RLI Corp. (RLI) Earnings

Management highlights

- Core Operating and Financial Results * RLI achieved an 85.6 overall combined ratio for the quarter, with a 45.5 loss ratio (improved 0.4% year-over-year) and a 40.1 expense ratio (up 1.5 points year-over-year driven by personnel costs, acquisition expenses, and technology investments) * Second quarter operating earnings came in at $0.83 per share, versus $0.82 per share in the year-ago quarter; GAAP net earnings were $1.82 per share, up from $1.34 per share year-over-year * Net investment income increased 17% year-over-year to $46 million, with new fixed income purchases carrying an average yield of 4.9%, 60 bps above the portfolio's current book yield * RLI returned over $200 million to shareholders via a regular quarterly dividend of $0.18 per share and a special $2 per share dividend; a new $250 million share repurchase program was authorized, with ~$238 million remaining after repurchasing 235,000 shares in the quarter * Book value per share increased 11% from year-end 2025, after adjusting for capital return activity * RLI was recognized as a Ward's Top 50 Property and Casualty Performer for the 36th consecutive year, the only company to earn this distinction every year - Competitive Strategy and Market Position * Management maintains that insurance remains fundamentally a relationship-driven business, even as competitors emphasize pure digital capabilities. RLI leverages technology to improve efficiency while continuing to invest in in-person producer engagement * Customized, individual account underwriting (rather than broad, one-size-fits-all mandates) is a key differentiator, allowing RLI to tailor coverage to specific risks while maintaining underwriting discipline * In the current softening market, competitors are offering broader coverage terms at lower premiums, with some even adding unsolicited lower-priced quotes for existing business. RLI continues to hold the line on risk-adjusted pricing and coverage terms, prioritizing profitability over top-line growth * RLI renewed multiple reinsurance agreements during the quarter, with favorable market conditions resulting in flat to lower reinsurance rates and stable coverage terms - Segment-Specific Operational Updates * Casualty: Personal umbrella growth is being rebalanced toward non-coastal states with more favorable litigation environments, after large approved rate increases in California and Florida; these rate increases have now earned through the book, so rate increases will moderate in the second half with the next approved increase taking effect in January 2027. Transportation continues to see declining new claim counts for the second straight year, with submissions up 9% as competitors reduce maximum available limits, creating opportunities for RLI to provide full required limits * Property: E&S property rates have declined to roughly 2022 levels after two renewal cycles of decreases, but remain above long-term historical levels and still meet RLI's benchmark risk-adjusted return targets. Renewal retention has fallen to just under 70% as RLI declines business that does not meet pricing and coverage requirements * Surety: Industry-wide surety loss ratios are beginning to rise, which management expects will create attractive market opportunities over time as competitors pull back; RLI has maintained a clean, disciplined book and is positioned to take advantage of market disruption when it occurs

Guidance

Management did not provide formal numerical full-year guidance, but shared the following forward-looking outlooks: - Overall premium growth is expected to remain disciplined, with RLI prioritizing profitable growth over top-line expansion, and only pursuing new business that meets internal risk-adjusted return benchmarks - Personal umbrella premium growth is expected to moderate in the second half of the year as large previously approved rate increases have earned through the book, with the next approved countrywide rate increase taking effect in January 2027; long-term growth opportunities remain strong amid ongoing market disruption from other carriers - Casualty rate increases are expected to decelerate in the back half of the year, and management expects some mix-driven pressure on the casualty underlying loss ratio, but remains confident in the long-term profitability of the segment's growth mix - Net investment income is expected to continue growing on a go-forward basis if current interest rate levels hold, as new fixed income purchases carry higher yields than the existing portfolio book yield

Segment performance

1. Casualty: Gross premium increased 11% year-over-year, contributing the majority of the firm's overall 3% gross premium written growth. The segment reported a combined ratio of 99.3, with $13.7 million of net favorable prior year reserve development (after a $0.5 million offset from prior year catastrophe reserve strengthening), and $1 million of net 2026 catastrophe losses. Key sub-segment performance: Personal umbrella premium grew 26% with 17% rate increases; Transportation premium grew 19% with 8% rate increases. Cashier brokerage premium decreased 6% amid heightened competition. 2. Property: Gross premium decreased 6% year-over-year. The segment delivered a very strong combined ratio of 56.8, with $23 million of favorable prior year reserve development and $9 million of net 2026 catastrophe losses. Key sub-segment performance: Hawaii homeowners premium grew 9% with 12% rate increases; Marine premium grew 7% with a 1% rate increase, and produced healthy underwriting profit. 3. Surety: Gross premium decreased 6% year-over-year. The segment posted a solid combined ratio of 87.2, which was modestly better than last year, supported by $3.4 million of favorable prior year reserve development. A 3% expense ratio increase was driven by infrastructure investments and higher acquisition costs. The 6% gross premium decline was driven by moderating renewable energy construction activity, large non-recurring customs bond activity from the prior year, and intentional exiting of low-return large accounts that no longer meet underwriting standards.

Risks & headwinds

- Softening market competition: Heightened competition across all property and casualty segments, with competitors offering broader coverage, lower premiums, and higher broker commissions to gain market share, which pressures RLI's retention and pricing power - Casualty loss trend risk: Growing personal umbrella and transportation (auto-focused) exposure carries higher historical severity risk, requiring ongoing cautious reserving and portfolio mix management; decelerating rate increases could pressure loss ratios if loss trends do not improve - Property catastrophe exposure: RLI's portfolio is concentrated in hurricane and earthquake-exposed coastal states, making results more sensitive to large catastrophe events; falling rates in these regions have reduced the margin for unexpected large losses - Surety industry loss deterioration: Industry-wide surety loss ratios are beginning to rise, driven primarily by construction and renewable energy project losses, though RLI has not seen meaningful deterioration in its own book to date - Expense pressure: Personnel (including incentive compensation) and technology investment costs have pushed the overall expense ratio higher year-over-year, creating ongoing margin pressure if top-line growth slows

Analyst Q&A

• Q: What is driving casualty growth in personal umbrella and transportation, how is rate adequacy holding up amid that growth, and can you share details on margin expectations? /

  A: Growth is supported by competitors limiting available maximum limits, which creates opportunities for RLI to offer full required limits that producers and insureds need. Submissions are up in both segments, and RLI is only binding business that meets its risk-adjusted pricing targets. For personal umbrella, RLI is rebalancing the portfolio away from high-litigation coastal states toward non-coastal states, with ongoing quarterly monitoring of risk characteristics to improve the mix. The casualty underlying loss ratio has seen a small increase driven primarily by this mix shift toward growth in auto-exposed lines, not underlying deterioration. Management remains cautious about severity but confident in the book's profitability given RLI's long experience in these lines.

• Q: With property pricing continuing to decelerate in the soft market, how is rate adequacy holding up, and what is your approach to balancing growth and profitability over the next 12 months? /

  A: After two renewal cycles of rate decreases, current rates on RLI's property book are roughly at 2022 levels, which is still well above long-term historical averages. All quoted business meets RLI's internal benchmark pricing, which accounts for all costs including reinsurance, underwriting, and a required profit load, so the portfolio remains adequately priced. RLI prioritizes holding the line on coverage terms; competitors are adding broader coverage at lower rates, which RLI will not do, so renewal retention has fallen to just under 70%. RLI has no mandatory top-line growth target, so it can freely walk away from inadequate business, and will only grow exposure if market conditions improve.

• Q: What is RLI's philosophy for the new $250 million share repurchase program, and what is the timeline for using the full authorization? /

  A: Share repurchases are a complimentary form of capital return, not a replacement for special dividends, as demonstrated by the concurrent special dividend and new repurchase authorization this quarter. Repurchases are done selectively, with no formulaic target or mandatory timeline to exhaust the full $250 million authorization. The initial repurchase activity in the quarter was limited to a two-week window between program authorization and the start of the quarter-end quiet period, so activity will remain opportunistic going forward.

• Q: Industry-wide surety loss ratios are starting to rise; where is this deterioration coming from, and how quickly will the market respond to create opportunities for RLI? /

  A: Most of the emerging industry deterioration is concentrated in large construction projects, particularly renewable energy developments, with a few large commercial surety losses also reported. RLI has intentionally exited low-return large accounts and has not seen meaningful deterioration in its own clean book. Management has waited a long time for a surety market correction, and expects rising industry losses will push competitors to pull back, creating attractive opportunities for RLI. RLI is positioned with strong capital and a clean balance sheet to take advantage of these opportunities when the market adjusts.