RLI Corp. (RLI) completed the acquisition of Contractors Bonding and Insurance Company for a cash consideration of $136 million. The acquisition was announced in the fourth quarter of 2010.

Seattle-based Contractors Bonding Insurance Company specializes in surety bonds and related niche property and casualty insurance products, operating in 13 regional branch offices serving over 30,000 contractors and over 4,000 insurance agents and brokers nationwide.

The acquisition is expected to be accretive to earnings of RLI Corp. in the first year. The company also expects the acquisition will also provide new market and product expansion opportunities.

The acquisition will also offer Contractors Bonding’s exclusive products to RLI Corp. thereby adding value to the later’s operations.

During the first quarter, RLI Corp. reported a year-over-year increase in premiums written on the back of higher premiums at Property and at Surety segment. We believe this acquisition will broaden its client base and further help it to write higher premiums in the upcoming quarters.

RLI Corp. reported a solid first-quarter on the heels of lower expenses and better performance at the Property and Surety segment.

The Zacks Consensus Estimate for second-quarter 2011 is $1.09 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $4.18 per share and $4.09 per share.

The company is focused on diversifying its product mix as well as expanding its product offering. The company pays dividend regularly. The company’s underwriting discipline is also expected to bode well given the stabilization in the markets.

In an effort to widen its exposure in the reinsurance marketplace, RLI Corp. has created a new Property Treaty Group within its RLI Reinsurance Division. We expect such new initiatives to add to the already existing operations thereby, enabling the company to fuel further growth. However, the Casualty segment is still affected by lower premium writings.

We maintain our Outperform rating on RLI Corp. The quantitative Zacks #1 Rank (short term Buy rating) on the stock indicates upward pressure on the shares over the near term.

Headquartered in Peoria, Illinois, RLI Corp., through its subsidiaries, underwrites property and casualty insurance primarily in the United States. It competes with ACE Limited (ACE), CNA Financial Corporation (CNA) and The Travelers Companies Inc. (TRV).

ACE LIMITED (ACE): Free Stock Analysis Report
CNA FINL CORP (CNA): Free Stock Analysis Report
RLI CORP (RLI): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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