Investments

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



September 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	$	21,834	36		21,870	526	—	22,396
Corporate securities	22,798		(86	)	22,712	1,132	—	23,844
Total HTM fixed income securities	$	44,632	(50	)	44,582	1,658	—	46,240



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 September 30, 2018 and December 31, 2017 was as follows:



September 30, 2018
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	97,304	306	(1,148	)	96,462
Foreign government	18,015		88	(120	)	17,983
Obligations of states and political subdivisions	1,161,322		10,848	(7,261	)	1,164,909
Corporate securities	1,662,613		6,342	(19,302	)	1,649,653
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS")	772,738		4,571	(2,540	)	774,769
Commercial mortgage-backed securities ("CMBS")	495,208		328	(5,987	)	489,549
Residential mortgage-backed securities (“RMBS”)	1,009,764		2,670	(15,603	)	996,831
Total AFS securities	$	5,216,964	25,153	(51,961	)	5,190,156



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 2% of amortized cost at September 30, 2018 and approximately 1% at December 31, 2017. Quantitative information regarding unrealized losses on our AFS portfolio is provided below. Our HTM portfolio had $0.2 million of unrealized/unrecognized losses at September 30, 2018, and $0.1 million of unrealized/unrecognized losses at December 31, 2017.



September 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	$	26,414	(843	)	8,497	(305	)	34,911	(1,148	)
Foreign government	7,281		(120	)	—	—		7,281	(120	)
Obligations of states and political subdivisions	411,980		(7,008	)	6,397	(253	)	418,377	(7,261	)
Corporate securities	1,140,349		(19,052	)	6,373	(250	)	1,146,722	(19,302	)
CLO and other ABS	497,809		(2,479	)	4,335	(61	)	502,144	(2,540	)
CMBS	376,359		(5,940	)	2,340	(47	)	378,699	(5,987	)
RMBS	699,336		(14,727	)	19,183	(876	)	718,519	(15,603	)
Total AFS securities	$	3,159,528	(50,169	)	47,125	(1,792	)	3,206,653	(51,961	)



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 due to higher interest rates, with a 94-basis point increase in 2-year U.S. Treasury Note yields and a 66-basis point increase in 10-year U.S. Treasury Note yields during the nine-month period ending September 30, 2018. We do not currently 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 as we believe: (i) they will mature at par value; (ii) they have not incurred a credit impairment; and (iii) future values of these securities will fluctuate with changes in interest rates. 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, 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 September 30, 2018:



	AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	176,545	14,017	14,150
Due after one year through five years	2,107,663		20,518	21,926
Due after five years through 10 years	2,759,167		10,047	10,164
Due after 10 years	146,781		—	—
Total fixed income securities	$	5,190,156	44,582	46,240

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



Other Investments	September 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	$	75,508	99,346	174,854	52,251	99,026	151,277
Private credit	37,525		85,747	123,272	37,743	94,959	132,702
Real assets	25,214		33,088	58,302	25,379	27,014	52,393
Total alternative investments	138,247		218,181	356,428	115,373	220,999	336,372
Other securities	25,683		—	25,683	16,895	—	16,895
Total other investments	$	163,930	218,181	382,111	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 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)	2018		2017	2018		2017
Net investment income (loss)	$	11.9	0.6	(29.9	)	(61.8	)
Realized gains (losses)	124.8		43.3	1,348.3		(261.0	)
Net change in unrealized appreciation	1,434.3		1,296.3	695.8		3,186.3
Net gain	$	1,571.0	1,340.2	2,014.2		2,863.5
Selective’s insurance subsidiaries’ alternative investments gain	$	7.1	2.7	10.6		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, 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 September 30, 2018:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	—	—	22.2	22.2
Obligations of states and political subdivisions	—		—	3.8	3.8
CMBS	7.2		9.4	—	16.6
RMBS	57.8		76.3	—	134.1
Total pledged as collateral	$	65.0	85.7	26.0	176.7

(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, 2018 or December 31, 2017.

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



	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2018			2017		2018		2017
Fixed income securities	$	45,088		38,865		130,903		113,424
Equity securities	2,079			1,605		5,876		4,492
Short-term investments	867			396		2,001		1,023
Other investments	7,211			2,659		10,868		9,493
Investment expenses	(2,802		)	(3,079	)	(8,421	)	(9,137	)
Net investment income earned	$	52,443		40,446		141,227		119,295

(i) OTTI charges were $1.4 million and $0.1 million in Third Quarter 2018 and Third Quarter 2017, respectively, and $5.5 million and $4.8 million in Nine Months 2018 and Nine 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 amortized cost. 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 Third Quarter and Nine Months 2018 and 2017 included the following:



	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2018			2017		2018			2017
Net realized (losses) gains on the disposals of securities:
Fixed income securities	$	(9,413	)	1,996		(13,922		)	6,566
Equity securities	8,665			4,875		17,960			5,225
Short-term investments	2			—		1			—
Other investments	(5		)	—		(5		)	461
Net realized gains on the disposal of securities	(751		)	6,871		4,034			12,252
OTTI charges	(1,426		)	(73	)	(5,459		)	(4,765	)
Net realized (losses) gains	(2,177		)	6,798		(1,425		)	7,487
Unrealized (losses) recognized in income on equity securities¹	(2,610		)	—		(15,563		)	—
Total net realized and unrealized investment (losses) gains	$	(4,787	)	6,798		$	(16,988	)	7,487

¹Includes unrealized holding gains (losses) of: (i) $5.5 million in Third Quarter 2018 and $4.2 million in Nine Months 2018 on equity securities remaining in our portfolio as of September 30, 2018; and (ii) $(8.1) million in Third Quarter 2018 and $(19.8) million in Nine Months 2018 on equity securities sold during the respective periods.

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



	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2018			2017		2018		2017
HTM fixed income securities
Gains	$	—		—		2		44
Losses	—			—		—		(1	)
AFS fixed income securities
Gains	462			2,070		5,056		8,337
Losses	(9,875		)	(74	)	(18,980	)	(1,814	)
Equity securities
Gains	10,584			4,875		20,209		5,225
Losses	(1,919		)	—		(2,249	)	—
Short-term investments
Gains	3			—		6		2
Losses	(1		)	—		(5	)	(2	)
Other investments
Gains	—			—		—		480
Losses	(5		)	—		(5	)	(19	)
Total net realized gains (losses) on disposals of securities	$	(751	)	6,871		4,034		12,252

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 sales of AFS fixed income securities were $444.4 million and $94.9 million in Third Quarter 2018 and Third Quarter 2017, respectively, and $1,382.7 million and $812.0 million in Nine Months 2018 and Nine Months 2017, respectively. Proceeds from the sales of equity securities were $36.1 million and $12.7 million in Third Quarter 2018 and Third Quarter 2017, respectively, and $79.7 million and $19.0 million in Nine Months 2018 and Nine Months 2017, respectively.