RLI Corp Poised For Long-Term Growth Despite Macro Risks

On Oct 4, 2016, we issued an updated research report on RLI Corp. RLI.

RLI Corp boasts a strong track record of underwriting profitability. The company has managed to maintain combined ratio below 100 for 20 consecutive years and below 90 for 11 straight years owing to superior underwriting discipline. The company continues to benefit from its strong local branch office network, broad range of product offerings and focus on specialty insurance lines.

RLI Corp has also been witnessing solid growth in net premiums written. We expect the momentum to continue on the back of the insurer’s diversified portfolio, operational strength and long-term approach to investing. Also, one third of the company’s product portfolio is related to the construction industry, which is gradually gaining traction and has solid growth prospects.  

Banking on its sound capital structure, RLI Corp. has increased dividends over the past 41 years. Hence, the company is an attractive pick for yield seeking investors. The company has a low financial leverage, which provides financial flexibility to its operating subsidiaries.

The insurer also scores strongly with credit rating agencies. Recently, A.M. Best reiterated the financial strength rating of A+ and issuer credit rating of “a” of the insurer.

However, RLI Corp. is a property and casualty (P&C) insurer and hence, remains exposed to catastrophe events. As a result, its underwriting results remain volatile.

The insurer has also been witnessing escalating expenses owing to a rise in loss and settlement expenses and policy acquisition costs. Also, a low interest rate environment continues to weigh on investment results.

Owing to the absence of any near-term catalysts, the Zacks Consensus Estimate remained unchanged at $2.37 for 2016 and $2.33 for 2017 over the last 60 days.

Stocks to Consider

Some better-ranked life insurers are National Interstate Corporation NATL, United Insurance Holdings Corp. UIHC and W.R. Berkley Corp WRB.

National Interstate, a specialty P&C insurance provider, has seen the Zacks Consensus Estimate moving up by 7.6% for 2016 and by 7.3% for 2017. The insurer sports Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

United Insurance sources, writes, and services residential and commercial P&C insurance policies in the U.S. The stock has seen the Zacks Consensus Estimate decline by 2.5% for 2016 but remaining unchanged for 2017. The insurer sports Zacks Rank #1

W.R. Berkley, one of the nation’s premier commercial lines P&C insurance providers, has seen the Zacks Consensus Estimate inch up 0.3% for 2016 but remaining unchanged for 2017. The insurer carries Zacks Rank #2 (Buy).

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