Reviewing RLI (NYSE:RLI) and Brown & Brown (NYSE:BRO)

RLI (NYSE:RLI) and Brown & Brown (NYSE:BRO) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their institutional ownership, risk, analyst recommendations, dividends, valuation, earnings and profitability.

Institutional & Insider Ownership

77.9% of RLI shares are owned by institutional investors. Comparatively, 71.0% of Brown & Brown shares are owned by institutional investors. 2.4% of RLI shares are owned by company insiders. Comparatively, 13.1% of Brown & Brown shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Volatility & Risk

RLI has a beta of 0.38, meaning that its stock price is 62% less volatile than the S&P 500. Comparatively, Brown & Brown has a beta of 0.58, meaning that its stock price is 42% less volatile than the S&P 500.

Analyst Ratings

This is a summary of current ratings and price targets for RLI and Brown & Brown, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
RLI	2	4	1	0	1.86
Brown & Brown	1	14	4	0	2.16

RLI presently has a consensus target price of $63.20, suggesting a potential upside of 13.12%. Brown & Brown has a consensus target price of $76.60, suggesting a potential upside of 27.17%. Given Brown & Brown’s stronger consensus rating and higher probable upside, analysts clearly believe Brown & Brown is more favorable than RLI.

Earnings & Valuation

This table compares RLI and Brown & Brown”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
RLI	$1.88 billion	2.72	$403.34 million	$4.76	11.74
Brown & Brown	$5.90 billion	3.41	$1.05 billion	$3.17	19.00

Brown & Brown has higher revenue and earnings than RLI. RLI is trading at a lower price-to-earnings ratio than Brown & Brown, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares RLI and Brown & Brown’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
RLI	22.22%	17.61%	5.03%
Brown & Brown	17.75%	13.17%	5.56%

Dividends

RLI pays an annual dividend of $0.72 per share and has a dividend yield of 1.3%. Brown & Brown pays an annual dividend of $0.66 per share and has a dividend yield of 1.1%. RLI pays out 15.1% of its earnings in the form of a dividend. Brown & Brown pays out 20.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. RLI has increased its dividend for 51 consecutive years. RLI is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Brown & Brown beats RLI on 10 of the 17 factors compared between the two stocks.

About RLI

RLI Corp., an insurance holding company, underwrites property and casualty insurance. Its Casualty segment provides commercial and personal coverage products; and general liability products, such as coverage for third-party liability of commercial insureds, including manufacturers, contractors, apartments, and mercantile. It also offers coverages for security guards and environmental liability for underground storage tanks, contractors and asbestos, and environmental remediation specialists; and professional liability coverages for errors and omission coverage for small to medium-sized design, technical, computer, and miscellaneous professionals. This segment provides commercial automobile liability and physical damage insurance to local, intermediate and long haul truckers, public transportation entities, and other types of specialty commercial automobile risks; incidental and related insurance coverages; inland marine coverages; management liability coverages, such as directors and officers liability insurance, fiduciary liability and coverages, employment practice liability, and for various classes of risks, including public and private businesses; and home business insurance products. The company's Property segment offers commercial property, cargo, hull, protection and indemnity, marine liability, inland marine, homeowners' and dwelling fire, and other property insurance products. Its Surety segment offers commercial surety bonds for medium to large-sized businesses; small bonds for businesses and individuals; and bonds for small to medium-sized contractors. The company also engages in various reinsurance coverages. It markets its products through branch offices, wholesale and retail brokers, carrier partners, and underwriting and independent agents. RLI Corp. was incorporated in 1965 and is headquartered in Peoria, Illinois.

About Brown & Brown

Brown & Brown, Inc. is an insurance agency, wholesale brokerage, insurance program and service organization. It engages in the provision of insurance brokerage services and casualty insurance underwriting services. It operates through the following segments: Retail, National Programs, Wholesale Brokerage, and Services. The Retail Segment receives fees in lieu of commissions. The National Programs segment acts as a managing general agent and provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches. The Wholesale Brokerage segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as the company’s retail agents. The Services segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, social security disability and Medicare benefits advocacy services and claims adjusting services. The company was founded by J. Adrian Brown and Charles Covington Owen in 1939 and is headquartered in Daytona Beach, FL.