RLI Corp. Risks Fairly Balanced

RLI Corp.’s (RLI) operating earnings were $1.53 per share, well ahead of our expectations, attributed to a favorable reserve releases from prior accident years, despite property losses from floods in the Midwest. However, growth remains curtailed as premiums continue to decline due to overall rate softening, especially in the casualty segment.

Uncertainty in the economy and financial markets continued to negatively impact the investment portfolio and we remain concerned about the underlying credit quality of the municipal securities in its investment portfolio. Nevertheless, RLI’s expansion drive and new product launches partially offset some of these uncertainties, hence we reiterate our Hold recommendation.

The company recently announced the formation of its newest product group, RLI Fidelity, which will focus on financial fidelity and commercial crime insurance products. In addition, RLI is looking to expand its footprint across the board and with new products in the Surety and marine businesses. As a result, the marine division reported a significant increase of 49.6% in gross premiums written for 2Q08.

In July 2008, the company has again increased its quarterly dividend by approximately 9.0% to $0.25 per share. RLI increased its previously announced stock repurchase program by $100 million to $200 million in November 2007 and repurchased 318,600 shares for a total cost of $15.9 million in 2Q08 with $40.1 million still remaining (at June 30, 2008) under its current authorization. Going forward, we think that the company will be able to sustain this share repurchase program thus enhancing the value for its shareholders.

Read the full analyst report on RLI

Read the full analyst report on RLI