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 ​ ​ Ended March 31, (in thousands, except per share data) 2024 2023 Net premiums earned ​ $ 360,676 ​ $ 307,723 Net investment income ​ ​ 32,847 ​ ​ 27,084 Net realized gains ​ ​ 5,994 ​ ​ 14,620 Net unrealized gains on equity securities ​ ​ 45,314 ​ ​ 15,496 Consolidated revenue ​ $ 444,831 ​ $ 364,923 Losses and settlement expenses ​ ​ 143,824 ​ ​ 114,488 Policy acquisition costs ​ ​ 110,454 ​ ​ 101,444 Insurance operating expenses ​ ​ 28,703 ​ ​ 23,901 Interest expense on debt ​ ​ 1,618 ​ ​ 2,008 General corporate expenses ​ ​ 5,010 ​ ​ 4,214 Total expenses ​ $ 289,609 ​ $ 246,055 Equity in earnings of unconsolidated investees ​ ​ 4,769 ​ ​ 3,923 Earnings before income taxes ​ $ 159,991 ​ $ 122,791 Income tax expense ​ ​ 32,091 ​ ​ 23,980 Net earnings ​ $ 127,900 ​ $ 98,811 ​ ​ ​ ​ ​ ​ ​ Other comprehensive earnings (loss), net of tax ​ ​ ( 12,671 ) ​ ​ 37,707 Comprehensive earnings ​ $ 115,229 ​ $ 136,518 ​ ​ ​ ​ ​ ​ ​ Basic net earnings per share ​ $ 2.80 ​ $ 2.17 Diluted net earnings per share ​ $ 2.77 ​ $ 2.15 ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares outstanding: ​ ​ ​ ​ ​ ​ Basic ​ ​ 45,684 ​ ​ 45,530 Diluted ​ ​ 46,163 ​ ​ 46,035 ​ See accompanying notes to the unaudited condensed consolidated interim financial statements. ​ 3 ​ Table of Contents RLI Corp. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, (in thousands, except share and per share data) 2024 2023 ASSETS ​ ​ ​ ​ ​ ​ Investments and cash: ​ ​ ​ ​ ​ ​ Fixed income: ​ ​ ​ ​ ​ ​ Available-for-sale, at fair value ​ $ 2,863,321 ​ $ 2,855,849 (amortized cost of $ 3,082,273 and allowance for credit losses of $ 237 at 3/31/24) ​ ​ ​ ​ ​ ​ (amortized cost of $ 3,054,391 and allowance for credit losses of $ 306 at 12/31/23) ​ ​ ​ ​ ​ ​ Equity securities, at fair value (cost - $ 362,527 at 3/31/24 and $ 354,022 at 12/31/23) ​ ​ 643,367 ​ ​ 590,041 Short-term investments, at cost which approximates fair value ​ ​ 147,186 ​ ​ 134,923 Other invested assets ​ ​ 59,273 ​ ​ 59,081 Cash ​ ​ 44,557 ​ ​ 36,424 Total investments and cash ​ $ 3,757,704 ​ $ 3,676,318 Accrued investment income ​ ​ 25,353 ​ ​ 24,062 Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $ 21,699 at 3/31/24 and $ 21,438 at 12/31/23 ​ ​ 230,537 ​ ​ 221,206 Ceded unearned premium ​ ​ 107,822 ​ ​ 112,257 Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $ 11,085 at 3/31/24 and $ 10,608 at 12/31/23 ​ ​ 814,676 ​ ​ 757,349 Deferred policy acquisition costs ​ ​ 152,924 ​ ​ 146,566 Property and equipment, at cost, net of accumulated depreciation of $ 75,558 at 3/31/24 and $ 74,279 at 12/31/23 ​ ​ 46,536 ​ ​ 46,715 Investment in unconsolidated investees ​ ​ 66,134 ​ ​ 56,966 Goodwill and intangibles ​ ​ 53,562 ​ ​ 53,562 Income taxes-deferred ​ ​ 10,700 ​ ​ 15,872 Other assets ​ ​ 72,461 ​ ​ 69,348 TOTAL ASSETS ​ $ 5,338,409 ​ $ 5,180,221 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ ​ Unpaid losses and settlement expenses ​ $ 2,532,190 ​ $ 2,446,025 Unearned premiums ​ ​ 904,848 ​ ​ 892,326 Reinsurance balances payable ​ ​ 35,157 ​ ​ 71,507 Funds held ​ ​ 106,430 ​ ​ 101,446 Income taxes-current ​ ​ 25,455 ​ ​ 3,757 Debt ​ ​ 100,000 ​ ​ 100,000 Accrued expenses ​ ​ 68,216 ​ ​ 108,880 Other liabilities ​ ​ 45,361 ​ ​ 42,766 TOTAL LIABILITIES ​ $ 3,817,657 ​ $ 3,766,707 ​ ​ ​ ​ ​ ​ ​ Shareholders’ Equity ​ ​ ​ ​ ​ ​ Common stock ($ 0.01 par value) ​ ​ ​ ​ ​ ​ (Shares authorized - 200,000,000 ) ​ ​ ​ ​ ​ ​ ( 68,640,095 shares issued, 45,709,881 shares outstanding at 3/31/24) ​ ​ ​ ​ ​ ​ ( 68,570,261 shares issued, 45,640,047 shares outstanding at 12/31/23) ​ $ 687 ​ $ 686 Paid-in capital ​ ​ 366,701 ​ ​ 362,345 Accumulated other comprehensive earnings (loss) ​ ​ ( 178,974 ) ​ ​ ( 166,303 ) Retained earnings ​ ​ 1,725,337 ​ ​ 1,609,785 Deferred compensation ​ ​ 12,749 ​ ​ 13,539 Less: Treasury shares, at cost ( 22,930,214 shares at 3/31/24 and 12/31/23) ​ ​ ( 405,748 ) ​ ​ ( 406,538 ) TOTAL SHAREHOLDERS’ EQUITY ​ $ 1,520,752 ​ $ 1,413,514 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ​ $ 5,338,409 ​ $ 5,180,221 ​ 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, 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 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2024 ​ 45,640,047 ​ $ 1,413,514 ​ $ 686 ​ $ 362,345 ​ $ ( 166,303 ) ​ $ 1,609,785 ​ $ 13,539 ​ $ ( 406,538 ) Net earnings ​ — ​ ​ 127,900 ​ ​ — ​ ​ — ​ ​ — ​ ​ 127,900 ​ ​ — ​ ​ — Other comprehensive earnings (loss), net of tax ​ — ​ ​ ( 12,671 ) ​ ​ — ​ ​ — ​ ​ ( 12,671 ) ​ ​ — ​ ​ — ​ ​ — Deferred compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 790 ) ​ ​ 790 Share-based compensation ​ 69,834 ​ ​ 4,357 ​ ​ 1 ​ ​ 4,356 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Dividends and dividend equivalents ($ 0.27 per share) ​ — ​ ​ ( 12,348 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 12,348 ) ​ ​ — ​ ​ — Balance, March 31, 2024 ​ 45,709,881 ​ $ 1,520,752 ​ $ 687 ​ $ 366,701 ​ $ ( 178,974 ) ​ $ 1,725,337 ​ $ 12,749 ​ $ ( 405,748 ) ​ 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 Three Months ​ ​ Ended March 31, (in thousands) 2024 2023 Net cash provided by operating activities ​ $ 70,946 ​ $ 69,219 Cash Flows from Investing Activities ​ ​ ​ ​ ​ ​ Purchase of: ​ ​ ​ ​ ​ ​ Fixed income securities, available-for-sale ​ $ ( 120,109 ) ​ $ ( 180,040 ) Equity securities ​ ​ ( 17,302 ) ​ ​ ( 6,395 ) Property and equipment ​ ​ ( 1,089 ) ​ ​ ( 1,277 ) Other ​ ​ ( 2,664 ) ​ ​ ( 1,392 ) Proceeds from sale of: ​ ​ ​ ​ ​ ​ Fixed income securities, available-for-sale ​ ​ 11,819 ​ ​ 3,064 Equity securities ​ ​ 15,910 ​ ​ 3,501 Equity method investments ​ ​ — ​ ​ 14,134 Other ​ ​ 1,350 ​ ​ 271 Proceeds from call or maturity of: ​ ​ ​ ​ ​ ​ Fixed income securities, available-for-sale ​ ​ 71,284 ​ ​ 190,303 Net proceeds from sale (purchase) of short-term investments ​ ​ ( 12,263 ) ​ ​ ( 79,973 ) Net cash used in investing activities ​ $ ( 53,064 ) ​ $ ( 57,804 ) Cash Flows from Financing Activities ​ ​ ​ ​ ​ ​ Cash dividends paid ​ $ ( 12,337 ) ​ $ ( 11,839 ) Proceeds from stock option exercises ​ ​ 2,588 ​ ​ 375 Net cash used in financing activities ​ $ ( 9,749 ) ​ $ ( 11,464 ) Net increase (decrease) in cash ​ $ 8,133 ​ $ ( 49 ) Cash at the beginning of the period ​ ​ 36,424 ​ ​ 22,818 Cash at March 31, ​ $ 44,557 ​ $ 22,769 ​ 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 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 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. ​ 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 ​ No new accounting standards applicable in 2024 materially impact our financial statements. ​ C. PROSPECTIVE ACCOUNTING STANDARDS ​ 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. 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. ​ 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 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 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. ​ 7 ​ Table of Contents 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 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 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 were applied to the allowances in the first three months of 2024 and less than $ 1 million was recovered. ​ E. INTANGIBLE ASSETS ​ The composition of goodwill and intangible assets at March 31, 2024 and December 31, 2023 is detailed in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, (in thousands) 2024 2023 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 March 31, 2024 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ For the Three Months ​ ​ Ended March 31, 2024 ​ Ended March 31, 2023 ​ ​ 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 ​ $ 127,900 ​ 45,684 ​ $ 2.80 ​ $ 98,811 ​ 45,530 ​ $ 2.17 Effect of Dilutive Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock options and restricted stock units ​ ​ — ​ 479 ​ ​ ​ ​ ​ — ​ 505 ​ ​ ​ Diluted EPS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings available to common shareholders ​ $ 127,900 ​ 46,163 ​ $ 2.77 ​ $ 98,811 ​ 46,035 ​ $ 2.15 Anti-dilutive securities excluded from diluted EPS ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 8 ​ Table of Contents 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 $ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ For the Three Months ​ ​ ​ Ended March 31, ​ Unrealized Gains/Losses on Available-for-Sale Securities 2024 2023 Beginning balance ​ $ ( 166,303 ) ​ $ ( 229,076 ) ​ Other comprehensive earnings (loss) before reclassifications ​ ​ ( 13,275 ) ​ ​ 36,254 ​ Amounts reclassified from accumulated other comprehensive earnings ​ ​ 604 ​ ​ 1,453 ​ Net current-period other comprehensive earnings (loss) ​ $ ( 12,671 ) ​ $ 37,707 ​ Ending balance ​ $ ( 178,974 ) ​ $ ( 191,369 ) ​ Balance of securities for which an allowance for credit losses has been recognized in net earnings ​ $ 904 ​ $ 1,841 ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount Reclassified from Accumulated Other ​ ​ (in thousands) ​ Comprehensive Earnings (Loss) ​ ​ ​ ​ For the Three Months ​ ​ Component of Accumulated ​ Ended March 31, ​ Affected line item in the Other Comprehensive Earnings (Loss) 2024 2023 Statement of Earnings Unrealized gains and losses on available-for-sale securities ​ $ ( 834 ) ​ $ ( 1,713 ) ​ Net realized gains (losses) ​ ​ ​ 70 ​ ​ ( 126 ) ​ Credit gains (losses) presented within net realized gains ​ ​ $ ( 764 ) ​ $ ( 1,839 ) ​ Earnings (loss) before income taxes ​ ​ ​ 160 ​ ​ 386 ​ Income tax (expense) benefit ​ ​ $ ( 604 ) ​ $ ( 1,453 ) ​ 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. 9 ​ Table of Contents ​ 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 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 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). 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. ​ ​ 10 ​ Table of Contents 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 three-month periods ended March 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ Proceeds ​ Gross Realized ​ Net Realized (in thousands) From Sales Gains Losses Gain (Loss) 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities - available-for-sale ​ $ 11,819 ​ $ 289 ​ $ ( 793 ) ​ $ ( 504 ) Equity securities ​ ​ 15,910 ​ ​ 7,234 ​ ​ ( 121 ) ​ ​ 7,113 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities - available-for-sale ​ $ 3,790 ​ $ 35 ​ $ ( 82 ) ​ $ ( 47 ) Equity securities ​ ​ 3,501 ​ ​ 2,417 ​ ​ ( 101 ) ​ ​ 2,316 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Calls/Maturities ​ ​ ​ ​ Gross Realized ​ Net Realized (in thousands) Proceeds Gains Losses Gain (Loss) 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities - available-for-sale ​ $ 72,423 ​ $ 33 ​ $ ( 157 ) ​ $ ( 124 ) 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities - available-for-sale ​ $ 190,305 ​ $ 35 ​ $ ( 40 ) ​ $ ( 5 ) ​ FAIR VALUE MEASUREMENTS ​ 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 ​ 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 ​ $ — ​ $ 329,559 ​ $ — ​ $ 329,559 U.S. agency ​ ​ — ​ ​ 58,455 ​ ​ — ​ ​ 58,455 Non-U.S. government & agency ​ ​ — ​ ​ 3,844 ​ ​ — ​ ​ 3,844 Agency MBS ​ ​ — ​ ​ 414,428 ​ ​ — ​ ​ 414,428 ABS/CMBS/MBS* ​ ​ — ​ ​ 289,476 ​ ​ — ​ ​ 289,476 Corporate ​ ​ — ​ ​ 1,158,487 ​ ​ 62,560 ​ ​ 1,221,047 Municipal ​ ​ — ​ ​ 546,512 ​ ​ — ​ ​ 546,512 Total fixed income securities - available-for-sale ​ $ — ​ $ 2,800,761 ​ $ 62,560 ​ $ 2,863,321 Equity securities ​ ​ 641,758 ​ ​ — ​ ​ 1,609 ​ ​ 643,367 Total ​ $ 641,758 ​ $ 2,800,761 ​ $ 64,169 ​ $ 3,506,688 * Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities ​ 11 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 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 ​ $ — ​ $ 308,031 ​ $ — ​ $ 308,031 U.S. agency ​ ​ — ​ ​ 59,826 ​ ​ — ​ ​ 59,826 Non-U.S. government & agency ​ ​ — ​ ​ 3,882 ​ ​ — ​ ​ 3,882 Agency MBS ​ ​ — ​ ​ 425,285 ​ ​ — ​ ​ 425,285 ABS/CMBS/MBS* ​ ​ — ​ ​ 281,182 ​ ​ — ​ ​ 281,182 Corporate ​ ​ — ​ ​ 1,164,548 ​ ​ 60,471 ​ ​ 1,225,019 Municipal ​ ​ — ​ ​ 552,624 ​ ​ — ​ ​ 552,624 Total fixed income securities - available-for-sale ​ $ — ​ $ 2,795,378 ​ $ 60,471 ​ $ 2,855,849 Equity securities ​ ​ 588,416 ​ ​ — ​ ​ 1,625 ​ ​ 590,041 Total ​ $ 588,416 ​ $ 2,795,378 ​ $ 62,096 ​ $ 3,445,890 * Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities ​ 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, 2024 ​ $ 62,096 Net realized and unrealized gains (losses) ​ ​ ​ Included in other comprehensive earnings (loss) ​ ​ ( 271 ) Purchases ​ ​ 2,735 Sales / Calls / Maturities ​ ​ ( 391 ) Balance as of March 31, 2024 ​ $ 64,169 Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss) ​ $ ( 271 ) ​ 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) Amortized Cost Fair Value Due in one year or less ​ $ 188,801 ​ $ 186,550 Due after one year through five years ​ ​ 875,943 ​ ​ 843,536 Due after five years through 10 years ​ ​ 696,813 ​ ​ 669,310 Due after 10 years ​ ​ 548,944 ​ ​ 460,021 ABS/CMBS/MBS* ​ ​ 771,772 ​ ​ 703,904 Total available-for-sale ​ $ 3,082,273 ​ $ 2,863,321 * Asset-backed, commercial mortgage-backed and mortgage-backed securities ​ 12 ​ Table of Contents 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 ​ ​ Cost or ​ Allowance ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ for Credit ​ Unrealized ​ Unrealized ​ Fair (in thousands) Cost Losses Gains Losses Value U.S. government ​ $ 337,014 ​ $ — ​ $ 388 ​ $ ( 7,843 ) ​ $ 329,559 U.S. agency ​ ​ 59,956 ​ ​ — ​ ​ 444 ​ ​ ( 1,945 ) ​ ​ 58,455 Non-U.S. government & agency ​ ​ 4,800 ​ ​ — ​ ​ — ​ ​ ( 956 ) ​ ​ 3,844 Agency MBS ​ ​ 456,358 ​ ​ — ​ ​ 1,208 ​ ​ ( 43,138 ) ​ ​ 414,428 ABS/CMBS/MBS* ​ ​ 315,414 ​ ​ ( 2 ) ​ ​ 970 ​ ​ ( 26,906 ) ​ ​ 289,476 Corporate ​ ​ 1,277,258 ​ ​ ( 235 ) ​ ​ 4,732 ​ ​ ( 60,708 ) ​ ​ 1,221,047 Municipal ​ ​ 631,473 ​ ​ — ​ ​ 1,413 ​ ​ ( 86,374 ) ​ ​ 546,512 Total Fixed Income ​ $ 3,082,273 ​ $ ( 237 ) ​ $ 9,155 ​ $ ( 227,870 ) ​ $ 2,863,321 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Cost or ​ Allowance ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ for Credit ​ Unrealized ​ Unrealized ​ Fair (in thousands) Cost Losses Gains Losses Value U.S. government ​ $ 312,632 ​ $ — ​ $ 1,257 ​ $ ( 5,858 ) ​ $ 308,031 U.S. agency ​ ​ 60,763 ​ ​ — ​ ​ 652 ​ ​ ( 1,589 ) ​ ​ 59,826 Non-U.S. government & agency ​ ​ 4,800 ​ ​ — ​ ​ — ​ ​ ( 918 ) ​ ​ 3,882 Agency MBS ​ ​ 460,551 ​ ​ — ​ ​ 2,636 ​ ​ ( 37,902 ) ​ ​ 425,285 ABS/CMBS/MBS* ​ ​ 308,458 ​ ​ ( 3 ) ​ ​ 611 ​ ​ ( 27,884 ) ​ ​ 281,182 Corporate ​ ​ 1,273,187 ​ ​ ( 303 ) ​ ​ 8,766 ​ ​ ( 56,631 ) ​ ​ 1,225,019 Municipal ​ ​ 634,000 ​ ​ — ​ ​ 2,238 ​ ​ ( 83,614 ) ​ ​ 552,624 Total Fixed Income ​ $ 3,054,391 ​ $ ( 306 ) ​ $ 16,160 ​ $ ( 214,396 ) ​ $ 2,855,849 * Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities ​ 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 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: 13 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ (in thousands) 2024 2023 Beginning balance ​ $ 306 ​ $ 339 ​ Increase to allowance from securities for which credit losses were not previously recorded ​ ​ 12 ​ ​ 54 ​ Reduction from securities sold during the period ​ ​ ( 67 ) ​ ​ — ​ Net increase (decrease) from securities that had an allowance at the beginning of the period ​ ​ ( 14 ) ​ ​ 72 ​ Balance as of March 31, ​ $ 237 ​ $ 465 ​ ​ 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 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 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. 14 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2024 ​ December 31, 2023 (in thousands) < 12 Mos. 12 Mos. & Greater Total < 12 Mos. 12 Mos. & Greater Total U.S. government ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 78,413 ​ $ 203,962 ​ $ 282,375 ​ $ 37,718 ​ $ 204,556 ​ $ 242,274 Amortized cost ​ ​ 79,565 ​ ​ 210,653 ​ ​ 290,218 ​ ​ 37,950 ​ ​ 210,182 ​ ​ 248,132 Unrealized loss ​ $ ( 1,152 ) ​ $ ( 6,691 ) ​ $ ( 7,843 ) ​ $ ( 232 ) ​ $ ( 5,626 ) ​ $ ( 5,858 ) U.S. agency ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 15,822 ​ $ 28,854 ​ $ 44,676 ​ $ 8,736 ​ $ 29,632 ​ $ 38,368 Amortized cost ​ ​ 15,995 ​ ​ 30,626 ​ ​ 46,621 ​ ​ 8,790 ​ ​ 31,167 ​ ​ 39,957 Unrealized loss ​ $ ( 173 ) ​ $ ( 1,772 ) ​ $ ( 1,945 ) ​ $ ( 54 ) ​ $ ( 1,535 ) ​ $ ( 1,589 ) Non-U.S. government ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ — ​ $ 3,844 ​ $ 3,844 ​ $ — ​ $ 3,882 ​ $ 3,882 Amortized cost ​ ​ — ​ ​ 4,800 ​ ​ 4,800 ​ ​ — ​ ​ 4,800 ​ ​ 4,800 Unrealized Loss ​ $ — ​ $ ( 956 ) ​ $ ( 956 ) ​ $ — ​ $ ( 918 ) ​ $ ( 918 ) Agency MBS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 55,007 ​ $ 288,704 ​ $ 343,711 ​ $ 61,196 ​ $ 275,707 ​ $ 336,903 Amortized cost ​ ​ 56,100 ​ ​ 330,749 ​ ​ 386,849 ​ ​ 61,714 ​ ​ 313,091 ​ ​ 374,805 Unrealized loss ​ $ ( 1,093 ) ​ $ ( 42,045 ) ​ $ ( 43,138 ) ​ $ ( 518 ) ​ $ ( 37,384 ) ​ $ ( 37,902 ) ABS/CMBS/MBS* ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 25,663 ​ $ 182,583 ​ $ 208,246 ​ $ 12,240 ​ $ 211,436 ​ $ 223,676 Amortized cost ​ ​ 25,831 ​ ​ 209,321 ​ ​ 235,152 ​ ​ 12,367 ​ ​ 239,193 ​ ​ 251,560 Unrealized loss ​ $ ( 168 ) ​ $ ( 26,738 ) ​ $ ( 26,906 ) ​ $ ( 127 ) ​ $ ( 27,757 ) ​ $ ( 27,884 ) Corporate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 185,542 ​ $ 795,631 ​ $ 981,173 ​ $ 67,402 ​ $ 822,731 ​ $ 890,133 Amortized cost ​ ​ 188,580 ​ ​ 853,301 ​ ​ 1,041,881 ​ ​ 68,345 ​ ​ 878,419 ​ ​ 946,764 Unrealized loss ​ $ ( 3,038 ) ​ $ ( 57,670 ) ​ $ ( 60,708 ) ​ $ ( 943 ) ​ $ ( 55,688 ) ​ $ ( 56,631 ) Municipal ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 74,207 ​ $ 418,819 ​ $ 493,026 ​ $ 61,218 ​ $ 391,361 ​ $ 452,579 Amortized cost ​ ​ 75,247 ​ ​ 504,153 ​ ​ 579,400 ​ ​ 61,697 ​ ​ 474,496 ​ ​ 536,193 Unrealized loss ​ $ ( 1,040 ) ​ $ ( 85,334 ) ​ $ ( 86,374 ) ​ $ ( 479 ) ​ $ ( 83,135 ) ​ $ ( 83,614 ) Total fixed income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value ​ $ 434,654 ​ $ 1,922,397 ​ $ 2,357,051 ​ $ 248,510 ​ $ 1,939,305 ​ $ 2,187,815 Amortized cost ​ ​ 441,318 ​ ​ 2,143,603 ​ ​ 2,584,921 ​ ​ 250,863 ​ ​ 2,151,348 ​ ​ 2,402,211 Unrealized loss ​ $ ( 6,664 ) ​ $ ( 221,206 ) ​ $ ( 227,870 ) ​ $ ( 2,353 ) ​ $ ( 212,043 ) ​ $ ( 214,396 ) * Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities ​ The following table shows the composition of the fixed income securities in unrealized loss positions, after factoring in the allowance for credit losses, at March 31, 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ $ 2,137,898 ​ $ 1,941,077 ​ $ ( 196,821 ) ​ 86.4 % 2 ​ BBB ​ Baa ​ ​ 397,220 ​ ​ 369,097 ​ ​ ( 28,123 ) ​ 12.3 % 3 ​ BB ​ Ba ​ ​ 31,428 ​ ​ 29,952 ​ ​ ( 1,476 ) ​ 0.7 % 4 ​ B ​ B ​ ​ 14,826 ​ ​ 14,073 ​ ​ ( 753 ) ​ 0.3 % 5 ​ CCC ​ Caa ​ ​ 2,730 ​ ​ 2,421 ​ ​ ( 309 ) ​ 0.1 % 6 ​ CC or lower ​ Ca or lower ​ ​ 819 ​ ​ 431 ​ ​ ( 388 ) ​ 0.2 % ​ ​ ​ ​ Total ​ $ 2,584,921 ​ $ 2,357,051 ​ $ ( 227,870 ) ​ 100.0 % ​ Other Invested Assets ​ 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. Our LIHTC and 15 ​ Table of Contents 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 $ 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 $ 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. ​ 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 $ 45 million and $ 147 million, respectively, at March 31, 2024, compared to $ 36 million and $ 135 million, respectively, at December 31, 2023. ​ ​ 16 ​ Table of Contents 3. HISTORICAL LOSS AND LAE DEVELOPMENT ​ The following table is a reconciliation of our unpaid losses and settlement expenses (LAE) for the first three months of 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ ​ Ended March 31, (in thousands) 2024 2023 Unpaid losses and LAE at beginning of year ​ ​ ​ ​ ​ ​ Gross ​ $ 2,446,025 ​ $ 2,315,637 Ceded ​ ​ ( 757,349 ) ​ ​ ( 740,089 ) Net ​ $ 1,688,676 ​ $ 1,575,548 ​ ​ ​ ​ ​ ​ ​ Increase (decrease) in incurred losses and LAE ​ ​ ​ ​ ​ ​ Current accident year ​ $ 186,217 ​ $ 166,270 Prior accident years ​ ​ ( 42,393 ) ​ ​ ( 51,782 ) Total incurred ​ $ 143,824 ​ $ 114,488 ​ ​ ​ ​ ​ ​ ​ Loss and LAE payments for claims incurred ​ ​ ​ ​ ​ ​ Current accident year ​ $ ( 12,975 ) ​ $ ( 7,983 ) Prior accident years ​ ​ ( 102,011 ) ​ ​ ( 95,905 ) Total paid ​ $ ( 114,986 ) ​ $ ( 103,888 ) ​ ​ ​ ​ ​ ​ ​ Net unpaid losses and LAE at March 31, ​ $ 1,717,514 ​ $ 1,586,148 ​ ​ ​ ​ ​ ​ ​ Unpaid losses and LAE at March 31, ​ ​ ​ ​ ​ ​ Gross ​ $ 2,532,190 ​ $ 2,286,063 Ceded ​ ​ ( 814,676 ) ​ ​ ( 699,915 ) Net ​ $ 1,717,514 ​ $ 1,586,148 ​ 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 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. ​ 4. INCOME TAXES ​ 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 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. ​ 17 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended March 31, ​ ​ ​ 2024 ​ 2023 ​ (in thousands) Amount % Amount % Provision for income taxes at the statutory rate of 21 % ​ $ 33,598 ​ 21.0 % $ 25,786 ​ 21.0 % Increase (reduction) in taxes resulting from: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Excess tax benefit on share-based compensation ​ ​ ( 1,874 ) ​ ( 1.2 ) % ​ ( 1,990 ) ​ ( 1.6 ) % Tax exempt interest income ​ ​ ( 260 ) ​ ( 0.2 ) % ​ ( 283 ) ​ ( 0.2 ) % Dividends received deduction ​ ​ ( 235 ) ​ ( 0.1 ) % ​ ( 224 ) ​ ( 0.2 ) % Tax credit ​ ​ ( 768 ) ​ ( 0.5 ) % ​ ( 513 ) ​ ( 0.4 ) % ESOP dividends paid deduction ​ ​ ( 138 ) ​ ( 0.1 ) % ​ ( 137 ) ​ ( 0.1 ) % Nondeductible expenses ​ ​ 713 ​ 0.4 % ​ 601 ​ 0.5 % Other items, net ​ ​ 1,055 ​ 0.8 % ​ 740 ​ 0.5 % Total tax expense ​ $ 32,091 ​ 20.1 % $ 23,980 ​ 19.5 % ​ 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 we believe will generate sufficient taxable income to realize the deferred tax asset. ​ ​ 5. 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 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 $ 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. ​ 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 three-month period ended March 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ Aggregate ​ ​ ​ ​ Weighted ​ Average ​ Intrinsic ​ ​ ​ ​ Average ​ Remaining ​ Value ​ Options Exercise Price Contractual Life (in 000’s) Outstanding options at January 1, 2024 ​ 1,641,710 ​ $ 92.62 ​ ​ ​ ​ ​ Options granted ​ 27,875 ​ ​ 135.94 ​ ​ ​ ​ ​ Options exercised ​ ( 93,470 ) ​ ​ 64.52 ​ ​ ​ ​ ​ Options canceled/forfeited ​ ( 1,365 ) ​ ​ 109.50 ​ ​ ​ ​ ​ Outstanding options at March 31, 2024 ​ 1,574,750 ​ $ 95.04 ​ 4.58 ​ $ 84,145 Exercisable options at March 31, 2024 ​ 819,591 ​ $ 80.95 ​ 3.44 ​ $ 55,335 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 ​ Weighted-average fair value of grants ​ $ 30.60 ​ $ 27.04 ​ Risk-free interest rates ​ ​ 4.62 % ​ 4.22 % Dividend yield ​ ​ 2.24 % ​ 2.54 % Expected volatility ​ ​ 23.05 % ​ 22.93 % Expected option life ​ ​ 5.08 years ​ 5.01 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ ​ Grant Date ​ RSUs Fair Value Nonvested at January 1, 2024 ​ 45,093 ​ $ 125.16 Granted ​ 600 ​ ​ 142.08 Reinvested ​ 85 ​ ​ 145.36 Forfeited ​ ( 128 ) ​ ​ 124.07 Nonvested at March 31, 2024 ​ 45,650 ​ $ 125.43 ​ ​ 19 ​ Table of Contents 6. 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 ​ Revenues ​ Ended March 31, ​ (in thousands) 2024 2023 Casualty ​ $ 198,276 ​ $ 186,031 ​ Property ​ ​ 129,411 ​ ​ 88,767 ​ Surety ​ ​ 32,989 ​ ​ 32,925 ​ Net premiums earned ​ $ 360,676 ​ $ 307,723 ​ Net investment income ​ ​ 32,847 ​ ​ 27,084 ​ Net realized gains ​ ​ 5,994 ​ ​ 14,620 ​ Net unrealized gains on equity securities ​ ​ 45,314 ​ ​ 15,496 ​ Total consolidated revenue ​ $ 444,831 ​ $ 364,923 ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Earnings ​ ​ ​ ​ (in thousands) 2024 2023 Casualty ​ $ 13,674 ​ $ 31,831 ​ Property ​ ​ 57,716 ​ ​ 28,383 ​ Surety ​ ​ 6,305 ​ ​ 7,676 ​ Net underwriting income ​ $ 77,695 ​ $ 67,890 ​ Net investment income ​ ​ 32,847 ​ ​ 27,084 ​ Net realized gains ​ ​ 5,994 ​ ​ 14,620 ​ Net unrealized gains on equity securities ​ ​ 45,314 ​ ​ 15,496 ​ General corporate expense and interest on debt ​ ​ ( 6,628 ) ​ ​ ( 6,222 ) ​ Equity in earnings of unconsolidated investees ​ ​ 4,769 ​ ​ 3,923 ​ Earnings before income taxes ​ $ 159,991 ​ $ 122,791 ​ Income tax expense ​ ​ 32,091 ​ ​ 23,980 ​ Net earnings ​ $ 127,900 ​ $ 98,811 ​ ​ The following table further summarizes revenues by major product type within each operating segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ Net Premiums Earned ​ Ended March 31, ​ (in thousands) 2024 2023 Casualty ​ ​ ​ ​ ​ ​ ​ Commercial excess and personal umbrella ​ $ 80,035 ​ $ 67,582 ​ Commercial transportation ​ ​ 27,301 ​ ​ 25,232 ​ General liability ​ ​ 25,412 ​ ​ 25,900 ​ Professional services ​ ​ 25,085 ​ ​ 24,357 ​ Small commercial ​ ​ 18,337 ​ ​ 17,941 ​ Executive products ​ ​ 5,915 ​ ​ 6,353 ​ Other casualty ​ ​ 16,191 ​ ​ 18,666 ​ Total ​ $ 198,276 ​ $ 186,031 ​ Property ​ ​ ​ ​ ​ ​ ​ Commercial property ​ $ 87,605 ​ $ 49,262 ​ Marine ​ ​ 32,568 ​ ​ 30,636 ​ Other property ​ ​ 9,238 ​ ​ 8,869 ​ Total ​ $ 129,411 ​ $ 88,767 ​ Surety ​ ​ ​ ​ ​ ​ ​ Transactional ​ $ 12,108 ​ $ 12,047 ​ Commercial ​ ​ 10,625 ​ ​ 12,418 ​ Contract ​ ​ 10,256 ​ ​ 8,460 ​ Total ​ $ 32,989 ​ $ 32,925 ​ Grand Total ​ $ 360,676 ​ $ 307,723 ​ ​ ​ 20 ​ Table of Contents 7. 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-month periods ended March 31, 2024 and 2023 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ ​ ​ Ended March 31, ​ (in thousands) 2024 2023 Operating lease cost ​ $ 1,181 ​ $ 1,269 ​ Variable lease cost ​ ​ 269 ​ ​ 438 ​ Sublease income ​ ​ ( 42 ) ​ ​ ( 139 ) ​ Total lease cost ​ $ 1,408 ​ $ 1,568 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ Operating cash outflows from operating leases ​ $ 1,063 ​ $ 1,398 ​ ​ ​ ​ ​ ​ ​ ​ ​ ROU assets obtained in exchange for new operating lease liabilities ​ $ 3,456 ​ $ 41 ​ ​ ​ ​ ​ ​ ​ ​ ​ Reduction to ROU assets resulting from reduction to lease liabilities ​ $ — ​ $ 200 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) March 31, 2024 December 31, 2023 ​ Operating lease ROU assets ​ $ 16,083 ​ $ 13,666 ​ Operating lease liabilities ​ $ 17,415 ​ $ 14,880 ​ Weighted-average remaining lease term - operating leases ​ ​ 6.16 years ​ 6.08 years Weighted-average discount rate - operating leases ​ ​ 3.48 % ​ 3.21 % ​ Future minimum lease payments under non-cancellable leases as of March 31, 2024 were as follows: ​ ​ ​ ​ ​ (in thousands) March 31, 2024 2024 ​ $ 3,248 2025 ​ ​ 4,048 2026 ​ ​ 3,256 2027 ​ ​ 2,135 2028 ​ ​ 1,544 2029 ​ ​ 1,450 Thereafter ​ ​ 4,199 Total future minimum lease payments ​ $ 19,880 Less imputed interest ​ ​ ( 2,465 ) Total operating lease liability ​ $ 17,415 ​ ​ 8. ACQUISITONS AND DISPOSTIONS ​ On September 30, 2022, RLI Corp. completed the sale of its equity method investment in Maui Jim, Inc. 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. ​ ​ ​ 21 ​ Table of Contents