RLI Corp. said it will assume business formerly underwritten by the Hawaii Property Insurance Association. RLI said that HPIA's board approved the transaction last week.

HPIA is an association set up by local insurers that covered homeowners who had difficulty finding insurance, such as those that live in lava zones, according to the state Insurance Division.

Peoria, Ill.-based RLI said its extensive property insurance business in California, the Gulf Coast and the East Coast, makes it well-suited for Hawaii's insurance market, which suffered huge losses from Hurricane Iniki hit in 1992. After the hurricane, several insurance companies stopped taking new homeowners policies.

RLI said that much of the risks of operating in the state are addressed by the Hawaii's Hurricane Relief Fund, the state fund set up to cover hurricane damage.

RLI said the new Hawaii office will be headed by Bruce Anderson, a veteran in the local property and casualty market.

Through its chief subsidiaries RLI Insurance Co. and Mt. Hawley Insurance Co., RLI underwrites selected property and casualty insurance products. For 1996, the company reported gross revenues of $302 million.