RLI Corporation (RLI) - Bear of the Day

We are downgrading RLI Corporation (RLI) to Underperform based on higher expenses and lackluster performance of the Casualty segment, though third quarter earnings outperformed the Zacks Consensus Estimate. The Casualty segment was under pressure, owing to difficult economic conditions, especially in construction and transportation-related coverages.

We expect the company's underwriting discipline to bode well as the market stabilizes in a restrictive premium growth environment. RLI also scores strongly with rating agencies. Continued dividend increases and share repurchases further reflect a solid capital position.

Our six-month target price of $47.00 equates to 10.2x our earnings estimate for 2010. Combined with the annual dividend of $1.16 per share, this target price implies a negative return of about 8.8% over that period. This is consistent with our long-term Underperform recommendation on the shares.
 
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