RLI Reports Third Quarter Earnings

RLI Corp. (NYSE: RLI) – RLI Corp. reported third quarter 2009 operating earnings of $25.8 million ($1.18 per share). For the nine months ended September 30, 2009, operating earnings were $76.9 million ($3.53 per share).

		Third Quarter
Earnings Per Diluted Share		2009		2008
Operating earnings		$1.18		$1.12
Net earnings		$1.42		$0.40

Highlights for the quarter included:

• Operating earnings of $25.8 million ($1.18 per share).
• Combined ratio of 81.3.
• Book value per share of $38.23, an increase of 15.9% from year end 2008.
• Net operating cash flow of $46.8 million.
• $15.1 million ($0.45 per share) pretax favorable development in prior years’ loss reserves, net of effects on bonus and profit sharing-related expenses.

“This outstanding result was driven by solid underwriting, favorable loss trends and positive investment returns,” said Jonathan E. Michael, President & CEO. “Our strong balance sheet and disciplined approach to business continue to serve us well.”

Third quarter underwriting results

RLI achieved $23.0 million of underwriting income in the third quarter of 2009 on an 81.3 combined ratio, compared to $15.2 million of underwriting income on an 88.3 combined ratio in the same quarter for 2008.

Underwriting Income		Third Quarter							Third Quarter
(in millions)		2009		2008			Combined Ratio		2009		2008
Casualty		$17.4		$18.5			Casualty		73.2		75.9
Property		3.9		(11.0	)		Property		90.2		130.4
Surety		1.7		7.7			Surety		90.6		55.8
Total		$23.0		$15.2			Total		81.3		88.3

RLI reported year-to-date underwriting income of $63.2 million representing an 82.9 combined ratio versus the $59.0 million underwriting income representing an 85.2 combined ratio for the same period last year.

Other income

For the quarter, investment income was $16.3 million compared to $19.8 million for the same period in 2008. For the nine month period ended September 30, 2009, investment income was $50.5 million versus $58.7 million for the same period in 2008.

The investment portfolio’s total return for the quarter was 5.0%, with the bond portfolio returning 3.8% and the equity portfolio returning 12.8%. Through nine months, the investment portfolio’s total return was 8.6% with the bond portfolio returning 8.4% and equities returning 10.2%. During the last six months capital markets have significantly improved, contributing to our book value growth. Investment income is lower in 2009 versus the same period in 2008 as the result of lower reinvestment rates, dividend cuts and changes in asset allocation.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $68.0 million for the quarter ($3.12 per share) versus a loss of $15.5 million ($0.72 per share) over the same period in 2008. Year-to-date comprehensive earnings were $126.6 million ($5.82 per share), compared to $4.4 million ($0.20 per share) for the same period last year.

During the quarter, equity in earnings of unconsolidated investee was $1.1 million compared to $0.2 million from the same period last year. The quarter’s results for last year were negatively impacted by the increased value of the dollar, which resulted in currency losses. For the nine month period, earnings were $5.2 million versus $6.4 million in 2008. These results are related to Maui Jim, Inc., a producer of premium sunglasses, which has been affected by the economic slowdown and the ensuing effect on consumer discretionary spending.

Supplemental disclosure regarding the earnings impact of specific items

				Operating Earnings Per Share
				2009				2008				2009				2008
				3rd Qtr				3rd Qtr				9 mos.				9 mos.
Operating Earnings Per Share				$	1.18			$	1.12			$	3.53			$	3.69
Specific items included in operating earnings per share: (1) (2)
---		Gain from casualty prior years' reserve development		$	0.51			$	0.52			$	1.34			$	0.95
---		Gain (Loss) from property prior years' reserve development		$	(0.07	)			-			$	(0.23	)		$	0.06
---		Gain (Loss) from surety prior years' reserve development		$	-			$	0.14			$	(0.01	)		$	0.16
---		Gain from 2008 hurricanes' reserve development		$	0.01			$	-			$	0.05			$	-
---		Loss from 2008 hurricanes		$	-			$	(0.64	)		$	-			$	(0.63	)
---		Gain from change in tax rate applicable to the Maui Jim dividend (3)		$	-			$	0.05			$	-			$	0.05

(1)		Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses.
(2)		Favorable developments reflect revisions for previously estimated losses.
(3)		As required under the accounting standard for income taxes, the gain reflects the tax benefit of applying the lower tax rate applicable to dividends received from an affiliate (7%) as compared to the corporate capital gains tax rate (35%) on which tax estimates were based.

Other news

During the quarter, the company was named as one of the insurance industry's top performing companies by the Ward's 50 ^® Top P&C Performers group. RLI is one of only five property and casualty insurers to have been recognized for excellence among 3,100 property and casualty insurers for 19 straight years since the group’s inception in 1991.

The company paid a third quarter cash dividend of $0.27 per share on October 15, 2009. RLI’s cumulative dividends, including this recent payment, are more than $190 million paid in 133 consecutive quarters. RLI has paid and increased dividends in each of the last 34 years. The company’s dividend yield would be 2.0%, based on the $1.08 annualized dividend and today’s closing stock price of $54.90.

The company’s $200 million stock repurchase program, approved in 2007 and suspended in the third quarter of 2008, was reinstated with $37.8 million of remaining capacity.

At 10 a.m. CDT tomorrow, October 20, 2009, RLI management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion through the Internet at RLI’s website, www.rlicorp.com.

Underwriting income, operating earnings, earnings per share (EPS) from operations and other per share items are non-GAAP financial measures, and we believe that investors’ understanding of RLI’s core operating performance is enhanced by our disclosure of these financial measures. Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting losses and settlement expenses, policy acquisition costs, and insurance operating expenses from net premium earned. Operating earnings and EPS from operations consist of our net earnings adjusted by net realized investment gains/(losses) and taxes related to net realized gains/(losses). Our definitions of these items may not be comparable to the definitions used by other companies. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. All earnings per share data are calculated using fully diluted shares. Combined ratio refers to a GAAP combined ratio.

Except for historical information, this news release may include forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) including, without limitation, statements reflecting our current expectations about the future performance of our company or our business segments or about future market conditions. These statements are subject to certain risk factors that could cause actual results to differ materially. Various risk factors that could affect future results are listed in the company's filings with the Securities and Exchange Commission, including the Form 10-K Annual Report for the year ended December 31, 2008.

RLI, a specialty insurance company, offers a diversified portfolio of property and casualty coverages and surety bonds serving "niche" or underserved markets. RLI operates in all 50 states from office locations across the country. The company's talented associates have delivered underwriting profits in 28 of the last 32 years, including the last 13. RLI's insurance subsidiaries – RLI Insurance Company, Mt. Hawley Insurance Company and RLI Indemnity Company – are rated A+ "Superior" by A.M. Best Company and A+ "Strong" by Standard & Poor's.

For additional information, contact John Robison, Treasurer, Chief Investment Officer at (309) 693-5846 or at John.Robison@rlicorp.com or visit our website at www.rlicorp.com.

RLI CORP.
2009 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2009		2008			% Change			2009			2008			% Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned		$ 122,736		$ 130,850			-6.2	%		$ 370,910			$ 399,110			-7.1	%
Net investment income		16,295		19,844			-17.9	%		50,494			58,707			-14.0	%
Net realized investment gains (losses)		6,985		(24,212	)					(20,789	)		(12,396	)		-67.7	%
Consolidated revenue		146,016		126,482			15.4	%		400,615			445,421			-10.1	%
Loss and settlement expenses		47,677		66,013			-27.8	%		157,678			190,043			-17.0	%
Policy acquisition costs		41,627		41,424			0.5	%		121,196			121,721			-0.4	%
Other insurance expenses		10,480		8,216			27.6	%		28,814			28,346			1.7	%
Interest expense on debt		1,512		1,646			-8.1	%		4,537			5,191			-12.6	%
General corporate expenses		2,177		1,735			25.5	%		5,847			5,759			1.5	%
Total expenses		103,473		119,034			-13.1	%		318,072			351,060			-9.4	%
Equity in earnings of unconsolidated investee		1,120		248			351.6	%		5,242			6,417			-18.3	%
Earnings before income taxes		43,663		7,696			467.3	%		87,785			100,778			-12.9	%
Income tax expense (benefit)		12,644		(890	)					24,502			28,083			-12.8	%
Net Earnings		$ 31,019		$ 8,586			261.3	%		$ 63,283			$ 72,695			-12.9	%
Other comprehensive earnings (loss), net of tax		36,969		(24,109	)					63,357			(68,274	)
Comprehensive earnings (loss)		$ 67,988		$ (15,523	)					$ 126,640			$ 4,421			2764.5	%
Operating Earnings: (1)
Net Earnings		$ 31,019		$ 8,586			261.3	%		$ 63,283			$ 72,695			-12.9	%
Less: Realized investment gains (losses) , net of tax		5,250		(15,737	)					(13,603	)		(8,057	)		-68.8	%
Operating earnings		$ 25,769		$ 24,323			5.9	%		$ 76,886			$ 80,752			-4.8	%
Return on Equity:
Net earnings (trailing four quarters)										9.3	%		13.8	%
Comprehensive earnings (trailing four quarters)										16.1	%		4.1	%
Per Share Data
Diluted:
Weighted average shares outstanding (in 000's)		21,769		21,678						21,760			21,893
EPS from operations (1)		$ 1.18		$ 1.12			5.4	%		$ 3.53			$ 3.69			-4.3	%
Realized gains (losses), net of tax		0.24		(0.72	)					(0.62	)		(0.37	)		-67.6	%
Net earnings per share		$ 1.42		$ 0.40			255.0	%		$ 2.91			$ 3.32			-12.3	%
Comprehensive earnings (loss) per share		$ 3.12		$ (0.72	)					$ 5.82			$ 0.20			2810.0	%
Cash dividends per share		$ 0.27		$ 0.25			8.0	%		$ 0.80			$ 0.73			9.6	%
Net Cash Flow from Operations		$ 46,845		$ 40,164			16.6	%		$ 108,445			$ 126,732			-14.4	%
(1) See discussion of non-GAAP financial measures on page 3.

RLI CORP.
2009 FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
		September 30,		December 31,
		2009		2008		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income		$ 1,475,032		$ 1,274,056		15.8	%
(amortized cost - $1,427,058 at 9/30/09)
(amortized cost - $1,286,779 at 12/31/08)
Equity securities		238,590		286,790		-16.8	%
(cost - $166,505 at 9/30/09)
(cost - $251,283 at 12/31/08)
Short-term investments		142,771		97,982		45.7	%
Total investments		1,856,393		1,658,828		11.9	%
Premiums and reinsurance balances receivable		86,033		92,149		-6.6	%
Ceded unearned premiums		66,417		65,977		0.7	%
Reinsurance recoverable on unpaid losses		343,377		350,284		-2.0	%
Deferred acquisition costs		79,923		78,520		1.8	%
Property and equipment		19,592		21,565		-9.1	%
Income taxes - deferred		-		24,141		-100.0	%
Investment in unconsolidated investee		44,348		38,697		14.6	%
Goodwill		26,214		26,214		-
Other assets		40,661		63,026		-35.5	%
Total assets		$ 2,562,958		$ 2,419,401		5.9	%
Unpaid losses and settlement expenses		$ 1,159,025		$ 1,159,311		0.0	%
Unearned premiums		330,629		335,170		-1.4	%
Reinsurance balances payable		22,844		30,224		-24.4	%
Long-term debt - bonds payable		100,000		100,000		-
Income taxes - deferred		26,089		-		-
Accrued expenses		36,327		32,894		10.4	%
Other liabilities		61,100		53,648		13.9	%
Total liabilities		1,736,014		1,711,247		1.4	%
Shareholders' equity		826,944		708,154		16.8	%
Total liabilities & shareholders' equity		$ 2,562,958		$ 2,419,401		5.9	%
OTHER DATA
Common shares outstanding (in 000's)		21,629		21,474
Book Value per share		$ 38.23		$ 32.98		15.9	%
Closing stock price per share		$ 52.78		$ 61.16		-13.7	%
Statutory Surplus		$ 750,478		$ 678,041		10.7	%

RLI CORP.
2009 FINANCIAL HIGHLIGHTS
UNDERWRITING SEGMENT DATA
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended September 30,
					GAAP						GAAP						GAAP					GAAP
			Casualty		Ratios			Property			Ratios			Surety			Ratios			Total		Ratios
2009
Gross premiums written			$ 83,337					$ 51,177						$ 25,406						$ 159,920
Net premiums written			59,274					38,018						21,874						119,166
Net premiums earned			64,794					39,829						18,113						122,736
Net loss & settlement expenses			24,243		37.4	%		19,379			48.7	%		4,055			22.4	%		47,677		38.8	%
Net operating expenses			23,221		35.8	%		16,536			41.5	%		12,350			68.2	%		52,107		42.5	%
Underwriting income			$ 17,330		73.2	%		$ 3,914			90.2	%		$ 1,708			90.6	%		$ 22,952		81.3	%
2008
Gross premiums written			$ 99,570					$ 51,599						$ 21,728						$ 172,897
Net premiums written			73,371					38,334						20,363						132,068
Net premiums earned			76,993					36,376						17,481						130,850
Net loss & settlement expenses			34,121		44.3	%		33,395			91.8	%		(1,503	)		-8.6	%		66,013		50.4	%
Net operating expenses			24,335		31.6	%		14,040			38.6	%		11,265			64.4	%		49,640		37.9	%
Underwriting income (loss)			$ 18,537		75.9	%		$ (11,059	)		130.4	%		$ 7,719			55.8	%		$ 15,197		88.3	%
Nine Months Ended September 30,
					GAAP						GAAP						GAAP					GAAP
			Casualty		Ratios			Property			Ratios			Surety			Ratios			Total		Ratios
2009
Gross premiums written			$ 254,933					$ 163,959						$ 68,336						$ 487,228
Net premiums written			186,732					122,301						56,897						365,930
Net premiums earned			202,766					115,394						52,750						370,910
Net loss & settlement expenses			96,718		47.7	%		49,769			43.1	%		11,191			21.2	%		157,678		42.5	%
Net operating expenses			68,668		33.9	%		46,354			40.2	%		34,988			66.3	%		150,010		40.4	%
Underwriting income			$ 37,380		81.6	%		$ 19,271			83.3	%		$ 6,571			87.5	%		$ 63,222		82.9	%
2008
Gross premiums written			$ 307,860					$ 151,372						$ 59,710						$ 518,942
Net premiums written			228,524					110,058						55,929						394,511
Net premiums earned			237,559					110,869						50,682						399,110
Net loss & settlement expenses			130,243		54.8	%		56,775			51.2	%		3,025			6.0	%		190,043		47.6	%
Net operating expenses			73,870		31.1	%		43,244			39.0	%		32,953			65.0	%		150,067		37.6	%
Underwriting income			$ 33,446		85.9	%		$ 10,850			90.2	%		$ 14,704			71.0	%		$ 59,000		85.2	%