Rli Corp Q2 FY2026 Earnings Call

Good morning, and welcome to RLI Corp Second 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 report of 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 a press release announcing second quarter results. During the call, RLI management may refer to operating earnings and earnings for share from operations, which are non-GAAP measures of the financial results. RLIs operating in earnings and earnings for 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. Additionally, equity in earnings of unconsolidated investees and related taxes are excluded from operating earnings and operating EPS to present a consistent approach in excluding all unrealized changes in value from equity investment. RLI's management believes these measures are useful in gauging core operating performance across reporting periods, but may not be comparable to other companies' definitions of operating earnings. The Form 8K contains a reconciliation between operating earnings and net earnings. The Form 8K and press release are available at the company's website at www.rlicorp.com. I will now turn the conference over to RLI's President and Chief Executive Officer, Mr. Craig Cleathurness. Please go ahead.

Well, good morning, everyone. and thank you for joining us today. With me are Aaron Diefenthaler, our Chief Financial Officer, and Jen Klobnov, our Chief Operating Officer. Before we begin, I'd like to thank our associate owners. Their hard work and excellence helped RLI earn recognition as a Ward's Top 50 Property and Casualty Performer for the 36th consecutive year, the only company to achieve that distinction every year since its inception in 1991. We are pleased with another quarter of profitable growth. We generated an 86 combined ratio, grew gross premiums written by 3%, increased net investment income by 17%, produced a 25% return on equity, and returned significant capital to our shareholders through both a special dividend and share repurchases. Those results reflect another quarter of discipline execution across our diversified specialty portfolio markets change our principles don't one other thing that hasn't changed insurance is still a relationship business our business partners choose rli because they know our people are accessible empowered to solve problems and consistently show up through every phase of the insurance cycle we help customers better understand risk, tailor coverage to their needs, and deliver better claim outcomes, lowering their cost of risk. That's how trusted relationships are built, and it's become one of our greatest competitive advantages. When we step back, this quarter reinforces what we have believed for more than 60 years. Strong relationships, disciplined underwriting, sensible capital management, and continuous improvement remain the foundation of our long-term success. Those principles are producing results today, and they leave us optimistic about the opportunities ahead. With that, I'll turn it over to Aaron to walk through the financial results.

Thanks, Craig, and good morning, everyone. Yesterday, we reported second quarter operating earnings of $0.83 per share versus $0.82 last year. The results reflect solid underwriting performance and a consistent increase in investment income. As a reminder, and as referenced by the operator, beginning in the fourth quarter of 2025, we changed our definition of operating earnings to exclude equity in the earnings of unconsolidated investees and the related taxes. All prior period comparisons in the release reflect that change. On a gap basis, second quarter net earnings totaled $1.82 per share, compared with $1.34 in the year-ago period. The difference between net earnings and operating earnings was primarily influenced by the strong performance of our equity portfolio. We recognized 103 million of unrealized gains on equity securities during the quarter, compared with 44 million last year. Realized gains were $9 million in the quarter, reflective of modest portfolio rebalancing. Underwriting income totaled $59.9 million for the quarter, and our overall combined ratio was 85.6, compared to 84.5 last year. The loss ratio improved 0.4% to 45.5, while the expense ratio increased 1.5% to 40.1 due to personnel-related costs, acquisition expense, and investments in technology. Results benefited from $39.8 million of favorable development on prior year's loss reserves, compared with $27.6 million in the second quarter of 2025. The quarter also included $10 million of net incurred losses from 2026 catastrophe events. As Craig mentioned, overall growth in gross premium was 3%, in line with the first quarter, and again led by casualty, which was up 11%. Growth in this segment was also on trend with personal umbrella and transportation being the primary drivers. underwriting profit for casualty resulted in a 99.3 combined ratio bolstered by 13 million of favorable development on prior year's reserves for clarity in casualty the 13.7 million of favorable development disclosed in the earnings relief was moderately offset by a half million of reserve strengthening on prior year cat activity Notable contributors to casualty's overall favorable development were excess liability, transportation, our professional services group, and executive products. I'll also note that there was about 1 million of 2026 catastrophe losses in casualty associated with our package business. For property, the combined ratio was very strong at 56.8 on lighter catastrophe activity at $9 million and $23 million of favorable prior year development from both marine and cat events in years 2025 and prior. While the competitive dynamics for E&S property persist and the segment's gross premium was down 6%, we continue to see opportunities to bind business at an adequate rate and have experienced persistent growth in Hawaii homeowners and Marines. surety posted a solid 87.2 combined ratio modestly better than last year and supported by 3.4 million of favorable development the loss ratio improvement for surety was partly offset by a three-point increase in the expense ratio due to continued investment in infrastructure and higher acquisition expenses growth in the segment was muted down six percent in the quarter as commercial surety faced some headwinds related to a slowdown in our renewable energy business as usual jen will go into more detail at the product level turning to investments our activity during the quarter was supported by 145 million of operating cash flow while this is down compared to last year on higher levels of paid loss it offered meaningful support to fixed income purchase activity which was accretive with yields averaging 4.9 percent in the quarter. Net investment income increased 17 percent to 46 million dollars and continued to be an important contributor to our results. The investment portfolio produced a 3.4 percent total return for the quarter and a 3 percent return for the first six months of the year. At quarter end, total investments and cash were approximately $4.9 billion. From a capital management perspective, in addition to our regular quarterly dividend of $0.18 per share, we paid a $2 special dividend, in total returning just over $200 million to shareholders. We also added flexibility in how we returned capital with a newly authorized $250 million share repurchase program. During the quarter, we were active in the market and repurchased approximately 235,000 shares at an average price of $51.25. At June 30, around $238 million remained available under the authorization. Putting it all together, comprehensive earnings were $166 million or $1.80 per share compared with $143 million or $155 per share last year. Adjusting this result for dividend and share repurchases, both value per share increased 11% from year-end 2025. We are pleased with our second quarter and first half performance. On a year-to-date basis, our results are very consistent between quarters in terms of both top-line and underwriting profitability. We generated another quarter of combined ratios in the mid-80s, continued to benefit from higher investment income, and returned a meaningful amount of capital to shareholders while maintaining a strong balance sheet. And with that, I'll turn it over to Jen for more detail.

Thank you, Erin. I'll begin with a few comments on the market environment that are relevant across many of our product lines. Market conditions continue to evolve with increased competition, creating opportunities for carriers that differentiate through underwriting expertise, financial strength, and most importantly, service. Producers are evaluating a broader range of market options as coverage offerings expand and commission structures remain competitive. We target producers and insurers who value stability and recognize RLI as a long-term, financially strong, service-oriented partner. We remain flexible on pricing, where appropriate, while maintaining discipline in our coverage, providing clarity for our insurers when claims occur. Our customized underwriting approach continues to be a meaningful differentiator, allowing us to tailor solutions to individual risks, rather than relying on broad underwriting mandates. While many carriers and MGAs continue to emphasize digital capabilities, we believe insurance remains fundamentally a relationship business. We are leveraging technology to enhance our underwriting processes and improve efficiency, while continuing to invest in in-person engagement with our producers. These touch points help us better understand their needs, deliver responsive service, and position us to win profitable business. Our reputation as a stable, dependable terrier continues to resonate with both producers and insurers, and that proven approach contributed to another quarter of excellent results. Turning to our segment performance, casualty premium rose 11%, with rates up 10%, which matches the rate change from last quarter personal umbrella premium was up 26 percent rate increases total 17 influenced by higher approved rate filings in california and florida rate increases in the second half of the year will be tempered as some of those filings have earned through the book and our next approved rate increase is taking effect on january 1st renewal retention is down two points from last year due to underwriting adjustments and cumulative rate increases implemented over the last several years we achieved growth in non-coastal states which are more favorable from a litigation environment standpoint the combination of rate and targeted growth position this already profitable book of business for continued strong performance transportation premium increased by 19 in the quarter including an 8 rate increase several accounts renewed at or near expiring as strong account performance and prior rate actions supported pricing this is an example of our focus on rate adequacy at the account level to retain profitable business while keeping an eye on loss trend at the portfolio level new claim counts continue to decrease for the second year in a row this was another factor that provided confidence in our direction and allowed us to recognize a reserve release this We are seeing more new business opportunities, with several competitors pulling back in certain geographies or altogether. This is partially offset by some standard markets using the auto to get to the GL or packaged business. Given the lock severity trends in this market, we are emphasizing risk selection and focusing on insurers who value our in-house lock control services, services, which are designed to reduce our insurer's cost of risk and improve overall road safety. We are getting plenty of opportunities with submissions up 9% in the quarter. Cash rate brokerage premium was down 6% in the quarter as competition has increased from other E&S carriers, MGAs, and standard markets. Producers and insurers are looking for broader coverage for less rates. The industry is meeting those requests while we are picking our spots. The good news is that submissions were up 14% in the quarter, so our marketing efforts are paying off in that we are seeing more new business opportunities. Meanwhile, our auto pricing within the excess liability coverage has reduced our competitiveness on contractors' annual practice policies. Even so, rate increases on the excess remain strong at 7%, up slightly from last quarter. While competitors are increasing limits offered on the excess, our ability to offer $10 million in capacity through all phases of the market cycle is still a differentiator, and we continue to deploy it selectively, considering the severity inherent in this product line. Our cash flow portfolio is rounded out with admitted lines products, including professional liability and package coverages for architects and miscellaneous professionals, small contractor's packages, and director's and officer's coverage. These markets are fairly stable, and we are achieving slow, steady growth and improving underwriting profits. We introduced a new, non-admitted offering this month in the entertainment and amusement space, which is just now accepting new business submissions. These product lines contribute to our diversified product portfolio and allow us to take advantage of opportunities in various casualty spaces as they arise through the market cycle. The maturity premium was down 6% in the quarter, primarily due to a couple of non-recurring items, including moderating renewable energy construction activities and customs bonds that required larger limits last year. We also made the decision to exit a few larger accounts where we no longer believed the risk-adjusted returns justified the exposure, reinforcing our discipline when the risk no longer aligns with our underwriting standards. While the largest contractors continue to benefit from strong demand tied to data center construction, large public infrastructure, and healthcare, activity among our targeted small and mid-market contractors has been a little more measured, although we are seeing bid activity starting to increase. Across the industry, surety loss ratios are beginning to move higher, and we believe that will create attractive opportunities over time as the market responds. With an 87 combined ratio and an entrepreneurial mindset, we are in a position of strength to take advantage of those opportunities when market disruption occurs. The property segment's premium decreased 6% while producing a 57 combined ratio. The E&S property industry continues to experience heightened competition. We have heard that an individual submission can be sent out to over 45 markets. Some of our brokers have reported receiving unsolicited quotes based on last year's emissions. New markets are coming in. Standard markets are getting back into classes that they exited during the last hard market. They are offering broader terms for less premium. As a reminder, we saw our first rate decreases on hurricane-exposed risks in the third quarter of 2024 and for earthquake risks in the first quarter of 2025, which means accounts are just now receiving rate decreases on their second renewal during the soft market. The rates we are achieving are approaching our benchmark price, which equates to our targeted risk-adjusted return on the business. Our underwriters are proactively protecting our renewals and pursuing new business opportunities by offering more quotes, which oftentimes include multiple coverage options we are increasing limits by moving from the primary policy to full limit coverage or providing larger shares of layers within an insurance tower we are holding the line on terms and conditions that will matter when we handle the claims after a loss this is evidenced in our renewal retention ratio which is down to just under 70% we see more responsible behavior from competitors who are putting their own capital at risk. We will maintain discipline, own the underwriting results, and fulfill our commitment to insurance when losses occur. Our producers remember how we help them solve problems during the recent hard market. Our stable, responsive market presence with underwriters who have the authority to make decisions is a differentiator. Hawaii homeowners premium grew by 9%, including a 12% rate increase. New business opportunities have slowed due to competitors expanding their appetite and the conclusion of a book rollover. However, our local team continues to win new business based on outstanding service and our reliable, long-tenured presence in Hawaii. Profitability rebounded with a quiet lost quarter following a busy first quarter with the Kona low wind events. We are pleased with marine results this quarter. The team grew premium by 7%, including a 1% rate increase in a market that is becoming increasingly more competitive. In a throwback to our founder, Jerry Stevens, this team demonstrates hustle. The broad definition of marine risk requires creative problem solvers to evaluate a variety of exposures presented. Our team produced a healthy underwriting profit based on consistent discipline in inland marine and improved results in a difficult cargo market. We renewed a couple of reinsurance agreements during the quarter, including marine, executive products, professional liability, and our earthquake surplus share treaty. Reinsurance market conditions were favorable, with stable coverage and rates flat to down on all treaties. We ended the first half of the year with an 86 combined ratio while growing 3% in an evolving market. We benefit from 61 years of underwriting experience in a variety of market conditions. Our experienced underwriters, claim professionals, and support teams are in constant communication to provide feedback and adjust our approach to take advantage of profitable growth opportunities. These are available within pockets of each of our segments.

As employee owners, our decisions on where to deploy our capitals are aligned. we are approaching the back half of the year with strength and confidence in our approach now i'll turn the call back over to the moderator to open it up for questions thank you the question and answer session will begin at this time please limit yourself to one question and one follow-up if you're using a speakerphone please pick up the handset before pressing any numbers should you have a question please press star one on your telephone if you wish to withdraw your question please press star one again. Your question will be taken in the order that it is received. Please stand by for your first question. Your first question comes from Michael Phillips with Oppenheimer. Michael, your line is open. Please go ahead.

Thanks, Sam. Good morning, everybody. Thanks for the time. I wanted to talk on the casualty growth if I could for a second. You mentioned umbrella and transportation both as some of the drivers this quarter, last quarter as well, I think. You've been taking a lot of rate in both of those two segments. I guess I want to get a sense of how much of the growth recently this quarter, last quarter, is rate-driven, but you've also mentioned a lot of new business opportunities. It makes me think that you're pretty optimistic about those two pieces in terms of growth going forward without much of an impact possibly on your margins. When I look at the casualty loss ratio, it's half. It's like 67 or so in change. accident loss ratio. That's higher than, you know, prior quarters, prior years. So I'm wondering about the growth opportunities in umbrella, casualty, and transportation, given the new business on the right years in. Thanks.

Great question, Michael. Thank you. I think we are seeing a lot of growth opportunities in those spaces, as you mentioned, and I appreciate you commenting on rate. If you look at auto rate overall, it was 10% for the second quarter. If look at all of our various types of commercial auto coverages that's down a bit from the first quarter but again some of our accounts in transportation which can be large we knew closer to expiring because they had great loss experience they bought into our loss control services and are improving their results and so that translates into them saving money on the renewal which is what we're looking for outside of that however i would say the transportation marketplace is disrupted. There are markets that we compete against where they are reducing their appetite, either in a particular geography or altogether, and that has resulted in us having more new business. For one thing, we are going out and seeing more producers, so we're really leaning into marketing activities. But also, some competitors are limiting the amount of limit that they're actually putting out, which, you know, like a public company, a public bus company, needs to purchase $5 million of limit, and if one of our competitors is only putting out $2 million of limit, that creates more work for the producer and the insured. And so our five-way and solution is very helpful. We answer that by offering more quotes, and those are binding.

If I could turn to the expense ratio for a second. Aaron mentioned in his comments some of the pressures from acquisition and investments. I guess given all that, the last couple quarters have been a little higher than expected. I guess trying to think about how to think about the expense ratio in the individual pieces over the near term. Thanks.

Yeah, I'll characterize the increase over last year, the 1.5% that I referenced increase or 1.5 points of the expense ratio increase. As two-thirds people related, you know, maybe one-third or half of that two-thirds is coming from incentive compensation structures. We've had strong performance in the first half of the year, strong equity market returns, which is, you know, supporting our book value growth. And then the other third is really acquisition cost, as I referenced, some of that being investment, some of that being mix of business and where the ultimate commission comes in on an overall basis. So that's how I would break it down.

Okay. Thank you, Aaron. I guess just last one, a quick short one on your buyback program. You know, a pretty good-sized buyback this quarter, $12 million at a pretty good price. It seems like maybe you got in in May when the price was good and maybe stopped. But could you maybe just use the opportunity to remind us if there is a philosophy on your buyback? Is it kind of selective repurchases? Or maybe could we think about a time period when you expect it to kind of be through the $250?

Yeah, well, first I'll say there's no formula. answer around any of this and by the time you know that program was authorized by our board and we got the infrastructure in place in order to actually have some activity transpire you know we were into kind of the first of june and so we really had about two weeks time frame before the quiet period started at the end of the quarter that we could transact in the market so it's a pretty short uh pretty short time frame and you know i'll say you know the primary aspect here is that we consider our share repurchase program is really a complementary form of return of capital and not necessarily mutually exclusive with with special dividends you saw the announcement of the special dividend and the authorization announced and and we we actually purchased some of our shares in the quarter. So there is a selective element of share repurchases on a forward basis and I do not have a time frame for you to exhaust what remains of that 250 authorization.

Okay, good. Thanks guys for your help.

Appreciate it. Thank you. Your next question comes from the line of Christian Getzoff with Wells Fargo. Christian, your line is open. Please go ahead.

Hi. Good morning. My first question is on excess casualty. A large national carrier that reported earlier in the month talked about excess casualty trends in the double digits. I guess, how do you feel confident about writing excess casualty given you said pricing was up about 7% and holding margins? Thank you.

Yeah, I would say, you know, our excess cashy book is specific to us is mostly construction business i'm not sure what all classes uh you know would be included in other people's books of business so when you look at our books specifically uh we believe uh you know that we are pushing rate where we can uh i would say construction business is overall a profitable business unit you see that within our uh book in terms of reserve releases that we continue to be able to recognize uh just the profitability that we see and so so there is some competitive pressure there. So, we have to balance, you know, getting rates with keeping our profitable book of business. And we do that by individually underwriting, as I mentioned in those accounts, trying to hold on to our renewals because we know them very well, and trying to make a best effort on new business to take advantage of that. If you look at our rate versus our trend, we're close. We're just keeping up with trends.

There's probably not a lot of excess that we're getting but we're comfortable with that giving our starting position so a lot of people talk about rate change i like to think about rate adequacy i want to look at the rate adequacy of that book we're comfortable where we're at i'll just add i'll just add to that this is craig um i mean just to be clear our excess casualty typically is first layer excess casualty about half of that is attaching above our own primary, which we are handling the claims. We're controlling the claims. So, that's how we get more confidence in someone that's participating in really high excess. They don't hear about the claims for quite some time. We usually hear about them fairly quickly.

And then just pivoting over to property, I guess, how are you guys thinking about, and this is particularly focused on away from Hawaii and Marin, but how are you thinking about growth and underlying margins in this segment? It seems pricing is continuing to decelerate and likely will continue to. And we've heard from some peers about potentially dropping picks for the sake of growth. And I'm just trying to get a sense of, like, how rate adequate is that book with these rate decreases and maybe how you're kind of thinking about it if you kind of look over the next one on?

Yeah, good question. So, if you look at rate, we have given back a little rate. We're, as I mentioned, we're on the second renewal for an account. So, you know, while people are tired of the soft market, I'm tired of the soft market, it actually hasn't been going on that long. So, we are just in the second renewal of an account. We gave back the rate last year. We're giving back rate again. We think our rates right now that we are quoting are in about the 2022 So we've reversed a couple of years, but they're still well above some historical points of time. We look at it by considering what all the costs are. So we have a benchmark pricing tool that's at the underwriter's desk where they can understand what that account is adding to our portfolio. So we look at expected losses, all the different costs that go into it, whether that's reinsurance or underwriting costs and technology costs and all that, in addition to a profit load, and we are actually still achieving our benchmark pricing rate, which means we're getting the targeted return that we're expecting that we want. Wraiths are just one factor, so we are paying more attention to the words. That's what matters when they happen.

Line is open. Please go ahead.

Thank you very much, Dr. Strong. Anything unusual or non-recurring there, or is this a good?

I think the foundations are in place for continuing to grow investment income should the rate environment hold. And, you know, today we're seeing 10-year rates up again. I think that's a solid backdrop for us overall as we put that next marginal dollar to work. I referenced the purchase yield side of the equation. That's probably 60 basis points above our current book yield. So to the extent that rates hold and the portfolio continues to grow, which has grown nicely, that should be a solid backdrop for us.

I appreciate that. Jen, on Inland Marine, that has been seemingly a good business for you and I think a good business for the industry as a whole. How do you think that's a moderate?

The marine market is already getting more competitive, And we're seeing that we used to get probably the upper single digits. Now we see where there can be a lot of things for our property people to pay attention to where people are trying to push. So during this part of the cycle, you know, it's not as much of an issue. You know, when there's a hard property market, you see things come back to the marine market. But right now, that is not the issue. Thank you.

I'll just add that Inland Marine is a huge space. So, you know, there's a lot of within there. We're focused on five or six of those. So, you know, we're focused on maybe a narrow and deep.

Very good.

Your next question comes from the line of Andrew Anderson with Jeffries. Andrew, your line is open. Please go ahead. Hey, good morning.

You had mentioned surety loss ratios are beginning to rise across the industry because you maybe talk about where you're seeing signs of that deterioration and how quickly you think the market typically responds here, whereas I don't think there's been a surety cycle in quite some time.

Well, you're right about that, Andrew. We've been patient to try to see a surety cycle, and it hasn't been coming around for quite a while. You know, we have some insight into where those industry losses are coming from, but, again, we have not seen them ourselves. So some surety results indicate that there are losses mainly on the construction side of the house, whether that's through regular large construction projects or some of the renewable energy projects. I've seen some commercial tree losses in the industry as well that are fairly large. Again, we see it kind of from the distance. So we hope that, you know, the cycle will occur so that we can take advantage of it. And for us, we want to keep our book clean so that we're not cleaning something up.

Aaron, if I put together some of your comments within casualty and the underlying loss ratio, it seems to be up 70 BIPs on a year-to-date basis compared to the first half, 25. And it looks like it did increase a little bit quarter over quarter in 2Q. Can you maybe just talk about some of the drivers there that has led to that change?

Yeah, so just a very slight increase when you look sequentially quarter to quarter, but the driver really comes down to a mix of business. as you think about where we've been growing in the first half of the year and some caution around those businesses in terms of a longer-term trend that certainly has gotten us to the point where we're driving rate in those businesses. You know, we want to make sure that our process is sound and we're reserving appropriately to reflect uncertainty in the business. So it really comes down to mix. is the driver of that underline.

So I'll just add that, you know, a lot of our growth, as we've talked about, is coming from personal umbrella and transportation. Obviously, that's auto, wheels-based businesses. Those are places, you know, that we're going to continue. Well, first of all, they're places we've been in for 30, 40 years and have outperformed the industry significantly over that time. But we're always going to be cautious when we're growing into products It's where we've seen at least historical severity, as Aaron said, and where legal system abuse is more prevalent. But, again, given we have a lot of confidence in our people, we wouldn't be leaning in unless we believed in our team and we believed in our business. But we're also going to be cautious when we do that, and that's just part of our history and part of how we do things.

Thank you.

Your next question comes from the line of Gregory Peters with Raymond James. Gregory, your line is open. Please go ahead.

Good morning. So you, in many instances, you talked about using that as a lever to offset competitive pricing pressures that you're seeing in the marketplace. And so I was hoping maybe you could give you a couple of examples.

So the most obvious one is in transportation where we literally provide services to our insurers through our loss control. So we have an in-house loss of our producers, and we ask them.

They're running their businesses. They're not running every little thing up the flagpole. They have to wait a month to see what home office says. They can get back to the broker. Sometimes that broker, by the way, that answer is no. We won't do that business. But a quick no is a lot of times better than a one-month-long yes or yes if. And at the end of the day, they like our people. I mean, they think our people are authentic. They're real people. you know people like doing business with people they like countrywide filing countrywide filing

infrastructure around it and so it's taking a bit more so that's why this one is like to ask a

question please press star one on your keypad if you'd like to withdraw a question please press star one again your next question comes from the line of mayor shield with keith brieff and woods Mayor, your line is open. Please go ahead. Great. Thanks so much.

A couple of questions just fits on comments. If the rating in the back half, does that mean that we should anticipate with the normal written earned lag a little bit more increase in the underlying loss ratio for casualty?

Mayor, Craig, I guess what I would say is, you know, first of all, you've got a lot of mixed things going on there. But two, obviously, we're going to update – the actuaries are going to update their estimates of prior years, you know, loss ratios, which is really the starting point by which we're going to be looking at things. But certainly, you know, there is – part of that is math, and if we're not getting the same level of rate, everything else being the same, and if we assume loss trend stays the same, it could potentially raise that. I mean, I couldn't really tell you, though. We haven't gone through that process for the – we do it twice a year. We do it going into the year and then mid-year. So we're about ready to start that process again, and we'll get all that information from the actuaries with their estimates going forward.

Okay. When we look at the property books now compared to, let's say, two years ago, is there a difference? Obviously, rates are lower. I think everyone gets that. but I'm trying to get a sense as to how much of your premium is basically there to cover attritional losses versus catastrophe and weather losses and how that's changed over the two years.

Well, let's see. I would say, you know, if you think about our mix today, we definitely, as we were growing, we were putting on more rate and exposure in the cap space than we were in the non-cap space. So if you think about, historically, our book of business, we used to, back 15 years ago, we used to have more of a concentration in the Midwest where you're not looking at hurricanes and earthquakes, you're looking more at hail, tornado, that kind of thing. And we wrote more habitational business. And we learned from that that there's a ton of losses and it's underpriced, the deductibles are an issue, there's a lot of coverage issues, a lot of old roofs that actually should be replaced for maintenance, and, you know, since they're not, all of a sudden we're replacing So from that experience, you know, we have long memory, and we still have shifted and maintained more of a concentration in the cat-exposed states, I'll say, and the cat meaning, you know, the hurricane and earthquake-exposed states more so than the middle of the country. So when you see events occur, like the spring storms, depending on where they occur, that's going to really impact what our potential loss is. If there are tornadoes in Florida, which does happen, you're going to see more of a loss than if there are tornadoes in Illinois, as an example. So I would say as you look at the premium now decreasing, obviously we're experiencing more of a decrease in the cat-exposed areas as well, and so probably more stable in the non-cat. That's my overall comment. I don't necessarily have that in front of me.

I mean, to help you with that a little bit, Mayor, is the, I mean, obviously the attritional loss ratio, fire-driven stuff, I'll call it non-hurricane, non-earthquake, is, that has a higher loss ratio on an expected basis. We have a lot more of a faster feedback loop. We hear about those claims a lot faster. They also work, they happen every month, right? We get some fire losses every month. So that loss ratio does tend to be higher. It's also less volatile, but so the cap portion has a lower expected loss ratio, although it's been increasing, obviously, with rates going down. So it's really, again, back to mix. It really depends on what that mix looks like going forward.

Okay, that's perfect. That's what I wanted to know.

Your next call comes from the line of Mark Hughes with Truist Securities. Mark, your line is open. Please go ahead.

Yeah, thank you. The seeded premiums in property, just looking at the, you know, four or five points year over year, is it going to be persistent? I think your seeded premiums have been down, or, you know, seeded premiums are 27%, 28% the last couple of years. Is the mix changing such that that's going to be, you're going to be seeding less premiums?

Well, Mark, as you recall, you know, on the property book, our largest reinsurance renewal is 1-1 of the year. So, for the calendar year, that's reflective of the current reinsurance structure in which pricing was down. And also, we bought less of a cat tower. And so that five-point differential, when you look at it compared to last year, should continue for the balance of this year. Everything will reach that 1-1 again, and we'll see where we're at then. But you are correct, at least for the next six months.

Yeah, very good. And then on the general corporate expenses, you talked about personnel expenses being up, maybe some extra compensation expense in there. On an underlying basis, what should the expense growth be in corporate?

Well, if you look back over time, that general corporate expense line has been fairly consistent unless we get a driver of incentive compensation that would drive something in a particular quarter, which is the case this quarter. But general corporate is fairly steady otherwise.

Yes.

Your next question comes from the line of Hirsten Gestahl with Fells Fargo. Hirsten, your line is open. Please go ahead.

Just one follow-up for me. Any additional color on how to think about the premium growth for Umbrella in the second half versus the 26% growth you saw in the Q2, just given your comment that the rate increases are going to moderate in the second half?

It's hard to predict. You know, our personal umbrella product has about over 500,000 insured, so, you know, the average premium isn't very big. So it takes a number of policies to move the needle, which shows you we are, you know, we have more policies on the books than we used to. So it's hard to say with the rate increases happening and the shift towards the inside of the country, you know, it could slow a bit, especially given the pause in some of the rate increases. But over the long term, we still think that that market has great opportunity. We've seen reports from other carriers where their books are not performing well at all. There's definitely a need for that coverage in the country and also generally for people who buy it, but they see that their personal rate increase is 100%, which we...

I'll just add that, I mean, the rate in and of itself should, I mean, will probably slow down, which have the growth but got a lot of disruption and as we've said before disrupt disruptions oxygen for our business so i think there's going to be lots of opportunity the question is going to be how comfortable we're going to be with that and where is that where are the opportunities if the opportunities are in let's say california or florida we probably aren't going to lean in quite as heavily as if they would be in montana or south dakota yeah it's not hard to put premium on the books but it's hard to put profitable premium on the books and that's what we're trying

to do great thank you your next question comes from the line of mayor shields with keith briette and woods mayor your line is open please go ahead thanks so much just a quick follow-up jen when you have uh brokers sending out submissions to like 40 markets does broker commission rate become a bigger part of the competition well as you know mayor people always want more commission so we are asked all the time about commission that is a factor it just depends you know there are a lot of factors in what see what can get bound and if you're not responsive to your producer you know they can't necessarily wait for those couple more points of commission they have to get it done They've got pull desks that they're working on many accounts. We try to balance, you know, we do give sometimes on standard commission, but it's just on an account basis, and, you know, we try to manage that along with all the other factors that we consider. So, yeah, you know, in the soft market, as the market softens, brokers are asking for more commission. I would point out that their margin tends to be bigger than ours, so it's hard for us to share more, but we try to be selective in how we do that.

Okay, understood. Thank you so much.

There are no further questions at this time. I will now turn the conference over to Mr. Craig Cleathermas for closing remarks.

Before we conclude, I'd like to leave you with one thought about what drives our company. Our culture comes down to two basic tenets. We are owners, and we care deeply. Ownership means underwriting for profit, continuously improving, and focusing on long-term value instead of short-term premium growth. If we can create attractive returns, we'll invest. If we can't, we'll return capital to our shareholders. That's how we've remained financially strong and present through hard and soft markets. And we care deeply. We help customers better manage risk. We stand behind our business partners and our products. We take pride in our company, and we challenge one another to improve every day. It's simple. Simple does not mean easy. Those tenants have guided RLI for more than 60 years, and they will continue to guide us through what comes next. They are the reason we are confident about the future. Thank you for your time, your thoughtful questions, and your continued confidence in RLI. We look forward to speaking with you again next quarter.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so on the 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.