Why Is RLI Corp. (RLI) Down 1% Since Last Earnings Report?

It has been about a month since the last earnings report for RLI Corp. (RLI). Shares have lost about 1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is RLI Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

RLI Q1 Earnings and Revenues Beat on Solid Underwriting

RLI Corp. RLI reported first-quarter 2022 operating earnings of $1.43 per share, beating the Zacks Consensus Estimate by 40.2%. The bottom line improved 64.4% from the prior-year quarter.

The quarterly results benefited from solid performance across all its segments and favorable reserve development, which aided underwriting results, and higher net investment income.

Operational Performance

Operating revenues for the reported quarter were $287 million, up 17.1% year over year, driven by 17.7% higher net premiums earned and 9% higher net investment income. The top line beat the Zacks Consensus Estimate of $276 million by 0.8%.

Gross premiums written increased 22% year over year to $359.2 million. This uptick can be attributed to the solid performance of Casualty (up 14.3%), Surety (up 47%) and Property segments (up 7.2%).

Net investment income increased about 9% year over year to $17.9 million.

Total expenses increased 5.5% year over year to $215 million, primarily due to higher policy acquisition costs, operating expenses, loss and settlement expenses, general corporate expenses and interest expense on debt.

Underwriting income of $59.5 million nearly doubled from the year-ago period, primarily due to the strong performance of the Property, Casualty and Surety segments.

The combined ratio improved 900 basis points (bps) year over year to 77.9.

Financial Update

RLI exited the first quarter of 2022 with total investments and cash of $3 billion, down 4.4% from 2021 end.

Book value was $25.45 per share as of Mar 31, 2022, down 6.2% from the figure as of Dec 31, 2021.

Long-term debt was $199.7 million, flat from 2021 end.

The statutory surplus increased 1.7% from 2021 end to $1.12 billion as of Mar 31, 2022.

Return on equity was 10.3%, reflecting a contraction of 1920 bps year over year.

Dividend Update

RLI paid a quarterly dividend of 25 cents in the first quarter. RLI’s cumulative dividends total more than $508 million paid over the last five years.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, RLI Corp. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise RLI Corp. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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