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RLI CORP 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Sterling Bancorp, Inc.

Filing date:

02/21/2025

TLDR:

RLI Corp. reported strong financial performance for 2024, with a net income of $345.8 million and a combined ratio of 86.2%. The company’s disciplined underwriting practices and diversified specialty insurance model continue to drive profitability.

ELI5:

RLI Corp. is like a specialized insurance company that made a good profit this year by being careful about who they insure and offering different types of insurance. They are doing well because they are good at managing risk and making smart investments.

Accession #:

0001558370-25-001301

Published on

Analyst Summary

  • Net income increased to $345.8 million in 2024 from $304.6 million in 2023.
  • Combined ratio remained strong at 86.2%.
  • Net premiums earned increased by 18% to $1.53 billion.
  • Investment income increased by 18% due to higher interest rates and a larger asset base.
  • Operating Profit Margin increased by 3.14% from previous year to 13.80%
  • Net Profit Margin decreased by 3.08% from previous year to 19.53%
  • Return on Assets increased by 3.73% from previous year to 6.40%
  • Return on Equity increased by 0.43% from previous year to 23.59%
  • Basic EPS increased by 13.17% from previous year to $3.78
  • Diluted EPS increased by 12.99% from previous year to $3.74
  • Current Ratio decreased by 15.31% from previous year to 1.66
  • Quick Ratio decreased by 15.31% from previous year to 1.66
  • Cash Ratio decreased by 37.04% from previous year to 0.51
  • Debt-to-Equity Ratio decreased by 7.04% from previous year to 0.066
  • Debt-to-Assets Ratio decreased by 5.26% from previous year to 0.018
  • Interest Coverage Ratio increased by 18.24% from previous year to 62.28
  • Days Sales Outstanding decreased by 11.66% from previous year to 55.07 days
  • Days Payable Outstanding decreased by 48.89% from previous year to 12.21 days
  • Asset Turnover increased by 7.69% from previous year to 0.28
  • Price-to-Earnings Ratio is 19.72
  • Price-to-Book Ratio is 4.50
  • Price-to-Sales Ratio is 3.86
  • Enterprise Value to EBITDA is 15.71
  • Revenue Growth is 17.09%
  • Net Income Growth is 13.52%
  • EPS Growth is 13.17%
  • Combined ratio for 2024 is 86.2%, indicating profitable underwriting.
  • Statutory Net Premiums Written to Policyholders’ Surplus is 0.90 to 1, which is considered conservative.
  • Net investment income increased from $120.4 million in 2023 to $142.3 million in 2024.

Opportunities and Risks

  • Expansion into new niche markets
  • Development of innovative insurance products
  • Leveraging technology to improve efficiency and customer service
  • Strategic acquisitions to enhance market presence
  • Cyclical changes in the insurance industry
  • Competition from other insurance companies
  • Potential downgrades in financial strength ratings
  • Extensive governmental regulation
  • Inadequate loss reserves
  • Catastrophic losses
  • Climate change and weather conditions
  • Reinsurance risks
  • Economic downturns
  • Technology breaches or failures
  • Epidemics, pandemics and public health outbreaks

Potential Implications

Company Performance

  • Continued underwriting profitability will support future growth.
  • Effective expense management will enhance financial performance.
  • Strategic capital allocation will drive shareholder value.

Stock Price

  • Consistent financial performance may positively influence stock price.
  • Industry-specific risks and market volatility could impact stock valuation.
  • Strong profitability metrics, such as ROA and ROE, significantly outperform industry averages, indicating efficient capital management and superior underwriting skills.

RLI Corp. (RLI) 10-K Filing Analysis – Fiscal Year Ended December 31, 2024

Executive Summary

This report analyzes RLI Corp.’s 10-K filing for the fiscal year ended December 31, 2024. RLI Corp. continues to demonstrate strong financial performance, marked by underwriting profitability, revenue growth, and effective capital management. The company’s diversified specialty insurance model and disciplined underwriting practices remain key strengths. While the insurance industry faces cyclical challenges and increasing competition, RLI’s strategic focus on niche markets and value-based service positions it favorably. A “Hold” recommendation is maintained, reflecting the company’s solid fundamentals and consistent performance, balanced against industry-specific risks and market volatility.

Company Overview

RLI Corp. is a specialty insurance company operating through its subsidiaries, collectively known as RLI Insurance Group. The company underwrites select property, casualty, and surety products, focusing on niche markets and tailored coverages. RLI operates in the specialty admitted, excess and surplus, and specialty reinsurance markets, distributing its products through wholesale and retail brokers, independent agents, and carrier partners.

Detailed Analysis

Financial Performance

RLI Corp. reported a net income of $345.8 million for 2024, compared to $304.6 million in 2023. The combined ratio remained strong at 86.2%, indicating continued underwriting profitability. Net premiums earned increased by 18% to $1.53 billion, driven by growth in the property and casualty segments. Investment income also contributed positively, increasing by 18% due to higher interest rates and a larger asset base.

Key Financial Ratios

  • Combined Ratio: 86.2% (2024) vs. 86.6% (2023)
  • Loss Ratio: 48.4% (2024) vs. 46.7% (2023)
  • Expense Ratio: 37.8% (2024) vs. 39.9% (2023)
  • Net Premiums Written to Surplus Ratio: 0.90 to 1 (2024) vs. 0.94 to 1 (2023)

The expense ratio improved, reflecting better leveraging of the expense base. The loss ratio increased slightly due to higher catastrophe losses and strengthening of casualty reserves, particularly in auto-related exposures.

Segment Analysis

Casualty Segment

Underwriting income decreased to $17.8 million in 2024 from $59.5 million in 2023, with a combined ratio of 97.9%. Growth in gross premiums written was offset by lower favorable reserve development and increased current accident year losses.

Property Segment

Underwriting income significantly increased to $167.5 million in 2024 from $86.3 million in 2023, with a combined ratio of 68.5%. This improvement was driven by higher earned premiums and lower catastrophe losses compared to the previous year.

Surety Segment

Underwriting income remained relatively stable at $25.3 million in 2024, with a combined ratio of 82.2%. The segment benefited from positive current accident year results and favorable reserve development.

Management’s Discussion and Analysis (MD&A)

Management emphasized the company’s disciplined underwriting practices and diversified product portfolio as key drivers of its consistent profitability. They acknowledged the competitive pressures in the insurance market and highlighted the company’s focus on maintaining underwriting standards and providing value-based service. The MD&A also addressed the impact of catastrophe losses and the importance of effective risk management.

Risk Factors

The 10-K filing identifies several risk factors that could affect RLI Corp.’s future performance, including:

  • Cyclical changes in the insurance industry
  • Competition from other insurance companies
  • Potential downgrades in financial strength ratings
  • Extensive governmental regulation
  • Inadequate loss reserves
  • Catastrophic losses
  • Climate change and weather conditions
  • Reinsurance risks
  • Economic downturns
  • Technology breaches or failures
  • Epidemics, pandemics and public health outbreaks

Opportunities

  • Expansion into new niche markets
  • Development of innovative insurance products
  • Leveraging technology to improve efficiency and customer service
  • Strategic acquisitions to enhance market presence

Conclusion and Actionable Insights

RLI Corp. demonstrates a strong financial position and consistent performance, driven by its disciplined underwriting practices and diversified specialty insurance model. The company’s ability to generate underwriting profits, manage expenses, and effectively allocate capital positions it well for future growth. However, investors should be aware of the inherent risks in the insurance industry, including cyclical pressures, competition, and potential catastrophe losses. The “Hold” recommendation reflects a balanced view of RLI’s strengths and the challenges it faces.

Recommendations:

  • Monitor the company’s combined ratio and loss ratio trends to assess underwriting profitability.
  • Evaluate the impact of catastrophe losses on the company’s financial performance.
  • Assess the company’s ability to maintain its financial strength ratings.
  • Track the company’s progress in expanding into new markets and developing innovative products.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin: Not applicable for insurance companies. Insurance companies derive revenue from premiums, not sales of goods.
  • Operating Profit Margin:

    • Ratio/Metric: Underwriting Income / Net Premiums Earned = $210,653 / $1,526,406 = 13.80%
    • Trend: Previous year Operating Profit Margin: $173,185 / $1,294,306 = 13.38%. Percentage change: ((13.80-13.38)/13.38) * 100 = 3.14%
    • Industry: The average operating margin for the property and casualty insurance industry is around 10-15%. RLI’s operating margin is within this range.
  • Net Profit Margin:

    • Ratio/Metric: Net Earnings / Total Consolidated Revenue = $345,779 / $1,770,384 = 19.53%
    • Trend: Previous year Net Profit Margin: $304,611 / $1,511,994 = 20.15%. Percentage change: ((19.53-20.15)/20.15) * 100 = -3.08%
    • Industry: The average net profit margin for the property and casualty insurance industry is around 8-12%. RLI’s net profit margin is significantly higher than the industry average.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Earnings / Average Total Assets = $345,779 / (($5,628,802 + $5,180,221)/2) = 6.40%
    • Trend: Previous year ROA: $304,611 / (($5,180,221 + $4,676,318)/2) = 6.17%. Percentage change: ((6.40-6.17)/6.17) * 100 = 3.73%
    • Industry: The average ROA for the property and casualty insurance industry is around 2-3%. RLI’s ROA is significantly higher than the industry average.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Earnings / Average Total Equity = $345,779 / (($1,521,967 + $1,413,514)/2) = 23.59%
    • Trend: Previous year ROE: $304,611 / (($1,413,514 + $1,177,341)/2) = 23.49%. Percentage change: ((23.59-23.49)/23.49) * 100 = 0.43%
    • Industry: The average ROE for the property and casualty insurance industry is around 8-10%. RLI’s ROE is significantly higher than the industry average.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Basic EPS = $3.78, Diluted EPS = $3.74
    • Trend: Previous year Basic EPS = $3.34, Diluted EPS = $3.31. Percentage change Basic EPS: ((3.78-3.34)/3.34) * 100 = 13.17%. Percentage change Diluted EPS: ((3.74-3.31)/3.31) * 100 = 12.99%
    • Industry: EPS varies widely. RLI’s EPS is strong compared to its peers.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Current Assets / Current Liabilities. Need to calculate current assets. Cash + Short-term Investments + Accrued Investment Income + Premiums Receivable = $39,790 + $74,915 + $28,319 + $230,534 = $373,558. Current Liabilities = Income Taxes Current + Short-term Debt + Accrued Expenses = $749 + $100,000 + $124,242 = $224,991. Current Ratio = $373,558 / $224,991 = 1.66
    • Trend: Previous year Current Ratio: Current Assets = $36,424 + $134,923 + $24,062 + $221,206 = $416,615. Current Liabilities = $3,757 + $100,000 + $108,880 = $212,637. Current Ratio = $416,615 / $212,637 = 1.96. Percentage change: ((1.66-1.96)/1.96) * 100 = -15.31%
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy for insurance companies. RLI’s current ratio is within this range.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Insurance companies do not typically have inventory. Quick Ratio = Current Ratio = 1.66
    • Trend: Previous year Quick Ratio = Current Ratio = 1.96. Percentage change: ((1.66-1.96)/1.96) * 100 = -15.31%
    • Industry: A quick ratio above 1.0 is generally considered healthy. RLI’s quick ratio is above 1.0.
  • Cash Ratio:

    • Ratio/Metric: (Cash + Short-Term Investments) / Current Liabilities = ($39,790 + $74,915) / $224,991 = 0.51
    • Trend: Previous year Cash Ratio: ($36,424 + $134,923) / $212,637 = 0.81. Percentage change: ((0.51-0.81)/0.81) * 100 = -37.04%
    • Industry: A cash ratio above 0.5 is generally considered healthy. RLI’s cash ratio is within this range.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Debt / Total Equity = $100,000 / $1,521,967 = 0.066
    • Trend: Previous year Debt-to-Equity Ratio: $100,000 / $1,413,514 = 0.071. Percentage change: ((0.066-0.071)/0.071) * 100 = -7.04%
    • Industry: A debt-to-equity ratio below 0.5 is generally considered healthy for insurance companies. RLI’s debt-to-equity ratio is very low, indicating low leverage.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Debt / Total Assets = $100,000 / $5,628,802 = 0.018
    • Trend: Previous year Debt-to-Assets Ratio: $100,000 / $5,180,221 = 0.019. Percentage change: ((0.018-0.019)/0.019) * 100 = -5.26%
    • Industry: A debt-to-assets ratio below 0.2 is generally considered healthy for insurance companies. RLI’s debt-to-assets ratio is very low, indicating low leverage.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense = ($345,779 + $81,772 + $6,331) / $6,331 = 62.28
    • Trend: Previous year Interest Coverage Ratio: ($304,611 + $72,654 + $7,301) / $7,301 = 52.67. Percentage change: ((62.28-52.67)/52.67) * 100 = 18.24%
    • Industry: An interest coverage ratio above 5 is generally considered healthy. RLI’s interest coverage ratio is extremely high, indicating a strong ability to meet its interest obligations.

Activity/Efficiency

  • Inventory Turnover: Not applicable for insurance companies.
  • Days Sales Outstanding (DSO):

    • Ratio/Metric: (Premiums and Reinsurance Balances Receivable / Net Premiums Earned) * 365 = ($230,534 / $1,526,406) * 365 = 55.07 days
    • Trend: Previous year DSO: ($221,206 / $1,294,306) * 365 = 62.34 days. Percentage change: ((55.07-62.34)/62.34) * 100 = -11.66%
    • Industry: DSO varies depending on the specific lines of insurance. RLI’s DSO is within a reasonable range.
  • Days Payable Outstanding (DPO):

    • Ratio/Metric: (Reinsurance Balances Payable / (Losses and Settlement Expenses + Policy Acquisition Costs + Insurance Operating Expenses)) * 365 = ($44,681 / ($739,253 + $464,040 + $112,460)) * 365 = 12.21 days
    • Trend: Previous year DPO: ($71,507 / ($604,413 + $418,325 + $98,383)) * 365 = 23.88 days. Percentage change: ((12.21-23.88)/23.88) * 100 = -48.89%
    • Industry: DPO varies depending on the specific lines of insurance. RLI’s DPO is within a reasonable range.
  • Asset Turnover:

    • Ratio/Metric: Net Premiums Earned / Average Total Assets = $1,526,406 / (($5,628,802 + $5,180,221)/2) = 0.28
    • Trend: Previous year Asset Turnover: $1,294,306 / (($5,180,221 + $4,676,318)/2) = 0.26. Percentage change: ((0.28-0.26)/0.26) * 100 = 7.69%
    • Industry: Asset turnover for insurance companies is typically low. RLI’s asset turnover is within a typical range.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Stock Price / EPS = $74.54 / $3.78 = 19.72
    • Industry: The average P/E ratio for the property and casualty insurance industry is around 15-20. RLI’s P/E ratio is within this range.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Market Cap / Total Equity = (91,738,132 * $74.54) / $1,521,967,000 = 4.50
    • Industry: The average P/B ratio for the property and casualty insurance industry is around 1-2. RLI’s P/B ratio is significantly higher than the industry average, suggesting that the company is overvalued.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap / Total Revenue = (91,738,132 * $74.54) / $1,770,384,000 = 3.86
    • Industry: The average P/S ratio for the property and casualty insurance industry is around 1-2. RLI’s P/S ratio is significantly higher than the industry average, suggesting that the company is overvalued.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: EV = Market Cap + Total Debt – Cash = (91,738,132 * $74.54) + $100,000,000 – $39,790,000 = $6,938,888,000. EBITDA = Net Income + Interest + Taxes + Depreciation = $345,779 + $6,331 + $81,772 + $7,664 = $441,546. EV/EBITDA = $6,938,888 / $441,546 = 15.71
    • Industry: The average EV/EBITDA ratio for the property and casualty insurance industry is around 10-15. RLI’s EV/EBITDA ratio is within this range.

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: ($1,770,384 – $1,511,994) / $1,511,994 = 17.09%
  • Net Income Growth:

    • Ratio/Metric: ($345,779 – $304,611) / $304,611 = 13.52%
  • EPS Growth:

    • Ratio/Metric: ($3.78 – $3.34) / $3.34 = 13.17%

Other Relevant Metrics

  • Combined Ratio: The combined ratio measures the profitability of an insurance company’s underwriting activities. A ratio below 100% indicates profitable underwriting. RLI’s combined ratio for 2024 is 86.2%, indicating profitable underwriting. This is slightly better than the P&C industry average of 98.3%. The combined ratio decreased from 86.6% in 2023.
  • Statutory Net Premiums Written to Policyholders’ Surplus: This ratio measures the amount of insurance risk the company is undertaking relative to its capital base. RLI’s ratio is 0.90 to 1, which is considered conservative.
  • Net Investment Income: Net investment income increased from $120.4 million in 2023 to $142.3 million in 2024, reflecting higher interest rates and effective investment management.

Commentary

RLI Corp. demonstrates a strong financial performance in 2024, characterized by profitable underwriting, as evidenced by a low combined ratio, and robust growth in revenue and net income. The company’s profitability metrics, such as ROA and ROE, significantly outperform industry averages, indicating efficient capital management and superior underwriting skills. While the net profit margin experienced a slight decrease, the overall financial health of the company remains robust. RLI maintains a conservative capital structure with low leverage and a strong ability to cover its interest obligations, positioning it well for future growth and stability.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️