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 $15.8 million in 2017, $15.0 million in 2016, and $14.1 million in 2015.

(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 2017, $0.3 million in 2016, and $0.2 million in 2015.

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, 2017 and December 31, 2016 of $10.1 million and $9.1 million, respectively, for the Excess Plan and $6.4 million and $6.3 million, respectively, for the Retirement Life Plan. Expense recorded for the Excess Plan was $0.4 million in 2017, $0.5 million in 2016, and $0.8 million in 2015. Expense recorded for the Retirement Life Plan was $0.3 million in 2017, 2016, and 2015.

The following tables provide details on the Pension Plan for 2017 and 2016:



December 31,	Pension Plan
($ in thousands)	2017			2016
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	330,588		310,308
Service cost	—			1,647
Interest cost	12,490			12,336
Actuarial losses	31,158			15,086
Benefits paid	(9,825		)	(8,789	)
Benefit obligation, end of year	$	364,411		330,588

Change in Fair Value of Assets:
Fair value of assets, beginning of year	$	316,515		249,700
Actual return on plan assets, net of expenses	46,983			21,079
Contributions by the employer to funded plans	10,000			54,525
Benefits paid	(9,825		)	(8,789	)
Fair value of assets, end of year	$	363,673		316,515

Funded status	$	(738	)	(14,073	)



Amounts Recognized in the Consolidated Balance Sheet:
Liabilities	$	(738	)	(14,073	)
Net pension liability, end of year	$	(738	)	(14,073	)



Amounts Recognized in AOCI:
Net actuarial loss	$	87,438	85,845
Total	$	87,438	85,845



Other Information as of December 31:
Accumulated benefit obligation	$	364,411	330,588



Weighted-Average Liability Assumptions as of December 31:
Discount rate	3.78	%	4.41



	Pension Plan
($ in thousands)	2017			2016		2015
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income:

Net Periodic Benefit Cost:
Service cost	$	—		1,647		7,215
Interest cost	12,490			12,336		13,668
Expected return on plan assets	(19,419		)	(17,309	)	(15,969	)
Amortization of unrecognized actuarial loss	2,001			6,299		6,831
Total net periodic cost	$	(4,928	)	2,973		11,745

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net actuarial loss (gain)	$	3,594		11,316		(1,425	)
Reversal of amortization of net actuarial loss	(2,001		)	(6,299	)	(6,831	)
Total recognized in other comprehensive income	$	1,593		5,017		(8,256	)

Total recognized in net periodic benefit cost and other comprehensive income	$	(3,335	)	7,990		3,489

The estimated net actuarial loss for the Pension Plan that will be amortized from AOCI into net periodic benefit cost during the 2018 fiscal year is $2.0 million.



	Pension Plan
	2017		2016	2015
Weighted-Average Expense Assumptions for the years ended December 31:
Discount rate	4.41	%	4.69	4.29
Expected return on plan assets	6.24		6.37	6.27
Rate of compensation increase¹	—		—	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, 2017, at which time we increased our expected return on plan assets to 6.36%, reflecting a higher allocation to equity securities in the portfolio.

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 2018 interest cost is 3.46%.

Plan Assets

Assets of the Pension Plan are invested to adequately support the liability associated with the Pension Plan's defined benefit obligation. 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 2018, 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. Over time, the target and actual asset allocations may change based on the funded status of the Pension Plan and market return expectations.

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 strategy, at December 31 were as follows:



	2017				2016
	Target Percentage²		Actual Percentage		Actual Percentage
Return seeking assets¹	20% - 60%		58	%	50	%
Liability hedging assets	40% - 80%		42	%	50	%
Total	100	%	100	%	100	%

¹Includes limited partnerships.

²Target percent allocations may change over time based on the funded status of the plan and market return expectations.

The Pension Plan had no investments in the Parent’s common stock as of December 31, 2017 or 2016.

The techniques used to determine the fair value of the Pension Plan's invested assets that appear on the following page are as follows:


•	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 utilize a market approach wherein the published prices in the active market for identical assets are used. These investments are traded 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 for further investment. These investments are classified as Level 1 in the fair value hierarchy.


•	The investments 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.


•	The investments in other private equity securities are non-publicly traded stocks and are valued by the issuer and reviewed internally. These investments are classified as Level 3 in the fair value hierarchy.


•	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.

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 hedge fund strategy is part of the overall private asset strategy and is only included in the Pension Plan assets. The Pension Plan invests in hedge funds with diversified exposure to a number of underlying systematic strategies that include arbitrage, macro-oriented and equity related strategies. These positions are expected to improve the risk-adjusted return of the portfolio given their lower volatility profile than public equities with returns that are generally uncorrelated to traditional asset classes over a complete market cycle.

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, 2017			Fair Value Measurements at 12/31/17 Using
($ in thousands)	Assets Measured at Fair Value At 12/31/17		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Description
Return seeking assets:
Long-duration fixed income:
Global asset allocation fund	$	41,309	41,309		—		—
Global equity:
Non-U.S. equity	67,989		67,989		—		—
U.S. equity	66,353		66,353		—		—
Total global equity	134,342		134,342		—		—
Private assets:
Limited partnerships (at net asset value)¹:
Real assets	16,305		—		—		—
Private equity	1,096		—		—		—
Private credit	460		—		—		—
Hedge fund	15,192		—		—		—
Total limited partnerships	33,053		—		—		—
Other private assets	980		—		—		980
Total private assets	34,033		—		—		980
Total return seeking assets	209,684		175,651		—		980

Liability hedging assets:
Long-duration fixed income:
Extended duration fixed income	146,837		146,837		—		—
Cash and short-term investments:
Short-term investments	4,939		4,939		—		—
Deposit administration contracts	1,615		—		1,615		—
Total cash and short-term investments	6,554		4,939		1,615		—
Total liability hedging assets	153,391		151,776		1,615		—
Total invested assets	$	363,075	$	327,427	$	1,615	$	980



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
Return seeking assets:
Long-duration fixed income:
Global asset allocation fund	$	37,878	37,878		—		—
Global equity:
Non-U.S. equity	48,836		48,836		—		—
U.S. equity	55,073		55,073		—		—
Total global equity	103,909		103,909		—		—
Private assets (limited partnerships, at net asset value)¹:
Real assets	15,466		—		—		—
Private equity	1,615		—		—		—
Private credit	1,108		—		—		—
Total private assets	18,189		—		—		—
Total return seeking assets	159,976		141,787		—		—

Liability hedging assets:
Long-duration fixed income:
Extended duration fixed income	131,457		131,457		—		—
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		—
Total liability hedging assets	157,011		155,179		1,832		—
Total invested assets	$	316,987	$	296,966	$	1,832	$	—

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 2018, as we have no minimum required contribution amounts.

Benefit Payments



($ in thousands)	Pension Plan
Benefits Expected to be Paid in Future
Fiscal Years:
2018	$	12,913
2019	12,936
2020	13,987
2021	15,093
2022	16,128
2023-2027	94,542