Risk-Return Balances RLI Corp. - Analyst Blog

RLI Corp. ( RLI ) continues to benefit from its business expansion drive, extensive product offerings, strong local branch network and focus on specialty insurance lines. The company scores strongly with the rating agencies and remains focused on returning value to its shareholders through dividend increase and share buybacks.

However, these positives are somewhat dwarfed by RLI Corp's exposure to cat losses and pressurized Casualty segment. We thus remain Neutral on the company.

RLI Corp. is one of the industry's most profitable property-casualty writers with a strong local branch office network, broad range of product offerings, and focus on specialty insurance lines. Also, RLI Corp. remains focused on expanding its business with diversifying into new avenues. With business expanding, the company's gross premium written increased almost 17%. Also, underwriting profits in the third quarter increased 14 %.

RLI Corp. has increased dividends for the past 36 years and has also been paying dividends for 141 consecutive quarters. As of September 30, 2011, the company's equity portfolio had a dividend yield of 3.2% exceeding that of the S&P 500 index with a yield of 2.2%.

Recently, the board of RLI Corp. authorized a special dividend of $5.00 per share besides regular dividend. During the third quarter, the company spent $3.8 million in share repurchase with $87.5 million available un der its authorization.

On the flip side, RLI Corp. has exposure to commercial properties throughout the Gulfand East Coasts. Hurricane Irene in August had severely hit these areas. The total damage is estimated to be $7 billion while industry loss from Hurricane Irene is estimated to be approximately $3 billion. However, the company, by purchasing reinsurance, limits its loss, though it had to incur a $5.9 million pretax loss in the quarter.

The Casualty segment continues to feel the pressure of significant rate reductions. The significant reduction in construction activity, along with continued rate deterioration, had a negative impact on general liability gross premiums written.

RLI Corp. reported a strong third quarter with operating earnings surpassing the Zacks Consen sus Estimate as well as the year-ago results. The upside was primarily attributable to a significant improvement in Casualty underwriting income, which increased almost threefold over the prior year.

The Zacks Consensus Estimate for fourth-quarter 2011 is $1.13 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $5.39 per share and $4.35 per share.

We retain our Neutral recommendation on RLI Corp. The quantitative Zacks #3 Rank (short-term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.

Headquartered in Peoria, Illinois, RLI Corp. is a specialty property-casualty underwriter that caters primarily to niche markets through its main operating subsidiary, RLI Insurance Company. The company competes with ACE Limited ( ACE ), CNA Financial Corporation ( CNA ) and The Travelers Companies, Inc. ( TRV ).

ACE LIMITED ( ACE ): Free Stock Analysis Report

CNA FINL CORP ( CNA ): Free Stock Analysis Report

RLI CORP ( RLI ): Free Stock Analysis Report

TRAVELERS COS ( TRV ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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