What changed in this filing

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Item 1. Financial Statements

2023-07-26 compared with 2023-04-21 · 162 added, 102 removed, 498 unchanged (35% of the section changed)

3 unchanged sentences

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

(in thousands, except per share data)

11 unchanged sentences

Equity in earnings of unconsolidated investees

Earnings before income taxes

Income tax expense

Earnings (loss) before income taxes

Income tax expense (benefit)

Net earnings (loss)

Other comprehensive earnings (loss), net of tax

Comprehensive earnings

Basic net earnings per share

Diluted net earnings per share

Comprehensive earnings (loss)

Basic net earnings (loss) per share

Diluted net earnings (loss) per share

Weighted average number of common shares outstanding:

49 unchanged sentences

Balance, January 1, 2022

Net earnings (loss)

Other comprehensive earnings (loss), net of tax

3 unchanged sentences

Balance, March 31, 2022

Net earnings (loss)

Other comprehensive earnings (loss), net of tax

Deferred compensation

Share-based compensation

Dividends and dividend equivalents ($ 0.26 per share)

Balance, June 30, 2022

Comprehensive

3 unchanged sentences

Cumulative-effect adjustment from ASU 2023-02

Net earnings (loss)

Other comprehensive earnings (loss), net of tax

3 unchanged sentences

Balance, March 31, 2023

Net earnings (loss)

Other comprehensive earnings (loss), net of tax

Deferred compensation

Share-based compensation

Dividends and dividend equivalents ($ 0.27 per share)

Balance, June 30, 2023

See accompanying notes to the unaudited condensed consolidated interim financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

(in thousands)

11 unchanged sentences

Net proceeds from sale (purchase) of short-term investments

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash Flows from Financing Activities

4 unchanged sentences

Cash at the beginning of the period

Cash at March 31,

Cash at June 30,

See accompanying notes to the unaudited condensed consolidated interim financial statements.

5 unchanged sentences

As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with our 2022 Annual Report on Form 10-K.

Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at March 31, 2023 and the results of operations of RLI Corp.

Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at June 30, 2023 and the results of operations of RLI Corp.

(the Company) and subsidiaries for all periods presented have been made.

16 unchanged sentences

PROSPECTIVE ACCOUNTING STANDARDS

There are no prospective accounting standards which would have a material impact on our financial statements as of March 31, 2023.

There are no prospective accounting standards which would have a material impact on our financial statements as of June 30, 2023.

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 our liability to policyholders.

9 unchanged sentences

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 for the reinsurer are specifically identified and written off through use of our allowance for estimated unrecoverable amounts from reinsurers.

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 recoverables for the reinsurer are specifically identified and written off through 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 allowances for uncollectible amounts on paid and unpaid reinsurance recoverables were $ 16.1 million and $ 10.9 million, respectively, at March 31, 2023.

The allowances for uncollectible amounts on paid and unpaid reinsurance recoverables were $ 16.2 million and $ 10.3 million, respectively, at June 30, 2023.

At December 31, 2022, the amounts were $ 16.1 million and $ 11.3 million, respectively.

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 or recoveries were applied to the allowances in the first three months of 2023.

No write-offs or recoveries were applied to the allowances in the first six months of 2023.

We have no receivables with a due date that extends beyond one year that are not included in our allowance for uncollectible amounts.

INTANGIBLE ASSETS

The composition of goodwill and intangible assets at March 31, 2023 and December 31, 2022 is detailed in the following table:

The composition of goodwill and intangible assets at June 30, 2023 and December 31, 2022 is detailed in the following table:

(in thousands)

2 unchanged sentences

Total goodwill and intangibles

Annual impairment assessments were performed on our goodwill and state insurance license indefinite-lived intangible asset during the second quarter of 2022.

Annual impairment assessments were performed on our goodwill and state insurance license indefinite-lived intangible assets during the second quarter of 2023.

Based upon these reviews, none of the assets were impaired.

In addition, there were no triggering events as of March 31, 2023 that would suggest an updated impairment test would be needed for our goodwill and intangible assets.

In addition, there were no triggering events as of June 30, 2023 that would suggest an updated impairment test would be needed for our goodwill and intangible assets.

EARNINGS PER SHARE

6 unchanged sentences

For the Three Months

Ended March 31, 2023

Ended March 31, 2022

Ended June 30, 2023

Ended June 30, 2022

(in thousands, except per share data)

6 unchanged sentences

Anti-dilutive securities excluded from diluted EPS

For the Six Months

Ended June 30, 2023

Ended June 30, 2022

(in thousands, except per share data)

(Denominator)

Earnings available to common shareholders

Effect of Dilutive Securities

Stock options and restricted stock units

Earnings available to common shareholders

Anti-dilutive securities excluded from diluted EPS

COMPREHENSIVE EARNINGS

1 unchanged sentence

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 expense of $ 10 million for the first quarter of 2023, compared to $ 31 million of tax benefit for the same period in 2022.

Unrealized gains, net of tax, recognized in other comprehensive earnings (loss) were $ 38 million for the first three months of 2023, compared to $ 116 million of unrealized losses, net of tax, during the same period last year.

The unrealized gains in the first quarter of 2023 were attributable to a decline in interest rates, which increased the fair value of securities held in the fixed income portfolio, compared to rising interest rates during the first quarter of 2022, which decreased the fair value of fixed income securities.

Other comprehensive earnings (loss), as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax benefit of $ 5 million for the second quarter of 2023, compared to $ 26 million of tax benefit for the same period in 2022.

For the six-month period ended June 30, 2023, other comprehensive earnings (loss) is net of tax expense of $ 5 million, compared to $ 57 million of tax benefit for the same period in 2022.

Unrealized gains, net of tax, recognized in other comprehensive earnings (loss) were $ 18 million for the first six months of 2023, compared to $ 213 million of unrealized losses, net of tax, during the same period last year.

The unrealized gains in 2023 were attributable to a decline in interest rates, which increased the fair value of securities held in the fixed income portfolio, compared to rising interest rates during 2022, which decreased the fair value of fixed income securities.

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 interim financial statements:

1 unchanged sentence

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

Unrealized Gains/Losses on Available-for-Sale Securities

11 unchanged sentences

For the Three Months

For the Six Months

Component of Accumulated

Ended March 31,

Ended June 30,

Affected line item in the

27 unchanged sentences

Mortgage-backed Securities (MBS)/Commercial Mortgage-backed Securities (CMBS) and Asset-backed Securities (ABS):

The pricing vendor evaluation methodology includes principally interest rate movements and new issue data.

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.

6 unchanged sentences

All Regulation D privately-placed bonds are classified as corporate securities and deemed Level 3.

The pricing vendor evaluation methodology for these securities includes a combination of observable and unobservable inputs.

The pricing vendor evaluation methodology for these securities includes a combination of

observable and unobservable inputs.

Observable 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.

10 unchanged sentences

Equity Securities:

As of March 31, 2023, nearly all of our equity holdings were traded on an exchange.

As of June 30, 2023, 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).

Pricing for the equity securities not traded on an exchange is provided by a third-party pricing source using observable inputs are classified as Level 2.

Pricing for the equity securities not traded on an exchange is provided by a third-party pricing source using observable inputs and are classified as Level 2.

Pricing for equity securities not traded on an exchange rely on one or more unobservable inputs and are classified as Level 3.

11 unchanged sentences

These amounts are subject to certain co-participations by the Company on losses in excess of the first-dollar retentions.

On June 1, 2023, we purchased $ 150 million of additional catastrophe reinsurance protection on top of the previously described coverage.

This increases the limits to $ 850 million in excess of $ 25 million first-dollar retention for earthquakes in California, $ 850 million in excess of $ 50 million first-dollar retention for earthquakes outside of California and $ 750 million in excess of $ 50 million first-dollar retention for all other perils, including wind, all of which are still subject to certain co-participations in excess of the retentions.

Our investments are primarily composed of fixed income debt securities and common stock equity securities.

1 unchanged sentence

Realized gains and losses on disposition of investments are based on 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 three-month periods ended March 31, 2023 and 2022:

The following is a summary of the disposition of fixed income and equity securities for the six-month periods ended June 30, 2023 and 2022:

Gross Realized

10 unchanged sentences

FAIR VALUE MEASUREMENTS

Assets measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 are summarized below:

As of March 31, 2023

Assets measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 are summarized below:

As of June 30, 2023

Quoted Prices in

27 unchanged sentences

Sales / Calls / Maturities

Balance as of March 31, 2023

Balance as of June 30, 2023

Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss)

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of March 31, 2023 were as follows:

March 31, 2023

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of June 30, 2023 were as follows:

June 30, 2023

(in thousands)

7 unchanged sentences

Asset-backed, commercial mortgage-backed and mortgage-backed securities

The amortized cost and fair value of available-for-sale securities at March 31, 2023 and December 31, 2022 are presented in the tables below.

Amortized cost does not include the $ 20 million of accrued interest receivable as of both March 31, 2023 and December 31, 2022.

March 31, 2023

The amortized cost and fair value of available-for-sale securities at June 30, 2023 and December 31, 2022 are presented in the tables below.

Amortized cost does not include the $ 22 million and $ 20 million of accrued interest receivable as of June 30, 2023 and December 31, 2022, respectively.

June 30, 2023

(in thousands)

20 unchanged sentences

The allowance for any security is limited to the amount that the security’s fair value is below amortized cost.

As of March 31, 2023, the discounted cash flow analysis resulted in an allowance for credit losses on 18 securities.

As of June 30, 2023, the discounted cash flow analysis resulted in an allowance for credit losses on 18 securities.

The following table presents changes in the allowance for expected credit losses on available-for-sale securities:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

1 unchanged sentence

Increase to allowance from securities for which credit losses were not previously recorded

Reduction from securities sold during the period

Reductions from intent to sell securities

Net increase (decrease) from securities that had an allowance at the beginning of the period

Balance as of March 31,

During the first three months of 2023, net realized gains included $ 1.7 million of losses on fixed income securities for which the cost basis was written down to fair value due to a credit event and restructuring.

We recognized $ 0.1 million of losses on securities for which we no longer had the intent to hold until recovery during the first quarter of 2022.

As of March 31, 2023, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,388 securities with an unrealized loss position for which an allowance for credit losses had not been recorded.

Balance as of June 30,

During the first six months of 2023, net realized gains included $ 1.7 million of losses on fixed income securities for which the cost basis was written down to fair value due to a credit event and restructurings.

We recognized $ 0.1 million of losses on securities for which we no longer had the intent to hold until recovery during the first six months of 2022.

As of June 30, 2023, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,474 securities with an unrealized loss position for which an allowance for credit losses had not been recorded.

The $ 261 million in associated unrealized losses represents 9 percent of the fixed income portfolio’s cost basis and 7 percent of total invested assets.

Isolated to these securities, unrealized losses decreased through the first three months of 2023, as interest rates declined during the period.

Isolated to these securities, unrealized losses decreased through the first six months of 2023, as credit spreads have tightened modestly while interest rates stayed flat during the period.

Of the total 1,474 securities, 995 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 as of March 31, 2023 and December 31, 2022 after factoring in the allowance for credit losses.

The following table illustrates the total value of fixed income securities that were in an unrealized loss position as of June 30, 2023 and December 31, 2022 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.

March 31, 2023

June 30, 2023

December 31, 2022

19 unchanged sentences

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

The following table shows the composition of the fixed income securities in unrealized loss positions, after factoring in the allowance for credit losses, at March 31, 2023 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings.

The following table shows the composition of the fixed income securities in unrealized loss positions, after factoring in the allowance for credit losses, at June 30, 2023 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.

1 unchanged sentence

Other Invested Assets

We had $ 64 million of other invested assets at March 31, 2023, compared to $ 48 million at December 31, 2022.

We had $ 61 million of other invested assets at June 30, 2023, compared to $ 48 million at December 31, 2022.

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.

3 unchanged sentences

The private funds are carried at fair value, using each investment’s net asset value.

Our LIHTC interests had a balance of $ 13 million at both March 31, 2023 and December 31, 2022, and recognized a total tax benefit of $ 0.8 million during the first quarter of 2023, compared to a total tax benefit of $ 0.9 million during the same period in 2022.

Our unfunded commitment for our LIHTC investments totaled $ 1 million at March 31, 2023 and will be paid out in installments through 2035.

Our HTC investment had a balance of $ 16 million at March 31, 2023, compared to $ 11 million at December 31, 2022.

Our LIHTC interests had a balance of $ 12 million at June 30, 2023, compared to $ 13 million on December 31, 2022.

Our LIHTC interests recognized amortization of $ 0.8 million as a component of income tax expense and a total tax benefit of $ 0.8 million during the second quarter of 2023, compared to $ 0.8 million of amortization and $ 0.9 million of tax benefit during the same period in 2022.

For the six-months ended June 30, 2023, our LIHTC interest recognized amortization of $ 1.6 million and a total benefit of $ 1.6 million, compared to $ 1.7 million of amortization and $ 1.7 million of tax benefit for the same period in 2022.

Our unfunded commitment for our LIHTC investments totaled $ 1 million at June 30, 2023 and will be paid out in installments through 2035.

Our HTC investment had a balance of $ 15 million at June 30, 2023, compared to $ 11 million at December 31, 2022.

Through 2022, the investment was accounted for as an investment in unconsolidated investee.

Due to the adoption of ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method , the investment was reclassified as an other invested asset during 2023.

A total tax benefit of $ 1.4 million was recognized from our HTC investment during the first quarter of 2023, compared to $ 1.3 million in the first quarter of 2022.

Our unfunded commitment for our HTC investment totaled $ 7 million at March 31, 2023 and is expected be paid entirely during 2023.

As of March 31, 2023, $ 59 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility that ownership of FHLBC stock provides.

As of March 31, 2023, $ 50 million of borrowings were outstanding with the FHLBC.

Our investments in private funds totaled $ 28 million as of March 31, 2023 and December 31, 2022, and had $ 5 million of associated unfunded commitments at March 31, 2023.

A total tax benefit of $ 1.5 million was recognized from our HTC investment during the second quarter of 2023, compared to $ 1.3 million in the second quarter of 2022.

For the six-months ended June 30, 2023, our HTC investment recognized a total benefit of $ 2.9 million, compared to $ 2.6 million for the same period in 2022.

Our HTC investment recognized $ 1.1 million of amortization as a component of income tax expense during the second quarter of 2023 and $ 2.3 million of amortization during the first six months of 2023.

Our unfunded commitment for our HTC investment totaled $ 4 million at June 30, 2023 and is expected be paid during 2023.

As of June 30, 2023, $ 56 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility that ownership of FHLBC stock provides.

As of June 30, 2023, $ 50 million of borrowings were outstanding with the FHLBC.

Our investments in private funds totaled $ 27 million as of June 30, 2023, down from $ 28 million as of December 31, 2022, and had $ 5 million of associated unfunded commitments at June 30, 2023.

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

We had $ 52 million of investments in unconsolidated investees at March 31, 2023, compared to $ 58 million at December 31, 2022.

At March 31, 2023, our investment in Prime Holdings Insurance Services, Inc.

We had $ 55 million of investments in unconsolidated investees at June 30, 2023, compared to $ 58 million at December 31, 2022.

At June 30, 2023, our investment in Prime Holdings Insurance Services, Inc.

(Prime) was $ 55 million and other investments in unconsolidated investees totaled less than $ 1 million.

4 unchanged sentences

Short-term investments are carried at cost.

We had a cash and short-term investment balance of $ 23 million and $ 116 million, respectively, at March 31, 2023, compared to $ 23 million and $ 36 million, respectively, at December 31, 2022.

We had a cash and short-term investment balance of $ 17 million and $ 271 million, respectively, at June 30, 2023, compared to $ 23 million and $ 36 million, respectively, at December 31, 2022.

HISTORICAL LOSS AND LAE DEVELOPMENT

The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the first three months of 2023 and 2022:

For the Three Months

Ended March 31,

The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the first six months of 2023 and 2022:

For the Six Months

Ended June 30,

(in thousands)

7 unchanged sentences

Prior accident years

Net unpaid losses and LAE at March 31,

Unpaid losses and LAE at March 31,

For the first three months of 2023, incurred losses and LAE included $ 52 million of favorable development on prior years’ loss reserves, largely from accident years 2016 and 2018 through 2022.

Marine, general liability, professional services, commercial excess, executive products, personal umbrella, surety and commercial property were drivers of the favorable development.

Net unpaid losses and LAE at June 30,

Unpaid losses and LAE at June 30,

For the first six months of 2023, incurred losses and LAE included $ 72 million of favorable development on prior years’ loss reserves, largely from accident years 2018 through 2022.

Commercial excess, professional services, surety, general liability, personal umbrella, marine and commercial property were drivers of the favorable development.

No products experienced significant adverse development.

For the first three months of 2022, incurred losses and LAE included $ 45 million of favorable development on prior years’ loss reserves, largely from accident years 2018 through 2021.

Professional services, general liability, transportation, commercial excess, personal umbrella, marine, commercial property and surety were drivers of the favorable development.

For the first six months of 2022, incurred losses and LAE included $ 70 million of favorable development on prior years’ loss reserves, largely from accident years 2018 through 2021.

General liability, professional services, transportation, marine and surety were drivers of the favorable development.

No products experienced significant adverse development.

Our effective tax rate for the three months ended March 31, 2023 was 19.5 percent, compared to 18.1 percent for the same period in 2022.

Our effective tax rate for the three and six months ended June 30, 2023 was 19.1 percent and 19.4 percent, respectively, compared to 65.8 percent and 12.1 percent, respectively, for the same period in 2022.

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

The effective tax rate was higher for the three-month period in 2023, as higher pretax income decreased the percentage impact of tax-favored adjustments.

Income tax expense attributable to income from operations for the three-month period ended March 31, 2023 and 2022 differed from the amounts computed by applying the U.S.

Tax-favored adjustments acting on pretax earnings resulted in a lower effective tax rate for the second quarter of 2023.

The effective tax rate was higher for the six-month period in 2023, as higher pretax income decreased the percentage impact of tax-favored adjustments.

Income tax expense attributable to income from operations for the three and six-month period ended June 30, 2023 and 2022 differed from the amounts computed by applying the U.S.

federal tax rate of 21 percent to pretax income by the items detailed in the below table.

In interim periods, income taxes are adjusted to reflect the effective tax rate we anticipate for the year, with adjustments flowing through the other items, net line.

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

For the Six Months Ended June 30, 2023

(in thousands)

4 unchanged sentences

Dividends received deduction

Investment tax credit

ESOP dividends paid deduction

6 unchanged sentences

Our RLI Corp.

Long-Term Incentive Plan (2015 LTIP) provides for equity-based compensation.

Awards under the 2015 LTIP may be in the form of restricted stock, restricted stock units, stock options (non-qualified only), stock appreciation rights, performance units as well as other stock-based awards.

Eligibility under the 2015 LTIP is limited to employees and directors of the Company or any affiliate.

The granting of awards under the 2015 LTIP is solely at the discretion of the board of directors.

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 4,000,000 shares of common stock (subject to adjustment for changes in our capitalization and other events).

Between 2015 and 2023, we granted 3,291,388 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 4,004,891 shares (subject to adjustment for changes in our capitalization and other events).

Since the plan’s approval in 2015, we have granted 3,291,388 awards under the 2015 LTIP, including 27,600 thus far in 2023.

Since the plan’s approval in 2023, we have granted 135,838 awards under the 2023 LTIP.

Compensation expense is based on the probable number of awards expected to vest.

The total compensation expense related to equity awards was $ 2.5 million in the three-month period ended March 31, 2023, compared to $ 1.5 million for the same period in 2022.

The total income tax benefit was $ 0.4 million for the three-month period ended March 31, 2023, compared to $ 0.2 million for the same period in 2022.

The total compensation expense related to equity awards was $ 2.2 million and $ 4.7 million in the three and six-month periods ended June 30, 2023, respectively, compared to $ 2.3 million and $ 3.7 million, respectively, for the same period in 2022.

The total income tax benefit was $ 0.3 million and $ 0.8 million for the three and six-month periods ended June 30, 2023, compared to $ 0.4 million and $ 0.6 million, respectively, for the same periods in 2022.

Total unrecognized compensation expense relating to outstanding and unvested awards was $ 8 million, which will be recognized over the weighted average vesting period of 2.77 years.

Stock Options

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 other events as set forth in such plans).

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 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 , the requisite service period is deemed to be met and options are immediately expensed on the date of grant.

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.

The following tables summarize option activity for the three-month period ended March 31, 2023:

The following tables summarize option activity for the six-month period ended June 30, 2023:

Exercise Price

3 unchanged sentences

Options exercised

Outstanding options at March 31, 2023

Exercisable options at March 31, 2023

The intrinsic value, which is the difference between the fair value and the exercise price, of options exercised was $ 11 million and $ 1 million during the first three months of 2023 and 2022, 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 March 31:

Options canceled/forfeited

Outstanding options at June 30, 2023

Exercisable options at June 30, 2023

The intrinsic value, which is the difference between the fair value and the exercise price, of options exercised was $ 16 million and $ 5 million during the first six months of 2023 and 2022, 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 June 30:

Weighted-average fair value of grants

10 unchanged sentences

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 .

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 $ 1 million and $ 2 million during the first six months of 2023 and 2022, respectively.

Nonvested at January 1, 2023

Nonvested at March 31, 2023

Nonvested at June 30, 2023

OPERATING SEGMENT INFORMATION

2 unchanged sentences

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

(in thousands)

11 unchanged sentences

Equity in earnings of unconsolidated investees

Earnings before income taxes

Income tax expense

Earnings (loss) before income taxes

Income tax expense (benefit)

Net earnings (loss)

The following table further summarizes revenues by major product type within each operating segment:

For the Three Months

For the Six Months

Net Premiums Earned

Ended March 31,

Ended June 30,

(in thousands)

19 unchanged sentences

The Company’s operating lease obligations are for branch office facilities.

The components of lease expense and other lease information as of and during the three-month period ended March 31, 2023 and 2022 were as follows:

The components of lease expense and other lease information as of and during the three and six-month periods ended June 30, 2023 and 2022 were as follows:

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

(in thousands)

9 unchanged sentences

(in thousands)

March 31, 2023

June 30, 2023

December 31, 2022

3 unchanged sentences

Weighted-average discount rate - operating leases

Future minimum lease payments under non-cancellable leases as of March 31, 2023 were as follows:

Future minimum lease payments under non-cancellable leases as of June 30, 2023 were as follows:

(in thousands)

March 31, 2023

June 30, 2023

Total future minimum lease payments

3 unchanged sentences

On September 30, 2022, RLI Corp.

completed the sale of its equity method investment in Maui Jim to Kering Eyewear for cash proceeds of $ 687 million.

A net realized gain of $ 571 million was recognized during 2022 and the payout of the

working capital escrow during the first quarter of 2023 resulted in the recognition of an additional $ 14 million realized gain.

completed the sale of its equity method investment in Maui Jim, Inc.

to Kering Eyewear for cash proceeds of $ 687 million.

A net realized gain of $ 571 million was recognized during 2022 and the payout of

the working capital escrow during the first quarter of 2023 resulted in the recognition of an additional $ 14 million realized gain.

The gains were recorded in the net realized gain line item of the statement of earnings.

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 1. Financial Statements