Investments

(a) The amortized cost, net unrealized gains and losses, carrying value, unrecognized holding gains and losses, and fair value of HTM fixed income securities as of March 31, 2015 and December 31, 2014 were as follows:



March 31, 2015
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Foreign government	$	5,292	25		5,317	21	—	5,338
Obligations of states and political subdivisions	264,788		1,706		266,494	10,536	—	277,030
Corporate securities	18,532		(269	)	18,263	2,936	—	21,199
Asset-backed securities (“ABS”)	2,483		(378	)	2,105	375	—	2,480
Commercial mortgage-backed securities (“CMBS”)	4,764		(386	)	4,378	668	—	5,046
Total HTM fixed income securities	$	295,859	698		296,557	14,536	—	311,093



December 31, 2014
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Foreign government	$	5,292	47		5,339	55	—	5,394
Obligations of states and political subdivisions	285,301		2,071		287,372	11,760	—	299,132
Corporate securities	18,899		(273	)	18,626	2,796	—	21,422
ABS	2,818		(455	)	2,363	460	—	2,823
CMBS	4,869		(432	)	4,437	753	—	5,190
Total HTM fixed income securities	$	317,179	958		318,137	15,824	—	333,961

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 1.7 years as of March 31, 2015.

(b) The cost/amortized cost, unrealized gains and losses, and fair value of AFS securities as of March 31, 2015 and December 31, 2014 were as follows:



March 31, 2015
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
U.S. government and government agencies	$	112,146	7,342	(2	)	119,486
Foreign government	27,030		885	—		27,915
Obligations of states and political subdivisions	1,254,037		40,872	(534	)	1,294,375
Corporate securities	1,770,747		55,057	(1,539	)	1,824,265
ABS	184,278		1,214	(105	)	185,387
CMBS¹	197,304		3,335	(128	)	200,511
Residential mortgage-backed securities (“RMBS”)²	513,492		9,991	(1,180	)	522,303
AFS fixed income securities	4,059,034		118,696	(3,488	)	4,174,242
AFS equity securities	199,617		15,223	(3,269	)	211,571
Total AFS securities	$	4,258,651	133,919	(6,757	)	4,385,813



December 31, 2014
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
U.S. government and government agencies	$	116,666	7,592	(128	)	124,130
Foreign government	27,035		796	—		27,831
Obligations of states and political subdivisions	1,208,776		38,217	(729	)	1,246,264
Corporate securities	1,763,427		42,188	(5,809	)	1,799,806
ABS	176,837		760	(373	)	177,224
CMBS¹	177,932		2,438	(777	)	179,593
RMBS²	505,113		8,587	(2,426	)	511,274
AFS fixed income securities	3,975,786		100,578	(10,242	)	4,066,122
AFS equity securities	159,011		32,725	(336	)	191,400
Total AFS securities	$	4,134,797	133,303	(10,578	)	4,257,522

¹ CMBS includes government guaranteed agency securities with a fair value of $12.9 million at March 31, 2015 and $13.2 million at December 31, 2014.

² RMBS includes government guaranteed agency securities with a fair value of $29.2 million at March 31, 2015 and $32.4 million at December 31, 2014.

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, 2015 and December 31, 2014, the fair value and 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, 2015	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	$	—	—		398	(2	)
Obligations of states and political subdivisions	75,935		(534	)	—	—
Corporate securities	93,912		(821	)	50,858	(718	)
ABS	25,684		(16	)	14,353	(89	)
CMBS	24,664		(55	)	15,682	(73	)
RMBS	50,977		(189	)	75,521	(991	)
Total fixed income securities	271,172		(1,615	)	156,812	(1,873	)
Equity securities	100,209		(3,269	)	—	—
Subtotal	$	371,381	(4,884	)	156,812	(1,873	)



	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	197		(2	)	1	—	—		—
ABS	—		—		—	2,003	(379	)	361
Subtotal	$	197	(2	)	1	2,003	(379	)	361
Total AFS and HTM	$	371,578	(4,886	)	1	158,815	(2,252	)	361



December 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	$	7,567	(13	)	10,866	(115	)
Obligations of states and political subdivisions	47,510		(105	)	64,018	(624	)
Corporate securities	276,648		(1,734	)	153,613	(4,075	)
ABS	113,202		(178	)	15,618	(195	)
CMBS	12,799		(34	)	59,219	(743	)
RMBS	3,399		(8	)	138,724	(2,418	)
Total fixed income securities	461,125		(2,072	)	442,058	(8,170	)
Equity securities	5,262		(336	)	—	—
Subtotal	$	466,387	(2,408	)	442,058	(8,170	)



	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	$	196	(3	)	1	—	—		—
ABS	—		—		—	2,235	(455	)	439
Subtotal	196		(3	)	1	2,235	(455	)	439
Total AFS and HTM	$	466,583	(2,411	)	1	444,293	(8,625	)	439

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.

The table below provides our net unrealized/unrecognized loss positions by impairment severity as of March 31, 2015 compared to December 31, 2014:



($ in thousands)
March 31, 2015				December 31, 2014
Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
189	80% - 99%	$	6,776	350	80% - 99%	$	10,596
—	60% - 79%	—		—	60% - 79%	—
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	6,776			$	10,596

The improvement in the number of securities in a loss position in our portfolio and the related loss amounts was mainly driven by a lower interest rate environment. During First Quarter 2015, interest rates on the 10-year U.S. Treasury Note fell by 25 basis points. This interest rate movement had a positive impact on the valuation of our fixed income securities portfolio, thus decreasing the number of securities in a loss position and the corresponding dollar amount of unrealized losses. For a discussion regarding the impact of interest rate movements on our fixed income securities portfolio, refer to Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." in our 2014 Annual Report. Partially offsetting the improvement in fixed income securities was an increase in unrealized losses on our equity portfolio. Unrealized losses of $3.3 million on this portfolio related to 28 securities with an average impairment severity of 3% of cost. The temporary dislocation in market value on these securities was driven by energy and utility-related holdings that are expected to recover in the near term.

We do not intend to sell any of the securities in the tables above, nor do we believe we will be required to sell any of these securities. We have also reviewed these securities under our OTTI policy, as described in Note 2. “Summary of Significant Accounting Policies” within Item 8. “Financial Statements and Supplementary Data.” of our 2014 Annual Report, and have concluded that they are temporarily impaired. 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, 2015, 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 the contractual maturities of HTM fixed income securities at March 31, 2015:



($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	124,997	126,670
Due after one year through five years	160,671		171,337
Due after five years through 10 years	10,889		13,086
Total HTM fixed income securities	$	296,557	311,093

Listed below are the contractual maturities of AFS fixed income securities at March 31, 2015:



($ in thousands)	Fair Value
Due in one year or less	$	416,983
Due after one year through five years	2,067,679
Due after five years through 10 years	1,605,398
Due after 10 years	84,182
Total AFS fixed income securities	$	4,174,242

(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, 2015
($ in thousands)	March 31, 2015		December 31, 2014	Remaining Commitment
Alternative Investments
Secondary private equity	$	20,208	21,807	7,040
Private equity	17,519		20,126	8,879
Energy/power generation	12,393		14,445	21,905
Real estate	11,986		11,452	10,016
Mezzanine financing	8,363		9,853	13,598
Distressed debt	7,569		8,679	2,982
Venture capital	6,236		6,606	350
Total alternative investments	84,274		92,968	64,770
Other securities	10,746		6,235	2,001
Total other investments	$	95,020	99,203	66,771

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 2014 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 report results to us on a one 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)	2014			2013
Net investment income	$	77.0		65.1
Realized gains	160.5			63.3
Net change in unrealized (depreciation) appreciation	(518.0		)	505.9
Net (loss) income	$	(280.5	)	634.3
Selective’s insurance subsidiaries’ other investments (loss) income	$	(3.5	)	5.2

(f) We have pledged certain AFS fixed income securities as collateral related to: (i) our outstanding borrowing of $60 million with the Federal Home Loan Bank of Indianapolis ("FHLBI"); and (ii) our reinsurance obligations related to our 2011 acquisition of our excess and surplus lines ("E&S") book of business. In addition, certain securities were on deposit with various state and regulatory agencies to comply with insurance laws. We retain all rights regarding all securities pledged as collateral.

The following table summarizes the market value of these securities at March 31, 2015:



($ in millions)	FHLBI Collateral		Reinsurance Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.7	—	25.2	32.9
Obligations of states and political subdivisions	—		5.0	—	5.0
Corporate securities	—		4.8	—	4.8
ABS	—		1.0	—	1.0
CMBS	1.7		—	—	1.7
RMBS	54.6		2.2	—	56.8
Total pledged as collateral	$	64.0	13.0	25.2	102.2

(g) The components of pre-tax net investment income earned for the periods indicated were as follows:



	Quarter ended March 31,
($ in thousands)	2015			2014
Fixed income securities	$	30,967		31,028
Equity securities	1,792			1,449
Short-term investments	25			19
Other investments	(3,540		)	5,218
Investment expenses	(2,327		)	(2,180	)
Net investment income earned	$	26,917		35,534

(h) The following tables summarize OTTI by asset type for the periods indicated:



First Quarter 2015	Gross		Included in Other Comprehensive Income ("OCI")	Recognized in Earnings
($ in thousands)	Gross		Included in Other Comprehensive Income ("OCI")	Recognized in Earnings
AFS fixed income securities
Corporate securities	$	1,009	—	1,009
RMBS	1		—	1
Total AFS fixed income securities	1,010		—	1,010
AFS equity securities	$	1,084	—	1,084
OTTI losses	$	2,094	—	2,094



First Quarter 2014	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS securities
Equity securities	$	963	—	963
OTTI losses	$	963	—	963

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 2014 Annual Report.

The following table 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)	2015			2014
Balance, beginning of period	$	5,444		7,488
Addition for the amount related to credit loss for which an OTTI was not previously recognized	—			—
Reductions for securities sold during the period	(4,431		)	—
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	—			—
Additional increases to the amount related to credit loss for which an OTTI was previously recognized	—			—
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	—			—
Balance, end of period	1,013			7,488

(i) The components of net realized gains, excluding OTTI charges, for the periods indicated were as follows:



	Quarter ended March 31,
($ in thousands)	2015			2014
HTM fixed income securities
Gains	$	—		—
Losses	(1		)	(11	)
AFS fixed income securities
Gains	1,502			158
Losses	(112		)	(112	)
AFS equity securities
Gains	21,318			8,317
Losses	(1,076		)	(171	)
Other investments
Gains	—			—
Losses	(654		)	—
Total net realized gains (excluding OTTI charges)	$	20,977		8,181

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 $138.4 million in First Quarter 2015 and $62.8 million in First Quarter 2014. The $21.0 million in net realized gains in First Quarter 2015 were primarily related to the sale of AFS equity securities due to a change in our dividend equity strategy from a quantitative, model-driven stock selection strategy to a fundamentally-based stock selection approach that incorporates an assessment of the sustainability and growth rate of a company’s dividends and future cash flow. The $8.2 million in net realized gains in First Quarter 2014 was primarily related to the sale of AFS equity securities due to the quantitative rebalancing of our dividend yield strategy holdings.