RLI CORP. AND SUBSIDIARIES

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY)

CONDENSED BALANCE SHEETS

December 31,


(in thousands, except share data)	2016		2015
ASSETS

Cash	$	21	$	178
Short-term investments, at cost which approximates fair value		23		86
Accounts receivable, affiliates		127		—
Investments in subsidiaries		882,095		881,950
Investments in unconsolidated investee		62,604		62,650
Fixed income:
Available-for-sale, at fair value (amortized cost - $45,901 in 2016 and $45,178 in 2015)		45,885		44,889
Property and equipment, at cost, net of accumulated depreciation of $1,523 in 2016 and $765 in 2015		2,213		2,971
Income taxes receivable - current		858		1,195
Other assets		329		608
Total assets	$	994,155	$	994,527

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Accounts payable, affiliates	$	—	$	408
Income taxes - deferred		19,145		19,254
Bonds payable, long-term debt		148,741		148,554
Interest payable, long-term debt		2,153		2,153
Other liabilities		544		689
Total liabilities	$	170,583	$	171,058

Shareholders’ equity:
Common stock ($1 par value, authorized 100,000,000 shares, issued 66,874,911 shares in 2016 and 66,474,342 shares in 2015, and outstanding 43,944,697 shares in 2016 and 43,544,128 shares in 2015)	$	66,875	$	66,474
Paid in capital		229,779		221,345
Accumulated other comprehensive earnings, net of tax		122,610		123,774
Retained earnings		797,307		804,875
Deferred compensation		11,496		10,647
Treasury shares at cost (22,930,214 shares in 2016 and 2015)		(404,495)		(403,646)
Total shareholders’ equity	$	823,572	$	823,469
Total liabilities and shareholders’ equity	$	994,155	$	994,527

See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 109 of this report.

RLI CORP. AND SUBSIDIARIES

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY)—(continued)

CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

Years ended December 31,


(in thousands)	2016		2015		2014
Net investment income	$	942	$	810	$	663
Net realized gains (losses)		(360)		139		271
Equity in earnings of unconsolidated investee		9,764		9,893		12,009
Selling, general and administrative expenses		(10,170)		(9,837)		(10,222)
Interest expense on debt		(7,426)		(7,426)		(7,438)
Loss before income taxes	$	(7,250)	$	(6,421)	$	(4,717)
Income tax benefit		(8,467)		(5,499)		(7,959)
Net earnings (loss) before equity in net earnings of subsidiaries	$	1,217	$	(922)	$	3,242
Equity in net earnings of subsidiaries		113,703		138,466		132,203
Net earnings	$	114,920	$	137,544	$	135,445
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	$	308	$	(40)	$	372
Less: reclassification adjustment for gains included in net earnings		(131)		(90)		(176)
Other comprehensive income (loss) - parent only	$	177	$	(130)	$	196
Equity in other comprehensive earnings (loss) of subsidiaries/investees		(1,341)		(47,479)		35,160
Other comprehensive earnings (loss)	$	(1,164)	$	(47,609)	$	35,356
Comprehensive earnings	$	113,756	$	89,935	$	170,801

See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 109 of this report.

RLI CORP. AND SUBSIDIARIES

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY)—(continued)

CONDENSED STATEMENTS OF CASH FLOWS

Years ended December 31,


(in thousands)	2016		2015		2014
Cash flows from operating activities
Earnings before equity in net earnings of subsidiaries	$	1,217	$	(922)	$	3,242
Adjustments to reconcile net losses to net cash provided by (used in) operating activities:
Net realized (gains) losses		360		(139)		(271)
Depreciation		196		237		238
Other items, net		560		530		737
Change in:
Affiliate balances receivable/payable		(535)		4,211		(1,453)
Federal income taxes		9,762		14,227		3,982
Stock option excess tax benefit		(9,576)		(11,413)		(1,766)
Changes in investment in unconsolidated investee:
Undistributed earnings		(9,764)		(9,893)		(12,009)
Dividends received		9,900		—		6,600
Net cash provided by (used in) operating activities	$	2,120	$	(3,162)	$	(700)
Cash flows from investing activities
Purchase of:
Fixed income, available-for-sale	$	(12,844)	$	(16,031)	$	(30,850)
Sale of:
Fixed income, available-for-sale		4,981		7,048		—
Short-term investments, net		63		91		13,217
Call or maturity of:
Fixed income, available-for-sale		6,859		9,507		3,235
Cash dividends received-subsidiaries		123,600		125,000		185,000
Net cash provided by investing activities	$	122,659	$	125,615	$	170,602
Cash flows from financing activities
Stock option excess tax benefit	$	9,576	$	11,413	$	1,766
Proceeds from stock option exercises		(741)		(3,364)		3,386
Cash dividends paid		(133,771)		(130,698)		(174,861)
Net cash used in financing activities	$	(124,936)	$	(122,649)	$	(169,709)
Net (decrease) increase in cash	$	(157)	$	(196)	$	193
Cash at beginning of year		178		374		181
Cash at end of year	$	21	$	178	$	374

Interest paid on outstanding debt amounted to $7.3 million, $7.3 million and $7.0 million for 2016, 2015 and 2014, respectively. See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 109 of this report.