RLI CORP. AND SUBSIDIARIES

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY)

CONDENSED BALANCE SHEETS

December 31,


(in thousands, except share data)	2015		2014
ASSETS

Cash	$	178	$	374
Short-term investments, at cost which approximates fair value		86		177
Accounts receivable, affiliates		—		3,803
Investments in subsidiaries		881,950		903,738
Investments in unconsolidated investee		62,650		54,316
Fixed income:
Available-for-sale, at fair value (amortized cost - $45,178 in 2015 and $46,226 in 2014)		44,889		46,136
Property and equipment, at cost, net of accumulated depreciation of $765 in 2015 and $528 in 2014		2,971		3,208
Income taxes receivable - current		1,195		463
Deferred debt costs		1,114		1,258
Other assets		608		681
Total assets	$	995,641	$	1,014,154

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Accounts payable, affiliates	$	408	$	—
Income taxes - deferred		19,254		16,372
Bonds payable, long-term debt		149,668		149,625
Interest payable, long-term debt		2,153		2,153
Other liabilities		689		942
Total liabilities	$	172,172	$	169,092

Shareholders’ equity:
Common stock ($1 par value, authorized 100,000,000 shares, issued 66,474,342 shares in 2015 and 66,032,929 shares in 2014, and outstanding 43,544,128 shares in 2015 and 43,102,715 shares in 2014)	$	66,474	$	66,033
Paid in capital		221,345		213,737
Accumulated other comprehensive earnings, net of tax		123,774		171,383
Retained earnings		804,875		786,908
Deferred compensation		10,647		13,769
Treasury shares at cost (22,930,214 shares in 2015 and 2014)		(403,646)		(406,768)
Total shareholders’ equity	$	823,469	$	845,062
Total liabilities and shareholders’ equity	$	995,641	$	1,014,154

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)	2015		2014		2013
Net investment income	$	810	$	663	$	652
Net realized gains (losses)		139		271		(850)
Equity in earnings of unconsolidated investee		9,893		12,009		10,915
Selling, general and administrative expenses		(9,837)		(10,222)		(8,746)
Interest expense on debt		(7,426)		(7,438)		(8,095)
Loss before income taxes	$	(6,421)	$	(4,717)	$	(6,124)
Income tax benefit		(5,499)		(7,959)		(11,946)
Net earnings (loss) before equity in net earnings of subsidiaries	$	(922)	$	3,242	$	5,822
Equity in net earnings of subsidiaries		138,466		132,203		120,433
Net earnings	$	137,544	$	135,445	$	126,255
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	$	(40)	$	372	$	(665)
Less: reclassification adjustment for gains included in net earnings		(90)		(176)		—
Other comprehensive income (loss) - parent only	$	(130)	$	196	$	(665)
Equity in other comprehensive earnings (loss) of subsidiaries/investees		(47,479)		35,160		(6,478)
Other comprehensive earnings (loss)	$	(47,609)	$	35,356	$	(7,143)
Comprehensive earnings	$	89,935	$	170,801	$	119,112

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)	2015		2014		2013
Cash flows from operating activities
Earnings before equity in net earnings of subsidiaries	$	(922)	$	3,242	$	5,822
Adjustments to reconcile net losses to net cash provided by (used in) operating activities:
Net realized (gains) losses		(139)		(271)		850
Depreciation		237		238		90
Other items, net		530		737		(1,789)
Change in:
Affiliate balances receivable/payable		4,211		(1,453)		1,349
Federal income taxes		14,227		3,982		5,288
Stock option excess tax benefit		(11,413)		(1,766)		(6,310)
Changes in investment in unconsolidated investee:
Undistributed earnings		(9,893)		(12,009)		(10,915)
Dividends received		—		6,600		13,200
Net cash provided by (used in) operating activities	$	(3,162)	$	(700)	$	7,585
Cash flows from investing activities
Purchase of:
Fixed income, available-for-sale	$	(16,031)	$	(30,850)	$	(99,982)
Short-term investments, net		—		—		(12,963)
Property and equipment		—		—		(2,827)
Sale of:
Fixed income, available-for-sale		7,048		—		—
Short-term investments, net		91		13,217		—
Call or maturity of:
Fixed income, available-for-sale		9,507		3,235		101,000
Cash dividends received-subsidiaries		125,000		185,000		40,000
Net cash provided by investing activities	$	125,615	$	170,602	$	25,228
Cash flows from financing activities
Stock option excess tax benefit	$	11,413	$	1,766	$	6,310
Proceeds from stock option exercises		(3,364)		3,386		318
Proceeds from issuance of senior notes		—		—		149,571
Payment on senior notes		—		—		(99,504)
Debt issue costs paid		—		—		(1,437)
Cash dividends paid		(130,698)		(174,861)		(101,913)
Net cash used in financing activities	$	(122,649)	$	(169,709)	$	(46,655)
Net (decrease) increase in cash	$	(196)	$	193	$	(13,842)
Cash at beginning of year		374		181		14,023
Cash at end of year	$	178	$	374	$	181

Interest paid on outstanding debt amounted to $7.3 million, $7.0 million and $8.4 million for 2015, 2014 and 2013, respectively. See Notes to Consolidated Financial Statements. See also the accompanying report of independent registered public accounting firm on page 103 of this report.