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Financial Services

RLI Corporation

10/21/2026 | Press release | Distributed by Public on 10/21/2026 14:44

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 appear throughout this report. These forward-looking statements generally include words such as "expect," "predict," "estimate," "will," "should," "anticipate," "believe" and similar expressions. Such assumptions are, in turn, based on information available and internal estimates and analyses of general economic conditions, competitive factors, conditions specific to the property and casualty insurance, reinsurance and surety industries, claims development and the impact thereof on our loss reserves, the adequacy and financial security of our reinsurance programs, developments in the securities market and the impact on our investment portfolio, regulatory changes and conditions and other factors. These assumptions are subject to various risks, uncertainties and other factors, including, without limitation those set forth in "Item 1A. Risk Factors" within the Annual Report on Form 10-K for the year ended December 31, 2025 and Part II within this report. Actual results could differ materially from those expressed in, or implied by, these forward-looking statements. Forward-looking statements reflect the Company's expectations, plans or forecasts of future events and views as of the date of this report. While the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. You should review the various risks, uncertainties and other factors listed from time to time in our Securities and Exchange Commission filings.

OVERVIEW

RLI Corp. is a U.S.-based, specialty insurance company that underwrites select property, casualty and surety products through three major subsidiaries. Our focus is on niche markets and developing unique products that are tailored to customers' needs. We hire underwriters and claim examiners with deep expertise and provide exceptional customer service and support. We maintain a highly diverse product portfolio and underwrite for profit in all market conditions. In 2025, we achieved our 30th consecutive year of underwriting profitability. Over the 30-year period, we averaged an 87.9 combined ratio. This drives our ability to provide shareholder returns in three different ways: the underwriting income itself, net investment income from our investment portfolio and long-term appreciation in our equity portfolio.

We measure the results of our insurance operations by monitoring growth and profitability across three distinct business segments: casualty, property and surety. Growth is measured in terms of gross premiums written, and profitability is analyzed through underwriting income and combined ratios.

The property and casualty insurance business is cyclical and influenced by many factors, including price competition, economic conditions, natural or man-made disasters (for example, earthquakes, hurricanes, pandemics and terrorism), interest rates, state regulations, court decisions, changes in the law and evolving technologies. One of the unique and challenging features of the property and casualty insurance business is that coverages must be priced before costs have fully developed, because premiums are charged before claims are incurred. This requires that liabilities be estimated and recorded in recognition of future loss and settlement obligations. Due to the inherent uncertainty in estimating these liabilities, there can be no assurance that actual liabilities will equal recorded amounts. If actual liabilities differ from recorded amounts, there will either be an adverse or favorable effect on net earnings.

The casualty portion of our business consists largely of commercial excess, personal umbrella, general liability, transportation and management liability coverages, as well as package business and other specialty coverages, such as professional liability and workers' compensation for office-based professionals. We also assume a limited amount of risks

through quota share and excess of loss reinsurance agreements. The casualty business is subject to the risk of estimating losses and related loss reserves because the ultimate settlement of a casualty claim may take several years to fully develop.

Our property segment is comprised primarily of commercial fire, hurricane, earthquake, difference in conditions and marine coverages. We also offer homeowners' coverages in Hawaii. Property insurance results are subject to the variability introduced by perils such as earthquakes, fires, hurricanes and other storms. Our major catastrophe exposure is to losses caused by windstorms, affecting commercial properties in coastal regions of the United States, and earthquakes, primarily on the West Coast. We limit our net aggregate exposure to a catastrophic event by managing the total policy limits written in a particular region, purchasing reinsurance and maintaining policy terms and conditions throughout all insurance cycles. We also use computer-assisted modeling techniques to provide estimates that help the Company carefully manage the concentration of risks exposed to catastrophic events.

The surety segment specializes in writing small to medium-sized contract surety coverages, including payment and performance bonds. We offer a variety of commercial surety bonds for medium to large-sized businesses across a broad spectrum of industries, including the home builders, financial, healthcare, energy and renewable energy industries. We also offer a variety of transactional bonds, including but not limited to license and permit, notary and court bonds. Often, our surety coverages involve a statutory requirement for bonds. While these bonds typically maintain a relatively low loss ratio, losses may fluctuate due to adverse economic conditions affecting the financial viability of our insureds.

The insurance marketplace is competitive across all of our segments. However, we believe that our business model is built to create underwriting income by focusing on sound risk selection and discipline. Our primary focus will continue to be on underwriting profitability, with a secondary focus on premium growth where we believe underwriting profit exists, as opposed to general premium growth or market share measurements.

Key Performance Measures

The following is a list of key performance measures found throughout this report with their definitions, relationships to GAAP measures and explanations of their importance to our operations.

Underwriting Income

Underwriting income or profit represents one measure of the pretax profitability of our insurance operations, and is derived by subtracting losses and settlement expenses, policy acquisition costs and insurance operating expenses from net premiums earned, which are all GAAP financial measures. Each of these components is presented in the statements of earnings but are not subtotaled. However, this information is available in total and by segment in note 7 to the unaudited condensed consolidated financial statements in this quarterly report on Form 10-Q, and in note 11 to the consolidated financial statements in our 2025 Annual Report on Form 10-K, regarding operating segment information. The nearest comparable GAAP measure is earnings before income taxes which, in addition to underwriting income, includes net investment income, net realized gains or losses, net unrealized gains or losses on equity securities, general corporate expenses, debt costs and our portion of earnings from unconsolidated investees. A reconciliation of net earnings to underwriting income follows:


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
(in thousands)	2026		2025		2026		2025
Net earnings	$	81,009	$	124,610	$	303,922	$	312,160
Income tax expense		19,084		32,635		74,200		80,231
Earnings before income taxes	$	100,093	$	157,245	$	378,122	$	392,391
Equity in earnings of unconsolidated investees		3,137		(1,540)		(1,980)		(7,055)
General corporate expenses		3,388		5,045		12,335		12,747
Interest expense on debt		4,200		1,364		10,994		4,049
Net unrealized (gains) losses on equity securities		3,282		(41,981)		(60,346)		(43,163)
Net realized gains		(8,637)		(18,318)		(27,603)		(48,234)
Net investment income		(46,694)		(41,270)		(135,057)		(117,414)
Net underwriting income	$	58,769	$	60,545	$	176,465	$	193,321

Combined Ratio

The combined ratio, which is derived from components of underwriting income, is a common industry performance measure of profitability for underwriting operations and is calculated in two components. First, the loss ratio is losses and settlement expenses divided by net premiums earned. The second component, the expense ratio, reflects the sum of policy acquisition costs and insurance operating expenses divided by net premiums earned. All items included in these components of the combined ratio are presented in our GAAP consolidated financial statements. The sum of the loss and expense ratios is the combined ratio. The difference between the combined ratio and 100 reflects the per-dollar rate of underwriting income or loss.

Critical Accounting Policies

In preparing the unaudited condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates.

The most critical accounting policies involve significant estimates and include those used in determining the liability for unpaid losses and settlement expenses, investment valuation, recoverability of reinsurance balances, deferred policy acquisition costs and deferred taxes. For a detailed discussion of each of these policies, refer to our 2025 Annual Report on Form 10-K.

There have been no significant changes to critical accounting policies during the year.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025

Net premiums earned increased 4 percent, driven primarily by products in our casualty segment. Investment income was up 15 percent, reflecting higher reinvestment rates and an increased average asset base. Market increases resulted in $60 million of unrealized gains on equity securities during the first nine months of 2026, compared to $43 million in the same period of 2025. Realized gains in 2026 included $30 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, and $3 million of realized losses on fixed income securities. This compares to $45 million of realized gains on equity securities, $2 million of realized gains on fixed income securities and $1 million of other realized gains during the first nine months of 2025.


	For the Nine Months
	Ended September 30,
Consolidated Revenues (in thousands)	2026		2025
Net premiums earned	$	1,253,396	$	1,207,944
Net investment income		135,057		117,414
Net realized gains		27,603		48,234
Net unrealized gains (losses) on equity securities		60,346		43,163
Total consolidated revenue	$	1,476,402	$	1,416,755

Underwriting income was $176 million on an 85.9 combined ratio for the first nine months of 2026, compared to $193 million on an 84.0 combined ratio in the same period of 2025. Underwriting results were impacted by $30 million of pretax catastrophe losses in 2026, compared to $26 million in 2025. Results for each period benefited from favorable development on prior years' loss reserves, which provided additional pretax earnings of $98 million in the first nine months of 2026, compared to $74 million in 2025.

The loss ratio was 46.6 for the first nine months of 2026, compared to 45.5 in 2025. The benefit of greater favorable development on prior years' loss reserves was offset by a shift in the mix of business towards casualty lines, which tend to have higher non-catastrophe loss ratios than our property and surety products. The expense ratio increased to 39.3 from 38.5, primarily reflecting continued investments in underwriting and technology capabilities.

and decreased investment portfolio returns would lead to expense reductions. These performance-related expenses affect policy acquisition, insurance operating and general corporate expenses.

Equity in earnings of unconsolidated investees relates to our investment in Prime Holdings Insurance Services, Inc. (Prime), a specialty insurance company. We recognized $2 million of investee earnings from Prime in the first nine months of 2026, compared to $7 million in the first nine months of 2025.

Net earnings for the first nine months of 2026 totaled $304 million, compared to $312 million for the same period in 2025. Higher investment income and greater unrealized gains on equity securities were offset by lower underwriting income and higher interest expense.

Comprehensive earnings totaled $158 million for the first nine months of 2026, compared to $389 million for the first nine months of 2025. Other comprehensive earnings (loss) primarily included net after-tax unrealized gains (losses) from the fixed income portfolio. Other comprehensive loss of $145 million in the first nine months of 2026 was primarily attributable to rising interest rates, which decreased the fair value of securities held in the fixed income portfolio. Comparatively, $76 million of other comprehensive earnings was recognized in 2025.

Premiums

Gross premiums written increased $42 million for the first nine months of 2026, driven by growth within our casualty segment, which continued to benefit from favorable rate movement. Net premiums earned increased $45 million, primarily due to continued growth within our casualty segment.


	Gross Premiums Written						Net Premiums Earned
	For the Nine Months						For the Nine Months
	Ended September 30,						Ended September 30,
(in thousands)	2026		2025		% Change		2026		2025		% Change
Casualty
Commercial excess and personal umbrella	$	500,197	$	426,663	17	%	$	380,731	$	318,705	19	%
Commercial transportation		119,417		108,342	10	%		97,834		91,464	7	%
Professional services		94,770		91,042	4	%		84,251		80,641	4	%
General liability		72,612		79,186	(8)	%		68,182		71,806	(5)	%
Small commercial		62,597		63,320	(1)	%		58,795		59,542	(1)	%
Executive products		64,257		63,700	1	%		17,000		17,507	(3)	%
Other casualty		63,100		69,874	(10)	%		60,872		67,529	(10)	%
Total	$	976,950	$	902,127	8	%	$	767,665	$	707,194	9	%
Property
Commercial property	$	301,385	$	353,311	(15)	%	$	208,381	$	232,541	(10)	%
Marine		144,727		134,752	7	%		122,968		118,784	4	%
Other property		60,300		48,437	24	%		45,335		38,572	18	%
Total	$	506,412	$	536,500	(6)	%	$	376,684	$	389,897	(3)	%
Surety
Transactional	$	43,711	$	42,142	4	%	$	40,379	$	39,024	3	%
Commercial		41,883		46,034	(9)	%		36,979		37,898	(2)	%
Contract		36,827		36,805	0	%		31,689		33,931	(7)	%
Total	$	122,421	$	124,981	(2)	%	$	109,047	$	110,853	(2)	%
Grand Total	$	1,605,783	$	1,563,608	3	%	$	1,253,396	$	1,207,944	4	%

Casualty

Gross premiums written for the casualty segment increased $75 million in the first nine months of 2026. We continued to benefit from favorable rate movement across a large portion of our casualty segment. Personal umbrella continued to expand its distribution base while achieving favorable rate increases. Our commercial transportation business benefited from favorable market conditions as some competitors reduced their underwriting appetite, creating opportunities to write additional high-quality business at adequate rates. General liability and commercial excess premiums declined as slower construction activity and increased competition within our targeted markets created a more challenging environment for attracting new business. Other casualty premiums declined due to increased competition in our binding authority business and our decision to no longer participate in the reinsurance agreement with Prime.

Property

Gross premiums written for the property segment decreased $30 million in the first nine months of 2026. Commercial property declined $52 million as capacity and competition continued to pressure pricing and renewal retention. Marine premiums increased $10 million, driven by continued growth in our inland marine products. Additionally, growth in other property premiums was driven by rate increases for our Hawaii homeowners business and new opportunities with strategic distribution partners.

Surety

Gross premiums written for the surety segment decreased by $3 million in the first nine months of 2026. Transactional surety premiums increased as a result of continued marketing efforts. Contract surety remained relatively stable despite economic conditions that tempered construction activity, reflecting disciplined underwriting and ongoing producer engagement. Commercial surety premiums declined due to lower levels of non-recurring premium from our renewable energy portfolio and a competitive marketplace that resulted in fewer new business opportunities.

Underwriting Income


	For the Nine Months
	Ended September 30,
	2026		2025
Underwriting Income (in thousands)
Casualty	$	10,075	$	14,846
Property		152,110		156,850
Surety		14,280		21,625
Total	$	176,465	$	193,321

Combined Ratio
Casualty		98.7		97.9
Property		59.6		59.8
Surety		86.9		80.5
Total		85.9		84.0

Casualty

The casualty segment recorded underwriting income of $10 million in the first nine months of 2026, compared to $15 million for the same period last year. Prior accident years' reserve releases reduced loss and settlement expenses for the casualty segment by $36 million in 2026, primarily related to accident years 2018 through 2021, as well as 2024 and 2025. Larger drivers of the favorable development were commercial transportation, commercial excess, professional services and general liability, while personal umbrella experienced adverse development. In comparison, $28 million of prior accident years' reserves were released in the first nine months of 2025. Commercial excess, general liability and subsegments within professional liability drove the favorable development, while commercial transportation had adverse development related to auto exposures in 2025. Storm losses on casualty-oriented package policies that include property coverage resulted in $3 million of losses in 2026, compared to $2 million in 2025.

The combined ratio for the casualty segment was 98.7 in 2026, compared to 97.9 in 2025. The segment's loss ratio was 62.6 in 2026, up from 61.9 in 2025, primarily due to a shift in the mix of business toward higher loss ratio products. The expense ratio for the casualty segment was 36.1, up from 36.0 for the same period last year.

Property

The property segment recorded underwriting income of $152 million for the first nine months of 2026, compared to $157 million for the same period last year. Underwriting results for 2026 included $54 million of favorable development on prior years' loss and catastrophe reserves, offset by $27 million of storm losses. Comparatively, results for 2025 included $32 million of favorable development on prior years' loss and catastrophe reserves and $24 million of storm and other catastrophe losses.

Underwriting results for the first nine months of 2026 resulted in a combined ratio of 59.6, compared to 59.8 for the same period last year. The segment's loss ratio was 24.3 in 2026, down from 26.7 in 2025, due to increased favorable development on prior accident years. The segment's expense ratio increased to 35.3 in 2026 from 33.1 in the prior year, as a result of continued investments in people on a lower earned premium base.

Surety

The surety segment recorded underwriting income of $14 million for the first nine months of 2026, compared to $22 million for the same period last year. Results for 2026 included favorable development on prior accident years' reserves, which decreased loss and settlement expenses for the segment by $8 million, compared to $13 million in 2025.

The combined ratio for the surety segment totaled 86.9 for the first nine months of 2026, compared to 80.5 for the same period last year. The segment's loss ratio was 11.2 in 2026, up from 7.0 in 2025, due to lower levels of favorable prior accident years' reserve development. The expense ratio was 75.7, up from 73.5 in the prior year, due to a lower earned premium base and higher acquisition-related expenses, which can fluctuate between periods.

Investment Income

Our investment portfolio generated net investment income of $135 million during the first nine months of 2026, an increase of 15 percent from the same period in 2025. The increase in investment income was due to higher reinvestment rates, as well as an increased average asset base relative to the prior year.

Yields on our fixed income investments for the first nine months of 2026 and 2025 were as follows:


	2026		2025
Pretax Yield
Taxable	4.42	%	4.10	%
Tax-Exempt	2.97	%	2.83	%
After-Tax Yield
Taxable	3.49	%	3.24	%
Tax-Exempt	2.81	%	2.68	%

The following table depicts the composition of our investment portfolio at September 30, 2026 as compared to December 31, 2025:


(in thousands)	September 30, 2026				December 31, 2025
Fixed income	$	3,600,969	73.4	%	$	3,533,336	75.7	%
Equity securities		948,319	19.3	%		898,876	19.3	%
Short-term investments		254,273	5.2	%		120,562	2.6	%
Other invested assets		57,608	1.2	%		59,281	1.3	%
Cash		46,212	0.9	%		51,565	1.1	%
Total investments and cash	$	4,907,381	100.0	%	$	4,663,620	100.0	%

We believe our overall asset allocation supports our strategy to preserve capital for policyholders, provide sufficient income to support our insurance operations and effectively grow book value over a long-term investment horizon.

The fixed income portfolio increased by $68 million in the first nine months of 2026, as the majority of investment cash flows were directed to the fixed income portfolio, overcoming declines in market value due to rising interest rates. Average fixed income duration was 4.6 years at September 30, 2026, reflecting our liability structure and sound capital position. The equity portfolio increased by $49 million during the first nine months of 2026, due to positive performance in the equity markets. Short-term investments increased by $134 million as we maintained higher levels of liquidity in short-term securities, which continued to offer attractive yields in the current interest rate environment.

Income Taxes

Our effective tax rate for the first nine months of 2026 was 19.6 percent, compared to 20.4 percent for the same period in 2025. Effective rates are dependent upon components of pretax earnings or losses and the related tax effects. The decrease in

the effective tax rate for the nine-month period in 2026 was primarily due to the tax deduction related to the $2.00 special dividend paid to our Employee Stock Ownership Plan in the second quarter, as well as greater utilization of tax credits.

Three Months Ended September 30, 2026 Compared to Three Months Ended September 30, 2025

Net premiums earned increased 4 percent, driven primarily by products in our casualty segment. Investment income was up 13 percent, reflecting higher reinvestment rates and an increased average asset base. Unrealized losses on equity securities were $3 million in the third quarter of 2026, compared to $42 million of unrealized gains for the same period in 2025, with the current-period amount impacted by the realization of gains on equity securities during the quarter. Realized gains in 2026 included $10 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, and $1 million of realized losses on fixed income securities. This compares to $16 million of realized gains on equity securities, $3 million of realized gains on fixed income securities and $1 million of other realized losses during the third quarter of 2025.


	For the Three Months
	Ended September 30,
Consolidated Revenues (in thousands)	2026		2025
Net premiums earned	$	424,914	$	407,695
Net investment income		46,694		41,270
Net realized gains		8,637		18,318
Net unrealized gains (losses) on equity securities		(3,282)		41,981
Total consolidated revenue	$	476,963	$	509,264

Underwriting income was $59 million on an 86.2 combined ratio for the third quarter of 2026, compared to $61 million on an 85.1 combined ratio in the same period of 2025. Underwriting results for 2026 were impacted by $4 million of pretax catastrophe losses, while minimal catastrophe losses were incurred in the third quarter of 2025. Results for each period benefited from favorable development on prior years' loss reserves, which provided additional pretax earnings of $23 million in the third quarter of 2026, compared to $15 million in 2025.

The loss ratio was 47.4 for the third quarter of 2026, up from 46.1 in 2025, primarily due to a shift in the mix of business toward casualty lines and higher catastrophe losses, partially offset by increased favorable development on prior years' loss reserves. The expense ratio decreased to 38.8 from 39.0 as earned premium growth outpaced expense growth.

Bonus and profit-sharing amounts earned by executives, managers and associates are predominantly influenced by corporate performance, including operating earnings, combined ratio and return on capital. Favorable development and other drivers of growth in book value will increase bonus and profit-sharing expenses, while catastrophe losses, adverse development and decreased investment portfolio returns would lead to expense reductions. These performance-related expenses affect policy acquisition, insurance operating and general corporate expenses.

Equity in earnings of unconsolidated investees relates to our investment in Prime Holdings Insurance Services, Inc. (Prime), a specialty insurance company. We recognized $3 million of investee losses from Prime in the third quarter of 2026, compared to $2 million of investee earnings in the third quarter of 2025.

Net earnings for the third quarter of 2026 totaled $81 million, compared to $125 million for the same period in 2025. The decrease primarily reflected lower realized gains and a shift from unrealized gains to unrealized losses on equity securities, partially offset by higher net investment income.

Comprehensive loss totaled $37 million for the third quarter of 2026, compared to $152 million of comprehensive earnings for the same period in 2025. Other comprehensive earnings (loss) primarily included net after-tax unrealized gains (losses) from the fixed income portfolio. Other comprehensive loss of $118 million in the third quarter of 2026 was primarily attributable to rising interest rates, which decreased the fair value of securities held in the fixed income portfolio. Comparatively, $28 million of other comprehensive earnings was recognized in 2025.

Premiums

Gross premiums written increased $12 million for the third quarter of 2026, driven by favorable rate movement and growth within our casualty segment. Net premiums earned increased $17 million, primarily due to continued growth within our casualty segment.


	Gross Premiums Written						Net Premiums Earned
	For the Three Months						For the Three Months
	Ended September 30,						Ended September 30,
(in thousands)	2026		2025		% Change		2026		2025		% Change
Casualty
Commercial excess and personal umbrella	$	173,250	$	149,945	16	%	$	132,606	$	112,175	18	%
Commercial transportation		38,783		42,644	(9)	%		33,508		31,190	7	%
Professional services		32,689		31,310	4	%		28,168		27,431	3	%
General liability		22,223		25,538	(13)	%		22,524		25,007	(10)	%
Small commercial		18,956		20,078	(6)	%		19,587		19,627	(0)	%
Executive products		25,065		25,337	(1)	%		5,646		6,043	(7)	%
Other casualty		19,971		22,211	(10)	%		20,138		22,035	(9)	%
Total	$	330,937	$	317,063	4	%	$	262,177	$	243,508	8	%
Property
Commercial property	$	77,487	$	93,895	(17)	%	$	66,521	$	72,853	(9)	%
Marine		48,471		43,814	11	%		43,412		40,058	8	%
Other property		26,415		16,922	56	%		16,587		13,778	20	%
Total	$	152,373	$	154,631	(1)	%	$	126,520	$	126,689	(0)	%
Surety
Transactional	$	14,663	$	13,291	10	%	$	13,737	$	13,268	4	%
Commercial		13,049		13,677	(5)	%		11,942		12,700	(6)	%
Contract		11,225		11,559	(3)	%		10,538		11,530	(9)	%
Total	$	38,937	$	38,527	1	%	$	36,217	$	37,498	(3)	%
Grand Total	$	522,247	$	510,221	2	%	$	424,914	$	407,695	4	%

Casualty

Gross premiums written for the casualty segment increased $14 million in the third quarter of 2026. We continued to benefit from favorable rate movement across a large portion of our casualty segment, including personal umbrella, where we have also expanded our distribution base. These increases were partially offset by declines in general liability and commercial excess due to increased competition within our targeted markets, as well as lower commercial transportation premiums resulting from underwriting actions in a more competitive market. Other casualty premiums declined primarily due to increased competition in our binding authority business.

Property

Gross premiums written for the property segment decreased $2 million in the third quarter of 2026. Commercial property premiums declined $16 million as capacity and competition continued to pressure pricing and renewal retention. Marine premiums increased $5 million, driven primarily by continued growth in our inland marine products. Additionally, growth in other property premiums was driven by rate increases for our Hawaii homeowners business and new opportunities with strategic distribution partners.

Surety

Gross premiums written for the surety segment increased slightly in the third quarter of 2026. Growth in transactional surety premiums was partially offset by modest declines in commercial and contract surety premiums.

Underwriting Income


	For the Three Months
	Ended September 30,
	2026		2025
Underwriting Income (in thousands)
Casualty	$	1,040	$	4,486
Property		50,426		50,424
Surety		7,303		5,635
Total	$	58,769	$	60,545

Combined Ratio
Casualty		99.6		98.2
Property		60.1		60.2
Surety		79.8		85.0
Total		86.2		85.1

Casualty

The casualty segment recorded underwriting income of $1 million in the third quarter of 2026, compared to $4 million for the same period last year. Prior accident years' reserve releases reduced loss and settlement expenses for the casualty segment by $8 million in 2026, primarily related to accident years 2020, 2021 and 2025. Larger drivers of the favorable development were commercial transportation, commercial excess and professional services, while personal umbrella experienced some adverse development. In comparison, $8 million of prior accident years' reserves were released in the third quarter of 2025. Commercial excess, general liability, executive products and personal umbrella drove the favorable development. Storm losses on casualty-oriented package policies that include property coverage resulted in less than $1 million of losses in both 2026 and 2025.

The combined ratio for the casualty segment was 99.6 in 2026, compared to 98.2 in 2025. The segment's loss ratio was 64.1 in 2026, up from 62.0 in 2025, primarily due to a shift in the mix of business toward higher loss ratio products. The expense ratio for the casualty segment was 35.5, down from 36.2 for the same period last year.

Property

The property segment recorded underwriting income of $50 million for the third quarter of 2026, the same amount as the prior year. Underwriting results for 2026 included $10 million of favorable development on prior years' loss reserves, offset by $4 million of storm losses. Comparatively, results for 2025 included $5 million of favorable development on prior years' loss reserves.

Underwriting results for the third quarter of 2026 resulted in a combined ratio of 60.1, compared to 60.2 for the same period last year. The segment's loss ratio was 24.6 in 2026, down from 25.9 in 2025, as larger reserve releases more than offset higher storm losses. The segment's expense ratio increased to 35.5 in 2026 from 34.3 in the prior year, primarily due to continued investments in people and higher acquisition-related expenses.

Surety

The surety segment recorded underwriting income of $7 million for the third quarter of 2026, compared to $6 million for the same period last year. Results for 2026 included favorable development on prior accident years' reserves, which decreased loss and settlement expenses for the segment by $4 million, compared to $3 million in 2025.

The combined ratio for the surety segment totaled 79.8 for the third quarter of 2026, compared to 85.0 for the same period last year. The segment's loss ratio was 5.9 in 2026, down from 11.4 in 2025, due to higher levels of favorable prior accident years' reserve development. The expense ratio was 73.9, up from 73.6 in the prior year, due to a lower earned premium base and higher acquisition-related expenses, which can fluctuate between periods.

Investment Income

Our investment portfolio generated net investment income of $47 million during the third quarter of 2026, an increase of 13 percent from the same period in 2025. The increase in investment income was due to higher reinvestment rates, as well as an increased average asset base relative to the prior year.

Yields on our fixed income investments for the third quarter of 2026 and 2025 were as follows:


	2026		2025
Pretax Yield
Taxable	4.53	%	4.19	%
Tax-Exempt	2.89	%	2.69	%
After-Tax Yield
Taxable	3.58	%	3.31	%
Tax-Exempt	2.74	%	2.55	%

Income Taxes

Our effective tax rate for the third quarter of 2026 was 19.1 percent, compared to 20.8 percent for the same period in 2025. Effective rates are dependent upon components of pretax earnings or losses and the related tax effects. The decrease in the effective tax rate for the third quarter was primarily due to greater utilization of tax credits.

LIQUIDITY AND CAPITAL RESOURCES

We have three primary types of cash flows: (1) cash flows from operating activities, which consist mainly of cash generated by our underwriting operations and income earned on our investment portfolio, (2) cash flows from investing activities related to the purchase, sale and maturity of investments and (3) cash flows from financing activities that impact our capital structure, such as shareholder dividend payments and changes in debt and shares outstanding.

The following table summarizes cash flows provided by (used in) our activities for the nine-month periods ended September 30, 2026 and 2025:


(in thousands)	2026		2025
Operating cash flows	$	382,708	$	457,453
Investing cash flows		(339,039)		(402,518)
Financing cash flows		(49,022)		(42,104)
Total	$	(5,353)	$	12,831

Premiums received from customers are our largest source of cash, while claim payments on insured losses represent our largest use of cash. Cash flows from operating activities may vary between periods due to the timing of these receipts and payments. Operating cash flow decreased in the first nine months of 2026 compared to the same period in 2025, primarily due to higher loss and settlement expense payments, the purchase of federal income tax credits and higher employee compensation payments. These decreases were partially offset by higher investment income receipts and lower reinsurance costs. During 2026, our financing activities included returning $184 million to shareholders through a $2.00 special dividend and repurchasing $18 million of common stock under the $250 million share repurchase plan the Company's Board of Directors authorized on May 14, 2026.

Outstanding debt totaled $297 million as of September 30, 2026. On March 3, 2026, we completed a public debt offering, issuing $300 million of senior notes maturing June 1, 2036, with interest payable semi-annually at a rate of 5.375 percent. The notes were issued at a discount, resulting in net proceeds of $297 million after discounts and issuance costs.

We repaid $50 million that was outstanding under our revolving credit facility with PNC Bank, N.A. (PNC) on February 20, 2026. The credit facility with PNC, which was entered into during the first quarter of 2023, provided borrowing capacity of $100 million and was scheduled to expire on May 29, 2026. On February 26, 2026, we entered into an amended and restated credit agreement with PNC to extend the maturity date to February 26, 2031. The amended agreement provides borrowing capacity of $150 million and may be increased to $200 million under certain conditions.

On May 12, 2026, we repaid the $50 million borrowed from the Federal Home Loan Bank of Chicago (FHLBC) on November 12, 2025. While the borrowing was outstanding, interest was paid monthly at an annualized rate of 4.21 percent.

Two of our insurance companies, RLI Insurance Company (RLI Ins.) and Mt. Hawley Insurance Company, are members of the FHLBC. Membership in the Federal Home Loan Bank system provides both companies access to an additional source of liquidity via a secured lending facility. Our membership allows each insurance subsidiary to determine tenor and structure at the time of borrowing. As of September 30, 2026, there were no outstanding borrowings with the FHLBC.

As of September 30, 2026, we had cash and other investments maturing within one year of approximately $433 million and an additional $862 million maturing between one to five years. Whereas our strategy is to be fully invested at all times, short-term investments in excess of demand deposit balances are considered a component of investment activities, and thus are classified as investments in our consolidated balance sheets.

We believe that cash generated by operations and investments will provide sufficient sources of liquidity to meet our anticipated needs over the next 12 to 24 months. In the event they are not sufficient, we believe cash available from financing activities and other sources will provide sufficient additional liquidity.

We maintain a diversified investment portfolio representing policyholder funds that have not yet been paid out as claims, as well as the capital we hold for our shareholders. Invested assets at September 30, 2026 have increased $244 million from December 31, 2025. As of September 30, 2026, our investment portfolio had the following asset allocation breakdown:


	Cost or		Fair		Unrealized		% of Total
(in thousands)	Amortized Cost		Value		Gain/(Loss)		Fair Value		Quality*
U.S. government	$	255,418	$	245,973	$	(9,445)	5.0	%	AA+
U.S. agency		25,845		24,887		(958)	0.5	%	AA+
Non-U.S. government & agency		16,886		15,631		(1,255)	0.3	%	A+
Agency MBS		643,916		580,245		(63,671)	11.8	%	AA+
ABS/CMBS/MBS**		816,876		781,895		(34,981)	16.0	%	AAA
Corporate		1,715,017		1,623,954		(91,063)	33.1	%	BBB+
Municipal		418,848		328,384		(90,464)	6.7	%	AA
Total fixed income	$	3,892,806	$	3,600,969	$	(291,837)	73.4	%	AA-
Equity		523,206		948,319		425,113	19.3	%
Short-term investments		254,273		254,273		-	5.2	%
Other invested assets		57,608		57,608		-	1.2	%
Cash		46,212		46,212		-	0.9	%
Total portfolio	$	4,774,105	$	4,907,381	$	133,276	100.0	%

*	Quality ratings provided by Moody's, S&P and Fitch

**	Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities

Quality is an average of each bond's credit rating, adjusted for its relative weighting in the portfolio. As of September 30, 2026, our fixed income portfolio had the following rating distribution:


									Below
									Investment
	AAA		AA		A		BBB		Grade		No Rating		Fair Value
U.S. government	$	-	$	245,973	$	-	$	-	$	-	$	-	$	245,973
U.S. agency		-		24,887		-		-		-		-		24,887
Non-U.S. government & agency		-		1,357		6,997		5,249		-		2,028		15,631
Agency MBS		-		580,245		-		-		-		-		580,245
ABS/CMBS/MBS*		525,022		73,391		121,482		13,054		4,128		44,818		781,895
Corporate		10,191		163,603		634,729		511,546		148,971		154,914		1,623,954
Municipal		83,745		211,607		33,032		-		-		-		328,384
Total	$	618,958	$	1,301,063	$	796,240	$	529,849	$	153,099	$	201,760	$	3,600,969

*	Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities

As of September 30, 2026, our fixed income portfolio remained well diversified, with 2,033 individual issues.

Our investment portfolio has exposure to structured asset-backed securities. As of September 30, 2026, we had $435 million in ABS, which are pools of assets collateralized by cash flows from several types of loans, including home equity, credit cards, autos and structured bank loans in the form of collateralized loan obligations (CLOs).

As of September 30, 2026, we had $346 million in commercial and non-agency MBS and $580 million in MBS backed by government sponsored enterprises (GSEs - Freddie Mac, Fannie Mae and Ginnie Mae). Excluding the GSE-backed MBS, our exposure to ABS and CMBS was 16.2 percent of our investment portfolio at quarter end.

We had $1.6 billion in corporate fixed income securities as of September 30, 2026, which includes $142 million invested in a high-yield credit strategy. This high-yield portfolio consists of floating rate bank loans and bonds that are below investment grade in credit quality and offer incremental yield over our core fixed income portfolio.

The municipal portfolio includes approximately 70 percent taxable securities and 30 percent tax-exempt securities. Approximately 90 percent of our municipal bond portfolio maintains an 'AA' or better rating, while 100 percent of the municipal bond portfolio is rated 'A' or better.

Securities within the equity portfolio are well diversified and are primarily invested in broad index exchange traded funds (ETFs). Our actively managed equity strategy has a preference for dividend income and value oriented security selection with low turnover, which minimizes transaction costs and taxes throughout our long investment horizon.

As of September 30, 2026, our equity portfolio had a dividend yield of 1.3 percent, compared to 1.1 percent for the S&P 500 index. Because of the corporate dividend-received-deduction applicable to our dividend income, we pay an effective tax rate of 13.1 percent on dividends, compared to 21.0 percent on taxable interest and 5.3 percent on municipal bond interest income. The equity portfolio is managed in a diversified and granular manner, with 67 individual securities and five ETF positions. No single company exposure in the equity portfolio represents more than 1 percent of invested assets.

Other invested assets include investments in low-income housing tax credit and historic tax credit partnerships, membership in the FHLBC and investments in private funds.

We had $54 million of investments in unconsolidated investees at September 30, 2026, compared to $54 million at December 31, 2025.

Our investment portfolio does not have any exposure to derivatives.

As of September 30, 2026, our capital structure consisted of $297 million in debt and $1.7 billion of shareholders' equity. Debt outstanding comprised 15 percent of total capital as of September 30, 2026. Interest and fees on debt obligations totaled $11 million for the first nine months of 2026 and $4 million during the same period in 2025. We incurred interest expense on debt at an average annual interest rate of 5.27 percent during the first nine months of 2026, compared to 5.18 percent during the same period last year.

We paid a regular quarterly cash dividend of $0.18 per share on September 15, 2026, the same amount as the prior quarter. We have increased dividends in each of the last 51 years.

Our three insurance companies are subsidiaries of RLI Corp, with RLI Ins. as the first-level, or principal, insurance company. At the holding company (RLI Corp.) level, we rely largely on dividends from our insurance subsidiaries to meet our obligations for paying principal and interest on outstanding debt, corporate expenses and dividends to RLI Corp. shareholders. As discussed further below, dividend payments to RLI Corp. from our principal insurance subsidiary are restricted by state insurance laws as to the amount that may be paid without prior approval of the insurance regulatory authorities of Illinois. As a result, we may not be able to receive dividends from such subsidiary at times and in amounts necessary to pay desired dividends to RLI Corp. shareholders. On a GAAP basis, as of September 30, 2026, our holding company had $1.7 billion in equity. This includes amounts related to the equity of our insurance subsidiaries, which is subject to regulatory restrictions under state insurance laws. The unrestricted portion of holding company net assets is comprised primarily of investments and cash, including $206 million in liquid assets. Unrestricted funds at the holding company are available to fund debt interest, general corporate obligations and dividend payments to our shareholders. If necessary, the holding company also has other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include a revolving line of credit, as well as access to capital markets.

Ordinary dividends, which may be paid by our principal insurance subsidiary without prior regulatory approval, are subject to certain limitations based upon statutory income, surplus and earned surplus. The maximum ordinary dividend distribution from our principal insurance subsidiary in a rolling 12-month period is limited by Illinois law to the greater of 10 percent of RLI Ins. policyholder surplus, as of December 31 of the preceding year, or the net income of RLI Ins. for the 12-month period ending December 31 of the preceding year. Ordinary dividends are further restricted by the requirement that they be paid from earned surplus.

In the first nine months of 2026, RLI Ins. paid $157 million in ordinary dividends to RLI Corp. In 2025, RLI Ins. paid ordinary dividends totaling $139 million. Any dividend distribution in excess of the ordinary dividend limits is deemed extraordinary and requires prior approval from the Illinois Department of Insurance (IDOI). In 2025, our principal insurance subsidiary sought and received regulatory approval prior to the payment of extraordinary dividends totaling $151 million. As of September 30, 2026, $1 million of the net assets of our principal insurance subsidiary were not restricted and could be distributed to RLI Corp. as ordinary dividends. A total of $152 million in ordinary dividend capacity will be available over the remainder of 2026. In addition to restrictions from our principal subsidiary's insurance regulator, we also consider internal models and how capital adequacy is defined by our rating agencies in determining amounts available for distribution.

RLI Corporation published this content on October 21, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 21, 2026 at 20:44 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]