Investments

(a) Information regarding our held-to-maturity ("HTM") fixed income securities as of March 31, 2018 and December 31, 2017 was as follows:



March 31, 2018
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Obligations of states and political subdivisions	$	25,088	63		25,151	799	—	25,950
Corporate securities	16,532		(96	)	16,436	877	—	17,313
Total HTM fixed income securities	$	41,620	(33	)	41,587	1,676	—	43,263



December 31, 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	$	25,154	84		25,238	1,023	—		26,261
Corporate securities	16,996		(105	)	16,891	1,003	(55	)	17,839
Total HTM fixed income securities	$	42,150	(21	)	42,129	2,026	(55	)	44,100

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 March 31, 2018 and December 31, 2017 was as follows:



March 31, 2018
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	51,163	410	(624	)	50,949
Foreign government	18,032		253	(85	)	18,200
Obligations of states and political subdivisions	1,304,321		18,475	(4,636	)	1,318,160
Corporate securities	1,624,105		11,033	(13,416	)	1,621,722
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS")	789,717		5,765	(999	)	794,483
CMBS	430,894		404	(4,715	)	426,583
Residential mortgage-backed securities (“RMBS”)	918,365		2,911	(9,736	)	911,540
Total AFS securities	$	5,136,597	39,251	(34,211	)	5,141,637



December 31, 2017
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	49,326	647	(233	)	49,740
Foreign government	18,040		526	(11	)	18,555
Obligations of states and political subdivisions	1,539,307		44,245	(582	)	1,582,970
Corporate securities	1,588,339		30,891	(1,762	)	1,617,468
CLO and other ABS	789,152		6,508	(202	)	795,458
CMBS	382,727		1,563	(841	)	383,449
RMBS	709,825		6,487	(1,430	)	714,882
Total AFS fixed income securities	5,076,716		90,867	(5,061	)	5,162,522
AFS equity securities:
Common stock	129,696		38,287	(226	)	167,757
Preferred stock	14,115		904	(71	)	14,948
Total AFS equity securities	143,811		39,191	(297	)	182,705
Total AFS securities	$	5,220,527	130,058	(5,358	)	5,345,227

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 AOCI on the Consolidated Balance Sheets. As of First Quarter 2018, equity securities are no longer required to be included in the table above with the adoption of new accounting guidance through which unrealized gains and losses on equity securities are no longer recognized in AOCI, but are instead recognized through income. Refer to Note 2. "Adoption of Accounting Pronouncements" for additional information regarding the adoption of ASU 2016-01.

(c) The severity of impairment on securities in an unrealized/unrecognized loss position averaged 1% of amortized cost at both March 31, 2018 and December 31, 2017. Quantitative information regarding unrealized losses on our AFS portfolio is provided below. Our HTM portfolio had no unrealized/unrecognized losses at March 31, 2018, and $0.1 million of unrealized/unrecognized losses at December 31, 2017.



March 31, 2018	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	$	27,084	(624	)	—	—		27,084	(624	)
Foreign government	6,367		(85	)	—	—		6,367	(85	)
Obligations of states and political subdivisions	344,037		(4,489	)	3,416	(147	)	347,453	(4,636	)
Corporate securities	910,974		(13,348	)	1,677	(68	)	912,651	(13,416	)
CLO and other ABS	384,113		(992	)	1,095	(7	)	385,208	(999	)
CMBS	321,980		(4,715	)	—	—		321,980	(4,715	)
RMBS	749,493		(9,422	)	10,332	(314	)	759,825	(9,736	)
Total AFS securities	$	2,744,048	(33,675	)	16,520	(536	)	2,760,568	(34,211	)



December 31, 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	$	23,516	(233	)	250	—		23,766	(233	)
Foreign government	1,481		(11	)	—	—		1,481	(11	)
Obligations of states and political subdivisions	107,514		(422	)	14,139	(160	)	121,653	(582	)
Corporate securities	238,326		(1,744	)	3,228	(18	)	241,554	(1,762	)
CLO and other ABS	74,977		(196	)	1,655	(6	)	76,632	(202	)
CMBS	154,267		(773	)	5,214	(68	)	159,481	(841	)
RMBS	269,485		(1,285	)	11,200	(145	)	280,685	(1,430	)
Total AFS fixed income securities	869,566		(4,664	)	35,686	(397	)	905,252	(5,061	)
AFS equity securities:
Common stock	4,727		(226	)	—	—		4,727	(226	)
Preferred stock	3,833		(71	)	—	—		3,833	(71	)
Total AFS equity securities	8,560		(297	)	—	—		8,560	(297	)
Total AFS	$	878,126	(4,961	)	35,686	(397	)	913,812	(5,358	)

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

The increase in the less than 12 months unrealized loss position was driven by higher interest rates and not underlying credit concerns. Fixed income security pricing in the marketplace has declined, reflecting a 33-basis point increase in 10-year U.S. Treasury Note yields during First Quarter 2018. Additionally, we do not intend to sell any of the securities in the tables above, nor will we be required to sell any of these securities. Considering these factors, and in accordance with our review of 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 2017 Annual Report, we 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 March 31, 2018, 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 March 31, 2018:



	AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	231,898	10,888	10,979
Due after one year through five years	1,931,022		27,710	29,226
Due after five years through 10 years	2,742,707		2,989	3,058
Due after 10 years	236,010		—	—
Total fixed income securities	$	5,141,637	41,587	43,263

(e) The following table summarizes our other investment portfolio by strategy:



Other Investments	March 31, 2018				December 31, 2017
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	54,950	102,888	157,838	52,251	99,026	151,277
Private credit	38,210		94,306	132,516	37,743	94,959	132,702
Real assets	26,076		35,493	61,569	25,379	27,014	52,393
Total alternative investments	119,236		232,687	351,923	115,373	220,999	336,372
Other securities	24,322		—	24,322	16,895	—	16,895
Total other investments	$	143,558	232,687	376,245	132,268	220,999	353,267

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 2018 or 2017.

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-month period ended December 31 is included in our First Quarter results. This information is as follows:



Income Statement Information	Quarter ended March 31,
($ in millions)	2018			2017
Net investment (loss) income	$	(35.4	)	25.6
Realized gains (losses)	594.0			(235.1	)
Net change in unrealized appreciation (depreciation)	461.6			561.5
Net gain	$	1,020.2		352.0
Selective’s insurance subsidiaries’ other investments gain	$	1.6		1.6

(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 March 31, 2018 to comply with insurance laws. We retain all rights regarding all securities pledged as collateral. The market value of FHLBNY collateral increased $82.3 million compared to December 31, 2017 due to additional borrowings from FHLBNY in First Quarter 2018. Refer to Note 5. "Indebtedness" below for additional information regarding these borrowings.

The following table summarizes the market value of these securities at March 31, 2018:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	3.0	—	22.2	25.2
Obligations of states and political subdivisions	—		—	3.2	3.2
CMBS	7.3		23.5	—	30.8
RMBS	57.6		132.5	—	190.1
Total pledged as collateral	$	67.9	156.0	25.4	249.3

(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 March 31, 2018 or December 31, 2017.

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



	Quarter ended March 31,
($ in thousands)	2018			2017
Fixed income securities	$	42,041		36,891
Equity securities	1,977			1,468
Short-term investments	523			250
Other investments	1,563			1,603
Investment expenses	(2,873		)	(2,793	)
Net investment income earned	$	43,231		37,419

(i) OTTI charges were $1.2 million in First Quarter 2018 and $3.5 million in First Quarter 2017, with each security type's charge not exceeding 1% of its fair value. 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 2017 Annual Report.

(j) Net realized and unrealized gains and losses (excluding OTTI charges) for First Quarter 2018 and 2017 included the following:



	Quarter ended March 31,
($ in thousands)	2018			2017
Net realized (losses) gains on the disposals of securities:
Fixed income securities	(3,335		)	1,964
Equity securities	8,069			—
Short-term investments	(3		)	—
Other investments	—			466
Net realized gains on the disposal of securities	4,731			2,430
OTTI charges	(1,212		)	(3,475	)
Net realized gains (losses)	3,519			(1,045	)
Unrealized losses recognized in income on equity securities¹	(14,068		)	—
Total net realized and unrealized investment (losses)	$	(10,549	)	(1,045	)

¹Unrealized holding losses in First Quarter 2018 on equity securities held as of March 31, 2018 was $5.1 million.

The components of net realized gains on disposals of securities for the periods indicated were as follows:



	Quarter ended March 31,
($ in thousands)	2018			2017
HTM fixed income securities
Gains	$	2		—
Losses	—			(1	)
AFS fixed income securities
Gains	2,623			3,552
Losses	(5,960		)	(1,587	)
Equity securities
Gains	8,399			—
Losses	(330		)	—
Short-term investments
Gains	1			—
Losses	(4		)	—
Other investments
Gains	—			480
Losses	—			(14	)
Total net realized gains on disposals of securities	$	4,731		2,430

Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold. Net realized gains in First Quarter 2018 were primarily driven by opportunistic sales in our equity portfolio and higher trading volume in our fixed income securities portfolio. Proceeds from the sale of AFS fixed income securities were $675.4 million and $594.8 million in First Quarter 2018 and First Quarter 2017, respectively. Proceeds from the sale of equity securities were $40.7 million and $5.5 million in First Quarter 2018 and First Quarter 2017, respectively.