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RLI Banks on High Premiums and Shareholder-Friendly Moves

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RLI Corp. (RLI - Free Report) has been riding on strong net premiums earned and improved investment income, which, in turn, have been boosting its top-line growth.

The company has an impressive surprise history. RLI surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 20.4%. The Zacks Consensus Estimate for current-quarter earnings has been revised 1.4% upward in the past 60 days.

Shares of the Zacks Rank #1 (Strong Buy) property and casualty insurer have gained 13.5% in a year, outperforming the industry’s decline of 4.7%.

 

 

What’s Driving RLI?

The company’s revenues continue to benefit from higher premium growth along with improved investment income. Its top line moved up 6.4% year over year in 2019. While net premiums earned improved 6% in 2019, net investment income increased 10.9% in the same time frame.

RLI has also maintained its combined ratio at favorable levels, even under the toughest operating environment. This reflects the company’s strength in underwriting profitability across two of its operating segments — Casualty and Property. Underwriting income in the segments soared 85.6% and 1922%, respectively, in 2019. Riding on such solid underwriting results, RLI’s combined ratio improved 280 basis points in 2019 to 91.9%. It also marked the company’s underwriting profits for 24 consecutive years.

Furthermore, the insurer believes in returning value to shareholders in the form of regular dividend payments. Its dividend payments, witnessing a CAGR of 48.6% in the last five years (2014-2019), consecutively increased in 44 years. RLI last hiked its dividend in May 2019 by 4.5%. The company has also been distributing special dividends to its shareholders for the past few years. Its dividend yield of 1.2% also lies above the industry average of 0.5%, making RLI an attractive stock for yield-seeking investors.

Additionally, the company’s trailing 12-month return on equity (ROE) of 12.1% compares favorably with 6.4% for the industry. This highlights RLI’s growth prospects along with the efficient utilization of shareholders’ funds.

We believe that the company’s strong fundamentals are likely to help retain its existing momentum in the long run.

Other Stocks to Consider

Some other top-ranked stocks in the same space are CNA Financial Corporation (CNA - Free Report) , First American Financial Corporation (FAF - Free Report) , and Cincinnati Financial Corporation (CINF - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

All three companies surpassed estimates in the last reported quarters by 6.59%, 33.33% and 10.81%, respectively.

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