UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-34257

________________________

UNITED FIRE GROUP INC.

(Exact name of registrant as specified in its charter)


Iowa						45-2302834
(State of incorporation)						(I.R.S. Employer Identification No.)


118 Second Avenue SE
Cedar Rapids	Iowa	52401
(Address of principal executive offices) (Zip Code)

Registrant'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 class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	UFCS	The 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). 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," and "emerging growth company" in Rule 12b-2 of the Exchange 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 ☐

No ☒

As of November ~~2, 2020,~~1, 2021, ~~25,031,234~~25,080,923 shares of common stock were outstanding.

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United Fire Group, Inc.

Index to Quarterly Report on Form 10-Q

September 30, ~~2020~~2021


			Page
Forward-Looking Information			1

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020			23

Consolidated Statements of Income and Comprehensive Income (unaudited) for the three- and nine -month periods ended ~~September~~S eptember 30, ~~2020~~2021 and ~~2019~~2020			34

Consolidated Statement of Stockholders’ Equity (unaudited) for the three- and nine -month periods ended September 30, ~~2020~~2021 and ~~2019~~2020			45

Consolidated Statements of Cash Flows (unaudited) for the three- and ni nenine -month periods ended September 30, ~~2020~~2021 and ~~2019~~2020			67

Notes to Unaudited Consolidated Financial Statements			78


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			37

Item 3. Quantitative and Qualitative Disclosures About Market Risk			5453

Item 4. Controls and Procedures			5453

Part II. Other Information

Item 1. Legal Proceedings			5554

Item 1A. Risk Factors			5554

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5554

Item 3. Defaults Upon Senior Securities			5554

Item 4. Mine Safety Disclosures			5554

Item 5. Other Information			5654

Item 6. Exhibits			5756

Signatures			5857

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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," "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, ~~2019~~2020 and in 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, including the ongoing impact of the novel coronavirus (COVID-19) ~~pandemic;~~pandemic (including the emergence of variant strains);

•The adequacy of our reserves for property and casualty insurance losses and loss settlement expenses;

•Geographic concentration risk in our property and casualty insurance 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;

•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.

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 SEC, we do not have

Table of Contents

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


(In Thousands, Except Share Data)	(In Thousands, Except Share Data)	September 30, 2020		December 31, 2019		(In Thousands, Except Share Data)	September 30, 2021		December 31, 2020
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Investments	Investments					Investments
Fixed maturities	Fixed maturities					Fixed maturities
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)		14,811		15,256
Equity securities at fair value (cost $61,467 in 2020 and $67,529 in 2019)		198,791		299,203
Available-for-sale, at fair value (amortized cost $1,655,228 in 2021 and $1,720,291 in 2020; allowance for credit losses $— in 2021 and $5 in 2020)						Available-for-sale, at fair value (amortized cost $1,655,228 in 2021 and $1,720,291 in 2020; allowance for credit losses $— in 2021 and $5 in 2020)	$	1,727,601	$	1,825,438

Equity securities at fair value (cost $81,797 in 2021 and $49,085 in 2020)						Equity securities at fair value (cost $81,797 in 2021 and $49,085 in 2020)	200,876		206,685
Mortgage loans	Mortgage loans	47,809		42,520		Mortgage loans	47,325		47,690
Less: allowance for mortgage loan losses	Less: allowance for mortgage loan losses	76		72		Less: allowance for mortgage loan losses	71		76
Mortgage loans, net	Mortgage loans, net	47,733		42,448		Mortgage loans, net	47,254		47,614
Other long-term investments	Other long-term investments	62,903		78,410		Other long-term investments	80,162		69,305
Short-term investments		175		175
Short-term investments available-for-sale, at fair value (amortized cost $175 in 2021 and $175 in 2020)						Short-term investments available-for-sale, at fair value (amortized cost $175 in 2021 and $175 in 2020)	175		175
		2,041,452		2,155,099			2,056,068		2,149,217
Cash and cash equivalents	Cash and cash equivalents	99,604		120,722		Cash and cash equivalents	132,772		87,948
Accrued investment income	Accrued investment income	15,028		15,182		Accrued investment income	13,947		14,615
Premiums receivable (net of allowance for doubtful accounts of $812 in 2020 and $1,239 in 2019)		352,150		357,632
Premiums receivable (net of allowance for doubtful accounts of $894 in 2021 and $687 in 2020)						Premiums receivable (net of allowance for doubtful accounts of $894 in 2021 and $687 in 2020)	325,072		317,292
Deferred policy acquisition costs	Deferred policy acquisition costs	94,223		94,292		Deferred policy acquisition costs	95,060		87,094
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)		199,920		72,369
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $58,709 in 2021 and $55,141 in 2020)						Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $58,709 in 2021 and $55,141 in 2020)	136,196		129,874
Reinsurance receivables and recoverables (net of allowance for credit losses of $98 in 2021 and $190 in 2020)						Reinsurance receivables and recoverables (net of allowance for credit losses of $98 in 2021 and $190 in 2020)	121,290		160,540
Prepaid reinsurance premiums	Prepaid reinsurance premiums	12,284		9,550		Prepaid reinsurance premiums	9,312		12,965
Goodwill and intangible assets		6,920		22,542
Intangible assets						Intangible assets	6,211		6,743

Income taxes receivable	Income taxes receivable	57,388		19,190		Income taxes receivable	69,074		66,194
Other assets	Other assets	41,521		29,905		Other assets	45,652		37,196
TOTAL ASSETS	TOTAL ASSETS	$	3,048,480	$	3,013,472	TOTAL ASSETS	$	3,010,654	$	3,069,678
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	Liabilities					Liabilities
Future policy benefits and losses, claims and loss settlement expenses

Losses and loss settlement expenses	Losses and loss settlement expenses	$	1,555,083	$	1,421,754	Losses and loss settlement expenses	$	1,567,650	$	1,578,131
Unearned premiums	Unearned premiums	499,730		505,162		Unearned premiums	458,931		464,845
Accrued expenses and other liabilities	Accrued expenses and other liabilities	156,874		155,498		Accrued expenses and other liabilities	101,447		126,624

Long term debt						Long term debt	50,000		50,000
Deferred tax liability	Deferred tax liability	16,511		20,586		Deferred tax liability	18,097		24,929
TOTAL LIABILITIES	TOTAL LIABILITIES	$	2,228,198	$	2,103,000	TOTAL LIABILITIES	$	2,196,125	$	2,244,529
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
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, respectively		$	25	$	25
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,080,923 and 25,055,479 shares issued and outstanding in 2021 and 2020, respectively						Common stock, $0.001 par value; authorized 75,000,000 shares; 25,080,923 and 25,055,479 shares issued and outstanding in 2021 and 2020, respectively	$	25	$	25
Additional paid-in capital	Additional paid-in capital	200,849		200,179		Additional paid-in capital	203,014		202,359
Retained earnings	Retained earnings	568,501		697,116		Retained earnings	567,411		555,854
Accumulated other comprehensive income, net of tax	Accumulated other comprehensive income, net of tax	50,907		13,152		Accumulated other comprehensive income, net of tax	44,079		66,911
TOTAL STOCKHOLDERS’ EQUITY	TOTAL STOCKHOLDERS’ EQUITY	$	820,282	$	910,472	TOTAL STOCKHOLDERS’ EQUITY	$	814,529	$	825,149
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,048,480	$	3,013,472	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,010,654	$	3,069,678

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)	(In Thousands, Except Share Data)	2020		2019		2020		2019		(In Thousands, Except Share Data)	2021		2020		2021		2020
Revenues	Revenues									Revenues
Net premiums earned	Net premiums earned	$	259,061	$	274,942	$	791,519	$	813,742	Net premiums earned	$	238,909	$	259,061	$	722,837	$	791,519
Investment income, net of investment expenses	Investment income, net of investment expenses	7,244		13,291		22,303		43,923		Investment income, net of investment expenses	11,571		7,244		42,447		22,303
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 income		604		0		6,323		0
Net realized investment gains (losses) (includes reclassifications for net unrealized investment gains/(losses) on available-for-sale securities of $214 and $(453) in 2021 and $54 and $13 in 2020; 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 $214 and $(453) in 2021 and $54 and $13 in 2020; previously included in accumulated other comprehensive income)	(2,269)		15,212		28,243		(62,416)
Other income (loss)										Other income (loss)	332		604		163		6,323
Total revenues	Total revenues	$	282,121	$	298,055	$	757,729	$	907,791	Total revenues	$	248,543	$	282,121	$	793,690	$	757,729
Benefits, Losses and Expenses	Benefits, Losses and Expenses									Benefits, Losses and Expenses
Losses and loss settlement expenses	Losses and loss settlement expenses	$	234,693	$	211,752	$	626,169	$	596,001	Losses and loss settlement expenses	$	175,444	$	234,693	$	533,981	$	626,169
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	52,095		54,828		158,440		161,842		Amortization of deferred policy acquisition costs	51,261		52,095		150,533		158,440
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
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,586 and $4,899 in 2021 and $1,072 and $3,217 in 2020; previously included in accumulated other comprehensive income)										Other underwriting expenses (includes reclassifications for employee benefit costs of $1,586 and $4,899 in 2021 and $1,072 and $3,217 in 2020; previously included in accumulated other comprehensive income)	35,468		35,470		82,236		114,020
Goodwill impairment	Goodwill impairment	15,091		0		15,091		0		Goodwill impairment	—		15,091		—		15,091
Interest Expense										Interest Expense	797		—		2,391		—
Total benefits, losses and expenses	Total benefits, losses and expenses	$	337,349	$	302,583	$	913,720	$	862,213	Total benefits, losses and expenses	$	262,970	$	337,349	$	769,141	$	913,720
Income (loss) before income taxes	Income (loss) before income taxes	$	(55,228)	$	(4,528)	$	(155,991)	$	45,578	Income (loss) before income taxes	$	(14,427)	$	(55,228)	$	24,549	$	(155,991)
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
Federal income tax expense (benefit) (includes reclassifications of $285 and $1,122 in 2021 and $213 and $672 in 2020; previously included in accumulated other comprehensive income)										Federal income tax expense (benefit) (includes reclassifications of $285 and $1,122 in 2021 and $213 and $672 in 2020; previously included in accumulated other comprehensive income)	(4,834)		(17,987)		1,690		(52,176)
Net Income (loss)	Net Income (loss)	$	(37,241)	$	(2,342)	$	(103,815)	$	37,983	Net Income (loss)	$	(9,593)	$	(37,241)	$	22,859	$	(103,815)
Other comprehensive income (loss)	Other comprehensive income (loss)									Other comprehensive income (loss)
Change in net unrealized appreciation on investments	Change in net unrealized appreciation on investments	$	4,116	$	15,410	$	44,586	$	77,360	Change in net unrealized appreciation on investments	$	(12,230)	$	4,116	$	(33,231)	$	44,586
Change in liability for underfunded employee benefit plans	Change in liability for underfunded employee benefit plans	0		0		0		0		Change in liability for underfunded employee benefit plans	(3,765)		—		(1,025)		—
Other comprehensive income, before tax and reclassification adjustments		$	4,116	$	15,410	$	44,586	$	77,360
Other comprehensive income (loss), before tax and reclassification adjustments										Other comprehensive income (loss), before tax and reclassification adjustments	$	(15,995)	$	4,116	$	(34,256)	$	44,586
Income tax effect	Income tax effect	(864)		(3,237)		(9,363)		(16,246)		Income tax effect	3,359		(864)		7,194		(9,363)
Other comprehensive income, after tax, before reclassification adjustments		$	3,252	$	12,173	$	35,223	$	61,114
Reclassification adjustment for net realized investment (gains) losses included in income		$	(54)	$	(130)	$	(13)	$	(257)
Other comprehensive income (loss), after tax, before reclassification adjustments										Other comprehensive income (loss), after tax, before reclassification adjustments	$	(12,636)	$	3,252	$	(27,062)	$	35,223
Reclassification adjustment for net realized investment losses included in income										Reclassification adjustment for net realized investment losses included in income	$	(214)	$	(54)	$	453	$	(13)
Reclassification adjustment for employee benefit costs included in expense	Reclassification adjustment for employee benefit costs included in expense	1,072		1,124		3,217		3,372		Reclassification adjustment for employee benefit costs included in expense	1,586		1,072		4,899		3,217
Total reclassification adjustments, before tax	Total reclassification adjustments, before tax	$	1,018	$	994	$	3,204	$	3,115	Total reclassification adjustments, before tax	$	1,372	$	1,018	$	5,352	$	3,204
Income tax effect	Income tax effect	(213)		(209)		(672)		(654)		Income tax effect	(285)		(213)		(1,122)		(672)
Total reclassification adjustments, after tax	Total reclassification adjustments, after tax	$	805	$	785	$	2,532	$	2,461	Total reclassification adjustments, after tax	$	1,087	$	805	$	4,230	$	2,532
Comprehensive income (loss)	Comprehensive income (loss)	$	(33,184)	$	10,616	$	(66,060)	$	101,558	Comprehensive income (loss)	$	(21,142)	$	(33,184)	$	27	$	(66,060)
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	25,031,234		25,176,334		25,023,401		25,643,744		Diluted weighted average common shares outstanding	25,092,167		25,031,234		25,427,318		25,023,401
Earnings (loss) per common share:	Earnings (loss) per common share:									Earnings (loss) per common share:
Basic	Basic	$	(1.49)	$	(0.09)	$	(4.15)	$	1.51	Basic	$	(0.38)	$	(1.49)	$	0.91	$	(4.15)
Diluted	Diluted	(1.49)		(0.09)		(4.15)		1.48		Diluted	(0.38)		(1.49)		0.90		(4.15)

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												Common Stock
(In Thousands, Except Share Data)	(In Thousands, Except Share Data)	Shares outstanding	Common stock		Additional paid-in capital		Retaining Earnings		Accumulated other comprehensive income		Total		(In Thousands, Except Share Data)	Shares outstanding	Common stock		Additional paid-in capital		Retaining Earnings		Accumulated other comprehensive income		Total

Balance, January 1, 2020		25,015,963	$	25	$	200,179	$	697,116	$	13,152	$	910,472
Balance, January 1, 2021													Balance, January 1, 2021	25,055,479	$	25	$	202,359	$	555,854	$	66,911	$	825,149
Net income													Net income	—	—		—		18,702		—		18,702
Shares repurchased													Shares repurchased	(207)	—		(7)		—		—		(7)
Stock based compensation													Stock based compensation	64,583	—		522		—		—		522
Dividends on common stock ($0.15 per share)													Dividends on common stock ($0.15 per share)	—	—		—		(3,767)		—		(3,767)
Change in net unrealized investment appreciation(1)													Change in net unrealized investment appreciation(1)	—	—		—		—		(23,456)		(23,456)
Change in liability for underfunded employee benefit plans(2)													Change in liability for underfunded employee benefit plans(2)	—	—		—		—		6,456		6,456

Balance, March 31, 2021													Balance, March 31, 2021	25,119,855	$	25	$	202,874	$	570,789	$	49,911	$	823,599

Net income													Net income	—	$	—	$	—	$	13,750	$	—	$	13,750
Shares repurchased													Shares repurchased	(31,027)	—		(1,000)		—		—		(1,000)
Stock based compensation													Stock based compensation	28,512	—		1,180		—		—		1,180
Dividends on common stock ($0.15 per share)													Dividends on common stock ($0.15 per share)	—	—		—		(3,772)		—		(3,772)
Change in net unrealized investment appreciation(1)													Change in net unrealized investment appreciation(1)	—	—		—		—		7,391		7,391
Change in liability for underfunded employee benefit plans(2)													Change in liability for underfunded employee benefit plans(2)	—	—		—		—		(1,674)		(1,674)

Balance, June 30, 2021													Balance, June 30, 2021	25,117,340	$	25	$	203,054	$	580,767	$	55,628	$	839,474

Net income (loss)	Net income (loss)	—	—		—		(72,534)		—		(72,534)		Net income (loss)	—	$	—	$	—	$	(9,593)	$	—	$	(9,593)
Shares repurchased	Shares repurchased	(70,467)	—		(2,741)		—		—		(2,741)		Shares repurchased	(36,417)	—		(1,001)		—		—		(1,001)
Stock based compensation	Stock based compensation	70,597	—		879		—		—		879		Stock based compensation	—	—		960		—		—		960
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, 2020		25,016,093	$	25	$	198,317	$	616,303	$	18,499	$	833,144

Net income		—	$	—	$	—	$	5,960	$	—	$	5,960

Stock based compensation		15,141	—		1,479		—		—		1,479
Dividends on common stock ($0.33 per share)		—	—		—		(8,267)		—		(8,267)
Dividends on common stock ($0.15 per share)													Dividends on common stock ($0.15 per share)	—	—		—		(3,763)		—		(3,763)
Change in net unrealized investment appreciation(1)	Change in net unrealized investment appreciation(1)	—	—		—		—		27,504		27,504		Change in net unrealized investment appreciation(1)	—	—		—		—		(9,828)		(9,828)
Change in liability for underfunded employee benefit plans(2)	Change in liability for underfunded employee benefit plans(2)	—	—		—		—		847		847		Change in liability for underfunded employee benefit plans(2)	—	—		—		—		(1,721)		(1,721)

Balance, June 30, 2020		25,031,234	$	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, 2020		25,031,234	$	25	$	200,849	$	568,501	$	50,907	$	820,282
Balance, September 30, 2021													Balance, September 30, 2021	25,080,923	$	25	$	203,014	$	567,411	$	44,079	$	814,529

(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 outstanding Common stock Additional paid-in capital Retaining Earnings Accumulated other comprehensive income Total

Balance, January 1, 2019 25,097,408 $ 25 $ 203,350 $ 715,472 $ (30,472) $ 888,375
Net income — — — 44,521 — 44,521
Stock based compensation 70,414 — 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, 2019 25,167,822 $ 25 $ 206,788 $ 751,683 $ (3,305) $ 955,191
Net income (loss) $ — $ — $ — $ (4,196) $ — $ (4,196)
Shares repurchased (1,507) — (69) — — (69)
Stock based compensation 78,885 — 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, 2019 25,245,200 $ 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 compensation 13,775 — 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, 2019 25,081,726 $ 25 $ 202,504 $ 728,536 $ 33,103 $ 964,168


	Common Stock
(In Thousands, Except Share Data)	Shares outstanding		Common stock		Additional paid-in capital		Retaining Earnings		Accumulated other comprehensive income		Total

Balance, January 1, 2020	25,015,963		$	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 compensation	70,597		—		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, 2020	25,016,093		$	25	$	198,317	$	616,303	$	18,499	$	833,144

Net income	—		$	—	$	—	$	5,960	$	—	$	5,960

Stock based compensation	15,141		—		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, 2020	25,031,234		$	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, 2020	25,031,234		$	25	$	200,849	$	568,501	$	50,907	$	820,282

(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)	(In Thousands)	2020		2019		(In Thousands)	2021		2020
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income (loss)	Net income (loss)	$	(103,815)	$	37,983	Net income (loss)	$	22,859	$	(103,815)
Adjustments to reconcile net income to net cash provided by (used in) operating activities	Adjustments to reconcile net income to net cash provided by (used in) operating activities					Adjustments to reconcile net income to net cash provided by (used in) operating activities
Net accretion of bond premium	Net accretion of bond premium	7,719		7,074		Net accretion of bond premium	10,546		7,719
Depreciation and amortization	Depreciation and amortization	5,009		4,235		Depreciation and amortization	4,887		5,009
Goodwill impairment	Goodwill impairment	15,091		0		Goodwill impairment	—		15,091
Stock-based compensation expense	Stock-based compensation expense	3,979		5,248		Stock-based compensation expense	3,074		3,979
Net realized investment (gains) losses	Net realized investment (gains) losses	62,416		(50,126)		Net realized investment (gains) losses	(28,243)		62,416
Net cash flows from equity and trading investments	Net cash flows from equity and trading investments	37,552		911		Net cash flows from equity and trading investments	34,504		37,552
Deferred income tax benefit	Deferred income tax benefit	(21,824)		8,829		Deferred income tax benefit	248		(21,824)
Changes in:	Changes in:					Changes in:
Accrued investment income	Accrued investment income	154		170		Accrued investment income	668		154
Premiums receivable	Premiums receivable	5,482		(40,792)		Premiums receivable	(7,780)		5,482
Deferred policy acquisition costs	Deferred policy acquisition costs	69		(5,704)		Deferred policy acquisition costs	(7,966)		69
Reinsurance receivables	Reinsurance receivables	(127,551)		3,664		Reinsurance receivables	39,250		(127,551)
Prepaid reinsurance premiums	Prepaid reinsurance premiums	(2,734)		(887)		Prepaid reinsurance premiums	3,653		(2,734)
Income taxes receivable	Income taxes receivable	(38,198)		3,029		Income taxes receivable	(2,880)		(38,198)
Other assets	Other assets	(11,616)		(17,645)		Other assets	(8,456)		(11,616)
Losses and loss settlement expenses	Losses and loss settlement expenses	133,329		48,056		Losses and loss settlement expenses	(10,481)		133,329
Unearned premiums	Unearned premiums	(5,432)		35,296		Unearned premiums	(5,914)		(5,432)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	4,593		16,821		Accrued expenses and other liabilities	(21,348)		4,593

Deferred income taxes	Deferred income taxes	7,713		(434)		Deferred income taxes	(1,009)		7,713
Other, net	Other, net	15,196		437		Other, net	(7,424)		15,196
Cash from operating activities	Cash from operating activities	90,947		18,182		Cash from operating activities	(4,671)		90,947

Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	(12,868)	$	56,165	Net cash provided by (used in) operating activities	$	18,188	$	(12,868)
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments	Proceeds from sale of available-for-sale investments	$	16,907	$	36,490	Proceeds from sale of available-for-sale investments	$	170,637	$	16,907

Proceeds from call and maturity of available-for-sale investments	Proceeds from call and maturity of available-for-sale investments	239,438		206,478		Proceeds from call and maturity of available-for-sale investments	214,702		239,438
Proceeds from sale of other investments	Proceeds from sale of other investments	5,391		3,607		Proceeds from sale of other investments	3,616		5,391
Purchase of investments in mortgage loans	Purchase of investments in mortgage loans	(5,564)		(10,723)		Purchase of investments in mortgage loans	—		(5,564)
Purchase of investments available-for-sale	Purchase of investments available-for-sale	(216,001)		(151,528)		Purchase of investments available-for-sale	(331,644)		(216,001)
Purchase of other investments	Purchase of other investments	(4,829)		(16,939)		Purchase of other investments	(6,021)		(4,829)

Purchase of property and equipment		$	(15,506)	(27,796)
Net purchases and sales of property and equipment						Net purchases and sales of property and equipment	(10,932)		(15,506)
Net cash provided by investing activities	Net cash provided by investing activities	19,836		39,589		Net cash provided by investing activities	$	40,358	$	19,836
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Issuance of common stock	Issuance of common stock	$	(568)	$	2,033	Issuance of common stock	$	(412)	$	(568)
Repurchase of common stock	Repurchase of common stock	(2,741)		(8,127)		Repurchase of common stock	(2,008)		(2,741)
Payment of cash dividends	Payment of cash dividends	(24,777)		(24,406)		Payment of cash dividends	(11,302)		(24,777)
Net cash used in financing activities	Net cash used in financing activities	$	(28,086)	(30,500)		Net cash used in financing activities	$	(13,722)	$	(28,086)

Net Change in Cash and Cash Equivalents	Net Change in Cash and Cash Equivalents	$	(21,118)	$	65,254	Net Change in Cash and Cash Equivalents	$	44,824	$	(21,118)
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	120,722		64,454		Cash and Cash Equivalents at Beginning of Period	87,948		120,722
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	99,604	$	129,708	Cash and Cash Equivalents at End of Period	$	132,772	$	99,604

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 through a network of independent agencies. Our insurance company subsidiaries are licensed as property and casualty insurers in 4850 states and the District of 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,~~2020, including certain financial statement footnote disclosures, is not required by the rules and regulations of the SEC for interim financial reporting and has 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; loss settlement expenses; and pension and post-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, ~~2019.~~2020.

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 sale 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

Our 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 our 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~~business segment. The property and casualty insurance business 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 business results based on profitability (i.e., loss ratios), expenses and 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~~

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Lloyd's Syndicates

On ~~September 18, 2017,~~January 1, 2021, the Company ~~signed~~became a ~~definitive agreement~~member of Lloyd's of London ("Lloyd's"). As a member of Lloyd's, the Company is required to ~~sell its subsidiary, United Life,~~maintain capital at Lloyd's, referred to ~~Kuvare for $280,000~~as Funds at Lloyd's ("FAL"), to support underwriting of property and casualty and reinsurance business by Syndicate 1492, Syndicate 1729, Syndicate 1969, Syndicate 1971 and Syndicate 4747. At September 30, 2021, the Company's FAL investments were comprised of cash of $21,331 on deposit with Lloyd's 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.order to satisfy these FAL requirements.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, cash on deposit and held at Lloyd's and non-negotiable certificates of deposit with original maturities of three months or less.

For the nine-month periods ended September 30, 2020 and 2019, we made payments for income taxes totaling $125 and $1,556, respectively. We did 0t receive a tax refund during the nine-month period ended September 30, 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, 2020 and 2019, we made 0 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, ~~2020.~~2021.




	Total
Recorded asset at beginning of period	$	~~94,292~~87,094
Underwriting costs deferred	~~158,371~~158,499
Amortization of deferred policy acquisition costs	~~(158,440)~~(150,533)
Recorded asset at September 30, ~~2020~~2021	$	~~94,223~~95,060

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

Goodwill assets arise as a result of business combinations and consist of the excess of the fair value of consideration paid over the tangible assets acquired and liabilities assumed. All of our goodwill assets relate to the acquisition 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 carrying amount of goodwill assets may exceed their implied fair value. Any impairment is recognized in the period that the impairment is identified. During the third quarter of 2020, we completed a quantitative analysis of our goodwill as a

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result of the following factors: (i) disruptions in the equity markets, specifically for property and casualty insurance companies, as a result of the COVID-19 pandemic and due to the 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 impairment charge of $15,091 as of September 30, 2020. The impairment charge was determined based on completion of both a discounted cash flow and market value analysis.

Other Intangible Assets

Our other intangible assets, which consist primarily of agency relationships, trade names, state insurance licenses, and software, are being amortized using the straight-line method over periods ranging from two years to 15 years, with the exception of state insurance licenses, which are indefinite-lived and not amortized.

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Long Term Debt

The Company executed a private placement debt transaction on December 15, 2020 between United Fire & Casualty Company ("UF&C"), and Federated Mutual Insurance Company, a mutual insurance company domiciled in Minnesota ("Federated Mutual"), and Federated Life Insurance Company, an insurance company domiciled in Minnesota ("Federated Life” and, together with Federated Mutual, the "Note Purchasers").

UF&C sold an aggregate principal amount of $50,000 of notes due 2040 to the Note Purchasers. One note with a principal amount of $35,000 was issued to Federated Mutual and one note with a principal amount of $15,000 was issued to Federated Life subject to the terms of their respective notes. The notes are presented as a long term debt liability in the Consolidated Balance Sheets and as a financing activity in the Consolidated Statement of Cash Flows.

Interest payments under the surplus notes are paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date. For the nine-month period ended September 30, 2021, interest totaled $2,391 and is included in accrued expenses and other liabilities in the Consolidated Balance Sheets and as Interest expense in the Consolidated Statements of Income and Comprehensive Income. Payment of interest is subject to approval by the Iowa Insurance Division.

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~~provision. As of September 30, 2021, there was no income tax benefit as a result of the CARES Act. As of September 30, 2020, there was an income tax ~~benefit~~benefit of ~~$17.8 million~~$17,768 as ~~the~~a result of ~~this~~the CARES 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 consolidated federal income tax ~~benefit~~expense of ~~$52,176~~$1,690 for the nine-month period ended September 30, ~~2020~~2021 compared to an income tax ~~expense~~benefit of ~~$7,595~~$52,176 during the same period of ~~2019.~~2020. Our effective tax rate for 2021 and 2020 is different than the federal statutory rate of 21 percent, due principally to the net effect of tax-exempt municipal bond interest income. Our effective tax rate for 2020 is also different than the federal statutory rate of 21 percent, due principally to the impact of 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 this 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 0tnot recognize any liability for unrecognized tax benefits at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020. 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.

For the nine-month periods ended September 30, 2021 and 2020, we made payments for income taxes totaling $5,345 and $125, respectively. We did not receive a tax refund during the nine-month periods ended September 30, 2021 and 2020.

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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 ~~2015. The Internal Revenue Service is conducting an examination of our federal income tax return for the 2017 tax year.~~2017.

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~~ 2021 was $3,030 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."

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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,~~reinsurer, 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~~2021 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,~~2021, the Company had a credit loss allowance for reinsurance receivables of ~~$241.~~

~~Tabl~~e ~~of Contents~~

$98.


Rollforward of credit loss allowance for reinsurance receivable:
	As of
	September 30, ~~2020~~2021
Beginning balance, January 1, ~~2020~~2021	$	38190
Current-period provision for expected credit losses	~~203~~—
~~Write-off charged against the allowance, if any~~	0
Recoveries of amounts previously written off, if any	0 (92)
Ending balance of the allowance for reinsurance receivable, September 30, ~~2020~~2021	$	~~241~~98

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 COVID-19 pandemic caused significant financial market volatility, economic uncertainty and interruptions to normal business ~~activities in the first nine months of 2020.~~activities. As of the date of this report, 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, including the emergence of variant strains, 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 condition, results of operations or liquidity. See further discussion in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Subsequent Events

Recently Issued Accounting Standards

Accounting Standards Adopted in ~~2020~~

~~Intangibles - Other Internal Use Software~~

In August 2018, the FASB issued guidance to align the requirements for 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 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.

~~Tabl~~e ~~of Contents~~

~~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 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 are remeasured each reporting period. The new guidance was effective for annual periods beginning after December 15, 2019 and interim periods within those years. 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, 2020. These models resulted in an immaterial expected credit loss at January 1, 2020. Prior to the adoption of the new guidance, the Company utilized an aging method to estimate credit losses on premiums receivable. This aging method is permitted under the new guidance. The Company adopted the new guidance prospectively as of January 1, 2020 with an immaterial estimated cumulative effect adjustment to opening retained earnings. This cumulative effect adjustment is an 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 are 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~~

In August 2018, the FASB issued new guidance which modifies the disclosure requirements on fair value measurements of 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~~2021

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

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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~~adopted the new guidance as of January 1, 2021. ~~Management currently believes the~~The new guidance ~~will modify existing~~modifies disclosures, but will not have an impact on the Company's financial position and results of operations.

Income Taxes

In December 2019, the FASB issued new guidance which simplifies the accounting for income taxes by removing certain exceptions to income tax accounting. The amendments also improve consistent application of and simplify GAAP for other areas of income tax accounting. The new guidance clarifies and amends existing guidance, including removing certain requirements that an entity evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, and requiring an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new guidance is effective for annual periods beginning after December 15, 2020. The Company adopted the new guidance as of January 1, 2021. The new guidance did not have an impact on the Company’s financial position and results of operations.

~~Tabl~~e ~~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 available-for-sale fixed maturity and ~~equity securities,~~short-term investments, presented on a consolidated basis, as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, is provided below:

September 30, 2020
Type of Investment Cost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value Allowance for Credit Losses Carrying Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury $ 53,877 $ 730 $ 8 $ 54,599 $ 0 $ 54,599
U.S. government agency 60,503 4,457 0 64,960 0 64,960
States, municipalities and political subdivisions
General obligations:
Midwest 79,872 4,106 0 83,978 0 83,978
Northeast 29,124 1,426 0 30,550 0 30,550
South 105,290 5,295 0 110,585 0 110,585
West 102,772 7,175 0 109,947 0 109,947
Special revenue:
Midwest 126,251 8,590 0 134,841 0 134,841
Northeast 58,287 4,557 0 62,844 0 62,844
South 220,904 17,446 0 238,350 0 238,350
West 133,934 9,168 0 143,102 0 143,102
Foreign bonds 26,413 1,835 230 28,018 0 28,018
Public utilities 77,147 7,155 0 84,302 0 84,302
Corporate bonds
Energy 24,912 2,589 0 27,501 0 27,501
Industrials 39,558 3,499 0 43,057 0 43,057
Consumer goods and services 45,250 3,790 12 49,028 0 49,028
Health care 6,674 895 0 7,569 0 7,569
Technology, media and telecommunications 37,241 4,330 0 41,571 0 41,571
Financial services 95,696 7,030 267 102,459 8 102,451
Mortgage-backed securities 14,333 305 109 14,529 0 14,529
Collateralized mortgage obligations
Government national mortgage association 71,992 5,206 1 77,197 0 77,197
Federal home loan mortgage corporation 119,006 3,019 349 121,676 0 121,676
Federal national mortgage association 83,276 2,579 406 85,449 0 85,449
Asset-backed securities 314 621 0 935 0 935
Total Available-for-Sale Fixed Maturities $ 1,612,626 $ 105,803 $ 1,382 $ 1,717,047 $ 8 $ 1,717,039

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September 30, 2021
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Allowance for Credit Losses		Carrying Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	53,543	$	283	$	448	$	53,378	$	—	$	53,378
U.S. government agency	55,142		2,646		644		57,144		—		57,144
States, municipalities and political subdivisions
General obligations:
Midwest	68,996		2,714		—		71,710		—		71,710
Northeast	26,562		811		—		27,373		—		27,373
South	92,091		4,196		—		96,287		—		96,287
West	95,022		5,549		—		100,571		—		100,571
Special revenue:
Midwest	118,800		7,473		—		126,273		—		126,273
Northeast	55,940		4,072		—		60,012		—		60,012
South	201,920		14,723		87		216,556		—		216,556
West	127,709		8,119		—		135,828		—		135,828
Foreign bonds	30,331		1,008		175		31,164		—		31,164
Public utilities	95,948		5,138		281		100,805		—		100,805
Corporate bonds
Energy	28,060		2,263		65		30,258		—		30,258
Industrials	52,097		2,783		137		54,743		—		54,743
Consumer goods and services	60,554		2,477		757		62,274		—		62,274
Health care	27,385		639		531		27,493		—		27,493
Technology, media and telecommunications	53,421		3,707		740		56,388		—		56,388
Financial services	90,400		5,336		308		95,428		—		95,428
Mortgage-backed securities	22,251		249		127		22,373		—		22,373
Collateralized mortgage obligations
Government national mortgage association	115,576		3,038		1,358		117,256		—		117,256
Federal home loan mortgage corporation	127,461		1,089		1,588		126,962		—		126,962
Federal national mortgage association	55,697		1,252		532		56,417		—		56,417
Asset-backed securities	322		586		—		908		—		908

Total Available-for-Sale Fixed Maturities	$	1,655,228	$	80,151	$	7,778	$	1,727,601	$	—	$	1,727,601
Short-Term Investments	$	175	$	—	—		$	175	$	—	$	175
Total Available-for-Sale Investments	$	1,655,403	$	80,151	$	7,778	$	1,727,776	$	—	$	1,727,776

~~Tabl~~e Table of Contents

December 31, 2019
Type of Investment Cost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury $ 69,300 $ 203 $ 12 $ 69,491
U.S. government agency 97,962 2,344 104 100,202
States, municipalities and political subdivisions
General obligations:
Midwest 85,607 2,987 0 88,594
Northeast 30,120 1,150 0 31,270
South 111,688 3,515 0 115,203
West 105,569 4,748 0 110,317
Special revenue:
Midwest 133,717 6,175 0 139,892
Northeast 58,665 2,878 0 61,543
South 224,214 10,452 0 234,666
West 138,557 6,287 0 144,844
Foreign bonds 4,936 181 0 5,117
Public utilities 60,950 2,701 0 63,651
Corporate bonds
Energy 28,695 1,429 0 30,124
Industrials 52,249 1,766 0 54,015
Consumer goods and services 47,131 2,335 0 49,466
Health care 8,998 482 0 9,480
Technology, media and telecommunications 25,931 1,739 0 27,670
Financial services 96,613 3,870 230 100,253
Mortgage-backed securities 6,250 127 21 6,356
Collateralized mortgage obligations
Government national mortgage association 78,400 2,053 97 80,356
Federal home loan mortgage corporation 123,572 1,150 220 124,502
Federal national mortgage association 70,322 1,631 108 71,845
Asset-backed securities 314 436 0 750
Total Available-for-Sale Fixed Maturities $ 1,659,760 $ 60,639 $ 792 $ 1,719,607


December 31, 2020
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Allowance for Credit Losses		Carrying Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	149,481	$	482	$	25	$	149,938	$	—	$	149,938
U.S. government agency	60,502		4,016		—		64,518		—		64,518
States, municipalities and political subdivisions
General obligations:
Midwest	77,933		4,047		—		81,980		—		81,980
Northeast	29,071		1,379		—		30,450		—		30,450
South	104,522		5,448		—		109,970		—		109,970
West	102,590		7,431		—		110,021		—		110,021
Special revenue:
Midwest	115,956		9,142		—		125,098		—		125,098
Northeast	56,317		4,759		—		61,076		—		61,076
South	208,739		17,967		—		226,706		—		226,706
West	129,417		9,982		—		139,399		—		139,399
Foreign bonds	27,799		1,805		2		29,602		—		29,602
Public utilities	76,114		7,388		—		83,502		—		83,502
Corporate bonds
Energy	22,441		2,895		—		25,336		—		25,336
Industrials	39,513		3,744		—		43,257		—		43,257
Consumer goods and services	46,521		4,046		—		50,567		—		50,567
Health care	6,678		898		—		7,576		—		7,576
Technology, media and telecommunications	37,270		4,381		15		41,636		—		41,636
Financial services	93,736		7,564		269		101,031		5		101,026
Mortgage-backed securities	20,305		326		54		20,577		—		20,577
Collateralized mortgage obligations
Government national mortgage association	81,758		4,439		45		86,152		—		86,152
Federal home loan mortgage corporation	151,362		2,239		758		152,843		—		152,843
Federal national mortgage association	81,952		2,013		683		83,282		—		83,282
Asset-backed securities	314		612		—		926		—		926

Total Available-for-Sale Fixed Maturities	$	1,720,291	$	107,003	$	1,851	$	1,825,443	$	5	$	1,825,438

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Maturities

The amortized cost and fair value of available-for-sale ~~and trading~~ fixed maturity securities at September 30, ~~2020,~~2021, by contractual maturity, are shown in the following tables. 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.

~~Tabl~~e ~~of Contents~~


Maturities	Maturities									Maturities
		Available-For-Sale				Trading					Available-For-Sale
September 30, 2020		Amortized Cost		Fair Value		Amortized Cost		Fair Value
September 30, 2021										September 30, 2021	Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	53,911	$	54,386	$	1,957	$	3,935	Due in one year or less	$	55,041	$	55,699
Due after one year through five years	Due after one year through five years	365,831		388,192		9,221		9,265		Due after one year through five years	469,238		492,892
Due after five years through 10 years	Due after five years through 10 years	401,105		433,321		0		0		Due after five years through 10 years	353,810		373,415
Due after 10 years	Due after 10 years	502,858		541,362		1,080		1,611		Due after 10 years	455,832		481,679
Asset-backed securities	Asset-backed securities	314		935		—		—		Asset-backed securities	322		908
Mortgage-backed securities	Mortgage-backed securities	14,333		14,529		—		—		Mortgage-backed securities	22,251		22,373
Collateralized mortgage obligations	Collateralized mortgage obligations	274,274		284,322		—		—		Collateralized mortgage obligations	298,734		300,635
Allowance for credit losses		—		(8)		—		—
		$	1,612,626	$	1,717,039	$	12,258	$	14,811		$	1,655,228	$	1,727,601

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,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net realized investment gains (losses):	Net realized investment gains (losses):									Net realized investment gains (losses):
Fixed maturities:	Fixed maturities:									Fixed maturities:
Available-for-sale	Available-for-sale	$	52	$	129	$	52	$	271	Available-for-sale	$	294	$	52	$	(207)	$	52
Allowance for credit losses	Allowance for credit losses	2		0		(8)		0		Allowance for credit losses	170		2		5		(8)
Trading securities
Change in fair value		248		43		(760)		2,290
Sales		134		8		(20)		100

Trading Securities										Trading Securities	—		382		—		(780)

Equity securities	Equity securities									Equity securities
Change in fair value		21,962		9,692		(38,876)		46,825
Change in the fair value										Change in the fair value	(1,314)		21,962		20,513		(38,876)
Sales	Sales	(7,186)		(50)		(22,772)		655		Sales	(1,168)		(7,186)		8,183		(22,772)
Mortgage loans allowance for credit losses	Mortgage loans allowance for credit losses	0		0		(4)		(15)		Mortgage loans allowance for credit losses	5		—		5		(4)

Real estate	Real estate	0		0		(28)		0		Real estate	(256)		—		(256)		(28)
Total net realized investment gains (losses)	Total net realized investment gains (losses)	$	15,212	$	9,822	$	(62,416)	$	50,126	Total net realized investment gains (losses)	$	(2,269)	$	15,212	$	28,243	$	(62,416)

The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities are as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Proceeds from sales	Proceeds from sales	$	0	$	0	$	16,907	$	36,490	Proceeds from sales	$	53,973	$	—	$	170,637	$	16,907
Gross realized gains	Gross realized gains	0		0		198		30		Gross realized gains	690		—		843		198
Gross realized losses	Gross realized losses	0		0		495		13		Gross realized losses	396		—		1,051		495

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 $14,811 and $15,256 at September 30, 2020 and December 31, 2019, respectively.

~~Tabl~~e Table of Contents

Funding Commitment

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through July 10, 2030 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was ~~$10,284~~ $2,636 at September 30, ~~2020.~~2021.

In addition, the Company invested $25,000 in December 2019 in a limited liability partnership investment fund which is subject to a ~~3-year~~three-year lockup with a 60 day minimum notice, with 4 possible repurchase dates per year, after the ~~3-year~~three-year lockup period is met. The fair value of the investment at September 30, ~~2020~~2021 was ~~$24,035~~$24,786 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,					Nine Months Ended September 30,
		2020		2019			2021		2020
Change in net unrealized investment appreciation	Change in net unrealized investment appreciation					Change in net unrealized investment appreciation
Available-for-sale fixed maturities	Available-for-sale fixed maturities	$	44,574	$	77,103	Available-for-sale fixed maturities	$	(32,779)	$	44,574
Income tax effect	Income tax effect	(9,361)		(16,192)		Income tax effect	6,886		(9,361)
Total change in net unrealized investment appreciation, net of tax	Total change in net unrealized investment appreciation, net of tax	$	35,213	$	60,911	Total change in net unrealized investment appreciation, net of tax	$	(25,893)	$	35,213

Credit Risk

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 following table contains a rollforward of the allowance for credit losses for available-for-sale fixed maturity securities at September 30, ~~2020:~~2021:


Rollforward of allowance for credit losses for available-for-sale fixed maturity securities:
	As of
	September 30, ~~2020~~2021
Beginning balance, January 1, ~~2020~~2021	$	05
Additions to the allowance for credit losses for which credit losses were not previously recorded	8—
~~Reductions for securities sold during the period (realized)~~	0
~~Writeoffs charged against the allowance~~	0
Recoveries of amounts previously written off	0 (5)
Ending balance, September 30, ~~2020~~2021	$	8—

~~Tabl~~e Table of Contents

The following tables summarize our fixed maturity securities that were in an unrealized loss position reported on a consolidated basis at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The securities are presented by the length of time they have been continuously in an unrealized loss position. Non-credit related unrealized losses are recognized as a component of other comprehensive income and represent other market movements that are not 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.


September 30, 2020		Less than 12 months					12 months or longer					Total
September 30, 2021																September 30, 2021	Less than 12 months					12 months or longer					Total
Type of Investment	Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation		Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE	AVAILABLE-FOR-SALE															AVAILABLE-FOR-SALE
Fixed maturities:	Fixed maturities:															Fixed maturities:
Bonds	Bonds															Bonds
U.S. Treasury	U.S. Treasury	2	$	11,804	$	8	0	$	0	$	0	$	11,804	$	8	U.S. Treasury	7	$	42,264	$	437	1	$	3,695	$	11	$	45,959	$	448
U.S. government agency																U.S. government agency	3	14,998		644		—	—		—		14,998		644
States, municipalities and political subdivisions																States, municipalities and political subdivisions

Special revenue																Special revenue

Special revenue - south																Special revenue - south	1	1,186		87		—	—		—		1,186		87

Foreign bonds	Foreign bonds	1	$	2,776	$	230	0	$	0	$	0	$	2,776	$	230	Foreign bonds	4	9,719		175		—	—		—		9,719		175

Public utilities																Public utilities	7	19,341		281		—	—		—		19,341		281
Corporate bonds	Corporate bonds															Corporate bonds

Energy																Energy	1	2,942		65		—	—		—		2,942		65
Industrials																Industrials	2	5,915		137		—	—		—		5,915		137
Consumer goods and services	Consumer goods and services	1	2,196		12		0	0		0		2,196		12		Consumer goods and services	7	16,348		757		—	—		—		16,348		757

Health care																Health care	3	20,517		531		—	—		—		20,517		531
Technology, media and telecommunications																Technology, media and telecommunications	5	11,264		740		—	—		—		11,264		740
Financial services	Financial services	1	2,998		2		1	3,000		9		5,998		11		Financial services	3	6,457		52		1	4,744		256		11,201		308
Mortgage-backed securities	Mortgage-backed securities	2	9,118		107		6	157		2		9,275		109		Mortgage-backed securities	7	15,181		127		—	—		—		15,181		127
Collateralized mortgage obligations	Collateralized mortgage obligations															Collateralized mortgage obligations
Federal home loan mortgage corporation	Federal home loan mortgage corporation	14	48,062		348		1	57		1		48,119		349		Federal home loan mortgage corporation	21	71,358		1,191		4	18,604		397		89,962		1,588
Federal national mortgage association	Federal national mortgage association	10	43,684		406		0	0		0		43,684		406		Federal national mortgage association	8	27,410		438		4	4,559		94		31,969		532
Government national mortgage association	Government national mortgage association	0	0		0		1	76		1		76		1		Government national mortgage association	9	48,566		1,358		—	—		—		48,566		1,358

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	31	$	120,638	$	1,113	9	$	3,290	$	13	$	123,928	$	1,126	Total Available-for-Sale Fixed Maturities	88	$	313,466	$	7,020	10	$	31,602	$	758	$	345,068	$	7,778

The unrealized losses on our investments in available-for-sale fixed maturities were the result of interest rate movements. 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.

~~Tabl~~e Table of Contents

December 31, 2019 Less than 12 months 12 months or longer Total
Type of Investment Number
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. Treasury 0 $ 0 $ 0 2 $ 4,733 $ 12 $ 4,733 $ 12
U.S. government agency 3 13,846 104 0 0 0 13,846 104
Corporate bonds
Financial services 3 10,906 142 1 4,913 88 15,819 230
Mortgage-backed securities 0 0 0 13 1,585 21 1,585 21
Collateralized mortgage obligations
Federal home loan mortgage corporation 12 50,829 183 3 4,844 37 55,673 220
Federal national mortgage association 4 23,515 90 3 1,102 18 24,617 108
Government national mortgage association 2 8,444 38 5 3,053 59 11,497 97
Total Available-for-Sale Fixed Maturities 24 $ 107,540 $ 557 27 $ 20,230 $ 235 $ 127,770 $ 792



December 31, 2020	Less than 12 months					12 months or longer					Total
Type of Investment	Number 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. Treasury	5	$	86,371	$	25	—	$	—	$	—	$	86,371	$	25












Foreign bonds	1	2,000		2		—	—		—		2,000		2






Technology, media and telecommunications	1	2,020		15		—	—		—		2,020		15
Financial services	1	2,995		5		1	3,000		7		5,995		12
Mortgage-backed securities	2	8,099		53		5	118		1		8,217		54
Collateralized mortgage obligations
Federal home loan mortgage corporation	24	97,691		758		1	26		—		97,717		758
Federal national mortgage association	10	44,677		683		—	—		—		44,677		683
Government national mortgage association	2	12,394		45		1	24		—		12,418		45


Total Available-for-Sale Fixed Maturities	46	$	256,247	$	1,586	8	$	3,168	$	8	$	259,415	$	1,594

~~Tabl~~e Table of Contents

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. When the pricing services cannot provide a determination of fair value for a specific security, we obtain non-binding price quotes from broker-dealers with whom we have had several years' experience and who have demonstrated knowledge of the subject security.

In order to determine the proper classification in the fair value hierarchy, we obtain and evaluate the vendors' pricing procedures and inputs used to price the security, which include unadjusted quoted market prices for identical securities, such as a New York Stock Exchange closing price, and quoted prices for identical securities in markets that are not active. For fixed maturity securities, an evaluation of interest rates and yield curves observable at commonly quoted intervals, volatility, prepayment speeds, credit risks and default rates may also be performed. We have determined that these processes and inputs result in fair values and classifications consistent with the applicable accounting guidance on fair value measurements.

When possible, we use quoted market prices to determine the fair value of fixed maturities, equity securities, trading securities and short-term investments. When quoted market prices do not exist, we base estimates of fair value on market information obtained from independent pricing services and brokers or on valuation techniques that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument. Our valuation techniques are discussed in more detail throughout this section.

The mortgage loan portfolio consists entirely of commercial mortgage loans. The fair value of our mortgage loans is determined by modeling performed by our third party fund manager based on the stated principal and coupon payments provided for in the loan agreements. These cash flows are then discounted using an appropriate risk-adjusted discount rate to determine the security's fair value.

~~Tabl~~e Table of Contents

Our other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. The fair value of the partnerships is obtained from the fund managers, which is based on the fair value of the underlying investments held in the partnerships. In management's opinion, these values represent a reasonable estimate of fair value. We have not adjusted the net asset value provided by the fund managers.

For cash and cash equivalents and accrued investment income, carrying value is a reasonable estimate of fair value due to the short-term nature of these financial instruments.

The Company formed a rabbi trust in 2014 to fund obligations under the United Fire & Casualty Company Supplemental Executive Retirement and Deferral Plan (the "Executive Retirement Plan"). Within the rabbi trust, corporate-owned life insurance ("COLI") policies are utilized as an investment vehicle and source of funding for the Company's Executive Retirement Plan. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of September 30, ~~2020,~~2021, the cash surrender value of the COLI policies was ~~$7,670,~~$10,067, which is equal to the fair value measured using Level 2 inputs, based on the underlying assets of the COLI policies, and is included in other assets in the Consolidated Balance Sheets.

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

A summary of the carrying value and estimated fair value of our financial instruments at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows:

September 30, 2020 December 31, 2019
Fair Value Carrying Value Fair Value Carrying Value
Assets
Investments
Fixed maturities:
Available-for-sale securities $ 1,717,047 $ 1,717,039 $ 1,719,607 $ 1,719,607
Trading securities 14,811 14,811 15,256 15,256
Equity securities 198,791 198,791 299,203 299,203
Mortgage loans 48,977 47,733 43,992 42,448
Other long-term investments 62,903 62,903 78,410 78,410
Short-term investments 175 175 175 175
Cash and cash equivalents 99,604 99,604 120,722 120,722
Corporate-owned life insurance 7,670 7,670 6,777 6,777


	September 30, 2021				December 31, 2020
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Available-for-sale securities	$	1,727,601	$	1,727,601	$	1,825,443	$	1,825,438

Equity securities	200,876		200,876		206,685		206,685
Mortgage loans	49,385		47,254		48,932		47,614
Other long-term investments	80,162		80,162		69,305		69,305
Short-term investments	175		175		175		175
Cash and cash equivalents	132,772		132,772		87,948		87,948
Corporate-owned life insurance	10,067		10,067		8,557		8,557
Liabilities
Long Term Debt	47,724		50,000		50,000		50,000

~~Tabl~~e Table of Contents

The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments at September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


September 30, 2020				Fair Value Measurements
September 30, 2021										September 30, 2021			Fair Value Measurements
Description	Description	Total		Level 1		Level 2		Level 3		Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE	AVAILABLE-FOR-SALE									AVAILABLE-FOR-SALE
Fixed maturities:	Fixed maturities:									Fixed maturities:
Bonds	Bonds									Bonds
U.S. Treasury	U.S. Treasury	$	54,599	$	0	$	54,599	$	0	U.S. Treasury	$	53,378	$	—	$	53,378	$	—
U.S. government agency	U.S. government agency	64,960		0		64,960		0		U.S. government agency	57,144		—		57,144		—
States, municipalities and political subdivisions	States, municipalities and political subdivisions									States, municipalities and political subdivisions
General obligations	General obligations									General obligations
Midwest	Midwest	83,978		0		83,978		0		Midwest	71,710		—		71,710		—
Northeast	Northeast	30,550		0		30,550		0		Northeast	27,373		—		27,373		—
South	South	110,585		0		110,585		0		South	96,287		—		96,287		—
West	West	109,947		0		109,947		0		West	100,571		—		100,571		—
Special revenue	Special revenue									Special revenue
Midwest	Midwest	134,841		0		134,841		0		Midwest	126,273		—		126,273		—
Northeast	Northeast	62,844		0		62,844		0		Northeast	60,012		—		60,012		—
South	South	238,350		0		238,350		0		South	216,556		—		216,556		—
West	West	143,102		0		143,102		0		West	135,828		—		135,828		—
Foreign bonds	Foreign bonds	28,018		0		28,018		0		Foreign bonds	31,164		—		31,164		—
Public utilities	Public utilities	84,302		0		84,302		0		Public utilities	100,805		—		100,805		—
Corporate bonds	Corporate bonds									Corporate bonds
Energy	Energy	27,501		0		27,501		0		Energy	30,258		—		30,258		—
Industrials	Industrials	43,057		0		43,057		0		Industrials	54,743		—		54,743		—
Consumer goods and services	Consumer goods and services	49,028		0		49,028		0		Consumer goods and services	62,274		—		62,274		—
Health care	Health care	7,569		0		7,569		0		Health care	27,493		—		27,493		—
Technology, media and telecommunications	Technology, media and telecommunications	41,571		0		41,571		0		Technology, media and telecommunications	56,388		—		56,388		—
Financial services	Financial services	102,459		0		102,209		250		Financial services	95,428		—		95,278		150
Mortgage-backed securities	Mortgage-backed securities	14,529		0		14,529		0		Mortgage-backed securities	22,373		—		22,373		—
Collateralized mortgage obligations	Collateralized mortgage obligations									Collateralized mortgage obligations
Government national mortgage association	Government national mortgage association	77,197		0		77,197		0		Government national mortgage association	117,256		—		117,256		—
Federal home loan mortgage corporation	Federal home loan mortgage corporation	121,676		0		121,676		0		Federal home loan mortgage corporation	126,962		—		126,962		—
Federal national mortgage association	Federal national mortgage association	85,449		0		85,449		0		Federal national mortgage association	56,417		—		56,417		—
Asset-backed securities	Asset-backed securities	935		0		0		935		Asset-backed securities	908		—		—		908

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	$	1,717,047	$	0	$	1,715,862	$	1,185	Total Available-for-Sale Fixed Maturities	$	1,727,601	$	—	$	1,726,543	$	1,058
TRADING
Fixed maturities:
Bonds

Corporate bonds

Industrials		$	2,004	$	0	$	2,004	$	0
Consumer goods and services		1,171		0		1,171		0
Health care		4,965		0		4,965		0

Financial services		1,622		0		1,622		0

EQUITY SECURITIES										EQUITY SECURITIES
Common stocks										Common stocks
Public utilities										Public utilities	$	16,550	$	16,550	$	—	$	—
Energy										Energy	14,296		14,296		—		—
Industrials										Industrials	36,464		36,464		—		—
Consumer goods and services										Consumer goods and services	48,311		48,311		—		—
Health care										Health care	12,584		12,584		—		—
Technology, media and telecommunications										Technology, media and telecommunications	28,651		28,651		—		—

~~Tabl~~e Table of Contents

Redeemable preferred stocks 5,049 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
Energy 8,833 8,833 0 0
Industrials 30,935 30,935 0 0
Consumer goods and services 31,432 31,432 0 0
Health care 24,646 24,646 0 0
Technology, media and telecommunications 16,003 16,003 0 0
Financial services 63,957 63,957 0 0
Nonredeemable preferred stocks 6,641 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, 2019 Fair Value Measurements
Description Total Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury $ 69,491 $ 0 $ 69,491 $ 0
U.S. government agency 100,202 0 100,202 0
States, municipalities and political subdivisions
General obligations
Midwest 88,594 0 88,594 0
Northeast 31,270 0 31,270 0
South 115,203 0 115,203 0
West 110,317 0 110,317 0
Special revenue
Midwest 139,892 0 139,892 0
Northeast 61,543 0 61,543 0
South 234,666 0 234,666 0
West 144,844 0 144,844 0
Foreign bonds 5,117 0 5,117 0
Public utilities 63,651 0 63,651 0
Corporate bonds
Energy 30,124 0 30,124 0
Industrials 54,015 0 54,015 0
Consumer goods and services 49,466 0 49,466 0
Health care 9,480 0 9,480 0


Financial services	43,425		43,425		—		—
Nonredeemable preferred stocks	595		—		—		595
Total Equity Securities	$	200,876	$	200,281	$	—	$	595
Short-Term Investments	$	175	$	175	$	—	$	—
Money Market Accounts	$	20,555	$	20,555	$	—	$	—
Corporate-Owned Life Insurance	$	10,067	$	—	$	10,067	$	—
Total Assets Measured at Fair Value	$	1,959,274	$	221,011	$	1,736,610	$	1,653


December 31, 2020			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	149,938	$	—	$	149,938	$	—
U.S. government agency	64,518		—		64,518		—
States, municipalities and political subdivisions
General obligations
Midwest	81,980		—		81,980		—
Northeast	30,450		—		30,450		—
South	109,970		—		109,970		—
West	110,021		—		110,021		—
Special revenue
Midwest	125,098		—		125,098		—
Northeast	61,076		—		61,076		—
South	226,706		—		226,706		—
West	139,399		—		139,399		—
Foreign bonds	29,602		—		29,602		—
Public utilities	83,502		—		83,502		—
Corporate bonds
Energy	25,336		—		25,336		—
Industrials	43,257		—		43,257		—
Consumer goods and services	50,567		—		50,567		—
Health care	7,576		—		7,576		—
Technology, media and telecommunications	41,636		—		41,636		—
Financial services	101,031		—		100,781		250
Mortgage-backed securities	20,577		—		20,577		—
Collateralized mortgage obligations
Government national mortgage association	86,152		—		86,152		—
Federal home loan mortgage corporation	152,843		—		152,843		—
Federal national mortgage association	83,282		—		83,282		—
Asset-backed securities	926		—		—		926

Total Available-for-Sale Fixed Maturities	$	1,825,443	$	—	$	1,824,267	$	1,176

































EQUITY SECURITIES

~~Tabl~~e Table of Contents

Technology, media and telecommunications 27,670 0 27,670 0
Financial services 100,253 0 100,003 250
Mortgage-backed securities 6,356 0 6,356 0
Collateralized mortgage obligations
Government national mortgage association 80,356 0 80,356 0
Federal home loan mortgage corporation 124,502 0 124,502 0
Federal national mortgage association 71,845 0 71,845 0
Asset-backed securities 750 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 care 4,701 0 4,701 0
Technology, media and telecommunications 1,732 0 1,732 0
Financial services 2,460 0 2,460 0
Redeemable preferred stocks 4,087 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
Energy 14,639 14,639 0 0
Industrials 57,330 57,330 0 0
Consumer goods and services 29,935 29,935 0 0
Health care 27,285 27,285 0 0
Technology, media and telecommunications 19,265 19,265 0 0
Financial services 127,780 127,780 0 0
Nonredeemable preferred stocks 6,674 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


Common stocks
Public utilities	$	16,320	$	16,320	$	—	$	—
Energy	9,918		9,918		—		—
Industrials	36,556		36,556		—		—
Consumer goods and services	32,061		32,061		—		—
Health care	24,549		24,549		—		—
Technology, media and telecommunications	17,109		17,109		—		—
Financial services	69,577		69,577		—		—
Nonredeemable preferred stocks	595		—		—		595
Total Equity Securities	$	206,685	$	206,090	$	—	$	595
Short-Term Investments	$	175	$	175	$	—	$	—
Money Market Accounts	$	24,790	$	24,790	$	—	$	—
Corporate-Owned Life Insurance	$	8,557	$	—	$	8,557	$	—
Total Assets Measured at Fair Value	$	2,065,650	$	231,055	$	1,832,824	$	1,771

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

~~Tabl~~e ~~of Contents~~

quality, duration, geographical concentration or economic characteristics. For our mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, our service providers use additional market inputs to value these securities, including the following: new issue data, periodic payment information, monthly payment information, collateral performance and real estate analysis from third parties. Our service providers prioritize inputs based on market conditions, and not all inputs listed are available for use in the valuation process for each security on any given day.

At least annually, we review the methodologies and assumptions used by our valuation service providers and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. In addition, on a quarterly basis, we also test all securities in the portfolio and independently corroborate the valuations obtained from our third-party valuation service providers. Quarterly, we also perform deep dive analysis of the pricing method used by our third-party valuation service provider by selecting a random sample of securities by asset class and reviewing methodologies. In our opinion, the pricing obtained at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 was reasonable.

For the three- and nine-month periods ended September 30, ~~2020,~~2021, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals and the change in unrealized gains on both fixed maturities and equity securities.

Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity securities for which an active market does not currently exist. The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2 securities. However, securities are categorized as Level 3 if these quotes cannot be corroborated by other market observable data due to the unobservable nature of the brokers’ valuation processes.

Table of Contents

The following table provides a quantitative information about our Level 3 securities at September 30, ~~2020:~~2021:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at

Valuation Technique(s)

Unobservable inputs

Range of weighted average significant unobservable inputs

September 30, ~~2020~~2021

Corporate bonds - financial services

~~250~~150

Fair value equals cost

Fixed Maturities asset-backed securities

~~935~~908

Discounted cash flow

Probability of default

4% - 6%

Nonredeemable preferred stocks

595

Discounted cash flow

Multiplier

3x - 4x

~~During the three- and nine-month periods ended September 30, 2020, there were no securities transferred in or out of Level 3.~~

The following table provides a summary of the changes in fair value of our Level 3 securities for the three-month period ended September 30, ~~2020:~~2021:

Corporate bonds Asset-backed securities Equities Total
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


	Corporate bonds		Asset-backed securities		Equities		Total
Balance at July 1, 2021	$	150	$	891	$	595	$	1,636

Net unrealized gains (losses)(1)	—		17		—		17





Balance at September 30, 2021	$	150	$	908	$	595	$	1,653

(1) Net unrealized gains (losses) are recorded as a component of comprehensive income.

~~Tabl~~e ~~of Contents~~

The following table provides a summary of the changes in fair value of our Level 3 securities for the nine-month period ended September 30, ~~2020:~~2021:

Corporate bonds Asset-backed securities Equities Total
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


	Corporate bonds		Asset-backed securities		Equities		Total
Balance at January 1, 2021	$	250	$	926	$	595	$	1,771

Net unrealized gains (losses)(1)	—		(18)		—		(18)




Transfers out	(100)		—		—		(100)
Balance at September 30, 2021	$	150	$	908	$	595	$	1,653

(1) Net unrealized gains (losses) are recorded as a component of comprehensive income.

Commercial Mortgage Loans

The following tables present the carrying value of our commercial mortgage loans and additional information at September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


Commercial Mortgage Loans	Commercial Mortgage Loans					Commercial Mortgage Loans
		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Loan-to-value	Loan-to-value	Carrying Value		Carrying Value		Loan-to-value	Carrying Value		Carrying Value
Less than 65%	Less than 65%	$	30,467	$	34,024	Less than 65%	$	30,035	$	30,361
65%-75%	65%-75%	17,342		8,496		65%-75%	17,290		17,329
Total amortized cost	Total amortized cost	$	47,809	$	42,520	Total amortized cost	$	47,325	$	47,690
Allowance for mortgage loan losses	Allowance for mortgage loan losses	(76)		(72)		Allowance for mortgage loan losses	(71)		(76)
Mortgage loans, net	Mortgage loans, net	$	47,733	$	42,448	Mortgage loans, net	$	47,254	$	47,614

Mortgage Loans by Region
September 30, 2020 December 31, 2019
Carrying Value Percent of Total Carrying Value Percent of Total
East North Central $ 3,245 6.8 % $ 3,245 7.6 %
Southern Atlantic 9,794 20.5 7,026 16.5
East South Central 8,238 17.2 8,358 19.7
New England 6,588 13.8 6,588 15.5
Middle Atlantic 14,971 31.3 15,076 35.5
Mountain 2,227 4.6 2,227 5.2
West North Central 2,746 5.8 0 0
Total mortgage loans at amortized cost $ 47,809 100.0 % $ 42,520 100.0 %

~~Tabl~~e Table of Contents

Mortgage Loans by Property Type
September 30, 2020 December 31, 2019
Carrying Value Percent of Total Carrying Value Percent of Total
Commercial
Multifamily $ 17,051 35.6 % $ 11,741 27.6 %
Office 11,932 25.0 11,848 27.9
Industrial 10,124 21.2 10,124 23.8
Retail 2,227 4.7 2,227 5.2
Mixed use/Other 6,475 13.5 6,580 15.5
Total mortgage loans at amortized cost $ 47,809 100.0 % $ 42,520 100.0 %

Amortized Cost Basis by Year of Origination and Credit Quality Indicator
2020 2019 2018 Total
Commercial mortgage loans:
Risk Rating:
1-2 internal grade $ 5,551 $ 8,404 $ 18,770 $ 32,725
3-4 internal grade 0 8,496 6,588 15,084
5 internal grade 0 0 0 0
6 internal grade 0 0 0 0
7 internal grade 0 0 0 0
Total commercial mortgage loans $ 5,551 $ 16,900 $ 25,358 $ 47,809
Current-period write-offs 0 — — —
Current-period recoveries 0 — — —
Current-period net write-offs $ 0 $ — $ — $ —


Mortgage Loans by Region
	September 30, 2021				December 31, 2020
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
East North Central	$	3,245	6.9	%	$	3,245	6.8	%
Southern Atlantic	9,622		20.3		9,752		20.5
East South Central	8,071		17.1		8,197		17.2
New England	6,588		13.9		6,588		13.8
Middle Atlantic	14,826		31.3		14,936		31.2
Mountain	2,227		4.7		2,227		4.7
West North Central	2,746		5.8		2,745		5.8
Total mortgage loans at amortized cost	$	47,325	100.0	%	$	47,690	100.0	%


Mortgage Loans by Property Type
	September 30, 2021				December 31, 2020
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Commercial
Multifamily	$	16,999	35.9	%	$	17,038	35.7	%
Office	11,645		24.6		11,861		24.9
Industrial	10,124		21.4		10,124		21.2
Retail	2,227		4.7		2,227		4.7
Mixed use/Other	6,330		13.4		6,440		13.5
Total mortgage loans at amortized cost	$	47,325	100.0	%	$	47,690	100.0	%


Amortized Cost Basis by Year of Origination and Credit Quality Indicator
	2021		2020		2019		2018		Total
Commercial mortgage loans:
Risk Rating:
1-2 internal grade	$	—	$	5,495	$	8,356	$	18,390	$	32,241
3-4 internal grade	—		—		8,496		6,588		15,084
5 internal grade	—		—		—		—		—
6 internal grade	—		—		—		—		—
7 internal grade	—		—		—		—		—
Total commercial mortgage loans	$	—	$	5,495	$	16,852	$	24,978	$	47,325
Current-period write-offs	—		—		—		—		—
Current-period recoveries	—		—		—		—		—
Current-period net write-offs	$	—	$	—	$	—	$	—	$	—

Commercial mortgage loans carrying value excludes accrued interest of ~~$167.~~$166. As of September 30, ~~2020,~~2021, all loan receivables were current, with no delinquencies. The commercial mortgage loans originate with an initial loan-to-value ratio to provide sufficient collateral to absorb losses should a loan be required to foreclose. Mortgage loans are evaluated on a quarterly basis for impairment on an individual basis through a monitoring process and review of key credit indicators, such as economic trends, delinquency rates, property valuations, occupancy and rental rates and loan-to-value ratios. A loan is considered impaired when the Company believes it will not collect the contractual principal and interest set forth in the contractual terms of the loan. An internal grade is assigned to each mortgage loan, with a grade of 1 being the highest and least likely for an impairment and the lowest rating of 7 being the most

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likely for an impairment. An allowance for mortgage loan losses is established on each loan recognizing a loss for amounts which we believe will not be collected according to the contractual terms of the respective loan agreement. As of September 30, ~~2020,~~2021, the Company had an allowance for mortgage loan losses of ~~$76,~~$71, summarized in the following rollforward:

~~Tabl~~e ~~of Contents~~


Rollforward of allowance for mortgage loan losses:
	As of
	September 30, ~~2020~~2021
Beginning balance, January 1, ~~2020~~2021	$	7276
Current-period provision for expected credit losses	4 (5)
~~Write-off charged against the allowance, if any~~	0
~~Recoveries of amounts previously written off, if any~~	0
Ending balance of the allowance for mortgage loan losses, September 30, ~~2020~~2021	$	7671

~~Tabl~~e Table of Contents

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.

~~Tabl~~e Table of Contents

The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 (net of reinsurance amounts):



		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Gross liability for losses and loss settlement expenses at beginning of year	Gross liability for losses and loss settlement expenses at beginning of year	$	1,421,754	$	1,312,483	Gross liability for losses and loss settlement expenses at beginning of year	$	1,578,131	$	1,421,754
Ceded losses and loss settlement expenses	Ceded losses and loss settlement expenses	(68,536)		(57,094)		Ceded losses and loss settlement expenses	(131,843)		(68,536)
Net liability for losses and loss settlement expenses at beginning of year	Net liability for losses and loss settlement expenses at beginning of year	$	1,353,218	$	1,255,389	Net liability for losses and loss settlement expenses at beginning of year	$	1,446,288	$	1,353,218
Losses and loss settlement expenses incurred for claims occurring during	Losses and loss settlement expenses incurred for claims occurring during					Losses and loss settlement expenses incurred for claims occurring during
Current year	Current year	$	656,207	$	835,507	Current year	$	560,080	$	887,119
Prior years	Prior years	(30,038)		(5,335)		Prior years	(26,099)		(17,652)
Total incurred	Total incurred	$	626,169	$	830,172	Total incurred	$	533,981	$	869,467
Losses and loss settlement expense payments for claims occurring during	Losses and loss settlement expense payments for claims occurring during					Losses and loss settlement expense payments for claims occurring during
Current year	Current year	$	263,898	$	333,975	Current year	$	204,056	$	354,635
Prior years	Prior years	330,190		398,368		Prior years	318,573		421,762
Total paid	Total paid	$	594,088	$	732,343	Total paid	$	522,629	$	776,397
Net liability for losses and loss settlement expenses at end of year	Net liability for losses and loss settlement expenses at end of year	$	1,385,299	$	1,353,218	Net liability for losses and loss settlement expenses at end of year	$	1,457,641	$	1,446,288
Ceded loss and loss settlement expenses	Ceded loss and loss settlement expenses	169,784		68,536		Ceded loss and loss settlement expenses	110,009		131,843
Gross liability for losses and loss settlement expenses at end of period	Gross liability for losses and loss settlement expenses at end of period	$	1,555,083	$	1,421,754	Gross liability for losses and loss settlement expenses at end of period	$	1,567,650	$	1,578,131

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 monetary impact of any individual factor on the development of reserves.

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.

~~Tabl~~e Table of Contents

Reserve Development

~~For~~The significant drivers of the ~~three-month period ended September 30, 2020, the majority of~~ favorable reserve 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. Forin the nine-month period ended September 30, ~~2020~~2021 were the ~~majority of favorable development came from~~commercial automobile, workers' compensation, commercial fire and ~~commercial~~allied and personal fire and allied lines of ~~business. This favorable development was~~business, partially offset by unfavorable development ~~of the assumed reinsurance and~~in commercial ~~auto lines of business. All other lines combined contributed a relatively modest amount of overall~~liability. The 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~~automobile was ~~primarily~~ from loss adjustment expense ("LAE") where reductions in reserves ~~for reported claims~~

~~which~~ were more than sufficient to offset paid ~~loss.~~LAE. Workers' compensation favorable development came from both loss and LAE. Reserve reductions for both items were more than sufficient to offset payments. The favorable development for commercial fire and allied lines was from LAE where reductions in reserves were more than sufficient to offset paid LAE. The favorable development for personal fire and allied lines came from both loss and LAE. Reserve reductions for both items were more than sufficient to offset payments. The unfavorable development for commercial liability is ~~due~~attributed 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~~which was greater than the ~~nine-month period ended September 30, 2019 the~~

~~majority~~reductions of ~~favorable development came from workers' compensation, which~~unpaid claim reserves; paid LAE was more than offset by ~~unfavorable~~reductions of reserves for unpaid LAE.

The significant drivers of the favorable reserve development for the full year of 2020 were the workers' compensation, commercial ~~liability.~~fire and allied lines, fidelity and surety and personal automobile lines of business 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~~Reductions in reserves for IBNR claims also contributed favorable development in addition to LAE where reductions in reserves were more than sufficient to offset payments. Commercial fire and allied lines developed favorably because reductions in reserves for reported claims combined with reductions in reserves for IBNR claims were more than sufficient to offset paid loss. LAE also contributed favorable development with reductions in reserves more than sufficient to offset payments. Fidelity and surety loss developed favorably because a reduction in reserves for IBNR claims was more than sufficient to offset both paid loss and increases in reserves for reported claims. The

personal automobile line of business developed favorably because reductions of reserves for reported claims combined with reductions of reserves for IBNR claims were more than sufficient to offset paid loss. LAE also contributed favorable development with reductions in reserves more than sufficient to offset payments. Much of the favorable development was offset by unfavorable development from three lines of business, with the largest contributions coming from commercial liability, reinsurance assumed and commercial automobile. The commercial liability line of business experienced unfavorable development due to paid loss which was greater than reductions in reserves for unpaid loss. LAE developed favorably and partially offset the unfavorable loss development. The unfavorable development for ~~commercial liability is~~reinsurance assumed was due to paid ~~losses and an increase~~loss which was greater than reductions in reserves for unpaid loss. The commercial automobile line of business experienced unfavorable development because paid loss was greater than reductions in reserves for unpaid loss, but a portion of the unfavorable loss development was offset by favorable development from LAE where payments were more than offset by reductions of reserves for unpaid loss adjustment ~~expenses.~~

~~All other~~expense. On an all lines combined ~~contributed additional overall~~basis, favorable development ~~during this nine-month period.~~is attributable to LAE, which continues to benefit from additional litigation management efforts.

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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 Plan				Postretirement Benefit Plan					Pension Plan				Postretirement Benefit Plan
Three Months Ended September 30,	Three Months Ended September 30,	2020		2019		2020		2019		Three Months Ended September 30,	2021		2020		2021		2020

Net periodic benefit cost	Net periodic benefit cost									Net periodic benefit cost
Service cost	Service cost	$	2,707	$	1,997	$	432	$	456	Service cost	$	3,020	$	2,707	$	—	$	432
Interest cost	Interest cost	2,066		2,080		253		319		Interest cost	1,728		2,066		1		253
Expected return on plan assets	Expected return on plan assets	(3,385)		(2,696)		0		0		Expected return on plan assets	(4,202)		(3,385)		—		—
Amortization of prior service credit	Amortization of prior service credit	0		0		(2,021)		(2,221)		Amortization of prior service credit	(809)		—		(3,765)		(2,021)
Amortization of net loss	Amortization of net loss	979		901		94		224		Amortization of net loss	999		979		705		94
Special event plan closure										Special event plan closure	—		—		—		—
Net periodic benefit cost	Net periodic benefit cost	$	2,367	$	2,282	$	(1,242)	$	(1,222)	Net periodic benefit cost	$	736	$	2,367	$	(3,059)	$	(1,242)


		Pension Plan				Postretirement Benefit Plan					Pension Plan				Postretirement Benefit Plan
Nine Months Ended September 30,	Nine Months Ended September 30,	2020		2019		2020		2019		Nine Months Ended September 30,	2021		2020		2021		2020

Net periodic benefit cost	Net periodic benefit cost									Net periodic benefit cost
Service cost	Service cost	$	8,122	$	5,991	$	1,296	$	1,368	Service cost	$	9,060	$	8,122	$	148	$	1,296
Interest cost	Interest cost	6,199		6,240		760		956		Interest cost	5,184		6,199		71		760
Expected return on plan assets	Expected return on plan assets	(10,154)		(8,088)		0		0		Expected return on plan assets	(12,606)		(10,154)		—		—
Amortization of prior service credit	Amortization of prior service credit	0		—		(6,063)		(6,463)		Amortization of prior service credit	(2,427)		—		(10,725)		(6,063)
Amortization of net loss	Amortization of net loss	2,936		2,703		282		671		Amortization of net loss	2,997		2,936		1,902		282
Special event plan closure										Special event plan closure	—		—		(20,177)		—
Net periodic benefit cost	Net periodic benefit cost	$	7,103	$	6,846	$	(3,725)	$	(3,468)	Net periodic benefit cost	$	2,208	$	7,103	$	(28,781)	$	(3,725)

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."

In January 2021, the Company decided to change the post-retirement benefit plan to a voluntary plan funded exclusively by participants, commencing at the start of 2023. The impact of this decision is reflected in the table above, with a one-time adjustment presented in the line "Special event plan closure" and an additional adjustment in the line "Amortization of prior service credit" recorded in first quarter of 2021. There will be continuing amortization of prior service credits through the end of 2022 related to these plan changes.

Employer Contributions

We previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 that we ~~expected~~originally planned to contribute $10,000 to the pension plan in ~~2020.~~2021. The Company has revised the expected contributions to $5,000 in 2021 because of the funded status of the plan. For the nine-month period ended September 30, ~~2020,~~2021, we contributed ~~$10,000~~$5,000 to the pension ~~plan.~~plan, completing our expected contributions for the year.

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NOTE 6. STOCK-BASED COMPENSATION

Non-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 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. In May 2021, the Registrant's shareholders approved an additional 650,000 shares of UFG common stock issuable at any time and from time to time pursuant to the Stock Plan, and among other amendments, renamed such plan as the United Fire Group, Inc. 2021 Stock and Incentive Plan (as amended, the "Stock Plan"). At September 30, ~~2020,~~2021, there were ~~704,760~~1,245,573 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

~~Tabl~~e ~~of Contents~~

Stock Plan. Pursuant to the Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our ~~employees.~~employees, who are in positions of substantial responsibility with United Fire.

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. Options granted prior to March 2017 vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. Options granted after March 2017 vest and are exercisable in installments of 33.3 percent of the number of shares covered by 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 3three years or 5five years from the date of 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 Grants	Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2020	From Inception to September 30, 2020	Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2021	From Inception to September 30, 2021
Beginning balance	Beginning balance	834,910	1,900,000	Beginning balance	700,680	1,900,000
Additional shares authorized	Additional shares authorized	0	1,500,000	Additional shares authorized	650,000	2,150,000
Number of awards granted	Number of awards granted	(165,024)	(3,281,445)	Number of awards granted	(161,857)	(3,450,756)
Number of awards forfeited or expired	Number of awards forfeited or expired	34,874	586,205	Number of awards forfeited or expired	56,750	646,329
Ending balance	Ending balance	704,760	704,760	Ending balance	1,245,573	1,245,573
Number of option awards exercised	Number of option awards exercised	7,200	1,450,389	Number of option awards exercised	7,884	1,481,973
Number of unrestricted stock awards granted	Number of unrestricted stock awards granted	0	10,090	Number of unrestricted stock awards granted	—	10,090
Number of restricted stock awards vested	Number of restricted stock awards vested	63,600	164,378	Number of restricted stock awards vested	52,302	216,680

Non-Qualified Non-Employee Director Stock Plan

The 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 "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)~~(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

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(iv) rename the Director Stock Plan as the "United Fire Group, Inc. Non-Employee Director Stock Plan." At September 30, ~~2020,~~2021, the Company had ~~160,135~~144,352 authorized shares available for future issuance.

The Board of Directors has the authority to determine which non-employee directors receive awards, when restricted stock, restricted stock units and options 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, restricted stock or restricted stock unit agreements (subject to limits set forth in the 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.

~~Tabl~~e ~~of Contents~~

The activity in the Director Stock Plan is displayed in the following table:


Authorized Shares Available for Future Award Grants	Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2020	From Inception to September 30, 2020	Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2021	From Inception to September 30, 2021
Beginning balance	Beginning balance	34,863	300,000	Beginning balance	160,135	300,000
Additional authorization	Additional authorization	150,000	150,000	Additional authorization	—	150,000
Number of awards granted	Number of awards granted	(24,728)	(313,868)	Number of awards granted	(18,510)	(332,378)
Number of awards forfeited or expired	Number of awards forfeited or expired	0	24,003	Number of awards forfeited or expired	2,727	26,730
Ending balance	Ending balance	160,135	160,135	Ending balance	144,352	144,352
Number of option awards exercised	Number of option awards exercised	14,183	133,275	Number of option awards exercised	8,181	142,001
Number of restricted stock awards vested	Number of restricted stock awards vested	14,300	98,491	Number of restricted stock awards vested	—	98,491

Stock-Based Compensation Expense

For the three-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, we recognized stock-based compensation expense of $~~1,052~~959 and ~~$1,203,~~$1,052, respectively. For the nine-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, we recognized stock-based compensation expense of $3,074 and $3,979, ~~and $5,248,~~ respectively. ~~Stock-based compensation expense is recognized over the vesting period of the stock options.~~

As of September 30, ~~2020,~~2021, we had ~~$5,004~~$4,977 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 ~~2020~~2021 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

2021	2021	2,584		2021	$	973
2022	2022	1,056		2022	2,402
2023	2023	211		2023	1,339
2024	2024	82		2024	251
2025	2025	11		2025	12
Total	Total	$	5,004	Total	$	4,977

NOTE 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

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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.

~~Tabl~~e ~~of Contents~~

The components of basic and diluted earnings per share were as follows for the three-month periods ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,									Three Months Ended September 30,
(In Thousands, Except Share Data)	(In Thousands, Except Share Data)	2020				2019				(In Thousands, Except Share Data)	2021				2020
		Basic		Diluted		Basic		Diluted			Basic		Diluted		Basic		Diluted
Net income (loss)	Net income (loss)	$	(37,241)	$	(37,241)	$	(2,342)	$	(2,342)	Net income (loss)	$	(9,593)	$	(9,593)	$	(37,241)	$	(37,241)
Weighted-average common shares outstanding	Weighted-average common shares outstanding	25,031,234		25,031,234		25,176,334		25,176,334		Weighted-average common shares outstanding	25,092,167		25,092,167		25,031,234		25,031,234
Add dilutive effect of restricted stock unit awards	Add dilutive effect of restricted stock unit awards	—		0		—		0		Add dilutive effect of restricted stock unit awards	—		—		—		—
Add dilutive effect of stock options	Add dilutive effect of stock options	—		0		—		0		Add dilutive effect of stock options	—		—		—		—
Weighted-average common shares outstanding	Weighted-average common shares outstanding	25,031,234		25,031,234		25,176,334		25,176,334		Weighted-average common shares outstanding	25,092,167		25,092,167		25,031,234		25,031,234
Earnings (loss) per common share	Earnings (loss) per common share	$	(1.49)	$	(1.49)	$	(0.09)	$	(0.09)	Earnings (loss) per common share	$	(0.38)	$	(0.38)	$	(1.49)	$	(1.49)
Awards excluded from diluted earnings per share calculation(1)	Awards excluded from diluted earnings per share calculation(1)	—		820,124		—		63,897		Awards excluded from diluted earnings per share calculation(1)	—		865,966		—		820,124

(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.

~~The components of basic and diluted earnings per share were as follows for the nine-month periods ended September 30, 2020 and 2019:~~

Nine Months Ended September 30,
(In Thousands, Except Share Data) 2020 2019
Basic Diluted Basic Diluted
Net income (loss) $ (103,815) $ (103,815) $ 37,983 $ 37,983
Weighted-average common shares outstanding 25,023,401 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 outstanding 25,023,401 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


	Nine Months Ended September 30,
(In Thousands, Except Share Data)	2021				2020
	Basic		Diluted		Basic		Diluted
Net income (loss)	$	22,859	$	22,859	$	(103,815)	$	(103,815)
Weighted-average common shares outstanding	25,095,733		25,095,733		25,023,401		25,023,401
Add dilutive effect of restricted stock unit awards	—		216,527		—		—
Add dilutive effect of stock options	—		115,058		—		—
Weighted-average common shares outstanding	25,095,733		25,427,318		25,023,401		25,023,401
Earnings (loss) per common share	$	0.91	$	0.90	$	(4.15)	$	(4.15)
Awards excluded from diluted earnings per share calculation(1)	—		674,921		—		515,984

~~(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 8. ~~CREDIT FACILITY~~DEBT

Long Term Debt

The Company executed a private placement debt transaction on December 15, 2020 between UF&C, and Federated Mutual and Federated Life.

Interest payments under the surplus notes will be paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date, as set forth in the table below. For the three- and nine-month

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periods ended September 30, 2021, interest expense totaled $797 and $2,391 , respectively. Payment of interest is subject to approval by the Iowa Insurance Division.


A.M. Best Co. Financial Strength Rating			Applicable Interest Rate
A+			5.875%
A			6.375%
A-			6.875%
B++ (or lower)			7.375%

Credit Facilities

On March 31, 2020, ~~United Fire & Casualty Company (the "Borrower"),~~UF&C, a wholly owned subsidiary of the Company, entered into a credit agreement (the ~~"New Credit~~"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~~UF&C 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.

~~Tabl~~e ~~of Contents~~

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, 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 the Previous Credit Agreement 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 provided for a $50,000 four-year unsecured revolving credit facility that included a $20,000 letter of credit subfacility and a swingline subfacility in the amount up to $5,000. The Previous Credit Agreement allowed the Company to increase the aggregate amount of the commitments thereunder by up to $100,000, provided that no event of default had occurred and was continuing and certain other conditions were satisfied. The Previous Credit Agreement was 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 was due and payable in full at maturity on February 2, 2020. Based on the type of loan, advances under the Previous Credit Agreement bore interest on either the London Interbank Offered Rate ("LIBOR") or a base rate plus, in each case, a calculated margin amount.

There was 0no outstanding balance on ~~either~~ the ~~New Credit Agreement or the Previous~~ Credit Agreement at September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the nine-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, we did 0tnot incur any interest expense related to ~~either~~the credit facility. We were in compliance with all covenants ofunder the ~~New~~ Credit Agreement at September 30, ~~2020.~~2021.

NOTE 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, ~~2020:~~2021:


				Liability for							Liability for
		Net unrealized		underfunded					Net unrealized		underfunded
		appreciation		employee					appreciation		employee
		on investments		benefit costs(1)		Total			on investments		benefit costs(1)		Total
Balance as of June 30, 2020		79,283		(32,433)		$	46,850
Balance as of June 30, 2021								Balance as of June 30, 2021	67,005		(11,377)		$	55,628
Change in accumulated other comprehensive income before reclassifications	Change in accumulated other comprehensive income before reclassifications	3,252		0		3,252		Change in accumulated other comprehensive income before reclassifications	(9,661)		(2,975)		(12,636)
Reclassification adjustments from accumulated other comprehensive income (loss)	Reclassification adjustments from accumulated other comprehensive income (loss)	(43)		848		805		Reclassification adjustments from accumulated other comprehensive income (loss)	(167)		1,254		1,087
Balance as of September 30, 2020		$	82,492	$	(31,585)	$	50,907
Balance as of September 30, 2021								Balance as of September 30, 2021	$	57,177	$	(13,098)	$	44,079

(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.

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~~Tabl~~e ~~of Contents~~

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, ~~2020:~~2021:


				Liability for							Liability for
		Net unrealized		underfunded					Net unrealized		underfunded
		appreciation		employee					appreciation		employee
		on investments		benefit costs(1)		Total			on investments		benefit costs(1)		Total
Balance as of January 1, 2020		47,279		(34,127)		$	13,152
Balance as of January 1, 2021								Balance as of January 1, 2021	83,070		(16,159)		$	66,911
Change in accumulated other comprehensive income before reclassifications	Change in accumulated other comprehensive income before reclassifications	35,223		0		35,223		Change in accumulated other comprehensive income before reclassifications	(26,252)		(810)		(27,062)
Reclassification adjustments from accumulated other comprehensive income (loss)	Reclassification adjustments from accumulated other comprehensive income (loss)	(10)		2,542		2,532		Reclassification adjustments from accumulated other comprehensive income (loss)	359		3,871		4,230
Balance as of September 30, 2020		$	82,492	$	(31,585)	$	50,907
Balance as of September 30, 2021								Balance as of September 30, 2021	$	57,177	$	(13,098)	$	44,079

NOTE 10. LEASES

The Company has operating leases consisting of office space, vehicle leases, computer equipment, and office equipment. Lease terms and options vary in the 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 of September 30, ~~2020,~~2021, we have leases with remaining terms of 1one year to 7seven years, some of which may include no options for renewal and others with options to extend the lease terms from 6six months to 5five years.

The components of our operating leases were as follows for the three- and nine-month periods ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020

Components of lease expense:	Components of lease expense:									Components of lease expense:
Operating lease expense	Operating lease expense	$	1,832	$	1,910	$	5,788	$	5,730	Operating lease expense	$	1,748	$	1,832	$	5,297	$	5,788
Less sublease income	Less sublease income	53		119		239		371		Less sublease income	53		53		160		239
Net lease expense	Net lease expense	1,779		1,791		5,549		5,359		Net lease expense	1,695		1,779		5,137		5,549
Cash flows information related to leases:	Cash flows information related to leases:									Cash flows information related to leases:
Operating cash outflow from operating leases	Operating cash outflow from operating leases	1,796		1,812		5,265		5,420		Operating cash outflow from operating leases	1,714		1,796		5,192		5,265

~~Tabl~~e Table of Contents

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 on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with 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, ~~2019.~~2020. There have been no changes in our critical accounting policies from December 31, ~~2019.~~2020.

INTRODUCTION

The purpose of this Management's Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial condition. Our Management's Discussion and Analysis should be read in conjunction with our Consolidated 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, ~~2019.~~2020. 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 in 4850 states plus the District of Columbia and are represented by approximately 1,000 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, underwriting and other operating expenses.

Reportable Segments

~~Subsequent to the announcement of the sale of the life~~Our property and casualty insurance business ~~on September 19, 2017, we have operated~~operates and ~~report~~reports as one business segment. For more information, refer to Part I, Item 1, Note 1. "Nature of Operations and Basis of Presentation."

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Lloyd's Syndicates

~~Tabl~~e As of ~~Contents~~January 1, 2021, the Company became a member of Lloyd's of London ("Lloyd's"). As a member of Lloyd's, the Company is required to maintain capital at Lloyd's, referred to as Funds at Lloyd's ("FAL"), to support underwriting of property and casualty and reinsurance business by Syndicate 1492, Syndicate 1729, Syndicate 1969, Syndicate 1971 and Syndicate 4747. At September 30, 2021, the Company's FAL investments were comprised of cash of $21.3

million on deposit with Lloyd's in order to satisfy these FAL requirements.

Personal Lines Business

In 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 receipt of applicable regulatory approvals.

As part of this agreement, Nationwide ~~will offer~~has offered contracts to ~~all~~many of our personal lines agents across the country, with the exception of agents in Louisiana. In Louisiana, ~~and Florida. We are continuing to evaluate our strategic plan for the~~we began non-renewing all personal lines ~~business~~policies in ~~Louisiana and Florida.~~

January 2021. Nationwide ~~will provide~~has been offering replacement policies to most of our personal lines policyholders at the time of renewal. ~~However, recently Nationwide has identified~~There are 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 agreement. It was not initiated as a result of market conditions from the COVID-19 pandemic.

~~The Company recognized other income of $6.3 million before tax during 2020 as a result of the personal lines renewal rights agreement with Nationwide Mutual Insurance Company.~~

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, ~~2020, approximately~~ 2021, approximatel~~50.4~~y 50.8 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri, and 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

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adjust our operations in response. We ~~are developing a~~have finalized our return to workplace plan for our employees, ~~but have not~~

~~Tabl~~e ~~of Contents~~

~~finalized plans as~~which gives employees the option to work fully remote, a hybrid schedule or return to the workplace 100 percent of the ~~date~~time depending on the position and with manager approval. On July 19, 2021, we implemented our plan with a certain portion of our employees returning to the workplace and then subsequently paused our plan due to the spread of the delta variant strain of COVID-19 in August 2021. At this ~~report. Our~~time, our plan is to continue to pause our return to the 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.~~through December 31, 2021.

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, including the emergence of variant strains, 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~~draw on our credit facility if ~~needed, but we have not yet had the need to do so.~~needed. See Part 1, Item 1, Note 8 ~~"Credit Facility"~~"Debt" 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 theOur share repurchase program ~~has been~~was suspended ~~since~~in mid-March ~~2020.~~2020 and restarted in the first quarter of 2021. Also, the Company maintained the ~~same level~~payment of quarterly cash ~~dividend payments of $0.33 per share~~dividends during 2020 and 2021, with the ~~third~~dividends paid in September 2021 marking the 214th consecutive quarter of ~~2020 as were paid in each of the first and second quarters of 2020.~~paying dividends since March 1968.

Stockholders' equity decreased to ~~$820.3~~$814.5 million at September 30, ~~2020,~~2021, from ~~$910.5~~$825.1 million at December 31, ~~2019.~~2020. This decrease ~~was~~ is primarily ~~attributed~~attributable to a ~~net loss of $103.8 million,~~ shareholder dividends of ~~$24.8~~$11.3 million and ~~share repurchases of $2.7 million, partially offset by an increase~~a decrease in net unrealized investment gains on fixed maturity securities of ~~$35.2~~$25.9 million, net of tax, partially offset by net income of $22.9 million, during the first nine months ~~ended September 30, 2020.~~of 2021.

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.

~~Tabl~~e ~~of Contents~~

As of September 30, ~~2020,~~2021, 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,~~2021, 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 certain sectors of the 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.~~partnerships, however those sectors have now recovered as of September 30, 2021. The Company's investment philosophy, objectives, approach and program have not changed as a result of the COVID-19 pandemic. During the ~~three-month~~nine-month period ended September 30, ~~2020~~2021 we had a recovery in the fair value of equity securities of ~~$22.0~~$20.5 million and ~~a decrease~~an increase in value of our investments in limited liability partnerships of ~~$4.7~~$10.8 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.~~2020.

The Company has a highly rated fixed maturity portfolio, with low credit risk. The Company recognized ana decrease in unrealized ~~gain~~gains of ~~$35.2~~$25.9 million, net of tax, at September 30, ~~2020~~2021 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

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be recorded for each of these assets on our balance sheet as of September 30, ~~2020.~~2021. For more information on credit losses recognized in the three- and nine-month periods ended September 30, ~~2020,~~2021, please refer to the ~~Notes~~Note 1 and Note 2 to Unaudited Consolidated Financial Statements of this Form 10-Q.

~~Tabl~~e Table of Contents

FINANCIAL HIGHLIGHTS


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,
(In Thousands, Except Ratios)	(In Thousands, Except Ratios)	2020			2019			%		2020			2019			%		(In Thousands, Except Ratios)	2021			2020			%		2021			2020			%
Revenues	Revenues																	Revenues
Net premiums earned	Net premiums earned	$	259,061		$	274,942		(5.8)	%	$	791,519		$	813,742		(2.7)	%	Net premiums earned	$	238,909		$	259,061		(7.8)	%	$	722,837		$	791,519		(8.7)	%
Investment income, net of investment expenses	Investment income, net of investment expenses	7,244			13,291			(45.5)		22,303			43,923			(49.2)		Investment income, net of investment expenses	11,571			7,244			59.7		42,447			22,303			90.3

Net realized investment gains (losses)	Net realized investment gains (losses)	15,212			9,822			54.9		(62,416)			50,126			(224.5)		Net realized investment gains (losses)	(2,269)			15,212			(114.9)		28,243			(62,416)			(145.2)
Other income	Other income	604			—			NM		6,323			—			NM		Other income	332			604			(45.0)		163			6,323			(97.4)
Total revenues	Total revenues	$	282,121		$	298,055		(5.3)	%	$	757,729		$	907,791		(16.5)	%	Total revenues	$	248,543		$	282,121		(11.9)	%	$	793,690		$	757,729		4.7	%

Benefits, Losses and Expenses	Benefits, Losses and Expenses																	Benefits, Losses and Expenses
Losses and loss settlement expenses	Losses and loss settlement expenses	$	234,693		$	211,752		10.8	%	$	626,169		$	596,001		5.1	%	Losses and loss settlement expenses	$	175,444		$	234,693		(25.2)	%	$	533,981		$	626,169		(14.7)	%
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	52,095			54,828			(5.0)		158,440			161,842			(2.1)		Amortization of deferred policy acquisition costs	51,261			52,095			(1.6)		150,533			158,440			(5.0)
Other underwriting expenses	Other underwriting expenses	35,470			36,003			(1.5)		114,020			104,370			9.2		Other underwriting expenses	35,468			35,470			—		82,236			114,020			(27.9)
Interest expense																		Interest expense	797			—			NM		2,391			—			NM
Goodwill impairment	Goodwill impairment	15,091			—			NM		15,091			—			NM		Goodwill impairment	—			15,091			NM		—			15,091			NM
Total benefits, losses and expenses	Total benefits, losses and expenses	$	337,349		$	302,583		11.5	%	$	913,720		$	862,213		6.0	%	Total benefits, losses and expenses	$	262,970		$	337,349		(22.0)	%	$	769,141		$	913,720		(15.8)	%

Income (loss) before income taxes	Income (loss) before income taxes	$	(55,228)		$	(4,528)		NM		$	(155,991)		$	45,578		NM		Income (loss) before income taxes	$	(14,427)		$	(55,228)		(73.9)	%	$	24,549		$	(155,991)		(115.7)
Federal income tax expense (benefit)	Federal income tax expense (benefit)	(17,987)			(2,186)			NM		(52,176)			7,595			NM		Federal income tax expense (benefit)	(4,834)			(17,987)			(73.1)		1,690			(52,176)			(103.2)
Net income (loss)	Net income (loss)	$	(37,241)		$	(2,342)		NM		$	(103,815)		$	37,983		NM		Net income (loss)	$	(9,593)		$	(37,241)		(74.2)		$	22,859		$	(103,815)		(122.0)	%

GAAP Ratios:	GAAP Ratios:																	GAAP Ratios:
Net loss ratio (without catastrophes)	Net loss ratio (without catastrophes)	69.2		%	70.0		%	(1.1)	%	63.8		%	67.8		%	(5.9)	%	Net loss ratio (without catastrophes)	56.9		%	69.2		%	(17.8)	%	61.4		%	63.8		%	(3.8)	%
Catastrophes - effect on net loss ratio	Catastrophes - effect on net loss ratio	21.4			7.0			205.7		15.3			5.5			178.2		Catastrophes - effect on net loss ratio	16.5			21.4			(22.9)		12.5			15.3			(18.3)
Net loss ratio(1)	Net loss ratio(1)	90.6		%	77.0		%	17.7	%	79.1		%	73.3		%	7.9	%	Net loss ratio(1)	73.4		%	90.6		%	(19.0)	%	73.9		%	79.1		%	(6.6)	%
Expense ratio(2)	Expense ratio(2)	33.8			33.0			2.4		34.4			32.7			5.2		Expense ratio(2)	36.3			33.8			7.4		32.2			34.4			(6.4)
Combined ratio(3)	Combined ratio(3)	124.4		%	110.0		%	13.1	%	113.5		%	106.0		%	7.1	%	Combined ratio(3)	109.7		%	124.4		%	(11.8)	%	106.1		%	113.5		%	(6.5)	%

(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 other 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 for the three- and nine-month periods ended September 30, ~~2020:~~2021:

RESULTS OF OPERATIONS

For the three-month period ended September 30, ~~2020, the~~2021, net loss was ~~$37.2~~$9.6 million compared to a net loss of ~~$2.3~~$37.2 million for the same period of ~~2019. In~~2020. The decrease in the ~~three-month~~net loss reported in third quarter of 2021 as compared to third quarter of 2020 was due to lower losses and loss settlement expenses and higher net investment income partially offset by a decrease in net premiums earned and net realized investment losses in third quarter of 2021 compared to net realized investment gains in third quarter of 2020.

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For the nine-month period ended September 30, ~~2020, the increase in~~2021, net income was $22.9 million compared to a net loss of $103.8 million for the ~~net loss~~same period of 2020. The change was primarily due to an increase in ~~losses and loss settlement expenses, namely~~net realized investment gains from ~~catastrophe losses, and decrease in net premiums earned.~~

For the nine-month period ended September 30, 2020, the net loss was $103.8 million compared to net income of $38.0 million for the same period of 2019. In the nine-month period ended September 30, 2020, t~~he decrease in net~~

~~Tabl~~e ~~of Contents~~

~~income was primarily due to a decrease~~an increase in the fair value of equity securities as compared to net realized investment losses for the same period of 2020, a decrease in losses and loss settlement expenses, a decrease in other underwriting expenses and an increase in net investment ~~income,~~income. These were partially offset by a decrease in net premiums ~~earned and increases~~earned.

The third quarter of 2020, also included a one-time adjustment to write off goodwill of $15.1 million. This goodwill related to the acquisition of Mercer Insurance Group, Inc. in ~~losses and loss settlement expenses.~~2011.

Net premiums earned decreased ~~5.8~~7.8 percent and ~~2.7~~8.7 percent during the three- and nine-month periods ended September 30, ~~2020, respectively,~~2021 compared to the same periods of ~~2019.~~2020, respectively. The decrease in ~~both~~ the three- and nine-month periods ended September 30, ~~2020~~ 2021 was primarily due 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~~business and our ~~reinsurance program as a result~~exit 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 initiativespersonal lines business which began 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 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.

Net investment income was ~~$7.2~~$11.6 million for the third quarter of ~~2020~~2021 as compared to net investment income of ~~$13.3~~$7.2 million for the same period in ~~2019. Year-to date,~~2020. Year-to-date, net investment income was ~~$22.3~~$42.4 million compared to net investment income of ~~$43.9~~$22.3 million for the same period in ~~2019.~~ 2020. The ~~decrease~~increase in net investment income in ~~both~~the three- and nine-month periods ~~in 2020 as compared to the same periods in 2019~~ ended September 30, 2021 was due to ~~a combination of a decrease~~an increase in the fair value of our investments in limited liability partnerships ~~and an overall decrease~~ in ~~invested assets.~~the first nine months of 2021 as compared to the same periods in 2020. The valuation of these investments in limited liability partnerships varies from period to period due to the current equity market conditions, ~~specificall~~yspecifically related to financial institutions.

The Company recognized net realized investment ~~gains~~losses of ~~$15.2~~$2.3 million during the third quarter of ~~2020,~~2021, compared to net realized investment gains of ~~$9.8~~$15.2 million for the same period in ~~2019. Year-to-date,~~2020. Year to date, the Company recognized net realized investment gains of $28.2 million during the third quarter of 2021, compared to net realized investment losses of $62.4 million ~~compared to net realized gains of $50.1 million in~~for the same period in ~~2019.~~2020. The change in the three- and nine-month periods ended September 30, ~~2020~~2021, as compared to the same periods in ~~2019~~2020, 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~~decreased by ~~10.8~~25.2 percentage points and ~~by 5.1~~14.7 percent percentage points during the three- and nine-month periods ended September 30, ~~2020,~~2021, respectively, compared to the same periods ~~of 2019.~~in 2020. ~~The increase~~For the three- and nine-month periods ended September 30, 2021, the decrease in losses and loss settlement expenses was primarily ~~was~~ due to ~~an increase~~a decrease in catastrophe losses ~~as compared to the same period in 2019.~~and frequency and severity of commercial auto liability losses.

The GAAP combined ratio ~~increased~~decreased by ~~14.4~~14.7 percentage points to ~~124.4~~109.7 percent for the third quarter of ~~2020,~~2021, compared to ~~110.0~~124.4 percent in the same period in ~~2019.~~2020. For the nine-month period ended September 30, ~~2020, the GAAP~~ 2021, combined ratio ~~increased 7.5~~decreased by 7.4 percentage points to ~~113.5~~106.1 percent compared to ~~106.0 percent for~~113.5 percentage points in the same period in 2020. For the nine-month period ended September 30, ~~2019. The increase~~2021, the decrease in the combined ratio was primarily driven by ~~an increase~~a decrease in the net loss ratio.

The GAAP net loss ratio ~~deteriorated 13.6~~decreased 17.2 percentage points and ~~5.8~~5.2 percentage points ~~respectively,~~ during three- and nine-month periods ended September 30, ~~2020~~2021 as compared to the same periods in ~~2019.~~2020. The ~~increase~~decrease in the net loss ratio during the three- and nine-month periods ended September 30, 2021 as compared to the same periods in 2020 was primarily due to ~~an increase~~comparatively lower catastrophe losses and a decrease in ~~catastrophe~~the frequency and severity of commercial auto liability losses.

Pre-tax catastrophe losses in the third quarter of ~~2020~~2021 were ~~higher~~lower when compared to third quarter of ~~2019~~2020, with catastrophe losses adding ~~21.4~~16.5 percentage points to the combined ratio in ~~2020~~2021 as compared to ~~7.0~~21.4 percentage points in ~~2019. During~~2020. Year-to-date, pre-tax catastrophe losses were 12.5 percentage points as compared to 15.3 percentage points during the same period in 2020. The most significant catastrophe losses in the third quarter of 2021 were from Hurricane Ida on our commercial and personal lines of business and from the European floods on our reinsurance assumed line of business. In the third quarter of 2020, the ~~Company incurred losses from 25 catastrophe events, with the~~ most significant catastrophe losses were from the August

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Midwest derecho and Hurricane Laura. Our 10-year historical average for third quarter catastrophe losses is ~~8.9~~9.2 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.~~

~~Tabl~~e ~~of Contents~~

The expense ratio for the third quarter of ~~2020~~2021 was ~~33.8~~36.3 percent compared to ~~33.0~~33.8 percent for the third quarter in ~~2019.~~ 2020.Year-to-date, the expense ratio was ~~34.4~~32.2 percent compared to ~~32.7~~34.4 percent inas compared to the same period in ~~2019.~~2020. The increase in the third quarter of 2021 was primarily due to improved performance in our book of business resulting in additions to profit sharing for our agents, employees, and program business. The decrease in the underwriting expense ratio ~~during the three- and nine-month periods ended September 30, 2020~~year-to-date as compared to the same periods in ~~2019 is~~2020 was primarily due to the change in the design of our ~~continued investment~~employee post-retirement benefit plans and a decrease in ~~technology, including~~the acceleration of the amortization of our ~~multi-year Oasis project, an upgrade~~deferred acquisition costs due to improved profitability in our ~~technology platform designed to enhance core underwriting decisions, selection~~commercial auto line of ~~risks and productivity.~~business.

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.

2021 Development

The property and casualty insurance business experienced $11.1 million and $26.0 million of favorable development in our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2021, respectively. For the three-month period ended September 30, 2021 the majority of favorable development was from commercial auto with $11.0 favorable development followed by commercial fire and allied lines with $4.1 million favorable development. The favorable development was partially offset by $7.1 million of unfavorable development in commercial liability. All other lines of insurance, in total, contributed $3.1 million of favorable development during the quarter. The favorable development for commercial fire and allied lines was from both loss and loss adjustment expense ("LAE") where reductions in reserves were more than sufficient to offset payments. The favorable development for commercial automobile was from LAE where reductions in reserves were more than sufficient to offset paid LAE. The unfavorable development for commercial liability was from loss where reductions in loss reserves were not sufficient to offset paid loss.

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For the nine-month period ended September 30, 2021 the majority of favorable development was from commercial automobile with $21.5 million favorable development, followed by workers' compensation with $7.7 million favorable development, commercial fire and allied lines with $5.6 million favorable development, and personal fire and allied lines with $4.0 million favorable development. Partially offsetting this was unfavorable development was contributed primarily by commercial liability with $17.1 million of unfavorable development. All other lines of insurance, in total, contributed $4.3 million of favorable development. The favorable development for commercial automobile was from LAE where reductions in reserves were more than sufficient to offset paid LAE. Workers' compensation favorable development came from both loss and LAE; reserve reductions for both items were more than sufficient to offset payments. The favorable development for commercial fire and allied lines was from LAE where reductions in reserves were more than sufficient to offset paid LAE. The favorable development for personal fire and allied lines came from both loss and LAE; reserve reductions for both items were more than sufficient to offset payments. The unfavorable development for commercial liability is attributed to paid loss which was greater than the reductions of unpaid claim reserves; paid loss adjustment expense was more than offset by reductions of reserves for unpaid LAE.

2020 Development

The property and casualty insurance business experienced $6.3 million and $30.0 million of favorable development in our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2020, respectively. For the three-month period ended September 30, 2020, the majority of favorable development was from the combination of workers' compensation with $5.6 million favorable development and commercial liability with $5.5 million favorable development. Partially offsetting favorable development was commercial automobile with $2.2 million of unfavorable development and reinsurance assumed with $1.6 million of unfavorable development. The favorable development 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 combination 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~~LAE was more than offset by reductions of reserves for unpaid ~~loss adjustment expense.~~LAE. All other lines of insurance, in total, contributed $1.0 million of unfavorable development during the third quarter of 2020.

For the nine-month period ended September 30, 2020 the majority of favorable development was from workers' compensation with $21.6 million favorable development, followed by commercial fire and allied lines which contributed $12.6 million of favorable development. Partially offsetting favorable development was reinsurance assumed with $4.4 million of unfavorable development and commercial automobile with $2.1 million of unfavorable

~~Tabl~~e ~~of Contents~~

development. The 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, 2019 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. The favorable development for workers' compensation was~~

~~primarily from reductions in reserves for reported claims which were more than sufficient 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 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~~

~~to paid losses. All other lines of 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, ~~2020,~~2021, our total reserves were within our actuarial estimates.

~~Tabl~~e Table of Contents

The following tables display our net premiums earned, net losses and loss settlement expenses and net loss ratio by line of business:


Three Months Ended September 30,	Three Months Ended September 30,	2020						2019						Three Months Ended September 30,	2021						2020
				Net Losses						Net Losses							Net Losses						Net Losses
				and Loss						and Loss							and Loss						and Loss
		Net		Settlement		Net		Net		Settlement		Net			Net		Settlement		Net		Net		Settlement		Net
(In Thousands, Except Ratios)	(In Thousands, Except Ratios)	Premiums		Expenses		Loss		Premiums		Expenses		Loss		(In Thousands, Except Ratios)	Premiums		Expenses		Loss		Premiums		Expenses		Loss
Unaudited	Unaudited	Earned		Incurred		Ratio		Earned		Incurred		Ratio		Unaudited	Earned		Incurred		Ratio		Earned		Incurred		Ratio
Commercial lines	Commercial lines													Commercial lines
Other liability	Other liability	$	78,302	$	45,111	57.6	%	$	80,421	$	50,656	63.0	%	Other liability	$	75,559	$	47,416	62.8	%	$	78,302	$	45,111	57.6	%
Fire and allied lines	Fire and allied lines	59,267		52,436		88.5		61,628		49,628		80.5		Fire and allied lines	60,457		44,855		74.2		59,267		52,436		88.5
Automobile	Automobile	73,403		82,675		112.6		80,574		85,227		105.8		Automobile	60,991		42,034		68.9		73,403		82,675		112.6
Workers' compensation	Workers' compensation	19,245		10,250		53.3		22,041		3,076		14.0		Workers' compensation	15,183		11,265		74.2		19,245		10,250		53.3
Fidelity and surety	Fidelity and surety	7,356		(128)		(1.7)		6,755		1,437		21.3		Fidelity and surety	7,939		909		11.4		7,356		(128)		(1.7)
Miscellaneous	Miscellaneous	378		78		20.6		428		63		14.7		Miscellaneous	323		176		54.5		378		78		20.6
Total commercial lines	Total commercial lines	$	237,951	$	190,422	80.0	%	$	251,847	$	190,087	75.5	%	Total commercial lines	$	220,452	$	146,655	66.5	%	$	237,951	$	190,422	80.0	%

Personal lines	Personal lines													Personal lines
Fire and allied lines	Fire and allied lines	$	5,144	$	29,451	NM		$	10,370	$	13,469	129.9	%	Fire and allied lines	$	2,559	$	11,382	NM		$	5,144	$	29,451	NM
Automobile	Automobile	7,055		8,322		118.0		7,870		6,946		88.3		Automobile	734		343		46.7		7,055		8,322		118.0
Miscellaneous	Miscellaneous	295		(97)		(32.9)		312		(130)		(41.7)		Miscellaneous	50		(9)		(18.0)		295		(97)		(32.9)
Total personal lines	Total personal lines	$	12,494	$	37,676	NM		$	18,552	$	20,285	109.3	%	Total personal lines	$	3,343	$	11,716	NM		$	12,494	$	37,676	NM
Reinsurance assumed	Reinsurance assumed	$	8,616	$	6,595	76.5	%	$	4,543	$	1,380	30.4	%	Reinsurance assumed	$	15,114	$	17,073	113.0	%	$	8,616	$	6,595	76.5	%

Total	Total	$	259,061	$	234,693	90.6	%	$	274,942	$	211,752	77.0	%	Total	$	238,909	$	175,444	73.4	%	$	259,061	$	234,693	90.6	%

NM = Not meaningful

~~Tabl~~e Table of Contents

Nine Months Ended September 30, 2020 2019
Net Losses Net Losses
and Loss and Loss
Net Settlement Net Net Settlement Net
(In Thousands, Except Ratios) Premiums Expenses Loss Premiums Expenses Loss
Unaudited Earned Incurred Ratio Earned Incurred Ratio
Commercial lines
Other liability $ 235,018 $ 135,748 57.8 % $ 238,300 $ 146,513 61.5 %
Fire and allied lines 183,528 171,416 93.4 181,417 142,265 78.4
Automobile 225,103 205,994 91.5 234,280 225,564 96.3
Workers' compensation 57,873 24,205 41.8 66,537 18,399 27.7
Fidelity and surety 20,106 14 0.1 19,276 536 2.8
Miscellaneous 1,158 266 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 %
Automobile 22,203 15,935 71.8 23,050 19,422 84.3
Miscellaneous 905 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 %


Nine Months Ended September 30,	2021						2020
			Net Losses						Net Losses
			and Loss						and Loss
	Net		Settlement		Net		Net		Settlement		Net
(In Thousands, Except Ratios)	Premiums		Expenses		Loss		Premiums		Expenses		Loss
Unaudited	Earned		Incurred		Ratio		Earned		Incurred		Ratio
Commercial lines
Other liability	$	225,572	$	134,286	59.5	%	$	235,018	$	135,748	57.8	%
Fire and allied lines	177,066		150,032		84.7		183,528		171,416		93.4
Automobile	190,238		151,632		79.7		225,103		205,994		91.5
Workers' compensation	47,260		33,601		71.1		57,873		24,205		41.8
Fidelity and surety	22,436		3,000		13.4		20,106		14		0.1
Miscellaneous	1,007		174		17.3		1,158		266		23.0
Total commercial lines	$	663,579	$	472,725	71.2	%	$	722,786	$	537,643	74.4	%

Personal lines
Fire and allied lines	$	13,120	$	22,400	170.7	%	$	24,933	$	55,372	222.1	%
Automobile	7,069		5,904		83.5		22,203		15,935		71.8
Miscellaneous	337		(1,369)		NM		905		2,561		283.0
Total personal lines	$	20,526	$	26,935	131.2	%	$	48,041	$	73,868	153.8	%
Reinsurance assumed	$	38,732	$	34,321	88.6	%	$	20,692	$	14,658	70.8	%

Total	$	722,837	$	533,981	73.9	%	$	791,519	$	626,169	79.1	%

NM = Not meaningful

Below are explanations regarding significant changes in the net loss ratios by line of business:

•Commercial fire and allied lines - The net loss ratio improved 14.3 and 8.7 percentage points in the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020. The improvement is primarily due to lower comparable catastrophe losses in the three and nine-month periods ended September 30, 2021 as compared to the same periods of 2020 along with a decrease in LAE expenses.

•Commercial automobile - The net loss ratio improved 43.7 and 11.8 percentage points in the three and nine-month periods ended September 30, 2021, respectively, compared to the same periods of 2020. The improvement in the three and nine-month periods ended September 30, 2021 is a direct result of our strategic plan to improve the profitability of this line of business through non-renew underperforming commercial auto accounts and seeking rate increase, which has led to a reduction in claims frequency and severity and a decrease in the number of commercial auto exposure units.

•Workers' compensation - The net loss ratio deteriorated ~~8.0~~20.9 and ~~15.0~~29.3 percentage points in the ~~three-~~three and nine-month periods ended September 30, ~~2020,~~2021, respectively, compared to the same periods of 2020. The deterioration is primarily attributable to paid loss for large claims, which have been more severe in the three and nine-month periods ended September 30, 2021 as compared to the same periods ~~of 2019. The deterioration~~ in ~~both periods is attributable to an increase in catastrophe losses.~~

•~~Workers compensation -~~ ~~The net loss ratio deteriorated 39.3 and 14.1 percentage points in the three- and nine-month periods ended September 30, 2020, respectively,~~ as compared to the same periods of 2019. The deterioration is attributable to a few large claims. The current periods loss ratios are more in line with an average year vs. 2019 which had less than average losses.2020.

•Fidelity and surety - TheThe net loss ratio ~~improved 23.0~~deteriorated 13.1 and ~~2.7~~13.3 percentage points in the ~~three-~~three and nine-month periods ended September 30, ~~2020~~,2021, respectively, as compared to the same periods of ~~2019.~~2020. The ~~improvement~~deterioration is primarily attributable to paid loss for large claims and large claims that were reported during the first and second quarters of 2021 as compared to the absence of large ~~single~~ claims ~~in 2020 vs. the presence~~during 2020.

Table of ~~large claims in 2019.~~Contents

•Personal fire and allied lines - The net loss ratio ~~deteriorated significantly~~improved 127.7 and 51.4 percentage points in the ~~three-~~three and nine-month periods ended September 30, ~~2020~~,2021, respectively, compared to the same periods of 2020. The improvement is primarily due to lower comparable catastrophe losses in the three and nine-month periods ended September 30, 2021 as compared to the same periods of ~~2019. The deterioration in both periods is attributable to an increase in catastrophe losses.~~2020.

•~~Personal automobile~~- Th~~e net loss ratio deteriorated 29.7 and improved 12.5 percentage points in the three- and nine-month periods ended September 30, 2020, respectively,~~ as compared to the same periods of 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.

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•Reinsurance assumed - - The net loss ratio deteriorated 36.5 and 17.8 percentage points in the ~~three-~~three and nine-month periods ended September 30, ~~2020~~,2021, respectively, compared to the same periods of 2020. The deterioration is primarily due to higher catastrophe losses in the three and nine-month periods ended September 30, 2021 as compared to the same periods of ~~2019. The deterioration in both periods is due to an increase in loss reserves and assumed catastrophe losses in 2020 as compared to the same periods in 2019.~~2020.

Financial Condition

Stockholders' equity de~~decreased~~creased to ~~$820.3~~$814.5 million at September 30, ~~2020,~~2021, from ~~$910.5~~$825.1 million at December 31, ~~2019. This~~2020. The Company's book value per share was $32.48, which is a decrease of $0.45 per share, or 1.4 percent from December 31, 2020. ~~was~~The decrease is primarily ~~attributed~~attributable 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~~ decrease in net unrealized investment gains on fixed maturity securities of ~~$35.2~~$25.9 million, net of tax, and shareholder dividends of $11.3 million, partially offset by net income of $22.9 million during the first nine months ~~ended September 30, 2020.~~

~~The Company'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 as we suspended share repurchases in mid-March. During the nine-month period ended September 30, 2020, 70,467 shares of common stock were repurchased for a total of $2.7 million. Under our share repurchase program, which is scheduled to expire on August 31, 2022, we were authorized to repurchase an additional 1,786,977 shares of our common stock as of September 30, 2020.2021.

Investment Portfolio

Our invested assets totaled ~~$2.0~~$2.1 billion at September 30, ~~2020,~~2021, compared to ~~$2.2~~$2.1 billion at December 31, ~~2019,~~2020, a decrease of ~~$113.6~~$93.1 million. At September 30, ~~2020,~~2021, fixed maturity securities and equity securities made up ~~84.8 percent~~84.0 percent and ~~9.7~~9.8 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.

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 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, ~~2020~~2021 is presented at carrying value in the following table:


		Property & Casualty Insurance					Property & Casualty Insurance
				Percent						Percent
(In Thousands, Except Ratios)	(In Thousands, Except Ratios)			of Total		(In Thousands, Except Ratios)				of Total
Fixed maturities (1)	Fixed maturities (1)					Fixed maturities (1)
Available-for-sale	Available-for-sale	$	1,717,039	84.1	%	Available-for-sale	$	1,727,601		84.0	%
Trading securities		14,811		0.7

Equity securities	Equity securities	198,791		9.7		Equity securities	200,876			9.8
Mortgage loans	Mortgage loans	47,733		2.3		Mortgage loans	47,254			2.2
Other long-term investments	Other long-term investments	62,903		3.2		Other long-term investments	80,162			4.0
Short-term investments	Short-term investments	175		—		Short-term investments	175		��	—
Total	Total	$	2,041,452	100.0	%	Total	$	2,056,068		100.0	%

(1) Available-for-sale securities and trading fixed maturities are carried at fair value.

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At both September 30, 2020 and December 31, 2019, we classified $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 trading. 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, ~~2020~~2021 and December 31, ~~2019,~~2020, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.

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Credit Quality

The table below shows the composition of fixed maturity securities held in our available-for-sale and trading security portfolios, by credit rating at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. 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)	(In Thousands, Except Ratios)	September 30, 2020				December 31, 2019				(In Thousands, Except Ratios)	September 30, 2021				December 31, 2020
Rating	Rating	Carrying Value		% of Total		Carrying Value		% of Total		Rating	Carrying Value		% of Total		Carrying Value		% of Total
AAA	AAA	$	679,729	39.3	%	$	721,446	41.6	%	AAA	$	696,706	40.3	%	$	817,142	44.8	%
AA	AA	666,448		38.5		664,238		38.3		AA	602,097		34.9		639,011		35.0
A	A	187,467		10.8		179,553		10.3		A	198,812		11.5		182,011		10.0
Baa/BBB	Baa/BBB	184,209		10.6		157,350		9.1		Baa/BBB	217,423		12.6		172,078		9.4
Other/Not Rated	Other/Not Rated	13,997		0.8		12,276		0.7		Other/Not Rated	12,563		0.7		15,196		0.8
		$	1,731,850	100.0	%	$	1,734,863	100.0	%		$	1,727,601	100.0	%	$	1,825,438	100.0	%

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 we 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 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 ~~decreased by 45.5 percent and 49.2 percent, respectively,~~increased in the three- and nine-month periods ended September 30, ~~2020,~~2021, compared with the same period of ~~2019.~~2020 primarily due to the change in value of our investments in limited liability partnerships.

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, ~~2020,~~2021, the change in value of our investments in limited liability partnerships resulted in investment ~~losses~~income of $1.3 million and $10.8 million as compared to an investment income of $4.7 million and $13.8 million ~~respectively, as compared to an investment loss $0.7 million and income of $1.9 million, respectively,~~ in the same periods of ~~2019. This resulted in a decrease~~2020.

We had net realized investment losses of ~~$4.0~~$2.3 million and ~~a decrease~~net realized investment gains of ~~$15.7~~$28.2 million, respectively, ~~in investment income in~~during the three- and nine-month periods ended September 30, ~~2020.~~

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~~We had~~2021, as compared to net realized investment gains of $15.2 million and net realized investment losses of $62.4 million ~~respectively, during~~in the same periods of 2020. The change in the three- and nine-month periods ended September 30, ~~2020,~~2021 as compared to ~~net realized investment gains of $9.8 million and $50.1 million, respectively, in~~ the same periods ~~of 2019. The~~in 2020 was primarily due to 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. 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

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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.

Non-credit related changes in unrealized gains and losses on available-for-sale fixed maturity securities are recognized as a component of other comprehensive income, impact stockholders' equity and book value per share, but do not affect net income. We believe that any unrealized losses on our available-for-sale securities at September 30, ~~2020~~2021 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. 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.

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 expected losses and then layers on a 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 financial statements are reviewed for each loan to determine if it is performing in line with its expectations.

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, 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, 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. The majority of our assets are invested in available-for-sale fixed maturity securities.

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The following table displays a consolidated summary of cash sources and uses for the nine-month periods ended September 30, ~~2020~~2021 and ~~2019:~~2020:


Cash Flow Summary	Cash Flow Summary	Nine Months Ended September 30,				Cash Flow Summary	Nine Months Ended September 30,
(In Thousands)	(In Thousands)	2020		2019		(In Thousands)	2021		2020
Cash provided by (used in)	Cash provided by (used in)					Cash provided by (used in)
Operating activities	Operating activities	$	(12,868)	$	56,165	Operating activities	$	18,188	$	(12,868)
Investing activities	Investing activities	19,836		39,589		Investing activities	40,358		19,836
Financing activities	Financing activities	(28,086)		(30,500)		Financing activities	(13,722)		(28,086)
Net increase (decrease) in cash and cash equivalents		$	(21,118)	$	65,254
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	$	44,824	$	(21,118)

Our cash flows were sufficient to meet our liquidity needs for the nine-month periods ended September 30, ~~2020~~2021 and ~~2019~~2020 and we anticipate they will be sufficient to meet our future liquidity ~~needs. Our year-to-date cash flows provided by operations were negative due to an increase in catastrophe losses. Although there was a net decrease in cash and cash equivalents during~~needs for at least the ~~nine-months ended September 30, 2020, the Company had a cash balance of $99.6 million at September 30, 2020, which is more than sufficient to meet future liquidity needs.~~next twelve months. We also have the ability to ~~access~~draw on 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 optional 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 or 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.needed.

Operating Activities

Net cash flows ~~in operations~~from operating activities had inflows of $18.2 million and outflows of $12.9 million ~~and inflows of $56.2 million~~ for the nine-month periods ended September 30, 2021 and 2020, ~~and 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 discussion of our investments, including our philosophy and our strategy for our portfolio, see the "Investment Portfolio" section of this 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, $416.4~~years, $526.8 million, or ~~24.0~~30.5 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, ~~2020,~~2021, our cash and cash equivalents included ~~$54.6~~$20.6 million related to these money market accounts, compared to ~~$9.3~~$24.8 million at December 31, ~~2019.~~2020.

Net cash flows provided by investing activities were ~~$19.8 million and $39.6~~$40.4 million for the nine-month ~~periods~~period ended September 30, ~~2020 and 2019, respectively.~~2021, compared to net cash flows provided by investing activities of $19.8 million for the nine-month period ending September 30, 2020. For the nine-month periods ended September 30, 2021 and 2020, ~~and 2019,~~

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we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments of ~~$261.7~~$389.0 million and ~~$246.6~~$261.7 million, respectively.

Our cash outflows for investment purchases were ~~$226.4~~$337.7 million for the nine-month period ended September 30, ~~2020,~~2021, compared to ~~$179.2~~$226.4 million for the same period of ~~2019.~~2020.

Financing Activities

Net cash flows used in financing activities was ~~$28.1~~$13.7 million for the nine-month period ended September 30, ~~2020~~2021 which decreased ~~$2.4~~$14.4 million compared to ~~$30.5~~$28.1 million used in the nine-month period ended September 30, ~~2019.~~2020.

Credit Facilities

On March 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~~"Credit Agreement") with Wells Fargo Bank, National

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Association ("Wells Fargo"), as 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 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, ~~2020~~2021 and ~~2019,~~2020, there were no balances outstanding under the ~~New~~ Credit ~~Agreement or the Borrower's previous credit agreement (which matured on February 2, 2020).~~Agreement. For the nine-month period ended September 30, ~~2020~~2021 and ~~2019,~~2020, we did not incur any interest expense related to ~~either~~the credit facility. For further discussion of the ~~New~~ Credit Agreement, ~~and the Borrower's previous credit agreement,~~ refer to Part I, Item 1, Note 8 ~~"Credit Facility.~~"Debt."

Dividends

Dividends paid to shareholders totaled ~~$24.8~~$11.3 million and ~~$24.4~~$24.8 million in the nine-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, 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 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, we rely on dividends received from our insurance company subsidiaries in order to pay dividends to our 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 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, ~~2020,~~2021, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, is able to make a maximum of ~~$40.8~~$53.2 million in dividend payments without prior regulatory approval. We do not believe that these restrictions have a material impact in meeting the cash obligations of UFG.

Stockholders' Equity

Stockholders' equity ~~decreased 9.9 percent~~ decreased to ~~$820.3~~$814.5 million at September 30, ~~2020,~~2021, from ~~$910.5~~$825.1 million at December 31, ~~2019. At September 30, 2020, the~~2020. The Company's book value per share was $32.48, which is a decrease of ~~our common stock was $32.77 compared to $36.40 at~~$0.45 per share, or 1.4 percent, from December 31, ~~2019. This~~2020. The decrease ~~was~~ is primarily ~~attributed~~attributable to a ~~net loss of $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~~decrease in net unrealized investment gains on fixed maturity securities of ~~$35.2~~$25.9 million, net of tax, and shareholder dividends of $11.3 million, partially offset by net income of $22.9 million during the first nine months of ~~2020.~~

2021.

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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 July 10, 2030, to make capital contributions upon request of the partnership. Our remaining potential contractual obligation ~~was $10.3~~was $2.6 million atat September 30, ~~2020.~~2021.

In addition, the Company invested ~~$25,000~~$25.0 million in December 2019 in a limited liability partnership investment fund which is subject to a 3three year lockup with a 60 day minimum notice, with 4 possible repurchase dates per year after the 3three year lockup period is met. The fair value of the investment at September 30, ~~2020~~2021 was ~~$24.0~~$24.8 million and there are no remaining capital ~~contributions~~contribution obligations 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") 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 catastrophe 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 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)	(In Thousands)	2020		2019		2020		2019		(In Thousands)	2021		2020		2021		2020
ISO catastrophes	ISO catastrophes	$	54,878	$	18,549	$	121,089	$	41,643	ISO catastrophes	$	33,105	$	54,878	$	81,277	$	121,089
Non-ISO catastrophes (1)	Non-ISO catastrophes (1)	483		743		172		3,284		Non-ISO catastrophes (1)	6,361		483		9,049		172
Total catastrophes	Total catastrophes	$	55,361	$	19,292	$	121,261	$	44,927	Total catastrophes	$	39,466	$	55,361	$	90,326	$	121,261

(1) This number includes international assumed losses.

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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, ~~2020,~~2021, we did not have direct exposure to investments in sub-prime mortgages or other credit-enhancement exposures.

Our primary market risks are exposure to changes in interest rates and equity prices, and we have limited exposure to foreign currency exchange rates.

The decline and volatility 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 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 Form 10-Q for this quarter ended March 31, 2020 filed with the SEC on 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~~Interim Co-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~~Interim Co-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~~Interim Co-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. ~~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.~~

~~Tabl~~e Table of Contents

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, ~~2020~~2021 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial condition 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 Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the SEC on February ~~28, 2020, as updated in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 6, 2020.~~26, 2021. These risks 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, ~~2020:~~2021:

~~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~~

~~Period~~

~~Shares Purchased~~

~~Paid per Share~~

~~Plans 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~~


				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
Period	Shares Purchased	Paid per Share		Plans or Programs	Plans or Programs(1)
7/1/2021 - 7/31/2021	—	$	—	—	1,755,743
8/1/2021 - 8/31/2021	36,417	27.46		36,417	1,719,326
9/1/2021 - 9/30/2021	—	—		—	1,719,326
Total	36,417	$	27.46	36,417	1,719,326

(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, ~~2020,~~2021, we remained authorized to repurchase ~~1,786,977~~1,719,326 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.

~~Tabl~~e ~~of Contents~~

ITEM 5. OTHER INFORMATION

Table of Contents

None.

~~Tabl~~e Table of Contents

ITEM 6. EXHIBIT INDEX

Exhibit number

Exhibit description

Furnished herewith

Filed herewith

10.1

United Fire Group, Inc. 2021 Stock and Incentive Plan Performance-Based Restricted Stock Unit Award Notice

10.2

United Fire Group, Inc. 2021 Stock and Incentive Plan Option Award Notice

10.3

United Fire Group, Inc. 2021 Stock and Incentive Plan Restricted Stock Unit Award Notice

31.1

Certification of Randy A. Ramlo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of ~~Dawn M. Jaffray~~Randy L. Patten pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Randy A. Ramlo pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of ~~Dawn M. Jaffray~~Randy L. Patten pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1

The following financial information from United Fire Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, ~~2020~~2021 formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Consolidated Balance Sheets as of September 30, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the three- and nine -months ended September 30, ~~2020~~2021 and ~~2019~~2020; (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the three- and nine -months ended ~~Sepember~~September 30, ~~2020~~2021 and ~~2019~~2020; (iv) Consolidated Statements of Cash Flows (unaudited) for the three- and nine -months ended September 30, ~~2020~~2021 and ~~2019~~2020; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as a block of text.

104.1

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)

~~Tabl~~e Table of Contents

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 L. Patten
Randy A. Ramlo						~~Dawn M. Jaffray~~Randy L. Patten
President, Chief Executive Officer, Director and Principal Executive Officer						~~Executive~~Assistant Vice President, ~~Chief~~Interim Co-Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer


November 4, ~~2020~~2021						November 4, ~~2020~~2021
(Date)						(Date)


Redeemable preferred stocks	5,049		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
Energy	8,833		8,833		0		0
Industrials	30,935		30,935		0		0
Consumer goods and services	31,432		31,432		0		0
Health care	24,646		24,646		0		0
Technology, media and telecommunications	16,003		16,003		0		0
Financial services	63,957		63,957		0		0
Nonredeemable preferred stocks	6,641		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


Technology, media and telecommunications	27,670		0		27,670		0
Financial services	100,253		0		100,003		250
Mortgage-backed securities	6,356		0		6,356		0
Collateralized mortgage obligations
Government national mortgage association	80,356		0		80,356		0
Federal home loan mortgage corporation	124,502		0		124,502		0
Federal national mortgage association	71,845		0		71,845		0
Asset-backed securities	750		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 care	4,701		0		4,701		0
Technology, media and telecommunications	1,732		0		1,732		0
Financial services	2,460		0		2,460		0






Redeemable preferred stocks	4,087		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
Energy	14,639		14,639		0		0
Industrials	57,330		57,330		0		0
Consumer goods and services	29,935		29,935		0		0
Health care	27,285		27,285		0		0
Technology, media and telecommunications	19,265		19,265		0		0
Financial services	127,780		127,780		0		0
Nonredeemable preferred stocks	6,674		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