A.M. Best Co. reiterated the Issuer Credit Rating (:ICR) of ‘a’ of RLI Corp. (RLI). Concurrently, the rating agency reiterated the financial strength rating (:FSR) of A+ (Superior) and ICR of "aa" of the affiliates of RLI. It also reiterated the debt rating of "a" on $100 million 5.95% senior unsecured notes due 2014.
The ratings carry a stable outlook.
The rating affirmations account for the company’s continued improved operational performances, dominant market position with a distinctive product portfolio and sturdy capitalization. RLI Corp. could maintain a solid performance profile attributable to its focus on niche market that shield it from vicissitudes of conventional property/casualty market cycle. The ratings also account for moderate financial leverage and strong fixed charge coverage as well as financial support provided by the parent company.
However, earnings exposure to fluctuations in financial markets coupled with above average equity leverage dwarf the positives.
Moreover, A.M. Best reiterated the he FSR of A+ (Superior) and ICR of “aa-” of Contractors Bonding and Insurance Company (:CBIC) with a stable outlook. CBIC is a subsidiary of RLI Corp. that the company acquired in Apr 2011.
The ratings reflect the advantages CBIC enjoys being a part of RLI Corp. besides solid capitalization, sustained operating and underwriting growth profile and proven proficiency in the surety and small contractor market. However, restricted business profile and weak macro environment weighing on the profitability mute the positives to some extent.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence on the stock as well as maintaining credit worthiness in the market. Rating downgrades, therefore, adversely affect the business, apart from increasing the costs of future debt issuances.
Though there are remote chances of rating upgrades in the near term, erosion of capitalization and declining underwriting performances might subject the ratings to downgrade.
We believe that strong ratings will help RLI Corp. retain investor confidence and help it write more businesses going forward, thereby boosting results.
Recently, the rating agency avowed the ICR of "bbb" of Global Indemnity plc (GBLI). Concurrently, the rating agency reiterated the FSR of A (Excellent) and ICR of "a" of Wind River Reinsurance Company, Ltd. and its U.S. subsidiaries. Wind River is the subsidiary of Global Indemnity. These ratings carry a stable outlook.
RLI Corp. currently carries a Zacks Rank #3 (Hold). Property and casualty insurers HCI Group, Inc. (HCI) and Montpelier Re Holdings Ltd. (MRH) among others, carry a Zacks Rank #1(Strong Buy) and appear impressive.
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