Who said property and casualty insurance had to be boring? Certainly not RLI (NYSE: RLI), which reported a simply stellar quarter after the bell yesterday. Analyst expectations for the fourth quarter were relatively tame, with consensus estimates calling for a 5% drop in revenue year-over-year, with earnings of $0.98 per share. What RLI reported was nothing less than a blowout: Revenue of $151 million, far exceeding even the high-end estimates, and earnings of $1.66. The company cited a very conservative approach to its underwriting and growth in its property and surety businesses as the prime reasons for the fantastic quarter.

If you're just tuning in now, though, you'd be missing a far greater story. This might be a great quarter, but if you examine RLI over a longer time, you'd see it's been steadily and rapidly moving in the right direction.

The combined ratio
Property and casualty insurers have a different way of looking at gross margins, called the combined ratio. It is essentially a measure of how profitable it is to underwrite policies, with anything more than 100 considered unprofitable. RLI has seen its combined ratio move progressively lower -- from 82.3 one year ago to 76.3 in the fourth quarter. In short, RLI's conservative approach to underwriting is leading to bigger profits and fewer claim-related expenses.

Margin insurance
The combined ratio tells us that RLI is making more money from its policies, but I think it's also important to look at RLI and see how it stacks up against other insurers in the sector.


Operating Margin (TTM)

RLI 29.7%
ACE Limited (NYSE: ACE) 24.4%
CNA Financial (NYSE: CNA) 12.2%
Travelers Companies (NYSE: TRV) 20.6%

TTM = trailing 12 months.

As expected, RLI appears to be a full step ahead of the competition. The industry operating margin is only 11.5%, and RLI is at nearly triple that level over the trailing 12 month period.

Premium dividend
RLI has been looking after shareholder value since it began paying out a dividend almost 35 years ago, having increased its quarterly payout 17 times in the past decade. It also recently returned $7 per share in the form of a special dividend to shareholders. Currently yielding 2.3%, its dividend appears to be a safe and steadily growing form of income.

Stop hitting the snooze button
This quarter marks the fourth time in the past five quarters that RLI has trounced analyst expectations. As long as you keep your revenue growth expectations in check, I feel RLI's performance might surprise you. Its dividend is rock solid, and its margins are growing leaps and bounds before our eyes. Do you still think insurance is boring -- because I don't!

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Fool contributor Sean Williams does not own shares in any companies mentioned in this article. The only umbrella policy he's familiar with is the one that keeps him dry. You can follow him on CAPS under the screen name TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that even the Gecko would be proud of.