With the increase in awareness about the climate change, there has been a tremendous shift towards utilizing renewable energy sources (RES). In this regard, smart grid technologies have been presented to facilitate higher penetration of RES. Microgrids are the key components of the smart grids. Microgrids allow integration of various distributed energy resources (DER) such as the distributed generation (DGs) and energy storage systems (ESSs) into the distribution system and hence remove or delay the need for distribution expansion. One of the crucial requirements for utilities is to ensure that the system reliability is maintained with the inclusion of microgrid topology. Therefore, this paper evaluates the reliability of a microgrid containing prioritized loads and distributed RES through a hybrid analytical-simulation method. The stochasticity of RES introduces complexity to the reliability evaluation. The method takes into account the variability of RES through Monte- Carlo state sampling simulation. The results indicate the reliability enhancement of the overall system in the presence of the microgrid topology. In particular, the highest priority load has the largest improvement in the reliability indices. Furthermore, sensitivity analysis is performed to understand the effects of the failure of microgrid islanding in the case of a fault in the upstream network.