RLI CORP Income Taxes Disclosure
6. | INCOME TAXES |
Pretax earnings and the composition of income tax expense is summarized below.
(in thousands) |
| 2025 |
| 2024 | 2023 | ||||
U.S. income from continuing operations before income tax expense | $ | 505,981 | $ | 427,551 | $ | 377,265 | |||
Income tax expense from continuing operations | |||||||||
Current tax expense | |||||||||
U.S. federal | $ | 87,243 | $ | 69,068 | $ | 63,590 | |||
U.S. state and local | 2,774 | 2,652 | 1,354 | ||||||
Total current tax expense | $ | 90,017 | $ | 71,720 | $ | 64,944 | |||
Deferred tax expense (benefit) | |||||||||
U.S. federal | $ | 12,627 | $ | 10,052 | $ | 7,738 | |||
U.S. state and local | — | — | (28) | ||||||
Total deferred tax expense | $ | 12,627 | $ | 10,052 | $ | 7,710 | |||
Total income tax expense | $ | 102,644 | $ | 81,772 | $ | 72,654 | |||
Income tax expense attributable to income from operations differed from the amounts computed by applying the U.S. federal tax rate of 21 percent to pretax income from continuing operations as demonstrated in the following table:
(in thousands) |
| 2025 |
| 2024 |
| 2023 | ||||||||||||
U.S. federal statutory tax rate | $ | 106,256 | 21.0 | % |
| $ | 89,786 | 21.0 | % |
| $ | 79,226 | 21.0 | % | ||||
2,192 | 0.4 | % | 2,095 | 0.5 | % | 1,047 | 0.3 | % | ||||||||||
Tax credit | (2,523) | (0.5) | % | (3,539) | (0.8) | % | (3,644) | (1.0) | % | |||||||||
Nontaxable or Nondeductible Items: | ||||||||||||||||||
Excess tax benefit on share-based compensation | (3,413) | (0.7) | % | (5,580) | (1.3) | % | (3,774) | (1.0) | % | |||||||||
Other nontaxable or nondeductible items | 132 | 0.1 | % | (990) | (0.3) | % | (201) | (0.0) | % | |||||||||
$ | 102,644 |
| 20.3 | % | $ | 81,772 |
| 19.1 | % | $ | 72,654 |
| 19.3 | % | ||||
* | Illinois and Florida comprise the majority of the state income tax expense incurred. |
Effective rates are dependent upon components of pretax earnings and the related tax effects. The effective rate was higher in 2025 due to lower levels of tax-favored adjustments and higher levels of pretax earnings, which decreased the percentage impact of the tax-favored adjustments.
Our net earnings include equity in earnings of unconsolidated investees. The investees do not have a policy or pattern of paying dividends. As a result, we record a deferred tax liability on the earnings at the corporate capital gains rate of 21 percent in anticipation of recovering our investments through means other than through the receipt of dividends, such as a sale. We received a $3 million dividend from Prime in 2024 and recognized less than $1 million of tax benefit from applying the lower tax rate applicable to affiliated dividends paid to insurance companies (10.8 percent), as compared to the corporate capital gains rate on which the deferred tax liabilities were based. No dividends were declared from Prime in 2025 or 2023, therefore having no impact to their respective effective tax rates.
Dividends paid to our Employee Stock Ownership Plan (ESOP) also result in a tax deduction. Dividends paid to the ESOP in 2025, 2024 and 2023 resulted in tax benefits of $3 million, $3 million and $2 million, respectively. These tax benefits reduced the effective tax rate for 2025, 2024 and 2023 by 0.5 percent, 0.6 percent and 0.4 percent, respectively.
Federal and state income taxes paid are summarized in the table below.
(in thousands) |
| 2025 |
| 2024 | 2023 | ||||
U.S. federal | $ | 58,550 | $ | 64,700 | $ | 48,700 | |||
U.S. state and local | 2,098 | 2,864 | 1,383 | ||||||
Total taxes paid | $ | 60,648 | $ | 67,564 | $ | 50,083 | |||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are summarized below.
(in thousands) |
| 2025 |
| 2024 | ||
Deferred tax assets: | ||||||
Tax discounting of unpaid losses and settlement expenses | $ | 34,526 | $ | 29,524 | ||
Unearned premium offset |
| 36,413 |
| 36,086 | ||
Deferred compensation |
| 5,908 |
| 4,630 | ||
Share-based compensation expense |
| 4,124 |
| 3,685 | ||
Capitalized research and development costs | 1,078 | 6,350 | ||||
Lease liability |
| 3,093 |
| 3,288 | ||
Other |
| 4,137 |
| 3,864 | ||
Deferred tax assets before allowance | $ | 89,279 | $ | 87,427 | ||
Less valuation allowance |
| — |
| — | ||
Total deferred tax assets | $ | 89,279 | $ | 87,427 | ||
| ||||||
Deferred tax liabilities: | ||||||
Net unrealized appreciation of securities | $ | 56,843 | $ | 25,898 | ||
Deferred policy acquisition costs |
| 36,256 |
| 34,905 | ||
Lease asset | 2,755 | 2,943 | ||||
Discounting of unpaid losses and settlement expenses - Tax Cuts and Jobs Act (TCJA) implementation offset | — | 636 | ||||
Fixed assets |
| 3,357 |
| 2,908 | ||
Intangible assets |
| 1,569 |
| 1,561 | ||
Undistributed earnings of unconsolidated investees |
| 9,771 |
| 10,265 | ||
Other |
| 497 |
| 518 | ||
Total deferred tax liabilities | $ | 111,048 | $ | 79,634 | ||
Net deferred tax asset (liability) | $ | (21,769) | $ | 7,793 | ||
We have recorded our deferred tax assets and liabilities using the statutory federal tax rate of 21 percent. We believe it is more likely than not that all deferred tax assets will be recovered, given the carry back availability as well as the projected results of future operations, which we believe will generate sufficient taxable income to realize the deferred tax asset. In addition, we believe when these deferred items reverse in future years, our taxable income will be taxed at an effective rate of 21 percent.
Although we are not currently under audit by the IRS, tax years 2022 through 2025 remain open and are subject to examination.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 18, 2022 | |
| 2020 | Feb 19, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 22, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 26, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.