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 June 30, 2015 and December 31, 2014 were as follows:



June 30, 2015
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses		Fair Value
Foreign government	$	5,292	3		5,295	—	(3	)	5,292
Obligations of states and political subdivisions	216,870		1,395		218,265	8,441	—		226,706
Corporate securities	18,532		(265	)	18,267	2,565	—		20,832
Asset-backed securities (“ABS”)	1,976		(280	)	1,696	285	—		1,981
Commercial mortgage-backed securities (“CMBS”)	4,676		(340	)	4,336	555	—		4,891
Total HTM fixed income securities	$	247,346	513		247,859	11,846	(3	)	259,702



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 1.6 years as of June 30, 2015.

(b) The cost/amortized cost, unrealized gains and losses, and fair value of AFS securities as of June 30, 2015 and December 31, 2014 were as follows:



June 30, 2015
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	109,506	6,420	(65	)	115,861
Foreign government	22,026		693	—		22,719
Obligations of states and political subdivisions	1,277,635		23,242	(4,819	)	1,296,058
Corporate securities	1,794,698		36,201	(6,324	)	1,824,575
ABS	213,662		990	(155	)	214,497
CMBS¹	213,497		1,861	(1,180	)	214,178
Residential mortgage-backed securities (“RMBS”)²	502,199		6,224	(3,493	)	504,930
Total AFS fixed income securities	4,133,223		75,631	(16,036	)	4,192,818
AFS equity securities:
Common stock	200,150		15,159	(4,190	)	211,119
Preferred stock	17,988		23	(247	)	17,764
Total AFS equity securities	218,138		15,182	(4,437	)	228,883
Total AFS securities	$	4,351,361	90,813	(20,473	)	4,421,701



December 31, 2014
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
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
Total AFS fixed income securities	3,975,786		100,578	(10,242	)	4,066,122
AFS equity securities:
Common stock	159,011		32,725	(336	)	191,400
Total 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 $10.2 million at June 30, 2015 and $13.2 million at December 31, 2014.

² RMBS includes government guaranteed agency securities with a fair value of $25.7 million at June 30, 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 (loss) income ("AOCI") on the Consolidated Balance Sheets.

(c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at June 30, 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:



June 30, 2015	Less than 12 months				12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income securities:
U.S. government and government agencies	$	7,513	(62	)	398	(3	)
Obligations of states and political subdivisions	398,429		(4,819	)	—	—
Corporate securities	440,510		(4,939	)	50,187	(1,385	)
ABS	40,185		(40	)	15,071	(115	)
CMBS	80,860		(1,057	)	15,579	(123	)
RMBS	172,482		(1,763	)	67,336	(1,730	)
Total AFS fixed income securities	1,139,979		(12,680	)	148,571	(3,356	)
AFS equity securities:
Common stock	103,352		(4,190	)	—	—
Preferred stock	8,432		(247	)	—	—
Total AFS equity securities	111,784		(4,437	)	—	—
Subtotal	$	1,251,763	(17,117	)	148,571	(3,356	)



	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	180		(2	)	—	—	—		—
ABS	—		—		—	1,540	(280	)	272
Subtotal	$	180	(2	)	—	1,540	(280	)	272
Total AFS and HTM	$	1,251,943	(17,119	)	—	150,111	(3,636	)	272



December 31, 2014	Less than 12 months				12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income 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 AFS fixed income securities	461,125		(2,072	)	442,058	(8,170	)
AFS equity securities:
Common stock	5,262		(336	)	—	—
Total AFS 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 June 30, 2015 compared to December 31, 2014:



($ in thousands)
June 30, 2015				December 31, 2014
Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
495	80% - 99%	$	20,483	350	80% - 99%	$	10,596
—	60% - 79%	—		—	60% - 79%	—
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	20,483			$	10,596

The increase in the number of securities in a loss position in our portfolio as of June 30, 2015 compared to December 31, 2014, and the related loss amounts were mainly driven by a higher interest rate environment. During Six Months 2015, interest rates on the 10-year U.S. Treasury Note rose by 18 basis points. This interest rate movement had a negative impact on the valuation of our fixed income securities portfolio, thus increasing the number of securities in a loss position and the corresponding dollar amount of unrealized losses.

In addition, unrealized losses on our equity portfolio increased to $4.4 million. These unrealized losses are related to 27 securities with an average impairment severity of 4% of cost, which reflects a temporary dislocation in market values 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 June 30, 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 June 30, 2015:



($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	87,104	88,688
Due after one year through five years	149,865		158,092
Due after five years through 10 years	10,890		12,922
Total HTM fixed income securities	$	247,859	259,702

Listed below are the contractual maturities of AFS fixed income securities at June 30, 2015:



($ in thousands)	Fair Value
Due in one year or less	$	447,462
Due after one year through five years	2,146,816
Due after five years through 10 years	1,504,185
Due after 10 years	94,355
Total AFS fixed income securities	$	4,192,818

(e) The following table summarizes our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:



Other Investments	Carrying Value			June 30, 2015
($ in thousands)	June 30, 2015		December 31, 2014	Remaining Commitment
Alternative Investments
Secondary private equity	$	18,997	21,807	7,072
Private equity	16,027		20,126	8,823
Energy/power generation	9,662		14,445	19,610
Real estate	8,242		11,452	9,975
Mezzanine financing	7,563		9,853	13,383
Distressed debt	7,000		8,679	3,048
Venture capital	6,697		6,606	350
Total alternative investments	74,188		92,968	62,261
Other securities	11,232		6,235	2,269
Total other investments	$	85,420	99,203	64,530

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 and six-month periods ended March 31 is as follows:



Income Statement Information	Quarter ended March 31,				Six Months ended March 31,
($ in millions)	2015			2014	2015			2014
Net investment income	$	8.5		22.8	$	95.6		85.7
Realized gains	279.4			74.2	592.5			197.6
Net change in unrealized (depreciation) appreciation	(223.4		)	207.6	(866.9		)	842.4
Net (loss) income	$	64.5		304.6	$	(178.8	)	1,125.7
Selective’s insurance subsidiaries’ other investments income (loss)	$	1.4		3.6	$	(2.1	)	8.8

(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 June 30, 2015:



($ in millions)	FHLBI Collateral		Reinsurance Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.7	—	24.7	32.4
Obligations of states and political subdivisions	—		4.9	—	4.9
Corporate securities	—		4.8	—	4.8
CMBS	1.5		—	—	1.5
RMBS	54.5		2.0	—	56.5
Total pledged as collateral	$	63.7	11.7	24.7	100.1

(g) The Company did not have exposure to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity, other than certain U.S. government agencies, as of June 30, 2015 or December 31, 2014.

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



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2015			2014		2015			2014
Fixed income securities	$	30,659		33,781		$	61,626		$	64,809
Equity securities	2,384			1,736		4,176			3,185
Short-term investments	23			14		48			33
Other investments	1,422			3,553		(2,118		)	8,771
Investment expenses	(2,258		)	(2,310	)	(4,585		)	(4,490		)
Net investment income earned	$	32,230		36,774		59,147			72,308

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



Second 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	$	183	—	183
Total AFS fixed income securities	183		—	183
AFS equity securities:
Common stock	4,088		—	4,088
Preferred stock	180		—	180
Total AFS equity securities	4,268		—	4,268
Total OTTI losses	$	4,451	—	4,451



Second Quarter 2014	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS equity securities:
Common stock	$	419	—	419
Total OTTI losses	$	419	—	419



Six Months 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	$	1,192	—	1,192
RMBS	1		—	1
Total AFS fixed income securities	1,193		—	1,193
AFS equity securities:
Common stock	5,172		—	5,172
Preferred stock	180		—	180
Total AFS equity securities	5,352		—	5,352
Total OTTI losses	$	6,545	—	6,545



Six Months 2014	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS equity securities:
Common stock	$	1,382	—	1,382
Total OTTI losses	$	1,382	—	1,382

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 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 June 30,
($ in thousands)	2015		2014
Balance, beginning of period	$	1,013	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	—		(1,954	)
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	5,534



	Six Months ended June 30,
($ 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		)	(1,954	)
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		5,534

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



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2015			2014		2015		2014
HTM fixed income securities
Gains	$	2		3		2		3
Losses	—			(3	)	(1	)	(14	)
AFS fixed income securities
Gains	487			780		1,989		938
Losses	(18		)	(31	)	(130	)	(143	)
AFS equity securities
Gains	830			4,362		22,148		12,679
Losses	(270		)	(153	)	(1,346	)	(324	)
Other investments
Gains	—			—		—		—
Losses	—			—		(654	)	—
Total net realized gains (excluding OTTI charges)	$	1,031		4,958		22,008		13,139

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 $19.5 million and $157.9 million in Second Quarter and Six Months 2015, respectively. The $22.0 million in net realized gains for Six Months 2015 was 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 $5.0 million and $13.1 million in net realized gains in Second Quarter and Six Months 2014, respectively, were primarily related to the sale of AFS equity securities due to the quantitative rebalancing of our dividend yield strategy holdings within our equity portfolio.