RLI Reports Third-Quarter Operating EPS of $0.86, Up From $0.82

RLI (NYSE: RLI ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary RLI Corp reported a consistent profitable performance with an 86 combined ratio, 2% premium growth, 13% increase in net investment income, and a 10% growth in book value. The company emphasized disciplined underwriting, strong relationships with customers and distribution partners, and strategic partnerships such as with Steadily, which contributed $9 million in premiums. Segment highlights include 4% growth in casualty premiums, strong property underwriting with a 60.1 combined ratio, and surety premiums up by 1% with a 79.8 combined ratio.

Operating earnings per share increased to $0.86 from $0.82, while net earnings per share decreased to $0.88 from $1.35 due to changes in equity securities value. Management maintained a focus on underwriting discipline and risk selection, despite competitive pressures in certain markets such as E&S property and transportation. Full Transcript OPERATOR We will open the conference up for question and answers. Before we get started, let me remind everyone that through the course of the teleconference, RLI management may make comments that reflect their intentions, beliefs, and expectations for the future.

As always, these forward-looking statements are subject to certain factors and uncertainties which could cause actual results to differ materially. Please refer to the risk factors described in the Company's various SEC filings, including in the Annual Report on Form 10-K as supplemented in Forms 10-Q, all of which should be reviewed carefully. The Company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing third quarter results. During the call, RLI management may refer to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results.

RLI's operating earnings and earnings per share from operations consist of net earnings after the elimination of after-tax realized gains or losses and after-tax unrealized gains or losses on equity securities. Additionally, equity in earnings of unconsolidated investees and related taxes are excluded from operating earnings and operating EPS to present a consistent approach in excluding all unrealized changes in values from equity investments. RLI's management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to other companies.

Definitions of operating earnings—the Form 8-K contains a reconciliation between operating earnings and net earnings. The Form 8-K and press release are available at the company's website at I will now turn the conference over to RLI's President and Chief Executive Officer, Mr. Craig Kliethermes. Please go ahead.

Craig W Kliethermes (President and Chief Executive Officer) Good morning everyone and thank you for joining us today. With me are Aaron Diefenthaler, our Chief Financial Officer, and Jen Klobnak, our Chief Operating Officer. We are pleased with another quarter of consistent profitable performance. We produced an 86 combined ratio, grew premiums 2%, increased net investment income 13% and grew book value 10% from year end inclusive of dividends and share repurchases.

Those results may sound familiar. We're okay with that. Consistent consistency may be boring to some. At RLI we think boring is beautiful.

Behind that consistency is disciplined underwriting. Our underwriters are selective, discerning and exacting about the risks we take and the price and terms we require. We don't need every opportunity across our diverse portfolio of niche specialty products. We will look for the right opportunities where expertise and risk selection gives us an advantage.

Insurance remains a relationship business. People like doing business with people they like and, more importantly, people and companies they trust. Our customers and distribution partners know our people are accessible, genuine, empowered to solve problems and consistently show up. Our expertise gets us to the right answer.

Our service and relationships help earn us the next opportunity. Markets change. Our principles don't. We will continue to underwrite with discipline, invest in our people and relationships, and pursue profitable opportunities where expertise makes a difference.

With that, I'll turn it over to Aaron for more detail on the financials. Aaron Diefenthaler (Chief Financial Officer) Thanks Craig and good morning. Yesterday we reported third quarter operating earnings of $0.86 per share compared with $0.82 last year. The quarter reflected solid underwriting performance, a 13% increase in net investment income and 2% growth in gross premiums written.

As we have noted in prior quarters, our definition of operating earnings changed in Q4 of 2025 and excludes equity in the earnings of unconsolidated investees and the related taxes. Prior period comparisons have been appropriately recast on a GAAP basis. Third quarter net earnings totaled $0.88 per share compared with $1.35 in the year-ago period. The year-over-year difference was primarily driven by comparable changes in the value of equity securities between periods.

Underwriting income totaled $58.8 million for the quarter and our overall combined ratio was 86.2 compared with 85.1 last year. The loss ratio increased 1.3 points to 47.4 while the expense ratio improved modestly to 38.8. Results benefited from favorable development on prior year's loss reserves, which totaled $22.9 million in the current quarter, up from $15.5 million in the third quarter of 2025. Current year catastrophe losses were modest at approximately $4 million, primarily in the property segment.

Related to catastrophe losses, I want to mention a new display in our earnings press release on page four where we now break out catastrophe losses by segment. As we have discussed in prior quarters, the casualty segment can pick up some catastrophe activity related to packaged businesses. We believe the new disclosure will be helpful in determining changes in the underlying loss ratio. As discussed in the footnote, any development on prior year storms is included in the upper part of the table.

Turning to our segments results, Casualty again led on growth, up 4% in the quarter while posting a 99.6 combined ratio compared with 98.2 last year. Casualty's underwriting results benefited from $8.2 million of favorable development on prior year's reserves, roughly in line with Q3 of 2025. Several products contributed to the release, including excess casualty and commercial transportation. On a sequential basis, Casualty's underlying loss ratio was similar to the prior quarter and remains just under 67 on a year-to-date basis.

Property continued to generate very strong underwriting results. Gross premiums were down approximately 1% while the segment produced just over $50 million of underwriting income on a 60.1 combined ratio, equivalent to last year. Property benefited from $10.4 million of favorable prior year reserve development inclusive of $4 million from prior year storms during the quarter. Property's current year catastrophe losses totaled $3.9 million, about half of which was represented by activity in Hawaii.

Surety also had a very good quarter with gross premiums up approximately 1% on a 79.8 combined ratio compared with 85 last year. The segment benefited from $4.3 million of favorable prior year reserve development and lower loss activity. Underwriting income for surety increased $7.3 million from $5.6 million in the prior year quarter. As usual, Jen will offer more detail on product-level performance and market conditions.

Turning to cash and investments, operating cash flow was $195 million in the quarter, up 9% from last year and providing meaningful support to portfolio activity. New purchases were largely concentrated in investment-grade fixed income with average yields of 5.5%, which is nearly 100 basis points above our book yield. As mentioned, net investment income increased 13% to $46.7 million and remains an important contributor to operating results. On a mark-to-market basis, rising yields, lower bond prices and a modest offset from equities resulted in a negative 2% total return for the quarter.

The movement in fixed income prices also affected comprehensive earnings. We recorded a comprehensive loss of $36.8 million or $0.40 a share for the quarter compared with comprehensive earnings of $152 million or $1.65 a share last year. From a capital management perspective, during the quarter we paid our regular quarterly dividend of 18 cents per share while repurchasing just under 104,000 shares at an average price of $60.51. At September 30th, approximately $232 million remained available under our share repurchase authorization.

Adjusting for dividends and share repurchases, book value increased 10% from year end 2025. Putting it all together, through the first nine months of 2026, we generated $176 million of underwriting income on an 85.9 combined ratio. Net investment income increased 15% and operating earnings were $2.52 a share, very consistent with the prior year. We are pleased with our third quarter performance and the balance of underwriting profitability and investment income and capital strength, and with that, I'll turn the call over to Jen for more detail.

Jen Klobnak (Chief Operating Officer) Thank you, Erin. I'll jump right into a segment update. Property premium was down 1% in the quarter on a 60 combined ratio. Marine is a highlight within our portfolio, delivering 11% premium growth in the quarter along with a meaningful contribution to underwriting profit.

While the marine market remains competitive with rate change essentially flat for both the quarter and year, the team continues to proactively work with our producers and are known as problem solvers. Our partnership approach helped drive double digit growth in submissions, providing us with plenty of opportunities so we can be selective in writing profitable business. E&S Property continues to navigate a highly competitive environment with premium down 17% for the quarter as additional capacity enters the market and standard carriers and retailers reclaim business that had previously flowed through wholesalers.

However, new business submission activity remains strong and increased again this quarter, providing us with plenty of opportunities to target profitable business. Renewal pricing declined double digits on accounts experiencing their second renewal in this softening market cycle and retention remains slightly below historical levels. We continue to prioritize underwriting discipline over premium retention and are comfortable allowing business to move when pricing does not meet our return targets. The business we are binding is at rates we believe are adequate.

Hawaii homeowners delivered solid rate-driven growth with premium increasing 9% for the quarter and rates up 13%. Policy count was modestly lower, reflecting a book roll completed earlier this year, with renewal retention slightly below historical levels. Storm activity remained elevated during the quarter and our local claims team responded to our insureds following these events. However, the associated financial impact to RLI was immaterial.

We continue to look for new opportunities for profitable growth across our insurance portfolio. Over the past several years we planted a number of seeds, including hiring underwriting talent and expanding into complementary products that leverage our existing underwriting expertise, and more recently developing strategic distribution partnerships that bring new capabilities to bear. This quarter, one of those investments began to meaningfully contribute to our top line. Our partnership with Steadily, which specializes in landlord insurance, generated 9 million of premium and helped offset some of the premium decline in parts of our property segment.

We are pleased with the early results and remain disciplined in how we manage the partnership. Our teams are closely aligned on underwriting and claims and we actively monitor production through regular reporting, ongoing communication, and on-site visits with the same rigor as all RLI products. This is a good example of how we maintain underwriting discipline while finding new opportunities to add to our diverse portfolio. Surety delivered another strong quarter with a 79.8 combined ratio and premium growth of 1%.

Competition has increased, particularly in the small to middle market where some competitors are reducing underwriting requirements. Contract and commercial surety premium was modestly lower, reflecting slower construction starts in government and renewable energy projects. Transactional surety was a bright spot with increased opportunities and public official bonds during this election year. Our team is actively marketing our capabilities and focusing on growing producer relationships while maintaining the underwriting discipline and oversight that continue to drive strong results.

Casualty premium increased 4% on a 99.6 combined ratio. Personal umbrella delivered strong premium growth of 22% for the quarter with rates increasing 8% as forecast last quarter. The pace of rate increases moderated as several previously approved rate actions have now earned through the book. Our next approved rate filing is effective January 1st and we expect rate increases to return to double-digit levels during 2027.

In addition to rate, we continue to focus on improving the underlying risk profile of the book. We are closely monitoring new business characteristics, sharing those insights with our producer partners to reinforce our risk appetite and shape the growth. We are encouraged by the progress we are seeing, particularly in geographic mix and driver characteristics, combined with the meaningful rate increases implemented over the past three years. We believe these improvements position the personal umbrella book well for more profitable growth.

E&S Casualty, which includes both general and excess liability coverage, has seen an increase in competition, particularly in the Northeast. Premium declined 10% in the quarter, reflecting pressure from new entrants on both renewal retention and new business. Despite the evolving market conditions, underlying activity remains encouraging. Submissions increased double digits, supported by continued engagement with our producer partners and a strong focus on maintaining those relationships.

While new capacity from MGAs and standard carriers has modestly impacted retention, we remain disciplined in our underwriting and focused on achieving adequate rate for the coverages we provide. We have a strong pipeline of quoted project business and saw increased buying activity on excess liability business at the end of the quarter. We hope this encouraging activity signals improving momentum. Transportation delivered a profitable quarter, including recognizing favorable reserve development, as competition increased late in the quarter.

We remained focused on underwriting discipline and maintaining an underwriting profit. Premium declined 9% for the quarter while rates increased 12%. We proactively non-renewed select accounts that did not meet our profit expectations or failed to address loss control recommendations. We also saw increased competition from both established markets and reemerging MGAs, which contributed to renewal retention declining almost 10 points.

Insureds continue to seek rate relief and are increasingly shopping, which has contributed to higher new business submission activity and provides additional opportunities to selectively add attractive accounts. We remain disciplined and well positioned to capitalize on opportunities where we believe the insured invests in safety practices and we can obtain adequate premium for the risk. The theme for 2026 has been maintaining discipline in an evolving environment. We have the benefit of a diverse product portfolio where in some sectors competitors are hungry for growth and aggressively cutting rates and expanding terms and conditions to write premium.

We do not enforce top line budgets with our underwriters and they are empowered to pull back when market conditions do not support our profitability objectives. At the same time, the market continues to provide opportunities in other sectors. Our talented teams stay close to our customers to recognize where those opportunities exist. In an overall softening market, the team was able to grow premium 2% in the quarter and produce an 86 combined ratio.

That is an outstanding result. With three quarters of underwriting profit on the books, we are well positioned for a strong finish to 2026. And now I'll turn the call back to the moderator to open it up for questions. OPERATOR Thank you.

The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star one on your telephone. If you wish to withdraw your question, please press star one.

Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your question will be taken in the order that it is received. Please stand by for your first question.

Your first question comes from Michael Phillips with Oppenheimer. Michael, your line is open. Please go ahead. Michael Phillips (Analyst) Thank you.

Good morning, and thanks for taking my questions. First, on personal umbrella. You've mentioned some rate actions and now it's going to moderate, then pick back up.