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RLI Corp. Estimates Q3 Catastrophe Loss of $35M to $45M

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RLI Corp. (RLI - Free Report) estimates third-quarter 2020 catastrophe loss of about $35 million to $45 million before taxes, net of reinsurance. The loss can be attributed to Hurricane Hanna, Hurricane Isaias, Hurricane Laura and Hurricane Sally.

The Zacks Consensus Estimate for RLI Corp.’s third-quarter earnings is currently pegged at a loss of 53 cents, indicating a decline of 7% from the year-ago quarter reported figure.  We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

The third quarter of a year generally bears the brunt of catastrophes as the hurricane season typically starts in June and lasts through November during a year, gathering strength in August and September. In a report on Aug 5, 2020, Colorado State University stated that ‘hurricane activity will be about 190% of the average season’. There will be 24 named storms, including 12 hurricanes and six major hurricanes per CSU.

Being a property and casualty insurer, RLI Corp.’s major catastrophe exposure is to losses caused by earthquakes, primarily on the West Coast. Its second largest catastrophe exposure is to losses caused by wind storms to commercial properties throughout the Gulf and East Coast, as well as to homes in Hawaii. Catastrophe loss from storms and civil unrest were $6.5 million in the first half of 2020, wider than $5 million incurred in the year-ago period. However, combined ratio improved 70 basis points in the first half of 2020.

Combined ratio, which reflects its underwriting profitability, of this Zacks Rank #3 (Hold) specialty insurance underwriter has been exemplary. RLI Corp. has maintained combined ratio below 100 for 24 consecutive years and has beaten the industry ratio by an average of 14 points over the last 10 years. RLI Corp. seeks to limit net aggregate exposure to a catastrophic event by minimizing the total policy limits written in a particular region, purchasing reinsurance and maintaining consistent policy terms and conditions throughout insurance cycles. This solid track of maintaining the combined ratio at favorable levels even in the toughest operating environment reflects the company’s superior underwriting discipline.

Shares of RLI Corp. have lost 6.4% year to date compared with the industry’s decrease of 10.5%.

Recently, United Insurance Holdings Corp (UIHC - Free Report) estimates third-quarter 2020 catastrophe loss of about $135 million before income taxes or $107 million after tax, net of expected reinsurance recoveries. The loss can be attributed to six new named windstorms (Tropical Storm Fay, Hurricane Hanna, Hurricane Isaias, Hurricane Laura, Hurricane Marco, and Hurricane Sally) and other non-named windstorm catastrophe events.

Stocks to Consider

Some better-ranked companies in the insurance industry are Donegal Group (DGICA - Free Report) and Markel Corporation (MKL - Free Report) both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Donegal Group delivered an earnings surprise of 134.62% in the last-reported quarter.

Markel came up with an earnings surprise of 57.01% in the last-reported quarter.

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