Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 appear throughout this report. These forward looking statements generally include words such as “expect,” “predict,” “estimate,” “will,” “should,” “anticipate,” “believe” and similar expressions. Such assumptions are, in turn, based on information available and internal estimates and analyses of general economic conditions, competitive factors, conditions specific to the property and casualty insurance, reinsurance and surety industries, claims development and the impact thereof on our loss reserves, the adequacy and financial security of our reinsurance programs, developments in the securities market and the impact on our investment portfolio, regulatory changes and conditions and other factors. These assumptions are subject to various risks, uncertainties and other factors, including, without limitation those set forth in “Item 1A. Risk Factors” within the Annual Report on Form 10-K for the year ended December 31, 2024 and Part II within this report. Actual results could differ materially from those expressed in, or implied by, these forward looking statements. Forward looking statements reflect the Company’s expectations, plans or forecasts of future events and views as of the date of this report. While the Company may elect to update these forward looking statements at some point in the future, the Company specifically disclaims any obligation to do so. You should review the various risks, uncertainties and other factors listed from time to time in our Securities and Exchange Commission filings.
OVERVIEW
RLI Corp. is a U.S.-based, specialty insurance company that underwrites select property, casualty and surety products through three major subsidiaries. Our focus is on niche markets and developing unique products that are tailored to customers’
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needs. We hire underwriters and claim examiners with deep expertise and provide exceptional customer service and support. We maintain a highly diverse product portfolio and underwrite for profit in all market conditions. In 2024, we achieved our 29th consecutive year of underwriting profitability. Over the 29-year period, we averaged an 88.1 combined ratio. This drives our ability to provide shareholder returns in three different ways: the underwriting income itself, net investment income from our investment portfolio and long-term appreciation in our equity portfolio.
We measure the results of our insurance operations by monitoring growth and profitability across three distinct business segments: property, casualty and surety. Growth is measured in terms of gross premiums written, and profitability is analyzed through underwriting income and combined ratios.
The property and casualty insurance business is cyclical and influenced by many factors, including price competition, economic conditions, natural or man-made disasters (for example, earthquakes, hurricanes, pandemics and terrorism), interest rates, state regulations, court decisions and changes in the law. One of the unique and challenging features of the property and casualty insurance business is that coverages must be priced before costs have fully developed, because premiums are charged before claims are incurred. This requires that liabilities be estimated and recorded in recognition of future loss and settlement obligations. Due to the inherent uncertainty in estimating these liabilities, there can be no assurance that actual liabilities will equal recorded amounts. If actual liabilities differ from recorded amounts, there will either be an adverse or favorable effect on net earnings.
The casualty portion of our business consists largely of commercial excess, personal umbrella, general liability, transportation and management liability coverages, as well as package business and other specialty coverages, such as professional liability and workers’ compensation for office-based professionals. We also assume a limited amount of risks through quota share and excess of loss reinsurance agreements. The casualty business is subject to the risk of estimating losses and related loss reserves because the ultimate settlement of a casualty claim may take several years to fully develop.
Our property segment is comprised primarily of commercial fire, hurricane, earthquake, difference in conditions and marine coverages. We also offer homeowners’ coverages in Hawaii. Property insurance results are subject to the variability introduced by perils such as earthquakes, fires, hurricanes and other storms. Our major catastrophe exposure is to losses caused by windstorms, affecting commercial properties in coastal regions of the United States, and earthquakes, primarily on the West Coast. We limit our net aggregate exposure to a catastrophic event by managing the total policy limits written in a particular region, purchasing reinsurance and maintaining policy terms and conditions throughout all insurance cycles. We also use computer-assisted modeling techniques to provide estimates that help the Company carefully manage the concentration of risks exposed to catastrophic events.
The surety segment specializes in writing small to medium-sized contract surety coverages, including payment and performance bonds. We offer a variety of commercial surety bonds for medium to large-sized businesses across a broad spectrum of industries, including the financial, healthcare, energy and renewable energy industries. We also offer a variety of transactional bonds, including but not limited to license and permit, notary and court bonds. Often, our surety coverages involve a statutory requirement for bonds. While these bonds typically maintain a relatively low loss ratio, losses may fluctuate due to adverse economic conditions affecting the financial viability of our insureds. The contract surety product guarantees commercial contractors’ contractual obligations for a specific construction project. Generally, losses occur due to the deterioration of a contractor’s financial condition.
The insurance marketplace is competitive across all of our segments. However, we believe that our business model is built to create underwriting income by focusing on sound risk selection and discipline. Our primary focus will continue to be on underwriting profitability, with a secondary focus on premium growth where we believe underwriting profit exists, as opposed to general premium growth or market share measurements.
Key Performance Measures
The following is a list of key performance measures found throughout this report with their definitions, relationships to GAAP measures and explanations of their importance to our operations.
Underwriting Income
Underwriting income or profit represents one measure of the pretax profitability of our insurance operations, and is derived by subtracting losses and settlement expenses, policy acquisition costs and insurance operating expenses from net premiums earned, which are all GAAP financial measures. Each of these components are presented in the statements of
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earnings but are not subtotaled. However, this information is available in total and by segment in note 6 to the unaudited condensed consolidated financial statements in this quarterly report on Form 10-Q, and in note 11 to the consolidated financial statements in our 2024 Annual Report on Form 10-K, regarding operating segment information. The nearest comparable GAAP measure is earnings before income taxes which, in addition to underwriting income, includes net investment income, net realized gains or losses, net unrealized gains or losses on equity securities, general corporate expenses, debt costs and our portion of earnings from unconsolidated investees. A reconciliation of net earnings to underwriting income follows:
For the Three Months
For the Nine Months
Ended September 30,
Ended September 30,
(in thousands)
2025
2024
2025
2024
Net earnings
$
124,610
$
95,027
$
312,160
$
304,919
Income tax expense
32,635
21,798
80,231
75,200
Earnings before income taxes
$
157,245
$
116,825
$
392,391
$
380,119
Equity in earnings of unconsolidated investees
(1,540)
(1,238)
(7,055)
(7,653)
General corporate expenses
5,045
3,994
12,747
13,144
Interest expense on debt
1,364
1,617
4,049
4,839
Net unrealized gains on equity securities
(41,981)
(38,392)
(43,163)
(87,314)
Net realized (gains) losses
(18,318)
(5,420)
(48,234)
(11,222)
Net investment income
(41,270)
(36,694)
(117,414)
(103,502)
Net underwriting income
$
60,545
$
40,692
$
193,321
$
188,411
Combined Ratio
The combined ratio, which is derived from components of underwriting income, is a common industry performance measure of profitability for underwriting operations and is calculated in two components. First, the loss ratio is losses and settlement expenses divided by net premiums earned. The second component, the expense ratio, reflects the sum of policy acquisition costs and insurance operating expenses divided by net premiums earned. All items included in these components of the combined ratio are presented in our GAAP consolidated financial statements. The sum of the loss and expense ratios is the combined ratio. The difference between the combined ratio and 100 reflects the per-dollar rate of underwriting income or loss.
Critical Accounting Policies
In preparing the unaudited condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates.
The most critical accounting policies involve significant estimates and include those used in determining the liability for unpaid losses and settlement expenses, investment valuation, recoverability of reinsurance balances, deferred policy acquisition costs and deferred taxes. For a detailed discussion of each of these policies, refer to our 2024 Annual Report on Form 10-K.
There have been no significant changes to critical accounting policies during the year.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Net premiums earned increased 7 percent, driven primarily by products in our casualty and surety segments. Investment income was up 13 percent, due to an increased average asset base and higher reinvestment rates. Positive market performance resulted in $43 million of unrealized gains on equity securities in the first nine months of 2025, compared to $87 million in 2024. Realized gains during the first nine months of 2025 were comprised of $45 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, $2 million of realized gains on the fixed income portfolio and $1 million of other realized gains. This compares to $20 million of realized gains on the equity portfolio, $3 million of realized losses on the fixed income portfolio and $6 million of other realized losses during the first nine months of 2024.
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For the Nine Months
Ended September 30,
Consolidated Revenues (in thousands)
2025
2024
Net premiums earned
$
1,207,944
$
1,129,230
Net investment income
117,414
103,502
Net realized gains
48,234
11,222
Net unrealized gains on equity securities
43,163
87,314
Total consolidated revenue
$
1,416,755
$
1,331,268
Underwriting income was $193 million on an 84.0 combined ratio for the first nine months of 2025, compared to $188 million on an 83.3 combined ratio in the same period of 2024. Underwriting results for 2025 were impacted by $26 million of pretax losses from catastrophe events, compared to $67 million in 2024. Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $74 million in the first nine months of 2025, compared to $85 million in 2024.
The loss ratio was 45.5 for the first nine months of 2025 and 2024. The benefit of lower catastrophe losses was offset by lower levels of favorable development on prior years’ loss reserves and a shift in the mix of business towards casualty lines, which tend to have higher non-catastrophe loss ratios than our property and surety products. The expense ratio increased to 38.5 from 37.8. Increased expenses were driven by continued investments in people and technology, as well as higher acquisition-related costs, which can fluctuate between periods.
Bonus and profit-sharing amounts earned by executives, managers and associates are predominantly influenced by corporate performance, including operating earnings, combined ratio and return on capital. Favorable development and other drivers of growth in book value will increase bonus and profit-sharing expenses, while catastrophe losses, adverse development and decreased investment portfolio returns would lead to expense reductions. These performance-related expenses affect policy acquisition, insurance operating and general corporate expenses.
Our equity in earnings of unconsolidated investees primarily relates to our investment in Prime Holdings Insurance Services, Inc. (Prime), a specialty insurance company. We recognized $7 million of investee earnings from Prime in the first nine months of 2025 and $8 million in 2024.
Net earnings for the first nine months of 2025 totaled $312 million, compared to $305 million for the same period in 2024. Higher levels of underwriting income, investment income and realized gains all contributed to the improved results.
Comprehensive earnings totaled $389 million for the first nine months of 2025, compared to $365 million for the first nine months of 2024. Other comprehensive earnings primarily included net after-tax unrealized gains (losses) from the fixed income portfolio. Other comprehensive earnings of $76 million in the first nine months of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio. Comparatively, $60 million of other comprehensive earnings was recognized in 2024.
Premiums
Gross premiums written increased $24 million for the first nine months of 2025, compared to the same period of 2024, primarily from our casualty segment. Net premiums earned increased $79 million, also driven by our casualty segment.
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Gross Premiums Written
Net Premiums Earned
For the Nine Months
For the Nine Months
Ended September 30,
Ended September 30,
(in thousands)
2025
2024
% Change
2025
2024
% Change
Casualty
Commercial excess and personal umbrella
$
438,858
$
352,073
25
%
$
327,252
$
257,455
27
%
Commercial transportation
108,342
111,008
(2)
%
91,464
88,691
3
%
General liability
91,009
82,510
10
%
82,997
77,832
7
%
Professional services
91,042
87,763
4
%
80,641
77,366
4
%
Small commercial
63,320
66,147
(4)
%
59,542
57,870
3
%
Executive products
63,700
63,123
1
%
17,507
17,624
(1)
%
Other casualty
45,856
63,528
(28)
%
47,791
50,176
(5)
%
Total
$
902,127
$
826,152
9
%
$
707,194
$
627,014
13
%
Property
Commercial property
$
353,311
$
422,326
(16)
%
$
232,541
$
260,819
(11)
%
Marine
134,752
129,934
4
%
118,784
107,255
11
%
Other property
48,437
37,931
28
%
38,572
28,700
34
%
Total
$
536,500
$
590,191
(9)
%
$
389,897
$
396,774
(2)
%
Surety
Transactional
$
42,142
$
40,789
3
%
$
39,024
$
36,904
6
%
Commercial
46,034
44,031
5
%
37,898
35,802
6
%
Contract
36,805
38,675
(5)
%
33,931
32,736
4
%
Total
$
124,981
$
123,495
1
%
$
110,853
$
105,442
5
%
Grand Total
$
1,563,608
$
1,539,838
2
%
$
1,207,944
$
1,129,230
7
%
Casualty
Gross premiums written for the casualty segment increased $76 million in the first nine months of 2025. We continued to benefit from positive rate movement across a large portion of our casualty segment, as well as from new business growth within our personal umbrella distribution channels. Premium growth for commercial excess and general liability was driven by expanded marketing efforts, while some of our competitors pulled back from the construction market, and increased construction spending in targeted markets. Other casualty premium was down for the first nine months of 2025, as we exited from various captive programs and reduced our participation on the reinsurance agreement with Prime.
Property
Gross premiums written for the property segment decreased $54 million in the first nine months of 2025. After several consecutive years of rate increases, rates on commercial property exposures declined in 2025, driven by more intense competition. However, new opportunities, rate increases and strong sections of the construction market led to $5 million of premium growth for our marine product. Additionally, some competitors have reduced their appetite for select Hawaii homeowner coverages, which, along with rate increases, has allowed our other property premium to grow.
Surety
Gross premiums written for the surety segment increased $1 million in the first nine months of 2025. Transactional and commercial surety grew as result of continued marketing efforts and new regional bonding requirements. However, a slowdown in construction spending resulted in a decline in contract surety premium.
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Underwriting Income
For the Nine Months
Ended September 30,
2025
2024
Underwriting Income (in thousands)
Casualty
$
14,846
$
26,538
Property
156,850
141,298
Surety
21,625
20,575
Total
$
193,321
$
188,411
Combined Ratio
Casualty
97.9
95.8
Property
59.8
64.4
Surety
80.5
80.5
Total
84.0
83.3
Casualty
The casualty segment recorded underwriting income of $15 million in the first nine months of 2025, compared to $27 million for the same period last year. Prior accident years’ reserve releases reduced loss and settlement expenses for the casualty segment by $28 million in 2025, primarily on accident years 2019 through 2022 and 2024. Larger drivers of the favorable development were commercial excess, general liability and subsegments within professional liability, while auto liability exposures developed adversely for some products, most notably in commercial transportation. In comparison, $42 million of prior accident years’ reserves were released in the first nine months of 2024. Commercial excess, general liability, professional services, executive products and personal umbrella drove the favorable development in 2024. Storm losses on casualty-oriented package policies that include property coverage resulted in $2 million of losses in 2025 and $3 million in 2024.
The combined ratio for the casualty segment was 97.9 in 2025, compared to 95.8 in 2024. The segment’s loss ratio was 61.9 in 2025, up from 58.9 in 2024. Lower levels of reserve releases on prior accident years and higher current year loss reserves, primarily in auto exposed lines, resulted in the higher loss ratio in 2025. The expense ratio for the casualty segment was 36.0, down from 36.9 for the same period last year, as the growth in the earned premium base exceeded the growth in expense.
Property
The property segment recorded underwriting income of $157 million for the first nine months of 2025, compared to $141 million for the same period last year. Underwriting results for 2025 included $32 million of favorable development on prior years’ loss and catastrophe reserves, offset by $24 million of storm and other catastrophe losses. Comparatively, the 2024 underwriting results included $33 million of favorable development on prior years’ loss and catastrophe reserves, $35 million of losses from Hurricanes Beryl and Helene, as well as $28 million of other storm losses.
Underwriting results for the first nine months of 2025 translated into a combined ratio of 59.8, compared to 64.4 for the same period last year. The segment’s loss ratio was 26.7 in 2025, down from 34.0 in 2024, as a result of lower current accident year catastrophe losses. The segment’s expense ratio increased to 33.1 in 2025 from 30.4 in the prior year, as a result of continued investments in people and technology, as well as higher acquisition-related expenses, which can fluctuate between periods.
Surety
The surety segment recorded underwriting income of $22 million for the first nine months of 2025, compared to $21 million for the same period last year. Both periods reflected positive current accident year underwriting performance and benefited from favorable development on prior years’ loss reserves. Results for 2025 included favorable development on prior accident years’ reserves, which decreased loss and settlement expenses for the segment by $13 million. Results for 2024 included $11 million of favorable development on prior accident years’ reserves. Additionally, $2 million of reinsurance reinstatement premium was recorded in 2024 on a prior year loss, which reduced net premiums earned and underwriting income.
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The combined ratio for the surety segment totaled 80.5 for the first nine months of 2025 and 2024. The segment’s loss ratio was 7.0 in 2025, down from 9.0 in 2024, due to higher levels of favorable prior accident years’ reserve development. The expense ratio was 73.5, up from 71.5 in the prior year, due to continued investments in people and technology, higher acquisition expenses, as well as differences in our reinsurance costs.
Investment Income
Our investment portfolio generated net investment income of $117 million during the first nine months of 2025, an increase of 13 percent from the same period in 2024. The increase in investment income was due to higher reinvestment rates, as well as an increased average asset base relative to the prior year.
Yields on our fixed income investments for the first nine months of 2025 and 2024 were as follows:
2025
2024
Pretax Yield
Taxable
4.10
%
3.79
%
Tax-Exempt
2.83
%
2.88
%
After-Tax Yield
Taxable
3.24
%
2.99
%
Tax-Exempt
2.68
%
2.73
%
The following table depicts the composition of our investment portfolio at September 30, 2025 as compared to December 31, 2024:
(in thousands)
September 30, 2025
December 31, 2024
Fixed income
$
3,536,484
75.4
%
$
3,175,796
77.8
%
Equity securities
878,872
18.8
%
736,191
18.0
%
Short-term investments
165,706
3.5
%
74,915
1.8
%
Other invested assets
56,494
1.2
%
57,939
1.4
%
Cash
52,621
1.1
%
39,790
1.0
%
Total investments and cash
$
4,690,177
100.0
%
$
4,084,631
100.0
%
We believe our overall asset allocation supports our strategy to preserve capital for policyholders, provide sufficient income to support our insurance operations and effectively grow book value over a long-term investment horizon.
The fixed income portfolio increased by $361 million in the first nine months of 2025, as bonds rallied and cash flows were largely allocated to the fixed income portfolio. Average fixed income duration was 4.8 years at September 30, 2025, reflecting our liability structure and sound capital position. The equity portfolio increased by $143 million during the first nine months of 2025, primarily due to strength in the equity markets. Short-term investments increased by $91 million, as yields on AAA-rated government money market funds remained relatively attractive.
Income Taxes
Our effective tax rate for the first nine months of 2025 was 20.4 percent, compared to 19.8 percent for the same period in 2024. Effective rates are dependent upon components of pretax earnings or losses and the related tax effects. The effective tax rate was higher for the nine-month period in 2025 due to lower levels of tax-favored adjustments, such as tax credits and excess tax benefits on share-based compensation, and higher levels of pretax income, which decreased the percentage impact of the tax-favored adjustments.
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Net premiums earned increased 5 percent, driven primarily by products in our casualty and surety segments. Investment income was up 12 percent, due to an increased average asset base and higher reinvestment rates. Positive market performance resulted in $42 million of unrealized gains on equity securities in the third quarter of 2025, compared to $38 million in 2024. Realized gains during the third quarter of 2025 were comprised of $16 million of realized gains on equity securities, primarily due to rebalancing within our equity strategies, $3 million of realized gains on the fixed income portfolio and $1 million of
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other realized losses. This compares to $7 million of realized gains on the equity portfolio, $1 million of realized losses on the fixed income portfolio and less than $1 million of other realized losses during the third quarter of 2024.
For the Three Months
Ended September 30,
Consolidated Revenues (in thousands)
2025
2024
Net premiums earned
$
407,695
$
389,489
Net investment income
41,270
36,694
Net realized gains
18,318
5,420
Net unrealized gains on equity securities
41,981
38,392
Total consolidated revenue
$
509,264
$
469,995
Underwriting income was $61 million on an 85.1 combined ratio for the third quarter of 2025, compared to $41 million on an 89.6 combined ratio in the same period of 2024. Underwriting results for 2024 were impacted by $37 million of pretax losses from Hurricanes Beryl and Helene, as well as $2 million of pretax storm losses, while minimal catastrophe losses were incurred in the third quarter of 2025. Results for each period benefited from favorable development on prior years’ loss reserves, which provided additional pretax earnings of $15 million in the third quarter of 2025, compared to $21 million in 2024.
The loss ratio decreased to 46.1 from 51.9 due to lower catastrophe losses. The expense ratio increased to 39.0 from 37.7. Improved equity market returns resulted in more book value growth in 2025 and a corresponding increase in bonus expense accruals when compared to 2024. Increased expenses were also driven by continued investments in people and technology, as well as higher acquisition-related costs, which can fluctuate between periods.
Bonus and profit-sharing amounts earned by executives, managers and associates are predominantly influenced by corporate performance, including operating earnings, combined ratio and return on capital. Favorable development and other drivers of growth in book value will increase bonus and profit-sharing expenses, while catastrophe losses, adverse development and decreased investment portfolio returns would lead to expense reductions. These performance-related expenses affect policy acquisition, insurance operating and general corporate expenses.
Our equity in earnings of unconsolidated investees primarily relates to our investment in Prime. We recognized $2 million of investee earnings from Prime in the third quarter of 2025 and $1 million in 2024.
Net earnings for the third quarter of 2025 totaled $125 million, compared to $95 million for the same period in 2024. Higher levels of underwriting income, investment income, realized gains and unrealized gains on equity securities all contributed to the improved results.
Comprehensive earnings totaled $152 million for the third quarter of 2025, compared to $175 million for the third quarter of 2024. Other comprehensive earnings primarily included net after-tax unrealized gains (losses) from the fixed income portfolio. Other comprehensive earnings of $28 million in the third quarter of 2025 was primarily attributable to lower interest rates, which increased the fair value of securities held in the fixed income portfolio. Comparatively, $80 million of other comprehensive earnings was recognized in 2024.
Premiums
Gross premiums written increased $2 million for the third quarter of 2025, compared to the same period of 2024. Growth in our casualty segment offset declines in the property and surety segments. Net premiums earned increased $18 million, driven by the casualty segment.
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Gross Premiums Written
Net Premiums Earned
For the Three Months
For the Three Months
Ended September 30,
Ended September 30,
(in thousands)
2025
2024
% Change
2025
2024
% Change
Casualty
Commercial excess and personal umbrella
$
153,896
$
126,854
21
%
$
115,132
$
91,434
26
%
Commercial transportation
42,644
43,133
(1)
%
31,190
32,067
(3)
%
General liability
28,974
26,942
8
%
28,690
26,316
9
%
Professional services
31,310
30,163
4
%
27,431
26,281
4
%
Small commercial
20,078
21,378
(6)
%
19,627
20,074
(2)
%
Executive products
25,337
25,030
1
%
6,043
6,261
(3)
%
Other casualty
14,824
20,767
(29)
%
15,395
17,205
(11)
%
Total
$
317,063
$
294,267
8
%
$
243,508
$
219,638
11
%
Property
Commercial property
$
93,895
$
116,655
(20)
%
$
72,853
$
85,814
(15)
%
Marine
43,814
43,938
(0)
%
40,058
37,618
6
%
Other property
16,922
13,220
28
%
13,778
9,834
40
%
Total
$
154,631
$
173,813
(11)
%
$
126,689
$
133,266
(5)
%
Surety
Transactional
$
13,291
$
13,399
(1)
%
$
13,268
$
12,488
6
%
Commercial
13,677
14,125
(3)
%
12,700
12,477
2
%
Contract
11,559
12,186
(5)
%
11,530
11,620
(1)
%
Total
$
38,527
$
39,710
(3)
%
$
37,498
$
36,585
2
%
Grand Total
$
510,221
$
507,790
0
%
$
407,695
$
389,489
5
%
Casualty
Gross premiums written for the casualty segment increased $23 million in the third quarter of 2025. We continued to benefit from positive rate movement across a large portion of our casualty segment, as well as from new business growth within our personal umbrella distribution channels. Premium growth for commercial excess and general liability was driven by expanded marketing efforts, while some of our competitors pulled back from the construction market, and increased construction spending in targeted markets. Other casualty premium was down for the quarter as we exited from various captive programs and reduced our participation on the reinsurance agreement with Prime.
Property
Gross premiums written for the property segment decreased $19 million in the third quarter of 2025. After several consecutive years of rate increases, rates on commercial property exposures declined in the third quarter of 2025, driven by more intense competition. However, some competitors have reduced their appetite for select Hawaii homeowner coverages, which, along with rate increases, has allowed our other property premium to grow.
Surety
Gross premiums written for the surety segment decreased $1 million for the third quarter of 2025. A decrease in construction spending and soft market conditions drove the decline.
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Underwriting Income
For the Three Months
Ended September 30,
2025
2024
Underwriting Income (in thousands)
Casualty
$
4,486
$
2,549
Property
50,424
30,402
Surety
5,635
7,741
Total
$
60,545
$
40,692
Combined Ratio
Casualty
98.2
98.8
Property
60.2
77.2
Surety
85.0
78.8
Total
85.1
89.6
Casualty
The casualty segment recorded underwriting income of $4 million in the third quarter of 2025, compared to $3 million for the same period last year. Prior accident years’ reserve releases reduced loss and settlement expenses for the casualty segment by $8 million in 2025, primarily on accident years 2020 through 2022 and 2024. Larger drivers of the favorable development were commercial excess, general liability, executive products and personal umbrella. In comparison, $10 million of prior accident years’ reserves were released in the third quarter of 2024. Commercial excess, professional services, general liability, personal umbrella and executive products were drivers of the favorable development in 2024. In addition, underwriting results for 2024 included $2 million of hurricane and storm losses on casualty-oriented package policies that include property coverage.
The combined ratio for the casualty segment was 98.2 in 2025, compared to 98.8 in 2024. The segment’s loss ratio was 62.0 in 2025, down from 62.8 in 2024, due to improved current accident year losses. The expense ratio for the casualty segment was 36.2, up from 36.0 for the same period last year.
Property
The property segment recorded underwriting income of $50 million for the third quarter of 2025, compared to $30 million for the same period last year. Underwriting results for 2025 included $5 million of favorable development on prior years’ loss reserves. Comparatively, the 2024 underwriting results included $8 million of favorable development on prior years’ loss and catastrophe reserves, $35 million of losses from Hurricanes Beryl and Helen, as well as $2 million of storm losses.
Underwriting results for the third quarter of 2025 translated into a combined ratio of 60.2, compared to 77.2 for the same period last year. The segment’s loss ratio was 25.9 in 2025, down from 45.8 in 2024, as a result of lower catastrophe losses. The segment’s expense ratio increased to 34.3 in 2025, up from 31.4 in the prior year, driven by continued investments in people and technology, along with higher acquisition-related expenses, which can fluctuate between periods.
Surety
The surety segment recorded underwriting income of $6 million for the third quarter of 2025, compared to $8 million for the same period last year. Results for 2025 and 2024 included favorable development on prior accident years’ reserves, which decreased loss and settlement expenses for the segment by $3 million in each period.
The combined ratio for the surety segment totaled 85.0 for the third quarter of 2025, compared to 78.8 for the same period in 2024. The segment’s loss ratio was 11.4 in 2025, up from 8.7 in 2024, due to slightly lower favorable development on prior accident years and a higher earned premium base. The expense ratio was 73.6, up from 70.1 in the prior year, due to continued investments in people and technology, as well as higher acquisition expenses.
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Investment Income
Our investment portfolio generated net investment income of $41 million during the third quarter of 2025, an increase of 12 percent from the same period in 2024. The increase in investment income was due to higher reinvestment rates, as well as an increased average asset base relative to the prior year.
Yields on our fixed income investments for the third quarter of 2025 and 2024 were as follows:
2025
2024
Pretax Yield
Taxable
4.19
%
3.86
%
Tax-Exempt
2.69
%
2.98
%
After-Tax Yield
Taxable
3.31
%
3.05
%
Tax-Exempt
2.55
%
2.82
%
Income Taxes
Our effective tax rate for the third quarter of 2025 was 20.8 percent, compared to 18.7 percent for the same period in 2024. Effective rates are dependent upon components of pretax earnings or losses and the related tax effects. The effective tax rate was higher for the third quarter of 2025 due to lower levels of tax-favored adjustments, such as tax credits and excess tax benefits on share-based compensation, and higher levels of pretax income, which decreased the percentage impact of the tax-favored adjustments.
LIQUIDITY AND CAPITAL RESOURCES
We have three primary types of cash flows: (1) cash flows from operating activities, which consist mainly of cash generated by our underwriting operations and income earned on our investment portfolio, (2) cash flows from investing activities related to the purchase, sale and maturity of investments and (3) cash flows from financing activities that impact our capital structure, such as shareholder dividend payments and changes in debt and shares outstanding.
The following table summarizes cash flows provided by (used in) our activities for the nine-month periods ended September 30, 2025 and 2024:
(in thousands)
2025
2024
Operating cash flows
$
457,453
$
432,139
Investing cash flows
(402,518)
(372,088)
Financing cash flows
(42,104)
(35,841)
Total
$
12,831
$
24,210
Premiums received from customers are our largest source of cash and claim payments on insured losses represent our largest use of cash. Cash flows from operating activities can vary among periods due to the timing in which these payments are made or received. Operating cash flows in the first nine months of 2025 benefited from increased premium and investment income receipts relative to the first nine months of 2024.
As of September 30, 2025, we had $100 million in debt outstanding. On September 15, 2023, we accessed $50 million from our revolving line of credit with PNC Bank, N.A. (PNC). The borrowing may be repaid at any time and carries an adjustable interest rate of 5.76 percent, which will reset during the fourth quarter of 2025. The credit facility with PNC was entered into during the first quarter of 2023 and replaced the previous $60 million facility with Bank of Montreal, Chicago Branch, which expired on March 27, 2023. The line of credit permits us to borrow up to an aggregate principal amount of $100 million, but may be increased up to an aggregate principal amount of $130 million under certain conditions. The facility has a three-year term that expires on May 29, 2026. Further, RLI Insurance Company borrowed $50 million from the Federal Home Loan Bank of Chicago (FHLBC) on November 12, 2024. The borrowing matures on November 12, 2025. Interest is paid monthly at an annualized rate of 4.44 percent.
Two of our insurance companies, RLI Insurance Company (RLI Ins.) and Mt. Hawley Insurance Company, are members of the FHLBC. Membership in the Federal Home Loan Bank system provides both companies access to an additional source of
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liquidity via a secured lending facility. Our membership allows each insurance subsidiary to determine tenor and structure at the time of borrowing. As of September 30, 2025, $55 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility.
As of September 30, 2025, we had cash and other investments maturing within one year of approximately $485 million and an additional $765 million maturing between one to five years. Whereas our strategy is to be fully invested at all times, short-term investments in excess of demand deposit balances are considered a component of investment activities, and thus are classified as investments in our consolidated balance sheets.
We believe that cash generated by operations and investments will provide sufficient sources of liquidity to meet our anticipated needs over the next 12 to 24 months. In the event they are not sufficient, we believe cash available from financing activities and other sources will provide sufficient additional liquidity.
We maintain a diversified investment portfolio representing policyholder funds that have not yet been paid out as claims, as well as the capital we hold for our shareholders. Invested assets at September 30, 2025 have increased $606 million from December 31, 2024. As of September 30, 2025, our investment portfolio had the following asset allocation breakdown:
Cost or
Fair
Unrealized
% of Total
(in thousands)
Amortized Cost
Value
Gain/(Loss)
Fair Value
Quality*
U.S. government
$
395,751
$
399,593
$
3,842
8.5
%
AA+
U.S. agency
55,268
55,483
215
1.2
%
AA+
Non-U.S. government & agency
12,730
12,377
(353)
0.3
%
A-
Agency MBS
632,284
604,351
(27,933)
12.9
%
AA+
ABS/CMBS/MBS**
577,587
563,754
(13,833)
12.0
%
AA
Corporate
1,501,345
1,490,035
(11,310)
31.8
%
A-
Municipal
480,989
410,891
(70,098)
8.7
%
AA+
Total fixed income
$
3,655,954
$
3,536,484
$
(119,470)
75.4
%
AA-
Equity
513,255
878,872
365,617
18.8
%
Short-term investments
165,706
165,706
—
3.5
%
Other invested assets
58,123
56,494
(1,629)
1.2
%
Cash
52,621
52,621
—
1.1
%
Total portfolio
$
4,445,659
$
4,690,177
$
244,518
100.0
%
*
Quality ratings provided by Moody’s, S&P and Fitch
**
Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities
Quality is an average of each bond’s credit rating, adjusted for its relative weighting in the portfolio. As of September 30, 2025, our fixed income portfolio had the following rating distribution:
Below
Investment
AAA
AA
A
BBB
Grade
No Rating
Fair Value
U.S. government
-
399,593
-
-
-
-
399,593
U.S. agency
-
55,483
-
-
-
-
55,483
Non-U.S. government & agency
-
1,403
4,415
5,558
-
1,001
12,377
Agency MBS
-
604,351
-
-
-
-
604,351
ABS/CMBS/MBS*
354,527
48,113
110,967
1,006
8,875
40,266
563,754
Corporate
23,769
174,402
618,248
413,004
163,271
97,341
1,490,035
Municipal
117,068
263,726
28,294
-
-
1,803
410,891
Total
495,364
1,547,071
761,924
419,568
172,146
140,411
3,536,484
*
Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities
As of September 30, 2025, our fixed income portfolio remained well diversified, with 1,929 individual issues.
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Our investment portfolio has limited exposure to structured asset-backed securities. As of September 30, 2025, we had $304 million in ABS, which are pools of assets collateralized by cash flows from several types of loans, including home equity, credit cards, autos and structured bank loans in the form of collateralized loan obligations (CLOs).
As of September 30, 2025, we had $258 million in commercial and non-agency MBS and $604 million in MBS backed by government sponsored enterprises (GSEs - Freddie Mac, Fannie Mae and Ginnie Mae). Excluding the GSE-backed MBS, our exposure to ABS and CMBS was 12.0 percent of our investment portfolio at quarter end.
We had $1,490 million in corporate fixed income securities as of September 30, 2025, which includes $140 million invested in a high-yield credit strategy. This high-yield portfolio consists of floating rate bank loans and bonds that are below investment grade in credit quality and offer incremental yield over our core fixed income portfolio.
The municipal portfolio includes approximately 72 percent taxable securities and 28 percent tax-exempt securities. Approximately 93 percent of our municipal bond portfolio maintains an ‘AA’ or better rating, while 100 percent of the municipal bond portfolio is rated ‘A’ or better.
Securities within the equity portfolio are well diversified and are primarily invested in broad index exchange traded funds (ETFs). Our actively managed equity strategy has a preference for dividend income and value oriented security selection with low turnover, which minimizes transaction costs and taxes throughout our long investment horizon.
As of September 30, 2025, our equity portfolio had a dividend yield of 1.5 percent, compared to 1.2 percent for the S&P 500 index. Because of the corporate dividend-received-deduction applicable to our dividend income, we pay an effective tax rate of 13.1 percent on dividends, compared to 21.0 percent on taxable interest and 5.3 percent on municipal bond interest income. The equity portfolio is managed in a diversified and granular manner, with 78 individual securities and five ETF positions. No single company exposure in the equity portfolio represents more than 1 percent of invested assets.
Other invested assets include investments in low-income housing tax credit and historic tax credit partnerships, membership in the FHLBC and investments in private funds.
We had $64 million of investments in unconsolidated investees at September 30, 2025, compared to $56 million at December 31, 2024.
Our investment portfolio does not have any exposure to derivatives.
As of September 30, 2025, our capital structure consisted of $100 million in debt and $1.9 billion of shareholders’ equity. Debt outstanding comprised 5 percent of total capital as of September 30, 2025. Interest and fees on debt obligations totaled $4 million for the first nine months of 2025 and $5 million during the same period in 2024. We incurred interest expense on debt at an average annual interest rate of 5.18 percent during the first nine months of 2025, compared to 6.20 percent during the same period last year.
We paid a regular quarterly cash dividend of $0.16 per share on September 19, 2025, the same amount as the prior quarter. We have increased dividends in each of the last 50 years.
Our three insurance companies are subsidiaries of RLI Corp, with RLI Ins. as the first-level, or principal, insurance company. At the holding company (RLI Corp.) level, we rely largely on dividends from our insurance subsidiaries to meet our obligations for paying principal and interest on outstanding debt, corporate expenses and dividends to RLI Corp. shareholders. As discussed further below, dividend payments to RLI Corp. from our principal insurance subsidiary are restricted by state insurance laws as to the amount that may be paid without prior approval of the insurance regulatory authorities of Illinois. As a result, we may not be able to receive dividends from such subsidiary at times and in amounts necessary to pay desired dividends to RLI Corp. shareholders. On a GAAP basis, as of September 30, 2025, our holding company had $1.9 billion in equity. This includes amounts related to the equity of our insurance subsidiaries, which is subject to regulatory restrictions under state insurance laws. The unrestricted portion of holding company net assets is comprised primarily of investments and cash, including $134 million in liquid assets. Unrestricted funds at the holding company are available to fund debt interest, general corporate obligations and dividend payments to our shareholders. If necessary, the holding company also has other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include a revolving line of credit, as well as access to capital markets.
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Ordinary dividends, which may be paid by our principal insurance subsidiary without prior regulatory approval, are subject to certain limitations based upon statutory income, surplus and earned surplus. The maximum ordinary dividend distribution from our principal insurance subsidiary in a rolling 12-month period is limited by Illinois law to the greater of 10 percent of RLI Ins. policyholder surplus, as of December 31 of the preceding year, or the net income of RLI Ins. for the 12-month period ending December 31 of the preceding year. Ordinary dividends are further restricted by the requirement that they be paid from earned surplus. Any dividend distribution in excess of the ordinary dividend limits is deemed extraordinary and requires prior approval from the Illinois Department of Insurance (IDOI). In the first nine months of 2025, RLI Ins. paid $139 million in ordinary dividends to RLI Corp. In 2024, RLI Ins. paid ordinary dividends totaling $152 million. As of September 30, 2025, $1 million of the net assets of our principal insurance subsidiary were not restricted and could be distributed to RLI Corp. as ordinary dividends without prior approval from the IDOI. Because the limitations are based upon a rolling 12-month period, the amount and impact of these restrictions vary over time. In addition to restrictions from our principal subsidiary’s insurance regulator, we also consider internal models and how capital adequacy is defined by our rating agencies in determining amounts available for distribution.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.