(a) The following table provides information related to our held-to-maturity ("HTM") securities:

September 30, 2011

Net

Unrealized

Unrecognized

Amortized

Gains

Carrying

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)

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

¹CMBS includes government guaranteed agency securities with a carrying value $8.9 million at December 31, 2010.
²RMBS 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.
²CMBS 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.
³RMBS 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)

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)

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.

(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.

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

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:

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.