RLI CORP 10-Q

Item 1. Financial Statements ​ RLI Corp. and Subsidiaries Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ For the Nine Months ​ ​ Ended September 30, ​ Ended September 30, (in thousands, except per share data) 2023 2022 2023 2022 Net premiums earned ​ $ 318,409 ​ $ 291,468 ​ $ 948,412 ​ $ 843,430 Net investment income ​ ​ 31,963 ​ ​ 21,270 ​ ​ 87,835 ​ ​ 57,625 Net realized gains ​ ​ 6,558 ​ ​ 573,170 ​ ​ 26,758 ​ ​ 591,562 Net unrealized gains (losses) on equity securities ​ ​ ( 25,236 ) ​ ​ ( 26,414 ) ​ ​ 15,474 ​ ​ ( 155,218 ) Consolidated revenue ​ $ 331,694 ​ $ 859,494 ​ $ 1,078,479 ​ $ 1,337,399 Losses and settlement expenses ​ ​ 189,558 ​ ​ 165,089 ​ ​ 457,989 ​ ​ 388,527 Policy acquisition costs ​ ​ 103,013 ​ ​ 96,977 ​ ​ 307,083 ​ ​ 271,879 Insurance operating expenses ​ ​ 21,591 ​ ​ 20,606 ​ ​ 70,002 ​ ​ 58,794 Interest expense on debt ​ ​ 1,873 ​ ​ 2,013 ​ ​ 5,928 ​ ​ 6,034 General corporate expenses ​ ​ 2,372 ​ ​ 2,755 ​ ​ 10,805 ​ ​ 8,553 Total expenses ​ $ 318,407 ​ $ 287,440 ​ $ 851,807 ​ $ 733,787 Equity in earnings (loss) of unconsolidated investees ​ ​ 1,732 ​ ​ ( 17,352 ) ​ ​ 7,169 ​ ​ 3,061 Earnings before income taxes ​ $ 15,019 ​ $ 554,702 ​ $ 233,841 ​ $ 606,673 Income tax expense ​ ​ 1,483 ​ ​ 114,809 ​ ​ 43,842 ​ ​ 121,096 Net earnings ​ $ 13,536 ​ $ 439,893 ​ $ 189,999 ​ $ 485,577 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive earnings (loss), net of tax ​ ​ ( 56,834 ) ​ ​ ( 81,248 ) ​ ​ ( 38,848 ) ​ ​ ( 294,392 ) Comprehensive earnings (loss) ​ $ ( 43,298 ) ​ $ 358,645 ​ $ 151,151 ​ $ 191,185 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic net earnings per share ​ $ 0.30 ​ $ 9.69 ​ $ 4.17 ​ $ 10.71 Diluted net earnings per share ​ $ 0.29 ​ $ 9.61 ​ $ 4.12 ​ $ 10.61 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 45,622 ​ ​ 45,379 ​ ​ 45,581 ​ ​ 45,347 Diluted ​ ​ 46,065 ​ ​ 45,775 ​ ​ 46,067 ​ ​ 45,775 ​ See accompanying notes to the unaudited condensed consolidated interim financial statements. ​ 3 ​ Table of Contents RLI Corp. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (in thousands, except share and per share data) 2023 2022 ASSETS ​ ​ ​ ​ ​ ​ Investments and cash: ​ ​ ​ ​ ​ ​ Fixed income: ​ ​ ​ ​ ​ ​ Available-for-sale, at fair value ​ $ 2,717,627 ​ $ 2,666,950 (amortized cost of $ 3,046,785 and allowance for credit losses of $ 704 at 9/30/23) ​ ​ ​ ​ ​ ​ (amortized cost of $ 2,945,273 and allowance for credit losses of $ 339 at 12/31/22) ​ ​ ​ ​ ​ ​ Equity securities, at fair value (cost - $ 347,772 at 9/30/23 and $ 328,019 at 12/31/22) ​ ​ 534,436 ​ ​ 498,382 Short-term investments, at cost which approximates fair value ​ ​ 125,032 ​ ​ 36,229 Other invested assets ​ ​ 59,730 ​ ​ 47,922 Cash ​ ​ 18,445 ​ ​ 22,818 Total investments and cash ​ $ 3,455,270 ​ $ 3,272,301 Accrued investment income ​ ​ 25,328 ​ ​ 21,259 Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $ 19,415 at 9/30/23 and $ 18,696 at 12/31/22 ​ ​ 225,821 ​ ​ 189,501 Ceded unearned premium ​ ​ 111,072 ​ ​ 138,457 Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $ 11,131 at 9/30/23 and $ 11,250 at 12/31/22 ​ ​ 820,954 ​ ​ 740,089 Deferred policy acquisition costs ​ ​ 150,666 ​ ​ 127,859 Property and equipment, at cost, net of accumulated depreciation of $ 74,416 at 9/30/23 and $ 68,633 at 12/31/22 ​ ​ 48,596 ​ ​ 49,573 Investment in unconsolidated investees ​ ​ 56,110 ​ ​ 58,275 Goodwill and intangibles ​ ​ 53,562 ​ ​ 53,562 Income taxes-deferred ​ ​ 51,403 ​ ​ 40,269 Other assets ​ ​ 84,744 ​ ​ 75,923 TOTAL ASSETS ​ $ 5,083,526 ​ $ 4,767,068 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ ​ Unpaid losses and settlement expenses ​ $ 2,488,695 ​ $ 2,315,637 Unearned premiums ​ ​ 906,139 ​ ​ 785,085 Reinsurance balances payable ​ ​ 56,570 ​ ​ 61,100 Funds held ​ ​ 103,424 ​ ​ 101,144 Income taxes-current ​ ​ 5,546 ​ ​ — Debt ​ ​ 100,000 ​ ​ 199,863 Accrued expenses ​ ​ 85,640 ​ ​ 94,869 Other liabilities ​ ​ 38,421 ​ ​ 32,029 TOTAL LIABILITIES ​ $ 3,784,435 ​ $ 3,589,727 ​ ​ ​ ​ ​ ​ ​ Shareholders’ Equity ​ ​ ​ ​ ​ ​ Common stock ($ 0.01 par value) ​ ​ ​ ​ ​ ​ (Shares authorized - 200,000,000 ) ​ ​ ​ ​ ​ ​ ( 68,555,985 shares issued, 45,625,771 shares outstanding at 9/30/23) ​ ​ ​ ​ ​ ​ ( 68,399,966 shares issued, 45,469,752 shares outstanding at 12/31/22) ​ $ 686 ​ $ 684 Paid-in capital ​ ​ 360,453 ​ ​ 352,391 Accumulated other comprehensive earnings (loss) ​ ​ ( 267,924 ) ​ ​ ( 229,076 ) Retained earnings ​ ​ 1,598,875 ​ ​ 1,446,341 Deferred compensation ​ ​ 12,617 ​ ​ 12,015 Less: Treasury shares, at cost ( 22,930,214 shares at 9/30/23 and 12/31/22) ​ ​ ( 405,616 ) ​ ​ ( 405,014 ) TOTAL SHAREHOLDERS’ EQUITY ​ $ 1,299,091 ​ $ 1,177,341 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ​ $ 5,083,526 ​ $ 4,767,068 ​ See accompanying notes to the unaudited condensed consolidated interim financial statements. ​ 4 ​ Table of Contents RLI Corp. and Subsidiaries Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ Comprehensive ​ ​ ​ ​ ​ ​ ​ Treasury ​ ​ Common ​ Shareholders’ ​ Common ​ Paid-in ​ Earnings ​ Retained ​ Deferred ​ Shares (in thousands, except share and per share data) Shares Equity Stock Capital (Loss) Earnings Compensation at Cost Balance, January 1, 2022 ​ 45,289,337 ​ $ 1,229,361 ​ $ 682 ​ $ 343,742 ​ $ 49,826 ​ $ 1,228,110 ​ $ 9,642 ​ $ ( 402,641 ) Net earnings ​ — ​ ​ 47,923 ​ ​ — ​ ​ — ​ ​ — ​ ​ 47,923 ​ ​ — ​ ​ — Other comprehensive earnings (loss), net of tax ​ — ​ ​ ( 115,581 ) ​ ​ — ​ ​ — ​ ​ ( 115,581 ) ​ ​ — ​ ​ — ​ ​ — Deferred compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 973 ) ​ ​ 973 Share-based compensation ​ 26,605 ​ ​ 3,049 ​ ​ — ​ ​ 3,049 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Dividends and dividend equivalents ($ 0.25 per share) ​ — ​ ​ ( 11,330 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 11,330 ) ​ ​ — ​ ​ — Balance, March 31, 2022 ​ 45,315,942 ​ $ 1,153,422 ​ $ 682 ​ $ 346,791 ​ $ ( 65,755 ) ​ $ 1,264,703 ​ $ 8,669 ​ $ ( 401,668 ) Net earnings ​ — ​ ​ ( 2,239 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,239 ) ​ ​ — ​ ​ — Other comprehensive earnings (loss), net of tax ​ — ​ ​ ( 97,563 ) ​ ​ — ​ ​ — ​ ​ ( 97,563 ) ​ ​ — ​ ​ — ​ ​ — Deferred compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 276 ​ ​ ( 276 ) Share-based compensation ​ 52,862 ​ ​ 2,371 ​ ​ 1 ​ ​ 2,370 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Dividends and dividend equivalents ($ 0.26 per share) ​ — ​ ​ ( 11,803 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 11,803 ) ​ ​ — ​ ​ — Balance, June 30, 2022 ​ 45,368,804 ​ $ 1,044,188 ​ $ 683 ​ $ 349,161 ​ $ ( 163,318 ) ​ $ 1,250,661 ​ $ 8,945 ​ $ ( 401,944 ) Net earnings ​ — ​ ​ 439,893 ​ ​ — ​ ​ — ​ ​ — ​ ​ 439,893 ​ ​ — ​ ​ — Other comprehensive earnings (loss), net of tax ​ — ​ ​ ( 81,248 ) ​ ​ — ​ ​ — ​ ​ ( 81,248 ) ​ ​ — ​ ​ — ​ ​ — Deferred compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 102 ​ ​ ( 102 ) Share-based compensation ​ 9,367 ​ ​ 2,968 ​ ​ — ​ ​ 2,968 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Dividends and dividend equivalents ($ 0.26 per share) ​ — ​ ​ ( 11,808 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 11,808 ) ​ ​ — ​ ​ — Balance, September 30, 2022 ​ 45,378,171 ​ $ 1,393,993 ​ $ 683 ​ $ 352,129 ​ $ ( 244,566 ) ​ $ 1,678,746 ​ $ 9,047 ​ $ ( 402,046 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ Comprehensive ​ ​ ​ ​ ​ ​ ​ Treasury ​ ​ Common ​ Shareholders’ ​ Common ​ Paid-in ​ Earnings ​ Retained ​ Deferred ​ Shares (in thousands, except share and per share data) ​ Shares ​ Equity ​ Stock ​ Capital ​ (Loss) ​ Earnings ​ Compensation ​ at Cost Balance, January 1, 2023 ​ 45,469,752 ​ $ 1,177,341 ​ $ 684 ​ $ 352,391 ​ $ ( 229,076 ) ​ $ 1,446,341 ​ $ 12,015 ​ $ ( 405,014 ) Cumulative-effect adjustment from ASU 2023-02 ​ ​ — ​ ​ ( 951 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 951 ) ​ ​ — ​ ​ — Net earnings ​ — ​ ​ 98,811 ​ ​ — ​ ​ — ​ ​ — ​ ​ 98,811 ​ ​ — ​ ​ — Other comprehensive earnings (loss), net of tax ​ — ​ ​ 37,707 ​ ​ — ​ ​ — ​ ​ 37,707 ​ ​ — ​ ​ — ​ ​ — Deferred compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 249 ​ ​ ( 249 ) Share-based compensation ​ 84,944 ​ ​ 2,864 ​ ​ 1 ​ ​ 2,863 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Dividends and dividend equivalents ($ 0.26 per share) ​ — ​ ​ ( 11,851 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 11,851 ) ​ ​ — ​ ​ — Balance, March 31, 2023 ​ 45,554,696 ​ $ 1,303,921 ​ $ 685 ​ $ 355,254 ​ $ ( 191,369 ) ​ $ 1,532,350 ​ $ 12,264 ​ $ ( 405,263 ) Net earnings ​ — ​ ​ 77,652 ​ ​ — ​ ​ — ​ ​ — ​ ​ 77,652 ​ ​ — ​ ​ — Other comprehensive earnings (loss), net of tax ​ — ​ ​ ( 19,721 ) ​ ​ — ​ ​ — ​ ​ ( 19,721 ) ​ ​ — ​ ​ — ​ ​ — Deferred compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 243 ​ ​ ( 243 ) Share-based compensation ​ 41,500 ​ ​ 2,402 ​ ​ — ​ ​ 2,402 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Dividends and dividend equivalents ($ 0.27 per share) ​ — ​ ​ ( 12,342 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 12,342 ) ​ ​ — ​ ​ — Balance, June 30, 2023 ​ 45,596,196 ​ $ 1,351,912 ​ $ 685 ​ $ 357,656 ​ $ ( 211,090 ) ​ $ 1,597,660 ​ $ 12,507 ​ $ ( 405,506 ) Net earnings ​ — ​ ​ 13,536 ​ ​ — ​ ​ — ​ ​ — ​ ​ 13,536 ​ ​ — ​ ​ — Other comprehensive earnings (loss), net of tax ​ — ​ ​ ( 56,834 ) ​ ​ — ​ ​ — ​ ​ ( 56,834 ) ​ ​ — ​ ​ — ​ ​ — Deferred compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 110 ​ ​ ( 110 ) Share-based compensation ​ 29,575 ​ ​ 2,798 ​ ​ 1 ​ ​ 2,797 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Dividends and dividend equivalents ($ 0.27 per share) ​ — ​ ​ ( 12,321 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 12,321 ) ​ ​ — ​ ​ — Balance, September 30, 2023 ​ 45,625,771 ​ $ 1,299,091 ​ $ 686 ​ $ 360,453 ​ $ ( 267,924 ) ​ $ 1,598,875 ​ $ 12,617 ​ $ ( 405,616 ) ​ See accompanying notes to the unaudited condensed consolidated interim financial statements. ​ 5 ​ Table of Contents RLI Corp. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Nine Months ​ ​ Ended September 30, (in thousands) 2023 2022 Net cash provided by operating activities ​ $ 342,192 ​ $ 282,886 Cash Flows from Investing Activities ​ ​ ​ ​ ​ ​ Purchase of: ​ ​ ​ ​ ​ ​ Fixed income securities, available-for-sale ​ $ ( 560,192 ) ​ $ ( 531,894 ) Equity securities ​ ​ ( 40,571 ) ​ ​ ( 42,490 ) Property and equipment ​ ​ ( 5,451 ) ​ ​ ( 4,432 ) Other ​ ​ ( 8,535 ) ​ ​ ( 7,940 ) Proceeds from sale of: ​ ​ ​ ​ ​ ​ Fixed income securities, available-for-sale ​ ​ 26,158 ​ ​ 46,448 Equity securities ​ ​ 36,708 ​ ​ 59,264 Equity method investments ​ ​ 14,134 ​ ​ 686,666 Other ​ ​ 550 ​ ​ 2,298 Proceeds from call or maturity of: ​ ​ ​ ​ ​ ​ Fixed income securities, available-for-sale ​ ​ 414,529 ​ ​ 176,616 Net proceeds from sale (purchase) of short-term investments ​ ​ ( 88,803 ) ​ ​ — Net cash provided by (used in) investing activities ​ $ ( 211,473 ) ​ $ 384,536 Cash Flows from Financing Activities ​ ​ ​ ​ ​ ​ Proceeds from issuance of debt ​ $ 50,000 ​ $ — Payment of debt ​ ​ ( 150,000 ) ​ ​ — Cash dividends paid ​ ​ ( 36,490 ) ​ ​ ( 34,913 ) Proceeds from stock option exercises ​ ​ 1,398 ​ ​ 2,198 Net cash used in financing activities ​ $ ( 135,092 ) ​ $ ( 32,715 ) Net increase (decrease) in cash ​ $ ( 4,373 ) ​ $ 634,707 Cash at the beginning of the period ​ ​ 22,818 ​ ​ 88,804 Cash at September 30, ​ $ 18,445 ​ $ 723,511 ​ See accompanying notes to the unaudited condensed consolidated interim financial statements. ​ 6 ​ Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ​ 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ​ A. BASIS OF PRESENTATION ​ The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. 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 September 30, 2023 and the results of operations of RLI Corp. (the Company) and subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year. Certain reclassifications were made to 2022 to conform to the classifications used in the current year. ​ The preparation of the unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated interim financial statements and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ significantly from these estimates. ​ B. ADOPTED ACCOUNTING STANDARDS ​ 2023-02—Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Method ​ The amendments in this ASU permit the use of the proportional amortization method for investments in tax credits if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the amount of tax credits and other tax benefits received, with the amortization and tax credits presented as a component of income tax expense. Under previous guidance, equity investments in tax credit structures, other than qualified affordable housing projects, were accounted for using the equity method of accounting, which required the presentation of income, gains and losses, and tax credits in their respective line items of the statement of earnings. This ASU allows entities to make an accounting policy election on an individual tax credit program basis for all equity investments whose primary purpose is receiving income tax credits or other income tax benefits. When the proportional amortization method is selected, this amendment also requires a liability be recognized for delayed equity contributions that are unconditional or for contingent contributions when the contingent event becomes probable. ​ We adopted ASU 2023-02 on January 1, 2023 using a modified-retrospective approach. Through 2022, our investment in historic tax credit partnerships was presented in the balance sheet as an investment in unconsolidated investee. On January 1, 2023, the $ 11 million investment was moved to the other invested assets line item, an unfunded commitment for the investment was recognized by establishing a $ 7 million liability and increasing other invested assets, and the asset and retained earnings were reduced by $ 1 million to reflect the difference between applying the equity method and the proportional method since the investment was entered into. While the amortization of the investment will be presented in income tax expense going forward, rather than in equity in earnings of unconsolidated investees, the impact to net earnings will not have a material impact on our financial statements. ​ C. PROSPECTIVE ACCOUNTING STANDARDS ​ There are no prospective accounting standards which would have a material impact on our financial statements as of September 30, 2023. ​ D. REINSURANCE ​ Ceded unearned premiums and reinsurance balances recoverable on unpaid losses and settlement expenses are reported separately as an asset, rather than being netted with the related liability, since reinsurance does not relieve the Company of our liability to policyholders. Such balances are subject to the credit risk associated with the individual reinsurer. We continually monitor the financial condition of our reinsurers and actively follow up on any past due or disputed amounts. As part of our 7 ​ Table of Contents monitoring efforts, we review reinsurers’ annual financial statements and Securities and Exchange Commission filings for those that are publicly traded. We also review insurance industry developments that may impact the financial condition of our reinsurers. We analyze the credit risk associated with our reinsurance balances recoverable by monitoring the AM Best and Standard & Poor’s (S&P) ratings of our reinsurers. In addition, we subject our reinsurance recoverables to detailed recoverability tests, including a segment-based analysis using the average default rating percentage by S&P rating, which assists the Company in assessing the sufficiency of its allowance. Additionally, we perform an in-depth reinsurer financial condition analysis prior to the renewal of each of our reinsurance placements. ​ Our policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverable amounts from reinsurers. This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provision for reinsurance balances that we may be unable to recover. Once regulatory action (such as receivership, finding of insolvency, order of conservation or order of liquidation) is taken against a reinsurer, the paid and unpaid 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 $ 19 million and $ 11 million, respectively, at September 30, 2023. At December 31, 2022, the amounts were $ 16 million and $ 11 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 nine 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. ​ E. INTANGIBLE ASSETS ​ The composition of goodwill and intangible assets at September 30, 2023 and December 31, 2022 is detailed in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (in thousands) 2023 2022 Goodwill ​ ​ ​ ​ ​ ​ Surety ​ $ 40,816 ​ $ 40,816 Casualty ​ ​ 5,246 ​ ​ 5,246 Total goodwill ​ $ 46,062 ​ $ 46,062 Indefinite-lived intangibles ​ ​ 7,500 ​ ​ 7,500 Total goodwill and intangibles ​ $ 53,562 ​ $ 53,562 ​ 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 September 30, 2023 that would suggest an updated impairment test would be needed for our goodwill and intangible assets. ​ F. EARNINGS PER SHARE ​ Basic earnings per share (EPS) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock or common stock equivalents were exercised or converted into common stock. When inclusion of these items increases the earnings per share or reduces the loss per share, the effect on earnings is anti-dilutive. Under these circumstances, the diluted net earnings or net loss per share is computed excluding these items. The following represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the unaudited condensed consolidated interim financial statements: ​ 8 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ For the Three Months ​ ​ Ended September 30, 2023 ​ Ended September 30, 2022 ​ ​ Income ​ Shares ​ Per Share ​ Income ​ Shares ​ Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings available to common shareholders ​ $ 13,536 ​ 45,622 ​ $ 0.30 ​ $ 439,893 ​ 45,379 ​ $ 9.69 Effect of Dilutive Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock options and restricted stock units ​ ​ — ​ 443 ​ ​ ​ ​ ​ — ​ 396 ​ ​ ​ Diluted EPS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings available to common shareholders ​ $ 13,536 ​ 46,065 ​ $ 0.29 ​ $ 439,893 ​ 45,775 ​ $ 9.61 Anti-dilutive securities excluded from diluted EPS ​ ​ ​ ​ ​ 145 ​ ​ ​ ​ ​ ​ ​ ​ 435 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Nine Months ​ For the Nine Months ​ ​ Ended September 30, 2023 ​ Ended September 30, 2022 ​ ​ Income ​ Shares ​ Per Share ​ Income ​ Shares ​ Per Share (in thousands, except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings available to common shareholders ​ $ 189,999 ​ 45,581 ​ $ 4.17 ​ $ 485,577 ​ 45,347 ​ $ 10.71 Effect of Dilutive Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock options and restricted stock units ​ ​ — ​ 486 ​ ​ ​ ​ ​ — ​ 428 ​ ​ ​ Diluted EPS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings available to common shareholders ​ $ 189,999 ​ 46,067 ​ $ 4.12 ​ $ 485,577 ​ 45,775 ​ $ 10.61 Anti-dilutive securities excluded from diluted EPS ​ ​ ​ ​ ​ 145 ​ ​ ​ ​ ​ ​ ​ ​ 459 ​ ​ ​ ​ G. COMPREHENSIVE EARNINGS ​ Our comprehensive earnings include net earnings plus after-tax unrealized gains and losses on our available-for-sale fixed income portfolio. In reporting the components of comprehensive earnings, we used the federal statutory tax rate of 21 percent. Other comprehensive earnings (loss), as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax benefit of $ 15 million for the third quarter of 2023, compared to $ 22 million for the same period in 2022. For the nine-month period ended September 30, 2023, other comprehensive earnings (loss) is net of tax benefit of $ 10 million, compared to $ 78 million for the same period in 2022. ​ Unrealized losses, net of tax, recognized in other comprehensive earnings (loss) were $ 39 million for the first nine months of 2023, compared to $ 294 million during the same period last year. The unrealized losses in each period were attributable to an increase in interest rates, which decreased the fair value of securities held in the fixed income portfolio. ​ The following table illustrates the changes in the balance of each component of accumulated other comprehensive earnings (loss) for each period presented in the unaudited condensed consolidated interim financial statements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ For the Three Months ​ For the Nine Months ​ ​ Ended September 30, ​ Ended September 30, Unrealized Gains/Losses on Available-for-Sale Securities 2023 2022 2023 2022 Beginning balance ​ $ ( 211,090 ) ​ $ ( 163,318 ) ​ $ ( 229,076 ) ​ $ 49,826 Other comprehensive earnings (loss) before reclassifications ​ ​ ( 57,261 ) ​ ​ ( 82,785 ) ​ ​ ( 41,355 ) ​ ​ ( 296,422 ) Amounts reclassified from accumulated other comprehensive earnings ​ ​ 427 ​ ​ 1,537 ​ ​ 2,507 ​ ​ 2,030 Net current-period other comprehensive earnings (loss) ​ $ ( 56,834 ) ​ $ ( 81,248 ) ​ $ ( 38,848 ) ​ $ ( 294,392 ) Ending balance ​ $ ( 267,924 ) ​ $ ( 244,566 ) ​ $ ( 267,924 ) ​ $ ( 244,566 ) Balance of securities for which an allowance for credit losses has been recognized in net earnings ​ ​ ​ ​ ​ ​ ​ $ 2,005 ​ $ 1,520 ​ Credit losses on or the sale of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive earnings (loss) to current period net earnings. The effects of reclassifications out of accumulated other comprehensive earnings (loss) by the respective line items of net earnings are presented in the following table: ​ 9 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount Reclassified from Accumulated Other ​ ​ ​ (in thousands) ​ Comprehensive Earnings (Loss) ​ ​ ​ ​ ​ For the Three Months ​ For the Nine Months ​ ​ ​ Component of Accumulated ​ Ended September 30, ​ Ended September 30, ​ ​ Affected line item in the Other Comprehensive Earnings (Loss) 2023 2022 2023 2022 ​ Statement of Earnings Unrealized gains and losses on available-for-sale securities ​ $ ( 271 ) ​ $ ( 1,912 ) ​ $ ( 2,808 ) ​ $ ( 2,684 ) ​ ​ Net realized gains (losses) ​ ​ ​ ( 270 ) ​ ​ ( 34 ) ​ ​ ( 365 ) ​ ​ 115 ​ ​ Credit gains (losses) presented within net realized gains ​ ​ $ ( 541 ) ​ $ ( 1,946 ) ​ $ ( 3,173 ) ​ $ ( 2,569 ) ​ ​ Earnings (loss) before income taxes ​ ​ ​ 114 ​ ​ 409 ​ ​ 666 ​ ​ 539 ​ ​ Income tax (expense) benefit ​ ​ $ ( 427 ) ​ $ ( 1,537 ) ​ $ ( 2,507 ) ​ $ ( 2,030 ) ​ ​ Net earnings (loss) ​ H. FAIR VALUE MEASUREMENTS ​ Fair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transaction between market participants on the measurement date. We determined the fair value of certain financial instruments based on their underlying characteristics and relevant transactions in the marketplace. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ​ The following are the levels of the fair value hierarchy and a brief description of the type of valuation inputs that are used to establish each level. Financial assets are classified based upon the lowest level of significant input that is used to determine fair value. ​ Level 1 is applied to valuations based on readily available, unadjusted quoted prices in active markets for identical assets. ​ Level 2 is applied to valuations based upon quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets; or valuations based on models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data. ​ Level 3 is applied to valuations that are derived from techniques in which one or more of the significant inputs are unobservable. ​ As a part of management’s process to determine fair value, we utilize widely recognized, third-party pricing sources to determine our fair values. We have obtained an understanding of the third-party pricing sources’ valuation methodologies and inputs. The following is a description of the valuation techniques used for financial assets that are measured at fair value, including the general classification of such assets pursuant to the fair value hierarchy. ​ Corporate, Agencies, Government and Municipal Bonds: The pricing vendor employs a multi-dimensional model which uses standard inputs including (listed in approximate order of priority for use) benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers and other reference data. The pricing vendor also monitors market indicators, as well as industry and economic events. All bonds valued using these techniques are classified as Level 2. All corporate, agency, government and municipal securities are deemed Level 2. ​ Mortgage-backed Securities (MBS)/Commercial Mortgage-backed Securities (CMBS) and Asset-backed Securities (ABS): The pricing vendor evaluation methodology primarily includes interest rate movements and new issue data. Evaluation of the tranches (non-volatile, volatile or credit sensitivity) is based on the pricing vendors’ interpretation of accepted modeling and pricing conventions. This information is then used to determine the cash flows for each tranche, benchmark yields, pre-payment assumptions and to incorporate collateral performance. To evaluate MBS and CMBS volatility, an option adjusted spread model is used in combination with models that simulate interest rate paths to determine market price information. This process allows the pricing vendor to obtain evaluations of a broad universe of securities in a way that reflects changes in yield curve, index rates, implied volatility, mortgage rates and recent trade activity. MBS/CMBS and ABS with corroborated, observable inputs are classified as Level 2. All of our MBS/CMBS and ABS are deemed Level 2. ​ Regulation D Private Placement Securities: All Regulation D privately-placed bonds are classified as corporate securities and deemed Level 3. The pricing vendor evaluation methodology for these securities includes a combination of 10 ​ Table of Contents 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. Unobservable inputs include a liquidity spread premium calculated based on public corporate spread and private corporate spread matrices. The quantitative detail of the liquidity spread premium is neither provided nor reasonably available to the Company. An increase to the credit spread assumptions would result in a lower fair value. ​ For all of our fixed income securities classified as Level 2, we periodically conduct a review to assess the reasonableness of the fair values provided by our pricing services. Our review consists of a two-pronged approach. First, we compare prices provided by our pricing services to those provided by an additional source. In some cases, we obtain prices from securities brokers and compare them to the prices provided by our pricing services. If discrepancies are found in our comparisons, we compare our prices to actual reported trade data for like securities. No changes to the fair values supplied by our pricing services have occurred as a result of our reviews. Based on these assessments, we have determined that the fair values of our Level 2 fixed income securities provided by our pricing services are reasonable. ​ Equity Securities: As of September 30, 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 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. ​ Due to the relatively short-term nature of cash, short-term investments, accounts receivable and accounts payable, their carrying amounts are reasonable estimates of fair value. Our investments in private funds, classified as other invested assets, are measured using the investments’ net asset value per share and are not categorized within the fair value hierarchy. ​ I. RISKS AND UNCERTAINTIES ​ Certain risks and uncertainties are inherent in our day-to-day operations. Adverse changes in the economy, including inflation; rising interest rates; volatile equity markets; and ongoing supply chain disruptions, could lower demand for our insurance products, result in increased levels of loss costs that we could not anticipate at the time we priced our coverages, or negatively impact our investment results, all of which could have an adverse effect on the profitability of our operations. ​ Catastrophe Exposures ​ Our catastrophe reinsurance treaty renewed on January 1, 2023. We purchased limits of $ 700 million in excess of $ 25 million first-dollar retention for earthquakes in California, $ 700 million in excess of $ 50 million first-dollar retention for earthquakes outside of California and $ 600 million in excess of $ 50 million first-dollar retention for all other perils, including wind. 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. ​ 2. INVESTMENTS ​ Our investments are primarily composed of fixed income debt securities and common stock equity securities. We carry our equity securities at fair value and categorize all of our debt securities as available-for-sale, which are carried at fair value. ​ Realized gains and losses on disposition of investments are based on the specific identification of the investments sold on the settlement date. The following is a summary of the disposition of fixed income and equity securities for the nine-month periods ended September 30, 2023 and 2022: ​ 11 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ Proceeds ​ Gross Realized ​ Net Realized (in thousands) From Sales Gains Losses Gain (Loss) 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities - available-for-sale ​ $ 25,983 ​ $ 145 ​ $ ( 1,035 ) ​ $ ( 890 ) Equity securities ​ ​ 36,708 ​ ​ 15,990 ​ ​ ( 101 ) ​ ​ 15,889 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities - available-for-sale ​ $ 48,559 ​ $ 286 ​ $ ( 2,481 ) ​ $ ( 2,195 ) Equity securities ​ ​ 59,264 ​ ​ 20,410 ​ ​ ( 609 ) ​ ​ 19,801 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Calls/Maturities ​ ​ ​ ​ Gross Realized ​ Net Realized (in thousands) Proceeds Gains Losses Gain (Loss) 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities - available-for-sale ​ $ 434,263 ​ $ 38 ​ $ ( 236 ) ​ $ ( 198 ) 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities - available-for-sale ​ $ 176,991 ​ $ 142 ​ $ ( 55 ) ​ $ 87 ​ FAIR VALUE MEASUREMENTS ​ Assets measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2023 ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ ​ (in thousands) (Level 1) (Level 2) (Level 3) Total Fixed income securities - available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government ​ $ — ​ $ 321,611 ​ $ — ​ $ 321,611 U.S. agency ​ ​ — ​ ​ 48,368 ​ ​ — ​ ​ 48,368 Non-U.S. government & agency ​ ​ — ​ ​ 3,811 ​ ​ — ​ ​ 3,811 Agency MBS ​ ​ — ​ ​ 399,381 ​ ​ — ​ ​ 399,381 ABS/CMBS/MBS* ​ ​ — ​ ​ 265,779 ​ ​ — ​ ​ 265,779 Corporate ​ ​ — ​ ​ 1,097,093 ​ ​ 56,291 ​ ​ 1,153,384 Municipal ​ ​ — ​ ​ 525,293 ​ ​ — ​ ​ 525,293 Total fixed income securities - available-for-sale ​ $ — ​ $ 2,661,336 ​ $ 56,291 ​ $ 2,717,627 Equity securities ​ ​ 532,856 ​ ​ — ​ ​ 1,580 ​ ​ 534,436 Total ​ $ 532,856 ​ $ 2,661,336 ​ $ 57,871 ​ $ 3,252,063 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2022 ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ ​ (in thousands) (Level 1) (Level 2) (Level 3) Total Fixed income securities - available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government ​ $ — ​ $ 454,021 ​ $ — ​ $ 454,021 U.S. agency ​ ​ — ​ ​ 73,063 ​ ​ — ​ ​ 73,063 Non-U.S. government & agency ​ ​ — ​ ​ 5,847 ​ ​ — ​ ​ 5,847 Agency MBS ​ ​ — ​ ​ 331,806 ​ ​ — ​ ​ 331,806 ABS/CMBS/MBS* ​ ​ — ​ ​ 240,736 ​ ​ — ​ ​ 240,736 Corporate ​ ​ — ​ ​ 980,676 ​ ​ 53,654 ​ ​ 1,034,330 Municipal ​ ​ — ​ ​ 527,147 ​ ​ — ​ ​ 527,147 Total fixed income securities - available-for-sale ​ $ — ​ $ 2,613,296 ​ $ 53,654 ​ $ 2,666,950 Equity securities ​ ​ 496,731 ​ ​ 39 ​ ​ 1,612 ​ ​ 498,382 Total ​ $ 496,731 ​ $ 2,613,335 ​ $ 55,266 ​ $ 3,165,332 * Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities ​ 12 ​ Table of Contents The following table summarizes changes in the balance of securities whose fair value was measured using significant unobservable inputs (Level 3). ​ ​ ​ ​ ​ (in thousands) Level 3 Securities Balance as of January 1, 2023 ​ $ 55,266 Net realized and unrealized gains (losses) ​ ​ ​ Included in other comprehensive earnings (loss) ​ ​ ( 377 ) Purchases ​ ​ 5,475 Sales / Calls / Maturities ​ ​ ( 2,493 ) Balance as of September 30, 2023 ​ $ 57,871 Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss) ​ $ ( 377 ) ​ The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of September 30, 2023 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 (in thousands) Amortized Cost Fair Value Due in one year or less ​ $ 176,148 ​ $ 174,377 Due after one year through five years ​ ​ 909,286 ​ ​ 858,578 Due after five years through 10 years ​ ​ 653,649 ​ ​ 596,523 Due after 10 years ​ ​ 547,547 ​ ​ 422,989 ABS/CMBS/MBS* ​ ​ 760,155 ​ ​ 665,160 Total available-for-sale ​ $ 3,046,785 ​ $ 2,717,627 * Asset-backed, commercial mortgage-backed and mortgage-backed securities ​ The amortized cost and fair value of available-for-sale securities at September 30, 2023 and December 31, 2022 are presented in the tables below. Amortized cost does not include the $ 23 million and $ 20 million of accrued interest receivable as of September 30, 2023 and December 31, 2022, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 ​ ​ Cost or ​ Allowance ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ for Credit ​ Unrealized ​ Unrealized ​ Fair (in thousands) Cost Losses Gains Losses Value U.S. government ​ $ 334,650 ​ $ — ​ $ — ​ $ ( 13,039 ) ​ $ 321,611 U.S. agency ​ ​ 51,477 ​ ​ — ​ ​ — ​ ​ ( 3,109 ) ​ ​ 48,368 Non-U.S. government & agency ​ ​ 4,800 ​ ​ — ​ ​ — ​ ​ ( 989 ) ​ ​ 3,811 Agency MBS ​ ​ 457,496 ​ ​ — ​ ​ 7 ​ ​ ( 58,122 ) ​ ​ 399,381 ABS/CMBS/MBS* ​ ​ 302,659 ​ ​ ( 4 ) ​ ​ 65 ​ ​ ( 36,941 ) ​ ​ 265,779 Corporate ​ ​ 1,253,152 ​ ​ ( 700 ) ​ ​ 952 ​ ​ ( 100,020 ) ​ ​ 1,153,384 Municipal ​ ​ 642,551 ​ ​ — ​ ​ 85 ​ ​ ( 117,343 ) ​ ​ 525,293 Total Fixed Income ​ $ 3,046,785 ​ $ ( 704 ) ​ $ 1,109 ​ $ ( 329,563 ) ​ $ 2,717,627 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Cost or ​ Allowance ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ for Credit ​ Unrealized ​ Unrealized ​ Fair (in thousands) Cost Losses Gains Losses Value U.S. government ​ $ 462,884 ​ $ — ​ $ 8 ​ $ ( 8,871 ) ​ $ 454,021 U.S. agency ​ ​ 75,074 ​ ​ — ​ ​ 26 ​ ​ ( 2,037 ) ​ ​ 73,063 Non-U.S. government & agency ​ ​ 6,798 ​ ​ — ​ ​ — ​ ​ ( 951 ) ​ ​ 5,847 Agency MBS ​ ​ 373,687 ​ ​ — ​ ​ 336 ​ ​ ( 42,217 ) ​ ​ 331,806 ABS/CMBS/MBS* ​ ​ 276,126 ​ ​ ( 8 ) ​ ​ 62 ​ ​ ( 35,444 ) ​ ​ 240,736 Corporate ​ ​ 1,122,097 ​ ​ ( 331 ) ​ ​ 541 ​ ​ ( 87,977 ) ​ ​ 1,034,330 Municipal ​ ​ 628,607 ​ ​ — ​ ​ 1,265 ​ ​ ( 102,725 ) ​ ​ 527,147 Total Fixed Income ​ $ 2,945,273 ​ $ ( 339 ) ​ $ 2,238 ​ $ ( 280,222 ) ​ $ 2,666,950 * Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities 13 ​ Table of Contents ​ Allowance for Credit Losses and Unrealized Losses on Fixed Income Securities ​ A reversable allowance for credit losses is recognized on available-for-sale fixed income securities. Several criteria are reviewed to determine if securities in the fixed income portfolio should be included in the allowance for expected credit loss evaluation, including: ​ ● Changes in technology that may impair the earnings potential of the investment, ​ ● The discontinuance of a segment of business that may affect future earnings potential, ​ ● Reduction of or non-payment of interest and/or principal, ​ ● Specific concerns related to the issuer’s industry or geographic area of operation, ​ ● Significant or recurring operating losses, poor cash flows and/or deteriorating liquidity ratios and ​ ● Downgrades in credit quality by a major rating agency. ​ If changes in interest rates and credit spreads do not reasonably explain the unrealized loss for an available-for-sale security or if any of the criteria above indicate a potential credit loss, the security is subjected to a discounted cash flow analysis. Inputs into the discounted cash flow analysis include prepayment assumptions for structured securities, default rates and recoverability rates based on credit rating. The allowance for any security is limited to the amount that the security’s fair value is below amortized cost. As of September 30, 2023, the discounted cash flow analysis resulted in an allowance for credit losses on 19 securities. The following table presents changes in the allowance for expected credit losses on available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Beginning balance ​ $ 434 ​ $ 292 ​ $ 339 ​ $ 441 Increase to allowance from securities for which credit losses were not previously recorded ​ ​ 281 ​ ​ 168 ​ ​ 25 ​ ​ 292 Reduction from securities sold during the period ​ ​ — ​ ​ ( 166 ) ​ ​ — ​ ​ ( 619 ) Reductions from intent to sell securities ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 17 ) Net increase (decrease) from securities that had an allowance at the beginning of the period ​ ​ ( 11 ) ​ ​ 33 ​ ​ 340 ​ ​ 230 Balance as of September 30, ​ $ 704 ​ $ 327 ​ $ 704 ​ $ 327 ​ During the first nine months of 2023, $ 2 million of realized losses were recognized on fixed income securities for which the cost basis was written down to fair value due to a credit event, restructurings and losses on securities for which we no longer had the intent to hold until recovery. We recognized less than $ 1 million of losses on securities for which we no longer had the intent to hold until recovery during the first nine months of 2022. ​ As of September 30, 2023, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,547 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $ 330 million in associated unrealized losses represents 11 percent of the fixed income portfolio’s cost basis and 10 percent of total invested assets. Isolated to these securities, unrealized losses increased through the first nine months of 2023, as interest rates increased during the period. Of the total 1,547 securities, 1,200 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 September 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. 14 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 ​ December 31, 2022 (in thousands) < 12 Mos. 12 Mos. & Greater Total < 12 Mos. 12 Mos. & Greater Total U.S. government ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 82,683 ​ $ 238,928 ​ $ 321,611 ​ $ 399,361 ​ $ 8,828 ​ $ 408,189 Amortized cost ​ ​ 86,186 ​ ​ 248,464 ​ ​ 334,650 ​ ​ 407,340 ​ ​ 9,720 ​ ​ 417,060 Unrealized loss ​ $ ( 3,503 ) ​ $ ( 9,536 ) ​ $ ( 13,039 ) ​ $ ( 7,979 ) ​ $ ( 892 ) ​ $ ( 8,871 ) U.S. agency ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 15,658 ​ $ 32,710 ​ $ 48,368 ​ $ 32,987 ​ $ 2,170 ​ $ 35,157 Amortized cost ​ ​ 16,304 ​ ​ 35,173 ​ ​ 51,477 ​ ​ 34,627 ​ ​ 2,567 ​ ​ 37,194 Unrealized loss ​ $ ( 646 ) ​ $ ( 2,463 ) ​ $ ( 3,109 ) ​ $ ( 1,640 ) ​ $ ( 397 ) ​ $ ( 2,037 ) Non-U.S. government ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ — ​ $ 3,811 ​ $ 3,811 ​ $ 3,626 ​ $ 2,221 ​ $ 5,847 Amortized cost ​ ​ — ​ ​ 4,800 ​ ​ 4,800 ​ ​ 3,798 ​ ​ 3,000 ​ ​ 6,798 Unrealized Loss ​ $ — ​ $ ( 989 ) ​ $ ( 989 ) ​ $ ( 172 ) ​ $ ( 779 ) ​ $ ( 951 ) Agency MBS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 138,173 ​ $ 260,503 ​ $ 398,676 ​ $ 197,252 ​ $ 117,851 ​ $ 315,103 Amortized cost ​ ​ 143,662 ​ ​ 313,136 ​ ​ 456,798 ​ ​ 212,776 ​ ​ 144,544 ​ ​ 357,320 Unrealized loss ​ $ ( 5,489 ) ​ $ ( 52,633 ) ​ $ ( 58,122 ) ​ $ ( 15,524 ) ​ $ ( 26,693 ) ​ $ ( 42,217 ) ABS/CMBS/MBS* ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 41,219 ​ $ 217,289 ​ $ 258,508 ​ $ 96,754 ​ $ 136,149 ​ $ 232,903 Amortized cost ​ ​ 41,882 ​ ​ 253,567 ​ ​ 295,449 ​ ​ 104,724 ​ ​ 163,623 ​ ​ 268,347 Unrealized loss ​ $ ( 663 ) ​ $ ( 36,278 ) ​ $ ( 36,941 ) ​ $ ( 7,970 ) ​ $ ( 27,474 ) ​ $ ( 35,444 ) Corporate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 274,290 ​ $ 804,638 ​ $ 1,078,928 ​ $ 660,830 ​ $ 323,337 ​ $ 984,167 Amortized cost ​ ​ 287,456 ​ ​ 891,492 ​ ​ 1,178,948 ​ ​ 697,437 ​ ​ 374,707 ​ ​ 1,072,144 Unrealized loss ​ $ ( 13,166 ) ​ $ ( 86,854 ) ​ $ ( 100,020 ) ​ $ ( 36,607 ) ​ $ ( 51,370 ) ​ $ ( 87,977 ) Municipal ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 154,928 ​ $ 358,021 ​ $ 512,949 ​ $ 228,827 ​ $ 204,324 ​ $ 433,151 Amortized cost ​ ​ 159,582 ​ ​ 470,710 ​ ​ 630,292 ​ ​ 255,240 ​ ​ 280,636 ​ ​ 535,876 Unrealized loss ​ $ ( 4,654 ) ​ $ ( 112,689 ) ​ $ ( 117,343 ) ​ $ ( 26,413 ) ​ $ ( 76,312 ) ​ $ ( 102,725 ) Total fixed income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 706,951 ​ $ 1,915,900 ​ $ 2,622,851 ​ $ 1,619,637 ​ $ 794,880 ​ $ 2,414,517 Amortized cost ​ ​ 735,072 ​ ​ 2,217,342 ​ ​ 2,952,414 ​ ​ 1,715,942 ​ ​ 978,797 ​ ​ 2,694,739 Unrealized loss ​ $ ( 28,121 ) ​ $ ( 301,442 ) ​ $ ( 329,563 ) ​ $ ( 96,305 ) ​ $ ( 183,917 ) ​ $ ( 280,222 ) * 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 September 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equivalent ​ Equivalent ​ (dollars in thousands) ​ ​ ​ NAIC S&P Moody’s ​ Amortized ​ ​ ​ ​ Unrealized ​ Percent ​ Rating Rating Rating Cost Fair Value Loss to Total ​ 1 ​ AAA/AA/A ​ Aaa/Aa/A ​ $ 2,440,094 ​ $ 2,160,142 ​ $ ( 279,952 ) ​ 85.0 % 2 ​ BBB ​ Baa ​ ​ 431,695 ​ ​ 388,396 ​ ​ ( 43,299 ) ​ 13.1 % 3 ​ BB ​ Ba ​ ​ 48,627 ​ ​ 44,282 ​ ​ ( 4,345 ) ​ 1.3 % 4 ​ B ​ B ​ ​ 29,382 ​ ​ 28,045 ​ ​ ( 1,337 ) ​ 0.4 % 5 ​ CCC ​ Caa ​ ​ 2,616 ​ ​ 1,986 ​ ​ ( 630 ) ​ 0.2 % 6 ​ CC or lower ​ Ca or lower ​ ​ — ​ ​ — ​ ​ — ​ 0.0 % ​ ​ ​ ​ Total ​ $ 2,952,414 ​ $ 2,622,851 ​ $ ( 329,563 ) ​ 100.0 % ​ Other Invested Assets ​ We had $ 60 million of other invested assets at September 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. Our 15 ​ Table of Contents LIHTC and HTC investments are carried at amortized cost and our investment in FHLBC stock is carried at cost. Due to the nature of the LIHTC, HTC and our membership in the FHLBC, their carrying amounts approximate fair value. The private funds are carried at fair value, using each investment’s net asset value. ​ Our LIHTC interests had a balance of $ 11 million at September 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 third 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 nine-months ended September 30, 2023, our LIHTC interest recognized amortization of $ 2.3 million and a total benefit of $ 2.4 million, compared to $ 2.5 million of amortization and $ 2.6 million of tax benefit for the same period in 2022. Our unfunded commitment for our LIHTC investments was less than $ 1 million at September 30, 2023 and will be paid out in installments through 2035. ​ Our HTC investment had a balance of $ 14 million at September 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 third quarter of 2023, compared to $ 1.3 million in the third quarter of 2022. For the nine-months ended September 30, 2023, our HTC investment recognized a total benefit of $ 4.3 million, compared to $ 3.9 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 third quarter of 2023 and $ 3.4 million of amortization during the first nine months of 2023. Our unfunded commitment for our HTC investment totaled $ 1 million at September 30, 2023 and is expected be paid during 2023. ​ As of September 30, 2023, $ 57 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 September 30, 2023, $ 50 million of borrowings were outstanding with the FHLBC. ​ Our investments in private funds totaled $ 27 million as of September 30, 2023, down from $ 28 million as of December 31, 2022, and had $ 5 million of associated unfunded commitments at September 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 $ 56 million of investments in unconsolidated investees at September 30, 2023, compared to $ 58 million at December 31, 2022. At September 30, 2023, our investment in Prime Holdings Insurance Services, Inc. (Prime) was $ 56 million and other investments in unconsolidated investees totaled less than $ 1 million. Through December 31, 2022, our $ 11 million HTC investment was accounted for as an unconsolidated investee, but was reclassified as an other invested asset during 2023 due to the adoption of ASU 2023-02. ​ Cash and Short-Term Investments ​ Cash consists of uninvested balances in bank accounts. Short-term investments consist of investments with original maturities of 90 days or less, primarily AAA-rated government money market funds. Short-term investments are carried at cost. We had a cash and short-term investment balance of $ 18 million and $ 125 million, respectively, at September 30, 2023, compared to $ 23 million and $ 36 million, respectively, at December 31, 2022. ​ 3. DEBT ​ As of September 30, 2023, we had $ 100 million in debt outstanding. On September 15, 2023, we retired $ 150 million in senior notes that were originally issued in 2013. Additionally, on September 15, 2023, we accessed $ 50 million from our revolving line of credit with PNC Bank, N.A. (PNC). The borrowing may be repaid at any time and carries a floating interest rate of 7.07 percent which will reset during the first quarter of 2024. 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 . The line of credit permits us to borrow up to an aggregate principal amount of $ 100 million, but may be increased up to an aggregate principal amount of $ 130 million under certain conditions. The facility has a three-year term that expires on May 29, 2026 . Further, RLI Insurance Company borrowed $ 50 million from the Federal Home Loan Bank of Chicago (FHLBC) on November 10, 2021. The borrowing matures on November 10, 2023 and has an option to be paid off prior to maturity. Interest is paid monthly at an annualized rate of 0.84 percent. 16 ​ Table of Contents ​ 4. HISTORICAL LOSS AND LAE DEVELOPMENT ​ The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the first nine months of 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Nine Months ​ ​ Ended September 30, (in thousands) 2023 2022 Unpaid losses and LAE at beginning of year ​ ​ ​ ​ ​ ​ Gross ​ $ 2,315,637 ​ $ 2,043,555 Ceded ​ ​ ( 740,089 ) ​ ​ ( 608,086 ) Net ​ $ 1,575,548 ​ $ 1,435,469 ​ ​ ​ ​ ​ ​ ​ Increase (decrease) in incurred losses and LAE ​ ​ ​ ​ ​ ​ Current accident year ​ $ 551,975 ​ $ 491,559 Prior accident years ​ ​ ( 93,986 ) ​ ​ ( 103,032 ) Total incurred ​ $ 457,989 ​ $ 388,527 ​ ​ ​ ​ ​ ​ ​ Loss and LAE payments for claims incurred ​ ​ ​ ​ ​ ​ Current accident year ​ $ ( 113,010 ) ​ $ ( 52,435 ) Prior accident years ​ ​ ( 252,786 ) ​ ​ ( 219,682 ) Total paid ​ $ ( 365,796 ) ​ $ ( 272,117 ) ​ ​ ​ ​ ​ ​ ​ Net unpaid losses and LAE at September 30, ​ $ 1,667,741 ​ $ 1,551,879 ​ ​ ​ ​ ​ ​ ​ Unpaid losses and LAE at September 30, ​ ​ ​ ​ ​ ​ Gross ​ $ 2,488,695 ​ $ 2,322,737 Ceded ​ ​ ( 820,954 ) ​ ​ ( 770,858 ) Net ​ $ 1,667,741 ​ $ 1,551,879 ​ For the first nine months of 2023, incurred losses and LAE included $ 94 million of favorable development on prior years’ loss reserves, largely from accident years 2016 through 2018 and 2020 through 2022. Commercial excess, executive products, general liability, professional services, personal umbrella, surety and commercial property were drivers of the favorable development. No products experienced significant adverse development. ​ For the first nine months of 2022, incurred losses and LAE included $ 103 million of favorable development on prior years’ loss reserves, largely from accident years 2018 through 2021. General liability, professional services, transportation, executive products, commercial excess, marine and surety were drivers of the favorable development. No products experienced significant adverse development. ​ 5. INCOME TAXES ​ Our effective tax rate for the three and nine months ended September 30, 2023 was 9.9 percent and 18.7 percent, respectively, compared to 20.7 percent and 20.0 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 lower for the three and nine-month periods in 2023, as lower pretax income increased the percentage impact of tax-favored adjustments. ​ Income tax expense attributable to income from operations for the three and nine-month period ended September 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. ​ 17 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended September 30, 2023 ​ For the Nine Months Ended September 30, 2023 ​ ​ ​ 2023 ​ 2022 ​ 2023 ​ 2022 ​ (in thousands) Amount % Amount % Amount % Amount % ​ Provision for income taxes at the statutory rate of 21 % ​ $ 3,154 ​ 21.0 % $ 116,487 ​ 21.0 % $ 49,107 ​ 21.0 % $ 127,401 ​ 21.0 % Increase (reduction) in taxes resulting from: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Excess tax benefit on share-based compensation ​ ​ ( 395 ) ​ ( 2.6 ) % ​ ( 95 ) ​ ( 0.0 ) % ​ ( 3,263 ) ​ ( 1.4 ) % ​ ( 2,270 ) ​ ( 0.4 ) % Tax exempt interest income ​ ​ ( 270 ) ​ ( 1.8 ) % ​ ( 280 ) ​ ( 0.1 ) % ​ ( 827 ) ​ ( 0.4 ) % ​ ( 850 ) ​ ( 0.1 ) % Dividends received deduction ​ ​ ( 164 ) ​ ( 1.1 ) % ​ ( 240 ) ​ ( 0.0 ) % ​ ( 597 ) ​ ( 0.3 ) % ​ ( 673 ) ​ ( 0.1 ) % Tax credit ​ ​ ( 779 ) ​ ( 5.2 ) % ​ ( 1,461 ) ​ ( 0.3 ) % ​ ( 2,338 ) ​ ( 1.0 ) % ​ ( 4,383 ) ​ ( 0.7 ) % ESOP dividends paid deduction ​ ​ ( 142 ) ​ ( 1.0 ) % ​ ( 136 ) ​ ( 0.0 ) % ​ ( 423 ) ​ ( 0.2 ) % ​ ( 404 ) ​ ( 0.0 ) % Nondeductible expenses ​ ​ 158 ​ 1.1 % ​ 34 ​ 0.0 % ​ 1,505 ​ 0.6 % ​ 608 ​ 0.1 % Other items, net ​ ​ ( 79 ) ​ ( 0.5 ) % ​ 500 ​ 0.1 % ​ 678 ​ 0.4 % ​ 1,667 ​ 0.2 % Total tax expense ​ $ 1,483 ​ 9.9 % $ 114,809 ​ 20.7 % $ 43,842 ​ 18.7 % $ 121,096 ​ 20.0 % ​ We have recorded our deferred tax assets and liabilities using the statutory federal tax rate of 21 percent. We believe it is more likely than not that all deferred tax assets will be recovered, given the carry back availability as well as the result of future operations, which will generate sufficient taxable income to realize the deferred tax asset. ​ ​ 6. STOCK BASED COMPENSATION ​ Our RLI Corp. Long-Term Incentive Plan (2015 LTIP) was in place from 2015 to 2023. The 2015 LTIP provided for equity-based compensation, including stock options and restricted stock units, up to a maximum of 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 2023, we have granted 165,063 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 $ 2.0 million and $ 6.6 million in the three and nine-month periods ended September 30, 2023, respectively, compared to $ 2.4 million and $ 6.2 million, respectively, for the same period in 2022. The total income tax benefit was $ 0.3 million and $ 1.1 million for the three and nine-month periods ended September 30, 2023, compared to $ 0.4 million and $ 1.0 million, respectively, for the same periods in 2022. Total unrecognized compensation expense relating to outstanding and unvested awards was $ 7 million, which will be recognized over the weighted average vesting period of 2.97 years. ​ Stock Options ​ Under the 2023 LTIP, as under the 2015 LTIP, we grant stock options for shares with an exercise price equal to the fair market value of the shares at the date of grant (subject to adjustments for changes in our capitalization, special dividends and other events as set forth in such plans). Options generally vest and become exercisable over a five-year period and expire eight years after grant. ​ For most participants, the requisite service period and vesting period will be the same. For participants who are retirement eligible, defined by the plan as those individuals whose age and years of service equals 75 or greater, the requisite service period is deemed to be met and options are immediately expensed on the date of grant. For participants who will become retirement eligible during the vesting period, the requisite service period over which expense is recognized is the period between the grant date and the attainment of retirement eligibility. Shares issued upon option exercise are newly issued shares. 18 ​ Table of Contents ​ The following tables summarize option activity for the nine-month period ended September 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ Aggregate ​ ​ ​ ​ Weighted ​ Average ​ Intrinsic ​ ​ ​ ​ Average ​ Remaining ​ Value ​ Options Exercise Price Contractual Life (in 000’s) Outstanding options at January 1, 2023 ​ 1,695,660 ​ $ 82.42 ​ ​ ​ ​ ​ Options granted ​ 172,250 ​ ​ 135.51 ​ ​ ​ ​ ​ Options exercised ​ ( 219,905 ) ​ ​ 57.15 ​ ​ ​ ​ ​ Options canceled/forfeited ​ ( 8,585 ) ​ ​ 96.99 ​ ​ ​ ​ ​ Outstanding options at September 30, 2023 ​ 1,639,420 ​ $ 91.31 ​ 4.83 ​ $ 73,168 Exercisable options at September 30, 2023 ​ 849,997 ​ $ 76.60 ​ 3.64 ​ $ 50,400 ​ The intrinsic value, which is the difference between the fair value and the exercise price, of options exercised was $ 17 million and $ 6 million during the first nine 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 September 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ Weighted-average fair value of grants ​ $ 26.71 ​ $ 20.99 ​ Risk-free interest rates ​ ​ 3.41 % ​ 2.86 % Dividend yield ​ ​ 2.29 % ​ 2.50 % Expected volatility ​ ​ 22.96 % ​ 22.89 % Expected option life ​ ​ 4.94 years ​ 5.06 years ​ The risk-free rate was determined based on U.S. treasury yields that most closely approximated the options’ expected life. The dividend yield was determined based on the average annualized quarterly dividends paid during the most recent five-year period and incorporated a consideration for special dividends paid in recent history. The expected volatility was calculated based on the median of the rolling volatilities for the expected life of the options. The expected option life was determined based on historical exercise behavior and the assumption that all outstanding options will be exercised at the midpoint of the current date and remaining contractual term, adjusted for the demographics of the current year’s grant. ​ Restricted Stock Units ​ In addition to stock options, restricted stock units (RSUs) are granted with a value equal to the closing stock price of the Company’s stock on the dates the units are granted. For employees, these units generally have a three-year cliff vesting, but have an accelerated vesting feature for participants who are retirement eligible, defined by the plan as those individuals whose age and years of service equals 75 or greater. For directors, these units vest on the earlier of one year from the date of grant or the next annual shareholders meeting. In addition, the RSUs have dividend participation, which accrue as additional units and are settled with granted stock units at the end of the vesting period. The total fair value of restricted stock units that vested was $ 3 million and $ 2 million during the first nine months of 2023 and 2022, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ ​ Grant Date ​ RSUs Fair Value Nonvested at January 1, 2023 ​ 44,208 ​ $ 109.51 Granted ​ 20,413 ​ ​ 136.19 Reinvested ​ 288 ​ ​ 132.60 Vested ​ ( 19,957 ) ​ ​ 103.61 Forfeited ​ ( 1,795 ) ​ ​ 116.10 Nonvested at September 30, 2023 ​ 43,157 ​ $ 124.74 ​ ​ 19 ​ Table of Contents 7. OPERATING SEGMENT INFORMATION Selected information by operating segment is presented in the table below. Additionally, the table reconciles segment totals to total earnings and total revenues. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ For the Nine Months Revenues ​ Ended September 30, ​ Ended September 30, (in thousands) 2023 2022 2023 2022 Casualty ​ $ 189,305 ​ $ 179,615 ​ $ 562,384 ​ $ 528,494 Property ​ ​ 94,988 ​ ​ 80,844 ​ ​ 285,596 ​ ​ 222,974 Surety ​ ​ 34,116 ​ ​ 31,009 ​ ​ 100,432 ​ ​ 91,962 Net premiums earned ​ $ 318,409 ​ $ 291,468 ​ $ 948,412 ​ $ 843,430 Net investment income ​ ​ 31,963 ​ ​ 21,270 ​ ​ 87,835 ​ ​ 57,625 Net realized gains ​ ​ 6,558 ​ ​ 573,170 ​ ​ 26,758 ​ ​ 591,562 Net unrealized gains (losses) on equity securities ​ ​ ( 25,236 ) ​ ​ ( 26,414 ) ​ ​ 15,474 ​ ​ ( 155,218 ) Total consolidated revenue ​ $ 331,694 ​ $ 859,494 ​ $ 1,078,479 ​ $ 1,337,399 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Earnings ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 2023 2022 Casualty ​ $ 18,670 ​ $ 11,329 ​ $ 57,478 ​ $ 60,418 Property ​ ​ ( 20,671 ) ​ ​ ( 8,308 ) ​ ​ 33,589 ​ ​ 40,273 Surety ​ ​ 6,248 ​ ​ 5,775 ​ ​ 22,271 ​ ​ 23,539 Net underwriting income (loss) ​ $ 4,247 ​ $ 8,796 ​ $ 113,338 ​ $ 124,230 Net investment income ​ ​ 31,963 ​ ​ 21,270 ​ ​ 87,835 ​ ​ 57,625 Net realized gains ​ ​ 6,558 ​ ​ 573,170 ​ ​ 26,758 ​ ​ 591,562 Net unrealized gains (losses) on equity securities ​ ​ ( 25,236 ) ​ ​ ( 26,414 ) ​ ​ 15,474 ​ ​ ( 155,218 ) General corporate expense and interest on debt ​ ​ ( 4,245 ) ​ ​ ( 4,768 ) ​ ​ ( 16,733 ) ​ ​ ( 14,587 ) Equity in earnings (loss) of unconsolidated investees ​ ​ 1,732 ​ ​ ( 17,352 ) ​ ​ 7,169 ​ ​ 3,061 Earnings before income taxes ​ $ 15,019 ​ $ 554,702 ​ $ 233,841 ​ $ 606,673 Income tax expense ​ ​ 1,483 ​ ​ 114,809 ​ ​ 43,842 ​ ​ 121,096 Net earnings ​ $ 13,536 ​ $ 439,893 ​ $ 189,999 ​ $ 485,577 ​ The following table further summarizes revenues by major product type within each operating segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ For the Nine Months Net Premiums Earned ​ Ended September 30, ​ Ended September 30, (in thousands) 2023 2022 2023 2022 Casualty ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial excess and personal umbrella ​ $ 72,559 ​ $ 65,131 ​ $ 209,402 ​ $ 187,666 General liability ​ ​ 25,250 ​ ​ 25,284 ​ ​ 77,166 ​ ​ 74,130 Commercial transportation ​ ​ 25,843 ​ ​ 24,205 ​ ​ 76,473 ​ ​ 71,774 Professional services ​ ​ 24,882 ​ ​ 24,174 ​ ​ 73,841 ​ ​ 71,590 Small commercial ​ ​ 18,096 ​ ​ 17,005 ​ ​ 54,492 ​ ​ 50,463 Executive products ​ ​ 5,943 ​ ​ 6,556 ​ ​ 18,449 ​ ​ 20,208 Other casualty ​ ​ 16,732 ​ ​ 17,260 ​ ​ 52,561 ​ ​ 52,663 Total ​ $ 189,305 ​ $ 179,615 ​ $ 562,384 ​ $ 528,494 Property ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial property ​ $ 63,783 ​ $ 43,201 ​ $ 173,264 ​ $ 115,419 Marine ​ ​ 33,436 ​ ​ 29,592 ​ ​ 96,484 ​ ​ 84,499 Other property ​ ​ ( 2,231 ) ​ ​ 8,051 ​ ​ 15,848 ​ ​ 23,056 Total ​ $ 94,988 ​ $ 80,844 ​ $ 285,596 ​ $ 222,974 Surety ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 12,653 ​ $ 12,057 ​ $ 37,576 ​ $ 35,423 Miscellaneous ​ ​ 11,966 ​ ​ 10,751 ​ ​ 35,900 ​ ​ 33,691 Contract ​ ​ 9,497 ​ ​ 8,201 ​ ​ 26,956 ​ ​ 22,848 Total ​ $ 34,116 ​ $ 31,009 ​ $ 100,432 ​ $ 91,962 Grand Total ​ $ 318,409 ​ $ 291,468 ​ $ 948,412 ​ $ 843,430 ​ ​ 20 ​ Table of Contents 8. LEASES ​ Right-of-use (ROU) assets are included in the other assets line item and lease liabilities are included in the other liabilities line item of the consolidated balance sheet. We determine if a contract contains a lease at inception and recognize operating lease ROU assets and operating lease liabilities based on the present value of the future minimum lease payments at the commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Lease agreements may include options to extend or terminate. The options are exercised at our discretion and are included in operating lease liabilities if it is reasonably certain the option will be exercised. Lease agreements have lease and non-lease components, which are accounted for as a single lease component. Operating lease costs for future minimum lease payments are recognized on a straight-line basis over the lease terms. Variable lease costs are expensed in the period in which the obligations are incurred. Sublease income is recognized on a straight-line basis over the sublease term. ​ The Company’s operating lease obligations are for branch office facilities. The components of lease expense and other lease information as of and during the three and nine-month periods ended September 30, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ For the Nine Months ​ ​ Ended September 30, ​ Ended September 30, (in thousands) 2023 2022 2023 2022 Operating lease cost ​ $ 1,235 ​ $ 1,272 ​ $ 3,743 ​ $ 3,686 Variable lease cost ​ ​ 320 ​ ​ 339 ​ ​ 1,202 ​ ​ 1,073 Sublease income ​ ​ ( 139 ) ​ ​ ( 139 ) ​ ​ ( 416 ) ​ ​ ( 416 ) Total lease cost ​ $ 1,416 ​ $ 1,472 ​ $ 4,529 ​ $ 4,343 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating cash outflows from operating leases ​ $ 1,431 ​ $ 1,387 ​ $ 4,186 ​ $ 3,987 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ROU assets obtained in exchange for new operating lease liabilities ​ $ 319 ​ $ 54 ​ $ 1,303 ​ $ 2,485 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reduction to ROU assets resulting from reduction to lease liabilities ​ $ — ​ $ — ​ $ 200 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other non-cash reductions to ROU assets ​ $ — ​ $ — ​ $ — ​ $ 73 ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) September 30, 2023 December 31, 2022 ​ Operating lease ROU assets ​ $ 10,339 ​ $ 12,766 ​ Operating lease liabilities ​ $ 11,593 ​ $ 14,499 ​ Weighted-average remaining lease term - operating leases ​ ​ 4.16 years ​ 4.21 years Weighted-average discount rate - operating leases ​ ​ 2.06 % ​ 2.11 % ​ Future minimum lease payments under non-cancellable leases as of September 30, 2023 were as follows: ​ ​ ​ ​ ​ (in thousands) September 30, 2023 2023 ​ $ 1,205 2024 ​ ​ 3,919 2025 ​ ​ 2,709 2026 ​ ​ 1,744 2027 ​ ​ 997 2028 ​ ​ 704 Thereafter ​ ​ 884 Total future minimum lease payments ​ $ 12,162 Less imputed interest ​ ​ ( 569 ) Total operating lease liability ​ $ 11,593 ​ ​ 9. ACQUISITONS AND DISPOSTIONS ​ On September 30, 2022, RLI Corp. 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 21 ​ Table of Contents 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. ​ ​ ​