RLI (RLI) 8-K Results of Operations and Financial Condition

Exhibit 99.1

NEWS RELEASE

RLI Corp.	9025 N. Lindbergh Drive  |  Peoria, IL 61615-1431
	P: 309-692-1000  | F: 309-692-1068  |  www.rlicorp.com

FOR IMMEDIATE RELEASE	CONTACT: John Robison
	(309) 693-5846
	John.Robison@rlicorp.com
	www.rlicorp.com

RLI reports second quarter earnings

PEORIA, ILLINOIS, July 15, 2008 — RLI Corp. (NYSE: RLI) – RLI Corp. reported second quarter 2008 net earnings of $38.7 million ($1.77 per share). For the six months ended June 30, 2008, net earnings were $64.1 million ($2.91 per share).

	Second Quarter
Earnings Per Diluted Share	2008		2007
Net earnings	$	1.77	$	2.04
Operating earnings	$	1.53	$	1.64

Highlights for the quarter included:

·Operating earnings of $33.4 million ($1.53 per share).

·Combined ratio of 78.0.

·Book value per share of $34.72.

·Net operating cash flow of $38.5 million.

·Favorable development from prior years’ loss reserves of $17.4 million pretax ($0.52 per share), net of bonus and profit-sharing related expenses.

·Midwest flood property losses of $2.2 million pretax ($0.06 per share).

“We are pleased with our second quarter results. Our results demonstrate the positive influence of our commitment to underwriting discipline especially in the face of today’s soft market,” said RLI Corp. President & CEO Jonathan E. Michael. “We continue to optimistically look to the future as we build capabilities through our profit-driven, underwriting-focused business model.”

Operating earnings for the first six months of 2008 were $56.4 million ($2.56 per share) versus $69.6 million ($2.83 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 $29.1 million of underwriting income in the second quarter of 2008 on a 78.0 combined ratio, compared to $39.1 million of underwriting income on a 71.6 combined ratio in the same quarter for 2007.

Underwriting Income	Second Quarter
(in millions)	2008		2007
Casualty	$	15.5	$	25.3
Property	9.5		8.8
Surety	4.1		5.0
Total	$	29.1	$	39.1

	Second Quarter
Combined Ratio	2008	2007
Casualty	80.2	71.2
Property	74.0	74.6
Surety	76.2	66.9
Total	78.0	71.6

RLI reported year-to-date underwriting income of $43.8 million representing an 83.6 combined ratio versus the $64.7 million underwriting income representing a 76.5 combined ratio for the same period last year.

— more –

DIFFERENT WORKS

Other income

For the quarter, investment income grew 2.8% to $19.6 million. For the six month period ended June 30, 2008, investment income was $38.9 million, up 2.1% over the same period last year.

The investment portfolio’s total return for the quarter was -0.5%; the bond portfolio was -0.2% and the equity portfolio was - 1.9%. Through six months, the investment portfolio’s total return was -0.6% with the bond portfolio returning 1.4% and equities returning -8.9%. Our investment returns continue to outpace the leading market indices including the U.S. Lehman Aggregate, 1.1% return year to date, and the S&P 500, -11.9% return year to date.

Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $13.3 million for the quarter ($0.61 per share) versus $34.9 million ($1.43 per share) over the same period in 2007. Year-to-date comprehensive earnings were $19.9 million, or $0.91 per share, compared to $68.0 million ($2.77 per share) for the same period last year.

Supplemental disclosure regarding the earnings impact of specific items

	Operating Earnings Per Share
	2008				2007
	2nd Qtr		6 mos.		2nd Qtr		6 mos.
Operating Earnings Per Share	$	1.53	$	2.56	$	1.64	$	2.83
Specific items included in operating earnings per share: (1) (2)
· Gain from favorable casualty prior years’ reserve development	$	0.44	$	0.44	$	0.46	$	0.79
· Gain from favorable property prior years’ reserve development	$	0.05	$	0.05	$	0.03	$	0.03
· Gain from favorable surety prior years’ reserve development	$	0.03	$	0.03	$	0.04	$	0.04

(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.

Other news

During the quarter, the company announced the creation of a new product division, RLI Fidelity. The group will focus on financial fidelity and commercial crime insurance products, and will be located in New York City.

In the second quarter of 2008, we repurchased 318,000 of our shares at an average cost of $49.96 ($15.9 million). As of June 30, 2008, we have $40.1 million of remaining capacity from the $200 million repurchase program approved in 2007.

The company paid a second quarter cash dividend of $0.25 per share on July 15, 2008. The dividend is a two-cent, or 9% increase over the prior quarter’s dividend. RLI’s cumulative dividends, including this recent payment, are more than $166 million paid in 128 consecutive quarterly dividends. The company’s dividend yield would be 2.2%, based on the $1.00 annualized dividend and today’s closing stock price of $44.64.

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At 10 a.m. CDT tomorrow, July 16, 2008, 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 reduced by net realized investment gains and taxes related to net realized gains. 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.

S&P 500 returns provided by Standard and Poor’s. U.S. Lehman Aggregate returns provided by Lehman Brothers.

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, 2007.

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 27 of the last 31 years, including the last 12. 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 (309) 693-5846 or at john.robison@rlicorp.com or visit our website at www.rlicorp.com.

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RLI CORP.

2008 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended June 30,								Six Months Ended June 30,
	2008			2007			% Change		2008			2007			% Change
SUMMARIZED INCOME STATEMENT DATA:
Net premiums earned	$	132,295		$	137,488		-3.8	%	$	268,260		$	275,465		-2.6	%
Net investment income	19,605			19,077			2.8	%	38,863			38,067			2.1	%
Net realized investment gains	8,075			14,967			-46.0	%	11,816			19,592			-39.7	%
Consolidated revenue	159,975			171,532			-6.7	%	318,939			333,124			-4.3	%
Loss and settlement expenses	54,765			51,572			6.2	%	124,030			114,632			8.2	%
Policy acquisition costs	38,551			36,827			4.7	%	80,297			76,591			4.8	%
Other insurance expenses	9,840			9,988			-1.5	%	20,130			19,544			3.0	%
Interest expense on debt	1,718			1,545			11.2	%	3,545			3,055			16.0	%
General corporate expenses	1,920			2,163			-11.2	%	4,024			4,040			-0.4	%
Total expenses	106,794			102,095			4.6	%	232,026			217,862			6.5	%
Equity in earnings of unconsolidated investees	3,940			4,410			-10.7	%	6,169			5,723			7.8	%
Earnings before income taxes	57,121			73,847			-22.6	%	93,082			120,985			-23.1	%
Income tax expense	18,471			23,994			-23.0	%	28,973			38,615			-25.0	%
Net Earnings	$	38,650		$	49,853		-22.5	%	$	64,109		$	82,370		-22.2	%
Other comprehensive loss, net of tax	(25,339		)	(14,952		)	-69.5	%	(44,165		)	(14,352		)	-207.7	%
Comprehensive earnings	$	13,311		$	34,901		-61.9	%	$	19,944		$	68,018		-70.7	%
Operating Earnings:(1)
Net Earnings	$	38,650		$	49,853		-22.5	%	$	64,109		$	82,370		-22.2	%
Less: Realized investment gains , net of tax	5,248			9,729			-46.1	%	7,680			12,735			-39.7	%
Operating earnings	$	33,402		$	40,124		-16.8	%	$	56,429		$	69,635		-19.0	%
Return on Equity:
Net earnings (trailing four quarters)									20.4		%	22.8		%
Comprehensive earnings (trailing four quarters)									15.3		%	25.5		%
Per Share Data
Diluted:
Weighted average shares outstanding (in 000’s)	21,808			24,446					22,036			24,562
EPS from operations (1)	$	1.53		$	1.64		-6.7	%	$	2.56		$	2.83		-9.5	%
Realized gains, net of tax	0.24			0.40			-40.0	%	0.35			0.52			-32.7	%
Net earnings per share	$	1.77		$	2.04		-13.2	%	$	2.91		$	3.35		-13.1	%
Comprehensive earnings per share	$	0.61		$	1.43		-57.3	%	$	0.91		$	2.77		-67.1	%
Cash dividends per share	$	0.25		$	0.22		13.6	%	$	0.48		$	0.42		14.3	%
Net Cash Flow from Operations	$	38,483		$	63,737		-39.6	%	$	86,568		$	89,047		-2.8	%

(1)  See discussion of use of non-GAAP financial measures on page 3.

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RLI CORP.

2008 FINANCIAL HIGHLIGHTS

(Unaudited)

(Dollars in thousands, except per share amounts)

	June 30,		December 31,
	2008		2007		%Change
SUMMARIZED BALANCE SHEET DATA:
Fixed income and short-term investments	$	1,456,327	$	1,446,097	0.7	%
(amortized cost - $1,463,539 at 6/30/08)
(amortized cost - $1,437,463 at 12/31/07)
Equity securities	307,105		359,513		-14.6	%
(cost - $214,765 at 6/30/08)
(cost - $216,465 at 12/31/07)
Preferred stock	41,555		34,167		21.6	%
(cost - $48,257 at 6/30/08)
(cost - $39,133 at 12/31/07)
Total investments	1,804,987		1,839,777		-1.9	%
Premiums and reinsurance balances receivable	99,066		105,937		-6.5	%
Ceded unearned premiums	64,979		71,021		-8.5	%
Reinsurance recoverable on unpaid losses	428,463		417,250		2.7	%
Deferred acquisition costs	80,395		78,882		1.9	%
Property and equipment	22,706		20,050		13.2	%
Investment in unconsolidated investee	44,399		38,162		16.3	%
Goodwill	26,214		26,214		—
Other assets	33,157		29,230		13.4	%
Total assets	$	2,604,366	$	2,626,523	-0.8	%
Unpaid losses and settlement expenses	$	1,235,904	$	1,192,178	3.7	%
Unearned premiums	343,662		355,522		-3.3	%
Reinsurance balances payable	36,291		38,273		-5.2	%
Short-term debt	25,869		27,975		-7.5	%
Long-term debt - bonds payable	100,000		100,000		—
Income taxes - deferred	4,502		25,042		-82.0	%
Accrued expenses	29,520		39,303		-24.9	%
Other liabilities	87,516		73,808		18.6	%
Total liabilities	1,863,264		1,852,101		0.6	%
Shareholders’ equity	741,102		774,422		-4.3	%
Total liabilities & shareholders’ equity	$	2,604,366	$	2,626,523	-0.8	%
OTHER DATA
Common shares outstanding (in 000’s)	21,348		22,155
Book Value per share	$	34.72	$	34.95	-0.7	%
Closing stock price per share	$	49.47	$	56.79	-12.9	%
Statutory Surplus	$	702,188	$	752,004	-6.6	%

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RLI CORP.

2008 FINANCIAL HIGHLIGHTS

UNDERWRITING SEGMENT DATA

(Unaudited)

(Dollars in thousands, except per share amounts)

			GAAP				GAAP				GAAP				GAAP
Three Months Ended June 30,	Casualty		Ratios		Property		Ratios		Surety		Ratios		Total		Ratios
2008
Gross premiums written	$	107,274			$	57,780			$	19,968			$	185,022
Net premiums written	79,260				43,547				18,747				141,554
Net premiums earned	78,566				36,707				17,022				132,295
Net loss & settlement expenses	39,024		49.7	%	13,874		37.8	%	1,867		11.0	%	54,765		41.4	%
Net operating expenses	23,998		30.5	%	13,303		36.2	%	11,090		65.2	%	48,391		36.6	%
Underwriting income	$	15,544	80.2	%	$	9,530	74.0	%	$	4,065	76.2	%	$	29,139	78.0	%
2007
Gross premiums written	$	127,250			$	66,256			$	18,585			$	212,091
Net premiums written	91,112				48,352				17,341				156,805
Net premiums earned	87,784				34,486				15,218				137,488
Net loss & settlement expenses	36,701		41.8	%	14,399		41.8	%	472		3.1	%	51,572		37.5	%
Net operating expenses	25,815		29.4	%	11,296		32.8	%	9,704		63.8	%	46,815		34.1	%
Underwriting income	$	25,268	71.2	%	$	8,791	74.6	%	$	5,042	66.9	%	$	39,101	71.6	%

			GAAP				GAAP				GAAP				GAAP
Six Months Ended June 30,	Casualty		Ratios		Property		Ratios		Surety		Ratios		Total		Ratios
2008
Gross premiums written	$	208,290			$	99,773			$	37,982			$	346,045
Net premiums written	155,153				71,724				35,566				262,443
Net premiums earned	160,566				74,493				33,201				268,260
Net loss & settlement expenses	96,122		59.9	%	23,380		31.4	%	4,528		13.6	%	124,030		46.2	%
Net operating expenses	49,535		30.9	%	29,204		39.2	%	21,688		65.3	%	100,427		37.4	%
Underwriting income	$	14,909	90.8	%	$	21,909	70.6	%	$	6,985	78.9	%	$	43,803	83.6	%
2007
Gross premiums written	$	238,607			$	108,408			$	36,392			$	383,407
Net premiums written	170,806				71,492				34,007				276,305
Net premiums earned	175,799				69,095				30,571				275,465
Net loss & settlement expenses	79,483		45.2	%	31,949		46.2	%	3,200		10.5	%	114,632		41.6	%
Net operating expenses	52,431		29.8	%	24,406		35.3	%	19,298		63.1	%	96,135		34.9	%
Underwriting income	$	43,885	75.0	%	$	12,740	81.5	%	$	8,073	73.6	%	$	64,698	76.5	%

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