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What changed in RLI CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RLI CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+285 added−306 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in RLI CORP's 2023 10-K

285 paragraphs added · 306 removed · 247 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

83 edited+12 added−16 removed75 unchanged
Biggest changeThe table below summarizes the composition of net premiums earned by major product. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, (in thousands) 2022 2021 2020 CASUALTY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial excess and personal umbrella ​ $ 253,921 ​ 22 % ​ $ 219,437 ​ 22 % ​ $ 178,214 ​ 21 % General liability ​ ​ 100,374 ​ 9 % ​ ​ 90,853 ​ 9 % ​ ​ 91,653 ​ 11 % Commercial transportation ​ ​ 96,992 ​ 8 % ​ ​ 83,352 ​ 8 % ​ ​ 64,624 ​ 7 % Professional services ​ ​ 95,187 ​ 9 % ​ ​ 88,855 ​ 9 % ​ ​ 85,196 ​ 10 % Small commercial ​ ​ 67,673 ​ 6 % ​ ​ 64,660 ​ 7 % ​ ​ 63,357 ​ 7 % Executive products ​ ​ 26,606 ​ 2 % ​ ​ 21,873 ​ 2 % ​ ​ 26,509 ​ 3 % Other casualty ​ ​ 71,079 ​ 6 % ​ ​ 64,609 ​ 8 % ​ ​ 59,968 ​ 7 % Total ​ $ 711,832 ​ 62 % ​ $ 633,639 ​ 65 % ​ $ 569,521 ​ 66 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PROPERTY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial property ​ $ 163,078 ​ 14 % ​ $ 107,941 ​ 11 % ​ $ 79,406 ​ 9 % Marine ​ ​ 113,208 ​ 10 % ​ ​ 97,745 ​ 10 % ​ ​ 81,852 ​ 10 % Other property ​ ​ 31,600 ​ 3 % ​ ​ 26,151 ​ 2 % ​ ​ 22,462 ​ 2 % Total ​ $ 307,886 ​ 27 % ​ $ 231,837 ​ 23 % ​ $ 183,720 ​ 21 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SURETY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 47,652 ​ 4 % ​ $ 43,738 ​ 4 % ​ $ 42,872 ​ 5 % Miscellaneous ​ ​ 45,826 ​ 4 % ​ ​ 43,982 ​ 5 % ​ ​ 42,292 ​ 5 % Contract ​ ​ 31,240 ​ 3 % ​ ​ 27,707 ​ 3 % ​ ​ 27,342 ​ 3 % Total ​ $ 124,718 ​ 11 % ​ $ 115,427 ​ 12 % ​ $ 112,506 ​ 13 % Grand total ​ $ 1,144,436 ​ 100 % ​ $ 980,903 ​ 100 % ​ $ 865,747 ​ 100 % ​ CASUALTY SEGMENT ​ Commercial Excess and Personal Umbrella ​ Our commercial excess coverage is written in excess of primary liability insurance provided by other carriers and, in some cases, in excess of primary liability written by the Company.
Biggest changeThe table below summarizes the composition of net premiums earned by major product. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, (in thousands) 2023 2022 2021 CASUALTY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial excess and personal umbrella ​ $ 286,178 ​ 22 % ​ $ 253,921 ​ 22 % ​ $ 219,437 ​ 22 % Commercial transportation ​ ​ 103,719 ​ 8 % ​ ​ 96,992 ​ 8 % ​ ​ 83,352 ​ 8 % General liability ​ ​ 103,066 ​ 8 % ​ ​ 100,374 ​ 9 % ​ ​ 90,853 ​ 9 % Professional services ​ ​ 99,596 ​ 8 % ​ ​ 95,187 ​ 9 % ​ ​ 88,855 ​ 9 % Small commercial ​ ​ 72,920 ​ 6 % ​ ​ 67,673 ​ 6 % ​ ​ 64,660 ​ 7 % Executive products ​ ​ 24,687 ​ 2 % ​ ​ 26,606 ​ 2 % ​ ​ 21,873 ​ 2 % Other casualty ​ ​ 68,180 ​ 5 % ​ ​ 71,079 ​ 6 % ​ ​ 64,609 ​ 8 % Total ​ $ 758,346 ​ 59 % ​ $ 711,832 ​ 62 % ​ $ 633,639 ​ 65 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PROPERTY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial property ​ $ 244,798 ​ 19 % ​ $ 163,078 ​ 14 % ​ $ 107,941 ​ 11 % Marine ​ ​ 129,428 ​ 10 % ​ ​ 113,208 ​ 10 % ​ ​ 97,745 ​ 10 % Other property ​ ​ 27,304 ​ 2 % ​ ​ 31,600 ​ 3 % ​ ​ 26,151 ​ 2 % Total ​ $ 401,530 ​ 31 % ​ $ 307,886 ​ 27 % ​ $ 231,837 ​ 23 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SURETY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 49,707 ​ 4 % ​ $ 47,652 ​ 4 % ​ $ 43,738 ​ 4 % Transactional ​ ​ 47,983 ​ 3 % ​ ​ 45,826 ​ 4 % ​ ​ 43,982 ​ 5 % Contract ​ ​ 36,740 ​ 3 % ​ ​ 31,240 ​ 3 % ​ ​ 27,707 ​ 3 % Total ​ $ 134,430 ​ 10 % ​ $ 124,718 ​ 11 % ​ $ 115,427 ​ 12 % Grand total ​ $ 1,294,306 ​ 100 % ​ $ 1,144,436 ​ 100 % ​ $ 980,903 ​ 100 % ​ CASUALTY SEGMENT ​ Commercial Excess and Personal Umbrella ​ Our commercial excess coverage is written in excess of primary liability insurance provided by other carriers and, in some cases, in excess of primary liability written by the Company.
We also offer general liability and package coverages through a general binding authority (GBA) group, a program in which select surplus lines producers are granted limited authority through our on-line system to bind business on behalf of the Company. ​ PROPERTY SEGMENT ​ Commercial Property ​ Our commercial property coverage consists primarily of excess and surplus lines and specialty insurance such as fire, earthquake, wind and difference in conditions (DIC), which can include earthquake, flood and collapse coverages.
We also offer general liability and package coverages through a general binding authority (GBA) group, a program in which select surplus lines producers are granted limited underwriting authority through our on-line system to bind business on behalf of the Company. ​ PROPERTY SEGMENT ​ Commercial Property ​ Our commercial property coverage consists primarily of excess and surplus lines and specialty insurance such as fire, earthquake, wind and difference in conditions (DIC), which can include earthquake, flood and collapse coverages.
Competition tends to focus less on price and more on availability, coverage, service and other value-based considerations. While specialty market exposures may have higher insurance risks than their standard admitted market counterparts, we manage these risks to achieve higher financial returns. To reach our financial and operational goals, we must have extensive knowledge of, and expertise in, our markets.
Competition tends to focus less on price and more on availability, coverage, service and other value-based considerations. While specialty market exposures may have higher insurance risks than their standard admitted market counterparts, we manage these risks to achieve superior financial returns. To reach our financial and operational goals, we must have extensive knowledge of, and expertise in, our markets.
These laws and regulations set the standards by which insurers must investigate and resolve claims; however, a private cause of action for violation is not available to claimants. These laws typically prohibit: (1) misrepresentation of policy provisions, (2) failing to adopt and act promptly when claims are presented and (3) refusing to pay claims without an investigation.
These laws and regulations set the standards by which insurers must investigate and resolve claims; however, a private cause of action for violation is not available to claimants. These laws typically prohibit: (1) misrepresentation of policy provisions, (2) failing to act promptly when claims are presented and (3) refusing to pay claims without an investigation.
Item 1. Business ​ RLI Corp. was founded in 1965. References to “the Company,” “we,” “our,” “us” or like terms refer to the business of RLI Corp. and its subsidiaries. We underwrite select property, casualty and surety products through major subsidiaries collectively known as RLI Insurance Group. We conduct operations principally through three insurance companies.
Item 1. Business ​ RLI Corp. was founded in 1965. References to “the Company,” “we,” “our,” “us” or like terms refer to the business of RLI Corp. and its subsidiaries. We underwrite select property, casualty and surety products through major subsidiaries collectively known as RLI Insurance Group. We conduct operations through three insurance companies.
The quarterly and annual financial reports filed with the states utilize statutory accounting principles (SAP) that are different from generally accepted accounting principles in the United States of America (GAAP). As a basis of accounting, SAP was developed to monitor and regulate the solvency of insurance companies.
The quarterly and annual financial reports filed with those states utilize statutory accounting principles (SAP) that are different from generally accepted accounting principles in the United States of America (GAAP). As a basis of accounting, SAP was developed to monitor and regulate the solvency of insurance companies.
The Illinois insurance holding company laws require that ordinary dividends paid by an insurance company be reported to the IDOI prior to payment of the dividend, and that extraordinary dividends may not be paid without such regulator’s prior approval (or the absence of disapproval).
The Illinois insurance holding company laws require that ordinary dividends paid by an insurance company be reported to the IDOI prior to payment of the dividend, and provide that extraordinary dividends may not be paid without such regulator’s prior approval (or the absence of disapproval).
We may be required to pay additional premium to reinstate the reinsurance limits for potential future recoveries during the same contract year. ​ Excluding catastrophe reinsurance, the table below summarizes the reinsurance treaty coverage currently in effect.
Lastly, we may be required to pay additional premium to reinstate the reinsurance limits for potential future recoveries during the same contract year. ​ Excluding catastrophe reinsurance, the table below summarizes the reinsurance treaty coverage currently in effect.
From time to time, we also write a limited amount of business under agreements with managing general agents under the direction of our product leadership. ​ We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with or furnished to the Securities and Exchange Commission (SEC) available free of charge on our website (rlicorp.com).
From time to time, we also write a limited amount of business under agreements with managing general agents under the direction of our product leadership. ​ We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with or furnished to the Securities and Exchange Commission (SEC) available free of charge on our website (http://www.rlicorp.com).
In addition, we use third-party catastrophe exposure models and an internally developed analysis to assess each risk to ensure we include an appropriate charge for assumed catastrophe risks. ​ 10 Table of Contents Catastrophe exposure modeling is inherently uncertain due to the model’s reliance on an infrequent observation of actual events, increasing the importance of capturing accurate policy coverage data.
In addition, we use third-party catastrophe exposure models and an internally developed analysis to assess each risk to ensure we include an appropriate charge for assumed catastrophe risks. ​ 9 Table of Contents Catastrophe exposure modeling is inherently uncertain due to the model’s reliance on an infrequent observation of actual events, increasing the importance of capturing accurate policy coverage data.
On a direct basis, we also assume premium on various reinsurance treaties. ​ 7 Table of Contents COMPETITION ​ Our specialty property and casualty insurance subsidiaries are part of a very competitive industry that is cyclical and historically characterized by periods of high premium rates and shortages of underwriting capacity followed by periods of severe competition and excess underwriting capacity.
On a direct basis, we also assume premium on various reinsurance treaties. ​ 6 Table of Contents COMPETITION ​ Our specialty property and casualty insurance subsidiaries are part of a very competitive industry that is cyclical and historically characterized by periods of high premium rates and shortages of underwriting capacity followed by periods of severe competition and excess underwriting capacity.
The model results are used both in the underwriting analysis of individual risks and at a corporate level for the aggregate book of catastrophe-exposed business. From both perspectives, we consider the potential loss produced by individual events that represent moderate-to-high loss potential at varying probabilities and magnitudes.
The modeled results are used both in the underwriting analysis of individual risks and at a corporate level for the aggregate book of catastrophe-exposed business. From both perspectives, we consider the potential loss produced by individual events that represent moderate-to-high loss potential at varying probabilities and magnitudes.
These risks are underwritten on an account basis and coverage is marketed through a select number of regional and national brokers with surety expertise. ​ Miscellaneous ​ Our miscellaneous surety coverage includes small bonds for businesses and individuals written through independent insurance agencies throughout the United States.
These risks are underwritten on an account basis and coverage is marketed through a select number of regional and national brokers with surety expertise. ​ Transactional ​ Our transactional surety coverage includes small bonds for businesses and individuals written through independent insurance agencies throughout the United States.
We may purchase facultative coverage in excess of the per risk limits shown. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Per Risk ​ ​ (in millions) ​ ​ ​ Renewal ​ Attachment ​ Limit ​ Maximum Product Line(s) Covered ​ Contract Type ​ Date ​ Point ​ Purchased ​ Retention * ​ General liability Excess of Loss 1/1 ​ $ 1.0 ​ $ 9.0 ​ $ 2.8 ​ Commercial excess Excess of Loss 1/1 ​ ​ 1.0 ​ ​ 9.0 ​ ​ 2.8 ​ Personal umbrella Excess of Loss 1/1 ​ ​ 1.0 ​ ​ 9.0 ​ ​ 2.8 ​ Commercial transportation Excess of Loss 1/1 ​ ​ 1.0 ​ ​ 9.0 ​ ​ 2.8 ​ Package - liability and workers' comp Excess of Loss 1/1 ​ ​ 1.0 ​ ​ 10.0 ​ ​ 4.3 ​ Workers' compensation catastrophe ​ Excess of Loss ​ 1/1 ​ ​ 11.0 ​ ​ 14.0 ​ ​ — ** Professional services - professional liability Excess of Loss 4/1 ​ ​ 1.0 ​ ​ 9.0 ​ ​ 3.3 ​ Executive products Quota Share 7/1 ​ ​ N/A ​ ​ 25.0 ​ ​ 6.3 ​ Property - risk cover Excess of Loss 1/1 ​ ​ 2.0 ​ ​ 23.0 ​ ​ 4.7 ​ Marine Excess of Loss 6/1 ​ ​ 2.5 ​ ​ 27.5 ​ ​ 2.5 ​ Surety Excess of Loss 4/1 ​ ​ 2.0 ​ ​ 73.0 ​ ​ 9.7 *** * Maximum retention includes first-dollar retention plus any co-participation we retain through the reinsurance tower. ** The workers’ compensation catastrophe treaty responds after our package liability and workers’ compensation excess of loss treaty with no additional retention. *** A limited number of commercial surety accounts are permitted to exceed the $75.0 million limit.
We may purchase facultative coverage in addition to the treaty coverages shown below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Per Risk ​ ​ (in millions) ​ ​ ​ Renewal ​ Attachment ​ Limit ​ Maximum Product Line(s) Covered ​ Contract Type ​ Date ​ Point ​ Purchased ​ Retention * ​ General liability Excess of Loss 1/1 ​ $ 1.0 ​ $ 9.0 ​ $ 2.8 ​ Commercial excess Excess of Loss 1/1 ​ ​ 1.0 ​ ​ 9.0 ​ ​ 2.8 ​ Personal umbrella Excess of Loss 1/1 ​ ​ 1.0 ​ ​ 9.0 ​ ​ 2.8 ​ Commercial transportation Excess of Loss 1/1 ​ ​ 1.0 ​ ​ 9.0 ​ ​ 2.8 ​ Package - liability and workers' compensation Excess of Loss 1/1 ​ ​ 1.0 ​ ​ 10.0 ​ ​ 4.2 ​ Workers' compensation catastrophe ​ Excess of Loss ​ 1/1 ​ ​ 11.0 ​ ​ 14.0 ​ ​ — ** Professional services - professional liability Excess of Loss 4/1 ​ ​ 1.0 ​ ​ 9.0 ​ ​ 3.3 ​ Executive products Quota Share 7/1 ​ ​ N/A ​ ​ 25.0 ​ ​ 6.3 ​ Property - risk cover Excess of Loss 1/1 ​ ​ 2.0 ​ ​ 23.0 ​ ​ 5.4 ​ Marine Excess of Loss 6/1 ​ ​ 2.5 ​ ​ 27.5 ​ ​ 2.5 ​ Surety Excess of Loss 4/1 ​ ​ 2.0 ​ ​ 73.0 ​ ​ 9.7 *** * Maximum retention includes first-dollar retention plus any co-participation we retain through the reinsurance tower. ** The workers’ compensation catastrophe treaty responds after our package liability and workers’ compensation excess of loss treaty with no additional retention. *** A limited number of commercial surety accounts are permitted to exceed the $75 million limit.
All transactions within a holding company system affecting insurers must 12 Table of Contents have fair and reasonable terms, and the insurers’ policyholders’ surplus following any transaction must be both reasonable in relation to its outstanding liabilities and adequate for its needs.
All transactions within a holding company system affecting insurers must have fair and reasonable terms, and the insurers’ policyholders’ surplus, following any transaction, must be both reasonable in relation 11 Table of Contents to its outstanding liabilities and adequate for its needs.
As of December 31, 2022, 9 percent of RLI Corp. shares were owned by insiders. ​ Diversity and Inclusion ​ We strive to cultivate an exceptional workforce to perpetuate our ownership culture, deliver excellent customer service and continue to achieve superior business results.
As of December 31, 2023, 9 percent of RLI Corp. shares were owned by insiders. ​ Diversity and Inclusion ​ We strive to cultivate an exceptional workforce to perpetuate our ownership culture, deliver excellent customer service and continue to achieve superior business results.
In developing SAP, insurance regulators were primarily concerned with assuring an insurer’s ability to pay all its current and future obligations to policyholders. ​ As part of their routine regulatory oversight process, state insurance departments conduct periodic detailed examinations, generally once every three to five years, of the books, records, accounts and operations of insurance companies that are domiciled in their states.
In developing SAP, insurance regulators were primarily concerned with assuring an insurer’s ability to pay all its current and future obligations to policyholders. 12 Table of Contents ​ As part of their routine regulatory oversight process, state insurance departments conduct periodic detailed examinations, generally once every three to five years, of the books, records, accounts and operations of insurance companies that are domiciled in their states.
As of December 31, 2022, each of our insurance company subsidiaries had RBC levels significantly in excess of the company action level RBC, defined as being 200 percent of the authorized control level RBC, which would prompt corrective action under Illinois law.
As of December 31, 2023, each of our insurance company subsidiaries had RBC levels significantly in excess of the company action level RBC, defined as being 200 percent of the authorized control level RBC, which would prompt corrective action under Illinois law.
Within the United States alone, approximately 2,600 companies actively market property and casualty coverages. Our primary competitors in the casualty segment include Arch, Aspen, Berkley, Chubb, CNA, Great American, Great West, Hartford, Hudson, James River, Kinsale, Lancer, Markel, Protective, RSUI, Sompo, Travelers, USLI and Zurich.
Within the United States alone, approximately 2,600 companies actively market property and casualty coverages. Our primary competitors in the casualty segment include AIG, Arch, Aspen, Beazley, Berkley, Chubb, CNA, Great American, Great West, Hartford, Hudson, James River, Kinsale, Lancer, Liberty, Markel, Protective, RSUI, Sompo, Travelers, USLI and Zurich.
Although the predominant exposures are located within the United States, there is some incidental international exposure written within these coverages. ​ Other Property ​ We offer specialized homeowners’ insurance, primarily homeowners’ and dwelling fire insurance through retail agents in Hawaii, as well as property coverages through our general binding authority group. ​ 6 Table of Contents SURETY SEGMENT ​ Commercial ​ We offer a large variety of commercial surety bonds for medium to large-sized businesses across a broad spectrum of industries, including the financial, healthcare as well as on and offshore energy, petrochemical and refining industries.
Although the predominant exposures are located within the United States, there is some incidental international exposure written within these coverages. ​ Other Property ​ We offer specialized homeowners’ and dwelling fire insurance through retail agents in Hawaii, as well as property coverages through our general binding authority group. ​ 5 Table of Contents SURETY SEGMENT ​ Commercial ​ We offer a variety of commercial surety bonds for medium to large-sized businesses across a broad spectrum of industries, including the financial, healthcare, as well as onshore and offshore energy, petrochemical and refining industries.
However, the ability of a ceding insurer to take credit for the reinsurance purchased from reinsurance companies is a significant component of reinsurance regulation. Typically, a ceding insurer will only enter into a reinsurance agreement if it can obtain credit against its reserves on its statutory basis financial statements for the reinsurance ceded to the reinsurer.
However, the ability of a ceding insurer to take credit for the reinsurance purchased from reinsurance companies is a significant component of reinsurance regulation. Typically, a ceding insurer will only enter into a reinsurance agreement if it can 13 Table of Contents obtain credit against its reserves on its statutory basis financial statements for the reinsurance ceded to the reinsurer.
We also offer bonds for small and emerging contractors that are reinsured through the Federal Small Business Administration. ​ MARKETING AND DISTRIBUTION ​ We distribute our coverages across the country, from our network of branch offices, primarily through wholesale and retail brokers, independent agents and carrier partners. ​ BROKERS ​ The largest volume of broker-generated premium is in our commercial property, general liability, commercial surety, executive products, commercial excess and commercial transportation coverages.
We also offer bonds for small and emerging contractors that are reinsured through the Federal Small Business Administration. ​ MARKETING AND DISTRIBUTION ​ We distribute our coverages across the country, primarily through wholesale and retail brokers, independent agents and carrier partners. ​ BROKERS ​ The largest volume of broker-generated premium is in our commercial property, general liability, commercial surety, executive products, commercial excess and commercial transportation coverages.
Other invested assets represented 1 percent of the total portfolio and include investments in low-income housing tax credit partnerships, membership stock in the Federal Home Loan Bank of Chicago and investments in private funds. The remaining 2 percent was made up of cash and short-term investments.
Other invested assets represented 1 percent of the total portfolio and include investments in low-income housing tax credit and historic tax credit partnerships, membership stock in the Federal Home Loan Bank of Chicago and investments in private funds. The remaining 5 percent was made up of cash and short-term investments.
We distribute our property and casualty insurance through locations across the country that market to wholesale and retail brokers, independent agents and carrier partners. We offer limited coverages on a direct basis to select insureds, as well as various reinsurance coverages.
We distribute our property, casualty and surety products through locations across the country that market to wholesale and retail brokers, independent agents and carrier partners. We offer limited coverages on a direct basis to select insureds, as well as various reinsurance coverages.
We have a track record of withdrawing from markets when conditions become overly adverse and offering new coverages and programs where the opportunity exists to provide needed insurance coverage with exceptional service on a profitable basis. ​ FINANCIAL STRENGTH RATINGS ​ Financial strength ratings are an important factor in establishing the competitive position of insurance companies.
We have a track record of withdrawing from markets when conditions become overly adverse and offering new coverages and programs where the opportunity exists to provide needed risk transfer with exceptional service on a profitable basis. ​ FINANCIAL STRENGTH RATINGS ​ Financial strength ratings are an important factor in establishing the relative competitive position of insurance companies.
These accounts are subject to additional levels of review and are monitored on a monthly basis. ​ At each renewal, we consider any plans to change the underlying insurance coverage we offer, as well as updated loss activity, the level of RLI Insurance Group’s surplus, changes in our risk appetite and the cost and availability of reinsurance treaties.
These accounts are subject to additional levels of review and are monitored on a monthly basis. ​ 8 Table of Contents At each renewal, we consider any plans to change the underlying insurance coverage we offer, as well as updated loss activity, the level of RLI Insurance Group’s surplus, changes in our risk appetite and the cost and availability of reinsurance.
This total represented 12 percent of cash and investments, compared to 5 percent at year-end 2021. ​ REGULATION ​ STATE REGULATION ​ As an insurance holding company, we and our insurance company subsidiaries, are subject to regulation by the states and territories in which the insurance subsidiaries are domiciled or transact business.
This total represented 9 percent of cash and investments, compared to 12 percent at year-end 2022. ​ REGULATION ​ STATE REGULATION ​ As an insurance holding company, we and our insurance company subsidiaries, are subject to regulation by the states and territories in which the insurance subsidiaries are domiciled or transact business.
Many of these risks are unique and hard to place in the standard admitted market, but for marketing and regulatory reasons, they must remain with an admitted insurance company.
Many of these risks are unique and harder to place than in the standard admitted market, but for marketing and regulatory reasons, they must remain with an admitted insurance company.
Based on the catastrophe reinsurance treaty purchased on January 1, 2023, there is a 99.6 percent likelihood that the net loss will be less than 10.8 percent of policyholders’ statutory surplus as of December 31, 2022.
Based on the catastrophe reinsurance treaty purchased on January 1, 2024, there is a 99.6 percent likelihood that the net loss will be less than 8.0 percent of policyholders’ statutory surplus as of December 31, 2023.
As of December 31, 2022, 81 percent of the fixed income portfolio was rated A or better and 61 percent was rated AA or better. ​ We classify all of the securities in our fixed income portfolio as available-for-sale, which are carried at fair value.
As of December 31, 2023, 81 percent of the fixed income portfolio was rated A or better and 58 percent was rated AA or better. ​ We classify all of the securities in our fixed income portfolio as available-for-sale, which are carried at fair value.
The difference between the combined ratio and 100 reflects the per dollar rate of underwriting income or loss, with ratios below 100 indicating underwriting profit and ratios above 100 indicating underwriting loss. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 2019 2018 Loss ratio 44.9 46.5 51.2 49.3 54.1 Expense ratio 39.5 40.3 40.8 42.6 40.6 Combined ratio 84.4 86.8 92.0 91.9 94.7 ​ We also calculate the statutory combined ratio, which is not indicative of underwriting income due to accounting for policy acquisition costs differently for statutory accounting purposes.
The difference between the combined ratio and 100 reflects the per dollar rate of underwriting income or loss, with ratios below 100 indicating underwriting profit and ratios above 100 indicating underwriting loss. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 2020 2019 Loss ratio 46.7 44.9 46.5 51.2 49.3 Expense ratio 39.9 39.5 40.3 40.8 42.6 Combined ratio 86.6 84.4 86.8 92.0 91.9 ​ We also calculate the statutory combined ratio, which is not indicative of underwriting income due to accounting for policy acquisition costs differently for statutory accounting purposes, but is a standardized industry measure.
Comparatively, based on the catastrophe reinsurance treaty purchased on January 1, 2022, there was a 99.6 percent likelihood that the net loss would have been less than 4.6 percent of policyholders’ statutory surplus as of December 31, 2021.
Comparatively, based on the catastrophe reinsurance treaty purchased on January 1, 2023, there was a 99.6 percent likelihood that the net loss would have been less than 10.8 percent of policyholders’ statutory surplus as of December 31, 2022.
While the NAIC provides this general guideline, rating agencies often require a more conservative ratio to maintain strong or superior ratings. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (dollars in thousands) 2022 2021 2020 2019 2018 Statutory net premiums written ​ $ 1,241,536 ​ $ 1,057,533 ​ $ 892,088 ​ $ 860,337 ​ $ 823,175 Policyholders’ surplus ​ ​ 1,407,925 ​ 1,240,649 ​ 1,121,592 ​ 1,029,671 ​ 829,775 Ratio ​ ​ 0.9 to 1 ​ 0.9 to 1 ​ 0.8 to 1 ​ 0.8 to 1 ​ 1.0 to 1 ​ COMBINED RATIO AND STATUTORY COMBINED RATIO ​ Our underwriting experience is best indicated by our combined ratio, which is the sum of (a) the ratio of incurred losses and settlement expenses to net premiums earned (loss ratio) and (b) the ratio of policy acquisition costs and other operating expenses to net premiums earned (expense ratio).
While the NAIC provides this general guideline, rating agencies often require a more conservative ratio to maintain strong or superior ratings. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (dollars in thousands) 2023 2022 2021 2020 2019 Statutory net premiums written ​ $ 1,427,747 ​ $ 1,241,536 ​ $ 1,057,533 ​ $ 892,088 ​ $ 860,337 Policyholders’ surplus ​ ​ 1,520,135 ​ 1,407,925 ​ 1,240,649 ​ 1,121,592 ​ 1,029,671 Ratio ​ ​ 0.9 to 1 ​ 0.9 to 1 ​ 0.9 to 1 ​ 0.8 to 1 ​ 0.8 to 1 ​ COMBINED RATIO AND STATUTORY COMBINED RATIO ​ Our underwriting experience is best indicated by our combined ratio, which is the sum of (a) the ratio of incurred loss and settlement expenses to net premiums earned (loss ratio) and (b) the ratio of policy acquisition costs and insurance operating expenses to net premiums earned (expense ratio).
Executive oversight for human capital is provided by the Company’s Vice President of Human Resources, who reports to the President & CEO.
Executive oversight for human capital is provided by the Company’s Vice President of Human Resources, who reports to the 14 Table of Contents President & CEO.
For 2022, our specialty reinsurance operations wrote gross premiums of $31.7 million, representing approximately 2 percent of our total gross premiums written for the year. ​ BUSINESS SEGMENT OVERVIEW ​ The segments of our insurance operations are casualty, property and surety. For additional information, see note 12 to the consolidated financial statements within Item 8, Financial Statements and Supplementary Data.
For 2023, our specialty reinsurance operations wrote gross premiums of $21 million, representing approximately 1 percent of our total gross premiums written for the year. ​ BUSINESS SEGMENT OVERVIEW ​ The segments of our insurance operations are casualty, property and surety. For additional information, see note 12 to the consolidated financial statements within Item 8, Financial Statements and Supplementary Data.
Examples of these types of bonds are license and permit, notary and court bonds. The underwriting and delivery of these bonds is highly automated. ​ Contract ​ We offer bonds for small to medium-sized contractors throughout the United States, underwritten on an account basis. Typically, these are performance and payment bonds for individual construction contracts.
Examples of these types of bonds are license and permit, notary and court bonds. The underwriting and delivery of these bonds is highly automated. ​ Contract ​ We offer bonds for small to medium-sized contractors throughout the United States, underwritten on an account basis.
We solicit employee feedback to help ensure employees are engaged, feel valued and are contributing to our success. ​ As of December 31, 2022, the Company employed 1,001 associates throughout the United States and the average employee tenure was 9.2 years.
We solicit employee feedback to help ensure employees are engaged, feel valued and are contributing to our success. ​ The Company employed 1,099 associates throughout the United States as of December 31, 2023, compared to 1,001 as of December 31, 2022, and the average employee tenure was 8.8 years.
RLI Ins., our principal insurance company subsidiary, had an authorized control level RBC of $249.7 million compared to actual statutory capital and surplus of $1.4 billion as of December 31, 2022, resulting in statutory capital that is more than five times the authorized control level.
RLI Ins., our principal insurance company subsidiary, had an authorized control level RBC of $273 million compared to actual statutory capital and surplus of $1.5 billion as of December 31, 2023, resulting in statutory capital that is more than five times the authorized control level.
The combination of coverages, service, pricing and other methods of competition vary from line to line. Our principal methods of meeting this competition are innovative coverages, consistency and quality service to the agents and policyholders, at a fair price.
The combination of coverages, service, pricing and other methods of competition vary from line to line. Our principal methods of meeting this competition are innovative coverages, quality and consistent service to the agents and policyholders, and fair pricing.
With respect to U.S. domiciled ceding companies, credit is usually granted when the reinsurer is licensed, accredited or certified in the state where the ceding company is domiciled.
With respect to U.S. domiciled ceding companies, credit is usually granted when the reinsurer is licensed, accredited, certified or identified as a reciprocal jurisdiction reinsurer in the state where the ceding company is domiciled.
Primary competitors in the property segment include AmRisc, Arch, Chubb, CNA, Golden Bear, Lexington, Liberty Mutual, Palomar, RSUI, Sompo, Travelers and Velocity. Primary competitors in the surety segment are Arch, Chubb, CNA, Great American, Hartford, Intact, Liberty Mutual, Markel, Merchants, Philadelphia, Sompo, Swiss Re, Travelers and Zurich.
Primary competitors in the property segment include AmRisc, Arch, Arrowhead, CNA, Golden Bear, Lexington, Liberty Mutual, Markel, Palomar, RSUI, Special Risk Underwriters, Travelers, Velocity and Westchester. Primary competitors in the surety segment are AIG, Arch, Beazley, Berkley, Chubb, CNA, Great American, Hartford, Intact, Liberty Mutual, Markel, Merchants, Philadelphia, Sompo, Swiss Re, Travelers and Zurich.
We compete favorably, in part, because of our sound financial condition and reputation, as well as our broad, geographic footprint in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. In the casualty, property and surety areas, we have experienced underwriting and claim specialists in our branch and home offices.
We compete favorably, in part, because of our sound financial condition and reputation, as well as our broad, geographic footprint in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. In all segments, we have experienced underwriting and claim specialists.
For 2022, our specialty admitted operations produced gross premiums written of $916.0 million, representing approximately 59 percent of our total gross premiums for the year. ​ EXCESS AND SURPLUS INSURANCE MARKET ​ The excess and surplus market focuses on hard-to-place risks.
For 2023, our specialty admitted operations produced gross premiums written of $992 million, representing approximately 55 percent of our total gross premiums for the year. ​ EXCESS AND SURPLUS INSURANCE MARKET ​ The excess and surplus market focuses on hard-to-place risks.
In the last 9 Table of Contents renewal cycle, we increased attachment points on property reinsurance structures and increased co-participations within the ceded layers of property and casualty structures. ​ PROPERTY REINSURANCE — CATASTROPHE COVERAGE ​ Our property catastrophe reinsurance reduces the financial impact of a catastrophe event involving multiple claims and policyholders, including earthquakes, hurricanes, floods, convective storms and certain other aggregating events.
In the last renewal cycle, we increased co-participations within the ceded layers of the property reinsurance structure. ​ PROPERTY REINSURANCE — CATASTROPHE COVERAGE ​ Our property catastrophe reinsurance reduces the financial impact of a catastrophe event involving multiple claims and policyholders, including earthquakes, hurricanes, floods, wildfires, convective storms and certain other aggregating events.
For an expanded discussion of the impact of reinsurance on our operations, see note 5 to the consolidated financial statements within Item 8, Financial Statements and Supplementary Data. 8 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2022 2021 2020 PREMIUMS WRITTEN ​ ​ ​ ​ ​ ​ ​ ​ ​ Direct and Assumed ​ $ 1,565,486 ​ $ 1,347,354 ​ $ 1,136,432 Reinsurance ceded ​ ​ (323,950) ​ ​ (289,821) ​ ​ (244,344) Net ​ $ 1,241,536 ​ $ 1,057,533 ​ $ 892,088 PREMIUMS EARNED ​ ​ ​ ​ ​ ​ ​ ​ ​ Direct and Assumed ​ $ 1,460,845 ​ $ 1,253,296 ​ $ 1,090,259 Reinsurance ceded ​ ​ (316,409) ​ ​ (272,393) ​ ​ (224,512) Net ​ $ 1,144,436 ​ $ 980,903 ​ $ 865,747 ​ Reinsurance is subject to certain risks, specifically market risk, which affects the cost and ability to secure reinsurance contracts, and credit risk, which is the risk that our reinsurers may not pay on losses in a timely fashion or at all.
For an expanded discussion of the impact of reinsurance on our operations, see note 5 to the consolidated financial statements within Item 8, Financial Statements and Supplementary Data. 7 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2023 2022 2021 PREMIUMS WRITTEN ​ ​ ​ ​ ​ ​ ​ ​ ​ Direct and Assumed ​ $ 1,806,660 ​ $ 1,565,486 ​ $ 1,347,354 Reinsurance ceded ​ ​ (378,913) ​ ​ (323,950) ​ ​ (289,821) Net ​ $ 1,427,747 ​ $ 1,241,536 ​ $ 1,057,533 PREMIUMS EARNED ​ ​ ​ ​ ​ ​ ​ ​ ​ Direct and Assumed ​ $ 1,699,419 ​ $ 1,460,845 ​ $ 1,253,296 Reinsurance ceded ​ ​ (405,113) ​ ​ (316,409) ​ ​ (272,393) Net ​ $ 1,294,306 ​ $ 1,144,436 ​ $ 980,903 ​ Reinsurance is subject to certain risks, specifically market risk, which affects the cost and ability to secure reinsurance contracts, and credit risk, which is the risk that our reinsurers may not pay on losses in a timely fashion or at all.
Examinations are generally carried out in cooperation with the insurance departments of other, non-domiciliary states under guidelines promulgated by the NAIC. The most recent examination report of our insurance company subsidiaries completed by the IDOI was issued on November 27, 2018, for the five-year period ending December 31, 2017. The examination report is available to the public.
Examinations are generally carried out in cooperation with the insurance departments of other, non-domiciliary states under guidelines promulgated by the NAIC. The most recent examination report of our insurance company subsidiaries completed by the IDOI was issued on December 29, 2023, for the five-year period ending December 31, 2022.
We write contracts on an excess of loss and a proportional basis. Contract provisions are written and agreed upon between the company and its reinsurance clients. The business is typically more volatile as a result of unique underlying exposures and excess and aggregate attachments.
Contract provisions are written and agreed upon between the company and its reinsurance clients. The business is typically more volatile as a result of unique underlying exposures and excess and aggregate attachments.
The fixed income portfolio was 82 percent of the total portfolio, up 6 percent from the prior year, while the equity allocation was 15 percent of the overall portfolio, down 4 percent from the previous year.
The fixed income portfolio was 78 percent of the total portfolio, down 4 percent from the prior year, while the equity allocation was 16 percent of the overall portfolio, up 1 percent from the previous year.
The statutory combined ratio is the sum of (a) the ratio of statutory loss and settlement expenses incurred to statutory net premiums earned (loss ratio) and (b) the ratio of statutory policy acquisition costs and other underwriting expenses to statutory net premiums written (expense ratio). ​ 11 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Statutory 2022 2021 2020 2019 2018 Statutory loss ratio 44.9 ​ 46.5 ​ 51.0 ​ 49.3 ​ 54.1 ​ Statutory expense ratio 38.3 ​ 38.8 ​ 40.8 ​ 41.8 ​ 39.9 ​ Statutory combined ratio 83.2 ​ 85.3 ​ 91.8 ​ 91.1 ​ 94.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ P&C industry combined ratio 107.4 * 99.7 ** 98.8 ** 98.9 ** 99.2 ** * Source: Conning (2022).
The statutory combined ratio is the sum of (a) the ratio of statutory loss and loss adjustment expenses incurred to statutory net premiums earned (loss ratio), (b) the ratio of statutory other underwriting expenses incurred to statutory net premiums written (expense ratio) and (c) the ratio of policyholder dividends to statutory net premiums earned (policyholder dividend ratio). ​ 10 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Statutory 2023 2022 2021 2020 2019 Statutory loss ratio 46.7 ​ 44.9 ​ 46.5 ​ 51.0 ​ 49.3 ​ Statutory expense ratio 37.7 ​ 38.3 ​ 38.8 ​ 40.8 ​ 41.8 ​ Statutory combined ratio 84.4 ​ 83.2 ​ 85.3 ​ 91.8 ​ 91.1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ P&C industry combined ratio 102.2 * 102.7 ** 99.7 ** 98.8 ** 98.9 ** * Source: Conning (2023).
At high rates of return, we grow the book of business and may purchase additional reinsurance to increase our capacity. As the rate of return decreases, we may reduce exposure and may purchase less reinsurance as this capacity becomes unnecessary.
At high rates of return, we grow the book of business and may purchase additional reinsurance to increase our capacity. As the rate of return decreases, we may reduce exposure and may purchase less reinsurance as this capacity becomes unnecessary. Our reinsurance coverage for 2022 through 2024 are shown in the table below.
Publications of AM Best, Standard & Poor’s and Moody’s indicate that A and A+ ratings are assigned to those companies that, in their opinion, have a superior ability to meet ongoing insurance obligations, a strong capacity to meet financial commitments or a low credit risk, respectively.
Publications of AM Best, Standard & Poor’s and Moody’s indicate that A and A+ ratings are assigned to those companies that, in their opinion, have a superior ability to meet ongoing insurance obligations, a strong capacity to meet financial commitments or a low credit risk, respectively. ​ At December 31, 2023, the following ratings were assigned to our insurance companies and represent affirmations of previously assigned ratings: ​ ​ ​ ​ AM Best ​ RLI Ins., Mt.
In 2017, the New York State Department of Financial Services (NYDFS) enacted a cybersecurity regulation.
For example, the New York State Department of Financial Services (NYDFS) enacted a comprehensive cybersecurity regulation in 2017, and revised the regulation in 2023.
Our excess and surplus operations wrote gross premiums of $617.8 million, or 39 percent, of our total gross premiums written in 2022. ​ 4 Table of Contents SPECIALTY REINSURANCE MARKET ​ We write business in the specialty reinsurance market. This business is generally written on a portfolio (treaty) basis.
Our excess and surplus operations wrote gross premiums of $794 million, or 44 percent, of our total gross premiums written in 2023. ​ 3 Table of Contents SPECIALTY REINSURANCE MARKET ​ The business we write in the specialty reinsurance market is generally written on a portfolio basis. We write contracts on an excess of loss and a proportional basis.
We prefer to utilize our own underwriting, claims and support staff, given the complex nature of our products. 15 Table of Contents The niche markets we operate within require unique experience and deep knowledge to select appropriate risks and serve our customers.
We prefer to utilize our own underwriting, claims and support staff, given the complex nature of our products. The niche markets we operate within require unique experience and deep knowledge to select appropriate risks and serve our customers. Ensuring a seamless transfer of knowledge as employees retire and developing newer talent continues to be a focus of the Company.
Participating in this market allows the Company to underwrite non-standard risks with more flexible policy forms and unregulated premium rates. This typically results in coverages that are more restrictive and more expensive than in the standard admitted market. The excess and surplus lines environment and production model effectively filter submission flow and match market opportunities to our expertise and appetite.
Participating in this market allows the Company to underwrite non-standard risks with more flexible policy forms and unregulated premium rates. This typically results in coverages that are more restrictive and, in many cases, more expensive than in the standard admitted market.
We assume no obligation to update any such statements. You should review the various risks, uncertainties and other factors listed from time to time in our Securities and Exchange Commission filings. ​ 16 Table of Contents
You should review the various risks, uncertainties and other factors listed from time to time in our Securities and Exchange Commission filings. ​
These ratings are based on factors relevant to policyholders, agents, insurance brokers and intermediaries and are not specifically related to securities issued by the company. ​ At December 31, 2022, the following ratings were assigned to our insurance companies: ​ ​ ​ ​ AM Best ​ RLI Ins., Mt.
These ratings are based on factors relevant to policyholders, agents, insurance brokers and intermediaries and are not specifically related to securities issued by the company.
These bonds are marketed through a select number of insurance agencies that have surety and construction expertise.
Typically, these are performance and payment bonds that guarantee commercial contractors’ contractual obligations for a specific construction project. These bonds are marketed through a select number of insurance agencies that have surety and construction expertise.
Ensuring a seamless transfer of knowledge as employees retire and developing newer talent continues to be a focus of the Company. We enable employees to maintain and expand their industry knowledge and technical expertise through education and training, as well as through memberships in industry and trade associations.
We enable employees to maintain and expand their industry knowledge and technical expertise through education and training, as well as through memberships in industry and trade associations.
In 2022, the Company provided responses for reporting year 2021 which may be accessed on the California Department of Insurance’s website. 14 Table of Contents ​ The rates, policy terms and conditions of reinsurance agreements generally are not subject to regulation by any regulatory authority.
The Company’s 2023 survey response, for calendar year 2022, can be accessed on the California Department of Insurance website. ​ The rates, policy terms and conditions of reinsurance agreements generally are not subject to regulation by any regulatory authority.
According to AM Best, the excess and surplus market represents less than 10 percent of the entire domestic property and casualty industry, as measured by direct premiums written.
The excess and surplus lines environment and production model effectively filter submission flow and match market opportunities to our expertise and appetite. The excess and surplus market represented less than 10 percent of the entire domestic property and casualty industry as of December 31, 2022, according to AM Best and as measured by direct premiums written.
Our product suite for these customers also includes a full array of multi-peril package products including general liability, property, automobile, excess liability and workers’ compensation coverages.
Our product suite for these customers also includes a full array of multi-peril package products including general liability, property, automobile, excess liability and workers’ compensation coverages. This business primarily markets its products through specialty retail agents nationwide. ​ Small Commercial ​ Our small commercial business offers property and casualty insurance coverages for small to mid-sized contractors.
An exam for the five-year period ending December 31, 2022 will be conducted in 2023. ​ Each of our insurance company subsidiaries is subject to Illinois laws and regulations that impose restrictions on the amount and type of investments our insurance company subsidiaries may have.
The examination report is available to the public. ​ Each of our insurance company subsidiaries is subject to Illinois laws and regulations that impose restrictions on the amount and type of investments our insurance company subsidiaries may have.
The largest losses shown above are possible, but have a lower probability of actually occurring. However, there is a remote chance that a larger event could occur. If the actual event losses are larger than anticipated, we could retain additional losses above the limit of our catastrophe reinsurance. ​ We regularly monitor and quantify our exposure to catastrophes.
Reinsurance limits are purchased based on the anticipated losses from large events. The largest losses shown above are possible, but have a lower probability of actually occurring. However, there is a remote chance that a larger event could occur.
We expect our Group Capital calculation to be well over any regulatory minimum threshold. ​ 13 Table of Contents Each of our insurance company subsidiaries is required to file detailed annual reports, including financial statements, in accordance with prescribed statutory accounting rules, with regulatory officials in the jurisdictions in which they conduct business.
The calculation of RBC requires certain judgments to be made, and, accordingly, each of our insurance company subsidiaries’ current RBC may be greater or less than the RBC calculated as of any date of determination. ​ Each of our insurance company subsidiaries is required to file detailed annual reports, including financial statements, in accordance with prescribed statutory accounting rules, with regulatory officials in the jurisdictions in which they conduct business.
In the normal course of business, we manage our concentrations of exposures to catastrophic events, primarily by limiting concentrations of locations insured to acceptable levels and by purchasing reinsurance. Exposure and coverage detail is recorded for each risk location. We quantify and monitor the total policy limit insured in each geographical region.
Exposure and coverage detail is recorded for each risk location. We quantify and monitor the total policy limit insured in each geographical region.
The carriers place the business with us through their associated agencies when the underlying risk does not meet their underwriting appetite. ​ DIGITAL AND DIRECT ​ We utilize digital efforts to produce and efficiently process and service business including home business, general binding authority, small commercial and personal umbrella risks and surety bonding.
The underwriting agreements involve strict underwriting guidelines and the agents are subject to regular audits. ​ DIGITAL AND DIRECT ​ We utilize digital efforts to produce and efficiently process and service business including home business, general binding authority, small commercial and personal umbrella risks and surety bonding.
The independent agent cannot bind the risk unless they receive approval from our underwriters or through our automated systems. ​ UNDERWRITING AGENTS ​ We contract with certain underwriting agencies, which have limited authority to bind or underwrite business on our behalf.
The carriers place the business with us through their associated agencies when the underlying risk does not meet their underwriting appetite. ​ UNDERWRITING AGENTS ​ We contract with certain underwriting agencies, which have limited authority to bind or underwrite business on our behalf.
This regulation requires banks, insurance companies and other financial services institutions regulated by the NYDFS to establish and maintain a cybersecurity program “designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry.” We have implemented the requirements of the regulation and are in compliance with it. ​ The NAIC adopted the Insurer Climate Risk Disclosure Data Survey to provide regulators with information about the assessment of risks posed by climate change to insurers and the actions insurers are taking in response to their understanding of climate change risks.
This regulation requires banks, insurance companies and other financial services institutions regulated by the NYDFS to establish and maintain a cybersecurity program “designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry.” Other states have enacted similar regulations.
Despite periodic fluctuations in market value, our equity portfolio is part of a long-term asset allocation strategy and has contributed significantly to our growth in book value over time. Our portfolio does not contain derivatives. ​ Investment portfolios are managed both internally and externally by experienced portfolio managers.
In addition, we have a diversified investment portfolio that distributes credit risk across many issuers and an investment policy that limits aggregate credit exposure. Despite periodic fluctuations in market value, our equity portfolio is part of a long-term asset allocation strategy and has contributed significantly to our growth in book value over time.
Our publicly traded D&O appetite generally focuses on offering excess Side A D&O coverage (where corporations cannot indemnify the individual directors and officers) as well as excess full coverage D&O.
Our publicly traded D&O appetite generally focuses on offering excess Side A D&O coverage (where corporations cannot indemnify the individual directors and officers) as well as excess full coverage D&O. ​ Other Casualty ​ We offer a variety of other smaller products in our casualty segment, including home business insurance, which provides limited liability and property coverage for a variety of small business owners who work from their own home.
These statements relate to our current expectations, beliefs, intentions, goals or strategies regarding the future and are based on certain underlying assumptions by the Company. These forward looking statements generally include words such as “expect,” “predict,” “estimate,” “will,” “should,” “anticipate,” “believe” and similar expressions.
These forward looking statements generally include words such as “expect,” “predict,” “estimate,” “will,” “should,” “anticipate,” “believe” and similar expressions.
Aggregate maturities for the fixed income portfolio as of December 31, 2022, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Fair Value Due in one year or less ​ $ 332,951 ​ $ 331,761 Due after one year through five years ​ ​ 916,676 ​ ​ 873,530 Due after five years through 10 years ​ ​ 522,104 ​ ​ 474,025 Due after 10 years ​ ​ 523,729 ​ ​ 415,092 ABS/CMBS/MBS* ​ ​ 649,813 ​ ​ 572,542 Total available-for-sale ​ $ 2,945,273 ​ $ 2,666,950 * Asset-backed, commercial mortgage-backed and mortgage-backed securities ​ We had cash and fixed income securities maturing within one year of $390.9 million at year-end 2022.
Aggregate maturities for the fixed income portfolio as of December 31, 2023, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Fair Value Due in one year or less ​ $ 157,831 ​ $ 156,463 Due after one year through five years ​ ​ 904,769 ​ ​ 874,375 Due after five years through 10 years ​ ​ 674,761 ​ ​ 654,068 Due after 10 years ​ ​ 548,021 ​ ​ 464,476 ABS/CMBS/MBS* ​ ​ 769,009 ​ ​ 706,467 Total available-for-sale ​ $ 3,054,391 ​ $ 2,855,849 * Asset-backed, commercial mortgage-backed and mortgage-backed securities ​ We had cash and fixed income securities maturing within one year of $328 million at year-end 2023.
We also offer incidental 5 Table of Contents related insurance coverages including general liability, excess liability and motor truck cargo. We produce business through independent agents and brokers nationwide. ​ Professional Services ​ We offer professional liability coverages focused on providing errors and omission coverage for small to medium-sized design, technical, computer and other miscellaneous professionals.
We also offer incidental related insurance coverages including general liability, excess liability and motor truck cargo. We produce business through independent agents and brokers nationwide. ​ 4 Table of Contents General Liability ​ Our general liability business consists primarily of coverage for third-party liability of commercial insureds including manufacturers, contractors, apartments and mercantile.
Aggregate & Averages – Property/Casualty, United States & Canada . 2018 – 2021. ​ INVESTMENTS ​ Our investment portfolio serves as a resource for loss payments and secondarily as a source of income to support operations. Our investment strategy is based on preservation of capital as the first priority, with a secondary focus on growing book value through total return.
Our investment strategy is based on preservation of capital as the first priority, with a secondary focus on growing book value through total return. Investments of the highest quality and marketability are critical for preserving our claims-paying ability.
As of December 31, 2022, the policyholders’ statutory surplus of RLI Insurance Group totaled $1.4 billion, which results in AM Best’s financial size category of XIII (adjusted policyholders’ surplus of between $1.25 billion and $1.5 billion). ​ REINSURANCE ​ In the ordinary course of business, we rely on other insurance companies to share risks through reinsurance, paying or ceding to the reinsurer a portion of the premiums received on such policies.
Hawley A2 * CBIC is only rated by AM Best ​ REINSURANCE ​ In the ordinary course of business, we rely on other insurance companies to share risks through reinsurance, paying or ceding to the reinsurer a portion of the premiums received on such policies.
Property-Casualty Forecast & Analysis: By Line of Insurance, Fourth Quarter 2022. Estimated for the year ended December 31, 2022. ​ ** Source: AM Best (2022).
Property-Casualty Forecast & Analysis: By Line of Business, Fourth Quarter 2023. Estimated for the year ended December 31, 2023. ** Source: AM Best (2023). Aggregate & Averages – Property/Casualty, United States & Canada . 2019 – 2022. ​ INVESTMENTS ​ Our investment portfolio serves as a resource for loss payments and secondarily as a source of income to support operations.
Over the past five years, the comparative net loss each year at a 99.6 percent likelihood ranged from 4.6 percent of surplus to 16.2 percent of surplus.
The comparable metric over the past five years, as measured at the beginning of each of those treaty years, has ranged from 4.6 percent of surplus to 15.1 percent of surplus.
We also offer coverages for security guards and in the specialized areas of onshore energy-related businesses and environmental liability for underground storage tanks, contractors and asbestos and environmental remediation specialists. ​ Commercial Transportation ​ Our transportation insurance provides commercial automobile liability and physical damage insurance to local, intermediate and long-haul truckers, public transportation entities and other types of specialty commercial automobile risks.
The personal umbrella coverage is generally written in excess of homeowners’ and automobile liability coverage provided by other carriers. ​ Commercial Transportation ​ Our transportation insurance provides commercial automobile liability and physical damage insurance to local, intermediate and long-haul truckers, public transportation entities and other types of specialty commercial automobile risks.
Hawley and CBIC* (group-rated) A+, Superior Standard & Poor’s ​ ​ RLI Ins. and Mt. Hawley A, Strong Moody’s ​ ​ RLI Ins. and Mt. Hawley A2 * CBIC is only rated by AM Best ​ For AM Best, Standard & Poor’s and Moody’s, the financial strength ratings represented above are affirmations of previously assigned ratings.
Hawley and CBIC* (group-rated) A+, Superior Standard & Poor’s ​ ​ RLI Ins. and Mt. Hawley A, Strong Moody’s ​ ​ RLI Ins. and Mt.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe, as well as our business partners and service providers, employ measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, continuous monitoring of information technology networks and systems and maintenance of backup and protective systems).
Biggest changeWe, as well as our business partners and service providers, employ measures to prevent, detect, address, mitigate and recover from these threats (including employee training, access controls, data encryption, vulnerability assessments, continuous monitoring of information technology networks and systems and maintenance of backup and protective systems). 22 Table of Contents However, cyber security incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.
Hawley and CBIC (group-rated). Standard & Poor’s reaffirmed our rating for the group of RLI Ins. and Mt. Hawley of A. Moody’s reaffirmed our group rating of A2 for RLI Ins. and Mt. Hawley.
Hawley and CBIC (group-rated). Standard & Poor’s reaffirmed our A rating for the group of RLI Ins. and Mt. Hawley. Moody’s reaffirmed our group rating of A2 for RLI Ins. and Mt. Hawley.
These regulations, generally administered by a department of insurance in each state and territory in which we do business, relate to, among other things: ​ ● Approval of policy forms and premium rates, ​ ● Standards of solvency, including risk-based capital measurements, 18 Table of Contents ​ ● Licensing of insurers and their producers, ​ ● Restrictions on agreements with our large revenue-producing agents, ​ ● Cancellation and non-renewal of policies, ​ ● Restrictions on the nature, quality and concentration of investments, ​ ● Restrictions on the ability of our insurance company subsidiaries to pay dividends to the Company, ​ ● Restrictions on transactions between insurance company subsidiaries and their affiliates, ​ ● Restrictions on the size of risks insurable under a single policy, ​ ● Requiring deposits for the benefit of policyholders, ​ ● Requiring certain methods of accounting, ​ ● Periodic examinations of our operations and finances, ​ ● Prescribing the form and content of records of financial condition required to be filed and ​ ● Requiring reserves for unearned premium, losses and other purposes. ​ These regulatory requirements may adversely affect or inhibit our ability to achieve some or all of our business objectives. ​ In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations.
These regulations, generally administered by a department of insurance in each state and territory in which we do business, relate to, among other things: ​ ● Approval of policy forms and premium rates, ​ ● Standards of solvency, including risk-based capital measurements, ​ ● Licensing of insurers and their producers, ​ ● Restrictions on agreements with our large revenue-producing agents, ​ ● Cancellation and non-renewal of policies, ​ ● Restrictions on the nature, quality and concentration of investments, ​ ● Restrictions on the ability of our insurance company subsidiaries to pay dividends to the Company, ​ ● Restrictions on transactions between insurance company subsidiaries and their affiliates, 17 Table of Contents ​ ● Restrictions on the size of risks insurable under a single policy, ​ ● Requiring deposits for the benefit of policyholders, ​ ● Requiring certain methods of accounting, ​ ● Periodic examinations of our operations and finances, ​ ● Prescribing the form and content of records of financial condition required to be filed and ​ ● Requiring reserves for unearned premium, losses and other purposes. ​ These regulatory requirements may adversely affect or inhibit our ability to achieve some or all of our business objectives. ​ In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations.
Any of these systems may be exposed to unplanned interruption, unreliability or intrusion from a variety of causes, including among others, storms and other natural disasters, terrorist attacks, utility outages or complications encountered as existing systems are replaced or upgraded. ​ Any such issues could materially impact our company, including the impairment of information availability, compromise of system integrity/accuracy, misappropriation of confidential information, reduction of our volume of transactions and interruption of our general business.
Any of these systems may be exposed to unplanned interruption, unreliability or intrusion from a variety of causes, including among others, storms and other natural disasters, terrorist attacks, cyber attacks, utility outages or complications encountered as existing systems are replaced or upgraded. ​ Any such issues could materially impact our company, including the impairment of information availability, compromise of system integrity/accuracy, misappropriation of confidential information, reduction of our volume of transactions and interruption of our general business.
The effects on the Company could include: ​ ● Changes in the frequency, severity and location of weather-related catastrophes, which may result in higher levels of losses, ​ ● Additional uncertainty in third party catastrophe models, which could impair our ability to assess exposure and adequately price the catastrophe risks we insure, ​ ● Flooding of coastal property, resulting from rising sea levels, making certain geographic areas uninhabitable, reducing demand for insurance products we offer in those areas, ​ ● Increased losses from weather-related catastrophes may make it more difficult to obtain reinsurance at desired levels, or more expensive to acquire reinsurance coverage, which may reduce the amount of business we write and the revenues we generate, ​ ● A transition from carbon-based energy to other sources of energy may decrease demand for insurance coverage we provide to the industries that produce or use carbon-based energy, decrease the availability of reinsurance available for coverages we provide for those industries, or increase claims and losses related to those industries, any of which could affect our profitability, ​ ● Changes in legislation, regulation and court decisions could increase our compliance costs, impose liability on policyholders that we did not contemplate when we underwrote policies, or limit our ability to sell insurance coverage to certain policyholders and ​ ● Losses on our invested assets that could have a material adverse impact on our results of operations and financial condition. ​ Our reinsurers may not pay on losses in a timely fashion, or at all, which may increase our costs and have an adverse effect on our business. ​ We purchase reinsurance to transfer part of the risk we have assumed (known as ceding) to a reinsurance company in exchange for part of the premium we receive in connection with the risk.
The effects on the Company could include: ​ ● Changes in the frequency, severity and location of weather-related catastrophes, which may result in higher levels of losses, ​ ● Additional uncertainty in third party catastrophe models, which could impair our ability to assess exposure and adequately price the catastrophe risks we insure, ​ ● Flooding of coastal property, resulting from rising sea levels, making certain geographic areas uninhabitable, reducing demand for insurance products we offer in those areas, ​ ● Increased losses from weather-related catastrophes may make it more difficult to obtain reinsurance at desired levels, or more expensive to acquire reinsurance coverage, which may reduce the amount of business we write and the revenues we generate, ​ ● A transition from carbon-based energy to other sources of energy may decrease demand for insurance coverage we provide to the industries that produce or use carbon-based energy, decrease the availability of reinsurance available for 19 Table of Contents coverages we provide for those industries, or increase claims and losses related to those industries, any of which could affect our profitability, ​ ● Changes in legislation, regulation and court decisions could increase our compliance costs, impose liability on policyholders that we did not contemplate when we underwrote policies, or limit our ability to sell insurance coverage to certain policyholders and ​ ● Losses on our invested assets that could have a material adverse impact on our results of operations and financial condition. ​ Our reinsurers may not pay on losses in a timely fashion, or at all, which may increase our costs and have an adverse effect on our business. ​ We purchase reinsurance to transfer part of the risk we have assumed (known as ceding) to a reinsurance company in exchange for part of the premium we receive in connection with the risk.
It also assumes adequate historical or other data exists upon which to make these judgments. For more information on the estimates used in the establishment of loss reserves, see the Loss and Settlement Expenses section of our Critical Accounting Policies contained within Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
It also assumes adequate historical or other data exists upon which to make these judgments. For more information on the estimates used in the establishment of loss reserves, see the Losses and Settlement Expenses section of our Critical Accounting Policies contained within Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The effects of these and other coverage issues are difficult to predict and could have a materially adverse effect on our financial performance. ​ As part of the reserving process, we review historical data and consider the impact of various factors such as: ​ ● Loss emergence and cedant reporting patterns, ​ ● Underlying policy terms and conditions, ​ ● Business and exposure mix, ​ ● Emerging coverage issues, ​ ● Trends in claim frequency and severity, ​ ● Changes in operations, ​ ● Emerging economic and social trends, ​ ● State reviver statutes that permit claims after a statute of limitation has expired, ​ ● Court closures or increased time-to-trial, ​ ● Inflation in amounts awarded by courts and juries and ​ ● Changes in the regulatory and litigation environments. ​ This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events.
The effects of these and other coverage issues are difficult to predict and could have a materially adverse effect on our financial performance. ​ As part of the reserving process, we review historical data and consider the impact of various factors such as: ​ ● Loss emergence and claim reporting patterns, ​ ● Underlying policy terms and conditions, ​ ● Business and exposure mix, ​ ● Emerging coverage issues, ​ ● Trends in claim frequency and severity, ​ ● Changes in operations, ​ ● Emerging economic and social trends, ​ 18 Table of Contents ● State reviver statutes that permit claims after a statute of limitation has expired, ​ ● Court closures or increased time-to-trial, ​ ● Inflation in amounts awarded by courts and juries and ​ ● Changes in the regulatory and litigation environments. ​ This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events.
Many of the bonds we issue, particularly in the energy sector, are non-cancelable and may expose the Company to greater losses, should the surety reinsurance coverage we are able to secure be reduced or become unavailable. ​ 21 Table of Contents Financial and Investment ​ Adverse changes in the economy could lower the demand for our insurance products and could have an adverse effect on the revenue and profitability of our operations. ​ Factors such as business revenue, construction spending, government spending, the volatility and strength of the capital markets and inflation can all affect the business and economic environment.
Many of the bonds we issue, particularly in the energy sector, are non-cancelable and may expose the Company to greater losses, should the surety reinsurance coverage we are able to secure be reduced or become unavailable. ​ Financial and Investment ​ Adverse changes in the economy could lower the demand for our insurance products and could have an adverse effect on the revenue and profitability of our operations. ​ Factors such as business revenue, construction spending, government spending, the volatility and strength of the capital markets and inflation can all affect the business and economic environment.
Our ratings are subject to periodic review by such firms, and the criteria used in the rating methodologies is subject to change. As such, we cannot assure we will continue to maintain of our current ratings. ​ All of our ratings were reviewed during 2022. AM Best reaffirmed its A+, Superior rating for the combined entity of RLI Ins., Mt.
Our ratings are subject to periodic review by such firms, and the criteria used in the rating methodologies is subject to change. As such, we cannot assure we will continue to maintain of our current ratings. ​ All of our ratings were reviewed during 2023. AM Best reaffirmed its A+, Superior rating for the combined entity of RLI Ins., Mt.
If we are unable to compete effectively in the markets we operate in or are not successful in expanding our operations into new markets, the amount of premium we write may decline, as well as overall business results. ​ A number of new, proposed or potential legislative or industry developments could further increase competition in our industry, including: ​ ● An increase in capital-raising by companies in our lines of business, which could result in new entrants to our markets and an excess of capital in the industry, ​ ● The deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers for our excess and surplus lines of insurance business, ​ ● Programs in which state-sponsored entities provide property insurance in catastrophe-prone areas or other alternative market types of coverage, ​ ● Changing practices, which may lead to greater competition in the insurance business and ​ ● The emergence of Insurtech companies and the development of new technologies, which may lead to disruption of current business models and the insurance value chain. ​ New competition from these developments could cause the supply and/or demand for insurance or reinsurance to change, which could affect our ability to price our coverages at attractive rates and thereby adversely affect our underwriting results. ​ A downgrade in our ratings from AM Best, Standard & Poor’s or Moody’s could negatively affect our business. ​ Financial strength ratings are an important factor in establishing the competitive position of insurance companies.
If we are unable to compete effectively in the markets we operate in or are not successful in expanding our operations into new markets, the amount of premium we write may decline, pressuring overall business results. ​ A number of new, proposed or potential legislative or industry developments could further increase competition in our industry, including: ​ ● An increase in capital-raising by companies in our lines of business, which could result in new entrants to our markets and an excess of capital in the industry, ​ 16 Table of Contents ● The deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers for our excess and surplus lines of insurance business, ​ ● Programs in which state-sponsored entities provide property insurance in catastrophe-prone areas or other alternative market types of coverage, ​ ● Changing practices, which may lead to greater competition in the insurance business and ​ ● The emergence of Insurtech companies and the development of new technologies, which may lead to disruption of current business models and the insurance value chain. ​ New competition from these developments could cause the supply and/or demand for insurance or reinsurance to change, which could affect our ability to price our coverages at attractive rates and thereby adversely affect our underwriting results. ​ A downgrade in our ratings from AM Best, Standard & Poor’s or Moody’s could negatively affect our business. ​ Financial strength ratings are an important factor in establishing the competitive position of insurance companies.
We maintain a vendor management program to establish procurement policies and to monitor vendor risk, including the security and stability of our critical vendors. ​ 23 Table of Contents Any significant interruption in the operation of our facilities, systems and business functions could adversely affect our financial condition and results of operations. ​ We rely on multiple computer systems to interact with producers and customers, issue policies, pay claims, run modeling functions, assess insurance risks and complete various important internal processes including accounting and bookkeeping.
We maintain a vendor management program to establish procurement policies and to monitor vendor risk, including the security and stability of our critical vendors. ​ Any significant interruption in the operation of our facilities, systems and business functions could adversely affect our financial condition and results of operations. ​ We rely on multiple computer systems to interact with producers and customers, issue policies, pay claims, run modeling functions, assess insurance risks and complete various important internal processes including accounting and bookkeeping.
New product launches, as well as resources to integrate business acquisitions are subject to many obstacles, including ensuring we have sufficient business and systems processes, determining appropriate pricing, obtaining reinsurance, assessing opportunity costs and regulatory burdens and planning for internal infrastructure needs.
New product launches, as well as resources to integrate business acquisitions are subject to many obstacles, including ensuring we have sufficient business and system processes, determining appropriate pricing, obtaining reinsurance, assessing opportunity costs and regulatory burdens and planning for internal infrastructure needs.
To address uncertainty related to catastrophe models, we also monitor against thresholds using non-modeled scenarios. 20 Table of Contents ​ Changing climate and weather conditions may adversely affect our financial condition or profitability. ​ Climate change is a complex and evolving issue and we cannot predict the cumulative impact it may have on our results of operations or financial condition at this time.
To address uncertainty related to catastrophe models, we also monitor against thresholds using non-modeled scenarios. ​ Changing climate and weather conditions may adversely affect our financial condition or profitability. ​ Climate change is a complex and evolving issue and we cannot predict the cumulative impact it may have on our results of operations or financial condition at this time.
Our profitability can be affected significantly by: ​ ● Competitive pressures impacting our ability to write new business or retain existing business at an adequate rate, ​ ● Rising levels of loss costs that we cannot anticipate at the time we price our coverages, including inflation in cost of materials, delays that cause increased business interruption losses and social inflation, as influenced by higher jury verdicts, ​ ● Volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes, terrorist attacks or significant price changes of the commodities we insure, ​ ● Changes in the availability and level of reinsurance capacity, ​ ● Changes in the amount of losses resulting from new types of claims and new or changing judicial interpretations relating to the scope of insurers’ liabilities and ​ ● The ability of our underwriters to accurately select and price risk and our claim personnel to appropriately deliver fair outcomes. ​ In addition, the demand for property and casualty insurance, both admitted and excess and surplus lines, can vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases, causing our revenues to fluctuate.
Our profitability can be significantly affected, and has been affected to varying degrees, by: ​ ● Competitive pressures impacting our ability to write new business or retain existing business at an adequate rate, ​ ● Rising levels of loss costs that we cannot anticipate at the time we price our coverages, including inflation in the cost of materials, delays that cause increased business interruption losses and social inflation, as influenced by higher jury verdicts, ​ 15 Table of Contents ● Volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes, terrorist attacks or geopolitical events, ​ ● Significant price changes of the commodities we insure, ​ ● Changes in the availability and level of reinsurance capacity, ​ ● Changes in the amount of losses resulting from new types of claims and new or changing judicial interpretations relating to the scope of insurers’ liabilities and ​ ● The ability of our underwriters to accurately select and price risk and our claim personnel to appropriately deliver fair outcomes. ​ In addition, the demand for property and casualty insurance, both admitted and excess and surplus lines, can vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases, causing our revenues to fluctuate.
If our company needs capital but cannot raise it, our business and future growth could be adversely affected. ​ We are an insurance holding company and therefore may not be able to receive adequate or timely dividends from our insurance subsidiaries. ​ RLI Corp. is the holding company for our three insurance operating companies.
If our company needs capital but cannot raise it, our business and future growth could be adversely affected. ​ 20 Table of Contents We are an insurance holding company and therefore may not be able to receive adequate or timely dividends from our insurance subsidiaries. ​ RLI Corp. is the holding company for our three insurance operating companies.
We operate within an enterprise risk management (ERM) framework designed to assess and monitor our risks. However, assurance that we can effectively review and monitor all risks or that all of our employees will operate within the ERM framework cannot be guaranteed.
We operate within an enterprise risk management (ERM) framework designed to assess and monitor our risks. However, assurance that we can effectively review and monitor all risks or that all of our employees will operate within the ERM framework cannot be 21 Table of Contents guaranteed.
Changes in industry practices, and in legal, legislative, regulatory, judicial, social and other conditions under which we 19 Table of Contents operate may require us to pay claims we did not intend to cover when we wrote the policies. These changes may serve to extend the time for making claims, extend coverage and increase damages.
Changes in industry practices, and in legal, legislative, regulatory, judicial, social and other conditions under which we operate may require us to pay claims we did not intend to cover when we wrote the policies. These changes may serve to extend the time for making claims, extend coverage and increase damages.
These provisions could: ​ ● Have the effect of delaying, deferring or preventing a change in control of the Company, ​ ● Discourage bids for our securities at a premium over the market price, ​ ● Adversely affect the market price, the voting and other rights of the holders of our securities or ​ ● Impede the ability of the holders of our securities to change our management. ​ In particular, we are subject to Section 203 of the Delaware General Corporation Law which, under certain circumstances, restricts our ability to engage in a business combination, such as a merger or sale of assets, with any stockholder that, together with 25 Table of Contents affiliates, owns 15 percent or more of our common stock, which similarly could prohibit or delay the accomplishment of a change of control transaction. ​ Item 1B.
These provisions could: ​ ● Have the effect of delaying, deferring or preventing a change in control of the Company, ​ ● Discourage bids for our securities at a premium over the market price, ​ ● Adversely affect the market price, the voting and other rights of the holders of our securities or ​ ● Impede the ability of the holders of our securities to change our management. ​ In particular, we are subject to Section 203 of the Delaware General Corporation Law which, under certain circumstances, restricts our ability to engage in a business combination, such as a merger or sale of assets, with any shareholder that, together with affiliates, owns 15 percent or more of our common stock, which similarly could prohibit or delay the accomplishment of a change of control transaction. ​ Item 1 B.
Weather-related catastrophes may include meteorological events such as hurricanes, severe convective storms and winter weather; and climatological events such as drought, wildfires and heatwaves. In addition, catastrophe losses can occur from events such as lava flows in Hawaii and terrorist events in the U.S. ​ The incidence and severity of catastrophes are inherently unpredictable.
Weather-related catastrophes may include meteorological events such as hurricanes, severe convective storms and winter weather; and climatological events such as drought, wildfires and heatwaves. In addition, catastrophe losses can occur from events such as lava flows in Hawaii and terrorist events in the United States. ​ The incidence and severity of catastrophes are inherently unpredictable.
Security breaches could expose the Company to a risk of loss or misuse of our or our customers’ information, litigation and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of our technology systems could impact our operations.
Security breaches could expose the Company to a risk of loss or misuse of Company or third-party confidential information, litigation and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of our technology systems could impact our operations.
During these times, it is very difficult to grow or maintain premium volume without sacrificing underwriting discipline and income. ​ We face competition from specialty insurance companies, underwriting agencies and intermediaries, as well as diversified financial services companies that are significantly larger than we are, and that have significantly greater financial, marketing, 17 Table of Contents management and other resources.
During these times, it is very difficult to grow or maintain premium volume without sacrificing underwriting income. ​ We face competition from specialty insurance companies, underwriting agencies and intermediaries, as well as diversified financial services companies that are significantly larger than we are, and that have significantly greater financial, marketing, management and other resources.
Loss of all or a substantial portion of the business written through these parties could have a material adverse effect on our business. ​ Our business is concentrated in several key states and a change in our business in one of those states could disproportionately affect our financial condition or results of operations. ​ Although we operate in all 50 states, 53 percent of our direct premiums earned were generated in four states in 2022: California – 17 percent; Florida – 14 percent; New York – 11 percent; and Texas – 11 percent.
Loss of all or a substantial portion of the business written through these parties could have a material adverse effect on our business. ​ Our business is concentrated in several key states and a change in our business in one of those states could disproportionately affect our financial condition or results of operations. ​ Although we operate in all 50 states, 57 percent of our direct premiums earned were generated in four states in 2023: Florida – 20 percent; California – 17 percent; Texas – 11 percent; and New York – 9 percent.
Because the limitations are based upon a rolling 12-month period, the presence, amount and impact of these restrictions vary over time. ​ We may not be able to, or might not choose to, continue paying dividends on our common stock. ​ We have a history of paying regular, quarterly dividends and in recent years have paid special dividends.
Because the limitations are based upon a rolling 12-month period, the presence, amount and impact of these restrictions vary over time. ​ We may not be able to, or might not choose to, continue paying dividends on our common stock. ​ We have a history of paying regular, quarterly dividends and have paid annual special dividends since 2010.
If the actual amount of insured losses is greater than the amount we have reserved for these losses, our profitability could suffer. ​ Catastrophic losses are unpredictable and could cause the Company to suffer material financial losses. ​ Our insurance coverages include exposure to catastrophic events, particularly earthquakes on the West Coast and hurricanes and tropical storms affecting the continental U.S. or Hawaii.
If the actual amount of insured losses is greater than the amount we have reserved for these losses, our profitability could suffer. ​ Catastrophic losses are unpredictable and could cause the Company to suffer material financial losses. ​ Our insurance coverages include exposure to catastrophic events, particularly earthquakes on the West Coast and hurricanes and tropical storms affecting coastal regions of the United States.
The losses we might incur from an actual catastrophe could be higher than our expectation of losses generated from modeled catastrophe scenarios, which could have a materially adverse effect on our results of operations and financial condition.
In addition, models are revised periodically, which could change modeled losses. The losses we might incur from an actual catastrophe could be higher than our expectation of losses generated from modeled catastrophe scenarios, which could have a materially adverse effect on our results of operations and financial condition.
Any determination to pay either type of dividend to our stockholders in the future will be at the discretion of our board of directors and will depend on our results of operations, financial condition and other factors deemed relevant by our board of directors.
The payment of either type of dividend to our shareholders in the future is not guaranteed, is at the discretion of our board of directors and will depend on our results of operations, financial condition and other factors deemed relevant by our board of directors.
An interruption in our operations, or a negative change in the business environment, insurance market or regulatory environment in one or more of these states could have a disproportionate effect on our business and direct premiums earned. ​ We compete with a large number of companies in the insurance industry to underwrite premium and their actions could ultimately impact our overall results. ​ We compete with a large number of other companies in our selected lines of business.
An interruption in our operations, or a negative change in the business environment, insurance market or regulatory environment in one or more of these states could have a disproportionate effect on our business and direct premiums earned. ​ We compete with a large number of companies in the insurance industry and their actions could ultimately impact our overall results. ​ We are vulnerable to the actions of other companies who may seek to write business without the appropriate regard for risk and profitability, especially during periods of intense competition for premium.
Furthermore, if we are unable to effectively update or replace our key legacy technology systems as they become obsolete, or as emerging technology renders them competitively inefficient, our competitive position, security and our cost structure could be adversely affected. ​ Technology breaches or failures, including but not limited to cyber security incidents, could disrupt our operations, result in the loss of critical and confidential information and expose us to additional liabilities, which could adversely impact our reputation and results of operations. ​ Global cyber security threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology systems, and those of our business or service providers, to sophisticated and targeted measures known as advanced persistent threats.
If they do, interruption to our business and damage to our reputation and related costs, could be significant, which could impair our profitability. ​ Technology breaches or failures, including but not limited to cyber security incidents, could disrupt our operations, result in the loss of critical and confidential information and expose us to additional liabilities, which could adversely impact our reputation and results of operations. ​ Global cyber security threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology systems, and those of our business or service providers, to sophisticated and targeted measures known as advanced persistent threats.
While the equity portfolio has been constructed to have lower downside risk than the market, the portfolio is positively correlated with movements in domestic stocks. The bond portfolio is affected by interest rate changes and movement in credit spreads. We attempt to mitigate our interest rate and credit risks by constructing a well-diversified portfolio of high-quality securities with varied maturities.
The bond portfolio is affected by interest rate changes and movement in credit spreads. We attempt to mitigate our interest rate and credit risks by constructing a well-diversified portfolio of high-quality securities with varied maturities.
In addition, fluctuations can result from changes in interest rates, credit risk, government monetary policies, liquidity of holdings and 22 Table of Contents general economic conditions. The equity portfolio will fluctuate with movements in the overall stock market.
In addition, fluctuations can result from changes in interest rates, credit risk, government monetary policies, liquidity of holdings and general economic conditions. The equity portfolio will fluctuate with movements in the overall stock market. While the equity portfolio has been constructed to have lower downside risk than the market, the portfolio is positively correlated with movements in domestic stocks.
Implementing such changes may require adjustments to our business methods, increases to our costs and other changes that could cause the Company to be less competitive in the industry. ​ Our loss reserves are based on estimates and may be inadequate to cover our actual insured losses, which would negatively impact our profitability. ​ Significant periods of time often elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the payment of that loss.
Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could adversely affect our ability to operate our business as currently conducted. ​ Our loss reserves are based on estimates and may be inadequate to cover our actual insured losses, which would negatively impact our profitability. ​ Significant periods of time often elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the payment of that loss.
If they do, interruption to our business and damage to our reputation and related costs, could be significant, which could impair our profitability. ​ Epidemics, pandemics and public health outbreaks, including the ongoing coronavirus (COVID-19) pandemic, could adversely affect our business, including revenues, profitability, results of operations and/or cash flows, in a manner and to a degree that could be material. ​ Epidemics, pandemics and other public health outbreaks generally result in significant disruptions in economic activity and financial markets.
Furthermore, if we are unable to effectively update or replace our key legacy technology systems as they become obsolete, or as emerging technology renders them competitively inefficient, our competitive position, security and our cost structure could be adversely affected. ​ Epidemics, pandemics and public health outbreaks could adversely affect our business, including revenues, profitability, results of operations and/or cash flows, in a manner and to a degree that could be material. ​ Epidemics, pandemics and other public health outbreaks, such as the COVID-19 pandemic, generally result in significant disruptions in economic activity and financial markets.
We have cyber insurance, but it is possible that the coverage we have in place would not entirely protect the Company in the event that we experienced a cyber security incident, interruption or widespread failure of our information technology systems. ​ We may suffer losses from litigation, which could materially and adversely affect our financial condition and business operations. ​ We continually face risks associated with litigation of various types, including general commercial and corporate litigation, and disputes relating to bad faith allegations that could result in the Company incurring losses in excess of policy limits.
Such appellate court decisions may take several years to become final and their ultimate outcome remains uncertain at this time. ​ 23 Table of Contents We may suffer losses from litigation, which could materially and adversely affect our financial condition and business operations. ​ We continually face risks associated with litigation of various types, including general commercial and corporate litigation, and disputes relating to bad faith allegations that could result in the Company incurring losses in excess of policy limits.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also heighten many of the other risks described herein. ​ 24 Table of Contents If we are unable to keep pace with the technological advancements in the insurance industry, our ability to compete effectively could be impaired. ​ Our operations rely upon complex and expensive information technology systems for interacting with policyholders, brokers and other business partners.
We have cyber insurance, but it is possible that the coverage we have in place would not entirely protect the Company in the event that we experienced a cyber security incident, interruption or widespread failure of our information technology systems. ​ If we are unable to keep pace with the technological advancements in the insurance industry, our ability to compete effectively could be impaired. ​ Our operations rely upon complex and expensive information technology systems for interacting with policyholders, brokers and other business partners.
Removed
We are vulnerable to the actions of other companies who may seek to write business without the appropriate regard for risk and profitability, especially during periods of intense competition for premium.
Added
In 2023, 42 percent of our gross premiums written were produced through six producer entities, while no other entity’s production exceeded 2 percent of our gross premiums written.
Removed
Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could adversely affect our ability to operate our business as currently conducted. ​ In addition to regulations specific to the insurance industry, including the insurance laws of our principal state regulator (Illinois), as a public company we are also subject to the rules and regulations of the U.S.
Removed
Securities and Exchange Commission and the New York Stock Exchange (NYSE), each of which regulate many areas such as financial and business disclosures, corporate governance and shareholder matters. We are also subject to the corporation laws of Delaware, where we are incorporated.
Removed
At the federal level, among other laws, we are subject to the Sarbanes-Oxley Act and the Dodd-Frank Act, each of which regulate corporate governance, executive compensation and other areas, as well as laws relating to federal trade restrictions, privacy/data security and terrorism risk insurance laws.
Removed
We monitor these laws, regulations and rules on an ongoing basis to ensure compliance and make appropriate changes as necessary.
Removed
Such appellate court decisions may take several years to become final and their ultimate outcome remains uncertain at this time. ​ We experienced declines in premium in select product lines and established loss and defense reserves for others at the onset of the COVID-19 pandemic.
Removed
While other impacts that could result from pandemics have not manifested to a significant degree for RLI through the end of 2022, circumstances continue to change and we could be affected in different ways in the future.
Removed
However, cyber security incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 26 ​ ​ ​ Part II ​ ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. Reserved 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 25 ​ ​ ​ Part II ​ ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6. Reserved 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50 Item 8.
Financial Statements and Supplementary Data 53 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 93 Item 9A. Controls and Procedures 93 Item 9B. Other Information 93
Financial Statements and Supplementary Data 52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 92 Item 9A. Controls and Procedures 92 Item 9B. Other Information 92

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of February 13, 2023, there were 1,024 registered holders of the Company’s common stock. ​ Performance ​ The following graph provides a five-year comparison of RLI Corp.’s total return to shareholders compared to that of the S&P 500 and S&P 500 P&C Index: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2017 2018 2019 2020 2021 2022 RLI ​ -------------- ​ $ 100 $ 117 ​ $ 155 ​ $ 184 ​ $ 203 ​ $ 253 S&P 500 ​ •••••••••••••••• ​ ​ 100 ​ 96 ​ ​ 126 ​ ​ 149 ​ ​ 191 ​ ​ 157 S&P 500 P&C Index ​ — — — ​ ​ 100 ​ 95 ​ ​ 120 ​ ​ 128 ​ ​ 150 ​ ​ 178 ​ Assumes $100 invested on December 31, 2017, in RLI, S&P 500 and S&P 500 P&C Index, with reinvestment of dividends.
Biggest changeAlthough the Company currently intends to continue paying quarterly cash dividends to our shareholders, there can be no assurance as to the amount of such dividends or whether the Company will continue to pay such dividends. ​ 25 Table of Contents Performance ​ The following graph provides a five-year comparison of RLI Corp.’s total return to shareholders compared to that of the S&P 500 and S&P 500 P&C Index: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 2021 2022 2023 RLI ​ -------------- ​ $ 100 $ 133 ​ $ 157 ​ $ 174 ​ $ 217 ​ $ 225 S&P 500 ​ •••••••••••••••• ​ ​ 100 ​ 131 ​ ​ 156 ​ ​ 200 ​ ​ 164 ​ ​ 207 S&P 500 P&C Index ​ — — — ​ ​ 100 ​ 126 ​ ​ 134 ​ ​ 157 ​ ​ 187 ​ ​ 207 ​ Assumes $100 invested on December 31, 2018, in RLI, S&P 500 and S&P 500 P&C Index, with reinvestment of dividends.
In December 2022 and 2021, RLI Corp. paid special cash dividends of $7.00 and $2.00 per share to shareholders, respectively.
In December 2023 and 2022, RLI Corp. paid special cash dividends of $2.00 and $7.00 per share to shareholders, respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ RLI Corp. common stock trades on the New York Stock Exchange under the symbol RLI. RLI Corp. has paid dividends for 186 consecutive quarters and increased quarterly dividends in each of the last 47 years.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ RLI Corp. common stock trades on the New York Stock Exchange under the symbol “RLI”. RLI Corp. has paid dividends for 190 consecutive quarters and increased quarterly dividends in each of the last 48 years.
Comparison of five-year annualized total return — RLI: 20.4%, S&P 500: 9.4% and S&P 500 P&C Index: 12.2%. ​ 26 Table of Contents Securities Authorized for Issuance under Equity Compensation Plans ​ Refer to Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this document for information on securities authorized for issuance under our equity compensation plan. ​ Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities - Not applicable. ​ Equity Repurchases ​ In 2010, our board of directors implemented a $100 million share repurchase program.
Comparison of five-year annualized total return — RLI: 17.7%, S&P 500: 15.7% and S&P 500 P&C Index: 15.7%. ​ Securities Authorized for Issuance under Equity Compensation Plans ​ Information on securities authorized for issuance under our equity compensation plan is incorporated by reference to the “Share Ownership of Certain Beneficial Owners and Management” section of the Proxy Statement. ​ Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities - Not applicable. ​ Issuer Purchases of Equity Securities ​ In 2010, our board of directors implemented a $100 million share repurchase program.
Removed
We last repurchased shares in 2011. We have $87.5 million of remaining capacity from the repurchase program. The repurchase program may be suspended or discontinued at any time without prior notice. ​
Added
As of February 14, 2024, there were 1,071 registered holders of the Company’s common stock. ​ The payment of dividends to our shareholders is at the discretion of our board of directors and will depend on our results of operations, our financial condition, regulatory restrictions of our insurance subsidiaries and other factors deemed relevant by our board of directors.
Added
In 2023, our board of directors terminated the share repurchase program. We did not repurchase any shares during 2023. ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe expect our reinsurance strategy going forward to primarily focus on buying traditional reinsurance from financially secure partners who support concurrent terms and have high regard for our business model of disciplined underwriting. ​ The following tables and narrative provide a more detailed look at individual segment performance over the last two years. ​ GROSS PREMIUMS WRITTEN AND NET PREMIUMS EARNED ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Premiums Written ​ ​ Net Premiums Earned ​ (in thousands) 2022 2021 % Change 2022 2021 % Change ​ CASUALTY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial excess and personal umbrella ​ $ 325,218 ​ $ 283,242 ​ 15 % ​ $ 253,921 ​ $ 219,437 ​ 16 % General liability ​ ​ 110,659 ​ ​ 99,017 ​ 12 % ​ ​ 100,374 ​ ​ 90,853 ​ 10 % Commercial transportation ​ ​ 123,099 ​ ​ 106,432 ​ 16 % ​ ​ 96,992 ​ ​ 83,352 ​ 16 % Professional services ​ ​ 103,922 ​ ​ 96,735 ​ 7 % ​ ​ 95,187 ​ ​ 88,855 ​ 7 % Small commercial ​ ​ 72,347 ​ ​ 68,475 ​ 6 % ​ ​ 67,673 ​ ​ 64,660 ​ 5 % Executive products ​ ​ 103,742 ​ ​ 136,078 ​ (24) % ​ ​ 26,606 ​ ​ 21,873 ​ 22 % Other casualty ​ ​ 87,244 ​ ​ 81,605 ​ 7 % ​ ​ 71,079 ​ ​ 64,609 ​ 10 % Total casualty ​ $ 926,231 ​ $ 871,584 ​ 6 % ​ $ 711,832 ​ $ 633,639 ​ 12 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PROPERTY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial property ​ $ 326,609 ​ $ 202,855 ​ 61 % ​ $ 163,078 ​ $ 107,941 ​ 51 % Marine ​ ​ 133,539 ​ ​ 112,721 ​ 18 % ​ ​ 113,208 ​ ​ 97,745 ​ 16 % Other property ​ ​ 39,313 ​ ​ 32,290 ​ 22 % ​ ​ 31,600 ​ ​ 26,151 ​ 21 % Total property ​ $ 499,461 ​ $ 347,866 ​ 44 % ​ $ 307,886 ​ $ 231,837 ​ 33 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SURETY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 55,026 ​ $ 51,529 ​ 7 % ​ $ 47,652 ​ $ 43,738 ​ 9 % Miscellaneous ​ ​ 48,926 ​ ​ 46,599 ​ 5 % ​ ​ 45,826 ​ ​ 43,982 ​ 4 % Contract ​ ​ 35,842 ​ ​ 29,776 ​ 20 % ​ ​ 31,240 ​ ​ 27,707 ​ 13 % Total surety ​ $ 139,794 ​ $ 127,904 ​ 9 % ​ $ 124,718 ​ $ 115,427 ​ 8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Grand total ​ $ 1,565,486 ​ $ 1,347,354 ​ 16 % ​ $ 1,144,436 ​ $ 980,903 ​ 17 % ​ Casualty ​ Gross premiums written for the casualty segment were up $54.6 million in 2022.
Biggest changeFor our property treaties, the risk-adjusted rate change will be flat to slightly down and we increased our co-participations on our non-catastrophe cover, for which the combined effect should be an increased level of property premium retention in 2024 as compared to 2023. ​ The following tables and narrative provide a more detailed look at individual segment performance over the last two years. ​ 37 Table of Contents GROSS PREMIUMS WRITTEN AND NET PREMIUMS EARNED ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Premiums Written ​ ​ Net Premiums Earned ​ (in thousands) 2023 2022 % Change 2023 2022 % Change ​ CASUALTY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial excess and personal umbrella ​ $ 370,571 ​ $ 325,218 ​ 14 % ​ $ 286,178 ​ $ 253,921 ​ 13 % Commercial transportation ​ ​ 125,434 ​ ​ 123,099 ​ 2 % ​ ​ 103,719 ​ ​ 96,992 ​ 7 % General liability ​ ​ 106,032 ​ ​ 110,659 ​ (4) % ​ ​ 103,066 ​ ​ 100,374 ​ 3 % Professional services ​ ​ 108,503 ​ ​ 103,922 ​ 4 % ​ ​ 99,596 ​ ​ 95,187 ​ 5 % Small commercial ​ ​ 76,644 ​ ​ 72,347 ​ 6 % ​ ​ 72,920 ​ ​ 67,673 ​ 8 % Executive products ​ ​ 95,356 ​ ​ 103,742 ​ (8) % ​ ​ 24,687 ​ ​ 26,606 ​ (7) % Other casualty ​ ​ 79,125 ​ ​ 87,244 ​ (9) % ​ ​ 68,180 ​ ​ 71,079 ​ (4) % Total casualty ​ $ 961,665 ​ $ 926,231 ​ 4 % ​ $ 758,346 ​ $ 711,832 ​ 7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PROPERTY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial property ​ $ 505,413 ​ $ 326,609 ​ 55 % ​ $ 244,798 ​ $ 163,078 ​ 50 % Marine ​ ​ 148,829 ​ ​ 133,539 ​ 11 % ​ ​ 129,428 ​ ​ 113,208 ​ 14 % Other property ​ ​ 43,130 ​ ​ 39,313 ​ 10 % ​ ​ 27,304 ​ ​ 31,600 ​ (14) % Total property ​ $ 697,372 ​ $ 499,461 ​ 40 % ​ $ 401,530 ​ $ 307,886 ​ 30 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SURETY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 57,704 ​ $ 55,026 ​ 5 % ​ $ 49,707 ​ $ 47,652 ​ 4 % Transactional ​ ​ 49,624 ​ ​ 48,926 ​ 1 % ​ ​ 47,983 ​ ​ 45,826 ​ 5 % Contract ​ ​ 40,295 ​ ​ 35,842 ​ 12 % ​ ​ 36,740 ​ ​ 31,240 ​ 18 % Total surety ​ $ 147,623 ​ $ 139,794 ​ 6 % ​ $ 134,430 ​ $ 124,718 ​ 8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Grand total ​ $ 1,806,660 ​ $ 1,565,486 ​ 15 % ​ $ 1,294,306 ​ $ 1,144,436 ​ 13 % ​ Casualty ​ Gross premiums written for casualty were up $35 million in 2023.
Our objective for the agency MBS portfolio is to provide reasonable cash flow stability where we are compensated for the call risk associated with residential refinancing. The agency MBS portfolio includes mortgage-backed pass-through securities and collateralized mortgage obligations (CMO), which include planned amortization classes and sequential pay structures.
Our objective for the agency MBS portfolio is to provide reasonable cash flow stability where we are compensated for the call risk associated with residential mortgage refinancing. The agency MBS portfolio includes mortgage-backed pass-through securities and collateralized mortgage obligations (CMO), which include planned amortization classes and sequential pay structures.
The securities within the equity portfolio are well diversified and are primarily invested in broad index ETFs that represent market indexes similar to the Russell 1000 Index, Russell 3000 Index, S&P 500 Index and S&P 600 Index.
The securities within the equity portfolio are well diversified and are primarily invested in broad index ETFs that represent market indexes similar to the Russell 3000 Index, Russell 1000 Index, S&P 500 Index and S&P 600 Index.
If we were to incur such losses, we would have to make significant claims payments in a relatively concentrated period of time. ​ INVESTING ACTIVITIES ​ The following list highlights some of the major sources and uses of cash flow from investing activities: ​ ​ ​ ​ Sources Uses Proceeds from sale, call or maturity of bonds Purchase of bonds Proceeds from sale of stocks Purchase of stocks Proceeds from sale of other invested assets ​ Purchase of other invested assets ​ Acquisitions ​ Purchase of property and equipment ​ We maintain a diversified investment portfolio representing policyholder funds that have not yet been paid out as claims, as well as the capital we hold for our shareholders.
If we were to incur such losses, we would have to make significant claim payments in a relatively concentrated period of time. ​ INVESTING ACTIVITIES ​ The following list highlights some of the major sources and uses of cash flow from investing activities: ​ ​ ​ ​ Sources Uses Proceeds from sale, call or maturity of bonds Purchase of bonds Proceeds from sale of stocks Purchase of stocks Proceeds from sale of other invested assets ​ Purchase of other invested assets ​ Acquisitions ​ Purchase of property and equipment ​ We maintain a diversified investment portfolio representing policyholder funds that have not yet been paid out as claims, as well as the capital we hold for our shareholders.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ OVERVIEW ​ RLI Corp. is a U.S. based, specialty insurance company that underwrites select property and casualty insurance through major subsidiaries collectively known as RLI Insurance Group (Group). Our focus is on niche markets and developing unique products that are tailored to customers’ needs.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ OVERVIEW ​ RLI Corp. is a U.S. based, specialty insurance company that underwrites select property, casualty and surety products through major subsidiaries collectively known as RLI Insurance Group (Group). Our focus is on niche markets and developing unique products that are tailored to customers’ needs.
The LAE reserves are frequently separated into two components: allocated and unallocated. Allocated loss adjustment expense (ALAE) reserves represent an estimate of claims settlement expenses that can be identified with a specific claim or case. Examples of ALAE would be the hiring of an outside adjuster to investigate a claim or an outside attorney to defend our insured.
The LAE reserves are frequently separated into two components: allocated and unallocated. Allocated loss adjustment expense (ALAE) reserves represent an estimate of claims settlement expenses that can be identified with a specific claim. Examples of ALAE would be the hiring of an outside adjuster to investigate a claim or an outside attorney to defend our insured.
First, the loss ratio is losses and settlement expenses divided by net premiums earned. The second component, the expense ratio, reflects the sum of policy acquisition costs and insurance operating expenses divided by net premiums earned. All items included in these components of the combined ratio are presented in our GAAP consolidated financial statements.
First, the loss ratio is loss and settlement expenses divided by net premiums earned. The second component, the expense ratio, reflects the sum of policy acquisition costs and insurance operating expenses divided by net premiums earned. All items included in these components of the combined ratio are presented in our GAAP consolidated financial statements.
The primary factor in our ability to generate positive operating cash flow is underwriting profitability, which we have achieved for 27 consecutive years. ​ OPERATING ACTIVITIES ​ The following list highlights some of the major sources and uses of cash flow from operating activities: ​ ​ ​ ​ Sources Uses Premiums received Claims Loss payments from reinsurers Ceded premium to reinsurers Investment income (interest and dividends) Commissions paid Funds held Operating expenses ​ Interest expense ​ ​ Income taxes ​ Funds held ​ Our largest source of cash is from premiums received from our customers, which we receive at the beginning of the coverage period for most policies.
The primary factor in our ability to generate positive operating cash flow is underwriting profitability, which we have achieved for 28 consecutive years. ​ OPERATING ACTIVITIES ​ The following list highlights some of the major sources and uses of cash flow from operating activities: ​ ​ ​ ​ Sources Uses Premiums received Claims Loss payments from reinsurers Ceded premium to reinsurers Investment income (interest and dividends) Commissions paid Funds held Operating expenses ​ Interest expense ​ ​ Income taxes ​ Funds held ​ Our largest source of cash is from premiums received from our customers, which we receive at the beginning of the coverage period for most policies.
We reflect favorable or unfavorable development of loss reserves in the results of operations in the period the estimates are changed. ​ 30 Table of Contents Our IBNR reserving process involves three steps: (1) an initial IBNR generation process that is prospective in nature, (2) a loss and LAE reserve estimation process that occurs retrospectively and (3) a subsequent discussion and reconciliation between our prospective and retrospective IBNR estimates, which includes changes in our provisions for IBNR where deemed appropriate. ​ Initial IBNR Generation Process ​ Initial carried IBNR reserves are determined through a reserve generation process.
We reflect favorable or unfavorable development of loss reserves in the results of operations in the period the estimates are changed. ​ 29 Table of Contents Our IBNR reserving process involves three steps: (1) an initial IBNR generation process that is prospective in nature, (2) a loss and LAE reserve estimation process that occurs retrospectively and (3) a subsequent discussion and reconciliation between our prospective and retrospective IBNR estimates, which includes changes in our provisions for IBNR where deemed appropriate. ​ Initial IBNR Generation Process ​ Initial carried IBNR reserves are determined through a reserve generation process.
Our taxable fixed income securities were subject to a corporate tax rate of 21.0 percent, our tax-exempt municipal securities were subject to a tax rate of 5.3 percent and our dividend income was generally subject to a tax rate of 13.1 percent.
Our taxable fixed income securities were subject to a corporate tax rate of 21 percent, our tax-exempt municipal securities were subject to a tax rate of 5.3 percent and our dividend income was generally subject to a tax rate of 13.1 percent.
The difference between the combined ratio and 100 reflects the per-dollar rate of underwriting income or loss. ​ 28 Table of Contents CRITICAL ACCOUNTING POLICIES ​ In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period.
The difference between the combined ratio and 100 reflects the per-dollar rate of underwriting income or loss. ​ CRITICAL ACCOUNTING POLICIES ​ In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial 27 Table of Contents statements and the reported amounts of revenues and expenses for the reporting period.
Extreme projections are critically analyzed and may be adjusted, given less credence or discarded altogether. Internal documentation is maintained that records any substantial changes in methods or assumptions from one loss reserve study to another. ​ 33 Table of Contents Our estimates of ultimate loss and LAE reserves are subject to change as additional data emerges.
Extreme projections are critically analyzed and may be adjusted, given less credence or discarded altogether. Internal documentation is maintained that records any substantial changes in methods or assumptions from one loss reserve study to another. ​ 32 Table of Contents Our estimates of ultimate loss and LAE reserves are subject to change as additional data emerges.
Adjustments in the initial loss ratio by product and segment are made where necessary and reflect updated assumptions regarding loss experience, loss trends, price changes and prevailing risk factors. ​ 31 Table of Contents Loss and LAE Reserve Estimation Process ​ Estimates of the expected value of the unpaid loss and LAE are derived using standard actuarial methodologies on a quarterly basis.
Adjustments in the initial loss ratio by product and segment are made where necessary and reflect updated assumptions regarding loss experience, loss trends, price changes and prevailing risk factors. ​ 30 Table of Contents Loss and LAE Reserve Estimation Process ​ Estimates of the expected value of the unpaid loss and LAE are derived using standard actuarial methodologies on a quarterly basis.
This constant change can cause estimates based on prior experience to be less reliable than estimates for more stable, admitted books of business. Also, as a niche market insurer, there is little industry-level information for 34 Table of Contents direct comparisons of current and prior experience and other reserving parameters.
This constant change can cause estimates based on prior experience to be less reliable than estimates for more stable, admitted books of business. Also, as a niche market insurer, there is little industry-level information for 33 Table of Contents direct comparisons of current and prior experience and other reserving parameters.
As discussed previously, general corporate expenses tend to fluctuate relative to our incentive compensation plans. Our compensation model measures components of comprehensive earnings against a minimum required return on our capital. Bonuses are earned as we generate earnings in excess of this required return. In 2022 and 2021, we exceeded the required return, resulting in the accrual of executive bonuses.
As discussed previously, general corporate expenses tend to fluctuate relative to our incentive compensation plans. Our compensation model measures components of comprehensive earnings against a minimum required return on our capital. Bonuses are earned as we generate earnings in excess of this required return. In 2023 and 2022, we exceeded the required return, resulting in the accrual of executive bonuses.
We rigorously attempt to consider all significant facts and circumstances known at the time loss reserves are established. ​ 29 Table of Contents Following is a table of significant risk factors involved in estimating losses grouped by major product line. We distinguish between loss ratio risk and reserve estimation risk.
We rigorously attempt to consider all significant facts and circumstances known at the time loss reserves are established. ​ 28 Table of Contents Following is a table of significant risk factors involved in estimating losses grouped by major product line. We distinguish between loss ratio risk and reserve estimation risk.
Thus, in almost all cases, it is impossible to discretely measure the effect of a single assumption or construct a 35 Table of Contents meaningful sensitivity expectation that holds true in all cases. The scenario above is representative of general liability, one of our largest and longest-tailed products.
Thus, in almost all cases, it is impossible to discretely measure the effect of a single assumption or construct a 34 Table of Contents meaningful sensitivity expectation that holds true in all cases. The scenario above is representative of general liability, one of our largest and longest-tailed products.
Our loss reserving processes reflect accepted actuarial practices and our methodologies result in a reasonable provision for reserves as of December 31, 2022. ​ Reserve Sensitivities ​ There are three major parameters that have significant influence on our actuarial estimates of ultimate liabilities by product.
Our loss reserving processes reflect accepted actuarial practices and our methodologies result in a reasonable provision for reserves as of December 31, 2023. ​ Reserve Sensitivities ​ There are three major parameters that have significant influence on our actuarial estimates of ultimate liabilities by product.
The method reflects more information in the analysis than the paid loss development method. ​ Weaknesses : Method involves additional estimation risk if significant changes to case reserving practices have occurred. ​ 32 Table of Contents Case Reserve Development — Patterns of historical development in reported losses relative to historical case reserves are determined.
The method reflects more information in the analysis than the paid loss development method. ​ Weaknesses : Method involves additional estimation risk if significant changes to case reserving practices have occurred. ​ 31 Table of Contents Case Reserve Development — Patterns of historical development in reported losses relative to historical case reserves are determined.
The revenue sources include sectors such as sewer and water, public improvement, school, transportation and colleges and universities. As of December 31, 2022, approximately 46 percent of the municipal fixed income securities in the investment portfolio were GO and the remaining 54 percent were revenue based.
The revenue sources include sectors such as sewer and water, public improvement, school, transportation and colleges and universities. As of December 31, 2023, approximately 46 percent of the municipal fixed income securities in the investment portfolio were GO and the remaining 54 percent were revenue based.
These estimates are based on facts and circumstances then known to the Company, review of historical settlement patterns, estimates of trends in claims frequency and severity, projections of loss costs, expected interpretations of legal theories of liability and many other factors.
These estimates are based on facts and circumstances then known to the Company, review of historical settlement patterns, estimates of trends in claim frequency and severity, projections of loss costs, expected interpretations of legal theories of liability and many other factors.
Our deferred tax assets relate to expected future tax deductions arising from claim reserves and future taxable income related to changes in our unearned premium and unrealized losses on our fixed income 36 Table of Contents portfolio.
Our deferred tax assets relate to expected future tax deductions arising from claim reserves and future taxable income related to changes in our unearned premium and unrealized losses on our fixed income 35 Table of Contents portfolio.
(2) Investment income, net of investment expenses. (3) Before income taxes. (4) Net realized gains for 2022 include $571.0 million of gain from the sale of our equity method investment in Maui Jim.
(2) Investment income, net of investment expenses. (3) Before income taxes. (4) Net realized gains for 2022 include $571 million of gains from the sale of our equity method investment in Maui Jim.
For a discussion of relevant prospective accounting standards, see note 1.D. to the consolidated financial statements within Item 8, Financial Statements and Supplementary Data. ​ 50 Table of Contents
For a discussion of relevant prospective accounting standards, see note 1.D. to the consolidated financial statements within Item 8, Financial Statements and Supplementary Data. ​ 49 Table of Contents
The following list highlights some of the major sources and uses of cash flow from financing activities: ​ ​ ​ ​ Sources Uses Proceeds from stock offerings Shareholder dividends Proceeds from debt offerings Debt repayment Short-term borrowing Share buy-backs Shares issued under stock option plans ​ ​ ​ Our capital structure is comprised of equity and debt obligations.
The following list highlights some of the major sources and uses of cash flow from financing activities: ​ ​ ​ ​ Sources Uses Proceeds from stock offerings Shareholder dividends Proceeds from debt offerings Debt repayment Shares issued under stock option plans Share buy-backs ​ Our capital structure is comprised of equity and debt obligations.
Total gross loss and LAE reserves increased to $2.3 billion at December 31, 2022, from $2.0 billion at December 31, 2021, while ceded loss and LAE reserves increased to $740.1 million from $608.1 million over the same period. ​ LIQUIDITY AND CAPITAL RESOURCES ​ OVERVIEW ​ We have three primary types of cash flows: (1) operating cash flows, which consist mainly of cash generated by our underwriting operations and income earned on our investment portfolio, (2) investing cash flows related to the purchase, sale and maturity of investments and (3) financing cash flows that impact our capital structure, such as changes in debt, issuance of common stock and dividend payments.
Total gross loss and LAE reserves increased to $2.4 billion at December 31, 2023, from $2.3 billion at December 31, 2022, while ceded loss and LAE reserves increased to $757 million from $740 million over the same period. ​ LIQUIDITY AND CAPITAL RESOURCES ​ OVERVIEW ​ We have three primary types of cash flows: (1) operating cash flows, which consist mainly of cash generated by our underwriting operations and income earned on our investment portfolio, (2) investing cash flows related to the purchase, sale and maturity of investments and (3) financing cash flows that impact our capital structure, such as changes in debt, issuance of common stock and dividend payments.
While these Regulation D securities are not rated by a traditional nationally recognized statistical rating organization, they all carry an equivalent investment-grade rating from the Securities Valuation Office of the NAIC. The corporate debt portfolio has an overall quality rating of A- diversified among 830 issues. ​ The table below illustrates our corporate debt exposure as of December 31, 2022.
While these Regulation D securities are not rated by a traditional nationally recognized statistical rating organization, they all carry an equivalent investment-grade rating from the Securities Valuation Office of the NAIC. The corporate debt portfolio has an overall quality rating of A- diversified among 904 issues. ​ The table below illustrates our corporate debt exposure as of December 31, 2023.
The numbers below are the changes in estimated ultimate loss and ALAE in millions of dollars as of December 31, 2022, resulting from the change in the parameters shown.
The numbers below are the changes in estimated ultimate loss and ALAE in millions of dollars as of December 31, 2023, resulting from the change in the parameters shown.
We believe that both liquidity and interest rate risk can be minimized by such asset/liability management. As of December 31, 2022, our fixed income portfolio’s duration was 4.2 years. ​ Consistent underwriting income allows a portion of our investment portfolio to be invested in equity securities and other risk asset classes.
We believe that both liquidity and interest rate risk can be minimized by such asset/liability management. As of December 31, 2023, our fixed income portfolio’s duration was 4.6 years. ​ Consistent underwriting income allows a portion of our investment portfolio to be invested in equity securities and other risk asset classes.
These asset pools can include items such as credit card payments, auto loans, structured bank loans in the form of collateralized loan obligations (CLOs) and residential or commercial mortgages. As of December 31, 2022, ABS/CMBS/RMBS investments were 9 percent of the fixed income portfolio, compared to 11 percent as of December 31, 2021.
These asset pools can include items such as credit card payments, auto loans, structured bank loans in the form of collateralized loan obligations (CLOs) and residential or commercial mortgages. As of December 31, 2023, ABS/CMBS/RMBS investments were 10 percent of the fixed income portfolio, compared to 9 percent as of December 31, 2022.
Each of these captions is presented in the statements of earnings but is not subtotaled. However, this information is available in total and by segment in note 12 to the consolidated financial statements within Item 8, Financial Statements and Supplementary Data.
Each of these components are presented in the statements of earnings but is not subtotaled. However, this information is available in total and by segment in note 12 to the consolidated financial statements within Item 8, Financial Statements and Supplementary Data.
These tax benefits reduced the effective tax rate for 2022 and 2021 by 0.6 percent and 0.5 percent, respectively. ​ NET UNPAID LOSSES AND SETTLEMENT EXPENSES ​ The primary liability on our balance sheet relates to unpaid losses and settlement expenses, which represents our estimated liability for losses and related settlement expenses before considering offsetting reinsurance balances recoverable.
These tax benefits reduced the effective tax rate for 2023 and 2022 by 0.4 percent and 0.6 percent, respectively. ​ NET UNPAID LOSSES AND SETTLEMENT EXPENSES ​ The primary liability on our balance sheet relates to unpaid losses and settlement expenses, which represents our estimated liability for losses and related settlement expenses before considering offsetting reinsurance balances recoverable.
As a result, we may not be able to receive dividends from such subsidiary at times and in amounts necessary to pay desired dividends to RLI Corp. shareholders. On a GAAP basis, as of December 31, 2022, our holding company had $1.2 billion in equity.
As a result, we may not be able to receive dividends from such subsidiary at times and in amounts necessary to pay desired dividends to RLI Corp. shareholders. On a GAAP basis, as of December 31, 2023, our holding company had $1.4 billion in equity.
Our gross liability for both case and IBNR reserves is reduced by reinsurance balances recoverable on unpaid losses and settlement expenses to calculate our net reserve balance. This net reserve balance increased to $1.6 billion at December 31, 2022, from $1.4 billion as of December 31, 2021.
Our gross liability for both case and IBNR reserves is reduced by reinsurance balances recoverable on unpaid losses and settlement expenses to calculate our net reserve balance. This net reserve balance increased to $1.7 billion at December 31, 2023, from $1.6 billion as of December 31, 2022.
Debt outstanding comprised 15 percent of total capital as of December 31, 2022. ​ At the holding company (RLI Corp.) level, we rely largely on dividends from our insurance company subsidiaries to meet our obligations for paying principal and interest on outstanding debt, corporate expenses and dividends to RLI Corp. shareholders.
Debt outstanding comprised 7 percent of total capital as of December 31, 2023. ​ At the holding company (RLI Corp.) level, we rely largely on dividends from our insurance company subsidiaries to meet our obligations for paying principal and interest on outstanding debt, corporate expenses and dividends to RLI Corp. shareholders.
Dividends paid to the ESOP in 2022 and 2021 resulted in tax benefits of $4.2 million and $1.6 million, respectively.
Dividends paid to the ESOP in 2023 and 2022 resulted in tax benefits of $1.6 million and $4.2 million, respectively.
The ETF portfolio is congruent with the actively managed equity portfolios and solves for exposures that line up with our overall benchmark index, the Russell 3000. In total, the equity portfolio is comprised of 90 securities. ​ INTEREST AND GENERAL CORPORATE EXPENSE ​ We incurred $8.0 million of interest expense on outstanding debt during 2022 and $7.7 million in 2021.
The ETF portfolio is congruent with the actively managed equity portfolios and solves for exposures that line up with our overall benchmark index, the Russell 3000. In total, the equity portfolio is comprised of 88 securities. ​ INTEREST AND GENERAL CORPORATE EXPENSE ​ We incurred $7 million of interest expense on outstanding debt during 2023 and $8 million in 2022.
Ordinary dividends are further restricted by the requirement that they be paid from earned surplus. In 2022 and 2021, our principal insurance subsidiary paid ordinary dividends totaling $13.0 million and $70.0 million, respectively, to RLI Corp. Any dividend distribution in excess of the ordinary dividend limits is deemed extraordinary and requires prior approval from the IDOI.
Ordinary dividends are further restricted by the requirement that they be paid from earned surplus. In 2023 and 2022, our principal insurance subsidiary paid ordinary dividends totaling $145 million and $13 million, respectively, to RLI Corp. Any dividend distribution in excess of the ordinary dividend limits is deemed extraordinary and requires prior approval from the IDOI.
These parameters were applied to a general liability net loss and LAE reserve balance of $212.2 million, in addition to associated ULAE and latent liability reserves, at December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ Result from favorable Result from unfavorable (in millions) ​ change in parameter ​ change in parameter +/- 5 point change in expected loss ratio for all accident years ​ $ (16.0) ​ $ 16.7 +/- 10% change in expected emergence patterns ​ $ (5.2) ​ $ 5.6 +/- 30% change in actual loss emergence over a calendar year ​ $ (7.8) ​ $ 8.6 Simultaneous change in expected loss ratio (5pts), expected emergence patterns (10%) and actual loss emergence (30%). ​ $ (29.2) ​ $ 30.6 ​ There are often significant interrelationships between our reserving assumptions that have offsetting or compounding effects on the reserve estimate.
These parameters were applied to a general liability net loss and LAE reserve balance of $215 million, in addition to associated ULAE and latent liability reserves, at December 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ Result from favorable Result from unfavorable (in millions) ​ change in parameter ​ change in parameter +/- 5 point change in expected loss ratio for all accident years ​ $ (18.7) ​ $ 16.9 +/- 10% change in expected emergence patterns ​ $ (6.5) ​ $ 4.4 +/- 30% change in actual loss emergence over a calendar year ​ $ (10.0) ​ $ 8.2 Simultaneous change in expected loss ratio (5pts), expected emergence patterns (10%) and actual loss emergence (30%). ​ $ (32.8) ​ $ 31.8 ​ There are often significant interrelationships between our reserving assumptions that have offsetting or compounding effects on the reserve estimate.
Dividends from our equity method investees have been irregular in nature, and while they provide added liquidity when received, we do not rely on those dividends to meet our liquidity needs. ​ INCOME TAXES ​ Our effective tax rates were 19.0 percent and 18.9 percent for 2022 and 2021, respectively.
Dividends from our equity method investees have been irregular in nature, and while they provide added liquidity when received, we do not rely on those dividends to meet our liquidity needs. ​ INCOME TAXES ​ Our effective tax rates were 19.3 percent and 19.0 percent for 2023 and 2022, respectively.
In addition to restrictions from our principal subsidiary’s insurance regulator, we also consider internal models and how capital adequacy is defined by our rating agencies in determining amounts available for distribution. ​ Our 187th consecutive dividend payment was declared in February 2023 and will be paid on March 20, 2023, in the amount of $0.26 per share.
In addition to restrictions from our principal subsidiary’s insurance regulator, we also consider internal models and how capital adequacy is defined by our rating agencies in determining amounts available for distribution. ​ Our 191st consecutive dividend payment was declared in February 2024 and will be paid on March 20, 2024, in the amount of $0.27 per share.
As of December 31, 2022, our portfolio had a carrying value of $3.3 billion. Portfolio assets at December 31, 2022, increased by $109.3 million, or 3 percent, from December 31, 2021. ​ Our overall investment philosophy is designed to first protect policyholders by maintaining sufficient funds to meet corporate and policyholder obligations and then generate long-term growth in shareholders’ equity.
As of December 31, 2023, our portfolio had a carrying value of $3.7 billion. Portfolio assets at December 31, 2023, increased by $404 million, or 12 percent, from December 31, 2022. ​ Our overall investment philosophy is designed to first protect policyholders by maintaining sufficient funds to meet corporate and policyholder obligations and then generate long-term growth in shareholders’ equity.
Effective rates are dependent upon components of pretax earnings, which is impacted by the volatility of unrealized gains and losses, and the related tax effects.
Effective rates are dependent upon components of pretax earnings, which is impacted by the volatility of unrealized gains and losses in equity securities, and the related tax effects.
We hire underwriters and claim examiners with deep expertise and provide exceptional customer service and support. We maintain a highly diverse product portfolio and underwrite for profit in all market conditions. In 2022, we achieved our 27th consecutive year of underwriting profitability. Over the 27-year period, we averaged an 88.2 combined ratio.
We hire underwriters and claim examiners with deep expertise and provide exceptional customer service and support. We maintain a highly diverse product portfolio and underwrite for profit in all market conditions. In 2023, we achieved our 28th consecutive year of underwriting profitability. Over the 28-year period, we averaged an 88.2 combined ratio.
During 2022, the average after-tax yield on the taxable fixed income portfolio was 2.3 percent, an increase from 2.2 percent in the prior year.
During 2023, the average after-tax yield on the taxable fixed income portfolio was 2.8 percent, an increase from 2.3 percent in the prior year.
Our insurance subsidiaries must maintain certain minimum capital levels in order to meet the requirements of the states in which we are regulated.
Our insurance subsidiaries must maintain certain minimum 47 Table of Contents capital levels in order to meet the requirements of the states in which we are regulated.
As of December 31, 2022, all of the securities in our agency MBS portfolio were rated AAA and issued by Government Sponsored Enterprises (GSEs) such as the Governmental National Mortgage Association, Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. ​ Variability in the average life of principal repayment is an inherent risk of owning mortgage-related securities.
As of December 31, 2023, all of the securities in our agency MBS portfolio were rated AA and issued by Government Sponsored Enterprises (GSEs) such as the Governmental National Mortgage Association, Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. ​ 43 Table of Contents Variability in the average life of principal repayment is an inherent risk of owning mortgage-related securities.
During 2022, we received $686.6 million of cash proceeds from the sale of our equity method investment in Maui Jim, which were classified as investing cash flows. However, tax payments associated with Maui Jim were classified as operating activities and totaled $141.5 million.
During 2022, we received $687 million of cash proceeds from the sale of our equity method investment in Maui Jim, which were classified as investing cash flows. However, tax payments associated with Maui Jim were classified as operating activities and totaled $142 million.
The corporate allocation includes floating rate bank loans and bonds that are below investment grade in credit quality and offer incremental yield over our core fixed income portfolio. Non-investment grade bonds totaled $132.7 million while non-rated Regulation D securities totaled $53.7 million at the end of 2022.
The corporate allocation includes floating rate bank loans and bonds that are below investment grade in credit quality and offer incremental yield over our core fixed income portfolio. Non-investment grade bonds totaled $144 million while non-rated Regulation D securities totaled $60 million at the end of 2023.
As of December 31, 2022, 42 percent of our shareholders’ equity was invested in equities, a decrease from 50 percent at December 31, 2021. ​ 49 Table of Contents The fixed income portfolio is structured to meet policyholder obligations and optimize the generation of after-tax investment income and total return. ​ FINANCING ACTIVITIES ​ In addition to the previously discussed operating and investing activities, we also engage in financing activities to manage our capital structure.
As of December 31, 2023 and 2022, 42 percent of our shareholders’ equity was invested in equities. 48 Table of Contents ​ The fixed income portfolio is structured to meet policyholder obligations and optimize the generation of after-tax investment income and total return. ​ FINANCING ACTIVITIES ​ In addition to the previously discussed operating and investing activities, we also engage in financing activities to manage our capital structure.
Hurricane and storm losses on casualty-oriented package policies that include property coverage resulted in $8.3 million of losses in 2022, compared to $4.1 million in 2021. ​ The segment’s loss ratio was 53.6 in 2022, compared to 49.2 in 2021.
Storm losses on casualty-oriented package policies that include property coverage resulted in $2 million of losses in 2023, compared to $8 million of hurricane and storm losses in 2022. ​ The segment’s loss ratio was 55.1 in 2023, compared to 53.6 in 2022.
While we have certain rights under our shareholder agreement, we are subject to the decisions of the controlling shareholder, which may impact 46 Table of Contents the value of our investment. In 2022, we recorded $13.0 million in investee earnings for Prime, compared to $17.0 million in 2021.
While we have certain rights under our shareholder agreement, we are subject to the decisions of the 45 Table of Contents controlling shareholder, which may impact the value of our investment. In 2023, we recorded $10 million in investee earnings for Prime, compared to $13 million in 2022.
However, we reduce our portfolio’s exposure to prepayment risk by seeking characteristics that tighten the probable scenarios for expected cash 44 Table of Contents flows. As of December 31, 2022, the agency MBS portfolio contained 65 percent of pure pass-throughs, compared to 52 percent as of December 31, 2021.
However, we reduce our portfolio’s exposure to prepayment risk by seeking characteristics that tighten the probable scenarios for expected cash flows. As of December 31, 2023, the agency MBS portfolio contained 65 percent of pure pass-throughs, the same as of December 31, 2022.
Sixty percent of the securities in the ABS/CMBS/RMBS portfolio were rated AAA as of December 31, 2022, while 94 percent were rated A or better.
Sixty-four percent of the securities in the ABS/CMBS/RMBS portfolio were rated AAA as of December 31, 2023, while 93 percent were rated A or better.
The effective rate was higher in 2022 due to higher levels of pretax earnings, which decreased the impact of tax-favored adjustments, such as investment tax credits and excess tax benefits on share-based compensation. ​ Dividends paid to our Employee Stock Ownership Plan (ESOP) result in a tax deduction.
The effective rate was higher in 2023 due to lower levels of tax-favored adjustments, such as dividends paid to our Employee Stock Ownership Plan (ESOP), tax credits and excess tax benefits on share-based compensation. ​ Dividends paid to our ESOP result in a tax deduction.
We had $77.3 million in unrealized losses in these asset classes as of December 31, 2022. ​ Municipal Fixed Income Securities ​ As of December 31, 2022, municipal bonds composed 20 percent of our fixed income portfolio, compared to 27 percent as of December 31, 2021.
We had $63 million in unrealized losses in these asset classes as of December 31, 2023. ​ Municipal Fixed Income Securities ​ As of December 31, 2023, municipal bonds composed 19 percent of our fixed income portfolio, compared to 20 percent as of December 31, 2022.
As of December 31, 2022, the portfolio had a fair value of $3.3 billion, an increase of $109.3 million from the end of 2021.
As of December 31, 2023, the portfolio had a fair value of $3.7 billion, an increase of $404 million from the end of 2022.
For example, our general liability emergence has ranged from 16 percent to 20 percent favorable and our management liability emergence has ranged from 13 percent adverse to 61 percent favorable over the last three years, while our overall emergence for all products combined has ranged from 9 percent to 30 percent favorable.
For example, our general liability emergence has ranged from 17 percent to 20 percent favorable and our small commercial emergence has ranged from 27 percent adverse to 9 percent favorable over the last three years, while our overall emergence for all products combined has ranged from 16 percent to 27 percent favorable.
Our membership allows each insurance subsidiary to determine tenor and structure at the time of borrowing. ​ We believe that cash generated by operations, cash generated by investments and cash available from financing activities will provide sufficient sources of liquidity to meet our anticipated needs over the next 12 to 24 months. We have consistently generated positive operating cash flow.
We believe that cash generated by operations, cash generated by investments and cash available from financing activities will provide sufficient sources of liquidity to meet our anticipated needs over the next 12 to 24 months. We have consistently generated positive operating cash flow.
The average annual yields on our investments were as follows for 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 PRETAX YIELD ​ ​ ​ ​ ​ Taxable (on book value) 2.94 % 2.76 % Tax-exempt (on book value) 2.71 % 2.63 % Equities (on fair value) 2.20 % 2.07 % ​ ​ ​ ​ ​ ​ AFTER-TAX YIELD ​ ​ ​ ​ ​ Taxable (on book value) 2.32 % 2.18 % Tax-exempt (on book value) 2.57 % 2.49 % Equities (on fair value) 1.91 % 1.80 % ​ The after-tax yield reflects the different tax rates applicable to each category of investment.
The average annual yields on our investments were as follows for 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 PRETAX YIELD ​ ​ ​ ​ ​ Taxable (on book value) 3.51 % 2.94 % Tax-exempt (on book value) 2.80 % 2.71 % Equities (on fair value) 2.27 % 2.20 % ​ ​ ​ ​ ​ ​ AFTER-TAX YIELD ​ ​ ​ ​ ​ Taxable (on book value) 2.77 % 2.32 % Tax-exempt (on book value) 2.65 % 2.57 % Equities (on fair value) 1.97 % 1.91 % ​ The after-tax yield reflects the different tax rates applicable to each category of investment.
However, if shorter term rates decline, investment income growth may be limited. ​ INVESTMENTS ​ We maintain a diversified investment portfolio with a prudent mix of fixed income and risk assets. We continually monitor economic conditions, our capital position and the insurance market to determine our tactical allocation.
However, if yields decline dramatically from current levels, investment income growth may be limited. ​ INVESTMENTS ​ We maintain a diversified investment portfolio with a prudent mix of fixed income and risk assets. We continually monitor economic conditions, our capital position, the insurance market and relative value in the capital markets to determine our tactical allocation.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, incorporated herein by reference. ​ Consolidated revenue for 2022 increased $518.7 million from 2021 to $1.7 billion.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, incorporated herein by reference. ​ Consolidated revenue for 2023 totaled $1.5 billion, down $186 million from 2022 as the sale of our equity method investment in Maui Jim, Inc.
Comparatively, results for 2021 included $11.0 million of favorable development on prior years’ loss and catastrophe reserves, primarily from the marine business, $32.2 million of hurricane losses and $22.3 million of other storm losses. ​ A larger earned premium base resulted in higher levels of underwriting income as well as lower loss and expense ratios.
Results for 2022 included $25 million of favorable development on prior years’ loss and catastrophe reserves, primarily from the marine business, $31 million of hurricane losses and $12 million of other storm losses. ​ A larger earned premium base resulted in higher levels of underwriting income as well as a lower expense ratio.
The municipal portfolio is diversified amongst 324 issues. ​ Eighty-eight percent of our municipal fixed income securities were rated AA or better, while 99 percent were rated A or better.
The municipal portfolio is diversified amongst 326 issues. ​ 44 Table of Contents Ninety percent of our municipal fixed income securities were rated AA or better, while 99 percent were rated A or better.
Equities comprised 15 percent of our total 2022 portfolio, down from 19 percent at the end of 2021, as we reduced our risk asset profile and equity markets declined over the course of the year. Securities within the equity portfolio are well diversified and are primarily invested in broad index exchange traded funds (ETFs).
Equities comprised 16 percent of our total 2023 portfolio, up from 15 percent at the end of 2022, as equity markets rose over the course of the year. Securities within the equity portfolio are well diversified and are primarily invested in broad index exchange traded funds (ETFs).
Results for 2022 included favorable development on prior accident years’ reserves, which decreased loss and settlement expenses for the segment by $10.4 million. Comparatively, 2021 results included favorable development on prior accident years’ reserves, which decreased loss and settlement expenses for the segment by $5.9 million. ​ The segment’s loss ratio was 9.8 in 2022, compared to 13.0 in 2021.
Comparatively, 2022 results included favorable development on prior accident years’ reserves, which decreased loss and settlement expenses for the segment by $10 million. ​ The segment’s loss ratio was 10.7 in 2023, compared to 9.8 in 2022. A decreased amount of favorable development on prior years’ reserves in 2023 led to a higher loss ratio.
Our insurance companies are also evaluated by rating agencies that assign financial strength ratings that measure our ability to meet our obligations to policyholders over an extended period of time. ​ We have historically grown our total capital as a result of three sources of funds: (1) earnings on underwriting and investing activities, (2) appreciation in the value of our investments and (3) the issuance of common stock and debt. ​ At December 31, 2022, we had cash, short-term investments and other investments maturing within one year of approximately $390.9 million and an additional $908.5 million of investments maturing between 1 to 5 years.
Our insurance companies are also evaluated by rating agencies that assign financial strength ratings that measure our ability to meet our obligations to policyholders over an extended period of time. ​ We have historically grown our total capital as a result of three sources of funds: (1) earnings on underwriting and investing activities, (2) appreciation in the value of our investments and (3) the issuance of common stock and debt.
The total return for the year on the equity portfolio was -13.8 percent. ​ 41 Table of Contents Our investment results for the last five years are shown in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-tax Equivalent ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Annualized ​ Annualized ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in ​ Return on ​ Return on ​ ​ Average ​ Net ​ ​ ​ ​ Unrealized ​ Avg. ​ Avg. ​ ​ Invested ​ Investment ​ Net Realized ​ Appreciation ​ Invested ​ Invested (in thousands) Assets (1) Income (2)(3) Gains (3)(4) (3)(5) Assets Assets 2018 ​ $ 2,167,510 ​ $ 62,085 ​ $ 63,407 ​ $ (140,513) (0.7) % (0.6) % 2019 ​ 2,377,295 ​ 68,870 ​ 17,520 ​ 161,848 10.4 % 10.5 % 2020 ​ 2,698,721 ​ 67,893 ​ 17,885 ​ 99,451 6.9 % 6.9 % 2021 ​ 3,000,025 ​ 68,862 ​ 64,222 ​ (6,280) 4.2 % 4.3 % 2022 ​ 3,217,635 ​ 86,078 ​ 588,515 ​ (462,981) 6.6 % 6.6 % 5-yr Avg. ​ $ 2,692,237 ​ $ 70,758 ​ $ 150,310 ​ $ (69,695) 5.5 % 5.5 % (1) Average amounts at beginning and end of year (inclusive of cash and short-term investments).
The total return for the year on the equity portfolio was 19.3 percent. ​ Our investment results for the last five years are shown in the following table: 40 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-tax Equivalent ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Annualized ​ Annualized ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in ​ Return on ​ Return on ​ ​ Average ​ Net ​ ​ ​ ​ Unrealized ​ Avg. ​ Avg. ​ ​ Invested ​ Investment ​ Net Realized ​ Appreciation ​ Invested ​ Invested (in thousands) Assets (1) Income (2)(3) Gains (3)(4) (3)(5) Assets Assets 2019 ​ $ 2,377,295 ​ $ 68,870 ​ $ 17,520 ​ $ 161,848 10.4 % 10.5 % 2020 ​ 2,698,721 ​ 67,893 ​ 17,885 ​ 99,451 6.9 % 6.9 % 2021 ​ 3,000,025 ​ 68,862 ​ 64,222 ​ (6,280) 4.2 % 4.3 % 2022 ​ 3,217,635 ​ 86,078 ​ 588,515 ​ (462,981) 6.6 % 6.6 % 2023 ​ 3,474,310 ​ 120,383 ​ 32,518 ​ 144,569 8.6 % 8.6 % 5-yr Avg. ​ $ 2,953,597 ​ $ 82,417 ​ $ 144,132 ​ $ (12,679) 7.3 % 7.4 % (1) Average market values at beginning and end of year (inclusive of cash and short-term investments).
As of December 31, 2022, our capital structure consisted of $199.9 million in debt and $1.2 billion of shareholders’ equity.
As of December 31, 2023, our capital structure consisted of $100 million in debt and $1.4 billion of shareholders’ equity.
Comparatively, results for the casualty segment in 2021 included favorable development of $108.6 million, with the bulk of the development attributable to general liability, transportation, professional services, commercial excess and personal umbrella across accident years 2014 through 2020.
Comparatively, results for the casualty segment in 2022 included favorable development of $87 million, with the bulk of the development attributable to general liability, professional services, commercial excess, transportation, small commercial and executive products across accident years 2016 and 2018 through 2021.
This includes amounts related to the equity of our insurance subsidiaries, which is subject to regulatory restrictions under state insurance laws. The unrestricted portion of holding company net assets is comprised primarily of investments and cash, including $240.6 million in liquid investment assets, which was elevated by the cash proceeds received from the sale of Maui Jim.
This includes amounts related to the equity of our insurance subsidiaries, which is subject to regulatory restrictions under state insurance laws. The unrestricted portion of holding company net assets is comprised primarily of investments and cash, including $145 million in liquid investment assets, which exceeds our normal annual holding company expenditures.
The municipal portfolio includes 52 percent taxable and 48 percent tax-exempt securities. ​ 45 Table of Contents Corporate Debt Securities ​ As of December 31, 2022, our corporate debt portfolio comprised 39 percent of the fixed income portfolio, compared to 40 percent as of December 31, 2021.
The municipal portfolio includes 58 percent taxable and 42 percent tax-exempt securities. ​ Corporate Debt Securities ​ As of December 31, 2023, our corporate debt portfolio comprised 43 percent of the fixed income portfolio, compared to 39 percent as of December 31, 2022.
A reconciliation of net earnings to underwriting income follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, (in thousands) 2022 2021 Net earnings ​ $ 583,411 ​ $ 279,354 Income tax expense ​ ​ 137,267 ​ ​ 64,967 Earnings before income taxes ​ $ 720,678 ​ $ 344,321 Equity in earnings of unconsolidated investees ​ ​ (9,853) ​ ​ (37,060) General corporate expenses ​ ​ 12,900 ​ ​ 13,330 Interest expense on debt ​ ​ 8,047 ​ ​ 7,677 Net unrealized (gains) losses on equity securities ​ ​ 121,037 ​ ​ (65,258) Net realized gains ​ ​ (588,515) ​ ​ (64,222) Net investment income ​ ​ (86,078) ​ ​ (68,862) Underwriting income ​ $ 178,216 ​ $ 129,926 ​ Combined Ratio ​ The combined ratio, which is derived from components of underwriting income, is a common industry performance measure of profitability for underwriting operations and is calculated in two components.
A reconciliation of net earnings to underwriting income follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, (in thousands) 2023 2022 Net earnings ​ $ 304,611 ​ $ 583,411 Income tax expense ​ ​ 72,654 ​ ​ 137,267 Earnings before income taxes ​ $ 377,265 ​ $ 720,678 Equity in earnings of unconsolidated investees ​ ​ (9,610) ​ ​ (9,853) General corporate expenses ​ ​ 15,917 ​ ​ 12,900 Interest expense on debt ​ ​ 7,301 ​ ​ 8,047 Net unrealized (gains) losses on equity securities ​ ​ (64,787) ​ ​ 121,037 Net realized gains ​ ​ (32,518) ​ ​ (588,515) Net investment income ​ ​ (120,383) ​ ​ (86,078) Underwriting income ​ $ 173,185 ​ $ 178,216 ​ Combined Ratio ​ The combined ratio, which is derived from components of underwriting income, is a common industry performance measure of profitability for underwriting operations and is calculated in two components.
The decline was the result of decreased favorable development on prior accident years’ reserves, which was partially offset by improved current accident year performance. ​ Favorable development on prior accident years’ loss reserves contributed to underwriting earnings in each of the past two years.
The decline was the result of decreased favorable development on prior accident years’ reserves and a slight increase in current accident year losses and expenses. ​ Favorable development on prior accident years’ loss reserves contributed to underwriting earnings in each of the past two years.
The expense ratio for the casualty segment was 36.0 in 2022, compared to 35.7 in 2021. ​ Property ​ Underwriting income from the property segment was $72.5 million on a 76.4 combined ratio in 2022, compared to $11.3 million on a 95.1 combined ratio in 2021.
The expense ratio for the casualty segment was 37.1 in 2023, compared to 36.0 in 2022. ​ Property ​ Underwriting income from the property segment was $86 million on a 78.5 combined ratio in 2023, compared to $73 million on a 76.4 combined ratio in 2022.
(5) Relates to available-for-sale fixed income and equity securities. ​ In 2022, we recognized $20.3 million in net realized gains in the equity portfolio, $3.0 million in net realized losses in the fixed income portfolio and $571.2 million in other net realized gains, primarily from our sale of Maui Jim.
(5) Relates to available-for-sale fixed income and equity securities. ​ In 2023, we recognized $22 million of net realized gains in the equity portfolio, $3 million of net realized losses in the fixed income portfolio and $14 million of other net realized gains, primarily from the payout of the working capital escrow associated with our sale of Maui Jim.
The following table summarizes these three cash flows over the last two years: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Net cash provided by operating activities ​ $ 250,448 ​ $ 384,905 Net cash provided by (used in) investing activities ​ ​ 48,879 ​ ​ (274,826) Net cash used in financing activities ​ ​ (365,313) ​ ​ (83,492) ​ We have posted positive operating cash flow in the last two years.
The following table summarizes these three cash flows over the last two years: ​ 46 Table of Contents ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Net cash provided by operating activities ​ $ 464,257 ​ $ 250,448 Net cash provided by (used in) investing activities ​ ​ (211,803) ​ ​ 48,879 Net cash used in financing activities ​ ​ (238,848) ​ ​ (365,313) ​ We have posted positive operating cash flow in the last two years.
An additional 17 percent of the MBS portfolio was invested in sequential payer, down from 23 percent in 2021. ​ The following table summarizes the distribution of our asset-backed and commercial mortgage-backed securities portfolio as of December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ ​ ​ ​ ​ ​ (in thousands) Cost Fair Value % of Total 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GSE RMBS ​ $ 109,852 ​ $ 92,321 ​ 38.4 % CMBS ​ 49,333 ​ ​ 41,593 ​ 17.3 % CLO ​ ​ 31,393 ​ ​ 30,407 ​ 12.6 % Auto ​ 17,194 ​ ​ 16,198 ​ 6.7 % Railcars ​ ​ 16,072 ​ ​ 13,923 ​ 5.8 % Consumers ​ ​ 12,241 ​ ​ 10,904 ​ 4.5 % Marine ​ 8,554 ​ ​ 7,319 ​ 3.0 % Other ​ ​ 31,487 ​ ​ 28,071 ​ 11.7 % Total ​ $ 276,126 ​ $ 240,736 ​ 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GSE RMBS ​ $ 79,281 ​ $ 78,497 ​ 29.7 % CMBS ​ ​ 55,293 ​ 55,592 ​ 21.1 % CLO ​ ​ 34,305 ​ ​ 34,362 ​ 13.0 % Auto ​ 17,401 ​ 17,491 ​ 6.6 % Railcars ​ ​ 15,383 ​ ​ 15,245 ​ 5.8 % Consumers ​ ​ 12,242 ​ ​ 12,442 ​ 4.7 % Marine ​ 9,353 ​ 9,253 ​ 3.5 % Other ​ ​ 41,015 ​ ​ 41,172 ​ 15.6 % Total ​ $ 264,273 ​ $ 264,054 ​ 100.0 % ​ An ABS, CMBS or non-agency residential mortgage-backed security (RMBS) is a securitization collateralized by the cash flows from a specific pool of underlying assets.
An additional 13 percent of the MBS portfolio was invested in sequential payer, down from 17 percent in 2022. ​ The following table summarizes the distribution of our asset-backed and commercial mortgage-backed securities portfolio as of December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ ​ ​ ​ ​ ​ (in thousands) Cost Fair Value % of Total 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GSE RMBS ​ $ 119,374 ​ $ 104,887 ​ 37.3 % CMBS ​ 61,878 ​ ​ 54,689 ​ 19.4 % CLO ​ ​ 30,620 ​ ​ 30,469 ​ 10.8 % Railcars ​ 14,415 ​ ​ 12,997 ​ 4.6 % Auto ​ ​ 10,748 ​ ​ 10,408 ​ 3.7 % Marine ​ ​ 11,657 ​ ​ 10,338 ​ 3.7 % Consumers ​ 11,067 ​ ​ 10,268 ​ 3.7 % Other ​ ​ 48,699 ​ ​ 47,126 ​ 16.8 % Total ​ $ 308,458 ​ $ 281,182 ​ 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GSE RMBS ​ $ 109,852 ​ $ 92,321 ​ 38.4 % CMBS ​ ​ 49,333 ​ 41,593 ​ 17.3 % CLO ​ ​ 31,393 ​ ​ 30,407 ​ 12.6 % Railcars ​ ​ 16,072 ​ ​ 13,923 ​ 5.8 % Auto ​ 17,194 ​ 16,198 ​ 6.7 % Marine ​ 8,554 ​ 7,319 ​ 3.0 % Consumers ​ ​ 12,241 ​ ​ 10,904 ​ 4.5 % Other ​ ​ 31,487 ​ ​ 28,071 ​ 11.7 % Total ​ $ 276,126 ​ $ 240,736 ​ 100.0 % ​ An ABS, CMBS or non-agency residential mortgage-backed security (RMBS) is a securitization collateralized by the cash flows from a specific pool of underlying assets.
The average after-tax yield on the tax-exempt portfolio increased slightly to 2.6 percent. ​ The fixed income portfolio increased by $257.1 million during the year, as the majority of operating cash flows were allocated to the fixed income portfolio. The tax-adjusted total return on a mark-to-market basis was -11.1 percent.
The average after-tax yield on the tax-exempt portfolio increased slightly to 2.7 percent. ​ The fixed income portfolio increased by $189 million during the year, as we allocated the majority of available cash flow to investment grade bonds and experienced strong market performance throughout the year. The tax-adjusted total return on a mark-to-market basis was 6.7 percent.
In 2021, we recognized $62.5 million in net realized gains in the equity portfolio, $1.9 million in net realized gains in the fixed income portfolio and $0.2 million in other net realized losses. ​ Investment income was aided by higher interest rates in 2022, as the Federal Reserve raised the Fed Funds target to fight inflation.
In 2022, we recognized $20 million of net realized gains in the equity portfolio, $3 million of net realized gains in the fixed income portfolio and $571 million of other net realized gains, primarily from our sale of Maui Jim. ​ Investment income was aided by higher interest rates in 2023, as the Federal Reserve raised the Fed Funds target to fight inflation.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeComparatively, our equity portfolio had a fair value of $613.8 million as of December 31, 2021 and scenarios of the S&P 500 Index declining by 10 percent and 20 percent would have resulted in approximate decreases of $56.4 million and $112.9 million, respectively. 51 Table of Contents ​ While the declines in market value outlined below are modeled as instantaneous changes, we would expect movements in capital markets to occur over time, with investment income offering an offset to any decrease in prices. ​ Under the assumptions of rising interest rates and a decreasing S&P 500 Index, the fair value of our assets will decrease from their present levels by the indicated amounts. ​ Effect of a 100 basis-point increase in interest rates and a 10 percent decline in the S&P 500: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/22 Fair ​ Interest ​ Equity (in thousands) Value Rate Risk Risk Held for non-trading purposes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities ​ $ 2,666,950 ​ $ (111,136) ​ $ — Equity securities ​ ​ 498,382 ​ ​ — ​ ​ (46,333) Total ​ $ 3,165,332 ​ $ (111,136) ​ $ (46,333) ​ Effect of a 200 basis-point increase in interest rates and a 20 percent decline in the S&P 500: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/22 Fair ​ Interest ​ Equity (in thousands) Value Rate Risk Risk Held for non-trading purposes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities ​ $ 2,666,950 ​ $ (215,239) ​ $ — Equity securities ​ ​ 498,382 ​ ​ — ​ ​ (92,667) Total ​ $ 3,165,332 ​ $ (215,239) ​ $ (92,667) ​ Comparatively, under the assumptions of falling interest rates and an increasing S&P 500 Index, the fair value of our assets will increase from their present levels by the indicated amounts. ​ Effect of a 100 basis-point decrease in interest rates and a 10 percent increase in the S&P 500: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/22 Fair ​ Interest ​ Equity (in thousands) Value Rate Risk Risk Held for non-trading purposes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities ​ $ 2,666,950 ​ $ 118,526 ​ $ — Equity securities ​ ​ 498,382 ​ ​ — ​ ​ 46,333 Total ​ $ 3,165,332 ​ $ 118,526 ​ $ 46,333 ​ Effect of a 200 basis-point decrease in interest rates and 20 percent increase in the S&P 500: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/22 Fair ​ Interest ​ Equity (in thousands) Value Rate Risk Risk Held for non-trading purposes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities ​ $ 2,666,950 ​ $ 244,958 ​ $ — Equity securities ​ ​ 498,382 ​ ​ — ​ ​ 92,667 Total ​ $ 3,165,332 ​ $ 244,958 ​ $ 92,667 ​ ​ ​ 52 Table of Contents ​
Biggest changeComparatively, our equity portfolio had a fair value of $498 million as of December 31, 2022 and scenarios of the S&P 500 Index declining by 10 percent and 20 percent would have resulted in approximate decreases of $46 million and $93 million, respectively. 50 Table of Contents ​ While the declines in market value outlined below are modeled as instantaneous changes, we would expect movements in capital markets to occur over time, with investment income offering an offset to any decrease in prices. ​ Under the assumptions of rising interest rates and a decreasing S&P 500 Index, the fair value of our assets will decrease from their present levels by the indicated amounts. ​ Effect of a 100 basis-point increase in interest rates and a 10 percent decline in the S&P 500: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/23 Fair ​ Interest ​ Equity (in thousands) Value Rate Risk Risk Held for non-trading purposes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities ​ $ 2,855,849 ​ $ (131,647) ​ $ — Equity securities ​ ​ 590,041 ​ ​ — ​ ​ (54,927) Total ​ $ 3,445,890 ​ $ (131,647) ​ $ (54,927) ​ Effect of a 200 basis-point increase in interest rates and a 20 percent decline in the S&P 500: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/23 Fair ​ Interest ​ Equity (in thousands) Value Rate Risk Risk Held for non-trading purposes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities ​ $ 2,855,849 ​ $ (254,624) ​ $ — Equity securities ​ ​ 590,041 ​ ​ — ​ ​ (109,854) Total ​ $ 3,445,890 ​ $ (254,624) ​ $ (109,854) ​ Comparatively, under the assumptions of falling interest rates and an increasing S&P 500 Index, the fair value of our assets will increase from their present levels by the indicated amounts. ​ Effect of a 100 basis-point decrease in interest rates and a 10 percent increase in the S&P 500: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/23 Fair ​ Interest ​ Equity (in thousands) Value Rate Risk Risk Held for non-trading purposes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities ​ $ 2,855,849 ​ $ 141,076 ​ $ — Equity securities ​ ​ 590,041 ​ ​ — ​ ​ 54,927 Total ​ $ 3,445,890 ​ $ 141,076 ​ $ 54,927 ​ Effect of a 200 basis-point decrease in interest rates and 20 percent increase in the S&P 500: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/31/23 Fair ​ Interest ​ Equity (in thousands) Value Rate Risk Risk Held for non-trading purposes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities ​ $ 2,855,849 ​ $ 291,715 ​ $ — Equity securities ​ ​ 590,041 ​ ​ — ​ ​ 109,854 Total ​ $ 3,445,890 ​ $ 291,715 ​ $ 109,854 ​ ​ ​ ​ 51 Table of Contents ​
Listed on each table is the December 31, 2022 fair value for our assets and the expected pretax reduction in fair value given the stated hypothetical events. This sensitivity analysis assumes the composition of our assets remains constant over the period being measured and also assumes interest rate changes are reflected uniformly across the yield curve.
Listed on each table is the December 31, 2023 fair value for our assets and the expected pretax reduction in fair value given the stated hypothetical events. This sensitivity analysis assumes the composition of our assets remains constant over the period being measured and also assumes interest rate changes are reflected uniformly across the yield curve.
This lower beta statistic reflects our long-term emphasis on maintaining a value-oriented, dividend-driven investment philosophy for our equity portfolio. ​ SENSITIVITY ANALYSIS ​ The tables that follow detail information on the market risk exposure for our financial investments as of December 31, 2022.
This lower beta statistic reflects our long-term emphasis on maintaining a value-oriented, dividend-driven investment philosophy for our equity portfolio. ​ SENSITIVITY ANALYSIS ​ The tables that follow detail information on the market risk exposure for our financial investments as of December 31, 2023.
The examples given are not predictions of future market events, but rather illustrations of the effect such events may have on the fair value of our investment portfolio. ​ As of December 31, 2022, our fixed income portfolio had a fair value of $2.7 billion.
The examples given are not predictions of future market events, but rather illustrations of the effect such events may have on the fair value of our investment portfolio. ​ As of December 31, 2023, our fixed income portfolio had a fair value of $2.9 billion.
The base sensitivity analysis uses market scenarios of the S&P 500 Index declining both 10 percent and 20 percent. These scenarios would result in approximate decreases in the equity fair value of $46.3 million and $92.7 million, respectively.
The base sensitivity analysis uses market scenarios of the S&P 500 Index declining both 10 percent and 20 percent. These scenarios would result in approximate decreases in the equity fair value of $55 million and $110 million, respectively.
The sensitivity analysis uses scenarios of interest rates increasing 100 and 200 basis points from their December 31, 2022, levels with all other variables held constant. Such scenarios would result in modeled decreases in the fair value of the fixed income portfolio of $111.1 million and $215.2 million, respectively.
The sensitivity analysis uses scenarios of interest rates increasing 100 and 200 basis points from their December 31, 2023, levels with all other variables held constant. Such scenarios would result in modeled decreases in the fair value of the fixed income portfolio of $132 million and $255 million, respectively.
Comparatively, our fixed income portfolio had a fair value of $2.4 billion as of December 31, 2021 and scenarios of interest rates increasing 100 and 200 basis points would have resulted in modeled decreases of $126.9 million and $246.8 million, respectively. ​ As of December 31, 2022, our equity portfolio had a fair value of $498.4 million.
Comparatively, our fixed income portfolio had a fair value of $2.7 billion as of December 31, 2022 and scenarios of interest rates increasing 100 and 200 basis points would have resulted in modeled decreases of $111 million and $215 million, respectively. ​ As of December 31, 2023, our equity portfolio had a fair value of $590 million.

Other RLI 10-K year-over-year comparisons