We retain our Outperform rating on RLI Corp. (RLI) as it continues to deliver consistent underwriting profit and remains focused on enhancing shareholders value.
RLI has generated underwriting profits in 31 of the last 35 years, including the last 16 consecutive years. A strong local branch office network, broad range of product offerings, and focus on specialty insurance lines appear to be the other contributors to the company’s superior profitability.
RLI Corp. has increased dividends for the past 36 years, the latest of which was a quarterly increase of 3.4% in May 2011. As of March 31, 2011, the company’s equity portfolio had a dividend yield of 2.7% compared with 1.8% for the S&P 500 index.
On the flip side, the Casualty segment was under pressure owing to difficult economic conditions, especially in construction and transportation-related coverages. General Liability, the largest product of the company under the Casualty segment, has remained soft over the past several quarters. Nearly 50% of the General Liability book relates to the construction industry.
RLI Corp. reported first-quarter 2011 operating earnings of $1.11 per share, beating the Zacks Consensus Estimate by 17 cents and were 18% ahead of 94 cents earned in the year-ago period. The improvement may primarily be attributable to lower expenses and better performance at the Property and Surety segment.
The Zacks Consensus Estimate for second-quarter 2011 is $1.09 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $4.18 per share and $4.09 per share.
RLI Corp. continues to benefit from its business expansion drive –diversification into crop and other assumed property reinsurance. Also, the company has acquired Contractors Bonding Insurance Company to remain focused on new market and product expansion opportunities. The acquisition will broaden its client base.
The quantitative Zacks #2 Rank (short term Buy rating) on the stock indicates upward directional pressure on the shares over the near term.
Headquartered in Peoria, Illinois, RLI Corp. is a specialty property-casualty (P&C) underwriter that caters primarily to niche markets through its main operating subsidiary, RLI Insurance Company. The company competes with ACE Limited (ACE), CNA Financial Corporation (CNA) and The Travelers Companies, Inc. (TRV).
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RLI CORP (RLI): Free Stock Analysis Report
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