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Reasons Why Investors Should Consider Buying RLI Stock

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RLI Corp. (RLI - Free Report) has been raising investor optimism on the back of rate increases, improved retention, and a solid liquidity position.

Growth Projections

The Zacks Consensus Estimate for 2021 earnings per share is pegged at $3.38, indicating year-over-year increase of 30.5%.

Estimate Revision

The Zacks Consensus Estimate for 2021 and 2022 has moved 7.3% and 3.1% north, respectively in the past 30 days. This should instill investors' confidence in the stock.

Earnings Surprise History

RLI has a decent earnings surprise history. It beat estimates in each of the last four quarters, with the average being 155.21%.

Zacks Rank & Price Performance

RLI currently carries a Zacks Rank #2 (Buy). In the past year, the stock has rallied 14%, compared with the industry’s increase of 20.4%.

Zacks Investment Research
Image Source: Zacks Investment Research

Return on Equity (ROE)

The company’s ROE for the trailing 12 months is 12.3%, better than the industry average of 5.7%. This reflects the company’s efficiency in utilizing shareholders’ fund.  The company has averaged a 12.2% return on equity over the past 10 years.

Business Tailwinds

Product diversification has been driving its growth and financial success. Given an expanded distribution base in personal umbrella, rate increases, improved retention, growth of marine product, new production sources, geographic expansion, growth within existing accounts, and writing of bonds with new customers are likely to fuel the performances of the three operating segments, Casualty, Property, and Surety.

Banking on robust performance of Casualty, Property, and Surety segments, underwriting income should continue to improve.

By virtue of improvements in the current accident year loss ratio and higher level of favorable development in 2021, the loss ratio is likely to improve.

RLI has achieved 25 straight years of a combined ratio below 100, and has beaten the industry ratio by an average of 13 points over the last 10 years. This enables it to provide solid shareholder returns.

Operating cash flows should benefit from increased premium receipts and lower levels of loss and settlement expense payments. The insurer expects cash available from operations and investments as well as financing activities and other sources to provide sufficient sources of liquidity to meet the financial needs in the long run.

Furthermore, its access to a revolving credit facility ensures borrowing capacity of $60 million, which can be increased to $120 million if necessary. Additionally, its membership in the Federal Home Loan Bank system furnishes it with a secured lending facility with an aggregate borrowing capacity of around $30 million.

Courtesy of its solid financial strength, the property and casualty insurer engages in capital deployment to enhance shareholder value. In May 2021, RLI approved a 4.2% dividend hike that marked the 46th consecutive increase. Its current dividend yield of 0.9% is higher than the industry average of 0.4%.

The insurer has also been paying special dividends to its shareholders for the last few years. With special dividends, the company has returned over $1.1 billion in dividends over the last decade.

Other Stocks to Consider

Some other top-ranked property and casualty insurers include American Financial Group, Inc. (AFG - Free Report) , Everest Re Group, Ltd. (RE - Free Report) and W.R. Berkley Corporation (WRB - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of American Financial surpassed estimates in each of the last four quarters, the average being 52.82%.

Everest Re surpassed estimates in two of the last four quarters and missed in the other two, the average earnings surprise being 20.33%.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average being 16.51%.