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Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2020
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 in active markets for identical financial instruments that we have the ability to access.
•Level 2: Valuations are based on quoted prices for similar financial instruments, other than quoted prices included in Level 1, 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. 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, trading 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 September 30, 2020, the cash surrender value of the COLI policies was $7,670, 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.

A summary of the carrying value and estimated fair value of our financial instruments at September 30, 2020 and December 31, 2019 is as follows:
 September 30, 2020December 31, 2019
Fair ValueCarrying ValueFair ValueCarrying Value
Assets    
Investments    
Fixed maturities:
Available-for-sale securities$1,717,047 $1,717,039 $1,719,607 $1,719,607 
Trading securities14,811 14,811 15,256 15,256 
Equity securities198,791 198,791 299,203 299,203 
Mortgage loans48,977 47,733 43,992 42,448 
Other long-term investments62,903 62,903 78,410 78,410 
Short-term investments175 175 175 175 
Cash and cash equivalents99,604 99,604 120,722 120,722 
Corporate-owned life insurance7,670 7,670 6,777 6,777 
The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments at September 30, 2020 and December 31, 2019:
September 30, 2020Fair Value Measurements
DescriptionTotalLevel 1Level 2Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$54,599 $— $54,599 $— 
U.S. government agency64,960 — 64,960 — 
States, municipalities and political subdivisions
General obligations
Midwest83,978 — 83,978 — 
Northeast30,550 — 30,550 — 
South110,585 — 110,585 — 
West109,947 — 109,947 — 
Special revenue
Midwest134,841 — 134,841 — 
Northeast62,844 — 62,844 — 
South238,350 — 238,350 — 
West143,102 — 143,102 — 
Foreign bonds28,018 — 28,018 — 
Public utilities84,302 — 84,302 — 
Corporate bonds
Energy27,501 — 27,501 — 
Industrials43,057 — 43,057 — 
Consumer goods and services49,028 — 49,028 — 
Health care7,569 — 7,569 — 
Technology, media and telecommunications41,571 — 41,571 — 
Financial services102,459 — 102,209 250 
Mortgage-backed securities14,529 — 14,529 — 
Collateralized mortgage obligations
Government national mortgage association77,197 — 77,197 — 
Federal home loan mortgage corporation121,676 — 121,676 — 
Federal national mortgage association85,449 — 85,449 — 
Asset-backed securities935 — — 935 
Total Available-for-Sale Fixed Maturities$1,717,047 $— $1,715,862 $1,185 
TRADING
Fixed maturities:
Bonds
Corporate bonds
Industrials$2,004 $— $2,004 $— 
Consumer goods and services1,171 — 1,171 — 
Health care4,965 — 4,965 — 
Financial services1,622 — 1,622 — 
Redeemable preferred stocks5,049 5,049 — — 
Total Trading Securities$14,811 $5,049 $9,762 $— 
EQUITY SECURITIES
Common stocks
Public utilities$16,344 $16,344 $— $— 
Energy8,833 8,833 — — 
Industrials30,935 30,935 — — 
Consumer goods and services31,432 31,432 — — 
Health care24,646 24,646 — — 
Technology, media and telecommunications16,003 16,003 — — 
Financial services63,957 63,957 — — 
Nonredeemable preferred stocks6,641 6,046 — 595 
Total Equity Securities$198,791 $198,196 $— $595 
Short-Term Investments$175 $175 $— $— 
Money Market Accounts$54,590 $54,590 $— $— 
Corporate-Owned Life Insurance$7,670 $— $7,670 $— 
Total Assets Measured at Fair Value$1,993,084 $258,010 $1,733,294 $1,780 

December 31, 2019Fair Value Measurements
DescriptionTotalLevel 1Level 2Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$69,491 $— $69,491 $— 
U.S. government agency100,202 — 100,202 — 
States, municipalities and political subdivisions
General obligations
Midwest88,594 — 88,594 — 
Northeast31,270 — 31,270 — 
South115,203 — 115,203 — 
West110,317 — 110,317 — 
Special revenue
Midwest139,892 — 139,892 — 
Northeast61,543 — 61,543 — 
South234,666 — 234,666 — 
West144,844 — 144,844 — 
Foreign bonds5,117 — 5,117 — 
Public utilities63,651 — 63,651 — 
Corporate bonds
Energy30,124 — 30,124 — 
Industrials54,015 — 54,015 — 
Consumer goods and services49,466 — 49,466 — 
Health care9,480 — 9,480 — 
Technology, media and telecommunications27,670 — 27,670 — 
Financial services100,253 — 100,003 250 
Mortgage-backed securities6,356 — 6,356 — 
Collateralized mortgage obligations
Government national mortgage association80,356 — 80,356 — 
Federal home loan mortgage corporation124,502 — 124,502 — 
Federal national mortgage association71,845 — 71,845 — 
Asset-backed securities750 — — 750 
Total Available-for-Sale Fixed Maturities$1,719,607 $— $1,718,607 $1,000 
TRADING
Fixed maturities:
Bonds
Corporate bonds
Consumer goods and services$2,276 $— $2,276 $— 
Health care4,701 — 4,701 — 
Technology, media and telecommunications1,732 — 1,732 — 
Financial services2,460 — 2,460 — 
Redeemable preferred stocks4,087 4,087 — — 
Total Trading Securities$15,256 $4,087 $11,169 — 
EQUITY SECURITIES
Common stocks
Public utilities$16,295 $16,295 $— $— 
Energy14,639 14,639 — — 
Industrials57,330 57,330 — — 
Consumer goods and services29,935 29,935 — — 
Health care27,285 27,285 — — 
Technology, media and telecommunications19,265 19,265 — — 
Financial services127,780 127,780 — — 
Nonredeemable preferred stocks6,674 6,079 — 595 
Total Equity Securities$299,203 $298,608 $— $595 
Short-Term Investments$175 $175 $— $— 
Money Market Accounts$9,334 $9,334 $— $— 
Corporate-Owned Life Insurance$6,777 $— $6,777 $— 
Total Assets Measured at Fair Value$2,050,352 $312,204 $1,736,553 $1,595 
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.
At least annually, we review the methodologies and assumptions used by our valuation service providers and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. In addition, on a quarterly basis, we also test all securities in the portfolio and independently corroborate the valuations obtained from our third-party valuation service providers. Quarterly, we also perform deep dive analysis of the pricing method used by our third-party valuation service provider by selecting a random sample of securities by asset class and reviewing methodologies. In our opinion, the pricing obtained at September 30, 2020 and December 31, 2019 was reasonable.
For the three- and nine-month periods ended September 30, 2020, 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 and the change in unrealized gains on both fixed maturities and equity securities.
Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity 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. The following table provides a quantitative information about our Level 3 securities at September 30, 2020:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value atValuation Technique(s)Unobservable inputsRange of weighted average significant unobservable inputs
September 30, 2020
Corporate bonds - financial services$250 Fair value equals costNANA
Fixed Maturities asset-backed securities935 Discounted cash flowProbability of default
4% - 6%
Nonredeemable preferred stocks595 Discounted cash flowMultiplier
3x - 4x
During the three- and nine-month periods ended September 30, 2020, there were no securities transferred in or out of Level 3.

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, 2020:
Corporate bonds Asset-backed securitiesEquitiesTotal
Balance at June 30, 2020$250 $927 $595 $1,772 
Net unrealized gains(1)
— 8 — 8 
Balance at September 30, 2020$250  $935 $595 $1,780 
(1) Net unrealized gains are recorded as a component of comprehensive income.
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, 2020:

Corporate bondsAsset-backed securitiesEquitiesTotal
Balance at January 1, 2020$250 $750 $595 $1,595 
Net unrealized gains(1)
— 185 — 185 
Balance at September 30, 2020$250 $935 $595 $1,780 
(1) Net unrealized gains are recorded as a component of comprehensive income.

Commercial Mortgage Loans
The following tables present the carrying value of our commercial mortgage loans and additional information at September 30, 2020 and December 31, 2019:
Commercial Mortgage Loans
September 30, 2020December 31, 2019
Loan-to-valueCarrying ValueCarrying Value
Less than 65%$30,467 $34,024 
65%-75%17,342 8,496 
Total amortized cost$47,809 $42,520 
Allowance for mortgage loan losses(76)(72)
Mortgage loans, net$47,733 $42,448 

Mortgage Loans by Region
September 30, 2020December 31, 2019
Carrying ValuePercent of TotalCarrying ValuePercent of Total
East North Central$3,245 6.8 %$3,245 7.6 %
Southern Atlantic9,794 20.5 7,026 16.5 
East South Central8,238 17.2 8,358 19.7 
New England6,588 13.8 6,588 15.5 
Middle Atlantic14,971 31.3 15,076 35.5 
Mountain2,227 4.6 2,227 5.2 
West North Central2,746 5.8 — — 
Total mortgage loans at amortized cost$47,809 100.0 %$42,520 100.0 %
Mortgage Loans by Property Type
September 30, 2020December 31, 2019
Carrying ValuePercent of TotalCarrying ValuePercent of Total
Commercial   
Multifamily$17,051 35.6 %$11,741 27.6 %
Office11,932 25.0 11,848 27.9 
Industrial
10,124 21.2 10,124 23.8 
Retail
2,227 4.7 2,227 5.2 
Mixed use/Other
6,475 13.5 6,580 15.5 
Total mortgage loans at amortized cost$47,809 100.0 %$42,520 100.0 %
Amortized Cost Basis by Year of Origination and Credit Quality Indicator
202020192018Total
Commercial mortgage loans:
Risk Rating:
1-2 internal grade$5,551 $8,404 $18,770 $32,725 
3-4 internal grade— 8,496 6,588 15,084 
5 internal grade— — — — 
6 internal grade— — — — 
7 internal grade— — — — 
Total commercial mortgage loans$5,551 $16,900 $25,358 $47,809 
Current-period write-offs— — — — 
Current-period recoveries— — — — 
Current-period net write-offs$— $— $— $— 
Commercial mortgage loans carrying value excludes accrued interest of $167. As of September 30, 2020, all loan receivables were current, with no delinquencies. The commercial mortgage loans originate with an initial loan-to-value ratio to provide 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 contractual 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 September 30, 2020, the Company had an allowance for mortgage loan losses of $76, summarized in the following rollforward:
Rollforward of allowance for mortgage loan losses:
As of
September 30, 2020
Beginning balance, January 1, 2020$72 
Current-period provision for expected credit losses4 
Write-off charged against the allowance, if any— 
Recoveries of amounts previously written off, if any— 
Ending balance of the allowance for mortgage loan losses, September 30, 2020$76