0000101199 ufcs:EnergyMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember ufcs:ContinuingandDiscontinuingOperationsMember 2017-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, ~~2017~~2018

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

Commission File Number 001-34257

________________________

UNITED FIRE GROUP, INC.

(Exact name of registrant as specified in its charter)

____________________________

118 Second Avenue, S.E., Cedar Rapids, Iowa 52401

(Address of principal executive offices) (Zip Code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒NO ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

YES ☒NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange ~~Act. (Check one):~~Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐

NO ☒

As of November ~~6, 2017~~5, 2018, ~~24,877,643~~25,071,751 shares of common stock were outstanding.

United Fire Group, Inc.

Index to Quarterly Report on Form 10-Q

September 30, ~~2017~~2018



	Page
Forward-Looking Information	1

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, ~~2017~~2018 (unaudited) and December 31, ~~2016~~2017	2

Consolidated Statements of Income and Comprehensive Income (unaudited) for the ~~three~~three- and nine-month periods ended September 30, ~~2017~~2018 and ~~2016~~2017	3

Consolidated Statement of Stockholders’ Equity (unaudited) for the nine-month period ended September 30, ~~2017~~2018	4

Consolidated Statements of Cash Flows (unaudited) for the nine-month periods ended September 30, ~~2017~~2018 and ~~2016~~2017	5

Notes to Unaudited Consolidated Financial Statements	6

Review Report of Independent Registered Public Accounting Firm	4241

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4342

Item 3. Quantitative and Qualitative Disclosures About Market Risk	57

Item 4. Controls and Procedures	57

Part II. Other Information

Item 1. Legal Proceedings	58

Item ~~4. Controls and Procedures~~1A. Risk Factors	58

~~Part II. Other Information~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	58

Item ~~1. Legal Proceedings~~3. Defaults Upon Senior Securities	58

Item 4. Mine Safety Disclosures	58

Item 5. Other Information	58

Item 6. Exhibits	59

~~Item 1A. Risk Factors~~Signatur	59

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~	59

~~Item 3. Defaults Upon Senior Securities~~	59

~~Item 4. Mine Safety Disclosures~~	59

~~Item 5. Other Information~~	59

~~Item 6. Exhibits~~es	60

~~Signatur~~es	61

FORWARD-LOOKING INFORMATION

This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our"), the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will, ~~continue,~~" "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. See Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 and Part II, Item 1A "Risk Factors" of this report for more information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

Risks and uncertainties that may affect the actual financial condition and results of the Company include, but are not limited to, the following:

The frequency and severity of claims, including those related to catastrophe losses and the impact those claims have on our loss reserve adequacy; the occurrence of catastrophic events, including international events, significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics;

The adequacy of our reserves for property and casualty insurance losses and loss settlement ~~expenses and our life insurance reserve for future policy benefits;~~expenses;

Geographic concentration risk in ~~both~~the property and casualty insurance ~~and life insurance segments;~~business;

The potential disruption of our operations and reputation due to unauthorized data access, cyber-attacks or cyber-terrorism and other security breaches;

Developments in general economic conditions, domestic and global financial markets, interest rates and other-than-temporary impairment losses that could affect the performance of our investment portfolio;

Our ability to effectively underwrite and adequately price insured risks;

Changes in industry trends, an increase in competition and significant industry developments;

Litigation or regulatory actions that could require us to pay significant damages, fines or penalties or change the way we do business;

Lowering of one or more of the financial strength ratings of our operating subsidiaries or our issuer credit ratings and the adverse impact such action may have on our premium writings, policy retention, profitability and liquidity;

Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions; changes in laws, regulations and stock exchange requirements relating to corporate governance and the cost of compliance;

Our relationship with and the financial strength of our reinsurers; and

Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products through our independent agent/agency distribution ~~network; and~~network.

~~The satisfaction of the conditions precedent to the consummation of the sale of our life insurance subsidiary, including the receipt of regulatory approvals.~~

These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission ("SEC"), 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.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

United Fire Group, Inc. Consolidated Balance Sheets	United Fire Group, Inc. Consolidated Balance Sheets				United Fire Group, Inc. Consolidated Balance Sheets

(In Thousands, Except Share Data)	September 30, 2017		December 31, 2016		September 30, 2018			December 31, 2017
	(unaudited)				(unaudited)
ASSETS
Investments
Fixed maturities
Held-to-maturity, at amortized cost (fair value $150 in 2017 and $150 in 2016)	$	150	$	150
Available-for-sale, at fair value (amortized cost $1,480,730 in 2017 and $1,458,235 in 2016)	1,498,662		1,453,286
Trading securities, at fair value (amortized cost $11,833 in 2017 and $13,054 in 2016)	13,673		14,390
Equity securities
Available-for-sale, at fair value (cost $57,387 in 2017 and $59,994 in 2016)	269,341		246,370
Trading securities, at fair value (cost $5,888 in 2017 and $5,434 in 2016)	6,330		5,644
Held-to-maturity, at amortized cost (fair value $0 in 2018 and $150 in 2017)					$	—		$	150
Available-for-sale, at fair value (amortized cost $1,764,380 in 2018 and $1,516,610 in 2017)					1,730,031			1,535,070
Trading securities, at fair value (amortized cost $12,047 in 2018 and $14,582 in 2017)					14,399			16,842
Equity securities at fair value (cost $65,458 in 2018 and $63,275 in 2017)					276,253			287,344
Mortgage loans					14,896			—
Other long-term investments	49,966		51,769		40,432			49,352
Short-term investments	175		175		175			175
	1,838,297		1,771,784		2,076,186			1,888,933
Cash and cash equivalents	98,610		89,194		52,252			95,562
Accrued investment income	14,911		13,617		16,873			13,841
Premiums receivable (net of allowance for doubtful accounts of $1,170 in 2017 and $1,255 in 2016)	351,410		306,202
Premiums receivable (net of allowance for doubtful accounts of $968 in 2018 and $1,255 in 2017)					379,293			328,513
Deferred policy acquisition costs	97,477		93,362		95,140			88,102
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $52,081 in 2017 and $50,925 in 2016)	64,520		55,524
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $50,431 in 2018 and $51,603 in 2017)					88,882			68,992
Reinsurance receivables and recoverables	68,116		62,707		66,148			63,194
Prepaid reinsurance premiums	3,821		3,782		5,856			3,749
Income taxes receivable	21,360		14,285		10,269			6,031
Goodwill and intangible assets	24,163		24,740		23,429			23,971
Other assets	15,302		13,943		16,632			16,409
Assets held for sale	1,592,846		1,605,618		—			1,586,134
TOTAL ASSETS	$	4,190,833	$	4,054,758	$	2,830,960		$	4,183,431
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Losses and loss settlement expenses	$	1,237,280	$	1,123,896	$	1,278,077		$	1,224,183
Unearned premiums	490,443		443,802		508,850			465,391
Accrued expenses and other liabilities	130,618		147,104		158,761			167,396
Deferred income taxes	24,707		7,849		1,056			5,953
Liabilities held for sale	1,363,737		1,390,223		—			1,347,135
TOTAL LIABILITIES	$	3,246,785	$	3,112,874	$	1,946,744		$	3,210,058
Stockholders’ Equity
Common stock, $0.001 par value; authorized 75,000,000 shares; 24,849,889 and 25,429,769 shares issued and outstanding in 2017 and 2016, respectively	$	25	$	25
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,066,384 and 24,916,806 shares issued and outstanding in 2018 and 2017, respectively					$	25		$	25
Additional paid-in capital	193,114		216,482		201,361			196,334
Retained earnings	600,988		616,322		752,581			608,700
Accumulated other comprehensive income, net of tax	149,921		109,055
Accumulated other comprehensive income (loss), net of tax					(69,751		)	168,314
TOTAL STOCKHOLDERS’ EQUITY	$	944,048	$	941,884	$	884,216		$	973,373
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,190,833	$	4,054,758	$	2,830,960		$	4,183,431

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.

Table of Contents

United Fire Group, Inc.

Consolidated Statements of Income and Comprehensive Income (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands, Except Share Data)	2017			2016			2017			2016			2018			2017			2018			2017
Revenues
Net premiums earned	$	255,758		$	239,469		$	737,424		$	691,976		$	264,747		$	255,758		$	766,767		$	737,424
Investment income, net of investment expenses	13,792			14,027			38,561			35,017			13,192			13,792			43,933			38,561
Net realized investment gains (includes reclassifications for net unrealized investment gains on available-for-sale securities of $419 and $5,799 in 2017 and $2,320 and $4,666 in 2016; previously included in accumulated other comprehensive income)	67			2,129			3,397			4,832
Net realized investment gains (includes reclassifications for net unrealized investment gains/(losses) on available-for-sale securities of ($496) and ($655) in 2018 and $419 and $5,799 in 2017; previously included in accumulated other comprehensive income)													13,971			67			7,404			3,397
Total revenues	$	269,617		$	255,625		$	779,382		$	731,825		$	291,910		$	269,617		$	818,104		$	779,382
Benefits, Losses and Expenses
Losses and loss settlement expenses	$	223,208		$	169,303		$	568,356		$	475,568		$	193,667		$	223,208		$	527,541		$	568,356
Amortization of deferred policy acquisition costs	52,986			52,240			154,845			151,216			51,758			52,986			152,207			154,845
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,352 and $4,056 in 2017 and $1,371 and $4,113 in 2016; previously included in accumulated other comprehensive income)	25,817			20,047			69,900			61,469
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,661 and $4,982 in 2018 and $1,352 and $4,056 in 2017; previously included in accumulated other comprehensive income)													33,887			25,817			105,994			69,900
Total benefits, losses and expenses	$	302,011		$	241,590		$	793,101		$	688,253		$	279,312		$	302,011		$	785,742		$	793,101
Income (loss) from continuing operations before income taxes	$	(32,394	)	$	14,035		$	(13,719	)	$	43,572		$	12,598		$	(32,394	)	$	32,362		$	(13,719	)
Federal income tax expense (benefit) (includes reclassifications of $327 and ($610) in 2017 and ($332) and ($194) in 2016; previously included in accumulated other comprehensive income)	(13,312		)	2,407			(13,330		)	6,489
Federal income tax expense (benefit) (includes reclassifications of $453 and $1,184 in 2018 and $327 and ($610) in 2017; previously included in accumulated other comprehensive income)													1,528			(13,312		)	771			(13,330		)
Income (loss) from continuing operations	$	(19,082	)	$	11,628		$	(389	)	$	37,083		$	11,070		$	(19,082	)	$	31,591		$	(389	)
Income from discontinued operations, net of taxes	1,218			740			5,419			826
Income (loss) from discontinued operations, net of taxes													—			1,218			(1,912		)	5,419
Gain on sale of discontinued operations, net of taxes													—			—			27,307			—
Net income (loss)	$	(17,864	)	$	12,368		$	5,030		$	37,909		$	11,070		$	(17,864	)	$	56,986		$	5,030
Other comprehensive income (loss)
Change in net unrealized appreciation on investments	$	18,995		$	(9,440	)	$	64,614		$	83,768		$	(15,389	)	$	18,995		$	(73,402	)	$	64,614
Change in liability for underfunded employee benefit plans	—			—			—			—			—			—			—			—
Other comprehensive income , before tax and reclassification adjustments	$	18,995		$	(9,440	)	$	64,614		$	83,768
Other comprehensive income (loss), before tax and reclassification adjustments													$	(15,389	)	$	18,995		$	(73,402	)	$	64,614
Income tax effect	(6,648		)	3,304			(22,615		)	(29,320		)	3,232			(6,648		)	15,414			(22,615		)
Other comprehensive income, after tax, before reclassification adjustments	$	12,347		$	(6,136	)	$	41,999		$	54,448
Reclassification adjustment for net realized investment gains included in income	$	(419	)	$	(2,320	)	$	(5,799	)	$	(4,666	)
Other comprehensive income (loss), after tax, before reclassification adjustments													$	(12,157	)	$	12,347		$	(57,988	)	$	41,999
Reclassification adjustment for net realized investment (gains) losses included in income													$	496		$	(419	)	$	655		$	(5,799	)
Reclassification adjustment for employee benefit costs included in expense	1,352			1,371			4,056			4,113			1,661			1,352			4,982			4,056
Total reclassification adjustments, before tax	$	933		$	(949	)	$	(1,743	)	$	(553	)	$	2,157		$	933		$	5,637		$	(1,743	)
Income tax effect	(327		)	332			610			194			(453		)	(327		)	(1,184		)	610
Total reclassification adjustments, after tax	$	606		$	(617	)	$	(1,133	)	$	(359	)	$	1,704		$	606		$	4,453		$	(1,133	)
Comprehensive income (loss)	$	(4,911	)	$	5,615		$	45,896		$	91,998		$	617		$	(4,911	)	$	3,451		$	45,896

Diluted weighted average common shares outstanding	24,960,086			25,815,346			25,666,405			25,711,014			25,626,951			24,960,086			25,607,305			25,666,405
Earnings per common share from continuing operations:
Earnings (loss) per common share from continuing operations:
Basic	$	(0.77	)	$	0.46		$	(0.01	)	$	1.47		$	0.44		$	(0.77	)	$	1.26		$	(0.01	)
Diluted	(0.77		)	0.45			(0.01		)	1.44			0.43			(0.77		)	1.23			(0.01		)
Earnings per common share:
Earnings (loss) per common share:
Basic	$	(0.72	)	$	0.49		$	0.20		$	1.50		$	0.44		$	(0.72	)	$	2.28		$	0.20
Diluted	(0.72		)	0.48			0.20			1.47			0.43			(0.72		)	2.23			0.20

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.

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United Fire Group, Inc.

Consolidated Statement of Stockholders’ Equity (Unaudited)



(In Thousands, Except Share Data)	Nine Months Ended September 30, 2018

Common stock
Balance, beginning of year	$	25
Shares repurchased (120,372 shares)	—
Shares issued for stock-based awards (269,950 shares)	—
Balance, end of period	$	25

Additional paid-in capital
Balance, beginning of year	$	196,334
Compensation expense and related tax benefit for stock-based award grants	4,040
Shares repurchased	(5,404		)
Shares issued for stock-based awards	6,391
Balance, end of period	$	201,361

Retained earnings
Balance, beginning of year	$	608,700
Cumulative effect of change in accounting principle	191,244
Net unrealized investment depreciation of discontinued operations, sold	(6,714		)
Net income	56,986
Dividends on common stock ($3.90 per share)	(97,635		)
Balance, end of period	$	752,581

Accumulated other comprehensive income (loss), net of tax
Balance, beginning of year	$	168,314
Cumulative effect of change in accounting principle	(191,244		)
Change in net unrealized investment appreciation⁽¹⁾	(50,756		)
Change in liability for underfunded employee benefit plans⁽²⁾	3,935
Balance, end of period	$	(69,751	)

Summary of changes
Balance, beginning of year	$	973,373
Net income	56,986
All other changes in stockholders’ equity accounts	(146,143		)
Balance, end of period	$	884,216

(In Thousands, Except Share Data) Nine Months Ended September 30, 2017

Common stock
Balance, beginning of year $ 25
Shares repurchased (701,899 shares) —
Shares issued for stock-based awards (131,777 shares) —
Balance, end of period $ 25

Additional paid-in capital
Balance, beginning of year $ 216,482
Compensation expense and related tax benefit for stock-based award grants 3,456
Shares repurchased (29,784 )
Shares issued for stock-based awards 2,960
Balance, end of period $ 193,114

Retained earnings
Balance, beginning of year $ 616,322
Net income 5,030
Dividends on common stock ($0.81 per share) (20,364 )
Balance, end of period $ 600,988

Accumulated other comprehensive income, net of tax
Balance, beginning of year $ 109,055
Change in net unrealized investment appreciation⁽¹⁾
38,230
Change in liability for underfunded employee benefit plans⁽²⁾
2,636
Balance, end of period $ 149,921

Summary of changes
Balance, beginning of year $ 941,884
Net income 5,030
All other changes in stockholders’ equity accounts (2,866 )
Balance, end of period $ 944,048


(1)	The change in net unrealized appreciation is net of reclassification adjustments and income taxes.


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

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.

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United Fire Group, Inc.

Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2017			2016			2018			2017
Cash Flows From Operating Activities
Net income	$	5,030		$	37,909		$	56,986		$	5,030
Less net income from discontinued operations, net of taxes	5,419			826
Less net income (loss) from discontinued operations, net of taxes							(1,912		)	5,419
Adjustments to reconcile net income to net cash provided by operating activities
Net accretion of bond premium	6,663			5,181			6,518			6,663
Depreciation and amortization	3,501			4,879			4,015			3,501
Stock-based compensation expense	3,456			2,731			4,040			3,456
Net realized investment gains	(3,397		)	(4,832		)	(7,404		)	(3,397		)
Net cash flows from trading investments	816			(36		)
Net cash flows from equity and trading investments							21,253			816
Deferred income tax benefit	(4,979		)	(3,847		)	(6,259		)	(4,979		)
Changes in:
Accrued investment income	(1,294		)	(831		)	(3,032		)	(1,294		)
Premiums receivable	(45,208		)	(54,725		)	(50,780		)	(45,208		)
Deferred policy acquisition costs	(4,115		)	(10,268		)	(7,038		)	(4,115		)
Reinsurance receivables	(5,409		)	(12,224		)	(2,954		)	(5,409		)
Prepaid reinsurance premiums	(39		)	(212		)	(2,107		)	(39		)
Income taxes receivable	(7,075		)	(11,370		)	(4,238		)	(7,075		)
Other assets	(1,358		)	659			(223		)	(1,358		)
Future policy benefits and losses, claims and loss settlement expenses	113,384			86,272
Losses and loss settlement expenses							53,894			113,384
Unearned premiums	46,641			53,699			43,459			46,641
Accrued expenses and other liabilities	(12,430		)	(6,198		)	(3,654		)	(12,430		)
Income taxes payable	—			(4,917		)
Deferred income taxes	1,794			2,665			(8,298		)	1,794
Other, net	1,920			(1,605		)	3,951			1,920
Cash from operating activities - continuing operations	92,871			45,021			41,143			92,871
Cash from operating activities - discontinued operations	23,814			45,965			4,024			23,814
Cash from operating activities - gain on sale of discontinued operations							(34,851		)	—
Total adjustments	$	116,685		$	90,986		$	10,316		$	116,685
Net cash provided by operating activities	$	116,296		$	128,069		$	69,214		$	116,296
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments	$	3,388		$	1,968		$	129,865		$	3,388
Proceeds from call and maturity of available-for-sale investments	134,503			260,520			101,837			134,503
Proceeds from short-term and other investments	4,846			1,725			8,527			4,846
Proceeds from the sale of discontinued operations							276,055			—
Purchase of available-for-sale investments	(162,121		)	(313,060		)	(485,656		)	(162,121		)
Purchase of mortgage loans							(14,896		)	—
Purchase of short-term and other investments	(4,864		)	(2,772		)	(3,824		)	(4,864		)
Net purchases and sales of property and equipment	(11,630		)	(6,090		)	(23,760		)	(11,630		)
Cash from investing activities - continuing operations	(35,878		)	(57,709		)	(11,852		)	(35,878		)
Cash from investing activities - discontinued operations	31,517			37,685			14,343			31,517
Net cash used in investing activities	$	(4,361	)	$	(20,024	)
Net cash provided by (used in) investing activities							$	2,491		$	(4,361	)
Cash Flows From Financing Activities
Payment of cash dividends	$	(20,364	)	$	(18,246	)	$	(97,635	)	$	(20,364	)
Repurchase of common stock	(29,784		)	(2,867		)	(5,404		)	(29,784		)
Issuance of common stock	2,960			7,149			6,391			2,960
Tax impact from issuance of common stock	—			(482		)
Cash from financing activities - continuing operations	(47,188		)	(14,446		)	(96,648		)	(47,188		)
Cash from financing activities - discontinued operations	(46,239		)	(59,104		)	(11,547		)	(46,239		)
Net cash used in financing activities	$	(93,427	)	$	(73,550	)	$	(108,195	)	$	(93,427	)
Net Change in Cash and Cash Equivalents	$	18,508		$	34,495		$	(36,490	)	$	18,508
Less: decrease (increase) in cash and cash equivalents - discontinued operations	(9,092		)	(24,546		)
Net increase in cash and cash equivalents - continuing operations	9,416			9,949
Less: increase in cash and cash equivalents - discontinued operations							(6,820		)	(9,092		)
Net (decrease) increase in cash and cash equivalents - continuing operations							(43,310		)	9,416
Cash and Cash Equivalents at Beginning of Period - Continuing Operations	89,194			89,496			95,562			89,194
Cash and Cash Equivalents at End of Period - Continuing Operations	$	98,610		$	99,445		$	52,252		$	98,610

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.

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UNITED FIRE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share amounts or as otherwise noted)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Business

United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance ~~and life insurance and selling annuities~~ through a network of independent agencies. Our insurance company subsidiaries are licensed as a property and casualty insurer in 46 states and the District of ~~Columbia, and as a life insurer in~~ 37 ~~states.~~Columbia.

Discontinued Operations

We have historically reported our operations in two business segments: property and casualty insurance and life insurance. On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company ("United Life"), to Kuvare US Holdings, Inc. ("Kuvare"). and on March 30, 2018, the sale closed. As a result, ~~our~~the life insurance business, previously a separate segment, ~~has been~~was considered held for sale and reported as discontinued operations in the Consolidated Balance Sheets, Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows for all periods presented in this Form 10-Q (collectively, the "Consolidated Financial Statements"). Subsequent to the announcement of this sale, our continuing operations ~~are now~~were reported as one business segment. All current and prior periods reflected in this Form 10-Q have been presented as continuing and discontinued operations, as applicable, unless otherwise noted. ~~The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval.~~ For more information, refer to Note 11. Discontinued Operations.

Basis of Presentation

The unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X promulgated by the SEC. Certain financial information that is included in our Annual Report on Form 10-K for the year ended December 31, 2017, including certain financial statement footnote disclosures, ~~are~~is not required by the rules and regulations of the SEC for interim financial reporting and have been condensed or omitted.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables; future policy benefits and losses, ~~claims~~ and loss settlement expenses; and pension and postretirement benefit obligations.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Management of UFG believes the accompanying unaudited Consolidated Financial Statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany transactions have been eliminated in consolidation. The results reported for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017. The review report of Ernst & Young LLP as of September 30, ~~2017~~2018 and for the three- and nine-month periods ended September 30, ~~2017~~2018 and ~~2016~~2017 accompanies the unaudited Consolidated Financial Statements included in Part I, Item 1 "Financial Statements."

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Cash and Cash Equivalents

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

For the nine-month periods ended September 30, ~~2017~~2018 and ~~2016~~,2017, we made payments for income taxes for continuing operations totaling ~~$7,648~~$24,055 and ~~$24,026~~,$7,648, respectively. We received a tax refund of $1,503 and $10,000 ~~during~~for the ~~nine-month period ended September 30, 2017. We did not receive a tax refund during the nine-month period ended September 30, 2016.~~

~~For the~~ nine-month periods ended September 30, 2018 and 2017, respectively.

For the nine-month periods ended September 30, 2018 and ~~2016~~,2017, we made no interest payments (excluding interest credited to policyholders’ accounts).

Deferred Policy Acquisition Costs ("DAC")

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC, including the related amortization recognized for the nine-month period ended September 30, ~~2017~~2018.




	Continuing Operations			Discontinued Operations
	Property & Casualty Insurance			Life Insurance			Total
Recorded asset at beginning of period	$	88,102		$	71,151		$	159,253
Underwriting costs deferred	159,245			1,376			160,621
Amortization of deferred policy acquisition costs	(152,207		)	(1,895		)	(154,102		)
Ending unamortized deferred policy acquisition costs	$	95,140		$	70,632		$	165,772
Impact of unrealized gains and losses on available-for-sale securities	—			7,274			7,274
Sale of discontinued operations	—			(77,906		)	(77,906		)
Recorded asset at September 30, 2018	$	95,140		$	—		$	95,140

Continuing Operations Discontinued Operations
Property & Casualty Insurance Life Insurance Total
Recorded asset at beginning of period $ 93,362
$ 70,750
$ 164,112
Underwriting costs deferred 158,960
4,192
163,152
Amortization of deferred policy acquisition costs (154,845 ) (5,524 ) (160,369 )
Ending unamortized deferred policy acquisition costs $ 97,477
$ 69,418
$ 166,895
Impact of unrealized gains and losses on available-for-sale securities —
(3,582 ) (3,582 )
Recorded asset at September 30, 2017 $ 97,477
$ 65,836
$ 163,313

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

For traditional life insurance policies, DAC is amortized to income over the premium-paying period in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue. Expected premium revenue and gross profits are based on the same mortality and withdrawal assumptions used in determining future policy benefits. These assumptions are not revised after policy issuance unless the recorded DAC asset is deemed to be unrecoverable from future expected profits.

For non-traditional life insurance policies, DAC is amortized over the anticipated terms in proportion to the ratio of the expected annual gross profits to the total expected gross profits. Changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on amortization of DAC for revisions to estimated gross profits is reported in earnings in the period the estimated gross profits are revised.

The effect on DAC that results from the assumed realization of unrealized gains (losses) on investments allocated to non-traditional life insurance business is recognized with an offset to net unrealized investment appreciation as of the balance sheet date. The impact of unrealized gains and losses on available-for-sale securities decreased the DAC asset by ~~$9,995 and $6,413~~$6,294 at ~~September 30, 2017~~ ~~and~~ December 31, ~~2016, respectively.~~2017. There was no impact of unrealized gains and losses on available-for-sale

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securities on the DAC asset at September 30, 2018 because the non-traditional life insurance business is part of discontinued operations, which was sold on March 30, 2018.

Income Taxes

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted on December 22, 2017. The Tax Act significantly revised the U.S. corporate income tax laws including lowering the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. As of September 30, 2018 we had not completed accounting for the tax effects of enactment of the Tax Act, however for certain items, we have made a reasonable estimate of the effects on our deferred tax balances. For other items where we could not make a reasonable estimate, we are still using existing accounting guidance and the provisions of the tax laws that were in place prior to the enactment. The Company will continue to refine this estimated provisional adjustment as we gain a more thorough understanding of the effects of enactment of the Tax Act on the Company, and the Company will take future guidance into consideration when it becomes available.

Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders' equity and do not impact federal income tax expense.

We reported aconsolidated federal income tax ~~benefit~~expense from consolidated continuing operations and discontinued operations ~~on a consolidated basis~~ of ~~$10,400~~$1,528 and ~~a federal income tax expenses $6,904~~$8,878 for the three- and nine-month periods ended September 30, ~~2017~~2018, respectively, compared to income tax benefit of $12,650 and ~~2016, respectively.~~$10,400 during the same periods of 2017. Our effective tax rate is different than the federal statutory rate of ~~35.0~~21 percent, due principally to the effect of tax-exempt municipal bond interest income and non-taxable dividend income.

The Company performs a quarterly review of its tax positions and makes a determination of whether it is more likely than not that the tax position will be sustained upon examination. If, based on review, it appears not more likely than not that the positions will be sustained, the Company will calculate any unrecognized tax benefits and, if necessary, calculate and accrue any related interest and penalties. We did not recognize any liability for unrecognized tax benefits at September 30, ~~2017~~2018 or December 31, ~~2016~~.2017. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.

With regard to the sale of ~~our~~the life insurance subsidiary, federal income taxes ~~will be~~were allocated to continuing and discontinued operations in accordance with the Company’s tax allocation agreement and the terms of the definitive agreement related to the sale.

We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before ~~2014. The Internal Revenue Service is conducting routine examinations of our income tax return for the 2015 tax year.~~2015.

Subsequent Events

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

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uded there are no material subsequent events or transactions that have occurred after the balance sheet date through the date on which the financial statements were issued.

Recently Issued Accounting Standards

Accounting Standards Adopted in ~~2017~~

~~Share-Based Payments~~

In March 2016, the Financial Accounting Standards Board ("FASB") issued new guidance on the accounting for share-based payments. The new guidance was issued to simplify the accounting of share-based payments, specifically in the areas of income taxes, classification on the balance sheets as liabilities or equity and classification in the cash flow statement. The new guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those years. The Company adopted the new guidance prospectively as of January 1, 2017. The new guidance resulted in classification changes between the financing and operating section of the Statement of Cash Flow for stock based compensation expense. The adoption also resulted in a tax benefit of $62 and $546 during the three- and nine-months ended September 30, 2017.

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~~Income Taxes~~

In December 2015, the FASB issued guidance on the balance sheet classification of deferred taxes. The new guidance eliminates the requirement to split deferred tax liabilities and assets between current and non-current in a classified balance sheet. The new guidance allows deferred tax liabilities and assets to be included in non-current accounts. The Company adopted the new guidance as of January 1, 2017. The adoption had no impact on the Company's financial position and results of operations since we do not currently report deferred taxes in classified balance sheets.

~~Pending Adoption of Accounting Standards~~2018

Revenue Recognition

In May 2014, the FASB issued comprehensive new guidance on revenue recognition which supersedes nearly all existing revenue recognition guidance under GAAP. The new guidance requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard creates a five-step model that requires companies to exercise judgment when considering the terms of the contract(s) and all relevant facts and circumstances. Insurance contracts are not within the scope of this new guidance. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company ~~will adopt~~adopted the guidance as of January 1, 2018. The ~~Company has completed its review of revenue streams under this new guidance and concluded that the~~ adoption of the new guidance ~~will have~~had no impact on the Company's reporting and disclosure of net premiums earned from insurance contracts, net investment income or net realized gains and losses, as these ~~items~~revenue streams are not within the scope of ~~this new guidance. The Company's primary revenue streams from insurance contracts, investment income and net realized gains and losses, are out of scope under~~ this new guidance. The remaining revenue streams are immaterial and not impacted by the new standard.

Financial Instruments

In January 2016, the FASB issued guidance updating certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (for example, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The new guidance also simplifies the impairment process for equity investments without readily determinable fair values. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company ~~will adopt~~adopted the new guidance as of January 1, 2018. IfThe adoption of the new guidance ~~were adopted as of September 30, 2017, there would be~~resulted in a reclassification from accumulated other comprehensive income to retained earnings of $191,244 after tax, which is equal to the amount of net unrealized gains and losses on available-for-sale equity securities ~~at December 31, 2016 disclosed~~on January 1, 2018. Also, in ~~Note 2 "Summary of Investments," of this section. The impact to~~the three- and nine-month periods ended September 30, 2018, the Company recognized an after-tax net realized ~~gains (losses) would equal~~investment gain from continuing operations of $11,361 and $4,343, respectively, in net income from the change in ~~net unrealized gains and losses on available-for-sale~~value of equity securities ~~between September 30, 2017 and December 31, 2016, in~~due to the ~~same tables.~~adoption of this new accounting guidance.

Statement of Cash Flows - Classification of Certain Cash Receipts and Payments

In August 2016, the FASB issued an update that clarifies the classification of certain cash receipts and payments in the Statement of Cash Flows. The update addresses eight existing cash flow issues by clarifying the correct classification to establish uniformity in practice. The updated guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company ~~will adopt~~adopted the new guidance as of January 1, 2018 and is currently reviewing the updates to the eight existing cash flow issues. Currently, management believes that one existing cash flow issue will be impacted by these updates. Management believes the update will have2018. The adoption had no impact on the Company's financial position and results of ~~operations but may effect the current classification of the cash flow in the Statement of Cash Flows.~~

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operations.

Defined Benefit Retirement Plan Cost

In March 2017, the FASB issued guidance on the presentation of net periodic benefit costs of defined benefit retirement benefit plans in the Statements of Income. The new guidance requires the service cost component of net periodic benefit cost of defined benefit plans to be presented in the same line in the Statements of Income as other employee compensation expenses. Also, under the new guidance, the service cost component of the net periodic benefit costs will be the only portion of costs subject to be capitalized in assets. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company ~~will adopt~~adopted the new guidance as of January 1, ~~2018~~2018. The adoption of the new guidance resulted in a change in the capitalization of deferred acquisition costs to only include the pension and ~~is currently evaluating~~post retirement service costs in place of the ~~presentation of~~total net periodic benefit ~~costs in its financial statements and the~~costs. The adoption had an immaterial impact on the Company's financial position and results of

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operations. Additionally, the adoption did not impact the Company's presentation in the Statements of Income as all net periodic benefit costs and employee compensation expenses are included within the same category in the Statements of Income.

Share-Based Payments

In May 2017, the FASB issued new guidance which clarifies and addresses the diversity in practice when there is a change in the terms of a share-based payment award. The updated guidance clarifies when to use modification accounting when there is a change in the terms of a share-based payment and provides three conditions where modification accounting should not be applied. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company adopted the new guidance as of January 1, 2018. The adoption had no impact on the Company's financial position and results of operations.

Pending Adoption of Accounting Standards

Intangibles - Other Internal Use Software

In August 2018, the FASB issued guidance to align the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance requires the Company to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The new guidance is effective for annual and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, ~~2018 and is~~2020. Management currently ~~evaluating~~believes that the adoption will not have an impact on the Company's financial position ~~and~~or results of operations.

Leases

In February 2016, the FASB issued guidance on the accounting for leases. The new guidance requires lessees to place ~~most leases~~a right-of-use asset and a lease liability on their balance ~~sheets with expenses~~sheets. The lease liability will be based on the present value of the future lease payments and the right-of-use asset will be based on the liability. Expenses will be recognized on the income statement in a similar manner as previous methods. The new guidance also requires companies to classify all leases as operating leases or financing leases. We believe all of our leases will be classified as operating leases. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those years. The Company will adopt the new guidance under a modified retrospective transition approach using the package of practical expedients and the Company will not adopt the hindsight practical expedient as of January 1, 2019. We expect to use the accounting standard adoption date as our date of initial application.

The Company has created an inventory of its operating leases and has calculated the ~~current~~total undiscounted future minimum ~~future~~ lease ~~payment,~~payments, which isare disclosed in Note 13 ~~"Lease Commitments"~~Lease Commitments of ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. The undiscounted future minimum lease payments at December 31, 2017 are $22.5 million, which represents less than 1.0 percent of the Company's total assets at December 31, 2017. The Company plans to use their incremental borrowing rate of their credit facility described in Note 9 Credit Facility of this Form 10-Q, as the discount rate for calculating the minimum lease payments. For leases that exist prior to the date of initial application, the Company has elected to use the remaining lease term as of the date of initial application to measure its incremental borrowing rate. The Company has reviewed and updated its processes and controls under the new guidance. Management currently believes that the adoption will not have a significant impact on the Company's financial position or results of operations.

Financial Instruments - Credit Losses

In June 2016, the FASB issued new guidance on the measurement of credit losses for most financial instruments. The new guidance replaces the current incurred loss model for recognizing credit losses with an expected loss model for instruments measured at amortized cost and requires allowances to be recorded for available-for-sale debt securities rather than reduce the carrying amount. These allowances will be remeasured each reporting period. The new guidance is effective for annual periods beginning after December 15, ~~2020~~2019 and interim periods within those

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years. The new guidance will impact the Company's portfolio of mortgage loan investments which are carried at amortized cost and are impairment model related to our available-for-sale portfolio. The Company will adopt the new guidance as of January 1, ~~2021~~2020 and is currently evaluating the impact on the Company's financial position, results of operations and key processes.

Income Taxes - Intra-entity Transfers

In October 2016, the FASB issued new guidance on the income tax treatment of intra-entity transfers. The new guidance replaces the current guidance which prohibits the recognition of current and deferred income taxes of intra-entity transfers until the asset is sold externally. Under the new guidance, the exemption is eliminated and income taxes will be recognized on transfers of intra-entity assets. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, ~~2019 and is~~2019. Management currently ~~evaluating~~believes that the adoption will not have a significant impact on the Company's financial position and results of operations.

Goodwill

In January 2017, the FASB issued new guidance which simplifies the test for goodwill impairment. The new guidance eliminates the implied fair value calculation when measuring a goodwill impairment charge. Under the new guidance, impairment charges will be based on the excess of the carrying value over fair value of goodwill. The

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new guidance is effective for annual and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2020 and it currently believes the adoption will have no impact on the Company's financial position and results of operations.

Financial Instruments - Disclosures

In August 2018, the FASB issued new guidance which modifies the disclosure requirements on fair value measurements of financial instruments. The new guidance removes the requirement for disclosing the amount and reason for transfers between Level 1 and Level 2 investment securities and the valuation processes for Level 3 fair value measurements. The guidance also requires additional disclosures on the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The new guidance is ~~currently evaluating~~effective for annual and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2020. The new guidance will modify existing fair value disclosures, but will not have an impact on the Company's financial position and results of operations.

Defined Benefit Plans - Disclosures

In August 2018, the FASB issued new guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension and postretirement plans. The new guidance removes the requirement for disclosing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit costs in the next year and the sensitivity of postretirement health plans to one-percentage-point changes in medical trend rates. The new guidance is effective for annual periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2020. The new guidance will modify existing disclosures, but will not have an impact on the Company's financial position and results of operations.

NOTE 2. SUMMARY OF INVESTMENTS

Fair Value of Investments

A reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities, presented on a consolidated basis, including both continuing and discontinued operations as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017, is as follows:

September 30, 2017
Type of Investment Cost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value
HELD-TO-MATURITY
Fixed maturities:
Bonds
Corporate bonds - financial services $ 150
$ —
$ —
$ 150
Mortgage-backed securities 38
1
—
39
Total Held-to-Maturity Fixed Maturities $ 188
$ 1
$ —
$ 189
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury $ 22,032
$ 40
$ 91
$ 21,981
U.S. government agency 98,523
1,518
516
99,525
States, municipalities and political subdivisions
General obligations:
Midwest 120,549
2,388
499
122,438
Northeast 50,174
1,478
73
51,579
South 142,172
2,463
1,210
143,425
West 113,135
2,474
963
114,646
Special revenue:
Midwest 151,634
3,646
494
154,786
Northeast 79,159
1,061
795
79,425
South 261,141
4,421
2,974
262,588
West 157,622
2,676
1,940
158,358
Foreign bonds 54,300
1,907
—
56,207
Public utilities 201,418
4,538
200
205,756
Corporate bonds

Energy 96,373
2,367
95
98,645
Industrials 209,076
5,323
109
214,290
Consumer goods and services 181,471
5,049
135
186,385
Health care 75,775
2,600
—
78,375
Technology, media and telecommunications 143,024
3,308
193
146,139
Financial services 252,373
6,939
303
259,009

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September 30, 2018
Type of Investment									Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury									$	27,195	$	—	$	354	$	26,841
U.S. government agency									212,542		310		5,862		206,990
States, municipalities and political subdivisions
General obligations:
Midwest									99,023		574		1,359		98,238
Northeast									37,389		251		289		37,351
South									115,440		333		2,559		113,214
West									107,993		643		1,998		106,638
Special revenue:
Midwest									140,245		817		1,735		139,327
Northeast									63,758		240		1,901		62,097
South									241,007		611		6,177		235,441
West									145,072		737		3,411		142,398
Foreign bonds									9,722		49		24		9,747
Public utilities									54,606		129		1,191		53,544
Corporate bonds
Energy									26,929		77		320		26,686
Industrials									56,127		103		699		55,531
Consumer goods and services									52,398		42		763		51,677
Health care									18,062		58		134		17,986
Technology, media and telecommunications									26,622		34		534		26,122
Financial services									77,788		164		1,888		76,064
Mortgage-backed securities	14,496		169		179		14,486		7,985		13		260		7,738
Collateralized mortgage obligations
Government national mortgage association	153,896		2,292		1,458		154,730		78,797		121		3,602		75,316
Federal home loan mortgage corporation	191,246		2,410		3,132		190,524		108,666		7		2,957		105,716
Federal national mortgage association	106,326		2,240		832		107,734		53,776		2		1,924		51,854
Asset-backed securities	4,280		345		3		4,622		3,238		318		41		3,515
Total Available-for-Sale Fixed Maturities	$	2,880,195	$	61,652	$	16,194	$	2,925,653	$	1,764,380	$	5,633	$	39,982	$	1,730,031
Equity securities:
Common stocks
Public utilities	$	6,394	$	15,750	$	58	$	22,086
Energy	6,514		7,998		106		14,406
Industrials	13,117		49,890		164		62,843
Consumer goods and services	10,070		14,872		154		24,788
Health care	7,763		29,463		—		37,226
Technology, media and telecommunications	6,006		10,215		136		16,085
Financial services	11,630		101,813		73		113,370
Nonredeemable preferred stocks	992		161		—		1,153
Total Available-for-Sale Equity Securities	$	62,486	$	230,162	$	691	$	291,957
Total Available-for-Sale Securities	$	2,942,681	$	291,814	$	16,885	$	3,217,610

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December 31, 2016
December 31, 2017
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities:
Bonds
Corporate bonds - financial services	$	150	$	—	$	—	$	150	$	150	$	—	$	—	$	150
Mortgage-backed securities	48		1		—		49		34		—		—		34
Total Held-to-Maturity Fixed Maturities	$	198	$	1	$	—	$	199	$	184	$	—	$	—	$	184
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	23,216	$	87	$	108	$	23,195	$	17,073	$	4	$	186	$	16,891
U.S. government agency	76,692		1,445		540		77,597		121,574		1,311		717		122,168
States, municipalities and political subdivisions
General obligations:
Midwest	143,747		1,808		1,412		144,143		107,689		2,446		439		109,696
Northeast	57,731		909		231		58,409		47,477		1,174		10		48,641
South	129,475		1,249		2,355		128,369		139,870		2,462		813		141,519
West	114,524		1,380		2,173		113,731		111,123		2,351		463		113,011
Special revenue:
Midwest	167,430		2,313		1,433		168,310		155,475		3,620		351		158,744
Northeast	70,202		487		2,624		68,065		79,028		1,351		619		79,760
South	244,225		1,753		6,791		239,187		260,145		5,218		1,851		263,512
West	134,287		1,509		4,052		131,744		156,576		2,929		1,198		158,307
Foreign bonds	62,995		2,239		—		65,234		51,361		1,441		49		52,753
Public utilities	212,360		3,761		447		215,674		206,028		3,386		270		209,144
Corporate bonds
Energy	107,084		2,195		419		108,860		93,191		1,972		110		95,053
Industrials	225,526		5,359		982		229,903		218,067		3,881		241		221,707
Consumer goods and services	178,135		3,847		295		181,687		183,253		3,498		494		186,257
Health care	81,211		2,063		151		83,123		74,125		1,312		29		75,408
Technology, media and telecommunications	143,402		2,029		819		144,612		146,853		2,376		250		148,979
Financial services	269,981		5,328		1,358		273,951		277,824		5,769		442		283,151
Mortgage-backed securities	17,288		201		241		17,248		13,828		101		238		13,691
Collateralized mortgage obligations
Government national mortgage association	145,947		1,279		2,766		144,460		157,836		1,921		2,274		157,483
Federal home loan mortgage corporation	176,226		1,638		3,406		174,458		201,320		1,879		4,047		199,152
Federal national mortgage association	101,414		1,816		1,334		101,896		104,903		1,703		1,174		105,432
Asset-backed securities	4,407		145		282		4,270		4,282		362		8		4,636
Total Available-for-Sale Fixed Maturities	$	2,887,505	$	44,840	$	34,219	$	2,898,126	$	2,928,901	$	52,467	$	16,273	$	2,965,095
Equity securities:
Common stocks

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Equity securities:
Common stocks
Public utilities	$	6,394	$	13,465	$	188	$	19,671	$	6,394	$	16,075	$	30	$	22,439
Energy	6,514		8,555		22		15,047		6,514		8,171		120		14,565
Industrials	13,252		38,715		173		51,794		13,117		53,522		120		66,519
Consumer goods and services	10,324		13,851		58		24,117		10,110		15,742		164		25,688
Health care	7,763		19,657		—		27,420		7,763		32,340		—		40,103
Technology, media and telecommunications	5,931		9,476		38		15,369		6,067		11,556		115		17,508
Financial services	17,289		98,728		67		115,950		11,529		104,985		67		116,447
Nonredeemable preferred stocks	1,037		11		—		1,048		992		305		—		1,297
Total Available-for-Sale Equity Securities	$	68,504	$	202,458	$	546	$	270,416	$	62,486	$	242,696	$	616	$	304,566
Total Available-for-Sale Securities	$	2,956,009	$	247,298	$	34,765	$	3,168,542	$	2,991,387	$	295,163	$	16,889	$	3,269,661

The following table is a reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities for continuing and discontinued operations by investment type at September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


September 30, 2017
September 30, 2018
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities:
Continuing operations	$	150	$	—	$	—	$	150
Discontinued operations	38		1		—		39
Total Held-to-Maturity Fixed Maturities	$	188	$	1	$	—	189
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	$	1,480,730	$	28,606	$	10,674	$	1,498,662	$	1,764,380	$	5,633	$	39,982	$	1,730,031
Discontinued operations	1,399,465		33,046		5,520		1,426,991		—		—		—		—
Total Available-for-Sale Fixed Maturities	$	2,880,195	$	61,652	$	16,194	$	2,925,653	$	1,764,380	$	5,633	$	39,982	$	1,730,031
Equity securities:
Continuing operations	$	57,387	$	212,545	$	591	$	269,341
Discontinued operations	5,099		17,617		100		22,616
Total Available-for-Sale Equity Securities	$	62,486	$	230,162	$	691	$	291,957
Total Available-for-Sale Securities	$	2,942,681	$	291,814	$	16,885	$	3,217,610

Note: The sale of the life insurance business was completed on March 30, 2018.

Table of Contents



December 31, 2017
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities:
Continuing operations	$	150	$	—	$	—	$	150
Discontinued operations	34		—		—		34
Total Held-to-Maturity Fixed Maturities	$	184	$	—	$	—	$	184
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	$	1,516,610	$	27,412	$	8,952	$	1,535,070
Discontinued operations	1,412,291		25,055		7,321		1,430,025
Total Available-for-Sale Fixed Maturities	2,928,901		52,467		16,273		2,965,095
Equity securities:
Continuing operations	$	57,387	$	224,065	$	539	$	280,913
Discontinued operations	5,099		18,631		77		23,653
Total Available-for-Sale Equity Securities	62,486		242,696		616		304,566
Total Available-for-Sale Securities	$	2,991,387	$	295,163	$	16,889	$	3,269,661

December 31, 2016
Type of Investment Cost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value
HELD-TO-MATURITY
Fixed maturities:
Continuing operations $ 150
$ —
$ —
$ 150
Discontinued operations 48
1
—
49
Total Held-to-Maturity Fixed Maturities $ 198
$ 1
$ —
$ 199
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations $ 1,458,235
$ 18,725
$ 23,674
$ 1,453,286
Discontinued operations 1,429,270
26,115
10,545
1,444,840
Total Available-for-Sale Fixed Maturities 2,887,505
44,840
34,219
2,898,126
Equity securities:
Continuing operations $ 59,994
$ 186,692
$ 316
$ 246,370
Discontinued operations 8,510
15,766
230
24,046
Total Available-for-Sale Equity Securities 68,504
202,458
546
270,416
Total Available-for-Sale Securities $ 2,956,009
$ 247,298
$ 34,765
$ 3,168,542
Maturities

~~Maturities~~

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at September 30, ~~2017~~2018, by contractual maturity, are shown in the following tables. The ~~first~~ table below includes ~~consolidated~~ investments from ~~both~~ continuing ~~and discontinued operations. The second and third tables separate maturities into continuing and discontinued~~ operations. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.



Maturities
	Available-For-Sale				Trading
September 30, 2018	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	48,539	$	48,703	$	3,347	$	3,431
Due after one year through five years	212,322		211,709		6,835		8,797
Due after five years through 10 years	518,809		513,464		—		—
Due after 10 years	732,248		712,016		1,865		2,171
Asset-backed securities	3,238		3,515		—		—
Mortgage-backed securities	7,985		7,738		—		—
Collateralized mortgage obligations	241,239		232,886		—		—
	$	1,764,380	$	1,730,031	$	12,047	$	14,399

Maturities - Consolidated:
Held-To-Maturity Available-For-Sale Trading
September 30, 2017 Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less $ 150
$ 150
$ 128,884
$ 129,945
$ 1,401
$ 1,821
Due after one year through five years —
—
782,192
803,774
6,979
8,233
Due after five years through 10 years —
—
751,756
771,205
1,302
1,185
Due after 10 years —
—
747,119
748,633
2,151
2,434
Asset-backed securities —
—
4,280
4,622
—
—
Mortgage-backed securities 38
39
14,496
14,486
—
—
Collateralized mortgage obligations —
—
451,468
452,988
—
—
$ 188
$ 189
$ 2,880,195
$ 2,925,653
$ 11,833
$ 13,673

Table of Contents

Maturities - Continuing Operations:
Held-To-Maturity Available-For-Sale Trading
September 30, 2017 Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less $ 150
$ 150
$ 54,340
$ 54,762
$ 1,401
$ 1,821
Due after one year through five years —
—
224,804
230,986
6,979
8,233
Due after five years through 10 years —
—
344,553
354,308
1,302
1,185
Due after 10 years —
—
675,795
676,310
2,151
2,434
Asset-backed securities —
—
3,174
3,517
—
—
Mortgage-backed securities —
—
9,664
9,783
—
—
Collateralized mortgage obligations —
—
168,400
168,996
—
—
$ 150
$ 150
$ 1,480,730
$ 1,498,662
$ 11,833
$ 13,673

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

~~Table of Contents~~

Net Realized Investment Gains and Losses

Net realized gains on disposition of investments are computed using the specific identification method and are included in the computation of net income. A summary of the components of net realized investment gains (losses) is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net realized investment gains (losses) from continuing operations:
Fixed maturities:
Available-for-sale	$	22		$	118		$	(171	)	$	645
Trading securities
Change in fair value	351			(43		)	92			504
Sales	171			72			1,076			117
Equity securities	13,944			(80		)	6,924			1,842
Real estate	(517		)	—			(517		)	289
Total net realized investment gains from continuing operations	$	13,971		$	67		$	7,404		$	3,397
Total net realized investment gains (losses) from discontinued operations	—			296			(1,057		)	3,600
Total net realized investment gains	$	13,971		$	363		$	6,347		$	6,997

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net realized investment gains (losses) from continuing operations:
Fixed maturities:
Available-for-sale $ 118
$ 484
$ 645
$ 898
Trading securities
Change in fair value (43 ) 148
504
519
Sales 72
107
117
568
Equity securities:
Available-for-sale 3
1,375
1,553
2,359
Trading securities
Change in fair value (124 ) (5 ) 232
325
Sales 41
20
57
(6 )
Cash equivalents —
—
—
169
Real estate —
—
289
—
Total net realized investment gains from continuing operations $ 67
$ 2,129
$ 3,397
$ 4,832
Total net realized investment gains from discontinued operations 296
461
3,600
1,409
Total net realized investment gains $ 363
$ 2,590
$ 6,997
$ 6,241

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



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Proceeds from sales	$	105,871		$	2,293	$	129,865		$	3,388
Gross realized gains	—			—		140			1,046
Gross realized losses	(94		)	—		(401		)	—

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Proceeds from sales $ 2,293
$ —
$ 3,388
$ 1,968
Gross realized gains —
—
1,046
921
Gross realized losses —
—
—
—

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


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017			2016		2018		2017		2018		2017
Proceeds from sales	$	1,844	$	2,007	$	5,807		$	3,081	$	—	$	1,844	$	—	$	5,807
Gross realized gains	—		11		1,254			65		—		—		—		1,254
Gross realized losses	—		—		(78		)	—		—		—		—		(78		)

Note: The sale of the life insurance business was completed on March 30, 2018.

There were no sales of held-to-maturity securities during the three- and nine-month periods ended September 30, ~~2017~~2018 and ~~2016~~.2017.

Our investment portfolio includes trading securities with embedded derivatives. These securities are primarily convertible securities which are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of net realized investment gains. Our portfolio of trading securities had a fair value of ~~$20,003~~$14,399 and ~~$20,034~~$16,842 at September 30, ~~2017~~2018 and December 31, ~~2016~~,2017, respectively.

1716

Table of Contents

Funding Commitment

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through ~~December~~July 31, ~~2023~~2028 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was ~~$3,738~~$23,702 at September 30, ~~2017~~.2018.

Unrealized Appreciation

A summary of the changes in net unrealized investment appreciation during the reporting period is as follows:



	Nine Months Ended September 30,
	2018			2017
Change in net unrealized investment appreciation
Available-for-sale fixed maturities	$	(80,023	)	$	34,837
Available-for-sale equity securities	—			27,559
Deferred policy acquisition costs	7,274			(3,582		)
Income tax effect	15,279			(20,584		)
Net unrealized investment depreciation of discontinued operations, sold	6,714			—
Cumulative change in accounting principles	(191,244		)	—
Total change in net unrealized investment appreciation, net of tax	$	(242,000	)	$	38,230

Nine Months Ended September 30,
2017 2016
Change in net unrealized investment appreciation
Available-for-sale fixed maturities $ 34,837
$ 83,498
Available-for-sale equity securities 27,559
15,459
Deferred policy acquisition costs (3,582 ) (19,857 )
Income tax effect (20,584 ) (27,685 )
Total change in net unrealized investment appreciation, net of tax $ 38,230
$ 51,415

We continually monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires other-than-temporary impairment ("OTTI") charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date or based on the value calculated using a discounted cash flow model. Credit-related impairments on fixed maturity securities that we do not plan to sell, and for which we are not more likely than not to be required to sell, are recognized in net income. Any non-credit related impairment is recognized as a component of other comprehensive income. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.

The tables on the following pages summarize our fixed maturity and equity securities that were in an unrealized loss position on a consolidated basis, including both continuing and discontinued operations at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The securities are presented by the length of time they have been continuously in an unrealized loss position. It is possible that we could recognize OTTI charges in future periods on securities held at September 30, ~~2017,~~2018, if future events or information cause us to determine that a decline in fair value is other-than-temporary.

We have evaluated the near-term prospects of the issuers of our fixed maturity securities in relation to the severity and duration of the unrealized loss and determined that these losses did not warrant the recognition of an OTTI charge at September 30, ~~2017~~2018 or at September 30, ~~2016.~~2017. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

~~We have evaluated the near-term prospects~~

Table of ~~the issuers of our equity securities in relation to the severity and duration of the unrealized loss and determined that these losses did not warrant the recognition of an OTTI charge at~~ ~~September 30, 2017~~ ~~or at September 30, 2016. Our largest unrealized loss greater than 12 months on an individual equity security at~~ ~~September 30, 2017~~ was $152. We have no intention to sell any of these securities prior to a recovery in value, but will continue to monitor the fair value reported for these securities as part of our overall process to evaluate investments for OTTI recognition.Contents




September 30, 2018	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	5	$	18,989	$	107	5	$	7,852	$	247	$	26,841	$	354
U.S. government agency	34	158,156		4,096		7	34,516		1,766		192,672		5,862
States, municipalities and political subdivisions
General obligations
Midwest	17	26,098		234		5	21,109		1,125		47,207		1,359
Northeast	5	14,211		152		1	3,500		137		17,711		289
South	23	46,353		700		12	29,344		1,859		75,697		2,559
West	21	47,340		680		8	24,676		1,318		72,016		1,998
Special revenue
Midwest	31	56,940		672		8	20,569		1,063		77,509		1,735
Northeast	7	18,451		336		11	27,327		1,565		45,778		1,901
South	40	102,910		1,578		32	70,521		4,599		173,431		6,177
West	19	37,030		573		23	52,433		2,838		89,463		3,411
Foreign bonds	1	2,973		24		—	—		—		2,973		24
Public utilities	19	39,011		916		1	4,860		275		43,871		1,191
Corporate bonds
Energy	10	17,219		320		—	—		—		17,219		320
Industrials	16	39,427		513		1	3,860		186		43,287		699
Consumer goods and services	18	40,446		737		1	974		26		41,420		763
Health care	5	11,515		134		—	—		—		11,515		134
Technology, media and telecommunications	9	20,569		406		1	1,833		128		22,402		534
Financial services	24	54,884		1,445		2	6,154		443		61,038		1,888
Mortgage-backed securities	32	2,355		55		13	3,602		205		5,957		260
Collateralized mortgage obligations
Government national mortgage association	11	27,027		856		18	39,403		2,746		66,430		3,602
Federal home loan mortgage corporation	21	77,751		967		11	27,390		1,990		105,141		2,957
Federal national mortgage association	16	29,346		684		8	22,072		1,240		51,418		1,924
Asset-backed securities	1	2,882		41		—	—		—		2,882		41
Total Available-for-Sale Fixed Maturities	385	$	891,883	$	16,226	168	$	401,995	$	23,756	$	1,293,878	$	39,982

Table of Contents




December 31, 2017	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	5	$	10,370	$	67	2	$	5,765	$	119	$	16,135	$	186
U.S. government agency	11	64,842		390		5	19,372		327		84,214		717
States, municipalities and political subdivisions
General obligations
Midwest	2	2,177		8		3	19,729		431		21,906		439
Northeast	—	—		—		1	3,644		10		3,644		10
South	3	7,959		32		11	29,545		781		37,504		813
West	2	5,944		18		8	25,755		445		31,699		463
Special revenue
Midwest	2	3,486		15		7	19,130		336		22,616		351
Northeast	1	4,471		37		11	28,476		582		32,947		619
South	8	7,749		107		27	69,917		1,744		77,666		1,851
West	3	5,424		16		22	56,753		1,182		62,177		1,198
Foreign bonds	1	857		49		—	—		—		857		49
Public utilities	8	19,186		79		5	8,446		191		27,632		270
Corporate bonds
Energy	1	2,236		13		1	1,606		97		3,842		110
Industrials	10	27,773		146		2	4,275		95		32,048		241
Consumer goods and services	14	32,781		248		3	6,813		246		39,594		494
Health care	4	9,947		29		—	—		—		9,947		29
Technology, media and telecommunications	12	35,319		122		3	10,413		128		45,732		250
Financial services	22	50,144		256		4	11,389		186		61,533		442
Mortgage-backed securities	10	2,458		18		10	6,641		220		9,099		238
Collateralized mortgage obligations
Government national mortgage association	20	49,764		629		17	46,969		1,645		96,733		2,274
Federal home loan mortgage corporation	11	37,543		577		20	75,679		3,470		113,222		4,047
Federal national mortgage association	11	31,958		342		11	20,123		832		52,081		1,174
Asset-backed securities	1	992		8		—	—		—		992		8
Total Available-for-Sale Fixed Maturities	162	$	413,380	$	3,206	173	$	470,440	$	13,067	$	883,820	$	16,273
Equity securities:
Common stocks
Public utilities	—	$	—	$	—	1	$	278	$	30	$	278	$	30
Energy	2	528		120		—	—		—		528		120
Industrials	1	99		13		5	193		107		292		120
Consumer goods and services	—	—		—		2	151		164		151		164
Technology, media and telecommunications	2	466		95		1	4		20		470		115
Financial services	2	193		55		1	9		12		202		67
Total Available-for-Sale Equity Securities	7	$	1,286	$	283	10	$	635	$	333	$	1,921	$	616
Total Available-for-Sale Securities	169	$	414,666	$	3,489	183	$	471,075	$	13,400	$	885,741	$	16,889

September 30, 2017 Less than 12 months 12 months or longer Total
Type of Investment Number
of Issues Fair
Value Gross Unrealized
Depreciation Number
of Issues Fair
Value Gross Unrealized Depreciation Fair
Value Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury 3
$ 8,920
$ 44
3
$ 2,829
$ 47
$ 11,749
$ 91
U.S. government agency 8
33,607
306
3
12,789
210
46,396
516
States, municipalities and political subdivisions
General obligations
Midwest 3
4,343
46
3
19,742
453
24,085
499
Northeast —
—
—
1
3,587
73
3,587
73
South 7
14,594
56
11
27,919
1,154
42,513
1,210
West 2
3,600
29
8
25,333
934
28,933
963
Special revenue
Midwest 2
3,990
10
7
19,034
484
23,024
494
Northeast 6
27,751
312
9
15,275
483
43,026
795
South 13
32,415
433
27
66,978
2,541
99,393
2,974
West 8
20,369
135
22
55,836
1,805
76,205
1,940
Public utilities 2
3,201
52
4
7,491
148
10,692
200
Corporate bonds

Energy 2
6,166
13
1
1,807
82
7,973
95
Industrials —
—
—
2
4,271
109
4,271
109
Consumer goods and services 5
7,469
62
2
5,097
73
12,566
135
Technology, media and telecommunications 6
15,263
88
2
8,384
105
23,647
193
Financial services 11
21,623
163
1
7,243
140
28,866
303
Mortgage-backed securities 11
4,411
43
3
4,790
136
9,201
179
Collateralized mortgage obligations
Government national mortgage association 16
40,243
439
13
38,573
1,019
78,816
1,458
Federal home loan mortgage corporation 16
64,647
1,166
12
42,472
1,966
107,119
3,132
Federal national mortgage association 13
35,709
496
6
10,008
336
45,717
832
Asset-backed securities 1
997
3
—
—
—
997
3
Total Available-for-Sale Fixed Maturities 135
$ 349,318
$ 3,896
140
$ 379,458
$ 12,298
$ 728,776
$ 16,194
Equity securities:
Common stocks
Public utilities —
$ —
$ —
1
$ 250
$ 58
$ 250
$ 58
Energy 2
546
102
1
182
4
728
106
Industrials 1
106
6
5
141
158
247
164
Consumer goods and services —
—
—
4
178
154
178
154
Technology, media and telecommunications 2
445
115
1
4
21
449
136
Financial services 1
30
25
2
165
48
195
73
Total Available-for-Sale Equity Securities 6
$ 1,127
$ 248
14
$ 920
$ 443
$ 2,047
$ 691
Total Available-for-Sale Securities 141
$ 350,445
$ 4,144
154
$ 380,378
$ 12,741
$ 730,823
$ 16,885

Table of Contents

December 31, 2016 Less than 12 months 12 months or longer Total
Type of Investment Number
of Issues Fair
Value Gross Unrealized Depreciation Number
of Issues Fair
Value Gross Unrealized Depreciation Fair
Value Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury 9
$ 10,800
$ 108
—
$ —
$ —
$ 10,800
$ 108
U.S. government agency 10
36,593
540
—
—
—
36,593
540
States, municipalities and political subdivisions
General obligations
Midwest 27
40,545
1,412
—
—
—
40,545
1,412
Northeast 9
9,874
231
—
—
—
9,874
231
South 37
53,699
2,355
—
—
—
53,699
2,355
West 30
55,265
2,173
—
—
—
55,265
2,173
Special revenue
Midwest 41
62,937
1,433
—
—
—
62,937
1,433
Northeast 22
54,993
2,624
—
—
—
54,993
2,624
South 79
152,979
6,791
—
—
—
152,979
6,791
West 44
81,676
4,052
—
—
—
81,676
4,052
Public utilities 20
38,511
423
2
2,122
24
40,633
447
Corporate bonds
Energy 8
15,938
313
3
8,232
106
24,170
419
Industrials 24
42,854
596
3
5,641
386
48,495
982
Consumer goods and services 11
21,059
295
—
—
—
21,059
295
Health care 9
20,918
151
—
—
—
20,918
151
Technology, media and telecommunications 16
41,230
516
3
10,241
303
51,471
819
Financial services 37
75,286
1,358
—
—
—
75,286
1,358
Mortgage-backed securities 16
9,611
187
5
1,198
54
10,809
241
Collateralized mortgage obligations
Government national mortgage association 36
82,430
2,261
9
13,603
505
96,033
2,766
Federal home loan mortgage corporation 41
105,775
3,165
3
5,141
241
110,916
3,406
Federal national mortgage association 27
46,633
1,091
4
4,341
243
50,974
1,334
Asset-backed securities 1
971
29
1
2,559
253
3,530
282
Total Available-for-Sale Fixed Maturities 554
$ 1,060,577
$ 32,104
33
$ 53,078
$ 2,115
$ 1,113,655
$ 34,219
Equity securities:
Common stocks
Public utilities —
$ —
$ —
3
$ 120
$ 188
$ 120
$ 188
Energy —
—
—
1
163
22
163
22
Industrials —
—
—
6
239
173
239
173
Consumer goods and services 3
282
55
2
15
3
297
58
Technology, media and telecommunications 7
26
5
8
33
33
59
38
Financial services 3
53
3
2
150
64
203
67
Total Available-for-Sale Equity Securities 13
$ 361
$ 63
22
$ 720
$ 483
$ 1,081
$ 546
Total Available-for-Sale Securities 567
$ 1,060,938
$ 32,167
55
$ 53,798
$ 2,598
$ 1,114,736
$ 34,765

~~Table of Contents~~

The tables on the following pages are a reconciliation for continuing and discontinued operations of our total fixed maturity and equity securities that were in an unrealized loss position at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The sale of our life insurance business was completed on March 30, 2018. The securities are presented by the length of time they have been continuously in an unrealized loss position:



September 30, 2017	Less than 12 months					12 months or longer					Total
September 30, 2018															Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	85	$	206,874	$	2,059	101	$	259,297	$	8,615	$	466,171	$	10,674	385	$	891,883	$	16,226	168	$	401,995	$	23,756	$	1,293,878	$	39,982
Discontinued operations	50	142,444		1,837		39	120,161		3,683		262,605		5,520		—	—		—		—	—		—		—		—
Total Available-for-Sale Fixed Maturities	135	$	349,318	$	3,896	140	$	379,458	$	12,298	$	728,776	$	16,194	385	$	891,883	$	16,226	168	$	401,995	$	23,756	$	1,293,878	$	39,982
Equity securities:
Continuing operations	6	$	1,127	$	248	10	$	540	$	343	$	1,667	$	591
Discontinued operations	—	—		—		4	380		100		380		100
Total Available-for-Sale Equity Securities	6	$	1,127	$	248	14	$	920	$	443	$	2,047	$	691
Total Available-for-Sale Securities	141	$	350,445	$	4,144	154	$	380,378	$	12,741	$	730,823	$	16,885

Note: The sale of the life insurance business was completed on March 30, 2018.




December 31, 2017	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	88	$	232,489	$	1,791	112	$	302,815	$	7,161	$	535,304	$	8,952
Discontinued operations	74	180,891		1,415		61	167,625		5,906		348,516		7,321
Total Available-for-Sale Fixed Maturities	162	$	413,380	$	3,206	173	$	470,440	$	13,067	$	883,820	$	16,273
Equity securities:
Continuing operations	5	$	1,129	$	236	6	$	385	$	303	$	1,514	$	539
Discontinued operations	2	157		47		4	250		30		407		77
Total Available-for-Sale Equity Securities	7	$	1,286	$	283	10	$	635	$	333	$	1,921	$	616
Total Available-for-Sale Securities	169	$	414,666	$	3,489	183	$	471,075	$	13,400	$	885,741	$	16,889

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NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

Current accounting guidance on fair value measurements includes the application of a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Our financial instruments that are recorded at fair value are categorized into a three-level hierarchy, which is based upon the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (i.e., Level 1) and the lowest priority to unobservable inputs (i.e., Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the financial instrument.

Financial instruments recorded at fair value are categorized in the fair value hierarchy as follows:

~~Level 1: Valuations are based on unadjusted quoted prices in active markets for identical financial instruments that we have the ability to access.~~

~~Level 2~~: Valuations are based on quoted prices for similar financial instruments, other than quoted prices included in Level 1, in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument.

~~Level 3~~: Valuations are based on pricing or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument.


•	Level 1: Valuations are based on unadjusted quoted prices in active markets for identical financial instruments that we have the ability to access.


•	Level 2: Valuations are based on quoted prices for similar financial instruments, other than quoted prices included in Level 1, in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument.


•	Level 3: Valuations are based on pricing or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument.

We review our fair value hierarchy categorizations on a quarterly basis at which time the classification of certain financial instruments may change if the input observations have changed. Transfers between levels, if any, are recorded as of the beginning of the reporting period.

To determine the fair value of the majority of our investments, we utilize prices obtained from independent, nationally recognized pricing services. We obtain one price for each security. When the pricing services cannot provide a determination of fair value for a specific security, we obtain non-binding price quotes from broker-dealers with whom we have had several ~~years~~years' experience and who have demonstrated knowledge of the subject security. We request and utilize one broker quote per security.

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

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

The mortgage loan portfolio consists entirely of commercial mortgage loans. The fair value of our mortgage loans is determined by modeling performed by usour third party fund manager based on the stated principal and coupon payments provided for in the loan agreements. These cash flows are then discounted using an appropriate risk-adjusted discount rate to determine the security's fair ~~value, which is a Level 3 fair value measurement.~~value.

2221

Table of Contents

The fair value of our policy loans is equivalent to carrying value, which is a reasonable estimate of fair value and is classified as Level 2. We do not make policy loans for amounts in excess of the cash surrender value of the related policy. In all instances, the policy loans are fully collateralized by the related liability for future policy benefits for traditional insurance policies or by the policyholders' account balance for non-traditional policies.

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

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

The Company formed a rabbi trust in 2014 to fund obligations under the United Fire & Casualty Company ~~Non-qualified Deferred Compensation Plan and United Fire Group~~ Supplemental Executive Retirement and Deferral Plan ~~(collectively, the~~(the "Executive Retirement ~~Plans"~~Plan"). Within the rabbi trust, corporate-owned life insurance ("COLI") policies are utilized as an investment vehicle and source of funding for the Company's Executive Retirement ~~Plans.~~Plan. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of September 30, ~~2017,~~2018, the cash surrender value of the COLI policies was ~~$3,759,~~$4,998, which is equal to the fair value measured using Level 2 inputs, based on the underlying assets of the COLI policies, and is included in other assets in the Consolidated Balance Sheets.

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

~~Table of Contents~~

A summary of the carrying value and estimated fair value of our financial instruments from continuing operations at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 is as follows:



	September 30, 2018				December 31, 2017
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities	$	—	$	—	$	150	$	150
Available-for-sale securities	1,730,031		1,730,031		1,535,070		1,535,070
Trading securities	14,399		14,399		16,842		16,842
Equity securities	276,253		276,253		287,344		287,344
Mortgage loans	14,749		14,896		—		—
Other long-term investments	40,432		40,432		49,352		49,352
Short-term investments	175		175		175		175
Cash and cash equivalents	52,252		52,252		95,562		95,562
Corporate-owned life insurance	4,998		4,998		4,029		4,029

Table of Contents

September 30, 2017 December 31, 2016
Fair Value Carrying Value Fair Value Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities $ 150
$ 150
$ 150
$ 150
Available-for-sale securities 1,498,662
1,498,662
1,453,286
1,453,286
Trading securities 13,673
13,673
14,390
14,390
Equity securities:
Available-for-sale securities 269,341
269,341
246,370
246,370
Trading securities 6,330
6,330
5,644
5,644
Other long-term investments 49,966
49,966
51,769
51,769
Short-term investments 175
175
175
175
Cash and cash equivalents 98,610
98,610
89,194
89,194
Corporate-owned life insurance 3,759
3,759
2,592
2,592

A summary of the carrying value and estimated fair value of our financial instruments from discontinued operations at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 is as follows:


	September 30, 2017				December 31, 2016				September 30, 2018				December 31, 2017
	Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities	$	39	$	38	$	49	$	48	$	—	$	—	$	34	$	34
Available-for-sale securities	1,426,991		1,426,991		1,444,840		1,444,840		—		—		1,430,025		1,430,025
Equity securities:
Available-for-sale securities	22,616		22,616		24,046		24,046		—		—		23,653		23,653
Mortgage loans	3,690		3,504		3,895		3,706		—		—		3,594		3,435
Policy loans	5,770		5,770		5,366		5,366		—		—		5,815		5,815
Other long-term investments	16,299		16,299		15,780		15,870		—		—		16,437		16,437
Cash and cash equivalents	30,751		30,751		21,659		21,659		—		—		15,851		15,851
Liabilities
Policy reserves
Annuity (accumulations) ⁽¹⁾	$	617,819	$	620,037	$	646,764	$	666,711	$	—	$	—	$	591,702	$	611,866
Annuity (benefit payments)	144,901		95,086		144,283		95,129		—		—		147,038		93,560

Note: The sale of the life insurance business was completed on March 30, 2018.

~~Table of Contents~~

The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments from both continuing and discontinued operations at September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


September 30, 2017			Fair Value Measurements
September 30, 2018											Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	21,981	$	—	$	21,981	$	—	$	26,841	$	—	$	26,841	$	—
U.S. government agency	99,525		—		99,525		—		206,990		—		206,990		—
States, municipalities and political subdivisions
General obligations
Midwest	122,438		—		122,438		—		98,238		—		98,238		—
Northeast	51,579		—		51,579		—		37,351		—		37,351		—
South	143,425		—		143,425		—		113,214		—		113,214		—
West	114,646		—		114,646		—		106,638		—		106,638		—
Special revenue
Midwest	154,786		—		154,709		77		139,327		—		139,327		—
Northeast	79,425		—		79,425		—		62,097		—		62,097		—
South	262,588		—		262,588		—		235,441		—		235,441		—
West	158,358		—		158,358		—		142,398		—		142,398		—
Foreign bonds	56,207		—		56,207		—		9,747		—		9,747		—
Public utilities	205,756		—		205,756		—		53,544		—		53,544		—
Corporate bonds
Energy	98,645		—		98,645		—		26,686		—		26,686		—
Industrials	214,290		—		214,290		—		55,531		—		55,531		—
Consumer goods and services	186,385		—		185,686		699		51,677		—		51,677		—
Health care	78,375		—		78,375		—
Technology, media and telecommunications	146,139		—		146,139		—
Financial services	259,009		—		250,992		8,017
Mortgage-backed securities	14,486		—		14,486		—
Collateralized mortgage obligations
Government national mortgage association	154,730		—		154,730		—
Federal home loan mortgage corporation	190,524		—		190,524		—
Federal national mortgage association	107,734		—		107,734		—
Asset-backed securities	4,622		—		3,991		631
Total Available-for-Sale Fixed Maturities	$	2,925,653	$	—	$	2,916,229	$	9,424
Equity securities:
Common stocks
Public utilities	$	22,086	$	22,086	$	—	$	—
Energy	14,406		14,406		—		—
Industrials	62,843		62,843		—		—
Consumer goods and services	24,788		24,788		—		—
Health care	37,226		37,226		—		—

Table of Contents



Health care	17,986		—		17,986		—
Technology, media and telecommunications	26,122		—		26,122		—
Financial services	76,064		—		75,814		250
Mortgage-backed securities	7,738		—		7,738		—
Collateralized mortgage obligations
Government national mortgage association	75,316		—		75,316		—
Federal home loan mortgage corporation	105,716		—		105,716		—
Federal national mortgage association	51,854		—		51,854		—
Asset-backed securities	3,515		—		2,883		632
Total Available-for-Sale Fixed Maturities	$	1,730,031	$	—	$	1,729,149	$	882
TRADING
Fixed maturities:
Bonds
U.S. Treasury	$	200	$	—	$	200	$	—
Corporate bonds			—		—		—
Industrials	1,812		—		1,812		$	—
Consumer goods and services	1,750		—		1,750		—
Health care	3,182		—		3,182		—
Technology, media and telecommunications	2,694		—		2,694		—
Financial services	2,114		—		2,114		—
Redeemable preferred stocks	2,647		2,647		—		—
Total Trading Securities	$	14,399	$	2,647	$	11,752	$	—
EQUITY SECURITIES
Common stocks
Public utilities	$	15,563	$	15,563	$	—	$	—
Energy	13,647		13,647		—		—
Industrials	62,741		62,741		—		—
Consumer goods and services	25,870		25,870		—		—
Health care	22,991		22,991		—		—
Technology, media and telecommunications	15,047		15,047		—		—
Financial services	114,708		114,708		—		—
Nonredeemable preferred stocks	5,686		5,091		—		595
Total Equity Securities	$	276,253	$	275,658	$	—	$	595
Short-Term Investments	$	175	$	175	$	—	$	—
Money Market Accounts	$	3,824	$	3,824	$	—	$	—
Corporate-Owned Life Insurance	$	4,998	$	—	$	4,998	$	—
Total Assets Measured at Fair Value	$	2,029,680	$	282,304	$	1,745,899	$	1,477

Note: The sale of the life insurance business was completed on March 30, 2018.

Table of Contents



December 31, 2017			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	16,891	$	—	$	16,891	$	—
U.S. government agency	122,168		—		122,168		—
States, municipalities and political subdivisions
General obligations
Midwest	109,696		—		109,696		—
Northeast	48,641		—		48,641		—
South	141,519		—		141,519		—
West	113,011		—		113,011		—
Special revenue
Midwest	158,744		—		158,744		—
Northeast	79,760		—		79,760		—
South	263,512		—		263,512		—
West	158,307		—		158,307		—
Foreign bonds	52,753		—		52,753		—
Public utilities	209,144		—		209,144		—
Corporate bonds
Energy	95,053		—		95,053		—
Industrials	221,707		—		221,707		—
Consumer goods and services	186,257		—		185,589		668
Health care	75,408		—		75,408		—
Technology, media and telecommunications	148,979		—		148,979		—
Financial services	283,151		—		275,474		7,677
Mortgage-backed securities	13,691		—		13,691		—
Collateralized mortgage obligations
Government national mortgage association	157,483		—		157,483		—
Federal home loan mortgage corporation	199,152		—		199,152		—
Federal national mortgage association	105,432		—		105,432		—
Asset-backed securities	4,636		—		3,989		647
Total Available-for-Sale Fixed Maturities	$	2,965,095	$	—	$	2,956,103	$	8,992
Equity securities:
Common stocks
Public utilities	$	22,439	$	22,439	$	—	$	—
Energy	14,565		14,565		—		—
Industrials	66,519		66,517		2		—
Consumer goods and services	25,688		25,688		—		—
Health care	40,103		40,103		—		—
Technology, media and telecommunications	17,508		17,508		—		—
Financial services	116,447		116,447		—		—

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Nonredeemable preferred stocks	1,297		415		—		882
Total Available-for-Sale Equity Securities	$	304,566	$	303,682	$	2	$	882
Total Available-for-Sale Securities	$	3,269,661	$	303,682	$	2,956,105	$	9,874
TRADING
Fixed maturities:
Bonds
Corporate bonds
Industrials	$	2,220	$	—	$	2,220	$	—
Consumer goods and services	1,535		—		1,535		—
Health care	3,741		—		3,741		—
Technology, media and telecommunications	1,221		—		1,221		—
Financial services	5,566		—		5,566		—
Redeemable preferred stocks	2,559		2,559		—		—
Equity securities:
Public utilities	874		874		—		—
Energy	190		190		—		—
Industrials	989		989		—		—
Consumer goods and services	1,314		1,314		—		—
Health care	325		325		—		—
Financial services	198		198		—		—
Nonredeemable preferred stocks	2,541		2,541		—		—
Total Trading Securities	$	23,273	$	8,990	$	14,283	$	—
Short-Term Investments	$	175	$	175	$	—	$	—
Money Market Accounts	$	16,824	$	16,824	$	—	$	—
Corporate-Owned Life Insurance	$	4,029	$	—	$	4,029	$	—
Total Assets Measured at Fair Value	$	3,313,962	$	329,671	$	2,974,417	$	9,874

Technology, media and telecommunications 16,085
16,085
—
—
Financial services 113,370
113,370
—
—
Nonredeemable preferred stocks 1,153
419
—
734
Total Available-for-Sale Equity Securities $ 291,957
$ 291,223
$ —
$ 734
Total Available-for-Sale Securities $ 3,217,610
$ 291,223
$ 2,916,229
$ 10,158
TRADING
Fixed maturities:
Corporate bonds

Industrials $ 2,117
$ —
$ 2,117
$ —
Consumer goods and services 289
—
289
—
Health care 3,557
—
3,557
—
Technology, media and telecommunications 1,373
—
1,373
—
Financial services 4,780
—
4,780
—
Redeemable preferred stocks 1,557
1,557
—
—
Equity securities:
Public utilities 831
831
—
—
Energy 206
206
—
—
Industrials 900
900
—
—
Consumer goods and services 1,209
1,209
—
—
Health care 369
369
—
—
Financial services 218
218
—
—
Nonredeemable preferred stocks 2,597
2,597
—
—
Total Trading Securities $ 20,003
$ 7,887
$ 12,116
$ —
Short-Term Investments $ 175
$ 175
$ —
$ —
Money Market Accounts $ 13,897
$ 13,897
$ —
$ —
Corporate-Owned Life Insurance $ 3,759
$ —
$ 3,759
$ —
Total Assets Measured at Fair Value $ 3,255,444
$ 313,182
$ 2,932,104
$ 10,158

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December 31, 2016 Fair Value Measurements
Description Total Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury $ 23,195
$ —
$ 23,195
$ —
U.S. government agency 77,597
—
77,597
—
States, municipalities and political subdivisions
General obligations
Midwest 144,143
—
144,143
—
Northeast 58,409
—
58,409
—
South 128,369
—
128,369
—
West 113,731
—
113,731
—
Special revenue
Midwest 168,310
—
168,142
168
Northeast 68,065
—
68,065
—
South 239,187
—
239,187
—
West 131,744
—
131,744
—
Foreign bonds 65,234
—
65,234
—
Public utilities 215,674
—
215,674
—
Corporate bonds
Energy 108,860
—
108,860
—
Industrials 229,903
—
229,903
—
Consumer goods and services 181,687
—
180,590
1,097
Health care 83,123
—
83,123
—
Technology, media and telecommunications 144,612
—
144,612
—
Financial services 273,951
—
265,154
8,797
Mortgage-backed securities 17,248
—
17,248
—
Collateralized mortgage obligations
Government national mortgage association 144,460
—
144,460
—
Federal home loan mortgage corporation 174,458
—
174,458
—
Federal national mortgage association 101,896
—
101,896
—
Asset-backed securities 4,270
—
3,821
449
Total Available-for-Sale Fixed Maturities $ 2,898,126
$ —
$ 2,887,615
$ 10,511
Equity securities:
Common stocks
Public utilities $ 19,671
$ 19,671
$ —
$ —
Energy 15,047
15,047
—
—
Industrials 51,794
51,794
—
—
Consumer goods and services 24,117
24,117
—
—
Health care 27,420
27,420
—
—
Technology, media and telecommunications 15,369
15,369
—
—
Financial services 115,950
111,958
—
3,992

~~Table of Contents~~

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

~~Table of Contents~~

The following tables are a reconciliation for both continuing and discontinued operations of the presentation of the categorization for our financial instruments measured at fair value on a recurring basis at September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


September 30, 2017			Fair Value Measurements
September 30, 2018											Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	$	1,498,662	$	—	$	1,497,931	$	731	$	1,730,031			$	1,729,149	$	882
Discontinued operations	1,426,991		—		1,418,298		8,693		—		—		—		—
Total Available-for-Sale Fixed Maturities	$	2,925,653	$	—	$	2,916,229	$	9,424	$	1,730,031	$	—	$	1,729,149	$	882
Equity securities:
Continuing operations	$	269,341	$	268,607	$	—	$	734
Discontinued operations	22,616		22,616		—		—
Total Available-for-Sale Equity Securities	$	291,957	$	291,223	$	—	$	734
Total Available-for-Sale Securities	$	3,217,610	$	291,223	$	2,916,229	$	10,158
TRADING
Fixed maturities:
Continuing operations	$	13,673	$	1,557	$	12,116	$	—	$	14,399	$	2,647	$	11,752	$	—
Discontinued operations	—		—		—		—		—		—		—		—
Equity securities:
Total Trading Securities									$	14,399	$	2,647	$	11,752	$	—
EQUITY SECURITIES
Continuing operations	6,330		6,330		—		—		$	276,253	$	275,658	$	—	$	595
Discontinued operations	—		—		—		—		—		—		—		—
Total Trading Securities	$	20,003	$	7,887	$	12,116	$	—
Total Equity Securities									$	276,253	$	275,658	$	—	$	595
SHORT-TERM INVESTMENTS
Continuing operations	$	175	$	175	$	—	$	—	$	175	$	175
Discontinued operations	—		—		—		$	—	—		—		—		$	—
Short-Term Investments	$	175	$	175	$	—	$	—	$	175	$	175	$	—	$	—
MONEY MARKET ACCOUNTS
Continuing operations	$	13,203	$	13,203	$	—	$	—	$	3,824	$	3,824
Discontinued operations	694		694		—		—		—		—		—		—
Money Market Accounts	$	13,897	$	13,897	$	—	$	—	$	3,824	$	3,824	$	—	$	—
CORPORATE-OWNED LIFE INSURANCE
Continuing operations	$	3,759	$	—	$	3,759	$	—	$	4,998			$	4,998
Discontinued operations	—		—		—		—		—		—		—		—
Corporate-Owned Life Insurance	$	3,759	$	—	$	3,759	$	—	$	4,998	$	—	$	4,998	$	—
Total Assets Measured at Fair Value	$	3,255,444	$	313,182	$	2,932,104	$	10,158	$	2,029,680	$	282,304	$	1,745,899	$	1,477

Note: The sale of the life insurance business was completed on March 30, 2018.

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December 31, 2017			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	$	1,535,070	$	—	$	1,534,323	$	747
Discontinued operations	1,430,025		—		1,421,780		8,245
Total Available-for-Sale Fixed Maturities	$	2,965,095	$	—	$	2,956,103	$	8,992
Equity securities:
Continuing operations	$	280,913	$	280,031	$	—	$	882
Discontinued operations	23,653		23,651		2		—
Total Equity Securities	$	304,566	$	303,682	$	2	$	882
Total Available-for-Sale Securities	$	3,269,661	$	303,682	$	2,956,105	$	9,874
TRADING
Fixed maturities:
Continuing operations	$	16,842	$	2,559	$	14,283	$	—
Discontinued operations	—		—		—		—
Equity securities:
Continuing operations	6,431		6,431		—		—
Discontinued operations	—		—		—		—
Total Trading Securities	$	23,273	$	8,990	$	14,283	$	—
SHORT-TERM INVESTMENTS
Continuing operations	$	175	$	175	$	—	$	—
Discontinued operations	—		—		—		—
Short-Term Investments	$	175	$	175	$	—	$	—
MONEY MARKET ACCOUNTS
Continuing operations	$	6,147	$	6,147	$	—	$	—
Discontinued operations	10,677		10,677		—		—
Money Market Accounts	$	16,824	$	16,824	$	—	$	—
CORPORATE-OWNED LIFE INSURANCE
Continuing operations	$	4,029	$	—	$	4,029	$	—
Discontinued operations	—		—		—		—
Corporate-Owned Life Insurance	$	4,029	$	—	$	4,029	$	—
Total Assets Measured at Fair Value	$	3,313,962	$	329,671	$	2,974,417	$	9,874

Table of Contents

December 31, 2016 Fair Value Measurements
Description Total Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations $ 1,453,286
$ —
$ 1,452,737
$ 549
Discontinued operations 1,444,840
—
1,434,878
9,962
Total Available-for-Sale Fixed Maturities $ 2,898,126
$ —
$ 2,887,615
$ 10,511
Equity securities:
Continuing operations $ 246,370
$ 243,627
$ —
$ 2,743
Discontinued operations 24,046
22,202
—
1,844
Total Available-for-Sale Equity Securities $ 270,416
$ 265,829
$ —
$ 4,587
Total Available-for-Sale Securities $ 3,168,542
$ 265,829
$ 2,887,615
$ 15,098
TRADING
Fixed maturities:
Continuing operations $ 14,390
$ 1,305
$ 13,085
$ —
Discontinued operations —
—
—
—
Equity securities:
Continuing operations 5,644
5,644
—
—
Discontinued operations —
—
—
—
Total Trading Securities $ 20,034
$ 6,949
$ 13,085
$ —
SHORT-TERM INVESTMENTS
Continuing operations $ 175
$ 175
$ —
$ —
Discontinued operations —
—
—
—
Short-Term Investments $ 175
$ 175
$ —
$ —
MONEY MARKET ACCOUNTS
Continuing operations $ 4,810
$ 4,810
$ —
$ —
Discontinued operations 11,992
11,992
—
—
Money Market Accounts $ 16,802
$ 16,802
$ —
$ —
CORPORATE-OWNED LIFE INSURANCE
Continuing operations $ 2,592
$ —
$ 2,592
$ —
Discontinued operations —
—
—
—
Corporate-Owned Life Insurance $ 2,592
$ —
$ 2,592
$ —
Total Assets Measured at Fair Value $ 3,208,145
$ 289,755
$ 2,903,292
$ 15,098

The fair value of securities that are categorized as Level 1 is based on quoted market prices that are readily and regularly available.

We use a market-based approach for valuing all of our Level 2 securities and submit them primarily to a third-party valuation service provider. Any of these securities not valued by this service provider are submitted to another third-party valuation service provider. Both service providers use a market approach to find pricing of similar financial instruments. The market inputs our service providers normally seek to value our securities include the following, listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The method and inputs for these securities classified as Level 2 are the same regardless of industry category, credit quality, duration, geographical concentration or economic characteristics. For our mortgage-backed securities,

~~Table of Contents~~

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

At least annually, we review the methodologies and assumptions used by our valuation service providers and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. Our validation process includes a review for unusual fluctuations. Unusual fluctuations outside of our expectations are independently corroborated with additional third-party sources that use similar valuation techniques as discussed above. In addition, we also randomly select securities and independently corroborate the valuations obtained from our third-party valuation service providers. In our opinion, the pricing obtained at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 was reasonable.

For the three- and nine-month periods ended September 30, ~~2017,~~2018, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals and the change in unrealized gains on both fixed maturities and equity securities. During the three- and nine-month periods ended September 30, ~~2017,~~2018, there were no securities transferred between Level 1 and Level 2.

Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity securities for which an active market does not currently exist. The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2 securities. However, securities are categorized as Level 3 if these quotes cannot be corroborated by other market observable data due to the unobservable nature of the brokers’ valuation processes. If pricing cannot be obtained from these sources, which occurs on a limited basis, management will perform a discounted cash flow analysis, using an appropriate risk-adjusted discount rate, on the underlying security to estimate fair value. During the three- and nine-month periods ended September 30, ~~2017,~~2018, there were no securities transferred in or out of Level 3.

The following table provides a summary of the changes in fair value of our Level 3 securities from ~~both~~ continuing ~~and discontinued~~ operations for the three-month period ended September 30, ~~2017:~~2018:

States, municipalities and political subdivisions Corporate bonds Asset-backed securities Equities Total
Balance at June 30, 2017 $ 77
$ 9,056
$ 622
$ 595
$ 10,350
Net unrealized gains (losses)⁽¹⁾
—
(7 ) 9
139
141
Purchases —
100
—
—
100
Disposals —
(433 ) —
—
(433 )
Balance at September 30, 2017 $ 77
$ 8,716
$ 631
$ 734
$ 10,158



	Corporate bonds		Asset-backed securities			Equities			Total
Balance at June 30, 2018	$	100	$	639		$	669		$	1,408
Net unrealized gains (losses)⁽¹⁾	150		(7		)	(74		)	69
Balance at September 30, 2018	$	250	$	632		$	595		$	1,477

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

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The following table provides a summary of the changes in fair value of our Level 3 securities from ~~both~~ continuing ~~and discontinued~~ operations for the nine-month period ended September 30, ~~2017:~~2018:

States, municipalities and political subdivisions Corporate bonds Asset-backed securities Equities Total
Balance at January 1, 2017 $ 168
$ 9,894
$ 449
$ 4,587
$ 15,098
Net unrealized gains (losses)⁽¹⁾
(6 ) (6 ) 182
139
309
Purchases —
100
—
145
245
Disposals (85 ) (1,272 ) —
(4,137 ) (5,494 )
Balance at September 30, 2017 $ 77
$ 8,716
$ 631
$ 734
$ 10,158



	Corporate bonds		Asset-backed securities			Equities			Total
Balance at January 1, 2018	$	100	$	647		$	882		$	1,629
Net unrealized gains (losses)⁽¹⁾	150		(15		)	(287		)	(152		)
Balance at September 30, 2018	$	250	$	632		$	595		$	1,477

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

Commercial Mortgage Loans

The ~~fixed maturities reported~~following tables present the carrying value of our commercial mortgage loans and additional information at September 30, 2018 and December 31, 2017:



Commercial Mortgage Loans
	September 30, 2018		December 31, 2017
Loan-to-value	Carrying Value		Carrying Value
Less than 65%	$	14,896	—
Total commercial mortgage loans	$	14,896	$	—



Mortgage Loans by Region
	September 30, 2018				December 31, 2017
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
East North Central	$	3,245	21.8	%	$	—	—	%
Southern Atlantic	6,651		44.7		—		—
East South Central	5,000		33.5		—		—
Total mortgage loans	$	14,896	100.0	%	$	—	—	%



Mortgage Loans by Property Type
	September 30, 2018				December 31, 2017
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Commercial
Multifamily	$	3,245	21.8	%	$	—	—	%
Office	11,651		78.2		—		—
Total mortgage loans	$	14,896	100.0	%	$	—	—	%

The commercial mortgage loans originate with an initial loan-to-value ratio to provide sufficient collateral to absorb losses should a loan be required to foreclose. Mortgage loans are evaluated on a quarterly basis for impairment on an individual basis through a monitoring process and review of key credit indicators, such as ~~disposals relate~~economic trends, delinquency rates, property valuations, occupancy and rental rates and loan-to-value ratios. A loan is considered impaired when the Company believes it will not collect the contractual principal and interest set forth in the contractual terms of the loan. A valuation allowance is established on each loan recognizing a loss for amounts which we believe will not be collected according to the ~~receipt~~contractual terms of ~~principal on calls or sinking fund bonds, in accordance with~~ the ~~indentures.~~respective loan agreement. As of September 30, 2018 there were no mortgage loan impairments.

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NOTE 4. RESERVES FOR LOSSES AND LOSS SETTLEMENT EXPENSES

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

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

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

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

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

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The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 (net of reinsurance amounts):




	September 30, 2018			December 31, 2017
Gross liability for losses and loss settlement expenses at beginning of year	$	1,224,183		$	1,123,896
Ceded losses and loss settlement expenses	(59,871		)	(59,794		)
Net liability for losses and loss settlement expenses at beginning of year	$	1,164,312		$	1,064,102
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	575,214		$	779,966
Prior years	(47,673		)	(54,253		)
Total incurred	$	527,541		$	725,713
Losses and loss settlement expense payments for claims occurring during
Current year	$	212,138		$	311,972
Prior years	263,552			313,531
Total paid	$	475,690		$	625,503
Net liability for losses and loss settlement expenses at end of year	$	1,216,163		$	1,164,312
Ceded loss and loss settlement expenses	61,914			59,871
Gross liability for losses and loss settlement expenses at end of period	$	1,278,077		$	1,224,183

September 30, 2017 December 31, 2016
Gross liability for losses and loss settlement expenses
at beginning of year $ 1,123,896
$ 1,003,895
Ceded losses and loss settlement expenses (59,794 ) (54,653 )
Net liability for losses and loss settlement expenses
at beginning of year $ 1,064,102
$ 949,242
Losses and loss settlement expenses incurred
for claims occurring during
   Current year $ 606,344
$ 683,662
   Prior years (37,988 ) (31,229 )
Total incurred $ 568,356
$ 652,433
Losses and loss settlement expense payments
for claims occurring during
   Current year $ 212,591
$ 277,053
   Prior years 247,608
260,520
Total paid $ 460,199
$ 537,573
Net liability for losses and loss settlement expenses
at end of year $ 1,172,259
$ 1,064,102
Ceded loss and loss settlement expenses 65,021
59,794
Gross liability for losses and loss settlement expenses
at end of period $ 1,237,280
$ 1,123,896

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

For the three-month period ended September 30, 2018 the majority of unfavorable development came from two lines, commercial liability and commercial automobile with a partial offset coming from favorable development for the three lines of reinsurance assumed, workers compensation and fidelity and surety. All other lines combined contributed a relatively minimal amount of overall unfavorable development during this three-month period. The unfavorable development for the quarter is attributable to the combination of latent emergence of commercial automobile claims that increased sufficiently to also generate an umbrella liability claim combined with a very large but independent general liability claim. For the nine-month period ended September 30, 2018 the majority of favorable development came from four lines: workers compensation, commercial automobile, commercial liability, and reinsurance assumed. Each of the other individual lines also contributed favorable development during this nine-month period (none were unfavorable).

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

~~The significant drivers of the favorable reserve development in 2016~~ were our commercial liability and workers ~~compensation.~~compensation lines of business. Much of the favorable commercial other liability development came from loss adjustment expense and is attributed to our continued litigation management ~~efforts.~~efforts combined with some favorable development coming from decreases in reserves, which were more than sufficient to pay claims as they closed. Workers compensation favorable development was due to the combined effects of decreases in claim reserves along with favorable changes affecting loss adjustment expense. ~~Loss adjustment expense, closely tied to loss, generally decreases when loss decreases. Commercial property, commercial automobile and assumed reinsurance exhibited~~Our personal lines also contributed favorable development. The lines that experienced adverse development during the year, which ~~provided a partial~~partially offset to the favorable development ~~previously noted.~~mentioned earlier, were assumed reinsurance and commercial automobile. The adverse development for ~~all three lines~~assumed reinsurance is due to increases in prior year reserves for unpaid claims while the adverse development for commercial automobile is due to paid ~~loss~~losses which ~~was~~were greater than reductions in reported loss reserves and

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reserves for claims incurred but not reported. No other single line of business contributed a significant portion of the total development.

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

We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.

NOTE 5. EMPLOYEE BENEFITS

Net Periodic Benefit Cost

The components of the net periodic benefit cost for our pension and postretirement benefit plans are as follows:


	Pension Plan						Postretirement Benefit Plan					Pension Plan						Postretirement Benefit Plan
Three Months Ended September 30,	2017			2016			2017			2016		2018			2017			2018			2017

Net periodic benefit cost
Service cost	$	1,714		$	1,623		$	505		$	932	$	2,175		$	1,714		$	750		$	505
Interest cost	1,765			1,663			482			754		1,875			1,765			502			482
Expected return on plan assets	(2,413		)	(1,988		)	—			—		(2,626		)	(2,413		)	—			—
Amortization of prior service credit	—			—			(1,352		)	—		—			—			(1,352		)	(1,352		)
Amortization of net loss	891			992			462			379		1,072			891			589			462
Net periodic benefit cost	$	1,957		$	2,290		$	97		$	2,065	$	2,496		$	1,957		$	489		$	97



	Pension Plan						Postretirement Benefit Plan
Nine Months Ended September 30,	2018			2017			2018			2017

Net periodic benefit cost
Service cost	$	6,525		$	5,141		$	2,249		$	1,515
Interest cost	5,625			5,295			1,506			1,446
Expected return on plan assets	(7,877		)	(7,237		)	—			—
Amortization of prior service credit	—			—			(4,056		)	(4,056		)
Amortization of net loss	3,215			2,673			1,767			1,384
Net periodic benefit cost	$	7,488		$	5,872		$	1,466		$	289

Pension Plan Postretirement Benefit Plan
Nine Months Ended September 30, 2017 2016 2017 2016

Net periodic benefit cost
Service cost $ 5,141
$ 4,869
$ 1,515
$ 2,796
Interest cost 5,295
4,989
1,446
2,262
Expected return on plan assets (7,237 ) (5,964 ) —
—
Amortization of prior service credit —
—
(4,056 ) —
Amortization of net loss 2,673
2,976
1,384
1,137
Net periodic benefit cost $ 5,872
$ 6,870
$ 289
$ 6,195

Employer Contributions

We previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 that we expected to contribute ~~$6,400~~$6,400 to the pension plan in ~~2017~~.2018. For the nine-month period ended September 30, ~~2017~~,2018, we contributed ~~$11,396~~$16,400 to the pension plan. In September ~~2017,~~2018, the Company contributed an additional ~~$5,000~~$10,000 to the pension plan ~~for tax advantages and~~ to reduce future obligations.

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NOTE 6. STOCK-BASED COMPENSATION

~~Non-qualified~~Non-Qualified Employee Stock Award Plan

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

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stock options for up to 1,900,000 shares of UFG common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of UFG common stock issuable at any time and from time to time pursuant to the 2008 Stock Plan, among other amendments, and renamed such plan as the United Fire Group, Inc. Stock Plan (as amended, the "Stock Plan"). At September 30, ~~2017,~~2018, there were ~~996,839~~879,913 authorized shares remaining available for future issuance. The Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of the awards. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Stock Plan. Pursuant to the Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees who are in positions of substantial responsibility with UFG.

Options granted pursuant to the Stock Plan are granted to buy shares of UFG's common stock at the market value of the stock on the date of grant. All outstanding option awards have graded vesting over 3 years or 5 years from the grant date, unless the Board of Directors authorizes acceleration of vesting. Performance stock units cliff-vest after 3 years and the certification of performance results by UFG’s Compensation Committee. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the Stock Plan are granted at the market value of UFG's common stock on the date of the grant. Restricted stock units fully vest after 3 years or 5 years from the date of issuance, unless accelerated upon the approval of the Board of Directors, at which time UFG common stock will be issued to the awardee.

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



Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2018		From Inception to September 30, 2018
Beginning balance	996,828		1,900,000
Additional shares authorized	—		1,500,000
Number of awards granted	(157,188	)	(3,029,159	)
Number of awards forfeited or expired	40,273		509,072
Ending balance	879,913		879,913
Number of option awards exercised	211,789		1,297,684
Number of unrestricted stock awards granted			8,470
Number of restricted stock awards vested	19,658		57,826

Authorized Shares Available for Future Award Grants Nine Months Ended September 30, 2017 From Inception to September 30, 2017
Beginning balance 1,248,651
1,900,000
Additional shares authorized —
1,500,000
Number of awards granted (255,040 ) (2,867,606 )
Number of awards forfeited or expired 3,228
464,445
Ending balance 996,839
996,839
Number of option awards exercised 101,189
1,050,257
Number of unrestricted stock awards granted 1,145
8,470
Number of restricted stock awards vested —
36,970

~~Non-qualified Non-employee~~Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan

The United Fire Group, Inc. 2005 ~~Non-qualified Non-employee~~Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan (the "Director Plan") authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of UFG's common stock to non-employee directors. At September 30, ~~2017,~~2018, we had ~~61,813~~49,163 authorized shares available for future issuance.

The Board of Directors has the authority to determine which non-employee directors receive awards, when options and restricted stock shall be granted, the option price, the option expiration date, the date of grant, the vesting schedule of options or whether the options shall be immediately vested, the terms and conditions of options and restricted stock (other than those terms and conditions set forth in the plan) and the number of shares of common stock to be issued pursuant to an option agreement or restricted stock agreement (subject to limits set forth in the plan). The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Plan.

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



Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2018		From Inception to September 30, 2018
Beginning balance	61,813		300,000
Number of awards granted	(12,650	)	(274,840	)
Number of awards forfeited or expired			24,003
Ending balance	49,163		49,163
Number of option awards exercised	24,953		114,234
Number of restricted stock awards vested	17,269		71,541

Authorized Shares Available for Future Award Grants Nine Months Ended September 30, 2017 From Inception to June 30, 2017
Beginning balance 74,771
300,000
Number of awards granted (12,958 ) (262,190 )
Number of awards forfeited or expired —
24,003
Ending balance 61,813
61,813
Number of option awards exercised 6,727
59,200
Number of restricted stock awards vested 22,716
54,272

Stock-Based Compensation Expense

For the three-month periods ended September 30, ~~2017~~2018 and ~~2016~~2017, we recognized stock-based compensation expense of ~~$1,202~~$1,320 and ~~$865,~~$1,202, respectively. For the nine-month periods ended September 30, ~~2017~~2018 and ~~2016,~~2017, we recognized stock-based compensation expense of ~~$3,456~~$4,040 and ~~$2,731,~~$3,456, respectively. Stock-based compensation expense is recognized over the vesting period of the stock options.

As of September 30, ~~2017,~~2018, we had ~~$9,586~~$8,287 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized over the remainder of ~~2017~~2018 and subsequent years according to the table below, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.



2018	$	1,318
2019	4,032
2020	2,355
2021	544
2022	38
Total	$	8,287

2017 $ 1,202
2018 4,047
2019 2,784
2020 1,120
2021 393
2022 40
Total $ 9,586

NOTE 7. SEGMENT INFORMATION

On September 19, 2017, the Company announced that it had agreed to sell its subsidiary, United Life, ~~Insurance Company,~~ to Kuvare. The sale closed on March 30, 2018. As a result, ~~our~~the life insurance ~~segment~~business has been considered held for sale and reported as discontinued operations in the Consolidated Financial Statements and all comparable prior periods have been presented to conform to the current ~~year~~period presentation. ~~The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval.~~ For more information, refer to Note 11. Discontinued Operations.

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

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

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networks with insurance agents and monitoring the regulatory environment. The property and casualty insurance ~~segment~~business products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance ~~segment~~business geographic concentration did not change after the announcement of

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the sale of the life insurance ~~segment.~~business. We will continue to evaluate our ~~segment~~continuing operations on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP.

NOTE 8. EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share gives effect to all dilutive common shares outstanding during the reporting period. The dilutive shares we consider in our diluted earnings per share calculation relate to our outstanding stock options, restricted stock awards and restricted stock unit awards.

We determine the dilutive effect of our outstanding stock options using the "treasury stock" method. Under this method, we assume the exercise of all of the outstanding stock options whose exercise price is less than the weighted-average market value of our common stock during the reporting period. This method also assumes that the proceeds from the hypothetical stock option exercises are used to repurchase shares of our common stock at the weighted-average market value of the stock during the reporting period. The net of the assumed stock options exercised and assumed common shares repurchased represents the number of dilutive common shares, which we add to the denominator of the earnings per share calculation.

The components of basic and diluted earnings per share were as follows for the three-month periods ended September 30, ~~2017~~2018 and ~~2016:~~2017:


	Three Months Ended September 30,										Three Months Ended September 30,
(In Thousands, Except Share Data)	2017						2016				2018				2017
	Basic			Diluted			Basic		Diluted		Basic		Diluted		Basic			Diluted
Net income (loss) from continuing operations	$	(19,082	)	$	(19,082	)	$	11,628	$	11,628	$	11,070	$	11,070	$	(19,082	)	$	(19,082	)
Weighted-average common shares outstanding	24,960,086			24,960,086			25,389,633		25,389,633		25,052,627		25,052,627		24,960,086			24,960,086
Add dilutive effect of restricted stock unit awards	—			—			—		155,270		—		279,636		—			—
Add dilutive effect of stock options	—			—			—		270,443		—		294,688		—			—
Weighted-average common shares outstanding	24,960,086			24,960,086			25,389,633		25,815,346		25,052,627		25,626,951		24,960,086			24,960,086
Earnings (loss) per common share from continuing operations	$	(0.77	)	$	(0.77	)	$	0.46	$	0.45	$	0.44	$	0.43	$	(0.77	)	$	(0.77	)
Earnings per common share from discontinued operations	0.05			0.05			0.03		0.03		—		—		0.05			0.05
Earnings (loss) per common share	$	(0.72	)	$	(0.72	)	$	0.49	$	0.48	$	0.44	$	0.43	$	(0.72	)	$	(0.72	)
Awards excluded from diluted earnings per share calculation⁽¹⁾	—			—			—		—		—		—		—			—


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

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The components of basic and diluted earnings per share were as follows for the nine-month periods ended September 30, ~~2017~~2018 and ~~2016:~~2017:


	Nine Months Ended September 30,										Nine Months Ended September 30,
(In Thousands, Except Share Data)	2017						2016				2018						2017
	Basic			Diluted			Basic		Diluted		Basic			Diluted			Basic			Diluted
Net income (loss) from continuing operations	$	(389	)	$	(389	)	$	37,083	$	37,083	$	31,591		$	31,591		$	(389	)	$	(389	)
Weighted-average common shares outstanding	25,177,133			25,177,133			25,322,427		25,322,427		24,982,155			24,982,155			25,177,133			25,177,133
Add dilutive effect of restricted stock unit awards	—			253,082			—		155,270		—			279,636			—			253,082
Add dilutive effect of stock options	—			236,190			—		233,317		—			345,514			—			236,190
Weighted-average common shares outstanding	25,177,133			25,666,405			25,322,427		25,711,014		24,982,155			25,607,305			25,177,133			25,666,405
Earnings (loss) per common share from continuing operations	$	(0.01	)	$	(0.01	)	$	1.47	$	1.44	$	1.26		$	1.23		$	(0.01	)	$	(0.01	)
Earnings per common share from discontinued operations	0.21			0.21			0.03		0.03		(0.08		)	(0.07		)	0.21			0.21
Earnings (loss) per common share	$	0.20		$	0.20		$	1.50	$	1.47
Gain on sale of discontinued operations, net of taxes											1.10			1.07			—			—
Earnings per common share											$	2.28		$	2.23		$	0.20		$	0.20
Awards excluded from diluted earnings per share calculation⁽¹⁾	—			—			—		—		—			2,681			—			—


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

NOTE 9. CREDIT FACILITY

On February 2, 2016, the Company, as borrower, entered into a Credit Agreement (the "Credit Agreement") by and among the Company, with the lenders from time to time party thereto and KeyBank National Association ("Key Bank"), as administrative agent, swingline lender and letter of credit issuer. The Credit Agreement provides for a $50,000 four-year unsecured revolving credit facility that includes a $20,000 letter of credit subfacility and a swingline subfacility in the amount up to $5,000. The Credit Agreement allows the Company to increase the aggregate amount of the commitments thereunder by up to $100,000, provided that no event of default has occurred and is continuing and certain other conditions are satisfied.

The Credit Agreement is available for the Company's general corporate purposes, including liquidity, acquisitions and working capital. All unpaid principal and accrued interest under the Credit Agreement is due and payable in full at maturity on February 2, 2020. Based on the type of loan, advances under the Credit Agreement would bear interest on either the London interbank offered rate ("LIBOR") or a base rate plus, in each case, a calculated margin amount.

The unused commitments under the Credit Agreement will be subject to a commitment fee that will be calculated at a per annum rate. The applicable margins for borrowings under the Credit Agreement and the commitment fee thereunder will be determined by reference to a pricing grid based on the Company’s issuer credit rating by A.M. Best Company, Inc.

The Credit Agreement contains customary representations, conditions to borrowing, covenants and events of default, including certain covenants that limit or restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to sell or transfer assets, enter into a merger or consolidate with another company, create liens, impose restrictions on subsidiary dividends, enter into sale-leaseback transactions, make investments or acquisitions, enter into certain reinsurance agreements, pay dividends during any period of default, enter into transactions with affiliates, change the nature of its business, or incur indebtedness. The Credit Agreement also includes financial covenants that require the Company to (i) maintain a minimum consolidated net worth, (ii) maintain a minimum consolidated statutory surplus and (iii) not exceed a 0.35 to 1.0 debt to total capitalization ratio.

There was no outstanding balance on the Credit Agreement at September 30, ~~2017~~2018 and ~~2016~~2017, respectively. For the nine-month periods ended September 30, ~~2017~~2018 and ~~2016,~~2017, we did not incur any interest expense related to either credit facility. We were in compliance with all covenants of the Credit Agreement at September 30, ~~2017~~2018.

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NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the three-month period ended September 30, ~~2017:~~2018:


				Liability for								Liability for
	Net unrealized			underfunded					Net unrealized			underfunded
	appreciation			employee					appreciation			employee
	on investments			benefit costs⁽¹⁾			Total		on investments			benefit costs⁽¹⁾			Total
Balance as of June 30, 2017	$	160,048		$	(23,080	)	$	136,968
Balance as of June 30, 2018									$	(15,370	)	$	(43,928	)	$	(59,298	)
Change in accumulated other comprehensive income before reclassifications	12,347			—			12,347		(12,157		)	—			(12,157		)
Reclassification adjustments from accumulated other comprehensive income (loss)	(273		)	879			606		392			1,312			1,704
Balance as of September 30, 2017	$	172,122		$	(22,201	)	$	149,921
Balance as of September 30, 2018									$	(27,135	)	$	(42,616	)	$	(69,751	)

(1) The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31.

The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the nine-month period ended September 30, ~~2017:~~2018:


				Liability for									Liability for
	Net unrealized			underfunded						Net unrealized			underfunded
	appreciation			employee						appreciation			employee
	on investments			benefit costs⁽¹⁾			Total			on investments			benefit costs⁽¹⁾			Total
Balance as of January 1, 2017	$	133,892		$	(24,837	)	$	109,055
Balance as of January 1, 2018										$	214,865		$	(46,551	)	$	168,314
Cumulative effect of change in accounting principle										(191,244		)	—			(191,244		)
Change in accumulated other comprehensive income before reclassifications	41,999			—			41,999			(51,274		)	—			(51,274		)
Reclassification adjustments from accumulated other comprehensive income (loss)	(3,769		)	2,636			(1,133		)	518			3,935			4,453
Balance as of September 30, 2017	$	172,122		$	(22,201	)	$	149,921
Balance as of September 30, 2018										$	(27,135	)	$	(42,616	)	$	(69,751	)

NOTE 11. DISCONTINUED OPERATIONS

On September 18, 2017, we signed a definitive agreement to sell our subsidiary, United Life, ~~Insurance Company,~~ to Kuvare for $280,000 in cash, ~~subject to specified adjustments~~less a $21 adjustment as set forth in the definitive ~~agreement. As~~agreement, for a ~~result, our~~net amount of $279,979. The sale closed on March 30, 2018 and we reported an after-tax gain on the sale of discontinued operations of $27,307. The life insurance business (previously reported as a separate segment) ~~has been~~was considered held for sale and reported as discontinued operations and its financial position, results of operations and cash flows ~~are separately~~were reported separately for all periods presented, as applicable, unless otherwise noted. ~~The sale is expected~~

UFG has agreed to ~~close in the first half of 2018, subject to customary conditions, including regulatory approval.~~

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

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accounting management, human resources, legal

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and information technology services, from the closing date for up to 24 months. Since the close date, the Company has received $317 as part of the TSA agreement.

The assets and liabilities associated with discontinued operations prior to the closing of the sale have been presented separately in our Consolidated Balance Sheets. The major assets and liability categories were as follows as of the dates indicated:

									Discontinued Operations	Balance Sheets
(In Thousands, Except Share Data)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
	(unaudited)				(unaudited)
Assets
Investments
Fixed maturities
Held-to-maturity, at amortized cost (fair value $39 in 2017 and $49 in 2016)	$	38	$	48
Available-for-sale, at fair value (amortized cost $1,399,465 in 2017 and $1,429,270 in 2016)	1,426,991		1,444,840
Equity Securities available-for-sale, at fair value (cost $5,099 in 2017 and $8,510 in 2016)	22,616		24,046
Held-to-maturity, at amortized cost (fair value $0 in 2018 and $34 in 2017)					$	—	$	34
Available-for-sale, at fair value (amortized cost $0 in 2018 and $1,412,291 in 2017)					—		1,430,025
Equity Securities at fair value (cost $0 in 2018 and $5,099 in 2017)					—		23,653
Mortgage loans	3,504		3,706		—		3,435
Policy loans	5,770		5,366		—		5,815
Other long-term investments	16,299		15,870		—		16,437
	1,475,218		1,493,876		—		1,479,399
Cash and cash equivalents	30,751		21,659		—		15,851
Deferred policy acquisition costs	65,836		70,750		—		71,151
Other assets	21,041		19,333		—		19,733
Total assets held for sale	$	1,592,846	$	1,605,618	$	—	$	1,586,134
Liabilities
Future policy benefits and losses	$	1,324,029	$	1,350,503	$	—	$	1,320,401
Deferred income taxes					—		18,716
Accrued expenses and other liabilities	39,708		39,720		—		8,018
Total liabilities held for sale	$	1,363,737	$	1,390,223	$	—	$	1,347,135

Note: The sale of the life insurance business was completed on March 30, 2018.

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Summary operating results of discontinued operations were as follows for the periods indicated:



Discontinued Operations
Statements of Income (Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, Except Share Data)	2018		2017		2018			2017

Revenues
Net premiums earned	$	—	$	14,230	$	13,003		$	45,999
Investment income, net of investment expenses	—		12,354		12,663			37,230
Net realized investment gains (losses)	—		296		(1,057		)	3,600
Other income	—		174		146			498
Total revenues	$	—	$	27,054	$	24,755		$	87,327

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	—	$	10,506	$	10,823		$	30,679
Increase in liability for future policy benefits	—		5,481		5,023			19,341
Amortization of deferred policy acquisition costs	—		2,156		1,895			5,524
Other underwriting expenses	—		2,444		3,864			9,452
Interest on policyholders’ accounts	—		4,587		4,499			13,982
Total benefits, losses and expenses	$	—	$	25,174	$	26,104		$	78,978

Income (loss) from discontinued operations before income taxes	$	—	$	1,880	$	(1,349	)	$	8,349
Federal income tax expense	—		662		563			2,930
Net income (loss) from discontinued operations	$	—	$	1,218	$	(1,912	)	$	5,419
Earnings (loss) per common share from discontinued operations:
Basic	$	—	$	0.05	$	(0.08	)	$	0.21
Diluted	—		0.05		(0.07		)	0.21

Discontinued Operations
Statements of Income
Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands, Except Share Data) 2017 2016 2017 2016

Revenues
Net premiums earned $ 14,230
$ 20,600
$ 45,999
$ 62,878
Investment income, net of investment expenses 12,354
12,663
37,230
38,404
Net realized investment gains 296
461
3,600
1,409
Other income 174
145
498
436
Total revenues $ 27,054
$ 33,869
$ 87,327
$ 103,127

Benefits, Losses and Expenses
Losses and loss settlement expenses $ 10,506
$ 7,252
$ 30,679
$ 23,527
Increase in liability for future policy benefits 5,481
14,091
19,341
42,645
Amortization of deferred policy acquisition costs 2,156
1,876
5,524
5,716
Other underwriting expenses 2,444
4,527
9,452
14,630
Interest on policyholders’ accounts 4,587
4,983
13,982
15,368
Total benefits, losses and expenses $ 25,174
$ 32,729
$ 78,978
$ 101,886

Income from discontinued operations before income taxes $ 1,880
$ 1,140
$ 8,349
$ 1,241
Federal income tax expense 662
400
2,930
415
Net income from discontinued operations $ 1,218
$ 740
$ 5,419
$ 826
Earnings per common share from discontinued operations:
Basic $ 0.05
$ 0.03
$ 0.21
$ 0.03
Diluted 0.05
0.03
0.21
0.03
Note: The sale of the life insurance business was completed on March 30, 2018.

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

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Review Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors ~~and Stockholders~~

of United Fire Group, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of United Fire Group, Inc. (the "Company") as of September 30, ~~2017~~,2018, and the related consolidated statements of income and comprehensive income for the three- and nine-month periods ended September 30, ~~2017~~2018 and ~~2016~~,2017, the consolidated statements of cash flows for the nine-month periods ended September 30, ~~2017~~2018 and ~~2016, and~~2017, the consolidated statement of stockholders' equity for the nine-month period ended September 30, ~~2017~~2018, and the related notes (collectively referred to as the “consolidated interim financial statements”). ~~These~~Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements ~~are the responsibility of the Company's management.~~for them to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the year then ended, and the related notes and schedules (not presented herein); and in our report dated February 28, 2018, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2017 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial ~~information~~statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States),~~PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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

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



	/s/ Ernst & Young LLP
	Ernst & Young LLP

Des Moines, Iowa

November ~~8, 2017~~7, 2018

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

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

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are representative of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. We base our discussion and analysis of our consolidated financial condition and results of operations ~~and financial condition~~ on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with ~~GAAP.~~U.S. generally accepted accounting principles ("GAAP"). As we prepare these Consolidated Financial Statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are more fully described in our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017. There have been no changes in our critical accounting policies from December 31, ~~2016~~.2017.

INTRODUCTION

The purpose of this Management's Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial ~~position.~~condition. Our Management's Discussion and Analysis should be read in conjunction with our ~~consolidated financial statements~~Consolidated Financial Statements and related notes, including those in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017. Our Consolidated Financial Statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance company subsidiaries based on statutory accounting principles and file them with insurance regulatory authorities in the states where they do business.

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

BUSINESS OVERVIEW

Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated insurance subsidiaries provide insurance protection for individuals and businesses through several regional offices. Our property and casualty insurance company subsidiaries are licensed in 46s~~tates~~ states plus the District of Columbia and are represented by approximately ~~1,200~~1,100 independent agencies. ~~Our life insurance subsidiary is licensed in 37 states and is represented by approximately 1,550 independent agencies.~~

Our primary sources of revenue are premiums and investment income. Major categories of expenses include losses and loss settlement expenses, future policy benefits, underwriting and other operating expenses and interest on policyholders' accounts.

Discontinued Operations

On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company ("United Life"), to Kuvare US Holdings, Inc. ("Kuvare"). ~~As a result, our~~The sale closed on March 30, 2018. The life insurance business has been considered held for sale and accounted for as discontinued operations in the Consolidated Balance Sheets, Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows. All periods presented have been revised to show results from continuing and discontinued operations, as applicable, unless otherwise noted. ~~The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval.~~ For more information, refer to Part I, Item 1, Note ~~11. "Discontinued Operations".~~

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11. "Discontinued Operations."

Reportable Segments

Prior to the announcement of the sale of ~~our~~the life insurance business, we have historically reported our operations in two business segments, each with a wide range of products:

property and casualty insurance, which includes commercial lines insurance, personal lines insurance, surety bonds and assumed reinsurance; and

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

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

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

Pooling Arrangement

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

Geographic Concentration

For the nine-month period ended September 30, ~~2017,~~2018, approximately ~~48.2~~48.6 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri and Colorado.

Profit Factors

Our profitability is influenced by many factors, including price, competition, economic conditions, investment returns, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in the law. To manage these risks and uncertainties, we seek to achieve consistent profitability through strong agency relationships, exceptional customer service, fair and prompt claims handling, disciplined underwriting, superior loss control services, prudent management of our investments, appropriate matching of assets and liabilities, effective use of ceded reinsurance and effective and efficient use of technology.

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FINANCIAL HIGHLIGHTS


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(In Thousands)	2017			2016			%		2017			2016			%
(In Thousands, Except Ratios)																	2018			2017			%		2018			2017			%
Revenues
Net premiums earned	$	255,758		$	239,469		6.8	%	$	737,424		$	691,976		6.6	%	$	264,747		$	255,758		3.5	%	$	766,767		$	737,424		4.0	%
Investment income, net of investment expenses	13,792			14,027			(1.7	)	38,561			35,017			10.1		13,192			13,792			(4.4	)	43,933			38,561			13.9
Net realized investment gains (losses)
Change in the value of equity securities																	14,381			(124		)	NM		5,498			232			NM
All other net realized gains																	(410		)	191			NM		1,906			3,165			(39.8	)
Net realized investment gains	67			2,129			(96.9	)	3,397			4,832			(29.7	)	13,971			67			NM		7,404			3,397			118.0
Total revenues	$	269,617		$	255,625		5.5	%	$	779,382		$	731,825		6.5	%	$	291,910		$	269,617		8.3	%	$	818,104		$	779,382		5.0	%

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	223,208		$	169,303		31.8	%	$	568,356		$	475,568		19.5	%	$	193,667		$	223,208		(13.2	)%	$	527,541		$	568,356		(7.2	)%
Amortization of deferred policy acquisition costs	52,986			52,240			1.4		154,845			151,216			2.4		51,758			52,986			(2.3	)	152,207			154,845			(1.7	)
Other underwriting expenses	25,817			20,047			28.8		69,900			61,469			13.7		33,887			25,817			31.3		105,994			69,900			51.6
Total benefits, losses and expenses	$	302,011		$	241,590		25.0	%	$	793,101		$	688,253		15.2	%	$	279,312		$	302,011		(7.5	)%	$	785,742		$	793,101		(0.9	)%

Income (loss) from continuing operations before income taxes	$	(32,394	)	$	14,035		NM		$	(13,719	)	$	43,572		(131.5	)%	$	12,598		$	(32,394	)	(138.9	)	$	32,362		$	(13,719	)	(335.9	)%
Federal income tax expense (benefit)	(13,312		)	2,407			NM		(13,330		)	6,489			NM		1,528			(13,312		)	(111.5	)	771			(13,330		)	(105.8	)
Net income (loss) from continuing operations	$	(19,082	)	$	11,628		(264.1	)%	$	(389	)	$	37,083		(101.0	)%
Income from discontinued operations, net of tax	1,218			740			64.6	%	5,419			826			NM
Net income (loss)	$	(17,864	)	$	12,368		(244.4	)%	$	5,030		$	37,909		(86.7	)%
Net income from continuing operations																	$	11,070		$	(19,082	)	(158.0	)%	$	31,591		$	(389	)	NM
Income (loss) from discontinued operations, net of tax																	—			1,218			(100.0	)%	(1,912		)	5,419			(135.3	)%
Gain on sale of discontinued operations, net of tax																	—			—			—	%	27,307			—			NM
Net income																	$	11,070		$	(17,864	)	(162.0	)%	$	56,986		$	5,030		NM

GAAP Ratios:
Net loss ratio (without catastrophes)	75.3		%	65.5		%	15.0	%	67.8		%	61.1		%	11.0	%	68.6		%	75.3		%	(8.9	)%	64.8		%	67.8		%	(4.4	)%
Catastrophes - effect on net loss ratio	12.0			5.2			130.8	%	9.3			7.6			22.4	%	4.6			12.0			(61.7	)%	4.0			9.3			(57.0	)%
Net loss ratio⁽¹⁾	87.3		%	70.7		%	23.5	%	77.1		%	68.7		%	12.2	%	73.2		%	87.3		%	(16.2	)%	68.8		%	77.1		%	(10.8	)%
Expense ratio⁽²⁾	30.8			30.2			2.0	%	30.5			30.8			(1.0	)%	32.3			30.8			4.9	%	33.7			30.5			10.5	%
Combined ratio⁽³⁾	118.1		%	100.9		%	17.0	%	107.6		%	99.5		%	8.1	%	105.5		%	118.1		%	(10.7	)%	102.5		%	107.6		%	(4.7	)%

(1) The net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned. We use the net loss ratio as a measure of the overall underwriting profitability of the insurance business we write and to assess the adequacy of our pricing. Our net loss ratio is meaningful in evaluating our financial results as reported in our unaudited Consolidated Financial Statements.

(2) The expense ratio is calculated by dividing nondeferred underwriting expenses and amortization of deferred policy acquisition costs by net premiums earned. The expense ratio measures a company's operational efficiency in producing, underwriting and administering its insurance business.

(3) The combined ratio is a commonly used financial measure of property and casualty underwriting performance. A combined ratio below 100.0 percent generally indicates a profitable book of business. The combined ratio is the sum of the net loss ratio and the underwriting expense ratio.

NM = Not meaningful

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The following is a summary of our financial performance from continuing operations for the three- and nine-month periods ended September 30, ~~2017~~2018:

~~Results of Operations~~RESULTS OF OPERATIONS

For the three-month period ended September 30, ~~2017,~~2018, the net income from continuing operations was $11.1 million compared to net loss from continuing operations ~~was~~of $19.1 ~~million compared to net income from continuing operations of $11.6~~ million for the same period of ~~2016. This decrease~~2017. In the three-month period ended September 30, 2018, there was ~~driven by~~ an increase in net premiums earned from continued organic growth from new business writings and geographical expansion and rate increases; an increase in net realized investment gains due to the change in value of our equity securities; and a decrease in losses and loss settlement expenses ~~from~~due to lower catastrophe losses and improvement of our core loss ratio, all partially offset by an increase in ~~catastrophe losses and deterioration~~other underwriting expenses primarily due to continued investment in upgrading our ~~core~~underwriting technology platforms. Net premiums earned increased to $264.7 million compared to $255.8 million for the same period of 2017,

For the nine-month period ended September 30, 2018, the net income from continuing operations was $31.6 million compared to net loss ~~ratio; partially offset~~from continuing operations of $0.4 million for the same period of 2017. This increase was driven by an increase in net premiums earned from continued organic ~~growth. Net premiums earned increased~~growth from new business writings and geographical expansion and rate increases; an increase in investment income due to ~~$255.8 million compared to $239.5 million for the same period of 2016.~~

~~Table of Contents~~

For the nine-month period ended September 30, 2017, the net loss from continuing operations was $0.4 million compared to net income from continuing operations of $37.1 million for the same period of 2016. The decreasean increase in invested assets; an increase in net ~~income was driven by an increase~~realized investment gains due to the change in value of our equity securities; and a decrease in losses and loss settlement expenses from ~~an increase~~a decrease in catastrophe losses and ~~deterioration in~~improvement of our core loss ~~ratio;~~ratio as compared to the same period in 2017. Net premiums earned increased to $766.8 million compared to $737.4 million for the same period of 2017. These results were all partially offset by an increase in ~~net premiums earned~~other underwriting expenses primarily from ~~organic growth. Net premiums earned increased~~continued investment in upgrading our underwriting technology platforms and acceleration of the amortization of deferred acquisition costs in our commercial and personal automobile lines of business due to ~~$737.4 million compared to $692.0 million for the same period of 2016.~~lower than expected profitability in these lines.

Losses and loss settlement expenses ~~increased~~decreased by ~~$53.9 million during the three-month period ended September 30, 2017 compared to the same period of 2016, and the net loss ratio increased by 16.6~~13.2 percentage points during the three-month period ended September 30, ~~2017~~2018 compared to the same period of ~~2016.~~2017. The ~~increase~~decrease was primarily due to ~~an increase~~a decrease in catastrophe losses and ~~deterioration~~an improvement in our core loss ~~ratio. This deterioration was primarily due to~~ratio from a decrease in frequency of losses, partially offset by an increase in ~~the number~~severity of ~~severe losses in our commercial automobile line of business from the current accident year and prior period reserve development.~~non-catastrophe losses. Pre-tax catastrophe losses for the three-month period ended September 30, ~~2017~~2018 were ~~$30.7~~$12.3 million compared to ~~$12.5~~$30.7 million in the same period of ~~2016.~~2017.

Losses and loss settlement expenses ~~increased~~decreased by ~~$92.8 million during the nine-month period ended September 30, 2017 compared to the same period of 2016, and the net loss ratio increased by 8.4~~7.2 percentage points during the nine-month period ended September 30, ~~2017~~2018 compared to the same period of ~~2016. The increase~~2017. This decrease was ~~primarily due to~~driven by a decrease in catastrophe losses; an increase in ~~catastrophe losses~~prior year favorable reserve development primarily on our workers compensation, commercial automobile, assumed reinsurance, other liability and ~~deterioration~~commercial fire and allied lines of business; and an improvement in our core loss ~~ratio. This deterioration was primarily due to~~ratio from a decrease in frequency of losses, partially offset by an increase in ~~the number~~severity of ~~severe losses in our commercial automobile line of business from current accident year and prior period reserve development.~~non-catastrophe losses. Pre-tax catastrophe losses for the nine-month period ended September 30, ~~2017~~2018 were ~~$68.8~~$30.7 million compared to ~~$52.4~~$68.8 million in the same period of ~~2016.~~2017.

Investment income decreased ~~slightly~~ by ~~$0.2~~$0.6 million and increased ~~$3.5~~$5.4 million during the three- and nine-month periods ended September 30, ~~2017, respectively,~~2018, compared to the same periods of ~~2016.~~2017. The change in net investment income for the three-month period ended September 30, 2018 was due to a decrease in the value of our investments in limited liability partnerships, partially offset by an increase in invested assets. The change in net investment income in the nine-month period ended September 30, ~~2017~~2018 was ~~primarily~~ driven by an increase in invested assets ~~and partially due to the change in the valuation of our investments in limited liability partnerships~~ and not due to a change in our investment philosophy. The valuation of these investments in limited liability partnerships varies from period to period due to current equity market conditions, specifically related to financial institutions.

The combined ratio ~~increased 17.2~~decreased 12.6 percentage points and 5.1 percentage points to ~~118.1~~105.5 percent and 102.5 percent, respectively, for the ~~three-month period~~three- and nine-month periods ended September 30, ~~2017,~~2018, compared to ~~100.9~~118.1 percent and 107.6 percent for the same ~~period~~periods of ~~2016.~~2017. The ~~combined ratio increased 8.1 percentage points to 107.6 percent, for the nine-month period ended September 30, 2017, compared to 99.5 percent for the same period of 2016. The increase~~decrease in the combined ratio in the three- and nine-month periods ended September 30, ~~2017,~~2018 was primarily due to a decrease in the net loss ratio with a decrease in catastrophe losses offset by an increase in the expense ratio as compared to the same periods of 2016, was primarily attributable to an increase in the net loss ratio. The increase in net loss ratio was primarily driven by an increase in catastrophe losses and a deterioration in our core loss ratio, primarily in our commercial automobile line2017.

Table of ~~business, which experienced an increase in the number of severe losses on current accident year and prior year reserve development.~~Contents

The net loss ratio, a component of the combined ratio, ~~increased~~decreased by ~~16.6~~14.1 percentage points and 8.3 percentage points to ~~87.3~~73.2 percent and ~~8.4 percentage points to 77.1~~68.8 percent in the three- and nine-month periods ended September 30, ~~2017,~~2018, respectively, as compared to the same periods of ~~2016.~~2017. The ~~increase~~decrease in net loss ratio was primarily ~~due to an increase~~driven by a decrease in catastrophe losses and ~~deterioration~~an improvement in our core loss ~~ratio. This deterioration was primarily due to~~ratio from a decrease in frequency of losses, partially offset by an increase in ~~the number~~severity of severe losses in our commercial automobile line of business from prior period reserve development. Pre-tax catastrophe losses totaled $30.7 million and $68.8 million and for the three- and nine-month periods ended September 30, 2017, as compared to $12.5 million and $52.4 million in the same periods of 2016. The increase in the three- and nine-month periods ended September 30, 2017 was primarily driven by losses from hurricanes in the third quarter of 2017.non-catastrophe losses.

The expense ratio, a component of the combined ratio, was ~~30.8~~32.3 percent and ~~30.5~~33.7 percent, respectively, for the three- and nine-month periods ended September 30, ~~2017, respectively,~~2018, an increase of ~~0.6~~1.5 percentage points and ~~a decrease of 0.3~~3.2 percentage points, respectively, as compared with the same periods of ~~2016.~~2017. The increase in the three-month period ended September 30, ~~2017 was~~2018 is primarily due to ~~two items: first, deterioration~~our continued investment in our multi-year Oasis project. The increase in the ~~profitability of the commercial and personal auto lines of business, which accelerates the amortization of~~nine-month period ended September 30, 2018 was primarily split between two items. First, we continued to invest in our ~~deferred acquisition costs; and second, we have invested in a new~~ multi-year Oasis project to upgrade our technology platform to enhance core underwriting decisions, selection of risks and productivity. The expectation is this project will add 1.0 to 2.0 percentage points annually to the expense ratio for the duration of the project. Second, the acceleration of the amortization of our deferred acquisition costs in our underperforming commercial and personal auto lines of business which resulted from lower than expected profitability in these lines as discussed in prior quarters.

On March 30, 2018, the sale of United Life closed, resulting in a gain on sale of discontinued operations after-tax of $27.3 million.

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

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

Reserve Development

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

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

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

2018 Development

The property and casualty insurance business experienced $0.7 million of unfavorable and $47.7 million of favorable development in our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2018, respectively. For the three-month period ended September 30, 2018 the two lines contributing the majority of unfavorable development were commercial other liability with $7.5 million unfavorable development and commercial automobile with $6.6 million unfavorable development. The unfavorable development for the three-

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month period ended September 30, 2018 is attributable to the combination of latent emergence of commercial automobile claims that increased sufficiently to also generate an umbrella liability claim and also a very large but independent general liability claim. During the three-month period ended September 30, 2018 the three lines contributing the majority of favorable development which partially offset the unfavorable development noted above were reinsurance assumed with $6.5 million of favorable development, workers compensation with $5.4 million of favorable development, and fidelity and surety with $1.6 million of favorable development.

For the nine-month period ended September 30, 2018 the majority of favorable development came from four lines, workers compensation with $19.9 million favorable development, commercial automobile with $8.4 million favorable development, commercial other liability with $5.2 million favorable development, and reinsurance assumed with $5.5 million of favorable development. During the nine-month period ended September 30, 2018 every individual line experienced favorable development. The favorable development in the nine-month period ended September 30, 2018 is attributable to our continued litigation management efforts as well as favorable runoff of reserves for reported claims, reserves for incurred but not reported ("IBNR") claims, and reserve for general loss adjustment expenses.

2017 Development

The property and casualty insurance business experienced $3.2 million of unfavorable and $38.0 million of favorable development in our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2017, respectively. For the three-month period ended September 30, 2017 the majority of unfavorable development came from two lines, commercial automobile with ~~$5.4~~$2.8 million unfavorable development and commercial liability with ~~$3.6~~$7.4 million unfavorable development, which was partially offset by favorable development from two other lines, workers compensation with ~~$4.6~~$4.4 million favorable development and personal fire and allied lines with ~~$1.6~~$2.2 million favorable development. During the three-month period ended September 30, 2017 all other lines combined contributed $0.4 million ~~unfavorable~~favorable development. Commercial automobile and other liability were the primary sources of unfavorable development which is attributable to latent development of more severe claims than what we have historically seen which manifested itself as increased payments and less favorable changes in reserves for unpaid claims.

For the nine-month period ended September 30, 2017 the majority of favorable development came from two lines, commercial liability with ~~$37.9~~$23.6 million favorable development and workers compensation with ~~$14.6~~$14.2 million favorable development, which was partially offset by unfavorable development from ~~three other lines, commercial fire and allied lines with $7.1 million unfavorable development,~~ assumed reinsurance with ~~$6.8 million unfavorable development, and commercial automobile with $5.6~~$6.2 million unfavorable development. During the nine-month period ended September 30, 2017 all other lines combined contributed ~~$5.0~~$6.4 million favorable development. Much of the favorable year-to-date long-tail liability development ~~continues~~continued to come from loss adjustment expense and is attributed to our continued litigation management efforts. There was also a reduction in reserves for incurred but not reported claims because our long tail liability has experienced fewer late reported claims than what was initially anticipated. The majority of the favorable workers compensation development is due to reductions in reserves for reported claims which were greater than what was necessary to offset claim payments.

~~Table of Contents~~

Development amounts can vary significantly from quarter-to-quarter and year-to-year depending on a number of factors, including the number of claims settled and the settlement terms, and are subject to reallocation between accident years and lines of business. At September 30, ~~2017,~~2018, our total reserves were within our actuarial estimates.

~~2016 Development~~

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

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

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The following table displays our net premiums earned, net losses and loss settlement expenses and net loss ratio from continuing operations by line of business:



Three Months Ended September 30,	2017							2016							2018							2017
			Net Losses							Net Losses							Net Losses							Net Losses
			and Loss							and Loss							and Loss							and Loss
	Net		Settlement			Net		Net		Settlement			Net		Net		Settlement			Net		Net		Settlement			Net
(In Thousands, Except Ratios)	Premiums		Expenses			Loss		Premiums		Expenses			Loss		Premiums		Expenses			Loss		Premiums		Expenses			Loss
Unaudited	Earned		Incurred			Ratio		Earned		Incurred			Ratio		Earned		Incurred			Ratio		Earned		Incurred			Ratio
Commercial lines
Other liability	$	77,955	$	50,836		65.2	%	$	74,784	$	32,714		43.7	%	$	78,943	$	53,581		67.9	%	$	77,955	$	54,598		70.0	%
Fire and allied lines	58,568		45,809			78.2		56,451		47,086			83.4		59,056		40,514			68.6		58,568		44,996			76.8
Automobile	64,470		74,161			115.0		55,111		53,330			96.8		72,773		68,892			94.7		64,470		71,674			111.2
Workers' compensation	26,387		23,357			88.5		26,766		21,772			81.3
Workers compensation															24,127		17,776			73.7		26,387		23,573			89.3
Fidelity and surety	6,430		(485		)	(7.5	)	5,711		908			15.9		5,929		1,379			23.3		6,430		(350		)	(5.4	)
Miscellaneous	459		111			24.2		453		39			8.6		436		(29		)	(6.7	)	459		107			23.3
Total commercial lines	$	234,269	$	193,789		82.7	%	$	219,276	$	155,849		71.1	%	$	241,264	$	182,113		75.5	%	$	234,269	$	194,598		83.1	%

Personal lines
Fire and allied lines	$	10,730	$	9,077		84.6	%	$	10,986	$	6,606		60.1	%	$	10,416	$	11,423		109.7	%	$	10,730	$	8,461		78.9	%
Automobile	6,878		8,250			119.9		6,386		6,328			99.1		7,450		6,731			90.3		6,878		8,046			117.0
Miscellaneous	294		150			51.0		277		(276		)	(99.6	)	307		25			8.1		294		161			54.8
Total personal lines	$	17,902	$	17,477		97.6	%	$	17,649	$	12,658		71.7	%	$	18,173	$	18,179		100.0	%	$	17,902	$	16,668		93.1	%
Reinsurance assumed	$	3,587	$	11,942		NM		$	2,544	$	796		31.3	%	$	5,310	$	(6,625	)	(124.8	)%	$	3,587	$	11,942		332.9	%
Total	$	255,758	$	223,208		87.3	%	$	239,469	$	169,303		70.7	%	$	264,747	$	193,667		73.2	%	$	255,758	$	223,208		87.3	%

~~NM = Not meaningful~~



Nine Months Ended September 30,	2017						2016						2018							2017
			Net Losses						Net Losses						Net Losses							Net Losses
			and Loss						and Loss						and Loss							and Loss
	Net		Settlement		Net		Net		Settlement		Net		Net		Settlement			Net		Net		Settlement		Net
(In Thousands, Except Ratios)	Premiums		Expenses		Loss		Premiums		Expenses		Loss		Premiums		Expenses			Loss		Premiums		Expenses		Loss
Unaudited	Earned		Incurred		Ratio		Earned		Incurred		Ratio		Earned		Incurred			Ratio		Earned		Incurred		Ratio
Commercial lines
Other liability	$	228,250	$	73,597	32.2	%	$	215,572	$	101,378	47.0	%	$	230,845	$	117,387		50.9	%	$	228,250	$	87,941	38.5	%
Fire and allied lines	168,506		156,702		93.0		164,503		133,823		81.3		174,451		125,844			72.1		168,506		150,108		89.1
Automobile	183,688		208,346		113.4		157,106		140,397		89.4		209,176		188,929			90.3		183,688		202,303		110.1
Workers' compensation	78,092		55,569		71.2		77,009		53,106		69.0
Workers compensation													71,101		46,838			65.9		78,092		55,885		71.6
Fidelity and surety	18,041		207		1.1		16,221		432		2.7		17,144		2,328			13.6		18,041		308		1.7
Miscellaneous	1,374		278		20.2		1,292		357		27.6		1,289		348			27.0		1,374		272		19.8
Total commercial lines	$	677,951	$	494,699	73.0	%	$	631,703	$	429,493	68.0	%	$	704,006	$	481,674		68.4	%	$	677,951	$	496,817	73.3	%

Personal lines
Fire and allied lines	$	32,300	$	31,361	97.1	%	$	32,794	$	25,442	77.6	%	$	31,250	$	28,183		90.2	%	$	32,300	$	29,836	92.4	%
Automobile	20,031		22,909		114.4		18,686		16,872		90.3		21,686		18,701			86.2		20,031		22,278		111.2
Miscellaneous	860		80		9.3		808		319		39.5		903		(247		)	(27.4	)	860		118		13.7
Total personal lines	$	53,191	$	54,350	102.2	%	$	52,288	$	42,633	81.5	%	$	53,839	$	46,637		86.6	%	$	53,191	$	52,232	98.2	%
Reinsurance assumed	$	6,282	$	19,307	NM		$	7,985	$	3,442	43.1	%	$	8,922	$	(770	)	(8.6	)%	$	6,282	$	19,307	307.3	%
Total	$	737,424	$	568,356	77.1	%	$	691,976	$	475,568	68.7	%	$	766,767	$	527,541		68.8	%	$	737,424	$	568,356	77.1	%

~~NM = Not meaningful~~

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

•

Other liability- The net loss ratio improved 2.1 and deteriorated 12.4 percentage points in the three and nine-month periods ended September 30, 2018, respectively, compared to the same periods of 2017. The deterioration is attributable to reductions in loss IBNR that occurred during both the first and second quarters of 2017 which provided a benefit to 2017 compared with no IBNR reduction during the first quarter of 2018 and IBNR increases during the second and third quarters of 2018. The change in reserves for reported claims increased more in 2018 vs. the same nine-month period of 2017. Paid loss was lower in 2018 than in 2017 while paid loss adjustment expense was comparable for 2018 as compared to the same period of 2017.

•

Commercial fire and allied lines - The net loss ratio improved 8.2 and 17.0 percentage points in the three and nine-month periods ended September 30, 2018, respectively, compared to the same periods of 2017. The improvement in the three-month and nine-month periods is attributable to a decrease in catastrophe losses, a decrease in frequency of claims partially offset by an increase in severity of losses, a decrease in paid losses and a lower increase in reserves for incurred but not reported claims.

•

Commercial automobile - The net loss ratio improved 16.5 and 19.8 percentage points in the three and nine-month periods ended September 30, 2018, compared to the same periods of 2017. This improvement is attributable to a decrease in frequency of losses in the three-month period ended September 30, 2018 along with changes in loss IBNR compared to the same period in 2017. We continue to make progress in improving our core loss ratio, however, the performance of this line of business remains below our expectation. Our strategy to improve profitability continues to be: aggressively seeking rate increases, focusing on loss control initiatives and reviewing our book of business for underperforming accounts.

•

Workers compensation - The net loss ratio improved 15.6 and 5.7 percentage points in the three and nine-month periods ended September 30, 2018 compared to the same periods of 2017. This improvement in the three-month period ended September 30, 2018 is attributable to a decrease in paid losses along with decline in the increase in reserves for reported claims. The improvement in the nine-month period ended September 30, 2018 was somewhat muted by an increase in severity of losses with a portion of the severe losses from auto-related claims.

•

Personal fire and allied lines - The net loss ratio deteriorated 30.8 and improved 2.2 percentage points in the three and nine-month periods ended September 30, 2018, compared to the same periods of 2017. The deterioration for the quarterly results is attributable to changes in loss IBNR which decreased significantly during the third quarter of 2017 due to favorable reserve development compared to a smaller decrease during the three-month period ended September 30, 2018.


•	Personal automobile - The net loss ratio improved 26.7 and 25.0 percentage points in the three and nine-month periods ended September 30, 2018, compared to the same periods of 2017. This improvement is attributable to a reduction in paid losses as well as changes in reserves for reported claims which increased less in 2018 compared to the same period of 2017.

•

Reinsurance assumed - The net loss ratio improved in the three and nine-month periods ended September 30, 2018, compared to the same periods of 2017. This improvement in the three-month period ended September 30, 2018 is attributable to a decline in catastrophe losses as compared to the same period in 2017, which was impacted by three large hurricanes (Harvey, Irma and Maria) and a decrease in paid losses along with reductions in reserves for reported claims and reductions in loss IBNR which occurred in 2018 as compared to increases in the same period of 2017. Year-to-date improvement is attributable to the decrease in catastrophe losses mentioned above, reductions in reserves for reported claims which occurred in 2018 as compared to increases in the same period of 2017 along with changes in loss IBNR which increased less in 2018 as compared to 2017.

~~Other liability -~~ ~~The net loss ratio deteriorated 21.5 percentage points and improved 14.8 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods~~

Table of 2016. Loss ratio deterioration for the three-month period ended September 30, 2017 is primarily due to an increase in losses on commercial automobile policies with umbrella coverage resulting in an increase in claim payments for prior years, increase in reserves for current year reported claims and an increase in reserves for prior year incurred but not reported claims. Loss ratio improvement for the-nine month period ended September 30, 2017 is due to a decrease in reserves for incurred but not reported claims and a decrease in reserves for unpaid loss adjustment expense which is attributed to our continued litigation management efforts.Contents

~~Commercial fire and allied lines~~ - The net loss ratio improved 5.2 percentage points and deteriorated 11.7 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016. Loss ratio improvement for the three-month period ended September 30, 2017 comes from a decrease in reserves for incurred but not reported claims for the current year which is attributable to lower than expected claim emergence from various storms that had occurred earlier in the year. Loss ratio deterioration for the-nine month period ended September 30, 2017 is due to an increase in claim payments for the current year and first previous year. In addition, the change results from an increase in frequency, with the number of claims increasing in 2017 as compared to the same periods of 2016, along with an increase in paid loss adjustment expenses.

~~Commercial automobile~~ - The net loss ratio deteriorated 18.2 percentage points and 24.0 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016. The change was due to an increase in the number of severe losses, which we define as losses over $500 thousand, in 2017 as compared to the same periods of 2016 along with strengthening of reserves on prior accident years and only partially due to an increase in direct paid losses in the current accident year. We are implementing many initiatives to improve the profitability of this line of business, which include pricing increases, stricter underwriting guidelines, new analytical tools and more rigorous loss control requirements.

~~Personal fire and allied lines~~ - The net loss ratio deteriorated 24.5 percentage points and 19.5 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016. The change results from an increase in frequency, with the number of claims increasing in 2017 as compared to the same periods of 2016.

~~Personal automobile~~ - The net loss ratio deteriorated 20.8 percentage points and 24.1 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016.The change is primarily attributable to an increase in claim frequency in 2017 as compared to the same periods 2016 which resulted in increased paid loss and increased reserves for reported claims.

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

Financial Condition

Our stockholders' equity ~~increased~~decreased to ~~$944.0~~$884.2 million at September 30, ~~2017,~~2018, from ~~$941.9~~$973.4 million at December 31, ~~2016.~~2017. The ~~increase~~decrease was attributable to ~~net income~~shareholder dividends of ~~$5.0~~$97.6 million ~~and an increase~~(of which $75 million or $3.00 per share was a special cash dividend paid to shareholders on August 20, 2018), a decrease in net unrealized investment gains of ~~$38.2~~$50.8 million, net of tax, ~~partially offset by stockholder dividends of $20.4 million~~ and share repurchases of ~~$29.8 million.~~$5.4 million, partially offset by net income of $57.0 million, which includes a $27.3 million gain on the sale of discontinued operations.

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Net unrealized investment gains totaled $172.1 million as of September 30, 2017, an increase of $38.2 million, net of tax, or 28.6 percent, since December 31, 2016. The increase in net unrealized investment gains is primarily the result of a decrease in interest rates, which positively impacted the valuation of our fixed maturity security portfolio during 2017 and an increase in the fair value of our equity security portfolio.

At September 30, ~~2017,~~2018, the book value per share of our common stock was ~~$37.99.~~$35.27. During the nine-month period ended September 30, ~~2017, 701,899~~2018, 120,372 shares of common stock were repurchased under our share repurchase program at a total cost of ~~$29.8~~$5.4 million and an average share price of ~~$42.43.~~$44.90. No shares were repurchased during the three-month period ended September 30, 2018. Under our share repurchase program, which is scheduled to expire on August 31, ~~2018,~~2020, we were authorized to repurchase an additional ~~2,236,572~~2,116,200 shares of our common stock as of September 30, ~~2017.~~2018.

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Discontinued Operations Results


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2017		2016		2017		2016		2018		2017		2018			2017
Revenues
Net premiums earned	$	14,230	$	20,600	$	45,999	$	62,878	$	—	$	14,230	$	13,003		$	45,999
Investment income, net of investment expenses	12,354		12,663		37,230		38,404		—		12,354		12,663			37,230
Net realized investment gains	296		461		3,600		1,409
Net realized investment gains (losses)									—		296		(1,057		)	3,600
Other income	174		145		498		436		—		174		146			498
Total revenues	$	27,054	$	33,869	$	87,327	$	103,127	$	—	$	27,054	$	24,755		$	87,327

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	10,506	$	7,252	$	30,679	$	23,527	$	—	$	10,506	$	10,823		$	30,679
Increase in liability for future policy benefits	5,481		14,091		19,341		42,645		—		5,481		5,023			19,341
Amortization of deferred policy acquisition costs	2,156		1,876		5,524		5,716		—		2,156		1,895			5,524
Other underwriting expenses	2,444		4,527		9,452		14,630		—		2,444		3,864			9,452
Interest on policyholders' accounts	4,587		4,983		13,982		15,368		—		4,587		4,499			13,982
Total benefits, losses and expenses	$	25,174	$	32,729	$	78,978	$	101,886	$	—	$	25,174	$	26,104		$	78,978

Income from discontinued operations, before income taxes	$	1,880	$	1,140	$	8,349	$	1,241
Income (loss) from discontinued operations, before income taxes									$	—	$	1,880	$	(1,349	)	$	8,349

~~Income before income taxes from~~The sale of our discontinued operations closed on March 30, 2018, and therefore no income was ~~$1.9 million for~~earned in the ~~three-month~~third quarter of 2018. For the nine-month period ended September 30, ~~2017,~~2018, our discontinued operations had a loss before income taxes of $1.3 million, compared to income before income taxes of ~~$1.1~~$8.3 million for the same period of 2016. Year-to-date, income before income taxes from discontinued operations totaled $8.3 million compared to $1.2 million for the same nine-month period of 2016. The change in net income in both the third quarter and year-to-date was primarily due to a decrease in underwriting expenses and a smaller increase in liability for future benefits offset by a decrease in net premiums earned and an increase in losses and loss settlement expenses. The decrease in underwriting expenses was due to strategic changes made at the beginning of 2017 to increase profitability of our life products through pricing changes and restructuring of our commissions. This strategic change resulted in a decrease in net premiums earned, primarily in sales of single premium whole life policies which in turn reduced the increase in liability for future benefits. Also impacting the results was an increase in death benefits paid compared to the same periods in the prior year.2017.

Investment Portfolio

Our invested assets from continuing operations totaled ~~$1.8~~$2.1 billion at September 30, ~~2017,~~2018, compared to ~~$1.8~~$1.9 billion at December 31, ~~2016,~~2017, an increase of ~~$66.5~~$187.3 million. At September 30, ~~2017,~~2018, fixed maturity securities and equity securities made up ~~82.3~~84.0 percent and ~~15.0~~13.3 percent of the value of our investment portfolio, respectively. Because the primary purpose of our investment portfolio is to fund future claims payments, we use a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government bonds and tax-exempt U.S. municipal bonds. Our overall investment strategy is to keep our cash on hand low in the current interest rate environment. If additional cash is needed, we can borrow funds available under our revolving credit facility.

Composition

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

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

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The composition of our investment portfolio at September 30, ~~2017~~2018 is presented at carrying value in the following table:


	Continuing Operations				Discontinued Operations
	Property & Casualty Insurance				Life Insurance				Total				Total
			Percent				Percent				Percent				Percent
(In Thousands, Except Ratios)			of Total				of Total				of Total				of Total
Fixed maturities ⁽¹⁾
Held-to-maturity	$	150	—	%	$	38	—	%	$	188	—	%
Available-for-sale	1,498,662		81.5		1,426,991		96.8		2,925,653		88.3		$	1,730,031	83.3	%
Trading securities	13,673		0.7		—		—		13,673		0.4		14,399		0.7
Equity securities													276,253		13.3
Available-for-sale	269,341		14.7		22,616		1.5		291,957		8.8
Trading securities	6,330		0.4		—		—		6,330		0.2
Mortgage loans	—		—		3,504		0.2		3,504		0.1		14,896		0.7
Policy loans	—		—		5,770		0.4		5,770		0.2
Other long-term investments	49,966		2.7		16,299		1.1		66,265		2.0		40,432		2.0
Short-term investments	175		—		—		—		175		—		175		—
Total	$	1,838,297	100.0	%	$	1,475,218	100.0	%	$	3,313,515	100.0	%	$	2,076,186	100.0	%

(1) Available-for-sale securities and trading fixed maturities are carried at fair value. ~~Held-to-maturity fixed maturities are carried at amortized cost.~~

At both September 30, ~~2017~~2018 and December 31, ~~2016~~2017, we classified $1.7 billion, or 99.2 percent, and $1.5 billion, or ~~99.1~~98.9 percent, respectively, of our fixed maturities portfolio as available-for-sale. We classify our remaining fixed maturities as held-to-maturity or trading. We record held-to-maturity securities at amortized cost. We record available-for-sale fixed maturity securities at fair value, with any changes in fair value recognized in accumulated other comprehensive income. We record trading securities, primarily convertible redeemable preferred debt securities, at fair value, with any changes in fair value recognized in earnings.

As of September 30, ~~2017~~2018 and December 31, ~~2016~~2017, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.

Credit Quality

The table below shows the composition of fixed maturity securities held in our available-for-sale, held-to-maturity and trading security portfolios, by credit rating for both continuing and discontinued operations at September 30, ~~2017~~2018 and December 31, ~~2016~~2017. Information contained in the table is generally based upon the issued credit ratings provided by Moody's, unless the rating is unavailable, in which case we obtain credit ratings from Standard & Poor's.


(In Thousands, Except Ratios)	September 30, 2017				December 31, 2016				September 30, 2018				December 31, 2017
Rating	Carrying Value		% of Total		Carrying Value		% of Total		Carrying Value		% of Total		Carrying Value		% of Total
AAA	$	867,490	29.5	%	$	782,329	26.9	%	$	722,204	41.4	%	$	885,000	29.7	%
AA	848,295		28.8		857,946		29.4		696,948		40.0		839,210		28.0
A	616,366		21.0		651,696		22.4		172,681		9.9		616,787		20.7
Baa/BBB	551,478		18.8		554,475		19.0		144,814		8.3		585,968		19.6
Other/Not Rated	55,885		1.9		66,268		2.3		7,783		0.4		55,156		1.9
	$	2,939,514	100.0	%	$	2,912,714	100.0	%	$	1,744,430	100.0	%	$	2,982,121	100.0	%

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Duration

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

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Investment Results

We invest the premiums received from our policyholders and annuitants in order to generate investment income, which is an important component of our revenues and profitability. The amount of investment income that we are able to generate is affected by many factors, some of which are beyond our control. Some of these factors are volatility in the financial markets, economic growth, inflation, interest rates, world political conditions, terrorist attacks or threats of terrorism, adverse events affecting other companies in our industry or the industries in which we invest and other unpredictable national or world events. Our net investment income from continuing operations decreased by ~~1.7~~4.4 percent and increased ~~10.1~~by 13.9 percent ~~respectively,~~ in the three- and nine-month periods ended September 30, ~~2017,~~2018, compared with the same ~~periods~~period of ~~2016. The increase~~2017.The change in net investment income for the ~~nine-month~~three-month period ended September 30, ~~2017~~2018 was ~~primarily~~ due to ~~an increase~~a decrease in ~~invested assets and changes in~~the value of our investments in limited liability partnerships, ~~as compared~~partially offset by an increase in invested assets. The change in net investment income in the nine-month period ended September 30, 2018 was driven by an increase in invested assets, partially offset by the change in the value of our investments in limited liability partnerships and not due to ~~the same period~~a change in ~~2016. We are maintaining~~ our investment ~~philosophy~~philosophy. The valuation of ~~purchasing fixed income~~these investments ~~rated investment grade or better.~~in limited liability partnerships varies from period to period due to current equity market conditions, specifically related to financial institutions.

We hold certain investments in limited liability partnerships that are recorded on the equity method of accounting, with changes in value of these investments recorded in investment income. In the three- and nine-month periods ended September 30, ~~2017,~~2018, the change in value of our investments in limited liability partnerships from continuing operations resulted in investment losses of $0.6 million and investment income of ~~$2.0 million and $3.3~~$3.4 million, respectively, as compared to an increase of ~~$3.6~~$2.0 million and ~~$2.5~~$3.3 million, respectively in investment income ~~respectively,~~ in the same periods of ~~2016.~~2017. This resulted in ana decrease of ~~$1.6~~$2.6 million and an increase of ~~$0.8~~$0.1 million in investment income in the three- and nine-month periods ended September 30, ~~2017, respectively.~~2018.

Our net realized investment gains from continuing operations were ~~$0.1~~$14.0 million and ~~$3.4~~$7.4 million, respectively, during the three- and nine-month periods ended September 30, ~~2017,~~2018, as compared with ~~$2.1~~net realized investment gains of $0.1 million and ~~$4.8~~$3.4 million, respectively, in the same periods of ~~2016~~2017. $5.5 million of the $4.0 million change in the nine-months period ended September 30, 2018 as compared to the same period in 2017 is due to the change in the value of equity securities which is now required to be recognized in net income rather than in accumulated other comprehensive income due to the change in accounting principles adopted on January 1, 2018.

We regularly monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires other-than-temporary impairment charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.

Changes in unrealized gains and losses on available-for-sale securities do not affect net income and earnings per share but do impact comprehensive income, stockholders' equity and book value per share. We believe that any unrealized losses on our available-for-sale securities at September 30, ~~2017~~2018 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. It is possible that we could recognize impairment charges in future periods on securities that we own at September 30, ~~2017~~2018 if future events and information cause us to determine that a decline in value is other-than-temporary. However, we endeavor to invest in ~~high quality~~high-quality assets to provide protection from future credit quality issues and corresponding other-than-temporary impairment write-downs. In the ~~three- and~~ nine-month periods ended September 30, ~~2017~~2018 and ~~2016,~~2017, there were no other-than-temporary impairment write-downs.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures our ability to generate sufficient cash flows to meet our short- and long-term cash obligations. Our cash inflows are primarily a result of the receipt of premiums, ~~annuity deposits,~~ reinsurance recoveries, sales or maturities of investments, and investment income. Cash provided from these sources is used to fund the payment of losses and loss settlement expenses, ~~policyholder benefits under life insurance contracts, annuity withdrawals,~~ the purchase of investments, operating expenses, dividends, pension plan contributions, and in recent years, common stock repurchases.

We monitor our capital adequacy to support our business on a regular basis. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In particular, we require (1) sufficient capital to maintain our financial strength ratings, as issued by various rating agencies, at a level considered necessary by management to enable our insurance company subsidiaries to compete and (2) sufficient capital to enable our insurance company subsidiaries to meet the capital adequacy tests performed by regulatory agencies in the United States.

Cash outflows may be variable because of the uncertainty regarding settlement dates for losses. In addition, the timing and amount of individual catastrophe losses are inherently unpredictable and could increase our liquidity requirements. The timing and amount of reinsurance recoveries may be affected by reinsurer solvency and reinsurance coverage disputes.

Historically, we have generated substantial cash inflows from operations. It is our policy to invest the cash generated from operations in securities with maturities that, in the aggregate, correlate to the anticipated timing of payments for losses and loss settlement ~~expenses and future policyholder benefits of the underlying insurance policies, and annuity withdrawals.~~expenses. The majority of our assets are invested in available-for-sale fixed maturity securities.

The following table displays a consolidated summary of cash sources and uses in ~~2017~~for the nine-month periods ended September 30, 2018 and ~~2016~~2017 from continuing and discontinued operations:


Cash Flow Summary	Nine Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2017			2016			2018			2017
Cash provided by (used in)
Operating activities	$	116,296		$	128,069		$	69,214		$	116,296
Investing activities	(4,361		)	(20,024		)	2,491			(4,361		)
Financing activities	(93,427		)	(73,550		)	(108,195		)	(93,427		)
Net increase in cash and cash equivalents	$	18,508		$	34,495
Net increase (decrease) in cash and cash equivalents							$	(36,490	)	$	18,508

In the Consolidated Statement of Cash Flows, cash flows from discontinued operations are shown in separate lines in each of the operating, investing and financing sections of the Cash Flow Statement. Our cash flows from continuing operations were sufficient to meet our current liquidity needs for the nine-month periods ended September 30, ~~2017~~2018 and ~~2016~~2017 and we anticipate they will be sufficient to meet our future liquidity needs.

Operating Activities

Net cash flows provided by operating activities totaled ~~$116.3~~$69.2 million and $~~128.1~~116.3 million for the nine-month periods ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Cash flows from discontinued operations provided by operating activities totaled ~~$23.8~~$4.0 million and ~~$46.0~~$23.8 million for the nine-month periods ended September 30, 2018 and 2017, ~~and 2016,~~ respectively.

Investing Activities

Cash in excess of operating requirements is generally invested in fixed maturity securities and equity securities. Fixed maturities provide regular interest payments and allow us to match the duration of our liabilities. Equity securities provide dividend income, potential dividend income growth and potential appreciation. For further

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discussion of our investments, including our philosophy and our strategy for our portfolio, see the "Investment Portfolio" section of this ~~item.~~Item 2.

In addition to investment income, possible sales of investments and proceeds from calls or maturities of fixed maturity securities also can provide liquidity. During the next five years, ~~$0.9 billion~~,$264.3 million, or ~~59.1~~15.2 percent,, of our fixed maturity portfolio will mature.

We invest funds required for short-term cash needs primarily in money market accounts, which are classified as cash equivalents. At September 30, ~~2017~~2018, our cash and cash equivalents included ~~$13.9~~$3.8 million related to these money market accounts, compared to $16.8 million at December 31, ~~2016~~2017.

Net cash flows provided by investing activities was $2.5 million and used in investing activities was ~~$4.4 million~~ ~~and $20.0~~$4.4 million for the nine-month periods ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. For the nine-month periods ended September 30, ~~2017~~2018 and ~~2016,~~2017, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments, from continuing operations of $240.2 million and $142.7 million, ~~and $264.2~~respectively. We also had net cash inflows from the sale of discontinued operations of $276.1 million ~~respectively. For~~for the nine-month ~~periods~~period ended September 30, 2017 and 2016, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments, from discontinued operations of $96.5 million and $171.1 million, respectively.2018.

Our cash outflows for investment purchases from continuing operations were ~~$167.0~~$504.4 million for the nine-month period ended September 30, ~~2017~~2018, compared to ~~$315.8~~$167.0 million for the same period of 2016. Our cash outflows for investment purchases from discontinued operations were $65.0 million for the nine-month period ended September 30, 2017, compared to $133.4 million for the same period of 2016.2017.

Financing Activities

Net cash flows used in financing activities ~~were~~ ~~$93.4~~from continuing operations was $96.6 million ~~and~~ ~~$73.6 million~~ for the nine-month ~~periods~~period ended September 30, ~~2017 and 2016, respectively. The increase is due~~2018 which increased $49.4 million compared to ~~repurchases of common stock, an increase in the payment of cash dividends and a decrease in the issuance of common stock~~$47.2 million used in the nine-month period ended September 30, 2017 ~~compared~~primarily due to ~~the same period of 2016.~~an increase in shareholder dividends partially offset by a decrease in share repurchases.

Credit Facilities

On February 2, 2016, the Company, as borrower, entered into a ~~Credit Agreement~~credit agreement by and among the Company, with the lenders from time to time party thereto and KeyBank National Association, as administrative agent, swingline lender and letter of credit issuer. As of September 30, 2018 and 2017,, there were no balances outstanding under this credit agreement. For further discussion of our credit agreement, refer to Part I, Item 1, Note 99. "Credit ~~Facility" to the unaudited Consolidated Financial Statements.~~Facility."

Dividends

Dividends paid to shareholders totaled ~~$20.4~~$97.6 million and ~~$18.2~~$20.4 million in the nine-month periods ended September 30, ~~2017~~2018 and ~~2016~~2017, respectively. The increase in dividends paid to shareholders is primarily due to a special cash dividend of $3.00 per share paid to shareholders on August 20, 2018. Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.

Payments of any future dividends and the amounts of such dividends ~~however,~~ will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors out of legally available funds.

As a holding company with no independent operations of its own, ~~UFG relies~~we rely on dividends received from ~~its~~our insurance company subsidiaries in order to pay dividends to ~~its~~our common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled, and if applicable, commercially domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding

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calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at September 30, ~~2017~~2018, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, was not

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able to make ~~a maximum of $27.1 million in~~ dividend payments without prior regulatory approval. These restrictions will not have a material impact in meeting the cash obligations of UFG.

Stockholders' Equity

Stockholders' equity ~~increased~~ ~~0.2~~decreased 9.2 percent to ~~$944.0~~$884.2 million at September 30, ~~2017~~2018, from $~~941.9~~973.4 million at December 31, ~~2016~~2017. The ~~increase~~decrease was primarily ~~attributable~~attributed to ~~net income~~shareholder dividends of ~~$5.0~~$97.6 million, ~~and an increase~~a decrease in net unrealized investment gains of ~~$38.2~~$50.8 million, net of tax, during the first nine months of ~~2017, partially offset by shareholder dividends of~~ ~~$20.4 million~~2018 and share repurchases of ~~$29.8 million.~~$5.4 million, partially offset by net income of $57.0 million, which includes $27.3 million of gain on the sale of discontinued operations. At September 30, ~~2017~~,2018, the book value per share of our common stock was ~~$37.99~~$35.27 compared to ~~$37.04~~$39.06 at December 31, ~~2016~~.2017.

OFF BALANCE SHEET ARRANGEMENTS

Funding Commitments

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through ~~December~~July 31, ~~2023,~~2028, to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was ~~$3.7~~$23.7 million at September 30, ~~2017~~2018.

MEASUREMENT OF RESULTS

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

Catastrophe losses is a commonly used financial measure that uses the designations of the Insurance Services Office (ISO) and are reported with losses and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise. According to the ISO, a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25.0 million or more in U.S. industry-wide direct insured losses to property and that affect a significant number of insureds and insurers ("ISO catastrophe"). In addition to ISO catastrophes, we also include as catastrophes those events ("non-ISO catastrophes"), which may include U.S. or international losses that we believe are, or will be, material to our operations, either in amount or in number of claims made. Management, at times, may determine for comparison purposes that it is more meaningful to exclude extraordinary catastrophe losses and resulting litigation. The frequency and severity of ~~catastrophic~~catastrophe losses we experience in any year affect our results of operations and financial position. In analyzing the underwriting performance of our property and casualty insurance ~~segment,~~business, we evaluate performance both including and excluding catastrophe losses. Portions of our catastrophe losses may be recoverable under our catastrophe reinsurance agreements. We include a discussion of the impact of catastrophes because we believe it is meaningful for investors to understand the variability in our periodic earnings.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,					Nine Months Ended September 30,
(In Thousands)	2017		2016		2017		2016		2018			2017		2018			2017
ISO catastrophes	$	25,628	$	10,517	$	62,170	$	49,686	$	12,441		$	25,628	$	30,990		$	62,170
Non-ISO catastrophes ⁽¹⁾	5,077		2,014		6,596		2,711		(173		)	5,077		(245		)	6,596
Total catastrophes	$	30,705	$	12,531	$	68,766	$	52,397	$	12,268		$	30,705	$	30,745		$	68,766

(1) This number includes international assumed losses.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

It is our philosophy that we do not utilize financial hedges or derivative financial instruments to manage risks, nor do we enter into any swap, forward or option contracts, but attempt to mitigate our exposure through active portfolio management. In addition, we place the majority of our investments in high-quality, liquid securities and limit the amount of credit exposure to any one issuer. At September 30, ~~2017~~2018, we did not have direct exposure to investments in sub-prime mortgages or other credit-enhancement exposures.

While our primary market risk exposure is to changes in interest rates, we do have limited exposure to changes in equity prices and limited exposure to foreign currency exchange rates.

There have been no material changes in our market risk or market risk factors from what we reported in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, no such change in our internal control over financial reporting occurred during the fiscal quarter to which this report relates.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of its business, the Company is a party to a variety of legal proceedings. While the final outcome of these legal proceedings cannot be predicted with certainty, management believes all of the proceedings pending as of September 30, ~~2017~~2018 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial ~~position~~condition or results of operations.

ITEM 1A. RISK FACTORS

Our business is subject to a number of risks, including those identified in Part I, Item 1A "Risk Factors" in our ~~2016~~Annual Report on Form 10-K for the year ended December 31, 2017filed with the SEC on February 28, ~~2017~~2018, that could have a material effect on our business, results of operations, financial condition, and/or liquidity and that could cause our operating results to vary significantly from period to period. The risks described in the above mentioned report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material effect on our business, results of operations, financial condition and/or liquidity.

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

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

The following table provides information with respect to purchases of shares of common stock made by or on our behalf or by any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act, during the three-month period ended September 30, ~~2017~~2018:

Total Number of Shares Maximum Number of
Total Purchased as a Part of Shares that may yet be
Number of Average Price Publicly Announced Purchased Under the
Period Shares Purchased Paid per Share Plans or Programs
Plans or Programs⁽¹⁾
7/1/2017 - 7/31/2017 4,904
$ 43.00
4,904
2,436,959
8/1/2017 - 8/31/2017 127,387
42.41
127,387
2,309,572
9/1/2017 - 9/30/2017 73,000
40.92
73,000
2,236,572
Total 205,291
$ 41.89
205,291



				Total Number of Shares	Maximum Number of
	Total			Purchased as a Part of	Shares that may yet be
	Number of	Average Price		Publicly Announced	Purchased Under the
Period	Shares Purchased	Paid per Share		Plans or Programs	Plans or Programs⁽¹⁾
7/1/2018 - 7/31/2018	—	$	—	—	2,116,200
8/1/2018 - 8/31/2018	—	—		—	2,116,200
9/1/2018 - 9/30/2018	—	—		—	2,116,200
Total	—	$	—	—	2,116,200

(1) Our share repurchase program was originally announced in August 2007. In August 2016, our Board of Directors authorized the repurchase of up to an additional 1,500,000 shares of common stock through the end of August 2018. This is in addition to the 1,528,886 shares of common stock remaining under its previous authorizations. In August 2018, our Board of Directors extended our share repurchase program through the end of August, 2020. As of September 30, ~~2017~~2018 we remained authorized to repurchase ~~2,236,572~~2,116,200 shares of common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

5958

Table of Contents

ITEM 6. EXHIBIT INDEX



Exhibit number	Exhibit description	Furnished herewith	Filed herewith
~~2.1†~~	Stock Purchase Agreement, dated as of September 18, 2017, between United Fire & Casualty Company and Kuvare US Holdings, Inc., including the exhibits attached thereto (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, Filed on September 19, 2017).
31.1	Certification of Randy A. Ramlo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		X
31.2	Certification of Dawn M. Jaffray pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		X
32.1	Certification of Randy A. Ramlo pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X
32.2	Certification of Dawn M. Jaffray pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X
101.1	The following financial information from United Fire Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017~~2018 formatted in XBRL: (i) Consolidated Balance Sheets atas of September 30, ~~2017~~2018 (unaudited) and December 31, ~~2016;~~2017; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the three and nine months ended September 30, ~~2017~~2018 and ~~2016;~~2017; (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the nine months ended September 30, ~~2017;~~2018; (iv) Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, ~~2017~~2018 and ~~2016;~~2017; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as a block of text.		X

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

6059

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SIGNATURES

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



UNITED FIRE GROUP, INC.
(Registrant)

/s/ Randy A. Ramlo		/s/ Dawn M. Jaffray
Randy A. Ramlo		Dawn M. Jaffray
President, Chief Executive Officer,		Senior Vice President, Chief Financial Officer and
Director and Principal Executive Officer		Principal Accounting Officer

November ~~8, 2017~~7, 2018		November ~~8, 2017~~7, 2018
(Date)		(Date)

6160



(In Thousands, Except Share Data)	Nine Months Ended September 30, 2017

Common stock
Balance, beginning of year	$	25
Shares repurchased (701,899 shares)	—
Shares issued for stock-based awards (131,777 shares)	—
Balance, end of period	$	25

Additional paid-in capital
Balance, beginning of year	$	216,482
Compensation expense and related tax benefit for stock-based award grants	3,456
Shares repurchased	(29,784		)
Shares issued for stock-based awards	2,960
Balance, end of period	$	193,114

Retained earnings
Balance, beginning of year	$	616,322
Net income	5,030
Dividends on common stock ($0.81 per share)	(20,364		)
Balance, end of period	$	600,988

Accumulated other comprehensive income, net of tax
Balance, beginning of year	$	109,055
Change in net unrealized investment appreciation⁽¹⁾	38,230
Change in liability for underfunded employee benefit plans⁽²⁾	2,636
Balance, end of period	$	149,921

Summary of changes
Balance, beginning of year	$	941,884
Net income	5,030
All other changes in stockholders’ equity accounts	(2,866		)
Balance, end of period	$	944,048



Maturities - Consolidated:
	Held-To-Maturity				Available-For-Sale				Trading
September 30, 2017	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	150	$	150	$	128,884	$	129,945	$	1,401	$	1,821
Due after one year through five years	—		—		782,192		803,774		6,979		8,233
Due after five years through 10 years	—		—		751,756		771,205		1,302		1,185
Due after 10 years	—		—		747,119		748,633		2,151		2,434
Asset-backed securities	—		—		4,280		4,622		—		—
Mortgage-backed securities	38		39		14,496		14,486		—		—
Collateralized mortgage obligations	—		—		451,468		452,988		—		—
	$	188	$	189	$	2,880,195	$	2,925,653	$	11,833	$	13,673



Maturities - Continuing Operations:
	Held-To-Maturity				Available-For-Sale				Trading
September 30, 2017	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	150	$	150	$	54,340	$	54,762	$	1,401	$	1,821
Due after one year through five years	—		—		224,804		230,986		6,979		8,233
Due after five years through 10 years	—		—		344,553		354,308		1,302		1,185
Due after 10 years	—		—		675,795		676,310		2,151		2,434
Asset-backed securities	—		—		3,174		3,517		—		—
Mortgage-backed securities	—		—		9,664		9,783		—		—
Collateralized mortgage obligations	—		—		168,400		168,996		—		—
	$	150	$	150	$	1,480,730	$	1,498,662	$	11,833	$	13,673



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



Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2017		From Inception to September 30, 2017
Beginning balance	1,248,651		1,900,000
Additional shares authorized	—		1,500,000
Number of awards granted	(255,040	)	(2,867,606	)
Number of awards forfeited or expired	3,228		464,445
Ending balance	996,839		996,839
Number of option awards exercised	101,189		1,050,257
Number of unrestricted stock awards granted	1,145		8,470
Number of restricted stock awards vested	—		36,970



Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2017		From Inception to June 30, 2017
Beginning balance	74,771		300,000
Number of awards granted	(12,958	)	(262,190	)
Number of awards forfeited or expired	—		24,003
Ending balance	61,813		61,813
Number of option awards exercised	6,727		59,200
Number of restricted stock awards vested	22,716		54,272



2017	$	1,202
2018	4,047
2019	2,784
2020	1,120
2021	393
2022	40
Total	$	9,586



Discontinued Operations
Statements of Income
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, Except Share Data)	2017		2016		2017		2016

Revenues
Net premiums earned	$	14,230	$	20,600	$	45,999	$	62,878
Investment income, net of investment expenses	12,354		12,663		37,230		38,404
Net realized investment gains	296		461		3,600		1,409
Other income	174		145		498		436
Total revenues	$	27,054	$	33,869	$	87,327	$	103,127

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	10,506	$	7,252	$	30,679	$	23,527
Increase in liability for future policy benefits	5,481		14,091		19,341		42,645
Amortization of deferred policy acquisition costs	2,156		1,876		5,524		5,716
Other underwriting expenses	2,444		4,527		9,452		14,630
Interest on policyholders’ accounts	4,587		4,983		13,982		15,368
Total benefits, losses and expenses	$	25,174	$	32,729	$	78,978	$	101,886

Income from discontinued operations before income taxes	$	1,880	$	1,140	$	8,349	$	1,241
Federal income tax expense	662		400		2,930		415
Net income from discontinued operations	$	1,218	$	740	$	5,419	$	826
Earnings per common share from discontinued operations:
Basic	$	0.05	$	0.03	$	0.21	$	0.03
Diluted	0.05		0.03		0.21		0.03

(State of Incorporation)

(IRS Employer Identification No.)