33,600) $ 57.61 Outstanding options at June 30, 2019 1,808,960 $ 60.59 5.57 $ 45,448 Exercisable options at June 30, 2019 672,110 $ 52.17 4.21 $ 22,544 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 367,500 $ 63.27 Options exercised (337,000) $ 31.60 $ 11,151 Options canceled/forfeited (5,200) $ 62.04 Outstanding options at June 30, 2018 2,282,315 $ 51.66 5.34 $ 33,224 Exercisable options at June 30, 2018 996,265 $ 44.04 3.89 $ 22,089 |
Schedule of stock option assumptions for fair value estimate | 2019 2018 Weighted-average fair value of grants $ 13.33 $ 10.20 Risk-free interest rates 2.42 % 2.69 % Dividend yield 2.69 % 3.15 % Expected volatility 22.71 % 22.88 % Expected option life 4.96 years 5.06 years |
OPERATING SEGMENT INFORMATION (
OPERATING SEGMENT INFORMATION (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of revenues and net earnings by segment | For the Three-Month Periods For the Six-Month Periods REVENUES Ended June 30, Ended June 30, (in thousands) 2019 2018 2019 2018 Casualty $ 138,344 $ 129,613 $ 275,244 $ 255,463 Property 39,972 37,190 78,718 72,372 Surety 29,225 29,719 58,268 58,714 Net premiums earned $ 207,541 $ 196,522 $ 412,230 $ 386,549 Net investment income 16,998 14,577 33,563 28,809 Net realized gains 4,764 20,849 13,832 29,253 Net unrealized gains (losses) on equity securities 8,810 (12,611) 42,308 (39,383) Total consolidated revenue $ 238,113 $ 219,337 $ 501,933 $ 405,228 NET EARNINGS (in thousands) 2019 2018 2019 2018 Casualty $ 6,939 $ 2,854 $ 12,282 $ 4,415 Property (436) 3,647 7,810 9,529 Surety 8,429 7,645 17,273 17,689 Net underwriting income $ 14,932 $ 14,146 $ 37,365 $ 31,633 Net investment income 16,998 14,577 33,563 28,809 Net realized gains 4,764 20,849 13,832 29,253 Net unrealized gains (losses) on equity securities 8,810 (12,611) 42,308 (39,383) General corporate expense and interest on debt (5,144) (4,499) (10,281) (8,638) Equity in earnings of unconsolidated investees 8,468 7,100 13,782 12,266 Total earnings before income taxes $ 48,828 $ 39,562 $ 130,569 $ 53,940 Income tax expense 8,361 6,311 24,629 8,473 Total net earnings $ 40,467 $ 33,251 $ 105,940 $ 45,467 |
Schedule of net premiums earned by major product type | For the Three-Month Periods For the Six-Month Periods NET PREMIUMS EARNED Ended June 30, Ended June 30, (in thousands) 2019 2018 2019 2018 Casualty Commercial excess and personal umbrella $ 34,340 $ 30,649 $ 66,621 $ 60,601 General liability 25,347 23,338 49,235 46,503 Commercial transportation 20,508 20,648 40,912 39,823 Professional services 19,275 19,846 39,574 39,669 Small commercial 13,315 12,901 26,503 25,791 Executive products 6,381 5,144 12,450 10,196 Other casualty 19,178 17,087 39,949 32,880 Total $ 138,344 $ 129,613 $ 275,244 $ 255,463 Property Marine $ 18,579 $ 14,941 $ 35,600 $ 28,798 Commercial property 16,275 17,856 33,150 34,807 Specialty personal 4,792 4,129 9,376 8,271 Other property 326 264 592 496 Total $ 39,972 $ 37,190 $ 78,718 $ 72,372 Surety Miscellaneous $ 11,280 $ 11,719 $ 22,882 $ 23,361 Commercial 7,077 6,761 13,811 13,474 Contract 6,970 7,012 13,599 13,358 Energy 3,898 4,227 7,976 8,521 Total $ 29,225 $ 29,719 $ 58,268 $ 58,714 Grand Total $ 207,541 $ 196,522 $ 412,230 $ 386,549 |
LEASES (Tables)
LEASES (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of components of lease expense and other lease information | For the Three-Month Period For the Six-Month Period (in thousands) Ended June 30, 2019 Ended June 30, 2019 Operating lease cost $ 1,445 $ 2,927 Cash paid for amounts included in measurement of lease liabilities Operating cash flows from operating leases $ 1,402 $ 2,797 Right-of-use assets obtained in exchange for new operating lease liabilities $ 231 $ 951 Reduction to right-of-use assets resulting from reduction to lease liabilities $ 1,279 $ 1,279 (in thousands) June 30, 2019 Operating lease right-of-use assets $ 24,449 Operating lease liabilities $ 26,640 Weighted-average remaining lease term - operating leases 5.13 years Weighted-average discount rate - operating leases 2.33 % |
Schedule of future minimum lease payments under non-cancellable leases | (in thousands) June 30, 2019 December 31, 2018 2019 $ 2,915 $ 5,911 2020 5,914 6,019 2021 5,819 5,924 2022 5,753 5,884 2023 4,297 4,459 Thereafter 3,700 3,968 Total future minimum lease payments $ 28,398 $ 32,165 Less imputed interest (1,758) N/A Total operating lease liability $ 26,640 N/A |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Description of Business (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |||||
Jun. 30, 2018 | Jun. 30, 2019 | Dec. 31, 2018 | May 04, 2018 | Mar. 31, 2018 | Dec. 31, 2017 | |
DESCRIPTION OF BUSINESS | ||||||
Common Stock, Par or Stated Value Per Share | $ 0.01 | $ 0.01 | $ 0.01 | $ 1 | $ 1 | |
Reclassification From Common Stock | $ 66,500 | |||||
Reclassification Into Paid In Capital | 66,500 | |||||
Common stock | ||||||
DESCRIPTION OF BUSINESS | ||||||
Reclassification due to change in par value | (66,513) | |||||
Paid-in Capital | ||||||
DESCRIPTION OF BUSINESS | ||||||
Reclassification due to change in par value | $ 66,513 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Accounting Standards (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Percentage Of Fixed Income Portfolio Rated A Or Better | 83.00% | 83.00% | ||
Operating Lease, Right-of-Use Asset | $ 24,449 | $ 24,449 | ||
Operating lease liabilities | 26,640 | 26,640 | ||
Allocated Share-based Compensation Expense | 1,400 | $ 1,300 | 2,400 | $ 2,300 |
Restricted Stock Units (RSUs) [Member] | ||||
Allocated Share-based Compensation Expense | 200 | 100 | 300 | 200 |
Outside director | Restricted Stock Units (RSUs) [Member] | ||||
Allocated Share-based Compensation Expense | $ 200 | $ 100 | $ 300 | $ 100 |
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 | 6 Months Ended | ||||
Jun. 30, 2019 | Jun. 30, 2018 | Mar. 31, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | |
Business Acquisition [Line Items] | ||||||
Goodwill | $ 46,062,000 | $ 46,062,000 | $ 46,062,000 | |||
State insurance licenses | 7,500,000 | 7,500,000 | 7,500,000 | |||
Definite-lived intangibles, net of accumulated amortization of $3,164 at 3/31/19 and $3,062 at 12/31/18 | 768,000 | 768,000 | 972,000 | |||
Total intangibles | 8,268,000 | 8,268,000 | 8,472,000 | |||
Goodwill and intangibles | 54,330,000 | 54,330,000 | 54,534,000 | |||
Accumulated amortization of definite-lived intangibles | 3,266,000 | 3,266,000 | 3,062,000 | |||
Amortization of intangible assets | 100,000 | $ 100,000 | 200,000 | $ 200,000 | ||
Basic EPS, Income (Numerator) | ||||||
Income available to common shareholders | 40,467,000 | 33,251,000 | 105,940,000 | 45,467,000 | ||
Diluted EPS, Income (Numerator) | ||||||
Income available to common shareholders | $ 40,467,000 | $ 33,251,000 | $ 105,940,000 | $ 45,467,000 | ||
Basic EPS, Weighted Average Shares (Denominator) | ||||||
Number of shares outstanding | 44,704 | 44,310 | 44,620 | 44,266 | ||
Effect of Dilutive Securities, Shares (Denominator) | ||||||
Stock options (in shares) | 515 | 432 | 436 | 587 | ||
Diluted EPS, Weighted Average Shares (Denominator) | ||||||
Number of shares outstanding | 45,219 | 44,742 | 45,056 | 44,853 | ||
Basic EPS, Per Share Amount | ||||||
Basic net earnings per share (in dollars per share) | $ 0.91 | $ 0.75 | $ 2.37 | $ 1.03 | ||
Diluted EPS, Per Share Amount | ||||||
Diluted earnings per share (in dollars per share) | $ 0.89 | $ 0.74 | $ 2.35 | $ 1.01 | ||
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 | |||||
Total intangibles | 0 | |||||
Goodwill and Intangible Asset Impairment | 4,400,000 | |||||
Goodwill, Impairment Loss | 3,600,000 | |||||
Impairment of Intangible Assets, Finite-lived | $ 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 | 6 Months Ended | ||||||
Jun. 30, 2019 | Mar. 31, 2019 | Jun. 30, 2018 | Mar. 31, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | Dec. 31, 2017 | |
COMPREHENSIVE EARNINGS | ||||||||
Tax rate used (as a percent) | 21.00% | 21.00% | 21.00% | 21.00% | ||||
Changes in the balance of each component of accumulated other comprehensive earnings | ||||||||
Beginning balance | $ (14,572) | $ (14,572) | ||||||
Cumulative effect adjustment of ASU 2016-01 | $ 142,200 | |||||||
Net current-period other comprehensive earnings (loss) | $ 27,864 | 29,301 | $ (7,675) | $ (26,398) | 57,165 | $ (34,073) | ||
Reclassification of stranded tax effect per ASU 2018-02 | 3,700 | |||||||
Ending balance | 42,593 | 42,593 | ||||||
Reclassification Adjustment Out of Accumulated Other Comprehensive Income Abstract | ||||||||
Net realized gains | 4,764 | 20,849 | 13,832 | 29,309 | ||||
Other-than-temporary-impairment (OTTI) losses on investments | (56) | |||||||
Earnings before income taxes | 48,828 | 39,562 | 130,569 | 53,940 | ||||
Income tax expense | (8,361) | (6,311) | (24,629) | (8,473) | ||||
Net earnings | 40,467 | 65,473 | 33,251 | 12,216 | 105,940 | 45,467 | ||
Unrealized Gains and Losses on Available-for-Sale Securities | ||||||||
Changes in the balance of each component of accumulated other comprehensive earnings | ||||||||
Beginning balance | 14,729 | (14,572) | (6,973) | 157,919 | (14,572) | 157,919 | ||
Cumulative effect adjustment of ASU 2016-01 | (142,219) | |||||||
Adjusted beginning balance | 14,729 | (6,973) | $ (14,572) | $ 15,700 | ||||
Other comprehensive earnings before reclassifications | 28,388 | (8,385) | 58,183 | (34,795) | ||||
Amounts reclassified from accumulated other comprehensive earnings | (524) | 710 | (1,018) | 722 | ||||
Net current-period other comprehensive earnings (loss) | 27,864 | (7,675) | 57,165 | (34,073) | ||||
Reclassification of stranded tax effect per ASU 2018-02 | 3,725 | |||||||
Ending balance | 42,593 | $ 14,729 | (14,648) | $ (6,973) | 42,593 | (14,648) | ||
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 | 664 | (899) | 1,289 | (858) | ||||
Other-than-temporary-impairment (OTTI) losses on investments | (56) | |||||||
Earnings before income taxes | 664 | (899) | 1,289 | (914) | ||||
Income tax expense | (140) | 189 | (271) | 192 | ||||
Net earnings | $ 524 | $ (710) | $ 1,018 | $ (722) |
INVESTMENTS - Amortized Cost an
INVESTMENTS - Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 | |
Available-for-sale | |||
Total amortized cost | $ 1,809,429 | $ 1,776,465 | |
Available-for-sale Securities, Debt Securities | 1,865,613 | 1,760,515 | |
Amortized Cost | |||
Due in one year or less | 51,149 | ||
Due after one year through five years | 400,628 | ||
Due after five years through 10 years | 615,648 | ||
Due after 10 years | 189,428 | ||
Mtge/ABS/CMBS | [1] | 552,576 | |
Total amortized cost | 1,809,429 | 1,776,465 | |
Fair Value | |||
Due in one year or less | 51,233 | ||
Due after one year through five years | 410,544 | ||
Due after five years through 10 years | 643,270 | ||
Due after 10 years | 200,494 | ||
Mtge/ABS/CMBS | [1] | 560,072 | |
Total fair value | 1,865,613 | 1,760,515 | |
Fair value measured on recurring basis | |||
Available-for-sale | |||
Available-for-sale Securities, Debt Securities | 1,865,613 | 1,760,515 | |
Fair Value | |||
Total fair value | 1,865,613 | 1,760,515 | |
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 | 1,809,429 | 1,776,465 | |
Gross unrealized gains | 59,818 | 13,539 | |
Gross unrealized losses | (3,634) | (29,489) | |
Available-for-sale Securities, Debt Securities | 1,865,613 | 1,760,515 | |
Amortized Cost | |||
Total amortized cost | 1,809,429 | 1,776,465 | |
Fair Value | |||
Total fair value | 1,865,613 | 1,760,515 | |
U.S. government | |||
Available-for-sale | |||
Total amortized cost | 194,712 | 199,982 | |
Gross unrealized gains | 6,774 | 1,232 | |
Gross unrealized losses | (101) | (985) | |
Available-for-sale Securities, Debt Securities | 201,385 | 200,229 | |
Amortized Cost | |||
Total amortized cost | 194,712 | 199,982 | |
Fair Value | |||
Total fair value | 201,385 | 200,229 | |
U.S. Agency | |||
Available-for-sale | |||
Total amortized cost | 29,708 | 31,716 | |
Gross unrealized gains | 1,987 | 403 | |
Gross unrealized losses | (215) | ||
Available-for-sale Securities, Debt Securities | 31,695 | 31,904 | |
Amortized Cost | |||
Total amortized cost | 29,708 | 31,716 | |
Fair Value | |||
Total fair value | 31,695 | 31,904 | |
Non-U.S. govt. & agency | |||
Available-for-sale | |||
Total amortized cost | 9,249 | 8,170 | |
Gross unrealized gains | 192 | ||
Gross unrealized losses | (329) | (531) | |
Available-for-sale Securities, Debt Securities | 9,112 | 7,639 | |
Amortized Cost | |||
Total amortized cost | 9,249 | 8,170 | |
Fair Value | |||
Total fair value | 9,112 | 7,639 | |
Mortgage-backed | |||
Available-for-sale | |||
Total amortized cost | 402,993 | 402,992 | |
Gross unrealized gains | 6,603 | 1,709 | |
Gross unrealized losses | (1,400) | (9,448) | |
Available-for-sale Securities, Debt Securities | 408,196 | 395,253 | |
Amortized Cost | |||
Total amortized cost | 402,993 | 402,992 | |
Fair Value | |||
Total fair value | 408,196 | 395,253 | |
ABS/CMBS | |||
Available-for-sale | |||
Total amortized cost | [2] | 149,583 | 137,224 |
Gross unrealized gains | [2] | 2,440 | 375 |
Gross unrealized losses | [2] | (147) | (876) |
Available-for-sale Securities, Debt Securities | [2] | 151,876 | 136,723 |
Amortized Cost | |||
Total amortized cost | [2] | 149,583 | 137,224 |
Fair Value | |||
Total fair value | [2] | 151,876 | 136,723 |
Corporate Debt | |||
Available-for-sale | |||
Total amortized cost | 701,358 | 681,909 | |
Gross unrealized gains | 27,072 | 2,894 | |
Gross unrealized losses | (1,632) | (16,124) | |
Available-for-sale Securities, Debt Securities | 726,798 | 668,679 | |
Amortized Cost | |||
Total amortized cost | 701,358 | 681,909 | |
Fair Value | |||
Total fair value | 726,798 | 668,679 | |
Municipal | |||
Available-for-sale | |||
Total amortized cost | 321,826 | 314,472 | |
Gross unrealized gains | 14,750 | 6,926 | |
Gross unrealized losses | (25) | (1,310) | |
Available-for-sale Securities, Debt Securities | 336,551 | 320,088 | |
Amortized Cost | |||
Total amortized cost | 321,826 | 314,472 | |
Fair Value | |||
Total fair value | $ 336,551 | $ 320,088 | |
[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 | Jun. 30, 2019 | Dec. 31, 2018 | |
Investment positions with unrealized losses | |||
Unrealized losses relative to total invested assets (as a percent) | 0.20% | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (3,600) | ||
Debt securities | |||
Fair value | |||
Less than 12 months | 61,374 | $ 397,157 | |
12 months and greater | 208,816 | 584,017 | |
Total Fair Value | 270,190 | 981,174 | |
Cost or amortized Cost | |||
Less than 12 months | 62,402 | 406,953 | |
12 months and greater | 211,422 | 603,710 | |
Total Cost or Amortized Cost | 273,824 | 1,010,663 | |
Unrealized Loss | |||
Less than 12 months | (1,028) | (9,796) | |
12 months and greater | (2,606) | (19,693) | |
Total Unrealized Loss | $ (3,634) | (29,489) | |
Percent to Total | 100.00% | ||
Debt securities | NAIC Rating 1 | AAA/AA/A | Aaa/Aa/A | |||
Fair value | |||
Total Fair Value | $ 201,403 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 203,150 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (1,747) | ||
Percent to Total | 48.10% | ||
Debt securities | NAIC Rating 2 | BBB | Baa | |||
Fair value | |||
Total Fair Value | $ 21,213 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 21,914 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (701) | ||
Percent to Total | 19.30% | ||
Debt securities | NAIC Rating 3 | BB | Ba | |||
Fair value | |||
Total Fair Value | $ 21,950 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 22,336 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (386) | ||
Percent to Total | 10.60% | ||
Debt securities | NAIC Rating 4 | B | B | |||
Fair value | |||
Total Fair Value | $ 24,148 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 24,877 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (729) | ||
Percent to Total | 20.10% | ||
Debt securities | NAIC Rating 5 | CCC | Caa | |||
Fair value | |||
Total Fair Value | $ 1,476 | ||
Cost or amortized Cost | |||
Total Cost or Amortized Cost | 1,547 | ||
Unrealized Loss | |||
Total Unrealized Loss | $ (71) | ||
Percent to Total | 2.00% | ||
U.S. government | |||
Fair value | |||
Less than 12 months | 7,249 | ||
12 months and greater | $ 23,525 | 76,073 | |
Total Fair Value | 23,525 | 83,322 | |
Cost or amortized Cost | |||
Less than 12 months | 7,270 | ||
12 months and greater | 23,626 | 77,037 | |
Total Cost or Amortized Cost | 23,626 | 84,307 | |
Unrealized Loss | |||
Less than 12 months | (21) | ||
12 months and greater | (101) | (964) | |
Total Unrealized Loss | (101) | (985) | |
U.S. Agency | |||
Fair value | |||
12 months and greater | 8,843 | ||
Total Fair Value | 8,843 | ||
Cost or amortized Cost | |||
12 months and greater | 9,058 | ||
Total Cost or Amortized Cost | 9,058 | ||
Unrealized Loss | |||
12 months and greater | (215) | ||
Total Unrealized Loss | (215) | ||
Non-U.S. govt. & agency | |||
Fair value | |||
Less than 12 months | 5,432 | ||
12 months and greater | 3,625 | 2,207 | |
Total Fair Value | 3,625 | 7,639 | |
Cost or amortized Cost | |||
Less than 12 months | 5,571 | ||
12 months and greater | 3,954 | 2,599 | |
Total Cost or Amortized Cost | 3,954 | 8,170 | |
Unrealized Loss | |||
Less than 12 months | (139) | ||
12 months and greater | (329) | (392) | |
Total Unrealized Loss | (329) | (531) | |
Mortgage-backed | |||
Fair value | |||
Less than 12 months | 1 | 25,345 | |
12 months and greater | 129,203 | 261,325 | |
Total Fair Value | 129,204 | 286,670 | |
Cost or amortized Cost | |||
Less than 12 months | 1 | 25,486 | |
12 months and greater | 130,603 | 270,632 | |
Total Cost or Amortized Cost | 130,604 | 296,118 | |
Unrealized Loss | |||
Less than 12 months | (141) | ||
12 months and greater | (1,400) | (9,307) | |
Total Unrealized Loss | (1,400) | (9,448) | |
ABS/CMBS | |||
Fair value | |||
Less than 12 months | [1] | 16,755 | 46,918 |
12 months and greater | [1] | 11,628 | 32,137 |
Total Fair Value | [1] | 28,383 | 79,055 |
Cost or amortized Cost | |||
Less than 12 months | [1] | 16,823 | 47,146 |
12 months and greater | [1] | 11,707 | 32,785 |
Total Cost or Amortized Cost | [1] | 28,530 | 79,931 |
Unrealized Loss | |||
Less than 12 months | [1] | (68) | (228) |
12 months and greater | [1] | (79) | (648) |
Total Unrealized Loss | [1] | (147) | (876) |
Corporate Debt | |||
Fair value | |||
Less than 12 months | 44,618 | 306,177 | |
12 months and greater | 32,689 | 147,751 | |
Total Fair Value | 77,307 | 453,928 | |
Cost or amortized Cost | |||
Less than 12 months | 45,578 | 315,428 | |
12 months and greater | 33,361 | 154,624 | |
Total Cost or Amortized Cost | 78,939 | 470,052 | |
Unrealized Loss | |||
Less than 12 months | (960) | (9,251) | |
12 months and greater | (672) | (6,873) | |
Total Unrealized Loss | (1,632) | (16,124) | |
Municipal | |||
Fair value | |||
Less than 12 months | 6,036 | ||
12 months and greater | 8,146 | 55,681 | |
Total Fair Value | 8,146 | 61,717 | |
Cost or amortized Cost | |||
Less than 12 months | 6,052 | ||
12 months and greater | 8,171 | 56,975 | |
Total Cost or Amortized Cost | 8,171 | 63,027 | |
Unrealized Loss | |||
Less than 12 months | (16) | ||
12 months and greater | (25) | (1,294) | |
Total Unrealized Loss | $ (25) | $ (1,310) | |
[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 | 6 Months Ended | ||
Jun. 30, 2019USD ($)securityposition | Jun. 30, 2018USD ($)security | Jun. 30, 2019USD ($)securityposition | Jun. 30, 2018USD ($)security | |
Securities in unrealized loss positions | ||||
Number of unrealized loss positions | position | 279 | 279 | ||
Unrealized loss | $ 3,600 | $ 3,600 | ||
Other-than-temporary impairment (OTTI) losses | $ 56 | |||
Equity Securities, FV-NI, Unrealized Gain (Loss) | $ 8,810 | $ (12,611) | $ 42,308 | $ (39,383) |
Debt securities | ||||
Securities in unrealized loss positions | ||||
Number of unrealized loss positions | position | 279 | 279 | ||
Number of securities in unrealized loss positions for 12 months or longer | security | 122 | 122 | ||
Unrealized losses as percentage of fixed income portfolio cost basis | 0.20% | 0.20% | ||
Number of securities with OTTI losses recognized in earnings | security | 1 | 1 | ||
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Recognized in Earnings | $ 0 | $ 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) | $ 12,900 | $ 9,100 | $ 54,800 | $ (4,800) |
INVESTMENTS Debt and Short-term
INVESTMENTS Debt and Short-term Investments (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | |
Other invested assets | |||||
Other investments | $ 55,196 | $ 55,196 | $ 51,542 | ||
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 | 24,834 | 24,834 | 30,140 | ||
Short-term investments, at cost which approximates fair value | 47,353 | 47,353 | 11,550 | ||
Investment In Low Income Housing Tax Credit Partnership Net Of Amortization Member | |||||
Other invested assets | |||||
Other investments | 19,400 | 19,400 | $ 20,300 | ||
Total tax benefit on investments in housing tax credit partnership | 600 | $ 600 | 1,200 | $ 1,100 | |
Qualified Affordable Housing Project Investments, Commitment | 7,100 | 7,100 | |||
Investment in Private Funds | |||||
Other invested assets | |||||
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share, Unfunded Commitments | $ 12,400 | $ 12,400 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) $ in Thousands | Jun. 30, 2019USD ($)security | Dec. 31, 2018USD ($) | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||
Available-for-sale Securities, Debt Securities | $ 1,865,613 | $ 1,760,515 | |
Equity securities | 421,801 | 340,483 | |
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 | 1,865,613 | 1,760,515 | |
Equity securities | 421,801 | 340,483 | |
Marketable Securities | 2,287,414 | 2,100,998 | |
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 | 421,298 | 339,985 | |
Marketable Securities | 421,298 | 339,985 | |
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 | 1,865,613 | 1,760,515 | |
Equity securities | 503 | 498 | |
Marketable Securities | 1,866,116 | 1,761,013 | |
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 | 201,385 | 200,229 | |
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 | 201,385 | 200,229 | |
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 | 31,695 | 31,904 | |
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 | 31,695 | 31,904 | |
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 | 9,112 | 7,639 | |
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 | 9,112 | 7,639 | |
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 | 408,196 | 395,253 | |
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 | 408,196 | 395,253 | |
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 | 151,876 | [1] | 136,723 |
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 | 151,876 | [1] | 136,723 |
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 | 726,798 | 668,679 | |
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 | 726,798 | 668,679 | |
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 | 336,551 | 320,088 | |
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 | $ 336,551 | $ 320,088 | |
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 | 6 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Unpaid losses and LAE at beginning of year: | ||
Gross | $ 1,461,348 | $ 1,271,503 |
Ceded | (364,999) | (301,991) |
Net | 1,096,349 | 969,512 |
Increase (decrease) in incurred losses and LAE: | ||
Current accident year | 239,053 | 222,121 |
Prior accident years | (40,837) | (28,047) |
Total incurred | 198,216 | 194,074 |
Loss and LAE payments for claims incurred: | ||
Current accident year | (23,624) | (16,805) |
Prior accident year | (126,972) | (118,650) |
Total paid | (150,596) | (135,455) |
Net | 1,143,969 | 1,028,131 |
Unpaid losses and LAE at year end | ||
Gross | 1,506,279 | 1,343,248 |
Ceded | (362,310) | (315,117) |
Net | $ 1,143,969 | $ 1,028,131 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
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% | $ 10,254 | $ 8,308 | $ 27,419 | $ 11,327 |
Excess tax benefit on share-based compensation | (2,191) | (924) | (2,932) | (2,067) |
Tax-exempt interest income | (309) | (504) | (654) | (1,085) |
Dividends received deduction | (214) | (169) | (417) | (366) |
ESOP dividends paid deduction | (140) | (145) | (277) | (284) |
Other items, net | 961 | (255) | 1,490 | 948 |
Income tax expense | $ 8,361 | $ 6,311 | $ 24,629 | $ 8,473 |
Reconciliation of income tax expense rate to the U.S. federal tax rate | ||||
U.S. federal tax rate (as a percent) | 21.00% | 21.00% | 21.00% | 21.00% |
Excess tax benefit on share-based compensation | (4.50%) | (2.30%) | (2.30%) | (3.90%) |
Effective rate reduction due to tax exempt interest income (as a percent) | (0.60%) | (1.30%) | (0.50%) | (2.00%) |
Effective rate reduction due to dividend received (as a percent) | (0.40%) | (0.40%) | (0.30%) | (0.70%) |
Effective rate reduction due to dividend paid to ESOP (as a percent) | (0.30%) | (0.40%) | (0.20%) | (0.50%) |
Effective rate reduction due to other items, net (as a percent) | 1.90% | (0.60%) | 1.20% | 1.80% |
Effective Income Tax Rate Reconciliation, Percent, Total | 17.10% | 16.00% | 18.90% | 15.70% |
STOCK BASED COMPENSATION (Detai
STOCK BASED COMPENSATION (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | 50 Months Ended | 60 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | Jun. 30, 2019 | May 06, 2015 | |
Weighted Number of Options Outstanding | |||||||
Outstanding options at the beginning of the period (in shares) | 1,964,880 | 2,257,015 | 2,257,015 | ||||
Options granted (in shares) | 292,150 | 367,500 | |||||
Options exercised (in shares) | (414,470) | (337,000) | |||||
Options canceled/forfeited (in shares) | (33,600) | (5,200) | |||||
Outstanding options at the end of the period (in shares) | 1,808,960 | 2,282,315 | 1,808,960 | 2,282,315 | 1,964,880 | 1,808,960 | |
Exercisable options at the end of the period (in shares) | 672,110 | 996,265 | 672,110 | 996,265 | 672,110 | ||
Weighted Average Exercise Price | |||||||
Outstanding options at the beginning of the period (in dollars per share) | $ 54.24 | $ 46.80 | $ 46.80 | ||||
Options granted (in dollars per share) | 80.36 | 63.27 | |||||
Options exercised (in dollars per share) | 44.70 | 31.60 | |||||
Options canceled/forfeited (in dollars per share) | 57.61 | 62.04 | |||||
Outstanding options at the end of the period (in dollars per share) | $ 60.59 | $ 51.66 | 60.59 | 51.66 | $ 54.24 | $ 60.59 | |
Exercisable options at the end of the period (in dollars per share) | $ 52.17 | $ 44.04 | $ 52.17 | $ 44.04 | $ 52.17 | ||
Weighted Average Remaining Contractual Life | |||||||
Weighted-average remaining contractual term of options outstanding | 5 years 6 months 25 days | 5 years 4 months 2 days | |||||
Weighted-average remaining contractual term of exercisable options | 4 years 2 months 15 days | 3 years 10 months 20 days | |||||
Aggregate Intrinsic Value | |||||||
Options exercised (in dollars) | $ 14,941,000 | $ 11,151,000 | |||||
Outstanding options at the end of the period (in dollars) | $ 45,448,000 | $ 33,224,000 | 45,448,000 | 33,224,000 | $ 45,448,000 | ||
Exercisable options at the end of the period (in dollars) | 22,544,000 | 22,089,000 | $ 22,544,000 | $ 22,089,000 | 22,544,000 | ||
Weighted-average fair value of grants (in dollars per share) | $ 13.33 | $ 10.20 | |||||
Stock-based compensation expenses (in dollars) | 1,400,000 | 1,300,000 | $ 2,400,000 | $ 2,300,000 | |||
Income tax benefit from stock-based compensation (in dollars) | 300,000 | 300,000 | 500,000 | $ 500,000 | |||
Unrecognized stock-based compensation expense (in dollars) | 6,700,000 | $ 6,700,000 | 6,700,000 | ||||
Weighted average grant date assumptions and weighted average fair value | |||||||
Weighted-average fair value of grants (in dollars per share) | $ 13.33 | $ 10.20 | |||||
Risk-free interest rates (as a percent) | 2.42% | 2.69% | |||||
Dividend yield (as a percent) | 2.69% | 3.15% | |||||
Expected volatility (as a percent) | 22.71% | 22.88% | |||||
Expected option life | 4 years 11 months 15 days | 5 years 21 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 | $ 300,000 | $ 200,000 | |||
Unrecognized stock-based compensation expense (in dollars) | $ 1,500,000 | $ 1,500,000 | $ 1,500,000 | ||||
Weighted average grant date assumptions and weighted average fair value | |||||||
RSUs Granted | 15,275 | 45,350 | |||||
RSUs Outstanding | 44,431 | 44,431 | 44,431 | ||||
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) | $ 200,000 | $ 100,000 | $ 300,000 | $ 100,000 | |||
Unrecognized stock-based compensation expense (in dollars) | $ 400,000 | $ 400,000 | $ 400,000 | ||||
Weighted average grant date assumptions and weighted average fair value | |||||||
RSUs Granted | 6,655 | 15,085 | |||||
RSUs Outstanding | 7,402 | 7,402 | 7,402 | ||||
Grant date fair value of RSUs | $ 50,000 | $ 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 | ||||||
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) | 314,080 | 2,217,710 |
OPERATING SEGMENT INFORMATION -
OPERATING SEGMENT INFORMATION - Reconciliation of Segment Totals to Total Earnings (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2019 | Mar. 31, 2019 | Jun. 30, 2018 | Mar. 31, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
REVENUES | ||||||
Net premiums earned | $ 207,541 | $ 196,522 | $ 412,230 | $ 386,549 | ||
Net investment income | 16,998 | 14,577 | 33,563 | 28,809 | ||
Net realized gains | 4,764 | 20,849 | 13,832 | 29,253 | ||
Net unrealized gains (losses) on equity securities | 8,810 | (12,611) | 42,308 | (39,383) | ||
Consolidated revenue | 238,113 | 219,337 | 501,933 | 405,228 | ||
NET EARNINGS | ||||||
Net underwriting income | 14,932 | 14,146 | 37,365 | 31,633 | ||
Net investment income | 16,998 | 14,577 | 33,563 | 28,809 | ||
Net realized gains | 4,764 | 20,849 | 13,832 | 29,253 | ||
Net unrealized gains (losses) on equity securities | 8,810 | (12,611) | 42,308 | (39,383) | ||
General corporate expense and interest on debt | (5,144) | (4,499) | (10,281) | (8,638) | ||
Equity in earnings of unconsolidated investees | 8,468 | 7,100 | 13,782 | 12,266 | ||
Earnings before income taxes | 48,828 | 39,562 | 130,569 | 53,940 | ||
Income tax expense | 8,361 | 6,311 | 24,629 | 8,473 | ||
Net earnings | 40,467 | $ 65,473 | 33,251 | $ 12,216 | 105,940 | 45,467 |
Casualty segment | ||||||
REVENUES | ||||||
Net premiums earned | 138,344 | 129,613 | 275,244 | 255,463 | ||
NET EARNINGS | ||||||
Net underwriting income | 6,939 | 2,854 | 12,282 | 4,415 | ||
Property segment | ||||||
REVENUES | ||||||
Net premiums earned | 39,972 | 37,190 | 78,718 | 72,372 | ||
NET EARNINGS | ||||||
Net underwriting income | (436) | 3,647 | 7,810 | 9,529 | ||
Surety segment | ||||||
REVENUES | ||||||
Net premiums earned | 29,225 | 29,719 | 58,268 | 58,714 | ||
NET EARNINGS | ||||||
Net underwriting income | $ 8,429 | $ 7,645 | $ 17,273 | $ 17,689 |
OPERATING SEGMENT INFORMATION_2
OPERATING SEGMENT INFORMATION - Major Products (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Revenue by major product | ||||
Net premiums earned | $ 207,541 | $ 196,522 | $ 412,230 | $ 386,549 |
Casualty segment | ||||
Revenue by major product | ||||
Net premiums earned | 138,344 | 129,613 | 275,244 | 255,463 |
Casualty segment | Commercial excess and personal umbrella | ||||
Revenue by major product | ||||
Net premiums earned | 34,340 | 30,649 | 66,621 | 60,601 |
Casualty segment | General liability | ||||
Revenue by major product | ||||
Net premiums earned | 25,347 | 23,338 | 49,235 | 46,503 |
Casualty segment | Transportation | ||||
Revenue by major product | ||||
Net premiums earned | 20,508 | 20,648 | 40,912 | 39,823 |
Casualty segment | Professional services | ||||
Revenue by major product | ||||
Net premiums earned | 19,275 | 19,846 | 39,574 | 39,669 |
Casualty segment | Small commercial | ||||
Revenue by major product | ||||
Net premiums earned | 13,315 | 12,901 | 26,503 | 25,791 |
Casualty segment | Executive products | ||||
Revenue by major product | ||||
Net premiums earned | 6,381 | 5,144 | 12,450 | 10,196 |
Casualty segment | Other casualty | ||||
Revenue by major product | ||||
Net premiums earned | 19,178 | 17,087 | 39,949 | 32,880 |
Property segment | ||||
Revenue by major product | ||||
Net premiums earned | 39,972 | 37,190 | 78,718 | 72,372 |
Property segment | Marine | ||||
Revenue by major product | ||||
Net premiums earned | 18,579 | 14,941 | 35,600 | 28,798 |
Property segment | Commercial | ||||
Revenue by major product | ||||
Net premiums earned | 16,275 | 17,856 | 33,150 | 34,807 |
Property segment | Specialty Personal | ||||
Revenue by major product | ||||
Net premiums earned | 4,792 | 4,129 | 9,376 | 8,271 |
Property segment | Other property | ||||
Revenue by major product | ||||
Net premiums earned | 326 | 264 | 592 | 496 |
Surety segment | ||||
Revenue by major product | ||||
Net premiums earned | 29,225 | 29,719 | 58,268 | 58,714 |
Surety segment | Miscellaneous | ||||
Revenue by major product | ||||
Net premiums earned | 11,280 | 11,719 | 22,882 | 23,361 |
Surety segment | Commercial surety product | ||||
Revenue by major product | ||||
Net premiums earned | 7,077 | 6,761 | 13,811 | 13,474 |
Surety segment | Contract | ||||
Revenue by major product | ||||
Net premiums earned | 6,970 | 7,012 | 13,599 | 13,358 |
Surety segment | Energy Surety | ||||
Revenue by major product | ||||
Net premiums earned | $ 3,898 | $ 4,227 | $ 7,976 | $ 8,521 |
LEASES - Components of Lease Ex
LEASES - Components of Lease Expense (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Leases | |||||
Expense associated with operating leases | $ 6,900 | $ 6,800 | $ 6,400 | ||
Operating Lease Cost | $ 1,445 | $ 2,927 | |||
Cash paid for amounts included in the measurement of lease liabilities | |||||
Operating cash flows from operating leases | 1,402 | 2,797 | |||
Right-of-use assets obtained in exchange for new operating lease liabilities | 231 | 951 | |||
Reduction to right-of-use asset resulting from reduction to lease liability | 1,279 | 1,279 | |||
Operating lease right-of-use assets | $ 24,449 | $ 24,449 | |||
Operating lease, right-of-use asset, Statement of Financial Position | us-gaap:OtherAssets | us-gaap:OtherAssets | |||
Operating lease liabilities | $ 26,640 | $ 26,640 | |||
Operating lease liability, Statement of Financial Position | us-gaap:OtherLiabilities | us-gaap:OtherLiabilities | |||
Weighted-average remaining lease term - operating leases | 5 years 1 month 17 days | 5 years 1 month 17 days | |||
Weighted-average discount rate - operating leases | 2.33% | 2.33% | |||
Minimum | |||||
Leases | |||||
Remaining lease terms - operating leases | 1 year | ||||
Maximum | |||||
Leases | |||||
Remaining lease terms - operating leases | 16 years |
LEASES - Future Minimum Lease P
LEASES - Future Minimum Lease Payments (Details) - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
Future minimum lease payments under non-cancellable leases | ||
2019 | $ 2,915 | |
2020 | 5,914 | |
2021 | 5,819 | |
2022 | 5,753 | |
2023 | 4,297 | |
Thereafter | 3,700 | |
Total future minimum lease payments | 28,398 | |
Less imputed interest | (1,758) | |
Total operating lease liability | $ 26,640 | |
2019 | $ 5,911 | |
2020 | 6,019 | |
2021 | 5,924 | |
2022 | 5,884 | |
2023 | 4,459 | |
Thereafter | 3,968 | |
Total future minimum lease payments | $ 32,165 |