RLI CORP. AND SUBSIDIARIES

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY)

CONDENSED BALANCE SHEETS

December 31,


(in thousands, except share data)	2018		2017
ASSETS

Cash	$	3,214	$	204
Short-term investments, at cost which approximates fair value		—		70
Accounts receivable, affiliates		—		1,057
Investments in subsidiaries		828,806		912,515
Investments in unconsolidated investee		79,521		77,720
Fixed income:
Available-for-sale, at fair value (amortized cost - $58,812 in 2018 and $23,184 in 2017)		59,878		23,210
Property and equipment, at cost, net of accumulated depreciation of $1,494 in 2018 and $1,426 in 2017		1,914		1,982
Income taxes receivable - current		—		1,542
Other assets		547		156
Total assets	$	973,880	$	1,018,456

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Accounts payable, affiliates	$	130	$	—
Income taxes payable - current		32		—
Income taxes - deferred		15,081		13,207
Bonds payable, long-term debt		149,115		148,928
Interest payable, long-term debt		2,153		2,153
Other liabilities		527		570
Total liabilities	$	167,038	$	164,858

Shareholders’ equity:
Common stock ($0.01 par value in 2018 and $1.00 par value in 2017)
(100,000,000 share authorized, 67,434,257 shares issued and 44,504,043 shares outstanding in 2018)
(100,000,000 share authorized, 67,078,569 shares issued and 44,148,355 shares outstanding in 2017)	$	674	$	67,079
Paid-in capital		305,660		233,077
Accumulated other comprehensive earnings, net of tax		(14,572)		157,919
Retained earnings		908,079		788,522
Deferred compensation		8,354		8,640
Treasury stock, at cost (22,930,214 shares in 2018 and 2017)		(401,353)		(401,639)
Total shareholders’ equity	$	806,842	$	853,598
Total liabilities and shareholders’ equity	$	973,880	$	1,018,456

See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 108 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)	2018		2017		2016
Net investment income	$	648	$	647	$	942
Net realized losses		(142)		(36)		(360)
Equity in earnings of unconsolidated investee		12,471		14,436		9,764
Selling, general and administrative expenses		(9,427)		(11,340)		(10,170)
Interest expense on debt		(7,437)		(7,426)		(7,426)
Loss before income taxes	$	(3,887)	$	(3,719)	$	(7,250)
Income tax benefit		(2,359)		(16,601)		(8,467)
Net earnings (loss) before equity in net earnings of subsidiaries	$	(1,528)	$	12,882	$	1,217
Equity in net earnings of subsidiaries		65,707		92,146		113,703
Net earnings	$	64,179	$	105,028	$	114,920
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	$	710	$	21	$	308
Less: reclassification adjustment for gains (losses) included in net earnings		112		6		(131)
Other comprehensive income - parent only	$	822	$	27	$	177
Equity in other comprehensive earnings (loss) of subsidiaries/investees		(34,819)		35,282		(1,341)
Other comprehensive earnings (loss)	$	(33,997)	$	35,309	$	(1,164)
Comprehensive earnings	$	30,182	$	140,337	$	113,756

See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 108 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)	2018		2017		2016
Cash flows from operating activities
Earnings before equity in net earnings of subsidiaries	$	(1,528)	$	12,882	$	1,217
Adjustments to reconcile net losses to net cash provided by (used in) operating activities:
Net realized losses		142		36		360
Depreciation		68		77		196
Other items, net		(471)		595		560
Change in:
Affiliate balances receivable/payable		1,187		(930)		(535)
Federal income taxes		3,430		(6,874)		9,762
Stock option excess tax benefit		—		—		(9,576)
Changes in investment in unconsolidated investee:
Undistributed earnings		(12,471)		(14,436)		(9,764)
Dividends received		9,900		—		9,900
Net cash provided by (used in) operating activities	$	257	$	(8,650)	$	2,120
Cash flows from investing activities
Purchase of:
Fixed income, available-for-sale	$	(73,812)	$	(5,773)	$	(12,844)
Short-term investments, net		—		(47)		—
Sale of:
Fixed income, available-for-sale		12,056		24,771		4,981
Short-term investments, net		70		—		63
Property and equipment		—		128		—
Call or maturity of:
Fixed income, available-for-sale		75,662		3,499		6,859
Cash dividends received-subsidiaries		73,363		107,000		123,600
Net cash provided by investing activities	$	87,339	$	129,578	$	122,659
Cash flows from financing activities
Stock option excess tax benefit	$	—	$	—	$	9,576
Proceeds from stock option exercises		6,076		3,502		(741)
Cash dividends paid		(90,662)		(124,247)		(133,771)
Net cash used in financing activities	$	(84,586)	$	(120,745)	$	(124,936)
Net (decrease) increase in cash	$	3,010	$	183	$	(157)
Cash at beginning of year		204		21		178
Cash at end of year	$	3,214	$	204	$	21

Interest paid on outstanding debt amounted to $7.3 million for 2018, 2017 and 2016, respectively. See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 108 of this report.