XML 23 R11.htm IDEA: XBRL DOCUMENT v3.24.2.u1
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS
Current accounting guidance on fair value measurements includes the application of a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Our financial instruments that are recorded at fair value are categorized into a three-level hierarchy, which is based upon the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (i.e., Level 1) and the lowest priority to unobservable inputs (i.e., Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the financial instrument.
Financial instruments recorded at fair value are categorized in the fair value hierarchy as follows:
•Level 1: Valuations are based on unadjusted quoted prices for identical financial instruments in active markets that we have the ability to access at the measurement date.
•Level 2: Valuations are based on quoted prices for similar financial instruments in active markets, in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument.
•Level 3: Valuations are based on pricing or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument.
We review our fair value hierarchy categorizations on a quarterly basis at which time the classification of certain financial instruments may change if the input observations have changed. Transfers between levels, if any, are recorded as of the beginning of the reporting period.
To determine the fair value of the majority of our investments, we utilize prices obtained from independent, nationally recognized pricing services. We obtain one price for each security. When the pricing services cannot provide a determination of fair value for a specific security, we obtain non-binding price quotes from broker-dealers with whom we have had several years' experience and who have demonstrated knowledge of the subject security.
In order to determine the proper classification in the fair value hierarchy, we obtain and evaluate the vendors' pricing procedures and inputs used to price the security, which include unadjusted quoted market prices for identical securities, such as a New York Stock Exchange closing price, and quoted prices for identical securities in markets that are not active. For fixed maturity securities, an evaluation of interest rates and yield curves observable at commonly quoted intervals, volatility, prepayment speeds, credit risks and default rates may also be performed. We have determined that these processes and inputs result in fair values and classifications consistent with the applicable accounting guidance on fair value measurements.
When possible, we use quoted market prices to determine the fair value of fixed maturities, equity securities and short-term investments. When quoted market prices do not exist, we base estimates of fair value on market information obtained from independent pricing services and brokers or on valuation techniques that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument. Our valuation techniques are discussed in more detail throughout this section.
The mortgage loan portfolio consists entirely of commercial mortgage loans. The fair value of our mortgage loans is determined by modeling performed by our third-party fund manager based on the stated principal and coupon payments provided for in the loan agreements. These cash flows are then discounted using an appropriate risk-adjusted discount rate to determine the security's fair value.
Our other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. The fair value of the partnerships is obtained from the fund managers, which is based on the fair value of the underlying investments held in the partnerships. In management's opinion, these values represent a reasonable estimate of fair value. We have not adjusted the net asset value provided by the fund managers.
For cash and cash equivalents and accrued investment income, carrying value is a reasonable estimate of fair value due to the short-term nature of these financial instruments.

The Company formed a rabbi trust in 2014 to fund obligations under the United Fire & Casualty Company Supplemental Executive Retirement and Deferral Plan (the "Executive Retirement Plan"). Within the rabbi trust, corporate-owned life insurance ("COLI") policies are utilized as an investment vehicle and source of funding for the Company's Executive Retirement Plan. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of June 30, 2024, the cash surrender value of the COLI policies was $12,450 which is equal to the fair value measured using Level 2 inputs, based on the underlying assets of the COLI policies, and is included in other assets in the Consolidated Balance Sheets.

Our long-term debt is not carried in the Consolidated Balance Sheet at fair value. The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for similar financial instruments. The fair value is estimated using a discounted cash flow analysis.

A summary of the carrying value and estimated fair value of our financial instruments at June 30, 2024 and December 31, 2023 is as follows:
 June 30, 2024December 31, 2023
Fair ValueCarrying ValueFair ValueCarrying Value
Assets    
Investments    
Fixed maturities:
Available-for-sale securities$1,796,133 $1,796,133 $1,686,503 $1,686,502 
Equity securities— — 55,019 55,019 
Mortgage loans38,737 41,238 42,632 45,366 
Other long-term investments98,405 98,405 99,507 99,507 
Short-term investments100 100 100 100 
Cash and cash equivalents153,430 153,430 102,046 102,046 
Corporate-owned life insurance12,450 12,450 11,913 11,913 
Liabilities
Long Term Debt107,959 116,965 38,413 50,000 
The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments at June 30, 2024 and December 31, 2023:

June 30, 2024Fair Value Measurements
DescriptionTotalLevel 1Level 2Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$50,649 $— $50,649 $— 
U.S. government agency88,341 — 88,341 — 
States, municipalities and political subdivisions
General obligations
Midwest38,449 — 38,449 — 
Northeast6,999 — 6,999 — 
South36,107 — 36,107 — 
West57,885 — 57,885 — 
Special revenue
Midwest63,713 — 63,713 — 
Northeast49,268 — 49,268 — 
South118,636 — 118,636 — 
West84,769 — 84,769 — 
Foreign bonds15,138 — 15,138 — 
Public utilities130,768 — 130,768 — 
Corporate bonds
Energy39,637 — 39,637 — 
Industrials53,722 — 53,722 — 
Consumer goods and services93,322 — 93,322 — 
Health care26,856 — 26,856 — 
Technology, media and telecommunications74,974 — 74,974 — 
Financial services227,572 — 227,572 — 
Mortgage-backed securities216,279 — 216,279 — 
Collateralized mortgage obligations
Government National Mortgage Association137,600 — 137,600 — 
Federal Home Loan Mortgage Corporation65,309 — 65,309 — 
Federal National Mortgage Association41,217 — 41,217 — 
Asset-backed securities78,923 — 78,647 276 
Total Available-for-Sale Fixed Maturities$1,796,133 $— $1,795,857 $276 
Short-Term Investments$100 $100 $— $— 
Money Market Accounts$51,654 $51,654 $— $— 
Corporate-Owned Life Insurance$12,450 $— $12,450 $— 
Total Assets Measured at Fair Value$1,860,337 $51,754 $1,808,307 $276 
The fair value of financial instruments that are not carried at fair value on a recurring basis in the financial statements at June 30, 2024 are summarized below:
DescriptionFair Value TotalLevel 1Level 2Level 3Net Asset Value
Financial assets:
Cash and cash equivalents$101,776 $101,776 $— $— $— 
Other Long Term Investments$98,405 $— $1,277 $— $97,128 
Mortgage Loans$38,737 $— $— $38,737 $— 
Total Financial assets not accounted for at fair value$238,918 $101,776 $1,277 $38,737 $97,128 
Long Term Debt$107,959 $107,959 
Total Financial liabilities not accounted for at fair value$107,959 $— $107,959 $— $— 


December 31, 2023Fair Value Measurements
DescriptionTotalLevel 1Level 2Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$50,861 $— $50,861 $— 
U.S. government agency94,493 — 94,493 — 
States, municipalities and political subdivisions
General obligations
Midwest52,707 — 52,707 — 
Northeast11,380 — 11,380 — 
South54,207 — 54,207 — 
West77,426 — 77,426 — 
Special revenue
Midwest100,981 — 100,981 — 
Northeast52,227 — 52,227 — 
South164,266 — 164,266 — 
West101,565 — 101,565 — 
Foreign bonds19,172 — 19,172 — 
Public utilities140,467 — 140,467 — 
Corporate bonds
Energy43,473 — 43,473 — 
Industrials70,548 — 70,548 — 
Consumer goods and services95,921 — 95,921 — 
Health care33,472 — 33,472 — 
Technology, media and telecommunications81,788 — 81,788 — 
Financial services145,691 — 140,799 4,892 
Mortgage-backed securities21,483 — 21,483 — 
Collateralized mortgage obligations
Government National Mortgage Association153,206 — 153,206 — 
Federal Home Loan Mortgage Corporation71,685 — 66,862 4,823 
Federal National Mortgage Association45,653 — 45,653 — 
Asset-backed securities3,831 — 2,962 869 
Total Available-for-Sale Fixed Maturities$1,686,503 $— $1,675,919 $10,584 
EQUITY SECURITIES
Common stocks
Public utilities$3,993 $3,993 $— $— 
Energy9,477 9,477 — — 
Industrials14,164 14,164 — — 
Consumer goods and services11,385 11,385 — — 
Health care2,060 2,060 — — 
Technology, media and telecommunications6,405 6,405 — — 
Financial services7,535 7,535 — — 
Total Equity Securities$55,019 $55,019 $— $— 
Short-Term Investments$100 $100 $— $— 
Money Market Accounts$20,333 $20,333 $— $— 
Corporate-Owned Life Insurance$11,913 $— $11,913 $— 
Total Assets Measured at Fair Value$1,773,868 $75,452 $1,687,832 $10,584 


The fair value of financial instruments that are not carried at fair value on a recurring basis in the financial statements at December 31, 2023 are summarized below:
DescriptionFair Value TotalLevel 1Level 2Level 3Net Asset Value
Financial assets:
Cash and cash equivalents$81,713 $81,713 $— $— $— 
Other Long Term Investments$99,507 $— $1,249 $— $98,258 
Mortgage Loans$42,632 $— $— $42,632 $— 
Total Financial assets not accounted for at fair value$223,852 $81,713 $1,249 $42,632 $98,258 
Long Term Debt$38,413 $— $38,413 $— $— 
Total Financial liabilities not accounted for at fair value$38,413 $— $38,413 $— $— 
The fair value of securities that are categorized as Level 1 is based on quoted market prices that are readily and regularly available.

We use a market-based approach for valuing all of our Level 2 securities and submit them primarily to a third-party valuation service provider. Any of these securities not valued by this service provider are submitted to another third-party valuation service provider. Both service providers use a market approach to find pricing of similar financial instruments. The market inputs our service providers normally seek to value our securities include the following,
listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The method and inputs for these securities classified as Level 2 are the same regardless of industry category, credit quality, duration, geographical concentration or economic characteristics. For our mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, our service providers use additional market inputs to value these securities, including the following: new issue data, periodic payment information, monthly payment information, collateral performance and real estate analysis from third parties. Our service providers prioritize inputs based on market conditions, and not all inputs listed are available for use in the valuation process for each security on any given day.
The Company receives updated prices from a third-party on a monthly basis. The third party obtains pricing information from independent pricing services and brokers and validates for reasonableness prior to use for reporting purposes on a monthly basis. At least annually, we review the methodologies and assumptions used by our third-party and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. In our opinion, the pricing obtained at June 30, 2024 and December 31, 2023 was reasonable.
For the three- and six-month periods ended June 30, 2024, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals, funds from debt issuance proceeds, and the change in unrealized gains.
Securities categorized as Level 3 include holdings in certain private placement fixed maturity securities for which an active market does not currently exist. The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2 securities. However, securities are categorized as Level 3 if these quotes cannot be corroborated by other market observable data due to the unobservable nature of the brokers' valuation processes. There is inherent uncertainty of the fair value measurement of Level 3 securities due to the use of significant unobservable inputs. A change in significant unobservable inputs may result in a significantly higher or lower fair value measurement as of the reporting date.
The following table provides quantitative information about our Level 3 securities at June 30, 2024:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value atValuation Technique(s)Unobservable inputsRange of weighted average significant unobservable inputs
June 30, 2024
Fixed Maturities asset-backed securities276 Book ValueProbability of default
0% - 100%
The following table provides a summary of the changes in fair value of our Level 3 securities for the three-month period ended June 30, 2024:
Corporate bonds Asset-backed securitiesTotal
Beginning Balance - April 1, 2024$— $276 $276 
Realized gains (losses)— — — 
Net unrealized gains (losses)(1)
— — — 
Amortization— — — 
Purchases— — — 
Disposals— — — 
Transfers in— — — 
Transfers out— — — 
Ending Balance - June 30, 2024$—  $276 $276 
(1) Net unrealized gains (losses) are recorded as a component of comprehensive income in the line item "Change in net unrealized gain (loss) on investments."

During the three-month period ended June 30, 2024, there were zero securities transferred out of Level 3 due to the use of observable inputs in pricing the securities.
The following table provides a summary of the changes in fair value of our Level 3 securities for the six-month period ended June 30, 2024:

Corporate bondsAsset-backed securitiesTotal
Beginning Balance - January 1, 2024$4,892 $5,692 $10,584 
Realized gains (losses)— — — 
Net unrealized gains (losses)(1)
— (593)(593)
Purchases— — — 
Disposals— — — 
Amortization— — — 
Transfers in— — — 
Transfers out(4,892)(4,823)(9,715)
Ending Balance - June 30, 2024$— $276 $276 
(1) Net unrealized gains (losses) are recorded as a component of comprehensive income in the line item "Change in net unrealized gain (loss) on investments."
During the six-month period ended June 30, 2024, there were two securities transferred out of Level 3 due to the use of observable inputs in pricing the securities.


Commercial Mortgage Loans
The following tables present the carrying value of our commercial mortgage loans and additional information at June 30, 2024 and December 31, 2023:
Commercial Mortgage Loans
June 30, 2024December 31, 2023
Loan-to-valueCarrying ValueCarrying Value
Less than 65%$32,718 $36,762 
65%-75%8,565 8,659 
Total amortized cost$41,283 $45,421 
Allowance for mortgage loan losses(45)(55)
Mortgage loans, net$41,238 $45,366 

Mortgage Loans by Region
June 30, 2024December 31, 2023
Carrying ValuePercent of TotalCarrying ValuePercent of Total
East North Central$3,245 7.9 %$3,245 7.1 %
Southern Atlantic17,119 41.5 17,217 37.9 
East South Central7,393 17.9 7,526 16.6 
New England6,588 15.9 6,588 14.5 
Middle Atlantic2,102 5.1 5,979 13.2 
Mountain1,992 4.8 1,992 4.4 
West North Central2,844 6.9 2,874 6.3 
Total mortgage loans at amortized cost$41,283 100.0 %$45,421 100.0 %
Mortgage Loans by Property Type
June 30, 2024December 31, 2023
Carrying ValuePercent of TotalCarrying ValuePercent of Total
Commercial   
Multifamily$8,448 20.5 %$8,507 18.7 %
Office10,784 26.1 10,950 24.1 
Industrial
9,949 24.1 9,985 22.0 
Retail
10,000 24.2 10,000 22.0 
Mixed use/Other
2,102 5.1 5,979 13.2 
Total mortgage loans at amortized cost$41,283 100.0 %$45,421 100.0 %
Amortized Cost Basis by Year of Origination and Credit Quality Indicator
20232022202020192018Total
Commercial mortgage loans:
Risk Rating:
1-2 internal grade$8,134 $99 5,204 $7,802 $13,456 $34,695 
3-4 internal grade— — — — 6,588 6,588 
5 internal grade— — — — — — 
6 internal grade— — — — — — 
7 internal grade— — — — — — 
Total commercial mortgage loans$8,134 $99 $5,204 $7,802 $20,044 $41,283 
Current-period write-offs— — — — — — 
Current-period recoveries— — — — — — 
Current-period net write-offs$— $— $— $— $— $— 

Commercial mortgage loans carrying value excludes accrued interest of $156. As of June 30, 2024, all loan receivables were current, with no delinquencies. The commercial mortgage loans originate with an initial loan-to-value ratio that provides sufficient collateral to absorb losses should a loan be required to foreclose. Mortgage loans are evaluated on a quarterly basis for impairment on an individual basis through a monitoring process and review of key credit indicators, such as economic trends, delinquency rates, property valuations, occupancy and rental rates and loan-to-value ratios. A loan is considered impaired when the Company believes it will not collect the principal and interest set forth in the contractual terms of the loan. An internal grade is assigned to each mortgage loan, with a grade of 1 being the highest and least likely for an impairment and the lowest rating of 7 being the most likely for an impairment. An allowance for mortgage loan losses is established on each loan recognizing a loss for amounts which we believe will not be collected according to the contractual terms of the respective loan agreement. As of June 30, 2024, the Company had an allowance for mortgage loan losses of $45, summarized in the following rollforward:
Rollforward of allowance for mortgage loan losses:
As of
June 30, 2024
Beginning balance, January 1, 2024$55 
Current-period provision for expected credit losses— 
Write-off charged against the allowance, if any— 
Recoveries of amounts previously written off, if any$(10)
Ending balance of the allowance for mortgage loan losses, June 30, 2024
$45