Best Affirms RLI Group’s ‘A+’ Ratings; Outlook Stable

June 1, 2010

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of RLI Group and its members. Best also affirmed the ICR of “a-” and debt rating of “a-” on $100 million 5.95 percent senior unsecured notes, due 2014 of RLI’s publicly traded parent holding company, RLI Corp. The outlook for all ratings is stable. All companies are domiciled in Peoria, Ill.

The ratings reflect “RLI’s outstanding long-term operating profitability, its superior capitalization and excellent business profile as one of the leading specialty property/casualty insurers in the United States,” said Best. The ratings also reflect the “financial flexibility afforded to RLI by RLI Corp.”

As offsetting factors, Best noted the group’s “above average equity leverage and the resulting susceptibility of earnings to the volatility of the financial markets.

“A well developed underwriting platform and strict adherence to established underwriting and pricing principles have helped drive RLI’s excellent historical operating results,” the bulletin continued. “In recent years, RLI has significantly reduced its earthquake exposure, which has helped limit potential volatility in its capitalization.

“During that time, organically generated earnings have fueled a considerable increase in reported surplus, strengthening the group’s capital position considerably. As an accomplished niche underwriting company, RLI has been able to maintain its strong operating results through focusing on markets considered underserved, thereby insulating it somewhat from the different stages of the market cycle. RLI’s investment philosophy has successfully focused on preserving capital and maintaining adequate liquidity to meet financial obligations.”

Best also pointed out that as of March 31, 2010, “RLI Corp.’s unadjusted debt to capital stood at a relatively modest 10.5 percent. Additionally, its coverage ratios, reflecting the ability of generated earnings to cover interest payments and overall fixed charges, were very favorable. The relatively low level of financial leverage and strong fixed charge coverage recognizes the considerable balance sheet strength of RLI Corp. and provides significant financial flexibility to the operating subsidiaries.”

RLI is a leading specialty lines insurer with operations conducted on an admitted and non-admitted basis throughout the United States. Principal lines of business include commercial property, facultative property, commercial and personal umbrella, general liability, commercial package, directors and officers, miscellaneous professional liability, fidelity, transportation, surety and marine. In January 2010, RLI also entered into an agreement to become a quota share reinsurer of multi-peril crop insurance and crop hail premium and exposure as well.

The FSR of ‘A+’ (Superior) and ICRs of “aa-” have been affirmed for RLI Group and its following members:
• Mt. Hawley Insurance Company
• RLI Indemnity Company
• RLI Insurance Company

Source: A.M. Best

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