RLI Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 21, 2025

Key Takeaways

  • Positive Sentiment: RLI reported strong quarterly results with an 85% combined ratio, operating EPS of $0.83 (GAAP EPS $1.35), and a 26% year‑to‑date book value per share increase, driven by underwriting profits and higher investment income.
  • Negative Sentiment: Top‑line growth is essentially flat as the commercial property catastrophe market has softened, with property segment premiums down (ENS property −20%, total property −11%), creating a near‑term headwind to revenue growth.
  • Positive Sentiment: Casualty and select niche lines are growing: casualty premiums rose 8% (ENS Casualty Brokerage +12%), personal umbrella grew 24% with meaningful rate increases, and favorable prior‑year reserve development supported results.
  • Positive Sentiment: Investment and balance sheet actions boosted returns and liquidity — the portfolio returned ~3% in the quarter, operating cash flow was $179 million, and management purchased higher‑yield fixed income assets at a 4.8% average yield.
  • Neutral Sentiment: RLI is investing in underwriting talent, claims, technology and generative AI (raising surety expense ratios in the short term) with the stated aim of sustaining disciplined growth and long‑term profitability.
AI Generated. May Contain Errors.
Earnings Conference Call
RLI Q3 2025
00:00 / 00:00

There are 9 speakers on the call.

Speaker 2

Good morning and welcome to the RLI Corp third quarter earnings teleconference. After management's prepared remarks, we will open the conference up for questions and answers. Before we get started, let me remind everyone that through the course of the teleconference, RLI management may make comments that reflect their intentions, beliefs, and expectations for the future. As always, these forward-looking statements are subject to certain factors and uncertainties, which could cause actual results to differ materially. Please refer to the risk factors described in the company's various SEC filings, including in the annual reports on Form 10-K, as supplemented in Forms 10-Q, all of which should be reviewed carefully. The company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing fourth quarter results.

Speaker 2

During the call, RLI management may refer to operating earnings and earnings per share from operations, which are non-GAAP measures for financial results. RLI's operating earnings and earnings per share from operations consist of net earnings after the elimination of after-tax realized gains or losses and after-tax unrealized gains or losses on equity securities. RLI's management believes these measures are useful in gauging core operating performance across reporting periods that may not be comparable to other companies' definitions of operating earnings. The Form 8-K contains a reconciliation between operating earnings and net earnings. The Form 8-K and press release are available at the company's website at www.rlicorp.com. I will now turn the conference over to RLI's Chief Investment Officer and Treasurer, Mr. Aaron Diefenthaler. Please go ahead.

Speaker 5

Thank you, Adam. Good morning and welcome to RLI Corp's third quarter earnings call for 2025. Thanks for joining us as we head into this home stretch of the year. We've got our usual lineup on deck: Craig Kliethermes, President and CEO, Jen Klobnak, Chief Operating Officer, and Todd Bryant, Chief Financial Officer. Here's the game plan for today's call. Craig will kick things off with big picture perspectives. Todd will run down our financial results. Jen will follow with commentary on market dynamics and our product portfolio. After our prepared remarks, we'll open the line for questions. Craig will close with some final thoughts. With that, let's get started. Craig?

Speaker 8

Thank you, Aaron, and good morning, everyone. We appreciate all that are participating in the call and look forward to your questions once Todd and Jen have had an opportunity to give you an overview of our results. We are pleased with our third quarter results, which include an 85% combined ratio with underwriting profitability across all segments. Book value per share has grown 26% year to date, inclusive of dividends, on an 84% combined ratio and double-digit growth in net investment income, resulting in a 20%+ return on equity. The top line continues to be relatively flat, largely due to changing conditions in the commercial property catastrophe market over the last several years and the significant softening that is now occurring.

Speaker 8

While this presents a headwind to current growth, we look at it as a reflection of our willingness to grow when the market is in our favor and dedication to our hallmark discipline in softening markets. We still have good underlying growth within most of our very diversified niche product portfolio, despite the reset in the property catastrophe market. A significant amount of that growth is being driven by rate increases in our cash businesses. The industry continues to face a complex environment marked by increased market volatility, political uncertainty, alternative and inexperienced capital providers entering new spaces, and persistent legal system abuse. However, disruption creates opportunities for those with a steady hand and a deep expertise to navigate a rapidly evolving landscape. Vigilance, underwriting discipline, and adaptability are critical to long-term success.

Speaker 8

At RLI, we value being a stable market to our customers and consistency of financial results overtaking outsized tail risks. We also know we must keep investing in the best information placed at the fingertips of our expert underwriters and claims specialists at the time of decision-making to continue to outperform. This is ingrained in our unique ownership culture, and it is what we will continue to focus on as we have for the last 60 years. With that, I'll turn it over to Todd, who will provide some detail on our financial results.

Speaker 5

Thanks, Craig. Good morning, everyone. Yesterday, we reported third quarter operating earnings of $0.83 per share, supported by solid underwriting performance and a 12% increase in investment income. As a final reminder, per-share data reflects a two-for-one stock split that was due to shareholders at the end of 2024 and distributed in January. Underwriting income benefited from continued growth and earned premium, and positive results on the current accident year were complemented by favorable development on prior year's reserves across all three segments. Our total combined ratio was 85.1, down from 89.6 last year. The improvement is largely reflective of the benign hurricane season experienced thus far in 2025. Like last quarter, on an overall basis, our top line was flat compared to the prior year, but our casualty segment continued to grow nicely from both rate and exposure in areas our underwriters see profitable opportunities.

Speaker 5

Property was challenged given increased competition and rate pressure on catastrophe-exposed business, though returns on this business remained strong. On a GAAP basis, third quarter net earnings totaled $1.35 per share versus $1.03 per share in Q3 2024. Underwriting and investment income, as well as realized and unrealized returns on the equity portfolio, all outpaced amounts posted from the same period last year. Turning to segment performance, property experienced an 11% decline in gross premiums, which was influenced by rate and exposure declines in ENS property. In other parts of the property segment, marine was flat for the quarter, but up 4% for the year, and Hawaii homeowners continued to deliver growth, up 33% in the quarter and 35% year to date. Jen will provide additional detail on subsegment market conditions shortly.

Speaker 5

Property's bottom line benefited from an absence of hurricane losses and $5 million in favorable prior year's reserve development, primarily on marine. On a comparative basis, Q3 2024 included $37 million of storm and catastrophe losses. These losses were partially offset by $8 million in reduction to prior year's reserves, inclusive of catastrophe-related amounts. Attritional losses were up modestly in the third quarter of 2025, but at a 26 loss ratio, we are very pleased with this segment's results. All in, property continued its strong performance, posting a 60 combined ratio in the quarter. In casualty, gross premiums advanced 8%, and we posted a 98 combined ratio for Q3. The segment benefited from $8 million of favorable prior year's reserve development and an improved current accident year loss ratio compared to last year.

Speaker 5

You may recall that current accident year results for the third quarter last year were impacted by reserve additions to yield-based coverages, as well as hurricane losses within our package business. Prior year's reserve benefits were realized across a number of products with notable contributions from general liability and excess liability. Surety's gross premium was down 3% over last year, driven by modest declines in commercial and contract. For the year, commercial and transactional surety are up 5% and 3% respectively, while contract is down 5%. The result for contract was influenced by a slowdown in small to mid-market construction activity. The combined ratio for the quarter was 85, and underwriting income benefited from $2.7 million of favorable reserve development. The expense ratio rose, reflecting higher acquisition costs and increased investments in technology and people.

Speaker 5

On the asset side of the balance sheet, our investment portfolio performed nicely as stocks and bonds rallied in the quarter, offering a 3% total return and a solid contribution to comprehensive earnings. Operating cash flow of $179 million and select sales of fixed income assets over the last three months facilitated purchase activity with average yields of 4.8%, a 70 basis point advantage to our portfolio's current book yield. Beyond our traditional invested assets, investee earnings total $1.5 million in the quarter. Incorporating comprehensive earnings of $1.65 per share and adjusting for dividends, book value per share increased 26% from year end 2024. All in, we are very pleased with our third quarter and year-to-date performance. With that, I'll turn the call over to Jen. Jen?

Operator

Thank you, Todd. The property segment delivered a strong 60 combined ratio, while premium declined 11% in the quarter. From a profitability standpoint, all products within the segment are performing well, and we continue to find opportunities for growth. Hawaii homeowners is a great example, where premium was up 33% in the quarter, including a 16% rate increase. The market has been disrupted since the Maui Wildfire, and we have been taking advantage over the last couple of years. We have an approved rate filing effective this month that we expect will add a 12% rate to the book over the next year. We're working on several initiatives for process improvements and automation to help increase retention by making it easier for agents and insurers to renew their policies. The attritional loss ratio has been steady, and we appreciate the team's contribution to results in the quarter.

Operator

Marine has made a notable contribution to the bottom line again this quarter. The top line was flat, given choppy economic conditions and increased competition in the market, particularly for cargo exposures where we have intentionally shrunk the book. The division broke their top line growth streak but kept the more important streak going. They're working on their eighth consecutive year of underwriting profits. ENS property continues to provide a significant contribution to our bottom line, while premium was down 20% for the quarter. To add some perspective on the scale of this business, we've written over $350 million in premium through nine months, which alone would represent the third largest production year ever, other than the last two years.

Operator

During the last hard market, we leaned into this space in a sustainable way, meaning we invested in our producer relationships, enhanced our form set for flexibility, and added more claim capabilities to service a larger book of business. Those investments provide a strong foundation to lean into other property market opportunities as they arise. New capacity has been entering the market ever since Hurricane Milton missed its target last year. We are not chasing top line growth at the expense of portfolio quality. We remain selective. Our renewal rates for wind are down 11% in the quarter, but remain around two and a half times higher than they were prior to the hard market in 2019. Our renewal retention is down a couple of points, and new business is highly competitive. The hurricane season is not over yet. Our exposure is down almost 10% for the year.

Operator

We are comfortable that if and when an event occurs, we'll be able to handle the influx of claims and remain a reliable market to our insureds, just like we've done in the past. Earthquake remains highly competitive as well, with many insurers choosing to retain this risk. Our submission count is down about 5% accordingly. Rates on renewals are down 9% for the quarter. We are prioritizing maintaining a well-priced book with sustainable terms and conditions over volume or market share. We have been investing in underwriting talent, exploring new producer relationships, and building out product offerings to be ready when the market turns. We expect ENS Property's underwriting profits for 2025 to exceed what we used to write in top line premium. This demonstrates the success of leaning into the hard market. The surety segment posted an 85% combined ratio, with premium down modestly for the quarter.

Operator

While we're navigating some economic headwinds, our commitment to sound underwriting and long-term results positions us well for sustained success. In the construction space, spending is down where we provide surety bonds, primarily in the small to mid-market public construction projects. Weak messages from the government early in the year and budget constraints more recently have tempered bid activity. Although the average size of the projects we've been able to bond is reduced from last year, our teams continue to find quality opportunities that align with our underwriting standards. Our commercial surety premium was also challenged by a slowdown in energy renewables projects. The perception that profits are easy to make in the surety business has led to a crowded, highly competitive landscape.

Operator

There has been some industry loss activity in both contract and commercial surety that may bring more balance to the market, potentially creating opportunities for disciplined players like us. We're confident in our strategy. Our investments in experienced underwriters who can attract new accounts and newer underwriters to perpetuate our expertise are helping counteract these headwinds. We've made investments in processes and systems in our transactional surety offering, which has freed up underwriters' time for marketing and decision-making. These investments will pay off over time, especially when market conditions warrant us leaning more heavily into growth opportunities in this space. Casualty premiums grew 8% on a 98 combined ratio for the quarter. One of the highlights is the performance of our ENS Casualty Brokerage Group, who is responsible for an improving underlying loss ratio and a large contribution to the reserve relief for the quarter.

Operator

ENS Casualty Brokerage premium grew 12%, with a few more opportunities on the excess side versus the primary. Submissions were up around 20% for the group. Some standard markets have pulled back, particularly in the Northeast, which has created some opportunities, although not all of the business matches our appetite. Areas of construction we focus on, for example, office renovations, are showing some growth this year. We're also staying in front of our producers on a regular basis, which continues to drive new business submissions. We have a strong pipeline of COVID project business around the country that we're waiting to bind. Decreasing interest rates will help financing move forward on these projects, as this group focuses on private construction business. An area we continue to monitor closely is our auto exposure. Our transportation division premiums were down 1% for the quarter, while we achieved 15% rate increases.

Operator

Competition remains fierce in this space, despite the severity trends experienced in the industry. While a couple of our largest renewals have shopped their policies midterm and canceled for lower cost alternatives, we remain focused on writing profitable business and leveraging our underwriting discipline to grow where it makes sense. There are still pockets of opportunity, particularly in the public auto industry. We're hitting on these where our in-house loss control identifies accounts with acceptable safety practices, and we can get the rate we need. Our transportation staff is collaborating with our package businesses where we offer auto coverage. Our loss control team has expanded services to these other divisions where it makes sense. Auto liability rate increases across the portfolio totaled 16% for the quarter, up from 14% last quarter.

Operator

Our actuaries and claims staff provide helpful feedback to our underwriting teams to ensure they understand what is driving loss, where loss trends are coming in. We've already seen the benefit of this feedback loop among our support teams and between business units. Personal umbrella continues to drive our top line growth in the casualty segment. Premium increased by 24% in the third quarter. This includes a 17% rate increase. New business count has slowed a bit as we implemented higher minimum attachment points in our largest states. We've received approval for additional rate increases effective this quarter and will continue adding rates to the book well into 2026. We believe our approved rate increases are outpacing loss trends, which provides a strong foundation for our growth strategy.

Operator

Overall, while the top line is flat this quarter, premium is up 2% for the year in an environment where many business units are experiencing increased competition and softening terms and conditions. Taking a longer view, we have doubled our premium in the last five years, while significantly increasing our capabilities. We have invested in systematic ways to gather customer feedback, translating into meaningful business improvements from simplifying online applications to expanding partnerships across business units and introducing new products. We grow new offerings slowly to ensure we have the coverages needed at an adequate rate with processes that will support the producers and insurers who select us. Some examples of new coverages include a moving and storage-focused transportation division, auto physical damage coverage in marine, and admitted storage tank coverage as part of our environmental liability offerings.

Operator

These small products add to the diversity of our portfolio and will provide more opportunities to grow as market conditions change over time. We have also invested heavily in continuously improving the products and services we offer, as well as the processes that support them. Sometimes that means simplifying how we work. Other times it means embracing automation. Currently, we are focused on identifying and implementing generative AI where it adds value. Our creative employee owners have already introduced many tools that are reducing the time it takes to serve our business. We have armed our underwriters and claims staff with better information to support their decisions, and we're just getting started.

Operator

Finally, we've invested in our community of employee owners, producers, and other business partners by increasing training for our staff and investing in the partnerships we've formed so we can be a stable carrier in all phases of the market cycle. These investments may not show up in a single quarter's results, but we believe they will translate to long-term profitable growth over time. We look forward to continuing to invest in the long term as we strive to achieve our 30th consecutive year of underwriting profits. I will now turn the call over to the moderator to open it up for questions.

Speaker 2

Thank you. If you'd like to ask a question on today's call, please press star followed by one on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure you are unmuted locally. Our first question comes from Michael Phillips from Oppenheimer. Michael, please go ahead. Your line is open.

Speaker 2

Thank you. Good morning. You've talked about recently how you've raised your attachment points in the personal umbrella book. I think recently in California and then maybe more recently in Florida, clearly two of your biggest states there. Can you talk, I guess, about what you've seen that has done to your margins in that personal umbrella book? Also, just kind of a quick follow-up, where are you in that process in Florida?

Operator

Yeah, we've been at a higher attachment point in California for over a year now. We recently, towards the beginning of this year, implemented that in Florida. Moving from traditionally a $250,000 attachment point, as an example, up to a $500,000 attachment point required for new business. We added in September seven additional states where it's just our larger states that we're seeing again a little more frequency as those claims start to breach the more often the $250,000 level. Moving up to the $500,000 level, we think that will help from a frequency standpoint to some extent. Some of those changes, as you can tell, are fairly new. It's pretty early in the book. In working with our underlying carriers, we are taking advantage already of seeing better talent in the underlying claims staff that are handling those claims as they have more money in the game.

Operator

We are seeing that overall, our loss trends are improving on the book from this change as well as the other things that we've implemented over the last 12 to 24 months.

Operator

Okay, Jen, thank you. Sticking with personal umbrella for a second, I think you said a 17% rate increase there this quarter. Hope I heard that right, which seems like a bit of an inflection from the last couple of quarters. Is that just a function of states where you've taken them, or I think last quarter you said 9%. It's a pretty big change there. What's driving that?

Operator

It is. How that works is, you know, we have to file in all 50 states, and any individual quarter can be influenced by a particular state coming online. For example, our Florida rate change was really effective this quarter, and it was substantial, so that influenced that tick up in the rate change. Whereas last quarter, we didn't have too much notable going in, so it was just kind of earning in from previous rate filings.

Operator

Okay, yeah, perfect. Thanks. Lastly, Jen, sticking with your comments right before you started talking in the casualty about the auto exposure, you made a comment about some standard markets are pulling back. I think you said particularly the Northeast. It wasn't clear what you were talking about there. Can you clarify that?

Operator

Sure. There are some in the markets in the Northeast that were covering more artisan contractors. That's not really a target for us on the primary side, but on the excess side of our ENS Casualty group, we do offer that coverage. Some of those insurers meet our risk appetite, some don't. We do see more submissions coming in and are hitting on some. That's a positive trend in our book.

Operator

Okay, thank you. Thanks for your answers.

Speaker 2

Next question comes from Mark Hughes at Trivist. Mark, please go ahead. Your line is open.

Speaker 2

Thank you very much. Good morning. In the surety, the expense ratio, I think you talked about technology and some additional personnel expenses. Where should that head from here? Is this a good level for that surety expense ratio, or will it perhaps taper off in coming quarters?

Speaker 3

Mark, it's fine. I think we'll see as we continue to invest from that standpoint. We talked last quarter, Jen Klobnak mentioned kind of the digital side, the customer relationship management, all of those things. I mean, that has continued. We're continuing to invest there. You're right. It's up a decent amount. There's a little bit of pressure on commissions, I would say. Not a lot, but some. That overwhelming influence in the quarter and really year to date is from those investments in technology and people. The other thing to kind of take a look at, I think if you look on a relative basis to written premium, you're going to see it look a little higher on a written basis in the quarter than on the year-to-date basis. Some of that is how the insurance sees it there. We're going to continue to invest there.

Speaker 3

Understood. How would you describe the property market now? It's obviously been in a state of flux, a lot more capacity coming in as we're getting near the end of storm season. It looks pretty clear. Is there a risk of a kind of another step function in terms of competition, or perhaps on the other end, has it stabilized? How would you characterize it kind of in the near term here?

Operator

Yeah, this is Jen. I would say during the season, a lot of times, whatever strategy people start with, they kind of stick with. As the season progresses and we get towards the end where it appears to be quiet, even though there's some talk of some interesting waves out there right now, there are people who are continuing to soften the market conditions. We're seeing everything from admitted markets stepping up in the Midwest where the issues from the derecho several years ago have faded, and they're coming back into the market a little bit, to MGAs and other programs that are affecting the coastal states where they're decreasing rates and deductibles and expanding terms and conditions, to in our California market where you've got markets that are just adding in if they're writing a fire policy that might just drop because that'll help them keep the policy.

Operator

We've seen that behavior as well. There are tough market conditions out there. The key for us is that even in the hardest market, we stayed open for business, for new business from our producers the whole time. We worked with them to try to develop solutions when they couldn't find capacity. That has really trickled into the current state where those producers appreciate what we've done, and they continue to help us find new business and to give us a last look on our renewals. That is helpful. I think we will continue to look for getting adequate rate and sufficient terms and conditions that we'll understand what the claim will be if that claim happens. That's where we're focused on is maintaining terms and conditions that we're comfortable with.

Operator

The market could continue to slide, which would pressure our book, but we're seeing a lot of opportunities around the country on individual accounts that we can take advantage of, and we'll continue to do that. It's a fight out there, but we're up for it.

Speaker 8

Mark, this is Craig. I would just add one thing. Obviously, a lot of reinsurance renewals are one-on-one, and depending on what happens in the reinsurance market, it could have a big influence on how competitive the market gets.

Speaker 8

Understood. Thank you very much.

Speaker 2

The next question comes from Maya Leibman at Keefe. Maya, your line is open. Please go ahead.

Speaker 2

Great. Thanks so much. The sort of thing on the same topic, Jen, you mentioned, I think, 11% wind rate decrease in the third quarter. What was that in the second quarter? Is it something you can just like scale where we're trending?

Operator

I think you said the wind rate decrease. It was 11% this quarter and 13% last quarter. It's 13% year to date. You can see it just depends on what you're buying in a given quarter on your renewals.

Operator

Okay. Yeah, fair enough. When we look at the reinsurance costs for Hawaii hurricane, do they tend to follow pricing trajectories for Florida wind?

Operator

I would say Hawaii hurricane isn't an emphasized risk by the reinsurers. I mean, it is absolutely diversifying from Florida. The probabilities for that event to happen are lower given the geography of Hawaii, which is where it's at. It's not a huge topic of conversation in the reinsurance renewals. It's very much lumped in, and Florida is really the focus.

Operator

Mayor, I was just asking a question.

Operator

Yep, go ahead. I'm sorry.

Operator

I was just going to say hurricane is not a huge exposure for us just because the way that is sold out there, that's typically in a more cat, you know, they buy it, they can buy it separately from their homeowners product. There are a lot of cat-only players out there that will write the hurricane exposure in California.

Operator

Yes.

Operator

In Hawaii, sorry.

Operator

Yeah, a note on that. Only about 20% of our Hawaii book actually buys wind coverage from us, so it's a much smaller exposure for us relative to the entire Hawaii book.

Operator

Got it. That's very helpful. Maybe a broader question. There seems to be a little bit of turmoil in the wholesale brokerage market because we've got, I guess, Howden looking to build a U.S. retail platform. Can you talk about what that means for ROI, like the threats and opportunities in that?

Operator

Yeah. Our business model, as you know, is to partner with our producers to try to help them grow, help us grow, right? We do invest in our relationships, I'll say, at the underwriter's desk, which means we encourage our underwriters to physically meet with our producers. That's a line broker, a line underwriter meeting on a semi-regular basis. If in person, they tend to become friends or at least be well acquainted so that the relationship is strong at that level. We reinforce that relationship as it goes up the line so that people like Craig and myself hang out with folks from the brokerage as well. Anytime there's expansion, there's a lot of turmoil.

Operator

The wholesalers that are more mature here in this market will be trying to hang on to their people, but it's a very fluid market with people moving around all the time, and it feels like they're moving around a lot right now. Obviously, Howden is driving some of that. We're happy to do business with any wholesaler that we think has a profitable book of business that we can work together on. We also want to protect our relationships that we've had. I mean, we're committed to people who have grown with us over the decades. It's kind of a mixed bag there. That's part of what we do, to just invest in relationships that we think will make sense for us and for them.

Operator

Okay, perfect. Thank you so much.

Operator

Thanks, Mayor.

Speaker 2

The next question comes from Jamie Ingus from FiloSmith. Jamie, please go ahead. Your line is open.

Speaker 2

Hi, good morning. I wanted to follow up on Mark's questions about the expense ratio and acquisition costs specifically. It seems as though acquisition costs are rising. Is that a retail phenomenon, a wholesale phenomenon, a product line, geography? What do you think is behind that?

Speaker 3

There's a number of things, really. I mean, I think there, if you think of some of the smaller risks that we write, you think in terms of transactional surety, really from a premium standpoint, personal umbrella, there's pressure there certainly. That has been happening, it hasn't changed. If you're trying to look at it on a segment basis, as we grow that umbrella book, which is a great book for us, it comes at a slightly higher commission rate than the rest of the casualty segment. We do push back from that standpoint too. Our underwriters do. They're always looking to find that right balance.

Speaker 3

The other thing on the acquisition, when you pull it all together and think in terms of what we've talked about, investments in the technology, investments in the people, our underwriters, that's all part of the total piece of what it takes to put things together. Those are all moving up a bit.

Speaker 3

Got it. I wonder if you could touch on the surety business generally and the competitive environment. You guys have had great results for, you know, forever. As you pointed out, there are others that see that as easy and are coming into the market. How does, at the end of the day, RLI maintain its sort of competitive advantage in the market?

Operator

Yeah, our surety book is made up of a few subsegments, I'll say. If you start with transactional surety, which is the smallest account, one of the most important things around our business is really our technology and our servicing of our producers. We've spent a lot of time, effort, and dollars in connecting with our producers to understand how to make this the easiest business to do. We should be the easiest provider. We're rolling out something in the fourth quarter to, again, up our game in that respect. It's a continuous effort to understand how to get that business in as easy as possible. I think from the account level side, which is both contract and commercial, some of our competitive advantages really are people. We have some very dynamic, experienced folks who are focused on servicing the business. They are extremely available to their producers.

Operator

They are willing to listen to the story and try to come up with a solution. They meet with principals and brokers all the time. They welcome training people, new brokers up just to help perpetuate that next generation, to help that agency. There are a number of things that we focus on around service, I would say, in the account space. That's really our competitive advantage. We're not the biggest surety. We don't have the biggest capacity. We can't compete necessarily on that. We have to find other ways to differentiate ourselves in that market.

Operator

Jamie, I would just add more broadly than just surety. I mean, I think our people are problem solvers. The type of people that we hire is, you know, as owners, you're trying to solve problems to try to make your business better. I mean, the most common comment I get from producers when I meet with them is the adjectives they define our underwriters and the people they deal with are authentic and genuine people that, you know, they'll tell them if they can, they will do everything they can to try to solve the problem. If they can't, they won't waste their time by saying maybe and then tell them three weeks later, no. We think, when we say relationships, that's what we mean when we say deep relationships with people.

Operator

At the end of the day, these producers like doing business with people they like, and they tend to like our people. That's a huge competitive advantage for us, we believe.

Speaker 3

The one other thing that I probably should have added earlier, but when you think about the discussion and the question gets asked of, where is it going? You know, where's that acquisition ratio going? That's a fair question. The concept behind a lot of this, whether it's relationships that Craig Kliethermes and Jen Klobnak mentioned or the technology investments or in our people, the idea there is that will all translate into more premium, more business. We would leverage all this investment. That's where it gets a little challenging to say, where is it headed? It's all designed to increase top line in revenue. That's a big part of everything we're doing there, too.

Operator

I would just say it's for profitable premiums, that's it.

Operator

Fair point. Fair point.

Operator

Right. Right. Great. No, I appreciate it because it's also the trade-off with, you know, acquisition expenses versus, you know, loss ratio, which matters as well. Anyway, thanks a lot.

Speaker 3

Absolutely.

Speaker 3

Thank you, Jamie.

Speaker 2

As a reminder, that's star local one. The next question is from Andrew Andersen from Jefferies. Andrew, please go ahead. Your line is open.

Speaker 2

Hey, good morning. Looking at the casualty underlying loss ratio in the quarter, about 65.5%, a little bit better than first half 2025 results. Can you maybe just talk about some of the drivers there? Was that just mix shift, and do you view that as kind of a good run rate into the rest of the year?

Speaker 3

Yeah, it is, Todd. As you look and compare to last year, I think I mentioned in my opener, a lot of us had influence on the current accident year last year where we added to wheels-based exposures. You do have a little bit of a benefit this year. When we look at the current accident year, the actuaries' view, if they make any changes, they're going to look all the way back to the beginning of the year. We had a little bit of benefit of some of the property coverage in that package business, but that's pretty small, but has a minor influence on the current accident loss ratio. It's really more of a story of last year and the adverse that we added on wheels-based coverages.

Speaker 3

Gotcha. Maybe sticking with the transportation, I think to end 2024, you were growing quite a bit in this line, and then the second quarter, you've started to cut some exposures and continuing into the third quarter. Kind of where are we in the, I don't know if it's a re-underwriting of this book or maybe just being diligent around rate and exposure units?

Operator

Yeah, this is Jen. I would say it is more about being diligent, but the other factor is that some of those larger accounts that we wrote last year have canceled mid-term. Those are high six to seven-digit accounts where, you know, budgets are tight for transportation companies. They shopped their business, and if they found a cheaper quote, sometimes they would move their policy. We've had some cancellations. That's been a bigger factor for us this year. I'd say we're constantly looking at risk selection because you can't address the severity entirely with rate. We recognize that the real key to our operation is that loss control unit that's evaluating, you know, is this a safe account and are they doing the right things to do whatever they can to make as few accidents and safe practices as possible.

Operator

That feedback loop there is the most important thing in our book.

Operator

Thank you.

Speaker 2

No further questions at this time. As a final call, that's staff followed by one to ask a question today. We have no further questions, so I'll hand the call back to the team for any closing comments.

Speaker 8

Thank you all for your interest in our company and your questions today. At RLI, we have a strong balance sheet with very diversified product and investment portfolios. This offers security to our customers, flexibility and opportunity to our product managers, and consistent profitability and growth in book value to our shareholders. It isn't easy being different and having the fortitude to do the right thing when the discipline escapes others. We are different at RLI. We are owners, and we will continue to make the decisions that are in the long-term best interests of our customers and our shareholders that allow us agility to respond in challenging and opportunistic markets. If our unique culture and vision resonates with you, we're a great home for owners who share our values. Being different is what we do best, and being different has delivered again for all of our key stakeholders.

Speaker 8

In close, I want to thank our employee owners for their hard work again, delivering the differences that work. See you all next quarter.

Speaker 2

Ladies and gentlemen, if you wish to access the replay for this call, you may do so on our RLI homepage at www.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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