RLI (RLI) Q1 2026 Earnings Call Transcript

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DATE

Thursday, April 23, 2026 at 1 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Craig W. Kliethermes
• Chief Financial Officer — Aaron M. Diefenthaler
• Chief Operating Officer — Jennifer Klobnak

TAKEAWAYS

• Combined Ratio -- 86%, reflecting profitable underwriting with moderation versus a very strong prior-year period, attributed to catastrophe activity and disciplined growth.
• Gross Premiums Written -- Increased 3%, led by the casualty segment, which rose 10% with personal umbrella premiums up 23% and transportation premiums up 27%.
• Net Investment Income -- Rose 15% compared to the prior year, contributing meaningfully to results.
• Operating Earnings Per Share -- $0.83, down from $0.89, supported by solid underwriting and higher investment income, with all comparables now excluding unconsolidated investee earnings.
• GAAP Net Earnings Per Share -- $0.60, compared to $0.68; the main difference versus operating earnings was a $39 million unrealized loss in the equity portfolio.
• Underwriting Income -- $58 million, including $35.5 million favorable prior-year reserve development and $16 million in catastrophe losses.
• Casualty Segment Combined Ratio -- 97%, two points better than in 2025, with $14.5 million favorable prior-year reserve development; $2 million of catastrophe losses attributed to packaged businesses.
• Property Segment Premiums -- Declined 9% as rate decreases in E and S property offset marine and Hawaii homeowners growth; E and S property premium fell 16% while Hawaii homeowners grew 12% in premium and rate.
• Property Segment Combined Ratio -- 62%, aided by $20.6 million prior-year reserve development and $14 million catastrophe events largely from Hawaii storms; reserve benefit improved the loss ratio by 16 points.
• Surety Segment Premium -- Decreased 1% in a competitive market, reporting a 94% combined ratio due to limited prior-year reserve development and one large contract claim.
• Operating Cash Flow -- Totaled $43 million, $60 million lower than a year ago, with reductions driven by tax credit purchases, bonuses, and higher paid losses; effective tax rate was 18.5% due to tax credit impact.
• Investment Portfolio Total Return -- Negative 0.4%, with income partially offsetting price declines in stocks and bonds; fixed income purchases averaged 4.8% yield, about 50 basis points above book yield.
• Capital Actions -- Issued $300 million of 10-year long-term debt at 5.38% coupon, returning leverage to historic average; resized and repaid revolving credit to $150 million with PNC Bank.
• Book Value Per Share -- Increased 2% from year-end 2025, adjusting for comprehensive earnings and dividends.
• AM Best Rating Upgrade -- The group received an upgrade to A++ recognizing long-term underwriting results.
• Casualty Rate Increases -- Up 10% overall for the segment; personal umbrella rates rose 16%, transportation auto liability rates up 15% on renewals; package business rates rose 5%-6%.
• Casualty Segment Claims -- Transportation new claim counts declined 14%; E and S casualty premium decreased 4% despite a 14% increase in new business submissions.
• Marine Segment Premium -- Achieved a record close to $47 million, up 4%, with increased submissions and favorable reserve releases.
• Reinsurance Costs -- Lower reinsurance expense drove a 5-point increase in property net retention; 60% of costs were renewed on January 1 and future renewals are not expected to differ materially.
• Executive Products and Professional Services -- Executive products rates were flat for the quarter with some consolidation among carriers; professional lines faced a competitive market but saw growth and moderate rate improvement.

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RISKS

• Property gross premiums fell 9% with E and S property down 16% as pricing and market competition pressured new writings.
• Surety segment faced a large contract claim loss and limited favorable prior-year reserve development, dampening results within the quarter.
• Operating cash flow decreased by $60 million year over year, reflecting tax credit activity, paid bonuses, and higher paid losses.
• Competitive pressure and downward rate trends continued in property and certain casualty classes, making new business binding more difficult and compressing profit margins.

SUMMARY

RLI (NYSE:RLI) reported an 86% combined ratio and modest top-line premium growth, underpinned by 10% expansion in its casualty segment and robust investment income. The company’s property division posted a 62% combined ratio and maintained profitability despite a 9% reduction in premium and ongoing market softening, aided by significant prior-year reserve development and lower reinsurance costs. In surety, limited favorable reserve development and a notable single contract claim constrained profitability, with segment premium and activity impacted by competitive dynamics. The company’s capital position was reinforced by a $300 million long-term debt issuance and an A++ rating upgrade from AM Best, while book value per share increased 2%.

• CFO Diefenthaler explained, the largest driver of the differential from operating earnings was the negative return in our equity portfolio and the associated $39 million of unrealized losses.
• COO Klobnak said, E and S property premium declined 16% in the quarter as market capacity remains plentiful, emphasizing new business submission growth but increased difficulty binding amid competition.
• CEO Kliethermes described the competitive landscape, remarking that some MGAs and broker-owned facilities operate with incentives that are not always aligned with long-term underwriting profitability.
• Operating cash flow was notably reduced largely due to a tax credit purchase impacting the 18.5% effective tax rate for the quarter.
• The executive products segment reported rates as flat for the quarter, which in this case is a win, following recent carrier consolidation.

INDUSTRY GLOSSARY

• E and S (Excess & Surplus): Insurance market segment for risks not accepted by standard carriers, typically covering unique or higher-risk exposures.
• Combined ratio: Key insurance profitability metric calculated as the sum of incurred losses and expenses divided by earned premiums; a ratio below 100% signals underwriting profit.
• Reserve development: Adjustments made to previously established reserves for claims based on new information about claim severity or frequency.
• Personal umbrella: Liability insurance providing additional coverage above standard policy limits for individuals.
• Executive products: Specialty lines including directors and officers liability and management liability coverage for corporate clients.
• Admitted market: Insurance market regulated by state authorities, offering policies and protections subject to local insurance law oversight.
• Technical benchmark pricing: Internal pricing model based on actuarial analysis representing the required premium for a given risk to meet profitability targets.
• Hard market: Period of rising rates and tighter underwriting standards in insurance, often following large losses or capacity shortages.

Full Conference Call Transcript

Craig Kliethermes: Good afternoon, everyone. We appreciate you being with us today. With me are Aaron Diefenthaler, our Chief Financial Officer, and Jennifer Klobnak, our Chief Operating Officer. I will begin by saying we feel good about how we started 2026 and the position we are in as we move through the year. For the quarter, we generated an 86% combined ratio, premiums grew 3% led by casualty, and net investment income increased 15%, continuing to be a meaningful contributor to overall results. Compared to a very strong first quarter last year, results were still excellent, but a bit more tempered, driven primarily by catastrophe activity, disciplined growth, and normal variability that comes with taking on insurance risk.

Stepping back, the underlying business is performing well and consistent with our expectations. The insurance marketplace continues to be dynamic. We are seeing more competition in some areas from broker-owned facilities and MGAs that operate with incentives that are not always aligned with long-term underwriting profitability. In the most competitive spaces, we are picking our spots, finding rate adequacy on accounts where it is still available, focusing on producer relationships, and adding value to customers that want our expertise and service. We are seeing rate acceleration and market disruption in wheels-based products. There is opportunity here when done with discipline and vigilance.

Our underwriting and claims expertise positions us to select the right accounts, achieve the rate we need, and drive better claim outcomes over time. Adding to the general market disruption is the emergence and rapid adoption of artificial intelligence, along with the regulatory uncertainty that comes with it. We are encouraged by what we are seeing with AI, not as a headline, but as a tool. It is helping us put better data in the hands of decision makers, making us more responsive, more efficient, and easier to do business with, while keeping human intelligence and judgment at the core of everything we do. Market dislocation creates opportunities for those with the confidence and financial strength to act.

We have both. Our efforts will continue to be grounded in the same timeless core values that have guided RLI Corp. for over sixty years: community, customer focus, and continuous improvement. We like the position we are in, we are seeing opportunities in the right places, and we believe we are well positioned to continue delivering consistent, profitable results over time. With that, I will turn it over to Aaron to walk through the financials in more detail.

Aaron Diefenthaler: Thanks, Craig, and good afternoon, everyone. Last evening, our first quarter release reflected an increase in gross premiums of 3% with strong contributions from our casualty segment. Operating earnings were $0.83 per share compared to $0.89 last year and were supported by solid underwriting performance and a 15% increase in investment income. As a reminder, in 2025, we began to exclude earnings of unconsolidated investees from our definition of operating earnings. All comparables in our release reflect that change. Underwriting income was $58 million in the quarter, benefiting from $35.5 million of favorable prior-year reserve development, offset by $16 million of catastrophes and a higher underlying combined ratio.

On a GAAP basis, first quarter net earnings totaled $0.60 per share, compared to $0.68 in the year-ago period. As was true in 2025, the largest driver of the differential from operating earnings was the negative return in our equity portfolio and the associated $39 million of unrealized losses. At the segment level, casualty growth totaled 10% for the quarter, with significant contributions from personal umbrella and commercial transportation, both of which continue to benefit from rate increases. In terms of the underwriting results, casualty posted a 97% combined ratio, outperforming 2025 by 2 points and inclusive of higher levels of favorable prior-year development at $14.5 million.

Casualty reserve development was broad based, with executive products, general liability, professional services, and transportation contributing to the release. It should be noted that of the $16 million of catastrophe losses disclosed in the quarter, $2 million was attributed to packaged businesses in casualty. Property experienced a 9% decline in gross premium, largely due to rate decreases in E and S property, while marine and Hawaii homeowners again offered offsets. Contributing to the bottom line in property’s 62% combined ratio was $20.6 million of favorable prior-year reserve development on these shorter-tailed lines, offering a 16-point benefit to the segment loss ratio.

Catastrophe events, including the recent storms in Hawaii, totaled $14 million for property, up a bit from events in Q1 2025. Surety’s top-line gross premium was down about 1% from last year, and the segment reported a 94% combined ratio, largely attributable to limited favorable prior-year development compared to a strong release last year. As a reminder, surety loss activity can be variable and can have a significant influence over shorter periods. Operating cash flow in Q1 totaled $43 million, down $60 million from last year, and was influenced by some tax credit purchase activity, bonuses paid, and higher paid losses.

The tax credit purchase is notable, as it had a significant impact on the 18.5% effective tax rate in the quarter. Despite more modest cash flow, we still had reinvestment opportunities, with fixed income purchase yields averaging 4.8% in the portfolio, approximately 50 basis points above our book yield. Recent capital market volatility has moderated and we have primarily focused on putting money to work in investment-grade fixed income. Total return for the portfolio in the quarter totaled a negative 0.4%, with income partially offsetting price declines for both stocks and bonds. Turning to the liability side of the balance sheet, we found an opportunity in late February to access the capital markets and raised $300 million of long-term debt.

With our history of consistent financial results, we believe RLI Corp. has a terrific credit story. This issuance carries a coupon of 5.38% and a ten-year maturity, and returns our leverage profile to our historic average. Alongside the long-term debt, we repaid and resized our revolving credit facility with PNC Bank. That backstopped liquidity in our line of credit is now $150 million in size and replaced the prior transaction. Looking at overall results, when we isolate comprehensive earnings of $0.32 per share and adjust for dividends, book value per share increased 2% from year-end 2025. Finally, I will mention the recent rating action from AM Best, which upgraded the RLI Corp. group of companies to A++.

This puts RLI Corp. in a distinguished category of high-quality P&C companies that have similar financial strength. We view the action from AM Best as a recognition of our long track record of underwriting results. All in, we are very pleased with the start to the year. And with that, I will turn the call over to Jennifer for more details.

Jennifer Klobnak: Thank you, Aaron. We are pleased to report another quarter of underwriting profit, and we were able to achieve some growth even as market conditions have become more challenging in many of our businesses. Casualty segment premium increased by 10% and rates were also up 10% for the quarter. Personal umbrella led the way with 23% premium growth. Rate increase for the quarter was 16%, and we expect increases to continue as recent rate approvals earn into the book. Our investments in data and analytics are paying off in that we can make local, targeted improvements to the book over time.

Our new business growth has shifted from more hazardous states like California, Florida, and New York to less litigious states like those in the Midwest, as we have increased rates, selectively reduced commissions, and worked with our producers to proactively manage growth over the last few years. We expect growth to persist as the new business pipeline remains strong and as we continue to ensure adequate rates are earned throughout the book. Transportation premium grew by 27%, with auto liability rate increases on renewals up 15%. In addition to rate, the growth was driven by several new business opportunities with insureds who invest in superior risk management and where we can achieve adequate return.

Submissions were up 15% as competitors in some classes within the book are pulling back. New claim counts were down 14% compared to 2025. We believe our investments in loss control and claim service are valued by our customers and will have a positive impact on their bottom line and ours. E and S casualty premium was down 4%, with a slow start to binding business this year due to concerns with the economy, supply chain, interest rates, and inflation impacting investment decisions in the construction industry. Despite this, new business submissions are up 14% as continuous in-person marketing is keeping us on our producers' radar. Calls are up as well, reflecting a solid pipeline of construction projects.

As expected, there can be significant delays between the time we release a quote and when that business is bound. We believe construction activity will rebound as economic conditions stabilize, and we are well positioned to respond. Recognizing ongoing severity in the commercial auto liability coverage, our appetite is more limited for auto on excess liability business. This appears to be a more conservative stance than our competition, but we believe it is a disciplined approach to underwriting in this environment. The theme with our package businesses is that the growth is being driven primarily by rates. Both premium and rates are up 5% to 6%, with higher increases related to the auto exposure.

This business focuses on architects, engineers, and contractors and rounds out our diversified construction industry portfolio. In surety, premium was down 1% in a very competitive market. Single-digit growth in contract and transactional was offset by a small decline in commercial surety. Within contract surety, growth is occurring at the top end of the market, driven by large infrastructure projects, including data centers. Our focus, however, is on small to mid-sized contractors who work on smaller projects, or subcontractors working on those large projects. While bid activity is increasing in our space, we are not yet seeing that translate into meaningful growth. Our bottom line was impacted by one large contract surety loss arising from a prior-period claim.

This was an isolated incident and is not indicative of a change in risk or approach for the broader book. In commercial surety, our renewable energy portfolio portion is maturing with fewer new business opportunities due to slowing investments in that industry. Across our surety division, we are well positioned with local expertise, continued producer engagement, and new transactional surety system functionality that provides full lifecycle capabilities to our producers. Our opportunity pipeline is healthy; we are focused on execution. The property segment's premium was down 9% as the business mix shifted from catastrophe to non-catastrophe premium. The top line reflects the continued competitive environment; our underwriters are still finding profitable opportunities.

We had an excellent start to the year, producing a 62% combined ratio despite increased catastrophe activity in parts of our book. E and S property premium declined 16% in the quarter as market capacity remains plentiful. Consistent with market commentary, rate change on renewal business was down 19% for hurricane and 16% for earthquake. While new business submissions are up, winning business has become more challenging. We are seeing increased competition from the admitted space, where programs have been created for certain classes like hotels and restaurants. These programs were available before the last hard market with similar terms and conditions.

We will remain disciplined and patient and wait for those opportunities to come back to the E and S market over time. While we are giving back some rate, the accounts we bind are priced above our technical benchmark pricing, meaning we believe we are achieving adequate returns on the business. We also saw some benefit from reduced reinsurance costs and experienced manageable spring storm losses, resulting in a material contribution to the bottom line from this division. Marine had their largest premium quarter since inception with almost $47 million of premium, an increase of 4% from 2025. Submissions and quotes continue to increase, particularly for our inland marine business.

Loss activity came in as expected, and we again benefited from favorable reserve releases, which allowed marine to contribute meaningfully to our bottom line. Hawaii homeowners premium and rates each grew 12% in the quarter. Our service-oriented teams continue to identify growth opportunities on the island. We responded to several Kona storm events, which were a combination of high winds and excessive rain, deploying our local claim examiners to visit impacted insureds and address their needs. While these events affected our bottom line results in the quarter, past experience shows that this timely in-person response drives stronger relationships and results in increased opportunities over the long term. Overall, our insurance portfolio is very healthy.

We achieved modest growth driven primarily by rates, and we realized another quarter of underwriting profit. We continue to make investments that we believe will drive long-term profitable growth. On that note, we are always looking for talented underwriters and claim professionals who are ace players and are interested in contributing to a true underwriting company where they can be creative, make long-term bottom-line decisions, and collaboratively improve our products for our insureds and our relationships with our producer partners. They own their results with their compensation and shared rewards based on their decisions, and they will become RLI Corp. associate owners who benefit from our diversified product portfolio that has produced solid, stable results over time.

Adding to our team is one way that should help us continue to achieve profitable growth over the long term. We are encouraged by our positive start to 2026 and remain optimistic about the year ahead, knowing that our team is capable of navigating this evolving market. We will now open the call for questions.

Operator: 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 1 on your telephone. If you wish to withdraw your question, your question will be taken in the order that it is received, and your line will remain open for follow-ups. Please stand by for your first question. Our first question comes from Michael Phillips from Oppenheimer & Co. Michael, please go ahead.

Michael Phillips: Thanks. Good afternoon, everybody. Curious how you would classify in your GL book the overall competitive environment this quarter versus recent previous quarters?

Jennifer Klobnak: I would say for GL, we have personnel around the country that are working with our wholesale partners, and it does vary by region a bit. We have noticed, because the construction industry is a bit paused in the Northeast where we have a fairly sizable book, I think the political environment there caused people to pause on investing for a period of time. We also had quite a bit of weather in the first quarter, and so I think the start of construction projects is paused. We write a lot of our policies on a project basis, so it is very specific to when that project kicks off.

With the weather improving, we are hoping that we will see more business bind as those projects do get kicked off as we are into the spring. On the West Coast, it has been a healthy spring. We have ramped up a bit our focus on project policies, as opposed to a practice policy where we cover that contractor for the whole year with whatever they are doing, and more contractors seem to be buying coverage in that manner. So we have seen some success in that region. Our GL pipeline is full. We have more quotes out there; we did have more quotes for the first quarter than we did last first quarter.

It is just a matter of that business binding, and some of those quotes can remain outstanding for six to twelve months. Our wholesalers will keep us up to date on the status and then we wait. Sometimes we have to revise those quotes when the time comes, but at other times we are comfortable with those terms and go forward. So it was a bit slow. We heard from our wholesale producers that they were a good slow in the quarter as well. We feel like we are not an outlier there, but we are hoping that the construction industry does pick up a bit going into the rest of the year.

Michael Phillips: Okay, Jen, thank you. You mentioned in your earlier comments about your plans for more state diversification in your personal umbrella book. Any early impacts you have seen? You took a pretty big rate hike in California there. Early impacts of what is happening in California from that?

Jennifer Klobnak: Yes. Our last rate hike in California was effective on December 1, and we did get a 20% rate increase there. We are still seeing some growth in California, but it is at a much smaller pace than it was before. Keep in mind, we have made a few different changes to how we approach that business in California. A couple of years ago, we increased our attachments so that our underlying attachment is at $500,000 versus previously $250,000. We have also selectively reduced commissions, and that has been a more recent change that is being digested by our producers now. That could potentially further impact that growth rate. However, the business seems to keep coming to us.

We are not seeing a lot of back activity by either primary carriers or other competitors that is too successful in that space. So it seems that the opportunity continues; we just want to bind that business on our terms and make sure that we are comfortable that the terms we are providing are going to equate to an underwriting profit for the book of business.

Michael Phillips: Okay. Thank you, Jen. And then just lastly, you have talked for the last couple quarters about the transportation claim count information coming down. To play devil’s advocate, is there anything that would cause more of a delay in the claim reporting and maybe pick up later, or is that truly a reduction in ultimate counts that you think could happen?

Jennifer Klobnak: I am going to guess here because I do not know exactly, but I am going to guess that they are down for a good reason. Part of that is that our policy count has reduced a bit, particularly in places like public auto where you have a bus and you might have multiple claimants impacted.

With a smaller policy count, and continued investment in loss control activities where we are monitoring those insureds and really trying to engage with folks who appreciate risk management—whether it is the telematics and the cameras, and then also training their drivers and reacting to what they are seeing in terms of their driver behavior—I would say that probably is translating to reduced claim count. I think that is a legitimate data point, but obviously we continue to watch that over time. We cannot control when an accident happens; we are going to respond to it when it does. So my answer is: cautiously, I believe that is a real trend.

Michael Phillips: Okay. Wonderful. Thanks so much for your time. Thank you.

Operator: Our next question comes from the line of Mark Hughes with Truist. Mark, please go ahead.

Mark Hughes: Thank you. I wonder if you could talk a little bit about the property business. You were still down this quarter, a little bit less than last quarter, though. Is the market still adjusting, which is to say pricing continues to decline sequentially? Is it at a point where maybe it might stabilize in the second half? How do you see that kind of near-term trajectory?

Jennifer Klobnak: It is a good question. We are in the market every day, hoping that it becomes more stable, but at this point we are not seeing signs of that yet. Competition remains very active in that space. As you saw, our rate decreases continued a bit. We individually underwrite that business, so for every account we are looking at how we can win the account. We look at the individual risk characteristics. It appears that some of our competition probably has more global mandates on how they approach accounts.

As an example, we might find an account where we think that the valuation is not up to date, and we are going to want to put coinsurance on that account to make sure that when the loss happens, that valuation is reflected in the results of how that claim is handled. Some folks appear to be waiving those types of terms across the board, and that is where it gets difficult to win that business. By individually underwriting it, we can decide where it makes sense to waive certain coverages or exclusions and where it makes sense to be a little more aggressive and win that business. We try to protect our renewal book.

We are increasing limits that we are willing to offer a bit. We are not a big line player; we probably offer between $10 million and $20 million of limit for the most part. We can selectively go above that, but that is our sweet spot. Others do have more limit, but I will tell you some of the brokers have determined that it is in their best interest to have multiple carriers on an account. In some cases, while we might want the whole account limit, they are trying to share that so that when the next hard market comes, they have a variety of carriers to choose from.

For us, again, it comes down to each account and trying to battle it out to win that business if it is a good account. We are, on the edges, moving some business to the admitted market, as I mentioned. Some of that—what we call E and S light business—where it is in the market for E and S only because it is located in Florida, for example, is coming back to the admitted space. We recognize there could be an event; there is likely to be an event this year, and some of that business then will flow back into our space. We have been doing this a long time.

We are not excited about being patient about the market improving, but we can be patient. That is what we do, and that is what we will continue to do.

Mark Hughes: Understood. On the surety—and I am sorry if you did touch on this before—reserve development, the favorable development in Q1, definitely still on the positive side of the ledger, but not quite as much as you had seen in the first quarter in prior years. Was there anything that you saw that drove that—any particular claim or two—or what was the driver behind that?

Aaron Diefenthaler: Both in my commentary and Jennifer’s, we referenced the fact that results in surety can be variable around a small number of losses. As Jennifer mentioned, one particular loss on the contract side was in prior years, so that was a headwind to the results we saw there. If you look back at last year’s release, it was a very robust prior-year release in last year’s Q1, so there is a comparable issue going on, and there is some loss activity as well weighing on this year’s outcome.

Mark Hughes: Understood. Thank you. Then just one clarification: I think you were talking about what you heard from the wholesalers being a bit slower in the quarter. Was that on the construction GL part of the business, or did I mishear that?

Jennifer Klobnak: Yes, that was specifically for our construction-related GL business through the wholesalers.

Mark Hughes: Okay. Thank you very much.

Aaron Diefenthaler: Thank you.

Operator: Our next call comes from the line of Andrew Anderson with Jefferies. Andrew, please go ahead.

Andrew Anderson: Hey, good afternoon. Looking at the casualty ex-cat, ex-PYD loss ratio and taking into account the $2 million of cat that you had mentioned, it seems like the casualty underlying loss ratio was up slightly. Would you characterize that as just business mix, or was there any change in loss trend assumption?

Aaron Diefenthaler: Absolutely business mix more than anything else, Andrew. If you think about where we are growing, there is a mix influence.

Andrew Anderson: Okay. And transportation growth was quite strong. Jennifer, I know you talked about it a bit, but despite a cautious industry backdrop, how are you balancing exposure unit growth here with still severity concerns, recognizing you did get quite a bit of rate as well?

Jennifer Klobnak: It comes down to risk selection. Our transportation team is part of a very strong feedback loop with both claim and the data that supports what is going on in their business. They are committed to getting rate above trend for the year, and you can see they are demonstrating that they are doing it, but they are also being very selective on risk. They tend to be picky regardless, but I think they are probably even more focused on that this year. They are finding some accounts that have good risk management where we can get the rate we need. In this business, you have a little bit more transparency because people tend to have loss activity.

You can see actual loss history for accounts, and you can evaluate what their safety practices are and what the cost of those would be going forward so you can loss-rate these accounts, which is helpful. We are winning a few pieces of business with a few folks pulling back in places, and some producers are finding us helpful and are looking for more business that we can help them with. We get a lot of submissions in; we still decline 90% of the submissions that we receive, so you can see we are still being selective.

We are considering that severity is up, looking at rate being adequate, but then it all comes down to that risk selection and picking the right accounts. There is nothing magical about it. It is about due diligence, doing your underwriting, asking a lot of questions, and not broad-brushing it. That is our approach, and hopefully, it will work out for the year.

Operator: Thank you. Our next call comes from the line of Gregory Peters with Raymond James.

Mitchell Rubin: Hey, good afternoon. This is Mitch Rubin on for Greg. In surety, with the large contract loss in the quarter, should we expect any further development on that claim in coming quarters, or is the impact largely contained in this quarter? Thanks.

Jennifer Klobnak: I would say that we reserved for basically the worst-case scenario on that claim, so I would not expect adverse development on that claim. I would also reiterate that is a single claim. We do not see a systemic issue in the book. It was just one individual circumstance for a particular contractor.

Mitchell Rubin: Got it. Thank you for the answer there. And as a follow-up, some peers have pointed to recent softening in financial lines. Are you seeing similar pressure in your executive products or professional services books?

Jennifer Klobnak: The executive products group that focuses on directors and officers and other fiduciary and management liability coverages has been in a soft market for a couple of years now. I would say that market is actually stabilizing. If you look at rates in that book, they were flat for the quarter, which in this case is a win. There has been a little bit of consolidation among carriers in that business. It would be nice if that translated into less capacity and maybe a more stable and even hardening market, but that has not happened yet. There are just a few folks that are buying each other out and it has not impacted capacity.

In the professional lines space, where we write errors and omissions coverage, I would say that continues to be a very competitive environment, but we are winning business. We did see some growth in that space and a little bit of rate. Again, individual underwriting and long-term relationships with these producers—we have been doing that business almost twenty years. It is a stable marketplace, and we try to get a few more new accounts each year. That is the trend we have been on for several years now.

Aaron Diefenthaler: Thank you.

Operator: If there are no further questions, I will now turn the conference over to Mr. Craig Kliethermes for some closing remarks.

Craig Kliethermes: Well, thanks, Aaron and Jennifer, and thank you all for your questions. Before we wrap up, I want to leave you with a few thoughts on how we are thinking about the business going forward. The current environment presents both opportunity and temptation. There are always ways to grow if you are willing to stretch. We also know that not all growth is created equal. Our focus remains on underwriting discipline, understanding the risk, pricing it appropriately, seizing market opportunities, and having a willingness to step back if conditions do not support our expectations for risk-adjusted returns. That approach has stood the test of time.

It is how we deliver consistent results through the peaks and troughs of the market cycles. We do not expect it to get easier. As Kara Lawson, Duke’s women’s basketball coach, said, it never gets easier. You just have to handle hard better. That is part of the job. The challenges are what prepare you for success. As we look ahead, we are optimistic not because the environment is easy, but because we know how to operate in environments like this. Our ownership culture makes us different, and we are willing to do the hard work.

We are staying true to the vision that has guided this company—building a strong community, helping our producers and customers solve real problems, and taking responsibility for continuously improving and making RLI Corp. better every day. We are proud of what we have built, but we are even more focused on what comes next. We like our position, trust our process, and we are confident in our ability to deliver differentiated performance over time. Thank you for your time and continued interest in RLI Corp. We look forward to speaking with you again next quarter.

Operator: It looks like we had a couple of folks queue up while you were offering those final remarks, Craig, so we will afford a couple more opportunities to ask questions. Apologies for the back and forth. Our next question comes from the line of Hristian Getsov from Wells Fargo. Hristian, please go ahead.

Hristian Getsov: Hey, good afternoon. Thank you for fitting me in. I just had a question on the net retention in property that ticked up 5 points. I wanted to confirm that the uptick was purely reflective of lower reinsurance costs. And as we get to the midyear renewals, are you thinking about any changes from a reinsurance strategy standpoint, given the lower cost?

Jennifer Klobnak: That is correct that the savings from reinsurance cost is why we retained more of our premium for the property business in the first quarter. For midyear renewals, what we have coming up is mainly on our D&O and errors and omissions coverages—those specialized coverages I just spoke about—as well as a little bit of an earthquake cover that we have. Most of our reinsurance costs are renewed on 1/1—about 60% or so. We have just completed our surety renewal, and we have marine coming up. I do not anticipate any huge changes in reinsurance the rest of the year.

I think the reinsurance market is a bit soft, so it is definitely a buyer’s market, but I am not going to predict anything material in terms of change for those renewals.

Hristian Getsov: Got it. Thank you. And then I had a question: given the private credit concerns we have seen in the market, a lot of the MGAs out there are PE-backed or backed by other forms of alternative capital. Have you seen any alternative capital injections in the space start to moderate, or do you think that will not really turn the market until we get a large cat event?

Aaron Diefenthaler: I do not know that it has necessarily moderated as a form of capital to the MGA space, but I will say that there are MGAs that have been backed by private capital in which that private capital is coming to the end of the life of its particular fund that the MGA sits in. There have been a few more opportunities showing up with MGAs that would like to exit and move on to new ownership. That is the influence that we see.

Hristian Getsov: Got it. And if I could sneak one more: for the increased admitted competition that you flagged, is that dynamic mainly on the property side, or are there any other lines, particularly in casualty, where you are also seeing an increased level of activity?

Jennifer Klobnak: We are seeing it a little bit on the casualty side—not to the extent of property—but we do see with some of our contractors, where we are being a little pickier on the auto coverage, that some standard markets say, “We like the GL,” and so they will cover the auto as well. We might lose it for that reason. I would not call that a material impact on our book, but we are seeing that on the edges.

Hristian Getsov: Great. Thank you.

Operator: Our next call comes from the line of Meyer Shields from Keefe, Bruyette & Woods. Meyer, please go ahead.

Meyer Shields: Thanks so much, and thanks for fitting me in. Aaron, is there anything quantifying the large surety loss so we can get a sense of what the underlying results are like in that segment?

Aaron Diefenthaler: If you look at our retention around surety today, that retention is $5 million in terms of reinsurance picking up any additional loss, and that is where Jennifer put her comment in around any further development being somewhat contained.

Meyer Shields: Okay, that is helpful. Second question—and I am not sure that this is a legitimate one—but we have seen property premiums declining for a few quarters. The underlying operating or underwriting expenses are still going up. I understand that underwriters are going to be retained, but are there any opportunities worth pursuing so that, assuming that premium volume in that segment keeps falling, you do not have a consistent upward headwind of underwriting expenses?

Jennifer Klobnak: We are always looking for opportunities, and I would say our E and S property underwriters are out in the market. We have had a number of events and one-on-one meetings with producers to look for other ways to participate in that marketplace, and there are some. We are hitting on some of those. It is not enough to offset some of our main business, but it is there. I will say we are also looking more broadly. Obviously, marine is growing and Hawaii homeowners as well, to help round out our property exposure because we do think property is still well priced in general.

So we will use the tools within the business unit, but also outside of the business unit, to make sure that we are seeing enough business and trying to offset some of that decline.

Meyer Shields: Okay. Perfect. Thank you so much.

Operator: Ladies and gentlemen, if you wish to access the replay for this call, you may do so on the RLI Corp. homepage at rlicorp.com. This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.

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