RLI: 3 Key Takeaways for Long-Term Investors

During its earnings call for the third quarter of 2026 on October 20, RLI (NYSE:RLI) disclosed a combined ratio of 86%. This metric indicates the proportion of earned premiums allocated to losses and operational expenses. Despite facing declining property market prices and pressure on rates within commercial lines, the specialty insurer reported sustained underwriting profitability. Management highlighted three significant points during the call.

The first key takeaway was RLI's commitment to pricing discipline over the retention of unprofitable property business. The company noted a 17% decline in premiums for excess and surplus lines property, attributed to standard insurance providers re-entering the market. Instead of matching the lower prices set by competitors, RLI chose to allow underpriced policies to lapse. Jennifer Klobnak, Chief Operating Officer, emphasized this strategy, stating, "We continue to prioritize underwriting discipline over premium retention and are comfortable allowing business to move when pricing does not meet our return targets."

Secondly, RLI's management explained that the firm does not impose top-line growth targets on its underwriters. This approach enables underwriters to reduce their volume in response to deteriorating market pricing, thereby safeguarding profitability over expanding market share. Klobnak reiterated this philosophy, saying, "We do not enforce top line budgets with our underwriters, and they are empowered to pull back when market conditions do not support our profitability objectives."

The third point of emphasis was the notable increase in personal umbrella policy premiums, which rose by 22% during the quarter. This growth was supported by consistent rate increases aimed at addressing the rising severity of losses. Looking ahead, management anticipates further double-digit rate hikes in 2027. Klobnak noted, "If you look at cumulatively over the last 3 years, rates overall on the book are up about 50%."

As RLI looks to the future, it acknowledges that competitors are reducing rates in commercial lines. However, the company remains focused on niche product diversification and stringent pricing discipline to maintain its profitability. The management team is concentrating on improving underwriting margins and making careful risk selections rather than pursuing market share expansion.

In a market that is generally softening, RLI managed to achieve a 2% growth in premiums during the quarter while maintaining its 86% combined ratio. Klobnak remarked on the importance of consistency in underwriting, stating, "The insurer relies on underwriting consistency to outlast soft pricing cycles."

Craig Kliethermes, President and Chief Executive Officer, concluded by acknowledging the dynamic nature of the insurance industry, stating, "There will always be something newer, faster or more exciting in this business. We're comfortable adapting to things that make sense and that improve our value proposition while remaining true to who we are."