Risk Factors Dashboard

Once a year, publicly traded companies issue a comprehensive report of their business, called a 10-K. A component mandated in the 10-K is the ‘Risk Factors’ section, where companies disclose any major potential risks that they may face. This dashboard highlights all major changes and additions in new 10K reports, allowing investors to quickly identify new potential risks and opportunities.

Risk Factors - RLI

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$RLI Risk Factor changes from 00/02/24/23/2023 to 00/02/23/24/2024

Item 1A. Risk Factors​Insurance Industry​Our results of operations and revenues may fluctuate as a result of many factors, including cyclical changes in the insurance industry, which may cause the price of our securities to be volatile.​The results of operations of companies in the property and casualty insurance industry historically have been subject to significant fluctuations and uncertainties. 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. 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. These fluctuations in results of operations and revenues may not reflect long-term results and may cause the price of our securities to be volatile.​A significant percentage of our premium revenues are sold through a few brokers and carrier partners and a loss of business provided by any of them could adversely affect us.​We market our insurance products through brokers, agents and carrier partners. 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. Accordingly, our business is dependent on the willingness of these agents, brokers and carrier partners to recommend our products to their customers, who may also promote and distribute the products of our competitors. 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.​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. 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 compete with a large number of companies in the insurance industry to underwrite premium 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. 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. 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. We may also face competition from new sources of capital such as institutional investors seeking access to the insurance market, sometimes referred to as alternative capital, which may depress pricing or limit our opportunities to write business. Some of these competitors also have stronger brand awareness than we do. We may incur increased costs in competing for premium. 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.​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. Our insurance companies are rated for overall financial strength by AM Best, Standard & Poor’s and Moody’s. AM Best, Standard & Poor’s and Moody’s ratings are independent opinions of an insurer’s financial strength and ability to meet ongoing insurance policy and contract obligations, based on a comprehensive quantitative and qualitative analysis of balance sheet strength, operating performance, business profile and enterprise risk management. These financial strength ratings are based on factors relevant to policyholders, agents, insurance brokers and intermediaries and are not specifically related to securities issued by the company. The view of required capital may differ between rating agencies, as well as from RLI Corp.’s own view of desired capital. 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. Hawley and CBIC (group-rated). Standard & Poor’s reaffirmed our A rating for the group of RLI Ins. Standard & Poor’s reaffirmed our rating for the group of RLI Ins. and Mt. Hawley. Moody’s reaffirmed our group rating of A2 for RLI Ins. and Mt. Hawley. If our ratings are significantly reduced from their current levels by AM Best, Standard & Poor’s or Moody’s, our competitive position in the industry, and therefore our business, could be adversely affected. A significant downgrade could result in a substantial loss of business, as policyholders might move to other companies with greater financial strength ratings.​We are subject to extensive governmental regulation, which may adversely affect our ability to achieve our business objectives. Moreover, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition, results of operations and reputation.​Most insurance regulations are designed to protect the interests of policyholders rather than shareholders and other stakeholders. 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 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. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could initiate investigations or other proceedings, fine the Company, preclude or temporarily suspend the Company from carrying on some or all of its activities or otherwise penalize the Company. This could adversely affect our ability to operate our business. 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. To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities representing estimates of amounts needed to pay reported and unreported losses and the related loss adjustment expenses. Loss reserves are estimates of the ultimate cost of claims and do not represent an exact calculation of liability. These estimates are based on historical information and on estimates of future trends that may affect the frequency and severity of claims that may be reported in the future.​Estimating loss reserves is a difficult, complex and inherently uncertain process involving many variables and subjective judgments. 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. Changes in industry practices, and in legal, legislative, regulatory, judicial, social and other conditions under which we 19 Table of Contentsoperate 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 changes may not become apparent until after we have issued policies or bonds that are affected by the changes and, consequently, we may not know the extent of our liability and the impact to our financial performance until many years after a policy or bond was issued. 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.​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. 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. 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. However, there is no precise method for evaluating the impact of any specific factor on the adequacy of reserves and actual results are likely to differ from original estimates. 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.​Our insurance coverages include exposure to catastrophic events, particularly earthquakes on the West Coast and hurricanes and tropical storms affecting the continental U. 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. The extent of losses from a catastrophe is a function of both the total amount of insured values in the area affected by the event and the severity of the event. Most catastrophes are restricted to fairly specific geographic areas. However, hurricanes and earthquakes may produce significant damage in large, heavily populated areas. It is possible that a catastrophic event or multiple catastrophic events could cause the Company to suffer material financial losses. In addition, catastrophe claim costs may be higher than we originally estimate and could cause substantial volatility in our financial results for any fiscal quarter or year.​We use models to help assess exposure to catastrophic events against established thresholds. Models include underlying assumptions based on a limited set of actual events and cannot contemplate all possible catastrophe scenarios. 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. 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.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. 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 Contentscoverages 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. 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