Note 16. Retirement Plans

(a) Selective Insurance Retirement Savings Plan ("Retirement Savings Plan")

Selective Insurance Company of America ("SICA") offers a voluntary defined contribution 401(k) plan to employees who meet eligibility requirements. Participants can contribute 2% to 50% of their defined compensation to the Retirement Savings Plan not to exceed limits established by the IRS. Employees age 50 or older who are contributing the maximum may also make additional contributions not to exceed the additional amount permitted by the Internal Revenue Service ("IRS"). Effective October 1, 2011, SICA appointed T. Rowe Price Trust Company as trustee to the Retirement Savings Plan. Certain terms of the Retirement Savings Plan were amended effective January 1, 2011. The following table presents information regarding plan terms in effect as of December 31, 2010 and the related January 1, 2011 revisions:

	As of December 31, 2010	Effective January 1, 2011

SICA match	65% of participant contributions up to 7% of defined compensation	100% of participant contributions up to the first 3% of defined compensation and 50% up to the next 3%

Enhanced match/non-elective contribution¹	100% match up to 2% of defined compensation and non-elective contributions equal to 2% of defined compensation	Enhanced match eliminated and non-elective contributions increased to 4%

Vesting of match/non-elective contribution	Vesting period of six years for SICA match and three years for SICA non-elective contribution	Immediately vested

HCE contributions	Limited	No longer subject to previous limitation

⁽¹⁾ Effective January 1, 2006, the Retirement Savings Plan was amended to include additional enhanced matching contributions and non-elective contributions for otherwise eligible employees who, because of their date of hire after December 31, 2005, are not eligible to participate in the Retirement Income Plan for Selective Insurance Company of America ("Retirement Income Plan").

Employer contributions to the Retirement Savings Plan amounted to $7.0 million in 2011, $6.3 million in 2010, and $6.0 million in 2009.

The Retirement Savings Plan allows employees to make voluntary contributions to a number of diversified investment options on a before and/or after-tax basis. Until March 10, 2009, the Parent's common stock fund had been an investment option, but on such date, this fund was closed to new contributions. Shares of the Parent's common stock issued under this plan were 13,983 during 2009.

(b) Deferred Compensation Plan

SICA offers a nonqualified deferred compensation plan ("Deferred Compensation Plan") to a group of management or highly compensated employees (the "Participants") as a method of recognizing and retaining such employees. The Deferred Compensation Plan provides the Participants the opportunity to elect to defer receipt of specified portions of compensation and to have such deferred amounts deemed to be invested in specified investment options. A Participant in the Deferred Compensation Plan may elect to defer compensation or awards to be received, including up to: (i) 50% of annual base salary; (ii) 90% of annual bonus; and/or (iii) a percentage of other compensation as otherwise designated by the administrator of the Deferred Compensation Plan.

In addition to the deferrals elected by the Participants, SICA may also choose to make matching contributions to the deferral accounts of some or all Participants to the extent a Participant did not receive the maximum matching contribution permissible under the Retirement Savings Plan due to limitations under the Internal Revenue Code or the Retirement Savings Plan. The Deferred Compensation Plan was amended effective January 1, 2010 to add a non-elective contribution of 4% of eligible compensation to the extent a participant could not receive the maximum non-elective contribution in the Retirement Savings Plan due to the limitations of the Retirement Savings Plan and the Internal Revenue Code. SICA may also choose at any time to make discretionary contributions to the deferral account of any Participant in our sole discretion. No discretionary contributions were made in 2011, 2010, or 2009. SICA contributed $0.1 million in 2011, $0.2 million in 2010, and $0.1 million in 2009 to the Deferred Compensation Plan.

The Retirement Income Plan is a noncontributory defined benefit plan covering all SICA employees who met eligibility requirements prior to January 1, 2006. As of such date, the plan was amended to eliminate eligibility for plan participation by employees first hired on or after January 1, 2006. If otherwise qualified, these employees will, however, be eligible for non-elective contributions from SICA under the Retirement Savings Plan as discussed above.

The funding policy provides that payments to the pension trust shall be equal to the minimum funding requirements of the Employee Retirement Income Security Act, plus additional amounts that the Board of the plan sponsor, may approve from time to time.

The Retirement Income Plan was amended as of July 1, 2002 to provide for different calculations based on service with the company as of that date. Monthly benefits payable under the Retirement Income Plan and Supplemental Excess Retirement Plan at normal retirement age are computed under the terms of those agreements. The earliest retirement age is age 55 with 10 years of service or the attainment of 70 points (age plus years of service). If a participant chooses to begin receiving benefits before their 65^th birthday, the amount of their monthly benefit would be reduced in accordance with the provisions of the plan. At retirement, participants receive monthly pension payments and may choose among five payment options, including joint and survivor options.

Prior to April 1, 2009, SICA provided a life insurance benefit ("Retirement Life Plan") for employees who terminated employment and met the age and service requirements to otherwise be eligible for a benefit under the Retirement Income Plan ("Retirees"). Retirees who terminated employment with SICA on or prior to March 31, 2009 are eligible for a maximum life insurance benefit, depending upon the Retiree's date of termination ranging from $10,000 to $100,000. On April 1, 2009, SICA eliminated the benefits under the Retirement Life Plan to active employees. This elimination resulted in a curtailment to the plan, the benefit of which was $4.2 million in 2009 and was composed of: (i) a $2.8 million reversal of the Retirement Life Plan liability; and (ii) a $1.4 million reversal of prior service credits and net actuarial losses included in AOCI.

The funded status of the Retirement Income Plan and Retirement Life Plan was recognized on the Consolidated Balance Sheets for 2011 and 2010, the details of which are as follows:


December 31,		Retirement Income Plan		Retirement Life Plan
($ in thousands)		2011	2010	2011	2010
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	230,642	200,041	5,700	5,503
Service cost		7,575	7,626	-	-
Interest cost		12,349	11,914	306	316
Actuarial losses		9,177	16,339	224	201
Benefits paid		(5,734)	(5,278)	(333)	(320)
Benefit obligation, end of year	$	254,009	230,642	5,897	5,700

Change in Fair Value of Assets:
Fair value of assets, beginning of year	$	173,311	139,749	-	-
Actual return on plan assets, net of expenses		6,526	15,743	-	-
Contributions by the employer to funded plans		8,400	23,000	-	-
Contributions by the employer to unfunded plans		111	97	-	-
Benefits paid		(5,734)	(5,278)	-	-
Fair value of assets, end of year	$	182,614	173,311	-	-

Funded status		(71,395)	(57,331)	(5,897)	(5,700)

Amounts Recognized in the Consolidated Balance Sheet:
Liabilities		(71,395)	(57,331)	(5,897)	(5,700)
Net pension liability, end of year	$	(71,395)	(57,331)	(5,897)	(5,700)

Amounts Recognized in AOCI
Prior service cost	$	176	326	-	-
Net actuarial loss		83,321	70,901	1,047	841
Total	$	83,497	71,227	1,047	841

Other Information as of December 31:
Accumulated benefit obligation	$	223,655		199,028		-		-

Weighted-Average Liability Assumptions as of
December 31:
Discount rate	5.16	%	5.55	%	5.16	%	5.55
Rate of compensation increase	4.00	%	4.00	%	-		-


		Retirement Income Plan			Retirement Life Plan
($ in thousands)		2011	2010	2009	2011	2010	2009
Components of Net Periodic Benefit Cost and
Other Amounts Recognized in Other
Comprehensive (Income) Loss:

Net Periodic Benefit Cost:
Service cost	$	7,575	7,626	7,078	-	-	32
Interest cost		12,349	11,914	10,944	306	316	361
Expected return on plan assets		(13,924)	(11,247)	(9,214)	-	-	-
Amortization of unrecognized prior service cost (credit)		150	150	150	-	-	(44)
Amortization of unrecognized actuarial loss		4,154	4,128	4,660	18	6	-
Curtailment income		-	-	-	-	-	(4,217)
Total net periodic cost/(income)		10,304	12,571	13,618	324	322	(3,868)

Other Changes in Plan Assets and Benefit
Obligations Recognized in Other Comprehensive
(Income) Loss:
Net actuarial loss (gain)	$	16,575	11,844	(3,470)	224	201	646
Reversal of amortization of net actuarial loss		(4,154)	(4,128)	(4,660)	(18)	(6)	(614)
Reversal of amortization of prior service (cost) credit		(150)	(150)	(150)	-	-	2,045
Total recognized in other comprehensive (income) loss		12,271	7,566	(8,280)	206	195	2,077

Total recognized in net periodic benefit cost and other
comprehensive (income) loss	$	22,575	20,137	5,338	530	517	(1,791)

The amortization of prior service cost related to the Retirement Income Plan and Retirement Life Plan is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the Plans.

The estimated net actuarial loss and prior service cost for the Retirement Income Plan that will be amortized from AOCI into net periodic benefit cost during the 2012 fiscal year are $5.5 million and $0.2 million, respectively.


	Retirement Income Plan					Retirement Life Plan
($ in thousands)	2011		2010		2009	2011	2010	2009
Weighted-Average Expense Assumptions
for the years ended December 31:
Discount rate	5.55	%	5.93	%	6.24	5.55	5.93	6.24
Expected return on plan assets	8.00	%	8.00	%	8.00	-	-	-
Rate of compensation increase	4.00	%	4.00	%	4.00	-	-	4.00

Our measurement date was December 31, 2011 and our expected return on plan assets was 7.75%, which was based primarily on the Retirement Income Plan's long-term historical returns. In addition to the plan's historical returns, we consider long-term historical rates of return on the respective asset classes. Our expected return, after examining recent market conditions and trends, approximates our actual 8.0% annualized return achieved since plan inception for all plan assets.

Our 2011 discount rate used to value the liability was 5.16% for both the Retirement Income Plan and the Retirement Life Plan. When determining the most appropriate discount rate to be used in the valuation, we consider, among other factors, our expected pay out patterns of the plans' obligations as well as our investment strategy and we ultimately select the rate that we believe best represents our estimate of the inherent interest rate at which our pension benefits can be effectively settled.

Plan Assets

Assets of the Retirement Income Plan are invested to ensure that principal is preserved and enhanced over time. In addition, the Retirement Income Plan is expected to perform above average relative to comparable funds without assuming undue risk, and to add value through active management. Our return objective is to exceed the returns of the plan's policy benchmark, which is the return the plan would have earned if the assets were invested according to the target asset class weightings and earned index returns. The Retirement Income Plan's exposure to a concentration of credit risk is limited by the diversification of investments across varied financial instruments, including common stocks, mutual funds, non-publicly traded stocks, investments in limited partnerships, fixed income securities, and short-term investments. Allocations to these instruments may vary from time to time. In 2012, we will continue to phase in adjustments to the asset allocation of the Retirement Income Plan to a more liability driven investment strategy.

The Retirement Income Plan's equity investments may not contain investments in any one security greater than 8% of the portfolio value, nor have more than 5% of the outstanding shares of any one corporation. The use of derivative instruments is permitted under certain circumstances, but shall not be used for unrelated speculative hedging or to apply leverage to portfolio positions. Within the alternative investments portfolio, some leverage is permitted as defined and limited by the partnership agreements.

The plan's allocated target and ranges, as well as the actual weighted average asset allocation by investment categories, at December 31 was as follows:


	2011			2010
	Target	Range	Actual	Actual
	Percentage	Percentage	Percentage	Percentage
Equity
Large capitalization	24	17 - 31	18	19
Small and mid capitalization	10	6 - 14	8	9
International	10	6 - 14	7	8

Alternative investments	15	20 - 34	9	11

Fixed income
Domestic core	16	0 - 21	17	15
Global emerging markets	13	0 - 18	14	12
Liability driven investments	12	0- 45	20	16

Cash and short-term investments	0	0- 5	7	10
Total			100	100

The Retirement Income Plan had no investments in the Parent's common stock as of December 31, 2011 and 2010.

The fair value of our Retirement Income Plan investments is generated using various valuation techniques. We follow the methodology discussed in Note 2. "Summary of Significant Accounting Policies," regarding pricing and valuation techniques, as well as the fair value hierarchy, for equity and fixed maturity securities and short-term investments held in the Retirement Income Plan.

The techniques used to determine the fair value the Retirement Income Plan's remaining invested assets are as follows:

For valuations of the mutual funds, we utilize a market approach wherein the quoted prices in the active market for identical assets are used. All of the mutual funds are traded in active markets at their net asset value per share. There are no restrictions as to the redemption of these investments nor do we have any contractual obligations to further invest in any of the individual mutual funds. These investments are classified as Level 1 in the fair value hierarchy.

The deposit administration contract is carried at cost, which approximates fair value. Given the liquid nature of the underlying investments in overnight cash deposits and other short term duration products, we have determined that a correlation exists between the deposit administration contract and other short-term investments such as money market funds. As such, this investment is classified as Level 2 in the fair value hierarchy.

For valuations of the investments in limited partnerships, fair value is based on the Retirement Income Plan's ownership interest in the reported net asset values as a practical expedient. The majority of the net asset values are reported to us on a one quarter lag. We assess whether these reported net asset values are indicative of market activity that has occurred since the date of their valuation by the investees: (i) by reviewing the overall market fluctuation and whether a material impact to our investments' valuation could have occurred; and (ii) through routine conversations with the underlying funds' general partners/managers discussing, among other things, conditions or events having significant impacts to their portfolio assets that have occurred subsequent to the reported date, if any. The majority of the limited partnership investments cannot be redeemed with the investees as our partnership agreements require our commitment for the duration of the underlying funds' lives. In the fourth quarter of 2010, we sold three of our limited partnership interests in the secondary market. As of December 31, 2011, there is no active plan to sell any of our remaining interests in the limited partnership investments; however, given the volatility in these investments over the recent past, we may continue to entertain potential opportunities to limit our exposure to these investments through the use of the secondary market. These limited partnerships have been fair valued using Level 3 inputs. The Retirement Income Plan has one limited partnership investment in a hedge fund that can be redeemed semi-annually subject to a 30 day notification of intent to redeem. Therefore, we are unable to redeem this investment at the net asset value reported to the plan at December 31, 2011 and 2010. However, we have determined that we have the ability to redeem this investment in the near term and the time between the redemption date and the valuation date is not significant enough to allow for a significant change in fair value. As a result of this determination, this fund has been fair valued using Level 2 inputs as of December 31, 2011 and 2010 using the net asset value of our ownership interest in partners' capital.

The following tables provide quantitative disclosures of the Retirement Income Plan's invested assets that are measured at fair value on a recurring basis:


December 31, 2011			Fair Value Measurements at 12/31/11 Using
			Quoted Prices in
		Assets	Active Markets for	Significant Other	Significant
		Measured at	Identical Assets/	Observable	Unobservable
		Fair Value	Liabilities	Inputs	Inputs
($ in thousands)		At 12/31/11	(Level 1)	(Level 2)	(Level 3)
Description
Mutual funds:
International equity	$	13,205	13,205	-	-
Domestic large capitalization		22,200	22,200	-	-
Small and mid capitalization		6,750	6,750	-	-
Global long-term investment grade fixed income		36,881	36,881	-	-
Domestic core fixed income		32,930	32,930	-	-
Global emerging markets fixed income		25,644	25,644	-	-
Total mutual funds		137,610	137,610	-	-
Limited partnership investments:
Equity long/short hedge		1,836	-	1,836	-
Private equity		12,586	-	-	12,586
Real estate		2,594	-	-	2,594
Total limited partnerships		17,016	-	1,836	15,180
Common stocks:
Domestic large capitalization		11,618	11,618	-	-
Small and mid capitalization		8,326	8,326	-	-
Total common stocks		19,944	19,944	-	-
Short-term investments		7,225	7,225	-	-
Deposit administration contracts		979	-	979	-
Total assets	$	182,774	164,779	2,815	15,180


December 31, 2010			Fair Value Measurements at 12/31/10 Using
			Quoted Prices in
		Assets	Active Markets for	Significant Other	Significant
		Measured at	Identical Assets/	Observable	Unobservable
		Fair Value	Liabilities	Inputs	Inputs
($ in thousands)		At 12/31/10	(Level 1)	(Level 2)	(Level 3)
Description
Mutual funds:
International equity	$	14,277	14,277	-	-
Domestic large capitalization		20,580	20,580	-	-
Small and mid capitalization		6,785	6,785	-	-
Global long-term investment grade fixed income		27,726	27,726	-	-
Domestic core fixed income		26,991	26,991	-	-
Global emerging markets fixed income		20,077	20,077	-	-
Total mutual funds		116,436	116,436	-	-
Limited partnership investments:
Equity long/short hedge		1,779	-	1,779	-
Private equity		14,492	-	-	14,492
Real estate		2,687	-	-	2,687
Total limited partnerships		18,958	-	1,779	17,179
Common stocks:
Domestic large capitalization		11,509	11,509	-	-
Small and mid capitalization		8,631	8,631	-	-
Total common stocks		20,140	20,140	-	-
Short-term investments		15,692	15,692	-	-
Deposit administration contracts		754	-	754	-
Total assets	$	171,980	152,268	2,533	17,179

The following tables provide a summary of the changes in fair value of securities using significant unobservable inputs (Level 3):

December 31, 2011		Investments in
($ in thousands)		Limited Partnerships

Fair value, December 31, 2010	$	17,179
Total gains (realized and unrealized)
included in changes in net assets		1,949
Purchases, sales, issuances, and settlements (net)		(3,948)
Transfers in and/or out of Level 3		-
Fair value, December 31, 2011	$	15,180

December 31, 2010		Investments in
($ in thousands)		Limited Partnerships

Fair value, December 31, 2009	$	18,764
Total gains (realized and unrealized)
included in changes in net assets		969
Purchases, sales, issuances, and settlements (net)		(2,554)
Transfers in and/or out of Level 3		-
Fair value, December 31, 2010	$	17,179

The following table outlines a summary of our alternative investment portfolio by strategy and the remaining commitment amount associated with each strategy:


Alternative Investments		Carrying Value		2011
		December 31,	December 31,	Remaining
($ in millions)		2011	2010	Amount
Equity long/short hedge	$	1.8	1.8	-
Private equity		12.6	14.5	4.2
Real estate		2.6	2.7	0.6
Total alternative investments	$	17.0	19.0	4.8

For a description of our private equity and real estate strategies, refer to Note 5. "Investments." Our Equity long/short hedge strategy invests opportunistically in equities and equity-related instruments in companies generally in the financial services sector. Investments within this strategy are permitted to be sold short in order to: (i) prospectively benefit from a correction in overvalued equities; and (ii) partially hedge portfolio assets due to the strategy's heavy weighting toward the financial sector.

At December 31, 2011, the Retirement Income Plan had contractual obligations that expire at various dates through 2022 to further invest up to $4.8 million in alternative investments. There is no certainty that any such additional investment will be required. The Retirement Income Plan currently receives distributions from these alternative investments through the realization of the underlying investments in the limited partnerships. We anticipate that the general partners of these alternative investments will liquidate their underlying investment portfolios through 2022.

Contributions

We presently anticipate contributing $8.4 million to the Retirement Income Plan in 2012, none of which represents minimum required contribution amounts.

Benefit Payments

($ in thousands)		Retirement Income Plan	Retirement Life Plan
Benefits Expected to be Paid in Future
Fiscal Years:
2012	$	7,291	342
2013		8,038	352
2014		8,740	360
2015		9,514	369
2016		10,467	377
2017-2021		69,022	1,980