Retirement Plans

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

SICA offers a voluntary defined contribution 401(k) plan, which is available to most of our employees and is a tax-qualified retirement plan subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). Expense recorded for this plan was $14.1 million in 2015, $13.4 million in 2014, and $12.2 million in 2013.

(b) Deferred Compensation Plan

SICA offers a nonqualified deferred compensation plan ("Deferred Compensation Plan") to a group of management or highly compensated employees as a method of recognizing and retaining such employees. The Deferred Compensation Plan provides these employees 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. In addition to the employee deferrals, SICA may choose to make matching contributions to some or all of the participants in this plan to the extent the 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. Expense recorded for these contributions was $0.2 million in 2015, 2014, and 2013.

SICA's primary pension plan is The Retirement Income Plan for Selective Insurance Company of America (the "Pension Plan"). This qualified, noncontributory defined benefit plan is closed to new entrants and existing participants will cease accruing benefits after March 31, 2016.

In addition to the Pension Plan, SICA also sponsors the Supplemental Excess Retirement Plan (the "Excess Plan") and a life insurance benefit plan (the "Retirement Life Plan"). Both of these plans are closed to new entrants and participants in the Excess Plan will cease accruing benefits after March 31, 2016. The Retirement Life Plan does not accrue benefits and this plan applies only to retirees who terminated employment with SICA on or before March 31, 2009. These are both unfunded plans with benefit obligations as of December 31, 2015 and December 31, 2014 of $8.5 million and $8.8 million, respectively, for the Excess Plan and $6.0 million and $6.4 million, respectively, for the Retiree Life Plan. Expense recorded for the Excess Plan was $0.8 million in 2015, $0.6 million in 2014, and $0.5 million in 2013. Expense recorded for the Retiree Life Plan was $0.3 million in 2015, $0.4 million in 2014, and $0.4 million in 2013.

The following tables provide details on the Pension Plan for 2015 and 2014:



December 31,	Pension Plan
($ in thousands)	2015			2014
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	322,271		249,422
Service cost	7,215			5,763
Interest cost	13,668			12,776
Actuarial losses (gains)	(24,994		)	61,534
Benefits paid	(7,852		)	(7,224	)
Benefit obligation, end of year	$	310,308		322,271

Change in Fair Value of Assets:
Fair value of assets, beginning of year	$	253,452		225,817
Actual return on plan assets, net of expenses	(7,600		)	24,649
Contributions by the employer to funded plans	11,700			10,210
Benefits paid	(7,852		)	(7,224	)
Fair value of assets, end of year	$	249,700		253,452

Funded status	$	(60,608	)	(68,819	)



Amounts Recognized in the Consolidated Balance Sheet:
Liabilities	$	(60,608	)	(68,819	)
Net pension liability, end of year	$	(60,608	)	(68,819	)



Amounts Recognized in AOCI:
Net actuarial loss	$	80,828	89,085
Total	$	80,828	89,085



Other Information as of December 31:
Accumulated benefit obligation	$	310,307	318,018



Weighted-Average Liability Assumptions as of December 31:
Discount rate	4.69	%	4.29
Rate of compensation increase	4.00		4.00



	Pension Plan
($ in thousands)	2015			2014		2013
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income:

Net Periodic Benefit Cost:
Service cost	$	7,215		5,763		7,346
Interest cost	13,668			12,776		12,139
Expected return on plan assets	(15,969		)	(15,671	)	(15,755	)
Amortization of unrecognized prior service cost	—			—		21
Amortization of unrecognized actuarial loss	6,831			1,776		4,145
Curtailment expense	—			—		189
Total net periodic cost	$	11,745		4,644		8,085

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net actuarial (gain) loss	$	(1,425	)	52,556		(58,001	)
Reversal of amortization of net actuarial loss	(6,831		)	(1,776	)	(4,145	)
Reversal of amortization of prior service cost	—			—		(21	)
Curtailment expense	—			—		(189	)
Total recognized in other comprehensive income	$	(8,256	)	50,780		(62,356	)

Total recognized in net periodic benefit cost and other comprehensive income	$	3,489		55,424		(54,271	)

The estimated net actuarial loss for the Pension Plan that will be amortized from AOCI into net periodic benefit cost during the 2016 fiscal year is $5.9 million.



	Pension Plan
	2015		2014	2013
Weighted-Average Expense Assumptions for the years ended December 31:
Discount rate	4.29	%	5.16	4.66
Expected return on plan assets	6.27	%	6.92	7.40
Rate of compensation increase	4.00	%	4.00	4.00

Our latest measurement date was December 31, 2015 and we increased our expected return on plan assets to 6.37%, reflecting the current interest rate environment.

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. Effective January 1, 2016, the approach used to calculate the service and interest components of net periodic benefit cost for benefit plans was changed to provide a more precise measurement of service and interest costs. Historically, we calculated these service and interest components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Going forward, we have elected to utilize an approach that discounts the individual expected cash flows using the applicable spot rates derived from the yield curve over the projected cash flow period. We will account for this change prospectively as a change in accounting estimate. The weighted average discount rates used to determine 2016 service and interest costs are 4.52% and 4.02%, respectively.

Plan Assets

Assets of the Pension Plan are invested to ensure that principal is preserved and enhanced over time. 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 shown below. In 2016, we will continue to phase in adjustments to the asset allocation to steadily close the gap between the duration of the assets and the duration of the liabilities, provided certain improved funding targets are achieved.

The Pension Plan’s equity investments may not contain investments in any one security greater than 8% of the portfolio value without notification to our management investment committee, nor have more than 5% of the outstanding shares of any one corporation or other entity. 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 target ranges, as well as the actual weighted average asset allocation by asset class, at December 31 were as follows:



	2015				2014
	Target Ranges		Actual Percentage		Actual Percentage
Long duration fixed income	55%-100%		60	%	59	%
Global equity	0%-45%		36	%	25	%
Global Asset Allocation¹	—	%	—	%	11	%
Private equity^1,2	—	%	3	%	4	%
Cash and short-term investments¹	—	%	1	%	1	%
Total	—	%	100	%	100	%

¹ These asset classes do not have target ranges, as these exposures will be phased out over time as we opportunistically migrate to long duration fixed income security strategies.

² Includes limited partnerships.

The Pension Plan had no investments in the Parent’s common stock as of December 31, 2015 or 2014.

The fair value of the Pension Plan's 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 income securities and short-term investments held in the Pension Plan.

The techniques used to determine the fair value of the 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 on the redemption of these investments and we do not 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 Pension 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 Pension Plan’s invested assets that are measured at fair value on a recurring basis:



December 31, 2015			Fair Value Measurements at 12/31/15 Using
($ in thousands)	Assets Measured at Fair Value At 12/31/15		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Description
Long duration fixed income:
Global asset allocation fund	$	33,565	33,565	—	—
Extended duration fixed income	117,297		117,297	—	—
Total long duration fixed income	150,862		150,862	—	—
Global equity:
Non-U.S. equity	42,603		—	42,603	—
U.S. equity	46,840		—	46,840	—
Total global equity	89,443		—	89,443	—
Private equity (limited partnerships):
Private equity	4,852		—	—	4,852
Real estate	1,606		—	—	1,606
Total private equity	6,458		—	—	6,458
Cash and short-term investments:
Short-term investments	1,600		1,600	—	—
Deposit administration contracts	1,418		—	1,418	—
Total cash and short-term investments	3,018		1,600	1,418	—
Total invested assets	$	249,781	152,462	90,861	6,458



December 31, 2014			Fair Value Measurements at 12/31/14 Using
($ in thousands)	Assets Measured at Fair Value At 12/31/14		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Description
Long duration fixed income:
Global asset allocation fund	$	27,782	27,782	—	—
Extended duration fixed income	120,532		120,532	—	—
Total long duration fixed income	148,314		148,314	—	—
Global equity:
Non-U.S. equity	16,852		5,438	11,414	—
U.S. equity	47,719		47,719	—	—
Total global equity	64,571		53,157	11,414	—
Global asset allocation	27,842		27,842	—	—
Private equity (limited partnerships):
Equity long/short hedge	41		—	—	41
Private equity	8,136		—	—	8,136
Real estate	2,215		—	—	2,215
Total private equity	10,392		—	—	10,392
Cash and short-term investments:
Short-term investments	1,222		1,222	—	—
Deposit administration contracts	1,180		—	1,180	—
Total cash and short-term investments	2,402		1,222	1,180	—
Total invested assets	$	253,521	230,535	12,594	10,392

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)	2015			2014
Fair value, beginning of year	$	10,392		12,159
Total gains (realized and unrealized)
included in changes in net assets	(410		)	1,586
Purchases	51			334
Sales	—			—
Issuances	—			—
Settlements	(3,575		)	(3,687	)
Transfers into Level 3	—			—
Transfers out of Level 3	—			—
Fair value, end of year	$	6,458		10,392

Contributions

We presently anticipate contributing $11.7 million to the Pension Plan in 2016, none of which represents minimum required contribution amounts.

Benefit Payments



($ in thousands)	Pension Plan
Benefits Expected to be Paid in Future
Fiscal Years:
2016	$	9,917
2017	10,958
2018	12,005
2019	13,045
2020	14,092
2021-2025	84,400