Specialty insurance provider RLI (NYSE: RLI) fell short of the market’s revenue expectations in Q3 CY2025, with sales falling 4.5% year on year to $449 million. Its non-GAAP profit of $0.83 per share was 19% above analysts’ consensus estimates.

Is now the time to buy RLI? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

RLI’s third quarter performance was positively received by the market, as the company delivered strong underwriting profitability and significant margin expansion despite modest revenue contraction. Management attributed the results to disciplined underwriting, a benign hurricane season, and favorable reserve development across all segments. CEO Craig Kliethermes emphasized, “Book value per share has grown 26% year to date inclusive of dividends on an 84 combined ratio and double-digit growth in net investment income, resulting in a 20% plus return on equity.” RLI’s casualty segment continued to grow even as the property segment faced increased competition and rate pressure.

Looking forward, RLI’s outlook is shaped by ongoing investments in underwriting talent, process automation, and technology, as well as continued rate actions in key product lines. Management noted that, although competition in property markets is mounting, the company is focused on maintaining well-priced books and sustainable terms rather than pursuing market share. Chief Operating Officer Jennifer Leigh Klobnak stated, “We are prioritizing maintaining a well-priced book and sustainable terms and conditions over volume or market share,” highlighting RLI’s emphasis on profitable growth in a challenging market.

Key Insights from Management’s Remarks

Management pointed to flat top-line growth as a function of competitive pressures, but highlighted strong execution in underwriting, selective rate increases, and operational improvements as the main drivers of margin gains and profitability.

• Underwriting discipline: RLI’s focus on underwriting profitability led to a combined ratio of 85.1, aided by an absence of hurricane losses and favorable development on prior years’ reserves across all segments. This strong underwriting performance allowed RLI to withstand flat premium growth in a competitive market.

• Segment dynamics: The casualty segment showed growth, with rate increases and exposure gains in profitable areas, while property premiums declined due to increased market competition. The property segment benefited from a lack of major catastrophe events, particularly hurricanes, resulting in improved margins.

• Rate increases and retention: RLI implemented significant rate increases in products like Hawaii homeowners (16% in the quarter) and personal umbrella (17% in the quarter), though retention rates in some areas dropped due to increased competition and higher pricing. New state filings are expected to add further rate increases in the coming year.

• Operational investments: The company continued to invest in technology, automation, and process improvements, particularly in its underwriting and claims operations. These investments are designed to boost efficiency, improve retention, and support long-term profitability, even if associated expenses temporarily rise.

• Competitive landscape: Management described the insurance market as highly competitive, with new entrants, increased capital, and softening terms in certain lines. RLI’s selective approach, focusing on niche markets and deep producer relationships, is intended to navigate these pressures and seize profitable opportunities as they arise.

Drivers of Future Performance

RLI’s management expects future performance to be influenced by disciplined rate actions, operational investments, and the evolving competitive environment in specialty insurance.

• Sustained rate discipline: Management emphasized that pursuing adequate pricing and sustainable policy terms, rather than chasing volume, will be key. Recent and forthcoming rate increases in segments like umbrella, Hawaii homeowners, and auto liability are expected to offset some competitive headwinds and support underwriting margins.

• Technology and process initiatives: Ongoing investments in automation and generative artificial intelligence are aimed at improving claims processing, underwriting accuracy, and operational efficiency. Management believes these efforts will drive future profitability, even as near-term expenses may increase.

• Competitive shifts and market cycles: The influx of new entrants and capital into certain insurance lines is creating short-term pricing pressure. Management highlighted that RLI’s ability to adapt its risk appetite and invest in talent and producer relationships will position the company to capitalize when market conditions become more favorable.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be watching (1) the impact of continued rate actions and new state filings on retention and premium growth, (2) how investments in automation and generative AI translate into improved underwriting and claims efficiency, and (3) whether RLI’s selective approach in competitive markets enables it to capture profitable opportunities without sacrificing margins. Signs of stabilization or improvement in construction and property markets will also be closely monitored.

RLI currently trades at $61.30, up from $59.63 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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