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Here's Why You Should Offload RLI Stock From Your Portfolio

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RLI Corp. (RLI - Free Report) has been witnessing downward revisions over the last 60 days, evident from its bearish Zacks Rank #4 (Sell). Catastrophe loss dragging the underwriting performance as well as increasing expenses will weigh on the company’s earnings results.

Estimate Revisions: The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 14.3% downward and for 2018, moved 0.5% south. The consensus mark for third and fourth-quarter 2017 reflects a year-over-year decline of 15.2% and 4.6%, respectively. While the full-year estimate represents a 25.2% slump.

VGM Score: RLI Corp. carries an unimpressive VGM Score of D. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. The stock has a Growth Score of C.

Share Price Performance: Shares of RLI Corp. have lost 8.6% in a year, lagging the industry’s growth of 17.1% as well as the S&P 500 index’s 18.8% gain.


Stretched Valuation: Looking at the company’s price-to-book ratio — the best multiple for valuing insurers because of large variations in their earnings results from one quarter to the next — shares are overpriced at the current level. The company has a trailing 12-month P/B ratio of 2.9, higher than the industry average of 1.6.

Factors Weighing on the Performance

Exposure to catastrophe events has weighed on underwriting profitability. A string of hurricanes and two Mexican tremors dragged insurers’ underwriting profits.  Underwriting income plunged 69.2% in the first nine months of 2017 compared with the same period in 2016, mainly due to underperformance at Property and Casualty. In fact, the third quarter marked the company’s largest net loss from a hurricane season, historically.

Combined ratio — a measure of underwriting profitability — has been deteriorating over the last few years.

The company has also been incurring higher expenses, hurting the operating income as well as the bottom line in turn. Expenses have been escalating on higher losses plus settlement and policy acquisition costs.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Infinity Property and Casualty Corporation , CNA Financial Corporation (CNA - Free Report) and NMI Holdings Inc. (NMIH - Free Report) .

Infinity Property and Casualty provides personal automobile insurance products in the United States. The company pulled off a four-quarter average beat of 300.65%. Shares of the company have rallied 20.9% year to date. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CNA Financial provides commercial property and casualty insurance products primarily in the United States. The company delivered a four-quarter average positive surprise of 39.78%. Shares of the company have gained 28.4% year to date. The stock sports a Zacks Rank of 1.

NMI Holdings provides private mortgage guaranty insurance services in the United States. The company came up with a four-quarter average positive surprise of 11.75%. Shares of the company have surged 65.3% quarter to date. The stock carries a Zacks Rank #2 (Buy).

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