Initiate on RLI at Hold with $79 PT. RLI Corp. is a specialty property & casualty insurance carrier operating in the casualty, property, and surety segments both in the US and abroad.
Investment paradox: We model +13%/+19% EPS outperformance vs The street in 2025/26 from an NII reset (Q1'25 +18% y/y, 50% of bond book repricing at 120bp above book rate = +$0.35-0.40/share), with margin tailwind from lower CAT reinsurance spend and conservative reserve strengthening de-risking underlying profitability and supporting our conviction in a +10% earnings CAGR and +19% ROE through 2026.
However, we see limited further fundamental improvement relative to The street estimates as RLI's high rate of growth is largely in the price: our PT applies a 20.8X multiple on forward P/E, well above peer medians but supported by underwriting discipline (CR 82.3%) and surplus capital, offset by headwinds impacting the sector including claims inflation and social inflation.
Key risks include adverse shock events and loss cost inflation, which could rapidly offset margin gains.
Bottom line: We see upside to The street estimates but view R/R as balanced as the investment income lever is fully valued and sector uncertainty remains.