Impact of Market Softening on Property and Casualty Segments
Management highlighted a 10% decline in Property gross premiums due to increased competition and rate pressure, especially on catastrophe-exposed business.
Casualty and Surety segments experienced growth, but Property's decline reflects a strategic shift away from less profitable lines amid market softening.
The company is emphasizing disciplined underwriting and selective growth, particularly in challenging segments like E&S Property and auto.
Despite headwinds, RLI remains optimistic about long-term opportunities, focusing on profitable niches rather than market share.
Management noted that rate decreases are primarily in specific lines like E&S Property and auto, with some segments still seeing rate increases to maintain profitability.
The company is actively managing exposure to natural catastrophe risks, including hurricane season, with a cautious approach to new business.
Core FFO per share for Q2 2025 was $0.55, down 11% year-over-year due to decreased same-store NOI and increased interest expense.
Expense growth was 4.6%, mainly from higher property taxes, marketing, repair and maintenance, and utilities, partially offset by lower personnel costs.
Net debt-to-EBITDA was 6.8x at quarter end, slightly improved from 6.9x in Q1.
Occupancy increased sequentially by 140 basis points in Q2 to 85%, further rising to 85.3% in July, narrowing the year-over-year occupancy gap.
RevPar improved for five consecutive months ending July, with the year-over-year decline narrowing from 4.2% in February to 1.6% in July.
Same-store NOI declined 6.1% year-over-year.
Same-store revenues declined 3%, driven by a 240 basis point drop in average occupancy and a 30 basis point decline in average revenue per square foot.
Management highlighted the stable macroeconomic environment with rates and spreads settling into ranges after initial shocks from fiscal debates and trade tensions.
The company maintains a focus on high carry production Agency MBS, with a portfolio concentrated in 30-year coupons, Ginnie Mae, and DUS pools, emphasizing positive convexity and short duration attributes.
Management sees current spreads as attractive, with potential for leverage increases as market stability improves, especially if the Fed resumes easing.
Dafinchi