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Fair Value of Financial Instruments
 9 Months Ended
Sep. 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). 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.
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. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. 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.
When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more difficult. In addition to the unobservable inputs, Level 3 fair value investments may include observable components, which are components that are actively quoted or can be validated to market-based sources.
The following tables present the categorization for our financial instruments measured at fair value on a recurring basis at September 30, 2024 and December 31, 2023:

September 30, 2024Fair Value Measurements
DescriptionTotalLevel 1Level 2Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$31,347 $31,347 $— $— 
U.S. government agency91,601 — 91,601 — 
States, municipalities and political subdivisions
General obligations
Midwest22,126 — 22,126 — 
Northeast7,095 — 7,095 — 
South24,586 — 24,586 — 
West35,887 — 35,887 — 
Special revenue
Midwest54,963 — 54,963 — 
Northeast30,342 — 30,342 — 
South94,225 — 94,225 — 
West52,810 — 52,810 — 
Foreign bonds23,500 — 23,500 — 
Public utilities123,853 — 123,853 — 
Corporate bonds
Energy42,227 — 42,227 — 
Industrials59,291 — 59,291 — 
Consumer goods and services110,523 — 110,523 — 
Health care39,868 — 39,868 — 
Technology, media and telecommunications85,053 — 85,053 — 
Financial services229,792 — 229,792 — 
Mortgage-backed securities340,655 — 340,655 — 
Collateralized mortgage obligations
Government National Mortgage Association128,753 — 128,753 — 
Federal Home Loan Mortgage Corporation56,342 — 56,342 — 
Federal National Mortgage Association40,823 — 40,823 — 
Asset-backed securities127,129 — 126,853 276 
Total Available-for-Sale Fixed Maturities$1,852,791 $31,347 $1,821,168 $276 
Short-Term Investments$100 $100 $— $— 
Money Market Accounts$105,901 $105,901 $— $— 
Corporate-Owned Life Insurance$13,135 $— $13,135 $— 
Total Assets Measured at Fair Value$1,971,927 $137,348 $1,834,303 $276 
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 Company receives updated pricing information from a third-party on a monthly basis to determine the fair value for the majority of our investments. The third party obtains pricing information from independent pricing services and brokers on a monthly basis and validates for reasonableness prior to use for reporting purposes. At least annually, we review the methodologies and assumptions used by our third-party and verify they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. In our opinion, the pricing information obtained as of September 30, 2024 and December 31, 2023 was reasonable.
We use quoted market prices when available 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 our third-party. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument. The most appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity, equity security or short-term investment and we consistently apply the valuation methodology to measure the security’s fair value.
The fair value of securities 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 use 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.
Securities categorized as Level 3 include holdings in certain fixed maturity securities for which an active market does not currently exist. The fair value of our Level 3 securities is determined by unobservable inputs reflecting assumptions market participants would use, including assumptions about risk. 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 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 September 30, 2024, the cash surrender value of the COLI policies was $13,135 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 the "Other assets" line in the Consolidated Balance Sheets.
The fair value of financial instruments that are not carried at fair value on a recurring basis in the financial statements at September 30, 2024 and December 31, 2023 are summarized below:
September 30, 2024
DescriptionFair Value TotalLevel 1Level 2Level 3Net Asset Value
Financial assets:
Cash and cash equivalents$91,470 $91,470 $— $— $— 
Other Long Term Investments$101,480 $— $1,277 $— $100,203 
Mortgage Loans$39,771 $— $— $39,771 $— 
Total Financial assets not accounted for at fair value$232,721 $91,470 $1,277 $39,771 $100,203 
Long Term Debt$113,745 $— $113,745 $— $— 
Total Financial liabilities not accounted for at fair value$113,745 $— $113,745 $— $— 
December 31, 2023
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 $— $— 
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.
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.
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.
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.
For the three- and nine-month periods ended September 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.
The following table provides quantitative information about our Level 3 securities at September 30, 2024:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value atValuation Technique(s)Unobservable inputsRange of weighted average significant unobservable inputs
September 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 September 30, 2024:

Corporate bonds Asset-backed securitiesTotal
Beginning Balance - July 1, 2024$— $276 $276 
Realized gains (losses)— — — 
Net unrealized gains (losses)(1)
— — — 
Ending Balance - September 30, 2024$—  $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 September 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 nine-month period ended September 30, 2024:

Corporate bondsAsset-backed securitiesTotal
Beginning Balance - January 1, 2024$4,892 $5,692 $10,584 
Realized gains (losses)— — — 
Net unrealized gains (losses)(1)
— (593)(593)
Transfers out(4,892)(4,823)(9,715)
Ending Balance - September 30, 2024$— $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 nine-month period ended September 30, 2024, there were two securities transferred out of Level 3 due to the use of observable inputs in pricing the securities.