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RLI's Improved Pricing & Underwriting Policy Drive Revenues

Zacks Equity Research

RLI Corp. RLI is well-poised for growth driven by focus on specialty insurance lines, impressive record of underwriting profits and solid capital position.

A compelling product portfolio, focus on new products, re-underwriting of several products, sturdy business expansion and operational strength drive improvement in premiums, which, in turn, aids the top line. RLI also has an impressive inorganic growth story.

Shares of RLI gained 30.1% in the first nine months, outperforming the industry’s increase of 5.5%. The company’s policy to ramp up its growth profile and capital position should continue to drive shares higher.


RLI 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.

The company has succeeded in maintaining a favorable combined ratio even amid a tough operating environment, which reflects its superior underwriting discipline. It has maintained combined ratio below 100 for 23 years and below 90 for 12 straight years, which is commendable. To retain the momentum, the company has dropped underperforming products from its property business.

A conservative underwriting and reserving policy continues to help insurers enjoy favorable reserve releases.

The company has a sound capital structure and engages in effective capital deployment. RLI has a solid track of paying out dividends for 170 consecutive quarters and hiking dividends for 43 straight years at a six-year CAGR (2013-2018) of 6.6%. This apart the company paid out special dividends for nine years in a row.

The company has a decent history of beating estimates in the last three quarters with the average being 146.50%.

However, RLI’s exposure to catastrophes like hurricanes, earthquakes, floods, wildfires and volcanic eruptions induces earnings volatility. Also, increase in expenses as a result of higher losses and settlement expenses and policy acquisition costs weigh on margin expansion.

Stocks That Warrant a Look

Some other insurance industry players include Hallmark Financial Services HALL, Palomar Holdings PLMR and RenaissanceRe Holdings RNR.

Hallmark Financial underwrites markets, distributes and services property and casualty insurance products in the United States. The company came up with average four-quarter positive surprise of 97.50%.

Palomar Holdings provides personal and commercial specialty property insurance products. The company delivered average four-quarter positive surprise of 25.00%.

RenaissanceRe Holdings provides insurance and reinsurance products in the United States and internationally. The company pulled off an average four-quarter positive surprise of 141.77%.

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