What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-07-24 compared with 2025-04-25 · 188 added, 93 removed, 200 unchanged (58% of the section changed)

3 unchanged sentences

Such assumptions are, in turn, based on information available and internal estimates and analyses of general economic conditions, competitive factors, conditions specific to the property and casualty insurance and reinsurance industries, claims development and the impact thereof on our loss reserves, the adequacy and financial security of our reinsurance programs, developments in the securities market and the impact on our investment portfolio, regulatory changes and conditions and other factors.

These assumptions are

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

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

Risk Factors” within the Annual Report on Form 10-K for the year ended December 31, 2024 and Part II within this report.

37 unchanged sentences

However, we believe that our business model is built to create underwriting income by focusing on sound risk selection and discipline.

Our primary focus will continue to be

on underwriting profitability, with a secondary focus on premium growth where we believe underwriting profit exists, as opposed to general premium growth or market share measurements.

Our primary focus will continue to be on underwriting profitability, with a secondary focus on premium growth where we believe underwriting profit exists, as opposed to general premium growth or market share measurements.

Key Performance Measures

3 unchanged sentences

Each of these components are presented in the statements of earnings but are not subtotaled.

However, this information is available in total and by segment in note 6 to the unaudited condensed consolidated financial statements in this quarterly report on Form 10-Q, and in note 11 to the consolidated financial statements in our 2024 Annual Report on Form 10-K, regarding operating segment information.

However, this information is available in total and by segment in note 6 to the unaudited

condensed consolidated financial statements in this quarterly report on Form 10-Q, and in note 11 to the consolidated financial statements in our 2024 Annual Report on Form 10-K, regarding operating segment information.

The nearest comparable GAAP measure is earnings before income taxes which, in addition to underwriting income, includes net investment income, net realized gains or losses, net unrealized gains or losses on equity securities, general corporate expenses, debt costs and our portion of earnings from unconsolidated investees.

1 unchanged sentence

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

(in thousands)

4 unchanged sentences

Interest expense on debt

Net unrealized (gains) losses on equity securities

Net realized gains

Net unrealized gains on equity securities

Net realized (gains) losses

Net investment income

14 unchanged sentences

RESULTS OF OPERATIONS

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Net premiums earned increased 10 percent, driven primarily by products in our casualty segment.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Net premiums earned increased 8 percent, driven primarily by products in our casualty and surety segments.

Investment income was up 14 percent, due to an increased average asset base and higher reinvestment rates.

Adverse market performance resulted in $42 million of unrealized losses on equity securities in the first three months of 2025, compared to $45 million of unrealized gains in 2024.

Realized gains during the first three months of 2025 were comprised of $15 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, and less than $1 million of realized losses on the fixed income portfolio.

This compares to $7 million of realized gains on the equity portfolio and $1 million of realized losses on the fixed income portfolio during the first three months of 2024.

For the Three Months

Ended March 31,

Positive market performance resulted in $1 million of unrealized gains on equity securities in the first six months of 2025, compared to $49 million in 2024.

Realized gains during the first six months of 2025 were comprised of $29 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, $1 million of realized losses on the fixed income portfolio and $2 million of other realized gains.

This compares to $13 million of realized gains on the equity portfolio, $2 million of realized losses on the fixed income portfolio and $5 million of other realized losses during the first six months of 2024.

For the Six Months

Ended June 30,

Consolidated Revenues (in thousands)

1 unchanged sentence

Net investment income

Net realized gains

Net unrealized gains (losses) on equity securities

Net realized gains (losses)

Net unrealized gains on equity securities

Total consolidated revenue

Underwriting income was $71 million on an 82.3 combined ratio for the first three months of 2025, compared to $78 million on a 78.5 combined ratio in the same period of 2024.

Underwriting results for 2025 and 2024 were impacted by $12 million of pretax losses from catastrophe events.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $31 million in the first three months of 2025, compared to $42 million in 2024.

The loss ratio increased to 44.5 from 39.9, due to lower levels of favorable development on prior years’ loss reserves and a shift in the mix of business towards lines with higher loss ratios.

The expense ratio decreased to 37.8 from 38.6.

Adverse equity market returns resulted in less book value growth in 2025 and a corresponding decrease in bonus expense accruals when compared to 2024.

Underwriting income was $133 million on an 83.4 combined ratio for the first six months of 2025, compared to $148 million on an 80.0 combined ratio in the same period of 2024.

Underwriting results for 2025 were impacted by $26 million of pretax losses from catastrophe events, compared to $28 million in 2024.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $59 million in the first six months of 2025, compared to $65 million in 2024.

The loss ratio increased to 45.2 from 42.1 due to lower levels of favorable development on prior years’ loss reserves.

Additionally, the loss ratio increased from a shift in the mix of business towards casualty lines, which tend to have higher loss ratios than our property and surety products, particularly in periods with lower catastrophe losses.

The expense ratio increased to 38.2 from 37.9.

Increased expenses were driven by continued investments in people and technology, as well as higher acquisition-related costs, which can fluctuate between periods.

Bonus and profit-sharing amounts earned by executives, managers and associates are predominantly influenced by corporate performance, including operating earnings, combined ratio and return on capital.

3 unchanged sentences

(Prime), a specialty insurance company.

We recognized $3 million of investee earnings from Prime in the first three months of 2025 and $5 million in 2024.

Net earnings for the first three months of 2025 totaled $63 million, compared to $128 million for the same period in 2024.

An increase in investment income partially offset unrealized losses on equity securities and a decline in underwriting income, which resulted in the overall reduction in earnings for the quarter.

Comprehensive earnings totaled $93 million for the first three months of 2025, compared to $115 million for the first three months of 2024.

We recognized $5 million of investee earnings from Prime in the first six months of 2025 and $6 million in 2024.

Net earnings for the first six months of 2025 totaled $188 million, compared to $210 million for the same period in 2024.

An increase in investment income and realized gains partially offset a decline in unrealized gains on equity securities and underwriting income, which resulted in the overall reduction in earnings.

Comprehensive earnings totaled $236 million for the first six months of 2025, compared to $189 million for the first six months of 2024.

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

Other comprehensive earnings of $30 million in the first three months of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio.

Other comprehensive earnings of $49 million in the first six months of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio.

Comparatively, $21 million of other comprehensive loss was recognized in 2024, as higher interest rates decreased the fair value of securities held in the fixed income portfolio.

Gross premiums written increased $22 million for the first three months of 2025, compared to the same period of 2024, driven by our casualty segment.

Net premiums earned increased $38 million, with all segments contributing.

Gross premiums written increased $21 million for the first six months of 2025, compared to the same period of 2024, primarily from our casualty segment.

Net premiums earned increased $61 million, driven by our casualty and surety segments.

Gross Premiums Written

Net Premiums Earned

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

(in thousands)

9 unchanged sentences

Transactional

Gross premiums written for the casualty segment increased $33 million in the first three months of 2025.

Gross premiums written for the casualty segment increased $53 million in the first six months of 2025.

We continued to benefit from positive rate movement across a large portion of our casualty segment, as well as from new business growth within our personal umbrella distribution channels.

Expanded marketing efforts, while some of our competitors pulled back from the construction market, resulted in premium growth for commercial excess.

Additionally, increased construction spending in targeted markets has had a positive effect on premium production for our general liability business.

Other casualty premium was down for the quarter as we exited from various captive programs, reduced our participation on the reinsurance agreement with Prime and our binding authority group experienced increased competition.

Gross premiums written for the property segment decreased $10 million in the first three months of 2025.

After several consecutive years of rate increases, rates on wind and earthquake exposures declined in the first quarter of 2025, driven by more intense competition in the commercial property space.

Premium growth for commercial excess and general liability was driven by expanded marketing efforts, while some of our competitors pulled back from the construction market, and increased construction spending in targeted markets.

Other casualty premium was down for the first six months of 2025, as we exited from various captive programs, reduced our participation on the reinsurance agreement with Prime and experienced increased competition within our binding authority product.

Gross premiums written for the property segment decreased $35 million in the first six months of 2025.

After several consecutive years of rate increases, rates on commercial property exposures declined in the first half of 2025, driven by more intense competition.

However, new opportunities, rate increases and strong sections of the construction market led to $5 million of premium growth for our marine product.

Additionally, some competitors have reduced their appetite for select Hawaii homeowner coverages, which, along with rate increases, has allowed our other property premium to grow.

Gross premiums written for the surety segment was flat for the first three months of 2025.

Gross premiums written for the surety segment increased $3 million for the first six months of 2025.

Transactional and commercial surety grew as result of continued marketing efforts and new regional bonding requirements.

However, a slowdown in bid activity for larger public construction projects resulted in a decline in contract surety premium, which offset the growth from our other products.

However, a slowdown in bid activity for larger public construction projects resulted in a decline in contract surety premium.

Underwriting Income

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

Underwriting Income (in thousands)

Combined Ratio

The casualty segment recorded underwriting income of $2 million in the first three months of 2025, compared to $14 million for the same period last year.

The casualty segment recorded underwriting income of $10 million in the first six months of 2025, compared to $24 million for the same period last year.

Prior accident years’ reserve releases reduced loss and settlement expenses for the casualty segment by $20 million in 2025, primarily on accident years 2019 through 2022 and 2024.

Larger drivers of the favorable development were commercial excess, general liability and subsegments within professional liability, while commercial transportation and personal umbrella had adverse development related to auto exposures.

In comparison, $18 million of prior accident years’ reserves were released in the first three months of 2024.

Personal umbrella, general liability, executive products and transportation were drivers of the favorable development in 2024.

Larger drivers of the favorable development were commercial excess, general liability and subsegments within professional liability, while auto liability exposures developed adversely for some products, most notably in commercial transportation.

In comparison, $32 million of prior accident years’ reserves were released in the first six months of 2024.

General liability, executive products, personal umbrella, professional services and commercial excess drove the favorable development in 2024.

Storm losses on casualty-oriented package policies that include property coverage resulted in $2 million of losses in 2025 and 2024.

The combined ratio for the casualty segment was 97.8 in 2025, compared to 94.1 in 2024.

The segment’s loss ratio was 61.9 in 2025, up from 56.8 in 2024.

Lower levels of reserve releases on prior accident years and higher initial loss estimates, primarily in auto exposed lines, resulted in the higher loss ratio in 2025.

The expense ratio for the casualty segment was 35.4, down from 37.9 for the same period last year.

The property segment recorded underwriting income of $57 million for the first three months of 2025, compared to $58 million for the same period last year.

Underwriting results for 2025 included $18 million of favorable development on prior years’ loss and catastrophe reserves, as well as $12 million of storm and other catastrophe losses.

Lower levels of reserve releases on prior accident years and higher current year loss reserves, primarily in auto exposed lines, resulted in the higher loss ratio in 2025.

The expense ratio for the casualty segment was 35.9, down from 37.3 for the same period last year, as the growth in the earned premium base exceeded the growth in expense.

The property segment recorded underwriting income of $106 million for the first six months of 2025, compared to $111 million for the same period last year.

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

Comparatively, the 2024 underwriting results included $25 million of favorable development on prior years’ loss and catastrophe reserves, as well as $26 million of storm losses.

Underwriting results for the first three months of 2025 translated into a combined ratio of 57.1, compared to 55.4 for the same period last year.

The segment’s loss ratio was 24.7 in 2025, down from 25.2 in 2024.

The segment’s expense ratio increased to 32.4 in 2025 from 30.2 in the prior year, as a result of changes in our reinsurance cost and structure as well as a higher amount of acquisition-related expenses, which can fluctuate between periods.

The surety segment recorded underwriting income of $12 million for the first three months of 2025, compared to $6 million for the same period last year.

Underwriting results for the first six months of 2025 translated into a combined ratio of 59.6, compared to 57.9 for the same period last year.

The segment’s loss ratio was 27.0 in 2025, down from 28.1 in 2024, as a result of larger releases on prior accident years’ loss reserves and lower current accident year storm losses.

The segment’s expense ratio increased to 32.6 in 2025 from 29.8 in the prior year, as a result of changes in our reinsurance cost and structure, as well as higher acquisition-related expenses, which can fluctuate between periods.

The surety segment recorded underwriting income of $16 million for the first six months of 2025, compared to $13 million for the same period last year.

Both periods reflected positive current accident year underwriting performance and benefited from favorable development on prior years’ loss reserves.

2 unchanged sentences

Additionally, $2 million of reinsurance reinstatement premium was recorded in 2024 on a prior year loss, which reduced net premiums earned and underwriting income.

The combined ratio for the surety segment totaled 68.5 for the first three months of 2025, compared to 80.9 for the same period in 2024.

The combined ratio for the surety segment totaled 78.2 for the first six months of 2025, compared to 81.4 for the same period in 2024.

The segment’s loss ratio was 4.8 in 2025, down from 9.2 in 2024, due to higher levels of favorable prior accident years’ reserve development.

The expense ratio was 72.1, down from 75.5 in the prior year.

The impact of the

reinsurance reinstatement premium on the earned premium base increased the 2024 loss ratio by 0.3 points and the expense ratio by 4.3 points.

The expense ratio was 73.4, up from 72.2 in the prior year.

Investment Income

Our investment portfolio generated net investment income of $37 million during the first three months of 2025, an increase of 12 percent from the same period in 2024.

Our investment portfolio generated net investment income of $76 million during the first six months of 2025, an increase of 14 percent from the same period in 2024.

The increase in investment income was due to higher reinvestment rates, as well as an increased average asset base relative to the prior year.

Yields on our fixed income investments for the first three months of 2025 and 2024 were as follows:

Yields on our fixed income investments for the first six months of 2025 and 2024 were as follows:

After-Tax Yield

The following table depicts the composition of our investment portfolio at March 31, 2025 as compared to December 31, 2024:

The following table depicts the composition of our investment portfolio at June 30, 2025 as compared to December 31, 2024:

(in thousands)

March 31, 2025

June 30, 2025

December 31, 2024

4 unchanged sentences

We believe our overall asset allocation supports our strategy to preserve capital for policyholders, provide sufficient income to support our insurance operations and effectively grow book value over a long-term investment horizon.

The fixed income portfolio increased by $98 million in the first three months of 2025, as bonds rallied and cash flows were largely allocated to the fixed income portfolio.

Average fixed income duration was 4.9 years at March 31, 2025, reflecting our liability structure and sound capital position.

The equity portfolio decreased by $10 million during the first three months of 2025, due to weakness in the equity markets.

The fixed income portfolio increased by $245 million in the first six months of 2025, as bonds rallied and cash flows were largely allocated to the fixed income portfolio.

Average fixed income duration was 4.9 years at June 30, 2025, reflecting our liability structure and sound capital position.

The equity portfolio increased by $75 million during the first six months of 2025, primarily due to strength in the equity markets.

Short-term investments increased by $41 million, as yields on AAA-rated government money market funds remained relatively attractive.

Our effective tax rate for the first three months of 2025 was 19.6 percent, compared to 20.1 percent for the same period in 2024.

Our effective tax rate for the first six months of 2025 was 20.2 percent, compared to 20.3 percent for the same period in 2024.

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

The effective tax rate was lower for the three-month period in 2025 due to lower levels of pretax income, which increased the percentage impact of tax-favored adjustments, such as tax credits and excess tax benefits on share-based compensation.

Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

Net premiums earned increased 6 percent, driven primarily by products in our casualty segment.

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

Positive market performance resulted in $44 million of unrealized gains on equity securities in the second quarter of 2025, compared to $4 million in 2024.

Realized gains during the second quarter of 2025 were comprised of $14 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, $1 million of realized losses on the fixed income portfolio and $2 million of other realized gains.

This compares to $6 million of realized gains on the equity portfolio, $1 million of realized losses on the fixed income portfolio and $5 million of other realized losses during the second quarter of 2024.

For the Three Months

Ended June 30,

Consolidated Revenues (in thousands)

Net premiums earned

Net investment income

Net realized gains (losses)

Net unrealized gains on equity securities

Total consolidated revenue

Underwriting income was $62 million on an 84.5 combined ratio for the second quarter of 2025, compared to $70 million on an 81.5 combined ratio in the same period of 2024.

Underwriting results for 2025 were impacted by $14 million of pretax losses from catastrophe events, compared to $16 million in 2024.

Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $28 million in the second quarter of 2025, compared to $23 million in 2024.

The loss ratio increased to 45.9 from 44.3 due to a shift in the mix of business towards casualty lines, which tend to have higher loss ratios than our property and surety products, particularly in periods with lower catastrophe losses.

The expense ratio increased to 38.6 from 37.2.

Positive equity market returns resulted in more book value growth in 2025 and a corresponding increase in bonus expense accruals when compared to 2024.

Increased expenses were also driven by continued investments in people and technology, as well as higher acquisition-related costs, which can fluctuate between periods.

Favorable development and other drivers of growth in book value will increase bonus and profit-sharing expenses, while catastrophe losses, adverse development and decreased investment portfolio returns would lead to expense reductions.

These performance-related expenses affect policy acquisition, insurance operating and general corporate expenses.

Our equity in earnings of unconsolidated investees primarily relates to our investment in Prime.

We recognized $3 million of investee earnings from Prime in the second quarter of 2025 and $2 million in 2024.

Net earnings for the second quarter of 2025 totaled $124 million, compared to $82 million for the same period in 2024.

Unrealized gains on equity securities and an increase in investment income offset a decline in underwriting income, which resulted in the overall increase in earnings.

Comprehensive earnings totaled $143 million for the second quarter of 2025, compared to $74 million for the second quarter of 2024.

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

Other comprehensive earnings of $19 million in the second quarter of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio.

Comparatively, $8 million of other comprehensive loss was recognized in 2024, as higher interest rates decreased the fair value of securities held in the fixed income portfolio.

Gross premiums written decreased $1 million for the second quarter of 2025, compared to the same period of 2024.

Declines in the property segment offset growth in our casualty and surety segments.

Net premiums earned increased $23 million, driven by the casualty segment.

Gross Premiums Written

Net Premiums Earned

For the Three Months

Ended June 30,

(in thousands)

Commercial excess and personal umbrella

Commercial transportation

General liability

Professional services

Small commercial

Executive products

Other casualty

Commercial property

Other property

Transactional

Gross premiums written for the casualty segment increased $20 million in the second quarter of 2025.

We continued to benefit from positive rate movement across a large portion of our casualty segment, as well as from new business growth within our personal umbrella distribution channels.

Other casualty premium was down for the quarter as we exited from various captive programs and reduced our participation on the reinsurance agreement with Prime.

Additionally, heightened competition resulted in a decrease in commercial transportation premium.

Gross premiums written for the property segment decreased $24 million in the second quarter of 2025.

After several consecutive years of rate increases, rates on commercial property exposures declined in the second quarter of 2025, driven by more intense competition.

However, some competitors have reduced their appetite for select Hawaii homeowner coverages, which, along with rate increases, has allowed our other property premium to grow.

Gross premiums written for the surety segment increased $3 million for the second quarter of 2025.

Transactional and commercial surety grew as result of continued marketing efforts and new regional bonding requirements.

Underwriting Income

For the Three Months

Ended June 30,

Underwriting Income (in thousands)

Combined Ratio

The casualty segment recorded underwriting income of $8 million in the second quarter of 2025, compared to $10 million for the same period last year.

Prior accident years’ reserve releases reduced loss and settlement expenses for the casualty segment by $15 million in 2025, primarily on accident years 2018 through 2020, 2022 and 2024.

Larger drivers of the favorable development were commercial excess, personal umbrella, general liability and subsegments within professional liability.

In comparison, $14 million of prior accident years’ reserves were released in the second quarter of 2024.

Professional services, commercial excess, executive products and general liability were drivers of the favorable development in 2024.

Storm losses on casualty-oriented package policies that include property coverage resulted in $1 million of losses in 2025 and 2024.

The combined ratio for the casualty segment was 96.5 in 2025, compared to 95.1 in 2024.

The segment’s loss ratio was 60.2 in 2025, up from 58.3 in 2024.

Higher current year loss reserves, primarily in auto exposed lines, and an overall shift in mix towards higher loss ratio products resulted in the higher loss ratio in 2025.

The expense ratio for the casualty segment was 36.3, down from 36.8 for the same period last year, as the growth in the earned premium base exceeded the growth in expense.

The property segment recorded underwriting income of $50 million for the second quarter of 2025, compared to $53 million for the same period last year.

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

Comparatively, the 2024 underwriting results included $6 million of favorable development on prior years’ loss and catastrophe reserves, as well as $15 million of storm losses.

Underwriting results for the second quarter of 2025 translated into a combined ratio of 62.1, compared to 60.3 for the same period last year.

The segment’s loss ratio was 29.4 in 2025, down from 30.9 in 2024, as a result of larger releases on prior accident years’ loss reserves and less current accident year storm losses.

The segment’s expense ratio increased to 32.7 in 2025, up from 29.4 in the prior year, driven by changes in our reinsurance cost and structure, along with higher acquisition-related expenses, which can fluctuate between periods.

The surety segment recorded underwriting income of $4 million for the second quarter of 2025, compared to $7 million for the same period last year.

Results for 2025 and 2024 included favorable development on prior accident years’ reserves, which decreased loss and settlement expenses for the segment by $2 million in each period.

The combined ratio for the surety segment totaled 87.9 for the second quarter of 2025, compared to 81.8 for the same period in 2024.

The segment’s loss ratio was 13.3 in 2025, up from 12.7 in 2024.

The expense ratio was 74.6, up from 69.1 in the prior year, due to continued investments in people and technology, as well as higher acquisition expenses.

Investment Income

Our investment portfolio generated net investment income of $39 million during the second quarter of 2025, an increase of 16 percent from the same period in 2024.

The increase in investment income was due to higher reinvestment rates, as well as an increased average asset base relative to the prior year.

Yields on our fixed income investments for the second quarter of 2025 and 2024 were as follows:

After-Tax Yield

Our effective tax rate for the second quarter of 2025 and 2024 was 20.6 percent.

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

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

(1) cash flows from operating activities, which consist mainly of cash generated by our underwriting operations and income earned on our investment portfolio, (2) cash flows from investing activities related to the purchase, sale and maturity of investments and (3) cash flows from financing activities that impact our capital structure, such as shareholder dividend payments and changes in debt and shares outstanding.

The following table summarizes cash flows provided by (used in) our activities for the three-month periods ended March 31, 2025 and 2024:

The following table summarizes cash flows provided by (used in) our activities for the six-month periods ended June 30, 2025 and 2024:

(in thousands)

4 unchanged sentences

Cash flows from operating activities can vary among periods due to the timing in which these payments are made or received.

Operating cash flows in the first three months of 2025 benefited from increased premium receipts relative to the first three months of 2024.

As of March 31, 2025, we had $100 million in debt outstanding.

Operating cash flows in the first six months of 2025 benefited from increased premium and investment income receipts relative to the first six months of 2024.

As of June 30, 2025, we had $100 million in debt outstanding.

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 an adjustable interest rate of 5.92 percent, which will reset during the second quarter of 2025.

The borrowing may be repaid at any time and carries an adjustable interest rate of 5.92 percent, which will reset during the third quarter of 2025.

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.

8 unchanged sentences

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

As of March 31, 2025, $56 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility.

As of March 31, 2025, we had cash and other investments maturing within one year of approximately $429 million and an additional $710 million maturing between one to five years.

As of June 30, 2025, $55 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility.

As of June 30, 2025, we had cash and other investments maturing within one year of approximately $383 million and an additional $828 million maturing between one to five years.

Whereas our strategy is to be fully invested at all times, short-term investments in excess of demand deposit balances are considered a component of investment activities, and thus are classified as investments in our consolidated balance sheets.

2 unchanged sentences

We maintain a diversified investment portfolio representing policyholder funds that have not yet been paid out as claims, as well as the capital we hold for our shareholders.

Invested assets at March 31, 2025 have increased $120 million from December 31, 2024.

As of March 31, 2025, our investment portfolio had the following asset allocation breakdown:

Invested assets at June 30, 2025 have increased $341 million from December 31, 2024.

As of June 30, 2025, our investment portfolio had the following asset allocation breakdown:

(in thousands)

9 unchanged sentences

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

As of March 31, 2025, our fixed income portfolio had the following rating distribution:

As of June 30, 2025, our fixed income portfolio had the following rating distribution:

government & agency

1 unchanged sentence

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

As of March 31, 2025, our fixed income portfolio remained well diversified, with 1,851 individual issues.

As of June 30, 2025, our fixed income portfolio remained well diversified, with 1,886 individual issues.

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

As of March 31, 2025, we had $220 million in ABS, which are pools of assets collateralized by cash flows from several types of loans, including home equity, credit cards, autos and structured bank loans in the form of collateralized loan obligations (CLOs).

As of March 31, 2025, we had $196 million in commercial and non-agency MBS and $403 million in MBS backed by government sponsored enterprises (GSEs - Freddie Mac, Fannie Mae and Ginnie Mae).

As of June 30, 2025, we had $225 million in ABS, which are pools of assets collateralized by cash flows from several types of loans, including home equity, credit cards, autos and structured bank loans in the form of collateralized loan obligations (CLOs).

As of June 30, 2025, we had $191 million in commercial and non-agency MBS and $399 million in MBS backed by government sponsored enterprises (GSEs - Freddie Mac, Fannie Mae and Ginnie Mae).

Excluding the GSE-backed MBS, our exposure to ABS and CMBS was 9.4 percent of our investment portfolio at quarter end.

We had $1,385 million in corporate fixed income securities as of March 31, 2025, which includes $124 million invested in a high-yield credit strategy.

We had $1,406 million in corporate fixed income securities as of June 30, 2025, which includes $133 million invested in a high-yield credit strategy.

This high-yield portfolio consists of floating rate bank loans and bonds that are below investment grade in credit quality and offer incremental yield over our core fixed income portfolio.

3 unchanged sentences

Our actively managed equity strategy has a preference for dividend income and value oriented security selection with low turnover, which minimizes transaction costs and taxes throughout our long investment horizon.

As of March 31, 2025, our equity portfolio had a dividend yield of 1.9 percent, compared to 1.4 percent for the S&P 500 index.

As of June 30, 2025, our equity portfolio had a dividend yield of 1.6 percent, compared to 1.3 percent for the S&P 500 index.

Because of the corporate dividend-received-deduction applicable to our dividend income, we pay an effective tax rate of 13.1 percent on dividends, compared to 21.0 percent on taxable interest and 5.3 percent on municipal bond interest income.

2 unchanged sentences

Other invested assets include investments in low-income housing tax credit and historic tax credit partnerships, membership in the FHLBC and investments in private funds.

We had $57 million of investments in unconsolidated investees at March 31, 2025, compared to $56 million at December 31, 2024.

We had $61 million of investments in unconsolidated investees at June 30, 2025, compared to $56 million at December 31, 2024.

Our investment portfolio does not have any exposure to derivatives.

As of March 31, 2025, our capital structure consisted of $100 million in debt and $1.6 billion of shareholders’ equity.

Debt outstanding comprised 6 percent of total capital as of March 31, 2025.

Interest and fees on debt obligations totaled $1 million for the first three months of 2025, compared to $2 million for the same period in 2024.

We incurred interest expense on debt at an average annual interest rate of 5.18 percent during the first three months of 2025, compared to 6.24 percent during the same period last year.

We paid a regular quarterly cash dividend of $0.15 per share on March 20, 2025, an increase of $0.01 from the prior quarter.

As of June 30, 2025, our capital structure consisted of $100 million in debt and $1.7 billion of shareholders’ equity.

Debt outstanding comprised 5 percent of total capital as of June 30, 2025.

Interest and fees on debt obligations totaled $3 million for the first six months of 2025 and 2024.

We incurred interest expense on debt at an average annual interest rate of 5.18 percent during the first six months of 2025, compared to 6.21 percent during the same period last year.

We paid a regular quarterly cash dividend of $0.16 per share on June 20, 2025, an increase of $0.01 from the prior quarter.

We have increased dividends in each of the last 50 years.

7 unchanged sentences

shareholders.

On a GAAP basis, as of March 31, 2025, our holding company had $1.6 billion in equity.

On a GAAP basis, as of June 30, 2025, our holding company had $1.7 billion in equity.

This includes amounts related to the equity of our insurance subsidiaries, which is subject to regulatory restrictions under state insurance laws.

7 unchanged sentences

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

Any dividend distribution in excess of the ordinary dividend limits is deemed extraordinary and requires prior approval from the Illinois Department of Insurance (IDOI).

In the first three months of 2025, RLI Ins.

Any dividend distribution in excess of the ordinary dividend limits is deemed extraordinary

and requires prior approval from the Illinois Department of Insurance (IDOI).

In the first six months of 2025, RLI Ins.

paid $110 million in ordinary dividends to RLI Corp.

1 unchanged sentence

paid ordinary dividends totaling $152 million.

As of March 31, 2025, $26 million of the net assets of our principal insurance subsidiary were not restricted and could be distributed to RLI Corp.

As of June 30, 2025, $13 million of the net assets of our principal insurance subsidiary were not restricted and could be distributed to RLI Corp.

as ordinary dividends without prior approval from the IDOI.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis