| þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| o | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
| B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
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Supplemental Schedule* |
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| Exhibit 23 - Consent of Independent Registered Public Accounting Firm | ||||||||
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| 2007 | 2006 | |||||||
Plan Assets: |
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Investments, at fair value (Note 3) |
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Mutual funds |
$ | 135,761,180 | 121,170,595 | |||||
Common trust fund |
19,096,715 | 17,771,845 | ||||||
Selective Insurance Group, Inc. common stock |
4,103,543 | 5,415,184 | ||||||
Participant loans receivable |
2,568,598 | 2,204,343 | ||||||
Participant self-directed investments |
118,570 | — | ||||||
Total investments at fair value |
161,648,606 | 146,561,967 | ||||||
Employer contribution receivable (Note 5) |
1,334,735 | 56,014 | ||||||
Net assets available for benefits at fair value |
162,983,341 | 146,617,981 | ||||||
Adjustment from fair value to contract value
for fully benefit-responsive investment contracts |
(112,869 | ) | 152,353 | |||||
Net assets available for plan benefits |
$ | 162,870,472 | 146,770,334 | |||||
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Additions to net assets attributable to: |
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Investment income: |
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Net depreciation in fair value of investments (Note 3) |
$ | (2,393,182 | ) | |
Dividends |
8,690,732 | |||
Interest |
1,472,071 | |||
Participant loan interest |
180,053 | |||
Net investment income |
7,949,674 | |||
Contributions: |
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Participants |
10,196,148 | |||
Participant rollovers |
2,967,107 | |||
Employer
(net of forfeitures of $261,577) (Note 5) |
6,691,325 | |||
Total contributions |
19,854,580 | |||
Total additions |
27,804,254 | |||
Deductions from net assets attributable to: |
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Distributions to participants |
(11,704,116 | ) | ||
Total deductions |
(11,704,116 | ) | ||
Net increase in net assets available for plan benefits |
16,100,138 | |||
Net assets available for plan benefits at beginning of year |
146,770,334 | |||
Net assets available for plan benefits at end of year |
$ | 162,870,472 | ||
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| (1) | Plan Description | |
| The following description of the Selective Insurance Retirement Savings Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan document for more complete information. |
| (a) | General | ||
| The Plan was originally established effective July 1, 1980 and most recently had an amendment effective January 29, 2008 that did not have a significant impact on the Plan. | |||
| The Plan is a defined contribution retirement savings plan, which covers substantially all regular full-time and part-time employees of Selective Insurance Company of America (the “Company”) who are paid on a United States payroll. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Participants direct the investment of all contributions, including the Company’s contributions, among a variety of available investment options. Eligible employees of the Company may begin participation upon commencement of employment. The Company is the Plan sponsor. T. Rowe Price Retirement Plan Services, Inc. (“T. Rowe Price”) provides the majority of the recordkeeping services for the Plan. The recordkeeping for the participant self-directed investments is provided by Pershing, LLC, a wholly owned subsidiary of The Bank of New York Mellon Corporation. The members of the Salary and Employee Benefits Committee of the Board of Directors of the Company are the Plan trustees. | |||
| (b) | Plan Participants Contributions | ||
| Participants may contribute 2% to 50% of their base pay and annual cash bonus to the plan on a pre-tax and/or after-tax basis, through payroll deductions, which, in the aggregate, may not exceed 50% of their annual base pay. Total pre-tax contributions may not exceed the Internal Revenue Service (“IRS”) limit of $15,500 for 2007. Participants age 50 or over may also make additional “catch-up” contributions to their accounts on a pre-tax basis of up to $5,000 for 2007. Highly compensated employees may have their contributions limited further at the discretion of the Plan’s administrator. Participants may also contribute amounts representing eligible rollover distributions from other qualified plans. | |||
| (c) | Company Contributions | ||
| For eligible employees hired on or before December 31, 2005, the Company makes matching contributions in an amount equal to 65 cents per dollar on the first 7% of the base pay contributed by a participant (the “regular matching contribution”). | |||
| To replace participation in the Company’s defined benefit pension plan, the Retirement Income Plan for Selective Insurance Company of America, eligible employees hired after December 31, 2005 receive, following one year of service, a Company match, dollar for dollar, of the employee’s contribution up to 2% of the employee’s base pay and a non-elective contribution to the Plan equal to 2% of the employee’s base pay effective with the first pay period following one year of service. These enhanced benefits are in addition to the regular matching contribution. | |||
| The Company does not match participants’ catch-up contributions or participant contributions made from annual cash incentive pay. Company matching and non-elective contributions are invested at the direction of the participant. |
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| (d) | Administrative Expenses | ||
| Expenses incurred by the Plan may be paid directly by the Company or through the use of the forfeitures. | |||
| (e) | Participants’ Accounts | ||
| Each participant’s account is credited with the participant’s contributions, the appropriate amount of the Company’s contributions and investment income (or loss) arising out of the vehicles in which the participant’s account were invested, net of fund expenses. | |||
| (f) | Vesting | ||
| Participants’ contributions and earnings or losses thereon are fully vested at all times. Company contributions and earnings or losses thereon vest in accordance with the following schedules: | |||
| Matching Contributions: |
| Years of Vesting Service | Vesting Percentage | |||
Less than two |
0 | % | ||
Two but less than three |
20 | |||
Three but less than four |
40 | |||
Four but less than five |
60 | |||
Five but less than six |
80 | |||
Six or more |
100 | |||
| Years of Vesting Service | Vesting Percentage | |||
Less than three |
0 | % | ||
Three or more |
100 | |||
| (g) | Forfeited Accounts | ||
| Forfeited balances were $269,088 at December 31, 2007 and $310,098 at December 31, 2006. In 2007, forfeited amounts of $261,577 were used to reduce the Company’s contributions. All forfeited amounts are used to reduce the Company contributions made and/or pay administrative expenses of the Plan. | |||
| (h) | Withdrawals | ||
| During employment, a participant may make withdrawals of all or certain portions of his or her vested account balance subject to certain restrictions as set forth in the Plan document. Certain withdrawals, such as hardship withdrawals, preclude the participant from making further contributions or withdrawals under the Plan for a period of time. | |||
| (i) | Benefit Payments | ||
| The benefit to which a participant is entitled is provided from the vested portion of a participant’s account. Upon termination of service, if a participant’s vested account balance does not exceed $1,000, the vested value is distributed in the form of a lump-sum payment. If the vested account balance exceeds $1,000, the participant may request a lump-sum payment or may elect to defer distribution until age 65, as set forth in the Plan. Upon a participant’s death, the entire vested account balance is distributed to the participant’s beneficiary in the form of a lump-sum payment. |
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| (j) | Participant Loans | ||
| Participants may borrow, from their before-tax account or rollover account, a minimum of $1,000 up to a maximum equal to the lesser of (i) $50,000, reduced in certain circumstances for participants with prior loans, or (ii) 50% of their vested account balance. Loans used to purchase a primary residence can be repaid over fifteen years. Loans for all other purposes must be repaid within five years. Principal and interest is repaid through bi-weekly payroll deductions. Interest is determined at the time of the loan at a rate equal to prime plus 1%. | |||
| In 2007 and 2006, the Company identified various operational errors related to the repayment of participant loans to the Plan that management does not believe are material. These errors were corrected in 2007 and in the first quarter of 2008. |
| (2) | Summary of Significant Accounting Policies |
| (a) | Adoption of Accounting Pronouncement | ||
| In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 defines fair value and establishes a framework for measuring fair value. FAS 157 applies to other pronouncements that require or permit fair value, however, it does not require any new fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the provisions of FAS 157 to have a material effect on the Plan’s financial statements. | |||
| On January 1, 2007, the Plan adopted FASB Interpretations (FIN) No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires evaluation of tax positions taken or expected to be taken to determine whether the tax positions will “more likely than not” be sustained by the applicable tax authority. The adoption of FIN 48 did not have an impact on the Plan’s financial statements. | |||
| The provisions of the Financial Accounting Standards Board Staff Position entitled, FSP AAG INV-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the “FSP”) became effective for plan years ending after December 15, 2006. This FSP requires that investment contracts held by a defined contribution plan be reported at fair value. The Plan’s investment in the T. Rowe Price Stable Value common trust fund (the “Trust”) holds investment contracts that are deemed to be fully benefit-responsive as of December 31, 2007 and 2006. Although the FSP requires the Trust to be reported at fair value, contract value is the relevant measurement attribute because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. As required by the FSP, the Statements of Net Assets Available for Plan Benefits presents the fair value of the common trust fund as well the amount necessary to adjust this fair value to contract value. The adoption of this FSP had no impact on the Plan’s net assets available for plan benefits as of December 31, 2007 or 2006. As permitted by the FSP, the Statement of Changes in Net Assets Available for Plan Benefits is prepared on a contract value basis. | |||
| (b) | Basis of Accounting | ||
| The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). |
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| (c) | Use of Estimates | ||
| The preparation of the financial statements in conformity with GAAP requires the Plan’s management to (i) make estimates and assumptions that affect the reported amount of assets, liabilities and changes therein: and (ii) disclose contingent assets and liabilities. Actual results may differ from such estimates and assumptions. | |||
| (d) | Investment Valuation and Income Recognition | ||
| Investment options under the Plan include Selective Insurance Group, Inc. (“SIGI”) common stock, twenty mutual funds, one Trust and various other investments including stocks, certain mutual funds, bonds and CDs, available under the participant self-directed investment option of the Plan. Fair value of the common stock, mutual funds and the participant self-directed investments are based on quoted market prices. | |||
| The Trust is stated at fair value and adjusted to contract value as reported to the Plan by T. Rowe Price. Contract value represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. | |||
| Participant loans are valued at cost, which approximates fair value. | |||
| Purchases and sales of securities are recorded on a trade date basis. Dividends are recorded on the ex-dividend date. Interest income is recorded when earned. | |||
| (e) | Risk and Uncertainties | ||
| The Plan offers a number of investment options, including investment in SIGI’s common stock, mutual funds, a common trust fund and a variety of investments available under the participant self-directed investment option of the Plan. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility risk. It is reasonable to expect that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances. | |||
| The Plan’s exposure to a concentration of credit risk is limited by the diversification of investments across the participant-directed fund elections. Additionally, the investments within each participant-directed fund election are further diversified into varied financial instruments, with the exception of investments in SIGI common stock and potentially the individual investments under the participant self-directed investment option of the Plan. Investment decisions are made, and the resulting risks are borne, exclusively by the Plan participant who made such decisions. | |||
| The plan invests directly or indirectly in securities with contractual cash flows, such as asset backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by subprime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate value, delinquencies or defaults, or both, and may be adversely affected by shifts in the market’s perception of the issuers and changes in interest rates. | |||
| (f) | Payment of Benefits | ||
| Benefits are recorded when paid. |
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| (3) | Investments | |
| The following investments represent 5% or more of the Plan’s net assets: |
| 2007 | 2006 | |||||||
T. Rowe Price Mutual Funds: |
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Equity Income Fund 1,081,366 and 1,126,897 shares, respectively |
$ | 30,386,374 | 33,299,797 | |||||
Mid-Cap Growth Fund 350,428 and 308,364 shares, respectively |
20,209,128 | 16,556,051 | ||||||
Small-Cap Value Fund 538,118 and 546,170 shares, respectively |
19,329,195 | 22,507,655 | ||||||
Growth Stock Fund 285,347 shares |
9,604,772 | * | ||||||
New Income Fund 1,000,186 shares |
* | 8,921,655 | ||||||
International Stock Fund 467,734 shares |
* | 7,871,963 | ||||||
Other Mutual Funds: |
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Julius Baer Int’l Equity II 868,065 shares |
14,930,715 | * | ||||||
Western Asset CR PL Bond, I 1,282,320 shares |
13,066,833 | * | ||||||
T. Rowe Price Common Collective Trust Fund: |
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Stable Value Common Trust Fund 18,983,846 and 17,924,198 shares, respectively |
19,096,715 | 17,771,845 | ||||||
| 2007 | ||||
Mutual Funds |
$ | (1,365,283 | ) | |
Selective Insurance Group, Inc. common stock |
(1,024,548 | ) | ||
Participant self-directed investments |
(3,351 | ) | ||
| $ | (2,393,182 | ) | ||
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| (4) | Plan Termination | |
| Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100% vested in their Company contributions. | ||
| (5) | Federal Income Tax Status | |
| The IRS has determined and informed the Company by a letter dated December 13, 2002, that the Plan and related Trust are designed in accordance with applicable sections of the Internal Revenue Code (“IRC”). Although the Plan has been amended since receiving the determination letter, the Plan’s administrator and the Plan’s tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. | ||
| During 2007, the Company discovered an operational failure affecting the Plan relating to the crediting of year-end employer matching contribution “true-up” payments to certain participants’ accounts during the Plan years ended 1997 through 2005. The Company has taken appropriate corrective measures pursuant to the IRS’s Employee Plans Compliance Resolution System (“EPCRS”), which has resulted in contributions by the Company to participants’ accounts in 2007 of approximately $0.5 million, and has sought IRS approval of the method of correction. In addition, during 2008, the Company discovered an operational failure arising from the misallocation of approximately $0.8 million of Company matching contributions, which occurred during Plan years 2002 through 2005. This misallocation impacted those employees participating in both the Plan and the Company’s Deferred Compensation Plan (“DCP”). The Company estimates that $0.5 million in investment earnings should be applied to this misallocation. The Company will make the necessary corrections pursuant to EPCRS as soon as administratively possible. An employer contribution receivable of $1,254,267 was recorded as of December 31, 2007 to reflect the correction of this operational failure, which includes a contribution of the aforementioned lost investment earnings. The Company will bear any fees, penalties, or expenses associated with these corrections. | ||
| (6) | Party-in-Interest Transactions | |
| Certain investments of the Plan are shares of mutual funds and a common trust fund, which are administered by an affiliate of T. Rowe Price, the recordkeeper of the Plan, and T. Rowe Price Trust Company, Inc., the custodian of the Plan. These investments represent $119,896,305 or 74% of total net assets at December 31, 2007 and $119,371,483 or 81% of total assets at December 31, 2006. Certain Plan investments are shares of common stock issued by SIGI. The Company, a wholly-owned subsidiary of SIGI, is the Plan sponsor. Therefore, these transactions qualify as party-in-interest transactions. |
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| (7) | Reconciliation of Financial Statements to Form 5500 | |
| The following is a reconciliation of the financial statements to IRS Form 5500: |
| 2007 | 2006 | |||||||
Net assets available for plan benefits
per the financial statements |
$ | 162,870,472 | 146,770,334 | |||||
Adjustment from fair market value for fully
benefit-responsive investment contracts |
112,869 | (152,353 | ) | |||||
Net assets per Form 5500 |
$ | 162,983,341 | 146,617,981 | |||||
| 2007 | ||||
Net investment income per the financial statements |
$ | 7,949,674 | ||
Adjustment from fair market value for fully
benefit-responsive investment contracts: |
||||
2006 |
152,353 | |||
2007 |
112,869 | |||
Net investment income per Form 5500 |
$ | 8,214,896 | ||
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| Identity of issuer | Description | Fair Value | ||||||||||
*Selective Insurance Group, Inc. common stock |
Common Stock; | 178,493 shares | $ | 4,103,543 | ||||||||
*T. Rowe Price Stable Value Common Trust Fund |
Common Trust Fund; | 18,983,846 shares | 19,096,715 | |||||||||
*T. Rowe Price Mutual Funds |
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Equity Income Fund |
Mutual Fund; | 1,081,366 shares | 30,386,374 | |||||||||
Mid-Cap Growth Fund |
Mutual Fund; | 350,427 shares | 20,209,128 | |||||||||
Small-Cap Value Fund |
Mutual Fund; | 538,118 shares | 19,329,195 | |||||||||
Growth Stock Fund |
Mutual Fund; | 285,347 shares | 9,604,772 | |||||||||
Retirement 2030 Fund |
Mutual Fund; | 222,590 shares | 4,240,337 | |||||||||
Retirement 2020 Fund |
Mutual Fund; | 169,832 shares | 3,012,819 | |||||||||
Retirement 2015 Fund |
Mutual Fund; | 231,593 shares | 2,929,648 | |||||||||
Retirement 2025 Fund |
Mutual Fund; | 207,291shares | 2,732,092 | |||||||||
Retirement 2010 Fund |
Mutual Fund; | 139,949 shares | 2,268,580 | |||||||||
Real Estate Fund |
Mutual Fund; | 110,443 shares | 2,118,295 | |||||||||
Retirement 2035 Fund |
Mutual Fund; | 149,942 shares | 2,025,716 | |||||||||
Retirement 2005 Fund |
Mutual Fund; | 51,865 shares | 611,488 | |||||||||
Retirement 2040 Fund |
Mutual Fund; | 28,889 shares | 554,675 | |||||||||
Retirement 2045 Fund |
Mutual Fund; | 19,845 shares | 252,626 | |||||||||
Retirement Income Fund |
Mutual Fund; | 17,137 shares | 227,917 | |||||||||
Retirement 2050 Fund |
Mutual Fund; | 17,258 shares | 180,860 | |||||||||
Retirement 2055 Fund |
Mutual Fund; | 9,763 shares | 102,312 | |||||||||
Other Mutual Funds: |
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Julius Baer Int’l Equity II |
Mutual Fund; | 868,065 shares | 14,930,715 | |||||||||
Western Asset CR PL Bond, I |
Mutual Fund; | 1,282,319 shares | 13,066,833 | |||||||||
Vanguard Institutional Index Fund |
Mutual Fund; | 52,011 shares | 6,976,798 | |||||||||
| 135,761,180 | ||||||||||||
*Participant self-directed investments |
118,570 | |||||||||||
| 159,080,008 | ||||||||||||
*Participant Loans Receivable |
298 loans | 2,568,598 | ||||||||||
| interest rates from 5% to 9.25% maturity through 2022 |
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*Party-in-interest as defined by ERISA |
Total | $ | 161,648,606 | |||||||||
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PLAN ADMINISTRATOR:
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Selective Insurance Company of America | |
Date: June 20, 2008
|
By: /s/ Victor N. Daley | |
| Victor N. Daley | ||
| Chairman, Benefits Advisory Committee, | ||
| Selective Insurance Company of America |
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