Table of Contents

Table of Contents

Table of Contents

The following footnotes reflect directorships held within the past five years at publicly traded companies:

(1)Mr. Ahlmann

(1)	Mr. Baily currently serves as a director of Endurance Specialty Holdings Ltd. and Golub Capital BDC, Inc. Mr. Baily previously served as a director of NYMagic, Inc., Erie Indemnity Company and its subsidiary, Erie Family Life Insurance Company.
(2)	Mr. Michael currently serves as a Director of SS&C Technologies Holdings, Inc.
(3)	Mr. Viets previously served as a director of Erie Indemnity Company and its subsidiary, Erie Family Life Insurance Company, as well as SCPIE Holdings, Inc. (2)Ms. Allen previously served as a director of Lance, Inc. (3)Mr. Baily currently serves as a director of Endurance Specialty Holdings Ltd. and Golub Capital BDC, Inc. Mr. Baily previously served as a director of NYMagic, Inc., Erie Indemnity Company and its subsidiary, Erie Family Life Insurance Company. (4)Mr. Michael currently serves as a Director of SS&C Technologies Holdings, Inc. Mr. Michael previously served as a director of Fieldstone Investment Corp. (5)Mr. Viets currently serves as a director of Patriot Coal Corporation. 12   Table of Contents   PROPOSAL TWO: 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, for1983. For fiscal 2012, and2014, the Board is asking shareholders to ratify that selection. Although current law, rules and regulations, as well aas the Charter of the Audit Committee, require our independent auditor to be appointed, retained and supervised by the Audit Committee, the Board considers the selection of an independent auditor to be an important matter of shareholder concern and considers a proposal for shareholders to ratify such selection to be an important opportunity for shareholders to provide direct feedback to the Board on an important issue of corporate governance. If the appointment of KPMG is not ratified by shareholders, the Audit Committee will take such action, if any, with respect to the appointment of the independent auditor as the Audit Committee deems appropriate. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders. 13 Table of Contents 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 Two and the ratification of selection of KPMG LLP as independent registered public accounting firm of the Company for the current fiscal year.     FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Fees for services rendered by KPMG, the Company’s Independent Registered Public Accounting Firm, for the past two fiscal years for each of the following categories of services, are set forth below:     Fiscal Year   Fiscal Year       2013   2012                           Audit Fees   $ 962,200   $ 930,100   Audit-Related Fees   $ 0   $ 0   Tax Fees           Tax Compliance   $ 0   $ 0   Other Tax Services   $ 0   $ 0   All Other Fees   $ 0   $ 0   Total Fees   $ 962,200   $ 930,100               Audit fees relate to professional services rendered for the audit of the consolidated financial statements of the Company, audits of the statutory financial statements of certain subsidiaries, review of quarterly consolidated financial statements and assistance with review of documents filed with the SEC, including attestation as required under Section 404 of the Sarbanes-Oxley Act of 2002. PROPOSAL THREE: NON-BINDING, ADVISORY VOTE REGARDING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”)   Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, at least once every six years we are required to submit for your vote a non-binding resolution to determine whether the advisory shareholder vote on executive compensation should occur every one, two or three years. At the Company’s 2011 Annual Shareholders Meeting, a significant majority of the votes cast advised that the compensation of the Company’s named executive officers be submitted to shareholders for an advisory vote every year. After taking into account the results of the shareholder advisory vote on the frequency of say-on-pay conducted at the 2011 Annual Meeting of Shareholders, it is the policy of the Board of Directors to submit the compensation of the Company’s named executive officers to shareholders for a non-binding advisory vote annually. The frequency of this say-on-pay vote will be subject to an advisory shareholder vote again in 2017. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that we seek a non-binding vote from our shareholders to approve, on an advisory basis, the compensation of our named executive officers as disclosed in the Compensation Discussion & Analysis (“CD&A”), compensation tables and related disclosures in this Proxy Statement. As discussed in our CD&A starting on page 24,25, our executive compensation programs have been designed to provide a competitive total executive compensation program linked to Company performance that will attract, retain and motivate talented executives critical to the Company’s long-term success. Our Executive Resources Committee developed an overall compensation philosophy that is built on a foundation of the following principles:   · There must be a direct ·The focus is on the linkage between long-term shareholder value creation and executive pay; ·Incentives for executives directly involved in underwriting are based on underwriting profit measured over a period of years consistent with the income and risk to the Company; ·Compensation should reflect both the Company’s and individual’s performance; ·A meaningful element of equity-based compensation and significant executive equity holdings are important to ensure alignment of management and shareholder interests; ·The Company’s overall executive pay levels must be competitive in the marketplace for executive talent to enable the Company to attract, motivate and retain the best talent; and ·Appropriate safeguards must be in place to ensure annual incentives are aligned with long-term risk and value creation to protect against unnecessary and excessive risk to the Company. · 14 Annual incentives for executives directly involved in underwriting are based on underwriting profit measured over a period of years consistent with the income and risk to the Company;   RLI Corp. 2014 Proxy Statement · Compensation should reflect both the Company’s and individual’s performance; · A meaningful element of equity-based compensation and significant executive equity holdings are important to ensure alignment of management and shareholder interests; · The Company’s overall executive pay levels must be competitive in the marketplace for executive talent to enable the Company to attract and retain the best talent; and · Appropriate safeguards must be in place to ensure annual incentives are aligned with long-term risk and value creation to protect against unnecessary and excessive risk to the Company. Table of Contents We are asking you to indicate your support for our executive compensation programs as described in this Proxy Statement. This proposal, commonly known as a “say-on-pay”Say-on-Pay proposal, gives you the opportunity to express your views on our 20112013 executive compensation policies and procedures for named executive officers. This non-binding vote is not intended to address RLI Corp. 2012 Proxy Statement    13 Table of Contents any specific item of compensation, but rather the overall compensation of our named executive officers and the policies and procedures described in this Proxy Statement. Accordingly, we ask the shareholders to vote “FOR” the following resolution at the Annual Meeting:   RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the CD&A, compensation tables and any related material disclosed in the Company’s Proxy Statement is hereby APPROVED.   Your vote is advisory, and therefore not binding on the Executive Resources Committee or the Board. However, we value your opinions and to the extent there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, we will consider our shareholders’ concerns. The Executive Resources Committee will evaluate whether any actions are necessary to address those concerns.   The Board of Directors recommends that shareholders vote “FOR” the proposal to approve the compensation of the Company’s named executive officers as described in this Proxy Statement.     CORPORATE GOVERNANCE AND BOARD MATTERS   CORPORATE GOVERNANCE PRINCIPLES   The Company is committed to having sound corporate governance principles that are designed to ensure that the Board exercises reasonable business judgment in discharging its obligations to the Company and its shareholders. Corporate governance practices also help to ensure that full and transparent disclosures are made to the Company’s shareholders and the SEC. The Company’s published Corporate Governance Guidelines, which are publicly available on the Company’s Internet sitewebsite under the Investors section at www.rlicorp.com, outline the directors’ responsibilities, which include attendance at shareholder, Board and committee meetings. AllNine members of the Board attended the 20112013 Annual Meeting of Shareholders and were available to respond to appropriate questions from the shareholders. The Company has developed an orientation process for new directors and also encourages new directors to attend a director seminar in their first year as a director. Each incumbent director is expected to attend an accredited director education seminar at least once a year, and each Audit Committee member is expected to attend an audit committee forum/conference at least once a year.   DIRECTOR INDEPENDENCE   The Board is required to affirmatively determine the independence of each director and to disclose such determination in the proxy statement for each Annual Meeting of Shareholders of the Company. The Board has established guidelines, which are set forth below, to assist it in making this determination, which incorporate all of the NYSE independence standards. Only 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 (directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), and also meets 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 President & CEO,Messrs. Michael and Stone, 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; 15 Table of Contents (ii)          the Director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $120,000 in direct compensation from RLI, other than Director 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); 14 Table of Contents (iii)       (A) the Director 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 partner of such firm; (C) the Director has an immediate family member who is a current employee of such firm and personally works on RLI’s audit; or (D) the Director or an immediate family member was within the last three years 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. (b)         The following commercial and charitable relationships will not be considered to be material relationships that would impair a Director’s independence: (i)             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 has made payments to, or received payments from, RLI for property or services in an amount which, in the last fiscal year, does not exceed the greater of $1 million, or 2 percent 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 RLI Corp. 20122014 Proxy Statement 15       Table of Contents   BOARD INDEPENDENCE STATUS   Director   Independent   Management           Kaj Ahlmann   X     Barbara R. Allen   X     Michael E. Angelina X John T. Baily   X David B. Duclos X*     Jordan W. Graham   X     Gerald I. Lenrow   X     Charles M. Linke   X     F. Lynn McPheeters   X     Jonathan E. Michael       X Michael J. Stone X Robert O. Viets   X     *On February 26, 2013, Mr. Duclos resigned from the Board to become CEO of QBE-North America.   The following relationships were reviewed in connection with determining director independence but were determined to not be material relationships and that they do not affect such persons’ independence:person’s independence under the Board independence standards: Mr. Baily is a director of Endurance Specialty Holdings Ltd., affiliates of which include reinsurance companies. From time to time, the Company enters into reinsurance arrangements with the Endurance companies. Messrs. Mr. Baily and Lenrow each formerly were partnersalso is a former partner with a predecessor firms offirm to PricewaterhouseCoopers LLP (“PwC”). Mr. Baily, retired from PwC in 1999, and Mr. Lenrow retiredreceives a pension payment from PwC in 1990, continuing as a consultant until 1996.PwC. From time to time, the Company engages PwC for special projects and services in actuarial, tax and other areas.   DIRECTOR EVALUATION PROCESS To ensure that thorough attention is given to individual and collective Directors’ performance and optimizing the composition of our Board, the Board and Committees utilize an annual evaluation process. Each Director self-evaluates the performance of the Committees on which he/she serves as well as the Board as a whole. Detailed composites are completed to obtain perspective on each Committee’s performance in relationship to its respective Charter, effectiveness, functionality, areas of improvement and overall performance. The Annual Board Evaluation focuses on board processes, policies, effectiveness, committee composition and strategy as well as performance whereby establishing activities to maximize shareholder value. This process is handled by the Nominating/Corporate Governance Committee (“NCG Committee”). Further, each Director participates in a robust evaluation process, wherein annually all Directors provide a written peer evaluation on a variety of director characteristics. Those written evaluations are reviewed by the NCG Committee, and each reviewed Board member meets with the Chairman of the Board and/or Lead Director to discuss the consolidated comments. Based on the cumulative results of each Director’s overall performance, the NCG Committee reviews and evaluates the Board candidates and their respective qualifications in detail to determine if it is in the best interest of the Company and its shareholders to nominate each Director to stand for election. DIRECTOR NOMINATION POLICY   The Nominating/Corporate GovernanceNCG Committee of the Company considers director candidates based upon a number of qualifications. A nominee should have: ·          A reputation for the highest professional and personal ethics and values, fairness, honesty and good judgment; ·          A significant breadth of experience, knowledge and abilities to assist the Board in fulfilling its responsibilities; ·          Been in a generally recognized position of leadership in his or her field of endeavor; and ·          CommitmentA commitment to enhancing shareholder value. Nominees with insurance and accounting backgrounds are particularly desirable. A nominee should not have a conflict of interest that would impair the nominee’s ability to represent the interests of the Company’s shareholders and fulfill the responsibilities of a director. 17 Table of Contents The Nominating/Corporate GovernanceNCG Committee conducts an annual assessment of the composition of the Board and its committees. The Committee reviews the appropriate skills and characteristics required of Board members with a view toward establishing a diversity of backgrounds in areas of core competencies including experience in the following: business development, insurance industry, senior management, operational, technical, compensation and finance. The Nominating/Corporate GovernanceNCG Committee relies upon recommendations from a wide variety of its business contacts including current executive officers, directors, community leaders and shareholders, as sources for potential director candidates, and may also utilize third party search firms. The Nominating/Corporate GovernanceNCG Committee will consider qualified director candidates as properly nominated by shareholders as further set forth under SHAREHOLDER PROPOSALS on page 44.46. In addition, the NCG Committee will consider shareholder recommendations for director candidates, but the NCG Committee has no obligation to recommend such candidates. Assuming that appropriate biographical and background material (including qualifications) is provided for candidates recommended by shareholders, the NCG Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources.   CODE OF CONDUCT   The Company has adopted a Code of Conduct, which is designed to help directors, officers and employees maintain ethical behavior and resolve ethical issues in an increasingly complex global business environment. The Code of Conduct applies to all directors, officers and employees, including the Chief Executive Officer, the Chief Financial Officer, the Controller, the General Counsel and any other employee with any responsibility for the preparation and filing of documents with the SEC. The Code of Conduct covers topics including, but not limited to, ethical behavior, conflicts of interest, corporate opportunities, confidentiality of information and compliance with laws and regulations. A copy of our Code of Conduct is available at the Company’s website under the Investors section at www.rlicorp.com. Any amendments to the Code of Conduct will be posted on the website, and any waiver that applies to a director or executive officer will be disclosed in accordance with the Rules of the NYSE. 16 Table of Contents   SHAREHOLDER AND INTERESTED PARTIES COMMUNICATIONS   Any shareholder or other interested party who desires to communicate with the Board’s Lead Director of the Board’s independent directors or any of the other members of the Company’s Board of Directors may do so electronically by sending an email to the following address: Lead.Director@rlicorp.com. Alternatively, a shareholder or other interested party may communicate with the Lead Director or any of the other members of the Board by writing to: Lead Director, RLI Corp. 9025 N. Lindbergh Drive, Peoria, Illinois 61615. Communications may be addressed to the Lead Director, an individual director, a Board Committee, the independent directors or the full Board. Communications received by the Lead Director will then be distributed to the appropriate directors. Solicitations for the sale of merchandise, publications or services of any kind will not be forwarded to the directors.   COMPANY POLICY ON RELATED PARTY TRANSACTIONS   The Company recognizes that related party transactions present a heightened risk of conflicts of interest and/or improper valuation (or the perception thereof) and therefore has adopted a written policy which shall be followed in connection with all related party transactions involving the Company. The policy generally requires approval by the Nominating/Corporate Governance Committee for all transactions above $10,000 between the Company and its directors, officers, shareholders owning in excess of 5 percent of the Common Stock of the Company, and their family members and affiliates. No proposed transactionsOne transaction falling within the purview of the policy werewas presented orand approved by the Nominating/Corporate Governance Committee in 2011.2013. The Company entered into a business arrangement with SS&C Technologies Holdings, Inc. (“SS&C”) to provide investment portfolio accounting and data processing services, on terms reasonably comparable to those that could be obtained in arm’s length dealings with an unrelated third party. The Company’s CEO (Mr. Michael) is a member of the Board of Directors of SS&C and the Company’s principal insurance subsidiaries’ COO’s (Mr. Stone) brother is the President of SS&C.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS   In 2011,2013, there were no transactions or series of similar transactions to which the Company was or is to be a party in which the amount involved exceeded or will exceed $120,000 and in which any director, executive officer or holder of more than 5 percent of the Common Stock of the Company (or any of their immediate family members) had or will have a direct or indirect material interest nor is any such transaction currently proposed. In 2014, the annual services provided to the Company by SS&C, as described above, will exceed $120,000 per year.   18    RLI Corp. 2014 Proxy Statement Table of Contents   COMMITTEES OF THE BOARD OF DIRECTORS   The Board has five standing committees: Audit, Executive Resources, Finance and Investment, Nominating/Corporate Governance and Strategy. The Audit, Executive Resources and Nominating/Corporate Governance Committees are composed solely of independent directors in compliance with the Company’s requirements and the NYSE Listing Standards. The Nominating/Corporate Governance Committee annually evaluates both Committee members and Committee Chairs, and rotates as necessary. In his discretion, the Chairman of the Board may attend any or all Committee meetings. All committees meet at least quarterly and also hold informal discussions from time to time. Charters for each committee are available on the Company’s website under “Investors”the Investors section at www.rlicorp.com.   AUDIT COMMITTEE   The Company’s Audit Committee, composed exclusively of independent directors, met tennine times in 20112013 to consider various audit and financial reporting matters, including the Company’s outside audit firm relationship and to discuss the planning of the Company’s annual outside audit and its results. The committee also monitored the Company’s management of its exposures to risk of financial loss, assessed the auditors’ performance, reviewed the adequacy of the Company’s internal controls, reviewed the extent and scope of audit coverage, reviewed quarterly financial results, monitored selected financial reports and selected the Company’s independent registered public accounting firm. The committee also meets in executive session, with no members of management present, after its regular meetings as well as private executive sessions with KPMG and various members of management.   RLI Corp. 2012 Proxy Statement    17 Table of Contents Fees for services rendered by KPMG, the Company’s Independent Registered Public Accounting Firm, for the past two fiscal years for each of the following categories of services, are set forth below:     Fiscal Year   Fiscal Year       2011   2010               Audit Fees   $ 970,100 (1) $ 775,500   Audit-Related Fees   $ 0   $ 3,500   Tax Fees           Tax Compliance   $ 0   $ 0   Other Tax Services   $ 0   $ 0   All Other Fees   $ 17,500   $ 19,485                           Total Fees   $ 987,600   $ 798,485               (1)The increase in Audit Fees from 2010 to 2011 is primarily reflective of the purchase of Contractors Bonding and Insurance Company through an acquisition of its holding company, Data and Staff Service Co. Audit fees relate to professional services rendered for the audit of the consolidated financial statements of the Company, audits of the financial statements of certain subsidiaries and certain statutory audits, review of quarterly consolidated financial statements and assistance with review of documents filed with the SEC, including attestation as required under Section 404 of the Sarbanes-Oxley Act of 2002. Audit-Related fees consist of a review of an SEC employee benefit plan registration statement. All Other Fees relate to professional services and expenses in assisting management with technical accounting advice and due diligence regarding the acquisition of Contractors Bonding and Insurance Company. The Audit Committee is responsible for approving every engagement of KPMG to perform audit or non-audit services on behalf of the Company or any of its subsidiaries before KPMG is engaged to provide those services.services, with the Chair of the Audit Committee being authorized to pre-approve non-audit services and then reporting those services to the full Audit Committee, as described in the Audit Committee Report. The Audit Committee evaluatedevaluates the effects that the provision of non-audit services may have on the Company’s independent registered public accounting firm services. The Board of Directors annually determines the “financial literacy” of the members of the Audit Committee pursuant to the NYSE required standards. The Board has determined that based on those standards, each member of the Audit Committee is independent and financially literate, and that each member possesses accounting or related financial management expertise. The Board of Directors has further determined that each of Messrs. Baily, Lenrow, and Viets, and Ms. Allenthe Audit Committee members qualifies as an “audit committee financial expert” as defined by the SEC. Until the May 2011 Board meeting, the members of the committee were Messrs. Baily (Chair), Lenrow, McPheeters and Viets. After the May 2011 Board meeting, the members Members of the committee were Messrs. Baily (Chair), Lenrow and Viets and Ms. Allen.   EXECUTIVE RESOURCES COMMITTEE   The Company’s Executive Resources Committee, composed exclusively of independent directors, met fiveseven times in 20112013 to evaluate and recommend compensation of the President & Chief Executive Officer and certain key executive officers of the Company, discuss and evaluate the Company’s Market Value Potential Executive Incentive Program (“MVP Program”) and to develop objective criteria for the selection and ongoing management of the Company’s compensation peer group and to enhance the overall effectiveness of the executive compensation programs. The committee also reviews and evaluates the President & Chief Executive Officer’s goals and objectives, management development and succession planning and the Company’s deferred compensation, stock option, retirement and medical programs. Members of the committee were Ms. Allen (Chair) and Messrs. Graham, Lenrow and McPheeters are members of the committee. 18 Table of ContentsMcPheeters.   FINANCE AND INVESTMENT COMMITTEE   The Company’s Finance and Investment Committee is composed exclusively of independent directors and oversees the Company’s investment and corporate finance transactions, policies and guidelines, which includes reviewing investment performance, investment risk management exposure and the Company’s capital structure. This committee met four times in 20112013 to discuss ongoing financial, investment and capital matters. Until the May 2011 Board meeting, the members of the committee were Messrs. Michael (Chair), Ahlmann, Linke and Stephens. After the May 2011 Board meeting, the members Members of the committee were Messrs. McPheeters (Chair), Ahlmann, Linke and Linke.Stone.   NOMINATING/CORPORATE GOVERNANCE COMMITTEE   The Company’s Nominating/Corporate Governance Committee, composed exclusively of independent directors, met foureight times in 20112013 to guide the Company’s corporate governance program and to monitor and discuss current and emerging corporate governance principles and procedures. The committee also counsels the Board with respect to Board and Committee organization, compensation, membership, function and Board and Committee performance assessments, individually and collectively. The committee identifies and reviews qualified individuals as potential new director candidates. Members 19 Table of Contents Until February 26, 2013, members of the committee were Messrs. Linke (Chair), Baily, Duclos and Viets. Mr. Duclos resigned from the Board on February 26, 2013. Mr. Angelina became a member of the committee on December 20, 2013.   STRATEGY COMMITTEE   The Company’s Strategy Committee is composed exclusively of independent directors. The committee met four times in 20112013 to oversee the Company’s strategic plan and its implementation. Until the May 2011 Board meeting,February 26, 2013, the members of the Strategy Committee were Ms. Allen and Messrs. Ahlmann Graham (Chair), McPheetersDuclos and Michael. AfterGraham. Mr. Duclos resigned from the May 2011 Board meeting, the memberson February 26, 2013. Mr. Angelina became a member of the committee were Messrs. Ahlmann (Chair) and Graham.on December 20, 2013.   COMMITTEE MEMBERSHIP           Executive   Nominating/   Finance and     Director   Audit   Resources   Corporate Governance   Investment   Strategy                       Kaj Ahlmann               X   X* Barbara R. Allen   X   X*             Michael E. Angelina     X X John T. Baily   X* X David B. Duclos** X X Jordan W. Graham       X           Jordan W. Graham X X Gerald I. Lenrow   X   X             Charles M. Linke           X *X*   X     F. Lynn McPheeters       X       X*     Jonathan E. Michael                     Michael J. Stone       X X Robert O. Viets X     X         X               * Chair of Committee   ** On February 26, 2013, Mr. Duclos resigned from the Board to become CEO of QBE-North America.     BOARD MEETINGS AND COMPENSATION   MEETINGS   During 2011, five2013, eight meetings of the Board of Directors were held with all directors in attendance.attendance, except one director missed one meeting. No director attended fewer than 75 percent of the aggregate number of meetings of the Board and Board committees on which he or she served. In connection with each Board meeting, the independent directors meet in executive session with no members of management present. Mr. Lenrow was the Presiding Director of the Board’s executive sessions until the May 5, 2011 Annual Meeting of Shareholders. Effective May 5, 2011, the Lead Director position was established and the Chairman of the Nominating/Corporate Governance Committee was elected Lead Director of the Board and presidedpresides at the Board’s executive sessions.       20   RLI Corp. 20122014 Proxy Statement 19       Table of Contents   DIRECTOR COMPENSATION   During 2011,2013, the Independent Directors were compensated as follows:   Annual Board Retainer:   $ 95,000     $ 95,000   Annual Committee Retainer:             Audit   $ 15,000     $ 15,000   All Other Committees   $ 10,000     $ 10,000   Additional Annual Committee Chair Retainer:             Audit   $ 20,000     $ 20,000   Executive Resources   $ 20,000     $ 20,000   All Other Committees   $ 10,000     $ 10,000           Non-Executive Chairman of the Board Fee   $ 85,000   Effective February 6, 2013, the Independent Directors receive an annual award of $10,000 in Company stock, which vests on the first to occur of: the one year anniversary from date of issuance or when a Director leaves the Board. Effective January 1, 2014, the Lead Director will receive a $10,000 annual retainer.   Directors are also reimbursed for actual travel and related expenses incurred and are provided a travel accident policy funded by the Company. Upon Mr. Stephens’ retirement from Chairman of the Board on May 5, 2011, he was deemed Chairman Emeritus of the Board, with the following benefits/services during his three-year term as Chairman Emeritus: ·Personal use of the Company aircraft for up to 25 hours per year based on a Company Aircraft Time Share Agreement, for which the Company will be reimbursed by Mr. Stephens at the current Time Share rate then in effect (which rate is modified annually); ·Temporary office space at the Company’s Home Office in Peoria, Illinois during his in-person visits to the Company; and ·Use of up to 40 percent of one Company administrative support personnel’s time for assistance with professional and personal administrative matters at an aggregate cost of approximately $30,000. Any use amount over 40 percent will be reimbursed to the Company. Mr. Stephens is authorized by the Board to use the Company aircraft for personal use, when it is not being used for business purposes, pursuant to a lease arrangement at an hourly lease rate established from time to time by the Board. Under the aircraft lease arrangement, income is imputed to Mr. Stephens under certain circumstances pursuant to tax regulations. In 2011, Mr. Stephens reimbursed the Company for his personal use of the Company aircraft at the agreed lease rate, and $1,195 was imputed income. 20 Table of Contents   The following table provides the compensation of the Company’s Board of Directors earned for the fiscal year ended December 31, 2011.2013.                       Change in Pension                               Value and                               Nonqualified               Fees Earned           Non-Equity   Deferred               or Paid in   Stock   Option   Incentive Plan   Compensation   All Other       Name     Cash ($)(1)   Awards ($)   Awards ($)   Compensation ($)   Earnings   Compensation ($)   Total ($)   (a)     (b)   (c)   (d)   (e)   (f)   (g)   (h)   Kaj Ahlmann   121,534                       121,534   Barbara R. Allen   138,267                       138,267   John T. Baily   140,000       (2)               140,000   Jordan W. Graham   118,459                       118,459   Gerald I. Lenrow   120,000       (2)               120,000   Charles M. Linke   125,000       (2)               125,000   F. Lynn McPheeters   126,722       (2)               126,722   Jonathan E. Michael                            (3)                           Gerald D. Stephens        66,915 (4)                   33,266 (5)   98,986   Robert O. Viets     120,000       (2)               120,000                       Change in Pension                               Value and                               Nonqualified               Fees Earned           Non-Equity   Deferred               or Paid in   Stock   Option   Incentive Plan   Compensation   All Other       Name   Cash ($)(1)   Awards ($)   Awards ($)   Compensation ($)   Earnings   Compensation ($)   Total ($)                                   (a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)                                   Kaj Ahlmann   125,000   10,000                   135,000   Barbara R. Allen   140,000   10,000                   150,000   Michael E. Angelina   3,466  (2)                       3,466   John T. Baily   140,000   10,000                   150,000   David B. Duclos   17,958  (3)                       17,958   Jordan W. Graham   115,000   10,000                   125,000   Gerald I. Lenrow   120,000   10,000                   130,000   Charles M. Linke   125,000   10,000                   135,000   F. Lynn McPheeters   125,000   10,000                   135,000   Jonathan E. Michael (4)                               Michael J. Stone (5)                               Robert O. Viets   120,000   10,000                   130,000                                     (1)         Outside directors elect the form of their Annual Board Retainer, Annual Committee Retainer and Annual Committee Chair Retainer, if applicable, which may be received either in cash or in Company stock, or a combination of both, in accordance with the Directors Deferred Compensation Plan (“Deferred Plan”). Amounts shown include the value of fees taken in the form of Company stock. (2)         Effective May 7, 2004, no further options were grantedMr. Angelina was appointed to outside directors under the Stock Option Plan for Outside Directors (“Director Plan”). The aggregate number of outstanding stock options under the Director Plan as ofBoard on December 31, 2011, were as follows: Mr. McPheeters 5,400 options; and Mr. Viets 3,600 options.20, 2013. (3)Mr. Duclos was appointed to the Board on August 16, 2012. He resigned from the Board effective February 26, 2013, to become CEO of QBE-North America. (4)         Mr. Michael, as Chairman of the Board and a management director, does not receive director fees. His compensation as President and CEO is disclosed under the Executive Compensation Summary Compensation Table. (4)(5)         Effective January 1, 2006, Mr. Stephens retiredStone, as a management director, does not receive director fees. His compensation as President, Chief Operating Officer of the Company’s principle insurance subsidiaries is disclosed under the Executive Compensation Summary Compensation Table. 21 Table of Contents NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN (DEFERRED PLAN) Prior to the beginning of each year, an employeeoutside director may elect to defer the compensation otherwise payable or awarded to the director during the succeeding year pursuant to the Deferred Plan. Under the Deferred Plan, the Company transfers to a bank trustee, under an irrevocable trust established by the Company, such number of shares of the Company and receivedas are equal to the same compensation deferred by the director during the relevant year. The deferred compensation is used to purchase an equivalent amount of Company Common Stock. Dividends on these shares are reinvested quarterly under the Company’s Dividend Reinvestment Plan. In general, Deferred Plan benefits are distributable, in the form of Company Common Stock, beginning when the director’s status terminates. DIRECTOR SHARE OWNERSHIP Outside Directors are encouraged to, within five years of their initial appointment as all outside directorsa Company director, own shares of the Company. In addition, Mr. Stephens was paid an $85,000 annual fee as Chairman of the Board until his retirement in May 2011. (5)Mr. Stephens was provided an office when present at the Company’s home office. He was also provided part-time secretarial support at the aggregate cost of $32,071. Also includes $1,195 in imputed income in connection with personal useCommon Stock of the Company aircraft.having a value of not less than 500 percent of such director’s Annual Board Retainer, which Retainer was $95,000 in 2013. Shares held directly and in Company benefit plans are counted to satisfy the guideline.   The Nominating/Corporate Governance Committee monitors directors’ share ownership and may make allowances to accommodate periodic adjustments to the Annual Board Retainer, and other factors affecting a director’s share ownership level. BOARD LEADERSHIP STRUCTURE   Immediately following the 20112013 Annual Shareholders Meeting, Mr. Stephens retired as Chairman of the Board, and Mr. Michael was appointedre-appointed Chairman of the Board in addition to his current position of President and Chief Executive Officer. The Company does not have a formal policy regarding separation of the offices of chairman of the board and chief executive officer. The Board believes that the decision whether to combine or separate such positions will vary from company to company and depends upon a company’s particular circumstances at a given point in time. The Board believes that a joint board chairman and chief executive officer position is advisable and in the best interests of the Company and its shareholders given our current Board and Lead Director configuration. This structure promotes unified leadership, continuity and direction for the Company. This combined position also provides a clear focus for management to execute the Company’s strategy and business plan, while fostering clear accountability and decision-making in such roles. The Board believes the designation of an empowered “Lead Director” provides a counterbalancing governance structure and enables an appropriate balance between strategic execution and independent oversight of management. The Lead Director (an independent director) is the Chairperson of the Board’s Nominating/Corporate Governance Committee and is elected / elected/confirmed by the Board’s independent directors. The Lead Director (a) presides over executive RLI Corp. 2012 Proxy Statement    21 Table of Contents sessions of the independent directors, (b) serves as a liaison between the Chairman and the independent directors, (c) assists in setting Board meeting agendas and schedules, (d) assists in determining information sent to directors for meetings, (e) may call meetings of the independent directors, (f) may consult with major shareholders if requested by the Chairman or the Board, and (g) consults with the Chairman/CEO regarding results of annual performance reviews of the Board Committees, Board members and CEO, all as set forth in the charter for the Lead Director position. Several factors promote a strong and independent Board at our Company. Currently, all directors except for Mr.Messrs. Michael and Stone are independent as defined in the applicable NYSE listing standards (as adopted by the Company). The Audit, Executive Resources and Nominating/Corporate Governance committees of our Board are comprised entirely of independent directors. Also, our independent directors meet quarterly in executive session without management present. Consequently, with our Lead Director position, we believe our Board continues to be strong and independent and provides appropriate counterbalance to a combined Chairman/CEO position.   STOCK OPTION PLAN FOR OUTSIDE DIRECTORS (DIRECTOR PLAN) Prior to May 7, 2004, the Director Plan provided for the grant of an option to purchase 3,000 shares of the Company’s Common Stock to each newly elected or appointed outside director. In addition, effective the first business day in February of each year, each outside director was annually granted an option to purchase 1,800 shares of the Company’s Common Stock under the Director Plan. If the Company earned more than its cost of capital as provided under its MVP Plan in each respective year, each outside director was granted an option to purchase 1,800 additional shares of the Company’s Common Stock under the Director Plan, effective the first business day in February of the succeeding year. The exercise price of each option granted is an amount equal to the fair market value of such option share on the grant date, and all options granted provided for one-third annual vesting over a period of three years. In the event of an outside director’s death, disability or termination of status as an outside director, all options granted become fully vested. Effective May 7, 2004, no future options were granted to outside directors under the Director Plan. NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN (DEFERRED PLAN) Prior to the beginning of each year, an outside director may elect to defer the compensation otherwise payable or awarded to the director during the succeeding year pursuant to the Deferred Plan. Under the Deferred Plan, the Company transfers to a bank trustee, under an irrevocable trust established by the Company, such number of shares of the Company as are equal to the compensation deferred by the director during the relevant year. The deferred compensation is used to purchase an equivalent amount of Company Common Stock. Dividends on these shares are reinvested quarterly under the Company’s Dividend Reinvestment Plan. In general, Deferred Plan benefits are distributable, in the form of Company Common Stock, beginning when the director’s status terminates. DIRECTOR SHARE OWNERSHIP Outside Directors are encouraged to, within three years of their initial appointment as a Company director, own shares of the Common Stock of the Company having a value of not less than 500 percent of such director’s Annual Board Retainer, which Retainer was $85,000 in 2009 and $95,000 in 2010 and 2011. Shares held directly and in Company benefit plans are counted to satisfy the guideline, but options, whether vested or not, are not counted. The Nominating/Corporate Governance Committee monitors directors’ share ownership and may make allowances to accommodate timing of purchases caused by “quiet period” limitations, periodic adjustments to the Annual Board Retainer, and other factors affecting a director’s share ownership level.   AUDIT COMMITTEE REPORT   The following report by the Audit Committee (the “Committee”) of the Company’s Board of Directors is required by the rules of the SEC to be included in this Proxy Statement and shall not be considered incorporated by reference in other filings by the Company with the SEC. The Audit Committee (the “Committee”) of the Company’s Board of Directors is composed of four independent directors and operates under a written charter adopted by the Board of Directors. The primary role of the Committee is to assist the Board of Directors in its oversight of (a) the Company’s corporate accounting and reporting practices, (b) the quality and integrity of the Company’s financial statements, (c) the performance of the Company’s system of internal accounting and financial controls, (d) the Company’s compliance with related legal and regulatory requirements, (d)(e) the Company’s risk management program, (f) the qualifications, independence and performance of the independent registered public accounting firm (“Auditor”), and (e)(g) the performance of the Company’s internal audit function. 22    RLI Corp. 2014 Proxy Statement Table of Contents In addition to those primary roles, the Committee also performs other roles and functions as outlined in its charter, including risk management oversight, 22 Table of Contents preliminary review of earnings releases and other activities. The Committee also acts as the audit committee for each of the Company’s insurance company subsidiaries. A more detailed description of the Committee’s roles, functions and activities is set forth in the description of Board committees elsewhere in this Proxy Statement and in the Committee’s charter.charter, which is available on our corporate website. The Board of Directors has determined that each of the members of the Audit Committee qualifies as “independent” within the meaning of the NYSE Listing Standards and the rules of the SEC. The Board of Directors has further determined that each of Ms. Allen and Messrs. Baily, Lenrow and Viets is an “audit committee financial expert” within the meaning of the SEC rules. The Committee reviews the internal audit function of the Company, including the independence and authority of its reporting obligations, the proposed audit plans for the coming year and the coordination of such plans with the independent registered public accounting firm.Auditor. The Company’s Internal Audit Services department provides the internal audit function, which provides objective assurance and consulting services designed to add value and improve the organization’s operations. The Committee oversees the Internal Audit Services department and the overall internal audit function at the Company. The Company’s internal audit function operates under the terms of the RLI Internal Audit Services Charter which is reviewed by the Committee and is signed by the Committee’s chair as well as the Company’s Chief Executive Officer. To assist with this oversight, RLI’s Internal Audit Services provides an annual risk-based audit plan to the Audit Committee and periodic reports are additionally made to the Committee summarizing result of internal audit activities. The Committee selectsappoints and annually evaluates the performance of the Company’s independent registered public accounting firmAuditor and provides assistance to the members of the Board of Directors in fulfilling their oversight functions of the financial reporting practices, including satisfying obligations imposed by Section 404 of the Sarbanes Oxley Act of 2002, and financial statements of the Company. It is not the duty of the Committee, however, to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with U.S. generally accepted accounting principles. The Company’s independent registered public accounting firmAuditor is responsible for planning and conducting audits;audits of the financial statements and internal controls over financial reporting; and the Company’s management is responsible for preparing the financial statements, designing and assessing the effectiveness of internal control over financial reporting and determining that the Company’s financial statements are complete and accurate and in accordance with U.S. generally accepted accounting principles and applicable laws and regulations. The Company’s current independent registered public accounting firm is KPMG LLP (“KPMG”). KPMG has been the Company’s independent registered public accounting firm since 1983 and the Audit Committee has selected KPMG to be the Company’s independent registered public accounting firm for fiscal 2014. The Committee contracts with and sets the fees paid to the independent registered public accounting firm. The fees for services for KPMG’s audit services the past two fiscal years are set forth in Proposal Two on pages 13-14. Audit fees relate to professional services rendered for the audit of consolidated financial statements of the Company, audits of the statutory financial statements of certain subsidiaries, review of quarterly consolidated financial statements and assistance with review of documents filed with the SEC, including attestation as required under Section 404 of the Sarbanes Oxley Act of 2002. There are not currently any non-audit services being provided by KPMG. Any non-audit services must be reviewed and pre-approved by the Chair of the Audit Committee. The Chair will report such hiring to the Committee no later than the next scheduled Committee meeting. The Committee annually conducts an evaluation of the Auditor to determine if they will recommend the retention of the Auditor. As part of the evaluation of the Auditor, the Committee surveys select RLI management and all members of the Committee to determine if the Auditor is meeting Company expectations. The results of the survey are presented to the Committee and assist the Committee in the decision to recommend reappointment of the Auditor. The Auditor evaluations include whether the Auditor : 1) maintains independence, integrity and objectivity combined with an attitude of professional skepticism; 2) maintains candid and open dialog, communicates in a timely, forthright manner with sufficient clarity and frequency; and 3) understands the Company’s business operations and strategy. In addition, the Committee obtains and reviews, at least annually, a report by the Auditor describing; the firm’s internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the Auditor’s independence) all relationships between the Auditor and the Company. Based upon the results of the evaluations mentioned, the Committee recommends the retention of the Auditor based upon the quality of audit services and sufficiency of resources provided. The Committee received reports and reviewed and discussed the audited financial statements with management and the independent registered public accounting firm.Auditor. The Committee also discussed with the independent registered public accounting firmAuditor the Section 404 obligations and matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA – AU Section 380) as adopted by the Public Company Accounting Oversight Board (“PCAOB”). Standard No. 16, Communication with Audit Committees. 23 Table of Contents The Committee received from the Company’s independent registered public accounting firmAuditor the written disclosures and letter required by the applicable PCAOB requirements for independent accountantregistered public accounting firm’s communications with the Audit Committee concerning auditor independence. The Committee discussed with the independent registered public accounting firmAuditor that firm’s independence and any relationships that may impact that firm’s objectivity and independence including audit and non-audit fees. Additionally, the Committee promotes the Auditor’s independence by ensuring that the lines of communication are always open and constant between the Auditor and the Committee. The Committee Chair is in contact with the Auditor numerous times throughout the year. This includes normal in-person meetings, executive sessions, telephonic meetings and periodically in between normally scheduled meetings. The purpose of this is to allow open and unobstructed access to the Committee should the Auditor need to bring anything to the Committee’s attention. Pursuant to the Sarbanes Oxley Act of 2002 and the rules of the PCAOB, the Auditor’s lead engagement partner is required to rotate every five years. In 2014, KPMG’s current lead engagement partner for the Company’s audit is in the fifth year of a five year rotation period. Among the Committee’s responsibilities during such a rotation include reviewing desirable partner attributes with KPMG management and conducting telephonic and in-person meetings in order to ensure the new lead engagement partner makes a smooth transition into the new position. Based on the Committee’s discussion with and review of reports from management, the Company’s internal auditors and the Company’s independent registered public accounting firmAuditor and the Committee’s reliance on the representation of management that the Company’s consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles, the Committee recommended to the Board of Directors that the audited financial statements of the Company be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011,2013, as filed with the SEC. The foregoing report has been approved by all members of the Audit Committee.   MEMBERS OF THE AUDIT COMMITTEE   John T. Baily (Chair) Barbara R. Allen Gerald I. Lenrow Robert O. Viets     EXECUTIVE RESOURCES COMMITTEE REPORT   The Executive Resources Committee has reviewed and discussed with management of the Company the Compensation Discussion and Analysis section of this Proxy Statement. Based on the Executive Resources Committee’s review and discussions, it recommended to the Board, and the Board approved, that the Compensation Discussion and Analysis be included in the Company’s 20122014 Proxy Statement.   MEMBERS OF THE EXECUTIVE RESOURCES COMMITTEE   Barbara R. Allen (Chair) Jordan W. Graham Gerald I. Lenrow F. Lynn McPheeters   RLI Corp. 2012 Proxy Statement    23 Table of Contents   COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION   No member of the Executive Resources Committee is a current or former employee or officer of the Company or otherwise had any relationships to be disclosed within the scope of SEC regulations.     24    RLI Corp. 2014 Proxy Statement Table of Contents 2012 COMPENSATION DISCUSSION & ANALYSIS   INTRODUCTION   The Executive Resources Committee (“ERC”) is responsible for reviewing, determiningof the Company’s Board of Directors, with the review and administeringapproval of the Board of Directors, administers specific compensation levelsprograms for senior executive officers as well as overseeingand oversees other executive compensation programs and management succession and development processes.   EXECUTIVE SUMMARY   The Company isOur Results in 2013:     2013   2012           Gross Written Premium   $843.2 million   $784.8 million Operating Earnings   $111.9 million   $  86.9 million (Net Earnings minus Investment Gains Net of Tax)         Combined Ratio   83.1   89.0 (Net Loss and Operating Expense/Net Premiums Earned)         Operating Return on Equity   14.1%   11.0% (Operating Earnings/Shareholder’s Equity)         Market Value Potential (MVP)   $133.8 million   $ 82.7 million (After Tax Returns Above Cost of Capital)         Five-Year Growth in Book Value: Rank Among Peer Companies   2/14   3/14           As shown above, our results for 2013 were outstanding.  We achieved improvements in key absolute and relative financial metrics. Growth in gross written premium was $58.4 million, or 7.4 percent. Operating earnings were up 28.9 percent for the year, which resulted in a specialty insurance company that offersstrong Operating Return on Equity of 14.1 percent. Our combined ratio, a diversemeasure of our expenses, improved in 2013. Investment returns on our equity portfolio were favorable which, combined with operating earnings, drove after tax returns above our cost of property and casualty coverage and surety bonds. We are always focusedcapital to $133.8 million versus $82.7 million last year (also known as Market Value Potential (“MVP”), explained in more detail on achieving an underwriting profit and growingpage 28). Finally, we compare our relative growth in book value over a five-year period to create securityour peer companies and use that performance as a factor in calculating incentive compensation. For the five-year period ending in 2013, our relative rank among peer companies for this metric improved. With the exception of gross written premium, the financial metrics above are used as targets in our incentive plans and actual results are used to calculate annual incentives for our policyholderssenior executive officers. These financial measures (other than gross written premium) are non-GAAP and long-term valueshould not be considered substitutes for our shareholders. As a result, we have structured our compensation programsGAAP measures.  We consider them key performance indicators and employ them as well as other factors in determining senior management incentive compensation. The calculation of these non-GAAP metrics can be found in the discussions below with respect to provide incentives for achievingthe incentive plans in which those objectives.metrics are used. In May 2011 we held a shareholder advisory vote on the compensation of our named executive officers, referred to as a “say-on-pay” vote. Our shareholders expressed strong support for our compensation practices, with 83 percent of shareholder votes cast in favor of our say-on-pay resolution. We considered this vote to represent strong support by shareholders for our longstanding executive compensation policies and practices. In 2011, therefore, the ERC continued its general approach to executive compensation: KEY ATTRIBUTES OF RLI EXECUTIVE COMPENSATION   ·                  Conservative base salary increases: The average increase in base salaries for the Named Executive Officers (“NEOs”) in May 2011 when salaries were reviewed was 2.7 percent. The NEOs in May 2011 were Jonathan Michael, President & CEO; Michael Stone, President & COO, RLI Insurance Company; Joseph Dondanville; Senior Vice President, CFO (retired); Craig Kliethermes, Senior Vice President, Risk Services; and Daniel Kennedy, Vice President, General Counsel, and Corporate Secretary. ·Performance-based compensation: Total executive compensation is directly linked to Company performance. As in prior years, all executives participate in an annual incentive plan, through which they are eligible to earn compensation based on achievement of Company financial objectives and personal objectives that are aligned with shareholder value creation.   ·                  Conservative long-termAt risk compensation: A significant portion of annual incentive awards: In 2011, we continuedcompensation for our conservative approachCEO, COO, CFO, Executive Vice President, Operations and each product group vice president is paid over time through a bonus bank concept to long-term incentives, awarding stock option grants sufficientprovide an incentive for sustained shareholder value creation. Amounts credited to align the interests ofbonus bank are reduced dollar-for-dollar, should negative results occur in a future period. As a result, net losses in a future period reduce the management team with shareholders, but not atamount available in the bonus bank and could result in a levelnegative balance. There will be no bonus payout in any year in which in our view, would provide a windfall to recipients. Stock option awards in 2011 generally were at or below median levels for comparable positions.bonus bank has a negative balance.   ·                  Significant executive stock ownership: Our compensation programs encourage employees to build and maintain an ownership interest in the Company. We have established specific executive stock ownership guidelines and our NEOs currently maintain significant share ownership in the Company. ·PeerCompensation based on relative company comparisons: In accordance with our standard practice, eachperformance: Each year we conduct a review of executive compensation within an insurance peer group to ensure that the Company’s executive compensation remains fair, competitive and consistent with Companythe Company’s absolute and relative performance. In 2011,The MVP Program for the Committee retained Pay Governance, a compensation consulting firm, to assist in the evaluationCEO, COO, CFO and selection of appropriate peer companies.Executive Vice President, Operations includes an adjustment factor (positive and negative) for relative company performance.   Additionally, our compensation decisions during the 2011 fiscal year continued to be influenced by ongoing economic and insurance marketplace uncertainty. We feel that our conservative approach to both our business and compensation practices during the past year contributed to our overall financial success. In 2011, the Company had solid financial performance, delivering the 16th consecutive year of underwriting profit; achieving an excellent combined ratio; and returning capital to our shareholders through a $5.00 per share special dividend and our 36th consecutive year of paying regular dividends. We made the largest acquisition in Company history, acquiring and successfully integrating Contractors Bonding and Insurance Company (“CBIC”). Our CFO, Joseph E. Dondanville retired in 2011 after 27 years of service to the Company. Thomas L. Brown joined the Company as CFO on September 1, 2011. Each of their respective compensation for 2011 is described below.     24     25   Table of Contents ·Significant executive stock ownership: Our compensation programs encourage our employees to build and maintain an ownership interest in the Company. We have established specific executive stock ownership guidelines and our executive officers whose compensation is included in the Summary Compensation Table (referred to herein collectively as “named executive officers” or “NEOs”), as well as our other executive officers, currently maintain significant share ownership in the Company. As reflected on page 7, as of January 16, 2014, executive officers and Directors beneficially held 5.7 percent of Company shares, providing strong alignment with shareholders. The ERC believes that the Company’s overall compensation approach provided meaningful incentives for the talented management team at the Company to provide outstanding results for shareholders again this year. In 2013, the Company returned capital to our shareholders through our 38th consecutive year of paying regular dividends and a $1.50 per share special dividend (adjusted for the two-for-one stock split on January 15, 2014).   HOW THE ERC OPERATES   ERC MEMBERS   In 2011,2013, the members of the ERC were Ms. Allen (Chair) and Messrs. Graham, Lenrow and McPheeters. ERC members are nominated by the Nominating/Corporate Governance Committee, elected by the Board and may be removed from the ERC by the Board at any time, with or without cause. The members of the ERC are independent directors under the independence standards developed by the Board, which incorporate all of the NYSE independence standards which are applicable to directors generally, and which are set out above under the section entitled “Corporate Governance and Board Matters.”CORPORATE GOVERNANCE AND BOARD MATTERS on page 15. The Board annually determines the independence of each member of the ERC under those independence standards.   ERC RESPONSIBILITIES   The ERC operates under a Charter, which can be found on the Company’s website at www.rlicorp.com. The ERC Charter is reviewed annually by the ERC and any proposed changes to the Charter are submitted to the Nominating/Corporate Governance Committee for recommendation to the full Board for approval. The ERC is responsible to the Board for (1) reviewing and providing advice regarding the Company’s executive compensation policy and the execution thereof;compensation; (2) reviewing and providing advice regarding the Company’s management succession and development processes; (3) monitoring compensation actions by management below the executive level; (4) producing an annual report on executive compensation for approval by the Board for inclusion in the Company’s proxy statement in accordance with applicable rules and regulations; and (5) reviewing the Company’s employee benefit plans. Compensation of the Board is recommended by the Nominating/Corporate Governance Committee, with the advice and counsel of the ERC to ensure alignment of interests between Board and executive compensation.   ERC MEETINGS   The ERC held fiveseven meetings in 2011.2013. The ERC also held a joint meeting with the Audit Committee of the Board of Directors to discuss safeguards against unnecessary or excessive risk that could arise from the Company’s executive compensation policies and practices. The agenda for each ERC meeting is established by the Chair of the ERC in consultation with other ERC members, and with Mr. Michael and Jeffrey Fick, the Company’s Vice President, Human Resources. ERC materials are prepared by Messrs. Michael and Fick and are reviewed and approved by the ERC Chair in advance of distribution to ERC members. The ERC meetings are attended by Messrs. Michael and Fick.Fick, who are excused from the meeting during the Committee’s executive session. RESPONSE TO SAY-ON-PAY VOTE At the May 2013 annual shareholder’s meeting, we held a shareholder advisory vote on the compensation of our named executive officers, referred to as a Say-on-Pay vote, with over 95 percent of shareholder votes cast on that item in favor of our executive compensation programs. We considered this vote to represent strong support by shareholders for our long-standing executive compensation policies and practices. In 2013, therefore, the ERC continued its general approach to executive compensation, as described above in “KEY ATTRIBUTES OF RLI EXECUTIVE COMPENSATION.”   INPUT FROM MANAGEMENT   Mr. Michael plays an important role in the ERC’s consideration of executive compensation levels and the design of executive compensation plans and programs for other senior executive officers. For these individuals, Mr. Michael recommends the following components of executive compensation to the ERC for review and recommendation to the Board:   ·annual base salary levels; ·annual bonusincentive targets and financial and personal goals; and ·the form and amount of long-term incentives. 26    RLI Corp. 2014 Proxy Statement Table of Contents   Mr. Michael makes such compensation recommendations based on external market data; achievement of respective performance criteria by each executive; and his judgment related to internal pay equity among Company executives, potential for advancement, and contribution to team initiatives. Mr. Michael also relies upon the input of Messrs. Stone, Kliethermes and Fickthe senior leadership team when making such recommendations.   COMPENSATION CONSULTANT   The ERC Charter specifically provides that if a compensation consultant is to assist in the evaluation of CEO or senior executive compensation, the ERC has sole authority to retain and terminate the consulting firm including sole authority to approve the firm’s fees and retention terms. Management also has authority to retain a compensation consultant, but may not retain the same compensation consulting firm retained by the ERC without approval in advance by the ERC. The Committee did not retain a compensation consultant in 2013.   In 2011 the compensation consulting firm of Pay Governance was engaged by the ERC with respectManagement retained Towers Watson in 2013 to two matters: (1) assisting the ERCassist in the evaluation and potential revisions to the current compensation peer group, including the development of objective criteria for the selection and ongoing management of the membersCompany’s short-term and long-term incentive programs. Towers Watson has not performed work on behalf of the peer group, describedCommittee in more detail at page 26; and (2) an assessment ofthe past. Towers Watson did not review or offer opinions with respect to the Market Value Potential Executive Incentive Program, (“MVP Program”) to assistexplained in greater detail on page 28, which program is within the ERC to enhance the overall effectivenessexclusive purview of the Program, described in more detail at page 27. Total fees of $68,491.64 were paid to Pay Governance for this engagement. RLI Corp. 2012 Proxy Statement    25 Table of ContentsCommittee.   OVERVIEW OF RLI EXECUTIVE COMPENSATION   OBJECTIVES   The objective of the Company’s executive compensation program is to provide a competitive total executive compensation program linked to Company performance that will attract, retain and motivate talented executives critical to the Company’s long-term success.   GUIDING PRINCIPLES The ERC is guided by a number of principles in its oversight of the design and administration of the Company’s executive compensation programs: (1)The focus is on the linkage between long-term shareholder value creation and executive pay; (2)Annual incentives for executives directly involved in underwriting are based on underwriting profit measured over a period of years consistent with the income and risk to the Company; (3)Compensation should reflect both the Company’s and individual’s performance; (4)A meaningful element of equity-based compensation and significant executive equity holdings are important to ensure alignment of management and shareholder interests; (5)The Company’s overall executive pay levels must be competitive in the marketplace for executive talent to enable the Company to attract and retain the best talent; and (6)Appropriate safeguards must be in place to ensure annual incentives are aligned with long-term risk and value creation to protect against unnecessary and excessive risk to the Company. ELEMENTS OF COMPANY EXECUTIVE COMPENSATION   The Company’s total executive compensation program is comprised of the following components, each of which is described in greater detail below:   (1)   Total annual cash compensation consisting of:   (a)Base salary;   (b)              Annual bonusesIncentive awards under the “MVP Program”MVP Program, which incorporates annual and long-term design features, for the CEO; COO; CFO; and SeniorExecutive Vice President, Risk Services;Operations;   (c)               Annual bonusesincentive awards under the Management Incentive Program (“MIP”) for other home office executives;   (d)              Annual bonusesincentive awards under the Underwriter Profit Program for product group executives;   (2)         Long-term incentive compensation granted under the Long-Term Incentive Plan;Plan (“LTIP”); and under the MVP Program for the CEO; COO; CFO; and Executive Vice President, Operations.   (3)         Limited perquisites. All Company executives are provided with travel accident insurance and are reimbursed for out of pocket costs for an annual health examination not covered by the Company’s health plan. The CEO and COO are permitted to use the Company’s fractionally-owned aircraft pursuant to a lease agreement andfor personal use for an hourly lease rate approved by the Board of Directors, with maximum annual use limited to total lease charges of 6.5 percent of annual base salary. The Company does not provide any income tax gross-ups. BALANCE OF SHORT-TERM AND LONG-TERM COMPENSATION The ERC works to balance short-term and long-term elements of total compensation, as described in the following sections. The goal is to provide a meaningful level of long-term compensation to align with long-term value creation and mitigate the risk that management make decisions or take actions solely to increase short-term compensation while adding excessive risk to the Company. In that regard, the ERC believes that a greater percentage of total compensation should be in the form of long-term compensation the more senior the role is. The Committee also takes into account the significant ownership in Company stock by Messrs. Michael and Stone when determining their respective long-term incentive awards. 27 Table of Contents We consider those salary and annual incentive amounts earned and paid in 2013 to be short-term compensation, while MVP Program payments made from amounts credited to the bonus bank for prior year MVP Program awards and the grant date fair value of stock options awards in 2013 to be long-term compensation. The following table compares the percentage of total compensation, which is short-term in nature, to the percentage, which is long-term.         Long-Term as % of Total Compensation     Short-Term as % of Total Compensation   (Payment from Bonus Bank for Prior Years and Name   (Salary and Annual Incentive Earned and Paid in 2013)   Grant Date Fair Value of Stock Options Awarded)           Jonathan E. Michael   53%   47%   Michael J. Stone   53%   47%   Thomas L. Brown   69%   31% (1) Craig W. Kliethermes   61%   39%   Daniel O. Kennedy   79%   21% (2)             (1)Mr. Brown joined the company in 2011 and has less long-term compensation than the other NEOs because of fewer contributions to his MVP Program bonus bank, which pays out over time. (2)Mr. Kennedy does not participate in the MVP Program, but instead participates in the MIP, which does not have a bonus bank or long-term payout feature, and consequently his long-term percentage is less than the other NEOs. MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM (MVP PROGRAM) — GENERAL MVP Defined. As discussed in further detail below, the MVP Program provides a mechanism with which the ERC can correlate incentive compensation to long-term shareholder value creation. The MVP Program uses an economic profit measure called “Market Value Potential” (“MVP”), which measures the after-tax returns earned by the Company above its cost of capital, as a gauge of shareholder value creation. MVP is defined as (1) the Actual Return (the increase in U.S. generally accepted accounting principles “GAAP” book value), less (2) the Required Return (beginning capital multiplied by the blended cost of capital). If the Company does not earn the Required Return in a given year and MVP is negative, no incentive award is made pursuant to the MVP Program for that year. For the purposes of the MVP Program, the increase or decrease in GAAP book value is calculated as ending capital less beginning capital. Ending capital is defined as ending GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term debt instruments at the end of the period; and adjusted for capital transactions during the year. Beginning capital is defined as beginning GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term instruments at the beginning of the period. The Company’s blended cost of capital is defined as the weighted average of the cost of equity capital and the cost of debt capital. The cost of equity capital is the average ten year U.S. Treasury Note rate, plus a market risk premium multiplied by the Company’s beta. The Company’s cost of debt capital is the forward market rate on debt outstanding on the outstanding long-term debt. MVP Program Participation. Participation in the MVP Program, percentage incentive awards and the formula to calculate MVP are recommended by the ERC and approved annually by the independent Directors of the Board for Mr. Michael and by the entire Board for other participants. Mr. Stone does not approve Mr. Michael’s or his own percentage award. In 2013, participation in the MVP Program was limited to Messrs. Michael, Stone, Brown and Kliethermes. The Board has concluded based on the position responsibilities and ongoing assessment of individual performance against operational and financial goals that the senior executive management team (the CEO, COO, CFO and Executive Vice President, Operations) is most responsible for the operating and investment decisions and actions that directly impact the creation of long-term shareholder value, and, therefore, should be rewarded with a portion of their incentive compensation being directly and exclusively tied to the creation of MVP. As discussed in more detail below, there are two components to the MVP Program. The first component, based on strategic objectives, represents annual compensation. The second component, based on financial objectives, is paid out over time out of amounts credited to a bonus bank, which is at risk of forfeiture based on future performance and as such represents long-term compensation. For 2013, each participant in the MVP Program received a MVP incentive award expressed as a percentage of MVP created by the Company in that calendar year. Each year the ERC confirms that the percentage awards remain appropriate by reviewing historical incentive award payouts, projected future payouts and resulting total compensation for MVP Program participants, which in turn, is compared to the performance of the Company necessary to achieve such payouts. The ERC compares the 28    RLI Corp. 2014 Proxy Statement Table of Contents performance of the Company and total compensation of the MVP Program participants with comparable performance metrics and compensation at companies in the peer group. The MVP percentage award, expressed as a percentage of MVP, for each participant for 2013 was as follows: 2.7 percent for Mr. Michael, 1.8 percent for Mr. Stone and 1.0 percent each for Messrs. Brown and Kliethermes. The percentage award for Mr. Michael was reduced from 3.0 percent in 2012 to 2.7 percent in 2013, and the percentage award for Mr. Stone was reduced from 2.0 percent in 2012 to 1.8 percent in 2013. The ERC set the percentage incentive awards for 2013 based on the factors described above and based on the range of expected MVP to be created by the Company in 2013 and the projected incentive awards and incentive payouts that would result. The reductions in the percentage awards for Messrs. Michael and Stone were made at Mr. Michael’s request to maintain annual awards in a competitive range in light of the positive trend of increasing annual MVP created by the Company, on which such awards are based. Individual MVP Award payments during any fiscal year, including payments from amounts credited to a bonus bank in prior years, are capped at $7.5 million under the terms of the RLI Corp. Annual Incentive Compensation Plan approved by Shareholders in 2011. Pursuant to the Annual Incentive Plan, under which the MVP Program operates, the Board of Directors may exercise discretion to decrease MVP Awards based on such objective or subjective criteria it deems appropriate.   ANNUAL COMPENSATION   BASE SALARY   Executive base salaries are targeted to be at the median base salary for comparable positions in the insurance industry, taking into account performance, experience, potential and the level of base salary necessary to attract and retain top executive talent.   In 2011,2013, the ERC set base salary ranges for the CEO, CFO and COO based on publicly available executive compensation data for 20102012 from the following peer companies: Alleghany Corporation;Corp.; AmTrust Financial Services; Argonaut Group, Inc;Inc.; Baldwin & Lyons Inc.; CNA Surety Corporation; Endurance Specialty Holdings Ltd.LTD.; Global Indemnity; HCC Insurance Holdings, Inc.; Markel Insurance Company;Corp.; Meadowbrook Insurance Group Inc.; National Interstate Corp.; Navigators Group;Group Inc.; Old Republic International Corp.; and OneBeacon Insurance Group LTD.Ltd. The ERC selected these peer companies based on their judgment, input from management, and the recommendation of Pay Governance.its judgment. Each of the peer companies competes within the property and casualty insurance industry and sells a variety of specialty insurance products that serve both commercial entities and individuals that can generally be defined as specialty in nature, or targeted toward niche markets. The peer companies have established records of financial performance, and most have been publicly traded for at least five years, facilitating the comparison of the Company’s financial performance to their’s.that of the peer companies. The ERC also reviews the market capitalization of the Company compared to the peer companies to ensure that the Company is at or near the median market capitalization among those companies. 26 Table of Contents For the peer company comparison performed in 2013, RLI’s market capitalization was seventh among the 14 companies compared.   Each year, the ERC compares the relative ranking among the Company and peer companies based on the most recently available public data (2012 data reviewed in 2013 comparison) for base salaries and total compensation for the CEO, COO and CFO positions to the relative performance ranking for the following publicly available performance metrics for the prior year: price-to-book ratio; price-to-earnings ratio; return on equity; combined ratio; five-year combined ratio; and total return to shareholders for one, three and five-year time frames to determine the overall competitiveness of the Company’s executive compensation. Such a comparison in 2011 demonstrated that total compensation for each of these individuals was above the medianThe Company’s rank among the peer companies consistent with the ranking for the Companyis shown in the performance metrics listed above which were above the median for every metric.table below: Performance Metric Price/Book Return on Equity Combined Ratio One-Year TSR Five-Year TSR Ten-Year TSR Market Cap                 RLI Rank 1 2 3 12 2 2 7                   Base salaries and total compensation for other NEOs and executive positions are established by reference to the publicly available survey data, including median base salary levels, for comparable executives in the insurance industry.   At the May 20112013 Board meeting, when the annual review of base salaries was conducted by the ERC, Mr. Michael recommended and the ERC approved, no annual base salary increase for Mr. Stone or himself. The averageHe recommended an 8.3 percent increase in base salary in May 2011 for all NEOs averaged 2.7 percent1. MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM (MVP PROGRAM) The Company has paid annual cash bonuses to certain executive officers under the MVP Program since 1996. As discussed in further detail below, the MVP Program provides a mechanism with which the ERC can correlate cash compensation to long-term shareholder value creation. The MVP Program uses an economic profit measure called “Market Value Potential”, or “MVP”, which measures the after-tax returns earned by the Company above its cost of capital, as a gauge of shareholder value creation. MVP is defined as (1) the Actual Return (the increase in GAAP book value2), less (2) the Required Return (beginning capital3 multiplied by the blended cost of capital4). If the Company does not earn the Required Return in a given year, no bonus award is made pursuant to the MVP Program for that year. Key elements of the MVP Program for 2011 include the following: ·Annual bonus awards are expressed as a percentage of MVP created in that year. ·Annual bonus awards, if positive, are credited to a bonus bank with only 33 percent of the bank paid out annually, with the remaining amount in the bonus bank at risk depending on future results. ·Bonus banks can either be positive or negative. ·Bonus awards can be negative if MVP for the year is negative and are charged to the bonus bank, reducing prior year award balances in the bonus bank. ·Annual bonus awards in excess of 300 percent of a participant’s base salary require approval of the independent Directors. Participation in the MVP Program, percentage bonus awards and the formula to calculate MVP are recommended by the ERC and approved annually by the independent Directors of the Board for Mr. Michael and by the entire Board for other participants. In 2011, participation in the MVP Program was limited to Messrs. Michael, Stone, Dondanville and Kliethermes. The Board has concluded based on the position responsibilities and ongoing assessmentBrown reflective of individual performance against operational and financial goals that the senior executive management team (the CEO, COO, CFO and Senior Vice President, Risk Services) is most responsible for the operating and investment decisions and actions that directly impact the creation of long-term shareholder value, and, therefore, should be rewarded with incentive compensation that is directly and exclusively tied to the creation of MVP. Mr. Brown joined the Company in September 2011 and did not participate in the MVP Program for 2011, but instead participated in the Management Incentive Program (“MIP”), described below. Mr. Brown is a participant in the MVP Program beginning in 2012. 1Mr. Michael last received an increase in his base salary rate in 2006; Messrs. Stonelevel being low among peer companies, and Dondanville in 2007;an 11.1 percent increase for Mr. Kliethermes reflective of his increased responsibility associated with his promotion to Executive Vice President. Mr. Michael recommended a 3.0 percent increase for Mr. Kennedy in 2008;consistent with the overall merit increase budget for the company. The ERC and Board approved Mr. Kliethermes in 2009 when he was promoted to senior vice president.Michael’s recommendations.   2The increase in GAAP book value is calculated as ending capital (defined as ending GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term debt instruments at the end of the period; plus adjustments for capital transactions during the year), less beginning capital. 3Beginning capital is defined as beginning GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term instruments at the beginning of the period. 4The Company’s blended cost of capital is defined as the weighted average of the cost of equity capital and the cost of debt capital. The cost of equity capital is the average ten year U.S. Treasury Note rate, plus a market risk premium multiplied by the Company’s beta. The Company’s cost of debt capital is the coupon or interest rate actually incurred on the outstanding long-term debt.       RLI Corp. 2012 Proxy Statement    27     29 Table of Contents   For 2011, each participant in the MVP Program received an annual MVP bonus award expressed as a percentage of MVP created by the Company in that calendar year. Each year the ERC confirms that the percentage awards remain appropriate by reviewing historical bonus award payouts, projected future payouts and resulting total compensation for MVP Program participants, which in turn is compared to the performance of the Company necessary to achieve such payouts. The ERC then compares the performance of the Company and total compensation of the MVP Program participants with comparable performance metrics and compensation at companies in the peer group. The MVP percentage award, expressed as a percentage of MVP, for each participant for 2011 was as follows: 3.0 percent for Mr. Michael, 1.9 percent for Mr. Stone, 1.25 percent for Mr. Dondanville and 0.625 percent for Mr. Kliethermes. The ERC set the percentage bonus awards for 2011 based on the factors described above and based on the range of expected MVP to be created by the Company in 2011 and the projected bonus awards and bonus payouts that would result.MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM — ANNUAL INCENTIVE COMPENSATION COMPONENT   Annual awards are added to a MVP bonus bank for each participant. If MVP is negative for a year, a negative award is deducted from each participant’s bonus bank. If the entire bank balance is negative, the negative bank balance carries over to the next year. Interest at the three-year U.S. Government Treasury Bill rate is accrued on any positive unpaid bonus bank balance on December 31 of each year. Annually, 33 percent of a participant’s MVP Program bonus bank (if positive) is paid as a cash bonus payment. The remainder of the bank balance is at risk and will be reduced to the extent MVP is negative in subsequent years. The MVP Program also includes a Board Approval Limit which provides that if a positive MVP award to be added to, or a negative MVP award to be deducted from, a participant’s bonus bank exceeds 300 percent of year-end base salary, the independent Directors must approve, and may reduce, that portion of the MVP award in excess of the Board Approval Limit. MVP awards approved by the ERC for 2011 for Messrs. Michael and Stone did exceed the Board Approval Limit of 300 percent of their respective base salaries. Accordingly, the amount of the MVP Awards to those individuals above 300 percent of each of their respective base salaries was approved by the independent Directors. Individual annual MVP Award payments, including the amount credited to a bonus bank, are capped at $7.5 million under the terms of the RLI Corp. Annual Incentive Compensation Plan approved by Shareholders in 2011. The Company’s MVP in 2011 was $98.4 million, compared to MVP of $101.7 million in 2010, and MVP of $97.7 million in 2009. The following table shows the manner in which 2011 MVP payouts and remaining at-risk bank balances were calculated for Messrs. Michael, Stone, and Kliethermes. 2011 MVP Program Bonus Awards and Payouts                                                               Participant   2011 MVP (A)   MVP Bonus Percent (B)   2011 MVP Award Paid into Bonus Bank (C = A x B)   December 31, 2011 Bonus Bank Balance(1) (D)   Bonus Bank Balance after 2011 Award (E = C+D)   Payout to Participant of 33% of Bank (F = E x .33)   Remaining Bank Balance at Risk(2) (G = E - F)                                                               Michael, J. E.   $98,436,000   3.0%       $2,953,080   $4,507,675   $7,460,755   $2,462,049   $4,998,706                               Stone, M. J.   $98,436,000   1.9%       $1,870,284   $2,773,069   $4,643,353   $1,532,307   $3,111,047                               Dondanville, J. E.   $58,934,000 (3) 1.25%     $736,675   $1,839,074   $2,575,749   N/A   N/A                               Kliethermes, C. W.   $98,436,000   0.625%   $615,225   $782,500   $1,397,725   $461,249   $936,476                                                             (1)Interest at the three-year U.S. Government Treasury Note rate (0.99 percent) was accrued on the unpaid bonus bank balance on December 31, 2011. The following interest was accrued to the December 31, 2011 bonus bank balance as follows: Mr. Michael, $44,189; Mr. Stone, $27,184; and Mr. Kliethermes, $7,671. (2)The conditions under which a positive bank balance will be distributed in the event of a participant’s termination of employment are discussed in the section entitled: “Elements of Post-Termination Compensation and Benefits” beginning on page 32. (3)Mr. Dondanville retired as the Company’s CFO effective September 1, 2011. At the Company’s request, he continued to serve as interim treasurer until his retirement from the Company on November 1, 2011. Pursuant to an agreement with Mr. Dondanville as an inducement for him to serve in the interim treasurer role, he was awarded a pro-rata MVP Program bonus based on MVP created in the first six months of 2011 and his MVP Bonus Bank was frozen as of June 30, 2011. Interest was calculated on his January 1, 2011 beginning bank balance of $1,820,199 at the three-year Treasury Note rate of .99 percent through his retirement date of November 1, 2011. As of November 1, 2011, his MVP Bank balance, including his 28 Table of Contents 2011 MVP Award credited to his Bonus Bank as of November 1, 2011, accrued interest at the five- year Treasury Note rate of .90 percent for the remainder of the year. Total interest paid to Mr. Dondanville’s MVP Bonus Bank for 2011 was $18,875. Pursuant to the MVP Program, Mr. Dondanville’s Bonus Bank balance on the date of his retirement will be paid to him in a quarterly annuity in the amount of $68,948 commencing in May 2012 and continuing until June 30, 2021 when he reaches age 65. REVISIONS TO MVP PROGRAM EFFECTIVE 2012 In February 2012 the MVP Program was revised to broaden the range of factors used to measure success and to incorporate market standards of performance by assessing performance against that of the selected peer companies. The MVP Program continues to use annual MVP created as the foundation for MVP awards, which are calculated as a percentage of MVP created. However, twentyTwenty percent of the annualpreliminary MVP award so calculated for each participant will now beis evaluated against personalannual objectives and an achievement rating of 0 to 100 percent will beis assigned to that portion of the award. This amount represents the annual compensation component of the MVP Program award. For 2013, Messrs. Michael, Stone, Brown and Kliethermes had shared annual objectives related to the ongoing implementation of a company-wide executive succession and development process; strategy; relative annual financial performance; and growth initiatives. The personalannual objectives component of an MVP award will only be paid if personal objectives are achieved and if positive MVP is created for shareholders. If MVP is positive and personalannual objectives are achieved, the personalannual objectives component of the award will be paid annually instead of being placed in each participant’s bonus bank, to provide direct linkage of annual incentive compensation for the achievement of those annual goals. If MVP is negative for a year, no MVP award will be made for that year with respect to the personalannual objectives component.   Eighty percent ofFor 2013, annual objectives were evaluated by the preliminary annual MVP award will now be subject toCommittee and an assessment of Company performance compared to peer companies (the “financial component.”) The financial component will be adjusted from 80 percent (minimum)overall achievement factor was applied. The following annual incentive compensation was paid to 125 percent (maximum) based on RLI’s performance relative to peers with respect to five-year change in book value per share according toeach participant under the following schedule: Achievement Rating RLI’s Relative Five-Year Book Value Per Share Growth 125% (maximum) 90th percent of peers or greater 100% 60th percent of peers or greater 80% (minimum) 33rd percent of peers or greater (Results between the stated values for relative performance will be interpolated to determine the achievement rating.)MVP Program:   The financial componentCalculation of an MVP award will continue to be credited (if positive) or charged (if negative) to each participant’s bonus bank, with 33 percent of a positive bank balance paid to participants annually.Program Annual Incentive Award   The ERC’s goal in making these revisions was to build on the strengths and success of the current MVP Program and continue to support the strong underwriting profit culture of the Company. Incorporating personal objectives and a peer company comparison supports one of the guiding principles of the Company’s executive compensation program enumerated above at page 27 that compensation should reflect both the Company’s and individual’s performance. Ultimately, the ERC’s purpose in revising the MVP Program was to improve the long-term alignment between MVP Program incentive compensation and shareholder returns.     (A)   (B)   (C = A x B)   (D = C x 20%)   (E = % Achieved)   (F = D x E)     2013 MVP   Percentage   2013 Preliminary   20% Annual Component   Achievement   2013 Annual Participant   Created   Award   MVP Award   Based on Strategic Goals   Rating   Incentive Award                           J. Michael   $133.8 million   2.7%   $3,612,168   $722,434   80%   $577,947 M. Stone   $133.8 million   1.8%   $2,408,112   $481,622   80%   $385,298 T. Brown   $133.8 million   1.0%   $1,337,840   $267,568   80%   $214,054 C. Kliethermes   $133.8 million   1.0%   $1,337,840   $267,568   80%   $214,054                             MANAGEMENT INCENTIVE PROGRAM (MIP)   Participants in the MIP include home office vice presidents, assistant vice presidents and other senior managers. Target awardsAwards are granted annually and expressed as a percentage of year-end base pay. Actual awards arepay based on Company performance againsttargets for three financial goals: operating return on equity or “ROE”(“ROE”), combined ratio and MVP goals;MVP; and performance related to balanced scorecardpersonal objectives for each participant. Awards are based on actual results for these metrics and achievement of personal objectives. ROE and combined ratio are used as financial goals to provide an incentive to increase annual profitability. ROE is a ratio calculated as our operating earnings divided by our beginning equity adjusted for capital transactions such as share repurchases and special dividends. Operating earnings, in turn, are our net earnings minus realized investment gains or losses net of tax. Combined ratio is an expense measure and is calculated as the sum of our incurred losses and settlement expenses plus our policy acquisition costs and operating expenses, divided by our net premiums earned. The difference between the combined ratio and 100 reflects the per-dollar rate of underwriting income or loss. MVP is used as a financial goal as a proxy for shareholder value creation. creation and is explained on page 28. Actual awards for a year are paid in Februarythe first quarter of the following year. The ERC approves award levels for MIP participants at the vice president level. The CEOlevel, who are designated as executive officers under Section 16 of the Securities Exchange Act of 1934. Mr. Michael approves award levels for other MIP participants.   For 2011,2013, Mr. Michael recommended, and the ERC approved, a MIP maximum bonusannual incentive opportunity for Mr. Kennedy of 75 percent of his respective year-end base salary, 60 percent of which was based on the achievement of financial goals of MVP, ROE and combined ratio and 15 percent of which was based on balanced scorecardpersonal objectives related to expense management, employee morale, enterprise risk management, and new product and IT initiatives. Mr. Brown participated in the MIP Program at a maximum bonus opportunity of 90 percent, pro-rated for his start date, 72 percent of which was based on the achievement of financial goals, and 18 percent of which was related to the balanced scorecard objectives.strategic legal projects.       30   RLI Corp. 20122014 Proxy Statement 29     Table of Contents   AchievementTargets levels and corresponding achievement levels for actual results for financial goals are measured according to the following schedules.   MIP Maximum 90 Percent                                                                   Combined             ROE %   Bonus %       MVP   Bonus %       Ratio   Bonus %                                       Greater than   6.0   0.000     Greater than   $                –   0.000   Greater than   100.0     0.000                                               8.0   4.000         15,000,000   4.000       99.0     1.212                                               10.0   8.000         25,000,000   6.667       97.0     3.636                                               12.0   12.000         35,000,000   9.333       95.0     6.061                                               13.0   14.000         45,000,000   12.000       92.6     8.970                                               14.0   16.000         55,000,000   14.667       90.0     12.121                                               15.0   18.000         65,000,000   17.334       87.6     15.030                                               16.0   20.000         75,000,000   20.000       85.0     18.182                                               17.0   22.000         85,000,000   22.667       82.6     21.091                                            Max   18.0   24.000      Max   90,000,000   24.000    Max   80.0     24.000                                       MIP Maximum 75 Percent                                                           Target               Target ROE % Target ROE %   Bonus %       Target MVP   Bonus %   Combined Ratio   Bonus %                             Combined                                           ROE %   Bonus%       MVP   Bonus %       Ratio   Bonus%                                                                       Greater than   6.0   0.000     Greater than   $                –   0.000   Greater than   100.0     0.000                                           8.0   3.333         15,000,000   3.333       99.0     1.010                                           10.0   6.667         25,000,000   5.556       97.0     3.030                                           12.0   10.000         35,000,000   7.778       95.0     5.051                                           13.0   11.667         45,000,000   10.000       92.6     7.475                                         Less than   6.0   0.000   Less than   $                0   0.000   Greater than   100.0   0.000     14.0   13.333         55,000,000   12.222       90.0     10.101     8.0   3.333       15,000,000   3.333       99.0   1.010                                           10.0   6.667       25,000,000   5.556       97.0   3.030     15.0   15.000         65,000,000   14.444       87.6     12.526     12.0   10.000       35,000,000   7.778       95.0   5.051                                           13.0   11.667       45,000,000   10.000       92.6   7.475     16.0   16.667         75,000,000   16.667       85.0     15.152     14.0   13.333       55,000,000   12.222       90.0   10.101                                           15.0   15.000       65,000,000   14.444       87.6   12.526     17.0   18.333         85,000,000   18.889       82.6     17.576     16.0   16.667       75,000,000   16.667       85.0   15.152                                           17.0   18.333       85,000,000   18.889       82.6   17.576   Max   18.0   20.000     Max   90,000,000   20.000   Max   80.0     20.000     18.0   20.000   Max   90,000,000   20.000   Max   80.0   20.000                                                                         In 2011,2013, the Company achieved the following actual results: ROE of 15.214.1 percent, MVP of $98.4$133.8 million, and a combined ratio of 78.4 percent. Mr. Brown received a 2011 MIP award of $92,089, reflective of 18.4 percent of year-end base salary for the ROE goal, 24.0 percent for the MVP goal, 24.0 percent for the combined ratio goal and 17.1 percent for balanced scorecard objectives, pro-rated for his start date.83.1. Mr. Kennedy received a 20112013 MIP award of $215,707,$207,370, reflective of 15.313.5 percent of year-end base salary for the ROE goal, 20.0 percent for the MVP goal, 20.017.0 percent for the combined ratio goal and 14.2512.7 percent for balanced scorecardpersonal objectives.   LONG-TERM COMPENSATION   MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM — LONG-TERM INCENTIVE COMPENSATION COMPONENT The MVP Program is described above on pages 28 and 30. Eighty percent of the preliminary MVP award calculated under that program (which will be positive if MVP is positive, or negative if MVP is negative) is subject to an assessment of Company performance compared to peer companies (the “financial component”). This represents the long-term component of the MVP award. The financial component of a preliminary award will be adjusted in a range from a 20 percent reduction (minimum) to a 25 percent increase (maximum) based on the Company’s long-term performance relative to peers measured by five-year growth in book value per share. RLI’s relative growth in book value is calculated by comparing its compound annual growth rate (“CAGR”) in GAAP comprehensive earnings over the applicable five-year period to that of its Peer Companies. CAGR in comprehensive earnings is calculated based on publicly disclosed comprehensive earnings of Peer Companies for the five-year period ending at the third quarter of the fifth year. The adjustment to the financial component is made according to the following schedule: RLI’s Relative Five-Year Book Value per Share Growth 125% (maximum) 90th percentile of peers or greater 100% (target) 60th percentile of peers 80% (minimum) 33rd percentile of peers or less Results between the stated values for relative performance will be interpolated to determine the achievement rating. As noted above, the Company must perform at the 60th percentile, above the median of long-term performance of peer companies, in order for 100 percent of the long-term financial component of an MVP award to be made. The financial component of an MVP award earned is not immediately paid to participants; rather it is credited (if positive) or charged (if negative) to each participant’s long-term bonus bank. A bonus bank, in turn, may be positive or negative based on prior year results. The bonus bank is paid annually at a rate of 33 percent of a positive bank balance, meaning that it will take more than ten years to completely pay out an incentive award for a given year deposited into a bonus bank. Until paid out, all amounts in the MVP Program bonus bank are subject to a risk of forfeiture if future financial performance results in a negative MVP calculation. In other words, negative MVP charged to a bonus bank will reduce a positive balance in that bonus 31 Table of Contents bank, effectively causing a forfeiture of such positive balance. If a bonus bank is negative after the financial component of an MVP award is credited or charged to a bonus bank, no award will be paid from the bank until it is positive as a result of future positive amounts credited to the bank. The forfeiture provision in the MVP Program bonus bank concept in the event of negative MVP, in effect, operates as a clawback for negative shareholder results by reducing the amount payable from the bonus bank when the Company has negative MVP. The ERC has considered implementing broader clawback provisions for the MVP Program and long-term incentives in anticipation of expected regulations implementing the federal Dodd-Frank Act clawback requirements. However, given the complexity inherent in creating such provisions and the uncertainty created by the lack of a regulatory framework, the ERC has decided to wait to implement broader clawback provisions until after such regulations are promulgated. The Company’s MVP in 2013 was $133.8 million, compared to MVP of $82.7 million in 2012, and $98.4 million in 2011. The following table shows the manner in which 2013 annual and long-term MVP award payouts and remaining at-risk bank balances were calculated for Messrs. Michael, Stone, Brown and Kliethermes. 2013 MVP Program Incentive Awards and Payouts Personal Objectives Achieved 80.00% Peer Company Adjustment Factor RLI Rank 2/14 125%          (A) 2013 MVP Achieved (after tax) $133,784,000 Formula for       (E = D x %   (G = F x Peer   2013 MVP Award: (B) (C = A x B) (D = C x 20%) Achieved) (F = C x 80%) Factor)         Personal Personal           Preliminary Objectives Objectives Financial Financial   Participant MVP % MVP Award ($) Component ($) Award ($) Component ($) Award ($)                   Jonathan E. Michael 2.7 3,612,168 722,434 577,947 2,889,734 3,612,168   Michael J. Stone 1.8 2,408,112 481,622 385,298 1,926,490 2,408,112   Thomas L. Brown 1.0 1,337,840 267,568 214,054 1,070,272 1,337,840   Craig W. Kliethermes 1.0 1,337,840 267,568 214,054 1,070,272 1,337,840   Formula for 2013   (G)         Payout from MVP Bank: (H) (from above) (I = G + H) (J = I x 33%) (K = I - J)     Beginning Bank 2013 Award Total Pre-payout Payout Remaining   Participant Balance ($)(1) Credited to Bank ($) Balance ($) of Bank ($) At-Risk Bank                 Jonathan E. Michael 4,981,647 3,612,168 8,593,815 2,835,959 5,757,856   Michael J. Stone 3,118,064 2,408,112 5,526,176 1,823,638 3,702,538   Thomas L. Brown 536,175 1,337,840 1,874,015 618,425 1,255,590   Craig W. Kliethermes 1,168,108 1,337,840 2,505,948 826,963 1,678,985   Formula for Total (J) (E)       2013 MVP Payout: (from above) (from above)   (L = J + E)       Payout of 2013         Payout Personal Objectives   Total 2013   Participant of Bank ($) Component ($)   Payout ($)               Jonathan E. Michael 2,835,959 577,947   3,413,906   Michael J. Stone 1,823,638 385,298   2,208,936   Thomas L. Brown 618,425 214,054   832,479   Craig W. Kliethermes 826,963 214,054   1,041,017   32    RLI Corp. 2014 Proxy Statement Table of Contents (1)Under the terms of the MVP Program, interest at the three-year U.S. Government Treasury Note rate (0.36 percent) was accrued on the unpaid bonus bank balance on December 31, 2013. The following interest was accrued to the December 31, 2013 bonus bank balance as follows: Mr. Michael, $17,870; Mr. Stone, $11,185; Mr. Kliethermes, $4,190; and Mr. Brown, $1,923. DEFERRED COMPENSATION PLAN (DEFERRED PLAN)   Under the Company’s Deferred Plan, an executive officer may elect to defer up to 100 percent of total cash compensation after payroll deductions. Upon an election by an executive officer to defer compensation, the Company transfers cash equal to the amount deferred to a bank trustee under an irrevocable trust established by the Company, and the trustee purchases a number of shares of Common Stock of the Company representing an amount equal to the compensation deferred by the executive officer. Pursuant to the Deferred Plan, dividends paid on the shares in such trust are used by the trustee to purchase additional shares of Common Stock of the Company, which are placed in the trust. The trust is considered to be a “Rabbi Trust” or grantor trust for tax purposes. The assets of the trust are subject to claims by the Company’s creditors. The Deferred Plan generally provides that the shares credited to the participant’s account will be transferred to the participant upon termination 30 Table of Contents of employment over five years. Messrs.Mr. Kliethermes and KennedyMr. Brown deferred income under the Deferred Plan in 2011. Each of the named executive officers other than Mr.2013. Messrs. Michael, Stone, Brown, hasKliethermes, and Kennedy have deferred income under the Deferred Plan in prior years and receivestheir respective accounts are credited with dividends on shares held in the Deferred Plan,their account, which are used to purchase additional shares.   OMNIBUS STOCK PLAN (OMNIBUS PLAN)   Under the Company’s Omnibus Plan, which was adopted in 2005, certain employees, officers, consultants and directors of the Company were eligible to receive long-term incentive compensation in a variety of forms including non-qualified stock options, incentive stock options, stock appreciation rights, performance units, restricted stock awards and other equity awards. The Long-Term Incentive Plan, described immediately below, was adopted in 2010 and approved by Shareholders on May 6, 2010, and replaced the Omnibus Plan, which is described immediately below.Plan. Messrs. Michael, Stone, Kliethermes and Kennedy have outstanding stock option awards under the Omnibus Plan.   LONG-TERM INCENTIVE PLAN (LTIP)   The purpose of the Long-Term Incentive PlanLTIP is to promote the interests of the Company and its shareholders by providing key personnel of the Company with an opportunity to acquire an equity interest in the Company and rewarding them for achieving or exceeding the Company’s performance goals. The grant of equity awards, the value of which is related to the value of the Company’s Common Stock, aligns the interests of the Company’s executive officers with that of the shareholders. The ERC believes this arrangement develops a strong incentive for Company executives to put forth maximum effort for the continued creation of shareholder value and long-term growth of the Company.   Under the Company’s Long-Term Incentive Plan,LTIP, certain employees, officers and directors of the Company are eligible to receive equity awards in a variety of forms including non-qualified stock options, incentive stock options, stock appreciation rights, performance units, restricted stock awards and other equity awards. All executives at the Company are required to own a significant level of Company stock, stated as a multiple of base salary. Equity grants provide a means for executives to meet their ownership requirement. As explained further on page 36, executives are required to hold all net shares from an equity grant until their stock ownership level is met.   The ERC believes equity awards serve as incentives to executives to maximize long-term growth and profitability of the Company, an arrangement that benefits both the executives and shareholders. Equity awards also provide a means to attract and retain key employees. The ERC establishes and recommends to the independent directorsDirectors of the Board the annual equity award for Mr. Michael, which is established based on a review of long-term incentive compensation of CEO positions among the peer companies described above, an assessment of his performance and initiatives underway and a comparison of his equity awards compared to awards to other officers.executives. A target range of the value of annual equity awards, expressed as a percentage of base salary, has been established for all other Company executives.   In 2011,2013, the Company awarded long-term incentives in the form of non-qualified stock option grants to Company executives.executives in amounts recommended by the ERC and approved by the Board of Directors (independent Directors with respect to Mr. Michael’s award). The ERC believes that non-qualified stock options provide an effective form of performance-based compensation to align the interests of executive management and shareholders. In reaching that conclusion, the ERC considered the following: stock options provide more leverage than equity awards such as restricted stock; are directly aligned with shareholder interests since they provide rewards only with share price appreciation; and, are understood and supported by recipients. The Company targets long-term incentives at approximately the median of competitive market data. Mr. Michael recommends to the ERC proposed stock option awards within the target range for each executive officer based on the executive officer’s position and a subjective assessment of the executive officer’s individual performance and anticipated future 33 Table of Contents contributions to the Company. The ERC considers Mr. Michael’s recommendations and then recommends stock option awards to the Board for approval. Options granted prior to May 2009 expire ten years after grant, options awarded from May 2009 and after expire eight years after grant. The change in 2009 to an eight-year term for stock options was implemented to reduce the expense of option grants. Stock options vest over five years at the rate of 20 percent per year, or upon termination of employment due to the death, disability or qualified retirement of the recipient. Upon termination of employment (other than due to death, disability or retirement), vested options must be exercised within the earlier of 90 days of termination or expiration of the option award, except that all unexercised options granted in May 2006 and thereafter are forfeited in the event the employment of an option recipient is terminated for cause. Stock options awarded by the Company do not include provisions that would automatically vest stock options in the event of a change in control of the Company (single trigger), although the Board has discretion pursuant to the LTIP in the event of a change in control to make adjustments to the number, kind and exercise price of options to prevent inappropriate dilution or enlargement of the rights of an optionee.   EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)   The Company’s ESOP offers another performance-based means of retaining and motivating employees, including executive officers, who work 1,000 or more hours per year, by offering ownership in the Company on a long-term basis. The Board may approve an annual contribution to the ESOP based on the profitability of the Company that is used by the ESOP to purchase Common Stock on behalf of participating employees, including executive officers. All ESOP participants, including executive officers, may receive an annual contribution expressed as a percentage of eligible compensation (limited for an individual employee to an annual cap of $245,000$255,000 in earnings in 2011)2013). ESOP contributions vest 100 percent after three years of qualifying service. For 2011,2013, the Company’sERC recommended and the Board approved a discretionary profit sharing contribution to the ESOP of 9.7510.1 percent of participants’ eligible compensation. In addition, plan forfeitures of 0.042equal to .19 percent of eligible compensation were added to all participants’ accounts.   RLI Corp. 2012 Proxy Statement    31 Table of Contents 401(k) PLAN   Effective January 1, 2004, theThe Company adoptedsponsors a 401(k) Plan in which all employees, including executive officers, scheduled to work 1,000 or more hours per year, are entitled to participate. All participants receive a “safe harbor” annual contribution by the Company to their 401(k) accounts of three3 percent of eligible compensation (limited for an individual employee to an annual cap of $245,000$255,000 in earnings in 2011)2013), which is immediately vested. The Board may also approve discretionary profit sharing contributions to the 401(k) Plan, which are allocated in proportion to the eligible compensation paid to each participant, subject to statutory maximums. Profit sharing contributions vest after three years of qualifying service. Participants are entitled to make their own elective deferrals to the 401(k) Plan through payroll deduction. For 2011,2013, in addition to the safe harbor three3 percent annual contribution, the Company’sERC recommended and the Board approved a discretionary profit sharing contribution to the 401(k) of 2.252.6 percent of participants’ eligible compensation and plan forfeitures equal to 0.031.02 percent of eligible compensation were added to all participants’ accounts.   KEY EMPLOYEE EXCESS BENEFIT PLAN (KEY PLAN)   The purpose of the Key Plan is to restore benefits lost to certain executive officers under the ESOP and 401(k) Plan due to limitations on benefits contained in the Internal Revenue Code. The Company transfers to a bank trustee under an irrevocable trust established by the Company such number of shares of Common Stock of the Company representing an amount equal to the benefits the participant would have earned in the 401(k) and ESOP but for the limitation in the Internal Revenue Code on the maximum compensation on which those benefits may be calculated. The trust is considered to be a “Rabbi Trust” or grantor trust for tax purposes. The assets of the trust are subject to claims by the Company’s creditors. The Key Plan generally provides that dividends are credited to the participant’s account and reinvested in shares of Common Stock of the Company. The shares credited to the participant’s account pursuant to the Key Plan will be paid upon termination of employment in five annual installments. Mr. Michael ceased active participation in the Key Plan in 2005. Dividends on his shares held in the Key Plan continue to be credited to his account in the Key Plan. No other employee participates or has participated in the Key Plan.Plan and the plan is now frozen.   34    RLI Corp. 2014 Proxy Statement Table of Contents ELEMENTS OF POST-TERMINATION COMPENSATION AND BENEFITS The following table shows potential amounts payable to each NEO had their employment terminated on December 31, 2013 based on the following scenarios: Departure other than death, disability, or retirement; Departure from death, disability, or retirement; For cause; and Change-in-control. Post Termination Compensation               Deferred           Termination of         Compensation       Name   Employment Scenarios MVP/MIP ($) LTIP ($)   ($)   Key Plan ($)   Total ($) Jonathan E. Michael   Departure Other Than Death, Disability, or Retirement   NA (1)   NA (1)   7,226,348   5,148,539   12,374,887     Departure From Death, Disability, or Retirement   5,757,856   14,487,824   7,226,348   5,148,539   32,620,567     For Cause   0   0   7,226,348   5,148,539   12,374,887     Change in Control     5,757,856   14,487,824   7,226,348   5,148,539   32,620,567 Michael J. Stone   Departure Other Than Death, Disability, or Retirement   NA (1)   NA (1)   2,547,808   0   2,547,808     Departure From Death, Disability, or Retirement   3,702,538   4,866,832   2,547,808   0   11,117,178     For Cause   0   0   2,547,808   0   2,547,808     Change in Control     3,702,538   4,866,832   2,547,808   0   11,117,178 Thomas L. Brown   Departure Other Than Death, Disability, or Retirement   0   229,808   110,205   0   340,013     Departure From Death, Disability, or Retirement   1,255,590   1,622,080   110,205   0   2,987,875     For Cause   0   0   110,205   0   110,205     Change in Control     1,255,590   1,622,080   110,205   0   2,987,875 Craig W. Kliethermes   Departure Other Than Death, Disability, or Retirement   0   1,721,220   630,815   0   2,352,035     Departure From Death, Disability, or Retirement   1,678,985   3,892,784   630,815   0   6,202,584     For Cause   0   0   630,815   0   630,815     Change in Control     1,678,985   3,892,784   630,815   0   6,202,584 Daniel O. Kennedy   Departure Other Than Death, Disability, or Retirement   0   73,360   55,573   0   128,933     Departure From Death, Disability, or Retirement   207,370   1,322,150   55,573   0   1,585,093     For Cause   0   0   55,573   0   55,573     Change in Control     207,370   1,322,150   55,573   0   1,585,093 (1) Messrs. Michael and Stone have met the requisite age and years of service to automatically qualify for retirement upon their departure from the Company.   Except as described below, the Company has not entered into any employment or severance agreements or arrangements with any of its executive officers that would compensate the executive officers for or after departing the Company. MVP/MIP. Under the Company’s Annual Incentive Plan (which governs MVP and MIP), an employee must be employed on the date a bonus is paid or amount is paid from a bonus bank, generally paid in March of the following calendar year, unless the employee’s termination of employment was due to death disability, or retirement. Retirement requires: (1) the termination of employment of an employee who has reached age and years of service equal to or greater than 75 at the time of departure; or (2) the termination of employment of an employee who satisfies a non-competition covenant or other terms and conditions specified by the Company. The Company does not have changeamounts in control agreements with its executives and does not provide any additional benefits for executivesthe above table show annual incentives payable upon termination of employment in the event of a change in control. death, disability, or retirement assuming all NEOs would have met the definition of retirement at year-end 2013, although only Messrs. Michael and Stone Dondanville and Kliethermes were participants inautomatically met the MVP Program in 2011, which is described in more detaildefinition based on page 27. Upon termination of employment of an MVP Program participant for any reason other than retirement (defined as the date at which a participant has attained both combined age and service with the Companyyears of 75), death, or disability, all unpaid positive MVP bonus bank balances of the participant are forfeited unless the ERC deems otherwise. service. Upon the termination of employment of a participant qualifying as retirement, a positive MVP bonus bank calculated on the last day of the quarter during which the participant’s employment ended will be paid to a participant in a lump sum within 90 dayson the first day of the seventh month after termination of employment if the participant is age 65 or older, and as a quarterly annuity to age 65 using the interest rate for the five-year Treasury Note in effect at the date of retirement if the Participant’s age is less than 65. A bonus bank balance will also be calculated at the end of the quarter prior to a participant’s termination of employment 35 Table of Contents and the Company may, in its discretion, pay the lower of the calculated bonus banks. All such payments upon a termination of employment qualifying as retirement are subject to ongoing restrictions on: the participant’s employment in the insurance industry; solicitation of Company employees;employees for employment elsewhere; solicitation of business away from the Company; and disclosure of confidential information of the Company. At year-end 2011, Messrs. Michael and Stone qualified for retirement under the MVP Program; while Mr. Kliethermes did not qualify for retirement. Had Messrs. Michael’s and Stone’s employment ended on December 31, 2011, they would have met the definition of retirement under the MVP Program and would have been entitled to the payment of their respective MVP bonus bank on that date, including the MVP Program award for 2011, in the amount of $7,460,755 for Mr. Michael and $4,643,353 for Mr. Stone in the form of a quarterly annuity at an interest rate of 0.90 percent until age 65. As noted above, Mr., Dondanville retired as CFO on September 1, 2011 and retired as an employee from the Company on November 1, 2011. He was paid a pro-rata MVP Program bonus based on MVP created in the first six months of 2011 and his MVP Bonus Bank was frozen as of June 30, 2011 pursuant to an agreement between the Company and Mr. Dondanville, approved by the ERC. The agreement was entered into as an inducement for Mr. Dondanville to remain in the employment of the Company as interim treasurer. Pursuant to the terms of the MVP Program, his Bonus Bank balance of $2,575,749 will be paid as a quarterly annuity until he reaches age 65 calculated at a 0.90 percent interest rate, the five-year Treasury Note rate, as provided in the MVP Program. 32 Table of ContentsLong-Term Incentives. Under the terms of the Long-Term Incentive Plan,LTIP, stock option grants automatically vest upon the death or disability of an optionee, and maybut will vest upon the retirement of an optionee provided thatonly if the underlying stock option agreement so provides. The awards of stock options to the Named Executive Officers,NEOs, and all other stock option recipients at the Company, provide for the immediate vesting of outstanding unvested stock options in the event of a recipient’s termination of employment qualifying as a retirement. Retirement is defined under the Long-Term Incentive PlanLTIP as the termination of employment of a participant withwho has combined age and years of service of 75 or greater.greater at the time of departure. Stock options must be exercised within the earlier of one year of the death of an optionee, or three years of the termination of employment due to the disability or retirement of an optionee, and the original expiration date of the stock option award. In the event of the termination of employment of an optionee for reasons other than death, disability, or retirement, vested options must be exercised within the earlier of 90 days of the termination of employment or the original expiration of the option award. In 2011,2013, Messrs. Michael’s Dondanville’s and Stone’s respective age and years of service exceeded 75. Accordingly, upon Mr. Michael’s or Mr. Stone’s termination of employment with the Company, all of their respective unvested stock option grants will immediately vest, expiring on the earlier of the original expiration date or three years. Therefore, For Cause. In the event of a termination for cause, all unpaid bonuses, amounts in a bonus bank, and unexercised stock options are forfeited. Change-in-control. The Company does not have change in control agreements with its executives. However, in the event of a change-in-control, the Board of Directors may, but is not obligated to, cancel each stock option by paying an amount for each cancelled option by which the fair market value per share exceeds the exercise price per share (“in-the-money value”). For illustration purposes, the table shown above assumes the Board of Directors had Messrs. Michael or Stone left the employmentexercised such discretion to so cancel each option as of the Company on December 31, 2011, their respective unvested2013 by permitting each participant to exercise all outstanding stock options would have immediately vested on that date. Theto realize the in-the-money value of such options that would have vested on December 31, 2011, using the closing stock price on that date of $72.86, would have been $8,633,878 for Mr. Michael, and $3,821,607 for Mr. Stone. When Mr. Dondanville retired from the Company on November 1, 2011, his unvested options became vested and all vested options will expire on the earlier of the original expiration date or three years after his retirement. Under the Company’s self-funded health plan for employees, coverage may be maintained at retirement, defined as termination of employment at age 55 or older and at least 20 years of service, until age 65, by paying the full amount of the employee and Company premium. In 2011 Messrs. Michael and Dondanville qualified for such continuation of coverage, while none of the other named executive officers qualified.those options.   STOCK OWNERSHIP/RETENTION GUIDELINE   It is the Company’s belief that key executives should hold significant amounts of Company stock. The value of all shares owned, including those held outright and in benefit plans, but excluding the value of stock options held, must equal or exceed a multiple of their annual base salary, as shown below:   Position $ Value of Shares CEO 6.0 x Base Salary COO 4.0 x Base Salary CFO CFO; Exec. VP, Operations 3.0 x Base Salary Sr. VP, Risk Services 2.0 x Base Salary Other Officers Executives 1.5 x Base Salary   Executives to whom this Guideline applies are encouraged to reach their respective stock ownership level within five years of the date on which an individual assumes an executive position covered by this Guideline. Until an executive reaches the required ownership level, all net shares obtained from the exercise of stock options or other long-term incentive awards must be retained and may not be sold. The ERC reviews the progress of executives, to whom the Guideline applies, toward their stock ownership goal each year. All NEO’sWith the exception of Mr. Brown (who has until 2016 to meet his goal), all NEOs have met their respective stock ownership goals and Messrs. Michael and Stone have greatly exceeded their respective stock ownership goal. The Company does not have a formal policy restricting executives from using financial instruments to reduce their risk of holding Company stock or using the stock for margin trading or collateral purposes. In 2013, none of the named executive officers used financial instruments to reduce the risk of holding company stock or used company shares for margin trading or collateral purpose.   36       RLI Corp. 2014 Proxy Statement RLI Corp. 2012 Proxy Statement    33   Table of Contents   EXECUTIVE MANAGEMENT   EXECUTIVE OFFICERS   The following information is provided as to each current executive officer of the Company:   Name   Age   Position with Company   Executive Officer Since               Jonathan E. Michael   58   President & Chief Executive Officer   1985               Michael J. Stone   63   President & Chief Operating Officer of the Company’s principal insurance subsidiaries   1997               Thomas L. Brown   55   Vice President, Chief Financial Officer, and Treasurer   2011               Craig W. Kliethermes (1)   47   Senior Vice President, Risk Services of the Company’s principal insurance subsidiaries   2007               Daniel O. Kennedy   47   Vice President, General Counsel & Corporate Secretary   2006               Todd W. Bryant (2)   43   Vice President, Controller   2009               Aaron P. Diefenthaler(3)   38   Vice President, Chief Investment Officer   2012               Name   Age   Position with Company   Executive Officer Since               Jonathan E. Michael   60   President & Chief Executive Officer   1985               Michael J. Stone   65   President & Chief Operating Officer of the Company’s principal insurance subsidiaries   1997               Thomas L. Brown (1)   57   Vice President, Chief Financial Officer, and Treasurer   2011               Craig W. Kliethermes   49   Executive Vice President, Operations of the Company’s principal insurance subsidiaries   2007               Daniel O. Kennedy   49   Vice President, General Counsel & Corporate Secretary   2006               Todd W. Bryant (2)   45   Vice President, Controller   2009               Aaron P. Diefenthaler (3)   40   Vice President, Chief Investment Officer   2012                 (1)         Mr. KliethermesBrown joined the Company as Vice President, Actuarial ServicesRLI in April 2006. In February 2009, Mr. Kliethermes was promotedSeptember 2011. Prior to Senior Vice President, Risk Services. Previouslyjoining RLI, he was Senior Vice President, Quantitative Analyst for Lockton Companiesa partner at the accounting firm of PricewaterhouseCoopers LLP (“PwC”), where he specialized in the financial services and insurance industries. Mr. Brown was at PwC from January 20061980 through April 2006. Mr. Kliethermes was Assistant Vice President, Employers Reinsurance Corporation and Vice President, Westport, both a part of GE Insurance Solutions, from May 1998 through January 2006.2011. (2)         Mr. Bryant was promoted to Vice President, Controller of the Company in February 2009. Prior to his promotion, Mr. Bryant had been Assistant Vice President, Financial Reporting since August 2006, and previously held various managerial and accounting positions since he joined the Company in 1993. (3)         Mr. Diefenthaler joined the Company as Vice President, Chief Investment Officer on January 23, 2012. Mr. Diefenthaler was Principal and Portfolio Manager with AAM Insurance Investment Management from 2002 to January 2012.       3437   Table of Contents   EXECUTIVE COMPENSATION   SUMMARY COMPENSATION TABLE   The aggregate compensation earned from the Company and its subsidiaries during the last fiscal year is set forth below for the Company’s President & Chief Executive Officer, Senior Vice President, Chief Financial Officer (retired and current)Treasurer and the other three most highly compensated executive officers, referred to herein collectively as “named executive officers.”officers” or “NEOs”. None of the NEOs have an employment contract with the Company.                               Change In Pension                                       Value and                                   Non-Equity   Nonqualified                           Stock   Option   Incentive Plan   Deferred   All Other       Name and           Bonus   Awards   Awards   Compensation   Compensation   Compensation       Principal Position   Year   Salary ($)(1)   ($)(2)   ($)   ($)(3)   ($)(4)   Earnings ($)   ($)(5)(6)(7)   Total ($)                                           (a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)                                           Jonathan E. Michael   2011   715,400           691,940     2,462,049         42,374     3,911,763     President & Chief   2010   728,000   -   -   450,898     2,198,434     -   40,543     3,417,875     Executive Officer   2009   728,000   -   -   521,798     1,749,407     -   39,087     3,038,292                                                     Michael J. Stone                                               President & Chief   2011   486,496           386,840     1,532,307         37,461     2,443,104     Operating Officer of   2010   485,250   -   -   229,980     1,352,451     -   32,650     2,100,331     the Company’s principal   2009   485,250           346,240     1,049,403     -   36,338     1,917,231     insurance subsidiaries                                                                                               Joseph E. Dondanville   2011   319,637           205,560     -0-         2,584,268     3,109,465     Senior Vice President,   2010   362,400   -   -   213,621     896,516     -   35,599     1,508,136     Chief Financial Officer   2009   362,400   -   -   250,519     700,298     -   36,782     1,349,999                                                     Thomas L. Brown   2011   104,077   50,000       124,400     92,089         -0-     370,566     Vice President, Chief                                               Financial Officer, and                                               Treasurer                                                                                               Craig W. Kliethermes   2011   321,000           232,560     461,249         37,925     1,052,734     Senior Vice President,   2010   320,000   -   -   174,460     381,632     -   33,033     909,125     Risk Services of the   2009   315,000   -   -   151,480     252,350     -   38,475     757,305     Company’s principal                                               insurance subsidiaries                                                                                               Daniel O. Kennedy   2011   300,031           129,200     215,707         36,950     681,888     Vice President,   2010   296,000   -   -   118,096     195,447     -   32,650     642,193     General Counsel &   2009   296,000           111,446     173,900     -   42,869     624,215     Corporate Secretary                                                                                     The key elements of compensation presented in the summary compensation table include base salary (column c); payouts under annual incentive programs (column g); and stock option awards (column f). Amounts reflected in the column titled “Non-Equity Incentive Plan” for Messrs. Michael, Stone, and Kliethermes reflect payouts from each of their respective MVP Program bonus bank accounts of amounts earned in prior years based on financial performance of the Company in those years. As described in greater detail on page 31, payouts under the long-term component of the MVP Program are reflective of amounts earned in prior years, which are banked and paid out over a period of time of up to 10 years.                             Change In Pension                                       Value and                                   Non-Equity   Nonqualified                           Stock   Option   Incentive Plan   Deferred   All Other       Name and           Bonus   Awards   Awards   Compensation   Compensation   Compensation       Principal Position   Year   Salary ($)   ($)(1)   ($)   ($)(2)   ($)(3)   Earnings ($)   ($)(4)(5)(6)   Total ($)                                           (a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)                                           Jonathan E. Michael   2013   750,000   –   –   687,550   3,413,906   –   45,103   4,896,559   President & Chief   2012   742,385   –   –   794,850   2,941,106   –   45,690   4,524,031   Executive Officer   2011   715,400   –   –   691,940   2,462,049   –   36,950   3,906,339                                           Michael J. Stone   2013   515,000   –   –   496,560   2,208,936   –   52,256   3,272,752   President & Chief   2012   509,808   –   –   423,920   1,844,552   –   26,958   2,805,238   Operating Officer of   2011   486,496   –   –   386,840   1,532,307   –   36,950   2,442,593   the Company’s principal                                       insurance subsidiaries                                                                               Thomas L. Brown   2013   373,731   –   –   258,800   832,479   –   40,593   1,505,603   Vice President, Chief   2012   349,615   50,000   –   235,260   428,559   –   26,233   1,089,667   Financial Officer, and   2011   104,077   50,000   –   124,400   92,089   –   –   370,566   Treasurer                                                                               Craig W. Kliethermes   2013   385,692   –   –   258,800   1,041,017   –   40,593   1,726,102   EVP, Operations of   2012   349,615   –   –   235,260   738,693   –   26,233   1,349,801   the Company’s   2011   321,000   –   –   232,560   461,249   –   37,925   1,052,734   principal insurance                                       subsidiaries                                                                               Daniel O. Kennedy   2013   325,102   –   –   129,400   207,370   –   40,593   702,465   Vice President,   2012   315,885   –   –   130,700   165,998   –   26,233   638,816   General Counsel &   2011   300,031   –   –   129,200   215,707   –   36,950   681,888   Corporate Secretary                                         (1)The amount included in column (d) for Mr. Brown reflects the initial payment of a sign-on bonus of $100,000, $50,000 of which was paid on September 1, 2011, at the commencement of his employment, and $50,000 which was paid in February 2012 when Company annual incentive plan payments for 2011 were made. (2)The amounts shown in column (f) reflect the aggregate grant date fair value of stock option awards computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 8 to the Company’s audited financial reports for the fiscal year ended December 31, 2013, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2014.     (1) Although Mr. Michael’s base salary rate of $728,000 did not change in 2011, his base salary for 2011 above reflects a reduction as a result of the payroll cycle of the Company changing in 2011 from semi-monthly to bi-weekly, resulting in 51 weeks of pay in 2011, a one-time impact of this change. The base salary of the other NEOs likewise reflects 51 weeks pay. (2) The amount included in column (d) for Mr. Brown reflects the initial payment of a sign-on bonus of $100,000, $50,000 of which was paid on September 1, 2011 at the commencement of his employment, and $50,000 of which will be paid in February 2012 when Company annual incentive plan payments for 2011 are made. (3) The amounts shown in column (f) reflect the aggregate grant date fair value of stock option awards computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 8 to RLI Corp. 2012 Proxy Statement    3538 Table of Contents the Company’s audited financial reports for the fiscal year ended December 31, 2011, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2012. (4) The amounts shown in column (g) for Messrs. Michael, Stone, and Kliethermes reflect the cash awards paid under the MVP Program, which is discussed in further detail on page 27, and reflect 33 percent of their respective bonus bank balances, which include amounts credited to their bonus banks for 2011. The amounts reflected in column (g) for Mr. Kennedy for 2009 – 2011 and Mr. Brown for 2011 reflect the cash awards paid under the MIP, which is discussed in further detail on page 29. (5) The amounts shown in column (i) include: a. A Company contribution to the ESOP of $24,110 for 2009; $20,867 for 2010; and $23,991 for 2011 for Messrs. Michael, Stone, Dondanville, Kliethermes, and Kennedy, except that because Mr. Dondanville was not employed on December 31, 2011, he was not eligible for an ESOP contribution for 2011. Mr. Brown was not eligible for an ESOP contribution in 2011. b. For all NEOs, a Company contribution to the 401(k) Plan was made for $11,653 for 2009 and $11,764 for 2010; for Messrs. Michael, Stone, Kliethermes, and Kennedy a Company contribution to the 401(k) Plan was made for $12,939 for 2011. For 2011 a Company contribution of $7,350 was made for Mr. Dondanville who was not eligible for a 401(k) profit sharing contribution for 2011 since he was not employed on December 31, 2011 as required by the 401(k) Plan. Mr. Brown was not eligible for a 401(k) contribution in 2011. c. The value of travel accident insurance for each named executive officer is calculated by dividing the annual premium for such coverage by the number of covered employees. Travel accident insurance is provided to all Company employees at the assistant vice president level and above. d. Reimbursement for annual installment of country club initiation fee/capital charge and associated income tax gross up for Mr. Kennedy of $5,000/$2,087 for 2009, and for Kliethermes of $1,900/$793 for 2009. The 2009 reimbursements reflected the final reimbursements for Messrs. Kennedy and Kliethermes. The Company no longer provides a gross up to offset individual income tax liability for any Company executive. e. The membership fee for Mr. Dondanville’s use of two membership airline clubs for 2009, 2010, and 2011. f. For Mr. Dondanville, his accrued MVP Bank Balance on December 31, 2011 in the amount of $2,575,749, described in more detail at page 27. (6) Messrs. Michael, Stone and Dondanville were authorized by the Board to use the Company aircraft for personal use in 2011, when it is not being used for business purposes, pursuant to a lease arrangement at an hourly lease rate established from time to time by the Board, limited to the maximum hourly lease charges equal to 6.5 percent of base salary. In August 2009 the hourly lease rate was set at $1,500; in August 2010 it was set at $1,250; and in August 2011 it was set at $1,700—all of which rates were reflective of the variable hourly operating cost, including fuel prices, of the Company aircraft. In 2009 Mr. Michael paid $4,570 for 2.9 hours use; Mr. Stone paid $3,910 for 2.3 hours use, and Mr. Dondanville did not use the aircraft for personal use. In 2010 Mr. Michael paid $10,500 for 7.8 hours use; Mr. Stone paid $3,225 for 2.3 hours use, and Mr. Dondanville did not use the aircraft for personal use. In 2011 Mr. Michael paid $8,230 for 5.9 hours use; Mr. Stone paid $3,740 for 2.2 hours use, and Mr. Dondanville did not use the aircraft for personal use. Under the lease arrangement, income was imputed if the Standard Industry Fair Level (SIFL) rate for a flight made under such a lease exceeded the lease rate or if a guest or guests accompanied the executive on a leased or business flight. For Mr. Michael, in 2009, imputed income of $1,102 resulted from one leased flight for which the SIFL rate exceeded the lease rate by that amount and imputed income of $2,203 resulted from guests accompanying him on leased and business flights; in 2010, imputed income of $2,062 resulted from two leased flights for which the SIFL rate exceed the lease rate by that amount and imputed income of $5,831 resulted from guests accompanying him on leased and business flights; and in 2011, imputed income of $108 resulted from one leased flight for which the SIFL rate exceeded the lease rate by that amount and imputed income of $5,317 resulted from guests accompanying him on leased and business flights. For Mr. Stone, in 2009, imputed income of $556 resulted from guests accompanying him on leased and business flights; in 2010, no imputed income resulted from guests accompanying him on leased and business flights; and in 2011 imputed income of $511 resulted from guests accompanying him on leased and business flights. (7) In 1996, when the Company acquired an equity ownership interest in Maui Jim, Inc. (“Maui Jim”), Messrs. Michael and Dondanville were elected to the Board of Directors of Maui Jim. Mr. Michael continues to hold this position. Messrs. Michael and Dondanville were paid an initial board of director retainer in the form of 20,000 non-qualified options to purchase shares of Maui Jim stock and were paid a director fee of $1,500 for each of the nine Maui Jim board meetings held from December 1996 through February 2002. Messrs. Michael and Dondanville elected to be paid their entire Maui Jim director fees in the form of non-qualified options to purchase shares of Maui Jim stock valued pursuant to an annual appraisal, which election was available to members of the Maui Jim Board of Directors who were not Maui Jim employees. 36      RLI Corp. 2014 Proxy Statement   Table of Contents   (3)The amount shown in column (g) for Messrs. Michael, Stone, Brown and Kliethermes reflects the cash awards paid under the MVP Program, which is discussed in further detail on pages 28 and 30-32, and includes the annual award payout under that Program and long-term payout reflecting 33 percent of their respective bonus bank balances. The bank balance, in turn, includes amounts credited to their bonus banks for 2013. The amounts reflected in column (g) for Mr. Kennedy for 2011 – 2013 and Mr. Brown for 2011 reflect the cash awards paid under the MIP, which is discussed in further detail on page 30. (4)The amounts shown in column (i) include: a.A Company contribution to the ESOP of $23,991 for 2011 for each of Messrs. Michael, Stone, Kliethermes and Kennedy. Mr. Brown was not eligible for an ESOP contribution in 2011; and a Company contribution to the ESOP of $26,240 for 2013 and $16,048 for 2012 for each of the NEOs. b.A Company contribution to the 401(k) Plan of $12,939 for 2011 for each of Messrs. Michael, Stone, Kliethermes and Kennedy. Mr. Brown was not eligible for a 401(k) contribution in 2011; and a Company contribution to the 401(k) Plan of $14,337 for 2013 and $10,168 for 2012 for each of the NEOs. (5)Messrs. Michael and Stone were authorized by the Board to use the Company’s fractionally-owned aircraft for personal use in 2013, at an hourly rate established from time to time by the Board, limited to the maximum hourly charges equal to 6.5 percent of base salary. In August 2011 it was set at $1,700 and in August 2012 it was set at $1,800, which rate continued in 2013. All rates took into account the variable hourly operating cost, including fuel prices, of the Company aircraft. In 2011, Mr. Michael paid $8,230 for 5.9 hours use; Mr. Stone paid $3,740 for 2.2 hours use. In 2012, Mr. Michael paid $25,410 for 14.4 hours use; Mr. Stone did not use the Company aircraft for personal use in 2012. In 2013, Mr. Michael paid $9,900 for 2.9 hours use; Mr. Stone paid $10,620 for 7.5 hours use. The amounts included in the All Other Compensation column for Messrs. Michael and Stone reflect the difference between the aggregate incremental cost to the Company of each flight hour, comprised of hourly variable operating costs, less the hourly rates paid by them for such flights. For 2011, the hourly rate paid exceeded the hourly aggregate incremental cost to the Company and therefore no amount was added to the All Other Compensation column with respect to personal use of the Company aircraft for those years. For 2012, the rate paid similarly exceeded the aggregate incremental cost until September 1 when the Company purchased fractional shares in aircraft with associated increased variable operating cost of $3,435 per hour. For 2013, the variable operating cost associated with the purchased fractional shares in aircraft was $3,355. For 2012, the amount for Mr. Michael includes $19,457 for 11.9 personal flight hours times $1,635, the difference between the hourly rate of $1,800 and the hourly variable cost of $3,435. Mr. Stone did not use the Company aircraft for personal use in 2012 after September 1. For 2013, the amount for Mr. Michael includes $4,510 for 2.9 personal flight hours and for Mr. Stone includes $11,663 for 7.5 personal flight hours times $1,555, the difference between the hourly rate of $1,800 and the hourly variable cost of $3,355. (6)In 1996, when the Company acquired an equity ownership interest in Maui Jim, Inc. (“Maui Jim”), Mr. Michael, along with the Company’s President, Gerald Stephens, and CFO, Joseph Dondanville, were elected to the Board of Directors of Maui Jim. Of those three, only Mr. Michael continues to hold this position. Messrs. Stephens, Michael and Dondanville were paid an initial board of director retainer in the form of 20,000 non-qualified options to purchase shares of Maui Jim stock and were paid a director fee of $1,500 for each of the nine Maui Jim board meetings held from December 1996 through February 2002. Mr. Michael elected to be paid his entire Maui Jim director fees in the form of non-qualified options to purchase shares of Maui Jim stock valued pursuant to an annual appraisal, which election was available to members of the Maui Jim Board of Directors who were not Maui Jim employees. After February 2002, no further director fees were paid to Messrs. Stephens, Michael and Dondanville for their service as directorsa director of Maui Jim. Mr. Michael exercised all of his options to purchase 67,878 Maui Jim shares in 2003, and2003. Mr. Dondanville exercised all of his options to purchase 67,878 Maui Jim shares in 2004. Each of themMichael paid cash for such shares and incurred an income tax liability on the gain at the time of exercise. Messrs.Mr. Michael and Dondanville each received a dividend of $40,727$33,939 in 20102012 and $67,878 in 2013 on theirhis shares of Maui Jim stock. Maui Jim did not pay a dividend in 2009 or 2011. The amounts reflected in column (i) do not include dividends paid to Messrs.Mr. Michael and Dondanville on the Maui Jim stock in 2010.2012 or 2013.   39 Table of Contents GRANTS OF PLAN-BASED AWARDS (1)   The following table sets forth information about estimated possible payouts under non-equity incentive plan awards, which consist of potential payouts under the long-term component of the MVP Program for Messrs. Michael, Dondanville,Brown, Stone and Kliethermes, and under the MIP for Messrs. Kennedy and Brown.Mr. Kennedy. The table also shows information regarding grants of stock options made to the named executive officers under the Long-Term Incentive Plan.LTIP.                             All Other   Exercise                                 Option Awards:   or Base   Grant Date             Estimated Possible Payouts Under   Number of   Price of   Fair Value                             All Other   Exercise           Grant   Non-Equity Incentive Plan Awards(1) (2)   Securities   Option   of Stock                             Option Awards:   or Base   Grant Date                                     Estimated Possible Payouts Under   Number of   Price of   Fair Value       Approval           Maximum ($)   Underlying   Awards   and Option         Grant   Non-Equity Incentive Plan Awards(2) (3)   Securities   Option   of Stock                                         Approval           Maximum ($)   Underlying   Awards   and Option Name   Grant Date   Date   Threshold ($)   Target ($)   Probable   Cap   Options (#)(3)   ($/Sh)(4)   Awards($)     Grant Date   Date   Threshold ($)   Target ($)   Probable   Cap   Options (#)(4)   ($/Sh)(5)   Awards($) (a)   (b)       (c)   (d)   (e)       (f)   (g)   (h) Jonathan E. Michael   02/01/13   05/03/12                   30,000   33.24   200,550                                         05/02/13   05/02/13                   20,000   34.42   129,400 (a)   (b)       (c)   (d)   (e)   (f)   (g)   (h)                                         Jonathan E. Michael   02/01/11   05/06/10                         8,500     50.28           05/05/11   05/05/11                         15,000     53.73           08/01/13   05/02/13                   20,000   40.27   168,200   08/01/11   05/05/11                         15,000     57.62           11/01/13   05/02/13                   20,000   45.55   189,400   11/01/11   05/05/11                         15,000     62.59               N/A   0   2,636,193   3,628,443   7,500,000                   N/A   0   2,230,033     2,972,533     7,500,000                                                         Michael J. Stone   02/01/11   05/06/10                         6,000     50.28           02/01/13   05/03/12                   16,000   33.24   106,960   05/05/11   05/05/11                         8,000     53.73           05/02/13   05/02/13                   16,000   34.42   103,520   08/01/11   05/05/11                         8,000     57.62           08/01/13   05/02/13                   16,000   40.27   134,560   11/01/11   05/05/11                         8,000     62.59           11/01/13   05/02/13                   16,000   45.55   151,520       N/A   0   1,385,363     1,855,613     7,500,000                           N/A   0   1,690,461   2,351,961   7,500,000             Joseph E. Dondanville   02/01/11   05/06/10                         4,000     50.28                                             Thomas L. Brown   05/02/13   05/02/13                   40,000   34.42   258,800   05/05/11   05/05/11                         4,000     53.73               N/A   0   544,438   911,938   7,500,000               08/01/11   05/05/11                         4,000     57.62                                             Craig W. Kliethermes   05/02/13   05/02/13                   40,000   34.42   258,800   11/01/11   05/05/11                         4,000     62.59               N/A   0   752,976   1,120,476   7,500,000                   N/A   0   915,987     1,225,362     7,500,000                                                                     Thomas L. Brown   10/03/11   08/18/11   0   66,172     99,257     99,257     10,000     56.50         Craig W. Kliethermes   05/05/11   05/05/11                         18,000     53.73               N/A   0   412,913     567,600     7,500,000                                                         Daniel O. Kennedy   05/05/11   05/05/11                         10,000     53.73           05/02/13   05/02/13                   20,000   34.42   129,400       N/A   0   155,000     232,500     232,500                           N/A   0   164,250   246,375   246,375                                                         (1)The option numbers, market value and exercise price have been adjusted for the two-for-one stock split that occurred on January 15, 2014. (1) (2)The MVP Program does not provide for specific threshold awards and the amounts shown in column (c) are therefore zero. If in a given year the Company’s performance results in a negative MVP calculation such that it reduces a participant’s MVP Program “bank balance” to zero or below, no MVP Program incentive payment would be made for that year. For Messrs. Michael, Kliethermes, Stone and Brown, the amounts shown in column (d) reflect the potential payouts for 2013 under the MVP Program, which is discussed in further detail on pages 28 and 30-32. The MVP Program does not utilize express target amounts, either individually or in the aggregate, and thus the identified amounts were determined based on reference to 2013 corporate objectives affecting MVP, which results in an aggregate MVP level of $75 million. The amounts shown in column (e) reflect probable maximum payouts assuming $150 million in MVP was created. The probable maximum level of $150 million of MVP created was selected based on the maximum MVP created by the Company in prior years and an assessment of possible operational and investment outcomes. The cap of $7.5 million shown in column (e) represents the maximum incentive award permitted under the RLI Corp. Annual Incentive Compensation Plan approved by shareholders in 2011, which governs the MVP Program. (3)For Mr. Kennedy, the amounts shown in column (c) represent the minimum award under the MIP, discussed in further detail on page 30, which is equal to 0 if personal objectives and financial goals are not met; column (d) represents the target award which is equal to 50 percent of his annual base salary rate at year-end; and column (e) represents the maximum award and cap which is equal to 75 percent of his annual base salary at year-end. (4)Twenty percent of each option grant becomes exercisable one year after the date of the grant and each year thereafter in 20 percent increments. Options granted prior to May 2009 expire on the tenth anniversary of the grant date. Options granted in May 2009 and later expire on the eighth anniversary of the grant date. The 2013 grants were granted pursuant The MVP Program does not provide for specific threshold awards and the amounts shown in column (c) are therefore zero. If in a given year the Company’s performance results in a negative MVP calculation such that it reduces a participant’s MVP Program “bank balance” to zero or below, no MVP Program bonus payment would be made for that year. For Messrs. Michael, Dondanville, Kliethermes and Stone, the amounts shown in column (d) reflect the potential payouts for 2011 under the MVP Program, which is discussed in further detail on page 27. The MVP program does not utilize express target amounts, either individually or in the aggregate, and thus the identified amounts were determined based on reference to 2011 corporate objectives affecting MVP, which results in an aggregate MVP level of $75 million. The amounts shown in column (e) reflect probable maximum payouts assuming $150 million in MVP was created. The probable maximum level       40 RLI Corp. 20122014 Proxy Statement 37       Table of Contents   of $150 million of MVP created was selected based on the maximum MVP created by the Company in prior years and an assessment of possible operational and investment outcomes. The cap of $7.5 million shown in column (e) represents the maximum bonus permitted under the RLI Corp. Annual Incentive Compensation Plan approved by shareholders in 2011, which governs the MVP Program. (2) For Mr. Kennedy the amounts shown in column (c) represents the minimum award under the MIP, discussed in further detail on page 29, which is equal to 0 if balance scorecard and financial goals are not met; column (d) represents the target award which is equal to 50 percent of his annual base salary rate at year-end; and column (e) represents the maximum award and cap which is equal to 75 percent of his annual base salary rate at year-end. For Mr. Brown the amounts shown in column (c) represents the minimum award under the MIP, discussed in further detail on page 29, which is equal to 0 if balance scorecard and financial goals are not met; column (d) represents the target award which is equal to 60 percent of his annual base salary rate at year-end; and column (e) represents the maximum award and cap which is equal to 90 percent of his annual base salary rate at year-end, pro-rated for his start date. (3) Twenty percent of each option grant becomes exercisable one year after the date of the grant and each year thereafter in 20 percent increments. Options granted prior to May 2009 lapse on the tenth anniversary of the grant date. Options granted in May 2009 and later lapse on the eighth anniversary of the grant date. The 2011 grants were granted pursuant to the RLI Corp. Long-Term Incentive Plan. to the LTIP. The stock option grants vest upon the death or the termination of employment of a stock option recipient due to disability or retirement. Retirement is defined as termination of employment of an employee with combined age and years of service of 75 or greater. Under FASB ASC Topic 718, option awards to recipients who are current employees, but who qualify for retirement upon departure from the Company, must be expensed at the time of grant, rather than over the five-year vesting period. Because Messrs. Michael Dondanville and Stone’s age and years of service exceeded 75 in 2006 2008 and 2010, respectively, the ERC decided to grant option awards to Mr. Michael beginning in 2006 to Mr. Dondanville beginning in 2008 and Mr. Stone in 2010 on a quarterly basis to avoid a disproportionate expense in the quarter of grant if the option award was made in a single annual grant. (4) Option exercise price adjusted to reflect $7.00 special dividend paid December 29, 2010 and $5.00 special dividend paid December 20, 2011. 38 Table of Contents(5)Option exercise price adjusted to reflect $7.00 special dividend paid December 29, 2010, $5.00 special dividend paid December 20, 2011, $5.00 special dividend paid December 20, 2012; and $3.00 special dividend paid on December 20, 2013.   OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END   The following table sets forth information with respect to the named executive officers regarding the outstanding stock option awards as of December 31, 2011.2013. The number of options and exercise price reflect the two-for-one stock split effective January 15, 2014.     Option Awards                           Option Awards   Number of   Number of   Equity Incentive Plan Awards:             Number of   Number of   Equity Incentive Plan Awards:           Securities Underlying   Securities Underlying   Number of Securities       Option     Securities Underlying   Securities Underlying   Number of Securities       Option   Unexercised Options (#)   Unexercised Options (#)   Underlying Unexercised   Option   Expiration     Unexercised Options (#)   Unexercised Options (#)   Underlying Unexercised   Option   Expiration Name   Exercisable(1)   Unexercisable(1)   Unearned Options (#)   Exercise Price(2)   Date     Exercisable(1)   Unexercisable(1)   Unearned Options (#)   Exercise Price(2)   Date                       (a)   (b)   (c)   (d)   (e)   (f)     (b)   (c)   (d)   (e)   (f)                       Jonathan E. Michael   45,000           32.54   05/05/15     21,000           17.02   11/03/16   10,500           38.15   05/04/16     21,000           18.11   02/02/17   10,500           35.44   08/04/16     21,000           18.05   05/03/17   10,500           42.04   11/03/16     21,000           18.34   08/03/17   8,400   2,100       44.21   02/02/17     21,000           18.02   11/02/17   8,400   2,100       44.09   05/03/17     21,000           17.71   02/01/18   8,400   2,100       44.67   08/03/17     21,000           17.18   08/01/18   8,400   2,100       44.03   11/02/17     21,000           18.37   11/03/18   6,300   4,200       43.41   02/01/18     16,800   4,200       18.45   02/02/19   6,300   4,200       38.00   05/01/18     0   3,900       13.45   05/07/17   6,300   4,200       42.36   08/01/18     3,900   3,900       15.25   08/03/17   6,300   4,200       44.73   11/03/18     3,900   3,900       14.95   11/02/17   4,200   6,300       44.89   02/02/19     11,700   7,800       15.81   02/01/18   3,900   5,850       34.90   05/07/17     10,200   6,800       18.17   05/06/18   3,900   5,850       38.49   08/03/17     10,200   6,800       18.10   08/02/18   3,900   5,850       37.90   11/02/17     10,200   6,800       18.63   11/01/18   1,950   7,800       39.62   02/01/18     6,800   10,200       21.14   02/01/19   1,700   6,800       44.34   05/06/18     12,000   18,000       22.87   05/05/19   1,700   6,800       44.20   08/02/18     12,000   18,000       24.81   08/01/19   1,700   6,800       45.26   11/01/18     12,000   18,000       27.30   11/01/19       8,500       50.28   02/01/19     6,000   24,000       32.31   02/01/20       15,000       53.73   05/05/19     6,000   24,000       30.35   05/03/20       15,000       57.62   08/01/19     6,000   24,000       27.63   08/01/20       15,000       62.59   11/01/19     6,000   24,000       29.92   11/01/20                         0   30,000       33.24   02/01/21 Michael J. Stone   25,200   6,300       44.09   05/03/17     20,400   13,600       38.00   05/01/18     0   20,000       34.42   05/02/21       19,200       34.90   05/07/17     0   20,000       40.27   08/01/21   1,200   4,800       44.34   05/06/18     0   20,000       45.55   11/01/21   1,200   4,800       44.20   08/02/18     1,200   4,800       45.26   11/01/18         6,000       50.28   02/01/19         8,000       53.73   05/05/19         8,000       57.62   08/01/19         8,000       62.59   11/01/19                               RLI Corp. 2012 Proxy Statement    39     41   Table of Contents   Option Awards                           Option Awards   Number of   Number of   Equity Incentive Plan Awards:             Number of   Number of   Equity Incentive Plan Awards:           Securities Underlying   Securities Underlying   Number of Securities       Option     Securities Underlying   Securities Underlying   Number of Securities       Option   Unexercised Options (#)   Unexercised Options (#)   Underlying Unexercised   Option   Expiration     Unexercised Options (#)   Unexercised Options (#)   Underlying Unexercised   Option   Expiration Name   Exercisable(1)   Unexercisable(1)   Unearned Options (#)   Exercise Price(2)   Date     Exercisable(1)   Unexercisable(1)   Unearned Options (#)   Exercise Price(2)   Date                       (a)   (b)   (c)   (d)   (e)   (f)     (b)   (c)   (d)   (e)   (f)                                           Joseph E. Dondanville   10,000           32.54   11/01/14     17,500           38.15   11/01/14     18,000           44.09   11/01/14   Michael J. Stone   0   12,800       13.45   05/07/17   5,000           38.00   11/01/14     7,200   4,800       18.17   05/06/18   5,000           42.36   11/01/14     7,200   4,800       18.10   08/02/18   5,000           44.73   11/01/14     7,200   4,800       18.63   11/01/18   5,000           44.89   11/01/14     4,800   7,200       21.14   02/01/19   4,700           34.90   11/01/14     6,400   9,600       22.87   05/05/19   4,700           38.49   11/01/14     6,400   9,600       24.81   08/01/19   4,700           37.90   11/01/14     6,400   9,600       27.30   11/01/19   4,700           39.62   11/01/14     3,200   12,800       32.31   02/01/20   4,000           44.34   11/01/14     3,200   12,800       30.35   05/03/20   4,000           44.20   11/01/14     3,200   12,800       27.63   08/01/20   4,000           45.26   11/01/14     3,200   12,800       29.92   11/01/20   4,000           50.28   11/01/14     0   16,000       33.24   02/01/21   4,000           53.73   11/01/14     0   16,000       34.42   05/02/21   4,000           57.62   11/01/14     0   16,000       40.27   08/01/21   4,000           62.59   11/01/14     0   16,000       45.55   11/01/21                                           Thomas L. Brown       10,000       56.50   10/03/19     4,000   12,000       24.25   10/03/19                         7,200   28,800       30.35   05/03/20   0   40,000       34.42   05/02/21                     Craig W. Kliethermes   7,200   1,800       44.09   05/03/17     22,000   0       15.00   05/01/18   0   5,600       13.45   05/07/17   6,600   4,400       38.00   05/01/18     15,600   10,400       18.17   05/06/18   2,900   8,400       34.90   05/07/17     14,400   21,600       22.87   05/05/19   2,600   10,400       44.34   05/06/18     7,200   28,800       30.35   05/03/20       18,000       53.73   05/05/19     0   40,000       34.42   05/02/21                                           Daniel O. Kennedy       1,800       44.09   05/03/17     0   4,120       13.45   05/07/17       4,400       38.00   05/01/18     0   7,040       18.17   05/06/18       6,180       34.90   05/07/17     0   12,000       22.87   05/05/19       7,040       44.34   05/06/18     4,000   16,000       30.35   05/03/20       10,000       53.73   05/05/19     0   20,000       34.42   05/02/21                       (1) These grants are included in column (f) of the Summary Compensation Table on page 35 and do not constitute additional compensation from what is reported there. Options vest 20 percent per year over five years; options granted prior to May 2009 expire on the 10th anniversary of the grant date; options granted from and after May 2009 expire on the 8th anniversary of the grant date. (2) Option exercise price adjusted to reflect $7.00 special dividend paid December 29, 2010 and $5.00 special dividend paid December 20, 2011. (1)These grants are included in column (f) of the Summary Compensation Table on page 38 and do not constitute additional compensation from what is reported there. Options vest 20 percent per year over five years; options granted prior to May 2009 expire on the 10th anniversary of the grant date; options granted from and after May 2009 expire on the eighth anniversary of the grant date. (2)Option exercise price adjusted to reflect $7.00 special dividend paid December 29, 2010, $5.00 special dividend paid December 20, 2011, $5.00 special dividend paid December 20, 2012, and $3.00 special dividend paid December 20, 2013.     4042    RLI Corp. 2014 Proxy Statement       Table of Contents   OPTION EXERCISES AND STOCK VESTED   The following table sets forth information with respect to the named executive officers regarding the exercise of options during the last fiscal year (2011)(2013). Value realized on exercise is the excess of the fair market value of the underlying stock on the exercise date over the exercise price under the option. Because the exercises occurred prior to the January 15, 2014 stock split, the number of shares acquired has not been adjusted to reflect the stock split.       Option Awards     Number of Shares   Value Realized Name   Acquired on Exercise (#)   on Exercise ($)           (a)   (b)   (c) Jonathan E. Michael   96,000   4,780,544 Michael J. Stone   78,300   4,223,663 Thomas L. Brown   2,000   40,100 Craig W. Kliethermes   17,500   975,175 Daniel O. Kennedy   17,840   826,592         Option Awards   Stock Awards                                                     Number of Shares   Value Realized   Number of Shares   Value Realized                         Name     Acquired on Exercise (#)   on Exercise ($)   Acquired on Vesting (#)   on Vesting ($)                                               (a)     (b)   (c)   (d)   (e)                                               Jonathan E. Michael     120,001   $4,164,037                                     Michael J. Stone     90,300   $2,361,939                                     Joseph E. Dondanville     53,000   $1,441,300                                     Craig W. Kliethermes     7,700   $239,071                                     Daniel O. Kennedy     32,927   $891,171                                   NON-QUALIFIED DEFERRED COMPENSATION   The following table sets forth information on the non-qualified deferred compensation for the named executive officers in 2011.2013. The Company does not make contributions to the deferred compensation plan.       Executive Contributions   Aggregate Earnings   Aggregate Balance                       in Last FY   in Last FY   at Last FYE                   Name   ($)   ($)(1)(2)   ($)                                   (a)   (b)   (c)   (d)                                   Jonathan E. Michael   –     $1,584,131     $4,700,809                           Michael J. Stone   –     $558,475     $1,657,232                           Joseph E. Dondanville   –     $274,765     $815,344                           Thomas L. Brown                                           Craig W. Kliethermes   $30,531     $119,128     $360,721                           Daniel O. Kennedy   $4,000     $11,907     $36,148                         Executive Contributions   Aggregate Earnings   Aggregate Balance     in Last FY   in Last FY   at Last FYE Name   ($)   ($)(1)(2)   ($) (a)   (b)   (c)   (d) Jonathan E. Michael   -   2,649,080   7,226,348 Michael J. Stone   -   933,993   2,547,808 Thomas L. Brown   80,783   29,422   110,205 Craig W. Kliethermes   20,000   229,575   630,815 Daniel O. Kennedy   -   20,372   55,573   (1)         The amounts shown in column (c) for Mr. Michael reflect the dividends paid on, and change in the value of, Company shares held in his accounts under the Deferred Plan, which is described in further detail aton page 30,33, and the Key Plan, which is described in further detail aton page 32.34. Dividends paid on shares held in the Deferred Plan and Key Plan are used to purchase additional shares held in those plans. Mr. Michael did not participate in the Deferred Plan in 2009, 2010,2011, 2012 or 2011,2013, and no contributions were made on his behalf under the Key Plan in 2009, 2010,2011, 2012 or 2011.2013. The amounts shown in column (c) were not included in amounts shown in the Summary Compensation Table for 2009, 2010,2011, 2012 or 20112013 for Mr. Michael. Amounts deferred by Mr. Michael in previous years and contributions on his behalf under the Key Plan in previous years were included in the Summary Compensation Table in the year of such deferrals or contributions. (2)         The amounts shown for Messrs. Stone, Dondanville,Kliethermes, Brown and Kennedy and Kliethermes in column (c) reflect the dividends paid on, and change in the value of, the Company shares held in their respective accounts under the Deferred Plan, which is described in further detail aton page 30.33. Dividends paid on shares held in the Deferred Plan are used to purchase additional shares held in the Plan. Mr. Brown deferred income under the Deferred Plan. Messrs. Kennedy andPlan in 2013. Mr. Kliethermes deferred income under the Deferred Plan in 2009, 20102011, 2012 and 2011. Neither Messrs. Stone nor Dondanville2013. Mr. Kennedy deferred income under the Deferred Plan in 2009, 20102011. Mr. Stone did not defer income under the Deferred Plan in 2011, 2012 or 2011.2013. The amounts shown in column (c) were not included in amounts shown in the Summary Compensation Table for 2009, 20102011, 2012 or 20112013 for Messrs. Stone, Dondanville, Kliethermes, Brown and Kennedy. Amounts deferred by Messrs. Stone and Dondanville in previous years were included in the Summary Compensation Table in the year of such deferrals. The deferred amounts shown in column (b) were included in amounts shown in the Summary Compensation Table for Messrs. Kliethermes and Kennedy.       RLI Corp. 2012 Proxy Statement    41     43   Table of Contents   SAFEGUARDS AGAINST UNNECESSARY OR EXCESSIVE RISK   Management of the Company, including leaders in legal and human resources, undertook analysis of the Company’s compensation structure considering the Company’s compensation policies and practices with respect to the named executive officers, as well as the other employees of the Company, to determine whether incentives arising from compensation policies or practices relating to any of the Company’s employees would be reasonably likely to have a material adverse effect on the Company. This analysis was reviewed and discussed by the ERC and Audit Committee. Based on the analysis and discussions, the ERC and management concluded that the Company’s compensation policies and practices do not create risks reasonably likely to have a material adverse effect on the Company, and again confirmed that the mix of compensation types and time frames tend to align risk-taking with appropriate medium and long-term rewards for the Company. The following is a discussion of how the Company’s compensation policies and practices for its employees will affect risk management practices and risk-taking incentives. The Company is in the business of insurance and therefore takes on the risk of others in return for appropriate premiums. The Company is therefore particularly sensitive to matching the annual incentives it pays to its employees with the long-term risk and value created by the insurance business it writes. The following discussion is broken into four areas: (1) Senior Management Compensation; (2) Underwriting Compensation; (3) Investment Compensation; and (4) Employee and Executive Equity Ownership.   SENIOR MANAGEMENT COMPENSATION   The Company’s CEO, COO, CFO and SeniorExecutive Vice President, Risk ServicesOperations participate in the MVP Program, an annual incentive program described in further detail at page 27.28. The MVP Program balances risk and opportunity by incorporating a risk-based cost of capital target. The MVP Program contains twothree features designed to ensure that incentives awarded under this program balancewhich adjust, for longer-term considerations, the annual results with long-termmeasure of shareholder value creation. creation used to determine incentive awards. The first is a banking feature that deposits allthe financial component of the annualeach MVP-based bonusincentive awards (which may be positive or negative) into a “bonus bank,” paying out 33 percent of the bonus bank’s balance annually. A bonus bank balance is at risk based on future performance — future positive MVP will increase the bonus bank and payouts, while negative MVP will decrease the bank and payouts. By exposing the bonus bank balance to future performance, the MVP Program provides an incentive to sustain long-term shareholder value creation. The second is a peer company adjustment factor applicable to the financial component of an MVP Program award that rates the relative performance of the Company to that of its peer group with respect to growth in book value over a five-year period. The secondthird feature is a Board approval mechanism, which requires the prior approval of the independent directors of the Board of anythe financial portion of any annual award (positive or negative) contributed to a MVP bonus bank that exceeds 300 percent of a participant’s base salary. This Board approval limit gives the Board the ability to reduce an award if the Board determines that MVP did not correspondingly increase shareholder value. The ERC believes that the risk-based cost of capital target, long-term banking feature, peer company adjustment factor for five-year growth in book value and Board approval limit provision in the MVP Program significantly reduce the likelihood that senior management will take high-risk actions solely to improve short-term financial results to the detriment of long-term performance.   UNDERWRITING COMPENSATION   Underwriters are paid annual incentives under one of two annual incentive programs, the Underwriter Profit Program (“UPP”) or the Underwriter Incentive Plan (“UIP”). Participants in UPP, product group executives with oversight responsibility for respective product group underwriting, earn an annual incentive equal to a percentage of underwriting profit created. All other underwriters at the Company participate in UIP. UIP provides incentives based on specific performance factors such as individual and product group loss ratio, underwriting profit, combined ratio, gross written premium and new business generation. To calculate underwriting profit for purposes of UPP and UIP, actual and estimated losses are subtracted from net premiums to ensure that the annual incentives based on underwriting profit reflect losses that occur over several years. For most products, actual and estimated losses are measured over a four to eight-year period. Over that four to eight-year period, only a partial bonusincentive award is paid each year until all losses develop and a final underwriting profit figure can be determined that the profitability to the Company for the applicable underwriting year. For earthquake insurance, modeled expected losses are used to calculate underwriting profit for incentive purposes since losses are typically experienced over a significantly longer period of time. The ERC believes that by subjecting premiums to risk of actual and estimated losses, the Company’s underwriting incentive plans, UPP and UIP, ensure that the income and risk to the Company from underwriting results are closely aligned with the incentives paid to underwriters. In this manner, UPP and UIP are designed to ensure that underwriters are not given an incentive to produce short-term underwriting results without regard to the long-term income and risk consequences of their underwriting.   44    RLI Corp. 2014 Proxy Statement Table of Contents INVESTMENT COMPENSATION   The ERC believes that the following controls protect the Company against the Company taking excessive and unnecessary risk to maximize short-term investment results:   ·                  The Company’s investment portfolio is managed pursuant to the oversight of the Finance and Investment Committee of the Board (FIC); ·                  The FIC has established an Investment Policy Statement setting forth detailed investment objectives, benchmarks, constraints and operating policies for the portfolio; ·                  All security transactions must be approved by three Company officers; and ·                  All investment actions must comply with state insurance regulatory provisions related to the investments in the portfolio. 42 Table of Contents   EMPLOYEE AND EXECUTIVE EQUITY OWNERSHIP   Finally, the Company has a long-standing employee ownership culture, reflected by its ESOP implemented in 1975. The ownership culture creates strong alignment between the interests of employees and shareholders to foster a long-term shareholder value creation perspective. To further support the employee ownership culture, the ERC has designed the executive compensation program to provide equity-based long-term incentives and has implemented a stock ownership guideline requiring significant levels of stock ownership for key executives, described in detail at page 33.36. The ERC believes that significant stock holdings by employees and executives provide a strong incentive to grow long-term shareholder value and to avoid actions that increase short-term results in a manner that prevents excessive and unnecessary risk to long-term results.     BOARD’S ROLE IN RISK OVERSIGHT   The Board’s risk oversight is accomplished both at the full Board level and through its committee structure. The full Board discusses and considers risk management issues at each of its meetings. The Board will adjust its practices with respect to risk management oversight when it determines it needs to do so and will involve itself in particular areas or business circumstances where its proper exercise of oversight demands it. The Board’s role in risk oversight is consistent with the Company’s leadership structure, with the Chief Executive Officer and other members of senior management having responsibility for assessing and managing the Company’s risk exposure, and the Board and its committees providing oversight in connection with these efforts. The individual Committee responsibilities with respect to risk oversight are included in their respective Charters. The Audit Committee generally oversees overall enterprise risk management, risk profile and risk assessment. The Audit Committee has sole authority to retain and compensate outside auditors and reviews and monitors loss reserves, among other activities. The Company’s Vice President, Internal Audit reports jointly to Mr. Michael, administratively, and the Chair ofto the Audit Committee, functionally, to ensure an open and effective line of communication with respect to Company risk oversight. The Finance and Investment Committee oversees the Company’s investment and corporate finance transactions, policies and guidelines, which includes the oversight of investment performance, investment risk exposure and the Company’s capital structure, among other activities. As discussed in more detail under “Safeguards Against Unnecessary or Excessive Risk,” the Executive Resources Committee monitors and oversees executive compensation and incentive programs and associated goals, and, together with the Board, ascertains that such programs do not create the likelihood that employees will take unnecessary and excessive risks to maximize short-term gains to the detriment of long-term performance. The ERC and Audit Committee meet annually to discuss executive compensation and safeguards against unnecessary and excessive risk. The Nominating/Corporate Governance Committee provides oversight of the Company enterprise risk management in areas including but not limited to corporate governance, regulatory, legislative and related matters, in coordination with other Board committees as appropriate. The Strategy Committee is responsible to the Board for oversight of the Company’s corporate strategy growth and corporate growth/development and associated risks. Each of the Board committees works within their area of responsibility and coordinates with other committees, the full Board and executive management in risk management at the Company. The Executive Resources Committee and Audit Committee held a joint session in February 2011 to discuss enterprise risk management issues.   45 Table of Contents   EQUITY COMPENSATION PLAN INFORMATION   The following table provides information as of December 31, 2011,2013, regarding Common Stock that may be issued under the Company’s existing equity compensation plans, including the DirectorIncentive Stock Option Plan the ISOP,(“ISOP”), the Deferred Plan, the Deferred Agreement, the Omnibus Plan and the Long-Term Incentive Plan (“LTIP”).LTIP. As of December 31, 2011,2013, the Company had 21,162,13742,982,424 (adjusted to reflect the January 15, 2014 2-for-1 stock split) shares of Common Stock outstanding. Information is included for both equity compensation plans approved and not approved by the Company’s shareholders.               Number of securities                       Number of securities       remaining available for                       to be issued upon exercise   Weighted-average exercise   future issuance under equity                       of outstanding options,   price of outstanding options,   compensation plans (excluding                   Plan Category   warrants and rights   warrants and rights   securities reflected in column (a))                                       (a)   (b)   (c)                                   Equity compensation plans approved by shareholders (1)   1,280,866(2)   $43.23     1,510,452 (3)                       Equity compensation plans not approved by shareholders (4)   –     –       (5)                       Total   1,280,866     $43.23     1,510,452                     RLI Corp. 2012 Proxy Statement    43 Table of Contents             Number of securities     Number of securities       remaining available for     to be issued upon exercise   Weighted-average exercise   future issuance under equity     of outstanding options,   price of outstanding options,   compensation plans (excluding Plan Category   warrants and rights   warrants and rights   securities reflected in column (a))     (a)   (b)   (c) Equity compensation plans             approved by shareholders (1)   2,595,084(2)   $26.04   1,762,924(3)               Equity compensation plans not             approved by shareholders (4)   -   -   (5) Total   2,595,084   $26.04   1,762,924   (1)         Consists of the Director Plan, the ISOP, the Omnibus Plan and the LTIP.LTIP, which amount reflects the January 15, 2014 2-for-1 stock split. (2)         Includes options to purchase 9,000 shares exercisable under the Director Plan, options to purchase 14,2432,754 shares exercisable under the ISOP, options to purchase 775,543537,750 shares exercisable under the Omnibus Plan and 482,0802,054,580 options to purchase shares exercisable under the LTIP. The weighted average remaining contractual life of the outstanding options is 5.625.56 years. (3)         Shares available for future issuance under the LTIP. (4)         Consists of the Deferred Plan and the Deferred Agreement. (5)         No specific number of shares of the Company’s Common Stock are reserved for future issuance under these plans. Under the Company’s Deferred Plan and Deferred Agreement, executive officers and directors may elect to defer compensation otherwise payable to them. Under the Deferred Plan and Deferred Agreement, the Company must transfer to a bank trustee, under an irrevocable trust established by the Company, such number of shares of Common Stock as are equal to the compensation earned and deferred.     SHAREHOLDER PROPOSALS   To be included in the Company’s Proxy Statement for the 20132015 Annual Meeting of Shareholders, a shareholder proposal must be received by the Company on or before November 22, 2012,20, 2014, and otherwise comply with all applicable federal securities laws. Proposals should be directed to the attention of the Corporate Secretary at 9025 North Lindbergh Drive, Peoria, Illinois, 61615. The Company has implemented provisions in itsCompany’s By-Laws that provide notice, information and procedural requirements for shareholder nominations of candidates to the Company’s Board and for shareholder proposals at shareholder meetings. These provisions do not affect the rights of shareholders to request inclusion of proposals in the Company’s proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934. Pursuant to our By-Laws, in order for a shareholder to nominate a Board candidate at Company shareholder meetings, such nomination must be submitted in writing to the Company no later than 90 days prior to the anniversary of the previous year’s annual shareholder meeting or 10 days after public disclosure of any special meeting of shareholders. The notice must provide information regarding (a) the proposed Board nominee(s), (b) the person making the nomination (proponent), (c) share ownership by the nominee(s) and the proponent, (d) arrangements between the proponent and the nominee(s), and (e) arrangements relating to the Company’s stock. The proponent must also make certain representations, including updating the information provided in the notice and other matters. 46    RLI Corp. 2014 Proxy Statement Table of Contents   Proposals and business desired to be brought by shareholders at Company shareholder meetings (other than director nominations) must be submitted in writing to the Company no later than 90 days prior to the anniversary of the previous year’s annual shareholder meeting or 10 days after public disclosure of any special meeting of shareholders. The notice must provide information regarding (a) the nature of the proposed business, (b) the shareholder and its Company stock ownership, (c) certain relationships and arrangements involving the shareholder and other parties and (d) certain arrangements involving the shareholder and the Company’s stock. The shareholder must also make certain representations, including updating the information provided in the notice and other matters. Therefore, in order for a shareholder to nominate a candidate for director or raise another matter at the 20132015 Annual Meeting of Shareholders, the Company must receive proper notice of the nomination or the other matter before February 2, 2013. January 31, 2015. These descriptions are summaries only, and for the complete provisions, reference is madeshareholders should refer to the Company’s restated By-Laws, which were filed with the SEC on Form 8-K on November 17, 2008.May 6, 2011.   44 Table of Contents   OTHER BUSINESS   The Board of Directors knows of no other business to be presented at the Annual Meeting; however, if any other matters do properly come before the meeting, it is intended that the persons appointed as proxies will vote in accordance with their best judgment. It is important that proxies be voted promptly so the presence of a quorum may be assured well in advance of the Annual Meeting, thus avoiding the expense of follow-up solicitations. Accordingly, even if you expect to attend the Annual Meeting, you are requested to (1) date, execute and return the enclosed proxy in the postage-paid, self-addressed envelope provided, or (2) vote your proxy overin one of the Internet or by telephone using the instructionsmanners described on your proxy card.page 4 of this Proxy Statement.     By Order of the Board of Directors         Daniel O. Kennedy   Vice President, General Counsel & Corporate Secretary     Peoria, Illinois & Corporate Secretary March 20, 2014   Peoria, Illinois March 22, 2012       RLI Corp. 2012 Proxy Statement    45     47   Table of Contents   INVESTOR INFORMATION   ANNUAL SHAREHOLDERS MEETING   The 20122014 Annual Meeting of Shareholders will be held at 2 p.m., CDT, on May 3, 2012,1, 2014, at the Mt. Hawley Country Club, 7724 N. Knoxville Avenue,Company’s office, 9025 North Lindbergh Drive, Peoria, Illinois 61614.61615.   INTERNET VOTING   As a convenience, RLI shareholders may vote their proxies via the Internet at http://www.proxyvote.com. Instructions are in your E-Proxy Notice or in the proxy card that you receive. Registered shareholders may sign up to access RLI’sthe Company’s Annual Report to Shareholders and Proxy Statement over the Internet in the future by following the instructions provided if you submit your proxy beby telephone or over the Internet or provided in the E-Proxy Notice. Beneficial owners may contact the brokers, banks or other holders of record of their stock to find out whether electronic delivery is available.   SHAREHOLDER INQUIRIES   Shareholders of record with requests concerning individual account balances, stock certificates, dividends, stock transfers, tax information or address corrections should contact the Company’s transfer agent and registrar:   Wells Fargo Shareholder Services P.O. Box 64854 St. Paul, MN 55164-0854 Phone: 800-468-9716 or 651-450-4064 Fax: 651-450-4033 Email: stocktransfer@wellsfargo.com   DIVIDEND REINVESTMENT PLAN   If you wish to sign up for an automatic dividend reinvestment and stock purchase plan or to have your dividends deposited directly into your checking, savings or money market accounts, send your request to the transfer agent and registrar.   REQUESTS FOR ADDITIONAL INFORMATION   Electronic versions of the following documents are available on our website: 20112013 Annual Report 2012to Shareholders, 2014 Proxy Statement and 20112013 Annual Report on Form 10-K. Printed copies of these documents are available without charge to any shareholder. To be placed on a mailing list to receive shareholder materials, contact our corporate headquarters.   MULTIPLE SHAREHOLDERS HAVING THE SAME ADDRESS   If you and other residents at your mailing address own shares of common stock “in street name,” your broker or bank may have sent you a notice that your household will receive only one copy of our 20122014 Proxy Statement, 20112013 Annual Report to Shareholders and/or notice regarding Internet availability of our proxy materials. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you did not respond thatreside at the same address as another shareholder of the Company and wish to receive a separate copy of the applicable materials, you did not want to participate in householding, the broker or bank will assume that you have consented. You may revoke your consent to householding at any timedo so by sending your name, the name of your brokerage firm, and your account number to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. TheThis revocation of your consent to householding will be effective 30 days following its receipt. In any event, if you did not receive an individual copy of this Proxy Statement, 20112013 Annual Report to Shareholders and/or notice regarding Internet availability of our proxy materials, or if you wish to receive individual copies of our proxy statements, Annual Report to Shareholders and/or notice regarding Internet availability of our proxy materials for future meetings, we will send a copy to you.you promptly upon your written or oral request. Please contact our Vice President, Corporate Development Aaron Jacoby at 309-693-5880, at aaron.jacoby@rlicorp.com  or at  aaron.jacoby@rlicorp.com.9025 N. Lindbergh Drive, Peoria, Illinois 61615.  Shareholders who share the same address and currently receive multiple copies of the Proxy Statement, 2013 Annual Report to Shareholders and/or notice regarding Internet availability of our proxy materials, who wish to receive only one copy in the future may contact their bank, broker or other holder of record, or our Vice President, Corporate Development Aaron Jacoby at the contact information listed above.   CONTACTING RLI   For investor relations requests and management’s perspective on specific issues, contact Aaron Jacoby, Vice President, Corporate Development at 309-693-5880 or at aaron.jacoby@rlicorp.com.   RLI ON THE WEB   Our corporate website is www.rlicorp.com (Information on the website is not incorporated by reference into this Proxy Statement.)       4648    RLI Corp. 2014 Proxy Statement       Table of Contents 9025 N. LINDBERGH DRIVE ·PEORIA, ILLINOISIL 61615-1431 P: 309-692-1000 ·• 800-331-4929 ·F: 309-692-1068 www.rlicorp.com © 2014 RLI CORP. • .8M     ©2012 RLI CORP.   ·   .8M *** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 3, 2012.1, 2014. Meeting Information RLI CORP. Meeting Type: Annual Meeting For holders as of: March 6, 20123, 2014 Date: May 3, 20121, 2014 Time: 2:00 PM Location: Mt. Hawley Country Club 7724RLI Corp. 9025 N. Knoxville AvenueLindbergh Drive Peoria, IL 61614Illinois 61615 You are receiving this communication because you hold shares in the abovecompany named company.above. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 M40714-P20235M68243-P47227 See the reverse side of this notice to obtain proxy materials and voting instructions.   Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: Proxy Materials Available to VIEW or RECEIVE: NOTICE AND PROXY STATEMENT ANNUAL REPORT How to View Online: Have the information that is printed in the box marked by the arrow (located on the following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET: www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow (located on the following page) in the subject line. . XXXX XXXX XXXX . XXXX XXXX XXXX Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before April 19, 201217, 2014 to facilitate timely delivery. M40715-P20235M68244-P47227 How To Vote Please Choose One of the Following Voting Methods Vote In Person: Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow (located on the following page) available and follow the instructions. Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. . XXXX XXXX XXXX   Voting Items The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees: 01) Kaj Ahlmann 02) Barbara R. Allen 03) Michael E. Angelina 04) John T. Baily 04)05) Jordan W. Graham 05)06) Gerald I. Lenrow 06)07) Charles M. Linke 07)08) F. Lynn McPheeters 08)09) Jonathan E. Michael 09)10) Michael J. Stone 11) Robert O. Viets The Board of Directors recommends you vote FOR the proposals 2 and 3. 2. APPROVERATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 3. APPROVE THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION. NOTE: This proxy also grants the TrusteeProxies the ability to vote in itstheir discretion upon other matters as may properly come before the meeting. M40717-P20235 Voting ItemsM68245-P47227   M40718-P20235 *** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 3, 2012.1, 2014. Meeting Information RLI CORP. Meeting Type: Annual Meeting For holders as of: March 6, 20123, 2014 Date: May 3, 20121, 2014 Time: 2:00 PM Location: Mt. Hawley Country Club 7724RLI Corp. 9025 N. Knoxville AvenueLindbergh Drive Peoria, IL 61614Illinois 61615 You are receiving this communication because you hold shares in the abovecompany named company.above. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. M40719-P19998RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 M68243-P47227 See the reverse side of this notice to obtain proxy materials and voting instructions.   Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: Proxy Materials Available to VIEW or RECEIVE: NOTICE AND PROXY STATEMENT ANNUAL REPORT How to View Online: Have the information that is printed in the box marked by the arrow (located on the following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET: www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow (located on the following page) in the subject line. . XXXX XXXX XXXX . XXXX XXXX XXXX Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before April 19, 201217, 2014 to facilitate timely delivery. M40720-P19998M68244-P47227 How To Vote Please Choose One of the Following Voting Methods Vote In Person: If you choose to vote these shares in person at the meeting, you must request a "legal proxy." To do so, please follow the instructions at www.proxyvote.com or request a paper copy of the materials, which will contain the appropriate instructions. Many shareholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow (located on the following page) available and follow the instructions. Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a voting instruction form.proxy card. . XXXX XXXX XXXX   The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees: 01) Kaj Ahlmann 02) Barbara R. Allen 03) Michael E. Angelina 04) John T. Baily 04)05) Jordan W. Graham 05)06) Gerald I. Lenrow 06)07) Charles M. Linke 07)08) F. Lynn McPheeters 08)09) Jonathan E. Michael 09)10) Michael J. Stone 11) Robert O. Viets The Board of Directors recommends you vote FOR the following proposals.proposals 2 and 3. 2. APPROVERATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 3. APPROVE THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION. NOTE: This proxy also grants the ProxiesTrustee the ability to vote in theirits discretion upon other matters as may properly come before the meeting. M40721-P19998M68246-P47227 Voting Items   Voting Instructions M40722-P19998M68247-P47227     RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. Signature (Joint Owners) Date Signature [PLEASE SIGN WITHIN BOX] Date VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 M40672-P20235M68230-P47227 To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. For All Withhold All For All Except RLI CORP. The Board of Directors recommends you vote FOR the following: ! ! ! 1. Election of Directors Nominees: 01) Kaj Ahlmann 02) Barbara R. Allen 03) Michael E. Angelina 04) John T. Baily 04)05) Jordan W. Graham 05)06) Gerald I. Lenrow 06)07) Charles M. Linke 07)08) F. Lynn McPheeters 08)09) Jonathan E. Michael 09)10) Michael J. Stone 11) Robert O. Viets For Against Abstain The Board of Directors recommends you vote FOR the proposals 2 and 3. For Against Abstain ! ! ! 2. APPROVERATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. ! ! ! 3. APPROVE THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION. NOTE: This proxy also grants the Proxies the ability to vote in their discretion upon other matters as may properly come before the meeting. Please sign exactly as your name(s) appear(s). Executors, trustees, and others signing in a representative capacity should include their name and the capacity in which they sign. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date   Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report & Notice and Proxy Statement are available at www.proxyvote.com. M40673-P20235M68231-P47227 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF RLI CORP. The undersigned hereby appoints Barbara R. AllenJordan W. Graham and Charles M. Linke,Gerald I. Lenrow, as Proxies, each with the power to appoint his or her substitute, and hereby authorizes them, or either one of them, to represent and to vote, as indicated on the other side of this form or as indicated by phone or Internet, the shares of Common Stock of RLI Corp. held of record by the undersigned on March 6, 2012,3, 2014, at the RLI Corp. Annual Meeting of Shareholders to be held on May 3, 20121, 2014 or any adjournments thereof. If no other indication is made on the reverse side of this form, or by phone or Internet, the Proxies shall vote for each of the director nominees listed on the reverse side of this form, for Proposals 2 and 3, and in their discretion, upon such other business as may properly come before the meeting. (Continued and to be signed and dated on the reverse side.)   RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information until 11:59 P.M. Eastern Time, May 1, 2012.April 29, 2014. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions until 11:59 P.M. Eastern Time, May 1, 2012.April 29, 2014. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 M40674-P20235M68232-P47227 To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. For All Except WithholdFor All ForWithhold All RLI CORP. The Board of Directors recommends you vote FOR the following: ! ! ! 1. Election of Directors Nominees: 01) Kaj Ahlmann 02) Barbara R. Allen 03) Michael E. Angelina 04) John T. Baily 04)05) Jordan W. Graham 05)06) Gerald I. Lenrow 06)07) Charles M. Linke 07)08) F. Lynn McPheeters 08)09) Jonathan E. Michael 09)10) Michael J. Stone 11) Robert O. Viets For Against Abstain The Board of Directors recommends you vote FOR the proposals 2 and 3. For Abstain Against ! ! ! 2. APPROVERATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. ! ! ! 3. APPROVE THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION. NOTE: This proxy also grants the Trustee the ability to vote in its discretion upon other matters as may properly come before the meeting. Please sign exactly as your name(s) appear(s). Executors, trustees, and others signing in a representative capacity should include their name and the capacity in which they sign.   Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report & Notice and Proxy Statement are available at www.proxyvote.com. M40675-P20235M68233-P47227 Confidential Voting Instructions THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEE OF THE RLI CORP. EMPLOYEE STOCK OWNERSHIP PLAN By signing on the reverse side or by voting by phone or Internet, you direct the Trustee of the RLI Corp. Employee Stock Ownership Plan to vote (in person or by proxy), as provided, the number of shares of RLI Common Stock credited to this account as of March 6, 20123, 2014 under the RLI Corp. Employee Stock Ownership Plan, at the RLI Corp. Annual Meeting of Shareholders to be held on May 3, 20121, 2014 or any adjournments thereof. If no vote is provided, the Trustee shall vote for each of the director nominees listed and upon Proposals 2 and 3 pro rata with all shares of Common Stock held in the RLI Corp. Employee Stock Ownership Plan (based upon the vote of all other participants who provide voting instructions), and, in its discretion, upon such other business as may properly come before the meeting. These confidential voting instructions will be seen only by authorized representatives of the Trustee.our tabulator, Broadridge Financial Solutions. (Continued and to be signed and dated on the reverse side.)