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Investments
 3 Months Ended
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

CMBS1
 
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

CMBS1
 
172,288

 
2,462

 
(3,466
)
 
171,284

RMBS2
 
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
Losses1
 
Fair Value
 
Unrealized
Losses1
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
Losses1
 
Unrecognized
Gains2
 
Fair
Value
 
Unrealized
Losses1
 
Unrecognized
Gains2
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
Losses1
 
Fair Value
 
Unrealized
Losses1
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
Losses1
 
Unrecognized
Gains2
 
Fair
Value
 
Unrealized
Losses1
 
Unrecognized
Gains2
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.