Investments

9 Months Ended

Sep. 30, 2015

Investments [Abstract]

Investments

Investments

(a) The amortized cost, net unrealized gains and losses, carrying value, unrecognized holding gains and losses, and fair value of HTM fixed income securities as of September 30, 2015 and December 31, 2014 were as follows:

September 30, 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	$	205,443	1,108		206,551	7,423	—	213,974
Corporate securities	18,147		(241	)	17,906	2,467	—	20,373
Asset-backed securities (“ABS”)	1,209		(157	)	1,052	158	—	1,210
Commercial mortgage-backed securities (“CMBS”)	4,656		(296	)	4,360	471	—	4,831
Total HTM fixed income securities	$	229,455	414		229,869	10,519	—	240,388

December 31, 2014
($ in thousands)	Amortized Cost		Net  Unrealized Gains  (Losses)		Carrying Value	Unrecognized  Holding Gains	Unrecognized Holding  Losses	Fair Value
Foreign government	$	5,292	47		5,339	55	—	5,394
Obligations of states and political subdivisions	285,301		2,071		287,372	11,760	—	299,132
Corporate securities	18,899		(273	)	18,626	2,796	—	21,422
ABS	2,818		(455	)	2,363	460	—	2,823
CMBS	4,869		(432	)	4,437	753	—	5,190
Total HTM fixed income securities	$	317,179	958		318,137	15,824	—	333,961

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 1.5 years as of September 30, 2015.

(b) The cost/amortized cost, unrealized gains and losses, and fair value of AFS securities as of September 30, 2015 and December 31, 2014 were as follows:

September 30, 2015
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	109,062	6,069	(1	)	115,130
Foreign government	19,030		657	—		19,687
Obligations of states and political subdivisions	1,303,188		35,552	(545	)	1,338,195
Corporate securities	1,859,834		35,222	(8,882	)	1,886,174
ABS	255,716		1,312	(105	)	256,923
CMBS1	220,009		2,450	(457	)	222,002
Residential mortgage-backed securities (“RMBS”)2	506,932		7,400	(1,397	)	512,935
Total AFS fixed income securities	4,273,771		88,662	(11,387	)	4,351,046
AFS equity securities:
Common stock	208,995		13,542	(12,340	)	210,197
Preferred stock	11,825		46	(117	)	11,754
Total AFS equity securities	220,820		13,588	(12,457	)	221,951
Total AFS securities	$	4,494,591	102,250	(23,844	)	4,572,997

December 31, 2014
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	116,666	7,592	(128	)	124,130
Foreign government	27,035		796	—		27,831
Obligations of states and political subdivisions	1,208,776		38,217	(729	)	1,246,264
Corporate securities	1,763,427		42,188	(5,809	)	1,799,806
ABS	176,837		760	(373	)	177,224
CMBS1	177,932		2,438	(777	)	179,593
RMBS2	505,113		8,587	(2,426	)	511,274
Total AFS fixed income securities	3,975,786		100,578	(10,242	)	4,066,122
AFS equity securities:
Common stock	159,011		32,725	(336	)	191,400
Total AFS equity securities	159,011		32,725	(336	)	191,400
Total AFS securities	$	4,134,797	133,303	(10,578	)	4,257,522

¹ CMBS includes government guaranteed agency securities with a fair value of $7.4 million at September 30, 2015 and $13.2 million at December 31, 2014.

² RMBS includes government guaranteed agency securities with a fair value of $22.5 million at September 30, 2015 and $32.4 million at December 31, 2014.

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 (loss) income ("AOCI") on the Consolidated Balance Sheets.

(c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at September 30, 2015 and December 31, 2014, the fair value and pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position:

September 30, 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	$	—	—		399	(1	)
Obligations of states and political subdivisions	96,861		(545	)	—	—
Corporate securities	430,481		(7,187	)	50,552	(1,695	)
ABS	55,856		(71	)	12,530	(34	)
CMBS	59,004		(367	)	15,561	(90	)
RMBS	95,254		(457	)	65,417	(940	)
Total AFS fixed income securities	737,456		(8,627	)	144,459	(2,760	)
AFS equity securities:
Common stock	133,601		(12,340	)	—	—
Preferred stock	8,562		(117	)	—	—
Total AFS equity securities	142,163		(12,457	)	—	—
Subtotal	$	879,619	(21,084	)	144,459	(2,760	)

	Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses1		Unrecognized Gains2	Fair Value	Unrealized Losses1		Unrecognized Gains2
HTM securities:
ABS	$	—	—		—	942	(157	)	153
Subtotal	$	—	—		—	942	(157	)	153
Total AFS and HTM	$	879,619	(21,084	)	—	145,401	(2,917	)	153

December 31, 2014	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	$	7,567	(13	)	10,866	(115	)
Obligations of states and political subdivisions	47,510		(105	)	64,018	(624	)
Corporate securities	276,648		(1,734	)	153,613	(4,075	)
ABS	113,202		(178	)	15,618	(195	)
CMBS	12,799		(34	)	59,219	(743	)
RMBS	3,399		(8	)	138,724	(2,418	)
Total AFS fixed income securities	461,125		(2,072	)	442,058	(8,170	)
AFS equity securities:
Common stock	5,262		(336	)	—	—
Total AFS equity securities	5,262		(336	)	—	—
Subtotal	$	466,387	(2,408	)	442,058	(8,170	)

	Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses1		Unrecognized Gains2	Fair Value	Unrealized Losses1		Unrecognized Gains2
HTM securities:
Obligations of states and political subdivisions	$	196	(3	)	1	—	—		—
ABS	—		—		—	2,235	(455	)	439
Subtotal	196		(3	)	1	2,235	(455	)	439
Total AFS and HTM	$	466,583	(2,411	)	1	444,293	(8,625	)	439

 ¹ Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI.  In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to an HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position.

² Unrecognized gains represent fair value fluctuations from the later of:  (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security.

The table below provides our net unrealized/unrecognized loss positions by impairment severity as of September 30, 2015 compared with December 31, 2014:

($ in thousands)
September 30, 2015				December 31, 2014
Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
389	80% - 99%	$	21,841	350	80% - 99%	$	10,596
4	60% - 79%	2,007		—	60% - 79%	—
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	23,848			$	10,596

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 2014 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. 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, 2015, 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, 2015:

($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	102,507	103,945
Due after one year through five years	116,833		123,960
Due after five years through 10 years	10,529		12,483
Total HTM fixed income securities	$	229,869	240,388

Listed below are the contractual maturities of AFS fixed income securities at September 30, 2015:

($ in thousands)	Fair Value
Due in one year or less	$	501,398
Due after one year through five years	2,180,671
Due after five years through 10 years	1,589,038
Due after 10 years	79,939
Total AFS fixed income securities	$	4,351,046

(e) The following table summarizes our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:

Other Investments	Carrying Value			September 30, 2015
($ in thousands)	September 30, 2015		December 31, 2014	Remaining Commitment
Alternative Investments
Secondary private equity	$	17,503	21,807	7,095
Private equity	15,792		20,126	23,826
Energy/power generation	11,643		14,445	16,857
Real estate	8,854		11,452	9,919
Mezzanine financing	6,948		9,853	13,383
Distressed debt	6,889		8,679	3,048
Venture capital	6,539		6,606	150
Total alternative investments	74,168		92,968	74,278
Other securities	10,978		6,235	2,269
Total other investments	$	85,146	99,203	76,547

For a full description of our seven 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 2014 Annual Report.

The following table sets forth gross summarized financial information for our other investments portfolio, including the portion not owned by us. The investments are carried under the equity method of accounting. The last line of the table below reflects our share of the aggregate income, 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)	2015			2014		2015			2014
Net investment income	$	44.1		81.3		$	139.6		167.0
Realized gains (losses)	385.2			(26.1	)	977.7			171.5
Net change in unrealized (depreciation) appreciation	(222.2		)	628.6		(1,089.0		)	1,471.0
Net income	$	207.1		683.8		$	28.3		1,809.5
Selective’s insurance subsidiaries’ other investments income (loss)	$	1.3		3.9		$	(0.8	)	12.7

(f) We have pledged certain AFS fixed income securities as collateral related to our: (i) outstanding borrowing of $60 million with the Federal Home Loan Bank of Indianapolis ("FHLBI"); and (ii) reinsurance obligations related to our 2011 acquisition of our excess and surplus lines ("E&S") book of business. In addition, certain securities were on deposit with various state and regulatory agencies 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, 2015:

($ in millions)	FHLBI Collateral		Reinsurance Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.7	—	24.4	32.1
Obligations of states and political subdivisions	—		5.0	—	5.0
Corporate securities	—		4.8	—	4.8
CMBS	1.4		—	—	1.4
RMBS	55.5		1.9	—	57.4
Total pledged as collateral	$	64.6	11.7	24.4	100.7

(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 agencies, as of September 30, 2015 or December 31, 2014.

(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)	2015			2014		2015			2014
Fixed income securities	$	30,601		30,706		$	92,227		95,515
Equity securities	2,370			1,909		6,546			5,094
Short-term investments	24			15		72			48
Other investments	1,337			3,906		(781		)	12,677
Investment expenses	(2,271		)	(2,244	)	(6,856		)	(6,734	)
Net investment income earned	$	32,061		34,292		$	91,208		106,600

(i) The following tables summarize OTTI by asset type for the periods indicated. We had no OTTI charges in Third Quarter 2014:

Third Quarter 2015	Gross		Included in Other Comprehensive Income ("OCI")	Recognized in Earnings
($ in thousands)
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 2015	Gross		Included in OCI	Recognized in Earnings
($ in thousands)
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

Nine Months 2014	Gross		Included in OCI	Recognized in Earnings
($ in thousands)
AFS equity securities:
Common stock	$	1,382	—	1,382
Total OTTI losses	$	1,382	—	1,382

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 2014 Annual Report.

The following tables set forth, for the periods indicated, credit loss impairments on fixed income securities for which a portion of the OTTI charge was recognized in OCI, and the corresponding changes in such amounts:

	Quarter ended September 30,
($ in thousands)	2015		2014
Balance, beginning of period	$	1,013	5,534
Addition for the amount related to credit loss for which an OTTI was not previously recognized	—		—
Reductions for securities sold during the period	—		(90	)
Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost	—		—
Additional increases to the amount related to credit loss for which an OTTI was previously recognized	—		—
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	—		—
Balance, end of period	$	1,013	5,444

	Nine Months ended September 30,
($ in thousands)	2015			2014
Balance, beginning of period	$	5,444		7,488
Addition for the amount related to credit loss for which an OTTI was not previously recognized	—			—
Reductions for securities sold during the period	(4,431		)	(2,044	)
Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost	—			—
Additional increases to the amount related to credit loss for which an OTTI was previously recognized	—			—
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	—			—
Balance, end of period	$	1,013		5,444

(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)	2015			2014		2015		2014
HTM fixed income securities
Gains	$	3		—		5		3
Losses	—			(4	)	(1	)	(18	)
AFS fixed income securities
Gains	169			695		2,158		1,633
Losses	—			(29	)	(130	)	(172	)
AFS equity securities
Gains	1,419			14,576		23,567		27,255
Losses	(1		)	(8	)	(1,347	)	(332	)
Other investments
Gains	—			1		—		1
Losses	—			—		(654	)	—
Total net realized gains (excluding OTTI charges)	$	1,590		15,231		23,598		28,370

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 $12.7 million and $170.6 million in Third Quarter and Nine Months 2015, respectively. The $23.6 million in net realized gains for Nine Months 2015 was primarily related to the sale of AFS equity securities 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.

The $15.2 million and $28.4 million in net realized gains in Third Quarter and Nine Months 2014, respectively, were primarily related to the sale of AFS equity securities due to the quantitative rebalancing of our dividend yield strategy holdings within our equity portfolio.