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RLI Corp Gains 10% in a Year: Will the Upside Continue?

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Shares of RLI Corp. (RLI - Free Report) have gained 9.7% in a year against the industry's  decrease of 1%. The Zacks S&P 500 composite has increase 5.6% in the meantime. With a market capitalization of $3.1 billion, average volume of shares traded in the last three months were 0.1 million.

What’s Behind the Upside?

RLI Corp. delivered positive earnings surprise in three of the last four quarters with the average beat being 144.08%.

This Zacks Rank #2 (Buy) insurer boasts an impressive record of underwriting profits in 38 of the past 41 years (particularly for last consecutive 23 years). This reflects superior underwriting discipline. In fact, in its effort to boost underwriting results, RLI Corp has decided to drop underperforming products from its property business.

The company has maintained combined ratio below 100 for 23 consecutive years and below 90 for 12 straight years.

The company delivered operating return on equity of 11%, up 280 basis points and better than the industry average of 7.2%. Return on equity is a profitability measure, identifying the company’s efficiency in utilizing its shareholders’ funds. 

The company has witnessed upward estimate revision of 2.3% and 1.4%, respectively for 2019 and 2020.

A compelling product portfolio, focus on new products, re-underwriting of several products, sturdy business expansion and operational strength have been aiding improvement in premiums.

The company also has an impressive inorganic growth story. Its strategic buyouts include Contractors Bonding Insurance Company, Rockbridge Underwriting Agency as well as a 20% stake in Prime Holdings Insurance Services, a specialty E&S company.

A conservative underwriting and reserving policy continues to help insurers enjoy favorable reserve releases.

The company also has a solid capital management policy in place. While the company has hiked dividend for the last 43 years, it has also been paying special dividend since 2011. Its dividend yield of 1.3% betters the industry average of 0.5%.

The Zacks Consensus Estimate for earnings and revenues for 2019 indicates year-over-year improvement of 9.8% and 6.2%, respectively.

Stocks to Consider

Some better-ranked stocks from the insurance industry include Arch Capital Group Ltd. (ACGL - Free Report) , Berkshire Hathaway Inc. (BRK.B - Free Report) and Torchmark Corporation .

Arch Capital Group provides property, casualty and mortgage insurance and reinsurance products worldwide. The company delivered positive surprise in all the last four reported quarters, with the average being 14.72%. The company has a Zacks Rank of 2. You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Berkshire Hathaway provides property and casualty insurance and reinsurance plus life, accident and health reinsurance besides operating railroad systems in North America. The company came up with positive surprise in three of the preceding four reported quarters, the average beat being 4.31%. The company is a Zacks #1 Ranked player.

Torchmark provides various life and health insurance products and annuities in the United States, Canada and New Zealand. The company pulled off positive surprise in three of the preceding four reported quarters, the average beat being 2%. The company holds a Zacks Rank #2. 

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