Table of Contents

*Less than 1% of Class.

(1)        Unless otherwise noted, each person has sole voting power and sole investment power with respect to the shares reported.

(2)        Includes shares held by a bank trustee under an irrevocable trust established by the Company pursuant to the RLI Corp. Director Deferred Compensation Plan (“Deferred Plan”) for the benefit of the following: Mr. Baily 2,1992,241 shares; Mr. Blum 5,4025,506 shares; Mr. Graham 2,6314,634 shares; Mr. Lenrow 42,00745,159 shares; Mr. Linke 3,1175,386 shares; Mr. McPheeters 11,17812,066 shares; Mr. Sutkowski 79,42782,978 shares; and Mr. Viets 33,27834,629 shares. Each participating director has no voting or investment power with respect to such shares.

(3)        Includes 2,0003,000 shares held by Mr. Baily’s spouse as to which Mr. Baily claims beneficial interest.

(4)        Includes shares that may be acquired by the named persons within 60 days after December 31, 2007,2008, under the Directors’ Stock Option Plan for Outside Directors (“Director Plan”), upon the exercise of outstanding stock options as follows: Mr. Baily 4,233 shares; Mr. Blum 10,6647,664 shares; Mr. Lenrow 7,200 shares; Mr. Linke 5,407 shares; Mr. McPheeters 14,482 shares; Mr. Sutkowski 5,4008,482 shares;  and Mr. Viets 10,8007,200 shares.

(5)        Includes 200 shares held by Mr. Dondanville’s spouse in a custodian account for the benefit of their children, and 12,276 shares held in trust by Mr. Dondanville’s spouse, as to which Mr. Dondanville disclaims any beneficial interest.

(6)        Includes 956974 shares held by Mr. Lenrow’s spouse in a custodian account for the benefit of their minor daughter, as to which Mr. Lenrow disclaims any beneficial interest.

5

Plan, upon the exercise of outstanding stock options as follows: Mr. Dondanville 168,018119,600 shares; Mr. Kennedy 3,5997,999 shares; Mr. Kliethermes 1,0003,800 shares; Mr. Michael 306,026 shares; Mr. Stephens 108,738250,201 shares; and Mr. Stone 174,97287,300 shares.

(11)Includes shares allocated to the named persons which shares are held by a bank trustee under an irrevocable trust established by the Company pursuant to the Deferred Agreement for the benefit of the following: Mr. Dondanville 8,5178,681 shares; Mr. Kennedy 102 shares; Mr. Kliethermes 5361,915 shares; Mr. Michael 14,11714,390 shares; Mr. Stephens 15,06611,508 shares; and Mr. Stone 17,31117,645 shares. Each participant has no voting or investment power with respect to such shares.

(12)Includes shares held in margin securities or pledged asset accounts at brokerage firms.  At December 31, 2007,2008, the following number of shares were held in such accounts: Mr. Michael 141,137168,813 shares; and, Mr. Stone 74,636Sutkowski 21,000 shares.

The information with respect to beneficial ownership of Common Stock of the Company is based on information furnished to the Company by each individual included in the table.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (“1934 Act”), requires the Company’s directors, executive officers and beneficial owners of more than 10 percent of the Common Stock of the Company to file with the SEC certain reports regarding their ownership of Common Stock or any changes in such ownership. In addition, officers, directors and greater than 10 percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms that they file.

Based solely on its review of the copies of such reports received by it, and/or written representations from certain reporting persons, the Company believes that, during the year ended December 31, 2007,2008, the reporting persons have complied with all filing requirements of Section 16(a) of the 1934 Act.

Proposal One:

Election of Directors

General.The Company’s Board of Directors currently consists of 1112 persons, divided into three classes (Class I, Class II and Class III). At the Company’s 2008 Annual Shareholders’ Meeting held on May 1, 2008, the Company’s Shareholders voted on and approved an amendment to the Company’s Restated Articles of Incorporation (“Articles”) to declassify the Board on a phased-in basis.   The Board’s Class III directors elected at the 2008 Annual Meeting four (4)(Messrs. Baily, Graham, Lenrow and Stephens) were elected for a three-year term expiring at the 2011 Annual Meeting and will stand for one-year terms thereafter. The election of the Class III directors will be the last three-year term for any director. The Board’s Class I directors, standing for election at this year’s Annual Meeting, will stand for a one-year term.    The Class II directors will continue to hold office until the end of the term for which they were previously elected, (i.e., until the 2010 Annual Meeting), and will stand for one-year terms thereafter. Thus, commencing in 2011, all directors will be elected on an annual basis for one-year terms, and at that time the Board will cease to be classified.

At this year’s Annual Meeting, three (3) Class I directors are to be elected, each to hold

8

office for a three-yearone-year term or until a successor is elected and qualified unless that director dies, resigns or is removed prior to that time. Directors whose terms do not expire this year will continue to serve. Unless otherwise instructed, the shares represented by a proxy will be voted for the election of the fourthree nominees named below. Assuming the presence of a quorum at the Annual Meeting, the affirmative vote of a plurality of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote is required for the election of directors. Votes will be tabulated by an Inspector of Election appointed at the Annual Meeting. Shares may be voted for, or withheld from, each nominee. Shares that are withheld and broker non-votes count towards establishment of a quorum but have no effect on determinations of plurality and thus will not affect the outcome of the election. There is no cumulative voting for the

6

GeneralGeneral. .  The Company’s Board of Directors has unanimously approved, subjectand submits for authorization and approval of shareholders, a proposal to shareholder approval, the amendment and restatementamend Article Four of the Company’s ExistingRestated Articles of Incorporation (“Articles”) to make several important changes, which are embodied inincrease the number of shares of authorized Common Stock from 50 million shares to 100 million shares (the “Proposed Amendment”). The revised Articles reflecting the Proposed Articles. Copies of the Existing Articles, whichAmendment are markedattached to show proposed changes, and of the Proposed Articles are being provided to you along with this Proxy Statement as Exhibit “A” and Exhibit “B”, respectively. We encourage you to read the Proposed Articles carefully and in their entirety and to compare them to the Existing Articles. The Proposed Articles also include amendments that the shareholders are voting upon separately under Proposals Two and Four through Six. Approval of this proposal is not contingent upon, nor will it be affected by, approval or disapproval of Proposals Two and Four through Six.“A.”

Increase in Authorized Shares. Shares of Common Stock.  The Company’s Existing Articles currently authorize the issuance of a total of 50,000,00050 million shares of Common Stock, par value $1.00 per share, and 5,000,0005 million shares of Preferred Stock, par value $0.01 per share.share, for a total of 55 million shares.  The Proposed Articles would increase the total number of authorized shares of capital stock to 205,000,000 shares andAmendment would increase the number of authorized shares of Common Stock from 50 million to 200,000,000 shares100 million (the “Share Increase”). The Proposed Articles do not contemplate an and thereby increase in the number of shares of Preferred Stock, and therefore the total number of authorized shares of all capital stock wouldfrom 55 million to 105 million shares.  The Proposed Amendment does not propose an increase in the amount of authorized shares of Preferred Stock, or make any other changes to 205,000,000 shares. See Article Four, Paragraph 1 of the Proposed Articles for these changes

Articles.  As of March 7, 2008, 21,677,5659, 2009 (record date), 21,603,175 shares of Common Stock were outstanding (32,131,459 shares were issued and outstanding if treasury shares are included), and no shares of Preferred Stock were outstanding.  As of December 31, 2007, 843,552March 9, 2009, 564,867 shares of Common Stock were reserved for issuance pursuant to the Company’s Omnibus Stock Plan.  The number of shares to be issued upon exercise of outstanding options as of March 9, 2009, is 1,407,518.

The Share Increase will constitute additional authorized but unissued shares of the existing Common Stock and, if and when issued, will have the same rights and privileges as the shares of Common Stock currently authorized.  The Share Increase only increases our amount of authorized shares, but will not alterincrease the current number of issued and outstanding shares.

The Share Increase would enable the Company, without further shareholder approval, (unless shareholder approval is required by law, the SEC or under the rules of the NYSE) to issue shares from time to time as may be required for various purposes.  The purposes contemplated by Company management and the Board of Directorsfor the additional authorized shares include business and asset acquisitions,potential stock splits, stock dividends, mergers and dividends,acquisitions, present and future employee benefit programs (including stock option plans), raising additional capital for ongoing operations, and other general corporate purposes.  The current number of authorized shares of Common Stock was established in 1996,13 years ago (in 1996), and has not been increased since then.  The increaseCompany management and the Board believe the Share Increase is reasonable and advisable in view of our growth and capital structure needs since that time.time, and to support the Company’s future corporate growth.  For example, with the current number of available common shares, the Company could not accomplish a 2-for-1 stock split and retain a reasonable cushion of available common shares thereafter.  Likewise, a combination of other potential beneficial uses of stock — such as stock dividends, use in acquisitions or raising capital, stock options, etc., — could be impaired by the lack of available shares or reduce the available share cushion to unacceptably low levels.  As the Company has grown over time, its capital structure and needs for capital stock have grown as well.  Company management and the Board believe it is prudent to enhance its capital structure at this time so that it has the flexibility to prepare for, and adapt to, future corporate stock needs.  The Company has no present plans or understandings for issuance of any of the newly-authorized

12

Table of Contents

shares of Common Stock.

The Share Increase could have a number of effects on the Company’s shareholders, depending upon the exact nature and circumstances of any actual issuances of these authorized but unissued shares. These effects are described further below.

Anti-Takeover Effects of the Proposed Amendment to Increase Authorized Shares. Shares of Common Stock.The Share Increase and the subsequent issuance of such shares could have the effect of delaying or preventing a change of control of the Company without further action by the shareholders.  SharesFor example, shares of authorized and unissued Common Stock could (within the limits imposed by applicable law) be issued in one or more transactions that would make a change of control of the Company more difficult, and therefore less likely. The additional authorized shares couldor be issued to discourage persons from attempting to gain control of the Company, by diluting the voting power of shares then outstanding.Company.

In addition, the Share Increase authorized by the proposed amendmentProposed Amendment could permit the Board of DirectorsCompany to issue Common Stock to persons supportive of management’s position. Such persons mightposition, who may then be in a position to vote to prevent or delay a proposed business combination that is deemed unacceptable to the Board of Directors, although perceived to be desirable by some shareholders. Any such issuance could provide management with a means to block any vote that might be used to effect a business combination in accordance with the Proposed Articles.Directors.  Similarly, the issuance of additional shares to certain persons allied with the Company’s management could have the effect of making it more difficult to remove the Company’s current management by diluting the stock ownership or voting rights of persons seeking to cause such removal.  Likewise, shares could be used to facilitate the

11

Proposal Six:
Amend the Company’s Amended and Restated ArticlesTable of Incorporation to
Reduce the Shareholder Vote Required for Asset Sale Transactions

ContentsGeneral. The Company’s Board of Directors has unanimously approved, subject to shareholder approval, the amendment and restatement of the Company’s Existing Articles to make several changes which are embodied in the Proposed Articles. Copies of the Existing Articles, which are marked to show proposed changes, and of the Proposed Articles are being provided to you along with this Proxy Statement as, Exhibit “A” and Exhibit “B”, respectively. We encourage you to read the Proposed Articles carefully and in their entirety and to compare them to the Existing Articles. The Proposed Articles also include additional amendments that the shareholders are voting upon separately under Proposals Two through Five. Approval of this proposal is not contingent upon, nor will it be affected by, approval or disapproval of Proposals Two through Five.

The Proposed Articles include reduction of the shareholder voting level required to approve asset sale transactions (“Vote Reduction”) and other minor clerical revisions.

Reduction of Vote Required for Asset Sale Transactions. The proposed Vote Reduction changes in Article Seven of the Existing Articles revise the shareholder vote required for approval of sales of all or substantially all of the Company assets from a supermajority vote down to a standard majority vote. The Existing Articles currently permit a standard majority shareholder vote for mergers and other business combinations, and this proposed change harmonizes the shareholder vote requirement for both types of transactions.

Recommendation of the Board of Directors. The Board of Directors has unanimously approved the Proposed Articles and has determined that the Vote Reduction is in the best interests of the Company and its shareholders.

The Vote Reduction as manifested in the Proposed Articles shall only be effectuated and effective if shareholder approval is secured; if such shareholder approval is not secured, the Vote Reduction shall not be effectuated.

The affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock of the Company is required for adoption of this proposal.

The Board of Directors recommends the shareholders vote “For” Proposal Six and the Amendments to the Company’s Amended and Restated Articles of Incorporation to Reduce the Shareholder Vote Required for Asset Sale Transactions.

Proposal Seven:Three:
Ratification of Selection of Independent
Registered Public Accounting Firm

The Audit Committee has selected KPMG LLP (“KPMG”), the Company’s independent registered public accounting firm since 1983, to serve as the Company’s independent registered public accounting firm for the current fiscal year if their selection is approved by the shareholders. In view of the difficulty and expense involved in changing auditors on short notice, if KPMG is not approved by the shareholders, it is contemplated the appointment for the fiscal year 20082009 will be permitted to stand unless the Audit Committee finds other compelling reasons for making a change. Disapproval of KPMG by the shareholders will be considered an indication to the Audit Committee to select other auditors for the following year.

Representatives of KPMG are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire, and will be available to respond to appropriate questions from the shareholders.

The affirmative vote of the holders of at least a majority of the shares of Common Stock of the Company present and entitled to vote at the Annual Meeting is required for adoption of this proposal.

The Board of Directors recommends the shareholders vote “For” Proposal SevenThree and the ratification of selection of KPMG LLP as independent registered public accounting firm of the Company for the current fiscal year.

14

independent directors serve on the Company’s Audit Committee, Executive Resources Committee and Nominating/Corporate Governance Committee.

It is the policy of the Board of Directors of the Company that a majority of its members be independent. To be considered independent under the NYSE Listing Standards, the Board must affirmatively determine that a director or director nominee (collectively referred to as “director”) has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), and also meet other specific independence tests. The Board examines the independence of each of its members once per year, and again if a member’s outside affiliations change substantially during the year. With the exception of the Chairman of the Board and the President & CEO, the Board has affirmatively determined that each director is independent within the meaning of the NYSE Listing Standards and the Company’s Director Independence Standards.

The Board has established the following categorical standards, incorporating the NYSE’s independence standards to assist it in determining director independence:

(a)          A Director will not be independent if:

(i)            the Director is, or has been within the last three years, an employee of RLI, or an immediate family member of the Director is, or has been within the last three years, an executive officer of RLI;

(ii)         the Director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $100,000$120,000 in direct compensation from RLI, other than directorDirector and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

(iii)      (A) the Director or an immediate family member is a current partner or employee of a firm that is RLI’s internal or external auditor; (B) the Director has an immediate family member who is a current employeepartner of such a firm; (C) the Director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice;personally works on RLI’s audit; or (D) the Director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on RLI’s audit within that time;

(iv)     the Director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of RLI’s present executive officers at the same time serves or served on that company’s compensation committee; or

(v)        the Director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, RLI for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2 percent of such other company’s consolidated gross revenues.

15

of such other company’s consolidated gross revenues;

(ii)         if a Director, or an immediate family member of the Director, is an executive officer, director, employee or holder of an equity interest of a company that is indebted to RLI, or to which RLI is indebted, and the total amount of either company’s indebtedness to the other does not exceed the greater of $1 million, or 2 percent of such other company’s total consolidated assets;

(iii)      if a Director, or an immediate family member of the Director, is an executive officer, director or employee of a company in which RLI owns an equity interest, and the amount of RLI’s equity interest in such other company does not exceed the greater of $1 million, or 2 percent of such other company’s total shareholders equity;

(iv)     if a Director, or an immediate family member of the Director, is a holder of an equity interest of a company of which a class of equity security is registered under the Securities Exchange Act of 1934, as amended, and in which RLI owns an equity interest;

(v)        if a Director, or an immediate family member of the Director, is an executive officer, director, employee or holder of an equity interest of a company that owns an equity interest in RLI; and

(vi)     if a Director, or an immediate family member of the Director, serves as an officer, director or trustee of a tax exempt organization, and the contributions from RLI to such tax exempt organization in the last fiscal year do not exceed the greater of $1 million, or 2 percent of such tax exempt organization’s consolidated gross revenues. (RLI’s automatic matching of employee charitable contributions will not be included in the amount of RLI’s contributions for this purpose.)

(c)         For relationships not covered by the standards in subsection (b) above, the determination of whether the relationship is material or not, and therefore whether the Director would be independent or not, shall be made by the Directors who satisfy the independence standards set forth in subsections (a) and (b) above. RLI is required to explain in its proxy statement the basis for any Board determination that a relationship was immaterial, despite the fact that it did not meet the categorical standards of immateriality set forth in subsection (b) above.

16