Why Is RLI Corp. (RLI) Up 3.4% Since Last Earnings Report?

A month has gone by since the last earnings report for RLI Corp. (RLI). Shares have added about 3.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is RLI Corp. due for a pullback? 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 Q2 Earnings & Revenues Top Estimates on Solid Underwriting

RLI Corp. reported second-quarter 2022 operating earnings of $1.49 per share, beating the Zacks Consensus Estimate by 6.1%. The bottom line improved 36.7% 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 $301.3 million, up 16.9% year over year, driven by 17.3% higher net premiums earned and 10.5% higher net investment income. The top line beat the Zacks Consensus Estimate of $276 million by 0.9%.

Gross premiums written increased 17% year over year to $418.8 million. This uptick can be attributed to the solid performance of Casualty (up 5.1%), Surety (up 12.6%) and Property segments (up 47.8%).

Net investment income increased 10.5% year over year to $18.5 million.

Total expenses increased 10.1% year over year to $231.3 million, primarily due to higher policy acquisition costs, loss and settlement expenses, and interest expenses on debt.

Underwriting income of $56 million increased 53%, primarily due to the strong performance of the Property and Surety segments.

The combined ratio improved 460 basis points (bps) year over year to 80.2.

Financial Update

RLI exited the second quarter of 2022 with total investments and cash of $2.9 billion, down 7.3% from 2021 end.

Book value was $23.02 per share as of Jun 30, 2022, down 13% from the figure as of Dec 31, 2021.

Long-term debt was $199.8 million, flat from 2021 end.

Net cash flow from operations were $131.6 million, up 26.3% year over year.

The statutory surplus increased 0.7% from 2021 end to $1.12 billion as of Jun 30, 2022.

Return on equity was 14.4%, reflecting a contraction of 1030 bps year over year.

Dividend Update

RLI paid a quarterly dividend of 26 cents in the second quarter, an increase of 4%. RLI’s cumulative dividends total more than $510 million paid over the last five years.

Business Update

RLI has agreed to sell its minority interest in Maui Jim, Inc. and estimates net proceeds of about $500 million.  The final proceeds are to be determined at closing, based on adjustments to the purchase price for working capital and other items. The sale is expected to close in the second half of 2022

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward 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. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, RLI Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

RLI Corp. belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Progressive (PGR), has gained 15.2% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

Progressive reported revenues of $12.7 billion in the last reported quarter, representing a year-over-year change of +11%. EPS of $0.95 for the same period compares with $1.51 a year ago.

For the current quarter, Progressive is expected to post earnings of $1.24 per share, indicating a change of +785.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +6.6% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Progressive. Also, the stock has a VGM Score of B.

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