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Investments | 3 Months Ended
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Mar. 31, 2014
Investments [Abstract] |
Investments | Investments (a) The amortized cost, net unrealized gains and losses, carrying value, unrecognized holding gains and losses, and fair value of held-to-maturity (“HTM”) fixed income securities as of March 31, 2014 and December 31, 2013 were as follows:
March 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Amortized Cost |  | Net Unrealized Gains (Losses) |  | Carrying Value |  | Unrecognized Holding Gains |  | Unrecognized Holding Losses |  | Fair Value
Foreign government |  | $ | 5,292 |  |  | 110 |  |  | 5,402 |  |  | 150 |  |  | — |  |  | 5,552 |
Obligations of state and political subdivisions |  | 344,360 |  |  | 3,475 |  |  | 347,835 |  |  | 16,472 |  |  | — |  |  | 364,307 |
Corporate securities |  | 21,903 |  |  | (341 | ) |  | 21,562 |  |  | 2,902 |  |  | — |  |  | 24,464 |
Asset-backed securities (“ABS”) |  | 3,347 |  |  | (621 | ) |  | 2,726 |  |  | 640 |  |  | — |  |  | 3,366 |
Commercial mortgage-backed securities (“CMBS”) |  | 5,353 |  |  | (822 | ) |  | 4,531 |  |  | 1,316 |  |  | — |  |  | 5,847 |
Total HTM fixed income securities |  | $ | 380,255 |  |  | 1,801 |  |  | 382,056 |  |  | 21,480 |  |  | — |  |  | 403,536 |
December 31, 2013 |  |  |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Amortized Cost |  | Net Unrealized Gains (Losses) |  | Carrying Value |  | Unrecognized Holding Gains |  | Unrecognized Holding Losses |  | Fair Value
Foreign government |  | $ | 5,292 |  |  | 131 |  |  | 5,423 |  |  | 168 |  |  | — |  |  | 5,591 |
Obligations of state and political subdivisions |  | 348,109 |  |  | 4,013 |  |  | 352,122 |  |  | 17,634 |  |  | — |  |  | 369,756 |
Corporate securities |  | 28,174 |  |  | (346 | ) |  | 27,828 |  |  | 2,446 |  |  | — |  |  | 30,274 |
ABS |  | 3,413 |  |  | (655 | ) |  | 2,758 |  |  | 657 |  |  | — |  |  | 3,415 |
CMBS |  | 5,634 |  |  | (886 | ) |  | 4,748 |  |  | 3,197 |  |  | — |  |  | 7,945 |
Total HTM fixed income securities |  | $ | 390,622 |  |  | 2,257 |  |  | 392,879 |  |  | 24,102 |  |  | — |  |  | 416,981 |
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 2.2 years as of March 31, 2014. (b) The cost/amortized cost, unrealized gains and losses, and fair value of AFS securities as of March 31, 2014 and December 31, 2013 were as follows:
March 31, 2014 |  |  |  |  |  |  |  |
($ in thousands) |  | Cost/ Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
U.S. government and government agencies |  | $ | 161,428 |  |  | 10,007 |  |  | (370 | ) |  | 171,065 |
Foreign government |  | 31,538 |  |  | 912 |  |  | (29 | ) |  | 32,421 |
Obligations of states and political subdivisions |  | 963,237 |  |  | 26,617 |  |  | (10,687 | ) |  | 979,167 |
Corporate securities |  | 1,777,186 |  |  | 48,305 |  |  | (9,793 | ) |  | 1,815,698 |
ABS |  | 131,386 |  |  | 908 |  |  | (360 | ) |  | 131,934 |
CMBS 1 |  | 172,386 |  |  | 4,686 |  |  | (2,256 | ) |  | 174,816 |
Residential mortgage-backed securities (“RMBS”)2 |  | 511,295 |  |  | 7,210 |  |  | (7,753 | ) |  | 510,752 |
AFS fixed income securities |  | 3,748,456 |  |  | 98,645 |  |  | (31,248 | ) |  | 3,815,853 |
AFS equity securities |  | 162,370 |  |  | 35,434 |  |  | (117 | ) |  | 197,687 |
Total AFS securities |  | $ | 3,910,826 |  |  | 134,079 |  |  | (31,365 | ) |  | 4,013,540 |
December 31, 2013 |  |  |  |  |  |  |  |
($ in thousands) |  | Cost/ Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
U.S. government and government agencies |  | $ | 163,218 |  |  | 10,661 |  |  | (504 | ) |  | 173,375 |
Foreign government |  | 29,781 |  |  | 906 |  |  | (72 | ) |  | 30,615 |
Obligations of states and political subdivisions |  | 946,455 |  |  | 25,194 |  |  | (20,025 | ) |  | 951,624 |
Corporate securities |  | 1,707,928 |  |  | 44,004 |  |  | (17,049 | ) |  | 1,734,883 |
ABS |  | 140,430 |  |  | 934 |  |  | (468 | ) |  | 140,896 |
CMBS 1 |  | 172,288 |  |  | 2,462 |  |  | (3,466 | ) |  | 171,284 |
RMBS 2 |  | 515,877 |  |  | 7,273 |  |  | (10,291 | ) |  | 512,859 |
AFS fixed income securities |  | 3,675,977 |  |  | 91,434 |  |  | (51,875 | ) |  | 3,715,536 |
AFS equity securities |  | 155,350 |  |  | 37,517 |  |  | (96 | ) |  | 192,771 |
Total AFS securities |  | $ | 3,831,327 |  |  | 128,951 |  |  | (51,971 | ) |  | 3,908,307 |
1 CMBS includes government guaranteed agency securities with a fair value of $24.5 million at March 31, 2014 and $30.0 million at December 31, 2013. 2 RMBS includes government guaranteed agency securities with a fair value of $48.2 million at March 31, 2014 and $55.2 million at December 31, 2013. Unrealized gains and losses of AFS securities represent fair value fluctuations from the later of: (i) the date a security is designated as AFS; or (ii) the date that an OTTI charge is recognized on an AFS security, through the date of the balance sheet. These unrealized gains and losses are recorded in Accumulated Other Comprehensive Income ("AOCI") on the Consolidated Balance Sheets. (c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at March 31, 2014 and December 31, 2013, the fair value and gross pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position:
March 31, 2014 |  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses 1 |  | Fair Value |  | Unrealized Losses 1
AFS securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 13,119 |  |  | (370 | ) |  | — |  |  | — |
Foreign government |  | 1,753 |  |  | (9 | ) |  | 2,978 |  |  | (20 | )
Obligations of states and political subdivisions |  | 373,064 |  |  | (9,984 | ) |  | 20,096 |  |  | (703 | )
Corporate securities |  | 464,163 |  |  | (8,636 | ) |  | 17,713 |  |  | (1,157 | )
ABS |  | 23,855 |  |  | (360 | ) |  | — |  |  | — |
CMBS |  | 72,437 |  |  | (1,962 | ) |  | 7,466 |  |  | (294 | )
RMBS |  | 221,314 |  |  | (7,294 | ) |  | 4,823 |  |  | (459 | )
Total fixed income securities |  | 1,169,705 |  |  | (28,615 | ) |  | 53,076 |  |  | (2,633 | )
Equity securities |  | 1,938 |  |  | (117 | ) |  | — |  |  | — |
Subtotal |  | $ | 1,171,643 |  |  | (28,732 | ) |  | 53,076 |  |  | (2,633 | )
|  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses 1 |  | Unrecognized Gains 2 |  | Fair Value |  | Unrealized Losses 1 |  | Unrecognized Gains 2
HTM securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | — |  |  | — |  |  | — |  |  | 445 |  |  | (19 | ) |  | 18 |
ABS |  | — |  |  | — |  |  | — |  |  | 2,495 |  |  | (621 | ) |  | 592 |
Subtotal |  | $ | — |  |  | — |  |  | — |  |  | 2,940 |  |  | (640 | ) |  | 610 |
Total AFS and HTM |  | $ | 1,171,643 |  |  | (28,732 | ) |  | — |  |  | 56,016 |  |  | (3,273 | ) |  | 610 |
December 31, 2013 |  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses 1 |  | Fair Value |  | Unrealized Losses 1
AFS securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 16,955 |  |  | (500 | ) |  | 507 |  |  | (4 | )
Foreign government |  | 2,029 |  |  | (30 | ) |  | 2,955 |  |  | (42 | )
Obligations of states and political subdivisions |  | 442,531 |  |  | (19,120 | ) |  | 13,530 |  |  | (905 | )
Corporate securities |  | 511,100 |  |  | (15,911 | ) |  | 14,771 |  |  | (1,138 | )
ABS |  | 68,725 |  |  | (468 | ) |  | — |  |  | — |
CMBS |  | 100,396 |  |  | (2,950 | ) |  | 6,298 |  |  | (516 | )
RMBS |  | 268,943 |  |  | (10,031 | ) |  | 2,670 |  |  | (260 | )
Total fixed income securities |  | 1,410,679 |  |  | (49,010 | ) |  | 40,731 |  |  | (2,865 | )
Equity securities |  | 1,124 |  |  | (96 | ) |  | — |  |  | — |
Subtotal |  | $ | 1,411,803 |  |  | (49,106 | ) |  | 40,731 |  |  | (2,865 | )
|  | Less than 12 months |  | 12 months or longer
($ in thousands) |  | Fair Value |  | Unrealized Losses 1 |  | Unrecognized Gains 2 |  | Fair Value |  | Unrealized Losses 1 |  | Unrecognized Gains 2
HTM securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 65 |  |  | (5 | ) |  | 5 |  |  | 441 |  |  | (20 | ) |  | 14 |
ABS |  | — |  |  | — |  |  | — |  |  | 2,490 |  |  | (655 | ) |  | 621 |
Subtotal |  | 65 |  |  | (5 | ) |  | 5 |  |  | 2,931 |  |  | (675 | ) |  | 635 |
Total AFS and HTM |  | $ | 1,411,868 |  |  | (49,111 | ) |  | 5 |  |  | 43,662 |  |  | (3,540 | ) |  | 635 |
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 Unrecognized 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 improved by $20.6 million as of March 31, 2014 compared to December 31, 2013 as follows:
($ in thousands) |  |
March 31, 2014 |  | December 31, 2013
Number of Issues | % of Market/Book | Unrealized/ Unrecognized Loss |  | Number of Issues | % of Market/Book | Unrealized/ Unrecognized Loss
466 |  | 80% - 99% | $ | 31,395 |  |  | 556 |  | 80% - 99% | $ | 51,835 |
— |  | 60% - 79% | — |  |  | 1 |  | 60% - 79% | 176 |
— |  | 40% - 59% | — |  |  | — |  | 40% - 59% | — |
— |  | 20% - 39% | — |  |  | — |  | 20% - 39% | — |
— |  | 0% - 19% | — |  |  | — |  | 0% - 19% | — |
|  |  | $ | 31,395 |  |  |  |  |  | $ | 52,011 |
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 2013 Annual Report. At March 31, 2014, we had 466 securities in an aggregate unrealized/unrecognized loss position of $31.4 million, $2.7 million of which have been in a loss position for more than 12 months. At December 31, 2013, we had 557 securities in an aggregate unrealized/unrecognized loss position of $52.0 million, $2.9 million of which had been in a loss position for more than 12 months. During First Quarter 2014, interest rates on the 10-year U.S. Treasury Note fell by 31 basis points. This interest rate movement had a positive impact on our fixed income securities portfolio's valuation, thus decreasing the number of securities in a loss position and the corresponding dollar amount of unrealized losses. For a discussion regarding the sensitivity of interest rate movements and the related impacts on the fixed income securities portfolio, refer to Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our 2013 Annual Report. We do not intend to sell any securities in an unrealized/unrecognized loss position, nor do we believe we will be required to sell these securities, and therefore we have concluded that they are temporarily impaired as of March 31, 2014. This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the investment security and underlying collateral. If our judgment about an individual security changes in the future, we may ultimately record a credit loss after having originally concluded that one did not exist, which could have a material impact on our net income and financial position in future periods. (d) Fixed income securities at March 31, 2014, by contractual maturity, are shown below. Mortgage-backed securities ("MBS") are included in the maturity tables using the estimated average life of each security. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations, with or without call or prepayment penalties. Listed below are HTM fixed income securities at March 31, 2014:
($ in thousands) |  | Carrying Value |  | Fair Value
Due in one year or less |  | $ | 80,337 |  |  | 81,332 |
Due after one year through five years |  | 270,608 |  |  | 287,045 |
Due after five years through 10 years |  | 31,111 |  |  | 35,159 |
Total HTM fixed income securities |  | $ | 382,056 |  |  | 403,536 |
Listed below are AFS fixed income securities at March 31, 2014:
($ in thousands) |  | Fair Value
Due in one year or less |  | $ | 425,744 |
Due after one year through five years |  | 1,991,515 |
Due after five years through 10 years |  | 1,345,666 |
Due after 10 years |  | 52,928 |
Total AFS fixed income securities |  | $ | 3,815,853 |
(e) The following table summarizes our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:
Other Investments |  | Carrying Value |  | March 31, 2014
($ in thousands) |  | March 31, 2014 |  | December 31, 2013 |  | Remaining Commitment
Alternative Investments |  |  |  |  |  |  |  |  |
Secondary private equity |  | $ | 23,595 |  |  | 25,618 |  |  | 6,479 |
Private equity |  | 21,117 |  |  | 20,192 |  |  | 9,959 |
Energy/power generation |  | 17,978 |  |  | 17,361 |  |  | 6,984 |
Mezzanine financing |  | 13,831 |  |  | 12,738 |  |  | 15,038 |
Distressed debt |  | 10,882 |  |  | 11,579 |  |  | 2,971 |
Real estate |  | 10,728 |  |  | 11,698 |  |  | 10,178 |
Venture capital |  | 7,019 |  |  | 7,025 |  |  | 350 |
Total alternative investments |  | 105,150 |  |  | 106,211 |  |  | 51,959 |
Other securities |  | 1,570 |  |  | 1,664 |  |  | 597 |
Total other investments |  | $ | 106,720 |  |  | 107,875 |  |  | 52,556 |
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 2013 Annual Report. The following table sets forth gross summarized financial information for our other investments portfolio, including the portion not owned by us. The investments are 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 reports 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) |  | 2013 |  | 2012 |
Net investment income |  | $ | 65.1 |  |  | 204.8 |  |
Realized gains |  | 63.3 |  |  | 593.4 |  |
Net change in unrealized appreciation (depreciation) |  | 505.9 |  |  | (417.5 | ) |
Net income |  | $ | 634.3 |  |  | 380.7 |  |
Selective’s insurance subsidiaries’ other investments income |  | $ | 5.2 |  |  | 3.6 |  |
(f) At March 31, 2014, we had fixed income securities, with a carrying value of $61.8 million, that were pledged as collateral for our outstanding borrowing of $58 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 income securities portfolio. Also at March 31, 2014, we had fixed income securities, with a carrying value of $22.3 million, and short-term investments with a carrying value of $0.2 million, that collateralize reinsurance obligations related to our 2011 acquisition of our E&S book of business. Similar to the FHLBI collateral discussion above, we retain all rights regarding these investments. These fixed income securities are included in the "Municipal," "Corporate," "U.S. government and government agencies," "RMBS," and "ABS" classifications of our AFS fixed income securities portfolio. In addition, fixed income securities with a carrying value of $26.2 million were on deposit with various state and regulatory agencies to comply with insurance laws. We retain all rights regarding these securities, which are primarily included in the "U.S. government and government agencies" classification of our AFS fixed income securities portfolio. (g) The components of net investment income earned for the periods indicated were as follows:
|  | Quarter ended March 31, |
($ in thousands) |  | 2014 |  | 2013 |
Fixed income securities |  | $ | 31,028 |  |  | 30,089 |  |
Equity securities |  | 1,449 |  |  | 1,207 |  |
Short-term investments |  | 19 |  |  | 52 |  |
Other investments |  | 5,218 |  |  | 3,602 |  |
Investment expenses |  | (2,180 | ) |  | (2,080 | ) |
Net investment income earned |  | $ | 35,534 |  |  | 32,870 |  |
(h) The following tables summarize OTTI by asset type for the periods indicated:
First Quarter 2014 |  | Gross |  | Included in Other Comprehensive Income (“OCI”) |  | Recognized in Earnings
($ in thousands) |  |  |
AFS securities |  |  |  |  |  |
Equity securities |  | $ | 963 |  |  | — |  |  | 963 |
Total AFS Securities |  | 963 |  |  | — |  |  | 963 |
OTTI losses |  | $ | 963 |  |  | — |  |  | 963 |
First Quarter 2013 |  | Gross |  | Included in OCI |  | Recognized in Earnings
($ in thousands) |  |  |
AFS fixed income securities |  |  |  |  |  |  |  |  |
RMBS |  | $ | (22 | ) |  | (30 | ) |  | 8 |
Total AFS fixed income securities |  | (22 | ) |  | (30 | ) |  | 8 |
Equity securities |  | 217 |  |  | — |  |  | 217 |
Total AFS securities |  | 195 |  |  | (30 | ) |  | 225 |
Other investments |  | 1,724 |  |  | — |  |  | 1,724 |
OTTI losses |  | $ | 1,919 |  |  | (30 | ) |  | 1,949 |
The OTTI charges in First Quarter 2014 relate to equity securities for which we have the intent to sell. The majority of the OTTI charges in First Quarter 2013 related to an investment in a limited liability company within our other investments portfolio that had sustained significant losses for which we did not anticipate recovery. For a discussion of our evaluation for OTTI of fixed income 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 2013 Annual Report. The following tables set forth, for the periods indicated, credit loss impairments on fixed income 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) |  | 2014 |  | 2013
Balance, beginning of period |  | $ | 7,488 |  |  | 7,477 |
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 |
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected |  | — |  |  | — |
Balance, end of period |  | $ | 7,488 |  |  | 7,486 |
(i) The components of net realized gains, excluding OTTI charges, for the periods indicated were as follows:
|  | Quarter ended March 31,
($ in thousands) |  | 2014 |  | 2013
HTM fixed income securities |  |  |  |
Gains |  | $ | — |  |  | — |
Losses |  | (11 | ) |  | (37 | )
AFS fixed income securities |  |  |  |  |  |
Gains |  | 158 |  |  | 951 |
Losses |  | (112 | ) |  | (253 | )
AFS equity securities |  |  |  |  |  |
Gains |  | 8,317 |  |  | 5,671 |
Losses |  | (171 | ) |  | (168 | )
Other investments |  |  |  |
Gains |  | — |  |  | — |
Losses |  | — |  |  | (860 | )
Total other net realized investment gains |  | 8,181 |  |  | 5,304 |
Total OTTI charges recognized in earnings |  | (963 | ) |  | (1,949 | )
Total net realized gains |  | $ | 7,218 |  |  | 3,355 |
Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold. The $8.2 million and $5.3 million in net realized gains in First Quarter 2014 and First Quarter 2013, respectively, were primarily related to the sale of AFS equity securities due to a rebalancing of our equity portfolio. Proceeds from the sale of AFS securities were $62.8 million in First Quarter 2014 and $6.9 million in First Quarter 2013.

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