RLI CORP. AND SUBSIDIARIES

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY)

CONDENSED BALANCE SHEETS

December 31,


(in thousands, except share data)	2017		2016
ASSETS

Cash	$	204	$	21
Short-term investments, at cost which approximates fair value		70		23
Accounts receivable, affiliates		1,057		127
Investments in subsidiaries		912,515		882,095
Investments in unconsolidated investee		77,720		62,604
Fixed income:
Available-for-sale, at fair value (amortized cost - $23,184 in 2017 and $45,901 in 2016)		23,210		45,885
Property and equipment, at cost, net of accumulated depreciation of $1,426 in 2017 and $1,523 in 2016		1,982		2,213
Income taxes receivable - current		1,542		858
Other assets		156		329
Total assets	$	1,018,456	$	994,155

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Income taxes - deferred	$	13,207	$	19,145
Bonds payable, long-term debt		148,928		148,741
Interest payable, long-term debt		2,153		2,153
Other liabilities		570		544
Total liabilities	$	164,858	$	170,583

Shareholders’ equity:
Common stock ($1 par value, authorized 100,000,000 shares, issued 67,078,569 shares in 2017 and 66,874,911 shares in 2016, and outstanding 44,148,355 shares in 2017 and 43,944,697 shares in 2016)	$	67,079	$	66,875
Paid in capital		233,077		229,779
Accumulated other comprehensive earnings, net of tax		157,919		122,610
Retained earnings		788,522		797,307
Deferred compensation		8,640		11,496
Treasury shares at cost (22,930,214 shares in 2017 and 2016)		(401,639)		(404,495)
Total shareholders’ equity	$	853,598	$	823,572
Total liabilities and shareholders’ equity	$	1,018,456	$	994,155

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)	2017		2016		2015
Net investment income	$	647	$	942	$	810
Net realized gains (losses)		(36)		(360)		139
Equity in earnings of unconsolidated investee		14,436		9,764		9,893
Selling, general and administrative expenses		(11,340)		(10,170)		(9,837)
Interest expense on debt		(7,426)		(7,426)		(7,426)
Loss before income taxes	$	(3,719)	$	(7,250)	$	(6,421)
Income tax benefit		(16,601)		(8,467)		(5,499)
Net earnings (loss) before equity in net earnings of subsidiaries	$	12,882	$	1,217	$	(922)
Equity in net earnings of subsidiaries		92,146		113,703		138,466
Net earnings	$	105,028	$	114,920	$	137,544
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	$	21	$	308	$	(40)
Less: reclassification adjustment for gains (losses) included in net earnings		6		(131)		(90)
Other comprehensive income (loss) - parent only	$	27	$	177	$	(130)
Equity in other comprehensive earnings (loss) of subsidiaries/investees		35,282		(1,341)		(47,479)
Other comprehensive earnings (loss)	$	35,309	$	(1,164)	$	(47,609)
Comprehensive earnings	$	140,337	$	113,756	$	89,935

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)	2017		2016		2015
Cash flows from operating activities
Earnings before equity in net earnings of subsidiaries	$	12,882	$	1,217	$	(922)
Adjustments to reconcile net losses to net cash provided by (used in) operating activities:
Net realized (gains) losses		36		360		(139)
Depreciation		77		196		237
Other items, net		595		560		530
Change in:
Affiliate balances receivable/payable		(930)		(535)		4,211
Federal income taxes		(6,874)		9,762		14,227
Stock option excess tax benefit		—		(9,576)		(11,413)
Changes in investment in unconsolidated investee:
Undistributed earnings		(14,436)		(9,764)		(9,893)
Dividends received		—		9,900		—
Net cash provided by (used in) operating activities	$	(8,650)	$	2,120	$	(3,162)
Cash flows from investing activities
Purchase of:
Fixed income, available-for-sale	$	(5,773)	$	(12,844)	$	(16,031)
Short-term investments, net		(47)		—		—
Sale of:
Fixed income, available-for-sale		24,771		4,981		7,048
Short-term investments, net		—		63		91
Property and equipment		128		—		—
Call or maturity of:
Fixed income, available-for-sale		3,499		6,859		9,507
Cash dividends received-subsidiaries		107,000		123,600		125,000
Net cash provided by investing activities	$	129,578	$	122,659	$	125,615
Cash flows from financing activities
Stock option excess tax benefit	$	—	$	9,576	$	11,413
Proceeds from stock option exercises		3,502		(741)		(3,364)
Cash dividends paid		(124,247)		(133,771)		(130,698)
Net cash used in financing activities	$	(120,745)	$	(124,936)	$	(122,649)
Net (decrease) increase in cash	$	183	$	(157)	$	(196)
Cash at beginning of year		21		178		374
Cash at end of year	$	204	$	21	$	178

Interest paid on outstanding debt amounted to $7.3 million for 2017, 2016 and 2015, respectively. See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 109 of this report.