On Wednesday, Wolfe Research initiated coverage on RLI Corp . (NYSE:RLI), setting an Outperform rating with a price target of $182.00. The firm highlighted RLI's exceptional underwriting and conservative approach as key drivers of the company's sustained outperformance in the industry.
RLI Corp. has been recognized for its superior underwriting profits and a consistent history of favorable development. The company's loss ratio is notably lower than that of its peers, while its expense ratio is higher, attributed in part to performance-based compensation. This strategic allocation of resources has been deemed a worthwhile investment by Wolfe Research, as it has led to a considerable outperformance in the combined ratio over time.
The analyst pointed out RLI's capital accretive business model, which has significantly contributed to economic value and total returns for the company. Since 2007, RLI has reported an impressive compound annual growth rate (CAGR) of 17% in total return and 18% in economic return. Moreover, the company's tangible book value (TBV) has grown at an average CAGR of 4% since 2007. Additionally, RLI has a remarkable history of increasing its regular dividends for 49 consecutive years and has returned $754 million to shareholders since 2019.
Wolfe Research emphasized that RLI does not rely on market share gains to drive growth, as it holds a relatively small portion of the property and casualty (P&C) market. The firm anticipates that RLI's market opportunity remains substantial and foresees no limitations to the company's ability to leverage its underwriting expertise to further revenue, earnings, and tangible book value growth, while continuing to generate alpha.
In other recent news, RLI Corp. has announced estimated pretax net catastrophe losses of $35 to $40 million due to Hurricanes Beryl and Helene, expected to impact the company's third-quarter financial results of 2024. In the same quarter, RLI Corp. reported a robust 11% growth in premiums and a combined ratio of 81.5, indicating strong underwriting profitability.
The Property, Surety, and Casualty segments all saw significant growth, with the Property segment growing by 6% due to initiatives in Marine and Hawaii Homeowners, and the Surety segment increasing by 17% driven by Contract Surety and renewable energy.
RBC Capital maintained its Sector Perform rating on RLI Corp with a steady price target of $155.00, noting the company's strong results and commendable underwriting. RLI Corp is also addressing challenges in the package business, particularly elevated auto loss activity, by implementing a strategy of increased rates and risk scrutiny.
Despite challenges in the primary business within the Casualty segment and the public D&O space in the Executive Products Group, RLI Corp anticipates continued organic growth by maintaining close relationships with producers.
Analysts observed that RLI Corp is expanding into market niches like moving and storage to counter competition in traditional trucking. They also highlighted RLI Corp's disciplined underwriting and diversified portfolio as key factors in its consistent financial outcomes.
InvestingPro Insights
RLI Corp.'s strong financial position and consistent performance, as highlighted in the Wolfe Research analysis, are further supported by recent data from InvestingPro. The company's market capitalization stands at $6.96 billion, reflecting its significant presence in the insurance industry. RLI's P/E ratio of 20.67 suggests that investors are willing to pay a premium for its shares, likely due to its strong track record and growth prospects.
InvestingPro Tips reinforce the company's financial strength and shareholder-friendly policies. One tip notes that RLI "has maintained dividend payments for 49 consecutive years," aligning perfectly with the article's mention of RLI's impressive dividend history. This consistency in dividend payments underscores the company's stable cash flows and commitment to shareholder returns.
Another relevant InvestingPro Tip indicates that RLI is "profitable over the last twelve months," with a robust operating income margin of 25.68% for the last twelve months as of Q2 2024. This profitability metric supports Wolfe Research's positive outlook on the company's underwriting performance and overall financial health.
For investors seeking more comprehensive insights, InvestingPro offers additional tips and metrics that could provide a deeper understanding of RLI's investment potential. Currently, there are 6 additional tips available on the InvestingPro platform for RLI Corp.
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