Business & Finance
Business and Finance
Business and Finance
Mon, December 13, 2010
Sun, December 12, 2010
Fri, December 10, 2010 
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed RLI Corp's (NYSE:RLI) holding company ratings, including the senior debt rating at 'BBB+', as well as the Insurer Financial Strength (IFS) ratings of its operating subsidiaries at 'A+'. The Rating Outlook is Stable. See below for a complete listing of all ratings.
RLI's ratings reflect its solid capitalization and strong balance sheet following the expected special dividend payment of approximately $147 million on Dec. 29, 2010. The ratings also reflect continued strong operating performance despite persistent competitive insurance market conditions and a weak global economy.
RLI continues to maintain prudent underwriting discipline throughout the pricing cycle as demonstrated by an unwillingness to write business that fails to meet its profitability targets. RLI declared a special dividend to return capital to shareholders, which will be funded by its insurance company subsidiaries. Fitch has previously viewed RLI as being very strongly capitalized and believes its capital remains supportive of existing ratings, following the dividend.
Based on Fitch's estimate of run-rate earnings for the fourth quarter, RLI's proforma operating leverage - net premiums written to surplus - would increase to approximately 0.72x from 0.60 at year-end 2009. Net leverage - liabilities plus net premiums written to surplus - is expected to increase to approximately 2.5x from 2.09x at year-end 2009. While both capital measures remain better than most peer companies, RLI's profile dictates a greater capital requirement than peers in order to maintain current ratings, in Fitch's opinion.
Through Sept. 30, 2010, the surplus of RLI's primary insurance company increased 4% to $814 million reflecting solid earnings and a meaningful financial market recovery, slightly offset by dividends paid to the parent company. RLI reported an 82.2% combined ratio (which includes almost 15 points of favorable prior year loss reserve development) and earnings of $87 million through Sept. 30, 2010.
RLI's current rating is constrained by its size and limited resources in comparison to its peers, reliance on reinsurance, and exposure to catastrophe events, which is primarily related to west coast earthquakes and hurricanes in the gulf and east coasts as well as Hawaii.
Items that could cause a downgrade to RLI's ratings include the following:
--Significant deterioration in capitalization, such as operating and net leverage above 1.0 and 3.0, respectively;
--A significant and sustained deterioration in underwriting results (on both an accident and calendar year basis)
--A meaningful deterioration in reserve adequacy, such as adverse development that exceeds 5% of prior year surplus;
--A meaningful reduction in balance sheet strength, via financial leverage above 20% and/or a more risky investment profile;
--Catastrophe losses that exceed 20% of prior year surplus.
Fitch has affirmed the following ratings with a Stable Outlook:
RLI Corp.
--Issuer Default Rating (IDR) at 'A-';
--$100 million 5.95% senior unsecured notes due Jan. 15, 2014 at 'BBB+'.
RLI Insurance Company
Mt. Hawley Insurance Company
RLI Indemnity
--Insurer Financial Strength (IFS) rating at 'A+'.
Additional information is available at '[ www.fitchratings.com ]'.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Aug. 13, 2010);
--'Non-Life Insurance Rating Methodology' (March 24, 2010).
Applicable Criteria and Related Research:
Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766 ]
Non-Life Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369 ]
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