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, 2026
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
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
9025 North Lindbergh Drive, Peoria, IL
61615
(Address of principal executive offices)
(Zip Code)
(309) 692-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock $0.01 par value
RLI
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 14, 2026, the number of shares outstanding of the registrant’s Common Stock was 91,732,032.
Page
Part I - Financial Information
3
Item 1.
Financial Statements
Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Loss) for the Three and Nine-Month Periods Ended September 30, 2026 and 2025 (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025 (unaudited)
4
Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine-Month Periods Ended September 30, 2026 and 2025 (unaudited)
5
Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2026 and 2025 (unaudited)
6
Notes to Unaudited Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
36
Item 4.
Controls and Procedures
Part II - Other Information
37
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
38
Signatures
39
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
RLI Corp. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Loss)
(Unaudited)
For the Three Months
For the Nine Months
Ended September 30,
(in thousands, except per share data)
2026
2025
Net premiums earned
$
424,914
407,695
1,253,396
1,207,944
Net investment income
46,694
41,270
135,057
117,414
Net realized gains
8,637
18,318
27,603
48,234
Net unrealized gains (losses) on equity securities
(3,282)
41,981
60,346
43,163
Consolidated revenue
476,963
509,264
1,476,402
1,416,755
Losses and settlement expenses
201,341
187,998
584,480
549,814
Policy acquisition costs
134,147
128,937
400,897
378,126
Insurance operating expenses
30,657
30,215
91,554
86,683
Interest expense on debt
4,200
1,364
10,994
4,049
General corporate expenses
3,388
5,045
12,335
12,747
Total expenses
373,733
353,559
1,100,260
1,031,419
Equity in earnings of unconsolidated investees
(3,137)
1,540
1,980
7,055
Earnings before income taxes
100,093
157,245
378,122
392,391
Income tax expense
19,084
32,635
74,200
80,231
Net earnings
81,009
124,610
303,922
312,160
Other comprehensive earnings (loss), net of tax
(117,809)
27,674
(145,489)
76,405
Comprehensive earnings (loss)
(36,800)
152,284
158,433
388,565
Basic net earnings per share
0.88
1.36
3.31
3.40
Diluted net earnings per share
1.35
3.29
3.38
Weighted average number of common shares outstanding:
Basic
91,795
91,849
91,881
91,816
Diluted
92,251
92,310
92,259
92,460
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Balance Sheets
September 30,
December 31,
(in thousands, except share and per share data)
ASSETS
Investments and cash:
Fixed income:
Available-for-sale, at fair value
3,600,969
3,533,336
(amortized cost of $3,892,806 and allowance for credit losses of $522 at 9/30/26)
(amortized cost of $3,642,362 and allowance for credit losses of $828 at 12/31/25)
Equity securities, at fair value (cost - $523,206 at 9/30/26 and $534,311 at 12/31/25)
948,319
898,876
Short-term investments, at cost which approximates fair value
254,273
120,562
Other invested assets
57,608
59,281
Cash
46,212
51,565
Total investments and cash
4,907,381
4,663,620
Accrued investment income
32,205
30,026
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $21,629 at 9/30/26 and $23,673 at 12/31/25
231,730
212,226
Ceded unearned premium
124,169
124,669
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $10,643 at 9/30/26 and $11,107 at 12/31/25
727,036
746,798
Deferred policy acquisition costs
191,393
172,648
Property and equipment, at cost, net of accumulated depreciation of $90,456 at 9/30/26 and $84,459 at 12/31/25
41,032
40,733
Investment in unconsolidated investees
54,455
53,521
Goodwill and intangibles
53,562
Income taxes-deferred
9,508
—
Other assets
73,088
63,683
TOTAL ASSETS
6,445,559
6,161,486
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Unpaid losses and settlement expenses
2,997,555
2,886,819
Unearned premiums
1,069,378
991,636
Reinsurance balances payable
30,535
40,580
Funds held
140,441
127,242
Income taxes-current
1,842
29,724
21,769
Short-term debt
100,000
Long-term debt
297,044
Accrued expenses
110,054
128,597
Other liabilities
102,537
56,923
TOTAL LIABILITIES
4,749,386
4,383,290
Shareholders’ Equity
Common stock ($0.01 par value)
(Shares authorized - 400,000,000)
(137,931,006 shares issued, 91,732,032 shares outstanding at 9/30/26)
(137,739,079 shares issued, 91,878,651 shares outstanding at 12/31/25)
1,379
1,377
Paid-in capital
386,585
376,679
Accumulated other comprehensive earnings (loss)
(233,563)
(88,074)
Retained earnings
1,953,087
1,881,213
Deferred compensation
13,358
14,082
Less: Treasury shares, at cost (46,198,974 shares at 9/30/26 and 45,860,428 shares at 12/31/25)
(424,673)
(407,081)
TOTAL SHAREHOLDERS’ EQUITY
1,696,173
1,778,196
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
Condensed Consolidated Statements of Shareholders’ Equity
Accumulated
Other
Total
Comprehensive
Treasury
Common
Shareholders’
Paid-in
Earnings
Retained
Deferred
Shares
Equity
Stock
Capital
(Loss)
Compensation
at Cost
Balance, January 1, 2025
91,738,132
1,521,967
1,376
367,645
(173,723)
1,719,668
13,498
(406,497)
63,214
30,030
(1,686)
1,686
Share-based compensation
34,602
2,777
Dividends and dividend equivalents ($0.15 per share)
(13,776)
Balance, March 31, 2025
91,772,734
1,604,212
370,422
(143,693)
1,769,106
11,812
(404,811)
124,336
18,701
799
(799)
56,736
2,118
1
2,117
Dividends and dividend equivalents ($0.16 per share)
(14,706)
Balance, June 30, 2025
91,829,470
1,734,661
372,539
(124,992)
1,878,736
12,611
(405,610)
102
(102)
8,365
1,929
(14,698)
Balance, September 30, 2025
91,837,835
1,874,176
374,468
(97,318)
1,988,648
12,713
(405,712)
Balance, January 1, 2026
91,878,651
54,885
(25,366)
(2,546)
2,546
55,280
3,397
3,396
(14,722)
Balance, March 31, 2026
91,933,931
1,796,390
1,378
380,075
(113,440)
1,921,376
11,536
(404,535)
168,028
(2,314)
1,616
(1,616)
Purchases of treasury shares
(234,973)
(12,046)
73,676
2,834
Dividends and dividend equivalents ($2.18 per share)
(200,777)
Balance, June 30, 2026
91,772,634
1,752,115
382,909
(115,754)
1,888,627
13,152
(418,197)
206
(206)
(103,573)
(6,270)
62,971
3,677
3,676
Dividends and dividend equivalents ($0.18 per share)
(16,549)
Balance, September 30, 2026
91,732,032
Condensed Consolidated Statements of Cash Flows
(in thousands)
Net cash provided by operating activities
382,708
457,453
Cash Flows from Investing Activities
Purchase of:
Fixed income securities, available-for-sale
(753,383)
(982,958)
Equity securities
(16,590)
(137,744)
Property and equipment
(6,152)
(3,736)
(6,342)
(4,453)
Proceeds from sale of:
162,043
383,181
57,760
87,874
4,534
2,790
Proceeds from call or maturity of:
352,802
343,319
Net proceeds from sale (purchase) of short-term investments
(133,711)
(90,791)
Net cash used in investing activities
(339,039)
(402,518)
Cash Flows from Financing Activities
Proceeds from issuance of debt
296,866
Payment of debt
(100,000)
Cash dividends paid
(231,784)
(43,146)
Proceeds from stock option exercises
4,212
1,042
(18,316)
Net cash used in financing activities
(49,022)
(42,104)
Net increase (decrease) in cash
(5,353)
12,831
Cash at the beginning of the period
39,790
Cash at September 30,
52,621
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of RLI Corp. (the Company) and subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). These condensed consolidated financial statements do not include all the disclosures required by GAAP for annual financial statements and should be read in conjunction with our 2025 Annual Report on Form 10-K. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are necessary for fair financial statement presentation. The results of operations for any interim period are not necessarily indicative of the operating results for a full year. Certain reclassifications were made to 2025 to conform to the classifications used in the current year.
The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ significantly from these estimates.
B. ADOPTED ACCOUNTING STANDARDS
No new accounting standards applicable in 2026 materially impact our financial statements.
C. PROSPECTIVE ACCOUNTING STANDARDS
2024-03—Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
The guidance in ASU 2024-03 requires disaggregation of certain expenses into specified categories in the notes to the financial statements. Each relevant expense caption on the face of the statement of earnings that includes specific expenses, such as employee compensation, depreciation and intangible asset amortization, is required to be separately disclosed in a tabular presentation. Additionally, a separate total of selling expenses is required to be disclosed, along with a definition of what is included in selling expenses.
This ASU is effective for fiscal years beginning after December 15, 2026 and interim periods beginning after December 15, 2027. Although the Company continues to evaluate the impact of adopting this new accounting standard, the amendments are disclosure-related and should not have a material impact on our financial statements.
2025-06—Intangibles-Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software
The guidance in ASU 2025-06 removes the concept of project stages and requires the capitalization of software costs when management has committed to funding the software project and it is probable that the project will be completed. This ASU is effective for fiscal years beginning after December 15, 2027, but early adoption is permitted as of the beginning of an annual reporting period. The Company continues to evaluate the impact of adopting this new accounting standard, but does not expect the standard will have a material impact on our financial statements.
D. REINSURANCE
Ceded unearned premiums and reinsurance balances recoverable on unpaid losses and settlement expenses are reported separately as an asset, rather than being netted with the related liability, since reinsurance does not relieve the Company of its liability to policyholders. Such balances are subject to the credit risk associated with the individual reinsurer. We continually monitor the financial condition of our reinsurers and actively follow up on any past due or disputed amounts. As part of our monitoring efforts, we review reinsurers’ annual financial statements and Securities and Exchange Commission filings for those that are publicly traded. We also review insurance industry developments that may impact the financial condition of our reinsurers. We analyze the credit risk associated with our reinsurance balances recoverable by monitoring the AM Best and
Standard & Poor’s (S&P) ratings of our reinsurers. We subject our reinsurance balances recoverable to detailed recoverability tests, including a segment-based analysis using the average default rating percentage by S&P rating, which assists the Company in assessing the sufficiency of its allowance. Additionally, we perform an in-depth reinsurer financial condition analysis prior to the renewal of our reinsurance placements.
Our policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverable amounts from reinsurers. This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provision for reinsurance balances that we may be unable to recover. Once regulatory action (such as receivership, finding of insolvency, order of conservation or order of liquidation) is taken against a reinsurer, the paid and unpaid recoverable balances for the reinsurer are specifically identified and written off through the use of our allowance for estimated unrecoverable amounts from reinsurers. When we write off such a balance, it is done in full. We then re-evaluate the overall allowance and determine whether the balance is sufficient and, if needed, an additional allowance is recognized.
The allowance for uncollectible amounts on paid reinsurance balances receivable was $18 million at September 30, 2026 and $17 million at December 31, 2025. The allowance for uncollectible amounts on unpaid reinsurance balances recoverable was $11 million at September 30, 2026 and December 31, 2025. Changes in the allowances were due to changes in the amount of reinsurance balances outstanding, the composition of reinsurers from whom the balances were recoverable and their associated S&P default ratings. No write-offs were applied to the allowances in the first nine months of 2026 and less than $1 million was recovered.
E. INTANGIBLE ASSETS
The composition of goodwill and intangible assets is detailed in the following table:
Goodwill
Surety
40,816
Casualty
5,246
Total goodwill
46,062
Indefinite-lived intangibles
7,500
Total goodwill and intangibles
Annual impairment assessments were performed on our goodwill and state insurance license indefinite-lived intangible assets during the second quarter of 2026. Based upon these reviews, none of the assets were impaired. In addition, there were no triggering events as of September 30, 2026 that would suggest an updated impairment test would be needed for our goodwill and intangible assets.
F. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock or common stock equivalents were exercised or converted into common stock. When inclusion of these items increases the earnings per share or reduces the loss per share, the effect on earnings is anti-dilutive. Under these circumstances, the diluted net earnings or net loss per share is computed excluding these items. The following represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the unaudited condensed consolidated financial statements:
8
Ended September 30, 2026
Ended September 30, 2025
Income
Per Share
(Numerator)
(Denominator)
Amount
Basic EPS
Earnings available to common shareholders
Effect of Dilutive Securities
Stock options and restricted stock units
456
461
Diluted EPS
Anti-dilutive securities excluded from diluted EPS
1,008
819
378
644
1,092
209
G. COMPREHENSIVE EARNINGS
Our comprehensive earnings include net earnings plus after-tax unrealized gains and losses on our available-for-sale fixed income portfolio. In reporting the components of comprehensive earnings, we used the federal statutory tax rate of 21 percent. Other comprehensive earnings (loss), as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax benefit of $31 million for the third quarter of 2026, compared to $7 million of tax expense for the same period in 2025. For the nine-month period ended September 30, 2026, other comprehensive earnings (loss) is net of tax benefit of $39 million, compared to $20 million of tax expense for the same period in 2025.
Unrealized losses, net of tax, recognized in other comprehensive earnings (loss) were $145 million for the first nine months of 2026, compared to $76 million of unrealized gains, net of tax, in the first nine months of 2025. The unrealized losses in 2026 were attributable to an increase in interest rates, which decreased the fair value of securities held in the fixed income portfolio. Interest rates decreased during 2025, which increased the fair value of securities held in the fixed income portfolio.
The following table illustrates the changes in the balance of each component of accumulated other comprehensive earnings (loss) for each period presented in the unaudited condensed consolidated financial statements:
Unrealized Gains (Losses) on Available-for-Sale Securities
Beginning balance
Other comprehensive earnings (loss) before reclassifications
(118,861)
29,431
(147,493)
77,253
Amounts reclassified from accumulated other comprehensive earnings
1,052
(1,757)
2,004
(848)
Net current-period other comprehensive earnings (loss)
Ending balance
Balance of securities for which an allowance for credit losses has been recognized in net earnings
1,989
1,715
Credit losses on or the sale of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive earnings (loss) to current period net earnings. The effects of reclassifications out of accumulated other comprehensive earnings (loss) by the respective line items of net earnings are presented in the following table:
9
Amount Reclassified from Accumulated Other
Comprehensive Earnings (Loss)
Component of Accumulated
Affected line item in the
Other Comprehensive Earnings (Loss)
Statement of Earnings
Unrealized gains and losses on available-for-sale securities
(1,273)
2,878
(2,843)
1,775
Net realized gains (losses)
(59)
(654)
306
(702)
Credit gains (losses) presented within net realized gains
(1,332)
2,224
(2,537)
1,073
Earnings (loss) before income taxes
280
(467)
533
(225)
Income tax (expense) benefit
(1,052)
1,757
(2,004)
848
Net earnings (loss)
H. FAIR VALUE MEASUREMENTS
Fair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transaction between market participants on the measurement date. We determined the fair value of certain financial instruments based on their underlying characteristics and relevant transactions in the marketplace. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following are the levels of the fair value hierarchy and a brief description of the type of valuation inputs that are used to establish each level. Financial assets are classified based upon the lowest level of significant input that is used to determine fair value.
Level 1 is applied to valuations based on readily available, unadjusted quoted prices in active markets for identical assets.
Level 2 is applied to valuations based upon quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets; or valuations based on models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data.
Level 3 is applied to valuations that are derived from techniques in which one or more of the significant inputs are unobservable.
As a part of management’s process to determine fair value, we utilize widely recognized, third-party pricing sources to determine our fair values. We have obtained an understanding of the third-party pricing sources’ valuation methodologies and inputs. The following is a description of the valuation techniques used for financial assets that are measured at fair value, including the general classification of such assets pursuant to the fair value hierarchy.
Corporate, Agencies, Government and Municipal Bonds: The pricing vendor employs a multi-dimensional model which uses standard inputs including (listed in approximate order of priority for use) benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers and other reference data. The pricing vendor also monitors market indicators, as well as industry and economic events. All bonds valued using these techniques are classified as Level 2.
Mortgage-backed Securities (MBS)/Commercial Mortgage-backed Securities (CMBS) and Asset-backed Securities (ABS): The pricing vendor evaluation methodology primarily includes interest rate movements and new issue data. Evaluation of the tranches (non-volatile, volatile or credit sensitivity) is based on the pricing vendors’ interpretation of accepted modeling and pricing conventions. This information is then used to determine the cash flows for each tranche, benchmark yields, pre-payment assumptions and to incorporate collateral performance. To evaluate MBS and CMBS volatility, an option adjusted spread model is used in combination with models that simulate interest rate paths to determine market price information. This process allows the pricing vendor to obtain evaluations of a broad universe of securities in a way that reflects changes in yield curve, index rates, implied volatility, mortgage rates and recent trade activity. MBS/CMBS and ABS with corroborated, observable inputs are classified as Level 2. All of our MBS/CMBS and ABS are deemed Level 2.
Regulation D Private Placement Securities: All Regulation D privately-placed bonds are deemed Level 3. The pricing vendor evaluation methodology for these securities includes a combination of observable and unobservable inputs. Observable
10
inputs include public corporate spread matrices classified by sector, rating and average life, as well as investment and non-investment grade matrices created from fixed income indices. Unobservable inputs include a liquidity spread premium calculated based on public corporate spread and private corporate spread matrices. The quantitative detail of the liquidity spread premium is neither provided nor reasonably available to the Company. An increase to the credit spread assumptions would result in a lower fair value.
For all of our fixed income securities classified as Level 2, we periodically conduct a review to assess the reasonableness of the fair values provided by our pricing services. Our review consists of a two-pronged approach. First, we compare prices provided by our pricing services to those provided by an additional source. In some cases, we obtain prices from securities brokers and compare them to the prices provided by our pricing services. If discrepancies are found in our comparisons, we compare our prices to actual reported trade data for like securities. No changes to the fair values supplied by our pricing services have occurred as a result of our reviews. Based on these assessments, we have determined that the fair values of our Level 2 fixed income securities provided by our pricing services are reasonable.
Equity Securities: As of September 30, 2026, nearly all of our equity holdings were traded on an exchange. Exchange traded equities have readily observable price levels and are classified as Level 1 (fair value based on quoted market prices). Equity securities not traded on an exchange are priced by a third-party pricing source using observable inputs and are classified as Level 2. Equity securities not traded on an exchange rely on one or more unobservable inputs and are classified as Level 3.
Due to the relatively short-term nature of cash, short-term investments, accounts receivable and accounts payable, their carrying amounts are reasonable estimates of fair value. Our investments in private funds, classified as other invested assets, are measured using the investments’ net asset value per share and are not categorized within the fair value hierarchy.
2. INVESTMENTS
Our investments are primarily composed of fixed income debt securities and common stock equity securities. We carry our equity securities at fair value and categorize all of our debt securities as available-for-sale, which are carried at fair value.
Realized gains and losses on disposition of investments are based on the specific identification of the investments sold on the settlement date. The following is a summary of the disposition of fixed income and equity securities for the nine-month periods ended September 30, 2026 and 2025:
Sales
Proceeds
Gross Realized
Net Realized
From Sales
Gains
Losses
Gain (Loss)
Fixed income securities - available-for-sale
172,041
1,483
(3,393)
(1,910)
32,234
(2,169)
30,065
383,956
5,076
(3,219)
1,857
46,478
(991)
45,487
Calls/Maturities
353,357
673
(600)
73
344,629
271
(72)
199
11
FAIR VALUE MEASUREMENTS
Assets measured at fair value on a recurring basis are summarized below:
As of September 30, 2026
Quoted Prices in
Significant Other
Significant
Active Markets for
Observable
Unobservable
Identical Assets
Inputs
(Level 1)
(Level 2)
(Level 3)
U.S. government
245,973
U.S. agency
24,887
Non-U.S. government & agency
13,603
2,028
15,631
Agency MBS
580,245
ABS/CMBS/MBS*
781,895
Corporate
1,487,800
136,154
1,623,954
Municipal
328,384
Total fixed income securities - available-for-sale
3,462,787
138,182
937,282
11,037
149,219
4,549,288
As of December 31, 2025
335,223
37,927
11,417
2,130
13,547
610,675
672,984
1,383,329
108,177
1,491,506
371,474
3,423,029
110,307
890,622
8,254
118,561
4,432,212
*
Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities
The following table summarizes changes in the balance of securities whose fair value was measured using significant unobservable inputs (Level 3).
Three Months Ended September 30,
Nine Months Ended September 30,
144,584
101,534
95,125
Net realized and unrealized gains (losses)
Included in other comprehensive earnings (loss)
(3,826)
1,130
(5,157)
2,922
Purchases
9,807
6,995
42,392
15,093
Sales / Calls / Maturities
(1,346)
(8,149)
(6,577)
(11,630)
Transfers into Level 3
Transfers out of Level 3
Balance as of September 30,
101,510
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss)
1,244
(5,160)
2,899
12
The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity were as follows:
September 30, 2026
Amortized Cost
Fair Value
Due in one year or less
129,726
128,624
Due after one year through five years
831,022
800,568
Due after five years through 10 years
926,854
873,702
Due after 10 years
544,412
435,935
1,460,792
1,362,140
Total available-for-sale
3,892,806
Asset-backed, commercial mortgage-backed and mortgage-backed securities
The amortized cost and fair value of available-for-sale securities are presented in the tables below. Amortized cost does not include accrued interest receivable of $32 million as of September 30, 2026 and $29 million as of December 31, 2025.
Cost or
Allowance
Gross
Amortized
for Credit
Unrealized
Fair
Cost
Value
255,418
(9,445)
25,845
(964)
16,886
(1,255)
643,916
71
(63,742)
816,876
(197)
669
(35,453)
1,715,017
(325)
1,462
(92,200)
418,848
(90,500)
Total Fixed Income
(522)
2,244
(293,559)
December 31, 2025
331,233
4,909
(919)
37,379
677
(129)
13,831
274
(558)
634,349
4,718
(28,392)
685,126
(470)
3,640
(15,312)
1,502,843
(358)
16,951
(27,930)
437,601
1,068
(67,195)
3,642,362
(828)
32,237
(140,435)
Allowance for Credit Losses and Unrealized Losses on Fixed Income Securities
A reversible allowance for credit losses is recognized on available-for-sale fixed income securities, if applicable. Several criteria are reviewed to determine if securities in the fixed income portfolio should be included in the allowance for expected credit loss evaluation, including:
13
If changes in interest rates and credit spreads do not reasonably explain the unrealized loss for an available-for-sale security, or if any of the criteria above indicate a potential credit loss, the security is subjected to a discounted cash flow analysis. Inputs into the discounted cash flow analysis include prepayment assumptions for structured securities, default rates and recoverability rates based on credit rating. The allowance for any security is limited to the amount that the security’s fair value is below amortized cost. As of September 30, 2026, the discounted cash flow analysis resulted in an allowance for credit losses on 16 securities. The following table presents changes in the allowance for expected credit losses on available-for-sale securities:
463
245
828
197
Increase to allowance from securities for which credit losses were not previously recorded
118
717
240
720
Reduction from securities sold during the period
(67)
Reductions from intent to sell securities
(180)
Net increase (decrease) from securities that had an allowance at the beginning of the period
(63)
(299)
(18)
522
899
We recognized $1 million of losses on securities for which we no longer had the intent to hold until recovery during the first nine months of 2026, compared to less than $1 million during the first nine months of 2025.
As of September 30, 2026, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,726 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $294 million in associated unrealized losses represents 8 percent of the fixed income portfolio’s cost basis and 6 percent of total invested assets. Isolated to these securities, unrealized losses increased through the first nine months of 2026, as interest rates increased during the period. Of the total 1,726 securities, 716 have been in an unrealized loss position for 12 consecutive months or longer. The following table illustrates the total value of fixed income securities that were in an unrealized loss position after factoring in the allowance for credit losses. All fixed income securities continue to pay the expected coupon payments and we believe we will recover the amortized cost basis of available-for-sale securities that remain in an unrealized loss position.
14
< 12 Mos.
12 Mos. &Greater
Fair value
212,038
33,934
245,972
8,610
80,088
88,698
Amortized cost
220,509
34,908
255,417
8,620
80,997
89,617
Unrealized loss
(8,471)
(974)
(10)
(909)
14,686
7,413
22,099
19,797
15,554
7,509
23,063
19,926
(868)
(96)
Non-U.S. government
11,504
4,127
4,244
12,083
4,803
4,802
Unrealized Loss
(579)
(676)
398,264
173,317
571,581
34,783
239,581
274,364
423,723
211,600
635,323
34,917
267,839
302,756
(25,459)
(38,283)
(134)
(28,258)
508,786
134,151
642,937
110,600
142,903
253,503
524,822
153,568
678,390
110,826
157,989
268,815
(16,036)
(19,417)
(226)
(15,086)
1,095,945
393,497
1,489,442
146,177
545,897
692,074
1,145,126
436,516
1,581,642
148,444
571,560
720,004
(49,181)
(43,019)
(2,267)
(25,663)
52,372
270,378
322,750
3,759
324,235
327,994
55,873
357,377
413,250
3,789
391,400
395,189
(3,501)
(86,999)
(30)
(67,165)
Total fixed income
2,293,595
1,016,817
3,310,412
303,929
1,356,745
1,660,674
2,397,690
1,206,281
3,603,971
306,596
1,494,513
1,801,109
(104,095)
(189,464)
(2,667)
(137,768)
The following table shows the composition of the fixed income securities in unrealized loss positions, after factoring in the allowance for credit losses, at September 30, 2026 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings. The vast majority of the securities are rated by S&P and/or Moody’s.
Equivalent
(dollars in thousands)
NAIC
S&P
Moody’s
Percent
Rating
Loss
to Total
AAA/AA/A
Aaa/Aa/A
2,869,804
2,618,245
(251,559)
85.7
%
2
BBB
Baa
627,493
590,688
(36,805)
12.5
BB
Ba
69,396
66,741
(2,655)
0.9
B
32,972
31,328
(1,644)
0.6
CCC
Caa
3,452
2,629
(823)
0.3
CC or lower
Ca or lower
854
781
(73)
0.0
100.0
Other Invested Assets
We had $58 million of other invested assets at September 30, 2026, compared to $59 million at December 31, 2025. Other invested assets include investments in low-income housing tax credit partnerships (LIHTC) and historic tax credit partnerships (HTC), membership in the Federal Home Loan Bank of Chicago (FHLBC), and investments in private funds. Our
15
LIHTC and HTC investments are carried at amortized cost and our investment in FHLBC stock is carried at cost. Due to the nature of the LIHTC, HTC and our membership in the FHLBC, their carrying amounts approximate fair value. The private funds are carried at fair value, using each investment’s net asset value.
Our LIHTC interests were $12 million at September 30, 2026, compared to $14 million at December 31, 2025. Our LIHTC interests recognized amortization of $1 million as a component of income tax expense and a total tax benefit of $1 million during the third quarter of 2026 and 2025. For the nine months ended September 30, 2026 and 2025, our LIHTC interests recognized amortization of $2 million and a total tax benefit of $2 million. Our unfunded commitment for our LIHTC investments was $7 million at September 30, 2026 and will be paid out in installments through 2040.
Our HTC investment had a balance of $9 million at September 30, 2026, compared to $11 million at December 31, 2025. Our HTC investment recognized $1 million of amortization as a component of income tax expense and a total tax benefit of $1 million during the third quarter of 2026, the same as in 2025. For the nine months ended September 30, 2026, our HTC investment recognized amortization of $2 million, compared to $3 million during the same period in 2025. Our HTC investment recognized a total tax benefit of $3 million in each of 2026 and 2025. Our unfunded commitment for our HTC investments was $4 million at September 30, 2026 and will be paid out in installments through 2027.
Our investments in private funds totaled $17 million at September 30, 2026, down from $18 million at December 31, 2025, and had $2 million of associated unfunded commitments at September 30, 2026. Our interest in private funds is generally restricted from being transferred or otherwise redeemed without prior consent by the respective entities, and the timed dissolution of the partnerships would trigger redemption.
Investments in Unconsolidated Investees
Our investment in Prime Holdings Insurance Services, Inc. was $54 million at September 30, 2026 and December 31, 2025.
Cash and Short-Term Investments
Cash consists of uninvested balances in bank accounts. Short-term investments primarily consist of money market funds and fixed income securities with a contractual maturity of one year or less at the time of acquisition. Short-term investments are carried at cost, which approximates fair value. We had a cash and short-term investment balance of $46 million and $254 million, respectively, at September 30, 2026, compared to $52 million and $121 million, respectively, at December 31, 2025.
3. DEBT
Outstanding debt totaled $297 million as of September 30, 2026 and consisted of long-term debt, net of unamortized discount and debt issuance costs.
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 proceeds of $297 million after deducting the discount and issuance costs. The discount is being amortized to interest expense over the life of the debt using the effective interest method. The average rate on long-term debt was 5.38 percent for the nine months ended September 30, 2026. The estimated fair value of the senior notes was $274 million as of September 30, 2026. The fair value of our long-term debt is based on limited observable prices and is therefore classified as a Level 2 liability within the fair value hierarchy.
We repaid $50 million that was outstanding under our revolving credit facility with PNC Bank, N.A. (PNC) on February 20, 2026, which had been drawn in 2023. The borrowing carried an adjustable interest rate of 5.27 percent as of 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 had a three-year term that 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 $50 million that was 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.
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4. HISTORICAL LOSS AND LAE DEVELOPMENT
The following table reconciles our unpaid losses and settlement expenses (LAE):
Unpaid losses and LAE at beginning of year
2,693,470
Ceded
(746,798)
(755,425)
Net
2,140,021
1,938,045
Increase (decrease) in incurred losses and LAE
Current accident year
682,665
623,926
Prior accident years
(98,185)
(74,112)
Total incurred
Loss and LAE payments for claims incurred
(72,996)
(74,868)
(380,986)
(309,548)
Total paid
(453,982)
(384,416)
Net unpaid losses and LAE at September 30,
2,270,519
2,103,443
Unpaid losses and LAE at September 30,
2,873,054
(727,036)
(769,611)
For the first nine months of 2026, incurred losses and LAE included $98 million of favorable development on prior years’ loss reserves, primarily related to accident years 2018 through 2022, as well as 2024 and 2025. Favorable development was primarily driven by commercial property, marine, commercial transportation, commercial excess liability, surety, professional services and general liability. Although personal umbrella experienced adverse development, no product experienced significant adverse development.
For the first nine months of 2025, incurred losses and LAE included $74 million of favorable development on prior years’ loss reserves, primarily related to accident years 2019 through 2022 and 2024. Favorable development was primarily driven by commercial excess liability, marine, surety, commercial property, general liability and our mortgage reinsurance program. Commercial transportation experienced adverse development related to auto exposures, but no products experienced significant adverse development.
17
5. INCOME TAXES
Income tax expense differed from the amounts computed by applying the U.S. federal tax rate of 21 percent to pretax income as demonstrated in the following table:
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
U.S. federal statutory tax rate
21,019
21.0
33,021
79,406
82,402
State and local income taxes, net of federal income tax effect
635
343
0.2
2,014
0.5
1,390
0.4
Tax credit
(2,368)
(2.3)
(645)
(0.4)
(5,839)
(1.5)
(1,935)
(0.5)
Nontaxable or Nondeductible Items:
Excess tax benefit on share-based compensation
(269)
(0.3)
(50)
(0.0)
(2,264)
(0.6)
(3,208)
(0.8)
Other nontaxable or nondeductible items
67
0.1
(34)
883
1,582
Total tax expense
19.1
20.8
19.6
20.4
The effective tax rate is dependent upon the composition of pretax earnings 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. For the first nine months of the year, the decrease 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. In interim periods, income tax expense is adjusted to reflect the estimated annual effective tax rate, and the resulting adjustments are reflected in other nontaxable or nondeductible items.
We have recorded our deferred tax assets and liabilities using the statutory federal tax rate of 21 percent. We believe it is more likely than not that all deferred tax assets will be recovered, given the carry back availability as well as the result of future operations, which we believe will generate sufficient taxable income to realize the deferred tax asset.
6. STOCK BASED COMPENSATION
Our 2015 RLI Corp. Long-Term Incentive Plan (2015 LTIP) was in place from 2015 to 2023. The 2015 LTIP provided for equity-based compensation, including stock options and restricted stock units, up to a maximum of 8,000,000 shares of common stock (subject to adjustment for changes in our capitalization and other events). Between 2015 and 2023, we granted 6,582,776 awards under the 2015 LTIP. The 2015 LTIP was replaced in 2023.
In 2023, our shareholders approved the 2023 RLI Corp. Long-Term Incentive Plan (2023 LTIP), which provides for equity-based compensation. In conjunction with the adoption of the 2023 LTIP, effective May 4, 2023, awards are no longer granted under the 2015 LTIP. Awards under the 2023 LTIP may be in the form of restricted stock, restricted stock units, stock options (incentive or non-qualified), stock appreciation rights, performance units as well as other stock-based awards. Eligibility under the 2023 LTIP is limited to employees, directors, consultants and independent contractors of the Company or any affiliate. The granting of awards under the 2023 LTIP is solely at the discretion of the Human Capital and Compensation Committee of the board of directors or its delegate. The maximum number of shares of common stock available for distribution under the 2023 LTIP is 8,009,782 shares (subject to adjustment for changes in our capitalization and other events). Since the plan’s approval in 2023, we have granted 1,620,422 awards under the 2023 LTIP, including 439,784 thus far in 2026.
Compensation expense is based on the probable number of awards expected to vest. Total compensation expense related to equity awards was $2 million and $5 million in the three and nine-month periods ended September 30, 2026, respectively, compared with $2 million and $6 million for the corresponding periods in 2025. The related income tax benefit was less than $1 million for each of the three-month periods and $1 million for each of the nine-month periods ended September 30, 2026 and 2025, respectively. As of September 30, 2026, total unrecognized compensation expense related to outstanding and unvested awards was $7 million, which will be recognized over the weighted average vesting period of 2.34 years.
Stock Options
Under the 2023 LTIP, as under the 2015 LTIP, we grant stock options for shares with an exercise price equal to the fair market value of the shares at the date of grant (subject to adjustments for changes in our capitalization, special dividends and
18
other events as set forth in such plans). Options generally vest and become exercisable over a five-year period and expire eight years after grant.
For most participants, the requisite service period and vesting period will be the same. For participants who are retirement eligible, defined by the plan as those individuals whose age and years of service equals 75 or greater, the requisite service period is deemed to be met and options are immediately expensed on the date of grant. For participants who will become retirement eligible during the vesting period, the requisite service period over which expense is recognized is the period between the grant date and the attainment of retirement eligibility. Shares issued upon option exercise are newly issued shares.
On May 14, 2026, the board of directors declared a $2.00 special cash dividend, payable on June 12, 2026, to shareholders of record at the close of business on May 29, 2026. To preserve the intrinsic value of the options, the board also approved, pursuant to the terms of our stock option plans, a proportional adjustment to the exercise price of all outstanding non-qualified options equal to the special dividend. The adjustment did not result in any incremental compensation expense.
The following tables summarize option activity for the nine-month period ended September 30, 2026:
Weighted
Aggregate
Average
Intrinsic
Remaining
Options
Exercise Price
Contractual Life
(in 000’s)
Outstanding options at January 1, 2026
2,986,614
53.74
Options granted
386,975
50.94
Options exercised
(228,416)
38.75
Options canceled/forfeited
(9,650)
67.94
Outstanding options at September 30, 2026
3,135,523
54.44
3.88
17,040
Exercisable options at September 30, 2026
2,101,851
51.45
2.69
14,661
The intrinsic value of options exercised, which is the difference between the fair value and the exercise price, was $5 million and $4 million in the first nine months of 2026 and 2025, respectively.
The fair value of options was estimated using a Black-Scholes based option pricing model with the following weighted average grant-date assumptions and weighted average fair values as of September 30:
Weighted-average fair value of grants
9.77
15.02
Risk-free interest rates
4.05
4.10
Dividend yield
3.05
2.53
Expected volatility
23.18
Expected option life
5.08
years
5.03
The risk-free rate was determined based on U.S. treasury yields that most closely approximated the options’ expected life. The dividend yield was determined based on the average annualized quarterly dividends paid during the most recent five-year period and incorporated a consideration for special dividends paid in recent history. The expected volatility was calculated based on the median of the rolling volatilities for the expected life of the options. The expected option life was determined based on historical exercise behavior and the assumption that all outstanding options will be exercised at the midpoint of the current date and remaining contractual term, adjusted for the demographics of the current year’s grant.
Restricted Stock Units
In addition to stock options, restricted stock units (RSUs) are granted with a value equal to the closing stock price of the Company’s stock on the dates the units are granted. For employees, these units generally have a three-year cliff vesting, but have an accelerated vesting feature for participants who are retirement eligible, defined by the plan as those individuals whose age and years of service equals 75 or greater. For directors, these units vest on the earlier of one year from the date of grant or the next annual shareholders meeting. In addition, the RSUs have dividend participation, which accrue as additional units and are settled with granted stock units at the end of the vesting period. The total fair value of restricted stock units that vested was $2 million and $3 million during the first nine months of 2026 and 2025, respectively.
19
Grant Date
RSUs
Nonvested at January 1, 2026
93,559
71.65
Granted
52,809
51.07
Reinvested
4,792
55.17
Vested
(42,007)
70.58
Forfeited
(312)
50.05
Nonvested at September 30, 2026
108,841
61.41
7. OPERATING SEGMENT INFORMATION
The Company’s insurance operations are managed and reported in three operating segments: property, casualty and surety. The Company’s chief operating decision maker (CODM) is the chief executive officer. The Company’s CODM assesses the segments’ performance by using earnings before income taxes (underwriting income) and the combined ratio. Underwriting income and combined ratio are analyzed at the segment level and influence how resources are allocated. Decisions are made based on what is likely to provide the best long-term return to the Company.
Amortization of deferred acquisition costs represents the recognition of commission and premium taxes over the life of insurance policies, in proportion to premium revenue recognized. The other policy acquisition costs line item includes other expenses associated with underwriting, but that cannot be specifically associated with the successful acquisition of a policy, including, but not limited to, employment costs for underwriters and underwriting support as well as costs for policy acquisition systems. Insurance operating expenses reflect allocated costs from various support departments, such as corporate technology, accounting, human resources and facilities, among others.
Net investment income consists of the interest and dividend income streams from our investments in fixed income and equity securities. Interest expense represents the cost of debt and lines of credit. General corporate expenses include director and shareholder relation costs and other compensation-related expenses incurred for the benefit of the corporation, but not attributable to the operations of our insurance segments. Investee earnings represents our 23 percent share in earnings of Prime Holdings Insurance Services, Inc., a privately held insurance company which specializes in hard-to-place risks. Assets, and the revenues and expenses associated with investing and financing activities, are not managed at the segment level and therefore are not allocated to segments.
All segment revenues are from external customers and all long-lived assets are held domestically. We have no material foreign operations or customer concentrations and have no intersegment revenues.
20
The following table summarizes revenues by major product type within each operating segment:
Net Premiums Earned
Commercial excess and personal umbrella
132,606
112,175
380,731
318,705
Commercial transportation
33,508
31,190
97,834
91,464
Professional services
28,168
27,431
84,251
80,641
General liability
22,524
25,007
68,182
71,806
Small commercial
19,587
19,627
58,795
59,542
Executive products
5,646
6,043
17,000
17,507
Other casualty
20,138
22,035
60,872
67,529
262,177
243,508
767,665
707,194
Property
Commercial property
66,521
72,853
208,381
232,541
Marine
43,412
40,058
122,968
118,784
Other property
16,587
13,778
45,335
38,572
126,520
126,689
376,684
389,897
Transactional
13,737
13,268
40,379
39,024
Commercial
11,942
12,700
36,979
37,898
Contract
10,538
11,530
31,689
33,931
36,217
37,498
109,047
110,853
Grand Total
The following tables present our operating results by segment, as evaluated by the CODM.
For the Three Months Ended September 30, 2026
Revenue
-
Less: Expenses
168,087
31,103
2,151
Amortization of deferred acquisition costs
51,244
25,963
12,708
Other policy acquisition costs
23,699
10,115
10,418
18,107
8,913
3,637
Segment earnings before income taxes
1,040
50,426
7,303
58,769
Depreciation and amortization expense
1,542
504
356
21
For the Three Months Ended September 30, 2025
150,912
32,815
4,271
47,335
26,311
13,103
23,199
8,219
10,770
17,576
8,920
3,719
4,486
50,424
5,635
60,545
1,517
534
370
For the Nine Months Ended September 30, 2026
480,605
91,682
12,193
149,306
76,272
38,194
73,524
30,064
33,537
54,155
26,556
10,843
10,075
152,110
14,280
176,465
4,698
1,557
1,077
For the Nine Months Ended September 30, 2025
438,007
103,999
7,808
135,999
79,985
38,361
67,935
23,496
32,350
50,407
25,567
10,709
14,846
156,850
21,625
193,321
4,556
1,553
1,039
22
The following table reconciles segment earnings before income taxes to earnings before income taxes.
Reconciliation of earnings before income taxes
(4,200)
(1,364)
(10,994)
(4,049)
(3,388)
(5,045)
(12,335)
(12,747)
8. LEASES
Right-of-use (ROU) assets are included in the other assets line item and lease liabilities are included in the other liabilities line item of the consolidated balance sheet. We determine if a contract contains a lease at inception and recognize operating lease ROU assets and operating lease liabilities based on the present value of the future minimum lease payments at the commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Lease agreements may include options to extend or terminate. The options are exercised at our discretion and are included in operating lease liabilities if it is reasonably certain the option will be exercised. Lease agreements have lease and non-lease components, which are accounted for as a single lease component. Operating lease costs for future minimum lease payments are recognized on a straight-line basis over the lease terms. Variable lease costs are expensed in the period in which the obligations are incurred. Sublease income is recognized on a straight-line basis over the sublease term.
The Company’s operating lease obligations are for branch office facilities. The components of lease expense and other lease-related information were as follows:
Operating lease cost
1,312
3,762
3,270
Variable lease cost
323
1,152
1,112
Sublease income
(42)
(127)
Total lease cost
1,626
1,321
4,787
4,255
Cash paid for amounts included in measurement of lease liabilities
Operating cash outflows from operating leases
1,142
1,027
3,671
3,273
ROU assets obtained in exchange for new operating lease liabilities
9,114
480
Reduction to ROU assets resulting from reduction to lease liabilities
212
Operating lease ROU assets
18,792
13,117
Operating lease liabilities
20,579
14,752
Weighted-average remaining lease term - operating leases
6.19
5.93
Weighted-average discount rate - operating leases
3.48
3.78
23
Future minimum lease payments under non-cancellable leases were as follows:
1,127
2027
4,678
2028
3,458
2029
3,420
2030
2,862
2031
2,831
Thereafter
5,001
Total future minimum lease payments
23,377
Less imputed interest
(2,798)
Total operating lease liability
Item 2.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:
3,137
(1,540)
(1,980)
(7,055)
Net unrealized (gains) losses on equity securities
3,282
(41,981)
(60,346)
(43,163)
(8,637)
(18,318)
(27,603)
(48,234)
(46,694)
(41,270)
(135,057)
(117,414)
Net underwriting income
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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.
Consolidated Revenues (in thousands)
Total consolidated revenue
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.
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
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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
% Change
500,197
426,663
119,417
108,342
94,770
91,042
72,612
79,186
(8)
(5)
62,597
63,320
(1)
64,257
63,700
(3)
63,100
69,874
976,950
902,127
301,385
353,311
(15)
144,727
134,752
60,300
48,437
506,412
536,500
(6)
43,711
42,142
41,883
46,034
(9)
(2)
36,827
36,805
0
(7)
122,421
124,981
1,605,783
1,563,608
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.
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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.
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 (in thousands)
98.7
97.9
59.6
59.8
86.9
80.5
85.9
84.0
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.
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.
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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.
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:
Pretax Yield
Taxable
4.42
Tax-Exempt
2.97
2.83
After-Tax Yield
3.49
3.24
2.81
2.68
The following table depicts the composition of our investment portfolio at September 30, 2026 as compared to December 31, 2025:
Fixed income
73.4
75.7
19.3
Short-term investments
5.2
2.6
1.2
1.3
1.1
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
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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.
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.
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.
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173,250
149,945
38,783
42,644
32,689
31,310
22,223
25,538
(13)
18,956
20,078
(0)
25,065
25,337
19,971
22,211
330,937
317,063
77,487
93,895
(17)
48,471
43,814
26,415
16,922
56
152,373
154,631
14,663
13,291
13,049
13,677
11,225
11,559
38,937
38,527
522,247
510,221
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.
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.
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.
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99.6
98.2
60.1
60.2
79.8
85.0
86.2
85.1
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.
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.
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.
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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:
4.53
4.19
2.89
3.58
2.74
2.55
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:
Operating cash flows
Investing cash flows
Financing cash flows
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.
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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:
% of Total
Gain/(Loss)
Quality*
5.0
AA+
(958)
A+
(63,671)
11.8
ABS/CMBS/MBS**
(34,981)
16.0
AAA
(91,063)
33.1
BBB+
(90,464)
6.7
AA
(291,837)
AA-
523,206
425,113
Total portfolio
4,774,105
133,276
Quality ratings provided by Moody’s, S&P and Fitch
**
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
A
Grade
No Rating
1,357
6,997
5,249
525,022
73,391
121,482
13,054
4,128
44,818
10,191
163,603
634,729
511,546
148,971
154,914
83,745
211,607
33,032
618,958
1,301,063
796,240
529,849
153,099
201,760
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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.
35
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.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our exposure to market risk from that reported in our 2025 Annual Report on Form 10-K.
Historically, our primary market risks have been equity price risk associated with investments in equity securities and interest rate risk associated with investments in fixed income securities. We have consistently invested in high credit quality, investment grade securities. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of our 2025 Annual Report on Form 10-K for more information.
Item 4.Controls and Procedures
We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective, as of the end of the period covered by this report.
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objective, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We believe that our disclosure controls and procedures provide such reasonable assurance.
No changes were made to our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1.Legal Proceedings – There were no material changes to report.
Item 1A. Risk Factors – There were no material changes to report.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On May 14, 2026, the Company’s Board of Directors authorized a share repurchase program of up to $250 million of the Company’s outstanding common stock. The following table details the repurchases of the Company’s common stock during the three months ended September 30, 2026.
Total Number of
Approximate Dollar Value of
Shares Purchased as
Shares that May Yet be
Average Price
Part of Publicly
Purchased Under the Plan
Period
Shares Purchased
Paid per Share
Announced Plan
($ in thousands)
July 1, 2026 - July 31, 2026
238,000
August 1, 2026 - August 31, 2026
September 1, 2026 - September 30, 2026
103,573
60.51
232,000
Item 3.Defaults Upon Senior Securities - Not applicable.
Item 4.Mine Safety Disclosures - Not applicable.
Item 5.Other Information –
Securities Trading Plans of Executive Officers and Directors
Rule 10b5-1 under the Exchange Act provides an affirmative defense that enables prearranged transactions in Company securities in a manner that avoids concerns about initiating transactions at a future date while possibly in possession of material nonpublic information. Our Insider Trading Policy permits our executive officers and directors to enter into trading plans designed to comply with Rule 10b5-1.
During the three months ended September 30, 2026, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
Item 6.Exhibits
Exhibit
Incorporated by Reference
Filed or Furnished
Number
Description of Document
Form
Filing Date
Herewith
31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
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
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 (formatted as Inline XBRL and contained in Exhibit 101)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ Aaron P. Diefenthaler
Aaron P. Diefenthaler
Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
Date: October 21, 2026