Executive Summary / Key Takeaways

• Consistent Underwriting Profitability: RLI Corp. stands out with an impressive 29 consecutive years of underwriting profit, driven by its specialized niche strategy and disciplined underwriting across property, casualty, and surety segments.
• Strategic Adaptation to Market Dynamics: The company actively adjusts its approach in response to market conditions, pulling back from softening areas like E&S Property while leaning into profitable growth opportunities in Casualty (e.g., Personal Umbrella, E&S Casualty) and Surety.
• Technological & Operational Edge: RLI's continuous investments in user-friendly digital tools and process automation enhance underwriting efficiency, improve risk selection, and streamline claims handling, directly supporting its profitability and customer service differentiation.
• Resilient Financial Health: Despite industry headwinds like legal system abuse and catastrophe events, RLI maintains strong operating cash flow, a healthy balance sheet, and a commitment to consistent shareholder returns, including a remarkable 50 consecutive years of increased ordinary dividends.
• Cautious Growth Amidst Challenges: While facing increased auto severity and intense competition in certain property lines, RLI prioritizes underwriting profit over top-line growth, leveraging its deep expertise and collaborative culture to select profitable risks and manage exposures effectively.

The Enduring RLI Model: Niche Specialization and Disciplined Profitability

RLI Corp., established in 1965, has cultivated a distinctive position within the U.S. specialty insurance market. Unlike many larger, more diversified insurers, RLI focuses intently on select property, casualty, and surety products, targeting niche markets with tailored solutions. This foundational strategy, built on deep underwriting expertise, exceptional customer service, and an ownership-driven culture, has enabled RLI to achieve a remarkable 29 consecutive years of underwriting profitability by 2024. This long-term view prioritizes discipline, continuous improvement, and sustainability, aiming to deliver consistent profitable results to shareholders through all market cycles.

The company's competitive positioning is defined by its "narrow and deep" expertise, allowing it to "lean into disrupted markets" where others may falter or withdraw. This contrasts with broad-market competitors like Travelers or Chubb , which offer more comprehensive product suites and benefit from greater scale. While these larger players may achieve higher overall revenue growth and operational efficiency, RLI's agility and specialized focus enable it to capture higher-margin opportunities in complex or underserved risks. Its ability to maintain underwriting discipline and walk away from underpriced business is a core differentiator, particularly against competitors or MGAs that prioritize top-line growth.

Technological Edge: Underwriting with Precision

RLI's commitment to long-term profitability is significantly bolstered by its strategic investments in technology and operational efficiency. The company continuously invests in "people and technology" to support growth and improve processes, recognizing that technological differentiation is crucial for competitive advantage in its specialized niches. These investments are not about groundbreaking new products but about enhancing the core underwriting and claims functions.

For instance, RLI has developed user-friendly digital tools for its producers, aiming to "enhance ease of use" and streamline the application process. In its high-growth Personal Umbrella segment, technology has been deployed to create a "very user-friendly system" that simplifies the insurer's application journey, akin to consumer-facing platforms in other industries. This automation helps capture business efficiently and reduces manual touches, allowing policies to flow through systems more smoothly. Similarly, in the Marine division, technological improvements have "taken work off of the underwriter's desk," enabling faster policy issuance and freeing up underwriters to focus on core marketing and risk assessment.

These technological advancements provide tangible benefits. While specific quantitative metrics like "X% faster processing" are not publicly disclosed, the strategic intent is clear: to improve underwriting efficiency, enhance risk selection by providing underwriters more time for analysis, and deliver superior customer and producer experiences through faster quotes and policy issuance. This operational excellence, driven by technology, directly contributes to RLI's competitive moat, supporting its ability to maintain strong underwriting margins and attract quality business, even against larger rivals with more extensive digital infrastructures. The focus on "improving processes for our underwriters to have more time to focus on underwriting and servicing our customers" underscores how technology directly supports RLI's core strategy of deep expertise and customer service.

Financial Performance: Profitability in a Shifting Landscape

RLI's financial performance in the first half of 2025 reflects its disciplined approach amidst evolving market conditions. For the six months ended June 30, 2025, net premiums earned increased 8% to $800.2 million, primarily driven by the Casualty and Surety segments. Net investment income also saw a healthy 14% increase to $76.1 million, benefiting from an increased average asset base and higher reinvestment rates, with average purchase yields on fixed income at 4.7% in Q2 2025, 70 basis points above the book yield.

Underwriting income for the first half of 2025 was $132.8 million on an 83.4% combined ratio. This compares to $147.7 million on an 80.0% combined ratio in the same period of 2024. The slight increase in the combined ratio was influenced by lower levels of favorable prior year's loss reserve development ($59 million in H1 2025 vs. $65 million in H1 2024) and a strategic shift in the business mix towards casualty lines, which typically carry higher loss ratios. The expense ratio also saw a modest increase to 38.2% from 37.9%, attributed to continued investments in people and technology, as well as higher acquisition-related costs. Despite these factors, RLI's Q2 2025 combined ratio remained a solid 84.5%, demonstrating continued underwriting profitability across all segments.

Operating cash flow remains robust, totaling $175 million in Q2 2025, up $33 million from the prior year, providing ample liquidity for investment activities. The company's book value per share increased 16% from year-end 2024, inclusive of dividends, reflecting strong comprehensive earnings.

Segment Deep Dive: Adapting to Market Currents

RLI's diversified portfolio allows it to adapt to varying market conditions across its segments:

Casualty Segment

The Casualty segment continues to be a growth engine, with gross premiums advancing 7% in Q2 2025 and 10% in H1 2025. Personal Umbrella led the way with 24% growth in Q2, including a 9% rate increase, supported by approved rate filings for the second half of 2025. The E&S Casualty division also generated strong growth, with a 13% increase in top-line and over 20% increase in submissions, as RLI capitalizes on competitors restricting their appetite in certain areas.

However, the segment faces persistent challenges from "legal system abuse," particularly in "wheels-based exposures" like commercial transportation and personal umbrella. RLI is actively addressing this with "significant rate" increases (14% across all auto coverages in Q2 2025, 12% in transportation) and enhanced risk selection. The company has taken a cautious approach, adding reserves to current accident years in Q4 2024 for transportation and personal umbrella due to increased auto severity, which Todd Bryant, CFO, noted "appear to be sufficient." This proactive stance, coupled with in-house loss control teams and a willingness to "walk away from underpriced accounts," underscores RLI's commitment to profitability over volume.

Property Segment

The Property segment experienced headwinds, with gross premiums declining 10% in Q2 2025 and 8.3% in H1 2025. This was largely driven by "significant softening" in the E&S Property market, where "undisciplined competitors," particularly MGAs, are "less disciplined on rate and more importantly, terms and conditions." Hurricane rates were down 13% in Q2 2025, and earthquake rates were down 9%. RLI is responding by "choosing not to compete where the risk/reward profile doesn't make sense," resulting in a 10% reduction in hurricane exposure from year-end.

Despite the broader softening, RLI continues to find profitable growth in niche property lines. Marine premium was up 2% in Q2 2025, driven by Inland Marine. Hawaii Homeowners premium surged 35% in Q2 2025, with a 16% rate increase, as RLI benefits from competitors withdrawing after the Maui wildfires. The segment's Q2 2025 combined ratio of 62.1% (H1 2025: 59.6%) demonstrates its continued strong underwriting performance, even with $12.5 million in Q2 catastrophe losses.

Surety Segment

The Surety segment delivered solid growth, with gross premiums up 7% in Q2 2025 and 3.2% in H1 2025. All subsegments experienced growth, led by transactional and commercial surety due to "continued marketing efforts and new regional bonding requirements." While contract surety saw a "slowdown in bid activity for larger public construction projects," RLI's bond count increased, indicating strength in smaller, quick-turning jobs.

The segment's Q2 2025 combined ratio was 87.9% (H1 2025: 78.2%), benefiting from $2.3 million of favorable reserve development. RLI continues to invest in technology and people to support this segment's growth, enhancing capabilities for producers and principals. The company also renewed its reinsurance treaty, purchasing more limit to support growing bonding needs.

Competitive Dynamics: A Niche Advantage

RLI's competitive strategy is fundamentally different from its larger, more diversified peers like Travelers (TRV), Chubb (CB), The Hartford (HIG), and Progressive (PGR). While these competitors often boast greater scale, broader distribution networks, and larger R&D budgets for digital transformation, RLI thrives by focusing on specialized niches where its deep underwriting and claims expertise provide a distinct advantage.

RLI's "narrow and deep" approach allows it to understand complex risks and price them more accurately, often leading to superior margins in its chosen segments. For instance, in E&S Casualty, RLI's specialized underwriting for technical risks allows it to generate strong growth and underwriting profit, even as competitors may pull back or struggle with adverse development. Its in-house loss control teams and proactive claims handling further differentiate it, aiming for optimal claim outcomes and fostering strong relationships with producers and insureds. This contrasts with the more standardized, volume-driven approaches of some larger carriers.

While larger competitors like Progressive may lead in digital efficiency for personal lines, RLI's targeted technology investments are designed to enhance its niche operations, improving user experience for producers and streamlining internal processes for underwriters. This allows RLI to maintain its competitive edge in service and responsiveness within its specialized markets. RLI's willingness to "walk away from underpriced accounts" and prioritize underwriting profit over market share stands in stark contrast to the "undisciplined competitors" and MGAs that have contributed to softening rates in the E&S Property market. This discipline, while sometimes leading to temporary top-line declines in specific lines, ensures long-term profitability and capital preservation, a hallmark of RLI's enduring success.

Capital Management and Shareholder Returns

RLI's robust financial health and conservative capital stewardship underpin its ability to consistently return value to shareholders. The company has paid an increased ordinary dividend for an impressive 50 consecutive years, a testament to its stable earnings power. In addition to regular dividends, RLI has a history of paying special dividends, returning nearly $1.5 billion to shareholders in the last decade.

The decision for special dividends is made in the third quarter, considering factors such as AM Best benchmarks, internal capital adequacy models (ensuring sufficient capital to sustain severe events while maintaining an A+ rating), and capital needs for future organic and inorganic growth opportunities. While RLI is open to inorganic opportunities, it maintains a "very high bar" for cultural alignment and niche business focus. The company's investment portfolio, with an average fixed income duration of 4.9 years at June 30, 2025, is managed to preserve capital and generate income, with a near-term strategy to "term out that maturity profile" as cash returns moderate.

Risks and Outlook

Despite its strong track record, RLI faces several risks. The most prominent is the ongoing "legal system abuse," particularly impacting "wheels-based exposures," which continues to drive "double-digit loss cost inflation" and necessitates continuous rate increases and rigorous risk selection. The softening E&S Property market, characterized by aggressive competition and deteriorating terms, also presents a challenge, requiring RLI to maintain strict underwriting discipline and potentially sacrifice top-line growth in this segment. Furthermore, RLI's approximately 25% minority stake in Prime Holdings Insurance Services, Inc. introduces some earnings volatility, as evidenced by the $12.5 million loss from Prime in Q4 2024 due to reserve strengthening.

Despite these challenges, RLI's outlook remains cautiously optimistic. Management anticipates continued opportunities for profitable growth across its diversified portfolio, particularly in Casualty and Surety, where strategic investments and market dislocations create favorable conditions. The company's long-term view, coupled with its proven ability to adapt to market cycles and its commitment to underwriting discipline, positions it to continue delivering consistent financial outcomes. RLI's proactive claims handling and strong feedback loops between underwriting, claims, and analytical teams are critical in managing emerging risks and ensuring the "bottom line and long-term success" remain paramount.

Conclusion

RLI Corp. embodies a rare blend of stability and strategic agility in the dynamic insurance industry. Its enduring success, marked by 29 consecutive years of underwriting profitability, is not merely a historical footnote but a living testament to its core investment thesis: a relentless focus on niche specialization, disciplined underwriting, and a culture that empowers its "associate owners" to prioritize long-term value creation. This unique model, supported by targeted technological investments that enhance efficiency and customer experience, allows RLI to thrive where broader competitors may struggle with volatility.

While facing persistent challenges from social inflation in casualty lines and intense competition in property, RLI's strategic response—emphasizing rate adequacy, rigorous risk selection, and a willingness to walk away from unprofitable business—reinforces its competitive moat. The company's robust financial health, consistent operating cash flow, and commitment to returning capital to shareholders underscore its resilience. For discerning investors, RLI (NYSE:RLI) offers a compelling narrative of a specialty insurer poised for continued profitable growth, leveraging its deep expertise and adaptive strategies to deliver consistent shareholder returns in an ever-evolving market.