RLI to Acquire Contractors Bonding - Analyst Blog

Through an acquisition of its holding company, Data and Staff Service Co., RLI Corp. (RLI) will acquire Contractors Bonding Insurance Company. RLI Corp. will pay a cash consideration of $137 million. The acquisition is expected to close in the first quarter of 2011 subject to regulatory approval.

The acquisition is expected to be accretive to earnings of RLI Corp. in the first year. The company also expects the acquisition will also provide new market and product expansion opportunities.

The acquisition will also offer Contractors Bonding's exclusive product to RLI Corp. thereby adding value to the later's operations.

During the third quarter of 2010, RLI Corp. had experienced a decline in premiums written, largely due to lower premiums written in the Casualty segment and the Surety segment. We expect this acquisition will broaden its client base and help it to write higher premiums in the upcoming quarter.

Seattle-based Contractors Bonding Insurance Company specializes in surety bonds and related niche property and casualty insurance products, operating in 13 regional branch offices serving over 30,000 contractors and over 4,000 insurance agents and brokers nationwide.

Additionally, following the announcement of the acquisition, rating agency A.M. Best Co. reaffirmed the financial strength rating of A+ (Superior) and issuer credit ratings of “aa-” of RLI Group.

ACE Limited (ACE) which competes with RLI Corp. is also acquiring companies. In the quarter till date, ACE Limited acquired New York Life's life insurance operations in Hong Kong and Korea for a cash consideration of $425 million and 100% of Jerneh Insurance Berhad in Malaysia, for $200 million, thereby expanding its footprint in Asia. 

The Zacks Consensus Estimate for fourth-quarter 2010 is $1.00 per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $4.65 per share and $3.75 per share.

We maintain our Neutral recommendation on RLI Corp over the long term. The quantitative Zacks #3 Rank (short term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.

Headquartered in Peoria, Illinois, RLI Corp., through its subsidiaries, underwrites property and casualty insurance primarily in the United States.

 
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