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Investments | 6 Months Ended
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Jun. 30, 2011
Investments [Abstract] |
Investments | NOTE 6. Investments (a) The following table provides information related to our held-to-maturity ("HTM") securities:
June 30, 2011 |  |  |  | Net |  |  |  |  |  |  |  |
|  |  |  | Unrealized |  |  |  | Unrecognized |  | Unrecognized |  |
|  | Amortized |  | Gains |  | Carrying |  | Holding |  | Holding |  | Fair
($ in thousands) |  | Cost |  | (Losses) |  | Value |  | Gains |  | Losses |  | Value
U.S. government and government agencies | $ | 86,479 |  | 4,280 |  | 90,759 |  | 6,336 |  | - |  | 97,095
Foreign government |  | 5,292 |  | 330 |  | 5,622 |  | - |  | (167) |  | 5,455
Obligations of states and political |  |  |  |  |  |  |  |  |  |  |  |
subdivisions |  | 779,013 |  | 17,284 |  | 796,297 |  | 25,828 |  | (594) |  | 821,531
Corporate securities |  | 72,739 |  | (3,023) |  | 69,716 |  | 8,027 |  | (8) |  | 77,735
Asset-backed securities ("ABS") |  | 10,238 |  | (2,255) |  | 7,983 |  | 1,803 |  | (510) |  | 9,276
Commercial mortgage-backed |  |  |  |  |  |  |  |  |  |  |  |
securities ("CMBS")1 |  | 42,784 |  | (6,181) |  | 36,603 |  | 7,470 |  | (218) |  | 43,855
Residential mortgage-backed |  |  |  |  |  |  |  |  |  |  |  |
securities ("RMBS")2 |  | 62,769 |  | 829 |  | 63,598 |  | 2,432 |  | - |  | 66,030
Total HTM fixed maturity securities | $ | 1,059,314 |  | 11,264 |  | 1,070,578 |  | 51,896 |  | (1,497) |  | 1,120,977
December 31, 2010 |  |  |  | Net |  |  |  |  |  |  |  |
|  |  |  | Unrealized |  |  |  | Unrecognized |  | Unrecognized |  |
|  | Amortized |  | Gains |  | Carrying |  | Holding |  | Holding |  | Fair
($ in thousands) |  | Cost |  | (Losses) |  | Value |  | Gains |  | Losses |  | Value
U.S. government and government agencies | $ | 93,411 |  | 4,695 |  | 98,106 |  | 5,023 |  | - |  | 103,129
Foreign government |  | 5,292 |  | 368 |  | 5,660 |  | - |  | (30) |  | 5,630
Obligations of states and political |  |  |  |  |  |  |  |  |  |  |  |
subdivisions |  | 874,388 |  | 22,183 |  | 896,571 |  | 16,845 |  | (1,132) |  | 912,284
Corporate securities |  | 76,663 |  | (3,990) |  | 72,673 |  | 9,705 |  | (313) |  | 82,065
ABS |  | 12,947 |  | (2,422) |  | 10,525 |  | 1,847 |  | (444) |  | 11,928
CMBS1 |  | 54,909 |  | (7,354) |  | 47,555 |  | 7,483 |  | (109) |  | 54,929
RMBS2 |  | 82,191 |  | 1,043 |  | 83,234 |  | 3,095 |  | - |  | 86,329
Total HTM fixed maturity securities | $ | 1,199,801 |  | 14,523 |  | 1,214,324 |  | 43,998 |  | (2,028) |  | 1,256,294
1 CMBS includes government guaranteed agency securities with a carrying value of $5.0 million at June 30, 2011 and $8.9 million at December 31, 2010.
2 RMBS includes government guaranteed agency securities with a carrying value of $6.9 million at June 30, 2011 and $4.0 million at December 31, 2010.
Unrecognized holding gains/losses of HTM securities are not reflected in the consolidated Financial Statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an other-than-temporary impairment ("OTTI") charge is recognized on an HTM security, through the date of the balance sheet. Our HTM securities had an average duration of 3.2 years as of June 30, 2011 and 3.4 years as of December 31, 2010. (b) The following table provides information related to our available-for-sale ("AFS") securities:
June 30, 2011 |  |  |  |  |  |  |  |
|  | Cost/ |  |  |  |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
($ in thousands) |  | Cost |  | Gains |  | Losses |  | Value
U.S. government and government agencies1 | $ | 288,760 |  | 8,223 |  | (52) |  | 296,931
Foreign government |  | 29,768 |  | 477 |  | (145) |  | 30,100
Obligations of states and political subdivisions |  | 512,957 |  | 29,665 |  | (6) |  | 542,616
Corporate securities |  | 1,047,110 |  | 35,518 |  | (4,125) |  | 1,078,503
ABS |  | 77,573 |  | 760 |  | (128) |  | 78,205
CMBS2 |  | 105,706 |  | 4,599 |  | (1,181) |  | 109,124
RMBS3 |  | 380,705 |  | 10,565 |  | (1,512) |  | 389,758
AFS fixed maturity securities |  | 2,442,579 |  | 89,807 |  | (7,149) |  | 2,525,237
AFS equity securities |  | 128,187 |  | 10,053 |  | (1,663) |  | 136,577
Total AFS securities | $ | 2,570,766 |  | 99,860 |  | (8,812) |  | 2,661,814
December 31, 2010 |  |  |  |  |  |  |  |
|  | Cost/ |  |  |  |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
($ in thousands) |  | Cost |  | Gains |  | Losses |  | Value
U.S. government and government agencies1 | $ | 312,384 |  | 8,292 |  | (147) |  | 320,529
Foreign government |  | 19,035 |  | 280 |  | (349) |  | 18,966
Obligations of states and political subdivisions |  | 512,013 |  | 22,534 |  | (650) |  | 533,897
Corporate securities |  | 973,835 |  | 28,674 |  | (8,784) |  | 993,725
ABS |  | 48,558 |  | 514 |  | (339) |  | 48,733
CMBS2 |  | 103,374 |  | 4,024 |  | (2,923) |  | 104,475
RMBS3 |  | 316,789 |  | 7,871 |  | (2,243) |  | 322,417
AFS fixed maturity securities |  | 2,285,988 |  | 72,189 |  | (15,435) |  | 2,342,742
AFS equity securities |  | 58,039 |  | 11,597 |  | - |  | 69,636
Total AFS securities | $ | 2,344,027 |  | 83,786 |  | (15,435) |  | 2,412,378
1 U.S. government includes corporate securities fully guaranteed by the Federal Deposit Insurance Corporation ("FDIC") with a fair value of $98.9 million at June 30, 2011 and $121.0 million at December 31, 2010.
2 CMBS includes government guaranteed agency securities with a fair value of $72.3 million at June 30, 2011 and $71.9 million at December 31, 2010.
3 RMBS includes government guaranteed agency securities with a fair value of $94.7 million at June 30, 2011 and $91.1 million at December 31, 2010.
Unrealized gains/losses of AFS securities represent fair value fluctuations from the later of: (i) the date a security is designated as AFS; or (ii) the date that an OTTI charge is recognized on an AFS security, through the date of the balance sheet. These unrealized gains and losses are recorded in accumulated other comprehensive income ("AOCI") on the Consolidated Balance Sheets. During Six Months 2011, 18 securities, with a carrying value of $46.6 million in a net unrecognized gain position of $1.2 million, were reclassified from the HTM category to AFS due to recent credit rating downgrades by either Moody's Investors Service, Standard and Poor's Financial Services, or Fitch Ratings. These unexpected rating downgrades raised significant concerns about the issuers' credit worthiness, which changed our intention to hold these securities to maturity. (c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at June 30, 2011 and December 31, 2010, the fair value and gross pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position:
June 30, 2011 |  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses1 |  |  | Fair Value |  | Unrealized Losses1
AFS securities |  |  |  |  |  |  |  |  |
U.S. government and government agencies2 | $ | 4,051 |  | (52) |  |  | - |  | -
Foreign government |  | 15,355 |  | (145) |  |  | - |  | -
Obligations of states and political subdivisions |  | - |  | - |  |  | 305 |  | (6)
Corporate securities |  | 254,600 |  | (4,125) |  |  | - |  | -
ABS |  | 25,317 |  | (56) |  |  | 765 |  | (72)
CMBS |  | 8,064 |  | (33) |  |  | 10,362 |  | (1,148)
RMBS |  | 68,028 |  | (888) |  |  | 7,201 |  | (624)
Total fixed maturity securities |  | 375,415 |  | (5,299) |  |  | 18,633 |  | (1,850)
Equity securities |  | 51,650 |  | (1,663) |  |  | - |  | -
Subtotal | $ | 427,065 |  | (6,962) |  |  | 18,633 |  | (1,850)
|  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses1 |  | Unrecognized Gains (Losses)3 |  | Fair Value |  | Unrealized Losses1 |  | Unrecognized Gains3
HTM securities |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political |  |  |  |  |  |  |  |  |  |  |  |
subdivisions | $ | 13,127 |  | (549) |  | 476 |  | 23,379 |  | (1,630) |  | 1,312
ABS |  | - |  | - |  | - |  | 3,364 |  | (1,635) |  | 340
CMBS |  | - |  | - |  | - |  | 6,438 |  | (3,554) |  | 1,137
RMBS |  | - |  | - |  | - |  | 112 |  | (38) |  | 18
Subtotal | $ | 13,127 |  | (549) |  | 476 |  | 33,293 |  | (6,857) |  | 2,807
Total AFS and HTM | $ | 440,192 |  | (7,511) |  | 476 |  | 51,926 |  | (8,707) |  | 2,807
December 31, 2010 |  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses1 |  |  | Fair Value |  | Unrealized Losses1 |
AFS securities |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies2 | $ | 3,956 |  | (147) |  |  | - |  | - |
Foreign government |  | 10,776 |  | (349) |  |  | - |  | - |
Obligations of states and political subdivisions |  | 40,410 |  | (650) |  |  | - |  | - |
Corporate securities |  | 362,502 |  | (8,784) |  |  | - |  | - |
ABS |  | 30,297 |  | (273) |  |  | 880 |  | (66) |
CMBS |  | 5,453 |  | (271) |  |  | 11,115 |  | (2,652) |
RMBS |  | 70,934 |  | (1,098) |  |  | 20,910 |  | (1,145) |
Total fixed maturity securities |  | 524,328 |  | (11,572) |  |  | 32,905 |  | (3,863) |
Equity securities |  | - |  | - |  |  | - |  | - |
Subtotal | $ | 524,328 |  | (11,572) |  |  | 32,905 |  | (3,863) |
|  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized (Losses) Gains1 |  | Unrecognized Gains (Losses)3 |  | Fair Value |  | Unrealized Losses1 |  | Unrecognized Gains3
HTM securities |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political |  |  |  |  |  |  |  |  |  |  |  |
subdivisions | $ | 21,036 |  | (381) |  | 45 |  | 27,855 |  | (1,969) |  | 670
Corporate securities |  | 1,985 |  | (434) |  | 420 |  | - |  | - |  | -
ABS |  | 507 |  | (546) |  | (440) |  | 2,931 |  | (1,095) |  | 747
CMBS |  | 3,621 |  | 15 |  | (17) |  | 5,745 |  | (3,933) |  | 833
RMBS |  | - |  | - |  | - |  | 95 |  | (38) |  | 1
Subtotal | $ | 27,149 |  | (1,346) |  | 8 |  | 36,626 |  | (7,035) |  | 2,251
Total AFS and HTM | $ | 551,477 |  | (12,918) |  | 8 |  | 69,531 |  | (10,898) |  | 2,251
| Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI. In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to an HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position. |
1 |
2 | U.S. government includes corporate securities fully guaranteed by the FDIC. |
3 | Unrecognized holding gains/(losses) represent fair value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security. |
The number of securities in an unrealized/unrecognized loss position increased from 199 at December 31, 2010 to 225 at June 30, 2011, with an associated fair value of $621.0 million and $492.1 million, respectively. Despite the increase in the number of securities, the corresponding unrealized/unrecognized position in total declined by $8.6 million, reflecting smaller loss positions. This is further illustrated in the following table wherein the number of issues in the 80% – 99% market/book category increased since December 31, 2010 while the overall loss position decreased during the same period:
($ in thousands) June 30, 2011 |  | December 31, 2010
Number of Issues | ##  | % of Market/Book | ## ##  | Unrealized Unrecognized Loss | ##  | Number of Issues | ##  | % of Market/Book | ##  | Unrealized Unrecognized Loss
221 |  | 80% - 99% | $ | 9,331 |  | 193 |  | 80% - 99% | $ | 16,310
1 |  | 60% - 79% |  | 23 |  | 2 |  | 60% - 79% |  | 1,125
2 |  | 40% - 59% |  | 2,529 |  | 2 |  | 40% - 59% |  | 2,160
1 |  | 20% - 39% |  | 1,052 |  | 1 |  | 20% - 39% |  | 986
- |  | 0% - 19% |  | - |  | 1 |  | 0% - 19% |  | 976
|  |  | $ | 12,935 |  |  |  |  | $ | 21,557
We have reviewed the securities in the tables above in accordance with our OTTI policy, as described in Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2010 Annual Report. At June 30, 2011, unrealized/unrecognized losses on securities that were in a loss position for 12 months or longer amounted to $5.9 million. Each of these securities are current with their interest and principal payments in 2011 other than one security discussed below. The unrealized/unrecognized losses were primarily driven by $3.6 million in our CMBS portfolio, including $3.1 million of unrealized/unrecognized losses on three securities that had been previously impaired, one of which has experienced a shortfall in interest payments in 2011. The unrealized/unrecognized balance on this security was $0.5 million at June 30, 2011. The current discounted cash flow analyses on these three securities did not indicate further impairment for Second Quarter 2011. For further discussion regarding the credit quality of our investment portfolio, see the "Investments" section of Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-Q. We do not have the intent to sell any securities in an unrealized/unrecognized loss position nor do we believe we will be required to sell these securities, and therefore we have concluded that they are temporarily impaired as of June 30, 2011. This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the investment security and underlying collateral. If our judgment about an individual security changes in the future, we may ultimately record a credit loss after having originally concluded that one did not exist, which could have a material impact on our net income and financial position in future periods. (d) Fixed maturity securities at June 30, 2011, by contractual maturity, are shown below. Mortgage-backed securities are included in the maturity tables using the estimated average life of each security. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Listed below are HTM fixed maturity securities at June 30, 2011:
($ in thousands) |  | Carrying Value |  | Fair Value
Due in one year or less | $ | 115,247 |  | 117,326
Due after one year through five years |  | 648,116 |  | 676,796
Due after five years through 10 years |  | 294,010 |  | 312,695
Due after 10 years |  | 13,205 |  | 14,160
Total HTM fixed maturity securities | $ | 1,070,578 |  | 1,120,977
Listed below are AFS fixed maturity securities at June 30, 2011:
($ in thousands) |  | Fair Value
Due in one year or less | $ | 191,624
Due after one year through five years |  | 1,646,663
Due after five years through 10 years |  | 681,048
Due after 10 years |  | 5,902
Total AFS fixed maturity securities | $ | 2,525,237
## (e) The following table outlines a summary of our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:
Other Investments |  | Carrying Value | June 30, 2011
|  | June 30, | December 31, | Remaining
($ in thousands) |  | 2011 | 2010 | Commitment
Alternative Investments |  |  |  |
Energy/power generation | $ | 29,862 | 35,560 | 10,296
Secondary private equity |  | 27,601 | 26,709 | 12,334
Distressed debt |  | 19,868 | 20,432 | 3,389
Private equity |  | 18,786 | 21,601 | 7,966
Real estate |  | 15,642 | 14,192 | 10,670
Mezzanine financing |  | 10,126 | 10,230 | 15,865
Venture capital |  | 7,666 | 6,386 | 1,100
Total alternative investments |  | 129,551 | 135,110 | 61,620
Other securities |  | 2,586 | 2,755 | -
Total other investments | $ | 132,137 | 137,865 | 61,620
## The carrying value of our other investments decreased $5.7 million compared to year end 2010. The carrying value was primarily impacted by distributions of $32.8 million, partially offset by income of $19.6 million and additional contributions of $7.7 million under our existing commitments. For a description of our seven alternative investment strategies outlined above, as well as redemption, restrictions, and fund liquidations, refer to Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of our 2010 Annual Report. The following table sets forth aggregated summarized financial information for the partnerships in our alternative investment portfolio. The last line of the table below reflects our share of the aggregate income, which is the portion included in our consolidated Financial Statements. As the majority of these investments report results to us on a quarter lag, the summarized financial statement information for the three and six-month periods ended March 31 is as follows:
Income Statement Information |  | Quarter ended, |  | Six Months ended
|  | March 31, |  | March 31
($ in millions) |  | 2011 |  | 2010 |  | 2011 |  | 2010
Net investment income | $ | 132.6 |  | 125.6 |  | 286.8 |  | 274.4
Realized gains (losses) |  | 355.3 |  | (396.9) |  | 163.0 |  | (486.7)
Net change in unrealized appreciation |  | 608.3 |  | 810.3 |  | 2,072.5 |  | 1,248.8
Net income | $ | 1,096.2 |  | 539.0 |  | 2,522.3 |  | 1,036.5
Selective's insurance subsidiaries' net income | $ | 7.9 |  | 4.9 |  | 19.5 |  | 8.8
(f) At June 30, 2011, we had one fixed maturity security, with a carrying value of $15.7 million, pledged as collateral for our outstanding borrowing with the Federal Home Loan Bank of Indianapolis ("FHLBI"). This borrowing, which has an outstanding principal balance of $13.0 million, is included in "Notes payable" on our Consolidated Balance Sheets. In accordance with the terms of our agreement with the FHLBI, we retain all rights regarding this security, which is included in the "U.S. government and government agencies" classification of our AFS fixed maturity securities portfolio. (g) The components of net investment income earned were as follows:
|  | Quarter ended |  | Six Months ended
|  | June 30, |  | June 30,
($ in thousands) |  | 2011 | 2010 |  |  | 2011 |  | 2010
Fixed maturity securities | $ | 32,752 | 32,977 |  |  | 65,875 |  | 66,173
Equity securities |  | 785 | 480 |  |  | 1,102 |  | 932
Short-term investments |  | 33 | 133 |  |  | 95 |  | 233
Other investments |  | 7,922 | 4,884 |  |  | 19,588 |  | 8,816
Investment expenses |  | (2,147) | (1,929) |  |  | (3,842) |  | (4,903)
Net investment income earned | $ | 39,345 | 36,545 |  |  | 82,818 |  | 71,251
Net investment income, before tax, increased by $2.8 million for Second Quarter 2011 compared to Second Quarter 2010, and increased by $11.6 million for Six Months 2011 compared to Six Months 2010. These increases were primarily driven by income from our alternative investments. Our alternative investments, which are accounted for under the equity method, primarily consist of investments in limited partnerships, the majority of which report results to us on a one quarter lag. The following table illustrates income by strategy for these partnerships:
|  | Quarter ended June 30, |  | Six Months ended June 30, |
($ in thousands) |  | 2011 |  | 2010 |  | 2011 |  | 2010 |
Energy/power generation | $ | 1,284 |  | 965 |  | 5,839 |  | 3,031 |
Private equity |  | 1,181 |  | 99 |  | 3,758 |  | 807 |
Secondary private equity |  | 3,067 |  | 2,665 |  | 4,716 |  | 3,684 |
Distressed debt |  | 421 |  | (41) |  | 1,394 |  | 723 |
Real estate |  | 681 |  | (494) |  | 1,450 |  | (2,359) |
Venture capital |  | 565 |  | (18) |  | 1,323 |  | 248 |
Mezzanine financing |  | 701 |  | 1,692 | ##  | 1,061 |  | 2,629 |
Other |  | 22 |  | 16 |  | 47 |  | 53 |
Total other investment income | $ | 7,922 |  | 4,884 |  | 19,588 |  | 8,816 |
(h) The following tables summarize OTTI by asset type for the periods indicated:
Second Quarter 2011 ## ($ in thousands) |  | Gross |  | Included in Other Comprehensive Income ("OCI") |  | Recognized in Earnings
Fixed maturity securities |  |  |  |  |  |
CMBS | $ | (260) |  | (402) |  | 142
RMBS |  | 97 |  | 70 |  | 27
OTTI losses | $ | (163) |  | (332) |  | 169
Second Quarter 2010 ($ in thousands) |  | Gross |  | Included in OCI |  | Recognized in Earnings
Fixed maturity securities |  |  |  |  |  |
CMBS | $ | 3,405 |  | 569 |  | 2,836
RMBS |  | 2,085 |  | (591) |  | 2,676
Total fixed maturity securities |  | 5,490 |  | (22) |  | 5,512
Equity securities |  | 672 |  | - |  | 672
OTTI losses | $ | 6,162 |  | (22) |  | 6,184
##
Six Months 2011 ($ in thousands) |  | Gross |  | Included in OCI |  | Recognized in Earnings
Fixed maturity securities |  |  |  |  |  |
Obligations of states and political subdivisions | $ | 17 |  | - |  | 17
Corporate securities |  | 244 |  | - |  | 244
CMBS |  | (186) |  | (658) |  | 472
RMBS |  | 294 |  | 228 |  | 66
OTTI losses | $ | 369 |  | (430) |  | 799
##
Six Months 2010 ($ in thousands) |  | Gross |  | Included in OCI |  | Recognized in Earnings
Fixed maturity securities |  |  |  |  |  |
ABS | $ | 158 |  | 127 |  | 31
CMBS |  | 3,445 |  | (2,052) |  | 5,497
RMBS |  | 7,960 |  | (264) |  | 8,224
Total fixed maturity securities |  | 11,563 |  | (2,189) |  | 13,752
Equity securities |  | 672 |  | - |  | 672
OTTI losses | $ | 12,235 |  | (2,189) |  | 14,424
OTTI charges recognized in earnings were immaterial at $0.2 million in Second Quarter 2011 and $0.8 million in Six Months 2011. The following is a discussion surrounding the credit-related OTTI charges taken in Second Quarter and Six Months 2010 as outlined in the table above: $2.7 million and $8.2 million of RMBS credit OTTI charges in Second Quarter and Six Months 2010, respectively. The Second Quarter 2010 charges related to declines in the related cash flows of the collateral support. Based on our analysis, we did not believe it is probable that we would receive all contractual cash flows for these securities. In addition to the Second Quarter 2010 charges, losses in Six Months 2010 were largely driven by impairments on two securities in the first quarter of 2010 that we intended to sell. We sold these securities in Second Quarter 2010. $2.8 million and $5.5 million of CMBS credit OTTI charges in Second Quarter and Six Months 2010, respectively. These charges were related to reductions in the related cash flows of the underlying collateral of these securities. These charges were associated with securities that had been previously impaired but, over time, have shown little, if any, improvement in valuations, poor net operating income performance of the underlying properties, and, in some cases, an increase in over 60-day delinquency rates. For Second Quarter 2010, these securities had, on average, unrealized/unrecognized loss positions of approximately 87% of their amortized cost. Based on our analysis, we did not believe it is probable that we would receive all contractual cash flows for these securities. $0.7 million of equity OTTI charges in both Second Quarter and Six Months 2010. These charges were driven primarily by one health care company which, due to a recent recall of one of its products, had experienced a significant decline in its share price. This coupled with the length of time this security had been in an unrealized loss position made a recovery to our cost basis unlikely in the near term. The following tables set forth, for the periods indicated, gross credit loss impairments on fixed maturity securities for which a portion of the OTTI charge was recognized in OCI, and the corresponding changes in such amounts:
|  | Quarter ended June 30,
($ in thousands) |  | 2011 | 2010
Balance, beginning of period | $ | 14,368 | 24,737
Addition for the amount related to credit loss for which an OTTI was not previously recognized |  | - | 2,004
Reductions for securities sold during the period |  | - | (2,990)
Reductions for securities for which the amount previously recognized in OCI was recognized in |  |  |
earnings because of intention or potential requirement to sell before recovery of amortized cost |  | - | -
Reductions for securities for which the entire amount previously recognized in OCI was recognized in |  |  |
earnings due to a decrease in cash flows expected |  | (372) | (4,358)
Additional increases to the amount related to credit loss for which an OTTI was previously recognized |  | 28 | 950
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected |  |  |
to be collected |  | - | -
Balance, end of period | $ | 14,024 | 20,343
|  | Six Months ended June 30,
($ in thousands) |  | 2011 | 2010
Balance, beginning of period | $ | 17,723 | 22,189
Addition for the amount related to credit loss for which an OTTI was not previously recognized |  | - | 2,134
Reductions for securities sold during the period |  | - | (2,990)
Reductions for securities for which the amount previously recognized in OCI was recognized in |  |  |
earnings because of intention or potential requirement to sell before recovery of amortized cost |  | - | -
Reductions for securities for which the entire amount previously recognized in OCI was recognized in |  |  |
earnings due to a decrease in cash flows expected |  | (3,954) | (4,652)
Additional increases to the amount related to credit loss for which an OTTI was previously recognized |  | 255 | 3,662
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected |  |  |
to be collected |  | - | -
Balance, end of period | $ | 14,024 | 20,343
(i) The components of net realized gains, excluding OTTI charges, were as follows:
|  | Quarter ended |  |  | Six Months ended
|  | June 30, |  |  | June 30,
($ in thousands) |  | 2011 |  | 2010 |  |  | 2011 |  | 2010
HTM fixed maturity securities |  |  |  |  |  |  |  |  |
Gains | $ | 8 |  | 368 |  |  | 9 |  | 412
Losses |  | (108) |  | (210) |  |  | (322) |  | (450)
AFS fixed maturity securities |  |  |  |  |  |  |  |  |
Gains |  | 1,947 |  | 325 |  |  | 2,354 |  | 4,782
Losses |  | - |  | (7,558) |  |  | (7) |  | (7,589)
AFS equity securities |  |  |  |  |  |  |  |  |
Gains |  | 468 |  | 9,995 |  |  | 6,671 |  | 14,174
Losses |  | - |  | - |  |  | - |  | (233)
Total other net realized investment gains |  | 2,315 |  | 2,920 |  |  | 8,705 |  | 11,096
Total OTTI charges recognized in earnings |  | (169) |  | (6,184) |  |  | (799) |  | (14,424)
Total net realized gains (losses) | $ | 2,146 |  | (3,264) |  |  | 7,906 |  | (3,328)
Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold. Proceeds from the sale of AFS securities were $52.1 million in Second Quarter 2011 and $123.8 million in Six Months 2011. In addition to calls and maturities and certain bond sales, Six Months 2011 net realized gains, excluding OTTI charges, were driven by the sale of AFS equity securities for proceeds of $59.7 million and realized gains of $6.7 million due to a reallocation of the equity portfolio to a high dividend yield strategy. Proceeds from the sale of AFS securities were $128.3 million in Second Quarter 2010 and $184.4 million in Six Months 2010. In addition to calls and maturities, the net realized gain, excluding OTTI charges, in Second Quarter and Six Months 2010 were driven by the Second Quarter 2010 sale of energy-focused AFS equity securities to mitigate portfolio risk and sector exposure. In addition to the Second Quarter 2010 realized gains, Six Months 2010 realized gains on AFS securities included sales in the first quarter of 2010 that were predominantly associated with tax planning strategies. These gains were largely offset by realized losses on certain AFS fixed maturity securities in Second Quarter 2010 that our new investment managers, during their initial review of the portfolio, had recommended that we sell. This recommendation was due to ongoing credit concerns of the underlying investments coupled with strategically positioning the portfolio to generate maximum yield while balancing risk objectives.

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