SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

12 Months Ended

Dec. 31, 2011

SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

RLI CORP. AND SUBSIDIARIES

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY)

CONDENSED BALANCE SHEETS

December 31,

(in thousands, except share data)	2011			2010
ASSETS
Cash	$	346		$	26
Short-term investments, at cost which approximates fair value	11,217			1,019
Investments in subsidiaries, at equity value	846,851			831,560
Investments in unconsolidated investee, at equity value	49,968			43,358
Fixed income:
Available-for-sale, at fair value (amortized cost - $28,048 in 2011 and $30,921 in 2010)	27,547			30,035
Property and equipment, at cost, net of accumulated depreciation of $2,616 in 2011 and $2,381 in 2010	4,771			4,995
Income taxes receivable - current	2,968			—
Deferred debt costs	219			326
Other assets	482			499
Total assets	$	944,369		$	911,818
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, affiliates	$	6,684		$	3,658
Income taxes payable—current	—			118
Income taxes payable—deferred	15,535			13,167
Bonds payable, long-term debt	100,000			100,000
Interest payable, long-term debt	2,727			2,727
Other liabilities	571			772
Total liabilities	$	125,517		$	120,442
Shareholders’ equity:
Common stock ($1 par value, authorized 100,000,000 shares, issued 32,627,244 shares in 2011 and 32,317,691 shares in 2010, and outstanding 21,162,137 shares in 2011 and 20,964,540 shares in 2010)	$	32,627		$	32,318
Paid in capital	227,788			215,066
Accumulated other comprehensive earnings, net of tax	117,325			95,992
Retained earnings	834,111			834,375
Deferred compensation	10,445			6,474
Treasury shares at cost (11,465,107 shares in 2011 and 11,353,151 shares in 2010)	(403,444		)	(392,849		)
Total shareholders’ equity	$	818,852		$	791,376
Total liabilities and shareholders’ equity	$	944,369		$	911,818

See Notes to Consolidated Financial Statements, as attached in Exhibit 13.  See also the accompanying report of independent registered accounting firm on page 50 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)	2011			2010			2009
Net investment income	$	1,179		$	675		$	906
Net realized investment gains (losses)	42			(13		)	166
Equity in earnings of unconsolidated investees	6,497			7,101			5,052
Selling, general and administrative expenses	(7,766		)	(7,998		)	(7,941		)
Interest expense on debt	(6,050		)	(6,050		)	(6,050		)
Loss before income taxes	(6,098		)	(6,285		)	(7,867		)
Income tax benefit	(4,949		)	(8,754		)	(3,590		)
Net earnings (loss) before equity in net earnings of subsidiaries	(1,149		)	2,469			(4,277		)
Equity in net earnings of subsidiaries	131,740			124,963			98,122
Net earnings	$	130,591		$	127,432		$	93,845
Other comprehensive loss, net of tax Unrealized gains on securities:
Unrealized holding gains (losses) arising during the period	$	277		$	(530	)	$	(70	)
Less: reclassification adjustment for losses (gains) included in net earnings	(27		)	8			(108		)
Other comprehensive income (loss) - parent only	250			(522		)	(178		)
Equity in other comprehensive earnings of subsidiaries/investees	21,083			19,103			62,459
Other comprehensive earnings	21,333			18,581			62,281
Comprehensive earnings	$	151,924		$	146,013		$	156,126

See Notes to Consolidated Financial Statements, as attached in Exhibit 13.  See also the accompanying report of independent registered accounting firm on page 50 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)	2011			2010			2009
Cash flows from operating activities
Earnings (loss) before equity in net earnings of subsidiaries	$	(1,149	)	$	2,469		$	(4,277	)
Adjustments to reconcile net losses to net cash provided by (used in) operating activities:
Net realized investment gains	(42		)	13			(166		)
Depreciation	235			271			271
Other items, net	(104		)	255			572
Change in:
Affiliate balances payable	3,026			(1,109		)	1,803
Federal income taxes	3,330			1,730			1,511
Stock option excess tax benefit	(4,210		)	(2,732		)	(444		)
Changes in investment in unconsolidated investees:
Undistributed earnings	(6,497		)	(7,101		)	(5,052		)
Dividends received	—			7,920			—
Net cash provided by (used in) operating activities	$	(5,411	)	$	1,716		$	(5,782	)
Cash flows from investing activities
Purchase of:
Fixed income, available-for-sale	$	(29,621	)	$	(42,908	)	$	(28,536	)
Short-term investments, net	(10,198		)	—			(13,425		)
Property and equipment	(11		)	(6		)	—
Sale of:
Fixed income, available-for-sale	8,125			—			7,531
Equity securities, available-for-sale	—			—			—
Short-term investments, net	—			15,072			—
Call or maturity of:
Fixed income, available-for-sale	24,400			27,930			33,750
Cash dividends received-subsidiaries	150,000			208,000			40,000
Net cash provided by (used in) investing activities	$	142,695		$	208,088		$	39,320
Cash flows from financing activities
Stock option excess tax benefit	$	4,210		$	2,732		$	444
Proceeds from stock option exercises	8,821			5,087			4,804
Treasury shares purchased	(6,624		)	(23,858		)	(19,251		)
Treasury shares reissued	—			—			5,222
Cash dividends paid	(143,371		)	(193,848		)	(25,023		)
Net cash used in financing activities	$	(136,964	)	$	(209,887	)	$	(33,804	)
Net (decrease) increase in cash	320			(83		)	(266		)
Cash at beginning of year	26			109			375
Cash at end of year	$	346		$	26		$	109

Interest paid on outstanding debt for 2011, 2010 and 2009 amounted to $6.0 million.  See Notes to Consolidated Financial Statements, as attached in Exhibit 13.  See also the accompanying report of independent registered accounting firm on page 50 of this report.