RLI Insurance Navigates Challenges in Q1 2025 with Strong Underwriting Discipline

RLI Corp (NYSE: RLI), a specialty insurer focused on niche markets, reported its first-quarter 2025 results, revealing a mix of resilience and headwinds. While net earnings fell sharply due to investment volatility, core underwriting metrics and long-term financial discipline underscored the company’s enduring strength.

Financial Performance: A Dip in Net Earnings, but Underwriting Stays Strong

RLI’s Q1 2025 net earnings dropped to $63.2 million ($0.68 per diluted share), a 50.6% decline from $127.9 million ($1.39) in Q1 2024. The drop was driven by unrealized losses on equity securities and lower realized investment gains. However, operating earnings—a non-GAAP metric excluding market volatility—held up better at $84.9 million ($0.92 per share), down just 2.9% year-over-year. This highlights the separation between RLI’s core insurance operations and external investment swings.

Segment Analysis: Property and Surety Shine, Casualty Struggles

• Casualty Segment: Underwriting income plummeted to $2.1 million from $13.7 million in 2024, with its combined ratio worsening to 99.1% (vs. 93.1% in 2024). Catastrophe losses of $12.0 million and weaker reserve development weighed on results.
• Property Segment: Performance remained robust, with underwriting income of $56.9 million and a 57.1% combined ratio, reflecting strong pricing and favorable reserve adjustments.
• Surety Segment: Improved significantly, with underwriting income rising to $11.5 million (vs. $6.3 million) on a 68.5% combined ratio, down from 80.9% in 2024.

Investment Portfolio and Balance Sheet

• Net Investment Income: Rose 12% to $36.7 million, benefiting from a 1.3% total return on the portfolio.
• Book Value: Increased 6% to $17.48 per share, driven by underwriting profits and disciplined capital management.
• Dividend Growth: The company maintained its 50-year streak of dividend increases, raising the quarterly payout to $0.15 per share (a 3.4% rise over Q4 2024).

Strategic Priorities and Risks

RLI CEO Craig Kliethermes emphasized the company’s focus on premium growth in niche markets and margin discipline, noting a two-for-one stock split in January 2025 to enhance liquidity. The company’s A+ “Superior” ratings from AM Best across all subsidiaries reflect strong capitalization (statutory surplus of $1.787 billion) and operational resilience.

However, risks such as catastrophe losses and market volatility remain. The casualty segment’s underwriting performance will need improvement to offset future catastrophe impacts.

Conclusion: A Reliable Dividend Play with Underlying Strength

RLI’s Q1 results reveal a company navigating short-term challenges while maintaining its long-term financial moat. Key positives include:
- 29 consecutive years of underwriting profits and a 50-year dividend growth streak, signaling operational consistency.
- 6% book value growth year-over-year, even amid investment headwinds.
- Diversified niche strategy, with property and surety segments proving their mettle.

While the casualty segment’s struggles and investment volatility are concerns, RLI’s fortress balance sheet and disciplined underwriting suggest it remains a reliable choice for income-focused investors. With a Zacks Rank #4 (Sell) currently, the stock may offer a buying opportunity if management can stabilize casualty results and navigate market turbulence.

In summary, RLI’s Q1 2025 results are a reminder that insurers must contend with external shocks, but its underwriting excellence and shareholder-friendly policies position it as a defensive play in a volatile market.