RLI Second Quarter Sets Earnings Record

PEORIA, Ill., July 17 /PRNewswire-FirstCall/ -- RLI Corp. reported second quarter 2007 net earnings of $49.9 million ($2.04 per share), compared to $22.9 million ($0.89 per share) from the same period last year. For the six months ended June 30, 2007, net earnings were $82.4 million ($3.35 per share) compared to $48.6 million ($1.86 per share) for the same period last year.

Second Quarter Earnings Per Diluted Share 2007 2006 Net earnings $2.04 $0.89 Operating earnings $1.64 $0.73 Highlights for the quarter included: -- $40.1 million ($1.64 per share) operating earnings -- $15.0 million pretax ($0.40 per share) net realized investment gains -- $63.7 million net operating cash flow -- $20.5 million pretax ($0.54 per share) favorable development in prior years' loss and hurricane reserves, net of bonus and profit sharing-related expenses -- 71.6 combined ratio -- 8.7% investment income growth -- Book value per share of $33.00, up 5.9% year to date

"This quarter is an excellent example of the talented employees of RLI doing what they do best: generate an underwriting profit," said RLI Corp. President & CEO Jonathan E. Michael. "We are not strangers to industry-wide softening markets. We remain strong by focusing on profitable opportunities in both new and existing product lines, and relying on the underwriting discipline and outstanding customer service for which we have been known for more than 40 years."

Operating earnings for the first six months of 2007 were $69.6 million ($2.83 per share) versus $41.6 million ($1.60 per share) for the comparable period last year. Please refer to the table on Page 2 of this release for the quarterly and year-to-date impact of specific items.

Second quarter underwriting results

RLI achieved $39.1 million of underwriting income in the second quarter of 2007 on a 71.6 combined ratio, compared to $7.0 million of underwriting income on a 94.5 combined ratio in the second quarter of 2006.

Underwriting Income Second Quarter Second Quarter (in millions) 2007 2006 Combined Ratio 2007 2006 Casualty $25.3 $6.7 Casualty 71.2 92.2 Property 8.8 (1.8) Property 74.6 107.0 Surety 5.0 2.1 Surety 66.9 85.8 Total $39.1 $7.0 Total 71.6 94.5

RLI reported year-to-date underwriting income of $64.7 million representing a 76.5 combined ratio versus the $22.9 million underwriting income representing a 90.9 combined ratio for the same period last year.

Other income

Second quarter investment income grew 8.7% to $19.1 million. For the six- month period ended June 30, 2007, investment income was $38.1 million, up 11.1% over the same period last year. While cash flow has been strong, funds normally allocated to the investment portfolio have been used to fund the company's share repurchase programs in place over the last 17 months.

The investment portfolio's total return for the quarter was 0.8%, the bond portfolio's return was 0.0% and the equity portfolio, which includes common and preferred stock, had a return of 4.2%. For the six-month period ending June 30, 2007, the portfolio's total return was 2.4% based on a bond portfolio return of 1.6% and an equity portfolio return of 5.8%.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $34.9 million for the quarter ($1.43 per share) versus $14.7 million ($0.57 per share) over the same period in 2006. Year-to-date comprehensive earnings were $68.0 million, or $2.77 per share, compared to $36.8 million ($1.41 per share) for the same period last year.

During the quarter, equity in earnings of unconsolidated investees was $4.4 million, all related to Maui Jim, Inc. (Maui Jim). The second quarter of 2006 reflected $4.9 million in income, which included $3.6 million related to Maui Jim. and $1.3 million from Taylor Bean & Whitaker Mortgage Corp. (TBW). In the fourth quarter of 2006, RLI sold its equity interest in TBW. Year to date, equity in earnings of unconsolidated investees was $5.7 million, all related to Maui Jim. For the same period in 2006, the company reported $7.6 million of earnings from these entities, of which $5.6 million was related to Maui Jim and $2.0 million from TBW.

Supplemental disclosure regarding the earnings impact of specific items Operating Earnings Per Share 2007 2006 2nd Qtr. 6 mos. 2nd Qtr. 6 mos. Operating Earnings Per Share $1.64 $2.83 $0.73 $1.60 Specific items included in operating earnings per share: (1) (2) -- Favorable development from prior years' casualty reserves $0.46 $0.79 -- $0.06 -- Favorable development from prior years' property reserves $0.03 $0.03 -- -- -- Favorable development from prior years' surety reserves $0.04 $0.04 -- -- -- Favorable development from 2005 hurricanes $0.01 $0.01 $0.03 $0.07 -- (Loss) on property construction coverage -- -- ($0.18)($0.18) (1) Includes bonus- and profit sharing-related impacts that affected other insurance and general corporate expenses. (2) Favorable developments reflect revisions for previously estimated losses. Other RLI news

In May of this year, RLI announced a new stock repurchase program for up to $100 million of RLI common stock. During the second quarter of 2007, the company repurchased 240,000 shares at an average cost of $57.23 per share ($13.7 million).

The company paid a quarterly cash dividend of $0.22 per share on July 13, 2007, a 10%, or two-cent, increase over the prior quarter, representing the company's 124th consecutive quarterly dividend. The company's dividend growth has averaged 20.9% annually over the last five years, and has averaged 13.9% annually over the last 10 years. The company has increased dividends for 32 straight years.

At 10 a.m. CDT, July 18, 2007, 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, http://www.rlicorp.com/.

Operating earnings and earnings per share (EPS) from operations and other per share items are non-GAAP financial measures, and management believes that investors' understanding of core operating performance is enhanced by RLI's disclosure of these financial measures. Operating earnings and EPS from operations consist of net earnings reduced by net realized investment gains and taxes related to net realized gains. 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 current expectations about the future performance of the company or its 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, 2006.

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 25 office locations. The company's talented associates have delivered underwriting profits in 26 of the last 30 years, including the last 11. 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 Treasurer John Robison at [phone] or at [e-mail] or visit our website at http://www.rlicorp.com/.

RLI CORP. 2007 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts) Three Months Ended June 30, 2007 2006 % Change SUMMARIZED INCOME STATEMENT DATA: Net premiums earned $137,488 $125,867 9.2% Net investment income 19,077 17,556 8.7% Net realized investment gains 14,967 1,489 905.2% Consolidated revenue 171,532 144,912 18.4% Loss and settlement expenses 51,572 74,966 -31.2% Policy acquisition costs 36,827 34,207 7.7% Other insurance expenses 9,988 9,736 2.6% Interest expense on debt 1,545 1,710 -9.6% General corporate expenses 2,163 1,654 30.8% Total expenses 102,095 122,273 -16.5% Equity in earnings of unconsolidated investees 4,410 4,867 -9.4% Earnings before income taxes 73,847 27,506 168.5% Income tax expense 23,994 4,584 423.4% Net Earnings $49,853 $22,922 117.5% Other comprehensive earnings (loss), net of tax (14,952) (8,199) -82.4% Comprehensive earnings $34,901 $14,723 137.1% Operating Earnings:(1) Net Earnings $49,853 $22,922 117.5% Less: Realized investment gains, net of tax 9,729 968 905.1% Tax benefit on IRS examination (2) -- 3,172 -- Operating earnings $40,124 $18,782 113.6% Per Share Data Diluted: Weighted average shares outstanding (in 000's) 24,446 25,762 EPS from operations (1) $1.64 $0.73 124.7% Realized gains, net of tax 0.40 0.16 150.0% Net earnings per share $2.04 $0.89 129.2% Comprehensive earnings per share $1.43 $0.57 150.9% Cash dividends per share $0.22 $0.19 15.8% Net Cash Flow from Operations $63,737 $46,788 36.2% RLI CORP. 2007 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts) Six Months Ended June 30, 2007 2006 % Change SUMMARIZED INCOME STATEMENT DATA: Net premiums earned $275,465 $253,254 8.8% Net investment income 38,067 34,264 11.1% Net realized investment gains 19,592 5,931 230.3% Consolidated revenue 333,124 293,449 13.5% Loss and settlement expenses 114,632 141,643 -19.1% Policy acquisition costs 76,591 69,806 9.7% Other insurance expenses 19,544 18,937 3.2% Interest expense on debt 3,055 3,392 -9.9% General corporate expenses 4,040 3,509 15.1% Total expenses 217,862 237,287 -8.2% Equity in earnings of unconsolidated investees 5,723 7,607 -24.8% Earnings before income taxes 120,985 63,769 89.7% Income tax expense 38,615 15,191 154.2% Net Earnings $82,370 $48,578 69.6% Other comprehensive earnings (loss), net of tax (14,352) (11,794) -21.7% Comprehensive earnings $68,018 $36,784 84.9% Operating Earnings:(1) Net Earnings $82,370 $48,578 69.6% Less: Realized investment gains, net of tax 12,735 3,855 230.4% Tax benefit on IRS examination (2) -- 3,172 -- Operating earnings $69,635 $41,551 67.6% Return on Equity: Net earnings (trailing four quarters) 22.8% 13.4% Comprehensive earnings (trailing four quarters) 25.5% 8.5% Per Share Data Diluted: Weighted average shares outstanding (in 000's) 24,562 26,050 EPS from operations (1) $2.83 $1.60 76.9% Realized gains, net of tax 0.52 0.26 100.0% Net earnings per share $3.35 $1.86 80.1% Comprehensive earnings per share $2.77 $1.41 96.5% Cash dividends per share $0.42 $0.36 16.7% Net Cash Flow from Operations $89,047 $68,497 30.0% (1) See discussion of use of non-GAAP financial measures on page 3 (2) During the second quarter of 2006, the Internal Revenue Service (IRS) concluded an examination of the company's tax years 2000 through 2004. As a result of the conclusion of this exam, our second quarter income tax expense includes a positive impact of $3.2 million, resulting from the change in estimate for a tax exposure item relating to the sale of assets. This impact is excluded from operating earnings and EPS from operations. RLI CORP. 2007 FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share amounts) June 30, December 31, 2007 2006 % Change SUMMARIZED BALANCE SHEET DATA: Fixed income and short-term investments $1,502,513 $1,460,046 2.9% (amortized cost - $1,524,350 at 6/30/07) (amortized cost - $1,465,660 at 12/31/06) Equity securities 365,483 368,195 -0.7% (cost - $204,006 at 6/30/07) (cost - $201,443 at 12/31/06) Preferred stock 28,020 -- -- (cost - $28,871 at 6/30/07) Total investments 1,896,016 1,828,241 3.7% Premiums and reinsurance balances receivable 123,308 126,021 -2.2% Ceded unearned premiums 83,385 97,596 -14.6% Reinsurance recoverable on unpaid losses 517,310 525,671 -1.6% Deferred acquisition costs 77,137 73,817 4.5% Property and equipment 19,647 20,590 -4.6% Investment in unconsolidated investees 36,482 36,667 -0.5% Goodwill 26,214 26,214 -- Other assets 28,434 36,479 -22.1% Total assets $2,807,933 $2,771,296 1.3% Unpaid losses and settlement expenses 1,321,702 1,318,777 0.2% Unearned premiums 374,441 387,811 -3.4% Reinsurance balances payable 83,663 85,046 -1.6% Short-term debt 26,961 -- -- Long-term debt - bonds payable 100,000 100,000 -- Income taxes - deferred 21,118 27,069 -22.0% Other liabilities 95,784 96,073 -0.3% Total liabilities 2,023,669 2,014,776 0.4% Shareholders' equity 784,264 756,520 3.7% Total liabilities & shareholders' equity $2,807,933 $2,771,296 1.3% OTHER DATA Common shares outstanding (in 000's) 23,766 24,273 Book Value per share $33.00 $31.17 5.9% Closing stock price per share $55.95 $56.42 -0.8% Statutory Surplus $760,162 $746,905 1.8% RLI CORP. 2007 FINANCIAL HIGHLIGHTS UNDERWRITING SEGMENT DATA (Unaudited) (Dollars in thousands, except per share amounts) Three Months Ended June 30, GAAP GAAP Casualty Ratios Property Ratios 2007 Gross premiums written $127,250 $66,256 Net premiums written 91,112 48,352 Net premiums earned 87,784 34,486 Net loss & settlement expenses 36,701 41.8% 14,399 41.8% Net operating expenses 25,815 29.4% 11,296 32.8% Underwriting income $25,268 71.2% $8,791 74.6% 2006 Gross premiums written $134,938 $77,203 Net premiums written 95,140 49,688 Net premiums earned 85,815 25,370 Net loss & settlement expenses 54,700 63.7% 16,793 66.2% Net operating expenses 24,480 28.5% 10,351 40.8% Underwriting income (loss) $6,635 92.2% $(1,774) 107.0% RLI CORP. 2007 FINANCIAL HIGHLIGHTS UNDERWRITING SEGMENT DATA (Unaudited) (Dollars in thousands, except per share amounts) Three Months Ended June 30, GAAP GAAP Casualty Ratios Property Ratios 2007 Gross premiums written $18,585 $212,091 Net premiums written 17,341 156,805 Net premiums earned 15,218 137,488 Net loss & settlement expenses 472 3.1% 51,572 37.5% Net operating expenses 9,704 63.8% 46,815 34.1% Underwriting income $5,042 66.9% $39,101 71.6% 2006 Gross premiums written $16,549 $228,690 Net premiums written 15,845 160,673 Net premiums earned 14,682 125,867 Net loss & settlement expenses 3,473 23.7% 74,966 59.6% Net operating expenses 9,112 62.1% 43,943 34.9% Underwriting income (loss) $2,097 85.8% $6,958 94.5% Six Months Ended June 30, GAAP GAAP Casualty Ratios Property Ratios 2007 Gross premiums written $238,607 $108,408 Net premiums written 170,806 71,492 Net premiums earned 175,799 69,095 Net loss & settlement expenses 79,483 45.2% 31,949 46.2% Net operating expenses 52,431 29.8% 24,406 35.3% Underwriting income $43,885 75.0% $12,740 81.5% 2006 Gross premiums written $250,094 $120,095 Net premiums written 175,644 74,391 Net premiums earned 173,081 50,992 Net loss & settlement expenses 108,391 62.6% 26,467 51.9% Net operating expenses 49,169 28.4% 21,221 41.6% Underwriting income $15,521 91.0% $3,304 93.5% Six Months Ended June 30, GAAP GAAP Casualty Ratios Property Ratios 2007 Gross premiums written $36,392 $383,407 Net premiums written 34,007 276,305 Net premiums earned 30,571 275,465 Net loss & settlement expenses 3,200 10.5% 114,632 41.6% Net operating expenses 19,298 63.1% 96,135 34.9% Underwriting income $8,073 73.6% $64,698 76.5% 2006 Gross premiums written $33,654 $403,843 Net premiums written 31,806 281,841 Net premiums earned 29,181 253,254 Net loss & settlement expenses 6,785 23.3% 141,643 55.9% Net operating expenses 18,353 62.9% 88,743 35.0% Underwriting income $4,043 86.2% $22,868 90.9%