Conference Call Participants RLI Corp. (NYSE:RLI) Q1 2025 Earnings Conference Call April 24, 2025 11:00 AM ET Company Participants Aaron Diefenthaler - Chief Investment Officer and Treasurer Craig Kliethermes - President and Chief Executive Officer Todd Bryant - Chief Financial Officer Jen Klobnak - Chief Operating Officer Bill Carcache - Wolfe Research Michael Phillips - Oppenheimer Gregory Peters - Raymond James Meyer Shields - KBW Casey Alexander - Compass Point Andrew Anderson - Jefferies Operator Good ...

Core Insights - RLI Corp. reported first-quarter 2025 operating earnings of 92 cents per share, exceeding the Zacks Consensus Estimate by 4.5%, but down 9.2% from the prior-year quarter [1] - The quarterly results were influenced by higher premiums and improved investment income, which were offset by increased expenses and poor underwriting income [1] Operational Performance - Operating revenues for the quarter reached $436 million, reflecting a 10.7% year-over-year increase, driven by higher net premiums earned and net investment income, although it missed the Zacks Consensus Estimate by 0.9% [2] - Gross premiums written rose 5% year over year to $491 million, primarily due to strong performance in the Casualty segment, which increased by 13.5% [2] - Net investment income increased by 12% year over year to $36.7 million, falling short of the Zacks Consensus Estimate of $38.6 million [3] - Total expenses increased by 14.7% year over year to $332 million, mainly due to higher loss and settlement expenses and policy acquisition costs [3] Underwriting Performance - Underwriting income decreased by 9.3% year over year to $70.5 million, with the combined ratio deteriorating by 380 basis points to 82.3 [4] Dividend Update - On March 20, 2025, RLI paid a regular quarterly dividend of 15 cents per share, with cumulative dividends exceeding $967 million over the last five years [5] Peer Performance - The Travelers Companies reported first-quarter 2025 core income of $1.91 per share, beating the Zacks Consensus Estimate, but down 29.3% year over year [7] - Progressive Corporation's first-quarter 2025 earnings per share of $4.65 missed the Zacks Consensus Estimate, although it increased by 24.6% year over year [9] - W.R. Berkley Corporation's first-quarter 2025 operating income of $1.01 per share matched the Zacks Consensus Estimate, but declined 2.9% year over year [11]

Financial Performance - RLI Corp. reported revenue of $435.07 million for the quarter ended March 2025, reflecting a year-over-year increase of 10.6% [1] - The company's EPS was $0.92, a slight decrease from $0.95 in the same quarter last year [1] - Revenue fell short of the Zacks Consensus Estimate of $439.19 million, resulting in a surprise of -0.94% [1] - The EPS exceeded the consensus estimate of $0.88, delivering a surprise of +4.55% [1] Key Metrics - Net loss & settlement expenses were reported at 44.5%, compared to the five-analyst average estimate of 45.9% [4] - Net operating expenses totaled 37.8%, slightly better than the 38.4% average estimate [4] - Underwriting income (loss) was reported at 82.3%, compared to the average estimate of 84.3% [4] - Net investment income was $36.73 million, below the average estimate of $38.64 million, but showed a year-over-year increase of +11.8% [4] Premiums Earned - Net premiums earned were $398.35 million, slightly below the average estimate of $400.55 million, with a year-over-year change of +10.4% [4] - Net premiums earned in the Property segment were $132.54 million, compared to the estimated $133.13 million, representing a +2.4% change year-over-year [4] - Net premiums earned in the Surety segment were $36.75 million, below the average estimate of $37.75 million, with a year-over-year increase of +11.4% [4] - Net premiums earned in the Casualty segment were $229.05 million, exceeding the average estimate of $227.36 million, reflecting a +15.5% change year-over-year [4] Stock Performance - RLI Corp. shares returned +0.3% over the past month, contrasting with the Zacks S&P 500 composite's -6.6% change [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

RLI Corp. (RLI) came out with quarterly earnings of $0.92 per share, beating the Zacks Consensus Estimate of $0.88 per share. This compares to earnings of $0.95 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 4.55%. A quarter ago, it was expected that this specialty insurance company would post earnings of $0.48 per share when it actually produced earnings of $0.41, delivering a surprise of -14.58%.Over the last four quarters, ...

EXHIBIT 99.1 RLI REPORTS FIRST QUARTER 2025 RESULTS PEORIA, ILLINOIS, April 23, 2025 – RLI Corp. (NYSE: RLI) – RLI Corp. reported first quarter 2025 net earnings of $63.2 million ($0.68 per share), compared to $127.9 million ($1.39 per share) for the first quarter of 2024. Operating earnings(1) for the first quarter of 2025 were $84.9 million ($0.92 per share), compared to $87.4 million ($0.95 per share) for the same period in 2024. On January 15, 2025, RLI executed a two-for-one stock split of common stock ...

Group 1: Market Overview - Investors are facing turbulent markets in 2025, with the S&P 500 down 15% since its all-time high on February 19 due to President Trump's announcement of reciprocal tariffs on 180 countries [1] - Recession fears are resurfacing, prompting investors to reconsider their investment strategies [2] Group 2: Dividend Stocks - Dividend stocks are becoming increasingly attractive in the current economic climate, but not all dividend stocks are equally strong [2] - Companies with robust competitive advantages can thrive across economic cycles, making them worthy of consideration [2] Group 3: RLI Corp. - RLI Corp. has raised its dividend for 50 consecutive years, showcasing stability in the insurance industry [4][9] - The company operates in niche markets, primarily focusing on excess and surplus (E&S) insurance, which allows for higher profit margins due to selective risk coverage [5][8] - RLI's total returns, including reinvested dividends, have averaged 16.8% annually over the past 50 years, outperforming the broader market [9] Group 4: S&P Global - S&P Global has raised its dividend for 53 consecutive years and holds a 50% market share in the credit rating industry, making it a dominant player [10][11] - The company benefits from ongoing debt issuance, as countries and companies frequently raise debt for various purposes [12] - Despite vulnerability to fluctuations in borrowing activity, S&P Global's data analytics segment provides stability through contractual agreements and subscription revenues [13][14] - The company has delivered an annual return of 14% when factoring in both dividends and stock price appreciation, making it a solid choice for investors seeking cash flow and stability [15]

Core Insights - RLI Corp's RLI Transportation has partnered with TruckerCloud to enhance its transportation insurance business through innovative telematics solutions [1][3][5] Company Overview - RLI Transportation is a division of RLI Insurance Company, known for its innovation in commercial transportation insurance [1] - The partnership aims to provide a unified telematics insights solution for proactive safety and risk management programs [3][4] Technology and Innovation - TruckerCloud offers a telematics data platform tailored for the commercial auto insurance industry, facilitating better risk assessment and claims reporting [2] - The collaboration is expected to improve data-driven insights and risk management tools, enhancing insured safety and reducing financial losses [4] Business Performance - RLI's Commercial Transportation insurance operations provide various coverages, including automobile liability and physical damage insurance for different types of truckers and public transportation entities [5] - In 2024, net premiums earned from Commercial Transportation increased by 16% year-over-year, with the Casualty segment contributing 48.1% to total consolidated revenues [6] Market Position - RLI's shares have gained 10.9% year-to-date, underperforming compared to the industry's growth of 25.8% [7] - The company is expected to benefit from an increase in new business submissions and product offerings, including moving and storage insurance [6]

Core Insights - RLI Corp. is well-positioned for growth due to its strong local branch network, diverse product offerings, focus on specialty insurance lines, and a solid record of underwriting profits [1] - Despite a strong performance in earnings growth over the past five years, RLI has underperformed the industry average [1] Factors Favoring RLI - RLI's product diversification strategy, including a compelling product portfolio and sustained rate increases, is expected to enhance its top line [2] - The company maintains a conservative underwriting and reserving policy, which has allowed for favorable reserve releases despite incurring catastrophe losses [2] - RLI has achieved 29 consecutive years of underwriting profitability, making it one of the most profitable property and casualty writers in the industry [3] Shareholder Value Enhancement - RLI has a strong track record of enhancing shareholder value through regular dividend increases, special dividends, and share buybacks, appealing to yield-seeking investors [4] - The company has increased regular dividends for 50 consecutive years and has paid special dividends since 2011 [4] Financial Strength - RLI is strengthening its balance sheet by improving liquidity and leverage, which supports its operations and long-term book value growth [5] - The return on equity (ROE) has improved to 16.6%, significantly higher than the industry average of 8.3% [5] Concerns for RLI - As a property and casualty insurer, RLI faces exposure to catastrophe losses from natural disasters, which can lead to underwriting volatility and affect its combined ratio [6] - Rising expenses, particularly from increasing loss and loss expenses, have been causing margin contraction for RLI [6] Return on Invested Capital - RLI's return on invested capital (ROIC) has been improving, but at 1.9%, it remains below the industry average of 6.4% [7] Key Industry Players - Other significant players in the insurance industry include The Progressive Corporation, Kingstone Companies, and Palomar Holdings, each with distinct strategies and growth prospects [8][10][11]

Core Viewpoint - RLI Corp. has underperformed in the market, with an 8.8% decline year to date, trading below its 52-week high and the 50-day moving average, indicating a bearish trend [1] Company Performance - RLI has a market capitalization of $6.9 billion and is trading at a price-to-book ratio of 4.51X, significantly higher than the industry average of 1.62X, indicating that the stock is expensive compared to its peers [4] - The Zacks Consensus Estimate for 2025 earnings is $3.08, reflecting a 7.3% year-over-year increase, with revenues projected to rise by 6.6% to $1.8 billion [5] - The consensus estimate for 2026 earnings is $3.10, indicating a 0.6% year-over-year increase on revenues of $1.9 billion, which is a 5.9% increase [5] Growth Factors - RLI is positioned for growth due to product diversification, a compelling product portfolio, and a focus on introducing new products, which should enhance its top line [6] - The company has maintained a conservative underwriting and reserving policy, achieving favorable reserve releases from prior years, contributing to its exemplary combined ratio [7][8] Dividend and Financial Health - RLI has a strong dividend track record, having paid dividends for 189 consecutive quarters and increased regular dividends for 49 years, with a five-year CAGR of 8.8% and a dividend yield of 0.8%, outperforming the industry average of 0.3% [9] - The company is strengthening its balance sheet with improved liquidity and leverage, which supports long-term growth in book value [10] Return Metrics - RLI's return on equity (ROE) has improved to 16.6%, significantly higher than the industry average of 7.6%, indicating efficient use of shareholders' funds [11] - The return on invested capital (ROIC) has also improved, although it stands at 2%, which is below the industry average of 5.8% [12] Market Outlook - The average price target for RLI shares is $81.80, suggesting a potential upside of 9.2% from the recent closing price [13] - RLI is recognized as one of the most profitable property and casualty writers, with a strong local branch network and a focus on specialty insurance lines, contributing to its superior profitability [14]

Catastrophic Risks and Financial Exposure - The company faces unpredictable catastrophic losses, particularly from hurricanes and earthquakes, which could lead to material financial losses [120]. - The company relies on models to assess exposure to catastrophic events, but actual losses may exceed modeled expectations, impacting financial results [122]. - The company may struggle to maintain adequate reinsurance protection, which could increase net loss exposures and volatility in financial results [123]. - The company limits its net loss on any individual risk to a maximum of $12 million through reinsurance arrangements [437]. Economic and Market Conditions - Adverse economic changes could lower demand for insurance products, significantly affecting revenue, especially in the construction sector, which constitutes approximately one-third of the business [125]. - Access to capital and market liquidity is crucial for the company’s growth; inability to raise capital could adversely affect business opportunities [126]. - The investment portfolio's value is subject to fluctuations due to changes in interest rates and overall market conditions, potentially impacting financial condition [129]. Financial Performance and Earnings - Consolidated revenue rose to $1,770,384, up 17.1% from $1,511,994 in 2023 [336]. - Net premiums earned increased to $1,526,406, representing a 17.9% growth from $1,294,306 in 2023 [336]. - Net earnings for 2024 were $345,779, a 13.5% increase compared to $304,611 in 2023 [336]. - Basic net earnings per share increased to $3.78, up from $3.34 in 2023, reflecting a 13.2% growth [336]. - Total expenses grew to $1,337,964, a 16.9% increase from $1,144,339 in 2023 [336]. - Cash flows from operating activities improved to $560,219, compared to $464,257 in 2023, marking a 20.7% increase [342]. Assets and Liabilities - Total assets increased to $5.63 billion in 2024 from $5.18 billion in 2023, reflecting a growth in investments and cash [331]. - Unpaid losses and settlement expenses rose to $2.69 billion in 2024, up from $2.45 billion in 2023, indicating an increase in liabilities [331]. - The total liabilities increased to $4.11 billion in 2024 from $3.77 billion in 2023, highlighting a rise in financial obligations [331]. Investment Portfolio and Risks - The company’s investment portfolio is subject to market, credit, and interest rate risks, with efforts made to mitigate these risks through diversification [401]. - The fair value of total fixed income securities available-for-sale was $3,175,796,000 as of December 31, 2024, compared to $2,855,849,000 in 2023, indicating an 11.2% increase [414]. - The company experienced a significant increase in interest on fixed income securities, which rose to $120,561,000 in 2024 from $103,446,000 in 2023, marking a 16.5% increase [410]. Technology and Operational Risks - The company is committed to upgrading its technology systems to remain competitive, particularly in the face of advancements in artificial intelligence [139]. - Operational risks, including fraud and regulatory compliance failures, could adversely affect the company's financial performance [132]. - Any significant interruption in the company's systems could materially impact operations and profitability, highlighting the importance of system reliability [136]. Regulatory and Compliance Issues - The company’s ability to pay dividends is contingent on its subsidiaries' earnings and regulatory constraints, which may limit dividend distributions [128]. - The company is subject to Section 203 of the Delaware General Corporation Law, which may restrict its ability to engage in business combinations with significant shareholders [146]. Claims and Losses - Incurred losses and settlement expenses for 2024 totaled $739,253 thousand, reflecting a 22.3% increase from $604,413 thousand in 2023 [441]. - The net unpaid losses and LAE at the end of 2024 stood at $1,938,045 thousand, up from $1,688,676 thousand in 2023 [441]. - The cumulative number of reported claims as of December 31, 2024, was 4,425, with total IBNR liabilities of $123,161 thousand [443]. Tax and Compensation - Federal and state income taxes paid amounted to $68 million in 2024, compared to $50 million in 2023 and $190 million in 2022, with the spike in 2022 attributed to the sale of an investment [476]. - Total compensation expense related to equity awards was $8 million for 2024, $9 million for 2023, and $9 million for 2022 [486].