RLI Q2 Deep Dive: Product Discipline and Margin Expansion Amid Market Softening

Specialty insurance provider RLI (NYSE:RLI) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 20% year on year to $499.8 million. Its non-GAAP profit of $0.84 per share was 7.3% above analysts’ consensus estimates.

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StockStory’s Take

RLI’s second quarter results reflected disciplined underwriting and a focus on long-term profitability, even as top-line growth was limited by challenging conditions in the commercial property market. Management highlighted the company’s ability to deliver underwriting profitability across all segments despite heightened competition and softening rates in property lines. CEO Craig Kliethermes emphasized that RLI’s approach centers on “pulling back where needed and leaning into products where the risk return is in balance.” Growth in Casualty and Surety segments offset a decline in Property, while investment income also contributed to quarterly results. The company’s willingness to prioritize profitability over scale was a central theme throughout the call.

Looking ahead, RLI’s forward strategy is shaped by selective growth in areas where management sees attractive risk-adjusted returns, particularly in Casualty and Surety. The company is responding to market headwinds by increasing rate discipline, investing in technology to enhance underwriting, and adjusting risk exposure in property lines. COO Jen Klobnak noted, “We see opportunities to profitably grow in areas of our portfolio where it makes sense as we navigate more volatile market conditions.” Management also pointed to ongoing efforts to refine product offerings and expand in profitable niches as key to sustaining future performance.

Key Insights from Management’s Remarks

Management attributed RLI’s margin expansion in the latest quarter to disciplined underwriting, selective risk-taking, and ongoing investment in technology and talent across its specialty portfolio.

• Property Segment Retrenchment: RLI reduced exposure in catastrophe-exposed property lines due to increased competition and aggressive pricing by new entrants, especially managing general agents (MGAs). COO Jen Klobnak explained that “our underwriters are emphasizing selection and discipline,” leading to a 10% decline in property premiums as the company focused on markets with acceptable terms and conditions.
• Casualty Growth and Rate Management: The Casualty segment saw 7% premium growth, driven by personal umbrella and excess liability products. Management highlighted active risk selection and rate increases in “wheels-based” exposures, such as commercial auto and trucking, to keep up with double-digit loss cost trends. CEO Craig Kliethermes said underwriters are “assuming double-digit loss cost inflation” and are prepared to walk away from accounts where pricing is inadequate.
• Surety Investment and Digital Expansion: Surety premiums also grew 7%, with RLI investing in digital tools and reinsurance capacity to support growth in commercial and contract surety. Management noted a shift toward more transactional business and a reduced focus on energy-related bonds, while expanding offerings in sectors like solar farm implementation.
• Expense Ratio and Technology Spend: RLI’s expense ratio rose due to higher acquisition costs, increased technology investments, and additional reinsurance purchases. CFO Todd Bryant discussed trade-offs between maintaining a low loss ratio and accepting a higher expense ratio to support digital initiatives and customer relationship management.
• Market Response to Tort Reform: Management acknowledged early positive impacts from state-level tort reform, particularly in Florida, which has begun to lower required rates in both property and casualty lines. Kliethermes noted this regulatory change has increased confidence among underwriters to pursue new business in affected regions.

Drivers of Future Performance

RLI’s management expects future performance to be driven by continued underwriting discipline, targeted growth in select segments, and technology-enabled operational improvements.

• Selective Expansion in Niche Markets: RLI plans to grow where risk-adjusted returns remain attractive, especially in Casualty and Surety. The company is leveraging underwriting data, rate increases, and loss control services to manage exposures, particularly in transportation and commercial auto.
• Investment in Technology and Talent: Ongoing investments in digital tools and underwriting talent are expected to improve efficiency and support customer service, even as expense ratios rise. Management believes these initiatives will enhance long-term profitability by enabling better risk selection and faster response to market changes.
• Competitive and Regulatory Headwinds: The company anticipates continued competition from MGAs and admitted carriers, especially in property lines, which could pressure top-line growth. Management also cited ongoing uncertainty around legal system changes and third-party litigation financing as potential risks that could impact future loss trends.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) whether RLI’s rate discipline and selective underwriting in Property stabilize top-line performance despite market softening, (2) the effectiveness of digital investments in improving underwriting and customer service, and (3) sustained profitability in Casualty and Surety as competition and legal trends evolve. Progress on regulatory changes and market share in growth niches will also be key signposts for future results.

RLI currently trades at $69.82, in line with $69.30 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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