What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-22 compared with 2025-07-24 · 138 added, 137 removed, 251 unchanged (52% of the section changed)

2 unchanged sentences

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 and reinsurance 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.

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.

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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.

Our focus is on niche markets and developing unique products that are tailored to customers’

We hire underwriters and claim examiners with deep expertise and provide exceptional customer service and support.

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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 are presented in the statements of earnings but are not subtotaled.

However, this information is available in total and by segment in note 6 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 2024 Annual Report on Form 10-K, regarding operating segment information.

Each of these components are presented in the statements of

earnings but are not subtotaled.

However, this information is available in total and by segment in note 6 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 2024 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.

1 unchanged sentence

For the Three Months

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

(in thousands)

22 unchanged sentences

RESULTS OF OPERATIONS

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Net premiums earned increased 7 percent, driven primarily by products in our casualty and surety segments.

Investment income was up 13 percent, due to an increased average asset base and higher reinvestment rates.

Positive market performance resulted in $1 million of unrealized gains on equity securities in the first six months of 2025, compared to $49 million in 2024.

Realized gains during the first six months of 2025 were comprised of $29 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, $1 million of realized losses on the fixed income portfolio and $2 million of other realized gains.

This compares to $13 million of realized gains on the equity portfolio, $2 million of realized losses on the fixed income portfolio and $5 million of other realized losses during the first six months of 2024.

For the Six Months

Ended June 30,

Positive market performance resulted in $43 million of unrealized gains on equity securities in the first nine months of 2025, compared to $87 million in 2024.

Realized gains during the first nine months of 2025 were comprised of $45 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, $2 million of realized gains on the fixed income portfolio and $1 million of other realized gains.

This compares to $20 million of realized gains on the equity portfolio, $3 million of realized losses on the fixed income portfolio and $6 million of other realized losses during the first nine months of 2024.

For the Nine Months

Ended September 30,

Consolidated Revenues (in thousands)

1 unchanged sentence

Net investment income

Net realized gains (losses)

Net realized gains

Net unrealized gains on equity securities

Total consolidated revenue

Underwriting income was $133 million on an 83.4 combined ratio for the first six months of 2025, compared to $148 million on an 80.0 combined ratio in the same period of 2024.

Underwriting income was $193 million on an 84.0 combined ratio for the first nine months of 2025, compared to $188 million on an 83.3 combined ratio in the same period of 2024.

Underwriting results for 2025 were impacted by $26 million of pretax losses from catastrophe events, compared to $67 million in 2024.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $59 million in the first six months of 2025, compared to $65 million in 2024.

The loss ratio increased to 45.2 from 42.1 due to lower levels of favorable development on prior years’ loss reserves.

Additionally, the loss ratio increased from a shift in the mix of business towards casualty lines, which tend to have higher loss ratios than our property and surety products, particularly in periods with lower catastrophe losses.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $74 million in the first nine months of 2025, compared to $85 million in 2024.

The loss ratio was 45.5 for the first nine months of 2025 and 2024.

The benefit of lower catastrophe losses was offset by lower levels of favorable development on prior years’ loss reserves and 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 38.5 from 37.8.

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(Prime), a specialty insurance company.

We recognized $5 million of investee earnings from Prime in the first six months of 2025 and $6 million in 2024.

Net earnings for the first six months of 2025 totaled $188 million, compared to $210 million for the same period in 2024.

An increase in investment income and realized gains partially offset a decline in unrealized gains on equity securities and underwriting income, which resulted in the overall reduction in earnings.

Comprehensive earnings totaled $236 million for the first six months of 2025, compared to $189 million for the first six months of 2024.

Other comprehensive earnings (loss) primarily included net after-tax unrealized gains (losses) from the fixed income portfolio.

Other comprehensive earnings of $49 million in the first six months of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio.

Comparatively, $21 million of other comprehensive loss was recognized in 2024, as higher interest rates decreased the fair value of securities held in the fixed income portfolio.

Gross premiums written increased $21 million for the first six months of 2025, compared to the same period of 2024, primarily from our casualty segment.

Net premiums earned increased $61 million, driven by our casualty and surety segments.

We recognized $7 million of investee earnings from Prime in the first nine months of 2025 and $8 million in 2024.

Net earnings for the first nine months of 2025 totaled $312 million, compared to $305 million for the same period in 2024.

Higher levels of underwriting income, investment income and realized gains all contributed to the improved results.

Comprehensive earnings totaled $389 million for the first nine months of 2025, compared to $365 million for the first nine months of 2024.

Other comprehensive earnings primarily included net after-tax unrealized gains (losses) from the fixed income portfolio.

Other comprehensive earnings of $76 million in the first nine months of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio.

Comparatively, $60 million of other comprehensive earnings was recognized in 2024.

Gross premiums written increased $24 million for the first nine months of 2025, compared to the same period of 2024, primarily from our casualty segment.

Net premiums earned increased $79 million, also driven by our casualty segment.

Gross Premiums Written

Net Premiums Earned

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

(in thousands)

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Transactional

Gross premiums written for the casualty segment increased $53 million in the first six months of 2025.

Gross premiums written for the casualty segment increased $76 million in the first nine months of 2025.

We continued to benefit from positive rate movement across a large portion of our casualty segment, as well as from new business growth within our personal umbrella distribution channels.

Premium growth for commercial excess and general liability was driven by expanded marketing efforts, while some of our competitors pulled back from the construction market, and increased construction spending in targeted markets.

Other casualty premium was down for the first six months of 2025, as we exited from various captive programs, reduced our participation on the reinsurance agreement with Prime and experienced increased competition within our binding authority product.

Gross premiums written for the property segment decreased $35 million in the first six months of 2025.

After several consecutive years of rate increases, rates on commercial property exposures declined in the first half of 2025, driven by more intense competition.

Other casualty premium was down for the first nine months of 2025, as we exited from various captive programs and reduced our participation on the reinsurance agreement with Prime.

Gross premiums written for the property segment decreased $54 million in the first nine months of 2025.

After several consecutive years of rate increases, rates on commercial property exposures declined in 2025, driven by more intense competition.

However, new opportunities, rate increases and strong sections of the construction market led to $5 million of premium growth for our marine product.

Additionally, some competitors have reduced their appetite for select Hawaii homeowner coverages, which, along with rate increases, has allowed our other property premium to grow.

Gross premiums written for the surety segment increased $3 million for the first six months of 2025.

Gross premiums written for the surety segment increased $1 million in the first nine months of 2025.

Transactional and commercial surety grew as result of continued marketing efforts and new regional bonding requirements.

However, a slowdown in bid activity for larger public construction projects resulted in a decline in contract surety premium.

However, a slowdown in construction spending resulted in a decline in contract surety premium.

Underwriting Income

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

Underwriting Income (in thousands)

Combined Ratio

The casualty segment recorded underwriting income of $10 million in the first six months of 2025, compared to $24 million for the same period last year.

The casualty segment recorded underwriting income of $15 million in the first nine months of 2025, compared to $27 million for the same period last year.

Prior accident years’ reserve releases reduced loss and settlement expenses for the casualty segment by $28 million in 2025, primarily on accident years 2019 through 2022 and 2024.

Larger drivers of the favorable development were commercial excess, general liability and subsegments within professional liability, while auto liability exposures developed adversely for some products, most notably in commercial transportation.

In comparison, $32 million of prior accident years’ reserves were released in the first six months of 2024.

General liability, executive products, personal umbrella, professional services and commercial excess drove the favorable development in 2024.

Storm losses on casualty-oriented package policies that include property coverage resulted in $2 million of losses in 2025 and 2024.

In comparison, $42 million of prior accident years’ reserves were released in the first nine months of 2024.

Commercial excess, general liability, professional services, executive products and personal umbrella drove the favorable development in 2024.

Storm losses on casualty-oriented package policies that include property coverage resulted in $2 million of losses in 2025 and $3 million in 2024.

The combined ratio for the casualty segment was 97.9 in 2025, compared to 95.8 in 2024.

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The expense ratio for the casualty segment was 36.0, down from 36.9 for the same period last year, as the growth in the earned premium base exceeded the growth in expense.

The property segment recorded underwriting income of $106 million for the first six months of 2025, compared to $111 million for the same period last year.

The property segment recorded underwriting income of $157 million for the first nine months of 2025, compared to $141 million for the same period last year.

Underwriting results for 2025 included $32 million of favorable development on prior years’ loss and catastrophe reserves, offset by $24 million of storm and other catastrophe losses.

Comparatively, the 2024 underwriting results included $25 million of favorable development on prior years’ loss and catastrophe reserves, as well as $26 million of storm losses.

Underwriting results for the first six months of 2025 translated into a combined ratio of 59.6, compared to 57.9 for the same period last year.

The segment’s loss ratio was 27.0 in 2025, down from 28.1 in 2024, as a result of larger releases on prior accident years’ loss reserves and lower current accident year storm losses.

The segment’s expense ratio increased to 32.6 in 2025 from 29.8 in the prior year, as a result of changes in our reinsurance cost and structure, as well as higher acquisition-related expenses, which can fluctuate between periods.

The surety segment recorded underwriting income of $16 million for the first six months of 2025, compared to $13 million for the same period last year.

Comparatively, the 2024 underwriting results included $33 million of favorable development on prior years’ loss and catastrophe reserves, $35 million of losses from Hurricanes Beryl and Helene, as well as $28 million of other storm losses.

Underwriting results for the first nine months of 2025 translated into a combined ratio of 59.8, compared to 64.4 for the same period last year.

The segment’s loss ratio was 26.7 in 2025, down from 34.0 in 2024, as a result of lower current accident year catastrophe losses.

The segment’s expense ratio increased to 33.1 in 2025 from 30.4 in the prior year, as a result of continued investments in people and technology, as well as higher acquisition-related expenses, which can fluctuate between periods.

The surety segment recorded underwriting income of $22 million for the first nine months of 2025, compared to $21 million for the same period last year.

Both periods reflected positive current accident year underwriting performance and benefited from favorable development on prior years’ loss reserves.

2 unchanged sentences

Additionally, $2 million of reinsurance reinstatement premium was recorded in 2024 on a prior year loss, which reduced net premiums earned and underwriting income.

The combined ratio for the surety segment totaled 78.2 for the first six months of 2025, compared to 81.4 for the same period in 2024.

The combined ratio for the surety segment totaled 80.5 for the first nine months of 2025 and 2024.

The segment’s loss ratio was 7.0 in 2025, down from 9.0 in 2024, due to higher levels of favorable prior accident years’ reserve development.

The expense ratio was 73.4, up from 72.2 in the prior year.

The expense ratio was 73.5, up from 71.5 in the prior year, due to continued investments in people and technology, higher acquisition expenses, as well as differences in our reinsurance costs.

Investment Income

Our investment portfolio generated net investment income of $76 million during the first six months of 2025, an increase of 14 percent from the same period in 2024.

Our investment portfolio generated net investment income of $117 million during the first nine months of 2025, an increase of 13 percent from the same period in 2024.

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 six months of 2025 and 2024 were as follows:

Yields on our fixed income investments for the first nine months of 2025 and 2024 were as follows:

After-Tax Yield

The following table depicts the composition of our investment portfolio at June 30, 2025 as compared to December 31, 2024:

The following table depicts the composition of our investment portfolio at September 30, 2025 as compared to December 31, 2024:

(in thousands)

June 30, 2025

September 30, 2025

December 31, 2024

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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 $245 million in the first six months of 2025, as bonds rallied and cash flows were largely allocated to the fixed income portfolio.

Average fixed income duration was 4.9 years at June 30, 2025, reflecting our liability structure and sound capital position.

The equity portfolio increased by $75 million during the first six months of 2025, primarily due to strength in the equity markets.

The fixed income portfolio increased by $361 million in the first nine months of 2025, as bonds rallied and cash flows were largely allocated to the fixed income portfolio.

Average fixed income duration was 4.8 years at September 30, 2025, reflecting our liability structure and sound capital position.

The equity portfolio increased by $143 million during the first nine months of 2025, primarily due to strength in the equity markets.

Short-term investments increased by $91 million, as yields on AAA-rated government money market funds remained relatively attractive.

Our effective tax rate for the first six months of 2025 was 20.2 percent, compared to 20.3 percent for the same period in 2024.

Our effective tax rate for the first nine months of 2025 was 20.4 percent, compared to 19.8 percent for the same period in 2024.

Effective rates are dependent upon components of pretax earnings or losses and the related tax effects.

Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

Net premiums earned increased 6 percent, driven primarily by products in our casualty segment.

The effective tax rate was higher for the nine-month period in 2025 due to lower levels of tax-favored adjustments, such as tax credits and excess tax benefits on share-based compensation, and higher levels of pretax income, which decreased the percentage impact of the tax-favored adjustments.

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

Net premiums earned increased 5 percent, driven primarily by products in our casualty and surety segments.

Investment income was up 12 percent, due to an increased average asset base and higher reinvestment rates.

Positive market performance resulted in $44 million of unrealized gains on equity securities in the second quarter of 2025, compared to $4 million in 2024.

Realized gains during the second quarter of 2025 were comprised of $14 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, $1 million of realized losses on the fixed income portfolio and $2 million of other realized gains.

This compares to $6 million of realized gains on the equity portfolio, $1 million of realized losses on the fixed income portfolio and $5 million of other realized losses during the second quarter of 2024.

Positive market performance resulted in $42 million of unrealized gains on equity securities in the third quarter of 2025, compared to $38 million in 2024.

Realized gains during the third quarter of 2025 were comprised of $16 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, $3 million of realized gains on the fixed income portfolio and $1 million of

other realized losses.

This compares to $7 million of realized gains on the equity portfolio, $1 million of realized losses on the fixed income portfolio and less than $1 million of other realized losses during the third quarter of 2024.

For the Three Months

Ended June 30,

Ended September 30,

Consolidated Revenues (in thousands)

1 unchanged sentence

Net investment income

Net realized gains (losses)

Net realized gains

Net unrealized gains on equity securities

Total consolidated revenue

Underwriting income was $62 million on an 84.5 combined ratio for the second quarter of 2025, compared to $70 million on an 81.5 combined ratio in the same period of 2024.

Underwriting results for 2025 were impacted by $14 million of pretax losses from catastrophe events, compared to $16 million in 2024.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $28 million in the second quarter of 2025, compared to $23 million in 2024.

The loss ratio increased to 45.9 from 44.3 due to a shift in the mix of business towards casualty lines, which tend to have higher loss ratios than our property and surety products, particularly in periods with lower catastrophe losses.

Underwriting income was $61 million on an 85.1 combined ratio for the third quarter of 2025, compared to $41 million on an 89.6 combined ratio in the same period of 2024.

Underwriting results for 2024 were impacted by $37 million of pretax losses from Hurricanes Beryl and Helene, as well as $2 million of pretax storm 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 $15 million in the third quarter of 2025, compared to $21 million in 2024.

The loss ratio decreased to 46.1 from 51.9 due to lower catastrophe losses.

The expense ratio increased to 39.0 from 37.7.

Positive equity market returns resulted in more book value growth in 2025 and a corresponding increase in bonus expense accruals when compared to 2024.

Improved equity market returns resulted in more book value growth in 2025 and a corresponding increase in bonus expense accruals when compared to 2024.

Increased expenses were also driven by continued investments in people and technology, as well as higher acquisition-related costs, which can fluctuate between periods.

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Our equity in earnings of unconsolidated investees primarily relates to our investment in Prime.

We recognized $3 million of investee earnings from Prime in the second quarter of 2025 and $2 million in 2024.

Net earnings for the second quarter of 2025 totaled $124 million, compared to $82 million for the same period in 2024.

Unrealized gains on equity securities and an increase in investment income offset a decline in underwriting income, which resulted in the overall increase in earnings.

Comprehensive earnings totaled $143 million for the second quarter of 2025, compared to $74 million for the second quarter of 2024.

Other comprehensive earnings (loss) primarily included net after-tax unrealized gains (losses) from the fixed income portfolio.

Other comprehensive earnings of $19 million in the second quarter of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio.

Comparatively, $8 million of other comprehensive loss was recognized in 2024, as higher interest rates decreased the fair value of securities held in the fixed income portfolio.

Gross premiums written decreased $1 million for the second quarter of 2025, compared to the same period of 2024.

Declines in the property segment offset growth in our casualty and surety segments.

We recognized $2 million of investee earnings from Prime in the third quarter of 2025 and $1 million in 2024.

Net earnings for the third quarter of 2025 totaled $125 million, compared to $95 million for the same period in 2024.

Higher levels of underwriting income, investment income, realized gains and unrealized gains on equity securities all contributed to the improved results.

Comprehensive earnings totaled $152 million for the third quarter of 2025, compared to $175 million for the third quarter of 2024.

Other comprehensive earnings primarily included net after-tax unrealized gains (losses) from the fixed income portfolio.

Other comprehensive earnings of $28 million in the third quarter of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio.

Comparatively, $80 million of other comprehensive earnings was recognized in 2024.

Gross premiums written increased $2 million for the third quarter of 2025, compared to the same period of 2024.

Growth in our casualty segment offset declines in the property and surety segments.

Net premiums earned increased $18 million, driven by the casualty segment.

3 unchanged sentences

For the Three Months

Ended June 30,

Ended September 30,

(in thousands)

9 unchanged sentences

Transactional

Gross premiums written for the casualty segment increased $20 million in the second quarter of 2025.

Gross premiums written for the casualty segment increased $23 million in the third quarter of 2025.

We continued to benefit from positive rate movement across a large portion of our casualty segment, as well as from new business growth within our personal umbrella distribution channels.

1 unchanged sentence

Other casualty premium was down for the quarter as we exited from various captive programs and reduced our participation on the reinsurance agreement with Prime.

Additionally, heightened competition resulted in a decrease in commercial transportation premium.

Gross premiums written for the property segment decreased $24 million in the second quarter of 2025.

After several consecutive years of rate increases, rates on commercial property exposures declined in the second quarter of 2025, driven by more intense competition.

Gross premiums written for the property segment decreased $19 million in the third quarter of 2025.

After several consecutive years of rate increases, rates on commercial property exposures declined in the third quarter of 2025, driven by more intense competition.

However, some competitors have reduced their appetite for select Hawaii homeowner coverages, which, along with rate increases, has allowed our other property premium to grow.

Gross premiums written for the surety segment increased $3 million for the second quarter of 2025.

Transactional and commercial surety grew as result of continued marketing efforts and new regional bonding requirements.

Gross premiums written for the surety segment decreased $1 million for the third quarter of 2025.

A decrease in construction spending and soft market conditions drove the decline.

Underwriting Income

For the Three Months

Ended June 30,

Ended September 30,

Underwriting Income (in thousands)

Combined Ratio

The casualty segment recorded underwriting income of $8 million in the second quarter of 2025, compared to $10 million for the same period last year.

The casualty segment recorded underwriting income of $4 million in the third quarter of 2025, compared to $3 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 2025, primarily on accident years 2020 through 2022 and 2024.

Larger drivers of the favorable development were commercial excess, personal umbrella, general liability and subsegments within professional liability.

In comparison, $14 million of prior accident years’ reserves were released in the second quarter of 2024.

Professional services, commercial excess, executive products and general liability were drivers of the favorable development in 2024.

Storm losses on casualty-oriented package policies that include property coverage resulted in $1 million of losses in 2025 and 2024.

Larger drivers of the favorable development were commercial excess, general liability, executive products and personal umbrella.

In comparison, $10 million of prior accident years’ reserves were released in the third quarter of 2024.

Commercial excess, professional services, general liability, personal umbrella and executive products were drivers of the favorable development in 2024.

In addition, underwriting results for 2024 included $2 million of hurricane and storm losses on casualty-oriented package policies that include property coverage.

The combined ratio for the casualty segment was 98.2 in 2025, compared to 98.8 in 2024.

The segment’s loss ratio was 60.2 in 2025, up from 58.3 in 2024.

Higher current year loss reserves, primarily in auto exposed lines, and an overall shift in mix towards higher loss ratio products resulted in the higher loss ratio in 2025.

The expense ratio for the casualty segment was 36.3, down from 36.8 for the same period last year, as the growth in the earned premium base exceeded the growth in expense.

The property segment recorded underwriting income of $50 million for the second quarter of 2025, compared to $53 million for the same period last year.

Underwriting results for 2025 included $10 million of favorable development on prior years’ loss and catastrophe reserves, as well as $13 million of storm losses.

Comparatively, the 2024 underwriting results included $6 million of favorable development on prior years’ loss and catastrophe reserves, as well as $15 million of storm losses.

Underwriting results for the second quarter of 2025 translated into a combined ratio of 62.1, compared to 60.3 for the same period last year.

The segment’s loss ratio was 29.4 in 2025, down from 30.9 in 2024, as a result of larger releases on prior accident years’ loss reserves and less current accident year storm losses.

The segment’s expense ratio increased to 32.7 in 2025, up from 29.4 in the prior year, driven by changes in our reinsurance cost and structure, along with higher acquisition-related expenses, which can fluctuate between periods.

The surety segment recorded underwriting income of $4 million for the second quarter of 2025, compared to $7 million for the same period last year.

The segment’s loss ratio was 62.0 in 2025, down from 62.8 in 2024, due to improved current accident year losses.

The expense ratio for the casualty segment was 36.2, up from 36.0 for the same period last year.

The property segment recorded underwriting income of $50 million for the third quarter of 2025, compared to $30 million for the same period last year.

Underwriting results for 2025 included $5 million of favorable development on prior years’ loss reserves.

Comparatively, the 2024 underwriting results included $8 million of favorable development on prior years’ loss and catastrophe reserves, $35 million of losses from Hurricanes Beryl and Helen, as well as $2 million of storm losses.

Underwriting results for the third quarter of 2025 translated into a combined ratio of 60.2, compared to 77.2 for the same period last year.

The segment’s loss ratio was 25.9 in 2025, down from 45.8 in 2024, as a result of lower catastrophe losses.

The segment’s expense ratio increased to 34.3 in 2025, up from 31.4 in the prior year, driven by continued investments in people and technology, along with higher acquisition-related expenses, which can fluctuate between periods.

The surety segment recorded underwriting income of $6 million for the third quarter of 2025, compared to $8 million for the same period last year.

Results for 2025 and 2024 included favorable development on prior accident years’ reserves, which decreased loss and settlement expenses for the segment by $3 million in each period.

The combined ratio for the surety segment totaled 87.9 for the second quarter of 2025, compared to 81.8 for the same period in 2024.

The segment’s loss ratio was 13.3 in 2025, up from 12.7 in 2024.

The combined ratio for the surety segment totaled 85.0 for the third quarter of 2025, compared to 78.8 for the same period in 2024.

The segment’s loss ratio was 11.4 in 2025, up from 8.7 in 2024, due to slightly lower favorable development on prior accident years and a higher earned premium base.

The expense ratio was 73.6, up from 70.1 in the prior year, due to continued investments in people and technology, as well as higher acquisition expenses.

Investment Income

Our investment portfolio generated net investment income of $39 million during the second quarter of 2025, an increase of 16 percent from the same period in 2024.

Our investment portfolio generated net investment income of $41 million during the third quarter of 2025, an increase of 12 percent from the same period in 2024.

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 second quarter of 2025 and 2024 were as follows:

Yields on our fixed income investments for the third quarter of 2025 and 2024 were as follows:

After-Tax Yield

Our effective tax rate for the second quarter of 2025 and 2024 was 20.6 percent.

Our effective tax rate for the third quarter of 2025 was 20.8 percent, compared to 18.7 percent for the same period in 2024.

Effective rates are dependent upon components of pretax earnings or losses and the related tax effects.

The effective tax rate was higher for the third quarter of 2025 due to lower levels of tax-favored adjustments, such as tax credits and excess tax benefits on share-based compensation, and higher levels of pretax income, which decreased the percentage impact of the tax-favored adjustments.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

(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 six-month periods ended June 30, 2025 and 2024:

The following table summarizes cash flows provided by (used in) our activities for the nine-month periods ended September 30, 2025 and 2024:

(in thousands)

2 unchanged sentences

Financing cash flows

Our largest source of cash is premiums received from customers and our largest cash outflow is claim payments on insured losses.

Premiums received from customers are our largest source of cash and claim payments on insured losses represent our largest use of cash.

Cash flows from operating activities can vary among periods due to the timing in which these payments are made or received.

Operating cash flows in the first six months of 2025 benefited from increased premium and investment income receipts relative to the first six months of 2024.

As of June 30, 2025, we had $100 million in debt outstanding.

Operating cash flows in the first nine months of 2025 benefited from increased premium and investment income receipts relative to the first nine months of 2024.

As of September 30, 2025, we had $100 million in debt outstanding.

On September 15, 2023, we accessed $50 million from our revolving line of credit with PNC Bank, N.A.

The borrowing may be repaid at any time and carries an adjustable interest rate of 5.92 percent, which will reset during the third quarter of 2025.

The borrowing may be repaid at any time and carries an adjustable interest rate of 5.76 percent, which will reset during the fourth quarter of 2025.

The credit facility with PNC was entered into during the first quarter of 2023 and replaced the previous $60 million facility with Bank of Montreal, Chicago Branch, which expired on March 27, 2023.

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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.

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 June 30, 2025, $55 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility.

As of June 30, 2025, we had cash and other investments maturing within one year of approximately $383 million and an additional $828 million maturing between one to five years.

As of September 30, 2025, $55 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility.

As of September 30, 2025, we had cash and other investments maturing within one year of approximately $485 million and an additional $765 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.

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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 June 30, 2025 have increased $341 million from December 31, 2024.

As of June 30, 2025, our investment portfolio had the following asset allocation breakdown:

Invested assets at September 30, 2025 have increased $606 million from December 31, 2024.

As of September 30, 2025, our investment portfolio had the following asset allocation breakdown:

(in thousands)

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Quality is an average of each bond’s credit rating, adjusted for its relative weighting in the portfolio.

As of June 30, 2025, our fixed income portfolio had the following rating distribution:

As of September 30, 2025, our fixed income portfolio had the following rating distribution:

government & agency

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

As of June 30, 2025, our fixed income portfolio remained well diversified, with 1,886 individual issues.

As of September 30, 2025, our fixed income portfolio remained well diversified, with 1,929 individual issues.

Our investment portfolio has limited exposure to structured asset-backed securities.

As of June 30, 2025, we had $225 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 June 30, 2025, we had $191 million in commercial and non-agency MBS and $399 million in MBS backed by government sponsored enterprises (GSEs - Freddie Mac, Fannie Mae and Ginnie Mae).

As of September 30, 2025, we had $304 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, 2025, we had $258 million in commercial and non-agency MBS and $604 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 12.0 percent of our investment portfolio at quarter end.

We had $1,406 million in corporate fixed income securities as of June 30, 2025, which includes $133 million invested in a high-yield credit strategy.

We had $1,490 million in corporate fixed income securities as of September 30, 2025, which includes $140 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.

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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 June 30, 2025, our equity portfolio had a dividend yield of 1.6 percent, compared to 1.3 percent for the S&P 500 index.

As of September 30, 2025, our equity portfolio had a dividend yield of 1.5 percent, compared to 1.2 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.

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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 $61 million of investments in unconsolidated investees at June 30, 2025, compared to $56 million at December 31, 2024.

We had $64 million of investments in unconsolidated investees at September 30, 2025, compared to $56 million at December 31, 2024.

Our investment portfolio does not have any exposure to derivatives.

As of June 30, 2025, our capital structure consisted of $100 million in debt and $1.7 billion of shareholders’ equity.

Debt outstanding comprised 5 percent of total capital as of June 30, 2025.

Interest and fees on debt obligations totaled $3 million for the first six months of 2025 and 2024.

We incurred interest expense on debt at an average annual interest rate of 5.18 percent during the first six months of 2025, compared to 6.21 percent during the same period last year.

We paid a regular quarterly cash dividend of $0.16 per share on June 20, 2025, an increase of $0.01 from the prior quarter.

As of September 30, 2025, our capital structure consisted of $100 million in debt and $1.9 billion of shareholders’ equity.

Debt outstanding comprised 5 percent of total capital as of September 30, 2025.

Interest and fees on debt obligations totaled $4 million for the first nine months of 2025 and $5 million during the same period in 2024.

We incurred interest expense on debt at an average annual interest rate of 5.18 percent during the first nine months of 2025, compared to 6.20 percent during the same period last year.

We paid a regular quarterly cash dividend of $0.16 per share on September 19, 2025, the same amount as the prior quarter.

We have increased dividends in each of the last 50 years.

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shareholders.

On a GAAP basis, as of June 30, 2025, our holding company had $1.7 billion in equity.

On a GAAP basis, as of September 30, 2025, our holding company had $1.9 billion in equity.

This includes amounts related to the equity of our insurance subsidiaries, which is subject to regulatory restrictions under state insurance laws.

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Ordinary dividends are further restricted by the requirement that they be paid from earned surplus.

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 the first six months of 2025, RLI Ins.

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 the first nine months of 2025, RLI Ins.

paid $139 million in ordinary dividends to RLI Corp.

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paid ordinary dividends totaling $152 million.

As of June 30, 2025, $13 million of the net assets of our principal insurance subsidiary were not restricted and could be distributed to RLI Corp.

As of September 30, 2025, $1 million of the net assets of our principal insurance subsidiary were not restricted and could be distributed to RLI Corp.

as ordinary dividends without prior approval from the IDOI.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis