Solid Underwriting Drives RLI's Growth Even as Expenses Rise

Core Insights - RLI Corp. is well-positioned for growth due to its strong local branch network, diverse product offerings, focus on specialty insurance lines, and a solid record of underwriting profits [1] - Despite a strong performance in earnings growth over the past five years, RLI has underperformed the industry average [1] Factors Favoring RLI - RLI's product diversification strategy, including a compelling product portfolio and sustained rate increases, is expected to enhance its top line [2] - The company maintains a conservative underwriting and reserving policy, which has allowed for favorable reserve releases despite incurring catastrophe losses [2] - RLI has achieved 29 consecutive years of underwriting profitability, making it one of the most profitable property and casualty writers in the industry [3] Shareholder Value Enhancement - RLI has a strong track record of enhancing shareholder value through regular dividend increases, special dividends, and share buybacks, appealing to yield-seeking investors [4] - The company has increased regular dividends for 50 consecutive years and has paid special dividends since 2011 [4] Financial Strength - RLI is strengthening its balance sheet by improving liquidity and leverage, which supports its operations and long-term book value growth [5] - The return on equity (ROE) has improved to 16.6%, significantly higher than the industry average of 8.3% [5] Concerns for RLI - As a property and casualty insurer, RLI faces exposure to catastrophe losses from natural disasters, which can lead to underwriting volatility and affect its combined ratio [6] - Rising expenses, particularly from increasing loss and loss expenses, have been causing margin contraction for RLI [6] Return on Invested Capital - RLI's return on invested capital (ROIC) has been improving, but at 1.9%, it remains below the industry average of 6.4% [7] Key Industry Players - Other significant players in the insurance industry include The Progressive Corporation, Kingstone Companies, and Palomar Holdings, each with distinct strategies and growth prospects [8][10][11]