RLI

RLI Corp ($RLI) Executives Buy $800K Worth of Shares Right After Downgrade - CEO Signals Market Missing Value

07/24/2025 21:29

RLI Corp ($RLI) is a 70-year-old specialty insurance company that has been recognized as one of the industry's top-performing companies for 35 consecutive years. Based in Peoria, the company generates stable returns through differentiated underwriting expertise in three main business segments: casualty, property, and surety insurance. In late January, RLI executives sent a powerful signal to investors through their coordinated actions. On January 24th alone, five key executives including CEO Craig Kliethermes simultaneously purchased large blocks of company stock. The CEO bought 5,000 shares worth $357,000, while the COO and CLO each purchased 2,000 shares worth approximately $144,000. This appears to be coordinated collective action rather than individual transactions, clearly demonstrating management's confidence in the company's future value. The timing of this collective buying is particularly noteworthy because it occurred just three days after Jefferies downgraded RLI from "buy" to "underperform" on January 27th, setting a price target of $61 representing a 15.8% downside. Jefferies cited concerns about increased competition and slower premium growth constraining EPS growth over the next two years. However, management directly countered this pessimistic external analyst view with the tangible action of stock purchases, sending a strong rebuttal message. Even more impressive was COO Jennifer Klobnak's additional purchase of 3,000 shares ($207,000) on July 24th. This transaction occurred right after Q2 earnings release, suggesting management maintains an optimistic long-term outlook despite some concerning indicators like slowing revenue growth and a worsening combined ratio. Particularly notable is that she made this personal investment despite recently mentioning "very aggressive" competition from MGAs in the Florida wind market during the conference call. RLI's recent performance suggests management's confidence isn't entirely unfounded. Q2 2025 adjusted EPS of $0.84 beat consensus of $0.75 by 12%, and net investment income increased 16% year-over-year to $39.42 million. While revenue slightly missed expectations and the combined ratio worsened to 84.5%, it remains well below industry averages. AM Best also revised RLI's A+ financial strength rating outlook to positive on January 30th, praising solid balance sheet fundamentals and prudent capital management. Investors should focus on changes in the underwriting environment going forward. While the E&S property market currently faces rate softening pressure due to oversupply, the casualty market shows signs of rehardening due to rising loss costs. RLI's casualty segment premiums grew 7% year-over-year in Q2, indicating continued growth momentum in the company's core area. If casualty market rate increases continue, RLI's profitability could improve faster than analysts expect. From a financial health perspective, RLI maintains a conservative capital structure with a debt ratio of 5.76% and cash holdings of $137 million, supporting consistent dividend growth. The company recently increased its quarterly dividend to $0.16 per share, a 6.7% increase, continuing its 50-year streak of dividend increases. With a payout ratio of just 17%, there's ample room for further dividend growth. However, investors should also consider several risk factors. The stock price has declined about 21% from its November 2024 high of $87.93, and intensifying competition in the property segment could constrain premium growth in the near term. Natural catastrophe loss volatility also remains a factor that could impact quarterly results. Overall, RLI management's successive share purchases reflect strong confidence in the company's intrinsic value and long-term growth prospects, contrasting with external analyst concerns. The collective buying immediately after the Jefferies downgrade particularly suggests management places greater weight on structural competitive advantages and profitability improvement potential rather than short-term market concerns. For long-term investors who share management's perspective, current price levels could present an attractive entry opportunity.