Investments

(a) Information regarding our held-to-maturity ("HTM") fixed income securities as of June 30, 2016 and December 31, 2015 was as follows:



June 30, 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	$	131,480	533		132,013	4,260	—	136,273
Corporate securities	23,995		(175	)	23,820	2,286	—	26,106
Asset-backed securities (“ABS”)	126		—		126	—	—	126
Commercial mortgage-backed securities (“CMBS”)	4,489		(151	)	4,338	218	—	4,556
Total HTM fixed income securities	$	160,090	207		160,297	6,764	—	167,061



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 1.8 years as of June 30, 2016.

(b) Information regarding our AFS securities as of June 30, 2016 and December 31, 2015 was as follows:



June 30, 2016
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	91,933	4,237	—		96,170
Foreign government	8,635		424	—		9,059
Obligations of states and political subdivisions	1,379,548		82,604	—		1,462,152
Corporate securities	1,977,838		62,233	(1,963	)	2,038,108
ABS	257,182		1,656	(127	)	258,711
CMBS	249,603		6,484	(51	)	256,036
Residential mortgage-backed securities (“RMBS”)	541,841		10,027	(318	)	551,550
Total AFS fixed income securities	4,506,580		167,665	(2,459	)	4,671,786
AFS equity securities:
Common stock	114,099		26,343	(1,023	)	139,419
Preferred stock	12,782		737	—		13,519
Total AFS equity securities	126,881		27,080	(1,023	)	152,938
Total AFS securities	$	4,633,461	194,745	(3,482	)	4,824,724



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 June 30, 2016 and December 31, 2015:



June 30, 2016	Less than 12 months				12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income securities:
Corporate securities	$	96,244	(822	)	33,616	(1,141	)
ABS	46,992		(117	)	4,665	(10	)
CMBS	6,348		(4	)	10,451	(47	)
RMBS	6,835		(19	)	50,134	(299	)
Total AFS fixed income securities	156,419		(962	)	98,866	(1,497	)
AFS equity securities:
Common stock	16,428		(1,023	)	—	—
Total AFS equity securities	16,428		(1,023	)	—	—
Total AFS	$	172,847	(1,985	)	98,866	(1,497	)



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.

There were no net unrealized/unrecognized losses on our HTM portfolio as of June 30, 2016. The table below provides our net unrealized/unrecognized loss positions by impairment severity for AFS securities as of June 30, 2016 and for both AFS and HTM securities as of December 31, 2015:



($ in thousands)
June 30, 2016				December 31, 2015
Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
156	80% - 99%	$	3,482	606	80% - 99%	$	22,971
—	60% - 79%	—		3	60% - 79%	1,888
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	3,482			$	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 June 30, 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 June 30, 2016:



($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	84,415	85,514
Due after one year through five years	65,616		69,914
Due after five years through 10 years	10,266		11,633
Total HTM fixed income securities	$	160,297	167,061

Listed below are the contractual maturities of AFS fixed income securities at June 30, 2016:



($ in thousands)	Fair Value
Due in one year or less	$	482,867
Due after one year through five years	2,425,517
Due after five years through 10 years	1,647,615
Due after 10 years	115,787
Total AFS fixed income securities	$	4,671,786

(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 of the VIE; (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	June 30, 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	$	28,439	34,117	62,556	35,088	30,204	65,292
Private credit	23,336		23,243	46,579	13,246	15,129	28,375
Real assets	14,132		30,273	44,405	19,500	25,820	45,320
Total alternative investments	65,907		87,633	153,540	67,834	71,153	138,987
Other securities	10,144		6,850	16,994	10,008	3,200	13,208
Total other investments	$	76,051	94,483	170,534	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 are contractually committed to make additional investments up to the remaining commitment outlined above. 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 and six-month periods ended March 31 is as follows:



Income Statement Information	Quarter ended March 31,					Six months ended March 31,
($ in millions)	2016			2015		2016			2015
Net investment (loss) income	$	(4.6	)	8.5		$	37.0		95.6
Realized gains	193.2			279.4		981.1			592.5
Net change in unrealized depreciation	(253.9		)	(223.4	)	(1,236.5		)	(866.9	)
Net (loss) gain	$	(65.3	)	64.5		$	(218.4	)	(178.8	)
Selective’s insurance subsidiaries’ other investments loss	$	(0.6	)	1.4		$	(1.7	)	(2.1	)

(f) We have pledged certain AFS fixed income securities as collateral related to our: (i) relationships with the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"); 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 June 30, 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 June 30, 2016:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	Reinsurance Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.5	—	—	23.5	31.0
Obligations of states and political subdivisions	—		—	5.0	—	5.0
Corporate securities	—		—	4.8	—	4.8
CMBS	1.1		—	—	—	1.1
RMBS	55.0		29.9	1.6	—	86.5
Total pledged as collateral	$	63.6	29.9	11.4	23.5	128.4

(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, 2016 or December 31, 2015.

(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)	2016			2015		2016			2015
Fixed income securities	$	31,753		30,659		$	63,397		61,626
Equity securities	2,204			2,384		4,434			4,176
Short-term investments	142			23		301			48
Other investments	(611		)	1,422		(1,677		)	(2,118	)
Investment expenses	(2,306		)	(2,258	)	(4,504		)	(4,585	)
Net investment income earned	$	31,182		32,230		$	61,951		59,147

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



Second 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	$	104	—	104
RMBS	98		10	88
Total AFS fixed income securities	202		10	192
AFS equity securities:
Common stock	357		—	357
Total AFS equity securities	357		—	357
Total OTTI losses	$	559	10	549



Second Quarter 2015	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in 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



Six Months 2016	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS fixed income securities:
Corporate securities	$	1,077	—	1,077
RMBS	98		10	88
Total AFS fixed income securities	1,175		10	1,165
AFS equity securities:
Common stock	2,974		—	2,974
Preferred stock	3		—	3
Total AFS equity securities	2,977		—	2,977
Total OTTI losses	$	4,152	10	4,142



Six Months 2015	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in 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

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 June 30,					Six Months ended June 30,
($ in thousands)	2016			2015		2016		2015
HTM fixed income securities
Gains	$	3		2		3		2
Losses	—			—		(1	)	(1	)
AFS fixed income securities
Gains	365			487		985		1,989
Losses	(5		)	(18	)	(41	)	(130	)
AFS equity securities
Gains	2,171			830		2,501		22,148
Losses	(220		)	(270	)	(240	)	(1,346	)
Other investments
Losses	—			—		(4	)	(654	)
Total net realized gains (excluding OTTI charges)	$	2,314		1,031		3,203		22,008

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 $88.7 million and $19.5 million in Second Quarter 2016 and Second Quarter 2015, respectively, and $105.9 million and $157.9 million in Six Months 2016 and Six Months 2015, respectively. The $22.0 million in net realized gains for Six Months 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.