A month has gone by since the last earnings report for RLI Corp. (RLI) . Shares have added about 1% in that time frame, underperforming the S&P 500. Will the recent positive trend continue leading up to its next earnings release, or is RLI Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts. RLI's Q1 Earnings Top Estimates on Strong Segmental Res ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) RLI Corp.'s Q1 2024 and 2023 unaudited interim financial statements detail earnings, balance sheets, equity, cash flows, and related accounting notes [Condensed Consolidated Statements of Earnings and Comprehensive Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20and%20Comprehensive%20Earnings) RLI Corp. saw increased Q1 2024 net earnings and revenue from higher premiums and investment income, but comprehensive earnings fell due to fixed income losses | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | Change (%) | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Net premiums earned | **$360.7** | $307.7 | **17.2%** | | Consolidated revenue | **$444.8** | $364.9 | **21.9%** | | Net earnings | **$127.9** | $98.8 | **29.4%** | | Basic net earnings per share | **$2.80** | $2.17 | **29.0%** | | Diluted net earnings per share | **$2.77** | $2.15 | **28.8%** | | Comprehensive earnings | **$115.2** | $136.5 | **-15.6%** | | Net unrealized gains on equity securities | **$45.3** | $15.5 | **192.4%** | | Net investment income | **$32.8** | $27.1 | **21.3%** | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) RLI Corp.'s total assets and shareholders' equity grew from December 2023 to March 2024, driven by investments and cash, with liabilities also rising from unpaid losses | Metric | March 31, 2024 (in billions) | December 31, 2023 (in billions) | Change (%) | | :------------------------------------------ | :--------------------------- | :------------------------------ | :--------- | | Total Assets | **$5.34** | $5.18 | **3.05%** | | Total Liabilities | **$3.82** | $3.77 | **1.35%** | | Total Shareholders' Equity | **$1.52** | $1.41 | **7.59%** | | Total investments and cash | **$3.76** | $3.68 | **2.21%** | | Unpaid losses and settlement expenses | **$2.53** | $2.45 | **3.52%** | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity significantly increased from January to March 2024, driven by net earnings and share-based compensation, partially offset by comprehensive losses and dividends | Metric | March 31, 2024 (in millions) | January 1, 2024 (in millions) | Change (%) | | :-------------------------------- | :--------------------------- | :---------------------------- | :--------- | | Total Shareholders' Equity | **$1,520.8** | $1,413.5 | **7.59%** | | Net earnings (Q1 2024) | **$127.9** | N/A | N/A | | Other comprehensive earnings (loss), net of tax (Q1 2024) | **$(12.7)** | N/A | N/A | | Share-based compensation (Q1 2024) | **$4.4** | N/A | N/A | | Dividends and dividend equivalents (Q1 2024) | **$(12.3)** | N/A | N/A | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) RLI Corp. saw a net cash increase in Q1 2024, primarily from strong operating cash flows, offsetting investing and financing activities | Cash Flow Activity | Q1 2024 (in millions) | Q1 2023 (in millions) | Change (%) | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Net cash provided by operating activities | **$70.9** | $69.2 | **2.5%** | | Net cash used in investing activities | **$(53.1)** | $(57.8) | **-8.2%** | | Net cash used in financing activities | **$(9.7)** | $(11.5) | **-14.9%** | | Net increase (decrease) in cash | **$8.1** | $(0.05) | N/A | | Cash at March 31, | **$44.6** | $22.8 | **95.7%** | [Notes to Unaudited Condensed Consolidated Interim Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Interim%20Financial%20Statements) This section details disclosures for interim financial statements, covering accounting policies, investments, loss development, income taxes, stock compensation, segments, leases, and acquisitions [1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=1.%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Interim financial statements follow GAAP, with no material 2024 impact from new standards, and comprehensive earnings showed unrealized losses due to higher interest rates - ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) are prospective accounting standards effective for fiscal years beginning after December 15, 2024, and are expected to be disclosure-related without material financial impact[23](index=23&type=chunk)[24](index=24&type=chunk) - Allowances for uncollectible reinsurance balances were **$16 million** (paid) and **$11 million** (unpaid) at March 31, 2024, with no write-offs in Q1 2024[28](index=28&type=chunk) - Goodwill and intangible assets totaled **$53.6 million** at March 31, 2024, with no impairment identified[29](index=29&type=chunk) - Other comprehensive earnings (loss), net of tax, was **$(12.7) million** in Q1 2024, compared to **$37.7 million** in Q1 2023, primarily due to unrealized losses on fixed income securities from increased interest rates[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - Fair value measurements are categorized into **Level 1** (unadjusted quoted prices in active markets), **Level 2** (observable inputs), and **Level 3** (unobservable inputs)[36](index=36&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) [2. INVESTMENTS](index=17&type=section&id=2.%20INVESTMENTS) The investment portfolio, primarily fixed income and equity, saw Q1 2024 net realized gains from equities, while fixed income had losses, and credit loss allowance decreased | Sales Type | Q1 2024 Net Realized Gain (Loss) (in millions) | Q1 2023 Net Realized Gain (Loss) (in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Fixed income securities | **$(0.5)** | $(0.05) | | Equity securities | **$7.1** | $2.3 | | Investment Type (March 31, 2024) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | Total (in millions) | | :------------------------------- | :-------------------- | :-------------------- | :-------------------- | :------------------ | | Fixed income securities | $— | **$2,800.8** | **$62.6** | **$2,863.3** | | Equity securities | **$641.8** | $— | **$1.6** | **$643.4** | - The allowance for credit losses on available-for-sale fixed income securities decreased from **$0.3 million** at January 1, 2024, to **$0.2 million** at March 31, 2024, with no losses recognized on securities for which the intent to hold until recovery was lost in Q1 2024, compared to **$2 million** in Q1 2023[57](index=57&type=chunk) - As of March 31, 2024, the fixed income portfolio contained 1,336 securities with **$228 million** in unrealized losses, representing **7%** of the portfolio's cost basis, with **86.4%** of these securities rated NAIC 1 (AAA/AA/A)[58](index=58&type=chunk)[61](index=61&type=chunk) - Other invested assets totaled **$59 million** at March 31, 2024, including **$9 million** in LIHTC interests, **$12 million** in HTC investment, and **$27 million** in private funds[62](index=62&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[68](index=68&type=chunk) - Investments in unconsolidated investees were **$66 million** at March 31, 2024, primarily in Prime Holdings Insurance Services, Inc[69](index=69&type=chunk) - Cash and short-term investments increased to **$45 million** and **$147 million**, respectively, at March 31, 2024, from **$36 million** and **$135 million** at December 31, 2023[70](index=70&type=chunk) [3. HISTORICAL LOSS AND LAE DEVELOPMENT](index=24&type=section&id=3.%20HISTORICAL%20LOSS%20AND%20LAE%20DEVELOPMENT) RLI Corp. reported **$42.4 million** favorable development on prior years' loss reserves in Q1 2024, mainly from 2016-2019 and 2023 accident years, a decrease from **$51.8 million** in Q1 2023 | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :-------------------------------- | :-------------------- | :-------------------- | | Favorable development on prior accident years | **$42.4** | $51.8 | - Drivers of favorable development in Q1 2024 included Marine, commercial property, personal umbrella, general liability, executive products, transportation, and surety, with no products experiencing significant adverse development in either period[71](index=71&type=chunk)[72](index=72&type=chunk) [4. INCOME TAXES](index=24&type=section&id=4.%20INCOME%20TAXES) The effective tax rate for Q1 2024 increased to **20.1%** from **19.5%** in Q1 2023, primarily due to higher pretax income reducing the proportional impact of tax-favored adjustments | Metric | Q1 2024 | Q1 2023 | | :---------------- | :------ | :------ | | Effective tax rate | **20.1%** | 19.5% | - The increase in the effective tax rate was due to higher pretax income decreasing the percentage impact of tax-favored adjustments[73](index=73&type=chunk) [5. STOCK BASED COMPENSATION](index=25&type=section&id=5.%20STOCK%20BASED%20COMPENSATION) RLI Corp.'s 2023 LTIP replaced the 2015 plan, with Q1 2024 equity award compensation expense decreasing, and **$5 million** unrecognized expense to be recognized over **2.63 years** - The 2023 RLI Corp. Long-Term Incentive Plan (LTIP) replaced the 2015 LTIP, with **4,004,891 shares** available for equity-based compensation, and **28,475 awards** granted in Q1 2024[77](index=77&type=chunk) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :-------------------------------- | :-------------------- | :-------------------- | | Total compensation expense (equity awards) | **$1.8** | $2.5 | | Total income tax benefit | **$0.3** | $0.4 | - Total unrecognized compensation expense relating to outstanding and unvested awards was **$5 million**, to be recognized over a weighted average vesting period of **2.63 years**[78](index=78&type=chunk) - As of March 31, 2024, **1,574,750 stock options** were outstanding with a weighted average exercise price of **$95.04**, and **45,650 nonvested Restricted Stock Units (RSUs)** with a weighted average grant date fair value of **$125.43**[82](index=82&type=chunk)[85](index=85&type=chunk) [6. OPERATING SEGMENT INFORMATION](index=28&type=section&id=6.%20OPERATING%20SEGMENT%20INFORMATION) RLI Corp. saw increased Q1 2024 net premiums earned across all segments, led by Property, which also drove overall underwriting income growth, while Property's combined ratio improved | Segment | Q1 2024 Net Premiums Earned (in millions) | Q1 2023 Net Premiums Earned (in millions) | Change (%) | | :-------- | :-------------------------------------- | :-------------------------------------- | :--------- | | Casualty | **$198.3** | $186.0 | **7%** | | Property | **$129.4** | $88.8 | **46%** | | Surety | **$33.0** | $32.9 | **0%** | | Total | **$360.7** | $307.7 | **17%** | | Segment | Q1 2024 Net Underwriting Income (in millions) | Q1 2023 Net Underwriting Income (in millions) | Change (%) | | :-------- | :------------------------------------------ | :------------------------------------------ | :--------- | | Casualty | **$13.7** | $31.8 | **-57%** | | Property | **$57.7** | $28.4 | **103%** | | Surety | **$6.3** | $7.7 | **-18%** | | Total | **$77.7** | $67.9 | **14%** | | Segment | Q1 2024 Combined Ratio | Q1 2023 Combined Ratio | | :-------- | :--------------------- | :--------------------- | | Casualty | **93.2** | 82.9 | | Property | **55.3** | 68.0 | | Surety | **80.8** | 76.7 | | Total | **78.5** | 77.9 | [7. LEASES](index=30&type=section&id=7.%20LEASES) RLI Corp.'s Q1 2024 operating lease costs decreased, while ROU assets and liabilities increased, with obligations primarily for branch office facilities | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | Change (%) | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Total lease cost | **$1.4** | $1.6 | **-10.3%** | | Operating lease ROU assets (Mar 31) | **$16.1** | N/A | N/A | | Operating lease liabilities (Mar 31) | **$17.4** | N/A | N/A | - Operating lease ROU assets increased to **$16.1 million** at March 31, 2024, from **$13.7 million** at December 31, 2023, and operating lease liabilities increased to **$17.4 million** at March 31, 2024, from **$14.9 million** at December 31, 2023[89](index=89&type=chunk) - The weighted-average remaining lease term for operating leases was **6.16 years**, with a weighted-average discount rate of **3.48%** as of March 31, 2024[89](index=89&type=chunk) [8. ACQUISITIONS AND DISPOSITIONS](index=30&type=section&id=8.%20ACQUISITIONS%20AND%20DISPOSITIONS) RLI Corp. recognized a **$14 million** gain in Q1 2023 from the Maui Jim, Inc. sale escrow payout, with no similar gains in Q1 2024 - A **$14 million** gain was recognized in Q1 2023 from the working capital escrow payout of the Maui Jim, Inc. sale[90](index=90&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses RLI Corp.'s Q1 2024 financial condition and operations, covering business overview, results, investments, income taxes, and liquidity, highlighting key drivers [Overview](index=32&type=section&id=OVERVIEW) RLI Corp. is a specialty insurer focused on niche property, casualty, and surety markets, achieving its 28th consecutive year of underwriting profitability in 2023 with an **88.2** average combined ratio - RLI Corp. is a U.S.-based specialty insurance company focused on niche markets, underwriting property, casualty, and surety products[93](index=93&type=chunk) - The company achieved its **28th consecutive year** of underwriting profitability in 2023, with an average combined ratio of **88.2** over that period[93](index=93&type=chunk) - Key performance measures include underwriting income and combined ratio (loss ratio + expense ratio)[94](index=94&type=chunk)[103](index=103&type=chunk) - The company's primary focus is on underwriting profitability, with a secondary focus on premium growth where underwriting profit exists[100](index=100&type=chunk) [Results of Operations](index=36&type=section&id=RESULTS%20OF%20OPERATIONS) RLI Corp. reported improved Q1 2024 net earnings, driven by a **17%** increase in net premiums earned and equity gains, with underwriting income rising to **$78 million** despite a **78.5%** combined ratio - Net premiums earned increased **17%** in Q1 2024, driven by property and casualty segments[108](index=108&type=chunk) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | Change (%) | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Net earnings | **$128.0** | $99.0 | **29.3%** | | Comprehensive earnings | **$115.0** | $137.0 | **-16.1%** | | Underwriting income | **$78.0** | $68.0 | **14.7%** | | Combined Ratio | **78.5%** | 77.9% | **+0.6 pts** | | Loss Ratio | **39.9%** | 37.2% | **+2.7 pts** | | Expense Ratio | **38.6%** | 40.7% | **-2.1 pts** | - Q1 2024 results included **$12 million** of pretax storm losses (vs **$4 million** in Q1 2023) and **$42 million** of favorable development on prior years' loss reserves (vs **$52 million** in Q1 2023)[109](index=109&type=chunk) - Gross premiums written increased **$54 million** (**13%**) in Q1 2024, with growth across all three segments: Casualty (**+13%**), Property (**+14%**), and Surety (**+12%**)[116](index=116&type=chunk)[117](index=117&type=chunk) - Casualty underwriting income decreased due to lower prior accident years' reserve releases, Property underwriting income significantly increased due to larger reserve releases and low attritional losses, despite higher storm losses, and Surety underwriting income decreased due to reinsurance reinstatement premium and higher expense ratio[123](index=123&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) [Investment Income](index=42&type=section&id=Investment%20Income) Net investment income increased **21%** in Q1 2024 due to higher interest rates and an expanded asset base, with the diversified portfolio comprising **76.2%** fixed income and **17.1%** equity - Net investment income increased by **21%** to **$33 million** in Q1 2024, driven by higher interest rates and an increased average asset base[131](index=131&type=chunk) | Investment Type (March 31, 2024) | % of Total Fair Value | | :------------------------------- | :-------------------- | | Fixed income | **76.2%** | | Equity securities | **17.1%** | | Short-term investments | **3.9%** | | Other invested assets | **1.6%** | | Cash | **1.2%** | - The average fixed income duration was **4.6 years** at March 31, 2024, and the equity portfolio increased by **$53 million** due to positive market performance[133](index=133&type=chunk) - The equity portfolio had a dividend yield of **1.9%** at March 31, 2024, compared to **1.4%** for the S&P 500 index, benefiting from a **13.1%** effective tax rate on dividends due to the corporate dividend-received-deduction[148](index=148&type=chunk) [Income Taxes](index=42&type=section&id=Income%20Taxes) The effective tax rate for Q1 2024 increased to **20.1%** from **19.5%** in Q1 2023, primarily due to higher pretax income reducing the proportional impact of tax-favored adjustments | Metric | Q1 2024 | Q1 2023 | | :---------------- | :------ | :------ | | Effective tax rate | **20.1%** | 19.5% | - The higher effective tax rate in Q1 2024 was due to increased pretax income, which decreased the percentage impact of tax-favored adjustments[134](index=134&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) RLI Corp. generated **$70.9 million** in Q1 2024 operating cash flows, increasing net cash, and maintains **$100 million** in debt, with sufficient liquidity expected from its diversified investment portfolio | Cash Flow Activity | Q1 2024 (in millions) | Q1 2023 (in millions) | | :-------------------------------- | :-------------------- | :-------------------- | | Operating cash flows | **$70.9** | $69.2 | | Net increase (decrease) in cash | **$8.1** | $(0.05) | - As of March 31, 2024, RLI Corp. had **$100 million** in debt outstanding, including **$50 million** from a revolving line of credit with PNC Bank and **$50 million** borrowed from the Federal Home Loan Bank of Chicago (FHLBC)[138](index=138&type=chunk) - The investment portfolio increased by **$81 million** from December 31, 2023, to March 31, 2024, and cash and other investments maturing within one year totaled approximately **$378 million**[140](index=140&type=chunk)[142](index=142&type=chunk) - The capital structure at March 31, 2024, consisted of **$100 million** in debt and **$1.5 billion** in shareholders' equity, with debt comprising **6%** of total capital[151](index=151&type=chunk) - RLI Corp. paid a regular quarterly cash dividend of **$0.27 per share** on March 20, 2024, marking **48 consecutive years** of dividend increases[152](index=152&type=chunk) - Ordinary dividends from the principal insurance subsidiary (RLI Ins.) to RLI Corp. were **$17 million** in Q1 2024, and as of March 31, 2024, **$5 million** of RLI Ins.'s net assets were unrestricted for ordinary dividend distribution[154](index=154&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No material changes to RLI Corp.'s market risk exposure from the 2023 10-K, with primary risks remaining equity price and interest rate, focused on high credit quality securities - No material changes to market risk exposure from the 2023 Annual Report on Form 10-K[156](index=156&type=chunk) - Primary market risks are **equity price risk** and **interest rate risk**, with investments consistently in high credit quality, investment-grade securities[157](index=157&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) RLI Corp.'s management confirmed effective disclosure controls and procedures as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were deemed **effective** as of March 31, 2024[158](index=158&type=chunk) - No material changes were made to internal control over financial reporting during the last fiscal quarter[160](index=160&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) There were no material changes to report regarding legal proceedings - No material changes to report[163](index=163&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to report regarding risk factors - No material changes to report[164](index=164&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the reporting period - Not applicable[165](index=165&type=chunk) [Item 3. Defaults upon Senior Securities](index=50&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This item is not applicable for the reporting period - Not applicable[166](index=166&type=chunk) [Item 4. Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period - Not applicable[167](index=167&type=chunk) [Item 5. Other Information](index=50&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q1 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[169](index=169&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and Inline XBRL documents | Exhibit Number | Description of Document | | :------------- | :---------------------------------------------------------- | | 31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | Inline XBRL Instance Document | | 101.SCH | Inline XBRL Taxonomy Extension Schema | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | | 101.DEF | Inline XBRL Taxonomy Definition Linkbase | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | | 104 | Cover Page Interactive Data File | [SIGNATURES](index=52&type=section&id=Signatures) This section contains the required Form 10-Q signatures, certifying its submission on behalf of RLI Corp. by its Chief Financial Officer - The report was signed by **Todd W. Bryant**, Chief Financial Officer (Principal Financial and Chief Accounting Officer) on **April 24, 2024**[175](index=175&type=chunk)

RLI Corporation (NYSE:RLI) Q1 2024 Earnings Conference Call April 23, 2024 11:00 AM ET Company Participants Aaron Diefenthaler - CIO & Treasurer Craig Kliethermes - President, CEO & Director Todd Bryant - CFO Jen Klobnak - COO Conference Call Participants Charles Peters - Raymond James & Associates Andrew Andersen - Jefferies Scott Heleniak - RBC Capital Markets Fiona Diamond - William Blair & Company Operator Good morning, and welcome to the RLI Corp. First Quarter Earnings Teleconference. After management ...

EXHIBIT 99.1 RLI REPORTS FIRST QUARTER 2024 RESULTS PEORIA, ILLINOIS, April 22, 2024 – RLI Corp. (NYSE: RLI) – RLI Corp. reported first quarter 2024 net earnings of $127.9 million ($2.77 per share), compared to $98.8 million ($2.15 per share) for the first quarter of 2023. Operating earnings(1) for the first quarter of 2024 were $87.4 million ($1.89 per share), compared to $75.0 million ($1.63 per share) for the same period in 2023. | | First Quarter | | | | --- | --- | --- | --- | | Earnings Per Diluted Sh ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) RLI Corp. is a specialty insurer founded in 1965, operating through three subsidiaries across Casualty, Property, and Surety segments, focusing on underwriting profit and conservative investments [Company and Market Overview](index=3&type=section&id=Company%20and%20Market%20Overview) RLI Corp. underwrites specialty P&C products through subsidiaries, focusing on admitted and E&S markets for unique risks - RLI Corp. operates through three insurance companies: **RLI Insurance Company** (admitted lines), **Mt. Hawley Insurance Company** (excess and surplus lines), and **Contractors Bonding and Insurance Company** (admitted lines)[10](index=10&type=chunk) 2023 Gross Premiums Written by Market | Market | Gross Premiums Written (2023) | Percentage of Total | | :--- | :--- | :--- | | Specialty Admitted | $992 million | 55% | | Excess and Surplus | $794 million | 44% | | Specialty Reinsurance | $21 million | 1% | [Business Segments](index=4&type=section&id=Business%20Segments) Operations are segmented into Casualty (59% of net premiums earned), Property (31%), and Surety (10%), each with distinct product offerings Net Premiums Earned by Segment (2021-2023) | Segment | 2023 Net Premiums Earned | % of Total (2023) | 2022 Net Premiums Earned | 2021 Net Premiums Earned | | :--- | :--- | :--- | :--- | :--- | | Casualty | $758,346,000 | 59% | $711,832,000 | $633,639,000 | | Property | $401,530,000 | 31% | $307,886,000 | $231,837,000 | | Surety | $134,430,000 | 10% | $124,718,000 | $115,427,000 | | **Total** | **$1,294,306,000** | **100%** | **$1,144,436,000** | **$980,903,000** | - The Casualty segment offers diverse products including commercial excess, personal umbrella, transportation, and professional services[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) - The Property segment primarily covers commercial property, including E&S lines for fire, earthquake, and wind, alongside marine and specialized homeowners' insurance[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - The Surety segment provides commercial, transactional (e.g., license and permit bonds), and contract bonds for small to medium-sized contractors[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) [Marketing, Competition, and Ratings](index=8&type=section&id=Marketing%2C%20Competition%2C%20and%20Ratings) RLI distributes products via brokers and agents, competing on service and pricing, maintaining strong financial strength ratings like **A+ from AM Best** - The company's primary distribution channels are wholesale/retail brokers, independent agents, and carrier partners[32](index=32&type=chunk) - RLI competes on innovative coverages, service quality, and fair pricing, prioritizing underwriting standards over market share[38](index=38&type=chunk) Financial Strength Ratings (as of Dec 31, 2023) | Rating Agency | RLI Ins., Mt. Hawley, CBIC | Rating Description | | :--- | :--- | :--- | | AM Best | A+ | Superior | | Standard & Poor's | A | Strong | | Moody's | A2 | Low Credit Risk | [Reinsurance](index=9&type=section&id=Reinsurance) RLI uses reinsurance to diversify risk, limit losses, and reduce volatility, ceding **$378.9 million** in premiums in 2023 Premiums Written and Earned (2021-2023) | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Premiums Written** | | | | | Direct and Assumed | $1,806,660 | $1,565,486 | $1,347,354 | | Reinsurance ceded | ($378,913) | ($323,950) | ($289,821) | | **Net** | **$1,427,747** | **$1,241,536** | **$1,057,533** | | **Premiums Earned** | | | | | Direct and Assumed | $1,699,419 | $1,460,845 | $1,253,296 | | Reinsurance ceded | ($405,113) | ($316,409) | ($272,393) | | **Net** | **$1,294,306** | **$1,144,436** | **$980,903** | 2024 Catastrophe Coverage (in millions) | Peril | First-Dollar Retention | Limit | | :--- | :--- | :--- | | California earthquake | $25 | $850 | | Non-California earthquake | $50 | $850 | | Other perils (incl. hurricane) | $50 | $750 | - Based on the January 1, 2024 treaty, there is a **99.6% likelihood** that net loss from a single catastrophic event will be less than **8.0% of policyholders' statutory surplus**[55](index=55&type=chunk) [Operating Ratios](index=14&type=section&id=Operating%20Ratios) RLI maintains a conservative capital position with a **0.9 to 1** premiums-to-surplus ratio and a strong **86.6 GAAP combined ratio** in 2023 Premiums to Surplus Ratio (2019-2023) | Year | Statutory Net Premiums Written | Policyholders' Surplus | Ratio | | :--- | :--- | :--- | :--- | | 2023 | $1,427,747,000 | $1,520,135,000 | 0.9 to 1 | | 2022 | $1,241,536,000 | $1,407,925,000 | 0.9 to 1 | | 2021 | $1,057,533,000 | $1,240,649,000 | 0.9 to 1 | | 2020 | $892,088,000 | $1,121,592,000 | 0.8 to 1 | | 2019 | $860,337,000 | $1,029,671,000 | 0.8 to 1 | Combined Ratio (2019-2023) | Year | Loss Ratio | Expense Ratio | Combined Ratio | | :--- | :--- | :--- | :--- | | 2023 | 46.7 | 39.9 | 86.6 | | 2022 | 44.9 | 39.5 | 84.4 | | 2021 | 46.5 | 40.3 | 86.8 | | 2020 | 51.2 | 40.8 | 92.0 | | 2019 | 49.3 | 42.6 | 91.9 | [Investments](index=15&type=section&id=Investments) RLI's investment strategy prioritizes capital preservation and book value growth, with **78%** in fixed income and **16%** in equity as of 2023 - The investment strategy prioritizes capital preservation and book value growth through total return, with no derivatives in the portfolio[62](index=62&type=chunk) Investment Portfolio Allocation (as of Dec 31, 2023) | Asset Class | Percentage of Total Portfolio | | :--- | :--- | | Fixed Income | 78% | | Equity | 16% | | Cash & Short-term | 5% | | Other Invested Assets | 1% | - As of December 31, 2023, **81%** of the fixed income portfolio was rated 'A' or better, with **58%** rated 'AA' or better[64](index=64&type=chunk) [Regulation](index=15&type=section&id=Regulation) RLI and its subsidiaries are subject to extensive state regulation, primarily by the IDOI, covering solvency, market conduct, and dividend payments - The company is primarily regulated at the state level, with the **Illinois Department of Insurance (IDOI)** as its principal regulator[70](index=70&type=chunk) - State regulations restrict insurance subsidiaries' ability to pay dividends to RLI Corp., requiring prior approval for extraordinary dividends[71](index=71&type=chunk) - As of December 31, 2023, RLI's principal insurance subsidiary had **$1.5 billion** in statutory capital, over five times its **$273 million** authorized control level RBC[74](index=74&type=chunk) [Human Capital](index=21&type=section&id=Human%20Capital) RLI employed **1,099 associates** in 2023, fostering an ownership culture through ESOP and LTIP, with insiders owning **9%** of shares - The company's workforce grew to **1,099 employees** in 2023 from **1,001** in 2022, with an average tenure of **8.8 years**[92](index=92&type=chunk) - An **Employee Stock Ownership Plan (ESOP)** and **long-term incentive plan (LTIP)** align employee and shareholder interests[97](index=97&type=chunk) - As of December 31, 2023, insiders owned **9%** of RLI Corp. shares[97](index=97&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) RLI faces risks from industry cyclicality, competition, producer concentration, inadequate loss reserves, catastrophes, climate change, and cybersecurity threats [Insurance Industry Risks](index=23&type=section&id=Insurance%20Industry%20Risks) RLI faces P&C industry cyclicality, competition, producer concentration (**42%** from six entities), geographic concentration, and catastrophic loss unpredictability - The property and casualty insurance industry is cyclical, with results fluctuating due to competitive pressures, loss costs, and economic conditions[100](index=100&type=chunk) - In 2023, **42%** of gross premiums written were generated through six producer entities, indicating concentration risk[104](index=104&type=chunk) - Business is geographically concentrated, with **57%** of 2023 direct premiums earned from Florida (**20%**), California (**17%**), Texas (**11%**), and New York (**9%**)[105](index=105&type=chunk) - Estimating loss reserves is inherently uncertain; if actual losses exceed reserves, profitability will be negatively impacted[119](index=119&type=chunk)[120](index=120&type=chunk) - The company is exposed to unpredictable catastrophic events, and climate change may increase the frequency and severity of weather-related losses[125](index=125&type=chunk)[128](index=128&type=chunk) [Financial and Investment Risks](index=31&type=section&id=Financial%20and%20Investment%20Risks) RLI's financial performance is exposed to adverse economic conditions, dividend restrictions from subsidiaries, and investment portfolio market fluctuations - Adverse economic conditions can reduce demand for insurance products, as premiums depend on customer revenues, payroll, and construction spending[132](index=132&type=chunk) - RLI Corp. relies on dividends from its insurance subsidiaries, which are restricted by state laws, potentially limiting parent company cash flow[134](index=134&type=chunk) - The investment portfolio's value can fluctuate due to interest rate changes, credit risk, and stock market movements, impacting financial condition[136](index=136&type=chunk) [Operational Risks](index=33&type=section&id=Operational%20Risks) Operational risks include internal procedure failures, talent retention, third-party vendor reliance, cybersecurity threats, litigation, and potential pandemics - The company's success depends on managing operational risks like fraud, errors, and compliance failures through its **enterprise risk management (ERM)** framework[137](index=137&type=chunk) - The business depends on attracting and retaining experienced underwriting and claims talent[140](index=140&type=chunk) - RLI relies on third-party vendors for key components like catastrophe modeling software and claims processing, creating dependency risk[141](index=141&type=chunk) - Cybersecurity threats pose significant risk, potentially disrupting operations, compromising data, and leading to litigation and financial penalties[144](index=144&type=chunk)[146](index=146&type=chunk) [Unresolved Staff Comments](index=39&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[153](index=153&type=chunk) [Cybersecurity](index=39&type=section&id=Item%201C.%20Cybersecurity) RLI manages cybersecurity risks using the NIST Framework, with oversight from the Board's audit committee and a management risk committee - The company's cybersecurity risk management is based on the **NIST Cybersecurity Framework**[154](index=154&type=chunk) - The Board's audit committee provides primary cybersecurity oversight, receiving quarterly updates from the **CIO/CISO**[156](index=156&type=chunk) - A management risk committee, chaired by the CEO, provides management-level oversight of cybersecurity risks[157](index=157&type=chunk) [Properties](index=41&type=section&id=Item%202.%20Properties) RLI owns its Peoria, Illinois headquarters, featuring a **1.8-megawatt solar field**, while other offices are leased - RLI owns its **173,000 square foot** corporate headquarters on a **23-acre campus** in Peoria, Illinois[162](index=162&type=chunk) - The Peoria campus features a **1.8-megawatt solar field** designed to cover the headquarters' annual electrical needs[163](index=163&type=chunk) [Legal Proceedings](index=41&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is detailed in Note 10 to the Consolidated Financial Statements - Details on legal proceedings are available in **Note 10** to the Consolidated Financial Statements[164](index=164&type=chunk) [Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[165](index=165&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) RLI common stock trades on NYSE, boasts **190 consecutive quarterly dividends**, and a **17.7% five-year annualized total return**, outperforming benchmarks - RLI has paid dividends for **190 consecutive quarters** and increased its quarterly dividend for **48 consecutive years**[167](index=167&type=chunk) - A special cash dividend of **$2.00 per share** was paid in December 2023, compared to **$7.00 per share** in December 2022[167](index=167&type=chunk) Five-Year Annualized Total Return Comparison | Index | 5-Year Annualized Total Return | | :--- | :--- | | RLI | 17.7% | | S&P 500 | 15.7% | | S&P 500 P&C Index | 15.7% | - The board terminated its **$100 million** share repurchase program in 2023, with no shares repurchased during the year[173](index=173&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) RLI achieved its **28th consecutive year of underwriting profitability** with an **86.6 combined ratio** in 2023, driven by **15% gross premium growth** and **40% net investment income increase** [Overview and Key Performance Measures](index=43&type=section&id=Overview%20and%20Key%20Performance%20Measures) RLI, a specialty insurer, achieved **28 consecutive years of underwriting profitability**, with **$173.2 million** in underwriting income in 2023 - The company achieved its **28th consecutive year of underwriting profitability** in 2023, with a **28-year average combined ratio of 88.2**[176](index=176&type=chunk) Reconciliation of Net Earnings to Underwriting Income | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net earnings | $304,611 | $583,411 | | Earnings before income taxes | $377,265 | $720,678 | | **Underwriting income** | **$173,185** | **$178,216** | [Critical Accounting Policies](index=43&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant estimates for unpaid losses, investment valuation, reinsurance recoverability, and deferred policy acquisition costs - Critical accounting policies involve significant estimates for unpaid losses, investment valuation, reinsurance balances, deferred policy acquisition costs, and deferred taxes[182](index=182&type=chunk) - Loss reserves are estimates for reported (case) and incurred but not yet reported (IBNR) claims, involving significant judgment and subject to economic and legal variables[183](index=183&type=chunk)[187](index=187&type=chunk) - The company uses multiple actuarial methods, including Paid Loss Development, Incurred Loss Development, and Bornhuetter/Ferguson (BF), weighted by accident year maturity and product characteristics[201](index=201&type=chunk)[211](index=211&type=chunk) [Results of Operations](index=59&type=section&id=Results%20of%20Operations) Consolidated revenue was **$1.5 billion** in 2023, with **13% net premium growth**, **$173 million** underwriting income, and **40% net investment income increase** Consolidated Revenue (2022-2023) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net premiums earned | $1,294,306 | $1,144,436 | | Net investment income | $120,383 | $86,078 | | Net realized gains | $32,518 | $588,515 | | Net unrealized gains (losses) on equity securities | $64,787 | ($121,037) | | **Total consolidated revenue** | **$1,511,994** | **$1,697,992** | Net Earnings (2022-2023) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Underwriting income | $173,185 | $178,216 | | Earnings before income taxes | $377,265 | $720,678 | | **Net earnings** | **$304,611** | **$583,411** | - Gross premiums written increased by **15%** in 2023, with all three segments contributing, notably **40% growth** in the Property segment[251](index=251&type=chunk)[257](index=257&type=chunk)[262](index=262&type=chunk) - The 2023 combined ratio was **86.6**, up from **84.4** in 2022, driven by higher net retained catastrophe losses, including **$49 million** from Hawaiian wildfires[252](index=252&type=chunk)[253](index=253&type=chunk) [Liquidity and Capital Resources](index=72&type=section&id=Liquidity%20and%20Capital%20Resources) RLI maintains strong liquidity with **$464.3 million** in operating cash flow in 2023, and a capital structure of **$100 million** debt and **$1.4 billion** equity Summary of Cash Flows (2022-2023) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $464,257 | $250,448 | | Net cash provided by (used in) investing activities | ($211,803) | $48,879 | | Net cash used in financing activities | ($238,848) | ($365,313) | - As of December 31, 2023, total contractual obligations were approximately **$2.57 billion**, primarily **$2.45 billion** in estimated loss and settlement expense reserves[313](index=313&type=chunk) - The capital structure at year-end 2023 included **$100 million** in debt and **$1.4 billion** in shareholders' equity, with debt comprising **7%** of total capital[325](index=325&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=78&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) RLI's primary market risks are interest rate and equity price risks, managed through duration matching and diversification, with sensitivity analysis provided - The most significant market risk is interest rate risk on the fixed income portfolio, managed by matching asset and liability durations[330](index=330&type=chunk) Market Risk Sensitivity Analysis (as of Dec 31, 2023) | Hypothetical Event | Portfolio | Pretax Reduction in Fair Value | | :--- | :--- | :--- | | +100 basis-point interest rate increase | Fixed Income | ($132 million) | | +200 basis-point interest rate increase | Fixed Income | ($255 million) | | -10% S&P 500 Index decline | Equity | ($55 million) | | -20% S&P 500 Index decline | Equity | ($110 million) | [Financial Statements and Supplementary Data](index=82&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents RLI Corp.'s consolidated financial statements, including balance sheets, earnings, equity, cash flows, and notes, along with the independent auditor's report [Consolidated Financial Statements](index=83&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements show **$5.18 billion** in total assets, **$1.41 billion** in equity, and **$304.6 million** net earnings for 2023 Key Balance Sheet Data (as of Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Investments and Cash | $3,676,318 | $3,272,301 | | Total Assets | $5,180,221 | $4,767,068 | | Unpaid Losses and Settlement Expenses | $2,446,025 | $2,315,637 | | Total Liabilities | $3,766,707 | $3,589,727 | | Total Shareholders' Equity | $1,413,514 | $1,177,341 | Key Earnings Data (for year ended Dec 31) | (in thousands, except per share) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total Consolidated Revenue | $1,511,994 | $1,697,992 | $1,179,245 | | Net Earnings | $304,611 | $583,411 | $279,354 | | Diluted Net Earnings Per Share | $6.61 | $12.74 | $6.11 | [Notes to Consolidated Financial Statements](index=87&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the **$3.7 billion** investment portfolio, reinsurance program, loss reserve development, debt, and confirm strong subsidiary capital levels - The investment portfolio's fair value was **$3.7 billion** as of December 31, 2023, with **$198.5 million** unrealized losses in fixed income and **$236.0 million** unrealized gains in equity[282](index=282&type=chunk) - The company's reinsurance program limits net loss on any individual risk to a maximum of **$10 million**[450](index=450&type=chunk) - For 2023, the company recognized **$108.5 million** in favorable development on prior accident years' loss reserves, with the Casualty segment contributing **$78.5 million**[454](index=454&type=chunk)[467](index=467&type=chunk) - As of December 31, 2023, the company had **$100 million** in debt outstanding, comprising **$50 million** from a revolving line of credit and **$50 million** from the FHLBC[444](index=444&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=135&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with accountants on accounting or financial disclosure matters - There were no changes in or disagreements with accountants[537](index=537&type=chunk) [Controls and Procedures](index=135&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[538](index=538&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2023[539](index=539&type=chunk) [Other Information](index=135&type=section&id=Item%209B.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during 2023 - No director or officer adopted or terminated a **Rule 10b5-1** trading plan during 2023[542](index=542&type=chunk) Part III Part III incorporates information by reference from the 2024 proxy statement, covering directors, executive compensation, and security ownership [Directors, Executive Officers, Corporate Governance, Compensation, and Other Matters](index=135&type=section&id=Items%2010-14) Information for Items 10-14 is incorporated by reference from the 2024 definitive proxy statement - Item 10 (Directors, Executive Officers and Corporate Governance) is incorporated by reference from the proxy statement[545](index=545&type=chunk) - Item 11 (Executive Compensation) is incorporated by reference from the proxy statement[546](index=546&type=chunk) - Items 12, 13, and 14 are also incorporated by reference from the proxy statement[547](index=547&type=chunk)[548](index=548&type=chunk) Part IV Part IV lists financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financials and supplementary data [Exhibits and Financial Statement Schedules](index=136&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the annual report, including corporate governance documents - This item lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K[549](index=549&type=chunk)[551](index=551&type=chunk) [Form 10-K Summary](index=138&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates no Form 10-K summary is provided - None[555](index=555&type=chunk)

RLI Corp. (NYSE:RLI) Q4 2023 Earnings Conference Call January 25, 2024 11:00 AM ET Company Participants Aaron Diefenthaler - Chief Investment Officer & Treasurer Craig Kliethermes - President & Chief Executive Officer Todd Bryant - Chief Financial Officer Jen Klobnak - Chief Operating Officer Conference Call Participants Gregory Peters - Raymond James Andrew Andersen - Jefferies Meyer Shields - KBW Scott Heleniak - RBC Capital Markets Operator Good morning, and welcome to the RLI Corp. Fourth Quarter Earnin ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2023 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 001-09463 RLI Corp. (Exact name of registrant as specified in its charter) Delaware 37-0889946 (I.R.S. Employ ...

RLI Corp. (NYSE:RLI) Q3 2023 Earnings Conference Call October 24, 2023 11:00 AM ET Company Participants Aaron Diefenthaler - Chief Investment Officer & Treasurer Todd Bryant - Chief Financial Officer Craig Kliethermes - President & Chief Executive Officer Jennifer Klobnak - Chief Operating Officer Conference Call Participants Gregory Peters - Raymond James Andrew Andersen - Jefferies Meyer Shields - KBW Scott Heleniak - RBC Capital Markets Operator Good morning, and welcome to the RLI Corp. Third Quarter Ea ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=Part%20I%20-%20Financial%20Information) This section presents RLI Corp.'s unaudited condensed consolidated interim financial statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents RLI Corp.'s unaudited condensed consolidated interim financial statements and related notes on accounting policies, investments, and operations [Condensed Consolidated Statements of Earnings and Comprehensive Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20and%20Comprehensive%20Earnings) This section provides the condensed consolidated statements of earnings and comprehensive earnings for the specified interim periods Consolidated Statements of Earnings and Comprehensive Earnings (3M & 6M Ended June 30) | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net premiums earned | $322,280 | $282,810 | $630,003 | $551,962 | | Consolidated revenue | $381,862 | $213,092 | $746,785 | $477,905 | | Net earnings (loss) | $77,652 | $(2,239) | $176,463 | $45,684 | | Basic net earnings (loss) per share | $1.70 | $(0.05) | $3.87 | $1.01 | | Diluted net earnings (loss) per share | $1.69 | $(0.05) | $3.83 | $1.00 | | Net unrealized gains (losses) on equity securities | $25,214 | $(100,994) | $40,710 | $(128,804) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the condensed consolidated balance sheets, detailing assets, liabilities, and equity at period-end Consolidated Balance Sheet Highlights (as of June 30, 2023 and December 31, 2022) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total investments and cash | $3,590,576 | $3,272,301 | | Total Assets | $5,065,846 | $4,767,068 | | Total Liabilities | $3,713,934 | $3,589,727 | | Total Shareholders' Equity | $1,351,912 | $1,177,341 | | Fixed income: Available-for-sale, at fair value | $2,689,100 | $2,666,950 | | Equity securities, at fair value | $552,566 | $498,382 | | Short-term investments, at cost | $271,296 | $36,229 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section outlines changes in shareholders' equity, including retained earnings and comprehensive earnings (loss) Consolidated Statements of Shareholders' Equity Highlights (as of June 30, 2023 and 2022) | Metric | June 30, 2023 (in thousands) | June 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total Shareholders' Equity | $1,351,912 | $1,044,188 | | Retained Earnings | $1,597,660 | $1,250,661 | | Accumulated Other Comprehensive Earnings (Loss) | $(211,090) | $(163,318) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details cash flows from operating, investing, and financing activities for the interim periods Consolidated Statements of Cash Flows Highlights (6M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :-------------------- | :-------------------- | | Net cash provided by operating activities | $243,595 | $170,645 | | Net cash used in investing activities | $(226,116) | $(124,946) | | Net cash used in financing activities | $(23,590) | $(21,459) | | Net increase (decrease) in cash | $(6,111) | $24,240 | [Notes to Unaudited Condensed Consolidated Interim Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Interim%20Financial%20Statements) This section provides detailed notes supporting the interim financial statements, covering accounting policies, investments, and other key financial areas [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section details the basis of interim financial statement presentation, adopted accounting standards, and key policies for reinsurance, intangibles, and fair value measurements - The unaudited condensed consolidated interim financial statements are prepared in accordance with GAAP for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X[20](index=20&type=chunk) - Adopted ASU 2023-02 on January 1, 2023, using a modified-retrospective approach, reclassifying an **$11 million** historic tax credit investment and recognizing a **$7 million** liability, with no material impact on net earnings[23](index=23&type=chunk) - No prospective accounting standards are expected to have a material impact on financial statements as of June 30, 2023[24](index=24&type=chunk) Allowances for Uncollectible Reinsurance Recoverables | Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Paid reinsurance recoverables | $16.2 | $16.1 | | Unpaid reinsurance recoverables | $10.3 | $11.3 | - Total goodwill and indefinite-lived intangibles remained at **$53.562 million** at June 30, 2023, with no impairment identified during Q2 2023 assessments[30](index=30&type=chunk) - Comprehensive earnings for the first six months of 2023 were **$194.449 million**, including **$17.986 million** in after-tax unrealized gains on available-for-sale fixed income securities due to declining interest rates, contrasting with **$213.144 million** in unrealized losses in 2022 due to rising rates[10](index=10&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - Catastrophe reinsurance limits were increased on June 1, 2023, to **$850 million** for California earthquakes, **$850 million** for non-California earthquakes, and **$750 million** for all other perils[50](index=50&type=chunk) [2. INVESTMENTS](index=17&type=section&id=2.%20INVESTMENTS) This section details the investment portfolio, including fixed income and equity securities, fair value measurements, and allowances for credit losses Investment Portfolio Fair Value (as of June 30, 2023 and December 31, 2022) | Investment Type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Fixed income securities - available-for-sale | $2,689,100 | $2,666,950 | | Equity securities | $552,566 | $498,382 | | Total investments measured at fair value | $3,241,666 | $3,165,332 | - The allowance for expected credit losses on available-for-sale securities was **$434k** at June 30, 2023, up from **$339k** at January 1, 2023[58](index=58&type=chunk) - At June 30, 2023, the fixed income portfolio contained 1,474 securities with **$261 million** in unrealized losses (9% of cost basis), for which no credit loss allowance was recorded as recovery of amortized cost is expected[59](index=59&type=chunk) - Other invested assets increased to **$61 million** at June 30, 2023, from **$48 million** at December 31, 2022, including LIHTC, HTC (reclassified due to ASU 2023-02), FHLBC membership, and private funds[62](index=62&type=chunk)[66](index=66&type=chunk) - Investments in unconsolidated investees decreased to **$55 million** at June 30, 2023, primarily due to the reclassification of the HTC investment, with the main remaining investment being **$55 million** in Prime Holdings Insurance Services, Inc[69](index=69&type=chunk) Cash and Short-Term Investments (as of June 30, 2023 and December 31, 2022) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Cash | $16,707 | $22,818 | | Short-term investments | $271,296 | $36,229 | [3. HISTORICAL LOSS AND LAE DEVELOPMENT](index=26&type=section&id=3.%20HISTORICAL%20LOSS%20AND%20LAE%20DEVELOPMENT) This section reports **$72 million** of favorable development on prior years' loss reserves for the first six months of 2023 Net Unpaid Losses and LAE (6M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :-------------------- | :-------------------- | | Net unpaid losses and LAE at beginning of year | $1,575,548 | $1,435,469 | | Increase (decrease) in incurred losses and LAE - Prior accident years | $(71,520) | $(69,720) | | Net unpaid losses and LAE at June 30, | $1,640,719 | $1,483,789 | - Favorable development on prior years' loss reserves for the first six months of 2023 was **$72 million**, largely from accident years 2018 through 2022, driven by commercial excess, professional services, surety, general liability, personal umbrella, marine, and commercial property[71](index=71&type=chunk) [4. INCOME TAXES](index=26&type=section&id=4.%20INCOME%20TAXES) This section details effective tax rates for the three and six months ended June 30, 2023, and their influencing factors Effective Tax Rates (3M & 6M Ended June 30) | Period | 2023 Effective Tax Rate | 2022 Effective Tax Rate | | :-------------------------------- | :---------------------- | :---------------------- | | Three Months Ended June 30 | 19.1% | 65.8% | | Six Months Ended June 30 | 19.4% | 12.1% | - The effective tax rate was higher for the six-month period in 2023, as higher pretax income decreased the percentage impact of tax-favored adjustments[73](index=73&type=chunk) [5. STOCK BASED COMPENSATION](index=27&type=section&id=5.%20STOCK%20BASED%20COMPENSATION) This section covers the 2023 LTIP, equity-based compensation expense, and unrecognized compensation for outstanding awards - The 2023 RLI Corp. Long-Term Incentive Plan (LTIP) was approved, authorizing **4,004,891 shares** for equity-based compensation[77](index=77&type=chunk) Total Compensation Expense and Tax Benefit for Equity Awards (3M & 6M Ended June 30) | Metric | 3 Months Ended June 30, 2023 (in millions) | 3 Months Ended June 30, 2022 (in millions) | 6 Months Ended June 30, 2023 (in millions) | 6 Months Ended June 30, 2022 (in millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Total compensation expense | $2.2 | $2.3 | $4.7 | $3.7 | | Total income tax benefit | $0.3 | $0.4 | $0.8 | $0.6 | - Total unrecognized compensation expense relating to outstanding and unvested awards was **$8 million**, to be recognized over a weighted average vesting period of **2.77 years**[78](index=78&type=chunk) [Stock Options](index=27&type=section&id=Stock%20Options) This section details stock option activity, including grants, exercises, and outstanding options - The intrinsic value of stock options exercised was **$16 million** during the first six months of 2023, up from **$5 million** in the same period of 2022[83](index=83&type=chunk) Stock Option Activity (6M Ended June 30, 2023) | Metric | Options | Weighted Average Exercise Price | | :-------------------------------- | :-------- | :------------------------------ | | Outstanding options at January 1, 2023 | 1,695,660 | $82.42 | | Options granted | 144,375 | $135.72 | | Options exercised | (199,145) | $56.17 | | Outstanding options at June 30, 2023 | 1,639,890 | $90.33 | | Exercisable options at June 30, 2023 | 806,436 | $75.52 | [Restricted Stock Units](index=29&type=section&id=Restricted%20Stock%20Units) This section outlines restricted stock unit activity, including nonvested, granted, and vested units - The total fair value of restricted stock units that vested was **$1 million** during the first six months of 2023, compared to **$2 million** in the same period of 2022[84](index=84&type=chunk) Restricted Stock Unit Activity (6M Ended June 30, 2023) | Metric | RSUs | Weighted Average Grant Date Fair Value | | :-------------------------------- | :------- | :------------------------------------- | | Nonvested at January 1, 2023 | 44,208 | $109.51 | | Granted | 19,063 | $136.33 | | Vested | (6,748) | $118.66 | | Nonvested at June 30, 2023 | 55,997 | $117.49 | [6. OPERATING SEGMENT INFORMATION](index=30&type=section&id=6.%20OPERATING%20SEGMENT%20INFORMATION) This section presents financial performance by operating segment, including net premiums earned and underwriting income, for interim periods Net Premiums Earned by Segment (6M Ended June 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Casualty | $373,079 | $348,879 | 7% | | Property | $190,608 | $142,130 | 34% | | Surety | $66,316 | $60,953 | 9% | | Total Net Premiums Earned | $630,003 | $551,962 | 14% | Net Underwriting Income by Segment (6M Ended June 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :-------------------- | :-------------------- | | Casualty | $38,808 | $49,089 | | Property | $54,260 | $48,581 | | Surety | $16,023 | $17,764 | | Total Net Underwriting Income | $109,091 | $115,434 | [7. LEASES](index=32&type=section&id=7.%20LEASES) This section details operating lease ROU assets, liabilities, and total lease costs for branch office facilities Operating Lease Information (as of and 6M Ended June 30) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Operating lease ROU assets | $11,185 | $12,766 | | Operating lease liabilities | $12,635 | $14,499 | | Total lease cost (6M) | $3,113 | $2,832 | [8. ACQUISITIONS AND DISPOSITIONS](index=32&type=section&id=8.%20ACQUISITIONS%20AND%20DISPOSITIONS) This section reports a **$14 million** realized gain from the Maui Jim, Inc. sale working capital escrow payout in Q1 2023 - An additional **$14 million** realized gain was recognized in the first quarter of 2023 from the payout of the working capital escrow related to the sale of Maui Jim, Inc[92](index=92&type=chunk) - The sale of Maui Jim, Inc. was completed on September 30, 2022, resulting in a net realized gain of **$571 million** recognized in 2022[90](index=90&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of RLI Corp.'s financial condition, operational results, key performance measures, and liquidity [OVERVIEW](index=34&type=section&id=OVERVIEW) RLI Corp. is a U.S. specialty insurer focused on niche markets, emphasizing underwriting profitability and shareholder returns - RLI Corp. is a U.S.-based specialty insurance company underwriting select property, casualty, and surety products[94](index=94&type=chunk) - Achieved its **27th consecutive year** of underwriting profitability in 2022, with an average **88.2 combined ratio** over that period[94](index=94&type=chunk) - Shareholder returns are driven by underwriting income, net investment income from the investment portfolio, and long-term appreciation in the equity portfolio[94](index=94&type=chunk) [Key Performance Measures](index=36&type=section&id=Key%20Performance%20Measures) This section defines key performance measures, including underwriting income and combined ratio, used to assess company operations [Underwriting Income](index=36&type=section&id=Underwriting%20Income) This section defines underwriting income as a pretax measure of profitability for insurance operations - Underwriting income is a pretax measure of profitability for insurance operations, derived by subtracting losses and settlement expenses, policy acquisition costs, and insurance operating expenses from net premiums earned[103](index=103&type=chunk) Net Underwriting Income (3M & 6M Ended June 30) | Period | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :-------------------- | :-------------------- | | Three Months Ended June 30 | $41,201 | $55,956 | | Six Months Ended June 30 | $109,091 | $115,434 | [Combined Ratio](index=37&type=section&id=Combined%20Ratio) This section defines the combined ratio as an industry measure of underwriting profitability - The combined ratio is a common industry performance measure of underwriting profitability, calculated as the sum of the loss ratio (losses and settlement expenses divided by net premiums earned) and the expense ratio (policy acquisition costs and insurance operating expenses divided by net premiums earned)[104](index=104&type=chunk) Combined Ratio (3M & 6M Ended June 30) | Period | 2023 Combined Ratio | 2022 Combined Ratio | | :-------------------------------- | :-------------------- | :-------------------- | | Three Months Ended June 30 | 87.2% | 80.2% | | Six Months Ended June 30 | 82.7% | 79.1% | [Critical Accounting Policies](index=38&type=section&id=Critical%20Accounting%20Policies) This section outlines critical accounting policies involving significant estimates for losses, investments, reinsurance, and deferred taxes - Critical accounting policies involve significant estimates for unpaid losses and settlement expenses, investment valuation, recoverability of reinsurance balances, deferred policy acquisition costs, and deferred taxes[106](index=106&type=chunk) - There have been no significant changes to critical accounting policies during the year[107](index=107&type=chunk) [RESULTS OF OPERATIONS](index=38&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes financial performance for the three and six months ended June 30, 2023, covering revenues, net earnings, and segment results [Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022](index=38&type=section&id=Six%20Months%20Ended%20June%2030%2C%202023%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202022) Net premiums earned increased **14%**, and net earnings surged to **$176 million** for the first six months of 2023, despite higher storm losses - Net premiums earned increased **14%** for the first six months of 2023, driven by growth from property and casualty segments[108](index=108&type=chunk) Consolidated Revenues (6M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :-------------------- | :-------------------- | | Net premiums earned | $630,003 | $551,962 | | Net investment income | $55,872 | $36,355 | | Net realized gains | $20,200 | $18,392 | | Net unrealized gains (losses) on equity securities | $40,710 | $(128,804) | | Total consolidated revenue | $746,785 | $477,905 | - Net earnings for the first six months of 2023 totaled **$176 million**, compared to **$46 million** for the same period in 2022, largely attributed to **$39 million** of net after-tax realized and unrealized gains on equity securities (vs. **$87 million** losses in 2022)[109](index=109&type=chunk) - Underwriting income was **$109 million** on an **82.7 combined ratio** for the first six months of 2023, compared to **$115 million** on a **79.1 combined ratio** in 2022[111](index=111&type=chunk) - Underwriting results for 2023 included **$22 million** of pretax storm losses, compared to **$5 million** in 2022, and benefited from **$72 million** of favorable development on prior years' loss reserves (vs. **$70 million** in 2022)[109](index=109&type=chunk) [Premiums (Six Months)](index=40&type=section&id=Premiums%20%28Six%20Months%29) This section details gross and net premiums earned for the six-month period, showing overall and segment growth Gross and Net Premiums Earned (6M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Gross Premiums Written | $922,976 | $777,948 | 19% | | Net Premiums Earned | $630,003 | $551,962 | 14% | - Growth in gross premiums written was achieved in all three segments, largely driven by products in the property segment (up **55%**)[114](index=114&type=chunk)[115](index=115&type=chunk) [Casualty (Six Months)](index=40&type=section&id=Casualty%20%28Six%20Months%29) This section details casualty segment premiums, highlighting growth in personal umbrella and challenges in other lines Casualty Premiums (6M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Gross Premiums Written | $468,891 | $464,136 | 1% | | Net Premiums Earned | $373,079 | $348,879 | 7% | | Commercial excess and personal umbrella GPW | $176,840 | $163,298 | 8% | | Executive products GPW | $40,345 | $45,622 | (12)% | - Continued growth in personal umbrella distribution and positive rate movement offset challenging conditions in excess energy liability and executive products due to increased competition[116](index=116&type=chunk) [Property (Six Months)](index=40&type=section&id=Property%20%28Six%20Months%29) This section details property segment premiums, noting significant growth in commercial property due to rate increases Property Premiums (6M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Gross Premiums Written | $380,735 | $245,446 | 55% | | Net Premiums Earned | $190,608 | $142,130 | 34% | | Commercial property GPW | $284,945 | $162,148 | 76% | | Marine GPW | $74,970 | $64,996 | 15% | - Commercial property business was up **$123 million** due to continued wind rate increases and limited exposure growth[117](index=117&type=chunk) [Surety (Six Months)](index=42&type=section&id=Surety%20%28Six%20Months%29) This section details surety segment premiums, showing growth from new agency relationships and construction projects Surety Premiums (6M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Gross Premiums Written | $73,350 | $68,366 | 7% | | Net Premiums Earned | $66,316 | $60,953 | 9% | | Contract GPW | $20,490 | $17,322 | 18% | - Contract surety benefited from new agency relationships and new construction projects, while commercial surety increased from existing accounts and new business[119](index=119&type=chunk) [Underwriting Income (Six Months)](index=42&type=section&id=Underwriting%20Income%20%28Six%20Months%29) This section analyzes underwriting income and combined ratios by segment, noting impacts from storm losses and reserve development Underwriting Income and Combined Ratio by Segment (6M Ended June 30) | Segment | Underwriting Income 2023 (in thousands) | Underwriting Income 2022 (in thousands) | Combined Ratio 2023 | Combined Ratio 2022 | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | :------------------ | :------------------ | | Casualty | $38,808 | $49,089 | 89.6 | 85.9 | | Property | $54,260 | $48,581 | 71.5 | 65.8 | | Surety | $16,023 | $17,764 | 75.8 | 70.9 | | Total | $109,091 | $115,434 | 82.7 | 79.1 | - Casualty underwriting income decreased due to a higher earned premium base reducing the impact of favorable prior years' reserve development and increased storm losses[121](index=121&type=chunk)[122](index=122&type=chunk) - Property underwriting income increased despite **$20 million** of storm losses (vs. **$5 million** in 2022), benefiting from **$17 million** of favorable development and earned premium growth exceeding expense growth[123](index=123&type=chunk)[124](index=124&type=chunk) - Surety underwriting income decreased slightly, with a higher combined ratio due to a higher earned premium base reducing the loss ratio impact of favorable prior accident years' reserve development[125](index=125&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) [Investment Income (Six Months)](index=44&type=section&id=Investment%20Income%20%28Six%20Months%29) This section details a **54%** increase in net investment income, driven by higher interest rates and asset base growth - Net investment income increased by **54%** to **$56 million** during the first six months of 2023, driven by higher interest rates and an increased average asset base[129](index=129&type=chunk) Fixed Income Investment Yields (6M Ended June 30) | Yield Type | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Pretax Yield - Taxable | 3.40% | 2.75% | | Pretax Yield - Tax-Exempt | 2.78% | 2.66% | | After-Tax Yield - Taxable | 2.69% | 2.17% | | After-Tax Yield - Tax-Exempt | 2.63% | 2.52% | - The fixed income portfolio increased by **$22 million**, and short-term investments increased by **$235 million** due to improved yields on AAA-rated government money market funds[131](index=131&type=chunk) [Income Taxes (Six Months)](index=44&type=section&id=Income%20Taxes%20%28Six%20Months%29) This section discusses the effective tax rate for the six-month period, influenced by pretax income and tax adjustments - The effective tax rate for the first six months of 2023 was **19.4%**, compared to **12.1%** for the same period in 2022, with the higher rate in 2023 attributed to higher pretax income decreasing the percentage impact of tax-favored adjustments[132](index=132&type=chunk) [Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022](index=44&type=section&id=Three%20Months%20Ended%20June%2030%2C%202023%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202022) Net premiums earned increased **14%**, and net earnings reached **$78 million** in Q2 2023, despite higher storm losses and lower reserve releases - Net premiums earned increased **14%** for the second quarter of 2023, driven by growth from property and casualty segments[133](index=133&type=chunk) Consolidated Revenues (3M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :-------------------- | :-------------------- | | Net premiums earned | $322,280 | $282,810 | | Net investment income | $28,788 | $18,472 | | Net realized gains | $5,580 | $12,804 | | Net unrealized gains (losses) on equity securities | $25,214 | $(100,994) | | Total consolidated revenue | $381,862 | $213,092 | - Net earnings for the second quarter of 2023 totaled **$78 million**, compared to a net loss of **$2 million** for the same period in 2022, largely attributed to **$25 million** of net after-tax realized and unrealized gains on equity securities (vs. **$69 million** losses in 2022)[136](index=136&type=chunk) - Underwriting income was **$41 million** on an **87.2 combined ratio** for the second quarter of 2023, compared to **$56 million** on an **80.2 combined ratio** in 2022[138](index=138&type=chunk) - Underwriting results for 2023 included **$18 million** of pretax storm losses, compared to **$3 million** in 2022, and benefited from **$20 million** of favorable development on prior years' loss reserves (vs. **$24 million** in 2022)[136](index=136&type=chunk) [Premiums (Three Months)](index=46&type=section&id=Premiums%20%28Three%20Months%29) This section details gross and net premiums earned for the three-month period, showing overall and segment growth Gross and Net Premiums Earned (3M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Gross Premiums Written | $507,964 | $418,789 | 21% | | Net Premiums Earned | $322,280 | $282,810 | 14% | - Growth in gross premiums written was achieved in all three segments, largely driven by products in the property segment (up **63%**)[141](index=141&type=chunk)[143](index=143&type=chunk) [Casualty (Three Months)](index=48&type=section&id=Casualty%20%28Three%20Months%29) This section details casualty segment premiums, highlighting personal umbrella growth and challenges in other lines Casualty Premiums (3M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Gross Premiums Written | $251,057 | $248,315 | 1% | | Net Premiums Earned | $187,048 | $177,123 | 6% | | Commercial excess and personal umbrella GPW | $95,409 | $85,512 | 12% | | Executive products GPW | $22,518 | $24,941 | (10)% | - Continued momentum in personal umbrella distribution offset challenging conditions in excess energy liability, commercial transportation, and executive products due to competition and market conditions[144](index=144&type=chunk) [Property (Three Months)](index=48&type=section&id=Property%20%28Three%20Months%29) This section details property segment premiums, noting significant growth in commercial property due to rate increases Property Premiums (3M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Gross Premiums Written | $221,889 | $135,848 | 63% | | Net Premiums Earned | $101,841 | $74,690 | 36% | | Commercial property GPW | $173,006 | $93,068 | 86% | | Marine GPW | $37,781 | $32,913 | 15% | - Commercial property business was up **$80 million** due to continued rate increases on wind exposures and strengthened terms and conditions[145](index=145&type=chunk) [Surety (Three Months)](index=49&type=section&id=Surety%20%28Three%20Months%29) This section details surety segment premiums, showing growth in contract surety and a decline in commercial surety Surety Premiums (3M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | | Gross Premiums Written | $35,018 | $34,626 | 1% | | Net Premiums Earned | $33,391 | $30,997 | 8% | | Contract GPW | $10,601 | $9,607 | 10% | - Growth in contract surety was driven by new agency relationships, while commercial surety declined due to non-recurring activity in 2022[146](index=146&type=chunk) [Underwriting Income (Three Months)](index=49&type=section&id=Underwriting%20Income%20%28Three%20Months%29) This section analyzes underwriting income and combined ratios by segment, noting impacts from storm losses and reserve releases Underwriting Income and Combined Ratio by Segment (3M Ended June 30) | Segment | Underwriting Income 2023 (in thousands) | Underwriting Income 2022 (in thousands) | Combined Ratio 2023 | Combined Ratio 2022 | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | :------------------ | :------------------ | | Casualty | $6,977 | $21,442 | 96.3 | 87.9 | | Property | $25,877 | $26,105 | 74.6 | 65.0 | | Surety | $8,347 | $8,409 | 75.0 | 72.9 | | Total | $41,201 | $55,956 | 87.2 | 80.2 | - Casualty underwriting income decreased significantly due to lower levels of reserve releases on prior accident years, increased storm losses, and modest additions to the current accident year for energy casualty[148](index=148&type=chunk)[149](index=149&type=chunk) - Property underwriting income remained flat despite **$17 million** of storm losses (vs. **$3 million** in 2022), as growth in the earned premium base exceeded expense growth[150](index=150&type=chunk)[151](index=151&type=chunk) - Surety underwriting income was stable, with a slightly higher combined ratio, as higher levels of prior accident year reserve releases reduced the loss ratio[152](index=152&type=chunk)[153](index=153&type=chunk) [Investment Income (Three Months)](index=51&type=section&id=Investment%20Income%20%28Three%20Months%29) This section details a **56%** increase in net investment income, driven by higher interest rates and asset base growth - Net investment income increased by **56%** to **$29 million** during the second quarter of 2023, driven by higher interest rates and an increased average asset base[155](index=155&type=chunk) Fixed Income Investment Yields (3M Ended June 30) | Yield Type | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Pretax Yield - Taxable | 3.41% | 2.79% | | Pretax Yield - Tax-Exempt | 2.79% | 2.69% | | After-Tax Yield - Taxable | 2.69% | 2.20% | | After-Tax Yield - Tax-Exempt | 2.64% | 2.55% | [Income Taxes (Three Months)](index=51&type=section&id=Income%20Taxes%20%28Three%20Months%29) This section discusses the effective tax rate for the three-month period, influenced by pretax income and tax adjustments - The effective tax rate for the second quarter of 2023 was **19.1%**, significantly lower than **65.8%** in 2022, primarily due to tax-favored adjustments acting on pretax income in 2023 versus pretax loss in 2022[157](index=157&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=51&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section details liquidity sources, including operating cash flows, investment portfolio, debt, and capital resources Cash Flows (6M Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :-------------------- | :-------------------- | | Operating cash flows | $243,595 | $170,645 | | Investing cash flows | $(226,116) | $(124,946) | | Financing cash flows | $(23,590) | $(21,459) | | Total | $(6,111) | $24,240 | - The company has **$200 million** in debt outstanding, including **$150 million** in senior notes maturing September 15, 2023, and a **$50 million** borrowing from the FHLBC maturing November 10, 2023[160](index=160&type=chunk)[176](index=176&type=chunk) - A new **$100 million** revolving line of credit with PNC Bank, N.A. was entered into in Q1 2023, expiring May 29, 2026, with no amounts outstanding[163](index=163&type=chunk) Investment Portfolio Asset Allocation (as of June 30, 2023) | Investment Type | Fair Value (in thousands) | % of Total Fair Value | | :-------------------------------- | :------------------------ | :-------------------- | | Fixed income | $2,689,100 | 74.9% | | Equity | $552,566 | 15.4% | | Short-term investments | $271,296 | 7.5% | | Other invested assets | $60,907 | 1.7% | | Cash | $16,707 | 0.5% | | Total portfolio | $3,590,576 | 100.0% | - The fixed income portfolio has an average rating of **AA-**, with **80%** rated A or better[182](index=182&type=chunk) - The company paid a regular quarterly cash dividend of **$0.27 per share** on June 20, 2023, marking an increase for the **48th consecutive year**[177](index=177&type=chunk) - As of June 30, 2023, the holding company had **$262 million** in liquid assets, and **$120 million** of the principal insurance subsidiary's net assets were unrestricted for ordinary dividends[178](index=178&type=chunk)[180](index=180&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=57&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses primary market risks, including equity price and interest rate risk, and credit risk management - Primary market risks are equity price risk and interest rate risk, with limited exposure to foreign currency and commodity risk[181](index=181&type=chunk) - The fixed maturity portfolio has an average rating of **AA-**, with **80%** rated A or better by at least two nationally recognized rating organizations[182](index=182&type=chunk) - No significant changes to market risk exposure were reported from the 2022 Annual Report on Form 10-K[183](index=183&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures, with no material changes to internal control over financial reporting - Disclosure controls and procedures were deemed effective as of June 30, 2023, based on an evaluation by management, including the CEO and CFO[184](index=184&type=chunk) - No changes were made to internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[186](index=186&type=chunk) [PART II - OTHER INFORMATION](index=58&type=section&id=Part%20II%20-%20Other%20Information) This section provides other information, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings) No material changes to legal proceedings were reported - No material changes to report regarding legal proceedings[188](index=188&type=chunk) [Item 1A. Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported - No material changes to report regarding risk factors[189](index=189&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company made no share repurchases in 2023, with **$87.5 million** remaining in its repurchase program - The company did not repurchase any shares during 2023 under its **$100 million** share repurchase program[190](index=190&type=chunk) - There is **$87.5 million** of remaining capacity from the share repurchase program[190](index=190&type=chunk) [Item 3. Defaults upon Senior Securities](index=58&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This item is not applicable to the company - This item is not applicable[191](index=191&type=chunk) [Item 4. Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[192](index=192&type=chunk) [Item 5. Other Information](index=58&type=section&id=Item%205.%20Other%20Information) No executive officer or director adopted or terminated Rule 10b5-1 trading arrangements during Q2 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023[194](index=194&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including corporate documents, incentive plans, and certifications - Exhibits include Amended and Restated Certificate of Incorporation, RLI Corp. Nonemployee Directors' Deferred Compensation Plan, RLI Corp. Executive Deferred Compensation Plan, RLI Corp. 2023 Long-Term Incentive Plan and related agreements, and Certifications Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002[195](index=195&type=chunk) [SIGNATURES](index=60&type=section&id=Signatures) This section contains the official signatures for the report [Signatures](index=60&type=section&id=Signatures) The report was signed by Todd W. Bryant, Chief Financial Officer, on July 26, 2023 - The report was signed by Todd W. Bryant, Chief Financial Officer, on July 26, 2023[200](index=200&type=chunk)

Financial Data and Key Metrics Changes - RLI reported second quarter operating earnings of $1.16 per share, reflecting solid underwriting performance and continued growth in investment income, which advanced by 56% [11][12] - The combined ratio for the quarter was 87.2%, with a year-to-date combined ratio of 82.7%, indicating strong operational efficiency [11][13] - Operating cash flow increased to $174 million for the quarter, supporting growth in invested assets [12] - Book value per share increased by 17% from year-end 2022 to $29.65, reflecting strong overall performance [43][44] Business Line Data and Key Metrics Changes - The property segment experienced a premium growth of 63% with a combined ratio of 75, indicating a highly attractive market [50] - The marine division grew premiums by 15% and increased rates by 8%, demonstrating strong demand and effective underwriting [27] - The surety segment posted a 75 combined ratio and grew premiums by 1%, with contract surety leading the way with a 10% premium increase [29] - The casualty segment grew by 1% but posted a combined ratio of 96, reflecting competitive pressures and unusual claim severity [53][54] Market Data and Key Metrics Changes - Submissions in the catastrophe market increased over 20%, indicating a continued elevated state of activity since 2022 [25] - The energy casualty space saw a significant decrease in premium, down $15 million year-to-date in 2023, reflecting strategic exits from underperforming segments [34] - The public D&O market remains highly competitive, leading to a decrease in renewal retention [32] Company Strategy and Development Direction - RLI focuses on a diversified portfolio and disciplined underwriting to navigate market challenges and optimize profitable growth [8][36] - The company is adapting to market forces, including a shortage of natural catastrophe capacity and loss cost inflation, while continuing to serve customer and shareholder interests [118] - RLI is committed to maintaining underwriting discipline, particularly in the surety segment, to manage economic uncertainties [31][57] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in executing strategies despite competitive pressures and market challenges, emphasizing a long-term focus on customer and shareholder value [7][9] - The company anticipates that the impact of Florida tort reform will benefit the industry in the long term [48] - Management acknowledged the volatility in the casualty business but remains committed to disciplined underwriting practices [54] Other Important Information - RLI purchased an additional $150 million of catastrophe reinsurance limit effective June 1, supporting its evolving view of risk [26] - The company continues to invest in people and technology to enhance customer experience and drive efficiencies [43] Q&A Session Summary Question: Can you provide perspective on growth in the property business? - Management indicated that growth is driven by a combination of rate increases and new business, with a focus on maintaining underwriting discipline [38][39] Question: What happens to the energy underwriting team when exiting a market? - Management explained that underwriters may be redeployed to other areas, while those exiting the market typically seek opportunities outside the organization [64] Question: Are you seeing signs of economic uncertainty affecting your insured? - Management noted that while there are concerns about a potential recession, the construction market remains stable, indicating healthy conditions for surety [75] Question: Can you elaborate on the additional catastrophe limit purchased? - The additional limit is for all perils and adds a layer of coverage across all existing policies [103]