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EX-32.2 - EXHIBIT 32.2 - SELECTIVE INSURANCE GROUP INCsigi-ex322_9302018xq3.htm
EX-32.1 - EXHIBIT 32.1 - SELECTIVE INSURANCE GROUP INCsigi-ex321_9302018xq3.htm
EX-31.2 - EXHIBIT 31.2 - SELECTIVE INSURANCE GROUP INCsigi-ex312_9302018xq3.htm
EX-31.1 - EXHIBIT 31.1 - SELECTIVE INSURANCE GROUP INCsigi-ex311_9302018xq3.htm
EX-11 - EXHIBIT 11 - SELECTIVE INSURANCE GROUP INCsigi-ex11_9302018xq3.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2018
or
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_____________________________to_____________________________
 
Commission File Number: 001-33067
SELECTIVE INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
New Jersey
 
22-2168890
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
40 Wantage Avenue
 
 
Branchville, New Jersey
 
07890
(Address of Principal Executive Offices)
 
(Zip Code)
(973) 948-3000
(Registrant’s Telephone Number, Including Area Code)
 
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x           No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x           No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o 
Smaller reporting company o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                                              Yes o          No x
As of October 15, 2018, there were 58,888,985 shares of common stock, par value $2.00 per share, outstanding. 



 
SELECTIVE INSURANCE GROUP, INC.
 
 
Table of Contents
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS.
 
SELECTIVE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
 
Unaudited
 
 
($ in thousands, except share amounts)
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 

 
 

Investments:
 
 

 
 

Fixed income securities, held-to-maturity – at carrying value (fair value:  $46,240 – 2018; $44,100 – 2017)
 
$
44,582

 
42,129

Fixed income securities, available-for-sale – at fair value (amortized cost: $5,216,964 – 2018; $5,076,716 – 2017)
 
5,190,156

 
5,162,522

Equity securities – at fair value (cost:  $134,530 – 2018; $143,811 – 2017)
 
157,867

 
182,705

Short-term investments (at cost which approximates fair value)
 
304,572

 
165,555

Other investments
 
163,930

 
132,268

Total investments (Note 4 and 6)
 
5,861,107


5,685,179

Cash
 
446

 
534

Restricted cash
 
12,386

 
44,176

Interest and dividends due or accrued
 
41,016

 
40,897

Premiums receivable, net of allowance for uncollectible accounts of:  $10,100 – 2018; $10,000 – 2017
 
826,923

 
747,029

Reinsurance recoverable, net of allowance for uncollectible accounts of: $4,500 – 2018; $4,600 – 2017
 
603,827

 
594,832

Prepaid reinsurance premiums
 
167,108

 
153,493

Current federal income tax
 

 
3,243

Deferred federal income tax
 
52,347

 
31,990

Property and equipment – at cost, net of accumulated depreciation and amortization of:
$227,639 – 2018; $213,227 – 2017
 
64,225

 
63,959

Deferred policy acquisition costs
 
258,033

 
235,055

Goodwill
 
7,849

 
7,849

Other assets
 
91,485

 
78,195

Total assets
 
$
7,986,752

 
7,686,431

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Liabilities:
 
 

 
 

Reserve for loss and loss expense (Note 8)
 
$
3,925,155

 
3,771,240

Unearned premiums
 
1,483,794

 
1,349,644

Long-term debt
 
439,436

 
439,116

Current federal income tax
 
12,133

 

Accrued salaries and benefits
 
95,352

 
131,850

Other liabilities
 
292,362

 
281,624

Total liabilities
 
$
6,248,232

 
5,973,474

 
 
 
 
 
Stockholders’ Equity:
 
 

 
 

Preferred stock of $0 par value per share:
 
$

 

Authorized shares 5,000,000; no shares issued or outstanding
 
 
 
 
Common stock of $2 par value per share:
 
 
 
 
Authorized shares 360,000,000
 
 
 
 
Issued: 102,786,738 – 2018; 102,284,564 – 2017
 
205,573

 
204,569

Additional paid-in capital
 
385,451

 
367,717

Retained earnings
 
1,824,607

 
1,698,613

Accumulated other comprehensive (loss) income (Note 11)
 
(92,576
)
 
20,170

Treasury stock – at cost
(shares:  43,897,753 – 2018; 43,789,442 – 2017)
 
(584,535
)
 
(578,112
)
Total stockholders’ equity
 
$
1,738,520

 
1,712,957

Commitments and contingencies
 


 


Total liabilities and stockholders’ equity
 
$
7,986,752

 
7,686,431


The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

1


SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
 
Quarter ended September 30,
 
Nine Months ended September 30,
($ in thousands, except per share amounts)
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 

 
 

 
 
 
 
Net premiums earned
 
$
614,277

 
572,055

 
1,810,941

 
1,700,939

Net investment income earned
 
52,443

 
40,446

 
141,227

 
119,295

Net realized and unrealized (losses) gains:
 
 

 
 

 
 
 
 
Net realized investment (losses) gains on disposals
 
(751
)
 
6,871

 
4,034

 
12,252

Other-than-temporary impairments
 
(1,426
)
 
(43
)
 
(5,459
)
 
(4,729
)
Other-than-temporary impairments on fixed income securities recognized in other comprehensive income
 

 
(30
)
 

 
(36
)
Unrealized losses on equity securities
 
(2,610
)
 

 
(15,563
)
 

Total net realized and unrealized (losses) gains
 
(4,787
)
 
6,798

 
(16,988
)
 
7,487

Other income
 
2,538

 
1,994

 
7,896

 
8,526

Total revenues
 
664,471

 
621,293

 
1,943,076

 
1,836,247

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 
 
 
Loss and loss expense incurred
 
379,199

 
344,587

 
1,130,468

 
1,003,618

Amortization of deferred policy acquisition costs
 
124,511

 
118,143

 
368,265

 
350,071

Other insurance expenses
 
80,108

 
78,874

 
244,342

 
243,799

Interest expense
 
6,073

 
6,085

 
18,350

 
18,272

Corporate expenses
 
7,450

 
6,289

 
22,065

 
26,669

Total expenses
 
597,341

 
553,978

 
1,783,490

 
1,642,429

 
 
 
 
 
 
 
 
 
Income before federal income tax
 
67,130

 
67,315

 
159,586

 
193,818

 
 
 
 
 
 
 
 
 
Federal income tax expense:
 
 

 
 

 
 
 
 
Current
 
10,314

 
16,859

 
23,529

 
48,917

Deferred
 
1,381

 
3,738

 
2,878

 
6,317

Total federal income tax expense
 
11,695

 
20,597

 
26,407

 
55,234

 
 
 
 
 
 
 
 
 
Net income
 
$
55,435

 
46,718

 
133,179

 
138,584

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 
 
 
 
Basic net income
 
$
0.94

 
0.80

 
2.26

 
2.37

 
 
 
 
 
 
 
 
 
Diluted net income
 
$
0.93

 
0.79

 
2.23

 
2.34

 
 
 
 
 
 
 
 
 
Dividends to stockholders
 
$
0.18

 
0.16

 
0.54

 
0.48

 
The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 
 


2


SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Quarter ended September 30,
 
Nine Months ended September 30,
($ in thousands)
 
2018
 
2017
 
2018
 
2017
Net income
 
$
55,435

 
46,718

 
133,179

 
138,584

 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 

 
 

 
 
 
 
Unrealized (losses) gains on investment securities:
 
 

 
 

 
 
 
 
Unrealized holding (losses) gains arising during period
 
(17,036
)
 
10,874

 
(103,389
)
 
50,961

Non-credit portion of other-than-temporary impairments recognized in other comprehensive income
 

 
19

 

 
23

  Amounts reclassified into net income:
 
 
 
 
 
 
 
 
Held-to-maturity securities
 
(6
)
 
(35
)
 
(22
)
 
(95
)
Non-credit other-than-temporary impairments
 

 
25

 

 
25

Realized losses (gains) on disposals of available-for-sale securities
 
8,563

 
(4,394
)
 
14,424

 
(4,638
)
Total unrealized (losses) gains on investment securities
 
(8,479
)
 
6,489

 
(88,987
)
 
46,276

 
 
 
 
 
 
 
 
 
Defined benefit pension and post-retirement plans:
 
 

 
 

 
 
 
 
Amounts reclassified into net income:
 
 
 
 
 
 
 
 
Net actuarial loss
 
420

 
329

 
1,260

 
989

  Total defined benefit pension and post-retirement plans
 
420

 
329

 
1,260

 
989

Other comprehensive (loss) income
 
(8,059
)
 
6,818

 
(87,727
)
 
47,265

Comprehensive income
 
$
47,376

 
53,536

 
45,452

 
185,849

 
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
 


3


SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Nine Months ended September 30,
($ in thousands, except per share amounts)
 
2018
 
2017
Common stock:
 
 

 
 

Beginning of year
 
$
204,569

 
203,241

Dividend reinvestment plan (shares:  17,683 – 2018; 22,278 – 2017)
 
35

 
45

Stock purchase and compensation plans (shares:  484,491 – 2018; 537,588 – 2017)
 
969

 
1,075

End of period
 
205,573

 
204,361

 
 
 
 
 
Additional paid-in capital:
 
 

 
 

Beginning of year
 
367,717

 
347,295

Dividend reinvestment plan
 
1,013

 
1,025

Stock purchase and compensation plans
 
16,721

 
14,417

End of period
 
385,451

 
362,737

 
 
 
 
 
Retained earnings:
 
 

 
 

Beginning of year, as previously reported
 
1,698,613

 
1,568,881

Cumulative effect adjustment due to adoption of equity security guidance, net of tax (Note 2)
 
30,726

 

Cumulative effect adjustment due to adoption of stranded deferred tax guidance (Note 2)
 
(5,707
)
 

Balance at beginning of year, as adjusted
 
1,723,632

 
1,568,881

Net income
 
133,179

 
138,584

Dividends to stockholders ($0.54 per share – 2018; $0.48 per share – 2017)
 
(32,204
)
 
(28,424
)
End of period
 
1,824,607

 
1,679,041

 
 
 
 
 
Accumulated other comprehensive (loss) income:
 
 

 
 

Beginning of year, as previously reported
 
20,170

 
(15,950
)
Cumulative effect adjustment due to adoption of equity security guidance, net of tax (Note 2)
 
(30,726
)
 

Cumulative effect adjustment due to adoption of stranded deferred tax guidance (Note 2)
 
5,707

 

Balance at beginning of year, as adjusted
 
(4,849
)
 
(15,950
)
Other comprehensive (loss) income
 
(87,727
)
 
47,265

End of period
 
(92,576
)
 
31,315

 
 
 
 
 
Treasury stock:
 
 

 
 

Beginning of year
 
(578,112
)
 
(572,097
)
Acquisition of treasury stock (shares: 108,311 – 2018; 136,012 – 2017)
 
(6,423
)
 
(6,005
)
End of period
 
(584,535
)
 
(578,102
)
Total stockholders’ equity
 
$
1,738,520

 
1,699,352

 
Selective Insurance Group, Inc. also has authorized, but not issued, 5,000,000 shares of preferred stock, without par value, of which 300,000 shares have been
designated Series A junior preferred stock, without par value.
  
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
 


4


SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months ended September 30,
($ in thousands)
 
2018
 
2017
Operating Activities
 
 

 
 

Net income
 
$
133,179

 
138,584

 
 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
34,961

 
38,163

Stock-based compensation expense
 
12,150

 
10,139

Undistributed gains of equity method investments
 
(4,243
)
 
(4,247
)
Distributions in excess of current year income of equity method investments
 
3,210

 
552

Loss on disposal of fixed assets
 
62

 
998

Net realized and unrealized losses (gains)
 
16,988

 
(7,487
)
 
 
 
 
 
Changes in assets and liabilities:
 
 

 
 

Increase in reserve for loss and loss expense, net of reinsurance recoverable
 
144,920

 
104,429

Increase in unearned premiums, net of prepaid reinsurance
 
120,535

 
115,855

Decrease in net federal income taxes
 
18,339

 
15,674

Increase in premiums receivable
 
(79,894
)
 
(88,175
)
Increase in deferred policy acquisition costs
 
(22,978
)
 
(19,592
)
Decrease (increase) in interest and dividends due or accrued
 
72

 
(1,088
)
Decrease in accrued salaries and benefits
 
(36,498
)
 
(19,804
)
Increase in other assets
 
(13,881
)
 
(6,304
)
(Decrease) increase in other liabilities
 
(34,437
)
 
12,621

Net cash provided by operating activities
 
292,485

 
290,318

 
 
 
 
 
Investing Activities
 
 

 
 

Purchase of fixed income securities, held-to-maturity
 
(7,150
)
 

Purchase of fixed income securities, available-for-sale
 
(1,974,253
)
 
(1,517,474
)
Purchase of equity securities
 
(57,834
)
 
(44,480
)
Purchase of other investments
 
(47,238
)
 
(34,586
)
Purchase of short-term investments
 
(2,711,360
)
 
(3,025,824
)
Sale of fixed income securities, available-for-sale
 
1,382,677

 
811,991

Sale of short-term investments
 
2,572,399

 
3,032,802

Redemption and maturities of fixed income securities, held-to-maturity
 
3,923

 
36,092

Redemption and maturities of fixed income securities, available-for-sale
 
456,037

 
439,616

Sale of equity securities
 
79,676

 
19,007

Sale of other investments
 
3,497

 

Distributions from other investments
 
23,420

 
17,041

Purchase of property and equipment
 
(11,150
)
 
(11,806
)
Net cash used in investing activities
 
(287,356
)
 
(277,621
)
 
 
 
 
 
Financing Activities
 
 

 
 

Dividends to stockholders
 
(30,694
)
 
(26,915
)
Acquisition of treasury stock
 
(6,423
)
 
(6,005
)
Net proceeds from stock purchase and compensation plans
 
5,001

 
4,744

Proceeds from borrowings
 
130,000

 
64,000

Repayments of borrowings
 
(130,000
)
 
(64,000
)
Repayments of capital lease obligations
 
(4,891
)
 
(3,267
)
Net cash used in financing activities
 
(37,007
)
 
(31,443
)
Net decrease in cash and restricted cash
 
(31,878
)
 
(18,746
)
Cash and restricted cash, beginning of year
 
44,710

 
37,405

Cash and restricted cash, end of period
 
$
12,832

 
18,659

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

5


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation
As used herein, the "Company,” “we,” “us,” or “our” refers to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries, except as expressly indicated or unless the context otherwise requires. Our interim unaudited consolidated financial statements (“Financial Statements”) have been prepared by us in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The preparation of the Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported financial statement balances, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. All significant intercompany accounts and transactions between the Parent and its subsidiaries are eliminated in consolidation.

Certain amounts in our prior years' Financial Statements and related notes have been reclassified to conform to the 2018 presentation. Specifically, we reclassified restricted cash balances related to our participation in the National Flood Insurance Program ("NFIP") from other assets in our consolidated balance sheet into a separate line item on the face of that statement. Additionally, refer to Note 2. "Adoption of Accounting Pronouncements" below for a discussion of the retroactive restatements that are included in these financial statements in relation to the adoption of new accounting pronouncements for the treatment of restricted cash and distributions from equity method investments on the consolidated statements of cash flows.

Our Financial Statements reflect all adjustments that, in our opinion, are normal, recurring, and necessary for a fair presentation of our results of operations and financial condition. Our Financial Statements cover the third quarters ended September 30, 2018 (“Third Quarter 2018”) and September 30, 2017 (“Third Quarter 2017”) and the nine-month periods ended September 30, 2018 ("Nine Months 2018") and September 30, 2017 ("Nine Months 2017"). The Financial Statements do not include all of the information and disclosures required by GAAP and the SEC for audited annual financial statements. Results of operations for any interim period are not necessarily indicative of results for a full year. Consequently, our Financial Statements should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Annual Report”) filed with the SEC.

NOTE 2. Adoption of Accounting Pronouncements 
In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 provides guidance to improve certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically the guidance: (i) requires equity securities held in our investment portfolio to be measured at fair value with changes in fair value recognized in earnings; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost; (iv) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (v) clarifies that the need for a valuation allowance on a deferred tax asset related to an available-for-sale ("AFS") security should be evaluated with other deferred tax assets.

We adopted ASU 2016-01 in the first quarter of 2018 and recognized a $30.7 million cumulative-effect adjustment to the opening balances of accumulated other comprehensive income ("AOCI") and retained earnings, which represents the after-tax net unrealized gain on our equity portfolio as of December 31, 2017. Additionally, beginning in the first quarter of 2018, changes in unrealized gains or losses on this portfolio are no longer recorded to AOCI, but are instead recognized in income through "Unrealized losses on equity securities" on our Consolidated Statements of Income. See Note 4 (j) below for information regarding unrealized equity losses recognized in income in Third Quarter and Nine Months 2018.

There were two accounting updates that we adopted with a retrospective transition in the first quarter of 2018 that related to our statements of cash flows. These accounting updates impacted our categorization of distributions from equity method investees (ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15")) and the presentation of restricted cash (ASU 2016-18, Statement of Cash Flows: Restricted Cash ("ASU 2016-18")). These ASUs are discussed below and the discussions are followed with a table presenting the impact of the prior period restatements.
 
In August 2016, the FASB issued ASU 2016-15. As mentioned above, this ASU adds guidance on the categorization of distributions from equity method investees within the statement of cash flows. In accordance with this guidance, we made an accounting policy election to classify these distributions using the cumulative earnings approach. This election resulted in a restatement to operating and investing cash flows as outlined in the table below. ASU 2016-15 also added or clarified guidance on the cash flow classification of certain cash receipts and payments, including, but not limited to: (i) debt prepayment or debt

6


extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; and (iii) separately identifiable cash flows and application of the predominance principle. The updated guidance for these topics did not impact our statement of cash flows.

In November 2016, the FASB issued ASU 2016-18. ASU 2016-18 requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents in the reconciliation of beginning and ending cash on the statements of cash flows. This update also requires a reconciliation of the statement of the cash flows to the balance sheet if the balance sheet includes more than one line item containing cash, cash equivalents, and restricted cash. We have restricted cash related to our participation in the NFIP, which we had previously reported as part of "Other assets" on the Consolidated Balance Sheet. Beginning in the first quarter of 2018, we are reporting restricted cash in its own line item on the Consolidated Balance Sheets to aid in the reconciliation of the amounts presented on the Consolidated Statements of Cash Flows. We have also restated prior year balances on the Consolidated Balance Sheets to conform to the current year presentation.

The adoption of this guidance resulted in a restatement of operating cash flows in Nine Months 2017 to remove the impact of the change in restricted cash from operating activities and include the restricted cash balance in the reconciliation of beginning and ending cash balances on the Statements of Cash Flows. In addition, we have included the required reconciliation in Note 3. "Statements of Cash Flows" below.

ASU 2016-15 and ASU 2016-18 resulted in the following line item restatements within operating and investing cash flows on the Statements of Cash Flows:
 
 
September 30, 2017
($ in thousands)
 
Prior to Adoption
 
After Adoption
Undistributed gains of equity method investments
 
$
(5,157
)
 
(4,247
)
Distributions in excess of current year income of equity method investments
 

 
552

Decrease (increase) in other assets
 
12,678

 
(6,304
)
Net cash provided by operating activities
 
307,838

 
290,318

 
 
 
 
 
Distributions from other investments
 
18,503

 
17,041

Net cash used in investing activities
 
(276,159
)
 
(277,621
)

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates the second step of the two part goodwill impairment test, which required entities to determine the fair value of individual assets and liabilities of a reporting unit to measure the goodwill impairment. Under the new guidance, a goodwill impairment is calculated as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update should be applied on a prospective basis for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted ASU 2017-04 in the first quarter of 2018 and it had no impact on us.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income ("ASU 2018-02"). ASU 2018-02 allows a one-time reclassification from AOCI to retained earnings for the stranded tax assets that were created in AOCI from the enactment of the Tax Cuts and Jobs Act of 2017 ("Tax Reform"). We adopted ASU 2018-02 in the first quarter of 2018 and recognized a $5.7 million cumulative-effect adjustment for the deferred tax charge to income in the fourth quarter of 2017 that was associated with net unrealized gains on our investment portfolio and pension plan resulting from the enactment of Tax Reform.

Pronouncements to be effective in the future
The FASB has issued new leasing guidance through ASU 2016-02, Leases, which was issued in February 2016, as well as additional implementation guidance that was issued in 2018 (collectively referred to as "ASU 2016-02"). ASU 2016-02 requires all lessees to recognize assets and liabilities on their balance sheets for the rights and obligations created by leases with terms longer than 12 months. For leases with a term of 12 months or less, an accounting policy election is allowed to recognize lease expense on a straight-line basis over the lease term. Under the new lease guidance, we expect an increase in assets and liabilities as we will recognize operating leases for office space, fleet vehicles, and equipment on our balance sheet for the first time. However, these increases will not have a material impact to our financial condition. ASU 2016-02 allows for certain practical expedients, accounting policy elections, and a transition method election. We currently plan to adopt practical expedients related to reassessing: (i) whether our existing contracts are, or contain, leases; (ii) lease classification for existing leases; and (iii) initial direct costs for existing leases. Additionally, we plan to adopt accounting policy elections to: (i)

7


aggregate lease and non-lease components of a contract into a single lease component; and (ii) expense short-term leases on a straight-line basis over the lease term. We will be adopting ASU 2016-02 on January 1, 2019 with a cumulative-effect adjustment to the opening balance of retained earnings as of that date. We do not anticipate the impact of this guidance to be material to our financial condition or results of operations.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We do not anticipate the adoption of this guidance to have a material impact on our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements for fair value measurements. The modifications removed the following disclosure requirements: (i) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU added the following disclosure requirements: (i) the changes in unrealized gains and losses for the period included in other comprehensive income ("OCI") for recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. As the requirements of this literature are disclosure only, ASU 2018-13 will not impact our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. These modifications include: (i) removing the requirement to disclose the amount in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year; and (ii) adding the requirement to disclose an explanation of the reasons for significant gains or losses related to changes in the benefit obligation for the period. This update is effective for fiscal years ending after December 15, 2020, with early adoption permitted. As the requirements of this literature are disclosure only, ASU 2018-14 will not impact our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of this guidance on our financial condition or results of operations.

NOTE 3. Statements of Cash Flows
Supplemental cash flow information was as follows:
 
 
Nine Months ended September 30,
($ in thousands)
 
2018
 
2017
Cash paid during the period for:
 
 

 
 

Interest
 
$
15,449

 
15,356

Federal income tax
 
7,193

 
39,000

 
 
 
 
 
Non-cash items:
 
 
 
 
Corporate actions related to fixed income securities, AFS1
 
32,757

 
6,192

Corporate actions related to equity securities1
 
944

 
4,725

Assets acquired under capital lease arrangements
 
4,114

 
278

1Examples of such corporate actions include exchanges, non-cash acquisitions, and stock splits.

8


The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Balance Sheets that equate to the amount reported in the Consolidated Statements of Cash Flows:
($ in thousands)
 
September 30, 2018
 
December 31, 2017
Cash
 
$
446

 
534

Restricted cash
 
12,386

 
44,176

Total cash and restricted cash shown in the Statements of Cash Flows
 
$
12,832

 
44,710


Amounts included in restricted cash represent cash received from the NFIP, which is restricted to pay flood claims under the Write Your Own Program.

NOTE 4. 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


9


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
Losses
1
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
)


10


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
Losses
1
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
)
  1 Gross 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. 

11



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.


12


(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.

NOTE 5. Indebtedness
Our long-term debt balance has not changed materially since December 31, 2017. However, Selective Insurance Company of America ("SICA") borrowed the following short-term funds in the first quarter of 2018 from the FHLBNY:
On February 27, 2018, SICA borrowed $75 million at an interest rate of 1.75%. This borrowing was repaid on March 20, 2018; and
On March 28, 2018, SICA borrowed $55 million at an interest rate of 1.98%. This borrowing was repaid on April 18, 2018.

For detailed information on our indebtedness, see Note 10. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our 2017 Annual Report.

13



NOTE 6. Fair Value Measurements
Our financial assets are measured at fair value as disclosed on the Consolidated Balance Sheets. The fair values of our long-term debt are provided in this footnote and the related carry values have changed by less than 1% during Nine Months 2018. For a discussion of the fair value and hierarchy of the techniques used to value our financial assets and liabilities, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2017 Annual Report.

The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at September 30, 2018 and December 31, 2017:
September 30, 2018
 
 
 
Fair Value Measurements Using
($ in thousands)
 
Assets
Measured at
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets/
Liabilities (Level 1)1
 
Significant Other
 Observable
Inputs
 (Level 2)1
 
Significant Unobservable
 Inputs
 (Level 3)
Description
 
 

 
 

 
 

 
 

Measured on a recurring basis:
 
 

 
 

 
 

 
 

AFS fixed income securities:
 
 
 
 
 
 
 
 
U.S. government and government agencies
 
$
96,462

 
76,760

 
19,702

 

Foreign government
 
17,983

 

 
17,983

 

Obligations of states and political subdivisions
 
1,164,909

 

 
1,164,909

 

Corporate securities
 
1,649,653

 

 
1,649,653

 

CLO and other ABS
 
774,769

 

 
770,628

 
4,141

CMBS
 
489,549

 

 
489,549

 

RMBS
 
996,831

 

 
996,831

 

Total AFS fixed income securities
 
5,190,156

 
76,760