We are upgrading RLI Corp. (RLI) to Outperform as we believe the company will benefit from business expansion drive diversification into crop and other assumed property reinsurance. Also its extensive product offerings, strong local branch network and focus on specialty insurance lines is expected to aid top-line growth.
Its second quarter earnings outperformed the Zacks Consensus Estimate on better-than-expected premiums coupled with favorable reserve release. However, RLI continues to witness lower premiums in its Casualty segment, due to the continued soft environment in construction and transportation-related coverages.
Nevertheless, we expect the company’s underwriting discipline to bode well as the market stabilizes under a restrictive premium growth. RLI also scores strongly with rating agencies. Continued dividend increases and new share repurchase authorization further reflect solid capital position.