RLI 8K sets record year | RLI 24 Jan 06

Exhibit 99.1

NEWS RELEASE

RLI Corp.

9025 N. Lindbergh Dr. ½ Peoria, IL 61615-1499

Phone: 309-692-1000 ½ Fax: 309-692-1068

www.rlicorp.com

FOR IMMEDIATE RELEASE		CONTACT: Aaron Jacoby
		(309) 693-5880
		Aaron_Jacoby@rlicorp.com
		www.rlicorp.com

RLI sets record year

PEORIA, ILLINOIS, January 24, 2006 — RLI Corp. (NYSE: RLI) – RLI Corp. reported 2005 net earnings of $107.1 million ($4.07 per diluted share), compared to $73.0 million ($2.80 per diluted share) reported last year.

Earnings Per Diluted Share	2005		2004		2003
Net earnings	$	4.07	$	2.80	$	2.76
Operating earnings	$	3.67	$	2.47	$	2.27

Other significant accomplishments for the year include:

• $96.5 million of operating earnings ($3.67 per share)

• 86.0 combined ratio across all segments

• 10.1% growth in book value per share, to $27.12

• $198 million of net operating cash flow

• 14.0% growth in investment income

“On behalf of all RLI associates, I am extremely proud to present these results to our shareholders,” said RLI Corp. President & CEO Jonathan E. Michael. “We generated a 21.6% shareholder return from dividends and stock price appreciation in 2005. We also delivered an exceptional 86.0 combined ratio, marking the 10^th consecutive year RLI has achieved a combined ratio below 100. These strong 2005 results occurred against a backdrop of unprecedented industry-wide hurricane losses. RLI’s ability to sustain these losses – and prosper – illustrates the advantage of our diversified portfolio of specialty insurance products.”

The following significant items affected earnings in 2005. A table on page four provides additional information to this summary:

• $45.7 million pretax ($1.13 per share) of favorable loss development from prior years’ reserves.

• $18.0 million pretax ($0.44 per share) hurricane loss, including favorable development of 2004 hurricanes.

• $12.2 million pretax ($0.30 per share) underwriting loss attributable to construction coverage in the fourth quarter. During the quarter, RLI withdrew from certain construction coverages within the property segment due to continued poor performance.

• $4.5 million after tax ($0.17 per share) gain in the fourth quarter as a result of favorable tax treatment on a dividend from unconsolidated investee Maui Jim. In January, 2006 the board of directors of Maui Jim, Inc. declared a dividend that will be payable in the first quarter of 2006. RLI’s share of the cash dividend will be $16.5 million.

Each of these items includes bonus-related impacts which affected other insurance and general corporate expenses.

— more —

Final quarter results affected by Hurricane Wilma and construction loss

Net earnings for the fourth quarter were $18.1 million ($0.68 per share) versus $29.5 million ($1.13 per share) last year. The quarter, in addition to the construction loss ($12.2 million, $0.30 per share) and the tax benefit attributable to the Maui Jim dividend ($4.5 million, $0.17 per share), included other significant items. A table on page four provides additional information to this summary:

• $16.9 million of operating earnings ($0.64 per share) compared to $26.8 million ($1.02 per share) for the same period last year

• 100.4 combined ratio versus 81.3 from 2004’s fourth quarter

• $4.8 million pretax ($0.12 per share) hurricane loss, including favorable development of previous 2004 and 2005 hurricanes

• $3.6 million pretax ($0.09 per share) of favorable loss development from prior years’ accident reserves in the surety and casualty segments

Underwriting profit for 10^th straight year

RLI achieved $68.9 million of underwriting income in 2005 on an 86.0 combined ratio compared to $39.9 million of underwriting income on a 92.2 combined ratio in 2004. For the quarter, RLI recorded an underwriting loss of $0.4 million on a 100.4 combined ratio versus $24.4 million of underwriting income on an 81.3 combined ratio in the fourth quarter of 2004. The 2005 fourth quarter loss was driven by Hurricane Wilma and the construction loss, and was partially offset by favorable reserve development. The following table highlights annual gross premiums written and combined ratios by segment:

Gross Premiums
Written (in millions)	2005		2004		2003		Combined Ratio	2005	2004	2003
Casualty	$	519.1	$	519.8	$	497.7	Casualty	80.0	94.7	98.4
Property	176.2		178.6		193.4		Property	110.3	79.2	63.8
Surety	60.7		54.2		51.4		Surety	90.0	100.2	114.2
Total	$	756.0	$	752.6	$	742.5	Total	86.0	92.2	92.0

“Although most of our products experienced very strong results, our construction book was a notable exception,” said Michael. “Part of the resiliency of RLI’s business plan is that we have the agility to enter lines of business that look promising, as we did with RLI Marine in the second quarter of this year. This nimbleness also means we can, and sometimes have to, exit a business that isn’t performing up to expectations.”

Hurricane losses, including favorable development of estimates from prior events, increased the full year combined ratio by 3.8 points and the quarter by 4.2 points. Favorable reserve development primarily from casualty lines improved the combined ratio for the year by 9.5 points and the quarter by 3.1 points.

Gross premiums written were up 0.5% for the year and 11.2% in the fourth quarter.

Casualty

RLI’s casualty segment’s gross premiums written were flat for the year, but grew 3.8% in the fourth quarter. The combined ratios – 80.0 for the year and 86.4 for the quarter – were both driven by strong underlying profitability and favorable reserve development.

Property

RLI’s property segment’s gross premiums written were down 1.3% for the year and up 36.3% in the fourth quarter. The 2005 premium volume was negatively influenced by the exit from certain construction policies, while the fourth quarter’s growth was driven by market penetration of excess & surplus lines policies as well as rate increases in select geographic areas. The $8.3 million of underwriting loss for the year and $15.3 million for the quarter reflects both

the hurricane and construction impacts. These results drove the year-end combined ratio of 110.3, which contrasts to last year’s 79.2 year-end combined ratio, itself hindered by the four Southeast hurricanes of 2004.

Surety

RLI’s surety segment’s gross premiums written were up 12.0% for the year and up 15.4% in the fourth quarter. This growth was achieved with continued strong combined ratios – 90.0 for the year and 79.4 in the fourth quarter– both aided slightly by favorable reserve development.

In commenting on current marketplace conditions, Michael noted, “Our property underwriters are starting to report new business opportunities as other companies restrict activity in the Gulf region. RLI remains committed to the area and will apply our proven underwriting standards as we review these opportunities. Reinsurance costs for these coverages have also risen, and we have already started to see a firming pricing environment. Casualty business should remain relatively stable, which represents an improvement over recent softening trends. Surety remains healthy and recent growth trends should persist.

“A solid balance sheet and reserve strength are hallmarks of RLI,” continued Michael. “As we enter 2006, our balance sheet remains strong and we are well-positioned in what promises to be improving marketplace conditions.”

Investment and other income

Year-end investment income grew 14.0% due to continued positive operating cash flows, from $54.1 million in 2004 to $61.6 million in 2005. Investment income for the quarter reached $16.5 million, an 11.9% increase over the fourth quarter of last year.

The investment portfolio’s total return for 2005 was 3.3%. The bond portfolio gained 3.1% and the equity portfolio’s return was 4.4%. For the quarter, the portfolio’s total return was 0.6% based on a bond portfolio return of 0.7% and an equity portfolio return of 0.1%.

In addition to the investment portfolio results, equity in earnings of unconsolidated investees in 2005 was $10.9 million compared to $5.4 million in 2004, primarily due to the performance of Maui Jim. During the fourth quarter of 2005, equity in earnings of unconsolidated investees was $2.5 million versus $1.1 million for the same period in 2004. Higher sales and continued strong operating performance by Maui Jim drove the growth in the current quarter and year versus the comparable periods of 2004.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $83.9 million for the year ($3.19 per share) compared to $81.4 million ($3.12 per share) in 2004. Quarterly comprehensive earnings were $10.9 million ($0.41 per share) versus $39.1 million ($1.49 per share) last year.

Other RLI news

The company paid a fourth quarter cash dividend of $0.17 per share on January 13, 2006, which reflected a $0.01 increase over the prior quarter. 2005 marked the 30^th consecutive year that RLI has increased dividends. Dividends for the year increased 23.5% to $0.63 per share.

At 3:15 p.m. CDT today, January 24, 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.

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 for the year ended December 31, 2004.

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 23 office locations. The company’s talented associates have delivered underwriting profits in 25 of the last 29 years, including the last 10.

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 RLI Vice President, Corporate Development Aaron Jacoby at (309) 693-5880 or at aaron_jacoby@rlicorp.com, or visit our website at www.rlicorp.com.

Supplemental disclosure regarding the earnings impact of specific items:

	Operating Earnings Per Share
	2005						2004
	4th Qtr			Full Year			4th Qtr		Full Year
Operating Earnings Per Share	$	0.64		$	3.67		$	1.02	$	2.47

Specific gain/(loss) items:
• (Loss) from 2005 Hurricanes Katrina, Rita and Wilma (1)	$	(0.17	)	$	(0.58	)	—		—
• Gain/(loss) from 2004 Southeast U.S. hurricanes (1)(2)	$	0.05		$	0.14		$	0.04	$	(0.38	)
• Gain from favorable reserve development (1)	$	0.09		$	1.13		$	0.29	$	0.29
• (Loss) on construction coverage (1)	$	(0.30	)	$	(0.30	)	—		—

• Gain from change in tax rate applicable to the $16.5 million dividend from Maui Jim (1)(3)	$	0.17		$	0.17		—		—

(1) Includes bonus-related impacts which affected other insurance and general corporate expenses.

(2) Gains reflect reductions in previously estimated losses.

(3) As required under Statement of Financial Accounting Standards 109, “Accounting for Income Taxes,” the gain reflects the tax benefit of applying the lower tax rate applicable to affiliated dividends (7%) as compared to the corporate capital gains tax rate (35%) on which previous tax estimates were based.

RLI CORP.

2005 FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share amounts)

	Three Months Ended December 31,							Twelve Months Ended December 31,
	2005			2004		% Change		2005			2004			% Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned	$	117,464		$	130,556	-10.0	%	$	491,307		$	511,348		-3.9	%
Net investment income	16,508			14,756		11.9	%	61,641			54,087			14.0	%
Net realized investment gains	1,787			4,139		-56.8	%	16,354			13,365			22.4	%
Consolidated revenue	135,759			149,451		-9.2	%	569,302			578,800			-1.6	%

Loss and settlement expenses	75,493			61,768		22.2	%	251,170			306,131			-18.0	%
Policy acquisition costs	33,787			34,999		-3.5	%	136,058			134,595			1.1	%
Other insurance expenses	8,566			9,369		-8.6	%	35,196			30,731			14.5	%
Interest expense on debt	1,701			1,766		-3.7	%	7,118			6,894			3.2	%
General corporate expenses	1,670			2,013		-17.0	%	6,780			5,536			22.5	%
Total expenses	121,217			109,915		10.3	%	436,322			483,887			-9.8	%

Equity in earnings of unconsolidated investees	2,505			1,063		135.7	%	10,896			5,429			100.7	%

Earnings before income taxes	17,047			40,599		-58.0	%	143,876			100,342			43.4	%
Income tax expense	(1,058		)	11,130		-109.5	%	36,742			27,306			34.6	%
Net Earnings	$	18,105		$	29,469	-38.6	%	$	107,134		$	73,036		46.7	%

Other comprehensive earnings (loss), net of tax	(7,244		)	9,624		-175.3	%	(23,232		)	8,318			-379.3	%

Comprehensive earnings	$	10,861		$	39,093	-72.2	%	$	83,902		$	81,354		3.1	%

Operating Earnings:(1)
Net Earnings	$	18,105		$	29,469	-38.6	%	$	107,134		$	73,036		46.7	%
Less: Realized investment gains, net of tax	1,161			2,690		-56.8	%	10,630			8,687			22.4	%
Operating earnings	$	16,944		$	26,779	-36.7	%	$	96,504		$	64,349		50.0	%

Return on Equity:
Net earnings (trailing four quarters)								16.2		%	12.5		%
Comprehensive earnings (trailing four quarters)								12.7		%	14.0		%

Per Share Data

Diluted:
Weighted average shares outstanding (in 000’s)	26,461			26,155				26,324			26,093

EPS from operations (1)	$	0.64		$	1.02	-37.3	%	$	3.67		$	2.47		48.6	%
Realized gains, net of tax	0.04			0.11		-63.6	%	0.40			0.33			21.2	%
Net earnings per share	$	0.68		$	1.13	-39.8	%	$	4.07		$	2.80		45.4	%

Comprehensive earnings per share	$	0.41		$	1.49	-72.5	%	$	3.19		$	3.12		2.2	%

Cash dividends per share	$	0.17		$	0.14	21.4	%	$	0.63		$	0.51		23.5	%

(1) Operating earnings and EPS from operations consist of our net earnings reduced by after-tax realized investment gains/losses. This measure is useful in gauging our core operating performance across reporting periods, but may not be comparable to the definition of operating earnings used by all companies.

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2005		2004		% Change		2005		2004		% Change
Total Gross Revenues
Gross premiums written	$	198,444	178,495		11.2	%	$	756,012	752,588		0.5	%
Net investment income	16,508		14,756		11.9	%	61,641		54,087		14.0	%
Net realized investment gains	1,787		4,139		-56.8	%	16,354		13,365		22.4	%
Total	$	216,739	$	197,390	9.8	%	$	834,007	$	820,040	1.7	%

Net Cash Flow from Operations	$	50,410	$	13,645	269.4	%	$	198,027	$	188,962	4.8	%

	December 31, 2005		December 31, 2004		% Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income and short-term investments	$	1,376,695	$	1,253,843	9.8	%
(amortized cost - $1,384,620 at 12/31/05)
(amortized cost - $1,237,361 at 12/31/04)
Equity securities	321,096		315,875		1.7	%
(cost - $186,417 at 12/31/05)
(cost - $169,479 at 12/31/04)
Total investments	1,697,791		1,569,718		8.2	%

Premiums and reinsurance balances receivable	126,894		146,667		-13.5	%
Ceded unearned premiums	114,668		101,446		13.0	%
Reinsurance recoverable on unpaid losses	593,209		464,180		27.8	%
Deferred acquisition costs	69,477		67,146		3.5	%
Property and equipment	20,859		18,335		13.8	%
Investment in unconsolidated investees	54,340		43,398		25.2	%
Goodwill	26,214		26,214		0.0	%
Other assets	32,418		31,671		2.4	%
Total assets	$	2,735,870	$	2,468,775	10.8	%

Unpaid losses and settlement expenses	1,331,866		1,132,599		17.6	%
Unearned premiums	383,683		367,205		4.5	%
Reinsurance balances payable	97,526		78,062		24.9	%
Short-term debt	15,541		46,839		-66.8	%
Long-term debt - bonds payable	100,000		100,000		0.0	%
Income taxes - deferred	22,717		38,966		-41.7	%
Other liabilities	91,596		81,443		12.5	%
Total liabilities	2,042,929		1,845,114		10.7	%
Shareholders’ equity	692,941		623,661		11.1	%
Total liabilities & shareholders’ equity	$	2,735,870	$	2,468,775	10.8	%

OTHER DATA
Common shares outstanding (in 000’s)	25,551		25,316

Book Value per share	$	27.12	$	24.64	10.1	%
Closing stock price per share	$	49.87	$	41.57	20.0	%

Statutory Surplus	$	690,547	$	605,967	14.0	%

UNDERWRITING SEGMENT DATA

(in thousands)

	Property			GAAP Ratios		Surety			GAAP Ratios		Casualty		GAAP Ratios		Total			GAAP Ratios
Three Months Ended December 31,
2005

Gross premium written	$	49,937				$	13,007				$	135,500			$	198,444
Net premium written	18,479					12,350					87,668				118,497
Net premium earned	14,868					14,062					88,534				117,464
Net loss & settlement expenses	20,318			136.7	%	2,232			15.9	%	52,943		59.8	%	75,493			64.3	%
Net operating expenses	9,868			66.4	%	8,929			63.5	%	23,556		26.6	%	42,353			36.1	%
Underwriting income(loss)	$	(15,318	)	203.1	%	$	2,901		79.4	%	$	12,035	86.4	%	$	(382	)	100.4	%

2004
Gross premium written	$	36,628				$	11,270				$	130,597			$	178,495
Net premium written	18,156					10,096					92,654				120,906
Net premium earned	24,585					12,085					93,886				130,556
Net loss & settlement expenses	5,124			20.8	%	4,432			36.7	%	52,212		55.6	%	61,768			47.3	%
Net operating expenses	8,987			36.6	%	7,634			63.2	%	27,747		29.6	%	44,368			34.0	%
Underwriting income(loss)	$	10,474		57.4	%	$	19		99.9	%	$	13,927	85.2	%	$	24,420		81.3	%

	Property			GAAP Ratios		Surety			GAAP Ratios		Casualty		GAAP Ratios		Total			GAAP Ratios
Twelve Months Ended December 31,
2005

Gross premium written	$	176,228				$	60,669				$	519,115			$	756,012
Net premium written	89,089					56,011					349,465				494,565
Net premium earned	80,528					51,886					358,893				491,307
Net loss & settlement expenses	55,344			68.7	%	14,327			27.6	%	181,499		50.6	%	251,170			51.1	%
Net operating expenses	33,526			41.6	%	32,358			62.4	%	105,370		29.4	%	171,254			34.9	%
Underwriting income(loss)	$	(8,342	)	110.3	%	$	5,201		90.0	%	$	72,024	80.0	%	$	68,883		86.0	%

2004
Gross premium written	$	178,625				$	54,146				$	519,817			$	752,588
Net premium written	91,549					49,214					370,449				511,212
Net premium earned	98,043					47,688					365,617				511,348
Net loss & settlement expenses	41,735			42.6	%	18,355			38.5	%	246,041		67.3	%	306,131			59.9	%
Net operating expenses	35,908			36.6	%	29,402			61.7	%	100,016		27.4	%	165,326			32.3	%
Underwriting income(loss)	$	20,400		79.2	%	$	(69	)	100.2	%	$	19,560	94.7	%	$	39,891		92.2	%

RLI (RLI) 8-KRLI sets record year

FOR IMMEDIATE RELEASE

CONTACT: Aaron Jacoby

www.rlicorp.com