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RLI's Improved Premium & Investment Income Drive Revenues

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RLI Corp. (RLI - Free Report) remains well poised on improved premium and investment income and prudent capital deployment.

RLI Corp’s return on equity was 11.8% in the trailing 12-month period, higher than the industry average of 6.5%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing its shareholders’ funds.

The company has a decent earnings surprise history. It surpassed estimates in three of the trailing four quarters, the beat being 12.88%, on average.

The Zacks Consensus Estimate for 2021 earnings per share is pegged at $2.40, indicating increase of nearly 2.1% from the year-ago reported figure.

Driving Factors

RLI Corp. has been witnessing consistent growth in revenues. Higher net premium earned and net investment income across the company’s segments have been driving revenues over the years.  Net premium earned in the Casualty segment witnessed CAGR of 8% in the last two years (2017-2019) while that of the Property segment witnessed CAGR of 8.9% of the same time frame. Compelling product portfolio, new products and business expansion are expected to maintain the momentum going forward.

Further, net investment income, an important driver of the top line, grew at a two-year CAGR of 12%. Despite the current low interest rate environment, a larger asset base will continue to drive net investment income.

RLI Corp. is one of the most profitable property and casualty underwriters, having a track record of underwriting profits in 38 of the past 41 years, particularly the last 23 years. The company’s profits are likely to be driven by strong local branch-office network, a wide range of product offerings, improved pricing and focus on specialty insurance lines.

RLI Corp. has a solid track record of paying out dividends. It paid out dividends in 170 consecutive quarters and hiked dividends in 44 straight years at a five-year CAGR (2014-2019) of 48.6%. In May 2020, it hiked its dividend by 4.3%, which marked the 45th straight year of dividend increase.  Its dividend yield of 1.2% is better than the industry average of 0.5%, making the stock an attractive pick for yield-seeking investors.

However, RLI Corp., being a property and casualty insurer, is exposed to catastrophes like hurricanes, earthquakes, floods, wildfires and volcanic eruptions, which result in earnings volatility.

RLI Corp. has been witnessing escalating expenses due to higher policy acquisition costs, insurance operating expenses, interest expense on debt and general corporate expenses. Expenses increased at a two-year (2017 -2019) CAGR of 4.16%. Such costs tend to weigh on the company’s margins.

Shares of this Zacks Rank #3 (Hold) property and casualty insurer have lost 6.4% in a year’s time, compared with the industry’s decline of 15.8%. The company’s policy to ramp up its growth profile and capital position should drive shares higher.


 

Stocks to Consider

Some better-ranked stocks in the same industry include National General Holdings Corp. , The Allstate Corporation (ALL - Free Report) and Palomar Holdings Inc. (PLMR - Free Report) . While National General Holdings carries a Zacks Rank #1 (Strong Buy), Allstate and Palomar carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

National General’s earnings beat estimates in two of the last four quarters and missed in the other two, the average positive surprise being 5.68%.

Allstate surpassed estimates in each of the last four quarters, with the average positive surprise being 18.45%.

Palomar surpassed estimates in two of the last four quarters, with the average positive surprise being 10.93%.

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