
Part I - Financial Information This section details RLI Corp.'s financial performance, position, and cash flows for Q1 2025, including management's analysis and market risk disclosures Financial Statements RLI Corp. reported Q1 2025 net earnings of $63.2 million, down from $127.9 million, primarily due to unrealized equity losses, while total assets reached $5.73 billion and operating cash flow increased to $103.5 million Condensed Consolidated Statements of Earnings and Comprehensive Earnings Q1 2025 net earnings decreased to $63.2 million ($0.68 diluted EPS) from $127.9 million, primarily due to a $42.3 million unrealized equity loss, despite growth in net premiums earned and investment income | Financial Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net Premiums Earned | $398,345 | $360,676 | +10.4% | | Net Investment Income | $36,726 | $32,847 | +11.8% | | Net Unrealized Gains (Losses) on Equity Securities | $(42,318) | $45,314 | N/A | | Net Earnings | $63,214 | $127,900 | -50.6% | | Diluted EPS | $0.68 | $1.39 | -51.1% | | Comprehensive Earnings | $93,244 | $115,229 | -19.1% | Condensed Consolidated Balance Sheets As of March 31, 2025, total assets slightly increased to $5.73 billion from $5.63 billion, with shareholders' equity rising to $1.60 billion due to comprehensive earnings | Balance Sheet Item | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Investments and Cash | $4,204,238 | $4,084,631 | | Total Assets | $5,729,154 | $5,628,802 | | Total Liabilities | $4,124,942 | $4,106,835 | | Total Shareholders' Equity | $1,604,212 | $1,521,967 | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $103.5 million in Q1 2025, while investing activities used $103.4 million and financing activities used $12.8 million | Cash Flow Activity (in thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $103,514 | $70,946 | | Net cash used in investing activities | $(103,414) | $(53,064) | | Net cash used in financing activities | $(12,832) | $(9,749) | | Net (decrease) increase in cash | $(12,732) | $8,133 | Notes to Financial Statements Notes detail investment portfolio fair value, loss reserve development, segment performance, and stock-based compensation, highlighting a two-for-one stock split and $31 million in favorable prior-year loss reserve development - On January 15, 2025, RLI Corp. implemented a two-for-one stock split, retroactively adjusting all share and per-share data in the report22 - The investment portfolio is measured at fair value, with the vast majority of fixed income securities ($3.18 billion of $3.27 billion) classified as Level 2, and Level 3 assets totaling $98.9 million52 - In Q1 2025, the company recognized $31 million of favorable development on prior years' loss reserves, compared to $42 million in Q1 2024, driven by Marine, Surety, Commercial Property, and various liability lines72 - The effective tax rate for Q1 2025 was 19.6%, down from 20.1% in Q1 2024, due to lower pretax income amplifying the positive impact of tax-favored items74 Management's Discussion and Analysis (MD&A) Management attributes increased net premiums and investment income to segment growth and higher rates, but a $42 million unrealized equity loss reduced net earnings, while underwriting income declined and the combined ratio worsened to 82.3% Results of Operations Q1 2025 net earnings decreased to $63 million from $128 million due to equity portfolio performance, with underwriting income falling to $71 million and the combined ratio rising to 82.3% due to lower reserve development | Performance Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Underwriting Income (in millions) | $71 | $78 | | Combined Ratio | 82.3% | 78.5% | | Favorable Reserve Development (in millions) | $31 | $42 | | Net Earnings (in millions) | $63 | $128 | - The loss ratio increased to 44.5% from 39.9% due to lower favorable reserve development and a business mix shift towards higher loss ratio lines116 Premiums Analysis Gross premiums written increased 5% to $491.1 million, driven by a 14% rise in Casualty premiums to $278.5 million, while Property premiums declined 6% to $170.1 million due to competition | Segment (Gross Premiums Written) | Q1 2025 (in thousands) | Q1 2024 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Casualty | $278,454 | $245,329 | +14% | | Property | $170,052 | $180,364 | -6% | | Surety | $42,600 | $42,982 | -1% | | Total | $491,106 | $468,675 | +5% | - Casualty growth was driven by positive rate movement, new business in personal umbrella, and expanded marketing in commercial excess124 - Property premium decline resulted from falling rates on wind and earthquake exposures due to intensified competition125 Underwriting Income Analysis Total underwriting income decreased to $70.5 million, with Casualty income sharply dropping to $2.1 million and its combined ratio worsening to 99.1%, while Surety income significantly improved to $11.6 million | Segment (Underwriting Income) | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | Casualty | $2,071 | $13,674 | | Property | $56,915 | $57,716 | | Surety | $11,560 | $6,305 | | Total | $70,546 | $77,695 | | Segment (Combined Ratio) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Casualty | 99.1% | 93.1% | | Property | 57.1% | 55.4% | | Surety | 68.5% | 80.9% | | Total | 82.3% | 78.5% | Liquidity and Capital Resources The company maintains strong liquidity with operating cash flow increasing to $103.5 million, supported by $1.6 billion in shareholders' equity and $100 million in debt, with $26 million available for ordinary dividend distribution - Operating cash flow increased to $103.5 million in Q1 2025 from $70.9 million in Q1 2024, benefiting from increased premium receipts140 - As of March 31, 2025, the company had $100 million in debt outstanding, comprising 6% of total capital141155 - The maximum ordinary dividend payable from the principal insurance subsidiary to the holding company without prior regulatory approval was $26 million as of March 31, 2025158 Investment Portfolio The total investment portfolio was $4.2 billion as of March 31, 2025, conservatively allocated with 77.9% in fixed income and 17.3% in equities, featuring an 'AA' average rating and 4.9-year duration for fixed income | Investment Type | Fair Value (in thousands) | % of Total | | :--- | :--- | :--- | | Fixed income | $3,274,276 | 77.9% | | Equity securities | $725,946 | 17.3% | | Short-term investments | $116,601 | 2.8% | | Other invested assets | $60,357 | 1.4% | | Cash | $27,058 | 0.6% | | Total | $4,204,238 | 100.0% | - The fixed income portfolio has an average quality rating of 'AA' and an average duration of 4.9 years137146 - The equity portfolio is well-diversified, with no single company exposure representing more than 1% of total invested assets152 Quantitative and Qualitative Disclosures about Market Risk No material changes to market risk exposure were reported since year-end 2024, with primary risks remaining equity price and interest rate fluctuations from investments - There have been no material changes to the company's exposure to market risk since the year-end 2024 report159 - Primary market risks remain equity price risk and interest rate risk associated with the investment portfolio160 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective161 - No material changes were made to internal control over financial reporting during the first quarter of 2025163 Part II - Other Information This section provides other required disclosures, including legal proceedings and information on director and officer trading plans Other Required Disclosures No material changes were reported for legal proceedings or risk factors, and no directors or officers adopted or terminated Rule 10b5-1 trading plans during the quarter - There were no material changes to report for Legal Proceedings (Item 1) or Risk Factors (Item 1A)166167 - During Q1 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement172