Executive Summary / Key Takeaways

• RLI Corp. continues its remarkable streak of underwriting profitability, achieving its 29th consecutive year in 2024 and maintaining strong results with an 84% combined ratio year-to-date through Q3 2025, driven by disciplined underwriting and a diversified specialty product portfolio.
• The company's strategic focus on niche markets, deep underwriting expertise, and continuous investment in technology, including generative AI, enhances operational efficiency and decision-making, fortifying its competitive moat against broader market players.
• Financial performance remains robust, with book value per share growing 26% year-to-date through Q3 2025, inclusive of dividends, and a 20%+ return on equity, supported by strong underwriting income and a growing investment portfolio.
• RLI is adeptly managing a softening commercial property catastrophe market and persistent legal system abuse in auto-exposed lines by adjusting rates, increasing attachment points, and selectively growing in profitable niches like Hawaii homeowners and E&S casualty.
• Despite competitive pressures and market volatility, RLI's long-term outlook is positive, underpinned by its cautious reserving philosophy, strong capital position, and a commitment to shareholder returns, including a 50-year streak of increasing dividends.

The Enduring Edge of Specialty Underwriting

RLI Corp., established in Peoria, Illinois, in 1965, has cultivated a distinct identity as a specialty insurer, focusing on select property, casualty, and surety products through its three major subsidiaries. The company's foundational strategy centers on identifying and serving niche markets, developing unique products tailored to specific customer needs, and deploying underwriters and claim examiners with deep, specialized expertise. This approach has allowed RLI to consistently underwrite for profit across diverse market conditions, a testament to its unwavering discipline.

RLI's long-term commitment to profitability is evident in its impressive track record, boasting 29 consecutive years of underwriting profit by 2024, with an average combined ratio of 88.10 over that period. This consistent performance is a cornerstone of its value proposition, driving shareholder returns through underwriting income, net investment income, and long-term appreciation in its equity portfolio. The company's unique ownership culture empowers its employee-owners to act as problem-solvers, fostering deep relationships with producers and enabling agile responses to market dynamics.

Technological Acumen: Powering Precision and Efficiency

A critical differentiator for RLI, particularly against larger, more generalized competitors, lies in its continuous investment in technology and data-driven insights. The company is not merely adopting technology but is strategically integrating it to enhance its core underwriting and claims processes. Management emphasizes placing "the best information placed at the fingertips of our expert underwriters and claim specialists at the time of decision making to continue to outperform." This translates into tangible benefits, such as process improvements and automation initiatives aimed at increasing retention by simplifying policy renewals for agents and insurers.

RLI is actively exploring and implementing generative artificial intelligence (AI) where it adds value. Employee-owners have already introduced tools that reduce service times and provide underwriters and claims staff with superior information to support their decisions. In the transactional surety business, technology is paramount, with RLI investing significantly to make it "the easiest business to do" for producers, with further enhancements planned for the fourth quarter of 2025. These technological advancements are not just about efficiency; they are about sharpening RLI's competitive edge, enabling more precise risk selection, faster response times, and ultimately, a stronger underwriting profit.

Competitive Landscape: Niche Strength Amidst Broad Pressures

The insurance marketplace is intensely competitive across all of RLI's segments. However, RLI's market positioning is distinct. While larger, diversified insurers like Travelers Companies (TRV) and The Hartford Financial Services Group (HIG) offer broad commercial solutions, RLI excels in specialized areas such as environmental liability, professional errors and omissions, and contractor surety. RLI's strength lies in its ability to handle complex, specialized risks, offering tailored coverage and risk management that larger players may find less efficient to provide. This niche focus, coupled with strong local relationships with independent agents and brokers, allows RLI to maintain customer loyalty and capture market share in underserved segments.

In contrast, mass-market auto insurers like Progressive Corporation (PGR) leverage advanced technological capabilities for rapid customer acquisition and claims processing. While RLI may not match the sheer scale or digital speed of such competitors in broad consumer lines, its technology investments are focused on deepening expertise and efficiency within its specific niches. Chubb Limited (CB), with its global reach and comprehensive specialty products, represents another formidable competitor. Against Chubb, RLI differentiates itself through its U.S.-focused expertise and a distribution model that fosters closer relationships, potentially leading to lower operating costs in specific segments. RLI's competitive advantage is often rooted in the "authentic and genuine people" who build deep relationships with producers, a factor management views as a significant differentiator.

The industry as a whole faces a complex environment, characterized by increased market volatility, political uncertainty, and the entry of alternative and inexperienced capital providers, particularly MGAs. These new entrants often "chase top line growth, as expensive portfolio quality," leading to softening terms and conditions, especially in the commercial property catastrophe market. RLI's response is disciplined: it is willing to "walk away from underpriced accounts" and prioritize maintaining a well-priced book with sustainable terms, rather than pursuing volume or market share.

Financial Performance: Underwriting Discipline Translates to Value

RLI's financial performance through the first nine months of 2025 underscores its disciplined strategy. The company reported a consolidated combined ratio of 84% for the nine months ended September 30, 2025, a slight increase from 83.3% in the prior-year period, yet still indicative of robust underwriting profitability. Net earnings for the nine-month period totaled $312.16 million, up from $304.92 million in 2024. This was supported by a 13% increase in net investment income, reaching $117.41 million, driven by higher reinvestment rates and an increased average asset base. The investment portfolio delivered a 3% total return in Q3 2025, with average purchase yields of 4.8%, a 70 basis point advantage over the portfolio's current book yield.

Book value per share has seen impressive growth, increasing 26% year-to-date through September 30, 2025, inclusive of dividends, translating to a return on equity exceeding 20%. While the overall top line remained relatively flat in Q3 2025, gross premiums written were up 2% for the nine-month period. This reflects a strategic pullback in certain areas and targeted growth in others.

Segmental Contributions: A Diversified Engine

Casualty Segment: This segment continues to be a growth engine, with gross premiums written increasing 9.2% for the nine months ended September 30, 2025, to $902.13 million. Net premiums earned rose 12.8% to $707.19 million. The combined ratio for the nine-month period was 97.9%. Personal umbrella remains a significant driver, with premiums up 24% in Q3 2025, including a 17% rate increase. The E&S casualty brokerage group has also contributed to an improving underlying loss ratio. However, the segment faces persistent legal system abuse, particularly in "wheels-based exposures" like transportation and personal umbrella. RLI is responding with aggressive rate increases (auto liability rates up 16% in Q3) and higher minimum attachment points in larger states for personal umbrella, aiming to outpace loss trends.

Property Segment: This segment experienced a decline in gross premiums written, down 9.1% for the nine months ended September 30, 2025, to $536.50 million, and net premiums earned down 1.7% to $389.90 million. This was largely due to a softening commercial property catastrophe market and increased competition, with wind renewal rates down 11% in Q3 2025. Despite this, the segment delivered a strong 59.8% combined ratio for the nine-month period. Hawaii homeowners is a standout, with premiums up 33% in Q3 2025 and a 16% rate increase, capitalizing on market disruption following the Maui wildfires. The Marine business also continues its strong performance, working towards its eighth consecutive year of underwriting profit.

Surety Segment: Gross premiums written for Surety increased 1.2% for the nine months ended September 30, 2025, to $124.98 million, with net premiums earned up 5.1% to $110.85 million. The combined ratio remained flat at 80.5% for the nine-month period. While contract surety has seen a slowdown due to reduced small to mid-market construction activity, transactional and commercial surety have grown, supported by marketing efforts and new regional bonding requirements. The expense ratio in this segment has risen due to increased acquisition costs and ongoing investments in technology and personnel.

Liquidity and Capital Strength

RLI maintains a robust liquidity and capital position. As of September 30, 2025, the company had $100 million in debt outstanding, representing a conservative 5% of total capital. Cash flows from operating activities were strong, benefiting from increased premium and investment income receipts, totaling $457.45 million for the first nine months of 2025. The company has access to a $100 million revolving line of credit with PNC Bank, N.A. (PNC), from which $50 million was drawn in September 2023. Additionally, RLI Insurance Company borrowed $50 million from the Federal Home Loan Bank of Chicago in November 2024, further diversifying its funding sources.

With approximately $485 million in cash and investments maturing within one year, and an additional $765 million maturing between one to five years, RLI is well-positioned to meet its anticipated needs over the next 12 to 24 months. The company's capital management strategy is conservative, prioritizing the maintenance of its A++ rating from AM Best. RLI Corp. relies on dividends from its insurance subsidiaries, which are subject to state regulatory restrictions, to fund its obligations and shareholder distributions. In the first nine months of 2025, RLI Ins. paid $139 million in ordinary dividends to RLI Corp.

Outlook and Risk Assessment

RLI's outlook is anchored in its commitment to disciplined underwriting and strategic investments. Management is striving for its 30th consecutive year of underwriting profit, a testament to its consistent approach. In Hawaii homeowners, an approved rate filing effective this month is expected to add 12% rate to the book over the next year. For personal umbrella, additional rate increases approved this quarter are anticipated to continue adding rates into 2026, with management believing these approved rates are outpacing loss trends. The E&S Property segment's underwriting profit for 2025 is projected to exceed its historical top-line premium, reflecting a focus on profitability over volume in a competitive market. Decreasing interest rates are also expected to facilitate financing for private construction projects, potentially benefiting RLI's related businesses.

However, the investment thesis is not without risks. The cyclical nature of the P&C business, coupled with the inherent uncertainty in estimating long-tail casualty loss reserves, presents ongoing challenges. RLI's major catastrophe exposure to windstorms and earthquakes remains a key consideration, though the company actively manages this through policy limits, reinsurance, and modeling. The softening commercial property market, driven by new capacity and aggressive pricing from competitors, could continue to pressure premiums. Furthermore, the persistent "legal system abuse" in auto-exposed lines necessitates continuous vigilance and rate adjustments. While RLI's fixed income portfolio holds $150 million in unrealized losses across 1077 securities as of September 30, 2025, management believes it will recover the amortized cost basis. RLI's smaller scale, compared to industry giants, could also present challenges in matching the technological innovation speed and market reach of some rivals.

Conclusion

RLI Corp. stands as a compelling investment case, defined by its unwavering commitment to underwriting profitability and a deeply ingrained culture of specialized expertise. The company's 29-year streak of underwriting profit, coupled with a 50-year history of increasing dividends, speaks to a resilient business model that consistently delivers value to shareholders. This success is not accidental but is the direct result of a strategic focus on niche markets, rigorous underwriting discipline, and continuous investment in advanced technology, including generative AI, to empower its expert underwriters and claims specialists.

While the company faces headwinds from a softening property market and the ongoing challenge of legal system abuse in auto-exposed lines, RLI's proactive approach to rate adjustments, risk selection, and strategic withdrawals from underpriced business demonstrates its agility. Its strong capital position, diversified investment portfolio, and deep relationships with producers further solidify its competitive standing. For discerning investors, RLI offers a unique blend of stability, profitability, and a clear strategic roadmap for sustained success, making it a standout in the specialty insurance landscape.