TableTable of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q


[X] ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172020
or
[ ] ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34257
ufglogo2017a03.jpgufcs-20200930_g1.gif
________________________
UNITED FIRE GROUP INC.
(Exact name of registrant as specified in its charter)
____________________________
IowaIowa45-2302834
(State of Incorporation)incorporation)(IRSI.R.S. Employer Identification No.)

118 Second Avenue SE
Cedar RapidsIowa
52401
(Address of principal executive offices) (Zip Code)
118 Second Avenue, S.E., Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)

Registrant’sRegistrant's telephone number, including area code: (319) 399-5700

Securities Registered Pursuant to Section 12(b) of the Exchange Act of 1934:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par valueUFCSThe NASDAQ Global Select Market
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 Yes ☒NO No ☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒No ☐
YES ☒NO ☐

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"company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Act:
Large accelerated filer☒
☒
Accelerated filer☐☐
Non-accelerated filer☐
☐
Smaller reporting company☐
☐
Emerging growth company☐
☐


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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES Yes ☐
NO No ☒

As of November 6, 2017, 24,877,6432, 2020,25,031,234 shares of common stock were outstanding.


Table of Contents
United Fire Group, Inc.
Index to Quarterly Report on Form 10-Q
September 30, 2017
2020
Page
1
Page
1
Part I. Financial Information
2
3
4
56
67
42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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5854
5854
5955
5955
5955
5955
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Table of Contents
FORWARD-LOOKING INFORMATION
This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our"), the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "remain(s) optimistic," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will, continue," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. See Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 20162019 and Part II, Item 1A "Risk Factors" of this reportin our other filings with the Securities and Exchange Commission ("SEC") for more information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.
Risks and uncertainties that may affect the actual financial condition and results of the Company include, but are not limited to, the following:

•The frequency and severity of claims, including those related to catastrophe losses and the impact those claims have on our loss reserve adequacy; the occurrence of catastrophic events, including international events, significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics;pandemics, including the ongoing impact of the novel coronavirus (COVID-19) pandemic;
•The adequacy of our reserves for property and casualty insurance losses and loss settlement expenses and our life insurance reserve for future policy benefits;expenses;
•Geographic concentration risk in bothour property and casualty insurance and life insurance segments;business;
•The potential disruption of our operations and reputation due to unauthorized data access, cyber-attacks or cyber-terrorism and other security breaches;
•Developments in general economic conditions, domestic and global financial markets, interest rates and other-than-temporary impairment losses that could affect the performance of our investment portfolio;
Our ability to effectively underwrite and adequately price insured risks;
Changes in industry trends, an increase in competition and significant industry developments;
•Litigation or regulatory actions that could require us to pay significant damages, fines or penalties or change the way we do business;
•Our ability to effectively underwrite and adequately price insured risks;
•Changes in industry trends, an increase in competition and significant industry developments;
•Lowering of one or more of the financial strength ratings of our operating subsidiaries or our issuer credit ratings and the adverse impact such action may have on our premium writings, policy retention, profitability and liquidity;
•Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and other federal stimulus relief legislation, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions; changes in laws, regulations and stock exchange requirements relating to corporate governance and the cost of compliance;
•Our relationship with and the financial strength of our reinsurers; and
•Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products through our independent agent/agency distribution network; and
The satisfaction of the conditions precedent to the consummation of the sale of our life insurance subsidiary, including the receipt of regulatory approvals.

network.
These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission ("SEC"),SEC, we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.



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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

United Fire Group, Inc.
Consolidated Balance Sheets
United Fire Group, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)September 30,
2017		 December 31,
2016		(In Thousands, Except Share Data)September 30,
2020		 December 31,
2019
(unaudited)   (unaudited) 
ASSETS   ASSETS 
Investments   Investments 
Fixed maturities   Fixed maturities 
Held-to-maturity, at amortized cost (fair value $150 in 2017 and $150 in 2016)$150
 $150
Available-for-sale, at fair value (amortized cost $1,480,730 in 2017 and $1,458,235 in 2016)1,498,662
 1,453,286
Trading securities, at fair value (amortized cost $11,833 in 2017 and $13,054 in 2016)13,673
 14,390
Equity securities   
Available-for-sale, at fair value (cost $57,387 in 2017 and $59,994 in 2016)269,341
 246,370
Trading securities, at fair value (cost $5,888 in 2017 and $5,434 in 2016)6,330
 5,644
Available-for-sale, at fair value (amortized cost $1,612,626 in 2020 and $1,659,760 in 2019; allowance for credit losses $8 in 2020 and $0 in 2019)Available-for-sale, at fair value (amortized cost $1,612,626 in 2020 and $1,659,760 in 2019; allowance for credit losses $8 in 2020 and $0 in 2019)$1,717,039  $1,719,607 
Trading securities, at fair value (amortized cost $12,258 in 2020 and $11,941 in 2019)Trading securities, at fair value (amortized cost $12,258 in 2020 and $11,941 in 2019)14,811 15,256 
Equity securities at fair value (cost $61,467 in 2020 and $67,529 in 2019)Equity securities at fair value (cost $61,467 in 2020 and $67,529 in 2019)198,791 299,203 
Mortgage loansMortgage loans47,809  42,520 
Less: allowance for mortgage loan lossesLess: allowance for mortgage loan losses76  72 
Mortgage loans, netMortgage loans, net47,733 42,448 
Other long-term investments49,966
 51,769
Other long-term investments62,903  78,410 
Short-term investments175
 175
Short-term investments175  175 
1,838,297
 1,771,784
2,041,452  2,155,099 
Cash and cash equivalents98,610
 89,194
Cash and cash equivalents99,604  120,722 
Accrued investment income14,911
 13,617
Accrued investment income15,028  15,182 
Premiums receivable (net of allowance for doubtful accounts of $1,170 in 2017 and $1,255 in 2016)351,410
 306,202
Premiums receivable (net of allowance for doubtful accounts of $812 in 2020 and $1,239 in 2019)Premiums receivable (net of allowance for doubtful accounts of $812 in 2020 and $1,239 in 2019)352,150  357,632 
Deferred policy acquisition costs97,477
 93,362
Deferred policy acquisition costs94,223  94,292 
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $52,081 in 2017 and $50,925 in 2016)64,520
 55,524
Reinsurance receivables and recoverables68,116
 62,707
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $54,145 in 2020 and $50,183 in 2019)Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $54,145 in 2020 and $50,183 in 2019)127,990  116,989 
Reinsurance receivables and recoverables (net of allowance for credit losses of $241 in 2020 and $0 in 2019)Reinsurance receivables and recoverables (net of allowance for credit losses of $241 in 2020 and $0 in 2019)199,920  72,369 
Prepaid reinsurance premiums3,821
 3,782
Prepaid reinsurance premiums12,284  9,550 
Goodwill and intangible assetsGoodwill and intangible assets6,920 22,542 
Income taxes receivable21,360
 14,285
Income taxes receivable57,388 19,190 
Goodwill and intangible assets24,163
 24,740
Other assets15,302
 13,943
Other assets41,521  29,905 
Assets held for sale1,592,846
 1,605,618
TOTAL ASSETS$4,190,833
 $4,054,758
TOTAL ASSETS$3,048,480  $3,013,472 
LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES AND STOCKHOLDERS’ EQUITY 
Liabilities   Liabilities 
Future policy benefits and losses, claims and loss settlement expensesFuture policy benefits and losses, claims and loss settlement expenses 
Losses and loss settlement expenses$1,237,280
 $1,123,896
Losses and loss settlement expenses$1,555,083  $1,421,754 
Unearned premiums490,443
 443,802
Unearned premiums499,730  505,162 
Accrued expenses and other liabilities130,618
 147,104
Accrued expenses and other liabilities156,874  155,498 
Deferred income taxes24,707
 7,849
Liabilities held for sale1,363,737
 1,390,223
Deferred tax liabilityDeferred tax liability16,511  20,586 
TOTAL LIABILITIES$3,246,785
 $3,112,874
TOTAL LIABILITIES$2,228,198  $2,103,000 
Stockholders’ Equity   Stockholders’ Equity 
Common stock, $0.001 par value; authorized 75,000,000 shares; 24,849,889 and 25,429,769 shares issued and outstanding in 2017 and 2016, respectively$25
 $25
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,031,234 and 25,015,963 shares issued and outstanding in 2020 and 2019, respectivelyCommon stock, $0.001 par value; authorized 75,000,000 shares; 25,031,234 and 25,015,963 shares issued and outstanding in 2020 and 2019, respectively$25  $25 
Additional paid-in capital193,114
 216,482
Additional paid-in capital200,849  200,179 
Retained earnings600,988
 616,322
Retained earnings568,501  697,116 
Accumulated other comprehensive income, net of tax149,921
 109,055
Accumulated other comprehensive income, net of tax50,907  13,152 
TOTAL STOCKHOLDERS’ EQUITY$944,048
 $941,884
TOTAL STOCKHOLDERS’ EQUITY$820,282  $910,472 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$4,190,833
 $4,054,758
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,048,480  $3,013,472 
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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United Fire Group, Inc.
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands, Except Share Data)2017 2016 2017 2016(In Thousands, Except Share Data)2020 201920202019
Revenues       Revenues 
Net premiums earned$255,758
 $239,469
 $737,424
 $691,976
Net premiums earned$259,061  $274,942 $791,519 $813,742 
Investment income, net of investment expenses13,792
 14,027
 38,561
 35,017
Investment income, net of investment expenses7,244  13,291 22,303 43,923 
Net realized investment gains (includes reclassifications for net unrealized investment gains on available-for-sale securities of $419 and $5,799 in 2017 and $2,320 and $4,666 in 2016; previously included in accumulated other comprehensive income)67

2,129
 3,397
 4,832
Net realized investment gains (losses) (includes reclassifications for net unrealized investment gains/(losses) on available-for-sale securities of $54 and $13 in 2020 and $130 and $257 in 2019; previously included in accumulated other comprehensive income)Net realized investment gains (losses) (includes reclassifications for net unrealized investment gains/(losses) on available-for-sale securities of $54 and $13 in 2020 and $130 and $257 in 2019; previously included in accumulated other comprehensive income)15,212 9,822 (62,416)50,126 
Other incomeOther income604  0 6,323 0 
Total revenues$269,617
 $255,625
 $779,382
 $731,825
Total revenues$282,121  $298,055 $757,729 $907,791 
Benefits, Losses and Expenses       Benefits, Losses and Expenses 
Losses and loss settlement expenses$223,208
 $169,303
 $568,356
 $475,568
Losses and loss settlement expenses$234,693  $211,752 $626,169 $596,001 
Amortization of deferred policy acquisition costs52,986
 52,240
 154,845
 151,216
Amortization of deferred policy acquisition costs52,095  54,828 158,440 161,842 
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,352 and $4,056 in 2017 and $1,371 and $4,113 in 2016; previously included in accumulated other comprehensive income)25,817
 20,047
 69,900
 61,469
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,072 and $3,217 in 2020 and $1,124 and $3,372 in 2019; previously included in accumulated other comprehensive income)Other underwriting expenses (includes reclassifications for employee benefit costs of $1,072 and $3,217 in 2020 and $1,124 and $3,372 in 2019; previously included in accumulated other comprehensive income)35,470  36,003 114,020 104,370 
Goodwill impairmentGoodwill impairment15,091 0 15,091 0 
Total benefits, losses and expenses$302,011
 $241,590
 $793,101
 $688,253
Total benefits, losses and expenses$337,349  $302,583 $913,720 $862,213 
Income (loss) from continuing operations before income taxes$(32,394) $14,035
 $(13,719) $43,572
Federal income tax expense (benefit) (includes reclassifications of $327 and ($610) in 2017 and ($332) and ($194) in 2016; previously included in accumulated other comprehensive income)(13,312) 2,407
 (13,330) 6,489
Income (loss) from continuing operations$(19,082) $11,628
 $(389) $37,083
Income from discontinued operations, net of taxes1,218
 740
 5,419
 826
Net income (loss)$(17,864) $12,368
 $5,030
 $37,909
Income (loss) before income taxesIncome (loss) before income taxes$(55,228) $(4,528)$(155,991)$45,578 
Federal income tax expense (benefit) (includes reclassifications of $213 and $672 in 2020 and $209 and $654 in 2019; previously included in accumulated other comprehensive income)Federal income tax expense (benefit) (includes reclassifications of $213 and $672 in 2020 and $209 and $654 in 2019; previously included in accumulated other comprehensive income)(17,987) (2,186)(52,176)7,595 
Net Income (loss)Net Income (loss)$(37,241)$(2,342)$(103,815)$37,983 
Other comprehensive income (loss)       Other comprehensive income (loss)
Change in net unrealized appreciation on investments$18,995
 $(9,440) $64,614
 $83,768
Change in net unrealized appreciation on investments$4,116  $15,410 $44,586  $77,360 
Change in liability for underfunded employee benefit plans—
 —
 —
 —
Change in liability for underfunded employee benefit plans0 0 0 0 
Other comprehensive income , before tax and reclassification adjustments$18,995
 $(9,440) $64,614
 $83,768
Other comprehensive income, before tax and reclassification adjustmentsOther comprehensive income, before tax and reclassification adjustments$4,116  $15,410 $44,586  $77,360 
Income tax effect(6,648) 3,304
 (22,615) (29,320)Income tax effect(864) (3,237)(9,363) (16,246)
Other comprehensive income, after tax, before reclassification adjustments$12,347
 $(6,136) $41,999
 $54,448
Other comprehensive income, after tax, before reclassification adjustments$3,252  $12,173 $35,223  $61,114 
Reclassification adjustment for net realized investment gains included in income$(419) $(2,320) $(5,799) $(4,666)
Reclassification adjustment for net realized investment (gains) losses included in incomeReclassification adjustment for net realized investment (gains) losses included in income$(54) $(130)$(13) $(257)
Reclassification adjustment for employee benefit costs included in expense1,352
 1,371
 4,056
 4,113
Reclassification adjustment for employee benefit costs included in expense1,072  1,124 3,217  3,372 
Total reclassification adjustments, before tax$933
 $(949) $(1,743) $(553)Total reclassification adjustments, before tax$1,018 $994 $3,204 $3,115 
Income tax effect(327) 332
 610
 194
Income tax effect(213)(209)(672)(654)
Total reclassification adjustments, after tax$606
 $(617) $(1,133) $(359)Total reclassification adjustments, after tax$805 $785 $2,532 $2,461 
Comprehensive income (loss)$(4,911) $5,615
 $45,896
 $91,998
Comprehensive income (loss)$(33,184) $10,616 $(66,060) $101,558 
       
Diluted weighted average common shares outstanding24,960,086
 25,815,346
 25,666,405
 25,711,014
Diluted weighted average common shares outstanding25,031,234  25,176,334 25,023,401 25,643,744 
Earnings per common share from continuing operations:       
Earnings (loss) per common share:Earnings (loss) per common share:
Basic$(0.77) $0.46
 $(0.01) $1.47
Basic$(1.49)$(0.09)$(4.15)$1.51 
Diluted(0.77) 0.45
 (0.01) 1.44
Diluted(1.49)(0.09)(4.15)1.48 
Earnings per common share:       
Basic$(0.72) $0.49
 $0.20
 $1.50
Diluted(0.72) 0.48
 0.20
 1.47
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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United Fire Group, Inc.
Consolidated Statement of Stockholders’ Equity (Unaudited)


Common Stock
(In Thousands, Except Share Data)Shares outstandingCommon stockAdditional paid-in capitalRetaining EarningsAccumulated other comprehensive incomeTotal
 
Balance, January 1, 202025,015,963 $25 $200,179 $697,116 $13,152 $910,472 
Net income (loss)— — — (72,534)— (72,534)
Shares repurchased(70,467)— (2,741)— — (2,741)
Stock based compensation70,597 — 879 — — 879 
Dividends on common stock ($0.33 per share)— — — (8,249)— (8,249)
Change in net unrealized investment appreciation(1)
— — — — 4,500 4,500 
Change in liability for underfunded employee benefit plans(2)
— — — — 847 847 
Cumulative effect of change in accounting principle— — — (30)— (30)
Balance, March 31, 202025,016,093 $25 $198,317 $616,303 $18,499 $833,144 
Net income— $— $— $5,960 $— $5,960 
Stock based compensation15,141 — 1,479 — — 1,479 
Dividends on common stock ($0.33 per share)— — — (8,267)— (8,267)
Change in net unrealized investment appreciation(1)
— — — — 27,504 27,504 
Change in liability for underfunded employee benefit plans(2)
— — — — 847 847 
Balance, June 30, 202025,031,234 $25 $199,796 $613,996 $46,850 $860,667 
Net income (loss)— $— $— $(37,241)$— $(37,241)
Stock based compensation— — 1,053 — — 1,053 
Dividends on common stock ($0.33 per share)— — — (8,254)— (8,254)
Change in net unrealized investment appreciation(1)
— — — — 3,209 3,209 
Change in liability for underfunded employee benefit plans(2)
— — — — 848 848 
Balance, September 30, 202025,031,234 $25 $200,849 $568,501 $50,907 $820,282 
(In Thousands, Except Share Data)Nine Months Ended September 30, 2017
  
Common stock 
Balance, beginning of year$25
Shares repurchased (701,899 shares)—
Shares issued for stock-based awards (131,777 shares)—
Balance, end of period$25
  
Additional paid-in capital 
Balance, beginning of year$216,482
Compensation expense and related tax benefit for stock-based award grants3,456
Shares repurchased(29,784)
Shares issued for stock-based awards2,960
Balance, end of period$193,114
  
Retained earnings 
Balance, beginning of year$616,322
Net income5,030
Dividends on common stock ($0.81 per share)(20,364)
Balance, end of period$600,988
  
Accumulated other comprehensive income, net of tax 
Balance, beginning of year$109,055
Change in net unrealized investment appreciation(1)
38,230
Change in liability for underfunded employee benefit plans(2)
2,636
Balance, end of period$149,921
  
Summary of changes 
Balance, beginning of year$941,884
Net income5,030
All other changes in stockholders’ equity accounts(2,866)
Balance, end of period$944,048
(1)The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.


.

(1)The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.

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Common Stock
(In Thousands, Except Share Data)Shares outstandingCommon stockAdditional paid-in capitalRetaining EarningsAccumulated other comprehensive incomeTotal
 
Balance, January 1, 201925,097,408 $25 $203,350 $715,472 $(30,472)$888,375 
Net income— — — 44,521 — 44,521 
Stock based compensation70,414 — 3,438 — — 3,438 
Dividends on common stock $0.31 per share)— — — (7,797)— (7,797)
Change in net unrealized investment appreciation(1)
— — — — 26,279 26,279 
Change in liability for underfunded employee benefit plans(2)
— — — — 888 888 
Cumulative effect of change in accounting principle— — — (513)— (513)
Balance, March 31, 201925,167,822 $25 $206,788 $751,683 $(3,305)$955,191 
Net income (loss)$— $— $— $(4,196)$— $(4,196)
Shares repurchased(1,507)— (69)— — (69)
Stock based compensation78,885 — 2,252 — — 2,252 
Dividends on common stock $0.33 per share)— — — (8,325)— (8,325)
Change in net unrealized investment appreciation(1)
— — — — 22,562 22,562 
Change in liability for underfunded employee benefit plans(2)
— — — — 888 888 
Balance, June 30, 201925,245,200 $25 $208,971 $739,162 $20,145 $968,303 
Net income (loss)$— $— $— $(2,342)$— $(2,342)
Shares repurchased(177,249)— (8,058)— — (8,058)
Stock based compensation13,775 — 1,591 — — 1,591 
Dividends on common stock $0.33 per share)— — — (8,284)— (8,284)
Change in net unrealized investment appreciation(1)
— — — — 12,070 12,070 
Change in liability for underfunded employee benefit plans(2)
— — — — 888 888 
Balance, September 30, 201925,081,726 $25 $202,504 $728,536 $33,103 $964,168 
(1)The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.






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United Fire Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2017 2016(In Thousands)2020 2019
Cash Flows From Operating Activities   Cash Flows From Operating Activities 
Net income$5,030
 $37,909
Less net income from discontinued operations, net of taxes5,419
 826
Adjustments to reconcile net income to net cash provided by operating activities   
Net income (loss)Net income (loss)$(103,815) $37,983 
Adjustments to reconcile net income to net cash provided by (used in) operating activitiesAdjustments to reconcile net income to net cash provided by (used in) operating activities 
Net accretion of bond premium6,663
 5,181
Net accretion of bond premium7,719  7,074 
Depreciation and amortization3,501
 4,879
Depreciation and amortization5,009  4,235 
Goodwill impairmentGoodwill impairment15,091 0 
Stock-based compensation expense3,456
 2,731
Stock-based compensation expense3,979  5,248 
Net realized investment gains(3,397) (4,832)
Net cash flows from trading investments816
 (36)
Net realized investment (gains) lossesNet realized investment (gains) losses62,416  (50,126)
Net cash flows from equity and trading investmentsNet cash flows from equity and trading investments37,552  911 
Deferred income tax benefit(4,979) (3,847)Deferred income tax benefit(21,824) 8,829 
Changes in:   Changes in: 
Accrued investment income(1,294) (831)Accrued investment income154  170 
Premiums receivable(45,208) (54,725)Premiums receivable5,482  (40,792)
Deferred policy acquisition costs(4,115) (10,268)Deferred policy acquisition costs69  (5,704)
Reinsurance receivables(5,409) (12,224)Reinsurance receivables(127,551) 3,664 
Prepaid reinsurance premiums(39) (212)Prepaid reinsurance premiums(2,734) (887)
Income taxes receivable(7,075) (11,370)Income taxes receivable(38,198) 3,029 
Other assets(1,358) 659
Other assets(11,616) (17,645)
Future policy benefits and losses, claims and loss settlement expenses113,384
 86,272
Losses and loss settlement expensesLosses and loss settlement expenses133,329  48,056 
Unearned premiums46,641
 53,699
Unearned premiums(5,432) 35,296 
Accrued expenses and other liabilities(12,430) (6,198)Accrued expenses and other liabilities4,593  16,821 
Income taxes payable—
 (4,917)
Deferred income taxes1,794
 2,665
Deferred income taxes7,713  (434)
Other, net1,920
 (1,605)Other, net15,196  437 
Cash from operating activities - continuing operations92,871
 45,021
Cash from operating activities - discontinued operations23,814
 45,965
Total adjustments$116,685
 $90,986
Net cash provided by operating activities$116,296
 $128,069
Cash from operating activitiesCash from operating activities90,947 18,182 
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities$(12,868) $56,165 
Cash Flows From Investing Activities   Cash Flows From Investing Activities 
Proceeds from sale of available-for-sale investments$3,388
 $1,968
Proceeds from sale of available-for-sale investments$16,907  $36,490 
Proceeds from call and maturity of available-for-sale investments134,503
 260,520
Proceeds from call and maturity of available-for-sale investments239,438  206,478 
Proceeds from short-term and other investments4,846
 1,725
Purchase of available-for-sale investments(162,121) (313,060)
Purchase of short-term and other investments(4,864) (2,772)
Net purchases and sales of property and equipment(11,630) (6,090)
Cash from investing activities - continuing operations(35,878) (57,709)
Cash from investing activities - discontinued operations31,517
 37,685
Net cash used in investing activities$(4,361) $(20,024)
Proceeds from sale of other investmentsProceeds from sale of other investments5,391  3,607 
Purchase of investments in mortgage loansPurchase of investments in mortgage loans(5,564) (10,723)
Purchase of investments available-for-salePurchase of investments available-for-sale(216,001)(151,528)
Purchase of other investmentsPurchase of other investments(4,829) (16,939)
Purchase of property and equipmentPurchase of property and equipment$(15,506) (27,796)
Net cash provided by investing activitiesNet cash provided by investing activities19,836 39,589 
Cash Flows From Financing Activities   Cash Flows From Financing Activities 
Issuance of common stockIssuance of common stock$(568)$2,033 
Repurchase of common stockRepurchase of common stock(2,741)(8,127)
Payment of cash dividends$(20,364) $(18,246)Payment of cash dividends(24,777)(24,406)
Repurchase of common stock(29,784) (2,867)
Issuance of common stock2,960
 7,149
Tax impact from issuance of common stock—
 (482)
Cash from financing activities - continuing operations(47,188) (14,446)
Cash from financing activities - discontinued operations(46,239) (59,104)
Net cash used in financing activities$(93,427) $(73,550)Net cash used in financing activities$(28,086)(30,500)
Net Change in Cash and Cash Equivalents$18,508
 $34,495
Net Change in Cash and Cash Equivalents$(21,118) $65,254 
Less: decrease (increase) in cash and cash equivalents - discontinued operations(9,092) (24,546)
Net increase in cash and cash equivalents - continuing operations9,416
 9,949
Cash and Cash Equivalents at Beginning of Period - Continuing Operations89,194
 89,496
Cash and Cash Equivalents at End of Period - Continuing Operations$98,610
 $99,445
Cash and Cash Equivalents at Beginning of PeriodCash and Cash Equivalents at Beginning of Period120,722 64,454 
Cash and Cash Equivalents at End of PeriodCash and Cash Equivalents at End of Period$99,604 $129,708 
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.

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UNITED FIRE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share amounts or as otherwise noted)


NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Business
United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance and life insurance and selling annuities through a network of independent agencies. Our insurance company subsidiaries are licensed as a property and casualty insurerinsurers in 4648 states and the District of Columbia, and as a life insurer in 37 states.
Discontinued Operations
We have historically reported our operations in two business segments: property and casualty insurance and life insurance. On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company, to Kuvare US Holdings, Inc. ("Kuvare"). As a result, our life insurance business, previously a separate segment, has been considered held for sale and reported as discontinued operations in the Consolidated Balance Sheets, Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows (collectively, the "Consolidated Financial Statements"). Subsequent to the announcement of this sale, our continuing operations are now reported as one business segment. All current and prior periods reflected in this Form 10-Q have been presented as continuing and discontinued operations, unless otherwise noted. The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval. For more information, refer to Note 11. Discontinued Operations.Columbia.
Basis of Presentation
The unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X promulgated by the SEC. Certain financial information that is included in our Annual Report on Form 10-K for the year ended December 31, 2019, including certain financial statement footnote disclosures, areis not required by the rules and regulations of the SEC for interim financial reporting and havehas been condensed or omitted.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables; future policy benefits and losses, claims and loss settlement expenses; and pension and postretirementpost-retirement benefit obligations.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Management of UFG believes the accompanying unaudited Consolidated Financial Statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany transactions have been eliminated in consolidation. The results reported for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20162019.
Segment Information
On September 19, 2017, the Company announced that it had agreed to sell its subsidiary, United Life Insurance Company ("United Life"), to Kuvare US Holdings, Inc. ("Kuvare"). The review reportsale closed on March 30, 2018. Prior to the announcement to sell United Life, we had 2 reportable business segments in our operations: property and casualty insurance and life insurance. The property and casualty insurance business has 6 domestic locations from which it conducts its direct business. The life insurance segment operated from our home office in Cedar Rapids, Iowa. Because all of Ernst & Young LLPour insurance is sold domestically, we have no revenues from foreign operations.

After the announcement of the United Life transaction, our continuing operations, the property and casualty insurance business, was reported as 1 reportable segment. The property and casualty insurance business profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of September 30, 2017Income and forComprehensive Income. We analyze the three-property and nine-month periods ended September 30, 2017casualty insurance business results based on profitability (i.e., loss ratios), expenses and 2016 accompanies the unaudited Consolidated Financial Statements included in Part I, Item 1 "Financial Statements."

return on equity. The Company's property and casualty insurance business was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution networks with insurance

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agents and monitoring the regulatory environment. The property and casualty insurance business products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance business geographic concentration did not change after the announcement of the sale of the life insurance business. We will continue to evaluate our continuing operations on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP.
Discontinued Operations
On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life, to Kuvare for $280,000 in cash, less a $21 adjustment as set forth in the definitive agreement, for a net amount of $279,979. The sale closed on March 30, 2018 (the "closing date") and we reported an after-tax gain on the sale of discontinued operations of $27,307. The life insurance business (previously reported as a separate segment) was considered held for sale and reported as discontinued operations and its financial position, results of operations and cash flows were reported separately for all periods presented, as applicable, unless otherwise noted.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and non-negotiable certificates of deposit with original maturities of three months or less.
For the nine-month periods ended September 30, 20172020 and 2016,2019, we made payments for income taxes for continuing operations totaling $7,648$125 and $24,026,$1,556, respectively. We received a tax refund of $10,000 during the nine-month period ended September 30, 2017. We did not0t receive a tax refund during the nine-month period ended September 30, 2016.2020 and we received a tax refund of $5,401 during the nine-month period ended September 30, 2019.
For the nine-month periods ended September 30, 20172020 and 2016,2019, we made no0 interest payments (excluding interest credited to policyholders’ accounts).
Deferred Policy Acquisition Costs ("DAC")


Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC, including the related amortization recognized for the nine-month period ended September 30, 2017.
2020.
    
 Continuing Operations Discontinued Operations  
 Property & Casualty Insurance Life Insurance Total
Recorded asset at beginning of period$93,362
 $70,750
 $164,112
Underwriting costs deferred158,960
 4,192
 163,152
Amortization of deferred policy acquisition costs(154,845) (5,524) (160,369)
Ending unamortized deferred policy acquisition costs$97,477
 $69,418
 $166,895
Impact of unrealized gains and losses on available-for-sale securities—
 (3,582) (3,582)
Recorded asset at September 30, 2017$97,477
 $65,836
 $163,313
Total
Recorded asset at beginning of period$94,292 
Underwriting costs deferred158,371 
Amortization of deferred policy acquisition costs(158,440)
Recorded asset at September 30, 2020$94,223 


Property and casualty insurance policy acquisition costs deferred are amortized as premium revenue is recognized. The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value. This takes into account the premium to be earned, losses and loss settlement expenses expected to be incurred and certain other costs expected to be incurred as the premium is earned.

Goodwill
For traditional life insurance policies, DAC is amortized to incomeGoodwill assets arise as a result of business combinations and consist of the excess of the fair value of consideration paid over the premium-paying period in proportiontangible assets acquired and liabilities assumed. All of our goodwill assets relate to the ratioacquisition of Mercer Insurance Group, Inc. on March 28, 2011. We evaluate goodwill assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the expected annual premium revenue to the expected total premium revenue. Expected premium revenue and gross profits are based on the same mortality and withdrawal assumptions used in determining future policy benefits. These assumptions are not revised after policy issuance unless the recorded DAC assetcarrying amount of goodwill assets may exceed their implied fair value. Any impairment is deemed to be unrecoverable from future expected profits.

For non-traditional life insurance policies, DAC is amortized over the anticipated terms in proportion to the ratio of the expected annual gross profits to the total expected gross profits. Changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on amortization of DAC for revisions to estimated gross profits is reported in earningsrecognized in the period that the estimated gross profits are revised.impairment is identified. During the third quarter of 2020, we completed a quantitative analysis of our goodwill as a

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The effect on DAC that results fromresult of the assumed realizationfollowing factors: (i) disruptions in the equity markets, specifically for property and casualty insurance companies, as a result of unrealized gains (losses) on investments allocatedthe COVID-19 pandemic and due to non-traditional life insurance business is recognized withthe current year weather related catastrophes; and (ii) the fair value of our stock trading significantly below book value. As a result of the quantitative analysis, we recorded an offset to net unrealized investment appreciationimpairment charge of $15,091 as of the balance sheet date. The impact of unrealized gains and losses on available-for-sale securities decreased the DAC asset by $9,995 and $6,413 at September 30, 20172020. The impairment charge was determined based on completion of both a discounted cash flow and December 31, 2016, respectively.market value analysis.



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Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss ("NOL") carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has considered the implications of the CARES Act on its tax provision and has included an income tax benefit of $17.8 million as the result of this Act.
Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders' equity and do not impact federal income tax expense.
We reported aconsolidated federal income tax benefit from continuing and discontinued operations on a consolidated basis of $10,400 and a federal income tax expenses $6,904$52,176 for the nine-month periodsperiod ended September 30, 2017 and 2016, respectively.2020 compared to income tax expense of $7,595 during the same period of 2019. Our effective tax rate is different than the federal statutory rate of 35.021 percent, due principally to the effectimpact of tax-exempt municipal bond interest income and non-taxable dividend income.the provisions of the CARES Act.
The Company performs a quarterly review of its tax positions and makes a determination of whether it is more likely than not that the tax position will be sustained upon examination. If, based on review, it appears not more likely than not that the positions will be sustained, the Company will calculate any unrecognized tax benefits and, if necessary, calculate and accrue any related interest and penalties. We did not0t recognize any liability for unrecognized tax benefits at September 30, 20172020 or December 31, 2016.2019. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.

With regard to the sale of our life insurance subsidiary, federal income taxes will be allocated to continuing and discontinued operations in accordance with the Company’s tax allocation agreement and the terms of the definitive agreement related to the sale.
We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before 2014.2015. The Internal Revenue Service is conducting routine examinationsan examination of our federal income tax return for the 20152017 tax year.


Leases

The Company determines if a contract contains a lease at inception of the contract. The Company's inventory of leases consists of operating leases which are recorded as a lease obligation liability disclosed in the "Accrued expenses and other liabilities" line on the Consolidated Balance Sheets and as a lease right-of-use asset disclosed in the "Other assets" line on the Consolidated Balance Sheets. The Company's operating leases consist of office space, vehicles, computer equipment and office equipment. The lease right-of-use asset represents the Company's right to use each underlying asset for the lease term and the lease obligation liability represents the Company's obligation over the lease term. The Company's lease obligation is recorded at the present value of the lease payments based on the term of the applied lease. Short-term leases of 12 months or less are recorded on the Consolidated Balance Sheets and lease payments are recognized on the Consolidated Statements of Income and Comprehensive Income. For more information on leases refer to Note 10 "Leases."


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Variable Interest Entities
The Company and certain related parties are equity investors in 1 investment in which the Company determined is a variable interest entity ("VIE") as a result of participation in the risks and rewards of the VIE based on the objectives and strategies of the VIE. The VIE is a limited liability company that primarily invests in commercial real estate. The Company and certain related parties are not the primary beneficiary largely due to their inability to influence management or direct the activities that most significantly impact the VIE's economic performance. Based on these facts and circumstances, the Company has a variable interest in the VIE, but has not consolidated the VIE's financial results as it is not the primary beneficiary. The Company's investment is reported in other long-term investments in the Consolidated Balance Sheets and accounted for under the equity method of accounting. The fair value of the VIE at September 30, 2020 was $3,638 and there are no future funding commitments.
Credit Losses
The Company recognizes credit losses for our available-for-sale fixed-maturity portfolio, reinsurance receivables, mortgage loans and premium receivables by setting up allowances which are remeasured each reporting period and recorded in the Consolidated Statements of Income and Comprehensive Income.
For our available-for-sale fixed-maturity portfolio an allowance for credit losses is recorded net of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value vs. amortized cost, investment spreads widening or contracting, rating actions, payment and default history.
The Company does not recognize an allowance for credit losses for accrued interest receivable for available-for-sale fixed-maturity securities, which is recorded in "Accrued investment income" in the Consolidated Balance Sheets and "Investment income, net of investment expenses" in the Consolidated Statements of Income and Comprehensive Income. The Company considers collections of accrued investment income within six months to be timely and therefore not requiring a write-off. If a write-off is required for accrued investment income outstanding greater than six months, the Company writes off accrued interest by reversing net investment income. For more information on credit losses and the allowance for credit losses for available-for-sale fixed-maturity portfolio, see Note 2 "Summary of Investments."
An allowance for mortgage loan losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments which have similar risk characteristics. To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future expected losses and then layers on a market-linked adjustment. On a quarterly basis, quantitative credit risk metrics, including for example, cash-flows, rent rolls and financial statements are reviewed for each loan to determine if it is performing in line with its expectations. This allowance is presented as a separate line in the Consolidated Balance Sheets beneath the asset value as well as presented net and recorded through "Net realized investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income. For more information on credit losses and the allowance for credit losses for our investment in mortgage loans see Note 3 "Fair Value of Financial Instruments."
For reinsurance receivables, the Company's model estimates expected credit loss by multiplying the exposure at default by both the probability of default and loss given default ("LGD"). The LGD is estimated by the rating of the Company, historical relationship with UFG, existence of letters of credit and known regulation the Company may be held accountable for. The ultimate LGD percentage is estimated after considering Moody’s experience with unsecured year 1 bond recovery rates from 1983-2017. The allowance calculated as of September 30, 2020 is recorded through the line "Reinsurance receivables and recoverables" in the Consolidated Balance Sheets and through the line "Other underwriting expenses" in the Consolidated Statements of Income and Other Comprehensive Income. As of September 30, 2020, the Company had a credit loss allowance for reinsurance receivables of $241.
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Rollforward of credit loss allowance for reinsurance receivable:
As of
September 30, 2020
Beginning balance, January 1, 2020$38 
Current-period provision for expected credit losses203 
Write-off charged against the allowance, if any0 
Recoveries of amounts previously written off, if any0 
Ending balance of the allowance for reinsurance receivable, September 30, 2020$241 

With respect to premiums receivable, the Company utilizes an aging method to estimate credit losses. An allowance for doubtful accounts is based on a periodic evaluation of the aging and collectability of amounts due from agents and policyholders. "Premiums receivable" are presented in the Consolidated Balance Sheets net of an estimated allowance for doubtful accounts and recorded through "Other underwriting expenses" in the Consolidated Statements of Income and Comprehensive Income.

Subsequent Events


In the preparation of the accompanying financial statements, the Company has evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure in the Company's financial statements.

COVID-19 Pandemic

The Company concluded there are no material subsequent events or transactions that have occurred afterCOVID-19 pandemic caused significant financial market volatility, economic uncertainty and interruptions to normal business activities in the balance sheet date throughfirst nine months of 2020. As of the date of this report, we expect the effect of COVID-19 on claims currently under our coverages to be manageable, based on the information presently available. However, the effects of the COVID-19 pandemic continue to evolve and we cannot predict the extent to which our business, results of operations, financial condition, liquidity, capital position, the value of investments we hold in our investment portfolio, premiums and the demand for our products and our ability to collect premiums or requirement to return premiums to our policyholders, will ultimately be impacted. Additionally, if established written contract policy exclusions of business interruption coverage for losses attributable to the COVID-19 pandemic are voided or changed through legislation, regulations or interpretations by the courts, such changes have the potential to materially increase claims, losses and legal expenses which may impact our business, financial statements were issued.condition, results of operations or liquidity. See further discussion in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Recently Issued Accounting Standards
Accounting Standards Adopted in 20172020
Share-Based Payments
Intangibles - Other Internal Use Software

In March 2016,August 2018, the Financial Accounting Standards Board ("FASB")FASB issued new guidance onto align the accountingrequirements for share-based payments.capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance requires the Company to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The new guidance was issued to simplify the accounting of share-based payments, specifically in the areas of income taxes, classification on the balance sheets as liabilities or equity and classification in the cash flow statement. The new guidance is effective for annual and interim periods beginning after December 15, 2016 and interim periods within those years. The Company adopted the new guidance prospectively as of January 1, 2017. The new guidance resulted in classification changes between the financing and operating section of the Statement of Cash Flow for stock based compensation expense. The adoption also resulted in a tax benefit of $62 and $546 during the three- and nine-months ended September 30, 2017.




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Income Taxes
In December 2015, the FASB issued guidance on the balance sheet classification of deferred taxes. The new guidance eliminates the requirement to split deferred tax liabilities and assets between current and non-current in a classified balance sheet. The new guidance allows deferred tax liabilities and assets to be included in non-current accounts.2019. The Company adopted the new guidance as of January 1, 2017.2020. The adoption had nodid not have a significant impact on the Company's financial position and results of operations since we do not currently report deferred taxes in classified balance sheets.
Pending Adoption of Accounting Standards
Revenue Recognition
In May 2014, the FASB issued comprehensive new guidance on revenue recognition which supersedes nearly all existing revenue recognition guidance under GAAP. The new guidance requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard creates a five-step model that requires companies to exercise judgment when considering the terms of the contract(s) and all relevant facts and circumstances. Insurance contracts are not within the scope of this new guidance. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company will adopt the guidance as of January 1, 2018. The Company has completed its review of revenue streams under this new guidance and concluded that the adoption of the new guidance will have no impact on the Company's reporting and disclosure of net premiums earned from insurance contracts, net investment income or net realized gains and losses, as these items are not within the scope of this new guidance. The Company's primary revenue streams from insurance contracts, investment income and net realized gains and losses, are out of scope under this new guidance. The remaining revenue streams are immaterial and not impacted by the new standard.
Financial Instruments
In January 2016, the FASB issued guidance updating certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (for example, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The new guidance also simplifies the impairment process for equity investments without readily determinable fair values. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2018. If the new guidance were adopted as of September 30, 2017, there would be a reclassification from accumulated other comprehensive income to retained earnings equal to the amount of net unrealized gains and losses on available-for-sale equity securities at December 31, 2016 disclosed in Note 2 "Summary of Investments," of this section. The impact to net realized gains (losses) would equal the change in net unrealized gains and losses on available-for-sale equity securities between September 30, 2017 and December 31, 2016, in the same tables.
Statement of Cash Flows - Classification of Certain Cash Receipts and Payments
In August 2016, the FASB issued an update that clarifies the classification of certain cash receipts and payments in the Statement of Cash Flows. The update addresses eight existing cash flow issues by clarifying the correct classification to establish uniformity in practice. The updated guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2018 and is currently reviewing the updates to the eight existing cash flow issues. Currently, management believes that one existing cash flow issue will be impacted by these updates. Management believes the update will have no impact on the Company's financial position and results of operations but may effect the current classification of the cash flow in the Statement of Cash Flows.



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Defined Benefit Retirement Plan Cost
In March 2017, the FASB issued guidance on the presentation of net periodic benefit costs of defined benefit retirement benefit plans in the Statements of Income. The new guidance requires the service cost component of net periodic benefit cost of defined benefit plans to be presented in the same line in the Statements of Income as other employee compensation expenses. Also, under the new guidance, the service cost component of the net periodic benefit costs will be the only portion of costs subject to be capitalized in assets. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2018 and is currently evaluating the presentation of net periodic benefit costs in its financial statements and the impact on the Company's financial position and results of operations.
Share-Based Payments
In May 2017, the FASB issued new guidance which clarifies and addresses the diversity in practice when there is a change in the terms
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Table of a share-based payment award. The updated guidance clarifies when to use modification accounting when there is a change in the terms of a share-based payment and provides three conditions where modification accounting should not be applied. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company will adopt the new guidance as of January 1, 2018 and is currently evaluating the impact on the Company's financial position and results of operations.Contents
Leases
In February 2016, the FASB issued guidance on the accounting for leases. The new guidance requires lessees to place most leases on their balance sheets with expenses recognized on the income statement in a similar manner as previous methods. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2019. The Company has created an inventory of its leases and has calculated the current minimum future lease payment, which is disclosed in Note 13 "Lease Commitments" of our Annual Report on Form 10-K for the year ended December 31, 2016.
Financial Instruments - Credit Losses
In June 2016, the FASB issued new guidance on the measurement of credit losses for most financial instruments. The new guidance replaces the current incurred loss model for recognizing credit losses with an expected loss model for instruments measured at amortized cost and requires allowances to be recorded for available-for-sale debt securities rather than reduce the carrying amount. These allowances will beare remeasured each reporting period. The new guidance iswas effective for annual periods beginning after December 15, 20202019 and interim periods within those years. The Company will adopt the new guidance impacted the Company's impairment model related to our available-for-sale fixed-maturity portfolio, reinsurance receivables and mortgage loans. The Company has performed a run of the credit loss models as of January 1, 2021 and is currently evaluating2020. These models resulted in an immaterial expected credit loss at January 1, 2020. Prior to the impact on the Company's financial position, resultsadoption of operations and key processes.
Income Taxes - Intra-entity Transfers
In October 2016, the FASB issued new guidance on the income tax treatment of intra-entity transfers. The new guidance replaces the current guidance which prohibits the recognition of current and deferred income taxes of intra-entity transfers until the asset is sold externally. Under the new guidance, the exemptionCompany utilized an aging method to estimate credit losses on premiums receivable. This aging method is eliminated and income taxes will be recognized on transfers of intra-entity assets.permitted under the new guidance. The Company adopted the new guidance is effective for annual periods beginning after December 15, 2018 and interim periods beginning after December 15, 2019. The Company will adopt the new guidanceprospectively as of January 1, 2019 and2020 with an immaterial estimated cumulative effect adjustment to opening retained earnings. This cumulative effect adjustment is currently evaluatingan allowance related to the Company's reinsurance receivables. The adoption of the new guidance did not have a material impact on the Company's financial position and results of operations.
Goodwill
In January 2017, the FASB issued new guidance which simplifies the test for goodwill impairment. The new guidance eliminates the implied fair value calculation when measuring a goodwill impairment charge. Under the new guidance, impairment charges will beare based on the excess of the carrying value over fair value of goodwill. The new guidance was effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new guidance as of January 1, 2020. The adoption did not have a significant impact on the Company's financial position or results of operations.

Financial Instruments - Disclosures

10
TableIn August 2018, the FASB issued new guidance which modifies the disclosure requirements on fair value measurements of Contents

financial instruments. The new guidance removes the requirement for disclosing the amount and reason for transfers between Level 1 and Level 2 investment securities and the valuation processes for Level 3 fair value measurements. The guidance also requires additional disclosures on the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The new guidance is effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new guidance as of January 1, 2020. The adoption modified existing fair value disclosures, but did not have an impact on the Company's financial position or results of operations.
Pending Adoption of Accounting Standards
Defined Benefit Plans - Disclosures
In August 2018, the FASB issued new guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension and postretirement plans. The new guidance removes the requirement for disclosing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit costs in the next year and the sensitivity of postretirement health plans to one-percentage-point changes in medical trend rates. The new guidance is effective for annual periods beginning after December 15, 2020. The Company will adopt the new guidance as of January 1, 2020 and is2021. Management currently evaluatingbelieves the new guidance will modify existing disclosures, but will not have an impact on the Company's financial position and results of operations.
12
Table of Contents
NOTE 2. SUMMARY OF INVESTMENTS
Fair Value of Investments
A reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities, presented on a consolidated basis, including both continuing and discontinued operations as of September 30, 2017 and December 31, 2016, is as follows:
September 30, 2017 
Type of InvestmentCost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value
HELD-TO-MATURITY       
Fixed maturities:       
Bonds       
Corporate bonds - financial services$150
 $—
 $—
 $150
Mortgage-backed securities38
 1
 —
 39
Total Held-to-Maturity Fixed Maturities$188
 $1
 $—
 $189
AVAILABLE-FOR-SALE       
Fixed maturities:       
Bonds       
U.S. Treasury$22,032
 $40
 $91
 $21,981
U.S. government agency98,523
 1,518
 516
 99,525
States, municipalities and political subdivisions       
General obligations:       
Midwest120,549
 2,388
 499
 122,438
Northeast50,174
 1,478
 73
 51,579
South142,172
 2,463
 1,210
 143,425
West113,135
 2,474
 963
 114,646
Special revenue:       
Midwest151,634
 3,646
 494
 154,786
Northeast79,159
 1,061
 795
 79,425
South261,141
 4,421
 2,974
 262,588
West157,622
 2,676
 1,940
 158,358
Foreign bonds54,300
 1,907
 —
 56,207
Public utilities201,418
 4,538
 200
 205,756
Corporate bonds
 
 
 
Energy96,373
 2,367
 95
 98,645
Industrials209,076
 5,323
 109
 214,290
Consumer goods and services181,471
 5,049
 135
 186,385
Health care75,775
 2,600
 —
 78,375
Technology, media and telecommunications143,024
 3,308
 193
 146,139
Financial services252,373
 6,939
 303
 259,009


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Table of Contents

Mortgage-backed securities14,496
 169
 179
 14,486
Collateralized mortgage obligations       
Government national mortgage association153,896
 2,292
 1,458
 154,730
Federal home loan mortgage corporation191,246
 2,410
 3,132
 190,524
Federal national mortgage association106,326
 2,240
 832
 107,734
Asset-backed securities4,280
 345
 3
 4,622
Total Available-for-Sale Fixed Maturities$2,880,195
 $61,652
 $16,194
 $2,925,653
Equity securities:
 
 
 
Common stocks
 
 
 
Public utilities$6,394
 $15,750
 $58
 $22,086
Energy6,514
 7,998
 106
 14,406
Industrials13,117
 49,890
 164
 62,843
Consumer goods and services10,070
 14,872
 154
 24,788
Health care7,763
 29,463
 —
 37,226
Technology, media and telecommunications6,006
 10,215
 136
 16,085
Financial services11,630
 101,813
 73
 113,370
Nonredeemable preferred stocks992
 161
 —
 1,153
Total Available-for-Sale Equity Securities$62,486
 $230,162
 $691
 $291,957
Total Available-for-Sale Securities$2,942,681
 $291,814
 $16,885
 $3,217,610
































12
Table of Contents


December 31, 2016 
Type of InvestmentCost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value
HELD-TO-MATURITY       
Fixed maturities:       
Bonds       
Corporate bonds - financial services$150
 $—
 $—
 $150
Mortgage-backed securities48
 1
 —
 49
Total Held-to-Maturity Fixed Maturities$198
 $1
 $—
 $199
AVAILABLE-FOR-SALE
 
 
 
Fixed maturities:
 
 
 
Bonds
 
 
 
U.S. Treasury$23,216
 $87
 $108
 $23,195
U.S. government agency76,692
 1,445
 540
 77,597
States, municipalities and political subdivisions       
General obligations:       
Midwest143,747
 1,808
 1,412
 144,143
Northeast57,731
 909
 231
 58,409
South129,475
 1,249
 2,355
 128,369
West114,524
 1,380
 2,173
 113,731
Special revenue:       
Midwest167,430
 2,313
 1,433
 168,310
Northeast70,202
 487
 2,624
 68,065
South244,225
 1,753
 6,791
 239,187
West134,287
 1,509
 4,052
 131,744
Foreign bonds62,995
 2,239
 —
 65,234
Public utilities212,360
 3,761
 447
 215,674
Corporate bonds
 

 
 
Energy107,084
 2,195
 419
 108,860
Industrials225,526
 5,359
 982
 229,903
Consumer goods and services178,135
 3,847
 295
 181,687
Health care81,211
 2,063
 151
 83,123
Technology, media and telecommunications143,402
 2,029
 819
 144,612
Financial services269,981
 5,328
 1,358
 273,951
Mortgage-backed securities17,288
 201
 241
 17,248
Collateralized mortgage obligations       
Government national mortgage association145,947
 1,279
 2,766
 144,460
Federal home loan mortgage corporation176,226
 1,638
 3,406
 174,458
Federal national mortgage association101,414
 1,816
 1,334
 101,896
Asset-backed securities4,407
 145
 282
 4,270
Total Available-for-Sale Fixed Maturities$2,887,505
 $44,840
 $34,219
 $2,898,126


13
Table of Contents

Equity securities:
 
 
 
Common stocks
 
 
 
Public utilities$6,394
 $13,465
 $188
 $19,671
Energy6,514
 8,555
 22
 15,047
Industrials13,252
 38,715
 173
 51,794
Consumer goods and services10,324
 13,851
 58
 24,117
Health care7,763
 19,657
 —
 27,420
Technology, media and telecommunications5,931
 9,476
 38
 15,369
Financial services17,289
 98,728
 67
 115,950
Nonredeemable preferred stocks1,037
 11
 —
 1,048
Total Available-for-Sale Equity Securities$68,504
 $202,458
 $546
 $270,416
Total Available-for-Sale Securities$2,956,009
 $247,298
 $34,765
 $3,168,542

The following table is a reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities for continuing and discontinued operations by investment type at September 30, 20172020 and December 31, 2016:2019, is provided below:

September 30, 2020
Type of InvestmentCost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair ValueAllowance for Credit LossesCarrying Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$53,877 $730 $8 $54,599 $0 $54,599 
U.S. government agency60,503 4,457 0 64,960 0 64,960 
States, municipalities and political subdivisions
General obligations:
Midwest79,872 4,106 0 83,978 0 83,978 
Northeast29,124 1,426 0 30,550 0 30,550 
South105,290 5,295 0 110,585 0 110,585 
West102,772 7,175 0 109,947 0 109,947 
Special revenue:
Midwest126,251 8,590 0 134,841 0 134,841 
Northeast58,287 4,557 0 62,844 0 62,844 
South220,904 17,446 0 238,350 0 238,350 
West133,934 9,168 0 143,102 0 143,102 
Foreign bonds26,413 1,835 230 28,018 0 28,018 
Public utilities77,147 7,155 0 84,302 0 84,302 
Corporate bonds
Energy24,912 2,589 0 27,501 0 27,501 
Industrials39,558 3,499 0 43,057 0 43,057 
Consumer goods and services45,250 3,790 12 49,028 0 49,028 
Health care6,674 895 0 7,569 0 7,569 
Technology, media and telecommunications37,241 4,330 0 41,571 0 41,571 
Financial services95,696 7,030 267 102,459 8 102,451 
Mortgage-backed securities14,333 305 109 14,529 0 14,529 
Collateralized mortgage obligations
Government national mortgage association71,992 5,206 1 77,197 0 77,197 
Federal home loan mortgage corporation119,006 3,019 349 121,676 0 121,676 
Federal national mortgage association83,276 2,579 406 85,449 0 85,449 
Asset-backed securities314 621 0 935 0 935 
Total Available-for-Sale Fixed Maturities$1,612,626 $105,803 $1,382 $1,717,047 $8 $1,717,039 


13
September 30, 2017 
Type of InvestmentCost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value
HELD-TO-MATURITY       
Fixed maturities:       
Continuing operations$150
 $—
 $—
 $150
Discontinued operations38
 1
 —
 39
Total Held-to-Maturity Fixed Maturities$188
 $1
 $—
 189
AVAILABLE-FOR-SALE       
Fixed maturities:       
Continuing operations$1,480,730
 $28,606
 $10,674
 $1,498,662
Discontinued operations1,399,465
 33,046
 5,520
 1,426,991
Total Available-for-Sale Fixed Maturities$2,880,195
 $61,652
 $16,194
 $2,925,653
Equity securities:       
Continuing operations$57,387
 $212,545
 $591
 $269,341
Discontinued operations5,099
 17,617
 100
 22,616
Total Available-for-Sale Equity Securities$62,486
 $230,162
 $691
 $291,957
Total Available-for-Sale Securities$2,942,681
 $291,814
 $16,885
 $3,217,610




14

December 31, 2019
Type of InvestmentCost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized DepreciationFair Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$69,300 $203 $12 $69,491 
U.S. government agency97,962 2,344 104 100,202 
States, municipalities and political subdivisions
General obligations:
Midwest85,607 2,987 0 88,594 
Northeast30,120 1,150 0 31,270 
South111,688 3,515 0 115,203 
West105,569 4,748 0 110,317 
Special revenue:
Midwest133,717 6,175 0 139,892 
Northeast58,665 2,878 0 61,543 
South224,214 10,452 0 234,666 
West138,557 6,287 0 144,844 
Foreign bonds4,936 181 0 5,117 
Public utilities60,950 2,701 0 63,651 
Corporate bonds
Energy28,695 1,429 0 30,124 
Industrials52,249 1,766 0 54,015 
Consumer goods and services47,131 2,335 0 49,466 
Health care8,998 482 0 9,480 
Technology, media and telecommunications25,931 1,739 0 27,670 
Financial services96,613 3,870 230 100,253 
Mortgage-backed securities6,250 127 21 6,356 
Collateralized mortgage obligations
Government national mortgage association78,400 2,053 97 80,356 
Federal home loan mortgage corporation123,572 1,150 220 124,502 
Federal national mortgage association70,322 1,631 108 71,845 
Asset-backed securities314 436 0 750 
Total Available-for-Sale Fixed Maturities$1,659,760 $60,639 $792 $1,719,607 
Maturities
December 31, 2016 
Type of InvestmentCost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value
HELD-TO-MATURITY       
Fixed maturities:       
Continuing operations$150
 $—
 $—
 $150
Discontinued operations48
 1
 —
 49
Total Held-to-Maturity Fixed Maturities$198
 $1
 $—
 $199
AVAILABLE-FOR-SALE       
Fixed maturities:       
Continuing operations$1,458,235
 $18,725
 $23,674
 $1,453,286
Discontinued operations1,429,270
 26,115
 10,545
 1,444,840
Total Available-for-Sale Fixed Maturities2,887,505
 44,840
 34,219
 2,898,126
Equity securities:       
Continuing operations$59,994
 $186,692
 $316
 $246,370
Discontinued operations8,510
 15,766
 230
 24,046
Total Available-for-Sale Equity Securities68,504
 202,458
 546
 270,416
Total Available-for-Sale Securities$2,956,009
 $247,298
 $34,765
 $3,168,542
Maturities
The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at September 30, 2017,2020, by contractual maturity, are shown in the following tables. The first table includes consolidated investments from both continuing and discontinued operations. The second and third tables separate maturities into continuing and discontinued operations. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.
14
Maturities - Consolidated:           
 Held-To-Maturity Available-For-Sale Trading
September 30, 2017Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less$150
 $150
 $128,884
 $129,945
 $1,401
 $1,821
Due after one year through five years—
 —
 782,192
 803,774
 6,979
 8,233
Due after five years through 10 years—
 —
 751,756
 771,205
 1,302
 1,185
Due after 10 years—
 —
 747,119
 748,633
 2,151
 2,434
Asset-backed securities—
 —
 4,280
 4,622
 —
 —
Mortgage-backed securities38
 39
 14,496
 14,486
 —
 —
Collateralized mortgage obligations—
 —
 451,468
 452,988
 —
 —
 $188
 $189
 $2,880,195
 $2,925,653
 $11,833
 $13,673


15

Maturities
Available-For-Sale Trading
September 30, 2020Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less$53,911  $54,386  $1,957  $3,935 
Due after one year through five years365,831  388,192  9,221  9,265 
Due after five years through 10 years401,105  433,321  0  0 
Due after 10 years502,858  541,362  1,080  1,611 
Asset-backed securities314 935 — — 
Mortgage-backed securities14,333  14,529  —  — 
Collateralized mortgage obligations274,274  284,322  —  — 
Allowance for credit losses— (8)— — 
 $1,612,626  $1,717,039  $12,258  $14,811 
Maturities - Continuing Operations:        
 Held-To-Maturity Available-For-Sale Trading
September 30, 2017Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less$150
 $150
 $54,340
 $54,762
 $1,401
 $1,821
Due after one year through five years—
 —
 224,804
 230,986
 6,979
 8,233
Due after five years through 10 years—
 —
 344,553
 354,308
 1,302
 1,185
Due after 10 years—
 —
 675,795
 676,310
 2,151
 2,434
Asset-backed securities—
 —
 3,174
 3,517
 —
 —
Mortgage-backed securities—
 —
 9,664
 9,783
 —
 —
Collateralized mortgage obligations—
 —
 168,400
 168,996
 —
 —
 $150
 $150
 $1,480,730
 $1,498,662
 $11,833
 $13,673

Maturities - Discontinued Operations:        
 Held-To-Maturity Available-For-Sale Trading
September 30, 2017Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less$—
 $—
 $74,544
 $75,183
 $—
 $—
Due after one year through five years—
 —
 557,388
 572,788
 —
 —
Due after five years through 10 years—
 —
 407,203
 416,897
 —
 —
Due after 10 years—
 —
 71,324
 72,323
 —
 —
Asset-backed securities—
 —
 1,107
 1,105
 —
 —
Mortgage-backed securities38
 39
 4,832
 4,703
 —
 —
Collateralized mortgage obligations—
 —
 283,067
 283,992
 —
 —
 $38
 $39
 $1,399,465
 $1,426,991
 $—
 $—
















16

Net Realized Investment Gains and Losses
Net realized gains on disposition of investments are computed using the specific identification method and are included in the computation of net income. A summary of the components of net realized investment gains (losses) is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020 201920202019
Net realized investment gains (losses):   
Fixed maturities:
Available-for-sale$52 $129 $52 $271 
Allowance for credit losses2 0 (8)0 
Trading securities
Change in fair value248 43 (760)2,290 
Sales134 8 (20)100 
Equity securities
Change in fair value21,962 9,692 (38,876)46,825 
Sales(7,186)(50)(22,772)655 
Mortgage loans allowance for credit losses0 0 (4)(15)
Real estate0 0 (28)0 
Total net realized investment gains (losses)$15,212  $9,822 $(62,416)$50,126 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net realized investment gains (losses) from continuing operations:       
Fixed maturities:       
Available-for-sale$118
 $484
 $645
 $898
Trading securities       
Change in fair value(43) 148
 504
 519
Sales72
 107
 117
 568
Equity securities:       
Available-for-sale3
 1,375
 1,553
 2,359
Trading securities       
Change in fair value(124) (5) 232
 325
Sales41
 20
 57
 (6)
Cash equivalents—
 —
 —
 169
Real estate—
 —
 289
 —
Total net realized investment gains from continuing operations$67
 $2,129
 $3,397
 $4,832
Total net realized investment gains from discontinued operations296
 461
 3,600
 1,409
Total net realized investment gains$363
 $2,590
 $6,997
 $6,241

The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities from continuing operations are as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
2020 201920202019
Proceeds from sales$0  $0 $16,907 $36,490 
Gross realized gains0  0 198 30 
Gross realized losses0  0 495 13 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Proceeds from sales$2,293
 $—
 $3,388
 $1,968
Gross realized gains—
 —
 1,046
 921
Gross realized losses—
 —
 —
 —

The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities from discontinued operations are as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Proceeds from sales$1,844
 $2,007
 $5,807
 $3,081
Gross realized gains—
 11
 1,254
 65
Gross realized losses—
 —
 (78) —
There were no sales of held-to-maturity securities during the three- and nine-month periods ended September 30, 2017 and 2016.

Our investment portfolio includes trading securities with embedded derivatives. These securities are primarily convertible securities which are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of net realized investment gains. Our portfolio of trading securities had a fair value of $20,003$14,811 and $20,034$15,256 at September 30, 20172020 and December 31, 2016,2019, respectively.


15
17

Funding Commitment


Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2023July 10, 2030 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $3,738 $10,284 at September 30, 2017.2020.

In addition, the Company invested $25,000 in December 2019 in a limited liability partnership investment fund which is subject to a 3-year lockup with a 60 day minimum notice, with 4 possible repurchase dates per year, after the 3-year lockup period is met. The fair value of the investment at September 30, 2020 was $24,035 and there are no remaining capital contributions with this investment.
Unrealized Appreciation
A summary of the changes in net unrealized investment appreciation during the reporting period is as follows:
 Nine Months Ended September 30,
2020 2019
Change in net unrealized investment appreciation   
Available-for-sale fixed maturities$44,574 $77,103 
Income tax effect(9,361)(16,192)
Total change in net unrealized investment appreciation, net of tax$35,213  $60,911 
 Nine Months Ended September 30,
 2017 2016
Change in net unrealized investment appreciation   
Available-for-sale fixed maturities$34,837
 $83,498
Available-for-sale equity securities27,559
 15,459
Deferred policy acquisition costs(3,582) (19,857)
Income tax effect(20,584) (27,685)
Total change in net unrealized investment appreciation, net of tax$38,230
 $51,415
Credit Risk
We continually monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policyAn allowance for impairment recognition requires other-than-temporary impairment ("OTTI") charges to be recorded when we determine that itcredit losses is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on a number of factors including the faircurrent economic conditions, management's expectations of future economic conditions and performance indicators, such as market value vs. amortized cost, investment spreads widening or contracting, rating actions, payment and default history. The following table contains a rollforward of the investments at the measurement date or based on the value calculated using a discounted cash flow model. Credit-related impairments onallowance for credit losses for available-for-sale fixed maturity securities that we do not plan to sell, and for which we are not more likely than not to be required to sell, are recognized in net income. Any non-credit related impairment is recognized as a componentat September 30, 2020:
Rollforward of allowance for credit losses for available-for-sale fixed maturity securities:
As of
September 30, 2020
Beginning balance, January 1, 2020$0 
Additions to the allowance for credit losses for which credit losses were not previously recorded8 
Reductions for securities sold during the period (realized)0 
Writeoffs charged against the allowance0 
Recoveries of amounts previously written off0 
Ending balance, September 30, 2020$8 







16
The tables on the following pagestables summarize our fixed maturity and equity securities that were in an unrealized loss position reported on a consolidated basis including both continuing and discontinued operations at September 30, 20172020 and December 31, 2016.2019. The securities are presented by the length of time they have been continuously in an unrealized loss position. It is possibleNon-credit related unrealized losses are recognized as a component of other comprehensive income and represent other market movements that we could recognize OTTI charges in future periods on securities held at September 30, 2017, if future events or information cause us to determine that a decline in fair value is other-than-temporary.
We have evaluated the near-term prospects of the issuers of our fixed maturity securities in relation to the severity and duration of the unrealized loss and determined that these losses didare not warrant the recognition of an OTTI charge at September 30, 2017 or at September 30, 2016.credit related, for example interest rate changes. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.
We have evaluated
September 30, 2020Less than 12 months12 months or longerTotal
Type of InvestmentNumber
of Issues		Fair
Value		Gross Unrealized
Depreciation		Number
of Issues		Fair
Value		Gross Unrealized DepreciationFair
Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury2 $11,804 $8 0 $0 $0 $11,804 $8 
Foreign bonds1 $2,776 $230 0 $0 $0 $2,776 $230 
Corporate bonds
Consumer goods and services1 2,196 12 0 0 0 2,196 12 
Financial services1 2,998 2 1 3,000 9 5,998 11 
Mortgage-backed securities2 9,118 107 6 157 2 9,275 109 
Collateralized mortgage obligations
Federal home loan mortgage corporation14 48,062 348 1 57 1 48,119 349 
Federal national mortgage association10 43,684 406 0 0 0 43,684 406 
Government national mortgage association0 0 0 1 76 1 76 1 
Total Available-for-Sale Fixed Maturities31 $120,638 $1,113 9 $3,290 $13 $123,928 $1,126 

The unrealized losses on our investments in available-for-sale fixed maturities were the near-term prospectsresult of the issuers of our equity securities in relation to the severity and duration of the unrealized loss and determined that these losses did not warrant the recognition of an OTTI charge at September 30, 2017 or at September 30, 2016. Our largest unrealized loss greater than 12 months on an individual equity security at September 30, 2017 was $152.interest rate movements. We have no intentionintent to sell, any ofand it is more likely than not that we will not be required to sell, these securities prior to a recovery in value, but will continue to monitoruntil the fair value reported for theserecovers to at least equal our cost basis or the securities as part of our overall process to evaluate investments for OTTI recognition.

mature.

17
18

December 31, 2019Less than 12 months12 months or longerTotal
Type of InvestmentNumber
of Issues		Fair
Value		Gross Unrealized DepreciationNumber
of Issues		Fair
Value		Gross Unrealized DepreciationFair
Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury0 $0 $0 2 $4,733 $12 $4,733 $12 
U.S. government agency3 13,846 104 0 0 0 13,846 104 
Corporate bonds
Financial services3 10,906 142 1 4,913 88 15,819 230 
Mortgage-backed securities0 0 0 13 1,585 21 1,585 21 
Collateralized mortgage obligations
Federal home loan mortgage corporation12 50,829 183 3 4,844 37 55,673 220 
Federal national mortgage association4 23,515 90 3 1,102 18 24,617 108 
Government national mortgage association2 8,444 38 5 3,053 59 11,497 97 
Total Available-for-Sale Fixed Maturities24 $107,540 $557 27 $20,230 $235 $127,770 $792 
18
                
September 30, 2017Less than 12 months 12 months or longer Total
Type of InvestmentNumber
of Issues		 Fair
Value		 Gross Unrealized
Depreciation		 Number
of Issues		 Fair
Value		 Gross Unrealized Depreciation Fair
Value		 Gross Unrealized Depreciation
AVAILABLE-FOR-SALE               
Fixed maturities:               
Bonds               
U.S. Treasury3
 $8,920
 $44
 3
 $2,829
 $47
 $11,749
 $91
U.S. government agency8
 33,607
 306
 3
 12,789
 210
 46,396
 516
States, municipalities and political subdivisions               
General obligations               
Midwest3
 4,343
 46
 3
 19,742
 453
 24,085
 499
Northeast—
 —
 —
 1
 3,587
 73
 3,587
 73
South7
 14,594
 56
 11
 27,919
 1,154
 42,513
 1,210
West2
 3,600
 29
 8
 25,333
 934
 28,933
 963
Special revenue               
Midwest2
 3,990
 10
 7
 19,034
 484
 23,024
 494
Northeast6
 27,751
 312
 9
 15,275
 483
 43,026
 795
South13
 32,415
 433
 27
 66,978
 2,541
 99,393
 2,974
West8
 20,369
 135
 22
 55,836
 1,805
 76,205
 1,940
Public utilities2
 3,201
 52
 4
 7,491
 148
 10,692
 200
Corporate bonds            

 

Energy2
 6,166
 13
 1
 1,807
 82
 7,973
 95
Industrials—
 —
 —
 2
 4,271
 109
 4,271
 109
Consumer goods and services5
 7,469
 62
 2
 5,097
 73
 12,566
 135
Technology, media and telecommunications6
 15,263
 88
 2
 8,384
 105
 23,647
 193
Financial services11
 21,623
 163
 1
 7,243
 140
 28,866
 303
Mortgage-backed securities11
 4,411
 43
 3
 4,790
 136
 9,201
 179
Collateralized mortgage obligations               
Government national mortgage association16
 40,243
 439
 13
 38,573
 1,019
 78,816
 1,458
Federal home loan mortgage corporation16
 64,647
 1,166
 12
 42,472
 1,966
 107,119
 3,132
Federal national mortgage association13
 35,709
 496
 6
 10,008
 336
 45,717
 832
Asset-backed securities1
 997
 3
 —
 —
 —
 997
 3
Total Available-for-Sale Fixed Maturities135
 $349,318
 $3,896
 140
 $379,458
 $12,298
 $728,776
 $16,194
Equity securities:               
Common stocks               
Public utilities—
 $—
 $—
 1
 $250
 $58
 $250
 $58
Energy2
 546
 102
 1
 182
 4
 728
 106
Industrials1
 106
 6
 5
 141
 158
 247
 164
Consumer goods and services—
 —
 —
 4
 178
 154
 178
 154
Technology, media and telecommunications2
 445
 115
 1
 4
 21
 449
 136
Financial services1
 30
 25
 2
 165
 48
 195
 73
Total Available-for-Sale Equity Securities6
 $1,127
 $248
 14
 $920
 $443
 $2,047
 $691
Total Available-for-Sale Securities141
 $350,445
 $4,144
 154
 $380,378
 $12,741
 $730,823
 $16,885



19

                
December 31, 2016Less than 12 months 12 months or longer Total
Type of InvestmentNumber
of Issues		 Fair
Value		 Gross Unrealized Depreciation Number
of Issues		 Fair
Value		 Gross Unrealized Depreciation Fair
Value		 Gross Unrealized Depreciation
AVAILABLE-FOR-SALE               
Fixed maturities:               
Bonds               
U.S. Treasury9
 $10,800
 $108
 —
 $—
 $—
 $10,800
 $108
U.S. government agency10
 36,593
 540
 —
 —
 —
 36,593
 540
States, municipalities and political subdivisions               
General obligations               
Midwest27
 40,545
 1,412
 —
 —
 —
 40,545
 1,412
Northeast9
 9,874
 231
 —
 —
 —
 9,874
 231
South37
 53,699
 2,355
 —
 —
 —
 53,699
 2,355
West30
 55,265
 2,173
 —
 —
 —
 55,265
 2,173
Special revenue               
Midwest41
 62,937
 1,433
 —
 —
 —
 62,937
 1,433
Northeast22
 54,993
 2,624
 —
 —
 —
 54,993
 2,624
South79
 152,979
 6,791
 —
 —
 —
 152,979
 6,791
West44
 81,676
 4,052
 —
 —
 —
 81,676
 4,052
Public utilities20
 38,511
 423
 2
 2,122
 24
 40,633
 447
Corporate bonds               
Energy8
 15,938
 313
 3
 8,232
 106
 24,170
 419
Industrials24
 42,854
 596
 3
 5,641
 386
 48,495
 982
Consumer goods and services11
 21,059
 295
 —
 —
 —
 21,059
 295
Health care9
 20,918
 151
 —
 —
 —
 20,918
 151
Technology, media and telecommunications16
 41,230
 516
 3
 10,241
 303
 51,471
 819
Financial services37
 75,286
 1,358
 —
 —
 —
 75,286
 1,358
Mortgage-backed securities16
 9,611
 187
 5
 1,198
 54
 10,809
 241
Collateralized mortgage obligations               
Government national mortgage association36
 82,430
 2,261
 9
 13,603
 505
 96,033
 2,766
Federal home loan mortgage corporation41
 105,775
 3,165
 3
 5,141
 241
 110,916
 3,406
Federal national mortgage association27
 46,633
 1,091
 4
 4,341
 243
 50,974
 1,334
Asset-backed securities1
 971
 29
 1
 2,559
 253
 3,530
 282
Total Available-for-Sale Fixed Maturities554
 $1,060,577
 $32,104
 33
 $53,078
 $2,115
 $1,113,655
 $34,219
Equity securities:               
Common stocks               
Public utilities—
 $—
 $—
 3
 $120
 $188
 $120
 $188
Energy—
 —
 —
 1
 163
 22
 163
 22
Industrials—
 —
 —
 6
 239
 173
 239
 173
Consumer goods and services3
 282
 55
 2
 15
 3
 297
 58
Technology, media and telecommunications7
 26
 5
 8
 33
 33
 59
 38
Financial services3
 53
 3
 2
 150
 64
 203
 67
Total Available-for-Sale Equity Securities13
 $361
 $63
 22
 $720
 $483
 $1,081
 $546
Total Available-for-Sale Securities567
 $1,060,938
 $32,167
 55
 $53,798
 $2,598
 $1,114,736
 $34,765


20


The tables on the following pages are a reconciliation for continuing and discontinued operations of our total fixed maturity and equity securities that were in an unrealized loss position at September 30, 2017 and December 31, 2016. The securities are presented by the length of time they have been continuously in an unrealized loss position:

                
September 30, 2017Less than 12 months 12 months or longer Total
Type of InvestmentNumber
of Issues		 Fair
Value		 Gross Unrealized
Depreciation		 Number
of Issues		 Fair
Value		 Gross Unrealized Depreciation Fair
Value		 Gross Unrealized Depreciation
AVAILABLE-FOR-SALE               
Fixed maturities:               
Continuing operations85
 $206,874
 $2,059
 101
 $259,297
 $8,615
 $466,171
 $10,674
Discontinued operations50
 142,444
 1,837
 39
 120,161
 3,683
 262,605
 5,520
Total Available-for-Sale Fixed Maturities135
 $349,318
 $3,896
 140
 $379,458
 $12,298
 $728,776
 $16,194
Equity securities:               
Continuing operations6
 $1,127
 $248
 10
 $540
 $343
 $1,667
 $591
Discontinued operations—
 —
 —
 4
 380
 100
 380
 100
Total Available-for-Sale Equity Securities6
 $1,127
 $248
 14
 $920
 $443
 $2,047
 $691
Total Available-for-Sale Securities141
 $350,445
 $4,144
 154
 $380,378
 $12,741
 $730,823
 $16,885

                
December 31, 2016Less than 12 months 12 months or longer Total
Type of InvestmentNumber
of Issues		 Fair
Value		 Gross Unrealized
Depreciation		 Number
of Issues		 Fair
Value		 Gross Unrealized Depreciation Fair
Value		 Gross Unrealized Depreciation
AVAILABLE-FOR-SALE               
Fixed maturities:               
Continuing operations404
 $654,235
 $23,359
 12
 $6,288
 $315
 $660,523
 $23,674
Discontinued operations150
 406,342
 8,745
 21
 46,790
 1,800
 453,132
 10,545
Total Available-for-Sale Fixed Maturities554
 $1,060,577
 $32,104
 33
 $53,078
 $2,115
 $1,113,655
 $34,219
Equity securities:               
Continuing operations12
 $351
 $62
 17
 $477
 $254
 $828
 $316
Discontinued operations1
 10
 1
 5
 243
 229
 253
 230
Total Available-for-Sale Equity Securities13
 $361
 $63
 22
 $720
 $483
 $1,081
 $546
Total Available-for-Sale Securities567
 $1,060,938
 $32,167
 55
 $53,798
 $2,598
 $1,114,736
 $34,765



21

NOTE 3. 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. 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 yearsyears' experience and who have demonstrated knowledge of the subject security. We request and utilize one broker quote per security.
In order to determine the proper classification in the fair value hierarchy, for each security where the price is obtained from an independent pricing service, 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 usour 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, which is a Level 3 fair value measurement.

value.

19
22

The fair value of our policy loans is equivalent to carrying value, which is a reasonable estimate of fair value and is classified as Level 2. We do not make policy loans for amounts in excess of the cash surrender value of the related policy. In all instances, the policy loans are fully collateralized by the related liability for future policy benefits for traditional insurance policies or by the policyholders' account balance for non-traditional policies.
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 Non-qualified Deferred Compensation Plan and United Fire Group Supplemental Executive Retirement and Deferral Plan (collectively, the(the "Executive Retirement Plans"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 Plans.Plan. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of September 30, 2017,2020, the cash surrender value of the COLI policies was $3,759, $7,670, which is equal to the fair value measured using Level 2 inputs, based on the underlying assets of the COLI policies,policies, and is included in other assets in the Consolidated Balance Sheets.

Policy reserves are developed and recorded for deferred annuities, which is an interest-sensitive product, and income annuities. The fair value of the reserve liability for these annuity products is based upon an estimate of the discounted pretax cash flows that are forecast for the underlying business, which is a Level 3 fair value measurement. We base the discount rate on the current U.S. Treasury spot yield curve, which is then risk-adjusted for nonperformance risk and, for interest-sensitive business and market risk factors. The risk-adjusted discount rate is developed using interest rates that are available in the market and representative of the risks applicable to the underlying business.

























23


A summary of the carrying value and estimated fair value of our financial instruments from continuing operations at September 30, 20172020 and December 31, 20162019 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 
 September 30, 2017 December 31, 2016
 Fair Value Carrying Value Fair Value Carrying Value
Assets       
Investments       
Fixed maturities:       
Held-to-maturity securities$150
 $150
 $150
 $150
Available-for-sale securities1,498,662
 1,498,662
 1,453,286
 1,453,286
Trading securities13,673
 13,673
 14,390
 14,390
Equity securities:       
Available-for-sale securities269,341
 269,341
 246,370
 246,370
Trading securities6,330
 6,330
 5,644
 5,644
Other long-term investments49,966
 49,966
 51,769
 51,769
Short-term investments175
 175
 175
 175
Cash and cash equivalents98,610
 98,610
 89,194
 89,194
Corporate-owned life insurance3,759
 3,759
 2,592
 2,592



A summary of the carrying value and estimated fair value of our financial instruments from discontinued operations at September 30, 2017 and December 31, 2016 is as follows:


















20
 September 30, 2017 December 31, 2016
 Fair Value Carrying Value Fair Value Carrying Value
Assets       
Investments       
Fixed maturities:       
Held-to-maturity securities$39
 $38
 $49
 $48
Available-for-sale securities1,426,991
 1,426,991
 1,444,840
 1,444,840
Equity securities:       
Available-for-sale securities22,616
 22,616
 24,046
 24,046
Mortgage loans3,690
 3,504
 3,895
 3,706
Policy loans5,770
 5,770
 5,366
 5,366
Other long-term investments16,299
 16,299
 15,780
 15,870
Cash and cash equivalents30,751
 30,751
 21,659
 21,659
Liabilities       
Policy reserves       
Annuity (accumulations) (1)
$617,819
 $620,037
 $646,764
 $666,711
Annuity (benefit payments)144,901
 95,086
 144,283
 95,129















24

The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments from both continuing and discontinued operations at September 30, 20172020 and December 31, 2016:2019:
September 30, 2020Fair Value Measurements
DescriptionTotalLevel 1Level 2Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$54,599 $0 $54,599 $0 
U.S. government agency64,960 0 64,960 0 
States, municipalities and political subdivisions
General obligations
Midwest83,978 0 83,978 0 
Northeast30,550 0 30,550 0 
South110,585 0 110,585 0 
West109,947 0 109,947 0 
Special revenue
Midwest134,841 0 134,841 0 
Northeast62,844 0 62,844 0 
South238,350 0 238,350 0 
West143,102 0 143,102 0 
Foreign bonds28,018 0 28,018 0 
Public utilities84,302 0 84,302 0 
Corporate bonds
Energy27,501 0 27,501 0 
Industrials43,057 0 43,057 0 
Consumer goods and services49,028 0 49,028 0 
Health care7,569 0 7,569 0 
Technology, media and telecommunications41,571 0 41,571 0 
Financial services102,459 0 102,209 250 
Mortgage-backed securities14,529 0 14,529 0 
Collateralized mortgage obligations
Government national mortgage association77,197 0 77,197 0 
Federal home loan mortgage corporation121,676 0 121,676 0 
Federal national mortgage association85,449 0 85,449 0 
Asset-backed securities935 0 0 935 
Total Available-for-Sale Fixed Maturities$1,717,047 $0 $1,715,862 $1,185 
TRADING
Fixed maturities:
Bonds
Corporate bonds
Industrials$2,004 $0 $2,004 $0 
Consumer goods and services1,171 0 1,171 0 
Health care4,965 0 4,965 0 
Financial services1,622 0 1,622 0 
21
September 30, 2017  Fair Value Measurements
DescriptionTotal Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE       
Fixed maturities:       
Bonds       
U.S. Treasury$21,981
 $—
 $21,981
 $—
U.S. government agency99,525
 —
 99,525
 —
States, municipalities and political subdivisions       
General obligations       
Midwest122,438
 —
 122,438
 —
Northeast51,579
 —
 51,579
 —
South143,425
 —
 143,425
 —
West114,646
 —
 114,646
 —
Special revenue       
Midwest154,786
 —
 154,709
 77
Northeast79,425
 —
 79,425
 —
South262,588
 —
 262,588
 —
West158,358
 —
 158,358
 —
Foreign bonds56,207
 —
 56,207
 —
Public utilities205,756
 —
 205,756
 —
Corporate bonds       
Energy98,645
 —
 98,645
 —
Industrials214,290
 —
 214,290
 —
Consumer goods and services186,385
 —
 185,686
 699
Health care78,375
 —
 78,375
 —
Technology, media and telecommunications146,139
 —
 146,139
 —
Financial services259,009
 —
 250,992
 8,017
Mortgage-backed securities14,486
 —
 14,486
 —
Collateralized mortgage obligations       
Government national mortgage association154,730
 —
 154,730
 —
Federal home loan mortgage corporation190,524
 —
 190,524
 —
Federal national mortgage association107,734
 —
 107,734
 —
Asset-backed securities4,622
 —
 3,991
 631
Total Available-for-Sale Fixed Maturities$2,925,653
 $—
 $2,916,229
 $9,424
Equity securities:       
Common stocks       
Public utilities$22,086
 $22,086
 $—
 $—
Energy14,406
 14,406
 —
 —
Industrials62,843
 62,843
 —
 —
Consumer goods and services24,788
 24,788
 —
 —
Health care37,226
 37,226
 —
 —


25

Redeemable preferred stocks5,049 5,049 0 0 
Total Trading Securities$14,811 $5,049 $9,762 $0 
EQUITY SECURITIES
Common stocks
Public utilities$16,344 $16,344 $0 $0 
Energy8,833 8,833 0 0 
Industrials30,935 30,935 0 0 
Consumer goods and services31,432 31,432 0 0 
Health care24,646 24,646 0 0 
Technology, media and telecommunications16,003 16,003 0 0 
Financial services63,957 63,957 0 0 
Nonredeemable preferred stocks6,641 6,046 0 595 
Total Equity Securities$198,791 $198,196 $0 $595 
Short-Term Investments$175 $175 $0 $0 
Money Market Accounts$54,590 $54,590 $0 $0 
Corporate-Owned Life Insurance$7,670 $0 $7,670 $0 
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 $0 $69,491 $0 
U.S. government agency100,202 0 100,202 0 
States, municipalities and political subdivisions
General obligations
Midwest88,594 0 88,594 0 
Northeast31,270 0 31,270 0 
South115,203 0 115,203 0 
West110,317 0 110,317 0 
Special revenue
Midwest139,892 0 139,892 0 
Northeast61,543 0 61,543 0 
South234,666 0 234,666 0 
West144,844 0 144,844 0 
Foreign bonds5,117 0 5,117 0 
Public utilities63,651 0 63,651 0 
Corporate bonds
Energy30,124 0 30,124 0 
Industrials54,015 0 54,015 0 
Consumer goods and services49,466 0 49,466 0 
Health care9,480 0 9,480 0 
22
Technology, media and telecommunications16,085
 16,085
 —
 —
Financial services113,370
 113,370
 —
 —
Nonredeemable preferred stocks1,153
 419
 —
 734
Total Available-for-Sale Equity Securities$291,957
 $291,223
 $—
 $734
Total Available-for-Sale Securities$3,217,610
 $291,223
 $2,916,229
 $10,158
TRADING       
Fixed maturities:       
Corporate bonds

 

 

 

Industrials$2,117
 $—
 $2,117
 $—
Consumer goods and services289
 —
 289
 —
Health care3,557
 —
 3,557
 —
Technology, media and telecommunications1,373
 —
 1,373
 —
Financial services4,780
 —
 4,780
 —
Redeemable preferred stocks1,557
 1,557
 —
 —
Equity securities:       
Public utilities831
 831
 —
 —
Energy206
 206
 —
 —
Industrials900
 900
 —
 —
Consumer goods and services1,209
 1,209
 —
 —
Health care369
 369
 —
 —
Financial services218
 218
 —
 —
Nonredeemable preferred stocks2,597
 2,597
 —
 —
Total Trading Securities$20,003
 $7,887
 $12,116
 $—
Short-Term Investments$175
 $175
 $—
 $—
Money Market Accounts$13,897
 $13,897
 $—
 $—
Corporate-Owned Life Insurance$3,759
 $—
 $3,759
 $—
Total Assets Measured at Fair Value$3,255,444
 $313,182
 $2,932,104
 $10,158



26

December 31, 2016  Fair Value Measurements
DescriptionTotal Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE       
Fixed maturities:       
Bonds       
U.S. Treasury$23,195
 $—
 $23,195
 $—
U.S. government agency77,597
 —
 77,597
 —
States, municipalities and political subdivisions       
General obligations       
Midwest144,143
 —
 144,143
 —
Northeast58,409
 —
 58,409
 —
South128,369
 —
 128,369
 —
West113,731
 —
 113,731
 —
Special revenue       
Midwest168,310
 —
 168,142
 168
Northeast68,065
 —
 68,065
 —
South239,187
 —
 239,187
 —
West131,744
 —
 131,744
 —
Foreign bonds65,234
 —
 65,234
 —
Public utilities215,674
 —
 215,674
 —
Corporate bonds       
Energy108,860
 —
 108,860
 —
Industrials229,903
 —
 229,903
 —
Consumer goods and services181,687
 —
 180,590
 1,097
Health care83,123
 —
 83,123
 —
Technology, media and telecommunications144,612
 —
 144,612
 —
Financial services273,951
 —
 265,154
 8,797
Mortgage-backed securities17,248
 —
 17,248
 —
Collateralized mortgage obligations       
Government national mortgage association144,460
 —
 144,460
 —
Federal home loan mortgage corporation174,458
 —
 174,458
 —
Federal national mortgage association101,896
 —
 101,896
 —
Asset-backed securities4,270
 —
 3,821
 449
Total Available-for-Sale Fixed Maturities$2,898,126
 $—
 $2,887,615
 $10,511
Equity securities:       
Common stocks       
Public utilities$19,671
 $19,671
 $—
 $—
Energy15,047
 15,047
 —
 —
Industrials51,794
 51,794
 —
 —
Consumer goods and services24,117
 24,117
 —
 —
Health care27,420
 27,420
 —
 —
Technology, media and telecommunications15,369
 15,369
 —
 —
Financial services115,950
 111,958
 —
 3,992


27

Nonredeemable preferred stocks1,048
 453
 —
 595
Total Available-for-Sale Equity Securities$270,416
 $265,829
 $—
 $4,587
Total Available-for-Sale Securities$3,168,542
 $265,829
 $2,887,615
 $15,098
TRADING       
Fixed maturities:       
Bonds       
Corporate bonds       
Industrials$3,919
 $—
 $3,919
 $—
Consumer goods and services127
 —
 127
 —
Health care3,410
 —
 3,410
 —
Technology, media and telecommunications787
 —
 787
 —
Financial services4,842
 —
 4,842
 —
Redeemable preferred stocks1,305
 1,305
 —
 —
Equity securities:       
Public utilities613
 613
 —
 —
Energy286
 286
 —
 —
Industrials877
 877
 —
 —
Consumer goods and services1,202
 1,202
 —
 —
Health care339
 339
 —
 —
Financial services206
 206
 —
 —
Nonredeemable preferred stocks2,121
 2,121
 —
 —
Total Trading Securities$20,034
 $6,949
 $13,085
 $—
Short-Term Investments$175
 $175
 $—
 $—
Money Market Accounts$16,802
 $16,802
 $—
 $—
Corporate-Owned Life Insurance$2,592
 $—
 $2,592
 $—
Total Assets Measured at Fair Value$3,208,145
 $289,755
 $2,903,292
 $15,098




















28

The following tables are a reconciliation for both continuing and discontinued operations of the presentation of the categorization for our financial instruments measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:
September 30, 2017  Fair Value Measurements
DescriptionTotal Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE       
Fixed maturities:       
Continuing operations$1,498,662
 $—
 $1,497,931
 $731
Discontinued operations1,426,991
 —
 1,418,298
 8,693
Total Available-for-Sale Fixed Maturities$2,925,653
 $—
 $2,916,229
 $9,424
Equity securities:       
Continuing operations$269,341
 $268,607
 $—
 $734
Discontinued operations22,616
 22,616
 —
 —
Total Available-for-Sale Equity Securities$291,957
 $291,223
 $—
 $734
Total Available-for-Sale Securities$3,217,610
 $291,223
 $2,916,229
 $10,158
TRADING       
Fixed maturities:       
Continuing operations$13,673
 $1,557
 $12,116
 $—
Discontinued operations—
 —
 —
 —
Equity securities:       
Continuing operations6,330
 6,330
 —
 —
Discontinued operations—
 —
 —
 —
Total Trading Securities$20,003
 $7,887
 $12,116
 $—
SHORT-TERM INVESTMENTS       
Continuing operations$175
 $175
 $—
 $—
Discontinued operations—
 —
 —
 $—
Short-Term Investments$175
 $175
 $—
 $—
MONEY MARKET ACCOUNTS       
Continuing operations$13,203
 $13,203
 $—
 $—
Discontinued operations694
 694
 —
 —
Money Market Accounts$13,897
 $13,897
 $—
 $—
CORPORATE-OWNED LIFE INSURANCE       
Continuing operations$3,759
 $—
 $3,759
 $—
Discontinued operations—
 —
 —
 —
Corporate-Owned Life Insurance$3,759
 $—
 $3,759
 $—
Total Assets Measured at Fair Value$3,255,444
 $313,182
 $2,932,104
 $10,158


29

December 31, 2016  Fair Value Measurements
DescriptionTotal Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE       
Fixed maturities:       
Continuing operations$1,453,286
 $—
 $1,452,737
 $549
Discontinued operations1,444,840
 —
 1,434,878
 9,962
Total Available-for-Sale Fixed Maturities$2,898,126
 $—
 $2,887,615
 $10,511
Equity securities:       
Continuing operations$246,370
 $243,627
 $—
 $2,743
Discontinued operations24,046
 22,202
 —
 1,844
Total Available-for-Sale Equity Securities$270,416
 $265,829
 $—
 $4,587
Total Available-for-Sale Securities$3,168,542
 $265,829
 $2,887,615
 $15,098
TRADING       
Fixed maturities:       
Continuing operations$14,390
 $1,305
 $13,085
 $—
Discontinued operations—
 —
 —
 —
Equity securities:       
Continuing operations5,644
 5,644
 —
 —
Discontinued operations—
 —
 —
 —
Total Trading Securities$20,034
 $6,949
 $13,085
 $—
SHORT-TERM INVESTMENTS       
Continuing operations$175
 $175
 $—
 $—
Discontinued operations—
 —
 —
 —
Short-Term Investments$175
 $175
 $—
 $—
MONEY MARKET ACCOUNTS       
Continuing operations$4,810
 $4,810
 $—
 $—
Discontinued operations11,992
 11,992
 —
 —
Money Market Accounts$16,802
 $16,802
 $—
 $—
CORPORATE-OWNED LIFE INSURANCE       
Continuing operations$2,592
 $—
 $2,592
 $—
Discontinued operations—
 —
 —
 —
Corporate-Owned Life Insurance$2,592
 $—
 $2,592
 $—
Total Assets Measured at Fair Value$3,208,145
 $289,755
 $2,903,292
 $15,098
Technology, media and telecommunications27,670 0 27,670 0 
Financial services100,253 0 100,003 250 
Mortgage-backed securities6,356 0 6,356 0 
Collateralized mortgage obligations
Government national mortgage association80,356 0 80,356 0 
Federal home loan mortgage corporation124,502 0 124,502 0 
Federal national mortgage association71,845 0 71,845 0 
Asset-backed securities750 0 0 750 
Total Available-for-Sale Fixed Maturities$1,719,607 $0 $1,718,607 $1,000 
TRADING
Fixed maturities:
Bonds
Corporate bonds
Consumer goods and services$2,276 $0 $2,276 $0 
Health care4,701 0 4,701 0 
Technology, media and telecommunications1,732 0 1,732 0 
Financial services2,460 0 2,460 0 
Redeemable preferred stocks4,087 4,087 0 0 
Total Trading Securities$15,256 $4,087 $11,169 0 
EQUITY SECURITIES
Common stocks
Public utilities$16,295 $16,295 $0 $0 
Energy14,639 14,639 0 0 
Industrials57,330 57,330 0 0 
Consumer goods and services29,935 29,935 0 0 
Health care27,285 27,285 0 0 
Technology, media and telecommunications19,265 19,265 0 0 
Financial services127,780 127,780 0 0 
Nonredeemable preferred stocks6,674 6,079 0 595 
Total Equity Securities$299,203 $298,608 $0 $595 
Short-Term Investments$175 $175 $0 $0 
Money Market Accounts$9,334 $9,334 $0 $0 
Corporate-Owned Life Insurance$6,777 $0 $6,777 $0 
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
23
quality, duration, geographical concentration or economic characteristics. For our mortgage-backed securities,


30

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. Our validation process includes a review for unusual fluctuations. Unusual fluctuations outside of our expectations are independently corroborated with additional third-party sources that use similar valuation techniques as discussed above. In addition, on a quarterly basis, we also randomly selecttest 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, 20172020 and December 31, 20162019 was reasonable.
For the three- and nine-month periods ended September 30, 2017,2020, 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. During the three- and nine-month periods ended September 30, 2017, there were no securities transferred between Level 1 and Level 2.
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. If pricing cannot be obtained from these sources, which occurs onThe following table provides a limited basis, management will perform a discounted cash flow analysis, using an appropriate risk-adjusted discount rate, on the underlying security to estimate fair value. 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 default4% - 6%
Nonredeemable preferred stocks595 Discounted cash flowMultiplier3x - 4x
During the three- and nine-month periods ended September 30, 2017,2020, 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 from both continuing and discontinued operations for the three-month period ended September 30, 2017:2020:
 States, municipalities and political subdivisions Corporate bonds Asset-backed securities Equities Total
Balance at June 30, 2017$77
 $9,056
 $622
 $595
 $10,350
Net unrealized gains (losses)(1)
—
 (7) 9
 139
 141
Purchases—
 100
 —
 —
 100
Disposals—
 (433) —
 —
 (433)
Balance at September 30, 2017$77
 $8,716
 $631
 $734
 $10,158
Corporate bonds Asset-backed securitiesEquitiesTotal
Balance at June 30, 2020$250 $927 $595 $1,772 
Net unrealized gains(1)
0 8 0 8 
Balance at September 30, 2020$250  $935 $595 $1,780 
(1) Net unrealized gains (losses) are recorded as a component of comprehensive income.














24
31

The following table provides a summary of the changes in fair value of our Level 3 securities from both continuing and discontinued operations for the nine-month period ended September 30, 2017:2020:

 States, municipalities and political subdivisions Corporate bonds Asset-backed securities Equities Total
Balance at January 1, 2017$168
 $9,894
 $449
 $4,587
 $15,098
Net unrealized gains (losses)(1)
(6) (6) 182
 139
 309
Purchases—
 100
 —
 145
 245
Disposals(85) (1,272) —
 (4,137) (5,494)
Balance at September 30, 2017$77
 $8,716
 $631
 $734
 $10,158
Corporate bondsAsset-backed securitiesEquitiesTotal
Balance at January 1, 2020$250 $750 $595 $1,595 
Net unrealized gains(1)
0 185 0 185 
Balance at September 30, 2020$250 $935 $595 $1,780 
(1) Net unrealized gains (losses) are recorded as a component of comprehensive income.

Commercial Mortgage Loans
The fixed maturities reportedfollowing 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 0 0 
Total mortgage loans at amortized cost$47,809 100.0 %$42,520 100.0 %
25
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 
Industrial10,124 21.2 10,124 23.8 
Retail2,227 4.7 2,227 5.2 
Mixed use/Other6,475 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 grade0 8,496 6,588 15,084 
5 internal grade0 0 0 0 
6 internal grade0 0 0 0 
7 internal grade0 0 0 0 
Total commercial mortgage loans$5,551 $16,900 $25,358 $47,809 
Current-period write-offs0 — — — 
Current-period recoveries0 — — — 
Current-period net write-offs$0 $— $— $— 
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 disposals relateeconomic 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 receiptcontractual terms of principal on calls or sinking fund bonds,the respective loan agreement. As of September 30, 2020, the Company had an allowance for mortgage loan losses of $76, summarized in accordance with the indentures.following rollforward:

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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 any0 
Recoveries of amounts previously written off, if any0 
Ending balance of the allowance for mortgage loan losses, September 30, 2020$76 

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NOTE 4. RESERVES FOR LOSSES AND LOSS SETTLEMENT EXPENSES
Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property or the loss of its income-producing abilities. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. In most cases, casualty insurance also obligates the insurance company to provide a defense for the insured in litigation, arising out of events covered by the policy.


Liabilities for losses and loss settlement expenses reflect management's best estimates at a given point in time of what we expect to pay for claims that have been reported and those that have been incurred but not reported ("IBNR"), based on known facts, circumstances, and historical trends. Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported as a component of losses and loss settlement expenses incurred in the period such changes are determined.


The determination of reserves (particularly those relating to liability lines of insurance that have relatively longer lag in claim reporting) requires significant work to reasonably project expected future claim reporting and payment patterns. If, during the course of our regular monitoring of reserves, we determine that coverages previously written are incurring higher than expected losses, we will take action that may include, among other things, increasing the related reserves. Any adjustments we make to reserves are reflected in operating results in the year in which we make those adjustments. We engage an independent actuary, Regnier Consulting Group, Inc., to render an opinion as to the reasonableness of our statutory reserves annually. The actuarial opinion is filed in those states where we are licensed.


On a quarterly basis, UFG's internal actuary performs a detailed actuarial review of IBNR reserves. This review includes a comparison of results from the most recent analysis of reserves completed by both our internal and external actuaries. Senior management meets with our internal actuary to review, on a regular and quarterly basis, the adequacy of carried reserves based on results from this actuarial analysis. There are two fundamental types or sources of IBNR reserves. We record IBNR reserves for "normal" types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.


We do not discount loss reserves based on the time value of money. 



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The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves at September 30, 20172020 and December 31, 20162019 (net of reinsurance amounts):
     
September 30, 2017 December 31, 2016September 30, 2020December 31, 2019
Gross liability for losses and loss settlement expenses
at beginning of year		$1,123,896
 $1,003,895
Gross liability for losses and loss settlement expenses
at beginning of year		$1,421,754 $1,312,483 
Ceded losses and loss settlement expenses(59,794) (54,653)Ceded losses and loss settlement expenses(68,536)(57,094)
Net liability for losses and loss settlement expenses
at beginning of year		$1,064,102
 $949,242
Net liability for losses and loss settlement expenses
at beginning of year		$1,353,218 $1,255,389 
Losses and loss settlement expenses incurred
for claims occurring during		   Losses and loss settlement expenses incurred
for claims occurring during
Current year$606,344
 $683,662
 Current year$656,207 $835,507 
Prior years(37,988) (31,229) Prior years(30,038)(5,335)
Total incurred$568,356
 $652,433
Total incurred$626,169 $830,172 
Losses and loss settlement expense payments
for claims occurring during		   Losses and loss settlement expense payments
for claims occurring during
Current year$212,591
 $277,053
 Current year$263,898 $333,975 
Prior years247,608
 260,520
 Prior years330,190 398,368 
Total paid$460,199
 $537,573
Total paid$594,088 $732,343 
Net liability for losses and loss settlement expenses
at end of year		$1,172,259
 $1,064,102
Net liability for losses and loss settlement expenses
at end of year		$1,385,299 $1,353,218 
Ceded loss and loss settlement expenses65,021
 59,794
Ceded loss and loss settlement expenses169,784 68,536 
Gross liability for losses and loss settlement expenses
at end of period		$1,237,280
 $1,123,896
Gross liability for losses and loss settlement expenses
at end of period		$1,555,083 $1,421,754 


There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to: historical data, the potential impact of various loss reserve development factors and trends including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and for long tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific dollarmonetary impact of any individual factor on the development of reserves.

The significant drivers of the favorable reserve development in 2017 came from two lines, commercial liability and workers compensation, partially offset by unfavorable development from commercial fire and allied lines, assumed reinsurance and commercial automobile. Much of the favorable long-tail liability development continues to come from loss adjustment expense and is attributed to our continued litigation management efforts. There was also a reduction in reserves for incurred but not reported claims because our long tail liability has experienced fewer late reported claims than what was initially anticipated. The majority of the favorable workers compensation development is due to reductions in reserves for reported claims which were greater than what was necessary to offset claim payments. Assumed reinsurance was adversely affected by increases in reserves for reported claims while commercial fire adverse development is attributable to loss payments which were greater than reductions in reported loss reserves and reserves for claims incurred but not reported. The majority of adverse commercial fire development resulted from claim payments that exceeded reductions in reserves for reported claims.

The significant drivers of the favorable reserve development in 2016 were our commercial liability and workers compensation. Much of the favorable commercial liability development came from loss adjustment expense and is attributed to our continued litigation management efforts. Workers compensation favorable development was due to the combined effects of decreases in claim reserves along with favorable changes affecting loss adjustment expense. Loss adjustment expense, closely tied to loss, generally decreases when loss decreases. Commercial property, commercial automobile and assumed reinsurance exhibited adverse development which provided a partial offset to the favorable development previously noted. The adverse development for all three lines is due to paid loss which was greater than reductions in reported loss reserves and reserves for claims incurred but not reported. No other single line of business contributed a significant portion of the total development.


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Generally, we base reserves for each claim on the estimated ultimate exposure for that claim. We believe that it is appropriate and reasonable to establish a best estimate for reserves within a range of reasonable estimates, especially when we are reserving for claims for bodily injury, disabilities and similar claims, for which settlements and verdicts can vary widely. Our reserving philosophy may result in favorable reserve development in future years that will decrease losses and loss settlement expenses for prior year claims in the year of adjustment. We realize that this philosophy, coupled with what we believe to be aggressive and successful claims management and loss settlement practices, has resulted in year-to-year redundancies in reserves. We believe our approach produces recorded reserves that are reasonably consistent as to their relative position within a range of reasonable reserves from year-to-year. However, conditions and trends that have affected the reserve development for a given year do change. Therefore, such development cannot be used to project future reserve redundancies or deficiencies.
We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.








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Reserve Development

For the three-month period ended September 30, 2020, the majority of favorable development came from workers' compensation and commercial liability lines of business. This favorable development was partially offset by unfavorable development of commercial auto and reinsurance assumed lines. All other lines combined contributed a relatively modest amount of overall favorable development during this three-month period. For the nine-month period ended September 30, 2020 the majority of favorable development came from workers' compensation and commercial fire and allied lines of business. This favorable development was partially offset by unfavorable development of the assumed reinsurance and commercial auto lines of business. All other lines combined contributed a relatively modest amount of overall favorable development during this nine-month period.

For the three-month period ended September 30, 2019, the majority of favorable development came from workers'
compensation with a partial offset coming primarily from unfavorable development for commercial liability. The
favorable development for workers' compensation was primarily from reductions in reserves for reported claims
which were more than sufficient to offset paid loss. The unfavorable development for commercial liability is due to
paid losses and an increase in loss adjustment expenses. All other lines combined contributed additional overall
favorable development during this three-month period. For the nine-month period ended September 30, 2019 the
majority of favorable development came from workers' compensation, which was more than offset by unfavorable
development for commercial liability. The favorable development for workers' compensation was primarily from
reductions in reserves for reported claims, which were more than sufficient to offset paid loss. Also, loss adjustment
expense contributed favorable development with reductions in reserves more than sufficient to offset payments. The
unfavorable development for commercial liability is due to paid losses and an increase in loss adjustment expenses.
All other lines combined contributed additional overall favorable development during this nine-month period.
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NOTE 5. EMPLOYEE BENEFITS


Net Periodic Benefit Cost


The components of the net periodic benefit cost for our pension and postretirement benefit plans are as follows:
Pension PlanPostretirement Benefit Plan
Three Months Ended September 30,2020201920202019
Net periodic benefit cost
Service cost$2,707 $1,997 $432 $456 
Interest cost2,066 2,080 253 319 
Expected return on plan assets(3,385)(2,696)0 0 
Amortization of prior service credit0 0 (2,021)(2,221)
Amortization of net loss979 901 94 224 
Net periodic benefit cost$2,367 $2,282 $(1,242)$(1,222)
 Pension Plan Postretirement Benefit Plan
Three Months Ended September 30,2017 2016 2017 2016
        
Net periodic benefit cost       
Service cost$1,714
 $1,623
 $505
 $932
Interest cost1,765
 1,663
 482
 754
Expected return on plan assets(2,413) (1,988) —
 —
Amortization of prior service credit—
 —
 (1,352) —
Amortization of net loss891
 992
 462
 379
Net periodic benefit cost$1,957
 $2,290
 $97
 $2,065


Pension PlanPostretirement Benefit Plan
Nine Months Ended September 30,2020201920202019
Net periodic benefit cost
Service cost$8,122 $5,991 $1,296 $1,368 
Interest cost6,199 6,240 760 956 
Expected return on plan assets(10,154)(8,088)0 0 
Amortization of prior service credit0 — (6,063)(6,463)
Amortization of net loss2,936 2,703 282 671 
Net periodic benefit cost$7,103 $6,846 $(3,725)$(3,468)

 Pension Plan Postretirement Benefit Plan
Nine Months Ended September 30,2017 2016 2017 2016
        
Net periodic benefit cost       
Service cost$5,141
 $4,869
 $1,515
 $2,796
Interest cost5,295
 4,989
 1,446
 2,262
Expected return on plan assets(7,237) (5,964) —
 —
Amortization of prior service credit—
 —
 (4,056) —
Amortization of net loss2,673
 2,976
 1,384
 1,137
Net periodic benefit cost$5,872
 $6,870
 $289
 $6,195
A portion of the service cost component of net periodic pension and postretirement benefit costs is capitalized and amortized as part of deferred acquisition costs and is included in the line "Amortization of deferred policy acquisition costs" in the Consolidated Statements of Income and Comprehensive Income. The portion not related to the compensation and the other components of net periodic pension and postretirement benefit costs is included in the income statement line titled "other underwriting expenses."


Employer Contributions


We previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 20162019 that we expected to contribute $6,400$10,000 to the pension plan in 2017.2020. For the nine-month period ended September 30, 2017,2020, we contributed $11,396$10,000 to the pension plan. In September 2017, the Company contributed an additional $5,000 to the pension plan for tax advantages and to reduce future obligations.


NOTE 6. STOCK-BASED COMPENSATION


Non-qualifiedNon-Qualified Employee Stock Award Plan
The United Fire Group, Inc. 2008 Stock Plan (the "2008 Stock Plan") authorized the issuance of restricted and unrestricted stock awards, restricted stock units, stock appreciation rights, incentive stock options, and non-qualified


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stock options for up to 1,900,000 shares of UFG common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of UFG common stock issuable at any time and from time to time pursuant to the 2008 Stock Plan, among other amendments, and renamed such plan as the United Fire Group, Inc. Stock Plan (as amended, the "Stock Plan"). At September 30, 2017,2020, there were 996,839704,760 authorized shares remaining available for future issuance. The Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of the awards. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the
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Stock Plan. Pursuant to the Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees who are in positions of substantial responsibility with UFG.employees.
Options granted pursuant to the Stock Plan are granted to buy shares of UFG's common stock at the market value of the stock on the date of grant. All outstandingOptions granted prior to March 2017 vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option awards have graded vesting over 3 years or 5 yearsaward each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. Performance stock units cliff-vestOptions granted after 3 yearsMarch 2017 vest and are exercisable in installments of 33.3 percent of the certificationnumber of performance resultsshares covered by UFG’s Compensation Committee.the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the Stock Plan are granted at the market value of UFG's common stock on the date of the grant. Restricted stock units fully vest after 3 years or 5 years from the date of issuance,grant, unless accelerated upon the approval of the Board of Directors, at which time UFG common stock will be issued to the awardee.
The activity in the Stock Plan is displayed in the following table:
Authorized Shares Available for Future Award GrantsNine Months Ended September 30, 2020 From Inception to September 30, 2020
Beginning balance834,910  1,900,000 
Additional shares authorized0 1,500,000 
Number of awards granted(165,024) (3,281,445)
Number of awards forfeited or expired34,874  586,205 
Ending balance704,760  704,760 
Number of option awards exercised7,200  1,450,389 
Number of unrestricted stock awards granted0 10,090 
Number of restricted stock awards vested63,600  164,378 
Authorized Shares Available for Future Award GrantsNine Months Ended September 30, 2017 From Inception to September 30, 2017
Beginning balance1,248,651
 1,900,000
Additional shares authorized—
 1,500,000
Number of awards granted(255,040) (2,867,606)
Number of awards forfeited or expired3,228
 464,445
Ending balance996,839
 996,839
Number of option awards exercised101,189
 1,050,257
Number of unrestricted stock awards granted1,145
 8,470
Number of restricted stock awards vested—
 36,970


Non-Qualified Non-Employee Director Stock Plan
Non-qualified Non-employeeThe United Fire Group, Inc. Non-Employee Director Stock Plan (formerly known as the 2005 Non-Qualified Non- Employee Director Stock Option and Restricted Stock Plan
The United Fire Group, Inc. 2005 Non-qualified Non-employee Director Stock Option and Restricted Stock PlanPlan) (the "Director Stock Plan") authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of UFG's common stock to non-employee directors. On May 20, 2020, the Company’s shareholders approved amendments to the Director Stock Plan, previously approved by the Company’s Board of Directors, to (i) increase the number of shares available for future awards under the Director Stock Plan from 300,000 to 450,000, (ii) extend the expiration date of the Director Stock Plan from December 31, 2020 to December 31, 2029, (iii) allow for the grant of awards of restricted stock units, and (iv) rename the Director Stock Plan as the "United Fire Group, Inc. Non-Employee Director Stock Plan." At September 30, 2017, we2020, the Company had 61,813160,135 authorized shares available for future issuance.
The Board of Directors has the authority to determine which non-employee directors receive awards, when optionsrestricted stock, restricted stock units and restricted stockoptions shall be granted, the option price, the option expiration date, the date of grant, the vesting schedule of options or whether the options shall be immediately vested, the terms and conditions of options, restricted stock and restricted stock units (other than those terms and conditions set forth in the plan) and the number of shares of common stock to be issued pursuant to an option, agreementrestricted stock or restricted stock agreementunit agreements (subject to limits set forth in the plan)Director Stock Plan). The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Stock Plan.













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The activity in the Director Stock Plan is displayed in the following table:
Authorized Shares Available for Future Award GrantsNine Months Ended September 30, 2020 From Inception to September 30, 2020
Beginning balance34,863  300,000 
Additional authorization150,000 150,000 
Number of awards granted(24,728) (313,868)
Number of awards forfeited or expired0  24,003 
Ending balance160,135  160,135 
Number of option awards exercised14,183  133,275 
Number of restricted stock awards vested14,300 98,491 
Authorized Shares Available for Future Award GrantsNine Months Ended September 30, 2017 From Inception to June 30, 2017
Beginning balance74,771
 300,000
Number of awards granted(12,958) (262,190)
Number of awards forfeited or expired—
 24,003
Ending balance61,813
 61,813
Number of option awards exercised6,727
 59,200
Number of restricted stock awards vested22,716
 54,272


Stock-Based Compensation Expense


For the three-month periods ended September 30, 20172020 and 2016,2019, we recognized stock-based compensation expense of $1,202$1,052 and $865,$1,203, respectively. For the nine-month periods ended September 30, 20172020 and 2016,2019, we recognized stock-based compensation expense of $3,456 $3,979 and $2,731,$5,248, respectively. Stock-based compensation expense is recognized over the vesting period of the stock options.


As of September 30, 2017,2020, we had $9,586$5,004 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized over the remainder of 20172020 and subsequent years according to the table below, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.
2020$1,060 
20212,584 
20221,056 
2023211 
202482 
202511 
Total$5,004 
2017 $1,202
2018 4,047
2019 2,784
2020 1,120
2021 393
2022 40
Total $9,586

NOTE 7. SEGMENT INFORMATION

On September 19, 2017, the Company announced that it had agreed to sell its subsidiary, United Life Insurance Company, to Kuvare. As a result, our life insurance segment has been considered held for sale and reported as discontinued operations in the Consolidated Financial Statements and all comparable prior periods have been presented to conform to the current year presentation. The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval. For more information, refer to Note 11. Discontinued Operations.

Prior to the announcement to sell our subsidiary, United Life Insurance Company, we had two reportable business segments in our operations: property and casualty insurance and life insurance. The property and casualty insurance segment has six domestic locations from which it conducts its business. The life insurance segment operates from our home office in Cedar Rapids, Iowa. Because all of our insurance is sold domestically, we have no revenues from foreign operations.

After the announcement of the sale of our life insurance segment, the Company has one reportable segment, the property and casualty insurance segment, which includes all continuing operations. The property and casualty insurance segment profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of Income and Comprehensive Income. We analyze the property and casualty insurance segment results based on profitability (i.e., loss ratios), expenses and return on equity. The Company's property and casualty insurance segment was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution


36

networks with insurance agents and monitoring the regulatory environment. The property and casualty insurance segment products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance segment geographic concentration did not change after the announcement of the sale of the life insurance segment. We will continue to evaluate our segment on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP.
NOTE 8.7. EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share gives effect to all dilutive common shares outstanding during the reporting period. The dilutive shares we consider in our diluted earnings per share calculation relate to our outstanding stock options, restricted stock awards and restricted stock unit awards.
We determine the dilutive effect of our outstanding stock options using the "treasury stock" method. Under this method, we assume the exercise of all of the outstanding stock options whose exercise price is less than the weighted-average market value of our common stock during the reporting period. This method also assumes that the proceeds from the hypothetical stock option exercises are used to repurchase shares of our common stock at the weighted-average market value of the stock during the reporting period. The net of the assumed stock options exercised and assumed common shares repurchased represents the number of dilutive common shares, which we add to the denominator of the earnings per share calculation.



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The components of basic and diluted earnings per share were as follows for the three-month periods ended September 30, 20172020 and 2016:
2019:
 Three Months Ended September 30,
(In Thousands, Except Share Data)2017 2016
 Basic Diluted Basic Diluted
Net income (loss) from continuing operations$(19,082) $(19,082) $11,628
 $11,628
Weighted-average common shares outstanding24,960,086
 24,960,086
 25,389,633
 25,389,633
Add dilutive effect of restricted stock unit awards—
 —
 —
 155,270
Add dilutive effect of stock options—
 —
 —
 270,443
Weighted-average common shares outstanding24,960,086
 24,960,086
 25,389,633
 25,815,346
Earnings (loss) per common share from continuing operations$(0.77) $(0.77) $0.46
 $0.45
Earnings per common share from discontinued operations0.05
 0.05
 0.03
 0.03
Earnings (loss) per common share$(0.72) $(0.72) $0.49
 $0.48
Awards excluded from diluted earnings per share calculation(1)
—
 —
 —
 —
(1)Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive.

 Three Months Ended September 30,
(In Thousands, Except Share Data)20202019
BasicDilutedBasicDiluted
Net income (loss)$(37,241)$(37,241)$(2,342)$(2,342)
Weighted-average common shares outstanding25,031,234 25,031,234 25,176,334 25,176,334 
Add dilutive effect of restricted stock unit awards— 0 — 0 
Add dilutive effect of stock options— 0 — 0 
Weighted-average common shares outstanding25,031,234 25,031,234 25,176,334 25,176,334 
Earnings (loss) per common share$(1.49)$(1.49)$(0.09)$(0.09)
Awards excluded from diluted earnings per share calculation(1)
— 820,124 — 63,897 

(1)Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive.

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The components of basic and diluted earnings per share were as follows for the nine-month periods ended September 30, 20172020 and 2016:2019:

Nine Months Ended September 30,
(In Thousands, Except Share Data)20202019
BasicDilutedBasicDiluted
Net income (loss)$(103,815)$(103,815)$37,983 $37,983 
Weighted-average common shares outstanding25,023,401 25,023,401 25,172,716 25,172,716 
Add dilutive effect of restricted stock unit awards— 0 — 249,605 
Add dilutive effect of stock options— 0 — 221,423 
Weighted-average common shares outstanding25,023,401 25,023,401 25,172,716 25,643,744 
Earnings (loss) per common share$(4.15)$(4.15)$1.51 $1.48 
Awards excluded from diluted earnings per share calculation(1)
— 515,984 — 63,897 
(1)Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive.
 Nine Months Ended September 30,
(In Thousands, Except Share Data)2017 2016
 Basic Diluted Basic Diluted
Net income (loss) from continuing operations$(389) $(389) $37,083
 $37,083
Weighted-average common shares outstanding25,177,133
 25,177,133
 25,322,427
 25,322,427
Add dilutive effect of restricted stock unit awards—
 253,082
 —
 155,270
Add dilutive effect of stock options—
 236,190
 —
 233,317
Weighted-average common shares outstanding25,177,133
 25,666,405
 25,322,427
 25,711,014
Earnings (loss) per common share from continuing operations$(0.01) $(0.01) $1.47
 $1.44
Earnings per common share from discontinued operations0.21
 0.21
 0.03
 0.03
Earnings (loss) per common share$0.20
 $0.20
 $1.50
 $1.47
Awards excluded from diluted earnings per share calculation(1)
—
 —
 —
 —
(1)Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive.


NOTE 9.8. CREDIT FACILITY


On March 31, 2020, United Fire & Casualty Company (the "Borrower"), a wholly owned subsidiary of the Company, entered into a credit agreement (the "New Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent (the "Administrative Agent"), issuing lender, swing-line lender and lender, and the other lenders from time to time party thereto (collectively with Wells Fargo, the "Lenders"), providing for a $50,000 revolving credit facility, which includes a $20,000 letter of credit sub-facility and a $5,000 swing-line loan for working capital and other general corporate purposes. The New Credit Agreement is provided by the Lenders on an unsecured basis, and the Borrower has the option to increase the New Credit Agreement by $100,000 if agreed to by the Lenders providing such incremental facility.

The New Credit Agreement includes customary events of default, including default in payments of principals, default in payment of other indebtedness, change of control and voluntary and involuntary insolvency proceedings, the occurrence of which would allow the Lenders to accelerate payment of all amounts outstanding thereunder and terminate any further commitments to lend.
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The entry into the New Credit Agreement was completed as part of the Company’s regular course of financial planning and was not initiated as a result of market conditions resulting from the COVID-19 pandemic.
Prior to February 2, 2016,2020, the Company had a credit agreement (the "Previous Credit Agreement") which it entered into on February 2, 2016. The Company, as borrower, entered into athe Previous Credit Agreement (the "Credit Agreement") by and among the Company, with the lenders from time to time party thereto and KeyBank National Association ("Key Bank"), as administrative agent, swingline lender and letter of credit issuer. The Previous Credit Agreement providesprovided for a $50,000 four-year unsecured revolving credit facility that includesincluded a $20,000 letter of credit subfacility and a swingline subfacility in the amount up to $5,000. The Previous Credit Agreement allowsallowed the Company to increase the aggregate amount of the commitments thereunder by up to $100,000, provided that no event of default hashad occurred and iswas continuing and certain other conditions arewere satisfied.
The Previous Credit Agreement iswas available for the Company's general corporate purposes, including liquidity, acquisitions and working capital. All unpaid principal and accrued interest under the Previous Credit Agreement iswas due and payable in full at maturity on February 2, 2020. Based on the type of loan, advances under the Previous Credit Agreement would bearbore interest on either the London interbank offered rateInterbank Offered Rate ("LIBOR") or a base rate plus, in each case, a calculated margin amount.
The unused commitments under the Credit Agreement will be subject to a commitment fee that will be calculated at a per annum rate. The applicable margins for borrowings under the Credit Agreement and the commitment fee thereunder will be determined by reference to a pricing grid based on the Company’s issuer credit rating by A.M. Best Company, Inc.
The Credit Agreement contains customary representations, conditions to borrowing, covenants and events of default, including certain covenants that limit or restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to sell or transfer assets, enter into a merger or consolidate with another company, create liens, impose restrictions on subsidiary dividends, enter into sale-leaseback transactions, make investments or acquisitions, enter into certain reinsurance agreements, pay dividends during any period of default, enter into transactions with affiliates, change the nature of its business, or incur indebtedness. The Credit Agreement also includes financial covenants that require the Company to (i) maintain a minimum consolidated net worth, (ii) maintain a minimum consolidated statutory surplus and (iii) not exceed a 0.35 to 1.0 debt to total capitalization ratio.
There was no0 outstanding balance on either the New Credit Agreement or the Previous Credit Agreement at September 30, 20172020 and 2016,2019, respectively. For the nine-month periods ended September 30, 20172020 and 2016,2019, we did not0t incur any interest expense related to either credit facility. We were in compliance with all covenants of the New Credit Agreement at September 30, 2017.2020.




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NOTE 10.9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the three-month period ended September 30, 2017:2020:
Liability for
  Liability for  Net unrealizedunderfunded
Net unrealized underfunded  appreciationemployee
appreciation employee  on investments
benefit costs(1)
Total
on investments 
benefit costs(1)
 Total
Balance as of June 30, 2017$160,048
 $(23,080) $136,968
Balance as of June 30, 2020Balance as of June 30, 202079,283 (32,433)$46,850 
Change in accumulated other comprehensive income before reclassifications12,347
 —
 12,347
Change in accumulated other comprehensive income before reclassifications3,252 0 3,252 
Reclassification adjustments from accumulated other comprehensive income (loss)(273) 879
 606
Reclassification adjustments from accumulated other comprehensive income (loss)(43)848 805 
Balance as of September 30, 2017$172,122
 $(22,201) $149,921
Balance as of September 30, 2020Balance as of September 30, 2020$82,492 $(31,585)$50,907 
(1) The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31.

















35


The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the nine-month period ended September 30, 2017:2020:

Liability for
  Liability for  Net unrealizedunderfunded
Net unrealized underfunded  appreciationemployee
appreciation employee  on investments
benefit costs(1)
Total
on investments 
benefit costs(1)
 Total
Balance as of January 1, 2017$133,892
 $(24,837) $109,055
Balance as of January 1, 2020Balance as of January 1, 202047,279 (34,127)$13,152 
Change in accumulated other comprehensive income before reclassifications41,999
 —
 41,999
Change in accumulated other comprehensive income before reclassifications35,223 0 35,223 
Reclassification adjustments from accumulated other comprehensive income (loss)(3,769) 2,636
 (1,133)Reclassification adjustments from accumulated other comprehensive income (loss)(10)2,542 2,532 
Balance as of September 30, 2017$172,122
 $(22,201) $149,921
Balance as of September 30, 2020Balance as of September 30, 2020$82,492 $(31,585)$50,907 
(1) The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31.


NOTE 11. DISCONTINUED OPERATIONS10. LEASES


On September 18, 2017, we signed a definitive agreement to sell our subsidiary, United Life InsuranceThe Company to Kuvare for $280,000 in cash, subject to specified adjustments as set forthhas operating leases consisting of office space, vehicle leases, computer equipment, and office equipment. Lease terms and options vary in the definitive agreement.Company's operating leases dependent upon the underlying leased asset. We exclude options to extend or terminate a lease from our recognition as part of our right-of-use assets and lease liabilities until those options are known and/or executed, as we typically do not exercise options to purchase the underlying leased asset. As a result, our life insurance business (previously reported as a separate segment) has been considered heldof September 30, 2020, we have leases with remaining terms of 1 year to 7 years, some of which may include no options for salerenewal and reported as discontinued operations and its financial position, results of operations and cash flows are separately reported separately for all periods presented, unless otherwise noted. The sale is expectedothers with options to close inextend the first half of 2018, subjectlease terms from 6 months to customary conditions, including regulatory approval.

Subsequent to the close of the sale in the first half of 2018, UFG will provide services to Kuvare through a transition services agreement ("TSA"). The TSA will be put in place to ensure a seamless transfer of the business between UFG and Kuvare. The TSA includes, among other considerations, accounting management, human resources, legal


39

and information technology services, from the closing date for up to 24 months.5 years.
The assets and liabilities associated with discontinued operations prior to the closingcomponents of the sale have been presented separately in our Consolidated Balance Sheets. The major assets and liability categories were as follows as of the dates indicated:
Discontinued Operations
Balance Sheets
(In Thousands, Except Share Data)September 30,
2017		 December 31,
2016
 (unaudited)  
Assets   
Investments   
Fixed maturities   
Held-to-maturity, at amortized cost (fair value $39 in 2017 and $49 in 2016)$38
 $48
Available-for-sale, at fair value (amortized cost $1,399,465 in 2017 and $1,429,270 in 2016)1,426,991
 1,444,840
Equity Securities available-for-sale, at fair value (cost $5,099 in 2017 and $8,510 in 2016)22,616
 24,046
Mortgage loans3,504
 3,706
Policy loans5,770
 5,366
Other long-term investments16,299
 15,870
 1,475,218
 1,493,876
Cash and cash equivalents30,751
 21,659
Deferred policy acquisition costs65,836
 70,750
Other assets21,041
 19,333
Total assets held for sale$1,592,846
 $1,605,618
Liabilities   
Future policy benefits and losses

$1,324,029
 $1,350,503
Accrued expenses and other liabilities39,708
 39,720
Total liabilities held for sale$1,363,737
 $1,390,223












40

Summary operating results of discontinued operationsleases were as follows for the periods indicated:
Discontinued Operations
Statements of Income
 Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands, Except Share Data)2017 2016 2017 2016
        
Revenues       
Net premiums earned$14,230
 $20,600
 $45,999
 $62,878
Investment income, net of investment expenses12,354
 12,663
 37,230
 38,404
Net realized investment gains296
 461
 3,600
 1,409
Other income174
 145
 498
 436
Total revenues$27,054
 $33,869
 $87,327
 $103,127
        
Benefits, Losses and Expenses       
Losses and loss settlement expenses$10,506
 $7,252
 $30,679
 $23,527
Increase in liability for future policy benefits5,481
 14,091
 19,341
 42,645
Amortization of deferred policy acquisition costs2,156
 1,876
 5,524
 5,716
Other underwriting expenses2,444
 4,527
 9,452
 14,630
Interest on policyholders’ accounts4,587
 4,983
 13,982
 15,368
Total benefits, losses and expenses$25,174
 $32,729
 $78,978
 $101,886
        
Income from discontinued operations before income taxes$1,880
 $1,140
 $8,349
 $1,241
Federal income tax expense662
 400
 2,930
 415
Net income from discontinued operations$1,218
 $740
 $5,419
 $826
Earnings per common share from discontinued operations:       
Basic$0.05
 $0.03
 $0.21
 $0.03
Diluted0.05
 0.03
 0.21
 0.03

The Company's Consolidated Statement of Cash Flows presents operating, investing and financing cash flows of the discontinued operations separately. The Company's cash management and financial management of both continued and discontinued operations is consolidated as a centralized corporate function in our Finance Department. Cash and cash equivalents of the discontinued operations at September 30, 2017 and December 31, 2016 were $30,751 and $21,659, respectively.


41

Review Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
United Fire Group, Inc.

We have reviewed the consolidated balance sheet of United Fire Group, Inc. (the "Company") as of September 30, 2017, and the related consolidated statements of income and comprehensive income for the three- and nine-month periods ended September 30, 20172020 and 2016, the consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016, and the consolidated statement of stockholders' equity for the nine-month period ended September 30, 2017. These financial statements are the responsibility of the Company's management.2019:

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Components of lease expense:
Operating lease expense$1,832 $1,910 $5,788 $5,730 
Less sublease income53 119 239 371 
Net lease expense1,779 1,791 5,549 5,359 
Cash flows information related to leases:
Operating cash outflow from operating leases1,796 1,812 5,265 5,420 
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of United Fire Group, Inc. as of December 31, 2016, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 28, 2017. In our opinion, the accompanying consolidated balance sheet of United Fire Group, Inc. as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


36
/s/ Ernst & Young LLP  
Ernst & Young LLP 

Des Moines, Iowa
November 8, 2017



42

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Part I, Item 1 "Financial Statements."


CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are representative of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. We base our discussion and analysis of our consolidated financial condition and results of operations and financial condition on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with GAAP.U.S. generally accepted accounting principles ("GAAP"). As we prepare these Consolidated Financial Statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are more fully described in our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016.2019. There have been no changes in our critical accounting policies from December 31, 2016.2019.


INTRODUCTION


The purpose of this Management's Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial position.condition. Our Management's Discussion and Analysis should be read in conjunction with our consolidated financial statementsConsolidated Financial Statements and related notes, including those in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016.2019. Our Consolidated Financial Statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance company subsidiaries based on statutory accounting principles and file them with insurance regulatory authorities in the states where they do business.

When we provide information on a statutory or other basis, we label it as such, otherwise all other data is presented in accordance with GAAP.


BUSINESS OVERVIEW


Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated insurance subsidiaries provide insurance protection for individuals and businesses through several regional offices. Our property and casualty insurance company subsidiaries are licensed in46 48 states plus the District of Columbia and are represented by approximately 1,200approximately 1,000 independent agencies. Our life insurance subsidiary is licensed in 37 states and is represented by approximately 1,550 independent agencies.
Our primary sources of revenue are premiums and investment income. Major categories of expenses from our continuing operations include losses and loss settlement expenses, future policy benefits, underwriting and other operating expenses and interest on policyholders' accounts.expenses.
Discontinued OperationsReportable Segments
On September 18, 2017,
Subsequent to the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company, to Kuvare US Holdings, Inc. ("Kuvare"). As a result, ourannouncement of the sale of the life insurance business has been considered held for saleon September 19, 2017, we have operated and accounted forreport as discontinued operations in the Consolidated Balance Sheets, Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows. All periods presented have been revised to show results from continuing and discontinued operations, unless otherwise noted. The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval.one business segment. For more information, refer to Part I, Item 1, Note 11. "Discontinued Operations".1. "Nature of Operations and Basis of Presentation."






37
43

Personal Lines Business
Reportable Segments

PriorIn May 2020, the Company entered into a renewal rights agreement for our personal lines business, providing our independent insurance agents with the opportunity to transfer their personal lines policies to Nationwide Mutual Insurance Company beginning in the third quarter of 2020, subject to the announcementreceipt of applicable regulatory approvals.

As part of this agreement, Nationwide will offer contracts to all of our personal lines agents across the country, with the exception of agents in Louisiana and Florida. We are continuing to evaluate our strategic plan for the personal lines business in Louisiana and Florida.

Nationwide will provide replacement policies to most of our personal lines policyholders at the time of renewal. However, recently Nationwide has identified three categories of policies where they are refusing to offer replacement coverage directly. We remain in active discussions on that topic.

UFG’s entry into a renewal rights agreement with Nationwide was completed as part of our long-term strategic planning, allowing us to focus on the success of our core commercial lines business, which represented 94 percent of our business mix at the time of the saleagreement. It was not initiated as a result of our life insurance business, we have historically reported our operations in two business segments, each withmarket conditions from the COVID-19 pandemic.

The Company recognized other income of $6.3 million before tax during 2020 as a wide rangeresult of products:

property and casualty insurance, which includes commercial lines insurance,the personal lines insurance, surety bonds and assumed reinsurance; andrenewal rights agreement with Nationwide Mutual Insurance Company.

life insurance, which includes deferred and immediate annuities, universal life products and traditional life (primarily single premium whole life) insurance products.

We manage these business segments separately, as they generally do not share the same customer base, and each has different products, pricing, and expense structures.

Subsequent to the announcement of the sale of our life insurance segment on September 19, 2017, we operate and report one business segment, which contains our continuing operations. Our life insurance business is considered held for sale and reported as discontinued operations throughout this Form 10-Q, unless otherwise noted. For more information, refer to Part I, Item 1, Note 7. "Segment Information".


Pooling Arrangement


All of our property and casualty insurance subsidiaries are members of an intercompany reinsurance pooling arrangement. The Company's pooling arrangement permits the participating companies to rely on the capacity of the entire pool's capital and surplus, rather than being limited to policy exposures of a size commensurate with each participant’s own surplus level.


Geographic Concentration


For the nine-month period ended September 30, 2017,2020, approximately 48.250.4 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri, and Colorado.New Jersey.
Profit Factors
Our profitability is influenced by many factors, including price, competition, economic conditions, investment returns, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in the law. To manage these risks and uncertainties, we seek to achieve consistent profitability through strong agency relationships, exceptional customer service, fair and prompt claims handling, disciplined underwriting, superior loss control services, prudent management of our investments, appropriate matching of assets and liabilities, effective use of ceded reinsurance and effective and efficient use of technology.



COVID-19















The spread of the COVID-19 virus, beginning in mid-March 2020, caused significant financial market volatility, economic uncertainty and interruptions to normal business activities. The COVID-19 pandemic has had a profound impact on day-to-day life, financial markets and the economy in the United States. The Company, in response to the challenges presented by the COVID-19 pandemic, activated its pre-existing business continuity plans to respond to a pandemic in mid-March 2020. With the exception of our essential services employees, UFG has dispatched its staff to work remotely for the safety, health and well-being of our employees. We are fully operational, but have limited some non-essential travel. Our essential services employees are following recommended health and safety policies. We are and will continue to monitor the state and federal responses to the pandemic and, when appropriate, will adjust our operations in response. We are developing a return to workplace plan for our employees, but have not

38
44

finalized plans as of the date of this report. Our return to workplace plan will be implemented at the appropriate time and in a way that is designed to ensure the health and safety of our employees.

The implementation of our business continuity plans did not have a material effect on our internal control environment. We believe our operational processes, internal controls over financial reporting and disclosures, and financial reporting systems are operating effectively in the present environment. Our business teams are working remotely and continue to support our customers, agents and claimants as they did when we were in the office.
Nearly all of the policies we have issued contain contract language that specifically excludes business interruption coverage for losses due to viruses such as the COVID-19 pandemic, but we continue to carefully scrutinize each claim and will afford coverage when appropriate. At this time, we expect the effect of the COVID-19 pandemic on claims currently under our coverages to be manageable, based on the information presently available. However, the effects of the COVID-19 pandemic continue to evolve and we cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted. Additionally, if established written contract policy exclusions of business interruption coverage for losses attributable to the COVID-19 pandemic are voided or changed through legislation, regulations or interpretations by the courts, such changes have the potential to materially increase claims, losses and legal expenses which could impact our business, financial condition, results of operations and liquidity.

We anticipate that the larger impact on our financial condition and results of operations will likely result from developments in the economy as a whole and the effect on financial markets and the investments we hold in our investment portfolio, premiums and demand for our products, and our ability to collect premiums or any requirement to return premiums to policyholders. We believe our current liquidity position is sufficient to maintain our current operations and we have the ability to access our credit facility if needed, but we have not yet had the need to do so. See Part 1, Item 1, Note 8 "Credit Facility" for more information. We implemented state-mandated and optional payment leniency programs for our policyholders, all of which have expired as of September 30, 2020. As of September 30, 2020, we did not see a significant impact to cash flows or an increase in our allowance for doubtful accounts as a result of these programs. During the third quarter of 2020, management did not repurchase any shares of stock, and the share repurchase program has been suspended since mid-March 2020. Also, the Company maintained the same level of cash dividend payments of $0.33 per share during the third quarter of 2020 as were paid in each of the first and second quarters of 2020.

Stockholders' equity decreased to $820.3 million at September 30, 2020, from $910.5 million at December 31, 2019. This decrease was primarily attributed to a net loss of $103.8 million, shareholder dividends of $24.8 million and share repurchases of $2.7 million, partially offset by an increase in net unrealized investment gains on fixed maturity securities of $35.2 million, net of tax, during the nine months ended September 30, 2020.

Statutory capital and surplus decreased to $605.5 million at September 30, 2020, from $707.6 million at December 31, 2019. The decrease was primarily attributed to the change in the fair value of equity security investments. We are directed by the state insurance departments' solvency regulations to calculate a required minimum level of statutory capital and surplus based on insurance risk factors, which the Company reviews on a monthly basis. The risk-based capital results are used by the NAIC and state insurance departments to identify companies that merit regulatory attention or the initiation of regulatory action. United Fire & Casualty Company and its property and casualty insurance subsidiaries and affiliates had statutory capital and surplus in regards to policyholders in excess of their required levels at September 30, 2020.

We evaluate goodwill and other intangible assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed their implied fair value. Goodwill is evaluated at the reporting unit level. Any impairment is charged to operations in the period that the impairment is identified. As a result of the COVID-19 pandemic and its impact on equity markets and the economy, we performed a quantitative impairment assessment of our goodwill at September 30, 2020. As a result of this assessment, we recorded an impairment charge of $15.1 million on our remaining goodwill balance at September 30, 2020.

39
As of September 30, 2020, we intend to keep all assets currently leased and honor the terms of the contracts. Also, we have four lease contracts where we are the lessor which we evaluated for impairment. As of September 30, 2020, all payments on these contracts had been received and we fully expect to receive all future payments on time. In the event that we receive any lease-related relief provided to mitigate the economic effects of the COVID-19 pandemic, we elect not to evaluate whether or not the relief represents a lease modification.
The decline in equity markets in the first nine months of 2020 due to the COVID-19 pandemic did have a material impact on the fair value of our investments in equity securities and limited liability partnerships. The Company's investment philosophy, objectives, approach and program have not changed as a result of the COVID-19 pandemic. During the three-month period ended September 30, 2020 we had a recovery in the fair value of equity securities of $22.0 million and a decrease in value of our investments in limited liability partnerships of $4.7 million from the values reported at June 30, 2020. Year-to-date in 2020 the decrease in the fair value of equity securities from December 31, 2019 was $38.9 million.
The Company has a highly rated fixed maturity portfolio, with low credit risk. The Company recognized an unrealized gain of $35.2 million, net of tax, at September 30, 2020 on its available-for-sale fixed maturity portfolio. In addition, we also adopted new accounting guidance on January 1, 2020, which changes the measurement of credit losses for our investment in available-for-sale fixed maturities and our mortgage loans and also impacts our reinsurance receivables. The adoption of this new guidance resulted in an immaterial allowance for credit losses to be recorded for each of these assets on our balance sheet as of September 30, 2020. For more information on credit losses recognized in the three- and nine-month periods ended September 30, 2020, please refer to the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

















40
FINANCIAL HIGHLIGHTS
Three Months Ended September 30,Nine Months Ended September 30,
Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands)2017 2016 % 2017 2016 %
(In Thousands, Except Ratios)(In Thousands, Except Ratios)2020 2019 %20202019%
Revenues           Revenues 
Net premiums earned$255,758
 $239,469
 6.8 % $737,424
 $691,976
 6.6 %Net premiums earned$259,061  $274,942  (5.8)%$791,519 $813,742 (2.7)%
Investment income, net of investment expenses13,792
 14,027
 (1.7) 38,561
 35,017
 10.1
Investment income, net of investment expenses7,244  13,291  (45.5)22,303 43,923 (49.2)
Net realized investment gains67
 2,129
 (96.9) 3,397
 4,832
 (29.7)
Net realized investment gains (losses)Net realized investment gains (losses)15,212  9,822  54.9 (62,416)50,126 (224.5)
Other incomeOther income604  —  NM6,323 — NM
Total revenues$269,617
 $255,625
 5.5 % $779,382
 $731,825
 6.5 %Total revenues$282,121  $298,055  (5.3)%$757,729 $907,791 (16.5)%

              
Benefits, Losses and Expenses
          Benefits, Losses and Expenses   
Losses and loss settlement expenses$223,208
 $169,303
 31.8 % $568,356
 $475,568
 19.5 %Losses and loss settlement expenses$234,693  $211,752  10.8 %$626,169 $596,001 5.1 %
Amortization of deferred policy acquisition costs52,986
 52,240
 1.4
 154,845
 151,216
 2.4
Amortization of deferred policy acquisition costs52,095  54,828  (5.0)158,440 161,842 (2.1)
Other underwriting expenses25,817
 20,047
 28.8
 69,900
 61,469
 13.7
Other underwriting expenses35,470  36,003  (1.5)114,020 104,370 9.2 
Goodwill impairmentGoodwill impairment15,091 — NM15,091 — NM
Total benefits, losses and expenses$302,011
 $241,590
 25.0 % $793,101
 $688,253
 15.2 %Total benefits, losses and expenses$337,349  $302,583  11.5 %$913,720 $862,213 6.0 %


          
Income (loss) from continuing operations before income taxes$(32,394) $14,035
 NM
 $(13,719) $43,572
 (131.5)%
Income (loss) before income taxesIncome (loss) before income taxes$(55,228) $(4,528) NM$(155,991)$45,578 NM
Federal income tax expense (benefit)(13,312) 2,407
 NM
 (13,330) 6,489
 NM
Federal income tax expense (benefit)(17,987) (2,186) NM(52,176)7,595 NM
Net income (loss) from continuing operations$(19,082) $11,628
 (264.1)% $(389) $37,083
 (101.0)%
Income from discontinued operations, net of tax1,218
 740
 64.6 % 5,419
 826
 NM
Net income (loss)$(17,864) $12,368
 (244.4)% $5,030
 $37,909
 (86.7)%Net income (loss)$(37,241) $(2,342) NM$(103,815)$37,983 NM
           
GAAP Ratios:   
        GAAP Ratios:  
Net loss ratio (without catastrophes)75.3% 65.5% 15.0 % 67.8% 61.1% 11.0 %Net loss ratio (without catastrophes)69.2 % 70.0 %(1.1)%63.8 %67.8 %(5.9)%
Catastrophes - effect on net loss ratio12.0
 5.2
 130.8 % 9.3
 7.6
 22.4 %Catastrophes - effect on net loss ratio21.4  7.0 205.7 15.3 5.5 178.2 
Net loss ratio(1)
87.3% 70.7% 23.5 % 77.1% 68.7% 12.2 %
Net loss ratio(1)
90.6 % 77.0 %17.7 %79.1 %73.3 %7.9 %
Expense ratio(2)
30.8
 30.2
 2.0 % 30.5
 30.8
 (1.0)%
Expense ratio(2)
33.8  33.0 2.4 34.4 32.7 5.2 
Combined ratio(3)
118.1% 100.9% 17.0 % 107.6% 99.5% 8.1 %
Combined ratio(3)
124.4 % 110.0 %13.1 %113.5 %106.0 %7.1 %
(1) The net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned. We use the net loss ratio as a measure of the overall underwriting profitability of the insurance business we write and to assess the adequacy of our pricing. Our net loss ratio is meaningful in evaluating our financial results as reported in our unaudited Consolidated Financial Statements.
(2) The expense ratio is calculated by dividing nondeferredother underwriting expenses and amortization of deferred policy acquisition costs by net premiums earned. The expense ratio measures a company's operational efficiency in producing, underwriting and administering its insurance business.
(3) The combined ratio is a commonly used financial measure of property and casualty underwriting performance. A combined ratio below 100.0 percent generally indicates a profitable book of business. The combined ratio is the sum of the net loss ratio and the underwriting expense ratio.
NM = Not meaningful


The following is a summary of our financial performance from continuing operations for the three- and nine-month periods ended September 30, 2017:2020:


Results of OperationsRESULTS OF OPERATIONS


For the three-month period ended September 30, 2017,2020, the net loss from continuing operations was $19.1$37.2 million compared to a net income from continuing operationsloss of $11.6$2.3 million for the same period of 2016. This decrease2019. In the three-month period ended September 30, 2020, the increase in the net loss was driven byprimarily due to an increase in losses and loss settlement expenses, namely from an increase in catastrophe losses, and deterioration in our core loss ratio; partially offset by an increasedecrease in net premiums earned from organic growth. Net premiums earned increased to $255.8 million compared to $239.5 million for the same period of 2016.earned.



45


For the nine-month period ended September 30, 2017,2020, the net loss from continuing operations was $0.4$103.8 million compared to net income from continuing operations of $37.1$38.0 million for the same period of 2016. The decrease in net income was driven by an increase in losses and loss settlement expenses, from an increase in catastrophe losses and deterioration in our core loss ratio; partially offset by an increase in net premiums earned from organic growth. Net premiums earned increased to $737.4 million compared to $692.0 million for the same period of 2016.

Losses and loss settlement expenses increased by $53.9 million during the three-month period ended September 30, 2017 compared to the same period of 2016, and the net loss ratio increased by 16.6 percentage points during the three-month period ended September 30, 2017 compared to the same period of 2016. The increase was primarily due to an increase in catastrophe losses and deterioration in our core loss ratio. This deterioration was primarily due to an increase in the number of severe losses in our commercial automobile line of business from the current accident year and prior period reserve development. Pre-tax catastrophe losses for the three-month period ended September 30, 2017 were $30.7 million compared to $12.5 million in the same period of 2016.

Losses and loss settlement expenses increased by $92.8 million during2019. In the nine-month period ended September 30, 2017 compared to the same period2020, the decrease in net
41
income was primarily due to an increasea decrease in catastrophethe fair value of equity securities, a decrease in net investment income, a decrease in net premiums earned and increases in losses and deterioration in our core loss ratio. This deterioration was primarily due to an increase in the number of severe losses in our commercial automobile line of business from current accident yearsettlement expenses.

Net premiums earned decreased 5.8 percent and prior period reserve development. Pre-tax catastrophe losses for the nine-month period ended September 30, 2017 were $68.8 million compared to $52.4 million in the same period of 2016.

Investment income decreased slightly by $0.2 million and increased $3.5 million2.7 percent during the three- and nine-month periods ended September 30, 2017,2020, respectively, compared to the same periods of 2016.2019. The increasedecrease in both the three- and nine-month periodperiods ended September 30, 20172020 was primarily driven bydue to our focus on improving profitability through non-renewal of under-performing accounts in our commercial auto line of business. Also, during the third quarter of 2020, we paid $9.0 million of reinstatement premium with our reinsurance program as a result of the August Midwest derecho catastrophe exceeding the reinsurance contract stated retention. The COVID-19 pandemic also impacted net premiums earned, but the impact was less significant than the impact from our commercial auto profitability initiatives in the three- and nine-month periods ended September 30, 2020. During 2020, the Company implemented state-mandated and optional payment leniency programs for our policyholders as a result of the COVID-19 pandemic. As of September 30, 2020, this has not significantly impacted cash flows or an increase in invested assets and partiallyour allowance for doubtful accounts as a result of these programs. These payment modifications did not have a material impact on our financial condition, liquidity or capital position.

Net investment income was $7.2 million for the third quarter of 2020 as compared to net investment income of $13.3 million for the same period in 2019. Year-to date, net investment income was $22.3 million, compared to net investment income of $43.9 million for the same period in 2019. The decrease in net investment income in both periods in 2020 as compared to the same periods in 2019 was due to the changea combination of a decrease in the valuationfair value of our investments in limited liability partnerships and not due to a changean overall decrease in our investment philosophy.invested assets. The valuation of these investments in limited liability partnerships varies from period to period due to the current equity market conditions, specificallyspecifically related to financial institutions.


The Company recognized net realized investment gains of $15.2 million during the third quarter of 2020, compared to net realized investment gains of $9.8 million for the same period in 2019. Year-to-date, the Company recognized net realized investment losses of $62.4 million compared to net realized gains of $50.1 million in the same period in 2019. The change in the three- and nine-month periods ended September 30, 2020 as compared to the same periods in 2019 was primarily due to the change in the fair value of equity securities and net realized losses on sales of equity securities.

Losses and loss settlement expenses increased by 10.8 percentage points and by 5.1 percentage points during the three- and nine-month periods ended September 30, 2020, respectively, compared to the same periods of 2019. The increase in losses and loss settlement expenses primarily was due to an increase in catastrophe losses as compared to the same period in 2019.

The GAAP combined ratio increased 17.2by 14.4 percentage points to 118.1124.4 percent for the three-monththird quarter of 2020, compared to 110.0 percent in the same period in 2019. For the nine-month period ended September 30, 2017, compared to 100.9 percent for2020, the same period of 2016. TheGAAP combined ratio increased 8.17.5 percentage points to 107.6113.5 percent compared to 106.0 percent for the nine-month period ended September 30, 2017, compared to 99.5 percent for the same period of 2016.2019. The increase in the combined ratio was primarily driven by an increase in the net loss ratio.

The GAAP net loss ratio deteriorated 13.6 percentage points and 5.8 percentage points, respectively, during three- and nine-month periods ended September 30, 2020 as compared to the same periods in 2019. The increase in the net loss ratio was primarily due to an increase in catastrophe losses.

Pre-tax catastrophe losses in the third quarter of 2020 were higher when compared to third quarter of 2019, with catastrophe losses adding 21.4 percentage points to the combined ratio in 2020 as compared to 7.0 percentage points in 2019. During the third quarter of 2020, the Company incurred losses from 25 catastrophe events, with the most significant losses from the August Midwest derecho and Hurricane Laura. Our 10-year historical average for third quarter catastrophe losses is 8.9 percentage points added to the combined ratio. Year-to-date, catastrophe losses totaled $121.3 million ($3.83 per diluted share) compared to $44.9 million ($1.38 per diluted share) for the same period in 2019.

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The expense ratio for the third quarter of 2020 was 33.8 percent compared to 33.0 percent for the third quarter in 2019. Year-to-date, the expense ratio was 34.4 percent compared to 32.7 percent in the same period in 2019. The increase in the expense ratio during the three- and nine-month periods ended September 30, 2017,2020 as compared to the same periods of 2016, was primarily attributable to an increase in the net loss ratio. The increase in net loss ratio was primarily driven by an increase in catastrophe losses and a deterioration in our core loss ratio, primarily in our commercial automobile line of business, which experienced an increase in the number of severe losses on current accident year and prior year reserve development.

The net loss ratio, a component of the combined ratio, increased by 16.6 percentage points to 87.3 percent and 8.4 percentage points to 77.1 in the three- and nine-month periods ended September 30, 2017, respectively, as compared to the same periods of 2016. The increase was2019 is primarily due to our continued investment in technology, including our multi-year Oasis project, an increase in catastrophe losses and deterioration in our core loss ratio. This deterioration was primarily dueupgrade to an increase in the number of severe losses in our commercial automobile line of business from prior period reserve development. Pre-tax catastrophe losses totaled $30.7 million and $68.8 million and for the three- and nine-month periods ended September 30, 2017, as compared to $12.5 million and $52.4 million in the same periods of 2016. The increase in the three- and nine-month periods ended September 30, 2017 was primarily driven by losses from hurricanes in the third quarter of 2017.

The expense ratio, a component of the combined ratio, was 30.8 percent and 30.5 percent for the three- and nine-month periods ended September 30, 2017, respectively, an increase of 0.6 percentage points and a decrease of 0.3 percentage points as compared with the same periods of 2016. The increase in the three-month period ended September 30, 2017 was due to two items: first, deterioration in the profitability of the commercial and personal auto lines of business, which accelerates the amortization of our deferred acquisition costs; and second, we have invested in a new multi-year project to upgrade our technology platform designed to enhance core underwriting decisions, selection of risks and productivity.


46

productivity. These were both partially offset by a decrease in post-retirement benefit expenses and a decrease in contingent commission expenses.


For a detailed discussion of our investment results, refer to the "Investment Portfolio" section below.
Reserve Development


For many liability claims, significant periods of time, ranging up to several years, and for certain construction defect claims, more than a decade, may elapse between the occurrence of the loss, the reporting of the loss to us and the settlement or other disposition of the claim. As a result, loss experience in the more recent accident years for the long-tail liability coverages has limited statistical credibility in our reserving process because a relatively small proportion of losses in these accident years are reported claims and an even smaller proportion are paid losses. In addition, long-tail liability claims are more susceptible to litigation and can be significantly affected by changing contract interpretations and the legal environment. Consequently, the estimation of loss reserves for long-tail coverages is more complex and subject to a higher degree of variability. Reserves for these long-tail coverages represent a significant portion of our overall carried reserves.


When establishing reserves and monitoring reserve adequacy, we analyze historical data and consider the potential impact of various loss development factors and trends, including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and, for long-tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific dollar impact of any individual factor on the development of reserves.


Our reserving philosophy is to reserve claims to their ultimate expected loss amount as soon as practicable after information about a claim becomes available. This approach tends to produce, on average, prudently conservative case reserves, which we expect to result in some level of favorable development over the course of settlement.


20172020 Development


The property and casualty insurance business experienced $3.2$6.3 million of unfavorable and $38.0$30.0 million of favorable development in our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2017,2020, respectively. For the three-month period ended September 30, 20172020, the majority of unfavorablefavorable development camewas from two lines, commercial automobilethe combination of workers' compensation with $5.4$5.6 million unfavorablefavorable development and commercial liability with $3.6$5.5 million favorable development. Partially offsetting favorable development was commercial automobile with $2.2 million of unfavorable development which was partially offset by favorable development from two other lines, workers compensation with $4.6 million favorable development and personal fire and allied linesreinsurance assumed with $1.6 million of unfavorable development. The favorable development. Duringdevelopment for workers' compensation was primarily from reductions in claim reserves which were more than sufficient to offset paid loss. The favorable development for commercial liability was due to the three-month period ended September 30, 2017 allcombination of both loss and loss adjustment expense where reserve reductions were more than sufficient to offset payments. The adverse development for commercial automobile was attributed to an increase in severity of losses with paid losses greater than the reductions of unpaid claim reserves, paid loss adjustment expense was more than offset by reductions of reserves for unpaid loss adjustment expense. All other lines combinedof insurance, in total, contributed $0.4$1.0 million unfavorable development. Commercial automobile and other liability were the primary sources of unfavorable development which is attributable to latent developmentduring the third quarter of more severe claims than what we have historically seen which manifested itself as increased payments and less favorable changes in reserves for unpaid claims. 2020.

For the nine-month period ended September 30, 20172020 the majority of favorable development camewas from two lines, commercial liabilityworkers' compensation with $37.9$21.6 million favorable development, and workers compensation with $14.6 million favorable development, which was partially offsetfollowed by unfavorable development from three other lines, commercial fire and allied lines which contributed $12.6 million of favorable development. Partially offsetting favorable development was reinsurance assumed with $7.1$4.4 million unfavorable development, assumed reinsurance with $6.8 millionof unfavorable development and commercial automobile with $5.6$2.1 million of unfavorable
43
development. DuringThe favorable development for workers' compensation was primarily from reductions in claim reserves which were more than sufficient to offset paid loss. The adverse development for reinsurance assumed was attributed to paid loss which was greater than the reductions of unpaid claim reserves. All other lines of insurance, in total, contributed $2.3 million of favorable development during the third quarter of 2020.

2019 Development

The property and casualty insurance business experienced $5.5 million and $0.8 million of favorable development in
our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2019,
respectively. For the three-month period ended September 30, 2017 all other lines combined contributed $5.02019 the majority of favorable development was from
workers' compensation with $14.9 million favorable development, followed by assumed reinsurance which
contributed $1.2 million of favorable development. Much of theThe favorable year-to-date long-tail liability development continues to comefor workers' compensation was
primarily from loss adjustment expense and is attributed to our continued litigation management efforts. There was also a reduction in reserves for incurred but not reported claims because our long tail liability has experienced fewer late reported claims than what was initially anticipated. The majority of the favorable workers compensation development is due to reductions in reserves for reported claims which were greatermore than what was necessarysufficient to offset paid losses. The
favorable development for assumed reinsurance was primarily from reductions in incurred but not reported
("IBNR") reserves which were more than sufficient to offset paid losses. The favorable development was partially
offset by unfavorable development for two lines, primarily from commercial liability which experienced $11.5
million of unfavorable development due to paid loss and loss adjustment expense. Commercial fire and allied lines also contributed $1.1 million of unfavorable development due to paid loss and paid loss adjustment expense. All
other lines of insurance, in total, contributed an additional $2.0 million of favorable development during the quarter.

For the nine-month period ended September 30, 2019 the majority of favorable development was from workers'
compensation with $26.3 million favorable development, followed by fidelity and surety which was $3.1 million
favorable. The favorable development for workers' compensation was primarily from reductions in reserves for
reported claims, which were more than sufficient to offset paid losses; loss adjustment expense also contributed
favorable development with reductions in reserves more than sufficient to offset payments. The favorable
development for fidelity and surety was from reductions in IBNR reserves, reductions in claim payments.reserves and salvage

recoveries. The favorable development was partially offset by unfavorable development for two lines, primarily from commercial liability which experienced $27.4 million of unfavorable development due to paid loss and loss

adjustment expense. Commercial fire and allied lines also contributed $3.5 million of unfavorable development due
47
Tableto paid losses. All other lines of Contents
insurance, in total, contributed an additional $2.3 million of favorable year-to-date

development.


Development amounts can vary significantly from quarter-to-quarter and year-to-year depending on a number of factors, including the number of claims settled and the settlement terms, and are subject to reallocation between accident years and lines of business. At September 30, 2017,2020, our total reserves were within our actuarial estimates.

2016 Development

The property and casualty insurance business experienced $0.7 million and $27.1 million of favorable development in our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2016, respectively. For the three-month period ended September 30, 2016 the majority of favorable development came from two lines, workers compensation with $4.3 million of favorable development and commercial liability with $2.7 million of favorable development. This was offset by unfavorable development from two other lines, commercial auto with $4.9 million of unfavorable development and commercial fire and allied lines with $2.4 million of unfavorable development. The unfavorable development in commercial auto was driven by an increase frequency and severity from an overall increase in miles driven. The unfavorable development in commercial fire and allied lines was due to latent development on weather-related claims. During the three-month period ended September 30, 2016 all other lines combined contributed favorable development of $1.0 million. The lines of business with favorable development in the three-month period ended September 30, 2016 are primarily attributable to successful management of litigation expenses.

For the nine-month period ended September 30, 2016 the majority of favorable development came from four lines, commercial liability with $16.4 million of favorable development, workers compensation with $11.5 million of favorable development, fidelity and surety with $2.2 million of favorable development and personal auto with $2.1 million of favorable development. This was partially offset by unfavorable development from commercial fire and allied lines with $6.9 million. The unfavorable development in commercial fire and allied lines was due to latent development on weather-related claims. During the nine-month period ended September 30, 2016 all other lines combined contributed favorable development of $1.8 million. The favorable development in the nine-month period ended September 30, 2016 is primarily attributable to reductions in reserves for loss adjustment expense which continues to benefit from successful management of litigation expenses.



























44
48

The following table displaystables display our net premiums earned, net losses and loss settlement expenses and net loss ratio from continuing operations by line of business:
          
Three Months Ended September 30,2017
2016Three Months Ended September 30,20202019
 
Net Losses
 
 
Net Losses
   Net Losses  Net Losses 
 
and Loss
 
 
and Loss
   and Loss  and Loss 
Net
Settlement
Net
Net
Settlement
Net NetSettlementNetNetSettlementNet
(In Thousands, Except Ratios)Premiums
Expenses
Loss
Premiums
Expenses
Loss(In Thousands, Except Ratios)PremiumsExpensesLossPremiumsExpensesLoss
UnauditedEarned
Incurred
Ratio
Earned
Incurred
RatioUnauditedEarnedIncurredRatioEarnedIncurredRatio
Commercial lines 
 
 
 
 
 Commercial lines      
Other liability$77,955

$50,836

65.2 %
$74,784

$32,714

43.7 %Other liability$78,302 $45,111 57.6 %$80,421 $50,656 63.0 %
Fire and allied lines58,568

45,809

78.2

56,451

47,086

83.4
Fire and allied lines59,267 52,436 88.5 61,628 49,628 80.5 
Automobile64,470

74,161

115.0

55,111

53,330

96.8
Automobile73,403 82,675 112.6 80,574 85,227 105.8 
Workers' compensation26,387

23,357

88.5

26,766

21,772

81.3
Workers' compensation19,245 10,250 53.3 22,041 3,076 14.0 
Fidelity and surety6,430

(485)
(7.5)
5,711

908

15.9
Fidelity and surety7,356 (128)(1.7)6,755 1,437 21.3 
Miscellaneous459

111

24.2

453

39

8.6
Miscellaneous378 78 20.6 428 63 14.7 
Total commercial lines$234,269

$193,789

82.7 %
$219,276

$155,849

71.1 %Total commercial lines$237,951 $190,422 80.0 %$251,847 $190,087 75.5 %
 
 
 





    
Personal lines 
 
 





 Personal lines  
Fire and allied lines$10,730

$9,077

84.6 %
$10,986

$6,606

60.1 %Fire and allied lines$5,144 $29,451 NM$10,370 $13,469 129.9 %
Automobile6,878

8,250

119.9

6,386

6,328

99.1
Automobile7,055 8,322 118.0 7,870 6,946 88.3 
Miscellaneous294

150

51.0

277

(276)
(99.6)Miscellaneous295 (97)(32.9)312 (130)(41.7)
Total personal lines$17,902

$17,477

97.6 %
$17,649

$12,658

71.7 %Total personal lines$12,494 $37,676 NM$18,552 $20,285 109.3 %
Reinsurance assumed$3,587

$11,942

NM

$2,544

$796

31.3 %Reinsurance assumed$8,616 $6,595 76.5 %$4,543 $1,380 30.4 %
Total$255,758

$223,208

87.3 %
$239,469

$169,303

70.7 %Total$259,061 $234,693 90.6 %$274,942 $211,752 77.0 %
NM = Not meaningful

           
Nine Months Ended September 30,2017 2016
   Net Losses     Net Losses  
   and Loss     and Loss  
 Net Settlement Net Net Settlement Net
(In Thousands, Except Ratios)Premiums Expenses Loss Premiums Expenses Loss
UnauditedEarned Incurred Ratio Earned Incurred Ratio
Commercial lines           
Other liability$228,250
 $73,597
 32.2% $215,572
 $101,378
 47.0%
Fire and allied lines168,506
 156,702
 93.0
 164,503
 133,823
 81.3
Automobile183,688
 208,346
 113.4
 157,106
 140,397
 89.4
Workers' compensation78,092
 55,569
 71.2
 77,009
 53,106
 69.0
Fidelity and surety18,041
 207
 1.1
 16,221
 432
 2.7
Miscellaneous1,374
 278
 20.2
 1,292
 357
 27.6
Total commercial lines$677,951
 $494,699
 73.0% $631,703
 $429,493
 68.0%
            
Personal lines           
Fire and allied lines$32,300
 $31,361
 97.1% $32,794
 $25,442
 77.6%
Automobile20,031
 22,909
 114.4
 18,686
 16,872
 90.3
Miscellaneous860
 80
 9.3
 808
 319
 39.5
Total personal lines$53,191
 $54,350
 102.2% $52,288
 $42,633
 81.5%
Reinsurance assumed$6,282
 $19,307
 NM
 $7,985
 $3,442
 43.1%
Total$737,424
 $568,356
 77.1% $691,976
 $475,568
 68.7%
NM = Not meaningful







45
49

Nine Months Ended September 30,20202019
Net LossesNet Losses
and Lossand Loss
NetSettlementNetNetSettlementNet
(In Thousands, Except Ratios)PremiumsExpensesLossPremiumsExpensesLoss
UnauditedEarnedIncurredRatioEarnedIncurredRatio
Commercial lines
Other liability$235,018 $135,748 57.8 %$238,300 $146,513 61.5 %
Fire and allied lines183,528 171,416 93.4 181,417 142,265 78.4 
Automobile225,103 205,994 91.5 234,280 225,564 96.3 
Workers' compensation57,873 24,205 41.8 66,537 18,399 27.7 
Fidelity and surety20,106 14 0.1 19,276 536 2.8 
Miscellaneous1,158 266 23.0 1,291 63 4.9 
Total commercial lines$722,786 $537,643 74.4 %$741,101 $533,340 72.0 %
Personal lines
Fire and allied lines$24,933 $55,372 222.1 %$30,892 $34,137 110.5 %
Automobile22,203 15,935 71.8 23,050 19,422 84.3 
Miscellaneous905 2,561 283.0 920 354 38.5 
Total personal lines$48,041 $73,868 153.8 %$54,862 $53,913 98.3 %
Reinsurance assumed$20,692 $14,658 70.8 %$17,779 $8,748 49.2 %
Total$791,519 $626,169 79.1 %$813,742 $596,001 73.3 %

Below are explanations regarding significant changes in the net loss ratios by line of business:
Other liability•Commercial fire and allied lines - The net loss ratio deteriorated 21.5 percentage points8.0 and improved 14.815.0 percentage points in the three- and nine-month periods ended September 30, 2017,2020, respectively, as compared to the same periods of 2016. Loss ratio2019. The deterioration for the three-month period ended September 30, 2017in both periods is primarily dueattributable to an increase in losses on commercial automobile policies with umbrella coverage resulting in an increase in claim payments for prior years, increase in reserves for current year reported claims and an increase in reserves for prior year incurred but not reported claims. Loss ratio improvement for the-nine month period ended September 30, 2017 is due to a decrease in reserves for incurred but not reported claims and a decrease in reserves for unpaid loss adjustment expense which is attributed to our continued litigation management efforts.
catastrophe losses.


Commercial fire and allied lines •Workers compensation - The net loss ratio improved 5.2 percentage pointsdeteriorated 39.3 and deteriorated 11.714.1 percentage points in the three- and nine-month periods ended September 30, 2017,2020, respectively, compared to the same periods of 2016. Loss ratio improvement for the three-month period ended September 30, 2017 comes from a decrease in reserves for incurred but not reported claims for the current year which is attributable to lower than expected claim emergence from various storms that had occurred earlier in the year. Loss ratio deterioration for the-nine month period ended September 30, 2017 is due to an increase in claim payments for the current year and first previous year. In addition, the change results from an increase in frequency, with the number of claims increasing in 2017 as compared to the same periods of 2016, along2019. The deterioration is attributable to a few large claims. The current periods loss ratios are more in line with an increase in paid loss adjustment expenses.
average year vs. 2019 which had less than average losses.


Commercial automobile •Fidelity and surety - TheThe net loss ratio deteriorated 18.2 percentage pointsimproved 23.0 and 24.02.7 percentage points in the three- and nine-month periods ended September 30, 2017,2020, respectively, compared to the same periods of 2016. The change was due to an increase in the number of severe losses, which we define as losses over $500 thousand, in 2017 as compared to the same periods of 2016 along with strengthening2019. The improvement is attributable to the absence of reserves on prior accident years and only partially due to an increaselarge single claims in direct paid losses2020 vs. the presence of large claims in the current accident year. We are implementing many initiatives to improve the profitability of this line of business, which include pricing increases, stricter underwriting guidelines, new analytical tools and more rigorous loss control requirements.
2019.


•Personal fire and allied lines - The net loss ratio deteriorated 24.5 percentage pointssignificantly in the three- and 19.5nine-month periods ended September 30, 2020, respectively, as compared to the same periods of 2019. The deterioration in both periods is attributable to an increase in catastrophe losses.

•Personal automobile- The net loss ratio deteriorated 29.7 and improved 12.5 percentage points in the three- and nine-month periods ended September 30, 2017,2020, respectively, compared to the same periods of 2016. The change results from an increase in frequency, with the number of claims increasing in 2017 as compared to the same periods of 2016.2019. The quarterly deterioration was attributed to increased claims in 2020 vs. a decrease in 2019. The year-to-date improvement is attributable to continued attention to careful underwriting resulting in lower paid losses and loss adjustment expenses.
46


Personal automobile•Reinsurance assumed - The net loss ratio deteriorated 20.8 percentage points and 24.1 percentage points in the three- and nine-month periods ended September 30, 2017,2020, respectively, as compared to the same periods of 2016.The change2019. The deterioration in both periods is primarily attributabledue to an increase in claim frequencyloss reserves and assumed catastrophe losses in 20172020 as compared to the same periods 2016 which resulted in increased paid loss and increased reserves for reported claims.
2019.


Reinsurance assumed - The net loss ratio deteriorated in both the three- and nine-month periods ended September 30, 2017 compared to the same periods of 2016.The increase in losses is primarily due to an increase of reserves for incurred but not reported claims for hurricanes that occurred late in the third quarter. An increase in paid losses also contributed to the increased loss ratios for both the three- and nine-month periods. In addition, the nine-month period is also affected by the emergence of prior year losses from the programs in which we participate, which are reported on a lag basis.

Financial Condition


Our stockholders'Stockholders' equity increased decreased to $944.0$820.3 million at September 30, 2017,2020, from $941.9$910.5 million at December 31, 2016. The increase2019. This decrease was attributableprimarily attributed to anet incomeloss of $5.0$103.8 million, shareholder dividends of $24.8 million and share repurchases of $2.7 million, partially offset by an increase in net unrealized investment gains on fixed maturity securities of $38.2$35.2 million, net of tax, partially offset by stockholder dividends of $20.4 million and share repurchases of $29.8 million.


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Net unrealized investment gains totaled $172.1 million as ofduring the nine months ended September 30, 2017, an increase of $38.2 million, net of tax, or 28.6 percent, since December 31, 2016. 2020.

The increase in net unrealized investment gains is primarily the result of a decrease in interest rates, which positively impacted the valuation of our fixed maturity security portfolio during 2017 and an increase in the fair value of our equity security portfolio.

At September 30, 2017, theCompany's book value per share was $32.77, which is a decrease of $3.63 per share, or 10.0 percent from December 31, 2019. During the third quarter of 2020 we did not repurchase any shares of our common stock was $37.99.as we suspended share repurchases in mid-March. During the nine-month period ended September 30, 2017, 701,8992020, 70,467 shares of common stock were repurchased under our share repurchase program atfor a total cost of $29.8 million and an average share price of $42.43.$2.7 million. Under our share repurchase program, which is scheduled to expire on August 31, 2018,2022, we were authorized to repurchase an additional 2,236,5721,786,977 shares of our common stock as of September 30, 2017.2020.




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Discontinued Operations Results
 Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands)2017 2016 2017 2016
Revenues       
Net premiums earned$14,230
 $20,600
 $45,999
 $62,878
Investment income, net of investment expenses12,354
 12,663
 37,230
 38,404
Net realized investment gains296
 461
 3,600
 1,409
Other income174
 145
 498
 436
Total revenues$27,054
 $33,869
 $87,327
 $103,127
        
Benefits, Losses and Expenses       
Losses and loss settlement expenses$10,506
 $7,252
 $30,679
 $23,527
Increase in liability for future policy benefits5,481
 14,091
 19,341
 42,645
Amortization of deferred policy acquisition costs2,156
 1,876
 5,524
 5,716
Other underwriting expenses2,444
 4,527
 9,452
 14,630
Interest on policyholders' accounts4,587
 4,983
 13,982
 15,368
Total benefits, losses and expenses$25,174
 $32,729
 $78,978
 $101,886
        
Income from discontinued operations, before income taxes$1,880
 $1,140
 $8,349
 $1,241

Income before income taxes from our discontinued operations was $1.9 million for the three-month period ended September 30, 2017, compared to income before income taxes of $1.1 million for the same period of 2016. Year-to-date, income before income taxes from discontinued operations totaled $8.3 million compared to $1.2 million for the same nine-month period of 2016. The change in net income in both the third quarter and year-to-date was primarily due to a decrease in underwriting expenses and a smaller increase in liability for future benefits offset by a decrease in net premiums earned and an increase in losses and loss settlement expenses. The decrease in underwriting expenses was due to strategic changes made at the beginning of 2017 to increase profitability of our life products through pricing changes and restructuring of our commissions. This strategic change resulted in a decrease in net premiums earned, primarily in sales of single premium whole life policies which in turn reduced the increase in liability for future benefits. Also impacting the results was an increase in death benefits paid compared to the same periods in the prior year.

Investment Portfolio


Our invested assets from continuing operations totaled $1.8$2.0 billion at September 30, 2017,2020, compared to $1.8$2.2 billion at December 31, 2016, an increase2019, a decrease of $66.5$113.6 million. At September 30, 2017,2020, fixed maturity securities and equity securities made up 82.384.8 percent and 15.09.7 percent of the value of our investment portfolio, respectively. Because the primary purpose of our investment portfolio is to fund future claims payments, we use a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government bonds and tax-exempt U.S. municipal bonds. Our overall investment strategy is to keep our cash on hand low in the current interest rate environment. If additional cash is needed, we can borrow funds available under our revolving credit facility.


Composition
We develop our investment strategies based on a number of factors, including estimated duration of reserve liabilities, short- and long-term liquidity needs, projected tax status, general economic conditions, expected rates of inflation, regulatory requirements, interest rates and credit quality of assets. We administer our investment portfolio


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based on investment guidelines approved by management and the investment committee of our Board of Directors that comply with applicable statutory regulations.


The composition of our investment portfolio at September 30, 20172020 is presented at carrying value in the following table:
 Property & Casualty Insurance
   Percent
(In Thousands, Except Ratios)  of Total
Fixed maturities (1)
 
Available-for-sale$1,717,039 84.1 %
Trading securities14,811 0.7 
Equity securities198,791  9.7 
Mortgage loans47,733  2.3 
Other long-term investments62,903  3.2 
Short-term investments175  — 
Total$2,041,452  100.0 %
 Continuing Operations Discontinued Operations    
 Property & Casualty Insurance Life Insurance Total
   Percent
   Percent
   Percent
(In Thousands, Except Ratios)  of Total
   of Total
   of Total
Fixed maturities (1)
      

 

 

Held-to-maturity$150
 —% $38
 —% $188
 —%
Available-for-sale1,498,662
 81.5
 1,426,991
 96.8
 2,925,653
 88.3
Trading securities13,673
 0.7
 —
 —
 13,673
 0.4
Equity securities           
Available-for-sale269,341
 14.7
 22,616
 1.5
 291,957
 8.8
Trading securities6,330
 0.4
 —
 —
 6,330
 0.2
Mortgage loans—
 —
 3,504
 0.2
 3,504
 0.1
Policy loans—
 —
 5,770
 0.4
 5,770
 0.2
Other long-term investments49,966
 2.7
 16,299
 1.1
 66,265
 2.0
Short-term investments175
 —
 —
 —
 175
 —
Total$1,838,297
 100.0% $1,475,218
 100.0% $3,313,515
 100.0%
(1) Available-for-sale securities and trading fixed maturities are carried at fair value. Held-to-maturity fixed maturities are carried at amortized cost.

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At both September 30, 20172020 and December 31, 2016,2019, we classified $1.5$1.7 billion, or 99.1 percent, and $1.7 billion, or 99.1 percent, respectively, of our fixed maturities portfolio as available-for-sale. We classify our remaining fixed maturities as held-to-maturity or trading. We record held-to-maturity securities at amortized cost. We record available-for-sale fixed maturity securities at fair value, with any changes in fair value recognized in accumulated other comprehensive income. We record trading securities, primarily convertible redeemable preferred debt securities, at fair value, with any changes in fair value recognized in earnings.


As of September 30, 20172020 and December 31, 2016,2019, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.


Credit Quality


The table below shows the composition of fixed maturity securities held in our available-for-sale held-to-maturity and trading security portfolios, by credit rating for both continuing and discontinued operations at September 30, 20172020 and December 31, 2016.2019. Information contained in the table is generally based upon the issued credit ratings provided by Moody's, unless the rating is unavailable, in which case we obtain credit ratings from Standard & Poor's.
(In Thousands, Except Ratios)September 30, 2020 December 31, 2019
RatingCarrying Value % of Total Carrying Value % of Total
AAA$679,729  39.3 % $721,446  41.6 %
AA666,448  38.5  664,238  38.3 
A187,467  10.8  179,553  10.3 
Baa/BBB184,209  10.6  157,350  9.1 
Other/Not Rated13,997  0.8  12,276  0.7 
 $1,731,850  100.0 % $1,734,863  100.0 %
(In Thousands, Except Ratios)September 30, 2017 December 31, 2016
RatingCarrying Value % of Total Carrying Value % of Total
AAA$867,490
 29.5% $782,329
 26.9%
AA848,295
 28.8
 857,946
 29.4
A616,366
 21.0
 651,696
 22.4
Baa/BBB551,478
 18.8
 554,475
 19.0
Other/Not Rated55,885
 1.9
 66,268
 2.3
 $2,939,514
 100.0% $2,912,714
 100.0%






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Duration
Our investment portfolio is invested primarily in fixed maturity securities whose fair value is susceptible to market risk, specifically interest rate changes. Duration is a measurement usedwe use to quantify our inherent interest rate risk and analyze our ability to match our invested assets to our reserve liabilities. If our invested assets and reserve liabilities have similar durations, then any change in interest rates will have an equal effect on these accounts. The primary purpose for matching invested assets and reserve liabilities is liquidity. With appropriate matching, our investments will mature when cash is needed, preventing the need to liquidate other assets prematurely. Mismatches in the duration of assets and liabilities can cause significant fluctuations in our results of operations.

Investment Results
We invest the premiums received from our policyholders and annuitants in order to generate investment income, which is an important component of our revenues and profitability. The amount of investment income that we are able to generate is affected by many factors, some of which are beyond our control. Some of these factors are volatility in the financial markets, economic growth, inflation, interest rates, world political conditions, terrorist attacks or threats of terrorism, adverse events affecting other companies in our industry or the industries in which we invest and other unpredictable national or world events. Our net investment income from continuing operations decreased by 1.745.5 percent and increased 10.149.2 percent, respectively, in the three- and nine-month periods ended September 30, 2017,2020, compared with the same periodsperiod of 2016. The increase in the nine-month period ended September 30, 2017 was primarily due to an increase in invested assets and changes in value of our investments in limited liability partnerships as compared to the same period in 2016. We are maintaining our investment philosophy of purchasing fixed income investments rated investment grade or better.2019.
We hold certain investments in limited liability partnerships that are recorded on the equity method of accounting, with changes in value of these investments recorded in investment income. In the three- and nine-month periods ended September 30, 2017,2020, the change in value of our investments in limited liability partnerships from continuing operations resulted in investment incomelosses of $2.0$4.7 million and $3.3$13.8 million, respectively, as compared to an increase of $3.6investment loss $0.7 million and $2.5income of $1.9 million, in investment income, respectively, in the same periods of 2016.2019. This resulted in ana decrease of $1.6$4.0 million and an increasea decrease of $0.8$15.7 million, respectively, in investment income in the three- and nine-month periods ended September 30, 2017, respectively.2020.
Our
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We had net realized investment gains from continuing operations were $0.1of $15.2 million and $3.4net realized investment losses of $62.4 million, respectively, during the three- and nine-month periods ended September 30, 2017,2020, as compared with $2.1to net realized investment gains of $9.8 million and $4.8$50.1 million, respectively, in the same periods of 2016.2019. The change in the fair value of equity securities resulted in gains of $22.0 million and losses of $38.9 million, respectively, during the three- and nine-month periods ended September 30, 2020 as compared to gains of $9.7 million and $46.8 million, respectively, in the same periods in 2019. The remaining change in net realized investment gains and losses is due to the sale of equity securities.
We regularly monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policyFor our available-for-sale fixed-maturity portfolio an allowance for impairment recognition requires other-than-temporary impairment charges to becredit losses is recorded when we determine that itnet of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an allowance for credit losses is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on a number of factors including the faircurrent economic conditions, management's expectations of future economic conditions and performance indicators, such as market value of the investments at the measurement date. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of timevs. amortized cost, investment spreads widening or contracting, rating actions, payment and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.default history.
ChangesNon-credit related changes in unrealized gains and losses on available-for-sale fixed maturity securities do not affect net income and earnings per share but do impactare recognized as a component of other comprehensive income, impact stockholders' equity and book value per share.share, but do not affect net income. We believe that any unrealized losses on our available-for-sale securities at September 30, 20172020 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. ItWe have no intent to sell, and it is possiblemore likely than not that we could recognize impairment chargeswill not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.
For mortgage loans, an allowance for losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments that have similar risk characteristics. This allowance is presented as a separate line in the Consolidated Balance Sheets with an offset to "Net realized investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income.
To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future periodsexpected losses and then layers on securities that we own at September 30, 2017 if future eventsa market-linked adjustment. An example of a market linked adjustment is the change in commercial market price appreciation or change in gross domestic product, with every point of fall leading to an increase in loss reserve. Local market economics are also considered. On a quarterly basis, quantitative credit risk metrics, including for example, cash-flows, rent rolls and information cause usfinancial statements are reviewed for each loan to determine that a declineif it is performing in value is other-than-temporary. However, we endeavor to invest in high quality assets to provide protection from future credit quality issues and corresponding other-than-temporary impairment write-downs. In the three- and nine-month periods ended September 30, 2017 and 2016, there were no other-than-temporary impairment write-downs.line with its expectations.


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LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures our ability to generate sufficient cash flows to meet our short- and long-term cash obligations. Our cash inflows are primarily a result of the receipt of premiums, annuity deposits, reinsurance recoveries, sales or maturities of investments, and investment income. Cash provided from these sources is used to fund the payment of losses and loss settlement expenses, policyholder benefits under life insurance contracts, annuity withdrawals, the purchase of investments, operating expenses, dividends, pension plan contributions, and in recent years, common stock repurchases.
We monitor our capital adequacy to support our business on a regular basis. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In particular, we require (1) sufficient capital to maintain our financial strength ratings, as issued by various rating agencies, at a level considered necessary by management to enable our insurance company subsidiaries to compete and (2) sufficient capital to enable our insurance company subsidiaries to meet the capital adequacy tests performed by regulatory agencies in the United States.
Cash outflows may be variable because of the uncertainty regarding settlement dates for losses. In addition, the timing and amount of individual catastrophe losses are inherently unpredictable and could increase our liquidity
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requirements. The timing and amount of reinsurance recoveries may be affected by reinsurer solvency and reinsurance coverage disputes.
Historically, we have generated substantial cash inflows from operations. It is our policy to invest the cash generated from operations in securities with maturities that, in the aggregate, correlate to the anticipated timing of payments for losses and loss settlement expenses and future policyholder benefits of the underlying insurance policies, and annuity withdrawals.expenses. The majority of our assets are invested in available-for-sale fixed maturity securities.
The following table displays a consolidated summary of cash sources and uses in 2017for the nine-month periods ended September 30, 2020 and 2016 from continuing and discontinued operations:2019:
Cash Flow SummaryNine Months Ended September 30,
(In Thousands)2020 2019
Cash provided by (used in)   
Operating activities$(12,868) $56,165 
Investing activities19,836  39,589 
Financing activities(28,086) (30,500)
Net increase (decrease) in cash and cash equivalents$(21,118) $65,254 
Cash Flow SummaryNine Months Ended September 30,
(In Thousands)2017 2016
Cash provided by (used in)   
Operating activities$116,296
 $128,069
Investing activities(4,361) (20,024)
Financing activities(93,427) (73,550)
Net increase in cash and cash equivalents$18,508
 $34,495
In the Consolidated Statement of Cash Flows, cash flows from discontinued operations are shown in separate lines in each of the operating, investing and financing sections of the Cash Flow Statement. Our cash flows from continuing operations were sufficient to meet our current liquidity needs for the nine-month periods ended September 30, 20172020 and 20162019 and we anticipate they will be sufficient to meet our future liquidity needs.
Operating Activities
Net Our year-to-date cash flows provided by operating activities totaled $116.3 millionoperations were negative due to an increase in catastrophe losses. Although there was a net decrease in cash and $128.1 million forcash equivalents during the nine-month periodsnine-months ended September 30, 20172020, the Company had a cash balance of $99.6 million at September 30, 2020, which is more than sufficient to meet future liquidity needs. We also have the ability to access our credit facility if needed, but we have not yet had the need to do so. See Note 8 "Credit Facility" for more information. During 2020, the Company implemented state-mandated and 2016, respectively. Cashoptional payment leniency programs for our policyholders as a result of the COVID-19 pandemic. As of September 30, 2020, we did not see a significant impact to cash flows from discontinuedor an increase in our allowance for doubtful accounts as a result of these programs. These payment modifications did not have a material impact on our financial condition, liquidity or capital position.
Operating Activities
Net cash flows in operations provided by operating activities totaled $23.8had outflows of $12.9 million and $46.0inflows of $56.2 million for the nine-month periods ended September 30, 20172020 and 2016,2019, respectively.
Investing Activities
Cash in excess of operating requirements is generally invested in fixed maturity securities and equity securities. Fixed maturities provide regular interest payments and allow us to match the duration of our liabilities. Equity securities provide dividend income, potential dividend income growth and potential appreciation. For further


55

discussion of our investments, including our philosophy and our strategy for our portfolio, see the "Investment Portfolio" section of this item.Item 2.
In addition to investment income, possible sales of investments and proceeds from calls or maturities of fixed maturity securities also can provide liquidity. During the next five years, $0.9 billion,years, $416.4 million, or 59.124.0 percent,, of our fixed maturity portfolio will mature.
We invest funds required for short-term cash needs primarily in money market accounts, which are classified as cash equivalents. At September 30, 2017,2020, our cash and cash equivalents included $13.9$54.6 million related to these money market accounts, compared to $16.8 $9.3 million at December 31, 2016.2019.
Net cash flows used inprovided by investing activities was $4.4were $19.8 million and $20.0$39.6 million for the nine-month periods ended September 30, 20172020 and 2016,2019, respectively. For the nine-month periods ended September 30, 20172020 and 2016, 2019,
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we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments from continuing operations of $142.7$261.7 million and $264.2$246.6 million, respectively. For the nine-month periods ended September 30, 2017 and 2016, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments, from discontinued operations of $96.5 million and $171.1 million, respectively.
Our cash outflows for investment purchases from continuing operationswere $167.0 million for the nine-month period ended September 30, 2017, compared to $315.8 million for the same period of 2016. Our cash outflows for investment purchases from discontinued operations were $65.0$226.4 million for the nine-month period ended September 30, 2017,2020, compared to $133.4$179.2 million for the same period of 2016.2019.
Financing Activities
Net cash flows used in financing activities were $93.4was $28.1 million and $73.6 million for the nine-month periodsperiod ended September 30, 2017 and 2016, respectively. The increase is due2020 which decreased $2.4 million compared to repurchases of common stock, an increase in the payment of cash dividends and a decrease in the issuance of common stock$30.5 million used in the nine-month period ended September 30, 2017, compared to the same period of 2016.2019.
Credit Facilities

On February 2, 2016, theMarch 31, 2020, United Fire & Casualty Company, as borrower ("Borrower"), wholly owned subsidiary of United Fire Group, Inc. entered into a credit agreement (the "New Credit Agreement byAgreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, issuing lender, swing line lender and amonglender, and the Company, with theother lenders from time to time party thereto and KeyBank National Association, as administrative agent, swingline lender and(collectively with Wells Fargo, the "Lenders"), providing for a $50,000 revolving credit facility, which includes a $20,000 letter of credit issuer.sub-facility and a $5,000 swing line loan for working capital and other general corporate purposes. The New Credit Agreement is provided on an unsecured basis, and the Borrower has the option to increase the New Credit Agreement by $100,000 if agreed to by the Lenders providing such incremental facility. As of September 30, 2017,2020 and 2019, there were no balances outstanding under thisthe New Credit Agreement or the Borrower's previous credit agreement.agreement (which matured on February 2, 2020). For the nine-month period ended September 30, 2020 and 2019, we did not incur any interest expense related to either credit facility. For further discussion of ourthe New Credit Agreement and the Borrower's previous credit agreement, refer to Part I, Item 1, Note 98 "Credit Facility" to the unaudited Consolidated Financial Statements.Facility."
Dividends
Dividends paid to shareholders totaled $20.4$24.8 million and $18.2$24.4 million in the nine-month periods ended September 30, 20172020 and 2016,2019, respectively. Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.
Payments of any future dividends and the amounts of such dividends however, will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors out of legally available funds.
As a holding company with no independent operations of its own, UFG relieswe rely on dividends received from itsour insurance company subsidiaries in order to pay dividends to itsour common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled, and if applicable, commercially domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding


56

calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at September 30, 2017,2020, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, wasis able to make a maximum of $27.1 of $40.8 million in dividend payments without prior regulatory approval. TheseWe do not believe that these restrictions will not have a material impact in meeting the cash obligations of UFG.
Stockholders' Equity
Stockholders' equity increased 0.2decreased 9.9 percent to $944.0$820.3 million at September 30, 2017,2020, from $941.9$910.5 million at December 31, 2016. The increase2019. At September 30, 2020, the book value per share of our common stock was $32.77 compared to $36.40 at December 31, 2019. This decrease was primarily attributableattributed to a net incomeloss of $5.0$103.8 million, shareholder
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dividends of $24.8 million and share repurchases of $2.7 million, partially offset by an increase in net unrealized investment gains on fixed maturity securities of $38.2$35.2 million, net of tax, during the first nine months of 2017, partially offset by shareholder dividends2020.

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OFF BALANCE SHEET ARRANGEMENTS

Funding Commitments


Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2023,July 10, 2030, to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $3.7$10.3 million at at September 30, 2017.2020.


In addition, the Company invested $25,000 in December 2019 in a limited liability partnership investment fund which is subject to a 3 year lockup with a 60 day minimum notice, with 4 possible repurchase dates per year after the 3 year lockup period is met. The fair value of the investment at September 30, 2020 was $24.0 million and there are no remaining capital contributions with this investment.


MEASUREMENT OF RESULTS
Management evaluates our operations by monitoring key measures of growth and profitability. The following section provides further explanation of the key measures management uses to evaluate our results.


Catastrophe losses is a commonly used financial measure that uses the designations of the Insurance Services Office (ISO)("ISO") and are reported with losses and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise. According to the ISO, a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25.0 million or more in U.S. industry-wide direct insured losses to property and that affect a significant number of insureds and insurers ("ISO catastrophe"). In addition to ISO catastrophes, we also include as catastrophes those events ("non-ISO catastrophes"), which may include U.S. or international losses that we believe are, or will be, material to our operations, either in amount or in number of claims made. Management, at times, may determine for comparison purposes that it is more meaningful to exclude extraordinary catastrophe losses and resulting litigation. The frequency and severity of catastrophiccatastrophe losses we experience in any year affect our results of operations and financial position. In analyzing the underwriting performance of our property and casualty insurance segment,business, we evaluate performance both including and excluding catastrophe losses. Portions of our catastrophe losses may be recoverable under our catastrophe reinsurance agreements. We include a discussion of the impact of catastrophes because we believe it is meaningful for investors to understand the variability in our periodic earnings.
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2017 2016 2017 2016(In Thousands)2020 201920202019
ISO catastrophes$25,628
 $10,517
 $62,170
 $49,686
ISO catastrophes$54,878 $18,549 $121,089 $41,643 
Non-ISO catastrophes (1)
5,077
 2,014
 6,596
 2,711
Non-ISO catastrophes (1)
483 743 172 3,284 
Total catastrophes$30,705
 $12,531
 $68,766
 $52,397
Total catastrophes$55,361 $19,292 $121,261 $44,927 
(1) This number includes international assumed losses.


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57

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


We have exposure to market risk arising from potential losses in our investment portfolio due to adverse changes in interest rates and market prices. However, we have the ability to hold fixed maturity investments to maturity. Our investment guidelines define the overall framework for managing our market and other investment risks, including accountability and controls. In addition, each of our subsidiaries has specific investment policies that delineate the investment limits and strategies that are appropriate given each entity's liquidity, surplus, product, and regulatory requirements. We respond to market risk by managing the character of investment purchases.


It is our philosophy that we do not utilize financial hedges or derivative financial instruments to manage risks, nor do we enter into any swap, forward or option contracts, but attempt to mitigate our exposure through active portfolio management. In addition, we place the majority of our investments in high-quality, liquid securities and limit the amount of credit exposure to any one issuer. At September 30, 2017,2020, we did not have direct exposure to investments in sub-prime mortgages or other credit-enhancement exposures.


While ourOur primary market riskrisks are exposure is to changes in interest rates we do have limited exposure to changes inand equity prices, and we have limited exposure to foreign currency exchange rates.


ThereThe decline and volatility in equity markets in the first nine months of 2020 due to the COVID-19 pandemic did have been noa material changesimpact on the fair value of our investments in equity securities and limited liability partnerships. The COVID-19 pandemic presents new and emerging uncertainty to the financial markets. See further discussion in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A, Risk Factors, our market risk or market risk factors from what we reported in our Annual ReportForm 10-Q for this quarter ended March 31, 2020 filed with the SEC on Form 10-K for the year ended December 31, 2016.May 6, 2020.


ITEM 4. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.


Changes in Internal Control Over Financial Reporting


Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, no such change in our internal control over financial reporting occurred during the fiscal quarter to which this report relates.relates. The implementation of our business continuity plans related to the COVID-19 pandemic did not have a material effect on our internal control environment. We believe our operational processes, internal controls over financial reporting and disclosures, and financial reporting systems are operating effectively in the present environment. Our business teams are working remotely and continue to support our customers, agents and claimants as they did when we were in the office.




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58

PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS
In the normal course of its business, the Company is a party to a variety of legal proceedings. While the final outcome of these legal proceedings cannot be predicted with certainty, management believes all of the proceedings pending as of September 30, 20172020 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial positioncondition or results of operations.
ITEM 1A. RISK FACTORS


Our business is subject to a number of risks, including those identified in Part I, Item 1A "Risk Factors" in our 2016Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2017, that could have a material effect2020, as updated in our Quarterly Report on our business, results of operations, financial condition, and/or liquidity and that could cause our operating results to vary significantly from period to period. TheForm 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 6, 2020. These risks described in the above mentioned report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material effect on our business, results of operations, financial condition and/or liquidity.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Under our share repurchase program, first announced in August 2007, we may purchase UFG common stock from time to time on the open market or through privately negotiated transactions. The amount and timing of any purchases will be at our discretion and will depend upon a number of factors, including the share price, general economic and market conditions, and corporate and regulatory requirements.


The following table provides information with respect to purchases of shares of common stock made by or on our behalf or by any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act, during the three-month period ended September 30, 2017:2020:
     Total Number of Shares Maximum Number of
 Total   Purchased as a Part of Shares that may yet be
 Number of Average Price Publicly Announced Purchased Under the
PeriodShares Purchased Paid per Share Plans or Programs 
Plans or Programs(1)
7/1/2017 - 7/31/20174,904
 $43.00
 4,904
 2,436,959
8/1/2017 - 8/31/2017127,387
 42.41
 127,387
 2,309,572
9/1/2017 - 9/30/201773,000
 40.92
 73,000
 2,236,572
Total205,291
 $41.89
 205,291
  
Total Number of SharesMaximum Number of
TotalPurchased as a Part ofShares that may yet be
Number ofAverage PricePublicly AnnouncedPurchased Under the
PeriodShares PurchasedPaid per SharePlans or Programs
Plans or Programs(1)
7/1/2020 - 7/31/2020— $— — 1,786,977 
8/1/2020 - 8/31/2020— — — 1,786,977 
9/1/2020 - 9/30/2020— — — 1,786,977 
Total— $— — 1,786,977 
(1) Our share repurchase program was originally announced in August 2007. In August 2016, our Board of Directors authorized the repurchase of up to an additional 1,500,000 shares of common stock through the end of August 2018. This is in addition to the 1,528,886 shares of common stock remaining under its previous authorizations. In August 2018, our Board of Directors extended our share repurchase program through the end of August 2020. In August 2020, our Board of Directors extended our share repurchase program through the end of August 2022. As of September 30, 20172020, we remained authorized to repurchase 2,236,5721,786,977 shares of common stock. During the third quarter of 2020 we did not repurchase any shares of our common stock as we suspended share repurchases in mid-March in the interim.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4. MINE SAFETY DISCLOSURES


None.


55
ITEM 5. OTHER INFORMATION


None.

56

59
Tabl

ITEM 6. EXHIBIT INDEX
Exhibit numberExhibit descriptionFurnished herewithFiled herewith
2.1†31.1
31.1
Certification of Randy A. Ramlo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2X
32.1X
32.2X
101.1
The following financial information from United Fire Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 20172020 formatted in XBRL: Inline eXtensible Business Reporting Language (Inline XBRL): (i) Consolidated Balance Sheets at as of September 30, 20172020 (unaudited) and December 31, 2016; 2019; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the threethree- and nine months-months ended September 30, 20172020 and 2016; 2019; (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the three- and nine months-months ended SeptemberSepember 30, 2017; 2020 and 2019; (iv) Consolidated Statements of Cash Flows (unaudited) for the three- and nine months-months ended September 30, 20172020 and 2016;2019; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as a block of text.text.


X
104.1X
† The schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The registrant agrees to furnish a copy of all omitted schedules to the Securities and Exchange Commission upon its request.
57


60

SIGNATURES
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


UNITED FIRE GROUP, INC.
(Registrant)
/s/ Randy A. Ramlo/s/ Dawn M. Jaffray
Randy A. RamloDawn M. Jaffray
President, Chief Executive Officer, Director and Principal Executive OfficerSeniorExecutive Vice President, Chief Financial Officer and
Director and Principal Executive OfficerPrincipal Accounting Officer
November 8, 2017November 8, 2017
(Date)November 4, 2020November 4, 2020
(Date)(Date)
 




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