UNITED FIRE GROUP INCUFCS
UNITED FIRE GROUP INC Fair Value Disclosure
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 December 31, 2025 and 2024:
| December 31, 2025 | Fair Value Measurements | |||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||
| Fixed Maturity, Available-for-Sale: | ||||||||||||||
| US Treasury and government agencies | $ | 104,104 | $ | 26,568 | $ | 77,536 | $ | — | ||||||
| States, municipalities and political subdivisions | 261,734 | — | 261,734 | — | ||||||||||
| Corporate | 783,154 | — | 783,154 | — | ||||||||||
| Residential mortgage-backed | 715,597 | — | 715,597 | — | ||||||||||
| Commercial mortgage-backed | 145,407 | — | 145,407 | — | ||||||||||
| Asset-backed securities | 195,354 | — | 195,354 | — | ||||||||||
| Total Fixed Maturity, Available-for-Sale | 2,205,350 | 26,568 | 2,178,782 | — | ||||||||||
| Money Market Accounts | 44,751 | 44,751 | — | — | ||||||||||
| Corporate-Owned Life Insurance | 13,462 | — | 13,462 | — | ||||||||||
| Total Financial Assets Measured at Fair Value | $ | 2,263,563 | $ | 71,319 | $ | 2,192,244 | $ | — | ||||||
| December 31, 2024 | Fair Value Measurements | |||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||
| Fixed Maturity, Available-for-Sale: | ||||||||||||||
| US Treasury and government agencies | $ | 117,301 | $ | 30,914 | $ | 86,387 | $ | — | ||||||
| States, municipalities and political subdivisions | 247,904 | — | 247,904 | — | ||||||||||
| Corporate | 689,382 | 689,382 | — | |||||||||||
| Residential mortgage-backed | 583,411 | — | 583,411 | — | ||||||||||
| Commercial mortgage-backed | 103,554 | — | 103,554 | — | ||||||||||
| Asset-backed securities | 126,779 | 126,779 | — | |||||||||||
| Total Fixed Maturity, Available-for-Sale | 1,868,331 | 30,914 | 1,837,417 | — | ||||||||||
| Short-Term Investments | 100 | 100 | — | — | ||||||||||
| Money Market Accounts | 23,098 | 23,098 | — | — | ||||||||||
| Corporate-Owned Life Insurance | 13,003 | — | 13,003 | — | ||||||||||
| Total Financial Assets Measured at Fair Value | $ | 1,904,532 | $ | 54,112 | $ | 1,850,420 | $ | — | ||||||
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 December 31, 2025 and December 31, 2024 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: 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 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 securities for which an active market does not currently exist. The fair value of 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. The cash surrender value of the COLI policies 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.
For each of the twelve-month periods ended December 31, 2025 and 2024, the change in our available-for-sale fixed maturity securities categorized as Level 1 and Level 2 was 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 fair value of financial instruments that are not carried at fair value on a recurring basis in the financial statements at December 31, 2025 and 2024 are summarized below:
| December 31, 2025 | |||||||||||||||||
| Description | Fair Value Total | Level 1 | Level 2 | Level 3 | Net Asset Value | ||||||||||||
| Financial assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 111,581 | $ | 111,581 | $ | — | $ | — | $ | — | |||||||
Other Long Term Investments(1) | 228,507 | — | 1,409 | — | 227,098 | ||||||||||||
| Mortgage Loans | 30,127 | — | — | 30,127 | — | ||||||||||||
| Total | $ | 370,215 | $ | 111,581 | $ | 1,409 | $ | 30,127 | $ | 227,098 | |||||||
| Financial Liabilities: | |||||||||||||||||
| Long Term Debt | 142,319 | — | 142,319 | — | — | ||||||||||||
| Total | $ | 142,319 | $ | — | $ | 142,319 | $ | — | $ | — | |||||||
(1) As a member of Lloyd's, the Company participates in the Syndicate results which include the fair value of the investments. As of December 31, 2024, these investments are included in other long-term investments. The fair value of Lloyd's syndicate investments included in other long-term investments was $127.9 million as of December 31, 2025. Also included in our "Other long-term investments" on the Consolidated Balance Sheets is our interest in limited liability partnerships with a current fair value of $99.2 million at December 31, 2025.
| December 31, 2024 | |||||||||||||||||
| Description | Fair Value Total | Level 1 | Level 2 | Level 3 | Net Asset Value | ||||||||||||
| Financial assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 177,851 | $ | 177,851 | $ | — | $ | — | $ | — | |||||||
| Other Long Term Investments | 183,741 | — | 1,277 | — | 182,464 | ||||||||||||
| Mortgage Loans | 38,879 | — | — | 38,879 | — | ||||||||||||
| Total | $ | 400,471 | $ | 177,851 | $ | 1,277 | $ | 38,879 | $ | 182,464 | |||||||
| Financial Liabilities: | |||||||||||||||||
| Long Term Debt | 108,353 | — | 108,353 | — | — | ||||||||||||
| Total | $ | 108,353 | $ | — | $ | 108,353 | $ | — | $ | — | |||||||
For cash and cash equivalents, 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 interests in limited liability partnerships that are recorded on the equity method of accounting and investments related to our participation in Lloyd's of London ("Lloyd's") syndicates which are measured at fair value. The fair value of the limited liability partnerships is obtained from the fund managers, which is based on the fair value of the underlying investments held in the limited liability partnerships. The fair value of the Lloyd's syndicate investments is based on the fair value of the investments held for each syndicate and the Company's respective participation percentage. 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 or fair value provided by the Lloyd's syndicates.
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.
The Company did not have financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy as of December 31, 2025 or 2024. The following table summarizes changes to the Company's financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the year ended December 31, 2024. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.
| Year ended December 31, 2024 | |||||||||||
| Corporate bonds | Asset-backed securities | Total | |||||||||
| Beginning Balance - January 1, 2024 | $ | 4,892 | $ | 5,692 | $ | 10,584 | |||||
Realized gains (losses) (1) | — | — | — | ||||||||
| — | (869) | (869) | |||||||||
| Purchases | — | — | — | ||||||||
| Disposals | — | — | — | ||||||||
| Amortization | — | — | — | ||||||||
| Transfers in | — | — | — | ||||||||
| Transfers out | (4,892) | (4,823) | (9,715) | ||||||||
| Ending Balance - December 31, 2024 | $ | — | $ | — | $ | — | |||||
(1) Unrealized gains (losses) are recorded as a component of comprehensive income.
During the twelve-month period ended December 31, 2024, there were two securities transferred out of Level 3.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 26, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.