What changed in this filing

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Item 1. Financial Statements

2024-04-24 compared with 2023-10-25 · 110 added, 199 removed, 476 unchanged (39% of the section changed)

3 unchanged sentences

For the Three Months

For the Nine Months

Ended September 30,

Ended March 31,

(in thousands, except per share data)

2 unchanged sentences

Net realized gains

Net unrealized gains (losses) on equity securities

Net unrealized gains on equity securities

Consolidated revenue

5 unchanged sentences

Total expenses

Equity in earnings (loss) of unconsolidated investees

Equity in earnings of unconsolidated investees

Earnings before income taxes

1 unchanged sentence

Other comprehensive earnings (loss), net of tax

Comprehensive earnings (loss)

Comprehensive earnings

Basic net earnings per share

4 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(in thousands, except share and per share data)

44 unchanged sentences

Balance, January 1, 2023

Cumulative-effect adjustment from ASU 2023-02

Other comprehensive earnings (loss), net of tax

3 unchanged sentences

Balance, March 31, 2023

Other comprehensive earnings (loss), net of tax

Deferred compensation

Share-based compensation

Dividends and dividend equivalents ($ 0.26 per share)

Balance, June 30, 2022

Other comprehensive earnings (loss), net of tax

Deferred compensation

Share-based compensation

Dividends and dividend equivalents ($ 0.26 per share)

Balance, September 30, 2022

Comprehensive

2 unchanged sentences

Balance, January 1, 2024

Cumulative-effect adjustment from ASU 2023-02

Other comprehensive earnings (loss), net of tax

3 unchanged sentences

Balance, March 31, 2024

Other comprehensive earnings (loss), net of tax

Deferred compensation

Share-based compensation

Dividends and dividend equivalents ($ 0.27 per share)

Balance, June 30, 2023

Other comprehensive earnings (loss), net of tax

Deferred compensation

Share-based compensation

Dividends and dividend equivalents ($ 0.27 per share)

Balance, September 30, 2023

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

For the Nine Months

Ended September 30,

For the Three Months

Ended March 31,

(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

Proceeds from issuance of debt

Payment of debt

Cash dividends paid

3 unchanged sentences

Cash at the beginning of the period

Cash at September 30,

Cash at March 31,

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 2023 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.

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, 2024 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.

1 unchanged sentence

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.

No new accounting standards applicable in 2024 materially impact our financial statements.

PROSPECTIVE ACCOUNTING STANDARDS

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

2023-07—Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

The guidance in ASU 2023-07 was designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Although the Company continues to evaluate the impact of adopting this new accounting standard, the amendments are disclosure-related and should not have a material impact on our financial statements.

2023-09—Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

The guidance in ASU 2023-09 was designed to increase transparency about income tax information through improvements to the rate reconciliation and disclosure of income taxes paid.

This ASU is effective for fiscal years beginning after December 15, 2024.

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.

1 unchanged sentence

We continually monitor the financial condition of our reinsurers and actively follow up on any past due or disputed amounts.

As part of our

monitoring efforts, we review reinsurers’ annual financial statements and Securities and Exchange Commission filings for those that are publicly traded.

As part of our monitoring efforts, we review reinsurers’ annual financial statements and Securities and Exchange Commission filings for those that are publicly traded.

We also review insurance industry developments that may impact the financial condition of our reinsurers.

We analyze the credit risk associated with our reinsurance balances recoverable by monitoring the AM Best and Standard & Poor’s (S&P) ratings of our reinsurers.

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.

In addition, we subject our reinsurance balances recoverable to detailed recoverability tests, including a segment-based analysis using the average default rating percentage by S&P rating, which assists the Company in assessing the sufficiency of its allowance.

Additionally, we perform an in-depth reinsurer financial condition analysis prior to the renewal of our reinsurance placements.

Our policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverable amounts from reinsurers.

This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provision for reinsurance balances that we may be unable to recover.

Once regulatory action (such as receivership, finding of insolvency, order of conservation or order of liquidation) is taken against a reinsurer, the paid and unpaid recoverables 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 recoverable balances 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.

The allowances for uncollectible amounts on paid and unpaid reinsurance balances recoverable were $ 16 million and $ 11 million, respectively, at March 31, 2024 and December 31, 2023.

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.

No write-offs were applied to the allowances in the first three months of 2024 and less than $ 1 million was recovered.

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,

The composition of goodwill and intangible assets at March 31, 2024 and December 31, 2023 is detailed in the following table:

(in thousands)

4 unchanged sentences

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.

In addition, there were no triggering events as of March 31, 2024 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 September 30, 2023

Ended September 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

For the Nine Months

Ended September 30, 2023

Ended September 30, 2022

Ended March 31, 2024

Ended March 31, 2023

(in thousands, except per share data)

9 unchanged sentences

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.

Other comprehensive earnings (loss), as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax benefit of $ 3 million for the first quarter of 2024, compared to $ 10 million of tax expense for the same period in 2023.

Unrealized losses, net of tax, recognized in other comprehensive earnings (loss) were $ 13 million for the first three months of 2024, compared to $ 38 million of unrealized gains, net of tax, during the same period last year.

The unrealized losses in the first quarter of 2024 were attributable to an increase in interest rates, which decreased the fair value of securities held in the fixed income portfolio, compared to declining interest rates during the first quarter of 2023, which increased 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

For the Nine Months

Ended September 30,

Ended March 31,

Unrealized Gains/Losses on Available-for-Sale Securities

11 unchanged sentences

For the Three Months

For the Nine Months

Component of Accumulated

Ended September 30,

Ended March 31,

Affected line item in the

36 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 September 30, 2023, nearly all of our equity holdings were traded on an exchange.

As of March 31, 2024, 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).

3 unchanged sentences

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.

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.

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 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:

The following is a summary of the disposition of fixed income and equity securities for the three-month periods ended March 31, 2024 and 2023:

Gross Realized

10 unchanged sentences

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

Assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 are summarized below:

As of March 31, 2024

Quoted Prices in

8 unchanged sentences

Equity securities

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

As of December 31, 2023

17 unchanged sentences

Sales / Calls / Maturities

Balance as of September 30, 2023

Balance as of March 31, 2024

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 September 30, 2023 were as follows:

September 30, 2023

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of March 31, 2024 were as follows:

March 31, 2024

(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 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

The amortized cost and fair value of available-for-sale securities at March 31, 2024 and December 31, 2023 are presented in the tables below.

Amortized cost does not include the $ 24 million and $ 23 million of accrued interest receivable as of March 31, 2024 and December 31, 2023, respectively.

March 31, 2024

(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 September 30, 2023, the discounted cash flow analysis resulted in an allowance for credit losses on 19 securities.

As of March 31, 2024, the discounted cash flow analysis resulted in an allowance for credit losses on 11 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,

Three Months Ended March 31,

(in thousands)

2 unchanged sentences

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 September 30,

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.

Balance as of March 31,

We recognized $ 2 million of losses on securities for which we no longer had the intent to hold until recovery during the first three months of 2023.

No such losses were recognized during the first three months of 2024.

As of March 31, 2024, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,336 securities with an unrealized loss position for which an allowance for credit losses had not been recorded.

The $ 228 million in associated unrealized losses represents 7 percent of the fixed income portfolio’s cost basis and 6 percent of total invested assets.

Isolated to these securities, unrealized losses increased through the first nine months of 2023, as interest rates increased during the period.

Isolated to these securities, unrealized losses increased slightly through the first three months of 2024, as interest rates increased during the period.

Of the total 1,336 securities, 1,135 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.

The following table illustrates the total value of fixed income securities that were in an unrealized loss position as of March 31, 2024 and December 31, 2023 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.

September 30, 2023

March 31, 2024

December 31, 2023

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 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 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, 2024 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 $ 60 million of other invested assets at September 30, 2023, compared to $ 48 million at December 31, 2022.

We had $ 59 million of other invested assets at March 31, 2024, compared to $ 59 million at December 31, 2023.

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.

LIHTC and HTC investments are carried at amortized cost and our investment in FHLBC stock is carried at cost.

Our 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 LIHTC interests had a balance of $ 9 million at March 31, 2024, compared to $ 10 million on December 31, 2023.

Our LIHTC interests recognized amortization of $ 1 million as a component of income tax expense and a total tax benefit of $ 1 million during the first quarter of 2024 and 2023.

Our unfunded commitment for our LIHTC investments was less than $ 1 million at March 31, 2024 and will be paid out in installments through 2035.

Our HTC investment had a balance of $ 12 million at March 31, 2024, compared to $ 13 million at December 31, 2023.

Our HTC investment recognized $ 1 million of amortization as a component of income tax expense and a total tax benefit of $ 1 million during the first quarter of 2024 and 2023.

As of March 31, 2024, $ 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 March 31, 2024, $ 50 million of borrowings were outstanding with the FHLBC.

Our investments in private funds totaled $ 27 million as of March 31, 2024, down from $ 28 million as of December 31, 2023, and had $ 4 million of associated unfunded commitments at March 31, 2024.

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.

We had $ 66 million of investments in unconsolidated investees at March 31, 2024, compared to $ 57 million at December 31, 2023.

At March 31, 2024, our investment in Prime Holdings Insurance Services, Inc.

(Prime) was $ 66 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

2 unchanged sentences

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.

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.

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.

We had a cash and short-term investment balance of $ 45 million and $ 147 million, respectively, at March 31, 2024, compared to $ 36 million and $ 135 million, respectively, at December 31, 2023.

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,

The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the first three months of 2024 and 2023:

For the Three Months

Ended March 31,

(in thousands)

7 unchanged sentences

Prior accident years

Net unpaid losses and LAE at September 30,

Unpaid losses and LAE at September 30,

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.

Net unpaid losses and LAE at March 31,

Unpaid losses and LAE at March 31,

For the first three months of 2024, incurred losses and LAE included $ 42 million of favorable development on prior years’ loss reserves, largely from accident years 2016 through 2019 and 2023.

Marine, commercial property, personal umbrella, general liability, executive products, transportation and surety 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.

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.

No products experienced significant adverse development.

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.

Our effective tax rate for the three months ended March 31, 2024 was 20.1 percent, compared to 19.5 percent for the same period in 2023.

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.

The effective tax rate was higher for the three-month period in 2024, 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, 2024 and 2023 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 September 30, 2023

For the Nine Months Ended September 30, 2023

For the Three Months Ended March 31,

(in thousands)

9 unchanged sentences

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.

We believe it is more likely than not that all deferred tax assets will be recovered, given the carry back availability as well as the result of future operations, which we believe will generate sufficient taxable income to realize the deferred tax asset.

STOCK BASED COMPENSATION

11 unchanged sentences

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.

Since the plan’s approval in 2023, we have granted 224,013 awards under the 2023 LTIP, including 28,475 thus far in 2024.

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.

The total compensation expense related to equity awards was $ 1.8 million in the three-month period ended March 31, 2024, compared to $ 2.5 million for the same period in 2023.

The total income tax benefit was $ 0.3 million for the three-month period ended March 31, 2024, compared to $ 0.4 million for the same period in 2023.

Total unrecognized compensation expense relating to outstanding and unvested awards was $ 5 million, which will be recognized over the weighted average vesting period of 2.63 years.

6 unchanged sentences

Shares issued upon option exercise are newly issued shares.

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

The following tables summarize option activity for the three-month period ended March 31, 2024:

Exercise Price

4 unchanged sentences

Options canceled/forfeited

Outstanding options at September 30, 2023

Exercisable options at September 30, 2023

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:

Outstanding options at March 31, 2024

Exercisable options at March 31, 2024

The intrinsic value of options exercised, which is the difference between the fair value and the exercise price, was $ 8 million and $ 11 million during the first three months of 2024 and 2023, 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:

Weighted-average fair value of grants

13 unchanged sentences

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.

Nonvested at January 1, 2024

Nonvested at September 30, 2023

Nonvested at March 31, 2024

OPERATING SEGMENT INFORMATION

2 unchanged sentences

For the Three Months

For the Nine Months

Ended September 30,

Ended March 31,

(in thousands)

2 unchanged sentences

Net realized gains

Net unrealized gains (losses) on equity securities

Net unrealized gains on equity securities

Total consolidated revenue

(in thousands)

Net underwriting income (loss)

Net underwriting income

Net investment income

Net realized gains

Net unrealized gains (losses) on equity securities

Net unrealized gains on equity securities

General corporate expense and interest on debt

Equity in earnings (loss) of unconsolidated investees

Equity in earnings of unconsolidated investees

Earnings before income taxes

2 unchanged sentences

For the Three Months

For the Nine Months

Net Premiums Earned

Ended September 30,

Ended March 31,

(in thousands)

Commercial excess and personal umbrella

General liability

Commercial transportation

General liability

Professional services

4 unchanged sentences

Other property

Miscellaneous

Transactional

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.

8 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 and nine-month periods ended September 30, 2023 and 2022 were as follows:

The components of lease expense and other lease information as of and during the three-month periods ended March 31, 2024 and 2023 were as follows:

For the Three Months

For the Nine Months

Ended September 30,

Ended March 31,

(in thousands)

7 unchanged sentences

Reduction to ROU assets resulting from reduction to lease liabilities

Other non-cash reductions to ROU assets

(in thousands)

September 30, 2023

March 31, 2024

December 31, 2023

3 unchanged sentences

Weighted-average discount rate - operating leases

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

Future minimum lease payments under non-cancellable leases as of March 31, 2024 were as follows:

(in thousands)

September 30, 2023

March 31, 2024

Total future minimum lease payments

4 unchanged sentences

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.

to Kering Eyewear.

During the first quarter of 2023, the payout of the working capital escrow resulted in the recognition of a $ 14 million gain that was 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