RLI Corp. 2026 Q3 Earnings Call

Please go ahead. 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 are okay with that. 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.

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 4, 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 years' 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 $0.18 per share while repurchasing just under 104,000 shares at an average price of $60.51. At September 30, 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, investment income and capital strength. With that, I'll turn the call over to Jen for more detail.

Thank you, Aaron. 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 insurers following these events. However, the associated financial impact to RLI was immaterial.