It is important to note that our actual results could differ materially from those projected in forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part I, Item 1A, “Risk Factors,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The terms ~~“United Fire,” “United Fire Group,~~“Company,” “we,” “us,” or “our” refer, as the context requires, to United Fire Group, Inc., United Fire & Casualty Company, United Fire Group, Inc. and its consolidated subsidiaries and affiliates, or to United Fire & Casualty Company and its consolidated subsidiaries and ~~affiliate, as the context requires.~~affiliates. We are engaged in the business of writing property and casualty insurance and life insurance and selling annuities. United Fire & Casualty Company was incorporated in Iowa in January 1946. Our principal executive office is located at 118 Second Avenue SE, P.O. Box 73909, , Cedar Rapids, Iowa 52407-3909. Telephone: 319-399-5700.

On February 1, 2012, we completed a holding company reorganization (the "Reoganization") of United Fire Group, Inc., United Fire & Casualty Company, and UFC MergeCo, Inc., an Iowa corporation formed for the purpose of facilitating the Reorganization. The Reorganization Agreement was approved and adopted by United Fire & Casualty Company stockholders at a special meeting of stockholders, held on January 24, 2012.

The Reorganization Agreement provided for the merger of United Fire & Casualty Company with UFC MergeCo, Inc., with United Fire & Casualty Company surviving the Merger as a wholly owned subsidiary of United Fire Group, Inc.. Each share of common stock, par value $3.33 1/3 per share, of United Fire & Casualty Company issued and outstanding immediately prior to the effective time of the Merger into one duly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of United Fire Group, Inc. At the time of completion of the Reorganization, the separate existence of UFC MergeCo, Inc. terminated. In addition, each outstanding option to purchase or other right to acquire shares of United Fire & Casualty Company Common Stock was automatically converted into an option to purchase or right to acquire, upon the same terms and conditions, an identical number of shares of United Fire Group, Inc. Common Stock.

Upon completion of the Reorganization, United Fire Group, Inc., an Iowa corporation, replaced United Fire & Casualty Company, an Iowa corporation, as the publicly held corporation, and the holders of United Fire & Casualty Company Common Stock now hold the same number of shares and same ownership percentage of United Fire Group, Inc. as they held of United Fire & Casualty Company immediately prior to the Reorganization. On February 2, 2012, shares of United Fire Group, Inc. Common Stock commenced trading on the NASDAQ Global Select Market under the symbol “UFCS.”

The directors and executive officers of United Fire Group, Inc. immediately following the Reorganization are the same individuals who were directors and executive officers, respectively, of United Fire & Casualty Company immediately prior to the Reorganization.

As of December 31, ~~2010~~2011, we employed ~~640~~868 full-time employees and 1426 part-time employees. We are not a party to any collective bargaining agreement.

We report our operations in two business segments: property and casualty insurance and life insurance. Our property and casualty insurance segment is comprised of commercial lines insurance, including surety bonds, personal lines insurance and assumed insurance. Our life insurance segment is comprised of deferred and immediate annuities, universal life insurance products and traditional life insurance products. in A table reflecting revenues, net income and assets attributable to our operating segments is included in Part II, Item 8, Note 1110 “Segment Information.” All intercompany balances have been eliminated in consolidation.

~~Our organizational structure is as follows:~~

Our life insurance segment consists solely of the operations of United Life Insurance Company.

United Fire Group provides free and timely access to all ~~company~~Company reports filed with the Securities and Exchange Commission (“SEC”) in the Investor Relations section of our website at www.unitedfiregroup.com. Select “SEC Filings” to view the list of filings, which includes:

Such reports are made available as ~~s oon~~soon as reasonably practicable after they are filed with or furnished to the SEC.

Our Code of Ethics is also available at www.unitedfiregroup.com in the Investor Relations section. To view it, select “Corporate Governance” and then “Code of Ethics.”

Free paper copies of any materials that we file with or furnish to the SEC can also be obtained by writing to Investor Relations, United Fire Group, Inc., P.O. Box 73909, Cedar Rapids, Iowa 52407-3909. In addition, you may read and copy any materials we file with or furnish to the SEC at the SEC Public Reference Room, 100 F Street, NE, Washington, D.C. 20549. For ~~obtaining~~more information on the operation of the SEC Public Reference Room, call the SEC at 1-800-SEC-0330.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

On ~~November 30, 2010,~~March 28, 2011, we ~~announced our entry into a definitive agreement to acquire~~acquired 100 percent of the outstanding common stock of Mercer Insurance Group ~~Inc. (“Mercer”)~~for $191.5 million; the acquisition was funded through a combination of cash and $79.9 million of short-term debt. Accordingly, the results of operations for Mercer Insurance Group have been included in ~~a transaction valued at approximately $191.0 million. The transaction is subject to customary conditions, including approval by~~ the ~~stockholders~~accompanying

Consolidated Financial Statements from that date forward. After the ~~transaction.~~

This transaction was accounted for under the ~~completion~~acquisition method using Mercer Insurance Group historical financial information and applying fair value estimates to the acquired assets, liabilities and commitments as of the ~~transaction, the combined company will be able~~acquisition date. For additional information related to ~~build on common conservative underwriting~~this acquisition, see Note 16 “Business Combinations” contained in Part II, Item 8, “Financial Statements and ~~investment cultures.~~Supplementary Data.”

Our organizational structure as of December 31, 2011 is as follows:

Our organizational structure as of February 1, 2012 is as follows:

We market our products through our home office in Cedar Rapids, Iowa, and ~~two~~four regional locations: Westminster, Colorado, a suburb of ~~Denver,~~Denver; Galveston, Texas; Pennington, New Jersey; and ~~Galveston, Texas.~~Rocklin, California.

We are licensed as a property and casualty insurer in 43 states, primarily in the Midwest, West and South, plus the District of Columbia. We have ~~796~~1,302 independent agencies representing us and our property and casualty insurance subsidiaries. In 2011, 2010 ~~2009~~ and ~~2008~~2009 the direct ~~statutory~~ premiums written ~~for~~by our property and casualty insurance operations were distributed as follows:

We staff our regional offices with underwriting, claims and marketing representatives and administrative technicians, all of whom provide support and assistance to the independent agencies. Also, home office staff technicians and specialists provide support to our subsidiaries, regional offices and independent agencies. We use management reports to monitor subsidiary and regional offices for overall results and conformity to our business policies.

Incorporated by reference from Note 10 “Segment Information” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

The property and casualty insurance industry is highly competitive. We ~~com pete~~compete with numerous property and casualty insurance companies in the regional and national market, many of which are substantially larger and have considerably greater financial and other resources. Except for regulatory considerations, there are limited barriers to entry into the insurance industry. Our competitors may be domestic or foreign, as well as licensed or unlicensed. The exact number of competitors within the industry is not known. Insurers compete on the basis of reliability, financial strength and stability, ratings, underwriting consistency, service, business ethics, price, performance, capacity, policy terms and coverage conditions.

In addition, because our products are marketed exclusively through independent insurance agencies, most of which represent more than one company, we face competition ~~wit hin~~within each ~~agency.~~agency and, competition to retain qualified independent agents. Our competitors include companies that market their products through agents, as well as companies that sell insurance directly to their customers.

Because we rely solely on independent agencies, we offer a competitive commissions program and a rewarding profit-sharing plan as incentives for agents to place high-quality property and casualty insurance business with us. We estimate property and casualty insurance agencies will receive profit-sharing payments of $~~7.0~~9.7 million in ~~2011~~2012, based on business produced by the agencies in ~~2010~~2011. In ~~2010~~2011 for ~~2009~~2010 business, agencies received $~~5.7~~7.0 million in profit-sharing payments and in ~~2009~~2010 for ~~2008~~2009 business, agencies received $~~7.4~~5.7 million in payments.

Our competitive advantages include our commitment to:

We also encounter significant competition in all lines of our life and fixed annuity business from other life insurance companies and other providers of financial services. Since our products are marketed exclusively through independent life insurance agencies that typically represent more than one company, we face competition within our agencies. Competitors include companies that market their products through agents, as well as companies that sell directly to their customers. Given the nature of the insurance industry, the exact number of competitors within the industry is not known.

To attract and maintain relationships with our independent life insurance agencies, we offer competitive commission rates and other sales incentives. Our life insurance segment achieves a competitive advantage by offering products that are simple and straightforward, by providing outstanding customer service, by being accessible to our agents and customers, and by using technology in a variety of ways to assist our agents and improve the delivery of service to our policyholders.

Incorporated by reference from Note 1110 “Segment Information” contained in Part II, Item 8, “Financial Statements and Supplementary Data.” Additionally, for a detailed discussion of our operating results by segment, refer to the Results of Operations section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Incorporated by reference from Note 54 “Reinsurance” contained in Part II, Item 8, “Financial ~~Statement s~~Statements and Supplementary Data.”

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.

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The determination of reserves, particularly those relating to liability lines of insurance, reflects significant judgment factors. 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. As required by state law, we engage an independent actuary, Regnier Consulting Group, Inc. (“Regnier”), to render an opinion as to the adequacy of the statutory reserves we establish annually. The actuarial opinion is filed in those states where we are licensed. On a ~~quar terly~~quarterly basis, Regnier reviews our direct loss reserves for adequacy.

We do not discount loss reserves based on the time value of money. ~~However, we consider inflation in the reserving process by reviewing cost trends, loss settlement expenses, historical reserving results and likely future economic conditions.~~ There are no material differences between our reserves established under U.S. generally accepted accounting principles (“GAAP”) and our statutory reserves.

The following table sets forth a reconciliation of our beginning and ending net reserves for unpaid losses and loss settlement expenses for ~~2010~~2011, ~~2009~~2010 and ~~2008~~2009:

The table on the following page illustrates the change in our estimate of loss reserves for our property and casualty insurance companies for the years ~~2000~~2001 through ~~2009.~~2010. The first section shows the amount of the liability, as originally reported, at the end of each calendar year in our Consolidated Financial Statements. These reserves represent the estimated amount of losses and loss settlement expenses for losses arising in that year and all prior years that are unpaid at the end of each year, including an estimate for our IBNR losses, net of applicable ceded reinsurance. The second section displays the cumulative amount of net losses and loss settlement expenses paid for each year with respect to that liability. The third ~~secti on~~section shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information

Amounts shown in the 2011 column of the table include both 2011 and prior to 2011 accident year development for Mercer Insurance Group, which was acquired on March 28, 2011 and accounted for under the acquisition method.

For a more detailed discussion of our loss reserves, refer to the “Critical Accounting Estimates” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 6,5, “Reserves for Loss and Loss Settlement Expenses” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

We calculate the policy reserves reported in our Consolidated Financial Statements in accordance with GAAP. For our fixed annuities and universal life policies, we establish a benefit reserve at the time of policy issuance in an amount equal to the deposits received. Subsequently, we adjust the benefit reserve for any additional deposits, interest credited and partial or complete withdrawals, as well as insurance and other expense charges. We base policy reserves for other life products on the projected contractual benefits and expenses and interest rates

We determine reserves for statutory purposes based upon mortality rates and interest rates specified by Iowa state law. Our life insurance subsidiary’s reserves meet or exceed the minimum statutory requirements. Griffith, Ballard &

Company (“Griffith”), an independent actuary, assists us in developing and analyzing our reserves on both a GAAP and statutory basis.

For further discussion of our life insurance segment’s reserves, ~~see~~refer to the “Critical Accounting Estimates” ~~contained~~section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations, ,”” under the headings “Investments” and “Critical Accounting Estimates”; Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”; and Note 1 “Significant Accounting Policies” under the headings ~~“Investments” and “Securities Lending,~~“Investments,” Note 2 “Summary of Investments,” and Note 3 “Fair Value of Financial Instruments,” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

We are not aware of any currently proposed or recently enacted state or federal regulation that would have a material impact on our operations. Additionally, we cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of the insurance business or what effect any particular measures might have on us.

We are subject to extensive regulation, primarily at the state level. The method, extent and substance of such regulation varies by state, but generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to a state regulatory agency. In general, such regulation is intended for the protection of those who purchase or use our insurance products, and not our stockholders. These rules have a substantial effect on our business and relate to a wide variety of matters including:

The state laws and regulations that have the most significant effect on our insurance operations and financial reporting are discussed below.

Our financial strength, as measured by statutory accounting principles, is regularly reviewed by an independent rating agency that assigns a rating based upon criteria such as results of operations, capital resources and minimum policyholders’ surplus requirements.

An insurer’s financial strength rating is one of the primary factors evaluated by those in the market to purchase insurance. A poor rating indicates that there is an increased likelihood that the insurer could become insolvent and therefore not able to fulfill its obligations under the insurance policies it issues. This rating can also affect an insurer’s level of premium writings, the lines of business it can write and, for insurers like us that are also public registrants, the market value of its securities.

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ITEM 1A. RISK FACTORS

We provide the following discussion of risks and uncertainties relevant to our business. These are factors that we believe could cause our actual results to differ materially from expected and historical results. We could also be adversely affected by other factors, in addition to those listed here. We have set forth additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Relating to Our Business


•	~~The incidence, frequency and severity of catastrophe losses are unpredictable and may adversely affect the results of our operations, liq uidity and financial condition.~~

The incidence, frequency and severity of catastrophe losses are unpredictable and may adversely affect the results of our operations, liquidity and financial condition.

Our property and casualty insurance operations expose us to claims arising from catastrophic events affecting multiple policyholders, which can be caused by various natural and man-made disasters, including, but not limited to, hurricanes, tornadoes, windstorms, hailstorms, fires, explosions, earthquakes, tropical storms and terrorist acts. Property damage resulting from catastrophes is the greatest risk of loss we face in the ordinary course of our

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business. We have exposure for catastrophe losses under both our commercial insurance policies and our personal insurance policies. In addition, our automobile and inland marine business exposes us to losses arising from floods and other perils.

Longer-term weather trends may be changing and new types of catastrophe losses may be developing due to climate ~~change,~~change; a phenomenon that has been associated with extreme weather events linked to rising temperatures, including effects on global weather patterns, greenhouse gases, sea, land and air temperature, sea levels, rain and snow. The emerging science regarding climate change and its connection to extreme weather events is far from conclusive. If a connection to increased extreme weather events related to climate change is ultimately proven true, this could increase the frequency and severity of catastrophe losses we experience in both coastal and non-coastal areas.

Because the occurrence and severity of catastrophes are inherently unpredictable and may vary significantly from year to year, ~~hist orical~~historical results of operations may not be indicative of future results of operations. In addition, as with catastrophe losses generally, it can take a long time for us to determine our ultimate losses associated with a particular catastrophic event. As our claims experience for a particular catastrophe develops, we may be required to adjust our reserves to reflect our revised estimates of the total cost of claims. Catastrophes may also negatively affect our ability to write new business. Increases in the value and geographic concentration of insured property could impact claims severity for future catastrophic events. In addition, severity may increase after catastrophic events, as the demand for resources such as building materials and labor to repair damaged structures may inflate costs, and the amount of salvage value received for damaged property may decline.


•	Our reserves for property and casualty insurance losses and costs related to settlement of property and casualty losses and our life reserves for future policy benefits may be inadequate, which would have an unfavorable impact on our financial results.

Our reserves for property and casualty insurance losses and costs related to settlement of property and casualty insurance losses and our life insurance reserves for future policy benefits may be inadequate, which would have an unfavorable impact on our financial results.

Our reserves for claims and future policy benefits may prove to be inadequate, which may result in future charges to earnings and/or a downgrade of our financial strength rating or the financial strength ratings of our insurance company subsidiaries.

We establish property and casualty insurance loss reserves based on assumptions and estimates of damages and liabilities incurred. On a quarterly basis, Regnier, the independent actuary for our property and casualty insurance segment, estimates property and casualty insurance product reserves based on many assumptions to validate the reasonableness of our claims reserves.

Our property and casualty insurance loss reserves are only estimates; we determine the amount of these loss reserves based on our best estimate and judgment of the losses and costs we will incur on existing insurance policies. Because of the uncertainties that surround estimating loss reserves, we cannot precisely determine the ultimate amounts of benefits

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and claims that we will pay or the timing of payment of benefits and claims. For a detailed discussion of our reserving process and the factors we consider in estimating reserves, refer to the Critical Accounting Estimates section in Part II, Item 7, ~~“Management’s~~“Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Actual losses and loss settlement expenses paid might exceed our reserves. If our loss reserves are insufficient, or if we believe our loss reserves are insufficient to cover our actual loss and loss settlement expenses, we will have to increase our loss reserves and incur charges to our earnings, which could indicate that premium levels were insufficient. These charges may be material.

Griffith, the independent actuary for our life insurance segment, calculates life insurance product reserves based on our assumptions, including estimated premiums we will receive over the assumed life of the policy, the timing of the event covered by the insurance policy and the amount of benefits or claims to be paid. As such, deviations from one or more of these assumptions could result in a material adverse impact on our Consolidated Financial Statements.


•	~~The cyclical nature of the property and casualty insurance business may affect our financial performance.~~

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The cyclical nature of the property and casualty insurance business may affect our financial performance.

The financial results of companies in the property and casualty insurance industry historically have been cyclical in nature, characterized by periods of severe price competition and excess underwriting capacity (commonly referred to as “soft” markets), followed by periods of high premium rates and shortages of underwriting capacity (commonly referred to as “hard” markets). We expect these cycles to continue. Premium rates for property and casualty insurance are influenced by factors that are outside of our control, including market and competitive conditions and regulatory issues. Soft market conditions could require ~~u s~~us to reduce premiums, limit premium increases, or discontinue offering one or more of our insurance products in one or more states, resulting in a reduction in our premiums written and in our profit margins and revenues. The demand for property and casualty insurance can also vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases. Fluctuations in demand and competition could produce underwriting results that would have a negative impact on the results of our operations and financial condition.


•	~~We are subject to interest rate fluctuations and declines in the value of investments held in our investment portfolio due to various market factors that could negatively affect our profitability.~~

We are subject to interest rate fluctuations and declines in the value of investments held in our investment portfolio due to various market factors that could negatively affect our profitability.

We are subject to the negative effects of interest rate fluctuations and to declines in the value of our investment portfolio, due to changes in market valuations and changes in credit quality related to individual investments. Some of our interest-sensitive products, principally our fixed annuities, expose us to the risk that changes in interest rates will reduce our “spread,” which is the difference between the rates we are required to pay under these contracts and the rate of return we are able to earn on our investments, intended to support our obligations under these contracts.

During periods when the interest rates paid on interest-sensitive insurance products are rising, we may not be able to reinvest our invested assets to achieve the higher rate of return necessary to compensate for the higher interest rates we must pay to keep these products competitive in the marketplace. Consequently, we may have to accept a lower spread and therefore lower profitability, or face a decline in sales of these products and a loss of related assets.

During periods of declining interest rates, we may be unable to achieve similar rates of return on our ~~reinvested or~~ maturing assets. Moreover, this risk may be exacerbated by borrowers prepaying fixed income securities, commercial mortgages, and ~~mortgag e-backed~~mortgage-backed securities held in our investment portfolio in order to refinance at lower rates. Because we are only entitled to reset the interest rates on our annuities at limited, pre-established intervals, and because many of our annuity contracts have guaranteed interest rates, the profitability of these products could decrease or ~~even~~ become negative.

Due to the reinvestment risk described above, a decline in market interest rates available on investments could also reduce our return from investments of capital that do not support particular policy obligations, which could also have a material adverse effect on our results of operations. The adverse effect on us from fluctuations in interest

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rates may be exacerbated ~~b ecause~~because we currently maintain, and intend to continue to maintain, a large portion ~~(92.5~~(93.4 percent at December 31, ~~2010)~~2011) of our investment portfolio in fixed income securities, particularly corporate bonds, including our portfolio of trading securities. The fair value of these investments generally increases or decreases in an inverse relationship with changes in interest rates. We classify the majority ~~(99.2~~(99.4 percent, at December 31, ~~2010)~~2011) of our fixed income securities, including our entire portfolio of trading securities, as available-for-sale. We report the value of those investments at their current fair value. Accordingly, fluctuations in interest rates may result in fluctuations in the valuation of our fixed income investments, which would affect our ~~stockholders’~~stockholders' equity.

Fluctuations in interest rates may cause increased surrenders and ~~with drawals~~withdrawals from our life insurance and annuity products. In periods of rising interest rates, surrenders and withdrawals of life insurance policies and annuity contracts, along with policy loans, may increase as policyholders seek to buy products with perceived higher returns. These surrenders, withdrawals and policy loans may also require us to accelerate the amortization of deferred policy acquisition costs, which would increase our expenses in the current period.

Terrorism and the threat of terrorism within the U.S. and abroad, ongoing military and other actions, and heightened

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security measures, may cause significant volatility in the equity markets and in interest rates. Such activities may result in loss of life, property damage, disruptions to commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets or changes in interest rates caused by these activities.

The fair value of securities in our investment portfolio may also fluctuate, depending on general economic and market conditions or events relating to a particular issuer of securities. Changes in the fair value of securities in our investment portfolio could result in realized or unrealized investment losses, thereby affecting our ~~stockholders’~~stockholders' equity.

We are exposed to the chance that issuers of bonds that we hold will not be able to pay principal or interest when due. Defaults and other impairments may cause write-downs in the value of the bonds we hold. Pervasive deterioration in the ~~c redit~~credit quality of issuers, changes in interest rate levels and changes in interest rate spreads between types of investments could significantly affect the value of our invested assets and our earnings.


•	~~Continued difficult conditions in the global capital markets and the economy generally may materially and adversely affect our business and results of operations.~~

Continued difficult conditions in the global capital markets and the economy generally may materially and adversely affect our business and results of operations.

Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Recently, concerns over the slow economic recovery, level of U.S. national debt, the U.S. mortgage market, inflation levels, energy costs and geopolitical issues have contributed to increased volatility and diminished expectations for the economy and global capital markets going forward. These factors, combined with volatile oil prices, reduced business and consumer confidence and continued high unemployment, have negatively impacted the U.S. economy. These concerns expanded to include a broad range of mortgage- and asset-backed and other fixed income securities, including those rated investment grade. Although liquidity has improved, the market for fixed income instruments continues to experience some price volatility, credit downgrade events and elevated probabilities of default.

Factors such as consumer spending, business ~~in vestment,~~investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence and inflation levels all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment, negative investor sentiment and lower consumer spending, the demand for our insurance products could be adversely affected. Our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. In addition, we may experience an elevated incidence of claims and lapses or surrenders of policies. Adverse changes in the economy could negatively affect our net income and could have a material adverse effect on our business, results of operations and financial condition.

Our investment portfolio contains various types of municipal bonds that expose us to the risk of default.

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•	~~Our investment portfolio contains various types of municipal bonds that expose us to the risk of default.~~

At December 31, ~~2010, 25.2~~2011, 25.3 percent of our total investment portfolio at fair ~~market~~ value, and ~~27.2~~27.5 percent of our total fixed maturity ~~securities~~investments at fair ~~market~~ value, were invested in ~~tax-exempt~~ municipal ~~bonds.~~bonds that are primarily tax-exempt. During or following an economic downturn, our municipal bond portfolio could be subject to a higher risk of default or impairment due to declining municipal tax bases and revenue. The ~~pr olonged~~prolonged economic downturn that began in 2008 has resulted in many states and local governments operating under deficits or projected deficits. The severity and duration of these deficits could adversely impact the collectability and valuation of our municipal bond portfolio.


•	~~Unauthorized data access and other security breaches could have an adverse impact on our business and reputation.~~

Unauthorized data access and other security breaches could have an adverse impact on our business and reputation.

Our business and operations rely on secure and efficient processing, storage and transmission of customer and ~~company~~Company data, including personally identifiable information. Our ability to effectively operate our business depends upon our ability and the ability of certain third parties, including vendors and business partners, to access our computer systems to perform necessary business functions, such as providing quotes and product pricing, billing and

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processing premiums, administering claims, and reporting our financial results. Our business and operations also depend upon our ability to safeguard personally identifiable information and other confidential and proprietary information belonging to us and our policyholders. Our systems may be vulnerable to unauthorized access and hackers, computer viruses, and other scenarios in which our data may be compromised.

Security breaches and other improper accessing of data in our facilities, networks or databases, or those of our vendors may occur, exposing us to liability and having an adverse impact on our business. Moreover, any compromise of the security of our data could harm our reputation, which could affect our business and results of operations. There can be no assurances that we will be able to implement security measures adequate to prevent every security breach.


•	~~The effects of emerging claim and coverage iss ues and class action litigation on our business are uncertain.~~

The effects of emerging claim and coverage issues and class action litigation on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number and/or size of claims. Examples of these issues include:


•	Judicial expansion of policy coverage ~~and the impact of new theories of liability.~~


•	~~An increase of plaintiffs targeting property and casualty insurers, including us, in purported class action litigation regarding claims handling and other practices.~~


•	~~An increase in the variety, number and size of claims relating to liability losses, which often present complex coverage and damage valuation questions.~~


•	~~Adverse changes in loss cost trends, including, but not limited to, inflationary pressure in medical costs; auto repair costs; and labor a nd materials costs to rebuild damaged structures.~~

In addition, we have been the target of a number of class action lawsuits arising from Hurricane Katrina, relating to allegations of improper claims settlement practices, misrepresentations in the scope of coverage and other matters. It is difficult to predict both the ultimate outcome of these lawsuits, and the impact ~~if any, they will have on our business~~of new theories of liability.

An increase of plaintiffs targeting property and ~~financial condition. However, rulings adverse to~~casualty insurers, including us, in ~~pending~~purported class action litigation ~~arising from Hurricane Katrina could have a material adverse effect on~~regarding claims handling and other practices.

An increase in the variety, number and size of claims relating to liability losses, which often present complex coverage and damage valuation questions.

Adverse changes in loss cost trends, including inflationary pressure in medical cost and auto and home repair costs.

We are exposed to credit risk in certain areas of our ~~financial position, as well as on our results of~~ operations.

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•	~~We are exposed to credit risk in certain areas of our operations.~~

In addition to exposure to credit risk related to our investment portfolio, ~~and reinsurance recovery,~~ we are exposed to credit risk in several other areas of our business operations, including credit risk relating to policyholders, independent agents, brokers and ~~brokers.~~reinsurers.

In accordance with industry practice, when policyholders purchase insurance policies from us ~~throug h~~through independent agents and brokers, the premiums relating to those policies are often paid to the agents and brokers for payment to us. In most jurisdictions, the premiums will be deemed to have been paid to us whether or not actually received by us. Consequently, we assume a degree of credit risk associated with the amounts due from independent agents and brokers.

We are exposed to credit risk through our surety insurance operations, where we guarantee to a third party that our bonded principal will satisfy certain performance obligations (e.g., a construction contract) or certain financial obligations. If our policyholder defaults, we may suffer losses and be unable to be reimbursed by our policyholder.

We are exposed to credit risk with respect to our purchase of reinsurance. See the discussion in the risk ~~fact~~factor titled “Market conditions may affect our access to and the cost of reinsurance and our reinsurers may not pay losses in a timely manner, or at all,” for a discussion of the credit risk associated with our reinsurance program.

To a large degree, the credit risk we face is a function of the economy; accordingly, we face a greater risk during a period of economic downturn. While we attempt to manage these risks through underwriting and investment guidelines, collateral requirements and other oversight mechanisms, our efforts may not be successful. For example, collateral obtained may ~~subsequ ently~~subsequently have little or no value. As a result, our exposure to credit risk could materially and adversely affect our results of operation and financial condition.


•	~~We are subject to comprehensive state laws and regulations that pose particular risks to our ability to earn profits.~~

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United Fire Group, Inc. Form 10-K | 2011

We are subject to comprehensive state laws and regulations that pose particular risks to our ability to earn profits.

We are subject to extensive supervision and regulation by the states in which we operate. Our ability to comply with these laws and regulations and obtain necessary and timely regulatory action is, and will continue to be, critical to our success and ability to earn profits.

Examples of regulations that pose particular risks to our ability to earn profits include the following:

•

Required licensing. Our insurance company subsidiaries, operate under licenses issued by various state insurance agencies. If a regulatory authority were to revoke an existing license or deny or delay granting a new license, our ability to continue to sell insurance or to enter or offer new insurance products in that market would be substantially impaired.

Regulation of insurance rates and approval of policy forms. The insurance laws of most states in which we operate require insurance companies to file insurance premium rate schedules and policy forms for review and approval. When our loss ratio compares favorably to that of the industry, state regulatory authorities may resist or delay our efforts to raise premium rates in the future, even if the property and casualty industry generally is not experiencing regulatory resistance to premium rate increases. If premium rate increases we deem necessary are not approved, we may not be able to respond to market developments and increased costs in that state. State regulatory authorities may even impose premium rate rollbacks or require us to pay premium refunds to policyholders, affecting our profitability. If insurance policy forms we seek to use are not approved by a state insurance agency, our ability to offer new products and grow our business in that state could be substantially impaired.

~~Required licensing.~~ We, and our insurance company subsidiaries, operate under licenses issued by various state insurance agencies. If a regulatory authority were to revoke an existing license or deny or delay granting a new license, our ability to continue to sell insurance or to enter or offer new insurance products in that market would be substantially impaired.

•

~~Regulation of insurance rates and approval of policy forms.~~ The insurance laws of most states in which we operate require insurance companies to file insurance premium rate schedules and policy forms for review and approval. When our loss ratio compares favorably to that of the industry, state regulatory authorities may resist or delay our efforts to raise premium rates in the future, even if the property and casualty industry generally is not experiencing regulatory resistance to premium rate increases. If premium rate increases we deem necessary are not approved, we may not be able to respond to market developments and increased costs in that state. State regulatory authorities may even impose premium rate rollbacks or require us to pay premium refunds to policyholders, affecting our profitability. If insurance policy forms we seek to use are not approved by a state insurance agency, our ability to offer new products and grow our business in that state could be substantially impaired.

•

Restrictions on cancellation, nonrenewal or withdrawal. Many states have laws and regulations restricting an insurance company's ability to cease or significantly reduce its sales of certain types of insurance in that state, except pursuant to a plan that is approved by the state insurance agencies. These laws and regulations restricting an insurance company’s ability to cease or significantly reduce its sales of certain types of insurance in that state, except pursuant to a plan that is approved by the state insurance department. These laws and

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regulations could limit our ability to exit or reduce our business in unprofitable markets or discontinue unprofitable products. For ~~exam ple,~~example, the State of Louisiana has a law prohibiting the nonrenewal of homeowners policies written for longer than three years except under certain circumstances, such as for nonpayment of premium or fraud committed by the insured.

•

~~Risk-based capital and capital adequacy requirements.~~ ~~We, and our~~

Risk-based capital and capital adequacy requirements. Our insurance company subsidiaries and affiliate, are subject to risk-based capital requirements that require us to report our results of risk-based capital calculations to state insurance departments and the NAIC. Any failure to meet applicable risk based capital requirements or minimum statutory capital requirements could subject us or our subsidiaries and affiliate to further examination or corrective action by state regulators, including limitations on our writing of additional business, state supervision or liquidation.

Transactions between insurance companies and their affiliates. Transactions between us, our subsidiary insurance companies and our affiliates generally must be disclosed to, and in some cases approved by, state insurance agencies. State insurance agencies may refuse to approve or delay their approval of a transaction, which may impact our ability to innovate or operate efficiently.

Required participation in guaranty funds and assigned risk pools. Certain states have enacted laws that require a property and casualty insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities, and joint underwriting associations where participating insurers are required to provide coverage for assigned risks. The number of risks assigned to us by these plans is based on our share of total premiums written in the voluntary insurance market for that state. Pricing is controlled by the plan, often restricting our ability to charge the premium rate we might otherwise charge. Wherever possible, we utilize a designated servicing carrier to fulfill our obligations under these plans. Designated servicing carriers charge us fees to issue policies, adjust and settle claims and handle administrative reporting on our behalf. In these markets, we may be compelled to underwrite significant amounts of business at lower than desired premium rates, possibly leading to an unacceptable return on equity. While these facilities are


•	~~Transactions between insurance companies and their affiliates.~~ Transactions between us, our subsidiary insurance compani es and our affiliate generally must be disclosed to, and in some cases approved by, state insurance agencies. State insurance agencies may refuse to approve or delay their approval of a transaction, which may impact our ability to innovate or operate efficiently.

•

~~Required participation in guaranty funds and assigned risk pools.~~ Certain states have enacted laws that require a property and casualty insurer conducting business in that state to participate in as signed risk plans, reinsurance facilities, and joint underwriting associations where participating insurers are required to provide coverage for assigned risks. The number of risks assigned to us by these plans is based on our share of total premiums written in the voluntary insurance market for that state. Pricing is controlled by the plan, often restricting our ability to charge the premium rate we might otherwise charge. Wherever possible, we utilize a designated servicing carrier to fulfill our obligations under these plans. Designated servicing carriers charge us fees to issue policies, adjust and settle claims and handle administrative reporting on our behalf. In these markets, we may be compelled to underwrite significant amounts of business at lower than desired premium rates, possibly leading to an unacceptable return on equity. While these facilities are generally designed so that the ultimate cost is borne by policyholders, the exposure to assessments and our ability to recoup these assessments th rough adequate premium rate increases may not offset each other in our financial statements. Moreover, even if they do offset each other, they may not offset each other in our financial statements for the same fiscal period, due to the ultimate timing of the assessments and recoupments or premium rate increases. Additionally, certain states require insurers to participate in guaranty funds for impaired or insolvent insurance companies. These state funds periodically assess losses against all insurance companies doing business in the state. Our operating results and financial condition could be adversely affected by any of these factors.

•

~~Restrictions on the amount, type, nature, quality and concentration of investments.~~ The various states in which we operate have certain restrictions on the amount, type, nature, quality and concentration of our investments. Generally speaking, these regulations require us to be conservative in the nature and quality of our investments and restrict our ability to invest in riskier, but often higher yield investments. These restrictions may make it more difficult for us to obtain our desired investment results.

•

~~State and federal tax laws.~~ Under current federal and state income tax law, our life insurance and annuity products receive favorable tax treatment. This favorable treatment may give these products a competitive advantage over other noninsurance products. Congress, from time to time, considers legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities. Congress also considers proposals to reduce the taxation of certain products or investments that may compete with life insurance and annuities. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of our products, making them less comp etitive. Such proposals, if adopted, could have a material adverse effect on our financial position or ability to sell such products and could result in the surrender of some existing contracts and policies.


•	~~Periodic financial and market conduct examinations.~~ ~~We are subject to periodic financial and market conduct examinations by the insurance departments in the various states in which we operate. Gene rally, it~~

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generally designed so that the ultimate cost is ~~only~~borne by policyholders, the exposure to assessments and our ability to recoup these assessments through adequate premium rate increases may not offset each other in our financial statements. Moreover, even if they do offset each other, they may not offset each other in our financial statements for the same fiscal period, due to the ultimate timing of the assessments and recoupments or premium rate increases. Additionally, certain states require insurers to participate in guaranty funds for impaired or insolvent insurance companies. These state funds periodically assess losses against all insurance companies doing business in the state. Our operating results and financial condition could be adversely affected by any of these factors.

Restrictions on the amount, type, nature, quality and concentration of investments. The various states in which we operate have certain restrictions on the amount, type, nature, quality and concentration of our investments. Generally speaking, these regulations require us to be conservative in the nature and quality of our investments and restrict our ability to invest in riskier, but often higher yield investments. These restrictions may make it more difficult for us to obtain our desired investment results.

State and federal tax laws. Under current federal and state income tax law, our life insurance and annuity products receive favorable tax treatment. This favorable treatment may give these products a competitive advantage over other noninsurance products. Congress, from time to time, considers legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities. Congress also considers proposals to reduce the taxation of certain products or investments that may compete with life insurance and annuities. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of our products, making them less competitive. Such proposals, if adopted, could have a ~~company incorporated that perform~~material adverse effect on our financial position or ability to sell such ~~examinations. Occasionally, however, we are examined by states~~products and could result in ~~which we do not have a company incorporated.~~the surrender of some existing contracts and policies.

Terrorism Risk Insurance. The ~~costs~~Terrorism Risk Insurance Program Reauthorization Act of ~~these examinations are borne by us~~2007 ("TRIPRA")requires the federal government and the insurance industry to share in ~~any given~~insured losses up to $100 billion per year ~~may contribute~~resulting from future terrorist attacks within the United States. For further information about TRIPRA and its effect on our operations, refer to ~~our administrative expenses.~~the information in the Results of Operations section in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

•

~~Terrorism Risk Insurance.~~ The Terrorism Risk Insurance Program Reauthorization Act of 2007 includes coverage for most direct commercial lines of business, including coverage for losses from nuclear, biological and chemical exposures if coverage was afforded by an insurer, with exclusions for commercial automobile insurance, burglary and theft insurance, surety, professional liability insurance and farm owners multiple peril insurance and provides marketplace stability. For further information about the Terrorism Acts, and their effect on our operations, refer to the information in the Results of Operations section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Compliance with these state laws and regulations requires us to incur administrative costs that decrease our profits. These ~~l aws~~laws and regulations may also prevent or limit our ability to underwrite and price risks accurately, obtain timely premium rate increases necessary to cover increased costs, discontinue unprofitable relationships or exit unprofitable markets and otherwise continue to operate our business profitably. In addition, our failure to comply with these laws and regulations could result in actions by state or federal regulators, including the imposition of fines and penalties or, in an extreme case, revocation of our ability to do business in one or more states. Finally, we could face individual, group and class action lawsuits by our policyholders and others for alleged violations of certain state laws and regulations. Each of these regulatory risks could have a negative effect on our profitability.


•	~~A reduction in our financial strength ratings could adversely affect our business and financial condition.~~

A reduction in our financial strength ratings could adversely affect our business and financial condition.

Third-party rating agencies assess and rate the claims-paying ability of insurers and reinsurers based on criteria established by the agencies. Our property and casualty insurers have been assigned a financial strength rating of ~~“A”~~"A" (Excellent) from A.M. Best since ~~1994 -~~1994; except for one insurance subsidiary that is in a run-off status, which A.M. Best has designated as NR-3 (Rating Procedure Inapplicable). Prior to Mercer Insurance Group's acquisition by us, it was rated "A" (Excellent) by A.M. Best since 2001. Our life insurance subsidiary has been assigned a financial strength rating of “A-” (Excellent) from A.M. Best since 1998. Our property and casualty insurance companies are rated on a group basis. Financial strength ratings are used by policyholders, insurers, reinsurers and insurance and reinsurance intermediaries as an important means of assessing the financial strength of insurers and reinsurers. These ratings are not evaluations directed to potential purchasers of our common stock and are not recommendations to buy, sell or hold our common stock. These ratings are subject to change at any time and could be revised downward or revoked at the sole discretion of the rating agency. Downgrades in our financial strength ratings could adversely affect our ability to access the capital markets or could lead to increased borrowing costs in

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the future. Perceptions of ~~our company~~the Company by investors, producers, other businesses and consumers could also be significantly impaired.

We believe that the ratings assigned by A.M. Best are an important factor in marketing our products. Our ability to retain our existing business and to attract new business in our insurance operations depends on our ratings by this agency. Our failure to maintain our ratings, or any other adverse development with respect to our ratings, could cause our current and future independent agents and policyholders to choose to transact their business with more highly rated competitors. If A.M. Best downgrades our ratings or publicly indicates that our ratings are under review, it is likely that we will not be able to compete as effectively with our competitors and our ability to sell insurance policies could decline. If that happens, our premium revenue and earnings would decrease. For example, many of our agencies and policyholders have guidelines that require us to have an A.M. Best financial strength rating of “A-” or higher. A ~~red uction~~reduction of our A.M. Best ratings below “A-” would prevent us from issuing policies to a portion of our current policyholders or other potential policyholders with similar ratings requirements. ~~In addition,~~

Market conditions may affect our access to and the cost of reinsurance and our reinsurers may not pay losses in a ~~ratings downgrade for our property and casualty insurers by A.M. Best below “A” would constitute an event of default under our credit facility.~~timely manner, or at all.


•	~~Market conditions may affect our access to and the cost of reinsurance and our reinsurers may not pay losses in a timely mann er, or at all.~~

As part of our overall risk and capacity management strategy, we purchase reinsurance for significant amounts of the risk that we and our insurance company subsidiaries and affiliate underwrite. The availability and cost of

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reinsurance is subject to market conditions that are beyond our control. The availability and cost of the reinsurance we purchase may affect the level of our business and profitability. Although we purposely work with several reinsurance intermediaries and reinsurers, we may be unable to maintain our current reinsurance facilities or obtain other reinsurance facilities in adequate amounts and at favorable premium rates. Moreover, there may be a situation in which we have more than two catastrophic events within one policy year. Because our current catastrophe reinsurance program only allows for one automatic reinstatement at an additional reinstatement premium, we would be required to obtain a new catastrophe reinsurance policy to maintain our current level of catastrophe reinsurance coverage. Such coverage may be difficult to obtain, particularly if it is necessary to do so during hurricane season following the second catastrophe. If we are unable to renew our expiring facilities or to obtain new reinsurance facilities, either our net exposure to risk will increase or, if we are unwilling to bear an increase in net risk exposures, we will have to reduce the amount of risk we underwrite.

Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred, it does not relieve us of our ~~l iability~~liability to our policyholders. Our ability to collect reinsurance recoverables may be subject to uncertainty. Our losses must meet the qualifying conditions of the reinsurance agreement. Reinsurers must also have the financial capacity and willingness to make payments under the terms of a reinsurance agreement or program. Particularly, following a major catastrophic event, our inability to collect a material recovery from a reinsurer on a timely basis, or at all, could have a material adverse effect on our liquidity, operating results and financial condition.


•	~~Our geographic concentration in both our property and casualty insurance and life insurance segments ties our performance to the business, economic and regulatory conditions of certain states.~~

Our geographic concentration in both our property and casualty insurance and life insurance segments ties our performance to the business, economic and regulatory conditions of certain states.

The following states provided ~~56.6~~49.8 percent of the direct statutory premium written for the property and casualty insurance segment in ~~2010:~~2011: Texas ~~(15.8~~(12.9 percent), Iowa ~~(15.7~~(12.7 percent), California (10.6 percent), Missouri ~~(9.3 percent), Louisiana (8.6~~(7.3 percent) and ~~Illinois (7.2~~Louisiana (6.3 percent). The following states provided ~~69.0~~71.0 percent of the direct statutory premium written for the life insurance segment in ~~2010:~~2011: Iowa ~~(32.6 percent), Wisconsin (10.0 percent) and Illinois (9.8~~(29.7 percent), Minnesota ~~(8.5~~(11.9 percent), Illinois (10.2 percent), Nebraska ~~(8.1~~(9.6 percent), and Wisconsin (9.6 percent). Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, demographic, competitive, ~~w eather~~weather and other conditions in the principal states in which we do business. Changes in any of these conditions could make it less attractive for us to do business in such states and would have a more pronounced effect on us compared to companies that are more geographically diversified. In addition, our exposure to severe losses from localized natural perils, such as hurricanes or hailstorms, is increased in those areas where we have written a significant amount of property insurance policies.


•	~~We face significant competitive pressur es in our business that could cause demand for our products to fall and reduce our revenue and profitability.~~

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We face significant competitive pressures in our business that could cause demand for our products to fall and reduce our revenue and profitability.

The insurance industry is highly competitive. In our property and casualty insurance business and in our life insurance business, we compete, and will continue to compete, with many major U.S. and non-U.S. insurers and smaller regional companies, as well as mutual companies, specialty insurance companies, underwriting agencies, and diversified financial services companies. Some of our competitors have far greater financial and marketing resources than we do. Our premium revenue and our profitability could decline if we lose business to competitors offering similar or better products at or below our prices. Our profitability could also be affected by the entry of new competitors into the market and the development of new ~~pro ducts~~products by new and existing competitors.

We price our insurance products based on estimated profit margins, and we would not be able to significantly reduce our current estimated profit margins in the near future. Some of our competitors may be larger and have more capital than we do, and may be able to withstand significant reductions in their profit margins. If our competitors decide to target our policyholder base by offering lower-priced insurance, we may not be able to respond competitively, which could reduce our revenue and our profitability.


•	~~Our business depends on the uninterrupted operations of our facilities, systems and business functions.~~

Our business depends on the uninterrupted operations of our facilities, systems and business functions.

Our business depends on our ~~employees’~~employees' ability to perform necessary business functions, such as processing new and renewal policies and claims. We increasingly rely on technology and systems to accomplish these business

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functions in an efficient and uninterrupted fashion. Our inability to access our facilities or a failure of technology, telecommunications or other systems could significantly impair our ability to ~~perfo rm~~perform such functions on a timely basis or affect the accuracy of transactions. If sustained or repeated, such a business interruption or system failure could result in a deterioration of our ability to write and process new and renewal business, serve our agents and policyholders, pay claims in a timely manner, collect receivables or perform other necessary business functions.

In the event that a natural disaster or a terrorist act occurs, our company and employees could be directly adversely affected, depending on the nature of the event. We have an emergency preparedness plan that consists of the information and procedures required to enable rapid recovery from an occurrence, such as natural disaster or business disruption, which could potentially disable us for an extended period of time. This plan was successfully tested during 2008, both by the Midwest flooding that affected our corporate headquarters in Cedar Rapids, Iowa, and by Hurricane Ike that affected our Gulf Coast regional office in Galveston, Texas.


•	Adverse ~~capital and credit market conditions may significantly affect our ability to meet liquidity needs, as well as our access to capital and cost of capital.~~

~~Since mid 2007, the~~ capital and credit ~~markets have been experiencing extreme volatility~~market conditions may significantly affect our ability to meet liquidity needs, as well as our access to capital and ~~disruption. Beginning in the second half~~cost of ~~2008, the volatility and disruption reached unprecedented levels and the markets exerted downward pressure on availability of liquidity and credit capacity for certain issuers.~~ capital.

Although capital market conditions have improved, our results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by ~~continued~~ disruptions in the capital and credit markets.

We maintain a level of cash and securities which, combined with expected cash inflows from investments and operations, is believed adequate to meet anticipated short-term and long-term benefit and expense payment obligations. However, in the event our current internal sources of liquidity do not satisfy our needs, we ~~may~~ have ~~to seek additional financing and, in such case,~~entered into a $100.0 million revolving unsecured credit facility that we may not be able to successfully obtain additional financing on favorable terms, or at all. The availability of additional financing will depend on a variety of factors such as market and economic conditions, the general availability of credit, our credit rating and credit capacity, as well as customers’ or lenders’ perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us.can access.

Disruptions, uncertainty or volatility in the capital and credit markets may limit our access to capital required to operate our business. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities; satisfy statutory capital requirements; and access the capital necessary to grow our business. As such, we may be forced to delay raising capital, issue shorter term securities than we prefer, utilize available internal resources or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility and liquidity.


•	If we are unable to successfully introduce new products or services or fail to keep pace with advances in technology, our business, financial condition and results of operations will be adversely affected.

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If we are unable to successfully introduce new products or services or fail to keep pace with advances in technology, our business, financial condition and results of operations will be adversely affected.

The successful implementation of our business model depends on our ability to adapt to evolving technologies and industry standards and introduce new products and services. We cannot assure you that we will be able to introduce new products, or that any new products will achieve market acceptance. Moreover, competitors may develop competitive products that could adversely affect our results of operations. A failure by us to introduce planned products or other new products could have an adverse effect on our business, financial condition and results of operations.

If we cannot adapt to changing technologies, our products and services may become obsolete, and our business could suffer. Our success will depend, in part, on ~~ou r~~our ability to continue to enhance our existing products and services, develop new technology that addresses the increasingly sophisticated and varied needs of our prospective customers and respond to technological advances on a timely and cost-effective basis. We may not be successful in using new technologies effectively or adapting our proprietary technology to evolving customer requirements, and, as a result, our business could suffer.

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~~Table~~We are unable to predict the impact on us of ~~Contents~~the new federal financial regulatory reform.

~~United Fire & Casualty Company Form 10-K | 2010~~


•	~~We are unable to predict the impact on us of the new federal financial regulatory reform.~~

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) enacted in July, 2010, expands the federal presence in insurance oversight. The Dodd-Frank ~~Act’s~~Act's requirements include streamlining the state-based regulation of reinsurance and nonadmitted insurance (property or casualty insurance placed from insurers that are eligible to accept insurance, but are not licensed to write insurance in a particular state). The Dodd-Frank Act also establishes a new Federal Insurance Office within the U.S. Department of the Treasury with regulatory authority over all lines of insurance except health insurance, certain long-term care insurance and crop insurance. The Federal Insurance Office has the power to, among other things, monitor aspects of the insurance industry, identify issues in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the overall financial system, , coordinate federal policy on international insurance matters and preempt state insurance measures under certain circumstances.

The Dodd-Frank Act provides a framework for further regulation and governance initiatives. These regulations and initiatives ~~will~~ cover many aspects of public company governance including, but not limited to, new and enhanced executive compensation disclosures, nonbinding stockholder votes on executive compensation, new independence standards for compensation committee membership, and incentive compensation clawback policies. Because the SEC has not yet completed its required rulemaking under the Dodd-Frank Act, we are unable to predict with certainty the overall impact these new regulations and initiatives will have on us. However, the cost of compliance with new regulations and initiatives could be significant, and ~~mater ially~~ adversely impact our results of operations, equity, business, and insurer financial strength and debt ratings.


•	~~We may face increased operating costs and underwriting losses arising from the federal health care reform legislation, as well as state health care reform proposals.~~

The 2010 Acts, enacted in March 2010, may increase our operating costs and un derwriting losses. This landmark legislation may lead to numerous changes in the health care industry that could create additional operating costs for us, particularly with respect to our workers’ compensation and long-term care products. These costs might arise through the increased use of health care services by our claimants or the increased complexities in health care bills that could require additional levels of review. In addition, due to the expected number of new participants in the health care system and the potential for additional malpractice claims, we may experience increased underwriting risk in the lines of our business that provide management and professional liability insurance to individuals and businesses engaged in the health care industry. The lines of our business that provide professional liability insurance to attorneys, accountants and other professionals who advise clients regarding the health care reform legislation may also experience increased underwriting risk due to the c omplexity of the legislation. As a result, we may experience unanticipated underwriting losses with respect to these lines of business. Finally, we cannot predict with any certainty the impact upon us of the various state health care reform proposals. Consequently, our results of operations, equity, business, insurer financial strength and debt ratings could be materially adversely impacted.

Risks Relating to Our ~~Proposed~~ Acquisition of Mercer Insurance Group ~~Inc.~~

On ~~November 30, 2010,~~March 28, 2011, we ~~entered into an Agreement and Plan~~completed the acquisition of ~~Merger to acquire~~ 100 percent of the outstanding capital stock of Mercer Insurance Group for $28.25 per share in cash consideration (representing ~~app roximately $191.0~~$191.5 million in total consideration).

We incurred significant costs and expenses in connection with the acquisition; the integration of Mercer Insurance Group into our business operations may result in significant expenses and accounting charges, all of which will adversely affect our operating results and financial condition.

During 2011, we incurred one-time transaction costs totaling $8.3 million in connection with the acquisition transaction. We expect ~~the merger~~ to ~~close on or before March 31, 2011. The following risk factors relate specifically to risks~~incur additional costs associated with ~~this planned merger, which may affect~~the integration of Mercer Insurance Group into our ~~financial condition, results of operations or~~business operations. In addition to one-time transaction costs, we also incurred accounting charges related to the ~~performance of our common stock.~~


•	~~We may not realize all of the anticipated benefits of the merger or such benefits may take longer to realize than expected.~~

~~Our ability to realize the anticipated benefits~~amortization of the ~~merger will depend, to a large extent, on our ability to integrate~~value of business acquired ("VOBA") asset. VOBA is being amortized in the ~~businesses~~first 12 months of Mercer with our existing business. The combination of two independent companies is a complex, costly and time-consuming process. As a result, we will be required to devote significant management attention and resources to integrating the business practices and operations of United Fire and Mercer. The integration process may disrupt the business of either or both of the companies and, if implemented ineffectively, would preclude

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operations subsequent to the acquisition. As of December 31, 2011, the VOBA asset was $1.7 million, which will be fully amortized in the first quarter of 2012.

We continue to integrate a large number of systems and functions, including management information, purchasing, accounting and finance, claims, underwriting, billing, payroll and benefits, fixed assets and lease administration, and regulatory compliance. Many of the expenses that will be incurred, by their nature, are impracticable to estimate. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses, the realization of economies of scale, and cost savings and revenue synergies related to the ~~full~~integration of the two companies.

To the extent that our financial results are materially affected by additional integration-related expenses and costs, the price of our common stock could decline.

Integrating Mercer Insurance Group into our existing operations involves considerable risks and may not be successful, and we may fail to realize the potential benefits ~~expected by United Fire. Our failure to meet~~of the ~~challenges involved in integrating successfully the operations~~acquisition of Mercer ~~or otherwise~~Insurance Group.

The integration of Mercer Insurance Group into our existing operations has been a complex, time-consuming and expensive process and may disrupt our existing operations if not completed in a timely and efficient manner. If our management is unable to minimize the potential disruption to our business during the integration process, we may not realize the anticipated benefits of the ~~merger could cause an interruption~~acquisition. Realizing the benefits of the acquisition will depend, in part, on the successful integration of technology, operations, and personnel, while maintaining adequate focus on our core businesses. We may encounter substantial difficulties, costs and delays in integrating Mercer Insurance Group, including the following, any one or a ~~loss~~combination of ~~momentum in, our activities and~~which could seriously harm our results of ~~operations. In addition,~~operations, business, financial condition and/or the ~~overall~~price of our common stock:

difficulties and delays in the integration of Mercer Insurance Group's operations, personnel, technologies, products, services, business relationships and information and other systems;

the diversion of management's attention from normal daily operations of our business;

difficulties associated with managing a larger, more complex, combined business;

the occurrence of adverse development of loss reserves;

contractual and/or intellectual property disputes;

lost agents, agencies or policyholders as a result of agents, agencies or policyholders of either of the two companies deciding not to do business with the combined companies;

conflicts in agency, marketing or other important relationships;

difficulties caused by entering geographic and business markets in which we have limited or no prior experience;

acquired products and services that may ~~result in material unanticipated problems, expenses, liabilities, competitive responses,~~ not attract policyholders;

loss of ~~client relationships,~~key employees and ~~diversion~~disruptions among employees that may erode employee morale;

inability to implement uniform standards, controls, policies and procedures; and

failure to achieve anticipated levels of ~~management’s attention,~~revenue, profitability or productivity.

Our operating expenses may increase significantly over the near term due to the increased number of employees, expanded operations and changes related to the acquisition. Our business, operating results and financial condition may ~~cause~~be adversely affected to the extent that our ~~stock~~expenses increase but our revenues do not, there are unanticipated

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expenses related to the integration process, or there are significant costs associated with presently unknown liabilities. Failure to minimize the numerous risks associated with the post-acquisition integration strategy also may adversely affect the price ~~to decline. The difficulties~~ of ~~combining the operations~~our common stock.

We incurred debt as part of the ~~companies include, among others:~~acquisition transaction.


•	~~managing a significantly larger company;~~


•	~~maintaining employee morale and retaining key management and other employees;~~


•	~~integrating two unique business cultures, which may prove to be incompatible;~~


•	~~the possibility of faulty assumptions underlying expectations regarding the integration process;~~


•	~~retaining existing clients and attracting new clients;~~


•	~~consolidating corporate and administrative infrastructures and eliminating duplicative operations;~~


•	the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the diversion of management’s attention to the merger;


•	~~coordinating geographically separate organizations;~~


•	~~unanticipated issues in integrating information technology, communications and other systems;~~


•	~~unanticipated changes in applicable laws and regulations;~~


•	~~managing tax costs or inefficiencies associated with integrating the operations of the combined company; and~~


•	~~unforeseen expenses or delays associated with the merger.~~

~~Many~~As of ~~these factors~~December 31, 2011, we had a $45.0 million loan outstanding. Our ability to meet our ongoing debt service obligations under this loan will depend on our future performance, which will be ~~outside~~subject to financial, business, and other factors affecting our operations, many of which are beyond our ~~control~~control. These debt arrangements, and any one of them could result in increased costs, dec reases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, financial condition and results of operations. In addition, even if the operations of Mercer are integrated successfully, werestrictions included therein, may not realize the full benefits of the merger, including the synergies, cost savings or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all.


•	~~There is a risk that the business we acquire as part of the merger may not be adequately reserved.~~

Mercer’s property and casualty loss reserves are only estimates. Because of the uncertainties that surround estimating loss reserves, we cannot precisely determine the adequacy of Mercer’s existing property and casualty loss reserves. Actual loss and loss settlement expenses paid following the merger might exceed currently established reserves. If the loss reserves on the business we acquire from Mercer prove to be insufficient, we will have ~~to increase these reserves and incur charges against our earnings. These charges could have a material~~an adverse impact on our business operations and financial ~~condition and~~ results ~~of operations,~~ and could adversely affect the value of our common stock.


•	~~The need for regulatory approval may delay the date of completion of the merger or may diminish the benefits of the merger.~~

We are required to obtain approval of the merger from the Pennsylvania Insurance Department, the New Jersey Department of Banking and Insurance, and the California Department of Insurance. Any or all of these state insurance departments may impose certain requirements or conditions as part of their approval of the merger. Satisfying any requirements or cond itions imposed by these state insurance departments may delay the date of

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~~United Fire & C asualty Company Form 10-K | 2010~~

completion of the merger. Any requirements or conditions imposed by the state insurance departments may diminish the benefits of the merger to us. We are obligated to complete the merger unless the permits, authorizations, consents and approvals from these insurance departments:


•	~~impose conditions that:~~


◦	~~are materially inconsistent with any material terms contained in the merger agreement in a manner that adversely affects the economic value of the merger agreement to us,~~


◦	would require us or Mercer to divest or hold separate or otherwise take or commit to take any action that limits our freedom of action with respect to, or our ability to retain Mercer or any of the businesses, product lines or assets of our company, Mercer, or any of Mercer’s respective affiliates or subsidiaries,


◦	would otherwise individually or in the aggregate, result in a material negative impact on the business, assets, liabilities, propert ies or condition (financial or otherwise) of use and our subsidiaries, taken as a whole, or Mercer and its subsidiaries, taken as a whole, or


•	~~impose other conditions that would, individually or in the aggregate, have a material adverse effect with respect to Mercer.~~


•	~~The need for approval by Mercer’s stockholders may delay the date of completion of the merger, or may prevent the merger altogether.~~

Holders of a majority of the shares of Mercer’s outstanding capital stock are required to vote in favor of the merger before the merger may be completed. Mercer has scheduled a special meeting on March 16, 2011, where Mercer stockholders will be asked to vote on the merger. If the scheduled special meetingIntegration of Mercer ~~stockholders is delayed, or if a majority of Mercer’s stockholders do not vote in favor of the merger, the merger~~Insurance Group's information technology systems with ours may ~~not become effective wit hin the expected time frame or at all.~~


•	~~Failure to complete the merger or delays in completing the merger could negatively affect our business operations, financial condition or stock price~~.

~~If the merger is not completed for any reason, we may be subject to a number of risks, including t he following:~~


•	~~We may not realize the benefits expected from the merger, including a potentially enhanced financial and competitive position.~~


•	~~The current market price of our common stock may reflect a market assumption that the merger will occur, and a failure to complete the merger could~~ result ~~in a negative perception by the stock market about us, resulting in a decline in the market price of our common stock.~~


•	~~We must pay certain costs relating to the merger, including certain investment banking, financing, legal and accounting fees and expenses, even if the merger is not completed.~~

Delays in completing the merger could exacerbate uncertainties concerning the effect of the merger, which may have an adverse effect on our business following the merger and could defer or detract from the realization of the benefits expected to result from the merger.

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~~United Fire & Casualty Company Form 10-K | 2010~~


•	~~We expect to take on debt as part of the merger.~~

Prior to the completion of the merger, we expect to take on debt to complement our available cash and funds obtained through the sale of invested assets to our subsidiaries. The financial and other covenants to which we may agree in connection with the occurrence of such debt and our increased indebtedness and high debt-to-equity ratio in comparison to our recent historical ratio may have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions, thereby placing us at a competitive disadvantage compared to competitors that have less indebtedness and making us more vulnerable to general adverse economic and industry conditions. The increased indebtedness will also increase borrowing costs and the covenants pertaining to such indebtedness may also limit our ability to obtain additional financing to fund working capital, capital expenditures, additional acquisitions or general corporate requirements. We will also be required to dedicate a larger portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including working capital, capital expenditures and general corporate purposes. In addition, the terms and conditions of such debt may not be favorable to us, and as such, could further increase the cost of the merger, as well as the overall burden of such debt upon us and our business flexibility. Further, if any portion of our borrowings is at variable rates of interest, we will be exposed to the risk of increased interest rates.

Our ability to make payments on and to refinance our debt obligations and to fund planned capital expenditures will depend on our ability to generate cash from the combined company’s operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances, any of which could impede the implementation of our business strategy or prevent us from entering into transactions that would otherwise benefit our business. Additionally, we may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all.

~~Any of the foregoing consequences cou ld adversely affect our financials results.~~


•	Lawsuits have been filed against Mercer, the members of Mercer’s Board of Directors, and us challenging the merger, and an adverse judgment in such lawsuits or other lawsuits that may later be filed may prevent the merger from becoming effective or from becoming effective within the expected time frame.

Two putative class action lawsuits relating to the merger have been filed in the Superior Court of New Jersey of Mercer County, Chancery Division. Each of the cases was filed as a class action on behalf of all of Mercer’s shareholders and, on February 23, 2011, plaintiffs filed a Consolidated Amended Class Action Complaint alleging, among other things, that the consideration that shareholders will receive in connection with the merger is inadequate, that Mercer and Mercer’s directors breached their fiduciary duties to shareholders in negotiating and approving the merger agreement, and that we aided and abetted the breach of fiduciary duty by Mercer’s directors. The Consolidated Amended Class Action Complaint seeks various forms of relief, including injunctive relief that would, if granted, prevent the merger from closing in accordance with the agreed-upon terms. See Note 1 “Significant Accounting Policies” under the heading “Contingent Liabilities” contained in Part II, Item 8, “Financial Statements and Supplementary Data,” for more information about these lawsuits.

One of the conditions to the closing of the merger is that no preliminary or permanent injunction or other order issued by any court of competent jurisdiction that prohibits, restrains or enjoins the completion of the merger shall be in effect. As such, if the plaintiffs in either of the above lawsuits are successful in obtaining an injunction prohibiting closing the merger on the agreed-upon terms, then such injunction may prevent the merger from becoming effective, or from becoming effective within the expected time frame.

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•	~~Factors related to the merger could result in a potential downgrade of our financial strength ratings from A.M. Best.~~

~~Our property and casualty insurers have been assigned a financial strength rating of “A” (Excellent) from A.M. Best since 1994 - except for one insurance subsidiary that is~~ in a ~~runoff status, which A.M. Best has designated as NR-3 (Rating Procedure Inapplicable). Our life insurance subsidiary has been assigned a financial strength rating~~loss of ~~“A-” (Excellent)~~technical support from ~~A.M. Best since 1998. Our property and casualty companies~~some information technology vendors.

Since the acquisition we are ~~rated on a group basis . For the last ten years, Mercer’s property and casualty insurers have also been assigned a financial strength rating of “A” (Excellent) from A.M. Best.~~

Financial strength ratings are used by policyholders, insurers, reinsurers and insurance and reinsurance intermediaries as an important means of assessing the financial strength of insurers and reinsurers. If the merger is not completed for any reason or within a reasonable time frame, or if the integration of Mercer’s business operations into ours does not occur as expected or does not achieve the desired results and economies of scale, we and/or Mercer could be subjectworking to ~~a ratings downgrade by A.M. Best.~~

We believe that the ratings assigned by A.M. Best are an important factor in marketing our products. The ability to retain our existing business and to attract new business in our insurance operations depends on the ratings that we receive from this agency. The failure to maintain either our ratings, or any other adverse development with respect to these ratings, could cause current and future independent agents and policyholders to choose to transact their business with more highly rated competitors and adversely impact our business operations and financial results.


•	~~Loss of key personnel could have a material adverse effect on our business and results of operations after the merger.~~

Our success after the merger, if completed, will depend, in part, upon our ability to retain key employees of both companies. Competition for qualified personnel can be intense. In addition, key employees may depart because of issues relating to the uncertainty or difficulty of integration or a desire not to remain with us. Accordingly, we may not be able to retain key employees following the merger. Loss of key personnel could have a material adverse effect on our business and operations after completion of the merger.


•	~~Loss of key agents or agencies could have a material adverse effect on our business and results of operations after the merger.~~

Our success after the merger, if completed, will depend, in part, upon our ability to retain key agent and agency relationships of both companies. Key agents or agencies may decide to terminate their relationship with us after the merger because of issues relating to the uncertainty or difficulty of integration or a desire not to remain with the combined company. Accordingly, we may not be able to retai n key agents or agencies following the merger. Loss of key agents or agencies could have a material adverse effect on our business and operations after completion of the merger.


•	~~Integration of Mercer’s information technology systems with ours may result in a loss of technical support from some information technology vendors.~~

~~It is expected that followi ng the merger we will~~ combine our data and ~~Mercer’s~~Mercer Insurance Group's data to a single, integrated information technology platform. This process has involved, and will likely continue to involve, terminating the existing relationship with one or more of our or ~~Mercer’s~~Mercer Insurance Group's current information technology vendors. If the integration process does not progress smoothly or within the time frame anticipated by management, we could have difficulty receiving adequate technical support from cancelled vendors who might have little incentive to continue cooperating with us. Lack of adequate vendor technical support could also delay the technology integration process and lead to increased costs which, in turn, could have a material adverse effect on our business and ~~operations after completion of the merger.~~operations.

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~~United Fire & Casualty Company Form 10-K | 2010~~

Risks Relating to Our Common Stock


•	~~As an insurance company, our~~ The ability ~~to pay dividends is restricted by state law.~~

~~We are an insurance company domiciled in the State~~ of ~~Iowa and, as a result, we are subject to Iowa insurance laws restricting~~ our ~~ability~~subsidiaries to pay dividends tomay affect our ~~stockholders, including laws establishing minimum solvency~~liquidity and ~~liquidity standards and laws that prohibit us from paying dividends except from the earned profits arising from our busines s. Our~~ ability to ~~pay~~meet our obligations.

United Fire Group, Inc. is a holding company with no significant independent operations. Its principal asset is the stock of United Fire & Casualty Company and its subsidiaries. State insurance regulatory authorities limit the payment of dividends ~~also depends upon the statutory capital and surplus levels and earnings of our subsidiary~~by insurance companies. In addition, competitive pressures generally require insurance companies to maintain insurance financial strength ratings. These restrictions and other regulatory requirements affect the ability of our ~~subsidiary~~ insurance ~~companies~~subsidiaries to ~~pay dividends~~make dividend payments to us. ~~Payments of dividends by our subsidiary insurance companies are restricted by state insurance laws similar to those laws that restrict our payment of dividends. As a result of these restrictions, at~~At times we may not be able to pay dividends on our common stock, or we may be required to seek prior approval from the applicable regulatory authority before we can pay any such dividends. Limits on the ability of our insurance subsidiaries to pay dividends could adversely affect our liquidity, including our ability to pay dividends to shareholders, service our debt, and make share repurchases. In addition, the payment of dividends by us is within the discretion of our Board of Directors and will depend on numerous factors, including our financial condition, our capital requirements and other factors that our Board of Directors considers relevant.


•	~~The price of our common stock may be volatile.~~

The price of our common stock may be volatile.

The trading price of our common stock may fluctuate substantially due to a variety of factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could be significant and could cause a loss in the amount invested in our shares of common stock. Factors that could cause fluctuations include, but are not limited to, the following:


•	~~Variations in our actual or anticipated operating results or changes in the expectations of financial market analysts with respect to our results.~~


•	~~Inve stor perceptions of the insurance industry in general and our company in particular.~~


•	~~Market conditions in the insurance industry and any significant volatility in the market.~~


~~• & nbsp;~~	~~Major catastrophic events.~~


•	~~Departure of our key personnel.~~


•	Certain provisions of our organizational documents, as well as applicable insurance laws, could impede an attempt to replace or remove our management, prevent the sale of our company or prevent or frustrate any attempt by stockholders to change the direction of our company, each of which could diminish the value of our common stock.

Variations in our actual or anticipated operating results or changes in the expectations of financial market analysts with respect to our results.

Investor perceptions of the insurance industry in general and the Company in particular.

Market conditions in the insurance industry and any significant volatility in the market.

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United Fire Group, Inc. Form 10-K | 2011

Major catastrophic events.

Departure of key personnel.

Certain provisions of our organizational documents, as well as applicable insurance laws, could impede an attempt to replace or remove our management, prevent the sale of the Company or prevent or frustrate any attempt by stockholders to change the direction of the Company, each of which could diminish the value of our common stock.

Our articles of incorporation and bylaws, as well as applicable laws governing corporations and insurance companies, contain provisions that could impede an attempt to replace or remove our management or prevent the sale of ~~our company~~the Company that, in either case, stockholders might consider being in their best interests. For example:


•	Our Board of Directors is divided into three classes. At any annual meeting of our stockholders, our stockholders have the right to appoint approximately one-third of the directors on our Board of Directors. Consequently, it will take at least two annual stockholder meetings to effect a change in control of our Board of Directors.


•	~~Our articles of incorporation limit the rights of stockholders to call special stockholder meetings.~~


•	Our articles of incorporation set the minimum number of directors constituting the entire Board of Directors at nine and the maximum at 15, and they require approval of holders of two-thirds of all outst anding shares to amend these provisions.


•	Our articles of incorporation require the affirmative vote of two-thirds of all outstanding shares to approve any plan of merger, consolidation, or sale or exchange of all, or substantially all, of our assets.

26

~~Table~~Our articles of ~~Contents~~incorporation limit the rights of stockholders to call special stockholder meetings.

Our articles of incorporation set the minimum number of directors constituting the entire Board of Directors at nine and the maximum at 15, and they require approval of holders of 60.0 percent of all outstanding shares to amend these provisions. Within the range, the Board of Directors may increase by one each year the number of directors serving on the Board of Directors.

Our articles of incorporation require the affirmative vote of 60.0 percent of all outstanding shares to approve any plan of merger, consolidation, or sale or exchange of all, or substantially all, of our assets.

~~United Fire & Casualty Company Form 10-K | 2010~~Our Board of Directors may fill vacancies on the Board of Directors.

Our Board of Directors has the authority, without further approval of our stockholders, to issue shares of preferred stock having such rights, preferences and privileges as the Board of Directors may determine.


•	~~Our Board of Directors may fill vacancies on the Board of Directors.~~


•	Our Board of Directors has the authority, without further approval of our stockholders, to issue shares of preferred stock having such rights, preferences and privileges as the Board of Directors may determine.


•	~~Section 490.1110 of the Iowa Business Corporation Act imposes restrictions on mergers and other business combinations between us and any holder of 10.0 percent or more of our common stock.~~

•

Section 490.624A of the Iowa Business Corporation Act authorizes the terms and conditions of stock rights or options issued by us to include restrictions or conditions that preclude or limit the exercise, transfer, or receipt of such rights or options by a person, or group of persons, owning or offering to acquire a specified number or percentage of the outstanding common shares or other securities of the corporation.

Section 490.1110 of the Iowa Business Corporation Act imposes restrictions on mergers and other business combinations between us and any holder of 10.0 percent or more of our common stock.

Section 490.624A of the Iowa Business Corporation Act authorizes the terms and conditions of stock rights or options issued by us to include restrictions or conditions that preclude or limit the exercise, transfer, or receipt of such rights or options by a person, or group of persons, owning or offering to acquire a specified number or percentage of the outstanding common shares or other securities of the corporation.

Further, the insurance laws of Iowa and the states in which our subsidiary insurance companies are domiciled prohibit any person from acquiring direct or indirect control of us or our insurance company subsidiaries, generally defined as owning or having the power to vote 10.0 percent or more of our outstanding voting stock, without the prior written approval of ~~stat e~~state regulators.

These provisions of our articles of incorporation and bylaws, and these state laws governing corporations and insurance companies, may discourage potential acquisition proposals. These provisions and state laws may also delay, deter or prevent a change of control of ~~our company,~~the Company, in particular through unsolicited transactions that some or all of our stockholders might consider to be desirable. As a result, efforts by our stockholders to change the direction or ~~our company’s~~the Company's management may be unsuccessful, and the existence of such provisions may adversely affect market prices for our common stock if they are viewed as discouraging takeover attempts.

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United Fire Group, Inc. Form 10-K | 2011

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We own three ~~buildings:~~buildings in Cedar Rapids, Iowa, that we use as our corporate headquarters including: a five-story office building, a two-story office building and an eight-story office building in which a portion of the first floor (approximately ~~5.7~~6.0 percent of ~~th e~~the building’s square footage) is leased to tenants, and related parking ~~facilities in Cedar Rapids, Iowa, that we use as our corporate headquarters.~~facilities. All three buildings are connected by a skywalk system. We also own a 250-space parking ramp ~~which is located adjacent to our corporate headquarters,~~ for use by our employees. The parking ramp is located adjacent to our corporate headquarters upon aone parcel of real estate that we own and aanother parcel that we lease with an option to purchase.

In addition, three of our regional locations in Lock Haven, Pennsylvania, Pennington, New Jersey, and Rocklin, California, conduct operations in office space that we own. A portion of the Lock Haven (approximately 20.0 percent) and Pennington (approximately 4.0 percent) office space is leased to tenants. We also own a tract of land adjacent to the Pennington office and a townhouse located near the Rocklin office that is used for corporate purposes.

Our other two regional locations in Westminster, Colorado, and Galveston, Texas, and our claims office in Metairie, Louisiana, conduct operations in leased office space.

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The following table shows a brief description of our owned and leased office space. We believe our current facilities are adequate to meet our needs with additional space available for future expansion, if necessary, at each of our leased and owned facilities.



Location	Utilized by	Owned or Leased	Lease Expiration Date
Corporate Headquarters –
Cedar Rapids, Iowa (118 Second Avenue SE)	Corporate Administration, Property and Casualty Insurance Segment	Owned	N/A
Cedar Rapids, Iowa (119 Second Avenue SE)	Corporate Administration, Life Insurance Segment	Owned	N/A
Cedar Rapids, Iowa (109 Second Street SE)	~~P roperty~~Property and Casualty Insurance Segment	Owned	N/A
Denver Regional Office – Westminster, Colorado	Property and Casualty Insurance Segment	Leased	June 30, 2015
Gulf Coast Regional Office – Galveston, Texas	Property and Casualty ~~Segm ent~~Insurance Segment	Leased	November 30, 2014
Lock Haven Regional Office - Lock Haven, Pennsylvania	Property and Casualty Insurance Segment	Owned	N/A
New Orleans Claims Office – Metairie, Louisiana	Property and Casualty Insurance Segment	Leased	September 30, 2012
Pennington Regional Office - Pennington, New Jersey	Property and Casualty Insurance Segment	Owned	N/A
Rocklin Townhouse - Rocklin, California	Property and Casualty Insurance Segment	Owned	N/A
Rocklin Regional Office - Rocklin, California	Property and Casualty Insurance Segment	Owned	N/A

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United Fire Group, Inc. Form 10-K | 2011

ITEM 3. LEGAL PROCEEDINGS

Incorporated by reference from Note 1615 “Contingent Liabilities” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

ITEM 4. ~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~

~~There were no matters submitted to a vote of the stockholders during the fourth quarter of~~ ~~2010~~.MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stockholders

United ~~Fire’s~~Fire Group, Inc.’s common stock is traded on The NASDAQ ~~Stock~~Global Select Market ~~LLC~~ (“NASDAQ”) under the symbol “UFCS.” On February 1, ~~2011~~2012, there were ~~880~~877 holders of record of United Fire ~~common~~Group, Inc.common stock. The number of record holders does not reflect stockholders who beneficially own common stock in nominee or street name, but does include participants in our employee stock ownership plan.

See “Security Ownership of Certain Beneficial Owners,” “Security Ownership of Management” and “Securities Authorized for Issuance under ~~Eq uity~~Equity Compensation Plans,” in Part III, Item 12 of this Form 10-K, which incorporates by reference our definitive Proxy Statement for our annual meeting of stockholders to be held on May ~~18, 2011~~16, 2012. The Proxy Statement will be filed with the SEC within 120 days after the end of our fiscal year (the “~~2011~~2012 Proxy Statement”) and is incorporated herein by reference.

Dividends

Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.

The table in the following section shows the quarterly cash dividends declared in ~~2010~~2011 and ~~2009~~2010. Payments of any future dividends and the amounts of such dividends, however, will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors, out of funds legally available, and subject to any other restrictions that may be applicable to us.

State law permits the payment of dividends only from earned surplus arising from business operations. Furthermore,

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~~United Fire & Casualty Company Form 10-K | 2010~~

under Iowa law we may pay dividends only if after giving effect to the payment we are either able to pay our debts as they become due in the normal course of business or our total assets would be equal to or more than the sum of our total liabilities. Our subsidiaries are also subject to similar state law restrictions on dividends. Additional information about these restrictions is incorporated by reference from Note 76 “Statutory Reporting, Capital Requirements and Dividends and Retained Earnings Restrictions” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

Market Information

The following table sets forth the high and low trading price for our common stock for the calendar periods indicated. These quotations reflect interdealer prices without retail markups, markdowns, or commissions and may not necessarily represent actual transactions.

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United Fire Group, Inc. Form 10-K | 2011


	Share Price				Cash Dividends Declared
							Share Price				Cash Dividends Declared
							High		Low
2011
Quarter Ended:
March 31							$	23.29	$	18.50	$	0.15
June 30							21.95		17.10		0.15
September 30							18.52		14.79		0.15
December 31							21.16		16.20		0.15
	High		Low		Cash Dividends Declared
2010
Quarter Ended:
March 31	$	18.92	$	15.99	$	0.15	$	18.92	$	15.99	$	0.15
June 30	24.57		17.55		0.15		24.57		17.55		0.15
September 30	22.67		18.86		0.15		22.67		18.86		0.15
December 31	23.41		19.82		0.15		23.41		19.82		0.15

2009
Quarter Ended:
March 31	$	31.31	$	15.72	$	0.15
June 30	24.75		16.47		0.15
September 30	21.66		16.39		0.15
December 31	21.30		16.50		0.15

Issuer Purchases of Equity Securities

Under our share repurchase program, ~~first announced in August 2007,~~ we may purchase ~~com mon~~our 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, economic and general market conditions, and corporate and regulatory requirements. We will generally consider repurchasing ~~company~~our common stock on the open market if (i) the trading price on NASDAQ drops below 130 percent of its book value, ~~and~~(ii) sufficient excess capital is available to purchase the ~~stock.~~stock, and (iii) we are optimistic about future market trends and the performance of the Company. Our ~~share repurchase program~~Share Repurchase Program may be modified or discontinued at any time.

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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 Securities Exchange Act of 1934, during the three-month period ended December 31, ~~2010~~2011.

Period
Total
Number of
Shares Purchased ⁽¹⁾

Average Price
Paid per Share

Total Number of Shares
Purchased as a Part of
Publicly Announced
Plans or Programs

Maximum Number of
Shares that may be
Purchased Under t he
Plans or Programs
10/1/10 - 10/31/10 28,168 $ 19.94 28,168 183,400
11/1/10 - 11/30/10 10,574 19.95 10,574 172,826
12/1/10 - 12/31/10 — — — 172,826



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may be Purchased Under the Plans or Programs
10/1/11 - 10/31/11	—	$	—	—	471,686
11/1/11 - 11/30/11	—	—		—	471,686
12/1/11 - 12/31/11	1,807	20.14		1,807	469,879

(1) Our share repurchase program was originally announced in August ~~2007 and allowed~~2007. Our Board of Directors authorized us, in May 2011, to ~~repurchase~~purchase up to an additional ~~600,000~~1,000,000 shares of ~~our~~ common stock ~~bringing our total repurchase authorization to 687,167 shares. The program was extended for an additional two years by the board of directors in~~through August ~~2009. It is currently set to expire in August 2011.~~2013.

United Fire & Casualty Company Common Stock Performance Graph

The following graph compares the performance of an investment in ~~our~~United Fire & Casualty Company's common stock from December 31, ~~2005~~2006, through December 31, ~~2010~~2011, with the Standard & Poor’s 500 Index (“S&P 500 Index”), and the Standard & Poor’s 600 Property and Casualty Index (“S&P 600 P&C Index”)~~, Russell 2000 Index, the SNL Insurance Company Index and the SNL Property & Casualty Insurance Index.~~. The graph assumes $100 was invested on December 31, ~~2005~~2006, in each of our common stock and the above listed indices and that all dividends were reinvested on the date of payment without payment of any commissions. Dollar amounts in the graph are ~~rounde d~~rounded to the nearest whole dollar. The performance shown in the graph represents past performance and should not be considered an indication of future performance.

In order to provide a better comparison, we have replaced the Russell 2000 Index, the SNL Insurance Company Index and the SNL Property & Casualty Insurance Index, the indices used in previous years, with the S&P 500 Index and S&P 600 P&C Index for stockholder return purposes. These indices were also chosen because we believe they are a more appropriate benchmark against which to measure stock performance. Please note that the Russell 2000 Index, the SNL Insurance Company Index and the SNL Property & Casualty Insurance Index are represented in the following graph in accordance with Item 201(e)(4) of Regulation S-K, which requires that both the new and old index be shown if the graph shows a dif ferent index from that used in the preceding year. We will not include the Russell 2000 Index, the SNL Insurance Company Index and the SNL Property & Casualty Insurance Index in our December 31, 2011 Form 10-K.

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United Fire ~~& Casualty Company~~Group, Inc. Form 10-K | ~~2010~~2011

The following table shows the data used in the Total Return Performance graph above.


	Period Ending													Period Ending
Index	12/31/05		12/31/06		12/31/07		12/31/08		12/31/09			12/31/10		12/31/06		12/31/07		12/31/08		12/31/09		12/31/10		12/31/11
United Fire & Casualty Company	$	100.00	$	88.52	$	74.20	$	80.87	$	49.04		$	61.84	$	100.00	$	83.82	$	91.36	$	55.40	$	69.86	$	65.18
S&P 500 Index	100.00		115.79		122.16		76.96		97.33			111.99		100.00		105.49		66.46		84.05		96.71		98.76
S&P 600 P&C Index	100.00		110.41		97.07		89.82		77.45		&n bsp;	94.43		100.00		87.92		81.36		70.15		85.53		93.56
Russell 2000 Index	100.00		116.57		125.86		97.42		105.33			125.60
SNL Insurance P&C	100.00		109.90		110.60		59.04		67.69			81.27
SNL Insurance	100.00		118.37		116.51		77.15		98.11			124.46

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United Fire ~~& Casualty Company~~Group, Inc. Form 10-K | ~~2010~~2011

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data derived from the Consolidated Financial Statements of United Fire & Casualty Company and its subsidiaries and ~~affiliate.~~affiliates. The data should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8, “Financial Statements and Supplementary Data.”

(In Thousands, Except Per Share Data)
Years Ended December 31 2010 2009 2008 2007 2006
Consolidated Balance Sheet Data:
Total cash and investments $ 2,662,955 $ 2,542,693 $ 2,205,355 $ 2,399,141 $ 2,388,387
Total assets 3,007,439 2,902,544 2,687,130 2,760,554 2,776,067

Future policy benefits and losses, claims and loss settlement expenses
Property and casualty insurance ⁽¹⁾
603,090 606,045 586,109 496,083 518,886
Life insurance 1,389,331 1,321,600 1,167,665 1,184,977 1,233,342
Unearned premiums 200,341 206,010 216,966 224,530 231,377

Total liabilities 2,291,015 2,229,809 2,045,389 2,009,057 2,095,259
Net unrealized gains, after tax ⁽²⁾
102,649 82,491 25,543 & nbsp; 85,579 93,519
Repurchase of United Fire common stock (6,280 ) (1,545 ) (14,817 ) (16,078 ) —
Total stockholders’ equity ⁽³⁾
716,424 672,735 641,741 751,497 680,808

Book value per share 27.35 25.35 24.10 27.63 24.62

Consolidated Income Statement Data:
Revenues
Net premiums written ⁽⁴⁾
$ 463,892 $ 467,427 $ 496,897 $ 501,849 $ 509,669
Net premiums earned 469,473 478,498 503,375 505,763 503,122
Investment income, net of investment expenses ⁽⁵⁾
111,685 106,075 107,577 122,439 121,981
Realized investment gains (losses) ⁽⁶⁾
8,489 (13,179 ) (10,383 ) 9,670 9,965
Other income 1,425 799 880 654 532
Consolidated revenues $ 591,072 $ 572,193 $ 601,449 $ 638,526 $ 635,600

Losses and loss settlement expenses
Property and casualty insurance 289,437 365,721 393,349 245,845 278,504
Life insurance 20,359 16,773 13,291 14,869 14,285
Amortization of deferred policy acquistion costs 113,371 114,893 129,158 136,805 126,898
Other underwriting expenses ⁽⁷⁾
39,321 39,298 28,252 22,918 21,525
Net income (loss) ⁽⁸⁾
47,513 (10,441 ) (13,064 ) 111,392 &nb sp; 88,085

Property and C asualty Insurance Segment Data:
Net premiums written ⁽⁴⁾
414,908 424,827 459,571 470,402 476,402
Net premiums earned 420,373 435,677 465,581 473,134 467,031
Net income (loss) 34,726 (17,677 ) (15,156 ) 98,225 73,970
Combined ratio ⁽⁴⁾
99.9 % 115.2 % 113.9 % 81.3 % 87.9 %

Life Insurance Segment Data:
Net premiums earned 49,100 42,821 37,794 32,629 36,091
Net income 12,787 7,236 2,092 13,167 14,115

Earnings Per Share Data:
Basic earnings (loss) per common share ⁽⁹⁾
1.81 (0.39 ) (0.48 ) 4.04 3.37
Diluted earnings (loss) per common share 1.80 (0.39 ) (0.48 ) 4.03 3.36

Other Supplemental Data:
Cash dividends declared per common share 0.60 0.60 0.60 0.555 0.495

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(In Thousands, Except Per Share Data)
Years Ended December 31	2011			2010			2009			2008			2007
Consolidated Balance Sheet Data:
Total cash and investments	$	3,052,535		$	2,662,955		$	2,542,693		$	2,205,355		$	2,399,141
Total assets	3,618,924			3,007,439			2,902,544			2,687,130			2,760,554

Future policy benefits and losses, claims and loss settlement expenses
Property and casualty insurance ⁽¹⁾	945,051			603,090			606,045			586,109			496,083
Life insurance	1,476,281			1,389,331			1,321,600			1,167,665			1,184,977
Unearned premiums	288,991			200,341			206,010			216,966			224,530

Total liabilities	2,922,783			2,291,015			2,229,809			2,045,389			2,009,057
Net unrealized gains, after tax ⁽²⁾	124,376			102,649			82,491			25,543			85,579
Repurchase of United Fire & Casualty Company common stock	(12,433		)	(6,280		)	(1,545		)	(14,817		)	(16,078		)
Total stockholders’ equity ⁽³⁾	696,141			716,424			672,735			641,741			751,497

Book value per share	27.29			27.35			25.35			24.10			27.63

Consolidated Income Statement Data:
Revenues
Net premiums written ⁽⁴⁾	$	604,867		$	463,892		$	467,427		$	496,897		$	501,849
Net premiums earned	586,783			469,473			478,498			503,375			505,763
Investment income, net of investment expenses ⁽⁵⁾	109,494			111,685			106,075			107,577			122,439
Realized investment gains (losses) ⁽⁶⁾	6,440			8,489			(13,179		)	(10,383		)	9,670
Other income	2,291			1,425			799			880			654
Consolidated revenues	$	705,008		$	591,072		$	572,193		$	601,449		$	638,526

Losses and loss settlement expenses
Property and casualty insurance ⁽⁷⁾	407,831			289,437			365,721			393,349			245,845
Life insurance	22,558			20,359			16,773			13,291			14,869
Amortization of deferred policy acquisition costs ⁽⁸⁾	153,176			113,371			114,893			129,158			136,805
Other underwriting expenses ⁽⁹⁾	58,757			39,321			39,298			28,252			22,918
Net income (loss) ⁽¹⁰⁾	11			47,513			(10,441		)	(13,064		)	111,392

Property and Casualty Insurance Segment Data:
Net premiums written ⁽⁴⁾	551,923			414,908			424,827			459,571			470,402
Net premiums earned	533,771			420,373			435,677			465,581			473,134
Net income (loss)	(7,639		)	34,726			(17,677		)	(15,156		)	98,225
Combined ratio ⁽⁴⁾	112.1		%	99.9		%	115.2		%	113.9		%	81.3		%

Life Insurance Segment Data:
Net premiums earned	53,012			49,100			42,821			37,794			32,629
Net income	7,650			12,787			7,236			2,092			13,167

Earnings Per Share Data:
Basic earnings (loss) per common share ⁽¹¹⁾	—			1.81			(0.39		)	(0.48		)	4.04
Diluted earnings (loss) per common share	—			1.80			(0.39		)	(0.48		)	4.03

Other Supplemental Data:
Cash dividends declared per common share	0.60			0.60			0.60			0.60			0.555

(1)

Property and casualty reserves may be affected by both internal and external events, such as changes in claims handling procedures, judicial or legislative actions, inflation, and catastrophes. ~~The~~In 2011, our acquisition of Mercer Insurance Group and a significant level of catastrophes were factors in the change in our reserves. In prior years, the fluctuations in our reserves ~~over the past five years~~ primarily ~~relate~~related to losses incurred from Hurricanes Ike and Gustav, which occurred in 2008, and the adverse claims litigation that has resulted from Hurricane Katrina, which occurred in 2005. For further discussion of ~~Hurricane Katrina,~~our acquisition of Mercer Insurance Group, refer to ~~our “Results of Operations” contained in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and~~ Note 16, ~~“Contingent Liabilities”~~“Business Combinations” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”


(2)	Net unrealized gains, after tax, were impacted in 2008 ~~due to~~by the volatility in the financial markets. The severe downturn in the financial ~~markets resulted in a significant decrease to our net unrealized appreciation in 2008, while in 2009 and 2010 our net unrealized appreciation returned to levels similar to years prior to 2008.~~

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markets resulted in a significant decrease to our net unrealized gains in 2008, while in subsequent years our net unrealized gains returned to levels similar to years prior to 2008. In addition, our 2011 net unrealized gains were impacted by our acquisition of the investment portfolio of Mercer Insurance Group.

(3)

In 2011, our stockholders' equity decreased as a result of stockholder dividends, stock repurchases and an increase in the underfunded status of our employee benefit plans. The decrease was somewhat offset by an increase in net unrealized gains. In 2010, our stockholders' equity improved due to an increase in net unrealized gains and a significant improvement in our earnings. In 2008 and 2009, our stockholders’ equity was impacted by the overall state of the economy and the volatility in the financial markets, which impaired our ability to generate an underwriting profit and reduced our net investment income and net unrealized investment gains. ~~Additionally, we recognized in equity, for the five years, the net change in the underfunded status of our employee benefit plans.~~


(4)	~~Please~~For further information on this line, please refer to the ~~Statutory Financial Measures section~~Results of Operations and Measurement of Results sections in Part II, Item ~~7 for further explanation of this measure.~~7.

(5)

The decline in investment income ~~in 2009 and 2008~~since 2007 was due to lower market interest rates earned on our investment portfolio, which affected the amount we earned on our short-term investments and cash and cash ~~equivalents;~~equivalents, and the changes in the value of certain investments in limited liability partnerships. Additionally in 2009 and 2008, investment income was affected by agency bonds that were called during 2009, the proceeds ~~of which we~~were reinvested at a lower interest rate than was previously available in prior ~~years;~~years, and the reduction or discontinuation of dividend payments by some of our equity ~~securit ies~~securities that previously had paid regular ~~dividends; and the changes in the value of certain investments in limited liability partnerships.~~dividends.

(6)

Realized investment gains and losses could be material to our results of operations over the long term, and the occurrence and timing of realized gains and losses may cause our earnings to fluctuate substantially. GAAP requires us to recognize gains and losses from certain changes in the fair value of securities without the actual sale of those securities. The realized investment losses in 2009 and 2008 were primarily due to pre-tax realized losses from other-than-temporary investment charges incurred on our fixed maturity securities and equity securities. We recorded other-than-temporary investment charges of $0.4 million, $0.5 million, $18.3 million, $9.9 million and $0.1 million in ~~$9.9 million~~2011, ~~$0.1 million~~2010, 2009, 2008 and ~~$0.4 million in 2010, 2009, 2008,~~ 2007 ~~and 2006,~~, respectively.


(7)	~~Two~~For further information on this line, please refer to the Results of Operations section in Part II, Item 7.


(8)	Amortization of deferred policy acquisitions costs increased in 2011 as a result of our acquisition of Mercer Insurance Group and the impact of amortization of the value of business acquired ("VOBA") asset. The VOBA asset is being amortized in the first 12 months of operations subsequent to the acquisition, in correlation to the remaining term of Mercer Insurance Group policies that we acquired.

(9)

In 2011, our acquisition of Mercer Insurance Group primarily accounts for the fluctuation in other underwriting expenses when compared to prior years. The two factors ~~caused~~that historically cause most of the fluctuation in other underwriting ~~expenses:~~expenses are the level of deferrable underwriting expenses, which generally correlates to our level of written premiums, and changes in the expense for our employee benefit plans.

~~(8)~~ (10)

Our net income in 2011 reflects an increase in loss and loss settlement expenses from catastrophes and an increased level of other underwriting expenses, primarily as a result of our acquisition of Mercer Insurance Group. Our net losses in 2009 and 2008 were due to lower revenues from premiums earned, a decrease in net investment income, realized losses, higher expenses from losses, and other underwriting expenses. For further discussion of net income (loss) refer to our “Results of Operations” contained in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


~~(9)~~ (11)	Our basic earnings (loss) per common share is calculated by dividing our net income (loss) by the weighted average common shares outstanding during the reporting period.

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United Fire ~~& Casualty Company~~Group, Inc. Form 10-K | ~~2010~~2011

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

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 and the Securities Exchange Act of 1934 for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about ~~our company,~~the Company, 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),” “target(s),” “forecast(s),” “project(s),” “predict(s),” “should,” “could,” “may,” “will continue,” “might,” “hope,” “can” and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part II Item 1A, “Risk ~~Factors&rdq uo;~~Factors” of this document. Among the factors that could cause our actual outcomes and results to differ are:


•	~~The adequacy of our loss and loss settlement expense reserves established for Hurricane Katrina, which are based on management~~’~~s estimates.~~

The frequency and severity of claims, including those related to catastrophe losses, and the impact those claims have on our loss reserve adequacy.


•	~~The frequency and severity of claims, including those related to catastrophe losses, and the impact those claims have on our loss reserve adequacy.~~


•	~~Developments in the domestic and global financial markets that could affect our investment portfolio and financing plans.~~

Developments in the domestic and global financial markets that could affect our investment portfolio.


•	~~The calculation and recovery of deferred policy acquisition costs (“DAC”).~~


•	~~The valuation of pension and other postretirement benefit obligations.~~

The calculation and recovery of deferred policy acquisition costs (“DAC”).


•	~~Our relationship with our agents.~~


~~•&nbs p;~~	~~Our relationship with our reinsurers.~~

The valuation of pension and other postretirement benefit obligations.


•	~~The financial strength rating of our reinsurers.~~


•	~~Changes in industry trends and significant industry developments.~~

Our relationship with our agencies and agents.


•	~~The resolution of regulatory issues and litigation pertaining to and arising out of Hurricane Katrina.~~


•	Governmental actions, policies and reg ulations, including, but not limited to, domestic health care reform, financial services regulatory reform, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions.

Our relationship with our reinsurers.


•	~~NASDAQ policies or regulations relating to corporate governance and the cost to comply.~~

The financial strength rating of our reinsurers.

Changes in industry trends and significant industry developments.

Our exposure to international catastrophes through our assumed reinsurance program.

Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions.

NASDAQ policies or regulations relating to corporate governance and the cost to comply.

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

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~~United Fire & Casualty Company Form 10-K | 2010~~

made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

~~Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part I, Item 1A, “Risk Factors”~~

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United Fire Group, Inc. Form 10-K | 2011

~~INTRODUCTIO N~~

INTRODUCTION

The purpose of the Management’s Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial position. Our Management’s Discussion and Analysis should be read in conjunction with Part II, Item 6, “Selected Financial Data” and Part II, Item 8, “Financial Statements and Supplementary Data.” When we provide information on a statutory basis, we label it as such; otherwise, all other data is presented in accordance with U.S. generally accepted accounting principles (“GAAP”).

This discussion and analysis is presented in these sections:


•	~~Our Business~~

Our Business


•	~~Consolidated Financial Highlights~~


•	~~Results of Operations for the Years Ended~~ ~~December 31, 2010~~, ~~2009, and~~ ~~2008~~

Measurement of Results


•	~~Investments~~


•	~~Liquidity and Capital Resources~~

Consolidated Financial Highlights


•	~~Critical Accounting Estimates~~


•	~~Pending Accounting Standards~~

Results of Operations for the Years Ended December 31, 2011, 2010, and 2009


•	~~Statutory Financial Measures~~


•	~~Non-GAAP Financial Measures~~

Investments

Liquidity and Capital Resources

Critical Accounting Estimates

Pending Accounting Standards

OUR BUSINESS

Founded in 1946, United Fire & Casualty Company ~~provides~~and its subsidiaries provide insurance protection for individuals and businesses through several regional companies. We are represented nationally by ~~796~~1,302 independent property and casualty insurance agencies and predominantly in the Midwest by ~~956~~950 independent life insurance ~~agencies throughout the country, predominantly in the Midwest, West and South.~~agencies.

Segments

We operate two business segments ~~with~~that are comprised of a wide range of products:


•	~~property and casualty insurance, which includes commercial insurance, personal insurance, surety bonds and assumed insurance; and~~


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

property and casualty insurance, which includes commercial insurance, personal insurance, and assumed insurance; and

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

These business segments are managed separately, as they generally do not share the same customer base, and they each have different products, pricing, and expense structures.

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~~United Fire & Casualty Company Form 10-K | 2010~~

For ~~2010~~2011, property and casualty business accounted for ~~nearly~~approximately 90.0 percent of our net premiums earned, of which ~~90.5~~89.6 percent was generated from commercial insurance. Life insurance business made up approximately 10.0 percent of our net premiums earned, of which over 61.0 percent was generated from traditional life insurance products.

Pooling Arrangement

All of our property and casualty insurance subsidiaries, with the exception of Texas General Indemnity Company, are members of an intercompany reinsurance pooling arrangement. The insurance entities of Mercer Insurance

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Group participated in their own pooling arrangement in 2011, which was in place when we acquired Mercer Insurance Group on March 28, 2011. Effective January 1, 2012, one pooling arrangement exists to cover all participating insurance subsidiaries of United Fire Group, Inc. Pooling arrangements permit 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 ~~2010~~2011, ~~more than half~~approximately 50.0 percent of our property and casualty premiums were written in Texas, Iowa, California, Missouri, ~~Louisiana,~~ and ~~Illinois;~~Louisiana; over ~~three-fourths~~70.0 percent of our life insurance premiums were written in Iowa, ~~Wisconsin,~~Minnesota, Illinois, Nebraska, and ~~Minnesota.~~Wisconsin.

Sources of Revenue and Expense

We evaluate segment profit or loss based upon operating and investment results. Segment profit or loss described in the following sections of Management’s Discussion and Analysis is reported on a pre-tax basis. Additional segment information is presented in Part II, Item 8, Note 1110 “Segment Information” to the Consolidated Financial Statements.

Our primary sources of revenue are premiums and investment income. Major categories of expenses include losses and loss settlement expenses, changes in reserves for future policy benefits, operating (i.e., underwriting) expenses and interest on policyholders’ accounts.

Profit Factors

The profitability of ~~our company~~the Company is influenced by many factors, including price, competition, economic conditions, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in the law. ~~Management believes that climate change considerations will not have a material impact on our profitability, unless~~Unless a connection to increased extreme weather events related to climate change is ultimately proven ~~true.~~true, management believes that climate change considerations will not have a material impact on our profitability.

How We Achieve Profitability

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, and effective and efficient use of technology.

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United Fire ~~& Casualty Company~~Group, Inc. Form 10-K | ~~2010~~2011

MEASUREMENT OF RESULTS

Our consolidated financial statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance subsidiaries based on statutory accounting principles; these statements are filed with insurance regulatory authorities in the states where they do business.

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

Premiums written is a statutory measure of our overall business volume. Premiums written is an important measure of business production for the period under review. Net premiums written comprise direct and assumed premiums written, less ceded premiums written. Direct premiums written is the amount of premiums charged for policies issued during the period. For the property and casualty insurance segment there are no differences between direct statutory premiums written and direct premiums written under GAAP. However, for the life insurance segment, deferred annuity deposits (i.e., sales) are included in direct statutory premiums written, whereas they are excluded for GAAP.

Assumed premiums written is consideration or payment we receive in exchange for insurance we provide to other insurance companies. We report these premiums as revenue as they are earned over the underlying policy period. Ceded premiums written is the portion of direct premiums written that we cede to our reinsurers under our reinsurance contracts.



	Years Ended December 31
(In Thousands)	2011			2010			2009
Net premiums written	$	604,867		$	463,892		$	467,427
Net change in unearned premium	(16,401		)	5,669			10,956
Net change in prepaid reinsurance premium	(1,683		)	(88		)	115
Net premiums earned	$	586,783		$	469,473		$	478,498

Combined ratio is a commonly used statutory 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 two separately calculated ratios, the loss and loss settlement expense ratio (the “net loss ratio”) and the underwriting expense ratio (the “expense ratio”). If the combined ratio is at or above 100.0 percent, an insurance company is not underwriting profitably and may not be profitable unless investment income is sufficient to offset underwriting losses.

When prepared in accordance with GAAP, the net loss ratio is calculated as the ratio of losses and loss settlement expenses incurred to net premiums earned and measures the underwriting profitability of a company’s insurance business. 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 Consolidated Financial Statements.

When prepared in accordance with GAAP, the underwriting expense ratio is calculated as the ratio of amortization of deferred policy acquisition costs and nondeferred underwriting expenses to net premiums earned. The underwriting expense ratio measures a company’s operational efficiency in producing, underwriting and administering its insurance business.

When prepared in accordance with statutory accounting principles, the net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned; the expense ratio is calculated by dividing underwriting expenses by net premiums written.

Catastrophe losses is a commonly used non-GAAP financial measure, which utilize the designations of the Insurance Services Office (ISO) and are reported with loss and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise. According to the ISO, a catastrophe loss is defined as a single

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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, such as Hurricane Katrina. The frequency and severity of catastrophic losses we experience in any year affect our results of operations and financial position. In analyzing the underwriting performance of our property and casualty insurance segment, 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 periodic earnings.



	Years Ended December 31
(In Thousands)	2011		2010		2009
ISO catastrophes ⁽¹⁾	$	57,238	$	16,230	$	20,781
Non-ISO catastrophes ⁽²⁾	23,555		3,540		1,616
Total catastrophes	$	80,793	$	19,770	$	22,397

(1) This number does not include loss and loss settlement expenses incurred for Hurricane Katrina claims and related litigation.

(2) This number includes international assumed losses.

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United Fire Group, Inc. Form 10-K | 2011

CONSOLIDATED FINANCIAL HIGHLIGHTS

Consolidated Results of Operations


										% Change														% Change
(In Thousands)										2010			2009											2011		2010
Years ended December 31	2010			2009			2008			vs. 2009			vs. 2008		2011			2010			2009			vs. 2010		vs. 2009
Revenues
Net premiums earned	$	469,473		$	478,498		$	503,375		(1.9	)%		(4.9	)%	$	586,783		$	469,473		$	478,498		25.0	%	(1.9	)%
Investment income, net	111,685			106,075			107,577			5.3			(1.4	)	109,494			111,685			106,075			(2.0	)	5.3
Realized investment gains (losses), net	8,489			(13,179		)	(10,383		)	164.4			(26.9	)
Realized investment gains (losses)
Other-than-temporary impairment charges															(395		)	(459		)	(18,307		)	13.9		97.5
Other realized gains, net															6,835			8,948			5,128			(23.6	)	74.5
Total realized investment gains (losses)															6,440			8,489			(13,179		)	(24.1	)	164.4
Other income	1,425			799			880			78.3			(9.2	)	2,291			1,425			799			60.8		78.3
Total Revenues	$	591,072		$	572,193		$	601,449		3.3	%		(4.9	)%	$	705,008		$	591,072		$	572,193		19.3	%	3.3	%
Benefits, Losses and Expenses
Loss and loss settlement expenses	$	309,796		$	382,494		$	406,640		(19.0	)%		(5.9	)%	$	430,389		$	309,796		$	382,494		38.9	%	(19.0	)%
Increase in liability for future policy benefits	27,229			23,897			23,156			13.9			3.2
Liability for future policy benefits															32,567			27,229			23,897			19.6		13.9
Amortization of deferred policy acquisition costs	113,371			114,893			129,158			(1.3	)		(11.0	)	153,176			113,371			114,893			35.1		(1.3	)
Other underwriting expenses	39,321			39,298			28,252			0.1			39.1		58,757			39,321			39,298			49.4		0.1
Disaster charges and other related expenses, net of recoveries	(16		)	(1,335		)	7,202			(98.8	)		(118.5	)	—			(16		)	(1,335		)	NM		98.8
Interest on policyholders’ accounts	42,988			41,652			40,177			3.2			3.7		42,834			42,988			41,652			(0.4	)	3.2
Total Benefits, Losses and Expenses	$	532,689		$	600,899		$	634,585		(11.4	)%		(5.3	)%	$	717,723		$	532,689		$	600,899		34.7	%	(11.4	)%
Income (loss) before income taxes	58,383			(28,706		)	(33,136		)	NM			13.4		(12,715		)	58,383			(28,706		)	(121.8	)	NM
Federal income tax expense (benefit)	10,870			(18,265		)	(20,072		)	159.5			9.0		(12,726		)	10,870			(18,265		)	NM		159.5
Net Income (Loss)	$	47,513		$	(10,441	)	$	(13,064	)	NM			20.1	%	$	11		$	47,513		$	(10,441	)	(100.0	)%	NM

Basic earnings (loss) per share	$	1.81		$	(0.39	)	$	(0.48	)	NM			18.8	%	$	—		$	1.81		$	(0.39	)	(100.0	)%	NM
Diluted earnings (loss) per share	$	1.80		$	(0.39	)	$	(0.48	)	NM		& nbsp;	18.8		$	—		$	1.80		$	(0.39	)	(100.0	)	NM

NM = not meaningful

Consolidated Results of Operations

The ~~following is a summary~~year 2011 will be remembered for its devastating catastrophes, both domestic and abroad. According to various reports, 2011 was the costliest catastrophe year on record for the property and casualty insurance industry globally. We experienced losses in our direct and assumed books of business that negatively impacted our full-year results. However, premium rates increased across all lines of business, and there were some positive signs in the overall economy. Additionally, we have taken steps to improve and strengthen our underwriting guidelines based on our catastrophe experiences of the past year. Internal analyses of our ~~financial performance~~catastrophe exposures, utilizing various approaches including the results of the updated RMS Model Version 11, supported the underwriting changes.

We also focused on our capital management strategy through our stock repurchase program and by entering into a new banking relationship with KeyBank National Association that established a $100.0 million syndicated line of credit, allowing us to reduce our cash position.

During 2011 we began the process of integrating Mercer Insurance Group into our operations. Mercer Insurance Group agents have represented our new combined companies and as a group have increased their production over the ~~last three years~~past year. We began integrating Mercer Insurance Group's policy renewals into our processing systems, and ~~the primary factors that have affected our performance.~~we

~~Consolidated R esults of Operations~~

•

~~Net income was~~ ~~$47.5 million~~ in ~~2010~~ ~~compared to net losses of~~ ~~$10.4 million~~ ~~and~~ ~~$13.1 million~~ in ~~2009~~ ~~and~~ ~~2008~~, due to an improvement in underwriting income resulting from a decrease in loss and loss settlement expenses, along with increases in net investment income and realized investment gains. The increase in our realized investment gains is attributable to a significant reduction in other-than-temporary impairment (“OTTI”) charges, which totaled ~~$0.5 million~~, ~~$18.3 million~~ ~~and~~ ~~$9.9 million~~ ~~for~~ ~~2010~~, ~~2009~~ ~~and~~ ~~2008, respectively.~~

•

~~Our property and casualty premium writings decreased 2.3 percent for~~ ~~2010~~ and 7.6 percent in 2009. The slow economic recovery continues to affect potential commercial lines policyholders. In 2010, policy cancellations due to non-payment and/or companies going out of business contributed to the decline in our premium writings. In addition, ongoing competition in a soft insurance market continued to impact our business. In the fourth quarter of 2010, we slightly reduced our commercial lines pricing levels in order to retain quality accounts, however, new business pricing remained unchanged.


•	~~Deferred annuity deposits (i.e., sales) decreased to~~ ~~$92.4 million~~ ~~for~~ ~~2010, from~~ ~~$216.6 million~~ ~~and~~ ~~$161.1 million~~in ~~2009~~ ~~and~~ ~~2008, respectively. In~~ ~~2010, historic, low interest rates continued to affect our level of~~

3739

Table of Contents

United Fire Group, Inc. Form 10-K | 2011

remain on schedule to convert the West Coast business to our systems in 2012. We also began the initial planning for integration of the East Coast business. In addition, we consolidated Mercer Insurance Group's core and catastrophe reinsurance programs into our programs, resulting in increased coverage and reduction in Mercer Insurance Group's historical costs. We expect to realize cost savings of approximately $1.5 million in 2012 from the consolidation of these programs.

In 2011, our life insurance subsidiary received approval to operate in New Jersey, North Carolina, Pennsylvania,Virginia and West Virginia, continuing to leverage the Mercer Insurance Group acquisition by expanding the life insurance segment's geographical footprint. Our life management team continues to improve service to our agents by increasing marketing support and automating life product processes.

At a special meeting held on January 24, 2012, our stockholders approved our reorganization into a new holding company structure. United Fire Group, Inc. has replaced United Fire & Casualty Company ~~Form 10-K | 2010~~

Our 2010 losses were the result of 26 ~~new~~ catastrophes with our largest single pre-tax catastrophe loss totaling $2.5 million. That loss was the result of a hailstorm that primarily affected the state of Colorado, but also impacted some areas in Wyoming, South Dakota and Nebraska.

~~Our~~ ~~2010~~In 2011, only Mercer Insurance Group exceeded their $5.0 million catastrophe ~~reinsurance programs remained relatively unchanged~~retention due to losses incurred from ~~our~~ ~~2009~~ ~~programs. Neither terms and conditions nor pricing were materially different.~~Hurricane Irene. In both 2010 and 2009, we did not exceed our catastrophe retention of $20.0 million. ~~However,~~Effective January 1, 2012, Mercer Insurance Group is included in~~2008, we exceeded~~ our catastrophe ~~retention of $20.0 million with Hurricane Ike, and recorded $2.4 million in ceded losses recoverable from that catastrophe.~~reinsurance program.

Our planned reduction in southern Louisiana that began after Hurricane Katrina ~~has~~was completed in 2011 and reduced our estimated 100-year maximum probable loss by over 60.0 ~~percent as of~~ ~~December 31, 2010~~.percent. To maintain profitability of our remaining southern Louisiana business, we ~~have~~ employed portfolio optimizing techniques (i.e., proximity to the coast, type of construction, the reduction of geographic risk concentration and higher deductibles) to reduce the impact of any one future catastrophe. ~~As an example~~

In 2011, we developed earthquake underwriting guidelines to significantly decrease our earthquake exposure in the New Madrid fault area of the ~~effectiveness~~Midwest. The guidelines were implemented with most agents in the New Madrid fault area in July 2011. The reduction in exposure has occurred through business being non-renewed, moved by the agent, the use of sublimits rather than using full earthquake limits, and a waiver signed by the insured rejecting earthquake coverage. As of December 31, 2011, our ~~risk-reduct ion efforts, we estimate that we incurred $12.8~~earthquake exposure has been reduced by $111.2 million, ~~less in losses related~~with an ultimate reduction goal of $405.4 million to ~~Hurricane Gustav in 2008 than we would have if we had not undertaken these measures.~~be accomplished by the end of 2013.

We use many reinsurers, both domestic and foreign, which helps us to avoid concentrations of credit risk associated with our reinsurance. All reinsurers we do business with must meet the following minimum criteria: capital and surplus of at least $250.0 million and an A.M. Best rating ~~of at least “A-”~~ or an S&P rating of at least “A-.” If a reinsurer is rated by both rating agencies, then both ratings must be at least an “A-.”

The following table represents the primary reinsurers we utilize and their financial strength ratings as of December 31, ~~2010~~2011:

Refer to Part II, Item 8, Note 54 “Reinsurance” for further discussion of our reinsurance programs.

The Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) was signed into law on December 27, 2007. TRIPRA coverage includes most direct commercial lines of business, including coverage for losses from nuclear, biological and chemical exposures if coverage was afforded by an insurer, with exclusions for commercial automobile insurance, burglary and theft insurance, surety, professional liability insurance and farm owners multiple peril insurance. Under TRIPRA, each insurer has a deductible amount, which is 20.0 percent of the prior year’s direct commercial lines earned premiums for the applicable lines of business, and retention of 15.0 percent above the deductible. No insurer that has met its deductible shall be liable for the payment of any portion of that amount that exceeds the annual $100.0 trillion aggregate loss cap specified in TRIPRA. TRIPRA provides marketplace stability. As a result, coverage for terrorist events in both the insurance and reinsurance markets is often available. The amount of aggregate losses necessary for an act of terrorism to be certified by the U.S. Secretary of Treasury, the Secretary of State and the Attorney General was $100.0 million for ~~2010~~2011 and remains the same for ~~2011~~2012. Our TRIPRA deductible was ~~$60.2~~$55.9 million for ~~2010~~2011 and our TRIPRA deductible will be ~~$55.9~~$78.2 million for ~~2011~~2012. Our catastrophe and non-catastrophe reinsurance ~~program~~programs provide limited coverage for terrorism exposure excluding nuclear, biological and ~~chemical related~~chemical-related claims.

Workers’ compensation insurance and other liability insurance are considered to be long-tail lines of business due to the length of time that may elapse before claims are finally settled. Therefore, we may not know our final development on individual claims for many years. Our ~~e stimates~~estimates for losses, particularly in these long-tail lines, are dependent upon many factors, such as the legal environment, inflation and medical costs. We consider all of these

factors, as well as others, in estimating our loss reserves. As conditions or trends with respect to these factors change, we change our estimate for loss reserves accordingly. Refer to “Critical Accounting Estimates” in this section for a more detailed discussion of our property and casualty insurance segment’s loss and loss settlement expenses reserves.

In ~~2009~~, we increased our reserves on prior year losses partially due to an increase in late reported claims. In addition, we focused on establishing reserves for reported claims more quickly. Our other liability line of business had a significant increase in losses and loss settlement expenses as a result of unfavorable reserve development from the re-estimation o f our recorded reserves, a slight increase in severity as a result of larger jury awards and continuing construction defect claims and loss settlement expenses. Overall, claims frequency decreased. Claims severity also flattened for a majority of lines, with a slight increase in certain liability lines, specifically automobile and other liability as compared to ~~2008~~.

~~Reser ve~~

The following table illustrates the major components of the net redundancy (deficiency) we experienced in our reserves for ~~2010~~2011, ~~2009~~2010 and ~~2008~~2009:

Salvage is the sale of damaged goods, for which the insured has been indemnified and for which the insured has transferred title to the insurance company. Salvage reduces the cost incurred for property losses. Subrogation also reduces the costs incurred for a loss by seeking payment from other parties involved in the loss and/or from the other parties’ insurance company. Alternative dispute resolution facilitates settlements and reduces defense and legal costs through processes such as mediation and arbitration. Workers’ compensation medical bill review is a system designed to detect duplicate billings, unrelated and unauthorized charges, and coding discrepancies. It also ensures that we are billed for medical services according to the fee schedule designated by each state in which we have claims.

Our “other” redundancy (deficiency) is attributable to both the payment of claims in amounts other than the amounts reserved and changes in reserves due to additional information on individual claims that we received after the reserves for those claims had been established. The additional information we consider is unique to each claim. Such information may include facts that reveal we have no coverage obligation for a particular claim, changes in applicable laws that reduce or increase our liability or coverage exposure on a particular claim, ~~fact s~~facts that implicate other parties as being liable on a particular claim and favorable or unfavorable court rulings that changes our liability for a particular claim. Also, additional information relating to severity is unique to each claim. For example, we may learn during the course of a claim that bodily injuries may be less or more severe than originally believed or that damage to a structure is merely cosmetic instead of structural.

The following table depicts our net loss ratio for ~~2010~~2011, ~~2009~~2010 and ~~2008~~2009:

The net loss ratio in our commercial lines of business, excluding assumed reinsurance, improved to71.3 percent in 2011 from 73.2 percent in 2010 ~~from~~and 85.8 percent in 2009. Our acquisition of Mercer Insurance Group added 1.5 points to this ratio. For 2011, commercial lines without Mercer Insurance Group experienced a slight improvement, primarily in the other liability lines of business, that was somewhat offset by the fire and allied lines, as these lines were affected by a significant amount of catastrophe losses during the year.~~82.1 percent~~

The significant decrease in ~~2008, due~~our net loss ratio in 2010 as compared to 2009 was the ~~significant~~result of a decrease in our loss and loss settlement expenses, ~~for 2010 as compared to prior years, and~~ in spite of the lower level of premiums earned during the year. The decrease occurred in our largest lines of business, other liability, fire and allied, automobile, and workers’ compensation, as a result of favorable reserve development, ~~on our prior year’s claims experience, which is~~ consistent with our historical level of development, excluding the impact of Hurricane Katrina.

~~The slow economic recovery during 2010 continued to affect potential commercial lines policyholders.~~ In 2010, cancellations due to non-p ayment and/or companies going out of business contributed to the decline in our premium written and earned. Our profitability has also been impacted by ongoing competition in a soft commercial lines market in each of the last three years. In 2010 and 2009, ~~we experienced a modest decrease in premium level, reflecting the continuation of a trend of gradual decreases in premium level for some lines of business dating back to the third quarter of 2004.~~

Commercial fire and allied lines include fire, allied lines, commercial multiple peril and inland marine. The insurance covers ~~l osses~~losses to an insured’s property, including its contents, from weather, fire, theft or other causes. We provide this coverage through a variety of business policies.

The deterioration in ~~2008~~.2011 was due to the significant increase in catastrophe activity during the year as compared to 2010. The improvement in 2010 was due to a reduction in adverse development from Hurricane Katrina as compared to 2009, and a decrease in severity. ~~The improvement in~~ ~~2009~~ ~~as compared to~~ ~~2008~~ was primarily the result of a decrease in loss and loss settlement expenses due to lower catastrophe losses and a leveling off of severity. Without considering catastrophe losses, frequency did not change signifi cantly in 2009 from 2008.

In 2009, we took additional measures to address the increase in incurred losses in the commercial fire and allied lines of business, by implementing a number of underwriting initiatives that we anticipated would improve our loss experience. The following are the underwriting initiatives we undertook in 2009 and the progress we have made with them during 2010:

Operating cash flows in 2010 reflected a lower level of loss and loss settlement expense payments, a lower level of operating expenses paid and an increased level of investment income ~~received.~~received from the prior year. Negatively impacting operating cash flows was a lower level of property and casualty insurance premiums collected. The ~~increase in~~2009 operating cash ~~flow for 2009 reflects an increase in loss payments;~~flows include a reduction in other assets of $29.0 million for the conclusion of certain litigation related to Hurricane Katrina; and a reduction in reinsurance recoveries due to the collection of payments during the year and ~~the~~an improvement in our catastrophe ~~experience in 2009 as compared to 2008.~~experience.

Our cash flows from operations were sufficient to meet our liquidity needs in ~~2010~~2011, ~~2009~~2010 and ~~2008~~2009.

Cash in excess of operating requirements is generally invested in fixed maturity securities and equity securities. Fixed maturities provide regular interest payments ~~as well as the ability~~and allow us to match the duration of our liabilities. Equity securities provide ~~the~~ potential ~~for future increases in~~ dividend income, potential dividend income growth or reduction and ~~for app reciation.~~potential appreciation or depreciation. For further discussion of our investments, including our philosophy and portfolio, see the “Investments” section contained in this item.

In addition to investment income, ~~possible~~ sales of investments and proceeds from calls or maturities of fixed maturity securities can also ~~can~~ provide liquidity. During the next five years, $1.3 billion, or ~~58.4~~49.1 percent, of our fixed maturity portfolio will mature.

We invest funds ~~requ ired~~required for short-term cash needs primarily in money market accounts, which are classified as cash equivalents. At December 31, ~~2010~~2011, our cash and cash equivalents included $~~34.4~~62.9 million related to these money market accounts, compared with $~~96.2~~34.4 million at December 31, ~~2009~~2010.

~~Ne t~~Net cash flows used in investment activities totaled $175.2 million in 2011, compared to $94.7 million in 2010~~, compared to~~ and $130.1 million in 2009. In 2011, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments that totaled $610.0 million compared to $482.5 million and $~~107.3~~399.6 million for the same period in 2010 and 2009, respectively. The increasing cash inflows over the last three years primarily relates to redemptions of fixed maturity securities that are reissued at lower interest rates as interest rates have been declining during this period.

Our cash outflows for investment purchases totaled $598.5 million in ~~2008~~2011~~.The~~, compared to $575.2 million and $519.1 million for the same period in 2010 and 2009, respectively. We also had a net cash ~~available from annuity deposits received~~outflow in ~~2009 allowed us~~2011 of $172.6 million related to ~~invest at a level in 2010, similar to 2008.~~our acquisition of Mercer Insurance Group.

Net cash flows provided by financing activities totaled $65.2 million, $12.7 million, and $111.0 million in 2011, 2010, and 2009, ~~respectively, compared to net cash used in financing activities totaling~~ ~~$79.6 million~~ in ~~2008~~.respectively. Net cash from financing activities ~~decreased~~increased in 2011 because our life insurance segment's annuity and universal life contract deposits exceeded withdrawals. Also affecting 2011 cash flows were borrowed funds totaling $124.9 million related to our acquisition of Mercer Insurance Group, of which $82.9 million was repaid in 2011. For further discussion of our outstanding debt, refer to Part II, Item 8, Note 17 “Debt.”

In 2010, net cash from financing activities decreased due to a lower volume of annuity deposits. Net cash flows from financing activities ~~improved significantly~~ in 2009 ~~primari ly~~were primarily due to ~~the life insurance segment's~~deposits from annuity and universal life ~~contract deposits~~contracts exceeding withdrawals. ~~We began to experience a slowdown in~~In 2009, we experienced the ~~amount~~largest reduction of withdrawals ~~in 2008,~~since 2005, which iswas indicative of the change in economic conditions and the inclination of consumers to choose products with less risk and guaranteed returns. ~~This slowdown continued into 2009, with 2009 experiencing~~

Net cash inflows from our life insurance segment's annuity and universal life deposits totaled $51.0 million, in 2011, compared to $34.6 million and $128.4 million for the ~~largest reduction of withdrawals since 2005.~~same period in 2010 and 2009, respectively.

Payments of any future dividends ~~an d~~and the amounts of such dividends, however, will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors, out of funds legally available, and subject to any other restrictions that may be applicable to us.

State ~~law permits the payment of~~laws permit United Fire & Casualty Company to pay dividends to United Fire Group, Inc. for distribution to stockholders only from earned surplus arising from business operations. Furthermore, under Iowa law weUnited Fire & Casualty Company may pay dividends only if after giving effect to the payment ~~we are~~ either that the company is able to pay our debts as they become due in the normal course of business or our total assets would be equal to or more than the sum of our total liabilities. ~~Our subsidiaries are also subject to similar state law restrictions on dividends.~~ Based on these restrictions, in ~~2011~~2012, ~~we are~~United Fire & Casualty will be allowed to make a maximum of $~~59.4~~56.6 million in dividend distributions ~~to stockholders~~ without prior approval. Dividend payments by the other insurance subsidiaries ~~to United Fire~~in the holding company system are subject to similar restrictions in the states in which they are domiciled. These restrictions will not have a material impact in meeting our cash obligations.

Under our share repurchase program, first announced in August 2007, we may purchase our common stock from time ~~t o~~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, economic and general market conditions, and corporate and regulatory requirements. Our share repurchase program may be modified or discontinued at any time.

During ~~2010~~2011, ~~2009~~2010 and ~~2008~~2009, pursuant to authorization by our Board of ~~Di rectors,~~Directors, we repurchased ~~343,328~~702,947; ~~92,721~~343,328; and ~~580,792~~92,721 shares of our common stock respectively, which used cash totaling $12.4 million in 2011, $6.3 million in 2010, and $1.5 million in 2009 ~~and~~ ~~$14.8 million~~ in ~~2008~~. At December 31, ~~2010~~2011, we were authorized to purchase an additional ~~172,826~~469,879 shares of our common stock under our ~~Share Repurchase Program,~~share repurchase program, which expires in August ~~2011.~~2013.

In the fourth quarter of ~~Credit~~

During the term of this credit facility, we have the right to increase the total facility from $100.0 million up to $125.0 million, provided that no event of default has occurred or is continuing and certain other conditions are satisfied. The credit facility is available for general corporate purposes, including working capital, acquisitions and liquidity purposes. Principal of the credit facility is due in full at maturity, on December 22, 2015. The interest rate is based on our monthly choice of either the London Interbank Offered Rate (“LIBOR”) or a base rate plus, in each case, a calculated margin amount. A commitment fee on each lender's unused commitment under the credit facility is also payable quarterly. The credit facility replaced a $50.0 million revolving credit facility with Bankers Trust Company, which was repaid and terminated in connection with entering into the new credit agreement.

The credit agreement contains customary representations, covenants and events of default, including certain covenants that limit or restrict our ability to engage in certain activities. Subject to certain exceptions, these activities include restricting our ability to sell or transfer assets or enter into a merger or consolidate with another company,

grant certain types of security interests, incur certain types of liens, impose restrictions on subsidiary dividends, enter into leaseback transactions, or incur certain indebtedness. The credit agreement contains certain financial covenants including covenants that require us to maintain a ~~bank line of credit. Under~~minimum consolidated net worth, a debt to capitalization ratio and minimum stockholders' equity. The credit agreement contains terms that allow the ~~current terms~~agreement to continue after the formation of our ~~credit agreement, interest~~holding company, United Fire Group, Inc., which occurred on outstanding notes is payable at the lender’s prevailing prime rate, minus 1.0 percent, with a floor of 6.0 percent. We are currently in the process of reevaluating our line of credit options with other lenders. We did not utilize our line of credit during ~~2010~~ or ~~2009~~.

~~Stockholders’ equity increased from~~ ~~$672.7 million~~ atAs of December 31, ~~2009~~2011, towe were in compliance with the covenants for the credit agreement.

Stockholders' equity decreased from $716.4 million at December 31, 2010, ~~an increase~~to $696.1 million at December 31, 2011, a decrease of ~~6.5~~2.8 percent. The ~~increase in stockholders’ equity between years is primarily due~~decline was attributable to ~~net income~~stockholder dividends of

On ~~November 30, 2010,~~March 28, 2011, we ~~announced our entry into a definitive agreement to acquire~~acquired 100 percent of the outstanding common stock of Mercer ~~in a transaction valued at approximately $191.0~~Insurance Group for $191.5 million. The acquisition was funded through a combination of cash and $79.9 million of short-term debt. Accordingly, the results of operations for Mercer Insurance Group are included in our Consolidated Financial Statements from that date forward. After the acquisition, we market our products through over 1,300 independent property and casualty agencies. In addition, the acquisition allows us to diversify our exposure to weather and other catastrophe risks across our geographic markets.

This transaction ~~is subject~~was accounted for under the acquisition method using Mercer Insurance Group historical financial information and applying fair value estimates to ~~customary conditions, including approval by~~ the ~~stockholders of Mercer~~acquired assets, liabilities and ~~regulatory authorities. Approval~~commitments as of the ~~transaction by United Fire stockholders is not required and there is no financing condition~~acquisition date. Refer to ~~consummate the transaction.~~

In connection with this acquisition, we incurred $8.3 million of transactions costs, which included $5.5 million of expense in the ~~planned acquisition~~first quarter of ~~Mercer.~~2011 related to change in control payments made to the former executive officers of Mercer Insurance Group.

The following table shows our contractual obligations and commitments, including our estimated payments due by period, at December 31, ~~2010~~2011:

Future payments to be made to ~~policyholde rs~~policyholders and beneficiaries must be actuarially estimated and are not determinable from the contract. The projected payments are based on our current assumptions for mortality, morbidity and policy lapse, but are not discounted with respect to interest. Additionally, the projected payments are



Iowa		~~42-0644327~~45-2302834
(State of Incorporation)		(IRS Employer Identification No.)



Title of each class		Name of each exchange on which registered
Common Stock, ~~$3.33 1/3~~$0.001 par value		The NASDAQ ~~Stock~~Global Select Market ~~LLC~~



Large accelerated filer £	Accelerated filer R	Non-accelerated filer £	Smaller reporting company £



	PAGE
PART I:

Item 1. Business	1

Item ~~1 A.~~1A. Risk Factors	1214

Item 1B. Unresolved Staff Comments	27

Item 2. Properties	27

Item 3. Legal Proceedings	28

Item 4. ~~Submission of Matters to a Vote of Security Holders~~Mine Safety Disclosures	28

PART II:

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28

Item 6. Selected Financial Data	3231

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 7A. Quantitative and Qualitative Disclosures About Market Risk	8691

Item 8. Financial Statements and Supplementary Data	8792

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~135~~151

Item 9A. Controls and Procedures	~~135~~151

Item 9B. Other Information	~~137~~153

PART III:

Item 10. Directors, Executive Officers and Corporate Governance	~~137~~153

Item 11. Executive Compensation	~~139~~155

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~139~~155

Item 13. Certain Relationships and Related Transactions, and Director Independence	~~139~~155

Item 14. Principal Accounting Fees and Services	~~139~~155

PART IV:

Item 15. Exhibits, Financial Statement Schedules	~~140~~156

Signatures	~~146~~162

Exhibit 12
Exhibit 21
Exhibit 23.1
Exhibit 23.2
Exhibit 23.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


(In Thousands)
Years Ended December 31	2010			2009			2008			2011			2010			2009
Gross liability for losses and loss settlement expenses at beginning of year	$	606,045		$	586,109		$	496,083		$	603,090		$	606,045		$	586,109
Ceded loss and loss settlement expenses	(33,754		)	(52,508		)	(38,800		)	(39,000		)	(33,754		)	(52,508		)
Net liability for losses and loss settlement expenses at beginning of year	$	572,291		$	533,601		$	457,283		$	564,090		$	572,291		$	533,601
Reserves acquired in Mercer Insurance Group acquisition, net										252,598			—			—
Beginning balance, as adjusted										$	816,688		$	572,291		$	533,601
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	335,315		$	339,506		$	392,801		$	468,926		$	335,315		$	339,506
Prior years	(45,878		)	26,215			548			(61,095		)	(45,878		)	26,215
Total incurred	$	289,437		$	365,721		$	393,349		$	407,831		$	289,437		$	365,721
Losses and loss settlement expense payments for claims occurring during
Current year	$	132,592		$	131,507		$	176,882		$	253,175		$	132,592		$	131,507
Prior years	165,046			195,524			140,149			146,653			165,046			195,524
Total paid	$	297,638		$	327,031		$	317,031		$	399,828		$	297,638		$	327,031
Net liability for losses and loss settlement expenses at end of year	$	564,090		$	572,291		$	533,601		$	824,692		$	564,090		$	572,291
Ceded loss and loss settlement expenses	39,000			33,754			52,508
Ceded loss and loss settlement expenses⁽¹⁾										120,359			39,000			33,754
Gross liability for losses and loss settlement expenses at end of year	$	603,090		$	606,045		$	586,109		$	945,051		$	603,090		$	606,045


•	~~Amendments to reports filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Exchange Act.~~


	Years Ended December 31,							% of Total						Years Ended December 31,						% of Total
(In Thousands)	2010			2009		2008		2010		2009		2008		2011		2010		2009		2011		2010		2009
Texas	$	68,655		$	69,900	$	70,301	15.8	%	15.4	%	14.5	%	$	74,845	$	68,655	$	69,900	12.9	%	15.8	%	15.4	%
Iowa	68,373			69,515		66,926		15.7		15.3		13.8		73,762		68,373		69,515		12.7		15.7		15.3
California														61,500		13		6		10.6		—		—
Missouri	40,342			41,185		42,242		9.3		9.1		8.7		42,202		40,342		41,185		7.3		9.3		9.1
Louisiana	37,263			41,743		42,467		8.6		9.2	&nb sp;	8.8		36,685		37,263		41,743		6.3		8.6		9.2
New Jersey														33,793		—		—		5.8		—		—
Illinois	31,330		&nbs p;	33,465		39,606		7.2		7.4		8.2		32,241		31,330		33,465		5.6		7.2		7.4
Colorado	28,775			33,938		46,763		6.6		7.5		9.7		29,250		28,775		33,938		5.0		6.6		7.5
All Other States	160,968			164,300		175,733		36.8		36.1		36.3		196,610		160,955		164,294		33.8		36.8		36.1
Direct Premiums Written ⁽¹⁾	$	435,706		$	454,046	$	484,038	100.0	%	100.0	%	100.0	%	$	580,888	$	435,706	$	454,046	100.0	%	100.0	%	100.0	%


(1)	The ~~Statutory Financial Measures~~Measurement of Results section of Part II, Item 7, defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP.


◦	The average tenure of our employees, ~~is 14.0~~approximately 12.0 years, ~~which~~ allows our agents to work with the same, highly-experienced personnel each day.


◦	Our organization is relatively flat, allowing our agents to be close to the highest levels of management and ensuring that our agents will receive answers quickly to their questions.


◦	We have relatively fewer agents appointed to each state than our ~~peers,~~competitors, which is valued by our agents, as they do not have to compete with other agents in their area to represent ~~our company.~~the Company.


•	~~Exceptional service — our agents and policyholders always have the option to speak with a real person.~~


•	~~Fair and prompt claims handling — we view claims as an opportunity to prove to our customers that they have chosen the right insurance company.~~


•	~~Disciplined underwriting — we empower our underwriters with the knowledge and tools needed to make good decisions for our company.~~


•	~~Superior loss control services — our loss control representatives make multiple visits to businesses and job sites each year to ensure safety.~~


•	~~Annual reports (Form 10-K)~~


•	~~Quarterly reports (Form 10-Q)~~


•	~~Current reports (Form 8-K)~~


	Years Ended December 31						% of Total						Years Ended December 31						% of Total
(In Thousands)	2010		2009		2008		2010		2009		2008		2011		2010		2009		2011		2010		2009
Iowa	$	45,336	$	94,658	$	83,148	32.6	%	36.8	%	41.9	%	$	51,132	$	45,336	$	94,658	29.7	%	32.6	%	36.8	%
Minnesota													20,409		11,875		23,128		11.9		8.5		9.0
Illinois													17,643		13,629		17,720		10.2		9.8		6.9
Nebraska													16,553		11,317		33,103		9.6		8.1		12.9
Wisconsin	13,942		21,548		21,026		10.0		8.4		10.6		16,507		13,942		21,548		9.6		10.0		8.4
Illinois	13,629		17,720		15,020		9.8		6.9		7.6
Minnesota	11,875		23,128		15,675		8.5		9.0		7.9
Nebraska	11,317		33,103		15,813		8.1		12.9		8.0
All Other States	42,901		67,083		47,899		31.0		26.0		24.0		49,915		42,901		67,083		29.0		31.0		26.0
Direct Statutory Premium Written ⁽¹⁾	$	139,000	$	257,240	$	198,581	100.0	%	100.0	%	100.0	%
Direct Statutory Premiums Written ⁽¹⁾													$	172,159	$	139,000	$	257,240	100.0	%	100.0	%	100.0	%


•	~~Effective and efficient use of technology — we use technology to provide enhanced service to our agents and policyholders, not to~~ ~~replace~~ ~~our personal relationships, but to reinforce them.~~


(In Thousands)
Years Ended December 31	2000		2001		2002		2003		2004			2005			2006			2007			2008			2009		2010			2001			2002			2003			2004			2005			2006			2007			2008			2009		2010		2011

Gross liability for loss and loss settlement expenses	$	358,032	$	363,819	$	392,649	$	427,049	$	464,889		$	620,100		$	518,886		$	496,083		$	586,109		$	606,045	$	603,090		$	363,819		$	392,649		$	427,049		$	464,889		$	620,100		$	518,886		$	496,083		$	586,109		$	606,045	$	603,090	$	945,051
Ceded loss and loss settlement expenses	37,526		36,909		35,760		27,309		28,609			60,137			40,560			38,800			52,508			33,754		39,000			36,909			35,760			27,309			28,609			60,137			40,560			38,800			52,508			33,754		39,000		120,359
Net liability for loss and loss settlement expenses	$	320,506	$	326,910	$	356,889	$	399,740	$	436,280		$	559,963		$	478,326		$	457,283		$	533,601		$	572,291	$	564,090		$	326,910		$	356,889		$	399,740		$	436,280		$	559,963		$	478,326		$	457,283		$	533,601		$	572,291	$	564,090	$	824,692
Cumulative net paid as of:
One year later	$	110,516	$	112,546	$	107,271	$	100,895	$	110,016		$	230,455		$	148,593		$	140,149		$	195,524		$	165,046				$	112,546		$	107,271		$	100,895		$	110,016		$	230,455		$	148,593		$	140,149		$	195,524		$	165,046	$	146,653
Two years later	166,097		172,538		172,1 58		167,384		166,592			321,110			235,975			265,361			304,622								172,538			172,158			167,384			166,592			321,110			235,975			265,361			304,622			260,872
Three years later	204,792		215,002		214,307		203,861		213,144			380,294		332,768			345,092											215,002			214,307			203,861			213,144			380,294			332,768			345,092			373,765
Four years later	230,889		240,973		237,150		231,278		242,579			456,919			390,763														240,973			237,150			231,278			242,579			456,919			390,763			392,676
Five years later	245,677		252,969		253,026		250,787		264,015			502,455																	252,969			253,026			250,787			264,015			502,455			422,669
Six years later	252,153		264,311		265,304		263,631		276,214						;														264,311			265,304			263,631			276,214			527,136
Seven years later	259,621		273,153		273,066		272,826																						273,153			273,066			272,826			282,654
Eight years later	264,713		277,868		280,152																								277,868			280,152			277,645
; Nine years later	266,912		282,970
Nine years later																													282,970			283,635
Ten years later	269,794																												285,334
Net liability re-estimated as of:
End of year	$	320,506	$	326,910	$	356,889	$	399,740	$	436,280		$	559,963		$	478,326		$	457,283		$	533,601		$	572,291	$	564,090		$	326,910		$	356,889		$	399,740		$	436,280		$	559,963		$	478,326		$	457,283		$	533,601		$	572,291	$	564,090	$	824,692
One year later	273,469		315,854		344,590		361,153		358,796			534,998			433,125			457,831			559,816			526,413		& nbsp;			315,854			344,590			361,153			358,796			534,998			433,125			457,831			559,816			526,413		502,995
Two years later	290,872		323,354		340,502		331,693		330,137			508,774			453,474			502,177			547,824								323,354			340,502			331,693			330,137			508,774			453,474			502,177			547,824			497,136
Three years later	300,011		321,168		324,582		317,187		319,335			538,451			497,629			503,992											321,168			324,582			317,187			319,335			538,451			497,629			503,992			537,912
Four years later	302,884		318,125		313,745		309,146		326,340			574,484			500,071														318,125			313,745			309,146			326,340			574,484			500,071			503,720
Fiv e years later	298,428		309,033		308,304		316,227		327,626		&nbs p;	582,343
Five years later																													309,033			308,304			316,227			327,626			582,343			507,507
Six years later	296,296		307,790		312,188		314,522		327,741																				307,790			312,188			314,522			327,741			592,772
Seven years later	293,579		311,367		314,680		316,705																						311,367			314,680			316,705			322,875
Eight years lat er	297,844		312,433		316,378
Eight years later																													312,433			316,378			311,385
Nine years later	297,022		313,953																										313,953			310,478
Ten years later	297,275																												309,044
Net redundancy (deficiency)	$	23,231	$	12,957	$	40,511	$	83,035	$	108,539		$	(22,380	)	$	(21,745	)	$	(46,709	)	$	(14,223	)	$	45,878				$	17,866		$	46,411		$	88,355		$	113,405		$	(32,809	)	$	(29,181	)	$	(46,437	)	$	(4,311	)	$	75,155	$	61,095
Net re-estimated liability	297,275		313,953		316,378		316,705		327,741			582,343			500,071			503,992			547,824			526,413					309,044			310,478			311,385			322,875			592,772			507,507			503,720			537,912			497,136		502,995
Re-estimated ceded loss an d loss settlement expenses	$	33,877	$	43,086	$	43,776	$	38,522	$	38,381		$	91,535		$	57,459		$	50,990		$	56,884		$	41,042
Re-estimated ceded loss and loss settlement expenses																													$	44,288		$	44,980		$	39,724		$	39,582		$	97,622		$	63,562		$	57,220		$	64,209		$	48,366	$	49,198
Gross re-estimated liability	$	331,152	$	357,039	$	360,154	$	355,227	$	366,122		$	673,878		$	557,530		$	554,982		$	604,708		$	567,455				$	353,333		$	355,459		$	351,109		$	362,457		$	690,394		$	571,069		$	560,940		$	602,121		$	545,502	$	552,193
Gross redundancy (deficienc y)	$	26,880	$	6,780	$	32,495	$	71,822	$	98,767		$	(53,778	)	$	(38,644	)	$	(58,899	)	$	(18,599	)	$	38,590
Gross redundancy (deficiency)																													$	10,486		$	37,190		$	75,940		$	102,432		$	(70,294	)	$	(52,183	)	$	(64,857	)	$	(16,012	)	$	60,543	$	50,897


•	~~insurance company licensing and examination and the licensing of agents and adjusters;~~


•	~~the nature, quality and concentration of investments;~~


•	~~restrictions on transactions between our subsidiaries and their affiliates;~~


•	~~the collection, remittance and reporting of certain taxes and fees.~~


•	~~A benign hurricane season contributed to a reduction in catastrophe losses in both~~ ~~2010~~ ~~and~~ ~~2009. Our catastrophe losses excluding the impact of Hurricane Katri na totaled~~ ~~$19.8 million~~ ~~in 2010 compared to~~ ~~$22.4 million~~ in ~~2009. In~~ ~~2008, our catastrophe losses totaled~~ ~~$76.1 million~~.


•	~~Adverse development from Hurricane Katrina resulted in losses of~~ ~~$8.6 million~~ in ~~2010~~ ~~compared to~~ ~~$38.0 million~~ ~~for~~ ~~2009~~ ~~and~~ ~~$26.6 million~~ ~~for~~ ~~2008, as we continued to resolve outstanding litigation.~~


•	~~Our combined ratio improved to~~ ~~99.9 percent~~ ~~f or~~ ~~2010, compared to~~ ~~115.2 percent~~ ~~and~~ ~~113.9 percent~~ ~~for~~ ~~2009~~ ~~and~~ ~~2008, respectively. Catastrophe losses contributed 4.7 percent, 5.1 percent and 16.3 percent to our 2010, 2009 and 2008 combined ratio, respectively.~~


•	~~Deferred annuity deposits and withdrawals resulted in a net cash inflow related to our annuity business of~~ ~~$0.4 million~~ ~~and~~ ~~$96.0 million~~ in ~~2010~~ ~~and~~ ~~2009, respectively, compared to a net cash outflow of~~ ~~$73.0 million~~ in ~~2008~~.


~~•&n bsp;~~	In ~~2010, we repurchased 343,328 shares of our common stock for $6.3 million, at an average cost of $18.29. As of~~ ~~December 31, 2010~~, ~~172,826~~ ~~shares of common stock remained authorized for repurchase under our share repurchase program, which expires in August 2011.~~


•	~~Our financial strength continued to improve, as our stockholders’ equity increased in~~ ~~2010~~ to ~~$716.4 million~~ ~~from~~ ~~$672.7 million~~ in ~~2009~~ ~~and~~ ~~$641.7 million~~ in ~~2008. The increase in~~ ~~2010~~ ~~was primarily due to net income totaling~~ ~~$47.5 million, which was generated during the year.~~


•	~~Our book value per share increased by~~ ~~$2.00~~ to ~~$27.35~~ ~~in 2010 from~~ ~~$25.35~~ in ~~2009~~, primarily as a result of our significant increase in net income. Net unrealized investment gains, which was the primary factor increasing book value in 2009, were also a contributing factor in 2010. Book value per share in ~~2008~~ ~~was~~ ~~$24.10~~.


•	Interest ra tes remained a concern. While investment income has experienced gains due to increases in our bond and equity holdings in 2010, we saw some deterioration in the unrealized gains on our bond portfolio develop during the fourth quarter of 2010, due to rising interest rates.


Property & Casualty Segment Results of Operations										% Change

Property & Casualty Insurance Segment Results of Operations														Property & Casualty Insurance Segment Results of Operations									% Change
(In Thousands)										2010		2009											2011		2010
Years ended December 31	2010			2009			2008			vs. 2009		vs. 2008		2011			2010			2009			vs. 2010		vs. 2009
Net premiums written ⁽¹⁾	$	414,908		$	424,827		$	459,571		(2.3	)%	(7.6	)%	$	551,923		$	414,908		$	424,827		33.0	%	(2.3	)%
Net premiums earned	$	420,373		$	435,677		$	465,581		(3.5	)	(6.4	)	$	533,771		$	420,373		$	435,677		27.0		(3.5	)
Loss and loss settlement expenses	289,437			365,721			393,349			(20.9	)	(7.0	)	407,831			289,437			365,721			40.9		(20.9	)
Amortizatio n of deferred policy acquisition costs	102,636			105,606			117,590			(2.8	)	(10.2	)
Amortization of deferred policy acquisition costs														143,952			100,310			105,606			43.5		(5.0	)
Other underwriting expenses	28,003			30,553			19,146			(8.3	)	59.6		46,404			30,329			30,553			53.0		(0.7	)
Underwriting income (loss)	$	297		$	(66,203	)	$	(64,504	)	100.4	%	(2.6	)%	$	(64,416	)	$	297		$	(66,203	)	NM		100.4	%

Investment income, net	34,787			31,542			33,452			10.3	%	(5.7	)%	35,513			34,787			31,542			2.1	%	10.3	%
Realized investment gains (losses)
Other-than-temporary impairment charges	(153		)	(9,824		)	(960		)	98.4		NM		—			(153		)	(9,824		)	100.0		98.4
Other realized gains, net	3,746			3,009			2,839			24.5		6.0		3,081			3,746			3,009			(17.8	)	24.5
Total realized investment gains (losses)	3,593			(6,815		)	1,879			152.7		NM		3,081			3,593			(6,815		)	(14.2	)	152.7
Other income (loss)	147			194			(55		)	(24.2	)	NM
Other income														1,592			147			194			NM		(24.2	)
Disaster charges and other related expenses, net of recoveries	(16		)	(1,335		)	7,202			(98.8	)	118.5		—			(16		)	(1,335		)	100.0		98.8
Income (loss) before income taxes	$	38,840		$	(39,947	)	$	(36,430	)	197.2	%	(9.7	)%	$	(24,230	)	$	38,824		$	(39,947	)	(162.4	)%	197.2	%


								Increase (Decrease) in Ratios
								2010			2009
Years ended December 31	2010		2009		2008			vs. 2009			vs. 2008
GAAP combined ratio:
Net loss ratio (without catastrophes and Hurricane Katrina development)	62.2	%	70.1	%	65.9	%		(11.3	)%		6.4	%
Hurricane Katrina litigation – effect on net loss ratio	2.0		8.7		2.3			(77.0	)		NM
Other catastrophes – effect on net loss ratio	4.7		5.1		16.3			(7.8	)		(68.7	)
Net loss ratio	68.9	%	83.9	%	84.5	%		(17.9	)%		(0.7	)%
Expense ratio ⁽¹⁾	31.0		31.3		29.4			(1.0	)		6.5
Combined ratio ⁽²⁾	99.9	%	115.2	%	113.9	%	;	(13.3	)%		1.1	%
Statutory combined ratio:
Net loss ratio (without catastrophes and Hurricane Katrina development)	62.2	%	70.1	%	66.0	%		(11.3	)%		6.2	%
Hurricane Katrina litigation – effect on net loss ratio	2.0		8.7		2. 3			(77.0	)	&nb sp;	NM
Other catastrophes – effect on net loss ratio	4.7		5.1		16.3			(7.8	)		(68.7	)
Net loss ratio	68.9	%	83.9	%	84.6	%		(17.9	)%		(0.8	)%
Expense ratio ⁽¹⁾	31.0		30.3		28.8			2.3			5.2
Combined ratio ⁽²⁾	99.9	%	114.2	%	113.4	%		(12.5	)%		0.7	%
Industry statutory combined ratio: ⁽³⁾
Net loss ratio	74.5	%	72.7	%	77.1	%		2.5	%		(5.7	)%
Expense ratio ⁽¹⁾	28.5		28.5		28.0			—			1.8
Combined ratio ⁽²⁾	103.0	%	101.2	%	105.1	%		1.8	%		(3.7	)%
Combined ratio (without catastrophes) ⁽²⁾	98.0	%	97.8	%	98.8	%		0.2	%	;	(1.0	)%



Name of Reinsurer	A.M. Best	S&P Rating
Arch Reinsurance Company	A+	A+
Argo Re Ltd	A	A+N/A
FM Global Group	A+	N/A
Hannover Rueckversicherung AG ^{(1) (2)}	A	AA-
~~Lloyds Syndicates~~Lloyd's	A	A+
~~Paris Re~~ ⁽²⁾	A	~~AA-~~
~~Partner Re~~ ^{(1) (2)}	A+	~~AA-~~
Platinum Underwriters Reinsurance, ~~Inc.~~Inc	A	AA-
QBE Reinsurance Corporation ⁽¹⁾	A	A+
R&V Versicherung AG ⁽²⁾	N/A	A+AA-
~~Renaissance~~SCOR Reinsurance ~~Ltd~~Company	A+A	~~AA-~~A
Tokio Millennium Re Ltd	A++	AAAA-


(1) ~~&nb sp;~~	Primary insurers participating on the property and casualty excess of loss programs.


(2)	Primary insurers participating on the surety excess of loss program.


•	In 2009, we continued the expansion of the loss control function in our Gu lf Coast and Denver regions. Our service account program, which provides at least annual loss control visits, was implemented for larger and/or more complex accounts.