RLI Corp. Ratings Affirmed – Analyst Blog

Last week, the rating agency A.M. Best has affirmed the financial strength rating of “A+” (Superior), the issuer credit rating (ICR) of “aa-” as well as the debt rating of RLI Corp. (RLI). The debt rating remains “a-” on $100 million 5.95% senior unsecured notes, due 2014. The ratings were based on RLI Group’s stupendous long-term operating profitability, strong capitalization and prudent property-casualty (P&C) business model.

Though above-average equity leverage coupled with sluggish financial markets kept RLI Group’s earnings under pressure, improved underwriting platform and cautious pricing discipline helped the company achieve excellent operating results.

On lowering its earthquake exposure, RLI Group limited its capitalization volatility and strengthened its capital position driven by an improved surplus. RLI Group has always focused on preserving capital and maintaining adequate liquidity to meet financial obligations. The debt-to-capital ratio of RLI Corp. at the end of the first quarter of 2010 was 10.5%, lower than 12.3% at the end of the first quarter of 2009.

The company also had favorable coverage ratios. RLI Corp’s strong balance sheet is further supported by a low level of financial leverage and strong fixed charge coverage ratios, providing significant financial flexibility to the operating subsidiaries.

With a strong network, diversified product offerings, and focus on specialty insurance lines, RLI Corp. continues to post underwriting profits. The company is also focused on expanding its business with new products in professional liability. Its conservative underwriting approach and reserving policy help it to achieve favorable reserve releases. Besides, RLI Corp. makes constant effort to enhance its shareholder value by increasing dividends as well as by repurchasing shares. These positives coupled with the affirmed rating will drive investor sentiment in favor of RLI Group.

Premium writings of RLI Corp. remained curtailed in the quarter, reflecting the continued soft environment in the Casualty segment. Also, the significant decrease in construction activity has affected the general liability business. In the Property segment, a mild catastrophe environment is pushing the rates down. Nevertheless, going forward, we expect the company’s underwriting discipline to bode well as the market stabilizes under restrictive premium growth.