RLI CORP. NONEMPLOYEE DIRECTORS

DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS

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RLI CORP. NONEMPLOYEE DIRECTORS

DEFERRED COMPENSATION PLAN

ARTICLE 1

INTRODUCTION

1.1.                             Establishment .  RLI  established the RLI Corp. Nonemployee Directors Deferred Compensation Plan effective January 1, 2005.  Prior to that date, RLI provided similar deferred compensation opportunities to its Directors under certain Prior Agreements.  All obligations under the Prior Agreements (including any predecessor arrangements) will be satisfied under the Prior Agreements, rather than under this Plan.  RLI hereby restates the Plan, effective January 1, 2009, to comply with the requirements of the final regulations issued under Section 409A of the Code (“Section 409A”) on April 10, 2007.

This restatement applies to amounts deferred under the Plan on or after January 1, 2009 (the “Restatement Date”), and to the payment of all amounts deferred under the Plan (whether such amounts were deferred before, on, or after the Restatement Date) that have not yet been distributed as of the Restatement Date.  Except as set forth in Article 6, no amount deferred under the Plan is intended to be “grandfathered” under Section 409A.

The obligation of RLI to make payments under the Plan constitutes an unsecured (but legally enforceable) promise of RLI to make such payments and no person, including any Participant or Beneficiary, shall have any lien, prior claim or other security interest in any property of RLI as a result of the Plan.

1.2.                             Purpose .  The purpose of the Plan is to attract and retain qualified Directors and to provide them with an opportunity to save on a pre-tax basis and accumulate tax-deferred income to achieve their financial goals.

1.3.                             Definitions .  When the following terms are used herein with initial capital letters, they shall have the following meanings:

1.3.1.                   Account — the separate recordkeeping account (unfunded and unsecured) maintained for each Participant in connection with the Participant’s participation in the Plan.

1.3.2.                   Affiliate — a business entity which is under a “common control” with RLI or which is a member of an “affiliated service group” that includes RLI, as those terms are defined in Code § 414(b), (c) and (m).

1.3.3.                   Beneficiary — the person or persons designated as such under Sec. 5.2.

1.3.4 .                   Board — the Board of Directors of RLI.

1.3.5.                   Code — the Internal Revenue Code of 1986, as the same may be amended from time to time.

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1.3.6.                   Direct Compensation — the total amounts, as determined by RLI, payable to a Director for services as a Director, whether payable in cash or in RLI Stock, but excluding amounts determined by RLI to be expense reimbursements.

1.3.7.                   Director — an individual who is a member of the Board but who is not an Employee of RLI or an Affiliate.

1.3.8.                   Employee —  a common-law employee of RLI or an Affiliate (while it is an Affiliate).

1.3.9.                   ERISA — the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.

1.3.10.            Participant — a Director who enrolls as a Participant in the Plan under Sec. 2.2.

1.3.11.            Plan — the unfunded deferred compensation plan that is set forth in this document, as the same may be amended from time to time.  The name of the Plan is the “RLI Corp. Nonemployee Directors Deferred Compensation Plan.”

1.3.12.            Prior Agreement — an individual agreement entered into by a Director and RLI to provide deferred compensation opportunities to the Director.  In certain cases, such Prior Agreement was a successor to an earlier arrangement known as the Director Non-Qualified Deferred Compensation Plan.

1.3.13.            RLI — RLI Corp. and any Successor Corporation.

1.3.14.            RLI Stock — the common stock of RLI.

1.3.15.            Successor Corporation — any entity that succeeds to the business of RLI through merger, consolidation, acquisition of all or substantially all of its assets, or any other means and which elects before or within a reasonable time after such succession, by appropriate action evidenced in writing, to continue the Plan.

1.3.16.            Termination of Service —the Participant’s departure from the Board, unless the Director then becomes an Employee.  Notwithstanding the foregoing, a “Termination of Service” will be deemed not to have occurred if such departure would not be considered a “separation from service” under Code § 409A(a)(2)(A)(i) or any regulations or other guidance issued by the Treasury Department under Code § 409A.  In such case, a Termination of Service will be deemed to have occurred at the earliest time allowed under Code § 409A.

1.3.17.            Vested — nonforfeitable.

1.3.18.            Year — the calendar year.

1.4.                             Nonqualified Deferred Compensation .  The Plan is a nonqualified deferred compensation plan subject to Code § 409A.  To the extent any provision of the Plan does not satisfy the requirements contained in Code § 409A or in any regulations or other guidance issued by the Treasury Department under Code § 409A, such provision will be applied in a manner consistent with such requirements, regulations or guidance, notwithstanding any contrary provision of the Plan or any inconsistent election made by a Participant.

ARTICLE 2

PARTICIPATION

2.1.                             Eligibility .  All Directors will be eligible to participate in the Plan.  A Director may continue to participate in the Plan for so long as the Plan remains in effect and  remains a Director.

2.2.                             Enrollment .  A Director will be allowed to enroll in the Plan during the thirty (30) day period coinciding with and following the date the individual becomes a Director.  Such an enrollment will be effective as of the date it is made.  Thereafter, a Director may elect to enroll for a Year during the enrollment period established by RLI for such Year, which enrollment period will be a period of not less than thirty (30) days that ends not later than the last day of the prior Year.  Enrollment must be made in such manner and in accordance with such rules as may be prescribed for this purpose by RLI (including by means of a voice response or other electronic system under circumstances authorized by RLI).

2.3.                             Direct Compensation Deferrals .

2.3.1.                   Elections .  A Director may elect to reduce Direct Compensation by any whole percent, but not more than one-hundred percent (100%).  A separate reduction percentage may apply to the portion of a Director’s Direct Compensation that is payable in cash and to the portion that is payable in RLI Stock granted under the RLI Corp. Omnibus Stock Plan.  An election must be made in such manner and in accordance with such rules as may be prescribed for this purpose by RLI (including by means of a voice response or other electronic system under circumstances authorized by RLI).  An election must be made as part of the enrollment described in Sec. 2.2.

2.3.2.                   Elections Relate to Services Performed After the Election and Are Irrevocable .   An election will apply to all Direct Compensation attributable to services performed in a given Year, regardless of when such Direct Compensation would otherwise be provided to the Participant (for example, an election to defer an annual fee attributable to services performed in a given Year but payable in the next Year, must be made as part of the enrollment election made prior to the Year in which the services are performed).  However, an election will only be effective to defer Direct Compensation earned after the election is made, and not before.  For example, an election made in connection with a mid-year enrollment under Sec. 2.2 will only be effective for Direct Compensation attributable to services performed on and after the effective date of the enrollment as provided in Sec. 2.2.    An election will apply solely with respect to the given Year — that is, an election will not automatically be carried over and applied to the next Year.

In general, an election shall become irrevocable as of the last day of the enrollment period applicable to it.  However, if a Participant incurs an “unforeseeable emergency,” as defined in Section 4.8(h), or becomes entitled to receive a hardship distribution pursuant to Treas. Reg. Sec. 1.401(k)-1(d)(3) after the election otherwise becomes irrevocable, the election shall be cancelled as of the date on which the Participant is determined to have incurred the unforeseeable emergency or becomes eligible to receive the hardship distribution and no further deferrals will be made under it.  In addition, if a Participant becomes “disabled” (as defined below), RLI may, in its discretion, cancel the Participant’s election then in effect, provided that such cancellation is made no later than end of the Plan Year, or if later, the 15 th  day of the third month following the date on which the Participant becomes disabled, and provided further that RLI does not allow the Participant a direct or indirect election regarding the cancellation.  For purposes of the preceding sentence, “disability” means any medically determinable physical or mental impairment resulting in the Participant’s inability to perform the duties of the

Participant’s position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than six months.

ARTICLE 3

ACCOUNTS

3.1.                             Accounts .   RLI shall establish and maintain a separate Account for each Participant.  The Account shall be for recordkeeping purposes only and shall not represent a trust fund or other segregation of assets for the benefit of the Participant.  The balance of each Participant’s Account will be maintained in full and fractional shares of RLI Stock.

3.2.                             Credits to Accounts .  Each Participant’s Account shall be credited from time to time as provided in this section.

3.2.1.                   Direct Compensation Deferrals .  The amount of each Direct Compensation cash payment or RLI Stock grant which the Participant has elected to defer under the Plan shall be credited to the Participant’s Account on, or as soon as administratively practicable after, the date it would otherwise be provided to the Participant.  Any cash amount shall be converted to RLI Stock credits, equal to the number of full and fractional shares that could be purchased with such amount on, or as soon as administratively feasible after, the date such amount is credited to the Participant’s Account.

3.2.2.                   Dividends and Other Adjustments .  The Participant’s Account shall be credited with additional RLI Stock credits, equal to the number of full and fractional shares of RLI Stock that could be purchased with any cash dividends which would be payable on the RLI Stock credited to the Participant’s Account.  For this purposes, the share price on, or as soon as administratively practicable after, the date the dividend is paid will be used.  The Account also will be adjusted for any stock split, redemption or similar event, in a manner determined to be reasonable by RLI.

3.3.                             Charges to Accounts .  As of the date any Plan benefit measured by the Account is paid to the Participant or the Participant’s Beneficiary, the Account shall be charged with the amount of such benefit payment.

ARTICLE 4

BENEFITS

4.1.                             Vesting .   The Participant’s Account shall be fully (100%) Vested.

4.2.                             Payment of Plan Benefits on Termination of Service - General Rule .   If the Participant has an Account balance at Termination of Service, RLI shall pay that balance to the Participant in five (5) annual installments, as follows:

(a)                                   Time .  The first installment shall be paid on the January 1 following the Year in which the Participant’s Termination of Service occurs.  The remaining installments shall be paid on each subsequent January 1.

(b)                                  Amount .  The amount of each installment shall be determined using a “fractional” method — by multiplying the Participant’s Account balance immediately before the installment payment date by a fraction, the numerator of which is one and the denominator of which is the number of installments remaining (including the installment in question).  The result shall be rounded down to the next lower full share of RLI Stock, except for the final installment, which shall be rounded up to the next higher full share of RLI Stock.

4.3.                             Changing Payment Elections.

4.3.1.                   General Rule .  A Participant may elect to change the number of annual installments the Participant receives under the Plan to ten (10) or fifteen (15) installments, subject to the rules below.  Any such election must be made in such manner and in accordance with such rules as may be prescribed for this purpose by RLI (including by means of a voice response or other electronic system under circumstances authorized by RLI).  The installments shall commence on the date specified in Sec. 4.2(a), unless otherwise postponed by this Article 4, and the amount of each installment shall be determined under the fractional method described in Sec. 4.2(b).

4.3.2.                   Election upon Initial Plan Enrollment .  An election to extend the number of installments may be made as part of the Participant’s initial enrollment in the Plan, as described in Sec. 2.3.

4.3.3.                   Subsequent Election