Investments

(a) Information regarding our HTM fixed income securities as of September 30, 2016 and December 31, 2015 was as follows:



September 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	$	104,159	414		104,573	3,256	—	107,829
Corporate securities	23,722		(165	)	23,557	2,294	—	25,851
Asset-backed securities (“ABS”)	51		—		51	—	—	51
Commercial mortgage-backed securities (“CMBS”)	2,346		(55	)	2,291	72	—	2,363
Total HTM fixed income securities	$	130,278	194		130,472	5,622	—	136,094



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 September 30, 2016.

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



September 30, 2016
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	86,491	3,400	—		89,891
Foreign government	9,041		443	—		9,484
Obligations of states and political subdivisions	1,376,245		70,984	(333	)	1,446,896
Corporate securities	2,136,761		60,784	(1,427	)	2,196,118
ABS	282,558		1,964	(69	)	284,453
CMBS	261,233		5,634	(93	)	266,774
Residential mortgage-backed securities (“RMBS”)	529,938		9,294	(316	)	538,916
Total AFS fixed income securities	4,682,267		152,503	(2,238	)	4,832,532
AFS equity securities:
Common stock	111,746		24,832	(1,089	)	135,489
Preferred stock	11,235		580	—		11,815
Total AFS equity securities	122,981		25,412	(1,089	)	147,304
Total AFS securities	$	4,805,248	177,915	(3,327	)	4,979,836



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 loss position at September 30, 2016 and December 31, 2015:



September 30, 2016	Less than 12 months				12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income securities:
Obligations of states and political subdivisions	$	74,989	(333	)	—	—
Corporate securities	155,880		(1,139	)	30,469	(288	)
ABS	21,766		(66	)	2,450	(3	)
CMBS	24,633		(59	)	8,709	(34	)
RMBS	13,674		(40	)	37,677	(276	)
Total AFS fixed income securities	290,942		(1,637	)	79,305	(601	)
AFS equity securities:
Common stock	12,528		(1,089	)	—	—
Total AFS equity securities	12,528		(1,089	)	—	—
Total AFS	$	303,470	(2,726	)	79,305	(601	)



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.

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



($ in thousands)
September 30, 2016				December 31, 2015
Number of Issues	% of Market/Book	Unrealized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
180	80% - 99%	$	3,327	606	80% - 99%	$	22,971
—	60% - 79%	—		3	60% - 79%	1,888
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	3,327			$	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. Additionally, changes in market value due to interest rate fluctuations are considered temporary. 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 September 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 September 30, 2016:



($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	59,074	59,671
Due after one year through five years	62,778		66,622
Due after five years through 10 years	8,620		9,801
Total HTM fixed income securities	$	130,472	136,094

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



($ in thousands)	Fair Value
Due in one year or less	$	491,206
Due after one year through five years	2,403,246
Due after five years through 10 years	1,823,028
Due after 10 years	115,052
Total AFS fixed income securities	$	4,832,532

(e) We evaluate the alternative investments and tax credit investments 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	September 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	$	35,444	57,793	93,237	35,088	30,204	65,292
Private credit	27,709		30,763	58,472	13,246	15,129	28,375
Real assets	15,329		22,922	38,251	19,500	25,820	45,320
Total alternative investments	78,482		111,478	189,960	67,834	71,153	138,987
Other securities	10,030		22,611	32,641	10,008	3,200	13,208
Total other investments	$	88,512	134,089	222,601	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 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 income or 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 nine-month periods ended June 30 is as follows:



Income Statement Information	Quarter ended June 30,					Nine months ended June 30,
($ in millions)	2016			2015		2016		2015
Net investment (loss) income	$	(55.4	)	44.1		26.1		139.6
Realized gains	245.6			385.2		1,186.8		977.7
Net change in unrealized depreciation	117.8			(222.2	)	(1,132.8	)	(1,089.0	)
Net gain	$	308.0		207.1		80.1		28.3
Selective’s insurance subsidiaries’ other investments gain (loss)	$	1.6		1.3		—		(0.8	)

(f) We have pledged certain AFS fixed income securities as collateral related to our relationships with the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"). In addition, certain securities were on deposit with various state and regulatory agencies at September 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 September 30, 2016:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.4	—	23.1	30.5
CMBS	1.0		—	—	1.0
RMBS	53.1		64.4	—	117.5
Total pledged as collateral	$	61.5	64.4	23.1	149.0

(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-backed investments, as of September 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 September 30,					Nine Months ended September 30,
($ in thousands)	2016			2015		2016			2015
Fixed income securities	$	32,453		30,601		$	95,850		92,227
Equity securities	1,506			2,370		5,940			6,546
Short-term investments	192			24		493			72
Other investments	1,628			1,337		(49		)	(781	)
Investment expenses	(2,404		)	(2,271	)	(6,908		)	(6,856	)
Net investment income earned	$	33,375		32,061		$	95,326		91,208

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



Third 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 equity securities:
Common stock	$	342	—	342
Total AFS equity securities	342		—	342
Total OTTI losses	$	342	—	342



Third Quarter 2015	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS fixed income securities:
Corporate securities	$	253	—	253
Total AFS fixed income securities	253		—	253
AFS equity securities:
Common stock	1,029		—	1,029
Total AFS equity securities	1,029		—	1,029
Total OTTI losses	$	1,282	—	1,282



Nine 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	3,316		—	3,316
Preferred stock	3		—	3
Total AFS equity securities	3,319		—	3,319
Total OTTI losses	$	4,494	10	4,484



Nine Months 2015	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS fixed income securities:
Corporate securities	$	1,445	—	1,445
RMBS	1		—	1
Total AFS fixed income securities	1,446		—	1,446
AFS equity securities:
Common stock	6,201		—	6,201
Preferred stock	180		—	180
Total AFS equity securities	6,381		—	6,381
Total OTTI losses	$	7,827	—	7,827

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 September 30,					Nine Months ended September 30,
($ in thousands)	2016			2015		2016		2015
HTM fixed income securities
Gains	$	—		3		3		5
Losses	—			—		(1	)	(1	)
AFS fixed income securities
Gains	2,204			169		3,189		2,158
Losses	(40		)	—		(81	)	(130	)
AFS equity securities
Gains	1,863			1,419		4,364		23,567
Losses	—			(1	)	(240	)	(1,347	)
Other investments
Gains	3			—		3		—
Losses	—			—		(4	)	(654	)
Total net realized gains (excluding OTTI charges)	$	4,030		1,590		7,233		23,598

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 $27.0 million and $12.7 million in Third Quarter 2016 and Third Quarter 2015, respectively, and $132.9 million and $170.6 million in Nine Months 2016 and Nine Months 2015, respectively. The $23.6 million in net realized gains for Nine 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.