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Here's Why Investors May Consider Betting on RLI Stock Now

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RLI Corp. (RLI - Free Report) has been gaining momentum, given rate increase, geographic expansion, higher net premiums earned and sufficient liquidity.

Growth Projections

The Zacks Consensus Estimate for 2022 and 2023 earnings per share is pegged at $4.35 and $4.45, indicating year-over-year increases of 12.4% and 2.3%, respectively.

Northbound Estimate Revision

The Zacks Consensus Estimate for RLI’s 2022 and 2023 earnings has moved 14.5% and 8.5% north in the past 30 days. This should instill investors' confidence in the stock.

Earnings Surprise History

RLI has a solid track record of beating earnings estimates in each of the last seven quarters.

Zacks Rank & Price Performance

RLI currently carries a Zacks Rank #1 (Strong Buy). In the past year, the stock has gained 9.5% compared with the industry’s increase of 1%. Solid segmental results and capital position are likely to help the stock retain the momentum.

Zacks Investment Research
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Business Tailwinds

Product diversification across the Casualty, Property, and Surety segments of RLI has fueled the insurer’s growth and financial success. The Casualty segment, which contributed the lion’s share of overall premium income in the first quarter of 2022, continues to gain from rate increases, expanded distribution base in personal umbrella, new production sources and geographic expansion.

The commercial property business has been gaining from higher rates on wind and earthquake exposures. Rate increases, improved retention and new opportunities in the inland marine space should benefit marine products.

The Surety segment continues to benefit from its compelling product portfolio, growth within existing accounts and writing bonds with new customers.

These improvements are likely to drive the top line of the insurer. The Zacks Consensus Estimate for the insurer’s 2022 and 2023 revenues is pegged at $1.23 billion and $1.39 billion, respectively, indicating a year-over-year increase of 16.7% and 13.6%.

Riding on improved leverage on the expense base, with the continued growth of net premiums earned, the expense ratio of RLI should improve.

In the first quarter of 2022, underwriting income nearly doubled from the year-ago period and the combined ratio improved 900 basis points year over year. Underwriting income should gain from benign weather-related losses in the Property segment, a modestly improved underlying loss ratio in the Casualty segment as well as continued favorable benefits from the prior year's loss reserves in all three segments.

In 2021, RLI achieved the 26th consecutive year of underwriting profitability. Positive current accident year results and favorable development in prior accident years’ loss reserves are likely to benefit the underwriting results of RLI.

Sturdy Balance Sheet

In the first quarter of 2022, RLI produced solid operating results and its financial position remained strong. Operating cash flows in the first quarter of 2022 gained from higher premium receipts. RLI expects the cash generated by operations and investments to provide sufficient sources of liquidity to meet the anticipated needs of the insurer over the next 12 to 24 months. The revolving credit facility, which has a borrowing capacity of $60 million, can be increased to $120 million under certain circumstances.

Impressive Dividend History

RLI has been paying dividends for 183 consecutive quarters and increased dividends regularly in the last 47 years. Dividends increased at a nine-year (2014-2022) CAGR of 4.2%. RLI currently yields 0.9%, which is better than the industry average of 0.4%. The insurer has also been paying special cash dividends since 2011 to return excess capital to shareholders.

Other Stocks to Consider

Some other top-ranked stocks from the property and casualty insurance sector are W.R. Berkley Corporation (WRB - Free Report) , American Financial Group, Inc. (AFG - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) . While W.R. Berkley currently sports a Zacks Rank #1, American Financial and Cincinnati Financial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.08%. In the past year, W.R. Berkley stock has increased 27.9%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 6.3% and 6.2% north, respectively, in the past 30 days.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 41.72%. In the past year, American Financial has rallied 13.4%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 9.8% and 6.9% north, respectively, in the past seven days.

The bottom line of Cincinnati Financial surpassed earnings estimates in each of the last four quarters, the average being 32.55%. In the past year, the insurer has rallied 6.9%.

The Zacks Consensus Estimate for Cincinnati Financial’s 2022 and 2023 earnings has moved 3.6% and 1.7% north, respectively, in the past 30 days.