RLI CORP. AND SUBSIDIARIES

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY)

CONDENSED BALANCE SHEETS

December 31,


(in thousands, except share data)	2014		2013
ASSETS

Cash	$	374	$	181
Short-term investments, at cost which approximates fair value		177		13,394
Accounts receivable, affiliates		3,803		2,350
Investments in subsidiaries, at equity value		903,738		905,620
Investments in unconsolidated investee, at equity value		54,316		49,793
Fixed income:
Available-for-sale, at fair value (amortized cost - $46,226 in 2014 and $18,839 in 2013)		46,136		18,447
Property and equipment, at cost, net of accumulated depreciation of $528 in 2014 and $312 in 2013		3,208		3,446
Income taxes receivable - current		463		493
Deferred debt costs		1,258		1,398
Other assets		681		190
Total assets	$	1,014,154	$	995,312

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Income taxes - deferred	$	16,372	$	14,485
Bonds payable, long-term debt		149,625		149,582
Interest payable, long-term debt		2,153		1,808
Other liabilities		942		471
Total liabilities	$	169,092	$	166,346

Shareholders’ equity:
Common stock ($1 par value, authorized 100,000,000 shares, issued 66,032,929 shares in 2014 and 65,912,638 shares in 2013, and outstanding 43,102,715 shares in 2014 and 42,982,424 shares in 2013)	$	66,033	$	65,913
Paid in capital		213,737		208,705
Accumulated other comprehensive earnings, net of tax		171,383		136,027
Retained earnings		786,908		811,320
Deferred compensation		13,769		11,562
Treasury shares at cost (22,930,214 shares in 2014 and 2013)		(406,768)		(404,561)
Total shareholders’ equity	$	845,062	$	828,966
Total liabilities and shareholders’ equity	$	1,014,154	$	995,312

See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 103 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)	2014		2013		2012
Net investment income	$	663	$	652	$	837
Net realized investment gains (losses)		271		(850)		(2,834)
Equity in earnings of unconsolidated investees		12,009		10,915		8,853
Selling, general and administrative expenses		(10,222)		(8,746)		(7,867)
Interest expense on debt		(7,438)		(8,095)		(6,050)
Loss before income taxes	$	(4,717)	$	(6,124)	$	(7,061)
Income tax benefit		(7,959)		(11,946)		(8,071)
Net earnings before equity in net earnings of subsidiaries	$	3,242	$	5,822	$	1,010
Equity in net earnings of subsidiaries		132,203		120,433		102,336
Net earnings	$	135,445	$	126,255	$	103,346
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	$	372	$	(665)	$	807
Less: reclassification adjustment for gains included in net earnings		(176)		—		(70)
Other comprehensive income (loss) - parent only	$	196	$	(665)	$	737
Equity in other comprehensive earnings (loss) of subsidiaries/investees		35,160		(6,478)		25,108
Other comprehensive earnings (loss)	$	35,356	$	(7,143)	$	25,845
Comprehensive earnings	$	170,801	$	119,112	$	129,191

See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 103 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)	2014		2013		2012
Cash flows from operating activities
Earnings before equity in net earnings of subsidiaries	$	3,242	$	5,822	$	1,010
Adjustments to reconcile net losses to net cash provided by (used in) operating activities:
Net realized investment (gains) losses		(271)		850		2,834
Depreciation		238		90		30
Other items, net		737		(1,789)		852
Change in:
Affiliate balances receivable/payable		(1,453)		1,349		(10,383)
Federal income taxes		3,982		5,288		3,964
Stock option excess tax benefit		(1,766)		(6,310)		(1,471)
Changes in investment in unconsolidated investees:
Undistributed earnings		(12,009)		(10,915)		(8,853)
Dividends received		6,600		13,200		6,600
Net cash provided by (used in) operating activities	$	(700)	$	7,585	$	(5,417)
Cash flows from investing activities
Purchase of:
Fixed income, available-for-sale	$	(30,850)	$	(99,982)	$	(20,147)
Short-term investments, net		—		(12,963)		—
Property and equipment		—		(2,827)		(250)
Sale of:
Fixed income, available-for-sale		—		—		7,938
Short-term investments, net		13,217		—		10,786
Property and equipment		—		—		702
Call or maturity of:
Fixed income, available-for-sale		3,235		101,000		20,185
Cash dividends received-subsidiaries		185,000		40,000		138,000
Net cash provided by investing activities	$	170,602	$	25,228	$	157,214
Cash flows from financing activities
Stock option excess tax benefit	$	1,766	$	6,310	$	1,471
Proceeds from stock option exercises		3,386		318		6,104
Proceeds from issuance of senior notes		—		149,571		—
Payment on senior notes		—		(99,504)		—
Debt issue costs paid		—		(1,437)		—
Cash dividends paid		(174,861)		(101,913)		(145,695)
Net cash used in financing activities	$	(169,709)	$	(46,655)	$	(138,120)
Net (decrease) increase in cash	$	193	$	(13,842)	$	13,677
Cash at beginning of year		181		14,023		346
Cash at end of year	$	374	$	181	$	14,023

Interest paid on outstanding debt amounted to $7.0 million, $8.4 million and $6.0 million for 2014, 2013 and 2012, respectively. See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 103 of this report.