Investments

(a) Information regarding our held-to-maturity ("HTM") fixed income securities as of March 31, 2016 and December 31, 2015 was as follows:



March 31, 2016
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Obligations of states and political subdivisions	$	138,203	674		138,877	5,031	—	143,908
Corporate securities	19,829		(180	)	19,649	2,299	—	21,948
Asset-backed securities (“ABS”)	808		(70	)	738	67	—	805
Commercial mortgage-backed securities (“CMBS”)	4,506		(197	)	4,309	289	—	4,598
Total HTM fixed income securities	$	163,346	227		163,573	7,686	—	171,259



December 31, 2015
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Obligations of states and political subdivisions	$	175,269	848		176,117	5,763	—	181,880
Corporate securities	20,228		(185	)	20,043	1,972	—	22,015
ABS	1,030		(120	)	910	118	—	1,028
CMBS	4,527		(243	)	4,284	337	—	4,621
Total HTM fixed income securities	$	201,054	300		201,354	8,190	—	209,544

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 March 31, 2016.

(b) Information regarding our AFS securities as of March 31, 2016 and December 31, 2015 was as follows:



March 31, 2016
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	97,933	4,686	(1	)	102,618
Foreign government	13,358		384	—		13,742
Obligations of states and political subdivisions	1,375,776		59,673	(134	)	1,435,315
Corporate securities	1,948,423		45,948	(6,415	)	1,987,956
ABS	244,924		1,060	(167	)	245,817
CMBS	249,163		3,938	(209	)	252,892
Residential mortgage-backed securities (“RMBS”)	555,142		7,851	(865	)	562,128
Total AFS fixed income securities	4,484,719		123,540	(7,791	)	4,600,468
AFS equity securities:
Common stock	181,396		21,548	(325	)	202,619
Preferred stock	12,782		388	—		13,170
Total AFS equity securities	194,178		21,936	(325	)	215,789
Total AFS securities	$	4,678,897	145,476	(8,116	)	4,816,257



December 31, 2015
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	99,485	4,721	(91	)	104,115
Foreign government	14,885		298	(2	)	15,181
Obligations of states and political subdivisions	1,314,779		44,523	(160	)	1,359,142
Corporate securities	1,892,296		23,407	(15,521	)	1,900,182
ABS	244,541		531	(918	)	244,154
CMBS	245,252		750	(2,410	)	243,592
RMBS	541,276		4,274	(3,713	)	541,837
Total AFS fixed income securities	4,352,514		78,504	(22,815	)	4,408,203
AFS equity securities:
Common stock	181,991		14,796	(1,998	)	194,789
Preferred stock	11,825		477	(40	)	12,262
Total AFS equity securities	193,816		15,273	(2,038	)	207,051
Total AFS securities	$	4,546,330	93,777	(24,853	)	4,615,254

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 (loss) ("AOCI") on the Consolidated Balance Sheets.

(c) The following tables provide information regarding our AFS securities in a net unrealized/unrecognized loss position at March 31, 2016 and December 31, 2015:



March 31, 2016	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	$	—	—		400	(1	)
Obligations of states and political subdivisions	25,867		(123	)	820	(11	)
Corporate securities	242,392		(4,315	)	53,418	(2,100	)
ABS	73,110		(147	)	5,900	(20	)
CMBS	24,891		(82	)	27,310	(127	)
RMBS	11,302		(112	)	91,548	(753	)
Total AFS fixed income securities	377,562		(4,779	)	179,396	(3,012	)
AFS equity securities:
Common stock	5,940		(325	)	—	—
Total AFS equity securities	5,940		(325	)	—	—
Total AFS	$	383,502	(5,104	)	179,396	(3,012	)



December 31, 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	$	16,006	(87	)	396	(4	)
Foreign government	1,067		(2	)	—	—
Obligations of states and political subdivisions	28,617		(160	)	—	—
Corporate securities	761,479		(12,671	)	50,382	(2,850	)
ABS	197,477		(807	)	12,022	(111	)
CMBS	146,944		(2,196	)	15,385	(214	)
RMBS	264,914		(1,992	)	63,395	(1,721	)
Total AFS fixed income securities	1,416,504		(17,915	)	141,580	(4,900	)
AFS equity securities:
Common stock	31,148		(1,998	)	—	—
Preferred stock	1,531		(40	)	—	—
Total AFS equity securities	32,679		(2,038	)	—	—
Total AFS	$	1,449,183	(19,953	)	141,580	(4,900	)

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.

The table below provides our net unrealized/unrecognized loss positions by impairment severity for both AFS and HTM securities as of March 31, 2016 compared with December 31, 2015:



($ in thousands)
March 31, 2016				December 31, 2015
Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
252	80% - 99%	$	8,120	606	80% - 99%	$	22,971
—	60% - 79%	—		3	60% - 79%	1,888
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	8,120			$	24,859

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 2015 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, 2016, 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, 2016:



($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	83,751	85,409
Due after one year through five years	66,301		70,301
Due after five years through 10 years	13,521		15,549
Total HTM fixed income securities	$	163,573	171,259

Listed below are the contractual maturities of AFS fixed income securities at March 31, 2016:



($ in thousands)	Fair Value
Due in one year or less	$	475,265
Due after one year through five years	2,254,485
Due after five years through 10 years	1,744,928
Due after 10 years	125,790
Total AFS fixed income securities	$	4,600,468

(e) We evaluate the alternative investments and the tax credit investments that are included in our other investments portfolio to determine whether those investments are VIEs and if so, whether consolidation is required. A VIE is an entity that either has equity investors that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without financial support provided by other entities. We consider several significant factors in determining if our investments are VIEs and if we are the primary beneficiary including whether we have: (i) the power to direct activities; (ii) the ability to remove the decision maker of the VIE; (iii) the ability to participate in making decisions that are significant to the VIE; and (iv) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. We have determined that the investments in our other investment portfolio are VIEs, but that we are not the primary beneficiary and therefore, consolidation is not required.

The following table summarizes our other investment portfolio by strategy:



Other Investments	March 31, 2016				December 31, 2015
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	32,478	28,750	61,228	35,088	30,204	65,292
Private credit	21,939		25,129	47,068	13,246	15,129	28,375
Real assets	16,792		28,559	45,351	19,500	25,820	45,320
Total alternative investments	71,209		82,438	153,647	67,834	71,153	138,987
Other securities	9,707		6,850	16,557	10,008	3,200	13,208
Total other investments	$	80,916	89,288	170,204	77,842	74,353	152,195

¹The maximum exposure to loss includes both the carry value of these investments and the related unfunded commitments. In addition, tax credits that have been previously recognized from our investment in Other securities are subject to the risk of recapture, which we do not consider significant.

We do not have a future obligation to fund losses or debts on behalf of the investments above; however, we may voluntarily contribute funds. We have not provided any non-contractual financial support at any time during 2016 or 2015.

In addition to the strategy descriptions included in Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our 2015 Annual Report, our private credit strategy now includes middle market lending, which is a strategy that provides privately negotiated loans to U.S. middle market companies. Typically, these are floating rate, senior secured loans diversified across industries. Loans can be made to private equity sponsor-backed companies or non-sponsored companies to finance leveraged buyouts, recapitalizations, and acquisitions.

The following table sets forth gross summarized financial information for our other investments portfolio, including the portion not owned by us. The majority of these investments are carried under the equity method of accounting. The last line of the table below reflects our share of the aggregate loss, 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)	2015			2014
Net investment income	$	46.6		77.0
Realized gains	752.5			160.5
Net change in unrealized depreciation	(883.2		)	(518.0	)
Net loss	$	(84.1	)	(280.5	)
Selective’s insurance subsidiaries’ other investments loss	$	(1.1	)	(3.5	)

(f) We have pledged certain AFS fixed income securities as collateral related to our: (i) outstanding borrowing of $60 million with the Federal Home Loan Bank of Indianapolis ("FHLBI"); and (ii) 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 at March 31, 2016 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, 2016:



($ in millions)	FHLBI Collateral		Reinsurance Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.6	—	23.8	31.4
Obligations of states and political subdivisions	—		5.0	—	5.0
Corporate securities	—		4.8	—	4.8
CMBS	1.1		—	—	1.1
RMBS	54.7		1.8	—	56.5
Total pledged as collateral	$	63.4	11.6	23.8	98.8

(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 March 31, 2016 or December 31, 2015.

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



	Quarter ended March 31,
($ in thousands)	2016			2015
Fixed income securities	$	31,644		30,967
Equity securities	2,230			1,792
Short-term investments	159			25
Other investments	(1,066		)	(3,540	)
Investment expenses	(2,198		)	(2,327	)
Net investment income earned	$	30,769		26,917

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



First Quarter 2016	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	$	973	—	973
Total AFS fixed income securities	973		—	973
AFS equity securities:
Common stock	2,617		—	2,617
Preferred stock	3		—	3
Total AFS equity securities	2,620		—	2,620
Total OTTI losses	$	3,593	—	3,593



First Quarter 2015	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in 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:
Common stock	1,084		—	1,084
Preferred stock	—		—	—
Total AFS equity securities	1,084		—	1,084
Total OTTI losses	$	2,094	—	2,094

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 2015 Annual Report.

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



	Quarter ended March 31,
($ in thousands)	2016			2015
HTM fixed income securities
Losses	$	(1	)	(1	)
AFS fixed income securities
Gains	620			1,502
Losses	(36		)	(112	)
AFS equity securities
Gains	330			21,318
Losses	(20		)	(1,076	)
Other investments
Losses	(4		)	(654	)
Total net realized gains (excluding OTTI charges)	$	889		20,977

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 $17.2 million and $138.4 million in First Quarter 2016 and First Quarter 2015, respectively. The $21.0 million in net realized gains for First Quarter 2015 were primarily 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.