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Investments | 9 Months Ended
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Sep. 30, 2011
Investments [Abstract] |
Investments | NOTE 6. Investments (a) The following table provides information related to our held-to-maturity ("HTM") securities: ##
September 30, 2011 |  |  |  | Net |  |  |  |  |  |  |  |
|  |  |  | Unrealized |  |  |  | Unrecognized |  | Unrecognized |  |
|  | Amortized |  | Gains |  | Carrying |  | Holding |  | Holding |  | Fair
($ in thousands) |  | Cost |  | (Losses) |  | Value |  | Gains |  | Losses |  | Value
Foreign government | $ | 5,292 |  | 311 |  | 5,603 |  | - |  | (106) |  | 5,497
Obligations of states and political |  |  |  |  |  |  |  |  |  |  |  |
subdivisions |  | 729,361 |  | 15,640 |  | 745,001 |  | 33,246 |  | (421) |  | 777,826
Corporate securities |  | 67,055 |  | (2,541) |  | 64,514 |  | 7,681 |  | - |  | 72,195
Asset-backed securities ("ABS") |  | 8,366 |  | (1,588) |  | 6,778 |  | 1,544 |  | (9) |  | 8,313
Commercial mortgage-backed |  |  |  |  |  |  |  |  |  |  |  |
securities ("CMBS") |  | 36,450 |  | (5,597) |  | 30,853 |  | 6,868 |  | (275) |  | 37,446
Residential mortgage-backed |  |  |  |  |  |  |  |  |  |  |  |
securities ("RMBS") |  | 132 |  | (38) |  | 94 |  | 14 |  | - |  | 108
Total HTM fixed maturity securities | $ | 846,656 |  | 6,187 |  | 852,843 |  | 49,353 |  | (811) |  | 901,385
##
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 $8.9 million at December 31, 2010.
2 RMBS includes government guaranteed agency securities with a carrying value $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 3.1 years as of September 30, 2011 and 3.4 years as of December 31, 2010. During Nine Months 2011, 68 securities, with a carrying value of $222.2 million in a net unrecognized gain position of $12.4 million, were reclassified from the HTM category to available-for-sale ("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. In addition to the transfer activity, redemptions and maturities of HTM securities amounted to $138.9 million in Nine Months 2011. ## (b) The following table provides information related to our AFS securities:
September 30, 2011 |  |  |  |  |  |  |  |
|  | Cost/ |  |  |  |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
($ in thousands) |  | Cost |  | Gains |  | Losses |  | Value
U.S. government and government agencies1 | $ | 358,154 |  | 21,877 |  | - |  | 380,031
Foreign government |  | 31,599 |  | 1,313 |  | - |  | 32,912
Obligations of states and political subdivisions |  | 524,185 |  | 37,375 |  | (45) |  | 561,515
Corporate securities |  | 1,085,081 |  | 46,011 |  | (5,533) |  | 1,125,559
ABS |  | 78,393 |  | 1,383 |  | (1,082) |  | 78,694
CMBS2 |  | 107,404 |  | 6,788 |  | (1,301) |  | 112,891
RMBS3 |  | 464,219 |  | 17,976 |  | (1,449) |  | 480,746
AFS fixed maturity securities |  | 2,649,035 |  | 132,723 |  | (9,410) |  | 2,772,348
AFS equity securities |  | 150,517 |  | 6,690 |  | (18,004) |  | 139,203
Total AFS securities | $ | 2,799,552 |  | 139,413 |  | (27,414) |  | 2,911,551
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 $96.3 million at September 30, 2011 and $121.0 million at December 31, 2010.
2 CMBS includes government guaranteed agency securities with a fair value of $78.0 million at September 30, 2011 and $71.9 million at December 31, 2010.
3 RMBS includes government guaranteed agency securities with a fair value of $101.3 million at September 30, 2011 and $91.1 million at December 31, 2010.
Unrealized gains/losses of AFS securities represent fair value fluctuations from the later of: (i) the date a security is designated as AFS; or (ii) the date that an OTTI charge is recognized on an AFS security, through the date of the balance sheet. These unrealized gains and losses are recorded in accumulated other comprehensive income ("AOCI") on the Consolidated Balance Sheets. (c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at September 30, 2011 and December 31, 2010, the fair value and gross pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position:
September 30, 2011 |  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses1 |  |  | Fair Value |  | Unrealized Losses1
AFS securities |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions | $ | 2,127 |  | (1) |  |  | 1,887 |  | (44)
Corporate securities |  | 182,536 |  | (4,898) |  |  | 6,739 |  | (636)
ABS |  | 6,202 |  | (9) |  |  | 1,144 |  | (1,072)
CMBS |  | 6,371 |  | (60) |  |  | 10,050 |  | (1,240)
RMBS |  | 28,893 |  | (490) |  |  | 11,781 |  | (960)
Total fixed maturity securities |  | 226,129 |  | (5,458) |  |  | 31,601 |  | (3,952)
Equity securities |  | 85,918 |  | (18,004) |  |  | - |  | -
Subtotal | $ | 312,047 |  | (23,462) |  |  | 31,601 |  | (3,952)
|  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses1 |  | Unrecognized Gains3 |  | Fair Value |  | Unrealized Losses1 |  | Unrecognized Gains3
HTM securities |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political |  |  |  |  |  |  |  |  |  |  |  |
subdivisions | $ | 3,929 |  | (192) |  | 178 |  | 10,072 |  | (551) |  | 343
ABS |  | - |  | - |  | - |  | 2,830 |  | (1,060) |  | 762
CMBS |  | 14,315 |  | (596) |  | 575 |  | 6,529 |  | (3,348) |  | 1,016
RMBS |  | - |  | - |  | - |  | 108 |  | (38) |  | 14
Subtotal | $ | 18,244 |  | (788) |  | 753 |  | 19,539 |  | (4,997) |  | 2,135
Total AFS and HTM | $ | 330,291 |  | (24,250) |  | 753 |  | 51,140 |  | (8,949) |  | 2,135
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
1 | 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.
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 following table provides information regarding securities in an unrealized loss position as of September 30, 2011 and December 31, 2010:
($ in thousands) September 30, 2011 |  | December 31, 2010
Number of Issues | ##  | % of Market/Book | ## ##  | Unrealized Unrecognized Loss | ##  | Number of Issues | ##  | % of Market/Book | ##  | Unrealized Unrecognized Loss
188 |  | 80% - 99% | $ | 16,142 |  | 193 |  | 80% - 99% | $ | 16,310
64 |  | 60% - 79% |  | 9,554 |  | 2 |  | 60% - 79% |  | 1,125
11 |  | 40% - 59% |  | 2,963 |  | 2 |  | 40% - 59% |  | 2,160
3 |  | 20% - 39% |  | 1,652 |  | 1 |  | 20% - 39% |  | 986
- |  | 0% - 19% |  | - |  | 1 |  | 0% - 19% |  | 976
|  |  | $ | 30,311 |  |  |  |  | $ | 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 September 30, 2011, we had 139 equity securities in an aggregate unrealized loss position of $18.0 million. These securities, which we purchased as part of our high-dividend yield strategy earlier in the year, have all been in an unrealized loss position for less than six months, generally driven by market volatility in the equity markets over the past two months. Unrealized losses on our fixed maturity portfolio improved by $9.3 million compared to December 31, 2010, primarily in the less than 12 months category. At September 30, 2011, unrealized/unrecognized losses on securities that were in a loss position for 12 months or longer amounted to $6.8 million, primarily driven by $5.9 million in losses from our structured securities portfolios. Our CMBS portfolio contributed $3.6 million to these unrealized/unrecognized losses, $3.2 million of which related to three securities for which we performed discounted cash flow analyses in Third Quarter 2011. These analyses did not indicate further impairment on two of the securities. We recorded an additional other-than-temporary credit impairment of $0.1 million with a related non-credit impairment in OCI of $0.6 million on the third security. For further discussion regarding the credit quality of our investment portfolio, see the "Investments" section of Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q. We do not have the intent to sell any securities in an unrealized/unrecognized loss position nor do we believe we will be required to sell these securities, and therefore we have concluded that they are temporarily impaired as of September 30, 2011. This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the investment security and underlying collateral. If our judgment about an individual security changes in the future, we may ultimately record a credit loss after having originally concluded that one did not exist, which could have a material impact on our net income and financial position in future periods. (d) Fixed maturity securities at September 30, 2011, by contractual maturity, are shown below. Mortgage-backed securities are included in the maturity tables using the estimated average life of each security. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Listed below are HTM fixed maturity securities at September 30, 2011:
($ in thousands) |  | Carrying Value |  | Fair Value
Due in one year or less | $ | 96,195 |  | 98,940
Due after one year through five years |  | 575,181 |  | 602,982
Due after five years through 10 years |  | 174,159 |  | 190,641
Due after 10 years |  | 7,308 |  | 8,822
Total HTM fixed maturity securities | $ | 852,843 |  | 901,385
Listed below are AFS fixed maturity securities at September 30, 2011:
($ in thousands) |  | Fair Value
Due in one year or less | $ | 231,400
Due after one year through five years |  | 1,800,407
Due after five years through 10 years |  | 727,331
Due after 10 years |  | 13,210
Total AFS fixed maturity securities | $ | 2,772,348
(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 | September 30, 2011
|  | September 30, | December 31, | Remaining
($ in thousands) |  | 2011 | 2010 | Commitment
Alternative Investments |  |  |  |
Energy/power generation | $ | 30,792 | 35,560 | 10,296
Secondary private equity |  | 29,077 | 26,709 | 11,047
Private equity |  | 21,067 | 21,601 | 6,637
Distressed debt |  | 19,285 | 20,432 | 3,169
Real estate |  | 14,033 | 14,192 | 10,602
Mezzanine financing |  | 9,993 | 10,230 | 15,910
Venture capital |  | 7,909 | 6,386 | 900
Total alternative investments |  | 132,156 | 135,110 | 58,561
Other securities |  | 3,404 | 2,755 | 2,096
Total other investments | $ | 135,560 | 137,865 | 60,657
The carrying value of our other investments decreased by $2.3 million compared to year end 2010. The carrying value was primarily impacted by distributions of $37.9 million, partially offset by income of $24.0 million and additional contributions of $11.8 million under our commitments. For a description of our seven alternative investment strategies outlined above, as well as redemption, restrictions, and fund liquidations, refer to Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of our 2010 Annual Report. The following table sets forth aggregated summarized financial information for the limited partnerships in our alternative investment portfolio. The last line of the table below reflects our share of the aggregate income, which is the portion included in our consolidated Financial Statements. As the majority of these investments report results to us on a quarter lag, the summarized financial statement information for the three and nine-month periods ended June 30 is as follows:
Income Statement Information |  | Quarter ended, |  | Nine Months ended
|  | June 30, |  | June 30,
($ in millions) |  | 2011 |  | 2010 |  | 2011 |  | 2010
Net investment income | $ | 136.8 |  | 119.9 |  | 423.6 |  | 394.3
Realized gains (losses) |  | 710.6 |  | 75.0 |  | 873.6 |  | (411.6)
Net change in unrealized appreciation |  | (194.7) |  | 129.6 |  | 1,877.8 |  | 1,378.3
Net income | $ | 652.7 |  | 324.5 |  | 3,175.0 |  | 1,361.0
Selective's insurance subsidiaries' net income | $ | 4.5 |  | 2.3 |  | 24.0 |  | 11.1
(f) At September 30, 2011, we had one fixed maturity security, with a carrying value of $15.9 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 $13.0 million, is included in "Notes payable" on our Consolidated Balance Sheets. In accordance with the terms of our agreement with the FHLBI, we retain all rights regarding this security, which is included in the "U.S. government and government agencies" classification of our AFS fixed maturity securities portfolio. (g) The components of net investment income earned were as follows:
|  | Quarter ended |  | Nine Months ended
|  | September 30, |  | September 30,
($ in thousands) |  | 2011 |  | 2010 |  |  | 2011 |  | 2010
Fixed maturity securities | $ | 31,960 |  | 31,741 |  |  | 97,835 |  | 97,914
Equity securities |  | 1,197 |  | 347 |  |  | 2,299 |  | 1,279
Short-term investments |  | 28 |  | 134 |  |  | 123 |  | 367
Other investments |  | 4,494 |  | 2,400 |  |  | 24,082 |  | 11,216
Investment expenses |  | (1,893) |  | (1,636) |  |  | (5,735) |  | (6,539)
Net investment income earned | $ | 35,786 |  | 32,986 |  |  | 118,604 |  | 104,237
Net investment income, before tax, increased by $2.8 million for Third Quarter 2011 compared to Third Quarter 2010, and increased by $14.4 million for Nine Months 2011 compared to Nine Months 2010. These increases were primarily driven by income from our alternative investments that are included in our "other investments" portfolio. Our alternative investments, which are accounted for under the equity method, primarily consist of investments in limited partnerships, the majority of which report results to us on a one quarter lag. The following table illustrates income by strategy for these partnerships:
|  | Quarter ended September 30, |  | Nine Months ended September 30, |
($ in thousands) |  | 2011 | 2010 |  | 2011 |  | 2010 |
Energy/power generation | $ | 1,760 |  | 409 |  | 7,599 |  | 3,440 |
Private equity |  | 1,640 |  | 543 |  | 5,398 |  | 1,350 |
Secondary private equity |  | 1,179 |  | 240 |  | 5,895 |  | 3,924 |
Distressed debt |  | (153) |  | 472 |  | 1,241 |  | 1,195 |
Real estate |  | 35 |  | 303 |  | 1,485 |  | (2,056) |
Venture capital |  | 125 |  | 15 |  | 1,448 |  | 263 |
Mezzanine financing |  | (133) |  | 377 | ##  | 928 |  | 3,006 |
Other |  | 41 |  | 41 |  | 88 |  | 94 |
Total other investment income | $ | 4,494 |  | 2,400 |  | 24,082 |  | 11,216 |
(h) The following tables summarize OTTI by asset type for the periods indicated:
Third Quarter 2011 ## ($ in thousands) |  | Gross |  | Included in Other Comprehensive Income ("OCI") |  | Recognized in Earnings
Fixed maturity securities |  |  |  |  |  |
ABS | $ | 543 |  | 493 |  | 50
CMBS |  | (184) |  | (316) |  | 132
RMBS |  | 22 |  | (27) |  | 49
Total fixed maturities |  | 381 |  | 150 |  | 231
Equity securities |  | 2,312 |  | - |  | 2,312
OTTI losses | $ | 2,693 |  | 150 |  | 2,543
Third Quarter 2010 ($ in thousands) |  | Gross |  | Included in OCI |  | Recognized in Earnings
Fixed maturity securities |  |  |  |  |  |
CMBS | $ | 2,116 |  | 1,245 |  | 871
RMBS |  | 150 |  | 39 |  | 111
Total fixed maturity securities |  | 2,266 |  | 1,284 |  | 982
Equity securities |  | 1,825 |  | - |  | 1,825
OTTI losses | $ | 4,091 |  | 1,284 |  | 2,807
Nine 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
ABS |  | 543 |  | 493 |  | 50
CMBS |  | (370) |  | (974) |  | 604
RMBS |  | 316 |  | 201 |  | 115
Total fixed maturity securities |  | 750 |  | (280) |  | 1,030
Equity securities |  | 2,312 |  | - |  | 2,312
OTTI losses | $ | 3,062 |  | (280) |  | 3,342
Nine Months 2010 ($ in thousands) |  | Gross |  | Included in OCI |  | Recognized in Earnings
Fixed maturity securities |  |  |  |  |  |
ABS | $ | 158 |  | 127 |  | 31
CMBS |  | 5,561 |  | (807) |  | 6,368
RMBS |  | 8,110 |  | (225) |  | 8,335
Total fixed maturity securities |  | 13,829 |  | (905) |  | 14,734
Equity securities |  | 2,497 |  | - |  | 2,497
OTTI losses | $ | 16,326 |  | (905) |  | 17,231
## OTTI charges recognized in earnings were $2.5 million in Third Quarter 2011 and $3.3 million in Nine Months 2011. These charges were primarily related to certain securities in our high-dividend yield equity strategy that we do not believe will recover in the near term. The following is a discussion surrounding the OTTI charges that were recognized in earnings in Third Quarter and Nine Months 2010 as outlined in the table above: $0.1 million and $8.3 million of RMBS credit OTTI charges in Third Quarter and Nine Months 2010, respectively. The Third Quarter 2010 charges related to declines in the related cash flows of the underlying collateral. Based on our analysis, we did not believe it was probable that we would receive all contractual cash flows for these securities. In addition to the Third Quarter 2010 charges, losses in Nine 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 the second quarter of 2010. $0.9 million and $6.4 million of CMBS credit OTTI charges in Third Quarter and Nine Months 2010, respectively. These charges were related to reductions in the related cash flows of the underlying collateral of these securities. These charges were primarily associated with securities that had been previously impaired but, over time, had 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 Third Quarter 2010, t hese securities had, on average, unrealized/unrecognized loss positions of more than 60% of their amortized cost. Based on our analysis, we did not believe it was probable that we would receive all contractual cash flows for these securities. $1.8 million and $2.5 million of equity OTTI charges in Third Quarter and Nine Months 2010, respectively. These charges were driven primarily by a change in our intent to hold these securities to recovery in the near term as we intended to lower our exposure to equities and pursue a more index-neutral position for this asset class in the near term, providing greater sector and sponsor diversification. The following tables set forth, for the periods indicated, gross credit loss impairments on fixed maturity securities for which a portion of the OTTI charge was recognized in OCI, and the corresponding changes in such amounts:
|  | Quarter ended September 30,
($ in thousands) |  | 2011 | 2010
Balance, beginning of period | $ | 14,024 | 20,343
Addition for the amount related to credit loss for which an OTTI was not previously recognized |  | - | 192
Reductions for securities sold during the period |  | - | -
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 |  | - | (3,254)
Additional increases to the amount related to credit loss for which an OTTI was previously recognized |  | 207 | 530
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected |  |  |
to be collected |  | - | -
Balance, end of period | $ | 14,231 | 17,811
|  | Nine Months ended September 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 |  | - | 2,326
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) | (7,906)
Additional increases to the amount related to credit loss for which an OTTI was previously recognized |  | 462 | 4,192
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected |  |  |
to be collected |  | - | -
Balance, end of period | $ | 14,231 | 17,811
(i) The components of net realized gains, excluding OTTI charges, were as follows:
|  | Quarter ended |  | Nine Months ended
|  | September 30, |  | September 30,
($ in thousands) |  | 2011 |  | 2010 |  |  | 2011 |  | 2010
HTM fixed maturity securities |  |  |  |  |  |  |  |  |
Gains | $ | - |  | 123 |  |  | 9 |  | 535
Losses |  | (200) |  | (296) |  |  | (522) |  | (746)
AFS fixed maturity securities |  |  |  |  |  |  |  |  |
Gains |  | 698 |  | 2,961 |  |  | 3,052 |  | 7,743
Losses |  | (5) |  | (15) |  |  | (12) |  | (7,604)
AFS equity securities |  |  |  |  |  |  |  |  |
Gains |  | 5 |  | 912 |  |  | 6,676 |  | 15,086
Losses |  | - |  | (821) |  |  | - |  | (1,054)
Total other net realized investment gains |  | 498 |  | 2,864 |  |  | 9,203 |  | 13,960
Total OTTI charges recognized in earnings |  | (2,543) |  | (2,807) |  |  | (3,342) |  | (17,231)
Total net realized gains (losses) | $ | (2,045) |  | 57 |  |  | 5,861 |  | (3,271)
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 $22.0 million in Third Quarter 2011 and $145.8 million in Nine Months 2011. In addition to calls, maturities, and certain bond sales, Nine Months 2011 net realized gains, excluding OTTI charges, were driven by the sale of AFS equity securities for proceeds of $60.0 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 $49.7 million in Third Quarter 2010 and $234.1 million in Nine Months 2010. In addition to calls and maturities, the net realized gain, excluding OTTI charges, in Third Quarter 2010 was driven by the sale of AFS fixed maturity securities, primarily corporate holdings. In addition, as part of our transition to external investment managers, in Third Quarter 2010, we changed our intent regarding certain equity holdings that we sold to lower our equity exposure at that time and pursue a more index-neutral position for this asset class in the near term, providing greater sector and sponsor diversification. The sale of these equity holdings resulted in gross realized gains of $0.9 million and gross realized losses of $0.8 million. In addition to the Third Quarter 2010 realized gains discussed above, Nine Months 2010 realized gains were driven by: (i) the sale of energy-focused AFS equity securities in the second quarter of 2010 to mitigate portfolio risk and sector exposure; and (ii) 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 the second quarter of 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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