RLI(US:RLI)2026-02-20 17:36Financial Risks - The company reviews historical data and various factors to establish loss reserves, assuming that past experience is a basis for predicting future events [125]. - Catastrophic losses, particularly from hurricanes and earthquakes, are unpredictable and could lead to material financial losses for the company [126]. - The company uses models to assess exposure to catastrophic events, but actual losses may exceed modeled expectations, impacting financial results [128]. - Economic downturns could lower demand for insurance products, adversely affecting revenue and profitability, especially in the construction sector, which constitutes approximately one-third of the business [133]. - Access to capital and market liquidity is crucial for the company’s growth; disruptions could adversely affect business opportunities [134]. - The company relies on dividends from its insurance subsidiaries to meet obligations, but state insurance laws restrict these payments, potentially impacting financial flexibility [135]. - The ability to pay dividends on common stock is not guaranteed and depends on the company's financial condition and regulatory constraints [136]. - The investment portfolio's value may fluctuate due to changes in interest rates and market conditions, impacting the company's financial condition [137]. Operational Risks - Operational risks, including reliance on third-party vendors and potential cybersecurity breaches, could disrupt business and incur significant expenses [143]. - Any significant interruption in operations could materially impact the company's financial condition and profitability [144]. - The company faces risks from cyber security incidents that could disrupt operations and result in significant liabilities, potentially impacting reputation and financial performance [146]. - The company is subject to litigation risks that could materially affect financial condition and operations, with uncertainties surrounding potential unfavorable outcomes [151]. Market and Investment Risks - The fair value of the fixed income portfolio as of December 31, 2025, is $3.5 billion, with potential decreases of $184 million and $352 million if interest rates increase by 100 and 200 basis points, respectively [336]. - The equity portfolio's fair value as of December 31, 2025, is $899 million, with potential decreases of $85 million and $169 million if the S&P 500 Index declines by 10% and 20%, respectively [337]. - The company has a beta of 0.9 for its equity portfolio compared to the S&P 500's beta of 1.0, indicating a lower sensitivity to market fluctuations [334]. - The company has been managing market risk through diversification and matching the duration of assets to liabilities to mitigate interest rate risk [332]. Technological and Competitive Risks - The company’s ability to compete may be impaired if it cannot keep pace with technological advancements in the insurance industry [147]. Regulatory and Structural Risks - The company is subject to anti-takeover provisions that could delay or prevent beneficial changes in control [152]. - The company has cyber insurance, but coverage may not fully protect against all potential cyber security incidents [146]. Health-Related Risks - The company may experience reduced cash flows and increased claims due to public health outbreaks, which could adversely affect revenues and profitability [148].