RLI Sets Record Year; Exits Construction Market

January 26, 2006

Peoria, Illinois-based RLI Corp. recently reported record 2005 net earnings, while at the same time announcing the company’s decision to exit the construction market.

RLI said that net earnings were $107.1 million compared to $73.0 million reported last year. Additional significant accomplishments for the 2005 included: $96.5 million of operating earnings; 86.0 combined ratio across all segments; 10.1percent growth in book value per share, to $27.12; $198 million of net operating cash flow; and, 14.0 percent growth in investment income.

RLI Corp. President & CEO Jonathan E. Michael said that RLI generated a 21.6 percent shareholder return from dividends and stock price appreciation in 2005. He said the company also delivered an 86.0 combined ratio, marking the tenth consecutive year RLI has achieved a combined ratio below 100.

However, RLI also listed a $12.2 million pretax underwriting loss attributable to construction coverage in the fourth quarter. During the quarter, RLI withdrew from certain construction coverages within the property segment due to continued poor performance.

Although most of the company’s products experienced very strong results, its construction book was a notable exception, according to RLI’s president and CEO.

RLI explained that the construction market was only about 2 percent of its business, $17 million out of 765 million.

“We were never able to find the right ‘recipe’ for the construction market or make it a consistently profitable part of our business,” said Aaron Jacoby, RLI vice president, Corporate Development.

Jacoby added that the company will continue to service construction customers, but will not write new or renewal policies.

“Since we are insuring the actual building or structure, once the project is completed, there is no opportunity for renewal business,” Jacoby explained.

Along with construction losses, RLI also listed final quarter results affected by Hurricane Wilma. Net earnings for the fourth quarter reported by RLI were $18.1 million versus $29.5 million last year.

The 2005 fourth quarter loss was driven by Hurricane Wilma and the construction loss, and was partially offset by favorable reserve development.

For additional information, contact RLI Vice President, Corporate Development, Aaron Jacoby at (309) 693-5880 or at aaron_jacoby@rlicorp.com, or visit our website at http://www.rlicorp.com/

Source: RLI

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