RLI Declares Special Div, Loss Est (CB) (RLI) (TRV)

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Going by its strategy to enhance shareholder return, property and casualty insurer RLI Corp. (RLI) has announced the payment of a special dividend of $5.00 per share coupled with a regular quarterly dividend of 32 cents per share. In aggregate, the company will be returning $1.05 million of cash to its shareholders. The dividends will be paid on December 20, 2012, to shareholders of record as of November 30, 2012.

RLI’s sound capital structure and strong operating cash flow enable it to make dividend payments. During 2011, RLI paid a special dividend of $5.00, lower than $7.00 paid in 2010. Its regular dividend payments were $1.19 per share, up 1.5% from $1.15 per share in 2010.

The company has been consistently increasing dividends over the past 37 years. The company has paid dividends for the past 144 consecutive quarters and has hiked its quarterly dividend by an average of 1.4% over the last 10 years. Over the last five years, the company has returned more than $570 million to shareholders in the form of share buybacks and dividends, both regular and special.

Over the past 10 years, RLI’s total return to shareholders has been significantly better than that of the S&P 500. The company has generated returns of 16.5% compared with 2.9% for S&P 500 over the 10-year period.

Despite a strong bottom line performance the company’s profitability gets marred by cat losses. In a separate development, the company announced that hurricane Sandy is expected to cause a pre-tax loss of approximately $15–$20 million, after deducting reinsurance reimbursements. These are, however, preliminary estimates and the actual loss may turn out to be more than the current projections. In 2011, the company incurred cat losses of $17.5 million.

As per available estimates, Hurricane Sandy is expected to cause damages worth $20-25 billion. The super storm is expected to impact insurance/reinsurance companies in varying degrees. We expect RLI peers like The Travelers Companies, Inc. (TRV) and The Chubb Corp. (CB) to announce their respective cat loss estimates soon.

RLI currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares.

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