
PART I - FINANCIAL INFORMATION This section presents RLI Corp.'s unaudited condensed consolidated financial statements and management's analysis for the periods ended June 30, 2025 and 2024 Item 1. Financial Statements This section presents RLI Corp.'s unaudited condensed consolidated financial statements and detailed notes for Q2 2025 and 2024 Condensed Consolidated Statements of Earnings and Comprehensive Earnings Net and comprehensive earnings significantly increased for Q2 2025, driven by higher premiums, investment income, and unrealized gains Consolidated Statements of Earnings (in thousands) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Net premiums earned | $401,904 | $379,065 | $800,249 | $739,741 | | Net investment income | $39,418 | $33,961 | $76,144 | $66,808 | | Net realized gains (losses) | $15,004 | $(192) | $29,916 | $5,802 | | Net unrealized gains on equity securities | $43,500 | $3,608 | $1,182 | $48,922 | | Consolidated revenue | $499,826 | $416,442 | $907,491 | $861,273 | | Losses and settlement expenses | $184,578 | $167,799 | $361,816 | $311,623 | | Policy acquisition costs | $125,502 | $113,921 | $249,189 | $224,375 | | Insurance operating expenses | $29,594 | $27,321 | $56,468 | $56,024 | | Total expenses | $345,778 | $314,785 | $677,860 | $604,394 | | Earnings before income taxes | $156,515 | $103,303 | $235,146 | $263,294 | | Net earnings | $124,336 | $81,992 | $187,550 | $209,892 | | Other comprehensive earnings (loss), net of tax | $18,701 | $(7,843) | $48,731 | $(20,514) | | Comprehensive earnings | $143,037 | $74,149 | $236,281 | $189,378 | | Basic net earnings per share | $1.35 | $0.90 | $2.04 | $2.30 | | Diluted net earnings per share | $1.34 | $0.89 | $2.03 | $2.27 | - Net earnings for Q2 2025 increased by 51.6% to $124.3 million from $82.0 million in Q2 2024. For the six months ended June 30, 2025, net earnings decreased by 10.6% to $187.6 million from $209.9 million in the prior year10 - Comprehensive earnings for Q2 2025 increased by 93% to $143.0 million from $74.1 million in Q2 2024. For the six months ended June 30, 2025, comprehensive earnings increased by 24.7% to $236.3 million from $189.4 million in the prior year10 Condensed Consolidated Balance Sheets Total assets and shareholders' equity increased as of June 30, 2025, driven by investments, cash, and retained earnings Consolidated Balance Sheet (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | ASSETS | | | | Total investments and cash | $4,426,062 | $4,084,631 | | Premiums and reinsurance balances receivable, net | $252,931 | $230,534 | | Reinsurance balances recoverable on unpaid losses and settlement expenses, net | $761,719 | $755,425 | | Deferred policy acquisition costs | $180,765 | $166,214 | | TOTAL ASSETS | $5,990,807 | $5,628,802 | | LIABILITIES | | | | Unpaid losses and settlement expenses | $2,806,889 | $2,693,470 | | Unearned premiums | $1,034,176 | $984,140 | | Total Liabilities | $4,256,146 | $4,106,835 | | SHAREHOLDERS' EQUITY | | | | Retained earnings | $1,878,736 | $1,719,668 | | Accumulated other comprehensive earnings (loss) | $(124,992) | $(173,723) | | TOTAL SHAREHOLDERS' EQUITY | $1,734,661 | $1,521,967 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $5,990,807 | $5,628,802 | - Total assets increased by 6.4% to $5.99 billion at June 30, 2025, from $5.63 billion at December 31, 202413 - Total shareholders' equity increased by 14.0% to $1.73 billion at June 30, 2025, from $1.52 billion at December 31, 2024, driven by an increase in retained earnings and a reduction in accumulated other comprehensive loss13 Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity increased from January 1 to June 30, 2025, due to net and comprehensive earnings, offset by dividends Changes in Shareholders' Equity (in thousands) | Metric | Balance, Jan 1, 2025 | Net Earnings | Other Comprehensive Earnings (Loss), net of tax | Dividends and Dividend Equivalents | Balance, June 30, 2025 | | :-------------------------------- | :------------------- | :----------- | :-------------------------------------- | :--------------------------------- | :------------------- | | Total Shareholders' Equity | $1,521,967 | $187,550 | $48,731 | $(28,482) | $1,734,661 | | Retained Earnings | $1,719,668 | $187,550 | — | $(28,482) | $1,878,736 | | Accumulated Other Comprehensive Earnings (Loss) | $(173,723) | — | $48,731 | — | $(124,992) | - Total shareholders' equity increased by $212.7 million from January 1, 2025, to June 30, 2025, primarily due to $187.6 million in net earnings and $48.7 million in other comprehensive earnings, partially offset by $28.5 million in dividends15 Condensed Consolidated Statements of Cash Flows Operating cash flows increased for 6M 2025, but significant investing and financing activities led to a net decrease in cash Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 6M 2025 | 6M 2024 | | :-------------------------------- | :------ | :------ | | Net cash provided by operating activities | $278,233 | $212,771 | | Net cash used in investing activities | $(269,082) | $(177,009) | | Net cash used in financing activities | $(27,527) | $(22,156) | | Net increase (decrease) in cash | $(18,376) | $13,606 | | Cash at the beginning of the period | $39,790 | $36,424 | | Cash at June 30, | $21,414 | $50,030 | - Net cash provided by operating activities increased by 30.8% to $278.2 million in 6M 2025, up from $212.8 million in 6M 202418 - Net cash used in investing activities increased by 52.0% to $269.1 million in 6M 2025, from $177.0 million in 6M 2024, primarily due to higher purchases of fixed income and equity securities18 Notes to Unaudited Condensed Consolidated Financial Statements These notes detail accounting policies, investments, loss development, income taxes, stock compensation, segments, and leases 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines financial statement presentation, accounting policies, stock split adjustments, new standards, and impairment - RLI Corp. effected a two-for-one stock split on January 15, 2025, with all share and per share information retroactively adjusted22 - No new accounting standards applicable in 2025 materially impact the financial statements. Prospective standards (ASU 2023-09 and ASU 2024-03) are disclosure-related and not expected to have a material financial impact232426 - Annual impairment assessments for goodwill and indefinite-lived intangible assets were performed in Q2 2025, with no impairment found32 2. INVESTMENTS This section details the investment portfolio, including fixed income, equity, realized gains/losses, fair value, and credit loss analysis Net Realized Gain (Loss) on Disposition of Investments (in thousands) | Security Type | 6M 2025 Net Realized Gain (Loss) | 6M 2024 Net Realized Gain (Loss) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Fixed income securities - available-for-sale | $(812) | $(782) | | Equity securities | $29,472 | $13,004 | | Fixed income securities - calls/maturities | $(10) | $(777) | Fair Value of Investments (in thousands) | Asset Type | June 30, 2025 (Total) | December 31, 2024 (Total) | | :-------------------------------- | :-------------------- | :---------------------- | | Fixed income securities - available-for-sale | $3,420,761 | $3,175,796 | | Equity securities | $810,959 | $736,191 | | Total | $4,231,720 | $3,911,987 | - As of June 30, 2025, the fixed income portfolio contained 1,133 securities with an unrealized loss position totaling $177 million, representing 5% of the portfolio's cost basis. Unrealized losses decreased in the first six months of 2025 due to falling interest rates59 3. HISTORICAL LOSS AND LAE DEVELOPMENT This section reconciles unpaid losses and LAE, showing favorable development on prior years' loss reserves for 6M 2025 and 2024 Unpaid Losses and LAE Reconciliation (in thousands) | Metric | 6M 2025 | 6M 2024 | | :-------------------------------- | :------ | :------ | | Net unpaid losses and LAE at beginning of year | $1,938,045 | $1,688,676 | | Increase (decrease) in incurred losses and LAE - Current accident year | $420,433 | $376,546 | | Increase (decrease) in incurred losses and LAE - Prior accident years | $(58,617) | $(64,923) | | Total incurred | $361,816 | $311,623 | | Total paid | $(254,691) | $(237,965) | | Net unpaid losses and LAE at June 30, | $2,045,170 | $1,762,334 | - Incurred losses and LAE for 6M 2025 included $59 million of favorable development on prior years' loss reserves, mainly from accident years 2019-2022 and 2024, driven by marine, commercial excess, surety, and general liability71 - For 6M 2024, favorable development on prior years' loss reserves was $65 million, primarily from accident years 2016, 2017, 2019, 2020, 2022, and 2023, with marine, surety, and general liability as key drivers72 4. INCOME TAXES This section details effective tax rates for Q2 and 6M 2025 and 2024, noting the non-material impact of the OBBBA Effective Tax Rates | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three months ended June 30, | 20.6% | 20.6% | | Six months ended June 30, | 20.2% | 20.3% | - The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, is not expected to have a material impact on the company's financial statements, despite implications for depreciation and other cost deductions76 5. STOCK BASED COMPENSATION This section describes equity compensation plans, including the 2023 LTIP, detailing expense, tax benefits, and RSU/stock option activity - The 2023 RLI Corp. Long-Term Incentive Plan (LTIP) replaced the 2015 LTIP, with 1,083,188 awards granted under the 2023 LTIP since its approval, including 270,006 in 202578 Stock-Based Compensation Expense (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three months ended June 30, | $2,000 | $4,000 | | Six months ended June 30, | $4,000 | $4,000 | | Total unrecognized compensation expense | $9,000 | N/A | | Weighted average vesting period | 2.57 years | N/A | - The intrinsic value of stock options exercised was $3 million for the first six months of 2025, compared to $9 million for the same period in 202483 6. OPERATING SEGMENT INFORMATION This section presents operating results for Casualty, Property, and Surety segments, assessing performance via underwriting income and combined ratio Net Premiums Earned by Segment (in thousands) | Segment | 6M 2025 | 6M 2024 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Casualty | $463,686 | $407,376 | +13.8% | | Property | $263,208 | $263,508 | -0.1% | | Surety | $73,355 | $68,857 | +6.5% | | Grand Total | $800,249 | $739,741 | +8.2% | Segment Earnings Before Income Taxes (Underwriting Income) (in thousands) | Segment | 6M 2025 | 6M 2024 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Casualty | $10,360 | $23,989 | -56.8% | | Property | $106,426 | $110,896 | -4.1% | | Surety | $15,990 | $12,834 | +24.6% | | Total Segment Earnings | $132,776 | $147,719 | -10.2% | Segment Combined Ratio | Segment | 6M 2025 | 6M 2024 | | :-------------------------------- | :------ | :------ | | Casualty | 97.8 | 94.1 | | Property | 59.6 | 57.9 | | Surety | 78.2 | 81.4 | | Total | 83.4 | 80.0 | 7. LEASES This section details operating lease obligations, including ROU assets, liabilities, costs, cash flows, and future minimum payments Lease Costs (in thousands) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Operating lease cost | $1,081 | $1,153 | $2,230 | $2,334 | | Variable lease cost | $459 | $260 | $787 | $508 | | Sublease income | $(42) | $(42) | $(85) | $(85) | | Total lease cost | $1,498 | $1,371 | $2,932 | $2,757 | | Operating cash outflows from operating leases | $1,017 | $1,105 | $2,245 | $2,168 | | ROU assets obtained in exchange for new operating lease liabilities | $467 | $333 | $480 | $3,789 | - As of June 30, 2025, operating lease ROU assets were $12.5 million and operating lease liabilities were $14.2 million, with a weighted-average remaining lease term of 5.89 years100 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses RLI Corp.'s financial performance, condition, and outlook, covering business overview, key measures, results, and liquidity OVERVIEW RLI Corp. is a specialty insurer focused on niche markets, emphasizing underwriting profitability and shareholder returns - RLI Corp. achieved its 29th consecutive year of underwriting profitability in 2024, with an average combined ratio of 88.1% over that period104 - The company's business model focuses on underwriting profitability, sound risk selection, and discipline, with a secondary focus on premium growth where underwriting profit exists110 - The company's three distinct business segments are Property, Casualty, and Surety, with growth measured by gross premiums written and profitability by underwriting income and combined ratios105 Key Performance Measures This section defines key performance measures like underwriting income and combined ratio, noting no significant changes to critical accounting policies - Underwriting income is a pretax measure of insurance operations profitability, calculated by subtracting losses and settlement expenses, policy acquisition costs, and insurance operating expenses from net premiums earned113 - The combined ratio, a common industry measure, is 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)115 - No significant changes to critical accounting policies, including those for loss reserves, investment valuation, reinsurance recoverability, deferred policy acquisition costs, and deferred taxes, were reported during the year117118 RESULTS OF OPERATIONS This section analyzes RLI Corp.'s financial results for Q2 and 6M 2025 vs. 2024, covering premiums, investment income, gains, underwriting income, combined ratio, and net earnings Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 For 6M 2025, net premiums and investment income increased, but underwriting income and net earnings decreased, while comprehensive earnings rose Consolidated Revenues (in thousands) | Metric | 6M 2025 | 6M 2024 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Net premiums earned | $800,249 | $739,741 | +8.2% | | Net investment income | $76,144 | $66,808 | +13.9% | | Net realized gains (losses) | $29,916 | $5,802 | +415.6% | | Net unrealized gains on equity securities | $1,182 | $48,922 | -97.6% | | Total consolidated revenue | $907,491 | $861,273 | +5.4% | - Underwriting income for 6M 2025 was $133 million (83.4 combined ratio), down from $148 million (80.0 combined ratio) in 6M 2024. This was due to lower favorable development on prior years' loss reserves ($59 million in 2025 vs. $65 million in 2024) and a shift towards casualty lines121122 - Net earnings for 6M 2025 decreased to $188 million from $210 million in 6M 2024, while comprehensive earnings increased to $236 million from $189 million, driven by $49 million in other comprehensive earnings from lower interest rates increasing fixed income fair values125126 Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 For Q2 2025, net premiums and investment income increased, but underwriting income decreased due to mix shift and expenses, while net and comprehensive earnings rose Consolidated Revenues (in thousands) | Metric | Q2 2025 | Q2 2024 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Net premiums earned | $401,904 | $379,065 | +6.0% | | Net investment income | $39,418 | $33,961 | +16.1% | | Net realized gains (losses) | $15,004 | $(192) | N/A | | Net unrealized gains on equity securities | $43,500 | $3,608 | +1105.8% | | Total consolidated revenue | $499,826 | $416,442 | +20.0% | - Underwriting income for Q2 2025 was $62 million (84.5 combined ratio), down from $70 million (81.5 combined ratio) in Q2 2024. The loss ratio increased to 45.9% from 44.3% due to a shift towards casualty lines, and the expense ratio increased to 38.6% from 37.2% due to higher bonus accruals and investments147148 - Net earnings for Q2 2025 increased to $124 million from $82 million in Q2 2024. Comprehensive earnings totaled $143 million, up from $74 million, driven by $44 million in unrealized gains on equity securities and $19 million in other comprehensive earnings from fixed income150151 LIQUIDITY AND CAPITAL RESOURCES This section discusses RLI Corp.'s cash flows, debt, liquidity, investment portfolio, capital structure, and dividend policy for 6M 2025 Cash Flows Summary (in thousands) | Activity | 6M 2025 | 6M 2024 | | :-------------------------------- | :------ | :------ | | Operating cash flows | $278,233 | $212,771 | | Investing cash flows | $(269,082) | $(177,009) | | Financing cash flows | $(27,527) | $(22,156) | | Total net increase (decrease) in cash | $(18,376) | $13,606 | - As of June 30, 2025, the company had $100 million in debt outstanding, including $50 million from a revolving line of credit with PNC Bank and $50 million from the Federal Home Loan Bank of Chicago (FHLBC)170 - The investment portfolio increased by $341 million from December 31, 2024, to June 30, 2025, with fixed income comprising 77.3% and equity securities 18.3% of total fair value. The fixed income portfolio had an average duration of 4.9 years143175 - RLI Ins. paid $110 million in ordinary dividends to RLI Corp. in the first six months of 2025. As of June 30, 2025, $13 million of the principal insurance subsidiary's net assets were unrestricted for ordinary dividend distribution189 Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes to market risk exposure since 2024 Form 10-K, with primary risks remaining equity price and interest rate risk - No material changes to market risk exposure were reported since the 2024 Annual Report on Form 10-K190 - Primary market risks include equity price risk from equity securities and interest rate risk from fixed income securities, with a consistent focus on high credit quality, investment grade securities191 Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025192 - No material changes were made to internal control over financial reporting during the last fiscal quarter194 PART II - OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, defaults, trading plans, and exhibits Item 1. Legal Proceedings No material changes to legal proceedings were reported during the period - No material changes to legal proceedings were reported197 Item 1A. Risk Factors No material changes to the company's risk factors were reported during the period - No material changes to risk factors were reported198 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - This item is not applicable for the reporting period199 Item 3. Defaults upon Senior Securities This item is not applicable for the reporting period - This item is not applicable for the reporting period200 Item 4. Mine Safety Disclosures This item is not applicable for the reporting period - This item is not applicable for the reporting period201 Item 5. Other Information This section provides information on securities trading plans for executive officers and directors, with no new plans adopted or terminated - 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, 2025203 Securities Trading Plans of Executive Officers and Directors The Insider Trading Policy permits Rule 10b5-1 trading plans, but no new plans were adopted or terminated by directors or officers - The company's Insider Trading Policy allows executive officers and directors to enter into Rule 10b5-1 trading plans202 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the three months ended June 30, 2025203 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including stock option, RSU agreements, and SOX certifications - Exhibits include 2025 Stock Option Agreement, 2025 Non-Employee Director Restricted Stock Unit Agreement, and Certifications Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002205 SIGNATURES This section contains the required signatures for the Form 10-Q, confirming authorization and signing by RLI Corp.'s CFO - The report was signed by Todd W. Bryant, Chief Financial Officer (Principal Financial and Chief Accounting Officer) on July 24, 2025209