Investments | Investments (a) Information regarding our held-to-maturity ("HTM") fixed income securities as of June 30, 2016 and December 31, 2015 was as follows: June 30, 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 $ 131,480 533 132,013 4,260 — 136,273 Corporate securities 23,995 (175 ) 23,820 2,286 — 26,106 Asset-backed securities (“ABS”) 126 — 126 — — 126 Commercial mortgage-backed securities (“CMBS”) 4,489 (151 ) 4,338 218 — 4,556 Total HTM fixed income securities $ 160,090 207 160,297 6,764 — 167,061 December 31, 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 $ 175,269 848 176,117 5,763 — 181,880 Corporate securities 20,228 (185 ) 20,043 1,972 — 22,015 ABS 1,030 (120 ) 910 118 — 1,028 CMBS 4,527 (243 ) 4,284 337 — 4,621 Total HTM fixed income securities $ 201,054 300 201,354 8,190 — 209,544 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 1.8 years as of June 30, 2016 . (b) Information regarding our AFS securities as of June 30, 2016 and December 31, 2015 was as follows: June 30, 2016 ($ in thousands) Cost/ Amortized Cost Unrealized Gains Unrealized Losses Fair Value AFS fixed income securities: U.S. government and government agencies $ 91,933 4,237 — 96,170 Foreign government 8,635 424 — 9,059 Obligations of states and political subdivisions 1,379,548 82,604 — 1,462,152 Corporate securities 1,977,838 62,233 (1,963 ) 2,038,108 ABS 257,182 1,656 (127 ) 258,711 CMBS 249,603 6,484 (51 ) 256,036 Residential mortgage-backed securities (“RMBS”) 541,841 10,027 (318 ) 551,550 Total AFS fixed income securities 4,506,580 167,665 (2,459 ) 4,671,786 AFS equity securities: Common stock 114,099 26,343 (1,023 ) 139,419 Preferred stock 12,782 737 — 13,519 Total AFS equity securities 126,881 27,080 (1,023 ) 152,938 Total AFS securities $ 4,633,461 194,745 (3,482 ) 4,824,724 December 31, 2015 ($ in thousands) Cost/ Amortized Cost Unrealized Gains Unrealized Losses Fair Value AFS fixed income securities: U.S. government and government agencies $ 99,485 4,721 (91 ) 104,115 Foreign government 14,885 298 (2 ) 15,181 Obligations of states and political subdivisions 1,314,779 44,523 (160 ) 1,359,142 Corporate securities 1,892,296 23,407 (15,521 ) 1,900,182 ABS 244,541 531 (918 ) 244,154 CMBS 245,252 750 (2,410 ) 243,592 RMBS 541,276 4,274 (3,713 ) 541,837 Total AFS fixed income securities 4,352,514 78,504 (22,815 ) 4,408,203 AFS equity securities: Common stock 181,991 14,796 (1,998 ) 194,789 Preferred stock 11,825 477 (40 ) 12,262 Total AFS equity securities 193,816 15,273 (2,038 ) 207,051 Total AFS securities $ 4,546,330 93,777 (24,853 ) 4,615,254 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 following tables provide information regarding our AFS securities in a net unrealized/unrecognized loss position at June 30, 2016 and December 31, 2015 : June 30, 2016 Less than 12 months 12 months or longer ($ in thousands) Fair Value Unrealized Losses 1 Fair Value Unrealized Losses 1 AFS fixed income securities: Corporate securities $ 96,244 (822 ) 33,616 (1,141 ) ABS 46,992 (117 ) 4,665 (10 ) CMBS 6,348 (4 ) 10,451 (47 ) RMBS 6,835 (19 ) 50,134 (299 ) Total AFS fixed income securities 156,419 (962 ) 98,866 (1,497 ) AFS equity securities: Common stock 16,428 (1,023 ) — — Total AFS equity securities 16,428 (1,023 ) — — Total AFS $ 172,847 (1,985 ) 98,866 (1,497 ) December 31, 2015 Less than 12 months 12 months or longer ($ in thousands) Fair Value Unrealized Losses 1 Fair Value Unrealized Losses 1 AFS fixed income securities: U.S. government and government agencies $ 16,006 (87 ) 396 (4 ) Foreign government 1,067 (2 ) — — Obligations of states and political subdivisions 28,617 (160 ) — — Corporate securities 761,479 (12,671 ) 50,382 (2,850 ) ABS 197,477 (807 ) 12,022 (111 ) CMBS 146,944 (2,196 ) 15,385 (214 ) RMBS 264,914 (1,992 ) 63,395 (1,721 ) Total AFS fixed income securities 1,416,504 (17,915 ) 141,580 (4,900 ) AFS equity securities: Common stock 31,148 (1,998 ) — — Preferred stock 1,531 (40 ) — — Total AFS equity securities 32,679 (2,038 ) — — Total AFS $ 1,449,183 (19,953 ) 141,580 (4,900 ) 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. There were no net unrealized/unrecognized losses on our HTM portfolio as of June 30, 2016. The table below provides our net unrealized/unrecognized loss positions by impairment severity for AFS securities as of June 30, 2016 and for both AFS and HTM securities as of December 31, 2015 : ($ in thousands) June 30, 2016 December 31, 2015 Number of Issues % of Market/Book Unrealized/ Unrecognized Loss Number of Issues % of Market/Book Unrealized/ Unrecognized Loss 156 80% - 99% $ 3,482 606 80% - 99% $ 22,971 — 60% - 79% — 3 60% - 79% 1,888 — 40% - 59% — — 40% - 59% — — 20% - 39% — — 20% - 39% — — 0% - 19% — — 0% - 19% — $ 3,482 $ 24,859 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 2015 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 June 30, 2016 , 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 June 30, 2016 : ($ in thousands) Carrying Value Fair Value Due in one year or less $ 84,415 85,514 Due after one year through five years 65,616 69,914 Due after five years through 10 years 10,266 11,633 Total HTM fixed income securities $ 160,297 167,061 Listed below are the contractual maturities of AFS fixed income securities at June 30, 2016 : ($ in thousands) Fair Value Due in one year or less $ 482,867 Due after one year through five years 2,425,517 Due after five years through 10 years 1,647,615 Due after 10 years 115,787 Total AFS fixed income securities $ 4,671,786 (e) We evaluate the alternative investments and the tax credit investments that are 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 June 30, 2016 December 31, 2015 ($ in thousands) Carrying Value Remaining Commitment Maximum Exposure to Loss 1 Carrying Value Remaining Commitment Maximum Exposure to Loss 1 Alternative Investments Private equity $ 28,439 34,117 62,556 35,088 30,204 65,292 Private credit 23,336 23,243 46,579 13,246 15,129 28,375 Real assets 14,132 30,273 44,405 19,500 25,820 45,320 Total alternative investments 65,907 87,633 153,540 67,834 71,153 138,987 Other securities 10,144 6,850 16,994 10,008 3,200 13,208 Total other investments $ 76,051 94,483 170,534 77,842 74,353 152,195 1 The 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 from our investment 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 2016 or 2015. In addition to the strategy descriptions included in Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our 2015 Annual Report , our private credit strategy now includes middle market lending, which is a strategy that provides privately negotiated loans to U.S. middle market companies. Typically, these are floating rate, senior secured loans diversified across industries. Loans can be made to private equity sponsor-backed companies or non-sponsored companies to finance leveraged buyouts, recapitalizations, and acquisitions. 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 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 as follows: Income Statement Information Quarter ended March 31, Six months ended March 31, ($ in millions) 2016 2015 2016 2015 Net investment (loss) income $ (4.6 ) 8.5 $ 37.0 95.6 Realized gains 193.2 279.4 981.1 592.5 Net change in unrealized depreciation (253.9 ) (223.4 ) (1,236.5 ) (866.9 ) Net (loss) gain $ (65.3 ) 64.5 $ (218.4 ) (178.8 ) Selective’s insurance subsidiaries’ other investments loss $ (0.6 ) 1.4 $ (1.7 ) (2.1 ) (f) We have pledged certain AFS fixed income securities as collateral related to our: (i) relationships with the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"); 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 at June 30, 2016 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, 2016 : ($ in millions) FHLBI Collateral FHLBNY Collateral Reinsurance Collateral State and Regulatory Deposits Total U.S. government and government agencies $ 7.5 — — 23.5 31.0 Obligations of states and political subdivisions — — 5.0 — 5.0 Corporate securities — — 4.8 — 4.8 CMBS 1.1 — — — 1.1 RMBS 55.0 29.9 1.6 — 86.5 Total pledged as collateral $ 63.6 29.9 11.4 23.5 128.4 (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 June 30, 2016 or December 31, 2015 . (h) The components of pre-tax net investment income earned for the periods indicated were as follows: Quarter ended June 30, Six Months ended June 30, ($ in thousands) 2016 2015 2016 2015 Fixed income securities $ 31,753 30,659 $ 63,397 61,626 Equity securities 2,204 2,384 4,434 4,176 Short-term investments 142 23 301 48 Other investments (611 ) 1,422 (1,677 ) (2,118 ) Investment expenses (2,306 ) (2,258 ) (4,504 ) (4,585 ) Net investment income earned $ 31,182 32,230 $ 61,951 59,147 (i) The following tables summarize OTTI by asset type for the periods indicated: Second Quarter 2016 Gross Included in Other Comprehensive Income ("OCI") Recognized in ($ in thousands) AFS fixed income securities: Corporate securities $ 104 — 104 RMBS 98 10 88 Total AFS fixed income securities 202 10 192 AFS equity securities: Common stock 357 — 357 Total AFS equity securities 357 — 357 Total OTTI losses $ 559 10 549 Second Quarter 2015 Gross Included in OCI Recognized in ($ in thousands) AFS fixed income securities: Corporate securities $ 183 — 183 Total AFS fixed income securities 183 — 183 AFS equity securities: Common stock 4,088 — 4,088 Preferred stock 180 — 180 Total AFS equity securities 4,268 — 4,268 Total OTTI losses $ 4,451 — 4,451 Six Months 2016 Gross Included in OCI Recognized in ($ in thousands) 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 2,974 — 2,974 Preferred stock 3 — 3 Total AFS equity securities 2,977 — 2,977 Total OTTI losses $ 4,152 10 4,142 Six Months 2015 Gross Included in OCI Recognized in ($ in thousands) AFS fixed income securities: Corporate securities $ 1,192 — 1,192 RMBS 1 — 1 Total AFS fixed income securities 1,193 — 1,193 AFS equity securities: Common stock 5,172 — 5,172 Preferred stock 180 — 180 Total AFS equity securities 5,352 — 5,352 Total OTTI losses $ 6,545 — 6,545 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 2015 Annual Report . (j) The components of net realized gains, excluding OTTI charges, for the periods indicated were as follows: Quarter ended June 30, Six Months ended June 30, ($ in thousands) 2016 2015 2016 2015 HTM fixed income securities Gains $ 3 2 3 2 Losses — — (1 ) (1 ) AFS fixed income securities Gains 365 487 985 1,989 Losses (5 ) (18 ) (41 ) (130 ) AFS equity securities Gains 2,171 830 2,501 22,148 Losses (220 ) (270 ) (240 ) (1,346 ) Other investments Losses — — (4 ) (654 ) Total net realized gains (excluding OTTI charges) $ 2,314 1,031 3,203 22,008 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 $88.7 million and $19.5 million in Second Quarter 2016 and Second Quarter 2015 , respectively, and $105.9 million and $157.9 million in Six Months 2016 and Six Months 2015 , respectively. The $22.0 million in net realized gains for Six Months 2015 were primarily 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. |