| 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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| 2 | ||||
| 3 | ||||
| 4-8 | ||||
Supplemental Schedule* |
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| 9 | ||||
| 10 | ||||
| 11 | ||||
Exhibit 23 – Consent of Independent Registered Public Accounting Firm |
12 | |||
| * | Schedules required by Form 5500 that are not applicable have been omitted. |
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| 2005 | 2004 | |||||||
Plan Assets: |
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Investments, at fair value (Note 3) |
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Cash and cash equivalents |
$ | 10,945 | — | |||||
Selective Insurance Group, Inc. common stock |
5,234,108 | 4,169,375 | ||||||
Mutual funds |
104,905,005 | 94,730,052 | ||||||
Common trust fund |
16,339,065 | 16,011,936 | ||||||
Participant loans receivable |
2,063,907 | 2,113,427 | ||||||
Net assets available for plan benefits |
$ | 128,553,030 | 117,024,790 | |||||
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Additions to net assets attributable to: |
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Contributions: |
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Participants |
$ | 8,554,621 | ||
Participant rollover |
1,433,583 | |||
Participant loan interest |
111,327 | |||
Employer (net of forfeitures of $152,954) |
3,771,532 | |||
Total contributions |
13,871,063 | |||
Investment income: |
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Net appreciation in fair value of investments (Note 3) |
3,336,767 | |||
Interest |
1,257,931 | |||
Dividends |
4,400,609 | |||
Net investment income |
8,995,307 | |||
Total additions |
22,866,370 | |||
Deductions from net assets attributable to: |
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Distributions to participants |
(11,338,130 | ) | ||
Total deductions |
(11,338,130 | ) | ||
Net increase in net assets available for plan benefits |
11,528,240 | |||
Net assets available for plan benefits at beginning of year |
117,024,790 | |||
Net assets available for plan benefits at end of year |
$ | 128,553,030 | ||
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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 amended effective January 1, 2006. | |||
| The Plan is a voluntary 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 commence participation upon commencement of employment. Participants become vested in the contributions made by the company gradually over six years. The Company is the Plan sponsor. T. Rowe Price Retirement Plan Services, Inc. provides recordkeeping services for the Plan. The members of the Salary and Employee Benefits Committee of Selective Insurance Company of America are the Plan trustees. | |||
| (b) | Plan Participants Contributions: | ||
| Participants may contribute 2% to 50% of annual compensation (as defined by the Plan) in the aggregate on a pre-tax and/or after-tax basis, through payroll deductions. Total pre-tax contributions may not exceed the IRS limit of $14,000 for 2005 and $13,000 for 2004. Participants age 50 or over may also make additional “catch-up” contributions to their accounts on a pre-tax basis of $4,000 for 2005 and $3,000 for 2004. Therefore, the maximum amount these participants could contribute is $18,000 for 2005 and $16,000 for 2004. Highly compensated employees may have their contributions limited further by the discretion of the Plan’s administrator. | |||
| (c) | Company Contributions | ||
| 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 Company does not match participants’ catch-up contributions or participant contributions made in respect of annual cash incentive pay. Company matches are invested at the direction of the participant. | |||
| (d) | Forfeited Accounts | ||
| Forfeited balances were $221,642 at December 31, 2005 and $137,849 at December 31, 2004. In 2005, forfeited amounts of $152,954 were used to reduce the Company’s contributions. All forfeited amounts are used to reduce the matching contributions made and/or to pay administrative expenses of the Plan. |
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| (e) | Administrative Expenses | ||
| Expenses incurred by the Plan are paid directly by the Company. | |||
| (f) | 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 funds in which the participant’s account was invested. | |||
| (g) | 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 schedule: |
| Years of 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 | |||
| A participant’s Company contribution account balance becomes 100% vested in the case of death, total and permanent disability or at age 65. | |||
| (h) | Withdrawals | ||
| During employment, a participant may make withdrawals of all or certain portions of his or her account balance subject to certain restrictions as defined 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 account balance does not exceed $1,000, the vested value is distributed in the form of a lump-sum payment. If the 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. | |||
| (j) | Participant Loans | ||
| Participants may borrow, from their vested before-tax account or rollover account, a minimum of $1,000 up to a maximum equal to the lesser of (i) $50,000 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 periodic payroll deductions. |
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| (2) | Summary of Significant Accounting Policies |
| (a) | Basis of Accounting | ||
| The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). | |||
| (b) | 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. | |||
| (c) | Investment Valuation and Income Recognition | ||
| Investment options under the Plan include Selective Insurance Common Group, Inc. common stock, seventeen mutual funds and one common trust fund. Fair value of the common stock and mutual funds, which are comprised of stocks and bonds, is based on quoted market prices. | |||
| The common trust fund is valued at cost, which approximates fair value. Investments in the common trust fund principally consist of investment contracts, which are nontransferable but provide for benefit responsive withdrawals by Plan participants at contract value. Benefit responsive withdrawals are provided for on a proportional basis by the issuers of the investment contracts. Generally, fair value approximates contract value (contributions made plus interest accrued at the contract rate, less withdrawals and fees). If, however, an event has occurred that may impair the ability of the contract issuer to perform in accordance with the contract terms, fair value may be less than contract value. The common trust fund’s thirty day effective yield was 4.05% as of December 31, 2005, and the 2005 average total return was 3.95%. Both of these amounts are reported net of the annual trustee fee of 0.45%. The crediting interest rate is based on a formula agreed upon with the issuer, and is reviewed on a daily basis for resetting. | |||
| 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. | |||
| (d) | Risk and Uncertainties | ||
| The Plan offers a number of investment options, including investment in Selective Insurance Group, Inc.’s common stock, mutual funds and a common trust fund. 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 participant account balances. |
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| The Plan’s exposure to a concentration of credit risk is limited by the diversification of investments across nineteen 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 Selective Insurance Group, Inc. common stock. Investment decisions are made, and the resulting risks are borne exclusively by the Plan participant who made such decisions. | |||
| (e) | Payment of Benefits | ||
| Benefits are recorded when paid. |
| (3) | Investments | |
| The following investments represent 5 percent or more of the Plan’s net assets: |
| 2005 | 2004 | |||||||
T. Rowe Price Trust Company Funds: |
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Equity Income Fund |
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1,117,361 and 1,075,635 shares, respectively |
$ | 28,961,995 | 28,601,127 | |||||
Small-Cap Value Fund |
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544,117 and 534,963 shares, respectively |
20,083,359 | 19,087,483 | ||||||
Stable Value Common Trust Fund |
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16,339,065 and 16,011,936 shares, respectively |
16,339,065 | 16,011,936 | ||||||
Mid-Cap Growth Fund |
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283,443 and 262,818 shares, respectively |
15,345,589 | 13,109,378 | ||||||
New Income Fund |
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963,727 and 919,150 shares, respectively |
8,644,630 | 8,373,454 | ||||||
| 2005 | ||||
Mutual Funds |
$ | 2,463,016 | ||
Selective Insurance Group, Inc. common stock |
873,751 | |||
| $ | 3,336,767 | |||
| (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 percent vested in their Company contributions. | |||
| (5) | Federal Income Tax Status | ||
| The Internal Revenue Service 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. |
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| (6) | Party-in-Interest Transactions | ||
| Certain investments of the Plan are shares of mutual funds and a common trust fund, which are administered by T. Rowe Price Retirement Plan Services, Inc., the recordkeeper of the Plan, and T. Rowe Price Trust Company, Inc., the custodian of the Plan. Certain Plan investments are shares of common stock issued by Selective Insurance Group, Inc. The Company is the Plan sponsor. Therefore, these transactions qualify as party-in-interest transactions. | |||
| (7) | Reconciliation of Financial Statements to Form 5500 | ||
| The following is a reconciliation of the financial statements to the Internal Revenue Service Form 5500: |
| 2005 | 2004 | |||||||
Net assets per the financial statements |
$ | 128,553,030 | 117,024,790 | |||||
Less: Participant Loans Receivable |
(9,518 | ) | (9,518 | ) | ||||
Net assets per the Form 5500 |
$ | 128,543,512 | 117,015,272 | |||||
| (8) | Subsequent Events |
| (a) | Amendment to the Plan | ||
| Effective January 1, 2006, the Plan was amended to provide additional matching contributions and non-elective contributions for eligible employees hired after December 31, 2005, who are no longer eligible to participate in the Retirement Income Plan for Selective Insurance Company of America. | |||
| For such employees, following one year of service, the Company will: (i) match the first 2% of the employee base pay contributions with an additional dollar for dollar match over the basic 65 cents per dollar match described in Note (1)(c); and (ii) make non-elective contributions to the Plan equal to 2% of the employee’s base pay regardless of the employee’s participation in the Plan. The current vesting schedule (Note (1)(g)) applies to item (i) of this paragraph, and a five-year cliff vesting schedule applies to item (ii) of this paragraph. | |||
| (b) | Fund Change | ||
| On April 3, 2006, Admiral Shares of the Vanguard Inflation-Protected Securities Fund became available to participants in the Plan. Admiral Shares replaced the previously offered Investor Shares of the Vanguard Inflation-Protected Securities Fund. The change affected the fund class, but not the description of the fund or the actual fund investments themselves. The new Admiral Shares have a lower expense ratio than the Investor Shares, but both funds hold the same investments. |
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| Identity of issuer | Description | Fair Value | ||||||||||
*Selective Insurance Group, Inc. common stock |
Common Stock; | 98,571 shares | $ | 5,234,108 | ||||||||
*T. Rowe Price Funds: |
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Stable Value Common Trust Fund |
Common Trust Fund; | 16,339,065 shares | 16,339,065 | |||||||||
Equity Income Fund |
Mutual Fund; | 1,117,361 shares | 28,961,995 | |||||||||
Small-Cap Value Fund |
Mutual Fund; | 544,117 shares | 20,083,359 | |||||||||
Mid-Cap Growth Fund |
Mutual Fund; | 283,443 shares | 15,345,589 | |||||||||
New Income Fund |
Mutual Fund; | 963,727 shares | 8,644,630 | |||||||||
International Stock Fund |
Mutual Fund; | 424,041 shares | 6,271,568 | |||||||||
Science & Technology Fund |
Mutual Fund; | 193,480 shares | 3,786,402 | |||||||||
Growth Stock Fund |
Mutual Fund; | 128,421 shares | 3,647,157 | |||||||||
Real Estate Fund |
Mutual Fund; | 79,692 shares | 1,553,197 | |||||||||
High Yield Fund |
Mutual Fund; | 141,588 shares | 978,373 | |||||||||
Vanguard Funds: |
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Vanguard Institutional Index Fund |
Mutual Fund; | 51,530 shares | 5,874,960 | |||||||||
Vanguard Intermediate Admiral – Term Treasury
Fund |
Mutual Fund; | 168,255 shares | 1,839,024 | |||||||||
Vanguard Inflation – Protected Securities Fund |
Mutual Fund; | 115,279 shares | 1,401,788 | |||||||||
Vanguard Balanced Index Fund – Admiral Shares |
Mutual Fund; | 33,273 shares | 659,479 | |||||||||
Other: |
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Lord Abbett Mid Cap Value Fund |
Mutual Fund; | 97,219 shares | 2,178,675 | |||||||||
Tweedy, Browne Global Value Fund |
Mutual Fund; | 74,896 shares | 1,977,249 | |||||||||
Matthews Asian Growth Income Fund |
Mutual Fund; | 79,076 shares | 1,355,354 | |||||||||
Neuberger Berman Fasciano Fund |
Mutual Fund; | 8,167 shares | 346,206 | |||||||||
| 126,478,178 | ||||||||||||
*Participant Loans Receivable |
291 loans; | 2,063,907 | ||||||||||
| interest rates from 5% to 10% | ||||||||||||
| maturity through 2020 | ||||||||||||
| Cash and cash equivalents; | 10,945 | |||||||||||
| Total | $ | 128,553,030 | ||||||||||
| * | Party-in-interest as defined by ERISA. |
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PLAN ADMINISTRATOR:
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Selective Insurance Company of America | |||
Date: June 29, 2006
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By: /s/ Victor N. Daley
|
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| Chairman, Benefits Advisory Committee, | ||||
| Selective Insurance Company of America |
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