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 $15.0 million in 2016, $14.1 million in 2015, and $13.4 million in 2014.

(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 $0.3 million in 2016 and $0.2 million in both 2015 and 2014.

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 ceased 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 ceased 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, 2016 and December 31, 2015 of $9.1 million and $8.5 million, respectively, for the Excess Plan and $6.3 million and $6.0 million, respectively, for the Retiree Life Plan. Expense recorded for the Excess Plan was $0.5 million in 2016, $0.8 million in 2015, and $0.6 million in 2014. Expense recorded for the Retiree Life Plan was $0.3 million in 2016 and 2015, and $0.4 million in 2014.

The following tables provide details on the Pension Plan for 2016 and 2015:



December 31,	Pension Plan
($ in thousands)	2016			2015
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	310,308		322,271
Service cost	1,647			7,215
Interest cost	12,336			13,668
Actuarial losses (gains)	15,086			(24,994	)
Benefits paid	(8,789		)	(7,852	)
Benefit obligation, end of year	$	330,588		310,308

Change in Fair Value of Assets:
Fair value of assets, beginning of year	$	249,700		253,452
Actual return on plan assets, net of expenses	21,079			(7,600	)
Contributions by the employer to funded plans	54,525			11,700
Benefits paid	(8,789		)	(7,852	)
Fair value of assets, end of year	$	316,515		249,700

Funded status	$	(14,073	)	(60,608	)



Amounts Recognized in the Consolidated Balance Sheet:
Liabilities	$	(14,073	)	(60,608	)
Net pension liability, end of year	$	(14,073	)	(60,608	)



Amounts Recognized in AOCI:
Net actuarial loss	$	85,845	80,828
Total	$	85,845	80,828



Other Information as of December 31:
Accumulated benefit obligation	$	330,588	310,307



Weighted-Average Liability Assumptions as of December 31:
Discount rate	4.41	%	4.69
Rate of compensation increase	—		4.00



	Pension Plan
($ in thousands)	2016			2015		2014
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income:

Net Periodic Benefit Cost:
Service cost	$	1,647		7,215		5,763
Interest cost	12,336			13,668		12,776
Expected return on plan assets	(17,309		)	(15,969	)	(15,671	)
Amortization of unrecognized actuarial loss	6,299			6,831		1,776
Total net periodic cost	$	2,973		11,745		4,644

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net actuarial loss (gain)	$	11,316		(1,425	)	52,556
Reversal of amortization of net actuarial loss	(6,299		)	(6,831	)	(1,776	)
Total recognized in other comprehensive income	$	5,017		(8,256	)	50,780

Total recognized in net periodic benefit cost and other comprehensive income	$	7,990		3,489		55,424

The estimated net actuarial loss for the Pension Plan that will be amortized from AOCI into net periodic benefit cost during the 2017 fiscal year is $1.9 million. This is lower than the $6.3 million amortized in 2016 due to a change in the amortization period for the net actuarial loss. Historically, the amortization period was the average remaining service life of the active participants. However, as the Pension Plan is no longer accruing service benefits, the amortization period has changed to the average remaining life expectancy of plan participants.



	Pension Plan
	2016		2015	2014
Weighted-Average Expense Assumptions for the years ended December 31:
Discount rate	4.69	%	4.29	5.16
Expected return on plan assets	6.37		6.27	6.92
Rate of compensation increase¹	—		4.00	4.00

¹This assumption was 4.00% through March 31, 2016, the date after which benefits ceased accruing for all participants of the Pension Plan.

Our latest measurement date was December 31, 2016 and we decreased our expected return on plan assets to 6.24%, 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 Pension Plan's 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. Prior to 2016, 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. Beginning in 2016, we 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 have accounted for this change prospectively as a change in accounting estimate. The weighted average discount rate used to determine 2017 interest cost is 3.83%.

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 2017, 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:



	2016				2015
	Target Ranges		Actual Percentage		Actual Percentage
Long duration fixed income	40%-100%		53	%	60	%
Global equity	0%-40%		33	%	36	%
Alternatives & other return seeking assets¹	0%-30%		6	%	3	%
Cash and short-term investments	0%-5%		8	%	1	%
Total	—	%	100	%	100	%

¹Includes limited partnerships.

At December 31, 2016, the Pension Plan's allocation to cash and short-term investments was slightly above the targeted range, as we were analyzing the most effective deployment of these balances considering current market conditions.

The Pension Plan had no investments in the Parent’s common stock as of December 31, 2016 or 2015.

The techniques used to determine the fair value of the Pension Plan's invested assets are as follows:


•	Short-term investments are carried at cost, which approximates fair value. Given that these investments are listed on active exchanges, coupled with their liquid nature, 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.


•	The long-duration fixed income mutual funds 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. These investments are classified as Level 1 in the fair value hierarchy.


•	The investments in global equity collective investment funds and in private equity limited partnerships are valued utilizing net asset value as a practical expedient for fair value. These investments are not classified in the fair value hierarchy.

For discussion regarding the levels within the fair value hierarchy, see Note 2. "Summary of Significant Accounting Policies."

In addition, refer to Note 5. "Investments" for discussion regarding the limited partnership investment strategies, excluding the middle market lending strategy, as these investments are not part of the Pension Plan.

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, 2016			Fair Value Measurements at 12/31/16 Using
($ in thousands)	Assets Measured at Fair Value At 12/31/16		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	$	37,878	37,878	—	—
Extended duration fixed income	131,457		131,457	—	—
Total long duration fixed income	169,335		169,335	—	—
Cash and short-term investments:
Short-term investments	23,722		23,722	—	—
Deposit administration contracts	1,832		—	1,832	—
Total cash and short-term investments	25,554		23,722	1,832	—
Global equity, at net asset value¹:
Non-U.S. equity	48,836		—	—	—
U.S. equity	55,073		—	—	—
Total global equity	103,909		—	—	—
Private equity (limited partnerships, at net asset value)¹:
Real assets	15,466		—	—	—
Private equity	1,615		—	—	—
Private credit	1,108		—	—	—
Total private equity	18,189		—	—	—
Total invested assets	$	316,987	193,057	1,832	—



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	—	—
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	—
Global equity, at net asset value¹:
Non-U.S. equity	42,603		—	—	—
U.S. equity	46,840		—	—	—
Total global equity	89,443		—	—	—
Private equity (limited partnerships, at net asset value)¹:
Private equity	2,626		—	—	—
Real assets	2,514		—	—	—
Private credit	1,318		—	—	—
Total private equity	6,458		—	—	—
Total invested assets	$	249,781	152,462	1,418	—

¹In accordance with ASU 2015-07, certain investments that are measured at fair value using the net asset value per share (or its practical expedient) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to total Pension Plan invested assets.

Contributions

We presently do not anticipate contributing to the Pension Plan in 2017, as we have no minimum required contribution amounts.

Benefit Payments



($ in thousands)	Pension Plan
Benefits Expected to be Paid in Future
Fiscal Years:
2017	$	10,830
2018	12,041
2019	13,125
2020	14,184
2021	15,124
2022-2026	89,771