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RLI Corp.’s RLI strong local branch office network, a broad range of product offerings, its focus on specialty insurance lines and an impressive record of underwriting profits poise the insurer for growth.
RLI has underperformed its industry in the past year. Earnings increased 18.8% over the past five years, underperforming the industry’s average of 19.3%.
Factors Favoring RLI
RLI continues to grow on product diversification. Its compelling product portfolio, focus on introducing new products, re-underwriting of several of its products, sturdy business expansion, sustained rate increase and expanded distribution poise this insurer well to generate an improved top line.
A conservative underwriting and reserving policy helps RLI achieve favorable reserve releases from the prior years despite incurring catastrophe losses.
RLI is one of the industry’s most profitable P&C writers, with an impressive track record of delivering 29 consecutive years of underwriting profitability.
This insurer has been enhancing shareholders' value by distributing wealth in the form of dividend hikes, special dividends and share buybacks. It boasts an impressive dividend track record. It has increased regular dividends in each of the last 50 years and paid special dividends since 2011, making the stock an attractive pick for yield-seeking investors.
The insurer has been strengthening its balance sheet by improving liquidity and leverage. A sound capital structure helps it meet the interests of its policyholders, enhance operations in the insurance sector and drive its book value for the long term.
RLI’s return on equity (“ROE”) has also been improving over the last few quarters, reflecting its efficiency in utilizing shareholders’ funds. The trailing 12-month ROE was 16.6%, which compared favorably with the industry average of 8.3%.
Concerns for RLI
Being a property and casualty insurer, RLI remains exposed to catastrophe loss stemming from earthquakes that primarily hit the West Coast and hurricanes in the Gulf and East Coast and Hawaii. This, in turn, induces underwriting volatility and weighs on its combined ratio.
RLI has been witnessing rising expenses over the years, primarily due to increasing loss and loss expenses that have been inducing margin contraction.
Return on invested capital (ROIC) has also been improving over the last few quarters while the insurer has been making investments, reflecting RLI’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 1.9%, which compares unfavorably with the industry average of 6.4%.