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Investments
 3 Months Ended
Mar. 31, 2013
Investments [Abstract]  
Investments
Investments
(a) The amortized cost, net unrealized gain and losses, carrying value, unrecognized holding gains and losses, and fair values of held-to-maturity (“HTM”) fixed maturity securities were as follows:
 
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
 
Amortized Cost
 
Net
 Unrealized Gains
 (Losses)
 
Carrying
Value
 
Unrecognized
 Holding
Gains
 
Unrecognized Holding
 Losses
 
Fair
Value
Foreign government
 
$
5,292

 
192

 
5,484

 
190

 
—

 
5,674

Obligations of state and political subdivisions
 
448,591

 
5,664

 
454,255

 
26,909

 
(27
)
 
481,137

Corporate securities
 
35,986

 
(726
)
 
35,260

 
4,374

 
—

 
39,634

Asset-backed securities (“ABS”)
 
6,819

 
(964
)
 
5,855

 
1,065

 
—

 
6,920

Commercial mortgage-backed securities (“CMBS”)
 
8,031

 
(1,114
)
 
6,917

 
3,271

 
—

 
10,188

Total HTM fixed maturity securities
 
$
504,719

 
3,052

 
507,771

 
35,809

 
(27
)
 
543,553


December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
 
Amortized Cost
 
Net
 Unrealized Gains
 (Losses)
 
Carrying
Value
 
Unrecognized
 Holding
Gains
 
Unrecognized Holding
 Losses
 
Fair
Value
Foreign government
 
$
5,292

 
212

 
5,504

 
367

 
—

 
5,871

Obligations of state and political subdivisions
 
491,180

 
6,769

 
497,949

 
28,996

 
(23
)
 
526,922

Corporate securities
 
38,285

 
(812
)
 
37,473

 
4,648

 
—

 
42,121

ABS
 
6,980

 
(1,052
)
 
5,928

 
1,170

 
—

 
7,098

CMBS
 
8,406

 
(1,191
)
 
7,215

 
5,434

 
—

 
12,649

Total HTM fixed maturity securities
 
$
550,143

 
3,926

 
554,069

 
40,615

 
(23
)
 
594,661

 
Unrecognized holding gains and losses of HTM securities are not reflected in the 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 2.4 years as of March 31, 2013.
 
During First Quarter 2013, seven securities with a carrying value of $15.8 million and a net unrecognized gain position of $0.9 million were reclassified from an HTM designation to an available-for-sale (“AFS”) designation due to credit rating downgrades by Moody’s Investors Services ("Moody's"). These unexpected rating downgrades raised significant concerns about the issuers’ credit worthiness, which changed our intention to hold these securities to maturity.

(b) The cost/amortized cost, unrealized gains and losses, and fair value of AFS securities were as follows:
 
March 31, 2013
 
 
 
 
 
 
 
 
($ in thousands)
 
Cost/
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. government and government agencies
 
$
229,718

 
15,950

 
(4
)
 
245,664

Foreign government
 
28,808

 
1,472

 
(116
)
 
30,164

Obligations of states and political subdivisions
 
810,375

 
40,630

 
(1,059
)
 
849,946

Corporate securities
 
1,456,347

 
77,266

 
(860
)
 
1,532,753

ABS
 
170,026

 
1,971

 
(55
)
 
171,942

CMBS1
 
144,120

 
3,523

 
(1,103
)
 
146,540

Residential mortgage-backed
securities (“RMBS”)2
 
475,595

 
13,832

 
(455
)
 
488,972

AFS fixed maturity securities
 
3,314,989

 
154,644

 
(3,652
)
 
3,465,981

AFS equity securities
 
143,564

 
31,622

 
(441
)
 
174,745

Total AFS securities
 
$
3,458,553

 
186,266

 
(4,093
)
 
3,640,726

 
December 31, 2012
 
 
 
 
 
 
 
 
($ in thousands)
 
Cost/
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. government and government agencies
 
$
241,874

 
17,219

 
(1
)
 
259,092

Foreign government
 
28,813

 
1,540

 
(124
)
 
30,229

Obligations of states and political subdivisions
 
773,953

 
44,398

 
(327
)
 
818,024

Corporate securities
 
1,368,954

 
81,696

 
(402
)
 
1,450,248

ABS
 
126,330

 
2,319

 
(9
)
 
128,640

CMBS1
 
133,763

 
4,572

 
(1,216
)
 
137,119

RMBS2
 
456,996

 
15,961

 
(296
)
 
472,661

AFS fixed maturity securities
 
3,130,683

 
167,705

 
(2,375
)
 
3,296,013

AFS equity securities
 
132,441

 
19,400

 
(459
)
 
151,382

Total AFS securities
 
$
3,263,124

 
187,105

 
(2,834
)
 
3,447,395



1 CMBS includes government guaranteed agency securities with a fair value of $42.3 million at March 31, 2013 and $48.9 million at December 31, 2012.
2 RMBS includes government guaranteed agency securities with a fair value of $85.0 million at March 31, 2013 and $91.0 million at December 31, 2012.
 
Unrealized gains and 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 AOCI on the Consolidated Balance Sheets.
 

(c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at March 31, 2013 and December 31, 2012, 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:

March 31, 2013
 
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 agencies
 
$
3,502

 
(4
)
 
—

 
—

Foreign government
 
—

 
—

 
2,880

 
(116
)
Obligations of states and political subdivisions
 
133,593

 
(1,059
)
 
—

 
—

Corporate securities
 
73,175

 
(812
)
 
3,059

 
(48
)
ABS
 
46,519

 
(55
)
 
—

 
—

CMBS
 
45,901

 
(395
)
 
11,269

 
(708
)
RMBS
 
49,313

 
(267
)
 
2,982

 
(188
)
Total fixed maturity securities
 
352,003

 
(2,592
)
 
20,190

 
(1,060
)
Equity securities
 
24,871

 
(441
)
 
—

 
—

Subtotal
 
$
376,874

 
(3,033
)
 
20,190

 
(1,060
)
 
 
 
Less than 12 months
 
12 months or longer
($ in thousands)
 
Fair
Value
 
Unrealized
Losses1
 
Unrecognized
Gains2
 
Fair
Value
 
Unrealized
Losses1
 
Unrecognized
Gains2
HTM securities
 
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
 
$
358

 
(32
)
 
30

 
896

 
(35
)
 
27

ABS
 
—

 
—

 
—

 
2,855

 
(798
)
 
739

Subtotal
 
$
358


(32
)
 
30

 
3,751

 
(833
)
 
766

Total AFS and HTM
 
$
377,232

 
(3,065
)
 
30

 
23,941

 
(1,893
)
 
766


December 31, 2012
 
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 agencies
 
$
518

 
(1
)
 
—

 
—

Foreign government
 
—

 
—

 
2,871

 
(124
)
Obligations of states and political subdivisions
 
32,383

 
(327
)
 
—

 
—

Corporate securities
 
50,880

 
(402
)
 
—

 
—

ABS
 
9,137

 
(9
)
 
—

 
—

CMBS
 
7,637

 
(19
)
 
11,830

 
(1,197
)
RMBS
 
8,710

 
(59
)
 
5,035

 
(237
)
Total fixed maturity securities
 
109,265

 
(817
)
 
19,736

 
(1,558
)
Equity securities
 
15,901

 
(459
)
 
—

 
—

Subtotal
 
$
125,166

 
(1,276
)
 
19,736

 
(1,558
)
 

 
 
Less than 12 months
 
12 months or longer
($ in thousands)
 
Fair
Value
 
Unrealized
Losses1
 
Unrecognized
Gains2
 
Fair
Value
 
Unrealized
Losses1
 
Unrecognized
Gains2
HTM securities
 
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
 
$
1,218

 
(33
)
 
29

 
1,108

 
(47
)
 
38

ABS
 
—

 
—

 
—

 
2,860

 
(840
)
 
753

Subtotal
 
$
1,218

 
(33
)
 
29

 
3,968

 
(887
)
 
791

Total AFS and HTM
 
$
126,384

 
(1,309
)
 
29

 
23,704

 
(2,445
)
 
791

 1Gross 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.
2Unrecognized gains 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.

As evidenced by the table below, our net unrealized/unrecognized loss positions increased by $1.2 million as of March 31, 2013 compared to December 31, 2012 as follows:

($ in thousands)
 
 
March 31, 2013
 
December 31, 2012
Number of
Issues
% of Market/Book
Unrealized
Unrecognized Loss
 
Number of
Issues
% of
Market/Book
Unrealized
Unrecognized
Loss
174

80% - 99%
$
3,918

 
100

80% - 99%
$
2,701

1

60% - 79%
244

 
1

60% - 79%
233

—

40% - 59%
—

 
—

40% - 59%
—

—

20% - 39%
—

 
—

20% - 39%
—

—

0% - 19%
—

 
—

0% - 19%
—

 

 
$
4,162

 
 

 
$
2,934

 
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 2012 Annual Report.
  
At March 31, 2013, we had 175 securities in an aggregate unrealized/unrecognized loss position of $4.2 million, $1.1 million of which have been in a loss position for more than 12 months. Securities that have had non-credit OTTI impairments comprised $0.6 million of the $1.1 million balance. The remainder of the $1.1 million balance is related to securities that were, on average, 3% impaired compared to their amortized cost.
  
At December 31, 2012, we had 101 securities in an aggregate unrealized/unrecognized loss position of $2.9 million, $1.7 million of which had been in a loss position for more than 12 months. Securities that have had non-credit OTTI impairments comprised $0.9 million of the $1.7 million balance. The remainder of the $1.7 million balance is related to securities that were, on average, 5% impaired compared to their amortized cost.
 
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 March 31, 2013. 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 March 31, 2013, by contractual maturity, are shown below. Mortgage-backed securities ("MBS") 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 March 31, 2013:
($ in thousands)
 
Carrying Value
 
Fair Value
Due in one year or less
 
$
100,082

 
103,261

Due after one year through five years
 
363,382

 
389,774

Due after five years through 10 years
 
41,427

 
46,831

Due after 10 years
 
2,880

 
3,687

Total HTM fixed maturity securities
 
$
507,771

 
543,553

 
Listed below are AFS fixed maturity securities at March 31, 2013:
($ in thousands)
 
Fair Value
Due in one year or less
 
$
348,176

Due after one year through five years
 
2,041,329

Due after five years through 10 years
 
1,046,526

Due after 10 years
 
29,950

Total AFS fixed maturity securities
 
$
3,465,981

  
(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
 
March 31,
2013
($ in thousands)
 
March 31,
2013
 
December 31,
2012
 
Remaining Commitment
Alternative Investments
 
 

 
 

 
 

Secondary private equity
 
$
27,780

 
28,032

 
7,466

Energy/power generation
 
18,218

 
18,640

 
7,825

Private equity
 
17,732

 
18,344

 
4,697

Distressed debt
 
12,406

 
12,728

 
2,922

Real Estate
 
12,214

 
11,751

 
10,292

Mezzanine financing
 
12,179

 
12,692

 
21,337

Venture capital
 
7,370

 
7,477

 
400

Total alternative investments
 
107,899

 
109,664

 
54,939

Other securities
 
1,956

 
4,412

 
1,412

Total other investments
 
$
109,855

 
114,076

 
56,351


 
For a description of our seven alternative investment strategies, as well as information regarding redemption, restrictions, and fund liquidations, refer to Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our 2012 Annual Report.
 
The following table sets forth aggregated summarized financial information for the partnerships in our alternative and other investments carried under the equity method of accounting. The last line of the table below reflects our share of the aggregate income, which is the portion included in our Financial Statements. As the majority of these investments report results to us on a quarter lag, the summarized financial statement information for the three-month periods ended December 31 is as follows:

Income Statement Information
 
 
 
 
Quarter ended December 31,
 
 
($ in millions)
 
2012
 
2011
Net investment income
 
$
204.8

 
36.1

Realized gains
 
593.4

 
750.7

Net change in unrealized depreciation
 
(417.5
)
 
(487.4
)
Net income
 
$
380.7

 
299.4

Selective’s insurance subsidiaries’ other investments income
 
$
3.6

 
2.0

 
(f) At March 31, 2013, we had 31 fixed maturity securities, with a carrying value of $62.1 million, that were pledged as collateral for our outstanding borrowing of $58.0 million with the Federal Home Loan Bank of Indianapolis (“FHLBI”).  This outstanding borrowing is included in “Notes payable” on the Consolidated Balance Sheets.  In accordance with the terms of our agreement with the FHLBI, we retain all rights regarding these securities, which are included in the “U.S. government and government agencies,” “RMBS,” and “CMBS” classifications of our AFS fixed maturity securities portfolio.

In addition, certain bonds with a carrying value of $27.2 million were on deposit with various state and regulatory agencies to comply with insurance laws. We retain all rights regarding these securities, which are primarily 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 March 31,
($ in thousands)
 
2013
 
2012
Fixed maturity securities
 
$
30,089


31,350

Equity securities
 
1,207


1,237

Short-term investments
 
52


38

Other investments
 
3,602


2,000

Miscellaneous income
 
—


39

Investment expenses
 
(2,080
)

(2,036
)
Net investment income earned
 
$
32,870

 
32,628


(h) The following tables summarize OTTI by asset type for the periods indicated:
First Quarter 2013
 
 
 
 
 
 
($ in thousands) 
 
Gross 
 
Included in Other
Comprehensive
Income (“OCI”)
 
Recognized in
Earnings
AFS fixed maturity securities
 
 

 
 

 
 

RMBS
 
$
(22
)
 
(30
)
 
8

Total AFS fixed maturity securities
 
(22
)
 
(30
)
 
8

Equity securities
 
217

 
—

 
217

Other investments
 
1,724

 
—

 
1,724

OTTI losses
 
$
1,919

 
(30
)
 
1,949

 
First Quarter 2012
 
 
 
 
 
 
($ in thousands)
 
Gross
 
Included in OCI
 
Recognized in Earnings
AFS fixed maturity securities
 
 

 
 

 
 

ABS
 
$
32

 
—

 
32

CMBS
 
108

 
—

 
108

RMBS
 
(54
)
 
(164
)
 
110

Total AFS fixed maturities
 
86

 
(164
)
 
250

Equity securities
 
171

 
—

 
171

OTTI losses
 
$
257

 
(164
)
 
421


The majority of the OTTI charges in First Quarter 2013 relate to an investment in a limited liability company within our other investments portfolio that has sustained significant losses for which we do not anticipate recovery. For a discussion of our evaluation for OTTI of fixed maturity securities, short-term investments, equity securities and other investments, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data" of our 2012 Annual Report.

The following tables set forth, for the periods indicated, 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 March 31,
($ in thousands)
 
2013
 
2012
Balance, beginning of period
 
$
7,477

 
6,602

Addition for the amount related to credit loss for which an OTTI was not previously recognized
 
—

 
—

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
 
—

 
—

Additional increases to the amount related to credit loss for which an OTTI was previously recognized
 
9

 
109

Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected
 
—

 
—

Balance, end of period
 
$
7,486

 
6,711


(i) The components of net realized gains, excluding OTTI charges, were as follows:
 
 
Quarter ended March 31,
($ in thousands)
 
2013
 
2012
HTM fixed maturity securities
 
 
 
 
Gains
 
$
—

 
153

Losses
 
(37
)
 
(81
)
AFS fixed maturity securities
 
 

 
 
Gains
 
951

 
405

Losses
 
(253
)
 
(43
)
AFS equity securities
 
 

 
 
Gains
 
5,671

 
4,775

Losses
 
(168
)
 
(428
)
Short-term investments
 
 

 
 
Losses
 
—

 
(2
)
Other Investments
 
 
 
 
     Losses
 
(860
)

—

Total other net realized investment gains
 
5,304


4,779

Total OTTI charges recognized in earnings
 
(1,949
)

(421
)
Total net realized gains
 
$
3,355


4,358

 
Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold. Of the $5.3 million in net realized gains in First Quarter 2013, $5.5 million were related to the sale of AFS equity securities due to a rebalancing of our equity portfolio. Net realized investment gains in First Quarter 2012 of $4.8 million reflected the impact of rebalancing securities within the equity securities portfolio, which resulted in net realized gains of $4.3 million.

Proceeds from the sale of AFS securities were $6.9 million in First Quarter 2013 as $35.6 million in proceeds remained unsettled at March 31, 2013 for the rebalancing of the equity portfolio. Proceeds from the sale of AFS securities were $71.8 million in First Quarter 2012.