Retirement Plans

(a) Selective Insurance Retirement Savings Plan (“Retirement Savings Plan”)

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 IRS. Subject to IRS limits, the following table presents information regarding plan terms:



	As of January 1, 2011	As of April 5, 2013
SICA match	100% of participant contributions up to the first 3% of defined compensation and 50% up to the next 3%	100% of participant contributions up to the first 3% of defined compensation and 50% up to the next 3%
Non-elective contribution	Non-elective contributions of 4% of defined compensation for employees not eligible to participate in the Retirement Income Plan due to a date of hire after December 31, 2005	Non-elective contributions of 4% of defined compensation expanded to include employees impacted by the curtailment of the Retirement Income Plan
Vesting of match/non-elective contribution	Immediately vested	Immediately vested

Employer contributions to the Retirement Savings Plan amounted to $12.2 million in 2013, $8.2 million in 2012, and $7.0 million in 2011.

(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, subject to certain limitations, elect to defer compensation or awards to be received, including up to: (i) 50% of annual base salary; (ii) 100% of annual bonus; and/or (iii) all or a percentage of such 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 or non-elective contributions permissible under the Retirement Savings Plan due to limitations under the Internal Revenue Code or the Retirement Savings Plan. 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 2013, 2012, or 2011. SICA contributed $0.2 million in 2013, a nominal amount in 2012, and $0.1 million in 2011 to the Deferred Compensation Plan.

The Retirement Income Plan for Selective Insurance Company of America and the Supplemental Excess Retirement Plan (jointly referred to as the "Retirement Income Plan" or the "Plan") is a noncontributory defined benefit plan covering SICA employees who met each Plan's eligibility requirements prior to January 1, 2006. As of such date, the Plan was amended to eliminate eligibility for participation by employees first hired on or after January 1, 2006. In addition, the Plan was further amended in the first quarter of 2013 to curtail the accrual of additional benefits for all eligible employees after March 31, 2016. This curtailment resulted in a net actuarial gain recognized in OCI of $44.0 million on a pre-tax basis as of March 31, 2013.

As a result of the curtailment, the Retirement Income Plan was re-measured as of March 31, 2013. When determining the most appropriate discount rate to be used in the valuation, we considered, among other factors, our expected payout patterns of the Retirement Income Plan's obligations, as well as our investment strategy. We ultimately selected the rate that we believe best represents our estimate of the inherent interest rate at which the Retirement Income Plan's liabilities can be effectively settled. The expected rate of return on plan assets at March 31, 2013 remained at 7.40%, consistent with our December 31, 2012 assumption. For re-measurement, we determined that the most appropriate discount rate was 4.66%, up slightly from 4.42% determined as of December 31, 2012.

The Retirement Income Plan was amended as of July 1, 2002 to provide for different calculations based on service with SICA as of that date. Monthly benefits payable under the Retirement Income Plan at normal retirement age are computed under the terms of those calculations. 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 the participant's 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.

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 Directors of SICA may approve from time to time.

The funded status of the Retirement Income Plan and Retirement Life Plan was recognized in the Consolidated Balance Sheets for 2013 and 2012, the details of which are as follows:



December 31,	Retirement Income Plan					Retirement Life Plan
($ in thousands)	2013			2012		2013		2012
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	302,647		254,009		6,471		5,897
Service cost	7,517			8,091		—		—
Interest cost	12,477			12,981		283		302
Actuarial (gains) losses	(29,656		)	33,596		(224	)	660
Benefits paid	(6,978		)	(6,030	)	(329	)	(388	)
Impact of curtailment	(29,603		)	—		—		—
Benefit obligation, end of year	$	256,404		302,647		6,201		6,471

Change in Fair Value of Assets:
Fair value of assets, beginning of year	$	207,150		182,614		—		—
Actual return on plan assets, net of expenses	15,925			21,896		—		—
Contributions by the employer to funded plans	9,600			8,550		—		—
Contributions by the employer to unfunded plans	120			120		—		—
Benefits paid	(6,978		)	(6,030	)	—		—
Fair value of assets, end of year	$	225,817		207,150		—		—

Funded status	$	(30,587	)	(95,497	)	(6,201	)	(6,471	)



Amounts Recognized in the Consolidated Balance Sheet:
Liabilities	$	(30,587	)	(95,497	)	(6,201	)	(6,471	)
Net pension liability, end of year	$	(30,587	)	(95,497	)	(6,201	)	(6,471	)



Amounts Recognized in AOCI:
Prior service cost	$	—	26	—	—
Net actuarial loss	39,640		103,365	1,363	1,667
Total	$	39,640	103,391	1,363	1,667



Other Information as of December 31:
Accumulated benefit obligation	250,546	265,899	—	—



Weighted-Average Liability Assumptions as of December 31:
Discount rate	5.16	%	4.42	4.85	4.42
Rate of compensation increase	4.00	%	4.00	—	—



	Retirement Income Plan							Retirement Life Plan
($ in thousands)	2013			2012		2011		2013		2012		2011
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income:

Net Periodic Benefit Cost:
Service cost	$	7,517		8,091		7,575		—		—		—
Interest cost	12,477			12,981		12,349		283		302		306
Expected return on plan assets	(15,755		)	(14,206	)	(13,924	)	—		—		—
Amortization of unrecognized prior service cost	10			150		150		—		—		—
Amortization of unrecognized actuarial loss	4,294			5,863		4,154		80		40		18
Curtailment expense	16			—		—		—		—		—
Total net periodic cost	8,559			12,879		10,304		363		342		324

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net actuarial (gain) loss	(59,430		)	25,906		16,575		(224	)	660		224
Reversal of amortization of net actuarial loss	(4,294		)	(5,863	)	(4,154	)	(80	)	(40	)	(18	)
Reversal of amortization of prior service cost	(10		)	(150	)	(150	)	—		—		—
Curtailment expense	(16		)	—		—		—		—		—
Total recognized in other comprehensive income	(63,750		)	19,893		12,271		(304	)	620		206

Total recognized in net periodic benefit cost and other comprehensive income	$	(55,191	)	32,772		22,575		59		962		530

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 for the Retirement Income Plan and Retirement Life Plan that will be amortized from AOCI into net periodic benefit cost during the 2014 fiscal year are $1.5 million and $0.1 million, respectively.



	Retirement Income Plan				Retirement Life Plan
	2013		2012	2011	2013	2012	2011
Weighted-Average Expense Assumptions for the years ended December 31:
Discount rate ¹	4.66	%	5.16	5.55	4.42	5.16	5.55
Expected return on plan assets	7.40	%	7.75	8.00	—	—	—
Rate of compensation increase	4.00	%	4.00	4.00	—	—	—

¹Discount rate for the Retirement Income Plan changed from 4.42% as of December 31, 2012 to 4.66% as of March 31, 2013 due to the remeasurement that was performed with the curtailment of the Plan.

Our latest measurement date was December 31, 2013 and we lowered our expected return on plan assets to 6.92%, reflecting the lower interest rate environment, coupled with our investment strategy to closer match the duration of the assets and liabilities of the Retirement Income Plan. Our expected return is within a reasonable range considering the lower interest rate environment, as well as our actual 8.1% annualized return achieved since plan inception for all plan assets.

Our 2013 discount rate used to value the liability was 5.16% for the Retirement Income Plan and 4.85% for the Retirement Life Plan. When determining the most appropriate discount rate to be used in the valuation, we consider, among other factors, our expected payout 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 and post-retirement life 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 2014, we will continue to phase in adjustments to the asset allocation of the Retirement Income Plan to steadily close the gap between the duration of the assets and the duration of the liabilities.

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:



	2013			2012
	Target Percentage	Range Percentage	Actual Percentage	Actual Percentage
Equity:
International	10	4 - 18	8	7
Large Capitalization	15	8 - 32	13	15
Small and mid capitalization	5	3 - 15	5	7
Global asset allocation	10	0 - 15	12	10
Alternative investments	10	0 - 15	5	6
Fixed maturity:
Extended duration fixed maturity	50	20 - 80	42	24
Domestic core¹			—	14
Global bond/high yield/emerging markets¹			12	13
Cash and short-term investments	—	0 - 5	3	4
Total			100	100

¹The Retirement Income Plan currently has fixed maturity security exposures that do not have target and range percentages since these exposures will be phased out over time as we opportunistically migrate from intermediate to long duration fixed maturity security strategies.

The Retirement Income Plan had no investments in the Parent’s common stock as of December 31, 2013 or 2012.

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 of the Retirement Income Plan’s remaining invested assets are as follows:

•

Valuations for the majority of the investment funds utilize the market approach wherein the quoted prices in the active market for identical assets are used. These investment 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. Valuations of non-publicly traded investment funds are based upon the observable and verifiable market values of the underlying publicly traded securities and therefore are classified as Level 2 within 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. Our limited partnership investments cannot be redeemed with the investees as our partnership agreements require our commitment for the duration of the underlying funds’ lives. There is no active plan to sell any of our remaining interests in the limited partnership investments; however, 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 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, 2013			Fair Value Measurements at 12/31/13 Using
($ in thousands)	Assets Measured at Fair Value At 12/31/13		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Description
Investment funds:
International equity	$	17,548	5,574	11,974	—
Domestic large capitalization	30,436		30,436	—	—
Small and mid capitalization	6,326		6,326	—	—
Global asset allocation fund	27,257		27,257	—	—
Extended duration fixed maturity	96,920		96,920	—	—
Global bond/high yield/emerging markets fixed maturity	26,984		26,984	—	—
Total investment funds	205,471		193,497	11,974	—
Limited partnership investments:
Equity long/short hedge	41		—	—	41
Private equity	9,899		—	—	9,899
Real estate	2,219		—	—	2,219
Total limited partnerships	12,159		—	—	12,159
Common stocks:
Small and mid capitalization	6,350		6,350	—	—
Total common stocks	6,350		6,350	—	—
Short-term investments	963		963	—	—
Deposit administration contracts	1,023		—	1,023	—
Total invested assets	$	225,966	200,810	12,997	12,159



December 31, 2012			Fair Value Measurements at 12/31/12 Using
($ in thousands)	Assets Measured at Fair Value At 12/31/12		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Description
Investment funds:
International equity	$	15,751	6,025	9,726	—
Domestic large capitalization	22,910		22,910	—	—
Small and mid capitalization	6,805		6,805	—	—
Global asset allocation	20,778		20,778	—	—
Extended duration fixed maturity	50,556		50,556	—	—
Domestic core fixed maturity	29,984		29,984	—	—
Global bond/high yield/emerging markets fixed maturity	27,230		27,230	—	—
Total investment funds	174,014		164,288	9,726	—
Limited partnership investments:
Equity long/short hedge	41		—	—	41
Private equity	10,385		—	—	10,385
Real estate	2,205		—	—	2,205
Total limited partnerships	12,631		—	—	12,631
Common stocks:
Domestic large capitalization	9,938		9,938	—	—
Small and mid capitalization	7,897		7,897	—	—
Total common stocks	17,835		17,835	—	—
Short-term investments	1,629		1,629	—	—
Deposit administration contracts	979		—	979	—
Total invested assets	$	207,088	183,752	10,705	12,631

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



Investments in Limited Partnerships
($ in thousands)	2013			2012
Fair value, beginning of year	$	12,631		15,180
Total gains (realized and unrealized)
included in changes in net assets	2,131			1,118
Purchases	560			434
Sales	—			—
Issuances	—			—
Settlements	(3,163		)	(4,142	)
Transfers into Level 3	—			41
Transfers out of Level 3	—			—
Fair value, end of year	$	12,159		12,631

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			2013
	December 31,		December 31,	Remaining
($ in thousands)	2013		2012	Amount
Equity long/short hedge	$	41	41	—
Private equity	9,899		10,385	3,293
Real estate	2,219		2,205	558
Total alternative investments	$	12,159	12,631	3,851

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, 2013, the Retirement Income Plan had contractual obligations that expire at various dates through 2022 to further invest up to $3.9 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 $9.6 million to the Retirement Income Plan in 2014, 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:
2014	$	8,424	372
2015	9,263		382
2016	10,226		391
2017	11,245		400
2018	12,336		407
2019-2023	76,244		2,108