What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-24 compared with 2026-04-24 · 199 added, 97 removed, 196 unchanged (60% of the section changed)

3 unchanged sentences

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.

assumptions are subject to various risks, uncertainties and other factors, including, without limitation those set forth in “Item 1A.

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.

20 unchanged sentences

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.

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.

14 unchanged sentences

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.

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

7 unchanged sentences

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

(in thousands)

22 unchanged sentences

RESULTS OF OPERATIONS

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Net premiums earned increased 4 percent, driven primarily by products in our casualty segment.

Investment income was up 15 percent, reflecting an increased average asset base and higher reinvestment rates.

Market declines resulted in $39 million of unrealized losses on equity securities in the first three months of 2026, compared to $42 million of unrealized losses for the same period in 2025.

Realized gains in 2026 included $10 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, and less than $1 million of realized losses on fixed income securities.

This compares to $15 million of realized gains on equity securities and less than $1 million of realized losses on fixed income securities during the first three months of 2025.

For the Three Months

Ended March 31,

Investment income was up 16 percent, reflecting higher reinvestment rates and an increased average asset base.

Market increases resulted in $64 million of unrealized gains on equity securities during the first six months of 2026, compared to $1 million in the same period of 2025.

Realized gains in 2026 included $20 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 $29 million of realized gains on equity securities, $1 million of realized losses on fixed income securities and $2 million of other realized gains during the first six months of 2025.

For the Six Months

Ended June 30,

Consolidated Revenues (in thousands)

2 unchanged sentences

Net realized gains

Net unrealized gains (losses) on equity securities

Net unrealized gains on equity securities

Total consolidated revenue

Underwriting income was $58 million on an 86.0 combined ratio for the first three months of 2026, compared to $71 million on an 82.3 combined ratio in the same period of 2025.

Underwriting results for 2026 were impacted by $16 million of pretax catastrophe losses, compared to $12 million in 2025.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $35 million in the first three months of 2026, compared to $31 million in 2025.

The loss ratio was 47.0 for the first three months of 2026, compared to 44.5 in 2025.

The benefit of higher levels of favorable development on prior years’ loss reserves was offset by higher catastrophe losses 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.

Underwriting income was $118 million on an 85.8 combined ratio for the first six months of 2026, compared to $133 million on an 83.4 combined ratio in the same period of 2025.

Underwriting results were impacted by $26 million of pretax catastrophe losses in both 2026 and 2025.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $75 million in the first six months of 2026, compared to $59 million in 2025.

The loss ratio was 46.2 for the first six months of 2026, compared to 45.2 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 39.6 from 38.2.

Increased expenses were primarily related to continued investments in people and technology.

The increase primarily reflected continued investments in our workforce.

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.

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.

1 unchanged sentence

(Prime), a specialty insurance company.

We recognized $2 million of investee earnings from Prime in the first three months of 2026, compared to $3 million in 2025.

Net earnings for the first three months of 2026 totaled $55 million, compared to $63 million for the same period in 2025.

The decrease was due to lower levels of underwriting income, partially offset by higher investment income.

Comprehensive earnings totaled $30 million for the first three months of 2026, compared to $93 million for the first three months of 2025.

We recognized $5 million of investee earnings from Prime in the first six months of 2026, the same as in the first six months of 2025.

Net earnings for the first six months of 2026 totaled $223 million, compared to $188 million for the same period in 2025.

The increase primarily reflected larger unrealized gains on equity securities and higher investment income.

Comprehensive earnings totaled $195 million for the first six months of 2026, compared to $236 million for the first six months of 2025.

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

Other comprehensive loss of $25 million in the first three months of 2026 was primarily attributable to rising interest rates, which decreased the fair value of securities held in the fixed income portfolio.

Other comprehensive loss of $28 million in the first six months of 2026 was primarily attributable to rising interest rates, which decreased the fair value of securities held in the fixed income portfolio.

Comparatively, $49 million of other comprehensive earnings was recognized in 2025.

Gross premiums written increased $13 million for the first three months of 2026, driven by growth within our casualty segment and reflecting favorable rate movement.

Net premiums earned increased $13 million, also driven by our casualty segment and consistent with the growth in gross premiums written.

Gross premiums written increased $30 million for the first six months of 2026, driven by favorable rate movement and growth within our casualty segment.

Net premiums earned increased $28 million, primarily due to continued growth within our casualty segment.

Gross Premiums Written

Net Premiums Earned

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

(in thousands)

9 unchanged sentences

Transactional

Gross premiums written for the casualty segment increased $29 million in the first three months of 2026.

Gross premiums written for the casualty segment increased $61 million in the first six months of 2026.

We continued to benefit from positive rate movement across a large portion of our casualty segment.

Personal umbrella continued expansion of its distribution base, while our commercial transportation business benefited from some other carriers reducing their appetite.

The decline in general liability premium was the result of slower construction activity within our targeted market for the year, which created a challenging environment to write business on new projects.

Other casualty premium declined due to increased competition in our binding authority group and our decision to no longer participate in the reinsurance agreement with Prime.

Gross premiums written for the property segment decreased $15 million in the first three months of 2026.

Commercial property declined $18 million as more intense competition drove down rates.

However, new product adjacencies led to $2 million of premium growth for our marine product.

Additionally, growth in other property premiums was driven by rate increases and ongoing efforts to enhance client experience to attract and retain business for our Hawaii homeowners coverages.

Gross premiums written for the surety segment decreased by less than $1 million in the first three months of 2026.

Transactional and contract surety grew as a result of continued marketing efforts.

However, slowdowns in various sectors led to declines in commercial surety.

Personal umbrella expanded its distribution base while achieving favorable rate increases.

Our commercial transportation business benefited from favorable market conditions as some competitors reduced their appetite, creating opportunities to write additional high-quality business at adequate rates.

The decline in general liability premiums resulted from slower construction activity within our targeted markets, which created a more challenging environment for writing new project 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.

Gross premiums written for the property segment decreased $28 million in the first six months of 2026.

Commercial property declined $36 million as increased market capacity and competition continued to pressure pricing.

Marine premiums increased $5 million, driven by strong new business production and 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 business opportunities.

Gross premiums written for the surety segment decreased by $3 million in the first six months of 2026.

Contract surety remained relatively stable despite economic conditions that tempered construction activity, reflecting continued marketing efforts and disciplined underwriting.

Commercial surety premiums declined due to lower levels of non-recurring premium from our renewable energy portfolio and a competitive marketplace that resulted in fewer new business opportunities.

Underwriting Income

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

Underwriting Income (in thousands)

Combined Ratio

The casualty segment recorded underwriting income of $7 million in the first three months of 2026, compared to $2 million for the same period last year.

Prior accident years’ reserve releases reduced loss and settlement expenses for the casualty segment by $14 million in 2026, primarily related to accident years 2018, 2019, 2021, 2022 and 2025.

Larger drivers of the favorable development were executive products, professional services and commercial transportation, while personal umbrella experienced some adverse development.

In comparison, $5 million of prior accident years’ reserves were released in the first three months of 2025.

The casualty segment recorded underwriting income of $9 million in the first six months of 2026, compared to $10 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 2026, primarily related to accident years 2019 through 2022, as well as 2024 and 2025.

Larger drivers of the favorable development were commercial transportation, executive products, professional services and commercial excess, while personal umbrella experienced some adverse development.

In comparison, $20 million of prior accident years’ reserves were released in the first six months of 2025.

Commercial excess, general liability and subsegments within professional liability drove the favorable development, while commercial transportation and personal umbrella had adverse development related to auto exposures in 2025.

Storm losses on casualty-oriented package policies that include property coverage resulted in $2 million of losses in 2026 and less than $1 million in 2025.

Storm losses on casualty-oriented package policies that include property coverage resulted in $2 million of losses in both 2026 and 2025.

The combined ratio for the casualty segment was 98.2 in 2026, compared to 97.8 in 2025.

The segment’s loss ratio was 61.5 in 2026, down from 63.7 in 2025, primarily due to higher levels of favorable prior accident years’ reserve development.

The segment’s loss ratio was 61.8 in 2026, down from 61.9 in 2025.

The expense ratio for the casualty segment was 36.4, up from 35.9 for the same period last year.

The property segment recorded underwriting income of $48 million for the first three months of 2026, compared to $57 million for the same period last year.

The property segment recorded underwriting income of $102 million for the first six months of 2026, compared to $106 million for the same period last year.

Underwriting results for 2026 included $44 million of favorable development on prior years’ loss and catastrophe reserves, offset by $24 million of storm losses.

Comparatively, results for 2025 included $28 million of favorable development on prior years’ loss and catastrophe reserves and $24 million of storm and other catastrophe losses.

Underwriting results for the first three months of 2026 resulted in a combined ratio of 61.9, compared to 57.1 for the same period last year.

The segment’s loss ratio was 26.8 in 2026, up from 24.7 in 2025, as larger catastrophe losses and slightly higher attritional, non-catastrophe losses on a lower earned premium base were partially offset by increased favorable development on prior accident years.

The segment’s expense ratio increased to 35.1 in 2026 from 32.4 in the prior year, as a result of continued investments in people and technology on a lower earned premium base.

The surety segment recorded underwriting income of $2 million for the first three months of 2026, compared to $12 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 less than $1 million, compared to $8 million in 2025.

The combined ratio for the surety segment totaled 93.7 for the first three months of 2026, compared to 68.5 for the same period last year.

Underwriting results for the first six months of 2026 resulted in a combined ratio of 59.4, compared to 59.6 for the same period last year.

The segment’s loss ratio was 24.2 in 2026, down from 27.0 in 2025, due to increased favorable development

on prior accident years.

The segment’s expense ratio increased to 35.2 in 2026 from 32.6 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 $7 million for the first six months of 2026, compared to $16 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 $11 million in 2025.

The combined ratio for the surety segment totaled 90.4 for the first six months of 2026, compared to 78.2 for the same period last year.

The segment’s loss ratio was 13.8 in 2026, up from 4.8 in 2025, due to lower levels of favorable prior accident years’ reserve development.

The expense ratio was 75.7, up from 72.1 in the prior year, due to continued investments in people and technology, as well as higher acquisition expenses, which can fluctuate between periods.

The expense ratio was 76.6, up from 73.4 in the prior year, due to continued investments in people, as well as higher acquisition expenses, which can fluctuate between periods.

Investment Income

Our investment portfolio generated net investment income of $42 million during the first three months of 2026, an increase of 15 percent from the same period in 2025.

Our investment portfolio generated net investment income of $88 million during the first six months of 2026, an increase of 16 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 three months of 2026 and 2025 were as follows:

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

After-Tax Yield

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

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

(in thousands)

March 31, 2026

June 30, 2026

December 31, 2025

4 unchanged sentences

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 decreased by $5 million in the first three months of 2026, as interest rates increased causing the fair value of bonds to decline.

Average fixed income duration was 4.7 years at March 31, 2026, reflecting our liability structure and sound capital position.

The equity portfolio decreased by $34 million during the first three months of 2026, due to negative performance in the equity markets.

The fixed income portfolio increased by $85 million in the first six months of 2026, as the majority of investment cash flows were directed to the fixed income portfolio.

Average fixed income duration was 4.7 years at June 30, 2026, reflecting our liability structure and sound capital position.

The equity portfolio increased by $61 million during the first six months of 2026, due to positive performance in the equity markets, primarily in the second quarter.

Proceeds from debt issuance were invested into short-term securities, increasing the short-term investment portfolio by $86 million.

Our effective tax rate for the first three months of 2026 was 18.5 percent, compared to 19.6 percent for the same period in 2025.

Our effective tax rate for the first six months of 2026 was 19.8 percent, compared to 20.2 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 three-month period in 2026 was primarily due to higher levels of tax credit utilization.

The decrease in the effective tax rate for the six-month period in 2026 was primarily due to higher levels of tax credit utilization and deductions related to the $2.00 special dividend paid to our Employee Stock Ownership Plan.

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

Net premiums earned increased 4 percent, driven primarily by products in our casualty segment.

Investment income was up 17 percent, reflecting higher reinvestment rates and an increased average asset base.

Market increases resulted in $103 million of unrealized gains on equity securities in the second quarter of 2026, compared to $44 million of unrealized gains for the same period in 2025.

This compares to $14 million of realized gains on equity securities, $1 million of realized losses on fixed income securities and $2 million of other realized gains during the second quarter of 2025.

For the Three Months

Ended June 30,

Consolidated Revenues (in thousands)

Net premiums earned

Net investment income

Net realized gains

Net unrealized gains on equity securities

Total consolidated revenue

Underwriting income was $60 million on an 85.6 combined ratio for the second quarter of 2026, compared to $62 million on an 84.5 combined ratio in the same period of 2025.

Underwriting results for 2026 were impacted by $10 million of pretax catastrophe losses, compared to $14 million in 2025.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $40 million in the second quarter of 2026, compared to $28 million in 2025.

The loss ratio was 45.5 for the second quarter of 2026, down from 45.9 in 2025 due to higher levels of favorable development on prior years’ loss reserves and lower catastrophe losses.

The expense ratio increased to 40.1 from 38.6.

Increased expenses were primarily related to continued investments in our workforce, as well as higher acquisition-related costs, which can fluctuate between periods.

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 earnings from Prime in the second quarter of 2026, the same as in the second quarter of 2025.

Net earnings for the second quarter of 2026 totaled $168 million, compared to $124 million for the same period in 2025.

The increase primarily reflected larger unrealized gains on equity securities and higher investment income.

Comprehensive earnings totaled $166 million for the second quarter of 2026, compared to $143 million 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 $2 million in the second quarter of 2026 was primarily attributable to rising interest rates, which decreased the fair value of securities held in the fixed income portfolio.

Comparatively, $19 million of other comprehensive earnings was recognized in 2025.

Gross premiums written increased $17 million for the second quarter of 2026, driven by favorable rate movement and growth within our casualty segment.

Net premiums earned increased $15 million, primarily due to continued growth within our casualty segment.

Gross Premiums Written

Net Premiums Earned

For the Three Months

Ended June 30,

(in thousands)

Commercial excess and personal umbrella

Commercial transportation

Professional services

General liability

Small commercial

Executive products

Other casualty

Commercial property

Other property

Transactional

Gross premiums written for the casualty segment increased $32 million in the second quarter of 2026.

We continued to benefit from favorable rate movement across a large portion of our casualty segment.

Personal umbrella expanded its distribution base while benefiting from favorable rate movement.

The decline in general liability premiums resulted from slower construction activity within our targeted markets, which created a more challenging environment for writing new project business.

Other casualty premiums declined due to increased competition in our binding authority business.

Gross premiums written for the property segment decreased $13 million in the second quarter of 2026.

Commercial property premiums declined $17 million as increased market capacity and competition continued to pressure pricing.

Marine premiums increased $3 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.

Gross premiums written for the surety segment decreased by $2 million in the second quarter of 2026.

Transactional and contract surety remained relatively stable despite economic conditions that tempered construction activity.

Commercial surety premiums declined due to lower levels of non-recurring premium from our renewable energy portfolio and fewer new business opportunities.

Underwriting Income

For the Three Months

Ended June 30,

Underwriting Income (in thousands)

Combined Ratio

The casualty segment recorded underwriting income of $2 million in the second quarter of 2026, compared to $8 million for the same period last year.

Prior accident years’ reserve releases reduced loss and settlement expenses for the casualty segment by $13 million in 2026, primarily related to accident years 2020, 2021, 2024 and 2025.

Larger drivers of the favorable development were commercial excess, commercial transportation, professional services and executive products, while personal umbrella experienced some adverse development.

In comparison, $15 million of prior accident years’ reserves were released in the second quarter of 2025.

Commercial excess, personal umbrella, general liability and subsegments within professional liability drove the favorable development.

Storm losses on casualty-oriented package policies that include property coverage resulted in $1 million of losses in both 2026 and 2025.

The combined ratio for the casualty segment was 99.3 in 2026, compared to 96.5 in 2025.

The segment’s loss ratio was 62.2 in 2026, up from 60.2 in 2025, primarily due to lower levels of favorable prior accident years’ reserve development.

The expense ratio for the casualty segment was 37.1, up from 36.3 for the same period last year.

The property segment recorded underwriting income of $53 million for the second quarter of 2026, compared to $50 million for the same period last year.

Underwriting results for 2026 included $23 million of favorable development on prior years’ loss and catastrophe reserves, offset by $9 million of storm losses.

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

Underwriting results for the second quarter of 2026 resulted in a combined ratio of 56.8, compared to 62.1 for the same period last year.

The segment’s loss ratio was 21.6 in 2026, down from 29.4 in 2025, due to larger reserve releases and lower catastrophe losses.

The segment’s expense ratio increased to 35.2 in 2026 from 32.7 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 $5 million for the second quarter of 2026, compared to $4 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 $3 million, compared to $2 million in 2025.

The combined ratio for the surety segment totaled 87.2 for the second quarter of 2026, compared to 87.9 for the same period last year.

The segment’s loss ratio was 9.6 in 2026, down from 13.3 in 2025, due to larger levels of favorable prior accident years’ reserve development.

The expense ratio was 77.6, up from 74.6 in the prior year, due to continued investments in people, as well as higher acquisition expenses, which can fluctuate between periods.

Investment Income

Our investment portfolio generated net investment income of $46 million during the second quarter of 2026, an increase of 17 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 second quarter of 2026 and 2025 were as follows:

After-Tax Yield

Our effective tax rate for the second quarter of 2026 was 20.2 percent, compared to 20.6 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 second quarter of 2026 was primarily due to deductions related to the $2.00 special dividend paid to our Employee Stock Ownership Plan.

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 three-month periods ended March 31, 2026 and 2025:

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

(in thousands)

4 unchanged sentences

Cash flows from operating activities may vary between periods due to the timing of these receipts and payments.

Operating cash flows decreased in the first three months of 2026 compared to the same period in 2025, primarily due to higher loss and settlement expense payments, the purchase of tax credits applied against federal income taxes incurred in 2025, and higher bonus and profit-sharing contributions paid in the current period.

The increase in incentive compensation reflects improved financial performance in 2025.

These decreases were partially offset by higher gross premium and investment income receipts, as well as lower reinsurance costs.

Outstanding debt totaled $347 million as of March 31, 2026, consisting of $297 million of long-term debt, net of unamortized discount and debt issuance costs, and $50 million of short-term debt.

Operating cash flow decreased in the first six 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 $12 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 June 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 deducting the discount and issuance costs.

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, which had been drawn in 2023.

(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.

1 unchanged sentence

The amended agreement provides borrowing capacity of $150 million and may be increased to $200 million under certain conditions.

RLI Insurance Company also borrowed $50 million from the Federal Home Loan Bank of Chicago (FHLBC) on November 12, 2025, which replaced the $50 million borrowed in 2024.

The borrowing matures on November 12, 2026, but may be repaid early at set quarterly dates.

Interest is paid monthly at an annualized rate of 4.21 percent.

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.

2 unchanged sentences

Our membership allows each insurance subsidiary to determine tenor and structure at the time of borrowing.

As of March 31, 2026, $52 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility.

As of March 31, 2026, we had cash and other investments maturing within one year of approximately $635 million and an additional $786 million maturing between one to five years.

As of June 30, 2026, there were no outstanding borrowings with the FHLBC.

As of June 30, 2026, we had cash and other investments maturing within one year of approximately $424 million and an additional $811 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.

2 unchanged sentences

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 March 31, 2026 have increased $226 million from December 31, 2025.

As of March 31, 2026, our investment portfolio had the following asset allocation breakdown:

Invested assets at June 30, 2026 have increased $211 million from December 31, 2025.

As of June 30, 2026, our investment portfolio had the following asset allocation breakdown:

(in thousands)

9 unchanged sentences

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

As of March 31, 2026, our fixed income portfolio had the following rating distribution:

As of June 30, 2026, our fixed income portfolio had the following rating distribution:

government & agency

1 unchanged sentence

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

As of March 31, 2026, our fixed income portfolio remained well diversified, with 1,931 individual issues.

As of June 30, 2026, our fixed income portfolio remained well diversified, with 1,977 individual issues.

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

As of March 31, 2026, we had $388 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 March 31, 2026, we had $322 million in commercial and non-agency MBS and $601 million in MBS backed by government sponsored enterprises (GSEs - Freddie Mac, Fannie Mae and Ginnie Mae).

As of June 30, 2026, we had $420 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, 2026, we had $338 million in commercial and non-agency MBS and $594 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 15.5 percent of our investment portfolio at quarter end.

We had $1.5 billion in corporate fixed income securities as of March 31, 2026, which includes $140 million invested in a high-yield credit strategy.

We had $1.6 billion in corporate fixed income securities as of June 30, 2026, which includes $143 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 March 31, 2026, our equity portfolio had a dividend yield of 1.4 percent, compared to 1.1 percent for the S&P 500 index.

As of June 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.

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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 $56 million of investments in unconsolidated investees at March 31, 2026, compared to $54 million at December 31, 2025.

We had $58 million of investments in unconsolidated investees at June 30, 2026, compared to $54 million at December 31, 2025.

Our investment portfolio does not have any exposure to derivatives.

As of March 31, 2026, our capital structure consisted of $347 million in debt and $1.8 billion of shareholders’ equity.

Debt outstanding comprised 16 percent of total capital as of March 31, 2026.

Interest and fees on debt obligations totaled $2 million for the first three months of 2026 and $1 million during the same period in 2025.

We incurred interest expense on debt at an average annual interest rate of 5.03 percent during the first three months of 2026, compared to 5.18 percent during the same period last year.

We paid a regular quarterly cash dividend of $0.16 per share on March 16, 2026, the same amount as the prior quarter.

As of June 30, 2026, our capital structure consisted of $297 million in debt and $1.8 billion of shareholders’ equity.

Debt outstanding comprised 14 percent of total capital as of June 30, 2026.

Interest and fees on debt obligations totaled $7 million for the first six months of 2026 and $3 million during the same period in 2025.

We incurred interest expense on debt at an average annual interest rate of 5.20 percent during the first six months of 2026, compared to 5.18 percent during the same period last year.

On June 12, 2026, we paid a special dividend of $2.00 per share and a regular quarterly cash dividend of $0.18 per share, a 12.5 percent increase over the prior quarter.

We have increased dividends in each of the last 51 years.

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shareholders.

On a GAAP basis, as of March 31, 2026, our holding company had $1.8 billion in equity.

On a GAAP basis, as of June 30, 2026, our holding company had $1.8 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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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.

If necessary, the holding company also has other potential

sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include a revolving line of credit, as well as access to capital markets.

Ordinary dividends, which may be paid by our principal insurance subsidiary without prior regulatory approval, are subject to certain limitations based upon statutory income, surplus and earned surplus.

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

In the first three months of 2026, RLI Ins.

In the first six months of 2026, RLI Ins.

paid $119 million in ordinary dividends to RLI Corp.

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In 2025, our principal insurance subsidiary sought and received regulatory approval prior to the payment of extraordinary dividends totaling $151 million.

As of March 31, 2026, $19 million of the net assets of our principal insurance subsidiary were not restricted and could be distributed to RLI Corp.

As of June 30, 2026, $10 million of the net assets of our principal insurance subsidiary were not restricted and could be distributed to RLI Corp.

as ordinary dividends.

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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