On Aug 14, 2014, we issued an updated research report on RLI
) delivered mixed second-quarter results with earnings of 66 cents
per share, in line with the Zacks Consensus Estimates but missing
revenues at the same. Notably, both the top and bottom lines
improved year over year on higher premiums and investment income.
Given the company's business expansion, along with stability in the
rate environment, it witnessed consistent solid growth in the gross
premium written over the years with Casualty Segment making the
The net premiums have also been continuously improving over the
years. With the company's effort toward new product initiatives and
increased exposure in mature product offerings, we expect RLI Corp.
to continue exhibiting top-line growth going forward.
Nevertheless, the low interest rate environment has weighed on net
investment income of RLI Corp. over the past few years. However, an
improvement in the net investment was witnessed in the second
quarter on the heels of a larger invested asset base and stable
However, increased expenses over the last few years have pressured
expansion of the company's operating margin. The debt level has
also been increasing and if this is not catered to in a timely
manner, the credit worthiness of RLI Corp. will suffer.
Being a property and casualty insurer, RLI Corp. is exposed to
catastrophic (CAT) occurrences. Over the years, the combined ratio
was improving due to the absence of CAT impact but in second
quarter, the company incurred a huge cat loss, thereby greatly
affecting its underwriting results and combined ratio.
Apart from engaging in share repurchases through continued dividend
hikes since 39 years, RLI Corp. remains committed to enhance its
shareholders' value. Over a period of five years, the company has
returned more than $625 million in the form of share repurchase and
dividends to shareholders.
RLI Corp. now has a sound capital structure, with an asset turnover
of 0.27 compared to the sector average of 0.02, followed by return
on equity of 15.62%, better than the industry average of 7.06%. The
company has a low financial leverage (16.27% on Jun 30, 2014),
which provides significant financial flexibility to the operating
RLI Corp.'s fluctuating cash balances over the years keeps us
cautious about its ability to meet its debt and liquidity
With respect to earnings trend, the company posted an earnings beat
in three of the last four quarters with an average beat of 27.69%.
The Zacks Consensus Estimate for 2014 is currently pegged at $2.41
while for 2015, it is $2.37. The expected long-term earnings growth
rate of the stock is 15%.
RLI Corp. currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked property and casualty insurers worth reckoning
include Endurance Specialty Holdings Ltd. (
), Global Indemnity plc (
) and Mercury General Corporation (
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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