We issued an updated research report on RLI Corp. RLI on Sep 28.
RLI Corp. is well known as one of the most profitable property and casualty (P&C) writers. The insurer has generated underwriting profits in 35 of the past 39 years, in particular, the last 19 years. A strong local branch office network, broad range of product offerings and focus on specialty insurance lines have helped in this regard. Given the improving pricing scenario of the insurance market and widened product lines, we expect RLI Corp. to perform well in the coming quarters as well.
Moreover, the company has been witnessing an increase in top line over the last few years on consistent growth in net premiums earned. In terms of financial position, the company has a strong capital structure that supports it in meeting the interests of its policyholders, enhancing operations in the insurance sector and aiding growth in its book value for the long term.
A strong financial position has enabled the company to steadily pay dividends. RLI Corp. has been increasing dividends over the past 40 years. In May 2015, the company’s board approved a 5.5% hike in its quarterly dividend. The company has regularly paid dividends for 156 consecutive quarters and has returned more than $691 million in the last five years.
However, being a P&C insurer, the company remains exposed to catastrophe losses. The company’s business was affected by earthquakes that primarily hit the West Coast as well as damages to commercial properties throughout the Gulf and East Coast. Also, homes, which were damaged by hurricanes in the Gulf and East Coast and Hawaii, had a negative impact on the company’s business. Moreover, increased expenses on account of higher losses and settlement expenses as well as policy acquisition costs could weigh on margin expansion going forward.
Additionally, the low interest rate environment has been a headwind for net investment income over the past few years. Also, volatility in the cash position keeps us cautious of RLI Corp.’s ability to meet debt and liquidity needs going ahead.
In the last reported quarter, the company’s earnings per share surpassed the Zacks Consensus Estimate. Earnings also improved year over year on an improved top line coupled with lower expenses. Also, a strong and diversified product portfolio compensated for the adverse impact of non-renewal of crop reinsurance business.
RLI Corp. sports a Zacks Rank #1 (Strong Buy). Investors interested in the P&C space can also consider stocks like Cincinnati Financial Corp. CINF, Hallmark Financial Services Inc. HALL and Selective Insurance Group Inc. SIGI. All these sport the same Zacks Rank as RLI Corp.
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