Investments

(a) Information regarding our held-to-maturity ("HTM") fixed income securities as of September 30, 2017 and December 31, 2016 was as follows:



September 30, 2017
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Obligations of states and political subdivisions	$	46,551	130		46,681	1,442	—	48,123
Corporate securities	18,426		(118	)	18,308	1,285	—	19,593
Total HTM fixed income securities	$	64,977	12		64,989	2,727	—	67,716



December 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	$	77,466	317		77,783	2,133	—		79,916
Corporate securities	22,711		(143	)	22,568	1,665	(158	)	24,075
Commercial mortgage-backed securities ("CMBS")	1,220		(15	)	1,205	15	—		1,220
Total HTM fixed income securities	$	101,397	159		101,556	3,813	(158	)	105,211

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.

(b) Information regarding our AFS securities as of September 30, 2017 and December 31, 2016 was as follows:



September 30, 2017
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	58,820	906	(137	)	59,589
Foreign government	18,149		650	—		18,799
Obligations of states and political subdivisions	1,431,282		49,088	(432	)	1,479,938
Corporate securities	1,753,584		41,095	(845	)	1,793,834
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS")	747,793		6,305	(143	)	753,955
CMBS	306,173		2,249	(318	)	308,104
Residential mortgage-backed securities (“RMBS”)	710,934		8,842	(563	)	719,213
Total AFS fixed income securities	5,026,735		109,135	(2,438	)	5,133,432
AFS equity securities:
Common stock	131,869		29,900	(1,342	)	160,427
Preferred stock	14,115		748	(18	)	14,845
Total AFS equity securities	145,984		30,648	(1,360	)	175,272
Total AFS securities	$	5,172,719	139,783	(3,798	)	5,308,704



December 31, 2016
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	75,139	2,230	(36	)	77,333
Foreign government	26,559		322	(16	)	26,865
Obligations of states and political subdivisions	1,366,287		18,610	(5,304	)	1,379,593
Corporate securities	1,976,556		27,057	(5,860	)	1,997,753
CLO and other ABS	527,876		1,439	(355	)	528,960
CMBS	256,356		1,514	(1,028	)	256,842
RMBS	524,986		3,006	(2,798	)	525,194
Total AFS fixed income securities	4,753,759		54,178	(15,397	)	4,792,540
AFS equity securities:
Common stock	104,663		26,250	(305	)	130,608
Preferred stock	16,226		274	(355	)	16,145
Total AFS equity securities	120,889		26,524	(660	)	146,753
Total AFS securities	$	4,874,648	80,702	(16,057	)	4,939,293

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 severity of impairment on securities in an unrealized/unrecognized loss position averaged 1% of amortized cost at September 30, 2017 and December 31, 2016. Quantitative information regarding unrealized losses on our AFS portfolio is provided below.



September 30, 2017	Less than 12 months				12 months or longer			Total
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income securities:
U.S. government and government agencies	$	19,058	(136	)	250	(1	)	19,308	(137	)
Obligations of states and political subdivisions	67,538		(432	)	—	—		67,538	(432	)
Corporate securities	108,011		(827	)	1,475	(18	)	109,486	(845	)
CLO and other ABS	88,636		(143	)	—	—		88,636	(143	)
CMBS	65,016		(245	)	5,216	(73	)	70,232	(318	)
RMBS	96,981		(558	)	592	(5	)	97,573	(563	)
Total AFS fixed income securities	445,240		(2,341	)	7,533	(97	)	452,773	(2,438	)
AFS equity securities:
Common stock	18,032		(1,342	)	—	—		18,032	(1,342	)
Preferred stock	3,886		(18	)	—	—		3,886	(18	)
Total AFS equity securities	21,918		(1,360	)	—	—		21,918	(1,360	)
Total AFS	$	467,158	(3,701	)	7,533	(97	)	474,691	(3,798	)



December 31, 2016	Less than 12 months				12 months or longer			Total
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income securities:
U.S. government and government agencies	$	6,419	(36	)	—	—		6,419	(36	)
Foreign government	13,075		(16	)	—	—		13,075	(16	)
Obligations of states and political subdivisions	306,509		(5,304	)	—	—		306,509	(5,304	)
Corporate securities	462,902		(5,771	)	4,913	(89	)	467,815	(5,860	)
CLO and other ABS	189,795		(354	)	319	(1	)	190,114	(355	)
CMBS	82,492		(1,021	)	1,645	(7	)	84,137	(1,028	)
RMBS	279,480		(2,489	)	8,749	(309	)	288,229	(2,798	)
Total AFS fixed income securities	1,340,672		(14,991	)	15,626	(406	)	1,356,298	(15,397	)
AFS equity securities:
Common stock	11,271		(305	)	—	—		11,271	(305	)
Preferred stock	6,168		(355	)	—	—		6,168	(355	)
Total AFS equity securities	17,439		(660	)	—	—		17,439	(660	)
Total AFS	$	1,358,111	(15,651	)	15,626	(406	)	1,373,737	(16,057	)

¹Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI.

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 2016 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.

(d) Fixed income securities at September 30, 2017, 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 fixed income securities at September 30, 2017:



	AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	337,546	27,335	27,531
Due after one year through five years	2,148,949		29,341	31,037
Due after five years through 10 years	2,377,658		8,313	9,148
Due after 10 years	269,279		—	—
Total fixed income securities	$	5,133,432	64,989	67,716

(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, 2017				December 31, 2016
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	47,654	81,478	129,132	41,135	76,774	117,909
Private credit	33,318		53,635	86,953	28,193	40,613	68,806
Real assets	21,649		31,466	53,115	14,486	22,899	37,385
Total alternative investments	102,621		166,579	269,200	83,814	140,286	224,100
Other securities	18,185		—	18,185	18,583	3,400	21,983
Total other investments	$	120,806	166,579	287,385	102,397	143,686	246,083

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 2017 or 2016.

For a description of our 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 2016 Annual Report.

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 included in our Third Quarter and Nine Months results. This information is as follows:



Income Statement Information	Quarter ended September 30,					Nine Months ended September 30,
($ in millions)	2017			2016		2017		2016
Net investment (loss) income	$	(10.3	)	(55.4	)	(61.8	)	26.1
Realized gains (losses)	43.3			245.6		(261.0	)	1,186.8
Net change in unrealized appreciation (depreciation)	1,072.0			117.8		3,186.3		(1,132.8	)
Net gain	$	1,105.0		308.0		2,863.5		80.1
Selective’s insurance subsidiaries’ other investments gain	$	2.7		1.6		9.5		—

(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, 2017 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, 2017:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	3.0	—	22.8	25.8
Obligations of states and political subdivisions	—		—	3.2	3.2
CMBS	3.5		4.8	—	8.3
RMBS	58.7		49.6	—	108.3
Total pledged as collateral	$	65.2	54.4	26.0	145.6

(g) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholders' equity, other than certain U.S. government-backed investments, as of September 30, 2017 or December 31, 2016.

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



	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2017			2016		2017			2016
Fixed income securities	$	38,865		32,453		$	113,424		95,850
Equity securities	1,605			1,506		4,492			5,940
Short-term investments	396			192		1,023			493
Other investments	2,659			1,628		9,493			(49	)
Investment expenses	(3,079		)	(2,404	)	(9,137		)	(6,908	)
Net investment income earned	$	40,446		33,375		$	119,295		95,326

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



Third Quarter 2017	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	$	12	—		12
CLO and other ABS	11		—		11
RMBS	20		(30	)	50
Total OTTI losses	$	43	(30	)	73

Third Quarter 2016	Gross		Included in OCI		Recognized in Earnings
($ in thousands)	Gross		Included in OCI		Recognized in Earnings
AFS equity securities:
Common stock	$	342	—		342
Total AFS equity securities	342		—		342
Total OTTI losses	$	342	—		342

Nine Months 2017	Gross		Included in OCI		Recognized in Earnings
($ in thousands)	Gross		Included in OCI		Recognized in Earnings
AFS fixed income securities:
U.S. government and government agencies	$	31	—		31
Obligations of states and political subdivisions	612		—		612
Corporate securities	587		—		587
CLO and other ABS	96		—		96
CMBS	670		—		670
RMBS	1,183		(36	)	1,219
Total AFS fixed income securities	3,179		(36	)	3,215
AFS equity securities:
Common stock	1,360		—		1,360
Total AFS equity securities	1,360		—		1,360
Other Investments	190		—		190
Total OTTI losses	$	4,729	(36	)	4,765

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

For a discussion of our evaluation for OTTI refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2016 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)	2017			2016		2017		2016
HTM fixed income securities
Gains	$	—		—		44		3
Losses	—			—		(1	)	(1	)
AFS fixed income securities
Gains	2,070			2,204		8,337		3,189
Losses	(74		)	(40	)	(1,814	)	(81	)
AFS equity securities
Gains	4,875			1,863		5,225		4,364
Losses	—			—		—		(240	)
Other investments
Gains	—			3		480		3
Losses	—			—		(19	)	(4	)
Total net realized gains (excluding OTTI charges)	$	6,871		4,030		12,252		7,233

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 $107.6 million and $27.0 million in Third Quarter 2017 and Third Quarter 2016, respectively and $831.0 million and $132.9 million in Nine Months 2017 and Nine Months 2016, respectively. This increase was primarily driven by opportunistic sales in our equity portfolio and higher trading volume in our fixed income securities portfolio related to the recent hiring of new external investment managers.