Investments

(a) Information regarding our held-to-maturity ("HTM") fixed income securities as of June 30, 2018 and December 31, 2017 was as follows:



June 30, 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	$	22,490	49		22,539	721	—		23,260
Corporate securities	19,567		(90	)	19,477	761	(125	)	20,113
Total HTM fixed income securities	$	42,057	(41	)	42,016	1,482	(125	)	43,373



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 date a security is designated as HTM through the date of the balance sheet.

(b) Information regarding our AFS securities as of June 30, 2018 and December 31, 2017 was as follows:



June 30, 2018
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	39,368	291	(763	)	38,896
Foreign government	18,024		87	(129	)	17,982
Obligations of states and political subdivisions	1,240,487		17,622	(4,442	)	1,253,667
Corporate securities	1,630,998		6,617	(23,131	)	1,614,484
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS")	768,466		4,948	(1,817	)	771,597
Commercial mortgage-backed securities ("CMBS")	457,344		258	(6,009	)	451,593
Residential mortgage-backed securities (“RMBS”)	999,050		2,726	(12,342	)	989,434
Total AFS securities	$	5,153,737	32,549	(48,633	)	5,137,653



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 other-than-temporary impairment ("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 the first quarter of 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 approximately 1% of amortized cost at both June 30, 2018 and December 31, 2017. Quantitative information regarding unrealized losses on our AFS portfolio is provided below. Our HTM portfolio had $0.3 million of unrealized/unrecognized losses at June 30, 2018, and $0.1 million of unrealized/unrecognized losses at December 31, 2017.



June 30, 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	$	28,005	(763	)	—	—		28,005	(763	)
Foreign government	7,740		(129	)	—	—		7,740	(129	)
Obligations of states and political subdivisions	342,653		(4,316	)	3,422	(126	)	346,075	(4,442	)
Corporate securities	1,147,312		(22,989	)	2,762	(142	)	1,150,074	(23,131	)
CLO and other ABS	427,307		(1,813	)	774	(4	)	428,081	(1,817	)
CMBS	378,523		(6,009	)	—	—		378,523	(6,009	)
RMBS	739,217		(11,962	)	10,895	(380	)	750,112	(12,342	)
Total AFS securities	$	3,070,757	(47,981	)	17,853	(652	)	3,088,610	(48,633	)



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, with a 65-basis point increase in 2-year U.S. Treasury Note yields and a 45-basis point increase in the 10-year U.S. Treasury Note yields during Six Months 2018. 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 June 30, 2018, by contractual maturity, are shown below. Mortgage-backed securities 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 June 30, 2018:



	AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	186,138	8,309	8,383
Due after one year through five years	2,034,623		27,160	28,544
Due after five years through 10 years	2,733,420		6,547	6,446
Due after 10 years	183,472		—	—
Total fixed income securities	$	5,137,653	42,016	43,373

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



Other Investments	June 30, 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	$	59,681	110,833	170,514	52,251	99,026	151,277
Private credit	40,916		89,757	130,673	37,743	94,959	132,702
Real assets	23,430		36,588	60,018	25,379	27,014	52,393
Total alternative investments	124,027		237,178	361,205	115,373	220,999	336,372
Other securities	21,176		—	21,176	16,895	—	16,895
Total other investments	$	145,203	237,178	382,381	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- and six-month periods ended March 31 is included in our Second Quarter and Six Months results. This information is as follows:



Income Statement Information	Quarter ended June 30,					Six Months ended June 30,
($ in millions)	2018			2017		2018		2017
Net investment loss	$	(6.4	)	(88.0	)	(41.8	)	(62.4	)
Realized gains (losses)	629.5			(69.2	)	1,223.5		(304.3	)
Net change in unrealized (depreciation) appreciation	(1,200.2		)	1,328.5		(738.6	)	1,890.0
Net (loss) gain	$	(577.1	)	1,171.3		443.1		1,523.3
Selective’s insurance subsidiaries’ alternative investments gain	$	1.9		5.2		3.5		6.8

(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 June 30, 2018 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, 2018:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	—	—	22.3	22.3
Obligations of states and political subdivisions	—		—	3.1	3.1
CMBS	7.2		9.6	—	16.8
RMBS	58.2		79.8	—	138.0
Total pledged as collateral	$	65.4	89.4	25.4	180.2

(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 June 30, 2018 or December 31, 2017.

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



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2018			2017		2018			2017
Fixed income securities	$	43,774		37,668		$	85,815		74,559
Equity securities	1,820			1,419		3,797			2,887
Short-term investments	611			377		1,134			627
Other investments	2,094			5,231		3,657			6,834
Investment expenses	(2,746		)	(3,265	)	(5,619		)	(6,058	)
Net investment income earned	$	45,553		41,430		$	88,784		78,849

(i) OTTI charges were $2.8 million and $1.2 million in Second Quarter 2018 and Second Quarter 2017, respectively, and $4.0 million and $4.7 million in Six Months 2018 and Six Months 2017, respectively. All of the OTTI charges in 2018 and a majority of the charges in 2017 were related to securities for which we had the intent to sell, 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 Second Quarter and Six Months 2018 and 2017 included the following:



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2018			2017		2018			2017
Net realized (losses) gains on the disposals of securities:
Fixed income securities	$	(1,174	)	2,606		(4,509		)	4,570
Equity securities	1,226			350		9,295			350
Short-term investments	2			—		(1		)	—
Other investments	—			(5	)	—			461
Net realized gains on the disposal of securities	54			2,951		4,785			5,381
OTTI charges	(2,821		)	(1,217	)	(4,033		)	(4,692	)
Net realized (losses) gains	(2,767		)	1,734		752			689
Unrealized gains (losses) recognized in income on equity securities¹	1,115			—		(12,953		)	—
Total net realized and unrealized investment (losses) gains	$	(1,652	)	1,734		$	(12,201	)	689

¹Includes unrealized holding gains (losses) of: (i) $2.3 million in Second Quarter 2018 and $(2.7) million in Six Months 2018 on equity securities remaining in our portfolio as of June 30, 2018; and (ii) $(1.2) million in Second Quarter 2018 and $(10.3) million in Six Months 2018 on equity securities sold during the period.

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



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2018			2017		2018		2017
HTM fixed income securities
Gains	$	—		44		2		44
Losses	—			—		—		(1	)
AFS fixed income securities
Gains	1,971			2,715		4,594		6,267
Losses	(3,145		)	(153	)	(9,105	)	(1,740	)
Equity securities
Gains	1,226			350		9,625		350
Losses	—			—		(330	)	—
Short-term investments
Gains	2			—		3		2
Losses	—			—		(4	)	(2	)
Other investments
Gains	—			—		—		480
Losses	—			(5	)	—		(19	)
Total net realized gains on disposals of securities	$	54		2,951		4,785		5,381

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 Second Quarter and Six Months 2018 were primarily driven by opportunistic sales in our equity portfolio and higher trading volume in our fixed income securities portfolio. Proceeds from the sales of AFS fixed income securities were $262.9 million and $122.3 million in Second Quarter 2018 and Second Quarter 2017, respectively, and $938.3 million and $717.1 million in Six Months 2018 and Six Months 2017, respectively. Proceeds from the sales of equity securities were $2.9 million and $0.8 million in Second Quarter 2018 and Second Quarter 2017, respectively, and $43.6 million and $6.3 million in Six Months 2018 and Six Months 2017, respectively.